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, 1998
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 [ ] NO
[X]
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 July 1, 1999 was $5,018,031
based on the closing sales price of the common stock on such date.
The aggregate number of Registrant's shares outstanding on July 1, 1999 was
7,196,944 of common stock, $.01 par value and 352,448 shares of Class A common
stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
ITEM 1. BUSINESS
The WellCare Management Group, Inc. ("WellCare" or the "Company") is a
managed health care company whose direct and indirect wholly-owned subsidiaries,
WellCare of New York, Inc. ("WCNY") and WellCare of Connecticut, Inc. ("WCCT"),
are health maintenance organizations ("HMOs"). WCCT, which is a wholly-owned
subsidiary of WCNY, is modeled on WCNY and operates in the State of Connecticut.
As of December 31, 1998, WCNY membership consisted of commercial members as well
as those covered by governmental programs (Medicare, Medicaid and Child Health
Plus). WCCT services only commercial members. Until June 1999, WellCare provided
management services to each of its subsidiaries. In June 1999, the Company
entered into a number of transactions which will significantly change the future
operations of the Company. These transactions are described below under Recent
Events.
Certain statements in this Annual Report on 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, including but not limited to the following: the Company's ability to
continue as a going concern; that Dr. Patel will not obtain Connecticut
regulatory approval of the change in control of WCCT contemplated by the Patel
transaction; the inability to meet HMO statutory net worth requirement for WCNY
or WCCT; the absence of a commercial line of business in WCNY for at least one
year; that increased regulation will increase health care expenses; that
increased competition in the Company's markets or change in product mix will
unexpectedly reduce premium revenue; that the Company will not be successful in
increasing membership growth; that there may be adverse changes in Medicare and
Medicaid premium rates set by federal and state governmental agencies; that
health care cost 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; that the Company will be unable to
successfully expand its operations into New York City, Westchester County and
the State of Connecticut; and that major health care providers will be unable to
maintain their operations and reduce or eliminate their accumulated deficits.
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 or
both. The Company is unable to predict the specific content of any future
legislation, action or regulation that may be enacted or when any such future
legislation or regulation will be adopted. Therefore, the Company cannot predict
the effect of such legislation, action or regulation on the Company's business.
RECENT EVENTS
In March 1998, the Company engaged Bear, Stearns & Co. Inc. to assist the
Company in exploring its strategic opportunities, which could include joint
venture, merger or sale of all or a portion of the Company. At December 31,
1998, the Company had a working capital deficiency of approximately $26.1
million, had incurred operating losses in each of the last three years, and was
not in compliance with the statutory net worth requirements for New York State
and Connecticut HMOs. The New York requirements call for WCNY to maintain a
contingent reserve of $6.7 million at December 31, 1998, compared to its
statutory-basis financial statement negative net worth of ($14.6) million. The
New York State Insurance Department ("NSYID") has the authority to allow an HMO
to maintain a net worth of 50% to 100% of the contingent reserve. WCNY had been
operating within the 50%-100% discretionary contingent reserve requirement
during 1997 and through the first quarter of 1998 with the full knowledge of
NYSID. In April 1999, WCNY agreed to a consent to rehabilitation in which the
State of New York has the right to commence court proceedings and have an order
entered into that would give the State of New York the right assume the
operation of WCNY. Failure to come into compliance with the reserve requirement
could cause NYSID to take action which could include restriction or revocation
of WCNY's license. The Connecticut requirements call for a minimum statutory net
worth of $1 million, whereas WCCT statutory net worth at December 31, 1998 was
approximately $.6 million, including an account receivable from the Company of
approximately $.9 million. As a result, on June 2, 1999, the State of
Connecticut Insurance Department issued an order requiring WCCT to submit to
administrative supervision by the State's Insurance Commissioner until WCCT
meets its statutory net worth (without including the account receivable from the
Company) and other requirements.
The Company's financial statements as of December 31, 1998, and for the
year then ended, have been prepared assuming that the Company will continue as a
going concern. The auditors' report states that "the Company's recurring losses
from operations, working capital deficit, deficiency in assets and failure to
maintain 100% of the contingent reserve requirement of the New York State
Department of Insurance raise substantial doubt about its ability to continue as
a going concern." (See Consolidated Financial Statements).
On June 11, 1999, WellCare closed on two separate transactions. Kiran C.
Patel, M.D. ("Patel"), the principal of Well Care HMO, Inc., a Florida
corporation, an entity unrelated to WellCare, purchased a 55% ownership interest
in the Company for $5 million. In a second transaction, Group Health
Incorporated ("GHI") purchased WCNY's commercial business (approximately 25,000
members) for approximately $5 million, effective June 1, 1999. The consummation
of these transactions, along with other concurrent settlements, is expected to:
reduce the Company's working capital deficit by approximately $18.0 million;
improve the ability to bring WCNY within the 50% to 100% revised contingent
reserve requirement, as permitted by NYSID; retire substantially all of the
Company's long-term debt; significantly reduce WCNY's obligations to its
providers; reduce the number of employees from 236 at December 31, 1998 to 105;
and change the configuration and focus of the Company. Thereafter, WellCare's
operations in New York will consist solely of its governmental programs
(Medicare, Medicaid, and Child Health Plus), with WCNY's revised statutory cash
reserve decreased to $2.9 million, and its revised statutory contingent reserve
decreased to $3.7 million. WCCT will continue its commercial business in
Connecticut, subject to a public hearing and regulatory approval of the
acquisition of control of WCCT. Management believes that the consummation of
these transactions will improve WellCare's ability to continue as a going
concern.
In June 1999, Dr. Patel purchased shares of a newly authorized series of
senior convertible preferred stock for $5 million, which provides Dr. Patel with
55% of WellCare's voting power. The preferred stock is subject to mandatory
conversion into common stock upon the amendment to WellCare's certificate of
incorporation to increase the number of authorized shares of common stock from
20 million to 75 million. The shares will be convertible into 55% of the then
outstanding common stock (after giving effect to such conversion) and will be
subject to anti-dilution rights under which Dr. Patel will generally preserve
his 55% interest in WellCare until there are 75 million shares of common stock
issued and outstanding. The investment by Dr. Patel in WellCare was approved by
New York State regulators on June 11, 1999. Pending a public hearing in
Connecticut and regulatory approval of the acquisition of control of WCCT, Dr.
Patel is precluded from exercising influence in directing the management and
policies of WCCT. There can be no assurance that approval of the change in
control will be granted nor that the order of supervision will be lifted.
In the GHI transaction, WCNY sold its commercial business, including
approximately 25,000 members, to GHI for $5 million, effective June 1 1999.
WellCare received $4 million at closing, and $1 million was placed in escrow
pending a determination of the total number of WCNY commercial members at June
1, 1999. If the commercial membership is at least 25,000 members, all of the
proceeds will be released from escrow. WellCare and WCNY have agreed not to
engage in commercial HMO business in New York for a period of one year following
the closing.
As a condition to the closing of the Patel and GHI transactions, more than
75 hospitals and physicians and other health care providers have entered into
settlement agreements to settle claims for services provided to WCNY HMO members
through April 30, 1999. These claims will be settled from a provider pool
consisting of at least $10 million, comprised of all of the proceeds from the
GHI and Patel transactions and 80% of WCNY's premium receivables at April 30,
1999, with WCNY able to utilize the amount in the provider pool in excess of $10
million, up to $2.5 million, to meet statutory reserves. These providers may
receive additional payments in an amount of up to 15% of the settled claims,
spread over the next three years, should they continue to provide health care
services to WCNY members.
In June 1999, the Company loaned WCNY $5 million under the provisions of
Section 1307 of the New York State Insurance Law. Under Section 1307, the
principal and interest are treated as equity capital for regulatory purposes and
are repayable out of the free and divisible surplus, subject to the prior
approval of the Superintendent of Insurance of the State of New York.
As a condition to the closing of the Patel transaction, The 1818 Fund II,
L.P. (the "Fund"), the general partner of which is Brown Brothers Harriman &
Co., converted the $15 million 8% subordinated promissory note issued by
WellCare into a second newly authorized series of senior convertible preferred
stock. The preferred stock is non-voting and is subject to mandatory conversion
(subject to regulatory approval) into 10,000,000 shares of common stock of
WellCare upon the amendment to WellCare's certificate of incorporation to
increase the number of authorized shares of common stock from 20 million to 75
million.
As a further condition to the closing of the Patel transaction, the holders
of 644,287 shares of Class A common stock, which has ten votes per share, agreed
to convert their shares into shares of common stock on a share-for-share basis.
Robert W. Morey, the holder of the remaining 281,956 shares of Class A common
stock outstanding, has given a two-year proxy in favor of Dr. Patel to vote Mr.
Morey's shares of Class A common stock.
After giving effect to conversion of these shares of Class A common stock,
and assuming conversion of the preferred shares held by Dr. Patel and the Fund,
there would be 38,716,693 shares of common stock and 281,956 shares of Class A
common stock issued, with Dr. Patel owning 21,449,257 shares of common stock,
and 55% of the aggregate number of shares outstanding in the combined classes.
As a further condition to the closing of the Patel transaction, in June
1999, the Company reached a settlement with Key Bank (the "Bank"), whereby the
Company will transfer ownership of the real property securing two mortgages to
the Bank in lieu of foreclosure. The net book value of the real property was
approximately $6.5 million compared to the outstanding mortgage balances of
approximately $4.4 million. The Company also reached a settlement with Premier
National Bank ("Premier"), whereby the Company will transfer ownership to
Premier of the real property securing two mortgages, in lieu of foreclosure. The
net book value of the real property was approximately $1.8 million compared to
the outstanding mortgage balances of approximately $1 million. The aggregate
balance of these mortgages ($5.6 million at December 31, 1998), as well an equal
amount of mortgaged assets, have been classified as current in the Company's
December 31, 1998 balance sheet.
In connection with the Patel transaction, the WellCare HMOs entered into
separate and identical management agreements with Comprehensive Health
Management, Inc. ("Comprehensive"), an affiliate of Dr. Patel. The agreements
are for a term of five years, effective June 1, 1999. The management fee ranges
from 7.5% of an HMO's premium revenue when there are more than 80,000 members,
to 9.5% of an HMO's premium revenues when there are less than 40,000 members.
Comprehensive will cover services for claims, customer service, utilization
review, data processing/MIS (including Y2K compliance expenses and costs),
credentialing, communication, provider relations, and day to day accounting.
Comprehensive will also provide financial reports to the HMOs and the
appropriate regulatory agencies. The fee does not cover other costs, such as
marketing functions, legal costs, extraordinary accounting and audit costs,
directors and officers liability insurance, other insurance costs, and any
extraordinary costs. The management agreement with WCNY was approved by New York
State regulators on June 11, 1999. Pending a public hearing in Connecticut and
regulatory approval of the acquisition of control of WCCT, Dr. Patel is
precluded from exercising influence in directing the management and policies of
WCCT. State regulators, however, have authorized the performance of the WCCT
management agreement, with certain limitations.
In May 1999, the Company entered into a settlement agreement of the Class
Action Securities Litigation for $2.5 million, all of which is being funded by
the insurance carrier which provided coverage to the individual defendants. The
settlement agreement is subject to Federal Court approval. The Company expects
to recoup from the insurance carrier the expenses related to fees it paid to the
attorneys representing the individual defendants, less the Company's insurance
deductible.
The description of WellCare's business, its historic results of operations,
and management's discussion and analysis of financial condition and results of
operations are based upon the operations of the Company as they existed on or
through December 31, 1998, and does not give effect to transactions discussed in
this "Recent Events" section, unless specifically referred to.
THE MANAGED CARE INDUSTRY
Health care costs in the United States have escalated dramatically from
$324 billion in 1982 to an estimated $1 trillion in 1998, or approximately 12.5%
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 for this
population.
COMMERCIAL. 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 the case of a
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 medical 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 Medicare and Medicaid, which service the elderly
and the poor, respectively.
MEDICARE. Medicare is a federal government-sponsored entitlement program
administered by the Health Care Financing Administration ("HCFA"), providing
health care coverage to individuals, primarily over 65 years of age. In 1998,
Medicare accounted for approximately $214.6 billion in health benefits for 38.4
million aged and disabled enrollees. This represents an amount which is 7.2%
higher than fiscal year 1997 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 6.7 million Medicare beneficiaries are enrolled in
managed care. Of that number, approximately 6 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% of the average Medicare
medical costs, determined by county and adjusted for age, sex, and institutional
status. In addition to the 5% 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, 1998, there were 346 Medicare Risk Plans
nationwide (including multiple plans by single HMOs), and approximately 33
contracts applications pending. On January 1, 1999, Medicare Risk HMOs will
transition to Medicare+Choice contract under provisions enacted by the Balanced
Budget Act of 1997.
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 1997,
approximately $20.9 billion was spent on Medicaid programs in New York State,
which is estimated to increase 4.8% to approximately $21.9 billion in 1998.
State governments have increasingly contracted 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 covered 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 New York and Connecticut, have
received federal approval to mandate that all Medicaid beneficiaries enroll with
managed care companies to receive medical services. At December 31, 1998, only
approximately 28.7% of the estimated 2.2 million eligible Medicaid recipients in
New York State are enrolled in HMO plans.
CHILD HEALTH PLUS. Child Health Plus, a newly expanded subsidized program,
provides comprehensive primary and preventive health insurance to uninsured and
underinsured children under age 19. The program covers children in low income
families that do not have similar coverage through the workplace and who are not
eligible for Medicaid. For most families, the program is currently free or
requires a low monthly contribution.
The New York State dollar expenditure will increase from $150 million in
1998 to approximately $207 million in 1999. These funds will be used as a match
to the new federal State grant program, State's Children Health Insurance
Program providing $256 million to New York State in 1999.
As of December 31, 1998, approximately 271,000 of the State's uninsured
children were enrolled in the program, less than half of the uninsured children
statewide. Beginning in 1998, education, outreach and facilitated enrollment
strategies have been developed to recruit children to enroll in the program.
THE WELLCARE HMOS
WCNY and WCCT (the "WellCare HMOs") provide comprehensive health care
services to their members for a fixed monthly premium, plus a co-payment as
applicable, by the member to the physician for each office visit generally, and
a dispensing fee or copayment to the pharmacy for each prescription filled. The
basic benefits, provided within a member's benefit plan 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, chiropractic
services, mental health care, and alcohol and substance abuse counseling. For an
increased monthly premium, members have the option to receive prescription drugs
and vision care and other supplemental benefits.
The WellCare HMOs arrange for the provision of inpatient and outpatient
hospital health care services by contracting with hospitals. Prior to 1997, New
York hospitals 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). Effective January 1, 1997, the New York State regulated
DRG 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. WCNY's contracting efforts were focused on converting DRG and risk
bearing arrangements to a per diem methodology, and most of WCNY's significant
contracts with NY hospitals are based on a negotiated per diem rates across all
product lines. To the extent DRG rates apply, a member's length of hospital stay
does not affect the WellCare HMOs costs. 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 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.
WCCT contracts with its network of hospitals using various payment
methodologies, including per diem, case rates, and discounts from charges, with
more steering of members to participating hospitals. Currently, efforts are
underway to convert discount contracts to per diem rates. Hospital costs are
controlled when medical management assures that hospital care is appropriate,
proceeds in an efficient manner, and hospitalized members are moved to more
appropriate care settings as soon as clinically sound. New contracts have been
developed for home care and skilled nursing facilities, and competitive skilled
nursing facility level rates have been included in hospital contracts for use
when members do not require hospital-level care.
The WellCare HMOs also arrange for the provision of health care services in
the case of primary care 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 group practice
participating in the WellCare HMO provider 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 community rated 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
The following table reflects membership and employer groups for plans
owned, managed or administered by WellCare during the five years ended December
31, 1998. In addition, the pro forma column for 1998 shows the impact of
excluding the WCNY commercial members sold to GHI, effective June 1, 1999, and
the Medicare members in the four counties in which WCNY did not renew its risk
contracts, effective January 1, 1999, as if it had occurred at December 31,
1998:
At December 31,
Pro forma --------------------------------------
1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
Commercial Members (1)(3) 16,000 46,700 48,400 69,700 78,900 71,100
Medicaid Members 20,700 20,700 20,800 18,300 19,100 10,000
Medicare Members (2) 6,600 10,600 10,000 5,500 2,000 1,400
Total Members 43,300 78,000 79,200 93,500 100,000 82,500
Number of Employer Groups 4,800 6,600 2,300 2,600 2,500 1,900
- -------------------------
(1) Includes HMO commercial members, members enrolled in the Child Health Plus
program, and members enrolled under non-HMO specialty programs.
(2) Includes Medicare beneficiaries and Medicare supplement members.
(3) Includes 8,900, 1,800, 900 and 400 WCCT members for 1998, 1997, 1996 and
1995, respectively.
At December 31, 1998, the five largest employer groups accounted for
approximately 9% of total membership, with no one group accounting for more than
4% of such membership.
Prior to June 1, 1999, the membership of the WellCare HMOs was 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") (sold to
GHI, effective June 1 1999);
* Recipients of public aid whose eligibility is determined by the local
departments of social services and the New York State Department of
Health ("Medicaid members");
* Members enrolled in the New York State Child Health Plus program
(included under "commercial 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").
All five classes of membership were enrolled in WCNY. WCCT has approval to
offer coverage only to commercial members.
When a subscriber group agrees to offer a WellCare HMO to its employees,
enrollment is voluntary by the individual, who must be accepted for enrollment
by WellCare 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 COBRA
premium.
Individuals may be enrolled as Medicaid members in WCNY through its Healthy
Choice product ("Healthy Choice") only if they are eligible recipients of
Medicaid. 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 Health ("DOH") and must be enrolled regardless of health
status. The premiums for Medicaid members is funded 25% by the applicable
county, 25% by the State of New York and the balance by the federal government.
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 enroll and provide services
to these individuals under New York State's federally approved mandatory waiver.
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 county
adjusted for age, sex, and institutional status. Premiums are subject to
periodic unilateral revision by the federal government. Under the basic plan,
beneficiaries pay no monthly premiums or deductibles, although there are
co-payments for office visits, prescriptions, and certain other services and
there are annual limits on prescription benefits received per member. Medicare
members are able to disenroll for any reason effective the first of any month
with prior written notice. Effective January 1997, WellCare's Medicare Risk
program ("Senior Health") expanded from 8 counties with approximately 240,000
eligible individuals to 12 counties with a total of over 300,000 eligible
individuals. Effective November 1997, WellCare's Medicare Risk program expanded
to 17 counties with approximately 1.5 million eligible individuals. In October
1998, WCNY announced that WCNY would not renew Medicare Risk contracts in four
counties, effective January 1999. Approximately 4,000 Medicare members were
affected by this reduction. The decision was made following a review of the
medical loss ratio in each of these counties. WCNY currently participates in 13
counties.
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 there are also copayments for certain
services received by 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 independent practice associations ("IPAs") and with
non-IPA primary care physicians, (ii) discounted fee-for-service arrangements
with specialists and other health care providers, (iii) capitation arrangements
with providers of certain specialty services, (iv) medical management 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,
legislative changes, broadening member entitlements, natural disasters,
epidemics, changes in physician practices and new technologies. These factors
which impact health care costs are beyond the Company's control and may
adversely affect its operations.
PHYSICIAN ARRANGEMENTS
In October 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. In 1995, the four Alliances
were combined into two Alliances, with the same equity owner. Effective June
1997, the Alliances converted into independent practice associations ("IPAs") by
establishing new corporations. WCNY's initial agreement with each of the
Alliances, for the period October 1994 through September 1995, required payment
to the Alliances based on a percentage of premium revenue for effected members.
Effective October 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 cost of all health care services provided to the HMO
members. These agreements originally provided for periodic increases, ranging
from 1% to 6% for the period from October 1995 through December 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 arrangements. Pursuant to the terms of the
restructured arrangement, WCNY reassumed the risk for certain previously
capitated services, and reduced the capitation rate paid for certain services
which continued to be provided by the IPAs. WCNY capitated the Alliances for
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 substance abuse, which WCNY capitated through
contracts with certain other regional integrated delivery systems.
Each Alliance/IPA, in turn, capitates its Alliance/IPA primary care
physician from the monthly payments received from WCNY with a fixed monthly
payment for each HMO member designating the Alliance/IPA 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/IPA 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 IPAs' accounts are reconciled
periodically.
In April 1998, WCNY entered into service agreements with four IPAs wholly
owned by Primergy, Inc. ("Primergy"). These agreements amended and restated the
prior agreements with two professional corporations managed by Primergy.
Consistent with the prior agreements, the new agreements grant the IPAs the
exclusive right to contract with primary care physicians in a six county
geographic region in the mid-Hudson Valley. The term of the agreements is ten
years, subject to earlier termination under certain conditions, including
following a failure of the parties to renegotiate rates in the event that a
potential investor (the "Investor") did not exercise its right to acquire
Primergy. In July 1998, following expiration of the Investor's option to
purchase Primergy, WCNY notified Primergy of its intent to renegotiate rates. If
a new agreement is not reached within 120 days after June 30, 1998, either the
Company or the respective IPA can thereafter exercise its option to terminate
the contract. The parties continue to negotiate the terms of the new agreement
and there can be no assurance that the contracts will be successfully
renegotiated and not terminated by either the Company or the respective IPAs.
In October 1998, WCNY entered into a service agreement with a fifth IPA
owned by Primergy to provide non-exclusive service in the Capital District
region. Subsequently, the Company entered into discussions with Primergy and
another potential investor ("New Investor") whereby the New Investor expressed
an interest in acquiring Primergy, repaying certain of the debt owed to the
Company by Primergy, amending certain terms of the IPA service agreements, and
obtaining the right to manage certain aspects of WCNY's business relating to its
relationships with the IPAs owned by Primergy. These discussions have not
resulted in the consummation of any transaction involving the Company, nor can
there be any assurance that a transaction will be consummated in the future.
In January 1999, WCNY amended the service agreements with the IPAs owned by
Primergy to add Medicare risk as a product for which the IPAs would arrange for
the provision of physician primary care and specialty services and certain other
agreed upon health care services.
After the GHI transaction, the existing IPA service agreements between
Primergy and WCNY no longer encompass WCNY commercial members.
WCNY intends to remain integrally involved in assisting primary care
physicians to efficiently manage their practices.
During 1998, Alliance/IPA primary care physicians provided medical care to
approximately 68% of WCNY's commercial and Medicaid members; the balance of
WCNY's members were provided services by primary care physicians who are
directly contracted by WCNY, as described in the following paragraph.
WCNY also contracts directly with primary care physicians and specialists,
with many primary care physicians being capitated with a fixed monthly payment
for each HMO member selecting the physician. Specialists are generally paid on a
discounted fee-for-service basis.
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, prior to 1997, was required to be paid on a 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 an HMO's costs. 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 reduces medical costs to the HMO by minimizing length of
hospital stay as well as maximizing the utilization of the most effective
treatment methods. Currently, most of WCNY's significant contracts with NY
hospitals are based on per diem rates across all product lines.
As of January 1, 1997, the New York State regulated DRG 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
had been 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.
In Connecticut, WCCT initially developed a network of hospitals using
various payment methods, including per diem, case rates, and discount from
charges. As WCCT experienced significant growth in 1998, the hospital network
was expanded to a more comprehensive list with more aggressive steering of
members to participating hospitals. Currently, efforts are underway to convert
discount contracts to per diem rates, and to contract with non-participating
hospitals. Hospital costs can best be controlled when medical management assures
that hospital care is appropriate, proceeds in an efficient manner, and
hospitalized members are moved to more appropriate care settings as soon as
clinically sound. New contracts have been developed for home care and skilled
nursing facilities, and competitive skilled nursing facility level rates have
been included in hospital contracts for use when members do not require
hospital- level care.
At December 31, 1998, the WellCare HMOs contract with 92 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
management and quality improvement programs. In general, the WellCare HMOs
contracts with hospitals are terminable upon 90 to 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 an unrelated pharmacy benefits
manager which covers all of the service areas of the WellCare HMOs, including,
at December 31, 1998, a network of approximately 1,360 pharmacies.
CLAIMS RESERVES AND IBNR
The development of the claims management system that tracks claims on a
current basis has been an ongoing priority of the Company. The results of
operations depends in large part on the Company's ability to predict, quantify,
and manage medical expenses. During 1997, the Company instituted procedures
which it continually reviews, modifies and enhances to allow it to measure and
project medical costs on a timely basis. The expense is based in part on
estimates, including an accrual for medical services incurred but not yet billed
("IBNR"). A daily inventory of hospital days and patient stays by product line
is maintained and reviewed by medical management. Claims are entered and scanned
to the claims system and are then available for examiners to either process,
review and approve for payment, pend for additional information from the
provider or deny. All claims are entered into the system at charges and
evaluated. Ongoing studies conducted for the three product lines provide the
Company with the tools to estimate the percentage of pended claims to be paid
relative to submitted charges. All claims paid, payable and pended are evaluated
weekly and a projection of ultimate payables is estimated. Moreover, procedures
are in place whereby the actual runoff of claims for each of the last twelve
months versus the reserve for IBNR and the paid, pended, and payable claims are
reviewed for accuracy as compared to the original projections. This procedure is
intended to allow the Company to estimate its IBNR more effectively.
The Company believes that the process of trending the ultimate resolution
of paid, pended and payable claims allows the Company to analyze trends and
changes in payments and utilization patterns and, therefore, react to medical
costs on a proactive versus a reactive basis. The Company's recording of IBNR
during 1997 and the first three quarters of 1998 has, in retrospect, been for
amounts less than ultimately incurred based on the actual settlement of claims.
Although the Company continues its efforts to make this estimating process more
accurate, there can be no assurance that IBNR reserve currently recorded will be
sufficient to cover medical expenses ultimately incurred.
UTILIZATION MANAGEMENT
Utilization of health care services by members and physicians is monitored
under WellCare's health care utilization management 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 WellCare HMOs medical directors, health
care service utilization data are analyzed.
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. The Company's quarterly newsletter to its members contains,
among other items, information on preventive health care. The Company also
publishes newsletters which it distributes to its physicians.
QUALITY OF CARE PROGRAMS
WellCare's quality of care programs, consisting of disease management
programs, periodic peer reviews and outcome studies, assist the Company in
controlling costs and improving quality by identifying cost-effective treatment
procedures (See "Business Quality Improvement"). In 1996, WCNY received a
certificate of one year accreditation from the National Committee for Quality
Assurance ("NCQA"). The NCQA performed its subsequent annual review in 1997 and,
in February 1998, again awarded WCNY with its one-year certificate of
accreditation. The NCQA completed another review in March 1999, and WCNY is
awaiting the results of this most current review.
CO-PAYMENTS
To promote member participation in controlling health care costs, the
WellCare HMOs require co-payments by its members for most office visits and some
other services. These co-payments are made by the member directly to the
physician or other provider and, for WCNY, range from $3 to $20 per office
visit, and $25, $35 or $50 for emergency room treatment. WCCT is approved for a
$3 to $20 co-payment for office visits and a $35 co-payment for emergency room
treatment. Certain contracts also require members to pay co-payments for
inpatient hospital services.
POINT-OF-SERVICE AND PPO PRODUCT
The HMOs offer a point-of-service ("POS") product to its commercial
members, allowing them to select providers outside of the HMOs' provider
network. When a member uses a POS product, the member is required to make a
higher co-payment and satisfy a deductible. 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.
MARKETING
At December 31, 1998, WellCare maintained a marketing staff of
approximately 65 full time equivalent staff ("FTEs") dedicated to selling
WellCare's various products and benefit plans. Those 65 FTEs were allocated as
follows: 25 for commercial group products, 32 for Medicaid and Child Health Plus
and 8 for Medicare+Choice. As a result of the sale in June 1999 of WCNY's
commercial business to GHI, all of the marketing staff dedicated to the
commercial product have become GHI employees.
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 New York DOH. Additionally, the Company monitors its
Plan marketing staff 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.
The Child Health Plus program is a state-subsidized commercial product
regulated and supervised by both the State Departments of Health and Insurance.
Marketing plans, including enrollment activities and all materials, must be
approved by the Department of Health prior to their use. Marketing activities,
consistent with applicable rules and guidelines, include direct mail, provider
assisted outreach, community-based organization partnerships, health fairs, and
media campaigns.
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, direct mail 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. WCNY has
received a one-year accreditation from the NCQA in each of the last two years.
The quality improvement program is designed not only to maintain but to
continually improve the delivery of proper medical care and includes:
* Utilization reviews, management programs 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
* Quality of care reviews, 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;
* A physician committee infrastructure to oversee medical policy and
the quality improvement program.
The quality improvement program utilizes computerized claims information as
well as 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
Throughout 1998, WellCare maintained a presence in four distinct New York
managed-care markets, as well as the state of Connecticut. WellCare's four New
York markets are defined as Greater Hudson Valley, Capital District, Southern
Tier and New York City/Westchester County. The Connecticut service area covers
the entire state and is considered WellCare's fifth regional market. WellCare's
Medicaid, Child Health Plus, and Medicare products are sold in New York
exclusively.
Each of these markets presents distinct challenges and opportunities to
establish a competitive selling edge and create revenue growth. WellCare
competes in its five markets, which encompass over 300,000 businesses, 15
million people and more than 40 managed-healthcare competitors. These
competitors range in size from a start-up of 20,000 covered members to large
market leaders like Cigna, Aetna and Blue Cross & Blue Shield with millions of
covered lives. Each market has different primary competitors for WellCare and,
therefore, requires a different strategic approach relative to price, network
and product in order to succeed. In connection with the GHI transaction,
WellCare and WCNY have agreed to not engage in commercial HMO business in New
York for a period of one year following the closing.
MANAGEMENT INFORMATION SYSTEMS/THE YEAR 2000 ("Y2K")
In connection with the "Patel" and "GHI" transactions, the Company sold or
assigned substantially all of its computer hardware and software to GHI. The
plan is for all data processing/MIS requirements to ultimately be provided under
the terms of the newly executed management agreements with Comprehensive Health
Management, Inc. ("Comprehensive"), an affiliate of Dr. Patel. Under the terms
of the GHI transaction, the Company will continue to use the existing computer
systems and software a transition period. The computer hardware and software
that was not sold or assigned to GHI is in the process of being upgraded so that
it will be Y2K compliant. The Company anticipates these modifications will be
completed by September 1999.
With respect to the efforts undertaken to date by Comprehensive and
affiliates to address the Y2K issues, Comprehensive has upgraded its computer
hardware and software systems, and has expended approximately $430,000 in
software related costs and $235,000 in hardware related costs.
The inability of Comprehensive or the Company to complete timely any of its
Year 2000 modifications, or the inability of other companies with which
Comprehensive or the Company does business to complete timely their Year 2000
modifications, could potentially have a material adverse effect on the Company's
operations.
Prior to the Patel and GHI transaction, the Company had assessed the
requirements of modifying its computer systems to accommodate the Year 2000 and
anticipated that required modifications would be completed in advance of the
Year 2000 so as to not adversely affect its operations. In most cases, the
Company was dependent on outside vendors whose software the Company uses. These
vendors had advised the Company that the required modifications were being made,
and would be available to the Company in the form of software release upgrades.
The Company had developed plans for implementing these release upgrades in a
timely fashion, and estimated that the hardware and software costs would
approximate $1.6 million. The Company expensed noncapital associated costs
incurred to make these modifications. The core processing system, AMISYS, was
upgraded to the Y2K compliant version in February 1999. The MAS90 system, the
Company's financial software, was upgraded in March 1999. Both of these systems
are now Y2K compliant. The Company had incurred costs of approximately $550,000
in 1998 and $410,000 in 1999. Except for hardware costs of approximately
$60,000, the Company has expensed these costs as incurred.
GOVERNMENT REGULATION
STATE REGULATION
The WellCare HMOs are subject to extensive state regulation. Applicable
state statutes and regulations require an HMO to file periodic reports with the
relevant state agencies, and contain requirements relating to the operation of
the HMO, the HMO's rates and benefits applicable to its products and the HMO's
financial condition and practices. In addition, state regulations require each
of the WellCare HMOs to maintain restricted cash or available cash reserves, a
minimum net worth and impose restrictions on the WellCare HMOs 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.
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,
except as described in the following paragraph, WCNY is required to maintain a
contingent reserve which must be increased annually by an amount equal to at
least 1% of statutory premiums earned limited, in total, to a maximum of 5% of
statutory 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, 1998, WellCare had required cash reserves of approximately $5.3 million and
a contingent reserve of approximately $6.7 million. In the event the contingent
reserve exceeds the required cash reserve, the excess of the contingent reserve
over the required cash reserve is required to be maintained.
Notwithstanding the above, NYSID has the authority to allow an HMO to
maintain a net worth of 50% to 100% of the contingent reserve. WCNY executed a
Section 1307 loan in March 1998, which retroactively brought WCNY's December 31,
1997 statutory net worth above the permitted 50% contingent reserve requirement.
(Under the provisions of Section 1307 of the New York State Insurance Law, the
principal and interest are treated as equity capital for regulatory purposes and
are repayable out of the free and divisible surplus, subject to the prior
approval of the Superintendent of Insurance of the State of New York). WCNY had
been operating within the 50-100% discretionary contingent reserve requirement
during 1997, and through the first quarter of 1998, with the full knowledge of
NYSID. In 1998, the Company forgave the management fees for WCNY for 1998 in the
amount of approximately $1.4 million. In June 1997 and November 1997, the
Company loaned $3.1 and $1.3 million, respectively, to WCNY under the provisions
of Section 1307. However, after giving effect to the reported results for 1998,
at December 31, 1998 WCNY had a negative statutory net worth of approximately
($14.6) million. Failure to come into compliance with the reserve requirement
could cause NYSID to take action which could include restriction or revocation
of WCNY's license.
Management has had ongoing discussions and meetings with NYSID regarding
WCNY's operating results and compliance with various statutory requirements and
has updated NYSID of the Company's plans to obtain additional funds. This
includes a remedial action plan based upon capital to be contributed to WCNY
following the consummation of a strategic opportunity with respect to which, in
March 1998, the Company engaged the assistance of Bear, Stearns & Co., Inc., and
WCNY's ultimate return to profitability. In April 1999, WCNY agreed to a consent
to rehabilitation in which the State of New York has the right to commence court
proceedings and have an order entered into that would give the State of New York
the right to assume the operations of WCNY. In May and June 1999, the Company
consummated a number of transactions which will bring WCNY within the 50% to
100% revised contingent reserve requirement, as permitted by NYSID. The
transactions include: an equity investment of $5 million; sale of WCNY's
commercial enrollment for approximately $5 million; settlement of provider
claims at amounts significantly lower than the estimated liability of
approximately $30.5 million; renegotiation and settlement of approximately $5.4
million of mortgage debt; and the conversion of the $15 million subordinated
convertible note into senior convertible preferred stock of the Company (see
Note 24 of "Notes to Consolidated Financial Statements"). As a result of these
transactions, WellCare anticipates that the State of New York would not exercise
that right.
WCCT is subject to similar regulatory requirements with respect to its HMO
operations in Connecticut. The Connecticut Department of Insurance requires that
WCCT maintain a statutory reserve of $1 million. In June and November 1997, the
Company made capital contributions of $350,000 and $425,000, respectively, to
WCCT to bring its statutory net worth to the required minimum of $1 million. In
March 1998, the Company made an additional capital contribution of $368,000 to
WCCT to bring its statutory net worth above the $1 million requirement. At
December 31, 1998, WCCT is not in compliance with the statutory net worth
requirement having a statutory net worth of approximately $.6 million, including
an account receivable from the Company of approximately $.9 million. As a
result, on June 2, 1999 the State of Connecticut Insurance Department issued an
order requiring WCCT to submit to administrative supervision by the State's
Insurance Commissioner until WCCT meets its statutory net worth (without
including the account receivable from the Company) and other requirements.
Management has been meeting with the Connecticut Department of Insurance
regarding the statutory net worth deficiency to develop a mutually agreeable
plan to bring WCCT into compliance with the statutory net worth requirement.
In January 1997, WCNY received the final report on its biennial statutory
examination for the years ended December 31, 1994 and 1995 from NYSID. In 1996,
during the course of the audit, the Company had recorded two non-recurring
medical charges (see Note 3g of "Notes to Consolidated Financial Statements")
based on the interim findings and instructions of NYSID. Additionally, NYSID
determined that WCNY was not in compliance with all pertinent New York State
regulation sections relating to WCNY's underwriting and rating procedures and
the requirements governing approval of policy forms. These matters were referred
to NYSID's Office of General Counsel for disciplinary action. In December 1997,
WCNY entered into a Stipulation Agreement whereby it agreed to pay a penalty of
$91,000 and to correct past violations. An additional penalty of $66,000 may be
assessed if NYSID subsequently determines that WCNY has not made a good faith
effort to recoup undercharges from incorrectly rated groups. WCNY believes it
has directed its best efforts at recouping these undercharges, and believes it
will not be assessed an additional penalty.
As a result of the examination, WCNY's statutory net worth at December 31,
1995, was deficient by approximately $1.1 million. In March 1996, the Company
made a capital contribution of $3 million to WCNY and, in October 1996, the
Company loaned WCNY $3 million under the provisions of Section 1307. These two
cash infusions more than offset the examination's adjustment to WCNY's net
worth.
Legislation by both New York State and Connecticut requires HMOs to pay
undisputed claims within 45 days of receipt. WCNY and WCCT continue to pay
claims later than required. The Company has recorded as an expense the estimated
interest it may be required to pay on these late payments, which management
believes is not material to the Company's operations.
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 WCCT or the Company. Effective February 2, 1999, the
Company transferred all of the outstanding capital stock of WCCT to WCNY. The
Insurance Commissioner of Connecticut granted an exemption to this requirement
because the ultimate control of WCCT remains with WellCare through its
wholly-owned subsidiary, WCNY, and WellCare asserted its intention to fund and
maintain WCCT's statutory net worth at a level equal or greater than the minimum
levels currently required. The approval of the acquisition of control of WCCT by
Dr. Patel, in June 1999, is pending a public hearing in Connecticut and
regulatory approval. Until such approval is granted, Dr. Patel is precluded from
exercising influence in directing the management and policies of WCCT. There can
be no assurance that approval of the change in control will be granted. Under
New York law, transactions between a holding company and a controlled HMO must
be fair and equitable. Any transaction that involves 5% or more of WCNY's assets
requires prior approval. The investment by Dr. Patel in WellCare was approved by
the New York State regulators on June 11, 1999.
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.
Connecticut legislation pertaining to managed care organizations (the "MCO
Act") became effective October 1, 1997. With respect to providers, the MCO Act,
except in limited circumstances, provides that contracts with participating
providers must require that each party give at least 60 days' advance written
notice to the other in order to withdraw from or terminate the agreement. The
MCO Act also provides that an HMO may not threaten or take action against a
participating provider in retaliation for such provider: (i) seeking expedited
review by a utilization review company; or (ii) assisting an enrollee during an
enrollee's appeals process. An HMO may neither prohibit a participating provider
from disclosing to an enrollee the method of compensation the HMO utilizes, nor
prohibit a participating provider from discussing with an enrollee any treatment
options and service available in or out of network, including experimental
treatments.
With respect to HMO members, the MCO Act requires HMOs to have an internal
grievance procedure permitting enrollees to seek a review of any grievance that
may arise from an HMO's action or inaction, excluding an action or inaction
based on utilization review. The MCO Act and implementing regulations also
created an external appeals process. Enrollees who exhaust their appeals with
the HMO or the utilization review company may file an external appeal with the
Connecticut Insurance Department. The external appeals are conducted by an
external appeals entity which may accept the grievance for full review. If the
grievance receives full review, the Insurance Commissioner shall accept the
decision of the external appeals entity, and the decision is binding. External
review does not apply to Medicaid, Medicare or Medicare Risk health plans.
The MCO Act also requires an HMO to comply with the federal Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"). The MCO Act
further requires that benefit policies provide that members receive benefits for
biologically-based mental or nervous conditions that are at least equal to
coverage for any other medical or surgical conditions.
RECENT NEW YORK STATE LEGISLATION
In 1998, New York enacted a law which carves out pharmaceutical benefits
provided to eligible Medicaid recipients enrolled in managed care plans from the
contracted approved Medicaid benefit package. Medicaid eligible members will
receive pharmacy benefits through the Medicaid program by using their
fee-for-service Medicaid card. The law was effective August 1, 1998.
New York also enacted a new law establishing a right for health care
consumers to obtain an external review of determinations made by HMOs and
insurers when coverage of health care has been denied on the grounds that the
service is not medically necessary or that such service is experimental or
investigational and establishing standards for the certification of the external
review agents. In addition, the law requires provider contracts to include an
explanation of provider payment methodologies; the time periods for provider
payments; the information to be relied upon to calculate payments and
adjustments; and the process to be employed to resolve disputes concerning
provider payments. The law will become effective July 1, 1999.
New York also enacted a law expanding the Child Health Plus program for
eligible children up to age 19 by increasing covered services, beginning early
in 1999, to provide emergency, preventive and routine dental care; speech and
hearing services; emergency, preventive and routine vision care including
eyeglasses; inpatient mental health, alcohol and substance abuse services; and
durable medical equipment, hearing devices, wheelchairs and leg braces. In
addition, the measure provides free coverage for children in families with
incomes less than 160% of the federal poverty level; lowers monthly premium
contributions for families between 160% and 222% of the federal poverty level;
eliminates co-payments for services; and provides for the development of local
public education and outreach. The legislation expands Medicaid coverage by
increasing Medicaid coverage for children from birth through age 18 with a
family income of up to 133% of the net federal poverty level; provides Medicaid
eligible children with 12 months of continuous coverage; and increases income
eligibility for children from 100% to 133% of the net federal poverty level. The
federally funded Child Health Plus program will provide $256 million to New York
annually. This measure authorizes the use of these federal funds combined with
the $164 million state funds appropriated for the FY 1998-99.
The measure also includes fraud and abuse provisions for Medicaid and Child
Health Plus by providing for a tax refund intercept to collect adjudicated
overpayments; an increase in penalties for repeat violations for filing false
Medicaid claims; and the expansion of anti-kickback provisions to include
individuals as well as Medicaid providers. Lastly, the law requires HMOs with
more than 60,000 members including Child Health Plus or Medicaid members to
implement a compliance program (State Public Health Law - ss.4414) to prevent,
detect and address instances of fraud and abuse. The legislation provides a
waiver of this requirement if the HMO has established an anti-fraud compliance
program pursuant to the State Insurance Law ss.409.
In 1998, New York enacted a law requiring the current Consumer Guide
published by the State Insurance Department-- which ranks health plans based on
the ratio of complaints found to be valid and the ratio of appeals made through
the grievance and Utilization Review process, including the number of times a
health plan reverses a decision -- to also include, effective September 1, 1999,
the rate of physician board certification; provider turnover rates; the
percentage of enrollees who have been seen for ambulatory or preventive care
visits during the previous three years of enrollment; methods used to compensate
providers; accreditation status of plans and indices of quality, including rates
of mammography, prostate and cervical cancer screening, prenatal care,
immunization; other information collected through the Health Plan Employer Data
Information Set (HEDIS); and the results of a consumer satisfaction survey
conducted by the State Superintendent of Insurance.
Insurers and HMOs are required to pay providers within 45 calendar days of
receipt of undisputed ("clean") claims submitted for services provided. In the
event a claim is not undisputed, the insurer or HMO must notify the provider
within 30 calendar days of receipt and request additional information if
necessary. In addition to charging interest on late claims, penalties of up to
$500 per day per claim may be imposed.
Penalties of up to $10,000 may be imposed on insurers and HMOs which fail
to respond to the New York State Insurance Department inquiries in a timely
manner and in good faith.
Effective January 1, 1998, New York laws also require coverage of the
following benefits:
* HMOs are required to cover individuals undergoing
mastectomies for a duration to be determined by the
attending physicians and the patient. Out-of-network
second opinions for cancer are required to be covered.
Coverage is also required for all stages of reconstruction
of the breast on which the mastectomy has been performed.
In addition, coverage for surgery and reconstruction of
the other breast to produce a symmetrical appearance is
now mandated.
* Chiropractic care coverage by a licensed doctor chiropractic upon
referral by a PCP is also now mandated. HMOs and non-managed care
plans are subject to different requirements.
Effective January 4, 1998, coverage for enteral formulas is required for
all plans which provide a pharmacy benefit. The modified food component of this
mandated coverage is capped at $2,500 per member per year.
New York State's excess medical malpractice program has been extended for
one year. The extension of the program is on a self- funded basis based upon the
existing surplus, with no contribution from payors and insurers. Premiums will
be returned to insurers under certain circumstances.
Effective January 1, 1997, the Health Care Reform Act ("HCRA") allowing,
for the first time, all private health care payers to negotiate payment rates
for inpatient hospital services expires on December 31, 1999. Previously, only
HMOs could negotiate rates for these services. A soon to be issued State Report
evaluating the implementation of HCRA will include recommendations regarding
this Act. As this Act expires in 1999, action regarding HCRA will be under
review and consideration by the New York State Legislature in the 1999
Legislative Session.
RECENT CONNECTICUT STATE LEGISLATION
Connecticut enacted legislation in 1998 that requires HMOs to pay health
care providers' claims (i) within 45 days of the provider filing claim for
payment in accordance with the HMO's practices or procedures or (ii) as
stipulated by contract between the HMO and the provider. If the claim is not
legitimately disputed as to coverage, liability or damages or fraudulent, as
determined by the Insurance Commissioner, and the HMO fails to pay it, the HMO
must pay the claim plus interest at the rate of 15% per year. In addition,
failure to pay claims as required by the statute constitutes an unfair method of
competition and an unfair and deceptive act or practice in the business of
insurance, for which the Insurance Commissioner may impose penalties including
(i) issuing a cease and desist order; (ii) requiring the HMO to pay a penalty of
$1,000 to $5,000 per act, up to an aggregate of $50,000; or (iii) surrender of
the HMO's license. This "prompt pay" legislation took effect on January 1, 1999,
and applies to all contracts begun or revised after that date.
New legislation also extends by two months the filing deadline for HMOs to
submit to the Insurance Commissioner that data required by the National
Committee for Quality Assurance (NCQA) for its Health Plan Employer Data and
Information Set (HEDIS). This data must now be filed by July 1 of each year,
rather than May 1 as previously required.
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 the Health
Care Financing Administration ("HCFA"). Regulations also cover, among other
things, quality 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. The New York State
Department of Health is responsible for oversight of WCNY's compliance with such
regulation.
Medicare+Choice (Part C) Legislation and the Balanced Budget Act of 1997
have impacted current Risk contractors. Beginning in 1999, Medicare
beneficiaries will have more options for health care coverage (PSO, PPO, MSAs),
and HCFA is undertaking an educational effort paid for by Medicare managed care
plans. Another major impact will be the changes to the rate methodology, and new
time frames for submitting rate and benefit filings.
RECENT FEDERAL LEGISLATION
The Women's Health and Cancer Rights Act of 1998 (the "Act") mandates
coverage of reconstructive surgery and other treatments associated with
mastectomy and required plans to notify enrollees before the effective date of
January 1, 1999. New York State's mastectomy and reconstruction mandates enacted
in 1997 and in effect since January 1,1998, match or exceed the federal Act's
requirements with the exception of the federal requirement for coverage of
prostheses in group market products.
Also the Act prohibits the Federal Employees Health Benefits Program from
using federal funds to contract with any health plan that provides coverage for
prescription drugs unless that plan also provides coverage for contraceptives,
including devices.
The Act also increases the tax deduction for health insurance expense of
self employed individuals to 60% in 1999, 70% in 2002, and 100% in 2003,
accelerating the phase-in which was enacted in the Balanced Budget Act of 1997.
ITEM 2. PROPERTIES
At December 31, 1998, WellCare's executive offices were located in two
adjacent buildings, Park West I and Park West II, at Hurley Avenue in Kingston,
New York. Park West I provides approximately 27,000 square feet of office space.
Park West II, which provides approximately 11,600 square feet of office space,
has been used for storage since 1997. The Company also owned four other
buildings through its wholly-owned subsidiary, WellCare Development,
Inc.("WCD"). Three of the buildings are located in Kingston and, combined,
provide approximately 40,000 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 three unrelated health care
providers and a medical laboratory at annual rental incomes of approximately
$45,500, $33,400, $29,300 and $6,000, respectively.
In June 1999, WCD agreed to transfer ownership of all of the Company's real
property to the mortgagees of those properties in consideration for the
mortgagees relieving the Company of any liability under the mortgages.
The Company leases the following properties for WCNY: approximately 14,100
square feet in Newburgh, New York, approximately 1,800 square feet in Albany,
New York, and approximately 1,250 square feet in Binghamton, New York, at an
annual expenses of approximately $335,500, $30,300 and $16,800, respectively. In
turn, the Company subleases approximately 4,100 square feet in Newburgh, to an
unrelated health care provider annual rental of approximately $109,900. The
Company also leases 10,000 square feet in Tarrytown, New York, at an annual
expense of $191,500, which lease was terminated in June 1999.
The Company leases approximately 5,000 square feet of office space in North
Haven, Connecticut, for WCCT, at an annual rental expense of approximately
$73,000.
As a result of the Patel and GHI transactions, the Company believes its
current and future needs will be significantly reduced. The Company is in the
process of consolidating its administrative functions and will be vacating
substantially all of the space previously occupied in the owned facilities. The
Company continues to evaluate its needs, and believes sufficient space is
available for its current and future requirements.
ITEM 3. LEGAL PROCEEDINGS
CLASS ACTION SECURITIES LITIGATION
Between April and June 1996, the Company, its former President and Chief
Executive Officer (Edward A. Ullmann), and its former Vice President of Finance
and Chief Financial Officer (Marystephanie Corsones) 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.
In July 1996, the Securities Litigations were consolidated in the United
States District Court for the Northern District of New York, and an amended
consolidating complaint (the "Complaint") was served in August 1996. The
Complaint did not name the three additional directors. The Company's auditor,
however, was named as an additional defendant. In October 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 likewise filed its
own motion to dismiss. By Memorandum Decision and Order (the "Order"), entered
in April 1997, the Court (i) granted the auditor's motion to dismiss and ordered
that the claims against the auditors be dismissed with prejudice; and (ii)
denied the motion to dismiss brought by the individual defendants. Because the
Order did not specifically address the Company's motion to dismiss, in May 1997,
the Company moved for reconsideration of its motion to dismiss and dismissal of
all claims asserted against it. On reconsideration, the judge clarified his
previous ruling expanding it to include a denial of the Company's motion as
well. Following the Court's decision, the Company filed its answer and defense
to the Complaint. In September 1997, the plaintiffs' class was certified and the
parties thereafter commenced the discovery process of the litigation.
In May 1999, the Company entered into a settlement agreement for $2.5
million, all of which is being funded by the insurance carrier which provided
coverage to the individual defendants. The settlement agreement is subject to
Federal Court approval. The Company expects to recoup from the insurance carrier
the expenses related to fees it paid to the attorneys representing the
individual defendants, less the Company's insurance deductible.
OTHER MATTERS
The Company and certain of it subsidiaries, including WCNY, have responded
to subpoenas issued in April and August 1997 from the United States District
Court for the Northern District of New York through the office of the United
States Attorney for that District. These subpoenas sought the production of
various documents concerning financial and accounting systems, corporate
records, press releases and other external communications. While the United
States Attorney has not disclosed the purpose of its inquiry, the Company has
reason to believe that neither its current management nor its current directors
are subjects or targets of the investigation. The Company has informed the
government that it will continue to cooperate fully in any way that it can in
connection with the ongoing investigation.
On July 31, 1996 and October 3, 1996, the Securities and Exchange
Commission issued subpoenas to the Company for the production of various
financial and medical claims information. The Company fully complied with both
of these subpoenas on August 21, 1996 and October 31, 1996, and with subsequent
requests for supplementation. It is management's understanding that the
Securities and Exchange Commission investigation is continuing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began trading on the Nasdaq Bulletin Board
system, effective September 9, 1998, under the symbol "WELL". Previously, the
common stock had been listed on the Nasdaq Small Cap Market, since October 30,
1997, and prior to that on the Nasdaq National Market. 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
---- ---
1998
- ----
First Quarter 3 7/16 2 5/32
Second Quarter 3 1/8 1 29/32
Third Quarter 2 1/2 1/2
Fourth Quarter 1 11/16 1/4
1997
- ----
First Quarter 10 5/8 6 1/2
Second Quarter 8 7/8 3 7/8
Third Quarter 6 7/8 2 5/8
Fourth Quarter 5 15/16 1 3/8
On July 1, 1999, there were approximately 225 and 7 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.
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).
On June 11, 1999, Kiran C. Patel, M.D. ("Patel"), the principal of Well
Care HMO, Inc., a Florida corporation, an entity unrelated to WellCare,
purchased a 55% ownership interest in the Company for $5 million. Dr. Patel
purchased 100,000 shares (the "Shares") of a newly authorized series of senior
convertible preferred stock ("Series A Convertible Preferred Stock") of
WellCare, which will provide him with 55% of WellCare's voting power. The Series
A Convertible Preferred Stock is subject to mandatory conversion into common
stock upon the amendment to WellCare's certificate of incorporation to increase
the number of authorized shares of common stock from 20 million to 75 million.
The Shares will be convertible into 55% of the then outstanding common
stock (after giving effect to such conversion) and will be subject to
anti-dilution rights under which Dr. Patel will generally preserve his 55%
interest in WellCare until there are 75 million shares of common stock issued
and outstanding. In order to preserve his 55% interest, Dr. Patel will be
required to pay the par value ($0.1 per share) for each common share
subsequently purchased. The Shares were purchased for investment and the
issuance of those securities was exempt from the registration requirements of
the Securities Act of 1933, as amended, by virtue of Section 4(2) thereof. The
certificate representing the Shares was appropriately legended to reflect that
the Shares have not been registered under said Act.
On June 11, 1999, the 1818 Fund II, L.P. converted a $15 million 8%
subordinated convertible promissory note, plus accrued and unpaid interest of
approximately $0.7 million, into 100,000 shares of a second newly authorized
series of senior convertible preferred stock ("Series B Convertible Preferred
Stock") of WellCare. The Series B Convertible Preferred Stock is non-voting and
is subject to mandatory conversion (subject to regulatory approval) into
10,000,000 shares of WellCare's common stock upon the amendment to WellCare's
certificate of incorporation to increase the number of authorized shares from 20
million to 75 million. The shares were purchased for investment and the issuance
of those securities was exempt from the registration requirements of the
Securities Act of 1933, as amended, by virtue of Section 4(2) thereof. The
certificate representing the shares of Series B Convertible Preferred Stock was
appropriately legended to reflect that the shares have not been registered under
said Act.
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.
The selected financial data in the table as of December 31, 1998 and 1997,
and for the periods ended December 31, 1998, 1997 and 1996, are derived from the
consolidated financial statements of the Company which have been audited by
Deloitte & Touche, LLP, independent auditors, as indicated in their report
included elsewhere in this Form 10-K. The audit report includes an explanatory
paragraph regarding certain conditions which raise substantial doubt about the
Company's ability to continue as a going concern. (See "Consolidated Financial
Statements").
Statement of Operations Data:
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
Revenue:
<S> <C> <C> <C> <C> <C>
Premiums earned $ 142,742 $ 142,115 $157,156 $144,518 $120,411
Interest and other income 1,707 1,755 3,930 8,031 2,171
--------- --------- --------- --------- ---------
Total revenue 144,449 143,870 161,086 152,549 122,582
--------- --------- --------- --------- ---------
Expenses:
Medical expenses 129,494 126,251 135,957 115,560 98,411
General and administrative
expenses 32,641 34,485 39,334 30,279 15,599
Depreciation and
amortization expenses 6,001 3,624 3,254 2,292 1,611
Interest and other expenses 1,730 1,652 2,361 1,629 1,099
--------- --------- --------- --------- ---------
Total expenses 169,866 166,012 180,906 149,760 116,720
--------- --------- --------- --------- ---------
(Loss)/income before
income taxes (25,417) (22,142) (19,820) 2,789 5,862
Provision/(benefit) for
income taxes (1) 5,441 -- (8,038) 1,116 2,403
--------- --------- --------- --------- ---------
Net (Loss)/income $ (30,858) $(22,142) $( 11,782) $ 1,673 $ 3,459
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
(Loss)/earnings per share-
<S> <C> <C> <C> <C> <C>
Basic: (4.36) $(3.52) $ (1.87) $ 0.27 $ 0.56
===== ======= ======= ======= =========
Weighted average shares
of common stock outstanding 7,081 6,299 6,296 6,250 6,224
Diluted: $(4.36) $ (3.52) $ (1.87) $ 0.26 $ 0.54
===== ======= ======= ======= =========
Weighted average shares
of common stock and
common stock equivalents
outstanding (2) (2) (2) 6,396 6,354
- ----------------------------
</TABLE>
Balance Sheet Data:
(in thousands) December 31,
---------------------------------------------
1998 1997 1996 1995 1994
----- ----- ----- ----- -----
Working capital/(deficiency) $(26,055) $(5,115) $11,172 $12,733 $ 4,776
Total assets 29,939 52,538 71,340 72,011 57,793
Long-term debt 15,078 25,852 26,467 19,209 6,336
Total liabilities 57,647 54,389 51,066 40,207 28,486
(Deficiency in assets)/
Shareholders' equity (27,708) (1,851) 20,274 31,804 29,307
- ------------------------
(1) Continuing operating losses during 1998 and 1997 resulted in additional
deferred tax benefits of approximately $8.7 and $7.8 million respectively.
The Company has provided a 100% valuation allowance, in each year, with
respect to these additional deferred tax assets in view of their size and
length of the expected recoupment period. In addition, in 1998, the Company
provided a 100% valuation allowance with respect to deferred tax assets of
$5.4 million relating to periods prior to 1997. (See Note 14 of Notes to
Consolidated Financial Statements). (2) Weighted average shares of common
stock and common stock equivalents are not shown as the effect on per share
would be anti-dilutive.
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.
The Company's financial statements have been prepared assuming that the
Company will continue as a going concern. The auditors' report states that "the
Company's recurring losses from operations, cash used in operations, deficiency
in assets at December 31, 1998, and failure to maintain 100% of the contingent
reserve requirement for the New York State Department of Insurance at December
31, 1998, raise substantial doubt about its ability to continue as a going
concern." (See Consolidated Financial Statements).
Certain statements in this Annual Report on 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, including but not limited to the following: the Company's ability to
continue as a going concern; that Dr. Patel will not obtain Connecticut
regulatory approval of the change in control of WCCT contemplated by the Patel
transaction; the inability to meet HMO statutory net worth requirement for WCNY
or WCCT; the absence of a commercial line of business in WCNY for at least one
year; that increased regulation will increase health care expenses; that
increased competition in the Company's markets or change in product mix will
unexpectedly reduce premium revenue; that the Company will not be successful in
increasing membership growth; that there may be adverse changes in Medicare and
Medicaid premium rates set by federal and state governmental agencies; that
health care cost 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; that the Company will be unable to
successfully expand its operations into New York City, Westchester County and
the State of Connecticut; and that major health care providers will be unable to
maintain their operations and reduce or eliminate their accumulated deficits.
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 or
both. The Company is unable to predict the specific content of any future
legislation, action or regulation that may be enacted or when any such future
legislation or regulation will be adopted. Therefore, the Company cannot predict
the effect of such future legislation, action or regulation on the Company's
business.
GENERAL OVERVIEW
The Company has sustained operating losses in each of the last three years
and, at December 31, 1998, has a working capital deficiency of $26.1 million. At
December 31, 1998, WCNY and WCCT are not in compliance with the statutory net
worth requirements in New York and Connecticut, respectively. The Company's
ability to continue as a going concern is dependent upon the consummation of a
transaction or transactions which would provide capital sufficient to meet its
financial obligations, including statutory compliance, and its return to
profitability.
In March 1998, the Company engaged Bear, Stearns & Co., to assist the
Company in exploring its strategic opportunities, which could include joint
venture, capital contributions, merger or sale of all or a portion of the
Company. In May and June 1999, the Company consummated a number of transactions
which are expected to reduce the Company's working capital deficit by
approximately $18.0 million; bring WCNY within the 50% to 100% revised
contingent reserve requirement, as permitted by NYSID; substantially retire all
of the Company's long-term debt; significantly reduce WCNY's obligation to its
providers; and change the configuration and focus of the Company ("ongoing
WellCare"). Thereafter, ongoing WellCare's operations in New York will consist
solely of its governmental programs (Medicare, Medicaid, and Child Health Plus),
with WCNY's revised statutory cash reserve decreased to $2.9 million, and its
revised statutory contingent reserve decreased to $3.7 million. WCCT will
continue its commercial business in Connecticut, subject to a public hearing and
regulatory approval of the acquisition of control of WCCT. Management believes
the consummation of these transactions will improve ongoing WellCare's ability
to continue as a going concern.
WellCare's principal source of revenue is premiums earned from the WellCare
HMOs. Other revenue consists principally of interest and rental income. Premiums
earned represented 98.8% of the Company's total revenue for the year ended
December 31, 1998, and were equal to 1997, after having declined in 1997 by
9.6%. In 1998, the increase in WCCT commercial membership and Child Health Plus
membership was offset by the decrease in WCNY commercial membership.
The Company's ability to achieve profitability is dependent principally on
reducing its medical expenses as a percentage of its premium revenue (the
"medical loss ratio" or "MLR"). Although WellCare has initiated programs to
reduce the MLR, the actions have not yet generated improvements sufficient to
return the Company to profitability. Effective January 1999, WCNY did not renew
its Medicare Risk contract in four counties (approximately 4,000 members) after
reviewing its medical loss ratio in each of these counties. Effective June 1,
1999, WCNY sold its commercial business, including approximately 25,000 members,
to GHI.
The results of operations depend in large part on the Company's ability to
predict, quantify and manage medical costs. Medical expenses consist of hospital
charges, physician fees and related health care costs for its members. Medical
expenses also include estimates for medical services 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. A daily inventory of hospital days and patient stays by
product line is maintained by medical management. Claims are entered and scanned
into the claims system and then available for examiners to either process,
review and approve for payment, pend for additional information from the
provider or deny. All claims are a entered into the system at charges and
evaluated.
Ongoing studies for the three product lines provide the Company with the
tools to estimate the percentage of pended claims to be paid relative to
submitted charges. All claims paid, payable and pended are evaluated weekly and
a projection of ultimate payables is estimated. Moreover, procedures are in
place whereby the actual runoff of claims for each of the last twelve months
versus the reserve for IBNR and the paid, pended, payable claims are reviewed
for accuracy as compared to the original projections. This procedure is intended
to allow the Company to continually estimate its unknown claims reserves and
IBNR more effectively.
The Company believes that the process of trending the ultimate resolution
of paid, payable, and pended claims allows the Company to analyze trends and
changes in payments and utilization patterns and, therefore, react to medical
costs on a proactive versus a reactive basis. The Company's recording of IBNR
during 1997 and the first three quarters of 1998 has, in retrospect, been for
amounts less than subsequently incurred based on the actual settlement of
claims. Although the Company continues its efforts to make this estimating
process more accurate, and believes the IBNR estimates in the December 31, 1998
consolidated financial statements are adequate, there can be no assurance that
IBNR reserve currently recorded will be sufficient to cover medical expenses
ultimately incurred.
The Company seeks to control medical expenses through capitation
arrangements with the Alliances/IPAs and with non- Alliance/IPA 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.
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,
---------------------------
1998 1997 1996
---- ---- ----
Statement of Operations Data:
Revenue:
Premiums earned 98.8% 98.8% 97.5%
Interest and other income 1.2 1.2 2.5
----- ----- -----
Total revenue 100.0 100.0 100.0
Expenses:
Hospital services 29.2 25.1 23.1
Physician services 57.9 58.5 59.5
Other medical services 2.6 4.2 1.7
----- ----- -----
Total medical expenses 89.7 87.8 84.3
General and administrative 22.6 24.0 24.4
Depreciation and amortization 4.1 2.5 2.0
Interest and other expenses 1.2 1.1 1.6
----- ----- -----
Total expenses 117.6 115.4 112.3
Loss before income taxes (17.6) (15.4) (12.3)
Provision/(benefit) for
income taxes 3.8 -- (5.0)
----- ----- -----
Net loss (21.4)% (15.4)% (7.3)%
===== ===== =====
Statistical Data:
HMO member months enrollment 854,909 901,295 1,077,774
Medical loss ratio(1) 90.7% 88.8% 86.5%
General and administrative
ratio(2) 22.6% 24.0% 24.4%
- ------------------------
(1) Total medical expenses as a percentage of premiums earned; reflects the
combined rates of commercial, Medicaid, Full Risk Medicare and Medicare
supplemental members. Medical expenses in 1998 include $730,216 of interest
expense relating to "Prompt Pay" payments.
(2) General and administrative expenses as a percentage of total revenue.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO
YEAR ENDED DECEMBER 31, 1997
Premiums earned in 1998 increased by 0.4%, or $0.6 million, to $142.7 from
$142.1 million in 1997. Commercial premium revenue decreased 17.8%, or $14.8
million, because of a 16.2%, or $13.5 million, decrease in membership and a 1.9%
decrease in average rates. Medicaid premium revenue increased 7.3%, or $2.1
million, because of a 5.3%, or $1.5 million, increase in member months, and a
1.9% increase in average rates. The 1998 Medicaid premium revenue is net of a
reduction of approximately $1.2 million to reflect retroactive reductions
attributable to 1997 ($0.4 million) and 1996 ($0.8 million). Medicare premium
revenue increased 45.6% or $13.3 million, because of a 39% or $11.4 million
increase in member months and an increase in average member rates of 4.7%.
Interest income remained relatively consistent, and is primarily on amounts
due the Company by Primergy, as more fully discussed in Note 5 of "Notes to the
Consolidated Financial Statements", which amounts have been fully reserved.
Medical expense increased 2.6%, or $3.2 million, to $129.5 million in 1998,
increased 8.1% on a PMPM basis, and increased as a percentage of premiums earned
(the "medical loss ratio") from 88.8% in 1997 to 90.7% in 1998. The 1998 medical
expense includes a $3.7 million charge for adverse development relating to 1997
and 1996 medical claims, less a credit of $0.8 million relating to the New York
State distribution of surplus market stabilization pool funds relating to years
1993 to 1996. Medical expense for 1997 included a charge of $2.5 million for
adverse development relating to medical claims reserves for 1996; a $1.7 million
charge for the estimated liability related to NYSID's audit of the demographic
pool payments and assessments for the years 1993-1996; and a reduction of $0.4
million for various adjustments related to prior periods. The 1997 medical
expense does not reflect the $3.5 million of adverse development expense
recorded in subsequent periods.
General and administrative ("G&A") expenses decreased 5.3% or $1.9 million,
to $32.6 million in 1998 from $34.5 million in 1997, and decreased as a
percentage of total revenue (the G&A ratio") to 22.6% in 1998 from 24.0% in
1997. Included in G&A in 1998 is an expense of $2.8 million to reduce Property &
Equipment to its net realizable value. The decrease resulted primarily from
reductions in the provision for doubtful receivables ($3.1 million), marketing
related costs ($1.9 million), and payroll and payroll related costs resulting
from staff reductions in January 1998 ($0.6 million), partially offset by
increases relating to Y2K compliance ($0.5 million) and broker commissions for
WCCT ($0.5 million).
Depreciation and amortization increased approximately $2.4 million, or
65.6%, primarily because the Company amortized the remaining preoperational
costs ($0.4 million), and amortized additional goodwill ($2.3 million). This
reflects the Company's assessment of the value of these assets at December 31,
1998. Interest expense increased 4.7% to $1.7 million due to the increased
interest on the Note.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO
YEAR ENDED DECEMBER 31, 1996
Premiums earned in 1997 decreased by 9.6%, or $15.1 million, to $142.1
million from $157.2 million in 1996. Commercial premium revenue decreased 29.6%,
or $35.1 million, primarily because of a decrease in member months attributable
to the loss in membership. The decline in commercial membership is 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 loss of commercial membership in 1997 was also affected by WCNY's
non-competitive rates relative to other companies operating within WCNY's
marketplace. The rates in effect during 1996 and in the first half of 1997
caused a decline in renewing membership for 1997. During 1997, the Company
adjusted its premium rates to be competitive within the principal markets where
WCNY operates. Medicaid premium revenue increased 11.3%, or $3 million,
primarily as a result of a 10.4% increase in member months. Medicare premium
revenue increased 139.8%, or $17 million, due to a 159% increase in member
months, partially offset by a reduction in average per member rates of 7.4%, or
$2.3 million. Total member months decreased 16.4% in 1997 to 901,295.
Interest and other income decreased by 53.8%, or $2.1 million, to $1.8
million in 1997. This decrease is primarily due to reductions in management
fees, insurance reimbursements and interest income.
Medical expenses decreased 7.1% or $9.7 million, to $126.3 million in 1997,
from $136.0 million in 1996. There was a 11.1% increase on a PMPM basis and
increase as a percentage of premiums earned (the "medical loss ratio") from
86.5% in 1996 to 88.8% in 1997. The decrease in medical expenses from 1996 is
primarily due to decreased commercial membership partially offset by increases
attributable to a change in product mix. Beginning in the third quarter of 1996
and throughout 1997, the Company made a major effort to improve the medical cost
economics of the business. These initiatives principally revolved around
renegotiated provider contracts and an improved effort in utilization
management. The shift in the percentage of member months attributable to
Medicare versus commercial has also affected medical costs. Medical expenses as
a percentage of premiums in the commercial and Medicaid lines of business have
decreased during the quarters, however; these gains were offset by higher than
anticipated medical costs associated with the expansion of the Medicare business
occurring principally in the fourth quarter of 1997.
The 1997 medical expenses include the following accrual items: a $2.5
million charge for adverse development relating to 1996 medical claims and a
$1.7 million charge for the estimated liability related to NYSID's audit of the
1993-1995 demographic pool ($1.2 million) and the 1996 demographic pool, and a
$435,000 credit relating to the 1994 restatement. The 1996 medical expenses
include the recording, as instructed by NYSID, of medical expense of (i)
approximately $3.7 million relating to unpaid inpatient hospital claims; and
(ii) approximately $2.9 million relating to unpaid claims for the period prior
to October 1994. Both of these charges 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 1996 medical
expenses is also due to a restructuring of the contractual capitation
arrangements with the Alliances. As a result of the 1994 prior period
restatement, medical expenses in 1996 were reduced approximately $2,423,000 (See
Note 3b of "Notes to Consolidated Financial Statements").
The decision to expand into the Medicare product line recognized that the
early stages of expansion would generate a medical loss ratio in excess of 100%
until sufficient membership was achieved. As a result of the renegotiation of
many provider contracts from a DRG to a per diem basis and the efforts to
improve utilization management, it appeared that the third quarter medical loss
ratio for Medicare would generate an adequate profit margin before G&A costs.
Expected utilization improvements in the fourth quarter were based on the
favorable results of the third quarter, and led management to anticipate a
fourth quarter Medicare loss ratio in the range of 90-92%. In late January and
early February 1998, additional Medicare claims were received for the third
quarter of 1997, beyond the time frame within which the Company had been
experiencing with its commercial product. The Company had been receiving greater
than 90% of its Medicare claims within 12 weeks of the date of service. The
receipt of these additional late claims beyond the 12 week period created a
situation whereby the updated third quarter medical loss ratio is approximately
5% higher than originally estimated. Additionally, higher than expected fourth
quarter Medicare utilization (together with the third quarter adverse
development) generated medical costs approximately $2.2 million above
projections.
General and administrative expenses decreased 11.2%, or $4.4 million, to
$34.9 million from $39.3 million in 1996 and decreased as a percent of total
revenue (the "G&A ratio") to 24.0% from 24.4% in 1996. The decrease in G&A is
the net result of a decrease of $3.2 million in the provision for doubtful trade
and other receivables; an increase of $0.3 million in advertising, promotional
and communication costs; a decrease of $.9 million in payroll and labor related
expenses because of reduced staffing levels; and a decrease of $1.0 million in
extraordinary legal and other professional services primarily related to class
action litigation.
Depreciation and amortization increased by 11.4%, or $.4 million, in 1997
due primarily to amortization of preoperational costs associated with service
area and product line expansion. Interest and other expenses decreased by 32.1%,
or $.8 million, in 1997 due primarily to retirement of bank debt during the
fourth quarter of 1996, and the reduction of the annual interest rate, in
February 1997, on the Subordinated Convertible Note.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had a working capital deficiency of $26.1
million, excluding the cash reserve of $5.3 million required by New York State
which is classified as a non-current asset, compared to a working capital
deficiency of $5.1 million at December 31, 1997, excluding the cash reserve of
$5.8 million. The increased deficiency is attributable primarily to the cash
operating loss in 1998. The Company's requirements for working capital are
principally to meet current obligation, to fund HMO operations and to maintain
necessary regulatory reserves.
In order to eliminate this deficiency, and to continue as a going concern,
the Company is dependent upon the successful consummation of a transaction or
transactions which would provide capital sufficient to meet its financial
obligations, including statutory compliance, and its achieving a return to
profitability. In March 1998, the Company engaged Bear, Stearns & Co., Inc. to
assist the Company in exploring its strategic opportunities. In May and June
1999, the Company consummated a number of transaction which are expected to
reduce the Company's working capital deficit by approximately $18.1 million. The
transactions include: an equity investment of $5 million (the "Patel
transaction"); sale of WCNY's commercial business for approximately $5 million
(the "GHI transaction"); settlement of provider claims at amounts significantly
lower than the estimated liability of approximately $30.5 million; renegotiation
and settlement of approximately $5.4 million of mortgage debt; and the
conversion of the $15 million subordinated convertible note into senior
convertible preferred stock of the Company (see Note 24). After the conclusion
of these transaction, the Company's ongoing cash requirements will be less as
substantially all long-term debt will have been retired, the Company will no
longer provide commercial health care coverage in New York, its space needs will
have been reduced substantially, and it will have 105 employees compared to 236
at December 31, 1998. Management believes that the consummation of these
transactions will improve WellCare's ability to continue as a going concern.
Net cash provided by operating activities in 1998 was approximately $3.4
million as compared to approximately $4.8 million used in 1997. Cash provided by
1998 operating activities was the net result of increase in medical costs
payable of approximately $9.1 million, reductions of advances to providers of
$2.8 million and trade and other receivables of $8.1 million, less a cash
operating loss of $16.6 million. Cash used for capital expenditures was
approximately $.7 million in 1998 as compared to $.3 million in 1997.
In January, 1996, the Company completed a private placement of a
subordinated convertible note in the principal amount of $20 million (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. The Company
utilized a part of the net proceeds of this private placement to retire a
portion of its debt. The Note was amended in February 1997, and subsequently in
January 1998, and is convertible into shares of WellCare common stock. In
January 1998, the Fund agreed to convert $5 million of the Note into 1,250,000
shares of common stock of the Company at a conversion price of $4 per share,
subject to the anti-dilution adjustment. The conversion was completed in May
1998. The Note initially accrued interest at 6.0% per annum, amended to 5.5% per
annum in 1997 and amended to 8% per annum in 1998. In June 1999, the Fund
converted the remaining $15 million Note, plus accrued and unpaid interest of
approximately $0.7 million, into newly authorized senior convertible preferred
stock (Series B) of the Company. The preferred stock is non-voting and is
subject to mandatory conversion (subject to regulatory approval) into 10,000,000
shares of WellCare's common stock upon the amendment to WellCare's certificate
of incorporation to increase the number of authorized shares from 20 million to
75 million (see Note 24).
Legislation by both New York State and Connecticut requires HMOs to pay
undisputed claims within 45 days of receipt. WCNY and WCCT continue to pay
claims later than required. The Company has recorded as an expense the estimated
interest it will be required to pay on these late payments, which management
believes is not material to the Company's operations.
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,
except as described in the following paragraph, WCNY is required to maintain a
contingent reserve which must be increased annually by an amount equal to at
least 1% of statutory premiums earned limited, in total, to a maximum of 5% of
statutory 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, 1998 and 1997, WellCare had required cash reserves of approximately $5.3 and
$5.8 million, respectively, and a contingent reserve of approximately $6.7 and
$6.7 million, respectively. In the event the contingent reserve exceeds the
required cash reserve, the excess of the contingent reserve over the required
cash reserve is required to be maintained.
Notwithstanding the above, NYSID has the authority to allow an HMO to
maintain a net worth of 50% to 100% of the contingent reserve. WCNY executed a
Section 1307 loan in March 1998, which retroactively brought WCNY's December 31,
1997 statutory net worth above the permitted 50% contingent reserve requirement.
WCNY had been operating within the 50-100% discretionary contingent reserve
requirement during 1997, and through the first quarter of 1998, with the full
knowledge of NYSID. In 1998, the Company forgave the management fees for WCNY
for 1998 in the amount of approximately $1.4 million. In June 1997 and November
1997, the Company loaned $3.1 and $1.3 million, respectively, to WCNY under the
provisions of Section 1307. However, after giving effect to the reported results
for 1998, at December 31, 1998 WCNY had a negative statutory net worth of
approximately ($14.6) million. Failure to come into compliance with the reserve
requirement could cause NYSID to take action which could include restriction or
revocation of WCNY's license. Management has had ongoing discussions and
meetings with NYSID regarding WCNY's operating results and compliance with
various statutory requirements and has updated NYSID of the Company's plans to
obtain additional funds. This includes a remedial action plan based upon capital
to be contributed to WCNY and WCNY's ultimate return to profitability. In April
1999, WCNY agreed to a consent to rehabilitation in which the State of New York
has the right to commence court proceedings and have an order entered into that
would give the State of New York the right to assume the operations of WCNY. In
May and June 1999, the Company consummated the aforementioned transactions,
which are intended to bring WCNY within the 50% to 100% revised contingent
reserve requirement, as permitted by NYSID. In connection with the Patel and GHI
transactions, the Company loaned WCNY $5 million under the provisions of Section
1307. As a result of these transactions, WellCare anticipates that the State of
New York would not exercise that right. In addition, as a result of WCNY's sale
of its commercial business, the statutory cash reserve required will decrease to
$2.9 million, and the statutory contingent reserve will decrease to $3.7
million. Management believes that the consummation of these transactions will
improve WellCare's ability to continue as a going concern.
WCCT is subject to similar regulatory requirements with respect to its HMO
operations in Connecticut. The Connecticut Department of Insurance requires that
WCCT maintain a statutory reserve of $1 million. In June and November 1997, the
Company made capital contributions of $350,000 and $425,000, respectively, to
WCCT to bring its statutory net worth to the required minimum of $1 million. In
March 1998, the Company made an additional capital contribution of $368,000 to
WCCT to bring its statutory net worth above the $1 million requirement. At
December 31, 1998, WCCT is not in compliance with the statutory net worth
requirement having a statutory net worth of approximately $.6 million, including
an account receivable from the Company of approximately $.9 million. As a
result, on June 2, 1999 the State of Connecticut Insurance Department issued an
order requiring WCCT to submit to administrative supervision by the State's
Insurance Commissioner until WCCT meets its statutory net worth (without
including the account receivable from the Company) and other requirements.
Management has been meeting with the Connecticut Department of Insurance
regarding the statutory net worth deficiency to develop a mutually agreeable
plan to bring WCCT into compliance with the statutory net worth requirement.
In January 1997, WCNY received the final report on its biennial statutory
examination for the years ended December 31, 1994 and 1995 from NYSID. In 1996,
during the course of the audit, the Company had recorded two non-recurring
medical charges (See Note 3g of "Notes to Consolidated Financial Statements")
based on the interim findings and instructions of NYSID. Additionally, the
examiners determined that WCNY was not in compliance with all pertinent New York
State regulation sections relating to WCNY's underwriting and rating procedures
and referred the matter to NYSID's Office of General Counsel for disciplinary
action. In December 1997, WCNY entered into a Stipulation Agreement whereby it
agreed to pay a penalty of $91,000 and to correct past violations. An additional
penalty of $66,000 may be assessed if NYSID, subsequently determines that WCNY
has not made a good faith effort to recoup undercharges from incorrectly rated
groups. WCNY believes it has directed its best efforts at recouping these
undercharges, and believes it will not be assessed any additional penalty.
As a result of the examination, WCNY's statutory net worth at December 31,
1995, was deficient by approximately $1.1 million. In March 1996, the Company
made a capital contribution of $3 million to WCNY, and in October 1996, the
Company loaned WCNY $3 million under the provisions of Section 1307 of the New
York State Insurance Law. Under Section 1307, the principal and interest are
treated as equity capital for regulatory purposes and are repayable out of the
free and divisible surplus, subject to the prior approval of the Superintendent
of Insurance of the State of New York. These two cash infusions more than offset
the examination's adjustment to WCNY's net worth.
In June 1999, the Company reached a settlement with Key Bank (the "Bank"),
whereby the Company will execute deeds in favor of the Bank on the real property
securing two mortgages, in lieu of foreclosure. The net book value of the real
property was approximately $6.5 million compared to the outstanding mortgage
balances of approximately $4.4 million. In June 1999, the Company reached a
settlement with Premier National Bank ("Premier"), whereby the Company will
execute deeds in favor of Premier on the real property securing two mortgages,
in lieu of foreclosure. The net book value of the real property was
approximately $1.8 million compared to the outstanding mortgage balances of
approximately $1 million.
At December 31, 1998, the Company had total mortgage indebtedness of $5.5
million outstanding on five of its office buildings, of which approximately $0.7
million is due February 1, 1999, approximately $3.8 million is due January 1,
2000, approximately $0.7 million is due March 1, 2000, and approximately $0.3
million is due March 1, 2001. At December 31, 1998, the Company has classified
the entire mortgage debt as current, to reflect the June 1999 settlements with
the Bank and Premier.
Between April and June 1996, the Company, its former President and Chief
Executive Officer (Edward A. Ullmann), and its former Vice President of Finance
and Chief Financial Officer (Marystephanie Corsones) 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
defendant's 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. (See Item 3, Legal Proceedings,
for additional detail).
In May 1999, the Company entered into a settlement agreement for $2.5
million, all of which is being funded by the insurance carrier which provided
coverage to the individual defendants. The settlement agreement is subject to
Federal Court approval. The Company expects related to fees it paid to the
attorneys representing the individual defendants, less the Company's insurance
deductible.
The amount of legal fees incurred with respect to the defense of the former
President and Chief Executive Officer and Chief Financial Officer in the
Securities Litigations, and included in G&A expenses, is as follows:
1998 1997 1996 Total
---- ---- ---- -----
(in thousands)
CEO $ 188 $ 163 $ 360 $ 711
CFO 151 190 159 500
------ ------ ------ ------
$ 339 $ 353 $ 519 $1,211
====== ====== ====== ======
THE YEAR 2000 ("Y2K")
In connection with the "Patel" and "GHI" transactions, the Company sold or
assigned substantially all of its computer hardware and software to GHI. The
plan is for all data processing/MIS requirements to ultimately be provided under
the terms of the newly executed management agreements with Comprehensive Health
Management, Inc. ("Comprehensive"), an affiliate of Dr. Patel. Under the terms
of the GHI transaction, the Company will continue to use the existing computer
systems and software a transition period. The computer hardware and software
that was not sold or assigned to GHI is in the process of being upgraded so that
it will be Y2K compliant. The Company anticipates these modifications will be
completed by September 1999.
With respect to the efforts undertaken to date by Comprehensive and
affiliates to address the Y2K issues, Comprehensive has upgraded its computer
hardware and software systems, and has expended approximately $430,000 in
software related costs and $235,000 in hardware related costs.
The inability of Comprehensive or the Company to complete timely any of its
Year 2000 modifications, or the inability of other companies with which
Comprehensive or the Company does business to complete timely their Year 2000
modifications, could potentially have a material adverse effect on the Company's
operations.
Prior to the Patel and GHI transaction, the Company had assessed the
requirements of modifying its computer systems to accommodate the Year 2000 and
anticipated that required modifications would be completed in advance of the
Year 2000 so as to not adversely affect its operations. In most cases, the
Company was dependent on outside vendors whose software the Company uses. These
vendors had advised the Company that the required modifications were being made,
and would be available to the Company in the form of software release upgrades.
The Company had developed plans for implementing these release upgrades in a
timely fashion, and estimated that the hardware and software costs would
approximate $1.6 million. The Company expensed noncapital associated costs
incurred to make these modifications. The core processing system, AMISYS, was
upgraded to the Y2K compliant version in February 1999. The MAS90 system, the
Company's financial software, was upgraded in March 1999. Both of these systems
are now Y2K compliant. The Company had incurred costs of approximately $550,000
in 1998 and $410,000 in 1999. Except for hardware costs of approximately
$60,000, the Company has expensed these costs as incurred.
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.
QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to interest rate risk primarily through its
borrowing activities and minimally through its short-term investments. All of
the Company's borrowings are in US dollar debt and, at December 31, 1998,
approximately 77% of its debt is at fixed rates. In June 1999, the Company
retired its long-term debt. This includes conversion into equity by The 1818
Fund II, L.P., and the settlement by the Company of its mortgages with Key Bank
and Premier National Bank, whereby the Company will transfer ownership of real
property securing the mortgages to the banks in lieu of foreclosure. There were
no fluctuations in interest rates for these obligations between December 31,
1998 and the date of retirement. Although there is inherent risk for any
replacement borrowings, the extent of this is not quantifiable or predictable
because of the restructuring of the Company as a result of the June
transactions, as more fully discussed under Recent Events in Item 1.
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.
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
As of June 1, 1999, the executive officers and directors of the Company are:
Name Age Position
- ---- --- --------
Kiran C. Patel, M.D. 50 Chairman of the Board, President
and Chief Executive Officer(2)
Mark D. Dean, D.D.S. 58 Vice Chairman of the Board(1)(2)
Craig S. Dupont 44 Vice President/Chief Financial
Officer and Director
Mary Lee
Campbell-Wisley 49 Secretary; President, Chief
Executive Officer and Executive
Director(WCNY); and Director
Henry Suarez 32 Treasurer and Director(2)
Sandip I. Patel 32 General Counsel
Charles E. Crew, Jr. 47 Director(1)
Pradip C. Patel 47 Director
Rupesh R. Shah 37 Director
Hitesh P. Adhia 35 Director(1)
- ------------------------
(1) Member, Audit Committee
(2) Member, Compensation Committee
KIRAN C. PATEL, M.D., age 50, was named as the Chairman of the Board,
President and Chief Executive Officer of the Company, and became a director of
the Company effective June 11, 1999. He was also named as the Chairman of the
Board, Chief Executive Officer and a director of WellCare of New York, Inc.
("WCNY") as of June 11, 1999. Dr. Patel has been a practicing physician
(cardiologist) from 1982 to the present, and currently continues to practice in
Tampa, Florida. Additionally, Dr. Patel is the majority shareholder and since
1988 to the present, shoulders the administrative responsibilities of Well Care
HMO, Inc., an unrelated State of Florida licensed Health Maintenance
Organization. Dr. Patel is a graduate of SMT, N.H.L. Municipal Medical College,
India, and did his Internal Medicine Residency and Cardiology Fellowship in the
New York, New Jersey area. Dr. Patel is the brother of Pradip C. Patel.
MARK D. DEAN, D.D.S., age 58, 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.
CRAIG S. DUPONT, age 44, was named, effective January 16, 1999, to the
additional positions of: Acting President/Chief Executive Officer (until June
11, 1999) and director of the Company; President (until February 16, 1999),
Chairman (until June 11, 1999) and director of WCNY; and President, Executive
Director, Treasurer and director of WellCare of Connecticut, Inc.("WCCT"). Mr.
Dupont has been Vice President/Chief Financial Officer and Treasurer (until June
11, 1999) of the Company. He has also been Treasurer of WCNY (until June 11,
1999) and WCCT since May 1, 1998. Mr. Dupont has over twenty years experience in
the health care industry. Previously, Mr. Dupont was Vice President, Finance of
Physicians Health Services, Inc. since January 1997, Controller and Corporate
Secretary of Qualmed Health & Life Insurance Co. from September 1995 to January
1997, Director of Financial and Medical Analysis of Aetna Health Plans from 1993
to 1995, and Chief Financial Officer and Treasurer for Aetna Health Plan of
Southern California from 1990 to 1993. He is a graduate of California State
University/Long Beach with a B.S. in Business Administration. He is a Certified
Public Accountant in California and Connecticut.
MARY LEE CAMPBELL-WISLEY, age 49, became director of the Company, effective
February 25, 1999, and Secretary of the Company, effective March 25, 1999;
President and Chief Executive Officer (until June 11, 1999) of WCNY, effective
February 16, 1999; and Vice President of Operations of WCCT, effective May 12,
1998. She had been Executive Director/COO of WCNY, since January 1997 and
director of WCCT since December 1997. Ms. Campbell- Wisley has over 15 years
experience in the health care industry. Ms. Campbell-Wisley joined WellCare from
Mercy Health System of Western New York where, since 1995, she had been
Executive Director of the Physician Hospital Organizations. Ms. Campbell- Wisley
had been associated with Blue Cross and Blue Shield of Western New York, Inc.,
from 1991 to 1995, as Executive Director of Community Blue, a 200,000-member
HMO. Ms. Campbell-Wisley earned a B.A. from SUNY at Fredonia, a B.S.N. from
D'Youville College in Buffalo and an M.B.A. from St. Bonaventure University.
HENRY SUAREZ, age 32, was named as Treasurer and became a director of the
Company effective June 11, 1999. He was also named as Treasurer and a director
of WCNY, as of June 11, 1999. Mr. Suarez has been in the banking and finance
industry for the past 10 years. He is currently the President of Suarez
Financial Group, Inc., a banking and financial consulting firm. Previously, Mr.
Suarez was Senior Vice President, Private Client Group - Tampa Manager, for
NationsBank from February 1996 to February 1999; Vice President, Commercial
Lending for SouthTrust Bank from March 1995 to February 1996; Senior Financial
Accountant for Soloman Brothers from January 1992 to March 1995; and a
Commercial Lending Officer with Citizens and Southern Bank from May 1989 to
January 1992. He is a graduate of Florida State University with a degree in
accounting and finance.
SANDIP I. PATEL, age 32 became the General Counsel of the Company effective
June 11, 1999. He was also named as the General Counsel of WCNY, as of June 11,
1999. Mr. Patel has been a practicing attorney for the past 6 years, being
employed throughout this time by Patel, Moore & O'Connor, P.A. He is a graduate
of the University of Georgia with a degree in finance and accounting, and
received his Juris Doctorate from Stetson University College of Law.
CHARLES E. CREW, JR., age 47, 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.
PRADIP C. PATEL, age 47 became a director of the Company effective June 11,
1999. He was also named as a director of WCNY as of June 11, 1999. Mr. Patel has
been in the health care industry, in a management position, for over 10 years
and is currently a shareholder in and since 1986 the President of Well Care HMO,
Inc., an unrelated State of Florida licensed Health Maintenance Organization. He
is a graduate of the Gujaret University, India and received his MBA from Eastern
Michigan University. Mr. Patel is the brother of Dr. Kiran C. Patel.
RUPESH R. SHAH, age 37, became a director of the Company effective June 11,
1999. Mr. Shah has been in the health care industry, in a management position,
for over 10 years and is currently a shareholder in and the, since 1994, Chief
Executive Officer of Well Care HMO, Inc., an unrelated State of Florida licensed
Health Maintenance Organization. He is graduate of St. Xavier's College, Gujaret
University, India and Rollwala Computer Science, Gujaret University, India. Mr.
Shah is the brother-in- law of Dr. Kiran C. Patel.
HITESH P. ADHIA, age 35, became a director of the Company effective June
11, 1999. Mr. Adhia has been in the finance and accounting industry for the past
9 years. He has been an accountant in private practice since 1993. Previously,
Mr. Adhia was a financial accountant with Florida Farm Bureau Insurance Company
from February 1991 to January 1996; and a systems analyst with Arthur Andersen &
Company, from August 1990 to October 1990. He is a graduate of the University of
South Florida with a degree in Business Administration and a Masters in
Accounting. Mr Adhia is a CPA licensed in the State of Florida.
The following were executive officers and directors of the Company at
December 31, 1998, but subsequently resigned:
Name Age Position
- ---- --- --------
Robert W. Morey, Jr. 62 Chairman of the Board (1)
Joseph R. Papa 55 President, Chief Executive
Officer, Chief Operating Officer
and Director (1)
Adele B. Reiter 45 Vice President of Legal and
Governmental Affairs
John E. Ott, M.D. 62 Executive Vice President and
Director (2)(3)
Thomas A. Curtin 36 Vice President of Sales and
Marketing
Alan B. Bernstein, M.D. 47 Chief Medical Director
Walter W. Grist 58 Director (2)
Lawrence C. Tucker 56 Director (1)(3)
- ------------------------
(1) Member, Executive Committee
(2) Member, Audit Committee
(3) Member, Compensation Committee
ROBERT W. MOREY, JR., age 62, who was Chairman of the Board since April 30,
1996, resigned as Chairman and director, effective February 25, 1999, which
resignation was accepted by the Board of Directors on February 23, 1999. He
continues as a consultant to the Company on an advisory basis. Previously, 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 55, had 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. Mr. Papa resigned all of these
positions, effective January 15, 1999, and continues as a consultant to the
Company through July 1999. Mr. Papa's resignation as director was accepted by
the Board of Directors on January 12, 1999. 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.
ADELE A. REITER, age 45, had been Vice President of Legal and Governmental
affairs since March 1998 and until her resignation, effective February 21, 1999.
Ms. Reiter joined the Company in April 1995 as part-time in-house legal counsel,
became full-time in-house legal counsel in August 1996, and was appointed as a
Vice President in July 1997. Previously, Ms. Reiter was employed by a Kingston,
New York cardiology medical practice and served on the Board of Directors of
several local non-profit organizations. She received her B.A. from State
University of New York at Stony Brook in 1993 and a Juris Doctor from Temple
University School of Law in May 1976.
JOHN E. OTT, M.D., age 62, had been Executive Vice President of the Company
since June 1996 and a director since October 1995 and until his resignation,
effective June 11, 1999. 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.
THOMAS A. CURTIN, age 36, had been the Vice President of Sales and
Marketing for WellCare since October, 1997 and Secretary and director of WCCT,
since March 1, 1999. Mr. Curtin resigned all of these positions, effective June
7, 1999. Previously, for the prior twelve years, Mr. Curtin has been involved in
sales management in the managed care industry. Prior to WellCare, he was with
from Cigna Health Care (January 1997 - September 1997), HealthSource (September
1994 - December 1996), and Blue Cross and Blue Shield of Massachusetts (1992 -
September 1994). He is a graduate of St. Anselm College with a B.S. in Business
and Economics.
ALAN B. BERNSTEIN, M.D., age 47, had been Chief Medical Officer of WellCare
since September, 1998 and until his resignation, effective May 21, 1999. He has
over ten years of managed care experience serving in senior medical and
administrative positions. Previously, he was Chief Medical Officer of UtiliMED,
Inc. in Chicago since 1997, Senior Vice President for Medical Affairs/Chief
Medical Officer with NYLCare Health Plans from May 1995 to October 1996, and
Chairman, Department of Pediatrics at The Newton-Wellesley Hospital,
Massachusetts from October 1993 until May 1995. Dr. Bernstein graduated from the
University of Rochester, New York, earning a B.A. in Biology. He graduated from
New York University School of Medicine earning his M.D., and received his M.P.H.
from University of California, Berkeley.
WALTER W. GRIST, age 58, had been a director of the Company since February
1997. He resigned effective January 20, 1999, which resignation was accepted by
the Board of Directors on January 20, 1999. 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 56, had been a director of the Company since
January 1996. He resigned effective January 20, 1999, which resignation was
accepted by the Board of Directors on January 20, 1999. 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 1996.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation for 1998, 1997
and 1996 earned by (i) the Company's Chief Executive Officer during 1998; (ii)
each of the four most highly compensated executive officers who were serving as
an executive officer at the end of 1998, other than the Chief Executive Officer,
and whose compensation during 1998 exceeded $100,000; and (iii) the Company's
Acting President/Chief Executive Officer, who commenced employment on May 1,
1998, whose compensation on an annual basis would have required disclosure in
the table below:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long- Term Compensation
--------------------------
Annual Compensation Awards
---------------------------- -----------
Name and Other Annual Common Stock All Other
Principal Year Salary Bonus Compensation Underlying Compensation
Position ($) ($) ($) Options (#) ($)
- ----------------- ---- ------- ----- ------------ ------------ ------------
<S> <C> <C>
JOSEPH R. PAPA 1998 $311,538 -- * 130,000(2) $5,457(7)
President, Chief 1997 300,000 -- * 200,000(3) 5,457(7)
Executive Officer, 1996 92,308 -- * 200,000 195(7)
Chief Operating
Officer and Director(1)
CRAIG S. DUPONT 1998 $ 97,298 -- * 50,000 --
Acting President/Chief 1997 -- -- -- -- --
Executive Officer, 1996 -- -- -- -- --
Vice President and
Chief Financial
Officer, Treasurer and
Director(4)
JOHN E. OTT, M.D 1998 $239,715 $105,116 * -- 2,800(7)
Executive Vice 1997 200,000 -- * 5,000 2,800(7)
President and 1996 111,538 -- $11,500(8) 40,000 --
Director(10)
MARY LEE CAMPBELL- 1998 $164,423 $ 45,000 * -- 1,085(7)
WISLEY 1997 129,942 -- 19,050(9) 45,000 688(7)
Secretary; President 1996 -- -- -- --
and Chief Executive
Officer of WellCare of
New York, Inc. and
Director(5)
THOMAS A. CURTIN 1998 $145,385 $ 38,602 * -- 51(7)
Vice President of 1997 $ 33,923 -- * 25,000 --
Sales and Marketing(11) 1996 -- -- -- -- --
ADELE B. REITER 1998 $134,230 $ 35,000 * -- 407(7)
Vice President of 1997 $104,058 -- * -- 72(7)
Legal and 1996 $ 70,661 $ 10,316 -- -- --
Governmental Affairs(6)
- ----------------------
</TABLE>
* Represents less than 10% of annual salary and bonus.
(1) Mr. Papa resigned as President, Chief Executive Officer and director,
effective January 15, 1999.
(2) Includes the grant of 30,000 options in September 1997, for which the
exercise price was repriced in February 1998.
(3) Represents 200,000 options awarded in 1996 for which the exercised price
was amended in December 1997; excludes 30,000 options granted in September
1997 for which the exercise price was repriced in February 1998.
(4) Mr. Dupont was named Acting President/Chief Executive Officer, and
director, effective January 16, 1999.
(5) Ms. Campbell-Wisley was appointed as President and Chief Executive Officer
of WellCare of New York, Inc., effective February 16, 1999; elected
director of the Company, effective February 25, 1999; and elected Secretary
of the Company, effective March 25, 1999.
(6) Ms. Reiter resigned as Vice President of Legal and Governmental Affairs,
effective February 21, 1999.
(7) Represents group life insurance premium payment.
(8) Represents the amount WellCare paid for a condominium rental.
(9) Represents $13,000 one time reimbursement for moving expenses and $6,050
auto allowance.
(10) Dr. Ott resigned as Executive Vice President and director, effective June
11, 1999.
(11) Mr. Curtin resigned as Vice President of Sales and Marketing, effective
June 7, 1999.
The following table sets forth certain information concerning options
granted in 1998 to the individuals named in the Summary Compensation Table.
OPTION GRANTS IN 1998
Individual Grants
<TABLE>
<CAPTION>
Potential
Realizable Value
Number of % of Total at Assumed Annual
Securities Options Exercise Rates of Stock Price
Underlying Granted to or Base Appreciation for
Options Employees Price Expiration Option Term
Name Granted (#) in 1998 ($/Share) Date 5% 10%
- ---------------- ----------- ----------- --------- ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
JOSEPH R. PAPA 100,000(3) 45.5% $ 5.02 01-Sep-01 (4) (4)
30,000(1)(2) 13.6% $ 4.51 01-Sep-02 $42,000 $88,400
CRAIG S. DUPONT 50,000(5) 22.7% $ 1.91 13-May-03 26,400 58,300
</TABLE>
- ------------------------------
(1) Represents an amendment to options previously awarded in 1997 (2) Fully
exercisable on date of grant. (3) Mr. Papa's employment with WellCare terminated
January 15, 1999, and 90,000
options expired April 15, 1999.
(4) 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.
(5) One fifth of the assigned number of underlying shares are exercisable
commencing on the date of grant, and an additional one fifth on each of
the next four anniversaries of the date of grant.
No options were exercised in 1998 by the individuals named in the Summary
Compensation Table. The following table sets forth the number of unexercised
options held at December 31, 1998, 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, 1998
Number of Unexercised Options
at December 31,1998
Name Exercisable(E)/Unexercisable(U)
------------------- --------------------------------------
JOSEPH R. PAPA 263,333 (E)/ 66,667 (U)
JOHN E. OTT, M.D. 45,240 (E)/ 2,500 (U)
CRAIG S. DUPONT 10,000 (E)/ 40,000 (U)
MARY LEE CAMPBELL-WISLEY 30,000 (E)/ 15,000 (U)
THOMAS A. CURTIN 10,000 (E)/ 15,000 (U)
EMPLOYMENT AGREEMENTS
MR. PAPA was employed under a three-year agreement with the Company
effective September 1, 1996, which provided for an annual base salary of
$300,000, until his resignation effective January 15, 1999. Additionally, under
the agreement, the Company provided Mr. Papa with an automobile allowance in the
amount of $550 per month, as well as making 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 non-incentive 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 incentive options for
90,000 shares and non-incentive options for 10,000 shares, each at an exercise
price of $5.02 per share.
Under the agreement, in the event of termination of employment by the
Company 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.
Effective January 15, 1999, Mr. Papa resigned as President and Chief
Executive Officer, and simultaneously entered into a Consulting Agreement with
the Company. Under the terms of the Consulting Agreement, Mr. Papa received a
monthly fee of $24,000, through April 15, 1999, and then a monthly fee of
$12,000 through July 15, 1999.
MR. DUPONT was employed under an agreement with the Company, effective May
1, 1998, which provides an annual base salary of $150,000, amended to $200,000
per annum, effective January 16, 1999 upon his assuming the additional duties of
Acting President/ Chief Executive Officer. Additionally, the Company provides
Mr. Dupont with an automobile allowance of $550 per month. In addition, on May
13, 1998, Mr. Dupont was granted five-year incentive options to purchase 50,000
shares of common stock of the Company at $1.91 per share. Under the agreement,
in the event of termination of employment by the Company without cause prior to
May 16, 2000, the Company shall continue to pay Mr. Dupont his base salary for
six months.
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. Effective February 16, 1999, the annual base salary was increased to
$190,000. Ms. Campbell-Wisley is entitled to a bonus of $47,500 if she remains
in the employ of the Company until September 1, 1999. Additionally, under the
agreement, the Company provides Ms. Campbell-Wisley with an automobile allowance
of $550 per month. Under the agreement, on January 29, 1997, Ms. 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 prior to November 1, 1999, the Company shall pay Mrs.
Campbell-Wisley a lump sum payment in an amount equal to three months' base
salary and benefits.
DR. OTT was employed under a five-year agreement with the Company effective
June 1, 1996, amended on June 1, 1998. The original contract provided an annual
base salary of $200,000, plus an annual 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 had waived his 1997 and 1996 bonus in view of the Company's financial
condition. 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 1 of each year during his
term of employment at an exercise price equal to the fair market value on the
date of grant.
Effective June 1, 1998, the agreement was amended to delete the incentive
bonus in exchange for a lump sum payment of $75,000 and a revision of the annual
compensation to $220,000, $200,000 and $197,723, respectively, for the three
years ending May 31, 2001, and to require 75%, 50% and 25% respectively, of Mr.
Ott's business time for each of the three years.
Dr. Ott resigned as Executive Vice President and director, effective June
11, 1999. In connection with his resignation, the Company will make a lump sum
payment of $50,000, twelve monthly payments aggregating $50,000, and will issue
common stock with a value of $80,000.
MR. CURTIN was employed under an agreement with the Company, effective
September 24, 1997, which provides an annual base salary of $140,000 per annum
and is eligible to receive an annual bonus ($20,000) plus an annual incentive
bonus of up to 0.5% of the annual increase in commercial member revenue.
Additionally, under the agreement, the Company provides Mr. Curtin with an
automobile allowance of $550 per month. In addition, Mr. Curtin was granted
five-year incentive options to purchase 25,000 shares of the Company's common
stock at $6.00 per share. Under the agreement, in the event of termination of
employment by the Company without cause, the Company shall continue to pay Mr.
Curtin his base salary for six months. Mr. Curtin resigned, effective June 7,
1999, concurrent with the GHI transaction.
MS. REITER was employed under an agreement with the Company under her
resignation, effective February 21, 1999. Under the agreement, Mr. Reiter's
annual base salary was $130,000 and the Company provided her with an automobile
allowance of $550 per month.
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) Dr. Dean has not filed a Form 4 for the sale of 116,672
shares of common stock and 68,059 shares of Class A common stock disposed of by
Pine Street Dental Association, P.C. ("Pine Street"), a retirement plan in which
the Reporting Person has a 48% interest; (ii) Dr. Patel is currently filing his
Form 3; (iii) Mr. Suarez is currently filing his Form 3; (iv) Mr. P.C. Patel is
currently filing his Form 3; (v) Mr. Shah is currently filing his Form 3; and
(vi) Mr. Adhia is currently filing his Form 3.
DIRECTOR COMPENSATION
During 1998, 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.
MEETINGS AND COMMITTEES
The Executive Committee has all of the powers of the Board not otherwise
delegated to the Audit or Compensation Committees and, until their resignation
as directors subsequent to December 31, 1998, was comprised of Messrs. Morey,
Papa and Tucker. There were no meetings of the Executive Committee in 1998.
The Audit Committee, currently comprised of Mr. Crew and Drs. Dean and Ott,
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 was one (1) meeting of the Audit
Committee during 1998. Mr. Grist was on the committee until his resignation as a
director, effective January 20, 1999. Mr. Ott was appointed to the committee,
effective March 12, 1999.
The Compensation Committee, comprised of Mr. Crew and Drs. Dean and Ott,
establishes 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 three (3) meetings of the
Compensation Committee during 1998. Mr. Tucker was on the committee until his
resignation, effective January 20, 1999. Dr. Ott was appointed to the Committee,
effective March 12, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS
Lawrence C. Tucker served on the Compensation Committee during 1998. 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.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Through December 31, 1998, 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, in the aggregate of
$711,000 and $500,000, 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 Item 3, Legal Proceedings, was settled in
May 1999, subject to Court approval. The Company expects to recoup the related
fees it paid to the attorneys representing these individuals, from the insurance
carrier which provided coverage to the individual defendants, less the Company's
insurance deductible.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 1, 1999, 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, and (iv) all
executive officers and directors as a group. The percent of total has been
calculated assuming the conversion of both Series A and Series B senior
convertible preferred stock into common shares, as well as the conversion of all
Class A into common stock, except for 281,956 shares owned by Robert W. Morey.
In connection with the Patel closing, Mr. Morey has given a two-year proxy in
favor of Dr. Patel to vote Mr. Morey's shares of Class A common stock.
<TABLE>
<CAPTION>
Percent of Total
------------------------------------
Series A Series A
Senior Senior
Convertible Class A Convertible Class A Total
Name Preferred Common Common(11) Preferred Common Common Vote
---- --------- ------ ---------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Kiran C. Patel, M.D. (1)(2) 100,000 -- 21,449,257 100.0% -- 55.4% 58.4%
Robert W. Morey, Jr.(3)(4) -- 281,956 515,021 -- 100.0% 1.3% 1.2%
Mark D. Dean, D.D.S. (5)(6) -- -- 72,921 -- -- * *
Joseph R. Papa -- -- 203,703 -- -- * *
John E. Ott, M.D -- -- 47,470 -- -- * *
Craig S. Dupont -- -- 50,000 -- -- * *
Mary Lee Campbell-Wisley -- -- 45,000 -- -- * *
Thomas A. Curtin -- -- -- -- -- --
Adele B. Reiter, Esq -- -- -- -- -- --
Charles E. Crew, Jr -- -- 92,546 -- -- 1.3% *
Lawrence C. Tucker(8)(9) -- -- 11,250,000 -- -- 29.1% 27.1%
Edward A. Ullmann (7)(10) -- -- 411,045 -- -- 1.1% *
Henry Suarez -- -- -- -- -- -- --
Pradip C. Patel -- -- -- -- -- -- --
Rupesh R. Shah -- -- -- -- -- -- --
Hitesh P. Adhia -- -- -- -- -- -- --
The 1818 Fund II, L.P. (8)(9) -- -- 11,250,000 -- -- 29.1% 27.1%
Brown Brothers Harriman & Co. -- -- 11,250,000 -- -- 29.1% 27.1%
(8)(9)
T. Michael Long (8)(9) -- -- 11,250,000 -- -- 29.1% 27.1%
All current executive officers
and directors as a group --
(10 persons)(2)(6)(11) 100,000 -- 21,709,724 100.0% -- 56.1% 59.1%
</TABLE>
- -----------------------
* Less than 1%
(1) Address is 6800 North Dale Mabry Highway, Suite 268, Tampa, FL 33614
(2) In June 1999, Dr. Patel purchased shares of a newly authorized series of
senior convertible preferred stock (Series A) for $5 million, which
provides Dr. Patel with 55% of WellCare's voting power. The preferred stock
is subject to mandatory conversion into common stock upon the amendment in
WellCare's certificate of incorporation to increase the number of
authorized shares of common stock from 20 million to 75 million. The shares
will be convertible into 55% of the then outstanding common stock (after
giving effect to such conversion) and will be subject to anti-dilution
rights under which Dr. Patel will generally preserve his 55% interest in
WellCare until there are 75 million shares of common stock issued and
outstanding. The investment by Dr. Patel in WellCare was approved by New
York State regulators on June 11, 1999. Pending a public hearing in
Connecticut and regulatory approval of the acquisition of control of WCCT,
Dr. Patel is precluded from exercising influence in directing the
management and policies of WCCT. There can be no assurance that approval of
the change in control will be granted nor that the order of supervision
will be lifted.
(3) Address is Box 1, 134 Lyford Drive, Tiburon, California 94920.
(4) Includes 12,000 shares of common stock owned by RWM Management Co. Defined
Benefit Pension Plan for which Mr. Morey is trustee. Mr. Morey disclaims
beneficial ownership.
(5) Address is 62 Riverview, Port Ewen, New York 12466.
(6) Includes 19,446 shares of common stock owned by Dr. Dean's wife, and 4,862
shares of common stock owned by Dr. Dean's son. Dr. Dean disclaims
beneficial ownership of the shares owned by his wife and son.
(7) Address is P.O. Box 133, Miller Road, Mount Tremper, New York 12457.
(8) Address is 59 Wall Street, New York, New York 10005.
(9) Includes 10,000,000 common shares issuable upon mandatory conversion of
100,000 shares of the newly authorized senior convertible preferred stock
(Series B) (the "shares") received upon the conversion of the $15,000,000
8.0% Subordinated Convertible Note due December 31, 2002 (the "Note").
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
shares. By virtue of BBH & Co.'s relationship with the Fund, BBH & Co. may
be deemed to beneficially own 11,250,000 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 shares, and the
common stock issuable upon conversion of the Notes, Messrs. Long and Tucker
may each be deemed to beneficially own 11,250,000 shares of common stock.
(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
September 1, 1999 as follows:
NAME NUMBER OF SHARES
- ---- ----------------
Craig S. Dupont 50,000
Mary Lee Campbell-Wisley 45,000
------
All current executive officers
and directors as a group
(10 persons) 95,000
======
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1999, Kiran C. Patel, MD ("Patel), the principal of Well Care HMO,
Inc., a Florida corporation, an entity unrelated to WellCare, purchased a 55%
ownership interest in the Company for $5 million. Dr. Patel purchased a newly
authorized series of senior convertible preferred stock (Series A)("the shares")
of WellCare, which will provide him with 55% of WellCare's voting power. The
preferred stock is subject to mandatory conversion into common stock upon the
amendment to WellCare's certificate of incorporation to increase the number of
authorized shares of common stock from 20 million to 75 million. The shares will
be convertible into 55% of the then outstanding common stock (after giving
effect to such conversion) and will be subject to anti-dilution rights under
which Dr. Patel will generally preserve his 55% interest in WellCare until there
are 75 million shares of common stock issued and outstanding. WCNY and WCCT also
entered into management agreements with Comprehensive Health Management, Inc.
(Comprehensive") an affiliate of Dr. Patel, to manage their HMO operations
(excluding the commercial business of WCNY sold to GHI in June 1999). The
investment by Dr. Patel in WellCare and the related management agreement with
WCNY were approved by New York State regulators on June 11, 1999. Pending a
public hearing in Connecticut and regulatory approval of the acquisition of
control of WCCT, Dr. Patel in precluded from exercising influence in directing
management and policies of WCCT. State regulators, however, have authorized the
performance of the management agreement, with certain limitations. WCCT remains
under an order of supervision by the Connecticut Department of Insurance.
The management agreements with Comprehensive are for a term of five years,
effective June 1, 1999. The management fee to each HMO ranges from 7.5% of the
premium revenue when there are more than 80,000 members, to 9.5% of the premium
revenues when there are less than 40,000 members. Comprehensive will cover
services for claims, customer service, utilization review, data processing/MIS
(including Y2K compliance expenses and costs), credentialing, communication,
provider relations, and day to day accounting. Comprehensive will provide
financial reports to the HMOs and the appropriate regulatory agencies. The fee
does not cover other costs, directors and officers liability insurance, other
insurance costs, and any extraordinary costs.
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, due December 31, 2002, 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. In June 1999, the Fund converted the
remaining $15 million, plus accrued and unpaid interest of approximately $0.7
million, into newly authorized senior convertible preferred stock (Series B) of
the Company. The preferred stock is non-voting and is subject to mandatory
conversion (subject to regulatory approval) into 10,000,000 shares of WellCare's
common stock upon the amendment to WellCare's certificates of incorporation to
increase the number of authorized shares from 20 million to 75 million.
Under the January 1998 amendment, subject to regulatory approval, the Fund
agreed to convert $5 million of indebtedness under the Note into 1,250,00 shares
of common stock, which conversion occurred on May 15, 1998, after the New York
State Department of Health advised the Company that such approval was not
required. The holder of the Note has the right to convert the remaining
$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 certain 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. Effective January 1996, Lawrence C. Tucker became a
director. Effective February 1997, Walter W. Grist became a director. Messers,
Tucker and Grist resigned as directors, effective January 20, 1999.
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 second or third quarter
of 1998, 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. The Company reported a
consolidated loss before taxes for each of these quarters.
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.
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.
In June 1999, as a condition to the closing of the Patel transaction, the
holders of 644,287 shares of Class A common stock, which has ten votes per
share, agreed to convert their shares into shares of common stock on a
share-for-share basis. Robert W. Morey, the holder of the remaining 281,956
shares of Class A common stock outstanding, has given a two-year proxy in favor
of Dr. Patel to vote Mr. Morey's share of Class A common stock.
After giving effect to conversion of these shares of Class A common stock,
and assuming conversion of the preferred shares held by Dr. Patel and the Fund,
there would be 38,716,693 shares of common stock and 281,956 shares of Class A
common stock outstanding with Dr. Patel owning 21,449,257 shares of common
stock, and 55% of the aggregate number of shares outstanding in the combined
classes.
Effective July 1996, WCNY entered into an Agreement with Bienestar, Inc.
("Bienestar"), an unconsolidated affiliate whereby Bienestar provided consulting
and educational services related to wellness and integrated health services. In
November 1997, the Company decided not to renew the agreement. WellCare had
acquired 70% of Bienestar in 1996 and, in December 1996, sold its entire
interest to Mr. Ullmann, the Company's former Chief Executive Officer and
President, for $84,000. This amount was payable in three equal annual
installments, commencing in November 1996, with interest at the rate of 8% per
annum. In June 1999, the Company forgave the remaining unpaid balance of
$56,000.
Until the cancellation of coverage, effective November 30, 1998, the
Company had reinsured 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 Allianz in 1997 with respect to its
previous contribution commitment to WellCare University. RWM Management Company,
Inc., is a company wholly-owned by Mr. Robert Morey, the Company's former
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.
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, 1998 and 1997 Consolidated Statements of
Operations for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1998, 1997 and 1996 Consolidated Statements of Cash Flows for
the years ended December 31, 1998, 1997 and 1996 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 ON FORM 8-K.
None
III. EXHIBITS
See Index to Exhibits
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 19th day of
July, 1999.
The WellCare Management Group, Inc.
By: /s/ Kiran C. Patel
-----------------------------
Name: Kiran C. Patel
Title: Chairman of the Board, President
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 July 19, 1999.
Signature Title
- --------- -----
/s/ Kiran C. Patel, M.D. Chairman of the Board, President
- ---------------------------- and Chief Executive Officer
Kiran C. Patel, M.D.
/s/ Craig S. Dupont Director, Vice President
- ---------------------------- and Chief Financial Officer
Craig S. Dupont (Principal Financial and
Accounting Officer)
/s/ Charles E. Crew, Jr. Director
- ----------------------------
Charles E. Crew, Jr.
/s/ Mark D. Dean, D.D.S. Director
- ----------------------------
Mark D. Dean, D.D.S.
/s/ Mary Lee Campbell-Wisely Director
- ----------------------------
Mary Lee Campbell-Wisely
/s/ Henry Suarez Director
- ----------------------------
Henry Suarez
/s/ Pradip C. Patel Director
- ----------------------------
Pradip C. Patel
/s/ Rupesh R. Shah Director
- ----------------------------
Rupesh R. Shah
/s/ Hitesh P. Adhia Director
- ----------------------------
Hitesh P. Adhia
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
OF THE COMPANY:
Report of Deloitte & Touche LLP, Independent Auditors
Consolidated Balance Sheets as of December 31, 1998
and 1997
Consolidated Statements of Operations for the years
ended December 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders' Equity for
the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements
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, 1998
and 1997, and the related consolidated statements of operations, shareholders'
equity (deficiency in assets) and cash flows for each of the three years in the
period ended December 31, 1998. 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,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 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.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes 1m and 20 to the consolidated financial statements, the Company's
recurring losses from operations, working capital deficit, deficiency in assets
and failure to maintain 100% of the contingent reserve requirement of the New
York State Department of Insurance raise substantial doubt about its ability to
continue as a going concern. Management's plans concerning these matters are
also described in Notes 1m and 20. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ Deloitte & Touche, LLP
- ---------------------
Deloitte & Touche, LLP
New York, New York
May 11, 1999
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, December 31,
1998 1997
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 6,393 $ 3,368
Short-term investments -
available for sale 2 103
Accounts receivable (net of
allowance for doubtful
accounts of $2,808 in 1998
and $2,422 in 1997) 2,240 6,802
Notes receivable (net of
allowance for doubtful
accounts of $7,774 in 1998
and $5,441 in 1997) 56 679
Advances to participating providers 56 2,860
Other receivables 1,378 4,873
Taxes receivable 284 284
Prepaid expenses and other
current assets 541 522
Property and equipment disposed
of in 1999 5,564 --
Deferred tax asset -- 3,927
------- -------
TOTAL CURRENT ASSETS 16,514 23,418
PROPERTY AND EQUIPMENT - net 2,145 11,094
OTHER ASSETS:
Restricted cash 5,286 5,771
Notes receivable (net of
allowance for doubtful accounts
of $1,108 in 1998 and $2,655
in 1997) -- 122
Preoperational costs (net of
accumulated amortization of
$1,350 in 1998 and $2,562 in 1997) -- 1,440
Goodwill (net of accumulated
amortization of $5,299 in 1998
and $2,339 in 1997) 4,431 7,391
Other non-current assets (net of
allowance for doubtful accounts
of $1,376 in 1998 and $1,133 in 1997
and accumulated amortization of
$1,241 in 1998 and $869 in 1997) 1,563 3,302
------- -------
TOTAL $29,939 $52,538
======= =======
December 31, December 31,
1998 1997
------------ ------------
LIABILITIES AND (DEFICIENCY IN ASSETS)/
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 5,791 $ 618
Medical costs payable 26,404 17,321
Accounts payable 1,321 1,188
Accrued expenses and other 2,286 3,722
Unearned income 6,767 5,684
----------- -----------
TOTAL CURRENT LIABILITIES 42,569 28,533
LONG-TERM LIABILITIES:
Long-term debt and other 15,078 25,856
----------- -----------
TOTAL LIABILITIES 57,647 54,389
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
(DEFICIENCY IN ASSETS)/
SHAREHOLDERS' EQUITY:
Class A common stock ($.01 par
value; 1,109,292 and 1,199,015
shares authorized; 994,302
and 1,084,025 shares issued and
outstanding in 1998 and 1997,
respectively) 10 11
Common stock ($.01 par value;
20,000,000 shares authorized,
6,567,940 and 5,228,217 shares
issued in 1998 and 1997,
respectively) 65 52
Additional paid-in capital 31,612 26,624
Accumulated deficit (65,884) (34,987)
Accumulated other comprehensive
income 1 --
Statutory reserve 6,695 6,656
----------- -----------
(27,501) (1,644)
Less:
Notes receivable from shareholders 5 5
Treasury stock (at cost; 12,850
shares of common stock in
1998 and 1997) 202 202
----------- -----------
TOTAL (DEFICIENCY IN ASSETS)/
SHAREHOLDERS' EQUITY (27,708) (1,851)
----------- -----------
TOTAL $ 29,939 $ 52,538
----------- -----------
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,
--------------------------------------
1998 1997 1996
-------- -------- --------
REVENUE:
Premiums earned $ 142,742 $ 142,115 $ 157,156
Administrative fee income 21 -- 1,592
Interest and investment income 1,189 1,234 1,338
Other income - net 497 521 1,000
--------- --------- ---------
TOTAL REVENUE 144,449 143,870 161,086
--------- --------- ---------
EXPENSES:
Medical expenses 129,494 126,251 135,957
General and
administrative expenses 32,641 34,485 39,334
Depreciation and
amortization expense 6,001 3,624 3,254
Interest expense 1,730 1,652 2,185
Expenses to affiliates - net -- -- 176
--------- --------- ---------
TOTAL EXPENSES 169,866 166,012 180,906
--------- --------- ---------
LOSS BEFORE INCOME TAXES (25,417) (22,142) (19,820)
PROVISION/(BENEFIT) FOR
INCOME TAXES 5,441 -- (8,038)
--------- --------- ---------
NET LOSS $ (30,858) $ (22,142) $(11,782)
========= ========= ========
LOSS PER SHARE -
BASIC $ (4.36) $ (3.52) $ (1.87)
========= ========= ========
Weighted average shares of
common stock outstanding 7,081 6,299 6,296
========= ========= ========
LOSS PER SHARE -
DILUTED $ (4.36) $ (3.52) $ (1.87)
========= ========= ========
Weighted average shares of common
stock and common stock equivalents
outstanding 7,081 6,299 6,296
========= ========= ========
See accompanying notes to consolidated financial statements.
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
(Accumulated Accumulated
Class A Additional Deficit)/ Other
Common Common Paid-in Retained Comprehensive
Stock Stock Capital Earnings Income/(Loss)
------- ------ --------- ---------- ------------
BALANCE,
DEC 31, 1995 15 48 26,371 1,233 5
Conversion of
Class A Common
shares to
Common shares (1) 1 -- -- --
Exercise of
stock options -- -- 252 -- --
Issuance of
treasury stock -- -- 1 -- --
Repayments/re-
classification
of shareholders'
notes - net -- -- -- -- --
Net loss -- -- -- (11,782) --
Other comprehensive
(loss) - unrealized
holding (loss) -- -- -- -- (16)
Comprehensive
income/(loss) -- -- -- -- --
Transfer to
statutory reserve -- -- -- (1,572) --
-------- -------- -------- -------- --------
BALANCE,
DEC 31, 1996 14 49 26,624 (12,121) (11)
-------- -------- -------- -------- --------
Conversion of
Class A Common
shares to
Common shares (3) 3 -- -- --
Adjustment to
treasury Stock -- -- -- -- --
Repayments/re-
classification
of shareholders'
notes - net -- -- -- -- --
Net loss -- -- -- (22,142) --
Other comprehensive
income - unrealized
holding gains -- -- -- -- 11
Comprehensive
income/(loss) -- -- -- -- --
Transfer to
statutory reserve -- -- -- (724) --
-------- -------- -------- -------- --------
BALANCE,
DEC 31, 1997 $ 11 $ 52 $ 26,624 $(34,987) $ --
-------- -------- -------- -------- --------
(Accumulated Accumulated
Class A Additional Deficit)/ Other
Common Common Paid-in Retained Comprehensive
Stock Stock Capital Earnings Income/(Loss)
------- ------ --------- ---------- ---------
BALANCE,
DEC 31, 1997 $ 11 $ 52 $ 26,624 $(34,987) $ --
Conversion of
Subordinated
Convertible Note
into Common shares -- 12 4,988 -- --
Conversion of
Class A Common
shares to
Common shares (1) 1 -- -- --
Net loss -- -- -- (30,858) --
Other comprehensive
income - unrealized --
holding gains -- -- -- -- 1
Comprehensive
income/(loss) -- -- -- -- --
Transfer to
statutory reserve -- -- -- (39) --
-------- -------- -------- -------- --------
BALANCE,
DEC 31, 1998 $ 10 $ 65 $ 31,612 $(65,884) $ 1
======== ======== ======== ======== ========
Total
Deficiency in
Notes Assets)/
Statutory Receivable- Treasury Shareholders'
Reserve Shareholders Stock Equity
----------- ------------ -------- ------------
BALANCE,
DEC 31, 1995 4,360 (17) (211) 31,804
Conversion of
Class A Common
shares to
Common shares -- -- -- --
Exercise of
stock options -- -- -- 252
Issuance of
treasury stock -- -- 4 5
Repayments/re-
classification
of shareholders'
notes - net -- 11 -- 11
Net loss -- -- -- (11,782)
Other comprehensive
(loss) - unrealized
holding (loss) -- -- -- (16)
Comprehensive --
income/(loss) -- -- -- (11,798)
Transfer to --
statutory reserve 1,572 -- -- --
-------- -------- -------- --------
BALANCE,
DEC 31, 1996 5,932 (6) (207) 20,274
-------- -------- -------- --------
Conversion of
Class A Common
shares to
Common shares -- -- -- --
Adjustment to
treasury stock -- -- 5 5
Repayments/re-
classification
of shareholders'
notes - net -- 1 -- 1
Net loss -- -- -- (22,142)
Other comprehensive
income - unrealized
holding gains -- -- -- 11
Comprehensive -- --
income/(loss) -- -- -- (22,131)
Transfer to --
statutory reserve 724 -- -- --
-------- -------- -------- --------
BALANCE,
DEC 31, 1997 $ 6,656 $ (5) $ (202) $ (1,851)
-------- -------- -------- --------
Notes Assets)/
Statutory Receivable- Treasury Shareholders'
Reserve Shareholders Stock Equity
----------- ------------ -------- -----------
BALANCE,
DEC 31, 1997 $ 6,656 $ (5) $ (202) $ (1,851)
Conversion of
Subordinated
Convertible Note
into Common shares -- -- -- 5,000
Conversion of
Class A Common
shares to
Common shares -- -- -- --
Net loss -- -- -- (30,858)
Other comprehensive
income - unrealized --
holding gains -- -- -- 1
Comprehensive --
income/(loss) -- -- -- (30,857)
Transfer to --
statutory reserve 39 -- -- --
-------- -------- -------- --------
BALANCE,
DEC 31, 1998 $ 6,695 $ (5) $ (202) $(27,708)
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(30,858) $(22,142) $(11,782)
Adjustments to reconcile
net loss to net cash
(used)/ provided by operating
activities:
Depreciation and amortization 6,001 3,624 3,254
Decrease/(increase) in
deferred taxes 5,441 -- (1,711)
Loss on impaired assets 2,812 -- --
Loss/(gain) on sale of
assets and other 1 103 (71)
Changes in assets and
liabilities:
Decrease in accounts
receivable - net 4,562 1,331 5,808
Increase in medical
costs payable 9,083 1,356 1,935
Decrease/(increase) in due
from affiliates - net -- -- 223
Decrease/(increase) in accounts
receivable - non-current - net 225 530 (644)
Decrease/(increase) in other
receivables - net 3,328 732 (148)
Increase/(decrease) in accounts
payable and accrued expenses (1,303) 1,230 1,531
Decrease/(increase) in taxes
receivable/payable -- 6,885 (5,021)
(Increase)/decrease in prepaid
expenses and other (19) (122) 19
Increase in unearned income 1,083 1,436 1,187
Decrease in restricted cash 485 896 1,574
Decrease/(increase) in advances
to participating providers 2,804 (540) 757
(Increase) in other non-current
assets - excluding preoperational
costs and accounts and other
receivables (205) (89) (983)
-------- -------- --------
NET CASH PROVIDED BY /(USED IN)
OPERATING ACTIVITIES 3,440 (4,770) (4,072)
-------- -------- --------
YEARS ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
---------- --------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment (657) (314) (538)
Decrease in
notes receivable 745 653 613
Sale of investments 101 811 6,841
Purchase of investments -- -- (6,500)
Increase in preoperational costs -- -- (420)
Other investing activities - net 1 11 (16)
-------- -------- --------
NET CASH PROVIDED BY/(USED IN)
INVESTING ACTIVITIES 190 1,161 (20)
-------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of notes payable and
long-term debt (605) (898) (15,002)
Proceeds from exercise of
stock options -- -- 254
Proceeds from issuance of stock
and treasury stock - net -- 5 3
Proceeds from notes payable and
long-term debt -- -- 21,239
Other financing activities - net -- 1 11
-------- -------- --------
NET CASH (USED IN)/PROVIDED BY
FINANCING ACTIVITIES (605) (892) 6,505
-------- -------- --------
NET INCREASE/(DECREASE) IN CASH 3,025 (4,501) 2,413
CASH,
BEGINNING OF PERIOD 3,368 7,869 5,456
-------- -------- --------
CASH,
END OF PERIOD $ 6,393 $ 3,368 $ 7,869
======== ======== ========
See accompanying notes to consolidated financial statements.
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Description of Operations - The WellCare Management Group, Inc. ("WellCare"
or the "Company"), a New York corporation, owns, operates and provides
management services 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, operates as an
HMO in New York State. WCNY has a certificate of authority under Article 44 of
the New York State Public Health Law to operate in 25 counties in the Hudson
River Valley, Mohawk River Valley, Albany and Leatherstocking regions of New
York State, Westchester County and in four counties in New York City. WCNY is a
mixed IPA/Direct Contract model HMO. Under this type of arrangement, agreements
are entered into with regional health care delivery networks currently organized
as independent practice associations ("IPAs" or "Alliances"), which in turn
contract with providers to render health care services to an HMO's enrollees,
and directly with individual primary care physicians or physician groups for the
provision of such medical care.
In October 1994, WCNY entered into contracted arrangements with a majority of
its primary care physicians and specialists through contracts with 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.
In 1995, the four Alliances had combined into two Alliances, with the same
equity owner. Effective June 1997, the Alliances converted into IPAs by
establishing new corporations. WCNY's initial agreement with each of the
Alliances, for the period from October 1994 through September 1995, required
payment to the Alliances based on a percentage of premium revenue for effected
members. Effective October 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 cost of all health care services provided
to HMO members. These agreements originally provided for periodic increases,
ranging from 1% to 6% for the period from October 1995 through December 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 arrangements. Pursuant to the terms of the
restructured arrangement, WCNY reassumed the risk for certain previously
capitated services, and reduced the capitation rate paid for certain services
which continued to be provided by the IPAs. WCNY capitated the Alliances for
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 substance abuse, which WCNY capitated through
contracts with certain other regional integrated delivery systems.
Each Alliance/IPA, in turn, capitates its Alliance/IPA primary care physician
from the monthly payments received from WCNY with a fixed monthly payment for
each HMO member designating the Alliance/IPA 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/IPA 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 IPAs' accounts are reconciled periodically.
In April 1998, WCNY entered into service agreements with four IPAs wholly owned
by Primergy, Inc. ("Primergy") (see Note 5). These agreements amended and
restated the prior agreements with two professional corporations managed by
Primergy. Consistent with the prior agreements, the new agreements grant the
IPAs the exclusive right to contract with primary care physicians in a six
county geographic region in the mid-Hudson Valley. The term of the agreements is
ten years, subject to earlier termination under certain conditions, including
following a failure of the parties to renegotiate rates in the event that a
potential investor (the "Investor") did not exercise its right to acquire
Primergy. In July 1998, following expiration of the Investor's option to
purchase Primergy, WCNY notified Primergy of its intent to renegotiate rates. If
a new agreement is not reached within 120 days after June 30, 1998, either the
Company or the respective IPA can thereafter exercise its option to terminate
the contract. The parties continue to negotiate the terms of the new agreement
and there can be no assurance that the contracts will be successfully
renegotiated and not terminated by either the Company or the respective IPAs.
In October 1998, WCNY entered into a service agreement with a fifth IPA owned by
Primergy to provide non-exclusive service in the Capital District region.
Subsequently, the Company entered into discussions with Primergy and another
potential investor ("New Investor") whereby the New Investor expressed an
interest in acquiring Primergy, repaying certain of the debt owed to the Company
by Primergy, amending certain terms of the IPA service agreements, and obtaining
the right to manage certain aspects of WCNY's business relating to its
relationships with the IPAs owned by Primergy. These discussions have not
resulted in the consummation of any transaction involving the Company, nor can
there be any assurance that a transaction will be consummated in the future.
In January 1999, WCNY amended the service agreements with the IPAs owned by
Primergy to add Medicare risk as a product for which the IPAs would arrange for
the provision of physician primary care and specialty services and certain other
agreed upon health care services.
WellCare of Connecticut, Inc. ("WCCT"), a wholly-owned subsidiary of WCNY,
operates as an IPA model HMO in the state 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. WCCT is approved to operate State-wide in
Connecticut.
WCNY and WCCT are collectively referred to as the "WellCare HMOs."
WellCare Administration, Inc. ("WCA") (formerly Agente Benefit Consultants, Inc.
("ABC")) is a wholly-owned subsidiary that administers 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.
WellCare Development, Inc. ("WCD") is a wholly-owned subsidiary formed to
acquire, own and develop real estate.
WellCare Medical Management, Inc. ("WCMM"), is a wholly-owned subsidiary formed
to provide managerial, administrative and financial services to physicians. The
assets and certain liabilities were sold in June 1995 (see Note 5) and WCMM is
dormant.
WellCare University ("WCU"), a division of WellCare, was formed to focus on:
strategic planning, training and research and development for WellCare and
others within the managed care/health care arena. WCU's operations were
eliminated during 1997 and WCU is dormant as of December 31, 1998. Bienestar,
Inc. ("Bienestar"), was an unconsolidated affiliate until December 17, 1996, at
which time WellCare sold its interest in Bienestar to the Company's former Chief
Executive Officer and President. In July 1996, WCNY entered into an agreement
for Bienestar to provide consulting and educational services regarding wellness
and integrated health services. The Company terminated its arrangement with
Bienestar in November 1997.
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. Revenue Recognition - Premiums from subscribers are recorded as income in the
period that subscribers are entitled to service. Premiums received in advance
are deferred. Subscriber premiums, for both WCNY and WCCT, are determined on an
annual basis using community rating principles as required by the Insurance
Department of each state. Although the rate filing requests and approval process
are performed on an annual basis, the HMOs are allowed to contract with
subscribers throughout the year based upon a "guaranteed" rate which
incorporates an estimated community rate. The WellCare HMOs are required to
remit or collect any difference between the community rate ultimately approved
and the guaranteed rate in the subsequent twelve-month contract period. In
connection with its biennial audit, The New York State Insurance Department
("NYSID") determined that WCNY was not in compliance with the requirement to
settle these differences within twelve months (see Note 20). Accounts receivable
include approximately $198,000 and $729,000 at December 31, 1998 and 1997,
respectively, which represented the excess of subscriber premiums accrued based
on approved community rates over amounts actually billed under guaranteed rates,
net of an allowance for doubtful amounts of approximately $1,376,000 and
$1,133,000, respectively. Approximately $225,000, has been classified as
non-current at December 31, 1997 (see Note 10).
Administrative and management fees received in advance are deferred and
recognized as income over the period in which services are rendered.
Accounts receivable, other receivables, notes receivable and other non-current
assets are reported net of reserves for doubtful accounts of approximately
$15,023,000 and $12,788,000 at December 31, 1998 and 1997, respectively.
d. 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 services are provided. The expense
is based in part on estimates, including an accrual for medical services
incurred but not yet billed ("IBNR"), which accrual is included in medical costs
payable. The IBNR accrual is based on a number of factors, including hospital
admission data and prior claims experience. Adjustments, as 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.
e. Reinsurance - The WellCare HMOs insure excess loss for health care claims
under policies with a reinsurance company. Premiums for these policies are
reported as medical expense and insurance recoveries are recorded as a reduction
of medical expense. Under the excess loss reinsurance policies, recoveries are
made for annual claims of each enrollee or each covered dependent of each
enrollee in excess of the deductible established in the policy, subject to
certain limitations. Effective December 1, 1998, the deductibles for commercial,
Medicaid and Medicare Full-Risk products are $85,000, $115,000, and $100,000,
respectively. From November 1995 through October 1996, the deductible for
commercial health care claims was $115,000 decreased to $85,000 in November
1996.
Effective September 1995, WCNY initially reinsured a portion of its Medicare
Full Risk program with a reinsurance company under a quota share agreement and,
effective November 1996, supplemented this agreement with a separate excess loss
reinsurance policy. Effective for 1998, the quota share arrangement with its
reinsurer was terminated.
Effective August 1996, WCNY's Medicaid claims were covered under an excess loss
reinsurance policy. Previously, this coverage had been provided by New York
State.
Reinsurance premiums charged to medical expenses in the accompanying
consolidated financial statements amounted to approximately $573,000, $585,000,
and $560,000, in 1998, 1997, and 1996, respectively. Reinsurance recoveries of
approximately $563,000, $1,747,000, and $524,000, in 1998, 1997, and 1996,
respectively, have been recognized as a reduction in medical expenses.
Included in other receivables at December 31, 1998 and 1997, were amounts
recoverable from the reinsurers of approximately $354,000 and $2,687,000,
respectively.
f. Short-term Investments - The Company has determined that the securities
included in short-term investments might be sold prior to maturity to support
its cash requirements. Such investments have, therefore, been classified as
available for sale. The basis for available for sale securities is market value.
g. 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 yet reported or claims in the process of adjudication.
h. 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.
i. 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. Effective December 31, 1998, the
Company expensed all previously unamortized preoperational costs.
j. 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.
The Company evaluates the recoverability of goodwill by monitoring, among other
things, reenrollment trends of membership acquired as well as the inherent
profitability of such membership as determined in connection with annual rate
filings. As a result of its evaluation, and in light of the June 1999
transaction with an unrelated party (see Note 24b), the Company increased 1998
amortization approximately $2,323,000 to reduce the remaining unamortized
goodwill to its net realizable value.
k. Advertising Costs - Advertising costs, which include costs for certain
marketing materials and development/implementation of public relations and
marketing campaigns, are expensed as incurred. Advertising costs expensed in
1998, 1997, and 1996, were approximately $978,000, $2,226,000, $2,046,000,
respectively.
l. Income Taxes - The Company recognizes 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. Accordingly, 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.
m. Cash Flows - 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.
At December 31, 1998, the Company had a working capital deficiency of $26.1
million, excluding the $5.3 million cash reserve required by New York State
which is classified as a non-current asset, compared to a working capital
deficiency of $5.1 million, excluding the $5.8 million cash reserve, at December
31, 1997. The working capital deficiency is attributable primarily to the cash
operating losses incurred by the Company during 1996, 1997 and 1998. In March
1998, the Company engaged Bear, Stearns & Co. Inc., to assist the Company in
exploring its strategic opportunities. This could include joint venture, merger
or sale of all or a portion of the Company.
The Company's financial statements have been prepared assuming the Company will
continue as a going concern. The auditors' report states that "the Company's
recurring losses from operations, working capital deficit, deficiency in assets,
and failure to maintain 100% of the contingent reserve requirements for the New
York State Department of Insurance raise substantial doubt about its ability to
continue as a going concern."
In May 1999, the Company agreed to a number of significant transactions, which
were consummated in June 1999 (Note 24). Management believes that the
consummation of these transactions will improve ongoing WellCare's ability to
continue as a going concern.
n. Stock-Based Compensation - The FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which defines a fair value method of
accounting for the issuance of stock options and other equity instruments,
effective for fiscal years beginning after December 15, 1995. 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 permitted to continue to
account for such transactions under Accounting Principles Board Opinion ("APB")
No. 25, "Accounting for Stock Issued to Employees", ("APB 25")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. The Company has elected to continue to account for such
transactions under APB 25 and disclose per SFAS 123 the pro-forma effects (See
Note 16).
o. Earnings Per Share - Net income/(loss) per share - Basic is computed using
weighted average number of common shares outstanding for the applicable period.
Net income/(loss) per share - Diluted is computed using the weighted average
number of common shares plus common equivalent shares outstanding, except if the
effect on the per share amounts of including equivalents would be anti-dilutive.
p. Current Accounting Pronouncements - In April 1998, the FASB adapted Statement
of Position No. 98-5, "Reporting on the Costs of Start-Up Activities" ("SOP No.
98-5") which requires that costs previously capitalized as start-up will be
expenses as incurred. SOP No. 98-5 becomes effective for fiscal years beginning
after December 15, 1998, with earlier application encouraged. Management does
not expect the adoption of SOP No. 98-5 to have a material effect on the
Company's consolidated financial statements.
During 1998, the FASB issued Statement of Financial Accounting Standards (SFAS
No. 133), "Accounting for Derivative Instruments and Hedging Activities", and
(SFAS No. 134), "Accounting for Mortgage-Backed Securities." The Company does
not expect the adoption of these new accounting pronouncements to have a
material effect, if any, on its financial condition or results of operations.
q. 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 IBNR 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.
r. Reclassifications - Certain amounts in the 1997 and 1996 consolidated
financial statements have been reclassified to conform to the 1998 presentation.
2. PREMIUM REVENUE
a. In 1998, the Company reduced premium revenue approximately $1.2 million to
reflect retroactive Medicaid premium revenue adjustments attributable to fiscal
1997 ($0.4 million) and fiscal 1996 ($0.8 million). Approximately $0.8 million
is for rate adjustments; the additional approximately $0.4 million is an
adjustment of the estimates recorded in prior periods for the collectibility of
premiums under the guaranteed enrollment provisions afforded to Certified
Medical Plans.
b. Effective January 1, 1999, WCNY did not renew Medicare Risk contracts in four
counties in New York. The Medicare Risk enrollment in these counties was
approximately 4,000.
3. MEDICAL EXPENSE
a. Medical expense includes estimates for IBNR based on a number of factors,
including hospital admissions 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 believes the IBNR estimates in the
consolidated financial statements are adequate; however, there can be no
assurances that actual health care claims will not exceed such estimates.
In 1998, the Company recorded medical expense of approximately $3.7 million
relating to 1997 ($3.5) and 1996 ($0.2) medical claims in excess of the IBNR
estimates previously recorded. In 1997, the Company recorded medical expense of
approximately $1.9 million for 1996 medical expenses in excess of the IBNR
estimates previously recorded.
b. In April 1998, NYSID announced the distribution of approximately $110 million
in accumulated New York State market stabilization pool funds to health plans to
help offset losses resulting from adverse selection of its products by high cost
enrollees. These pools had been established five years ago to reimburse health
plans that covered a higher than average number of sick people. The surplus
relates to the years 1993 to 1996. WCNY recorded an $800,000 reduction in
medical expense in 1998, with a corresponding reduction in liability to the New
York State demographic pool. As part of this distribution, NYSID indicated its
intent to limit 1998 individual and small group rate increases to less than ten
percent (10%).
c. During 1997, the Company expensed approximately $1.7 relating to NYSID's
audit of the New York State market stabilization pool for the audit years 1993,
1994 and 1995 and for additional amounts due for the year 1996.
d. In 1994, two entities which were predecessors to the regional health care
delivery networks (the "Alliances"/"IPAs") with which WCNY contracted to provide
health care services to WCNY's members, 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, then Chairman of the Board, Chief Executive Officer and
President of the Company, 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
$435,000 and $2,423,000 was recorded in 1997 and 1996, respectively. The
remaining principal balance, which is in default, is approximately $116,000 at
December 31, 1998.
The Company's ability to reduce future medical expense by the remaining $116,000
is contingent on this amount being paid.
e. WCNY had arrangements with several medical practices (the "medical sites")
owned by the principal shareholder of Primergy (see Note 5) for the promotion of
WCNY's access to primary care medical services at these medical sites. WCNY had
made advances to the practices ($150,000 in 1997, $2,388,763 in 1996 and
$710,000 in 1995), and as a result of operating losses at the practices and the
uncertainty of their ability to repay these advances, WCNY had previously fully
reserved these receivables.
During the second half of 1997, the principal shareholder of Primergy entered
negotiations to sell these medical sites to unrelated third parties. Due to the
continuing losses at these medical sites and their importance in providing
medical services to a significant number of WCNY members, WellCare determined
that it was in the best interests of WCNY's members and WellCare to continue to
subsidize the medical sites to avoid service disruptions to WCNY's members. As a
result, WellCare made additional advances to these medical sites, to meet
operating expenses, of approximately $583,000 in the second half of 1997, and
approximately $166,000 in the first quarter of 1998, which amounts have been
expensed in 1997 and 1998, respectively, as bad debt expense. The medical sites
were subsequently sold in 1998 and 1999.
As of December 31, 1998, WCNY also has unpaid notes receivable from these
medical sites of approximately $1,417,000, which have also been fully reserved
(see Note 9).
f. The Alliances described in Notes 1a and 19a commenced operations in 1994.
Based on information provided to the Company by the Alliances/IPAs, the
Alliances/IPAs have operated at an accumulated deficit, from inception through
December 31, 1998, of approximately $15 million, although the Alliances/IPAs
have instituted measures designed to reduce this deficit, and achieve
profitability. The deficit is the result of medical expense obligations assumed
from WellCare upon the formation of the Alliances, actual and estimated but not
yet incurred medical losses in excess of the amounts initially estimated, and
operating losses. The Alliances/IPAs have financed the deficit through a
combination of borrowings from Primergy and the Investor referred to in Note 5;
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 Primergy in December 1995, which was
guaranteed by the former Chairman of the Board of Directors, Chief Executive
Officer and President in his personal capacity.
In August 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/IPAs and WellCare
believed that this withhold program, together with general changes in the
management of the Alliances/IPAs, and the introduction of new provider
reimbursement schedules should enable the Alliances/IPAs to maintain their
operations and reduce their accumulated deficit.
The Company has been advised by counsel that it would have no financial
liability to providers with whom the Alliances/IPAs had contracted for services
rendered in the event the Alliances/IPAs 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/IPAs' agreement with providers, in the event
that the Alliances/IPAs were unable to maintain their operations. Although there
is no contractual obligation, in the event of continuing losses or increasing
deficit by the Alliances/IPAs, the Alliances/IPAs may 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/IPAs
and has no intention to agree to such terms if requested by the Alliances/IPAs
beyond the contractual increases described in Note 1a. However, as outlined in
Note 3g, the Company agreed to record charges to medical expense based on the
instructions of NYSID.
g. In connection with a comprehensive review of its arrangements with the
Alliances, NYSID accelerated its normal statutory audit of WCNY. In 1996, NYSID
instructed the Company to assume certain medical expenses of prior periods and
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. 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.
4. ACQUISITION OF MANAGED CARE ADMINISTRATORS, INC.
In March 1995, the Company acquired the assets and assumed certain liabilities
of MCA, a company engaged in managing a network of primary care physicians who
provide health care services to Medicaid recipients in New York City. Part of
the purchase price was an annual payment to MCA, equal to twenty percent (20%)
of the pre-interest, pre-tax income generated by the acquired assets. There was
no earn out in any of the years subsequent to the purchase and, in 1998, the
Company paid MCA $75,000 in settlement of any future payments.
5. SALE OF WELLCARE MEDICAL MANAGEMENT, INC.
In June 1995, the Company contributed approximately $5.1 million to its
wholly-owned subsidiary, WCMM, which was then 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, Primergy, Inc.("Primergy"), which had
been newly formed to acquire WCMM, is in the business of managing medical
practices and providing related consultative services, and entered into
agreements to manage the Alliances. The Company also received a five-year option
to acquire Primergy, which option was canceled in 1996. The note receivable
bears interest at a rate equal to prime plus 2% (9.75% at December 31, 1998),
with interest payable monthly through July 31, 2000. Primergy has paid only
interest through January 1996 (see Note 7).
The Company also advanced $3.4 million to Primergy ($.6 million in 1997, $2.1
million in 1996 and $.7 million in 1995) for operating expenses and unpaid
interest, which obligations are documented by notes of $215,000 and $2.1 million
and interest receivable of $1.1 million. The note for $215,000, which is dated
February 26, 1996, bears interest at a rate equal to prime plus 2% (9.75% at
December 31, 1998) and was due December 31, 1996. No payments of principal have
been made on this note, nor payments of interest beyond May 1996.
In February 1997, Primergy executed the promissory note for $2.1 million,
bearing interest at the rate of prime plus 2% (9.75% at December 31, 1998), 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, Primergy entered into an Option Agreement with a
potential investor (the "Investor"), whereby the Investor loaned Primergy
$4,000,000 and received an option to merge with Primergy, exercisable through
June 30, 1998. Concurrently, WellCare entered into an agreement with Primergy
whereby WellCare agreed to forebear 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 if the Investor were to exercise its
option to merge and immediate repayment of the $2.1 million note upon
effectiveness of such merger. At June 30, 1998, the Investor's option to merge
expired without being exercised. As a result forbearance of the debt has been
rescinded and the original payment terms of the $5.1 million note reinstated.
Primergy is obligated to continue paying monthly interest on the $2.1 million
note with principal payments over a thirty-six month period, commencing July 1,
1998. Primergy has not made any of the principal or interest payments due under
the $2.1 million note. The notes are subordinated to the Investor's security
interest.
In view of Primergy's operating losses and advances to the Alliances, the
Company had obtained from certain of Primergy's equity holders personal
guarantees of the original note and pledges of collateral to secure these
guarantees. 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 Primergy's stock options that such guarantors
originally received from Primergy and a release from the guarantors for any
potential claims against WellCare associated with the transactions. In view of
Primergy's financial condition and difficulties inherent in the collection of
personal guarantees and realization of collateral, and Primergy'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 Primergy and for
advances made in 1997. In 1998, the Company established a reserve of $.8 million
for 1998 accrued interest not paid at December 31, 1998. All amounts due to the
Company from Primergy, net of the deferred gain on the original sale, are fully
reserved.
In February 1999, the Company entered into a letter of intent to settle its
outstanding indebtedness with Primergy and to amend the five IPA service
agreements with the IPA's owned by Primergy. A transaction was not consummated.
6. SHORT-TERM INVESTMENTS
The value of short-term investments is as follows:
Gross
----------------------
Unrealized Unrealized
Market
Cost Gains Losses Value
---------- --------- ---------- ---------
At December 31, 1998-
Equity securities 1,264 787 -- $ 2,051
-------- -------- -------- --------
TOTAL $ 1,264 $ 787 $ -- $ 2,051
======== ======== ======== ========
At December 31, 1997:
Fixed income securities -
States and
municipalities $101,587 $ -- $ (813) $100,774
Equity securities 1,449 1,073 -- 2,522
-------- -------- -------- --------
TOTAL $103,036 $ 1,073 $ (813) $103,296
======== ======== ======== ========
7. OTHER RECEIVABLES
Other receivables at December 31, 1998 and 1997 consist of the following (in
thousands):
1998 1997
---------- ----------
Current portion of:
Receivable from third-party
insurers $ 154 $ 112
Reinsurance receivable 354 2,687
New York State Pools receivable 433 377
Pharmacy rebate receivable 188 524
Contributions receivable - WCU 24 640
Interest receivables from Primergy
(Note 5) - net of allowance
for doubtful accounts of $1,957
and $1,137 -- --
Other 225 533
------ ------
TOTAL $1,378 $4,873
====== ======
8. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1998 and 1997, consists of the following
(in thousands):
1998 1997
----------- ------------
Land $ 888 $ 888
Land improvements 448 448
Buildings and building improvements 6,389 9,189
Leasehold improvements 444 434
Computer equipment 5,613 5,118
Furniture, fixtures and equipment 1,685 1,545
------- -------
15,467 17,622
Less accumulated depreciation 7,758 6,528
and amortization -- --
7,709 11,094
Less amounts classified as
current 5,564 --
------- -------
TOTAL $ 2,145 $11,094
======= =======
In June 1999, the Company agreed to transfer ownership of certain real property
to the mortgagees of those properties in consideration of the mortgagees
relieving the Company of any liability for any deficiency between the amount of
the mortgage balances and the value of the property (see Notes 12 and 24). In
1998, the Company recorded a loss on impairment of assets of approximately $2.8
million, with a corresponding reduction in buildings and building improvements,
to adjust the net carrying value of the assets to the amount of the mortgage
balances. At December 31, 1998, the adjusted net carrying value of the mortgaged
assets, and the corresponding mortgage balance, have been classified as current.
Included in computer equipment and furniture, fixtures and equipment is
equipment financed through capital leases aggregating approximately $2,574 at
December 31, 1998 and 1997, respectively. Accumulated amortization relating to
assets financed through capital leases was approximately $2,272 and $2,016 at
December 31, 1998 and 1997, respectively.
9. NOTES RECEIVABLE
Notes receivable of approximately $1,417,000 and $1,370,000 at December 31, 1998
and 1997, respectively, represent advances made to six medical sites to enhance
WCNY's provider network (see Note 3e). The notes are collateralized by first
liens on all cash, accounts receivable, inventory, and all office and medical
equipment owned by each of the medical sites. The notes require monthly
principal and interest payments, at a rate of 7.5% per annum and mature on
January 1, 2001. As no payments have been received since March 1997, a reserve
of $793,000 in 1998 and $624,000 in 1997 was established for unpaid principal
and interest and, at December 31, 1998, the notes are fully reserved. The owner
of the medical sites sold the practices in 1998 and 1999, with the proceeds in
escrow. The net proceeds, if any, from such sales will be used to repay the
notes.
10. OTHER NON-CURRENT ASSETS
Other non-current assets at December 31, 1998 and 1997, consist of the following
(in thousands):
1998 1997
---------- ----------
Capitalized costs incurred in
connection with placement
of subordinated convertible
note - net $ 624 $ 743
Long term portion of:
Receivables from third-party
insurers 616 449
Deferred taxes - net -- 1,514
Accounts receivable - net -- 225
Deposits and other - net 323 371
------ ------
TOTAL $1,563 $3,302
====== ======
11. LIABILITY FOR MEDICAL COSTS PAYABLE
Activity in the medical costs payable liability is summarized as follows:
1998 1997
---- ----
(in thousands)
Balance, beginning of year $ 17,321 $ 15,965
Incurred related to:
Current year 126,137 122,367
Prior years 3,357 3,884
-------- --------
Total incurred 129,494 126,251
-------- --------
Paid related to:
Current year 100,663 107,075
Prior years 19,748 17,820
-------- --------
Total paid 120,411 124,895
-------- --------
Balance, end of year $ 26,404 $ 17,321
======== ========
- -------------------
The liability for accrued medical costs payable includes management's estimate
of amounts required to settle known claims, claims which are in the process of
adjudication and claims incurred but not reported ("IBNR.")
The 1998 medical expenses include a $3.7 million charge for adverse development
relating to 1997 and 1996 medical claims and a credit of $0.8 million for the
New York State distribution of surplus market stabilization pool funds relating
to years 1993 to 1996 (see Note 3b).
The 1997 medical expenses include a $2.5 million charge for adverse development
relating to 1996 medical claims and a $1.7 million charge for the estimated
liability related to NYSID's audit of the 1993-1995 demographic pool and the
1996 demographic pool (see Note 3c) and a $0.4 credit relating to the 1994
restatement (see Note 3d).
12. LONG-TERM DEBT
Long-term debt, at December 31, consists of the following:
1998 1997
--------------- ------------
(in thousands)
Subordinated Convertible Note
The 1818 Fund II, L.P.;
principal due December 31, 2002;
interest at 8% per annum,
payable quarterly (see Note 13). $ 15,000 $ 20,000
Mortgage Payable - Key Bank of
New York; $4,610,000; interest
at base rate (7.75% at December 31,
1998); payable monthly with a balloon
of $3,574,000 due January 1, 2000.
Secured by real estate, buildings,
fixtures and assignment of all leases. 3,834 4,060
Mortgage Payable - Key Bank of
New York; first mortgage of
$862,500; interest at base rate
(7.75% at December 31, 1998); payable
monthly with a balloon of $631,000
due March 1, 2000. Secured by property
located in Saugerties. 699 748
Mortgage Payable - Premier National
Bank; first mortgage of $820,000;
interest at 7.25%; balloon
payment of $727,000 due February
1, 1999. 731 755
Mortgage Payable - Premier National
Bank; first mortgage of
$335,000; interest at prime rate (7.75%
at December 31, 1998); payable monthly
with a balloon of $260,500 due
March 1, 2001. 300 314
Capitalized Lease Obligations;
due through 2002; monthly payments
ranging from $3,100 to $9,100 with
interest ranging from 6.5% to 10.9%;
secured by equipment 298 593
----------- ----------
Total debt 20,862 26,470
Less current portion 5,791 618
----------- ----------
Long-term portion $ 15,071 $ 25,852
=========== ==========
In July 1997, Key Bank (the "Bank") notified the Company that it considered
the Company not in compliance with the Target Loan to Value Ratio provided for
in two of its mortgages, with outstanding balances, at that time, of
approximately $4.9 million (approximately $4.5 million at December 31, 1998.)
According to the Bank's calculations, the outstanding Loan Amount exceeded the
corresponding Lendable Property Value, as defined, based on appraisals prepared
for Key Bank, by approximately $1.7 million. The Bank had requested that the
Company either reduce the outstanding obligation, or provide additional
collateral for $1.7 million, otherwise the Bank would consider the Company in
default of the mortgage notes. A default would require the Company to pay a
higher interest rate on the outstanding obligations, among other potential
penalties. The Company disagreed with the Bank's valuation methodology and
informed the Bank of this disagreement.
At December 31, 1998, the Company is not in compliance with certain financial
covenants contained in the loan documents.
The Bank has expressed a willingness to pursue a resolution, and has not
exercised its rights or remedies. The Company is and has been current in the
payments of its obligations with the Bank. Although there can be no assurances
that the Bank will grant the Company a waiver, the Company continues to classify
the debts in accordance with their original terms in anticipation of a waiver.
In June 1999, the Company reached separate settlements with the Bank and Premier
National Bank ("Premier"), whereby the Company agreed to transfer ownership of
the mortgaged properties to the Bank and Premier, respectively, in settlement of
the outstanding mortgages (see Notes 8 and 24d).
Maturities of long-term debt (in thousands), as of December 31, 1998, excluding
capital lease obligations, future minimum lease payments under capital leases,
and the aforementioned settlement of the mortgages, for each of the next five
years are as follows:
Future
Minimum
Long-term Lease
Debt Payments
---------- --------
Year:
- ----
1999 1,433 227
2000 4,263 67
2001 267 20
2002 15,000 --
2003 -- --
Thereafter -- --
------- -------
20,963 314
Less amount
representing interest 399 16
------- -------
$20,564 $ 298
======= =======
13. SUBORDINATED CONVERTIBLE NOTE
In January 1996, The Company completed a private placement of a subordinated
convertible note in the principal amount of $20 million (the "Note"), with The
1818 Fund II, L.P. (the "Fund"), a private equity fund managed by Brown Brothers
Harriman & Co. ("BBH & Co"). The Note and underlying terms were amended on
February 28, 1997 (the "1997 Amendment") by the Company and the Fund. In January
1998, The Fund agreed to convert $5 million of the Note into common stock of the
Company, at a conversion price of $4 per share (the "1998 Amendment"), subject
to approval by the New York State Department of Health ("DOH"). In May 1998, the
DOH advised the Company that such approval was not required, and the conversion
into 1,250,000 shares was effected on May 15, 1998.
The remaining $15 million principal is payable on December 31, 2002. Interest
was initially at the rate of 6% per annum, amended in 1997 to 5.5% per annum,
and amended in 1998 to 8% per annum, and is payable quarterly, The Note is
subordinated to all senior indebtedness. The Company is in arrears of the
January 1 and April 1, 1999 interest payments of $300,000 each, and is also in
default of certain provisions of the Note. The Company continues to classify the
Note as long term as it is currently negotiating the conversion of the $15
million obligation into equity.
The Note is subject to certain mandatory redemption at the option of the Fund
upon a Changes in Control (as defined in the Note) of the Company. The
redemption price was initially equal to 115% of the principal amount of the
Note, amended to 130% by the 1997 Amendment and to 150% by the 1998 Amendment,
together with all accrued and unpaid interest. If a Change of Control occurs
within 24 months of a redemption of the Note, the Company may also be required
to pay the Fund an amount equal to 50% of the principal amount of the redeemed
Note. Under certain conditions, the Note is redeemable at the option of the
Company on or after January 19, 2000.
After the 1998 Amendment, the Fund has the right to convert the outstanding
principal into shares of common stock of the Company at a conversion price of $8
per share, subject to the anti-dilution adjustment. Previously, pursuant to the
1997 Amendment, the conversion price had been $10.37 per share, subject to
adjustment for certain dilutive events. Initially, the conversion price was $29
per share. The conversion price granted to the holder of the Note is adjusted,
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 the conversion price at the time.
Pursuant to the terms of the Note, in January 1996, the Company caused one
vacancy to be created on its Board of Directors and caused a designee of the
Fund to be appointed to the Board. Under the 1997 Amendment, as of February 28,
1997, the Company caused one vacancy to be created on its Board of Directors and
a second designee of the Fund to be appointed as a director. Both designee
resigned as directors, effective January 20, 1999.
As part of the 1998 Amendment, the Fund agreed to waive any existing defaults
known to it at that time. The Company also had the right to purchase one half of
the shares of the common stock and the debt held by the Fund, for $12 million
plus accrued interest, if consolidated earnings before taxes were positive for
either the second or third quarter of 1998. The Company reported a consolidated
loss before taxes for each of these quarters.
In June 1999, the Fund converted the $15 million Note, plus accrued and unpaid
interest of approximately $0.7 million, into newly authorized senior convertible
preferred stock (Series B) of the Company. The preferred stock is non-voting and
is subject to mandatory conversion (subject to regulatory approval) into
10,000,000 shares of WellCare's common stock upon the amendment to WellCare's
certificate of incorporation to increase the number of authorized shares from 20
million to 75 million (see Note 24).
14. INCOME TAXES
The (benefit)/provision for income taxes (in thousands) consists of the
following:
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
Current:
Federal $ -- $ -- $ (6,388)
State -- -- 62
-------- -------- --------
$ -- $ -- $ (6,326)
======== ======== ========
Deferred:
Federal $ -- $ -- $ (351)
State -- -- (1,361)
-------- -------- --------
$ -- $ -- $ (1,712)
======== ======== ========
A reconciliation of the Federal statutory rate to the Company's effective income
tax rate is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
Federal statutory rate 34.0% 34.0% 34.0%
State income taxes -
Net of federal benefit 6.4 6.4 6.6
-------- -------- --------
Effective rate 40.4% 40.4% 40.6%
======== ======== ========
At December 31, 1996, the Company recorded a deferred tax asset of approximately
$5.4 million giving recognition to the tax benefit of reversing temporary
differences and net operating loss carryovers ("NOL"). No valuation allowance
was established for the deferred tax asset since realization was determined by
management to be more likely than not based upon the Company's internal budget.
The amounts of these NOLS, related to state tax benefits, are approximately $897
and $129 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.
Continuing operating losses during 1998 and 1997 resulted in additional deferred
tax benefits of approximately $8.7 and $7.8 million, respectively. The ability
to realize the tax benefits associated with these losses is dependent upon the
Company's ability to generate future taxable income from operations and/or to
effectuate successful tax planning strategies. Although management believes that
profitable operations may be achieved in the future, in view of their size and
length of the expected recoupment period, the Company provided a 100% valuation
allowance in 1998 and 1997, respectively, with respect to the deferred tax
assets for 1998 and 1997.
Management had not provided a valuation allowance for the 1996 deferred tax
assets as of December 31, 1997, in the belief that it was more likely than not
that the deferred tax assets would be realized as a result of future taxable
income from operations through reductions in the cost of medical services,
improved medical utilization controls, reductions in administrative expenses,
increases in enrollment and/or the successful implementation of tax strategies.
Further, at such time the Company had engaged Bear, Stearns Co. Inc., to review
available strategic alternatives. The successful completion of a transaction
could have been a source of future taxable income.
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, 1998 and 1997 are as
follows:
December 31,
-------------------------------
1998 1997
---------- ----------
(in thousands)
Deferred tax assets:
Accounts and other
receivables - bad
debt reserves $ 6,070 $ 5,167
Other 47 61
Net operating loss carry forward
Federal 12,486 7,434
State 3,623 1,466
---------- ----------
Total 22,226 14,128
---------- ----------
Deferred tax liabilities:
Depreciable assets 258 258
Capitalized pre-
operational costs -- 588
---------- ----------
Total 258 846
---------- ----------
Net before valuation allowance 21,968 13,282
Less: valuation allowance 21,968 (7,841)
---------- ----------
Net deferred tax asset $ -0- $ 5,441
========== ==========
The Company's effective tax rate during 1998, 1997 and 1996 was 40.4%, 40.4%,
and 40.6%, respectively. The fluctuation in the effective rate is primarily
attributable to the amount of nondeductible expenses and tax exempt income, and
the reduction in 1997 of the New York State tax surcharge.
15. 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.
In January 1998, The Fund agreed to convert $5 million of the Company's Note
into 1,250,000 shares of the Company's common stock (see Note 13).
The Company has 1,000,000 shares of preferred stock authorized, no shares
issued.
An aggregate of 900,000 shares of common stock are reserved under the Company's
1993 Incentive and Non-Incentive Stock Option Plan (the "Plan"). In addition, an
aggregate of 650,000 shares of common stock are reserved under the Company's
1996 Non-Incentive Executive Stock Option Plan.
16. STOCK OPTIONS
During 1998, 1997 and 1996, the Company granted stock options to certain
individuals to purchase common stock at the fair market value of the stock on
the date of the grant. Following is a summary of the transactions:
SHARES UNDER OPTION
-------------------------------
1998 1997 1996
-------- -------- --------
Outstanding,
beginning of year 650,179 556,455 388,012
Exercised during the year -- -- (20,398)
Terminated during the year (275,438) (106,368) (148,159)
Granted during the year 224,000 200,092 337,000
------- ------- -------
Outstanding, end of year 598,741 650,179 556,455
======= ======= =======
Eligible, end of year, for 463,005 338,921 175,938
exercise currently ======= ======= =======
Option price per share $1.25-$24.50 $3.01-$24.50 $7.22-$24.50
In December 1997, the Company amended the exercise price on the 200,000 options
previously granted to the President in 1996, from $10.125 to $3.01 per share. In
September 1997, the Company granted the President options for 30,000 shares, at
an exercise price of $15.00 per share. In February 1998, the Company amended the
exercise price for the 30,000 options to $4.51 per share, and granted additional
options for 100,000 shares, at an exercise price of $5.02 per share. The
President resigned, effective January 15, 1999, and his qualified options
terminated April 15, 1999.
In December 1996, the Company created the 1996 Non-Incentive Executive Stock
Option Plan (the "NIE 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. An aggregate of 650,000 shares of the Company's common
stock, par value $0.01 per share, are reserved under 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 following is
a summary of the transactions under the NIE Plan:
Non-incentive Executive Stock
Option Plan: 1998 1997 1996
-------- -------- --------
Outstanding, beginning of year 600,000 600,000 --
Exercised during the year -- -- --
Terminated during the year -- -- --
Granted during the year -- -- 600,000
------- ------- -------
Outstanding, end of year 600,000 600,000 600,000
======= ======= =======
Eligible, end of year, for
exercise currently 400,000 200,000 --
======= ======= =======
Option price per share $4.00-$6.25 $4.00-$6.25 $10.00-$15.00
In December 1997, the Company amended the exercise prices on the 600,000
options, granted, in 1996, to the Chairman of the Board. The options terminated,
effective February 25, 1999, upon the Chairman's resignation as Chairman and
Director.
The Company has adopted the disclosure-only provisions of SFAS 123 (See Note
1n). 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
and net loss per share for the years ended December 31, 1998, 1997 and 1996
would have been adjusted to the pro forma amounts below:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
----------- ------------ -----------
(in thousands, except per share amounts)
Net loss:
As reported $ (30,858) $ (22,142) $ (11,782)
Pro forma $ (33,272) $ (23,840) $ (12,587)
Net loss
per share:
As reported $ (4.36) $ (3.52) $ (1.87)
Pro forma $ (4.70) $ (3.78) $ (2.00)
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,
-----------------------------------------------
1998 1997 1996
----------- ------------ -----------
Dividend yield 0.0% 0.0% 0.0%
Expected
volatility 144.1% 70.3% 47.0%
Risk-free
interest rate
(per annum) 7.0% 6.2% 6.2%
Expected lives
(in years) 3.7 3.1 4.3
17. 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 $10,000 in 1998. 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, 1998,
89 employees were enrolled in the plan. The Company contributed approximately
$58,000, $85,000 and $86,000 for 1998, 1997 and 1996, respectively.
18. 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, 1998, management believes that the Company has no
significant concentrations of credit risk.
19. COMMITMENTS AND CONTINGENCIES
a. In October 1994, WCNY entered into contracted arrangements with the majority
of its primary care physicians and specialists through contracts with regional
health care delivering networks with attendant risk-sharing to capitating the
IPAs comprised of the specialists and previously-capitated primary care
physicians. The Alliances have operated at an accumulated deficit since
inception but have instituted measures designed to reduce this deficit and
achieve profitability. The IPAs could request additional funding beyond the
contractual increases from the Company, which management does not believe should
be required and, if requested, by the IPAs the Company does not intend to
provide such funding. As described in Note 5, in 1997, the IPAs received a $4.0
million cash infusion from an unrelated third-party.
In an effort to improve profitability of WCNY and the Alliances, WCNY entered
into a letter of understanding with the Alliances in September 1996 to
restructure its capitation arrangement. In April 1998, formal contracts were
finalized and executed. WCNY reassumed risk for certain previously capitated
services, with a corresponding reduction in rates. 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 substance abuse, which are
capitated through contracts with certain other regional integrated delivery
systems. Management of the Alliances and WCNY believe that the these measures
will enable the Alliances to achieve profitability and reduce their accumulated
deficits.
The Company has been advised by counsel that it would have no financial
liability to providers with whom the Alliances/IPAs had contracted for services
rendered in the event the Alliances/IPAs were unable to maintain their
operations. Further, the Company has direct contracts with providers which would
require the providers to continue to provide medical care to members on
financial terms similar to those in the Alliances'/IPAs' agreement with
providers, in the event that the Alliances/IPAs were unable to maintain their
operations.
Nevertheless, in the event of continuing losses or increasing deficits by the
Alliances/IPAs, 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/IPAs
and has no intention to agree to such terms if requested by the Alliances/IPAs
beyond the negotiated contractual increases. However, as described in Note 3g
the Company agreed to record charges to medical expense based on the
instructions of NYSID. Effective September 1996, the Company entered into a
letter of understanding with the Alliances/IPAs to restructure its capitation
arrangement. Under this understanding, the Company reassumed risk for certain
previously capitated services with a corresponding reduction in rates.
On July 31, 1998, the Company notified four (4) major IPAs of its intent to
renegotiate the contracts between the Company and the respective IPAs because
the Investor's option to merge with Primergy, which owns and manages the IPAs,
expired on June 30, 1998. If a new agreement is not reached within 120 days
after June 30, 1998, either the Company or the respective IPA can thereafter
exercise its option to terminate the contract. The parties continue to negotiate
the terms of the new agreement and there can be no assurance that the contracts
will be successfully renegotiated and not terminated by either the Company or
the respective IPAs.
b. Between April and June 1996, the Company, its former President and Chief
Executive Officer (Edward A. Ullmann), and its former Vice President of Finance
and Chief Financial Officer (Marystephanie Corsones) 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.
In July 1996, the Securities Litigations were consolidated in the United States
District Court for the Northern District of New York, and an amended
consolidating complaint (the "Complaint") was served in August 1996. The
Complaint did not name the three additional directors. The Company's auditor,
however, was named as an additional defendant. In October 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 likewise filed its
own motion to dismiss. By Memorandum Decision and Order (the "Order"), entered
in April 1997, the Court (i) granted the auditor's motion to dismiss and ordered
that the claims against the auditors be dismissed with prejudice; and (ii)
denied the motion to dismiss brought by the individual defendants. Because the
Order did not specifically address the Company's motion to dismiss, in May 1997,
the Company moved for reconsideration of its motion to dismiss and dismissal of
all claims asserted against it. On reconsideration, the judge clarified his
previous ruling expanding it to include a denial of the Company's motion as
well. Following the Court's decision, the Company filed its answer and defense
to the Complaint. In September 1997, the plaintiffs' class was certified and the
parties thereafter commenced the discovery process of the litigation.
In May 1999, the Company entered into a settlement agreement for $2.5 million,
all of which is being funded by the insurance carrier which provided coverage to
the individual defendants. The settlement agreement is subject to Federal Court
approval. The Company expects to recoup from the insurance carrier the expenses
related to fees it paid to the attorneys representing the individual defendants,
less the Company's insurance deductible.
c. The Company and certain of its subsidiaries, including WellCare of New York,
Inc. have responded to subpoenas issued in April and August 1997 from the United
States District Court for the Northern District of New York through the office
of the United States Attorney for that District. These subpoenas sought the
production of various documents concerning financial and accounting systems,
corporate records, press releases and other external communications. While the
United States Attorney has not disclosed the purpose of its inquiry, the Company
has reason to believe that neither its current management nor its current
directors are subjects or targets of the investigation. The Company has,
however, informed the government that it will continue to cooperate fully in any
way that it can in connection with the ongoing investigation.
d. On July 31, 1996 and October 3, 1996 the Securities and Exchange Commission
issued subpoenas to the Company for the production of various financial and
medical claims information. The Company fully complied with both of these
subpoenas on August 21, 1996 and October 31, 1996, and with subsequent requests
for supplementation. It is management's understanding that the Securities and
Exchange Commission investigation is continuing.
e. 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, if any, that might be sustained, either individually or collectively, from
these actions would not have a material effect on the Company's consolidated
financial statements.
f. Leases - Future minimum rental payments (in thousands) required under
operating leases that have initial or remaining noncancellable lease terms in
excess of one year as of December 31, 1997, are approximately as follows:
Year Amount
------------ --------
1998 1,416
1999 1,205
2000 1,060
2001 489
2002 288
Thereafter 1,215
--------
TOTAL $ 5,673
========
20. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS
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,
except as described in the following paragraph, WCNY is required to maintain a
contingent reserve which must be increased annually by an amount equal to at
least 1% of statutory premiums earned limited, in total, to a maximum of 5% of
statutory 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, 1998 and 1997, WellCare had required cash reserves of approximately $5.3 and
$5.8 million, respectively, and a contingent reserve of approximately $6.7 and
$6.7 million, respectively. In the event the contingent reserve exceeds the
required cash reserve, the excess of the contingent reserve over the required
cash reserve is required to be maintained.
Notwithstanding the above, NYSID has the authority to allow an HMO to maintain a
net worth of 50% to 100% of the contingent reserve. WCNY executed a Section 1307
loan in March 1998, which retroactively brought WCNY's December 31, 1997
statutory net worth above the permitted 50% contingent reserve requirement. WCNY
had been operating within the 50-100% discretionary contingent reserve
requirement during 1997 and through the first quarter of 1998, with the full
knowledge of NYSID. In 1998, the Company forgave the management fees for WCNY
for 1998 in the amount of approximately $1.4 million. In June 1997 and November
1997, the Company loaned $3.1 and $1.3 million, respectively, to WCNY under the
provisions of Section 1307. However, after giving effect to the reported results
for 1998, at December 31, 1998, WCNY had a negative statutory net worth of
approximately ($14.6) million. Failure to come into compliance with the reserve
requirement could cause NYSID to take action which could include restriction or
revocation of WCNY's license.
Management has had ongoing discussions and meetings with NYSID regarding WCNY's
operating results and compliance with various statutory requirements and has
updated NYSID of the Company's plans to obtain additional funds. This includes a
remedial action plan based upon capital to be contributed to WCNY following the
consummation of a strategic opportunity with respect to which, in March 1998,
the Company engaged the assistance of Bear, Stearns & Co., Inc., and WCNY's
ultimate return to profitability. In April 1999, WCNY agreed to a consent to
rehabilitation in which the State of New York has the right to commence court
proceedings and have an order entered into that would give the State of New York
the right to assume the operations of WCNY. In May and June 1999, the Company
consummated a number of transactions which will bring WCNY within the 50% to
100% revised contingent reserve requirement, as permitted by NYSID. The
transactions include: an equity investment of $5 million; sale of WCNY's
commercial enrollment for approximately $5 million; settlement of provider
claims at amounts significantly lower than the estimated liability of
approximately $30.5 million; renegotiation and settlement of approximately $5.4
million of mortgage debt; and the conversion of the $15 million subordinated
convertible note into senior convertible preferred stock of the Company (see
Note 24). As a result of these transactions, WellCare anticipates that the State
of New York would not exercise that right. In addition, as a result of WCNY's
sale of its commercial business in June 1999, the statutory cash reserve
required will decrease to $2.9 million, and the statutory contingent reserve
required will decrease to $3.7 million.
WCCT is subject to similar regulatory requirements with respect to its HMO
operations in Connecticut. The Connecticut Department of Insurance requires that
WCCT maintain a statutory reserve of $1 million. In June and November 1997, the
Company made capital contributions of $350,000 and $425,000, respectively, to
WCCT to bring its statutory net worth to the required minimum of $1 million. In
March 1998, the Company made an additional capital contribution of $368,000 to
WCCT to bring its statutory net worth above the $1 million requirement. At
December 31, 1998, WCCT is not in compliance with the statutory net worth
requirement having a statutory net worth of approximately $600,000. As a result,
on June 2, 1999, the State of Connecticut Insurance Department issued an order
requiring WCCT to submit to administrative supervision by the State's Insurance
Commissioner until WCCT meets its statutory net worth and other requirements.
Management has been meeting with the Connecticut Department of Insurance
regarding the statutory net worth deficiency to develop a mutually agreeable
plan to bring WCCT into compliance with the statutory net worth requirement.
In January 1997, WCNY received the final report on its biennial statutory
examination for the years ended December 31, 1994 and 1995 from NYSID. In 1996,
during the course of the audit, the Company had recorded two non-recurring
medical charges (See Note 3g) based on the interim findings and instructions of
NYSID. Additionally, NYSID determined that WCNY was not in compliance with all
pertinent New York State regulation sections relating to WCNY's underwriting and
rating procedures and referred the matter to NYSID's Office of General Counsel
for disciplinary action. In December 1997, WCNY entered into a Stipulation
Agreement whereby it agreed to pay a penalty of $91,000 and to correct past
violations. An additional penalty of $66,000 may be assessed if NYSID
subsequently determines that WCNY has not made a good faith effort to recoup
undercharges from incorrectly rated groups. WCNY believes it has directed its
best efforts at recouping these undercharges, and believes it will not be
assessed any additional penalty.
As a result of the examination, WCNY's statutory net worth was impaired by
approximately $1.1 million. In March 1996, the Company made a capital
contribution of $3 million to WCNY, and in October 1996, the Company loaned WCNY
$3 million under the provisions of Section 1307 of the New York State Insurance
Law. Under Section 1307, the principal and interest are treated as equity
capital for regulatory purposes and are repayable out of the free and divisible
surplus, subject to the prior approval of the Superintendent of Insurance of the
State of New York. These two cash infusions more than offset the examination's
adjustment to WCNY's net worth.
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.
21. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the year for:
1998 1997 1996
---------- ---------- ----------
(in thousands)
Income taxes $ -- $ -- $ 1,792
Interest $ 1,131 $ 1,101 $ 1,951
During 1998 and 1997, no capital loans for equipment were entered into by
WellCare. During 1996, WellCare entered into capital leases for equipment in the
amount of approximately $176,000.
22. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments including short-term investments,
advances to participating providers, other receivables - net, restricted cash,
other non-current assets net, accounts payable and accrued expenses, approximate
their fair values.
The fair value of notes receivables consisting primarily of advances to medical
practices, is not materially different from the carrying value of 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 Note was issued in a private placement in January
1996, and amended with the holder in February 1997, and January 1998 (see Note
13). 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 of floating rates, are assumed to approximate their fair value.
23. 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):
1998
------------------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
Total revenue $35,564 $38,477(3) $36,191 34,217(1)
Total expenses 36,782(2) 40,959 39,140 52,985(1)
Loss from operations (1,218) (2,482) (2,949) (18,768)
Net loss (1,218) (2,482) (2,949) (24,209)
Net loss per share (0.19) (0.36) (0.39) (3.21)
1997
----------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
Total revenue $34,278 $36,976 $35,537 $37,078
Total expenses 47,280 36,871 39,959 41,901
Income/(loss) from (13,002) 105 (4,422) (4,823)
operations
Net income/(loss) (13,002) 105 (4,422) (4,823)
Net income/(loss) (2.06) .01 ( 0.70) (0.77)
per share
Each quarter is calculated as a discrete period and the sum of the four quarters
may not equal the full year amount.
1) The following unusual items occurred in the fourth quarter of 1998: a)
additional IBNR of approximately $4.3 million relating to prior quarters;
b) reversal of approximately $2.9 million of previously recorded Medicaid
revenues; c) additional amortization of Goodwill (approximately $2.3
million) and Preoperating Costs (approximately $0.4 million); d) expenses
of approximately $0.5 million for estimated 1998 Prompt Pay exposure; e)
additional reserve for doubtful accounts of approximately $0.8 million; f)
approximately $5.4 million valuation allowance for deferred tax assets; and
g) an expense of approximately $2.8 million to write down Property &
Equipment to its net realizable value.
(2) Reflects $0.8 million reduction relating to NYSID market stabilization pool
distribution attributable to 1993-1996 (see Note 3b).
(3) Includes the recording of approximately $1.1 million of retroactive
Medicaid premium revenues attributable to pre 1998, which revenue was
reversed in the fourth quarter of 1998 (see 1 above and Note 2).
24. SUBSEQUENT EVENTS (UNAUDITED)
The accompanying financial statements are based upon the financial condition and
operations of the Company as they existed on or through December 31, 1998, and
do not give effect to transaction described in this Note 24 unless specifically
referred to.
a. In June 1999, Kiran C. Patel, MD ("Patel), the principal of Well Care HMO,
Inc., a Florida corporation, an entity unrelated to WellCare, purchased a 55%
ownership interest in the Company for $5 million. The investment was dependant
on the closing of the transactions described in Note 24c, d, e, and f. Dr. Patel
purchased a newly authorized series of senior convertible preferred stock
(Series A)("the shares") of WellCare, which will provide him with 55% of
WellCare's voting power. The preferred stock is subject to mandatory conversion
into common stock upon the amendment to WellCare's certificate of incorporation
to increase the number of authorized shares of common stock from 20 million to
75 million. The shares will be convertible into 55% of the then outstanding
common stock (after giving effect to such conversion) and will be subject to
anti-dilution rights under which Dr. Patel will generally preserve his 55%
interest in WellCare until there are 75 million shares of common stock issued
and outstanding. WCNY and WCCT also entered into management agreements with
Comprehensive Health Management, Inc. ("Comprehensive") an affiliate of Dr.
Patel, to manage their HMO operations, excluding the commercial business of WCNY
sold to GHI (see Note 24b).
The management agreements with Comprehensive are for a term of five years,
effective June 1, 1999. The management fee to each HMO ranges from 7.5% of the
premium revenue when there are more than 80,000 members, to 9.5% of the premium
revenues when there are less than 40,000 members. Comprehensive will cover
services for claims, customer service, utilization review, data processing/MIS
(including Y2K compliance expenses and costs), credentialing, communication,
provider relations, and day to day accounting. Comprehensive will provide
financial reports to the HMOs and the appropriate regulatory agencies. The fee
does not cover other costs, such as marketing functions, legal costs,
extraordinary accounting and audit costs, directors and officers liability
insurance, other insurance costs, and any extraordinary costs. The management
agreement with WCNY was approved by New York State regulators on June 11, 1999.
Pending a public hearing in Connecticut and regulatory approval of the
acquisition of control of WCCT, Dr. Patel is precluded from exercising influence
in directing the management and policies of WCCT. State regulators, however,
have authorized the performance of the WCCT management agreement, with certain
limitations.
b. In June 1999, WCNY sold its commercial business, including approximately
25,000 members, to Group Health Incorporated ("GHI") for $5 million, effective
June 1, 1999. WellCare received $4 million at closing, and $1 million was placed
in escrow pending a determination of the total number of WCNY commercial members
at June 1, 1999. If the commercial membership is at least 25,000 members, all of
the proceeds will be released from escrow. WellCare and WCNY have agreed not to
engage in commercial HMO business in New York for a period of one year following
the closing.
c. As a condition to the closing of the Patel and GHI transactions, more than 75
hospitals and physicians and other health care providers have entered into
settlement agreements to settle claims for services provided to WCNY HMO members
through April 30, 1999. Theses claims will be settled from a provider pool
consisting of at least $10 million, comprised of all of the proceeds from the
GHI and Patel transactions and 80% of WCNY's premium receivables at April 30,
1999, with WCNY able to utilize the amount in the provider pool in excess of $10
million, up to $2.5 million, to meet statutory reserves. These providers may
receive additional payments in an amount of up to 15% of the settled claims,
spread over the next three years, should they continue to provide health care
services to WCNY members.
d. In June 1999, the Company reached a settlement with Key Bank (the "Bank"),
whereby the Company will transfer ownership of the real property securing two
mortgages to the Bank in lieu of foreclosure. The net book value of the real
property was approximately $6.5 million compared to the outstanding mortgage
balances of approximately $4.4 million. In June 1999, the Company reached a
settlement with Premier National Bank ("Premier"), whereby the Company will
transfer ownership to Premier of the real property securing two mortgages, in
lieu of foreclosure. The net book value of the real property was approximately
$1.8 million compared to the outstanding mortgage balances of approximately $1
million.
The Company recorded an expense for impaired assets of approximately $2.8
million in 1998 to reduce the net carrying value of the mortgaged properties to
its respective mortgage balance.
e. As a condition to the closing of the Patel transaction, in June 1999, the
Fund converted the $15 million Note, plus unpaid interest of approximately $0.7
million, into newly authorized senior convertible preferred stock (Series B) of
the Company. The preferred stock is non-voting and is subject to mandatory
conversion (subject to regulatory approval) into 10,000,000 shares of common
stock of WellCare upon the amendment to WellCare's certificate of incorporation
to increase the number of authorized shares of common stock from 20 million to
75 million.
f. As a further condition to the closing of the Patel transaction, the holders
of 644,287 shares of Class A common stock, which has ten votes per share, agreed
to convert their shares into shares of common stock on a share-for-share basis.
Robert W. Morey, the holder of the remaining 281,956 shares of Class A common
stock outstanding, has given a two-year proxy in favor of Dr. Patel to vote Mr.
Morey's share of Class A common stock.
After giving effect to conversion of these shares of Class A common stock, and
assuming conversion of the preferred shares held by Dr. Patel and the Fund,
there would be 38,716,693 shares of common stock and 281,956 shares of Class A
common stock outstanding with Dr. Patel owning 21,449,257 shares of common
stock, and 55% of the aggregate number of shares outstanding in the combined
classes.
g. In May 1999, the Company entered into a settlement agreement of the Class
Action Securities Litigation for $2.5 million, all of which is being funded by
the insurance carrier which provided coverage to the individual defendants. The
settlement agreement is subject to Federal Court approval. The Company expects
to recoup from the insurance carrier approximately $700,000 in expenses related
to fees it paid to the attorneys representing the individual defendants, less
the Company's insurance deductible.
h. The Company's consolidated balance sheet at December 31, 1998, after giving
pro forma effect (unaudited) to reflect the aforementioned transactions as if
they had occurred at December 31, 1998, is as follows:
December 31, 1998
---------------------------------
(In thousands)
(Unaudited)
Actual Proforma
------ ---------
Current assets $ 16,514 $ 23,344
-------- --------
Total assets $ 29,939 $ 28,983
======== ========
Current liabilities $ 42,569 $ 31,374
-------- --------
(Deficiency in assets)/
Shareholders' equity $(27,708) $ (2,455)
-------- --------
Total liabilities and
Shareholders' equity $ 29,939 $ 28,983
======== ========
Working capital (deficiency) $(26,055) $ (8,030)
======== ========
In addition, after the consummation of the above transactions, management
anticipates that WCNY's statutory-basis net worth would be at least 50% of the
revised contingent reserve requirement of approximately $3.7 million.
THE WELLCARE MANAGEMENT GROUP, INC.
Schedule I
Condensed Financial Information of Registrant
Condensed Balance Sheets
As of December 31, 1998 and 1997
(in thousands)
1998 1997
-------- --------
ASSETS
CURRENT ASSETS:
Cash $ 58 $ 356
Short-term investments 2 103
Accounts and other receivables - net 214 1,473
Prepaid expenses and other
current assets - net 510 4,629
------- -------
TOTAL CURRENT ASSETS 784 6,561
PROPERTY AND EQUIPMENT - net 134 205
NOTES RECEIVABLE - LONG-TERM - net 12,177 10,670
OTHER ASSETS - net 2,041 3,796
------- -------
TOTAL $15,136 $21,232
======= =======
LIABILITIES AND DEFICIENCY IN ASSETS
CURRENT LIABILITIES:
Account and notes payable $ 2,014 $ 329
Current portion of long-term debt 36 34
Accrued expenses and other 2,026 2,968
------- -------
TOTAL CURRENT LIABILITIES 4,076 3,331
INVESTMENT IN AND ADVANCES FROM
SUBSIDIARIES 23,711 (341)
LONG-TERM DEBT 15,057 20,093
------- -------
TOTAL LIABILITIES 42,844 23,083
------- -------
DEFICIENCY IN ASSETS:
Common stock 75 63
Additional paid-in capital 31,612 26,624
Accumulated deficit (65,884) (34,987)
Accumulated other comprehensive income 1 --
Statutory reserve 6,695 6,656
------- -------
(27,501) (1,644)
Less:
Notes receivable from shareholders 5 5
Treasury stock - at cost 202 202
------- -------
TOTAL (DEFICIENCY IN ASSETS)/
SHAREHOLDERS' EQUITY (27,708) (1,851)
------- -------
TOTAL $15,136 $21,232
======= =======
THE WELLCARE MANAGEMENT GROUP, INC.
Schedule I
Condensed Financial Information of the Registrant
Condensed Statements of Operations
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
--------- --------- ---------
REVENUE:
Fee income $ 11,896 $ 14,098 $ 16,248
Interest income 1,697 2,502 1,588
Other income 52 137 151
-------- -------- --------
TOTAL REVENUE 13,645 16,737 17,987
-------- -------- --------
EXPENSES:
General and administrative
expenses 17,842 18,483 22,642
Interest expense 1,221 1,123 1,223
Other expense - net 1 369 270
-------- -------- --------
TOTAL EXPENSES 19,064 19,975 24,135
-------- -------- --------
LOSS FROM OPERATIONS (5,419) (3,238) (6,148)
PROVISION/(BENEFIT) FOR
INCOME TAX 2,961 -- (2,485)
-------- -------- --------
LOSS BEFORE
EQUITY IN LOSS
OF SUBSIDIARIES (8,380) (3,238) (3,663)
EQUITY IN LOSS OF
SUBSIDIARIES-NET OF TAXES (22,478) (18,904) (8,119)
-------- -------- --------
NET LOSS $(30,858) $(22,142) $(11,782)
======== ======== ========
THE WELLCARE MANAGEMENT GROUP, INC.
Schedule I
Condensed Financial Information of the Registrant
Condensed Statements of Cash Flows
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
1998 1997 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $(8,380) $(3,238) $(3,663)
Depreciation and
amortization 1,671 353 341
Loss/(gain) on sale of assets 1 16 (71)
Decrease/(increase) in accounts
receivable 1,543 107 (300)
Increase in advances
from subsidiaries 1,942 172 --
Other - net 816 483 109
------- ------- -------
NET CASH USED IN
OPERATING ACTIVITIES (2,407) (2,107) (3,584)
------- ------- -------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Decrease/(increase) in notes
receivable 730 (2,021) (5,103)
Capital contributions to
subsidiaries - net (368) (775) (4,100)
Sale of investments - net 101 817 342
Purchase of equipment (5) (9) (8)
------- ------- -------
NET CASH PROVIDED BY/
(USED IN)INVESTING ACTIVITIES 458 (1,988) (8,869)
------- ------- -------
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Decrease)/increase in
long-term debt (34) (70) 16,158
Increase in accounts and
notes payable 1,685 2 282
Proceeds from issuance of
stock and treasury
stock - net -- -- 3
Proceeds from exercise of
stock options -- -- 254
Other - net -- 1 (5)
------- ------- -------
NET CASH PROVIDED BY/
(USED IN) FINANCING
ACTIVITIES 1,651 (67) 16,692
------- ------- -------
NET (DECREASE)/INCREASE IN
CASH AND CASH EQUIVALENTS (298) (4,162) 4,239
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 356 4,518 279
------- ------- -------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 58 $ 356 $ 4,518
======= ======= =======
THE WELLCARE MANAGEMENT GROUP, INC.
Schedule II
Valuation and Qualifying Accounts
For the years ended December 31, 1998, 1997 and 1996
(in thousands)
Balance at Balance at
Beginning Less: End of
of Period Additions Deductions Period
--------- --------- ---------- ----------
YEAR ENDED
DECEMBER 31, 1998
Allowance for
doubtful accounts -
Trade receivables $3,555 $ 795 $ 166 $ 4,184
Allowance for
doubtful accounts -
Other receivables 1,137 987 167 1,957
Allowance for
doubtful accounts -
Notes receivable 8,096 793 7 8,882
------ ------ ------ -------
Total $ 12,788 $2,575 $ 340 $15,023
====== ====== ====== =======
YEAR ENDED
DECEMBER 31, 1997
Allowance for
doubtful accounts -
Trade receivables $3,365 $3,462 $3,292 $ 3,555
Allowance for
doubtful accounts -
Other receivables 5,048 1,755 5,666 1,137
Allowance for
doubtful accounts -
Notes receivable 5,345 2,755 4 8,096
------ ------ ------ -------
Total $ 13,758 $7,992 $8,962 $12,788
====== ====== ====== =======
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
====== ====== ====== =======
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
filed June 5, 1995 (4)
3.1b Copy of Certificate of Amendment to
Restated Certificate of Incorporation
(As Amended June 10, 1997) (12)
3.1c Copy of Certificate of Amendment of the
Certificate of Incorporation of The
WellCare Management Group, Inc. filed
June 20, 1999
3.2c Copy of Registrant's Amended By-Laws
(As Amended June 10, 1997) (11)
10.2d Copy of Voluntary Separation and
Release dated October 16, 1996,
between Registrant and Edward A. Ullmann* (8)
10.2e Copy of letter agreement, from Robert L. Plotz
dated June 7, 1999, whereby Registrant cancels
Promissory Note issued by Edward A. Ullman
10.14 Form of Medicaid Contract between
WellCare of New York, Inc. ("WCNY")and
various counties of the New York State
Department of Social Services (1)
10.16a Copy of Reinsurance Agreement effective
November 1, 1993, between Registrant and
Preferred Life Insurance Company of
New York (3)
10.16b Copy of Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and
WCNY for Commercial and Point of Service Enrollees
effective November 1, 1996 (15)
10.16c Copy of Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and
WCNY - Medicaid (15)
10.16d Copy of Reinsurance Agreement Renewal between
Preferred Life Insurance Company of New York and
WellCare of Connecticut, Inc. ("WCCT") effective
November 1, 1996 (15)
111
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
10.16e Copy of Reinsurance Agreement Renewal
between Preferred Life Insurance Company
of New York and WCNY - Medicare effective
November 1, 1996 (15)
10.16f Copy of Amendment to Reinsurance Agreement
Renewal between Preferred Life Insurance
Company of New York and WCNY for Commercial
and Point of Service Enrollees effective
November 1, 1996 and Reinsurance Agreement
Renewal between Preferred Life Insurance
Company of New York and WCNY - Medicare effective
November 1, 1996 (15)
10.16g Copy of Amendment to Reinsurance Agreement
Renewal between Preferred Life Insurance
Company of New York and WCNY - Medicaid (15)
10.16h Copy of Amendment to Reinsurance Agreement
Renewal between Preferred Life Insurance
Company of New York and WCCT effective
November 1, 1996 (15)
10.16i Copy of Letter dated October 29, 1998
terminating coverage under Reinsurance
Agreement Renewal between Preferred Life
Insurance Company of New York and WCNY
for Commercial and Point of Service Enrollees
effective November 1, 1996, Reinsurance
Agreement Renewal between Preferred Life
Insurance Company of New York and WCNY -
Medicare effective November 1, 1996 and
Reinsurance Agreement Renewal between Preferred
Life Insurance Company of New York and WCNY -
Medicaid (15)
10.16j Copy of Letter dated October 29, 1998
terminating coverage under Reinsurance Agreement
Renewal between Preferred Life Insurance Company
of New York and WCCT, effective November 1, 1996 (15)
10.22 Copy of Lease dated February 1, 1993, between
WCNY, as Tenant, and Huntington Associates, as
Landlord, relating to lease of office space in
Albany, New York (1)
10.26a Copy of Full Risk Capitation Agreement between
Hudson Valley Family Health, P.C. and WCNY
dated October 1, 1995 (6)
10.27a Copy of Full Risk Capitation Agreement between
Valley Medical Services, P.C. and WCNY dated
October 1, 1995 (6)
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
10.27b Copy of Letter of Understanding between WCNY
and the contracted Alliances (Valley Medical
Services, P.C. and Hudson Valley Family
Medical Health, P.C.)dated September 23, 1996 (9)
10.27c Copy of Letter of Intent between Registrant,
WCNY, Primergy, Inc., Valley Medical Services,
P.C., and Hudson Valley Family Health, P.C.
dated January 7,1997 (9)
10.33b Copy of Employment and Consulting Agreement
dated March 3, 1997, between Registrant and
Marystephanie Corsones* (9)
10.37 Copy of Lease Agreement dated October 14, 1994,
between Richard Bulger and WellCare Development,
Inc.("WCD") (3)
10.38 Copy of Management Agreement dated July 1,
1994, between Registrant and its Wholly-Owned
Subsidiary, WCCT (3)
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. (9)
10.40b Copy of Letter Agreement dated January 14, 1998
between Registrant and The 1818 Fund II,
L.P. (12)
10.40c Copy of Amended and Restated 8% Subordinated
Convertible Note, between Registrant and The
1818 Fund II, L.P. (14)
10.41 Copy of 6% Subordinated Convertible Note
Due December 31, 2002, between Registrant
and The 1818 Fund II, L.P. (5)
10.41a Copy of Exchange Agreement between the Registrant
and The 1818 Fund II, L.P.
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. ("WCMM")and
Primergy, Inc. dated June 30, 1995 (6)
10.44 Copy of Bill of Sale between WCMM and
Primergy, Inc. dated June 30, 1995 (6)
10.45 Copy of Promissory Note in the amount of
$5,130,000 between WCMM Inc. and
Primergy, Inc. dated June 30, 1995 (6)
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
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 (9)
10.46 Copy of Note Agreement between WCMM and
Primergy, Inc. dated June 30, 1995 (6)
10.49 Copy of Quota Share Reinsurance Agreement
between Registrant and Allianz Life Insurance
Company of North America dated September 1,
1995 (6)
10.49a Copy of Amendment to Quota Share Reinsurance
Agreement between Registrant and Allianz Life
Insurance Company of North America dated
March 20, 1998 (13)
10.50 Copy of Employment Contract dated May 29, 1996,
and Stock Option Agreements between Registrant
and Douglas A. Hayward* (7)
10.50a Copy of Voluntary Separation Agreement and
Release Between Douglas A. Hayward and the
Registrant* (12)
10.51 Copy of Employment Contract dated June 1, 1996,
and Stock Option Agreements between Registrant
and John E. Ott, M.D.* (7)
10.51a Copy of Amendment to Employment Agreement
dated June 1, 1998, between Registrant and
John E. Ott, M.D.* (14)
10.51b Copy of Voluntary Separation Agreement and
Release effective June 11, 1999, between
Registrant and John E. Ott, M.D.*
10.52 Copy of Employment Agreement dated September 1,
1996, between Registrant and Joseph R. Papa* (8)
10.52a Copy of Consulting Agreement dated
January 15, 1999, between Registrant and
Joseph R. Papa Associates
10.53 Copy of Registrant's 1996 Non-Incentive
Executive Stock Option Plan* (9)
10.54 Copy of Stock Option Agreement dated
December 23, 1996, between Registrant
and Robert W. Morey, Jr.* (9)
10.54a Copy of Amendment dated December 19, 1997,
to Stock Option Agreement between Registrant
and Robert W. Morey, Jr. for options
to purchase 450,000 shares of common stock* (12)
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
10.55 Copy of Promissory Note in the amount of
$2,099,083 between Primergy, Inc. and
Registrant dated February 19, 1997 (9)
10.56 Copy of Loan and Security Agreement made
by Primergy, Inc. in favor of Registrant
and WCMM dated as of February 19, 1997 (9)
10.58 Copy of Lease Agreement dated July 1, 1996,
between Candid Associates, as Lessor, and
WCD, as Lessee, relating to lease of office
space in North Haven, Connecticut (9)
10.59 Copy of Loan and Security Agreement dated
April 1, 1997 between Catskill Medical
Associates, P.C., WCNY and Registrant (10)
10.60 Copy of Letter of Understanding dated
June 30, 1997 between Primergy, Inc. and
Registrant (10)
10.61 Copy of Memorandum dated July 23, 1997 between
Primergy, Inc. and Registrant (10)
10.62 Amendment to Stock Option Agreement
between Robert W. Morey, Jr. and Registrant
for options to purchase 150,000 share of
common stock* (12)
10.63 Copy of an Agreement of Lease between Reckson
Operating Partnership, LP and WCD for the
Tarrytown office (12)
10.63a Copy of Surrender and Acceptance of Lease dated May
11, 1999, between Registrant and Reckson
Operating Partnership, L.P.
10.64 Copy of Severance Agreement dated April 3, 1998
between Registrant and Jack Sizer, M.D. (14)
10.65 Copy of IPA Service Agreement dated April 21,
1998, between WCNY and Columbia-Greene Health Care
Alliance IPA, Inc. (14)
10.66 Copy of IPA Service Agreement dated April 21, 1998,
between WCNY and Dutchess Health Care
Alliance IPA, Inc. (14)
10.67 Copy of IPA Service Agreement dated April 21, 1998,
between WCNY and Orange-Sullivan Health Care
Alliance IPA, Inc. (14)
10.68 Copy of IPA Service Agreement dated April 21, 1998,
between WCNY and Ulster Health Care Alliance
IPA, Inc. (14)
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
10.69 Copy of Employment Agreement dated January 29,
1997, between Registrant and Mary Lee Campbell-
Wisley*
10.69a Copy of Amendment to Employment Agreement
dated February 16, 1999, between
Registrant and Mary Lee Campbell-Wisley*
10.70 Copy of Employment Agreement dated November 5,
1997, between Registrant and Thomas A. Curtin*
10.71 Copy of Employment Agreement dated November 17,
1998, between Registrant and Adele B. Reiter,
Esq.*
10.72 Copy of Employment Agreement dated December 1,
1998, between Registrant and Alan Bernstein, M.D.*
10.73 Copy of Employment Agreement dated December 1,
1998, between Registrant and Craig S. Dupont*
10.73a Copy of Amendment to Employment Agreement, dated
February 11, 1999, between Registrant and
Craig S. Dupont*
10.74 Copy of Letter of Settlement dated June 9, 1999,
between KeyBank National Association and KeyCorp.
Leasing Ltd., Registrant, WCNY, WCD and GHI HMO
Select Inc.
10.76 Copy of Stock Purchase Agreement dated May 19, 1999
between Registrant and Kiran C. Patel, M.D.
10.76a Copy of Amendment to Stock Purchase Agreement dated
May 19, 1999 between Registrant and Kiran C. Patel,
M.D.
10.77 Form of Hospital Settlement Agreement between
Registrant, WCNY, Kiran C. Patel, M.D. HealthCare
Association of New York State, Northern Metropolitan
Hospital Association and the member hospital of HANYS
and/or Normet
10.78 Form of Physician Settlement Agreement
between Registrant, WCNY, Kiran C. Patel,
M.D., and the Provider or Provider Group
10.79 Form of May 27, 1999 letter to Class A
Shareholders of Registrant
INDEX TO EXHIBITS
EXHIBIT NO.
- -----------
10.79a Copy of Voting Agreement dated June 9,
1999 between Kiran C. Patel, M.D., and
Robert W. Morey
10.79b Copy of Irrevocable Proxy dated June 9,
1999 between Kiran C. Patel, M.D., and
Robert W. Morey
10.80 Copy of Asset Purchase Agreement dated May
20, 1999 between WCNY and Group Health
Incorporated
10.81 Copy of Escrow and Security Agreement
dated June 11, 1999 by Registrant, WCNY,
Garfunkel, Wild & Travis, P.C., Healthcare
Association of New York State and Northern
Metropolitan Hospital Association, The
Medical Society of the State of New York
and United States Trust Company of New
York
10.82 Copy of Management Agreement dated June 11, 1999
between Comprehensive Health Management, Inc. and
WellCare of New York, Inc.
10.83 Copy of Management Agreement dated June 11, 1999
between Comprehensive Health Management, Inc. and
WellCare of Connecticut, Inc.
11 Computation of Per Share Earnings
21 List of Subsidiaries
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.
(9) Incorporated by reference to the same exhibit in Registrant's Report on
Form 10-K for the year ended December 31, 1996.
(10) Incorporated by reference to the same exhibit in Registrant's Report on
Form 10-Q for the period ended June 30, 1997.
(11) Incorporated by reference to the same exhibit in Registrant's Report on
Form 10-Q for the period ended September 30, 1997.
(12) Incorporated by reference to the same exhibit in Registrant's Report on
Form 10-K for the year ended December 31, 1997.
(13) Incorporated by reference to the same exhibit in Registrant's Report on
Form 10-Q for the period ended March 31, 1998.
(14) Incorporated by reference to the same exhibit in Registrant's Report on
Form 10-Q for the period ended June 30, 1998.
(15) Incorporated by reference to the same exhibit in Registrant's Report on
Form 10-Q for the period ended September 30, 1998.
* Denotes Management Contract or compensatory plan or arrangement required to
be filed as an exhibit to this Annual Report on Form 10-K.
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
---- ---- ----
Loss before income taxes $(25,417) $(22,142) $(19,820)
Income taxes 5,441 -- (8,038)
-------- -------- -------
NET LOSS $(30,858) $(22,142) $ (4,782)
======== ======== ========
LOSS PER SHARE - BASIC $ (4.36) $ (3.52) $ (1.87)
======== ======== ========
Weighted average shares of
common stock outstanding 7,081 6,299 6,296
======== ======== ========
LOSS PER SHARE - DILUTED $ (4.36) $ (3.52) $ (1.87)
======== ======== ========
Weighted average shares of
common stock and common
stock equivalents outstanding 7,081 6,299 6,296
======== ======== ========
Name of Corporation and Name
under which Corporation is State of Percentage
doing business Incorporation Owned
- ---------------------- ------------- ----------
WellCare of New York, Inc. New York 100%
WellCare Administration, Inc. New York 100%
WellCare Development, Inc. New York 100%
WellCare of Connecticut, Inc. Connecticut 100%
WellCare Medical Management, Inc.(1) New York 100%
- ------------------------
(1) Assets sold and liabilities assumed by an independent third party in 1995.
Exhibit 3.1c
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE WELLCARE MANAGEMENT GROUP, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE WELLCARE MANAGEMENT GROUP, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, being the Acting President and Chief Executive Officer of
The WellCare Management Group, Inc., a New York corporation (hereinafter
referred to as the "Corporation") organized and existing under the Business
Corporation Law ("BCL") of the State of New York, does hereby certify the
following:
FIRST: The Corporation's name is The WellCare Management Group, Inc.
SECOND: The original Certificate of Incorporation of the Corporation was
filed by the Department of State under and pursuant to the BCL on the 25th day
of August, 1983 under the name Ullmann and Castellon, Inc.
THIRD: The purpose of this Certificate of Amendment is to amend the Article
IV, Section 3 of the Corporation's Certificate of Incorporation for the purpose
of designating two series of the Corporation's authorized Preferred Stock.
Article IV, Section 3 of the Corporation's Certificate of Incorporation is
hereby amended by adding new subparagraphs (d) and (e) as follows:
(d) Pursuant to the authority conferred upon the Board of Directors of the
Corporation by the foregoing provisions of this Certificate of Incorporation,
the Board of Directors of the Corporation on June 1, 1999 duly adopted a
resolution creating a series of Preferred Stock, the designation and number of
shares thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations and restrictions thereof are as follows:
(i) Designation and Number.
(1) The shares of such series shall be designated as Senior
Convertible Preferred Stock, Series A (the "Series A Preferred Stock"). The
number of shares initially constituting the Series A Preferred Stock shall be
100,000, which number may be decreased (but not increased) by the Board of
Directors without a vote of stockholders; provided,however, that such number may
not be decreased below the number of then outstanding shares of Series A
Preferred Stock.
(2) The Series A Preferred Stock shall, with respect to rights on
liquidation, dissolution or winding up, rank (i) on a parity with the Series B
Preferred Stock, and (ii) prior to all other classes and series of Junior Stock
(as defined below) of the Corporation now or hereafter authorized including,
without limitation, the Common Stock.
(3) Capitalized terms used herein and not otherwise defined shall
have the meanings set forth in Section (d)(viii) below.
(ii) Dividends and Distributions.
Each holder of shares of Series A Preferred Stock shall be
entitled to receive, when, as and if declared by the Board of Directors,
dividends and other distributions (including, without limitation, any options,
warrants or other rights to acquire capital stock of the Corporation whether or
not pursuant to a shareholder rights plan, "poison pill" or similar arrangement,
or other property or assets) on a parity with each holder of Common Stock. Such
dividends and distributions shall be payable on each share of Series A Preferred
Stock in an amount equal to the dividends per share payable on the number of
shares of Common Stock into which such share of Series A Preferred Stock would
be convertible under Section (d)(vi) on the record date for determining
eligibility to receive such dividends, or if no record date is established, on
the date such dividends are actually paid.
(iii) Voting Rights.
(1) The holders of the Series A Preferred Stock shall
be entitled to notice of all stockholders meetings in accordance with the
Corporation's bylaws, and except as otherwise required by applicable law and
with respect to those matters set forth in Section (d)(iii)(2), the holders of
the Series A Preferred Stock shall be entitled to vote on all matters submitted
to the stockholders for a vote together with the holders of the Common Stock
voting together as a single class with each share of Common Stock entitled to
one vote per share and each share of Series A Preferred Stock entitled to one
vote for each share of Common Stock issuable upon conversion of the Series A
Preferred Stock as of the record date for such vote or, if no record date is
specified, as of the date of such vote; provided, however, if there shall be
shares of Class A Common Stock of the Corporation outstanding on such date, the
holders of Series A Preferred Stock shall be entitled to such additional votes
per share that would give the holder(s) of the Series A Preferred Stock, as a
class, a 55% voting interest in the total number of votes of the issued and
outstanding Common Stock (after having given effect to the conversion of the
Series A Preferred Stock) and issued and outstanding Class A Common Stock,
combined.
(2) Unless the consent or approval of a greater number
of shares shall then be required by law, the affirmative vote of the holders of
at least 51% of the outstanding shares of Series A Preferred Stock, voting
separately as a single class, in person or by proxy, at a special or annual
meeting of stockholders called for the purpose, shall be necessary to:
(A) increase the authorized number of shares of Series
A Preferred Stock; and
(B) authorize, adopt or approve an amendment to the
Charter that would increase or decrease the par value of the shares of Series B
Preferred Stock or Series A Preferred Stock, or alter or change the powers,
preferences or special rights of the shares of Series B Preferred Stock or
Series A Preferred Stock, or otherwise affect the rights of the shares of the
Series B Preferred Stock adversely, including, without limitation, the
liquidation preference provisions.
(3) At each meeting of stockholders at which the holders of
shares of Series A Preferred Stock shall have the right, voting separately as a
single class, to take any action, the presence in person or by proxy of the
holders of record of one-third of the total number of shares of Series A
Preferred Stock then outstanding and entitled to vote on the matter shall be
necessary and sufficient to constitute a quorum. At any such meeting or at any
adjournment thereof:
(A) the absence of a quorum of the holders of shares of
any other class or series of capital stock shall not prevent the taking of any
action as provided in this Section (d)(iii); and
(B) in the absence of a quorum of the holders of shares
of Series A Preferred Stock, a majority of the holders of such shares present in
person or by proxy shall have the power to adjourn the meeting as to the actions
to be taken by the holders of shares of Series A Preferred Stock from time to
time and place to place without notice other than announcement at the meeting
until a quorum shall be present.
(4) For taking of any action as provided in Section
(d)(iii)(2) by the holders of shares of Series A Preferred Stock, each such
holder shall have one vote for each share of such stock standing in his name on
the transfer books of the Corporation as of any record date fixed for such
purpose or, if no such date be fixed, at the close of business on the Business
Day next preceding the day on which notice is given, or if notice is waived, at
the close of business on the Business Day next preceding the day on which the
meeting is held; provided, however, that shares of Series A Preferred Stock held
by the Corporation or any Affiliate of the Corporation shall not be deemed to be
outstanding for purposes of taking any action as provided in this Section
(d)(iii).
(iv) Reacquired Shares.
Any shares of Series A Preferred Stock converted, exchanged,
redeemed, purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and canceled promptly after the acquisition thereof.
All such shares of Series A Preferred Stock shall upon their cancellation become
authorized but unissued shares of preferred stock, par value $.01 per share, of
the Corporation and, upon the filing of an appropriate Certificate of
Designation with the Secretary of State of the State of New York, may be
reissued as part of another series of preferred stock, par value $.01 per share,
of the Corporation, but in any event may not be reissued as shares of Series A
Preferred Stock unless
all of the shares of Series A Preferred Stock issued on the Issue Date shall
have already been redeemed or converted.
(v) Liquidation, Dissolution or Winding Up.
(1) If the Corporation shall commence a voluntary case under
the United States bankruptcy laws or any applicable bankruptcy, insolvency or
similar law of any other country, or consent to the entry of an order for relief
in an involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the United States
bankruptcy laws or any applicable bankruptcy, insolvency or similar law of any
other country, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and on account of any such event the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (any such event, a "Liquidation"), no distribution shall be made to
the holders of shares of Junior Stock unless, prior thereto, the holders of
shares of Series A Preferred Stock shall have received an amount per share of
Series A Preferred Stock equal to the greater of (A) the Stated Value, plus all
declared and unpaid dividends to the date of distribution, or (B) the proceeds
in Liquidation that the holders of Series A Preferred Stock would have received
in respect of all shares of Common Stock issuable to such holders upon
conversion of a share of Series A Preferred Stock owned by such holders,
assuming that such share of Series A Preferred Stock owned by such holders had
been converted into shares of Common Stock in accordance with Section (d)(vi)
immediately prior to the Liquidation (such greater amount being the "Series A
Preferred Stock Liquidation Amount").
(2) Notwithstanding the foregoing, if the assets
distributable upon a Liquidation shall be insufficient to pay in full the Series
A Preferred Stock Liquidation Amount on all shares of Series A Preferred Stock
outstanding and any amount payable to the holders of Parity Stock, then all of
the assets available after payment of any amounts payable on the Senior Stock
shall be distributed among the holders of the Series A Preferred Stock and the
Parity Stock ratably in proportion to the respective amounts of the assets to
which they would otherwise be entitled.
(3) Neither the consolidation or merger of the Corporation
with or into any other Person nor the sale or other distribution to another
Person of all or substantially all the assets, property or business of the
Corporation, shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section (d)(v).
(vi) Conversion.
(1) At the later of (i) the amendment to the Corporation's
certificate of incorporation increasing the total number of authorized shares of
Common Stock by 55,000,000 shares or (ii) the obtainment of all governmental and
regulatory approvals necessary for the conversion of shares of Series A
Preferred Stock into shares of Common Stock, each outstanding share of Series A
Preferred Stock shall immediately and automatically, with no further action
required to be taken by the Corporation or the holder thereof, be converted
into, subject to the terms and provisions of this Section (d)(vi), fully paid
and non-assessable shares of Common Stock, subject to Section (d)(vi)(7). Each
share of Series A Preferred Stock is convertible into a number of shares of
Common Stock ("Number Issuable") which is initially 92.882 shares, subject to
adjustment as set forth in Section (d)(vi)(4). Immediately thereafter, each
holder of Series A Preferred Stock shall be deemed to be the holder of record of
the Common Stock issuable upon conversion of such holder's Series A Preferred
Stock notwithstanding that the share register of the Corporation shall then be
closed or that certificates representing such Common Stock shall not then be
actually delivered to such Person. Upon notice from the Corporation, each holder
of Series A Preferred Stock so converted shall promptly surrender to the
Corporation, at any place where the Corporation shall maintain a transfer agent
for its Series A Preferred Stock and Common Stock, certificates representing the
shares so converted, duly endorsed in blank or accompanied by proper instruments
of transfer. The shares of Common Stock issued upon the conversion of shares of
Series A Preferred Stock pursuant to Section(d)(vi)(1) shall be subject to the
anti-dilution rights set forth in Paragraph 2(b) of the Stock Purchase Agreement
dated May 19, 1999 by and between the Corporation and Kiran C. Patel.
(2) As promptly as practicable after the surrender, as
herein provided, of any shares of Series A Preferred Stock for conversion
pursuant to Section (d)(vi)(1), the Corporation shall deliver to or upon the
written order of the holder of such shares so surrendered a certificate or
certificates representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Series A Preferred Stock may be or have
been converted in accordance with the provisions of this Section (d)(vi).
(3) To the extent permitted by law, when shares of Series A
Preferred Stock are converted, all dividends which have been declared and are
unpaid on the Series A Preferred Stock so converted to the date of conversion
shall be immediately due and payable and must accompany the shares of Common
Stock issued upon such conversion.
(4) The Number Issuable shall be subject to adjustment from
time to time as follows:
(A) In case the Corporation shall at any time or from
time to time after the Issue Date:
(I) pay a dividend or make a distribution on the
outstanding shares of Common Stock in capital stock of the Corporation;
(II) subdivide the outstanding shares of Common
Stock into a larger number of shares;
(III) combine the outstanding shares of Common
Stock into a smaller number of shares; or
(IV) issue any shares of its capital stock in a
reclassification of the Common Stock;
then, and in each such case, the Number Issuable in effect immediately prior to
such event shall be adjusted (and any other appropriate actions shall be taken
by the Corporation) so that the holder of any share of Series A Preferred Stock
thereafter converted shall be entitled to receive the number of shares of Common
Stock or other securities of the Company which such holder would have owned or
had been entitled to receive upon or by reason of any of the events described
above, had such share of Series A Preferred Stock been converted immediately
prior to the happening of such event. An adjustment made pursuant to this clause
(A) shall become effective retroactively (x) in the case of any such dividend or
distribution, 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 dividend or distribution, or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
date upon which such corporate action becomes effective.
(B) If, after the Issue Date, the Corporation issues
any shares of Common Stock other than pursuant to Section (d)(vi)(4)(A) or upon
conversion of Class A Common Stock or Series A Preferred Stock or Series B
Preferred Stock, there shall be a further adjustment to the Number Issuable so
as to give the holder(s) of the Series A Preferred Stock, as a class, 55% of the
aggregate of the total number of shares of (1) the issued and outstanding Common
Stock and (2) the issued and outstanding Class A Common Stock (after taking into
account such issuance of shares of Common Stock). If any shares of Common Stock
are issued by the Corporation for less than $.50 per share between the Issue
Date and the date the Series A Preferred Stock is automatically converted under
Section (d)(vi)(1) (each a "Discount Issuance"), then the adjustment described
in the immediately prior sentence, with respect to each such Discount Issuance,
shall be reduced by one-half (1/2). If any shares of Common Stock are issued by
the Corporation between the Issue Date and the date the Series A Preferred Stock
is automatically converted under Section (d)(vi)(1) for consideration other than
cash, then the consideration per share shall be determined by the Board of
Directors. The adjustments contemplated by this Section (d)(vi)(4)(B) shall
terminate at such time as the number of issued and outstanding shares of Common
Stock and Class A Common Stock (after giving effect to any adjustment
contemplated by this Section (d)(vi)(4)(B)) shall equal Seventy Five Million
(75,000,000).
(C) If the Corporation, at any time or from time to time,
shall take any action affecting its Common Stock similar to or having an effect
similar to any of the actions described in any of Section (d)(vi)(4)(A) or
Section (d)(vi)(8) (but not including any action described in any such Section)
and the Board of Directors of the Corporation in good faith determines that it
would be equitable in the circumstances to adjust the Number Issuable as a
result of such action, then, and in each such case, the Number Issuable shall be
adjusted in such manner and at such time as the Board of Directors of the
Corporation in good faith determines would be equitable in the circumstances
(such determination to be evidenced in a resolution, a certified copy of which
shall be mailed to the holders of the Series A Preferred Stock).
(D) Notwithstanding anything herein to the contrary, no
adjustment under this Section (d)(vi)(4) need be made to the Number Issuable
unless such adjustment would require an increase or decrease of at least 1% of
the Number Issuable then in effect. Any lesser adjustment shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment, which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least 1% of such Number
Issuable. Any adjustment to the Number Issuable carried forward and not
theretofore made shall be made immediately prior to the conversion of any shares
of Series A Preferred Stock pursuant hereto.
(5) If the Corporation shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, and shall thereafter and before the distribution to stockholders
thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Number Issuable then in
effect shall be required by reason of the taking of such record.
(6) Upon any increase or decrease in the Number Issuable, then,
and in each such case, the Corporation promptly shall deliver to each registered
holder of Series A Preferred Stock at least five (5) Business Days prior to
effecting any of the foregoing transactions a certificate, signed by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased Number
Issuable then in effect following such adjustment.
(7) No fractional shares or scrip representing fractional shares
shall be issued upon the conversion of any shares of Series A Preferred Stock.
If more than one share of Series A Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares of Common
Stock issuable upon conversion thereof shall be computed on the basis of the
aggregate Stated Value of the shares of Series A Preferred Stock so surrendered.
If the conversion of any share or shares of Series A Preferred Stock results in
a fraction, an amount equal to such fraction multiplied by the Current Market
Price of the Common Stock on the Business Day preceding the day of conversion
shall be paid to such holder in cash by the Corporation.
(8) In case of any capital reorganization or reclassification or
other change of outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value), or
in case of any consolidation or merger of the Corporation with or into another
Person (other than a consolidation or merger in which the Corporation is the
resulting or surviving Person and which does not result in any reclassification
or change of outstanding Common Stock), (any of the foregoing, a "Transaction"),
the Corporation, or such successor or purchasing Person, as the case may be,
shall execute and deliver to each holder of Series A Preferred Stock at least
ten (10) Business Days prior to effecting any of the foregoing Transactions a
certificate that the holder of each share of Series A Preferred Stock then
outstanding shall have the right thereafter to convert such share of Series A
Preferred Stock into the kind and amount of shares of stock or other securities
(of the Corporation or another issuer) or property or cash receivable upon such
Transaction by a holder of the number of shares of Common Stock into which such
share of Series A Preferred Stock could have been converted immediately prior to
such Transaction. Such certificate shall provide for adjustments which shall be
as nearly equivalent as may be practicable to the adjustments provided for in
this Section (d)(vi). If, in the case of any such Transaction, the stock, other
securities, cash or property receivable thereupon by a holder of Common Stock
includes shares of stock or other securities of a Person other than the
successor or purchasing Person and other than the Corporation, which controls or
is controlled by the successor or purchasing Person or which, in connection with
such Transaction, issues stock, securities, other property or cash to holders of
Common Stock, then such certificate also shall be executed by such Person, and
such Person shall, in such certificate, specifically acknowledge the obligations
of such successor or purchasing Person and acknowledge its obligations to issue
such stock, securities, other property or cash to the holders of Series A
Preferred Stock upon conversion of the shares of Series A Preferred Stock as
provided above. The provisions of this Section (d)(vi)(8) and any equivalent
thereof in any such certificate similarly shall apply to successive
Transactions.
(9) In case at any time or from time to time:
(A) the Corporation shall declare a dividend (or any other
distribution) on its Common Stock;
(B) the Corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
(C) there shall be any reclassification of the Common Stock,
or any consolidation or merger to which the Corporation is a party and for which
approval of any shareholders of the Corporation is required, or any sale or
other disposition of all or substantially all of the assets of the Corporation;
or
(D) there shall be any voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; then the Corporation shall mail to
each holder of shares of Series A Preferred Stock at such holder's address as it
appears on the transfer books of the Corporation, as promptly as possible but in
any event at least 10 days prior to the applicable date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose of
such dividend, distribution or rights or warrants or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution or rights are to be determined, or (y) the date
on which such reclassification, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding up is expected to become effective. Such
notice also shall specify the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their Common Stock for
shares of stock or other securities or property or cash deliverable upon such
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding up.
(10) After a date one hundred fifty (150) days from the
Issue Date, the Corporation shall at all times reserve and keep available for
issuance upon the conversion of the Series A Preferred Stock pursuant to Section
(d)(vi)(1), such number of its authorized but unissued shares of Common Stock as
will from time to time be sufficient to permit the conversion of all outstanding
shares of Series A Preferred Stock, and shall take all action required to
increase the authorized number of shares of Common Stock if at any time there
shall be insufficientauthorized but unissued shares of Common Stock to permit
such reservation or to permit the conversion of all outstanding shares of Series
A Preferred Stock.
(11) The issuance or delivery of certificates for Common
Stock upon the conversion of shares of Series A Preferred Stock pursuant to
Section(d)(vi)(1) shall be made without charge to the converting holder of
shares of Series A Preferred Stock for such certificates or for any tax in
respect of the issuance or delivery of such certificates or the securities
represented thereby, and such certificates shall be issued or delivered in the
respective names of, or (subject to compliance with the applicable provisions of
federal and state securities laws) in such names as may be directed by, the
holders of the shares of Series A Preferred Stock converted; provided, however,
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any such
certificate in a name other than that of the holder of the shares of Series A
Preferred Stock converted, and the Corporation shall not be required to issue or
deliver such certificate unless or until the Person or Persons requesting the
issuance or delivery thereof shall have paid to the Corporation the amount of
such tax or shall have established to the reasonable satisfaction of the
Corporation that such tax has been paid.
(vii) Certain Remedies.
Any registered holder of Series A Preferred Stock shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Certificate of Designation and to enforce specifically the terms and
provisions of this Certificate of Designation in any court of the United States
or any state thereof having jurisdiction, this being in addition to any other
remedy to which such holder may be entitled at law or in equity.
(viii) Definitions.
For the purposes of this Article IV, Section 3(d), the
following terms shall have the meanings indicated:
"Affiliate" shall have the meaning ascribed to
such term in Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
"Business Day" shall mean any day other than a
Saturday, Sunday or other day on which commercial banks in The City of New York,
New York are authorized or required by law or executive order to close.
"Common Stock" shall mean the common stock, par
value $.01 per share, and each other class of capital stock, of the Corporation
that does not have a preference over any other class of capital stock of the
Corporation as to dividends or upon liquidation, dissolution or winding up of
the Corporation and, in each case, shall include any other class of capital
stock of the Corporation into which such stock is reclassified or reconstituted.
"Current Market Price" per share shall mean, on
any date specified herein for the determination thereof, (a) the average daily
Market Price of the Common Stock for those days during the period of forty (40)
days, ending on such date, which are Trading Days, and (b) if the Common Stock
is not then listed or admitted to trading on any national securities exchange or
quoted in the over-the-counter market, the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, and the rules and regulations of the Securities and
Exchange Commission thereunder.
"Fair Market Value" shall mean the amount which a
willing buyer, under no compulsion to buy, would pay a willing seller, under no
compulsion to sell, in an arm's-length transaction (assuming in the case of
Common Stock (i) that the Common Stock is valued "as if fully distributed" and
(ii) no consideration is given for minority investment discounts, or discounts
related to illiquidity or restrictions on transferability).
"Issue Date" shall mean the original date of
issuance of shares of Series A Preferred Stock to Patel.
"Junior Stock" shall mean any capital stock of the
Corporation ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock including, without
limitation, the Common Stock.
"Market Price" shall mean, per share of Common
Stock on any date specified herein: (a) the closing price per share of the
Common Stock on such date published in The Wall Street Journal or, if no such
closing price on such date is published in The Wall Street Journal, the average
of the closing bid and asked prices on such date, as officially reported on the
principal national securities exchange on which the Common Stock is then listed
or admitted to trading; (b) if the Common Stock is not then listed or admitted
to trading on any national securities exchange but is designated as a national
market system security, the last trading price of the Common Stock on such date;
(c) if there shall have been no trading on such date or if the Common Stock is
not so designated, the average of the reported closing bid and asked prices of
the Common Stock on such date as shown by NASDAQ and reported by any member firm
of the NYSE, selected by the Corporation; or (d) if the Common Stock is not
traded on NASDAQ, then the average of the reported closing bid and asked prices
of the Common Stock on such date as shown by the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. If neither (a), (b), (c) or (d)
is applicable, Market Price shall mean the Fair Market Value per share
determined in good faith by the Board of Directors of the Corporation which
shall be deemed to be Fair Market Value unless holders of at least 51% of the
outstanding shares of Series A Preferred Stock request that the Corporation
obtain an opinion of a nationally recognized investment banking firm chosen by
such holders (at the Corporation's expense), in which event Fair Market Value
shall be as determined by such investment banking firm.
"NASDAQ" shall mean the National Market System of
the NASDAQ Stock Market.
"NYSE" shall mean the New York Stock Exchange,
Inc.
"Parity Stock" shall mean any capital stock of the
Corporation, including the Series B Preferred Stock, ranking on a par (either as
to dividends or upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, including, without limitation, the Series B Preferred Stock.
"Person" shall mean any individual, firm,
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind, and shall include any
successor (by merger) of such entity.
"Senior Stock" shall mean any capital stock of the
Corporation ranking senior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock.
"Series B Preferred Stock" shall mean shares of
Senior Convertible Preferred Stock, Series B, par value $0.01 per share, of the
Company.
"Stated Value" shall mean $50.00 per share of
Series A Preferred Stock
"Subsidiary" shall mean, with respect to any
Person, a corporation or other entity of which 50% or more of the voting power
of the voting equity securities or equity interest is owned, directly or
indirectly, by such Person.
"Trading Days" shall mean a day on which the
national securities exchanges are open for trading.
(ix) Modification or Amendment.
Except as specifically set forth herein, modifications
or amendments to this Certificate of Designation may be made by the Corporation
with the consent of the holders of at least 51% of the outstanding shares of
Series A Preferred Stock.
(e) Pursuant to the authority conferred upon the Board of
Directors of the Corporation by the foregoing provisions of this Certificate of
Incorporation, the Board of Directors of the Corporation on June 1, 1999 duly
adopted a resolution creating a series of Preferred Stock, the designation and
number of shares thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations and restrictions thereof are as follows:
(i) Designation and Number.
(1) The shares of such series shall be designated as
Senior Convertible Preferred Stock, Series B (the "Series B Preferred Stock").
The number of shares initially constituting the Series B Preferred Stock shall
be 100,000, which number may be decreased (but not increased) by the Board of
Directors without a vote of stockholders; provided, however, that such number
may not be decreased below the number of then outstanding shares of Series B
Preferred Stock.
(2) The Series B Preferred Stock shall, with respect to
rights on liquidation, dissolution or winding up, rank (i) on a parity with the
Series A Preferred Stock, and (ii) prior to all other classes and series of
Junior Stock (as defined below) of the Corporation now or hereafter authorized
including, without limitation, the Common Stock.
(3) Capitalized terms used herein and not other-wise
defined shall have the meanings set forth in Section (e)(viii) below.
(ii) Dividends and Distributions.
(1) Each holder of shares of Series B Preferred Stock,
shall be entitled to receive, when, as and if declared by the Board of
Directors, dividends and other distributions (including, without limitation, any
options, warrants or other rights to acquire capital stock of the Corporation
whether or not pursuant to a shareholder rights plan, "poison pill" or similar
arrangement, or other property or assets) on a parity with each holder of Common
Stock. Such dividends and distributions shall be payable on each share of Series
B Preferred Stock in an amount equal to the dividends per share payable on the
number of shares of Common Stock into which such share of Series B Preferred
Stock would be convertible under Section (e)(vi) on the record date for
determining eligibility to receive such dividends, or if no record date is
established, on the date such dividends are actually paid.
(2) If at any time after 150 days of the Issue Date all
the shares of Series B Preferred Stock are not converted into fully paid and
non-assessable shares of Common Stock, as contemplated by Section (e)(vi)(1),
then the holders of shares of Series B Preferred Stock in preference to the
holders of Common Stock and of any shares of Parity Stock or other Junior Stock
of the Corporation, shall be entitled to receive, so long as all the shares of
Series B Preferred Stock are not converted into fully paid and non-assessable
shares of Common Stock, when, as and if declared by the Board of Directors, out
of the assets of the Corporation legally available therefor, cumulative cash
dividends at a rate on the Stated Value thereof equal to 6.0%, calculated on the
basis of a 360-day year consisting of twelve 30-day months and compounded
quarterly, accruing and payable in equal quarterly payments, in immediately
available funds, on the last day of March, June, September and December or, if
any such day is not a Business Day, the next succeeding Business Day, in each
year.
(iii) Voting Rights.
(1) Except for such voting rights as shall be granted
to the holders of shares of Series B Preferred Stock by this Section (e)(iii) or
by law, the holders of shares of Series B Preferred Stock shall have no voting
rights.
(2) (A) Unless the consent or approval of a greater
number of shares shall then be required by law, the affirmative vote of the
holders of at least 51% of the outstanding shares of Series B Preferred Stock,
voting separately as a single class, in person or by proxy, at a special or
annual meeting of stockholders called for the purpose, shall be necessary to:
(I) increase the authorized number of shares of
Series B Preferred Stock; and
(II) authorize, adopt or approve an amendment to
the Charter that would increase or decrease the par value of the shares of
Series B Preferred Stock or Series A Preferred Stock, or alter or change the
powers, preferences or special rights of the shares of Series B Preferred Stock
or Series A Preferred Stock, or otherwise affect the rights of the shares of the
Series B Preferred Stock adversely, including, without limitation, the
liquidation preference provisions.
(3) (A) At each meeting of stockholders at which the
holders of shares of Series B Preferred Stock shall have the right, voting
separately as a single class, to take any action, the presence in person or by
proxy of the holders of record of one-third of the total number of shares of
Series B Preferred Stock then outstanding and entitled to vote on the matter
shall be necessary and sufficient to constitute a quorum. At any such meeting or
at any adjournment thereof:
(I) the absence of a quorum of the holders of
shares of any other class or series of capital stock shall not prevent the
taking of any action as provided in this Section (e)(iii); and
(II) in the absence of a quorum of the holders of
shares of Series B Preferred Stock, a majority of the holders of such shares
present in person or by proxy shall have the power to adjourn the meeting as to
the actions to be taken by the holders of shares of Series B Preferred Stock
from time to time and place to place without notice other than announcement at
the meeting until a quorum shall be present.
(B) For taking of any action as provided in Section
(e)(iii)(2) by the holders of shares of Series B Preferred Stock, each such
holder shall have one vote for each share of such stock standing in his name on
the transfer books of the Corporation as of any record date fixed for such
purpose or, if no such date be fixed, at the close of business on the Business
Day next preceding the day on which notice is given, or if notice is waived, at
the close of business on the Business Day next preceding the day on which the
meeting is held; provided, however, that shares of Series B Preferred Stock held
by the Corporation or any Affiliate of the Corporation shall not be deemed to be
outstanding for purposes of taking any action as provided in this Section
(e)(iii).
(iv) Reacquired Shares.
Any shares of Series B Preferred Stock
converted, exchanged, redeemed, purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and canceled promptly
after the acquisition thereof. All such shares of Series B Preferred Stock shall
upon their cancellation become authorized but unissued shares of preferred
stock, par value $.01 per share, of the Corporation and, upon the filing of an
appropriate Certificate of Designation with the Secretary of State of the State
of New York, may be reissued as part of another series of preferred stock, par
value $.01 per share, of the Corporation, but in any event may not be reissued
as shares of Series B Preferred Stock unless all of the shares of Series B
Preferred Stock issued on the Issue Date shall have already been redeemed or
converted.
(v) Liquidation, Dissolution or Winding Up.
(1) If the Corporation shall commence a
voluntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or consent to the
entry of an order for relief in an involuntary case under any such law or to the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due or if a decree or order for relief in respect of the Corporation
shall be entered by a court having jurisdiction in the premises in an
involuntary case under the United States bankruptcy laws or any applicable
bankruptcy, insolvency or similar law of any other country, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and on account of any
such event the Corporation shall liquidate, dissolve or wind up, or if the
Corporation shall otherwise liquidate, dissolve or wind up (any such event, a
"Liquidation"), no distribution shall be made to the holders of shares of Junior
Stock unless, prior thereto, the holders of shares of Series B Preferred Stock
shall have received an amount per share of Series B Preferred Stock equal to the
greater of (A) the Stated Value, plus all declared and unpaid dividends to the
date of distribution plus all accrued and unpaid dividends, whether or not
declared or currently payable to the date of distribution, or (B) the proceeds
in Liquidation that the holders of Series B Preferred Stock would have received
in respect of all shares of Common Stock issuable to such holders upon
conversion of a share of Series B Preferred Stock owned by such holders,
assuming that such share of Series B Preferred Stock owned by such holders had
been converted into shares of Common Stock in accordance with Section (e)(vi)
immediately prior to the Liquidation (such greater amount being the "Series B
Preferred Stock Liquidation Amount").
(2) Notwithstanding the foregoing, if the
assets distributable upon a Liquidation shall be insufficient to pay in full the
Series B Preferred Stock Liquidation Amount on all shares of Series B Preferred
Stock outstanding and any amount payable to the holders of Parity Stock, then
all of the assets available after payment of any amounts payable on the Senior
Stock shall be distributed among the holders of the Series B Preferred Stock and
the Parity Stock ratably in proportion to the respective amounts of the assets
to which they would otherwise be entitled.
(3) Neither the consolidation or merger of
the Corporation with or into any other Person nor the sale or other distribution
to another Person of all or substantially all the assets, property or business
of the Corporation, shall be deemed to be a liquidation, dissolution or winding
up of the Corporation for purposes of this Section (e)(v).
(vi) Conversion.
(1) At the later of (i) the amendment to the
Corporation's certificate of incorporation increasing the total number of
authorized shares of Common Stock by 55,000,000 shares or (ii) the obtainment of
all governmental and regulatory approvals necessary for the conversion of shares
of Series B Preferred Stock into shares of Common Stock, each outstanding share
of Series B Preferred Stock shall immediately and automatically, with no further
action required to be taken by the Corporation or the holder thereof, be
converted into, subject to the terms and provisions of this Section (e)(vi),
fully paid and non-assessable shares of Common Stock, subject to Section
(e)(vi)(7). Each share of Series B Preferred Stock is convertible into a number
of shares of Common Stock ("Number Issuable") which is initially 100 shares,
subject to adjustment as set forth in Section (e)(vi)(4). Immediately
thereafter, each holder of Series B Preferred Stock shall be deemed to be the
holder of record of the Common Stock issuable upon conversion of such holder's
Series B Preferred Stock notwithstanding that the share register of the
Corporation shall then be closed or that certificates representing such Common
Stock shall not then be actually delivered to such Person. Upon notice from the
Corporation, each holder of Series B Preferred Stock so converted shall promptly
surrender to the Corporation, at any place where the Corporation shall maintain
a transfer agent for its Series B Preferred Stock and Common Stock, certificates
representing the shares so converted, duly endorsed in blank or accompanied by
proper instruments of transfer.
(2) As promptly as practicable after the
surrender, as herein provided, of any shares of Series B Preferred Stock for
conversion pursuant to Section (e)(vi)(1), the Corporation shall deliver to or
upon the written order of the holder of such shares so surrendered a certificate
or certificates representing the number of fully paid and non-assessable shares
of Common Stock into which such shares of Series B Preferred Stock may be or
have been converted in accordance with the provisions of this Section (e)(vi).
(3) To the extent permitted by law, when
shares of Series B Preferred Stock are converted, all dividends which have been
declared and are unpaid and dividends which are accrued and are unpaid on the
Series B Preferred Stock so converted to the date of conversion shall be
immediately due and payable and must accompany the shares of Common Stock issued
upon such conversion.
(4) The Number Issuable shall be subject to
adjustment from time to time as follows:
(A) In case the Corporation shall at any
time or from time to time after the Issue Date:
(I) pay a dividend or make a
distribution on the outstanding shares of Common Stock in capital stock of the
Corporation;
(II) subdivide the outstanding
shares of Common Stock into a larger number of shares;
(III) combine the outstanding
shares of Common Stock into a smaller number of shares; or
(IV) issue any shares of its
capital stock in a reclassification of the Common Stock;
then, and in each such case, the Number Issuable in effect immediately prior to
such event shall be adjusted (and any other appropriate actions shall be taken
by the Corporation) so that the holder of any share of Series B Preferred Stock
thereafter converted shall be entitled to receive the number of shares of Common
Stock or other securities of the Company which such holder would have owned or
had been entitled to receive upon or by reason of any of the events described
above, had such share of Series B Preferred Stock been converted immediately
prior to the happening of such event. An adjustment made pursuant to this clause
(A) shall become effective retroactively (x) in the case of any such dividend or
distribution, 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 dividend or distribution, or (y) in the case of any such
subdivision, combination or reclassification, to the close of business on the
date upon which such corporate action becomes effective.
(B) If the Corporation, at any time or from
time to time, shall take any action affecting its Common Stock similar to or
having an effect similar to any of the actions described in any of Section
(e)(vi)(4)(A) or Section (e)(vi)(8) (but not including any action described in
any such Section) and the Board of Directors of the Corporation in good faith
determines that it would be equitable in the circumstances to adjust the Number
Issuable as a result of such action, then, and in each such case, the Number
Issuable shall be adjusted in such manner and at such time as the Board of
Directors of the Corporation in good faith determines would be equitable in the
circumstances (such determination to be evidenced in a resolution, a certified
copy of which shall be mailed to the holders of the Series B Preferred Stock).
(C) Notwithstanding anything herein to the
contrary, no adjustment under this Section (e)(vi)(4) need be made to the Number
Issuable unless such adjustment would require an increase or decrease of at
least 1% of the Number Issuable then in effect. Any lesser adjustment shall be
carried forward and shall be made at the time of and together with the next
subsequent adjustment, which, together with any adjustment or adjustments so
carried forward, shall amount to an increase or decrease of at least 1% of such
Number Issuable. Any adjustment to the Number Issuable carried forward and not
theretofore made shall be made immediately prior to the conversion of any shares
of Series B Preferred Stock pursuant hereto.
(5) If the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall thereafter and before the distribution to
stockholders thereof legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment in the Number Issuable then in
effect shall be required by reason of the taking of such record.
(6) Upon any increase or decrease in the Number Issuable,
then, and in each such case, the Corporation promptly shall deliver to each
registered holder of Series B Preferred Stock at least 5 Business Days prior to
effecting any of the foregoing transactions a certificate, signed by the
President or a Vice-President and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary of the Corporation, setting forth in
reasonable detail the event requiring the adjustment and the method by which
such adjustment was calculated and specifying the increased or decreased Number
Issuable then in effect following such adjustment.
(7) No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of any shares of Series B Preferred
Stock. If more than one share of Series B Preferred Stock shall be surrendered
for conversion at one time by the same holder, the number of full shares of
Common Stock issuable upon conversion thereof shall be computed on the basis of
the aggregate Stated Value of the shares of Series B Preferred Stock so
surrendered. If the conversion of any share or shares of Series B Preferred
Stock results in a fraction, an amount equal to such fraction multiplied by the
Current Market Price of the Common Stock on the Business Day preceding the day
of conversion shall be paid to such holder in cash by the Corporation.
(8) In case of any capital reorganization or
reclassification or other change of outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value), or in case of any consolidation or merger of the
Corporation with or into another Person (other than a consolidation or merger in
which the Corporation is the resulting or surviving Person and which does not
result in any reclassification or change of outstanding Common Stock), (any of
the foregoing, a "Transaction"), the Corporation, or such successor or
purchasing Person, as the case may be, shall execute and deliver to each holder
of Series B Preferred Stock at least 10 Business Days prior to effecting any of
the foregoing Transactions a certificate that the holder of each share of Series
B Preferred Stock then outstanding shall have the right thereafter to convert
such share of Series B Preferred Stock into the kind and amount of shares of
stock or other securities (of the Corporation or another issuer) or property or
cash receivable upon such Transaction by a holder of the number of shares of
Common Stock into which such share of Series B Preferred Stock could have been
converted immediately prior to such Transaction. Such certificate shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section (e)(vi). If, in the case of any such
Transaction, the stock, other securities, cash or property receivable thereupon
by a holder of Common Stock includes shares of stock or other securities of a
Person other than the successor or purchasing Person and other than the
Corporation, which controls or is controlled by the successor or purchasing
Person or which, in connection with such Transaction, issues stock, securities,
other property or cash to holders of Common Stock, then such certificate also
shall be executed by such Person, and such Person shall, in such certificate,
specifically acknowledge the obligations of such successor or purchasing Person
and acknowledge its obligations to issue such stock, securities, other property
or cash to the holders of Series B Preferred Stock upon conversion of the shares
of Series B Preferred Stock as provided above. The provisions of this Section
(e)(vi)(8) and any equivalent thereof in any such certificate similarly shall
apply to successive Transactions.
(9) In case at any time or from time to time:
(A) the Corporation shall declare a dividend (or any
other distribution) on its Common Stock;
(B) the Corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
(C) there shall be any reclassification of the Common
Stock, or any consolidation or merger to which the Corporation is a party and
for which approval of any shareholders of the Corporation is required, or any
sale or other disposition of all or substantially all of the assets of the
Corporation; or
(D) there shall be any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall mail to each holder of shares of Series B Preferred
Stock at such holder's address as it appears on the transfer books of the
Corporation, as promptly as possible but in any event at least 10 days prior to
the applicable date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution or
rights or warrants or, if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend, distribution
or rights are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective. Such notice also shall specify the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for shares of stock or other securities or property
or cash deliverable upon such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding up.
(10) After 150 days of the Issue Date, the Corporation shall
at all times reserve and keep available for issuance upon the conversion of the
Series B Preferred Stock pursuant to Section (e)(vi)(1), such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the conversion of all outstanding shares of Series B
Preferred Stock, and shall take all action required to increase the authorized
number of shares of Common Stock if at any time there shall be insufficient
authorized but unissued shares of Common Stock to permit such reservation or to
permit the conversion of all outstanding shares of Series B Preferred Stock.
(11) The issuance or delivery of certificates for Common
Stock upon the conversion of shares of Series B Preferred Stock pursuant to
Section (e)(vi)(1) shall be made without charge to the converting holder of
shares of Series B Preferred Stock for such certificates or for any tax in
respect of the issuance or delivery of such certificates or the securities
represented thereby, and such certificates shall be issued or delivered in the
respective names of, or (subject to compliance with the applicable provisions of
federal and state securities laws) in such names as may be directed by, the
holders of the shares of Series B Preferred Stock converted; provided, however,
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any such
certificate in a name other than that of the holder of the shares of Series B
Preferred Stock converted, and the Corporation shall not be required to issue or
deliver such certificate unless or until the Person or Persons requesting the
issuance or delivery thereof shall have paid to the Corporation the amount of
such tax or shall have established to the reasonable satisfaction of the
Corporation that such tax has been paid.
(vii) Certain Remedies.
Any registered holder of Series B Preferred Stock shall be
entitled to an injunction or injunctions to prevent breaches of the provisions
of this Certificate of Designation and to enforce specifically the terms and
provisions of this Certificate of Designation in any court of the United States
or any state thereof having jurisdiction, this being in addition to any other
remedy to which such holder may be entitled at law or in equity.
(viii) Definitions.
For the purposes of this Article IV, Section 3(e), the
following terms shall have the meanings indicated:
"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in The City of New York, New York
are authorized or required by law or executive order to close.
"Common Stock" shall mean the common stock, par value $.01
per share, and each other class of capital stock, of the Corporation that does
not have a preference over any other class of capital stock of the Corporation
as to dividends or upon liquidation, dissolution or winding up of the
Corporation and, in each case, shall include any other class of capital stock of
the Corporation into which such stock is reclassified or reconstituted.
"Current Market Price" per share shall mean, on any date
specified herein for the determination thereof, (a) the average daily Market
Price of the Common Stock for those days during the period of 40 days, ending on
such date, which are Trading Days, and (b) if the Common Stock is not then
listed or admitted to trading on any national securities exchange or quoted in
the over-the-counter market, the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Securities and Exchange
Commission thereunder.
"Fair Market Value" shall mean the amount which a willing
buyer, under no compulsion to buy, would pay a willing seller, under no
compulsion to sell, in an arm's-length transaction (assuming in the case of
Common Stock (i) that the Common Stock is valued "as if fully distributed" and
(ii) no consideration is given for minority investment discounts, or discounts
related to illiquidity or restrictions on transferability).
"Issue Date" shall mean the original date of issuance of
shares of Series B Preferred Stock to The 1818 Fund II, L.P., a Delaware limited
partnership.
"Junior Stock" shall mean any capital stock of the
Corporation ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock including, without
limitation, the Common Stock.
"Market Price" shall mean, per share of Common Stock on any
date specified herein: (a) the closing price per share of the Common Stock on
such date published in The Wall Street Journal or, if no such closing price on
such date is published in The Wall Street Journal, the average of the closing
bid and asked prices on such date, as officially reported on the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading; (b) if the Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security, the last trading price of the Common Stock on such date;
(c) if there shall have been no trading on such date or if the Common Stock is
not so designated, the average of the reported closing bid and asked prices of
the Common Stock on such date as shown by NASDAQ and reported by any member firm
of the NYSE, selected by the Corporation; or (d) if the Common Stock is not
traded on NASDAQ, then the average of the reported closing bid and asked prices
of the Common Stock on such date as shown by the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. If neither (a), (b), (c) or (d)
is applicable, Market Price shall mean the Fair Market Value per share
determined in good faith by the Board of Directors of the Corporation which
shall be deemed to be Fair Market Value unless holders of at least 51% of the
outstanding shares of Series B Preferred Stock request that the Corporation
obtain an opinion of a nationally recognized investment banking firm chosen by
such holders (at the Corporation's expense), in which event Fair Market Value
shall be as determined by such investment banking firm.
"NASDAQ" shall mean the National Market System of the NASDAQ
Stock Market.
"NYSE" shall mean the New York Stock Exchange, Inc.
<PAGE>
"Parity Stock" shall mean any capital stock of the
Corporation, including the Series A Preferred Stock, ranking on a par (either as
to dividends or upon liquidation, dissolution or winding up) with the Series B
Preferred Stock including, without limitation, the Series A Preferred Stock.
"Person" shall mean any individual, firm, corporation,
partnership, trust, incorporated or unincorporated association, joint venture,
joint stock company, government (or an agency or political subdivision thereof)
or other entity of any kind, and shall include any successor (by merger) of such
entity.
"Senior Stock" shall mean any capital stock of the
Corporation ranking senior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series B Preferred Stock.
"Series A Preferred Stock" shall mean shares of Senior
Convertible Preferred Stock, Series A, par value $0.01 per share, of the
Company.
"Stated Value" shall mean $50.00 per share of Series B
Preferred Stock
"Subsidiary" shall mean, with respect to any Person, a
corporation or other entity of which 50% or more of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly, by
such Person.
"Trading Days" shall mean a day on which the national
securities exchanges are open for trading.
(ix) Modification or Amendment.
Except as specifically set forth herein, modifications or
amendments to this Certificate of Designation may be made by the Corporation
with the consent of the holders of at least 51% of the outstanding shares of
Series B Preferred Stock.
FOURTH: The Board of Directors duly authorized and approved the
foregoing amendments under the authority vested in said Board of Directors under
the provisions of the Corporation's Certificate of Incorporation and of Section
502 of the BCL.
IN WITNESS WHEREOF, I have signed my name hereunto and affirm that the
statements made herein are true under the penalties of perjury on this 4th day
of June, 1999.
/s/ Craig S. Dupont
------------------------------------------------
Name: Craig S. Dupont
Title: Acting President and Chief Executive Officer
Exhibit 10.2e
[LETTERHEAD OF ORANS, ELSEN & LUPERT, LLP]
June 7, 1999
By Hand
Seth I. Truwit, Esq.
Epstein, Becker & Green, P.C.
250 Park Avenue
New York, New York 10177-0077
Re: Promissory Note dated December 1996
Dear Seth:
This will confirm the agreement between Edward A. Ullmann, the Borrower,
and The WellCare Management Group, Inc. ("WellCare"), the Lender, relating to
that certain Promissory Note dated December 1996 in the original principal
amount of $84,000.00. Mr. Ullmann and WellCare agree that, as of the date
hereof, the Promissory Note is canceled by WellCare, and any further payments of
principal and interest that might otherwise be due under the Promissory Note are
waived. Any unpaid interest to date, if any, is forgiven by WellCare. It is the
intent of this agreement that no further payments of principal or interest,
relating to any time period past or present, need be made by Mr. Ullmann. This
agreement is binding on any assignee of or successor in interest to WellCare.
Please sign where indicated below to signify WellCare's acceptance of this
agreement, and return this to me. This will then be a binding agreement on the
parties.
I would greatly appreciate it if you could forward to me the canceled
Promissory Note at your earliest convenience.
Sincerely,
/s/ Robert L. Plotz
--------------------
Robert L. Plotz
Agreed and accepted on behalf of
The WellCare Management Group, Inc.:
/s/ Craig S. Dupont
- -------------------
Craig S. Dupont
Acting President and Chief Executive Officer
Exhibit 10.41a
EXECUTION COPY
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (this "Agreement"), dated as of June 11, 1999, by
and between The Wellcare Management Group, Inc., a New York corporation (the
"Company"), and The 1818 Fund II, L.P., a Delaware limited partnership (the
"Fund").
W I T N E S S E T H:
WHEREAS, pursuant to the Note Purchase Agreement (the "Note Purchase
Agreement"), dated January 19, 1996, by and between the Company and the Fund, as
amended, the Company issued and delivered to the Fund, and the Fund purchased
from the Company, 8.0% Subordinated Convertible Notes (the "Notes") in the
aggregate principal amount of $15,000,000 (the "Principal Amount"), due December
31, 2002;
WHEREAS, the Company and the Fund have determined that it is in each
of their best interest to convert the Principal Amount and all interest accrued
and unpaid thereon (together, the "Note Indebtedness") into 100,000 shares of
Series B Preferred Stock, par value $0.01, of the Company.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and promises herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Exchange of Notes for Series B Preferred Stock.
1.1 Exchange. The Fund shall acquire from the Company, and the
Company shall issue to the Fund, at the Closing 100,000 shares of Series B
Preferred Stock, par value $0.01 per share, of the Company (the "Series B
Preferred Stock"), and in exchange therefor the Company shall acquire from the
Fund the Notes and all Note Indebtedness shall be canceled.
1.2 Powers, Preferences and Rights of the Series A Preferred
Stock and Series B Preferred Stock. Shares of Series B Preferred Stock shall be
pari passu, except as set forth in the Certificate of Designations attached
hereto as Exhibits A and B, with shares of Series A Preferred Stock, par value
$0.01 per share, of the Company (the "Series A Preferred Stock") to be received
by Dr. Kiran C. Patel on the date hereof. The shares of Series A Preferred Stock
and Series B Preferred Stock shall have the powers, preferences, rights,
qualifications and limitations set forth in the Certificate of Designations
attached hereto as Exhibits A and B, respectively.
2. The Closing. The closing of the sale and purchase of the Series B
Preferred Stock contemplated hereby (the "Closing") shall take place at the
offices of Epstein, Becker & Green, P.C., 250 Park Avenue, New York, New York,
at 10:00 a.m. local time on June 11, 1999 (the "Closing Date"). At the Closing,
the Fund shall deliver to the Company the Notes with the appropriate notation
that such Notes have been canceled, and simultaneously at the Closing, the
Company shall deliver to the Fund certificates, in the name of the Fund or its
successors, assigns or designees, evidencing the acquisition by the Fund of the
Series B Preferred Stock. Upon the exchange of the Series B Preferred Stock for
the Notes, the Fund shall release, fully acquit and forever discharge the
Company, its subsidiaries, stockholders, officers, directors, successors and
assigns from any and all debt, late fees, penalties, interest and causes of
action with respect to the Notes.
3. Representations and Warranties of the Company. The Company
represents and warrants to the Fund as follows:
3.1 Due Incorporation and Qualification. Each of the Company and
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its organization and has
the corporate power and lawful authority to own, lease and operate its assets,
properties and business and to carry on its business as now conducted. Each of
the Company and each of its subsidiaries is qualified to transact business and
is in good standing as a foreign corporation in each of the jurisdictions in
which it is required to be so qualified, except for such jurisdictions in which
the failure to be so qualified is not reasonably likely to have, individually or
in the aggregate, a material adverse effect on the financial condition of the
Company or such subsidiary.
3.2 Corporate Authorization; No Contravention. Except as set
forth on Schedule 3.2, the execution, delivery and performance by the Company of
this Agreement and the transactions contemplated hereby, including without
limitation the issuance of the shares of Series B Preferred Stock and the Common
Stock issuable upon the conversion of the shares of Series B Preferred Stock:
(a) is within the Company's corporate power and authority and has
been duly authorized by all necessary corporate action;
(b) will not violate, conflict with or result in any breach or
contravention of or the creation of any lien under, any contractual obligation
of the Company or any of its subsidiaries, or any order or decree directly
relating to the Company or any of its subsidiaries; and
(c) has been duly authorized by the Board of Directors of the
Company and no other corporate proceedings on the part of the Company or its
stockholders are necessary to authorize or approve the Agreement or the
transactions contemplated hereby.
3.3 Governmental Authorization; Third Party Consents. Except as
set forth on Schedule 3.3, no approval, consent, exemption, authorization, or
other action by, or notice to, or filing with, any governmental authority or any
other person, is necessary or required in connection with the execution,
delivery or performance by the Company or enforcement against the Company of
this Agreement, the Series B Preferred Stock or the transactions contemplated
hereby or thereby.
3.4 Binding Effect. This Agreement, upon execution and delivery
by the Company, will be duly executed and delivered by the Company and (assuming
due execution and delivery hereof by the other party hereto) will be valid and
binding obligations of the Company enforceable against the Company in accordance
with its respective terms.
3.5 Capitalization.
(a) Schedule 3.5 sets forth the authorized, issued and
outstanding capital stock of the Company as of the date hereof. Except as set
forth on Schedule 3.5, as of the date hereof, there are no shares of common
stock or other equity securities of the Company issued, reserved for issuance or
outstanding and no warrants, convertible or exchangeable securities,
subscriptions, rights (including any preemptive rights), stock appreciation
rights, calls or commitments of any character whatsoever to which the Company is
a party or may be bound requiring the issuance or sale of shares of any capital
stock of the Company.
(b) All of the issued and outstanding shares of capital
stock of the Company have been duly authorized and are validly issued, fully
paid and non-assessable, and free of any preemptive rights in respect thereto.
The shares of Series B Preferred Stock, when issued to the Fund, and the shares
of Common Stock, par value $0.01 of the Company ("Common Stock"), when issued
upon conversion of the Series B Preferred Stock (assuming conversion after the
amendment to the Company's certificate of incorporation referred to in Section
4.1), will be duly authorized and, in each case, validly issued, fully paid and
non-assessable, and free of any preemptive rights in respect thereto.
3.6 Financial Condition. The Company has delivered to the Fund
true and correct copies of the unaudited financial statements of the Company and
its subsidiaries dated as of April 30, 1999 (the "Financials"), showing the
financial position at April 30, 1999 and the pro forma financial position
adjusted for the transactions contemplated hereby, for the transactions
contemplated by the Stock Purchase Agreement, dated May 19, 1999, between Dr.
Kiran C. Patel and the Company and for the sale by the Company's subsidiary,
Wellcare of New York, Inc., of its commercial business to Group Health
Incorporated. The Financials have been prepared in accordance with generally
accepted accounting principles in the United States ("GAAP") applied
consistently throughout the periods covered thereby, with only such deviations
from GAAP as are identified in the footnotes of the Financials,
and present 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, or portion thereof, then ended.
4. Post-Closing Covenants of the Company.
4.1 Increase in Number of Authorized Shares. The Company shall as
soon as possible, but in no event later than 150 days of the Closing Date, amend
the Company's certificate of incorporation to increase the total number of
authorized shares of Common Stock by 55,000,000 shares.
4.2 Issue Taxes. The Company shall pay, or cause to be paid, all
documentary and similar taxes levied under the laws of any applicable
jurisdiction in connection with the issuance of the shares of Series B Preferred
Stock, the issuance of the Common Stock upon conversion of the shares of Series
B Preferred Stock and the cancellation of the Notes.
4.3 Registration and Listing. If any shares of Common Stock
required to be reserved for purposes of conversion of the shares of Series B
Preferred Stock as provided in the Certificate of Designation of the Series B
Preferred Stock require registration with or approval of any governmental
authority under any Federal or state or other applicable law before such Common
Stock may be issued or delivered upon conversion, the Company will in good faith
and as expeditiously as possible endeavor to cause such Common Stock to be duly
registered or approved, as the case may be. So long as the Common Stock is
quoted or listed on any national securities exchange, the Company will, if
permitted by the rules of such system or exchange, quote or list and keep quoted
or listed on such exchange, upon official notice of issuance, all shares of
Common Stock issuable or deliverable upon conversion of the Series B Preferred
Stock.
4.4 Balance Sheet. The Company shall as soon as possible, but in
any event not later than 15 days of the Closing Date, deliver to the Fund a true
and correct copy of the unaudited balance sheet of the Company and its
subsidiaries dated as of April 30, 1999, showing the pro forma financial
position (i) adjusted for the transactions contemplated hereby, for the
transactions contemplated by the Stock Purchase Agreement, dated May 19, 1999,
between Dr. Kiran C. Patel and the Company and for the sale by the Company's
subsidiary, Wellcare of New York, Inc., of its commercial business to Group
Health Incorporated, (ii) adjusted for the three adjustments (the "Adjustments")
noted on Schedule 3.6 (the "Adjusted Balance Sheet"), and (iii) fully reflecting
actual claim reductions to date. The Adjusted Balance Sheet shall be prepared in
accordance with GAAP applied consistently throughout the periods covered
thereby, with only such deviations from GAAP as are identified in the footnotes
of the Adjusted Balance Sheet, and shall present fairly the consolidated
financial condition of the Company as of the date thereof.
4.5 Income Statement. The Company shall as soon as possible, but
in any event not later than 15 days of the Closing Date, deliver to the Fund a
true and correct copy of the unaudited statement of income of the Company and
its subsidiaries for the period ended April 30, 1999, showing the financial
position at April 30, 1999 and the pro forma financial position adjusted for the
transactions contemplated hereby, for the transactions contemplated by the Stock
Purchase Agreement, dated May 19, 1999, between Dr. Kiran C. Patel and the
Company and for the sale by the Company's subsidiary, Wellcare of New York,
Inc., of its commercial business to Group Health Incorporated, assuming that all
transactions reflected by the adjustments occurred prior to January 1, 1999 (the
"Income Statement"). The Income Statement shall be prepared in accordance with
GAAP applied consistently throughout the periods covered thereby, with only such
deviations from GAAP as are identified in the footnotes of the Income Statement,
and shall present fairly the consolidated results of operations of the Company
for the period, or portion thereof, then ended.
4.6 Financial Statements. The Company shall deliver to the Fund,
in form and substance satisfactory to the Fund:
(a) as soon as available, but not later than 100 days after
the end of each fiscal year of the Company, a copy of the audited consolidated
balance sheet of the Company and its subsidiaries as of the end of such year and
the related consolidated statements of income and cash flows for such fiscal
year, setting forth in each case in comparative form the figures for the
previous year, all in reasonable detail and accompanied by a management summary
and analysis of the operations of the Company and its subsidiaries for such
fiscal year and by the opinion of Deloitte & Touche LLP (or any successor
thereto) or another nationally recognized independent public accounting firm,
which report shall state that such consolidated financial statements present
fairly the financial position for the periods indicated in conformity with GAAP
applied on a basis consistent with prior years; provided, however, that the
delivery of a copy of the Company's Annual Report on Form 10-K shall satisfy the
requirements of this Section 4.6(a);
(b) as soon as available, but in any event not later than 50
days after the end of each of the first three fiscal quarters of each year, the
unaudited consolidated balance sheet of the Company and its subsidiaries, and
the related consolidated statements of income and cash flow for such quarter and
for the period commencing on the first day of the fiscal year and ending on the
last day of such quarter, all certified by the Company's Chief Financial
Officer; provided, however, that the delivery of a copy of the Company's
Quarterly Report on Form 10-Q shall satisfy the requirements of this Section
4.6(b);
(c) budgets and projections of the Company and its
subsidiaries commencing within 60 days of the Closing Date, and then thereafter,
annually according to the Company's planning cycle; and
(d) at any time when it is not subject to Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, upon request, to the
Fund and prospective purchasers of the Series B Preferred Stock, information of
the type that would satisfy the requirement of subsection (d)(4)(i) of Rule 144A
of the Securities Act of 1933, as amended (the "Securities Act").
4.7 Additional Information. The Company shall deliver to the
Fund, as soon as available but no later than the 15th day of each month, a
notice specifying or attaching the following information as to the Company, all
certified by the Company's Chief Financial Officer:
(a) statement of cash receipts and disbursements for the
preceding month;
(b) statement of cash balances at preceding month end for
the Company and each of its subsidiaries; and
(c) enrollment changes by category and region for the
preceding month.
5. Other Provisions.
5.1 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally, sent
by facsimile transmission or sent by certified, registered or express mail,
postage prepaid or by overnight delivery service. Any such notice shall be
deemed given when so delivered personally, or sent by facsimile transmission or,
if mailed, five days after the date of deposit in the United States mail, or, if
sent by any other means, when delivered at the address specified herein, in each
such case, as follows:
(i) if to Company, to:
The Wellcare Management Group, Inc.
Park West/Hurley Avenue Extension
P.O. Box 4059
Kingston, New York 12401
Attention: Chief Executive Officer
Facsimile: (914) 334-7820
with a copy to:
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Attention: Seth Truwit, Esq.
Facsimile: 212-661-0989
with a copy to:
6800 N. Dale Mabry, Suite 268
Tampa, Florida 33614
Attention: Kiran C. Patel, M.D.
Facsimile: (813) 290-6306
with a copy to:
Patel, Moore & O'Connor, P.A.
2240 Belleair Road Suite
160 Clearwater, Florida 33764
Attention: Sandip I. Patel, Esq.
Facsimile: (727)536-5936
(ii) if to the Fund:
The 1818 Fund II, L.P.
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Attention: Mr. Walter W. Grist
Facsimile: (212) 493-8429
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Facsimile: (212) 757-3990
Any party may change its address for notice hereunder by notice to the
other parties hereto.
5.2 Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto, including the Note
Purchase Agreement; provided that the Registration Rights Agreement (the
"Registration Rights Agreement"), dated January 19, 1996, between the Company
and the Fund, remains in full force and effect and not affected by this
Agreement or the transactions contemplated hereby except to the extent set forth
in Section 5.3.
Notwithstanding the foregoing, the definitions set forth in the Note
Purchase Agreement shall remain in full force and effect and is not affected by
this Agreement or the transactions contemplated hereby solely to the extent such
definitions are used in the Registration Rights Agreement.
5.3 Amendment of Registration Rights Agreement. The Company and the
Fund hereby amend the Registration Rights Agreement to replace the term "Notes"
with "Series B Preferred Stock, par value $0.01 per share, of the Company," and
to replace the existing definition of Conversion Shares with the following
definition:
"Conversion Shares" mean the shares of common stock, par value $0.01
per share, of the Company issued or issuable upon the conversion of the Series B
Preferred Stock, par value $0.01 per share, of the Company.
5.4 Waivers and Amendments. This Agreement may be amended or modified,
and the terms and conditions hereof may be waived, only by a written instrument
signed by the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege hereunder, nor any single
or partial exercise of any right, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege hereunder.
5.5 Fund Representation. The Fund represents and warrants to the
Company that the shares of Series B Preferred Stock (including, for purposes of
this Section 5.5, the shares of Common Stock issuable upon conversion of the
Series B Preferred Stock) to be acquired by such Fund pursuant to this Agreement
are being acquired for its own account and with no intention of distributing or
reselling such securities or any part thereof in any transaction that would be
in violation of the securities laws of the United States of America, or any
state, without prejudice, however, to the rights of such Fund at all times to
sell or otherwise dispose of all or any part of the shares of Series B Preferred
Stock under an effective registration statement under the Securities Act, or
under an exemption from such registration available under the Securities Act,
and subject, nevertheless, to the disposition of such Fund's property being at
all times within its control.
5.6 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Florida applicable to agreements made
and to be performed entirely within such State.
5.7 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original but both of which together shall
constitute one and the same instrument.
5.8 Headings. The headings in this Agreement are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
5.9 Successors and Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties named herein and their respective
successors and permitted assigns. The Company may not assign its rights or
obligations hereunder without the prior written consent of the Fund.
5.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
5.11 Expenses. Each of the parties will bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
5.12 Variations in Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the Company and the Fund have executed this
Agreement as of the date first written above.
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Craig S. Dupont
-----------------------
Name: Craig S. Dupont
Title: Acting President and Chief Executive Officer
THE 1818 FUND II, L.P.
By: Brown Brothers Harriman & Co.,
general partner
By: /s/ Walter W. Grist
-----------------------
Name: Walter W. Grist
Title: Senior Manager
Exhibit 10.51b
VOLUNTARY SEPARATION AGREEMENT AND RELEASE
This memorandum sets forth the terms and conditions of the Voluntary
Separation Agreement and Release ("Agreement") between John E. Ott, on his own
behalf and on behalf of his estate, heirs, executors, administrators, attorneys,
successors and assigns (hereinafter collectively referred to as the "Employee")
and The WellCare Management Group, Inc., and its parent(s), branches, agencies,
subsidiaries, affiliates, related companies and divisions and their respective
successors, assigns, representatives, agents, officers, directors, shareholders
and employees, whether current or former (hereinafter collectively referred to
as "WellCare").
WHEREAS, the Employee and WellCare have agreed that the Employee's
employment with WellCare will immediately cease effective the date of the
closing of the transaction between Kiran C. Patel, M.D. and WellCare (the
"Termination Date").
WHEREAS, the Employee shall voluntarily resign as an officer and member of
the Board of Directors of WellCare, effective the date of the closing of the
transaction between Kiran C. Patel, M.D. and WellCare. Notwithstanding anything
to the contrary in this Agreement, the date of the closing of the transaction
between Kiran C. Patel, M.D. and WellCare, shall be Employee's final date of
employment with WellCare in any capacity.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and undertakings set forth herein, the Employee and WellCare agree as follows:
1. The employment agreement dated June 1, 1996, by and between the Employee
and WellCare, as amended by the Amendment to the Employment Agreement including
Exhibits A&B thereto, dated June 1, 1998 ("Employment Agreement"), and all
rights and obligations of the Employee and WellCare thereunder shall terminate
effective at 5:00 p.m. on the seventh day after the closing of the transaction
between Kiran C. Patel, M.D. and WellCare, provided, however, that Employee does
not revoke this Agreement within seven (7) days after signing it pursuant to
paragraph 15 of this Agreement.
2. As consideration for the Employee's release of any and all claims
against WellCare as set forth in paragraph 3 herein and provided the Employee
does not revoke this agreement as set forth in paragraph 1 above and paragraph
15 below and subject to Employee's compliance with the terms of this Agreement,
WellCare agrees:
(A) to the maximum extent permitted by New York Corporate law, to indemnify
Employee against judgments, fines, penalties, amounts paid in settlement and
reasonable expenses actually incurred by Employee (including reasonable
attorney's fees) in the event Employee is made a party to any proceeding, other
than an action by or in the right of the company, by reason of the fact that the
Employee is or was an employee, officer, director or agent of the company.
WellCare may also advance to the Employee expenses incurred in defending any
such proceedings to the maximum extent permitted by New York State corporate
law, including agreement by Employee to repay such advanced sums if he is latter
found not to be indemnified by the company pursuant to New York corporate law.
In accordance with the foregoing, no such indemnification shall be made unless,
inter alia, Employee is successful on the merits in the defense of any preceding
referenced above, Employee acted in good faith and in a manner he reasonably
believed to be in the best interests of the company and, with respect to any
criminal action or proceeding, Employee had no reasonable cause to believe his
conduct was unlawful. It is hereby agreed that such rights of indemnification
shall be in addition to any rights of indemnification Employee may have as an
officer of the company, pursuant to bylaws of the company or otherwise present.
(B) to provide the Employee with a compensation equivalent to $180,000 to
be distributed as follows:
(i) a lump sum payment fifty thousand dollars ($50,000), less
applicable deductions, on or about the fourteenth day after the closing of the
proposed transaction between Kiran C. Patel, M.D. and WellCare;
(ii) for twelve consecutive months, commencing 30 days from the
closing of the transaction between Kiran C. Patel, M.D. and WellCare, a monthly
payment of $4,167.00, less applicable deductions;
(iii) a to be determined amount of shares of the Common Stock of The
WellCare Management Group, Inc. equivalent to the value of eighty thousand
dollars ($80,000) based on the closing stock price as of the date of the
authorization of the additional $5 million shares of common stock of WellCare.
The stock as issued to the Employee shall have a minimum floor price of $.51 per
share. In addition, WellCare shall, at its sole expense, use its best efforts to
have the shares issued to the Employee authorized and approved for public sale
by July 1, 2000. In the event registration and approval of the stock for public
sale is not completed by that date, for any reason whatsoever, WellCare, will,
upon receiving proper Board approval, purchase the stock back from the Employee
within ninety days following receiving written notice at the greater of the
current market price as of such date or $.51 per share.
(iv) to reimburse all reasonable health insurance expenses incurred by
Employee under Employee's family coverage health insurance prior to the date of
the closing of the transaction between Kiran C. Patel, M.D. and WellCare.
During the period in which the Employee is receiving payments pursuant to this
paragraph 2(b), the Employee shall be reasonably available via telephone or in
person to answer questions from the President or Chief Executive Officer of
WellCare, or their designee, relating to those services the Employee performed
prior to the termination of his employment.
(C) to pay for the contribution of the Employee's health insurance
coverage, including Employee's spouse, for the period from the date of the
closing of the transaction between Kiran C. Patel, M.D. and WellCare through May
31, 2001, pursuant to COBRA, if eligible. If the Employee resides outside the
service area, or is not eligible for COBRA, the company shall reimburse the
Employee for the cost of alternative coverage he obtains, up to a maximum of
$7,000.00 in total for the two-year period.
(D) to make a good faith attempt to transfer the company's executive life
insurance policy, or a portion thereof, to an individual policy. WellCare shall
continue to contribute towards the policy premium, at the current contribution
level, for a two year period commencing from the date of the closing of the
transaction between Kiran C. Patel, M.D. and WellCare; and
(E) to waive, as of the date of its execution of this Agreement, all rights
it may have pursuant to paragraph 6 of the Employment Agreement.
3. In exchange for the payments and benefits set forth in paragraph 2 above
and for other good and valuable consideration, the Employee hereby releases
WellCare from any and all liability for any claims against WellCare as of the
date of this execution of this Agreement, whether known or unknown to him that
may arise under express or implied contract, federal, state, or local statute,
executive order, law, ordinance, tort or other obligations arising out of public
policy. This release includes but is not limited to any claims 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 1966, The Civil Rights Act of 1991, of the Age Discrimination in
Employment Act of 1967, the Older Workers Benefit Protection Act of 1990, the
Family and Medical Leave Act of 1993, the Employee Retirement Income Security
Act, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act
of 1938, the New York State Human Rights Law, and all claims for wages, monetary
or equitable relief, vacation, other employee fringe benefits, benefit plans,
medical plans, 401(k) plans, stock options plans or attorneys' fees. This
Agreement does not constitute any admission by WellCare that it has violated any
such law or legal obligation with respect to any aspect of the Employee's
employment or termination therefrom.
4. The Employee represents, warrants and acknowledges that WellCare owes
him no wages, commissions, bonuses, sick pay, personal leave pay, holiday pay,
severance pay, vacation pay, tuition reimbursement, stock options, auto
allowance, 401(k) Plan benefits or other compensation or benefits or payments or
forms of renumeration of any kind or nature, other than that specifically
provided for in this Agreement. Reference is made to the Employment Agreement,
to the Amendment to the Employment Agreement, and to the Option Agreements dated
September 9, 1995, June 1, 1996, June 1, 1996 and June 27, 1997 as well as any
and all other option agreements which have or may have been granted. Employee
and WellCare hereby acknowledge that as a result of Employee's termination of
employment, no options granted under the Option Agreements or otherwise shall
become exercisable; and that Employee further acknowledges and agrees that
WellCare has no further obligation to issue any options to the Employee under
the Employment Agreement or otherwise.
5. The Employee confirms that he has delivered to WellCare any and all
property and equipment of WellCare, including his beeper, phone, keys, laptop or
other computers, and any other WellCare items he may have had in his possession.
6. The Employee represents and agrees that; (a) he has not filed or caused
to be filed any lawsuits against WellCare in any Court whatsoever; (b) he has
not filed or caused to be file any charges or complaints against WellCare with
any municipal, state or federal agency charged with the enforcement of any law,
and (c) pursuant to and as a part of the Employee's complete, total and
irrevocable release and discharge of WellCare, the Employee agrees, to the
fullest extent permitted by law, not to file or cause to be filed a charge,
complaint, grievance, or demand for arbitration in any forum, which relates to
any matter that involves WellCare and that occurred on or before the date of the
Employee's execution of this Agreement.
7. The Employee agrees not to disclose the terms, contents or execution of
this Agreement, the claims that have been or could have been raised against
WellCare as of the date of execution of this Agreement, and the facts and
circumstances underlying any such claims except in the following circumstances:
A. The Employee may disclose the terms of this Agreement to his
immediate family, so long as such family member agrees to be bound by the
confidential nature of this Agreement;
B. The Employee may disclose the terms of this Agreement to (i) his
counsel, tax advisors, auditors or accountants, so long as such persons agree in
writing to be bound by the confidential nature of this Agreement, or (ii) taxing
authorities, if requested by such authorities and so long as they are advised in
writing of the confidential nature of this Agreement; and
C. Pursuant to the order of a court or governmental agency of
competent jurisdiction, or otherwise as may be required by law, or for purposes
of securing enforcement of the terms and conditions of this Agreement.
8. In the event the Employee is asked about the circumstances of his
termination by a prospective employer he may state only that WellCare and the
Employee mutually agreed to terminate his employment, both parties will state
that the Employee's work performance was satisfactory and both parties mutually
agreed to terminate Employee's position so that the Employee could seek other
opportunities. Neither party shall make derogatory comments about the other.
9. The terms, contents or execution of this Agreement, any claims that have
been or could have been raised against WellCare as of the date of execution of
this Agreement, and the facts and circumstances underlying any such claims shall
not be admissible in any litigation, arbitration or proceeding in any forum for
any purpose other than to secure enforcement of the terms and conditions of this
Agreement, except as required by law.
10. Employee agrees not to issue any communication, written or otherwise,
that disparages, criticizes or otherwise reflects adversely or encourages any
adverse action against WellCare, except if testifying truthfully under oath
pursuant to any lawful court order or subpoena or otherwise responding to or
providing disclosures required by law.
11. Except as required by law, Employee specifically agrees that he will
not at any time, in any fashion, form, or manner, either directly or indirectly,
divulge, disclose, or communicate to any person, firm or corporation, in any
manner whatsoever any information of any kind, nature, or description concerning
any matters affecting or relating to the business of WellCare, including,
without limiting the generality of the foregoing, the names of any of its
customers, the prices it obtains or has obtained, or at which it sells or has
sold its products or services, or any other information of, about or concerning
the business of WellCare, its manner of operation, its plans, processes, or
other date of any kind nature, or description, without regard to whether any or
all of the foregoing matters would be deemed confidential, material, or
important, the parties hereby stipulating that as between them, the same are
important, material, and confidential, and gravely affect the successful conduct
of the business of WellCare and its goodwill, and that any breach of the terms
of this paragraph is a material breach of this Agreement. Employee further
confirms that he has delivered to WellCare any and all documents and other
tangible items containing information as described in this paragraph.
12. Upon service on the Employee, or anyone acting on his behalf, of any
subpoena, order, directive or other legal process requiring the Employee to
engage in conduct encompassed within paragraphs 7, 9, 10 or 11 of this
Agreement, the Employee or his attorney shall immediately notify Set I. Truwit,
Esq., Epstein, Becker & Green, P.C., 250 Park Avenue, New York, New York 10177
and the President/Chief Executive Officer of WellCare in writing within two
business day of such service.
13. Employee agrees that he will assist and cooperate with WellCare in
connection with the defense or prosecution of any claim that may be made against
or by WellCare, or in connection with any ongoing or future investigation or
dispute or claims of any kind involving WellCare, including any proceeding
before any arbitral, administrative, judicial, legislative, or other body or
agency, including testifying in any proceeding to the extent such claims,
investigations or proceedings relate to services performed or required to be
performed by Employee, pertinent knowledge possessed by Employee, or any act or
omission by Employee. Employee further agrees to perform all acts and execute
and delivery any documents that may be reasonably necessary to carry out the
provision of this paragraph. WellCare will reimburse any reasonable expenses
required to provide these services.
14. The failure of the Employee or WellCare to insist upon strict adherence
to any term of this Agreement on any occasion shall not be considered a waiver
thereof, or deprive that party of the right thereafter to insist upon strict
adherence to that term or any other term of this Agreement.
15. The Employee acknowledges that he has been offered twenty-one (21) days
from the date he received this Agreement within which to consider its terms, and
that he has been advised that during such period he should consult an attorney
regarding the terms of this Agreement. The Employee further acknowledges that
his signature below indicates that he 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 the Employee's execution of this Agreement, during which
time the Employee may revoke this Agreement by notifying WellCare in writing, by
registered letter delivered to the attention of the undersigned representative
of WellCare. Any such revocation must be received by 5:00 p.m. on or before the
seventh day.
16. This Agreement constitutes the entire agreement between the Employee
and WellCare, and supersedes and cancels all prior oral and written agreement,
if any, between the Employee and WellCare. Employee affirms that, in entering
into this Agreement, Employee is not relying upon any oral or written promise or
statement made by anyone at any time on behalf of WellCare.
17. If any of the provisions, terms or clauses of this Agreement are
declared illegal, unenforceable or ineffective in a legal forum, 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; provided, however, if the Employee's release of WellCare as
contained in paragraph 3 of this Agreement is declared by a court of competent
jurisdiction to be illegal, unenforceable or ineffective and the Employee
asserts against WellCare claims that the parties intended to be released under
Paragraph 3, the Employee shall return to WellCare all monies paid to and the
value of all benefits received by him under this Agreement within ten (10)
business days of any such determination.
18. The Employee agrees that in the event he breaches the terms of this
Agreement, WellCare may immediately cease all payments pursuant to this
Agreement, and WellCare shall be entitled to recover from the Employee all
amounts paid to the Employee pursuant to this Agreement as well as all costs and
reasonable attorneys' fees incurred as a result of WellCare's attempt to redress
such breach or to enforce WellCare's rights and protect WellCare's legitimate
interests. If the employer breaches the terms of this agreement, Employee shall
be entitled to recover from employer all payments remaining pursuant to this
agreement, as well as all costs and reasonable attorney's fees incurred as a
result of employer's attempt to redress such breach or to enforce Employee's
rights and protect Employee's legitimate interests.
19. The law of the State of New York will control any questions concerning
the validity and interpretation of this Agreement, without regard to principles
of conflicts of law. Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration in accordance with
the applicable rules then obtaining of the American Arbitration Association and
judgment on the award rendered may be entered in any court having jurisdiction
thereof. The prevailing party in any such proceeding shall be entitled to
reimbursement of its costs and expenses (including reasonable attorneys' fees)
in connection with such proceedings.
20. This Agreement has been reached by mutual and purely voluntary
agreement of the parties, and the parties, by their signatures indicate their
full agreement with, and understanding of, its terms. Employee acknowledges that
Employee has been given a reasonable period of time to consider the Agreement,
and that this Agreement has binding legal effect.
21. This agreement shall be null and void in the event the contemplated
transaction between Kiran C. Patel, M.D. and WellCare does not close.
22. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors, assigns, heirs, executors and legal
representatives.
23. This Agreement may not be changed or altered, except by a writing
signed by the Employee and an authorized officer of WellCare.
"Employee"
/s/ John E. Ott, M.D.
----------------------------------
John E. Ott, M.D.
<PAGE>
STATE OF WASHINGTON DC )
)ss.:
COUNTY OF DISTRICT OF COLUMBIA )
On the 2nd day of May, 1999, before me personally came John E. Ott,
M.D., 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 he executed the same.
/s/ Sonia M. Marguez
----------------------------------
Notary Public
SONIA M. MARQUEZ
NOTARY PUBLIC DISTRICT OF COLUMBIA
My Commission Expires November 14, 2001
WELLCARE MANAGEMENT GROUP, INC.
"WellCare"
By: /s/ Craig S. Dupont
-----------------------------
Craig S. Dupont
President/CEO
STATE OF NEW YORK )
)ss.:
COUNTY OF ULSTER )
On this 30th day of June, 1999, before me personally came President/CEO, to
me known, who being by me duly sworn, did depose and say that he is
President/CEO. 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/ Donna Wood
----------------------------------
Notary Public
DONNA WOOD
Notary Public, State of New York
No. 01W06000070
Qualified in Westchester County
Commission Expires December 8, 1999
[LETTERHEAD OF THE WELLCARE MANAGEMENT GROUP, INC.]
CONSULTING AGREEMENT
CONSULTING AGREEMENT made as of this 15th day of January, 1999, by and
between THE WELLCARE MANAGEMENT GROUP, INC., a New York corporation, with
offices at Park West/Hurley Avenue Extension, Kingston, New York 12401 (the
"Company") and J. PAPA & ASSOCIATES, a sole proprietorship doing business at 40
Patten Lane, Long Branch, New Jersey 07740 (the "Consultant").
W I T N E S S E T H:
WHEREAS, the Company is desirous of retaining Consultant as a consultant
and Consultant is desirous of being so retained;
NOW, THEREFORE, the Company and Consultant hereby agree as follows:
1. Engagement.
(a) The Company hereby retains Consultant as an independent consultant
to perform such consulting duties as the Board of Directors may from time to
direct, provided such duties relate to (i) the initiation, negotiation or
consummation of one or more Transactions (as defined below); or (ii) the
transition of responsibilities from Joseph R. Papa ("Papa"), as the Chief
Executive Officer of the Company and its subsidiaries, to the new Chief
Executive Officer and other members of the senior management of the Company and
its subsidiaries. A "Transaction" shall mean any agreement that the Company or
any subsidiary enters into with any third party that results in any of the
following: (i) management of administrative services of the Company or any
subsidiary, (ii) sale or option to sell the Company or any subsidiary, (iii) the
acquisition of any capital for the Company or any subsidiary, or (iv) any
transactions relating to the sale of Primergy, but only to the extent that they
relate to the Company or any subsidiary.
(b) Consultant hereby accepts said retention. In rendering the
services contemplated by this Agreement, Consultant shall provide the personal
services of Papa, provided Papa shall be required to devote no more than ten
business days per month to Consultant's duties hereunder. Subject to the
foregoing limitation on Papa's time commitment, Consultant shall cause Papa to
devote such energy and skill as shall be necessary and required to fulfill
Consultant's duties and responsibilities, and to perform and discharge such
duties and responsibilities faithfully, diligently and to the best of Papa's
ability.
(c) The Company acknowledges and agrees that (i) Consultant is being
retained solely to perform the consulting services described in this consulting
agreement and Consultant is not being retained to advise the Company on, or
express any opinion as to, the wisdom, desirability or prudence of consummating
a Transaction, and (ii) Consultant is not and shall not be construed as a
fiduciary of the Company and shall have no duties or liabilities to the equity
holders or creditors of the Company or any other person by virtue of this
consulting agreement and the retention of Consultant hereunder, all of which are
hereby expressly waived. The Company also agrees that Consultant shall not have
any liability (including without limitation, liability for losses, claims,
damages, obligations, penalties, judgments, awards, liabilities, costs, expenses
or disbursements resulting from any negligent act or omission of
Consultant)(including without limitation equity holders and creditors of the
Company) claiming through the Company for or in connection with the engagement
of Consultant hereunder or any Transaction.
2. Compensation.
As compensation for all services to be rendered by Consultant
hereunder, the Company shall pay to Consultant a monthly consulting fee of
$24,000 payable in advance on the 15th day of the month, commencing on the date
hereof.
3. Term.
This consulting agreement and the fees and services hereunder shall be
for a term of six months commencing on January 15, 1999 and continuing until
July 15, 1999, subject to the Company's right to terminate this consulting
agreement sooner on not less than 90 days notice.
4. Non-Compete; Non-Disclosure and Non-Enticement of Employees.
(a) Consultant hereby agrees that during the performance of its
consulting duties hereunder, Consultant will not, without the express prior
written consent of the Company, directly or indirectly, (i) own, alone or as a
member of a partnership, greater than a 1% equity or ownership interest in, or
(ii) operate, manage, join or control, be employed by, engage in the ownership,
management, operation or control of, or (iii) be involved with, whether as an
officer, director, agent, employee or otherwise, any health maintenance
organization within the service areas in which the Company's subsidiaries,
WellCare of New York, Inc. and WellCare of Connecticut, Inc. are authorized at
any time during the term of this consulting agreement to act as a health
maintenance organization.
(b) Consultant hereby covenants and agrees that he will not (i) at any
time during, or following termination of its consulting arrangement with the
Company, reveal, divulge, or make known to any person, firm or corporation, or
use for his or another's benefit, any confidential information whatsoever in
connection with the Company or its business or anything connected therewith,
unless such information has become public knowledge, or (ii) for a period of one
year following termination of his consulting arrangement with the Company, (x)
solicit any employee from the Company's employment or otherwise interfere with
the Company's relationship with any employee of the Company, or (y) solicit any
"member" of the Company's subsidiaries for any health insurance coverage
provided by the Company's subsidiaries. For purposes hereof, the term "member"
shall mean any person or entity for whom any of the Company's subsidiaries
provided health insurance coverage during the six-month period preceding the
termination of this consulting arrangement.
5. Indemnification.
The Company agrees to indemnify Consultant in accordance with the
indemnification provisions attached to this agreement, which indemnification
provisions are incorporated herein and made a part hereof and which shall
survive the termination or expiration of this agreement.
6. Termination of Employment Agreement.
By executing this agreement, Papa and the Company hereby terminate the
Employment Agreement dated September 1, 1996, between the Company and Papa and
neither party shall have any further obligations thereunder with the following
exceptions: Sections 7, 8, 11 and 13.9 of the Employment Agreement shall survive
its termination. All other sections of the Employment Agreement (including
without limitation Sections 5 and 6 thereof) shall not survive termination of
the Employment Agreement.
7. Entire Agreement.
This Agreement contains the entire understanding between the parties
and may not be modified, altered or terminated except by an instrument in
writing signed by the parties.
8. Binding Agreement.
This Agreement shall be binding upon the parties hereto and their
successors.
9. Enforceability.
In the event any provision in this Agreement is determined to be
invalid or unenforceable by a court of competent jurisdiction due to its
geographic scope, period of duration or any other provision, such provision
shall be deemed deleted, amended or modified, as necessary, in order to render
same valid and enforceable to the fullest extent permissible. The invalidity,
unenforceability, deletion, amendment or modification of any such provision
shall not impair the enforceability of the remainder of this Agreement.
10. Construction.
This Agreement shall be construed in accordance with the laws of the
State of New York.
<PAGE>
11. Headings.
The paragraph headings contained in this Agreement are for convenience
of reference only and are not intended to define, limit or describe the scope or
intent of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
this _____ of January 1999.
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Robert W. Morey
--------------------------------
Robert W. Morey, Chairman
J. PAPA & ASSOCIATES
By: /s/ Joseph R. Papa
--------------------------------
Joseph R. Papa, President
The undersigned agrees to bound personally by the provisions of Sections 4
and 6 of the foregoing consulting agreement to the same extent as the Consultant
named therein.
AGREED AND ACCEPTED as To Sections 4 and 6 above:
/s/ Joseph R. Papa
- ------------------------
Joseph R. Papa
<PAGE>
INDEMNIFICATION PROVISIONS
The Company (as such term is defined in the Agreement, as defined below)
agrees to indemnify and hold harmless Consultant, to the fullest extent
permitted by law, from and against any and all losses, claims, damages,
liabilities, obligations, penalties, judgments, awards, costs, expenses and
disbursements (and any and all actions, suits, proceedings and investigations in
respect thereof and any and all legal and other costs, expenses and
disbursements in giving testimony or furnishing documents in response to a
subpoena or otherwise), including, without limitation, the costs, expenses and
disbursements, as and when incurred, of investigating, preparing or defending
any such action, suit, proceeding or investigation (whether or not in connection
with litigation in which Consultant is a party), directly or indirectly, caused
by, relating to, based upon, arising out of or in connection with (a)
Consultant's acting for the Company or any subsidiary thereof, including,
without limitation, any act or omission by Consultant in connection with its
acceptance of or the performance or non-performance of its obligations under the
consulting agreement dated January 15, 1999, between The WellCare Management
Group, Inc. and J. Papa & Associates, as it may be amended from time to time
(the "Agreement"), or (b) any Transaction (as such term is defined in the
Agreement) or (b) any Transaction; provided, however, such indemnity agreement
shall not apply to any portion of any such loss, claim, damage, obligation,
penalty, judgment, award, liability, cost, expense or disbursement to the extent
it is found in a final judgment by a court of competent jurisdiction (not
subject to final appeal) to have resulted primarily and directly from the gross
negligence or willful misconduct of Consultant.
These Indemnification Provisions shall be in addition to any liability
which the Company may otherwise have to Consultant or the persons indemnified
below in this sentence and shall extend to the following: Joseph R. Papa &
Associates and its affiliated entities, directors, officers, employees, legal
counsel, agents and controlling persons (within the meaning of the federal
securities laws). All references to the Consultant in these Indemnified
Provisions and in Section 1(c) of the Agreement shall be understood to include
any and all of the foregoing.
Exhibit 10.63a
SURRENDER AND ACCEPTANCE OF LEASE
---------------------------------
SURRENDER AND ACCEPTANCE dated as of May 11, 1999, between RECKSON
OPERATING PARTNERSHIP, L.P. A Delaware limited partnership having an office at
660 White Plains Road, Tarrytown, New York 10591 (hereinafter referred to as
"Landlord"), WELLCARE DEVELOPMENT, INC., a New York Corporation having an
address at 660 White Plains Road, Tarrytown, New York 10591 (hereinafter
referred to as "Tenant"), and THE WELLCARE MANAGEMENT GROUP, INC., a New York
corporation having an address at 660 White Plains Road, Tarrytown, New York
10591 (hereinafter referred to as the "Guarantor").
R E C I T A L S:
----------------
WHEREAS, Landlord and Tenant entered into an Agreement of Lease (the
"Original Lease"), fully executed on or about December 19, 1997, for the lease
of 10,079 rentable square feet of space (the "Demised Premises") on the first
(1st) floor of the building located at 660 White Plains Road, Tarrytown, New
York (the "Building"); WHEREAS, in order to induce Landlord to enter into the
Lease, the Guarantor executed and delivered for the benefit of Landlord, and its
successors and assigns, a Guaranty (the "Guaranty"), dated on or about December
15, 1997, whereby the Guarantor guaranteed the full and faithful performance of
all obligations of Tenant under the Lease;
WHEREAS, Tenant desires to surrender the Lease to Landlord and Landlord is
willing to accept such surrender upon the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises herein contained, and the
payments to be delivered to Landlord by Tenant pursuant to this Agreement, the
parties agree as follows:
1. Tenant hereby surrenders to Landlord as of June 15, 1999 (the "Surrender
Date") the Lease and the term and the estate thereby granted, together with the
premises therein described, to the extent and purpose that the estate of Tenant
in and to the premises covered by the Lease shall be wholly extinguished, and
that the term of the Lease shall expire as of such date in the manner and with
the same effect as if that were the date therein set for the expiration of the
term of the Lease. Accordingly, on or before the Surrender Date, Tenant shall
completely vacate and surrender the Demised Premises in broom clean condition in
accordance with all of the applicable provisions of Article 17 of the Lease.
2. Tenant and the Guarantor, jointly and severally, hereby represent,
warrant and covenant that (a) nothing has been done or suffered whereby the
Lease or the term of the estate thereby granted have been encumbered in any way
whatsoever; (b) Tenant owns the Lease and has good right to surrender the same;
and (C) no one other than Tenant has acquired, through or under Tenant, any
right, title or interest in or to the Lease or the term or estate thereby
granted or in or to the premises covered thereby.
3. Tenant and the Guarantor each hereby acknowledges and agrees that
Landlord has fully performed and observed all of the terms, covenants and
conditions under the Lease to be performed or observed on the part of Landlord
and that there exists absolutely no defense, right of offset, right of abatement
or other similar rights of Tenant under the Lease. Finally, Tenant and the
Guarantor each hereby releases Landlord, and its affiliates, agents, employees,
successors and assigns of and from all claims, demands, actions and causes of
action of every kind and nature whatsoever arising out of or in connection with
the Lease.
4. In consideration of Landlord accepting the surrender of the Lease, as
set forth herein, Tenant and the Guarantor, jointly and severally, covenant to
pay to Landlord the sum of Thirty-Two Thousand Seven Hundred Fifty-Six and
76/100 ($32,756.76) Dollars, payable in full upon their execution hereof (the
"Surrender Payment").
5. Upon (a) Landlord's timely receipt, and upon clearance, of the Surrender
Payment referenced in Section "4" above, and (b) Tenant fully surrendering and
vacating the Demised Premises (in the manner required under Section 1 hereof) no
later than the Surrender Date; TIME BEING OF THE ESSENCE, then Landlord does
hereby release (i) Tenant, its parent and sister corporations, affiliates,
agents, employees, successors and assigns of and from all claims, demands,
actions and causes of actions of every kind and nature whatsoever arising out of
or in connection with the Lease, (ii) the Guarantor and any subsidiary
corporations of and from all claims, demands, actions and causes of actions of
every kind and nature whatsoever arising out of or in connection with the
Guaranty and (iii) Tenant from its obligation to pay the installment of Rent
otherwise due for the month of June 1999.
6. Landlord hereby reserves all rights and remedies available to it under
the Lease, the Guaranty, at law, in equity or otherwise with respect to the
Lease and any default on the part of Tenant arising thereunder, except in the
event that both (a) Landlord has received timely payment of, and clearance of,
the Surrender Payment referenced in Section "4" above, and (b) Tenant has fully
vacated and surrendered the Demised Premises (in the manner set forth in Section
1 hereof) no later than the Surrender Date; TIME BEING OF THE ESSENCE. In the
event of the failure of either of the above conditions, the release made by
Landlord in Section "5" hereof shall be automatically void and of no force or
effect whatsoever, and Landlord shall be free to exercise any and all of the
rights and remedies referenced in the preceding sentence of this Section "6".
Without regard to any default in the timely payment of the Surrender Payment or
the exercise by Landlord of any such rights or remedies, Tenant hereby expressly
waives any and all rights or redemption with regard to the Lease and the Demised
Premises.
7. Again, provided Landlord has received timely payment (and clearance) of
the Surrender Payment and Tenant has fully vacated and surrendered the Demised
Premise (in the manner required under Section 1 hereof) on or before the
Surrender Date; TIME BEING OF THE ESSENCE, then Landlord shall, promptly, but no
later than June 20, 1999, following Tenant having so timely surrendered and
vacated the Demised Premises, return to Tenant the original of that certain
Standby Letter of Credit, dated December 22, 1997 (as may have been amended),
issued by M&T Bank as further security for the full and faithful performance of
the obligations of Tenant under the Lease.
8. Landlord, Tenant and the Guarantor hereby acknowledge and agree that it
is difficult, if not impossible, to accurately calculate the damages incurred or
to be incurred by Landlord in connection with the surrender and termination of
the Lease by Tenant, and that the Surrender Payment is a reasonable estimate of
such damages as of the date of this Agreement and constitutes good and valuable
consideration for the covenants and obligations of the parties hereto. However,
in the event of the failure by Tenant or Guarantor to fully and timely perform
any of their respective obligations under this Agreement, such estimate shall in
no manner be construed as a limitation upon, or waiver of, any damages of which
Landlord may be entitled to reimbursement or restitution from Tenant or the
Guarantor whose release by Landlord is made void and ineffective pursuant to the
terms of this Agreement as a result of such failure.
9. This Surrender and Acceptance Agreement may be executed in counterparts.
10. This represents the complete agreement of the parties hereto and may
not be amended except by written modification executed by the parties.
11. The provisions of this Agreement shall not be binding upon any party
hereto unless and until this Agreement has been executed by and delivered to al
parties hereto.
<PAGE>
IN WITNESS WHEREOF, this Surrender and Acceptance Agreement has been duly
executed by the parties hereto as of the day and year first above written.
RECKSON OPERATING PARTNERSHIP, L.P.
By: Reckson Associates Realty
Corp., its general partner
By: /s/ Salvatore Campofranco
-----------------------------
WELLCARE DEVELOPMENT, INC.
By: /s/ Mary Lee Campbell-Wisley
-----------------------------
THE WELLCARE MANAGEMENT GROUP
By: /s/ Craig S. Dupont
-----------------------------
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated January 29, 1997 (the "Employment Agreement"),
by and among THE WELLCARE MANAGEMENT GROUP, INC., a New York corporation with
its principal place of business at Park West/Hurley Avenue Extension, Kingston,
New York 12401 (the "Company"), and Mary Lee Campbell-Wisley, residing at 7
Normandy Court, West Hurley, New York 12491 (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company desires to employ the Employee and the Employee
desires to be employed by the Company.
WHEREAS, the Company desires to restrain the Employee from competing with
it.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants, and agreements herein contained, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties hereto, the parties hereto, intending to be
legally bound, agree as follows:
1. TERM OF EMPLOYMENT. The Company hereby agrees to employ the Employee,
and the Employee hereby accepts such employment with the Company, upon the terms
and conditions set forth in this Employment Agreement, for the period commencing
on the date hereof (the "Effective Date") and ending January 28, 2000 (the
"Expiration Date"), unless sooner terminated in accordance with the provisions
of Section 4 (such period being referred to herein as the "Employment Period").
2. EMPLOYEE'S RESPONSIBILITY AND PERFORMANCE.
2.1 During the Employment Period, the Employee shall serve in the capacity
of and hold the title of Executive Director of WellCare of New York, Inc. with
the primary responsibility to assist the President of WellCare of New York, Inc.
in managing and leading the day-by-day activities of the HMO operations of
WellCare of New York, Inc., a New York State certified health maintenance
organization and a wholly-owned subsidiary of the Company managed by the Company
(the "WellCare HMO"), and shall be subject to the supervision of, and shall have
such authority as is delegated to her by, the President/COO of the Company
consistent with such position. The President/COO of the Company may alter the
Employee's position through a promotion upon acceptance of the Employee. The
Employee hereby accepts such employment and agrees to undertake the duties and
responsibilities normally
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inherent in such position and such other duties and responsibilities as the
President/COO of the Company shall from time to time reasonably assign to her
consistent with such position.
2.2 During the Employment Period, the Employee shall devote her full
business time and attention to the discharge of her duties and responsibilities
hereunder and shall be based in Kingston, New York. The Employee agrees to abide
by the reasonable rules, regulations, instructions, personnel practices and
policies of the Company, and any reasonable changes therein which may be adopted
from time to time by the Company, as such rules, regulations, instructions,
personnel practices and policies may reasonably be applied to employees of the
Company.
2.3 During the Employment Period and for a period thereafter, as set forth
in Section 6.1, the Employee shall not compete with the Company, as specifically
provided for in Section 6.
3. COMPENSATION; BONUS; BENEFITS.
3.1 Salary. During the Employment Period, the Company shall pay the
Employee, in installments consistent with the Company's usual payroll practices,
an annual base salary of $145,000, which amount shall be subject to review as
provided in this Section 3.1. In the event that the Employee is, or is to be,
employed for less than a full payroll installment period, such installment of
the annual base salary shall be appropriately adjusted.
3.2 Stock Options.
(a) To provide the Employee with an incentive to become employed by
the Company, which incentive provides the Employee with a proprietary
interest in the Company through ownership of Common Stock, $.01 par value,
of the Company (the "Common Stock"), subject to the approval of the
Compensation Committee which is charged with administering the Company's
1993 Incentive and Non-Incentive Stock Option Plan (the "Plan"), which
approval the Company will recommend and use its best efforts to cause, and
subject to the execution and delivery of Stock Option Agreements (as such
term is defined herein), the Company shall grant Employee:
(i) promptly following the execution and delivery of this
Employment Agreement, the Company agrees to grant to the Employee a
five-year option under the Plan, to purchase 45,000 shares of Common
Stock hereunder at an exercise price equal to the closing sale price
of Common Stock on January 29,1997. Such options shall include both
incentive and non-incentive stock options, the exact number of
incentive options to be equal to ($100,000/per share exercise price of
the options) x3) with the
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balance of the options to be non-incentive options. Such options shall
have the terms and conditions set forth in the forms of incentive and
non-incentive stock option agreements annexed hereto as Exhibit
3.2(a)(i).
3.3 Benefits. As of the Effective Date and during the Employment Period,
the Employee shall be entitled to participate in the benefit programs available
to employees in senior management positions at the Company (the "Executive
Benefit Plans") from time to time in a manner and amount consistent with the
Company's employment policies in effect from time to time. Such Executive
Benefit Plans currently include those listed on Schedule 3.3. The Employee shall
be entitled to participate in, and receive the benefits of, any Executive
Benefit Plan as of the Effective Date, subject to any eligibility or waiting
periods with respect thereto.
(a) Life Insurance: A standard rated premium policy in the amount of
$362,500.00.
(b) Disability Insurance: In lieu of long-term disability insurance,
the Company will reimburse Employee the cost of employee's prior obtained
long term disability insurance throughout the term of her employment with
the Company, not to exceed $ 123.47 per month.
3.4 Vacation; Sick Leave. During the Employment Period, the Employee shall
be entitled to four (4) weeks paid vacation during each twelve-month period and
to sick leave as is consistent with the Company's employment policies in effect
from time to time.
3.5 Reimbursement of Expenses. The Company shall reimburse the Employee for
all reasonable expenses incurred or paid by the Employee in connection with, or
related to, the business of the Company and the performance of her duties,
responsibilities or services under this Employment Agreement, upon presentation
by the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may reasonably request.
3.6 Car Allowance. A company automobile. Lease payments of company
automobile are not to exceed $550.00 per month. Service of vehicle will be the
responsibility of Employee to obtain and maintain and shall be reimbursable by
WellCare according to company policy. Mileage incurred as a direct result of
travel on behalf of WellCare shall be reimbursable by WellCare at the rate of
$0.12 per mile.
3.7 Relocation Expenses. The Company shall pay the Employee a one time sum
of $__________ less applicable deductions, to reimburse employee for relocation
and moving expenses.
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4. EMPLOYMENT TERMINATION. The employment of the Employee by the Company
pursuant to this Employment Agreement may be terminated by the Company upon the
occurrence of any of the following:
4.1 Expiration of the Employment Period in accordance with Section 1.
4.2 At the election of the Company, for Cause, immediately upon written
notice by the Company to the Employee. For the purposes of this Section 4.2,
"Cause" for termination shall be deemed to exist solely in the event of:
(a) the Employee's engaging in any act, including but not limited to
any act of "Moral Turpitude" (as defined below), that is materially
damaging or detrimental to, the Company or any of its subsidiaries
(including WellCare of New York, Inc. ("WellCare-NY") and WellCare of
Connecticut, Inc. ("WellCare-CT")) or its affiliates, or the business or
reputation of the Company or any of its subsidiaries (including WellCare-NY
and WellCare-CT) or its affiliates;
(b) any material breach of the Employment Agreement by the Employee
which is not cured by the Employee (to the extent curable without adverse
effect on the Company) within 30 days after written notice by the Company
to the Employee setting forth a description of such material breach;
(c) the indictment of the Employee for any felony; or
(d) the neglect by the Employee in performing her material duties
under this Employment Agreement which is not cured by the Employee within
30 days after written notice by the Company to the Employee setting forth a
description of such neglect.
For purposes hereof, "Moral Turpitude" shall mean (A) a knowing breach or
violation of any applicable law, (B) a civil fraud or deceit, (C) a material
misstatement or omission of fact or (D) intentional misconduct.
4.3 At the election of the Company, without Cause, upon sixty (60) days'
prior written notice to the Employee.
4.4 Immediately upon the death or disability of the Employee. As used in
this Employment Agreement, "Disability" shall mean the complete inability to
perform the material services contemplated under this Employment Agreement for a
period of ninety (90) consecutive days or one hundred twenty (120) days in any
calendar year. A determination of Disability shall be made by a physician
satisfactory to the Company.
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<PAGE>
4.5 At the election of the Employee, for any reason, upon sixty (60) days'
prior written notice to the Company.
4.6 At the election of the Company upon ten (10) days' prior written notice
to the Employee, if pursuant to the regulations promulgated under Article 44 of
the new York Public Health Law, the New York State Department of Health
undertakes a character and competency review of the Employee as an officer of
the Company, in its capacity as the management contractor of WellCare of New
York, Inc. ("WellCare-NY"), and as a result of such review the Company receives
notice of a determination that the Employee is of unsatisfactory character,
competence or standing in the community.
5. EFFECT OF TERMINATION.
5.1 Termination by the Company for Cause or Termination by the Employee. In
the event the Employee's employment is terminated by the Company pursuant to
Section 4.2 or 4.5, the Company shall pay to the Employee the salary and
benefits otherwise payable to her under Section 3 through the last day of her
actual employment by the Company.
5.2 Termination by the Company Without Cause. In the event the Employee's
employment is terminated by the Company pursuant to Section 4.3:
(a) if within the period January 29, 1997 through January 28, 1998,
the Company shall pay to the Employee, nine months salary and maintain the
benefits otherwise payable to the Employee under Section 3.3 for a nine
month period, provided the Employee executes a full release of claims
against the Company
(b) if within the period January 29, 1998 through January 28,1999, the
Company shall pay to the Employee, six months salary and maintain the
benefits otherwise payable to the Employee under Section 3.3 for a six
month period, provided the Employee executes a full release of claims
against the Company;
(c) if within the period January 29, 1999 through October 31, 1999,
the Company shall pay to the Employee, three months salary and maintain the
benefits otherwise payable to the Employee under Section 3.3 for a three
month period, provided the Employee executes a full release of claims
against the Company;
5.3 Termination for Death or Disability. In the event that the Employee's
employment is terminated by the Company pursuant to Section 4.4, the Company
shall pay, in the case of the Employee's death, to the estate or designated
beneficiaries of the
5
<PAGE>
Employee, or, in the case of the Employee's Disability, to her legal
representatives, the salary and benefits to which the Employee would otherwise
be entitled under Section 3 through the last day of her actual employment.
5.4 Termination by the Company following the New York State Department of
Health's Non-approval of Character and Competency of the Employee. In the event
the Employee's employment is terminated by the Company pursuant to Section 4.6,
the Company shall pay to the Employee the salary and benefits otherwise payable
to her under Section 3 through the last day of her actual employment by the
Company.
6. NON-COMPETE
6.1 The Employee, whether as employee, partner, joint venturer, officer,
director, manager, consultant, advisor, owner (direct or indirect) of more than
one percent (1%) of the stock or equity interest of a corporation or other
entity or otherwise, shall not, during the Employment Period and for a period of
one (1) year after the Expiration Date:
(a) engage directly or indirectly in, or permit any entity controlled
by such person or entity to engage directly or indirectly in, any managed
health care or health insurance business or venture (including, without
limitation, a self-insured employer, insurer, employee welfare benefit
plan, health service corporation or other managed care payor organization,
a health maintenance organization, preferred provider organization,
physician- hospital organization or provider organization or network, a
third-party administrator, an independent practice association, a health
care alliance, a hospital or other health care facility, or another
individual or entity that, directly or indirectly, provides, finances,
manages or administers health care services) that is in competition with
any of the businesses carried on by the Company or any of its subsidiaries
or affiliates in (i) those areas within the State of New York where the
Company is engaged in the delivery of its products and services, or (II) in
the State of Connecticut; or
(b) recruit or otherwise solicit or induce any employee of the Company
or any of its subsidiaries (including WellCare-NY and WellCare-CT) or
affiliates to terminate her employment with, or otherwise terminate her
relationship with, the Company or any of its subsidiaries (including
WellCare-NY and WellCare-CT) or affiliates, as the case may be.
6.2 If any restriction set forth in this Section 6 is found by any court of
competent jurisdiction to be unenforceable because it extends for too long a
period of time, over too great a range of activities, in too broad a geographic
area or for any other reason, it shall be interpreted to extend only to the
maximum extent, whether period of time, range of activities, geographic area or
other terms, as to which it may be enforceable.
6
<PAGE>
7 PROPRIETARY INFORMATION
7.1 The Employee acknowledges that her relationship with the Company is one
of high trust and confidence and that in the course of her employment by the
Company she will have access to and contact with "Proprietary Information" (as
defined below). The Employee agrees that she will not (except in the performance
of her duties for the Company), during the Employment Period or at any time
thereafter, disclose, communicate or divulge, in whole or in part, to any
person, firm, corporation, association or other entity for any reason or purpose
whatsoever, or use for her benefit or the benefit of any such other person,
firm, corporation, association or entity, any Proprietary Information. For
purposes of this Employment Agreement, "Proprietary Information" shall mean (i)
any and all (A) methods, processes, manuals, trade secrets, know-how, inventions
and other proprietary information used by the Company or any of its subsidiaries
or affiliates in the conduct of their respective businesses, (B) software owned
or used by the Company or any of its subsidiaries or affiliates, and (C)
improvements, enhancements, modifications, updates and corrections with respect
to any of the foregoing, as and when same are released, (II) any and all
information, data, forms, policies, procedures, manuals, customer lists,
documents, files, surveys and materials of any kind created, owned or provided
by the Company or any of its subsidiaries or affiliates, (iii) any and all
information or data affecting or relating to the business or financial affairs
of, or other information relating to, the Company or any of its subsidiaries or
affiliates or any customer or client thereof (including, without limitation, the
names of its customers, prices and rates, and any health care information
pertaining to subscribers thereof), and (iv) any derivative works based on any
of the foregoing information, data or materials described in clauses (i) through
(iii) above.
7.2 The Employee's obligations under Section 7.1 shall not apply to any
information that:
(a) is or becomes known to the general public under circumstances
involving no breach by the Employee of the terms of Section 7.1;
(b) is generally disclosed to third parties by the Company without
restriction on such third parties; or
(c) is approved for release by written authorization of the Board;
provided, however, that a breach of any obligation under Section 7.1 shall
not be cured by the subsequent occurrence of any of the foregoing
exceptions.
7.3 Upon termination of this Employment Agreement or at any other time upon
request by the Company, the Employee shall promptly deliver to the Company all
Proprietary Information, including all records, files, memoranda, notes,
reports, price lists, customer lists, plans, tapes, computer diskettes and any
other documents (and all copies or
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reproductions of such materials in her possession or control) relating to the
business of the Company and its subsidiaries and affiliates.
8. INJUNCTIVE RELIEF. The restrictions contained in Sections 6 and 7 are
necessary for the protection of the business and goodwill of the Company and are
considered by the Employee to be reasonable for such purpose. The Employee
agrees that any breach or threatened breach of Sections 6 and 7 will cause the
Company substantial and irreparable damage and therefore, in the event of any
such breach, the remedies at law will be inadequate, and in addition to such
other remedies which may be available, the Company shall be entitled to
equitable remedies (including an injunction) and such other relief as a court
may deem appropriate. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies for such breach or threatened breach.
9. REPRESENTATIONS.
9.1 The Employee hereby represents to the Company that she is legally
entitled to enter into this Employment Agreement and to perform the services
contemplated herein.
9.2 The Company hereby represents to the Employee that this Employment
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, moratorium, reorganization or other laws of general
applicability relating to or affecting the enforcement of creditors' rights.
10. NOTICES. All notices and communications hereunder shall be in writing
and shall be deemed to be duly given if delivered personally, mailed by
certified mail (return receipt requested) or sent by telecopier (confirmed
thereafter by certified mail) to the parties at the following addresses or such
other addresses as shall be specified by the parties by like notice:
if to the Company:
The WellCare Management Group, Inc.
Park West/Hurley Avenue Extension
Kingston, NY 12401
Attention: Joseph R. Papa, Chief Operating Officer
Telecopier Number: (914) 338-0566
if to the Employee:
Mary Lee Campbell-Wisley
7 Normandy Court
West Hurley, NY 12491
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Notice so given shall (in case of notice so given by certified mail) be
deemed to be given and received on the fifth calendar day after posting and (in
case of notice so given by telecopier or personal delivery) on the date of
actual transmission or (as the case may be) personal delivery.
11. INDEMNIFICATION. The Company agrees to indemnify the Employee with
respect to matters arising in connection with her employment by the Company to
the fullest extent permitted by the New York Business Corporation Law.
12. SETTLEMENT OF CONTROVERSY OR CLAIM. Any controversy or claim arising
out of or relating to this Employment Agreement, or breach thereof, shall be
settled by arbitration in accordance with the rules then obtaining of the
American Arbitration Association and the judgement on the award rendered may be
entered in any court having jurisdiction thereof. The prevailing party in any
such proceeding shall be entitled to reimbursement of its costs and expenses
(including reasonable attorney's fees) in connection with such proceedings.
13. ATTORNEYS' FEES AND COSTS. If any action at law or in equity is
necessary to enforce or interpret the terms of this Employment Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs, and
necessary disbursements in addition to any other relief to which he may be
entitled.
14. GOVERNING LAW. This Employment Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to conflict of laws provisions.
15. MISCELLANEOUS.
15.1 Assignment. The obligations of the Employee are personal and may not
be assigned by her.
15.2 Headings. The article and section headings of this Employment
Agreement are for convenience of reference only and shall not be deemed to alter
or affect provisions hereof.
15.3 Waivers. Neither the failure nor any delay on the part of either party
hereto in exercising any right, power or remedy hereunder shall operate as a
waiver thereof or preclude any further or other exercise thereof, or the
exercise of any other right, power or remedy. A waiver or consent given by
either party on any one occasion shall be effective only in that instance and
shall not be construed as a bar or waiver of any right on any other occasion.
15.4 Binding Effect. Subject to the provisions of Section 15.1, all the
terms and provisions of this Employment Agreement shall be binding upon and
inure to the benefit of and be enforced by the Company and the Employee and the
legal representatives of the
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<PAGE>
Employee and the Company and the respective successors and assigns of the
parties hereto. The Employment Agreement shall not run to the benefit of or be
enforceable by any person other than a party to this Employment Agreement and
subject to the provisions of Section 15.1, the successors, assigns and legal
representatives..
15.5 Entire Agreement. This Employment Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements and
understandings, whether written or oral, relating to the subject matter of this
Employment Agreement.
15.6 Validity. The invalidity, illegality, or unenforceability of any
particular provision of this Employment Agreement shall not affect any other
provisions hereof, and this Employment Agreement shall be construed in all other
respects as if such invalid, illegal, and unenforceable provisions were omitted.
15.7 Counterparts. This Employment Agreement may be executed in several
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
15.8 No Conflict. Each of the parties does hereby represent and warrant to
the other that nothing herein conflicts with or shall cause a default under any
document, agreement, instrument or other writing to which said party is a party
or by which said party is bound.
15.9 Publicity. Neither party shall have the right to disclose to third
parties the terms and conditions of this Employment Agreement, including its
existence, without the express prior written consent of the other party, except
as may be required by applicable law, including United States securities laws,
rules and regulations. Neither party shall originate any publicity, news release
or public announcement, written or oral, whether to the public or press,
stockholders or otherwise, relating to the terms of this Employment Agreement,
including its existence, the subject matter to which it relates, performance
under it, or any of the specific terms or conditions to any amendment hereto or
performance hereunder except such announcements as in the opinion of the counsel
for the party making such announcement are required by law. If a party decides
to make an announcement which it believes to be required by law with respect to
this Employment Agreement, it will give the other party such notice as is
reasonably practicable and an opportunity to comment upon the announcement.
15.10 Pronouns. Whenever the context may require, any pronouns used in this
Employment Agreement shall include corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
15.11 Amendment. This Employment Agreement may be amended or modified only
by a written instrument executed by both the Company and the Employee.
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15.12 Survival. The provisions contained in Sections 5 through 12 shall
survive any expiration or termination of this Employment Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year set forth above.
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Joseph R. Papa
--------------------------------
Joseph R. Papa, President/COO
Date:
------------------------------
EMPLOYEE
/s/ Mary Lee Campbell-Wisley
-----------------------------------
Mary Lee Campbell-Wisley
Date:
------------------------------
11
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Schedule 3.3 to
Employment Agreement
EXECUTIVE BENEFIT PLANS*
Vacation: Twenty (20) days per calendar year
Company Paid Holidays: Ten (10) days per calendar year
Sick Time: Five (5) days per calendar year
Personal Time: Five (5) days per calendar year
Health Insurance: Full family coverage provided through
WellCare of New York, Inc.
Auto Allowance: $550.00 per month.
Mileage: For business-related use of Company
automobile, mileage is reimbursed at the rate
of $0.12 per mile.
Dental Insurance: Available the first of the month following
the completion of six (6) months of
employment through The Guardian. Employee
shares with WellCare the cost of coverage as
follows:
Single Coverage: $2.31 per biweekly payroll
Employee and Spouse: $11.37 per biweekly payroll
Employee and Child/Children: $9.92 per biweekly payroll
Family Coverage: $18.98 per biweekly payroll
401(k) Profit Sharing Plan and Trust:
Available the first of the month following
the completion of twelve (12) months of
employment and one thousand (1,000) hours of
work.
*Please also refer to The WellCare Management Group, Inc. Personnel Policy and
Practice Manual.
12
Exhibit 10.69a
Amendment to Employment Agreement
Between The WellCare Management Group, Inc. (Company)
And Mary Lee Campbell-Wisley (Employee) Dated January 29, 1997
WHEREAS this Amendment to said Employment Agreement is hereby made this 16th day
of February 1999;
WHEREAS all paragraphs of said Employment Agreement not amended herein are
hereby reaffirmed;
WHEREAS as of February 16, 1999 said Employment Agreement is hereby amended as
follows:
Replace paragraph 2.1 of the Employment Agreement in its entirety with the
following:
2.1 During the Employment Period, the Employee shall serve in the capacity of
and hold the title of Executive Director, President, Chief Executive Officer,
and Chief Operating Officer of WellCare of New York, Inc., a New York State
certified health maintenance organization and a wholly-owned subsidiary of the
Company managed by the Company (the "WellCare HMO"), and shall be subject to the
supervision of, and shall have such authority as is delegated to her by the
Boards of Directors of the Company and WellCare HMO (the "Boards") or such
designee(s) as the Boards may from time to time determine consistent with such
position. The Employee hereby accepts such employment and agrees to undertake
the duties and responsibilities normally inherent in such position and such
other duties and responsibilities as the Boards shall from time to time
reasonably assign to her consistent with such position. Employee agrees to serve
on the Boards during the Employment Period, provided that she is proposed and
elected.
Replace paragraph 3.1 of the Employment Agreement in its entirety with the
following:
3.1 Salary. During the Employment Period, the Company shall pay the Employee, in
installments consistent with the Company's usual payroll practices, an annual
base salary of $190,000, which amount shall be subject to review as provided in
this Section 3.1. 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.
You also shall be entitled to a $47,500 stay bonus (the "Stay Bonus") due on
September 1, 1999, provided on such date you are then employed by the Company
under this Agreement.
Replace paragraph 15.5 of the Employment Agreement in its entirety with the
following:
15.5 Entire Agreement. This Employment Agreement, as amended by the Amendment
dated February 16, 1999, constitutes the entire agreement between the parties
and supersedes all prior agreements and understandings, whether written or oral,
relating to the subject matter of this Employment Agreement.
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Craig S. Dupont
-----------------------
Craig S. Dupont, Acting President/CEO
EMPLOYEE
/s/ Mary Lee Campbell-Wisley
----------------------------
Mary Lee Campbell-Wisley
November 5, 1997
Mr. Thomas A. Curtin
12 Stoney Stream Lane
Littleton, MA 01460
Dear Mr. Curtin:
I am writing to outline the terms of your employment by The WellCare
Management Group, Inc. ("WellCare" or the "Company") as Vice President of Sales
and Marketing, effective September 24, 1997. This offer of employment is
contingent, of course, upon your successful completion of all facets of
WellCare's pre-employment screening process. If you accept our offer, and any
part of the screening process proves unsatisfactory to WellCare, we reserve the
right to rescind any outstanding offer of employment or terminate your
employment without notice or severance benefits.
1. Your employment by WellCare is "at-will" and may be terminated by either
you or WellCare at any time, for any reason. In the event you exercise your
rights under this paragraph 1 to terminate your employment, you shall provide
ninety (90) days prior written notice to the Company. You will abide by and be
subject to all WellCare policies and procedures, including those contained in
the WellCare Employee Manual as may be amended from time to time at the sole
discretion of WellCare.
2. Your base salary will be $140,000 per annum payable in periodic
installments in accordance with WellCare's regular payroll practices. You are
expected to devote your full time and best efforts to your work for WellCare.
3. You will be eligible to receive an annual bonus. From the commencement
of your employment through December 31, 1997, the maximum achievable bonus shall
be $5,000. Commencing January 1, 1998, the maximum achievable annual bonus shall
be $20,000, payable in arrears on a quarterly basis. The issuance and amount of
your bonus shall be determined at the sole discretion of the President and/or
Chief Executive Officer of the Company based upon objective performance criteria
including, without limitation, your recruitment of new salespersons; opening new
markets; developing new products; creating and implementing new advertising
campaigns; and creating and implementing a specific goal- oriented plan.
You will be eligible to receive an annual incentive payment at the sole
discretion of the President and/or the Chief Executive Officer of the Company.
From the commencement of your employment through December 31, 1997, the annual
incentive payment shall be payable at the sole discretion of the President
and/or Chief Executive Officer of the Company and the maximum achievable
incentive payment shall be $10,000. Commencing January 1, 1998, you will be
eligible to receive an annual incentive payment equal to one half of one percent
of the net increase to revenue derived from commercial members, payable as
follows: one half on a quarterly basis in arrears and the balance within sixty
(60) days of the close of the calendar year in which the incentive payment was
earned.
<PAGE>
In order to be eligible to receive bonuses or incentive payments as set
forth above, you must be employed by WellCare on the date such payments are to
be made. In the event of the termination of your employment for any reason, you
will not be eligible to receive a bonus or incentive payment hereunder.
4. You will report to the President and/or Chief Executive Officer of the
Company or such other person of appropriate rank and authority as WellCare may
designate.
5. In the event that you are terminated without cause (as defined in
paragraph 6 below) on or before September 23, 1998 (during the first year of
employment), you shall receive an amount equal to one (1) year's base salary
payable in the same periodic installments as your base salary was paid during
employment. In the event that you are terminated without cause after September
23, 1998, you shall receive an amount equal to six (6) months' base salary
payable in the same periodic installments as your base salary was paid during
employment. Any payments made to you pursuant to this paragraph are contingent
upon your execution of appropriate waivers and releases required of you by
WellCare at that time. If your employment is terminated, whether by the Company
or by you, for reasons other than those described above in this paragraph 5, you
shall have no right to receive any compensation or benefit hereunder on and
after the effective date of termination other than (i) base salary earned and
accrued on and after the effective date of termination; (ii) benefits, vacation,
and options earned and accrued prior to the effective date of termination,
subject to the terms of the plans applicable thereto.
6. For purposes of this letter agreement, "cause" means (i) a conviction or
plea of guilty or nolo contendere to a felony, a crime of moral turpitude,
dishonesty, breach of trust or unethical business conduct, or any crime
involving the business of the Company; (ii) violation of Company policy or
procedure; (iii) in the performance of your duties hereunder or otherwise to the
detriment of the company, you engage in (A) willful misconduct, (B)willful or
gross neglect, (C) fraud, (D) misappropriation, (E) embezzlement and (F) theft;
(iv) you disobey the directions of your supervisor or otherwise fail to meet the
reasonable performance standards required of your position as determined by the
Company or its President and/or CEO; (v) you breach this Agreement in any
respect; (vi) you are adjudicated in any civil suit, or acknowledge in writing
in any agreement or stipulation, the commission of any theft, embezzlement,
fraud, or other act of dishonesty involving any other person; or (vii) engage in
any act that is materially damaging or detrimental to the Company business or
reputation of the Company.
7. Subject to the approval of, the Company's Compensation Committee,
WellCare shall grant in your favor, Incentive Stock Options ("ISOs") to purchase
25,000 shares of the Company's stock at $6.00 per share the market price of the
Common Stock on September 24, 1997, the date on which your employment commenced.
The ISOs herein described shall vest and be exercisable as follows: (i) five
thousand (5,000) shares upon commencement of employment; (ii) five thousand
(5,000) shares on the first anniversary of the date of employment; (iii) five
thousand (5,000) shares on the second anniversary of the date of employment;
(iv) five thousand (5,000) shares on the third anniversary of the date of
employment; (v) five thousand (5,000) shares on the fourth anniversary of the
date of
<PAGE>
employment. The term of the ISOs shall be 5 years.
In the event of a Change in Control (as defined in a formal stock option
plan) the unvested portion of the ISOs shall automatically accelerate and you
shall have the right to exercise all or any portion of the same. Upon
termination of your employment with WellCare, the unvested portion of the
subject options shall automatically terminate and you shall have three (3)
months to exercise those options which have vested. You will be required to sign
WellCare's standard Option Agreement (copy attached).
8. You will be eligible for a $550-per-month car allowance plus
reimbursement for expenses in connection with the use of the vehicle in
accordance with WellCare policy applicable to other similarly situated
employees, as may be amended from time to time at the sole discretion of
WellCare.
9. You will be eligible to participate in Company-sponsored employee
benefit plans as such are available to other employees of similar rank and
authority in accordance with the benefit plans rules, subject to the Company's
right to amend and/or terminate such plans in its sole discretion. In addition,
the Company agrees for a period of three (3) months commencing on the date of
your employment (i) to pay for individual health care coverage for you and (ii)
to reimburse you for COBRA payments for your family.
10. All confidential information that you may now possess, may obtain
during or after your employment with WellCare or may create during your
employment with WellCare, and all other information relating to the business of
WellCare or of any affiliated entity of WellCare, shall not be published by you,
disclosed or made accessible by you to any other person, firm, corporation or
entity or otherwise used by you either during or after your employment, except,
during your employment, in the business of and for the benefit of WellCare. You
shall return all tangible evidence of such confidential information, and all
other information relating to the business of WellCare or of any affiliated
entity of WellCare, to WellCare prior to or at the termination of employment
hereunder.
11. The Company will pay for the actual cost of moving your personal
belongings, i.e., furniture, etc., from your present home in Littleton,
Massachusetts to Kingston, New York. You will provide the Company with at least
two bids for the actual cost of relocation and the same will be subject to
approval by the Company, which will not unreasonably withhold consent.
Additionally, for a period of three months from the date of your commencement of
employment and subject to reasonable prior approval of WellCare, the Company
shall reimburse you for the actual cost of a furnished apartment/hotel in the
Kingston, New York area where you will reside pending a permanent relocation of
you and your family to Kingston. In the event that you voluntarily resign within
six months of your commencement of employment, you will be required to reimburse
the Company for all relocation costs it has incurred.
12. The "Restricted Period" means during the term of your employment by the
Company and during the 12 months following the date upon which you shall cease
to be an employee of the Company. During and after the Restricted Period, you
agree to provide the
<PAGE>
Company, upon its reasonable request for same, with assurances that you are not,
directly or indirectly, disclosing or using any confidential or proprietary
information of the Company, except for the sole benefit of the Company.
You, whether as employee, partner, joint venturer, officer, director,
manager, consultant, advisor, owner (direct or indirect) of more than one
percent (1%) of the stock or equity interest of a corporation or other entity,
shall not, during the Restricted Period engage directly or indirectly in, or
permit any entity controlled by you to engage directly or indirectly in, any
managed health care or health insurance business or venture (including, without
limitation, a self-insured employer, insurer, employee welfare benefit plan,
health service corporation or other managed care payor organization, a health
maintenance organization, preferred provider organization, physician-hospital
organization or provider organization or network, a third-party administrator,
an independent practice association, a health care alliance, a hospital or other
health care facility, or another individual or entity that, directly or
indirectly, provides, finances, manages or administers health care services) in
the current or "filed" service areas of WellCare of New York, Inc. or WellCare
of Connecticut, Inc. without the advanced written consent of the Company.
During the Restricted Period, you shall not, directly or indirectly,
solicit or induce, or attempt to induce, any employee, supplier, vendor,
customer and/or client of the Company to terminate, reduce or materially alter
their relationship with, or otherwise cease negotiations and/or business
activity with the Company.
You shall not publish any statement or make any statement under
circumstances reasonably likely to become public that is critical of the
Company, or in any way adversely affecting or otherwise maligning the reputation
of the Company.
The restrictions contained in this paragraph 12 are necessary for the
protection of the trade secrets, proprietary information and contractual
relationships of the Company, all of which Employee acknowledges has been or may
be disclosed to Employee while in the Company's employ, and are considered by
Employee to be reasonable for such purpose. You agree that any breach of this
paragraph shall cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, you agree that you shall forfeit
your right to receive the balance of any compensation due you which is not yet
earned and accrued under this offer letter (whether it be in the form of salary,
benefits, expenses or vacation), and in addition to any other remedies which may
be available, the Company shall have the right to seek specific performance and
injunctive relief.
If any court determines that any covenant in this offer letter is
unenforceable because of the duration or geographical scope of such provision,
the duration or scope of such provision, as the case may be, shall be reduced so
that such provision becomes enforceable and, in its reduced form, such provision
shall then be enforceable and shall be enforced.
13. This Agreement contains the entire agreement between the parties and
supersedes all prior agreements, written or oral, including that certain
memorandum from Jerry L. Kay to you dated August 19, 1997.
<PAGE>
14. This Agreement shall be governed by and construed in accordance with
the laws of New York without regard to principles of conflicts of law.
I will be grateful if you would indicate your agreement to these
arrangements by signing below.
Very truly yours,
/s/ Joseph R. Papa
-----------------------------
Joseph R. Papa, President/CEO
Agreed:
/s/ Thomas Curtin
- -------------------------
Thomas Curtin
Date:
--------------------
November 17, 1998
Adele B. Reiter, Esq.
PO Box 269
Hurley, NY 12443
Dear Ms. Reiter:
This letter agreement outlines the terms and conditions of your employment by
The WellCare Management Group, Inc. ("WellCare" or the "Company") as Vice
President of Legal and Governmental Affairs. You represent and warrant that you
are an attorney licensed to practice in New York State and in good standing in
all jurisdictions in which you are licensed as an attorney and that there are no
disciplinary or censure proceedings pending against you. You further represent
and warrant that you will advise the Company immediately in the event your
license is suspended or revoked in any jurisdiction or in the event a
disciplinary or censure proceeding is commended against you.
1. You will report directly to the President/CEO of the Company. Your duties
shall include, but not be limited to, supervision of the Legal Department,
Medicare, Medicaid and Child Health Plus Departments.
2. Your salary will be $5,000.00 per biweekly pay period ($130,000.00 on an
annualized basis), less applicable withholdings and deductions, payable in
accordance with WellCare's normal payroll practices. Your salary will be
reviewed annually and may be increased at the sole discretion of WellCare.
You will devote your full time and effort to the business affairs of
WellCare.
3. You will be eligible to receive a discretionary annual bonus. The issuance
and amount of this bonus, if any, is not guaranteed and shall be determined
at the sole discretion of WellCare. You must be actively employed by
WellCare on the day bonus payments are made to be eligible to receive a
bonus.
4. You will be eligible to participate in the benefit plans of the Company as
such are available to other employees of similar rank and authority,
including the Executive Life Insurance Plan and the Executive Long-Term
Disability Plan, in accordance with the terms of the applicable plan
documents, subject to the company's right to amend, modify and/or terminate
any or all of its benefit plans at any time in its sole discretion.
WellCare will provide you with and pay for the costs of Employed Lawyers
Professional Liability Insurance in a minimum of $2,000,000 during your
employment with the Company. You will also receive Continuing Legal
Education costs and professional society dues in the amount of $3,000 per
annum at the Company's expense to be paid by the Company throughout the
year upon presentation of enrollment forms or documentation of expenses.
1
<PAGE>
5. While employed by the company, the Company shall provide you with five (5)
weeks vacation time per annum, subject to the Company's policy regarding
accrual of vacation time. Any vacation time described in this Paragraph 5
may be taken at such times and in such period consistent with Company
policy and business necessity.
6. You will receive a monthly car allowance in the amount of $500.00, less
applicable withholdings and deductions, in accordance with the terms and
conditions of the Vehicle Allowance Policy. You are fully responsible for
having a reliable vehicle, in good running order, condition and appearance,
for work at WellCare. You are fully responsible for the monthly payments
that may be associated with this vehicle as well as other expenses,
including but not limited to maintenance, insurance, and gasoline. Mileage
incurred as a direct result of travel on behalf of WellCare shall be
reimbursable by WellCare in accordance with Company policy.
7. The Company shall reimburse you for all reasonable expenses incurred or
paid by you in connection with, or related to, the business of the Company
and the performance of your duties or responsibilities as described herein,
upon presentation of the appropriate documentation, expense statements,
vouchers and/or such other supporting information as the Company may
reasonably request.
8. Your employment shall be subject to the rules and regulations of the
Company, including but not limited to, the policies and procedures
contained in the WellCare policy and procedure manual, and subject to
WellCare's right to amend, modify and/or terminate any or all of its
policies and procedures at any time. You are also required to comply with
all applicable legal, regulatory, and ethical requirements.
9. This letter agreement is not a guarantee of employment for a specific
period of time. Your employment by the Company is (at will), which means
that either you or the Company may terminate your employment at any time,
for any reason. In the event you exercise your rights under this Paragraph
9 to terminate your employment with WellCare, you shall provide 30 days
prior written notice to the Company.
10. If your employment is terminated by the Company without Cause, as defined
below, you shall have no right to receive any compensation or benefits
hereunder on and after the effective date of termination other than (i) six
months' salary, at the rate in effect at the time of termination, less
applicable withholdings and deductions, payable biweekly, in accordance
with the Company's normal payroll practices, provided you execute a waiver
and release agreement prepared by WellCare at that time; (ii) continuation
of your group health and dental insurance coverage, pursuant to COBRA, if
eligible, at the active employee rate and Executive Life Insurance and
Long-Term Disability Plans, for a period of (a) 6 months from the date of
your termination of employment, provided you execute a waiver and release
agreement prepared by WellCare at that time; and (iii) salary and unused
vacation earned and accrued prior to the effective date of termination.
2
<PAGE>
11. If your employment is terminated by the Company for Cause, as defined
below, or you voluntarily resign your employment with the Company, you
shall have no right to receive any compensation or benefits hereunder on
and after the effective date of termination other than salary and unused
vacation earned and accrued prior to the effective date of termination. In
the event of your death or "disability", as defined in the Company's
Long-Term Disability Plan, you shall have no right to receive any
compensation or benefits hereunder after the last day of your active
employment with the Company, except that the Company shall pay to your
estate, designated beneficiaries, or legal representatives, as applicable,
salary and unused vacation earned and accrued as of your last day of active
employment with the Company.
12. For purposes of this Agreement, "Cause" means (i) the loss or suspension of
your license to practice law in any jurisdiction; (ii) a violation of any
disciplinary rule, standard or canon of professional ethics; (iii) a
conviction or plea of guilty or nolo contendere to a felony, a crime of
moral turpitude, dishonesty, breach of trust or unethical business conduct,
or any crime involving the business of the Company; (iv) a material
violation of Company policy or procedure; (v) in the performance of your
duties hereunder you engage in (A) willful misconduct, (B) willful or gross
neglect, (C) fraud, (D) misappropriation, (E) embezzlement or (F) theft;
(vi) you breach this Agreement in any material respect and fail to cure the
breach within 30 days of written notice by WellCare or; (vii) you are
adjudicated in any civil suit, or acknowledge in writing in any agreement
or stipulation, the commission of any theft, embezzlement, fraud, or other
act of dishonesty involving the Company.
13. All confidential information that you may now possess, may obtain during or
after your employment with WellCare or may create during your employment
with WellCare, and all other confidential information relating to the
business of WellCare or of any affiliated entity of WellCare, shall not be
published by you, disclosed or made accessible by you to any other person,
firm, corporation or entity or otherwise used by you either during or after
your employment, except, during your employment, in the business of and for
the benefit of WellCare.
14. The company agrees to indemnify you with respect to matters arising in
connection with your employment by the Company to the fullest extent
permitted by the New York Business Corporation Law.
15. This Agreement constitutes the entire understanding and contains a complete
statement of all the agreements between you and WellCare and supersedes all
prior to contemporaneous verbal or written agreements, understandings or
communication, including that certain Letter of Understanding between you
and WellCare Management Group, Inc. dated April 24, 1995, as amended. Any
subsequent agreement or representation shall not be binding on WellCare
unless contained in a writing signed by you and the President/CEO of the
Company.
3
<PAGE>
16. This Agreement shall be governed by, construed, interpreted and enforced in
accordance with the laws of the State of New York without regard to
principles of conflicts of law.
Please indicate your agreement to these arrangements by signing below.
Very truly yours,
/s/ Joseph R. Papa
---------------------------
Joseph R. Papa
President/CEO
Accepted & Agreed:
/s/ Adele B. Reiter, Esq.
- -------------------------
Adele B. Reiter, Esq.
Date:
--------------------
4
[LETTERHEAD OF THE WELLCARE MANAGEMENT GROUP, INC.]
December 1, 1998
Alan Bernstein, M.D.
29 Mountain Avenue
Larchmont, N.Y. 10538
Dear Dr. Bernstein:
This letter will confirm the terms of your employment by The WellCare
Management Group, Inc. ("WellCare" or the "Company") as Chief Medical Officer,
effective as of September 8, 1998.
1. Your employment by WellCare is "at-will" and may be terminated by either
you or WellCare at any time, for any reason, subject to the other terms and
conditions set forth in this Agreement. In the event you exercise your rights
under this paragraph 1 to terminate your employment, you shall provide sixty
(60) days prior written notice to the Company. In the event that your employment
is terminated by WellCare without cause, subject to the terms and conditions set
forth in this Agreement, WellCare may, in its sole discretion provide up to
sixty (60) days prior written notice of such termination to you, during which
time you shall remain in the employment of the Company to perform the duties and
responsibilities pursuant to the terms and conditions set forth herein. You will
abide by and be subject to all WellCare policies and procedures, including those
contained in the WellCare Employee Manual as may be amended from time to time at
the sole discretion of WellCare.
2. Your base salary will be $215,000 per annum payable in periodic
installments in accordance with WellCare's regular payroll practices. Your base
salary will be reviewed annually by the Compensation Committee of the Board of
Directors of WellCare (the "Compensation Committee") and any change in such
salary shall be within the sole discretion of the Compensation Committee.
Subject to paragraph 14, you will devote your full time and best efforts to your
work for WellCare.
3. In addition to your annual base salary, you shall be eligible for an
annual bonus for the applicable employment year, based upon performance, in an
amount not to exceed 20% of your then applicable annual base salary. After
September 8, 1999, the maximum percentage of the applicable annual base salary
may be reviewed annually by the Compensation Committee of the Company and may be
adjusted at the sole discretion of that Committee. The determination to pay such
bonus and the amount thereof, subject to the maximum amount set forth above,
shall be made in the sole discretion of the Compensation Committee. Specific and
objective performance standards shall be employed at the discretion of the
Compensation Committee.
<PAGE>
4. You also shall be entitled to a $50,000 retention bonus (the "Retention
Bonus") payable in two $25,000 installments, the first due on February 1, 1999
and the second due on August 1, 1999, provided on each such date you are then
employed by the Company under this Agreement or you are otherwise entitled to
the payment of such bonus under paragraph (6)a below. The amount of the
Retention Bonus shall be reduced dollar-for-dollar by any stay bonus you shall
have received from your prior employer on or before August 1, 1999. You shall
promptly notify WellCare of the receipt of any such stay bonus from your prior
employer and the amount thereof. In addition, if there is a Change of Control
(as defined in Exhibit A) of WellCare and your employment is terminated without
cause by WellCare thereafter but prior to August 1, 1999, the $50,000 Retention
Bonus shall become immediately due and payable to you upon such termination of
employment.
5. You will report directly to the President and/or Chief Executive Officer
of the Company. Your responsibilities shall include but not be limited to
quality improvement, case management, utilization review, physician and hospital
network development and provider relations. Upon appointment and ratification by
the WellCare of New York, Inc. Board of Directors, you shall serve as Medical
Director of WellCare of New York, Inc. Upon appointment and ratification by the
WellCare of Connecticut, Inc. Board of Directors you shall serve as Medical
Director of WellCare of Connecticut, Inc. You represent and warrant that you are
a physician licensed to practice medicine in the States of New York and
Connecticut and are in good standing in all jurisdictions in which you are
licensed as a physician and there is no disciplinary action or censure
proceedings pending against you. You further represent and warrant that you will
advise the Company immediately in the event your license is suspended or revoked
in any jurisdiction or in the event of a disciplinary action or censure
proceeding against you.
6. (a) If you terminate your employment based upon a default by WellCare
of its obligations under this Agreement that is not cured within thirty (30)
days following receipt of written notice from you describing such breach, you
shall be entitled to payment of the installments of the Retention Bonus as and
when due under paragraph 4.
(b) In addition, in the event that you are terminated by WellCare
without cause (as defined in paragraph 7 below) on or before September 7, 1999
(during the first year of employment), you shall receive an amount equal to nine
(9) months' base salary payable in the same periodic installments as your base
salary was paid during employment and, if the effective date of termination
shall be prior to August 1, 1999, you shall be entitled to the payment of any
remaining installments of the Retention Bonus, as and when payable under
paragraph 4.
<PAGE>
(c) In the event that you are terminated by WellCare without cause
during the period commencing September 8, 1999 and ending September 7, 2000, you
shall receive an amount equal to six (6) months' base salary payable in the same
periodic installments as your base salary was paid during employment.
(d) Any payments made to you pursuant to this paragraph are contingent
upon your execution of appropriate waivers and releases required of you by
WellCare at the time of termination of your employment.
(e) Subject only to WellCare's payment obligations under this
paragraph 6 (a) (b) or (c) you shall have no right to receive any compensation
or benefit hereunder on and after the effective date of termination of your
employment for any reason other than (i) base salary earned and accrued on and
after the effective date of termination; and (ii) benefits, vacation, and
options earned and accrued prior to the effective date of termination, subject
to the terms of the plans applicable thereto.
7. For purposes of this letter agreement, "cause" means (i) indictment for
a felony, dishonesty, breach of trust for unethical business conduct, or any
crime involving the business of the Company; (ii) violation of Company policy or
procedure and failure to cure the violation within thirty (30) days of written
notice by WellCare; (iii) in the performance of your duties hereunder or
otherwise to the detriment of the Company, you engage in (A) willful misconduct,
(B) willful or gross neglect, (C) fraud, (D) misappropriation, (E) embezzlement
or (F) theft; (iv) your willful failure to perform reasonable responsibilities
and duties, (v) you breach this Agreement in any respect and fail to cure the
breach within thirty (30) days of written notice by WellCare; (vi) you are
adjudicated in any civil suit, or acknowledge in writing in any agreement or
stipulation, the commission of any theft, embezzlement, fraud, or other act of
dishonesty involving any other person; (vii) engage in any act that is
materially damaging or detrimental to the Company business or reputation of the
Company or (viii) the loss, suspension or censure of your license to practice
medicine in any jurisdiction.
8. During your employment in the discharge of your duties and
responsibilities hereunder, the CEO/President shall in his discretion, determine
at what place of business you shall perform your duties. The reasonable cost of
your lodging for two (2) nights per week in association with your working in the
Company's principal place of business in Kingston, New York will be reimbursed
by the Company. The Company will also reimburse you for the train or bus
commutation and related charges associated with commuting from your residence in
Larchmont, New York to Kingston, New York one day per week.
<PAGE>
9. Subject to the approval of, the Company's Compensation Committee,
WellCare shall grant in your favor, Incentive Stock Options ("ISOs") to purchase
40,000 shares of the Company's stock at $1.25 per share price of the Common
Stock on September 8, 1998, the date on which your employment commenced. The
ISOs herein described shall vest and be exercisable as follows: (i) thirteen
thousand three hundred (13,300) shares on the first anniversary of the date of
employment; (ii) thirteen thousand three hundred (13,300) shares on the second
anniversary of the date of employment; and (iii) thirteen thousand four hundred
(13,400) shares on the third anniversary of employment. The term of the ISOs
shall be 5 years.
In the event of a Change in Control (as defined in Exhibit A hereto) during
your employment, the unvested portion of the ISOs shall automatically accelerate
and you shall have the right to exercise all or any portion of the same. Upon
termination of your employment with WellCare, the unvested portion of the
subject options shall automatically terminate. You may exercise your options to
the extent then exercisable during the term of your employment and for three (3)
months thereafter, but in no event after September 7, 2003. You will be required
to sign WellCare's standard Option Agreement (copy attached).
10. You will be eligible for a car allowance and/or reimbursement for
expenses in connection with the use of the vehicle in accordance with WellCare
policy applicable to other similarly situated employees, as may be amended from
time to time at the sole discretion of WellCare.
11. You will be eligible to participate in Company-sponsored employee
benefit plans as such are available to other employees of similar rank and
authority in accordance with the benefit plans rules, subject to the Company's
right to amend and/or terminate such plans in its sole discretion. In addition,
subject to the prior written consent of WellCare's Chief Executive Officer,
which consent shall not be unreasonably withheld, you will be entitled to attend
two CME meetings relevant to your specialty each twelve month period of your
employment and such costs shall be paid by the Company. In the event that you
are required by any governmental agency to maintain State licenses to practice
medicine in order to perform your duties as Chief Medical Officer for the
Company, you shall be reimbursed for the cost to obtain such licenses provided,
however, you shall have first obtained the written consent of WellCare's Chief
Executive Officer, which consent shall not be unreasonably withheld. Finally,
all professional society dues relevant to your specialty will be paid by the
Company with prior written consent of WellCare's Chief Executive Officer, which
consent shall not be unreasonably withheld.
12. All confidential information that you may now possess, may obtain
during or after your employment with WellCare or may create during your
employment with WellCare, and all other information relating to the business of
WellCare or of any other affiliated entity of
<PAGE>
WellCare, shall not be published by you, disclosed or made accessible by you to
any other person, firm, corporation, or entity or otherwise used by you either
during or after your employment, except, during your employment, in the business
of and for the benefit of WellCare. You shall return all tangible evidence of
such confidential information, and all other information relating to the
business of WellCare or of any affiliated entity of WellCare, to WellCare prior
to or after termination of employment hereunder.
13. The Company will pay for the actual cost (not to exceed $15,000) of
packing and moving your personal belongings, i.e., furniture, etc., from your
present home in Chicago, Illinois to Larchmont, New York. The Company will
receive at least two bids for the actual cost of relocation and the same will be
subject to approval by the Company, which will not unreasonably withhold
consent. Additionally, the Company shall reimburse you for the cost, if any,
incurred (not to exceed $7,500) in the event that you are unable to take
possession of your home in Larchmont, New York on September 8, 1998.
14. The Company recognizes that you have expressed a desire to engage in
part-time clinical work related to your specialty. If the performance of your
duties and responsibilities is deemed sufficient by WellCare's Chief Executive
Officer to allow for time to be set aside for said clinical work and be
reasonably compensated accordingly, the opportunity to engage in said clinical
work will not be unreasonably withheld.
15. The "Restricted Period" means during the term of your employment by the
Company and, if your employment is terminated by WellCare without cause, during
the period, if any, that WellCare shall make payments under paragraph 6(b) or
(c). During and after the Restricted Period, you agree to provide the Company,
upon its reasonable request for same, with assurances that you are not, directly
or indirectly, disclosing or using any confidential or proprietary information
of the Company, except for the sole benefit of the Company.
During the Restricted Period you agree not to engage directly or
indirectly, in any managed healthcare, health insurance or other business
venture or enterprise that is in competition with any of the businesses
conducted by the Company in those areas where the company is engaged in the
delivery of its products and/or services. Additionally, you shall not recruit or
otherwise solicit or induce any other employee of the Company to terminate
employment with the company during the term of employment, including one year
thereafter.
You shall not publish any statement or make any statement under
circumstances reasonably likely to become public that is critical of the
Company, or in any way adversely affecting or otherwise maligning the reputation
of the Company.
<PAGE>
The restrictions contained in this paragraph 15 are necessary for the
protection of the trade secrets, proprietary information and contractual
relationships of the Company, all of which you acknowledge has been or may be
disclosed to you while in the Company's employ, and are considered by you to be
reasonable for such purpose. You agree that any breach of this paragraph shall
cause the Company substantial and irrevocable damage and therefore, in the event
of any such breach, you agree that you shall forfeit your right to receive the
balance of any compensation due you which is not yet earned and accrued under
this offer letter (whether it be in the form of salary, benefits, expenses or
vacation), and in addition to any other remedies which may be available, the
Company shall have the right to seek specific performance and injunctive relief.
16. If any court determines that any covenant in this offer letter is
unenforceable because of the duration or geographical scope of such provision,
the duration or scope of such provision, as the case may be, shall be reduced so
that such provision becomes enforceable and, in its reduced form, such provision
shall then be enforceable and shall be enforced.
17. This Agreement contains the entire agreement between the parties and
supersedes all prior agreements, written or oral, including that certain
memorandum from Jerry L. Kay to you dated July 12, 1998.
18. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law.
I will be grateful if you would indicate your agreement to these
arrangements by signing below.
Very truly yours,
/s/ Robert W. Morey, Jr.
------------------------
Robert W. Morey, Jr.
Agreed: /s/ Alan B. Bernstein
------------------------
Alan Bernstein, M.D.
Date: 1/17/99
------------------------
<PAGE>
EXHIBIT A TO ALAN BERSTEIN EMPLOYMENT AGREEMENT
WITH THE WELLCARE MANAGEMENT GROUP, INC. (THE
"AGREEMENT")
For purposes hereof, a "Change of Control" of the Company shall mean such
time as:
a. Any Person or "group" (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other
than the Principal Shareholders or The 1818 Fund II, L.P., is or becomes
the beneficial owner, directly or indirectly, of outstanding shares of
capital stock of the Company, entitling such Person or Persons to exercise
50% or more of the total votes entitled to be cast at a regular or special
meeting, or by action by written consent, of shareholders of the Company
(the term "beneficial owner" shall be determined in accordance with Rule
13d-3, promulgated by the Securities Exchange Commission under the Exchange
Act);
b. A majority of the Board shall consist of Persons other than
Continuing Directors. The term "Continuing Director" shall mean any member
of the Board on September 8, 1998 and any other member of the Board who
shall be recommended or elected to succeed or become a Continuing Director
by a majority of Continuing Directors who are then members of the Board;
c. The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or similar
transaction, in each case, with respect to which all or substantially all
the Persons who were the respective beneficial owners of the outstanding
shares of capital stock of the Company immediately prior to such
recapitalization, reorganization, merger or consolidation, beneficially
own, directly or indirectly, less than 50% of the combined voting power of
the then outstanding shares of capital stock of the Company resulting from
such recapitalization, reorganization, merger, consolidation or similar
transaction;
d. The shareholders of the Company shall have approved of the sale or
other disposition of all or substantially all the assets of the Company in
one transaction or in a series of related transactions;
e. Immediately after any merger, consolidation, recapitalization or
similar transaction, the Principal Shareholders (A) shall have increased
the aggregate percentage of the outstanding shares of capital stock of the
Company they beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity surviving
such transaction is a corporation, the Principal Shareholders' ownership in
the new entity shall have increased by 10% or more of their aggregate
percentage of ownership of the Company immediately prior to the
transaction) and (B) shall be the beneficial
<PAGE>
owners directly or indirectly, of outstanding shares of stock of the
Company (or any Person surviving such transaction) entitling them
collectively to exercise 50% or more of the total voting power of shares of
capital stock of the Company (or the surviving Person in such transaction)
and, in anticipation of, in connection with or as a result of, such
transaction, the Company (or such surviving Person) shall have incurred or
issued additional Indebtedness such that the total Indebtedness so incurred
or issued equals at least 50% of the consideration payable in such
transaction; provided, however, that any such transaction shall not be
considered a Change of Control if the holders of Notes shall have
participated therein on no less than a pari passu basis (assuming
conversion of all such holders' Notes into Conversion Shares) with the
Principal Shareholders;
f. The shareholders of the Company approve any transaction (or if no
such approval is required, upon the occurrence of any transaction) the
result of which is that the Common Stock shall no longer be required to be
registered under Section 12 of the Exchange Act and that the holders of
shares of Common Stock do not receive common stock of the Person surviving
such transaction that is required to be registered under Section 12 of the
Exchange Act; or
g. The Company ceases to be the beneficial owner, directly or
indirectly, of the outstanding shares of capital stock of WellCare of New
York, Inc., entitling the Company to exercise 50% or more of the total
votes entitled to be cast at a regular or special meeting, or by action by
written consent of the shareholders of WellCare of New York, Inc.
For purposes of this Agreement (a) "Conversion Shares" shall mean the
Common Stock issued or issuable upon the conversion of the Notes; (b)
"Indebtedness" shall mean as to any Person (i) all obligations of such Person
for borrowed money (including without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (ii) all obligations evidenced by notes,
bonds, debentures or similar instruments, (iii) all obligations to pay the
deferred purchase price of property or services, except trade accounts payable
and accrued liabilities arising in the ordinary course of business, (iv) all
interest rate and currency swaps and similar agreements under which payments are
obligated to be made, whether periodically or upon the happening of a
contingency, (v) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (vi) all obligations under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (vii) all indebtedness secured
by any lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is non-recourse to the credit of that Person, and (viii) any contingent
obligation of the foregoing; (c) "Notes" shall mean the 8.0% Subordinated
Convertible Notes due December 31, 2002 of the Company; (d) "Person" shall mean
<PAGE>
any individual, partnership, corporation, business trust, joint stock company,
trust, unincorporated association, joint venture, or other entity of whatever
nature; and (e) "Principal Shareholders" shall mean Edward A. Ullman and Robert
W. Morey.
[LETTERHEAD OF THE WELLCARE MANAGEMENT GROUP, INC.]
December 1, 1998
Mr. Craig S. Dupont
41 Chew St.
North Haven, CT 06516
Dear Mr. Dupont
I am writing to confirm the terms of your employment by The WellCare
Management Group, Inc. ("WellCare" or the "Company") as Chief Financial Officer,
effective May 1, 1998.
1. Your employment by WellCare is "at-will" and may be terminated by either
you or WellCare at any time, for any reason subject to the terms and conditions
contained in this Agreement, including but not limited to those set forth in
paragraph 4. In the event that you exercise your rights under this paragraph 1
to terminate your employment, you shall provide one hundred and ninety (90) days
prior written notice to the Company. You will abide by and be subject to all
WellCare policies and procedures, including those contained in the WellCare
Employee Manual as may be amended from time to time at the sole discretion of
WellCare.
2. Your base salary will be $150,000 per annum payable in periodic
installments in accordance with WellCare's regular payroll practices. Your base
salary will be reviewed annually by the Compensation Committee of the Board of
Directors of WellCare and any change in such salary shall be within the sole
discretion of the Compensation Committee. You will devote your full time and
best efforts to your work for WellCare.
3. You will report to the President and/or Chief Executive Officer of the
Company or such other persons of appropriate rank and authority as WellCare may
designate.
4. In the event that you are terminated without cause (as defined in
paragraph 6 below) on or before May 15, 2000 (during the first two years of
employment), you shall receive an amount equal to six (6) months' base salary
payable in the same periodic installments as your base salary was paid during
your employment. Any payments made to you pursuant to this paragraph are
contingent upon your execution of appropriate waivers and releases required of
you by WellCare at that time. If your employment is terminated, whether by the
Company or by you, for any reasons other than that described in this paragraph
4, you shall have no right to receive any compensation or benefit hereunder on
and after the effective date of termination other than (i) base salary earned
and accrued on and after the effective date of termination; (ii) benefits,
vacation, and options earned and accrued prior to the effective date of
termination, subject to terms of the plans applicable thereto.
5. For purposes of this letter agreement, "cause" means (i) indictment for
a felony, dishonesty, breach of trust for unethical business conduct, or any
crime involving the business of
<PAGE>
Craig S. Dupont December 1, 1998 Page 1 i:\legal\hr\dupont.fin the Company; (ii)
violation of Company policy or procedure; (iii) in the performance of your
duties hereunder or otherwise to the detriment of the company, you engage in (A)
willful misconduct, (B) willful or gross neglect, (C) fraud, (D)
misappropriation, (E) embezzlement or (F) theft; (iv) you disobey the directions
of your supervisor or otherwise fail to meet the reasonable performance
standards required of your position as determined by the Company or its
President and/or CEO; (v) you breach this Agreement in any respect and fail to
cure the breach within thirty (30) days of written notice by WellCare; (vi) you
are adjudicated in any civil suit, or acknowledge in writing in any agreement or
stipulation, the commission of any theft, embezzlement, fraud, or any other act
of dishonesty involving any other person; or (vii) engage in any act that is
materially damaging or detrimental to the Company business or reputation of the
Company.
6. Subject to the approval of, the Company's Compensation Committee,
WellCare shall grant in your favor, Incentive Stock Options ("ISOs") to purchase
50,000 shares of the Company's stock at $1.91 per share the market price of the
Common Stock on May 13, 1998. The ISOs herein described shall vest and be
exercisable as follows: (i) ten thousand (10,000) shares on May 13, 1998 (date
of grant); (ii) ten thousand (10,000) shares on May 13, 1999; (iii) ten thousand
(10,000) shares on May 13, 2000; (iv) ten thousand (10,000) shares on May 13,
2001; (v) ten thousand (10,000) shares on May 13, 2002. The term of ISOs shall
be 5 years.
In the event of a Change of Control (as defined in Exhibit A) during your
employment, the unvested portion of the ISOs shall automatically accelerate and
you shall have the right to exercise all or any portion of the same. Upon
termination of your employment with WellCare, the unvested portion of the
subject options shall automatically terminate. You may exercise your options to
the extent then exercisable during the term of your employment and for three (3)
months thereafter, but in no event after April 30, 2003. You will be required to
sign WellCare's standard Option Agreement (copy attached).
7. You will be eligible for a car allowance and/or reimbursement for
expenses in connection with the use of the vehicle in accordance with WellCare
policy applicable to other similarly situated employees, as may be amended from
time to time at the sole discretion of WellCare.
8. You will be eligible to participate in Company-sponsored employee
benefit plans as such are available to other employees of similar rank and
authority in accordance with the benefit plans rules, subject to the Company's
right to amend and/or terminate such plans in its sole discretion. Effective
January 1, 1999, in lieu of the WellCare Connecticut Point of Service Plan,
WellCare will reimburse you the cost of family health insurance coverage up to
the amount of family coverage under the WellCare of Connecticut Plan.
9. All confidential information that you now possess, may obtain during or
after your employment with WellCare or may create during your employment with
WellCare, and all other information relating to the business of WellCare or of
any other affiliated entity of WellCare, shall not be published by you,
disclosed or made accessible by you to any other person, firm, corporation, or
entity or otherwise used by you either during or after your employment, except,
during your employment, in the business of and for the benefit of WellCare. You
shall return all tangible evidence of such confidential information, and other
information relating to the business of WellCare or of any affiliated entity of
WellCare prior to or after termination of employment hereunder.
10. The Company will pay for the actual cost of moving your personal
belongings, i.e. furniture, etc., from your present home in West Haven,
Connecticut to Kingston, New York. The Company will receive at least two bids
for the actual cost of relocation and the same will be subject to the approval
by the Company, which will not unreasonably withhold consent. Additionally, for
a period of four months from the date of your commencement of employment and
subject to reasonable prior approval of WellCare, the Company shall reimburse
you for the actual rent paid by you to your existing landlord should you be
responsible for the payment of rent after vacating your existing apartment and
pending the termination of the balance of the term of the subject lease, which
WellCare understands terminates August or September 1998. In the event that you
voluntarily resign within six months of your commencement of employment., you
will be required to reimburse the Company for all relocation costs it has
incurred.
11. The "Restricted Period" means during the term of your employment by the
Company and if you shall cease to be an employee of the Company prior to a
Change in Control (as defined in Exhibit A), during the six (6) months following
the date upon which your employment with the Company terminated. During and
after the Restricted Period, you agree to provide the Company, upon its
reasonable request for same, with assurances that you are not, directly or
indirectly, disclosing or using any confidential or proprietary information of
the Company, except for the sole benefit of the Company.
You, whether as employee, partner, joint venturer, officer, director,
manager, consultant, advisor, owner (direct or indirect) of more than one
percent (1%) of the stock or equity interest of a corporation or other entity,
shall not, during the Restricted Period engage directly of indirectly in, or
permit any entity controlled by you to engage directly or indirectly in, any
managed health care or health insurance business or venture (including, without
limitation, a self-insured employer, insurer, employee welfare benefit plan, a
health service corporation or other managed care payor organization, a health
maintenance organization, preferred provider organization, physician-hospital
organization or provider organization or network, a third-party administrator,
an independent practice association, a health care alliance, a hospital or other
health care facility, or another individual or entiry that, directly or
indirectly, provides finances, manages or administers health care services) in
the current or "filed" service areas of WellCare of New York, Inc. or WellCare
of Connecticut, Inc. without the advanced written consent of the Company.
During the Restricted Period, you shall not, directly or indirectly,
solicit or induce, attempt to induce any employee, supplier, supplier, vendor,
customer, and/or client of the Company to terminate, reduce or materially alter
their relationship with, or otherwise cease negotiations and/or business
activity with the Company.
You shall not publish any statement or make any statement under
circumstances reasonably likely to become public that is critical to the
Company, or in any way adversely affecting or otherwise maligning the reputation
of the Company.
The restrictions contained in paragraph 11 are necessary for the protection
of the trade secrets, proprietary information and contractual relationships of
the Company, all of which Employee acknowledges has been or may be disclosed to
Employee while in the Company's employ, and are considered by Employee to be
reasonable for such purpose. You agree that any breach of this paragraph shall
cause the Company substantial and irrevocable damage and therefore, in the event
of any such breach, you agree that you shall forfeit your right to receive the
balance of any compensation due you which is not yet earned and accrued under
this offer letter (whether it be in the form of salary, benefits, expenses or
vacations), and in addition to any other remedies which may be available, the
Company shall have the right to seek specific performance and injunctive relief.
If any court determined that any covenant in this offer letter is
unenforceable because of the duration of geographical scope of such provision,
the duration or scope of such provision, as the case may be, shall be reduced so
that such provision becomes enforceable and, in is reduced form, such provision
shall than be enforceable and shall be enforced.
12. This Agreement contains the entire agreement between the parties and
supersedes all prior agreements, written or oral, including that certain
memorandum from Jerry L. Kay to you dated April 26, 1998.
13. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflicts of
law.
<PAGE>
I would be grateful if you would indicate your agreement to these
arrangements by signing below.
Very truly yours,
/s/ Robert W. Morey, Jr.
-------------------------------
Robert W. Morey, Jr.
Agreed :/s/ Craig S. Dupont
-------------------
Craig S. Dupont
Date: December 1, 1998
-------------------
<PAGE>
EXHIBIT A TO CRAIG S. DUPONT EMPLOYMENT AGREEMENT
WITH THE WELLCARE MANAGEMENT GROUP, INC. (THE "AGREEMENT")
For purposes hereof, a "Change of Control" of the Company shall mean such
time as:
a. AnyPerson or "group" (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), other
than the Principal Shareholders or The 1818 Fund II, L.P., is or becomes
the beneficial owner, directly or indirectly, of outstanding shares of
capital stock of the Company, entitling such Person or Persons to exercise
50% or more of the total votes entitled to be cast at a regular or special
meeting, or by action by written consent, of shareholders of the Company
(the term "beneficial owner" shall be determined in accordance with Rule
13d-3, promulgated by the Securities Exchange Commission under the Exchange
Act);
b. A majority of the Board shall consist of Persons other than
Continuing Directors. The term "Continuing Director" shall mean any member
of the Board on May 15, 1998 and any other member of the Board who shall be
recommended or elected to succeed or become a Continuing Director by a
majority of Continuing Directors who are then members of the Board;
c. The shareholders of the Company shall have approved a
recapitalization, reorganization, merger, consolidation or similar
transaction, in each case, with respect to which all or substantially all
the Persons who were the respective beneficial owners of the outstanding
shares of capital stock of the Company immediately prior to such
recapitalization, reorganization, merger or consolidation, beneficially
own, directly or indirectly, less than 50% of the combined voting power of
the then outstanding shares of capital stock of the Company resulting from
such recapitalization, reorganization, merger, consolidation or similar
transaction;
d. The shareholders of the Company shall have approved of the sale
or other disposition of all or substantially all the assets of the Company
in one transaction or in a series of related transactions;
e. Immediately after any merger, consolidation, recapitalization or
similar transaction, the Principal Shareholders (A) shall have increased
the aggregate percentage of the outstanding shares of capital stock of the
Company they beneficially own, directly or indirectly, by 10% of such
outstanding shares of capital stock or more (or if the entity surviving
such transaction is a corporation, the Principal Shareholders' ownership in
the new entity shall have increased by 10% or more of their aggregate
percentage of ownership of the Company immediately prior to the
transaction) and (B) shall be the beneficial owners directly or indirectly,
of outstanding shares of stock of the Company (or any Person surviving such
transaction) entitling them collectively to exercise 50% or more of the
total voting power of shares of capital stock of the Company (or the
surviving Person in such transaction) and, in anticipation of, in
connection with or as a result of, such transaction, the Company (or such
surviving Person) shall have incurred or issued additional Indebtedness
such that the total Indebtedness so incurred or issued equals at least 50%
of the consideration payable in such transaction; provided, however, that
any such transaction shall not be considered a Change of Control if the
holders of Notes shall have participated therein on no less than a pari
passu basis (assuming conversion of all such holders' Notes into Conversion
Shares) with the Principal Shareholders;
f. The shareholders of the Company approve any transaction (or if no
such approval is required, upon the occurrence of any transaction) the
result of which is that the Common Stock shall no longer be required to be
registered under Section 12 of the Exchange Act and that the holders of
shares of Common Stock do not receive common stock of the Person surviving
such transaction that is required to be registered under Section 12 of the
Exchange Act; or
g. The Company ceases to be the beneficial owner, directly or
indirectly, of the outstanding shares of capital stock of WellCare of New
York, Inc., entitling the Company to exercise 50% or more of the total
votes entitled to be cast at a regular or special meeting, or by action by
written consent of the shareholders of WellCare of New York, Inc.
For purposes of this Agreement (a) "Conversion Shares" shall mean the
Common Stock issued or issuable upon the conversion of the Notes; (b)
"Indebtedness" shall mean as to any Person (i) all obligations of such Person
for borrowed money (including without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (ii) all obligations evidenced by notes,
bonds, debentures or similar instruments, (iii) all obligations to pay the
deferred purchase price of property or services, except trade accounts payable
and accrued liabilities arising in the ordinary course of business, (iv) all
interest rate and currency swaps and similar agreements under which payments are
obligated to be made, whether periodically or upon the happening of a
contingency, (v) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (vi) all obligations under leases which have been or should be, in
accordance with GAAP, recorded as capital leases, (vii) all indebtedness secured
by any lien on any property or asset owned or held by that Person regardless of
whether the indebtedness secured thereby shall have been assumed by that Person
or is non-recourse to the credit of that Person, and (viii) any contingent
obligation of the foregoing; (c) "Notes" shall mean the 8.0% Subordinated
Convertible Notes due December 31, 2002 of the Company; (d) "Person" shall mean
any individual, partnership, corporation, business trust, joint stock company,
trust, unincorporated association, joint venture, or other entity of whatever
nature; and (e) "Principal Shareholders" shall mean Edward A. Ullmann and Robert
W. Morey.
[LETTERHEAD OF THE WELLCARE MANAGEMENT GROUP, INC.]
February 11, 1999
Mr. Craig S. Dupont
41 Chew Street
North Haven, CT 06516
Dear Craig:
I am writing to confirm that effective January 16, 1999, your salary will be
increased from $150,000.00 to $200,000.00 per annum, subject to the ratification
of the Compensation Committee of The WellCare Management Group, Inc. This base
salary increase is to be effective commensurate with your additional title and
responsibilities as Acting President/Chief Executive Officer. You will report to
the Chairman of the Board of Directors of The WellCare Management Group, Inc.
Further, effective March 1, 1999, in lieu of family coverage with the WellCare
of Connecticut, Inc. Point of Service Plan, WellCare will reimburse you the cost
of family health insurance coverage.
The terms of your letter agreement dated December 1, 1998, will otherwise remain
in full force and effect.
I would be grateful if you would indicate your agreement to these arrangements
by signing below.
Very truly yours,
/s/ Robert W. Morey, Jr.
- ------------------------
Robert W. Morey, Jr.
Chairman
Agreed: /s/ Craig S. Dupont
------------------------
Craig S. Dupont
Date: Feb. 11, 1999
------------------------
Exhibit 10.74
June 9, 1999
{LETTERHEAD OF KEYBANK}
(Via Fax and Regular Mail)
Mary Lee Campbell-Wisley
President\CEO Wellcare of New York,Inc.
Corporate Headquarters
P.O. Box 4059
Kingston, New York 12402
Dear Mary Lee:
This is to memorialize the terms agreed to between KeyBank National
Association and KeyCorp Leasing Ltd. ("KeyBank"), Wellcare Management Group,
Inc., Wellcare of New York, Inc. and Wellcare Development, Inc. (collectively,
"Wellcare") and GHI HMO Select, Inc. ("GHI") to settle all of Wellcare's
obligations to KeyBank:
1. KeyBank will accept a lump-sum payment of $830,000.00 (the "Settlement
Amount") in full satisfaction of all of the equipment leases itemized in our
letter dated May 6, 1999, a copy of which is attached (the "Equipment Leases"),
provided the Settlement Amount is received by KeyBank by wire transfer or setoff
against funds on deposit at KeyBank, no later than 5:00 p.m. on June 11, 1999.
$515,148.95 of the Settlement Amount shall be paid by Wellcare in full
settlement of the amounts due under Equipment Leases 5849, 6025, 7375, 7654,
7962, 8408, 9255, 10510, 6391, 6614, 7754 and 10995 (the "Wellcare Leases");
$314,851.05 of the Settlement Amount shall be paid by GHI in full settlement of
the amounts due under Equipment Leases 6935, 7193, 10855, 10877 and 11340 (the
"GHI Leases").
2. With respect to the mortgage loans from Key Bank to Wellcare, Key Bank
will agree to exercise its rights only with respect to its collateral, and will
release Wellcare from personal liability for these loans (in other words, the
loans shall be treated as nonrecourse loans). Wellcare shall cooperate fully
with KeyBank with regard to KeyBank's collateral, and, without limiting the
generality of the foregoing, shall provide KeyBank with copies of any and all
appraisals and environmental studies or reports in its possession regarding the
mortgaged properties. Wellcare shall deliver deeds in lieu of foreclosure with
respect to the mortgaged properties, if so requested by KeyBank.
3. Upon receipt of the full Settlement Amount as provided for in P. "1",
above, KeyBank shall provide a bill of sale with respect to the equipment
covered by the Wellcare Leases to Wellcare and a bill of sale with respect to
the equipment covered by the GHI Leases to GHI, without representation or
warranty whatsoever and in the forms annexed hereto.
<PAGE>
Mary Lee Campbell-Wisley
June 9, 1999
Page 2
4. Upon receipt of the full Settlement Amount as provided for in P. "1",
above, KeyBank shall discontinue any and all legal actions pending against
Wellcare and shall take all actions needed to remove the restraints currently in
place with respect to Wellcare's depository accounts maintained with KeyBank. In
the event the Settlement Amount has not been received by KeyBank prior to June
9, 1999, Wellcare will consent to an extension of the aforesaid restraints,
until such time as the Settlement Amount has been received by KeyBank.
5. Upon receipt of the full Settlement Amount as provided for in P. "1",
above, KeyBank and Wellcare shall exchange releases in the forms annexed hereto.
6. Upon receipt of the full Settlement Amount as provided for in P. "1",
above, GHI shall commence leasing from Wellcare the entire premises commonly
known as 25 Barbarosa Lane, Ulster County, New York (the "GHI Property") at a
rate of $12.00 per square foot (based on 15,342 square feet), on a triple net
basis except that GHI shall not be required to pay the real estate taxes, for a
term of 90 days, with a right of GHI to renew the lease for an additional 90 day
term, with 60-day extensions thereafter, subject to termination by KeyBank or
GHI on 60 days notice to the other. GHI shall not be required to remediate or
repair any environmental conditions which existed on the subject property prior
to the date of this Letter Agreement; provided, however, that KeyBank shall
likewise have no such duty and shall not be liable to or required to indemnify
GHI or Wellcare in connection with any environmental conditions existing on the
subject property at any time. GHI's rental payments as set forth above shall be
paid in monthly installments of $15,342, on or before the first day of each
month (the pro-rated rent for June, 1999 shall be included with the payment due
on July 1, 1999), and shall be paid directly by GHI to KeyBank, pursuant to
KeyBank's rights as mortgagee and assignee of rents and leases with respect to
the GHI Property. GHI shall obtain and at all times maintain a fire and hazard
insurance policy with respect to the GHI Property in an amount not less than
$1,000,000 naming KeyBank as loss payee and in a form reasonably satisfactory to
KeyBank. GHI shall also maintain the premises in good repair (except for
conditions existing prior to the date of this Letter Agreement). GHI shall
immediately vacate the GHI Property in the event it fails to make a rental
payment within 10 days after it is due. The parties understand and acknowledge
that KeyBank's rights and interest in the GHI Property are that of a mortgagee
only. Wellcare and GHI will cooperate fully with KeyBank in the event KeyBank
elects to foreclose its mortgage or accept a deed in lieu of foreclosure with
respect to the GHI Property, and such cooperation shall include, without
limitation, if requested by KeyBank, an assignment of the lease described in
this paragraph to KeyBank or its designee. Any foreclosure, sale or other
transfer of the GHI Property shall be subject to GHI's rights as set forth in
this paragraph, and shall not disturb GHI's occupancy hereunder. Wellcare, GHI
and KeyBank shall act diligently, promptly and in good faith to enter into a
more detailed written agreement or agreements governing GHI's lease of the GHI
Premises, incorporating the terms set forth in this paragraph and such other
usual and customary terms and conditions as are appropriate. GHI shall
immediately vacate the GHI Property upon 60 days written notice from
<PAGE>
Mary Lee Campbell-Wisley
June 9, 1999
Page 3
KeyBank in the event GHI fails to execute such an agreement or agreements within
90 days from the date of this Letter Agreement, provided KeyBank has attempted
in good faith to enter into such an agreement(s).
7. Upon receipt of the full Settlement Amount as provided for in P. "1",
above, Wellcare shall continue to occupy the entire premises commonly known as
Park West Building One, Hurley Avenue Extension, Ulster County, New York (the
"Wellcare Property"), at a rate of $9.00 per square foot (based on 27,000 square
feet), with Wellcare responsible for the payment of utilities, maintenance and
repairs for a term of 90 days, with a month to month tenancy thereafter.
Wellcare's obligation hereunder to maintain and repair the Wellcare Property
shall not require Wellcare to remediate or repair any environmental conditions
which existed on the subject property prior to the date of this Letter
Agreement; provided, however, that KeyBank shall likewise have no such duty and
shall not be liable to or required to indemnify Wellcare in connection with any
environmental conditions existing on the subject property at any time.
Wellcare's use and occupancy payments as set forth above shall be paid in
monthly installments of $20,250, on or before the first day of each month (the
rent for June, 1999 shall be included with the payment due on July 1, 1999), and
shall be paid directly by Wellcare to KeyBank, pursuant to KeyBank's rights as
mortgagee and assignee of rents and leases with respect to the Wellcare
Property. Wellcare shall immediately vacate the Wellcare Property in the event
it fails to make a rental payment within 10 days after it is due. The parties
understand and acknowledge that KeyBank's rights and interest in the Wellcare
Property are that of a mortgagee only. Wellcare will cooperate fully with
KeyBank in the event KeyBank elects to foreclose its mortgage or accept a deed
in lieu of foreclosure with respect to the Wellcare Property. Any foreclosure,
sale or other transfer of the Wellcare Property shall be subject to Wellcare's
rights as set forth in this paragraph, and shall not disturb Wellcare's
occupancy hereunder. Wellcare and KeyBank shall act diligently, promptly and in
good faith to enter into a more detailed written agreement or agreements
governing Wellcare's use and occupancy of the Wellcare Premises, incorporating
the terms set forth in this paragraph and such other usual and customary terms
and conditions as are appropriate.
8. The provisions of P. P. "1" through "5" are all conditioned upon the
other, and the Settlement is expressly conditioned upon each of them occurring
as set forth above. The provisions of P. P. "6" and "7" are conditioned upon the
occurrence of each of the provisions P. "1", above.
Please note that the foregoing shall not be deemed an agreement on Key
Bank's part unless and until this letter is signed by each of the parties set
forth below (facsimile signatures and signatures in counterparts are acceptable.
Key Bank hereby reserves all of its rights, remedies and recourses pursuant to
the leases, loan documents and agreements with Wellcare, and under state law,
and shall not be deemed to have waived any such rights, remedies, or recourses,
unless and until this letter agreement is signed by each of the undersigned and
<PAGE>
Mary Lee Campbell-Wisley
June 9, 1999
Page 4
returned to Key Bank.
By signing below, each party acknowledges that the foregoing contains all
of the terms and conditions agreed to between the parties.
Thank you for your attention to this matter.
Very truly yours,
KEYBANK NATIONAL ASSOCIATION
By: /s/ Leslie A. Jones
----------------------------
Leslie A. Jones
Vice President
cc: Justin A. Heller, Esq.
Seth I. Truwit, Esq.
Sandip I. Patel, Esq.
WELLCARE MANAGEMENT GROUP, INC. WELLCARE OF NEW YORK, INC.
By: /s/ Craig S. Dupont By: /s/ Mary Lee Campbell-Wisley
--------------------------- ---------------------------------
Craig S. Dupont Mary Lee Campbell-Wisley
Its: Acting President and CEO Its: President and CEO
WELLCARE DEVELOPMENT, INC. GHI HMO SELECT, INC.
By: /s/ Craig S. Dupont By:/s/ Donna Lynne
--------------------------- ------------------------------
Craig S. Dupont Donna Lynne
Its: Acting President and CEO Its: Executive Vice President
Exhibit 10.76
STOCK PURCHASE AGREEMENT
------------------------
STOCK PURCHASE AGREEMENT (the "Agreement"), dated the 19th day of May,
1999, by and between KIRAN C. PATEL ("Purchaser"), and THE WELLCARE MANAGEMENT
GROUP, INC., a New York corporation (the "Company").
W I T N E S S E T H:
--------------------
WHEREAS, the Company is the owner of record and beneficial owner of all of
the outstanding capital stock of WellCare of New York, Inc., a New York
corporation certified to operate a health maintenance organization in certain
counties in the State of New York ("WellCare- NY"); WHEREAS, WellCare-NY is the
owner of record and beneficial owner of all of the outstanding capital stock of
WellCare of Connecticut, Inc., a Connecticut corporation certified to operate a
health maintenance organization in the State of Connecticut ("WellCare-CT");
WHEREAS, the Company desires to sell to Purchaser, and Purchaser desires to
purchase from the Company, for the sum of Five Million Dollars ($5,000,000),
shares of a newly authorized series of preferred stock of the Company on the
terms and subject to the conditions set forth herein (the "Series A Preferred
Stock"), as a result of which purchase Purchaser shall own and shall have the
immediate right to vote fifty-five percent (55%) of the outstanding voting stock
of the Company and such Series A Preferred Stock shall be convertible into
fifty-five percent (55%) of the outstanding shares of Common Stock, $.01 par
value per share (the "Common Stock") of the Company (after giving effect to any
shares issuable to any other holder of any outstanding series of preferred stock
of the Company and after the authorization of the number of additional shares of
Common Stock necessary to permit the conversion of the Series A Preferred Stock
into Common Stock as provided herein).
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Definitions. The following terms, as used herein, have the following
meanings: "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504 or any similar group defined under a similar provision of
state, local or foreign law.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, plan, occurrence, event, incident, action, failure
to act, or transaction of which the Company has Knowledge that could reasonably
be expected to form the basis for any specified consequence.
"Closing" has the meaning set forth in Section 2(d) below.
"Closing Date" has the meaning set forth in Section 2(d) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the common stock of the Company, par value $.01per
share.
"Class A Common Stock" means the Class A common stock of the
Company,$.01 per share.
"Company" means The WellCare Management Group, Inc., a New York
business corporation.
"Company's Disclosure Letter" has the meaning set forth in Section 3(a)
below.
"CHMI" means Comprehensive Health Management, Inc., a Florida
corporation.
"Consents" has the meaning set forth in Section 5(b) below.
"Controlled Group of Corporations" has the meaning set forth in Code
Section 1563.
"Debt" means any liability except accounts payable and accrued
liabilities arising in the Ordinary Course of Business.
"Deferred Intercompany Transaction" has the meaning set forth in
Treasury Regulation ss. 1.1502-13. "Distributed Assets" has the meaning set
forth in Section 5(d) below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement which is an Employee Pension
Benefit Plan, (b) qualified defined contribution retirement plan or arrangement
which is an Employee Pension Benefit Plan, (c) qualified defined benefit
retirement plan or arrangement which is an Employee Pension Benefit Plan
(including any Multi-Employer Plan), or (d) Employee Welfare Benefit Plan or
material fringe benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental Laws" means any federal, state or local environmental
law, ordinance, rule or regulation, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42
U.S.C. Section 9601 et seq.) as amended, the Hazardous Materials Transportation
Act (49 U.S.C. Section 1801 et seq.) as amended, the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.) as amended, and in the regulations
adopted and rules promulgated pursuant thereto
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Medical Waste Tracking Act of 1988, the U. S. Public Vessel Medical
Waste Anti-Dumping Act of 1988, the Marine Protection, Research and Sanctuaries
Act and Human Services, National Institute for Occupational Safety and Health,
Infections Waste Disposal Guidelines, Publication No. 88-119, each as amended,
together with all other laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder) of
federal, state, local and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases or threatened releases of medical wastes, pollutants, contaminants, or
chemical, industrial, hazardous or toxic materials or wastes into ambient air,
surface water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, or chemical, industrial, hazardous or
toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Loss Account" has the meaning set forth in Treasury Regulation
ss. 1.1502-19.
"Extremely Hazardous Substance" has the meaning set forth in Section
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statements" has the meaning set forth in Section 4(f) below.
"Fund" shall mean The 1818 Fund II, L.P.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Hazardous Materials" means any flammable explosives, radioactive
materials, hazardous materials, hazardous wastes, hazardous or toxic substances
or related or similar material, asbestos or any material containing asbestos, or
petroleum or any other substance or material of a type and in quantities
regulated by Environmental Law.
"HCFA" means the Health Care Financing Administration.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and the published rules and regulations thereunder.
"Knowledge" means actual knowledge of a Person.
"Liability" means any liability or obligation to pay money (whether
known or unknown, asserted or unasserted, absolute or contingent, accrued or
unaccrued, liquidated or unliquidated, and whether due or to become due),
including any liability for Taxes.
"Management Agreements" means the Management Agreements to be entered
into by and among WellCare-NY and WellCare-CT and CHMI and/or its successors and
assigns, in the forms attached hereto as Exhibit A.
"Material Adverse Effect" means any event, change or effect that,
individually or when taken together with all other such events, changes or
effects, is or could reasonably be expected (as far as can be foreseen at the
time) to be materially adverse to the business, assets, liabilities, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries taken as a whole, other than effects caused by changes in general
economic conditions or conditions generally affecting the types of businesses in
which the Company and its Subsidiaries are engaged.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
3(f) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section
3(f) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(f)
below.
"Multi-Employer Plan" has the meaning set forth in ERISA Section 3(37).
"Note" shall mean the promissory note by the Company to the Fund in the
amount of approximately Fifteen Million Dollars ($15,000,000).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Person" means any individual, partnership, corporation, association,
joint stock company, limited liability company, trust, joint venture,
unincorporated organization, or governmental entity (or any department, agency
or political subdivision thereof).
"Preferred Stock" means the preferred stock of the Company, $.01 par
value per share. "Prohibited Transaction" has the meaning set forth in ERISA
Section 406 and Code Section 4975.
"Purchase Price" has the meaning set forth in Section 2(a) below.
"Purchaser's Disclosure Letter" has the meaning set forth in Section 4
below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge or other security interest, other than (a) mechanics', materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, and (c) other liens
arising in the Ordinary Course of Business and not incurred in connection with
the borrowing of money.
"Series A Preferred Stock" means the series of preferred stock of the
Company being issued for sale to Purchaser under this Agreement, which preferred
stock shall be issued pursuant to the terms set forth on Exhibit B attached
hereto, which shall include but not be limited to the following: (i) automatic
conversion into shares of Common Stock equal to Fifty-Five percent (55%) of the
outstanding Common Stock of the Company upon the authorization of the increase
of the capital stock of the Company to Seventy-Five Million Shares (75,000,000);
(ii) no liquidation preference; and (iii) no dividend preference.
"Shares" means that number of shares of Series A Preferred Stock being
sold to
Purchaser under this Agreement.
"Statutory Net Worth" is defined by the New York statutes, rules and
regulations with respect to certified health maintenance organizations.
"Subsidiaries" shall have the meaning set forth in Rule 405 of the
Securities Act and shall include, with respect to the Company, without
limitation, WellCare Administration, Inc., WellCare-CT, WellCare-NY, WellCare
Development, Inc., WellCare Medical Management, Inc., WellCare Management
Corporation, and WellCare Foundation, Inc. (which is in the process of being
dissolved pursuant to Article 10 of the New York Not-for-Profit Corporation
Law).
"Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code Section
59A), customs duties, capital stock, franchise, profits, withholding, social
security (or similar), unemployment, disability, real property, personal
property, sales, use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any interest,
penalty or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to any Tax, including any schedule
or attachment thereto and any amendment thereof.
2. Purchase and Sale of Shares.
(a) Purchase and Sale. On and subject to the terms and conditions of
this Agreement, Purchaser agrees to purchase from the Company, and the Company
agrees to sell to Purchaser, the Shares. As set forth on Exhibit B attached
hereto regarding the terms of the Series A Preferred Stock, the Shares shall
have immediate voting rights equal to fifty-five percent (55%) of the
outstanding shares of Common Stock (after giving effect to the conditions set
forth in Sections 6(a)(vii), 6(a)(x) and 6(a)(xi) hereof and any conversion
rights pursuant thereto) of the Company, and the Shares shall be convertible
into fifty-five percent (55%) of the outstanding shares of Common Stock at the
time of conversion thereof (subject to the Section 2(b) hereof). For purposes of
the foregoing calculations only, the number of outstanding shares of Common
Stock shall include the Ten Million (10,000,000) shares of nonvoting common
stock issuable upon conversion of the Preferred Stock that is to be issued to
the Fund in satisfaction of the liabilities of the Company to the Fund under the
Note. The Purchaser acknowledges and agrees that as of the date of this
Agreement and as of the Closing Date there is not and there shall not be a
sufficient number of authorized shares of Common Stock to permit Purchaser to
convert the Shares into Common Stock, and that the charter of the Company must
be amended after the Closing to authorize such additional shares of Common Stock
as shall be necessary to permit Purchaser to convert the Shares into Common
Stock.
(b) Anti-Dilution of Shares. If the Company should either directly or
indirectly distribute, convey, sell or by any other means increase its
authorized, issued and outstanding shares, then Purchaser shall receive from the
Company those number of shares that would permit Purchaser to maintain his
ownership of fifty-five percent (55%) of the outstanding voting stock of the
Company. For purposes of this Section 2(b), the term "directly or indirectly"
includes, but is not limited to, stock sales, options, warrants, additional
public offerings, employee stock ownership options or plans, payment of shares
to creditors, bonuses of stock, or any other scheme or device to issue shares of
the Company. The terms of this Section 2(b) shall be applicable until
Seventy-Five Million (75,000,000) shares of capital stock of the Company being
authorized, issued or outstanding. Notwithstanding the foregoing sentence or
anything to the contrary set forth in this Agreement, after having given effect
to all of the transactions contemplated by this Agreement (including the
issuance of capital stock of the Company to the Purchaser and the Fund, the
conversion of any such stock and of the Class A Common Stock into Common Stock
or other capital stock of the Company, as applicable, and the post-Closing
authorization of the additional shares of Common Stock and other capital stock
necessary therefor, but excluding any issuance of capital stock of the Company
in connection with and in satisfaction of (i) outstanding claims payable by the
Company to any of its providers, (ii) any claims by any of the Company's
creditors, and (iii) any fee owed to Bear, Stearns & Co., Inc. by the Company),
if and to the extent the Company issues any shares of capital stock up to
Seventy-Five Million (75,000,000) shares and any such additional shares of
capital stock of the Company are issued for consideration less than or equal to
Fifty Cents ($0.50) per share (a "Below Value Issue"), Purchaser shall not be
issued such additional shares as are necessary to maintain his ownership of
fifty-five percent (55%) of the outstanding voting stock of the Company but
instead shall be issued such additional shares as will result in his ownership
being diluted by fifty percent (50%) of the shares issued in such Below Value
Issue.
(c) Payment of Purchase Price. At the Closing, Purchaser shall deliver
to the Company the sum of Five Million Dollars ($5,000,000.00) in certified or
other immediately available funds as payment for the Shares.
(d) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Epstein Becker &
Green, P.C., 250 Park Avenue, New York, New York 10177, commencing at 9:00 a.m.
local time on or before June 1, 1999, or such other date as Purchaser and the
Company may mutually determine (the "Closing Date"); provided, however, that the
Closing Date shall be no later than June 1, 1999.
(e) Deliveries at the Closing. At the Closing, (i) Purchaser will
deliver to the Company the various consideration, certificates, instruments and
documents referred to in Section 7(a) below, and (ii) the Company will deliver
to Purchaser the various consideration, certificates, instruments, and documents
referred to in Section 7(b) below.
3. Representations and Warranties of the Company. The Company represents
and warrants to Purchaser that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement with respect to the
Company, except as set forth in documents filed by the Company with the SEC on
or prior to the Closing Date hereof or the Company's Disclosure Letter executed
and delivered by the Company at or prior to the Closing (the "Company's
Disclosure Letter"). The Company's Disclosure Letter has been arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this Section 3.
(a) Organization, Qualification, and Corporate Power. The Company is a
business corporation duly organized, validly existing, and in good standing
under the laws of the State of New York. Each of its Subsidiaries are
corporations duly organized, validly existing and in good standing in their
respective states of incorporation. The Company and each of its Subsidiaries is
duly authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required, except where the failure
to so qualify would not have a Material Adverse Effect. The Company owns one
hundred percent (100%) of all the outstanding capital stock of each of its
Subsidiaries. There are no stock options, voting agreements, warrants,
shareholder agreements or other obligations with respect to its Subsidiaries and
its Subsidiaries' capital stock. Other than its Subsidiaries, the Company does
not own, directly or indirectly, any capital stock, equity interest or other
ownership interest in any corporation, partnership, association, joint venture,
limited liability company or other entity. The Company and each of its
Subsidiaries have full corporate power and authority and all licenses,
approvals, permits, and authorizations necessary to carry on the business in
which each of them is engaged and to own and use their respective properties.
The Company's Disclosure Letter lists each of the Company's Subsidiaries, along
with the directors and officers of the Company and each of its Subsidiaries. The
Company has delivered to Purchaser correct and complete copies of the charter
and bylaws of the Company and each of its Subsidiaries (as amended to date). The
minute books of the Company and each of its Subsidiaries (which contain the
records of meetings of the stockholders, the board of directors, and any
committees of the board of directors of the Company and the minute books of each
of its Subsidiaries) are correct and complete. The Company and its Subsidiaries
are not in violation of any provision of their respective charters or bylaws.
(b) Capitalization. The authorized capital stock of the Company
consists of 1,041,233 shares of Class A Common Stock, 20,000,000 shares of
Common Stock, and 1,000,000 shares of Preferred Stock, of which, as of May 6,
1999, 926,243 shares of Class A Common Stock, 6,673,149 shares of Common Stock,
and, subject to Section 6(a)(vii) hereof, no shares of Preferred Stock are
outstanding, and 14,266 shares of Common Stock are held as treasury stock. The
Series A Preferred Stock has not been authorized as of the date hereof. In
addition, Paragraph 3(b) of Company's Disclosure Letter describes all
outstanding options, warrants, voting trust or agreements, and any other items
which are or maybe applicable to any of the unissued, issued, or outstanding
capital stock of the Company or its Subsidiaries. Except as disclosed in
Paragraph 3(b) of Company's Disclosure Letter, there are no outstanding or
authorized stock appreciation, phantom stock, profit participation, voting
trusts, proxies, options, warrants, purchase rights, preemptive rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Company or the Subsidiaries to issue, sell or
otherwise cause to become outstanding any of its capital stock.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company (except that there is not and there
shall not be as of the Closing Date a sufficient number of shares of authorized
Common Stock to permit Purchaser to convert the Shares into Common Stock) or
(ii) conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice under any "put" right, agreement,
contract, lease, license, instrument or other arrangement to which the Company
is a party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets). The
Company is not required to give any notice to, make any filing with, or obtain
any authorization, consent or approval of any Person in order for the parties to
consummate the transactions contemplated by this Agreement, except for the
Consents. To the best of the Company's Knowledge, except for the Consents and
the authorization of the Series A Preferred Stock, no consent, approval, order
or authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the transactions contemplated
hereby.
(d) Brokers' Fees. The Company has no Liability or obligation to pay
any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Assets. The Company has good and marketable title to, or a
valid leasehold interest in, all of its properties and assets, free and clear of
all Security Interests, and has not sold, transferred, exchanged or conveyed any
of its properties and assets since the date of the Most Recent Balance Sheet
except for properties and assets disposed of in the Ordinary Course of Business.
(f) Financial Statements. Attached as collective Paragraph 4(f) to the
Company's Disclosure Letter are the following financial statements of the
Company (collectively the "Financial Statements"): (i) unaudited balance sheet
and statement of income, changes in stockholders' equity, and cash flow as of
and for the fiscal year ended December 31, 1998 (the "Most Recent Fiscal Year
End"); and (ii) unaudited balance sheet and statement of income, changes in
stockholders' equity, and cash flow (the "Most Recent Financial Statements") as
of March 31, 1999 (the "Most Recent Fiscal Month End"). The Financial Statements
(including the notes thereto) have been prepared in accordance with GAAP applied
on a consistent basis and in accordance with the books and records of the
Company, present fairly the financial condition of the Company and the results
of operations of the Company and its Subsidiaries for such periods and as of
such dates, and are correct and complete.
(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most
Recent Fiscal Year End and up to the date of this Agreement, there has not been
any Material Adverse Effect regarding the business, financial condition,
operations, results of operations, or future prospects of the Company. Without
limiting the generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred or assigned
any of its assets, tangible or intangible, other than for
fair consideration in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease or license (or series of related agreements,
contracts, leases, and licenses) involving more than
$50,000.00 (alone or in the aggregate) or outside the
Ordinary Course of Business;
(iii) no party (including the Company) has accelerated,
terminated, modified or canceled any agreement, contract,
lease or license (or series of related agreements,
contracts, leases, and licenses) involving more than
$50,000.00 (alone or in the aggregate) to which the
Company is a party or by which the Company or its
properties are bound;
(iv) the Company has not created, suffered or permitted to
attach or be imposed any Security Interest upon any of its
assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or
series of related capital expenditures) involving more
than $50,000.00 (alone or in the aggregate) or outside the
Ordinary Course of Business;
(vi) the Company has not made any capital investment in, loan
to, or acquisition of the securities or assets of any
other Person (or series of related capital investments,
loans and acquisitions) involving more than $50,000.00
(alone or in the aggregate) or outside the Ordinary Course
of Business;
(vii) the Company has not issued any note, bond or other debt
instrument or security, or created, incurred, assumed or
guaranteed any indebtedness for borrowed money or
capitalized lease obligation;
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the
Ordinary Course of Business;
(ix) the Company has not canceled, compromised, waived or
released any right or claim (or series of related rights
and claims) involving more than $50,000.00 (alone or in
the aggregate) or outside the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of
any rights under or with respect to any Intellectual
Property;
(xi) unless approved in writing by Purchaser, there has been no
change made or authorized in the charter or bylaws of the
Company;
(xii) except as set forth in this Agreement, unless approved in
writing by Purchaser, the Company has not issued, sold or
otherwise disposed of any of its capital stock, or granted
any options, warrants or other rights to purchase or
obtain (including upon conversion, exchange, or exercise)
any of its capital stock;
(xiii) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed,
purchased or otherwise acquired any of its capital stock;
(xiv) the Company has not experienced any damage, destruction or
loss (whether or not covered by insurance) to its
property;
(xv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers and
employees outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract
or collective bargaining agreement, written or oral, or
modified the terms of any existing such contract or
agreement outside the Ordinary Course of Business;
(xvii) with respect to any of its directors, officers and
employees, the Company has not: (1) granted any increase
in the base compensation; (2) adopted, amended, modified
or terminated any bonus, profit-sharing, incentive,
severance or other plan, contract or commitment for the
benefit thereof (or taken any such action with respect to
any other Employee Benefit Plan); or (3) made any other
change in employment terms;
(xviii)the Company has not made or pledged to make any charitable
or other capital contribution; and (xix) the Company has
not committed to any of the foregoing.
(h) Undisclosed Liabilities. The Company has no Liability, except for
(i) Liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto); (ii) Liabilities which have arisen in the Ordinary
Course of Business after the Most Recent Fiscal Month End and (iii) Liabilities
described in Paragraph 3(h) of the Company's Disclosure Letter (and, with
respect to each Liability described in items (i)-(iii) immediately above, none
of which results from, arises out of, relates to, is in the nature of, or was
caused by any breach of contract, breach of warranty, tort, malpractice or
infringement, or violation of law, except for any violation of law of which
Purchaser has Knowledge based on information provided to Purchaser by the
Company).
(i) Legal Compliance. The Company and its Subsidiaries have complied
with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local and foreign governments and all agencies thereof
(including but not limited to the New York and Connecticut Departments of
Insurance and Health, and HCFA), and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand or notice has been filed or
commenced against any of them alleging any failure so to comply.
(j) Tax Matters.
(i) The Company has filed all Tax Returns that it has been
required to file. All such Tax Returns are correct and
complete in all material respects. All Taxes owed by the
Company (whether or not shown on any Tax Return) have been
paid or accrued in the Financial Statements. The Company is
not the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file
Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests with respect
to any of the assets of the Company that have arisen in
connection with any failure (or alleged failure) to pay any
Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor,
stockholder or other third party.
(iii)There is no dispute or claim concerning any Tax Liability of
the Company either (A) claimed or raised by any authority in
writing or (B) as to which the Company has Knowledge.
Paragraph 3(j) of the Company's Disclosure Letter lists all
federal, state, local and foreign income Tax Returns filed
with respect to the Company for taxable periods ended on or
after December 31, 1992, indicates those Tax Returns that
have been audited, and indicates those Tax Returns that
currently are the subject of audit. The Company has
delivered to Purchaser correct and complete copies of all
examination reports in respect of the audit of any Tax
Return and statements of deficiencies assessed against or
agreed to by the Company since December 31, 1992.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with
respect to a Tax assessment or deficiency.
(v) The Company has not filed a consent under Code Section
341(f) concerning collapsible corporations. The Company has
not made any payment, is not obligated to make any payment,
or is not a party to any agreement that under certain
circumstances could obligate it to make any payments that
will not be deductible under Code Section 280G. The Company
has not been a United States real property holding
corporation within the meaning of Code Section 897(c)(2)
during the applicable period specified in Code Section
897(c)(1)(A)(ii). The Company has disclosed on its federal
income Tax Returns all positions taken therein that could
give rise to a substantial understatement of federal income
Tax within the meaning of Code Section 6662. The Company is
not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return or (B) has
no Liability for the Taxes of any Person (other than of the
Company under Treasury Regulationss.1.1502-6 or any similar
provision of state, local or foreign law), as a transferee
or successor, by contract or otherwise.
(vi) Paragraph 3(j) of the Company's Disclosure Letter sets forth
the following information with respect to the Company as of
the most recent practicable date: (A) the basis of the
Company in its assets; and (B) the amount of any net
operating loss, net capital loss, unused investment or other
credit, unused foreign tax, or excess charitable
contribution.
(vii)The Company has no Knowledge of any Basis for any authority
to assess any additional Taxes for any period for which Tax
Returns have been filed by the Company.
(k) Real Property. The Company shall not own any real property at the
time of the Closing, and has not executed and delivered or otherwise entered
into any contract to purchase any real property. Paragraph 3(k) of the Company's
Disclosure Letter lists and describes briefly all real property leased or
subleased to the Company. The Company has delivered to Purchaser correct and
complete copies of the mortgages, promissory notes, evidences of indebtedness,
leases and subleases listed in Paragraph 3(k) of the Company's Disclosure Letter
(as such have been amended to date). Prior to the Closing, the Company shall
have satisfied all indebtedness due with respect to any and all real property
and/or have transferred all real property back to the respective lenders by way
of deed-in-lieu or such other device and the Company shall have obtained full
releases of debt with respect thereto. With respect to each lease and sublease
listed in Paragraph 3(k) of the Company's Disclosure Letter, except as otherwise
set forth in such Paragraph of the Company's Disclosure Letter:
(i) to the best of the Company's Knowledge, the lease or
sublease is legal, valid, binding, enforceable, and in full
force and effect;
(ii) to the best of the Company's Knowledge, the lease or
sublease will continue to be legal, valid, binding,
enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated
hereby;
(iii)the Company, and, to the best of Company's Knowledge, no
other party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or
lapse of time, would constitute a breach or default or
permit termination, modification or acceleration thereunder;
(iv) the Company, and, to the best of Company's Knowledge, no
party to the lease or sublease has repudiated any provision
thereof;
(v) to the best of Company's Knowledge, there are no disputes,
oral agreements or forbearance programs in effect as to the
lease or sublease;
(vi) with respect to each sublease, the representations and
warranties set forth in subsections (i)-(v) above are true
and correct with respect to the underlying lease;
(vii)the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in
the leasehold or subleasehold;
(viii) all facilities leased or subleased thereunder have
received all approvals of governmental authorities
(including licenses, permits and certificates of need)
required in connection with the operation thereof and have
been operated and maintained in accordance with applicable
laws, rules and regulations; and
(ix) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the
operation of said facilities.
(l) Tangible Personal Property. The Company owns or leases all
machinery, equipment and other tangible assets necessary for the conduct of its
business as presently conducted. The Company has received with respect to all
such machinery and equipment all approvals of governmental authorities
(including licenses, permits and certificates of need) required in connection
with the operation thereof, and the same have been operated and maintained in
accordance with applicable laws, rules, and regulations
(m) Intentionally Omitted.
(n) Contracts. Paragraph 3(n) of the Company's Disclosure Letter lists
the following contracts and other agreements to which the Company is a party:
(i) any agreement (or group of related agreements) for the lease
of personal property to or from any Person providing for
lease payments in excess of $50,000.00 per annum;
(ii) any agreement (or group of related agreements) for the
purchase or sale of inventory, commodities, supplies,
products or other personal property, or for the furnishing
or receipt of services, the performance of which will extend
over a period of more than one year, result in a loss to the
Company, or involve consideration in excess of $50,000.00
(alone or in the aggregate);
(iii)any agreement concerning a partnership or joint venture in
which the Company or any of its Subsidiaries is a partner or
joint venturer;
(iv) any agreement (or group of related agreements) under which
the Company has created, incurred, assumed or guaranteed any
indebtedness for borrowed money, or any capitalized lease
obligation, in excess of $50,000.00 (alone or in the
aggregate), or under which the Company has imposed a
Security Interest on any of its assets, tangible or
intangible;
(v) any agreement concerning confidentiality or non-competition;
(vi) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other
plan or arrangement for the benefit of the Company's current
or former directors, officers and employees;
(vii) any collective bargaining agreement;
(viii) any agreement for the employment of any individual on a
full-time, part-time, consulting or other basis providing
annual compensation in excess of $50,000.00 (alone or in the
aggregate) or providing severance benefits;
(ix) any agreement under which the Company has advanced or loaned
any amount to any of its directors, officers and employees
outside the Ordinary Course of Business;
(x) any agreement the default or termination of which could have
Material Adverse Effect on the Company; or
(xi) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of
$50,000.00 (alone or in the aggregate).
The Company has delivered to Purchaser a correct and complete copy of
each written agreement listed in Paragraph 3(n) of the Company's Disclosure
Letter (as amended to date) and a written summary setting forth the terms and
conditions of each oral agreement referred to in Paragraph 3(n) of the Company's
Disclosure Letter. With respect to each such agreement, to the best of the
Company's Knowledge: (1) the agreement is legal, valid, binding, enforceable and
in full force and effect; (2) the agreement will continue to be legal, valid,
binding, enforceable and in full force and effect on identical terms following
the consummation of the transactions contemplated hereby; (3) no party is in
breach or default, and no event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification or
acceleration, under the agreement; and (4) no party has repudiated any provision
of the agreement.
(o) Notes and Accounts Receivable. All notes and accounts receivable of
the Company are reflected properly on its books and records, are valid
receivables subject to no setoffs or counterclaims except contractual
adjustments or discount arrangements with third-party reimbursers.
(p) Insurance. Paragraph 3(p) of the Company's Disclosure Letter sets
forth the following information with respect to each insurance policy (including
policies providing property, casualty, liability, medical malpractice, and
workers' compensation coverage and bond and surety arrangements) to which the
Company has been a party, a named insured, or otherwise the beneficiary of
coverage at any time within the past five (5) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are
calculated and operate) of coverage; and
(v) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy which has not been
terminated or expired prior to the date hereof, to the best of the Company's
Knowledge: (A) the policy is in full force and effect; and (B) neither the
Company nor any other party to the policy is in breach or default (including
with respect to the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration, under
the policy. The Company has been covered during the past five (5) years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. Paragraph 3(p) of the
Company's Disclosure Letter describes any self-insurance arrangements affecting
the Company.
(q) Litigation. Section 3(q) of the Company's Disclosure Letter sets
forth each instance in which either the Company (i) is subject to any
outstanding injunction, judgment, order, decree, ruling or charge; or (ii) is a
party, or its threatened to be made a party, to any action, suit, proceeding,
hearing or investigation of, in or before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign jurisdiction or
before any arbitrator, except for any such threatened action with respect to the
Company's non-compliance with the health maintenance organization laws, rules
and regulations of the States of New York and Connecticut or any of the
creditors of the Company (including, without limitation, any party to whom the
Company may have outstanding claims payable) of which Purchaser has Knowledge
based on information provided to the Purchaser by the Company.
(r) Employment and Labor Matters.
(i) To the best of the Company's Knowledge, there are no
collective bargaining agreements or other labor union agreements or
understandings to which the Company or any of its Subsidiaries is a party or by
which any of them is bound, nor is it or any of its subsidiaries the subject of
any proceeding asserting that it or any subsidiary has committed an unfair labor
practice or seeking to compel it to bargain with any labor organization as to
wages or conditions. Except as set forth in Paragraph 3(r) of the Disclosure
Letter, neither the Company nor any of its subsidiaries has encountered any
labor union organizing activity, or had any actual or threatened employee
strikes, work stoppages, slowdowns, lockouts, labor disputes, lawsuits,
administrative proceedings or representation questions and no such actions are
threatened at present.
(ii) The Company and its Subsidiaries have complied in all
material respects with all laws relating to the employment of labor, including
any provisions thereof relating to wages, hours, overtime, bonuses, severance
pay, benefits, COBRA, WARN, state and local equivalents to the WARN Act, Family
and Medical Leave Act, FLSA, state wage/hour laws, Americans with Disabilities
Act, Age Discrimination in Employment Act, collective bargaining, and the
payment of social security, unemployment compensation and similar taxes, and
neither the Company nor its Subsidiaries are liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing;
(iii) There are no charges, suits, actions, administrative
proceedings or investigations, and/or claims, instituted by or against, pending,
threatened against and/or affecting, naming or involving the Company or its
Subsidiaries, before any court, governmental agency, department, board of
instrumentality, or before any arbitrator concerning or in any way related to
the employees of the Company or its subsidiaries, including, without limitation,
actions involving unfair labor practices, wrongful discharge and/or any other
restriction on the right of the Company or its Subsidiaries to terminate their
respective employees, employment discrimination, occupational safety and health,
and workers' compensation;
(iv) There are no post-employment benefits, including but not
limited to retiree medical and retiree accidental death and disability benefits,
for current or former employees of Company or its Subsidiaries; and
(v) There are no express or implied agreements, policies,
practices or procedures, whether written or verbal, pursuant to which any
employee or agent or contractor of the Company or its Subsidiaries is not
terminable at will without cost to the Company or its Subsidiaries.
(s) Employee Benefits.
(i) Paragraph 3(s) of the Company's Disclosure Letter lists each
Employee Benefit Plan that the Company maintains or to which
the Company contributes:
(A) Each such Employee Benefit Plan (and each related
trust, insurance contract, or fund) complies in form
and in operation in all respects with the applicable
requirements of ERISA, the Code, and other applicable
laws.
(B) All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, PBGC-1's,
and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such
Employee Benefit Plan. The requirements of Part 6 of
Subtitle B of Title I of ERISA and of Code Section
4980B have been met with respect to each such Employee
Benefit Plan which is an Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions
and employee salary reduction contributions) which are
due have been paid to each such Employee Benefit Plan
which is an Employee Pension Benefit Plan and all
contributions for any period ending on or before the
Closing Date which are not yet due have been paid to
each such Employee Pension Benefit Plan or accrued in
accordance with the past custom and practice of the
Company. All premiums or other payments for all periods
ending on or before the Closing Date have been paid
with respect to each such Employee Benefit Plan which
is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee
Pension Benefit Plan meets the requirements of a
"qualified plan" under Code Section 401(a) and has
received, within the last two (2) years, a favorable
determination letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan
(other than any Multi-Employer Plan) equals or exceeds
the present value of all vested and nonvested
Liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an
Employee Pension Benefit Plan terminating on the date
for determination.
(F) The Company has delivered to Purchaser correct and
complete copies of the plan documents and summary plan
descriptions, the most recent determination letter
received from the Internal Revenue Service, the most
recent Form 5500 Annual Report, and all related trust
agreements, insurance contracts, and other funding
agreements which implement each such Employee Benefit
Plan.
(ii) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which it contributes,
ever has contributed, or ever has been required to
contribute:
(A) No such Employee Benefit Plan which is in Employee
Pension Benefit Plan (other than any Multi-Employer
Plan) has been completely or partially terminated or
been the subject of a Reportable Event as to which
notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee
Pension Benefit Plan (other than any Multi-Employer
Plan) has been instituted or threatened.
(B) There have been no Prohibited Transactions with respect
to any such Employee Benefit Plan. No Fiduciary has any
Liability for breach of fiduciary duty or any other
failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the
administration or the investment of the assets of any
such Employee Benefit Plan (other than routine claims
for benefits) is pending or threatened.
(C) The Company has not incurred, and neither the Company
nor the directors and officers (and employees with
responsibility for employee benefits matters) of the
Company has any reason to expect that the Company will
incur, any Liability to the PBGC (other than PBGC
premium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code
with respect to any such Employee Benefit Plan which is
an Employee Pension Benefit Plan.
(iii)The Company does not contribute to, has never contributed
to, and has not been required to contribute to any
Multi-Employer Plan or has any Liability (including
withdrawal Liability) under any Multi-Employer Plan.
(iv) The Company does not maintain, has never maintained, has
never contributed, and has not been required to contribute
to any Employee Welfare Benefit Plan providing medical,
health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their
spouses, or their dependents (other than in accordance with
Code Section 4980B).
(t) Guaranties. The Company is not a guarantor or is not otherwise
liable for any Liability or obligation (including indebtedness) of any other
Person.
(u) Environment, Health, and Safety.
(i) The Company and its Subsidiaries have complied with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
Without limiting the generality of the preceding sentence, the Company and their
respective Affiliates has obtained and been in compliance with all of the terms
and conditions of all permits, licenses, and other authorizations which are
required under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health, and Safety Laws.
(ii) The Company has no Liability for damage to any site,
location, or body of water (surface or subsurface), for any illness of or
personal injury to any employee or other individual, or for any reason under any
Environmental, Health, and Safety Law.
(iii) All properties and equipment used in the historical
business of the Company have been free of asbestos, PCB's, methylene chloride,
dioxins, dibenzofurans, trichloroethylene, 1,2-trans-dichloroethylene, and
Extremely Hazardous Substances.
(iv) The Company is not aware of any asbestos-containing
materials installed on any real property owned or leased by the Company, nor has
the Company received any notice from any governmental authority, landlord or any
third party alleging any violation of any Environmental Laws and the Company
does not use or store Hazardous Materials on its owned or leased real property,
except for reasonable quantities of cleaning and office supplies which are
maintained in accordance with laws.
(v) Healthcare Compliance. The Company has not perpetrated any
Medicare or Medicaid fraud or abuse nor has any government agency claimed that
the Company has committed any fraud or abuse within the last five (5) years. The
Company is participating in or otherwise authorized to receive reimbursement
from or is a party to Medicare, Medicaid and other third-party payor programs.
All necessary certifications and contracts required for participation in such
programs are in full force and effect and have not been amended or otherwise
modified, rescinded, revoked or assigned and, to the best of the Company's
Knowledge, no condition exists or event has occurred which in itself or with the
giving of notice or the lapse of time or both would result in the suspension,
revocation, impairment, forfeiture or non-renewal of any such third party payor
program. The Company is and, after the execution and delivery hereof and of the
Management Agreements, will be in full compliance with the requirements of all
such third party payor programs applicable thereto.
(w) Rates and Reimbursement Policies. The Company has no rate appeal
currently pending before any governmental authority or any administrator of any
third party payor program.
(x) Authorization of Transaction. The Company has all the requisite
legal capacity and, except as provided in Section 3(y), has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. Assuming the due execution and delivery hereof by the Purchaser, this
Agreement constitutes the valid and legally binding obligation of the Company,
enforceable in accordance with its terms, subject to applicable bankruptcy,
moratorium, insolvency and other laws affecting the rights of creditors and
general equity principles.
(y) Stockholder Approval Requirements. Except for the authorization
post- Closing of such number of additional shares of Common Stock as shall be
necessary to permit Purchaser to convert the Shares into Common Stock, no other
action by the stockholders of the Company is required to approve this Agreement
and the transactions contemplated hereby.
(z) The Company's SEC Filings. No document filed by the Company with
the SEC since December 31, 1995 contained a misstatement of a material fact or
failed to state a material fact required to be stated therein or necessary to
make the statements made therein in light of the circumstances under which they
were made not misleading as of the date such filing was made. The Company has
filed all documents required to be filed by it with the SEC since December 31,
1995, except for the Company's Annual Statement on Form 10-K for the year ended
December 31, 1998 and the Company's Quarterly Report on Form 10-Q for the
quarter ended March 30, 1999 which shall be filed with reasonable promptness by
the Company.
4. Representations and Warranties of Purchaser. Purchaser represents and
warrants to the Company that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement except as set forth in the
disclosure letter executed and delivered by Purchaser at or prior to the Closing
(the "Purchaser's Disclosure Letter"). Purchaser's Disclosure Letter shall be
satisfactory to the Company and its counsel and will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Section
4.
(a) Existence and Power.
(i) CHMI is duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization;
(ii) CHMI has the power and authority to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently, or is currently proposed to be, engaged; and
(iii) Purchaser and CHMI are in compliance with all requirements
of applicable law.
(b) Authorization; No Contravention. The execution, delivery and
performance by Purchaser of this Agreement and by CHMI of the Management
Agreements:
(i) are within Purchaser's and CHMI power and authority and has
been duly authorized by all necessary action;
(ii) will not violate, conflict with or result in any breach or
contravention of any contractual obligation of Purchaser or CHMI, or any order
or decree directly relating to Purchaser or CHMI.
(c) Binding Effect. This Agreement has been duly executed and delivered
by Purchaser, and this Agreement constitutes the legal, valid and binding
obligation of Purchaser enforceable against it in accordance with its terms.
(d) Purchase for Own Account. The Shares (including, for purposes of
this Section 4(d), the shares of Common Stock into which the Shares may be
converted) to be acquired by Purchaser pursuant to this Agreement are being
acquired by Purchaser for his own account and with no intention of distributing
or reselling such securities or any part thereof in any transaction that would
be in violation of the securities laws of the United States of America or any
state, without prejudice, however, to the rights of Purchaser at all times to
sell or otherwise dispose of all or any part of such securities under an
effective registration statement under the Securities Act, or under an exemption
from such registration available under the Securities Act, and subject,
nevertheless, to the disposition of Purchaser's property being at all times
within its control. If Purchaser should in the future decide to dispose of any
of such securities, Purchaser understands and agrees that he may do so only in
compliance with the Securities Act, the Securities Exchange Act, and applicable
state securities laws, as then in effect, and that stop-transfer instructions to
that effect, where applicable, will be in effect with respect to such
securities. If Purchaser should decide to dispose of any of such securities,
Purchaser will have the obligation in connection with such disposition, at
Purchaser's expense, of delivering an opinion of counsel of recognized standing
in securities law, in connection with such disposition to the effect that the
proposed disposition of such securities would not be in violation of the
Securities Act or any applicable state securities laws and, assuming such
opinion is required and is otherwise appropriate in form and substance under the
circumstances, the Company will accept, and will recommend to any applicable
transfer agent or trustee for any of such securities that it accept, such
opinion. Purchaser agrees to the imprinting, so long as required by law, of a
legend on all of such securities to the following effect: "THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
(e) Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees, or similar fees or commissions payable in connection
with the transactions contemplated hereby based on any agreement, arrangement or
understanding with Purchaser or any action taken by Purchaser.
5. Pre-Closing Covenants. The parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
(a) General. Each of the parties will use his or its best efforts to
take all action and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction of the closing conditions set forth in Section 6 below).
(b) Notices and Consents. The Company will give all notices to third
parties, and will use its best efforts to obtain all third-party consents and
authorizations, that may be required by law or the terms of any contract to
which the Company may be subject. Each of the parties will (and the Company will
cause its Subsidiaries to) give any notices to, make any filings with, and use
its best efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies required to consummate the transaction
contemplated by this Agreement, including, without limitation, those required
under : (i) the New York Business Corporation Act; (ii) the Securities Exchange
Act, including the filing of a Schedule 14D-9 by the Company and the filing of a
Schedule 13-D by Purchaser; (iii) the Health Maintenance Organization Acts of
the States of New York and Connecticut and the published rules and regulations
thereunder; (iv) Section 1876 of the Social Security Act, as amended, and the
published rules and regulations thereunder; (v) the Federal Employee Health
Benefits Program (5 U.S.C. Section 8901 et seq.) as amended; and (vi) the HSR
Act (items (i)-(vi) above being collectively referred to herein as the
"Consents").
(c) Operation of Business. The Company will not engage or permit any
officer, director or employee of the Company to engage in any practice, take any
action, or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing, the Company will not: (i)
declare, set aside, or pay any dividend or make any distribution with respect to
its capital stock or redeem, purchase or otherwise acquire any of its capital
stock; or (ii) otherwise engage in any practice, take any action, or enter into
any transaction that would violate any of the Company's representations and
warranties set forth in Section 3(g) above.
(d) Preservation of Business; Distribution of Assets. Unless Purchaser
agrees in writing and except as provided in this Agreement, the Company will
keep its properties substantially intact, including its present physical
facilities, working conditions, and relationships with lessors, licensors,
suppliers, patients and employees. The Company will, or will cause its
Subsidiaries, to sell, transfer, assign, convey, return, terminate (or permit
termination of), permit foreclosure upon, or otherwise distribute or dispose of
the following assets (the "Distributed Assets"), so that such Distributed Assets
are not assets or liabilities of the Company as of the Closing, except as agreed
by Purchaser at or prior to the Closing and as set forth on Schedule 5(d)
attached hereto:
(i) all real property;
(ii) all leases with respect to real property;
(iii) all tangible property leases; and
(iv) automobiles, aircraft and other vehicles.
(e) Full Access. The Company will permit representatives of Purchaser
to have full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Company, to all premises,
properties, personnel, books, records (including Tax records), contracts and
documents of or pertaining to the Company. In that regard, the Company will
cause the Company to permit the independent accountants for Purchaser to conduct
such audits of the financial statements of the Company as Purchaser shall elect
or be required to obtain, and shall cause the accounting personnel of the
Company to assist such accountants in the preparation for and conduct of such
audit.
(f) Notice of Developments. The Company will give prompt written notice
to Purchaser of any material adverse development of which it learns that would
constitute or otherwise cause a breach of any of the representations and
warranties set forth in Section 3 above. Purchaser will give prompt written
notice to the Company of any material adverse development of which he learns
that would constitute or otherwise cause a breach of any of the representations
and warranties set forth in Section 4 above. No disclosure by any party pursuant
to this Section 5(f), however, shall be deemed to amend or supplement the
Company's Disclosure Letter or the Purchaser's Disclosure Letter (as
applicable), or to prevent or cure any misrepresentation, breach of warranty, or
breach of covenant.
(g) Exclusivity. Except as expressly permitted by the following
provisions of this Section 5(g), the Company shall not, and the Company shall
not authorize or permit any officer, director or employee of, or any financial
advisor, attorney, accountant or other advisor or representative retained by,
the Company to, solicit, initiate, encourage, endorse, or enter into any
agreement with respect to, or take any other action to knowingly facilitate, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal (as defined below).
Notwithstanding the foregoing, nothing contained in this Letter shall prevent
the Board of Directors of the Company from (i) furnishing information to,
entering into discussions or negotiations with, or consummating the sale of
assets of WellCare-NY relating to its commercial HMO products, (ii) furnishing
information or entering into discussions or negotiations with or consummating
any Acquisition Proposal with any person or entity if and only to the extent (A)
the Board of Directors of the Company shall have determined in good faith that
such action is required in the exercise of its fiduciary duties, based upon the
advice of counsel, or (B) directed to so act by New York of Connecticut HMO
regulatory authorities, (iii) complying with Rules 14d-9 and 14e-2 promulgated
under the Securities Exchange Act, or (iv) making any disclosures to the
Company's shareholders if the Board of Directors of the Company shall have
determined, after consultation with outside counsel, that failure to make such
disclosures would be inconsistent with applicable law. As used in this
Agreement, "Acquisition Proposal" shall mean any tender or exchange offer, or
proposal, other than a proposal by Purchaser or its Affiliates, or offer to
acquire in any manner an equity interest in the Company or its subsidiaries or
the assets of the Company or its subsidiaries.
(h) Authorization of Series A Preferred Stock. The Company shall
authorize the Series A Preferred Stock in accordance with the terms set forth on
Exhibit B attached hereto.
(i) SEC Filings. The Company shall file with the SEC and any
appropriate state securities regulatory authority with reasonable promptness all
required disclosures, documents and necessary filings. The cost and expenses
associated with any such filings shall be the responsibility of the Company.
6. Conditions Precedent to Obligation of the Parties to Close.
(a) Conditions to Obligation of Purchaser. The obligation of Purchaser
to consummate the transactions to be performed by it in connection with Closing
is subject to satisfaction of the following conditions, any of which may be
waived by Purchaser if it executes a writing so stating at or prior to Closing:
(i) the representations and warranties set forth in Section 3
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Company shall have performed and complied with all of
his covenants hereunder in all material respects through Closing;
(iii) all Consents shall have been obtained;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement,
(B) cause any of the transactions contemplated by this Agreement to be rescinded
following consummation, (C) affect adversely the right of Purchaser to own the
Shares and to control the Company, or (D) affect adversely the right of the
Company to own its assets and to operate its business (and no such injunction,
judgment, order, decree, ruling or charge shall be in effect);
(v) Purchaser shall have received the resignations, effective as
of Closing, of each director and officer of the Company and the Subsidiaries
other than those whom Purchaser shall have specified in writing prior to
Closing; (vi) WellCare-NY and WellCare-CT shall have executed and delivered to
CHMI the Management Agreements;
(vii) the Fund shall have converted the Note into One Million
(1,000,000) shares of Preferred Stock (which shares of Preferred Stock shall be
convertible into Ten Million (10,000,000) shares of non-voting common stock of
the Company, if and when such additional shares of common stock as are necessary
to permit such conversion have been authorized by the shareholders of the
Company) and the Company shall have entered into a shareholders' agreement with
the Fund pursuant to which the Fund and its Affiliates shall agree not to sell
any of such shares of Preferred Stock (or any of the shares of Common Stock into
which such Preferred Stock may be converted) for six (6) months after the
Closing Date;
(viii) the Company shall have entered into settlement agreements
with each of the twenty largest gross dollar volume hospitals to whom the
Company had outstanding claims payable as of April 30, 1999 (the "Settlement
Agreements"), which Settlement Agreements shall be in substantially the form
attached as Exhibit C hereto;
(ix) Premier Bank shall have cancelled its mortgage(s) on certain
of the real property of the Company and/or its Subsidiaries, taking a
deed-in-lieu of foreclosure, and Key Bank shall have terminated or cancelled its
mortgage(s) on certain of the real property of, and certain of its personal
property leases with, the Company and/or its Subsidiaries;
(x) the Company shall have settled the shareholders class action
litigation pursuant to a Stipulation of Settlement in substantially the form
attached hereto as Exhibit D; (xi) all of the holders of the Class A Common
Stock shall have converted their shares of Class A Common Stock into Common
Stock on a 1:1 basis, and no shares of Class A Common Stock shall remain
outstanding;
(xii) the Company shall have authorized the Series A Preferred
Stock, which stock shall provide for the voting and non-dilution rights set
forth in Section 2(a) and 2(b); (xiii) the Company shall have entered into stock
restriction agreements, with the following shareholders, the form of which shall
have been approved in writing by Purchaser and which shall restrict the sale,
transfer or assignment of such shareholders' stock of the Company: the Fund (as
set forth in Section 6(a)(vii) above), Robert Morey, Ed Ullmann, Mark Dean, and
Charles Crew;
(xiv) WellCare-NY shall have closed, or shall close on the
Closing Date, the transaction between WellCare-NY and Group Health Incorporated
(Sub) ("GHI") pursuant to which WellCare-NY is selling to GHI certain assets
relating to WellCare-NY's commercial health maintenance organization business in
the State of New York, as set forth in the Asset Purchase Agreement dated May
18, 1999 by and between WellCare-NY and GHI;
(xv) no matter shall have been set forth in the Company's
Disclosure Letter that has or will have a Material Adverse Effect and about
which Purchaser shall not have had Knowledge as of the date of this Agreement;
(xvi) Purchaser shall have received from the Company's legal
counsel an opinion in form and substance reasonably acceptable to Purchaser and
his counsel; and (xvii) The Company shall have come to an agreement with Bear,
Stearns & Co., Inc. ("Bear Stearns") with respect to the payment or other
settlement of the fee owed by the Company to Bear Stearns, which agreement shall
be acceptable to Purchaser.
(b) Conditions to Obligation of the Company. The obligation of the
Company to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions, any of which
may be waived by the Company if it executes a writing so stating at or prior to
the Closing:
(i) the representations and warranties set forth in Section 4
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) Purchaser shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of any
federal, state, local or foreign jurisdiction or before any arbitrator wherein
an unfavorable injunction, judgment, order, decree, ruling or charge would (A)
prevent consummation of any of the transactions contemplated by this Agreement
or (B) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation (and no such injunction, judgment, order,
decree, ruling or charge shall be in effect);
(iv) WellCare-NY and WellCare-CT shall have executed and
delivered to the Company the Management Agreements; and
(v) the Company shall have received a fairness opinion from Bear
Stearns regarding the sale of the Shares to Purchaser.
7. Deliveries at Closing.
(a) Documents to be Delivered by Purchaser. At the Closing, Purchaser
shall deliver the following instruments and documents to the Company or other
appropriate party:
(i) Five Million Dollars ($5,000,000) in certified or other
immediately available funds;
(ii) a Certificate of Good Standing with respect to CHMI from the
Secretary of State of the State of Delaware, evidencing the
existence and good standing of the Company, dated not more
than five (5) days prior to the Closing Date; and
(iii) the Management Agreements duly executed by CHMI.
(b) Documents to be Delivered by the Company. At the Closing, the
Company shall deliver the following instruments and documents to Purchaser:
(i) stock certificate(s) representing the Shares;
(ii) a certificate of existence or good standing from the New
York Secretary of State evidencing the existence and good
standing of the Company, dated not more than five (5) days
prior to the Closing Date, along with certificates of good
standing or existence from the Secretary of State of
Connecticut or any other states in which the Company is
transacting business, and certificates of existence and good
standing from the appropriate state authority in each of the
Company's Subsidiaries' states of formation;
(iii) the resignations as described in Section 6(a)(v);
(iv) documents evidencing the Consents;
(v) a certificate, executed by the Secretary of the Company, to
the effect that attached thereto is a copy of the Articles
of Incorporation of the Company, including amendments,
certified by the New York Secretary of State as of a date
not more than five (5) days before the Closing, and bylaws
of the Company, all of which are in full force and effect
and have not been amended;
(vi) the Management Agreements, duly executed by WellCare-CT and
WellCare-NY; (vii) the opinion of the Company's counsel (as
set forth in Section 6(a)(xvi) above);
(viii) the corporate books and records of the Company and each of
its Subsidiaries, all of which shall be delivered to
Purchaser's counsel;
(ix) a certificate (dated the Closing Date and in form and
substance reasonably satisfactory to Purchaser) signed by a
President or Vice- President of the Company, certifying that
the conditions specified in Section 6(a)(i) have been
fulfilled; and
(x) a certificate of the Secretary of the Company (dated the
Closing Date and in form and substance reasonably
satisfactory to Purchaser) certifying and setting forth (i)
the names, signatures and positions of the officers of the
Seller authorized to execute this Agreement and (ii) a copy
of the resolutions adopted by the Board of Directors of the
Company authorizing the execution, delivery and performance
of this Agreement and the transactions contemplated hereby.
8. Termination.
(a) Methods of Termination. Anything herein to the contrary
notwithstanding, this Agreement may be terminated at any time prior to the
Closing: (i) by mutual consent of Purchaser and the Company; (ii) by Purchaser
if any material representation or warranty on the part of the Company shall have
been untrue when made or if the Company shall have failed to perform any
material agreement on its part contained herein at the time to be performed by
it; (iii) by the Company if any material representation or warranty on the part
of Purchaser shall have been untrue when made or Purchaser shall have failed to
perform any material agreement on his part contained herein at the time to be
performed by him; or (iv) by Purchaser or the Company by written notice if the
Closing has not occurred on or before June 1, 1999, unless a later date is
established by the mutual written consent of such parties before or after such
date or unless the failure of such consummation by June 1, 1999, shall be due to
the failure of the party seeking to terminate this Agreement to perform in all
material respects each of its obligations under this Agreement, including the
accuracy of the representations and warranties included herein, required to be
performed by it on or prior to such date pursuant to the terms hereof.
(b) Effect of Termination. After termination of this Agreement as
permitted by Section 8(a) above:
(i) each party hereto will redeliver all documents, work papers,
and other materials of any party relating to the transactions contemplated
hereby, and all copies of such materials, whether so obtained before or after
the execution hereof, to the party furnishing the same; and
(ii) all information received by any party hereto with respect to
any other party or the business of such other party (other than information
which is a matter of public knowledge or which has heretofore been published in
any publication for public distribution or filed as public information with any
governmental authority or which is required to be disclosed by law or by
judicial or administrative process) shall not at any time be used for the
advantage of, or disclosed to third parties by, such party.
Except as provided in this Section 8(b), after termination of this
Agreement as permitted by Section 8(a), no party hereto shall have any liability
or further obligation to any other party to this Agreement as a result hereof.
9. Survival, Indemnification and Expenses.
(a) Survival. All representations and warranties made in the Agreement
shall survive, and shall not be extinguished by the Closing or any investigation
made by or on behalf of any party hereto, for a period of eighteen (18) months
after the Closing Date; provided, however, that any claims made in respect
thereof by any party hereto must be in writing and must be received by the other
party within said period; and provided, further, that (i) claims with respect to
the representations and warranties set forth in Section 3(j) with respect to a
particular Tax may be made until the expiration of all applicable statutes of
limitation (and any extensions thereof in effect at the Closing Date) relative
to the liability relating to such Tax and (ii) claims based on fraud or willful
misrepresentation may in each case be asserted at any time within one (1) year
after Purchaser learns of such fraud or willful misrepresentation or breach of
such representation and warranty.
(b) Indemnification by the Company. Subject to the limits set forth in
this Section 9, the Company agrees to indemnify and hold harmless Purchaser,
upon its demand, from and against any and all losses, liabilities, damages,
obligations, costs and expenses (including, without limitation, amounts paid in
settlement and reasonable costs of investigating, preparing to defend and
defending any claim, action, suit, proceeding, inquiry or investigations in
respect thereof) incurred by Purchaser resulting from, relating to, or arising
out of (i) the inaccuracy of any representation or warranty made herein by the
Company, or (ii) breach of any covenant contained herein by the Company.
If any action, suit, proceeding or claim shall be brought against the
Company or Purchaser by any third party, which action, suit, proceeding or
claim, if determined adversely to the interest of the Company or Purchaser and
which would entitle Purchaser to indemnity pursuant to this Section 9(b),
Purchaser shall promptly notify the Company of the same in writing and, if the
Company so elects, the Company shall assume the defense thereof, including the
employment of counsel satisfactory to Purchaser and the payment of all
reasonable cost and expenses in respect thereof. Purchaser shall have the right
to employ counsel separate from any counsel employed by the Company n any
action, suit, proceeding or claim and to control (or, if Purchaser has elected
to allow the Company to assume the defense thereof, participate in) the defense
thereof and the fees and expense of such counsel employed by Purchaser shall be
at the expense of the Company. The Company shall not be liable for any
settlement of any such action, suit, proceeding or claim effected without its
written consent (which shall not be unreasonably withheld), but if settled with
the written consent of the Company, or if there shall be a final judgment for
plaintiff in any such action, subject to the limits set forth in this Section 9,
the Company agrees to indemnify and hold harmless Purchaser from and against any
loss, liability, obligation, damage, cost or expense by reason of such
settlement or judgment.
(c) Indemnification by Purchaser. Subject to the limits set forth in
this Section 9, Purchaser hereby agrees to indemnify and hold harmless the
Company upon its demand, from and against any and all losses, liabilities,
damages, obligations, costs and expenses (including, without limitation, amounts
paid in settlement and reasonable costs and expenses of investigating, preparing
to defend and defending any claim, action, suit, proceeding, inquiry or
investigations in respect thereof) resulting from, relating to or arising out of
(i) the inaccuracy of any representation or warranty made herein by Purchaser or
(ii) the breach of any covenant by Purchaser contained herein.
If any action, proceeding or claim shall be brought or asserted against
the Company by any third party, which action, proceeding or claim, if determined
adversely to the interest of the Company, would entitle it to indemnity pursuant
to this Section 9(c), the Company shall promptly notify Purchaser of the same in
writing, and, if Purchaser so elects, Purchaser shall assume the defense
thereof, including the employment of counsel satisfactory to the Company and the
payment of all reasonable costs and expenses thereof. the Company shall have the
right to employ counsel separate from any counsel employed by Purchaser in any
such action, suit, proceeding or claim and to control (or, if the Company has
elected to allow Purchaser to assume the defense thereof, participate in) the
defense thereof and the fees and expenses of such counsel employed by the
Company shall be at its expense. Purchaser shall not be liable for any
settlement of such action, suit, proceeding or claim effected without its
written consent (which shall not be unreasonably withheld), but if settled with
its written consent, or if there shall be a final judgment for plaintiff in any
such action, subject to the limits set forth in this Section 9(c), Purchaser
agrees to indemnify and hold the Company harmless from an against any loss,
liability, obligation, damage, cost or expense by reason of such settlement or
judgment.
(d) Claims for Indemnification. Neither party shall assert any claim
against the other for indemnification hereunder with respect to any inaccuracy
or breach of such warranties, representations or covenants entered into or given
under this Agreement unless and until the amount of such claim or claims with
respect thereto, as determined pursuant to this Section 9, shall exceed Fifty
Thousand Dollars ($50,000), calculated on a cumulative basis and not a per item
basis, and then only in respect to the excess over said Fifty Thousand Dollars
($50,000).
(e) Reduction for Insurance, Etc. The gross amount which a party
("Indemnifying Party") is liable to, for, or on behalf of the other party
("Indemnitee") pursuant to this Section 9 (the "Indemnifiable Loss") shall be
reduced (including, without limitation, retroactively) through subsequent
repayment as described below in this Section 9(e), by an amount equal to (i) any
insurance proceeds actually recovered by or on behalf of such Indemnitee (or the
Company to the extent such Indemnifiable Loss is suffered by the Company)
arising from the Indemnifiable Loss; and (iii) as to Purchaser only, in the
event that the Indemnifiable Loss is suffered by the Company directly, rather
than Purchaser, the amount in issue multiplied by fifty-five percent (55%), at
the time of such Indemnifiable Loss. If an Indemnitee shall have received or
shall have had paid on its behalf an indemnity payment in respect of an
Indemnifiable Loss and shall subsequently receive directly or indirectly
insurance proceeds or tax benefits in respect of such Indemnifiable Loss, then
such Indemnitee shall pay to such Indemnifying Party the amount of such
Insurance proceeds and/or tax benefits or, if less, the amount of such indemnity
payment.
10. Miscellaneous.
(a) Press Releases and Public Announcements. No party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement without the prior written approval of Purchaser and the Company;
provided, however, that any party may make any public disclosure it believes in
good faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing party
will use its best efforts to advise the other parties prior to making the
disclosure).
(b) Venue; Legal Fees. Any dispute arising under this Agreement shall
be brought in the Federal District Court Middle District Florida, Tampa
Division. The parties consent to and agree that venue for any proceeding shall
be with said Court. In addition, the prevailing party shall be entitled to
receive its costs and reasonable attorneys' fees for all phases of the dispute,
which includes, but is not limited to, those costs and attorney fees associated
with arbitration, mediation, pre-suit matters, trail of the issues, post suit
matters, appeals of any order, deposition and discovery costs, and such similar
items.
(c) No Third-party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of Purchaser and the Company; provided, however, that Purchaser may (i)
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases Purchaser nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims and other
communications hereunder shall be made in writing. Any notice, request, demand,
claim or other communication hereunder shall be deemed duly given two (2)
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Company: Copy to:
The WellCare Management Group, Inc. Epstein Becker & Green, P.C.
Park West/Hurley Avenue Extension 250 Park Avenue
Kingston, New York 12401 New York, New York 10177
Attn.: President and CEO Attn.: Seth I. Truwit, Esquire
If to Purchaser: Copy to:
Kiran C. Patel Sandip I. Patel, Esquire
6800 N. Dale Mabry, Suite 268 Patel, Moore & O'Connor, P.A.
Tampa, Florida 33614 2240 Belleair Road, Suite 160
Clearwater, Florida 33764
Any party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim or other communication shall be deemed to have
been duly given unless and until it actually is received by the intended
recipient. Notwithstanding the foregoing, in the event the delivery of any
notice is refused, or returned unopened, having been addressed to the most
recent address provided by the intended recipient in accordance with these
notice provisions, such notice shall be deemed to have been delivered on the
date of the attempted delivery. Any party may change the address to which
notices, requests, demands, claims and other communications hereunder are to be
delivered by giving the other parties notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Florida without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of Florida.
(j) Amendments and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by
Purchaser and the Company. No waiver by any party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(k) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the parties will bear his or its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(m) Construction. Any reference to any federal, state, local or foreign
statute or law shall be deemed also to refer to all rules and regulations
promulgated thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation. The parties intend that
each representation, warranty and covenant contained herein shall have
independent significance.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
[REST OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
PURCHASER:
/s/ Kiran C. Patel
----------------------------------
KIRAN C. PATEL
THE COMPANY:
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Craig S. Dupont
-----------------------------
Name: Craig S. Dupont
-----------------------------
Title: Acting President and
Chief Executive Officer
<PAGE>
Exhibit 10.76a
AMENDMENT TO STOCK PURCHASE AGREEMENT
AMENDMENT (the "Amendment") dated as of June 1, 1999 to the Stock
Purchase Agreement (the "Agreement") dated May 19, 1999, by and between KIRAN C.
PATEL ("Purchaser"), and THE WELLCARE MANAGEMENT GROUP, INC., a New York
corporation (the "Company"). Capitalized terms used in this Amendment but not
otherwise defined herein shall have the respective meanings assigned thereto in
the Agreement.
W I T N E S S E T H:
WHEREAS, Purchaser and the Company wish to amend the Agreement to
change the location of the Closing set forth in Section 2(d) of the Agreement
and to extend the Closing Date set forth in Section 2(d) of the Agreement from
June 1, 1999 until June 9, 1999 or such other date as the parties may mutually
agree, provided that such date is not later than June 30, 1999;
WHEREAS, Purchaser and the Company wish to amend certain provisions of
the Agreement regarding the number of shares of preferred stock that the Fund is
to receive and to provide that the common stock to be issued to the Fund upon
conversion of such preferred stock shall be voting common stock;
WHEREAS, Purchaser and the Company wish to amend the Agreement to
provide that Purchaser will pay par value for all shares of Common Stock issued
to him pursuant to his anti-dilution rights after conversion of his Series A
Preferred Stock into Common Stock; and
WHEREAS, Purchaser wishes to acknowledge that he is not entitled to
receive any additional shares of capital stock of the Company to provide him
with a fifty-five percent (55%) voting interest in the Company in the event that
shares of Class A Common Stock remain outstanding as of the date of conversion
of the Series A Preferred Stock.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and promises herein contained, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. The Closing. Paragraph 2(d) of the Agreement is hereby amended and
restated in its entirety as follows:
The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of
Epstein Becker & Green, P.C., 250 Park Avenue, New York, New York
10177, or at such other location as the parties may mutually
agree, commencing at 9:00 a.m. local time on or before June 9,
1999, or such other date as Purchaser and the Company may
mutually determine (the "Closing Date"); provided, however, that
the Closing Date shall be no later than June 30, 1999.
2. Preferred Stock to be Issued to the Fund.
(a) The third sentence of Section 2(a) shall be deleted in its entirety.
(b) Section 6(a)(vii) shall be amended and restated in its entirety as
follows:
the Fund shall have converted the Note into One Hundred Thousand
(100,000) shares of Preferred Stock (which shares of Preferred Stock
shall be convertible into Ten Million (10,000,000) shares of Common
Stock, if and when such additional shares of Common Stock as are
necessary to permit such conversion have been authorized by the
shareholders of the Company);
3. Payment of Par Value for Post-Conversion Anti-Dilution Shares. Section
2(b) of the Agreement is hereby amended by adding the following at the end of
the Section:
Purchaser hereby agrees that with respect to shares of Common Stock
issuable to Purchaser pursuant to Purchaser's anti-dilution rights as
set forth in this Section 2(b) after conversion of Purchaser's Shares
into Common Stock in accordance with this Agreement (each a
"Post-Conversion Anti-Dilution Share"), Purchaser shall pay the
Company par value for each Post-Conversion Anti-Dilution Share upon
issuance thereof to Purchaser.
4. Post-Conversion Voting Rights. To the extent that any of the holders of
the Class A Common Stock shall not have converted such stock into Common Stock
as of the date the Series A Preferred Stock is converted into Common Stock,
Purchaser hereby acknowledges and agrees that nothing in the Agreement,
including, without limitation, Sections 2(a) and 2(b) thereof, shall entitle
Purchaser to receive from the Company, or obligate the Company to Purchaser, any
shares of capital stock of the Company in order to provide Purchaser with a
fifty-five percent (55%) voting interest in the total number of votes of the
issued and outstanding Common Stock and issued and outstanding Class A Common
Stock, combined.
5. Governing Law; Counterparts. This Amendment shall be governed by and
construed in accordance with the domestic laws of the State of Florida without
giving effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Florida. This Agreement may
be executed in one or more counterparts, each of which shall be deemed an
original but all of which together will constitute one and the same instrument.
6. Amendments and Waivers. No amendment of any provision of this Amendment
shall be valid unless the same shall be in writing and signed by Purchaser and
the Company.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
PURCHASER:
/s/ KIRAN C. PATEL
----------------------------------
KIRAN C. PATEL
THE COMPANY:
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Craig S. Dupont
-----------------------------------
Name: Craig S. Dupont
-----------------------------------
Title: Acting President and Chief Executive Officer
Exhibit 10.77
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT (the "Agreement") dated May __, 1999 by and among THE
WELLCARE MANAGEMENT GROUP, INC., a New York corporation ("WCMG"), WELLCARE OF
NEW YORK, INC., a New York corporation ("WCNY" and together with WCMG,
"WellCare"), and KIRAN C. PATEL ("Dr. Patel") (WellCare and Dr. Patel
collectively, the "WellCare Parties"), and HEALTHCARE ASSOCIATION OF NEW YORK
STATE ("HANYS"), NORTHERN METROPOLITAN HOSPITAL ASSOCIATION ("NORMET") and the
member hospital of HANYS and/or NORMET specified on the signature page of this
Agreement ("Hospital") (WCMG, WCNY, Dr. Patel, HANYS, NORMET and Hospital being
referred to individually as a "Party" and collectively as the "Parties").
WHEREAS, WCMG has signed a letter of intent with Dr. Patel, for a
transaction that would, among other things, encompass an equity investment in
WellCare by Dr. Patel or an affiliate (the "Patel Transaction");
WHEREAS, the Board of Directors of WCNY, a New York certified health
maintenance organization ("HMO"), has approved the sale of its New York State
based commercial business to Group Health Incorporated (the "GHI Transaction");
WHEREAS, WellCare and Dr. Patel contemplate that all or a portion of the
equity investment provided through the Patel Transaction and all of the funds
obtained through the GHI Transaction will be pooled with certain current assets
of WCNY and made available to satisfy claims by providers for services rendered
through April 30, 1999;
WHEREAS, WCNY has agreed to a consent to rehabilitation in which the State
of New York has the right to commence court proceedings and have an order
entered into that would give the State of New York the right to assume the
operation of WCNY;
WHEREAS, the WellCare Parties and the Hospital desire, and are mutually
willing, to enter into this Agreement for the purpose of settling any and all
disputes, claims and controversies, as described further below, between WellCare
and the Hospital, relating to the payment for services provided by the Hospital
prior to May 1, 1999 to HMO members of WCNY; and
WHEREAS, HANYS and NORMET have entered into this Agreement in order to
assist their respective member hospitals in the resolution of such member
hospitals' claims against WellCare, with the express understanding that neither
HANYS nor NORMET has authority to bind its member hospitals and that each such
member hospital shall be required to separately execute this Agreement if it is
to be binding on such member hospital.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
agreements herein, the Parties agree as follows:
1. Regulatory Approvals
This Agreement and the terms and conditions contained herein are
subject to the approval of the New York State Insurance Department ("SID") and
the New York State Department of Health ("DOH"). As soon as practicable, the
Parties shall jointly seek approval of this Agreement from SID and DOH, and in
accordance with Section 10(f), the Parties agree to execute or cause their
counsel to execute any additional documents and take any further action which
may be reasonably required in order to facilitate such regulatory approval.
2. Conditions to Effectiveness
This Agreement shall become effective (the "Effective Date") only upon
the satisfaction of each and all of the following conditions:
(a) Regulatory approvals as set forth in Section 1, no later than July
15, 1999;
(b) The deposit of a minimum of Ten Million Dollars ($10,000,000) in
the Provider Pool (as defined below) (the "Initial Funding Date"), no later than
July 15, 1999; and
(c) Agreement by WellCare and Hospital as to the amount of its Settled
Claims (defined below) within thirty (30) days following the date of this
Agreement;
provided however that Sections 1, 4, 8, 9 and 10 hereof shall become effective
immediately. WellCare shall provide Hospital with written notice of the
Effective Date of this Agreement no later than five (5) business days after all
of the foregoing conditions have been satisfied.
3. Settled Claims
"Settled Claims" means the dollar amount of all claims against WellCare by
a health care provider that has signed this Agreement or an agreement with
substantially similar terms and conditions, for services rendered to HMO members
of WCNY in any product line prior to May 1, 1999 and received by WellCare within
thirty (30) days following the date hereof, determined as follows: (i) total
adjudicated claims as determined by WellCare on or before April 30, 1999,
namely, claims received by WellCare and approved as properly payable, and (ii)
all other claims (comprised of pended claims and disputed claims) submitted in
good faith and adjudicated in good faith by WellCare within thirty (30) days
following the date hereof at fifty percent (50%) of a hospital's or other
provider's submitted charges. For purposes of clarification, "Settled Claims"
shall not include any claims for payment that a health care provider may have
against independent practice associations, including but not limited to those
owned by Primergy, Inc., and other third parties (such as Merit Behavioral
Services, Access Managed Healthcare, Block Vision, New York Medical Imaging,
PharmaCare and Laboratory Corporation of America) that have contracted with
WellCare to provide or to arrange for the provision of certain health care
services (e.g., physician services or specialty "carve-out" services, such as
mental health services, chiropractic services, laboratory services or pharmacy
services) to HMO members of WCNY.
4. Exchange of Information and Confidentiality; Litigation Stay
(a) In connection with the execution of this Agreement, WellCare has
provided Garfunkel, Wild & Travis, P.C., as counsel to HANYS and NORMET, a
hospital specific summary of amounts owed for payable and pended claims for
services provided by member hospitals of HANYS and/or NORMET to HMO members of
WCNY prior to May 1, 1999 that have not been paid according to WellCare's
records.
(b) Garfunkel, Wild & Travis, P.C. has agreed to confirm the amounts
contained in said list of all claims for services provided prior to May 1, 1999
with the Hospital and to obtain from the Hospital its statement of unpaid
(including disputed) WellCare claims based on its records. Garfunkel, Wild &
Travis, P.C. has agreed to provide said information to WellCare and the Hospital
as soon as practicable. If there is any disagreement as to the Settled Claims
amount the Parties shall, in good faith, attempt to resolve any such
disagreements within thirty (30) days following the date hereof.
(c) Upon the determination of and agreement by WellCare and the
Hospital as to the Settled Claims for Hospital, WellCare shall provide Hospital
with a statement of its Settled Claims and the minimum amount to which Hospital
is entitled to payment from the Provider Pool, i.e., thirty percent (30%) of the
Settled Claims. Upon Hospital's acceptance thereof, such statement shall be
annexed as Exhibit A to this Agreement.
(d) Garfunkel, Wild & Travis, P.C. agrees to provide the Hospital with
specific information relating only to the Hospital (and no other member hospital
in HANYS or NORMET) and further agrees not to share such information with any
other hospital clients or third parties, except to the extent required by law,
or with the prior written consent of WellCare, which consent may be denied in
WellCare's sole discretion. Notwithstanding the foregoing, Garfunkel, Wild &
Travis, P.C. may provide any and all such information to HANYS and NORMET and
their respective officers, directors, employees and agents ("Authorized
Agents"), provided, however, HANYS and NORMET and their respective Authorized
Agents hereby agree to similarly maintain the confidentiality of such Hospital
specific information as set forth herein. Such Hospital specific information
shall be used solely to assist the Hospital in the determination of the Settled
Claims.
(e) The Parties each agree that they will not commence, institute or
prosecute any action or other adversary proceeding in any court of law or
equity, arbitration tribunal, or administrative forum ("Litigation") against any
other Party on or after the date hereof relating to or concerning the subject
matter of this Agreement, except (i) following termination of this Agreement as
provided in Section 9 or (ii) following July 15, 1999 if this Agreement shall
not have become effective by such date for failure to satisfy the conditions set
forth in Section 2 or (iii) if a case is commenced in respect to WellCare or any
of its subsidiaries or affiliates under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator or the like is appointed
under Article 74 of the New York Insurance Law or any similar law, or by SID, or
any other regulatory body, any Party may appear and participate in any such case
or proceeding. The Parties further agree to take whatever steps are necessary to
stay any Litigation during the period between the date hereof and the Effective
Date and thereafter take whatever steps are necessary to discontinue any such
Litigation with prejudice.
5. Establishment of Settlement Fund
(a) A pool of funds (the "Provider Pool") shall be established solely
to pay Settled Claims of the Hospital and all other providers which have entered
into settlement agreements containing terms similar to those contained in this
Agreement. The Provider Pool shall be established in a segregated cash
collateral account prior to the Effective Date at a bank mutually acceptable to
WellCare and Garfunkel Wild & Travis, P.C., as counsel to HANYS and NORMET,
which bank shall have had no prior dealings with WellCare). The Provider Pool
shall not be disbursed except in accordance with this Agreement (or other
similar settlement agreement). The Provider Pool account shall contain
irrevocable instructions concerning deposits and withdrawals from the Provider
Pool, which shall be agreed to by Garfunkel, Wild & Travis, P.C., as counsel to
HANYS and NORMET, and WellCare prior to the Effective Date, and which may be
modified only with the prior written approval of both WellCare and Garfunkel,
Wild & Travis, P.C., as counsel to HANYS and NORMET, or at the direction of SID.
The Parties recognize and agree that deposits into and payments from the
Provider Pool may be subject to audit or review by SID and other regulatory
agencies having jurisdiction over WellCare. In addition, HANYS and/or NORMET or
their agents or representatives, shall have the right to audit or review the
Provider Pool, the cost of the first of which audit or review shall be borne by
WellCare and the cost of any and all subsequent audits or reviews shall be borne
by HANYS and/or NORMET. The results of such audit or review shall be distributed
to all Parties. The Parties agree to cooperate with each other to the extent
reasonably necessary to carry out the provisions of this Section 5(a).
(b) The Provider Pool shall have an initial balance of not less than
Ten Million Dollars ($10,000,000) by the Effective Date and shall be comprised
of proceeds from the Patel Transaction and/or GHI Transaction. In addition, the
Provider Pool shall be supplemented by an amount equal to 80% of all proceeds
from accounts receivables of WCNY which were or should have been recorded in
accordance with generally accepted accounting principles (GAAP) as of April 30,
1999 (the "Accounts Receivable") to the extent such proceeds are collected by
WellCare during the period commencing on May 1, 1999 and ending on the date that
the Provider Pool is no longer in effect. HANYS and/or NORMET, or their agents
or representatives, shall have the right, subject to compliance with applicable
law, to examine and make copies of and abstracts from all books, records,
computer media and documents in the possession of WellCare relating to the
Accounts Receivable, subject to the confidentiality provisions contained in
section 4(d). If the amounts deposited in the Provider Pool shall in the
aggregate exceed Ten Million Dollars ($10,000,000) (the amount so exceeding Ten
Million Dollars ($10,000,000) being the "Excess"), the Excess may be withdrawn
from the Provider Pool and retained by WellCare for purposes of maintaining its
statutory reserves in accordance with applicable law, but in no event shall
WellCare be entitled to withdraw from the Provider Pool and retain more than Two
Million Five Hundred Thousand Dollars ($2,500,000) for such purpose. Any Excess
beyond that amount required for statutory reserves shall be retained in the
Provider Pool.
(c) In the event that the amount equal to thirty percent (30%) of the
aggregate Settled Claims for all providers (excluding the five percent (5%)
payments to providers described in Section 6(b)), is greater than Ten Million
Dollars ($10,000,000), but does not exceed Twelve Million Dollars ($12,000,000),
subject to Section 5(b), WellCare shall deposit additional funds into the
Provider Pool to make up the shortfall, to the extent WellCare has sufficient
funds and requisite regulatory authority to so act. In the event WellCare lacks
sufficient funds and/or requisite regulatory authority to deposit such
additional funds in the Provider Pool, Dr. Patel will provide funds in such
amount necessary to pay the thirty percent (30%) of the aggregate Settled Claims
for all providers, not to exceed a total Provider Pool balance of Twelve Million
Dollars ($12,000,000).
(d) In the event the amount equal to thirty percent (30%) of the
aggregate Settled Claims for all providers (excluding the five percent (5%)
payments to providers described in Section 6(b)) is greater than Twelve Million
Dollars ($12,000,000), then the amount required to be deposited into the
Provider Pool in excess of Twelve Million Dollars ($12,000,000) shall be paid by
WellCare; provided, however, that WellCare will be permitted to reduce pro rata
the amount of the Hospital's remaining three (3) payments of five percent (5%)
as set forth in Section 6(b) below (and all other providers with Settled Claims
who may receive a similar payment) to the extent that WellCare's payments exceed
Twelve Million Dollars ($12,000,000), and provided, however, in no case shall
Hospital receive less than thirty percent (30%) of its Settled Claims under this
Agreement.
(e) In the event a balance remains in the Provider Pool as of six (6)
months after the Effective Date, then such balance will be distributed pro rata
to the Hospital and other providers which have entered into agreements to settle
their Settled Claims, based upon the amounts of their respective Settled Claims.
(f) Each health care provider that has Settled Claims shall have a
security interest for the benefit of all health care providers with Settled
Claims, which shall be a first priority lien with respect to the proceeds due to
WellCare from the Patel Transaction and/or GHI Transaction and all amounts in
the Provider Pool, and a second priority lien on and security interest in the
Accounts Receivable, except to the extent there is no other lien on the Accounts
Receivable as of the date of this Agreement, the security interest shall be a
first priority lien. It shall be the responsibility of such providers to timely
and properly prepare and deliver the necessary documents for signature by all
necessary parties, and thereafter cause the appropriate filings to be made to
perfect such security interests, including, without limitation, a financing
statement in the form approved by Garfunkel, Wild & Travis, P.C. The Parties
shall cooperate with each other in the preparation of any and all documents
necessary to give effect to such security interest and such other terms and
obligations hereunder.
(g) Nothing contained herein shall prohibit or restrict WellCare from
settling or paying claims of any nature from sources of funds exclusive of those
deposited (or required to be deposited) in the Provider Pool.
6. Payment by WellCare of Settled Claims
(a) WellCare will pay Hospital thirty percent (30%) of the Hospital's
Settled Claims within ten (10) days of the Effective Date. If, however, thirty
percent (30%) of the aggregate Settled Claims for all providers exceeds the
funds then in the Provider Pool, then WellCare will pay the Hospital and all
other providers with Settled Claims on a pro rata basis from the funds then in
the Provider Pool and thereafter pay the Hospital and all other providers with
Settled Claims on a pro rata basis every thirty days (30) thereafter for the
period in which the Provider Pool is in effect. WellCare represents to Hospital
that providers with Settled Claims shall all receive payment from the Provider
Pool based upon the same proportion of their Settled Claims. Notwithstanding the
foregoing, in no case shall Hospital receive less than thirty percent (30%) of
the amount of its Settled Claims within six (6) months of the Effective Date and
Hospital shall continue to have the right to bill WCNY members for all
applicable copayments, coinsurance and non-covered services relating to Settled
Claims to the extent permitted under the applicable health plan and provider
agreement, and WellCare shall provide Hospital with necessary documentation to
bill the member accordingly. Notwithstanding anything to the contrary contained
herein, WellCare shall have the right to recoup, without any right of set-off,
any amounts paid under this Agreement to a Hospital if the Hospital shall have
failed to be a participating provider in good standing with WellCare at any time
during the period commencing on the date hereof and ending on the date six
months following the date hereof, and in such case of recoupment by WellCare,
this Agreement shall be null and void for all purposes. The foregoing condition
of a provider agreement shall not be applicable on or after the Effective Date
if Hospital has terminated the provider agreement for cause or WellCare has
terminated such provider agreement without cause.
(b) WellCare will pay Hospital an amount equal to five percent (5%) of
such Hospital's Settled Claims on each of February 1, 2000, February 1, 2001 and
February 1, 2002, provided, however, Hospital is at that time a participating
provider in good standing with WellCare. The foregoing condition of a provider
agreement shall not be applicable if Hospital has terminated the provider
agreement for cause or WellCare has terminated such provider agreement without
cause. The Parties understand and acknowledge that no such payment under this
Section 6(b) shall be made from the Provider Pool.
(c) Subject to regulatory approvals and in accordance with applicable
law, including the federal securities laws, the Hospital may elect to receive
WCMG common stock in lieu of one or more of the annual payments set forth in
Section 6(b). The price at which the WCMG common stock shall be valued shall be
the greater of the price of such common stock for the twenty (20) trading days
ending on February 2nd of the calendar year immediately preceding the applicable
payment date or $1.00 per share. Each Hospital receiving such WCMG common stock
shall agree to transfer restrictions on such shares for a mutually agreed upon
period after issuance, but not to exceed six (6) months. In the event the
Hospital elects to receive WCMG common stock in lieu of a cash payment, the
Parties agree to cooperate and use their best efforts to reach agreement
regarding the terms and conditions of such receipt of WCMG securities and to
accomplish the foregoing.
7. Mutual Releases
(a) Hospital together with its subsidiaries, affiliates, officers,
directors, shareholders, employees, agents, attorneys, representatives,
successors and assigns ("Hospital Releasor"), hereby releases and discharges the
WellCare Parties, together with their respective subsidiaries, affiliates,
directors, shareholders, employees, agents, attorneys, representatives,
successors and assigns ("WellCare Releasees") from (i) all indebtedness and
other financial obligations arising from the provision of services by each
Hospital to members of WCNY in any product line on or before April 30, 1999,
including any prospective adjustments pursuant to the New York Health Care
Reform Act ("NYCRA") for services rendered prior to May 1, 1999, and (ii) all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, rights to contribution, damages,
judgments, extends, executions, claims, and demands whatsoever, in law,
admiralty or equity, which each Hospital Releasor ever had, now has or hereafter
can, shall or may have against the WellCare Releasees, for upon, or by reason of
any matter, cause or things whatsoever relating to the matters referred to in
(a)(i) above from the beginning of the world to the day of the date of this
Agreement or arising hereafter as a result of or in connection with the matters
referred to in (a)(i) above. The foregoing release expressly excludes any claims
for payment that Hospital may have against independent practice associations,
including but not limited to those owned by Primergy, Inc., and other third
parties (such as Merit Behavioral Services, Access Managed Healthcare, Block
Vision, New York Medical Imaging, PharmaCare and Laboratory Corporation of
America) that have contracted with WellCare to provide or to arrange for the
provision of certain health care services (e.g., physician services or specialty
"carve-out" services, such as mental health services, chiropractic services,
laboratory services or pharmacy services) to HMO members of WCNY and expressly
excludes any action, suits, claims or demands arising from medical malpractice
or negligence.
(b) Each Hospital Releasor represents to the WellCare Releasees that
none of the liabilities, claims, causes of actions, costs or demands herein
released has been assigned to any person or entity.
(c) Each Hospital Releasor acknowledges that it may hereafter discover
facts different from, or in addition to, those that it now believes to be true,
with respect to all or any of the liabilities, claims, causes or action, costs
or demands herein released but nevertheless agrees that the releases set forth
herein shall be and remain effective in all respects, notwithstanding the
discovery of such different or additional facts.
(d) Each Hospital Releasor is forever barred and enjoined from
commencing, instituting or prosecuting any action or other adversary proceeding
in any court of law or equity, arbitration tribunal, or administrative forum,
directly or representatively, against the WellCare Releasees with respect to
any, some or all of the Settled Claims; provided however, each Hospital Releasor
and the WellCare Releasees retain all rights and remedies to enforce the terms
of this Agreement.
(e) The WellCare Parties together with their respective subsidiaries,
affiliates, officers, directors, shareholders, employees, agents, attorneys,
representatives, successors and assigns ("WellCare Releasors") hereby release
and discharge Hospital and its subsidiaries, affiliates, directors,
shareholders, employees, agents, attorneys, representatives, successors and
assigns ("Hospital Releasee") from (i) all indebtedness and other financial
obligations arising from the provision of services by Hospital to members of
WCNY in any product line on or before April 30, 1999, including any prospective
adjustments pursuant to the NYCRA for services rendered prior to May 1, 1999,
and (ii) all actions, causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, rights to
contribution, damages, judgments, extends, executions, claims, and demands
whatsoever, in law, admiralty or equity, which the WellCare Releasors ever had,
now have or hereafter can, shall or may have against each Hospital Releasee, for
upon, or by reason of any matter, cause or things whatsoever relating to the
matters referred to in (e)(i) above from the beginning of the world to the day
of the date of this Agreement or arising hereafter as a result of or in
connection with the matters referred to in (e)(i) above. The foregoing release
expressly excludes any claims for payment that WellCare may have against
independent practice associations, including but not limited to those owned by
Primergy, Inc., and other third parties (such as Merit Behavioral Services,
Access Managed Healthcare, Block Vision, New York Medical Imaging, PharmaCare
and Laboratory Corporation of America) that have contracted with WellCare to
provide or to arrange for the provision of certain health care services (e.g.,
physician services or specialty "carve-out" services, such as mental health
services, chiropractic services, laboratory services or pharmacy services) to
HMO members of WCNY and expressly excludes any action, suits, claims or demands
arising from medical malpractice or negligence.
(f) The WellCare Releasors represent to each Hospital Releasee that
none of the liabilities, claims, causes of actions, costs or demands herein
released has been assigned to any person or entity.
(g) The WellCare Releasors acknowledge that they may hereafter
discover facts different from, or in addition to, those that they now believe to
be true, with respect to all or any of the liabilities, claims, causes or
action, costs or demands herein released but nevertheless agree that the
releases set forth herein shall be and remain effective in all respects,
notwithstanding the discovery of such different or additional facts.
(h) The WellCare Releasors are forever barred and enjoined from
commencing, instituting or prosecuting any action or other adversary proceeding
in any court of law or equity, arbitration tribunal, or administrative forum,
directly or representatively, against any Hospital Releasee with respect to any,
some or all of Settled Claims; provided however, the WellCare Releasors and each
Hospital Releasee retain all rights and remedies to enforce the terms of this
Agreement.
(i) Nothing contained herein shall be deemed to create any rights or
benefits, or constitutes a release of any kind whatsoever, for any non-Party.
8. Representations and Warranties of the Parties
(a) WellCare represents and warrants that the execution of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and will not violate
the provisions of its certificate of incorporation or by-laws or of any
agreement, law, rule, regulation or other commitment to which it is a party of
and by which it is bound.
(b) Hospital represents and warrants that the execution of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and will not violate
the provisions of its certificate of incorporation or by-laws or of any
agreement, law, rule, regulation or other commitment to which it is a party of
and by which it is bound.
9. Termination of Settlement
(a) The Parties agree that this Agreement is binding and irrevocable
(unless terminated pursuant to this Section 9 or as provided in Sections 1 and 2
herein) regardless of future events or changed circumstances of WellCare or any
of its subsidiaries or affiliates, and the Parties agree that the agreements and
covenants contained herein are fair, reasonable and adequate, and WellCare
believes that the agreements and covenants contained herein are in the best
interests of WellCare and its subsidiaries, affiliates, shareholders and
creditors.
(b) If this Agreement shall not be approved by SID and DOH then in
either of these events, this Agreement shall become null and void for all
purposes and all negotiations, transactions and proceedings connected with it
(i) shall be without prejudice to the rights of any Party, (ii) shall not be
deemed or construed as evidence or an admission or a concession by any Party of
any fact, matter or thing; and (iii) shall not be admissible in evidence or used
in any action or proceeding.
(c) If WellCare is unable to fund the Provider Pool with an initial
balance of not less than Ten Million Dollars ($10,000,000) for any reason,
including but not limited to the failure to consummate the Patel Transaction
and/or the failure to consummate the GHI Transaction, this Agreement shall
become null and void for all purposes and all negotiations, transactions and
proceedings connected with it (i) shall be without prejudice to the rights of
any party, (ii) shall not be deemed or construed as evidence or an admission or
a concession by any party of any fact, matter or thing; and (iii) shall not be
admissible in evidence or used in any action or proceeding.
(d) If a case is commenced in respect to WellCare or any of its
subsidiaries or affiliates under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator, or the like is appointed
under Article 74 of the New York Insurance Law or any similar law, or by SID, or
any other regulatory body, and in the event of the entry of a final order of a
court of competent jurisdiction determining the transfer of money to the
Provider Pool and/or to the Hospital in payment of a Settled Claim, or any
portion thereof, on behalf of WellCare to be a preference, voidable transfer or
fraudulent transfer or similar transaction and any portion thereof is required
to be returned, then WellCare may move a court of competent jurisdiction to
vacate and set aside this Agreement and the releases contained herein, which
Agreement and releases shall be null and void, and the Parties shall be returned
to their respective positions as of April 30, 1999 and any payments made to the
Hospital shall be returned to WellCare. In any such event (or otherwise under
any such bankruptcy or similar proceeding), the debt owed by WellCare or its
estate to the Hospital shall not be valued on the basis of payments made
pursuant to sections 6(a) and (b) hereunder.
(e) Upon a default by WellCare in respect of any payment coming due
hereunder ("Default"), and unless such Default shall be cured within forty (40)
days after written notice thereof by fax and by certified mail, return receipt
requested, sent to:
President and Chief Executive Officer
WellCare of New York, Inc.
PO Box 4059
Kingston, New York 12402
with a copy to:
Seth I. Truwit, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
and a copy to:
Fredrick I. Miller, Esq.
Garfunkel, Wild & Travis, P.C.
111 Great Neck Road
Great Neck, NY 11021
and a copy to:
Sandip Patel, Esq.
Patel, Moore & O'Connor, PA
2240 Belle Air Road
Suite 160
Clearwater, FL 33764
Hospital shall be entitled, upon not less than ten (10) days' notice to DOH, SID
and WellCare that Wellcare is in Default under the terms of this Agreement, to
file a Confession of Judgment against WellCare, in the form approved by
Garfunkel, Wild & Travis, P.C., for the full amount owed to Hospital under this
Agreement under Section 6(a) and/or (b). WellCare hereby consents to the entry
of such judgment without further notice other than as provided in the preceding
sentence. The original Confession of Judgment shall be signed on behalf of
WellCare and held by counsel for the Hospital.
10. Miscellaneous
(a) This Agreement is a compromise disposing of claims of each
Hospital, some or all of which may be controverted. This Agreement and all
negotiations and statements in connection herewith shall not be in any event
construed as or deemed to be evidence or an admission or concession on the part
of any Party of any liability whatever, and shall not be offered or received in
evidence in any action or proceeding in any court or other tribunal or used in
any way as an admission, concession or evidence of any liability by any party.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to a contracts executed and
performed in such State, without giving effect to the conflicts of laws
principles thereof.
(c) The Parties to this Agreement hereby consent to the jurisdiction
of the courts of the State of New York and the federal courts setting in New
York over them in any action to enforce this Agreement or any provision thereof.
(d) Each of the Parties has received independent legal advice from its
attorneys with respect to the advisability of entering into this Agreement and
the releases contained herein. Each of the Parties has made such investigation
of the facts pertaining to this Agreement and the releases herein and all other
matters pertaining thereto as it deems necessary.
(e) Each of the Parties to this Agreement acknowledges that this
Agreement is reached solely in relation to the subject matter herein and no
agreement reached herein shall constitute an admission or evidence in any other
matter among the parties to this Agreement or in any other matter or proceeding
in which any of the parties may be or become involved.
(f) Each of the Parties agrees to execute or cause their counsel to
execute any additional documents and take any further action which reasonably
may be required in order to consummate this Agreement, or otherwise fulfill the
obligations of the Parties hereunder. Each party is to bear its own costs and
attorney's fees incurred in connection with any such additional action.
(g) This Agreement represents and expresses the entire agreement
between the Parties with respect to the subject matter hereof and may not be
modified or amended except in a writing signed by WellCare and the affected
Hospital, so long as such modification or amendment does not adversely effect
other providers with respect to the payment of Settled Claims from the Provider
Pool or for payments similar to those set forth in Section 6(b).
(h) This Agreement shall be binding on and inure to the benefit of the
Parties and their respective successors, administrators or assigns, and upon any
corporation or other entity into or with which any Party may merge, consolidate
or reorganize. This Agreement and the releases contained herein is limited to
the Parties, the Hospital Releasors, the Hospital Releasees, the Wellcare
Releasors and the Wellcare Releasees and any other third party beneficiary of
this Agreement and the releases contained herein is expressly excluded.
(i) The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
(j) This Agreement may be executed in counterparts, each of which
shall be deemed an original instrument, but all of which together will
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
GARFUNKEL, WILD & TRAVIS, P.C. THE WELLCARE MANAGEMENT
GROUP, INC.
By: /s/ Frederick I. Miller, Esq. By: /s/ Craig Dupont
- --------------------------------- --------------------
Fredrick I. Miller, Esq. Craig Dupont
111 Great Neck Road Acting Chief Executive Officer
Great Neck, New York 11021 Park West/Hurley Avenue Extension
(516) 393-2200 Kingston, NY 12401
Attorneys for Healthcare Association of New (914) 334-4000
York State and Northern Metropolitan Hospital
Association
SANDIP PATEL, ESQ. WELLCARE OF NEW YORK, INC.
By: /s/ Sandip Patel, Esq. By: /s/ Mary Lee Campbell-Wisley
- --------------------------- --------------------------------
Sandip Patel, Esq. Mary Lee Campbell-Wisley
Attorney for Kiran C. Patel, M.D., F.A.C.C. Chief Executive Officer
. Park West/Hurley Avenue Extension
Kingston, NY 12401
(914) 334-4000
<PAGE>
HOSPITAL
By: _____________________________
Title____________________________
Hospital_________________________
<PAGE>
Exhibit 10.78
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT (the "Agreement") dated May __, 1999 by and among THE
WELLCARE MANAGEMENT GROUP, INC., a New York corporation ("WCMG"), WELLCARE OF
NEW YORK, INC., a New York corporation ("WCNY" and together with WCMG,
"WellCare"), and KIRAN C. PATEL ("Dr. Patel") (WellCare and Dr. Patel
collectively, the "WellCare Parties"), and the Provider or Provider group
specified on the signature page of this Agreement ("Provider") and THE MEDICAL
SOCIETY OF THE STATE OF NEW YORK ("MSSNY") (WCMG, WCNY, Dr. Patel, Provider and
MSSNY being referred to individually as a "Party" and collectively as the
"Parties").
WHEREAS, WCMG has signed a letter of intent with Dr. Patel, for a
transaction that would, among other things, encompass an equity investment in
WellCare by Dr. Patel or an affiliate (the "Patel Transaction");
WHEREAS, the Board of Directors of WCNY, a New York certified health
maintenance organization ("HMO"), has approved the sale of its New York State
based commercial business to Group Health Incorporated (the "GHI Transaction");
WHEREAS, WellCare and Dr. Patel contemplate that all or a portion of the
equity investment provided through the Patel Transaction and all of the funds
obtained through the GHI Transaction will be pooled with certain current assets
of WCNY and made available to satisfy claims by providers for services rendered
through April 30, 1999;
WHEREAS, WCNY has agreed to a consent to rehabilitation in which the State
of New York has the right to commence court proceedings and have an order
entered into that would give the State of New York the right to assume the
operation of WCNY;
WHEREAS, Healthcare Association of New York ("HANYS") and Northern
Metropolitan Hospital Association ("NORMET") have entered into a similar
settlement agreement for the purpose of settling any and all disputes, claims
and controversies between WellCare and the member hospital which is also a
signatory to the agreement, relating to the payment for services provided by
member hospitals prior to May 1, 1999 to HMO members of WCNY, in order to assist
their respective member hospitals in the resolution of such member hospitals'
claims against WellCare, with the express understanding that neither HANYS nor
NORMET has authority to bind its member hospitals and that each such member
hospital shall be required to separately execute the agreement if it is to be
binding on such member hospital;
WHEREAS, MSSNY has entered into this Agreement in order to assist their
members in the resolution of such member's claims against WellCare, with the
express understanding that MSSNY does not have authority to bind its members and
each member-Provider shall be required to separately execute this Agreement if
its it be binding on such member-Provider;
WHEREAS, the WellCare Parties and Provider desire, and are mutually
willing, to enter into this Agreement for the purpose of settling any and all
disputes, claims and controversies, as described further below, between WellCare
and the Provider, relating to the payment for services provided by the Provider
prior to May 1, 1999 to HMO members of WCNY; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
agreements herein, the Parties agree as follows:
1. Regulatory Approvals
This Agreement and the terms and conditions contained herein are subject to
the approval of the New York State Insurance Department ("SID") and the New York
State Department of Health ("DOH"). As soon as practicable, the Parties shall
jointly seek approval of this Agreement from SID and DOH, and in accordance with
Section 10(f), the Parties agree to execute or cause their counsel to execute
any additional documents and take any further action which may be reasonably
required in order to facilitate such regulatory approval.
2. Conditions to Effectiveness
This Agreement shall become effective (the "Effective Date") only upon the
satisfaction of each and all of the following conditions:
(a) Regulatory approvals as set forth in Section 1, no later than July
15, 1999;
(b) The deposit of a minimum of Ten Million Dollars ($10,000,000) in
the Provider Pool (as defined below) (the "Initial Funding Date"), no later than
July 15, 1999; and
(c) Agreement by WellCare and Provider as to the amount of its Settled
Claims (defined below) within thirty (30) days following the date of this
Agreement;
provided however that Sections 1, 4, 8, 9 and 10 hereof shall become effective
immediately. WellCare shall provide Provider with written notice of the
Effective Date of this Agreement no later than ten (10) business days after all
of the foregoing conditions have been satisfied.
3. Settled Claims
"Settled Claims" means the dollar amount of all claims against WellCare by
a health care provider that has signed this Agreement or an agreement with
substantially similar terms and conditions, for services rendered to HMO members
of WCNY in any product line prior to May 1, 1999 and received by WellCare within
thirty (30) days following the date hereof, determined as follows: (i) total
adjudicated claims as determined by WellCare on or before April 30, 1999,
namely, claims received by WellCare and approved as properly payable, and (ii)
all other claims (comprised of pended claims and disputed claims) submitted in
good faith and adjudicated in good faith by WellCare within thirty (30) days
following the date hereof at fifty percent (50%) of a Provider's or other
provider's submitted charges. For purposes of clarification, "Settled Claims"
shall not include any claims for payment that a health care provider may have
against independent practice associations, including but not limited to those
owned by Primergy, Inc., and other third parties (such as Merit Behavioral
Services, Access Managed Healthcare, Block Vision, New York Medical Imaging,
PharmaCare and Laboratory Corporation of America) that have contracted with
WellCare to provide or to arrange for the provision of certain health care
services (e.g., physician services or specialty "carve-out" services, such as
mental health services, chiropractic services, laboratory services or pharmacy
services) to HMO members of WCNY.
4. Exchange of Information and Confidentiality; Litigation Stay
(a) In connection with the execution of this Agreement, WellCare has
provided Provider, a provider specific summary of amounts owed for payable and
pended claims for services provided by provider to HMO members of WCNY prior to
May 1, 1999 that have not been paid according to WellCare's records.
(b) Provider agrees to confirm the amounts contained in said list of
all claims for services provided prior to May 1, 1999 and to provide WellCare
with Provider's statement of unpaid (including disputed) WellCare claims based
on its, his or her records as soon as practicable. If there is any disagreement
as to the Settled Claims amount the Parties shall, in good faith, attempt to
resolve any such disagreements within thirty (30) days following the date
hereof.
(c) Upon the determination of and agreement by WellCare and the
Provider as to the Settled Claims for Provider, WellCare shall provide Provider
with a statement of its, his or her Settled Claims and the minimum amount to
which Provider is entitled to payment from the Provider Pool, i.e., thirty
percent (30%) of the Settled Claims. Upon Provider's acceptance thereof, such
statement shall be annexed as Exhibit A to this Agreement.
(d) [THIS SECTION INTENTIONALLY OMITTED]
(e) The Parties each agree that they will not commence, institute or
prosecute any action or other adversary proceeding in any court of law or
equity, arbitration tribunal, or administrative forum ("Litigation") against any
other Party on or after the date hereof relating to or concerning the subject
matter of this Agreement, except (i) following termination of this Agreement as
provided in Section 9 or (ii) following July 15, 1999 if this Agreement shall
not have become effective by such date for failure to satisfy the conditions set
forth in Section 2 or (iii) if a case is commenced in respect to WellCare or any
of its subsidiaries or affiliates under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator or the like is appointed
under Article 74 of the New York Insurance Law or any similar law, or by SID, or
any other regulatory body, any Party may appear and participate in any such case
or proceeding. The Parties further agree to take whatever steps are necessary to
stay any Litigation during theperiod between the date hereof and the Effective
Date and thereafter take whatever steps are necessary to discontinue any such
Litigation with prejudice.
5. Establishment of Settlement Fund
(a) A pool of funds (the "Provider Pool") shall be established solely
to pay Settled Claims of the Providers and other providers which have entered
into settlement agreements containing terms similar to those contained in this
Agreement. The Provider Pool shall be established in a segregated cash
collateral account prior to the Effective Date at a bank mutually acceptable to
WellCare, Garfunkel Wild & Travis, P.C., as counsel to HANYS and NORMET, and
MSSNY, which approval shall not be unreasonably withheld, which bank shall have
had no prior dealings with WellCare. The Provider Pool shall not be disbursed
except in accordance with this Agreement (or other similar settlement
agreement). The Provider Pool account shall contain irrevocable instructions
concerning deposits and withdrawals from the Provider Pool, which shall be
agreed to by Garfunkel, Wild & Travis, P.C., as counsel to HANYS and NORMET, and
WellCare, subject to notification of MSSNY, prior to the Effective Date, and
which may be modified only with the prior written approval of both WellCare and
Garfunkel, Wild & Travis, P.C., as counsel to HANYS and NORMET, subject to
notification of MSSNY, or at the direction of SID. The Parties recognize and
agree that deposits into and payments from the Provider Pool may be subject to
audit or review by SID and other regulatory agencies having jurisdiction over
WellCare. The Parties understand that HANYS and/or NORMET or their agents or
representatives, shall have the right to audit or review the Provider Pool, and
the results of any such audit shall be distributed to all Parties. The Parties
agree to cooperate with each other to the extent reasonably necessary to carry
out the provisions of this Section 5(a).
(b) The Provider Pool shall have an initial balance of not less than
Ten Million Dollars ($10,000,000) by the Effective Date and shall be comprised
of proceeds from the Patel Transaction and/or GHI Transaction. In addition, the
Provider Pool shall be supplemented by an amount equal to 80% of all proceeds
from accounts receivables of WCNY which were or should have been recorded in
accordance with generally accepted accounting principles (GAAP) as of April 30,
1999 (the "Accounts Receivable") to the extent such proceeds are collected by
WellCare during the period commencing on May 1, 1999 and ending on the date that
the Provider Pool is no longer in effect. If the amounts deposited in the
Provider Pool shall in the aggregate exceed Ten Million Dollars ($10,000,000)
(the amount so exceeding Ten Million Dollars ($10,000,000) being the "Excess"),
the Excess may be withdrawn from the Provider Pool and retained by WellCare for
purposes of maintaining its statutory reserves in accordance with applicable
law, but in no event shall WellCare be entitled to withdraw from the Provider
Pool and retain more than Two Million Five Hundred Thousand Dollars ($2,500,000)
for such purpose. Any Excess beyond that amount required for statutory reserves
shall be retained in the Provider Pool.
(c) In the event that the amount equal to thirty percent (30%) of the
aggregate Settled Claims for all providers (excluding the five percent (5%)
payments to providers described in Section 6(b)), is greater than Ten Million
Dollars ($10,000,000), but does not exceed Twelve Million Dollars ($12,000,000),
subject to Section 5(b), WellCare shall deposit additional funds into the
Provider Pool to make up the shortfall, to the extent WellCare has sufficient
funds and requisite regulatory authority to so act. In the event WellCare lacks
sufficient funds and/or requisite regulatory authority to deposit such
additional funds in the Provider Pool, Dr. Patel will provide funds in such
amount necessary to pay the thirty percent (30%) of the aggregate Settled Claims
for all providers, not to exceed a total Provider Pool balance of Twelve Million
Dollars ($12,000,000).
(d) In the event the amount equal to thirty percent (30%) of the
aggregate Settled Claims for all providers (excluding the five percent (5%)
payments to providers described in Section 6(b)) is greater than Twelve Million
Dollars ($12,000,000), then the amount required to be deposited into the
Provider Pool in excess of Twelve Million Dollars ($12,000,000) shall be paid by
WellCare; provided, however, that WellCare will be permitted to reduce pro rata
the amount of the Provider's remaining three (3) payments of five percent (5%)
as set forth in Section 6(b) below (and all other providers with Settled Claims
who may receive a similar payment) to the extent that WellCare's payments exceed
Twelve Million Dollars ($12,000,000), and provided, however, in no case shall
Provider receive less than thirty percent (30%) of its Settled Claims under this
Agreement.
(e) In the event a balance remains in the Provider Pool as of six (6)
months after the Effective Date, then such balance will be distributed pro rata
to the Provider and other providers which have entered into agreements to settle
their Settled Claims, based upon the amounts of their respective Settled Claims.
(f) Each health care provider that has Settled Claims shall have a
security interest for the benefit of all health care providers with Settled
Claims, which shall be a first priority lien with respect to the proceeds due to
WellCare from the Patel Transaction and/or GHI Transaction and all amounts in
the Provider Pool, and a second priority lien on and security interest in the
Accounts Receivable, except to the extent there is no other lien on the Accounts
Receivable as of the date of this Agreement, the security interest shall be a
first priority lien. It shall be the responsibility of such providers to timely
and properly prepare and deliver the necessary documents for signature by all
necessary parties, and thereafter cause the appropriate filings to be made to
perfect such security interests, including, without limitation, a financing
statement in the form approved by the Parties. The Parties shall cooperate with
each other in the preparation of any and all documents necessary to give effect
to such security interest and such other terms and obligations hereunder.
(g) Nothing contained herein shall prohibit or restrict WellCare from
settling or paying claims of any nature from sources of funds exclusive of those
deposited (or required to be deposited) in the Provider Pool.
6. Payment by WellCare of Settled Claims
(a) WellCare will pay Provider thirty percent (30%) of the Provider's
Settled Claims within ten (10) days of the Effective Date. If, however, thirty
percent (30%) of the aggregate Settled Claims for all providers exceeds the
funds then in the Provider Pool, then WellCare will pay the Provider and all
other providers with Settled Claims on a pro rata basis from the funds then in
the Provider Pool and thereafter pay the Provider and all other providers with
Settled Claims on a pro rata basis every thirty days (30) thereafter for the
period in which the Provider Pool is in effect. WellCare represents to Provider
that providers with Settled Claims shall all receive payment from the Provider
Pool based upon the same proportion of their Settled Claims. Notwithstanding the
foregoing, in no case shall Provider receive less than thirty percent (30%) of
the amount of its Settled Claims within six (6) months of the Effective Date and
Provider shall continue to have the right to bill WCNY members for all
applicable copayments, coinsurance and non-covered services relating to Settled
Claims to the extent permitted under the applicable health plan and provider
agreement, and WellCare shall provide Provider with necessary documentation to
bill the member accordingly. Notwithstanding anything to the contrary contained
herein, WellCare shall have the right to recoup, without any right of set-off,
any amounts paid under this Agreement to a Provider if the Provider shall have
failed to be a participating provider in good standing with WellCare at any time
during the period commencing on the date hereof and ending on the date six
months following the date hereof, and in such case of recoupment by WellCare,
this Agreement shall be null and void for all purposes. The foregoing condition
of a provider agreement shall not be applicable on or after the Effective Date
if Provider has terminated the provider agreement for cause or WellCare has
terminated such provider agreement without cause.
(b) WellCare will pay Provider an amount equal to five percent (5%) of
such Provider's Settled Claims on each of February 1, 2000, February 1, 2001 and
February 1, 2002, provided, however, Provider is at that time a participating
provider in good standing with WellCare. The foregoing condition of a provider
agreement shall not be applicable if Provider has terminated the provider
agreement for cause or WellCare has terminated such provider agreement without
cause. The Parties understand and acknowledge that no such payment under this
Section 6(b) shall be made from the Provider Pool.
(c) Subject to regulatory approvals and in accordance with applicable
law, including the federal securities laws, the Provider may elect to receive
WCMG common stock in lieu of one or more of the annual payments set forth in
Section 6(b). The price at which the WCMG common stock shall be valued shall be
the greater of the price of such common stock for the twenty (20) trading days
ending on February 2nd of the calendar year immediately preceding the applicable
payment date or $1.00 per share. Each Provider receiving such WCMG common stock
shall agree to transfer restrictions on such shares for a mutually agreed upon
period after issuance, but not to exceed six (6) months. In the event the
Provider elects to receive WCMG common stock in lieu of a cash payment, the
Parties agree to cooperate and use their best efforts to reach agreement
regarding the terms and conditions of such receipt of WCMG securities and to
accomplish the foregoing.
7. Mutual Releases
(a) Provider together with its subsidiaries, affiliates, officers,
directors, shareholders, employees, agents, attorneys, representatives,
successors and assigns ("Provider Releasor"), hereby releases and discharges the
WellCare Parties, together with their respective subsidiaries, affiliates,
directors, shareholders, employees, agents, attorneys, representatives,
successors and assigns ("WellCare Releasees") from (i) all indebtedness and
other financial obligations arising from the provision of services by each
Provider to members of WCNY in any product line on or before April 30, 1999,
including any prospective adjustments pursuant to the New York Health Care
Reform Act ("NYCRA") for services rendered prior to May 1, 1999, and (ii) all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, rights to contribution, damages,
judgments, extends, executions, claims, and demands whatsoever, in law,
admiralty or equity, which each Provider Releasor ever had, now has or hereafter
can, shall or may have against the WellCare Releasees, for upon, or by reason of
any matter, cause or things whatsoever relating to the matters referred to in
(a)(i) above from the beginning of the world to the day of the date of this
Agreement or arising hereafter as a result of or in connection with the matters
referred to in (a)(i) above. The foregoing release expressly excludes any claims
for payment that Provider may have against independent practice associations,
including but not limited to those owned by Primergy, Inc., and other third
parties (such as Merit Behavioral Services, Access Managed Healthcare, Block
Vision, New York Medical Imaging, PharmaCare and Laboratory Corporation of
America) that have contracted with WellCare to provide or to arrange for the
provision of certain health care services (e.g., physician services or specialty
"carve-out" services, such as mental health services, chiropractic services,
laboratory services or pharmacy services) to HMO members of WCNY and expressly
excludes any action, suits, claims or demands arising from medical malpractice
or negligence.
(b) Each Provider Releasor represents to the WellCare Releasees that
none of the liabilities, claims, causes of actions, costs or demands herein
released has been assigned to any person or entity.
(c) Each Provider Releasor acknowledges that it may hereafter discover
facts different from, or in addition to, those that it now believes to be true,
with respect to all or any of the liabilities, claims, causes or action, costs
or demands herein released but nevertheless agrees that the releases set forth
herein shall be and remain effective in all respects, notwithstanding the
discovery of such different or additional facts.
(d) Each Provider Releasor is forever barred and enjoined from
commencing, instituting or prosecuting any action or other adversary proceeding
in any court of law or equity, arbitration tribunal, or administrative forum,
directly or representatively, against the WellCare Releasees with respect to
any, some or all of the Settled Claims; provided however, each Provider Releasor
and the WellCare Releasees retain all rights and remedies to enforce the terms
of this Agreement.
(e) The WellCare Parties together with their respective subsidiaries,
affiliates, officers, directors, shareholders, employees, agents, attorneys,
representatives, successors and assigns ("WellCare Releasors") hereby release
and discharge Provider and its subsidiaries, affiliates, directors,
shareholders, employees, agents, attorneys, representatives, successors and
assigns ("Provider Releasee") from (i) all indebtedness and other financial
obligations arising from the provision of services by Provider to members of
WCNY in any product line on or before April 30, 1999, including any prospective
adjustments pursuant to the NYCRA for services rendered prior to May 1, 1999,
and (ii) all actions, causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, rights to
contribution, damages, judgments, extends, executions, claims, and demands
whatsoever, in law, admiralty or equity, which the WellCare Releasors ever had,
now have or hereafter can, shall or may have against each Provider Releasee, for
upon, or by reason of any matter, cause or things whatsoever relating to the
matters referred to in (e)(i) above from the beginning of the world to the day
of the date of this Agreement or arising hereafter as a result of or in
connection with the matters referred to in (e)(i) above. The foregoing release
expressly excludes any claims for payment that WellCare may have against
independent practice associations, including but not limited to those owned by
Primergy, Inc., and other third parties (such as Merit Behavioral Services,
Access Managed Healthcare, Block Vision, New York Medical Imaging, PharmaCare
and Laboratory Corporation of America) that have contracted with WellCare to
provide or to arrange for the provision of certain health care services (e.g.,
physician services or specialty "carve-out" services, such as mental health
services, chiropractic services, laboratory services or pharmacy services) to
HMO members of WCNY and expressly excludes any action, suits, claims or demands
arising from medical malpractice or negligence.
(f) The WellCare Releasors represent to each Provider Releasee that
none of the liabilities, claims, causes of actions, costs or demands herein
released has been assigned to any person or entity.
(g) The WellCare Releasors acknowledge that they may hereafter
discover facts different from, or in addition to, those that they now believe to
be true, with respect to all or any of the liabilities, claims, causes or
action, costs or demands herein released but nevertheless agree that the
releases set forth herein shall be and remain effective in all respects,
notwithstanding the discovery of such different or additional facts.
(h) The WellCare Releasors are forever barred and enjoined from
commencing, instituting or prosecuting any action or other adversary proceeding
in any court of law or equity, arbitration tribunal, or administrative forum,
directly or representatively, against any Provider Releasee with respect to any,
some or all of Settled Claims; provided however, the WellCare Releasors and each
Provider Releasee retain all rights and remedies to enforce the terms of this
Agreement.
(i) Nothing contained herein shall be deemed to create any rights or
benefits, or constitutes a release of any kind whatsoever, for any non-Party.
8. Representations and Warranties of the Parties
(a) WellCare represents and warrants that the execution of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and will not violate
the provisions of its certificate of incorporation or by-laws or of any
agreement, law, rule, regulation or other commitment to which it is a party of
and by which it is bound.
(b) Provider represents and warrants that, to the extent applicable,
the execution of this Agreement and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and will not violate the provisions of its certificate of incorporation or
by-laws or of any agreement, law, rule, regulation or other commitment to which
it is a party of and by which it is bound.
9. Termination of Settlement
(a) The Parties agree that this Agreement is binding and irrevocable
(unless terminated pursuant to this Section 9 or as provided in Sections 1 and 2
herein) regardless of future events or changed circumstances of WellCare or any
of its subsidiaries or affiliates, and the Parties agree that the agreements and
covenants contained herein are fair, reasonable and adequate, and WellCare
believes that the agreements and covenants contained herein are in the best
interests of WellCare and its subsidiaries, affiliates, shareholders and
creditors.
(b) If this Agreement shall not be approved by SID and DOH then in
either of these events, this Agreement shall become null and void for all
purposes and all negotiations, transactions and proceedings connected with it
(i) shall be without prejudice to the rights of any Party, (ii) shall not be
deemed or construed as evidence or an admission or a concession by any Party of
any fact, matter or thing; and (iii) shall not be admissible in evidence or used
in any action or proceeding.
(c) If WellCare is unable to fund the Provider Pool with an initial
balance of not less than Ten Million Dollars ($10,000,000) for any reason,
including but not limited to the failure to consummate the Patel Transaction
and/or the failure to consummate the GHI Transaction, this Agreement shall
become null and void for all purposes and all negotiations, transactions and
proceedings connected with it (i) shall be without prejudice to the rights of
any party, (ii) shall not be deemed or construed as evidence or an admission or
a concession by any party of any fact, matter or thing; and (iii) shall not be
admissible in evidence or used in any action or proceeding.
(d) If a case is commenced in respect to WellCare or any of its
subsidiaries or affiliates under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator, or the like is appointed
under Article 74 of the New York Insurance Law or any similar law, or by SID, or
any other regulatory body, and in the event of the entry of a final order of a
court of competent jurisdiction determining the transfer of money to the
Provider Pool and/or to the Provider in payment of a Settled Claim, or any
portion thereof, on behalf of WellCare to be a preference, voidable transfer or
fraudulent transfer or similar transaction and any portion thereof is required
to be returned, then WellCare may move a court of competent jurisdiction to
vacate and set aside this Agreement and the releases contained herein, which
Agreement and releases shall be null and void, and the Parties shall be returned
to their respective positions as of April 30, 1999 and any payments made to the
Provider shall be returned to WellCare. In any such event (or otherwise under
any such bankruptcy or similar proceeding), the debt owed by WellCare or its
estate to the Provider shall not be valued on the basis of payments made
pursuant to sections 6(a) and (b) hereunder.
(e) Upon a default by WellCare in respect of any payment coming due
hereunder ("Default"), and unless such Default shall be cured within forty (40)
days after written notice thereof by fax and by certified mail, return receipt
requested, sent to:
President and Chief Executive Officer
WellCare of New York, Inc.
PO Box 4059
Kingston, New York 12402
with a copy to:
Seth I. Truwit, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
and a copy to:
Sandip Patel, Esq.
Patel, Moore & O'Connor, PA
2240 Belle Air Road
Suite 160
Clearwater, FL 33764
Provider shall be entitled, upon not less than ten (10) days' notice to DOH, SID
and WellCare that Wellcare is in Default under the terms of this Agreement, to
seek appropriate judicial relief for payments due under this Agreement.
10. Miscellaneous
(a) This Agreement is a compromise disposing of claims of each
Provider, some or all of which may be controverted. This Agreement and all
negotiations and statements in connection herewith shall not be in any event
construed as or deemed to be evidence or an admission or concession on the part
of any Party of any liability whatever, and shall not be offered or received in
evidence in any action or proceeding in any court or other tribunal or used in
any way as an admission, concession or evidence of any liability by any party.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to a contracts executed and
performed in such State, without giving effect to the conflicts of laws
principles thereof.
(c) The Parties to this Agreement hereby consent to the jurisdiction
of the courts of the State of New York and the federal courts setting in New
York over them in any action to enforce this Agreement or any provision thereof.
(d) Each of the Parties has received independent legal advice from its
attorneys with respect to the advisability of entering into this Agreement and
the releases contained herein. Each of the Parties has made such investigation
of the facts pertaining to this Agreement and the releases herein and all other
matters pertaining thereto as it deems necessary.
(e) Each of the Parties to this Agreement acknowledges that this
Agreement is reached solely in relation to the subject matter herein and no
agreement reached herein shall constitute an admission or evidence in any other
matter among the parties to this Agreement or in any other matter or proceeding
in which any of the parties may be or become involved.
(f) Each of the Parties agrees to execute or cause their counsel to
execute any additional documents and take any further action which reasonably
may be required in order to consummate this Agreement, or otherwise fulfill the
obligations of the Parties hereunder. Each party is to bear its own costs and
attorney's fees incurred in connection with any such additional action.
(g) This Agreement represents and expresses the entire agreement
between the Parties with respect to the subject matter hereof and may not be
modified or amended except in a writing signed by WellCare and the affected
Provider, so long as such modification or amendment does not adversely effect
other providers with respect to the payment of Settled Claims from the Provider
Pool or for payments similar to those set forth in Section 6(b).
(h) This Agreement and the releases contained herein supersede any
prior agreement or release with respect to the subject matter hereof.
(i) This Agreement shall be binding on and inure to the benefit of the
Parties and their respective successors, administrators or assigns, and upon any
corporation or other entity into or with which any Party may merge, consolidate
or reorganize. This Agreement and the releases contained herein is limited to
the Parties, the Provider Releasors, the Provider Releasees, the Wellcare
Releasors and the Wellcare Releasees and any other third party beneficiary of
this Agreement and the releases contained herein is expressly excluded.
(j) The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
(k) This Agreement may be executed in counterparts, each of which
shall be deemed an original instrument, but all of which together will
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
PROVIDER THE WELLCARE MANAGEMENT
GROUP, INC.
By:___________________________ By: /s/ Craig Dupont
Title:________________________ -----------------------------
Address:______________________ Craig Dupont
______________________ Acting Chief Executive Officer
Park West/Hurley Avenue Extension
Kingston, NY 12401
SANDIP PATEL, ESQ. WELLCARE OF NEW YORK, INC.
By: /s/ Sandip Patel, Esq. By: /s/ Mary Lee Campbell-Wisley
------------------------- -----------------------------
Sandip Patel, Esq. Mary Lee Campbell-Wisley
Attorney for Kiran C. Patel, M.D., Chief Executive Officer
F.A.C.C. Park West/Hurley Avenue Extension
Kingston, NY 12401
(914) 334-4000
MEDICAL SOCIETY OF THE STATE
OF NEW YORK
By: /s/ Donald R. Moy, Esq.
-------------------------
Donald R. Moy, Esq.
General Counsel
Exhibit 10.79
[LETTERHEAD OF EPSTEIN, BECKER & GREEN, P.C.]
May 27, 1999
[INSERT NAME OF STOCKHOLDER]
[INSERT ADDRESS OF STOCKHOLDER]
Re: Conversion of Class A Common Stock of
The WellCare Management Group, Inc.
Dear Class A Stockholder:
As you may be aware, The WellCare Management Group, Inc. (the "Company")
recently entered into a transaction pursuant to which Kiran C. Patel agreed to
purchase shares of a newly authorized class of preferred stock of the Company
which will give him voting rights equal to fifty-five percent (55%) of the
outstanding voting stock of the Company for $5,000,000. For your information, I
have enclosed a copy of the Company's May 21, 1999 press release regarding this
transaction and certain other significant recent developments regarding the
Company.
The closing of the transaction with Dr. Patel described above is currently
scheduled for Tuesday June 1, 1999. It is a condition to the closing of the
transaction that all of the holders of the Class A Common Stock of the Company,
$.01 par value ("Class A Common Stock"), convert all of their shares of Class A
Common Stock into Common Stock of the Company, $.01 par value ("Common Stock").
Accordingly, please execute the enclosed Notice of Conversion of Shares of
Class A Common Stock and return it, along with your stock certificate(s)
representing your shares of Class A Common Stock, to my attention at your
earliest possible convenience, but in no event later than Saturday May 29, 1999.
Please send a copy of the executed Notice to me via facsimile at (212) 661-0989
and then send the executed original Notice, along with your stock
certificate(s), to me via overnight mail at the above address in the enclosed
overnight mail return package.
The conversion of your shares of Class A Common Stock into Common Stock
will be subject to, and simultaneous with, the closing of the transaction with
Dr. Patel. Within a reasonable period of time after the closing of the
transaction with Dr. Patel, you will receive stock certificate(s) or other
appropriate evidence of your ownership of Common Stock. In the event that that
transaction does not close on or before August 1, 1999, the enclosed Notice
shall be null and void and your stock certificate(s) will be returned to you.
Sincerely yours,
/s/ Brian M. Wyatt
------------------
Brian M. Wyatt
Enclosures
cc: Mr. Craig S. Dupont (w/Enclosures)
Acting President and Chief Executive Officer
The WellCare Management Group, Inc.
<PAGE>
NOTICE OF CONVERSION OF
SHARES OF CLASS A COMMON STOCK
Date: May 27, 1999
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attention: Legal Department
Re: The WellCare Management Group, Inc.
Conversion of Class A Common Stock
Number of Shares of Common A Common Stock: 400,000
Ladies and Gentlemen:
The undersigned hereby represents to you that the undersigned is the record
holder of 400,000 shares of Class A Common Stock, $.01 par value ("Class A
Common Stock"), of The WellCare Management Group, Inc. (the ACompany@). The
stock certificate(s) of the undersigned representing such shares of Class A
Common Stock are enclosed herewith.
The undersigned hereby instructs you, as Transfer Agent for the Company's
classes of Common Stock, to effect the conversion of the undersigned's 400,000
shares of Class A Common Stock into an equal number of shares of the Company's
Common Stock, $.01 par value ("Common Stock"), registered in the same name,
effective as soon as possible.
Yours truly,
__________________________________
Edward A. Ullman
<PAGE>
ATTACHMENT
List of Class A Shareholders
who received Letter Regarding
Conversion of Class A Common Stock
Patrick Artlantico
Helen Butler
Charles E. Crew, Jr.
Susan Dean
First Albany Corp
Charles M. & Helene Fliegler
Ted Kalmon
Nancy & Kenneth Lavallee
Robert Morey, Jr.
Dave Young -2010 (Prudential)
G. William & Sandra Strein
G. William Strein
Edward Ullman
Daniel Zeichner, MD
Irene Zeichner
Exhibit 10.79a
VOTING AGREEMENT
VOTING AGREMENT (the "Agreement") dated as of June 9, 1999 by and between
KIRAN C. PATEL ("Patel"), an individual having an address at 6800 N. Dale Mabry,
Suite 268, Tampa, Florida 33614, and ROBERT W. MOREY ("Morey"), an individual
having an address at c/o RWM Management Company, Box I, Tiburon, California
94920.
W I T N E S S E T H:
WHEREAS, pursuant to the Stock Purchase Agreement (the "Stock Purchase
Agreement") dated May 19, 1999, by and between Patel and The WellCare Management
Group, Inc., a New York corporation (the "Company"), Patel is purchasing a
fifty-five percent (55%) equity interest in the Company;
WHEREAS, it is a condition to Patel's obligation to consummate the
transactions contemplated by the Stock Purchase Agreement that all of the
holders of the Class A Common Stock, $.01 par value, of the Company (the "Class
A Common Stock") agree to convert all of their shares of Class A Common Stock
into Common Stock, $.01 par value, of the Company ("Common Stock");
WHEREAS, Morey has not agreed to convert his 281,956 shares of Class A
Common Stock (the "Shares") into Common Stock; and
WHEREAS, Patel and Morey wish to enter into a voting agreement pursuant to
Section 620 of the New York Business Corporation Law, effective as of June 9,
1999 (the "Effective Date"), whereby Morey will agree to vote or cause to be
voted the Shares as directed by Patel, and, pursuant thereto, Morey will deliver
to Patel an irrevocable proxy for two (2) years to vote the Shares in Patel's
sole and absolute discretion in the form attached hereto as Exhibit A.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and promises herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Voting Agreement. Morey hereby irrevocably and unconditionally agrees
that during the time that this Agreement is in effect, at any meeting of
shareholders of the Company, however called, or, if in lieu of a meeting,
shareholder action is taken by written consent, shall vote or cause to be voted,
the Shares at the time of such meeting or the execution of such written consent,
as the case may be, as directed by Patel, in his sole and absolute discretion.
2. Proxy. In order to effectuate the agreement set forth in Section 1
hereof, Morey shall deliver to Patel a proxy in the form attached hereto as
Exhibit A, which shall be irrevocable for two (2) years from the Effective Date
in accordance with Section 609 of the New York Business Corporation Law and
pursuant to which Patel shall have the exclusive right to vote the Shares in his
sole and absolute discretion.
3. Term and Termination. The term of this Agreement shall be two (2) years
from the Effective Date, unless it is earlier terminated by mutual agreement of
the parties.
4. Representation by Morey. Morey hereby warrants and represents to Patel
that (i) he has full power and authority to execute and deliver to Patel, and to
perform the terms of, this Agreement and (ii) the Shares are not now, nor shall
they at any time during the term of this Agreement be or become, subject to any
other proxy, voting agreement, voting trust, or similar agreement or arrangement
that would in any way restrict or obviate the rights provided to Patel, and
Morey's obligations, hereunder and pursuant to the proxy.
5. Governing Law. This Amendment shall be governed by and construed in
accordance with the domestic laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Florida or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of New York.
6. Amendments and Waivers. No amendment of any provision of this Amendment
shall be valid unless the same shall be in writing and signed by Morey and
Patel.
7. Incorporation of Exhibit. The Exhibit identified in this Agreement is
incorporated herein by reference and made a part hereof.
8. No Third-Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any Person other than the parties and their respective
successors and permitted assigns.
9. Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
10. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of his
rights, interests, or obligations hereunder without the prior written approval
of the other party; provided, however, that Patel may (i) assign any or all of
his rights and interests hereunder to one or more of his affiliates and (ii)
designate one or more of his affiliates to exercise his rights hereunder (in any
or all of which cases Morey nonetheless shall remain responsible for the
performance of all of his obligations hereunder).
11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
12. Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
/s/ Kiran C. Patel
----------------------------------
KIRAN C. PATEL
/s/ Robert W. Morey
----------------------------------
ROBERT W. MOREY
Exhibit 10.79b
IRREVOCABLE PROXY
PROXY effective as of June 9, 1999 by and between KIRAN C. PATEL ("Patel"),
an individual having an address at 6800 N. Dale Mabry, Suite 268, Tampa, Florida
33614, and ROBERT W. MOREY ("Morey"), an individual having an address at c/o RWM
Management Company, Box I, Tiburon, California 94920.
W I T N E S S E T H:
WHEREAS, Patel and Morey have entered into a Voting Agreement dated as of
June 9, 1999 (the "Voting Agreement"), pursuant to which, inter alia, Morey has
agreed to give Patel, subject to the terms and conditions contained therein, a
proxy, which shall be irrevocable for two (2) years, to vote his 281,956 shares
of Class A Common Stock, $.01 par value ("Class A Common Stock") of The WellCare
Management Group, Inc. (the "Company"). Capitalized terms used herein and not
otherwise defined herein shall have the meanings given to them in the Voting
Agreement; and
WHEREAS, Sections 609 and 620(a) of the New York Business Corporation Law
permit the granting of a voting proxy by a shareholder entitled to vote at a
meeting of shareholders or express consent or dissent without a meeting, and
that such voting proxy may be irrevocable if held by a person designated by or
under an agreement between two or more shareholders in writing and signed by the
parties thereto providing that in exercising any such voting rights, the shares
held by them shall be voted as therein provided, or as they may agree, or as
determined in accordance with a procedure agreed upon by them.
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Morey hereby agrees as follows:
1. Morey hereby appoints Patel as his proxy to represent and vote all of
the 281,956 shares of Class A Common Stock (the "Shares"), held of record by
Morey on the record date for determining the stockholders of the Company
eligible to vote on the matter at issue (the "Record Date") for and in the name,
place and stead of Morey at all regular, special or other meetings of the
holders of the Company's Common Stock, Class A Common Stock, and Preferred
Stock, par value $.01, of the Company of whatever designation, and at any
adjournment of such meetings, held during the time this proxy is in effect
pursuant to Section 2 hereof, and to act by consent in lieu of a meeting, or
otherwise, with respect to the Shares at all times this Proxy is in effect
pursuant to Section 2 hereof, in order that such Shares be voted the same as
those shares of the Company's Senior Convertible Preferred Stock, Series A and
any shares of Common Stock held of record by Patel.
2. Morey hereby acknowledges and agrees that this Proxy is irrevocable and
is coupled with an interest pursuant to the terms of the Voting Agreement and in
accordance with Section 609(f) of the New York Business Corporation Law. This
Proxy shall be effective as of June 9, 1999 and, as between Morey and Patel,
shall remain in effect for two (2) years or until the earlier expiration or
termination of the Voting Agreement.
3. This Proxy may not be sold, assigned or otherwise transferred by Patel
including as a result of the dissolution of the Company. If all or any portion
of the Shares held by Morey are sold, assigned or otherwise transferred, the
transferee of such Shares shall be bound by this Proxy and shall execute a new
proxy in substantially the same form.
4. Morey shall utilize his best efforts to cause the Company and its
transfer agent to affix to each certificate representing the Shares, for as long
as this Proxy is effective, the following legend:
NOTICE: THE POWER TO VOTE THE SHARES
REPRESENTED BY THIS SHARE CERTIFICATE
IS SUBJECT TO A PROXY WHICH IS IRREVOCABLE
UNDER SECTION 609 OF THE NEW YORK
BUSINESS CORPORATION LAW.
5. THIS PROXY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Proxy as of the 9th
day of June 1999.
/s/ Robert W. Morey
----------------------------------
ROBERT W. MOREY
Acknowledged and agreed:
/s/ Kiran C. Patel
- ------------------------------
KIRAN C. PATEL
Exhibit 10.80
ASSET PURCHASE AGREEMENT
BETWEEN
WELLCARE OF NEW YORK, INC.,
the Seller,
AND
GROUP HEALTH INCORPORATED,
the Purchaser.
Dated as of May 20, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions...................................................................................... 1
1.1 Defined Terms........................................................................... 1
2. Purchase and Sale of Assets...................................................................... 8
2.1 Commercial Contracts.................................................................... 8
2.2 Provider Contracts...................................................................... 8
2.3 Contracts, Leases, Licenses, Permits, etc............................................... 8
2.4 Medical Management Materials............................................................ 8
2.5 Intangible Assets....................................................................... 8
2.6 Computer Systems and Software........................................................... 9
2.7 Inventory and Supplies.................................................................. 9
2.8 Books and Records....................................................................... 9
2.9 Insurance Proceeds...................................................................... 9
2.10 Other Assets............................................................................ 9
3. Excluded Assets.................................................................................. 9
3.1 Corporate Books and Certain Other Records............................................... 10
3.2 Financial Assets........................................................................ 10
3.3 Accounts Receivable..................................................................... 10
3.4 Real Estate............................................................................. 10
3.5 Certain Contractual Rights.............................................................. 10
3.6 Interests in Subsidiaries............................................................... 10
3.7 Insurance Claims........................................................................ 10
3.8 Claims Against Providers................................................................ 10
3.9 Name.................................................................................... 10
3.10 Tax Refunds............................................................................. 10
3.11 Pre-Effective Time Rights, Claims, and Obligations...................................... 10
4. Consideration.................................................................................... 10
4.1 Post-Closing Purchase Price Adjustment.................................................. 11
4.2 Allocation of Consideration............................................................. 12
4.3 Assignment and Assumption Agreement..................................................... 12
5. Assumption and Retention of Liabilities.......................................................... 12
5.1 Obligations Under Certain Agreements.................................................... 12
5.2 Retained Liabilities.................................................................... 13
5.3 Certain Financial Arrangements.......................................................... 15
6. Closing.......................................................................................... 16
7. Non-Assignable Contracts......................................................................... 16
8. Representations and Warranties of the Seller..................................................... 16
8.1 Organization and Qualification.......................................................... 17
8.2 Certificate of Incorporation and By-Laws................................................ 17
8.3 Authority............................................................................... 17
8.4 No Conflict; Required Filings and Consents.............................................. 17
8.5 Permits; Compliance..................................................................... 18
8.6 Real Property; Other Assets............................................................. 18
8.7 Environmental Matters. ................................................................. 18
8.8 Financial Statements.................................................................... 19
8.9 Absence of Certain Changes or Events.................................................... 20
8.10 Absence of Litigation................................................................... 20
8.11 Employee Benefit Plans; Labor Matters................................................... 20
8.12 Taxes................................................................................... 21
8.13 Certain Agreements...................................................................... 22
8.14 Commercial Contracts.................................................................... 25
8.15 Medical Management...................................................................... 25
8.16 Commercial Members...................................................................... 25
8.17 Pending Treatments...................................................................... 26
8.18 Title to Property....................................................................... 26
8.19 Insurance............................................................................... 26
8.20 Compliance With Laws.................................................................... 26
8.21 Completeness of Assets.................................................................. 27
8.22 [Not Used].............................................................................. 27
8.23 No Bankruptcy........................................................................... 27
8.24 Broker's and Other Fees................................................................. 27
8.25 Transactions with Affiliates............................................................ 27
8.26 Payments................................................................................ 27
8.27 Patel Documents......................................................................... 28
8.28 Full Disclosure......................................................................... 28
9. Representations and Warranties of the Purchaser.................................................. 28
9.1 Organization and Qualification.......................................................... 28
9.2 Authority............................................................................... 28
9.3 No Conflict; Required Filings and Consents.............................................. 29
9.4 Absence of Litigation................................................................... 29
10. Transactions and Conduct of Business Pending the Closing......................................... 29
10.1 Ordinary Course of Business............................................................. 30
10.2 Preparation for Transfer and Transition................................................. 31
10.3 Payment of Retained Liabilities; Discharge of Pre-Effective Date
Medical Claim Liabilities............................................................... 31
10.4 Certain Prohibited Activities........................................................... 32
10.5 Casualty................................................................................ 32
10.6 Access.................................................................................. 32
10.7 Cooperation............................................................................. 33
10.8 No Change in Accounting Methods......................................................... 33
10.9 Other Offers............................................................................ 33
10.10 Public Announcements.................................................................... 34
10.11 Schedule Deliveries..................................................................... 34
10.12 WARN Notices............................................................................ 34
11. Conditions Precedent to the Purchaser's Obligations.............................................. 34
11.1 Delivery of Assets...................................................................... 34
11.2 Representations and Warranties True as of Effective Time................................ 34
11.3 Conveyance Documents.................................................................... 35
11.4 Officer's Certificates.................................................................. 35
11.5 Opinion of the Seller's Counsel......................................................... 35
11.6 Secretary's Certificates................................................................ 35
11.7 Notifications and Consents.............................................................. 35
11.8 Provider Contracts...................................................................... 36
11.9 Third Party Consents.................................................................... 36
11.10 Lien Search............................................................................. 37
11.11 Good Standing Certificate............................................................... 37
11.12 Certified Certificate of Incorporation.................................................. 37
11.13 Related Party Non-Competition Agreement................................................. 37
11.14 Contribution of Certain Assets to Seller ............................................... 37
11.15 Leases.................................................................................. 37
11.16 Guaranty................................................................................ 37
11.17 Transition Services Agreement........................................................... 38
11.18 Insurance Endorsements.................................................................. 38
11.19 No Material Adverse Change.............................................................. 38
11.20 Approval of Schedules................................................................... 38
11.21 Establishment of Claims Fund............................................................ 38
11.22 Patel Transaction....................................................................... 38
11.23 WARN Notices............................................................................ 38
12. Conditions Precedent to the Seller's Obligations................................................. 38
12.1 Representations and Warranties True as of Effective Time................................ 39
12.2 Compliance with Agreement............................................................... 39
12.3 Payment and Deliveries.................................................................. 39
12.4 Officer's Certificate................................................................... 39
12.5 Secretary's Certificate................................................................. 39
12.6 No Suit or Other Proceedings............................................................ 39
12.7 Notifications and Consents.............................................................. 39
12.8 Transition Services Agreement........................................................... 40
13. Certain Transactions and Obligations Subsequent to Closing....................................... 40
13.1 Further Assurance of Cooperation........................................................ 40
13.2 Maintenance of Corporate, Patient Care, Accounting and Tax
Records................................................................................. 40
13.3 Certain Employees of the Seller......................................................... 41
13.4 Designation of the Purchaser as Successor Employer...................................... 41
13.5 Mail and Communications................................................................. 42
13.6 Covenant Not to Compete, Etc............................................................ 42
14. Indemnification.................................................................................. 43
14.1 Indemnification by the Seller........................................................... 43
14.2 Indemnification by the Purchaser........................................................ 43
14.3 Limitations on Indemnity................................................................ 44
14.4 Notice to the Indemnitor................................................................ 44
14.5 Rights of Parties to Settle or Defend................................................... 45
14.6 Reimbursement........................................................................... 45
14.7 Losses Net of Insurance, etc............................................................ 46
14.8 Effectiveness........................................................................... 46
15. Brokers and Finders' Fees........................................................................ 46
15.1 The Seller.............................................................................. 46
15.2 The Purchaser........................................................................... 46
16. Additional Agreements............................................................................ 46
16.1 Expenses................................................................................ 46
16.2 Transfer Taxes.......................................................................... 47
16.3 Confidentiality......................................................................... 47
17. Merger; Amendment................................................................................ 47
18. Assignment and Binding Effect.................................................................... 47
19. Waiver........................................................................................... 48
20. Termination...................................................................................... 48
20.1 Mutual Consent.......................................................................... 48
20.2 The Seller's Breach..................................................................... 48
20.3 The Purchaser's Breach.................................................................. 48
20.4 Casualty................................................................................ 48
20.5 By the Purchaser or the Seller.......................................................... 48
21. Notices.......................................................................................... 49
22. Risk of Loss..................................................................................... 50
23. Severability..................................................................................... 50
24. Governing Law.................................................................................... 50
25. Third Party Beneficiary; No Benefit to Others.................................................... 50
26. Section Headings................................................................................. 50
27. Schedules and Exhibits........................................................................... 50
28. Counterparts..................................................................................... 50
29. Time for Performance............................................................................. 50
30. Survival......................................................................................... 50
31. Waiver of Jury Trial............................................................................. 51
32. Service of Process............................................................................... 51
33. Construction..................................................................................... 51
</TABLE>
EXHIBITS
Exhibit I-A Form of Bill of Sale
Exhibit I-B Form of Assignment and Assumption Agreement
Exhibit II Form of the Seller's Counsel Opinion
Exhibit III Lease Premises
Exhibit IV Material Terms of Transition Services Agreement
SCHEDULES
Schedule 5.1 Assumed Contracts
Schedule 8.4 Approvals
Schedule 8.5 Pending Actions
Schedule 8.6 Leases
Schedule 8.7 Real Property
Schedule 8.8 Financial Schedules
Schedule 8.10 Litigation
Schedule 8.13 Contracts
Schedule 8.14 Commercial Contracts
Schedule 8.15 Medical Management
Schedule 8.16 Commercial Members
Schedule 8.17 Pending Treatment Requests
Schedule 8.19 Insurance
Schedule 8.20 Compliance With Laws
Schedule 11.19 List of Due Diligence Materials Previously Delivered
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ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement"), made as of the 20th day of
May, 1999, by and between WellCare of New York, Inc., a New York corporation
(the "Seller"), and Group Health Incorporated, a New York not-for-profit
corporation ("GHI").
W I T N E S S E T H:
WHEREAS, the Seller is a health maintenance organization currently licensed
and operating in the State of New York;
WHEREAS, the Seller is a party to Commercial Contracts (as such term is
defined in Section 1 hereof) pursuant to which the Seller receives capitation
and/or premium payments on a prepaid basis in exchange for arranging for the
provision of comprehensive healthcare services to enrollees of commercial health
benefit plans;
WHEREAS, simultaneously with the consummation of the transactions
contemplated hereby, the Purchaser (as such term is defined in Section 1 hereof)
will acquire a New York State health maintenance organization license, and will
be eligible to accept an assignment of the Commercial Contracts;
WHEREAS, upon the terms and conditions set forth herein: (i) the Seller
desires to assign and convey to Purchaser the Commercial Contracts and certain
related business assets and goodwill (which assets do not constitute
substantially all of the assets of the Seller), and the Purchaser desires to
accept such assignment and conveyance; and (ii) as of the Effective Time (as
such term is defined in Section 1 hereof), the Seller desires to transfer its
Commercial Members (as such term is defined in Section 1 hereof) to Purchaser;
and
WHEREAS, in order to induce the Purchaser to enter into this Agreement, the
Seller wishes to provide the representations, warranties, covenants and
indemnities set forth herein.
NOW, THEREFORE, in consideration of the premises, and of the mutual
promises and covenants herein contained, the sufficiency of which are hereby
acknowledged, and wishing to be legally bound hereby, the parties hereto hereby
agree as follows:
1. Definitions.
1.1 Defined Terms. The following terms shall have the indicated
meanings:
"Acquired Business" shall mean the Seller's business consisting of
collecting premium revenue and arranging for the provision of comprehensive
health care services to Commercial Members pursuant to the Commercial Contracts,
together with all assets of the Seller used or useful in such business (other
than the Excluded Assets).
"Affiliate" when used with respect to any Person shall mean any Person
controlling, controlled by or under common control with such Person.
"Agreement" shall mean this Asset Purchase Agreement and all of its
Exhibits and Schedules.
"Assets" shall mean all those certain assets (other than the Excluded
Assets) of the Seller described in Section 2.
"Assignment and Assumption Agreement" shall mean that certain
assignment and assumption agreement between the Purchaser and the Seller dated
as of the Closing Date, in the form of Exhibit I-B annexed hereto.
"Assumed Liabilities" shall have the meaning ascribed to such term in
Section 5.
"Benefit Plan" means each funded or unfunded, written or oral,
employee benefit plan, contract, agreement, incentive, salary, wage or other
compensation plan or arrangement, including, but not limited to, each pension
and profit sharing plan, savings plan, bonus, deferred compensation, incentive
compensation, stock purchase, supplemental retirement, severance or termination
pay, stock option, hospitalization, medical, life insurance, dental, disability,
salary continuation, vacation, supplemental unemployment benefit, union
contract, employment contract, consulting agreement, retiree health or life
benefit, severance or termination pay and each other employee benefit program,
plan, policy or arrangement, maintained, contributed to, or required to be
contributed to by the Seller for the benefit of employees, former employees,
directors, agents or consultants of the Seller, or for which the Seller may be
responsible or with respect to which the Seller may have any liability, whether
or not subject to ERISA and whether legally binding or not. For purposes of this
definition, any reference to the term the "Seller" shall be deemed to refer also
to any entity which is under common control or affiliated with the Seller within
the meaning of Section 4001 of ERISA, and the rules and regulations promulgated
thereunder and/or Sections 414(b), (c), (m) or (o) of the Code, and the rules
and regulations promulgated thereunder.
"Bill of Sale" shall mean the Bill of Sale dated as of the Closing
Date executed by the Seller in the form of Exhibit I-A annexed hereto.
"Claims Fund" shall mean a segregated account to be established by the
Seller and overseen by the DOI, the balance of which shall be not less than $10
million (or such amount as may be approved by DOI) as of the Closing, consisting
of, among other funds, the entirety of the proceeds of the Purchase Price to be
paid by the Purchaser at Closing pursuant to Section 4 hereof and not less than
$2.5 million of the proceeds of the Patel Transaction, and disbursements from
which shall be made solely for the purpose of satisfying the Seller's
obligations under the Claims Releases.
"Claims Release" shall have the meaning ascribed thereto in Section
10.3(b).
"Closing" shall mean the closing of the transactions contemplated
hereby.
"Closing Date" shall have the meaning ascribed thereto in Section 6.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commercial Contract" shall mean any group or individual health
benefits contract (including any endorsements, riders or other supplements
thereto or applications therefor) pursuant to which Seller receives prepaid
premium payments in exchange for arranging for the provision of comprehensive
healthcare services, except for any such contract providing benefits under the
Medicare, Medicaid or Child Health Plus programs. Commercial Contracts shall
include contracts that have lapsed but are within the reinstatement period
specified therein, subject to reinstatement in accordance with the terms of such
contracts.
"Commercial Member" or "Commercial Members" shall mean each and all
individuals enrolled in a health plan of the Seller in respect of whom premium
revenue is payable under a Commercial Contract as of the Effective Time.
"Conveyance Documents" shall mean the Bill of Sale, the Assignment and
Assumption Agreement, and such other instruments of assignment and conveyance of
the Assets as Purchaser deems necessary to effect such assignment and
conveyance, each in form and substance satisfactory to the Purchaser and its
counsel.
"DOH" shall mean the New York State Department of Health.
"DOI" shall mean the New York State Department of Insurance.
"Effective Time" shall mean 12:00 midnight on the Closing Date.
"Environmental Laws" shall mean all local, state, federal, foreign,
civil and criminal, common law, statutes, ordinances, codes, orders, decrees,
laws, permits, rules, guidelines, or regulations of any governmental authority
pertaining to or imposing liability or standards of conduct concerning
environmental regulation, Hazardous Materials (as hereinafter defined), health
and safety, contamination or clean-up including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
("CERCLA"), the Resource Conservation and Recovery Act, as amended ("RCRA"), the
Emergency Planning and Community Right-to-Know Act of 1986, as amended, the
Hazardous Materials Transportation Act, as amended, the Solid Waste Disposal
Act, as amended, the Federal Water Pollution Control Act, as amended, the Clean
Air Act, as amended, the Toxic Substances Control Act, as amended, the Safe
Drinking Water Act, as amended, the Occupational Safety and Health Act, as
amended, and all the state analogues thereto, including in all cases all
regulations adopted in respect of the foregoing whether presently in force or
coming into being and/or effectiveness hereafter.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agent" shall mean Kalkines, Arky, Zall & Bernstein LLP,
special counsel to the Purchaser.
"Escrow Agreement" shall mean an escrow agreement among the Seller,
the Purchaser and the Escrow Agent, pursuant to which the Escrow Agent shall
hold and release the monies described in Section 4 hereof for the purposes
specified therein, and containing other customary terms and conditions.
"Excluded Assets" shall have the meaning ascribed thereto in Section
3.
"Financial Schedules" shall have the meaning ascribed to such term in
Section 8.8(c) hereof.
"GAAP" shall mean generally accepted accounting principles
consistently applied.
"GHMO" shall mean a New York corporation that is a direct or indirect
wholly-owned subsidiary of GHI to which a New York State health maintenance
organization license will be issued in connection with the consummation of the
transactions contemplated hereby.
"Governmental Entities" shall mean any governmental or regulatory
authority, entity, department, commission, board, agency or instrumentality,
whether domestic or foreign.
"Guaranty" shall mean a guaranty agreement pursuant to which WMG
unconditionally guarantees the full and timely payment and performance of all of
the obligations and liabilities of each of the Related Parties under the
Transaction Documents.
"Hazardous Material" or "Hazardous Materials" shall mean any hazardous
or toxic material, substance, or product or any pollutant or contaminant,
whether or not defined as such under Environmental Law, and shall include
without limitation, asbestos containing material; petroleum product, derivative,
compound or mixture; polychlorinated biphenyls; radioactive material;
lead-containing products; and any other substance which is prohibited by
applicable law, which may require removal, remediation, and/or encapsulation by
applicable law, or which may require a permit or special handling in its use,
collection, storage, treatment or disposal.
"Indemnified Party" shall mean any Person having a claim for
indemnification from an Indemnitor under Section 14.
"Indemnitor" shall mean any Person against whom an Indemnified Party
may make an indemnification claim under Section 14.
"IRS" shall mean the Internal Revenue Service.
"Laws" shall mean any federal, state, foreign or local law, statute,
ordinance, rule, regulation, order, judgment or decree.
"Leases" shall mean lease agreements between the Purchaser and the
landlord for each of the premises described in Exhibit III attached hereto,
providing for the lease of each of such premises for a term of 12 months
following the Closing, at a fair market rate of rent.
"Material Adverse Effect" shall mean an effect that is material and
adverse to the business, financial condition or operations of the Purchaser or
the Seller, as applicable, after the Effective Time.
"1997 Financial Statements" shall mean the audited financial
statements of the Seller for the period ending December 31, 1997, in the form
delivered to the Purchaser prior to the date hereof.
"1998 Financial Statements" shall mean the unaudited financial
statements of the Seller for the period ending December 31, 1998, in the form
delivered to the Purchaser prior to the date hereof.
"1999 Interim Financial Statements" shall mean the unaudited financial
statements of the Seller as of and for the two-month period ending February 28,
1999.
"Patel" shall mean Kiran C. Patel, M.D.
"Patel Documents" shall have the meaning given thereto in Section
8.27.
"Patel Transaction" shall mean the transactions pursuant to which
Patel and/or one or more of his Affiliates shall, among other things, make a $5
million equity investment in WMG and provide management services to Seller and
WellCare of Connecticut, Inc., all as contemplated by that certain letter
agreement, dated April 21, 1999, between Patel and WMG, as the same may be more
fully specified in the Patel Documents.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permits" shall mean franchises, grants, authorizations, licenses,
permits, easements, variances, exemptions, consents, certificates, approvals and
orders.
"Person" shall mean a natural person or a corporation, partnership,
limited liability company, trust, association or other entity, as the context
requires or admits.
"Primergy IPAs" shall mean Orange-Sullivan Health Care Alliance IPA,
Inc., Columbia-Greene Health Care Alliance IPA, Inc., Ulster Health Care
Alliance IPA, Inc. and Dutchess Health Care Alliance IPA, Inc.
"Provider Contracts" shall mean agreements between the Seller and
Providers pursuant to which Providers agree to render health care services to
Commercial Members.
"Provider Contract Assignment" shall mean, with respect to a Provider
Contract, an assignment to the Purchaser, in form and substance satisfactory to
the Purchaser, duly executed by the Provider that is a party thereto and stated
to be effective as of the Effective Time, of the portion of such Provider
Contract that is applicable to the delivery of services to the Commercial
Members.
"Providers" shall mean those individuals or entities rendering or
arranging for health care services to Commercial Members pursuant to a Provider
Contract, including but not limited to, inpatient facilities, primary and
specialty care physicians, ambulatory care clinics, clinical laboratory
facilities, providers of ancillary services, independent practice associations
and pharmacy benefits managers.
"Purchaser" shall mean GHI until such time as GHI assigns its rights
and interests hereunder to GHMO pursuant to Section 18, after which time
"Purchaser" shall be deemed to refer exclusively to GHMO.
"Real Property" shall have the meaning ascribed to such term in
Section 8.6.
"Regulations" shall mean the Income Tax Regulations promulgated under
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Related Parties" shall mean, with respect to the Seller, WMG,
WellCare Development, Inc., WellCare of Connecticut, Inc., WellCare
Administration, Inc. and WellCare Medical Management, Inc.
"Related Party Non-Competition Agreement" shall mean an agreement to
be executed at the Closing by each of the Seller's Related Parties pursuant to
which such Related Parties agree to be bound by and observe the covenants
contained in Section 13.6 hereof.
"Reportable Event" shall mean any reportable event as defined in
Section 4043(b) of ERISA, other than a reportable event as to which provision
for 30-day notice to the PBGC would be waived under applicable regulations had
the regulations in effect on the Closing Date been in effect on the date of
occurrence of such reportable event.
"Retained Liabilities" shall have the meaning ascribed to such term in
Section 5.2.
"Schedules" shall mean the schedules that are attached to this
Agreement.
"Seller" shall mean WellCare of New York, Inc., a New York corporation
licensed as a health maintenance organization.
"Taxes" shall mean any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer, transfer
gains, registration, value added, alternative or add-on minimum, privilege, ad
valorem, estimated, or other tax of any kind whatsoever, including any interest,
penalties or additions to tax attributable to any of the foregoing, whether
disputed or not.
"Taxpayer" shall mean the Seller and any predecessor of the Seller.
"Tax Return" shall mean all federal, state, local and foreign tax and
information returns, declarations, elections, statements, estimates and reports
or schedules attached to any returns (or any combination or amendment of the
foregoing) required to be supplied by a Person to any Governmental Entity in
connection with Taxes and shall include a claim for refund of Taxes.
"Transaction Documents" shall mean this Agreement, the Related Party
Non- Competition Agreement, the Lease, the Guaranty, the Transition Services
Agreement, and the Conveyance Documents.
"Transition Services Agreement" shall mean an agreement, to be
executed by the Seller and the Purchaser at the Closing, pursuant to which the
Purchaser agrees to provide to the Seller, following the Closing, certain
services or access to certain of the Assets in accordance with the material
terms of such arrangement set forth on Exhibit IV attached hereto.
"WellCare Providers" shall mean those individuals or entities
rendering or arranging for health care services to enrollees of any of
WellCare's commercial, Medicaid, Medicare or Child Health Plus health benefit
plans.
"WellCare Service Area" means each of the counties within New York
State in which the Seller is currently authorized to operate as a health
maintenance organization, namely: Warren, Washington, Saratoga, Rennsalaer,
Albany, Schenectady, Fulton, Montgomery, Schoharie, Otsego, Broome, Delaware,
Greene, Columbia, Ulster, Dutchess, Sullivan, Orange, Putnam, Westchester,
Bronx, Queens, New York, Kings and Rockland.
"WMG" shall mean WellCare Management Group, Inc., the parent
corporation of Seller.
2. Purchase and Sale of Assets. Upon the terms and subject to the
conditions of this Agreement, on the Closing Date and effective as of the
Effective Time: (i) the Seller shall transfer, sell, convey, assign and deliver
to the Purchaser, and the Purchaser shall purchase from the Seller, all of the
Assets, other than the Excluded Assets. To evidence such transfer, sale,
conveyance and assignment, at the Closing, the Seller shall execute and deliver
to the Purchaser, the Conveyance Documents, all in such form as shall be
reasonably acceptable to the Purchaser and its counsel. The "Assets" shall mean
and include all of the assets of the Seller that are used or useful in
connection with the Acquired Business (whether or not the same may be used or
useful in connection with any of the Seller's other lines of business) and that
are not specifically described as Excluded Assets in Section 3 and shall in any
event include:
2.1 Commercial Contracts. All of the Seller's right, title and
interest in and to the Commercial Contracts accruing after the Effective Time.
2.2 Provider Contracts. All of the Seller's right, title and interest
in and to the Provider Contracts accruing after the Effective Time, to the
extent the same relate to the delivery of services to the Commercial Members.
2.3 Contracts, Leases, Licenses, Permits, etc. All of the Seller's
right, title and interest in and to all contracts or agreements (whether written
or oral), leases, non-governmental licenses and permits and other documents and
agreements related to the Acquired Business that do not expressly constitute a
part of the Excluded Assets, other than those (x) described in Sections 2.1 or
2.2 above or (y) which the Purchaser has, by notice given to the Seller at least
five business days prior to the Closing Date, declined to accept as part of the
Assets.
2.4 Medical Management Materials. All of the Seller's written
policies, procedures and manuals used or useful in the Acquired Business,
including, but not limited to, medical management materials, materials related
to utilization review and quality assurance activities and provider manuals; it
being understood and agreed that the Seller and the Purchaser shall each have
full right to use and exploit such materials in connection with their respective
product lines from and after the Closing.
2.5 Intangible Assets. All of the Seller's rights in and to the
Acquired Business, including the going concern value of the Acquired Business
and the goodwill associated therewith, all of the Seller's accounts receivable
and rights to receive payment in respect of services rendered after the
Effective Time, and all other intangible assets of the Seller that do not
expressly constitute a part of the Excluded Assets.
2.6 Computer Systems and Software. All of the Seller's right, title
and interest in and to and rights of access to all clinical, diagnostic and data
analysis, storage and retrieval computer systems used or useful in the Acquired
Business, and all billing, bookkeeping and accounting computer systems used or
useful in the Acquired Business, including in each case all associated software
and operating systems.
2.7 Inventory and Supplies. All of the Seller's inventory and other
supplies (both on hand and on order) used or useful in the Acquired Business, as
it exists on the Closing Date, including, but not limited to, inventories of
provider directories, provider and member manuals, member identification cards,
marketing materials and other collateral materials, together with all rights of
the Seller against suppliers of the same.
2.8 Books and Records. All documents, records, operating and protocol
manuals and files, including, without limitation, lists of all the names,
addresses, identification numbers and medical and claims history (to the maximum
extent permissible under applicable law) of Commercial Members, minutes of
medical management committee meetings, credentialing files, and service logs.
2.9 Insurance Proceeds. All insurance proceeds of the Seller received
after the Effective Time arising in connection with damage to the Assets, any
Retained Liability that is asserted against the Purchaser or in respect of any
liability of the Seller that constitutes an Assumed Liability.
2.10 Other Assets. All other intangible and tangible assets of the
Seller associated with or used in the operation of the Acquired Business and
that do not expressly constitute a part of the Excluded Assets, including,
without limitation: all computer software and electronic data, in whatever form
contained; technical data, codes and information necessary for Purchaser to
access data, books and records of Seller conveyed hereunder; all mailing lists;
all sales records; all materials, records, files and other data relating to
advertising; all research, statistical, production, marketing and promotional
materials, records, files and other data; all administration and business
development materials, records, files and other data; all regulatory compliance
files, correspondence, materials and other data; all business post office boxes
and business telephone listings; all research and development results and other
know-how; all warranties, guaranties, contract rights and miscellaneous rights;
and all other materials, records, files and data of the Seller, in each case
excluding the Excluded Assets.
3. Excluded Assets. Notwithstanding any other provision of this Agreement,
the Seller shall not sell, assign or transfer to the Purchaser and the Purchaser
shall not purchase from the Seller the following assets of the Seller
(collectively, the "Excluded Assets"):
3.1 Corporate Books and Certain Other Records. The corporate minute
books of the Seller and any records that by law the Seller is required to retain
in its possession.
3.2 Financial Assets. Subject to Section 5.3, cash, cash equivalents
and negotiable securities held by the Seller.
3.3 Accounts Receivable. The Seller's notes and accounts receivable
arising from the operation of the Acquired Business prior to the Effective Time,
whether billed or unbilled, recorded or unrecorded, or assigned for collection.
3.4 Real Estate. Seller's interests, if any, in real property or any
leases thereof, other than the real property which is the subject of the Leases.
3.5 Certain Contractual Rights. Seller's rights and interests in and
to all contracts, agreements, leases, licenses and other documents and
instruments the obligations and liabilities in respect of which the Purchaser
does not assume pursuant to Section 5 hereof.
3.6 Interests in Subsidiaries. Any interest held by the Seller in any
of its subsidiaries.
3.7 Insurance Claims. Seller's claims against insurers or carriers in
respect of stop loss, coordination of benefits or other similar claims to the
extent the same arise for periods prior to the Effective Time but excluding
claims in respect of Retained Liabilities that are asserted against the
Purchaser.
3.8 Claims Against Providers. Seller's claims against Providers under
the Provider Contracts that arise in respect of periods ending on or prior to
the Effective Time.
3.9 Name. Seller's corporate name.
3.10 Tax Refunds. Any tax refund of the Seller of any type or
description.
3.11 Pre-Effective Time Rights, Claims, and Obligations. All rights,
claims and obligations of the Seller relating to the Assets or the Acquired
Business that have accrued prior to the Effective Time and are not expressly
included in the Assets.
4. Consideration. As consideration for the Assets to be transferred to the
Purchaser hereunder, the Purchaser shall pay to the Seller a purchase price of
five million dollars ($5,000,000), subject to adjustment as provided herein (as
the same may be adjusted, the "Purchase Price"), and shall at Closing assume the
Assumed Liabilities described in Section 5. The Seller and the Purchaser agree
that the Purchase Price shall be disbursed as follows: (i) at the Closing, the
sum of four million dollars ($4,000,000) shall be remitted by the Purchaser
directly to the Claims Fund, by bank check, certified check or wire transfer, as
the Purchaser may elect, in accordance with payment instructions for each of
such methods to be furnished to the Purchaser prior to the Closing; and (ii) the
sum of one million dollars ($1,000,000) (the "Escrow Deposit") shall be remitted
by the Purchaser directly to the Escrow Agent, to be held and released by the
Escrow Agent in accordance with the terms of the Escrow Agreement.
4.1 Post-Closing Purchase Price Adjustment.
(a) In the event that the number of Acquired Members is less than
25,000, the Purchase Price shall be decreased by the product of (x) $100 and (y)
the amount by which 25,000 exceeds the number of Acquired Members. The term
"Acquired Members" shall mean, for purposes of subsection (b) below, those
Commercial Members in respect of whom the premium payable for the month in which
the Closing occurs is received in full by the Purchaser by no later than the
last day of such month (the "First Measurement Date"), and for purposes of
subsection (c) below, those Commercial Members in respect of whom the premium
payable for the month in which the Closing occurs is received in full by the
Purchaser by no later than the last day of the second calendar month following
the month in which the Closing occurs (the "Second Measurement Date").
(b) Within five days after the First Measurement Date, the
Purchaser shall deliver to the Seller a statement as to the Purchaser's
determination of the number of Acquired Members as of the First Measurement Date
(the "First Adjustment Statement"), together with reasonable supporting
documentation therefor. The First Adjustment Statement shall become final and
binding on the 10th day following the First Measurement Date, unless the Seller
shall furnish to the Purchaser on or prior to such date written notice of the
Seller's desire to dispute the First Adjustment Statement. In such event, the
following right of audit shall apply (the "Audit Right"): the Seller shall have
the right to cause a firm of certified public accountants, mutually acceptable
to the Purchaser and the Seller, to conduct an audit of the books and records of
the Purchaser, but only as such books and records relate to the determination of
the number of Acquired Members; such audit shall be done during the normal
business hours of the Purchaser and shall be conducted in a reasonable manner
consistent with general auditing practices; the results of such audit shall be
final and binding on the parties, absent manifest error; and the cost of such
audit shall be borne by the Seller, provided, however, that if it shall be
determined that the actual number of Acquired Members exceeds the number of
Acquired Members set forth in the First Adjustment Statement by 10% or more, the
Purchaser shall pay the cost of such audit. If, following the finalization of
the First Adjustment Statement, the number of Acquired Members as of the First
Measurement Date shall result in a downward adjustment to the Purchase Price,
the amount thereof (the "Downward Adjustment") shall be paid to the Purchaser as
follows: (i) the Downward Adjustment shall be released to the Purchaser by the
Escrow Agent from the Escrow Deposit; and (ii) to the extent that the Downward
Adjustment shall be greater than the Escrow Deposit, the excess shall be paid to
the Purchaser by the Seller within 15 days following the finalization of the
First Adjustment Statement. If and to the extent that all or any portion of the
Escrow Deposit is not needed to be applied towards payment of a Downward
Adjustment, the amount thereof shall be released to the Seller by the Escrow
Agent within two business days following the finalization of the First
Adjustment Statement.
(c) Within 15 days after the Second Measurement Date, the
Purchaser shall deliver to the Seller a statement as to the Purchaser's
determination of the number of Acquired Members as of the Second Measurement
Date (the "Second Adjustment Statement"), together with reasonable supporting
documentation therefor. The Second Adjustment Statement shall become final and
binding on the 30th day following the Second Measurement Date, unless the Seller
shall furnish to the Purchaser on or prior to such date written notice of the
Seller's desire to dispute the Second Adjustment Statement. In such event, the
Audit Right shall apply. If, following the finalization of the Second Adjustment
Statement, the number of Acquired Members as of the Second Measurement Date
shall exceed the number of Acquired Members as of the First Measurement Date
(such excess, the "Recount Number"), the Purchaser shall pay to the Seller
within two business days following the finalization of the Second Adjustment
Statement an amount equal to the product of (x) $100 and (y) the Recount Number.
4.2 Allocation of Consideration. The consideration payable by the
Purchaser to the Seller pursuant to Section 4 hereof shall be reasonably
allocated by the Purchaser to the Assets according to the respective fair market
value of each, as determined by the Purchaser on a preliminary basis prior to
Closing (which preliminary allocation shall be subject to change by the
Purchaser at any time on two days' prior notice until Closing Date) and
otherwise in accordance with the residual method described in Regulations
promulgated under Section 338(b)(5) of the Code (the "residual method"). Upon
the Purchaser's determination of the fair market value of each category of the
Assets and the allocation of consideration among such Assets in accordance with
the residual method, the Purchaser shall give notice to the Seller of such
determination. The Purchaser and the Seller each agree to report the
transactions contemplated hereby for federal income tax purposes in a manner
consistent with such allocation for federal, state and local tax purposes and to
comply with all notice, filing and reporting obligations described in Code
Section 1060.
4.3 Assignment and Assumption Agreement. As further consideration for
the conveyance of the Assets, the Purchaser shall deliver to the Seller at the
Closing the Assignment and Assumption Agreement to evidence the assumption of
the obligations and liabilities to be assumed by the Purchaser pursuant to
Section 5 below.
5. Assumption and Retention of Liabilities. Subject to the Closing and
effective as of the Effective Time, the Purchaser shall assume and discharge
only the obligations and liabilities of the Seller expressly described in
Section 5.1 (such obligations and liabilities are collectively referred to
hereinafter as the "Assumed Liabilities").
5.1 Obligations Under Certain Agreements. The Purchaser shall assume
the obligations of the Seller accruing after the Effective Time under (x) each
Commercial Contract, (y) each Provider Contract, and (z) under each other
contract listed or described on Schedule 5.1; in each case to the extent that
(i) the Seller has provided to the Purchaser a true, correct and complete copy
of such contract (if such contract is in writing) or a description of the
obligations of the Seller under such agreement that is true, correct and
complete (if such agreement is not in writing), and the obligations under each
agreement to which the Seller is a party and that is not by the terms of any
such contract required to be described therein and (ii) the liabilities in
respect of such agreements were reserved for or reflected on the 1998 Financial
Statements and the 1999 Interim Financial Statements (unless the applicable
accounting standard did not require such liabilities to be reserved for or
otherwise reflected); provided that, except as set forth in Section 7, the
Purchaser shall not be deemed to have assumed the obligations of the Seller
accruing after the Effective Time under any agreement, contract, or instrument
that is not validly assigned to the Purchaser (including because the consent of
any third party is required as a condition precedent to such assignment and has
not been obtained as of the Effective Time) unless and until such assignment is
validly consummated pursuant to Section 7.
5.2 Retained Liabilities. Except as expressly provided in Section 5.1,
the Purchaser shall not assume, and the Seller shall retain, discharge and pay,
and hold the Purchaser harmless from and against, as contemplated by Section 14
hereof, any and all liabilities of the Seller, whether fixed or contingent,
accrued or unaccrued, liquidated or unliquidated, disclosed or undisclosed, of
any kind or nature whatsoever. The liabilities to be retained by the Seller as
contemplated by this Section 5.2 are hereinafter referred to as the "Retained
Liabilities." The Retained Liabilities shall include, without limitation, the
following:
(a) liabilities and obligations of the Seller accruing prior to
the Effective Time under each Commercial Contract and each other
contract listed on Schedule 5.1;
(b) indebtedness and other obligations or guarantees of the
Seller, including, without limitation, the accounts payable and other
current liabilities of the Seller excepting solely the contractual
obligations of the Seller accruing after the Effective Time and
included in the Assumed Liabilities;
(c) federal, state, or local tax liabilities or obligations of
the Seller for Taxes, including, without limitation, Taxes arising in
connection with the consummation of the transactions contemplated
hereby;
(d) liabilities for any and all claims by or on the behalf of the
Seller's shareholders, officers, directors, employees or contractors,
including, without limitation, liability arising under any Benefit
Plan including, but not limited to, any pension, profit sharing,
deferred compensation, severance or termination pay or any employee
health and welfare benefit plans, liability for any EEOC claim, OSHA
claim, employment discrimination claim (whether based on sex, age,
race, or otherwise), wage and hour claim, unemployment compensation
claim, worker's compensation claim and the like, and liability for all
employee wages and benefits, and taxes or other liability related
thereto;
(e) any liability or obligation of the Seller or the Seller's
shareholders, members, directors, officers, employees, agents, or
independent contractors, with respect to Hazardous Materials or
Environmental Laws, whether known or unknown at the Effective Time;
(f) liabilities or obligations arising out of any breach by the
Seller at any time prior to the Effective Time of any contract or
commitment, whether or not assumed by the Purchaser;
(g) any liability arising out of or in connection with claims for
acts or omissions of the Seller or the Seller's shareholders, members,
directors, officers, employees, agents, or independent contractors,
which allegedly occurred prior to the Effective Time, including,
without limitation, all malpractice, professional liability and
general liability claims, and claims of and liabilities to the
Commercial Members against the Seller, whether or not same are
pending, threatened, known or unknown;
(h) liabilities or obligations in respect of contracts or
agreements of the Seller which are not described on Schedule 5.1 and
expressly assumed in writing by the Purchaser;
(i) subject to Section 5.3, any and all debts, liabilities and
obligations of the Seller to Providers (or to health care providers
not under contract to Seller) for services rendered to Commercial
Members prior to the Effective Time or in respect of periods ending on
or prior to the Effective Time;
(j) liabilities or obligations arising out of any penalties,
fines, assessments or claims, imposed by any Governmental Entity
relating to any failure or alleged failure of the Seller to comply
with any applicable Laws; and
(k) any debt, obligation, expense, or liability of the Seller
(including Taxes of the Seller and the shareholders) arising out of or
incurred in respect of any transaction of the Seller occurring after
the Effective Time including any violation by the Seller of any law,
regulation, or ordinance at any time.
5.3 Certain Financial Arrangements.
(a) The parties acknowledge and agree that the Seller shall be
entitled to all revenue attributable to the Acquired Business for periods ending
on or prior to the Effective Time and that the Purchaser shall be entitled to
all revenue attributable to the Acquired Business for periods from and after the
Effective Time. Accordingly, (i) to the extent that following the Closing the
Purchaser receives any revenue to which the Seller is entitled hereunder, it
shall promptly remit the same to the Seller and (ii) to the extent that the
Seller shall have received prior to the Closing or receives following the
Closing any revenue to which the Purchaser is entitled hereunder, it shall remit
the same to the Purchaser at the Closing or promptly upon receipt thereof, as
applicable.
(b) In the event any Commercial Member is in the course of an
inpatient hospital stay at the Effective Time, the Seller shall pay and be
responsible for the total cost of such inpatient stay multiplied by a fraction,
the numerator of which is the number of inpatient days prior to the Effective
Time and the denominator of which is the total number of days of the inpatient
stay. The Purchaser shall pay and be responsible for the total cost of such
inpatient stay multiplied by a fraction, the numerator of which is the number of
inpatient days subsequent to the Effective Time and the denominator of which is
the total number of days of the inpatient stay.
(c) In the event any Commercial Member is in the course of
prenatal care at the Effective Time, the parties shall allocate the global cost
for the pre-natal treatment, post-natal treatment and delivery associated with
the pregnancy among the following treatment phases: first trimester, second
trimester, third trimester, delivery and post-natal care. The portion of the
total cost allocated to each of these treatment phases shall conform to
customary industry standards. The Seller shall pay and be responsible for the
cost of those treatment phases occurring prior to the Effective Time and the
Purchaser shall pay and be responsible for the cost of those treatment phases
occurring subsequent to the Effective Time. To the extent the Effective Time
falls within a treatment phase with respect to any pregnancy, the Seller shall
pay and be responsible for the percentage of the cost of such treatment phase
equal to the percentage of calendar days of such treatment phase prior to the
Effective Time, and the Purchaser shall pay and be responsible for the
percentage of the cost of such treatment phase equal to the percentage of
calendar days of such treatment phase subsequent to the Effective Time.
(d) In the event any Commercial Member is in the course of
treatment at the Effective Time not subject to either Section 5.3(b) or 5.3(c),
and the Seller has agreed to pay the Provider providing such treatment an
indivisible fee that covers the entire course of treatment, the Seller shall pay
and be responsible for the portion of the treatment provided prior to the
Effective Time and the Purchaser shall pay and be responsible for the portion of
the treatment provided subsequent to the Effective Time. The parties shall work
cooperatively to develop, prior to the Closing, a system for apportioning the
costs associated with such courses of treatment in accordance with this Section
5.3(d).
(e) The Purchaser and the Seller acknowledge and agree that
except for the Assumed Liabilities and those items to be prorated at Closing
pursuant to this Section, the Seller will retain and pay in a timely manner all
bills, obligations, indebtedness, and other liabilities due, accrued, incurred,
or arising in connection with the ownership of the Assets or the operation
and/or maintenance of the Assets for all periods ending on and prior to the
Closing Date. After the Closing Date (i) invoices that are received by the
Purchaser that are the responsibility of the Seller hereunder will be
accumulated and delivered to the Seller on a weekly basis for payment, and (ii)
invoices that are received by the Seller that are the responsibility of the
Purchaser hereunder will be accumulated and delivered to the Purchaser on a
weekly basis for payment.
(f) The parties agree that all payments for utility services,
contract services, accrued rent, accrued vacation pay and sick leave, ad valorem
and personal property taxes relating to the Assets shall be prorated between the
Seller and the Purchaser as of the Effective Time.
(g) The Seller and the Purchaser shall cooperate with one another
in good faith and with all deliberate speed in determining and making payment of
any post-closing adjustments or reconciliations that may be necessary in order
to fully and properly effectuate the provisions of this Section 5.3.
6. Closing. Subject to the satisfaction or waiver of the conditions set
forth in Sections 11 and 12 of this Agreement, the Closing shall take place at
10:00 a.m. at the offices of the Purchaser, on June 1, 1999 or such other date
as may be mutually agreed upon by the parties (the "Closing Date"). All of the
transactions contemplated hereby shall be effective as of the Effective Time.
7. Non-Assignable Contracts. Notwithstanding anything to the contrary in
this Agreement, this Agreement shall not constitute an agreement to assign any
contract the assignment of which is not permitted under applicable law or
pursuant to its terms or is not permitted without the consent of any other party
to the contract if such assignment would constitute a breach of, or cause a loss
of contractual benefits under, any of the contracts. The Seller shall use its
best efforts to obtain any and all such consents required by the terms of such
contracts prior to the Closing Date and, if any such consents have not been so
obtained, the Seller shall cause the benefits of any such contract that is
included in the Assets to be afforded to the Purchaser for any period prior to
the obtaining of such consent. Nothing in this Section 7 shall diminish or
affect any representation or warranty of the Seller in Section 8 hereof.
8. Representations and Warranties of the Seller. The Seller hereby
represents and warrants to the Purchaser as of the date of this Agreement (or,
in the case of any representation or warranty expressly made as of another date,
as of such other date) as follows:
8.1 Organization and Qualification. The Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. The Seller has all requisite corporate power and authority and all
necessary licenses and permits to carry on its business as it has been and is
currently being conducted, to own, lease and operate the Acquired Business and
Assets and to enter into and perform this Agreement and consummate the
transactions contemplated hereby. The Seller is duly qualified to do business
and is in good standing as a corporation under the laws of all jurisdictions
wherein the conduct of its business or the ownership, leasing or operation of
its properties and assets requires such qualification, and where the failure of
the Seller to obtain such qualification would have a Material Adverse Effect.
8.2 Certificate of Incorporation and By-Laws. The Seller has
heretofore furnished to the Purchaser complete and correct copies of the
Certificate of Incorporation and the By-Laws, in each case as amended or
restated, of the Seller. The Seller is not in violation of any of the provisions
of its Certificate of Incorporation or By-Laws.
8.3 Authority. The Seller has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby to be
consummated by the Seller. The execution and delivery of this Agreement by the
Seller and the consummation by the Seller of the transactions contemplated
hereby have been duly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Seller are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Seller and, assuming the due
authorization, execution and delivery thereof by the Purchaser, constitutes the
legal, valid and binding obligation of the Seller, enforceable in accordance
with its respective terms, except as such enforceability may be qualified by
equitable principles and pursuant to laws enacted for the protection of
creditors.
8.4 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Seller
does not, and the performance of this Agreement by the Seller will not (i)
conflict with or violate the Certificate of Incorporation or By-Laws, in each
case as amended or restated, of the Seller, (ii) assuming that all necessary
consents of Governmental Entities described in Section 11.7(b) will have been
obtained as of the Closing, conflict with or violate any Laws in effect as of
the date of this Agreement and applicable to the Seller or by which its
properties are bound, or (iii) assuming that all necessary consents of third
parties described in Sections 11.8 or 11.9, as applicable, will have been
obtained as of the Closing, result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, or require payment under, or result in the creation of a lien
or encumbrance on any of the properties or assets of the Seller pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Seller is a party or by
which the Seller or any of its properties is bound.
(b) Assuming that all necessary consents of Governmental Entities
described in Section 11.7(b) will have been obtained as of the Closing, the
execution and delivery of this Agreement by the Seller does not, and the
performance of this Agreement by the Seller will not require the Seller to
obtain any consent, approval, authorization or permit of, or to make any filing
with or notification to, any Governmental Entities based on laws, rules,
regulations and other requirements of Governmental Entities in effect as of the
date of this Agreement, except for any required filings or approvals set forth
on Schedule 8.4.
8.5 Permits; Compliance. As of the date of this Agreement, the Seller
is in possession of all Permits necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted and there
is no action, proceeding or investigation pending or, to the best knowledge of
the Seller, threatened that could result in suspension or cancellation of any of
the Permits except as specified in Schedule 8.5. As of the date of this
Agreement, except as specified in Schedule 8.5 the Seller is not in conflict
with, or in default or violation of (i) any Law applicable to the Seller or by
which any of its respective properties is bound or subject to or (ii) any of the
Permits. During the period commencing on January 1, 1996 and ending on the date
hereof, the Seller has not received from any Governmental Entity any written
notification with respect to possible conflicts, defaults or violations of
material Laws, including, without limitation, any notices issued by DOH, DOI,
the New York State Attorney General, the United States Department of Health and
Human Services (or its Office of the Inspector General) or quasi-governmental
agencies, other than those notices listed on Schedule 8.5, true, correct and
complete copies of which have heretofore been furnished to the Purchaser.
8.6 Real Property; Other Assets.
(a) Seller owns no real property. Schedule 8.6 contains a true,
correct and complete list and description of all of the Seller's leasehold
interests in any real property (the "Real Property").
(b) The Real Property and the use thereof, as currently used by
the Seller, does not violate any applicable zoning, subdivision, land use and
building laws, codes and requirements except noncompliances that do not (i)
interfere with the continued use of the Real Property in the conduct of the
normal operation of the Acquired Business or (ii) materially and adversely
affect the operations and/or business of the Seller taken as a whole.
8.7 Environmental Matters. The Seller represents and warrants that, to
the best of its knowledge, (i) no Hazardous Material has been used,
manufactured, handled, stored, treated or processed on or in, or generated from,
at any Real Property except in strict compliance with Environmental Law, (ii)
except in strict compliance with Environmental Laws, no Hazardous Material has
been spilled, released, discharged, disposed, transported, placed or otherwise
caused to be found in, on, onto, over, under or from any portion of the Real
Property, (iii) no Hazardous Material has been used in the construction,
alteration, repair or replacement of all or any portion of the Real Property or
the Assets, and (iv) neither the Real Property nor the Assets are in violation
of any Environmental Law. To the best of the Seller's knowledge, all such
arrangements, if any, comply with current applicable laws, rules and regulations
and all such third parties are duly licensed and bonded as required by
applicable laws rules and regulations.
8.8 Financial Statements.
(a) The Seller has delivered to the Purchaser true, correct and
complete copies of the (i) 1997 Financial Statements together with the report
thereon of the Seller's independent certified public accountants, (ii) the 1998
Financial Statements and (iii) the 1999 Interim Financial Statements. Each of
such financial statements (including, in each case, any related notes thereto)
(i) has been prepared from the books and records of the Seller in accordance
with GAAP, and (ii) fairly presents the financial position of the Seller as of
the respective dates thereof and the results of operations and cash flows for
the periods indicated (subject in the case of the 1999 Interim Financial
Statements to normal and recurring year-end adjustments).
(b) Except as may be set forth on Schedule 8.8(b) hereto, the
Seller knows of no liabilities, nor of any basis for any liabilities, relating
to the Acquired Business, either accrued, absolute, contingent or otherwise,
except: (i) those reflected on the 1999 Interim Financial Statements in
accordance with GAAP, and not paid or discharged prior to the Closing Date, (ii)
those incurred, consistently with past business practice, in or as a result of
the ordinary course of the Acquired Business since the date of the 1999 Interim
Financial Statements, and disclosed or not required to be disclosed pursuant
hereto, and (iii) those disclosed in this Agreement or on the Schedules hereto,
or for which an exception to inclusion on such Schedules is provided in this
Agreement. For purposes of this Section 8.8(b) only, the term "liabilities"
shall include, without limitation, any direct or indirect indebtedness, claim,
loss, damage, deficiency, cost, expense, obligation or responsibility, fixed or
unfixed, liquidated or unliquidated, secured or unsecured.
(c) Attached hereto as Schedule 8.8(c) are copies of the
following financial schedules prepared by the Seller with respect to the
Acquired Business (the "Financial Schedules") for each month since January 1,
1999: (a) the premium revenue of the Acquired Business actually received on a
cash basis, by the Seller by region; (b) the medical costs of the Acquired
Business actually incurred by the Seller on an accrual basis during such month
by region; and (c) a comparison for each such month of the actual experience of
the Seller by region in respect of incurred but not reported claims for medical
expenses as compared to the reserves established for such month by the Seller
(without giving effect to any subsequent adjustment to such reserves). The
Financial Schedules have been prepared in accordance with sound accounting
practices and the claims liabilities reflected thereon have been prepared in
accordance with the Actuarial Standards of Practice.
The books and records included as part of the Assets contain complete and
accurate original entries that are consistent with and reflective of the
information contained in the Financial Schedules in all material respects. The
reserves for claims incurred but not reported and the reserves for claims
reported but not paid with respect to the Acquired Business that are reflected
in the Financial Schedules make sufficient provision for such liabilities except
as specifically noted in the Financial Schedules.
(d) Schedule 8.8(d) sets forth, for the year ending December 31,
1998 and for the time period up to the date hereof, a schedule reflecting claims
for medical expenses in excess of $50,000 in the aggregate for any single
Commercial Member for either such period (together with a statement as to
whether any reinsurance claim has been made with respect to such expenses).
8.9 Absence of Certain Changes or Events. Except for the execution of
this Agreement and except for the Patel Transaction, during the period
commencing January 1, 1999, and ending on the date hereof, the Seller has
conducted its business only in the ordinary course and in a manner consistent
with past practice and there has not been: (i) any material damage, destruction
or loss (not covered by insurance) with respect to any material assets of the
Seller that are used or useful in the Acquired Business; or (ii) any change by
the Seller of its accounting methods, principles or practices that is relevant
to the Acquired Business.
8.10 Absence of Litigation. As of the date of this Agreement, except
as set forth on Schedule 8.10 hereto, (i) there is no claim, action, suit,
litigation, proceeding, arbitration or, to the best knowledge of the Seller,
investigation of any kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or, to the best knowledge of the Seller,
threatened in writing against the Seller or any properties or rights of the
Seller, and (ii) neither the Seller nor the Real Property is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the best knowledge of the Seller, continuing
investigation by, any Governmental Entity or any judgment, order, writ,
injunction, decree or award of any Governmental Entity or arbitrator, including,
without limitation, cease-and-desist or other orders. To the best of the
Seller's knowledge, there are no actions, suits, claims, investigations or
proceedings pending or threatened against any Provider relating to the provision
of health care services by such Provider which have been brought or threatened
by or on behalf of a Commercial Member which, if adversely determined, would
disqualify such Provider from participation in the Seller's provider network
under the Seller's current credentialing criteria.
8.11 Employee Benefit Plans; Labor Matters.
(a) With respect to each Benefit Plan maintained or contributed
to by the Seller, or with respect to which the Seller could incur liability
under Section 4069, 4212(c) or 4204 of ERISA, the Seller has made available to
the Purchaser a true and correct copy of (i) the most recent annual report (Form
5500) filed with the IRS, (ii) such Benefit Plan, (iii) each trust agreement
relating to such Benefit Plan, (iv) the most recent summary plan description for
each Benefit Plan for which a summary plan description is required, (v) the most
recent actuarial report or valuation relating to a Benefit Plan subject to Title
IV of ERISA and (vi) the most recent determination letter, if any, issued by the
IRS with respect to any Benefit Plan qualified under Section 401(a) of the Code.
(b) With respect to each Benefit Plan, no event has occurred and,
to the best knowledge of the Seller, there exists no condition or set of
circumstances, in connection with which the Seller could be subject to any
liability under the terms of such Benefit Plan, ERISA, the Code or any other
applicable Law.
(c) The Seller has made available to the Purchaser all collective
bargaining or other labor union contracts to which the Seller is a party
applicable to persons employed by the Seller and no collective bargaining
agreement is being negotiated by the Seller. As of the date of this Agreement,
there is no pending or threatened labor dispute, strike or work stoppage against
the Seller which may interfere with the business activities of the Seller. As of
the date of this Agreement, to the best knowledge of the Seller, neither the
Seller nor any of its representatives or employees have committed any unfair
labor practices in connection with the operation of the business of the Seller,
and there is no pending or threatened charge or complaint against the Seller by
the National Labor Relations Board or any comparable state agency.
(d) The Seller has made available to the Purchaser (i) copies of
all employment agreements with employees of the Seller; (ii) copies of all
agreements of the Seller with consultants who are individuals obligating the
Seller to make annual cash payments in an amount exceeding $100,000; (iii) a
schedule listing all employees of the Seller who have executed a non-competition
agreement with the Seller; (iv) copies of all severance agreements, programs and
policies of the Seller with or relating to its employees; and (iv) copies of all
plans, programs, agreements and other arrangements of the Seller with or
relating to its employees which contain change-in-control provisions.
(e) Except as provided in the employment agreements referred to
in clause (i) of Section 8.11(d), or as otherwise required by Law, (x) no
Benefit Plan provides retiree medical or retiree life insurance benefits to any
person and (y) the Seller is not contractually obligated (whether or not in
writing) to provide any person with life insurance or medical benefits upon
retirement or termination of employment.
8.12 Taxes.
(a) The Taxpayer has duly and timely filed, within any extensions
for filings secured by the Taxpayer, all Tax Returns required to be filed by it
prior to the date hereof. All such Tax Returns were correct and complete in all
material respects. The Taxpayer has paid in full all Taxes (whether or not shown
on a Tax Return) required to be paid by the Taxpayer. The Taxpayer has made
adequate provision in the 1999 Interim Financial Statements, in conformity with
GAAP, for the payment of all accrued Taxes not yet payable as of the date of
such 1999 Interim Financial Statements. All Taxes which the Taxpayer has been
required to collect or withhold have been duly collected or withheld and, to the
extent required when due, have been or will be duly and timely paid to the
proper taxing authority.
(b) To the extent that the Tax Returns of the Taxpayer have been
examined by the applicable Governmental Entities for prior periods, all such
examinations have been completed and all material issues raised therein have
been resolved. Except for an audit of the Seller scheduled by the IRS for June,
1999, there are no audits, inquiries, investigations or examinations relating to
the Taxpayer's Tax Returns pending or of which the Seller has received notice
(either in writing or verbally, formally or informally), and there are no claims
which have been asserted relating to the Taxpayer's Tax Returns filed for any
year which if determined adversely would result in the assertion by any
governmental entity of any material Tax deficiency against the Taxpayer if the
same would have a Material Adverse Effect. Except as set forth on Schedule 8.6,
there have been no waivers or extensions of statutes of limitations by the
Taxpayer sought or obtained by the Taxpayer. No claim has ever been made by a
Governmental Entity in a jurisdiction where the Taxpayer does not file a Tax
Return that Taxpayer is or may be subject to taxation by that jurisdiction.
Except as set forth on Schedule 8.6 hereto, there are no mortgages, pledges,
liens, encumbrances, charges or other security interests on any of the Assets
that arose in connection with any failure (or alleged failure) to pay any Taxes.
There are no liens with respect to Taxes upon any of the Assets. To the best of
the Seller's knowledge, no facts exist that would constitute grounds for the
imposition of any lien with respect to Taxes upon any of the Assets, or that
would otherwise obligate the Purchaser to pay any Taxes related to the Assets or
the operation of the Acquired Business prior to the Closing.
(c) No property of the Taxpayer is property which the Purchaser
is or will be required to treat as owned by another person either pursuant to
the provisions of former Section 168(f) (safe harbor leasing provisions) of the
Code or pursuant to the relevant caselaw. The Taxpayer is not a party to any
tax-sharing agreement or similar arrangement with any other party. The Taxpayer
has not been a United States real property holding corporation within the
meaning of Code Section 897(c)(2) during the applicable period specified in Code
Section 897(c)(1)(A)(ii). The Taxpayer has not made a disclosure on a Tax Return
pursuant to Code Section 6662(d)(2)(B)(ii) and the Regulations thereunder. The
Taxpayer has not made, nor is it obligated to make, any payments, and the
Taxpayer has not been a party to any agreement that under certain circumstances
would obligate it to make any payments, that will not be deductible under Code
Section 280G.
(d) The Taxpayer has no liability for the Taxes of any other
party (A) as a transferee or successor, (B) by contract, or (C) otherwise.
8.13 Certain Agreements.
(a) Schedule 8.13(a) hereto contains a true, correct and complete
list of all material leases, licenses, permits and other documents and
agreements (whether written or oral) pursuant to which the Seller has (i)
obtained the right to use or occupy any real or personal property, or (ii)
granted to any other party (including any Affiliates of the Seller) the right to
use any property, with such list also setting forth, with respect to each item
on such list not in writing, the date thereof and the names of all parties
thereto, and true, correct and complete copies of all such written leases,
licenses, permits and other documents and agreements, together with all
amendments thereto, and a true, accurate and complete summary of the terms of
each such oral agreement listed on Schedule 8.13(a) have been provided by the
Seller to the Purchaser.
(b) Schedule 8.13(b) hereto contains a true, correct and complete
list of all purchase, sales, administrative services and management contracts of
the Seller relating to the Acquired Business that involve more than $10,000 in
any instance and true, correct and complete copies of all written contracts and
true, correct and complete written summaries of all oral agreements listed on
Schedule 8.13(b) have been provided by the Seller to the Purchaser.
(c) Schedule 8.13(c) hereto contains a true, correct and complete
list of all material contracts, commitments, arrangements or agreements of the
Seller with any Provider pursuant to which Commercial Members have received
health care services during the six-month period ending on the date hereof, and
true, correct and complete copies of all agreements listed on Schedule 8.13(c)
have been provided by the Seller to the Purchaser. All such Provider Contracts
are in writing, were entered into by the Seller in the ordinary course of its
business and constitute valid and binding agreements of the Seller, and to the
best knowledge of the Seller, of the other parties thereto. Except for Provider
Contracts entered into prior to January 1, 1997, the forms of all Provider
Contracts and any risk sharing provisions contained therein have been submitted
for approval by DOH to the extent required by DOH rules and regulations, and the
Seller has no reason to believe that any of such forms or provisions will not
ultimately be approved by DOH materially in form and substance as previously
submitted. To the best knowledge of the Seller, no Provider has expressed an
intent in writing or otherwise, whether or not legally binding, to disenroll as
a provider of health care services to Seller, terminate its Provider Contract or
otherwise cease to do business with the Seller except as specified on Schedule
8.13(c). Assuming the receipt of all consents and other instruments contemplated
by Sections 11.8 and 11.9, the Seller's assignment to the Purchaser of each
Provider Contract designated by the Purchaser pursuant to Section 2.2 does not
breach, and will not result in the breach of, result in or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the cancellation or unilateral modification or
amendment of, or accelerate the performance required by, the Provider Contracts
or any other agreement or authority to which the Seller is subject.
(d) Schedule 8.13(d) hereto contains a true, correct and complete
list of all agreements, commitments and other arrangements which are, or shall
as of the Closing Date be, in effect between or relate to the Seller and any and
all employees whose duties relate in any material respect to the Acquired
Business, and true, correct and complete copies of all agreements, commitments
and other arrangements listed on Schedule 8.13(d) have been provided by the
Seller to the Purchaser.
(e) Schedule 8.13(e) hereto contains a true, correct and complete
list of all contracts, commitments, arrangements or agreements which could,
following the Closing, restrain the Purchaser or any Affiliate of the Purchaser
from engaging or competing in the health care business in the State of New York,
and true, correct and complete copies of all agreements, commitments,
arrangements and arrangements listed on Schedule 8.13(e) have been provided by
the Seller to the Purchaser. Except for those Provider Contracts listed on
Schedule 8.13(e), if any, the Seller is not a party to any Provider Contract
which limits the right of the Seller to engage in, or to compete with any
individual or entity, or which contains exclusivity provisions restricting the
geographical area in which, or manner in which, the Acquired Business or any
other business of the Purchaser may be conducted.
(f) Schedule 8.13(f) hereto contains a true, correct and complete
list of all material contracts, commitments, arrangements or agreements of the
Seller relating to the Acquired Business that are not specifically listed and
described on another Schedule hereto and that were not made in the ordinary
course of the Acquired Business, and true, correct and complete copies of all
agreements, commitments, arrangements and arrangements listed on Schedule
8.13(f) have been provided by the Seller to the Purchaser.
(g) Schedule 8.13(g) hereto contains a true, correct and complete
list of each other commitment, agreement and arrangement (whether written or
oral) of Seller relating to the Acquired Business that is not specifically
listed and described on another Schedule hereto and that provides for a payment
by any party to any such agreement in excess of an aggregate of $25,000 or is
otherwise material to the operation of the Acquired Business, and true, correct
and complete copies of all written commitments, agreements and arrangements and
true, correct and complete summaries of all oral commitments, agreements and
arrangements listed on Schedule 8.13(g) have been provided by the Seller to the
Purchaser.
(h) Except as shall be specifically described on the Schedules
hereto, all material contracts, commitments, arrangements and agreements
described on such Schedules are valid and effective in accordance with their
respective terms, and there is not, under any of such contracts, commitments,
arrangements or agreements, or any obligation, covenant or condition contained
therein, any existing material default by the Seller or, to the best knowledge
of the Seller, by any other party, or event which, with notice, lapse of time,
or both, would constitute a material default or any event of default if the same
would have a Material Adverse Effect.
(i) Except as specified otherwise on Schedule 8.13(c), the Seller
has no knowledge of the intention of any third party that has transacted
business with the Seller, to alter, cancel, amend or adjust their relationship
(contractual or otherwise) with the Seller or, in connection with or after
consummation of the transactions contemplated hereunder, to discontinue or not
enter into similar relationships with the Purchaser if the same would have a
Material Adverse Effect.
(j) The Seller is not a party (whether as an original party or as
an assignee or successor) to any agreement, commitment or arrangement which
would, following the Closing, restrict the Purchaser from operating the Acquired
Business in any respect.
8.14 Commercial Contracts. Attached hereto as Schedule 8.14 is a true,
correct and complete list of all Commercial Contracts, and true, correct and
complete copies of all Commercial Contracts have been provided by the Seller to
the Purchaser. Each Commercial Contract is legal, valid, binding, enforceable in
accordance with its terms (except as enforcement thereof may be limited by any
bankruptcy, insolvency, reorganization, moratorium or similar statute, rule,
regulation or other law affecting the enforcement of creditors' rights and
remedies generally) and in full force and effect. Assuming the satisfaction of
the conditions described in Sections 11.7(b) and 11.9, each Commercial Contract
will continue to be legal, valid, binding, enforceable, and in full force and
effect following the Closing. Except as set forth in Schedule 8.14, no party is
in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination, modification
or suspension under any Commercial Contract and no party has repudiated any
provision of any Commercial Contract. Assuming the satisfaction of the
conditions described in Sections 11.7(b) and 11.9, the transactions contemplated
hereby will not constitute a breach or default on the part of the Seller under
any Commercial Contract. Seller is and has at all times been in compliance with
the applicable requirements of law and regulations governing the manner in which
services provided under any Commercial Contract may be marketed to enrollees to
the extent that any violation thereof would have a Material Adverse Effect.
Seller has no knowledge of any intention on the part of DOH or DOI to refuse to
permit the renewal of any Commercial Contract upon the expiration of the term
thereof.
8.15 Medical Management. Attached hereto as Schedule 8.15 is a copy of
the medical management and quality assurance policies and procedures that Seller
uses or has used since January 1, 1997 with respect to the Acquired Business.
Seller has delivered to Purchaser a true, correct and complete copy of the
minutes maintained by Seller's medical management and quality assurance
committees since January 1, 1998. Except as set forth in Schedule 8.15, Seller's
medical management and quality assurance policies comply in all material
respects with all applicable laws, rules, regulations and Commercial Contract
requirements.
8.16 Commercial Members.
(a) Schedule 8.16(a) lists, for each month since January 1, 1998,
the aggregate number of Commercial Members and the numbers of Commercial Members
added to or deleted from the Seller's list of enrolled Commercial Members during
each such month.
(b) Schedule 8.16(b) contains the most recent available list of
names, addresses and identification numbers for all Commercial Members and a
summary fairly describing, by type and medium in which kept, all books and
records maintained for the Commercial Members, including medical and claim
histories, in all mediums used by the Seller, electronic or otherwise. The books
and records described in Schedule 8.16(b) comprise all of the books and records
required by law to be maintained by the Seller with respect to the Commercial
Members and such books and records comply with all applicable legal requirements
and the terms of the Commercial Contracts.
(c) Schedule 8.16(c) describes each grievance and appeal received
by the Seller from any Commercial Member since January 1, 1998, and generally
describes the nature and status or disposition of such grievance or appeal.
8.17 Pending Treatments. Schedule 8.17 contains (i) a list of all
requests for prior authorization of treatment to be provided to Commercial
Members pending with the Seller as of the date hereof, including the date,
detailed nature and status of each such request, and (ii) a list of all
previously authorized organ transplants that are yet to be provided to
Commercial Members and all other previously authorized treatments that are yet
to be provided to Commercial Members the claims expense for which is likely to
exceed $5,000, including the date of authorization and a detailed case
description. The Seller has engaged in no acts or omissions having the effect of
delaying the authorization or scheduling of health care services provided to
Commercial Members in a manner inconsistent with customary industry practices or
Article 49 of the Public Health Law.
8.18 Title to Property. Except as set forth in Schedule 8.18, the
Seller has, and at the Closing will assign or convey as applicable to the
Purchaser, good and marketable title to all of the Assets free and clear of all
liens, security interests, pledges, guaranties, charges, claims, restrictions,
options, commitments and other encumbrances of any nature whatsoever. None of
the Assets being sold by the Seller to the Purchaser pursuant to this Agreement
are subject to any claim or dispute, or to any agreement or arrangement for
their use by any Person.
8.19 Insurance. Schedule 8.19 hereto contains a true, correct and
complete list of all policies of liability, title, error and omissions, fidelity
bonds and other forms of insurance and reinsurance held by Seller in connection
with or that relate in any way to the Acquired Business, together with a brief
description of each, including the name of the insurer, the risks insured
against, the limits of coverage, the deductible amount (if any), the premium
rate and the date through which coverage will continue by virtue of premiums
already paid. Except as set forth in Schedule 8.19, all such policies are in
full force and effect and all premiums thereon have been paid in a timely manner
through the date hereof. Seller shall continue to carry all such insurance in
full force and effect through the Effective Time, and to the extent any such
coverage is on a "claims made" basis, shall prior to the Closing purchase the
maximum available extended reporting period coverage (i.e., "tail").
8.20 Compliance With Laws. Except as set forth in Schedule 8.20,
Seller is in compliance with all laws, rules, regulations, ordinances, reporting
and licensing requirements and orders applicable to the Seller, and no condition
exists which with or without notice or passage of time or both would constitute
non-compliance therewith. Except as specified on Schedule 8.20, Seller has not
received notification from any Governmental Entity asserting that Seller is not
in compliance with any of the statutes, regulations or ordinances which such
Governmental Entity enforces, or threatening to revoke, suspend or modify any
Permit. Except as set forth in Schedule 8.20, Seller has filed all reports,
registrations and statements, together with any amendments required to be made
thereto, that are required to be filed with DOH, DOI and each other Governmental
Entity having jurisdiction over the Acquired Business. Schedule 8.20 lists all
examinations of Seller conducted by any Governmental Entity since January 1,
1996 and identifies by date any correspondence between such Governmental Entity
and Seller regarding sanctions, conclusions made and/or corrective action
required or suggested based on such examination.
8.21 Completeness of Assets. The Assets which are to be conveyed and
assigned pursuant to the Conveyance Documents constitute all of the assets and
properties utilized by the Seller in the operation of the Acquired Business
since December 31, 1998, except for (i) assets that were disposed of since such
date and replaced with adequate replacements or that were disposed of in the
ordinary course of business and were not material to the conduct of the Acquired
Business, (ii) assets acquired since such date and included in the Assets, and
(iii) the Excluded Assets. The Assets include all rights and property (other
than working capital) utilized by the Seller and reasonably necessary to carry
on the Acquired Business as it has been carried on by the Seller prior to the
date hereof.
8.22 [Not Used].
8.23 No Bankruptcy. Seller is not the subject of bankruptcy or any
similar proceedings.
8.24 Broker's and Other Fees. Other than pursuant to its engagement of
Bear Stearns & Co. Inc, the Seller has not employed any broker or finder or
incurred any liability for any broker's or finder's fees or commissions in
connection with any of the transactions contemplated by this Agreement.
8.25 Transactions with Affiliates. The Seller does not own, directly
or indirectly, nor does it have an interest which exceeds 10% of the outstanding
equity, either of record or beneficially, in any business or business concern,
corporate or otherwise, which is a party to any agreement, business arrangement
or course of dealing with Seller.
8.26 Payments. Neither Seller nor any Affiliate of Seller, nor any of
its or their officers, directors, agents or employees or any other person on
behalf of Seller, has made directly or indirectly any illegal or improper
payment to or on behalf of, or provided any illegal or improper benefit or
inducement for, any physician, supplier, customer or patient. Neither Seller nor
any Affiliate of Seller, nor any officer, director, employee or agent of any of
the foregoing has, directly or indirectly, paid or delivered a fee, commission
or other sum of money or item or property, however characterized, to any finder,
agent, government official or other party, in the United States or any other
country, which was or is illegal under any Law. Seller has not participated in
any boycotts or other similar practices affecting any of its actual or potential
customers and has at all times done business in an open and ethical manner.
Neither Seller nor any Affiliate of Seller nor any officer, director, employee
or agent of any of the foregoing has made any payment to any customer or
supplier of Seller or any officer, director, partner, employee or agent of any
customer, patient or supplier of Seller, for the unlawful sharing of fees or to
any such customer, patient or supplier or any such officer, director, partner,
employee or agent for the unlawful rebating of charges, or engaged in any other
unlawful payment or given any other unlawful consideration to any such customer,
enrollee, patient or supplier or any such officer, director, partner, employee
or agent.
8.27 Patel Documents. The Seller has delivered to the Purchaser a
true, correct and complete copy of each of the material agreements and other
documents executed or to be executed in connection with the Patel Transaction
(the "Patel Documents").
8.28 Full Disclosure. No representation, warranty or statement made by
Seller in this Agreement, or in any statement, certificate, exhibit, schedule,
or other document furnished to the Purchaser pursuant hereto, or in connection
with the transactions contemplated hereby, contains or will contain any untrue
statement of material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading.
9. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Seller that:
9.1 Organization and Qualification. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of New York. The Purchaser has all requisite corporate power and authority
and all necessary licenses and permits to carry on its business as it has been
and is currently being conducted, to own, lease and operate the business and
assets used in connection therewith, and, subject to the Purchaser obtaining any
necessary Permits, to enter into and perform this Agreement and consummate the
transactions contemplated hereby. The Purchaser is duly qualified to do business
and is in good standing as a corporation under the laws of all jurisdictions
wherein the conduct of its business or the ownership, leasing or operation of
its properties and assets requires such qualification and where the failure of
the Purchaser to obtain such qualification would have a Material Adverse Effect.
9.2 Authority. The Purchaser has all requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby to be
consummated by the Purchaser. The execution and delivery of this Agreement by
the Purchaser and the consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and no other corporate proceedings on the part of the Purchaser are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Purchaser and,
assuming the due authorization, execution and delivery thereof by the Seller,
constitutes the legal, valid and binding obligation of the Purchaser,
enforceable in accordance with its respective terms except as such
enforceability may be qualified by equitable principles and pursuant to laws
enacted for the protection of creditors.
9.3 No Conflict; Required Filings and Consents.
(a) Assuming the satisfaction of the condition described in
Section 11.7(b), the execution and delivery of this Agreement by the Purchaser
does not, and the performance of this Agreement by the Purchaser will not: (i)
conflict with or violate the Certificate of Incorporation or By-Laws, in each
case as amended or restated, of the Purchaser; (ii) conflict with or violate any
Laws in effect as of the date of this Agreement applicable to the Purchaser or
any of its subsidiaries or by which any of its or their respective properties
are bound or (iii) result in any breach of or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, or
required payment under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of the Purchaser or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise, or other instrument or obligation
to which the Purchaser or any of its subsidiaries is a party or by which the
Purchaser or any of its subsidiaries or any of its or their respective
properties is bound or subject to.
(b) The execution and delivery of this Agreement by the Purchaser
does not, and the performance of this Agreement by the Purchaser will not, as of
the date hereof, require the Purchaser to obtain any consent, approval,
authorization or permit of, or to make any filing with or notification to, any
Governmental Entities, based on laws, rules, and regulations and such other
requirements of Governmental Entities in effect as of the date hereof, except
for any Permits required for the continued operation of the Acquired Business
following the Closing.
9.4 Absence of Litigation. As of the date hereof, (a) there is no
claim, action, suit, litigation, proceeding, arbitration or, to the best
knowledge of the Purchaser, investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or, to the
best knowledge of the Purchaser, threatened in writing against the Purchaser or
any of its subsidiaries or any properties or rights of the Purchaser or any of
its subsidiaries and (b) neither the Purchaser nor any of its subsidiaries is
subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement with, or, to the best knowledge of the
Purchaser, continuing investigation by, any Governmental Entity, or any
judgment, order, writ, injunction, decree or award of any Governmental Entity or
arbitrator, including, without limitation, cease-and-desist or other orders if
the same would have a Material Adverse Effect.
10. Transactions and Conduct of Business Pending the Closing. The
Seller covenants and agrees that pending the Closing:
10.1 Ordinary Course of Business. The Seller shall carry on its
business in the ordinary course and substantially in the same manner as
heretofore carried on by it. In connection therewith, the Seller shall:
(a) Preserve the Assets and the Acquired Business intact;
(b) Use its best efforts to preserve the goodwill of its
relationships with Commercial Members, Providers, DOH, DOI, suppliers,
contractors, employees and others having business relations with it
related to the Acquired Business;
(c) Comply with all regulations and laws applicable to it;
(d) Keep in full force and effect insurance coverage with
reputable insurers, which in respect of amounts, types and risks
insured is that which its management reasonably believes to be
adequate, which insurance coverages shall not be less than described
on Schedule 8.17;
(e) Make no material change in the customary terms and conditions
upon which it does business with respect to the Acquired Business;
(f) Take no action or permit any omission having the effect of
delaying the authorization or scheduling of health care services
provided to Commercial Members in a manner inconsistent with customary
industry practices;
(g) Duly and timely file, or obtain appropriate extensions of the
time for filing, all material reports, and all Tax Returns and other
documents required to be filed with Governmental Entities.
(h) Unless it is contesting the same in good faith and has
established reasonable reserves therefor, pay when required to be paid
all Taxes indicated by such Tax Returns or otherwise lawfully levied
or assessed upon it, or any of its properties or assets, or which it
is otherwise legally obligated to pay and withhold or collect and pay
to the proper governmental authorities or hold in separate bank
accounts for such payment all Taxes and other assessments which it
believes in good faith to be required by law to be so withheld or
collected;
(i) Take no action which would adversely affect the ability of
any party to obtain the Permits or consents of private parties
required for the transactions contemplated hereby or which would
adversely affect the Seller's ability to perform its covenants and
agreements contained herein; and
(j) Maintain, in accordance with past practice, its Provider
Contracts; credential and re-credential such Providers in accordance
with the standards of the National Committee on Quality Assurance;
take such steps as may be necessary on Seller's part to maintain the
adequacy of the provider network for the Acquired Business and the
pricing levels currently contemplated by the Provider Contracts; and
take such other steps as are necessary in order to render the
representations and warranties of Seller with respect to the Provider
Contracts true and correct as of the Effective Time as if made at such
time.
10.2 Preparation for Transfer and Transition. To ensure an effective
transition and transfer of Commercial Members to the Purchaser, the parties
agree as follows:
(a) At all times prior to the Effective Time, Seller shall
cooperate and work with Purchaser in transition planning and
implementing such transfer;
(b) At all times prior to the Effective Time, Seller shall
orient, educate and otherwise train Purchaser regarding (i) Seller's
operating policies and procedures, (ii) the health plan benefits and
services offered by Seller to Commercial Members including, without
limitation, member services, member outreach and education, and
preventative medicine programs, and (iii) the Provider Contracts;
(c) During the time period prior to the Effective Time, Seller
shall use best efforts to obtain the consents of any third parties
necessary for the execution of the Leases; and
(d) During the time period prior to the Effective Time, Seller
shall use best efforts to cause the execution by Providers of the
instruments described in Section 11.8.
10.3 Payment of Retained Liabilities; Discharge of Pre-Effective Date
Medical Claim Liabilities.
(a) Seller shall pay, perform and discharge in due course, all of
its obligations with respect to any of the Retained Liabilities. In connection
with the discharge of such claims, to the extent any of the claims payment
information for such claims is received by the Purchaser after the Effective
Time, the Purchaser shall promptly forward such information to the Seller.
(b) By no later than two days prior to the Closing Date, the
Seller shall furnish to the Purchaser a copy, certified as true, correct and
complete by the President or a Vice-President of the Seller, of each binding
agreement (a "Claims Release") then obtained pursuant to which a WellCare
Provider shall have waived or released claims for payment in respect of
healthcare services rendered to enrollees of the Seller's health care plans
(whether commercial, Medicaid, Medicare or Child Health Plus) for any period
ending on or prior to the Closing, in consideration of the agreement by the
Seller to pay such WellCare Provider a negotiated sum out of the Claims Fund.
10.4 Certain Prohibited Activities. On and after the date hereof and
prior to the Closing, Seller shall not take any of the following actions, or
agree to take any such actions, except with the prior written consent of
Purchaser:
(a) Merge or consolidate with any other corporation or other
entity or permit any other entity to merge into it; acquire any stock;
undergo any reorganization or recapitalization; or acquire any assets
of any other person, corporation or business organization;
(b) Authorize or make any material change in the operation of the
Acquired Business; lease, sell or dispose of any part of the Assets;
or otherwise enter into any contract, transaction or commitment
related to the Acquired Business, other than in the ordinary course of
business, consistent with past practice; or
(c) Take or omit to take any action, or permit the occurrence of
any change or event, that would render any of its representations and
warranties contained herein untrue in any respect at and as of the
Effective Time with the same effect as though such representations and
warranties had been made at and as of the Effective Time.
10.5 Casualty. If, prior to the Closing, any of the Assets are damaged
by fire, vandalism, acts of God, or other casualty or cause in an aggregate
amount equal to or greater than $50,000, as determined by an independent
insurance adjustor, the Purchaser shall have the right to terminate this
Agreement by written notice delivered to the Seller within three (3) days after
the Purchaser is given notice by the Seller of such damage or casualty. In the
event the Purchaser does not elect to terminate this Agreement in the manner
aforesaid or if, prior to the Closing, any of the Assets are damaged by fire,
vandalism, acts of God, or other casualty or cause in an aggregate amount less
than $50,000, the Purchaser shall proceed with the Closing and shall have the
right to receive the insurance proceeds, if any, that are attributable to such
damage or casualty and that would otherwise be payable to the Seller and that
are received after the Closing, and the Purchaser shall apply such proceeds to
the repair of such damage or casualty. The Purchaser and the Seller agree to
cooperate in any loss adjustment negotiations, legal actions and agreements with
the insurance company relating to any such damage.
10.6 Access. The Seller shall afford the Purchaser's officers,
employees, accountants, counsel and other representatives prompt, free and full
access, upon reasonable notice, to its properties and its books, records,
contracts, commitments and other documents (in each instance, subject to patient
confidentiality laws, rules and regulations), including, without limitation,
records to which such Seller has access relating to the historical revenues of
the Acquired Business and all working papers of the Seller's accountants
relating thereto, and the right to consult to a reasonable extent with the
officers, employees, accountants, counsel and other representatives of the
Seller for the purpose of making such investigation of the Acquired Business as
the Purchaser shall desire to make. In connection with this investigation, the
Seller shall permit the Purchaser to make copies of all such documents, records
and information to which the Purchaser shall be entitled to have access
hereunder, including working papers, as the Purchaser may from time to time
request.
10.7 Cooperation. The Seller and the Purchaser shall cooperate with
each other in promptly taking any and all actions appropriate to the
consummation of the transactions contemplated by this Agreement. The Seller and
the Purchaser shall take all actions reasonably necessary and shall use their
respective reasonable commercial efforts to consummate the transactions
contemplated hereby on the Closing Date on and subject to the terms and
conditions of this Agreement. The Seller shall use its best efforts to (i) cause
its management and employees to cooperate fully with the Purchaser in order to
promote and effect an orderly transition of the ownership of the Assets, (ii)
maintain the vendor, patient, Provider, managed care company, agency and other
relationships of the Seller insofar as they relate to the Acquired Business and
(iii) otherwise provide for the conduct of the Acquired Business after the
Effective Time in substantially the manner as the same is being conducted as of
the date hereof.
10.8 No Change in Accounting Methods. The Seller shall not change the
historical accounting methods utilized in arriving at the 1999 Interim Financial
Statements without prior notice to the Purchaser.
10.9 Other Offers. On and after the date hereof and prior to Closing,
and except as expressly permitted by the following provisions of this Section,
neither the Seller nor WMG shall, and neither the Seller nor WMG shall authorize
or permit any of their respective officers, directors employees, affiliates,
financial advisors, attorneys, accountants or other advisors or representatives
to solicit, initiate, encourage, endorse, or enter into any agreement with
respect to, or take any other action to knowingly facilitate, any inquiries or
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Acquisition Proposal (as defined below). Notwithstanding the
foregoing, nothing contained herein shall prevent the Board of Directors of the
Seller from (i) furnishing information to, entering into discussions or
negotiations with, or consummating any transaction (including any transaction
contemplated by the Patel Documents) that does not conflict with the
transactions contemplated hereby, (ii) furnishing information or entering into
discussions or negotiations with or consummating any Acquisition Proposal with
any person or entity if and only to the extent (A) the Board of Directors of the
Seller or WMG shall have determined in good faith that such action is required
in the exercise of its fiduciary duties, based upon the advice of counsel, or
(B) directed to so act by New York HMO regulatory authorities, (iii) WMG
complying with Rules 14d-9 and 14e-2 promulgated under the Securities Exchange
Act of 1934, or (iv) WMG making any disclosures to WMG's shareholders if the
Board of Directors of WMG shall have determined, after consultation with outside
counsel, that failure to make such disclosures would be inconsistent with
applicable law. As used herein, "Acquisition Proposal" shall mean any offer to
acquire assets of the Seller relating to its commercial HMO products offered in
the State of New York or any other transaction or arrangement that would
constitute, directly or indirectly, a disposition of such assets (including but
not limited to, a sale or insurance of stock, a merger or other business
combination or a co-insurance or reinsurance arrangement).
10.10 Public Announcements. Immediately after execution of this
Agreement, the parties shall, subject to any required regulatory approvals,
prepare and issue a joint press release describing the sale of the Acquired
Business to the Purchaser. At Closing, the parties again shall prepare and issue
a joint press release describing the consummation of the transactions
contemplated hereby, the benefits to the respective parties, and the benefits to
the Commercial Members. The parties shall thereafter actively disseminate such
information to parties in interest in furtherance of the transitioning to the
Purchaser of the Commercial Members.
10.11 Schedule Deliveries. On or before two days prior to the Closing
Date, the Seller shall deliver to the Purchaser all Schedules contemplated to be
attached hereto and which are not so attached at the time of execution.
10.12 WARN Notices. No less than five days prior to the Closing Date,
the Purchaser shall issue notices of termination to all of its employees, except
those employees being retained by Seller pursuant to Section 13.3(a), in
accordance with the Worker Adjustment Retraining and Notification (WARN) Act, if
and to the extent required under such act and the regulations promulgated
thereunder.
11. Conditions Precedent to the Purchaser's Obligations. All obligations of
the Purchaser under this Agreement are subject to the fulfillment or
satisfaction, prior to or at the Closing, of each of the following conditions
precedent (any of which may be waived in writing in whole or in part by the
Purchaser, in its sole discretion).
11.1 Delivery of Assets. At the Closing, the Assets shall be conveyed
and delivered to the Purchaser free and clear of any and all liens, security
interests, pledges, guaranties, charges, claims, restrictions, options,
commitments and other encumbrances of any nature whatsoever. Without limiting
the generality of the foregoing, good and valid title to the Seller's "Cactus"
credentialing system and to the Seller's "MAZ 90" system shall be so conveyed
and delivered to the Purchaser.
11.2 Representations and Warranties True as of Effective Time. The
representations and warranties of the Seller contained in this Agreement and in
any list, certificate, document or written statement furnished by the Seller to
the Purchaser pursuant hereto shall be true in all material respects at and as
of the date hereof and shall be true in all material respects at and as of the
Effective Time with the same effect as though such representations and
warranties were made at and as of the Effective Time.
11.3 Conveyance Documents. The Seller shall have executed and
delivered to the Purchaser the Conveyance Documents, as provided by Section 2
hereof.
11.4 Officer's Certificates. The Purchaser shall have received from
the Seller a certificate (dated the Closing Date and in form and substance
reasonably satisfactory to the Purchaser), signed by the President or a
Vice-President of the Seller, certifying that the conditions specified in
Sections 11.1 and 11.2 have been fulfilled.
11.5 Opinion of the Seller's Counsel. The Purchaser shall have
received the written opinion dated the Closing Date of Epstein, Becker & Green,
P.C., counsel to the Seller, substantially in the form annexed hereto as Exhibit
II.
11.6 Secretary's Certificates. The Purchaser shall have received from
the Seller a certificate of the Secretary of the Seller (dated the Closing Date
and in form and substance reasonably satisfactory to the Purchaser), certifying
and setting forth (i) the names, signatures and positions of the officers of the
Seller authorized to execute the Conveyance Documents, and (ii) a copy of the
resolutions adopted by the Board of Directors and the shareholders of the Seller
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
11.7 Notifications and Consents.
(a) No order, statute, rule, regulation, executive order,
injunction, stay, decree or restraining order shall have been enacted, entered,
promulgated or enforced by or before any Governmental Entity, which materially
prohibits or restricts the consummation of any of the material transactions
contemplated hereby.
(b) All authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of other waiting periods imposed by,
any Governmental Entity necessary for the consummation of any of the
transactions contemplated hereby shall have been filed, have occurred or have
been obtained, as the case may be, including, without limitation: (i) such
Permits as must be issued by DOH and DOI to: (w) authorize the Purchaser to
operate a health maintenance organization in accordance with Article 44 of the
New York Public Health Law; (x) effectuate the assignment by Seller of its
rights under the Commercial Contracts to the Purchaser and to the continuation
by the Purchaser of the Acquired Business without any "open enrollment" period
during which any existing Commercial Member of Seller may elect to terminate
his, her or its Commercial Contract; (y) effectuate the transfer and enrollment,
as of the Effective Time, of the Commercial Members into the Purchaser (which
members as of the Effective Time shall be deemed by DOH and DOI to be members of
the Purchaser); and (z) confirm that as of the Effective Time, the Purchaser
will be deemed by DOH and DOI to have satisfied the statutory reserve and net
worth requirements, and that neither DOH nor DOI will assert successor liability
against the Purchaser in respect of liabilities of Seller, or with respect to
any regulatory issues; and (ii) such other authorizations of DOH and DOI as
shall be necessary for Seller to consummate the transactions contemplated
hereby.
(c) No action, suit, claim or proceeding by or before any
Governmental Entity shall have been commenced and be pending which (i) seeks to
restrain, prevent or materially delay or restructure the transactions
contemplated hereby, (ii) seeks to obtain any material damages in respect of a
claim in connection with the Acquired Business or the transactions contemplated
hereby, (iii) seeks to prohibit or impose any material limitation (including but
not limited to, any time limitation) on the ownership or operation by the
Purchaser of all or any portion of the Acquired Business or to compel the
Purchaser to dispose of or hold separate all or any portion of the Acquired
Business, (iv) seeks to make any of the Real Property the subject of material
remediation activities or investigations pursuant to any Environmental Laws; or
(v) otherwise questions the validity or legality of any such transactions and,
in the case of any of the foregoing, the same is, in the reasonable judgment of
the Purchaser, reasonably likely to be adversely determined and such adverse
determination could have a Material Adverse Effect.
11.8 Provider Contracts.
(a) Each of the Primergy IPAs shall have executed and delivered
to the Purchaser an agreement containing the terms and conditions set forth in
that certain proposal, dated of even date herewith, submitted by Primergy, Inc.
to GHI, and otherwise reasonably satisfactory in form and substance to the
Purchaser.
(b) The Seller shall have delivered or caused to be delivered to
the Purchaser, not less than two business days prior to the Closing, Provider
Contract Assignments with respect to the Seller's Provider Contracts with each
of the following entities and any Affiliates or successors thereof: (i) CHVC
IPA, Inc. (vision services); (ii) MBC of New York, Inc. (mental health
services); (iii) Laboratory Corporation of America Holdings (laboratory
services); (iv) Pharmacare Management Services, Inc. (pharmacy services); (v)
New York Medical Imaging, P.L.L.C. (imaging services); (vi) Homedco, Inc. (home
care services, infusion services and durable medical equipment); and (vii)
Access Care IPA, Inc. (chiropractice services).
(c) The Seller shall have delivered or caused to be delivered to
the Purchaser, not less than two business days prior to the Closing, Provider
Contract Assignments with respect to Provider Contracts constituting not less
than (i) 80% of the Provider Contracts with physicians in each of the counties
comprising the WellCare Service Area and (ii) 80% of the Provider Contracts with
hospitals in each of the counties comprising the WellCare Service Area. The
Purchaser acknowledges and agrees that the physicians who participate in the
network of the Primergy IPAs and who are located within a given county
comprising party of the WellCare Service Area may be counted towards the
requirement set forth in clause (i) of the preceding sentence.
11.9 Third Party Consents. The Purchaser shall have received all
necessary consents of the counterparties to the Commercial Contracts and all
other third parties to the succession by the Purchaser to the position of the
Seller under each material agreement, contract or instrument included in the
Assets (other than the Provider Contracts referenced in Section 11.8 above), in
each case without any change in the terms thereof that is materially adverse to
the Acquired Business or the Purchaser, and containing if requested by the
Purchaser estoppels from the respective counterparties thereto, and all legal
matters with respect to such consents and assignments shall be reasonably
satisfactory to the Purchaser and its counsel.
11.10 Lien Search. The Purchaser shall have obtained UCC, state and
federal tax lien and judgment searches with respect to the Seller, the Real
Property and the Assets as of a date no more than 15 days prior to the Closing
Date, together with termination statements with respect to all liens or other
encumbrances relating to the Assets reflected thereon that do not constitute
Permitted Encumbrances, except such as may have occurred as a result of the
express agreement of the Purchaser and the Seller or as a result of the
transactions contemplated hereby.
11.11 Good Standing Certificate. The Seller shall have delivered to
the Purchaser a good standing certificate for the Seller as of a date no more
than 15 days prior to the Closing Date, issued by the Secretary of State of the
State of New York and each jurisdiction where the conduct of the Seller's
business activities necessitates qualification.
11.12 Certified Certificate of Incorporation. The Seller shall have
delivered to the Purchaser a copy of the Certificate of Incorporation of the
Seller, and all amendments thereto, certified by the Secretary of State of the
State of New York as of a date no more than 15 days prior to the Closing Date.
11.13 Related Party Non-Competition Agreement. Each of the Related
Parties shall have executed and delivered to the Purchaser the Related Party
Non- Competition Agreement, in form and substance reasonably satisfactory to the
Purchaser.
11.14 Contribution of Certain Assets to Seller . WMG shall have
contributed to the Seller, so that the Seller may convey to the Purchaser as
contemplated by Section 11.1, all right, title and interest and in and rights of
access to the following assets, to the extent held by WMG: all clinical,
diagnostic and data analysis, storage and retrieval computer systems used or
useful in the Acquired Business, and all billing, bookkeeping and accounting
computer systems used or useful in the Acquired Business, including in each case
all associated software and operating systems.
11.15 Leases. The Leases shall been have executed and delivered to the
Purchaser, in form and substance reasonably satisfactory to the Purchaser, and
all consents of any third parties required therefor shall have been obtained.
11.16 Guaranty. WMG shall have executed and delivered to the Purchaser
the Guaranty, in form and substance reasonably satisfactory to the Purchaser.
11.17 Transition Services Agreement. The Seller shall have executed
and delivered to the Purchaser the Transition Services Agreement, in form and
substance reasonably satisfactory to the Purchaser.
11.18 Insurance Endorsements. The Seller shall have delivered to the
Purchaser an endorsement to each insurance policy listed on Schedule 8.18 or
otherwise maintained in connection with the Acquired Business reflecting the
Purchaser as an additional insured or loss payee and confirming that the tail
coverage required by Section 8.18 has been bound.
11.19 No Material Adverse Change. There shall have been no material
adverse change in the financial condition, business, operations, assets or
prospects of the Seller at Closing as compared with the date hereof, except such
as may have occurred as a result of the Patel Transaction, as a result of the
express agreement of the Purchaser and the Seller or as a result of the
transactions contemplated hereby.
11.20 Approval of Schedules. The Schedules delivered by the Seller to
the Purchaser subsequent to the execution and delivery of this Agreement, as
required by Section 10.11 hereof, shall be acceptable to the Purchaser in its
sole but reasonable discretion; provided, however, that the Purchaser shall not
be entitled to object to any information contained in any such Schedule that was
expressly set forth in any of the written due diligence materials heretofore
furnished to the Purchaser, as identified on Schedule 11.19 attached hereto.
11.21 Establishment of Claims Fund. The Seller shall have delivered to
the Purchaser such certifications and/or other documents as the Purchaser may
reasonably request to evidence the establishment and funding of the Claims Fund
as contemplated by the definition of such term in Section 1 hereof.
11.22 Patel Transaction. The Patel Transaction shall have been
consummated on or prior to the Closing Date substantially in accordance with the
terms thereof set forth in the Patel Documents, and the Seller shall have
delivered to the Purchaser such certifications and/or other documents as the
Purchaser may reasonably request to evidence the same.
11.23 WARN Notices. The Seller shall have delivered to the Purchaser
evidence reasonably acceptable to the Purchaser that Seller has issued all WARN
notices required under Section 10.12 (if any).
12. Conditions Precedent to the Seller's Obligations. All obligations of
the Seller under this Agreement are subject to the fulfillment or satisfaction,
prior to or at the Closing, of each of the following conditions precedent (any
of which may be waived in writing in whole or in part by the Seller, in its sole
discretion):
12.1 Representations and Warranties True as of Effective Time. The
Purchaser's representations and warranties contained in this Agreement and in
any list, certificate, document or written statement furnished by the Purchaser
to the Seller pursuant hereto shall be true in all material respects at and as
of the date hereof and shall be true in all material respects at and as of the
Effective Time with the same effect as though such representations and
warranties were made on and as of the Effective Time.
12.2 Compliance with Agreement. The Purchaser shall have performed and
complied in all material respects with all agreements and conditions contained
in this Agreement that are required to be performed or complied with by it prior
to or at the Closing.
12.3 Payment and Deliveries. The Purchaser shall have made the
payments and deliveries contemplated by Section 4 to be made on the Closing Date
and shall have executed and delivered the Assignment and Assumption Agreement.
12.4 Officer's Certificate. The Seller shall have received a
certificate (dated the Closing Date and in form and substance reasonably
satisfactory to the Seller), signed by the President or a Vice-President of the
Purchaser, certifying that the conditions specified in Sections 12.1 and 12.2
hereof have been fulfilled.
12.5 Secretary's Certificate. The Seller shall have been furnished
with a certificate of the Secretary of the Purchaser (dated the Closing Date and
in form and substance reasonably satisfactory to the Seller) certifying and
setting forth (i) the names, signatures and positions of the officers of the
Purchaser executing this Agreement and any documents to be delivered by the
Purchaser at Closing, and (ii) a copy of the resolutions adopted by the board of
directors of the Purchaser authorizing the execution, delivery and performance
of this Agreement and the transactions contemplated hereby.
12.6 No Suit or Other Proceedings. No injunction or restraining order
shall have been granted that would restrain or prohibit the transactions
contemplated hereby.
12.7 Notifications and Consents.
(a) No order, statute, rule, regulation, executive order,
injunction, stay, decree or restraining order shall have been enacted, entered,
promulgated or enforced by or before any Governmental Entity, which materially
prohibits or restricts the consummation of any of the material transactions
contemplated hereby.
(b) All authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of other waiting periods imposed by,
any Governmental Entity necessary for the consummation of any of the
transactions contemplated hereby shall have been filed, have occurred or have
been obtained, as the case may be, including, without limitation: (i) such
Permits as must be issued by DOH and DOI to: (w) authorize the Purchaser to
operate a health maintenance organization in accordance with Article 44 of the
New York Public Health Law; (x) effectuate the assignment by Seller of its
rights under the Commercial Contracts to the Purchaser and to the continuation
by the Purchaser of the Acquired Business without any "open enrollment" period
during which any existing Commercial Member of Seller may elect to terminate his
or her Commercial Contract; (y) effectuate the transfer and enrollment, as of
the Effective Time, of the Commercial Member into the Purchaser (which members
as of the Effective Time shall be deemed by DOH and DOI to be members of the
Purchaser); and (z) confirm that as of the Effective Time, the Purchaser will be
deemed by DOH and DOI to have satisfied the statutory reserve and net worth
requirements, and that neither DOH nor DOI will assert successor liability
against the Purchaser in respect of liabilities of Seller, or with respect to
any regulatory issues; and (ii) such authorizations of DOH and DOI as shall be
necessary for Seller to consummate the transactions contemplated hereby.
(c) No action, suit, claim or proceeding by or before any
Governmental Entity shall have been commenced and be pending which (i) seeks to
restrain, prevent or materially delay or restructure the transactions
contemplated hereby, (ii) seeks to obtain any material damages in respect of a
claim in connection with the Acquired Business or the transactions contemplated
hereby, (iii) seeks to prohibit or impose any material limitation (including but
not limited to, any time limitation) on the ownership or operation by the
Purchaser of all or any portion of the Acquired Business or to compel the
Purchaser to dispose of or hold separate all or any portion of the Acquired
Business, (iv) seeks to make any of the Real Property the subject of material
remediation activities or investigations pursuant to any Environmental Laws; or
(v) otherwise questions the validity or legality of any such transactions and,
in the case of any of the foregoing, the same is, in the reasonable judgment of
the Purchaser, reasonably likely to be adversely determined and such adverse
determination could have a Material Adverse Effect.
12.8 Transition Services Agreement. The Purchaser shall have executed
and delivered to the Seller the Transition Services Agreement, in form and
substance reasonably satisfactory to the Seller.
13. Certain Transactions and Obligations Subsequent to Closing. The
Purchaser and the Seller represent, warrant and agree that, after the Closing
and during the periods specified below and except as otherwise mutually agreed
in writing by the Purchaser and the Seller:
13.1 Further Assurance of Cooperation. From and after the date hereof
and following the Closing, the Seller and the Purchaser shall execute and
deliver such further documents and instruments and do such other acts and things
as the Purchaser or the Seller, as the case may be, may reasonably request in
order to effectuate the transactions contemplated by this Agreement.
13.2 Maintenance of Corporate, Patient Care, Accounting and Tax
Records. For a period of six (6) years following the Closing, each party hereto
shall maintain and (subject to customary confidentiality agreements and subject
to applicable patient confidentiality laws, rules and regulations) make
available to such other party, for inspection and duplication by it and its
representative for any reasonable purpose, all of such party's corporate,
patient care, provider claims, accounting and tax records, files, documents and
correspondence relating to the Acquired Business and to periods prior to the
Effective Time (including in the case of the Purchaser, the books and records
included in the Assets, which the parties acknowledge it is the Purchaser's
obligation to maintain at its own cost) and shall not dispose of, alter or
destroy any such records, files, documents and correspondence for such period.
Subsequent to such six (6) year period, each party hereto shall advise such
other party prior to any intended destruction or unavailability of any such
corporate, accounting and tax records, files, documents and correspondence and
afford such other party reasonable opportunity to either take possession of such
information or to make copies thereof (subject to applicable patient
confidentiality laws, rules and regulations).
13.3 Certain Employees of the Seller.
(a) The Seller or its Affiliates shall have the right to retain
as their employees (i) all sales and marketing personnel devoted to all portions
of the Seller's business other than the Acquired Business, (ii) five members of
Seller's utilization management staff mutually agreed to by Seller and Purchaser
and (iii) five members of Seller's quality assurance staff mutually agreed to by
Seller and Purchaser.
(b) With respect to all other employees of the Seller not subject
to Section 13.3(a) (the "Commercial Employees"), the Seller agrees, for itself
and on behalf of its Affiliates, that the Purchaser shall have the right, but
not the obligation, to extend offers of employment commencing as of the
Effective Time to any of the Commercial Employees, with such hours, compensation
and benefits as the Purchaser shall determine in its sole discretion.
(c) The Seller agrees, for itself and on behalf of its
Affiliates, that they shall not seek to enforce any non-competition obligations
which be owed by any of the Commercial Employees who are to become employees of
the Purchaser as of the Effective Time.
(d) The Seller shall bear all termination costs, including but
not limited to, severance pay and compensation payable under the Worker
Adjustment Retraining and Notification (WARN) Act, that are triggered by the
Seller's termination of any of its employees, without regard as to whether an
employee is offered employment or employed by the Purchaser. Nothing in this
Agreement shall be construed as imposing any liability for such costs on the
Purchaser.
13.4 Designation of the Purchaser as Successor Employer. The Seller
agrees, if requested by the Purchaser, to consent to the designation of the
Purchaser as successor employer of those employees of the Seller who become
employees of the Purchaser as contemplated by Section 13.3(b), for purposes of
employment insurance, payroll taxes or contribution ratings and payroll credits
under state and federal law and/or worker compensation contribution premium
ratings under applicable state law. The employment of any such employee by the
Purchaser shall not be treated as or deemed to constitute the continuation of
employment of such employee for any other purpose whatsoever.
13.5 Mail and Communications. The Seller shall promptly deliver to the
Purchaser any mail or other communications relating to the Assets, the Real
Property or the Acquired Business that is intended for the Purchaser and that is
received by the Seller following the Effective Time. The Purchaser shall deliver
to the Seller all mail intended for the Seller.
13.6 Covenant Not to Compete, Etc..
(a) As a further inducement for the Purchaser to enter into this
Agreement and consummate the transactions contemplated hereby, the Seller hereby
agrees that, for a period of 12 months after the Closing Date (the
"Non-competition Period"), the Seller shall not, and shall not permit or cause
any of its Related Parties to, directly or indirectly, in any capacity, own,
manage, operate, control or participate in the ownership, management, operation
or control of, consult with, lend its name to, otherwise assist, or continue any
interest whatsoever, in any enterprise, whether private or otherwise, which
operates a commercial health benefit plan anywhere within the WellCare Service
Area.
(b) During the Non-competition Period, the Seller shall not, and
shall not permit or cause any of its Related Parties to, directly or indirectly,
(i) request or cause any Providers, Commercial Members or other suppliers or
customers of the Purchaser with whom the Purchaser has a business relationship
to cancel, terminate or diminish any such business relationship with the
Purchaser, or (ii) solicit, interfere with or entice from the Purchaser any
employee of the Purchaser.
(c) During the Non-competition Period, the Seller shall not, and
shall not permit or cause any of its Related Parties to, make any statement or
other communication (except, and only to the extent, as may be required by
subpoena or other legal process) that impugns or attacks the reputation or
character of the Purchaser or its Affiliates or their respective directors,
officers or employees, or damages the goodwill of any of the foregoing, take any
affirmative action that would interfere in any material respect with any
contractual or customer relationships of the Purchaser, including but not
limited to any action that would result in a diminution of business, or
otherwise take any affirmative action that is detrimental in any material
respect to the best interests of the Purchaser or its Affiliates.
(d) In the event any of the covenants contained in this Section
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its extending for too great a period of time or over too great a
geographical area or by reason of its being too extensive in any other respect,
it shall be interpreted to extend only over the maximum period of time for which
it may be enforceable and/or over the maximum geographical area as to which it
may be enforceable and/or to the maximum extent in all other respects as to
which it may be enforceable, all as determined by such court in such action. The
Seller acknowledges that a breach of the covenants contained in this Section
will cause irreparable damage to the Purchaser, the exact amount of which will
be difficult to ascertain, and that the remedies at law for any such breach will
be inadequate. Accordingly, the Seller agrees that if the Seller or any of its
Related Parties breaches or threatens to breach any of the covenants contained
in this Section, in addition to any other remedy that may be available at law or
in equity, the Purchaser shall be entitled to seek specific performance and
injunctive relief, without posting bond or other security.
14. Indemnification.
14.1 Indemnification by the Seller. The Seller hereby indemnifies the
Purchaser and agrees to hold the Purchaser harmless against and in respect of:
(a) all Retained Liabilities;
(b) any and all damages, losses, liabilities, Taxes and
deficiencies and penalties and interest thereon and costs and expenses resulting
from any breach or nonfulfillment of any representation, warranty, covenant or
agreement on the part of the Seller under this Agreement;
(c) all liabilities, obligations, claims, demands, damages,
penalties, causes of action, losses, fines, costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses and investigative
costs) imposed upon or incurred by the Purchaser by reason of (i) the real or
claimed presence, disposal, discharge, escape, discharge, emission, release or
threatened release of any Hazardous Material on, in, from, affecting, or onto
any of the Real Property or any of the Assets; (ii) any lawsuit, action, order,
or violation brought or threatened relating to such Hazardous Material or
Environmental Laws; (iii) any violation or claimed violation of any
Environmental Law affecting any of the Real Property or any of the Assets or the
imposition or recording of a lien against any of the Real Property or any of the
Assets relating to Environmental Law; (iv) any misrepresentation of the
representations set forth in Section 8.7 hereunder; and (v) any personal injury
or property damage resulting from Hazardous Materials or the violation of any
Environmental Law with respect to any of the Real Property or any of the Assets,
in each case except to the extent the same arises solely from the actions or
omission of the Purchaser after the Effective Time; and
(d) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, losses, liabilities and reasonable legal and
other expenses incident to any of the foregoing.
14.2 Indemnification by the Purchaser. The Purchaser hereby
indemnifies the Seller and agrees to hold the Seller harmless against and in
respect of:
(a) all Assumed Liabilities;
(b) any and all damages, losses, liabilities, Taxes and
deficiencies and penalties and interest thereon resulting from any breach or
nonfulfillment of any representation, warranty, covenant or agreement on the
part of the Purchaser under this Agreement;
(c) any and all damages, losses, liabilities, claims or
litigation which may hereafter be brought by any third party against the Seller
arising out of the Purchaser's actions or omissions in the operation of the
Acquired Business after the Effective Time; and
(d) any and all actions, suits, proceedings, claims, demands,
assessments, judgments, costs, losses, liabilities and reasonable legal and
other expenses incident to any of the foregoing.
14.3 Limitations on Indemnity.
(a) The indemnification obligations of the parties hereto
pursuant to Sections 14.1(b) or 14.2(b) with respect to any breach of any
representation, warranty, covenant or agreement shall be limited to indemnity
claims made prior to the last date of survival thereof referred to in Section
30. If at the expiration of the appropriate period any claim for indemnification
has been asserted but not fully determined, or any audit or other proceeding
with respect to any Tax or Tax Return has been initiated, such period will be
extended as to such claim, audit or other proceeding until it is finally
determined or concluded.
(b) Notwithstanding anything to the contrary contained in Section
14.1, in no event shall the Seller have any indemnity obligation arising under
Section 14.1(b) in an amount that would cause the aggregate amount of
indemnification provided by the Seller in respect thereof to exceed the sum of
$2,000,000; provided, however, that such limitation shall not apply to any
indemnity obligation arising in respect of third party claims asserted against
the Purchaser.
14.4 Notice to the Indemnitor. Within a reasonable period after the
assertion of any claim by a third party or occurrence of any event which may
give rise to a claim for indemnification from the Indemnitor under this Section
14, the Indemnified Party shall notify the Indemnitor in writing of such claim
in a timely manner, describing the basis for such claim, and, with respect to
claims by third parties, advise the Indemnitor whether the Indemnified Party
intends to contest same; provided, however, that an Indemnified Party's failure
to give timely notice to an Indemnitor shall not constitute a defense (in whole
or in part) to any claim for indemnification by such Indemnified Party unless,
and only to the extent that, such failure results in prejudice to the
Indemnitor.
14.5 Rights of Parties to Settle or Defend. The Indemnitor shall have
the right, at its own expense, to contest and defend against such claim. Should
the Indemnitor so elect to assume the defense of such claim, the Indemnitor
shall not be liable to the Indemnified Party for any legal expenses subsequently
incurred by the Indemnified Party except to the extent that such expenses are
incurred directly in connection with interposing defenses that are not available
to the Indemnitor. The Indemnified Party shall make available to the Indemnitor
and its attorneys and accountants, at all reasonable times during normal
business hours, all books, records, and other documents in its possession
relating to such claim. If the Indemnitor has elected to contest such claim, the
Indemnified Party shall have the right to be represented, at all stages and at
its own expense, by advisory counsel and accountants, their participation to be
subject to the reasonable direction and approval of the Indemnitor. The party
contesting any such claim shall be furnished all reasonable assistance in
connection therewith by the other party. If the Indemnitor chooses to defend or
prosecute any such claim, the Indemnified Party will agree to any settlement,
compromise or discharge of such claim which provides solely for the payment of
money damages and which the Indemnitor may recommend and which by its terms
obligates the Indemnitor to pay the full amount of the liability in connection
with such claim at the time of the settlement, compromise or discharge thereof.
Whether or not the Indemnitor shall have assumed the defense of such a claim,
the Indemnified Party shall not admit any liability with respect to, or settle,
compromise or discharge, such claim without the Indemnitor's prior written
consent. If the Indemnitor fails forthwith to defend, settle or pay any such
third party claim within ten days after the Indemnitor has received written
notice from the Indemnified Party, or after receiving such notification from the
Indemnified Party, the Indemnitor fails to defend, settle or pay such claim,
then the Indemnified Party may take any and all reasonable necessary action to
defend or dispose of such claim including, without limitation, the settlement or
full payment thereof upon such terms as it shall deem appropriate, in its sole
discretion, subject to the requirement that such settlement provide only for the
payment of money damages.
14.6 Reimbursement. At the time that the Indemnified Party shall
suffer a loss because of a breach of any warranty, representation or covenant by
the Indemnitor or at the time the amount of any liability on the part of the
Indemnitor under this section is determined (which in the case of payments to
third persons, shall be the earlier of (i) the date of such payments, or (ii)
the date that a court of competent jurisdiction shall enter a final judgment,
order or decree, after exhaustion of appeal rights establishing such liability),
the Indemnitor shall forthwith, upon notice from the Indemnified Party, pay to
the Indemnified Party the amount of the indemnity claim. If such amount is not
paid forthwith, then the Indemnified Party may, at its option, take legal action
against the Indemnitor for reimbursement in the amount of its indemnity claim.
For purposes hereof, the indemnity claim shall include the amounts so paid (or
determined to be owing) by the Indemnified Party together with costs and
reasonable attorneys' fees and interest on the foregoing items at the legal rate
applicable to outstanding judgments in the jurisdictions involved from the date
the obligation is due from the Indemnified Party to the Indemnitor, as
hereinabove provided, until the indemnity claim shall be paid.
14.7 Losses Net of Insurance, etc. The amount of any loss, liability,
claim, damage or expense for which indemnification is provided under this
Section 14 shall be net of any amounts recovered or recoverable by the
Indemnified Party under insurance policies with respect to such loss, liability,
claim, damage or expense. If, following the receipt by any Indemnified Party of
any indemnity payment hereunder, such Indemnified Party shall receive any
insurance recovery or indemnity payment from a third party in respect of the
same underlying loss, liability, damage or expense, the Indemnified Party shall
reimburse the Indemnitor hereunder to the extent of such insurance recovery or
third-party indemnity payment.
14.8 Effectiveness. Nothing herein shall be construed to impose any
obligation on the Purchaser or any Affiliate of the Purchaser to assume or
discharge any responsibility for any liability of the Seller if the Closing does
not occur. The terms and conditions of this Section 14 shall have effect only
from and after the Effective Time.
15. Brokers and Finders' Fees.
15.1 The Seller. The Seller represents and warrants to the Purchaser
that, except pursuant to the engagement of Bear Stearns & Co. Inc. in connection
with, among other things, the transactions contemplated hereby, all negotiations
relative to this Agreement have been carried on by the Seller directly without
the intervention of any Person who or which may be entitled to a brokerage fee
or other commission in respect of the execution of this Agreement or the
consummation of the transactions contemplated hereby. The Seller hereby
indemnifies and agrees to hold the Purchaser and its Affiliates harmless against
any and all claims, losses, liabilities or expenses which may be asserted
against the Purchaser or any of the Purchaser's Affiliates as a result of the
Seller's or the Seller's Affiliates' dealings, arrangements or agreements with
Bear Stearns & Co. Inc. or any such other person or entity.
15.2 The Purchaser. The Purchaser represents and warrants to the
Seller that all negotiations relative to this Agreement have been carried on by
it directly without the intervention of any Person who or which may be entitled
to a brokerage fee or other commission in respect of the execution of this
Agreement or the consummation of the transactions contemplated hereby. The
Purchaser agrees to indemnify and hold the Seller and its Affiliates harmless
against any and all claims, losses, liabilities or expenses which may be
asserted against the Seller or its Affiliates as a result of the Purchaser's or
any of the Purchaser's Affiliates' dealings, arrangements or agreements with any
such other person or entity.
16. Additional Agreements.
16.1 Expenses. Except as otherwise provided herein, each of the
parties hereto shall pay its own expenses incidental to the preparation of this
Agreement, the carrying out of the provisions of this Agreement and the
consummation of the transactions contemplated hereby, including any amendments
or revisions hereto. In the event that any party hereunder brings an action or
suit against any other party hereunder by reason of any breach of any of the
covenants, agreements or provisions in this Agreement before or after the
Effective Date, the prevailing party shall be entitled to have and recover of
and from the other party all costs and expenses of the action or suit,
including, without limitation, reasonable attorneys' fees.
16.2 Transfer Taxes. The Purchaser and the Seller shall bear and
discharge in a timely manner any and all federal, state and local transfer and
gains taxes, sales taxes and real property transfer and gains taxes under
applicable statutes, rules or regulations that may be incurred as a result of
the transactions contemplated by this Agreement (collectively, "Transfer
Taxes"), as follows: the Purchaser shall bear the first $20,000 of Transfer
Taxes and the Purchaser and the Seller shall each bear 50% of all Transfer Taxes
in excess of $20,000. The Purchaser and the Seller agree that (i) they shall
each remit a check in payment of its obligation under this Section 16.2 to the
appropriate Governmental Entity on or prior to the applicable payment due date
for such tax payment; (ii) the Purchaser shall prepare and timely file all
necessary reports and returns in connection with the payment of such taxes
(except that the Seller shall remit any to the appropriate authority of the
State of New York any sale tax due) and the Seller shall provide its full
assistance and cooperation with respect thereto, including, but not limited to,
the Seller's furnishing any necessary information or data and executing and
delivering any documents required to be filed; and (iii) the Seller shall
cooperate with the Purchaser in connection with the Purchaser's filing of a bulk
sale notice with the New York State Department of Taxation and Finance. This
Section 16.2 and the respective parties' obligation to pay the indicated taxes
as described herein shall survive the Closing.
16.3 Confidentiality. Subject to Section 10.10, until the Closing Date
the parties hereto shall, and after the Closing Date the Seller shall, to the
extent not otherwise permitted hereby or required by law, hold and cause each of
its Affiliates, employees and agents to hold all information and documents
relating to the Assets, the Real Property or the Acquired Business or obtained
in connection with the transactions contemplated hereby (to the extent such
information and documents are not generally available and readily accessible to
the public at large) confidential.
17. Merger; Amendment. This Agreement and the other Transaction Documents
set forth the entire understanding of the parties hereto with respect to the
transactions contemplated hereby. Any and all other previous agreements and
understandings between or among the parties regarding the subject matter hereof,
whether written or oral, are hereby released, merged herein and superseded by
this Agreement. This Agreement shall not be amended except by a written
instrument duly executed by each of the parties hereto.
18. Assignment and Binding Effect. This Agreement may not be assigned by
any party hereto without the prior written consent of the other party hereto and
any purported assignment in violation of the terms of this Section 18 shall be
null and void ab initio. Notwithstanding the foregoing, GHI may assign all of
its rights and interests hereunder to GHMO without the consent of any other
party hereto, whereupon GHMO shall be deemed to have assumed all of GHI's
duties, obligations and liabilities hereunder and GHI shall be deemed to have
been fully released therefrom. Such assignment by GHI and assumption by GHMO
shall be conclusively evidenced by the execution and delivery by GHMO of the
Assignment and Assumption Agreement to be entered into between the Seller and
the Purchaser at the Closing. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and permitted assigns of the parties hereto.
19. Waiver. Any term or provision of this Agreement may be waived at any
time by the party entitled to the benefit thereof by a written instrument duly
executed by such party.
20. Termination. This Agreement may be terminated at any time, but not
later than the Effective Time, as follows:
20.1 Mutual Consent. By the Purchaser and the Seller mutually agreeing
to terminate this Agreement; or
20.2 The Seller's Breach. By the Purchaser if, as of the Effective
Time, the Purchaser is ready, willing and able to proceed to consummate the
transactions contemplated hereby but any of the conditions of the obligations of
the Purchaser pursuant to Section 11 hereof shall not have been satisfied or, in
the sole discretion of the Purchaser, waived by the Purchaser, or if the Seller
shall have breached a material covenant or agreement hereunder and shall not
have cured the same within three business days after notice of such breach is
given to the Seller by the Purchaser; or
20.3 The Purchaser's Breach. By the Seller if, as of the Effective
Time, the Seller is ready, willing and able to proceed to consummate the
transactions contemplated hereby but any of the conditions of the obligations of
the Seller pursuant to Section 12 hereof shall not have been satisfied or, in
the sole discretion of the Seller, waived by the Seller, or if the Purchaser
shall have breached a material covenant or agreement hereunder and shall not
have cured the same within three business days after notice of such breach is
given to the Purchaser by the Seller; or
20.4 Casualty. By the Purchaser in the circumstances contemplated by
Section 10.5; or
20.5 By the Purchaser or the Seller. By either the Purchaser or the
Seller if the Closing Date shall not have occurred on or before June 1, 1999,
except if such delay has occurred by reason of a breach by such party of any of
its material obligations hereunder.
In the event of the termination by either the Purchaser or the Seller
as provided above, written notice of termination shall forthwith be given by the
party electing to terminate to the other party. Any termination pursuant to this
Section 20 shall be without liability on the part of any party to the other
parties hereto, except to the extent that such termination by one party has
resulted from a breach by the other party of any of its material obligations
hereunder. Nothing in this Agreement shall be deemed to require any party to
terminate this Agreement in the event that a condition precedent to its
obligations hereunder is not met, rather than to waive such conditions precedent
and proceed to Closing. Notwithstanding the foregoing, the occurrence of the
Closing shall not be deemed to constitute a waiver by a party of any term or
condition hereof that is for the benefit of such party except to the extent that
such waiver is in writing and subscribed by such party.
21. Notices. Any notice, request, demand, waiver, consent, approval,
or other communication which is required or permitted to be given to any party
hereunder shall be in writing and shall be deemed given only if delivered to
such party personally or sent to such party by facsimile (with confirmation of
receipt) or by overnight courier or by registered or certified mail (return
receipt requested), with postage and registration or certification fees thereon
prepaid, addressed to the party at its address set forth below:
To the Seller: WellCare of New York, Inc.
Park West/Hurley Avenue Extension
Kingston, New York 12401
Attention: Mary Lee Campbell-Wisely
Facsimile No.: 914-334-7820
with copies to: Epstein, Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
Attention: Seth I. Truwit, Esq.
Facsimile No.: (212) 661-0989
To the Purchaser: Group Health Incorporated
441 Ninth Avenue
New York, New York 10001
Attention: William Mastro, Esq.
Facsimile No.: (212) 563-8569
with copies to: Kalkines, Arky, Zall & Bernstein LLP
1675 Broadway, 27th Floor
New York, New York 10019
Attention: Marcia Alazraki, Esq.
Facsimile No: (212) 541-9250
or to such other address or person as any party may have specified in a notice
duly given to the other party as provided herein. Such notice, request, demand,
waiver, consent, approval or other communication shall be deemed to have been
given as of the date so delivered.
22. Risk of Loss. Except as provided in Section 10.5 of this Agreement,
legal title, equitable title and risk of loss with respect to the Assets shall
not pass to the Purchaser until the Assets are transferred to the Purchaser as
of the Effective Time.
23. Severability. If any provision of this Agreement, or the application
thereof to any Person or any circumstance, is invalid or unenforceable, (i) a
suitable and equitable provision shall be substituted therefor in order to carry
out, so far as may be valid and enforceable, the intent and purpose of such
invalid or unenforceable provision, and (ii) the remainder of this Agreement and
the application of such provision to other persons, entities or circumstances
shall not be affected by such invalidity or unenforceability, nor shall such
invalidity or unenforceability affect the validity or enforceability of such
provision, or the application thereof, in any other jurisdiction.
24. Governing Law. This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of New York as applied to
contracts made and fully performed in such state.
25. Third Party Beneficiary; No Benefit to Others. The representations,
warranties, covenants and agreements contained in this Agreement are for the
benefit of the Purchaser and the Seller and their respective successors and
permitted assigns. This Agreement shall not be construed as conferring, and is
not intended to confer, any rights on any other persons.
26. Section Headings. All section headings are for convenience only and
shall in no way modify or restrict any of the terms or provisions hereof.
27. Schedules and Exhibits. All Schedules hereto and the Exhibits referred
to herein are intended to be and hereby are specifically made a part of this
Agreement.
28. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and the Seller, and the
Purchaser may become parties hereto by executing a counterpart hereof. This
Agreement and any counterpart so executed shall be deemed to be one and the same
instrument. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts. A
facsimile copy of the signature page hereof transmitted by a party hereto shall
be effective to constitute the execution and delivery hereof by such party.
29. Time for Performance. If the final day of any period or any date of
performance under this Agreement falls on a Saturday, Sunday or legal holiday,
then the final day of the period or the date of performance shall be extended to
the next day which is not a Saturday, Sunday or legal holiday.
30. Survival. The provisions of Sections 2, 3, 5, 7, 8, 9, 14, 15, 16, 17,
18, 19, 22 and 24 through 34 hereof (the "Surviving Provisions") shall survive
the Closing hereunder, in accordance with the following: (i) the representations
and warranties contained in Section 8.7, 8.11 and 8.12 shall survive until the
expiration of the applicable statute of limitations (giving effect to any waiver
or extension thereof); (ii) each of other representations and warranties
contained in Sections 8, 9 and 15 shall survive for a period of two years
following the Closing; and (iii) each of the other Surviving Provisions shall
survive indefinitely, unless it is expressly stated therein that such provision
is to survive for a different period.
31. Waiver of Jury Trial. To the extent not prohibited by applicable law
which cannot be waived, the Purchaser and the Seller hereby waive, and covenant
that it or they will not assert (whether as plaintiff, defendant or otherwise),
any right to trial by jury in any forum in respect of any issue, claim, demand,
action, or cause of action arising out of or based upon this agreement or the
subject matter hereof or any Transaction Document, in each case whether now
existing or hereafter arising or whether in contract or tort of otherwise. The
parties acknowledge that they have been informed that the provisions of this
section constitute a material inducement upon which the other party has relied,
are relying and will rely in entering into this Agreement. Any party may file an
original counterpart or a copy of this section with any court as written
evidence of the consent of the other parties to the waiver of their rights to
trial by jury.
32. Service of Process. The Seller and the Purchaser (each a "Submitting
Party") each hereby irrevocably submits to the jurisdiction of the state courts
of the State of New York and to the jurisdiction of the United States District
Court for the Southern District of New York for the purposes of any suit, action
or other proceeding arising out of or based upon this agreement or the subject
matter hereof brought by the Purchaser. The Submitting Party to the extent
permitted by applicable law hereby waives, and agrees not to assert, by way of
motion, as a defense, or otherwise, in any such suit, action or proceeding
brought in such courts, any claim that it or he is not subject personally to the
jurisdiction of the above-named courts, that its or his property is exempt or
immune from attachment or execution, that the suit, action or proceeding is
brought in an inconvenient forum, that the venue of the suit, action or
proceeding is improper or that this agreement or the subject matter hereof may
not be enforced in or by such court. The Submitting Party hereby consents to
service of process by mail at its address to which notices are to be given
pursuant to Section 21 hereof. Final judgment against the Submitting Party in
any such action, suit or proceeding shall be conclusive, and may be enforced in
any other jurisdiction (a) by suit, action or proceeding on the judgment, a
certified or true copy of which shall be conclusive evidence of the fact and the
amount of indebtedness or liability of the Submitting Party therein described or
(b) in any other manner provided by or pursuant to the laws of such other
jurisdiction.
33. Construction. The Purchaser and the Seller agree that the terms and
conditions of this Agreement and the other Transaction Documents are the result
of negotiations between the parties and that this Agreement and the other
Transaction Documents shall not be construed in favor of or against any party by
reason of the extent to which any party or its professionals participated in the
preparation of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have duly executed this Asset Purchase Agreement on the date first above
written.
GROUP HEALTH INCORPORATED
By: /s/ Donna Lynne
-----------------------------
Name: Donna Lynne
-----------------------------
Title: Executive VP/COO
-----------------------------
WELLCARE OF NEW YORK, INC.
By: /s/ Mary Lee Campbell-Wisley
-----------------------------
Name: Mary Lee Campbell-Wisley
-----------------------------
Title: President/CEO
-----------------------------
Exhibit 10.81
ESCROW AND SECURITY AGREEMENT
-----------------------------
This ESCROW AND SECURITY AGREEMENT (the "Agreement") is made and entered
into as of June 11, 1999 by The WellCare Management Group, Inc., a New York
corporation having an address at Park West/Huxley Avenue Extension, Kingston,
New York 12402 ("WCMG"), WellCare of New York, Inc., a New York corporation
having an address at Park West/Huxley Avenue Extension, Kingston, New York 12402
("WCNY," which, together with WCMG, are known collectively herein as
"WellCare"), Garfunkel, Wild & Travis, P.C., a New York professional corporation
with an address at 111 Great Neck Road, Great Neck, New York 11021 ("GWT"),
counsel to Healthcare Association of New York State ("HANYS") and Northern
Metropolitan Hospital Association ("NORMET"), on behalf of the member hospitals
of HANYS and NORMET listed on Schedule "A" annexed hereto (collectively, the
"Hospitals"), The Medical Society of the State of New York, having an address at
420 Lakeville Road, Lake Success, New York 11040 ("MSSNY"), on behalf of the
providers listed on Schedule "B" annexed hereto (collectively, the "Providers"),
and United States Trust Company of New York, a bank and trust company organized
under the New York banking law, having an office at 114 West 47th Street, New
York, New York 10036, as escrow agent (the "Escrow Agent") for the Hospitals and
the Providers (collectively, the "Secured Parties").
W I T N E S S E T H:
--------------------
WHEREAS, the Secured Parties have each executed certain Settlement
Agreements, dated on or about May 1999, with WellCare, Kiran C. Patel ("Dr.
Patel") and MSSNY, or with WellCare, Dr. Patel, HANYS and NORMET, substantially
in the form annexed hereto as Schedules "C-1" and "C-2," respectively
(collectively, the "Settlement Agreements");
WHEREAS, pursuant to the Settlement Agreements, WellCare has agreed to
deposit, or has agreed to direct the deposit of, as of the "Effective Date" (as
defined in the Settlement Agreements), a minimum of Ten Million and 00/100
Dollars ($10,000,000) (which, with any additional amounts added thereto pursuant
to the Settlement Agreements, the "Funds") in a "Provider Pool" (as defined in
the Settlement Agreements) for the benefit of the Secured Parties;
WHEREAS, the parties hereto have agreed that the Funds shall be held by the
Escrow Agent for the benefit of the Secured Parties pursuant to the terms of
this Agreement;
WHEREAS, WellCare has opened an interest bearing collateral account (the
"Collateral Account") with United States Trust Company of New York at its office
at 114 West 47th Street, New York, New York 10036, Account No. 09046500 in the
name of "WellCare Provider Pool Collateral Account" but under the sole dominion
and control of the Escrow Agent and subject to the terms of this Agreement;
WHEREAS, to secure the obligations of WellCare under the Settlement
Agreements WellCare has agreed: (a) to pledge to the Escrow Agent for its
benefit and the ratable benefit of the Secured Parties, a security interest in
the Collateral (as defined herein), and (b) to execute and deliver this
Agreement in order to secure the payment and performance by WellCare of all of
its obligations under the Settlement Agreements; and
WHEREAS, unless otherwise defined herein or in the Settlement Agreement,
terms used in Articles 8 and 9 of the Uniform Commercial Code ("UCC"), as in
effect in the State of New York, are used herein as therein defined.
NOW, THEREFORE, in consideration of the mutual promises herein contained,
and in order to induce the Secured Parties to enter into the Settlement
Agreements, WellCare hereby agrees with the Escrow Agent, for the benefit of the
Escrow Agent and for the ratable benefit of the Secured Parties, as follows:
SECTION 1. Certain Definitions; Appointment of the Escrow Agent; Pledge and
Grant of Security Interest; Deposit of Funds; Incorporation
1.1 Certain Definitions.
"Cash Equivalents" means, to the extent owned free and clear of all liens
other than liens created hereunder, Government Securities.
"Government Book Entry Security" means Government Securities maintained in
book-entry form through the United States Federal Reserve Banks pursuant to (A)
the United States Treasury Department regulations codified at 31 C.F.R. Part
357, as modified by the amendments promulgated at 61 Fed. Reg. 43, 626-43, 638
(Aug. 23, 1996), or (B) substantially identical regulations promulgated by any
other agency or instrumentality of the United States whose securities qualify as
"Government Securities" hereunder.
"Government Securities" means direct obligations of, obligations fully
guaranteed by, or participations in pools consisting of obligations of or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the option of the
issuer thereof.
1.2 Appointment of the Escrow Agent. As of the Effective Date, WellCare, GWT,
as counsel to HANYS and NORMET, on behalf of the Hospitals, and MSSNY, on behalf
of the Providers, hereby appoint United States Trust Company of New York as
Escrow Agent in accordance with the terms and conditions set forth herein and
the Escrow Agent hereby accepts such appointment.
1.3 Pledge and Grant of Security Interest. WellCare hereby pledges, assigns and
sets over to the Escrow Agent for its benefit and for the ratable benefit of the
Secured Parties, and hereby grants to the Escrow Agent for its benefit and for
the ratable benefit of the Secured Parties, as security for the prompt payment
and due performance of all of WellCare's obligations under the Settlement
Agreements and this Agreement, a continuing first priority security interest and
lien in and to all of WellCare's rights, title and interests in, to and under
the following (hereinafter collectively referred to as the "Collateral"),
whether characterized as investment property, general intangibles or otherwise:
(a) the Collateral Account, all funds held therein and all certificates and
instruments, if any, from time to time representing or evidencing the Collateral
Account, and all Collateral Investments (as hereinafter defined) and all
certificates and instruments, if any, representing or evidencing the Collateral
Investments, and any and all security entitlement to the Collateral Investments,
and any and all related securities accounts in which security entitlement to the
Collateral Investments are carried, (b) all interest, dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the then
existing Collateral, and (c) all proceeds of any and all of the foregoing
Collateral (including, without limitation, proceeds that constitute property of
the types described in clauses (a) through (c) of this Section 1.3) and, to the
extent not otherwise included, all cash in the Collateral Account, subject to
withdrawal from the Collateral Account as set forth in the Settlement
Agreements.
1.4 Deposit of Funds.
(a) From and after the Effective Date, WellCare shall or shall cause
all amounts to be deposited in the Collateral Account as required pursuant to
the Settlement Agreements. WellCare agrees that it shall cause all proceeds to
be paid pursuant to the Patel Transaction and the GHI Transaction (as each term
is defined in the Settlement Agreements), which shall be used to fund the
Provider Pool, to be deposited by each of Dr. Patel and Group Health
Incorporated directly into the Collateral Account and no such proceeds shall be
at any time held by or possessed by WellCare, provided, however, that WellCare
shall be entitled to withdraw such monies from the Collateral Account in
accordance with the instructions set forth in Schedule "E" annexed hereto and
the terms of the Settlement Agreements.
(b) The parties hereto further recognize that any funds required to be
provided into the Provider Pool by Dr. Patel pursuant to Section 5(c) of each
Settlement Agreement shall be deposited in the Collateral Account and shall be
treated in accordance with the terms hereof as funds otherwise deposited or
caused to be deposited by WellCare.
1.5 Settlement Agreements
The terms of the Settlement Agreements are hereby incorporated herein by
reference, as if fully set forth herein. Any terms used but not defined in this
Agreement shall have the meaning set forth in the Settlement Agreements.
SECTION 2. Security for Obligation. This Agreement and the grant of a security
interest in the Collateral hereunder secures the prompt payment and performance
when due (whether at stated maturity, by acceleration or otherwise) of all the
obligations of WellCare under the Settlement Agreements and this Agreement.
SECTION 3. Delivery of Collateral.
(a) All certificates and instruments representing or evidencing the
Collateral, including, without limitation, amounts invested as provided in
Section 5 hereof, shall be delivered to (as set forth in Section 6 hereof) and
held by or on behalf of the Escrow Agent pursuant hereto and shall be in
suitable form for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, all in form and substance
sufficient to establish and maintain in favor of the Escrow Agent a valid
security interest in such Collateral, and shall be credited to the Collateral
Account. In addition, the Escrow Agent shall have the right, at any time, to
exchange certificates or instruments representing or evidencing the Collateral
for certificates or instruments of smaller or larger denominations.
(b) As of the Effective Date, the Escrow Agent and WellCare shall
execute a Notification and Control Agreement (the "Control Agreement"),
substantially in form and substance as Schedule "D" annexed hereto, confirming
the Escrow Agent's establishment and separate maintenance of the Collateral
Account, all in accordance with this Agreement.
SECTION 4. Maintaining the Collateral Account.
(a) Prior to the Termination Date (as defined in Section 15.9(b)
hereof), the Escrow Agent will maintain separately the Collateral Account with
United States Trust Company of New York, which account shall at all times be
under the sole dominion and control of the Escrow Agent and subject to the terms
and conditions of this Agreement and the Settlement Agreements.
(b) It shall be a term and condition of the Collateral Account,
notwithstanding any term or condition to the contrary in any other agreement
relating to the Collateral Account, that no amount (including interest on
Collateral Investments) shall be paid or released to or for the account of, or
withdrawn by or for the account of, WellCare or any other person or entity from
the Collateral Account other than a Secured Party in accordance with the terms
of this Agreement and the Settlement Agreements, except as provided in
accordance with the instructions set forth in Schedule "E" annexed hereto and
the Settlement Agreements.
(c) The Collateral Account shall be subject to such applicable laws,
and such applicable regulations of the Board of Governors of the Federal Reserve
System and of any other appropriate banking or governmental authority, as may
now or hereafter be in effect.
SECTION 5. Investing of Amounts in the Collateral Account. The Escrow Agent
shall, subject to the provisions of Section 7 hereof, from time to time: (a)
invest amounts on deposit in the Collateral Account in such Cash Equivalents,
each in the name of or for the account of the Escrow Agent, as the Escrow Agent
may determine in its reasonable business judgment, and (b) invest interest paid
on the Cash Equivalents referred to in clause (a) above, and reinvest other
proceeds of any such Cash Equivalents that may mature or be sold, in each case
in such Cash Equivalents, each in the name of or for the account of the Escrow
Agent, as the Escrow Agent may determine in its reasonable business judgment
(the Cash Equivalents referred to in clauses (a) and (b) above being
collectively referred to herein as the "Collateral Investments"). Interest and
proceeds that are not invested or reinvested in Collateral Investments as
provided above shall be deposited and held in the Collateral Account. The Escrow
Agent shall, if it has exercised its reasonable business judgment, in no event
be liable for any loss in the investment or reinvestment of amounts held in the
Collateral Account.
SECTION 6. Delivery of Collateral Investments.
(a) The Escrow Agent shall become the holder of the Collateral
Investments (and any applicable security entitlement thereto) through the
following delivery procedures: (i) in the case of Collateral Investments which
are certificated securities in registered form, delivery of the applicable
certificate(s), specially endorsed to the Escrow Agent or registered in the name
of the Escrow Agent or accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance satisfactory to the Escrow Agent,
to the possession of (A) the Escrow Agent, (B) a securities intermediary or
financial intermediary acting on behalf of the Escrow Agent, or (C) another
person, other than a securities intermediary or financial intermediary, which
person acknowledges that it holds such securities for the Escrow Agent; (ii) in
the case of Collateral Investments which are uncertificated securities,
registration of one of the following as owner of such uncertificated securities:
the Escrow Agent or a person designated by the Escrow Agent, or person other
than a securities intermediary or financial intermediary, that becomes the
registered owner of such uncertificated securities and acknowledges that it
holds the same for the Escrow Agent; and (iii) in the case of Collateral
Investments in the form of Government Book-Entry Securities, the making by a
financial intermediary or securities intermediary (other than a clearing
corporation) to whose account such Government Book-Entry Securities have been
credited on the books of a Federal Reserve Bank (or on the books of another such
financial intermediary or securities intermediary (other than a clearing
corporation)) of book entries indicating that such Government Book-Entry
Securities have been credited to an account of the Escrow Agent, and the sending
by such financial intermediary or securities intermediary to the Escrow Agent of
confirmation of such transfer to the Escrow Agent's account.
(b) Upon delivery of any Collateral Investments to the Escrow Agent
(or the Escrow Agent's acquisition of a security entitlement thereto), the
Escrow Agent shall make appropriate book entries indicating that such Collateral
Investment and/or such security entitlement has been credited to and is held in
the Collateral Account. Subject to the terms and conditions of this Agreement,
all Collateral Investments held by the Escrow Agent pursuant to this Agreement
shall be held in the Collateral Account under the exclusive dominion and control
of the Escrow Agent and for the benefit of the Escrow Agent and the ratable
benefit of the Secured Parties and segregated from all other funds or other
property otherwise held by the Escrow Agent.
SECTION 7. Disbursements.
(a) The Escrow Agent shall hold the assets in the Collateral Account
and release the same, or a portion thereof, only in accordance with the
irrevocable instructions annexed hereto as Schedule "E", and in accordance with
the terms of the Settlement Agreements.
(b) The Escrow Agent and the parties hereto recognize and agree that
all deposits into and disbursements from the Collateral Account shall be subject
to audit or review by the New York State Insurance Department ("SID") and any
other regulatory agency or their respective agents or representatives having
jurisdiction over WellCare. Without limiting the foregoing, the Escrow Agent and
each party hereto further recognize and agree that SID, HANYS and/or NORMET or
their respective agents or representatives shall have the right to audit or
review the Collateral Account and any disbursements or deposits thereto or
therefrom and shall have the right to distribute the results of each audit or
review to all remaining parties hereunder, including, without limitation, MSSNY
and the Secured Parties, as set forth in Section 5(a) of the Settlement
Agreements. The Escrow Agent and the remaining parties hereto shall cooperate
with each other to the extent reasonably necessary to carry out the intent of
this Section 7(b). The terms of this Section 7(b) shall survive the termination
of this Agreement.
SECTION 8. Representations and Warranties. WCMG and WCNY hereby, jointly and
severally, represent and warrant that:
(a) The execution and delivery by WCMG and WCNY of, and the
performance by WCMG and WCNY of their obligations under, this Agreement and the
Control Agreement will not contravene any provision of applicable law or the
certificates of incorporation or bylaws of WCMG and WCNY, or any material
agreement or other material instrument binding upon WCMG and WCNY or any of
their respective subsidiaries or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over WCMG and WCNY or any
of their respective subsidiaries.
(b) Except as provided in the Settlement Agreements, no consent of any
other person and no approval, authorization, order of, or filing, declaration or
qualification with, any governmental body or agency is required: (i) for the
execution, delivery or performance by WCMG and WCNY of their obligations under
either this Agreement or the Control Agreement, (ii) for the grant by WCMG and
WCNY of the security interest created hereby, or (iii) for the pledge by WCMG
and WCNY of the Collateral pursuant to either this Agreement or the Control
Agreement, except for any such consents, approvals, authorizations or offers
required to be obtained by the Escrow Agent (or the Secured Parties) for reasons
other than the consummation of this transaction, for the exercise by the Escrow
Agent of the rights provided for in either this Agreement or the Control
Agreement, or the remedies in respect of the Collateral pursuant to either this
Agreement, the Settlement Agreements or the Control Agreement.
(c) Immediately prior to the deposit of the Funds in the Collateral
Account, the Collateral shall have been free and clear of any lien or claims of
any person or entity (except for the security interests created by this
Agreement and the Settlement Agreements). No financing statement or instrument
similar in effect covering all or any part of the interest in the Collateral is
on file in any public or recording office, other than the financing statements
filed pursuant to this Agreement. Neither WCMG nor WCNY have any trade names.
(d) This Agreement has been duly authorized, validly executed and
delivered by each of WCMG and WCNY and constitutes a valid and binding agreement
of each of them, enforceable against each of them in accordance with its terms,
except as: (i) the enforceability hereof may be limited by bankruptcy,
insolvency or similar laws affecting creditors' rights generally, (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability, (iii) the exculpation provisions and rights to
indemnification hereunder may be limited by U.S. federal and state securities
laws and public policy considerations, and (iv) the waiver of rights and
defenses contained in Section 15.11 and Section 15.15 hereof may be limited by
applicable law.
(e) Upon the transfer to the Escrow Agent of the Funds and the
acquisition by the Escrow Agent of a security entitlement thereto, in accordance
with Section 3 above, the pledge and grant of a security interest in the
Collateral pursuant to this Agreement for the benefit of the Escrow Agent and
the Secured Parties will constitute a valid and perfected first priority
security interest in such Collateral, securing the payment of the obligations of
WellCare under the Settlement Agreements, enforceable as such against all
creditors of WellCare.
(f) There are no legal or governmental proceedings pending or, to the
best of WCMG's and/or WCNY's knowledge, threatened to which either of them or
any of their subsidiaries is a party or to which any of the properties of WCMG
and/or WCNY or any such subsidiary is subject that would materially adversely
affect the power or ability of WCMG and WCNY to perform their obligations under
this Agreement or to consummate the transactions contemplated hereby.
(g) The pledge of the Collateral pursuant to this Agreement is not
prohibited by any law or governmental regulation (including, without limitation,
Regulations C, T, U and X of the Board of Governors of the Federal Reserve
System) applicable to WCMG and WCNY.
SECTION 9. Filing; Further Assurances.
(a) As soon as practicable after the Effective Date, WellCare shall
deliver to the Escrow Agent acknowledgment copies or stamped receipt copies of
proper financing statements, duly filed on or after the Effective Date in
accordance with the Uniform Commercial Code as in effect in the State of New
York, covering the categories of Collateral described in this Agreement.
(b) WellCare agrees that from time to time, at the sole cost and
expense of the WellCare, WellCare shall, promptly upon request by the Escrow
Agent, HANYS, NORMET and/or MSSNY, on behalf of the Secured Parties, execute and
deliver or cause to be executed and delivered, or use its reasonable best
efforts to procure, all assignments, instruments and other documents, all in
form and substance satisfactory to the Escrow Agent, HANYS, NORMET and/or MSSNY,
as the case may be, deliver any instruments to the Escrow Agent, HANYS, NORMET
and/or MSSNY, as the case may be, and take any other actions that may be
necessary or, in the opinion of the Escrow Agent, HANYS, NORMET and/or MSSNY, as
the case may be, desirable to perfect, continue the perfection of or protect the
first priority of the Escrow Agent's security interest in and to the Collateral,
including the filing of all necessary financing and continuation statements, to
protect the Collateral against the rights, claims, or interests of third persons
(other than any such rights, claims or interests created by or arising through
the Escrow Agent) or to effect the purposes of this Agreement.
(c) WellCare, GWT, as counsel to HANYS and NORMET, on behalf of the
Hospitals, and MSSNY, on behalf of the Providers, hereby authorize the Escrow
Agent to file any financing or continuation statements in the United States with
respect to the Collateral without the signature of WellCare (to the extent
permitted by applicable law). A photocopy or other reproduction of this
Agreement or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(d) Notwithstanding any provision herein to the contrary all costs
incurred by the Escrow Agent in connection with this Agreement shall be paid by
WellCare, provided, however, that WellCare shall be entitled to be reimbursed
for the payment of such costs from the dividends and interests earned on the
Collateral Account in accordance with the payment instructions set forth in
Schedule "E" annexed hereto. At the request of WellCare, GWT, HANYS, NORMET
and/or MSSNY, the Escrow Agent shall provide an invoice to each such party
detailing all such costs charged to the Collateral Account. A schedule of fees
to be charged by the Escrow Agent for its services hereunder is set forth in
Schedule "F" annexed hereto.
SECTION 10. Covenants. WCMG and WCNY jointly and severally covenant and agree
with the Escrow Agent and the Secured Parties that from and after the date of
this Agreement through the Termination Date:
(a) (i) they will not (and will not purport to) sell or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral or any of their beneficial interest therein, and (ii) they will not
create or permit to exist any lien or other adverse interest in or with respect
to any of the Collateral or their beneficial interest therein (if any) (except
for the security interests granted under this Agreement); and
(b) they will not: (i) enter into any agreement or understanding that
restricts or inhibits or purports to restrict or inhibit the Escrow Agent's
rights hereunder, including, without limitation, the Escrow Agent's right to
sell or otherwise dispose of the Collateral, or (ii) fail to pay or discharge
any tax, assessment or levy of any nature with respect to any of their
beneficial interest in the Collateral (if any) not later than five (5) days
prior to the date of any proposed sale under any judgment, writ or warrant of
attachment with respect to such beneficial interest.
SECTION 11. Power of Attorney. Each of WCMG and WCNY hereby appoints and
constitutes the Escrow Agent as their attorney-in-fact (with full power of
substitution), with full authority in their place and stead and in their name or
otherwise, from time to time in the Escrow Agent's discretion to take any action
and to execute any instrument that the Escrow Agent may deem necessary or
advisable to accomplish the purposes of this Agreement, including, without
limitation:
(a) to ask for, demand, collect, sue for, recover, compromise, receive
and give acquittance and receipts for moneys due and to become due under or
in respect of any of the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a), above;
(c) to file any claims or take any action or institute any proceedings
that the Escrow Agent may deem necessary or desirable for the collection of
any of the Collateral or otherwise to enforce the rights of the Escrow
Agent with respect to any of the Collateral; and
(d) to pay or discharge taxes or liens levied or placed upon the
Collateral, the legality or validity thereof and the amounts necessary to
discharge the same to be determined by the Escrow Agent in its sole
reasonable discretion, and such payments made by the Escrow Agent to become
a joint and several obligation of WCMG and WCNY to the Escrow Agent, due
and payable immediately upon demand; and
provided, however, that the Escrow Agent shall have no obligation to perform any
of the foregoing actions. The Escrow Agent's authority under this Section 11
shall include, without limitation, the authority to execute or endorse (a) any
checks or instruments representing proceeds of Collateral in the name of
WellCare, (b) any receipts for any certificate of ownership or any document
constituting Collateral or transferring title to any item of Collateral, (c) any
financing statements (to the extent permitted by applicable law), or (d) any
other documents deemed necessary or appropriate by the Escrow Agent to preserve,
protect or perfect the security interest in the Collateral and to file the same,
prepare, file and sign the WellCare name on any notice of lien, and to take any
other actions arising from or incident to the powers granted to the Escrow Agent
in this Agreement. This power of attorney is coupled with an interest and is
irrevocable by WellCare.
SECTION 12. No Assumption of Duties; Reasonable Care.
(a) The rights and powers conferred on the Escrow Agent hereunder are
solely to preserve and protect the security interest of the Escrow Agent and the
Secured Parties in and to the Collateral granted hereby and shall not be
interpreted to and shall not impose any duties on the Escrow Agent in connection
therewith other than those expressly provided herein or imposed under applicable
law. Except as provided by applicable law or by the Settlement Agreements, the
Escrow Agent shall be deemed to have exercised reasonable care in the custody
and preservation of the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which the Escrow Agent accords
similar property held by the Escrow Agent for its own account, it being
understood that the Escrow Agent in its capacity as such shall not have any
responsibility for: (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities or other matters relative to any Collateral,
whether or not the Escrow Agent has or is deemed to have knowledge of such
matters, (b) taking any necessary steps to preserve rights against any parties
with respect to any Collateral, or (c) investing or reinvesting any of the
Collateral or any loss on any investment (other than pursuant to Section 5
hereof).
(b) Notwithstanding any provision herein to the contrary, the Escrow
Agent shall not keep records of nor prepare any tax-related documents which may
be required by any Secured Party concerning the distributions to be made
hereunder. WellCare agrees that it shall have sole responsibility to prepare
such documents for and distribute such documents to the Secured Parties.
SECTION 13. Indemnity; Escrow Agent's Limitation of Liability.
(a) WCMG and WCNY shall, jointly and severally, indemnify, reimburse,
hold harmless and defend the Escrow Agent and its directors, officers, agents
and employees, from and against any and all claims, actions, obligations,
liabilities and expenses, including reasonable defense costs, reasonable
investigative fees and costs, and reasonable legal fees and damages arising from
the Escrow Agent's performance or lack of performance as Escrow Agent under this
Agreement, unless such claim, action, obligation, liability or expense is
directly attributable to the bad faith, gross negligence or wilful misconduct of
the Escrow Agent. This indemnity shall be a continuing obligation of the WCMG
and WCNY, and their respective successors and assigns, notwithstanding the
termination of this Agreement.
(b) If at any time the Escrow Agent is served with any judicial or
administrative order, judgment, decree, writ or other form of judicial or
administrative process which in any way affects Collateral (including, but not
limited to, orders of attachment or garnishment or other forms of levies or
injunctions or stays relating to the transfer of Collateral), the Escrow Agent
is authorized to comply therewith in any manner as it or its legal counsel of
its own choosing deems appropriate and if the Escrow Agent complies with any
such judicial or administrative order, judgment, decree, writ or other form of
judicial or administrative process, the Escrow Agent shall not be liable to
WellCare even though such order, judgment decree, writ or process may be
subsequently modified or vacated or otherwise determined to have been without
legal force or effect.
(c) The Escrow Agent shall not incur any liability to WellCare for not
performing any act or fulfilling any duty, obligation or responsibility
hereunder by reason of any occurrence beyond the control of the Escrow Agent
(including, but not limited to, any act or provision or any present or future
law or regulation or governmental authority, any act of God or war, or the
unavailability of the Federal Reserve Bank wire or telex or other wire or
communication facility).
(d) Other than as provided in Sections 3, 4, 5 and 6 hereof, the
Escrow Agent shall not be responsible in any respect for the form, execution,
validity, value or genuineness of documents or securities deposited hereunder,
or for any description therein, or for the identity, authority or rights of
persons executing or delivering or purporting to execute or deliver any such
document, security or endorsement.
SECTION 14. Security Interest Absolute. All rights of the Escrow Agent and the
Secured Parties and security interests hereunder, and all obligations of
WellCare hereunder, shall be absolute and unconditional, subject, however, to
the terms of the Settlement Agreements.
SECTION 15. Miscellaneous Provisions.
Section 15.1. Notices. Any notice or communication given hereunder and any
deliveries made hereunder shall be sufficiently given if in writing and
delivered in person or mailed by first class mail, commercial courier service or
facsimile communication, addressed as follows:
If to WellCare:
---------------
President and Chief Executive Officer
WellCare of New York, Inc.
P.O. Box 4059
Kingston, New York 12402
with a copy to:
Seth I. Truwitt, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York 10177
If to HANYS & NORMET:
---------------------
Fredrick I. Miller, Esq.
Garfunkel, Wild & Travis, P.C.
111 Great Neck Road
Great Neck, New York 11021
If to MSSNY:
------------
Donald R. Moy, Esq.
General Counsel
Medical Society of the State of New York
420 Lakeville Road
Lake Success, New York 11040
If to the Escrow Agent:
-----------------------
United States Trust Company of New York
114 West 47th Street
New York, New York 10036
Fax: (212) 852-1626
Attention: Patricia Gallagher, Corporate Trust Administration
All such deliveries, notices and other communications shall be effective when
received.
Section 15.2. No Adverse Interpretation of Other Agreements. This Agreement
may not be used to interpret another pledge, security or debt agreement of WCMG,
WCNY or any subsidiary thereof. No such pledge, security or debt agreement
(other than the Settlement Agreements) may be used to interpret this Agreement.
Section 15.3 Severability. The provisions of this Agreement are severable,
and if any clause or provision shall be held invalid, illegal or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect in that jurisdiction only such clause or
provision, or part thereof, and shall not in any manner affect such clause or
provision in any other jurisdiction or any other clause or provision of this
Agreement in any jurisdiction.
Section 15.4 Headings. The headings in this Agreement have been inserted
for convenience of reference only, are not to be considered a part hereof and
shall in no way modify or restrict any of the terms or provisions hereof.
Section 15.5 Counterpart Originals. This Agreement may be signed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall together constitute one and the same agreement.
Section 15.6 Benefits of Agreement. Nothing in this Agreement, express or
implied, shall give to any person, other than the parties hereto and their
successors hereunder, and the Secured Parties, any benefit or any legal or
equitable right, remedy or claim under this Agreement.
Section 15.7 Amendments, Waivers and Consents. Any amendment or waiver of
any provision of this Agreement and any consent to any departure by WellCare
from any provision of this Agreement shall be effective only if made or duly
given in compliance with all of the terms and provisions of the Settlement
Agreements, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. Failure of the
Escrow Agent or any Secured Party to exercise, or delay in exercising, any
right, power or privilege hereunder shall not preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Escrow Agent or any Secured Party of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy that
the Escrow Agent or such Secured Party would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
Section 15.8 Interpretation of Agreement. As long as the Escrow Agent acts in
good faith to the extent a term or provision of this Agreement conflicts with
the Settlement Agreements, the Settlement Agreements shall control with respect
to the subject matter of such term or provision. Notwithstanding the foregoing
and any other provision of this Agreement or the Settlement Agreements, the
Escrow Agent shall have no fiduciary responsibility under this Agreement.
Section 15.9 Continuing Security Interest; Termination.
(a) This Agreement shall create a continuing security interest in and
to the Collateral and shall, unless otherwise provided in this Agreement, remain
in full force and effect until the Termination Date. This Agreement shall be
binding upon WCMG, WCNY, and their respective transferees, successors and
assigns, and shall inure, together with the rights and remedies of the Escrow
Agent hereunder, to the benefit of the Escrow Agent, the Secured Parties and
their respective successors, transferees and assigns.
(b) This Agreement (other than WellCare's obligations under Section
13) shall terminate as of February 28, 2000 or the date on which the Collateral
Account has a $0 balance and a final report concerning the transactions of,
deposits in and disbursements from the Collateral Account has been provided by
the Escrow Agent to each of HANYS and NORMET, on behalf of the Hospitals, MSSNY,
on behalf of the Providers, SID and WellCare (such date being the "Termination
Date"). On or prior to the Termination Date, the Escrow Agent shall make a final
distribution in cash of all Collateral remaining in its possession as of the
Termination Date in accordance with the provisions of Section 5(e) of each
Settlement Agreement.
Section 15.10 Survival of Representations and Covenants. All representations,
warranties and covenants of WellCare contained herein shall survive the
execution and delivery of this Agreement, and shall terminate only upon the
termination of this Agreement. The obligations of WellCare under Section 13
hereof shall survive the termination of this Agreement.
Section 15.11 Waivers. WellCare waives presentment and demand for payment of any
of their obligations, protest and notice of dishonor or default with respect to
any of the obligations, and all other notices to which WellCare might otherwise
be entitled, except as otherwise expressly provided herein or in the Settlement
Agreements.
Section 15.12 Authority of the Escrow Agent.
(a) The Escrow Agent shall have and be entitled to exercise all powers
hereunder that are specifically granted to the Escrow Agent by the terms hereof,
together with such powers as are reasonably incident thereto. The Escrow Agent
may perform any of its duties hereunder or in connection with the Collateral by
or through agents or employees and shall be entitled to retain counsel and to
act in reliance upon the advice of counsel concerning all such matters. Except
as otherwise expressly provided in this Agreement or the Settlement Agreements,
neither the Escrow Agent nor any director, officer, employee, attorney or agent
of the Escrow Agent shall be liable to the WellCare or Secured Parties for any
action taken or omitted to be taken by the Escrow Agent, in its capacity as
Escrow Agent, hereunder, except for its own bad faith, gross negligence or
willful misconduct, and the Escrow Agent shall not be responsible for the
validity, effectiveness or sufficiency hereof or of any document or security
furnished pursuant hereto. The Escrow Agent and its directors, officers,
employees, attorneys and agents shall be entitled to rely on any communication,
instrument or document believed by it or them to be genuine and correct and to
have been signed or sent by the proper person or persons.
(b) WellCare acknowledges that the rights and responsibilities of the
Escrow Agent under this Agreement with respect to any action taken by the Escrow
Agent or the exercise or non-exercise by the Escrow Agent of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Agreement shall, as between the Escrow Agent and the Secured
Parties, be governed by the Settlement Agreements and by such other agreements
with respect thereto as may exist from time to time among them, but, as between
the Escrow Agent and WellCare, the Escrow Agent shall be conclusively presumed
to be acting as agent for the Secured Parties with full and valid authority so
to act or refrain from acting, and WellCare shall not be obligated or entitled
to make any inquiry respecting such authority.
Section 15.13 Final Expression. This Agreement, together with the Settlement
Agreements and any other agreement executed in connection herewith, is intended
by the parties hereto as a final expression of this Agreement and is intended as
a complete and exclusive statement of the terms and conditions thereof.
Section 15.14 Rights of Secured Parties. No Secured Parties shall have any
independent rights hereunder other than those rights granted to individual
Secured Parties pursuant to law and pursuant to the Settlement Agreements;
provided that nothing in this Section 15.14 shall limit any rights granted to
the Escrow Agent hereunder.
Section 15.15 Governing Law; Submission to Jurisdiction: Waiver of Jury Trial;
Waiver of Damages.
(a) THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED UNDER THE LAWS
OF THE STATE OF NEW YORK, AND ANY DISPUTE ARISING OUT OF, CONNECTED WITH,
RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN WELLCARE, THE
ESCROW AGENT AND THE SECURED PARTIES IN CONNECTION WITH THIS AGREEMENT, AND
WHETHER ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) WELLCARE HEREBY APPOINTS CT CORPORATION SYSTEM, 1633 BROADWAY, NEW
YORK, NEW YORK 10019, AS ITS AGENT FOR SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING WITH RESPECT TO THIS ESCROW AGREEMENT AND FOR ACTIONS BROUGHT UNDER
U.S. FEDERAL OR STATE SECURITIES LAWS BROUGHT IN ANY FEDERAL OR STATE COURT
LOCATED IN THE CITY OF NEW YORK AND AGREES TO SUBMIT TO THE JURISDICTION OF ANY
SUCH COURT.
(c) WELLCARE AGREES THAT THE ESCROW AGENT SHALL, IN ITS CAPACITY AS
ESCROW AGENT OR IN THE NAME AND ON BEHALF OF THE SECURED PARTIES, HAVE THE
RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST WELLCARE OR
THE COLLATERAL IN A COURT IN THE STATE OF NEW YORK IN ANY LOCATION REASONABLY
SELECTED IN GOOD FAITH (AND HAVING PERSONAL OR IN REM JURISDICTION OVER WELLCARE
OR THE COLLATERAL, AS THE CASE MAY BE) TO ENABLE THE ESCROW AGENT TO REALIZE ON
SUCH COLLATERAL, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR
OF THE ESCROW AGENT. WELLCARE AGREES THAT IT SHALL NOT ASSERT ANY COUNTERCLAIMS,
SETOFFS OR CROSS CLAIMS IN ANY PROCEEDING BROUGHT BY THE ESCROW AGENT TO REALIZE
ON SUCH PROPERTY OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
ESCROW AGENT, EXCEPT FOR SUCH COUNTERCLAIMS, SETOFFS OR CROSS CLAIMS WHICH, IF
NOT ASSERTED IN ANY SUCH PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED.
WELLCARE WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
THE CITY OF NEW YORK ONCE THE ESCROW AGENT HAS COMMENCED A PROCEEDING DESCRIBED
IN THIS PARAGRAPH INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS.
(d) WELLCARE AGREES THAT NEITHER ANY SECURED PARTY NOR (EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT OR THE SETTLEMENT AGREEMENTS) THE ESCROW
AGENT IN ITS CAPACITY AS ESCROW AGENT SHALL HAVE ANY LIABILITY TO WELLCARE
(WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY WELLCARE
IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS
CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT,
OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, UNLESS IT IS DETERMINED BY
A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS BINDING ON THE ESCROW
AGENT OR SUCH SECURED PARTIES, AS THE CASE MAY BE, THAT SUCH LOSSES WERE THE
RESULT OF ACTS OR OMISSIONS ON THE PART OF THE ESCROW AGENT OR SUCH SECURED
PARTIES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH, GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(e) TO THE EXTENT PERMITTED BY APPLICABLE LAW, WELLCARE WAIVES THE
POSTING OF ANY BOND OTHERWISE REQUIRED OF THE ESCROW AGENT OR ANY SECURED PARTY
IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY JUDGMENT OR
OTHER COURT ORDER PERTAINING TO THIS AGREEMENT OR ANY RELATED AGREEMENT OR
DOCUMENT ENTERED) IN FAVOR OF THE ESCROW AGENT OR ANY SECURED PARTIES, OR TO
ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY OR
PERMANENT INJUNCTION, THIS AGREEMENT OR ANY RELATED AGREEMENT OR DOCUMENT
BETWEEN WELLCARE ON THE ONE HAND AND THE ESCROW AGENT AND/OR THE SECURED PARTIES
ON THE OTHER HAND.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to
be duly executed and delivered as of the date first above written.
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Craig S. Dupont
-----------------------------
Name: Craig S. Dupont
Title: Acting President and
Chief Executive Officer
WELLCARE OF NEW YORK, INC.
By: /s/ Mary Lee Campbell-Wisley
------------------------------
Name: Mary Lee Campbell-Wisley
Title: President/CEO
<PAGE>
GARFUNKEL, WILD & TRAVIS, P.C.,
as counsel to Healthcare Association of
New York State and Northern Metropolitan
Hospital Association, on behalf of the
Hospitals listed on Schedule "A" annexed
hereto
By: /s/ Frederick I. Miller
-----------------------------
Name: Fredrick I. Miller
Title: A Member of the Firm
THE MEDICAL SOCIETY OF THE STATE OF NEW
YORK, on behalf of the Providers listed
on Schedule "B" annexed hereto
By: /s/ Donald R. Moy
-----------------------------
Name: Donald R. Moy
Title: General Counsel
UNITED STATES TRUST COMPANY OF NEW YORK
By: /s/ Patricia Gallagher
-----------------------------
Name: Patricia Gallagher
Title: Assistant Vice President
<PAGE>
SCHEDULE "A"
HOSPITAL SETTLEMENT AGREEMENTS
------------------------------
NYC HEALTH & HOSPITALS CORP.
----------------------------
1) BELLEVUE
2) CONEY ISLAND
3) ELMHURST
4) HARLEM
5) JACOBI
6) KINGS
7) LINCOLN
8) METROPOLITAN
9) NCB
10) QUEENS
11) WOODHALL
12) BELVIS (BRONX)
13) CUMBERLAND
14) E. NEW YORK
15) GOUVERNEUR
16) MORRISANIA
17) RENAISSANCE
18) BASSETT HOSPITAL OF SCHOLHARIE (COBLESKILL, NY)
19) MONTEFIORE MEDICAL CENTER
20) WHITE PLAINS HOSPITAL CENTER
CONTINUUM HEALTH PARTNERS
-------------------------
21) BETH ISRAEL MEDICAL CENTER
22) ST. LUKE'S ROOSEVELT HOSPITAL
23) LONG ISLAND COLLEGE HOSPITAL
24) BETH ISRAEL MEDICAL CENTER EMERGENCY MEDECINE
25) ASSOCIATES IN EMERGENCY MEDECINE - ST. LUKE'S ROOSEVELT HOSPITAL
26) WESTSIDE PEDIATRICS ASSOCIATES
27) BELLEVUE WOMEN'S IN NISCYUANA, NY
28) VASSAR BROTHERS
29) ST. AGNES OUR LADY OF MERCY (BRONX)
OUR LADY OF MERCY HEALTHCARE SYSTEM, INC.
-----------------------------------------
30) OUR LADY OF MERCY MEDICAL CENTER
31) ST. AGNES HOSPITAL
MID-HUDSON HEALTH
-----------------
32) ST. FRANCIS (POUGHKEEPSIE)
33) STATEN ISLAND UNIVERSITY
34) NORTHERN WESTCHESTER HOSPITAL CENTER
35) OUR LADY OF LOURDES MEMORIAL HOSPITAL
36) HUDSON VALLEY HOSPITAL CENTER
NORTHEAST HEALTH
----------------
37) ALBENY MEMORIAL
38) SAMARITAN
39) JAMAICA HOSPITAL MEDICAL CENTER
40) ALBANY MEDICAL CENTER
41) BENEDICTINE
42) SETON HEALTH SYSTEM, INC.
43) WESTCHESTER COUNTY HEALTH CARE CORP.
CATHOLIC MEDICAL CENTER OF BROOKLYN & QUEENS, INC.
--------------------------------------------------
44) ST. JOHN'S QUEENS HOSPITAL
45) MARY IMMACULATE HOSPITAL
46) ST. JOSEPH'S HOSPITAL
47) ST. MARY'S HOSPITAL
48) ALBANY MEDICAL CENTER
49) HUDSON VALLEY HOSPITAL CENTER
50) MID-HUDSON HEALTH
51) KINGSTON HOSPITAL
52) NEW YORK CITY HEALTH & HOSPITALS CORPORATION
53) FLUSHING HOSPITAL MEDICAL CENTER
GREATER HUDSON VALLEY HEALTH SYSTEM
-----------------------------------
54) ARDEN HILL HOSPITAL
55) THE CORNWALL HOSPITAL
56) HORTON MEDICAL CENTER
57) ST. LUKE'S HOSPITAL
58) THE BROOKLYN HOSPITAL CENTER
59) COLUMBIA MEMORIAL HOSPITAL
60) A.O. FOX HOSPITAL
61) THE HOSPITAL AT SYDNEY
62) ST. ELIZABETH MEDICAL CENTER
UNITED HEALTH SERVICES HOSPITALS, INC.
--------------------------------------
63) DELAWARE VALLEY HOSPITAL
64) INTERFAITH MEDICAL CENTER
65) PHELPS MEMORIAL HOSPITAL CENTER
66) ST. JOHN'S RIVERSIDE HOSPITAL
67) YONKERS GENERAL HOSPITAL
68) NORTHERN DUTCHESS HOSPITAL
69) NYACK HOSPITAL
70) ST. CLARE'S HOSPITAL
MERCYCARE CORPORATION
---------------------
71) ST. PETER'S HOSPITAL
72) COMMUNITY GENERAL HOSPITAL
73) ELLIS HOSPITAL
74) MAIMONIDES MEDICAL CENTER
75) THE SARATOGA HOSPITAL
76) MARGARETVILLE MEMORIAL HOSPITAL
77) DOCTORS HOSPITAL OF STATEN ISLAND
78) THE MARY IMOGENE BASSETT HOSPITAL
79) O'CONNOR HOSPITAL
80) STRONG MEMORIAL HOSPITAL
81) CHILD'S HOSPITAL
82) SUNNYVIEW HOSPITAL AND REHAB CENTER
83) CARTHAGE AREA HOSPITAL
84) LAWRENCE HOSPITAL
85) FAXTON HOSPITAL
86) ST. LUKE'S MEMORIAL HOSPITAl
87) GLENS FALLS HOSPITAL
88) AMSTERDAM MEMORIAL HEALTHCARE SYSTEM
89) JOHN T. MATHER MEMORIAL HOSPITAL
90) ST. CLARE'S HOSPITAL & HEALTH CENTER
91) WINTHROP UNIVERSITY HOSPITAL
92) MOUNT SINAI HOSPITAL
93) NYU DOWNTOWN HOSPITAL
94) MT. SINAI MEDICAL CENTER
95) MARY McCLELLAN HOSPITAL
96) HOSPITAL FOR JOINT DISEASES ORTHOPEDIC INSTITUTE
97) THE NEW YORK EYE AND EAR INFIRMARY
<PAGE>
SCHEDULE "B"
<PAGE>
SCHEDULE "C-1"
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT (the "Agreement") dated May __, 1999 by and among THE
WELLCARE MANAGEMENT GROUP, INC., a New York corporation ("WCMG"), WELLCARE OF
NEW YORK, INC., a New York corporation ("WCNY" and together with WCMG,
"WellCare"), and KIRAN C. PATEL ("Dr. Patel") (WellCare and Dr. Patel
collectively, the "WellCare Parties"), and the Provider or Provider group
specified on the signature page of this Agreement ("Provider") and THE MEDICAL
SOCIETY OF THE STATE OF NEW YORK ("MSSNY") (WCMG, WCNY, Dr. Patel, Provider and
MSSNY being referred to individually as a "Party" and collectively as the
"Parties").
WHEREAS, WCMG has signed a letter of intent with Dr. Patel, for a
transaction that would, among other things, encompass an equity investment in
WellCare by Dr. Patel or an affiliate (the "Patel Transaction");
WHEREAS, the Board of Directors of WCNY, a New York certified health
maintenance organization ("HMO"), has approved the sale of its New York State
based commercial business to Group Health Incorporated (the "GHI Transaction");
WHEREAS, WellCare and Dr. Patel contemplate that all or a portion of the
equity investment provided through the Patel Transaction and all of the funds
obtained through the GHI Transaction will be pooled with certain current assets
of WCNY and made available to satisfy claims by providers for services rendered
through April 30, 1999;
WHEREAS, WCNY has agreed to a consent to rehabilitation in which the State
of New York has the right to commence court proceedings and have an order
entered into that would give the State of New York the right to assume the
operation of WCNY;
WHEREAS, Healthcare Association of New York ("HANYS") and Northern
Metropolitan Hospital Association ("NORMET") have entered into a similar
settlement agreement for the purpose of settling any and all disputes, claims
and controversies between WellCare and the member hospital which is also a
signatory to the agreement, relating to the payment for services provided by
member hospitals prior to May 1, 1999 to HMO members of WCNY, in order to assist
their respective member hospitals in the resolution of such member hospitals'
claims against WellCare, with the express understanding that neither HANYS nor
NORMET has authority to bind its member hospitals and that each such member
hospital shall be required to separately execute the agreement if it is to be
binding on such member hospital;
WHEREAS, MSSNY has entered into this Agreement in order to assist their
members in the resolution of such member's claims against WellCare, with the
express understanding that MSSNY does not have authority to bind its members and
each member-Provider shall be required to separately execute this Agreement if
its it be binding on such member-Provider;
WHEREAS, the WellCare Parties and Provider desire, and are mutually
willing, to enter into this Agreement for the purpose of settling any and all
disputes, claims and controversies, as described further below, between WellCare
and the Provider, relating to the payment for services provided by the Provider
prior to May 1, 1999 to HMO members of WCNY; and
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
agreements herein, the Parties agree as follows:
1. Regulatory Approvals
This Agreement and the terms and conditions contained herein are subject to
the approval of the New York State Insurance Department ("SID") and the New York
State Department of Health ("DOH"). As soon as practicable, the Parties shall
jointly seek approval of this Agreement from SID and DOH, and in accordance with
Section 10(f), the Parties agree to execute or cause their counsel to execute
any additional documents and take any further action which may be reasonably
required in order to facilitate such regulatory approval.
2. Conditions to Effectiveness
This Agreement shall become effective (the "Effective Date") only upon the
satisfaction of each and all of the following conditions:
(a) Regulatory approvals as set forth in Section 1, no later than July
15, 1999;
(b) The deposit of a minimum of Ten Million Dollars ($10,000,000) in
the Provider Pool (as defined below) (the "Initial Funding Date"), no later than
July 15, 1999; and
(c) Agreement by WellCare and Provider as to the amount of its Settled
Claims (defined below) within thirty (30) days following the date of this
Agreement;
provided however that Sections 1, 4, 8, 9 and 10 hereof shall become effective
immediately. WellCare shall provide Provider with written notice of the
Effective Date of this Agreement no later than ten (10) business days after all
of the foregoing conditions have been satisfied.
3. Settled Claims
"Settled Claims" means the dollar amount of all claims against WellCare by
a health care provider that has signed this Agreement or an agreement with
substantially similar terms and conditions, for services rendered to HMO members
of WCNY in any product line prior to May 1, 1999 and received by WellCare within
thirty (30) days following the date hereof, determined as follows: (i) total
adjudicated claims as determined by WellCare on or before April 30, 1999,
namely, claims received by WellCare and approved as properly payable, and (ii)
all other claims (comprised of pended claims and disputed claims) submitted in
good faith and adjudicated in good faith by WellCare within thirty (30) days
following the date hereof at fifty percent (50%) of a Provider's or other
provider's submitted charges. For purposes of clarification, "Settled Claims"
shall not include any claims for payment that a health care provider may have
against independent practice associations, including but not limited to those
owned by Primergy, Inc., and other third parties (such as Merit Behavioral
Services, Access Managed Healthcare, Block Vision, New York Medical Imaging,
PharmaCare and Laboratory Corporation of America) that have contracted with
WellCare to provide or to arrange for the provision of certain health care
services (e.g., physician services or specialty "carve-out" services, such as
mental health services, chiropractic services, laboratory services or pharmacy
services) to HMO members of WCNY.
4. Exchange of Information and Confidentiality; Litigation Stay
(a) In connection with the execution of this Agreement, WellCare has
provided Provider, a provider specific summary of amounts owed for payable and
pended claims for services provided by provider to HMO members of WCNY prior to
May 1, 1999 that have not been paid according to WellCare's records.
(b) Provider agrees to confirm the amounts contained in said list of
all claims for services provided prior to May 1, 1999 and to provide WellCare
with Provider's statement of unpaid (including disputed) WellCare claims based
on its, his or her records as soon as practicable. If there is any disagreement
as to the Settled Claims amount the Parties shall, in good faith, attempt to
resolve any such disagreements within thirty (30) days following the date
hereof.
(c) Upon the determination of and agreement by WellCare and the
Provider as to the Settled Claims for Provider, WellCare shall provide Provider
with a statement of its, his or her Settled Claims and the minimum amount to
which Provider is entitled to payment from the Provider Pool, i.e., thirty
percent (30%) of the Settled Claims. Upon Provider's acceptance thereof, such
statement shall be annexed as Exhibit A to this Agreement.
(d) [THIS SECTION INTENTIONALLY OMITTED]
(e) The Parties each agree that they will not commence, institute or
prosecute any action or other adversary proceeding in any court of law or
equity, arbitration tribunal, or administrative forum ("Litigation") against any
other Party on or after the date hereof relating to or concerning the subject
matter of this Agreement, except (i) following termination of this Agreement as
provided in Section 9 or (ii) following July 15, 1999 if this Agreement shall
not have become effective by such date for failure to satisfy the conditions set
forth in Section 2 or (iii) if a case is commenced in respect to WellCare or any
of its subsidiaries or affiliates under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator or the like is appointed
under Article 74 of the New York Insurance Law or any similar law, or by SID, or
any other regulatory body, any Party may appear and participate in any such case
or proceeding. The Parties further agree to take whatever steps are necessary to
stay any Litigation during theperiod between the date hereof and the Effective
Date and thereafter take whatever steps are necessary to discontinue any such
Litigation with prejudice.
5. Establishment of Settlement Fund
(a) A pool of funds (the "Provider Pool") shall be established solely
to pay Settled Claims of the Providers and other providers which have entered
into settlement agreements containing terms similar to those contained in this
Agreement. The Provider Pool shall be established in a segregated cash
collateral account prior to the Effective Date at a bank mutually acceptable to
WellCare, Garfunkel Wild & Travis, P.C., as counsel to HANYS and NORMET, and
MSSNY, which approval shall not be unreasonably withheld, which bank shall have
had no prior dealings with WellCare. The Provider Pool shall not be disbursed
except in accordance with this Agreement (or other similar settlement
agreement). The Provider Pool account shall contain irrevocable instructions
concerning deposits and withdrawals from the Provider Pool, which shall be
agreed to by Garfunkel, Wild & Travis, P.C., as counsel to HANYS and NORMET, and
WellCare, subject to notification of MSSNY, prior to the Effective Date, and
which may be modified only with the prior written approval of both WellCare and
Garfunkel, Wild & Travis, P.C., as counsel to HANYS and NORMET, subject to
notification of MSSNY, or at the direction of SID. The Parties recognize and
agree that deposits into and payments from the Provider Pool may be subject to
audit or review by SID and other regulatory agencies having jurisdiction over
WellCare. The Parties understand that HANYS and/or NORMET or their agents or
representatives, shall have the right to audit or review the Provider Pool, and
the results of any such audit shall be distributed to all Parties. The Parties
agree to cooperate with each other to the extent reasonably necessary to carry
out the provisions of this Section 5(a).
(b) The Provider Pool shall have an initial balance of not less than
Ten Million Dollars ($10,000,000) by the Effective Date and shall be comprised
of proceeds from the Patel Transaction and/or GHI Transaction. In addition, the
Provider Pool shall be supplemented by an amount equal to 80% of all proceeds
from accounts receivables of WCNY which were or should have been recorded in
accordance with generally accepted accounting principles (GAAP) as of April 30,
1999 (the "Accounts Receivable") to the extent such proceeds are collected by
WellCare during the period commencing on May 1, 1999 and ending on the date that
the Provider Pool is no longer in effect. If the amounts deposited in the
Provider Pool shall in the aggregate exceed Ten Million Dollars ($10,000,000)
(the amount so exceeding Ten Million Dollars ($10,000,000) being the "Excess"),
the Excess may be withdrawn from the Provider Pool and retained by WellCare for
purposes of maintaining its statutory reserves in accordance with applicable
law, but in no event shall WellCare be entitled to withdraw from the Provider
Pool and retain more than Two Million Five Hundred Thousand Dollars ($2,500,000)
for such purpose. Any Excess beyond that amount required for statutory reserves
shall be retained in the Provider Pool.
(c) In the event that the amount equal to thirty percent (30%) of the
aggregate Settled Claims for all providers (excluding the five percent (5%)
payments to providers described in Section 6(b)), is greater than Ten Million
Dollars ($10,000,000), but does not exceed Twelve Million Dollars ($12,000,000),
subject to Section 5(b), WellCare shall deposit additional funds into the
Provider Pool to make up the shortfall, to the extent WellCare has sufficient
funds and requisite regulatory authority to so act. In the event WellCare lacks
sufficient funds and/or requisite regulatory authority to deposit such
additional funds in the Provider Pool, Dr. Patel will provide funds in such
amount necessary to pay the thirty percent (30%) of the aggregate Settled Claims
for all providers, not to exceed a total Provider Pool balance of Twelve Million
Dollars ($12,000,000).
(d) In the event the amount equal to thirty percent (30%) of the
aggregate Settled Claims for all providers (excluding the five percent (5%)
payments to providers described in Section 6(b)) is greater than Twelve Million
Dollars ($12,000,000), then the amount required to be deposited into the
Provider Pool in excess of Twelve Million Dollars ($12,000,000) shall be paid by
WellCare; provided, however, that WellCare will be permitted to reduce pro rata
the amount of the Provider's remaining three (3) payments of five percent (5%)
as set forth in Section 6(b) below (and all other providers with Settled Claims
who may receive a similar payment) to the extent that WellCare's payments exceed
Twelve Million Dollars ($12,000,000), and provided, however, in no case shall
Provider receive less than thirty percent (30%) of its Settled Claims under this
Agreement.
(e) In the event a balance remains in the Provider Pool as of six (6)
months after the Effective Date, then such balance will be distributed pro rata
to the Provider and other providers which have entered into agreements to settle
their Settled Claims, based upon the amounts of their respective Settled Claims.
(f) Each health care provider that has Settled Claims shall have a
security interest for the benefit of all health care providers with Settled
Claims, which shall be a first priority lien with respect to the proceeds due to
WellCare from the Patel Transaction and/or GHI Transaction and all amounts in
the Provider Pool, and a second priority lien on and security interest in the
Accounts Receivable, except to the extent there is no other lien on the Accounts
Receivable as of the date of this Agreement, the security interest shall be a
first priority lien. It shall be the responsibility of such providers to timely
and properly prepare and deliver the necessary documents for signature by all
necessary parties, and thereafter cause the appropriate filings to be made to
perfect such security interests, including, without limitation, a financing
statement in the form approved by the Parties. The Parties shall cooperate with
each other in the preparation of any and all documents necessary to give effect
to such security interest and such other terms and obligations hereunder.
(g) Nothing contained herein shall prohibit or restrict WellCare from
settling or paying claims of any nature from sources of funds exclusive of those
deposited (or required to be deposited) in the Provider Pool.
6. Payment by WellCare of Settled Claims
(a) WellCare will pay Provider thirty percent (30%) of the Provider's
Settled Claims within ten (10) days of the Effective Date. If, however, thirty
percent (30%) of the aggregate Settled Claims for all providers exceeds the
funds then in the Provider Pool, then WellCare will pay the Provider and all
other providers with Settled Claims on a pro rata basis from the funds then in
the Provider Pool and thereafter pay the Provider and all other providers with
Settled Claims on a pro rata basis every thirty days (30) thereafter for the
period in which the Provider Pool is in effect. WellCare represents to Provider
that providers with Settled Claims shall all receive payment from the Provider
Pool based upon the same proportion of their Settled Claims. Notwithstanding the
foregoing, in no case shall Provider receive less than thirty percent (30%) of
the amount of its Settled Claims within six (6) months of the Effective Date and
Provider shall continue to have the right to bill WCNY members for all
applicable copayments, coinsurance and non-covered services relating to Settled
Claims to the extent permitted under the applicable health plan and provider
agreement, and WellCare shall provide Provider with necessary documentation to
bill the member accordingly. Notwithstanding anything to the contrary contained
herein, WellCare shall have the right to recoup, without any right of set-off,
any amounts paid under this Agreement to a Provider if the Provider shall have
failed to be a participating provider in good standing with WellCare at any time
during the period commencing on the date hereof and ending on the date six
months following the date hereof, and in such case of recoupment by WellCare,
this Agreement shall be null and void for all purposes. The foregoing condition
of a provider agreement shall not be applicable on or after the Effective Date
if Provider has terminated the provider agreement for cause or WellCare has
terminated such provider agreement without cause.
(b) WellCare will pay Provider an amount equal to five percent (5%) of
such Provider's Settled Claims on each of February 1, 2000, February 1, 2001 and
February 1, 2002, provided, however, Provider is at that time a participating
provider in good standing with WellCare. The foregoing condition of a provider
agreement shall not be applicable if Provider has terminated the provider
agreement for cause or WellCare has terminated such provider agreement without
cause. The Parties understand and acknowledge that no such payment under this
Section 6(b) shall be made from the Provider Pool.
(c) Subject to regulatory approvals and in accordance with applicable
law, including the federal securities laws, the Provider may elect to receive
WCMG common stock in lieu of one or more of the annual payments set forth in
Section 6(b). The price at which the WCMG common stock shall be valued shall be
the greater of the price of such common stock for the twenty (20) trading days
ending on February 2nd of the calendar year immediately preceding the applicable
payment date or $1.00 per share. Each Provider receiving such WCMG common stock
shall agree to transfer restrictions on such shares for a mutually agreed upon
period after issuance, but not to exceed six (6) months. In the event the
Provider elects to receive WCMG common stock in lieu of a cash payment, the
Parties agree to cooperate and use their best efforts to reach agreement
regarding the terms and conditions of such receipt of WCMG securities and to
accomplish the foregoing.
7. Mutual Releases
(a) Provider together with its subsidiaries, affiliates, officers,
directors, shareholders, employees, agents, attorneys, representatives,
successors and assigns ("Provider Releasor"), hereby releases and discharges the
WellCare Parties, together with their respective subsidiaries, affiliates,
directors, shareholders, employees, agents, attorneys, representatives,
successors and assigns ("WellCare Releasees") from (i) all indebtedness and
other financial obligations arising from the provision of services by each
Provider to members of WCNY in any product line on or before April 30, 1999,
including any prospective adjustments pursuant to the New York Health Care
Reform Act ("NYCRA") for services rendered prior to May 1, 1999, and (ii) all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, rights to contribution, damages,
judgments, extends, executions, claims, and demands whatsoever, in law,
admiralty or equity, which each Provider Releasor ever had, now has or hereafter
can, shall or may have against the WellCare Releasees, for upon, or by reason of
any matter, cause or things whatsoever relating to the matters referred to in
(a)(i) above from the beginning of the world to the day of the date of this
Agreement or arising hereafter as a result of or in connection with the matters
referred to in (a)(i) above. The foregoing release expressly excludes any claims
for payment that Provider may have against independent practice associations,
including but not limited to those owned by Primergy, Inc., and other third
parties (such as Merit Behavioral Services, Access Managed Healthcare, Block
Vision, New York Medical Imaging, PharmaCare and Laboratory Corporation of
America) that have contracted with WellCare to provide or to arrange for the
provision of certain health care services (e.g., physician services or specialty
"carve-out" services, such as mental health services, chiropractic services,
laboratory services or pharmacy services) to HMO members of WCNY and expressly
excludes any action, suits, claims or demands arising from medical malpractice
or negligence.
(b) Each Provider Releasor represents to the WellCare Releasees that
none of the liabilities, claims, causes of actions, costs or demands herein
released has been assigned to any person or entity.
(c) Each Provider Releasor acknowledges that it may hereafter discover
facts different from, or in addition to, those that it now believes to be true,
with respect to all or any of the liabilities, claims, causes or action, costs
or demands herein released but nevertheless agrees that the releases set forth
herein shall be and remain effective in all respects, notwithstanding the
discovery of such different or additional facts.
(d) Each Provider Releasor is forever barred and enjoined from
commencing, instituting or prosecuting any action or other adversary proceeding
in any court of law or equity, arbitration tribunal, or administrative forum,
directly or representatively, against the WellCare Releasees with respect to
any, some or all of the Settled Claims; provided however, each Provider Releasor
and the WellCare Releasees retain all rights and remedies to enforce the terms
of this Agreement.
(e) The WellCare Parties together with their respective subsidiaries,
affiliates, officers, directors, shareholders, employees, agents, attorneys,
representatives, successors and assigns ("WellCare Releasors") hereby release
and discharge Provider and its subsidiaries, affiliates, directors,
shareholders, employees, agents, attorneys, representatives, successors and
assigns ("Provider Releasee") from (i) all indebtedness and other financial
obligations arising from the provision of services by Provider to members of
WCNY in any product line on or before April 30, 1999, including any prospective
adjustments pursuant to the NYCRA for services rendered prior to May 1, 1999,
and (ii) all actions, causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, rights to
contribution, damages, judgments, extends, executions, claims, and demands
whatsoever, in law, admiralty or equity, which the WellCare Releasors ever had,
now have or hereafter can, shall or may have against each Provider Releasee, for
upon, or by reason of any matter, cause or things whatsoever relating to the
matters referred to in (e)(i) above from the beginning of the world to the day
of the date of this Agreement or arising hereafter as a result of or in
connection with the matters referred to in (e)(i) above. The foregoing release
expressly excludes any claims for payment that WellCare may have against
independent practice associations, including but not limited to those owned by
Primergy, Inc., and other third parties (such as Merit Behavioral Services,
Access Managed Healthcare, Block Vision, New York Medical Imaging, PharmaCare
and Laboratory Corporation of America) that have contracted with WellCare to
provide or to arrange for the provision of certain health care services (e.g.,
physician services or specialty "carve-out" services, such as mental health
services, chiropractic services, laboratory services or pharmacy services) to
HMO members of WCNY and expressly excludes any action, suits, claims or demands
arising from medical malpractice or negligence.
(f) The WellCare Releasors represent to each Provider Releasee that
none of the liabilities, claims, causes of actions, costs or demands herein
released has been assigned to any person or entity.
(g) The WellCare Releasors acknowledge that they may hereafter
discover facts different from, or in addition to, those that they now believe to
be true, with respect to all or any of the liabilities, claims, causes or
action, costs or demands herein released but nevertheless agree that the
releases set forth herein shall be and remain effective in all respects,
notwithstanding the discovery of such different or additional facts.
(h) The WellCare Releasors are forever barred and enjoined from
commencing, instituting or prosecuting any action or other adversary proceeding
in any court of law or equity, arbitration tribunal, or administrative forum,
directly or representatively, against any Provider Releasee with respect to any,
some or all of Settled Claims; provided however, the WellCare Releasors and each
Provider Releasee retain all rights and remedies to enforce the terms of this
Agreement.
(i) Nothing contained herein shall be deemed to create any rights or
benefits, or constitutes a release of any kind whatsoever, for any non-Party.
8. Representations and Warranties of the Parties
(a) WellCare represents and warrants that the execution of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and will not violate
the provisions of its certificate of incorporation or by-laws or of any
agreement, law, rule, regulation or other commitment to which it is a party of
and by which it is bound.
(b) Provider represents and warrants that, to the extent applicable,
the execution of this Agreement and the consummation by it of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
and will not violate the provisions of its certificate of incorporation or
by-laws or of any agreement, law, rule, regulation or other commitment to which
it is a party of and by which it is bound.
9. Termination of Settlement
(a) The Parties agree that this Agreement is binding and irrevocable
(unless terminated pursuant to this Section 9 or as provided in Sections 1 and 2
herein) regardless of future events or changed circumstances of WellCare or any
of its subsidiaries or affiliates, and the Parties agree that the agreements and
covenants contained herein are fair, reasonable and adequate, and WellCare
believes that the agreements and covenants contained herein are in the best
interests of WellCare and its subsidiaries, affiliates, shareholders and
creditors.
(b) If this Agreement shall not be approved by SID and DOH then in
either of these events, this Agreement shall become null and void for all
purposes and all negotiations, transactions and proceedings connected with it
(i) shall be without prejudice to the rights of any Party, (ii) shall not be
deemed or construed as evidence or an admission or a concession by any Party of
any fact, matter or thing; and (iii) shall not be admissible in evidence or used
in any action or proceeding.
(c) If WellCare is unable to fund the Provider Pool with an initial
balance of not less than Ten Million Dollars ($10,000,000) for any reason,
including but not limited to the failure to consummate the Patel Transaction
and/or the failure to consummate the GHI Transaction, this Agreement shall
become null and void for all purposes and all negotiations, transactions and
proceedings connected with it (i) shall be without prejudice to the rights of
any party, (ii) shall not be deemed or construed as evidence or an admission or
a concession by any party of any fact, matter or thing; and (iii) shall not be
admissible in evidence or used in any action or proceeding.
(d) If a case is commenced in respect to WellCare or any of its
subsidiaries or affiliates under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator, or the like is appointed
under Article 74 of the New York Insurance Law or any similar law, or by SID, or
any other regulatory body, and in the event of the entry of a final order of a
court of competent jurisdiction determining the transfer of money to the
Provider Pool and/or to the Provider in payment of a Settled Claim, or any
portion thereof, on behalf of WellCare to be a preference, voidable transfer or
fraudulent transfer or similar transaction and any portion thereof is required
to be returned, then WellCare may move a court of competent jurisdiction to
vacate and set aside this Agreement and the releases contained herein, which
Agreement and releases shall be null and void, and the Parties shall be returned
to their respective positions as of April 30, 1999 and any payments made to the
Provider shall be returned to WellCare. In any such event (or otherwise under
any such bankruptcy or similar proceeding), the debt owed by WellCare or its
estate to the Provider shall not be valued on the basis of payments made
pursuant to sections 6(a) and (b) hereunder.
(e) Upon a default by WellCare in respect of any payment coming due
hereunder ("Default"), and unless such Default shall be cured within forty (40)
days after written notice thereof by fax and by certified mail, return receipt
requested, sent to:
President and Chief Executive Officer
WellCare of New York, Inc.
PO Box 4059
Kingston, New York 12402
with a copy to:
Seth I. Truwit, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
and a copy to:
Sandip Patel, Esq.
Patel, Moore & O'Connor, PA
2240 Belle Air Road
Suite 160
Clearwater, FL 33764
Provider shall be entitled, upon not less than ten (10) days' notice to DOH, SID
and WellCare that Wellcare is in Default under the terms of this Agreement, to
seek appropriate judicial relief for payments due under this Agreement.
10. Miscellaneous
(a) This Agreement is a compromise disposing of claims of each
Provider, some or all of which may be controverted. This Agreement and all
negotiations and statements in connection herewith shall not be in any event
construed as or deemed to be evidence or an admission or concession on the part
of any Party of any liability whatever, and shall not be offered or received in
evidence in any action or proceeding in any court or other tribunal or used in
any way as an admission, concession or evidence of any liability by any party.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to a contracts executed and
performed in such State, without giving effect to the conflicts of laws
principles thereof.
(c) The Parties to this Agreement hereby consent to the jurisdiction
of the courts of the State of New York and the federal courts setting in New
York over them in any action to enforce this Agreement or any provision thereof.
(d) Each of the Parties has received independent legal advice from its
attorneys with respect to the advisability of entering into this Agreement and
the releases contained herein. Each of the Parties has made such investigation
of the facts pertaining to this Agreement and the releases herein and all other
matters pertaining thereto as it deems necessary.
(e) Each of the Parties to this Agreement acknowledges that this
Agreement is reached solely in relation to the subject matter herein and no
agreement reached herein shall constitute an admission or evidence in any other
matter among the parties to this Agreement or in any other matter or proceeding
in which any of the parties may be or become involved.
(f) Each of the Parties agrees to execute or cause their counsel to
execute any additional documents and take any further action which reasonably
may be required in order to consummate this Agreement, or otherwise fulfill the
obligations of the Parties hereunder. Each party is to bear its own costs and
attorney's fees incurred in connection with any such additional action.
(g) This Agreement represents and expresses the entire agreement
between the Parties with respect to the subject matter hereof and may not be
modified or amended except in a writing signed by WellCare and the affected
Provider, so long as such modification or amendment does not adversely effect
other providers with respect to the payment of Settled Claims from the Provider
Pool or for payments similar to those set forth in Section 6(b).
(h) This Agreement and the releases contained herein supersede any
prior agreement or release with respect to the subject matter hereof.
(i) This Agreement shall be binding on and inure to the benefit of the
Parties and their respective successors, administrators or assigns, and upon any
corporation or other entity into or with which any Party may merge, consolidate
or reorganize. This Agreement and the releases contained herein is limited to
the Parties, the Provider Releasors, the Provider Releasees, the Wellcare
Releasors and the Wellcare Releasees and any other third party beneficiary of
this Agreement and the releases contained herein is expressly excluded.
(j) The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
(k) This Agreement may be executed in counterparts, each of which
shall be deemed an original instrument, but all of which together will
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
PROVIDER THE WELLCARE MANAGEMENT
GROUP, INC.
By:___________________________ By: /s/ Craig Dupont
Title:________________________ -----------------------------
Address:______________________ Craig Dupont
______________________ Acting Chief Executive Officer
Park West/Hurley Avenue Extension
Kingston, NY 12401
SANDIP PATEL, ESQ. WELLCARE OF NEW YORK, INC.
By: /s/ Sandip Patel, Esq. By: /s/ Mary Lee Campbell-Wisley
------------------------- -----------------------------
Sandip Patel, Esq. Mary Lee Campbell-Wisley
Attorney for Kiran C. Patel, M.D., Chief Executive Officer
F.A.C.C. Park West/Hurley Avenue Extension
Kingston, NY 12401
(914) 334-4000
MEDICAL SOCIETY OF THE STATE
OF NEW YORK
By: /s/ Donald R. Moy, Esq.
-------------------------
Donald R. Moy, Esq.
General Counsel
<PAGE>
EXHIBIT A
Name and Address of Provider Settled Claim Amount
- ---------------------------- --------------------
<PAGE>
SCHEDULE "C-2"
SETTLEMENT AGREEMENT
SETTLEMENT AGREEMENT (the "Agreement") dated May __, 1999 by and among THE
WELLCARE MANAGEMENT GROUP, INC., a New York corporation ("WCMG"), WELLCARE OF
NEW YORK, INC., a New York corporation ("WCNY" and together with WCMG,
"WellCare"), and KIRAN C. PATEL ("Dr. Patel") (WellCare and Dr. Patel
collectively, the "WellCare Parties"), and HEALTHCARE ASSOCIATION OF NEW YORK
STATE ("HANYS"), NORTHERN METROPOLITAN HOSPITAL ASSOCIATION ("NORMET") and the
member hospital of HANYS and/or NORMET specified on the signature page of this
Agreement ("Hospital") (WCMG, WCNY, Dr. Patel, HANYS, NORMET and Hospital being
referred to individually as a "Party" and collectively as the "Parties").
WHEREAS, WCMG has signed a letter of intent with Dr. Patel, for a
transaction that would, among other things, encompass an equity investment in
WellCare by Dr. Patel or an affiliate (the "Patel Transaction");
WHEREAS, the Board of Directors of WCNY, a New York certified health
maintenance organization ("HMO"), has approved the sale of its New York State
based commercial business to Group Health Incorporated (the "GHI Transaction");
WHEREAS, WellCare and Dr. Patel contemplate that all or a portion of the
equity investment provided through the Patel Transaction and all of the funds
obtained through the GHI Transaction will be pooled with certain current assets
of WCNY and made available to satisfy claims by providers for services rendered
through April 30, 1999;
WHEREAS, WCNY has agreed to a consent to rehabilitation in which the State
of New York has the right to commence court proceedings and have an order
entered into that would give the State of New York the right to assume the
operation of WCNY;
WHEREAS, the WellCare Parties and the Hospital desire, and are mutually
willing, to enter into this Agreement for the purpose of settling any and all
disputes, claims and controversies, as described further below, between WellCare
and the Hospital, relating to the payment for services provided by the Hospital
prior to May 1, 1999 to HMO members of WCNY; and
WHEREAS, HANYS and NORMET have entered into this Agreement in order to
assist their respective member hospitals in the resolution of such member
hospitals' claims against WellCare, with the express understanding that neither
HANYS nor NORMET has authority to bind its member hospitals and that each such
member hospital shall be required to separately execute this Agreement if it is
to be binding on such member hospital.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
agreements herein, the Parties agree as follows:
1. Regulatory Approvals
This Agreement and the terms and conditions contained herein are
subject to the approval of the New York State Insurance Department ("SID") and
the New York State Department of Health ("DOH"). As soon as practicable, the
Parties shall jointly seek approval of this Agreement from SID and DOH, and in
accordance with Section 10(f), the Parties agree to execute or cause their
counsel to execute any additional documents and take any further action which
may be reasonably required in order to facilitate such regulatory approval.
2. Conditions to Effectiveness
This Agreement shall become effective (the "Effective Date") only upon
the satisfaction of each and all of the following conditions:
(a) Regulatory approvals as set forth in Section 1, no later than July
15, 1999;
(b) The deposit of a minimum of Ten Million Dollars ($10,000,000) in
the Provider Pool (as defined below) (the "Initial Funding Date"), no later than
July 15, 1999; and
(c) Agreement by WellCare and Hospital as to the amount of its Settled
Claims (defined below) within thirty (30) days following the date of this
Agreement;
provided however that Sections 1, 4, 8, 9 and 10 hereof shall become effective
immediately. WellCare shall provide Hospital with written notice of the
Effective Date of this Agreement no later than five (5) business days after all
of the foregoing conditions have been satisfied.
3. Settled Claims
"Settled Claims" means the dollar amount of all claims against
WellCare by a health care provider that has signed this Agreement or an
agreement with substantially similar terms and conditions, for services rendered
to HMO members of WCNY in any product line prior to May 1, 1999 and received by
WellCare within thirty (30) days following the date hereof, determined as
follows: (i) total adjudicated claims as determined by WellCare on or before
April 30, 1999, namely, claims received by WellCare and approved as properly
payable, and (ii) all other claims (comprised of pended claims and disputed
claims) submitted in good faith and adjudicated in good faith by WellCare within
thirty (30) days following the date hereof at fifty percent (50%) of a
hospital's or other provider's submitted charges. For purposes of clarification,
"Settled Claims" shall not include any claims for payment that a health care
provider may have against independent practice associations, including but not
limited to those owned by Primergy, Inc., and other third parties (such as Merit
Behavioral Services, Access Managed Healthcare, Block Vision, New York Medical
Imaging, PharmaCare and Laboratory Corporation of America) that have contracted
with WellCare to provide or to arrange for the provision of certain health care
services (e.g., physician services or specialty "carve-out" services, such as
mental health services, chiropractic services, laboratory services or pharmacy
services) to HMO members of WCNY.
4. Exchange of Information and Confidentiality; Litigation Stay
(a) In connection with the execution of this Agreement, WellCare has
provided Garfunkel, Wild & Travis, P.C., as counsel to HANYS and NORMET, a
hospital specific summary of amounts owed for payable and pended claims for
services provided by member hospitals of HANYS and/or NORMET to HMO members of
WCNY prior to May 1, 1999 that have not been paid according to WellCare's
records.
(b) Garfunkel, Wild & Travis, P.C. has agreed to confirm the amounts
contained in said list of all claims for services provided prior to May 1, 1999
with the Hospital and to obtain from the Hospital its statement of unpaid
(including disputed) WellCare claims based on its records. Garfunkel, Wild &
Travis, P.C. has agreed to provide said information to WellCare and the Hospital
as soon as practicable. If there is any disagreement as to the Settled Claims
amount the Parties shall, in good faith, attempt to resolve any such
disagreements within thirty (30) days following the date hereof.
(c) Upon the determination of and agreement by WellCare and the
Hospital as to the Settled Claims for Hospital, WellCare shall provide Hospital
with a statement of its Settled Claims and the minimum amount to which Hospital
is entitled to payment from the Provider Pool, i.e., thirty percent (30%) of the
Settled Claims. Upon Hospital's acceptance thereof, such statement shall be
annexed as Exhibit A to this Agreement.
(d) Garfunkel, Wild & Travis, P.C. agrees to provide the Hospital with
specific information relating only to the Hospital (and no other member hospital
in HANYS or NORMET) and further agrees not to share such information with any
other hospital clients or third parties, except to the extent required by law,
or with the prior written consent of WellCare, which consent may be denied in
WellCare's sole discretion. Notwithstanding the foregoing, Garfunkel, Wild &
Travis, P.C. may provide any and all such information to HANYS and NORMET and
their respective officers, directors, employees and agents ("Authorized
Agents"), provided, however, HANYS and NORMET and their respective Authorized
Agents hereby agree to similarly maintain the confidentiality of such Hospital
specific information as set forth herein. Such Hospital specific information
shall be used solely to assist the Hospital in the determination of the Settled
Claims.
(e) The Parties each agree that they will not commence, institute or
prosecute any action or other adversary proceeding in any court of law or
equity, arbitration tribunal, or administrative forum ("Litigation") against any
other Party on or after the date hereof relating to or concerning the subject
matter of this Agreement, except (i) following termination of this Agreement as
provided in Section 9 or (ii) following July 15, 1999 if this Agreement shall
not have become effective by such date for failure to satisfy the conditions set
forth in Section 2 or (iii) if a case is commenced in respect to WellCare or any
of its subsidiaries or affiliates under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator or the like is appointed
under Article 74 of the New York Insurance Law or any similar law, or by SID, or
any other regulatory body, any Party may appear and participate in any such case
or proceeding. The Parties further agree to take whatever steps are necessary to
stay any Litigation during the period between the date hereof and the Effective
Date and thereafter take whatever steps are necessary to discontinue any such
Litigation with prejudice.
5. Establishment of Settlement Fund
(a) A pool of funds (the "Provider Pool") shall be established solely
to pay Settled Claims of the Hospital and all other providers which have entered
into settlement agreements containing terms similar to those contained in this
Agreement. The Provider Pool shall be established in a segregated cash
collateral account prior to the Effective Date at a bank mutually acceptable to
WellCare and Garfunkel Wild & Travis, P.C., as counsel to HANYS and NORMET,
which bank shall have had no prior dealings with WellCare). The Provider Pool
shall not be disbursed except in accordance with this Agreement (or other
similar settlement agreement). The Provider Pool account shall contain
irrevocable instructions concerning deposits and withdrawals from the Provider
Pool, which shall be agreed to by Garfunkel, Wild & Travis, P.C., as counsel to
HANYS and NORMET, and WellCare prior to the Effective Date, and which may be
modified only with the prior written approval of both WellCare and Garfunkel,
Wild & Travis, P.C., as counsel to HANYS and NORMET, or at the direction of SID.
The Parties recognize and agree that deposits into and payments from the
Provider Pool may be subject to audit or review by SID and other regulatory
agencies having jurisdiction over WellCare. In addition, HANYS and/or NORMET or
their agents or representatives, shall have the right to audit or review the
Provider Pool, the cost of the first of which audit or review shall be borne by
WellCare and the cost of any and all subsequent audits or reviews shall be borne
by HANYS and/or NORMET. The results of such audit or review shall be distributed
to all Parties. The Parties agree to cooperate with each other to the extent
reasonably necessary to carry out the provisions of this Section 5(a).
(b) The Provider Pool shall have an initial balance of not less than
Ten Million Dollars ($10,000,000) by the Effective Date and shall be comprised
of proceeds from the Patel Transaction and/or GHI Transaction. In addition, the
Provider Pool shall be supplemented by an amount equal to 80% of all proceeds
from accounts receivables of WCNY which were or should have been recorded in
accordance with generally accepted accounting principles (GAAP) as of April 30,
1999 (the "Accounts Receivable") to the extent such proceeds are collected by
WellCare during the period commencing on May 1, 1999 and ending on the date that
the Provider Pool is no longer in effect. HANYS and/or NORMET, or their agents
or representatives, shall have the right, subject to compliance with applicable
law, to examine and make copies of and abstracts from all books, records,
computer media and documents in the possession of WellCare relating to the
Accounts Receivable, subject to the confidentiality provisions contained in
section 4(d). If the amounts deposited in the Provider Pool shall in the
aggregate exceed Ten Million Dollars ($10,000,000) (the amount so exceeding Ten
Million Dollars ($10,000,000) being the "Excess"), the Excess may be withdrawn
from the Provider Pool and retained by WellCare for purposes of maintaining its
statutory reserves in accordance with applicable law, but in no event shall
WellCare be entitled to withdraw from the Provider Pool and retain more than Two
Million Five Hundred Thousand Dollars ($2,500,000) for such purpose. Any Excess
beyond that amount required for statutory reserves shall be retained in the
Provider Pool.
(c) In the event that the amount equal to thirty percent (30%) of the
aggregate Settled Claims for all providers (excluding the five percent (5%)
payments to providers described in Section 6(b)), is greater than Ten Million
Dollars ($10,000,000), but does not exceed Twelve Million Dollars ($12,000,000),
subject to Section 5(b), WellCare shall deposit additional funds into the
Provider Pool to make up the shortfall, to the extent WellCare has sufficient
funds and requisite regulatory authority to so act. In the event WellCare lacks
sufficient funds and/or requisite regulatory authority to deposit such
additional funds in the Provider Pool, Dr. Patel will provide funds in such
amount necessary to pay the thirty percent (30%) of the aggregate Settled Claims
for all providers, not to exceed a total Provider Pool balance of Twelve Million
Dollars ($12,000,000).
(d) In the event the amount equal to thirty percent (30%) of the
aggregate Settled Claims for all providers (excluding the five percent (5%)
payments to providers described in Section 6(b)) is greater than Twelve Million
Dollars ($12,000,000), then the amount required to be deposited into the
Provider Pool in excess of Twelve Million Dollars ($12,000,000) shall be paid by
WellCare; provided, however, that WellCare will be permitted to reduce pro rata
the amount of the Hospital's remaining three (3) payments of five percent (5%)
as set forth in Section 6(b) below (and all other providers with Settled Claims
who may receive a similar payment) to the extent that WellCare's payments exceed
Twelve Million Dollars ($12,000,000), and provided, however, in no case shall
Hospital receive less than thirty percent (30%) of its Settled Claims under this
Agreement.
(e) In the event a balance remains in the Provider Pool as of six (6)
months after the Effective Date, then such balance will be distributed pro rata
to the Hospital and other providers which have entered into agreements to settle
their Settled Claims, based upon the amounts of their respective Settled Claims.
(f) Each health care provider that has Settled Claims shall have a
security interest for the benefit of all health care providers with Settled
Claims, which shall be a first priority lien with respect to the proceeds due to
WellCare from the Patel Transaction and/or GHI Transaction and all amounts in
the Provider Pool, and a second priority lien on and security interest in the
Accounts Receivable, except to the extent there is no other lien on the Accounts
Receivable as of the date of this Agreement, the security interest shall be a
first priority lien. It shall be the responsibility of such providers to timely
and properly prepare and deliver the necessary documents for signature by all
necessary parties, and thereafter cause the appropriate filings to be made to
perfect such security interests, including, without limitation, a financing
statement in the form approved by Garfunkel, Wild & Travis, P.C. The Parties
shall cooperate with each other in the preparation of any and all documents
necessary to give effect to such security interest and such other terms and
obligations hereunder.
(g) Nothing contained herein shall prohibit or restrict WellCare from
settling or paying claims of any nature from sources of funds exclusive of those
deposited (or required to be deposited) in the Provider Pool.
6. Payment by WellCare of Settled Claims
(a) WellCare will pay Hospital thirty percent (30%) of the Hospital's
Settled Claims within ten (10) days of the Effective Date. If, however, thirty
percent (30%) of the aggregate Settled Claims for all providers exceeds the
funds then in the Provider Pool, then WellCare will pay the Hospital and all
other providers with Settled Claims on a pro rata basis from the funds then in
the Provider Pool and thereafter pay the Hospital and all other providers with
Settled Claims on a pro rata basis every thirty days (30) thereafter for the
period in which the Provider Pool is in effect. WellCare represents to Hospital
that providers with Settled Claims shall all receive payment from the Provider
Pool based upon the same proportion of their Settled Claims. Notwithstanding the
foregoing, in no case shall Hospital receive less than thirty percent (30%) of
the amount of its Settled Claims within six (6) months of the Effective Date and
Hospital shall continue to have the right to bill WCNY members for all
applicable copayments, coinsurance and non-covered services relating to Settled
Claims to the extent permitted under the applicable health plan and provider
agreement, and WellCare shall provide Hospital with necessary documentation to
bill the member accordingly. Notwithstanding anything to the contrary contained
herein, WellCare shall have the right to recoup, without any right of set-off,
any amounts paid under this Agreement to a Hospital if the Hospital shall have
failed to be a participating provider in good standing with WellCare at any time
during the period commencing on the date hereof and ending on the date six
months following the date hereof, and in such case of recoupment by WellCare,
this Agreement shall be null and void for all purposes. The foregoing condition
of a provider agreement shall not be applicable on or after the Effective Date
if Hospital has terminated the provider agreement for cause or WellCare has
terminated such provider agreement without cause.
(b) WellCare will pay Hospital an amount equal to five percent (5%) of
such Hospital's Settled Claims on each of February 1, 2000, February 1, 2001 and
February 1, 2002, provided, however, Hospital is at that time a participating
provider in good standing with WellCare. The foregoing condition of a provider
agreement shall not be applicable if Hospital has terminated the provider
agreement for cause or WellCare has terminated such provider agreement without
cause. The Parties understand and acknowledge that no such payment under this
Section 6(b) shall be made from the Provider Pool.
(c) Subject to regulatory approvals and in accordance with applicable
law, including the federal securities laws, the Hospital may elect to receive
WCMG common stock in lieu of one or more of the annual payments set forth in
Section 6(b). The price at which the WCMG common stock shall be valued shall be
the greater of the price of such common stock for the twenty (20) trading days
ending on February 2nd of the calendar year immediately preceding the applicable
payment date or $1.00 per share. Each Hospital receiving such WCMG common stock
shall agree to transfer restrictions on such shares for a mutually agreed upon
period after issuance, but not to exceed six (6) months. In the event the
Hospital elects to receive WCMG common stock in lieu of a cash payment, the
Parties agree to cooperate and use their best efforts to reach agreement
regarding the terms and conditions of such receipt of WCMG securities and to
accomplish the foregoing.
7. Mutual Releases
(a) Hospital together with its subsidiaries, affiliates, officers,
directors, shareholders, employees, agents, attorneys, representatives,
successors and assigns ("Hospital Releasor"), hereby releases and discharges the
WellCare Parties, together with their respective subsidiaries, affiliates,
directors, shareholders, employees, agents, attorneys, representatives,
successors and assigns ("WellCare Releasees") from (i) all indebtedness and
other financial obligations arising from the provision of services by each
Hospital to members of WCNY in any product line on or before April 30, 1999,
including any prospective adjustments pursuant to the New York Health Care
Reform Act ("NYCRA") for services rendered prior to May 1, 1999, and (ii) all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, rights to contribution, damages,
judgments, extends, executions, claims, and demands whatsoever, in law,
admiralty or equity, which each Hospital Releasor ever had, now has or hereafter
can, shall or may have against the WellCare Releasees, for upon, or by reason of
any matter, cause or things whatsoever relating to the matters referred to in
(a)(i) above from the beginning of the world to the day of the date of this
Agreement or arising hereafter as a result of or in connection with the matters
referred to in (a)(i) above. The foregoing release expressly excludes any claims
for payment that Hospital may have against independent practice associations,
including but not limited to those owned by Primergy, Inc., and other third
parties (such as Merit Behavioral Services, Access Managed Healthcare, Block
Vision, New York Medical Imaging, PharmaCare and Laboratory Corporation of
America) that have contracted with WellCare to provide or to arrange for the
provision of certain health care services (e.g., physician services or specialty
"carve-out" services, such as mental health services, chiropractic services,
laboratory services or pharmacy services) to HMO members of WCNY and expressly
excludes any action, suits, claims or demands arising from medical malpractice
or negligence.
(b) Each Hospital Releasor represents to the WellCare Releasees that
none of the liabilities, claims, causes of actions, costs or demands herein
released has been assigned to any person or entity.
(c) Each Hospital Releasor acknowledges that it may hereafter discover
facts different from, or in addition to, those that it now believes to be true,
with respect to all or any of the liabilities, claims, causes or action, costs
or demands herein released but nevertheless agrees that the releases set forth
herein shall be and remain effective in all respects, notwithstanding the
discovery of such different or additional facts.
(d) Each Hospital Releasor is forever barred and enjoined from
commencing, instituting or prosecuting any action or other adversary proceeding
in any court of law or equity, arbitration tribunal, or administrative forum,
directly or representatively, against the WellCare Releasees with respect to
any, some or all of the Settled Claims; provided however, each Hospital Releasor
and the WellCare Releasees retain all rights and remedies to enforce the terms
of this Agreement.
(e) The WellCare Parties together with their respective subsidiaries,
affiliates, officers, directors, shareholders, employees, agents, attorneys,
representatives, successors and assigns ("WellCare Releasors") hereby release
and discharge Hospital and its subsidiaries, affiliates, directors,
shareholders, employees, agents, attorneys, representatives, successors and
assigns ("Hospital Releasee") from (i) all indebtedness and other financial
obligations arising from the provision of services by Hospital to members of
WCNY in any product line on or before April 30, 1999, including any prospective
adjustments pursuant to the NYCRA for services rendered prior to May 1, 1999,
and (ii) all actions, causes of action, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, rights to
contribution, damages, judgments, extends, executions, claims, and demands
whatsoever, in law, admiralty or equity, which the WellCare Releasors ever had,
now have or hereafter can, shall or may have against each Hospital Releasee, for
upon, or by reason of any matter, cause or things whatsoever relating to the
matters referred to in (e)(i) above from the beginning of the world to the day
of the date of this Agreement or arising hereafter as a result of or in
connection with the matters referred to in (e)(i) above. The foregoing release
expressly excludes any claims for payment that WellCare may have against
independent practice associations, including but not limited to those owned by
Primergy, Inc., and other third parties (such as Merit Behavioral Services,
Access Managed Healthcare, Block Vision, New York Medical Imaging, PharmaCare
and Laboratory Corporation of America) that have contracted with WellCare to
provide or to arrange for the provision of certain health care services (e.g.,
physician services or specialty "carve-out" services, such as mental health
services, chiropractic services, laboratory services or pharmacy services) to
HMO members of WCNY and expressly excludes any action, suits, claims or demands
arising from medical malpractice or negligence.
(f) The WellCare Releasors represent to each Hospital Releasee that
none of the liabilities, claims, causes of actions, costs or demands herein
released has been assigned to any person or entity.
(g) The WellCare Releasors acknowledge that they may hereafter
discover facts different from, or in addition to, those that they now believe to
be true, with respect to all or any of the liabilities, claims, causes or
action, costs or demands herein released but nevertheless agree that the
releases set forth herein shall be and remain effective in all respects,
notwithstanding the discovery of such different or additional facts.
(h) The WellCare Releasors are forever barred and enjoined from
commencing, instituting or prosecuting any action or other adversary proceeding
in any court of law or equity, arbitration tribunal, or administrative forum,
directly or representatively, against any Hospital Releasee with respect to any,
some or all of Settled Claims; provided however, the WellCare Releasors and each
Hospital Releasee retain all rights and remedies to enforce the terms of this
Agreement.
(i) Nothing contained herein shall be deemed to create any rights or
benefits, or constitutes a release of any kind whatsoever, for any non-Party.
8. Representations and Warranties of the Parties
(a) WellCare represents and warrants that the execution of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and will not violate
the provisions of its certificate of incorporation or by-laws or of any
agreement, law, rule, regulation or other commitment to which it is a party of
and by which it is bound.
(b) Hospital represents and warrants that the execution of this
Agreement and the consummation by it of the transactions contemplated hereby
have been duly authorized by all necessary corporate action and will not violate
the provisions of its certificate of incorporation or by-laws or of any
agreement, law, rule, regulation or other commitment to which it is a party of
and by which it is bound.
9. Termination of Settlement
(a) The Parties agree that this Agreement is binding and irrevocable
(unless terminated pursuant to this Section 9 or as provided in Sections 1 and 2
herein) regardless of future events or changed circumstances of WellCare or any
of its subsidiaries or affiliates, and the Parties agree that the agreements and
covenants contained herein are fair, reasonable and adequate, and WellCare
believes that the agreements and covenants contained herein are in the best
interests of WellCare and its subsidiaries, affiliates, shareholders and
creditors.
(b) If this Agreement shall not be approved by SID and DOH then in
either of these events, this Agreement shall become null and void for all
purposes and all negotiations, transactions and proceedings connected with it
(i) shall be without prejudice to the rights of any Party, (ii) shall not be
deemed or construed as evidence or an admission or a concession by any Party of
any fact, matter or thing; and (iii) shall not be admissible in evidence or used
in any action or proceeding.
(c) If WellCare is unable to fund the Provider Pool with an initial
balance of not less than Ten Million Dollars ($10,000,000) for any reason,
including but not limited to the failure to consummate the Patel Transaction
and/or the failure to consummate the GHI Transaction, this Agreement shall
become null and void for all purposes and all negotiations, transactions and
proceedings connected with it (i) shall be without prejudice to the rights of
any party, (ii) shall not be deemed or construed as evidence or an admission or
a concession by any party of any fact, matter or thing; and (iii) shall not be
admissible in evidence or used in any action or proceeding.
(d) If a case is commenced in respect to WellCare or any of its
subsidiaries or affiliates under Title 11 of the United States Code
(Bankruptcy), or a trustee, receiver or conservator, or the like is appointed
under Article 74 of the New York Insurance Law or any similar law, or by SID, or
any other regulatory body, and in the event of the entry of a final order of a
court of competent jurisdiction determining the transfer of money to the
Provider Pool and/or to the Hospital in payment of a Settled Claim, or any
portion thereof, on behalf of WellCare to be a preference, voidable transfer or
fraudulent transfer or similar transaction and any portion thereof is required
to be returned, then WellCare may move a court of competent jurisdiction to
vacate and set aside this Agreement and the releases contained herein, which
Agreement and releases shall be null and void, and the Parties shall be returned
to their respective positions as of April 30, 1999 and any payments made to the
Hospital shall be returned to WellCare. In any such event (or otherwise under
any such bankruptcy or similar proceeding), the debt owed by WellCare or its
estate to the Hospital shall not be valued on the basis of payments made
pursuant to sections 6(a) and (b) hereunder.
(e) Upon a default by WellCare in respect of any payment coming due
hereunder ("Default"), and unless such Default shall be cured within forty (40)
days after written notice thereof by fax and by certified mail, return receipt
requested, sent to:
President and Chief Executive Officer
WellCare of New York, Inc.
PO Box 4059
Kingston, New York 12402
with a copy to:
Seth I. Truwit, Esq.
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
and a copy to:
Fredrick I. Miller, Esq.
Garfunkel, Wild & Travis, P.C.
111 Great Neck Road
Great Neck, NY 11021
and a copy to:
Sandip Patel, Esq.
Patel, Moore & O'Connor, PA
2240 Belle Air Road
Suite 160
Clearwater, FL 33764
Hospital shall be entitled, upon not less than ten (10) days' notice to DOH, SID
and WellCare that Wellcare is in Default under the terms of this Agreement, to
file a Confession of Judgment against WellCare, in the form approved by
Garfunkel, Wild & Travis, P.C., for the full amount owed to Hospital under this
Agreement under Section 6(a) and/or (b). WellCare hereby consents to the entry
of such judgment without further notice other than as provided in the preceding
sentence. The original Confession of Judgment shall be signed on behalf of
WellCare and held by counsel for the Hospital.
10. Miscellaneous
(a) This Agreement is a compromise disposing of claims of each
Hospital, some or all of which may be controverted. This Agreement and all
negotiations and statements in connection herewith shall not be in any event
construed as or deemed to be evidence or an admission or concession on the part
of any Party of any liability whatever, and shall not be offered or received in
evidence in any action or proceeding in any court or other tribunal or used in
any way as an admission, concession or evidence of any liability by any party.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York applicable to a contracts executed and
performed in such State, without giving effect to the conflicts of laws
principles thereof.
(c) The Parties to this Agreement hereby consent to the jurisdiction
of the courts of the State of New York and the federal courts setting in New
York over them in any action to enforce this Agreement or any provision thereof.
(d) Each of the Parties has received independent legal advice from its
attorneys with respect to the advisability of entering into this Agreement and
the releases contained herein. Each of the Parties has made such investigation
of the facts pertaining to this Agreement and the releases herein and all other
matters pertaining thereto as it deems necessary.
(e) Each of the Parties to this Agreement acknowledges that this
Agreement is reached solely in relation to the subject matter herein and no
agreement reached herein shall constitute an admission or evidence in any other
matter among the parties to this Agreement or in any other matter or proceeding
in which any of the parties may be or become involved.
(f) Each of the Parties agrees to execute or cause their counsel to
execute any additional documents and take any further action which reasonably
may be required in order to consummate this Agreement, or otherwise fulfill the
obligations of the Parties hereunder. Each party is to bear its own costs and
attorney's fees incurred in connection with any such additional action.
(g) This Agreement represents and expresses the entire agreement
between the Parties with respect to the subject matter hereof and may not be
modified or amended except in a writing signed by WellCare and the affected
Hospital, so long as such modification or amendment does not adversely effect
other providers with respect to the payment of Settled Claims from the Provider
Pool or for payments similar to those set forth in Section 6(b).
(h) This Agreement shall be binding on and inure to the benefit of the
Parties and their respective successors, administrators or assigns, and upon any
corporation or other entity into or with which any Party may merge, consolidate
or reorganize. This Agreement and the releases contained herein is limited to
the Parties, the Hospital Releasors, the Hospital Releasees, the Wellcare
Releasors and the Wellcare Releasees and any other third party beneficiary of
this Agreement and the releases contained herein is expressly excluded.
(i) The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
(j) This Agreement may be executed in counterparts, each of which
shall be deemed an original instrument, but all of which together will
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day
and year first above written.
GARFUNKEL, WILD & TRAVIS, P.C. THE WELLCARE MANAGEMENT
GROUP, INC.
By: /s/ Frederick I. Miller, Esq. By: /s/ Craig Dupont
- --------------------------------- --------------------
Fredrick I. Miller, Esq. Craig Dupont
111 Great Neck Road Acting Chief Executive Officer
Great Neck, New York 11021 Park West/Hurley Avenue Extension
(516) 393-2200 Kingston, NY 12401
Attorneys for Healthcare Association of New (914) 334-4000
York State and Northern Metropolitan Hospital
Association
SANDIP PATEL, ESQ. WELLCARE OF NEW YORK, INC.
By: /s/ Sandip Patel, Esq. By: /s/ Mary Lee Campbell-Wisley
- --------------------------- --------------------------------
Sandip Patel, Esq. Mary Lee Campbell-Wisley
Attorney for Kiran C. Patel, M.D., F.A.C.C. Chief Executive Officer
. Park West/Hurley Avenue Extension
Kingston, NY 12401
(914) 334-4000
<PAGE>
HOSPITAL
By: _____________________________
Title____________________________
Hospital_________________________
<PAGE>
EXHIBIT A
Name and Address of Hospital Settled Claim Amount
- ---------------------------- --------------------
<PAGE>
SCHEDULE "D"
NOTIFICATION AND CONTROL AGREEMENT
THIS NOTIFICATION AND CONTROL AGREEMENT (the "Agreement"), dated as of June
___, 1999, by and among The WellCare Management Group, Inc. ("WCMG"), WellCare
of New York, Inc. ("WCNY"which, with WCMG, are collectively known herein as
"WellCare") and the United States Trust Company of New York, a bank and trust
company organized under the New York banking law, in its capacity as escrow
agent (the "Escrow Agent") and in its capacity as a bank (the "Bank") at which
WellCare maintains the Collateral Account.
A. WellCare has granted to the Escrow Agent a security interest in the
Collateral, pursuant to, and as more particularly described in, the Escrow and
Security Agreement, dated as of June __, 1999, by and between WellCare, the
Escrow Agent, Garfunkel, Wild & Travis, P.C. ("GWT"), counsel to Healthcare
Association of New York State ("HANYS") and Northern Metropolitan Hospital
Association ("NORMET"), on behalf of the member hospitals of HANYS and NORMET
listed on Schedule "A" annexed thereto, and The Medical Society of the State of
New York ("MSSNY"), on behalf of the providers listed on Schedule "B" annexed
thereto (as the same may hereafter be amended, supplemented or otherwise
modified from time to time, the "Escrow Agreement;" terms defined in the Escrow
Agreement and not otherwise defined herein are used herein as therein defined).
B. Terms defined in Articles 8 and 9 of the Uniform Commercial Code as in
effect in the State of New York (the "UCC") are used in this Agreement
(including, without limitation, paragraph A above) as defined in Articles 8 and
9, respectively, of the UCC.
C. Pursuant to the Escrow Agreement, the Escrow Agent has required the
execution and delivery of this Agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound, the parties
hereto agree and acknowledge as follows:
1. Notice of Security Interest. WellCare and Escrow Agent are entering into
this Agreement to perfect, and confirm the first priority lien of, the Escrow
Agent's security interest in the Collateral on behalf of the Secured Parties (as
defined in the Escrow Agreement). The Bank agrees to promptly make all necessary
entries or notations in its books and records to reflect the Escrow Agent's
security interest in the Collateral and to apply any value distributed on
account of any Collateral as provided in the Escrow Agreement without further
consent from WellCare. The Bank acknowledges that the Escrow Agent has sole
control over the Collateral Account in accordance with the terms of the Escrow
Agreement.
2. Separate Account; Escrow Agent Representations and Warranties. (a) The
Escrow Agent hereby instructs the Bank, and the Bank hereby confirms and agrees
that the Collateral Account is to be maintained separately at all times.
(b) The Escrow Agent hereby represents and warrants that it has
acquired its security interest in, and security entitlement to, the Collateral
for value and without notice of any adverse claim thereto. Without limiting the
generality of the foregoing, the Collateral is not, to the Escrow Agent's
knowledge, subject to any lien granted by the Escrow Agent in favor of any
securities intermediary (including, without limitation, the Bank or the Federal
Reserve Bank of New York) and the Escrow Agent has not knowingly or purposefully
caused or permitted the Collateral to become subject to any lien created by or
arising through the Bank.
3. Control. The Bank hereby agrees, upon written direction from the Escrow
Agent and in accordance with the terms of the Escrow Agreement, and without
further consent from WellCare, (a) to comply with all instructions, entitlement
order and directions of any kind originated by the Escrow Agent concerning the
Collateral, to liquidate or otherwise dispose of the Collateral as and to the
extent directed by the Escrow Agent and pay over to the Escrow Agent all
proceeds and other value therefrom or otherwise distributed with respect thereto
without any set off or deduction, and (b) except as otherwise directed by the
Escrow Agent, not to comply with the instructions or directions of WellCare or
any other person.
4. Other Agreements; Termination; Successor Escrow Agent. The Bank shall
simultaneously send to the Escrow Agent, WellCare, GWT and MSSNY copies of all
notices given and statements rendered concerning the Collateral Account. So long
as the Escrow Agreement remains in effect, the Bank shall not terminate the
Collateral Account without thirty (30) days' prior written notice to the other
parties thereto and the Escrow Agent. In the event of any conflict between the
provisions of this Agreement and any other agreement governing the Collateral
Account, the provisions hereof shall control. In the event the Escrow Agent no
longer serves as Escrow Agent for the Collateral, the Collateral Account shall
be transferred to a successor escrow agent appointed in accordance with the
terms of the Escrow Agreement, provided that prior to such transfer, such
successor escrow agent executes an agreement that is in all material respects
the same as this Agreement or is otherwise in form and substance satisfactory to
the Escrow Agent.
5. Indemnity. WCMG and WCNY shall jointly and severally indemnify and hold
the Escrow Agent and the Bank harmless from any and all losses, claims, damages,
liabilities, expenses and fees, including reasonable counsel fees, resulting
from the execution of or performance under this Agreement and delivery by the
Escrow Agent of all or any part of the Collateral to the Bank pursuant to this
Agreement, except claims, losses or liabilities resulting from the Escrow
Agent's or the Bank's gross negligence, bad faith or willful misconduct as
determined by a final judgment of a court of competent jurisdiction. The
provisions of this Section 5 shall survive the termination of this Agreement.
6. Protection of Bank. Except as required by Section 3 hereof, the Bank
shall have no duty to determine that the amount and form of assets constituting
Collateral comply with any applicable requirements. The Bank may rely and shall
be protected in acting upon any notice, instruction, or other communication
which it reasonably believes to be genuine and authorized.
7. Termination/Release of Collateral. This Agreement shall terminate
automatically upon receipt by the Bank of written notice executed by two
officers of the Escrow Agent holding titles of Vice President or higher that:
(a) the Escrow Agreement has terminated, and (b) all of the Collateral has been
released, and the Bank shall thereafter be relieved of all duties and
obligations hereunder.
8. Waiver and Subordination of Rights. The Bank hereby waives its right to
set off any obligations of WellCare to the Bank against any or all assets held
by the Escrow Agent as Collateral, and hereby agrees that any and all liens,
encumbrances, claims or security interests which the Bank may have against the
Collateral, either now or in the future are and shall be subordinate and junior
to the prior payment in full of all obligations of WellCare now or hereafter
existing under the Settlement Agreements (as defined in the Escrow Agreement)
and all other documents related thereto whether for principal, interest,
indemnities, fees, premiums, expenses or otherwise. The Bank will not agree with
any third party that the Bank will comply with any instructions or directions of
any kind concerning the Collateral originated by such third party without the
prior written consent of the Escrow Agent. Except for the claims and interests
of the Escrow Agent in the Collateral, the Bank does not know of any claim to or
security interest or other interest in the Collateral.
9. Expenses. WCMG and WCNY, jointly and severally, shall pay upon demand
all fees, costs and expenses (including reasonable fees and expenses of counsel)
of enforcing the Bank's rights and remedies upon any breach (by the Escrow Agent
or WellCare) of any of the provisions of this Agreement.
10. Notices. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing and will be
effective upon receipt if delivered personally, or if sent by facsimile
transmission with confirmation of delivery, or by nationally recognized
overnight courier service with confirmation of delivery, to WellCare's and the
Escrow Agent's respective addresses as set forth in the Escrow Agreement, and to
the Bank's address as set forth below, or to such other address as any party may
give to the others in writing for such purpose.
11. Changes in Writing. No modification, amendment or waiver of any
provision of this Agreement nor consent to any departure by any party therefrom
will be effective unless made in writing signed by the parties hereto, and then
such waiver or consent shall be effective only in the specific instance and for
the purpose for which given.
12. Entire Agreement. This Agreement (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
13. Counterparts. This Agreement may be signed in any number of counterpart
copies and by the parties hereto on separate counterparts (including by
facsimile transmission), but all such copies shall constitute one and the same
instrument.
14. Successors and Assigns. This Agreement will be binding upon and inure
to the benefit of the parties hereto and their respective heirs, executors,
administrators, successors and assigns.
15. Governing Law and Jurisdiction. This Agreement has been delivered to
and accepted by the Escrow Agent and will be deemed to be made in the State of
New York. THIS AGREEMENT WILL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF
THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK. Each of the parties hereby irrevocably submits for itself and its property
in any legal action or proceeding relating to this Agreement, or for recognition
and enforcement of any judgment in respect thereof, to the exclusive general
jurisdiction and venue of the courts of the State of New York, the courts of the
United States of America in New York, and appellate courts from any thereof.
16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY
AND ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) OF ANY NATURE RELATING TO THIS
AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS AGREEMENT OR ANY
TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. EACH PARTY HERETO
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE WELLCARE MANAGEMENT GROUP, INC.
By: _____________________________
Name:
Title:
WELLCARE OF NEW YORK, INC.
By: _____________________________
Name:
Title:
<PAGE>
GARFUNKEL, WILD & TRAVIS, P.C.,
as counsel to Healthcare Association of
New York State and Northern Metropolitan
Hospital Association, on behalf of the
Hospitals listed on Schedule "A" annexed
hereto
By: _____________________________
Name: Fredrick I. Miller
Title: A Member of the Firm
THE MEDICAL SOCIETY OF THE STATE OF NEW
YORK, on behalf of the Providers listed
on Schedule "B" annexed hereto
By: _____________________________
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW YORK
By:_______________________________
Name:
Title:
114 West 47th Street
New York, New York 10036
Additional Details for Bank Notice:
<PAGE>
SCHEDULE "E"
<PAGE>
SCHEDULE "F"
UNITED STATES TRUST COMPANY OF NEW YORK
WELLCARE COLLATERAL ACCOUNT
Escrow Agent
Annual Administration Fee $10,000
Extraordinary Services:
Extraordinary services or those not specifically contemplated within the
foregoing proposal may be subject to additional charges.
PST/pg
(rev:kk)
Exhibit 10.82
MANAGEMENT AGREEMENT
BETWEEN
COMPREHENSIVE HEALTH MANAGEMENT, INC.
AND
WELLCARE OF NEW YORK, INC.
The Agreement is made and entered into as of this 11th day of June ,
1999, by and between WellCare of New York, Inc., a for-profit corporation
organized under the laws of the State of New York (hereinafter referred to as
"WCNY") and Comprehensive Health Management, Inc., a for-profit corporation
organized under the laws of the State of Florida (hereinafter referred to as
"CHM").
WHEREAS, WCNY is a New York certified health maintenance organization;
and
WHEREAS, WCNY hereby engages CHM to perform the functions and to
provide the services described in the Agreement and CHM hereby accepts such
engagement under the terms and conditions stated in this Agreement;
NOW, THEREFORE, WCNY hereby agrees to contract with CHM to supervise
and manage the day-to-day operations of the HMO and to perform the specific
functions and contract services set out in this Agreement. This Agreement shall
not be applicable to WCNY's Commercial business until June 1, 2000. The Board of
Directors of WCNY has duly authorized the execution and performance of this
Agreement and the Agreement is a valid and binding agreement subject to the
approval of the New York State Commissioner of Health.
1. As compensation for services rendered, as set forth below and in
paragraph 2.19, WCNY shall pay CHM the following:
A. A fee which shall be a percentage of the total collected premiums
on a monthly basis for Medicaid, Medicare and Child Health Plus lines
of business through June 1, 2000 and thereafter for those lines of
business and such other lines of business as WCNY may offer in
accordance to the following schedule:
Number of Lives % of Premium
--------------- ------------
(i) 80,000 and up member lives 7.5%
(ii) 60,000 to 79,999 member lives 8%
(iii) 40,000 to 59,999 member lives 8.5%
(iv) Less than 40,000 member lives 9.5%
The fee will specifically cover services for claims, customer service,
utilization review, data processing/MIS, credentialing, postage and
supplies as related to the covered services, communication, provider
relations and provider contracting. The fee will not cover any other
costs, fees or expenses including, but not limited to costs for
marketing functions or related marketing costs, legal costs,
accounting costs, director and officer liability coverage and other
insurance coverage as well as any extraordinary items. This Agreement
shall be the agreement between WCNY and CHM in connection with the
provision of the management services by CHM and WCNY and the payment
by WCNY to CHM for such services. B. The cost for all employees
responsible for the day-to-day operations of WCNY shall be the
responsibility of WCNY, except for those employees required by CHM to
provide the services listed in Section 1.A above. WCNY shall be
responsible for the cost for all employees relating to claims
processing.
CHM shall retain full authority to recruit, hire, train, promote,
assign, set the compensation level and discharge all employees
assigned to WCNY. The employees that will be at the New York locations
will be listed in a subsequent attachment to the Agreement. WCNY
specifically retains the right to reasonably request the removal of
the Medical Director/Plan Administrator at any time. Upon receiving
such request in writing, CHM shall, without delay, remove such Medical
Director and replace him/her within six (6) months with another
nominee approved by the WCNY Board. The cost for all necessary
computer and information system usage, including Year 2K compliance
expenses and major equipment required, in order to perform the
services listed in Section 1.A. above, as well as maintenance of all
such equipment, shall be the sole responsibility of CHM. All
management fees shall be due and payable on the first of each and
every month of the term of this Agreement. CHM will bill WCNY for the
monthly fee set forth above. Any monthly fees in arrears of ten (10)
days will begin accruing finance charges of one percent (1%) per
month.
2. The term of this Agreement shall commence on approval of the NYS Health
Department. This Agreement is for the term of five (5) years from said date of
commencement, or as otherwise herein provided, unless renewed by agreement of
the parties. Any renewal of this Agreement requires prior approval of the NYS
Commissioner of Health.
3. In the event of termination for cause, as defined in Section 3.1 of this
Agreement, by either party, the sole obligation of WCNY to CHM shall be to pay
any and all amounts due to CHM up to the time of said termination, including,
without limitation, fees, costs, expenses, loans, and accounts payable due to
CHM.
SECTION ONE:
ALLOCATION OF AUTHORITY AND RESPONSIBILITY
1.1 Control Retained in Board
WCNY, acting through its Board of Directors, shall at all times exercise
sole control over the assets and operation of the HMO, and CHM shall perform the
functions described in this Agreement to be performed by it in accordance with
policies, directives and bylaws adopted by WCNY. WCNY retains the ultimate
authority and responsibility regarding the powers, duties and responsibilities
vested in WCNY by law and regulations.
1.2 Medical and Professional Matters.
All medical and professional policy matters shall be the responsibility of
WCNY. Policy recommendations shall be formulated by a Medical Advisory Committee
(MAC). Committee membership will include the WCNY medical director,
participating physicians and others as specifically appointed to serve by
resolution of the WCNY Board of Directors.
1.3 Reports.
CHM shall present to the WCNY Board of Directors reports on the financial
status of the HMO at each meeting, financial reports required in Section 2.9,
periodic written progress reports summarizing CHM management actions and
results, such other reports as CHM may deem appropriate to keep WCNY informed as
to the status and conditions of the HMO, and such other reports that WCNY may
reasonably request. CHM shall also provide such reports as may be required by
any regulatory agency having jurisdiction over WCNY. CHM shall provide to the
NYS Commissioner of Health and Superintendent of Insurance annual reports on
financial operations and any other operational data requested. CHM shall notify
WCNY of any and all correspondence and/or determinations of any regulatory
agency immediately upon receipt thereof by CHM.
SECTION TWO:
MANAGEMENT OF THE HMO
2.1 Standards of Health Care
CHM shall meet the standards set by WCNY for the operation of the HMO and
shall manage and operate the HMO in accordance with the policies adopted by
WCNY.
2.2 Planning
CHM will assist WCNY in reviewing short, medium and long-range objectives
of the HMO and in formulating recommendations with respect thereto.
2.3 Government Regulations
On behalf of WCNY, CHM shall comply with the requirements of any applicable
statute, ordinance, law, rule, regulation, or order of any governmental or
regulatory body having jurisdiction.
CHM shall notify WCNY of any and all correspondences or communication from
any such regulatory agency, and shall make such presentations to the Board of
WCNY with regard to communications from regulatory agencies as WCNY shall
request. 2.4 State Certification CHM shall supervise and manage the day-to-day
operations of the HMO in accordance with the standards for State Certification
as determined by Article 44 of the New York Public Health Law and in accordance
with the policies adopted by WCNY. 2.5 Licenses and Permits CHM shall apply for,
and exert its best effort to obtain and maintain, it in the name of WCNY, and at
WCNY's expense, all certificates, licenses and permits required in connection
with the management and operation of the HMO. WCNY shall cooperate with CHM in
applying for, obtaining and maintaining such certificates, licences and permits.
2.6 Confidentiality and Ownership of Records CHM shall protect the
confidentiality of the records of the HMO and shall comply with all applicable
federal, state and local laws and regulations, and medical ethical standards,
relating to the records of the HMO. CHM hereby acknowledges that any and all
records maintained by or on behalf of WCNY, no matter where such records are
housed, shall be deemed to be in the possession of WCNY, and to be the property
of WCNY.
Ownership of all records made by or on behalf of WCNY shall be in WCNY, and
physical custody of all records shall be transferred immediately to WCNY in the
event this Agreement expires or is terminated for any reason.
2.7 Subscriber Services.
CHM shall prepare and present to WCNY an annual report containing
recommendations as to the scope of services offered by the HMO, as well as
procedures and policies and such other matters as CHM deems appropriate or as
shall be requested by WCNY, including a management summary of complaints and
grievances, disposition thereof and recommendations for improved plan
management.
2.8 Preparation and Adoption of Annual Budget
WCNY's fiscal year shall commence on January 1st and end on December 31st
of each year. CHM shall prepare an annual line item budget setting out major
operation objectives, anticipated revenue, expenses, cash flow, and capital
expenditures and shall cause the budget to be presented to WCNY sixty (60) days
prior to the commencement of each fiscal year for its acceptance, rejection or
modification. Upon adoption of the budget by WCNY, it shall serve as the
operating budget of the HMO during the ensuing year. WCNY shall review and
either accept or reject such budget within thirty (30) days of receipt thereof.
If WCNY shall disapprove such budget, such disapproval shall specify those items
which are disapproved and CHM shall resubmit an altered budget to WCNY within
fifteen (15) days incorporating such changes as may be directed by the Board,
following such notice of disapproval. In the event of such disapproval and
resubmission, the previous year's budget shall continue in effect until approval
of the new budget.
If at any time during the fiscal year there shall be a projected or actual
deviation of more than ten percent (10%) in any other line item in the approved
budget, same shall be brought to the attention of the WCNY Board of Directors
immediately by CHM. If CHM deems it necessary to expend additional monies above
ten percent (10%) of the Board approved budgetary allocation for any line item,
it must first receive the approval of the WCNY Board. CHM will not be held
liable for budget items outside of its control including revenue and medical
expense line items that are a function of outside market conditions, etc.
2.9 Accounting Records
CHM shall direct and maintain the operation of a suitable accounting system
and shall cause to be delivered to WCNY financial statements, as follows:
(a) within forty-five (45) days after the close of each month, CHM
will provide WCNY with a balance sheet and a related statement of
revenue and expenses showing the results of the HMO's operations
for the preceding quarter and for the fiscal year-to-date.
(b) within ninety (90) days after the close of the fiscal year ending
December 31st, CHM shall provide to WCNY a balance sheet and
related statement of revenue and expenses and statement of
changes in financial positions showing the results of the HMO's
operation during the fiscal year all audited by an independent
certified public accounting firm retained by WCNY. If retained
CPA firm fails to provide audited statements within ninety (90)
days after the close of the fiscal year and failure is not a
fault of CHM, CHM shall not be held in default as a result
thereof. 2.10 Deposit and Disbursement of Funds Signatories and
approvals as to the amounts on all checks shall be in accordance
with the duly adopted written policy of WCNY, and WCNY shall
reserve the right of selecting and approving all financial
institutions utilized by CHM for business transactions of WCNY.
2.11 Collection of Accounts Pursuant to collection policies
established from time to time by WCNY, CHM shall supervise and
direct the collection of all accounts due WCNY and shall take all
reasonable steps necessary to minimize the number and amount of
bad debts. 2.12 Legal Actions CHM shall, under the overall
direction and with prior approval of WCNY, initiate and pursue in
the name of WCNY any and all legal actions or proceedings
necessary to operate the HMO and protect the assets of WCNY. Any
and all legal costs shall be solely borne by WCNY. 2.13 Rates CHM
and WCNY recognize the importance of maintaining rates which
enable the HMO to meet its obligations, but contain the cost of
health care. CHM will recommend rate structures to WCNY for
approval which take into account the financial obligations of the
HMO and the importance of providing quality health care at
competitive cost.
2.14 Insurance
CHM shall maintain, on WCNY's behalf, at WCNY's sole expense, and in WCNY's
name, general liability, insurance and professional liability insurance with
coverage of at least One Million Dollars ($1,000,000.00) per occurrence and
Three Million Dollars ($3,000,000.00) in annual aggregate. In addition, CHM
shall maintain, on WCNY's behalf, at WCNY's expense, and in WCNY's name,
directors and officers insurance in the amount of at least One Million Dollars
($1,000,000.00) per occurrence and Three Million Dollars ($3,000,000.00) in
total. CHM shall not be responsible for WCNY's inability to obtain such
insurance because of market conditions.
2.15 Marketing and Corporate Plan Strategy
CHM shall direct the development and implementation of a marketing program
for the HMO. Annually, this program shall be presented to the Board of Directors
for approval. The scope for the marketing plan shall include development of new
sales and maintenance of existing membership as well as recommending changes to
the HMO benefit plans. Within the marketing plan shall be quantifiable goals for
membership and penetration, periodic updates shall be presented to the Board of
Directors to advise the status of goals and any necessary modifications to
planned strategy to adapt to marketing conditions. Any and all marketing cost
shall be solely borne by WCNY.
2.16 Ancillary and Other Agreements
CHM shall, in the name of and on account of WCNY, and at WCNY's sole
expense, negotiate and enter into such term agreements as it may deem necessary
or advisable for the furnishing of utilities, services, concessions, and
supplies for the maintenance and operation of the HMO including the rendering of
professional services, except as set forth in Section 2.19. All such agreements
shall be approved by WCNY in accordance with Board policies. All such agreements
in excess of Fifty Thousand Dollars ($50,000.00) that have not received approval
within the annual operating budget must receive prior approval of the WCNY Board
of Directors.
2.17 Office Equipment, Furniture, Fixtures and Capital Improvements
CHM shall review and make recommendations to WCNY concerning proposed
acquisitions of office equipment and/or furniture or capital improvements in
excess of Fifty Thousand Dollars ($50,000.00) to the HMO. For expenditures under
Fifty Thousand Dollars ($50,000.00), CHM will follow the approved capital budget
allocations. Upon approval for such expenditures, CHM shall, in the name of and
at WCNY's sole expense, negotiate, contract for, and supervise the satisfactory
delivery and/or installation of such property.
2.18 Information Services
CHM will assist WCNY in developing a plan for continuous improvement of the
HMO's information system.
Proprietary software developed under the direction of CHM will remain
property of CHM, but will be made available to WCNY throughout the term of this
contract and for one (1) year after termination. 2.19 CHM Management Services
and Expenses
CHM, at WCNY's sole expense, except for those employees specifically stated
in 1.B. of this Agreement, shall provide all necessary personnel to operate the
HMO under the terms of this Agreement and the directives of the Board of
Directors of WCNY. CHM will retain the ultimate responsibility to recruit, hire,
train, promote, assign, set the compensation level and discharge all such
employees except as noted in Section 1.B of this Agreement.
As detailed under Section 1.A, of this Agreement, CHM at its expense, shall
provide WCNY with necessary executive and administrative services from its
corporate headquarters in Tampa, Florida, to assist with the day-to-day
management of the HMO.
CHM shall not be responsible for the cost of personnel expenses (except as
set forth above); expenses relating to marketing and information system
literature, advertising, insurance, travel, rent, utilities, telephone, office
supplies, equipment (excluding information system hardware) and; professional
services (actuarial, legal, accounting, etc.).
2.20 Other Service Agreements
This contract does not preclude WCNY from entering into specific agreements
with CHM and/or WCNY affiliated companies for engagements outside the scope of
this contract. However, CHM will disclose any such relationship to the Board of
Directors and support will be provided that services rendered are not part of
executive management services and are of a standard and cost available in the
general market. The WCNY Board will approve each agreement and will monitor its
progress on a regular basis.
SECTION THREE:
3.1 Termination for Cause
Either party may terminate this Agreement for cause as defined herein below
upon written notice to the other party, the NYS Superintendent of Insurance, and
the NYS Commissioner of Health within the designated time periods. This
Agreement shall terminate and be deemed canceled, without financial penalty to
either WCNY's board of directors or to WCNY, not more than sixty (60) days after
notification to the governing authority of WCNY and CHM by the New York
Department of Health of a determination that WCNY is not providing adequate care
or otherwise assuring the health, safety and welfare of WCNY's enrollees.
WCNY or the NYS Commissioner of Health shall have cause for termination if:
3.1.1 CHM shall fail to observe or perform any material covenant, duty, or term
of this Agreement, and such default shall continue for a period of thirty (30)
days after written notice thereof by WCNY to CHM, the NYS Superintendent of
Insurance, and the NYS Commissioner of Health provided subsequent to the
aforementioned thirty (30) days, WCNY gives fifteen (15) days written notice to
CHM, the NYS Superintendent of Insurance, and the NYS Commissioner of Health of
intent of such termination, or
3.1.2 CHM shall apply for or consent to the appointment of a receiver, trustee,
or liquidator of CHM or of all or a substantial part of its assets, file a
voluntary petition in bankruptcy, or admit in writing its inability to pay its
debts as they become due, make a general assignment for the benefit of
creditors, file a petition or an answer seeking reorganization or arrangement
with creditors or to take advantage of any insolvency law, or if an order,
judgment, or decree shall be entered by a court of competent jurisdiction, or on
the application of a creditor, adjudicating CHM bankrupt or insolvent or
approving a petition seeking reorganization of CHM or appointment of a receiver,
trustee, or liquidator of CHM of all or a substantial part of its assets;
provided WCNY gives thirty (30) days written notice to CHM, the NYS
Superintendent of Insurance, and the NYS Commissioner of Health such
termination, or
3.1.3 CHM is managing WCNY in violation of any statute or administrative
regulation, including but not limited to Article 44 of the NYS Public Health Law
and all regulations promulgated pursuant thereto, subject to thirty (30) days
notice by WCNY to CHM, the NYS Superintendent of Insurance, and the NYS
Commissioner of Health. If CHM fails to cure the violation within the thirty
(30) day period, or a longer period set by WCNY, then WCNY may terminate this
Agreement upon fifteen (15) days written notice to CHM, the NYS Superintendent
of Insurance, and the NYS Superintendent of Insurance, and the NYS Commissioner
of Health. Written notice from the NYS Superintendent of Insurance or the NYS
Commissioner of Health that the HMO is being operated so as to endanger WCNY's
HMO certification shall be final for purposes of permitting the termination of
this Agreement with CHM by WCNY subject to thirty (30) days notice by WCNY to
CHM, the NYS Superintendent of Insurance, and the NYS Commissioner of Health.
CHM or the NYS Commissioner of Health shall have cause for termination if:
3.1.4 WCNY shall default in the performance of any material covenant, agreement,
term, or provision of this Agreement and such default shall continue for a
period of sixty (60) days after written notice to the NYS Superintendent of
Insurance, and the NYS Commissioner of Health from CHM stating the specific
default; provided subsequent to the aforementioned sixty (60) days, CHM gives
fifteen (15) days written notice to WCNY, the NYS Superintendent of Insurance,
and the NYS Commissioner of Health of such termination, or
3.1.5 WCNY shall apply for or consent to the appointment of a receiver, trustee,
or liquidator of WCNY or of all or a substantial part of its assets, file a
voluntary petition in bankruptcy, or admit in writing its inability to pay its
debts as they come due, make a general assignment for the benefit of creditors,
file a petition or an answer seeking reorganization or arrangement with
creditors or to take advantage of any 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 WCNY as bankrupt or insolvent or
approving a petition seeking reorganization of WCNY or appointment of a
receiver, trustee or liquidator of WCNY or of all or a substantial part of the
assets of WCNY; provided CHM gives thirty (30) days written notice to WCNY, the
NYS Superintendent of Insurance, and the NYS Commissioner of Health of such
termination, or
3.1.6 WCNY shall fail to make payment to CHM or to any assignee of CHM pursuant
to any agreement between WCNY and such assignee and does not make such payment
within sixty (60) days after written notice to WCNY and NYS Superintendent of
Insurance and the NYS Commissioner of Health; provided subsequent to the
aforementioned sixty (60) days, CHM gives fifteen (15) days written notice to
WCNY, the NYS Superintendent of Insurance, and the NYS Commissioner of Health of
such termination.
3.1.7 The prior approval of the Commissioner of Health is required for any
termination for cause pursuant to Sections 4.1- 4.16 herein, or should the
parties mutually agree to terminate this Agreement at anytime. Further,
concurrent with WCNY's notification to the NYS Commissioner of Health of WCNY's
decision to discharge the manager, WCNY shall provide to the NYS Commissioner of
Health a plan for the management of WCNY following termination.
3.2 Termination Without Cause
WCNY shall have the right to terminate this Agreement without cause at the
end of the five- year-term. Six (6) months written notice shall be given to CHM,
the NYS Superintendent of Insurance, and the NYS Commissioner of Health of such
termination.
3.3 Indemnification
WCNY shall indemnify and save CHM harmless from and against any and all
claims or causes of action arising from injuries or damages to persons or
property in connection with the operation of the HMO, unless such injuries or
damages resulted from (1) CHM acting outside the scope of its authority under
this Agreement or (2) the willful misconduct or negligence of CHM in the
management of the HMO.
CHM shall indemnify and save WCNY harmless from and against any liability
resulting from (1) CHM acting outside the scope of its authority under this
Agreement or (2) the willful misconduct or negligence or CHM in the management
of the Plan. Nothing herein shall preclude WCNY from asserting any claims or
suits against CHM which may arise out of CHM's management under this Agreement.
3.4 Arbitration
In the event that any dispute shall arise with regard to the Agreement,
both 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. Both 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 of this Agreement shall share the cost of
arbitration equally. CHM shall provide notice to the New York State Commissioner
of Health (the "Commissioner") of all issues preceding to arbitration and copies
of all decisions pursuant to this Paragraph 4.4. Additionally, the Commissioner
shall in no way be bound by any arbitration decisions pursuant to this Paragraph
4.4.
3.5 Assignment
CHM shall have the right to assign this Agreement to a corporation which is
a successor in interest of CHM upon the prior written approval of WCNY, and the
NYS Department of Health.
3.6 Hold Harmless
It is understood and agreed that CHM shall look solely to WCNY for
compensation for management services provided to WCNY and at no time shall CHM
seek compensation for such services from members, members' family members, or
any other person acting on a member's behalf.
3.7 Membership Responsibilities for WCNY Obligations
The membership or Board of WCNY shall not be personally or individually
liable for the payment of obligations of WCNY to CHM.
3.8 Notices
Any notice of other communication by either party to the other shall be in
writing and shall be delivered personally or mailed, postage prepaid, by
registered or certified mail, addressed as follows:
To WCNY: WellCare of New York, Inc.
130 Meadow Avenue
Newburgh, New York 12550
Attn: Vice President
To CHM: Comprehensive Health Management, Inc.
c/o Patel, Moore & O'Connor, P.A.
2240 Belleair Road, Suite 160
Clearwater, Florida, 333764
Attn: Sandip I. Patel, Esquire
or such other address, and to the attention of such other person or officer as
either party may designate in writing from time to time.
3.9 Modification and Changes
CHM and WCNY mutually recognize that it may be desirable to alter terms of
this Agreement in the future to take into account such events or conditions as
may from time to time occur. Any changes to this Agreement must be in writing
and executed by both parties with the same formality as the within Agreement and
shall be effective only with the prior written consent of the NYS Commissioner
of Health.
3.10 Headings
The headings contained herein are for the convenience of reference only and
are not intended to define, limit or describe the scope or intent of any
provision of the Agreement. 3.11 Confidentiality CHM and WCNY agree that the
terms and conditions of this Agreement shall remain confidential. Neither CHM
nor WCNY shall distribute this Agreement, or any part thereof, to any other
party unless required by law or regulation.
3.12 Understanding and Agreements
This Agreement constitutes all of the understandings and agreements of
whatsoever nature or kind existing between the parties with respect to the HMO.
3.13 Governing Law
This Agreement shall be deemed to have been made and shall be construed and
interpreted in accordance with the laws of the State of New York.
3.14 Governing Rules and Regulations
This Agreement, to the maximum extent possible, shall be interpreted so as
to be consistent with all rules and regulations of the State of New York.
3.15 The parties hereto acknowledge that the responsibilities of WCNY's
governing authority are in no way obviated by entering into this Agreement. Any
powers not specifically delegated to CHM herein remain with WCNY's board of
directors.
<PAGE>
WellCare of New York, Inc. (WCNY) Comprehensive Health Management, Inc.
(CHM)
By: /s/ Mary Lee Campbell-Wisley By: /s/ Kiran C. Patel, M.D.
- -------------------------------- -------------------------------------
Mary Lee Campbell-Wisley Kiran C. Patel, M.D.
President/CEO President
Date: June 11, 1999 Date: June 11, 1999
Attest: /s/ Craig Dupont Attest: /s/ S. Patel
Exhibit 10.83
MANAGEMENT AGREEMENT
BETWEEN
COMPREHENSIVE HEALTH MANAGEMENT, INC.
AND
WELLCARE OF CONNECTICUT, INC.
The Agreement is made and entered into as of this 11th day of June, 1999,
by and between WellCare of Connecticut, Inc., a for-profit corporation organized
under the laws of the State of Connecticut (hereinafter referred to as "HMO" or
"WCCT") and Comprehensive Health Management, Inc., a for-profit corporation
organized under the laws of the State of Florida (hereinafter referred to as
"CHM").
WHEREAS, WCCT is a Connecticut certified health maintenance organization;
and
WHEREAS, WCCT hereby engages CHM to perform the functions and to provide
the services described in the Agreement and CHM hereby accepts such engagement
under the terms and conditions stated in this Agreement;
NOW, THEREFORE, WCCT hereby agrees to contract with CHM to supervise and
manage the day-to-day operations of the HMO and to perform the specific
functions and contract services set out to this Agreement. The Board of
Directors of WCCT has duly authorized the execution and performance of this
Agreement and the Agreement is a valid and binding agreement subject to the
approval of the Connecticut Insurance Department.
1. As compensation for services rendered, as set forth below and in
paragraph 2.19, WCCT shall pay CHM the following:
A. A fixed fee on a monthly basis in accordance to the following
schedule:
Number of Lives % of Premium
--------------- ------------
(i) 80,000 and up member lives 7.5%
(ii) 60,000 to 79,999 member lives 8%
(iii) 40,000 to 59,999 member lives 8.5%
(iv) Less than 40,000 member lives 9.5%
The fixed fee will specifically cover services for claims, customer
service, utilization review, data processing/MIS, credentialing,
postage and supplies as related to the covered services,
communication, provider relations and provider contracting. The fixed
fee will not cover any other costs, fees or expenses including, but
not limited to costs for marketing functions or related marketing
costs, legal costs, accounting costs, director and officer liability
coverage and other insurance coverage as well as any extraordinary
items. This Agreement shall be the sole agreement between WCCT and CHM
in connection with the provisions of the management services by CHM
and WCCT and the payment by WCCT to CHM for such services.
B. The cost for all employees responsible for the day-to-day
operations of WCCT shall be the responsibility of WCCT, except for
those employees required by CHM to provide the services listed in
Section 1.A above. WCCT shall be responsible for the cost for all
employees relating to claims processing.
CHM shall retain full authority to recruit, hire, train, promote,
assign, set the compensation level and discharge all employees
assigned to WCCT. WCCT specifically retains the right to reasonably
request the removal of the Medical Director/Plan Administrator at any
time. Upon receiving such request in writing, CHM shall, without
delay, remove such Medical Director and replace him/her within six (6)
months with another nominee by the WCCT Board.
All management fees shall be due and payable on the first of each and
every month of the term of this Agreement. CHM will bill WCCT for the
monthly fee set forth above. Any monthly fees in arrears of ten (10)
days will begin accruing finance charges of one percent (1%) per
month.
2. The term of this Agreement shall commence on _________________ with the
approval of the Connecticut Insurance Department. This Agreement is for the term
of five (5) years from said date of commencement, or as otherwise herein
provided, unless renewed by agreement of the parties.
3. In the event of termination for cause, as defined in Section 3.1 of this
Agreement, by either party, the sole obligation of WCCT to CHM shall be to pay
any and all amounts due to CHM up to the time of said termination, including,
without limitation, fees, costs, expenses, loans, and accounts payable due to
CHM.
SECTION ONE:
ALLOCATION OF AUTHORITY AND RESPONSIBILITY
1.1 Control Retained in Board
WCCT, acting through its Board of Directors, shall at all times exercise
sole control over the assets and operation of the HMO, and CHM shall perform the
functions described in this Agreement to be performed by it in accordance with
policies, directives and bylaws adopted by WCCT. WCCT retains the ultimate
authority and responsibility regarding the powers, duties and responsibilities
vested in WCCT by law and regulations.
1.2 Medical and Professional Matters.
All medical and professional policy matters shall be the responsibility of
WCCT. Policy recommendations shall be formulated by a Medical Advisory Committee
(MAC). Committee membership will include the WCCT medical director,
participating physicians and others as specifically appointed to serve by
resolution of the WCCT Board of Directors.
1.3 Reports.
CHM shall present to the WCCT Board of Directors reports on the financial
status of the HMO at each meeting, financial reports required in Section 2.9,
periodic written progress reports summarizing CHM management actions and
results, such other reports as CHM may deem appropriate to keep WCCT informed as
to the status and conditions of the HMO, and such other reports that WCCT may
reasonably request. CHM shall also provide such reports as may be required by
any regulatory agency having jurisdiction over WCCT. CHM shall notify WCCT of
any and all correspondence and/or determinations of any regulatory agency
immediately upon receipt thereof by CHM.
SECTION TWO:
MANAGEMENT OF THE HMO
2.1 Standards of Health Care
CHM shall meet the standards set by WCCT for the operation of the HMO and
shall manage and operate the HMO in accordance with the policies adopted by
WCCT.
2.2 Planning
CHM will assist WCCT in reviewing short, medium and long-range objectives
of the HMO and in formulating recommendations with respect thereto. 2.3
Government Regulations On behalf of WCCT, CHM shall comply with the requirements
of any applicable statute, ordinance, law, rule, regulation, or order of any
governmental or regulatory body having jurisdiction.
CHM shall notify WCCT of any and all correspondences or communication from
any such regulatory agency, and shall make such presentations to the Board of
WCCT with regard to communications from regulatory agencies as WCCT shall
request.
2.4 State Certification
CHM shall supervise and manage the day-to-day operations of the HMO in
accordance with the standards as set forth by the State Connecticut and in
accordance with the policies adopted by WCCT.
2.5 Licenses and Permits
CHM shall apply for, and exert its best effort to obtain and maintain, it
in the name of WCCT, and at WCCT's expense, all certificates, licenses and
permits required in connection with the management and operation of the HMO.
WCCT shall cooperate with CHM in applying for, obtaining and maintaining such
certificates, licences and permits. 2.6 Confidentiality and Ownership of Records
CHM shall protect the confidentiality of the records of the HMO and shall
comply with all applicable federal, state and local laws and regulations, and
medical ethical standards, relating to the records of the HMO. CHM hereby
acknowledges that any and all records maintained by or on behalf of WCCT, no
matter where such records are housed, shall be deemed to be in the possession of
WCCT, and to be the property of WCCT.
Ownership of all records made by or on behalf of WCCT shall be in WCCT, and
physical custody of all records shall be transferred immediately to WCCT in the
event this Agreement expires or is terminated for any reason.
2.7 Subscriber Services.
CHM shall prepare and present to WCCT an annual report containing
recommendations as to the scope of services offered by the HMO, as well as
procedures and policies and such other matters as CHM deems appropriate or as
shall be requested by WCCT, including a management summary of complaints and
grievances, disposition thereof and recommendations for improved plan
management.
2.8 Preparation and Adoption of Annual Budget
WCCT's fiscal year shall commence on January 1st and end on December 31st
of each year. CHM shall prepare an annual line item budget setting out major
operation objectives, anticipated revenue, expenses, cash flow, and capital
expenditures and shall cause the budget to be presented to WCCT sixty (60) days
prior to the commencement of each fiscal year for its acceptance, rejection or
modification. Upon adoption of the budget by WCCT, it shall serve as the
operating budget of the HMO during the ensuing year. WCCT shall review and
either accept or reject such budget within thirty (30) days of receipt thereof.
If WCCT shall disapprove such budget, such disapproval shall specify those items
which are disapproved and CHM shall resubmit an altered budget to WCCT within
fifteen (15) days incorporating such changes as may be directed by the Board,
following such notice of disapproval. In the event of such disapproval and
resubmission, the previous year's budget shall continue in effect until approval
of the new budget.
If at any time during the fiscal year there shall be a projected or actual
deviation of more than ten percent (10%) in any other line item in the approved
budget, same shall be brought to the attention of the WCCT Board of Directors
immediately by CHM.
If CHM deems it necessary to expend additional monies above ten percent
(10%) of the Board approved budgetary allocation for any line item, it must
first receive the approval of the WCCT Board.
CHM will not be held liable for budget items outside of its control
including revenue and medical expense line items that are a function of outside
market conditions, etc.
2.9 Accounting Records
CHM shall direct and maintain the operation of a suitable accounting system
and shall cause to be delivered to WCCT financial statements, as follows:
(a) within forty-five (45) days after the close of each quarter, CHM
will provide WCCT with a balance sheet and a related statement of
revenue and expenses showing the results of the HMO's operations
for the preceding quarter and for the fiscal year-to-date.
(b) within ninety (90) days after the close of the fiscal year ending
December 31st, CHM shall provide to WCCT a balance sheet and
related statement of revenue and expenses and statement of
changes in financial positions showing the results of the HMO's
operation during the fiscal year all audited by an independent
certified public accounting firm retained by WCCT. If retained
CPA firm fails to provide audited statements within ninety (90)
days after the close of the fiscal year and failure is not a
fault of CHM, CHM shall not be held in default as a result
thereof.
Notwithstanding anything contained herein to the contrary, CHM and WCCT
shall fully comply with Connecticut statutory deadlines for the filing of WCCT's
statutory financial statements.
2.10 Deposit and Disbursement of Funds
Signatories and approvals as to the amounts on all checks shall be in
accordance with the duly adopted written policy of WCCT, and WCCT shall reserve
the right of selecting and approving all financial institutions utilized by CHM
for business transactions of WCCT.
2.11 Collection of Accounts
Pursuant to collection policies established from time to time by WCCT, CHM
shall supervise and direct the collection of all accounts due WCCT and shall
take all reasonable steps necessary to minimize the number and amount of bad
debts.
2.12 Legal Actions
CHM shall, under the overall direction and with prior approval of WCCT,
initiate and pursue in the name of WCCT any and all legal actions or proceedings
necessary to operate the HMO and protect the assets of WCCT. Any and all legal
costs shall be solely borne by WCCT.
2.13 Rates
CHM and WCCT recognize the importance of maintaining rates which enable the
HMO to meet its obligations, but contain the cost of health care. CHM will
recommend rate structures to WCCT for approval which take into account the
financial obligations of the HMO and the importance of providing quality health
care at competitive cost.
2.14 Insurance
CHM shall maintain, on WCCT's behalf, at WCCT's sole expense, and in WCCT's
name, general liability, insurance and professional liability insurance with
coverage of at least One Million Dollars ($1,000,000.00) per occurrence and
Three Million Dollars ($3,000,000.00) in annual aggregate. In addition, CHM
shall maintain, on WCCT's behalf, at WCCT's expense, and in WCCT's name,
directors and officers insurance in the amount of at least One Million Dollars
($1,000,000.00) per occurrence and Three Million Dollars ($3,000,000.00) in
total. CHM shall not be responsible for WCCT's inability to obtain such
insurance because of market conditions.
2.15 Marketing and Corporate Plan Strategy
CHM shall direct the development and implementation of a marketing program
for the HMO. Annually, this program shall be presented to the Board of Directors
for approval. The scope for the marketing plan shall include development of new
sales and maintenance of existing membership as well as recommending changes to
the HMO benefit plans. Within the marketing plan shall be quantifiable goals for
membership and penetration, periodic updates shall be presented to the Board of
Directors to advise the status of goals and any necessary modifications to
planned strategy to adapt to marketing conditions. Any and all marketing cost
shall be solely borne by WCCT.
2.16 Ancillary and Other Agreements
CHM shall, in the name of and on account of WCCT, and at WCCT's sole
expense, negotiate and enter into such term agreements as it may deem necessary
or advisable for the furnishing of utilities, services, concessions, and
supplies for the maintenance and operation of the HMO including the rendering of
professional services, except as set forth in Section 2.19. All such agreements
shall be approved by WCCT in accordance with Board policies. All such agreements
in excess of Fifty Thousand Dollars ($50,000.00) that have not received approval
within the annual operating budget must receive prior approval of the WCCT Board
of Directors.
2.17 Office Equipment, Furniture, Fixtures and Capital Improvements
CHM shall review and make recommendations to WCCT concerning proposed
acquisitions of office equipment and/or furniture or capital improvements in
excess of Fifty Thousand Dollars ($50,000.00) to the HMO. For expenditures under
Fifty Thousand Dollars ($50,000.00), CHM will follow the approved capital budget
allocations. Upon approval for such expenditures, CHM shall, in the name of and
at WCCT's sole expense, negotiate, contract for, and supervise the satisfactory
delivery and/or installation of such property.
2.18 Information Services
CHM will assist WCCT in developing a plan for continuous improvement of the
HMO's information system. Proprietary software developed under the direction of
CHM will remain property of CHM, but will be made available to WCCT throughout
the term of this contract and for one (1) year after termination.
2.19 CHM Management Services and Expenses
CHM, at WCCT's sole expense, except for those employees specifically stated
in 1.B. of this Agreement, shall provide all necessary personnel to operate the
HMO under the terms of this Agreement and the directives of the Board of
Directors of WCCT. CHM will retain the ultimate responsibility to recruit, hire,
train, promote, assign, set the compensation level and discharge all such
employees except as noted in Section 1.B. of this Agreement.
As detailed under Section 1.A, of this Agreement, CHM at its expense, shall
provide WCCT with necessary executive and administrative services from its
corporate headquarters in Tampa, Florida, to assist with the day-to-day
management of the HMO.
CHM shall not be responsible for the cost of personnel expenses (except as
set forth above); expenses relating to marketing and information system
literature, advertising, insurance, travel, rent, utilities, telephone, office
supplies, equipment (excluding information system hardware) and; professional
services (actuarial, legal, accounting, etc.).
2.20 Other Service Agreements
This contract does not preclude WCCT from entering into specific agreements
with CHM and/or WCCT affiliated companies for engagements outside the scope of
this contract. However, CHM will disclose any such relationship to the Board of
Directors and support will be provided that services rendered are not part of
executive management services and are of a standard and cost available in the
general market. The WCCT Board will approve each agreement and will monitor its
progress on a regular basis.
SECTION THREE:
INTENTIONALLY OMITTED
SECTION FOUR:
MISCELLANEOUS
4.1 Termination for Cause
Either party may terminate this Agreement for cause as defined herein below
upon written notice to the other party and the Insurance Commissioner of the
State of Connecticut within the designated time periods. This Agreement shall
terminate and be deemed canceled, without financial penalty to either WCCT's
board of directors or to WCCT, not more than sixty (60) days after notification
to the governing authority of WCCT and CHM by the Connecticut Insurance
Department that WCCT is not providing adequate care or otherwise assuring the
health, safety and welfare of WCCT's enrollees.
WCCT or the Insurance Commissioner of the State of Connecticut shall have
cause for termination if:
4.1.1 CHM shall fail to observe or perform any material covenant, duty, or term
of this Agreement, and such default shall continue for a period of thirty (30)
days after written notice thereof by WCCT to CHM and the Insurance Commissioner
of the State of Connecticut provided subsequent to the aforementioned thirty
(30) days, WCCT gives fifteen (15) days written notice to CHM and the Insurance
Commissioner of the State of Connecticut of intent of such termination, or
4.1.2 CHM shall apply for or consent to the appointment of a receiver, trustee,
or liquidator of CHM or of all or a substantial part of its assets, file a
voluntary petition in bankruptcy, or admit in writing its inability to pay its
debts as they become due, make a general assignment for the benefit of
creditors, file a petition or an answer seeking reorganization or arrangement
with creditors or to take advantage of any insolvency law, or if an order,
judgment, or decree shall be entered by a court of competent jurisdiction, or on
the application of a creditor, adjudicating CHM bankrupt or insolvent or
approving a petition seeking reorganization of CHM or appointment of a receiver,
trustee, or liquidator of CHM of all or a substantial part of its assets;
provided WCCT gives thirty (30) days written notice to CHM and the Insurance
Commissioner of the State of Connecticut of such termination, or
4.1.3 CHM is managing WCCT in violation of any statute or administrative
regulation, including but not limited to statutory rules and regulations for the
State of Connecticut and all regulations promulgated pursuant thereto, subject
to thirty (30) days notice by WCCT to CHM and the Insurance Commissioner of the
State of Connecticut. If CHM fails to cure the violation within the thirty (30)
day period, or a longer period set by WCCT, then WCCT may terminate this
Agreement upon fifteen (15) days written notice to CHM and the Insurance
Commissioner of the State of Connecticut. Written notice from the Insurance
Commissioner of the State of Connecticut that the HMO is being operated so as to
endanger WCCT's HMO certification shall be final for purposes of permitting the
termination of this Agreement with CHM by WCCT subject to thirty (30) days
notice by WCCT to CHM and the Insurance Commissioner of the State of
Connecticut.
CHM or the Insurance Commissioner of the State of Connecticut shall have
cause for termination if:
4.1.4 WCCT shall default in the performance of any material covenant, agreement,
term, or provision of this Agreement and such default shall continue for a
period of sixty (60) days after written notice to the Insurance Commissioner of
the State of Connecticut from CHM stating the specific default; provided
subsequent to the aforementioned sixty (60) days, CHM gives fifteen (15) days
written notice to WCCT and the Insurance Commissioner of the State of
Connecticut of such termination, or
4.1.5 WCCT shall apply for or consent to the appointment of a receiver, trustee,
or liquidator of WCCT or of all or a substantial part of its assets, file a
voluntary petition in bankruptcy, or admit in writing its inability to pay its
debts as they come due, make a general assignment for the benefit of creditors,
file a petition or an answer seeking reorganization or arrangement with
creditors or to take advantage of any 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 WCCT as bankrupt or insolvent or
approving a petition seeking reorganization of WCCT or appointment of a
receiver, trustee or liquidator of WCCT or of all or a substantial part of the
assets of WCCT; provided CHM gives thirty (30) days written notice to WCCT and
the Insurance Commissioner of the State of Connecticut of such termination, or
4.1.6 WCCT shall fail to make payment to CHM or to any assignee of CHM pursuant
to any agreement between WCCT and such assignee and does not make such payment
within sixty (60) days after written notice to WCCT and Insurance Commissioner
of the State of Connecticut; provided subsequent to the aforementioned sixty
(60) days, CHM gives fifteen (15) days written notice to WCCT, Insurance
Commissioner of the State of Connecticut of such termination.
4.2 Termination Without Cause
WCCT shall have the right to terminate this Agreement without cause at the
end of the five- year-term. Six (6) months written notice shall be given to CHM
and Insurance Commissioner of the State of Connecticut of such termination.
4.3 Indemnification
WCCT shall indemnify and save CHM harmless from and against any and all
claims or causes of action arising from injuries or damages to persons or
property in connection with the operation of the HMO, unless such injuries or
damages resulted from (1) CHM acting outside the scope of its authority under
this Agreement or (2) the willful misconduct or negligence of CHM in the
management of the HMO.
CHM shall indemnify and save WCCT harmless from and against any liability
resulting from (1) CHM acting outside the scope of its authority under this
Agreement or (2) the willful misconduct or negligence or CHM in the management
of the Plan. Nothing herein shall preclude WCCT from asserting any claims or
suits against CHM which may arise out of CHM's management under this Agreement.
4.4 Arbitration
In the event that any dispute shall arise with regard to the Agreement,
both 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. Both 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 of this Agreement shall share the cost of
arbitration equally. CHM shall provide notice to the Insurance Commissioner of
the State of Connecticut of all issues preceding to arbitration and copies of
all decisions pursuant to this Paragraph 4.4. Additionally, the Insurance
Commissioner of the State of Connecticut shall in no way be bound by any
arbitration decisions pursuant to this Paragraph 4.4.
4.5 Assignment
CHM shall have the right to assign this Agreement to a corporation which is
a successor in interest of CHM upon the prior written approval of WCCT, and the
Insurance Commissioner of the State of Connecticut. 4.6 Hold Harmless It is
understood and agreed that CHM shall look solely to WCCT for compensation for
management services provided to WCCT and at no time shall CHM seek compensation
for such services from members, members' family members, or any other person
acting on a member's behalf. 4.7 Membership Responsibilities for WCCT
Obligations The membership or Board of WCCT shall not be personally or
individually liable for the payment of obligations of WCCT to CHM.
4.8 Notices
Any notice of other communication by either party to the other shall be in
writing and shall be delivered personally or mailed, postage prepaid, by
registered or certified mail, addressed as follows:
To WCCT: WellCare of Connecticut, Inc.
130 Meadow Avenue
Newburgh, Connecticut 12550
Attn: Vice President
To CHM: Comprehensive Health Management, Inc.
c/o Patel, Moore & O'Connor, P.A.
2240 Belleair Road, Suite 160
Clearwater, Florida, 333764
Attn: Sandip I. Patel, Esquire
or such other address, and to the attention of such other person or officer as
either party may designate in writing from time to time.
4.9 Modification and Changes
CHM and WCCT mutually recognize that it may be desirable to alter terms of
this Agreement in the future to take into account such events or conditions as
may from time to time occur. Any changes to this Agreement must be in writing
and executed by both parties with the same formality as the within Agreement and
shall be effective only with the prior written consent of the Insurance
Commissioner of the State of Connecticut.
4.10 Headings
The headings contained herein are for the convenience of reference only and
are not intended to define, limit or describe the scope or intent of any
provision of the Agreement.
4.11 Confidentiality
CHM and WCCT agree that the terms and conditions of this Agreement shall
remain confidential. Neither CHM nor WCCT shall distribute this Agreement, or
any part thereof, to any other party unless required by law or regulation.
4.12 Understanding and Agreements
This Agreement constitutes all of the understandings and agreements of
whatsoever nature or kind existing between the parties with respect to the HMO.
<PAGE>
4.13 Governing Law
This Agreement shall be deemed to have been made and shall be construed and
interpreted in accordance with the laws of the State of Connecticut.
4.14 Governing Rules and Regulations
This Agreement, to the maximum extent possible, shall be interpreted so as
to be consistent with all rules and regulations of the State of Connecticut.
4.15 The parties hereto acknowledge that the responsibilities of WCCT's
governing authority are in no way obviated by entering into this Agreement. Any
powers not specifically delegated to CHM herein remain with WCCT's board of
directors.
WellCare of Connecticut, Inc. Comprehensive Health Management, Inc.
(WCCT) (CHM)
By: /s/ Craig Dupont By: /s/ Kiran C. Patel, M.D.
- -------------------------- ----------------------------
Craig Dupont Kiran C. Patel, M.D.
President President
Date: June 11, 1999 Date: June 11, 1999
Attest: /s/ Mary Lee Campbell-Wisley Attest: /s/ S. Patel
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>I
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet of The WellCare Management Group, Inc. and
Subsidiaries as of December 31, 1998 and the related Statement of Operations for
the period ended December 30, 1998, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 6,393
<SECURITIES> 2
<RECEIVABLES> 5,048
<ALLOWANCES> 2,808
<INVENTORY> 0
<CURRENT-ASSETS> 10,950
<PP&E> 15,467
<DEPRECIATION> 7,758
<TOTAL-ASSETS> 29,939
<CURRENT-LIABILITIES> 38,071
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> (27,783)
<TOTAL-LIABILITY-AND-EQUITY> 29,939
<SALES> 142,742
<TOTAL-REVENUES> 144,449
<CGS> 0
<TOTAL-COSTS> 129,494
<OTHER-EXPENSES> 40,372
<LOSS-PROVISION> 2,851
<INTEREST-EXPENSE> 1,730
<INCOME-PRETAX> (25,417)
<INCOME-TAX> 5,441
<INCOME-CONTINUING> (30,858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,858)
<EPS-BASIC> (4.36)
<EPS-DILUTED> (4.36)
</TABLE>
