SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)
X Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE WELLCARE MANAGEMENT GROUP, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify previous filing by registration number, or
the form or schedule and the date of its filing.
<PAGE>
THE
WELLCARE
MANAGEMENT GROUP, INC.
PARK WEST/HURLEY AVENUE EXTENSION
KINGSTON, NEW YORK 12401
(914) 338-4110
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on June 10, 1997
To the Shareholders of
The WellCare Management Group, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Annual
Meeting") of The WellCare Management Group, Inc. ("WellCare" or the "Company")
will be held at the Company's corporate headquarters, Park West/Hurley Avenue
Extension, Kingston, New York 12401, on Wednesday, June 10, 1997 at 10:00
a.m., local time, for the following purposes:
1) To authorize an amendment to Article VII of the Company's Restated
Certificate of Incorporation to eliminate the classified structure of
the Board of Directors.
2) Subject to the approval of the aforementioned proposal, to elect seven
(7) Directors to serve until the 1998 Annual Meeting of Shareholders; or
in the event such proposal is not approved, to elect two (2) Class I
Directors and one (1) Class II Director.
3) To approve amendments to the Company's 1993 Incentive and Non-Incentive
Stock Option Plan (the "Option Plan") to: (i) change the administration
of the Option Plan to a committee of three (3) or more "Non-Employee
Directors" as defined by the securities laws and regulations; (ii)
eliminate the formula award for granting of non-incentive stock options
to outside directors of the Company; (iii) increase the maximum
aggregate number of shares with respect to stock options to be granted
to any one individual within any one calendar year to 200,000 shares;
(iv) change the vesting of incentive and non-incentive stock options;
(v) establish a cashless exercise election; (vi) extend the termination
of incentive stock options upon the termination of employment,
disability or death of the option holder; and (vii) revise the
provisions relating to the amendment or termination of the Option Plan.
4) To approve the adoption of the Company's 1996 Non-Incentive Executive
Stock Option Plan.
5) To ratify the reappointment of Deloitte & Touche LLP as independent
auditors of the Company for the year ending December 31, 1997.
6) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Only holders of record of the Company's Common Stock and Class A Common
Stock at the close of business on April 25, 1997, the record date for the
Annual Meeting, are entitled to notice of and to vote at the Annual Meeting or
any adjournment or postponement thereof.
The Company's 1996 Annual Report to Shareholders accompanies this Notice of
Annual Meeting.
By Order of the Board of Directors,
/s/ Howard B. Lorch
Howard B. Lorch
Secretary
Kingston, New York
May 15, 1997
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETING ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
THE
WELLCARE
MANAGEMENT GROUP, INC.
PARK WEST/HURLEY AVENUE EXTENSION
KINGSTON, NEW YORK 12401
(914) 338-4110
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on June 10, 1997
GENERAL
This Proxy Statement is being furnished to holders of record of
Common Stock and Class A Common Stock of The WellCare Management
Group, Inc., a New York corporation ("WellCare" or the "Company"),
in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Annual Meeting of
Shareholders ("Annual Meeting") to be held at the Company's
corporate headquarters, Park West/Hurley Avenue Extension,
Kingston, New York 12401, on Tuesday, June 10, 1997 at 10:00 a.m.,
local time, and at any and all adjournments or postponements
thereof. Only holders of record of Common Stock and Class A
Common Stock at the close of business on April 25, 1997 (the
"Record Date") are entitled to notice of and to vote at the Annual
Meeting. On the Record Date, there were outstanding 4,947,852
shares of Common Stock, $.01 par value, each share being entitled
to one vote, and 1,350,324 shares of Class A Common Stock, $.01
par value, each share being entitled to ten votes. This Proxy
Statement and enclosed proxy card are being mailed to the
Company's shareholders on or about May 15, 1997.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, the shareholders will be asked to
consider and vote upon the following proposals:
1) To authorize an amendment to Article VII of the Company's
Restated Certificate of Incorporation to eliminate the
classified structure of the Board of Directors.
2) Subject to the approval of the aforementioned proposal, to
elect seven (7) Directors to serve until the 1998 Annual
Meeting of Shareholders; or in the event such proposal is
not approved, to elect two (2) Class I Directors and one (1)
Class II Director.
3) To approve amendments to the Company's 1993 Incentive and
Non-Incentive Stock Option Plan (the "Option Plan", and the
amendments to such Option Plan, collectively, the "Option
Plan Amendments") to: (i) change the administration of the
Option Plan to a committee of three (3) or more "Non-Employee Directors";
(ii) eliminate the formula award for granting of non-incentive stock
options to outside directors of the Company; (iii) increase the maximum
aggregate number of shares with respect to stock options to be granted
to any one individual within any one calendar year to 200,000
shares; (iv) change the vesting of incentive and non-incentive stock
options; (v) establish a cashless exercise election; (vi) extend the
termination of incentive stock options upon the termination of
employment, disability or death of the option holder; and (vii) revise
the provisions relating to the amendment or termination of the Option Plan.
4) To approve the adoption of the Company's 1996 Non-Incentive
Executive Stock Option Plan.
5) To ratify the reappointment of Deloitte & Touche LLP as
independent auditors of the Company for the year ending
December 31, 1997.
6) To transact such other business as may properly come before
the Annual Meeting or any adjournment or postponement
thereof.
VOTING AT THE ANNUAL MEETING
Each holder of record of Common Stock on the Record Date is
entitled to one vote per share and each holder of record of Class
A Common Stock on the Record Date is entitled to ten votes per
share on each matter presented. On the Record Date, there were
4,947,852 shares of Common Stock issued and outstanding and
1,350,324 shares of Class A Common Stock issued and outstanding.
The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of Common Stock
and Class A Common Stock at the Annual Meeting (3,149,089 shares
of the 6,298,176 aggregate shares of Common Stock and Class A
Common Stock outstanding) is necessary to constitute a quorum at
the Annual Meeting. In addition, the presence, in person or by
properly executed proxy, of the holders of a majority of the
outstanding shares of Common Stock (2,473,926 shares of the
4,947,852 shares of Common Stock outstanding) and of the
outstanding shares of Class A Common Stock (675,162 of the
1,350,324 shares of Class A Common Stock outstanding) is necessary
to constitute a quorum with respect to the authorization of the
amendments to Article VII of the Company's Restated Certificate of
Incorporation described herein.
If a quorum is present, a plurality vote of the total votes
cast by the holders of Common Stock and Class A Common Stock
voting as one class is required to elect the seven (7) Directors
(or in the event the proposal to authorize an amendment to the
Company's Restated Certificate of Incorporation to eliminate the
classified structure of the Board of Directors is NOT approved, to
vote for two (2) Class I Directors and one (1) Class II Director).
The affirmative vote of a majority of the total votes of the
outstanding shares of Common Stock and Class A Common Stock voting
as one class (9,225,546 affirmative votes of the 18,451,092 total
votes of the Common Stock and Class A Common Stock outstanding) is
required to: (i) authorize the amendment to Article VII of the
Company's Restated Certificate of Incorporation to eliminate the
classification of directors; (ii) approve the amendments to the
Option Plan; (iii) approve the adoption of the 1996 Non-Incentive
Executive Stock Option Plan; and (iv) ratify the reappointment of
Deloitte & Touche LLP as independent auditors of the Company for
the year ending December 31, 1997.
If the enclosed proxy card is properly executed and returned to
the Company prior to the voting at the Annual Meeting, the shares
represented thereby will be voted in accordance with the
instructions marked thereon. Shares represented by proxies which
are marked "WITHHOLD AUTHORITY" to vote for (i) all seven (7)
nominees or (ii) any individual nominee(s) for election as
director(s) and are not otherwise marked "FOR" the other nominees,
will not be counted in determining whether a plurality vote has
been received for the election of directors. In the event the
proposal to authorize an amendment to the Company's Restated
Certificate of Incorporation to eliminate the classified structure
of the Board of Directors is NOT approved, shares represented by
proxies which are marked "WITHHOLD AUTHORITY" to vote for (i) two
(2) Class I nominees and one (1) Class II nominee or (ii) any
individual nominee(s) for election as directors and are not
otherwise marked "FOR" the other nominees, will not be counted in
determining whether a plurality vote has been received for the
election of directors. Similarly, shares represented by proxies
which are marked "ABSTAIN" on any other proposal will not be
counted in determining whether the requisite vote has been
received for such proposal. In the absence of instructions, the
shares will be voted FOR all the proposals set forth in the Notice
of Annual Meeting. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have
not returned proxies (so called "broker non-votes"), those shares
will not be included in the totals. Thus, where the affirmative
vote of a majority of the total votes cast by the holders of
Common Stock and Class A Common Stock is required to approve a
corporate action, such as the (i) amendment to Article VII of the
Restated Certificate of Incorporation; (ii) amendments to the
Option Plan; (iii) adoption of the 1996 Non-Incentive Executive
Stock Option Plan; and (iv) the ratification of the reappointment
of Deloitte & Touche LLP as the Company's independent auditors
referred to above, these broker non-votes will have the effect of
reducing the total number of votes needed to attain a majority of
the total votes cast.
At any time prior to its exercise, a proxy may be revoked by
the holder of the Class A Common Stock or Common Stock granting
such proxy by delivering written notice of revocation or a duly
executed proxy bearing a later date to the Secretary of the
Company at the address of the Company set forth on the first page
of this Proxy Statement or by attending the Annual Meeting and
voting in person.
Proxies may be solicited on behalf of the Board by mail,
telephone, telecopy or in person and solicitation costs will be
paid by the Company. Directors, officers and regular employees of
the Company may solicit proxies by such methods without additional
compensation. Banks, brokerage houses and other institutions,
nominees and fiduciaries will be requested to forward the
soliciting material to their principals and to obtain
authorizations for the execution of proxy cards and, upon request,
will be reimbursed by the Company for their reasonable expenses.
<PAGE>
TABLE OF CONTENTS
PAGE
Security Ownership of Certain Beneficial
Owners and Management 4
Authorization of Amendment to Company's
Restated Certificate of Incorporation 5
Election of Directors 5
Executive Compensation 8
Report of Compensation Committee of Board
of Directors on Executive Compensation 12
Stock Performance Graph 14
Certain Relationships and Related Transactions 15
Section 16(a) Beneficial Ownership
Reporting Compliance 17
Approval of Amendments to 1993 Incentive and
Non-Incentive Stock Option Plan 17
Approval of 1996 Non-Incentive Executive
Stock Option Plan 24
Ratification of Reappointment of Independent
Auditors 26
Other Business 26
Shareholder Proposals 26
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date certain
information with regard to the beneficial ownership of the Common
Stock of the Company as of the date hereof by (i) each shareholder
who is known by the Company to beneficially own in excess of five
percent (5%) of the outstanding shares of Common Stock or Class A
Common Stock, (ii) each director, (iii) each of the executive
officers named in the Summary Compensation Table on page 11 of
this Proxy Statement, and (iv) all executive officers and
directors as a group:
<TABLE>
<CAPTION>
Percent of Total
---------------------------------
Percent
Class A Class A of Total
Name Common Common(13) Common Common Vote
---- ------ ---------- ------ ------ ----
<S> <C> <C> <C> <C> <C>
Robert W. Morey, Jr.(1)(2) 281,956 505,201 20.7% 10.2% 17.9%
Mark D. Dean(3)(4) 121,534 172,031 8.9 3.5 7.5
Joseph R. Papa - 66,666 - 1.3 *
G. William Strein(5) 14,585 45,427 1.1 * 1.0
Marystephanie Corsones - 3,818 - * *
John E. Ott (6) - 21,913 - * *
Douglas Hayward - 24,630 - * *
Charles E. Crew, Jr. 43,752 50,194 3.2 1.0 2.6
Robert E. Goff(7) 29,168 49,251 2.1 * 1.8
Walter W. Grist - - - - -
Lawrence C. Tucker(8)(9) - 1,929,116 - 28.1 9.4
Edward A. Ullmann(10)(11) 686,500 13,045 50.3 * 37.0
Eileen H. Wilson - 610 - * *
Daniel M. Zeichner(12) 38,891 58,859 2.8 1.2 2.4
The 1818 Fund II, L.P.(8)(9) - 1,929,116 - 28.1 9.4
Brown Brothers Harriman & Co.(8)(9) - 1,929,116 - 28.1 9.4
T. Michael Long(8)(9) - 1,929,116 - 28.1 9.4
All current executive officers and
directors as a group (13 persons)
(2)(4)(5)(6)(9)(11)(12) 1,187,218 2,906,510 87.0 45.3 77.8
- ------------------------------
* Less than 1%
(1) Address is 55 Main Street, Tiburon, California 94920.
(2) Includes 2,000 shares of Common Stock owned by RWM Management Co. Defined
Benefit Pension Plan for which the reporting person is trustee; beneficial
ownership is disclaimed.
(3) Address is 62 Riverview, Port Ewen, New York 12466.
(4) Includes 68,059 shares of Class A Common Stock and 116,672 shares of Common
Stock owned by Pine Street Dental Associates, P.C., a retirement plan in
which Dr. Dean has a 48% interest, 4,862 shares of Class A Common Stock and
14,584 shares of Common Stock owned by Dr. Dean's wife, 4,862 shares of
Common Stock owned by Dr. Dean's son, and 500 shares of Common Stock owned
by Dr. Dean's trust. Dr. Dean disclaims beneficial ownership of the shares
owned by his wife, son and trust.
(5) Includes 15,000 shares of Common Stock owned by Mr. Strein's wife. Mr.
Strein disclaims beneficial ownership of the shares owned by his wife.
(6) Includes 800 shares of Common Stock owned by Dr. Ott's family trust. Dr.
Ott disclaims beneficial ownership.
(7) Mr. Goff resigned his position as Executive Director and Executive Vice
President on October 24, 1996.
(8) Address is 59 Wall Street, New York, New York 10005.
(9) On February 28, 1997, the Company renegotiated with The 1818 Fund II, L.P.
(the "Fund"), the 6.0% Subordinated Convertible Note in the principal
amount of $20,000,000 due December 31, 2002 (the "Note"), entitling the
holder thereof to convert such Note into 689,655 shares of the Company's
Common Stock. The revised agreement sets the conversion price at $10.37
per share, subject to adjustment for dilution. Brown Brothers Harriman &
Co., ("BBH & Co."), a general partner of the Fund, have designated Messrs.
T. Michael Long and Lawrence C. Tucker, either individually or jointly, as
the sole and exclusive partners of BBH & Co. having voting and investment
power with respect to the Note, and the Common Stock issuable upon
conversion of the Note. Giving effect to the amendment of the Note, the
Fund beneficially owns 1,929,116 shares of Common Stock. By virtue of BBH
& Co.'s relationship with the Fund, BBH & Co. may be deemed to beneficially
own 1,929,116 shares of Common Stock. By virtue of the resolution adopted
by BBH & Co. designating Messrs. Long and Tucker, either individually or
jointly, as the sole and exclusive partners of BBH & Co. having voting and
investment power with respect to the Note, and the Common Stock issuable
upon conversion of the Notes, Messrs. Long and Tucker may each be deemed to
beneficially own 1,929,116 shares of Common Stock. The numbers of shares
listed does not include the dilutive effect (if any), due to the
outstanding options issued after June 30, 1996.
(10)Address is P.O. Box 133, Miller Road, Mount Tremper, New York 12457.
(11)Includes 11,045 shares of Common Stock owned by a not-for-profit
corporation of which Mr. Ullmann is President. Mr. Ullmann disclaims
beneficial ownership of the shares owned by the not-for-profit
corporation.
(12)Includes 4,862 shares of Common Stock in Dr. Zeichner's Defined
Contribution Pension Plan and 400 shares of Common Stock owned by Dr.
Zeichner's wife. Dr. Zeichner disclaims beneficial ownership of the shares
owned by his wife.
(13)Includes shares of Common Stock from stock options exercisable on or before
June 25, 1997, as follows:
NAME NUMBER OF SHARES
---- ----------------
Joseph R. Papa 66,666
Howard B. Lorch 15,000
Douglas A. Hayward 20,000
John E. Ott, M.D. 20,913
</TABLE>
AUTHORIZATION OF AMENDMENT TO COMPANY'S
RESTATED CERTIFICATE OF INCORPORATION
PROPOSED AMENDMENT
On April 15, 1997, the Board of Directors approved, subject to
authorization by shareholders, an amendment to paragraph (b) and
elimination of paragraph (c) and a reclassification of paragraph
(d) to paragraph (c) of Article VII of the Company's Restated
Certificate of Incorporation to authorize the elimination of the
classified structure of the Board of Directors.
Specifically, subparagraph (b) of Article VII of the Company's
Restated Certificate of Incorporation as proposed to be amended,
reads in its entirety, as follows:
"At each annual meeting of shareholders, directors
shall be elected to hold office until the next annual
meeting of shareholders."
EXPLANATION OF AMENDMENT
The Company's Restated Certificate of Incorporation expressly
provides that the terms of office of the Board of Directors shall
be divided into three (3) classes: Class I, Class II and Class
III, as shall be determined by the Board of Directors. All
classes shall be nearly equal in number as possible and no class
shall include less than three (3) or more than nine (9) directors.
Additionally, the terms of office of the respective classes of
directors was established as follows: Class I shall expire at the
Annual Meeting of Shareholders to be held in 1994; Class II shall
expire at the Annual Meeting of Shareholders to be held in 1995;
and Class III shall expire at the Annual Meeting of Shareholders
to be held in 1996. At each Annual Meeting of Shareholders after
the aforementioned initial classification, the successors to
directors whose terms shall then expire shall be elected to serve
from the time of election and qualification until the third Annual
Meeting following election and until successors shall have been
duly elected and qualified.
The proposed amendment to the Company's Restated Certificate of
Incorporation expressly provides for the declassification of all
directors and that directors shall be elected to hold office at
each Annual Meeting of Shareholders until the next Annual Meeting
of Shareholders. This amendment is being submitted to the
shareholders because the Board believes that giving the
shareholders the right to elect the full Board annually
demonstrates sound corporate practice and is in the best interest
of the shareholders. Robert W. Morey, Jr. and Edward A. Ullmann
have indicated that they would vote their shares for the proposed
amendment.
REQUIRED VOTE
The affirmative vote of a majority of the total votes of the
outstanding shares of Common Stock and Class A Common Stock voting
as one class is required to authorize the proposed amendment to
the Company's Restated Certificate of Incorporation described
herein.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
A VOTE "FOR" AUTHORIZATION OF SUCH AMENDMENT.
ELECTION OF DIRECTORS
The Board of Directors currently consists of nine directors,
eight of whom have been classified into three classes, designated
Class I, Class II and Class III, each consisting of three
directors. As a result of this classification of directors, one
class of directors is elected each year for a three-year term. In
April 1997, Mr. Joseph R. Papa was appointed as a Class II
Director to fill the vacancy created by the resignation of Mr. G.
William Strein. Mr. Strein had served as a Class II Director.
Under New York law, a director who fills a vacancy, unless elected
by the shareholders, serves until the next meeting of shareholders
at which the election of directors is in the ordinary course of
business. Accordingly, Mr. Papa's current term as a Class II
Director expires at this Annual Meeting.
The remaining director, Mr. Walter W. Grist, has not been
classified since he was appointed by the Board as a result of an
increase in the number of directors comprising the entire Board,
and, accordingly, his term expires at this Annual Meeting.
Subsequent to the appointment of Mr. Grist, two vacancies were
created on the Board by the resignation of two directors, thereby
decreasing the number of directors serving on the Board.
If the aforementioned amendment to the Company's Restated
Certificate of Incorporation is approved, then there will be an
immediate declassification of all directors. All directors will
immediately resign, and commencing with this Annual Meeting of the
Shareholders, the Board of Directors will consist of seven (7)
directors, unclassified. All directors will serve terms expiring
at the 1998 Annual Meeting of Shareholders.
At this Annual Meeting, seven (7) Directors are to be elected
and to hold office until the 1998 Annual Meeting of Shareholders
if the aforementioned proposal regarding declassification of the
Board of Directors is approved. All seven (7) of the nominees for
Directors currently serve as Directors. Messrs. Charles E. Crew,
Jr. and Robert W. Morey, Jr., currently serve as Class III
Directors; John E. Ott, M.D., Messrs. Joseph R. Papa and Lawrence
C. Tucker currently serve as Class II Directors; Mark D. Dean,
D.D.S., currently serves as a Class I Director and the seventh
nominee, Walter W. Grist, currently serves as an unclassified
Director. Eileen H. Wilson and Daniel M. Zeichner, M.D., currently
serving as Class I Directors, are not standing for reelection as
directors. In the event that the aforementioned proposal
regarding declassification of the Board of Directors is NOT
approved, then Mr. Walter W. Grist and Mark D. Dean, D.D.S. are to
be nominated as Class I Directors to hold office until the 2000
Annual Meeting of Shareholders and until their successors are duly
elected and qualified. Mr. Joseph R. Papa is to be nominated as a
Class II Director to holder office until the 1998 Annual Meeting
of Shareholders and until his successor is duly elected and
qualified. There will be continuing vacancies of one (1) Class I
Director and one (1) Class III Director. Pursuant to the February
28, 1997 amendment to the Note Purchase Agreement between the
Company and The 1818 Fund II, L.P., the Company is required to use
its reasonable efforts to appoint two (2) additional outside
directors as Board members. Unless otherwise specifically
directed by shareholders executing proxies, it is intended that
all proxies in the accompanying form received in time for the
Annual Meeting will be voted at the Annual Meeting FOR the
election of the seven (7) nominees named below.
In the event any nominee should become unavailable for
reelection for any presently unknown reason, it is intended that
the proxies will be voted for such substitute nominee as may be
designated by the present Board of Directors. If a quorum is
present, a plurality vote of the total votes cast by the holders
of the Common Stock and Class A Common Stock voting as one class
is required to elect the seven (7) Directors.
Each nominee's name, age, the year first elected or appointed
as a director and position(s) with the Company are set forth
below:
Year First
Served Position/
Name Class Age as a Director Offices
- ---- ----- --- ------------- --------
Robert W. Morey, Jr.(1) III 60 1996 Director,
Chief Executive
Officer
Joseph R. Papa II 53 1997 Director,
President
and Chief
Operating
Officer
Charles E. Crew, Jr.(2)(3) III 44 1987 Director
Walter W. Grist N/A 56 1997 Director
Mark D. Dean, D.D.S.(2)(3) I 56 1984 Director
John E. Ott, M.D.(1) II 60 1995 Director,
Executive
Vice
President
Lawrence C. Tucker(2)(3) II 54 1996 Director
- ---------------------------
(1) Member, Executive Committee
(2) Member, Audit Committee
(3) Member, Compensation Committee
MR. GRIST, a designee of The 1818 Fund II, L.P., has been
nominated in accordance with the amended Note Purchase Agreement
dated February 28, 1997, between the Company and The 1818 Fund II,
L.P. and Messrs. Morey and Ullmann have agreed to vote their
shares for Mr. Grist's election.
DIRECTORS NOMINATED FOR TERMS EXPIRING IN 1998
ROBERT W. MOREY, JR., age 60, has been Chairman of the Board
and Chief Executive Officer of the Company since April 30, 1996.
Since 1972, Mr. Morey has served as President and Chairman of R.W.
Morey, Inc., a management firm founded by Mr. Morey which is
engaged in, among other things, financial counseling and
reinsurance underwriting of catastrophic health coverage for the
managed care industry. Mr. Morey was engaged in corporate
banking, investment banking and the institutional brokerage
business from 1962 to 1972. Mr. Morey received a B.A. in
Economics from Yale University in 1958 and an M.B.A. from Harvard
Graduate School of Business in 1962.
JOSEPH R. PAPA, age 53, has been President and Chief Operating
Officer of the Company since September 1996. Formerly, Mr. Papa
was President of Healthcare Resources International, Inc., a
managed care consulting company he founded. From 1986 to 1989,
Mr. Papa was President and Chief Operating Officer of Healthways,
Inc., an individual practice association model health maintenance
organization licensed in the State of New Jersey and then a
wholly-owned subsidiary of Healthways Systems, Inc., a publicly-traded company
that was sold to Aetna Life Insurance Company, a wholly-owned subsidiary of
Aetna Life and Casualty Company. Mr. Papa earned his C.P.A. after receiving
a B.S. in Accounting at St. Joseph's University in 1965.
CHARLES E. CREW, JR., age 44, has been a director of the
Company since September 1987. Mr. Crew has been employed with
General Electric since 1977, having served in a number of sales
and marketing positions until 1987, when he was made General
Manager of Western Region Sales, and in 1990 he became Regional
General Manager of the Midwest Region. In 1993, he served as
General Manager of Field Operations and in April of 1994 was made
Vice President of Commercial Operations for the Plastics Business.
WALTER W. GRIST, age 56, has been a Director of the Company
since February 28, 1997. For more than the past five years, Mr.
Grist has been a Senior Manager of Brown Brothers Harriman & Co.,
a company engaged in providing financial advisory and merger and
acquisition related services, which is the general partner of The
1818 Fund II, L.P., a New York limited partnership which is the
holder of the 6% subordinated convertible note due December 21,
2002 in the principal amount of $20 million issued by the Company
(See "Item 13 - Certain Relationships and Related Transactions").
Mr. Grist serves on the Board of Directors of Government Property
Investors Inc. and Steri-Oss, Inc. Mr. Grist graduated with a
B.S. degree in Business Administration from New York University in
1965.
MARK D. DEAN, D.D.S., age 56, has been a director of the
Company and Vice Chairman of the Board since May 1984. Dr. Dean
has been a dentist in private practice since 1966.
JOHN E. OTT, M.D., age 60, has been Executive Vice President of
the Company since June 1996 and a director since October 1995.
Dr. Ott is the former Chief Executive Officer of The George
Washington University Health Plan, and from 1977 to 1996 was a
Professor in Health Care Sciences, Health Services Management and
Policy and Pediatrics at George Washington University, having
retired in 1996 as Emeritus Professor. He is a board certified in
Pediatrics and Medical Toxicology. Dr. Ott received his B.S. and
M.D. degrees at the University of Pittsburgh, and completed a
pediatric residency and fellowship in clinical genetics and
biophysics at the University of Colorado Medical Center.
LAWRENCE C. TUCKER, age 54, has been a director of the Company
since January 1996. For more than the past 25 years, Mr. Tucker
as been employed by Brown Brothers Harriman & Co., a company
engaged in providing financial advisory and merger and acquisition
related services, having served as general partner of that firm
since 1979. Brown Brothers Harriman & Co. is the general partner
of The 1818 Fund II, L.P., a New York limited partnership which is
the holder of the 6% subordinated convertible note due December
31, 2002 in the principal amount of $20 million issued by the
Company. (See "Item 13 - Certain Relationships and Related
Transactions.") Mr. Tucker also serves as director of WorldCom,
Inc. and Riverwood International Corporation. Mr. Tucker received
a B.S. degree in Engineering from Georgia Institute of Technology
in 1964 and an M.B.A. from the Wharton School of the University of
Pennsylvania in 1966.
MEETINGS AND COMMITTEES
There were thirteen (13) meetings of the Board of Directors
during 1996, no director attended less than 75% of the total
number of meetings of the Board of Directors and any committee of
which such director is a member.
The Executive Committee, established in May 1996, is comprised
of Messrs. Morey and Dr. Ott, with one (1) vacancy created by Mr.
Ullmann's resignation therefrom in September 1996. The Executive
Committee has all of the powers of the Board not otherwise
delegated to the Audit or Compensation Committees. However, until
the vacancy on the Committee is filled, the Committee may not act,
as New York Law requires that any committee be comprised of at
least three (3) directors. Prior to Mr. Ullmann's resignation,
the Executive Committee acted two (2) times by unanimous written
consent during 1996.
The Audit Committee, comprised of three independent directors,
Messrs. Crew and Tucker and Dr. Dean, meets with the Company's
independent auditors to review the scope of their annual audit,
the adequacy of the Company's system of internal controls, and the
sufficiency of its financial reporting. There were six meetings
of the Audit Committee during 1996.
The Compensation Committee, comprised of three independent
directors, Messrs. Crew and Tucker and Dr. Dean, established the
compensation program for Mr. Robert W. Morey, the Company's Chief
Executive Officer, recommends to the Board of Directors, in
consultation, with Mr. Morey, a general compensation program for
all officers and administers the Company's 1993 Incentive and Non-Incentive
Stock Option Plan and the Company's 1996 Non-Incentive Executive Stock
Option Plan. There were six meetings of the Compensation Committee during
1996.
The Company does not have a standing nominating committee.
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation for
1996, 1995 and 1994 earned by (i) the Company's Chief Executive
Officer during 1996; (ii) each of the three most highly
compensated executive officers other than the Chief Executive
Officer serving as an executive officer whose compensation during
1996 exceeded $100,000; (iii) the most highly compensated
executive officer not serving in such capacity at the end of 1996
whose compensation exceeded $100,000; and (iv) the Company's
President and Chief Operating Officer, who commenced employment on
September 6, 1996, whose compensation on an annual basis would
have required disclosure in the table below:
<PAGE>
<TABLE>
<CAPTION> SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Annual Compensation Awards
---------------------------- ------
Name and Other Annual Common Stock All Other
Principal Year Salary Bonus Compensation Underlying Compensation
Position ($) ($) ($) Options (#) ($)
- ----------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
ROBERT W. MOREY(1) 1996 - - - 600,000(7) -
Chief Executive 1995 - - - - -
Officer 1994 - - - - -
EDWARD A. ULLMANN(2) 1996 $166,739 $177,871 - 10,000 $369,181(9)(10)(11)
President, Chief 1995 187,061 103,902(4) - 10,000 8,605(10)(11)
Executive Officer 1994 180,000 124,764 - 25,000(8) 6,007(10)(11)
and Chief Operating
Officer
JOSEPH R. PAPA 1996 $ 92,308 - - 200,000 $ 195(13)
President and Chief 1995 - - - - -
Operating Officer 1994 - - - - -
MARYSTEPHANIE
CORSONES (13) 1996 $117,366 $ 50,167 $14,000(5) 2,000 $ 4,356(11)(12)
Vice President and 1995 76,696 1,402 14,000(5) 2,000 3,189(11)(12)
Chief Financial 1994 69,717 31,191 14,000(5) 8,000(8) -
Officer
JOHN E OTT, M.D. 1996 $111,538 - $11,500(6) 40,000 -
Executive Vice 1995 - - - 2,740 -
President and 1994 - - - - -
Director
DOUGLAS A. HAYWARD 1996 $108,154 - - 40,000 $ 200(12)
Executive Vice 1995 - - - - -
President; Chief 1994 - - - - -
Executive Officer of
WellCare of
Connecticut, Inc.
ROBERT E. GOFF(3) 1996 $100,148 $ 11,833 - - $ 60,088(9)(11)(12)
Executive Director 1995 114,315 23,513(4) - 1,000 3,580(11)(12)
and Executive Vice 1994 110,000 40,331 - - 3,000(11)(12)
President
- -----------------
(1) Mr. Morey became Chief Executive Officer effective April 30, 1996.
(2) Mr. Ullmann resigned his position as Chief Executive Officer on April 30,
1996 and resigned as Chief Operating Officer effective September 6, 1996.
(3) Mr. Goff resigned his position as Executive Director and Executive Vice
President on October 24, 1996.
(4) Represents the fair market value of Treasury Stock issued as bonuses in
lieu of cash. Also, included bonus of $30,921 for Mr. Ullmann.
(5) Represents the amount WellCare had agreed to pay per annum from 1994
through 2001, for a tax deferred annuity having a retirement benefit of
$500,000 at age 65.
(6) Represents the amount WellCare paid in 1996 for a condominium rental.
(7) Represents the options granted on December 23, 1996 under the 1996
Non-Incentive Executive Stock Option Plan (subject to approval by issuer's
shareholders).
(8) Represents Mr. Ullmann's options to purchase 10,000 shares of Common Stock
and 15,000 phantom shares of Common Stock and Ms. Corsones' options to
purchase 3,000 shares of Common Stock and 5,000 phantom shares of Common
Stock. Phantom shares vest, subject to the executive's continued
employment with the Company, 25% per annum on December 31st of each year,
commencing December 31, 1994, and are payable in cash only in January 1996
in an amount equal to the product of (A) and (B), where (A) equals the
total number of phantom shares vested in the executive, and (B) equals the
sum of (i), (ii), (iii) and (iv) equal to the following:
<PAGE>
Difference between the closing sales price of the Common
Stock, as reported by The Nasdaq Stock Market (National
Market) on December 31,
(i) 1994 and 1993
(ii) 1995 and 1994
(iii)1996 and 1995
(iv) 1997 and 1996.
(9) Includes severance benefits of $361,125 and $57,108 for payments issued
and accrued for Mr. Ullmann and Mr. Goff, respectively.
(10) Includes $3,306, $3,985 and $3,007 paid by WellCare in 1996, 1995 and 1994,
respectively, for a $1,000,000 life insurance policy on Mr. Ullmann's life,
50% of which is payable to WellCare and the balance to Mr. Ullmann's wife.
(11) Includes pension plan contributions as follows: $3,660 and $2,495 in 1996
and 1995, respectively, for Ms. Corsones; $4,750, $4,620 and $3,000 in
1996, 1995 and 1994, respectively, for Mr. Ullmann; $2,572, $3,580 and
$3,000, respectively, for Mr. Goff.
(12) Includes Group Life Insurance paid by WellCare as follows: $195 in 1996 for
Mr. Papa; $696 and $694 in 1996 and 1995, respectively, for Ms. Corsones;
$200 in 1996 for Mr. Hayward; and $408 in 1996 for Mr. Goff.
(13) Ms. Corsones resigned her position as Chief Financial Officer and Vice
President of Finance effective April 2, 1997.
</TABLE>
The following table sets forth certain information concerning
options granted in 1996 to the individuals named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
Individual Grants
Potential
Realizable Value
Number of % of Total at Assumed Annual
Securities Options Exercise Rates of Stock Price
Underlying Granted to or Base Appreciation for
Options Employees Price Expiration Option Term
Name Granted (#) In 1995 ($/Share) Date 5% ($) 10% ($)
- -------------------- ----------- ----------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
ROBERT W. MOREY 450,000(1) 48.0% $10.000 23-Dec-01 -(6) -(6)
150,000(2) 16.0% $15.000 23-Dec-01 -(6) -(6)
EDWARD A. ULLMANN 10,000(3) 1.1% $21.500 06-Sep-96(7) -(7) -(7)
JOSEPH R. PAPA 200,000(4) 21.3% $10.125 01-Sep-01 -(8) $435,000(8)
MARYSTEPHANIE
CORSONES(9) 2,000(3) 0.2% $21.500 01-Jan-01 -(8) -(8)
JOHN E. OTT, M.D. 40,000(5) 4.3% $12.625 01-Jun-01 -(8) -(8)
DOUGLAS A. HAYWARD 40,000(5) 4.3% $12.870 29-May-01 -(8) -(8)
- --------------------
(1) Exercisable if the closing sale price of the Company's Common Stock for
thirty consecutive trading days is equal to or greater than $20.00 per
share. In the event that a change of control in the Company occurs, the
options are exercisable if (i) on the date of such a change of control, the
fair market value of the Company's Common Stock is equal to or greater than
$17.50 per share, or (ii) shares of Common Stock are purchased as a price
equal to or greater than $17.50 per share in the transaction implementing
such change of control. If neither (i) nor (ii) above occurs upon change of
control of the Company, the options shall immediately terminate, lapse and
expire.
(2) Same as above except the closing prices are equal to or greater than $25.00,
$22.50 and $22.50 per share, respectively.
(3) Exercisable at the cumulative annual rate of 25% of the total number for
shares underlying the option commencing one year from the date of grant.
(4) One third of the aggregate number of underlying shares are exercisable
commencing on the date of grant, an additional one third commencing one year
from the date of grant, and the balance commencing two years from date of
grant.
(5) One half of the aggregate number of underlying shares are exercisable
commencing one year from the date of grant and the balance commencing two
years from the date of grant.
(6) The potential five-year realizable value of assumed annual rates of stock
price appreciation is less than $20.00 per share. Therefore, the options
have no value.
(7) Mr. Ullmann's employment with WellCare terminated on September 6, 1996, and
the option was canceled on such date.
(8) The potential realizable value of the stock options is equal to or less than
zero.
(9) Ms. Corsones resigned her position as Chief Financial Officer and Vice
President of Finance effective April 2, 1997.
</TABLE>
The following table presents certain information concerning
options exercised during 1996 and the value of unexercised options
held at December 31, 1996 by the individuals named in the
compensation table:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN 1996 AND OPTION VALUES AT DECEMBER 31, 1996
Value
Number of of Unexercised
Unexercised Options In-the-Money Options
Shares at December 31,1996(#) at December 31,1996($)
Acquired Value Exercisable(E)/ Exercisable(E)/
Name on Exercise (#) Realized ($) Unexercisable(U) Unexercisable(U)
- ------------------- --------------- ------------ ---------------------- ----------------------
<S> <C> <C> <C> <C>
ROBERT W. MOREY - - 600,000 (U) - (2)
EDWARD A. ULLMANN - - - (1) - (2)
JOSEPH R. PAPA - - 66,666 (E) - (2)
133,334 (U)
MARYSTEPHANIE
CORSONES - - 3,750 (E) - (2)
4,250 (U)
JOHN E. OTT, M.D. - - 913 (E) - (2)
41,827 (U)
DOUGLAS A. HAYWARD - - 40,000 (U) - (2)
ROBERT E. GOFF - - - (1) - (2)
- -------------------
(1) In accordance with the 1993 Incentive and Non-Incentive Stock Option Plan,
both Mr. Ullmann's and Mr. Goff's options were terminated upon their
separation from the Company.
(2) All values are less than or equal to zero and were calculated by subtracting
the exercise or base price from the closing sales price of $7.88 per share
which was the closing sale price of the Common Stock on The Nasdaq Stock
Market (National Market) on December 31, 1996.
</TABLE>
EMPLOYMENT AGREEMENTS
MR. ULLMANN had been employed under an agreement with the
Company effective January 1, 1994, with a term expiring December
31, 1997, unless terminated prior to the expiration of the term.
The agreement provided for a base salary of $225,000 for 1996,
plus an annual bonus equal to two percent (2%) of the Company's
net (after tax) profit up to a maximum of $200,000 per annum, and
such additional bonus as the Board of Directors may determine. In
January 1996, the Board of Directors granted an additional bonus
to Mr. Ullmann in the amount of $164,850 (or $100,000 after the
application of appropriate payroll withholdings). Under the
agreement, Mr. Ullmann was entitled to receive incentive or non-incentive
options to purchase 10,000 shares of the Company's Common Stock on January
1st of each year during his term of employment at an exercise price (a) with
respect to an incentive option, not less than 110% of the fair market value of
the Common Stock on the date of grant, and (b) with respect to a non-incentive
option, not less than 75% of the fair market value of the Common Stock on the
date of grant. The options were
exercisable cumulatively at the rate of 25% of the underlying
shares each year commencing one year from the date of grant. The
agreement further provided for a grant of 15,000 phantom shares,
under the terms of which are described in the "Executive
Compensation" table under Note 8 of "Notes to Consolidated
Financial Statements".
On September 6, 1996, Mr. Ullmann's employment agreement was
superseded by a voluntary separation agreement. Under the
agreement, Mr. Ullmann was engaged as a consultant to the Company
from September 6, 1996 through March 6, 1997, during which the
Company paid Mr. Ullmann $112,500. The Company also agreed to pay
Mr. Ullmann severance in the amount of $225,000 plus continued
health, executive life and long-term disability insurance from
March 6, 1997 through March 5, 1998. Additionally, the Company
will provide Mr. Ullmann with the use of an automobile through
March 5, 1998.
MR. PAPA is employed under a three-year agreement with the
Company effective September 1, 1996, which provides for an annual
base salary of $300,000. Additionally, under the agreement, the
Company provides Mr. Papa with an automobile allowance in the
amount of $550 per month, as well as makes available the use of an
apartment leased by the Company. On September 6, 1996, Mr. Papa
was granted five-year incentive options to purchase 29,628 shares
of Common Stock of the Company at $10.125 per share and five-year
non-incentive options to purchase 170,372 shares of Common Stock
of the Company at $10.125 per share. Additionally, Mr. Papa is
entitled to receive options to purchase 30,000 shares of the
Company's Common Stock on September 1st of each year during his
term of employment at an exercise price equal to the greater of
the fair market value or (i) $15 per share with respect to the
option granted on September 1, 1997, (ii) $20 per share with
respect to the option granted on September 1, 1998, and (iii) $25
per share with respect to the option granted on September 1, 1999.
Under the agreement, in the event of termination by the Company
for any reason without cause, the Company shall pay Mr. Papa a
lump sum payment in an amount equal to, if the date of termination
is on or prior to August 31, 1997, two years' base salary and
benefits; if the date of termination is subsequent to August 31,
1997 but on or prior to August 31, 1998, one year's base salary
and benefits; and if the termination is subsequent to August 31,
1998 but on or prior to August 31, 1999, one-half year's base
salary and benefits.
DR. OTT is employed under a five-year agreement with the
Company effective June 1, 1996, which provides for an annual base
salary of $200,000. Additionally, under the agreement, Dr. Ott is
entitled to receive annually an incentive bonus equal to ten
percent (10%) of the earnings before income taxes of the greater
New York City division of WCNY. Under the agreement, on June 1,
1996, Dr. Ott was granted non-incentive options to purchase 35,000
shares of the Company's Common Stock at an exercise price equal to
$12.625; the fair market value of the Common Stock on June 1,
1996. The options are exercisable at an annual cumulative rate of
fifty percent (50%) of the underlying shares commencing one year
from the date of grant; such options become fully exercisable upon
a change in ownership of the Company or upon termination of
employment by the Company without cause. Additionally, Dr. Ott is
entitled to receive non-incentive options to purchase 5,000 shares
of the Company's Common Stock on June 1st of each year during his
term of employment at an exercise price equal to the fair market
value on the date of grant. These options will be exercisable at
the same annual cumulative rate as outlined above.
Under the agreement, in the event of termination for any reason
without cause, Dr. Ott is entitled to the greater of continued
salary for one year or salary payable to him through the
expiration date of the agreement. The agreement also provides for
a one-time lump sum severance payment in the amount of the lesser
of two years' salary of the salary payable to him through the
expiration date of the agreement, as a result of a termination of
employment by the Company without cause within ninety (90) days of
a change in ownership of the Company.
MR. HAYWARD is employed under a five-year agreement with the
Company effective May 29, 1996, which provides for an annual base
salary of $190,000. Additionally, under the agreement, Mr.
Hayward is entitled to receive annually an incentive bonus equal
to ten percent (10%) of the earnings before income taxes of
WellCare of Connecticut, Inc. Under the agreement, Mr. Hayward
was granted non-incentive options to purchase 35,000 shares of the
Company's Common Stock at an exercise price equal to $12.87, the
fair market value of the Common Stock on May 29, 1996, the date of
grant. The options are exercisable at an annual cumulative rate
of 50% of the underlying shares commencing one year from the date
of grant; such options will become fully exercisable upon a change
in ownership of the Company. Additionally, Mr. Hayward is
entitled to receive non-incentive options to purchase 5,000 shares
of the Company's Common Stock on May 29th of each year during his
term of employment at an exercise price equal to the fair market
value on the date of grant. These options will be exercisable at
the same annual cumulative rate as outlined above.
Under the agreement, in the event of termination for any reason
without cause, Mr. Hayward is entitled to the greater of continued
salary for one year or salary payable to him through the
expiration date of this agreement. The agreement also provides
for a one-time lump sum severance payment in the amount of the
lesser of two years' salary or the salary payable to him through
the Expiration Date of the agreement, as a result of a termination
of employment by the Company without cause within ninety (90) days
of a change in ownership of the Company.
MR. STREIN is employed under an agreement with the Company
effective July 1, 1993 which expires June 30, 1997, and provides
for an annualized base salary of $92,610 for 1996, with annual
increases of five percent (5%), and such additional bonus as the
Board of Directors or the Company's President may determine.
Under the agreement, WellCare provides Mr. Strein with an
automobile allowance in the amount of $600 per month. In the
event of termination for any reason, Mr. Strein is entitled to
continued salary and insurance benefits for ninety (90) days and a
severance payment equal to two weeks' salary for every year of
service with the Company in excess of six years.
MS. CORSONES is employed under an agreement with the Company
effective May 23, 1994 which expires May 22, 1998, and which was
subsequently amended as of January 1, 1996. The agreement
provides for a base salary of $125,000 for 1996, with annual
increases of four percent (4%) on January 1st of each of the
remaining contract years, plus an annual bonus equal to one
percent (1%) of the annual net (after tax) profit of the Company
up to $100,000 and such additional bonus as the Board of Directors
or the Company's President may determine. In January 1996, the
Board of Directors granted an additional bonus to Ms. Corsones in
the amount of $50,000. Under the agreement, Ms. Corsones is
entitled to receive incentive or non-incentive options to purchase
2,000 shares of Common Stock on January 1st of each year during
her term of employment at an exercise price (a) with respect to an
incentive option, at the fair market value of the Common Stock on
the date of grant, and (b) with respect to a non-incentive option,
not less than 75% of the fair market value of the Common Stock on
the date of grant. The options will be exercisable at the rate of
25% of the underlying shares each year commencing one year from
the date of grant. The agreement further provides for the grant
of 5,000 phantom shares, the terms of which are described above in
the "Executive Compensation" table under Note 8.
Under the agreement, WellCare provides Ms. Corsones with a
Company automobile. Additionally, the Company is required to make
contributions in the amounts of $14,000 per annum for a period of
seven years into a tax deferred annuity with a retirement benefit
of $500,000 at age 65. In the event of termination for any
reason, Ms. Corsones is entitled to continued salary and insurance
benefits for one year. However, in the event of termination
prompted by the Company, and as a result of a change of ownership
or Board composition of over twenty-five percent (25%), Ms.
Corsones is entitled to a one-time lump sum severance payment in
the amount of $250,000.
Effective April 2, 1997, Ms. Corsones resigned as Vice
President of Finance and Chief Financial Officer. From April 2,
1997 through May 23, 1997, Ms. Corsones will be employed by the
Company as Senior Advisor for Strategic Planning and for one year
thereafter act as a consultant to the Company on strategic
planning under terms substantially similar to the agreement
outlined above.
COMPENSATION OF DIRECTORS
During 1996, all directors who were not employees of the
Company, with the exception of the Vice Chairman of the Board and
the Chairman of the Audit and Compensation Committees, received a
fee of $500 for each meeting of the Board of Directors attended,
plus reimbursement of their expenses, and an additional $300 for
each meeting of the Audit Committee or Compensation Committee
attended. Until May 11, 1996, the Vice Chairman of the Board and
the Chairman of the Audit and Compensation Committees received
fixed annual stipends of $12,000 each. Effective May 11, 1996, no
additional compensation is paid for serving as a committee
Chairman or Vice Chairman of the Board. Directors who are not
full-time employees of the Company, on the date of their election
or reelection, receive automatic grants of non-incentive stock
options to purchase 3,000 shares at an exercise price equal to 75%
of the fair market value on the date of grant, which vest at the
rate of 33% per annum.
<PAGE>
REPORT OF COMPENSATION COMMITTEE OF BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The following is provided to shareholders by members of the
Compensation Committee of the Board of Directors:
INTRODUCTION
Decisions on executive compensation are made by the Compensation
Committee of the Board of Directors which is composed of three
independent non-employee directors. All decisions by the
Compensation Committee are reviewed by the full Board except for
decisions with respect to the Company's stock based plans, which
are made solely by the Compensation Committee.
EXECUTIVE COMPENSATION PHILOSOPHY
The Compensation Committee's philosophy with respect to the
Company's executive officers, including the Chief Executive
Officer ("CEO") is designed to (i) maintain a compensation program
that is equitable in a competitive marketplace, (ii) provide
compensation opportunities that integrate pay with the Company's
annual and long-term performance goals which reinforce growth in
shareholder value, (iii) recognize and reward individual
initiative and achievements, and (iv) allow the Company to
attract, retain, and motivate qualified executives who are
critical to the Company's success.
The Compensation Committee endorses the position that stock
ownership by management is beneficial in aligning management's and
shareholders' interests in the enhancement of shareholder value.
Thus, the Committee has utilized stock options in the compensation
program for the executive officers with a goal of increasing stock
ownership over time.
The compensation policy of the Compensation Committee is that
executive compensation for the CEO should consist of incentive
compensation. For all other executive officers, the compensation
policy of the Compensation Committee is that it should consist of
base salary as well as incentive compensation.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program for its CEO consists
of the opportunity to earn stock based incentives which are
intended to encourage the achievement of superior results over
time and to align CEO and shareholder interests. This element
constitutes an "at risk" compensation and is designed to link the
interests of the CEO with those of the shareholders. This means
that total compensation for the CEO is variable and may fluctuate
significantly from year to year depending on the short-term and
long-term financial performance of the Company.
For executive officers other than the CEO, the Company's executive
compensation program consists of three main components: (i) base
salary, (ii) potential for an annual bonus based on over Company
financial performance, (iii) the opportunity to earn long term
cash and/or stock based incentives which are intended to encourage
the achievement of superior results over time and to align
executive officers' and shareholders' interest.
The Compensation Committee reviews the compensation levels of
members of management, evaluates the performance of management,
and considers management succession and related matters. In
addition, the Committee administers the Company's incentive plans,
which include an annual incentive plan and a long-term performance
plan.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of the CEO consists of the opportunity to earn
long term incentives through the granting of performance-accelerated stock
options. With performance-accelerated options, the CEO receives options
that will vest according to a schedule regardless of the Company's
performance. However, the vesting accelerates if the Company meets
certain long-term goals.
Mr. Morey's 1996 compensation package was determined through the
Committee's overall evaluation of his performance during the seven
preceding months (Mr. Tucker excused himself as a Committee member
from participation in discussions on Mr. Morey's compensation
package). The Committee took particular note of Mr. Morey's
concluding the 1996 audit, his successful efforts to retain the
Company's listing of its Common Stock on The Nasdaq National
Market, his negotiations with Brown Brothers Harriman & Co., and
key provider groups and his ability to deal successfully with the
New York Regulatory bodies, as well as his dedication in leading
the Company during challenging times and in positioning the
Company to successfully meet the opportunities posed by
competition in the health care industry. This evaluation is
subjective in nature and takes into account all aspects of his
responsibilities at the total discretion of the Committee. The
Committee relied upon the opinions of the outside consulting firm
of Janney Montgomery Scott, Inc. dated December 16, 1996 and March
11, 1997 that the proposed Non-Incentive Executive Stock Option
Plan and the proposed grant of options to Mr. Morey thereunder
were fair from a financial point of view to the Company's
shareholders. The Committee also utilized competitive
compensation references from other publicly-traded companies.
Based on compensation database information available of other
companies, Janney Montgomery Scott, Inc.'s fairness opinions and
the Committee's overall evaluation of Mr. Morey's performance, Mr.
Morey s total compensation was comprised of the granting of
600,000 shares of performance-accelerated stock options; 450,000
options to purchase Common Stock at $10 per share, exercisable at
the earlier of November 23, 2001 or the stock attaining a fair
market value price of $20 per share for thirty (30) consecutive
trading days; 150,000 options to purchase Common Stock at $15 per
share, exercisable at the earlier of November 23, 2001 or the
stock attaining a fair market value price of $25 per share for
thirty (30) consecutive trading days. These options and the 1996
Non-Incentive Executive Stock Option Plan pursuant to which they
were granted are subject to the approval of shareholders at the
1997 Annual Meeting of Shareholders.
OTHER EXECUTIVE COMPENSATION
BASE SALARIES
From July 1, 1993 through January 1997, the Company negotiated and
entered into employment agreements with each of its executive
officers, excluding the Chief Executive Officer. In negotiating
and fixing the base salaries of each of its executive officers,
the Compensation Committee considered a number of important
factors. These factors were, in order of relative importance,
that the Company is addressing a number of problems and focusing
on taking advantage of a number of opportunities that have
resulted from the prior period restatement; the Company must
introduce bold initiatives to return the Company's existing book
of business to profitability and set in motion future
profitability growth; and also, the Company is positioned as a
regional HMO in the Hudson River Valley. The Company engaged an
outside consulting firm to search, hire and negotiate the
employment agreement of its President and Chief Operating Officer.
Such negotiations were arms length and were equitable in the
competitive market place for other publicly-traded companies.
The above factors were considered subjectively, together with the
policy of the Committee, that, in general, executive officers of
the Company should be compensated at competitive levels to
attract, motivate and retain talented executives.
BONUSES
The Company's executive compensation program for executives,
excluding the CEO, also consists of potential annual cash bonuses
based on a Company's division meeting certain financial
performance. Pursuant to each individual employment agreement,
certain executives are entitled to receive an amount representing
ten percent (10%) of the earnings before income taxes of a
division or subsidiary of the Company for any given year.
Additional bonuses may also be paid to such executives at the
Board's discretion.
STOCK OPTIONS
The Committee can grant non-incentive stock options and incentive
stock options.
OTHER COMPENSATION PLANS
At various times in the past, the Company has adopted certain
broad-based employee benefit plans and has adopted certain
executive retirement and life insurance plans in which its named
executive officers participate.
Finally, the Committee has reviewed the provisions of Section
162(m) of the Code, which was enacted in 1993, relating to the $1
million deduction cap for executive salaries and believes that no
compensation for the three highest paid named executives will be
governed by this regulation during 1996. Compensation
alternatives to comply with Section 162(m) are currently under
review by the Committee.
THE FOREGOING REPORT OF THE COMPENSATION COMMITTEE SHALL NOT BE
DEEMED TO BE "SOLICITING MATERIAL" OR TO BE "FILED" WITH THE
SECURITIES AND EXCHANGE COMMISSION, NOR SHALL SUCH INFORMATION BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY
INCORPORATED IT BY REFERENCE INTO SUCH FILING.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Dated: April 25, 1997
Charles E. Crew, Jr., Chairman
Mark D. Dean, D.D.S.
Lawrence C. Tucker
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder
return to the Company's (WELL) shareholders during the period
extending from August 12, 1993 through December 31, 1996, as well
as an overall stock market index (the Nasdaq stock market (US)
composite index) and WELL's peer group index (SIC Code Index 80-Nasdaq
Health Services Stock):
[Graph depicts cumulative total return among the Company, the
Nasdaq (US) Composite Index and the SIC Code Index. Graph assumes
$100 invested on August 12, 1993 and reinvestment of dividends
through fiscal year ending December 31, 1996.]
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of the Note Purchase Agreement dated
January 19, 1996, (the "Agreement") entered into between the
Company and The 1818 Fund II, L.P., (the "Fund"), a private equity
fund managed by Brown Brothers Harriman & Co. ("BBH & Co."), the
Company issued a Note dated January 19, 1996, in the principal
amount of $20,000,000 payable to the order of the Fund or its
registered assignees. On February 28, 1997, the Fund and the
Company amended the Agreement and the Note (such amendments
together with the concurrent amendment to the related registration
rights agreement between the parties, the "Amendment"). The Note
accrued interest at an interest rate of six percent (6%) per annum
prior to the Amendment and then accrues interest at an interest
rate of five and one-half percent (5.5%) per annum, which interest
is payable quarterly by the Company. The principal amount of the
Note is payable in one amount on December 31, 2002. The Note is
subject to certain mandatory redemption at the option of the
holder of the Note upon certain changes of control of the Company.
In addition, subject to certain conditions, 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
Notes is subordinated to all senior indebtedness of the Company.
The holder of the Note has the right to convert the then
outstanding principal amount of the Note into that number of
shares of Common Stock of the Company at a conversion price equal
to one hundred fifteen percent (115%) of the average of the market
price of WellCare Common Stock during the period August 4, 1996
through February 28, 1997, subject to adjustment for certain
dilutive events with a floor of $9 per share and a ceiling of $15
per share. Prior to the Amendment, the Note had been convertible
at a conversion price of $29.00 per share. Under the Note, the
conversion price is granted to the holder of the Note is adjusted,
inter alia, if the Company issues shares of its Common Stock or
options, warrants or other rights to acquire shares of Common
Stock of the Company at a price per share less than the current
market price or, pursuant to the Amendment, the conversion price
at the time. The holder of the Note also has the right to require
redemption of the Note following a change of control (as that term
is defined in the Note) of the Company at a redemption price equal
to 130% (previously 115% under the original Note) of the principal
amount of the Note together with all accrued by unpaid interest
thereon. Under the Amendment, if a change of control occurs
within 24 months of a redemption of the Note, the Company may also
be required to pay the holder of the Note an amount equal to 30%
of the principal amount of the redeemed Note.
Pursuant to the terms of the Agreement, as of January 19, 1996,
the Company caused one (1) vacancy to be created on its Board of
Directors and caused Lawrence C. Tucker, as a designee of the
Fund, to be appointed to the Board. At such time, Mr. Tucker's
directorship did not have any classification. In addition, under
the terms of the Agreement, at the 1996 Annual Meeting of the
Shareholders of the Company, Mr. Tucker was elected by the
shareholders as a Class II Director for a term expiring at the
1998 Annual Meeting of Shareholders. Under the Amendment, as of
February 28, 1997, the Company caused one (1) vacancy to be
created on its Board of Directors and appointed Walter Grist, as a
designee of the Fund, as a director without classification. The
persons elected to the Board who are designated by the Fund are
referred to herein as the "Fund Designees."
As part of the Amendment, the Company is required to use its
reasonable efforts to appoint two (2) additional directors (the
"Outside Directors") to be elected to the Board. Each such person
shall (i) be neither an officer, director or employee of the
Company or any subsidiary of the Company nor any affiliate of the
Company, and (ii) have experience as a director of a public
company or other relevant experience. The Company expects to
nominate two individuals meeting these qualifications for election
at the 1997 Annual Meeting of Shareholders.
At the next annual meeting and at each subsequent annual
meeting of the shareholders of the Company at which the term of
any Fund Designee or Outside Director shall expire, provided the
Fund owns at least two percent (2%) of the common stock
outstanding of the Company (after giving affect to the issuance of
the shares, issuable upon conversion of the Note), the Fund has
the contractual right to nominate such number of Fund Designees
equal to the number of Fund Designees whose terms are expiring at
such meeting and the Company shall use its reasonable efforts to
nominate such number of persons that meet the criteria of Outside
Directors equal to the number of Outside Directors whose terms are
expiring at such meeting. The two (2) principal shareholders of
the Company, Edward A. Ullmann and Robert W. Morey, Jr., have
agreed to vote their shares of the Company in favor of the Fund
Designees and the Outside Directors. Pursuant to the Agreement,
the Fund may purchase shares of common stock of the Company (in
addition to the shares, issuable upon conversion of the Note),
provided that such purchases do not, in total, exceed Ten Million
Dollars ($10,000,000). Finally, provided the Fund holds at least
fifty percent (50%) of the shares issued or issuable upon
conversion of the Note, the Fund, under certain conditions, may
sell shares issuable upon conversion of the Note in certain
private placement of common stock by the Company.
Pursuant to the terms of the Registration Rights Agreement
dated January 19, 1996, between the Company and the Fund, as
amended, the holder of the Note and the holder of the shares
issued upon conversion of Note have been granted three (3) demand
registration rights and unlimited incidental registration rights.
The Company is also required, on or prior to August 14, 1997, to
file with the Securities and Exchange Commission, an "evergreen"
shelf registration statement with respect to the Note and any
shares issued upon conversion of the Note.
Pursuant to the Amendment, the Company agreed to reimburse the
Fund for fees and expenses incurred by the Fund in connection with
the Company's restatement of its financial statements and related
activities, investigations and other matters and the preparation,
negotiation and execution of the Amendment up to a maximum of
$100,000.
Until December 27, 1996, WellCare had an Agreement with Park
West Entertainment, Inc. ("PWE"), a corporation wholly-owned by
Mr. Ullmann, whereby PWE provided catering, conferencing and
related administrative services in return for a fixed monthly fee.
In 1994, 1995 and 1996, PWE received annual fees of $276,000 from
WellCare. At December 31, 1994, PWE was obligated to WellCare for
$198,000, representing advances to PWE, evidenced by promissory
notes. During 1995, WellCare advanced approximately $60,000 for
operating expenses. At December 31, 1995, those advances were
combined with the outstanding balance of the December 31, 1994
notes, and refinanced. New promissory notes were issued in the
amount of approximately $223,000, with interest at 7.5% per annum,
payable in monthly installments and due by December 31, 1999.
During 1996, PWE defaulted on its notes, was unable to continue
financing its activities, and discontinued operations. WellCare
canceled its agreement with PWE and charged to expense
approximately $216,000, representing the unpaid balance of the
notes and the additional advances made in 1996.
Effective July 1, 1996, WCNY entered into an Agreement with
Bienestar, Inc. ("Bienestar"), an unconsolidated affiliate,
whereby Bienestar provides consulting and educational services
related to wellness and integrated health services. Fees paid to
Bienestar in 1996 were approximately $484,000. In 1996, the
Company acquired 70% of Bienestar. On December 17, 1996, WellCare
sold its interest in Bienestar to Edward A. Ullmann, the Company's
former Chief Executive Officer and President, for $84,000, which
is payable to WellCare in three equal annual installments
commencing November 8, 1997, with interest at the rate of 8% per
annum.
In June 1995, the Company sold the assets of WCMM, its then
wholly-owned subsidiary, to a newly formed corporation for cash of
$.6 million and a note receivable of $5.1 million (See Note 4 of
"Notes to Consolidated Financial Statements"). The buyer ("Buyer")
was newly formed to acquire WCMM and, as of March 1, 1997,
approximately 11% of the Buyer's equity was directly or indirectly
held by current or former directors, officers or employees of
WellCare. The buyer is in the business of managing medical
practices and providing related consultative services. The Buyer
has entered into agreements to manage the Alliances referred to in
Notes 1a and 17a. In view of the Buyer's operating losses, in
1996, the Company obtained from certain of the Buyer's equity
holders personal guarantees of the notes and pledges of collateral
to service these guarantees. As of March 1, 1997, Dr. Dean, a
director of the Company, guaranteed $1.0 million of the $5.1
million note receivable. Dr. Dean also owns (directly and
indirectly) 4.3% of Buyer's equity. Mr. Strein, President of
Agente Benefit Consultants, Inc. and a director of the Company,
guaranteed $.25 million of the $5.1 million note receivable. Mr.
Douglas Hayward, President of WellCare of Connecticut, Inc.,
guaranteed $.5 million of the $5.1 million note receivable. Mr.
Robert Goff, a former officer and director of the Company,
guaranteed $.5 million of the $5.1 million note receivable and
other former officers of the Company collectively guaranteed $1.1
million of the $5.1 million note receivable.
On February 19, 1997, the Buyer executed a promissory note in
the amount of $2.1 million, evidencing the $2.1 million payable to
WellCare. The note bears interest at the rate of prime plus 2%
(10.25% at December 31, 1996), with repayment of the principal
over 36 months, starting upon the occurrence of certain events
explained below. Subsequently, on February 26, 1997, the Buyer
entered into an Option Agreement with a potential investor (the
"Investor"), whereby the Investor agreed to lend the Buyer
$4,000,000 and received an option to merge with the Buyer,
exercisable during the period from March 15, 1998 through March
15, 1999. Concurrently, WellCare entered into an agreement with
the Buyer whereby WellCare agreed to forbear on the collection of
principal and interest on the note for $5.1 million, and on the
collection of principal of the $2.1 million note, in exchange for
the right to convert the $5.1 million note into 43% of the Common
Stock of the company resulting from the merger of the Investor and
the Buyer. In the event the Investor merges with the Buyer, the
$2.1 million note would be payable immediately. At the earlier of
the Buyer relinquishing its option to merge, or March 14, 1999,
the forbearance will be rescinded and the original payment terms
of the $5.1 million note reinstated. The Buyer would continue to
pay monthly interest on the $2.1 million note, with principal
payments over a thirty-six month period to commence upon
rescission of the forbearance. The notes are subordinated to the
Investor's and Key Bank's security interests (See Note 11 of
"Notes to Consolidated Financial Statements").
<PAGE>
WCNY has agreements with Alliances to provide medical care to
its members (See Notes 1a and 17a of "Notes to Consolidated
Financial Statement"). In 1994, Mr. Ullmann had guaranteed in his
individual capacity loans to two (2) entities which were
predecessors to the Alliances (See Note 2a of "Notes to
Consolidated Financial Statements"). Each loan was in the amount
of $2.7 million, and the proceeds were used to fund the aggregate
payments of $4,712,000 referred to in Note 2a of "Notes to
Consolidated Financial Statements". Approximately $4,161,000 of
these loans have been repaid as of December 31, 1996.
During 1996, the Alliances, with whom WCNY contracts to arrange
for medical services, paid to Dr. Zeichner, a director of the
Company, $96,417 in his capacity as a specialist provider with the
Alliances.
On December 4, 1995, WellCare entered into a Note Agreement
with Cost Management Technologies, Inc. ("CMT"), whereby WellCare
agreed to loan CMT $320,000, at a fixed interest rate of six
percent (6%) per annum. The loan was originally due on March 2,
1996, and was ultimately extended to October 30, 1996. On October
10, 1996, CMT informed the Company that CMT would default on the
payment of the loan. CMT subsequently went into receivership.
The Company has taken legal recourse, and has fully reserved this
amount in 1996. The Company's CEO and Chairman of the Board owns
60.9% of the equity of CMT.
In 1996, Allianz Life Insurance Company of North America and
subsidiaries ("Allianz") ceded 45% of its risk to R.W. Morey
Management, Inc., a company wholly-owned by Mr. Robert Morey, the
Company's Chief Executive Officer and Chairman of the Board. The
Company reinsures the risk of its commercial and Medicare Risk
members with Allianz.
SCHEDULE 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Joseph R. Papa filed his Form 3 on November 11, 1996. This
form was due on September 16, 1996.
Edward A. Ullmann filed his Form 5 on March 10, 1997, to report
sales of stock in September and October 1996. These sales were
due to be reported on Forms 4 on October 10, 1996 and November 10,
1996, respectively.
APPROVAL OF AMENDMENTS TO 1993 INCENTIVE AND
NON-INCENTIVE STOCK OPTION PLAN
GENERAL
In September 1996, the Company amended and restated its 1993
Incentive and Non-Incentive Stock Option Plan (as amended and
restated, the "Option Plan"), under which an aggregate 900,000
shares of Common Stock were reserved for issuance upon exercise of
options granted thereunder. On September 12, 1996, the Board of
Directors adopted, subject to shareholder approval, the Option
Plan Amendments.
The purpose of the Option Plan is to provide incentives for
selected employees, officers, directors, consultants and
independent contractors of the Company to promote the financial
success and progress of the Company by granting such persons
options to purchase shares of Common Stock of the Company.
As of the Record Date, options to purchase an aggregate 629,117
shares of Common Stock had been granted and were outstanding
(including 230,000 subject to approval of the Option Plan
Amendments), and a balance of 191,787 shares reserved for issuance
under the Option Plan for options subsequently granted thereunder.
PROPOSED AMENDMENTS
The Option Plan Amendments provide for the following:
a. change the administration of the Option Plan to a committee
comprised only of three (3) or more "Non-Employee Directors"
as defined by the securities law and regulations;
b. the elimination of the formula award for granting of non-incentive
stock options (each a "NISO") to Outside Directors (as defined by
the Option Plan) of the Company;
c. the increase in the maximum number of shares from 50,000 to
200,000 with respect to stock options that may be granted to
any person or entity eligible within any one calendar year;
d. the changing of vesting of incentive stock options (each an
"ISO") and NISOs based upon each Option Agreement;
e. the adoption of a cashless exercise election;
f. the extension of the mandatory termination of ISOs upon
termination of an option holder's employment, or an option
holder's disability or death; and
g. the revision of the provisions relating to the amendment or
termination of the Option Plan.
EXPLANATION OF AMENDMENTS
a. Change the Administration of the Option Plan to a Committee
Comprised Only of Three (3) or More "Non-Employee Directors"
as Defined by the Securities Laws and Regulations.
Under the current Option plan, the Board of Directors adopt the
Option Plan and the Option Plan is administered by a Committee
comprised of three (3) or more directors who are "disinterested
persons" as defined by Regulation 240.16b-3 under the Exchange
Act. This committee also helps set policies of the Option
Plan.
Effective August 15, 1996, Regulation 240.16b-3 under the
Exchange Act was amended to, among other things, change the
composition of the committee who administers the Plan from
"disinterested persons" to "Non-Employee Directors". A "Non-Employee
Director" under the amended Regulation 240.16b-3 is a person not
currently an officer of the Company or a parent or subsidiary, who
does not receive compensation either directly or indirectly as a
consultant of the Company (except for an amount not required to be
disclosed under Item 404(a) of Regulation S-K, e.g., not more than
$60,000), does not have an interest in a transaction requiring disclosure
under Item 404(a) of Regulation S-K and is not engaged in a business
relationship which would require disclosure under Item 404(b)
of Regulation S-K (e.g., where the director has a ten percent
(10%) or more equity interest in an entity which makes or
receives payments in excess of five percent (5%) of the
Company's or that entity's consolidated gross revenues).
Under the proposed Option Plan Amendment, a committee comprised
only of three (3) or more "Non-Employee Directors" shall
administer the Option Plan.
<PAGE>
b. Elimination of the Formula Award for Granting of NISOs to
Outside Directors (as Defined by the Option Plan) of the
Company.
Under the current Option Plan, an "Outside Director" is defined
as any director of the Company who is not then a full-time
employee of the Company. Presently, the Option Plan generally
provides for the granting of NISOs pursuant to a formula to
purchase 3,000 shares of Common Stock to each Outside Director
upon their election or reelection as a Director, which NISO
vests over three years, subject to termination of the Outside
Director as a director of the Company.
Under the proposed Option Plan Amendments, the provisions
granting NISOs pursuant to a formula to Outside Directors are
eliminated, as it is no longer necessary to grant NISOs
pursuant to a formula under Section 16 of the Securities
Exchange Act of 1934, as amended.
c. Increase in the Maximum Number of Shares from 50,000 to 200,000
with Respect to Stock Options that may be Granted to any Person
or Entity Eligible within any one Calendar Year.
Presently, the Option Plan provides that the maximum aggregate
number of shares of Common Stock with respect to which options,
whether ISOs or NISOs, that may be granted to any person or
entity eligible under the Option Plan within any one calendar
year is 50,000 shares.
Under the proposed Option Plan Amendments, the maximum
aggregate number of shares of Common Stock with respect to
which options, whether ISOs or NISOs, that may be granted to
any person or entity eligible under the Option Plan within any
one calendar year is increased to 200,000 shares.
On September 12, 1996, the Committee granted to Joseph R. Papa
options under the Option Plan to purchase 200,000 shares; the
option to purchase 150,000 of the 200,000 shares is therefore
contingent upon shareholder approval of this Option Plan
Amendment.
d. Changing of Vesting of ISOs and NISOs based upon each Option
Agreement.
Presently, ISOs granted under the Option Plan become
exercisable one (1) year from the date of grant, and the total
options granted vest 25% at the end of one (1) year from the
date of grant; 50% at the end of two (2) years from the date of
grant; 75% at the end of three (3) years from the date of
grant; and 100% at the end of four (4) years from the date of
grant.
NISOs vest and are exercisable, under the current Option Plan,
as is determined by the Committee, but in no event until at
least six (6) months from the date of grant.
Under the proposed Option Plan Amendment, both ISOs and NISOs
would vest and become exercisable pursuant to the terms set
forth in each Option Agreement. This proposed change provides
greater flexibility to the Committee in awarding stock options.
On September 1, 1996, the Board of Directors granted to Joseph
R. Papa options under the Option Plan to purchase 200,000
shares at an exercise price of $10.125 per share (the fair
market value on the date of grant) which options are for a term
of five (5) years from the date of grant and exercisable at 33%
of the number of underlying shares at the date of grant and
cumulatively an annual rate of 33% thereafter.
The immediate vesting of 66,666 of the 200,000 shares and the
33% cumulative annual vesting thereafter are contingent upon
shareholder approval of this Option Plan Amendment.
On January 29, 1997 and February 24, 1997, the Committee
granted Mary Lee Campbell-Wisley and Howard B. Lorch each
options under the Option Plan to purchase 45,000 shares at an
exercise price equal to the fair market value on the date of
grant which options are for a term of five (5) years from the
date of grant and exercisable 33% of the underlying shares on
the date of grant and cumulatively at an annual rate of 33%
thereafter. The immediate vesting of 15,000 of the 45,000
shares at the 33% cumulative annual vesting thereafter are
subject upon shareholder approval of this Option Plan
Amendment.
e. Adoption of a Cashless Exercise Election.
Presently, the Option Plan provides that 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 intention to acquire
the option for investment and upon receipt by the Company of
cash, or a check to its order, for the full purchase price of
such shares.
Under the proposed Option Plan Amendment, payment for shares of
Common Stock may be made in cash, or by check to the order of
the Company; by surrender of shares of Common Stock having a
fair market value equal to the exercise price of the option or
by a Cashless Exercise Election.
A Cashless Exercise Election allows the option holder to
receive, with the payment by the option holder of any
additional consideration, shares of Common Stock equal to the
value of his, her or its options or a portion thereof by
deliverance to the Company of a written notice. Thereupon, the
Company shall issue to such option holder such number of shares
of Common Stock as is computed using a formula. Such number is
equal to a fraction, the numerator of which is the product of
(Y) the number of shares of Common Stock covered by the options
in respect of which the Cashless Exercise Election is made
multiplied by the difference between the (A) the Cashless Fair
Market Value which is equal to the average closing sale price
for a share of Common Stock over the immediately preceding
twenty (20) trading dates as reported on The Nasdaq Stock
Market, Inc. or, if no closing sales price shall have been made
on such relevant dates, on the next preceding days on which
there were closing sales prices; and (B) the exercise price for
the option being exercised and the denominator of which is (A)
the Cashless Fair Market Value. The option holders' Option
Agreement must specifically provide that an option may be
exercised pursuant to a Cashless Exercise Election. To the
extent an Option Agreement allows for the presence of a
Cashless Exercise Election, this will result in compensation
being recognized by the Company in future periods by the amount
by which the market price of the shares exceeds the option
price times the number of shares covered by the Option
Agreement.
On September 1, 1996, the Board of Directors granted to Joseph
R. Papa options under the Option Plan to purchase 200,000
shares at an exercise price of $10.125 per share (the fair
market value on the date of grant) which options are for a term
of five (5) years exercisable at 33% of the underlying shares
on the date of grant and cumulatively at the annual rate of 33%
thereafter. Mr. Papa's Option Agreement provides for the
presence of the proposed Cashless Exercise Election. As such,
the option the purchase 200,000 shares in contingent upon
shareholder approval of this Option Plan Amendment allowing for
the presence of a Cashless Exercise Election.
f. Extension of the Mandatory Termination of ISOs Upon Termination
of an Option Holder's Employment, or an Option Holder's
Disability or Death.
Under the current Option Plan, in the event the employment with
the Company is terminated for any reason other than retirement,
disability or death, the ISOs immediately terminate, lapse or
expire. In the event the option holder's employment with the
Company is terminated due to retirement, disability or death
while still in the employ of the Company, the ISOs terminate
within six (6) months.
Under the proposed Option Plan Amendment, in the event the
option holder's employment with the Company is terminated for
reasons other than disability or death, the ISOs terminate
three (3) months from the date of such termination. In the
event the option holder's employment with the Company is
terminated due to disability or death while in the employ of
the Company, the ISOs terminate one (1) year from the date of
such disability or death. The adoption of this proposed Option
Plan Amendment provides the greatest benefit currently allowed
under the applicable laws.
g. Revision of the Provisions Relating to the Amendment or
Termination of the Option Plan.
Presently, the Option Plan provides that the Board of Directors
has the authority to terminate the Option Plan, to make changes
in and additions to the Option Plan as it deems advisable,
provided, however, that the Board may not, without shareholder
approval, increase the aggregate number of shares which may be
issued under the Option Plan, terminate, modify or amend the
Option Plan so as to materially adversely affect the rights of
a holder of an option previously granted, change the
eligibility requirements for participation under the Option
Plan, or materially increase the benefits accruing to
participants under the Option Plan.
Under the proposed Option Plan Amendment, the above language
contained in the Option Plan will be revised to provide that
the Board of Directors may at any time terminate or amend the
Option Plan in any respect (including, but not limited to, any
form of grant, agreement or instrument to be executed pursuant
to the Option Plan); provided, however, that shareholder
approval shall be required to be obtained by the Company if
required to comply with the provisions of Section 162(m) of the
Code, or the listed company requirements of The Nasdaq Stock
Market, Inc. or of a national securities exchange on which the
shares are traded, or other applicable provisions of state or
federal law or self-regulatory agencies; provided, further,
that no termination, amendment or modification of the Plan may
materially adversely affect the rights of a holder of an option
previously granted under the Option Plan without the written
consent of such optionee. This change is being proposed
because shareholder approval of an amendment, modification or
termination of the Option Plan is no longer required pursuant
to Section 16b-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
SUMMARY OF THE OPTION PLAN
The essential features of the Option Plan are outlined below.
PURPOSE
The purpose of the Option Plan is to encourage selected
employees, directors and other persons who contribute and are
expected to contribute materially to the Company's success by
allowing such persons to obtain a proprietary interest in the
Company through 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.
GRANT OF OPTIONS
The Option Plan is administered by the Compensation Committee
(the "Committee") comprised of three (3) or more members of the
Board of Directors, each of whom shall be a "disinterested person"
as defined by Rule 16b-3, promulgated under the Securities
Exchange Act of 1934, as amended. The Committee selects persons
to be granted options and determines (i) whether the respective
option is to be a non-incentive option or an incentive option,
(ii) the number of shares of the Company's Common Stock
purchasable under the option, (iii) the time or times when the
option becomes exercisable, except that no incentive option shall
be exercisable prior to one (1) year from the date of grant, and
no non-incentive option shall be exercisable prior to six (6)
months from the date of grant, (iv) the exercise price, which
cannot be less than one hundred percent (100%) of the fair market
value of the Common Stock on the date of grant (110% of such fair
market value for incentive options granted to a person who owns or
is considered as owning stock possessing more than 10% of the
total voting power of all classes of stock of the Company or any
subsidiary thereof (a "10% Owner"), and (v) the duration of the
option, which cannot exceed ten (10) years. Incentive options may
be granted only to employees (including officers) of the Company
and/or any subsidiary thereof; non-incentive options may be
granted to employees, directors, consultants, agents, independent
contractors and other persons whom the Committee determines will
contribute to the Company's success (all persons eligible to
receive options are collectively referred to as the "Eligible
Persons").
Presently, the Option Plan provides that non-incentive options
be granted by the Committee to a director of the Company who is
not then a full-time employee of the Company (an "Outside
Director") pursuant to a formula at an exercise price equal to 75%
of the fair market value of the Common Stock on the date of grant.
EXERCISE OF OPTIONS
All options are exercisable during the option holder's lifetime
only by the option holder (or his guardian, conservator or court
appointed legal representative) and only while such option holder
in the Company's employ. In the event the termination of
employment is due to death or disability, the option holder (or
his executor or administrator) may exercise the option within six
(6) months from the date of termination to the extent the option
was exercisable as at the date of termination, but in no event
subsequent to the option's expiration date. In the event the
termination of employment is for any reason other than death,
disability within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"), or retirement at or
after age 65, the holder's option immediately terminates, lapses
and expires. No option is transferable other than by will of the
laws of descent and distribution.
OPTION ADJUSTMENTS
The Option Plan contains a customary anti-dilution provision
which provides that in the event of any change in the Company's
outstanding capital stock by reason of a stock dividend,
recapitalization, split-up, combination, reclassification or
exchange or through merger of consolidation, or otherwise, the
aggregate number of shares of the Common Stock reserved for
issuance under the Option Plan is proportionately adjusted and the
aggregate number of shares of Common Stock subject to outstanding
options and the exercise price per share thereof shall be
proportionately adjusted by the Committee whose determination
thereon shall be conclusive.
AMENDMENTS TO THE OPTION PLAN
The Board of Directors has the authority to terminate the
Option Plan, to make changes in and additions to the Option Plan
as it deems advisable, provided, however, that the Board may not,
without shareholder approval, increase the aggregate number of
shares which may be issued under the Option Plan, terminate,
modify or amend the Option Plan so as to materially adversely
affect the rights of a holder of an option previously granted,
change the eligibility requirements for participation under the
Option Plan, or materially increase the benefits accruing to
participants under the Option Plan.
FEDERAL INCOME TAX CONSEQUENCES
a. Non-Incentive Stock Options.
No taxable income is recognized by the option holder upon the
grant of a non-incentive stock option. Generally, the option
holder will, however, recognize ordinary income in the year in
which the option is exercised in the amount by which the fair
market value of the purchased shares on the date of exercise
exceeds the exercise price and such fair market value will
constitute the tax basis thereof for computing gain or less on
any subsequent sale. Any gain or loss recognized by the option
holder upon the subsequent disposition of the shares will be
treated as capital gain or loss and will qualify as long-term
capital gain or loss if the shares are held for more than
twelve (12) months prior to disposition.
Generally, the Company will be entitled to a business expense
deduction equal to the amount of ordinary income recognized by
the option holder at the date of exercise. The income
recognized by the option holder will be treated as compensation
income and will be subject to income tax withholding by the
Company.
Long-term capital gain is currently taxed to individuals at the
maximum rate of 28%, while items of ordinary income are
currently taxed to individuals at the maximum rate of 39.6%.
b. Incentive Stock Options.
As in the case of non-incentive stock options, the grant of
incentive stock options will not result in any taxable income
to the grantee. However, unlike non-incentive stock options,
no taxable income will be recognized by the option holder upon
exercise of an incentive stock option granted under the Option
Plan and no expense deduction will be available to the Company.
Generally, of the option holder holds shares acquired upon the
exercise of incentive stock options for at least two (2) years
from the date of grant of the option and for at least one (1)
year from the date of exercise, any gain on a subsequent sale
of such shares will be considered as long-term capital gain.
The gain recognized upon the sales of the shares is equal to
the excess of the selling price of the shares over the exercise
price. Therefore, the net federal income tax effect on the
holders of incentive stock options is to defer, until the
shares are sold, taxation of any increase in the value of the
shares from the date of grant and to treat such gain, at the
time of sale, as capital gain rather than ordinary income.
However, in general, if the option holder sells the shares
prior to expiration of either the two-year or on-year period,
referred to as a "disqualifying disposition", the option holder
will recognize taxable income at ordinary tax rates in an
amount equal to the lesser of (i) the value of the shares on
the date of exercise, less the exercise price; or (ii) the
amount realized on the date of sale in excess of the exercise
price, and the Company will receive a corresponding business
expense deduction. The balance of the gain recognized on the
disqualifying disposition will be long-term or short-term
capital gain depending upon the holding period of the optioned
shares. The two-year and one-year holding period rules do not
apply to optioned shares which are disposed op by the option
holder's estate of a person who acquired such shares by reason
of the death of the option holder.
Long-term capital gain is currently taxed to individuals at a
maximum rate of 28%, while items of ordinary income are
currently taxed to individuals at a maximum rate of 39.6%.
An employee may be subject to alternative minimum tax upon
exercise of an incentive stock option since the excess of the
fair market value of the optioned stock at the date of exercise
over the exercise price must be included in alternative maximum
taxable income unless the optioned stock disposed of is a
disqualifying disposition in the year the option was exercised.
Under Section 162(m) of the Code, certain compensation payments
in excess of $1 million are subject to a limitation on
deductibility for the Company. The limitation on deductibility
applies with respect to that portion of a compensation payment
for a taxable year in excess of $1 million to either the
Company' Chief Executive Officer or any one of the Company's
other four most highly compensated executive officers. Certain
performance-based compensation is not subject to the limitation
on deductibility. Options can qualify for this performance-based exception,
but only if they are granted at fair market value, the total number of
shares that can be granted to an executive for a specified period is
stated, and shareholder and Board approval is obtained. The Option Plan,
as proposed to be amended, has been drafted to comply with those
performance-based criteria except that non-incentive options granted with
an exercise price less than the fair market value of the Common
Stock on the date of grant, including the options issuable to
Outside Directors, will not meet such performance-based
criteria, and, accordingly, the compensation attributable to
such options will be subject to the deductibility limitations
contained in Section 162(m) of the Code.
The foregoing is based upon federal tax laws and regulations as
presently in effect and does not purport to be a complete
description of the Federal Income Tax aspects of the Option
Plan. Also, the specific state tax consequences to each
participant under the Option Plan may vary, depending upon the
laws of the various states and the individual circumstances of
each participant.
ACCOUNTING TREATMENT
Under the present accounting rules, neither the grant nor the
exercise of options will result in any charge to the Company's
earnings, provided the exercise price of the option is not less
than the fair market value of the Company's Common Stock on the
date the option was granted. However, if a non-incentive option
is granted at an exercise price less than the fair market value of
the Common Stock on the date of grant, then the Company will have
a charge to earnings (compensation expense) equal to the
difference between the fair market value of the Common Stock on
the date of grant and the exercise price. In addition, the number
of options outstanding may have a dilutive effect in determining
earnings per share.
ISSUANCE BY COMMITTEE OF OPTIONS TO JOSEPH R. PAPA,
MARY LEE CAMPBELL-WISLEY AND HOWARD B. LORCH
On September 1, 1996, the Board of Directors granted to Joseph
R. Papa options under the Option Plan to purchase 200,000 shares
at an exercise price of $10.125 per share (the fair market value
of Common Stock on the date of grant), which options are for a
term of five (5) years from the date of grant and exercisable at
33% of the number of underlying shares on the date of grant and
cumulatively at the annual rate of 33% thereafter. As the current
Option Plan only permits options to purchase 50,000 shares to be
granted to any one person within any one calendar year and
requires an annual rate of vesting for incentive stock options of
one quarter of the number of underlying shares commencing one (1)
year from the date of grant, the option to purchase 150,000 of the
200,000 shares and the immediate vesting of 66,666 of the 200,000
shares are contingent upon shareholder approval of the Option Plan
Amendments that increase the maximum aggregate number to 200,000
shares which can be granted to any one person within any one
calendar year and that change the vesting of both incentive and
non-incentive options. Mr. Papa's Option Agreement also provides
for the presence of the proposed Cashless Exercise Election.
Therefore, Mr. Papa's options under the Option Plan to purchase
200,000 shares are contingent upon shareholder approval of certain
of the Option Plan Amendments.
On January 29, 1997, the Committee granted to Mary Lee
Campbell-Wisley options under the Option Plan to purchase 45,000
shares at an exercise price of $8.75 per share (the fair market
value on the date of grant), which options are for a term of five
(5) years from the date of grant and exercisable at 33% of the
number of underlying shares on the date of grant and cumulatively
at an annual rate of 33% thereafter. On February 24, 1997, the
Committee granted to Howard B. Lorch options under the Option Plan
to purchase 45,000 shares at an exercise price of $8.00 per share
(the fair market value on the date of grant) which options are for
a term and vest in the same manner extended for Ms. Campbell-Wisely.
The options to purchase 15,000 of the 45,000 shares for both
Ms. Campbell-Wisley and Mr. Lorch are therefore contingent
upon shareholder approval of the Option Plan Amendment that
changes the vesting of both incentive and non-incentive options.
The following table summarizes the value of unexercised options
to be received by Joseph R. Papa, Howard B. Lorch and Mary Lee
Campbell-Wisley in the event the above-described Option Plan
Amendments are approved by the Company's shareholders:
NEW PLAN BENEFIT
Amended and Restated Stock Option Plan
Name and Position Dollar Value (1) Number of Shares
- ----------------- ---------------- ------------
Joseph R. Papa $ - (2) 200,000
President and Chief
Operating Officer
Howard B. Lorch* $ 3,750 15,000
Vice President and
Chief Financial Officer
Mary Lee Campbell-Wisley $ - (2) 15,000
Executive Director
- ------------------
(1) Equal to the difference between the closing sale price of the Common Stock
on April 25, 1997, the most recent practical date prior to the printing of
this Proxy Statement, as reported by The Nasdaq Stock Market, Inc., and
the per share exercise price for the option, multiplied by the number of
shares.
(2) All values are less than or equal to zero and were calculated by
subtracting the exercise or base price from the closing sales price of
$8.25 per share, which was the closing sales price of the Common Stock on
The Nasdaq Stock Market, Inc. on April 25, 1997.
* Subject to final document execution.
REQUIRED VOTE
Approval of the Option Plan Amendments will require the
affirmative vote of the holders of a majority of the outstanding
shares of Common Stock present in person or represented by proxy
at the Annual Meeting and entitled to vote. In instances of
broker non-votes, those shares will not be included in the vote
totals, and therefore will have no effect on the vote for the
approval of the Option Plan Amendments. Unless marked to the
contrary, proxies received will be voted FOR approval of the
Option Plan Amendments.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE APPROVAL OF THE OPTION PLAN AMENDMENTS.
APPROVAL OF 1996 NON-INCENTIVE EXECUTIVE STOCK OPTION PLAN
GENERAL
The Company's 1996 Non-Incentive Executive Stock Option Plan
(the "NIE Plan") was adopted on December 23, 1996 by the Board of
Directors, subject to approval by the Company's shareholders. The
NIE Plan provides for an aggregate of 650,000 shares (subject to
adjustment or change as provided therein) to be reserved for
issuance upon the exercise of NISOs granted from time to time in
accordance with the NIE Plan. The grant of 600,000 shares to
Robert W. Morey pursuant to the NIE Plan was approved by the
Committee on December 16, 1996, subject to Board approval of the
Plan and shareholder approval of the Plan and Mr. Morey's grant.
SUMMARY OF THE NIE PLAN
The essential features of the NIE Plan are outlined below.
PURPOSE
The purpose of the NIE Plan of the Company is to acknowledge
exceptional services to the Company by senior executives and to
provide an added incentive for such senior executives to continue
to provide such services and to promote the best interest of the
Company.
GRANT OF OPTIONS
The NIE Plan is administered by the Compensation Committee (the
"Committee") comprised of three (3) non-employee directors, as
defined by Rule 16b-3 under the Securities Exchange Act of 1934,
as amended. The Committee selects senior executive of the Company
to be granted options and determines (i) the number of shares of
the Company's Common Stock purchasable under the options;
(provided, however, that options to purchase in excess of 600,000
shares may not be granted to any one senior executive); (ii) the
time or times when the option becomes exercisable; (iii) the
exercise price, which cannot be less than one hundred percent
(100%) of the fair market value of the Common Stock on the date of
grant; and (iv) the duration of the options, which cannot exceed
five (5) years from the date of grant.
EXERCISE OF OPTIONS
All options are exercisable during the option holder's lifetime
or by the option holder's within the times or upon the events
defined by the Committee as set forth in the Option Agreement.
OPTION ADJUSTMENTS
The NIE Plan contains a customary anti-dilution provision which
provides that in the event of any change in the Company's
outstanding capital stock by reason of a stock dividend,
recapitalization, split-up, combination, reclassification or
exchange or through merger or consolidation, or otherwise, the
aggregate number of shares of the Common Stock reserved for
issuance under the NIE Plan is proportionately adjusted and the
aggregate number of shares of Common Stock subject to outstanding
options and the exercise price per share thereof shall be
proportionately adjusted by the Committee whose determination
thereon shall be conclusive.
TERM OF OPTIONS
The terms of each option shall be five (5) years from the date
of grant, but shall terminate, lapse or expire at such earlier
time or times as is provided in the Option Agreement governing
each such option.
AMENDMENTS TO THE OPTION PLAN
The Committee may at any time terminate, amend or modify this
Plan in any respect (including, but not limited to, any form of
grant, agreement or instrument to be executed pursuant to this
Plan); provided, however, that shareholder approval shall be
required to be obtained by the Company if required to comply with
the listed company requirements of The Nasdaq National Market or
of a national securities exchange on which the shares of Common
Stock are traded, or other applicable provisions of state or
federal law or self-regulatory agencies; provided, further, that
no termination, amendment or modification of this Plan may,
without the written consent of such Option holder, materially
adversely affect the rights of a holder of an Option previously
granted under this NIE Plan.
<PAGE>
TERM OF PLAN
No option shall be granted pursuant to the NIE Plan on or after
December 22, 2006, but options theretofore granted may extend
beyond that date and the terms of the NIE Plan shall continue to
apply to such options and to any shares acquired upon exercise
thereof.
FEDERAL INCOME TAX CONSEQUENCES
No taxable income is recognized by the option holder upon the
grant of an option under the NIE Plan. Generally, the option
holder will, however, recognize ordinary income in the year in
which the option is exercised in the amount by which the fair
market value of the purchased shares on the date of exercise
exceeds the exercise price and such fair market value will
constitute the tax basis thereof for computing gain or loss on any
subsequent sale. Any gain or loss recognized by the option holder
upon the subsequent disposition of the shares will be treated as
capital gain or loss and will qualify as long-term capital gain or
loss if the shares are held for more than twelve (12) months prior
to disposition.
Generally, the Company will be entitled to a business expense
deduction equal to the amount of ordinary income recognized by the
option holder at the date of exercise. The income recognized by
the option holder will be treated as compensation income and will
be subject to income tax withholding by the Company.
Long-term capital gain is currently taxed to individuals at the
maximum rate of 28%, while items of ordinary income are currently
taxed to individuals at the maximum rate of 39.6%.
ACCOUNTING TREATMENT
Under the present accounting rules, neither the grant nor the
exercise of options will result in any charge to the Company's
earnings, as the exercise price of the option is not less than the
fair market value of the Company's Common Stock on the date the
option was granted. However, the number of options outstanding
may have a dilutive effect in determining earnings per share.
ISSUANCE BY COMMITTEE OF OPTIONS TO ROBERT W. MOREY
On December 16, 1996, the Committee (Mr. Tucker excused himself
as a Committee member from participation on this matter) granted
to Robert W. Morey 600,000 shares of performance-accelerated stock
options; 450,000 options to purchase Common Stock at $10 per
share, exercisable at the earlier of November 23, 2001 or the
stock attaining a fair market value price of $20 per share for
thirty (30) consecutive trading days; 150,000 options to purchase
Common Stock at $15 per share, exercisable at the earlier of
November 23, 2001 or the stock attaining a fair market value price
of $25 per share for thirty (30) consecutive trading days. In the
event of a change of control of the corporation, the shares become
exercisable as follows: if (i) on the date of such change of
control, the fair market value of the Company's Common Stock is
equal to or greater than (A) $17.50 per share for the option to
purchase 450,000 shares; or (B) $22.50 per share for the option to
purchase 150,000 shares; or (ii) shares of Common Stock are
purchased at a price in the transaction implementing such change
of control equal to or greater than (A) $17.50 per share for the
450,000 shares; or (B) $22.50 per share for the option to purchase
150,000 shares. An option not meeting either (i) or (ii) upon a
change of Control of the corporation shall immediately terminate,
lapse or expire. The Committee relied upon the opinions of the
outside consulting firm of Janney Montgomery Scott, Inc. dated
December 16, 1996 and March 11, 1997 that the proposed NIE Plan
and the proposed grant of options to Mr. Morey thereunder were
fair from a financial point of view to the Company's shareholders.
These options and the 1996 Non-Incentive Executive Stock Option
Plan pursuant to which they were granted are subject to the
approval of shareholders.
NEW BENEFIT PLAN
Name and Position Dollar Value (1) Number of Shares
- ----------------- ---------------- ------------
Robert W. Morey, Jr. $ - (2) 600,000
Chief Executive Officer
- ------------------
(1) Equal to the difference between the closing sale price of the Common Stock
on April 25, 1997, the most recent practical date prior to the printing of
this Proxy Statement, as reported by The Nasdaq Stock Market, Inc., and
the per share exercise price for the option, multiplied by the number of
shares.
(2) All values are less than or equal to zero and were calculated by
subtracting the exercise or base price from the closing sales price of
$8.25 per share, which was the closing sales price of the Common Stock on
The Nasdaq Stock Market, Inc. on April 25, 1997.
REQUIRED VOTE
Approval of the NIE Plan requires the affirmative vote of the
holders of a majority of the outstanding shares of Common Stock
present in person or represented by proxy at the Annual Meeting
and entitled to vote. In instances of broker non-votes, those
shares will not be included in the vote totals, and therefore will
have no effect on the vote for the approval of the NIE Plan.
Unless marked to the contrary, proxies received will be voted FOR
approval of the NIE Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE ADOPTION OF THE NIE PLAN.
RATIFICATIONS OF REAPPOINTMENT OF INDEPENDENT AUDITORS
Deloitte & Touche LLP currently serves as the Company's
independent auditors. They have served in that capacity since
1992. On May 11, 1996, subject to ratification by the
shareholders, the Company's Board of Directors appointed Deloitte
& Touche LLP as independent auditors of the Company for 1997. The
shareholders are asked to ratify this action of the Board. The
affirmative vote of a majority of the total votes cast by the
holders of Common Stock and Class A Common Stock present in person
or represented by proxy at the Annual Meeting voting as one class
is required to ratify the appointment of Deloitte & Touche LLP as
independent auditors of the Company for 1997. Unless marked to
the contrary, proxies received will be voted "FOR" ratification of
the appointment of Deloitte & Touche LLP as independent auditors
of the Company for 1997. It is anticipated that a representative
of Deloitte & Touche LLP will be present at the Annual Meeting to
answer appropriate questions within such firm's field of
expertise. Such representative will have the opportunity to make
a statement if he/she desires to do so.
The ratification of the appointment of Deloitte & Touche LLP as
independent auditors of the Company is being submitted to the
shareholders because the Board believes that such action follows
sound corporate practice and is in the best interest of the
shareholders. If the shareholders do not ratify the appointment
by the requisite vote at the Annual Meeting, the appointment of
independent auditors will be reconsidered by the Board. It the
shareholders ratify the appointment, the Board, in its discretion,
may still direct the appointment of new independent auditors at
any time during the year if the Board believes that such change
would be in the best interest of the Company and its shareholders.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP
AS INDEPENDENT AUDITORS FOR 1997.
OTHER BUSINESS
Management does not know of any matter to be brought before the
Annual Meeting other than as described above. In the event any
other matter properly comes before the Annual Meeting, the persons
named in the accompanying form of proxy have discretionary
authority to vote on such matters.
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered for inclusion in the
Company's proxy solicitation material for the next Annual Meeting
of Shareholders must be received by the Company at its principal
office by December 31, 1997.
Dated: May 15, 1997
<PAGE>
PROXY CARD
THE WELLCARE MANAGEMENT GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert W. Morey, Jr. and Howard B.
Lorch and each of them, proxies, each with the power of
substitution, to vote the shares of the undersigned at the Annual
Meeting of Shareholders of The WellCare Management Group, Inc.
(the "Company") on June 10, 1997, and any adjournments or
postponements thereof, upon all matters as may properly come
before the Annual Meeting. Without otherwise limiting the
foregoing general authorization, the proxies are instructed to
vote as indicated herein.
(CONTINUED ON OTHER SIDE)
<PAGE>
Please mark your
X votes as in this
example.
This proxy, which is solicited on behalf of the Board of
Directors, will be voted FOR the matters described in paragraphs
(1), (2), (3), (4) and (5) unless the shareholder specifies
otherwise, in which case, it will be voted as specified.
FOR AGAINST ABSTAIN
(1) TO AUTHORIZE AN AMENDMENT TO ARTICLE
VII OF THE COMPANY'S RESTATED
CERTIFICATE OF INCORPORATION TO
ELIMINATE THE CLASSIFIED STRUCTURE
OF THE BOARD OF DIRECTORS.
(2) TO ELECT SEVEN (7) DIRECTORS
FOR (except as marked to WITHHOLD AUTHORITY
contrary below) all seven to vote for seven
(7) nominees listed at (7) nominees
right. listed at right.
Nominees for Directors:
Charles E. Crew, Jr.
Mark D. Dean, D.D.S.
Walter W. Grist
Robert W. Morey, Jr.
John E. Ott, M.D.
Joseph R. Papa
Lawrence C. Tucker
TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE(S) PRINT SUCH NOMINEE'S
NAME BELOW.
- ------------------------------------------
OR IF PROPOSAL (1) IS NOT APPROVED
TO ELECT TWO (2) CLASS I DIRECTORS
AND ONE (1) CLASS II DIRECTOR TO
THE BOARD OF DIRECTORS
FOR (except as marked to WITHHOLD AUTHORITY
contrary below) the two (2) to vote for the two
Class I nominees and the one (2) Class I nominees
(1) Class II nominee listed and one (1) Class II
at right. nominee listed at
right.
Nominees for Class I Directors:
Mark D. Dean, D.D.S.
Walter W. Grist
Nominee for Class II Director:
Joseph R. Papa
TO WITHHOLD AUTHORITY TO VOTE FOR ANY
INDIVIDUAL NOMINEE(S) PRINT SUCH NOMINEE'S
NAME BELOW.
- ------------------------------------------
FOR AGAINST ABSTAIN
(3) TO APPROVE AMENDMENTS TO THE
COMPANY'S 1993 INCENTIVE AND
NON-INCENTIVE STOCK OPTION
PLAN (THE "OPTION PLAN") TO:
(i) CHANGE THE ADMINISTRATION OF THE OPTION PLAN TO A
COMMITTEE OF THREE (3) OR MORE "NON-EMPLOYEE DIRECTORS" AS
DEFINED BY THE SECURITIES LAWS AND REGULATIONS;
(ii) ELIMINATE THE FORMULA AWARD FOR GRANTING OF NON-INCENTIVE STOCK
OPTIONS TO OUTSIDE DIRECTORS OF THE COMPANY;
(iii) INCREASE THE MAXIMUM AGGREGATE NUMBER OF SHARES WITH
RESPECT TO STOCK OPTIONS TO BE GRANTED TO ANY ONE INDIVIDUAL
WITHIN ANY ONE CALENDAR YEAR TO 200,000 SHARES;
(iv) CHANGE THE VESTING OF INCENTIVE AND NON-INCENTIVE STOCK
OPTIONS;
(v) ESTABLISH A CASHLESS EXERCISE ELECTION;
(vi) EXTEND THE TERMINATION OF INCENTIVE STOCK OPTIONS UPON
THE TERMINATION OF EMPLOYMENT, DISABILITY OR DEATH OF THE
OPTION HOLDER; AND
(vii) REVISE THE PROVISIONS RELATING TO THE AMENDMENT OR
TERMINATION OF THE OPTION PLAN.
FOR AGAINST ABSTAIN
(4) TO APPROVE THE ADOPTION OF
THE COMPANY'S 1996 NON-INCENTIVE
EXECUTIVE STOCK OPTION PLAN.
FOR AGAINST ABSTAIN
(5) TO RATIFY THE REAPPOINTMENT OF
DELOITTE & TOUCHE LLP AS
INDEPENDENT AUDITORS OF THE
COMPANY FOR THE YEAR ENDING
DECEMBER 31, 1997.
FOR AGAINST ABSTAIN
(6) UPON ANY AND ALL OTHER BUSINESS
THAT MAY PROPERLY COME BEFORE
THE ANNUAL MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT
THEREOF.
PLEASE SIGN AND RETURN THE
CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
SIGNATURE(S): DATE:
Note: [Executors, Administrators, etc. should give full title.]
