UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-21684
THE WELLCARE MANAGEMENT GROUP, INC.
(Exact name of Registrant as specified in its charter)
NEW YORK 14-1647239
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
PARK WEST/HURLEY AVENUE EXTENSION, KINGSTON, NEW YORK 12401
(Address of principal executive offices) (Zip Code)
(914) 338-4110
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of this Registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock (Common
Stock, $.01 par value) held by non-affiliates of the Registrant on
March 3, 1997 was $31,452,774 based on the closing sales price of
the Common Stock on such date.
The aggregate number of Registrant's shares outstanding on
March 3, 1997 was 4,947,334 of Common Stock, $.01 par value and
1,364,908 shares of Class A Common Stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Page 1 of 255 Pages
Exhibit Index on Page 91<PAGE>
PART I
ITEM 1. BUSINESS
Certain statements in the Form 10-K are forward-looking
statements and are not based on historical facts but are
management's projections or best estimates. Actual results may
differ from these projections due to risks and uncertainties.
These risks and uncertainties include a variety of factors. The
Company's results of operations depend in large part on accurately
predicting and effectively managing medical costs and other
operating expenses. A variety of factors, including competition,
changes in health care practices, changes in federal or state laws
and regulations or the interpretations thereof, inflation,
provider contract changes, new technologies, government-imposed
surcharges, taxes or assessments, reductions in provider payments
by governmental payors (including Medicare, whereby such
reductions may cause providers to seek high payments from private
payor), major epidemics, disasters and numerous other factors
affecting the delivery and cost of health care, may in the future
affect the Company's ability to control its medical costs and
other operating expenses. Governmental action (including downward
adjustments to premium rates requested by the Company, which could
result in adjusted rates lower than premium rates then in effect)
or business conditions (including intensification of competition
and the other factors described above) could result in premium
revenues not increasing to offset increases in medical costs and
other operating expenses. Once set, premiums are generally fixed
for one year periods and, accordingly, unanticipated costs during
such periods cannot be recovered through higher premiums. The
expiration, suspension or termination of contracts to provide
health coverage for governmental entities or other significant
customers would also negatively impact the Company. Due to these
factors and risks, no assurance can be given with respect to the
Company's premium levels or its ability to control its medical
costs.
GENERAL
The WellCare Management Group, Inc. ("WellCare" or the
"Company") is a managed health care company whose wholly-owned
subsidiaries, WellCare of New York, Inc. ("WCNY") and WellCare of
Connecticut, Inc. ("WCCT"), are health maintenance organizations
("HMOs"). Through another wholly-owned subsidiary, Agente Benefit
Consultants, Inc. ("ABC"), WellCare also provides specialty
benefit programs and related administrative services to employer
and other groups which utilize health care services. WCNY is the
dominant HMO in the Hudson River Valley region. WCCT is modeled
on WCNY and received licensure to operate an HMO in the State of
Connecticut in March 1995. WellCare provides management services
to each of its subsidiaries.
WCNY and WCCT (the "WellCare HMOs"), licensed to operate
HMOs in the States of New York and Connecticut, respectively,
provide comprehensive health care services to members in their
respective service areas. WCNY's service area extends from New
York City north through the Hudson River Valley to the Capital
Region and Southern Adirondacks and west into the Mohawk River
Valley and Southern Tier. WCCT is licensed to operate statewide
in Connecticut. WCNY and WCCT are independent practice
association/direct contract ("IPA/Network") mixed model HMOs.
Members of the WellCare HMOs are serviced through a provider
network consisting of approximately 1,600 primary care physicians,
5,100 specialists and 80 hospitals. At December 31, 1996,
enrollment in plans owned, managed or administered by WellCare was
approximately 93,500 members from approximately 2,600 employer
groups, compared to approximately 100,000 members enrolled from
approximately 2,500 employer groups at December 31, 1995. At
December 31, 1996, no employer group accounted for more than 4% of
the WellCare HMOs' membership. The decline in commercial
membership is substantially attributable to WellCare's more
stringent application of its credit standards, pursuant to which
contracts for non-paying or slow-paying groups were canceled or
not renewed, as well as to customers' adverse reaction to the
negative publicity received by the Company related to the
restatement of its 1994 financial results. The decline in
Medicaid membership is attributable to the ban on direct
enrollment of Medicaid eligibles by any managed care plans from
August 1, 1995 through August 1, 1996 in New York City, thereby
not offsetting normal Medicaid disenrollments or permitting growth
in enrollment during that period, as well as a statewide decrease
in the number of individuals eligible for Medicaid which has
caused a decrease in the total number of Medicaid eligibles in all
managed care organizations.
THE MANAGED CARE INDUSTRY
Health care costs in the United States have escalated
dramatically from $324 billion in 1982 to an estimated $988.5
billion in 1995, or approximately 13.6% of the gross national
product. As a result, employers, insurers, governmental entities
and health care providers have sought effective cost containment
measures, contributing to the development of the managed care
industry. Further, the inability of a significant portion of the
population to obtain health care coverage has resulted in health
care reform measures proposed both at the federal and state
levels, many of which focus on managed care as a means for
providing quality health care services on a cost-effective basis.
An HMO provides or arranges for the provision of
comprehensive health care services, including physician and
hospital care, to a voluntarily enrolled population for a fixed,
prepaid premium. Except in cases of medical emergency, the member
receives care from participating primary care physicians who, in
turn, refer the members to participating specialists and hospitals
as required. HMOs provide management controls designed to
encourage efficient and economic utilization of health care
services. These controls include monitoring physician services,
the level of hospital admissions and the lengths of hospital stay,
and promoting the use of non-hospital based medical services.
Initially, managed care was provided primarily through HMOs,
but has expanded to the provision of an increasing variety of
products and services, including preferred provider organizations
("PPO"), utilization review services, third-party claims
administrators and specialty benefit programs, which are marketed
to self-insured employer plans, unions, indemnity insurers and
other groups.
A number of government-sponsored health care programs have
begun to encourage the enrollment of their beneficiaries into
managed care plans, particularly HMOs, as a means of controlling
escalating health care costs. The largest of these programs are
Medicaid and Medicare, which service the poor and the elderly,
respectively.
MEDICAID. The Medicaid program, sponsored by individual
state governments, provides health care services to low income
individuals in the United States, receiving significant financial
support from the federal government. In 1991, approximately $14
billion was spent on Medicaid programs in New York State, which
increased by approximately 43% to approximately $20 billion in
1996. Due to significant medical costs inflation, state
governments are increasingly contracting with managed care
companies, including HMOs, to provide health care services to
their Medicaid recipients. In contracting with private managed
care companies, Medicaid shifts most of the financial risk of
health care services delivery to the HMO and allows the Medicaid
program to benefit from the cost-efficiency practices of the
managed care industry. Several states, including Connecticut,
currently require and others, including New York (subject to
federal approval), will mandate that all Medicaid beneficiaries
enroll with managed care companies to receive medical services.
Currently, only approximately 28% of the approximately 2.3 million
eligible Medicaid recipients in New York State are enrolled in HMO
plans.
MEDICARE. Medicare is a federal government-sponsored
entitlement program administered by the Health Care Financing
Administration ("HCFA"), providing health care coverage to
approximately 37.5 million individuals, primarily over 65 years of
age. In 1996, Medicare accounted for approximately $193 billion
in health benefits for eligible people. Total Medicare benefit
outlays for fiscal 1997 are estimated at $206 billion. This
represents an amount which is 6.6% higher than fiscal year 1996
and reflects growth in beneficiary enrollment, service utilization
and medical inflation.
The federal government, through HCFA, has contracted with
HMOs since 1985 and, currently, approximately 4.9 million Medicare
beneficiaries are enrolled in managed care. Of that number, 4.3
million are covered under plans that assume risk in the delivery
of health care services to Medicare beneficiaries ("Medicare Risk
Contracts"). In contracting with HMOs pursuant to Medicare Risk
Contracts, HCFA bases payment rates on 95 percent of the average
Medicare medical costs determined by age, sex, county and
institutional status. In addition to the five percent cost
savings, the financial risk and most of the administrative burdens
of health care service delivery are shifted to the HMO, and the
administrative efficiency practices of managed care are integrated
into the Medicare program. At December 31, 1996 there were 258
Medicare Risk Plans nationwide (including multiple plans by single
HMOs). At December 31, 1996, there were approximately 70
applications for Medicare Risk Contracts pending. Approximately
70,000 Medicare beneficiaries each month choose managed care.
BUSINESS STRATEGY
WellCare's strategy has been to provide high quality,
competitively priced HMO products and other managed care products
and services. Wellcare's membership, which has grown by
approximately 83% since 1992, experienced a reduction of
approximately 7% from 1995 to 1996 year end. This decrease
occurred toward the end of the year, in commercial and Medicaid
accounts, and was partially offset by an increase in Medicare
business. The decline in commercial membership is substantially
attributable to WellCare's more stringent application of its
credit standards, pursuant to which contracts for non-paying or
slow-paying groups were canceled or not renewed, as well as to
customers' adverse reaction to the negative publicity received by
the Company related to the restatement of its 1994 financial
results. The decline in Medicaid membership is attributable to
the ban on direct enrollment of Medicaid eligibles by any managed
care plans from August 1, 1995 through August 1, 1996 in New York
City, thereby not offsetting normal Medicaid disenrollments or
permitting growth in enrollment during that period, as well as a
statewide decrease in the number of individuals eligible for
Medicaid which has caused a decrease in the total number of
Medicaid eligibles in all managed care organizations. WellCare
believes it can continue to expand its HMO membership and deliver
effective managed care by continuing to focus on the following
strategies:
MAINTAINING COMPETITIVELY PRICED PREMIUMS THROUGH
CONTAINMENT OF HEALTH CARE COSTS. The Company's success depends
to a significant degree upon its ability to control health care
costs. Primary care physicians are integral to health care cost
containment as they control to a significant degree member
utilization of hospitals, specialists and other health care
providers. WellCare has worked to develop a network in which
virtually all primary care physicians are paid on a capitation
basis. WCNY directly capitates regional health care alliances
(the "Alliances") and non-Alliance primary care physicians with a
fixed monthly payment for each HMO member selecting an Alliance
primary care physician or non-Alliance primary care physician,
designed to cover the costs of substantially all health care
services provided to the member, notwithstanding the amount of
medical care rendered. WellCare assists the primary care
physicians in efficiently managing their practices by providing
them with outcome studies, utilization and other statistical data,
quality assurance reviews, and managed care educational programs.
WellCare is committed to continuously improving its capitation and
other fee arrangements and to facilitating optimal health care
utilization in order to ensure high-quality, low-cost service. As
part of this commitment, WCNY began capitating certain specialty
services in 1994. During 1996, the following specialties were
capitated by the WellCare HMOs: mental health, chiropractic,
physical therapy, podiatry, vision and certain diagnostic
services.
EXPANDING SERVICE AREAS. WellCare traditionally has
concentrated on expanding in secondary markets where price
competition is less intense than in major metropolitan areas and
where widespread name recognition is easier to achieve. The
Company's ability to work closely with physicians and hospitals,
which it believes leads to more effective cost containment, is
well suited to secondary markets. Accordingly, WellCare will
continue to focus on such contiguous markets as well as other
growth areas, including certain primary markets. WCNY is
currently approved to operate in 24 counties in New York State,
including four of the five counties of New York City.
Additionally, effective January 1, 1997, WCNY received approval
for expansion into Westchester County. In 1995, WellCare expanded
its HMO operations into Connecticut through WCCT, and is currently
approved to operate statewide in Connecticut.
PROVIDING MEMBERS ACCESS TO A BROAD RANGE OF QUALITY
PHYSICIANS. WellCare recognizes that expansion and retention of
its HMO membership is dependent to a significant degree upon
providing access to a broad range of quality health care providers
and intends to continue expanding as well as improving its health
care provider network in its core service area and proposed areas
for expansion. At December 31, 1996, the provider network of the
WellCare HMOs consists of approximately 1,600 primary care
physicians and 5,100 specialists. Over 92% of the provider
network is board-certified. WellCare's widespread name
recognition in its core service area facilitates recruitment of
participating physicians and, during 1996, approximately 960
additional primary care physicians and 2,100 specialists joined
WellCare's network.
ADDING NEW BENEFIT PROGRAMS AND INITIATING NEW PRODUCTS AND
SERVICES. In 1996, WCNY received approval from HCFA to expand its
Senior Health product into four additional counties of WCNY's
service area. Additionally, WCNY's Medicaid coverage program
received regulatory approvals to expand into an additional three
counties, including Broome, Delaware and Schoharie. To meet the
needs of employer groups and exploit new opportunities in managed
care, WellCare is continuing to expand and initiate complementary
managed care products and services. WellCare offers a broad PPO
network to provide vision care, mental health, pharmacy and
primary care benefit programs as stand-alone products. The
WellCare HMOs offer third-party administrator services. WellCare
also offers a point-of-service product for its HMO members.
INVESTMENTS IN TECHNOLOGY AND INFRASTRUCTURE. WellCare
believes that investments in technology and infrastructure are
critical for future HMO membership growth. In 1996, WellCare
implemented a new electronic imaging and work flow distribution
system which enhances both enrollment and claims adjudication
processing.
THE WELLCARE HMOS
The WellCare HMOs provide comprehensive health care services
to their members for a fixed monthly premium, plus a co-payment by
the member to the physician for each office visit generally, and a
dispensing fee to the pharmacy for each prescription filled. The
basic benefits a member receives consist of primary and specialty
physician care, inpatient and outpatient hospital services,
emergency and preventive health care, laboratory and radiology
services, ambulance services, eye care, physical and
rehabilitative therapy services, mental health care, and alcohol
and substance abuse counseling. For an increased monthly premium,
members have the option to receive prescription drugs and extended
dental and vision care.
The WellCare HMOs arrange for the provision of other health
care services by contracting with hospitals which through December
31, 1996, were paid primarily on a diagnostic related group
("DRG") basis under New York State law rather than by length of
hospital stay (although New York HMOs were permitted to negotiate
lower DRG or per diem rates with regulatory approval). As a
result of recent New York State legislation, effective January 1,
1997, WellCare has been contracting and intends to contract with
most hospitals on a negotiated per diem rate basis (See "Business
- - Government Regulations - Recent New York State Legislation").
The WellCare HMOs also arrange for the provision of health
care services in the case of primary care and certain specialty
services, on a capitated fee basis, and with other health care
providers, generally on a discounted fee-for-service basis.
Members are allowed to select any primary care physician or
practice participating in the WellCare HMO network and are allowed
to switch from one primary care physician or practice to another
within the network. All medical care received by the member,
including specialist and hospital care, is coordinated by the
primary care physician. Hospitalization for members requiring
non-emergency treatment generally takes place in hospitals, which
either are under contract or have arrangements with the WellCare
HMOs; emergency treatment may be obtained in any hospital.
Premiums are generally fixed for a twelve-month period under
contracts with each subscriber group. WellCare considers a
variety of factors in determining HMO premiums, including
anticipated health care utilization rates, projected medical
expenses, community rating requirements (applicable in both New
York and Connecticut) and competitive conditions. Premiums are
subject to state regulation (See "Business - Government
Regulation").
MEMBERSHIP
WELLCARE HMOS
At December 31, 1996, the WellCare HMOs provided managed
care services to approximately 93,500 members enrolled from
approximately 2,600 employer groups. The five largest employer
groups accounted for approximately 11% of total membership, with
no one group accounting for more than 4% of such membership.
The membership of the WellCare HMOs is comprised of the
following:
* Members enrolled through subscribing private or public
sector employers or unions, and members unaffiliated with
subscriber groups enrolling individually (collectively,
"commercial members");
* Recipients of public aid whose eligibility is determined by
the New York State Department of Social Services ("Medicaid
members");
* Medicare beneficiaries covered under Full Risk program
("Medicare beneficiaries"); and
* Medicare beneficiaries receiving HMO supplemental coverage
for medical services not covered by Medicare ("Medicare
supplement members").
Presently, WCCT has received approval to offer coverage only
to commercial members.
When a subscriber group agrees to offer the WellCare HMOs to
its employees, enrollment is voluntary by the individual, who must
be accepted for enrollment regardless of health status. Employers
generally pay all or part of the monthly health care premiums for
their employees, deducting the portion not so paid from the
employee's salary. Upon leaving a subscriber group, an individual
may elect to continue as an HMO member by paying a monthly
premium.
Individuals may be enrolled as Medicaid members in WCNY
through its Healthy Choice product ("Healthy Choice") only if they
are eligible recipients of public aid. Medicaid members are
enrolled on an individual basis pursuant to agreements with county
social services departments and approval by the New York State
Department of Social Services (the "DSS") and must be enrolled
regardless of health status. Twenty-five percent of the premiums
for Medicaid members is funded by the applicable county, 25% by
the State of New York and the balance by the federal government.
The agreements contain extensive provisions for termination by the
county departments for cause or upon 90 days' notice in the event
of unavailability of state funds to pay for continued services to
Medicaid members. In the event the contracts are terminated or
not renewed, the Company's operating results would be adversely
affected. Medicaid Managed Care legislation was enacted in 1996
authorizing New York State, pursuant to federal waiver, to require
most Medicaid recipients to enroll in managed care plans. The
Company believes it is well positioned in the marketplace to
service these individuals upon New York State's receipt of the
federal approval of the mandatory waiver.
Effective September 1, 1995, HCFA awarded a Medicare Risk
Contract to WCNY in designated counties. Medicare beneficiaries
are enrolled pursuant to annual contracts with the federal
government under which WCNY provides health care services. These
contracts provide for the federal government to pay WCNY a fixed
monthly premium per member equal to approximately 95% of the
average medical costs by age, sex, county and institutional
status. Premiums are subject to periodic unilateral revision by
the federal government. The Medicare beneficiaries pay no monthly
premiums or deductibles, although there are co-payments for office
visits or prescriptions and there is an annual limit of $500 on
prescription charges per member. Medicare members are able to
disenroll for any reason at any time. Effective January 1, 1997,
WellCare's Medicare Risk Program ("Senior Health") expanded from
eight counties (Albany, Columbia, Dutchess, Greene, Orange,
Rennselaer, Rockland and Ulster) with approximately 240,000
eligible individuals to twelve counties (now including Broome,
Delaware, Otsego and Sullivan) with a total of over 300,000
eligible individuals.
Medicare supplement members may enroll in WCNY on a group
basis through their present or past employers to supplement
medical coverage received from Medicare. Under the supplemental
coverage, in return for a fixed monthly premium, WCNY pays the
cost of most medical services not covered by Medicare, provided
the Medicare beneficiary uses the HMO provider network for such
services, other than for emergency care.
PLANS MANAGED BY WELLCARE
The following table reflects membership and employer groups
for plans owned, managed or administered by WellCare during the
five years ended December 31, 1996:
At December 31,
1996 1995 1994 1993 1992
Commercial Members (1) 69,653 78,910 71,119 60,112 44,456
Medicaid Members 18,270 19,112 10,010 8,941 5,660
Medicare Members (2) 5,530 2,032 1,365 1,147 801
Total Members 93,453 100,054 82,494 70,200 50,917
Number of Employer Groups 2,600 2,500 1,900 1,500 1,300
(1) Includes HMO commercial members and members enrolled under non-HMO
specialty programs.
(2) Includes Medicare beneficiaries and Medicare supplement members.
MEDICAL COST CONTROL
The Company's success depends to a significant degree upon
its ability to control health care costs. WellCare controls such
costs through (i) capitation arrangements with the Alliances and
with non-Alliance primary care physicians, (ii) discounted fee-for-service
arrangements with specialists and other health care
providers (other than hospitals which, through December 31, 1996,
in New York State were paid primarily on a DRG basis, although
HMOs could negotiate lower DRG or per diem rates), (iii)
capitation arrangements with providers of certain specialty
services, (iv) health care utilization review programs, and (v)
co-payments by members for office visits and other services.
Notwithstanding such cost control measures, health care costs in
any given period may be greater than expected due to unexpected
incidence of major cases, natural disasters, epidemics, changes in
physician practices and new technologies; and that major health
care providers will be unable to maintain their operations and
reduce or eliminate their accumulated deficits. These factors
which impact health care costs are beyond the Company's control
and may adversely affect its operations.
PHYSICIAN ARRANGEMENTS
Effective October 1, 1994, WCNY entered into contracted
arrangements with a majority of its primary care physicians and
specialists through contracts with regional health care delivery
networks (the "Alliances") for the provision of health care
services to the Plan's commercial and Medicaid members.
Initially, each Alliance was a professional corporation that then
contracted with individual primary care physicians and specialists
to provide health care services. At inception, there were four
Alliances with different equity owners; by December 31, 1995, the
four Alliances were combined into two Alliances, with the same
equity owner, which the Company has been advised are in the
process of converting to IPAs. WCNY's initial agreement with
each of the Alliances for the period October 1, 1994 through
September 30, 1995, required payment to the Alliances based on a
percentage of premium revenue for effected members. Effective
October 1, 1995, WCNY entered into three year agreements with each
of the Alliances to capitate them at specified per member per
month ("PMPM") rates designated to cover the costs of all health
care services provided to the HMO members. These agreements
originally provided for increases of approximately 1% for the
period October 1, 1995 through December 31, 1995; approximately 6%
effective January 1, 1996; approximately 1% effective January 1,
1997; and an additional 3% effective January 1, 1998.
In an effort to improve the profitability of WCNY and the
Alliances, WCNY entered into a letter of understanding with the
Alliances in September 1996 to restructure its capitation
arrangement. Pursuant to the terms of the restructured
arrangement, WCNY reassumed the risk for certain previously
capitated services, as well as reduced the capitation rate paid
for certain services which continued to be provided by the
Alliances. At December 31, 1996, WCNY capitated the Alliances for
all physician services, both primary care and specialty services,
on a PMPM basis for each HMO member except for physician services
in the areas of certain diagnostics and mental health, which
WellCare capitated through contracts with certain other regional
integrated delivery systems. Additionally, if certain conditions
are met, these contracts will be extended to ten-year terms.
Each Alliance, in turn, capitates each Alliance primary care
physician from the monthly payments received from WCNY with a
fixed monthly payment for each HMO member designating the Alliance
physician as their primary care provider, retaining and allocating
the balance to a group risk pool for payment to specialists.
Specialists are compensated on a fee-for-service basis by each
Alliance which disburses payments to these specialists. To the
extent the risk pools are insufficient to cover the specialists'
fees, the amounts paid to the specialists as a group can be
proportionately reduced, up to a maximum of 30%. To the extent
the risk pools are still insufficient to cover the specialists'
fee after a maximum reduction, a portion of the capitation
payments to primary care physicians can be withheld to cover the
specialists' fees after the reduction. Primary care physicians
and specialists are furnished with periodic utilization reports
and the Alliances' accounts are reconciled on a quarterly basis.
WCNY is ultimately responsible for all medical care provided
to its members notwithstanding its Alliance arrangements, and
intends to remain integrally involved in assisting primary care
physicians to efficiently manage their practices by providing them
with outcome studies and other statistical data, quality assurance
reviews, utilization and other managed care educational programs.
During 1996, Alliance primary care physicians provided
medical care to approximately 76% of WCNY's members; the balance
of WCNY's members were provided services by primary care
physicians who are directly capitated by WCNY. WCNY also has
individual contracts with substantially all physicians in the
Alliances. However, there can be no assurance that physicians
that join an existing or new Alliance will contract directly with
WCNY. WCNY has three year contracts with the Alliances. If
certain conditions are met, these contracts will be extended to
ten year terms. There is no assurance that WCNY will be able to
renew the Alliance contracts on terms it deems satisfactory.
WCNY also contracts directly with primary care physicians
and specialists, with substantially all primary care physicians
being capitated with a fixed monthly payment for each HMO member
selecting the physician. A portion of the monthly capitation fee
is paid directly to the primary care physician, with the balance
allocated to risk sharing accounts covering (i) payment to
specialists and supplemental providers to whom the HMO members are
referred by the primary care physician, (ii) outpatient referrals
in excess of certain minimum amounts, inpatient hospital expenses,
certain high risk medical conditions and pharmaceutical expenses,
and (iii) catastrophic events, in which WCNY shares the risk.
Specialists are generally paid on a discounted fee-for-service
basis. WCNY believes its capitation arrangements hold the primary
care physicians individually accountable for all deficits in their
respective risk-sharing accounts, although for financial reporting
purposes, all deficits incurred are expensed until such deficits
are reimbursed to WCNY.
WCCT contracts directly with some of its physician network.
A significant number of all primary care physicians and
specialists are contracted through an IPA or a physician hospital
organization ("PHO") that contracts directly with WCCT.
HOSPITAL AND OTHER PROVIDER ARRANGEMENTS
Third-party reimbursement for most inpatient hospital care
in New York State through December 31, 1996 was required to be
paid on a Diagnostic Related Group ("DRG") basis, pursuant to
which hospital charges as established by the State were based on
the diagnosis of the patient's condition, generally
notwithstanding the length of hospitalization. New York HMOs have
been permitted, subject to regulatory approval, to negotiate lower
DRG or per diem rates with hospitals. To the extent DRG rates
apply, a member's length of hospital stay does not affect the
WellCare HMOs' costs and hospital costs can best be controlled
through managing hospital admissions and utilizing the most
effective treatment methods. When a per diem contract is in
effect, utilization management monitored by the case management
function reduces medical costs to the WellCare HMOs by minimizing
length of hospital stay as well as maximizing the utilization of
the most effective treatment methods.
As of January 1, 1997, the New York State regulated rate
setting system expired and was replaced by a largely unregulated
free market system whereby payors and hospitals are free to
negotiate the best rates possible. Another significant change is
in the area of funding for various public goods and Graduate
Medical Education. Under the state-run DRG system, these add-on
costs were built directly into the rates set by the state, and
were not subject to negotiation. However, as of January 1, 1997,
the responsibility for public goods and Graduate Medical Education
has shifted from hospitals to the payors. To account for this new
cost, payors have been renegotiating their hospital contracts in
order to remain on a cost-neutral basis.
The WellCare HMOs currently contract with 79 hospitals and
have arrangements with 2 additional hospitals. Pursuant to its
contract, the hospital is paid for all authorized inpatient and
outpatient services and all emergency room services provided to
members. In addition, the WellCare HMOs require the hospitals to
participate in utilization review and quality assurance programs.
The WellCare HMOs' contracts with hospitals are terminable upon
90-120 days' prior notice by either party.
In order to obtain high quality services at cost-effective
rates, the WellCare HMOs have contracted with other providers for,
among other things, mental health, diagnostic services, physical
therapy, outpatient surgery, laboratory services and home health
care, on either a capitated or negotiated fee basis. The Company
also has an agreement with Diversified Pharmaceutical Services,
Inc. ("DPS") which covers all of the service areas of the WellCare
HMOs, including a network of approximately 2,000 pharmacies.
UTILIZATION REVIEW
Utilization of health care services by members and
physicians is monitored under WellCare's health care utilization
review programs. In cases of excessive utilization, WellCare
counsels the provider with respect to possible unnecessary or
duplicate services or medications. In addition, under the
direction of local physicians and the WCNY medical director,
health care service utilization data are analyzed and, through
periodic meetings with physicians, the Company identifies areas in
which the physician's utilization rates differ significantly from
the rates of other physicians and suggests methods for
improvements.
EDUCATIONAL PROGRAMS
The WellCare HMOs believe that educating their members and
health care providers with respect to health care is a critical
component in health care cost containment and periodically sponsor
programs on health care. In addition, WellCare maintains a
videotape library that it makes available to its primary care
physicians for viewing by HMO members to acquaint them with
treatment protocols and other medical information. The Company's
bimonthly newsletter to its members contains, among other items,
information on preventive health care.
WellCare University, a division of WellCare, conducts
seminars and other educational programs for physicians
constituting part of its network. WellCare University also
conducts a number of ongoing studies related to the managed care
industry. WellCare also publishes newsletters which it
distributes to its physicians and supplemental health care
providers, and sponsors and arranges conferences, lectures and
symposiums for physicians on different aspects of physician
treatment as well as the conduct and benefits of managed care
programs.
QUALITY OF CARE PROGRAMS
WellCare's quality of care programs, consisting of quality
of care audits, periodic peer reviews and outcome studies, assist
the Company in controlling costs by identifying cost-effective
treatment procedures (See "Business - Quality Improvement").
Effective November 27, 1996, WCNY received a certificate of one
year accreditation from the National Committee for Quality
Assurance.
CO-PAYMENTS
To promote member participation in controlling health care
costs, the WellCare HMOs require co-payments by its members for
office visits and other services. These co-payments for WCNY are
made by the member directly to the physician or other provider and
range from $3 to $15 for office visits, and $25 or $50 for
emergency room treatment. WCCT is approved for a $3 to $20 co-payment for
office visits and a $25 to $50 co-payment for
emergency room treatment. Certain plans also require members to
pay deductibles for inpatient hospital services.
OTHER PRODUCTS AND SERVICES
The Company has initiated services both independent of and
supplemental to its HMO benefit programs.
SPECIALTY CARE BENEFIT PROGRAMS
WellCare offers prescription drug, dental and expanded
vision and other specialty care benefit programs as stand-alone
products to self-insured employer and other groups through its
third-party claims administrator ("TPA") services.
The Company provides TPA services independently and as part
of its specialty care benefit programs offered to employer and
other groups. In addition, WellCare has established a "PPO"
network, using principally its HMO provider network, to provide
vision care and pharmacy benefit programs as stand-alone products
for self-insured employer and other groups.
POINT-OF-SERVICE PRODUCT
The WellCare HMOs offer a point-of-service ("POS") product
to its commercial members, allowing them to select providers
outside of WCNY's provider network. When a member uses a POS
product, the member is required to make a higher co-payment and is
subject to pay a higher deductible.
<PAGE>
PHYSICIAN PRACTICE MANAGEMENT
Through June 30, 1995, WellCare, through its wholly-owned
subsidiary WellCare Medical Management, Inc. ("WCMM"), performed
management and administrative services for physician practices.
In June 1995, WellCare sold the assets of WCMM.
MARKETING
WellCare's internal marketing staff consists of 53 sales
representatives, 23 of whom market WellCare's benefit plans and
specialty benefits plans and other products and services to
commercial groups, 22 to Medicaid recipients, 8 to Medicare
beneficiaries. The Company also utilizes independent brokers for
referrals.
Marketing to commercial groups is generally a two-step
process in which presentations are made to the employer and then
to the individual employees if the Company's benefit plan is
selected. During a designated period (usually one month
annually), employees select their desired health coverage. New
employees, however, make their choice when employment commences.
Medicaid managed care marketing has become a highly
regulated and supervised activity. All Healthy Choice marketing
must be conducted consistent with a pre-approved marketing plan
and, all Healthy Choice marketing materials must receive approval
prior to their use, from both the County Departments of Social
Services and the State Department of Health. Additionally,
surveillance of Plan marketing staff is conducted to insure that
all marketing is performed consistent with applicable rules and
guidelines.
Healthy Choice utilizes a variety of marketing approaches
including: direct marketing at County Social Services offices,
direct mail when approved and supervised by the Counties;
provider-assisted outreach; community-based organization
partnerships; and advertising in targeted community publications.
Marketing of WCNY's Full Risk Medicare program involves a
labor intensive one-on-one process. Marketing efforts focus on
informational presentations/seminars, community outreach programs
and telemarketing activities.
WCNY also offers a supplemental coverage plan for Medicare
beneficiaries through existing employer groups who provide
contributed benefit programs to retirees. Marketing takes place
through on-site meetings and direct mailings to such retirees.
QUALITY IMPROVEMENT
All physicians in the WellCare HMOs' provider network are
required to participate in quality improvement and utilization
review programs. In 1996, WCNY received one-year accreditation
from the National Committee of Quality Assurance. The quality
improvement program is designed not only to maintain but to
continually improve the delivery of proper medical care and
includes:
* Quality of care audits, which identify issues affecting HMO
members, including physician availability, physician
treatment patterns and the structure and content of medical
records;
* Periodic peer reviews, which evaluate the quality and
appropriateness of medical care provided by a particular
physician and review, among other things, diagnoses, tests,
prescription drug usage and the utilization level of the
physician by the HMO members;
* Utilization reviews and outcome studies, which evaluate
statistical information with respect to services used by
members and prescribed by participating physicians and
include such topics as preventive care services,
prescription drugs, physician visits, emergency room use,
hospital admissions and referrals made by primary care
physicians to specialists; and
* A physician committee infrastructure to oversee medical
policy and the quality improvement program.
The quality improvement program utilizes computerized claims
information and medical records which are maintained by the
physicians and to which WCNY has access. In addition,
participating hospitals maintain quality improvement programs. As
required by state law, WCNY has an established complaints
procedure for HMO members and providers to formally register
concerns with the HMO. These concerns are then investigated and
resolved pursuant to the procedures established by the HMO.
COMPETITION
The managed care industry is highly competitive principally
on the basis of price, the size and quality of the provider
network, benefits provided and quality of service. Although WCNY
is the dominant HMO in the Hudson River Valley region of its
service area, it also has expanded its operations in new
geographic areas, including New York City, Westchester County and
Connecticut, where there are other HMOs which have more members
and greater financial resources than the Company. The Company
also competes with commercial health insurance companies and not-for-profit
health service plans, including Blue Cross and Blue
Shield, and may compete with provider integrated delivery systems.
MANAGEMENT INFORMATION SYSTEM
Information is key to success for any company, especially
those in the health care industry. WellCare has made information
systems a priority over the past several years and has created a
high quality, information driven network. At the core is the
AMISYS Health Care Management Information System. AMISYS is
widely used in the HMO industry and provides detailed tracking of
employer group, provider, hospital and member data.
WellCare implemented relational database technology to
enhance utilization reporting and analysis. This technology
allows the entire company to have quality and timely information
readily available.
The option for electronic submission of claims began in 1994
and currently over 50% of all claims are submitted by providers to
the WellCare HMOs electronically.
In 1996, WellCare significantly enhanced enrollment and
claims processing with the implementation of MACESS, an electronic
document imaging and workflow distribution system. MACESS allows
documents such as claim and enrollment forms to be scanned and the
image filed in a computer rather than a file drawer. The workflow
distribution portion of the system allows claim adjudicators to
process claims from electronic "queues" rather than from a stack
of claim forms.
WellCare continues its commitment to technology and believes
it is in an excellent position to accommodate its anticipated
growth for the foreseeable future.
GOVERNMENT REGULATION
STATE REGULATION
The WellCare HMOs are subject to extensive state regulation.
Applicable state statutes and regulations require the WellCare
HMOs to file periodic reports with the relevant state agencies,
and contain requirements relating to the operation of their HMOs,
the rates and benefits applicable to their products and their
financial condition and practices. In addition, state regulations
require the WellCare HMOs to maintain restricted cash or available
cash reserves, net worth positions and restrict their abilities to
make dividend payments, loans or other transfers of cash to the
Company. State regulatory authorities exercise oversight
regarding the provider networks, medical care delivery and quality
assurance programs, contract forms and financial condition of the
WellCare HMOs. The WellCare HMOs are also subject to periodic
examination by the relevant state regulatory authorities.
On January 29, 1997, WCNY received the report on its
biennial statutory examination for the years ended December 31,
1994 and 1995 from the New York State Insurance Department
("NYSID"). The examination resulted in the Company recording two
one-time medical charges (See Note 2c of "Notes to Consolidated
Financial Statements). Additionally, the examiners reviewed
WCNY's underwriting and rating procedures with respect to
compliance with New York State regulations. This review resulted
in NYSID determining that WCNY was not in compliance with all
pertinent regulation sections and as such referred the matter to
NYSID's Office of General Counsel for disciplinary action. The
Company does not believe that the disciplinary action, if any,
will have a material adverse affect on operations.
As a result of the examination, WCNY's statutory net worth
was impaired approximately $1.1 million. Subsequently, WCNY
received a $3 million contribution of capital from WellCare. In
addition, in October 1996, WCNY received a $3 million surplus note
from WellCare. These two cash infusions more than offset the
examination's adjustment to WCNY's net worth.
Applicable New York statutes and regulations require the
prior approval of the New York Commissioner of Health and the New
York Superintendent of Insurance for any change of control of WCNY
or the Company. A similar law in Connecticut requires the
approval of the Insurance Commissioner of Connecticut for any
change in control of the Company or WCCT. Prior approval would be
required for any person to acquire the power to vote 10% or more
of the combined voting power of the Class A Common Stock and
Common Stock of the Company. Under New York law, transactions
between a holding company and a controlled HMO must be fair and
equitable. Any transaction that involves five percent or more of
WCNY's assets requires prior approval.
Hospital charges in Connecticut are based on a per diem per
patient system rather than a DRG system. Eligible HMOs are
permitted to directly negotiate for a different rate and method of
reimbursement with a Connecticut hospital.
WellCare's TPA services and PPO (in New York State)
currently are not subject to state regulation, but there can be no
assurance that this status will continue. Connecticut regulations
require PPOs to make certain notification filings.
RECENT NEW YORK STATE LEGISLATION
New York enacted the Health Care Reform Act of 1996 (the
"Act"). Effective January 1, 1997, the Act, for the first time,
allows all private health care payors to negotiate payment rates
for inpatient hospital services. Previously, only HMOs could
negotiate rates for these services. While non-HMO payors who
compete with WCNY may pay negotiated hospital rates beginning in
1997, WCNY expects to have competitive arrangements with hospitals
in its network. Also, effective January 1, 1997, WCNY will begin
making payments to state-administered funding pools to finance
hospital bad debt and charity care, graduate medical education and
other state programs under the Act. Previously, bad debt and
charity care and graduate medical education were financed by
surcharges on payments to hospitals for inpatient services.
Pursuant to the Act, WCNY is in the process of negotiating
adjustments to rates paid to network hospitals in New York to
reflect elimination of these surcharges. There can be no
assurance that WCNY will reach agreement on these adjustments with
all contracted hospitals in New York.
The New York legislature also recently passed legislation
related to the operation of managed care plans, which contains
provisions relating to, among other things, utilization review,
consumer disclosure and right of hearing on termination of
physicians from health plan networks.
Medicaid Managed Care legislation was also enacted in 1996
authorizing New York State, pursuant to federal waiver, to require
most Medicaid recipients to enroll in managed care plans to
receive medical services. The measure also provides these
recipients enrollment safeguards, a grievance resolution process
and a quality assurance program. The legislation, in addition,
includes provisions regarding providing care to individuals with
special needs.
Early in 1996, a minimum hospital stay for mothers and
babies (48 hours for uncomplicated vaginal deliveries and 96 hours
for cesarean deliveries) was enacted in New York State followed by
enactment of similar legislation on the federal level.
In 1996, legislation enabling fully-licensed HMOs to appoint
insurance agents to directly solicit their products to consumers
was enacted.
Legislation is pending which would require insurance
coverage for a length of hospital care to be determined by an
attending physician and patient following a mastectomy, a second
medical opinion for all cancers and complete breast reconstructive
surgery following a mastectomy. The measure is likely to be
enacted in New York State early in 1997. A similar bill is being
proposed on the federal level.
RECENT CONNECTICUT STATE LEGISLATION
There is current legislation in Connecticut to treat mental
illness and addiction in the same way as physical illnesses are
treated, allow patients to appeal to an independent panel of
doctors if care they or their physician thinks they need is denied
by the health plan, hold health plans legally responsible for
injuries suffered because of hospital admission or a longer
hospital stay is denied by the plan, and require each health plan
to spend at least 85 cents of every premium dollar on patient
care.
FEDERAL REGULATION
The WellCare HMOs are not federally qualified and neither
they nor WellCare's managed health care operations currently are
subject to federal regulation other than those operations relating
to Medicaid and Medicare products and as otherwise described
below.
WCNY's Full Risk Medicare product is subject to regulation
by HCFA, a branch of the United States Department of Health and
Human Services. A qualification for a Full Risk Medicare contract
is that not more than 50% of the HMO's enrollees be Medicare
beneficiaries or Medicaid recipients (as of March 1997, there is a
federal proposal to eliminate this regulatory requirement).
Regulations also cover, among other things, quality of care,
limitations on enrollment and compliance with requirements
established by peer review organizations contracting with HCFA.
WCNY's Medicaid contracts are subject to both federal and
state regulation regarding services to be provided to Medicaid
enrollees, payment for those services and other aspects of the
Medicaid program.
In 1997, there are a number of proposals under consideration
by both state and federal officials to reduce payments for
Medicaid and Medicare enrollees in managed care, which may have a
material effect on the Company's expansion program.
RECENT FEDERAL LEGISLATION
The recently enacted Federal Health Insurance Portability
and Accountability Act of 1996 (the "Act"), (i) insures
portability of health insurance to individuals changing jobs or
moving to individual coverage by limiting application of
preexisting condition exclusions, (ii) guarantees available health
insurance to employees in the small group market, and (iii)
prevents exclusion of individuals from coverage under group plans
based on health status. The provisions are effective beginning
July 1, 1997. The Company is currently subject to similar state
law provisions in New York limiting preexisting condition
exclusions for new group and individual enrollees who had
continued prior coverage and requiring issuance of group coverage
to small group employers. The Act also permits offering Medical
Savings Account plans on a pilot basis and includes programs
targeting fraud and abuse. Recently enacted federal legislation
mandates coverage for minimum hospital stays after childbirth
(consistent with many new state law requirements) and parity in
applying lifetime limits to mental health benefits.
ITEM 2. PROPERTIES
WellCare's executive offices are located in two adjacent
buildings, at Hurley Avenue Extension, Kingston, New York, which
provide approximately 38,600 square feet of office space. The
Company also owns four other buildings that were purchased through
its wholly-owned subsidiary, WellCare Development, Inc. in 1994.
Three of the buildings are located in Kingston and provide
approximately 40,200 square feet of office space utilized by the
Company's communication, information and member service divisions.
The fourth building is located in Saugerties, New York and
provides approximately 10,000 square feet of office suites that
are leased to two health care providers and a laboratory at annual
rental incomes of approximately $111,500, $31,600 and $9,200,
respectively.
In addition to the buildings owned, the Company leases
approximately 14,100 square feet in Newburgh, New York, 3,100
square feet in Albany, New York, 750 square feet in Nyack, New
York, 1,250 square feet in Binghamton, New York, 2,100 square
feet in Kingston, New York and 10,000 square feet in New York, New
York, at an annual expenses of approximately $380,000, $50,000,
$43,500, $15,200, $32,600 and $183,800, respectively. In turn,
the Company subleases roughly 4,100 square feet in Newburgh, New
York and the 2,100 square feet in Kingston, New York, to health
care providers at annual rental incomes of approximately $109,900
and $32,600, respectively.
In 1996, the Company leased 5,000 square feet of office
space in North Haven, Connecticut, at an annual rental expense of
approximately $67,200 for WellCare of Connecticut, Inc., a wholly-owned
subsidiary. In addition, between April and September of
1996, the Company leased additional space in New York City at a
cost of $104,300.
ITEM 3. LEGAL PROCEEDINGS
CLASS ACTION LITIGATION
Between April 1, 1996 and June 6, 1996, the Company, its
Vice President of Finance and Chief Financial Officer and the
Company's former President and Chief Executive Officer, were named
as defendants in twelve separate actions filed in Federal Court
(the "Securities Litigations"). An additional three directors
were also named in one of these actions. Plaintiffs sought to
recover damages allegedly caused by the Company's defendants'
violations of federal securities laws with regard to the
preparation and dissemination to the investing public of false and
misleading information concerning the Company's financial
condition.
On July 3, 1996, the Securities Litigations were
consolidated in the United States District Court for the Northern
District of New York, and an amended consolidated complaint was
served on August 21, 1996, which complaint did not name the three
additional directors. The Company's auditor, however, was named
as an additional defendant. On October 23, 1996, the Company
filed a motion to dismiss the consolidated amended complaint
against the Company as well as the individual defendants. The
Company's auditor has likewise filed its own motion to dismiss.
Prior to the filing of the motion, discovery had not yet begun and
pursuant to the Private Securities Litigation Reform Act, all
discovery is necessarily stayed pending the disposition of the
motion. Although management is unable to predict the likelihood
of success on the merits of the consolidated class action, it has
instructed its counsel to vigorously defend its interests. The
Company has insurance in effect which may, at least in part,
offset any costs to be incurred in these litigations. A decision
on the motion to dismiss is expected sometime during 1997.
<PAGE>
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
On August 2, 1996, the Company announced that the Securities
and Exchange Commission ("SEC") had issued a Formal Order of
Private Investigation of the Company. The Formal Order enables
the SEC to utilize its subpoena powers to obtain relevant
information from third parties as well as the Company. In its
letter to the Company, the SEC stated that this investigation is
confidential and should not be construed as an indication by the
Commission or its staff that any violations of the federal
securities laws have occurred. The Company has been, and intends
to continue, complying and cooperating fully with all requests
from the SEC. The Company is not aware of any unlawful conduct
with respect to these matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on The Nasdaq Stock
Market, Inc. ("Nasdaq") under the symbol "WELL". The following
table sets forth the closing high and low sale prices for the
Common Stock for each quarter of the last two calendar years.
There is no trading market for the Company's Class A Common Stock.
HIGH LOW
1996
First Quarter $ 29 $ 15
Second Quarter 18 3/4 7 3/4
Third Quarter 12 1/4 7 1/2
Fourth Quarter 11 3/4 7 1/4
1995
First Quarter 38 24
Second Quarter 37 19 7/8
Third Quarter 24 3/4 19
Fourth Quarter 26 20 1/4
On March 3, 1997, there were approximately 221 and 23
holders of record of the Company's Common Stock and Class A Common
Stock, respectively, which did not include beneficial owners of
shares registered in nominee or street name.
On February 8, 1996, the Company issued 200 shares of the
Company's Common Stock valued at $5,300, as a bonus to an employee
of the Company.
WellCare has not paid cash dividends on its capital stock
and does not anticipate paying any cash dividends on its Common
Stock or Class A Common Stock in the foreseeable future (See
"Business - Government Regulation" for restrictions on the payment
of dividends by the WellCare HMOs, wholly-owned subsidiaries of
the Company).
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data have been derived from
the Company's audited consolidated financial statements and should
be read in conjunction with the consolidated financial statements,
related notes and other financial information included elsewhere
herein.
<PAGE>
Statement of Operations Data:
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993(1) 1992
<S> <C> <C> <C> <C> <C>
Revenue:
Premiums earned $157,156 $144,518 $120,411 $72,905 $38,692
Interest and other income 4,095 8,349 2,171 3,417 2,880
Total revenue $161,251 $152,867 $122,582 $76,322 $41,572
Expenses:
Medical expenses 135,957 115,560 98,411 58,471 31,587
General and administrative
expenses 39,334 30,279 15,599 9,641 6,168
Depreciation and
amortization expenses 3,254 2,292 1,611 761 549
Interest and other expenses 2,526 1,947 1,099 1,331 906
Total expenses 181,071 150,078 116,720 70,204 39,210
(Loss)/income before
income taxes, extraordinary
credit and cumulative
effect of a change in
accounting principle (19,820) 2,789 5,862 6,118 2,362
(Benefit)/provision for
income taxes (8,038) 1,116 2,403 2,533 1,010
(Loss)/income before
extraordinary credit and
cumulative effect of a
change in accounting
principle (11,782) 1,673 3,459 3,585 1,352
Extraordinary credit:
Utilization of tax loss
carry forward - - - - 863
Cumulative effect of a change
in accounting principle:
Accounting for income taxes - - - 1,063 -
Net (Loss)/income $(11,782) $ 1,673 $ 3,459 $ 4,648 $ 2,215
<PAGE>
Years Ended December 31,
1996 1995 1994 1993(1) 1992
(Loss)/earnings per share:
(Loss)/income before
extraordinary credit and
cumulative effect of a
change in accounting
principle $(1.87) $0.27 $0.56 $0.72 $0.32
Extraordinary credit - - - - 0.20
Cumulative effect of a
change in accounting
principle - - - 0.21 -
Net (Loss)/income $(1.87) $0.27 $0.56 $0.93 $0.52
Weighted average shares
outstanding 6,296 6,250 6,226 5,022 4,257
Balance Sheet Data:
(in thousands) December 31,
1996 1995 1994 1993 1992
Working capital/(deficiency)$11,172 $12,733 $ 4,776 $ 9,582 $(4,873)
Total assets 71,340 72,011 57,793 49,947 16,299
Long-term debt 26,467 19,209 6,336 5,982 5,152
Total liabilities 51,066 40,207 28,486 23,850 15,862
Shareholders' equity(2) 20,274 31,804 29,307 26,097 400
(1) During 1993, the Company acquired Mid-Hudson Health Plan, Inc.
(2) In 1992, after deducting minority interest in subsidiary.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto included elsewhere herein.
GENERAL OVERVIEW
WellCare's principal source of revenue is premiums earned
from the WellCare HMOs, while interest and other income consists
of management and administrative fees, interest and investment
income, reimbursements from certain third-party insurers,
contributions, rental income and miscellaneous service income.
Premium revenues represent in excess of 94% of the Company's total
revenue for each of the years ended December 31, 1996, 1995 and
1994, and have grown substantially since the Company's inception
as a result of increases in both HMO membership and premium rates.
Medical expenses consist of the hospital charges, physician
fees and related health care costs for its members. Medical
expenses also include estimates of medical expenses incurred but
not yet reported ("IBNR") to the Company, based on a number of
factors, including hospital admission data and prior claims
experience; adjustments, if necessary, are made to medical
expenses in the period the actual claims costs are ultimately
determined. The Company believe the IBNR estimates in the
Consolidated Financial Statements are adequate; however, there can
be no assurance that actual health care claims costs will not
exceed such estimates.
The Company seeks to control medical expenses through
capitation arrangements with the Alliances and with non-Alliance
primary care physicians, capitation arrangements with certain
specialty providers, and through its quality improvement programs,
utilization management and review of hospital inpatient and
outpatient services, and educational programs on effective managed
care for its providers.
Effective October 1, 1994, WCNY changed its capitation
arrangements with the majority of its providers from capitating
primary care physicians with attendant risk-sharing to capitating
the Alliances comprised of the specialists and previously-capitated primary
care physicians. The Alliances have operated at
a deficit since inception but have recently instituted measures
designed to reduce these deficits and achieve profitability. The
Alliance could request additional funding beyond the contractual
increases described in Notes 1a and 17a of "Notes to Consolidated
Financial Statements", from the Company, which management does not
believe should be required and, if requested by the Alliances,
does not intend to provide. (On March 13, 1997, the Alliances
received a $1.0 million cash infusion and a commitment for up to
an additional $3.0 million cash infusion from an unrelated third-party.)
In an effort to improve profitability of the Company and the
Alliances, effective September 1, 1996, WCNY entered into a letter
of understanding with the Alliances to restructure the capitation
arrangements. WCNY reassumed risk for certain previously
capitated services, with a corresponding reduction in rates. At
December 31, 1996, WCNY capitated the Alliances for all physician
services, both primary care and specialty services, on a PMPM
basis for each HMO member associated with an Alliance except for
physician services for certain diagnostics and mental health,
which are capitated through regional integrated delivery systems.
This restructuring had a minimal impact on medical expenses in
1996, but is expected to result in savings for the Company in
future periods. (See Note 1a and 17a of "Notes to Consolidated
Financial Statements").
Certain statements in the Form 10-K are forward-looking
statements and are not based on historical facts but are
management's projections or best estimates. Actual results may
differ from these projections due to risks and uncertainties.
These risks and uncertainties include a variety of factors. The
Company's results of operations depend in large part on accurately
predicting and effectively managing medical costs and other
operating expenses. A variety of factors, including competition,
changes in health care practices, changes in federal or state laws
and regulations or the interpretations thereof, inflation,
provider contract changes, new technologies, government-imposed
surcharges, taxes or assessments, reductions in provider payments
by governmental payors (including Medicare, whereby such
reductions may cause providers to seek high payments from private
payor), major epidemics, disasters and numerous other factors
affecting the delivery and cost of health care, such as major
health care providers' inability to maintain their operations and
reduce or eliminate their accumulated deficits, may in the future
affect the Company's ability to control its medical costs and
other operating expenses. Governmental action (including downward
adjustments to premium rates requested by the Company, which could
result in adjusted rates lower than premium rates then in effect)
or business conditions (including intensification of competition
and the other factors described above) could result in premium
revenues not increasing to thus offset any increases in medical
costs and other operating expenses. Once set, premiums are
generally fixed for one year periods and, accordingly,
unanticipated costs during such periods cannot be recovered
through higher premiums. The expiration, suspension or
termination of contracts to provide health coverage for
governmental entities or other significant customers would also
negatively impact the Company. Due to these factors and risks, no
assurance can be given with respect to the Company's premium
levels or its ability to control its medical costs.
Legislative and regulatory proposals have been made at the
federal and state government levels related to the health care
system, including but not limited to limitations on managed care
organizations (including benefit mandates) and reform of the
Medicare and Medicaid programs. Such legislative or regulatory
action could have the effect of reducing the premiums paid to the
Company by governmental programs or increasing the Company's
medical costs. Specifically, pending federal budgetary action
could reduce the premiums payable to the Company under the
Medicare program as compared to previously announced levels; other
pending legislation could have the result of reducing the premiums
payable to the Company under state Medicaid programs. The Company
is unable to predict the specific content of any legislation,
action or regulation that may be enacted or when any such
legislation or regulation will be adopted. Therefore, the Company
cannot predict the effect of such legislation, action or
regulation on the Company's business.
<PAGE>
RESULTS OF OPERATIONS
The following table provides certain statement of operations
data expressed as a percentage of total revenue and other
statistical data for the years indicated:
YEAR ENDED DECEMBER 31,
1996 1995 1994
Statement of Operations Data:
Revenue:
Premiums earned 97.5% 94.5% 98.2%
Interest and other income 2.5 5.5 1.8
Total revenue 100.0 100.0 100.0
Expenses:
Hospital services 23.1 20.0 19.2
Physician services 59.5 51.1 53.6
Other medical services 1.7 4.5 7.5
Total medical expenses 84.3 75.6 80.3
General and administrative 24.4 19.8 12.7
Depreciation and amortization 2.0 1.5 1.3
Interest and other expenses 1.6 1.3 0.9
Total expenses 112.3 98.2 95.2
(Loss)/income before income taxes (12.3) 1.8 4.8
(Benefit)/provision for
income taxes (5.0) 0.7 2.0
Net (loss)/income (7.3)% 1.1% 2.8%
Statistical Data:
HMO member months enrollment 1,077,774 1,046,559 918,542
Medical loss ratio(1) 86.5% 80.0% 81.7%
General and administrative
ratio(2) 24.4% 19.8% 12.7%
(1) Medical expenses as a percentage of premiums earned; reflects the
combined rates for commercial, Medicaid, Full Risk Medicare and Medicare
supplemental members.
(2) General and administrative expenses as a percentage of total revenue.
YEAR ENDED DECEMBER 31, 1996
COMPARED TO YEAR ENDED DECEMBER 31, 1995
Premiums earned in 1996 increased 8.7%, or $12.7 million, to
$157.2 million from $144.5 million in 1995. This increase was
attributable to premiums generated from WCNY's Medicare Risk
contract, a new product line started in October 1, 1995, of $12.0
million; a net increase in Medicaid premiums of $6.0 million
(principally due to an increase in member months); offset by a
$5.3 million reduction in commercial premiums reflecting reduced
membership. The decline in commercial membership is substantially
attributable to WellCare's more stringent application of its
credit standards, pursuant to which contracts for non-paying or
slow-paying groups were canceled or not renewed, as well as to
customers' adverse reaction to the negative publicity received by
the Company related to the restatement of its 1994 financial
results. Although Medicaid members months increased, there was a
decrease in actual Medicaid membership at December 31, 1996 from
December 31, 1995. The decline in Medicaid membership is
attributable to the ban on direct enrollment of Medicaid eligibles
by any managed care plans from August 1, 1995 through August 1,
1996 in New York City, thereby not offsetting normal Medicaid
disenrollments or permitting growth in enrollment during that
period, as well as a statewide decrease in the number of
individuals eligible for Medicaid which has caused a decrease in
the total number of Medicaid eligibles in all managed care
organizations. Total member months increased 3% in 1996 to
1,077,774.
Interest and other income decreased 51.0%, or $8.3 million,
to $4.1 million in 1996 due to decreases in WellCare University
revenues, management fees, third-party and insurance
reimbursements.
Medical expenses increased 17.7%, or $20.4 million, to
$136.0 million in 1996 representing a 14.2% increase on a per
member per month basis, and increased as a percentage of premiums
earned (the "medical loss ratio") from 80.0% in 1995 to 86.5% in
1996. The increase in the medical loss ratio is due, in large
part, to the Company agreeing to record a one-time additional
liability in the second quarter of 1996 of approximately $3.7
million resulting from assuming the cost of hospital inpatient
care for members, the cost of which had previously been assumed by
the Alliances and to the recording of medical expenses of
approximately $2.9 million relating to unpaid claims for the
period prior to October 1, 1994 (classified as physician
services). Both of the aforementioned medical expenses were
recorded by WCNY at the instruction of the New York State
Insurance Department ("NYSID"). Both of these changes represent
obligations which had previously been assumed by the Alliances and
for which the Company had no contractual obligation to pay. A
percentage of the increase in medical expenses is also due to a
restructuring of the contractual capitation arrangements with the
Alliances. As a result of a prior period restatements, medical
expenses in 1996 were reduced approximately $2,423,000 (See Note
2a of "Notes to Consolidated Financial Statements).
In the absence of the aforementioned changes, medical
expenses would have been $129.4 million and the medical loss ratio
would have been 82.3%.
General and administrative ("G&A") expenses increased 29.9%,
or $9.1 million, to $39.3 million in 1996, and increased as a
percentage of total revenue from 19.8% in 1995 to 24.4% in 1996.
The increase in G&A expenses resulted primarily from increased
salaries and benefits of approximately $2.5 million for severance
payments, addition of senior management at higher annual
compensation levels, and service and product line expansion, an
increase of approximately $2.4 million in reserves established for
trade accounts receivables and notes and other receivables
(including valuation reserves relating to obligations of the buyer
of the assets of WellCare Medical Management, Inc. (See Note 4 of
"Notes to Consolidated Financial Statements")), an increase of
approximately $2.3 million in unusual legal costs and other
professional and outside services specifically relating to the
class action litigation, and an increase of $1.5 million related
to marketing and consulting costs.
Depreciation and amortization increased by approximately
$962,000 to $3.3 million in 1996 as a result of amortization of
preoperational costs associated with service area and product line
expansions.
YEAR ENDED DECEMBER 31, 1995
COMPARED TO YEAR ENDED DECEMBER 31, 1994
Premiums earned in 1995 increased 20.0%, or $24.1 million,
to $144.5 million from $120.4 million in 1994, attributable to
increases in HMO membership and in premium rates. Total member
months increased 13.9% in 1995 to 1,046,559, accounting for $16.9
million of the increase in premiums earned. Premium rates
increased 6.4% and .7% for commercial and Medicaid members,
respectively, and including the premium rates earned for Full Risk
Medicare members, resulted in a 5.4% total weighted average
increase and accounted for the $7.2 million balance of the
increase in premiums earned.
Interest and other income increased 284.6%, or $6.2 million,
to $8.3 million in 1995 due to increases in WellCare University
revenues, management fees, insurance reimbursements and rental
income.
Medical expenses increased 17.4%, or $17.1 million, to
$115.6 million in 1995 representing a 3.1% increase on a per
member per month basis, but decreased as a percentage of premiums
earned (the "medical loss ratio") from 81.7% in 1994 to 80.0% in
1995. The decrease in the medical loss ratio resulted, in part,
from a 5.4% weighted average increase in premium rates. As a
result of a prior period restatement, medical expenses in 1994
were increased $4.7 million with a corresponding reduction to
medical expenses in 1995 in the amount of $1.7 million.
General and administrative ("G&A") expenses increased 94.1%,
or $14.7 million, to $30.3 million in 1995, and increased as a
percentage of total revenue from 12.7% in 1994 to 19.8% in 1995.
The increase in G&A expenses resulted primarily from the reserve
established for the note and other receivables due from the buyer
of WellCare Medical Management, Inc. (See Note 4 of "Notes to
Consolidated Financial Statements"), increased staffing related to
service area and product line expansion, non-payroll (contracted)
services, marketing and tele-communications related activities,
and an increase in the doubtful account reserve for trade accounts
receivable.
Depreciation and amortization increased by approximately
$700,000 to $2.3 million in 1995 as a result of amortization of
preoperational costs associated with service area and product line
expansion.
LIQUIDITY AND CAPITAL RESOURCES
On January 19, 1996, the Company completed a private
placement of a subordinated convertible note in the principal
amount of $20,000,000 (the "Note") due December 31, 2002, with The
1818 Fund II, L.P., a private equity fund managed by Brown
Brothers Harriman & Co. The Company had utilized a part of the
net proceeds of this private placement to retire a portion of its
debt. The Note, which was amended on February 28, 1997, is
convertible into shares of WellCare Common Stock. Prior to the
amendment, the Note accrued interest at 6.0% per annum, and
currently, the Note accrues interest at 5.5% per annum. The
conversion price is equal to 115% of the average of the market
price of WellCare Common Stock during the period from 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. Mr. Walter W. Grist, a Senior Manager of Brown
Brothers Harriman & Co. has been added to The WellCare Management
Group, Inc. Board of Directors (See Note 11 of "Notes to
Consolidated Financial Statements" and See "Certain Relationships
and Related Transactions").
The Company's requirements for working capital are
principally for funding geographic and product expansion for HMO
operations, maintaining necessary regulatory reserves, potential
acquisitions and strategic partnerships and marketing and product
expansion of other managed care operations.
Net cash used by operating activities was approximately $4.1
million in 1996 compared to $9.3 million in 1995. The use of cash
in 1996 is principally to fund the cash operating loss of $10.3
million, reduced by the cash provided from the $3.5 million
increase in medical costs and accounts payable, and the $5.2
million decrease in accounts receivable less the $5 million
increase in taxes receivable. The decrease in accounts receivable
is the result of WellCare's focus on collecting premiums timely.
Medical costs payable increased principally because the Company
reassumed in 1996 the responsibility of certain medical services
previously contracted to the Alliances (See Notes 1a and 17a of
"Notes to Consolidated Financial Statements"). The increase in
tax receivables reflects the income tax refund which will result
from carrying back the current year's tax operating loss against
prior years' income. Cash used for capital expenditures in 1996
was approximately $.5 million used primarily for expanding and
upgrading the Company's information systems.
New York State certified HMOs are required to maintain a
cash reserve equal to the greater of 5% of expected annual medical
costs or $100,000. Additionally, WCNY is required to maintain a
contingent reserve which must be increased annually by an amount
equal to at least 1% of premiums earned limited, in total, to a
maximum of 5% of premiums earned for the most recent calendar year
and which may be offset by the cash reserve. The cash reserve is
calculated at December 31 of each year and is maintained
throughout the following calendar year. At December 31, 1996,
WellCare had required cash reserves of $6.7 million and a
contingent reserve of $5.9 million which was fully offset by the
cash reserve. In the event the contingent reserve exceeds the
required cash reserve, the excess of the contingent reserve over
the required cash reserve would be required to be maintained.
At December 31, 1996, the Company had working capital of
$11.2 million, excluding the $6.7 million cash reserve required by
New York State which is classified as a non-current asset,
compared to working capital of $12.7 million, excluding the $8.2
million cash reserve, at December 31, 1995; the decrease in
working capital was attributable primarily to the increase in
medical costs payable resulting from WellCare reassuming the risk
for certain services previously contracted (through capitation) to
the Alliances. The Company believes that cash on hand, cash
generated from operations and available borrowing will be
sufficient to meet the Company's capital requirements for in
excess of twelve months.
On January 31, 1997, the Company executed a renegotiated
$6.0 million line-of-credit with Key Bank of New York. The line
expires on May 31, 1998. The Company repaid the outstanding
amount ($3.1 million) on the previous line-of-credit in December
1996. At December 31, 1996, the Company was in technical default
of certain financial covenants. Key Bank has granted the Company
a waiver of these financial covenants for the period ended
December 31, 1996 and as of that date, there were no borrowings
outstanding on the line-of-credit (See Note 10 of "Notes to
Consolidated Financial Statements").
At December 31, 1996, the Company has total mortgage
indebtedness of $6.2 million outstanding on four of its office
buildings, of which approximately $780,000 is due February 1,
1999, approximately $4.3 million is due on January 1, 2000,
approximately $795,000 is due on March 1, 2000 and approximately
$325,000 is due on March 1, 2001.
Between April 1, 1996 and June 6, 1996, the Company, its
Vice President of Finance and Chief Financial Officer and the
Company's former President and Chief Executive Officer, were named
as defendants in twelve separate actions filed in Federal Court
(the "Securities Litigations"). An additional three directors
were also named in one of these actions. Plaintiffs sought to
recover damages allegedly caused by the Company's defendants'
violations of federal securities laws with regard to the
preparation and dissemination to the investing public of false and
misleading information concerning the Company's financial
condition.
On July 3, 1996, the Securities Litigations were
consolidated in the United States District Court for the Northern
District of New York, and an amended consolidated complaint was
served on August 21, 1996, which complaint did not name the three
additional directors. The Company's auditor, however, was named
as an additional defendant. On October 23, 1996, the Company
filed a motion to dismiss the consolidated amended complaint
against the Company as well as the individual defendants. The
Company's auditor has likewise filed its own motion to dismiss.
Prior to the filing of the motion, discovery had not yet begun and
pursuant to the Private Securities Litigation Reform Act, all
discovery is necessarily stayed pending the disposition of the
motion. Although management is unable to predict the likelihood
of success on the merits of the consolidated class action, it has
instructed its counsel to vigorously defend its interests. The
Company has insurance in effect which may, at least in part,
offset any costs to be incurred in these litigations. A decision
on the motion to dismiss is expected sometime during 1997.
SALE OF WELLCARE MEDICAL MANAGEMENT, INC.
In June 1995, the Company contributed approximately $5.1
million to its then wholly-owned subsidiary, WellCare Medical
Management, Inc. ("WCMM") which was engaged in managing physician
practices, and then sold the assets of WCMM for cash of $.6
million and a note receivable of $5.1 million. The 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 (See Notes 1a
and 17a of "Notes to Consolidated Financial Statements"). The
Company also had received a five-year option to acquire the buyer
(the "Buyer") at any time on a formula price based on the Buyer's
results of operations. This option was canceled in 1996. A gain
of approximately $144,000 was not recognized in 1995, pending the
repayment of the note. The note receivable bears interest at a
rate equal to prime plus 2% (10.25% at December 31, 1996) with
interest payable monthly through July 31, 1996 and, thereafter,
principal and interest monthly through July 31, 2000. The Buyer
is in default on the note and has not paid accrued interest of $.5
million at December 31, 1996.
Subsequently, the Company advanced $2.8 million to the Buyer
($2.1 million in 1996 and $.7 million in 1995) for operating
expenses, which obligation is documented at December 31, 1996, by
a note of $215,000, receivables of $2.1 million and interest
receivable of $.5 million. The note for $215,000 bears interest
at a rate equal to prime plus 2% (10.25% at December 31, 1996) and
matured December 31, 1996. No payments have been made against
this note.
In view of the Buyer's operating losses and advances to the
Alliances, the Company has obtained from certain of the Buyer's
equity holders personal guarantees of the original note and
pledges of collateral to secure these guarantees. Nevertheless,
in view of the Buyer's financial condition and difficulties
inherent in the collection of personal guarantees and realization
of collateral, and the Buyer's default on the payments of the
notes, the Company fully reserved in 1995 the original $5.1
million note receivable, plus the $.7 million advanced in 1995.
In 1996, the Company established a net reserve of $1.9 million for
the additional note, interest accrued on the notes, and advances
receivable, net of the deferred gain on the original sale.
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.
INFLATION
Medical costs have been rising at a higher rate than that
for consumer goods as a whole. The Company believes its premium
increases, capitation arrangements and other cost control measures
mitigate, but do not wholly offset, the effects of medical cost
inflation on its operations and its inability to increase premiums
could negatively impact the Company's future earnings.
<PAGE>
ACCOUNTING CHANGES
The Company adopted Statements of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and SFAS No. 121 "Accounting for
Impairment of Long-Lived Assets to be Disposed Of ("SFAS 121"),
which became effective for fiscal years beginning after December
15, 1995. The adoption of SFAS 123 and SFAS 121 did not have an
impact on the Company's consolidated financial position or results
of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
See Index to Financial Statements and Schedules elsewhere
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
<PAGE>
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as
follows:
Name Age Position
Robert W. Morey, Jr. 60 Chairman of the Board and
Chief Executive Officer (1)
Mark D. Dean, D.D.S. 56 Vice Chairman of the Board(2)(3)
Joseph R. Papa 53 President and Chief Operating
Officer
G. William Strein 53 President of Agente Benefit
Consultants, Inc. and Director
Marystephanie Corsones 47 Vice President of Finance,
Chief Financial Officer,
Treasurer and Director
(through April 1, 1997)
Howard Lorch 45 Vice President of Finance
(effective April 2, 1997)
John E. Ott, M.D. 60 Executive Vice President
and Director (1)
Douglas A. Hayward 46 Executive Vice President;
President and Chief Executive Officer of
WellCare of Connecticut, Inc.
Charles E. Crew, Jr. 44 Director (2)(3)
Walter W. Grist 56 Director
Lawrence C. Tucker 54 Director (2)(3)
Edward A. Ullmann 45 Director
Eileen H. Wilson 51 Director
Daniel M. Zeichner, M.D. 49 Director
(1) Member, Executive Committee
(2) Member, Audit Committee
(3) Member, Compensation Committee
ROBERT W. MOREY, JR., 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.
MARK D. DEAN, D.D.S., 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.
JOSEPH R. PAPA, 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.
G. WILLIAM STREIN, joined the Company in 1985 as Vice
President of Planning and Development, and since 1989 has served
as President and Chief Executive Officer of Agente Benefit
Consultants, Inc. (formerly WellCare Administration, Inc.), a
wholly-owned subsidiary of the Company responsible for WellCare's
specialty benefit programs, new product development and quality
assurance. Mr. Strein has been a director of the Company since
January 1989. Mr. Strein received a B.S. in Pharmacy from the
University of Illinois in 1968, an M.S. in Pharmacy from the
University of Illinois in 1972, and an M.S.P.H. in Health
Administration from the University of North Carolina in 1979.
MARYSTEPHANIE CORSONES, joined the Company as Finance
Director in July 1993, was appointed its Chief Financial Officer,
Vice President of Finance in May 1994 and was elected to the Board
in November 1994. Effective April 1, 1997, Ms. Corsones will
resign from the Board and as an officer of the Company. 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. Ms. Corsones has more than ten years of
experience in international finance and taxation. Prior to
joining WellCare, Ms. Corsones was senior director of U.S.
International Operations at Coopers & Lybrand in Paris, France.
Ms. Corsones received an M.B.A. from the University of Washington.
HOWARD LORCH, has been employed as Vice President since
February 24, 1997, and will become Chief Financial Officer of the
Company effective April 2, 1997. For 22 years prior to joining
WellCare, Mr. Lorch was employed by Deloitte & Touche, LLP, having
served as a partner in taxation for the past 11 years, primarily
serving insurance company clients. Mr. Lorch received a B.A. in
Economics from Yeshiva University in 1973 and an M.B.A. in Finance
and Accounting from Columbia University in 1975, and is a CPA.
JOHN E. OTT, M.D., 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.
DOUGLAS HAYWARD, joined the Company in May 1996 as Executive
Vice President and as President and Chief Executive Officer of
WellCare of Connecticut, Inc., the Company's wholly-owned
Connecticut HMO. From 1987 to 1995, Mr. Hayward was the Chief
Executive Officer and President of M.D. Health Plan, , a
Connecticut HMO. From 1982 to 1987, Mr. Hayward was the Executive
Vice President and Director of Finance and Administration of IPM
Health Plan, a California HMO. Mr. Hayward received a B.A. degree
from the University of Michigan in 1973 and an M.S. degree in
Health Services Administration from the University of Michigan in
1976. Mr. Hayward is a 1981 graduate of the National HMO
Management Fellowship Program, Georgetown University.
CHARLES E. CREW, JR., 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, 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.
LAWRENCE C. TUCKER, 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.
EDWARD A. ULLMANN, the founder of the Company, had served on
the Board of Directors since inception in August 1983 and as its
Chairman and Chief Executive Officer from WellCare's inception
until April 30, 1996, and as President from WellCare's inception
until September 1996. Since September 1996, Mr. Ullmann has been
Chairman and Chief Executive Officer of Bienestar, Inc., a company
providing administrative services relating to preventative health
care to managed care organizations, including WellCare of New
York, Inc. Mr. Ullmann acquired a 70% equity interest in
Bienestar from the Company, which had held such interest since
July 1996. Mr. Ullmann received a B.S. from Albany College of
Pharmacy, Union University in 1973, an M.P.A. from the Maxwell
School at Syracuse University in 1979, and is a 1981 graduate of
the National HMO Management Fellowship Program, Georgetown
University.
EILEEN H. WILSON, became a director of the Company in
September 1993. For more than the past five years, Ms. Wilson has
been President of Eileen Wilson Associates, a Rochester, New York
consulting firm specializing in the managed care industry. She
possesses a combined health insurance and managed care experience
of twenty-seven years, including having been employed as Vice
President of Marketing for several HMOs, including PruCare in
Memphis, Tennessee, Matthew Thornton Health Plan in New Hampshire,
and Preferred Care, Rochester, New York.
DANIEL M. ZEICHNER, M.D., has been a director of the Company
since May 1984. Dr. Zeichner is a board certified plastic and
reconstructive surgeon and has been in private practice since
1982.
All directors hold office until their successors are elected
and qualified. The Board is divided into three classes. As a
result of this classification of directors, one class of directors
is elected each year for a three-year term. The terms of Messrs.
Dean and Zeichner and Ms. Wilson as Class I Directors expire at
the 1997 Annual Meeting of Shareholders. The terms of Dr. Ott,
Mr. Tucker and Mr. Strein as Class II Directors expire at the 1998
Annual Meeting of Shareholders. Mr. Grist, who filled a vacancy
created by the increase in the size of the Board to 11 members,
currently serves as an unclassified member. At the 1997 Annual
Meeting of Shareholders, Mr. Grist is expected to be nominated to
be a member of the Class III Directors, serving a term to expire
at the 1999 Annual Meeting of Shareholders.
On January 19, 1996, the Company entered into a Note
Purchase Agreement (the "Agreement") for the private placement of
a 6% subordinated convertible note in the principal amount of
$20,000,000 due December 31, 2002 (the "Note") with The 1818 Fund
II, L.P. (the "Fund"), a private equity fund managed by BBH & Co.
Pursuant to the terms of the Agreement, as of such date, the
Company caused one (1) vacancy to be created on its Board of
Directors and appointed Lawrence C. Tucker, as a designee of the
Fund, as a director without classification. At the 1996 Annual
Meeting of Shareholders, Mr. Tucker was elected by the
shareholders as a Class II Director for a term to expire at the
1998 Annual Meeting of Shareholders.
On February 28, 1997, the Company entered into an amendment
to the Agreement and Note. Pursuant to the terms of the
Agreement, as of such date, 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.
As part of the February 1997 amendment to the Agreement and
the Note, the Company agreed to cause two additional 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 (See Note 11 of "Notes to Consolidated
Financial Statements" and See "Item 13 - Certain Relationships and
Related Transactions").
Officers are elected annually and serve at the pleasure of
the Board of Directors, subject to rights, if any, under contracts
of employment.
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.
ITEM 11. 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 $100,000; and (iv) the Company's
President and Chief Operating Officer, who commenced employment on
September 6, 1996, whose compensation on an annual basis would
have required disclosure in the table below:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
Name and Other Annual Common Stock All Other
Principal Year Salary Bonus Compensation Underlying Compensation
Position ($) ($) ($) Options (#) ($)
<S> <C> <C> <S> <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 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
</TABLE>
- --------------
(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:
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 $408 in 1996 for Mr. Goff.
<PAGE>
The following table sets forth certain information concerning
options granted in 1996 to the individuals named in the Summary
Compensation Table:
<TABLE>
<CAPTION>
OPTION GRANTS IN 1996
Individual Grants
Potential
Realizable Value
Number of % of Total at Assumed Annual
Securities Options Exercise Rates of Stock Price
Underlying Granted to or Base Appreciation for
Options Employees Price Expiration Option Term
Name Granted (#) In 1995 ($/Share) Date 5% ($ 10%($)
<S> <C> <C> <C> <C> <C> <S><C> <S><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 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 $20.00 per share. Therefore, the
options have no value.
(7) Mr. Ullmann's employment with WellCare terminated on September 6, 1996, and
the option was canceled on such date.
(8) The potential realizable value of the stock options is equal to
or less than zero.
</TABLE>
<PAGE>
The following table presents certain information concerning
options exercised during 1996 and the value of unexercised options
held at December 31, 1996 by the individuals named in the
compensation table:
<TABLE>
<CAPTION>
OPTION EXERCISES IN 1996 AND OPTION VALUES AT DECEMBER 31, 1996
Value
Number of of Unexercised
Unexercised Options In-the-Money Options
Shares at December 31,1996(#) at December 31,1996($)
Acquired Value Exercisable(E)/ Exercisable(E)/
Name on Exercise (#) Realized ($) Unexercisable(U) Unexercisable(U)
- ------------------- --------------- ------------ ---------------- -----------------
<S> <C> <C> <C> <C> <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 1, 1997, Ms. Corsones will resign 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.
DIRECTOR COMPENSATION
All directors, who are not employees of the Company, receive a
fee of $500 for each meeting of the Board of Directors attended,
plus reimbursement of their expenses, and an additional $300 for
each meeting of the Compensation Committee or Audit Committee.
Immediately following the election, re-election or appointment
of an outside director, the Stock Option Committee grants to each
outside director a non-incentive option to purchase 3,000 shares
of Common Stock (pro-rated in the case of an appointment as a
director) at an exercise price equal to 75% of the fair market
value of the Common Stock on the date of grant. Each option is
for a term of five years from the date of grant, provided,
however, that all options terminate three months after each
outside director ceases to serve as a director of the Company.
Each option is generally exercisable at the annual rate of 1,000
shares commencing one year from the date of grant.
In July 1996, the Company granted Mr. Tucker an option to
purchase 2,000 shares of the Company's Common Stock at $7.22 per
share as a result of his election as a Class II Director at the
1996 Annual Meeting of Shareholders to serve the balance of the
Class II Directors term which expires at the 1998 Annual Meeting
of Shareholder.
In July 1996, the Company granted Mr. Crew an option to
purchase 3,000 shares of the Company's Common Stock at $7.22 per
share as a result of his election as a Class III Director at the
1996 Annual Meeting.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth as of March 1, 1997 certain
information with regard to the beneficial ownership of the Common
Stock of the Company as of the date hereof by (1) each stockholder
who is known by the Company to beneficially own in excess of 5% of
the outstanding shares of Common Stock or Class A Common Stock,
(2) each director, (3) each of the executive officers named in the
Summary Compensation Table, and (4) all executive officers and
directors as a group:
<TABLE>
<CAPTION>
Percent of Total
------------------ Percent
Class A of Total
Name Common Common(13) Common Common Vote
---- ------ ---------- ------ ------ ----
<S> <C> <S><C> <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) - 1,913 - * *
Douglas Hayward - 4,630 - * *
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 76,655 50.3 1.5 37.3
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 2,915,120 87.0 46.8 78.1
</TABLE>
* 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
a floor of $10.37 and adjusts the floor price quarterly based on the number
of outstanding options from July 1, 1996 to the present date. Brown
Brothers Harriman & Co., ("BBH & Co."), a general partner of the Fund, have
designated Messrs. T. Michael Long and Lawrence C. Tucker, either
individually or jointly, as the sole and exclusive partners of BBH & Co.
having voting and investment power with respect to the Note, and the Common
Stock issuable upon conversion of the Note. Giving effect to the conversion
of the Note on March 3, 1997, 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 May 3, 1997, as follows:
NAME NUMBER OF SHARES
Joseph R. Papa 66,666
Marystephanie Corsones 3,750
G. William Strein 6,000
John E. Ott 913
ITEM 13. 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 agreed to cause two
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").
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.<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
I. LIST OF DOCUMENTS FILED AS PART OF THIS REPORT.
A. Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
B. Schedules
Schedule I - Condensed Financial Information of Registrant
Schedule II - Valuation and Qualifying Accounts
C. Exhibits Required by Item 601 of Regulation S-K
See Index to Exhibits
II. Reports of Form 8-K.
None
III. Exhibits
See Index to Exhibits
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 28th day of March, 1997.
The WellCare Management Group, Inc.
By: /s/ Robert W. Morey
Robert W. Morey, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed by the following persons on
behalf of the Registrant and, in the capacities indicated on March
28, 1997.
Signature Title
/s/ Robert W. Morey Chairman of the Board and
Robert W. Morey Chief Executive Officer
(Principal Executive Officer)
/s/ Marystephanie Corsones Chief Financial Officer and
Marystephanie Corsones Director (Principal Financial and
Accounting Officer)
/s/ Charles E. Crew Director
Charles E. Crew, Jr.
/s/ Mark D. Dean, D.D.S. Director
Mark D. Dean, D.D.S.
/s/ John E. Ott, M.D. Director
John E. Ott, M.D.
/s/ Walter W. Grist Director
Walter W. Grist
/s/ G. William Strein Director
G. William Strein
/s/ Lawrence C. Tucker Director
Lawrence C. Tucker
/s/ Edward A. Ullmann Director
Edward A. Ullmann
/s/ Eileen Wilson Director
Eileen H. Wilson
/s/ Daniel M. Zeichner, M.D. Director
Daniel M. Zeichner, M.D.
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY: PAGE
Report of Deloitte & Touche LLP, Independent Auditors 51
Consolidated Balance Sheets as of December 31, 1996
and 1995 52
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994 54
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1996, 1995 and 1994 55
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 59
Notes to Consolidated Financial Statements 61
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
The WellCare Management Group, Inc.
Kingston, New York
We have audited the accompanying consolidated balance sheets of
The WellCare Management Group, Inc. and subsidiaries (the
"Company") as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity and
cash flows for each of the three years in the period ended
December 31, 1996. Our audits also included the financial
statement schedules listed in the Index at Item 14. These
consolidated financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of the
Company as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 1996 in conformity with generally
accepted accounting principles. Also, in our opinion, such
financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
Deloitte & Touche LLP
New York, New York
February 28, 1997<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, December 31,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,869 $ 5,456
Short-term investments -
available for sale 919 1,261
Accounts receivable (net of
allowance for doubtful
accounts of $1,902 in 1996
and $1,166 in 1995) 8,133 13,941
Notes receivable (net of
allowance for doubtful
accounts of $2,032 in 1996
and $534 in 1995) 351 678
Due from affiliate - 50
Advances to participating providers 2,320 3,078
Other receivables (net of allowance
for doubtful accounts of $4,995 in
1996 and $744 in 1995) 4,874 4,645
Taxes receivable 6,969 1,948
Deferred tax asset 3,932 2,056
Prepaid expenses and other
current assets 400 427
TOTAL CURRENT ASSETS 35,767 33,540
PROPERTY AND EQUIPMENT (net of
accumulated depreciation and
amortization of $5,157 in 1996
and $3,711 in 1995) 12,261 12,993
OTHER ASSETS:
Restricted cash 6,667 8,241
Notes receivable (net of
allowance for doubtful accounts
of $3,313 in 1996 and $4,596 in
1995) 1,104 1,389
Preoperational costs (net of
accumulated amortization of
$1,237 in 1996 and $349 in 1995) 2,764 3,232
Other non-current assets (net of
allowance for doubtful accounts
of $1,516 in 1996 and $348 in 1995
and accumulated amortization of
$650 in 1996 and $301 in 1995) 4,749 3,817
Due from affiliate - 173
Goodwill (net of accumulated
amortization of $1,702 in 1996
and $1,066 in 1995) 8,028 8,626
TOTAL $ 71,340 $ 72,011
<PAGE>
December 31, December 31,
1996 1995
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 702 $ 1,547
Medical costs payable 15,965 14,030
Accounts payable 1,002 702
Accrued expenses 2,466 1,453
Other current liabilities 212 15
Unearned income 4,248 3,060
TOTAL CURRENT LIABILITIES 24,595 20,807
LONG-TERM LIABILITIES:
Long-term debt 26,467 19,209
Other liabilities 4 191
TOTAL LIABILITIES 51,066 40,207
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY:
Class A Common Stock ($.01 par
value; 1,484,482 and 1,599,109
shares authorized; 1,369,492
and 1,484,119 shares issued and
outstanding at December 31,
1996 and 1995, respectively) 14 15
Common Stock ($.01 par value;
20,000,000 shares authorized,
4,942,750 and 4,807,725 shares
issued at December 31, 1996 and
1995, respectively) 49 48
Additional paid-in capital 26,624 26,371
(Accumulated deficit)/retained
earnings (12,121) 1,233
Statutory reserve 5,932 4,360
20,498 32,027
Unrealized (loss)/gain on
short-term investments (11) 5
Less:
Notes receivable from shareholders 6 17
Treasury stock (at cost; 14,066
and 14,266 shares of Common Stock
at December 31, 1996 and 1995,
respectively) 207 211
TOTAL SHAREHOLDERS' EQUITY 20,274 31,804
TOTAL $ 71,340 $ 72,011
See accompanying notes to consolidated financial statements.
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31,
1996 1995 1994
REVENUE:
Premiums earned $157,156 $144,518 $120,411
Administrative fee income 1,592 2,792 710
Income from affiliates 235 239 199
Interest and investment
income 1,338 999 812
Other income 930 4,319 450
TOTAL REVENUE 161,251 152,867 122,582
EXPENSES:
Medical expenses 135,957 115,560 98,411
General and
administrative expenses 39,334 30,279 15,599
Depreciation and
amortization expense 3,254 2,292 1,611
Interest expense 2,185 1,447 666
Expenses paid to affiliates 411 421 379
Other expenses - net (70) 79 54
TOTAL EXPENSES 181,071 150,078 116,720
(LOSS)/INCOME BEFORE
INCOME TAXES (19,820) 2,789 5,862
(BENEFIT)/PROVISION FOR
INCOME TAXES (8,038) 1,116 2,403
NET (LOSS)/INCOME $(11,782) $ 1,673 $ 3,459
NET (LOSS)/EARNINGS
PER SHARE $ (1.87) $ 0.27 $ 0.56
Weighted average shares of common
and common stock equivalents
outstanding 6,296 6,250 6,226
See accompanying notes to consolidated financial statements.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
(in thousands)
(Accumulated
Class A Additional Deficit)/
Common Common Paid-in Retained Statutory
Stock Stock Capital Earnings Reserve
BALANCE,
DEC 31, 1993 $17 $45 $25,612 $ (1,207) $ 1,668
Purchase of
treasury stock - - - - -
Conversion of
Class A Common
shares to
Common shares (1) 1 - - -
Exercise of
stock options - 1 249 - -
Valuation allow-
ance on short-
term investments - - - - -
Transfer to
statutory reserve - - - (1,235) 1,235
Net income - - - 3,459 -
BALANCE,
DEC 31, 1994 16 47 25,861 1,017 2,903
Issuance of
treasury stock - - 60 - -
Conversion of
Class A Common
shares to
Common shares (1) 1 - - -
Exercise of
stock options - - 450 - -
Repayments/re-
classification
of shareholders'
notes - net - - - - -
Net change of
valuation allow-
ance on short-
term investments - - - - -
Transfer to
statutory reserve - - - (1,457) 1,457
Net income - - - 1,673 -
<PAGE>
(Accumulated
Class A Additional Deficit)/
Common Common Paid-in Retained Statutory
Stock Stock Capital Earnings Reserve
BALANCE,
DEC 31, 1995 15 48 26,371 1,233 4,360
Issuance of
treasury stock - - 1 - -
Conversion of
Class A Common
shares to
Common shares (1) 1 - - -
Exercise of
stock options - - 252 - -
Repayments/re-
classification
of shareholders'
notes - net - - - - -
Net change of
valuation allow-
ance on short-
term investments - - - - -
Transfer to
statutory reserve - - - (1,572) 1,572
Net (loss) - - - (11,782) -
BALANCE,
DEC 31, 1996 $14 $49 $26,624 $(12,121) $ 5,932
<PAGE>
Unrealized
(Loss)/Gain
On Notes Total
Short-term Receivable- Treasury Shareholders'
Investments Shareholders Stock Equity
BALANCE,
DEC 31, 1993 $ - $ (38) $ - $ 26,097
Purchase of
treasury stock - - (395) (395)
Conversion of
Class A Common
shares to
Common shares - - - -
Exercise of
stock options - - - 250
Valuation allow-
ance on short-
term investments (104) - - (104)
Transfer to
statutory reserve - - - -
Net income - - - 3,459
BALANCE,
DEC 31, 1994 (104) (38) (395) 29,307
Issuance of
treasury stock - - 184 244
Conversion of
Class A Common
shares to
Common shares - - - -
Exercise of
stock options - - - 450
Repayments/re-
classification
of shareholders'
notes - net - 21 - 21
Net change of
valuation allow-
ance on short-
term investments 109 - - 109
Transfer to
statutory reserv - - - -
Net income - - - 1,673
<PAGE>
Unrealized
(Loss)/Gain
On Notes Total
Short-term Receivable- Treasury Shareholders'
Investments Shareholders Stock Equity
BALANCE,
DEC 31, 1995 5 (17) (211) 31,804
Issuance of
treasury stock - - 4 5
Conversion of
Class A Common
shares to
Common shares - - - -
Exercise of
stock options - - - 252
Repayments/re-
classification
of shareholders'
notes - net - 11 - 11
Net change of
valuation allow-
ance on short-
term investments (16) - - (16)
Transfer to
statutory reserve - - - -
Net (loss) - - - (11,782)
BALANCE,
DEC 31, 1996 $ (11) $ (6) $ (207) $ 20,274
See accompanying notes to consolidated financial statements.<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31,
1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss)/income $(11,782) $ 1,673 $ 3,459
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 3,254 2,292 1,611
Increase in deferred taxes (1,711) (1,788) (1,612)
(Gain)/loss on sale of
assets and others (71) 57 23
Changes in assets and
liabilities - net of effects of
acquisition:
Decrease/(increase) in accounts
receivable - net 5,808 (6,545) (1,422)
Increase in medical
costs payable 1,935 522 2,858
Decrease/(increase) in due
from affiliates - net 223 (27) (4)
(Increase)/decrease in accounts
receivable -
non-current - net (644) - 610
Increase in other
receivables - net (148) (3,554) (972)
Increase/(decrease) in accounts
payable, accrued expenses and
other current liabilities 1,531 (97) 591
(Increase)/decrease in taxes
receivable/payable (5,021) (2,186) 63
Decrease in prepaid expenses
and other 19 55 440
Increase in unearned income 1,187 1,048 196
Decrease/(increase) in
restricted cash 1,574 (1,657) (1,713)
Decrease/(increase) in advances
to participating providers 757 1,032 (3,040)
(Increase)/decrease in other
non-current assets - excluding
preoperational costs and accounts
and other receivables (584) 41 (95)
Other - net (399) (166) (3)
NET CASH (USED IN)/PROVIDED
BY OPERATING ACTIVITIES (4,072) (9,300) 990
<PAGE>
YEARS ENDED DECEMBER 31,
1996 1995 1994
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (538) (1,608) (5,816)
Decrease/(increase) in
notes receivable 613 466 (162)
Sale of investments 6,841 12,702 6,954
Purchase of investments (6,500) (6,367) (12,463)
Increase in
preoperational costs (420) (1,589) (1,863)
Payments to acquire MCA, net of
cash acquired - (215) -
Payments to acquire MHP, net of
cash acquired - - (1,126)
Escrow deposit in connection
with MHP acquisition - - 1,000
Other investing activities (16) 109 (104)
NET CASH (USED IN)/PROVIDED
BY INVESTING ACTIVITIES (20) 3,498 (13,580)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of stock
and treasury stock - net 3 244 -
Cost of treasury stock purchased - - (395)
Proceeds from exercise of
stock options 254 450 250
Proceeds from notes payable and
long-term debt 21,239 16,545 7,630
Repayment of notes payable and
long-term debt (15,002) (8,295) (7,153)
Other financing activities 11 21 -
NET CASH PROVIDED BY
FINANCING ACTIVITIES 6,505 8,965 332
NET INCREASE/(DECREASE) IN CASH
AND CASH EQUIVALENTS 2,413 3,163 (12,258)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 5,456 2,293 14,551
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 7,869 $ 5,456 $ 2,293
See accompanying notes to consolidated financial statements.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Operations - The WellCare Management Group,
Inc. ("WellCare" or the "Company") was incorporated in New York
State in 1983 to provide management and supervise all or part of
any health service facility, including, but not limited to, health
maintenance organizations ("HMOs"). An HMO is an organization
that accepts contractual responsibility for the delivery of a
stated range of health care services to its enrollees for a
predetermined, prepaid fee.
WellCare of New York, Inc. ("WCNY"), a wholly-owned subsidiary,
was incorporated in 1985 to develop and operate as an HMO in New
York State. WCNY obtained a certificate of authority from the
New York State Department of Health and commenced operations in
March 1987. WCNY operates in 24 counties in the Hudson River
Valley, Mohawk River Valley, Albany and Leatherstocking regions of
New York State as a direct mixed IPA/Direct Contract model Article
44 HMO. Under this type of arrangement, agreements are entered
into with physician alliances, individual primary care physicians
or physician groups for the provision of all medical care to
WCNY's enrollees for a specified monthly payment ("capitation
fee").
In July 1995, WCNY received approval from the New York State
Department of Health to expand its service area into the New York
City Boroughs of Manhattan, Queens, Brooklyn and the Bronx and in
August 1995, received regulatory approvals to offer Healthy
Choice, WCNY's managed-care program for Medicaid recipients, in
such boroughs.
Historically, WCNY has provided incentives to its primary care
physicians to control health care expenses through the use of
capitation arrangements. Under these capitation arrangements,
primary care physicians are entitled to the surplus to the extent
health care costs incurred are less than the negotiated capitation
payments. Surpluses paid to the primary care physicians are
recorded as medical expenses in the period in which the related
health care costs are incurred. Effective October 1, 1994, WCNY
entered into contracted arrangements with a majority of its
primary care physicians and specialists through contracts with
regional health care delivery networks (the "Alliances") to
provide health care services to WCNY's commercial and Medicaid
members. Initially, each Alliance was a professional corporation
that then contracted with individual primary care physicians and
specialists to provide health care services. At inception, there
were four Alliances with different equity owners; by December 31,
1995 the four Alliances were combined into two Alliances with the
same equity owner, which the Company has been advised are in the
process of converting to IPAs. WCNY's initial agreement with each
of the Alliances for the period October 1, 1994 through September
30, 1995 required payment to the Alliances based on a percentage
of premium revenue for effected members. Effective October 1,
1995, the Company entered into a three year agreement with each of
the Alliances at specified per member per month ("PMPM") rates,
providing for increases of approximately 1% for the period October
1, 1995 through December 31, 1995, approximately 6% effective
January 1, 1996, approximately 1% effective January 1, 1997, and
an additional 3% effective January 1, 1998. Such rates were
established through arms-length negotiation with the Alliances.
As part of this change in capitation arrangements, the risk-sharing
accounts of Alliance primary care physicians who formerly
had been capitated by WCNY were settled and outstanding deficits
paid to WCNY in the fourth quarter of 1994, thereby reducing
WCNY's medical expenses during such quarter.
In an effort to improve the profitability of WCNY and the
Alliances, WCNY entered into a letter of understanding with the
Alliances in September 1996 to restructure its capitation
arrangement. Pursuant to the terms of the restructured
arrangement, WCNY reassumed the risk for certain previously
capitated services, as well as reduced the capitation rate paid
for the services which continued to be provided by the Alliances.
At December 31, 1996, WCNY capitated the Alliances for all
physician services, both primary care and specialty services, on a
PMPM basis for each HMO member except for physician services in
the areas of certain diagnostics and mental health, which WellCare
capitated through contracts with certain other regional integrated
delivery systems. Additionally, if certain conditions are met,
these contracts will be extended to ten-year terms.
Each Alliance, in turn, capitates each Alliance primary care
physician from the monthly payments received from WCNY with a
fixed monthly payment for each HMO member designating the Alliance
physician as their primary care provider, retaining and allocating
the balance to a group risk pool for payment to specialists.
Specialists are compensated on a fee-for-service basis by each
Alliance which disburses payments to these specialists. To the
extent the risk pools are insufficient to cover the specialists'
fees, the amounts paid to the specialists as a group can be
proportionately reduced, up to a maximum of 30%. To the extent
the risk pools are still insufficient to cover the specialists'
fee after a maximum reduction, a portion of the capitation
payments to primary care physicians can be withheld to cover the
specialists' fees after the reduction. Primary care physicians
and specialists are furnished with periodic utilization reports
and the Alliances' accounts are reconciled on a quarterly basis.
WellCare Administration, Inc.("WCA") is a wholly-owned subsidiary
incorporated in 1988 to administer the Company's pharmacy, vision
care, dental care and other specialty care benefit programs as
stand-alone products to self-insured employer and other groups. A
certificate of amendment of the certificate of incorporation was
approved by the State of New York Insurance Department on March 1,
1996 to change the name of the corporation to Agente Benefit
Consultants, Inc. ("ABC").
WellCare of Connecticut, Inc. ("WCCT"), a wholly-owned subsidiary,
was incorporated in 1994 in the State of Connecticut to develop
and operate as an HMO, formed under the General Statute of the
Connecticut Healthcare Center Act Section 38A-175 in the State of
Connecticut. WCCT was licensed on March 1, 1995 and operated as
an IPA model HMO. WCCT is approved to operate State-wide in all
eight (8) counties of Connecticut. Under this type of
arrangement, agreements are entered into with IPAs and PHOs and
individual physicians for the provision of all medical care to
WCCT's enrollees for a specified fee for services rendered.
WellCare Development, Inc. ("WCD") is a wholly-owned subsidiary
formed in 1992 to acquire, own and develop real estate. As of
December 31, 1992, WellCare contributed to WCD the Park West
Office Complex, which was the principal asset of UCI Enterprises,
a New York State general partnership in which WellCare had
acquired a 95 percent interest and in which it acquired the
remaining 5 percent interest prior to such contribution.
WellCare Medical Management, Inc. ("WCMM"), formerly a wholly-owned
subsidiary formed in 1990 to provide managerial,
administrative and financial services to physicians, was sold in
June 1995 (see Note 4).
WellCare University ("WCU"), a division of WellCare, was formed
during 1994. WCU is dedicated to: strategic planning for WellCare
and other within the managed care/health care arena, training for
WellCare employees and others within the managed care/health care
arena, research and development of many aspects of providing
medical services and health care management consulting.
Park West Entertainment, Inc. ("PWE"), an affiliated entity,
provided certain conferencing and administrative services through
December 27, 1996. Amounts due from PWE at December 31, 1995 are
included in "Due from Affiliate" in the consolidated balance
sheet.
Bienestar, Inc. ("Bienestar"), was an unconsolidated affiliate
that entered into an agreement in July 1996 with WCNY to provide
consulting and educational services regarding wellness and
integrated health services. In 1996, the Company acquired 70% of
Bienestar. On December 17, 1996, WellCare sold its interest in
Bienestar to the Company's former Chief Executive Officer and
President.
b. Principles of Consolidation - The consolidated financial
statements include the accounts of the Company and all majority
owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
c. Advances to Participating Providers - Advances to
participating medical providers consist of amounts advanced to
providers, principally hospitals, which are under contract with
the Company to provide medical services to plan members. Such
advances help provide funding to these providers for claims
incurred but not reported or claims in the process of
adjudication.
d. Property and Equipment - Property and equipment is stated at
cost, less accumulated depreciation. Depreciation is computed by
the straight-line method based upon the estimated useful lives of
the assets which range from 5 to 39 years.
e. Preoperational Costs - Preoperational costs, which include
service area and product line expansion costs, consist of certain
incremental separately identifiable costs directly associated with
building a provider base of network physicians in service areas in
which the Company is applying for licensure and expanding the
Company's Medicare managed care program. Such costs are deferred
until the related licensure approval is received at which time the
costs are amortized on a straight-line basis over a 36-month
period. Preoperational costs are reported net of accumulated
amortization. At December 31, 1996 and 1995, accumulated
amortization approximated $1,237,000 and $349,000, respectively.
f. Revenue Recognition - Administrative and management fees
received in advance are deferred and recognized as income over the
period in which services are rendered. Premiums from subscribers
are recorded as income in the period that subscribers are entitled
to service. Premiums received in advance are deferred. WCNY
subscriber premiums are determined on an annual basis using
community rating principles, required by the New York State
Insurance Department. Although the rate filing request and
approval process is performed on an annual basis, under New York
State insurance law, WCNY is allowed to contract with subscribers
throughout the year based upon a "guaranteed" rate which
incorporates an estimated community rate. WCNY is required to
remit or collect any difference between the community rate
ultimately approved and the guaranteed rate in the subsequent
twelve month contract period. WCCT subscriber premiums are
determined on an annual basis using community rating principles
required by the Connecticut Insurance Department. Although the
rate filing request and approval process is performed on an annual
basis, under Connecticut insurance law WCCT is allowed to contract
with subscribers throughout the year based on a "guaranteed" rate
which incorporates an estimated community rate. WCCT is required
to remit or collect any difference between the community rate
ultimately approved and the guaranteed rate in the subsequent
twelve month period. Accounts receivable include approximately
$1,763,000 and $1,741,000 at December 31, 1996 and 1995,
respectively, which represented the excess of subscriber premiums
accrued based on approved community rates over amounts actually
billed under guaranteed rates. Approximately $754,000 of the
$1,763,000 and $110,000 of the $1,741,000 outstanding at December
31, 1996 and 1995, respectively, have been classified as non-current.
Accounts receivable, other receivables, notes receivable and other
non-current assets are reported net of reserves for doubtful
accounts of approximately $13,758,000 and $7,388,000 at December
31, 1996 and 1995, respectively.
g. Reinsurance - WCNY and WCCT (the "WellCare HMOs") insure
excess loss for commercial health care claims under policies with
a reinsurance company. Effective September 1, 1995, WCNY
reinsured a portion of its Medicare Full Risk program with a
reinsurance company under a quota share agreement. Effective
November 1, 1996, WCNY supplemented this agreement with a separate
excess loss reinsurance policy. Effective August 1, 1996, WCNY's
Medicaid claims are also covered under an excess loss reinsurance
policy. Premiums for these policies are reported as medical
expense and insurance recoveries, if any, are recorded as a
reduction of medical expenses. Under the excess loss reinsurance
policies, recoveries are made for claims of each enrollee or each
covered dependent of each enrollee, on an annual basis, in excess
of the deductible established in the policy subject to certain
limitations. For the period from November 1, 1994, through
October 31, 1995, the deductible under the policy for commercial
health care claims was $100,000, which increased to $115,000 on
November 1, 1995, and decreased to $85,000 on November 1, 1996.
The deductibles for the Medicaid and Medicare Full Risk products
are $115,000 and $200,000, respectively.
Reinsurance premiums charged to medical expenses in the
accompanying consolidated financial statements amounted to
approximately $552,000, $520,000 and $359,000 in 1996, 1995 and
1994, respectively. Reinsurance recoveries of approximately
$524,000, $577,000 and $359,000 in 1996, 1995 and 1994,
respectively, have been recognized as a reduction in medical
expenses.
Included in other receivables at December 31, 1996 and 1995, were
amounts recoverable from the reinsurers of approximately
$1,155,000 and $633,000, respectively.
h. Medical Costs Payable and Medical Expenses - Medical
expenses for primary care, hospital inpatient services, outpatient
specialty care and pharmacy services, including those for which
advances have been made to providers are recorded, as expenses in
the period in which they are incurred. The liability for medical
costs payable is based upon an estimate of the total reported and
unreported claims attributable to medical services rendered by the
WellCare HMOs during the year. Such estimates are based upon a
comprehensive accounting of all reported claims as well as an
actuarially determined reserve for claims incurred but not
reported.
i. Use of Estimates - The preparation of consolidated financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. The amounts of
incurred but not reported medical expenses, the reserve for
uncollectible receivables, recoveries from third parties for
coordination of benefits, final determinations of medical cost
adjustment pools by New York State, and medical premiums subject
to retrospective adjustment, require the significant use of
estimates. Actual results could differ from those estimates used
by management in the preparation of these consolidated financial
statements.
j. Advertising Costs - Advertising costs, which include costs
for certain marketing materials and development/implementation of
public relations and marketing campaigns, are expensed as
incurred. The advertising costs expensed in 1996, 1995 and 1994,
were approximately $2,046,000, $1,723,000 and $1,573,000,
respectively.
k. Cash Flows Statements - For purposes of the statements of
cash flows, the Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to
be cash equivalents. The Company considers all other instruments
to be short-term investments. Cash equivalents are carried at
cost which approximates market value.
l. Short-term Investments - Effective January 1, 1994, the
Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115"). The Company has determined that the
securities included in short-term investments, consisting
primarily of state and municipal obligations might be sold prior
to maturity to support its investment strategies. Such
investments have, therefore, been classified as available for
sale. The basis for available for sale securities is market
value.
m. Goodwill - Goodwill represents the excess of the purchase
price over the fair value of the net assets of acquired entities
and is amortized on the straight-line method over a 15-year
period. At December 31, 1996 and 1995, accumulated amortization
approximated $1,702,000 and $1,066,000, respectively.
The Company evaluated the recoverability of goodwill by monitoring
reenrollment trends of membership acquired as well as the inherent
profitability of such membership as determined in connection with
annual rate filings. The Company has determined that no
impairment exists at December 31, 1996.
n. Income Taxes - In 1993, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109 "Accounting for
Income Taxes" ("SFAS 109"), which requires recognition of deferred
tax liabilities and assets for the expected future tax
consequences of events that have been included in the consolidated
financial statements or tax returns. Under this method, deferred
tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse and the benefits of
operating loss carryforwards. A valuation allowance is required
to reduce net deferred tax assets unless management believes it is
more likely than not that such deferred tax assets will be
realized.
o. Long-Lived Assets - In March 1995, the Financial Accounting
Standard's Board ("FASB") issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", effective for fiscal years beginning after December
15, 1995. There was no effect on the consolidated financial
statements from the adoption of this statement.
p. Stock-Based Compensation - In October 1995, the FASB issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"), which requires adoption of the disclosure provisions no
later than fiscal years beginning after December 15, 1995 and
adoption of the measurement and recognition provisions for non-employees
transactions no later than December 15, 1995. The new
standard defines a fair value method of accounting for the
issuance of stock options and other equity instruments. Under the
fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the
service period, which is usually the vesting period. Pursuant to
SFAS 123, companies are encouraged, but not required, to adopt the
fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account
for such transactions under Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees", but
would be required to disclose in a note to the consolidated
financial statements pro forma net incomes, and per share amounts
as if the company has applied the new method of accounting. SFAS
123 also requires increased disclosures for stock-based
arrangements regardless of the method chosen to measure and
recognize compensation for employee stock-based arrangements. The
Company has elected to continue to account for such transactions
under APB No. 25 and disclose per SFAS 123 the pro-forma effects
(See Note 14 - "Stock Options").
q. Reclassifications - Certain amounts in the 1995 and 1994
consolidated financial statements have been reclassified to
conform to the 1996 presentation.
2. MEDICAL EXPENSE
a. In 1994, two entities which were predecessors to the
Alliances referred to in Notes 1a and 17a, made payments of
approximately $2,879,000 to providers in connection with the close
out of the 1993 group risk accounts and to resolve certain
disputed amounts between the Company and certain providers, which
payments might otherwise have been made by the Company.
Additionally, these entities paid approximately $1,833,000
directly to the Company in payment of 1993 provider deficits which
would otherwise have been due to the Company directly from the
providers. As originally reported in its 1994 consolidated
financial statements, the Company recorded the $1,833,000 received
as a reduction of medical expense, and the Company did not record
as medical expense, the $2,879,000 paid directly to the providers
by these entities.
Subsequently, in 1996, the Company's accounting personnel were
informed that Edward A. Ullmann, the then Chairman of the Board,
Chief Executive Officer and President of the Company (Mr. Ullmann
resigned as Chairman and Chief Executive Officer on April 30,
1996, and as President on September 6, 1996), had guaranteed, in
his individual capacity, two loans each in the amount of
$2,700,000, made by banks to these two entities, the proceeds of
which were used to fund the aggregate payments of $4,712,000
referred to above.
The Company subsequently restated its 1994 consolidated financial
statements to reflect the higher medical expenses, and established
a medical expense accrual. As there were no specific accounts
payable by the Company, this accrual is being reduced concurrently
with the pay down of the bank loans, with a simultaneous reduction
in medical expense. A reduction of medical expense of
approximately $2,423,000 and $1,738,000, was recorded in 1996 and
1995, respectively. The loans have been paid in accordance with
their contractual amortization schedules and are scheduled to be
fully paid in 1997.
b. The Alliances described in Notes 1a and 17a commenced
operations in the fourth quarter of 1994. Based on information
provided to the Company by the Alliances, the Alliances have
operated at a deficit since inception (the deficit is
approximately $17,000,000 at December 31, 1996 based on unaudited
information). The deficit is the result of medical expense
obligations assumed from WellCare upon the formation of the
Alliances, actual and estimated but not incurred medical losses in
excess of the amounts initially estimated, and operating losses.
The Alliances have financed the deficits through a combination of
borrowings from the Buyer and the investor referred to in Note 4;
lags inherent in the receipt, adjudication and payment of claims;
and the deferral of claim payments to providers. In addition, a
$3,000,000 bank line-of-credit was entered into by the Buyer on
December 28, 1995, which was guaranteed by Mr. Ullmann in his
personal capacity.
On August 1, 1996, the Alliances implemented a fee withhold
program, as permitted under the contracts with its physicians, to
withhold payments otherwise payable to referral physicians by
approximately 15% to 22% depending on the geographic location of
the physician. Management of the Alliances and WellCare believe
that this withhold program, together with general changes in the
management of the Alliances, and the introduction of new provider
reimbursement schedules should enable the Alliances to maintain
their operations and reduce their accumulated deficits in 1997 and
substantially eliminate them in 1998.
The Company has been advised by counsel that it would have no
financial liability to providers with whom the Alliances had
contracted for services rendered in the event the Alliances were
unable to maintain their operations. Further, the Company has
direct contracts with providers which would require the providers
to continue medical care to members on the financial terms similar
to those in the Alliances' agreement with providers, in the event
that the Alliances were unable to maintain their operations.
Nevertheless, in the event of continuing losses or increasing
deficits by the Alliances, the Alliances could request increased
capitation rates from the Company.
Management of the Company does not believe that such additional
financial or increased contractual capitation rates should be
required by the Alliances and has no intention to agree to such
terms if requested by the Alliances beyond the contractual
increases described in Note 1a. However, as outlined below, the
Company agreed to record charges to medical expense based on the
instructions of The New York State Insurance Department ("NYSID").
Effective September 1, 1996, the Company entered into a letter of
understanding with the Alliances to restructure its capitation
arrangement. Under this understanding, the Company reassumed risk
for certain previously capitated services with a corresponding
reduction in rates.
c. In connection with a comprehensive review of its
arrangements with the Alliances, NYSID accelerated its normal
statutory audit of WCNY. In letters dated August 12, 1996, and
September 25, 1996, NYSID instructed the Company to assume certain
medical expenses of prior periods. In the August 12, 1996 letter,
NYSID instructed the Company to assume responsibility for unpaid
inpatient hospital claims at June 30, 1996, which had been
contractually assumed by the Alliances. This resulted in
additional medical expense in 1996 of approximately $3.7 million.
In the September 25, 1996 letter, NYSID instructed the Company to
record additional medical expense for medical claims for the
period prior to October 1, 1994, which had been contractually
assumed by the Alliances. This resulted in additional medical
expense of $2.9 million in 1996. Both of these changes represent
obligations which had previously been assumed by the Alliances.
d. WCNY has an arrangement with several medical practices owned
by the principal shareholder of the Buyer for the promotion of
WCNY's access to primary care medical services at these sites.
Payments of $1,764,696 in 1996 and $3,691,878 in 1995 and
$2,396,033 in 1994 have been charged to medical expense. In
addition, WCNY advanced additional payments to the sites
($2,388,763 in 1996 and $710,000 in 1995), and at December 31,
1996, has included in "Other Receivable" approximately $2.5
million representing outstanding 1996 advances. As a result of
operating losses at the sites and the uncertainty of their ability
to repay these advances, WellCare has fully reserved this
receivable in 1996. In 1997, WellCare made additional advances of
$150,000. In October 1995, WCU entered into a similar arrangement
with these medical practices for access to these sites as training
facilities and made payments of $600,000 in 1996 and $150,000 in
1995, which amounts have been charged to consulting expense in the
respective years.
3. ACQUISITION OF MANAGED CARE ADMINISTRATORS, INC.
In March 1995, the Company acquired the assets and assumed certain
liabilities of Managed Care Administrators, Inc. ("MCA"), a
company engaged in managing a network of primary care physicians
who provide health care services to Medicaid recipients in New
York City. As part of the purchase price, MCA is to be paid each
calendar year an amount equal to twenty percent (20%) of the pre-interest,
pre-tax income generated by the acquired assets. There
was no earn out in 1996 and 1995.
4. SALE OF WELLCARE MEDICAL MANAGEMENT, INC.
In June 1995, the Company contributed approximately $5.1 million
to its then wholly-owned subsidiary, WellCare Medical Management,
Inc. ("WCMM") which was engaged in managing physician practices,
and then sold the assets of WCMM for cash of $.6 million and a
note receivable of $5.1 million. 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. The Company also received a five-year option to acquire the
Buyer at any time at a formula price based on the Buyer's results
of operations. This option was canceled in 1996. A gain of
approximately $144,000 was not recognized in 1995, pending the
repayment of the note. The note receivable bears interest at a
rate equal to prime plus 2% (10.25% at December 31, 1996) with
interest payable monthly through July 31, 1996 and, thereafter,
principal and interest monthly through July 31, 2000. The Buyer
is in default on the note and has not paid accrued interest of $.5
million at December 31, 1996.
Subsequently, the Company advanced $2.8 million to the Buyer ($2.1
million in 1996 and $.7 million in 1995) for operating expenses,
which obligation is documented, at December 31, 1996, by a note of
$215,000, receivables of $2.1 million and interest receivable of
$.5 million. The note for $215,000 bears interest at a rate equal
to prime plus 2% (10.25% at December 31, 1996) and matured
December 31, 1996. No payments have been made against this note.
In view of the Buyer's operating losses and advances to the
Alliances, the Company has obtained from certain of the Buyer's
equity holders personal guarantees of the original note and
pledges of collateral to secure these guarantees. Nevertheless,
in view of the Buyer's financial condition and difficulties
inherent in the collection of personal guarantees and realization
of collateral, and the Buyer's default on the payments of the
notes, the Company fully reserved in 1995 the original $5.1
million note receivable, plus the $.7 million advanced in 1995.
In 1996, the Company established a net reserve of $1.9 million for
the additional note, interest accrued on the notes, and advances
receivable, net of the deferred gain on the original
sale.
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.
5. SHORT-TERM INVESTMENTS
The value of short-term investments is as follows:
Gross
Unrealized Unrealized Market
Cost Gains Losses Value
At December 31, 1996:
Fixed income securities -
States and
municipalities $928,011 $ 3,500 $(18,345) $913,166
Equity securities 1,858 4,399 0 6,257
TOTAL $929,869 $ 7,899 $(18,345) $919,423
<PAGE>
Gross
Unrealized Unrealized Market
Cost Gains Losses Value
At December 31, 1995:
Fixed income securities -
States and
municipalities $1,254,176 $ 5,778 $ (4,629) $1,255,325
Equity securities 1,858 4,211 - 6,069
TOTAL $1,256,034 $ 9,989 $ (4,629) $1,261,394
The contractual maturities of fixed income securities at December 31,
1996, are as follows:
Market
Cost Value
Due in one year or less $826,424 $813,635
Due after one year through
five years 101,587 99,531
Fixed income securities $928,011 $913,166
6. OTHER RECEIVABLES
Other receivables at December 31, 1996 and 1995 consist of the
following:
1996 1995
Current portion of:
Contributions receivable - WCU $1,348,484 $1,238,642
Receivable from third-party
insurers 171,025 545,454
Reinsurance receivable 1,154,547 633,608
New York State Pools receivable 1,019,567 796,521
Pharmacy rebate receivable 1,004,914 649,846
Others 175,294 780,542
TOTAL $4,873,831 $4,644,613
<PAGE>
7. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1995 consists of the
following:
1996 1995
Land $ 887,638 $ 855,310
Land improvements 438,799 434,699
Construction in progress 105,530 202,300
Buildings and building improvements 9,119,288 8,915,769
Leasehold improvements 434,068 375,100
Computer equipment 4,942,445 4,492,722
Furniture, fixtures and equipment 1,490,459 1,428,406
17,418,227 16,704,306
Less accumulated depreciation 5,157,387 3,710,823
TOTAL $12,260,840 $12,993,483
Included in computer equipment and furniture, fixtures and equipment is
equipment financed through capital leases aggregating approximately
$2,574,000 and $2,398,000 at December 31, 1996 and 1995, respectively.
Accumulated amortization relating to assets financed through capital
leases was approximately $1,705,000 and $1,303,000 at December 31, 1996
and 1995.
8. NOTES RECEIVABLE
Notes receivable consist primarily of advances made to six medical
practices totaling $1,337,316 relating to enhancing WCNY's provider
network. Such notes are collateralized by first liens on all cash,
accounts receivable, inventory, and all office and medical equipment
owned by each of the practices. The notes require monthly principal and
interest payments, at a rate of 7.5% per annum and mature on January 1,
2001.
<PAGE>
9. OTHER NON-CURRENT ASSETS
Other non-current assets at December 31, 1996 and 1995 consist of the
following:
1996 1995
Long term portion of:
Deferred taxes - net $1,509,328 $1,673,511
Accounts receivable 754,427 110,051
Receivables from third-party
insurers 606,363 -
Contributions receivable - WCU 573,813 1,311,740
Capitalized costs incurred in
connection with private placement
of subordinated convertible
note 820,816 -
Deposits and others 484,216 721,241
TOTAL $4,748,963 $3,816,543
10. LONG-TERM DEBT
Long-term debt consists of the following:
1996 1995
Subordinated Convertible Note -
The 1818 Fund II, L.P. (the
"Note"); $20,000,000 due
December 31, 2002; interest at
6% per annum, payable quarterly
by the Company (see Note 11 For
Subordinated Convertible Note). $ 20,000,000 -
Line-of-Credit - Key Bank;
$8,000,000 expiring May 31, 1998;
interest at prime (7.22% as of
December 31, 1996) (see Note
11). - $ 11,850,000
Mortgage Payable - Key Bank of
New York; $4,610,000; interest
at LIBOR plus 175 basis points
(8.25% at December 31, 1996) with
a balloon payment of $3,562,488
due January 1, 2000. Secured by
real estate, buildings, fixtures
and assignment of all leases. 4,271,845 4,466,052
Mortgage Payable - First Hudson
Valley; first mortgage of $820,000;
interest at 7.25% with a balloon
payment of $727,000 due February
1, 1999 776,799 797,758
<PAGE>
Mortgage Payable - Key Bank of
New York; first mortgage of
$862,500; interest at base rate
(8.25% at December 31, 1996);
monthly with a balloon payment
of $642,250 due March 1, 2000.
Secured by property located
in Saugerties. 793,984 836,508
Mortgage Payable - First Hudson
Valley; first mortgage of
$335,000; interest at prime rate
with a balloon payment of
$264,525 due March 1, 2001. 326,240 -
Note Payable - Lincoln National
Administrative Services Corporation
("LNASC"); payable monthly with
interest at 6% on the initial
$1,000,000 and prime plus 1% on
the balance in excess of $1,000,000
through January 1997. A portion of
the interest on this note is deferred
until January 1, 1997. The amount of
deferred interest is $207,430 and is
included in other current liabilities. 35,800 451,757
Note Payable - First Hudson Valley;
due date April 1, 1998; initial
amount of $1,500,000, monthly
payments include principal of
of $41,667 and interest at Chase
Manhattan Bank prime rate plus 1%
(early payoff made on January 29, 1996). - 1,143,808
Capitalized Lease Obligations;
due through 2001; monthly payments
ranging from $423 to $9,103 including
interest ranging from 6.5% to 21.8%;
secured by equipment 963,861 1,209,174
Total Debt 27,168,529 20,755,057
Less current portion 701,719 1,546,510
Long-term portion $26,466,810 $19,208,547
On November 7, 1996, the Key Bank line-of-credit was renegotiated
reducing the aggregate limit from $15,000,000 to $8,000,000, and
the sublimits were changed. WCMG and WCNY's sublimits were
reduced from $8,000,000 to $3,000,000, and from $10,000,000 to
$6,000,000, respectively. In addition, a $2,000,000 sublimit was
established for WCCT.
On January 31, 1997, the Company executed a renegotiated $6.0
million line-of-credit with Key Bank of New York. The line expires
on May 31, 1998. The Company repaid the outstanding amount ($3.1
million) on the previous line-of-credit in December 1996. At
December 31, 1996, the Company was in technical default of certain
financial covenants. Key Bank has granted the Company a waiver of
these financial covenants for the period ended December 31, 1996
and as of that date, there were no borrowings outstanding on the
line-of-credit.
Maturities of long-term debt, excluding capital lease obligations,
and future minimum lease payments under capital leases as of
December 31, 1996, for each of the next five years are as follows:
Future
Minimum
Long-term Lease
Debt Payments
Year:
1997 $ 333,800 $ 431,363
1998 313,200 330,268
1999 1,038,199 227,511
2000 4,248,429 67,250
2001 271,040 19,760
Thereafter 20,000,000 -
26,204,668 1,076,152
Less amount
representing interest - 112,291
$26,204,668 $ 963,861
11. SUBORDINATED CONVERTIBLE NOTE
On January 19, 1996, the Company completed a private placement of
a subordinated convertible note in the principal amount of
$20,000,000 (the "Note") due December 31, 2002 with The 1818 Fund
II, L.P. (the "Fund"), a private equity fund managed by Brown
Brothers Harriman & Co. ("BBH & Co.").
Pursuant to the terms of the Note Purchase Agreement dated January
19, 1996 (the "Agreement"), entered into between the Company and
the Fund, 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 redemptions 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
Note is subordinated to all senior indebtedness of the Company.
The holder of the Note has the right to convert the then
outstanding principal amount of the Note into that number of
shares of Common Stock of the Company at a conversion price 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 and 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 agreed to cause two
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.
<PAGE>
12. INCOME TAXES
The (benefit)/provision for income taxes consists of the
following:
YEAR ENDED DECEMBER 31,
1996 1995 1994
Current:
Federal $(6,388,304) $ 2,180,308 $3,058,334
State 61,864 723,597 956,919
(6,326,440) 2,903,905 4,015,253
Deferred:
Federal ( 350,516) (1,342,359) (1,228,053)
State (1,360,674) (445,546) (384,200)
$(1,711,190) $(1,787,905) $(1,612,253)
A reconciliation of the Federal statutory rate to the Company's
effective income tax rate is as follows:
YEAR ENDED DECEMBER 31,
1996 1995 1994
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes -
Net of federal benefit 6.6 6.0 7.0
Effective rate 40.6% 40.0% 41.0%
As a result of the operating losses incurred in the year ended
December 31, 1996, the Company has recorded a deferred tax asset
giving recognition to the future tax benefit of net operating
losses ("NOLS") whose realization was determined to be more likely
than not. The amounts of these NOLS, related to state tax
benefits, are approximately $897,000 and $129,000 for New York and
Connecticut, respectively. Additionally, the maximum utilization
period for these NOLS is fifteen (15) and five (5) years for New
York and Connecticut, respectively.
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes, and (b) operating loss and tax credit carryforwards.
The tax effects of significant items comprising the Company's
deferred tax balance as of December 31, 1996 and 1995 are as
follows:
<PAGE>
December 31,
1996 1995
Deferred tax assets:
Accounts and other
receivables -
bad debt reserves $5,579,228 $2,996,011
Other 935,517 1,205,778
Net operating loss
carry forward - State 1,026,021 -
Total 7,540,766 4,201,789
Deferred tax liabilities:
Depreciable assets 424,249 190,154
Capitalized pre-
operational costs 1,675,540 -
Other - 281,848
Total 2,099,789 472,002
Net deferred tax asset $5,440,977 $3,729,787
Management has not provided a valuation allowance for the deferred
tax assets in the belief that it is more likely than not that the
deferred tax assets will be realized as a result of reductions in
the cost of medical services, improved medical utilization
controls, reductions in administrative expenses and increases in
enrollment.
The Company's effective tax rate during 1996, 1995 and 1994 was
40.6%, 40.0% and 41.0%, respectively. The fluctuation in the
effective rate is primarily attributable to the amount of
nondeductible expenses and tax exempt income.
13. COMMON STOCK
The Company amended the 1993 Incentive and Non-Incentive Stock
Option Plan to increase the number of shares reserved for issuance
under the plan from 450,000 to 900,000 shares of Common Stock.
The Class A Common Stock and the Common Stock are identical in all
respects except for voting rights, conversion rights and the
non-transferability of the Class A Common Stock. Holders of Class A
Common Stock are entitled to ten (10) votes per share and holders
of Common Stock to one (1) vote per share. Class A Common Stock
is not transferable and must be converted to Common Stock to be
sold. Holders of Class A Common Stock may, at their option,
convert their shares to Common Stock on a share-for-share basis.
The Company has 1,000,000 shares of preferred stock authorized, no
shares issued.
Earnings per share calculations are based on a weighted average
number of shares outstanding for the year. Earnings per share for
the years ended 1996, 1995 and 1994 were calculated giving effect
to all outstanding options. The weighted average number of common
and common equivalent shares outstanding for the years ended 1996,
1995 and 1994 were 6,295,900 shares, 6,249,712 shares and
6,225,538 shares, respectively.
14. STOCK OPTIONS
During 1996, 1995 and 1994, the Company issued stock options to
certain individuals to purchase Common Stock. Options granted in
1996, 1995 and 1994 were issued at the fair market value of the
stock on the date of the grant. Following is a summary of the
transactions:
SHARES UNDER OPTION
1996 1995 1994
Outstanding,
beginning of year 388,012 335,785 281,500
Exercised during the year (20,398) (37,408) (21,290)
Terminated during the year (148,159) (25,213) (16,875)
Granted during the year 337,000 114,848 92,450
Outstanding, end of year 556,455 388,012 335,785
Eligible, end of year, for
exercise currently 175,938 91,778 45,335
Option price per share $7.22-$24.50 $11.75-$17.25 $11.75-$14.00
On December 23, 1996, the Company created the 1996 Non-Incentive
Executive Stock Option Plan ("Plan") 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 interests of the Company.
The executive plan subjects an aggregate of 650,000 shares of the
Company's Common Stock, par value $0.01 per share ("Common
Stock"), to this plan with options to purchase granted to any one
senior executive limited to 600,000 shares or less. All options
have a term of five years from the date of grant but shall
terminate, lapse and expire at such earlier time or times as
provided in the Option Agreement governing such option. Options
granted are not subject to review and are conclusive, although in
no event shall such purchase price be less than the fair market
value (as defined in the Agreement). The plan is subject to
approval by the issuer's shareholders. The following is a summary
of the transactions:
<PAGE>
Executive Stock Option Plan:
1996
Outstanding, beginning of year -
Exercised during the year -
Terminated during the year -
Granted during the year 600,000
Outstanding, end of year 600,000
Eligible, end of year, for
exercise currently -
Option price per share $10.00-$15.00
The Company has adopted the disclosure-only provisions of SFAS 123
(See Note 1p). Accordingly, no compensation cost has been
recognized for grants of stock options. Had compensation cost for
grants made under the Company's two stock option plans been
determined based on the fair market value at the grant dates in a
manner consistent with the provisions of SFAS 123, the Company's
net (loss)/earnings and net (loss)/earnings per share for the
years ended December 31, 1996 and 1995 would have been adjusted to
the pro forma amounts below:
YEAR ENDED DECEMBER 31,
1996 1995
Net (loss)/income:
As reported $(11,782,430) $ 1,673,350
Pro forma $(12,586,561) $ 1,439,798
Net (loss)/earnings
per share:
As reported $ (1.87) $ 0.27
Pro forma $ (2.00) $ 0.23
<PAGE>
The fair value of options at the date of grant was estimated using
the Black-Scholes option-pricing model with the following
weighted-average assumptions:
YEAR ENDED DECEMBER 31,
1996 1995
Dividend yield 0.0% 0.0%
Expected volatility 47.0% 47.0%
Risk-free interest rate
(per annum) 6.2% 6.4%
Expected lives (in years) 4.3 3.9
In connection with their employment contracts, the Company's
former President and its Chief Financial Officer were granted
15,000 and 5,000 phantom shares, respectively, payable in cash
only. These phantom shares vest, subject to the executive's
continued employment with the Company, 25% per year on December
31st of each year, commencing December 31, 1994, and are payable
in January 1998 in an amount equal to the product of the number of
phantom shares vested in the executive, and the difference between
the closing sales prices of the Company's Common Stock as reported
by The Nasdaq Stock Market (National Market) at various points in
time, as specified in their employment contracts. Through
December 31, 1996, no expenses have been accrued.
15. RETIREMENT SAVINGS PLAN
The Company sponsors a retirement plan designed to qualify under
Section 401(k) of the Internal Revenue Code of 1986, as amended.
All employees over age twenty-one (21) who have been employed by
the Company for at least one year with one thousand (1,000) hours
of service are eligible to participate in the plan. Employees may
contribute to the plan on a tax deferred basis generally up to 18%
of their total annual salary, but in no event more than $9,500 in
1996. Under the plan, the Company makes matching contributions at
the rate of 50% of the amount contributed by the employees up to a
maximum of 2% of the employee's total annual compensation.
The employer contributions vest to the employee after five (5)
years of an employee's service with the Company. At December 31,
1996, 128 employees were enrolled in the plan. For the year ended
December 31, 1996, the Company intends to contribute approximately
$85,000. For the years ended December 31, 1995 and 1994, the
Company contributed approximately $86,000 and $52,000,
respectively.
16. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist primarily of investments in
short-term investments in obligations of certain state and
municipal entities and premiums receivable. Short-term
investments are managed by professional investment managers within
the guidelines established by the Board of Directors, which, as a
matter of policy, limit the amounts which may be invested in any
one issuer. Concentrations of credit risk with respect to
premiums receivable are limited due to the large number of
employer groups comprising the Company's customer base. As of
December 31, 1996, management believes that the Company has no
significant concentrations of credit risk.
17. COMMITMENTS AND CONTINGENCIES
a. Effective October 1, 1994, WCNY changed its capitation
arrangements with the majority of its providers from capitating
primary care physicians with attendant risk-sharing to capitating
the Alliances comprised of the specialists and previously-capitated primary
care physicians. The Alliances have operated at deficit since inception but
have recently instituted measures designed to reduce these deficits and achieve
profitability. The Alliance could request additional funding beyond the
contractual increases described in Note 1a of "Notes to Consolidated
Financial Statements", from the Company, which management does not believe
should be required and, if requested, by the Alliances does not
intend to provide. (On March 13, 1997, the Alliances received a
$1.0 million cash infusion and a commitment for up to an
additional $3.0 million cash infusion from an unrelated third-party.)
In an effort to improve profitability of the Company and the
Alliances, effective September 1, 1996, WCNY entered into a letter
of understanding with the Alliances to restructure the capitation
arrangements. WCNY reassumed risk for certain previously
capitated services, with a corresponding reduction in rates. At
December 31, 1996, WCNY capitated the Alliances for all physician
services, both primary care and specialty services, on a PMPM
basis for each HMO member associated with an Alliance except for
physician services for certain diagnostics and mental health,
which are capitated through regional integrated delivery systems.
This restructuring had a minimal impact on medical expenses in
1996, but is expected to result in savings for the Company in
future periods (See Note 1a). Management of the Alliances and
WCNY believe that the recently instituted measures will enable the
Alliances to maintain their operations and reduce their
accumulated deficits.
b. Between April 1, 1996 and May 14, 1996, the Company as well
as two of its officers who also are directors were named as
defendants in eight separate purported class actions filed in the
United States District Courts for the Northern and Southern
Districts of New York. The complaints in these actions are
virtually the same, alleging the defendants violated the federal
securities laws by making alleged materially false and misleading
statements, or withholding information, which artificially
inflated the market price of the Company's common stock and caused
investors to act to their detriment. A ninth suit filed during
the same period names as defendants the same parties; as well as
three additional directors, two of whom also are officers.
Because these actions have only recently been filed, discovery has
not yet begun. Most early litigation activity will involve
plaintiffs' counsel's attempts to achieve consolidation and
support the existence and viability of a class. Accordingly,
management is unable to predict the likelihood of its success on
the merits of these cases but has instructed counsel to defend
vigorously. The Company has insurance in effect which may, at
least in part, offset any costs to be incurred in these
litigations.
Between April 1, 1996 and June 6, 1996, the Company, its Vice
President of Finance and Chief Financial Officer and the Company's
former President and Chief Executive Officer, were named as
defendants in twelve separate actions filed in Federal Court (the
"Securities Litigations"). An additional three directors were
also named in one of these actions. Plaintiffs sought to recover
damages allegedly caused by the Company's defendants' violations
of federal securities laws with regard to the preparation and
dissemination to the investing public of false and misleading
information concerning the Company's financial condition.
On July 3, 1996, the Securities Litigations were consolidated and
an amended consolidated complaint was served on August 21, 1996,
which complaint did not name the three additional directors. The
Company's auditor, however, was named as an additional defendant.
On October 23, 1996, the Company filed a motion to dismiss the
consolidated amended complaint against the Company as well as the
individual defendants. The Company's auditor has likewise filed
its own motion to dismiss. Prior to the filing of the motion,
discovery had not yet begun and pursuant to the Private Securities
Litigation Reform Act, all discovery is necessarily stayed pending
the disposition of the motion. Although management is unable to
predict the likelihood of success on the merits of the
consolidated class action, it has instructed its counsel to
vigorously defend its interests. The Company has insurance in
effect which may, at least in part, offset any costs to be
incurred in these litigations. A decision on the motion to
dismiss is expected sometime during 1997.
c. Other - The Company is involved in litigation and claims
which are considered normal to the Company's business. In the
opinion of management, the amount of loss that might be sustained,
if any, would not have a material effect on the Company's
consolidated financial statements.
d. Lease - Future minimum rental payments required under
operating leases that have initial or remaining noncancellable
lease terms in excess of one year as of December 31, 1996, are
approximately as follows:
Year Amount
1997 $ 1,247,000
1998 981,000
1999 775,000
2000 627,000
2001 70,000
Thereafter 0
TOTAL $ 3,700,000
18. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS
The New York State Department of Health requires that WCNY
maintain cash balances equal to the greater of five percent (5%)
of expected annual medical costs or $100,000. At December 31,
1996 and 1995, WCNY had required cash reserves of approximately
$6,667,000 and $8,241,000, respectively, included in Other Assets.
Additionally, WCNY is required to maintain a statutory reserve for
the protection of subscribers in the event WCNY is unable to meet
its obligations. The reserve must be increased annually by an
amount equal to at least one percent (1%) of the premiums earned
limited, in total, to a maximum of five percent (5%) of premiums
earned for the most recent calendar year. At December 31, 1996
and 1995, WCNY had a required statutory reserve of approximately
$5,932,000 and $4,360,000, respectively. WCCT is subject to
similar regulatory requirements with respect to its HMO operations
in Connecticut.
As a holding company, WellCare's ability to declare and pay
dividends is dependent upon cash distributions from its
subsidiaries which, with respect to WCNY, are limited by state
regulations. Although such regulations do not specifically
restrict WCNY from paying dividends, they require WCNY to be
financially sound as determined by the New York State Departments
of Health and Insurance, and thereby may preclude WCNY from paying
dividends. Any transaction that involves five percent (5%) or
more of WCNY's assets requires notice to the Commissioner and
Superintendent of the Departments of Health and Insurance,
respectively, and any transaction that involves ten percent (10%)
or more of WCNY's assets requires prior approval. Any decision to
pay dividends in the future will be made by WellCare's Board of
Directors and will depend upon the Company's earnings, capital
requirements, financial condition and such other factors as the
Board of Directors may deem relevant.
In October 1996, the Company loaned $3,000,000 to WCNY at the
request of NYSID. The principal and interest are repayable out of
free and divisible surplus and subject to the prior approval of
the Superintendent of Insurance of the State of New York.
19. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
1996 1995 1994
Income taxes $1,792,492 $5,140,000 $3,952,226
Interest $1,950,559 $1,387,298 $ 667,061
During 1996, 1995 and 1994, WellCare entered into capital leases
for equipment in the amounts of approximately $176,000, $605,000
and $321,000, respectively.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including cash and
cash equivalents, short-term investments, due from affiliates -
net, advances to participating providers, other receivables - net,
restricted cash, other non-current assets - net, due from
affiliates, accounts payable and accrued expenses approximate
their fair values.
The fair value of notes receivable consisting primarily of
advances to medical practices, is not materially different from
the carrying value for financial statement purposes. In making
this determination, the Company used interest rates based on an
estimate of the credit worthiness of each medical practice.
The Subordinated Convertible was issued in a private placement on
January 19, 1996, and amended with the holder on February 28,
1997, as described in Note 11. There is no public market for this
instrument or other debt of the Company and management believe it
is not practicable to estimate its fair value at this time. The
carrying amount of other long-term debt, the majority of which
bears interest at floating rates, are assumed to approximate their
fair value.
21. SUBSEQUENT EVENT
The Company has received a notice from the New York State
Insurance Department ("NYSID") relating to the NYSID's audit of
the New York State market stabilization pools receivable (See Note
6 - Other Investments). The notice indicated that the NYSID may
adjust this amount based on information that the Company needs to
provide with respect to the audit years 1993, 1994 and 1995.
Although no adjustment amount (either a range or specific amount)
has been indicated at this time by the NYSID, the issues raised
imply that the NYSID is seeking to reduce the receivable due to
the Company and may be seeking additional payments. The Company
intends to challenge any of the NYSID auditors' findings and is
currently meeting with the NYSID to discuss those findings. There
is no certainty that the Company will prevail.
22. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Selected unaudited data reflecting the Company's consolidated
results of operations for each of the last eight quarters are
shown in the following table (in thousands, except per share
amounts):
1996
1st 2nd 3rd 4th
Total revenue $41,567 $41,193 $39,587 $38,904
Total expenses 41,521 46,082(1) 50,622(2) 42,846
Income/(loss) from operations 46 (4,889) (11,035) (3,942)
Net income/(loss) 28 (2,934) (6,621) (2,255)
Net income/(loss) per share 0.00 (0.47) (1.05) (0.35)
1995
1st 2nd 3rd 4th
Total revenue $34,875 $36,902 $40,112 $40,978
Total expenses 32,036 33,304 36,176
48,562(3)
Income/(loss) from
operations 2,839 3,598 3,936 (7,584)
Net income/(loss) 1,675 2,123 2,333 (4,458)
Net income/(loss) per share 0.27 0.34 0.37 (0.71)
The sum of the above quarterly amounts may not equal reported year
to date amounts due to rounding.
(1) Includes a one-time $3.7 millions charge for the cost of hospital inpatient
care for members, as assumed by the Company based on an August 2, 1996
letter from NYSID (See Note 2c of "Notes to Consolidated Financial
Statements").
(2) Includes a one-time $2.9 million charge to medical expenses for medical
claims prior to October 1, 1994, which had previously been assumed by the
Alliances, as per a September 25, 1996 letter from NYSID (See Note 2c of
"Notes to Consolidated Financial Statements").
(3) The following unusual charges occurred in the fourth calendar quarter of
1995: $5,130,000 reserve on the note receivable referred to in Note 1, and
approximately $744,000 in related advances; approximately $2,000,000 in
increases to reserves for other notes and accounts receivable;
approximately $600,000 in reserves for medical cost adjustment pools by New
York State; approximately $500,000 relating to premiums; and approximately
$700,000 relating to various adjustments to medical costs payable.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC.
Schedule I
Condensed Financial Information of Registrant
Condensed Balance Sheets
As of December 31, 1996 and 1995
(in thousands)
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,518 $ 279
Short-term investments 920 1,262
Accounts and other receivables - net 1,864 1,614
Prepaid expenses and other
current assets - net 8,994 2,699
TOTAL CURRENT ASSETS 16,296 5,854
INVESTMENT IN SUBSIDIARIES 18,642 22,661
PROPERTY AND EQUIPMENT - net 288 185
NOTES RECEIVABLE - LONG-TERM - net 10,893 5,470
OTHER ASSETS - net 4,159 5,009
TOTAL $50,278 $39,179
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Account and notes payable $ 327 $ 45
Current portion of long-term debt 69 910
Accrued expenses and other 9,480 3,278
TOTAL CURRENT LIABILITIES 9,876 4,233
LONG-TERM DEBT 20,128 2,953
OTHER LIABILITIES - 189
TOTAL LIABILITIES 30,004 7,375
SHAREHOLDERS' EQUITY:
Common Stock 63 63
Additional paid-in capital 26,624 26,371
Accumulated/(deficit) surplus (12,121) 1,233
Statutory reserve 5,932 4,360
20,498 32,027
Unrealized (loss)/gain on
short-term investments (11) 5
Less:
Notes receivable from shareholders 6 17
Treasury stock - at cost 207 211
TOTAL SHAREHOLDERS' EQUITY 20,274 31,804
TOTAL $50,278 $39,179
THE WELLCARE MANAGEMENT GROUP, INC.
Schedule I
Condensed Financial Information of the Registrant
Condensed Statement of Operations
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
REVENUE:
Fee income $ 16,248 $14,569 $10,409
Interest income 1,588 1,306 510
Other income 151 2,673 96
TOTAL REVENUE 17,987 18,548 11,015
EXPENSES:
General and administrative
expenses 22,642 21,730 10,803
Interest expense 1,223 323 128
Other expense - net 270 79 31
TOTAL EXPENSES 24,135 22,132 10,962
(LOSS)/INCOME FROM OPERATIONS (6,148) (3,584) 53
(BENEFIT)/PROVISION FOR
INCOME TAXES (2,485) (1,762) 19
NET (LOSS)/INCOME BEFORE
EQUITY IN (LOSS)/INCOME
OF SUBSIDIARIES (3,663) (1,822) 34
EQUITY IN (LOSS)/INCOME OF
SUBSIDIARIES NET OF TAXES (8,119) 3,495 3,425
NET (LOSS)/INCOME $(11,782) $1,673 $3,459
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC.
Schedule I
Condensed Financial Information of the Registrant
Condensed Statement of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss)/income $(3,663) $(1,822) $ 34
Depreciation and
amortization 341 163 58
(Gain)/loss on sale of assets (71) 53 31
Increase in accounts
receivable (300) (347) (400)
Other - net 109 (725) (2,494)
NET CASH USED IN
OPERATING ACTIVITIES (3,584) (2,678) (2,771)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (8) (121) (30)
Increase in notes receivable (5,103) (2,355) (3,036)
Capital contributions to
subsidiaries - net (4,100) (2,750) -
Sale/(purchase) of
investments - net 342 4,804 (3,917)
NET CASH USED IN
INVESTING ACTIVITIES (8,869) (422) (6,983)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Increase/(decrease) in
long-term debt 16,158 3,026 (430)
Increase/(decrease) in
accounts and notes payable 282 (1,855) 1,500
Proceeds from issuance of
stock and treasury
stock - net 3 244 -
Cost of treasury stock
purchased - - (395)
Proceeds from exercise of
stock options 254 450 249
Other - net (5) 21 (10)
NET CASH PROVIDED BY
FINANCING ACTIVITIES 16,692 1,886 914
NET INCREASE/(DECREASE) IN
CASH AND CASH EQUIVALENTS 4,239 (1,214) (8,840)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 279 1,493 10,333
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 4,518 $ 279 $ 1,493
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC.
Schedule II
Valuation and Qualifying Accounts
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
Balance at Balance at
Beginning Less: End of
of Period Additions Deductions Period
YEAR ENDED
DECEMBER 31, 1996
Allowance for
doubtful accounts -
Trade receivables $1,514 $3,937 $2,086 $ 3,365
Allowance for
doubtful accounts -
Due from affiliates - 216 216 -
Allowance for
doubtful accounts -
Other receivables 744 4,321 17 5,048
Allowance for
doubtful accounts -
Notes receivable 5,130 535 320 5,345
Total $7,388 $9,009 $2,639 $13,758
YEAR ENDED
DECEMBER 31, 1995
Allowance for
doubtful accounts -
Trade receivables $ 682 $ 832 $ - $ 1,514
Allowance for
doubtful accounts -
Other receivables - 744 - 744
Allowance for
doubtful accounts -
Notes receivable - 5,130 - 5,130
Total $ 682 $6,706 $ - $ 7,388
YEAR ENDED
DECEMBER 31, 1994
Allowance for
doubtful accounts -
Trade receivables $ 359 $ 323 $ - $ 682
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
3.1 Copy of Registrant's Restated
Certificate of Incorporation (1)
3.1a Copy of Certificate of Amendment to
Restated Certificate of Incorporation (4)
3.2b Copy of Registrant's Amended By-Laws (7)
10.1 Copy of Registrant's Amended and
Restated 1993 Incentive and Non-
Incentive Stock Option Plan,
including Form of Option* (4)
10.1a Copy of Registrant's Amended and
Restated 1993 Incentive and Non-
Incentive Stock Option Plan, including
Form of Option (As of September 1, 1996
and subject to shareholder approval)* (8)
10.2a Copy of Employment Contract dated
January 1, 1994, between Registrant
and Edward A. Ullmann* (3)
10.2b Copy of Amendment to Employment Contract
dated January 1, 1996, between Registrant
and Edward A. Ullmann* (6)
10.2c Copy of Amendment to Employment Contract
dated January 1, 1996, between Registrant
and Edward A. Ullmann* (6)
10.2d Copy of Voluntary Separation and Release
dated October 16, 1996, between Registrant
and Edward A. Ullmann* (8)
10.4a Copy of Employment Contract dated
January 1, 1994, between Registrant and
Robert E. Goff* (2)
10.4b Copy of Voluntary Separation and Release
dated October 24, 1996, between Registrant
and Robert E. Goff* (8)
10.6a Copy of Employment Contract dated
January 1, 1995, between Registrant and
G. William Strein* (3)
10.6b Copy of Amendment to Employment Contract
dated July 1, 1996, between Registrant
and G. William Strein*
10.8a Copy of Employment Contract dated
January 1, 1995, between Registrant and
Peter G. Kraft* (3)
INDEX TO EXHIBITS
EXHIBIT NO.
10.8b Copy of Separation from Employment
Agreement dated September 19, 1996,
between Registrant and Peter G. Kraft* (8)
10.14 Form of Medicaid Contract between
WellCare of New York, Inc. and various
counties of the New York State Department
of Social Services (1)
10.15a Copy of Restated Agreement dated March 1,
1994, between WellCare Administration, Inc.
and Diversified Pharmaceuticals, Inc. (3)
10.16a Copy of Reinsurance Agreement effective
November 1, 1993, between Registrant and
Preferred Life Insurance Company of
New York (3)
10.20a Copy of Agreements dated January 1, 1993 and
July 1, 1993, respectively, between Park West
Entertainment, Inc. ("PWE") and Registrant (1)
10.20b Copy of Agreement dated January 1, 1992, with
Addendum dated January 1, 1993, between PWE
and WellCare of New York, Inc. (1)
10.20c Copy of Agreements dated January 1, 1992,
with Addendum dated January 1, 1993, and
July 1, 1992, respectively, between PWE
and Mid-Hudson Health Plan, Inc. (1)
10.20d Copy of Promissory Note dated September 1,
1992, issued by PWE to Registrant (1)
10.20e Copy of Letter dated November 25, 1996,
terminating the Agreement between WellCare
of New York, Inc. and Park West Entertainment,
Inc.
10.22 Copy of Lease dated February 1, 1993, between
WellCare of New York, Inc., as Tenant, and
Huntington Associates, as Landlord, relating
to lease of office space in Albany, New York (1)
10.24 Copy of Full Risk Capitation Agreement between
AMB Medical Services, P.C. and WellCare of New
York, Inc. (3)
10.25 Copy of Full Risk Capitation Agreement between
Dutchess Family Medicine, P.C. and WellCare
of New York, Inc. (3)
10.26 Copy of Full Risk Capitation Agreement between
Hudson Valley Family Health, P.C. and WellCare
of New York, Inc. (3)
INDEX TO EXHIBITS
EXHIBIT NO.
10.26a Copy of Full Risk Capitation Agreement between
Hudson Valley Family Health, P.C. and WellCare
of New York, Inc. dated October 1, 1995 (super-
cedes Exhibit 10.26) (6)
10.27 Copy of Full Risk Capitation Agreement between
Valley Medical Services, P.C. and WellCare of
New York, Inc. (3)
10.27a Copy of Full Risk Capitation Agreement between
Valley Medical Services, P.C. and WellCare of
New York, Inc. dated October 1, 1995 (super-
cedes Exhibit 10.27) (6)
10.27b Copy of Letter of Understanding between
WellCare of New York, Inc. and the contracted
Alliances (Valley Medical Services, P.C. and
Hudson Valley Family Medical Health, P.C.)
dated September 23, 1996
10.27c Copy of Letter of Intent between Registrant,
WellCare of New York, Inc., Primergy, Inc.,
Valley Medical Services, P.C., and Hudson
Valley Family Health, P.C. dated January 7,
1997
10.33 Copy of Employment Contract dated May 24, 1994,
between Registrant and Marystephanie Corsones* (3)
10.33a Copy of Amendment to Employment Contract
dated January 1, 1996, between Registrant
and Marystephanie Corsones* (6)
10.33b Copy of Employment and Consulting Agreement
dated March 3, 1997, between Registrant and
Registrant and Marystephanie Corsones*
10.34 Copy of Employment Contract dated January 1,
1994, between Registrant and Patrick Arlantico* (3)
10.34a Copy of Acceptance of Resignation dated March
1, 1996, between Registrant and Patrick
Arlantico* (6)
10.35 Copies of Stock Purchase Warrants issued by
Registrant to J.J. Farrell Associates, Inc. (3)
10.36 Copy of Lease Agreement dated November 7,
1994, between Catskill Medical Associates, P.C.
and WellCare Development, Inc. (3)
10.37 Copy of Lease Agreement dated October 14, 1994,
between Richard Bulger and WellCare Development,
Inc. (3)
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
10.38 Copy of Management Agreement dated July 1,
1994, between Registrant and its Wholly-Owned
Subsidiary, WellCare of Connecticut, Inc. (3)
10.39e Copy of $6,000,000 Loan Agreement among
Registrant and Subsidiaries and KeyBank
National Association dated January 31, 1997
10.39f Copy of Line-of-Credit Note in the amount
of $3,000,000 dated January 31, 1997, between
Registrant and KeyBank National Association
10.39g Copy of Line-of-Credit Note in the amount of
$2,000,000 dated January 31, 1997, between
WellCare of Connecticut, Inc. and KeyBank
National Association
10.39h Copy of Line-of-Credit Note in the amount of
$6,000,000 dated January 31, 1997, between
WellCare of New York, Inc. and KeyBank
National Association
10.39i Copy of Guaranty of Payment and Performance
dated January 31, 1997, between WellCare
Development, Inc. and Agente Benefit
Consultants, Inc. and KeyBank National
Association
10.39j Copy of Guaranty of Payment and Performance
dated January 31, 1997, between Registrant
and KeyBank National Association
10.39k Copy of Letter from KeyBank dated March 25,
1997 waiving certain financial covenants
in the Loan Agreement
10.40 Copy of Note Purchase Agreement by and
between Registrant and The 1818 Fund II, L.P. (5)
10.40a Copy of Letter Agreement dated February 28,
1997, between Registrant and The 1818 Fund
II, L.P.
10.41 Copy of 6% Subordinated Convertible Note
Due December 31, 2002, between Registrant
and The 1818 Fund II, L.P. (5)
10.42 Copy of Registration Rights Agreement
between Registrant and The 1818 Fund II, L.P. (5)
10.43 Copy of Asset Purchase Agreement between
WellCare Medical Management, Inc. and
Primergy, Inc. dated June 30, 1995 (6)
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
10.44 Copy of Bill of Sale between WellCare Medical
Management, Inc. and Primergy, Inc. dated
June 30, 1995 (6)
10.45 Copy of Promissory Note in the amount of
$5,130,000 between WellCare Medical Management,
Inc. and Primergy, Inc. dated June 30, 1995 (6)
10.45a Copy of Forbearance Agreement on the terms and
conditions of a Promissory Note in the amount
of $5,130,000 between Registrant and Primergy,
Inc. dated February 26, 1997
10.46 Copy of Note Agreement between WellCare
Medical Management, Inc. and Primergy, Inc.
dated June 30, 1995 (6)
10.47 Form of Guaranty and Guarantor Pledge Agreement
between an individual and WellCare Medical
Management, Inc. (6)
10.49 Copy of Quota Share Reinsurance Agreement
between Registrant and Allianz Life Insurance
Company of North America dated September 1,
1995 (6)
10.50 Copy of Employment Contract dated May 29, 1996,
and Stock Option Agreements between Registrant
and Douglas A. Hayward* (7)
10.51 Copy of Employment Contract dated June 1, 1996,
and Stock Option Agreements between Registrant
and John E. Ott, M.D.* (7)
10.52 Copy of Employment Agreement dated September 1,
1996, between Registrant and Joseph R. Papa* (8)
10.53 Copy of Registrant's 1996 Non-Incentive
Executive Stock Option Plan*
10.54 Copy of Stock Option Agreement dated
December 23, 1996, between Registrant
and Robert W. Morey, Jr.*
10.55 Copy of Promissory Note in the amount of
$2,099,083 between Primergy, Inc. and
Registrant dated February 19, 1997
10.56 Copy of Loan and Security Agreement made
by Primergy, Inc. in favor of Registrant
and WellCare Medical Management, Inc.
dated as of February 19, 1997
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
10.57 Copy of Wellness Administrative Services
Agreement dated July 1, 1996, and Amendment
to Administrative Services Agreement dated
October 10, 1996, between WellCare of New
York, Inc. and Bienestar, Inc.
10.58 Copy of Lease Agreement dated July 1, 1996,
between Candid Associates, as Lessor, and
WellCare Development, Inc., as Lessee,
relating to lease of office space in North
Haven, Connecticut
11 Computation of Per Share Earnings
21 List of Subsidiaries
23 Consent of Independent Auditors
27 Financial Data Schedule
(1) Incorporated by reference to the same exhibit in Registrant's
Registration Statement on Form S-1 (File No. 33-61012)
(2) Incorporated by reference to the same exhibit in Registrant's
Annual Report on Form 10-K for the year ended December 31,
1993.
(3) Incorporated by reference to the same exhibit in Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994.
(4) Incorporated by reference to the same exhibit in Registrant's
Report on Form 10-Q for the period ended June 30, 1995.
(5) Incorporated by reference to the same exhibit in Registrant's
Report on Form 8-K dated January 19, 1996.
(6) Incorporated by reference to the same exhibit in
Registrant's Report on Form 10-K for the year ended
December 31, 1995.
(7) Incorporated by reference to the same exhibit in
Registrant's Report on Form 10-Q for the period ended
June 30, 1996.
(8) Incorporated by reference to the same exhibit in
Registrant's Report on Form 10-Q for the period ended
September 30, 1996.
* Denotes Management Contract or compensatory plan or
arrangement required to be filed as an exhibit to this Annual
Report on Form 10-K.
<PAGE>
[DESCRIPTION] MATERIAL CONTRACT
EX-10.6b Copy of Amendment to Employment
Contract dated July 1, 1996, between
Registrant and G. William Strein*
AMENDMENT TO EMPLOYMENT CONTRACT
BETWEEN THE WELLCARE MANAGEMENT GROUP, INC. ("WCMG")
AND G. WILLIAM STREIN ("EMPLOYEE")
EFFECTIVE JULY 1, 1993
This Amendment to said Employment Contract is hereby effective as of
JULY 1, 1996, and replaces sections to said Employment Contract as
follows:
WHEREAS, WCMG desires to secure the services of Employee
to serve as President of Agente Benefit Consultants, Inc. (ABC,
Inc.) (formerly WellCare Administration, Inc.) for a term of one (1)
year, effective July 1, 1996 through and including July 1, 1997
(such period referred to herein as the "Employment Period"), and
Employee desires to accept such employment.
Section 1. Employee will render full-time professional services to
WCMG in the capacity of President of Agente Benefit
Consultants, Inc. (ABC, Inc.) for the term of this
Contract. Employee will, at all times, faithfully,
industriously, and to the best of his ability, perform
all duties that may be required of him by virtue of his
position to the reasonable satisfaction of WCMG's
President and Board of Directors.
Section 2. a. Base Compensation
WCMG shall pay Employee, in installments consistent with
WCMG's usual payroll practices, an annual base salary of
$88,200 through July 1, 1997. In the event that the
Employee is, or is to be, employed for less than a full
payroll installment period, such installment of the
annual base salary shall be appropriately adjusted.
b. Performance Bonus
Any and all bonus compensation shall be at the
discretion of WCMG's President and Board of Directors.
Section 6. During the term of this Employment Contract, Employee
agrees not to, either directly or indirectly, within the
service area of plans managed by WCMG, enter the
employment of or render services to any other person,
corporation, or health-related service company engaged
in similar type business as WCMG interested therein,
either directly or indirectly, as an individual party,
stockholder, director, officer, principal, agent,
employee, or any other relationship or capacity
whatsoever, without the written consent of WCMG. Such
consent shall not be unreasonably withheld.
<PAGE>
Section 7. Termination
d. Upon termination at the election of WCMG, without cause,
all rights, duties, and obligations of both parties
shall cease except that WCMG shall continue to pay
Employee's salary as well as pay for Employee's life,
disability, and HMO health insurance for a period of six
(6) months. No salary or benefits shall be paid upon
the expiration of the Employment Period.
All other terms and conditions of said Employment Contract shall
remain the same.
This Amendment is hereby signed this first day of July 1996.
The WellCare Management Group, Inc. Employee
/s/ Edward A. Ullmann /s/ G. William Strein
Edward A. Ullmann, President G. William Strein
[DESCRIPTION] MATERIAL CONTRACT
EX-10.20e Copy of Letter dated November 25, 1996,
terminating the Agreement between
WellCare of New York, Inc. and
Park West Entertainment, Inc.
CERTIFIED MAIL - RETURN RECEIPT REQUESTED
November 25, 1996
Mr. Edward A. Ullmann, President
Park West Entertainment, Inc.
Park West Office Complex/Hurley Avenue Extension
Kingston, New York 12401
Re: Agreement between WellCare of New York, Inc.
and Park West Entertainment, Inc.
Dear Ed:
Pursuant to your exit proposal dated September 27, 1996, this letter
is to confirm the understanding between the parties pursuant to
Section III 1.0 of the Agreement between WellCare of New York, Inc.
and Park West Entertainment, Inc., dated January 1, 1996. Since we
have reached agreement on all outstanding issues, this letter will
serve to confirm that the termination date of the attached agreement
will be December 27, 1996, ninety (90) days from the date of your
September 27, 1996 letter.
Very truly yours,
/s/ Joseph R. Papa
Joseph R. Papa
President/COO
JRP:mg
Attachment
cc: Robert W. Morey
Marystephanie Corsones
[DESCRIPTION] MATERIAL CONTRACT
EX-10.27b Copy of Letter of Understanding between
WellCare of New York, Inc. and the contracted
Alliances (Valley Medical Services, P.C. and
Hudson Valley Family Medical Health, P.C.)
dated September 23, 1996
September 23, 1996
Richard Weininger, MD
President
Primergy
Barbarosa Lane
Kingston, NY 12401
RE: Alliance contract revisions
Dear Dr. Weininger:
This document will serve as a letter of understanding between
WellCare of New York, Inc. (WCNY) and the contracted Alliances
(Valley Medical Services, PC and Hudson Valley Family Medical
Health, PC, which together encompass the Orange/Sullivan Alliance,
Dutchess Alliance, Ulster Alliance and Columbia/Green Alliance).
The letter outlines the agreed upon changes to be made to the
Alliance contracts which were originally executed as of October 1,
1995.
Orange/Sullivan Alliance:
* Effective September 1, 1996, WCNY will impose a reduction of
$7.75 per Commercial member per month on the monthly capitation
payment to Primergy for the Orange/Sullivan Alliance.
* Based on historical cost data, beginning September 1, 1996, the
Commercial Capitation Payment for the Orange/ Sullivan Alliance
will be $44.56 (this includes a reduction of $7.75 per member
per month) and will include reimbursement for both fee-for-service and
capitated primary care, medical referral costs
including Mental Health, PCP adjustment allowance, Alliance
Management, and the calculated "surplus/deficit."
Based on historical cost data, beginning September 1, 1996, the
Healthy Choice Capitation Payment for the Orange/ Sullivan
Alliance will be $29.64 and will include reimbursement for both
fee-for-service and capitated primary care, medical referral
costs, Mental Health, PCP adjustment allowance, Alliance
Management, and the calculated "surplus/deficit."
* The hospital in-patient component will be taken back by WCNY as
of July 1, 1996, in accordance with the mandate of the New York
State Department of Insurance. The remainder of the take back
will start September 1, 1996 and will leave primary care,
medical referral services, mental health, administration fee,
and "surplus/deficit" within the Alliance contract as noted
above. Refer to the division of specialty codes in Appendix A
for a breakdown.
WCNY Alliance Letter of Understanding
Page 2
September 23, 1996
* In the Orange/Sullivan regions: 100 percent of utilization
savings will be returned to the Alliance until the $7.75
reduction in capitation is recaptured and 50 percent of
utilization savings will be returned to the Alliance beyond the
recapture amount. Utilization savings will use average bed days
/1,000 members one year for the twelve months prior to July 1,
1996. Bed days exclusive of admissions for Obstetric, Extended
Newborn, and Mental Health care has been calculated to be 288
bed days / 1,000 members.
* The Orange/Sullivan Alliance will receive savings from decreased
Commercial hospital utilization exclusive of admissions of
Obstetric, Extended Newborn, and Mental Health care. All other
alliances shall not participate in hospital utilization savings.
For the purpose of these examples, assume 30,000/Alliance
members.
Example 1 :
1. Average Orange/Sullivan Alliance bed-days/1000
member/year prior to 7/1/96 = 288;
2. If average weighted cost per bed-day after 7/1/96 in O/S
= $1000;
3. If the Alliance is able to reduce bed-days/1000/year to
200;
4. Then the Alliance will get the following from WCNY:
$660,000
5. Rationale:
A. Hospital cost will be reduced by $660,000 per quarter
[(288-200) x ($1000/4) x 30]
B. The withhold costs the Alliance $697,500 per quarter [$7.75
per member per month x 30,000 x 3 months = $697,000]
C. The Alliance thus receives $660,000
(100 percent savings up to the withhold)
Example 2 :
1. Average Orange/Sullivan Alliance bed-days/1000
member/year prior to 7/1/96 = 288;
2. If average weighted cost per bed-day after 7/1/96 in O/S
= $1000;
3. If the Alliance is able to reduce bed-days/1000/year to
193;
4. Then the Alliance will get the following from WCNY:
$705,000
5. Rationale:
A. Hospital cost will be reduced by $712,500 per quarter
[(288-193) x ($1000/4) x 30]
B. The withhold costs the Alliance $697,500 per quarter [$7.75
per member per month x 30,000 x 3 months = $697,000]
C. The difference is $15,000; 50 percent of which is $7,500
D. The Alliance thus receives $697,500 plus $ 7,500 or
$705,000 (100 percent of the savings up to the withhold, 50
percent savings thereafter)
<PAGE>
WCNY Alliance Letter of Understanding
Page 3
September 23, 1996
The potential savings, if any, will be formally calculated on an
annual basis within 90 days of the end of the contract year.
During the contract year, payments will be made within 30 days
of the end of each quarter based on the estimated savings if
any. Each quarter's calculation will be cumulative and will be
adjusted at the annual calculation/ reconciliation.
All Other Alliances:
* The capitation to each Alliance will mirror the elements noted
above for Orange/Sullivan, and will include reimbursement for
both fee-for-service and capitated primary care, medical
referral costs, Mental Health, PCP adjustment allowance,
Alliance Management, and the calculated "surplus/deficit."
Effective September 1, 1996, the capitation rates will be as
follows:
Alliance Commercial Healthy Choice*
Orange/Sullivan
(as stated above) 44.56 29.64
Dutchess 49.09 47.02
Columbia/Greene 46.27 42.32
Ulster 41.25 50.41
* Note: These rates are predicated on New York State accepting
our proposed rate filing. Should the State elect to lower these
rates by more than 5%, we reserve the right to renegotiate these
capitation levels.
Refer to Appendix B for detailed cost analysis.
The above rates shall be further adjusted at the time the Merit
(MBC) contract for Mental Health Services is implemented.
* In addition to the revised capitation rates stated above,
effective September 1, 1996, WCNY will pay an additional $3.50
PMPM for a twelve month period of time. This additional
capitation will be available to be paid on a flex-payment
schedule as mutually agreed on by both parties. If the Alliance
membership decreases by greater than 5 percent, this additional
PMPM capitation will be reviewed and potentially renegotiated by
both parties.
* Contract terms change to rolling three year contract defined as
a three year go forward contract at each annual renewal
(Unresolved issue: annual increases in capitation remains to be
negotiated). WCNY will agree to extend this contract term by an
additional two year period conditional but not limited to the
following: the Alliances being in total compliance with their
contract; the Alliances demonstrating financial viability; the
management of the Alliances meeting certain mutually agreed upon
performance criteria.
<PAGE>
WCNY Alliance Letter of Understanding
Page 4
September 23, 1996
* WCNY will contract exclusively with the Alliances in Alliance
counties (Columbia, Greene, Dutchess, Ulster, Orange, and
Sullivan). The Alliances will have responsibility for provider
contracting [refer to Appendix A for appropriate specialties]
and all related administrative follow-up.
* WCNY retains the right to revert to direct contracting with PCPs
after 90 days' notice each time the Alliance executes a contract
with a new payor. Primergy must notify WCNY, in writing within
ten business days of each contract execution.
* WCNY retains the right to make appropriate claims payment, on
behalf of Alliance, to key providers if Alliance is unable to
make payments; said payments will be deducted from future
capitation payments made to Alliance.
* The Alliances agree that as soon as possible after the execution
of this commitment letter, but in no event later than 60 days,
Primergy will generate on behalf of the Alliances a letter to
all Alliance physicians. This letter will be approved by both
the New York State Department of Insurance and WellCare and will
include the following:
- encourage all Alliance doctors to execute valid Alliance
contracts.
- disclose the historical deficit of the Alliances and clearly
communicate the Alliance and physician's responsibilities with
respect to such deficits.
- clearly communicate that the physician can only look to the
Alliances for payments of past, current and future claims for
service rendered to WellCare members.
- implement amended arrangement between the Alliances and
physicians and explain the amended arrangements to assure
financial viability of the Alliances (including but not
limited to fee schedule reductions of at least 15%).
- include any other information required by either WellCare or
the Department of Insurance and/or mutually agreed upon by
WellCare and Primergy.
* Merit (MBC) contract for mental health services to proceed.
Alliances will receive capitation payments from WCNY for mental
health services and benefit from a 90-day float to Merit. The
target effective date of the Merit contract is on or before
January 1, 1997. Capitation rates to be mutually agreed upon at
a future date.
* Next capitation adjustment will occur September 1,1997 for
Orange/Sullivan Alliance. A capitation adjustment schedule at
January 1, 1997, will remain unchanged for the other alliances
and annually thereafter.
<PAGE>
WCNY Alliance Letter of Understanding
Page 5
September 23, 1996
* The WellCare Management Group Inc. (WCMG) will at the request of
Primergy convert the $5.1 million note to Primergy equity by
mutual agreement with Primergy conditional upon the ownership
percentage value being determined on the same basis as any other
investor. This percentage shall under no terms exceed 19.9%
equity ownership of Primergy. The parties will reaffirm the
payment schedule for both the $5.1 million note if not converted
to equity, as well as the other outstanding Primergy obligation
to WCMG (approximately $3.1 million) on or before October 1,
1996. It should be noted that pursuant to Section 3 of the Note
Agreement dated June 30, 1995 WellCare retains the right to
approve any "willing suitor" who might invest in Primergy.
* Merit investment in Primergy to be negotiated directly and
exclusively between Richard Weininger and Al Waxman.
By signing below each party agrees that the above represents our
intentions going forward. Both parties understand that WellCare's
counsel will draft the appropriate documents to conclude these
changes.
/s/ Robert W. Morey
Robert W. Morey
CEO
The WellCare Management Group, Inc.
/s/ Richard B. Weininger, M.D.
Richard B. Weininger, MD
President
Valley Medical Services, PC
President
Hudson Valley Family Medical Health, PC
[DESCRIPTION] MATERIAL CONTRACT
EX-10.27c Copy of Letter of Intent between
Registrant, WellCare of New York, Inc.
and Primergy, Inc. dated January 7, 1997
WellCare-Primergy Letter of Intent
Page 1
January 7, 1997
LETTER OF INTENT
Subject to receipt of the requisite corporate, contractual and
regulatory approvals, the undersigned agree to:
1. Extend the term of the contract between WellCare of New
York and Valley Medical Services, P.C. (Orange/Sullivan, Dutchess
and Columbia/Greene Alliances) to ten years from the date of January
1, 1997 and provide for an annual increase in capitation of 3% for
the first five years of the term with a single negotiation for the
second five years. Annual increase of 3% is "collared" by the CPI
according to the example in attachment "1" which attachment is
hereby incorporate by reference.
2. Extend the term of the contract between WellCare of New
York and Hudson Valley Family Health, P.C. (Ulster Alliance) to ten
years from the date of January 1, 1997 and provide for an annual
increase in capitation of 3% for the first five years of the term
with a single negotiation for the second five years. Annual
increase of 3% is "collared" by the CPI according to the example in
attachment "1".
3. Allow for sharing the hospital in-patient "utilization
surplus pool" 50/50 between WellCare of New York and the
Columbia/Greene, Dutchess and Ulster Alliances according to the
formula outlined on attachment "2" which attachment is hereby
incorporated by reference.
4. Eliminate paragraph 2, page 3 of the Letter of
Understanding between WellCare of New York and the Alliances dated
September 23, 1996, attachment "3" which attachment is hereby
incorporated by reference. It is replaced with "WellCare will not
be at a price disadvantage to a new payor as long as WellCare
supplies majority membership to the Alliances."
5. Confirm that Primergy's option, subsequent to receiving
notification from FPA that it will merge with Primergy, will be
exercised to have WellCare convert the existing debt of $5.1 million
plus accrued interest to an equity position (class c shares) in
Primergy of exactly 43% of total shares (classes A, B and C shares)
issued at the time FPA Medical Management merges with Primergy.
Primergy's option is being exercised in accordance with the last
paragraph, page three of the Letter of Understanding dated September
23, 1996 signed by Robert Morey and Richard B. Weininger, MD,
WellCare will thus share pro rata, with all other Primergy
shareholders, in the FPA equity and options received by Primergy at
the time of merger between FPA and Primergy.
At the time of merger, WellCare will thus receive 43% of all
considerations (cash, FPA stock and FPA options) paid by FPA to
acquire Primergy stock. It is our current understanding with FPA
that they will pay Primergy shareholders a consideration equal to
six times EBITDA (6xEBITDA) plus 35% of six times EBITDA for EBITDA
greater than $2 million plus 60,000 FPA options at a strike price
which is the trading price on the day of conversion. Those options
are valid for three years, to be vested one-third each year.
6. It is the intent of the parties to transfer the claims
processing to Primergy, the timing and the payment of which will be
negotiated.
7. Confirm that the above items, recent amendments to the
WellCare-Alliance contracts, and the contracts themselves will
survive intact the transfer of ownership or control of WellCare of
WellCare Management Group, Inc.
Page 2
January 7, 1997
New York to any other party, or the transfer of ownership or control
of Primergy to FPA or any other party, or the transfer of Valley
Medical Services, P.C. to an IPA and Hudson Valley Family Health,
P.C. to an IPA, so long as ownership control of Primergy remains
with the current shareholders until the equity conversion occurs.
8. These terms and amendments shall terminate 24 months
after the cash infusion date from FPA unless FPA shall have merged
with Primergy prior thereto. If such transaction is not
consummated, this Letter of Intent shall become null and void and
the terms of the September 23, 1996 Letter of Understanding (Morey-Weininger)
will prevail.
9. Confirm that if FPA, after its initial cash infusion,
notifies Primergy that it will not merge Primergy into FPA, Primergy
and WellCare will negotiate in good faith to amend or reaffirm the
above items. If negotiations fail to produce a satisfactory
agreement within ninety days of FPA's notification of failure to
merge, the terms of the September 23, 1996 letter of understanding
(Morey-Weininger) will prevail.
10. Confirm the performance criteria for contract renewal as
noted in attachment 4 which is hereby incorporated by reference.
11. The contract between WellCare of New York, Inc. and
Valley Medical Services, P.C. will be redrafted to incorporate the
terms of: this Letter of Intent, as applicable; the Letter of
Understanding of September 23, 1996, (attachment 3), as applicable;
as well as all applicable Insurance Department and Department of
Health requirements. Said redraft will be written within the next
ninety (90) days.
12. The contract between WellCare of New York, Inc. and
Hudson Valley Family Health, P.C. will be redrafted to incorporate
the terms of: this Letter of Intent, as applicable; the Letter of
Understanding of September 23, 1996, (attachment 3), as applicable;
as well as all applicable Insurance Department and Department of
Health requirements. Said redraft will be written within the next
ninety (90) days.
13. The WellCare Management Group agrees to forbearance of
principal payment of a promissory note between Primergy and WellCare
of $2,099,083. This forbearance will remain in effect until FPA
Medical Management merges with Primergy, at which time the note will
be repaid by FPA as part of the merger agreement or over a three (3)
year amortization schedule with payments beginning immediately
should the FPA cash infusion be revoked, terminated or decreased
bellow $4 million dollars or if Primergy is deemed to be in material
breach of its' contractual obligations after appropriate
notifications and opportunities for remedy to The WellCare
Management Group, Inc., WellCare of New York, or any other WellCare
entity. Commencing with the closing date of infusion of cash from
FPA, Primergy will commence monthly interest payments at prime plus
2%. Should the merger not occur, Primergy agrees to repay said note
at prime plus 2% over a three year amortization schedule from the
time Primergy receives notification that the merger will not occur
but in no event later than 24 months.
14. Also, all other conditions of these amendments will
revert to the current contractual terms (as of the September 23,
1996 letter of agreement) should FPA's cash infusion be revoked,
terminated or decreased below a $4 million line of credit or if
Primergy is deemed to be in material breach of its' contractual
obligations after appropriate notifications and opportunities for
remedy to the WellCare Management Group, WellCare of New York, or
any other WellCare entity or should FPA fail to conclude the equity
conversion within twenty-four (24) months from the closing date of
the $4 million line of credit.
15. During the period between the cash infusion by FPA and
the equity conversion closing date (approximately 1 to 2 years), The
WellCare Management Group, Inc. believes that it will be essential
WellCare Management Group, Inc.
Page 3
January 7, 1997
that a single person be responsible for all business issues and have
the appropriate authority level to commit Primergy on a day to day
operational basis. WellCare desires that Doug Present, COO be that
person. Similarly, WellCare suggests that Joseph R. Papa, COO be
responsible for all business issues relative to The WellCare
Management Group, Inc. A good faith effort will be made to have
both Mr. Present and Mr. Papa have such responsibility consistent
with their respective corporate structures.
16. Agree that any changes to this document must be by
mutual written agreement of the parties hereto.
/s/ Robert W. Morey /s/ Richard B. Weininger, M.D.
Robert W. Morey Richard B. Weininger, M.D.
Chairman & CEO President
The WellCare Management Group, Inc. Primergy, Inc.
Date 1/21/97 Date 1/21/97
/s/ Joseph R. Papa
President & COO
WellCare of New York, Inc.
Date 1/21/97
WellCare Management Group, Inc.
Page 4
January 7, 1997
Attachment 1
CPI "Collar"
"Collared" means that annual increases would be 3% so long as the
appropriate CPI's ranged between 0% and 6%. Should the CPI be
negative or above 6%, the 3% annual increase would be adjusted
accordingly. For example, a 7% CPI increase would yield a 4%
contractual adjustment and likewise, a CPI of -1% (minus one
percent) would yield an annual contractual increase of 2%. Under no
circumstances would the annual contractual increase be more than 6%
or less than 0%.
<PAGE>
WellCare Management Group, Inc.
Page 5
January 7, 1997
Attachment 2
Calculation of the shared hospital utilization pool.
The Alliance will receive a portion of the surplus generated
from decreased hospital utilization as in the following example
(assume 30,000 Alliance members);
1. If average bed-days/1000 members/year at inception = 290;
2. If average weighted cost per bed-day (re-calculated
annually) at inception = $1000;
3. If the Alliance is able to reduce bed-days/1000/year to
250 after the first quarter;
4. Then the Alliance will receive the following from WCNY:
$150,000.00
5. Rationale:
A. Hospital cost will be reduced by $300,000 per quarter
B. Alliance shares surplus (cost reduction) 50/50 with
WCNY
[290-250 d/s x $1000 X 30 X 50%]
4 Quarters
6. The Alliance shares in the surplus each quarter it
maintains utilization below the number of bed-days/1000
at inception (e.g., below 290 in this example)
The potential surplus will be calculated and paid within 30 days
after the end of each quarter.
The above calculation of hospital surplus sharing shall apply to
commercial members in the Ulster, Dutchess and Columbia/Greene
Alliances beginning the first day of the month after the FPA cash
infusion.
The formula for sharing of the hospital surplus pool for commercial
members in the Orange/Sullivan Alliance shall remain as noted in the
September 23, 1996 letter.
<PAGE>
WellCare Management Group, Inc.
Page 6
January 7, 1997
Attachment 3
(Attach copy of September 23, 1996 letter)
<PAGE>
WellCare Management Group, Inc.
Page 7
January 7, 1997
Attachment 4
WellCare of New York, Inc. will agree to extend the contract terms
herein referenced for up to a total of ten (10) years provided that
following the initial three (3) year term, annual renewals shall be
conditional upon the following terms: the Alliances being in
material compliance with all aspects of their contract; the
Alliances demonstrating financial viability, according to mutually
agreed upon criteria which at a minimum shall be in accordance with
generally accepted accounting principles; the management of the
Alliances meeting certain mutually agreed upon performance criteria.
Any disputes on this issue shall be governed by the Arbitration
provisions in the WellCare of New York, Inc. Alliance, IPA contracts
referred to in paragraph 1 of the attached Letter of Intent to which
this Attachment 4 is incorporated by reference. Said conditions
shall include but not be limited to:
1. Compliance with IPA contract provisions as defined in contract
2. Current on all medical claims with contracted providers,
according to contractual time limits
3. Satisfactorily resolve Alliance based medical claims to
providers in place at the closing date of the capital infusion
4. Quarterly financials of IPAs will be provided to WCNY, and
will include cash flow analyses
5. Current on obligations to WCNY or WCMG which are in place at
time of contract signing
6. Meet requirements for network adequacy, quality and regulatory
status as defined in contracts and in compliance with federal and
state law
7. Utilization of 240 bed-days/1000 enrollees per year
(commercial) by the end of year two, 210 bed days/1000 enrollees per
year by the end of year three in each Alliance area for which we
have incentive arrangements. Other programs to be negotiated
8. Assist WCNY in reporting requirements per mutual agreement
9. Assist WCNY to provide data for NCQA or similar certification
per mutual agreement
10. Contract with WCNY participating providers to minimize leakage
from FFS or carve out contracts
<PAGE>
WellCare Management Group, Inc.
Page 8
January 7, 1997
11. Refrain from entering into any arrangements which are
discriminatory or adversely affect policies or procedures
12. Appropriate financial statements and documentation which will
provide WellCare with a demonstration of financial viability
according to mutually agreed upon criteria which at a minimum shall
be in accordance with generally accepted accounting principles.
[DESCRIPTION] MATERIAL CONTRACT
EX-10.33b Copy of Employment and Consulting Agreement
Relating to Marystephanie Corsones dated
March 3, 1997
EMPLOYMENT AND CONSULTING AGREEMENT
RELATING TO MARYSTEPHANIE CORSONES
This memorandum dated as of March 3, 1997, sets forth the
terms and conditions of the Employment and Consulting Agreement
("Agreement") between Marystephanie Corsones on her own behalf and
on behalf of her estate, heirs, executors, administrators,
attorneys, successors and assigns (hereinafter collectively referred
to as "Corsones"), and The WellCare Management Group, Inc.
("WellCare"), WellCare of New York, Inc. ("WCNY") and WellCare of
Connecticut, Inc. ("WC Conn") and their parent(s), agencies,
subsidiaries, related companies and divisions and their respective
successors, assigns (hereinafter collectively referred to as the
"WellCare Entities"), and the WellCare Entities' representatives,
agents, officers, directors, shareholders, and employees, whether
current and former (hereinafter collectively referred to as the
"WellCare Officers and Directors").
WHEREAS, Corsones and the WellCare Entities agree that
Corsones will resign as Chief Financial Officer of WellCare and as
a Director of WellCare as of April 1, 1997, and that from April 2,
1997 through and including May 23, 1997 she will hold the position
of Senior Advisor for Strategic Planning at WellCare;
WHEREAS, the WellCare Entities wish to retain Corsones as a
consultant to WellCare from May 24, 1997 through and including May
23, 1998.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth herein, Corsones and the WellCare Entities
and WellCare Officers and Directors agree as follows:
1. The employment contract dated May 23, 1994 and
amended on January 1, 1995, March 7, 1996, and June 10, 1996 (the
"CFO Employment Contract"), will be terminated and Corsones will
resign all officer positions and directorships in the WellCare
Entities as of April 1, 1997. Corsones represents that she is
aware of nothing that will prevent her from fulfilling her duties
as CFO through and including March 31, 1997 or that would prevent
the WellCare Entities from making all necessary filings with the
Securities and Exchange Commission as scheduled during March 1997
or her from signing any such filings in her capacity as Director
and Chief Financial Officer, including but not limited to the
filing of the 1996 10K Report.
2. As of April 2, 1997, Corsones will assume the
position of Senior Advisor for Strategic Planning at WellCare.
Corsones will be employed as the Senior Advisor for Strategic
Planning ("SASP") at WellCare from April 2, 1997 through and
including May 23, 1997 (the "SASP Employment Term").
3. During the SASP Employment Term Corsones will render
full-time professional services to WellCare in the capacity of
SASP. She will, throughout the SASP Employment Term,
faithfully, industriously, and to the best of her ability, perform
all duties that may be required of her by virtue of her position
to the reasonable satisfaction of WellCare's Chief Executive
Officer ("CEO"), President, and Board of Directors.
4. During the SASP Employment Term Corsones will be
compensated by WellCare at her current salary rate and on the same
payment schedule as in effect under the CFO Employment Contract.
5. WellCare shall pay on behalf of Corsones $14,000 on
December 31, 1997, December 31, 1998, December 31, 1999, and
December 31, 2000 into the same tax deferred annuity which it
funded pursuant to the CFO Employment Contract ("Tax Deferred
Annuity Payments"). The Tax Deferred Annuity Payments are
subject to acceleration pursuant to paragraphs 8(a) and (c), 12,
14, and 15 below.
6. During the SASP Employment Term Corsones shall also
be entitled to the following:
(a) All benefits as detailed in WellCare's Personnel
Policy and Practices Manual, subject to any additions, deletions,
or modifications that may be made to such benefits by WellCare to
the benefits offered to its employees as a whole.
(b) Three days of vacation time (which shall not
effect the salary to which Corsones is due under paragraph 4
above), life insurance in the amount of $250,000, and long-term
disability insurance coverage of the same kind and amount as she
was receiving under the CFO Employment Contract.
(c) Sixty (60) days of compensation at a rate of sixty
percent (60%) of base salary in the event of prolonged inability
to work due to the result of sickness or injury, provided that all
other compensatory accrued time has been utilized. This
compensation will be paid during the qualifying event period which
must be completed in order for payment of benefits pursuant to the
corporate enhanced long-term disability insurance to be commenced.
WellCare shall reserve the right to require documentation to
verify Corsones' inability to function as the SASP.
(d) Full reimbursement for all professional society
memberships and dues and for subscriptions to professional
journals, up to a maximum amount of $250.
(e) Reimbursement for travel, lodging, and meals
associated with attendance at the 1997 IFA Conference up to a
maximum of $800.
(f) After expiration of the lease on the company
automobile Corsones currently drives, a $600 per month car
allowance and all other automobile benefits provided for under
WellCare's automobile policy.
(g) A cellular telephone and computer equipment of the
same type and on the same terms as provided for under the CFO
Employment Contract.
(h) The Stock Appreciation Rights as provided under
the CFO Employment Contract.
(i) Stock Options as provided under the CFO Employment
Contract.
7. During the SASP Employment Term Corsones shall
devote all of her time, attention, knowledge, and skill solely and
exclusively to the business and interest of WellCare which shall
be entitled to all of the benefits, emoluments, profits, or other
issue arising from or incident to any and all work, services, and
advice of Corsones; and Corsones expressly agrees that during the
SASP Employment Term she will not be interested, either directly
or indirectly, in any form, fashion or manner, as partner,
officer, director, stockholder, advisor, employee, or in any other
form or capacity, in any physician management company, Health
Maintenance Organization, PPO, PHO, IPA, Integrated Delivery
System, health insurance company or other health organization that
competes directly with the WellCare Entities within their service
area without the written consent of WellCare (which consent shall
not be unreasonably withheld), provided that nothing herein
contained shall be deemed to prevent or limit the right of
Corsones to invest any of her funds in up to 5% of the capital
stock or other securities of any corporation, nor shall anything
herein contained be deemed to prevent Corsones from investing or
limit Corsones' right to invest her funds in real estate or other
similar investments.
8. The following sets forth the terms and conditions for
the termination of Corsones as SASP:
(a) Corsones will be expected to abide by the policies
established by WellCare's Board of Directors. Should Corsones
intentionally and materially fail to follow these policies or to
be materially and grossly negligent in performing her duties, or
to be guilty of criminal conduct in connection with her duties,
WellCare shall have the right to terminate her as the SASP at any
time (the reasons for such termination hereinafter referred to as
"For Cause" and the termination a "For Cause Termination"). If
Corsones is terminated For Cause, WellCare shall not be required
to provide any period of notice nor shall WellCare be responsible
for paying any more salary, or providing any more life or
disability insurance; WellCare will, however, be obligated to make
the remaining Tax Deferred Annuity Payments set forth above in
paragraph 5 within ten (10) days of such termination.
(b) Should WellCare, at its discretion, change
Corsones' duties so it can be reasonably found that she is no
longer performing the duties of SASP, Corsones shall have the
right to terminate her own employment as SASP by written notice
delivered to WellCare's CEO, such notice to be given thirty (30)
days before termination. Upon termination by Corsones pursuant to
this subparagraph and the completion of the thirty-day notice
period, WellCare shall continue to pay Corsones salary for thirty
(30) days, shall provide for Corsones' life, disability, health
insurance, and automobile lease allowance as set forth in
paragraph 6 of this Agreement for the remaining portion of the
SASP Employment Term, and shall make all remaining Tax Deferred
Annuity Payments as set forth in paragraph 5 above.
(c) A "Change of Control Event" is defined as the
occurrence of either (i) acquisition by a person or entity or
any group of affiliated persons or entities (as defined by CFR
230.405) of 25% or more of the common shares of WellCare, other
than as a result of the conversion of the convertible note issued
to The 1818 Fund II, L.P., or (ii) the change in the composition
of the WellCare Board by 25%, not including the changes effected
by the anticipated resignation of three current inside members of
the Board of Directors (including Corsones herself) or of the
addition of the Directors contemplated to be added pursuant to the
agreement between WellCare and The 1818 Fund II, L.P. If a Change
of Control Event occurs during the SASP Employment Term, WellCare
shall make all remaining Tax Deferred Annuity Payments as set
forth in paragraph 5 above within ten (10) days of written demand
by Corsones to the CEO of WellCare. WellCare will continue to be
obligated to provide Corsones with all other benefits and payments
incident to her employment as SASP as and when they become due.
(d) The termination of Corsones as the SASP (whether
effected by Corsones or WellCare and regardless of cause) shall
have no effect on the validity of or obligations under the
consulting arrangement set forth in this Agreement.
9. From May 24, 1997 through May 23, 1998 (the
"Consultant Period"), WellCare will retain Corsones as a
consultant. During the Consultant Period Corsones shall be
available to perform services to WellCare related to accounting,
tax, financial, and strategic planning issues as may be
reasonably requested by WellCare's CEO, President, or Chief
Financial Officer. She will work on an "as needed" basis and will
not be obligated to appear at the WellCare offices except when and
as her duties require such presence. Corsones shall not be
obligated to render services for more than 35 hours per week
except upon mutual agreement between Corsones and WellCare.
10. During the Consultant Period, Corsones shall also be
entitled to the following:
(a) A consulting fee of $112,500 to be paid ratably on
a semi-monthly basis. WellCare shall issue a Form 1099 with
respect to these payments. WellCare will not withhold or pay on
behalf of Corsones federal, state or local income tax or payroll
tax of any kind. Corsones shall not be treated as an employee
during the Consultant Period for tax purposes or any other
purpose.
(b) Four weeks of vacation time (which shall not
effect the consulting fees to which Corsones is due under
paragraph 10(a) above), and life insurance in the amount of
$250,000 of the same kind and amount as she has received under the
CFO Employment Contract.
(c) A long-term disability policy with the same
benefit levels, and same terms with respect to time lapse to the
commencement of payouts and length of benefit payouts as provided
under the CFO Employment Contract.
(d) Compensation at a rate of sixty percent (60%) of
the ratable portion of the consulting fee in the event of
prolonged inability to work due to the result of sickness or
injury, provided that all other compensatory accrued time has been
utilized. This compensation will be paid only during the
qualifying event period (if any) which must be completed in order
for the corporate enhancement feature of the long-term disability
insurance to be initiated. WellCare reserves the right to require
documentation to verify Corsones' inability to function in the
consultant position.
(e) Full reimbursement for all professional society
memberships and dues and for subscriptions to professional
journals, up to a maximum amount of $1,000.
(f) A $600 per month car allowance and all other
automobile benefits provided for under WellCare's automobile
policy.
(g) Health benefits to Corsones and her covered
beneficiaries in the manner and to the same degree as provided for
under the CFO Employment Contract.
(h) The cellular telephone and computer equipment of
the same type and on the same terms as currently provided under
the CFO Employment Contract.
11. During the Consultant Period or from May 24, 1997
through the termination of the consulting relationship (whichever
is shorter), Corsones expressly agrees that she will not be
interested, either directly or indirectly, in any form, fashion or
manner, as partner, officer, director, advisor, employee, or in
any other form or capacity, in any physician management company,
Health Maintenance Organization, PPO, IPA, PHO, integrated
delivery service, health insurance company or other health
organization that competes directly with the WellCare Entities
within their service area, without the written consent of
WellCare (which consent shall not be unreasonably withheld),
provided that nothing contained herein shall be deemed to prevent
or limit the right of Corsones to invest any of her funds in up to
5% of the capital stock or other securities of any corporation,
nor shall anything herein contained be deemed to prevent Corsones
from investing or limit Corsones' right to invest her funds in
real estate or other similar investments.
12. If, during the Consultant Period, WellCare should
determine that it no longer wishes to retain the consulting
services of Corsones, it may terminate the consulting
relationship. However, upon such termination, all consulting fees
for the remainder of the Consultant Period, and the Tax Deferred
Annuity Payments will immediately become due and payable; WellCare
will also continue to be obligated to provide all benefits set
forth in paragraph 10 above throughout the remaining portion of
the Consultant Period, except for the cellular telephone and
computer equipment.
13. At the end of the Consultant Period or at the
termination of the consulting relationship (whichever is earlier),
Corsones shall have the option of buying the computer equipment at
fair market value.
14. If, during the Consultant Period a Change of Control
Event occurs, WellCare shall make all remaining Tax Deferred
Annuity Payments as set forth in paragraph 5 above within ten (10)
days of written demand by Corsones to the CEO of WellCare.
WellCare will also be obligated to provide Corsones with all
benefits incident to her consultancy as and when they become due,
except that at such time as Corsones exercises her option to
terminate as provided for in paragraph 15, WellCare will be
obligated only to provide those remaining benefits set forth in
paragraph 15 below as and when they become due and the accelerated
Tax Deferred Annuity Payments as set forth in this paragraph.
15. If, during the Consultant Period a Change of Control
Event occurs, Corsones shall have the right to terminate her
consulting relationship by written notice delivered to the CEO of
WellCare, such notice to be given thirty (30) days before
termination. Upon termination by Corsones pursuant to this
paragraph and the completion of the thirty-day notice period,
WellCare shall (i) make all Tax Deferred Annuity Payments as
provided in paragraph 14, (ii) continue to pay Corsones' ratable
consulting fee for thirty (30) days, and (iii) provide for
Corsones' life, disability, health insurance, and automobile
allowance as provided in paragraph 10 of this Agreement through
and including May 23, 1998. Notwithstanding such termination by
Corsones, she shall retain any Stock Appreciation Rights, Rights
to Stock Options, or Vested Stock Options given to her under the
CFO Contract or during her employment as SASP. The Rights to
Stock Options and Vested Stock Options are subject to the terms of
the option agreement(s) now in effect.
16. Corsones shall have the right to terminate her
consultancy at any time for any reason on thirty (30) days written
notice. At the end of the notice period (except where a Change of
Control Event precedes the termination as provided in paragraph 15
above), all of WellCare's obligations to pay the consulting fee
and any other benefits will cease except that WellCare shall
continue to be obligated to make any remaining Tax Deferred
Annuity Payments and Corsones shall retain any Stock Appreciation
Rights, Rights to Stock Options, or Vested Stock Options given to
her under the CFO Contract or during her employment as SASP. The
Rights to Stock Options and Vested Stock Options are subject to
the terms of the option agreement(s) now in effect.
17. WellCare shall consult with and allow Corsones and
her attorneys to review and comment on the content and timing of
any press releases concerning her, including but not limited to
(1) her employment, (2) any termination of or retirement from her
employment, (3) any reassignment of her duties with WellCare, or
(4) this Agreement. Such consultation and review shall occur
before the press release is issued. WellCare shall permit
Corsones to announce to the staff of WellCare on behalf of
WellCare the changes in her employment status effected by this
Agreement.
18. Nothing in this Agreement shall affect Corsones'
rights to indemnification under the Certificate of Incorporation
and Bylaws of WellCare and Article 7 of the New York Business
Corporation Law, as Article 7 may be amended and supplemented or
by any successor thereto, in connection with any action (civil or
criminal) or investigation (regulatory or otherwise) for which
Corsones may be entitled to indemnification. To the extent that
Corsones may be entitled to such indemnification, WellCare
expressly approves Corsones' retention of Shaw, Pittman, Potts &
Trowbridge to represent her. WellCare also agrees to pay
Corsones' attorneys' fees and expenses incurred in connection with
entering into this Agreement.
19. Corsones hereby releases the WellCare Entities and the
WellCare Officers and Directors from any and all liability for any
claims known to her as of the date of her execution of this
Agreement for discrimination on the basis of race, color, sex,
national origin, religion, disability, age, marital status and
veteran status, including but not limited to any claims arising
under Title VII of the Civil Rights Act of 1964, the Civil Rights
Act of 1866, the Civil Rights Act of 1991, the Age Discrimination
in Employment Act of 1967, as amended by the Older Workers Benefit
Protection Act of 1990, the Family and Medical Leave Act of 1993,
the Americans With Disabilities Act of 1990, the Fair Labor
Standards Act of 1938, the New York State Human Rights Law, and
the New York City Human Rights Law. This release expressly does
not include a release of Corsones' rights of indemnification as
set forth in this Agreement, the Certificate of Incorporation and
Bylaws of the WellCare Entities and New York and federal law, or
any other terms of this Agreement which require future performance
or a release of any claims she might have against the WellCare
Entities or the WellCare Officers and Directors relating to the
action captioned In re The WellCare Management Group, Inc.
Securities Litigation 96-CV-0521 (TJM/DRH). This Agreement does
not constitute any admission by the WellCare Entities or the
WellCare Officers and Directors that they have violated any such
law or legal obligation with respect to any aspect of Corsones'
employment.
20. Corsones represents, warrants, and acknowledges that
the WellCare Entities owe her no wages, commissions, bonuses, sick
pay, personal leave pay, severance pay, vacation pay, tuition
reimbursement, or other compensation or payments or forms of
remuneration of any kind or nature, other than that specifically
provided for in this Agreement and other than $5,769.23, in
payment for 100 vacation hours owed to Corsones by WellCare,
which payment shall be made to Corsones on or before May 23, 1997.
21. The WellCare Entities represent and agree that they
have not (a) filed or caused any officer or director of the
WellCare Entities to file any lawsuits against Corsones in any
court whatsoever; or (b) filed or caused any officer or director
of the WellCare Entities to file any charges or complaints
against Corsones with any municipal, state, or federal agency
charged with the enforcement of any law.
22. Corsones represents and agrees that she has not:
(a) filed or caused to be filed any lawsuits against the WellCare
Entities or the WellCare officers and directors in their corporate
capacities in any court whatsoever; or (b) filed or caused to be
filed any charges or complaints against the WellCare Entities or
WellCare officers and directors in their corporate capacities with
any municipal, state or federal agency charged with the
enforcement of any law.
23. Corsones agrees that, except as may be necessary in
connection with litigation or other proceedings in which she may
be involved, she will not disclose, or cause to be disclosed in
any way, any confidential information, trade secrets or other
proprietary information which Corsones in any way acquired during
her employment or consultancy with the WellCare Entities. If
Corsones believes disclosure of such information is necessary in a
litigation or other proceeding, she will, at the request of the
WellCare Entities cooperate with the WellCare Entities to try to
limit such disclosure, if possible. In connection with litigation
or other proceedings, Corsones and the WellCare Entities will
cooperate with one another and share documents and other materials
to the extent reasonably requested by the other.
24. The WellCare Entities and the WellCare Officers and
Directors acknowledge that as of the date of this Agreement
Corsones has been a loyal, conscientious, and valued employee and
Director of the WellCare Entities and that they will provide
Corsones with positive references in the event such is requested
of them by Corsones or by a potential employer of Corsones. The
WellCare Entities agree that neither they nor the WellCare
Officers and Directors in their corporate capacities will
disparage or criticize Corsones in speech or in writing, except as
may be necessary in any future litigation between the parties to
this Agreement.
25. Corsones agrees that she shall not disparage or
criticize the WellCare Entities or officers or directors of the
WellCare Entities in their corporate capacities in speech or in
writing, except as may be necessary in any future litigation
between the parties to this Agreement.
26. It is understood and agreed that all books,
handbooks, manuals, files, notes, papers, memoranda, letters,
facsimile, or other communications which Corsones has in her
possession that were written, authorized, signed, received or
transmitted in connection with her employment with WellCare from
May 1994 through March 1996 (as well as the period prior to May
1994 when she was engaged as a consultant) are and remain the
property of WellCare and as such are not to be removed from the
WellCare Entities' offices without the prior written approval of
WellCare's Chief Operating Officer. In addition any such
materials (including any and all copies thereof), which Corsones
possess, but which are not in the offices of the WellCare
Entities, are to be returned immediately. Notwithstanding this
paragraph, Corsones will be permitted to remove from the premises
or retain in her possession any documents protected by the
attorney-client privilege (except where the privilege belongs to
the WellCare Entities) or by the attorney work-product privilege
(except where the privilege belongs to the WellCare Entities).
27. The failure of Corsones or the WellCare Entities to
insist upon strict adherence to any term of the Agreement on any
occasion shall not be considered a waiver thereof or deprive that
party of that right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
28. Corsones acknowledges that she has been offered more
than twenty-one (21) days from the date she received this
Agreement within which to consider its terms, and that she has
been advised that during such period she should consult an
attorney regarding the terms of this Agreement. Corsones
acknowledges that she has consulted with and been advised by
attorneys of her own choosing regarding the terms of this
Agreement. Corsones further acknowledges that her signature below
indicates that she is entering into this Agreement freely,
knowingly and voluntarily with a full understanding of its terms.
The terms of this Agreement shall not become effective or
enforceable until seven (7) days following the date of its
execution, during which time Corsones may revoke the Agreement by
notifying the WellCare Entities and the WellCare Officers and
Directors in writing, by registered letter delivered to the
attention of the undersigned representative of the WellCare
Entities, provided, however, that Corsones acknowledges that her
resignation as Chief Financial Officer and Director shall become
effective April 1, 1997 and that her assumption of the position as
SASP shall become effective April 2, 1997. This Agreement
constitutes the entire agreement between Corsones and the WellCare
Entities and WellCare Officers and Directors, and supersedes and
cancels all prior oral and written agreements, if any, between
Corsones and the WellCare Entities and the WellCare Officers and
Directors.
29. If any of the provisions, terms or clauses of this
Agreement are declared illegal, unenforceable or ineffective in a
legal form, those provisions, terms and clauses shall be deemed
severable, such that all other provisions, terms and clauses of
this Agreement shall remain valid and binding upon both parties.
30. Corsones acknowledges and agrees that the restrictions
and agreements contained in paragraphs 7 and 11 of this Agreement,
in view of the nature of Corsones' position and of the WellCare
Entities' business, are reasonable and necessary in order to
protect the WellCare Entities' legitimate interests, and that any
violation thereof would result in irreparable injuries to the
WellCare Entities which would not be readily ascertainable or
compensable in terms of money, and therefore Corsones further
acknowledges that, in the event Corsones violates any of these
restrictions, the WellCare Entities shall be entitled to obtain
from any court of competent jurisdiction temporary, preliminary
and permanent injunctive relief as well as damages, which rights
shall be cumulative and in addition to any other rights or
remedies to which it may be entitled. Corsones further agrees
that if it is determined that she has materially breached the
terms of any or all of the aforesaid paragraphs, the WellCare
Entities shall be entitled to recover from Corsones all costs and
reasonable attorneys' fees incurred as a result of the WellCare
Entities' attempt to redress such breach or to enforce the
WellCare Entities' rights and protect the WellCare Entities'
legitimate interests. If it is determined that Corsones has not
materially breached the terms of any or all of the aforesaid
paragraphs, Corsones shall be entitled to recover all costs and
reasonable attorneys' fees incurred as a result of the litigation
by the WellCare Entities.
31. The law of the State of New York will control any
questions concerning the validity and the interpretation of this
Agreement, without regard to principles of conflicts of law.
32. Should a dispute arise as to the interpretation,
implementation, or performance of this Agreement, the parties
agree to submit the dispute to, and be bound by the decision of, a
panel of three arbitrators, one to be selected by each party and
the third to be selected by the first two. If the two party-selected
arbitrators cannot agree on a third arbitrator, then the
president of JAMS/Endispute Inc. shall select the third arbitrator
under its rules. The arbitration shall commence within twenty-one
(21) days after selection of the third arbitrator. The
arbitration shall be a private arbitration conducted by reference
to the rules of the American Arbitration Association. The parties
to this Agreement shall share the cost of arbitration equally.
The arbitrators shall render their award promptly after the
closing of the hearing.
33. This Agreement shall be binding upon and inure to the
benefit of the WellCare Entities and the WellCare Officers and
Directors, their successors and assigns, and shall inure to the
benefit of and be binding upon Corsones, her administrators,
executors, legatees, heirs and assigns.
34. This Agreement may not be changed or altered,
except by a writing signed by Corsones and an authorized officer
of each of the WellCare Entities.
Dated: March 3, 1997
/s/ Marystephanie Corsones
MARYSTEPHANIE CORSONES
STATE OF NEW YORK )
) ss:
COUNTY OF ULSTER )
On this 3rd day of March, 1997, before me personally came
Marystephanie Corsones, to me known to be the individual described
in the foregoing instrument, who executed the foregoing instrument
in my presence, and who duly acknowledged to me that she executed
the same.
/s/ Marianne Gilday
Notary Public
MARIANNE GILDAY
Notary Public, State of New York
Reg. # 4917920
Qualified in Ulster County
Commission Expires January 19, 1998
THE WELLCARE MANAGEMENT GROUP, INC.
Dated: March 3, 1997 By: /s/ Joseph Papa
Name: Joseph Papa
Title: President and COO
STATE OF NEW YORK )
) ss:
COUNTY OF ULSTER )
On this 3rd day of March, 1997, before me personally came
Joseph Papa, to me known, who being by me duly sworn, did depose
and say that he is President and COO of The WellCare Management
Group, Inc., the corporation described in and which executed the
foregoing instrument; that he is duly authorized to execute said
instrument on behalf of said corporation, and that she/he executed
said instrument pursuant to that authority.
/s/ Jeannine G. Earl
Notary Public
JEANNINE G. EARL
Notary Public, State of New York
No. 4937485
Qualified in Ulster County
Commission Expires July 25, 1998
WELLCARE OF NEW YORK, INC.
Dated: March 3, 1997 By: /s/ Joseph Papa
Name: Joseph Papa
Title: President
STATE OF NEW YORK )
) ss:
COUNTY OF ULSTER )
On this 3rd day of March, 1997, before me personally came
Joseph Papa,, to me known, who being by me duly sworn, did depose
and say that he is the President of WellCare of New York, Inc.,
the corporation described in and which executed the foregoing
instrument; that she is duly authorized to execute said instrument
on behalf of said corporation, and that she executed said
instrument pursuant to that authority.
/s/ Jeannine G. Earl
Notary Public
JEANNINE G. EARL
Notary Public, State of New York
No. 4937485
Qualified in Ulster County
Commission Expires July 25, 1998
WELLCARE OF CONNECTICUT, INC.
Dated: March 4, 1997 By: /s/ Douglas Hayward
Name: Douglas Hayward
Title: President
STATE OF CONNECTICUT )
) ss:
COUNTY OF NEW HAVEN )
On this 4 day of March, 1997, before me personally came
Douglas Hayward, to me known, who being by me duly sworn, did
depose and say that he is the President of The WellCare Management
Group, Inc., the corporation described in and which executed the
foregoing instrument; that he is duly authorized to execute said
instrument on behalf of said corporation, and that he executed
said instrument pursuant to that authority.
/s/ Pasquale Nuzzolillo
Notary Public
My Commission Expires Aug. 31, 1999
[DESCRIPTION] MATERIAL CONTRACTS
EX-10.39e Copy of $6,000,000 Loan Agreement among
Registrant and Subsidiaries and KeyBank
National Association dated January 31, 1997
$6,000,000
LOAN AGREEMENT
AMONG
THE WELLCARE MANAGEMENT GROUP, INC.,
WELLCARE OF NEW YORK, INC.,
WELLCARE OF CONNECTICUT, INC.,
WELLCARE DEVELOPMENT, INC., and
AGENTE' BENEFIT CONSULTANTS, INC.
AND
KEYBANK NATIONAL ASSOCIATION
January 31, 1997
<PAGE>
LOAN AGREEMENT
LOAN AGREEMENT, dated as of the ____ day of October, 1996,
between THE WELLCARE MANAGEMENT GROUP, INC. ("Management"), a New
York corporation and WELLCARE OF NEW YORK, INC. ("WellCare"), a
New York corporation, each with an office for the transaction of
business located at Park West Office Complex, Hurley Avenue
Extension, Kingston, New York 12401, and WELLCARE OF CONNECTICUT,
INC. ("Connecticut"), a Connecticut corporation with an office for
the transaction of business located at 127 Washington Avenue,
North Haven, Connecticut 06473 (the "Borrowers" ), WELLCARE
DEVELOPMENT, INC. ("Development") and AGENTE' BENEFIT CONSULTANTS,
INC. ("Consultants"), each with an office for the transaction of
business located at Park West Office Complex, Hurley Avenue
Extension, Kingston, New York 12401 (collectively, with
Management, the "Guarantors") and KEYBANK NATIONAL ASSOCIATION, a
national banking association with an office for the transaction of
business located at 66 South Pearl Street, Albany, New York 12207
(the "Bank").
WHEREAS, Borrowers desire to borrow from the Bank up to the
sum of SIX MILLION AND NO/100THS ($6,000,000.00) DOLLARS (the
"Loan") and the Bank is willing, subject to and upon the terms and
conditions herein set forth, to lend such amounts to the
Borrowers.
NOW, THEREFORE, IT IS AGREED:
Article 1 Loan.
Section 1.1 The Loan.
Subject to and upon the terms and conditions herein set
forth, the Bank shall lend to the Borrowers and the Borrowers
shall borrow from the Bank, a sum not to exceed in the aggregate
SIX MILLION AND NO/100THS ($6,000,000.00) DOLLARS (the "Loan")
with the understanding that there are sub-limits (the "Sub-Limits") to the
amount the Bank will have outstanding at any one
time to each entity listed as a Borrower in the following amounts:
(A) The "Management Sub-Limit": $3,000,000.00;
(B) The "WellCare Sub-Limit": $6,000,000.00;
(C) The "Connecticut Sub-Limit":$2,000,000.00.
Section 1.2 The Line Of Credit Notes.
The Loan shall be evidenced by a separate line of
credit note payable to the order of the Bank (the "Notes" or the
"Line Of Credit Notes") from each of the Borrowers in the amount
of each Borrower's Sub-Limit, each of which shall be duly executed
by the appropriate Borrower. In the event of a conflict between
the provisions of the Notes and this Agreement, the provisions of
the Notes shall prevail.
Section 1.3 Fees. Borrower shall be responsible for
the following fees:
(a) On the date of execution of this Agreement, a facility
fee (the "Facility Fee") of $5,000.00.
(b) Each Borrower will pay a fee (the "Unused Commitment
Fee") equal to one-eighth of one percent per annum on the daily
average amount by which its Sub-Limit exceeds the aggregate
outstanding principal of its Note. The Unused Commitment Fee
shall accrue from the date of execution of this Agreement and
shall be payable quarterly, in arrears.
Section 1.4 Qualification for Advances.
According to the terms and conditions stated herein,
advances shall be made to Borrowers in periodic installments and
recorded and maintained by the Bank in its internal records which
records shall be conclusive as to the information set forth
therein absent manifest error.
Article 2. Conditions Precedent.
The effectiveness of this Agreement and the obligation
of the Bank to fund any of the transactions contemplated hereby
shall be subject to the satisfaction of the following conditions
precedent, at or prior to the time of the Closing Date:
Section 2.1 Opinions of Counsel.
The Bank shall have received from counsel for the
Borrowers and the Guarantors an opinion addressed to the Bank and
dated the Closing Date, in form and substance satisfactory to the
Bank. Prior to any advance, the Bank may also require opinions
from counsel acceptable to Borrowers and the Bank regarding such
matters as may be necessary to reasonably satisfy the Bank as to
said matters.
Section 2.2 Documentation.
The Bank shall have received the Line Of Credit Notes
and guaranties of payment and performance (the "Guaranties") from
Development and Consultants as to all advances and from Management
as to advances to WellCare and Connecticut.
Section 2.3 Reaffirmation of Representations and
Warranties.
All representations and warranties contained herein or
otherwise made to the Bank in connection herewith, shall be true
and correct.
Section 2.4 No Default.
There shall exist no Event of Default or event which
but for the passage of time, the giving of notice or both would
constitute an Event of Default.
Section 2.5 Review by Counsel.
All corporate and legal proceedings and all documents
and instruments in connection with the borrowings contemplated
herein shall be satisfactory in form and substance to the Bank and
Hiscock & Barclay, counsel to the Bank. The Bank and its counsel
shall have received all information and copies of all documents,
including records of corporate proceedings, which the Bank or its
counsel may have reasonably requested in connection therewith,
such documents where requested by the Bank or its counsel to be
certified by appropriate corporate officers. The Borrowers shall
be obligated on a continuing basis for the actual attorneys' fees
for the Bank in conjunction with the preparation and review of
documents related to advances made to Borrowers pursuant to this
Agreement or any other aspect of this Agreement occurring after
the date of this Agreement.
Section 2.6 Borrowers' Certification.
The Bank shall have received a certificate signed by an
executive officer of Borrowers to the effect that:
(a) Borrowers have complied and are then in compliance with
all the terms and covenants of this Agreement which are binding
upon it;
(b) There exists no Event of Default and no event has
occurred to the best of Borrowers' knowledge and belief, which,
with the giving of notice or the lapse of time, or both, would
then constitute such an Event of Default; and
(c) The representations and warranties contained herein are
true in all material respects with the same effect as though such
representations and warranties had been made at the time of the
Agreement.
Section 2.7 Corporate Authorizations.
The Bank shall have received certified copies of all
corporate action taken by Borrowers and the Guarantors to
authorize this Agreement, the Notes, the Guaranties and the
borrowing hereunder.
Section 2.8 Approval of Counsel.
All legal matters, including the form, substance and
manner of execution of any documents incident to each advance
shall be reasonably satisfactory to counsel for the Bank.
Section 2.9 Guaranties.
Development and Consultants shall have executed
guaranties of payment and performance of the Notes and Management
shall have executed a guaranty of payment and performance of the
Notes executed by WellCare and Connecticut.
Article 3. Use Of Proceeds.
Section 3.1 Use of Proceeds.
This Loan is intended to replace an existing line of
credit in the amount of $8,000,000.00 pursuant to which Management
and WellCare are borrowers which was entered into on November 7,
1996. The Borrowers agree that the proceeds of the borrowing
hereunder shall be used only for the following purposes:
(A) Borrowers' working capital needs;
(B) Program development costs; and
(C) Subject to a limit of $1,000,000.00, to acquire
entities engaged in businesses similar to those engaged in by
Borrowers.
Article 4. Representations And Warranties.
Borrowers and where noted, the Guarantors represent and
warrant to the Bank that:
Section 4.1 Corporate Standing.
The Borrowers and the Guarantors are corporations duly
organized and validly existing under the laws of the State of New
York (except for Connecticut which is duly organized and validly
exists under the laws of the State of Connecticut) and have the
power to execute all documents as may be necessary to support the
financing contemplated herein.
Section 4.2 No Conflict.
No provision of the Certificates of Incorporation or
By-Laws, and no provision of any existing indenture, contract, or
agreement to which any Borrower or any Guarantor is a party, shall
be materially violated by the provisions of the loan documents.
Section 4.3 Due Execution.
The execution of the loan documents by the Borrowers
and the Guarantors and the performance of the transactions
contemplated thereby have been duly authorized by all necessary
corporate action.
Section 4.4 Financials.
The audited financial statements furnished to the Bank
fairly reflect the financial condition of the Borrowers and the
Guarantors.
Section 4.5 No Litigation.
No actions or legal proceedings exist or are threatened
against any Borrower or any Guarantor which will materially
adversely affect its condition, financial or otherwise, except as
disclosed on Schedule "A" annexed hereto.
Section 4.6 No Tax Deficiencies.
No tax deficiencies and no past due obligations exist
that materially affect the operation of any Borrower or any
Guarantor, except those contested in good faith by appropriate
proceedings for which adequate reserves with respect to such
claims so contested have been set aside on the books.
Section 4.7 Regulation "U".
None of the Borrowers or the Guarantors are engaged
principally in, or have an important activity in, the business of
extending credit for the purpose of purchasing or carrying any
"margin stock" as defined in Regulation U of the Board of
Governors of the Federal Reserve System, ("BGFRS"). No part of
the proceeds of the Loan shall be used, now or ultimately, to
purchase or carry such stock or extend such credit or violate in
any way Regulations G, T, U or X of the BGFRS.
Section 4.8 ERISA.
No material violation of the Employee Retirement Income
Security Act of 1974, as amended, ("ERISA") exists which would
have a material adverse effect on the financial condition of any
Borrower or any Guarantor.
Section 4.9 Authority To Do Business.
The Borrowers and the Guarantors are authorized to do
business in each State where they conduct business.
Article 5. Financial Covenants.
Section 5.1 Definitions.
For the purposes of this Article 7, the following terms
shall have the following meanings:
"Current Assets" - as determined in accordance with
GAAP, provided, however, that any of such assets which are subject
to a pledge, lien or security interest held by any person or
entity other than the Bank to secure payment of any indebtedness
which is not included in Current Liabilities shall be excluded
from Current Assets to the extent of said indebtedness.
"Current Liabilities" - as determined in accordance
with GAAP and shall include, as of the date of determination
thereof: (i) all indebtedness payable on demand or maturing within
one (1) year after such date without any option on the part of the
obligor to extend or renew beyond such year, (ii) final
maturities, installments and prepayments of indebtedness required
to be made within one (1) year after such date, (iii) the unpaid
principal balance of the Note due within one (1) year after such
date and (iv) all other items (including taxes accrued as
estimated and reserves for deferred income taxes) which, in
accordance with GAAP would be included on a balance sheet as
current liabilities.
"Current Ratio" - as at any date, the ratio of Current
Assets to Current Liabilities.
"Debt Service" - the sum of (i) all payments of
principal and interest on indebtedness for borrowed money which is
due and payable during the three hundred sixty-five (365) day
period immediately succeeding such date plus (ii) the outstanding
balance of the Loan drawn by Management divided by three (3) plus
(iii) the quotient resulting from dividing the outstanding balance
of the Loan drawn by WellCare less $3,000,000 by three (3).
"Debt Service Coverage Ratio" - the ratio of
consolidated net income (loss) before interest expense, income
taxes, depreciation and amortization to Debt Service.
"GAAP" - generally accepted accounting principles,
consistently applied.
"Interest Coverage Ratio" - the ratio of net income
before interest and taxes to interest expense.
"Leverage Ratio" - as at any date, the ratio of total
liabilities minus subordinated debt to Tangible Net Worth plus
subordinated debt.
"Tangible Capital Base" - the sum of paid in capital,
retained earnings, capital stock and subordinated debt minus
intangibles and treasury stock, all as determined in accordance
with GAAP.
Section 5.2 Debt Service Coverage Ratio.
Management and its subsidiaries shall maintain a
consolidated Debt Service Coverage Ratio of not less than 1.50 to
1 measured on a quarterly basis (commencing with the quarter
ending June 30, 1997) and based upon rolling four-quarter results
as disclosed on 10-Q and 10-K Reports.
Section 5.3 Leverage Ratio.
Management and its subsidiaries shall maintain a
consolidated Leverage Ratio on a consolidated basis of less than
1.2 to 1 as measured on a quarterly basis based on its quarterly
10-Q and annual 10-K Reports.
Section 5.4 Current Ratio.
Management and its subsidiaries shall have a
consolidated Current Ratio of at least 1 to 1 on the date of
execution of this Agreement and shall maintain a Current Ratio of
not less than 1.5 to 1 at the end of each fiscal quarter
thereafter as measured on its quarterly 10-Q and annual 10-K
Reports.
Section 5.5 Tangible Net Worth.
Management and its subsidiaries shall maintain a
consolidated Tangible Net Worth of at least $31,500,000 at all
times.
Section 5.6 Interest Coverage Ratio.
WellCare shall maintain an Interest Coverage Ratio of
at least 1.5 to 1 as measured on its annual audited financial
statements.
Article 6. Affirmative Covenants.
Unless otherwise consented to in writing by the Bank:
Section 6.1 Corporate Existence.
The Borrowers and the Guarantors shall maintain
corporate existence, keep properties in good repair and maintain
liability insurance, insurance against fire and such other risks
as is customary with other comparable companies and reasonably
satisfactory to the Bank.
Section 6.2 Taxes and Expenses.
The Borrowers and the Guarantors shall promptly pay all
taxes (unless contested in good faith and for which adequate
reserves shall be established), as well as all lawful claims for
labor, materials and supplies, which if unpaid, might become a
lien or charge on their properties.
Section 6.3 Financial Reporting.
(a) Management shall furnish to the Bank:
(1) within ninety (90) days after the end of
each fiscal year, audited financial statements prepared by an
independent certified public accountant acceptable to the Bank
(this requirement can be satisfied by the delivery of a copy of
Management's 10-K Report); and
(2) within forty-five (45) days after the end
of each fiscal quarter, financial statements which shall include
in a comparative form, corresponding figures for the corresponding
period of the preceding fiscal year which shall be in the form of
Management's quarterly 10-Q Report.
(b) WellCare and Connecticut shall furnish to the Bank
within one hundred twenty (120) days of their respective fiscal
year ends, audited financial statements prepared by an independent
certified public accountant.
(c) Development shall furnish to the Bank within one
hundred twenty (120) days of the close of its fiscal year end,
financial statements of said entity prepared on a review basis.
(d) Management, WellCare, Connecticut and Development shall
furnish to the Bank:
(1) all reports and forms filed with respect
to all pension and other employee benefit plans under ERISA except
as filed in the normal course of business and that would not
result in a materially adverse action required to be taken by the
Pension Benefit Guaranty Corporation, and details related to
information of a reportable ERISA event, as that term is defined
in ERISA.
(2) such other information regarding their
operations, business affairs and financial condition as the Bank
may reasonably request in writing in advance of any such date.
Section 6.4 Books And Records.
Management, WellCare, Connecticut and Development shall
keep proper books and records and allow the Bank, from time to
time, on reasonable notice, to inspect the their books and
records.
Section 6.5 Subsidiary Guaranty.
Management, WellCare, Connecticut and Development shall
cause any newly formed or acquired subsidiary to become a
guarantor of this Loan Agreement and the Loan, which subsidiary
shall then comply with all terms and conditions hereof.
Section 6.6 ERISA Compliance.
Management, WellCare, Connecticut and Development shall
maintain compliance with ERISA.
Section 6.7 Accounts.
Management and WellCare shall maintain their principal
depository accounts with the Bank.
Section 6.8 Assets.
Management and WellCare shall preserve and maintain
their assets and keep the same in good order and condition.
Article 7. Negative Covenants.
Unless consented to in writing by the Bank:
Section 7.1 Consolidate Or Merge.
Borrowers and Guarantors shall not consolidate with or
merge into any other entity or permit any other entity to
consolidate with or merge into it.
Section 7.2 Transfers.
Borrowers and Guarantors shall not sell, lease, assign,
transfer, acquire or otherwise dispose of any assets, properties
or liabilities or divest themselves of any subsidiaries except (i)
transfers associated with the normal or day to day activities of
the business, as presently conducted and made for full and
adequate consideration or (ii) transfers not included within (i)
of assets, properties or liabilities having a value of $5,000.00
or less.
Section 7.3 Loans.
Except for transactions within Section 3.1 (C) herein,
Borrowers and Guarantors shall not invest (except cash management
activities), advance, loan or make any pledge in connection with
the same, whether directly or indirectly, any of their funds for
any purpose, including without limitation, officer loans or
create, incur, assume or suffer to exist any obligation which
would constitute a contingent liability.
Section 7.4 Guaranty.
Borrowers and Guarantors shall not become or be liable
in respect of any guaranty or endorsement, except in the ordinary
course of business of negotiable instruments for deposit or
collection.
Section 7.5 Additional Debt.
Borrowers and Guarantors shall not incur additional
debt (including capital lease obligations and subsidiary debt)
except debt ("Permitted Debt") which:
(a) Does not exceed in the aggregate with all other
Permitted Debt, $1,000,000.00;
(b) Is unsecured; and
(c) Is made available on terms no more restrictive than the
terms of the Loan.
Section 7.6 Pledge of Assets.
Borrowers and Guarantors shall not pledge any assets
with the exception of purchase money security interests securing
obligations not in excess of an aggregate amount of $1,000,000 in
any fiscal year.
Article 8. Events of Default.
Occurrences constituting events of default ("Events of
Default") under the loan documents shall include the following:
Section 8.1 Misrepresentation.
Any representations or warranties made by the Borrowers
or any Guarantors in loan documents or in any certificate,
financial statement or other instrument delivered to the Bank by
the Borrowers, the Guarantors, or any officer of any them are
materially false;
Section 8.2 Uncured Breach.
Default in the observance or performance or the
occurrence of a material breach in any of the covenants contained
herein which shall have continued unremedied for a period of ten
(10) days after written notice thereof, specifying each default
shall have been given to Borrowers by Bank;
Section 8.3 Uncured Breach in Other Loan Documents.
The occurrence of an "Event of Default" under any of
the Notes;
Section 8.4 Bankruptcy.
Borrower or any Guarantor shall: generally not be
paying debts as they become due or file a petition or seek relief
under or take advantage of any insolvency law; or make an
assignment for the benefit of creditors; or commence a proceeding
for the appointment of a receiver, trustee, liquidator, custodian
or conservator of Borrower or any Guarantor or of the whole or
substantially all of Borrower's or any Guarantor's property or of
any collateral pledged as security for the Notes; or if Borrower
or any Guarantor shall file a petition or an answer to a petition
under any chapter of the Bankruptcy Reform Act of 1978, as amended
(or any successor statute thereto), or file a petition or seek
relief under or take advantage of any other similar law or statute
of the United States of America, any state thereof, or any foreign
country or subdivision thereof; or if a Court of competent
jurisdiction shall enter an order, judgment or decree appointing
or authorizing a receiver, trustee, liquidator, custodian or
conservator of Borrower or any Guarantor or of the whole or
substantially all of Borrower's or any Guarantor's property, or
any portion of the collateral pledged as security for the Notes,
or enter an order for relief against Borrower or any Guarantor in
any case commenced under any chapter of the Bankruptcy Reform Act
of 1978, as amended (or any successor statute thereto), or grant
relief under any other similar law or statute of the United States
of America, any state thereof, or any foreign country or
subdivision thereof and the same is not stayed or discharged
within sixty (60) days of entry; or if under the provisions of any
law for the relief or aid of debtors, a court of competent
jurisdiction or a receiver, trustee, liquidator, custodian or
conservator shall assume custody or control or take possession
from Borrower or any Guarantor of all or substantially all of
Borrower's or any Guarantor's property or any portion of any
collateral pledged as security for the Notes; or if there is
commenced against Borrower or any Guarantor any proceeding for any
of the foregoing relief or if a petition is filed against Borrower
or any Guarantor under any chapter of the Bankruptcy Reform Act of
1978, as amended (or any successor statute thereto), or under any
other similar law or statute of the United States of America, any
state thereof, or any foreign country or subdivision thereof, and
such proceeding or petition remains undismissed for a period of
sixty (60) days; or if Borrower or any Guarantor by any act
indicates consent to, approval of or acquiescence in any such
proceeding or petition.
Section 8.5 Other Facilities.
The occurrence of an "event of default" under any other
credit facility with the Bank to which any of the Borrowers or the
Guarantors are a party;
Section 8.6 Material Change.
A material and adverse change in the operations,
business prospects or financial condition of any of the Borrowers
or the Guarantors;
Section 8.7 Bulk Transfer.
The Bank receives a notice to creditors with regard to
a bulk transfer by any Borrower or any Guarantor pursuant to
Article VI of the Uniform Commercial Code or if the Borrower shall
dissolve, terminate its existence, fail, cease normal business
operation or otherwise discontinue its existence;
Upon the occurrence of an Event of Default, the Bank
shall have such rights and remedies as may be available to it
under the Notes or any other Loan Document or at law and in
addition, may refuse to make any advances under any of the Notes
upon the occurrence of any Event of Default or event which but for
the passage of time, the giving of notice or both would constitute
an Event of Default.
Article 9. Miscellaneous.
Section 9.1 Collection Costs.
In the event that the Bank shall retain or engage an
attorney or attorneys to collect, enforce, or protect its
interests with respect to this Agreement, the Notes, or any
instrument or document delivered pursuant to this Agreement, or as
to any collateral securing the Notes, the Borrowers shall pay all
of the costs and expenses of such collection, enforcement, or
protection, including reasonable attorneys' fees, and the Bank may
take judgment for all such amounts, in addition to the unpaid
principal balance of the Notes and accrued interest thereon.
Section 9.2 Modification and Waiver.
No modification or waiver of any provision of the Notes
or of this agreement and no consent by the Bank to any departure
therefrom by any Borrower shall be effective unless such
modification or waiver shall be in writing and signed by a duly
authorized officer of the Bank, and the same shall then be
effective only for the period, on the conditions and for the
specific instances and purposes specified in such writing. No
notice to or demand on any Borrower in any case shall entitle any
Borrower to any other or further notice or demand in similar or
other circumstances.
Section 9.3 New York Law.
The Notes, the Guaranties and this Agreement shall be
construed in accordance with and governed by the laws of the State
of New York.
Section 9.4 Notices.
All notices, requests, demands, or other communications
provided for herein shall be in writing and shall be deemed to
have been given when sent by registered or certified mail, return
receipt requested, addressed, as the case may be, to the Bank at
66 South Pearl Street, Albany, New York 12207, Attention: Cynthia
Langer, or to the Borrowers at Park West Office Complex, Hurley
Avenue Extension, Kingston, New York 12401 or to such other person
or address as either party shall designate to the other from time
to time in writing forwarded in like manner.
Section 9.5 Captions.
The captions and/or headings of the various paragraphs
of this Agreement have been inserted only for the purposes of
convenience; such captions and/or headings are not a part of this
Agreement and shall not be deemed in any manner to modify,
explain, enlarge, or restrict any of the provisions of this
Agreement
Section 9.6 Benefit of Agreement.
This Agreement shall be binding upon and inure to the
benefit of the Borrowers and the Bank and their respective
successors and assigns, and all subsequent holders of the Notes.
Section 9.7 Severability.
In the event that any provision or any portion of any
provision of this Agreement shall be held invalid, illegal or
enforceable under applicable law, the remainder of this Agreement
shall remain valid and enforceable in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, The Borrowers, the Guarantors and the
Bank have caused this Agreement to be duly executed by their
respective officers thereunto duly authorized as of the day and
year first above written.
THE WELLCARE MANAGEMENT GROUP, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Treasurer
WELLCARE OF NEW YORK, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Treasurer
WELLCARE OF CONNECTICUT, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title:
WELLCARE DEVELOPMENT, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Secretary/Treasurer
AGENTE BENEFIT CONSULTANTS, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Secretary/Treasurer
KEYBANK NATIONAL ASSOCIATION
By /c/ Cynthia D. Langer
Name: Cynthia D. Langer
Title: Senior Vice President
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF ULSTER )
On this 31st day of January, 1997, before me the subscriber
personally appeared Marystephanie Corsones, who being by me duly
sworn, did depose and say; that she resides in Kingston, New York,
that she is Treasurer of The WellCare Management Group, Inc.,
WellCare of New York, Inc., WellCare of Connecticut, Inc. and is
the Secretary/Treasurer of WellCare Development, Inc. and Agente'
Benefit Consultants, Inc. the corporations described in and which
executed the foregoing instrument; and that she signed her name
thereto by order of the Boards of Directors of said corporations.
/s/ Marianne Gilday
NOTARY PUBLIC
MARIANNE GILDAY
Notary Public, State of New York
Reg. #4917920
Qualified in Ulster County
Commission Expires January 19, 1998
STATE OF NEW YORK )
) ss.:
COUNTY OF ALBANY )
On this 31st day of January, 1997, before me the subscriber
personally appeared Cynthia D. Langer, who being by me duly sworn,
did depose and say; that she resides at Delmar, New York, that she
is a Senior Vice President of KeyBank National Association, the
corporation described in and which executed the foregoing
instrument; and that she signed her name thereto by order of the
Board of Directors of said corporation.
/s/ Richard C. Van Auken
NOTARY PUBLIC
RICHARD C. VAN AUKEN
Notary Public, State of New York
Qualified in Rensselaer County
Reg. No. 4687169
Commission Expires May 31, 1997
[DESCRIPTION] MATERIAL CONTRACT
EX-10.39f Copy of Line-of-Credit Note in the amount of
$3,000,000 dated January 31, 1997, between
Registrant and KeyBank National Association
LINE-OF-CREDIT NOTE
$3,000,000.00 Kingston, New York
Dated: January 31, 1997
FOR VALUE RECEIVED, THE WELLCARE MANAGEMENT GROUP, INC., a
New York corporation with an office for the transaction of
business located at Park West Office Complex, Hurley Avenue
Extension, Kingston, New York 12401, (the "Borrower") promises to
pay to the order of KEYBANK NATIONAL ASSOCIATION, a national
banking association with an office and place of business at
66 South Pearl Street, Albany, New York, 12207 ("KeyBank") the
principal sum of Three Million and no/100 Dollars ($3,000,000.00)
or so much thereof as may be advanced from time to time pursuant
to the terms of this Note and a loan agreement, dated the date
hereof, among Borrower, other borrowers (the "Other Borrowers"),
the Guarantors (as defined in the Loan Agreement) and KeyBank (the
"Loan Agreement") with interest on the unpaid principal balance of
such amounts as are advanced or readvanced, as the case may be, at
the Interest Rate (as hereinafter defined). This Note evidences a
portion of a loan facility (the "Loan") made available to Borrower
and the Other Borrowers as more fully set forth in the Loan
Agreement. This Note is a Line of Credit Note referred to in the
Loan Agreement and is entitled to the benefits thereof. Payment
of this Note is guaranteed by the Guarantors pursuant to the terms
of the Guaranties (as defined in the Loan Agreement).
I
DEFINITIONS
Except as otherwise defined herein, capitalized terms used
herein shall have the following definitions:
"Advance" shall mean each advance of Loan proceeds by
KeyBank to a Borrower, each of which will be treated separately
for purposes of computing interest and each of which will accrue
interest at the Interest Rate selected by Borrower.
"Base Advance" shall mean any Advance that bears interest
determined with reference to the Base Rate.
"Base Rate" shall mean the rate of interest set, determined
or announced on a periodic basis by KeyBank National Association
as its "Base Rate" which rate of interest is not necessarily the
lowest rate charged by KeyBank National Association on loans and
other credits which may be extended by KeyBank National
Association at rates both above and below the Base Rate.
"Default Interest Rate" shall mean the applicable Interest
Rate plus four (4%) percent per annum.
"Election Notice" shall mean the Advance and Interest Rate
Election Notice which may be used by the Borrower when seeking an
Advance, said Election Notice to be in the form of Exhibit "A"
attached hereto and when delivered, to have been completed by the
Borrower to indicate an Advance amount and an Interest Rate.
"Interest Rate" shall mean the rate of interest (rounded up
to the nearest one-eighth (1/8%) percent) to be calculated
hereunder and paid by Borrower on any outstanding principal due
under this Note and shall be either the LIBOR Rate or the Variable
Rate.
"Interest Rate Election" shall mean an election on the part
of the Borrower to choose the LIBOR Rate or the Variable Rate as
the Interest Rate to be charged on an Advance.
"Interest Rate Election Period" shall mean the time period
selected by the Borrower during which interest is to accrue on an
Advance at the LIBOR Rate. An Interest Rate Election Period shall
be a term of one month, three months or four months (or, if this
Note is dated on other than the first day of a month, for the
first Interest Rate Election Period only, the time period between
the date of this Note and the last day of the month in which this
Note is dated, inclusive). In no event shall any Interest Rate
Election Period extend beyond the Maturity Date of the Loan.
"LIBOR" shall mean the rate designated under the heading
"LONDON INTERBANK OFFERED RATES" in the "Money Rates" column as
published in "The Wall Street Journal" two days prior to the date
of the LIBOR Advance for which a LIBOR Rate is being calculated
"LIBOR Advance" shall mean any Advance that bears interest
at the LIBOR Rate.
"LIBOR Period" shall mean one month, three months or four
months.
"LIBOR Rate" shall mean a fixed rate equal to LIBOR plus two
hundred seventy-five (275) basis points.
"Maturity Date" shall mean May 31, 1998.
"Variable Rate" shall mean a floating rate equal to the
Base Rate in effect from time to time.
"Variable Rate Advance" shall mean any Advance that bears
interest at the Variable Rate.
II
INTEREST
(a) COMPUTATION OF INTEREST. Interest on the outstanding
principal balance of this Note shall be computed on the basis of a
360-day year. Interest shall accrue until the Loan is repaid.
(b) INTEREST RATE CHANGE PROCEDURES. If the LIBOR Rate is
elected, it shall remain constant for the Interest Rate Election
Period. If Borrower elects the Variable Rate, each change in the
Base Rate shall effect a corresponding change in the Variable
Rate.
(c) LIBOR RATE CALCULATION PROCEDURE. If Borrower has
elected that the LIBOR Rate apply to any Advance, the LIBOR Rate
shall be calculated based on LIBOR for the LIBOR Period coinciding
with Interest Rate Election Period selected by Borrower.
(d) IMPLEMENTATION OF DEFAULT INTEREST RATE. Upon the
occurrence of an Event of Default (hereinbelow defined), the
computation of interest under this Note shall immediately and
without further action by KeyBank be based upon the Default
Interest Rate.
III
PROCEDURES FOR ADVANCES AND ELECTION NOTICES
(a) ADVANCES. Provided that no Event of Default
(hereinafter defined) and no event which but for the passage of
time, the giving of notice or both would constitute an Event of
Default, has occurred, and further provided that Borrower has met
all conditions to an Advance set forth in the Loan Agreement,
Advances shall be made available to the Borrower from time to time
in the manner set forth in this Article and information with
regard to any Advance shall be recorded and maintained by KeyBank
in its internal records and such records shall be conclusive as to
the information set forth therein, absent manifest error.
(b) PROCEDURE FOR ADVANCES AND ELECTION NOTICES. Borrower
may obtain an Advance by delivering an Election Notice signed by
any one of the Authorized Individuals on the Schedule of
Authorized Individuals attached hereto as Exhibit "B" setting
forth the amount of the Advance requested [which shall be at least
$250,000.00 if available] and indicating an Interest Rate and, if
the Advance is a LIBOR Advance, an Interest Rate Election Period
(which must terminate no later than the Maturity Date) for such
LIBOR Advance. If Borrower has elected the LIBOR Rate, said
Interest Rate as determined in accordance with the terms of this
Note at the beginning of the Interest Rate Election Period shall
remain in effect until expiration of the Interest Rate Election
Period chosen by the Borrower for that LIBOR Advance. Prior to
the end of each Interest Rate Election Period, if the amount of
the Advance remaining unpaid will not be repaid, Borrower shall
provide an Election Notice designating the Interest Rate Borrower
has elected and if the LIBOR Rate has been elected, designating a
new Interest Rate Election Period. If KeyBank does not receive
the Election Notice prior to the expiration of any Interest Rate
Election Period, and the Advance is not repaid, interest shall
accrue on that Advance at the Variable Rate until an Election
Notice is delivered. Any Advance shall be deposited by KeyBank in
an account to be opened for that purpose with KeyBank (the
"Advance Account") and the deposit of any Advance in the Advance
Account by KeyBank shall be conclusive as to the receipt of said
Advance by Borrower and Borrower will be responsible for repaying
any Advance so made pursuant to the terms of this Note.
(c) ADVANCES BY KEYBANK. KeyBank may make Advances
pursuant to the terms hereof, for the purpose of paying any sums
which have become due and payable hereunder or under any other
Loan Document. Any such Advance shall bear interest at the
Variable Rate.
(d) LIMITS ON ADVANCES. Notwithstanding any other
provision of this Note, Borrower acknowledges that at no point in
time will Key make Advances which when aggregated with any
Advances outstanding under a Line Of Credit Note from WellCare of
New York, Inc. dated on even date herewith in the amount of
$6,000,000.00 or from WellCare of Connecticut, Inc. dated on even
date herewith in the amount of $2,000,000.00 would exceed
$6,000,000.00 (it also being understood that at no point in time
will aggregate Advances exceed the principal balance of this
Note).
IV
LIBOR RESERVE REQUIREMENT
If because of the introduction of or any change in or
because of any judicial, administrative or other governmental
interpretation of any law or regulation, there shall be any
increase in the cost to KeyBank of making, funding, maintaining or
allocating capital to any LIBOR Advance, then Borrower shall from
time to time upon demand by KeyBank pay KeyBank additional moneys
sufficient to compensate KeyBank for such increased cost.
V
PAYMENT OF PRINCIPAL AND INTEREST
PERIODIC PAYMENTS. Borrowers shall pay interest at the
applicable Interest Rate on the sums advanced hereunder beginning
on the first (1st) day of February, 1997 and continuing on the
first day of each month thereafter until the Maturity Date (or
such earlier date in the event KeyBank accelerates Borrower's
obligations hereunder), at which time, any accrued and unpaid
interest and principal must be paid.
VI
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are
payable at 66 South Pearl Street, Albany, New York 12207, or at
such other place as KeyBank shall notify Borrower in writing.
KeyBank reserves the right to require any payment on this Note,
whether such payment is of a regular installment or represents a
prepayment, to be by wired federal funds or other immediately
available funds or to be paid at a place other than the above
address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as may
otherwise be provided in this Note, all payments received by
KeyBank on this Note shall be applied by KeyBank to any unpaid
Late Payment Charges (hereinbelow defined), accrued and unpaid
interest then due and owing and the reduction of principal of this
Note, in such order and in such amounts as KeyBank may determine
from time to time. Sums applied to LIBOR Advances shall be
applied first to those LIBOR Advances having Interest Rate
Election Periods which are next to expire in chronological order.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any
amount of principal and/or interest on this Note for ten (10) days
after such payment becomes due, whether by acceleration or
otherwise, KeyBank may, at its option, whether immediately or at
the time of final payment of the amounts evidenced by this Note,
impose a late payment charge (the "Late Payment Charge") computed
by multiplying the amount of each past due payment by four (4%)
percent. Until any and all Late Payment Charges are paid in full,
the amount thereof shall be added to the indebtedness secured by
the Loan Agreement. The Late Payment Charge is not a penalty and
is deemed to be liquidated damages for the purpose of compensating
KeyBank for the difficulty in computing the actual amount of
damages incurred by KeyBank as a result of the late payment by
Borrower.
(d) PREPAYMENT. The principal balance may be prepaid in
whole or in part, at any time without premium or penalty.
In the event KeyBank receives partial prepayments for
application against the Loan, such prepayments shall be applied to
installments of principal in the inverse order of maturity.
(e) REFUSAL TO MAKE FURTHER ADVANCES, ACCELERATION AND
DEFAULT. If:
(1) Borrower fails to pay any sum due on this Note
within ten (10) days of the date the same is due; or
(2) An "Event of Default", as said term is defined
in the Loan Agreement, shall have occurred;
then, and in any such event (an "Event of Default"), KeyBank may,
at its option, refuse to make any further Advances, refuse to
permit the renewal of any LIBOR Advance and declare the entire
unpaid balance of this Note together with interest accrued thereon
and any other sums due hereunder or under the Loan Agreement, to
be immediately due and payable and KeyBank may proceed to exercise
any rights or remedies that it may have under this Note or the
Loan Agreement, or such other rights and remedies which KeyBank
may have at law, equity or otherwise. In the event of such
acceleration, Borrower may discharge its obligations to KeyBank by
paying:
(i) the unpaid principal balance hereof as at the
date of such payment, plus
(ii) accrued interest computed in the manner set
forth above, plus
(iii) any Late Payment Charge computed in the manner
set forth above, plus
(iv) any other sum due and owing KeyBank under this
Note or the Loan Agreement.
(f) COSTS AND EXPENSES ON DEFAULT. After the occurrence
of an Event of Default, in addition to principal, interest and any
Late Payment Charge, KeyBank shall be entitled to collect all
costs of collection, including, but not limited to, reasonable
attorneys' fees, incurred in connection with the protection or
realization of collateral, if any, or in connection with any of
KeyBank's collection efforts, whether or not suit on this Note or
any foreclosure proceeding is filed, and all such costs and
expenses shall be payable on demand and until paid shall also be
secured by the Loan Agreement and by all other collateral held by
KeyBank as security for Borrower's obligations to KeyBank.
(g) NO WAIVER BY KEYBANK. No failure by any Guarantor of
the Loan to make any payments shall be deemed a waiver or release
of Borrower's obligations hereunder. No failure on the part of
KeyBank or other holder hereof to exercise any right or remedy
hereunder, whether before or after the happening of a default,
shall constitute a waiver thereof, and no waiver of any past
default shall constitute waiver of any future default or of any
other default. No failure to accelerate the Loan evidenced hereby
by reason of default hereunder, or acceptance of a past due
installment, or indulgence granted from time to time shall be
construed to be a waiver of the right to insist upon prompt
payment thereafter, or shall be deemed to be a novation of this
Note or as a reinstatement of the Loan evidenced hereby or as a
waiver of such right of acceleration or any other right, or be
construed so as to preclude the exercise of any right which
KeyBank may have, whether by the laws of the state governing this
Note, by agreement or otherwise; and Borrower and each endorser or
Guarantor hereby expressly waive the benefit of any statute or
rule of law or equity which would produce a result contrary to or
in conflict with the foregoing. This Note may not be changed
orally, but only by an agreement in writing signed by the party
against whom such agreement is sought to be enforced.
(h) FINANCIAL INFORMATION. Borrower will advise Lender in
writing if Borrower operates on other than a calendar year basis.
(i) WAIVER BY BORROWER. Borrower and each endorser or
Guarantor of this Note hereby waives presentment, protest, demand,
diligence, notice of dishonor and of nonpayment.
(j) COMPLIANCE WITH USURY LAWS. It is the intention of
the parties to conform strictly to the usury laws, whether state
or federal, that are applicable to this Note. All agreements
between Borrower and KeyBank, whether now existing or hereafter
arising and whether oral or written, are hereby expressly limited
so that in no contingency or event whatsoever, whether by
acceleration of maturity hereof or otherwise, shall the amount
paid or agreed to be paid to KeyBank or the holder hereof, or
collected by KeyBank or such holder, for the use, forbearance or
detention of the money to be loaned hereunder or otherwise, or for
the payment or performance of any covenant or obligation contained
herein, or in the Loan Agreement, exceed the maximum amount
permissible under applicable federal or state usury laws. If
under any circumstances whatsoever fulfillment of any provision
hereof or of the Loan Agreement, at the time performance of such
provision shall be due, shall involve exceeding the limit of
validity prescribed by law, then the obligation to be fulfilled
shall be reduced to the limit of such validity; and if under any
circumstances KeyBank or other holder hereof shall ever receive an
amount deemed interest by applicable law, which would exceed the
highest lawful rate, such amount that would be excessive interest
under applicable usury laws shall be applied to the reduction of
the principal amount owing hereunder or to other indebtedness
secured by the Loan Agreement and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of
principal and such other indebtedness, the excess shall be deemed
to have been a payment made by mistake and shall be refunded to
Borrower or to any other person making such payment on Borrower's
behalf. All sums paid or agreed to be paid to the holder hereof
for the use, forbearance or detention of the indebtedness of
Borrower evidenced hereby, outstanding from time to time shall, to
the extent permitted by applicable law, and to the extent
necessary to preclude exceeding the limit of validity prescribed
by law, be amortized, pro-rated, allocated and spread from the
date of disbursement of the proceeds of this Note until payment in
full of the Loan evidenced hereby and thereby so that the actual
rate of interest on account of such indebtedness is uniform
throughout the term hereof and thereof. The terms and provisions
of this paragraph shall control and supersede every other
provision of all agreements between Borrower, any endorser or
Guarantor and KeyBank.
(k) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Note
shall be governed by and construed under the laws of the State of
New York. Borrower and each endorser or Guarantor hereby submits
to personal jurisdiction in said state for the enforcement of
Borrower's obligations hereunder or under any other Loan Document
and waives any and all personal rights under the law of any other
state to object to jurisdiction within such state for the purposes
of litigation to enforce such obligations of Borrower.
(l) WAIVER OF JURY TRIAL. KeyBank and the Borrower hereby
waive trial by jury in any litigation in any court with respect
to, in connection with, or arising out of this Note, the Loan
Agreement or the Loan, or any instrument or document delivered in
connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other
claim or dispute howsoever arising between the Borrower and
KeyBank.
(m) AUTHORITY OF KEYBANK. Borrower authorizes KeyBank to
date this Note as of the day when the Loan is made and to complete
or correct this Note as to any terms of the Loan not set forth
herein at the time of delivery hereof.
(n) NOTICES. Any notices required or permitted to be
given hereunder shall be: (i) personally delivered or (ii) given
by registered or certified mail, postage prepaid, return receipt
requested, or (iii) forwarded by overnight courier service, in
each instance addressed to the addresses set forth at the head of
this Note, or such other addresses as the parties may for
themselves designate in writing as provided herein for the purpose
of receiving notices hereunder. All notices shall be in writing
and shall be deemed given, in the case of notice by personal
delivery, upon actual delivery, and in the case of appropriate
mail or courier service, upon deposit with the U.S. Postal Service
or delivery to the courier service.
(o) ENTIRE AGREEMENT. This Note, the Guaranties and the
Loan Agreement constitute the entire understanding between
Borrower, the Guarantors and KeyBank and to the extent that any
writings not signed by KeyBank or oral statements or conversations
at any time made or had shall be inconsistent with the provisions
of this Note, the Guaranties and the Loan Agreement, the same
shall be null and void.
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this instrument
the date first above written.
THE WELLCARE MANAGEMENT GROUP, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Treasurer
STATE OF NEW YORK )
)ss.:
COUNTY OF ULSTER )
On this 31st day of January, 1997, before me the subscriber
personally appeared Marystephanie Corsones, who being by me duly
sworn, did depose and say; that she resides in Kingston, New York,
that she is Treasurer of THE WELLCARE MANAGEMENT GROUP, INC., the
corporation described in and which executed the foregoing
instrument; and that she signed her name thereto by order of the
Board of Directors of said corporation.
/s/ Marianne Gilday
NOTARY PUBLIC
MARIANNE GILDAY
Notary Public, State of New York
Reg. #4917920
Qualified in Ulster County
Commission Expires January 19, 1998
<PAGE>
EXHIBIT "A"
ELECTION NOTICE
ADVANCE AND INTEREST RATE
FROM: THE WELLCARE MANAGEMENT GROUP, INC.
TO: KEYBANK NATIONAL ASSOCIATION (Lender)
DATE:
ADVANCE AMOUNT: $
INTEREST RATE ELECTION: LIBOR Rate
Variable Rate
INTEREST RATE ELECTION PERIOD (LIBOR Rate only):
LIBOR PERIOD
_____ one (1) month
_____ three (3) months
_____ four (4) months
"BORROWER"
By:
Authorized Individual
<PAGE>
EXHIBIT "B"
SCHEDULE OF AUTHORIZED INDIVIDUALS
Position Name
Chief Executive Officer Robert W. Morey
President Joseph R. Papa
Chief Financial Officer Marystephanie Corsones
[DESCRIPTION] MATERIAL CONTRACT
EX-10.39g Copy of Line-of-Credit Note in the amount of
$2,000,000 dated January 31, 1997, between
WellCare of Connecticut, Inc. and KeyBank
National Association
LINE-OF-CREDIT NOTE
$2,000,000.00 Kingston, New York
Dated: January 31, 1997
FOR VALUE RECEIVED, WELLCARE OF CONNECTICUT, INC., a
Connecticut corporation with an office for the transaction of
business located at 127 Washington Avenue, North Haven,
Connecticut 06743, (the "Borrower") promises to pay to the order
of KEYBANK NATIONAL ASSOCIATION, a national banking association
with an office and place of business at 66 South Pearl Street,
Albany, New York, 12207 ("KeyBank") the principal sum of Two
Million and no/100 Dollars ($2,000,000.00) or so much thereof as
may be advanced from time to time pursuant to the terms of this
Note and a loan agreement, dated on even date herewith, among
Borrower, other borrowers (the "Other Borrowers"), the Guarantors
(as defined in the Loan Agreement) and KeyBank (the "Loan
Agreement") with interest on the unpaid principal balance of such
amounts as are advanced or readvanced, as the case may be, at the
Interest Rate (as hereinafter defined). This Note evidences a
portion of a loan facility (the "Loan") made available to Borrower
and the Other Borrowers as more fully set forth in the Loan
Agreement. This Note is a Line of Credit Note referred to in the
Loan Agreement and is entitled to the benefits thereof. Payment
of this Note is guaranteed by the Guarantors pursuant to the terms
of the Guaranties (as defined in the Loan Agreement).
I
DEFINITIONS
Except as otherwise defined herein, capitalized terms used
herein shall have the following definitions:
"Advance" shall mean each advance of Loan proceeds by
KeyBank to a Borrower, each of which will be treated separately
for purposes of computing interest and each of which will accrue
interest at the Interest Rate selected by Borrower.
"Base Advance" shall mean any Advance that bears interest
determined with reference to the Base Rate.
"Base Rate" shall mean the rate of interest set, determined
or announced on a periodic basis by KeyBank National Association
as its "Base Rate" which rate of interest is not necessarily the
lowest rate charged by KeyBank National Association on loans and
other credits which may be extended by KeyBank National
Association at rates both above and below the Base Rate.
"Default Interest Rate" shall mean the applicable Interest
Rate plus four (4%) percent per annum.
"Election Notice" shall mean the Advance and Interest Rate
Election Notice which may be used by the Borrower when seeking an
Advance, said Election Notice to be in the form of Exhibit "A"
attached hereto and when delivered, to have been completed by the
Borrower to indicate an Advance amount and an Interest Rate.
"Interest Rate" shall mean the rate of interest (rounded up
to the nearest one-eighth (1/8%) percent) to be calculated
hereunder and paid by Borrower on any outstanding principal due
under this Note and shall be either the LIBOR Rate or the Variable
Rate.
"Interest Rate Election" shall mean an election on the part
of the Borrower to choose the LIBOR Rate or the Variable Rate as
the Interest Rate to be charged on an Advance.
"Interest Rate Election Period" shall mean the time period
selected by the Borrower during which interest is to accrue on an
Advance at the LIBOR Rate. An Interest Rate Election Period shall
be a term of one month, three months or four months (or, if this
Note is dated on other than the first day of a month, for the
first Interest Rate Election Period only, the time period between
the date of this Note and the last day of the month in which this
Note is dated, inclusive). In no event shall any Interest Rate
Election Period extend beyond the Maturity Date of the Loan.
"LIBOR" shall mean the rate designated under the heading
"LONDON INTERBANK OFFERED RATES" in the "Money Rates" column as
published in "The Wall Street Journal" two days prior to the date
of the LIBOR Advance for which a LIBOR Rate is being calculated
"LIBOR Advance" shall mean any Advance that bears interest
at the LIBOR Rate.
"LIBOR Period" shall mean one month, three months or four
months.
"LIBOR Rate" shall mean a fixed rate equal to LIBOR plus two
hundred seventy-five (275) basis points.
"Maturity Date" shall mean May 31, 1998.
"Variable Rate" shall mean a floating rate equal to the
Base Rate in effect from time to time.
"Variable Rate Advance" shall mean any Advance that bears
interest at the Variable Rate.
II
INTEREST
(a) COMPUTATION OF INTEREST. Interest on the outstanding
principal balance of this Note shall be computed on the basis of a
360-day year. Interest shall accrue until the Loan is repaid.
(b) INTEREST RATE CHANGE PROCEDURES. If the LIBOR Rate is
elected, it shall remain constant for the Interest Rate Election
Period. If Borrower elects the Variable Rate, each change in the
Base Rate shall effect a corresponding change in the Variable
Rate.
(c) LIBOR RATE CALCULATION PROCEDURE. If Borrower has
elected that the LIBOR Rate apply to any Advance, the LIBOR Rate
shall be calculated based on LIBOR for the LIBOR Period coinciding
with Interest Rate Election Period selected by Borrower.
(d) IMPLEMENTATION OF DEFAULT INTEREST RATE. Upon the
occurrence of an Event of Default (hereinbelow defined), the
computation of interest under this Note shall immediately and
without further action by KeyBank be based upon the Default
Interest Rate.
III
PROCEDURES FOR ADVANCES AND ELECTION NOTICES
(a) ADVANCES. Provided that no Event of Default
(hereinafter defined) and no event which but for the passage of
time, the giving of notice or both would constitute an Event of
Default, has occurred, and further provided that Borrower has met
all conditions to an Advance set forth in the Loan Agreement,
Advances shall be made available to the Borrower from time to time
in the manner set forth in this Article and information with
regard to any Advance shall be recorded and maintained by KeyBank
in its internal records and such records shall be conclusive as to
the information set forth therein, absent manifest error.
(b) PROCEDURE FOR ADVANCES AND ELECTION NOTICES. Borrower
may obtain an Advance by delivering an Election Notice signed by
any one of the Authorized Individuals on the Schedule of
Authorized Individuals attached hereto as Exhibit "B" setting
forth the amount of the Advance requested [which shall be at least
$250,000.00 if available] and indicating an Interest Rate and, if
the Advance is a LIBOR Advance, an Interest Rate Election Period
(which must terminate no later than the Maturity Date) for such
LIBOR Advance. If Borrower has elected the LIBOR Rate, said
Interest Rate as determined in accordance with the terms of this
Note at the beginning of the Interest Rate Election Period shall
remain in effect until expiration of the Interest Rate Election
Period chosen by the Borrower for that LIBOR Advance. Prior to
the end of each Interest Rate Election Period, if the amount of
the Advance remaining unpaid will not be repaid, Borrower shall
provide an Election Notice designating the Interest Rate Borrower
has elected and if the LIBOR Rate has been elected, designating a
new Interest Rate Election Period. If KeyBank does not receive
the Election Notice prior to the expiration of any Interest Rate
Election Period, and the Advance is not repaid, interest shall
accrue on that Advance at the Variable Rate until an Election
Notice is delivered. Any Advance shall be deposited by KeyBank in
an account to be opened for that purpose with KeyBank (the
"Advance Account") and the deposit of any Advance in the Advance
Account by KeyBank shall be conclusive as to the receipt of said
Advance by Borrower and Borrower will be responsible for repaying
any Advance so made pursuant to the terms of this Note.
(c) ADVANCES BY KEYBANK. KeyBank may make Advances
pursuant to the terms hereof, for the purpose of paying any sums
which have become due and payable hereunder or under any other
Loan Document. Any such Advance shall bear interest at the
Variable Rate.
(d) LIMITS ON ADVANCES. Notwithstanding any other
provision of this Note, Borrower acknowledges that at no point in
time will Key make Advances which when aggregated with any
Advances outstanding under a Line Of Credit Note from WellCare
Management Group, Inc. dated on even date herewith in the amount
of $3,000,000.00 or from WellCare of New York, Inc. dated on even
date herewith in the amount of $6,000,000.00 would exceed
$6,000,000.00 (it also being understood that at no point in time
will aggregate Advances exceed the principal balance of this
Note).
IV
LIBOR RESERVE REQUIREMENT
If because of the introduction of or any change in or
because of any judicial, administrative or other governmental
interpretation of any law or regulation, there shall be any
increase in the cost to KeyBank of making, funding, maintaining or
allocating capital to any LIBOR Advance, then Borrower shall from
time to time upon demand by KeyBank pay KeyBank additional moneys
sufficient to compensate KeyBank for such increased cost.
V
PAYMENT OF PRINCIPAL AND INTEREST
PERIODIC PAYMENTS. Borrowers shall pay interest at the
applicable Interest Rate on the sums advanced hereunder beginning
on the first (1st) day of February, 1997 and continuing on the
first day of each month thereafter until the Maturity Date (or
such earlier date in the event KeyBank accelerates Borrower's
obligations hereunder), at which time, any accrued and unpaid
interest and principal must be paid.
VI
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are
payable at 66 South Pearl Street, Albany, New York 12207, or at
such other place as KeyBank shall notify Borrower in writing.
KeyBank reserves the right to require any payment on this Note,
whether such payment is of a regular installment or represents a
prepayment, to be by wired federal funds or other immediately
available funds or to be paid at a place other than the above
address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as may
otherwise be provided in this Note, all payments received by
KeyBank on this Note shall be applied by KeyBank to any unpaid
Late Payment Charges (hereinbelow defined), accrued and unpaid
interest then due and owing and the reduction of principal of this
Note, in such order and in such amounts as KeyBank may determine
from time to time. Sums applied to LIBOR Advances shall be
applied first to those LIBOR Advances having Interest Rate
Election Periods which are next to expire in chronological order.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any
amount of principal and/or interest on this Note for ten (10) days
after such payment becomes due, whether by acceleration or
otherwise, KeyBank may, at its option, whether immediately or at
the time of final payment of the amounts evidenced by this Note,
impose a late payment charge (the "Late Payment Charge") computed
by multiplying the amount of each past due payment by four (4%)
percent. Until any and all Late Payment Charges are paid in full,
the amount thereof shall be added to the indebtedness secured by
the Loan Agreement. The Late Payment Charge is not a penalty and
is deemed to be liquidated damages for the purpose of compensating
KeyBank for the difficulty in computing the actual amount of
damages incurred by KeyBank as a result of the late payment by
Borrower.
(d) PREPAYMENT. The principal balance may be prepaid in
whole or in part, at any time without premium or penalty.
In the event KeyBank receives partial prepayments for
application against the Loan, such prepayments shall be applied to
installments of principal in the inverse order of maturity.
(e) REFUSAL TO MAKE FURTHER ADVANCES, ACCELERATION AND
DEFAULT. If:
(1) Borrower fails to pay any sum due on this Note
within ten (10) days of the date the same is due; or
(2) An "Event of Default", as said term is defined
in the Loan Agreement, shall have occurred;
then, and in any such event (an "Event of Default"), KeyBank may,
at its option, refuse to make any further Advances, refuse to
permit the renewal of any LIBOR Advance and declare the entire
unpaid balance of this Note together with interest accrued thereon
and any other sums due hereunder or under the Loan Agreement, to
be immediately due and payable and KeyBank may proceed to exercise
any rights or remedies that it may have under this Note or the
Loan Agreement, or such other rights and remedies which KeyBank
may have at law, equity or otherwise. In the event of such
acceleration, Borrower may discharge its obligations to KeyBank by
paying:
(i) the unpaid principal balance hereof as at the
date of such payment, plus
(ii) accrued interest computed in the manner set
forth above, plus
(iii) any Late Payment Charge computed in the manner
set forth above, plus
(iv) any other sum due and owing KeyBank under this
Note or the Loan Agreement.
(f) COSTS AND EXPENSES ON DEFAULT. After the occurrence
of an Event of Default, in addition to principal, interest and any
Late Payment Charge, KeyBank shall be entitled to collect all
costs of collection, including, but not limited to, reasonable
attorneys' fees, incurred in connection with the protection or
realization of collateral, if any, or in connection with any of
KeyBank's collection efforts, whether or not suit on this Note or
any foreclosure proceeding is filed, and all such costs and
expenses shall be payable on demand and until paid shall also be
secured by the Loan Agreement and by all other collateral held by
KeyBank as security for Borrower's obligations to KeyBank.
(g) NO WAIVER BY KEYBANK. No failure by any Guarantor of
the Loan to make any payments shall be deemed a waiver or release
of Borrower's obligations hereunder. No failure on the part of
KeyBank or other holder hereof to exercise any right or remedy
hereunder, whether before or after the happening of a default,
shall constitute a waiver thereof, and no waiver of any past
default shall constitute waiver of any future default or of any
other default. No failure to accelerate the Loan evidenced hereby
by reason of default hereunder, or acceptance of a past due
installment, or indulgence granted from time to time shall be
construed to be a waiver of the right to insist upon prompt
payment thereafter, or shall be deemed to be a novation of this
Note or as a reinstatement of the Loan evidenced hereby or as a
waiver of such right of acceleration or any other right, or be
construed so as to preclude the exercise of any right which
KeyBank may have, whether by the laws of the state governing this
Note, by agreement or otherwise; and Borrower and each endorser or
Guarantor hereby expressly waive the benefit of any statute or
rule of law or equity which would produce a result contrary to or
in conflict with the foregoing. This Note may not be changed
orally, but only by an agreement in writing signed by the party
against whom such agreement is sought to be enforced.
(h) FINANCIAL INFORMATION. Borrower will advise Lender in
writing if Borrower operates on other than a calendar year basis.
(i) WAIVER BY BORROWER. Borrower and each endorser or
Guarantor of this Note hereby waives presentment, protest, demand,
diligence, notice of dishonor and of nonpayment.
(j) COMPLIANCE WITH USURY LAWS. It is the intention of
the parties to conform strictly to the usury laws, whether state
or federal, that are applicable to this Note. All agreements
between Borrower and KeyBank, whether now existing or hereafter
arising and whether oral or written, are hereby expressly limited
so that in no contingency or event whatsoever, whether by
acceleration of maturity hereof or otherwise, shall the amount
paid or agreed to be paid to KeyBank or the holder hereof, or
collected by KeyBank or such holder, for the use, forbearance or
detention of the money to be loaned hereunder or otherwise, or for
the payment or performance of any covenant or obligation contained
herein, or in the Loan Agreement, exceed the maximum amount
permissible under applicable federal or state usury laws. If
under any circumstances whatsoever fulfillment of any provision
hereof or of the Loan Agreement, at the time performance of such
provision shall be due, shall involve exceeding the limit of
validity prescribed by law, then the obligation to be fulfilled
shall be reduced to the limit of such validity; and if under any
circumstances KeyBank or other holder hereof shall ever receive an
amount deemed interest by applicable law, which would exceed the
highest lawful rate, such amount that would be excessive interest
under applicable usury laws shall be applied to the reduction of
the principal amount owing hereunder or to other indebtedness
secured by the Loan Agreement and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of
principal and such other indebtedness, the excess shall be deemed
to have been a payment made by mistake and shall be refunded to
Borrower or to any other person making such payment on Borrower's
behalf. All sums paid or agreed to be paid to the holder hereof
for the use, forbearance or detention of the indebtedness of
Borrower evidenced hereby, outstanding from time to time shall, to
the extent permitted by applicable law, and to the extent
necessary to preclude exceeding the limit of validity prescribed
by law, be amortized, pro-rated, allocated and spread from the
date of disbursement of the proceeds of this Note until payment in
full of the Loan evidenced hereby and thereby so that the actual
rate of interest on account of such indebtedness is uniform
throughout the term hereof and thereof. The terms and provisions
of this paragraph shall control and supersede every other
provision of all agreements between Borrower, any endorser or
Guarantor and KeyBank.
(k) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Note
shall be governed by and construed under the laws of the State of
New York. Borrower and each endorser or Guarantor hereby submits
to personal jurisdiction in said state for the enforcement of
Borrower's obligations hereunder or under any other Loan Document
and waives any and all personal rights under the law of any other
state to object to jurisdiction within such state for the purposes
of litigation to enforce such obligations of Borrower.
(l) WAIVER OF JURY TRIAL. KeyBank and the Borrower hereby
waive trial by jury in any litigation in any court with respect
to, in connection with, or arising out of this Note, the Loan
Agreement or the Loan, or any instrument or document delivered in
connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other
claim or dispute howsoever arising between the Borrower and
KeyBank.
(m) AUTHORITY OF KEYBANK. Borrower authorizes KeyBank to
date this Note as of the day when the Loan is made and to complete
or correct this Note as to any terms of the Loan not set forth
herein at the time of delivery hereof.
(n) NOTICES. Any notices required or permitted to be
given hereunder shall be: (i) personally delivered or (ii) given
by registered or certified mail, postage prepaid, return receipt
requested, or (iii) forwarded by overnight courier service, in
each instance addressed to the addresses set forth at the head of
this Note, or such other addresses as the parties may for
themselves designate in writing as provided herein for the purpose
of receiving notices hereunder. All notices shall be in writing
and shall be deemed given, in the case of notice by personal
delivery, upon actual delivery, and in the case of appropriate
mail or courier service, upon deposit with the U.S. Postal Service
or delivery to the courier service.
(o) ENTIRE AGREEMENT. This Note, the Guaranties and the
Loan Agreement constitute the entire understanding between
Borrower, the Guarantors and KeyBank and to the extent that any
writings not signed by KeyBank or oral statements or conversations
at any time made or had shall be inconsistent with the provisions
of this Note, the Guaranties and the Loan Agreement, the same
shall be null and void.
IN WITNESS WHEREOF, Borrower has executed this instrument
the date first above written.
WELLCARE OF CONNECTICUT, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Treasurer
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF ULSTER )
On this 31st day of January, 1997, before me the subscriber
personally appeared Marystephanie Corsones, who being by me duly
sworn, did depose and say; that she resides in Kingston, New York,
that she is Treasurer of WELLCARE OF CONNECTICUT, INC., the
corporation described in and which executed the foregoing
instrument; and that she signed her name thereto by order of the
Board of Directors of said corporation.
/s/ Marianne Gilday
NOTARY PUBLIC
MARIANNE GILDAY
Notary Public, State of New York
Reg. #4917920
Qualified in Ulster County
Commission Expires January 19, 1998
<PAGE>
EXHIBIT "A"
ELECTION NOTICE
ADVANCE AND INTEREST RATE
FROM: WELLCARE OF CONNECTICUT, INC.
TO: KEYBANK NATIONAL ASSOCIATION (Lender)
DATE:
ADVANCE AMOUNT: $
INTEREST RATE ELECTION: LIBOR Rate
Variable Rate
INTEREST RATE ELECTION PERIOD (LIBOR Rate only)
LIBOR Period:
One Month
Three Months
Four Months
"BORROWER"
By:
Authorized Individual
<PAGE>
EXHIBIT "B"
SCHEDULE OF AUTHORIZED INDIVIDUALS
Position Name
Chief Executive Officer Robert W. Morey
President Joseph R. Papa
Chief Financial Officer Marystephanie Corsones
[DESCRIPTION] MATERIAL CONTRACT
EX-10.39h Copy of Line-of-Credit Note in the amount of
$6,000,000 dated January 31, 1997, between
WellCare of New York, Inc. and KeyBank National
Association
LINE-OF-CREDIT NOTE
$6,000,000.00 Kingston, New York
Dated: January 31, 1997
FOR VALUE RECEIVED, WELLCARE OF NEW YORK, INC., a New York
corporation with an office for the transaction of business located
at Park West Office Complex, Hurley Avenue Extension, Kingston,
New York 12401 (the "Borrower") promises to pay to the order of
KEYBANK NATIONAL ASSOCIATION, a national banking association with
an office and place of business at 66 South Pearl Street, Albany,
New York, 12207 ("KeyBank") the principal sum of Six Million and
no/100 Dollars ($6,000,000.00) or so much thereof as may be
advanced from time to time pursuant to the terms of this Note and
a loan agreement, dated on even date herewith, among Borrower,
other borrowers (the "Other Borrowers"), the Guarantors (as
defined in the Loan Agreement) and KeyBank (the "Loan Agreement")
with interest on the unpaid principal balance of such amounts as
are advanced or readvanced, as the case may be, at the Interest
Rate (as hereinafter defined). This Note evidences a portion of a
loan facility (the "Loan") made available to Borrower and the
Other Borrowers as more fully set forth in the Loan Agreement.
This Note is a Line of Credit Note referred to in the Loan
Agreement and is entitled to the benefits thereof. Payment of
this Note is guaranteed by the Guarantors pursuant to the terms of
the Guaranties (as defined in the Loan Agreement).
I
DEFINITIONS
Except as otherwise defined herein, capitalized terms used
herein shall have the following definitions:
"Advance" shall mean each advance of Loan proceeds by
KeyBank to a Borrower, each of which will be treated separately
for purposes of computing interest and each of which will accrue
interest at the Interest Rate selected by Borrower.
"Base Advance" shall mean any Advance that bears interest
determined with reference to the Base Rate.
"Base Rate" shall mean the rate of interest set, determined
or announced on a periodic basis by KeyBank National Association
as its "Base Rate" which rate of interest is not necessarily the
lowest rate charged by KeyBank National Association on loans and
other credits which may be extended by KeyBank National
Association at rates both above and below the Base Rate.
"Default Interest Rate" shall mean the applicable Interest
Rate plus four (4%) percent per annum.
"Election Notice" shall mean the Advance and Interest Rate
Election Notice which may be used by the Borrower when seeking an
Advance, said Election Notice to be in the form of Exhibit "A"
attached hereto and when delivered, to have been completed by the
Borrower to indicate an Advance amount and an Interest Rate.
"Interest Rate" shall mean the rate of interest (rounded up
to the nearest one-eighth (1/8%) percent) to be calculated
hereunder and paid by Borrower on any outstanding principal due
under this Note and shall be either the LIBOR Rate or the Variable
Rate.
"Interest Rate Election" shall mean an election on the part
of the Borrower to choose the LIBOR Rate or the Variable Rate as
the Interest Rate to be charged on an Advance.
"Interest Rate Election Period" shall mean the time period
selected by the Borrower during which interest is to accrue on an
Advance at the LIBOR Rate. An Interest Rate Election Period shall
be a term of one month, three months or four months (or, if this
Note is dated on other than the first day of a month, for the
first Interest Rate Election Period only, the time period between
the date of this Note and the last day of the month in which this
Note is dated, inclusive). In no event shall any Interest Rate
Election Period extend beyond the Maturity Date of the Loan.
"LIBOR" shall mean the rate designated under the heading
"LONDON INTERBANK OFFERED RATES" in the "Money Rates" column as
published in "The Wall Street" Journal two days prior to the date
of the LIBOR Advance for which a LIBOR Rate is being calculated
"LIBOR Advance" shall mean any Advance that bears interest
at the LIBOR Rate.
"LIBOR Period" shall mean one month, three months or four
months.
"LIBOR Rate" shall mean a fixed rate equal to LIBOR plus two
hundred seventy-five (275) basis points.
"Maturity Date" shall mean May 31, 1998.
"Variable Rate" shall mean a floating rate equal to the
Base Rate in effect from time to time.
"Variable Rate Advance" shall mean any Advance that bears
interest at the Variable Rate.
II
INTEREST
(a) COMPUTATION OF INTEREST. Interest on the outstanding
principal balance of this Note shall be computed on the basis of a
360-day year. Interest shall accrue until the Loan is repaid.
(b) INTEREST RATE CHANGE PROCEDURES. If the LIBOR Rate is
elected, it shall remain constant for the Interest Rate Election
Period. Borrower's selection of an Interest Rate Election Period.
If Borrower elects the Variable Rate, each change in the Base Rate
shall effect a corresponding change in the Variable Rate.
(c) LIBOR RATE CALCULATION PROCEDURE. If Borrower has
elected that the LIBOR Rate apply to any Advance, the LIBOR Rate
shall be calculated based on LIBOR for the LIBOR Period coinciding
with Interest Rate Election Period selected by Borrower.
(d) IMPLEMENTATION OF DEFAULT INTEREST RATE. Upon the
occurrence of an Event of Default (hereinbelow defined), the
computation of interest under this Note shall immediately and
without further action by KeyBank be based upon the Default
Interest Rate.
III
PROCEDURES FOR ADVANCES AND ELECTION NOTICES
(a) ADVANCES. Provided that no Event of Default
(hereinafter defined) and no event which but for the passage of
time, the giving of notice or both would constitute an Event of
Default, has occurred, and further provided that Borrower has met
all conditions to an Advance set forth in the Loan Agreement,
Advances shall be made available to the Borrower from time to time
in the manner set forth in this Article and information with
regard to any Advance shall be recorded and maintained by KeyBank
in its internal records and such records shall be conclusive as to
the information set forth therein, absent manifest error.
(b) PROCEDURE FOR ADVANCES AND ELECTION NOTICES. Borrower
may obtain an Advance by delivering an Election Notice signed by
any one of the Authorized Individuals on the Schedule of
Authorized Individuals attached hereto as Exhibit "B" setting
forth the amount of the Advance requested [which shall be at least
$250,000.00 if available] and indicating an Interest Rate and, if
the Advance is a LIBOR Advance, an Interest Rate Election Period
(which must terminate no later than the Maturity Date) for such
LIBOR Advance. If Borrower has elected the LIBOR Rate, said
Interest Rate as determined in accordance with the terms of this
Note at the beginning of the Interest Rate Election Period shall
remain in effect until expiration of the Interest Rate Election
Period chosen by the Borrower for that LIBOR Advance. Prior to
the end of each Interest Rate Election Period, if the amount of
the Advance remaining unpaid will not be repaid, Borrower shall
provide an Election Notice designating the Interest Rate Borrower
has elected and if the LIBOR Rate has been elected, designating a
new Interest Rate Election Period. If KeyBank does not receive
the Election Notice prior to the expiration of any Interest Rate
Election Period, and the Advance is not repaid, interest shall
accrue on that Advance at the Variable Rate until an Election
Notice is delivered. Any Advance shall be deposited by KeyBank in
an account to be opened for that purpose with KeyBank (the
"Advance Account") and the deposit of any Advance in the Advance
Account by KeyBank shall be conclusive as to the receipt of said
Advance by Borrower and Borrower will be responsible for repaying
any Advance so made pursuant to the terms of this Note.
(c) ADVANCES BY KEYBANK. KeyBank may make Advances
pursuant to the terms hereof, for the purpose of paying any sums
which have become due and payable hereunder or under any other
Loan Document. Any such Advance shall bear interest at the
Variable Rate.
(d) LIMITS ON ADVANCES. Notwithstanding any other
provision of this Note, Borrower acknowledges that at no point in
time will Key make Advances which when aggregated with any
Advances outstanding under a Line Of Credit Note from WellCare
Management Group, Inc. dated on even date herewith in the amount
of $3,000,000.00 or from WellCare of Connecticut, Inc. dated on
even date herewith in the amount of $2,000,000.00 would exceed
$6,000,000.00 (it also being understood that at no point in time
will aggregate Advances exceed the principal balance of this
Note).
IV
LIBOR RESERVE REQUIREMENT
If because of the introduction of or any change in or
because of any judicial, administrative or other governmental
interpretation of any law or regulation, there shall be any
increase in the cost to KeyBank of making, funding, maintaining or
allocating capital to any LIBOR Advance, then Borrower shall from
time to time upon demand by KeyBank pay KeyBank additional moneys
sufficient to compensate KeyBank for such increased cost.
V
PAYMENT OF PRINCIPAL AND INTEREST
PERIODIC PAYMENTS. Borrowers shall pay interest at the
applicable Interest Rate on the sums advanced hereunder beginning
on the first (1st) day of February, 1997 and continuing on the
first day of each month thereafter until the Maturity Date (or
such earlier date in the event KeyBank accelerates Borrower's
obligations hereunder), at which time, any accrued and unpaid
interest and principal must be paid.
VI
GENERAL CONDITIONS
(a) METHOD OF PAYMENT. All payments under this Note are
payable at 66 South Pearl Street, Albany, New York 12207, or at
such other place as KeyBank shall notify Borrower in writing.
KeyBank reserves the right to require any payment on this Note,
whether such payment is of a regular installment or represents a
prepayment, to be by wired federal funds or other immediately
available funds or to be paid at a place other than the above
address.
(b) APPLICATION OF PAYMENTS RECEIVED. Except as may
otherwise be provided in this Note, all payments received by
KeyBank on this Note shall be applied by KeyBank to any unpaid
Late Payment Charges (hereinbelow defined), accrued and unpaid
interest then due and owing and the reduction of principal of this
Note, in such order and in such amounts as KeyBank may determine
from time to time. Sums applied to LIBOR Advances shall be
applied first to those LIBOR Advances having Interest Rate
Election Periods which are next to expire in chronological order.
(c) LATE PAYMENT CHARGES. If Borrower fails to pay any
amount of principal and/or interest on this Note for ten (10) days
after such payment becomes due, whether by acceleration or
otherwise, KeyBank may, at its option, whether immediately or at
the time of final payment of the amounts evidenced by this Note,
impose a late payment charge (the "Late Payment Charge") computed
by multiplying the amount of each past due payment by four (4%)
percent. Until any and all Late Payment Charges are paid in full,
the amount thereof shall be added to the indebtedness secured by
the Loan Agreement. The Late Payment Charge is not a penalty and
is deemed to be liquidated damages for the purpose of compensating
KeyBank for the difficulty in computing the actual amount of
damages incurred by KeyBank as a result of the late payment by
Borrower.
(d) PREPAYMENT. The principal balance may be prepaid in
whole or in part, at any time without premium or penalty.
In the event KeyBank receives partial prepayments for
application against the Loan, such prepayments shall be applied to
installments of principal in the inverse order of maturity.
(e) REFUSAL TO MAKE FURTHER ADVANCES, ACCELERATION AND
DEFAULT. If:
(1) Borrower fails to pay any sum due on this Note
within ten (10) days of the date the same is due; or
(2) An "Event of Default", as said term is defined
in the Loan Agreement, shall have occurred;
then, and in any such event (an "Event of Default"), KeyBank may,
at its option, refuse to make any further Advances, refuse to
permit the renewal of any LIBOR Advance and declare the entire
unpaid balance of this Note together with interest accrued thereon
and any other sums due hereunder or under the Loan Agreement, to
be immediately due and payable and KeyBank may proceed to exercise
any rights or remedies that it may have under this Note or the
Loan Agreement, or such other rights and remedies which KeyBank
may have at law, equity or otherwise. In the event of such
acceleration, Borrower may discharge its obligations to KeyBank by
paying:
(i) the unpaid principal balance hereof as at the
date of such payment, plus
(ii) accrued interest computed in the manner set
forth above, plus
(iii) any Late Payment Charge computed in the manner
set forth above, plus
(iv) any other sum due and owing KeyBank under this
Note or the Loan Agreement.
(f) COSTS AND EXPENSES ON DEFAULT. After the occurrence
of an Event of Default, in addition to principal, interest and any
Late Payment Charge, KeyBank shall be entitled to collect all
costs of collection, including, but not limited to, reasonable
attorneys' fees, incurred in connection with the protection or
realization of collateral, if any, or in connection with any of
KeyBank's collection efforts, whether or not suit on this Note or
any foreclosure proceeding is filed, and all such costs and
expenses shall be payable on demand and until paid shall also be
secured by the Loan Agreement and by all other collateral held by
KeyBank as security for Borrower's obligations to KeyBank.
(g) NO WAIVER BY KEYBANK. No failure by any Guarantor of
the Loan to make any payments shall be deemed a waiver or release
of Borrower's obligations hereunder. No failure on the part of
KeyBank or other holder hereof to exercise any right or remedy
hereunder, whether before or after the happening of a default,
shall constitute a waiver thereof, and no waiver of any past
default shall constitute waiver of any future default or of any
other default. No failure to accelerate the Loan evidenced hereby
by reason of default hereunder, or acceptance of a past due
installment, or indulgence granted from time to time shall be
construed to be a waiver of the right to insist upon prompt
payment thereafter, or shall be deemed to be a novation of this
Note or as a reinstatement of the Loan evidenced hereby or as a
waiver of such right of acceleration or any other right, or be
construed so as to preclude the exercise of any right which
KeyBank may have, whether by the laws of the state governing this
Note, by agreement or otherwise; and Borrower and each endorser or
Guarantor hereby expressly waive the benefit of any statute or
rule of law or equity which would produce a result contrary to or
in conflict with the foregoing. This Note may not be changed
orally, but only by an agreement in writing signed by the party
against whom such agreement is sought to be enforced.
(h) FINANCIAL INFORMATION. Borrower will advise Lender in
writing if Borrower operates on other than a calendar year basis.
(i) WAIVER BY BORROWER. Borrower and each endorser or
Guarantor of this Note hereby waives presentment, protest, demand,
diligence, notice of dishonor and of nonpayment.
(j) COMPLIANCE WITH USURY LAWS. It is the intention of
the parties to conform strictly to the usury laws, whether state
or federal, that are applicable to this Note. All agreements
between Borrower and KeyBank, whether now existing or hereafter
arising and whether oral or written, are hereby expressly limited
so that in no contingency or event whatsoever, whether by
acceleration of maturity hereof or otherwise, shall the amount
paid or agreed to be paid to KeyBank or the holder hereof, or
collected by KeyBank or such holder, for the use, forbearance or
detention of the money to be loaned hereunder or otherwise, or for
the payment or performance of any covenant or obligation contained
herein, or in the Loan Agreement, exceed the maximum amount
permissible under applicable federal or state usury laws. If
under any circumstances whatsoever fulfillment of any provision
hereof or of the Loan Agreement, at the time performance of such
provision shall be due, shall involve exceeding the limit of
validity prescribed by law, then the obligation to be fulfilled
shall be reduced to the limit of such validity; and if under any
circumstances KeyBank or other holder hereof shall ever receive an
amount deemed interest by applicable law, which would exceed the
highest lawful rate, such amount that would be excessive interest
under applicable usury laws shall be applied to the reduction of
the principal amount owing hereunder or to other indebtedness
secured by the Loan Agreement and not to the payment of interest,
or if such excessive interest exceeds the unpaid balance of
principal and such other indebtedness, the excess shall be deemed
to have been a payment made by mistake and shall be refunded to
Borrower or to any other person making such payment on Borrower's
behalf. All sums paid or agreed to be paid to the holder hereof
for the use, forbearance or detention of the indebtedness of
Borrower evidenced hereby, outstanding from time to time shall, to
the extent permitted by applicable law, and to the extent
necessary to preclude exceeding the limit of validity prescribed
by law, be amortized, pro-rated, allocated and spread from the
date of disbursement of the proceeds of this Note until payment in
full of the Loan evidenced hereby and thereby so that the actual
rate of interest on account of such indebtedness is uniform
throughout the term hereof and thereof. The terms and provisions
of this paragraph shall control and supersede every other
provision of all agreements between Borrower, any endorser or
Guarantor and KeyBank.
(k) GOVERNING LAW; SUBMISSION TO JURISDICTION. This Note
shall be governed by and construed under the laws of the State of
New York. Borrower and each endorser or Guarantor hereby submits
to personal jurisdiction in said state for the enforcement of
Borrower's obligations hereunder or under any other Loan Document
and waives any and all personal rights under the law of any other
state to object to jurisdiction within such state for the purposes
of litigation to enforce such obligations of Borrower.
(l) WAIVER OF JURY TRIAL. KeyBank and the Borrower hereby
waive trial by jury in any litigation in any court with respect
to, in connection with, or arising out of this Note, the Loan
Agreement or the Loan, or any instrument or document delivered in
connection with the Loan, or the validity, protection,
interpretation, collection or enforcement thereof, or any other
claim or dispute howsoever arising between the Borrower and
KeyBank.
(m) AUTHORITY OF KEYBANK. Borrower authorizes KeyBank to
date this Note as of the day when the Loan is made and to complete
or correct this Note as to any terms of the Loan not set forth
herein at the time of delivery hereof.
(n) NOTICES. Any notices required or permitted to be
given hereunder shall be: (i) personally delivered or (ii) given
by registered or certified mail, postage prepaid, return receipt
requested, or (iii) forwarded by overnight courier service, in
each instance addressed to the addresses set forth at the head of
this Note, or such other addresses as the parties may for
themselves designate in writing as provided herein for the purpose
of receiving notices hereunder. All notices shall be in writing
and shall be deemed given, in the case of notice by personal
delivery, upon actual delivery, and in the case of appropriate
mail or courier service, upon deposit with the U.S. Postal Service
or delivery to the courier service.
(o) ENTIRE AGREEMENT. This Note, the Guaranties and the
Loan Agreement constitute the entire understanding between
Borrower, the Guarantors and KeyBank and to the extent that any
writings not signed by KeyBank or oral statements or conversations
at any time made or had shall be inconsistent with the provisions
of this Note, the Guaranties and the Loan Agreement, the same
shall be null and void.
IN WITNESS WHEREOF, Borrower has executed this instrument
the date first above written.
WELLCARE OF NEW YORK, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Treasurer
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF ULSTER )
On this 31st day of January, 1997, before me the subscriber
personally appeared Marystephanie Corsones, who being by me duly
sworn, did depose and say; that she resides in Kingston, New York,
that she is Treasurer of WELLCARE OF NEW YORK, INC., the
corporation described in and which executed the foregoing
instrument; and that she signed her name thereto by order of the
Board of Directors of said corporation.
/s/ Marianne Gilday
NOTARY PUBLIC
MARIANNE GILDAY
Notary Public, State of New York
Reg. #4917920
Qualified in Ulster County
Commission Expires January 19, 1998
<PAGE>
EXHIBIT "A"
ELECTION NOTICE
ADVANCE AND INTEREST RATE
FROM: WELLCARE OF NEW YORK, INC.
TO: KEYBANK NATIONAL ASSOCIATION (Lender)
DATE:
ADVANCE AMOUNT: $
INTEREST RATE ELECTION: LIBOR Rate
Variable Rate
INTEREST RATE ELECTION PERIOD (LIBOR Rate only):
LIBOR PERIOD
_____ one (1) month
_____ three (3) months
_____ four (4) months
"BORROWER"
By:
Authorized Individual
<PAGE>
EXHIBIT "B"
SCHEDULE OF AUTHORIZED INDIVIDUALS
Position Name
Chief Executive Officer Robert W. Morey
President Joseph R. Papa
Chief Financial Officer Marystephanie Corsones
[DESCRIPTION] MATERIAL CONTRACT
EX-10.39i Copy of Guaranty of Payment and Performance
dated January 31, 1997, between WellCare
Development, Inc. and Agente Benefit Consultants, Inc.
and KeyBank National Association
GUARANTY OF PAYMENT AND PERFORMANCE
THIS GUARANTY dated January 31, 1997 (the "Guaranty") from
WELLCARE DEVELOPMENT, INC. ("Development"), and AGENTE' BENEFIT
CONSULTANTS, INC. ("Consultants") each with an office for the
transaction of business at Park West Office Complex, Hurley Avenue
Extension, Kingston, New York 12401 (whether individually or if
more than one, collectively, the "Guarantor") to KEYBANK NATIONAL
ASSOCIATION, a national banking association with an office for the
transaction of business located at 66 South Pearl Street, Albany,
New York 12207 (the "Lender").
W I T N E S S E T H :
WHEREAS, THE WELLCARE MANAGEMENT GROUP, INC., WELLCARE OF
NEW YORK, INC. and WELLCARE OF CONNECTICUT, INC. (herein
collectively called the "Borrower"), are about to borrow from the
Lender an aggregate sum not to exceed Six Million and no/100ths
($6,000,000.00) Dollars, (the "Loan") pursuant to a series of
notes (collectively, the "Note") aggregating Eleven Million and
no/100 ($11,000,000.00) Dollars; and
WHEREAS, the Lender is unwilling to make the Loan to the
Borrower unless it receives this Guaranty; and
WHEREAS, the Guarantor is willing to enter into this
Guaranty in order to induce the Lender to make the Loan and the
Guarantor has approved the form and substance of any documents
executed or delivered by Borrower in connection with the Loan (the
"Loan Documents").
NOW, THEREFORE, in order to induce the Lender to make the
Loan to the Borrower and in consideration of the premises and of
other good and valuable consideration, the Guarantor intends to
guarantee absolutely and unconditionally (and jointly and
severally if there be more than one Guarantor) to the Lender, the
punctual payment of the Loan and the Notes and all extensions,
modifications or renewals thereof and all interest and other sums
due under the Note or any Loan Document and such further payment
and performance as may be set forth in Article 2 hereof.
ARTICLE 1
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
The Guarantor hereby represents and warrants to Lender (if
the Guarantor is more than one party, said representations and
warranties are made only with respect to the particular party)
that:
Section 1.1 Capacity of the Guarantor. Each Guarantor:
(A) Has the corporate authority to enter into this
Guaranty.
(B) Has an office at the address set forth at the
head of this Guaranty.
Section 1.2 No Violation of Restrictions. Neither the
execution and delivery of this Guaranty, the consummation of the
transactions contemplated hereby nor the fulfillment of or
compliance with the provisions of this Guaranty will conflict with
or result in a breach of any material terms, covenants, conditions
or provisions of any agreement, judgment or order to which any
party named as a Guarantor is a party or by which the Guarantor
is bound, or will constitute a default under any of the foregoing,
or result in the creation or imposition of any lien of any nature
whatsoever.
Section 1.3 Compliance with Law. Each party named as a
Guarantor (A) is not in violation of any law, ordinance,
governmental rule, regulation, order or judgment to which the
Guarantor may be subject or which would materially affect the
business of the Guarantor and (B) has not failed to obtain any
license, permit, franchise or other governmental authorization
necessary to the conduct of their present business.
Section 1.4 Financial Statements. The financial statements
submitted by each party named as Guarantor, including balance
sheets, statement of income, retained earnings and other related
schedules, to Lender fairly represent the financial condition as
of the date of each statement and there has been no adverse change
in the financial condition of any Guarantor since the date of the
respective statements submitted to Lender.
Section 1.5 Solvency of Guarantor and Borrower. Each party
named as a Guarantor is solvent and each Guarantor has made an
appropriate financial investigation of the Borrower and has
determined that the Borrower is solvent at the time of execution
of this Guaranty.
Section 1.6 Furtherance of Corporate Purposes. The Loan to
the Borrower is in furtherance of the corporate purposes of each
party listed as a Guarantor.
ARTICLE 2
COVENANTS AND AGREEMENTS
Section 2.1 Guaranty of Payment. The Guarantor (jointly and
severally, if there be more than one Guarantor) irrevocably,
absolutely and unconditionally guarantees to the Lender:
(A) The punctual payment of the Loan, the Note, all
principal and interest due thereunder and any other sums due under
the Note or any Loan Document.
(B) The full and prompt payment and performance of
any and all obligations of Borrower to Lender under the Loan
Documents.
Section 2.2 Obligations Unconditional. This Guaranty shall
remain in full force and effect until the Loan, the Note and all
sums due thereunder or under any Loan Document are paid in full,
irrespective of any interruptions in the business relationships of
the Borrower and the Guarantor with the Lender, and shall not be
affected, modified or impaired by any state of facts or the
happening from time to time of any event, including, without
limitation, any of the following, whether or not with notice to or
the consent of the Guarantor:
(A) The invalidity, irregularity, illegality or
unenforceability of, or any defect in, the Note or any Loan
Document or any collateral security for the Loan (the
"Collateral").
(B) Any present or future law or order of any
government (de jure or de facto) or of any agency thereof
purporting to reduce, amend or otherwise affect the Note or any
other obligation of the Borrower or any other obligor or to any
other terms of payment.
(C) The waiver, compromise, settlement, release or
termination of any or all of the obligations, covenants or
agreements of the Borrower under the Note or any Loan Documents or
of any party named as a Guarantor under this Guaranty.
(D) The failure to give notice to the Guarantor of
the occurrence of an event of default under the Note or any other
Loan Document.
(E) The loss, release, sale, exchange, surrender or
other change in any Collateral.
(F) The extension of the time for payment of any
principal of or interest on the Note or of the time for
performance of any other obligations, covenants or agreements
under or arising out of the Note or any Loan Document or the
extension or the renewal of any thereof.
(G) The modification or amendment (whether material
or otherwise) of any obligation, covenant or agreement set forth
in the Note or any Loan Document.
(H) The taking of, or the omission to take, any of
the actions referred to in the Note or any Loan Document.
(I) Any failure, omission or delay on the part of
the Lender to enforce, assert or exercise any right, power or
remedy conferred on the Lender in the Note or any Loan Document.
(J) The voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all
the assets, marshalling of assets and liabilities, receivership,
insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors or
readjustment of, or other similar proceedings affecting the
Guarantor or the Borrower or any of their assets, or any
allegation or contest of the validity of the Note or any Loan
Document.
(K) The default or failure of the Guarantor to fully
perform any obligations set forth in this Guaranty.
(L) Any event or action that would, in the absence
of this paragraph, result in the release or discharge of the
Guarantor from the performance or observance of any obligation,
covenant or agreement contained in this Guaranty.
(M) Any other circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety
or a guarantor.
Section 2.3 Waiver by Guarantor. The Guarantor hereby
waives:
(A) Notice of acceptance of this Guaranty.
(B) Diligence, presentment and demand for payment of
the Loan and/or the Note.
(C) Protest and notice of protest, dishonor or
default to the Guarantor or to any other party with respect to the
Loan.
(D) Any and all notices to which the Guarantor might
otherwise be entitled.
(E) Any demand for payment under this Guaranty.
(F) Any and all defenses to payment including,
without limitation, any defenses and counterclaims of the
Guarantor or the Borrower based upon fraud, negligence or the
failure of any condition precedent or claims of offset or defenses
involving the invalidity, irregularity or unenforceability of all
or any part of the liabilities herein guaranteed or any defense
otherwise available to the Guarantor or the Borrower.
(G) Any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other
claim which the Guarantor may now or hereafter have against the
Borrower or any other person directly or contingently liable for
the Loan guaranteed hereunder, or against or with respect to the
Borrower's property (including, without limitation, property
collateralizing the Loan), arising from the existence or
performance of this Guaranty and whether or not such claim, right
or remedy arises in equity, under contract, by statute, under
common law or otherwise.
Section 2.4 Nature of Guaranty. This Guaranty is a guaranty
of payment and not of collection and the Guarantor hereby waives
the right to require that any action be brought first against the
Borrower or any other Guarantor, or any security, or to require
that resort be made to any security or to any balance of any
deposit account on credit on the books of the Lender in favor of
the Borrower or of any Guarantor.
Section 2.5 Continuation of Guaranty. The Guarantor further
agrees that the obligations hereunder shall continue to be
effective or reinstated, as the case may be, if at any time
payment or any part thereof of the Loan or the Note is rescinded
or must otherwise be restored by the Lender upon the bankruptcy or
reorganization of the Borrower, the Guarantor or otherwise.
Section 2.6 Subordination of Debt. The Guarantor hereby
subordinates any and all indebtedness of Borrower now or hereafter
owed to Guarantor to all indebtedness of Borrower to Lender and
agrees with Lender that Guarantor shall not demand or accept any
payment from Borrower, shall not claim any offset or other
reduction of Guarantor's obligations hereunder because of any such
indebtedness and shall not take any action to obtain any interest
in any of the security described in and encumbered by the Loan
Documents; provided, however, that, if Lender so requests, such
indebtedness shall be collected, enforced and received by
Guarantor as trustee for Lender and paid over to Lender on account
of the indebtedness of Borrower to Lender, but without reducing or
affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty except to the extent the principal
amount of such outstanding indebtedness shall have been reduced by
such payment.
Section 2.7 Transfer of Interest. Guarantor agrees not to
make or permit to be made, by a voluntary or involuntary means,
any transfer of the interest of Guarantor in the Borrower, without
first obtaining the prior written consent of Lender.
ARTICLE 3
EVENTS OF DEFAULT
Section 3.1 Events of Default Defined. An "Event of
Default" shall exist if any of the following occurs:
(A) Any party named as a Guarantor fails to perform
or observe any covenant contained herein.
(B) Any warranty, representation or other statement
by or on behalf of any party named as a Guarantor contained in
this Guaranty is false or misleading in any material respect when
made.
(C) The occurrence of an event of default under any
other Loan Document.
Section 3.2 Remedies on Default. If an event of default
exists, Lender may proceed to enforce the provisions hereof and to
exercise any other rights, powers and remedies available to the
Lender.
Section 3.3 Waiver and Notice.
(A) No remedy herein conferred upon or reserved to
the Lender is intended to be exclusive of any other available
remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given
under this Guaranty now or hereafter existing at law or in equity
or by statute.
(B) No delay or omission to exercise any right or
power accruing upon the occurrence of any Event of Default shall
impair any such right or power or shall be construed to be a
waiver thereof, but any such right or power may be exercised from
time to time and as often as may be deemed expedient.
(C) In order to entitle the Lender to exercise any
remedy reserved to it in this Guaranty, it shall not be necessary
to give any notice, other than such notice as may be expressly
required in this Guaranty.
(D) No waiver, amendment, release or modification of
this Guaranty shall be established by conduct, custom or course of
dealing.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Construction. If this Guaranty is executed by
two or more parties, they shall be jointly and severally liable
hereunder and the phrase Guarantor whenever used herein shall be
construed to refer to each of the parties in the same manner and
with the same effect as if each party had signed a separate
guaranty.
Section 4.2 Governing Law. This Guaranty shall be governed
by and construed in accordance with the laws of the State of New
York.
Section 4.3 Submission to Jurisdiction. The Guarantor
hereby irrevocably and unconditionally agrees that any suit,
action or proceeding arising out of or relating to this Guaranty
shall be brought in the state courts of the State of New York or
federal district court for the Northern District of New York and
waives any right to object to jurisdiction within either of the
foregoing forums by Lender. Nothing contained herein shall
prevent Lender from bringing any suit, action or proceeding or
exercising any rights against any security and against any
Guarantor personally, and against any property of any Guarantor,
within any other jurisdiction and the initiation of such suit,
action or proceeding or taking of such action in any such other
jurisdiction shall in no event constitute a waiver of the
agreements contained herein with respect to the laws of the State
of New York governing the rights and obligations of the parties
hereto or the agreement of the Guarantor to submit to personal
jurisdiction within the State of New York.
Section 4.4 Waiver of Jury Trial. The Guarantor and Lender
agree that any suit, action or proceeding arising under or in
connection with this Guaranty shall be before a court without a
jury.
Section 4.5 Successors and Assigns. This Guaranty shall
inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
Section 4.6 Notices. Any notices required or permitted to
be given hereunder shall be: (i) personally delivered or (ii)
given by registered or certified mail, postage prepaid, return
receipt requested, or (iii) forwarded by overnight courier
service, in each instance addressed to the addresses set forth at
the head of this Guaranty, or such other addresses as the parties
may for themselves designate in writing as provided herein for the
purpose of receiving notices hereunder. All notices shall be in
writing and shall be deemed given, in the case of notice by
personal delivery, upon actual delivery, and in the case of
appropriate mail or courier service, upon deposit with the U.S.
Postal Service or delivery to the courier service.
Section 4.7 Entire Agreement. This Guaranty and the Note
and other Loan Documents constitute the entire understanding
between Borrower, the Guarantor and the Lender and to the extent
that any writings not signed by the Lender or oral statements or
conversations at any time made or had are inconsistent with the
provisions of this Guaranty, the Note or the other Loan Documents,
the same shall be null and void.
Section 4.8 Amendments. No amendment, change, modification,
alteration or termination of this Guaranty shall be made except
upon the written consent of the Lender.
Section 4.9 Assignment. This Guaranty is assignable by
Lender in whole or in part in conjunction with an assignment of
the Note and any assignment hereof or any transfer or assignment
of the Note or portions thereof shall operate to vest in any such
assignee the rights and powers, in whole or in part, as
appropriate, herein conferred upon and granted to Lender.
Section 4.10 Partial Invalidity. The invalidity or
unenforceability of any one or more phrases, sentences, clauses or
sections in this Guaranty shall not affect the validity or
enforceability of the remaining portions of the Guaranty or any
part thereof.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty
as of the day and year first above written.
WELLCARE DEVELOPMENT, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Secretary/Treasurer
AGENTE' BENEFIT CONSULTANTS, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Secretary/Treasurer
STATE OF NEW YORK )
) ss.:
COUNTY OF ULSTER )
On this 31st day of January, 1997, before me the subscriber
personally appeared Marystephanie Corsones, who being by me duly
sworn, did depose and say; that she resides in Kingston, New York,
that she is Secretary/Treasurer of WellCare Development, Inc. and
Agente' Benefit Consultants, Inc., the corporations described in
and which executed the foregoing instrument; and that she signed
her name thereto by order of the Boards of Directors of said
corporations.
/s/ Marianne Gilday
NOTARY PUBLIC
MARIANNE GILDAY
Notary Public, State of New York
Reg. #4917920
Qualified in Ulster County
Commission Expires January 19, 1998
[DESCRIPTION] MATERIAL CONTRACT
EX-10.39j Copy of Guaranty of Payment and Performance
dated January 31, 1997, between Registrant
and KeyBank National Association
GUARANTY OF PAYMENT AND PERFORMANCE
THIS GUARANTY dated January 31, 1997 (the "Guaranty") from
WELLCARE MANAGEMENT GROUP, INC., with an office for the
transaction of business at Park West Office Complex, Hurley Avenue
Extension, Kingston, New York 12401 (the "Guarantor") to KEYBANK
NATIONAL ASSOCIATION, a national banking association with an
office for the transaction of business located at 66 South Pearl
Street, Albany, New York 12207 (the "Lender").
W I T N E S S E T H :
WHEREAS, WELLCARE OF NEW YORK, INC. and WELLCARE OF
CONNECTICUT, INC. (herein collectively called the "Borrower"), are
about to borrow from the Lender an aggregate sum not to exceed Six
Million and no/100ths ($6,000,000.00) Dollars, (the "Loan")
pursuant to a series of notes (collectively, the "Note")
aggregating Eight Million and no/100 ($8,000,000.00) Dollars; and
WHEREAS, the Lender is unwilling to make the Loan to the
Borrower unless it receives this Guaranty; and
WHEREAS, the Guarantor is willing to enter into this
Guaranty in order to induce the Lender to make the Loan and the
Guarantor has approved the form and substance of any documents
executed or delivered by Borrower in connection with the Loan (the
"Loan Documents").
NOW, THEREFORE, in order to induce the Lender to make the
Loan to the Borrower and in consideration of the premises and of
other good and valuable consideration, the Guarantor intends to
guarantee absolutely and unconditionally (and jointly and
severally if there be more than one Guarantor) to the Lender, the
punctual payment of the Loan and the Notes and all extensions,
modifications or renewals thereof and all interest and other sums
due under the Note or any Loan Document and such further payment
and performance as may be set forth in Article 2 hereof.
ARTICLE 1
REPRESENTATIONS AND WARRANTIES OF THE GUARANTORS
The Guarantor hereby represents and warrants to Lender (if
the Guarantor is more than one party, said representations and
warranties are made only with respect to the particular party)
that:
Section 1.1 Capacity of the Guarantor. Each Guarantor:
(A) Has the corporate authority to enter into this
Guaranty.
(B) Has an office at the address set forth at the
head of this Guaranty.
Section 1.2 No Violation of Restrictions. Neither the
execution and delivery of this Guaranty, the consummation of the
transactions contemplated hereby nor the fulfillment of or
compliance with the provisions of this Guaranty will conflict with
or result in a breach of any material terms, covenants, conditions
or provisions of any agreement, judgment or order to which any
party named as a Guarantor is a party or by which the Guarantor
is bound, or will constitute a default under any of the foregoing,
or result in the creation or imposition of any lien of any nature
whatsoever.
Section 1.3 Compliance with Law. Each party named as a
Guarantor (A) is not in violation of any law, ordinance,
governmental rule, regulation, order or judgment to which the
Guarantor may be subject or which would materially affect the
business of the Guarantor and (B) has not failed to obtain any
license, permit, franchise or other governmental authorization
necessary to the conduct of their present business.
Section 1.4 Financial Statements. The financial statements
submitted by each party named as Guarantor, including balance
sheets, statement of income, retained earnings and other related
schedules, to Lender fairly represent the financial condition as
of the date of each statement and there has been no adverse change
in the financial condition of any Guarantor since the date of the
respective statements submitted to Lender.
Section 1.5 Solvency of Guarantor and Borrower. Each party
named as a Guarantor is solvent and each Guarantor has made an
appropriate financial investigation of the Borrower and has
determined that the Borrower is solvent at the time of execution
of this Guaranty.
Section 1.6 Furtherance of Corporate Purposes. The Loan to
the Borrower is in furtherance of the corporate purposes of each
party listed as a Guarantor.
ARTICLE 2
COVENANTS AND AGREEMENTS
Section 2.1 Guaranty of Payment. The Guarantor (jointly and
severally, if there be more than one Guarantor) irrevocably,
absolutely and unconditionally guarantees to the Lender:
(A) The punctual payment of the Loan, the Note, all
principal and interest due thereunder and any other sums due under
the Note or any Loan Document.
(B) The full and prompt payment and performance of
any and all obligations of Borrower to Lender under the Loan
Documents.
Section 2.2 Obligations Unconditional. This Guaranty shall
remain in full force and effect until the Loan, the Note and all
sums due thereunder or under any Loan Document are paid in full,
irrespective of any interruptions in the business relationships of
the Borrower and the Guarantor with the Lender, and shall not be
affected, modified or impaired by any state of facts or the
happening from time to time of any event, including, without
limitation, any of the following, whether or not with notice to or
the consent of the Guarantor:
(A) The invalidity, irregularity, illegality or
unenforceability of, or any defect in, the Note or any Loan
Document or any collateral security for the Loan (the
"Collateral").
(B) Any present or future law or order of any
government (de jure or de facto) or of any agency thereof
purporting to reduce, amend or otherwise affect the Note or any
other obligation of the Borrower or any other obligor or to any
other terms of payment.
(C) The waiver, compromise, settlement, release or termination of
any or all of the obligations, covenants or agreements of the Borrower under
the Note or any Loan Documents or of any party named as a Guarantor under
this Guaranty.
(D) The failure to give notice to the Guarantor of
the occurrence of an event of default under the Note or any other
Loan Document.
(E) The loss, release, sale, exchange, surrender or
other change in any Collateral.
(F) The extension of the time for payment of any
principal of or interest on the Note or of the time for
performance of any other obligations, covenants or agreements
under or arising out of the Note or any Loan Document or the
extension or the renewal of any thereof.
(G) The modification or amendment (whether material
or otherwise) of any obligation, covenant or agreement set forth
in the Note or any Loan Document.
(H) The taking of, or the omission to take, any of
the actions referred to in the Note or any Loan Document.
(I) Any failure, omission or delay on the part of
the Lender to enforce, assert or exercise any right, power or
remedy conferred on the Lender in the Note or any Loan Document.
(J) The voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all
the assets, marshalling of assets and liabilities, receivership,
insolvency, bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition with creditors or
readjustment of, or other similar proceedings affecting the
Guarantor or the Borrower or any of their assets, or any
allegation or contest of the validity of the Note or any Loan
Document.
(K) The default or failure of the Guarantor to fully
perform any obligations set forth in this Guaranty.
(L) Any event or action that would, in the absence
of this paragraph, result in the release or discharge of the
Guarantor from the performance or observance of any obligation,
covenant or agreement contained in this Guaranty.
(M) Any other circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety
or a guarantor.
Section 2.3 Waiver by Guarantor. The Guarantor hereby
waives:
(A) Notice of acceptance of this Guaranty.
(B) Diligence, presentment and demand for payment of
the Loan and/or the Note.
(C) Protest and notice of protest, dishonor or
default to the Guarantor or to any other party with respect to the
Loan.
(D) Any and all notices to which the Guarantor might
otherwise be entitled.
(E) Any demand for payment under this Guaranty.
(F) Any and all defenses to payment including,
without limitation, any defenses and counterclaims of the
Guarantor or the Borrower based upon fraud, negligence or the
failure of any condition precedent or claims of offset or defenses
involving the invalidity, irregularity or unenforceability of all
or any part of the liabilities herein guaranteed or any defense
otherwise available to the Guarantor or the Borrower.
(G) Any and all rights of subrogation,
reimbursement, indemnity, exoneration, contribution or any other
claim which the Guarantor may now or hereafter have against the
Borrower or any other person directly or contingently liable for
the Loan guaranteed hereunder, or against or with respect to the
Borrower's property (including, without limitation, property
collateralizing the Loan), arising from the existence or
performance of this Guaranty and whether or not such claim, right
or remedy arises in equity, under contract, by statute, under
common law or otherwise.
Section 2.4 Nature of Guaranty. This Guaranty is a guaranty
of payment and not of collection and the Guarantor hereby waives
the right to require that any action be brought first against the
Borrower or any other Guarantor, or any security, or to require
that resort be made to any security or to any balance of any
deposit account on credit on the books of the Lender in favor of
the Borrower or of any Guarantor.
Section 2.5 Continuation of Guaranty. The Guarantor further
agrees that the obligations hereunder shall continue to be
effective or reinstated, as the case may be, if at any time
payment or any part thereof of the Loan or the Note is rescinded
or must otherwise be restored by the Lender upon the bankruptcy or
reorganization of the Borrower, the Guarantor or otherwise.
Section 2.6 Subordination of Debt. The Guarantor hereby
subordinates any and all indebtedness of Borrower now or hereafter
owed to Guarantor to all indebtedness of Borrower to Lender and
agrees with Lender that Guarantor shall not demand or accept any
payment from Borrower, shall not claim any offset or other
reduction of Guarantor's obligations hereunder because of any such
indebtedness and shall not take any action to obtain any interest
in any of the security described in and encumbered by the Loan
Documents; provided, however, that, if Lender so requests, such
indebtedness shall be collected, enforced and received by
Guarantor as trustee for Lender and paid over to Lender on account
of the indebtedness of Borrower to Lender, but without reducing or
affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty except to the extent the principal
amount of such outstanding indebtedness shall have been reduced by
such payment.
Section 2.7 Transfer of Interest. Guarantor agrees not to
make or permit to be made, by a voluntary or involuntary means,
any transfer of the interest of Guarantor in the Borrower, without
first obtaining the prior written consent of Lender.
ARTICLE 3
EVENTS OF DEFAULT
Section 3.1 Events of Default Defined. An "Event of
Default" shall exist if any of the following occurs:
(A) Any party named as a Guarantor fails to perform
or observe any covenant contained herein.
(B) Any warranty, representation or other statement
by or on behalf of any party named as a Guarantor contained in
this Guaranty is false or misleading in any material respect when
made.
(C) The occurrence of an event of default under any
other Loan Document.
Section 3.2 Remedies on Default. If an event of default
exists, Lender may proceed to enforce the provisions hereof and to
exercise any other rights, powers and remedies available to the
Lender.
Section 3.3 Waiver and Notice.
(A) No remedy herein conferred upon or reserved to
the Lender is intended to be exclusive of any other available
remedy or remedies, but each and every such remedy shall be
cumulative and shall be in addition to every other remedy given
under this Guaranty now or hereafter existing at law or in equity
or by statute.
(B) No delay or omission to exercise any right or
power accruing upon the occurrence of any Event of Default shall
impair any such right or power or shall be construed to be a
waiver thereof, but any such right or power may be exercised from
time to time and as often as may be deemed expedient.
(C) In order to entitle the Lender to exercise any
remedy reserved to it in this Guaranty, it shall not be necessary
to give any notice, other than such notice as may be expressly
required in this Guaranty.
(D) No waiver, amendment, release or modification of
this Guaranty shall be established by conduct, custom or course of
dealing.
ARTICLE 4
MISCELLANEOUS
Section 4.1 Construction. If this Guaranty is executed by
two or more parties, they shall be jointly and severally liable
hereunder and the phrase Guarantor whenever used herein shall be
construed to refer to each of the parties in the same manner and
with the same effect as if each party had signed a separate
guaranty.
Section 4.2 Governing Law. This Guaranty shall be governed
by and construed in accordance with the laws of the State of New
York.
Section 4.3 Submission to Jurisdiction. The Guarantor
hereby irrevocably and unconditionally agrees that any suit,
action or proceeding arising out of or relating to this Guaranty
shall be brought in the state courts of the State of New York or
federal district court for the Northern District of New York and
waives any right to object to jurisdiction within either of the
foregoing forums by Lender. Nothing contained herein shall
prevent Lender from bringing any suit, action or proceeding or
exercising any rights against any security and against any
Guarantor personally, and against any property of any Guarantor,
within any other jurisdiction and the initiation of such suit,
action or proceeding or taking of such action in any such other
jurisdiction shall in no event constitute a waiver of the
agreements contained herein with respect to the laws of the State
of New York governing the rights and obligations of the parties
hereto or the agreement of the Guarantor to submit to personal
jurisdiction within the State of New York.
Section 4.4 Waiver of Jury Trial. The Guarantor and Lender
agree that any suit, action or proceeding arising under or in
connection with this Guaranty shall be before a court without a
jury.
Section 4.5 Successors and Assigns. This Guaranty shall
inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
Section 4.6 Notices. Any notices required or permitted to
be given hereunder shall be: (i) personally delivered or (ii)
given by registered or certified mail, postage prepaid, return
receipt requested, or (iii) forwarded by overnight courier
service, in each instance addressed to the addresses set forth at
the head of this Guaranty, or such other addresses as the parties
may for themselves designate in writing as provided herein for the
purpose of receiving notices hereunder. All notices shall be in
writing and shall be deemed given, in the case of notice by
personal delivery, upon actual delivery, and in the case of
appropriate mail or courier service, upon deposit with the U.S.
Postal Service or delivery to the courier service.
Section 4.7 Entire Agreement. This Guaranty and the Note
and other Loan Documents constitute the entire understanding
between Borrower, the Guarantor and the Lender and to the extent
that any writings not signed by the Lender or oral statements or
conversations at any time made or had are inconsistent with the
provisions of this Guaranty, the Note or the other Loan Documents,
the same shall be null and void.
Section 4.8 Amendments. No amendment, change, modification,
alteration or termination of this Guaranty shall be made except
upon the written consent of the Lender.
Section 4.9 Assignment. This Guaranty is assignable by
Lender in whole or in part in conjunction with an assignment of
the Note and any assignment hereof or any transfer or assignment
of the Note or portions thereof shall operate to vest in any such
assignee the rights and powers, in whole or in part, as
appropriate, herein conferred upon and granted to Lender.
Section 4.10 Partial Invalidity. The invalidity or
unenforceability of any one or more phrases, sentences, clauses or
sections in this Guaranty shall not affect the validity or
enforceability of the remaining portions of the Guaranty or any
part thereof.
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty
as of the day and year first above written.
WELLCARE MANAGEMENT GROUP, INC.
By /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Secretary/Treasurer
STATE OF NEW YORK )
) ss.:
COUNTY OF ULSTER )
On this 31st day of January, 1997, before me the subscriber
personally appeared Marystephanie Corsones, who being by me duly
sworn, did depose and say; that she resides in Kingston, New York,
that she is Secretary/Treasurer of WellCare Management Group, Inc.
the corporation described in and which executed the foregoing
instrument; and that she signed her name thereto by order of the
Board of Directors of said corporation.
/s/ Marianne Gilday
NOTARY PUBLIC
MARIANNE GILDAY
Notary Public, State of New York
Reg. #4917920
Qualified in Ulster County
Commission Expires January 19, 1998
[DESCRIPTION] MATERIAL CONTRACT
EX-10.39k Copy of KeyBank Letter waiving certain
financial covenants in the Loan Agreement
dated March 25, 1997
KeyBank [Logo]
66 South Pearl Street
Albany, New York 12207-1501
March 25, 1997
Ms. Marystephanie Corsones
CFO, VP of Finance
WellCare Management Group, Inc.
Park West Office Complex, Hurley Avenue Extension
Kingston, New York 12401
Dear Ms. Corsones:
Reference is made to the Loan Agreement dated January 14, 1997
among The WellCare Management Group, Inc., WellCare of New York,
Inc., WellCare of Connecticut, Inc., WellCare Development, Inc.
and Agente' Benefit Consultants, Inc. and KeyBank National
Association. Capitalized terms used herein have the definitions
ascribed to them in the Loan Agreement. You have informed us that
based upon the company's reported results for the quarter ending
12/31/96, the company will be in default of Section 5.5 of the
Loan Agreement, which requires the company to maintain a
consolidated Tangible Net Worth of $31,500,000.00. The Bank
hereby agrees to waive compliance with that covenant for the
quarter ending 12/31/96 only, and any violations which would arise
from the cross-default provisions to the real estate loans to
WellCare Development, Inc. All other terms and conditions of the
Loan Agreement shall remain in full force and effect.
Very truly yours,
KeyBank National Association
By: /s/ Cynthia D. Langer
Cynthia D. Langer
Senior Vice President
Healthcare Finance
[DESCRIPTION] MATERIAL CONTRACT
EX-10.40a Copy of Letter Agreement dated February
28, 1997, between Registrant and The
1818 Fund II, L.P.
THE 1818 FUND II, L.P.
February 28, 1997
The WellCare Management Group, Inc.
Park West/Hurley Avenue Extension
P.O. Box 4059
Kingston, NY 12401
Gentlemen:
Reference is made to (i) the Note Purchase Agreement (the
"Note Purchase Agreement") dated as of January 19, 1996, between
The WellCare Management Group, Inc., a New York corporation (the
"Company"), and The 1818 Fund II, L.P., a Delaware limited
partnership (the "Purchaser"), (ii) the 6.0% Subordinated
Convertible Note (the "Note") due December 31, 2002 issued by the
Company to the Purchaser on January 19, 1996 and (iii) the
Registration Rights Agreement (the "Registration Rights Agreement"
and, together with the Note Purchase Agreement and the Note, the
"Transaction Documents"), dated as of January 19, 1996, between
the Company and the Purchaser. Capitalized terms used but not
defined herein shall have the meanings specified in the Note
Purchase Agreement.
The Purchaser and the Company desire to effect certain
amendments to the Transaction Documents and to take certain other
actions specified herein. Therefore, for good and valuable
consideration, the sufficiency of which is hereby acknowledged,
the Purchaser and the Company hereby agree as follows:
I. Amendments of Note Purchase Agreement.
A. Amendment of Section 8.13. Section 8.13 of the Note
Purchase Agreement is hereby deleted in its entirety and replaced
by the following new Section 8.13:
"8.13 Board Representation; Management Rights.
(a) The Company shall at or prior to the Closing Date cause
one vacancy to be created on its Board of Directors (by increasing
the number of members of the Board of Directors or otherwise) and
at the Closing Date shall cause one person designated by the
Purchaser to be elected to its Board of Directors. The Company
shall at the Company's next regularly scheduled Board of Directors
meeting, but in any event on or prior to February 26, 1997, cause
one additional vacancy to be created on the Board of Directors (by
increasing the number of members of the Board of Directors or
otherwise) and shall cause one additional person designated by the
Purchaser to be elected to its Board of Directors. (The persons
elected to the Board of Directors of the Company pursuant to this
Section 8.13(a) are referred to herein as the "Purchaser
Designees.") Each Purchaser Designee shall serve until the next
annual meeting of stockholders of the Company following the
election of such Purchaser Designee to the Board of Directors.
(b) Within a reasonable time after the date (the Amendment
Effective Date") of the amendment and restatement of this Section
8.13 effected pursuant to that certain letter agreement, dated
February 26, 1997, between the Company and the Purchaser, the
Company shall use its reasonable efforts to cause two additional
persons to be elected to the Board of Directors of the Company.
Each such person shall (i) be neither an officer, director or
employee of the Company or any Subsidiary of the Company nor an
Affiliate of the Company and (ii) have experience as a director of
a public company or other relevant experience. (The persons
elected to the Board of Directors of the Company pursuant to this
Section 8.13(b) are referred to herein as the "Outside
Directors"). The qualifications that a person nominated by the
Company as an Outside Director is likely to have will include
experience serving for at least two years as the director of an
issuer (1) whose securities were listed on NASDAQ or the New York
Stock Exchange during such two-year period, (2) that has had (A)
an average equity capitalization of $200,000,000 or more and (B)
that has had positive net income (determined in accordance with
GAAP), in each case throughout the period during which such person
has served as a director thereof. Each Outside Director shall
serve until the next annual meeting of stockholders of the Company
following the election of such Outside Director to the Board of
Directors.
(c) At the annual meeting of stockholders immediately
following the Closing Date, the Purchaser Designee specified in
the first sentence of Section 8.13(a) shall be designated a Class
II director. At the next annual meeting of stockholders of the
Company following the Amendment Effective Date, the Purchaser
Designee specified in the second sentence of Section 8.13(a) and
one Outside Director shall be designated as a Class III Director
and one Outside Director shall be classified as a Class I
Director. At each annual meeting of stockholders of the Company
at which the term of any Purchaser Designee or Outside Director
shall expire, so long as the Purchaser holds (A) Common Shares, or
(B) Notes convertible (after giving effect to any adjustments)
into Common Shares, that in the aggregate represent 2% or more of
the total number of shares of common stock of the Company then
outstanding, (i) the Purchaser shall be entitled to nominate such
number of Purchaser Designees equal to the number of Purchaser
Designees whose terms shall expire at such meeting and (ii) the
Company shall use its reasonable efforts to nominate such number
of persons that meet the criteria for an Outside Director
specified in Section 8.13(b) equal to the number of Outside
Directors whose terms shall expire at such meeting. The Company
shall not amend its Certificate of Incorporation or take any other
action that will cause the Company's Board of Directors to consist
of more than twenty members. The Company shall cause each
Purchaser Nominee and Outside Director to be included in the slate
of nominees recommended by the Board of Directors to the Company's
stockholders for election as directors, and the Company shall use
its best efforts, in the case of a Purchaser Designee, or its
reasonable efforts, in the case of an Outside Director, to cause
the election of such person or persons, including voting all
shares for which the Company holds proxies (unless otherwise
directed by the stockholder submitting such proxy), or is
otherwise entitled to vote, in favor of the election of such
person or persons. The Principal Shareholders each hereby agree
that he shall vote all of his shares of common stock of the
Company, all other securities of the Company that are entitled to
vote for directors and all proxies (unless otherwise directed by
the stockholder submitting such proxy), in each case which he has
the right to vote or power to direct the vote, in favor of the
election of such Purchaser Nominees and such Outside Directors.
(d) In the event that any Purchaser Nominee shall cease to
serve as a director for any reason, other than by reason of the
Purchaser not being entitled to nominate a Purchaser Nominee as
provided in Section 8.13(c), the Company shall use its best
efforts to cause the vacancy resulting thereby to be filled by a
nominee of the Purchaser. In the event that any Outside Director
shall cease to serve as a director for any reason, other than by
reason of the Company no longer being required to use its
reasonable efforts to elect such Outside Director as provided in
Section 8.13(c), the Company shall use its reasonable efforts to
cause the vacancy resulting thereby to be filled by a person that
meets the criteria for an Outside Director specified in Section
8.13(b); provided, however, that any successor to an Outside
Director need not be reasonably acceptable to the Purchaser.
(e) If requested by the Purchaser, the Purchaser shall have
the right to consult with and advise management of the Company and
its Subsidiaries on matters relating to the business and affairs
of the Company, which right shall continue only for so long as may
be required to enable the Purchaser to qualify as a "venture
capital operating company" within the meaning of Section
2510.3-101(d) of the plan asset regulations promulgated by the
United States Department of Labor.
(f) In the event that the Board of Directors of the Company
establishes Executive, Audit and Compensation Committees (or
committees with comparable functions), at least one Purchaser
Nominee shall have the right, upon the Purchaser's request, to
serve on any such committee."
B. Addition of Section 8.15. The following new Section 8.15 is
hereby added to the Note Purchase Agreement: "8.15. Notice of
Issuance of Common Stock. Upon the issuance of any Common Shares
(including the issuance of Common Shares upon the exercise or
conversion of options, warrants or other securities exercisable
for, or convertible into, Common Shares), the Company shall
promptly provide to the Purchaser notice of such issuance, which
shall include the number of Common Shares so issued and the
purchase (or conversion or exercise) price therefor."
II. Amendments of the Note: The Note is hereby amended as
follows:
A. Amendment of Section 2: Section 2 of the note is hereby
amended by adding the following phrase to the end of the first
sentence thereof: "; provided, however, that if the Conversion
Price calculated at the termination of the Calculation Period is
less than $15.00 (appropriately adjusted for stock splits or stock
dividends), then the Company shall, from such date until the
principal amount hereof is paid in full, pay interest on the
principal amount hereof, at a rate of 5.5% per annum."
B. Amendment of Section 5.1: Section 5.1 of the Note is hereby
amended by deleting percentage "125%" from the seventh line
thereof and replacing it with the percentage "130%."
C. Amendment of Section 6.1: Section 6.1 of the Note is hereby
amended by adding the following sentence after the second sentence
thereof and before the third sentence thereof:
"Notwithstanding the forgoing, the Company may redeem the
Notes only if the approval of the Commissioner of Health of
the State of New York (the "Approval") has been obtained and
has not been withdrawn (in each case, in the reasonable
judgment of the holder), and if the Approval has not been
obtained or if obtained and has been withdrawn (in each
case, in the reasonable judgment of the holder) then the
Company shall have no right to redeem the Notes until
Approval has been obtained and has not been withdrawn (in
each case, in the reasonable judgment of the holder). Both
partners will seek to obtain the Approval as soon as
practicable after the Amendment Effective Date."
D. Amendment of Section 6.2: Section 6.2 of the Note is hereby
amended by adding the following sentence to the end thereof:
"In the event a Change of Control occurs within 24 months
after the redemption of any Notes pursuant to this Section 6
and the funds utilized to effect such redemption were
derived in whole or part from sources other than (i) cash
generated from operations of the business or (ii) borrowings
of the Company not guaranteed by third parties, the Company
shall pay to the Persons from whom such Notes were redeemed,
on the date of such Change of Control, an amount equal to
30% of the principal amount of the Notes so redeemed from
such Person."
E. Amendment of Section 7.1. Section 7.1 of the Note is hereby
amended by deleting (i) the parenthetical phrase "(as defined
below)" from the eleventh line thereof and (ii) the third sentence
thereof.
F. Amendment of Section 7.4(b). Section 7.4(b) of the Note is
hereby amended by deleting it in its entirety and replacing it
with the following:
"(b) In case the Company shall at any time or from time to
time issue or sell shares of Common Stock (or securities
convertible into or exchangeable for shares of Common Stock,
or any options, warrants or other rights to acquire shares
of Common Stock) (other than (i) options to acquire shares
of Common Stock granted on or prior to June 30, 1996 to any
officer, director, employee or consultant of the Company or
any Subsidiary of the Company or (ii) up to 100,000 shares
of Common Stock (subject to adjustment) issued upon the
exercise of those certain Stock Purchase Warrants issued by
the Company to J.J. Farrell Associates, Inc. on July 7,
1994), at a price per share less than either the Current
Market Price per share or the Conversion Price per share
then in effect at the record date referred to in the follow-
ing sentence (treating (A) the price per share of any
security convertible or exchangeable or exercisable into
shares of Common Stock as equal to (i) the sum of the price
for such security convertible, exchangeable or exercisable
into shares of Common Stock plus any additional
consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of
such security into shares of Common Stock divided by
(ii) the number of shares of Common Stock initially
underlying such convertible, exchangeable or exercisable
security and (B) the price per share of any security issued
in connection with the settlement or compromise any claim,
action, suit, proceeding or dispute or in connection with
the satisfaction of any judgment relating to the foregoing
as equal to $.01), then, and in each such case, the
Conversion Price then in effect shall be adjusted by
dividing the Conversion Price in effect on the day
immediately prior to such record date by a fraction (x) the
numerator of which shall be the sum of the number of shares
of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock issued or to be
issued (or the maximum number into which such convertible or
exchangeable securities initially may convert or exchange or
for which such options, warrants or other rights initially
may be exercised) and (y) the denominator of which shall be
the sum of the number of shares of Common Stock outstanding
on such record date plus the number of shares of Common
Stock that the aggregate consideration for the total number
of such additional shares of Common Stock so issued (or into
which such convertible or exchangeable securities may
convert or exchange or for which such options, warrants or
other rights may be exercised, plus the aggregate amount of
any additional consideration initially payable upon con-
version, exchange or exercise of such security) would pur-
chase at the greater of the Current Market Price per share
or the Conversion Price per share on such record date. Such
adjustment shall be made whenever such shares of Common
Stock, securities, options, warrants or other rights are
issued, and shall become effective retroactively to a date
immediately following the close of business on the record
date for the determination of holders of shares of Common
Stock entitled to receive such shares of Common Stock,
securities, options, warrants or other rights; provided,
however, that the determination as to whether an adjustment
is required to be made pursuant to this Section 7.4(b) shall
only be made upon the issuance of such shares of Common
Stock or such convertible or exchangeable securities,
options, warrants or other rights, and not upon the issuance
of the security into which such convertible or exchangeable
security converts or exchanges, or the security underlying
such option, warrants or other right; provided further, that
if any convertible or exchangeable securities, options,
warrants or other rights (or any portions thereof) that
shall have given rise to an adjustment pursuant to this
Section 7.4(b) shall have expired or terminated without the
exercise thereof and/or if by reason of the terms of such
convertible or exchangeable securities, options, warrants or
other rights there shall have been an increase or increases,
with the passage of time or otherwise, in the price payable
upon the exercise or conversion thereof, then the Conversion
Price hereunder shall be readjusted (but to no greater
extent than originally adjusted with respect to the related
event) on the basis of (x) eliminating from the computation
any additional shares of Common Stock corresponding to such
convertible or exchangeable securities, options, warrants or
other rights as shall have expired or terminated, (y) treat-
ing the additional shares of Common Stock, if any, actually
issued or issuable pursuant to the previous exercise of such
convertible or exchangeable securities, options, warrants or
other rights as having been issued for the consideration
actually received and receivable therefor and (z) treating
any of such convertible or exchangeable securities, options,
warrants or other rights that remain outstanding as being
subject to exercise or conversion on the basis of such exer-
cise or conversion price as shall be in effect at the time."
G. Amendment of Section 10.5. Section 10.5 of the Note is
hereby amended by deleting the amount "$40,000,000" from the
fourth line thereof and replacing it with the amount $19,500,000.
H. Addition of Section 10.6. The following new Section 10.6 is
hereby added to the Note:
10.6 Quarterly Calculation of Conversion Price. For each
quarterly period of the Company, beginning with the quarterly
period ending December 31, 1996, the Company shall prepare and
deliver a written statement to the holder of this Note within ten
(10) days following the end of such quarterly period that sets
forth a calculation of the Conversion Price of this Note then in
effect; provided, further, that such written statement shall be
accompanied by a statement of the Company's independent
accountants indicating that they have reviewed and are in
agreement with the calculation set forth in the aforementioned
statement.
I. Addition of Section 10.7. The following new Section 10.7 is
hereby added to the Note:
10.7 Repurchases during Calculation Period. Neither the
Company nor any Subsidiary or Affiliate of the Company shall,
during the Calculation Period, repurchase, contract or agree to
repurchase or make any announcement of its intent to repurchase
shares of the Company's Common Stock; provided that nothing in
this Section 10.7 shall prohibit officers and directors of the
Company from purchasing up to an aggregate of 300,000 shares of
Common Stock during the Calculation Period.
J. Amendment of Section 11.1: Section 11.1 of the Note is
hereby amended by adding the following subparagraphs (i) and (j)
to the end thereof:
"(i) The Company or any subsidiary of the Company shall
default in the payment of any indebtedness for money
borrowed having an aggregate principal amount of $250,000 or
more, or any lease obligation having aggregate rental
payments of $250,000 or more beyond any grace period
provided with respect thereto or any other event or
condition shall exist under any agreement or instrument
under which such indebtedness for money borrowed or lease
obligation is created or evidenced beyond any applicable
grace period, if the effect of such event or condition is to
cause the holder of such indebtedness for money borrowed or
lessor (or a trustee on behalf of any such holder or lessor)
to (i) cause such indebtedness for money borrowed or lease
obligation to become due prior to its date of maturity or
(ii) require the borrower or any Person that is a subsidiary
of the borrower to purchase such indebtedness for money
borrowed or assume such lease obligation; or
(j) Any action is taken by a federal, state or local
regulatory authority with respect to the Company and results
in (i) the revocation of any license necessary for the
Company to conduct its business, (ii) the Company being put
into rehabilitation or receivership or (iii) the appointment
of a Custodian for the Company or for all or substantially
all of its business or the taking of similar action."
K. Amendment of Section 12. Section 12 of the Note is hereby
amended as follows:
(i) By inserting the following new sentence after the final
sentence of the defined term Current Market Price:
"Notwithstanding the foregoing, in no event shall the
Current Market Price be less than the Conversion Price in
effect (or assumed to be in effect pursuant to clause (x) of
the definition of Conversion Price) at the time of the
determination of the Current Market Price.";
(ii) By inserting the following at the end of clause (i) of
the defined term Change of Control: "; provided that solely
for purposes of the definition of Contemplated Change of
Control', a Change of Control' in this clause (i) shall
occur when such Person or Persons become such beneficial
holders entitling them to exercise 10% or more of such total
votes"; and
(iii) By inserting the following new defined term after the
defined term Common Stock: " Conversion Price' shall mean as
of the termination of the Calculation Period, an amount
equal to 115% of the average of the Current Price of the
Common Stock for the trading days during the Calculation
Period (excluding from such calculation the five highest
Current Prices and the five lowest Current Prices during the
Calculation Period and if no Current Price is available for
any given day, such trading day shall not be included in the
determination of Conversion Price), as appropriately
adjusted for stock splits or stock dividends, subject to the
Conversion Price as so calculated being no less than $9.00
(appropriately adjusted for stock splits or stock dividends)
or more than $15.00 (appropriately adjusted for stock splits
or stock dividends); provided, however, that the Conversion
Price, as calculated in accordance with the foregoing, shall
then be adjusted for each event that occurred during the
Calculation Period that would, pursuant to Section 7.4,
result in an adjustment in the Conversion Price assuming
that on the date of any such event the Conversion Price was
the amount determined pursuant to this sentence as adjusted
for events occurring prior to such date. As of any date
after termination of the Calculation Period, "Conversion
Price" shall be calculated in accordance with the preceding
sentence (subject to adjustment for events described in
Section 7.4). Calculation Period' shall mean the period
commencing on the first trading day occurring after August
1, 1996 and terminating on the earlier of (a) the trading
day immediately preceding March 1, 1997 or (b) if
applicable, the date prior to March 1, 1997 on which the
notice required in Section 7.1 to exercise the conversion
right is delivered in accordance with the terms and
provisions of such Section 7.1; provided, however, that if a
Contemplated Change of Control shall occur on or prior to
the trading day immediately preceding March 1, 1997 or, if
applicable, the date prior to March 1, 1997 on which the
notice required in Section 7.1 to exercise the conversion
right is delivered in accordance with the terms and
provisions of such Section 7.1, then Calculation Period'
shall mean the period commencing on first trading day
occurring after August 1, 1996 and terminating on (and
including) the date which is eleven trading days preceding
the date of the Contemplated Change of Control. Current
Price' of Common Stock shall mean, on any date, the average
of the reported last bid and asked prices per share of
Common Stock on such date as reported by the National Market
System of the Nasdaq Stock Market. Contemplated Change of
Control' of the Company shall mean such time as (x) there is
an announcement or filing of any document with the
Securities Exchange Commission by the Company or any other
Person which discloses an actual, proposed or contemplated
Change of Control of the Company or (y) there is a public
announcement that the Company has or will retain
professional advisors or consider or conduct a study with
respect to alternatives that could enhance shareholder
value."
III. Amendments of the Registration Rights Agreement. The
Registration Rights Agreement is hereby amended as follows:
A. Amendment of Section 2.1(g). Section 2.1(g) of the
Registration Rights Agreement is hereby amended by deleting the
number "two" from the fourth line thereof and replacing it with
the number "three."
B. Amendments of Section 2.2(a). Section 2.2(a) of the
Registration Rights Agreement is hereby amended by:
(i) Deleting the phrase "Within eighteen months after the
"Closing Date" from the first and second lines thereof and
replacing it with the phrase "On or prior to August 14,
1997"; and
(ii) Deleting the third sentence thereof.
C. Amendment of Section 2.2(c). Section 2.2(c) of the
Registration Rights Agreement is hereby amended by deleting the
final sentence thereof.
IV. Representations and Warranties True. Except as set forth on
Schedule IV, the Company hereby represents and warrants to the
Purchaser that on and as of the date hereof, all representations
and warranties of the Company contained in any of the Transaction
Documents (other than those specified in Section 5.11, Section
5.12, Section 5.13 or, solely so far as it relates to any
representation or warranty specified in Section 5.11, 5.12 or
5.13, Section 5.21 of the Note Purchase Agreement) are true and
correct as of the date hereof as if made on the date hereof and
with the same effect as if set forth in this letter agreement.
V. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
A. Due Authorization. The execution, delivery and performance
by the Company of this Amendment have been duly authorized by all
necessary corporate action, and the provisions of this Amendment
are valid and binding obligations of the Company, enforceable in
accordance with their respective terms.
B. Governmental Authorization; Third Party Consents. No
approval, consent, exemption, authorization, or other action by,
or notice to, or filing with, any (i) Governmental Authority or
(ii) any other Person, is necessary or required in connection with
the execution, delivery or performance by the Company or enforce-
ment against the Company of this letter agreement or the
transactions contemplated hereby except, in the case of (ii) with
respect to any Contractual Obligation, any such consent or other
action that would not, individually or in the aggregate, have a
material adverse effect on the Condition of the Company if not
obtained.
C. Litigation. There are no actions, suits, proceedings,
claims or disputes pending, or to the Company's Knowledge,
threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company or any of its
Subsidiaries:
(a) with respect to this letter agreement or any of the
transactions contemplated hereby; or
(b) except as set forth on Schedule V.C, that would, if
adversely determined, (i) have a material adverse effect on the
Condition of the Company or (ii) have a material adverse effect on
the ability of the Company to perform its obligations under this
letter agreement. No injunction, writ, temporary restraining
order, decree or any order of any nature has been issued by any
court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery and performance of this letter
agreement.
D. Financial Condition. The Company heretofore has delivered
to the Purchaser true and correct copies of (i) the restated
audited consolidated financial statements of the Company and its
Subsidiaries dated as of December 31, 1994 (the "Restated
Financials"), (ii) the audited consolidated financial statements
of the Company and its Subsidiaries dated as of December 31, 1995
(the "1995 Financials"), (iii) the unaudited interim consolidated
financial statements of the Company and its Subsidiaries dated as
of March 31, 1996 (the "March 31 Interim Financials"), (iv) the
unaudited interim consolidated financial statements of the Company
and its Subsidiaries dated as of June 30, 1996 (the "June 30
Interim Financials") and (v) the unaudited interim consolidated
financial statements of the Company and its Subsidiaries dated as
of September 30, 1996 (the "September 30 Interim Financials").
Each of the Restated Financials, the 1995 Financials, the March 31
Interim Financials, the June 30 Interim Financials and the
September 30 Interim Financials have been prepared in accordance
with GAAP applied consistently throughout the periods covered
thereby and, in the case of the March 31 Interim Financials, the
June 30 Interim Financials and the September 30 Interim
Financials, except for normal recurring year-end adjustments.
Each of the Restated Financials, the 1995 Financials, the March 31
Interim Financials, the June 30 Financials and the September 30
Interim Financials presents fairly the consolidated financial
condition of the Company as of the date thereof, and the
consolidated results of operations of the Company for the period
then ended. Except as set forth on Schedule V.D., the March 31
Form 10-Q, the June 30 Form 10-Q or the September 30 10-Q (each as
defined below), neither the Company nor any of its Subsidiaries
has any material direct or indirect indebtedness, liability or
obligation, whether known or unknown, fixed or unfixed, contingent
or otherwise, and whether or not of a kind required by GAAP to be
set forth on a financial statement (collectively "Liabilities"),
other than (i) Liabilities fully and adequately reflected on the
1995 Financials and (ii) those incurred since the date of the 1995
Financials in the ordinary course of business.
E. No Material Adverse Change. Since August 14, 1996, except
as set forth in the September 30 10-Q (as defined herein) and on
Schedule V.E, there has not been any material adverse change in
the Condition of the Company, nor in the opinion of the Company's
senior management is any such change probable.
F. Annual Report on Form 10-K; Quarterly Reports on Form 10-Q;
Commission Documents.
(a) Each of (i) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 filed by the Company
with the Commission on May 31, 1996 (the "1995 Form 10-K"), (ii)
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996 filed by the Company with the
Commission on May 31, 1996 (the "March 31 10-Q"), (iii) the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996 filed by the Company with the Commission on
August 14, 1996 (the "June 30 10-Q") and (iv) the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996 filed by the Company with the Commission on
November 14, 1996 (the "September 30 10-Q") was true and accurate
in all material respects when filed with the Commission and in
compliance in all material respects with the requirements of its
report form.
(b) The Company has, since August 14, 1996, filed all
registration statements, proxy statements, reports and other
documents required to be filed by it under the Securities Act and
the Exchange Act, and all amendments thereto (collectively, the
"Commission Documents"); and the Company has furnished the
Purchaser correct and complete copies of all Commission Documents,
each as filed with the Commission, from and after August 14, 1996.
Each Commission Document was true and accurate in all material
respects when filed with the Commission and in compliance in all
material respects with the requirements of its respective report
form.
VI. Amendment and Restatement of Notes. The Company hereby
agrees that if requested to do so by the Purchaser, it will
execute an amended and restated Note (the "Amended and Restated
Note") incorporating the amendments to the note set forth in
Section II of this letter agreement. Upon delivery of the Amended
and Restated Note, the Purchaser will surrender to the Company the
Note outstanding on the date hereof (the "Old Note"). The Amended
and Restated Note shall be dated the date of, and be in the same
denomination as, the Old Note replaced by it. From and after the
date of delivery of the Amended and Restated Note, all references
in any Transaction Document, as amended hereby, to the term "Note"
or "Notes" shall be deemed to refer to the Amended and Restated
Note.
VII. Counterparts. This letter agreement may be executed in
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
VIII. Effect on Transaction Documents. The Purchaser hereby
waives any claim under the Note Purchase Agreement that, based
upon facts known to the Purchaser on the date hereof, any
representation or warranty of the Company set forth in Section
5.11, Section 5.13 (in respect to Section 5.13 solely with respect
to the financial statements and the notes thereto, Management's
Discussion and Analysis of Financial Condition and Results of
Operations and Selected Financial Information set forth in any
Commission Document) or, solely so far as it relates to any
representation or warranty specified in Section 5.11 or 5.13,
Section 5.21 was not true and correct as of the Closing Date. The
waiver by the Purchaser specified above is made specifically in
reliance upon the independent auditors report of Deloitte &
Touche, LLP contained in the 1995 Form 10-K. The Purchaser hereby
also waives (i) any violation that may have existed under Section
8.1(a) of the Agreement from April 9, 1996 through May 31, 1996,
(ii) any violation that may have existed under Section 8.1(b) of
the Agreement from May 20, 1996 through May 31, 1996, (iii) any
violation that may have existed under Section 8.2(a) or (b) or
Section 8.6(b)(i) or (ii) through the Amendment Effective Date, to
the extent any notice was required thereunder with respect to any
of the items specified in the other numbered clauses of this
sentence or relate to the Company's default under the Loan
Agreement (as defined in the Note) or the class action lawsuits
brought against the Company and certain officers and directors
alleging violation of the federal securities laws and (iv) any
violation of Section 10.5 of the Note that may have existed from
March 31, 1996 through the date hereof, and in each case any Event
of Default (as defined in the Note) that may have resulted
therefrom. Except as specifically set forth in this letter
agreement, the Transaction Documents shall remain unmodified and
in full force and effect and are hereby ratified by the parties
thereto, as amended. The Company acknowledges and agrees that
this letter agreement does not represent an intention by the
Purchaser (other than as set forth herein) to waive, modify or
forebear from exercising any of its rights, powers and privileges
under any Transaction Document and no such commitment, waiver,
modification (other than as set forth herein) or forbearance has
been offered, granted, extended or agreed, nor is any implied, by
the Purchaser.
IX. Entire Agreement. This letter agreement, together with the
Transaction Documents as amended hereby, represents the complete
understanding of the parties with respect to the subject matter
hereof.
X. Expenses. The Company shall promptly pay or reimburse to
the Purchaser the fees and expenses (including fees, expenses and
other charges of Paul, Weiss, Rifkind, Wharton & Garrison and
Coopers & Lybrand) incurred by the Purchaser 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 this letter agreement and the
transactions contemplated hereby; provided that the Company shall
not be obligated to pay more than $100,000 under this paragraph.
XI. Headings. Headings in this letter agreement are for
reference only, and shall not affect the interpretation or meaning
of any provision of this Amendment.
<PAGE>
XII. Governing law. This letter agreement shall be governed by,
and construed and interpreted in accordance with, the laws of the
State of New York applicable to agreements made and to be
performed entirely within such State.
Very truly yours,
THE 1818 FUND II, L.P.
By: Brown Brothers Harriman & Co.,
its General Partner
By: /s/ Lawrence C. Tucker
Name: Lawrence C. Tucker
Title: Partner
ACKNOWLEDGED AND AGREED:
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Joseph R. Papa
Name: Joseph R. Papa
Title: President and Chief Operating Officer
As a material inducement to the Purchaser to
enter into this letter agreement, the undersigned
hereby agrees to continue to be bound by and
perform in accordance with Sections 8.11, 8.13
(as amended by this letter agreement), 8.14 and
10.1 of the Note Purchase Agreement irrespective
of the amendments thereto effected pursuant to
this letter agreement.
/s/ Robert W. Morey, Jr.
Robert W. Morey, Jr.
/s/ Edward A. Ullmann
Edward A. Ullmann
<PAGE>
SCHEDULE IV TO LETTER AGREEMENT
DATED FEBRUARY 28, 1997
BY AND BETWEEN THE WELLCARE
MANAGEMENT GROUP, INC. AND
THE 1818 FUND II, L.P.
1. Schedules 3.16 and 5.6
See Schedule V.C.
3. Schedule 5.16
Name of Corporation State of Incorporation
WellCare of New York, Inc. New York
Agente Benefit Consultants, Inc. New York
WellCare Medical Management, Inc. New York
WellCare Development, Inc. New York
WellCare of Connecticut, Inc. Connecticut
4. Schedule 5.17
Name of Individual Type of Relationship Stock Option
Commitment
Marystephanie Corsones Chief Financial 2,000 options at
Officer, employee fair market value
on January 1 of each
contract year
(through January 1997)
Lawrence Group Consultant Stock based on a
formula of hours
worked quarterly
at a rate of
$100/hour.
J.J. Farrell
Associates, Inc. Consultant Stock Purchase
Warrants issued
July 7, 1994 which
provide for the
holder's purchase
of up to 100,000
shares based upon
a formula purchase
price.
<PAGE>
Joseph R. Papa President and 30,000 options per
Chief Operating year on each of
Officer 9/1/97, 9/1/98, and 9/1/99,
at the greater of fair
market value on the date of
the grant or $15, $20, $25,
respectively.
See also attached sheets
5. Section 5.18
See Schedule V.E.1.
6. Section 5.24
See Schedule V.E.2.
SCHEDULE V.C. TO LETTER AGREEMENT
DATED FEBRUARY 28, 1996
BY AND BETWEEN THE WELLCARE
MANAGEMENT GROUP, INC. AND
THE 1818 FUND II, L.P.
1. Hanovice v. The WellCare Management Group, Inc. In September
1995, an ophthalmologist who formerly served as a health care
provider for WellCare of New York, Inc. (the "WellCare HMO"), one
of the Company's health maintenance organizations ("HMOs"),
commenced an action in the Supreme Court of Ulster County of the
State of New York, against the Company, asserting that the Company
breached an implied covenant of good faith and fair dealing, and
"interfered" with the plaintiff's contracts, in terminating his
provider contract with the WellCare HMO. The complaint seeks
$1,000,000 in damages. In October 1995, the Company filed a
motion to dismiss, asserting that (i) the suit was filed against
an improper party, as the Company's subsidiary, not the Company,
was a party to the provider contract; (ii) damages are not
justified in any event as the plaintiff's provider contract was
"at will" and termination was properly effected thereunder; and
(iii) the plaintiff's interference claim was legally insufficient
as pleaded. By Decision and Order, dated April 10, 1996 (the
"Decision and Order"), the Company's motion to dismiss was granted
and the complaint was dismissed as against the Company. Plaintiff
thereafter served an amended complaint against WellCare HMO,
limiting Plaintiff's claim to $14,863.33. Since plaintiff has
failed to timely perfect an appeal of the Decision & Order, his
opportunity to do so has lapsed. Counsel for both parties are
currently attempting to negotiate a settlement of plaintiff's
remaining claim.
2. Rosenberg v. WellCare HMO On October 13, 1995, Justin
Rosenberg, a member covered under a WellCare HMO benefit plan (the
"Plaintiff"), commenced an action in the Supreme Court of Ulster
County of the State of New York, against WellCare HMO, asserting
that the Plaintiff had to seek emergency treatment from outside
the network because her participating primary care physician was
not available after she collapsed. On November 24, 1995 Plaintiff
serves a complaint on WellCare HMO, seeking $100,000 in damages,
plus interest from October 20, 1993, disbursements, and attorney's
fees. WellCare HMO believes the claim is without merit and will
continue to contest the action vigorously.
3. Reference is made to class action suits filed against the
Company and the SEC Formal Order of Private Investigation as set
forth in the Company's Quarterly Report of Form 10-Q for the
quarterly period ended September 30, 1996 filed by the Company
with the Securities and Exchange Commission on November 14, 1996.
4. Errol Nadler, M.D. A provider with a variety of contracts
with the Company claims that the Company owes him and his related
corporate entities approximately $140,000. No litigation has yet
been commenced. The Company believes that it has offsetting
claims and that its net liability is approximately $20,000. The
Company is currently attempting to negotiate a settlement of this
claim.
5. New York State Insurance Department Report The New York
State Insurance Department ("NYSID") has completed its triennial
audit of the Company and WellCare HMO, and issued a report thereon
dated January 10, 1997, a copy of which has been provided to
Purchaser (the "NYSID Report"). The NYSID Report includes
recommendations by NYSID with respect to the WellCare HMO and
recommends that WellCare HMO's failure to file all contracts,
riders and rates and to properly adjust the guaranteed rates of
its group contracts and knowingly charging incorrect rates be
referred to the NYSID's Office of General Counsel for disciplinary
action. By letter dated February 12, 1997, the Company indicated
the extent to which it agrees with the NYSID Report and the areas
of disagreement. By letter dated February 18, 1997, the NYSID
advised the Company that it would make no changes to the NYSID
Report.
SCHEDULE V.E. TO LETTER AGREEMENT
DATED FEBRUARY 28, 1997
BY AND BETWEEN THE WELLCARE
MANAGEMENT GROUP, INC. AND
THE 1818 FUND II, L.P.
1. Except as set forth in the NYSID Report.
2. The Company is in the process of renegotiating the
reinsurance agreement with each of Preferred Health Insurance
Company of New York and Preferred Life Insurance Company of New
York.
[DESCRIPTION] MATERIAL CONTRACT
EX-10.45a Copy of Forbearance Agreement dated
February 26, 1997, between Primergy,
Inc. and Registrant
February 26, 1997
Primergy, Inc.
Attention: Dr. Richard Weininger, President
25 Barbarosa Lane
Kingston, New York 12401
Re: $5,130,000 Promissory Note
Dear Richard:
A subsidiary of The WellCare Management Group, Inc. (such
subsidiary and its parent collectively, "WellCare") holds the
promissory note of Primergy, Inc. ("Primergy") in the principal
amount of FIVE MILLION ONE HUNDRED THIRTY THOUSAND DOLLARS
($5,130,000) with accrued interest at January 31, 1997 of $518,307
(this indebtedness, the "Obligation").
Primergy has requested WellCare, and WellCare has agreed, to
forebear on the terms and conditions of said promissory note
including all principal and interest payments now due and or
becoming due until the first to occur of: (i) March 15, 1997, if
Primergy has not executed the promissory note payable to the order
of FPA Medical Management, Inc. ("FPA"), under which FPA agrees to
loan up to $4,000,000.00 to Primergy, which note is in the form
attached hereto as Appendix A (the "FPA Note"), or FPA and
Primergy have not executed the Option Agreement in the form
appended hereto as Appendix B (the "Option Agreement") by such
date; (ii) the date on which FPA notifies Primergy that it
relinquishes any and all rights to the option to merge with
Primergy under the Option Agreement (such notice to be immediately
communicated to WellCare); (iii) the date two years after the date
of execution and delivery of the Option Agreement; (iv) the date
on which a determination by the WellCare is made that a Material
Default has occurred ("Material Default" means any default
(subject to compliance with any applicable notice or opportunity
to cure provisions) permitting the WellCare or its subsidiaries to
terminate any contract between the WellCare or any of its
subsidiaries and Primergy); or (v) the irrevocable proxy dated
February 26, 1997 granted by WellCare to FPA shall become null and
void.
Sincerely,
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Joseph R. Papa
Name: Joseph R. Papa
Title: President and Chief Operating Officer
The undersigned executes this forbearance agreement for the
purpose of reaffirming the Obligation. The undersign certifies to
WellCare the following:
(a) The undersigned has requested the
forbearance set forth in this letter.
(b) The undersigned agrees to the forbearance,
acknowledges to the present balance of the Obligation as set forth
in this letter and reaffirms each and every obligation set forth
in the promissory note in all collateral documentation.
(c) The undersigned has no claim, cause of
action or defense in connection with the Obligation. The
undersigned has no counterclaim against WellCare in connection
with the Obligation.
(d) The undersigned acknowledges that WellCare
without forbearance, could demand that the Obligation be paid
immediately and would have all remedies set forth in the documents
for a default in payment of the Obligation.
PRIMERGY, INC.
By: /s/ Richard B. Weininger, M.D.
Name: Richard B. Weininger, M.D.
Title: President
[DESCRIPTION] MATERIAL CONTRACT
EX-10.53 Copy of Registrant's 1996 Non-Incentive
Executive Stock Option Plan*
THE WELLCARE MANAGEMENT GROUP, INC.
1996 NON-INCENTIVE EXECUTIVE STOCK OPTION PLAN
1. Purpose of Plan.
The purpose of this 1996 Non-Incentive Executive Stock
Option Plan ("Plan") of The WellCare Management Group, Inc.
("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 interests of the Company.
2. Stock Subject to the Plan.
An aggregate of 650,000 shares of the Company's Common
Stock, par value $0.01 per share ("Common Stock"), subject,
however, to adjustment or change pursuant to Section 8 hereof,
shall be reserved for issuance upon the exercise of non-incentive
stock options which may be granted from time to time in accordance
with the Plan ("Options"). Such shares may be, in whole or in
part, as the Compensation Committee of the Board of Directors
("Committee") shall from time to time determine, authorized but
unissued shares or issued shares which have been reacquired by the
Company. If, for any reason, an Option shall lapse, expire or
terminate without having been exercised in full, the unpurchased
shares covered thereby shall again be available for purposes of
the Plan. Options to purchase in excess of 600,000 shares of
Common Stock may not be granted to any one senior executive.
3. Administration.
(a) The Board of Directors has appointed the Committee
from among its members to administer and help set
policy for the Plan. The Committee shall at all times
be comprised only of three or more Non-Employee
Directors (as defined in Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Exchange
Act")), and shall have and may exercise any and all of
the powers relating to the administration of the Plan
and the grant of Options thereunder as are set forth
herein. The Board of Directors shall have the power
at any time to fill vacancies in, to change the
membership of, or to discharge such Committee. The
Committee shall select one of its members as its
chairman and shall hold its meetings at such time and
at such places as it shall deem advisable. At such
meetings, a majority of the Committee shall constitute
a quorum and such majority shall determine its action;
provided, however, any action may be taken without a
meeting by written consent of all the members of the
Committee. The Committee shall keep minutes of its
proceedings and shall report the same to the Board of
Directors at the meeting next succeeding.
(b) The Committee shall administer the Plan and, subject
to the provisions of the Plan, shall have sole
authority in its discretion to determine the persons
to whom, and the time or times at which, Options shall
be granted and the number of shares to be subject to
each such Option; provided, however, that options to
purchase in excess of 600,000 shares may not be
granted to any one senior executive. In making such
determinations, the Committee may take into account
the nature of the services rendered by such persons,
their contributions and potential contributions to the
Company's success and such other factors as the
Committee in its sole discretion may deem relevant.
Subject to the express provisions of the Plan, the
Committee shall also have the authority to interpret
the Plan, to prescribe, amend and rescind rules and
regulations relating thereto, to determine the terms
and provisions of the respective Option Agreements,
and to make all other determinations necessary or
advisable for the administration of the Plan, all of
which determinations shall be conclusive and not
subject to review.
4. Eligibility for Receipt of Options.
Options may be granted only to senior executives of the
Company.
5. Option Price.
The purchase price of the shares of Common Stock under each
Option shall be determined by the Committee, which determination
shall be conclusive and not subject to review, but in no event
shall such purchase price be less than the Fair Market Value (as
defined below) of the Common Stock on the date of grant.
In determining the fair market value of the Common Stock as
of a specified date ("Fair Market Value"), the Committee shall
consider, if the Common Stock is: (a) publicly traded and listed
on the New York Stock Exchange or another national securities
exchange or The Nasdaq National Market, the closing sale price of
the Common Stock on the business day immediately preceding the
date as of which the Fair Market Value is being determined, or on
the next preceding date on which such Common Stock is traded if no
Common Stock was traded on such immediately preceding business
day, or, if the Common Stock is not so listed on a national
securities exchange or The Nasdaq National Market, but publicly
traded, the representative closing sale price in the over-the-counter market as
quoted by the National Quotation Bureau or a
recognized dealer in the Common Stock, on the date immediately
preceding the date as of which the Fair Market Value is being
determined, or on the next preceding date on which such Common
Stock is traded if no Common Stock was traded on such immediately
preceding business day; or (b) not publicly traded, the fair
market value as determined by the Committee in good faith based on
such factors as it shall deem appropriate.
6. Term and Termination of Options.
The term of each Option shall be five years from the date of
grant but shall terminate, lapse and expire at such earlier time
or times as the Committee provides in the Option Agreement
governing such Option. No Option may be exercised following its
termination, lapse or expiration.
7. Exercise of Options.
(a) Options shall be exercisable within the times or upon
the events determined by the Committee as set forth in
the Option Agreements.
(b) An Option may not be exercised for fractional shares
of the Company's Common Stock.
(c) 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 Optionholder's then present
intention to acquire the Option shares for investment
and not with a view to the distribution or resale
thereof (unless a Registration Statement covering the
shares purchasable upon exercise of the Options shall
have been declared effective by the Securities and
Exchange Commission) and upon receipt by the Company
of payment for the full purchase price of such shares.
(d) Payment for the shares of Common Stock may be made (i)
in cash or by check to the order of the Company, (ii)
by surrender of shares of Common Stock having a Fair
Market Value equal to the exercise price of the Option
or (iii) by any combination of the foregoing where
approved by the Committee in its sole discretion;
provided, however, in the event of payment for the
shares of Common Stock by method (ii) above, the
shares of Common Stock so surrendered, if originally
issued to the Optionholder upon exercise of an
Option(s) granted by the Company, must have been held
by the Optionholder for more than six months.
(e) The holder of an Option shall have none of the rights
of a shareholder with respect to the shares
purchasable upon exercise of the Option until a
certificate for such shares shall have been issued to
the holder upon due exercise of the Option.
(f) The proceeds received by the Company upon exercise of
an Option shall be added to the Company's working
capital and be available for general corporate
purposes.
8. Adjustments Upon Changes in Capitalization.
If at any time after the date of grant of an Option, the
Company shall by stock dividend, split-up, combination,
reclassification or exchange, or through merger or consolidation
or otherwise, change its shares of Common Stock into a different
number or kind or class of shares or other securities or property,
then the number of shares covered by such Option and the price per
share thereof shall be proportionately adjusted for any such
change by the Committee, whose determination thereon shall be
conclusive. In the event that a fraction of a share results from
the foregoing adjustment, said fraction shall be eliminated and
the price per share of the remaining shares subject to the Option
adjusted accordingly.
9. Vesting of Rights Under Options.
Nothing contained in the Plan or in any resolution adopted
or to be adopted by the Committee or the shareholders of the
Company shall constitute the vesting of any rights under any
Option. The vesting of such rights shall take place only when a
written Option Agreement shall be duly executed and delivered by
and on behalf of the Company and the person to whom the Option
shall be granted.
10. Withholding Taxes.
Whenever under the Plan shares are to be issued in
satisfaction of the exercise of Options granted thereunder, the
Company shall have the right to require the recipient to remit to
the Company an amount sufficient to satisfy federal, state and
local withholding tax requirements prior to the delivery of any
certificate or certificates for such shares.
11. Termination and Amendment.
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 Optionholder, materially
adversely affect the rights of a holder of an Option previously
granted under this Plan.
12. Applicable Law.
The validity, interpretation and enforcement of this Plan
shall be governed in all respects by the laws of the State of New
York and the United States of America.
13. Issuance of Shares.
The shares of Common Stock, when issued and paid for
pursuant to the Options granted hereunder, shall be fully paid and
non-assessable shares.
14. Term of Plan.
No Option shall be granted pursuant to this Plan on or after
December 22, 2006, but Options theretofore granted may extend
beyond that date and the terms of this Plan shall continue to
apply to such Options and to any shares of Common Stock acquired
upon exercise thereof.
[DESCRIPTION] MATERIAL CONTRACTS
EX-10.54 Copy of Non-Incentive Stock Option
Agreement dated December 23, 1996,
between Registrant and Robert W. Morey, Jr.*
NON-INCENTIVE STOCK OPTION AGREEMENT
To: ROBERT W. MOREY, JR.
We are pleased to notify you that by the determination of
the Compensation Committee (hereinafter called the "Committee") a
non-incentive stock option to purchase 450,000 shares of the
Common Stock of The WellCare Management Group, Inc. (herein called
the "Company") at a price of $10.00 per share has this 23rd day of
December, 1996 been granted to you under the Company's 1996 Non-Incentive
Executive Stock Option Plan (herein called the "Plan").
This option and the Plan are subject to shareholder approval and,
following such approval, this option may be exercised only upon
the terms and conditions set forth below. All capitalized terms
not herein defined shall have the meanings set forth in the Plan,
unless the context requires a different meaning.
1. Purpose of Option.
The purpose of this Plan 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 interests of the Company.
2. Acceptance of Option Agreement.
Your execution of this non-incentive stock option agreement
will indicate your acceptance of and your willingness to be bound
by its terms; it imposes no obligation upon you to purchase any of
the shares purchasable hereunder. Your obligation to purchase
shares will arise only upon your exercise of this option in the
manner set forth in Section 3 hereof.
3. When Option May Be Exercised.
If this option has not terminated, lapsed or expired
pursuant to Section 6 hereof, this option may be exercised in its
entirety prior to its expiration on December 22, 2001, but only
upon the occurrence of any of the following:
(a) If the closing sale price of the Company's Common
Stock (or the average of the closing bid and asked prices if
closing sale prices are not reported) for thirty consecutive
Trading Days (as defined below) is equal to or greater than
$20.00 per share. The term "Trading Day" shall mean a day
on which the principal national securities exchange (or The
Nasdaq National Market) on which the Common Stock is listed
or admitted to trading is open for the transaction of
business;
(b) A Change of Control (as defined below) of the Company,
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 $17.50 per share or (ii) shares of Common Stock are
purchased at 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 a Change
of Control of the Company, this option shall immediately
terminate, lapse and expire. For purposes of this Section
3, a "Change In Control" shall mean (x) the sale or other
disposition to a person, entity or group (as such term is
defined in Rule 13d-5 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of 50% or more of the
Company's consolidated assets or (y) the acquisition of 50%
or more of the outstanding shares of Common Stock by a
person or group (as such term is defined in Rule 13d-5 under
the Exchange Act);
(c) Your death or Disability. The term "Disability" shall
have the meaning set forth in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"); or
(d) The thirty day period commencing November 23, 2001 and
ending December 22, 2001.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices signifying
your election to exercise this option. The notice must state the
number of shares of Common Stock being purchased, must contain a
statement by you (in a form acceptable to the Company) that such
shares are being acquired by you for investment and not with a
view to their distribution or resale (unless a registration
statement covering the shares purchasable has been declared
effective by the Securities and Exchange Commission) and must be
accompanied by payment as set forth in Section 5 hereof for the
full purchase price of the shares being purchased, plus such
amount, if any, as is required for withholding taxes.
Notwithstanding anything herein to the contrary, this option may
not be exercised for less than fifty thousand shares at any one
time (or the remaining shares then purchasable if less than fifty
thousand).
If notice of the exercise of this option is given by a
person or persons other than you, the Company may require, as a
condition to the exercise of this option, the submission to the
Company of appropriate proof of the right of such person or
persons to exercise this option.
Certificates for shares of the Common Stock so purchased
will be issued as soon as practicable. The Company, however,
shall not be required to issue or deliver a certificate for any
shares until it has complied with all requirements of the
Securities Act of 1933, the Exchange Act, The Nasdaq National
Market or any stock exchange on which the Company's Common Stock
may then be listed and all applicable state laws in connection
with the issuance or sale of such shares or the listing of such
shares thereon. Further, in the event a registration statement
relating to the shares of Common Stock purchasable upon exercise
of this option has been declared effective by the Securities and
Exchange Commission, you agree by accepting this option to refrain
from selling or offering to sell any of the shares of Common Stock
purchasable hereunder for such reasonable period of time after the
effective date of a registration statement relating to an
underwritten offering of securities of the Company as may be
requested by the managing underwriter of such underwritten
offering and approved by the Company's Board of Directors.
Until the issuance of the certificate for such shares, you
or such other person as may be entitled to exercise this option,
shall have none of the rights of a shareholder with respect to the
shares purchasable upon exercise of this option.
5. Payment of Options.
Payment for the shares of Common Stock may be made (i) in
cash or by check payable to the order of the Company, (ii) by
surrender of shares of Common Stock having a Fair Market Value
equal to the exercise price of this option; or (iii) by any
combination of the foregoing where approved by the Committee in
its sole discretion; provided, however, in the event of payment
for the shares of Common Stock by method (ii) above, the shares of
Common Stock so surrendered, if originally issued to you upon
exercise of an option granted by the Company, must have been held
by you for more than six months.
6. Term and Termination of Options.
This option expires on December 22, 2001 at 5 p.m., New York
time, whether or not it has been duly exercised.
Notwithstanding anything herein to the contrary, this option
shall immediately terminate, lapse and expire upon the occurrence
of any of the following: (i) your refusal, prior to December 31,
1999, to act at the Company's request as Chief Executive Officer
of the Company; (ii) your refusal, prior to December 31, 2001, to
act at the Company's request as a director of the Company; (iii)
your removal as Chief Executive Officer by the Company With Cause
(as defined below) or (iv) your removal as a director by the
Company "for cause" pursuant to the procedures set forth in the
Company's charter. For purposes of this Section 6, the term "With
Cause" shall mean (a) your willful failure to perform your
reasonable responsibilities and duties attendant to your position
with the Company or (b) your indictment for any felony.
If you cease being either Chief Executive Officer or a
director of the Company other than by reason of (i) through (iv)
above, including without limitation by reason of your death or
Disability, this option shall continue in full force and effect
until its expiration on December 22, 2001.
7. Subject to Terms of the Plan.
This non-incentive stock option agreement shall be subject
in all respects to the terms and conditions of the Plan. In the
event of any question or controversy relating to the terms of the
Plan, the decision of the Committee shall be conclusive.
8. Tax Status.
This option does not qualify as an "incentive stock option"
under the provisions of Section 422 of the Code and the income tax
implications of your receipt of a non-incentive stock option and
your exercise of such an option should be discussed with your tax
counsel.
Sincerely yours,
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Vice President and
Chief Financial Officer
AGREED TO AND ACCEPTED:
/s/ Robert W. Morey, Jr.
Signature of Optionholder
NON-INCENTIVE STOCK OPTION AGREEMENT
To: ROBERT W. MOREY, JR.
We are pleased to notify you that by the determination of
the Compensation Committee (hereinafter called the "Committee") a
non-incentive stock option to purchase 150,000 shares of the
Common Stock of The WellCare Management Group, Inc. (herein called
the "Company") at a price of $15.00 per share has this 23rd day of
December, 1996 been granted to you under the Company's 1996 Non-Incentive
Executive Stock Option Plan (herein called the "Plan").
This option and the Plan are subject to shareholder approval and,
following such approval, this option may be exercised only upon
the terms and conditions set forth below. All capitalized terms
not herein defined shall have the meanings set forth in the Plan,
unless the context requires a different meaning.
1. Purpose of Option.
The purpose of this Plan 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 interests of the Company.
2. Acceptance of Option Agreement.
Your execution of this non-incentive stock option agreement
will indicate your acceptance of and your willingness to be bound
by its terms; it imposes no obligation upon you to purchase any of
the shares purchasable hereunder. Your obligation to purchase
shares will arise only upon your exercise of this option in the
manner set forth in Section 3 hereof.
3. When Option May Be Exercised.
If this option has not terminated, lapsed or expired
pursuant to Section 6 hereof, this option may be exercised in its
entirety prior to its expiration on December 22, 2001, but only
upon the occurrence of any of the following:
(a) If the closing sale price of the Company's Common
Stock (or the average of the closing bid and asked prices if
closing sale prices are not reported) for thirty consecutive
Trading Days (as defined below) is equal to or greater than
$25.00 per share. The term "Trading Day" shall mean a day
on which the principal national securities exchange (or The
Nasdaq National Market) on which the Common Stock is listed
or admitted to trading is open for the transaction of
business;
(b) A Change of Control (as defined below) of the Company,
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 $22.50 per share or (ii) shares of Common Stock are
purchased at a price equal to or greater than $22.50 per
share in the transaction implementing such Change of
Control. If neither (i) nor (ii) above occurs upon a Change
of Control of the Company, this option shall immediately
terminate, lapse and expire. For purposes of this Section
3, a "Change In Control" shall mean (x) the sale or other
disposition to a person, entity or group (as such term is
defined in Rule 13d-5 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) of 50% or more of the
Company's consolidated assets or (y) the acquisition of 50%
or more of the outstanding shares of Common Stock by a
person or group (as such term is defined in Rule 13d-5 under
the Exchange Act);
(c) Your death or Disability. The term "Disability" shall
have the meaning set forth in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code"); or
(d) The thirty day period commencing November 23, 2001 and
ending December 22, 2001.
4. How Option May Be Exercised.
This option is exercisable by a written notice signed by you
and delivered to the Company at its executive offices signifying
your election to exercise this option. The notice must state the
number of shares of Common Stock being purchased, must contain a
statement by you (in a form acceptable to the Company) that such
shares are being acquired by you for investment and not with a
view to their distribution or resale (unless a registration
statement covering the shares purchasable has been declared
effective by the Securities and Exchange Commission) and must be
accompanied by payment as set forth in Section 5 hereof for the
full purchase price of the shares being purchased, plus such
amount, if any, as is required for withholding taxes.
Notwithstanding anything herein to the contrary, this option may
not be exercised for less than fifty thousand shares at any one
time (or the remaining shares then purchasable if less than fifty
thousand).
If notice of the exercise of this option is given by a
person or persons other than you, the Company may require, as a
condition to the exercise of this option, the submission to the
Company of appropriate proof of the right of such person or
persons to exercise this option.
Certificates for shares of the Common Stock so purchased
will be issued as soon as practicable. The Company, however,
shall not be required to issue or deliver a certificate for any
shares until it has complied with all requirements of the
Securities Act of 1933, the Exchange Act, The Nasdaq National
Market or any stock exchange on which the Company's Common Stock
may then be listed and all applicable state laws in connection
with the issuance or sale of such shares or the listing of such
shares thereon. Further, in the event a registration statement
relating to the shares of Common Stock purchasable upon exercise
of this option has been declared effective by the Securities and
Exchange Commission, you agree by accepting this option to refrain
from selling or offering to sell any of the shares of Common Stock
purchasable hereunder for such reasonable period of time after the
effective date of a registration statement relating to an
underwritten offering of securities of the Company as may be
requested by the managing underwriter of such underwritten
offering and approved by the Company's Board of Directors.
Until the issuance of the certificate for such shares, you
or such other person as may be entitled to exercise this option,
shall have none of the rights of a shareholder with respect to the
shares purchasable upon exercise of this option.
5. Payment of Options.
Payment for the shares of Common Stock may be made (i) in
cash or by check payable to the order of the Company, (ii) by
surrender of shares of Common Stock having a Fair Market Value
equal to the exercise price of this option; or (iii) by any
combination of the foregoing where approved by the Committee in
its sole discretion; provided, however, in the event of payment
for the shares of Common Stock by method (ii) above, the shares of
Common Stock so surrendered, if originally issued to you upon
exercise of an option granted by the Company, must have been held
by you for more than six months.
6. Term and Termination of Options.
This option expires on December 22, 2001 at 5 p.m., New York
time, whether or not it has been duly exercised.
Notwithstanding anything herein to the contrary, this option
shall immediately terminate, lapse and expire upon the occurrence
of any of the following: (i) your refusal, prior to December 31,
1999, to act at the Company's request as Chief Executive Officer
of the Company; (ii) your refusal, prior to December 31, 2001, to
act at the Company's request as a director of the Company; (iii)
your removal as Chief Executive Officer by the Company With Cause
(as defined below) or (iv) your removal as a director by the
Company "for cause" pursuant to the procedures set forth in the
Company's charter. For purposes of this Section 6, the term "With
Cause" shall mean (a) your willful failure to perform your
reasonable responsibilities and duties attendant to your position
with the Company or (b) your indictment for any felony.
If you cease being either Chief Executive Officer or a
director of the Company other than by reason of (i) through (iv)
above, including without limitation by reason of your death or
Disability, this option shall continue in full force and effect
until its expiration on December 22, 2001.
7. Subject to Terms of the Plan.
This non-incentive stock option agreement shall be subject
in all respects to the terms and conditions of the Plan. In the
event of any question or controversy relating to the terms of the
Plan, the decision of the Committee shall be conclusive.
8. Tax Status.
This option does not qualify as an "incentive stock option"
under the provisions of Section 422 of the Code and the income tax
implications of your receipt of a non-incentive stock option and
your exercise of such an option should be discussed with your tax
counsel.
Sincerely yours,
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Marystephanie Corsones
Name: Marystephanie Corsones
Title: Vice President and
Chief Financial Officer
AGREED TO AND ACCEPTED:
/s/ Robert W. Morey, Jr.
Signature of Optionholder
[DESCRIPTION] MATERIAL CONTRACT
EX-10.55 Copy of Promissory Note in the amount of
$2,099,083.00 dated February 19, 1997,
between Primergy, Inc. and Registrant
PROMISSORY NOTE
$2,099,083.00 February 19, 1997
New York, New York
FOR VALUE RECEIVED and intending to be legally bound, the
undersigned, PRIMERGY, INC., a New York corporation (the "Maker"),
having a principal place of business at 25 Barbarosa Lane,
Kingston, New York 12401, hereby unconditionally and irrevocably
promises to pay to the order of THE WELLCARE MANAGEMENT GROUP,
INC., a New York corporation (the "Payee"), having its principal
office at Park West/Hurley Avenue Extension, Kingston, New York
12401, or at such other location as the Payee may designate to the
Maker from time to time, the principal sum of TWO MILLION NINETY-NINE THOUSAND
EIGHTY-THREE DOLLARS ($2,099,083.00) (the "Face
Amount"), with interest as set forth below, in lawful money of the
United States of America, in immediately available funds, without
set-off, deduction, defense or counterclaim of any kind
whatsoever, upon the following terms and conditions:
1. Unless an Event of Default (as defined in Section 6
hereof) occurs, interest on the unpaid Face Amount shall accrue
for the period (the "Initial Accrual Period") commencing from (and
including) February 19, 1997 and ending on the date that this
Promissory Note is repaid in full, at the variable per annum rate
equal to the sum of: (x) the Prime Rate of interest of The Chase
Manhattan Bank, N.A. (the "Reference Bank") in effect from time to
time (that rate of interest periodically established by the
Reference Bank and designated as the Reference Bank's "Prime
Rate", which rate may not be the lowest rate of interest charged
by the Reference Bank), plus (y) two percent (2%), which variable
per annum rate shall change when and as such Prime Rate shall
change (the "Base Rate"). All interest under this Promissory Note
shall be calculated on the basis of a year of three hundred sixty
(360) days for the actual number of days elapsed. Upon an Event
of Default, the Initial Accrual Period shall automatically and
immediately terminate, unless and until an Event of Default is
cured to Payee's satisfaction in Payee's sole discretion;
provided, however, that in no event shall the Initial Accrual
Period continue beyond February 18, 2002.
2. Subject to the acceleration of the maturity of this
Promissory Note in accordance with Section 6 hereof, the Maker
shall repay this Promissory Note as follows:
a. until the earlier of an Event of Default
or the Trigger Date (as defined herein), the Maker shall pay the
interest accrued on the unpaid Face Amount for the Initial Accrual
Period in accordance with Section 1 hereof, in consecutive monthly
installments, payable on the first day of each applicable month,
commencing March 1, 1997; and
b. commencing with the Trigger Date, the
Maker shall repay the amount (the "Base Amount") equal to the sum
of: (x) the unpaid Face Amount, plus (y) the interest accrued
thereon for the Initial Accrual Period in accordance with Section
1 hereof, in thirty-six (36) equal and consecutive monthly
installments, payable on the first day of each applicable month,
commencing with the first day of the month following the Trigger
Date. Interest on the unpaid portion of the Base Amount from time
to time outstanding shall accrue and be payable by the Maker with
each installment of the Base Amount, at the Base Rate.
For purposes of this Promissory Note, the "Trigger Date" shall
mean the first to occur of: (i) March 15, 1997, if Maker has not
executed the promissory note payable to the order of FPA Medical
Management, Inc. ("FPA"), under which FPA agrees to loan up to
$4,000,000.00 to Maker, which note is in the form attached hereto
as Appendix A (the "FPA Note"), or FPA and Maker have not executed
the Option Agreement in the form appended hereto as Appendix B
(the "Option Agreement") by such date; (ii) the date on which FPA
notifies Maker that it relinquishes any and all rights to the
option to merge with Maker under the Option Agreement (such notice
to be immediately communicated to Payee); (iii) the date two years
after the date of execution and delivery of the Option Agreement;
or (iv) the date on which a determination by the Payee is made
that a Material Default has occurred ("Material Default" means any
default (subject to compliance with any applicable notice or
opportunity to cure provisions) permitting the Payee or its
subsidiaries to terminate any contract between the Payee or any of
its subsidiaries and Maker).
3. Following the expiration of the Initial Accrual Period
or after the occurrence and during the continuance of an Event of
Default, interest on the unpaid Base Amount outstanding from time
to time shall bear interest from (and including) the date of
default (or expiration of the Initial Accrual Period) at the
variable per annum rate (the "Default Rate") equal to the sum of:
(x) the Prime Rate, plus (y) four percent (4%), which Default Rate
shall change when and as the Prime Rate shall change. Such
interest shall from time to time be payable on demand, in arrears.
Interest shall continue to accrue on the unpaid Base Amount at the
Default Rate notwithstanding any demand for payment, acceleration
and/or the entry of judgment for such sums.
4. Following the expiration of the Initial Accrual Period
or after the occurrence and during the continuance of an Event of
Default, the amount (the "Default Amount") of the unpaid Base
Amount shall bear interest from (and including) the date of
default (or expiration of the Initial Accrual Period) at the
Default Rate, which interest (the "Default Interest") shall from
time to time be payable on demand, in arrears. Interest shall
continue to accrue on the unpaid Default Amount at the Default
Rate notwithstanding any demand for payment, acceleration and/or
the entry of judgment for such sums. Any payments made by the
Maker following any default under this Promissory Note shall be
applied first to Default Interest due and owing, then to the costs
and expenses incurred by the Payee under Section 8 hereof and
lastly to the Base Amount or the Default Amount then outstanding,
as the case may be.
5. During the Initial Accrual Period, Maker may prepay
the unpaid Face Amount in whole or in part, together with the
payment of all interest accrued on the amount prepaid, but without
premium or penalty.
6. In the event (each, an "Event of Default") of: (a) any
amendment to the Option Agreement or the FPA Note, to which the
Payee has not granted its prior written consent; (b) a change in
control, merger or sale of substantially all of the assets of the
Maker (where "change in control" shall mean possession, directly
or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or
otherwise)), (c) the failure of the Maker to perform any term,
covenant or condition contained herein including, but not limited
to, any payment of the Base Amount or of interest hereunder when
due, (d) the failure of the Maker or any affiliate thereof to pay
when due any other indebtedness of the Maker to the Payee or to
WellCare of New York, Inc., a New York corporation ("WCNY"), or to
any of Payee's or WCNY's subsidiaries or affiliates, (e) the
failure of the Maker to pay when due any indebtedness of such
Maker to any third party in an amount equal to or exceeding
$250,000.00, (f) the commencement of any proceeding under any
bankruptcy or insolvency laws (but only, in the case of an
involuntary proceeding, if the proceeding has not been dismissed
or stayed within sixty (60) days of its commencement) by or
against the Maker, (g) the appointment of a receiver, trustee or
liquidator of any part of the property of the Maker, (h) a general
assignment for the benefit of creditors of the Maker, (i) the
Maker being unable, or admitting in writing its inability, to pay
its debts as they mature, or (j) Maker shall have prepaid
principal under the FPA Note on a basis other than a pro rata
basis with the prepayment of principal due Payee or any of its
affiliates under this Promissory Note or any other evidence of
indebtedness in proportion to the outstanding principal
indebtedness due under the FPA Note, on the one hand, and this
Promissory Note and all other indebtedness payable to the Payee
and its affiliates, on the other hand, then the Maker shall be in
default hereunder, and thereupon the entire balance outstanding
hereunder shall be immediately due and payable. The Payee shall
thereupon have the option at any time and from time to time to
exercise all rights and remedies set forth herein or otherwise
available to the Payee at law or in equity.
7. The Maker hereby waives diligence, presentment,
protest, demand for payment and notice (including, without
limitation, any and all notices of default arising under Section 6
hereof) of any kind whatsoever.
8. The Maker agrees to pay or reimburse the Payee for all
costs, expenses or losses incurred by the Payee in connection with
the collection or enforcement of the provisions hereof or of its
rights in connection with this Promissory Note (whether or not any
formal action or proceeding is commenced), including, but not
limited to, the entire amount of legal or collection fees and
disbursements incurred by the Payee.
9. No course of dealing between the Maker and the Payee
or any failure, delay or omission on the part of the Payee in
exercising any right hereunder shall operate or be construed as a
waiver of such right or any other right hereunder at any other
time or times. The waiver by the Payee of a breach or default of
any provision of this Promissory Note shall not operate or be
construed as a waiver of any subsequent breach or default thereof
or any other breach or default hereunder at any other time or
times.
10. This Promissory Note supersedes any and all other
agreements that may have been enforced between the Maker and the
Payee as to the subject matter hereof.
11. Maker shall provide Payee with copies of Maker's
financial statements and Federal and State Tax Returns on an
annual basis within one hundred twenty (120) days of Maker's
fiscal year end.
12. This Promissory Note and the rights of the parties
hereto shall be governed by and construed in accordance with the
internal laws (as opposed to the conflicts of law provisions) of
the State of New York. The Maker hereby irrevocably consents to
the nonexclusive jurisdiction of the Courts of the State of New
York or any Federal Court in such State in connection with any
action or proceeding arising out of or related to this Promissory
Note. In any such litigation, the Maker waives personal service
of any summons, complaint or other process and agrees that service
of any summons, complaint or other process may be made by
certified or registered mail to it, at the address provided
herein. THE MAKER WAIVES TRIAL BY JURY IN ANY LITIGATION ARISING
OUT OF OR RELATED TO THIS PROMISSORY NOTE.
13. This Promissory Note shall be binding upon and inure
to the benefit of the Maker and its successors and to the benefit
of the Payee and its successors and assigns. The rights and
obligations of the Maker under this Promissory Note shall not be
assigned or delegated without the prior written consent of the
Payee, and any purported assignment or delegation without such
consent shall be void.
14. The provisions of this Promissory Note are severable
and the invalidity or unenforceability of any provision shall not
alter or impair the remaining provisions of this Promissory Note.
PRIMERGY, INC.
By: /s/ Richard B. Weininger, M.D.
ATTEST:
/s/ Maryann Brown
(Corporate Seal)
[DESCRIPTION] MATERIAL CONTRACT
EX-10.56 Copy of Loan and Security Agreement
dated February 19, 1997 between
Primergy, Inc. and Registrant
LOAN AND SECURITY AGREEMENT
LOAN AND SECURITY AGREEMENT (this "Agreement"), dated as of
February 19, 1997, made by PRIMERGY, INC., a New York corporation
(the "Borrower"), having a principal place of business at 25
Barbarosa Lane, Kingston, New York 12401, in favor of THE WELLCARE
MANAGEMENT GROUP, INC. ("WCMG"), a New York corporation, having
its principal office at Park West/Hurley Avenue Extension,
Kingston, New York 12401, and WELLCARE MEDICAL MANAGEMENT, INC.
("WCMM"), a New York corporation, having its principal office at
Park West/Hurley Avenue Extension, Kingston, New York 12401
(collectively referred to as the "Lenders", and each may be
referred to as a "Lender").
W I T N E S S E T H:
WHEREAS, Borrower has issued promissory notes in favor of
WCMG in the principal amounts of $2,099,083.00 and $215,000.00,
respectively (collectively, the "WCMG Notes") and issued a
promissory note in favor of WCMM in the principal amount of
$5,130,000.00 (the "WCMM Note", and along with the WCMG Notes,
collectively hereinafter referred to as the "Lender Notes" and the
indebtedness payable under the Lender Notes, including without
limitation the principal and interest thereunder, collectively,
the "Indebtedness"); and
WHEREAS, the Lenders desire that the Borrower enter into
this Agreement to secure the Borrower's obligations to the
Lenders, including the Indebtedness, as evidenced by the Lender
Notes.
NOW, THEREFORE, in consideration of the premises and to
secure the Borrower's obligations due to the Lenders, including
the Indebtedness, Borrower hereby agrees with the Lenders for
their benefit as follows:
I. DEFINITIONS
1.1 "COLLATERAL" means all of those present or future
assets, real or personal, of the Borrower, including without
limitation the Management Agreements, in which a security interest
is granted hereunder.
1.2 "EVENT OF DEFAULT" means an event of the nature
specified in Article IV hereof.
1.3 "LIABILITY" or "LIABILITIES" means any indebtedness of
the Borrower to any Lender, including without limitation the
Indebtedness, whether now or hereafter existing under the Lender
Notes, or hereafter existing pursuant to any future indebtedness
of the Borrower to any Lender.
1.4 "LOAN DOCUMENTS" mean this Agreement and the Lender
Notes, and any amendments to or substitutions for any such
documents.
1.5 "MANAGEMENT AGREEMENTS" mean those certain Management
Agreements attached as Exhibit A hereto among the Borrower and
certain third parties, which constitute all of the management
agreements to which the Borrower is a party.
1.6 "UCC" means the Uniform Commercial Code as adopted and
in effect under the laws of the State of New York.
II. COLLATERAL
2.1 SECURITY INTEREST. In order to secure the payment in
full of all Liabilities of the Borrower to the Lenders and the
prompt and faithful performance of all other covenants, agreements
and obligations of the Borrower under the Loan Documents, the
Borrower hereby grants to the Lenders a security interest in:
(i) all of the Borrower's accounts, equipment, inventory, general
intangibles, chattel paper, instruments, documents and other
property and assets (real or personal), whether presently owned by
Borrower or hereafter acquired and wherever located; (ii) all of
the products and proceeds of all of the foregoing Collateral
(including all proceeds of insurance policies covering the
Collateral) as well as all accessions, additions, substitutions,
replacements and increments thereto; and (iii) all books and
records, including without limitation, customer lists, credit
files, computer programs, print-outs, and other computer materials
and records of Borrower pertaining to any of the foregoing items
described in clauses (i) and (ii).
2.2 ASSIGNMENT OF MANAGEMENT AGREEMENTS. Without limiting the
security interest granted in Section 2.1 hereof, in order to
secure the payment in full of all Liabilities of the Borrower to
the Lenders and the prompt and faithful performance of all other
covenants, agreements and obligations of the Borrower under the
Loan Documents, the Borrower hereby assigns, sets over, transfers
and pledges to the Lenders, and grants to the Lenders a security
interest in, all of Borrower's right, title and interest in the
Management Agreements and all replacements, renewals,
substitutions, and proceeds thereof, together with all rights
therein and all amounts payable thereunder, with full right on the
part of a Lender, in its own name or in the name of the Borrower,
to collect and enforce the Management Agreements by legal action,
proof of debt in bankruptcy or other liquidation proceedings, vote
in any proceeding for the arrangement at any time proposed, or
otherwise.
2.3 UCC TERMS. As used herein, the terms accounts, equipment,
inventory, general intangibles, chattel paper, instruments,
documents and account debtor, shall have the meaning ascribed to
the respective terms in the UCC.
2.4 CONTINUING PERFECTION. Borrower will perform any and all
steps requested by the Lenders to create and maintain in the
Lenders' favor a valid and perfected security interest in the
Collateral, including without limitation, the execution, delivery,
filing and recording of financing statements and any other
documents necessary, in the opinion of the Lenders, to protect
their interest in the Collateral.
2.5 ATTORNEY-IN-FACT. Borrower authorizes the Lenders and does
hereby make, constitute and appoint the Lenders, acting either
jointly or severally, and any officer or agent of the Lenders,
with full power of substitution, as the Borrower's true and lawful
attorney-in-fact, with power, in its own name or the name of the
Lenders, to: (a) do all acts and things which the Lenders may deem
necessary to perfect and to continue to perfect a security
interest in the liens provided for in this Agreement including,
but not limited to, executing financing statements on behalf of
the Borrower; (b) endorse any instrument of payment in respect of
the Management Agreements; (c) demand, collect, receipt for,
compromise, settle and sue for monies due in respect of the
Management Agreements, whether by legal action, proof of debt in
bankruptcy or other liquidation proceedings, or otherwise; and (d)
do, at the Lenders' option and at the Borrower's expense, all acts
and things which the Lenders determine necessary to protect,
preserve and realize upon the Collateral, all as fully and
effectually as the Lenders might or could do.
2.6 OBLIGATIONS OF LENDERS. Notwithstanding anything contained
in this Agreement to the contrary, the Lenders shall have no
obligations or liabilities by reason of or arising out of this
Agreement, nor shall the Lenders be required or obligated in any
manner to perform any obligations of the Borrower in connection
with the Management Agreements.
III. REPRESENTATIONS, COVENANTS AND WARRANTIES
The Borrower represents, covenants and warrants to the
Lenders as follows:
3.1 GOOD STANDING. The Borrower is a corporation duly organized,
validly existing and in good standing under the laws of the state
of New York.
3.2 TRADE NAMES. There are no trade or fictitious names under
which the Borrower now conducts business or is registered in any
jurisdiction.
3.3 ASSETS. There are no assets of the Borrower located outside
of the following counties of the State of New York (other than
goods in transit): Orange, Sullivan, Columbia, Greene, Ulster and
Dutchess.
3.4 SALES AND ENCUMBRANCES. Without the prior written consent of
the Lenders, the Borrower shall not: (i) other than in the
ordinary course of business, sell, loan, lease, assign, transfer,
convey or alienate the Collateral or any portion thereof, or any
interest therein; (ii) suffer or permit any mortgage lien,
security interest, encumbrance or charge of any character upon or
against the Collateral (other than the security interest granted
herein); and (iii) cancel or terminate any contract that is
Collateral (including without limitation the Management
Agreements) or consent to or accept any cancellation or
termination thereof.
3.5 PAYMENTS UNDER MANAGEMENT AGREEMENTS. Borrower may not,
without the express written consent of the Lenders, receive and
retain for its own account or the account of any other person, any
payments or prepayments of any kind whatsoever under the
Management Agreements; and any such payments and prepayments
actually received by the Borrower shall be held in trust for the
Lenders and not commingled with any other funds of the Borrower,
and shall be delivered forthwith to the Lenders for application to
the Liabilities.
3.6 CORPORATE AUTHORITY. The Borrower has the corporate power to
execute, deliver and carry out this Agreement and the Loan
Documents and its Board of Directors has duly authorized and
approved the terms of this Agreement and the Loan Documents and
the taking of any and all action contemplated herein by the
Borrower.
3.7 NO VIOLATION. The execution of this Agreement and the Loan
Documents, and the performance by the Borrower of its obligations
hereunder and thereunder, do not, at the date of execution hereof,
violate the charter or by-laws of the Borrower, or violate and/or
create a breach or default under any agreement or undertaking to
which the Borrower is a party or by which it is bound, including
without limitation, any agreement or undertaking with the Key Bank
of New York ("Key Bank").
3.8 NO LITIGATION. There are no judgments against the Borrower
as of the date of this Agreement and no material litigation or
administrative proceeding before any governmental body is
presently pending now, or to the knowledge of the Borrower,
threatened, against the Borrower or any of its property.
3.9 GOOD TITLE. On the date of this Agreement, the Borrower has
good and valid title to all of the Collateral, free and clear of
any mortgage, pledge, lien, security interest, encumbrance, charge
or title retention or other security agreement or arrangement of
any character whatsoever, except the preexisting security
interests granted to WCMM and Key Bank. The Lenders acknowledge
that the Borrower intends to grant a first priority security
interest in its assets to FPA Medical Management, Inc. ("FPA"),
which security interest will be pari passu with the first priority
security interest in the Borrower's assets previously granted by
the Borrower to Key Bank.
3.10 CONTRACTS IN FULL FORCE AND EFFECT. On the date of this
Agreement, all of the Borrower's contracts that are Collateral,
including without limitation the Management Agreements, are in
full force and effect and to the best of Borrower's knowledge,
binding upon and enforceable against all parties thereto in
accordance with their respective terms. On the date of this
Agreement, no defaults exist under said contracts by any party
thereto.
3.11 PLACE OF OFFICE, RECORDS, INVENTORY AND EQUIPMENT. Borrower
represents that its only office, which is the only location where
it keeps its records concerning its accounts, the only location of
its inventory and equipment and the only location from which it
conducts business, is located at the address for the Borrower set
forth in the first paragraph of this Agreement.
3.12 CONTROL OF ACCOUNTS. Upon the occurrence of an Event of
Default: (i) the Lenders shall have the right at any time and from
time to time, without notice, to notify account debtors of the
Borrower to make payments to the Lenders; to endorse all items of
payment which may come into its hands payable to the Borrower; to
take control of any cash or non-cash proceeds of accounts and of
any returned or repossessed goods; to compromise, extend or renew
any account or deal with it as it may deem advisable; to make
exchanges, substitutions or surrenders of Collateral and to notify
the postal authorities, after an Event of Default, to deliver all
mail, correspondence or parcels addressed to the Borrower to the
Lenders at such address as the Lenders may choose; and (ii)
Borrower herewith appoints each of the Lenders or their designees
as attorney-in-fact to endorse the Borrower's name on any checks,
notes, acceptances, drafts or any other instrument or document
requiring said endorsement and to sign the Borrower's name on any
invoice or bills of lading relating to any account, or drafts
against its customers, or schedules or confirmatory assignment on
accounts, or notices of assignment, financing statements under the
UCC, and other public records, and in verification of accounts and
in notices to account debtors.
3.13 INSPECTION. The Lenders or their designated representatives
shall have the right, at any time or times during Borrower's usual
business hours, to inspect the Collateral, all records related
thereto (and to make extracts from such records) and the premises
upon which any of the Collateral is located, to discuss the
Borrower's affairs and finances with any person and to verify in
any manner the Lenders deems advisable, the amount, quality,
quantity, value and condition of, or any other matter relating to,
the Collateral.
3.14 DUTY TO UPDATE. In the event that any of the
representations, covenants or warranties of the Borrower contained
herein ceases to be true in any respect, the Borrower shall
immediately inform the Lenders of such situation and provide all
details relating thereto.
3.15 NO CONSENT REQUIRED. The execution of this Agreement and
the Loan Documents, and the performance by the Borrower of its
obligations hereunder and thereunder, do not, at the date of
execution hereof, require the consent, approval or act of, or the
sending of any notice to, any person or entity, including without
limitation Key Bank.
IV. EVENTS OF DEFAULT
The occurrence of any of the following shall constitute an
Event of Default:
4.1 NON-PERFORMANCE. Failure on the part of Borrower to perform
any term, covenant or condition contained in any of the Loan
Documents, including, but not limited to, the payment of any
Liability when due.
4.2 MISREPRESENTATION. Any representation, covenant or warranty
made by Borrower in this Agreement, or in any of the Loan
Documents, shall have proved to have been inaccurate in any
material respect as of the date or dates with respect to which it
is deemed to have been made.
4.3 INSOLVENCY. Borrower shall have applied for or consented to
the appointment of a custodian, receiver, trustee or liquidator of
all or a substantial part of its assets; a custodian shall have
been appointed with or without consent of Borrower; Borrower is
generally not paying its debts as they become due; has made a
general assignment for the benefit of creditors; has been
adjudicated insolvent; or has filed a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or
an arrangement with creditors or to take advantage of any
insolvency law, or an answer admitting the material allegations of
a petition in any bankruptcy, reorganization or insolvency pro-
ceeding; or taken corporate action for the purpose of effecting
any of the foregoing; or an order, judgment or decree shall have
been entered, without the application, approval or consent of
Borrower by any court of competent jurisdiction approving a
petition seeking reorganization of Borrower, or appointing a
receiver, trustee, custodian or liquidator of Borrower, or a
substantial part of its assets; or a petition in bankruptcy shall
have been filed against Borrower; or if an Order for Relief has
been entered under the Bankruptcy Code for Borrower; or if the
Borrower shall have suspended the transaction of its usual
business.
4.4 JUDGMENT OR LIEN. Entry of a judgment, issuance of any
garnishment, attachment or distraint, the filing of any lien or of
any governmental attachment against any property of Borrower,
except the preexisting liens held by WCMM and Key Bank. The
Lenders acknowledge that the Borrower intends to grant a lien
against its assets to FPA.
4.5 ADVERSE CHANGE. The determination by the Lenders that a
Material Default has occurred or that there is a material adverse
change in the business or financial condition of Borrower. A
"Material Default" means any default having a material adverse
effect on the contractual relationship between the Borrower and
third parties.
V. CONSEQUENCE OF EVENT OF DEFAULT
In case any Event of Default shall have occurred, then and in
every such Event of Default, the Lenders may take any or all of the
following actions, at the same time or at different times:
5.1 ACCELERATION. Declare all amounts owing the Lenders from the
Borrower under the Loan Documents to be forthwith due and payable,
whereupon all such sums shall forthwith become due and payable,
without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived by the Borrower.
5.2 RIGHTS UNDER MANAGEMENT AGREEMENTS. The Lenders, with or
without notice to the Borrower and without demand of performance or
other demand, may forthwith exercise all rights of the Borrower
under the Management Agreements available under law, and may sell,
assign, contract to sell or otherwise dispose of and deliver the
Management Agreements as the Lenders may deem best, for cash or on
credit or for future delivery, and otherwise to exercise any and all
rights afforded to a secured party under the UCC or other applicable
law. The proceeds of any collection, recovery, receipt,
appropriation, realization, disposition or sale of the Management
Agreements shall be applied as follows:
First, to the cost and expenses of every kind incurred in
connection therewith or incidental to the collection of payments or
the care, safekeeping or otherwise of the Management Agreements or
the preparing for the sale, selling and the like, or in any way
relating to the rights of the Lenders hereunder, including the
reasonable attorneys' fees and legal expenses incurred by the
Lenders;
Second, to the satisfaction of the Liabilities;
Third, to the payment of any other amounts required by
applicable law; and
Fourth, to the Borrower to the extent of any surplus proceeds.
If the payments received by the Lenders under the Management
Agreements, or upon the sale, lease or other disposition of the
Management Agreements and the proceeds thereof are insufficient to
pay all amounts to which the Lenders are legally entitled, the
Borrower will be liable for the deficiency, together with interest
thereon, at the rate prescribed in the Promissory Note, and the
reasonable fees of any attorneys employed by the Lenders to collect
such deficiency, to the extent permitted by applicable law, the
Borrower waives all claims, damages and demands against the Lenders
arising out of the receipt of payments under the Management
Agreements or the sale of the Management Agreements.
5.3 POSSESSION. Except as set forth in Section 5.2 hereof as to
the Management Agreements, proceed with or without judicial process
to take possession of all or any part of the Collateral and the
Borrower agrees that upon receipt of notice of the Lenders'
intention to take possession of all or any part of said Collateral,
the Borrower will do everything reasonably necessary to assemble the
Collateral and make the same available to the Lenders at a place to
be designated by the Lenders. The Borrower hereby waives any and
all rights it may have, by statute, constitution or otherwise to
notice or a hearing to determine the probable cause of the Lenders
to obtain possession, by Court proceedings or otherwise, of the
Collateral.
5.4 METHODS OF SALE. So long as the Lenders act in a commercially
reasonable manner, the Lenders may assign, transfer and deliver at
any time or from time to time the whole or any portion of the
Collateral or any rights or interest therein in accordance with the
UCC, and without limiting the scope of the Lenders' rights
thereunder, the Lenders may sell the Collateral at public or private
sale, or in any other manner, at such price or prices as the Lenders
may deem best, and either for cash or credit, or for future
delivery, at the option of the Lenders, in bulk or in parcels and
with or without having the Collateral at the sale or other
disposition. The Lenders shall have the right to conduct such sales
on the Borrower's premises or elsewhere and shall have the right to
use the Borrower's premises without charge for such sales for such
time or times as the Lenders may see fit. The Lenders are hereby
granted a license or other right to use, without charge, the
Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks and advertising matter, or
any property of a similar nature, as it pertains to the Collateral,
in advertising for sale and selling any Collateral and the
Borrower's rights under all licenses and franchise agreements shall
inure to the Lenders' benefit. The Borrower agrees that a
reasonable means of disposition of accounts shall be for the Lenders
to hold and liquidate any and all accounts. In the event of a sale
of the Collateral, or any other disposition thereof, the Lenders
shall apply all proceeds first to all costs and expenses of
disposition, including attorneys' fees, and then to the Liabilities
of the Borrower to the Lenders.
5.5 ATTORNEYS' FEES AND EXPENSES. Add to the Liabilities of
Borrower, the Lenders' expenses to obtain or enforce payment of any
Liabilities and to exercise any of their other rights under the Loan
Documents, including without limitation, fees and expenses of
counsel.
VI. MISCELLANEOUS
6.1 SUBORDINATION. Notwithstanding anything contained in this
Agreement to the contrary, each Lender hereby agrees that (a) the
priority of the lien under this Agreement is junior and subordinate
to any security interests now or hereafter granted by Borrower to
Key Bank or FPA regardless of the order of attachment or perfection
of any such security interest and (b) Lender's rights and remedies
under this Agreement are subordinate to the rights and remedies of
Key Bank and FPA under any security agreement now or hereafter
entered into between Key Bank and Borrower or FPA and Borrower.
Each Lender hereby agrees to execute any documents necessary to
effect this provision promptly upon the request of Borrower, Key
Bank or FPA.
6.2 NO WAIVER. The Borrower agrees that no delay on the part of
the Lenders in exercising any power or right hereunder or any other
Loan Document shall operate as a waiver of any such power or right,
preclude any other or further exercise thereof, or the exercise of
any other power or right. No waiver whatsoever shall be valid
unless in writing signed by the Lenders and then only to the extent
set forth therein.
6.3 WAIVER OF NOTICE. The Borrower waives presentment, dishonor
and notice of dishonor, protest and notice of protest by the
Lenders.
6.4 LAW OF NEW YORK. This Agreement and the rights of the parties
hereto shall be governed by and construed in accordance with the
internal laws (as opposed to the conflicts of law provisions) of the
State of New York.
6.5 JURISDICTION. The Borrower hereby irrevocably consents to the
nonexclusive jurisdiction of the Courts of the State of New York or
any Federal Court in such State in connection with any action or
proceeding arising out of or related to this Agreement or any of the
Loan Documents. In any such litigation, the Borrower waives
personal service of any summons, complaint or other process and
agrees that service of any summons, complaint or other process may
be made by certified or registered mail to it, at the address
provided herein. THE BORROWER WAIVES TRIAL BY JURY IN ANY
LITIGATION ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE
LOAN DOCUMENTS.
6.6 SUCCESSORS OR ASSIGNS. This Agreement and all other Loan
Documents shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, administrators,
executors, legal representatives, successors and assigns.
6.7 RIGHTS CUMULATIVE. The rights and remedies herein expressed or
in any other Loan Document to be vested in or conferred upon the
Lenders shall be cumulative and shall be in addition to and not in
substitution for or in derogation of the rights and remedies
conferred upon secured creditors by the UCC or any other applicable
law.
6.8 NOTIFICATION OF DISPOSITION OF COLLATERAL. Any notification of
a sale or other disposition of the Collateral or of any other action
by the Lenders required to be given by the Lenders to the Borrower
will be sufficient if given personally or mailed to the Borrower, by
registered or certified mail (return receipt requested), to the
address set forth for the Borrower in the first paragraph of this
Agreement not less than five (5) days prior to the day on which such
sales or other disposition will be made and such notification shall
be deemed reasonable notice, notwithstanding Section 6.8 hereof.
6.9 ADDRESS FOR NOTICE. All notices and other communications
hereunder shall be of no force or effect unless in writing and shall
be deemed given when delivered personally (including by express
courier) or, if mailed by registered or certified mail (return
receipt requested), five (5) calendar days after having been so
mailed, to the parties at their respective addresses set forth in
the first paragraph hereof (or at such other address for a party as
shall be specified by like notice). Notice given by any other means
shall be deemed given upon actual receipt.
6.10 TITLES. The titles and headings indicated herein are inserted
for convenience only and shall not be considered a part of this
Agreement or in any way limit the construction or interpretation of
this Agreement.
6.11 COUNTERPARTS. This Agreement may be signed in one or more
counterparts which, taken together, shall constitute one and the
same document.
IN WITNESS WHEREOF, the Lenders have executed and delivered
this Agreement and the Borrower has caused this Agreement to be
executed and delivered by its proper and duly authorized officer as
of the day and year first above written.
PRIMERGY, INC.
BY: /s/ Richard B. Weininger, M.D.
Richard B. Weininger, M.D.
THE WELLCARE MANAGEMENT GROUP, INC.
BY: /s/ Joseph R. Papa
Joseph R. Papa
WELLCARE MEDICAL MANAGEMENT, INC.
BY: /s/ Marystephanie Corsones
Marystephanie Corsones
<PAGE>
SCHEDULE A
AGREEMENT BETWEEN
KINGSTON FAMILY MEDICINE, PC
AND
WELLCARE MEDICAL MANAGEMENT, INC.
AGREEMENT made this 8th day of October, 1992, between WellCare
Medical Management, Inc., a New York business corporation having its
principal office at 130 Meadow Avenue, Newburgh, New York 12550
(hereinafter referred to as the "Company"); and Kingston Family
Medecine, P.C., a professional services corporation having an office
at 51 Hurley Avenue, Kingston, New York 12401 (hereinafter referred
to as the "P.C.").
W I T N E S S E T H:
WHEREAS, P.C. is a New York professional services corporation
rendering professional services through employees and independent
contractors who are duly licensed to practice medicine in the State
of New York; and
WHEREAS, Company is a New York corporation in the business of
providing management, administration, and other services, facilities
and equipment to persons and entities engaged in the private
practice of medicine; and
WHEREAS, P.C. and Company desire to enter into an agreement
under which Company will make available certain managerial,
administrative and other services relating to the maintenance of its
office and to the non-professional aspects of the P.C.'s medical
practice (hereinafter referred to as the "Services").
<PAGE>
MANAGEMENT AGREEMENT
AGREEMENT made this 2 day of October, 1993, between WellCare
Medical Management, Inc., a New York business corporation having its
principal office at 130 Meadow Avenue, Newburgh, New York 12550
(hereinafter referred to as the "Company"); and Catskill Medical
Associates, P.C., a professional services corporation having an
office at 140 Pine Street, Kingston, New York 12401 (hereinafter
referred to as the "P.C.").
W I T N E S S E T H:
WHEREAS, P.C. is a New York professional services corporation
rendering professional services through employees and independent
contractors who are duly licensed to practice medicine in the State
of New York; and
WHEREAS, Company is a New York corporation in the business of
providing management, administration, and other services, facilities
and equipment to persons and entities engaged in the private
practice of medicine; and
WHEREAS, P.C. and Company desires to enter into an agreement
which Company will make available certain managerial, administrative
and other services relating to the maintenance of its office and to
the nonprofessional aspects of the P.C.'s medical practice
(hereinafter referred to as the "Services").
<PAGE>
AGREEMENT BETWEEN
WELLCARE FAMILY MEDICINE, PC
AND
WELLCARE MEDICAL MANAGEMENT, INC.
AGREEMENT made this 8 day of October 1992, between WellCare
Medical Management, Inc., a New York business corporation having its
principal office at 130 Meadow Avenue, Newburgh, New York 12550
(hereinafter referred to as the "Company"); and WellCare Family
Medicine, P.C., a professional services corporation having an office
at 40 Sunset Ridge, New Paltz, New York 12561 (hereinafter referred
to as the "P.C.").
W I T N E S S E T H:
WHEREAS, P.C. is a New York professional services corporation
rendering professional services through employees and independent
contractors who are duly licensed to practice medicine in the State
of New York; and
WHEREAS, Company is a New York corporation in the business of
providing management, administration, and other services, facilities
and equipment to persons and entities engaged in the private
practice of medicine; and
WHEREAS, P.C. and Company desire to enter into an agreement
under which Company will make available certain managerial,
administrative and other services relating to the maintenance of its
office and to the non-professional aspects of the P.C.'s medical
practice (hereinafter referred to as the "Services").
<PAGE>
MANAGEMENT AGREEMENT
BETWEEN
PRIMERGY, INC.
AND
VALLEY MEDICAL SERVICES, P.C.
This Agreement is made and entered into as of this first day
of October, 1995, by and between Valley Medical Services, PC, a
professional corporation organized under the laws of the State of
New York (hereinafter referred to as "VMS") and PrimErgy, Inc., a
New York State health management company (hereinafter referred to as
"PrimErgy").
WHEREAS, VMS has contracted with physicians, both primary and
specialty care, to arrange for health care services under a risk
contract; and
WHEREAS, VMS will solicit with third party payors to establish
risk or a global budget contract for the provision of health care
services; and
WHEREAS, VMS desires to engage PrimErgy to perform management
services described in "Attachment A".
NOW, THEREFORE, VMS hereby agrees to contract with PrimErgy to
supervise and manage the day-to-day operations and to perform the
specific functions and contract services set forth in this
Agreement. The Board of Directors of VMS has duly authorized the
execution and performance of this Agreement and the Agreement is a
valid and binding agreement.
1. As compensation for services rendered, VMS shall pay PrimErgy
the following:
A. The sum of 1.5% of the monthly capitation received from
each third party payor up to a maximum monthly fee per
payor of Fifty Thousand ($50,000) Dollars. Monthly fee
shall cover all services provided by PrimErgy to VMS
from its corporate staff located in Kingston, New York.
This shall include, but not be limited to:
* Board/advisory committee management
* Case management services
* Outcome review
* Presentation of utilization management
report
* Extended member education, including home
visits
* Concurrent review of inpatient admissions
* Special data reporting
B The cost for all employees for the day-to-day operations
of VMS shall be the responsibility of PrimErgy, except
for the employees allocated for administrative functions
as defined in "Attachment A", as well as board or
advisory committee stipends or related expenses. VMS
board shall authorize administrative function expenses
as a total cost in the annual line item budget. The
budget shall depict employees as either full-time, part-time or
regionally shared positions and will include a
fixed twenty percent (20%) charge on gross salaries to
cover fringe benefits, taxes, and bonus arrangements.
If PrimErgy deems it necessary to expend additional
monies above ten percent (10%) of the Board approved
budgetary allocation for personnel expenses, it must
first receive the approval of the VMS Board.
MANAGEMENT AGREEMENT
BETWEEN
PRIMERGY, INC.
AND
HUDSON VALLEY FAMILY HEALTH, PC
This Agreement is made and entered into as of this first day
of October, 1995, by and between Hudson Valley Family Health, PC, a
professional corporation organized under the laws of the State of
New York (hereinafter referred to as "HVFH") and PrimErgy, Inc., a
New York State health management company (hereinafter referred to as
"PrimErgy").
WHEREAS, HVFH has contracted with physicians, both primary and
specialty care, to arrange for health care services under a risk
contract; and
WHEREAS, HVFH will solicit with third party payors to
establish risk or a global budget contract for the provision of
health care services; and
WHEREAS, HVFH desires to engage PrimErgy to perform management
services described in "Attachment A".
NOW, THEREFORE, HVFH hereby agrees to contract with PrimErgy
to supervise and manage the day-to-day operations and to perform the
specific functions and contract services set forth in this
Agreement. The Board of Directors of HVFH has duly authorized the
execution and performance of this Agreement and the Agreement is a
valid and binding agreement.
1. As compensation for services rendered, HVFH shall pay
PrimErgy the following:
A. The sum of 1.5% of the monthly capitation
received from each third party payor up to a maximum monthly fee per
payor of Fifty Thousand ($50,000) Dollars. Monthly fee shall cover
all services provided by PrimErgy to HVFH from its corporate staff
located in Kingston, New York. This shall include, but not be
limited to:
* Board/advisory committee management
* Case management services
* Outcome review
* Presentation of utilization management report
* Extended member education, including home visits
* Concurrent review of inpatient admissions
* Special data reporting
B. The cost for all employees responsible for
the day-to-day operations of HVFH shall be the responsibility of
PrimErgy, except for the employees allocated for administrative
functions as defined in "Attachment A", as well as board or advisory
committee stipends or related expenses. HVFH board shall authorize
administrative function expenses as a total cost in the annual line
item budget. The budget shall depict employees as either full-time,
part-time or regionally shared positions and will include a fixed
twenty percent (20%) charge on gross salaries to cover fringe
benefits, taxes, and bonus arrangements. If PrimErgy deems it
necessary to expend additional monies above ten percent (10%) of the
Board approved budgetary allocation for personnel expenses, it must
first receive the approval of the HVFH Board.
[DESCRIPTION] MATERIAL CONTRACTS
EX-10.57 Copy of Wellness Administrative Services
Agreement dated July 1, 1996, and Amendment
to said Agreement dated October 10, 1996,
between WellCare of New York, Inc. and
Bienestar, Inc.
WELLNESS ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
WELLCARE OF NEW YORK, INC.
AND
BIENESTAR, INC.
This Agreement is made and entered into as of this first day
of July 1996, by and between WellCare of New York, Inc., a New York
State for-profit health maintenance organization (HMO)(hereinafter
referred to as "WellCare"), and Bienestar, Inc., a for-profit
corporation organized under the laws of the State of Delaware
(hereinafter referred to as "Bienestar").
WHEREAS, WellCare currently provides health care coverage to
approximately 100,000 commercial, Medicaid (Healthy Choice), and
Medicare (Senior Health) members; and
WHEREAS, Bienestar is a wholly-owned subsidiary corporation of
WellCare engaged in the business of providing consulting and
educational services regarding wellness and integrative health
services to managed care entities, as described in the attached
Bienestar brochure; and
WHEREAS, WellCare desires to engage Bienestar to provide
wellness and integrative health care services to enrolled members on
the basis, terms, and conditions of this Agreement; and
WHEREAS, WellCare and Bienestar have duly authorized the
execution and performance of this Agreement, and this Agreement is
a valid and binding agreement subject to the approval of the New
York State Commissioner of Health.
NOW, THEREFORE, in consideration of the promises and the
mutual representations, covenants and agreements herein contained
and for other good and valuable consideration, the receipt and
sufficiency whereof is hereby acknowledged, and intending to be
legally bound, WellCare and Bienestar do hereby represent, covenant,
promise and agree as follows:
ARTICLE I
COMPENSATION TO WELLCARE
As compensation for services rendered, as set forth in Article 6,
WellCare shall pay to Bienestar the following:
1.1 A monthly fee of $1.25 per member per month (PMPM) for
commercial and Medicare (Senior Health) Members. The monthly
fee shall cover, but not be limited to, the services set forth
in Article 6 including the services of Bienestar executives,
Bienestar Wellness Representatives and the supervision of all
of the services described in Article 6.
1.2 All fees shall be due and payable on the first of each and
every month of the term of this Agreement. Any monthly fees
in arrears fifteen (15) days will begin accruing finance
charges of one percent (1%) a month.
ARTICLE 2
TERM AND CANCELLATION
2.1 Term. This Agreement is effective July 1, 1996, and shall
continue for a five (5) year term or through June 30, 2001.,
under the same terms and conditions unless so amended by both
parties.
2.2 Cancellation.
(a) If either party is dissolved or liquidated, or shall
apply for or consent to the appointment of a receiver, trustee
or liquidator of it or all or a substantial part of its
assets, file a voluntary petition in bankruptcy, make a
general assignment for the benefit of creditors, file a
petition or answer seeking its reorganization of an
arrangement with its creditors or to take advantage of an
insolvency law, or if an order, judgment or decree shall be
entered by any court of competent jurisdiction, on the
application of a creditor, adjudicating said party of
appointing a receiver, trustee or liquidator for said party or
all of a substantial part of its assets, and such order,
judgment or decree shall continue in effect for any period of
ninety (90) consecutive days, then in case of any such event,
this Agreement shall expire, at the other party-s option, on
five (5) days written notice, notwithstanding any other
provision in this Agreement.
(b) If WellCare or Bienestar shall fail to keep, observe or
perform any material covenant, agreement, term or provision of
this Agreement to be kept, observed, or performed by it, and
such default shall continue for a period the greater of thirty
(30) days or in cases where the alleged default is a result of
governmental action or inaction, such longer period as shall
be required to exhaust all procedural and substantive rights
available by law to cure same under applicable governmental or
third party payor laws or regulations, or, if other defaults
are curable but not within the thirty (30) day period, such
longer time as may be required shall be given to cure,
provided that the defaulting party begins to cure immediately
and thereafter proceeds diligently and without interruption
until the cure is completed, as written notice by the non-defaulting party
to the other specifying the default in question and requesting that the
default be cured, than in case of any such event and upon the
expiration of any period of grace applicable thereto the term of this
Agreement shall expire, at the option of the non-defaulting party, on
five (5) days written notice to the other party.
(c) Either party shall have the right to terminate this
Agreement at any time if the operating license of WellCare or
any substantial portion thereof is revoked or suspended for
more than sixty (60) consecutive days provided all procedural
and substantive rights available under law to reserve or
modify same shall have first been exhausted by WellCare if it
chooses to pursue such rights, in its sole discretion.
Notwithstanding foregoing, either party's right to terminate
hereunder shall be exercised only by delivery of written
notice to the other party no later than ten (10) days after
expiration of the aforementioned sixty (60) day period or the
exhaustion of all such procedural and substantive rights.
(d) Either party shall have the right to terminate this
Agreement at any time without cause upon a six (6) month
written notice sent by certified mail to the other party.
ARTICLE 3
ALLOCATION OF AUTHORITY AND RESPONSIBILITY
3.1 Medical and Professional Matters. All medical and
professional policy matters shall be the responsibility of
WellCare. Policy recommendations for the provision of
integrative health care services shall be formulated by a
medical advisory committee (MAC) consisting of: WellCare's
Medical Director, Director of CQI., Clinical Outcomes Programs
Development Manager, Manager of Program Development and Health
Promotion, one representative of Bienestar, and the Chief
Medical Officer as an ex officio.
3.2 Reports. Bienestar shall present to WellCare and its
Board of Directors quarterly written reports summarizing
Bienestar's management actions and results, other reports as
Bienestar may deem appropriate to keep WellCare informed as to
the status of the Bienestar program, and such other reports as
WellCare may reasonable request. Bienestar shall also provide
such reports as may be required by any regulatory agency
having jurisdiction over WellCare. WellCare shall notify
Bienestar of any and all correspondence and/or determination
of any regulatory agency immediately upon receipt thereof by
WellCare.
3.3 All parties agree to review success of relationship after a
twelve (12) month period of time to maintain high productivity
and to establish performance targets which shall provide
Bienestar a strong incentive to assist WellCare in reducing
escalating health care costs while improving the quality of
care to enrolled members.
ARTICLE 4
GOVERNMENT REGULATIONS
Bienestar shall comply with the requirements of any applicable
statute, ordinance, law, rule, regulation, or order of any
governmental or regulatory body having jurisdiction. Bienestar
shall notify WellCare of any and all correspondence or communication
from any such regulatory agency, and shall make such presentations
to the WellCare Board with regard to communications from regulatory
agencies as WellCare shall request.
ARTICLE 5
CONFIDENTIALITY AND OWNERSHIP OF RECORDS
Bienestar shall protect the confidentiality of the records of
WellCare and WellCare Members and shall comply with all applicable
federal, state, and local laws and regulations, and medical ethical
standards relating to the records of WellCare and WellCare Members.
Bienestar hereby acknowledges that any and all records maintained by
or on behalf of WellCare, no matter where such records are housed,
shall be deemed to be in the possession of WellCare and to be the
property of WellCare. Ownership of all records made by or on behalf
of WellCare shall be in WellCare, and physical custody of all
records shall be transferred immediately to WellCare in the event
this Agreement expires or is terminated for any reason.
ARTICLE 6
SERVICES TO BE PROVIDED BY BIENESTAR
Bienestar will be responsible for:
(a) Development of a total wellness program for WellCare to:
(1) Educate health care professionals and
WellCare Members to encourage Members to take an active
role in their own health care and to better understand
and effectively manage their health needs;
(2) Analyze data to identify Members' health
needs in order to assist in achieving better outcomes
and better cost management;
(3) Appreciate the cultural nuances of the
Member and apply this understanding to develop programs
which will enhance Members' total well-being; and
(4) Provide education to providers and Members
and to advocate on behalf of Members to make optimal use
of integrative health care benefits.
(b) Provision of consultative services to WellCare with
respect to the management of behavioral health care
benefits for its Members;
(c) Provision of consultative and technical assistance to
WellCare with respect to educational services for
Members, employers and providers;
(d) Assistant to WellCare in the development of Wellness
programs for employer groups; and
(e) Market research and development of Wellness services.
ARTICLE 7
LIABILITY INSURANCE
WellCare agrees that basic limits of professional malpractice
liability insurance will be maintained during this Agreement with
coverage in an amount of not less than $1,000,000 per occurrence and
$3,000,000 per annual aggregate, however, the policy shall in the
form and amounts of such coverage be not less than those required by
all applicable regulatory agencies and by other applicable New York
insurance laws and regulations. WellCare agrees to provide
Bienestar with certificates of insurance as evidence of coverage and
to provide written notice to Bienestar of any proposed
modifications, cancellation or termination of the above-referenced
insurance coverage at least thirty (30) days prior thereof.
ARTICLE 8
ARBITRATION
In the event that any dispute shall arise with regard to this
Agreement, all parties agree to submit the matter(s) in controversy
to a Board of Arbitrators consisting of three (3) members (one shall
be selected by each party to this Agreement and these members in
turn shall select a third member). The Board of Arbitrators so
constituted shall proceed under the rules and regulations of the
American Arbitration Association. All parties expressly covenant
and agree to be bound by the decision of the arbitrators and accept
any decision by a majority of the arbitrators as a final
determination of the matter(s) in dispute. The parties to the
Agreement shall share the cost of arbitration equally.
IN WITNESS WHEREOF, the parties have set their signatures
below.
WELLCARE OF NEW YORK, INC. BIENESTAR, INC.
By: /s/ Edward A. Ullmann By:/s/ Gerardo Rodriguez V.
Edward A. Ullmann Gerardo Rodriguez V.
Title: Chairman Title: CEO/President
Date: July 1, 1996 Date: July 1, 1996
Attachment
<PAGE>
AMENDMENT TO
WELLNESS ADMINISTRATIVE SERVICES AGREEMENT
BETWEEN
WELLCARE OF NEW YORK, INC.
AND
BIENESTAR, INC.
THIS AMENDMENT is made and entered into as of this 10th day of
October, 1996 by and between WellCare of New York, Inc., a New York
State for-profit health maintenance organization (hereinafter
referred to as "WellCare") and Bienestar, Inc., a for-profit
corporation organized under the laws of the State of Delaware
(hereinafter referred to as "Bienestar").
WHEREAS, WellCare and Bienestar entered into a Wellness
Administrative Services Agreement (hereinafter referred to as "The
Agreement") dated as of the 1st day of July, 1996 by the terms of
which Bienestar is to provide wellness and integrative health care
services to enrolled members of WellCare; and
WHEREAS, WellCare and Bienestar have agreed to amend The
Agreement; and
WHEREAS, the Board of Directors of WellCare and the Board of
Directors of Bienestar have each duly authorized the execution and
performance of this Amendment and this Amendment is a valid and
binding agreement; and
WHEREAS, the parties wish to further amend The Agreement as
set forth below.
NOW, THEREFORE, in consideration of the premises and mutual
covenants and conditions contained herein and other good and
valuable consideration, the parties agree as follows:
I. Article 1 of The Agreement shall be amended as follows:
Section 1.1 The fee paid to Bienestar will be $1.30 per
member per month for those new group members or current
members covered under group contracts as of October 1, 1996
who select the benefits offered by WellCare described on
Exhibit "A," provided that it is understood that the existing
compensation of $1.25 per member per month set forth in
Article 1.1 of The Agreement shall remain in effect for the
terms of all group contracts in effect at the time of this
Agreement until such time as those contracts are up for
renewal. Said compensation shall apply to commercial members
(group contracts), and Medicare members (Senior Health), and
is not applicable to other members.
Section 1.2 The compensation fee shall be paid based upon
WellCare's most current membership data. WellCare shall use
best efforts to reconcile any mistakes in payment or in
payment information retroactively within one hundred eighty
(180) days.
II. Article 2 of The Agreement shall be amended as follows:
Section 2.1 The term of The Agreement is changed to July 1,
1996 to November 8, 1997.
Section 2.2 In the event that The Agreement is terminated by
WellCare pursuant to Article 2.2(d) thereof, WellCare shall
immediately pay to Bienestar the monthly fees that would be
due to Bienestar for the remainder of the term of The
Agreement, based on the number of WellCare members then
receiving the Bienestar Rider or its equivalent or preexisting
contract, at the time notice of termination is given.
III. Article 3 of The Agreement shall be amended as follows:
Add to Section 3.2 Within thirty (30) days of the date hereof
Bienestar and WellCare will use best efforts to develop
standards by which to monitor Bienestar's peformance under The
Agreement. To assist in that task, the parties agree that
WellCare shall designate an individual to act as a liaison and
that Bienestar shall meet with such individual at such times
as necessary in order for a protocol to be developed in said
time frame. Development of such protocol is a material
inducement for WellCare to enter into this Amendment.
IV. Article 6 of The Agreement shall be amended as follows:
Add (f) Bienestar agrees not to subcontract with any third
parties without the express written consent of WellCare, which
consent may be withheld or denied in WellCare's sole
discretion. Bienestar agrees that any and all third parties
engaged by Bienestar to perform services set forth in The
Agreement will execute a subcontract with Bienestar which
shall acknowledge WellCare as a third party to the contract.
Bienestar shall require the subcontractors to abide by The
Agreement and this Amendment and will ensure that the terms of
The Agreement and Amendment are incorporated by reference in
the subcontract. Bienestar will make available, on request by
WellCare, all subcontracts that provide for services to
WellCare Members. Copies of subcontracts shall be made
available to WellCare in the requested time frame which in no
case shall exceed twenty (20) days after request of such
subcontracts.
V. Article 7 of The Agreement shall be amended as follows:
Bienestar shall obtain all insurance policies in the form and
amounts of coverage not less than those required by all
applicable regulatory agencies and by other applicable New
York insurance laws and regulations. Bienestar agrees to
provide WellCare with certificates of insurance as evidence of
coverage and to provide written notice to WellCare of any
proposed modifications, cancellation or termination of the
above-referenced insurance coverage at lease thirty (30) days
prior thereof.
VI. The Agreement shall be further amended to add an Article 9 as
follows:
OBLIGATIONS OF WELLCARE AND EXCLUSIVITY
During the term of The Agreement, WellCare shall be obligated
to offer to its Commercial members (group) and Senior Health
members the option to purchase the benefits which The
Agreement manages. During the term of The Agreement,
Bienestar shall be the exclusive provider of the services
listed in Article 6 as they relate to WellCare's provision of
the Bienestar Rider of The Agreement. Nothing contained
herein shall prevent WellCare from directly providing said
services, provided that it is understood that the fee paid to
Bienestar under Section 1.1 shall not be reduced if WellCare
chooses to provide any of said services directly during the
term of this Agreement.
IN WITNESS THEREOF, the parties have executed this Agreement
as of the date first above written.
WELLCARE OF NEW YORK, INC. BIENESTAR, INC.
By:/s/ Marystephanie Corsones By:/s/ Edward A. Ullmann
Marystephanie Corsones Edward A. Ullmann
Treasurer President
Signed: December 17, 1996 Signed: December 11, 1996
[DESCRIPTION] MATERIAL CONTRACT
EX-10.58 Copy of Lease Agreement dated July 1,
1997 between Candid Associates; as Lessor,
and WellCare Development, Inc.; as Lessee,
relating to lease of office space in
North Haven, Connecticut
L E A S E
THIS INDENTURE made this 1st day of July, 1996, in the Town of
North Haven, County of New Haven and State of Connecticut, between
CANDID ASSOCIATES, with offices located at 110 Washington Avenue,
North Haven, Connecticut 06473 hereinafter referred to as the
"Lessor, and WELLCARE DEVELOPMENT, INC. with offices located at Park
West/Hurley Avenue Extension, P.O. Box 4059, Kingston, New York
12402, a corporation organized and existing under the laws of the
State of New York, and acting herein by its duly authorized agent,
hereinafter referred to as "Lessee;
W I T N E S S E T H:
1. DESCRIPTION OF PROPERTY. The Lessor, in consideration of the
rents, covenants and agreements hereinafter reserved and contained
and to be paid, kept and performed by the Lessee, hereby leases,
lets and by these presents grants, demises and lets unto the Lessee
certain premises (the "Premises") as described in Exhibit "A
attached hereto, (which the Lessor represents to be 5,000 +/- square
feet), located on the 3rd floor West of the building (the
"Building") located at 127 Washington Avenue, North Haven,
Connecticut (the "Land"). Said property includes but shall not be
limited to all access ways in common with other tenants of the
Building such as building entrances, passenger elevators, freight
elevators, loading docks, lavatories, roads, driveways, public and
fire stairways, sidewalks, exterior ramps, parking facilities, and
other similar areas which would enable the Lessee to obtain full use
and enjoyment of the leased property (collectively the "Common
Areas"). The Building, the Land and the Common Areas are sometimes
collectively referred to herein as the "Property". Parking
facilities shall allow a maximum of four (4) cars per 1000 square
feet, automobiles to be used by the employees, customers and
invitees of the Lessee. The property is in compliance with all
laws, including the American with Disabilities Act. Landlord
represents that it has free and clear title with no encumbrances.
2. CONDITION OF PROPERTY. "Substantial Completion and
"Substantially Complete shall mean that all of the following
conditions have been satisfied: (a) the Lessor has secured and
delivered to the Lessee the required permanent certificate of
occupancy (or the substantial equivalent under applicable state or
local law) to permit full use and occupancy of the Building, the
Premises and the Common Areas for the purposes permitted under this
Lease; and (b) construction of the "Tenant Improvement Work", as
hereinafter defined, has been completed in accordance with the
"Construction Plans, as hereinafter defined, as reasonably
determined by the Lessee, subject only to normal punch list items
that will not interfere with the Lessee's business operations in
the Premises, a list of which shall be delivered to the Lessor by
the Lessee's architect, and which items the Lessor agrees to use its
best efforts to correct by the Commencement Date, but shall, under
any circumstances, be competed not later than thirty (30) days after
the Commencement Date. The date on which Substantial Completion
occurs is referred to herein as the "Substantial Completion Date.
The Lessor shall, at its sole cost and expense, perform the
construction work (the "Lessee Improvement Work") described and/or
shown on the plans annexed hereto as Exhibit "B", on or prior to
July 1, 1996. If the Tenant Improvement Work is not Substantially
Complete by July 1, 1996, then in any such event, (i) the term of
this Lease shall not commence until the day the Lessor gives notice
to the Lessee that the Lessor has Substantially Completed the
construction set forth on the plans annexed hereto on Exhibit "B ,
or upon Lessee's entry into possession, whichever occurs sooner and
(ii) the Lessor shall pay Lessee an amount equal to one (1) days'
annual rent for each day after July 1, 1996 until the Lessee
Improvement Work is Substantially Complete. The Lessor shall
perform the construction shown in the plans annexed hereto at
Lessor's cost and expense.
Neither the Lessor nor its agents have made any other
representations with respect to the Building, the Land or the
Premises except as expressly set forth herein, or hereafter and no
rights, easements, or licenses are acquired by the Lessee by
implication or otherwise except as expressly set forth in the
provisions of this Lease.
3. TERM OF LEASE. The term of this lease shall be five (5) years
commencing on the later to occur of (a) the Substantial Completion
Date or (b) July 1, 1996 (which later date shall be referred to as
the "Commencement Date"). The term shall end on noon of the last
day of June, 2001 unless sooner terminated as herein provided.
Should the Lessee hold over and remain in possession of the Premises
after the expiration of this Lease without the Lessor's consent, it
shall not be deemed or construed to be a renewal or extension of
this Lease but shall only operate to create a month-to-month tenancy
which may be terminated by the Lessor at the end of any month upon
thirty (30) days prior written notice to the Lessee.
4. OCCUPANCY. The Lessor agrees to use due diligence in the
construction and partitioning of the Premises and will give Lessee
at least five (5) days prior notice of when the leased property are
completely ready for occupancy and use. In the event occupancy is
provided after the first day of a calendar month commencement date
then rent provided in paragraph 5 below shall be apportioned on a
pro-rata basis for the actual number of days in the month. Lessor
and Lessee shall execute an Addendum to this lease establishing the
commencement of rental consideration.
5. RENTAL CONSIDERATION. The Lessee shall pay, for the period
from the Commencement Date through June 30, 1997, in equal monthly
installments an annual rental of Sixty Five Thousand Dollars
($65,000.00). Monthly rental payments shall be Five Thousand Four
Hundred Sixteen Dollars and 66/100 ($5,416.66) per month, payable in
advance on the first day of each month; and an equal sum shall be
paid on the first day of each and every month through June 30, 1997.
The period covered by the term "annual rent shall mean the first
consecutive twelve (12) month period beginning on July 1, 1996. In
the event that the Tenant Improvement Work is not Substantially
Complete by July 1, 1996, the above rent shall be apportioned
accordingly. The Lessee shall pay, for the period from July 1, 1997
through June 30, 1999, in equal monthly installments an annual
rental of Seventy Thousand Dollars ($70,000.00). Monthly rental
payments shall be Five Thousand Eight Hundred Thirty-Three Dollars
and 33/100 ($5,833.33) per month, payable in advance, on the first
day of each month; the first payment of $5,833.33 to be made on or
before the first day of July, 1997 and an equal sum shall be paid on
the first day of each and every month through June 30, 1999. The
Lessee shall pay, for the period of July 1, 1999 through June 30,
2001, in equal monthly installments an annual rental of Seventy Five
Thousand Dollars ($75,000.00). Monthly payments shall be Six
Thousand Two Hundred Fifty Dollars ($6,250.00) per month, payable in
advance, on the first day of July, 1999 and an equal sum shall be
paid on the first day of each and every month through June 30, 2001.
6. ADDITIONAL RENT. The Lessee agrees to pay, as additional
rent, "Lessee's pro-rata portion", as defined herein, of the amount
by which yearly "Operating Expenses" incurred and paid by the Lessor
during each calendar year occurring during the term of this Lease,
commencing January 1, 1997, exceeds operating expenses incurred and
paid by Lessor during calendar year 1996 (the "base year").
A. The Lessees's pro-rata portion shall equal the
percentage by which the net rentable area of the Building, which is
130,000 square feet, bears to the net rentable square foot area of
the Premises, which is 5,000 square feet (3.84%) and which shall
also be adjusted by the percentage of the months of the Lessee's
occupancy in the Premises as compared to number of months in a
calendar year. The Lessee reserves and the Lessor grants the right
to make physical measurement of the entire Premises within thirty
(30) days from the date hereof in order to verify the square
footage. In the event there is a discrepancy in the total square
footage from that which is stated above, then the annual rent, the
monthly rent and Lessee's Pro-rata portion, shall be adjusted
accordingly.
B. "Operating Expenses shall mean the total actual
out-of-pocket expenses incurred and paid by Lessor for the
operation, maintenance and repair of the Property which are incurred
during any calendar year or portion thereof, in accordance with
sound property management principles, as applied to first-class
office buildings. Operating Expenses shall include "Real Estate
Taxes," as defined herein. For the base year only, Operating
Expenses shall mean those expenses described in the preceding
sentence which would have been incurred during the base year if the
Building were 100% leased and occupied, and all initial warranties
and service contracts for new equipment have expired (the "Base Year
Operating Expenses ). In the event the Lessor, during the term
undertakes any type of expense that was not incurred by Landlord
during the base year, then the Operating Expenses for the base year
shall be adjusted to include the cost that Lessor would have
incurred to undertake such expense in the base year.
Notwithstanding anything in this Lease to the contrary, the
following expenses are excluded form Operating Expenses:
1) Depreciation and amortization;
2) Expenses incurred by the Lessor to prepare, renovate,
repaint, redecorate or perform any other work in any space leased to
any existing tenant or prospective tenant of the Building;
3) Expenses incurred by the Lessor for repairs or other
work occasioned by fire, windstorm, or other insurable casualty or
condemnation;
4) Expenses incurred by the Lessor to lease space to new
tenants or to retain existing tenants including, without limitation,
leasing commissions, advertising and promotional expenditures;
5) Expenses incurred by the Lessor to resolve disputes,
enforce or negotiate lease terms with prospective or existing
tenants or in connection with any financing, sale or syndication of
the Property;
6) Interest, principal, points and fees, amortization or
other costs associated with any debt and rent payable under any
lease to which this Lease is subject and all costs and expenses
associated with any such debt or lease and any ground lease rent,
irrespective of whether this Lease is subject or subordinate
thereto;
7) Cost of alterations, capital improvements, equipment
replacement and other items which under generally accepted
accounting principles (hereinafter referred to as "GAAP ) are
properly classified as capital expenditures;
8) Expenses for the replacement of any item covered under
warranty;
9) Cost to correct any penalty or fine incurred by the
Lessor due to the Lessor's violation of any federal, state, or local
law or regulation and any interest or penalties due for late payment
by the Lessor of any of the Operating Expenses;
10) Cost of repairs necessitated by the Lessor's negligence
or willful misconduct, or of correcting any latent defects of
original design defects in the Building construction, materials, or
equipment;
11) Expenses for any item of service which Lessee pays
directly to a third party or separately reimburses the Lessor and
expenses incurred by Lessor to the extent the same are reimbursable
or reimbursed form any other tenants, occupants of the property, or
third parties;
12) Expenses for any item or service not provided to the
Lessee but exclusively to certain other tenants in the Building;
13) A property management fee for the Building in excess of
four percent (4%) of the gross rents of the Building applicable to
the Building for the relevant calendar year;
14) Salaries of employees above the grade of building
superintendent or building manager;
15) The portion of employee expenses which reflects that
portion of such employee's time which is not spent directly and
solely in the operation of the Property;
16) The Lessor's general corporate overhead and
administrative expenses except if it is solely for the Building;
17) Business interruption insurance and rental value
insurance;
18) Expenses incurred by the Lessor in order to comply with
laws applicable to the property;
19) Reserves;
20) Fees paid to affiliates of the Lessor to the extent that
such fees exceed the customary amount charged for the services
provided;
21) The operating expenses incurred by the Lessor relative
to retail stores, hotels and any specialty service in the Building
or on the Property;
22) Any additional operating expenses incurred by the Lessor
relative to any declaration of covenants or restrictions to which
the Property may be subject;
23) HVAC modification and replacement obligations necessary
to comply with any Clean Air Act requirements and any Environmental
Protection Agency regulations requirements, including ASHRAE
standards, for the following: maintenance, fresh air,
chlorofluorocarbons and hydrochlorofluorocarbons;
24) Costs of sculptures, paintings, and other objects of
art;
25) Costs associated with the removal of substances
considered to be detrimental to the environment or the health of
occupants the Building; and
26) Other items not customarily included as operating
expenses for similar buildings.
For purposes of this lease, the increase in real estate taxes shall
mean the increase which occurs after the assessment of the list of
October, 1995. The Lessor, in good faith, shall conclusively
determine the amount of such yearly "Operating Expenses and once
each year during the term commencing in January 1, 1998, shall
notify the Lessee in writing of additional rent payable on account
of its pro-rata portion of any such increase of "Operating Expenses
together with an itemized statement thereof.
C. Real Estate Taxes shall mean all taxes, assessments,
levies and other charges, which are assessed, levied or charged upon
the Property during the term and which have been finally determined
by legal proceedings or otherwise to be legally payable, less any
abatement received by the Lessor, any affiliate of the Lessor or any
lessee of the Property. Real Estate Taxes shall not include (A) any
interest or penalties; (B) any capital levy, estate, succession,
inheritance, transfer, sales, use or franchise taxes, or any income,
profits, or revenue tax, assessment or charge imposed upon the rent
received as such by the Lessor under this Lease;(C) any
discriminatory or unreasonable tax increases which the Lessor has
not taken all reasonable steps to contest; nor (D) any increase in
property taxes due to a reassessment performed as a result of the
sale or transfer of the property. For the base year only, Real
Estate Taxes shall mean the Real Estate Taxes which would have been
incurred during the base year, if the base year were the first full
tax year in which the Building were 100% leased and occupied and the
Property were fully assessed.
D. The Lessee shall have the right to examine, to copy and
to have an audit conducted of all books and records of the Lessor as
shall pertain to Operating Expenses. Such audit shall be conducted
by an auditing firm retained by the Lessee. All expenses of such
audit shall be borne by the Lessee unless such audit discloses an
overstatement of Operating Expenses of three percent (3%) or more,
in which case all expenses of such audit shall be borne by the
Lessor and the Lessee's additional rent payment shall be adjusted
accordingly. In the event the Lessor disputes the findings of said
audit, then the Lessor and the Lessee agree to submit any disputed
items to arbitration in accordance with the Commercial Arbitration
Rules of the American Arbitration Association. The Lessor shall
maintain all books and records for a period of not less than three
(3) years following the applicable calendar year.
E. If the term of this lease shall expire on any day other
than June 30, 2001, any payment due by reason of any increase or
decrease in operating costs shall be pro-rated for the fractional
portion of the lease year in which the term expires, and subject to
the determination of any item in dispute, Lessee shall pay to Lessor
the amount of any such increase, or Lessor shall pay to Lessee the
amount of any such decrease, within thirty (30) days after the
rendition of the final statement.
7. RESTRICTIONS OF USE. The Lessee may use and occupy the leased
property for conducting business or for general, executive,
administrative or other office purposes. The Lessee shall not use
or occupy nor permit the leased property or any part thereof to be
used or occupied for any unlawful business, use, or purpose or in
any manner which is in violation of any present or future
governmental laws or regulations. The Lessee shall promptly after
the discovery of any such unlawful, disreputable, or extra hazardous
use take all necessary steps, legal and equitable, to compel the
discontinuance of such use and to oust and remove any subtenants,
occupants, or other persons guilty of such unlawful, disreputable or
extra hazardous use. The Lessee shall indemnify the Lessors against
all costs, expenses, liabilities, losses, damages, injunctions,
suits, fines, penalties, claims and demands including reasonable
counsel fees, arising out of any violation of or default of these
covenants.
The Lessor has not conveyed to the Lessee any rights in or to
the exterior of the outside walls of the building of which the
leased property forms a part. The Lessee shall not display or erect
any lettering, sign, advertisement, awning or other projection in or
on the leased property or in or on the leased property or in or on
the building of which if forms a part except for a sign or lettering
on its own door entrance, or make any alteration, decoration,
addition or improvement in or to the leased property, or in or to
the building of which it forms a part, without prior written consent
of the Lessor. The Lessor will not withhold the consent required by
the provisions of this paragraph unreasonably.
A) The Lessee covenants and agrees with the Lessor to obey
the following rules and regulations:
1) All loading and unloading of goods shall be
done only at such times, in the areas, and through the entrances
designated for such purposes by the Lessor.
2) The delivery or shipment of merchandise,
supplies, and fixtures to and from the leased property shall be
subject to such rules and regulations as in the judgement of the
Lessor are necessary for the proper operation of the building.
3) No aerial shall be erected on the roof or
exterior walls of the building in which the leased property is
located, or on the grounds, without, in each instance, the written
consent of the of the Lessor. Any aerial so installed without such
written consent shall be subject to removal without notice at any
time.
4) No loudspeakers, televisions, phonographs,
radios, or other devices shall be used in a manner as to be heard or
seen outside the leased property without prior written consent of
the Lessor.
5) Lessee and Lessee's employees shall park
their cars only in those portions of the parking area designated for
that purpose by Lessor. Lessee shall furnish Lessor with automobile
license numbers assigned to Lessee's cars and cars of Lessee's
employees within five (5) business days after taking possession of
the premises and shall thereafter notify the Lessor of any changes
within five (5) business days after such changes occur. In the
event that Lessee or its employees fail to park their cars in
designated parking areas, as aforesaid, then Lessor, at its option,
shall notify the Lessee and Lessor shall charge the appropriate
parkers in violation Ten Dollars and 00/100 ($10.00) per day per car
parked in any area other than those designated, as and for
liquidated damage.
6) The facilities shall not be used for any
purpose other than that for which they are constructed, and the
expense of any breakage, stoppage, or damages resulting from a
violation of this provision shall be borne by the Lessee.
8. COMPLIANCE WITH LAWS AND REGULATIONS. The Lessee shall
throughout the term of this Lease, at its sole expense, promptly
comply with all laws and regulations of all federal, state, and
municipal governments and appropriate departments, commissions,
boards and officers thereof, and the orders and regulations of the
Nations Board of Fire Underwriters, or any other body now or
hereafter exercising similar functions, which may be applicable to
the manner of the Lessee's use of the Premises and the manner of the
Lessee's use of the fixtures and equipment therein. The Lessee
shall comply with the requirements of all policies of public
liability, fire and all other types of insurance at any time in
force with respect to the use of the Building and other improvements
in the Premises. The Lessor represents that at the time of
occupancy, there will be no violation of any laws and regulations
either known or unknown, and if any violations are thereafter
discovered, which are shown to have existed at the time of
occupancy, the expense of rectifying same shall be the sole
responsibility of the Lessor. Lessor shall comply, at Lessor's sole
expense, with all federal, state and municipal laws, including but
not limited to the Americans with Disability Act, relating to the
Leased Premises, the Building and the Property.
9. SURRENDER OF PREMISES AT TERMINATION. At the expiration of
the lease term, the Lessee shall surrender the Premises broom clean
in as good condition as at the beginning of the term, reasonable
use, wear and tear and damage by casualty of condemnation, expected.
10. LESSEE'S RIGHT TO ALTER AND IMPROVE. No alteration, additions
or improvements (not including decorative changes) to the Premises
shall be made by the Lessee without written consent of the Lessor,
which shall not be unreasonably withheld, conditioned or delayed.
Any alteration, addition, or improvement made by the Lessee after
such consent has been given, and any permanent fixtures installed
shall not be construed to give the Lessor title to or prevent the
Lessee's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of other installations as may be
required by the Lessor, the Lessee shall immediately at its expense,
repair and restore the Premises to the condition existing prior to
installation and repair any damage to the Premises or the Building
due to such removal. All property permitted or required to be
removed by the Lessor at the end of the term remaining in the
Premises after Lessee's vacation of the Premises at the end of the
term shall be deemed abandoned and may, at the election of the
Lessor, either be retained as the Lessor's property or may be
removed from the Premises by the Lessor, at the Lessee's expense.
11. UTILITIES AND OTHER SERVICES. The Lessor shall pay all
charges for gas, electricity, light, heat and power used, rendered
or supplied upon or in connection with the use of the Premises.
Notwithstanding the foregoing, the Lessee shall pay the Lessor for
HVAC usage in excess of ten (10) hours per day, at the rate of
$35.00 per hour. The Lessee shall pay all charges for telephone
services or other communication services and shall indemnify the
Lessor against any liability on such account if any such liability
shall occur. The Lessor during the term of this lease shall be
responsible for the repair and maintenance of all structural
portions and the exterior of the building (including the roof,
exterior walls, bearing walls, support beams, foundations, columns
and lateral support to the building) of the leased premises,
including doors, windows, plumbing, heat, air conditioning,
electrical and electrical fixtures and the repair of all casualty
damage, whether or not caused by Lessee's negligence. The Lessor
shall not, however, be responsible for the maintenance or repair of
rugs or fixtures installed by the Lessee, painting or repair of
interior walls except as hereinafter set forth, and any and all
non-casualty damages caused by the negligence of the Lessee, its
agents, servants, employees, and/or customers. In addition, the
Lessor agrees to provide daily cleaning and janitorial services as
described on Exhibit "D" attached hereto, lamp replacements (building
fixtures only), water, air conditioning, snow removal and
maintenance of the parking area. The Lessor shall be responsible
for the maintenance and repair of interior walls, ceilings, floors
and floor coverings of the Common Areas of the Building, as well as
exterior improvements to the Land, including curbs driveways,
parking areas, sidewalks, lighting, exterior signs, ditches,
shrubbery, landscaping and fencing. The Lessor shall provide
passenger elevator service, toilet facilities and supplies, sewage
facilities, hot and cold water, vermin extermination, electricity
for the Lessee's needs, HVAC for the Lessee's comfortable use and
occupancy, after hours HVAC service at an added charge (to be agreed
upon by Lessor and Lessee), removal of ice, snow and debris from
the exterior common areas, including but not limited to walkways,
parking lots, and other paved surfaces, landscaping maintenance and
services, building and parking lot security, and lobby directory
signage.
12. DEFAULT
A. LESSOR'S RIGHT ON LESSEE'S DEFAULT. If proceedings are
commenced against the Lessee in any court under a bankruptcy act,
and the same have not been discharged within sixty (60) days after
commencement, or for the appointment of the trustee or receiver of
the Lessee's property either before or after the Commencement Date,
and the same have not been discharged within sixty (60) days after
commencement, or if there shall be a default in the payment of rent
or any part thereof for more than thirty (30) days after written
notice of such default by the Lessor, or if there shall be default
in the performance of any other covenant, agreement, condition, rule
or regulation herein contained or hereafter established on the part
of the Lessee for more than thirty (30) days after written notice of
such default by the Lessor, this Lease (if the Lessor so elects)
shall thereupon become null and void, and the Lessor shall have the
right to re-enter or repossess the Premises, provided the Lessor has
obtained an order of the court and a summary proceeding for a
judgement of possession and the issuance of a final warrant of
eviction, in that event, the Lessor shall have the right to
dispossess and remove therefrom the Lessee, or other occupants
thereof, and their effects. In such case, the Lessor shall, with
reasonable diligence and in good faith, relet the Premises or any
part thereof, as the agent of the Lessee and the Lessee shall pay
the Lessor the difference between the rent hereby reserved and
agreed to be paid by the Lessee for the portion of the term
remaining at the time of re-entry or repossession and the amount, if
any, received or to be received under such reletting for such
portion of the term. The failure of the Lessor to insist upon a
strict performance of any term or condition of this Lease shall not
be deemed a waiver of any right or remedy that the Lessor may have
and shall not be deemed a waiver of any subsequent breach of such
term or condition. The Lessee shall pay and indemnify the Lessor
against all legal cost and charges, including counsel fees lawfully
and reasonably incurred, in obtaining possession of the leased
premises after a default of the lessee or after the Lessee's default
in surrendering possession upon the expiration or earlier
termination of the term of the Lease or enforcing any covenant of
the Lessee herein contained. However, the Lessee shall have the
right to recover its expenses and attorney's fees if the Lessee is
the prevailing party in any action brought by the Lessor, or if the
Lessee has instituted its own action against the Lessor for the
failure of the Lessor to perform its obligations under the Lease,
and is the prevailing party with respect thereto.
B. LESSEE'S RIGHT ON LESSOR'S DEFAULT.
(1) If Lessor shall: Default in fulfilling and
covenant or provisions of this Lease on its part to be performed and
failed to remedy such default within 30 days after the Lessee shall
have given the Lessor written notice of such default, then the
Lessee shall have all rights, powers and remedies and may be
permitted to it by law or equity.
(2) Without limiting the rights described in
subparagraph B(1) above, in the event that (a) the Lessor, for any
reason, other than by reason of any default by the Lessee, fails to
fulfill any covenant or provision of this Lease on its part to be
performed; and (b) such failure materially and adversely interferes
with the conduct of the Lessee's business, as reasonably determined
by the Lessee; and (c) such failure is not remedied within three (3)
days after the Lessor receives actual notice of such failure, then
annual rent and additional rent shall be abated as of the fourth
(4th) day after such notice until such failure is remedied; and (d)
the Lessee shall have the right, but not the obligation, to remedy
the Lessor's failure and charge the Lessor for the reasonable cost
of such remedy, which charges shall be payable by the Lessor within
ten (10) days of the Lessee's demand therefore. If the Lessor shall
fail to pay the same, the Lessee shall have the right to recoup the
same as a credit against future installments of annual rent or
additional rent. The rights described in (1)(d) shall be deemed
"Lessee's Additional Remedies.
(3) Without limiting the rights described in
subparagraphs B(1) and B(2) above, in the event that (a) the Lessor,
for any reason, other than by reason of the Lessee event of default,
fails to fulfill any covenant or provision of this Lease on its part
to be performed, and (b) such failure is not remedied within thirty
(30) days after the Lessee shall have given Lessor written notice of
such failure, then the Lessee may exercise Lessee's Additional
Remedies. The rights of Lessee under this Subparagraph (3) shall
survive the expiration or earlier termination of this Lease.
(4) Without limiting the rights described in
subparagraphs, B(1), B(2) and B(3) above, in the event that (a) the
Lessor fails to fulfill any covenant or provision of this Lease, and
(b) such failure materially and adversely interferes with the
conduct of the Lessee's business, as reasonably determined by the
Lessee, and (c) such failure is not remedied within ninety (90) days
after the Lessee shall have given the Lessor written notice of such
failure, then the Lessee shall have the right to terminate this
Lease by giving the Lessor written notice.
13. RIGHT TO ACCESS. The Lessor and its representatives may enter
the Premises, upon reasonable written notice to Lessee and during
reasonable business hours, except in emergency, for the purpose of
inspecting the Premises, performing work which the Lessor elects to
undertake, made necessary by reason of the Lessee's default under
the terms of this Lease, exhibiting the Premises for sale, mortgage
financing, or posting notices or non- responsibility under any
mechanic's lien law. The Lessee may show the Premises any time
during regular business hours to prospective tenants within the last
nine (9) months of the term of this Lease. The Lessee shall have
access to the building twenty-four (24) hours a day, 365 days per
year. Provided the Lessee does not require additional services,
there will be no additional charges for such access.
14. FIRE OR OTHER CASUALTY LOSS. (a) In case of fire or other
casualty to the building in which the leased property is located, if
the damage is so extensive as to amount to total destruction of more
than fifty percent (50%) of the leased property or of such building,
as determined by a source independent of Lessor or Lessee, this
Lease shall cease, and the rent shall be apportioned to the time of
the damage. In all other cases where the leased property is damaged
by fire or other casualty, the Lessor shall repair the damage with
reasonable dispatch, and if the damage has rendered the leased
property untenantable, both in whole or in part, there shall be an
apportionment of the basic rent until the damage has been repaired.
In determining what constitutes reasonable dispatch, consideration
shall be given to delays caused by strikes, adjustment of insurance,
and other causes beyond the Lessor's control. In the event that
said damage cannot be repaired within ninety (90) days after the
casualty event, then this Lease at the option of Lessee shall cease
and the rent be apportioned to the time of the damage. The Lessee
shall have the right to terminate this Lease if the repairs are not
completed within ninety (90) days after the casualty event.
15. TERMINATION OF LEASE UPON CONDEMNATION. If the whole of the
leased property, or such portion thereof as will make the leased
property unsuitable for the purposes herein leased, is condemned or
taken by eminent domain for any public use or purpose by any legally
constituted authority, then in either of such events this Lease
shall cease from the time when possession is taken by such public
authority and rental shall be accounted for between the Lessor and
the Lessee as of the date of surrender of possession. No part of
any award shall belong to the Lessee, except the Lessee may file a
claim for any taking of non-movable fixtures owned by Lessee and for
moving expenses incurred by the Lessee.
16. RIGHTS TO ASSIGN AND SUBLEASE. The Lessee shall not assign,
mortgage or encumber this Lease, nor sublet or permit the leased
property or any part thereof to be used by others, without the prior
written consent of the Lessor. Lessee shall have the right to
assign this Lease or sublet all or a portion of the Premises to
WellCare of Connecticut, Inc., and assign this Lease or sublet all
or a portion of the Premises to a parent, affiliate or subsidiary or
a successor entity by way of sale (of stock or assets), merger or
consolidation, all without the Lessor's consent. If this Lease is
assigned, or, if the Premises or any part thereof is sublet or
occupied by anybody other than the Lessee, the Lessor may, after
default by the Lessee, collect rent form the assignee, subtenant, or
occupancy and apply the net amount collected to the rent herein
reserved. No such assignment, subletting, occupancy, or collection
shall be deemed a waiver of this covenant, or the acceptance of the
assignee, subtenant or occupant as tenant, or a release of the
Lessee from the further performance by the Lessee of the covenants
in this lease. The consent by the Lessor to an assignment or
subletting shall not be construed to relieve the Lessee from
obtaining the consent in writing of the Lessor to any further
assignment or subletting.
17. SUBORDINATION OF LEASE TO MORTGAGES. This Lease shall be
subject and subordinated to the lien of any mortgage, deed of trust
or ground lease hereafter placed on all or any part of the Property,
provided that the holder thereof (the "Holder") shall agree in the
mortgage, deed of trust, ground lease or otherwise that this Lease
shall not be terminated or otherwise affected by the enforcement of
any such mortgage, deed of trust or ground lease if at the time
thereof the Lessee is not in default under this Lease beyond any
applicable grace, notice or cure periods ("Non-Disturbance
Agreement"). Simultaneously with the execution and delivery of this
Lease, the Lessor shall deliver to the Lessee a Subordination,
Non-disturbance and Attornment in the form annexed hereto as Exhibit
"C" and made a part hereof, executed by each Holder of any mortgage,
deed of trust or ground lease then encumbering all or any part of
the Property.
18. LIMITATION OF LESSOR'S LIABILITY. The Lessor shall not be
liable for any damage to the property of the Lessee entrusted to
employees of the Building in which the Premises are located or for
the loss or damage to any property of the Lessee by theft or
otherwise unless caused by the negligence of the Lessors or their
agents, servants and employees. The Lessor shall not be liable for
any injury or damage to person or property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water rain or
snow, or leaks from any part of such building or from pipes,
appliances, plumbing or from the roof, street, or subsurface or from
any other place, or by dampness or by any other cause of whatever
nature unless caused by or due to the negligence of the Lessor, its
servants, or agents, nor shall the Lessor be liable for any such
damage caused by other Lessees or persons in such building.
A. Lessee shall defend and indemnify Lessor and save Lessor
harmless from and against any and all losses, claims, liability,
expenses and damages (other than consequential damages) which,
either directly or indirectly, in whole or in part, arise out of or
result from the negligence or willful misconduct of Lessee, its
agents, contractors or employees.
B. The Lessor shall defend and indemnify the Lessee and
save the Lessee harmless from and against any and all losses,
claims, liability, expenses and damages (other than consequential
damages) which, either directly or indirectly, in whole or in part,
arise out of or result from the negligence or willful misconduct of
the Lessor, its agents, contractors or employees.
C. Nothing in this Paragraph 18 is intended to require
indemnification for any property claim for which insurance is
required to be maintained under the terms of this Lease. The rights
and obligations of the Lessor and the Lessee under Subparagraph 18
B and C shall survive the expiration or earlier termination of this
Lease.
D. The Lessee shall carry commercial general liability
policy of at least Five Hundred Thousand Dollars ($500,000) per
accident, and include therein protection of the Lessor as an
additional insured. A certificate of insurance shall be delivered
to the Lessor on the day this Lease commences. Lessor shall
maintain full replacement cost, fire and extended coverage insurance
(including vandalism and malicious mischief) on the Property, also
maintain commercial general liability insurance having a single
limit of not less than $1,000,000.00 and naming the Lessee as an
additional insured.
E. Reciprocal Subrogation: the Lessor hereby waives and
releases any and all rights, claims, demands and causes of action
the Lessor may have against the Lessee on account of any loss or
damage occasioned to the Lessor its businesses, properties, real and
personal, the Premises or its contents, arising from any risk or
peril covered by the standard all risk coverage, full replacement
cost policy required to be carried by the Lessor. The Lessee hereby
waives and releases any and all rights, claims, demands and causes
of action Lessee may have against the Lessor on account of any loss
or damages occasioned to the Lessee, its business, properties, real
and personal, the Premises or its contents, arising from any risk or
peril covered by any insurance policy required to be carried by the
Lessee pursuant to this Lease. Inasmuch as the above mutual waivers
will preclude the assignment of any aforesaid claims by the way of
subrogation or otherwise to an insurance company or any other
person, each party hereto hereby agrees immediately to give to its
respective insurance companies written notice of the terms of said
mutual waivers and to have said insurance policies properly endorsed
if necessary, to prevent the invalidation of said insurance
coverages by reason of said waivers.
19. NOTICE UNDER THIS LEASE. Whenever it is provided herein that
notice, demand, request or other communication shall or may be given
to either of the parties by the other, such notice, demand, request
or other communication shall be in writing and any law or statute to
the contrary notwithstanding shall not be effective for any purpose
unless it shall be served by mailing such notice by registered or
certified mail, postage prepaid, return receipt requested, or shall
be delivered to a nationally recognized overnight courier service,
and sent to the addresses listed in this lease or to such other
addresses as either party may from time to time designate by notice
given to the other by certified mail. Any such notice, demand,
request or other communication shall be deemed to have been given at
the time it is received by the addressee. A copy of any notices
sent to the Lessee shall also be sent to: The WellCare Management
Group, Inc., Park West/Hurley Avenue Extension, P.O. Box 4059,
Kingston, New York 12402, Attention: CFO and WellCare of
Connecticut, 127 Washington Ave., North Haven, CT 06473.
20. CERTIFICATION OF STATUS OF LEASE. The Lessor and the Lessee
shall certify in writing the status of this Lease and the rent
payable hereunder, at any time, upon ten (10) days written notice.
Such certificate shall be in a form reasonable satisfactory to a
prospective purchaser or mortgagee of the fee title, or assignee or
the lease or of any superior Lease. The form shall be prepared by
the party requesting certification, at the cost and expense of such
party.
21. MISCELLANEOUS PROVISIONS. All taxes, charges, costs and
expenses which the Lessee is required to pay hereunder, and all
damages, costs and expenses which the Lessor may incur by reason of
any default of the Lessee or failure on the Lessee's part to comply
with the terms of this lease, shall be deemed to be additional rent
and, in the event of nonpayment by the Lessee, the Lessor shall have
all the rights and remedies with respect thereto as the Lessor has
for nonpayment of the annual rent.
A) The specified remedies to which the Lessor and the
Lessee may resort under the terms of this Lease are cumulative and
are not intended to be exclusive of any other remedies or means of
redress to which both parties may be lawfully entitled in case of
any breach, or threatened breach of the other party of any provision
or provisions of this Lease. This Lease contains the entire
agreement, understandings, terms and conditions, and neither party
has relied upon any representation, express, or implied, not
contained in this Lease or the simultaneous writings heretofore
referred to. All prior understandings, terms or conditions are
deemed merged in this Lease. This Lease cannot be changed or
supplemented orally.
B) If any provisions of this Lease shall be declared
invalid or unenforceable, the remainder of the Lease shall continue
in full force and effect.
C) In construing this Lease, feminine or neuter pronouns
shall be substituted for those masculine in form and vice versa, and
plural terms shall be substituted for singular and singular for
plural in any place in which the context so requires.
D) The covenants, terms, conditions, provisions and
undertakings in this Lease or in any renewal thereof shall extend to
and be binding upon the successors and assigns of the respective
parties hereto.
E) Both parties hereby agree to execute, if requested by
either the Lessor or the Lessee, a "Notice of Lease in proper form
for recording on the land records of the Town of North Haven.
F) Any time the "Consent of the Lessors is required
pursuant to this Lease, the parties hereto agree and stipulate that
such consent shall not be unreasonably withheld, conditioned or
delayed.
G) It is hereby agreed that no paragraph of this Lease
shall allow or permit double payment to the Lessor if a casualty or
loss occurs; i.e., Lessor cannot collect from both an insurance
company and the Lessee for one and the same loss. This paragraph,
however, does not effect any rights or subroutines of any insurance
company that in such a situation makes a payment to the Lessor.
22. SECURITY DEPOSIT. Lessee, at the signing of this Lease, shall
deposit with Lessor a Security Deposit of two (2) months rent, the
sum of Ten Thousand Eight Hundred Thirty-Three Dollars and 22/100
($10,833.22) which shall be held until the end of the lease period.
Upon the expiration of the term or the termination of this Lease,
the security deposit shall be returned to Lessee in full, provided
that the Lessee is not in default in respect to any of the terms,
covenants and conditions of this Lease.
23. RENEWAL OPTION. Lessee shall have the option to renew the
Lease for an additional five (5) year period, and rent shall be
adjusted to reflect the fair market value of the Premises at that
time. Lessee must exercise this option to renew the Lease by
providing the Lessor with written notice nine (9) months prior to
the expiration date of this Lease.
24. ADDITIONAL SPACE. Lessee shall have the right of first
refusal on contiguous space on the 3rd floor which is approximately
2,500 square feet. Lessee must exercise this option within fifteen
(15) days of written notification. Such notification is to include
a copy of the contiguous space, including the rental rate, the term
and any incentives such as improvement allowances or free rent.
25. QUIET ENJOYMENT. Lessor covenants and agrees with Lessee that
upon Lessee paying the rent and additional rent and observing and
performing all the terms, covenants and conditions, on Lessee's part
to be observed and performed, Lessee may peaceably and quietly enjoy
the premises for the entire term hereof subject to all the terms and
conditions of this Lease.
26. BROKER. The Lessee and Lessor represent that they have not
had any dealings with any broker with respect to this transaction.
The Lessee and Lessor indemnify each other with respect to any
claims based upon their respective dealings with any broker claiming
an commission.
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed, at New Haven, Connecticut the day and
year first above written.
<PAGE>
WITNESSES: LESSOR:
/s/ Pasquale F. Nuzzolillo CANDID ASSOCIATES
By: /s/ Vincent A. Lingobardt Its
Duly Authorized
Owner
WITNESSES: LESSEE:
/s/ Judy L. Johnson WELLCARE DEVELOPMENT, INC.
By:/s/ Marystephanie Corsones
Its
Duly Authorized
Secretary/Treasurer
STATE OF CONNECTICUT )
COUNTY OF NEW HAVEN ) ss.:
On this 9th day of July, 1996, before me personally came Vincent A.
Lingobardt, to me known, who being by me duly sworn, did depose and
say that he resides at 110 Washington Avenue, North Haven, CT 06473;
that he is the Owner of Candid Associates, the corporation described
in, and which executed the above instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by order of the Board of
Directors of said corporation and that he signed his name thereto by
like order.
/s/ Denise L. Grabner
Notary Public
DENISE L. GRABNER
NOTARY PUBLIC # 109989
MY COMMISSION EXPIRES SEP. 30, 2000
STATE OF NEW YORK )
COUNTY OF ULSTER ) ss.:
On this 4th day of June, 1996, before me personally came
Marystephanie Corsones, to me known, who being by me duly sworn, did
depose and say that she resides at Kingston, New York 12402; that
she is the Secretary/Treasurer of WellCare Development, Inc., the
corporation described in, and which executed the above instrument;
that she knows the seal of said corporation; that the seal affixed
to said instrument is such corporate seal; that it was so affixed by
order of the Board of Directors of said corporation and that she
signed her name thereto by like order.
/s/ Marianne Gilday
Notary Public
MARIANNE GILDAY
Notary Public, State of New York
Reg. #4917920
Qualified in Ulster County
Commission Expires January 19, 1998
[DESCRIPTION] COMPUTATION OF NET INCOME
PER SHARE OF COMMON STOCK
EX-11 Computation of Net Income
Per Share of Common Stock
YEARS ENDED DECEMBER 31,
1996 1995 1994
(Loss)/Income before income taxes
and cumulative effect of a
change in accounting principle $(19,820) $2,789 $5,862
Provision for income taxes (8,038) 1,116 2,403
(Loss)/Income before cumulative
effect of a change in accounting
principle (11,782) 1,673 3,459
Cumulative effect of a change
in accounting principle - - -
Net (Loss)/Income $(11,782) $1,673 $3,459
Weighted average number of
commons and common equivalent
shares outstanding 6,296 6,250 6,226
Earnings Per Share:
(Loss)/Income before cumulative
effect of a change in
accounting principle $ (1.87) $ 0.27 $ 0.56
Cumulative effect of a change
in accounting principle - - -
Net (Loss)/Income $ (1.87) $ 0.27 $ 0.56
[DESCRIPTION] LIST OF SUBSIDIARIES OF REGISTRANT
EX-21 List of Subsidiaries
THE WELLCARE MANAGEMENT GROUP, INC.
List of Subsidiaries
Name of Corporation and Name
Under Which Corporation is State of Percentage
Doing Business Incorporation Owned
WellCare of New York, Inc. New York 100%
Agente Benefit Consultants,
Inc. (formerly WellCare
Administration, Inc.) New York 100%
WellCare Medical Management, Inc.(1) New York 100%
WellCare Development, Inc. New York 100%
WellCare of Connecticut, Inc. Connecticut 100%
(1) Assets sold and liabilities assumed by an independent third party.
[DESCRIPTION] CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
EX-23 Consent of Independent Public Accountants
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration
Statement No 33-82534 of The WellCare Management Group, Inc. on Form
S-8 of our report dated February 28, 1997, appearing in this Annual
Report on Form 10-K of The WellCare Management Group, Inc. for the
year ended December 31, 1996.
Deloitte & Touche LLP
New York, New York
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of The WellCare Management Group, Inc. and
Subsidiaries as of December 31, 1996 and the related statement of operations for
the year ended December 31, 1996, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 7,869
<SECURITIES> 919
<RECEIVABLES> 10,035
<ALLOWANCES> 1,902
<INVENTORY> 0
<CURRENT-ASSETS> 35,767
<PP&E> 17,418
<DEPRECIATION> 5,157
<TOTAL-ASSETS> 71,340
<CURRENT-LIABILITIES> 24,595
<BONDS> 27,169
0
0
<COMMON> 63
<OTHER-SE> 20,211
<TOTAL-LIABILITY-AND-EQUITY> 71,340
<SALES> 157,156
<TOTAL-REVENUES> 161,251
<CGS> 0
<TOTAL-COSTS> 135,957
<OTHER-EXPENSES> 45,114
<LOSS-PROVISION> 9,009
<INTEREST-EXPENSE> 2,185
<INCOME-PRETAX> (19,820)
<INCOME-TAX> (8,038)
<INCOME-CONTINUING> (11,782)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,782)
<EPS-PRIMARY> (1.87)
<EPS-DILUTED> 0
</TABLE>
