SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
THE WELLCARE MANAGEMENT GROUP, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify previous filing by registration number,
or the form or schedule and the date of its filing.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC.
PARK WEST/HURLEY AVENUE EXTENSION
KINGSTON, NEW YORK 12401
(914) 338-4110
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on June 8, 1998
To the Shareholders of
THE WELLCARE MANAGEMENT GROUP, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders ("Annual
Meeting") of The WellCare Management Group, Inc. ("WellCare" or the "Company")
will be held at the Company's corporate headquarters, Park West/Hurley Avenue
Extension, Kingston, New York 12401, on Monday, June 8, 1998 at 10:00 a.m.,
local time, for the following purposes:
1) To elect seven (7) Directors to serve until the 1999 Annual Meeting of
Shareholders.
2) To ratify the reappointment of Deloitte & Touche LLP as independent
auditors of the Company for the year ending December 31, 1998.
3) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Only holders of record of the Company's Common Stock and Class A Common
Stock at the close of business on April 23, 1998, the record date for the Annual
Meeting, are entitled to notice of and to vote at the Annual Meeting or any
adjournment or postponement thereof.
The Company's 1997 Annual Report to Shareholders accompanies this Notice of
Annual Meeting.
By Order of the Board of Directors,
/s/ Joseph R. Papa
-----------------------------------
Joseph R. Papa
Chief Executive Officer
Kingston, New York
May 4, 1998
SHAREHOLDERS WHO DO NOT EXPECT TO ATTEND THE ANNUAL MEETING ARE REQUESTED TO
COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC.
PARK WEST/HURLEY AVENUE EXTENSION
KINGSTON, NEW YORK 12401
(914) 338-4110
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on June 8, 1998
GENERAL
This Proxy Statement is being furnished to holders of record of Common
Stock and Class A Common Stock of The WellCare Management Group, Inc., a New
York corporation ("WellCare" or the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Shareholders ("Annual Meeting") to be held at the Company's
corporate headquarters, Park West/Hurley Avenue Extension, Kingston, New York
12401, on Monday, June 8, 1998 at 10:00 a.m., local time, and at any and all
adjournments or postponements thereof. Only holders of record of Common Stock
and Class A Common Stock at the close of business on April 23, 1998 (the "Record
Date") are entitled to notice of and to vote at the Annual Meeting. This Proxy
Statement and enclosed proxy card are being mailed to the Company's shareholders
on or about May 4, 1998.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, the shareholders will be asked to consider and vote
upon the following proposals:
1) To elect seven (7) Directors to serve until the 1999 Annual Meeting of
Shareholders.
2) To ratify the reappointment of Deloitte & Touche LLP as independent
auditors of the Company for the year ending December 31, 1998.
3) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
VOTING AT THE ANNUAL MEETING
Each holder of record of Common Stock on the Record Date is entitled to one
vote per share and each holder of record of Class A Common Stock on the Record
Date is entitled to ten votes per share on each matter presented. On the Record
Date, there were 5,295,367 shares of Common Stock issued and outstanding and
1,004,025 shares of Class A Common Stock issued and outstanding. The presence,
in person or by properly executed proxy, of the holders of a majority of the
outstanding shares of Common Stock and Class A Common Stock at the Annual
Meeting (3,149,697 shares of the 6,299,392 aggregate shares of Common Stock and
Class A Common Stock outstanding) is necessary to constitute a quorum at the
Annual Meeting.
If a quorum is present of the total votes cast by the holders of Common
Stock and Class A Common Stock voting as one class, who are present in person or
by properly executed proxy, a plurality of such votes is required to elect the
seven (7) Directors and the affirmative vote of a majority of such votesis
required to ratify the reappointment of Deloitte & Touche LLP as independent
auditors of the Company for the year ending December 31, 1998.
If the enclosed proxy card is properly executed and returned to the Company
prior to the voting at the Annual Meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. Shares represented
by proxies which are marked "WITHHOLD AUTHORITY" to vote for (i) all seven (7)
nominees, or (ii) any individual nominee(s) for election as directors and are
not otherwise marked "FOR" the other nominees, will not be counted in
determining whether a plurality vote has been received for the election of
directors. Similarly, shares represented by proxies which are marked "ABSTAIN"
on any other proposal will not be counted in determining whether
1
<PAGE>
the requisite vote has been received for such proposal. In the absence of
instructions, the shares will be voted FOR all the proposals set forth in the
Notice of Annual Meeting. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned
proxies (so called "broker non-votes"), those shares will not be included in the
totals.
At any time prior to its exercise, a proxy may be revoked by the holder of
the Class A Common Stock or Common Stock granting such proxy by delivering
written notice of revocation or a duly executed proxy bearing a later date to
the Chief Executive Officer of the Company at the address of the Company set
forth on the first page of this Proxy Statement or by attending the Annual
Meeting and voting in person.
Proxies may be solicited on behalf of the Board by mail, telephone,
telecopy or in person and solicitation costs will be paid by the Company.
Directors, officers and regular employees of the Company may solicit proxies by
such methods without additional compensation. Banks, brokerage houses and other
institutions, nominees and fiduciaries will be requested to forward the
soliciting material to their principals and to obtain authorizations for the
execution of proxy cards and, upon request, will be reimbursed by the Company
for their reasonable expenses.
2
<PAGE>
TABLE OF CONTENTS
PAGE
----
Security Ownership of Certain Beneficial Owners and Management ............ 4
Election of Directors ..................................................... 5
Executive Compensation .................................................... 7
Repricing of Options ...................................................... 10
Compensation Committee Report on Repricing of Options ..................... 11
Compensation Committee Interlocks and Insider
Participation in Compensation Decisions ................................. 11
Report of Compensation Committee of Board of Directors
on Executive Compensation ............................................... 11
Stock Performance Graph ................................................... 14
Certain Relationships and Related Transactions ............................ 15
Indemnification of Officers and Directors ................................. 17
Section 16 Proxy Statement Disclosure ..................................... 17
Ratification of Reappointment of Independent Auditors ..................... 17
Other Business ............................................................ 18
Shareholder Proposals ..................................................... 18
3
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of the Record Date certain information
with regard to the beneficial ownership of the Common Stock of the Company as of
the date hereof by (i) each shareholder who is known by the Company to
beneficially own in excess of five percent (5%) of the outstanding shares of
Common Stock or Class A Common Stock, (ii) each director, (iii) each of the
executive officers named in the Summary Compensation Table on page 7 of this
Proxy Statement, and (iv) all executive officers and directors as a group:
<TABLE>
<CAPTION>
Percent of Total
-----------------------------
Percent
Class A Class A of Total
Name Common Common(11) Common Common Vote
---- ------ ---------- ------ ------ --------
<S> <C> <C> <C> <C> <C>
Robert W. Morey, Jr.(1)(2) 281,956 905,201 28.1% 16.4% 24.0%
Mark D. Dean, D.D.S. (3)(4) .............. 121,534 136,618 12.1 2.5 8.8
Joseph R. Papa ........................... -- 196,667 -- 3.6 *
John E. Ott, M.D. (5) .................... -- 45,950 -- * *
Howard B. Lorch (6) ...................... -- 32,000 -- * *
Mary Lee Campbell-Wisley ................. -- 30,000 -- * *
Jack Sizer, M.D. ......................... -- 35,000 -- * *
Charles E. Crew, Jr. ..................... 43,752 51,594 4.4 * 3.2
Walter W. Grist .......................... -- -- -- -- --
Lawrence C. Tucker(7)(8) ................. -- 3,125,000 -- 37.1 16.9
Edward A. Ullmann (9)(10) ................ 400,000 11,045 39.8 * 26.1
The 1818 Fund II, L.P. (7)(8) ............ -- 3,125,000 -- 37.1 16.9
Brown Brothers Harriman & Co.(7)(8) ...... -- 3.125.000 -- 37.1 16.9
T. Michael Long (7)(8) ................... -- 3,125,000 -- 37.1 16.9
All current executive officers and
directors as a group(12 persons)
(2)(4)(5)(6)(8)(10)(11) ................. 447,242 4,558,168 44.5 50.9 47.6
</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 Mr. Morey is trustee. Mr. Morey disclaims
beneficial ownership.
(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 600 shares of Common Stock owned by Dr. Ott's family trust. Dr.
Ott disclaims beneficial ownership.
(6) Includes 2,000 shares held by the estate of Mr. Lorch's father-in-law, the
executor of which is Mr. Lorch's spouse and sister-in-law; beneficial
ownership of such shares is disclaimed by Mr. Lorch.
(7) Address is 59 Wall Street, New York, New York 10005.
(8) Consists of shares issuable upon conversion of the $20,000,000 8.0%
Subordinated Convertible Note due December 31, 2002 (the "Note") of which
$5,000,000 is convertible at $4.00 per share and $15,000,000 is
convertible at $8.00 per share. The Noteholder has agreed to convert
$5,000,000 of indebtedness into 1,250,000 shares, subject to regulatory
approval. Brown Brothers Harriman & Co., ("BBH & Co."), a general partner
of The 1818 Fund II, L.P. (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 issued upon conversion of
the Note. By virtue of BBH & Co.'s relationship with the Fund, BBH & Co.
may be deemed to beneficially own 3,125,000 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 3,125,000 shares of
Common Stock. The numbers of shares listed does not include the dilutive
effect (if any), due to options issued after December 31, 1997.
(9) Address is P.O. Box 133, Miller Road, Mount Tremper, New York 12457.
(10) 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.
(11) Includes shares of Common Stock from stock options exercisable on or
before June 23,1998, as follows:
NAME NUMBER OF SHARES
---- ----------------
Robert W. Morey, Jr. 200,000
Joseph R. Papa 196,667
Howard B. Lorch 30,000
Jack Sizer, M.D. 20,000
John E. Ott, M.D. 45,250
Mary Lee Campbell-Wisley 30,000
Thomas Curtin 5,000
-------
All current executive officers
and directors as a group (12 persons) 526,917
=======
4
<PAGE>
ELECTION OF DIRECTORS
The Board of Directors currently consists of seven (7) directors. Unless
otherwise specifically directed by shareholders executing proxies, it is
intended that all proxies in the accompanying form received in time for the
Annual Meeting will be voted at the Annual Meeting FOR the election of the seven
(7) nominees named below.
In the event any nominee should become unavailable for reelection for any
presently unknown reason, it is intended that the proxies will be votes for such
substitute nominee as may be designated by the present Board of Directors. If a
quorum is present, a plurality vote of the total votes cast by the holders of
the Common Stock and Class A Common Stock voting as one class, present in person
or by properly executed proxy, is required to elect the seven (7) Directors.
Each nominee's name, age, the year first elected or appointed as a director
and position(s) with the Company are set forth below:
<TABLE>
<CAPTION>
Year First
Served
Name Age as a Director Position/Offices
- ---- --- ------------- ---------------------
<S> <C> <C> <C>
Robert W. Morey, Jr.(1) ............. 61 1996 Director, Chairman
Joseph R. Papa (1) .................. 54 1997 Director, President,
Chief Executive
Officer and Chief
Operating Officer
John E. Ott, M.D. ................... 61 1995 Director, Executive Vice President
Charles E. Crew, Jr.(2)(3) .......... 46 1987 Director
Mark D. Dean, D.D.S.(2)(3) .......... 57 1984 Director
Walter W. Grist (2) ................. 57 1997 Director
Lawrence C. Tucker (1)(3) ........... 55 1996 Director
</TABLE>
- ------------------------
(1) Member, Executive Committee
(2) Member, Audit Committee
(3) Member, Compensation Committee
Messrs. Tucker and Grist have been designated to the Board by The 1818 Fund
II, L.P. (the "Fund") pursuant to the Note Purchase Agreement, as amended,
between the Company and the Fund. Pursuant to the Note Purchase Agreement, the
Company also is required to use its reasonable efforts to appoint two (2)
additional outside directors as Board members.
Messrs. Morey and Ullmann have agreed to vote their shares for the election
of Messrs. Tucker and Grist.
-------------------------
ROBERT W. MOREY, JR., age 61, has been Chairman of the Board since April
30, 1996. He was also Chief Executive Officer from April 1996 until he resigned
in August 1997. Since 1972, Mr. Morey has served as President and Chairman of
RWM Management Company, Inc., a management firm founded by Mr. Morey which is
engaged in, among other things, financial counseling and reinsurance
underwriting of catastrophic health coverage for the managed care industry. Mr.
Morey was engaged in corporate banking, investment banking and the institutional
brokerage business from 1962 to 1972. Mr. Morey received a B.A. in Economics
from Yale University in 1958 and an M.B.A. from Harvard Graduate School of
Business in 1962.
JOSEPH R. PAPA, age 54, has been Chief Executive Officer of the Company
since August 1997, a director since June 1997, and also President and Chief
Operating Officer since September 1996. From 1989 to 1996, 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.
5
<PAGE>
JOHN E. OTT, M.D., age 61, 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.
CHARLES E. CREW, JR., age 46, has been a director of the Company since
1987. Mr. Crew has been employed with General Electric since 1977, where he has
been Vice President of Commercial Operations for the Plastics Business since
1994.
MARK D. DEAN, D.D.S., age 57, has been a director of the Company and Vice
Chairman of the Board since 1984. Dr. Dean has been a dentist in private
practice since 1966.
WALTER W. GRIST, age 57, has been a Director of the Company since February
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 31, 2002 in the principal amount of
$20 million issued by the Company (See "Certain Relationships and Related
Transactions"). Mr. Grist serves on the Board of Directors of Computerized
Medical Systems, Inc., Steri-Oss, Inc. and VAALCO Energy, Inc. Mr. Grist
graduated with a B.S. degree in Business Administration from New York University
in 1965.
LAWRENCE C. TUCKER, age 55, has been a director of the Company since
January 1996. For more than the past 25 years, Mr. Tucker has 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 "Certain Relationships and
Related Transactions.") Mr. Tucker also serves as director of WorldCom, Inc.,
Riverwood Holding, Inc., National HealthCare Corporation and VAALCO Energy, Inc.
Mr. Tucker received a B.S. degree in Engineering from Georgia Institute of
Technology in 1964 and an M.B.A. from the Wharton School of the University of
Pennsylvania in 1966.
MEETINGS AND COMMITTEES
There were ten (10) meetings of the Board of Directors during 1997; and,
with the exception of Mr. Crew who attended four, no director attended less than
75% of the total number of meetings of the Board of Directors or any committee
of which such director is a member. In addition, the Board took action by
Unanimous Written Consent on two (2) occasions in 1997.
The Executive Committee is comprised of Messrs. Morey, Papa and Tucker. The
Executive Committee has all of the powers of the Board not otherwise delegated
to the Audit or Compensation Committees. There were no meetings of the Executive
Committee in 1997.
The Audit Committee, comprised of Messrs. Crew and Grist and Dr. Dean,
meets with the Company's independent auditors to review the scope of their
annual audit, the adequacy of the Company's system of internal controls, and the
sufficiency of its financial reporting. There were four (4) meetings of the
Audit Committee during 1997.
The Compensation Committee, comprised of Messrs. Crew and Tucker and Dr.
Dean, established the compensation program for the Chief Executive Officer,
recommends to the Board of Directors, in consultation, with the Chief Executive
Officer, a general compensation program for all officers and administers the
Company's 1993 Incentive and Non-Incentive Stock Option Plan and the Company's
1996 Non-Incentive Executive Stock Option Plan. There were seven (7) meetings of
the Compensation Committee during 1997. In addition, the Compensation Committee
took action by Unanimous Written Consent on one (1) occasion during 1997.
The Company does not have a standing nominating committee.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation for 1997, 1996
and 1995 earned by(i) the Company's Chairman; and (ii) each of the four most
highly compensated executive officers who were serving as an executive officer
at the end of 1997, other than the Chairman, and whose compensation during 1997
exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
------------------------------
Annual Compensation Awards
--------------------------------------- -----------
Other Annual Common Stock All Other
Name and Salary Compensation Underlying Compensation
Principal Position Year ($) ($) Options (#) ($)
- ------------------ ---- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ROBERT W. MOREY, Jr. 1997 -- -- 600,000(2) --
Chairman (1) 1996 -- -- 600,000 --
1995 -- -- -- --
JOSEPH R. PAPA 1997 $300,000 230,000(4) $5,457(5)
President, Chief 1996 92,308 * 200,000 195(5)
Executive Officer, 1995 -- * -- --
Chief Operating
Officer and Director(3)
JOHN E. OTT, M.D. 1997 $200,000 * 5,000 2,800(5)
Executive Vice 1996 111,538 $11,500(6) 40,000 --
President and 1995 -- -- 2,740 --
Director
HOWARD B. LORCH (8) 1997 $139,538 * 45,000 440(5)
Vice President and 1996 -- -- -- --
Chief Financial 1995 -- -- -- --
Officer
JACK SIZER, M.D. (9) 1997 $218,750 -- 2,500 1,795(5)
Chief Medical 1996 $175,000 -- 20,000 --
Director 1995 -- -- -- --
MARY LEE CAMPBELL- 1997 $129,942 13,000(7) 45,000 688(5)
WISLEY 1996 -- -- -- --
Executive Director 1995 -- -- -- --
of WellCare of
New York, Inc.
</TABLE>
- -----------------------------
* Represents less than 10% of annual salary.
(1) Mr. Morey resigned as Chief Executive Officer effective August 14, 1997.
(2) Represents an amendment to the options previously awarded in 1996. No
additional options were granted in 1997.
(3) Mr. Papa became Chief Executive Officer effective August 14, 1997.
(4) Represents an amendment to the 200,000 options previously awarded in 1996
and the grant of a new option for 30,000 shares granted in September 1997,
the exercise price of such 30,000 options were repriced in February 1998.
(5) Represents group life insurance premium payment.
(6) Represents the amount WellCare paid in 1996 for a condominium rental.
(7) Represents $13,000 one time reimbursement for moving expenses.
(8) Resigned on April 24, 1998.
(9) Resigned on April 3, 1998.
7
<PAGE>
The following table sets forth certain information concerning options
granted in 1997 to the individuals named in the Summary Compensation Table.
OPTION GRANTS IN 1997
Individual Grants
<TABLE>
<CAPTION>
Potential
Realizable Value
Number of % of Total at Assumed Annual
Securities Options Exercise Rates of Stock Price
Underlying Granted to or Base Appreciation for
Options Employees Price Expiration Option Term
Name Granted (#) in 1997 ($/Share) Date 5% 10%
- -------------------- ----------- ----------- --------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
ROBERT W. MOREY, JR. .... 450,000(1)(2) 46.2% $ 4.00 23-Dec-01 (6) (6)
150,000(1)(2) 15.4% $ 6.25 23-Dec-01 (6) (6)
JOSEPH R. PAPA .......... 200,000(1) 20.5% $ 3.01 01-Sep-01 (6) (6)
30,000(3) 3.1% $15.00(4) 01-Sep-02 (6) (6)
HOWARD B. LORCH ......... 45,000(2) 4.6% $8.00 24-Feb-02 $ 99,450 $219,600
JOHN E. OTT, M.D. ....... 5,000(5) * $4.38 01-Jun-02 6,050 13,350
MARY LEE CAMPBELL- ...... 45,000(2) 4.6% $8.75 28-Jan-02 108,675 240,300
WISLEY
JACK SIZER, M.D. ........ 2,500(5) * $4.35 28-May-02 3,000 6,625
</TABLE>
- -----------------------------
(1) Represents an amendment to options previously awarded in 1996.
(2) Exercisable at the cumulative annual rate of 33% of the total number of
shares underlying the option commencing on the date of grant and become
fully exercisable upon a change in control.
(3) Fully exercisable on date of grant.
(4) Exercise price was repriced to $4.51 per share in February 1998.
(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. The options become fully exercisable upon a
change in control or termination of employment without cause.
(6) The potential realizable value at assumed annual rates of stock price
appreciation is less than the exercise price of the applicable option.
Therefore, the options have no potential realizable value at the assumed
annual rates of stock appreciation over the balance of the options term.
No options were exercised in 1997 by the individuals named in the Summary
Compensation Table. The following table sets forth the number of unexercised
options held at December 31, 1997 by the individuals named in the Summary
Compensation Table, none of which options were in-the-money at such date.
OPTION VALUES AT DECEMBER 31, 1997
Number of Unexercised Options
at December 31,1997(#)
Name Exercisable(E)/Unexercisable (U)
------------------- -----------------------------------
ROBERT W. MOREY, Jr. 200,000 (E)/400,000 (U)
JOSEPH R. PAPA 163,333 (E)/ 66,667 (U)
HOWARD B. LORCH 15,000 (E)/ 30,000 (U)
JOHN E. OTT, M.D. 22,740 (E)/ 25,000 (U)
MARY LEE CAMPBELL-WISLEY 15,000 (E)/ 30,000 (U)
JACK SIZER, M.D. 10,000 (E)/ 12,500 (U)
EMPLOYMENT AGREEMENTS
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. In December 1997, the Company amended the exercise price on such options
from $10.125 to $3.01 per share. Additionally, Mr. Papa received options to
purchase 30,000 shares of the Company's Common Stock on September 1, 1997 at an
exercise price of $15 per share. In February 1998, the Company amended the
exercise price of such options to $4.51 per share and granted additional options
for 100,000 shares at an exercise price of $5.02 per share.
8
<PAGE>
Under the agreement, in the event of termination of employment 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 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, assuming general and
administrative expenses of 15% of premium revenue. Dr. Ott has waived his 1996
bonus in view of the Company's financial condition. Due to the Company's
inability to meet 1997 forecasted results, Dr. Ott is currently negotiating the
waiver of his 1997 bonus. It is expected that Dr. Ott will also relinquish his
1997 bonus. 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.
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.
Under the agreement, in the event of termination of employment 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 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.
Dr. Ott and the Company are currently negotiating an amendment to this
agreement.
MS. CAMPBELL-WISLEY is employed under a three-year agreement with the
Company effective January 29, 1997, which provides for an annual base salary of
$145,000. Additionally, under the agreement, the Company provides Mrs.
Campbell-Wisley with an automobile allowance of $550 per month. Under the
agreement, on January 29, 1997, Mrs. Campbell-Wisley was granted five-year
incentive options to purchase 34,285 shares of the Company's Common Stock at
$8.75 per share and five-year non-incentive options to purchase 10,715 shares of
the Company's Common Stock at an exercise price equal to $8.75.
Under the agreement, in the event of termination of employment by the
Company without cause, the Company shall pay Mrs. Campbell-Wisley a lump sum
payment in an amount equal to, if the date of termination is within the period
of January 29, 1998 through January 28, 1999, six months' base salary and
benefits; and if the date of termination is within the period of January 29,
1999 through October 31, 1999, three months' base salary and benefits.
DR. SIZER was employed under a five-year agreement with the Company
effective May 29, 1996, which provided for an annual base salary of $175,000.
This agreement was amended April 21, 1997 which provided for an increase in Dr.
Sizer's annual base salary to $240,000. Additionally, under the agreement, Dr.
Sizer was entitled to receive annually an incentive bonus equal to five percent
(5%) of the earnings before income taxes of WellCare of Connecticut, Inc. as
reflected on its annual income statement. In addition, under the amended
agreement, the Company provided Dr. Sizer with an automobile allowance of $600
per month. Under the agreement, on May 29, 1996, Dr. Sizer was granted five-year
non-incentive options to purchase 17,500 shares of Company's Common Stock at
$12.875 per share and five-year non-incentive options to purchase 2,500 share 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 of the Common
Stock on the date of grant.
Under the agreement, in the event of termination of employment by the
Company without cause, the Company was required to pay Dr. Sizer a lump sum
payment in an amount equal to the greater of six months' salary or the salary
otherwise payable to him through the expiration date.
In April 1998, Dr. Sizer entered into a severance agreement with the
Company, under which he resigned as Chief Medical Officer and will receive
$14,583 per month through May 31, 1999 (and no other compensation), subject to
dollar-for-dollar reduction in the event Dr. Sizer obtains alternative
employment.
COMPENSATION OF DIRECTORS
During 1997, all directors who were not employees of the Company, received
a fee of $500 for each meeting of the Board of Directors attended, plus
reimbursement of their expenses, and an additional $500 for each meeting of the
Audit Committee or Compensation Committee attended.
9
<PAGE>
REPRICING OF OPTIONS
In December 1997, the Compensation Committee approved the restructuring of
compensation packages for Mr. Robert W. Morey, Chairman of the Board of
WellCare, and Joseph R. Papa, the Company's President and Chief Executive
Officer. The Committee considered, among other things, the renegotiation of
competitive contracts with providers, the filing of competitive commercial
premium rates to retain and attract new members, the restructuring of the
Company's infrastructure, the reduction of the workforce to reflect industry
norms and the reduction of general and administrative cost levels. Mr. Lawrence
C. Tucker, a general partner of Brown Brothers Harriman & Co. ("BBH"), a
director of WellCare and a member of the Compensation Committee, did not
participate in the Compensation Committees decisions in light of then concurrent
negotiations to amend the $20 million subordinated convertible note held by The
1818 Fund II, L.P., the general partner of which is BBH.
Mr. Morey's options to purchase an aggregate of 600,000 shares of Common
Stock granted in December 1996 were amended to (i) change the exercise price of
options to purchase 450,000 shares from $10,00 per share to $4.00 per share, and
to change the exercise price of options to purchase 150,000 shares from $15.00
per share to $6.25 per share, (ii) eliminate any requirement that the market
price of the Common Stock reach a target level before the options become
exercisable, (iii) provide for the vesting of the options so that one-third are
immediately exercisable, another one-third become exercisable December 19, 1998
and the remaining one-third become exercisable December 19, 1999, subject to the
options becoming fully exercisable upon a change in control or Mr. Morey's death
or disability.
Mr. Papa's options to purchase 200,000 shares of Common Stock granted in
September 1996 were amended to reduce the exercise price form $10.00 per share
to $3.01 per share (being 121% of the greater of (i) $2.0625 per share
(representing the closing sale price of the Common Stock on December 19, 1997,
as reported by Nasdaq), and (ii) $2.48 per share, representing the average of
the closing sale prices of the Common Stock during December 1997 and January
1998).
The Compensation Committee also agreed that effective February, 1, 1998,
the exercise price of Mr. Papa's options to purchase 30,000 shares at $15.00 per
share granted in September 1997 would be reduced from $15.00 per share to $4.51
per share, representing the greater of (i) 150% of $3.01 per share (the new
exercise price of the options to purchase 200,000 shares), or (ii) 121% of the
$2.625 per share market price of the Common Stock on February 2, 1998.
The Compensation Committee additionally agreed to grant to Mr. Papa,
effective February 1, 1998, five-year options to purchase 100,000 shares at an
exercise price equal to $5.02 per share, being the greater of (i) $3.01 per
share (167% of the new exercise price of the options to purchase 200,000
shares), or (ii) 130% of the $2.625 per share market price of the Common Stock
on February 2, 1998. Mr. Papa agreed to relinquish his right under his
employment agreement to options to purchase 30,000 shares in September 1998 and
September 1999.
Janney Montgomery Scott Inc., an investment banking firm retained by the
Company, rendered an opinion to WellCare that the terms of the proposed
compensation packages granted to Messrs. Morey and Papa were fair from a
financial point of view to the Company's shareholders.
10-YEAR OPTION REPRICING
<TABLE>
<CAPTION>
Number of
Shares of Market Length of
Common Price of Original
Stock Common Exercise Option Term
Underlying Stock at Price at New Remaining
Options Time of Time of Exercise at Date of
Name Date Repriced Repricing Repricing Price Repricing
- ---- ----- -------- --------- --------- ----- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Morey, Jr. 12/31/97 450,000 $2.00 $10.00 $4.00 4 years
Chairman 12/19/97 150,000 $2.063 $15.00 $6.25 4 years
Joseph R. Papa 12/19/97 200,000 $2.063 $10.125 $3.01 3 3/4 years
President/CEO
</TABLE>
10
<PAGE>
COMPENSATION COMMITTEE REPORT
ON REPRICING OF OPTIONS
The purpose of the repricing of the options to Messrs. Morey and Papa is to
provide additional incentives to them to maximize shareholder value. Given that
the original exercise prices of the options held by Messrs. Morey and Papa
significantly exceeded current market price in December 1997, and in Mr. Morey's
case, the need for the Common Stock to significantly increase for the options to
become exercisable, the Compensation Committee concluded that those options had
no value and provided no incentive to either Mr. Morey or Papa. Accordingly, the
Compensation Committee approved the amendments to the outstanding options
granted to Messrs. Morey and Papa in the manner described above, including but
not limited to reducing the exercise price to prices at a premium to the market
price of the Common Stock in December 1997, but in the Committee's view a price
that could be achieved and in fact surpassed based upon management's efforts to
date to turn WellCare towards profitability. The rationale for repricing the
options at the greater of (x) a premium to current market price or (y) a premium
to the market price of the Common Stock over the two-month period ended January
31, 1998, was based on the Committee's belief that the industry conditions in
December 1997 together with year-end tax sell-offs had lowered the market price
to a point where the Common Stock was undervalued. The rationale for different
exercise prices applying to Mr. Morey's options to purchase 450,000 shares and
150,000 shares ($4.00 per share and $6.25 per share exercise prices,
respectively) and for different exercise prices applying to Mr. Papa's options
to purchase 200,000 shares and 30,000 shares ($3.01 per and $4.51 per share
exercise prices, respectively) was to parallel to a significant degree the
differential pricing utilized in the original pricing of such options.
The modifications (including the repricing), in the Committee's view, would
provide a new incentive to Messrs. Morey and Papa. In reaching its
determinations, the Committee relied upon the opinion of Janney Montgomery Scott
Inc., an investment banking firm retained by the Company, that the terms of the
proposed compensation packages granted to Messrs. Morey and Papa were fair from
a financial point of view to the Company's shareholders.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Dated: April 22, 1998
Charles E. Crew, Jr., Chairman
Mark D. Dean, D.D.S.
COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
Lawrence C. Tucker served on the Compensation Committee during 1997. Mr.
Tucker is a general partner of Brown Brothers Harriman & Co., the general
partner of The 1818 Fund II, L.P. the holder of a $20 million subordinated
convertible note. (See "Certain Relationships and Related Transactions"). Mr.
Tucker did not participate in the actions taken by the Compensation Committee
relating to the repricing of options previously granted in 1997 and 1996 to
Messrs. Morey and Papa or the grant of additional options to purchase 100,000
shares to Mr. Papa in February 1998. Mr. Tucker did not participate in light of
the potential conflict of interest arising out of the concurrent negotiations to
amend the Note, which negotiations were consummated in an amendment to the Note
in January 1998.
REPORT OF COMPENSATION COMMITTEE OF BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The following is provided to shareholders by members of the Compensation
Committee of the Board of Directors:
INTRODUCTION
Decisions on executive compensation are made by the Compensation Committee
of the Board of Directors which is composed of three non-employee directors. All
decisions by the Compensation Committee are reviewed by the full Board except
for decisions with respect to the Company's stock based plans, which are made
solely by the Compensation Committee.
11
<PAGE>
The Compensation Committee reviews the compensation levels of members of
management, evaluates the performance of management, and considers management
succession and related matters. In addition, the Committee administers the
Company's incentive plans, which include an annual incentive plan and a
long-term performance plan.
EXECUTIVE COMPENSATION PHILOSOPHY
The Compensation Committee's philosophy with respect to the Company's
executive officers, including the Chief Executive Officer is designed to (i)
maintain a compensation program that is equitable in a competitive marketplace,
(ii) provide compensation opportunities that integrate pay with the Company's
annual and long-term performance goals which reinforce growth in shareholder
value, (iii) recognize and reward individual initiative and achievements, and
(iv) allow the Company to attract, retain, and motivate qualified executives who
are critical to the Company's success.
The Compensation Committee endorses the position that stock ownership by
management is beneficial in aligning management's and shareholders' interests in
the enhancement of shareholder value. Thus, the Committee has utilized stock
options in the compensation program for the executive officers with a goal of
increasing stock ownership over time. The Committee considered, among other
things, the renegotiation of competitive contracts with providers, the filing of
competitive commercial premium rates to retain and attract new members, the
restructuring of the Company's infrastructure, the reduction of the workforce to
reflect industry norms and the reduction of general and administrative cost
levels.
The compensation policy of the Compensation Committee is that executive
compensation for Mr. Morey should consist solely of incentive compensation. For
all other executive officers, the compensation policy of the Compensation
Committee is that it should consist of base salary as well as incentive
compensation.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program for Mr. Morey, who acted as
Chief Executive Officer through August 14, 1997 and as Chairman throughout 1997,
consists of the opportunity to earn stock based incentives which are intended to
encourage the achievement of superior results over time and to align the
Chairman's and shareholder interests. This element constitutes an "at risk"
compensation and is designed to link the interests of the Chairman with those of
the shareholders. This means that total compensation for Mr. Morey is variable
and may fluctuate significantly from year to year depending on the market value
of the Common Stock of the Company.
The compensation of Mr. Morey consists of the opportunity to earn long term
incentives through the granting of stock options.
In December 1996, the Compensation Committee granted to Mr. Morey 600,000
performance-accelerated stock options as follows; 450,000 options to purchase
Common Stock at $10 per share, exercisable at the earlier of November 23, 2001
or the stock attaining a fair market value price of $20 per share for thirty
(30) consecutive trading days; 150,000 options to purchase Common Stock at $15
per share, exercisable at the earlier of November 23, 2001 or the stock
attaining a fair market value price of $25 per share for thirty (30) consecutive
trading days. These options and the 1996 Non-Incentive Executive Stock Option
Plan pursuant to which they were granted were approved by the shareholders at
the 1997 Annual Meeting of Shareholders.
In December 1997 the Compensation Committee, as discussed in its report on
page 11 of this Proxy Statement, approved amendments to those options, which,
among other things (i) change the exercise price of options to purchase 450,000
shares from $10,00 per share to $4.00 per share, and to change the exercise
price of options to purchase 150,000 shares from $15.00 per share to $6.25 per
share, (ii) eliminate any requirement that the market price of the Common Stock
reach a target level before the options become exercisable, The Compensation
Committee approved these amendments in order to provide incentives to Mr. Morey,
given that the options as originally granted no longer had any value.
The Company's executive compensation program for Mr. Papa, who acted as
Chief Executive Officer since August 15, 1997 and as President and Chief
Operating Officer throughout 1997 and for the other executive officers consists
of two main components: (i) base salary, (ii) the opportunity to earn long term
stock based incentives which are intended to encourage the achievement of
superior results over time and to align executive officers' and shareholders'
interest. The Company, in 1996, engaged an outside consulting firm to search,
hire and negotiate the employment agreement of Mr. Papa. Such negotiations were
arms length and were equitable in the competitive market place for other
publicly traded companies. During 1997, in lieu of increasing Mr. Papa's cash
renumeration, the Compensation Committee
12
<PAGE>
concluded that the repricing of Mr. Papa's options and the granting of
additional options were better aligned with the Company's and shareholders'
current and future interests. The new option price was established at a
significant premium above the market price at that time.
OTHER EXECUTIVE COMPENSATION
In 1996 and 1997 the Company negotiated and entered into employment
agreements with its other executive officers.
BASE SALARIES
In negotiating and fixing the base salaries of each of its executive
officers, the Compensation Committee considered a number of important factors.
The Committee focused on incentives directed towards returning the Company to
profitability by first addressing the medical cost side of the business and then
revenue generators. The Company engaged an outside consulting firm to search,
hire and negotiate the employment agreement of Mr. Curtin. Such negotiations
were arms length and were equitable in the competitive market place for other
publicly-traded companies.
The above factors were considered subjectively, together with the policy of
the Committee, that, in general, executive officers of the Company should be
compensated at competitive levels to attract, motivate and retain talented
executives.
STOCK OPTIONS
The Committee granted stock options to other senior executive generally
having a term of five (5) years, at an exercise price equal to fair market value
at the date of grant, and exercisable at an annual rate ranging from
thirty-three percent (33%) to fifty percent (50%) per year commencing on the
date of grant or one (1) year from the date of grant. Upon a change of control,
all granted options become immediately exercisable.
BONUSES
The Company's executive compensation program for certain executives also
consists of potential annual cash bonuses based on a Company division or
subsidiary meeting certain financial performance. Pursuant to individual
employment agreements, certain executives are entitled to receive an amount
ranging from 5% to 10% of the earnings before income taxes of a division or
subsidiary of the Company for any given year; no such bonuses were paid in 1997.
Additional bonuses may also be paid to such executives at the Board's
discretion.
OTHER COMPENSATION PLANS
Finally, the Committee has reviewed the provisions of Section 162(m) of the
Code, which was enacted in 1993, relating to the $1 million deduction cap for
executive salaries and believes that its compensation to its executive officer
substantially complies with the exceptions to Section 162(m) limitations for
deductions to the Company for compensation in excess of $1 million per year.
The foregoing report of the Compensation Committee shall not be deemed to
be "soliciting material" or to be "filed" with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any
future filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, except to the extent the Company specifically
incorporated it by reference into such filing.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Dated: April 22, 1998
Charles E. Crew, Jr., Chairman
Mark D. Dean, D.D.S.
Lawrence C. Tucker
13
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return to
the Company's (WELL) shareholders during the period from August 12, 1993 (the
date of WellCare's initial public offering of Common Stock) through December 31,
1997, as well as an overall stock market index (the NASDAQ stock market (US)
composite index), a peer group index used in prior years (SIC Code Index
80-Nasdaq Health Services Stock), and a new WELL's peer group index of publicly
traded regional HMO companies comprised of Coventry Health Care, Inc., Health
Power, Inc., Maxicare Health Plans, Inc., Mid Atlantic Medical Services, Inc.,
Oxford Health Plans, Inc., Rightchoice Managed Care, Inc., Sierra Health
Services, Inc., Trigon Healthcare, Inc., United American Health Care Corp., and
United Wisconsin Services, Inc.
The Company has included an additional peer group comparison (Regional HMO
Index) to reflect its position relative to other publicly traded regional HMO's.
The previously used peer group index includes the results of all health services
company stocks, which include companies other than HMO's who do not insure
health risks. The Company believes the publicly traded regional HMO stocks are
more appropriate for the shareholder return comparison.
[Graph depicts cumulative total return among WELL, the NASDAQ (US) Composite
Index and the SIC Code Index. Graph assumes $100 invested on August 12, 1993 and
reinvestment of dividends through fiscal year ended December 31, 1997.]
14
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of the Note Purchase Agreement dated January 19,
1996, (the "Agreement") entered into between the Company and The 1818 Fund II,
L.P., (the "Fund"), a private equity fund managed by Brown Brothers Harriman &
Co. ("BBH & Co."), the Company issued a Note dated January 19, 1996, in the
principal amount of $20,000,000 payable to the order of the Fund or its
registered assignees. On February 28, 1997, the Fund and the Company amended the
Agreement and the Note and on January 14, 1998, the Agreement and Note were
further amended.
Under the January 1998 amendment, subject to regulatory approval, the Fund
will convert $5 million of indebtedness under the Note into 1,250,00 shares of
Common Stock. The holder of the Note has the right to convert the $15,000,000
outstanding principal amount of the Note at a conversion price of $8 per share,
subject to adjustment for certain dilutive events. Under the Note, the
conversion price is subject to adjustment, 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 remaining $15,000,000 of indebtedness under the Note is due on December
31, 2002 and interest accrues thereon at an interest rate of eight percent (8%)
per annum, payable quarterly. The Note is subject to mandatory redemption at the
option of the holder of the Note upon a Change of Control (as defined in the
Note) of the Company. In addition, subject to certain conditions, the Note is
subject to optional redemption at the option of the Company on or after January
19, 2000, the Note is subordinated to all senior indebtedness of the Company.
The holder of the Note also has the right to require redemption of the Note
following a Change of Control of the company at a redemption price equal to 150%
of the outstanding principal amount of the Note together with all accrued and
unpaid interest thereon. 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, the Fund may designate two
directors to the Board. The persons elected to the Board who are designated by
the Fund are referred to herein as the "Fund Designees."
The Company is required to use its reasonable efforts to appoint two (2)
additional directors (the "Outside Directors") to be elected to the Board. Each
such person shall (i) be neither an officer, director or employee of the Company
or any subsidiary of the Company nor any affiliate of the Company, and (ii) have
experience as a director of a public company or other relevant experience.
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,
Messrs. Morey and Ullmann 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 placements of Common Stock by the Company.
Pursuant to the January 1998 amendment, if the Company's consolidated
earnings before income taxes are positive for either the 1998 second or third
quarter, the Company will have the right, exercisable after the filing of the
Form 10-Q relating to such quarter, and prior to December 31, 1998, to purchase
50% of the aggregate outstanding principal amount and 50% of the conversion
shares for an aggregate purchase price of $12 million plus all accrued and
unpaid interest on the Note to the date of purchase.
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 was also required, in 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.
15
<PAGE>
In connection with the February 1997 and January 1998 amendments, the
Company has reimbursed the Fund $94,348 for fees and expenses incurred by the
Fund in connection with the preparation, negotiation and execution of the
Amendment and related matters.
Effective July 1, 1996, the Company's subsidiary, WellCare of New York,
Inc. ("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. In 1996, the
Company acquired 70% of Bienestar. On December 17, 1996, WellCare sold its
interest in Bienestar to Mr. 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 November 1997, the Company decided not to renew the administrative
services agreement. Fees paid to Bienestar under the Administrative Services
Agreement in 1997 were approximately $587,735.
In June 1995, the Company sold the assets of WellCare Medical Management,
Inc. ("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 18a.
In view of the Buyer's operating losses and advances to the Alliances, the
Company had obtained from certain of the Buyer's equity holders personal
guarantees of the original note and pledges of collateral to secure 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. Other former officers or directors of
the Company guaranteed an additional $2.35 million of the $5.1 million note
receivable.
In April 1997, the Company's Board of Directors agreed to release these
guarantees and related collateral pledged by the guarantors to secure the
guarantees in exchange for the Buyer's stock options that such guarantors
originally received from the Buyer and a release from the guarantors for any
potential claims against WellCare associated with the transactions. 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 had fully reserved in 1995 the original
$5.1 million note receivable, plus the $.7 million advanced in 1995. In 1996,
the Company established an additional net reserve of $1.9 million for the
$215,000 note, interest accrued on the notes, and advances receivable, net of
the deferred gain of $144,000 on the original sale. In 1997, the Company
established a reserve of $.8 million for 1997 accrued interest not paid by the
Buyer and for advances made in 1997.
In February 1997, the Buyer executed the promissory note for $2.1 million,
bearing interest at the rate of prime plus 2% (10.5% at December 31, 1997), with
repayment of the principal over 36 months, starting upon the occurrence of
certain events explained below (no interest has been paid on this obligation).
Subsequently, in February 1997, the Buyer entered into an Option Agreement with
a potential investor (the "Investor"), whereby the Investor loaned the Buyer
$4,000,000 and received an option to merge with the Buyer, exercisable through
June 30, 1998. 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. If the Investor merges with the Buyer, the $2.1 million note
would be payable immediately, and the Company would have a 43% equity interest
in the Company resulting from the merger of the Investor and the Buyer. At the
earlier of the Buyer relinquishing its option to merge, (which would include
expiration of the option), or March 14, 1999, the forbearance will be rescinded
and the original payment terms of the $5.1 million note reinstated. The Buyer
would be obligated to continue paying 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 Buyer has not made any of the interest
payments due under the $2.1 million note. The notes are subordinated to the
Investor's security interest.
WCNY has agreements with Alliances to provide medical care to its members
(See Notes 1a and 18a 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" in the 1997 Annual Report to Shareholders accompanying
this Proxy Statement). 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" in the 1997 Annual
Report to Shareholders accompanying this Proxy Statement. Approximately
$4,596,000 of these loans have been repaid as of December 31, 1997.
16
<PAGE>
The Company reinsures at negotiated arms length premium amounts the risk of
its commercial, Medicaid and Medicare Risk members with affiliated companies of
Allianz Life Insurance Company of North America and subsidiaries ("Allianz").
The Company received $1,250,000 from the Allianz in 1997 with respect to their
previous contribution commitment to WellCare University. RWM Management Company,
Inc., is a company wholly-owned by Mr. Robert Morey, the Company's Chairman of
the Board. A significant portion of the revenues earned by RWM Management
Company, Inc., is associated with a long-term business relationship between Mr.
Morey and Allianz.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Through December 31, 1997, the Company has incurred legal fees for Edward
A. Ullmann and Marystephanie Corsones, the Company's former Chief Executive
Officer and former Chief Financial Officer, respectively, an aggregate of
$523,000 and $349,000, respectively, to indemnify such individuals for legal
fees and expenses incurred in connection with their defense of the class action
securities litigation in which the Company and such individuals are defendants.
The litigation, which is described in the 1997 Annual Report to Shareholders
which accompanies this Proxy Statement, is currently in the discovery stage.
SECTION 16 PROXY STATEMENT DISCLOSURE
Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that officers, directors and holders of more than 10%
of the Common Stock (collectively, the "Reporting Persons") file reports of
their trading in the Company's equity securities with the Securities and
Exchange Commission. Based upon a review of Section 16 forms filed by the
Reporting Persons during the last fiscal year, the company believes that the
Reporting Persons complied with the applicable Section 16 filing requirements,
except as follows: (i) Mr. Morey filed his Form 5, in which he reported the
amendment to his options to purchase an aggregate of 600,000 shares,
approximately 27 days late, (ii) Mr. Papa filed his Form 5, in which he reported
the amendment to his options to purchase 200,000 shares, approximately 27 days
late, (iii) Dr. Ott is currently filing his Form 5 for 1997 due February 14,
1998, in which he will be reporting the grant of 5,000 options in June 1997,
(iv) Dr. Sizer filed his Form 3 approximately one week late and is currently
filing his Form 5 for 1997 due February 14, 1998, in which he will be reporting
the grant of 2,500 options in June 1997, (v) Mr. Curtin filed his Form 3
approximately 3 days late, (vi) Dr. Dean filed a Form 4 for December 1997, in
which he reported three separate sales of Common Stock, approximately 20 days
late, (vi) Mr. Grist filed his Form 3 approximately 3 days late, and (vii) Mr.
Ullmann made the following late filings: (a) a Form 4 for December 1997, in
which he reported nine separate sales of Common Stock, approximately 30 days
late; (b) a Form 4 for November 1997, in which he reported one sale of Common
Stock, approximately 3 days late; (c) a Form 4 for October 1997, in which he
reported eight separate sales of Common Stock, approximately 10 days late; (d) a
Form 4 for March 1997, in which he reported one sale of Common Stock,
approximately 11 days late.
RATIFICATION OF REAPPOINTMENT OF INDEPENDENT AUDITORS
Deloitte & Touche LLP currently serves as the Company's independent
auditors. They have served in that capacity since 1992. On March 10, 1998
subject to ratification by the shareholders, the Company's Board of Directors
appointed Deloitte & Touche LLP as independent auditors of the Company for 1998.
The shareholders are asked to ratify this action of the Board. The affirmative
vote of a majority of the total votes cast by the holders of Common Stock and
Class A Common Stock present in person or represented by proxy at the Annual
Meeting voting as one class is required to ratify the appointment of Deloitte &
Touche LLP as independent auditors of the Company for 1998. Unless marked to the
contrary, proxies received will be voted "FOR" ratification of the appointment
of Deloitte & Touche LLP as independent auditors of the Company for 1998. It is
anticipated that a representative of Deloitte & Touche LLP will be present at
the Annual Meeting to answer appropriate questions within such firm's field of
expertise. Such representative will have the opportunity to make a statement if
he/she desires to do so.
The ratification of the appointment of Deloitte & Touche LLP as independent
auditors of the Company is being submitted to the shareholders because the Board
believes that such action follows sound corporate practice and is in the best
interest of the shareholders. If the shareholders do not ratify the appointment
by the requisite vote at the Annual Meeting, the appointment of independent
auditors will be reconsidered by the Board. If the shareholders ratify the
appointment, the Board, in its discretion, may still direct the appointment of
new independent auditors at any time during the year if the Board believes that
such change would be in the best interest of the Company and its shareholders.
17
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE RATIFICATION OF THE APPOINTMENT OF
DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS FOR 1998.
OTHER BUSINESS
Management does not know of any matter to be brought before the Annual
Meeting other than as described above. In the event any other matter properly
comes before the Annual Meeting, the persons named in the accompanying form of
proxy have discretionary authority to vote on such matters.
SHAREHOLDER PROPOSALS
Any shareholder proposal to be considered for inclusion in the Company's
proxy solicitation material for the next Annual Meeting of Shareholders must be
received by the Company at its principal office by December 31, 1998.
Dated: May 4, 1998
18
<PAGE>
PROXY CARD
THE WELLCARE MANAGEMENT GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints ROBERT W. MOREY, JR. and JOSEPH R. PAPA and
each of them, proxies, each with the power of substitution, to vote the shares
of the undersigned at the Annual Meeting of Shareholders of The WellCare
Management Group, Inc. (the "Company") on June 8, 1998, and any adjournments or
postponements thereof, upon all matters as may properly come before the Annual
Meeting. Without otherwise limiting the foregoing general authorization, the
proxies are instructed to vote as indicated herein.
THIS PROXY, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL BE
VOTED FOR THE MATTERS DESCRIBED IN PARAGRAPHS (1), (2) AND (3) UNLESS THE
SHAREHOLDER SPECIFIES OTHERWISE, IN WHICH CASE, IT WILL BE VOTED AS SPECIFIED.
(CONTINUED ON OTHER SIDE)
<PAGE>
[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.
FOR all nominees listed at WITHHOLD AUTHORITY
right (except as marked to to vote for seven
contrary below) seven (7) (7) nominees
nominees listed at right. listed at right.
[ ] [ ]
(1) TO ELECT SEVEN (7) DIRECTORS
Nominees for Directors:
CHARLES E. CREW, JR.
MARK D. DEAN, D.D.S.
WALTER W. GRIST
ROBERT W. MOREY, JR.
JOHN E. OTT, M.D.
JOSEPH R. PAPA
LAWRENCE C. TUCKER
To WITHHOLD AUTHORITY to vote for any individual nominee(s),
print such nominee's name below:
- -----------------------------------------------------------
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(2) To ratify the reappointment of Deloitte & Touche LLP as independent
auditors of the Company for the year ending December 31, 1998.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
(3) To transact such other business that may come before the Annual Meeting or
any adjournment or postponement thereof.
SIGNATURE(S) DATE PLEASE SIGN AND RETURN THE
---------------------- ---------- CARD PROMPTLY USING THE
NOTE: [Executors, Administrators, etc., should give ENCLOSED ENVELOPE.
full title.]
