SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO. 0-21684
THE WELLCARE MANAGEMENT GROUP, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
NEW YORK 14-1647239
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification Number)
PARK WEST/HURLEY AVENUE EXTENSION, KINGSTON, NY 12401
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(914) 338-4110
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
requiring to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.YES [X] NO [ ]
The number of Registrant's shares outstanding on September 30, 1999 was
7,267,436 shares of common stock, $.01 per value, and 281,956 shares of Class A
common stock, $.01 par value.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Item 1 Financial Statements
Consolidated Balance Sheets at September 30, 1999
and December 31, 1998 .......................................... 3
Consolidated Statements of Operations for the
Three Months and Nine Months Ended
September 30, 1999 and 1998 .................................... 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998 .................. 6
Consolidated Statement of Shareholders' Equity
for the Nine Months Ended September 30, 1999 ................... 8
Notes to Consolidated Financial Statements ....................... 10
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations .................. 20
PART II - OTHER INFORMATION
Item 1 Legal Proceedings ................................................ 27
Item 2 Changes in Securities ............................................ 28
Item 3 Defaults Upon Senior Securities .................................. 28
Item 4 Submission of Matters to a Vote of Security Holders .............. 28
Item 5 Other Information ................................................ 28
Item 6 Exhibits and Reports on Form 8-K ................................. 29
Signatures ................................................................. 30
Index to Exhibits .......................................................... 31
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 6,395 $ 6,393
Short-term investments 2 2
GHI Membership Escrow Receivable 792 --
Cash Escrow- Claims Settlement 2,474 --
Accounts receivable (net of allowance
for doubtful accounts of $2,412 in
1999 and $2,808 in 1998) 3,396 2,240
Notes receivable (net of allowance for
doubtful accounts of $7,797 in 1999
and $7,774 in 1998) -- 56
Advances to participating providers 387 56
Other receivables (net of allowances
for doubtful accounts of $2,153 in
1999 and $1,957 in 1998) 1,361 1,378
Taxes receivable 284 284
Prepaid expenses and other
current assets 835 541
Property and equipment disposed of
in 1999 -- 5,564
------- -------
TOTAL CURRENT ASSETS 15,926 16,514
------- -------
PROPERTY AND EQUIPMENT (net of
accumulated depreciation and
amortization of $ 4,304 in 1999
and $7,758 in 1998) 1,179 2,145
OTHER ASSETS:
Restricted cash 2,892 5,286
Notes receivable (net of
allowance for doubtful accounts -- --
Goodwill (net of accumulated
amortization of $5,299 in 1998) -- 4,431
Other non-current assets (net of
allowance for doubtful accounts
of $1,376 in 1999 and 1998 and
accumulated amortization of $1,281
in 1999 and $1,241 in 1998) 528 1,563
------- -------
TOTAL $20,525 $29,939
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY/(DEFICIENCY IN ASSETS)
CURRENT LIABILITIES:
Current portion of long-term debt $ -- $ 5,791
Medical costs payable 20,298 26,404
Accounts payable 1,297 1,321
Accrued expenses and other 809 2,286
Unearned income 1,586 6,767
------- -------
TOTAL CURRENT LIABILITIES 23,990 42,569
------- -------
LONG-TERM LIABILITIES:
Long-term debt and other 857 15,078
------- -------
TOTAL LIABILITIES 24,847 57,647
------- -------
COMMITMENTS AND CONTINGENCIES
(DEFICIENCY IN ASSETS)/SHAREHOLDERS'
EQUITY
Series A voting preferred stock $.01 par
value; 100,000 shares authorized;
100,000 shares issued and outstanding 1 --
Series B non voting preferred stock
($.01 par value; 100,000 shares
authorized; 100,000 shares issued and 1 --
outstanding
Class A common stock ($.01 par value;
1,041,233 and 1,109,292 shares authorized,
926,243 and 994,302 shares issued and
outstanding in 1999 and 1998, respectively) 3 10
Common stock ($.01 par value; 20,000,000
shares authorized, 6,635,999 and
6,567,940 shares issued in 1999 and
1998, respectively) 72 65
Additional paid-in capital 51,851 31,612
Accumulated deficit (59,755) (65,884)
Accumulated other comprehensive income 1 1
Statutory reserve 3,712 6,695
------- -------
(4,114) (27,501)
------- -------
Less:
Notes receivable from shareholders 5 5
Treasury stock (at cost; 12,850 shares
of common stock in 1999 and 1998 203 202
------- -------
TOTAL (DEFICIENCY IN ASSETS)/
SHAREHOLDERS' EQUITY (4,322) (27,708)
------- -------
TOTAL $20,525 $29,939
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------- ------------------------
1999 1998 1999 1998
-------- -------- -------- ---------
REVENUE:
<S> <C> <C> <C> <C>
Premiums earned $ 23,062 $ 35,838 $ 88,233 $108,863
Interest income 189 295 692 884
Other income - net 102 58 462 485
-------- -------- -------- --------
TOTAL REVENUE 23,353 36,191 89,387 110,232
-------- -------- -------- --------
EXPENSES:
Medical expenses 20,147 30,303 77,901 91,438
General and administrative
expenses 3,172 7,598 18,995 21,535
Depreciation and amortization
expense 110 811 752 2,600
Interest expense -- 428 631 1,308
-------- -------- -------- --------
TOTAL EXPENSES 23,189 39,140 98,279 116,881
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES &
EXTRAORDINARY BENEFITS& (76) (2,949) (8,892) (6,649)
PROVISION FOR INCOME TAXES -- -- -- --
EXTRAORDINARY BENEFIT 3,078 -- 12,038 --
-------- -------- -------- --------
NET INCOME (LOSS) $ 3,002 $ (2,949) $ 3,146 $ (6,649)
======== ======== ======== ========
INCOME (LOSS) PER SHARE -
BEFORE INCOME TAXES &
EXTRAORDINARY BENEFITS $ (0.00) $ (0.39) $ (0.42) $ (0.96)
======== ======== ======== ========
Weighted average shares of
common stock outstanding 38,717 7,549 21,245 6,924
======== ======== ======== ========
INCOME (LOSS) PER SHARE-BASIC $ 0.08 (0.39) $ 0.15 $ (0.96)
======== ======== ======== ========
Weighted average shares of
common stock outstanding 38,717 7,549 21,245 6,924
======== ======== ======== ========
INCOME (LOSS) PER SHARE-DILUTED $ 0.08 $ (0.39) $ 0.15 $ (0.96)
======== ======== ======== ========
Weighted average shares of
Common Stock and common stock
equivalents outstanding 38,717 7,549 21,245 6,924
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED SEPT 30,
---------------------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 3,146 $ (6,649)
Adjustments to reconcile net
loss to net cash (used)
by operating activities -
Depreciation and amortization 752 2,601
Changes in assets and liabilities:
(Increase)/Decrease in accounts
receivable - net (1,156) (716)
Increase/(decrease)in medical cost Pay. (6,106) 1,081
(Increase)/decrease in other receivables 73 3,296
Increase/(decrease)in accounts payable,
accrued expenses and other
current liabilities (1,505) (1,088)
(Increase)/decrease in prepaid
expenses and other (293) (133)
(Decrease)/increase in unearned income (5,181) 38
(Increase)/decrease in advances to
participating providers (331) 2,254
Provider Pool Escrow (2,474)
Change in WCNY Restricted Cash
Requirements 2,394
Due from GHI Membership Escrow (792)
Other - net (606)
-------- --------
NET CASH USED IN OPERATING
ACTIVITIES (11,473) 78
-------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES-
(Purchase)Disposal of Property &
equipment 6,985 (554)
Disposal of Commercial Goodwill 4,431
Decrease in notes receivable-Investment 600
-------- --------
NET CASH USED IN INVESTING
ACTIVITIES 11,416 46
-------- --------
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
NINE MONTHS ENDED SEPT 30,
---------------------------
1999 1998
---- ----
CASH FLOW FROM FINANCING
ACTIVITIES-
Issuance of Series B Preferred stock
upon conversion of long-term debt
and Accrued Interest 15,241 5,000
Conversion of long-term debt, interest
Payable, and Facility Fees into
Series B Preferred stock (15,241) (5,000)
Issuance of Series A Preferred stock 5,000
Repayment of notes payable and
long-term debt (5,791) (467)
Issuance of Notes Payable - Comprehensive 850
-------- --------
NET CASH USED IN
FINANCING ACTIVITIES 59 (467)
-------- --------
NET DECREASE IN CASH AND
CASH EQUIVALENTS 2 (343)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 6,393 3,368
-------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 6,395 $ 3,025
======== ========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Income taxes paid $ -- $ --
Interest paid 100 1,075
See accompanying notes to consolidated financial statements.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Series A Series B Class A Additional
Conv Prf Conv Prf Common Common Paid-In (Accumulated Statutory
Stock Stock Stock Stock Capital Deficit) Reserve
-------- -------- ------- ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1998 -- -- $ 10 $ 65 $31,612 $(65,884) $ 6,695
Conversion of Class
A common to common
shares -- -- (1) 1
Net loss $ (3,014)
BALANCE,
MARCH 31, 1999 -- -- $ 9 $ 66 $31,612 $(68,898) $ 6,695
Conversion of Notes
Payable and Accrued
Interest 1 15,240
Issued for Cash 1 4,999
Conversion of Class
A common to common
shares (6) 6
Change in Statutory
Reserve Requirements 2,983 (2,983)
Net Income 3,158
BALANCE,
JUNE 30, 1999 $ 1 $ 1 $ 3 $ 72 $51,851 $(62,757) $ 3,712
Net Income $ 3,002
BALANCE,
Sept 30, 1999 $ 1 $ 1 $ 3 $ 72 $51,851 $(59,755) $ 3,712
</TABLE>
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Total
Accumulated Shareholders'
Other Notes Equity/
Comprehensive Receivables- Treasury (Deficiency
Income/(loss) Shareholders' Stock in Assets)
------------- ------------- -------- ----------
<S> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1998 $ 1 $ (5) $ (202) $(27,708)
Conversion of Class
A common to common
shares
Net loss (3,014)
BALANCE,
MARCH 31, 1999 $ 1 $ (5) $ (202) $(30,722)
Conversion of Notes
Payable and Accrued
Interest 15,241
Issued for Cash 5,000
Conversion of Class
A common to common
shares --
Change in Statutory
Reserve Requirements
Net Income $ 3,158
BALANCE,
JUNE 30, 1999 $ 1 $ (5) $ (202) $ (7,324)
Net Income $ 3,002
BALANCE,
SEPT 30, 1999 $ 1 $ (5) $ (202) $ (4,322)
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and, accordingly, do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in The WellCare Management Group, Inc.'s ("WellCare" or the "Company")
Annual Report on Form 10-K for the year ended December 31, 1998, which have been
audited by Deloitte & Touche, LLP, independent auditors, as indicated in their
report therein. 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 (refer to the Company's audited consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998, Notes 1m and 20 therein and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the quarter ended September 30, 1999). In the opinion of
management, the accompanying unaudited interim financial statements contain all
adjustments necessary to present fairly the financial position at September 30,
1999, and the results of operations and cash flows for the interim period
presented. Operating results for the interim period may not necessarily be
indicative of results that may be expected for the year ending December 31,
1999. Certain amounts in the 1998 financial statements have been reclassified to
conform to the 1999 presentation.
2. MANAGEMENT AGREEMENT
WellCare of New York, Inc. ("WCNY") and WellCare of Connecticut, Inc. ("WCCT")
have entered into management agreements with Comprehensive Health Management,
Inc. ("Comprehensive") an affiliate of Dr. Patel (majority shareholder of
"WellCare"), to manage their HMO operations. The management agreements with
Comprehensive are for a term of five (5) 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
processing, 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, D & O and E & O Insurance Expenses, and any
extraordinary costs. The management agreement with WCNY was approved by New York
State regulators on June 11, 1999. Connecticut Department of Insurance approved
the management agreement in September 1999.
3. GHI ESCROW RECEIVABLE
In June 1999, WCNY sold its commercial business, including approximately 25,000
members, to Group Health Incorporated ("GHI" - "GHI Transaction") 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. Final
measurement date for the June membership count was on August 31, 1999. The
actual disbursement from the escrow is estimated at $793,000 plus pro-rata share
of interest income. The Company has accounted for approximately $207,000 as a
reduction in sales price during the current quarter.
4. PATEL TRANSACTION:
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.
5. PROVIDER SETTLEMENT
Various hospitals, 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 are 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 (3) years, should they continue to be participating WCNY providers.
For the third quarter 1999, the company recognized a one-time benefit of
approximately $ 3.08 million due to the above provider Settlement. This makes
Year to Date settlement benefit of $12.04 million. These benefits are reported
as an extraordinary item.
6. CAPITAL STRUCTURE
During the annual shareholder's meeting held on September 30, 1999, the company
received shareholder's and Board approval to increase number of authorized share
of common stock from 20 million to 75 million.
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.
In June 1999, The 1818 Fund II, L.P. (the "Fund") converted its $15 million
Note, plus unpaid interest of approximately $0.8 million, into 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.
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. For the financial statement purpose we have included Series A and
Series B preferred shares for Basic and Diluted EPS calculation.
7. DISPOSAL OF CERTAIN ASSETS AND MORTGAGES:
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.
8. PREMIUM REVENUE
Effective January 1, 1999, WCNY did not renew its Medicare Risk contracts in
four counties in New York. The Medicare enrollment in these counties was
approximately 4,000.
Effective June 1, 1999, WCNY sold its certain assets associated with commercial
business, including approximately 25,000 members (see Note 3).
9. MEDICAL COSTS PAYABLE AND MEDICAL EXPENSES
a. Medical expense includes estimates for medical expenses incurred but not
yet reported ("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.
b. In April 1998, NYSID announced the distribution of approximately $110
million in accumulated 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 estimated $800,000 reduction in medical expenses
in the quarter ended March 31, 1998, substantially all of which amount was
collected later in 1998. As part of this distribution, NYSID limited 1998
individual and small group rate increases to less than ten percent (10%).
10. SALE OF WELLCARE MEDICAL MANAGEMENT, INC.
In June 1995, the Company contributed approximately $5.1 million to its then
wholly-owned subsidiary, WellCare Medical Management, Inc. ("WCMM"), which was
engaged in managing physician practices, and then sold the assets of WCMM for
cash of $.6 million and a note receivable of $5.1 million. The buyer, 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 regional health care
delivery networks (the "Alliances"/"IPAs"). 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 March
31, 1999), with interest payable monthly through July 31, 2000. Primergy has
paid only interest through January 1996.
The Company has 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
March 31, 1999) 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 March 31, 1999), 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 (36) 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 $0.8
million for 1998 accrued interest not paid. 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 independent
practice association ("IPAs") service agreements with the IPAs owned by
Primergy. However, this transaction was not consummated.
Consequently, in July 1999, the Company entered into an agreement with Primergy,
Inc., ProMedCo of the Hudson Valley, Inc. and ProMedCo Management Company to
settle its outstanding indebtedness with Primergy for $425,000 cash paid to the
Company at closing, and a release from Primergy for approximately $325,000 in
past Quality and Utilization incentive payments due to Primergy. Additionally,
Primergy has agreed to pay $2 Per Member Per Month for the period commencing
from August 31, 2000 to July 31, 2002 for the members assigned to Primergy IPAs
by WCNY. This amount survives any termination or breach of the IPA Service
Agreements by the contracted IPAs and is guaranteed by ProMedCo Management
Company. Furthermore, any and all Quality and Utilization based compensation to
the Primergy IPAs was eliminated from the contract. The Primergy IPAs contract
period was reduced and currently will terminate on July 31, 2002.
11. INCOME TAXES
The company has reported continuing operating losses in 1996, 1997, 1998 and the
first half of 1999. 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 will ultimately be
achieved, the Company has provided a 100% valuation allowance with respect to
the additional 1999 tax assets in view of their size and length of the expected
recoupment period. The maximum utilization period for the NOL's are fifteen (15)
and five (5) years for New York and Connecticut, respectively. There can be no
assurance however that the company will be able to realize the tax benefit
associated with the past losses. Also, the Internal Revenue Service regulations
limits the use NOL benefits when there is more than 50% of change in ownership.
For the current quarter there is no income tax expense accrued under the
assumption that the provider settlement benefits are for the period prior to the
change of ownership and therefore NOL benefits are fully allowed.
12. STATUTORY REQUIREMENTS
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 September
30, 1999, WellCare had required cash reserves of $2.9 million and a contingent
reserve of $3.7 million. In the event the contingent reserves 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.
At December 31, 1998 WCNY had a negative statutory net worth of approximately
($14.6) which at end of the current quarter stands at positive $0.3 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 June 1999, the Company
consummated the Patel and GHI transactions, among others, which are intended to
bring WCNY within the 50% to 100% of the revised contingent reserve requirement,
as permitted by NYSID. In connection with the Patel and GHI transactions, in
June 1999, the Company loaned WCNY $5 million under the provisions of Section
1307. Also, WCNY entered into agreements with various hospitals and medical
providers to settle past medical claims for discount as described in note XX. 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 minimum statutory reserve of $1 million.
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. Comprehensive
Health Management, Inc. loaned $850,000 as a subordinated loans to WCNY which in
turn loaned the full amount to WCCT as a subordinated note. Also, WCMG has
agreed to pay an installment of $67,000 a month to WCCT to settle intercompany
loan. Subsequently, Connecticut DOI has lifted its Order of Administrative
Supervision. However, WCCT is still required by Connecticut DOI for additional
compliance and reporting
In August 1999, WCNY voluntarily agreed to cease marketing and enrollment of its
Medicare+Choice plan. A recent Health Care Financing Administration (HCFA) audit
report indicated that WCNY's Medicare+Choice plan did not meet HCFA requirements
in several areas including prompt payment provisions and effective and efficient
administration of the HCFA contract. WCNY is required to submit to HCFA a
corrective action plan that fully addresses all of the findings addressed in the
report. WCNY will not resume marketing and enrollment until such time as HCFA
notifies WCNY that its Medicare+Choice plan meets HCFA requirements. HCFA does
reserve the right to impose civil monetary penalties on WCNY pursuant to HCFA's
ongoing monitoring of WCNY's effort to regain compliance in the areas cited.
13. COMMITMENTS AND CONTINGENCIES
a. 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 (12) 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 a portion of
the expenses related to fees it paid to the attorneys representing the
individual defendants, less the Company's insurance deductible.
b. The Company and certain of its 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.
c. 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.
d. 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.
14. 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 receivable consisting primarily of advances to medical
practices, is not materially different from the carrying value for financial
statement purposes. In making this determination, the Company used interest
rates based on an estimate of the credit worthiness of each medical practice.
The Subordinated Convertible Note was issued in a private placement in January
1996, amended with the holder in February 1997 and January 1998, and converted
into senior convertible preferred stock of the Company in June 1999 (see Note
2f). The other long-term debt, primarily mortgage debt, was settled in June 1999
(see Note 2e) and approximates its fair value.
15. NET (LOSS) PER SHARE
Net (loss) per share - Basic is computed using weighted average number of common
shares plus common equivalent shares outstanding outstanding for the applicable
period. Net (loss) per share - Diluted is computed using the weighted average
number of common shares plus common equivalent shares, except if the effect on
the per share amounts of including equivalents would be anti-dilutive.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto, included in the quarterly
report and with the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
The Company's financial statements have been prepared assuming that the Company
will continue as a going concern. The auditors' report on the Company's 1998
financial statements 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 ("NYSID") at December 31, 1998 raise
substantial doubt about its ability to continue as a going concern."
Certain statements in this Form 10-Q 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;
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, change in physician
practices, and new technologies; that the Company with be unable to successfully
expand its operations into New York City, Westchester County and the States 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.
OVERVEIW:
For the three months ended September 30, 1999, we generated net income of $3.00
million compared to a net loss of $2.95 million or the comparable 1998 period.
For the nine-months period ended September 30, 1999 and 1998, the Company had a
net income of $3.14 million and a net loss of $6.65 million respectively. The
1999 periods include a one time extraordinary benefit from the provider
settlement of $3.08 million for the current quarter and $12.04 for the year to
date. Excluding these extraordinary benefit, the company has a loss of $0.42
million for the quarter ending September 30, 1999 and a loss of $8.99 million
for the year to date for the same period ended.
REVENUES:
Premiums earned in the third quarter of 1999 decreased by 35.6%, or $12.77
million, to $23.1 million from $35.8 million in the third quarter of 1998. The
decrease resulted primarily from sale of WCNY Commercial business to GHI
effective June 1, 1999, and WCNY not renewing its Medicare Risk contracts in
four (4) counties in New York, effective January 1, 1999.
MEDICAL EXPENSES:
Medical expenses increased as a percentage of premiums earned (the "medical loss
ratio") from 83.99% in first nine months of 1998 to 88.29% for the same period
in 1999. Medical expenses and the medical loss ratio in 1999 are higher than
1998 because 1998 medical expenses include an $0.8 million credit relating to
the accumulated pool funds distribution announced by NYSID in 1998. In addition,
the 1998 period does not include adjustments recorded in subsequent 1998
quarters when it was determined that the IBNR estimated in the 1998 first three
quarters were less than the medical claims expenses actually incurred.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and Administrative (G&A) expenses decreased to $3.17 million in the
third quarter of 1999 compared to $7.59 million in the same period last year and
decreased as a percentage of total revenue (the "G&A ratio") to 14.9% in the
third quarter of 1999 from 21.2% in the third quarter of 1998. The decrease in
G&A expenses resulted primarily from a management agreement with Comprehensive
Health Management, Inc. as described in Note 2.
LIQUIDITY AND FINACIAL RESTRUCTURING:
At September 30, 1999, the Company had a working capital deficiency of $8.06
million, excluding the cash reserve of $2.9 million required by New York State
which is classified as a non-current asset, compared to a working capital
deficiency of $12.1 million at June 30, 1999, excluding the cash reserve of $2.9
million. The decrease in deficiency is attributable primarily to various
financial restructuring transactions completed in June 1999. These 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; renegotiations and settlement of
approximately $5.4 million of mortgage debt; and the conversion of the $15
million Note into senior convertible preferred stock of the Company. After the
conclusion of these transactions, the Company's ongoing cash requirements has
reduced because 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 has approximately 120 employees compared
to 236 at December 31, 1998.
Legislation by New York State and Connecticut requires HMOs to pay undisputed
claims within 45 days of date of receipt. In the first nine months of 1999 WCNY
and WCCT continued to pay claims later than required. The Company records as an
expense the estimated interest it is required to pay, which management believes
is not material to the Company's results of 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. As mentioned in
the notes 12 the company is not in compliance with the cash reserve or statutory
reserve requirements of the New State Insurance Department.
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 during a transition period. The computer hardware and
software that was not sold or assigned to GHI are in the process of being
upgraded so that it will be Y2K compliant.
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. 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 have a material adverse effect on the Company's
operations.
INFLATION
Medical costs have been rising at a higher rate than consumer goods as a whole.
The Company believes its premium increases, capitation arrangements and other
cost controls measures may 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. Although there is
inherent risk for any investments and borrowings, the extent of this is not
quantifiable or predictable because of the restructuring of the Company as a
result of the June financial and operational restructuring transactions.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
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
consolidated 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.
The Company and certain of its 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.
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.
ITEM 2 CHANGES IN SECURITIES
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 WellCare 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 the $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.
As a condition of 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.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
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 (see Note 7). Prior to the conversion,
the Company had been in non-compliance with certain of the Note's provisions. In
July 1998, Key Bank (the "Bank") notified the Company that it considered the
Company not in compliance with certain financial ratio requirements included in
its two mortgages, with outstanding balances, at that time, of approximately
$4.9 million. The Bank has expressed a willingness to pursue a resolution, and
had not exercised its rights or remedies. The Company had been current in the
payments of its obligations with the Bank. In June 1999, the Company reached a
settlement with the Bank whereby the Company agreed to transfer ownership of the
mortgaged properties to the Bank in settlement of the outstanding mortgages.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 OTHER INFORMATION
A. CHANGES IN CONTROL
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.
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.
As a condition of 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.
B. DISPOSITION OF ASSETS
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.
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.
C. CHANGES IN DIRECTORS AND EXECUTIVE OFFICERS
Effective August 17, 1999, Craig S. Dupont resigned from Vice President and
Chief Financial Office Position. Effective September 30, 1999, Henry Suarez,
resigned from Treasurer and Director position. Effective September 30, 1999,
Charles Crew, Hitesh Adhia resigned from the Directors position. Effective
August 17,1999 Hitesh P. Adhia was appointed as an Acting Chief Financial Office
position.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 3.1(d) Copy of Certificate of Amendment to the Certificate of
Incorporation of The WellCare Management Group, Inc.,
filed October 11, 1999.
Exhibit 10.84 Copy of Agreement dated July 30, 1999 between Primergy,
Inc., ProMedCo of the Hudson Valley, Inc., ProMedCo
Managenment Company and WellCare of New York, Inc. and
The WellCare Management Group, Inc.
Exhibit 11 Computation of Net Income Per Share of Common Stock
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The WellCare Management Group, Inc.
By: /s/ Kiran C. Patel, M.D.
---------------------------------------------
Kiran C. Patel, M.D.
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Hitesh P. Adhia
---------------------------------------------
Hitesh P. Adhia
Acting Chief Financial Officer
(Acting Financial and Accounting Officer)
Date: November 15, 1999
<PAGE>
INDEX TO EXHIBITS
All exhibits below are filed with this Quarterly Report of Form 10-Q:
EXHIBIT NUMBER
- --------------
3.1(d) Copy of Certificate of Amendment to the Certificate of
Incorporation of The WellCare Management Group, Inc., filed
October 11, 1999.
10.84 Copy of Agreement dated July 30, 1999 between Primergy, Inc.,
ProMedCo of the Hudson Valley, Inc., ProMedCo Managenment Company
and WellCare of New York, Inc. and The WellCare Management Group,
Inc.
11 Computation of Net Income Per Share of Common Stock
27 Financial Data Schedule
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE WELLCARE MANAGEMENT GROUP, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
The undersigned, the 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:
1. The Corporation's name is The WellCare Management Group, Inc.
2. 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.
3. The Restated Certificate of Incorporation of the Corporation, as
heretofore amended or supplemented (the "Certificate of Incorporation"), is
hereby further amended to increase the aggregate number of shares of all classes
of capital stock which the Corporation shall have the authority to issue from
twenty-three million (23,000,000) shares to an aggregate of seventy six million
three hundred thirteen thousand five hundred fifty-five (76,313,555) shares.
Article IV Section 1 of the Certificate of Incorporation which refers to
the number of authorized shares is hereby amended by striking out Article IV,
Section 1 and substituting in lieu thereof a new Article IV, Section 1 to read
as follows:
"1. General. The aggregate number of shares of all classes of capital
stock which the Corporation shall have the authority to issue is seventy
six million three hundred thirteen thousand five hundred fifty-five
(76,313,555) shares, of which seventy-five million (75,000,000) shares are
to be shares of Common Stock, par value $.01 per share ("Common Stock"),
three hundred thirteen thousand five hundred fifty-five (313,555) shares
are to be shares of Class A Common Stock, par value $.01 per share ("Class
A Common Stock") and one million (1,000,000) Shares are to be shares of
Preferred Stock, par value $.01 per share."
<PAGE>
4. The number of shares of Common Stock currently issued and outstanding is
7,248,687 shares, $.01 par value per share.
5. The number of shares of Class A Common Stock currently issued and
outstanding is 313,555 shares, $.01 par value per share.
6. The number of authorized, issued and currently outstanding shares of
Series A Preferred Stock is 100,000. Immediately upon the amendment to the
Certificate of Incorporation increasing the total number of authorized shares of
Common Stock by 55,000,000 shares, the 100,000 outstanding shares 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 subparagraph (d)(vi) of ARTICLE IV,
Section 3 of the Certificate of Incorporation, 9,227,035 shares of Common Stock.
7. The number of authorized, issued and currently outstanding shares of
Series B Preferred Stock is 100,000. At the later of (i) the amendment to the
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, the 100,000 outstanding shares 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 subparagraph (e)(iii) of
ARTICLE IV, Section 3 of the Certificate of Incorporation, 10,000,000 shares of
Common Stock.
8. The amendment herein provided was approved by the Board of Directors of
the Corporation followed by authorization by the vote of the holders of at least
a majority of the votes represented by the total outstanding shares of the
Corporation entitled to vote thereon, voting as one class, in accordance with
Section 803(a) of the BCL.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed his name hereunto and
affirm that the statements made herein are true under the penalties of perjury
on this 11th day of October, 1999.
/s/ Kiran C. Patel
--------------------------------------------
Name: Kiran C. Patel, M.D.
Title: President and Chief Executive Officer
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
THE WELLCARE MANAGEMENT GROUP, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
- --------------------------------------------------------------------------------
AGREEMENT
- --------------------------------------------------------------------------------
PRIMERGY, INC.
PROMEDCO OF THE HUDSON VALLEY, INC.
PROMEDCO MANAGEMENT COMPANY
AND
WELLCARE OF NEW YORK, INC.
THE WELLCARE MANAGEMENT GROUP, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JULY 30, 1999
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
DRAMATIS PERSONAE
- --------------------------------------------------------------------------------------------------------
Player Office Address Home Address
- --------------------------------------------------------------------------------------------------------
ProMedCo, Inc.
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
H. Wayne Posey ProMedCo Management Company
President 801 Cherry St.
Suite 1450
Dale Edwards Fort Worth, TX 76102 (Edwards) 972-294-0119
Senior Vice President 817-335-5035
E-mail: [email protected] Fax 817-335-8321
Pager: 1-800-759-7243
Pin #1555798
Mobile 214-914-7804
Deborah A. Johnson (Johnson) 817-923-2465
Senior Vice President
E-mail: [email protected]
Pager: 1-800-408-7758 (no Pin)
Mobile: 817-319-5996
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Robert Sontheimer PMC Medical Management, Inc. 56 Beatrice Circle
Senior Vice President 202 US Route 1, MSC 165 Belmont, MA 02478
E-mail: [email protected] Falmouth,ME 04104
617-484-4825 800-439-9895
Fax: 617-484-8766 207-781-9890
Mobile: 817-307-0649
- --------------------------------------------------------------------------------------------------------
Ira Fried PMC Medical Management, Inc. 12 Tanglewood Road
E-mail: [email protected] 202 US Route 1, MSC 165 Amherst, MA 01002
Falmouth,ME 04104 413-256-4761
800-439-9895 Fax 413-256-3870
207-781-9890
Fax 207-781-6676
- --------------------------------------------------------------------------------------------------------
Denise Hill
Development Coordinator
E-mail: [email protected]
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-3-
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Player Office Address Home Address
- --------------------------------------------------------------------------------------------------------
ProMedCo Counsel
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
John E. Gillmor Boult, Cummings, Conners & (Gillmor) 1700 Graybar Lane
615-252-2305 Berry Nashville, TN 37215
Fax 615-252-6305 414 Union Street, Suite 1600 615-297-3149
E-mail: [email protected] Nashville, TN 37219 Car 615-419-4119
615-244-2582 Portable 615-330-3668
Andrea Barach
615-252-2329
Fax 615-252-6329
E-mail:[email protected]
- --------------------------------------------------------------------------------------------------------
Primergy
- --------------------------------------------------------------------------------------------------------
Richard B. Weininger, MD Primergy, Inc.
157 Stockade Drive
Douglas A. Present Kingston, NY 12401
E-mail: [email protected] 914-340-4645
John Markes FAX 914-340-4753
E-mail: [email protected]
- --------------------------------------------------------------------------------------------------------
Primergy Counsel
- --------------------------------------------------------------------------------------------------------
Lori Green Nixon Peabody, LLP
716-263-1236 Post Office Box 1051(zip 14603)
Email:[email protected] 1300 Clinton Square
Rochester, NY 14604
716-263-1000
FAX 716-263-1600
- --------------------------------------------------------------------------------------------------------
WellCare
- --------------------------------------------------------------------------------------------------------
Kiran C.Patel, M.D., F.A.C.C. WellCare HMO, Inc.
Chairman 6800 North Dale Mabry
Suite 209
Tampa, FL 33614
Fax 813-290-6200
Mary Lee Campbell-Wisely WellCare of New York
Executive Director P.O. Box 4059
Kingston, NY 12402
914-334-7176
Fax 914-334-7820
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-4-
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Player Office Address Home Address
- --------------------------------------------------------------------------------------------------------
WellCare Counsel
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sandip I. Patel, Esq. Patel, Moore and O'Connor
Email: [email protected] 6800 North Dale Mabry
Suite 209
Tampa, FL 33614
813-254-1185
Fax 813-254-0561
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS ....................................................... 1
Affiliate .............................................................. 1
Amendments ............................................................. 1
Closing ................................................................ 1
Closing Date ........................................................... 1
Contracted IPAs ........................................................ 1
IPA Service Agreements ................................................. 1
Person ................................................................. 2
Primergy ............................................................... 2
Primergy Indebtedness .................................................. 2
Primergy Release ....................................................... 2
ProMedCo ............................................................... 2
ProMedCo-HV ............................................................ 2
WellCare ............................................................... 2
WellCare Management .................................................... 2
ARTICLE 2 AMENDMENT OF IPA SERVICE AGREEMENTS WITH CONTRACTED IPAS;
CONSIDERATION; CLOSING ...................................................... 2
2.1 Payment to WellCare. ............................................... 2
2.3 IPA Service Agreements. ............................................ 2
2.4 Post-Closing Payments. ............................................. 3
2.5 Claims. ............................................................ 3
2.6 Closing. ........................................................... 3
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF WELLCARE ........................ 3
3.1 Organization, Corporate Power and Qualification. ................... 3
3.2 Authority; Binding Effect. ......................................... 3
3.3 Contracts. ......................................................... 3
3.4 Indebtedness. ...................................................... 4
3.5 No Finders or Brokers. ............................................. 4
3.6 Consents and Approvals of Governmental Authorities. ................ 4
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PRIMERGY ........................ 4
4.1 Organization and Standing of Primergy. ............................. 4
4.2 Authority; Binding Effect. ......................................... 4
4.3 No Finders or Brokers. ............................................. 5
4.4 Consents and Approvals of Governmental Authorities. ................ 5
ARTICLE 5 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF WELLCARE ............... 5
5.1 Representations and Warranties True. ............................... 5
<PAGE>
ii
5.2 Opinion of Counsel. ................................................ 5
5.3 Authority. ......................................................... 5
5.4 No Obstructive Proceeding. ......................................... 6
5.5 Proceedings and Documents Satisfactory. ............................ 6
ARTICLE 6 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRIMERGY ............... 6
6.1 Representations and Warranties True. ............................... 6
6.2 Authority. ......................................................... 6
6.3 No Obstructive Proceeding. ......................................... 6
6.4 Opinion of WellCare Counsel. ....................................... 7
6.5 Proceedings and Documents Satisfactory. ............................ 7
6.6 No Agency Proceedings. ............................................. 7
ARTICLE 7 MISCELLANEOUS ..................................................... 7
7.1 Consent to Primergy Transaction. ................................... 7
7.2 Expenses. .......................................................... 7
7.3 Notices. ........................................................... 7
7.4 Entire Agreement. .................................................. 8
7.5 Alternative Dispute Resolution ..................................... 9
7.6 Governing Law. ..................................................... 9
7.7 Legal Fees and Costs. .............................................. 9
7.8 Section Headings. .................................................. 9
7.9 Waiver. ............................................................ 9
7.10 Nature and Survival of Representations. ........................... 9
7.11 Exhibits. ......................................................... 10
7.12 Assignment. ....................................................... 10
7.13 Binding on Successors and Assigns. ................................ 10
7.14 Parties in Interest. .............................................. 10
7.15 Amendments. ....................................................... 10
7.16 Drafting Party. ................................................... 10
7.17 Counterparts. ..................................................... 10
7.18 Reproduction of Documents. ........................................ 10
7.19 Press Releases. ................................................... 11
APPENDIX 2.1 FORM OF PROMEDCO GUARANTY
APPENDIX 2.2 FORM OF PRIMERGY RELEASE
APPENDIX 5.2 FORM OF OPINION OF PROMEDCO-HV'S COUNSEL
APPENDIX 6.4 FORM OF OPINION OF WELLCARE'S COUNSEL
<PAGE>
AGREEMENT
Agreement dated as of July 30, 1999, among WellCare of New York, Inc., a
New York corporation ("WellCare"), The WellCare Management Group, Inc.
("WellCare Management"), and Primergy, Inc. ("Primergy"), ProMedCo Management
Company, a Delaware corporation ("ProMedCo") and ProMedCo of the Hudson Valley,
Inc., a New York corporation ("ProMedCo-HV") which is a wholly-owned subsidiary
of ProMedCo.
RECITAL:
Pursuant to an Option Agreement dated as of March 16, 1999 as amended by
First Amendment to Option Agreement dated as of July __, 1999 (such Option
Agreement as so amended is referred to herein as the "Option Agreement") among
Primergy, ProMedCo and ProMedCo-HV, ProMedCo-HV has agreed to acquire
substantially all of the assets of Primergy, including the stock of the
Contracted IPAs referred to below. One of the conditions to ProMedCo-HV's
obligation to consummate the asset purchase contemplated by the Option Agreement
is that Primergy enter into and consummate this Agreement with WellCare and
WellCare Management.
WellCare has contracts with five independent practice associations, Orange
Sullivan Health Care Alliance IPA, Inc., Dutchess Health Care Alliance IPA,
Inc., Ulster Health Care Alliance IPA, Inc., Columbia Greene Health Care
Alliance IPA, Inc., and Capital District Health Care Alliance IPA, Inc. (such
entities are collectively referred to herein as the "Contracted IPAs" and
individually, each is referred to as a "Contracted IPA") which are wholly owned
subsidiaries of Primergy. The parties hereby agree as follows:
ARTICLE 1 DEFINITIONS
For the purposes of this Agreement, the following definitions shall apply:
"Affiliate" means with respect to any Party, any entity which controls, is
controlled by, or is under common control with such party all as more fully set
forth in the rules and regulations of the Securities and Exchange Commission
under the Securities Act of 1933, as amended.
"Amendments" means the Amendments to the IPA Service Agreements between
WellCare and each of the Contracted IPAs to be entered into pursuant to ss. 2.3
hereof.
"Closing" and "Closing Date" are defined in ss. 2.6.
"Contracted IPAs" is defined in the preamble hereto.
"IPA Service Agreements" means the existing IPA Service Agreements between
WellCare and each of the Contracted IPAs.
<PAGE>
-2-
"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust or unincorporated organization.
"Primergy" means Primergy, Inc., a New York corporation.
"Primergy Indebtedness" means the obligations of Primergy to WellCare
Management, WellCare or any other Affiliate of WellCare Management under (i)
Promissory Note, dated June 30, 1995, from Primergy to WellCare Medical
Management, Inc. in the original principal amount of $5,130,000, (ii) the Note
Agreement, dated as of June 30, 1995, between WellCare Medical Management, Inc.
and Primergy, the Guaranty, dated as of May 9, 1996, by Primergy in favor of
WellCare of New York, Inc., (iii) the Promissory Note, dated February 26, 1996,
between WellCare and Primergy in the original principal amount of $215,000, (iv)
the Promissory Note, dated February 19, 1997, from Primergy to WellCare in the
original principal amount of $2,099,083, and (v) the Loan and Security
Agreement, dated as of February 19, 1997, between Primergy and WellCare.
"Primergy Release" is defined in ss. 2.2 hereof.
"ProMedCo" means ProMedCo Management Company, a Delaware corporation which
is the sole shareholder of ProMedCo-HV.
"ProMedCo-HV" means ProMedCo of the Hudson Valley, Inc., a New York
corporation.
"WellCare" means WellCare of New York, Inc., a New York corporation which
is a wholly owned subsidiary of The WellCare Management Group, Inc.
"WellCare Management" means The WellCare Management Group, Inc., a New York
corporation.
ARTICLE 2 AMENDMENT OF IPA SERVICE AGREEMENTS WITH CONTRACTED
IPAS; CONSIDERATION; CLOSING
2.1 Payment to WellCare. Simultaneously with the Closing hereunder,
Primergy shall pay WellCare Management or such Affiliate as WellCare Management
shall have directed, $425,000. By its execution of the Guaranty attached hereto
as Appendix 2.1, ProMedCo shall guaranty the payment of such sum by Primergy as
required by this Section 2.1.
2.2 Release of Primergy Debt. Simultaneously with the Closing, WellCare
shall release the Primergy Indebtedness pursuant to a release in the form
attached hereto as Appendix 2.2.
<PAGE>
-3-
2.3 IPA Service Agreements. Upon the terms and subject to the conditions of
this Agreement, on the Closing Date, WellCare shall enter into mutually
agreeable amendments to the IPA Service Agreements with the Contracted IPAs (the
"Amendments").
2.4 Post-Closing Payments. Commencing on October 31, 2000 and continuing
through July 31, 2002, Primergy shall pay WellCare $2 pmpm for all WellCare
Members assigned to the Contracted IPAs; such payments shall be made quarterly
seven days after the end of each three month period commencing August 31, 2000.
Primergy shall honor this obligation irrespective of any termination or breach
of the IPA Service Agreements by the Contracted IPAs except for a termination
for cause arising out of a default by WellCare under the IPA Service Agreements.
Upon any termination or breach, to the extent Primergy is obligated to continue
payments as set forth herein, said payment amounts shall be based upon the most
recent membership information that has been provided to Primergy prior to such
breach or termination By its execution of the Guaranty attached hereto as
Appendix 2.1, ProMedCo shall guaranty the payment of such sum by Primergy as
required by this Section 2.4.
2.5 Claims. Within 10 business days after the Closing, Primergy shall take
such steps as are necessary to ensure that no claims of providers against it or
any of the Contracted IPAs is outstanding in excess of 45 days for all programs
other than Medicare Risk, which will be paid to a 30 day status.
2.6 Closing. The transactions provided for herein (the "Closing") shall
take place on the date hereof (the "Closing Date").
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF WELLCARE
WellCare and WellCare Management hereby represents and warrants as follows:
3.1 Organization, Corporate Power and Qualification. Each of WellCare and
WellCare Management is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York and has full corporate
power and authority to carry on its business as and where it is now being
conducted, to enter into this Agreement, and to consummate the transactions
contemplated hereby.
3.2 Authority; Binding Effect. Each of WellCare and WellCare Management has
full power and authority to enter into this Agreement and to carry out the
transactions contemplated hereby. The Board of Directors of each of WellCare and
WellCare Management has taken all action required by law and by such entity's
Certificate of Incorporation and by-laws, or otherwise, to authorize the
execution and delivery of this Agreement and the transactions contemplated
hereby. The execution, delivery, and performance of this Agreement constitutes
the valid and binding agreement of WellCare and WellCare Management enforceable
in accordance with its terms, and the execution, delivery and
<PAGE>
-4-
performance of this Agreement is not in conflict with any other agreement, and
will not result in the acceleration or imposition of any other obligation.
3.3 Contracts. Except for the IPA Service Agreements with the Contracted
IPAs, neither WellCare nor WellCare Management nor the Affiliates of either have
any contractual relationships with the Contracted IPAs. Exhibit 3.3 of the
Exhibit Volume contains a copy of each existing contract, agreement and other
instrument between Primergy or any Affiliate of Primergy and WellCare or any
Affiliate of WellCare, including WellCare Management. Except as noted in such
Exhibit 3.3: (i) all such contracts and agreements are in full force and effect;
(ii) there has been no threatened cancellation thereof; and (iii) there are no
outstanding disputes thereunder. None of the agreements, contracts etc. between
WellCare, WellCare Management and the Affiliates of either entity and the
Contracted IPAs, Primergy or any Affiliate of Primergy violates the
Medicare/Medicaid Fraud and Abuse amendments or any regulations thereunder
adopted by the U.S. Department of Health and Human Services.
3.4 Indebtedness. Aside from the Indebtedness, neither Primergy nor any of
the Contracted IPAs nor any other Affiliate of Primergy is indebted to WellCare,
WellCare Management or any other Affiliate of WellCare, and neither WellCare nor
WellCare Management or any other Affiliate of WellCare has any claims against
Primergy, the Contracted IPAs or any other Affiliate of Primergy.
3.5 No Finders or Brokers. Neither WellCare, WellCare Management nor any
officer or director of WellCare or WellCare Management has engaged any finder or
broker in connection with the transactions contemplated hereunder.
3.6 Consents and Approvals of Governmental Authorities. WellCare and
WellCare Management will use their best efforts to promptly obtain all consents,
approvals and authorizations from all governmental and regulatory authorities
having jurisdiction over the matter in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. Primergy, ProMedCo and ProMedCo-HV acknowledge that as of the date
hereof WellCare and WellCare Management have not yet received all such consents
etc.
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PRIMERGY
Primergy hereby represents and warrants as follows:
4.1 Organization and Standing of Primergy. Primergy is a corporation duly
organized, validly existing and in good standing under the laws of the state of
New York and has full corporate power and authority to conduct its business as
now being conducted; and is duly qualified to do business in each jurisdiction
in which the nature of the property owned or leased or the nature of the
business conducted by it requires such qualification.
<PAGE>
-5-
4.2 Authority; Binding Effect. Primergy has corporate power to execute and
deliver this Agreement and consummate the transactions contemplated hereby and
has taken (or by the Closing Date will have taken) all action required by law,
its Articles of Incorporation, by-laws or otherwise to authorize such execution
and delivery and the consummation of the transactions contemplated hereby. The
execution, delivery, and performance of this Agreement constitutes the valid and
binding agreement of Primergy enforceable in accordance with its terms (except
as the same may be restricted, limited or delayed by applicable bankruptcy or
other laws affecting creditors' rights generally and except as to the remedy of
specific performance which may not be available under the laws of various
jurisdictions) assuming that this Agreement has been duly authorized, delivered
and executed by WellCare and constitutes the valid and binding obligation,
enforceable against WellCare in accordance with its terms (except as
enforceability against WellCare may be restricted, limited or delayed to the
same extent as referred to in parenthetical phrase immediately above).
4.3 No Finders or Brokers. Neither Primergy nor any officer or director has
engaged any finder or broker in connection with the transactions contemplated
hereunder.
4.4 Consents and Approvals of Governmental Authorities. No characteristic
of Primergy or of the nature of its business or operations requires any consent,
approval or authorization of, or declaration, filing or registration with any
governmental or regulatory authority in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
ARTICLE 5 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF WELLCARE
All obligations of WellCare which are to be discharged under this Agreement
at the Closing are subject to the performance, at or prior to the Closing, of
all covenants and agreements contained herein which are to be performed by
Primergy at or prior to the Closing and to the fulfillment at, or prior to, the
Closing, of each of the following conditions (unless expressly waived in writing
by WellCare at any time at or prior to the Closing):
5.1 Representations and Warranties True. All of the representations and
warranties made by Primergy contained in Article 4 of this Agreement shall be
true as of the date of this Agreement, shall be deemed to have been made again
at and as of the date of Closing, and shall be true at and as of the date of
Closing in all material respects; Primergy shall have performed and complied in
all material respects with all covenants and conditions required by this
Agreement to be performed or complied with by then prior to or at the Closing;
and WellCare shall have been furnished with a certificate of the President or
any Vice President of Primergy, dated the Closing Date, in such officer's
capacity, certifying to the truth of such representations and warranties as of
the Closing and to the fulfillment of such covenants and conditions.
<PAGE>
-6-
5.2 Opinion of Counsel. WellCare shall have been furnished with an opinion
dated the Closing Date of Nixon, Peabody, LLP, counsel to Primergy, in form and
substance satisfactory to WellCare, to the effect set forth as Appendix 5.2
attached hereto.
5.3 Authority. All action required to be taken by or on the part of
Primergy to authorize the execution, delivery and performance of this Agreement
by Primergy and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by the Board of Directors of Primergy.
5.4 No Obstructive Proceeding. No action or proceedings shall have been
instituted against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be subsisting against WellCare, or
the officers or directors of WellCare, which seeks to, or would, render it
unlawful as of the Closing to effect the transactions contemplated hereby in
accordance with the terms hereof, and no such action shall seek damages in a
material amount by reason of the transactions contemplated hereby. Also, no
substantive legal objection to the transactions contemplated by this Agreement
shall have been received from or threatened by any governmental department or
agency.
5.5 Proceedings and Documents Satisfactory. All proceedings in connection
with the transactions contemplated hereby and all certificates and documents
delivered to WellCare pursuant to this Agreement shall be satisfactory in form
and substance to WellCare and its counsel acting reasonably and in good faith.
ARTICLE 6 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PRIMERGY
All obligations of Primergy which are to be discharged under this Agreement
at the Closing are subject to the performance, at or prior to the Closing, of
all covenants and agreements contained herein which are to be performed by
WellCare at or prior to the Closing and to the fulfillment at or prior to the
Closing of each of the following conditions (unless expressly waived in writing
by Primergy at any time at or prior to the Closing):
6.1 Representations and Warranties True. All of the representations and
warranties of WellCare contained in Article 3 of this Agreement shall be true as
of the date of this Agreement, shall be deemed to have been made again at and as
of the Closing, and shall be true at and as of the date of Closing in all
material respects; WellCare shall have performed or complied in all material
respects with all covenants and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing; and Primergy shall
be furnished with a certificate of the President or any Vice President of
WellCare, dated the Closing Date, in such person's corporate capacity,
certifying to the truth of such representations and warranties as of the time of
the Closing and to the fulfillment of such covenants and conditions.
<PAGE>
-7-
6.2 Authority. All action required to be taken by or on the part of
WellCare to authorize the execution, delivery and performance of this Agreement
by WellCare and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by the Board of Directors of WellCare.
6.3 No Obstructive Proceeding. No action or proceedings shall have been
instituted against, and no order, decree or judgment of any court, agency,
commission or governmental authority shall be subsisting against Primergy or the
officers or directors of Primergy which seeks to, or would, render it unlawful
as of the Closing to effect the transactions contemplated hereby in accordance
with the terms hereof, and no such action shall seek damages in a material
amount by reason of the transaction contemplated hereby. Also, no substantive
legal objection to the transactions contemplated by this Agreement shall have
been received from or threatened by any governmental department or agency.
6.4 Opinion of WellCare Counsel. WellCare shall have delivered to Primergy
at the Closing an opinion of Patel & O'Connor, P.A., counsel to WellCare, dated
the Closing Date, in form and substance satisfactory to Primergy, to the effect
set forth as Appendix 6.4 attached hereto.
6.5 Proceedings and Documents Satisfactory. All proceedings in connection
with the transactions contemplated hereby and all certificates and documents
delivered to Primergy pursuant to this Agreement shall be satisfactory in form
and substance to Primergy and its counsel acting reasonably and in good faith.
6.6 No Agency Proceedings. There shall not be pending or, to the knowledge
of Primergy, threatened, any claim, suit, action or other proceeding brought by
a governmental agency before any court or governmental agency, seeking to
prohibit or restrain the transactions contemplated by this Agreement or material
damages in connection therewith.
ARTICLE 7 MISCELLANEOUS
7.1 Consent to Primergy Transaction. WellCare hereby consents to
consummation of the transactions contemplated by Primergy and ProMedCo-HV and
waives any rights it may have under the IPA Service Agreements which might arise
therefrom.
7.2 Expenses. All expenses of the preparation of this Agreement and of the
transactions contemplated hereby, including, without limitation, counsel fees,
accounting fees, investment adviser's fees and disbursements, shall be borne by
the respective parties incurring such expense, whether or not such transactions
are consummated.
<PAGE>
-8-
7.3 Notices. All notices, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered in person
or mailed by certified mail or registered mail (postage prepaid) or sent by
reputable overnight courier service (charges prepaid):
To WellCare and
WellCare Management: WellCare of New York, Inc.
P.O. Box 4059
Kingston, NY 12402
Attention: Mary Lee Campbell-Wisely
with a copy to: Kiren C. Patel, M.D.
6800 North Dale Mabry
Suite 209
Tampa, FL 33614
and a copy to: Sandip I. Patel, Esq.
Patel & O'Connor, P.A.
2240 Bellair Road, Suite 160
Clearwater, FL 33764
To Primergy: Richard Weininger, M.D.
Primergy, Inc.
157 Stockade Drive
Kingston, NY 12401
with a copy to: Lori Green, Esq.
Nixon Peabody, LLP
Post Office Box 1051(zip 14603)
1300 Clinton Square
Rochester, NY 14604
with a copy to: ProMedCo Management Company
801 Cherry Street
Suite 1450
Fort Worth, TX 76102
Attention: Chief Executive Officer
with a copy to: John E. Gillmor, Esq.
Boult, Cummings, Conners & Berry, PLC
414 Union Street, Suite 1600
Nashville, TN 37219
<PAGE>
-9-
or to such other address as either WellCare or Primergy may designate by notice
to the other.
7.4 Entire Agreement. This Agreement and the Appendices, Exhibits,
schedules and documents delivered pursuant hereto constitute the entire contract
between the parties hereto pertaining to the subject matter hereof and supersede
all prior and contemporaneous agreements, understandings, negotiations and
discussions, whether written or oral, of the parties, and there are no
representations, warranties or other agreements between the parties in
connection with the subject matter hereof, except as specifically set forth
herein. No supplement, modification or waiver of this Agreement shall be binding
unless executed in writing by the parties to be bound thereby.
7.5 Alternative Dispute Resolution. Any dispute, disagreement, claim or
controversy arising out of or related to this Agreement (a "Disputed Matter")
may, at the option of either party hereto upon written notice to the other
party, be submitted to non-binding mediation before a mutually acceptable
neutral advisor. To the extent the neutral advisor is compensated, the parties
shall each bear half the cost. Any Disputed Matter that is not resolved through
mediation will be settled by binding arbitration in accordance with the rules of
commercial arbitration of the American Arbitration Association, and judgment
upon the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Such arbitration shall occur within Ulster County, New
York, unless the parties mutually agree to have such proceedings in some other
locale. The arbitrator(s) may in any such proceeding award attorneys' fees and
costs to the prevailing party.
7.6 Governing Law. THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW 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 NEW YORK. IN FURTHERANCE OF THE
FOREGOING, THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL CONTROL THE
INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN THOUGH UNDER THAT
JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF
SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
7.7 Legal Fees and Costs. In the event either party elects to incur legal
expenses to enforce or interpret any provision of this Agreement, the prevailing
party will be entitled to recover such legal expenses, including, without
limitation, reasonable attorneys' fees, costs and necessary disbursements, in
addition to any other relief to which such party shall be entitled.
7.8 Section Headings. The Section headings are for reference only and shall
not limit or control the meaning of any provision of this Agreement.
<PAGE>
-10-
7.9 Waiver. No delay or omission on the part of any party hereto in
exercising any right hereunder shall operate as a waiver of such right or any
other right under this Agreement.
7.10 Nature and Survival of Representations. All statements contained in
any certificate delivered by or on behalf of any of the parties to this
Agreement pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties made by the
respective parties hereunder. No representations or warranties made by the
parties shall survive the Closing by more than 12 months, except for the
following representations and warranties of Primergy set forth in ss.ss. 3.3,
3.4 and 3.5 shall survive the Closing for the applicable periods of limitations
for the commencement of actions.
7.11 Exhibits. All Exhibits, Appendices, schedules and documents referred
to in or attached to this Agreement are integral parts of this Agreement as if
fully set forth herein and all statements appearing therein shall be deemed to
be representations. All items disclosed hereunder shall be deemed disclosed only
in connection with the specific representation to which they are explicitly
referenced.
7.12 Assignment. No party hereto shall assign this Agreement without first
obtaining the written consent of the other party.
7.13 Binding On Successors and Assigns. Subject to ss. 7.12, this Agreement
shall inure to the benefit of and bind the respective heirs, administrators,
successors and assigns of the parties hereto. Nothing expressed or referred to
in this Agreement is intended or shall be construed to give any person other
than the parties to this Agreement or their respective successors or permitted
assigns any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein, it being the intention of the
parties to this Agreement that this Agreement shall be for the sole and
exclusive benefit of such parties or such successors and assigns and not for the
benefit of any other person.
7.14 Parties in Interest. Nothing in this Agreement is intended to confer
any right on any person other than the parties to it and their respective
successors and assigns, nor is anything in this Agreement intended to modify or
discharge the obligation or liability of any third person to any party to this
Agreement, nor shall any provision give any third person any right of
subrogation or action over against any party to this Agreement.
7.15 Amendments. This Agreement may be amended, but only in writing, signed
by the parties hereto.
7.16 Drafting Party. The provisions of this Agreement, and the documents
and instruments referred to herein, have been examined, negotiated, drafted and
revised by counsel for each party
<PAGE>
-11-
hereto and no implication shall be drawn nor made against any party hereto by
virtue of the drafting of this Agreement.
7.17 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall comprise one and the same instrument.
7.18 Reproduction of Documents. This Agreement and all documents relating
thereto, including without limitation, consents, waivers and modifications which
may hereafter be executed, the Exhibits and documents delivered at the Closing,
and financial statements, certificates and other information previously or
hereafter furnished to Primergy or ProMedCo-HV may be reproduced by Primergy or
ProMedCo-HV by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and ProMedCo-HV may destroy any original
documents so reproduced. WellCare agrees and stipulates that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by ProMedCo-HV in the
regular course of business) and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
7.19 Press Releases. Except as required by the Securities and Exchange
Commission or other regulatory agency, neither party to this Agreement shall
make any press releases or other public announcements relating to this Agreement
or the transactions contemplated hereby without the prior written consent of the
other.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
PRIMERGY, INC.
By /s/ Richard Weininger
----------------------
Its CEO/Chairman
Name Richard Weininger
PROMEDCO MANAGEMENT COMPANY
By /s/ Dale K. Edwards
-------------------------
Its Senior Vice President
Name Dale K. Edwards
<PAGE>
-12-
PROMEDCO OF THE HUDSON VALLEY, INC.
By /s/ Dale K. Edwards
-------------------------
Its Senior Vice President
Name Dale K. Edwards
WELLCARE OF NEW YORK, INC.
By /s/ Mary Lee Campbell-Wisley
----------------------------
Its President/CEO
Name Mary Lee Campbell-Wisley
THE WELLCARE MANAGEMENT GROUP, INC.
By /s/ Kiran C. Patel
------------------------------
Its President
Name Kiran C. Patel
<PAGE>
-13-
LIST OF APPENDICES
Number Description
2.1 Form of Promedco Guaranty
2.2 Form of Primergy Release
5.2 Form of opinion of Primergy's counsel to be delivered at the Closing
6.4 Form of opinion of WellCare's counsel to be delivered at the Closing
<PAGE>
-14-
APPENDIX 2.1
FORM OF PROMEDCO GUARANTY
GUARANTY
ProMedCo Management Company, a Delaware corporation ("ProMedCo"), which is
the sole shareholder of ProMedCo of the Hudson Valley, Inc. ("ProMedCo-HV"),
hereby guarantees the payment of all sums due to be paid by Primergy, Inc.
("Primergy") pursuant to the provisions of Section 2.1 and Section 2.4 of the
foregoing Agreement to which this Guaranty is attached, as and when such sums
are due and payable. Except as specifically set forth herein, the obligations of
ProMedCo under this Guaranty are irrevocable and unconditional.
Dated this 30th day of July, 1999
PROMEDCO MANAGEMENT COMPANY
By: /s/ Dale K. Edwards
-------------------------
Title: Senior Vice President
<PAGE>
APPENDIX 2.2A
RELEASE OF PRIMERGY
RELEASE
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, The WellCare Management Group, Inc., a New York
corporation with its principal place of business at Park West/Hurley Ave.
Extension, Kingston, New York 12402 ("WellCare"), together with its
subsidiaries, affiliates, officers, directors, shareholders, employees, agents,
attorneys, representatives, successors and assigns (collectively with WellCare,
the "Releasing Parties"), hereby (a) release and discharge Primergy, Inc., a New
York corporation with its principal place of business at 157 Stockade Drive,
Kingston, New York 12401 ("Primergy"), together with its subsidiaries,
affiliates, officers, directors, shareholders, employees, agents, attorneys,
representatives, successors and assigns (collectively with Primergy, the
"Released Parties") from (i) all obligations under the Promissory Note, dated
June 30, 1995, from Primergy to WellCare Medical Management, Inc. in the
original principal amount of $5,130,000, the Note Agreement, dated as of June
30, 1995, between WellCare Medical Management, Inc. and Primergy, the Guaranty,
dated as of May 9, 1996, by Primergy in favor of WellCare of New York, Inc., the
Promissory Note, dated February 26, 1996, between WellCare and Primergy in the
original principal amount of $215,000, the Promissory Note, dated February 19,
1997, from Primergy to WellCare in the original principal amount of $2,099,083,
and the Loan and Security Agreement, dated as of February 19, 1997, between
Primergy and WellCare, (ii) all obligations to issue shares of common stock of
Primergy to any of the Releasing Parties pursuant to options to purchase such
shares which may have been granted or assigned to WellCare, and (iii) 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 Releasing Parties or their respective successors
and assigns ever had, now have or hereafter can, shall or may have against
Primergy or any of the other Released Parties, for upon, or by reason of any
matter, cause or thing whatsoever (including, without limitation, the matters
referred to in (a)(i) and (ii) above) from the beginning of the world to the day
of the date of this General Release or arising hereafter as a result of in
connection with the matters referred to in (a)(i) and (ii) above, (b) represents
to Primergy and the Released Parties that none of the liabilities, claims,
causes of actions, costs or demands herein released has been assigned to any
person or entity, (c) acknowledges 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 of action, costs or
demands herein released but nevertheless herein agree that the releases set
forth herein shall be and remain effective in all respects, notwithstanding the
discovery of such different or additional facts, and (d) represents to Primergy
and the Released Parties that the
<PAGE>
-2-
indebtedness evidenced by the documents enumerated in this paragraph are the
only instruments evidencing any indebtedness from the Released Parties to the
Releasing Parties (except for the obligations created under the IPA Contracts
listed in the following paragraph).
Notwithstanding the foregoing, except for claims arising from actions
thereunder prior to January 1, 1997, the Releasing Parties do not release or
discharge any of the Released Parties from any obligations which arise out of
the IPA Service Agreement, dated April 21, 1998, between WellCare of New York,
Inc. and Dutchess Health Care Alliance IPA, Inc., the IPA Service Agreement,
dated May 1, 1998, between WellCare of New York, Inc. and Capital District
Health Care Alliance IPA, Inc., the IPA Service Agreement, dated April 21, 1998,
between WellCare of New York, Inc. and Orange Sullivan Health Care Alliance IPA,
Inc. (collectively, the "IPA Contracts"), the IPA Service Agreement, dated April
21, 1998, between WellCare of New York, Inc. and Ulster Health Care Alliance
IPA, Inc., and. the IPA Service Agreement, dated April 21, 1998, between
WellCare of New York, Inc. and Columbia Greene Health Care Alliance IPA, Inc.,
in each case as the same may be amended from time to time (collectively, the
"IPA Contracts").
This General Release shall be governed by the laws of the State of New
York, without reference to its principles of conflicts of law, as to all
matters, including but not limited to matters of validity construction, effect,
performance and remedies.
It is expressly understood by the Releasing Parties that ProMedCo
Management Company and its wholly owned subsidiary, ProMedCo of the Hudson
Valley, Inc. are relying upon the matters set forth herein and, therefore, are
third party beneficiaries of this General Release.
IN WITNESS WHEREOF, WellCare, on behalf of all of the Releasing Parties,
has caused this General Release to be executed as of the date set forth below.
WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Kiran C. Patel
--------------------------
Name: Kiran C. Patel
Its: President
<PAGE>
APPENDIX 2.2B
WELLCARE RELEASE
RELEASE
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Primergy, Inc., a New York corporation with its
principal place of business at 157 Stockade Drive, Kingston, New York 12401
("Primergy"), together with its subsidiaries (including without limitation the
Contracted IPAs defined below), affiliates, directors, shareholders, employees,
agents, attorneys, representatives, successors and assigns (collectively with
Primergy, the "Releasing Parties") hereby (a) release and discharge The WellCare
Management Group, Inc., a New York corporation with its principal place of
business at Park West/Hurley Ave. Extension, Kingston, New York 12402
("WellCare"), together with its subsidiaries, affiliates, officers, directors,
shareholders, employees, agents, attorneys, representatives, successors and
assigns (collectively with WellCare, the "Released Parties"), (i) all
obligations, past, present or future, respecting quality incentive payments due
and payable to Orange Sullivan Health Care Alliance IPA, Inc., Dutchess Health
Care Alliance IPA, Inc., Ulster Health Care Alliance IPA, Inc., Columbia Greene
Health Care Alliance IPA, Inc., and Capital District Health Care Alliance IPA,
Inc. (such entities are collectively referred to herein as the "Contracted IPAs"
and individually, each is referred to as a "Contracted IPA") which are wholly
owned subsidiaries of Primergy 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 Releasing
Parties or their respective successors and assigns ever had, now have or
hereafter can, shall or may have against WellCare or any of the other Released
Parties, for upon, or by reason of any matter, cause or thing whatsoever
(including, without limitation, the matters referred to in (a)(i) and (ii)
above) from the beginning of the world to the day of the date of this General
Release or arising hereafter as a result of in connection with the matters
referred to in (a)(i) and (ii) above, (b) represents to WellCare and the
Released Parties that none of the liabilities, claims, causes of actions, costs
or demands herein released has been assigned to any person or entity, (c)
acknowledges 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 of action, costs or demands herein released
but nevertheless herein agree that the releases set forth herein shall be and
remain effective in all respects, notwithstanding the discovery of such
different or additional facts, and (d) represents to WellCare and the Released
Parties that the indebtedness evidenced by the documents enumerated in this
paragraph are the only instruments evidencing any indebtedness from the Released
Parties to the Releasing Parties (except for the obligations created under the
IPA Contracts listed in the following paragraph).
Notwithstanding the foregoing, except for claims arising from actions
thereunder prior to July 31, 1999, the Releasing Parties do not release or
discharge any of the Released Parties from any obligations, except as set forth
above and as amended on or about July 31, 1999, which arise out of the IPA
Service Agreement, dated April 21, 1998, between WellCare of New York, Inc. and
<PAGE>
-2-
Dutchess Health Care Alliance IPA, Inc., the IPA Service Agreement, dated May 1,
1998, between WellCare of New York, Inc. and Capital District Health Care
Alliance IPA, Inc., the IPA Service Agreement, dated April 21, 1998, between
WellCare of New York, Inc. and Orange Sullivan Health Care Alliance IPA, Inc.
(collectively, the "IPA Contracts"), the IPA Service Agreement, dated April 21,
1998, between WellCare of New York, Inc. and Ulster Health Care Alliance IPA,
Inc., and. the IPA Service Agreement, dated April 21, 1998, between WellCare of
New York, Inc. and Columbia Greene Health Care Alliance IPA, Inc., in each case
as the same may be amended from time to time (collectively, the "IPA
Contracts").
This General Release shall be governed by the laws of the State of New
York, without reference to its principles of conflicts of law, as to all
matters, including but not limited to matters of validity construction, effect,
performance and remedies.
IN WITNESS WHEREOF, Primergy, on behalf of all of the Releasing Parties,
has caused this General Release to be executed as of the date set forth below.
PRIMERGY, INC.
By: /s/ Richard Weininger
-----------------------------
Name: Richard Weininger
Its: CEO/Chairman
<PAGE>
APPENDIX 5.2
OPINION OF COUNSEL TO PRIMERGY
[Letterhead of Nixon Peabody LLP]
July 29, 1999
The WellCare Management Group, Inc.
WellCare of New York, Inc.
P.O. Box 4059
Kingston, New York 12402
Ladies and Gentlemen:
We have acted as counsel to Primergy, Inc., a New York corporation
("Primergy"), in connection with the preparation of the Agreement dated as of
July 30, 1999 (the "Agreement") and have participated on behalf of Primergy in
connection with the acquisition of Primergy, Inc., a New York corporation by
ProMedCo-HV. This Opinion Letter is provided to you at the request of Primergy
pursuant to Section 5.2 of the Agreement. Except as otherwise indicated herein,
capitalized terms used in this Opinion Letter are defined as set forth in the
Agreement or the Accord (see below).
This Opinion Letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction therewith. The attorneys in this firm are licensed to
practice law in the State of New York and consequently the law covered by the
opinions expressed herein is limited to the Federal Law of the United States,
and the state of New York.
We have relied upon factual representations made by Primergy in Article 4
of the Agreement.
Based upon the foregoing and subject to the foregoing, we are of the
opinion that:
1. The Agreement is enforceable against Primergy. Primergy is a corporation
duly organized under the laws of the State of New York and as of February 23,
1999 (based solely on a good standing certificate from the Department of State
of the State of New York dated February 23, 1999) was in good standing under the
laws of the State of New York.
<PAGE>
NIXON PEABODY LLP
The WellCare Management Group, Inc.
WellCare of New York, Inc.
July 29, 1999
Page 2
2. Execution and delivery by Primergy of, and performance of its agreements
in, the Agreement do not (i) violate the Constituent Documents, (ii) breach, or
result in a default under, any existing obligation of Primergy under contracts
dealing with money borrowed by such corporation known to us, or (iii) breach or
otherwise violate any existing obligation of Primergy under Court Orders known
to us.
3. Execution and delivery by Primergy of, and performance by such
corporation of its agreements in, the Agreement do not violate applicable
provisions of statutory law or regulation.
The General Qualifications apply to the opinions set forth above.
This Opinion Letter may be relied upon by you only in connection with the
transaction and may not be used or relied upon by you or any other person for
any purpose whatsoever, except to the extent authorized in the Accord, without
in each instance, our prior written consent.
Very truly yours,
/s/ Nixon Peabody LLP
---------------------
<PAGE>
APPENDIX 6.4
OPINION OF COUNSEL TO WELLCARE
[LETTERHEAD OF PATEL & O'CONNOR]
July 20, 1999
Primergy, Inc.
ProMedCo Management Company
ProMedCo of the Hudson Valley, Inc.
157 Stockade Drive
Kingston, NY 12401
Gentlemen:
We have acted as counsel to The WellCare Management Group, Inc., a New York
corporation and WellCare of New York, Inc. (collectively referred to as
"WellCare"), in connection with that certain Agreement dated as of July 30, 1999
(the "Agreement") by and between WellCare, Primergy, ProMedCo, and ProMedCo-HV.
In connection with this opinion and with your permission, we have examined (i) a
copy of that certain Agreement dated July 30, 1999 and (ii) other documents
appropriate for the formation of this opinion. In addition, we have considered
such matters of law and fact as we considered appropriate for the purpose of
rendering the opinions set forth herein.
This Opinion Letter is governed by, and shall be interpreted in accordance with,
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion Letter should be
read in conjunction herewith. The attorneys in this firm are licensed to
practice law in the State of Floride and consequently the law covered by the
opinions expressed herein is limited to the Federal Law of the United States,
and the State of Florida.
We have relied upon factual representations made by WellCare in Article 3 of the
Agreement.
Based upon the foregoing and subject to the foregoing, we are of the opinion
that:
<PAGE>
1. WellCare is a corporation, duly organized and validly existing and in good
standing under the laws of the State of New York with full corporate power to
carry on its business as it is being conducted, and to enter into the Agreement
and to carry out the transactions contemplated hereby, subject to the limitation
set forth in Article 3.6 of the Agreement.
2. WellCare has been duly authorized to enter into the Agreement to which it
is a party and to perform its obligations thereunder, and the Agreement is
enforceable against WellCare, except as enforceability may be restricted,
limited, or delayed by bankruptcy, insolvency, moratorium or similar laws
affecting or relating to the enforcement of creditors' rights in general and
except as the enforceability of any provision of the Agreement is subject to
general principles of equity, regardless of whether enforceability is considered
in a proceeding at law or in equity and subject to the limitations set forth in
Article 3.6 of the Agreement.
3. No material facts have come to our attention which would lead us to believe
that the representations and warranties made by WellCare in Article 3 of the
Agreement is incorrect.
This opinion letter is furnished by us solely for your benefit in connection
with the transaction referred to in the Agreement and may not otherwise be
reproduced, quoted in whole or in part, filed publicly or circulated to or
relied upon by any other person, nor used in connection with any other
transaction. This opinion letter addressed the law as of the date hereof and we
undertake to obligation to inform you of any changes in the law occurring after
the date hereof.
This opinion letter constitutes the opinion of counsel referred to in Section
6.4 of that certain Agreement hereinabove referenced.
Very truly yours,
PATEL & O'CONNOR, P.A.
By: /s/ Sandip I. Patel
------------------------
Sandip I. Patel, Esquire
<PAGE>
AMENDMENT TO IPA SERVICE AGREEMENT
This Agreement is dated this 31 TH day of July, 1999 (the "Effective
Date"), by and between WELLCARE OF NEW YORK, INC., a New York business
corporation ("WellCare"), and DUTCHESS HEALTH CARE ALLIANCE IPA, INC., a New
York business corporation ("IPA").
W I T N E S S E T H:
--------------------
WHEREAS, WellCare is a health maintenance organization certified under
Article 44 of the New York Public Health Law and desires to make primary and
specialty physician services available to its IPA Members (as hereinafter
defined) in the IPA Service Area (as hereinafter defined);
WHEREAS, IPA is duly incorporated under the laws of the State of New York
as an independent practice association organized to arrange for the delivery of
certain primary and specialty health care services and has entered into written
provider agreements with IPA Physicians (as hereinafter defined);
WHEREAS, WellCare and IPA entered into an IPA Service Agreement dated April
21, 1998, (the "IPA Agreement"), under which IPA has agreed to arrange for the
provision of, and be responsible for the payment to IPA Physicians and all other
providers who provide, primary and certain specialty health care services to IPA
Members;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound hereby, the parties agree as follows:
1. Amendment of the IPA Agreement to Remove FPA References. All references
to "FPA Medical Management, Inc." or "FPA" shall be deleted from the IPA
Agreement.
2. Amendment of Section 4.1(a) of the IPA Agreement. Section 4.1(a) of the
IPA Agreement is hereby amended by changing the fourth sentence thereof to read
as follows:
"IPA shall be obligated to pay all interest and any penalties associated
with any failure to comply with all laws and regulations relating to prompt
payment of claims, and shall hold WellCare harmless from any penalties imposed
on WellCare as a result of IPA's failure to pay claims promptly, unless such
failure was caused by actions or lack of actions by WellCare."
3. Amendment of Section 2.7 of the IPA Agreement. Section 2.7 of the IPA
Agreement is hereby amended in its entirety to read as follows:
<PAGE>
-2-
"2.7 WellCare Right to Contract. On and after the date of this Agreement,
WellCare shall not contract with any primary care physician who is or has been
in the past under any contract with IPA or who, after the date hereof, enters
into any contract with IPA to provide, or any PCP to provide, individually or
through any professional corporation, physician hospital organization, or
otherwise, Covered Services to Members in the IPA Service Area, except that, for
PCPs which have never been under contract with IPA, WellCare shall have to right
to identify any such PCPs by written notice to IPA and IPA shall have 90 days
from the date of such notice within which to negotiate a mutually satisfactory
agreement with such identified PCPs, and after the expiration of such 90 day
period without any executed contract with IPA and such PCP, WellCare shall then
be free to contract with such PCP itself. Nothing herein shall prevent WellCare
from obtaining back-up contracts as required in Section 3.23 of the IPA
Agreement."
4. Amendment of Section 3.2 of the IPA Agreement. Section 3.2 of the IPA
Service Agreement is hereby amended by:
(i) changing the second sentence in clause (a) to read: "Accordingly,
IPA shall (i) use its best efforts to maintain network adequacy
and (ii) contract with, at a minimum, the same number and type of
Specialists in the Service Area with which the Departments
require WellCare to so contract."
(ii) deleting clause (b) thereof.
In addition, Attachment 3.2 to the IPA Service Agreement is also deleted in its
entirety.
5. Amendment of Section 6.1 of the IPA Agreement. Section 6.1 of the IPA
Agreement is hereby amended in its entirety to read as follows:
"6.1 Term. The term of this Agreement shall commence on the Effective Date
and shall continue through July 31, 2002."
6. Amendment of Section 6.2(d). Section 6.2(d) of the IPA Agreement is
hereby amended by adding a new sentence at the end thereof reading as follows:
"In addition an event of material breach hereunder shall occur if IPA shall
fail to bring itself into compliance with the prompt payment regulations of the
State of New York within thirty (30) days after receipt from WellCare of written
notice that IPA is out of compliance therewith."
7. Amendment of Section 6.2(e) of the IPA Agreement. Section 6.2(e) of the
IPA Agreement is hereby deleted in its entirety.
8. Amendment of Section 6.3 of the IPA Agreement. Section 6.3 of the IPA
Agreement is
<PAGE>
-3-
deleted in its entirety.
9. Amendment of Attachment 4.1. Attachment 4.1 to the IPA Agreement is
hereby amended by deleting Section 4 "Quality and Utilization Based
Compensation" in its entirety.
10. Other Terms and Provisions of the IPA Agreement. All other terms and
provision of the IPA Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement intending to
be bound from the date set forth in this Agreement.
DUTCHESS HEALTH WELLCARE OF NEW YORK, INC.
CARE ALLIANCE IPA, INC.
By: /s/ Richard Weininger By: /s/ Mary Lee Campbell-Wisley
------------------------ ----------------------------
Name: Richard Weininger Name: Mary Lee Campbell-Wisley
Title: President Title: President/CEO
<PAGE>
AMENDMENT TO IPA SERVICE AGREEMENT
This Agreement is dated this 31 TH day of July, 1999 (the "Effective
Date"), by and between WELLCARE OF NEW YORK, INC., a New York business
corporation ("WellCare"), and ULSTER HEALTH CARE ALLIANCE IPA, INC., a New York
business corporation ("IPA").
W I T N E S S E T H:
--------------------
WHEREAS, WellCare is a health maintenance organization certified under
Article 44 of the New York Public Health Law and desires to make primary and
specialty physician services available to its IPA Members (as hereinafter
defined) in the IPA Service Area (as hereinafter defined);
WHEREAS, IPA is duly incorporated under the laws of the State of New York
as an independent practice association organized to arrange for the delivery of
certain primary and specialty health care services and has entered into written
provider agreements with IPA Physicians (as hereinafter defined);
WHEREAS, WellCare and IPA entered into an IPA Service Agreement dated April
21, 1998, (the "IPA Agreement"), under which IPA has agreed to arrange for the
provision of, and be responsible for the payment to IPA Physicians and all other
providers who provide, primary and certain specialty health care services to IPA
Members;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound hereby, the parties agree as follows:
1. Amendment of the IPA Agreement to Remove FPA References. All references
to "FPA Medical Management, Inc." or "FPA" shall be deleted from the IPA
Agreement.
2. Amendment of Section 4.1(a) of the IPA Agreement. Section 4.1(a) of the
IPA Agreement is hereby amended by changing the fourth sentence thereof to read
as follows:
"IPA shall be obligated to pay all interest and any penalties associated
with any failure to comply with all laws and regulations relating to prompt
payment of claims, and shall hold WellCare harmless from any penalties imposed
on WellCare as a result of IPA's failure to pay claims promptly, unless such
failure was caused by actions or lack of actions by WellCare."
3. Amendment of Section 2.7 of the IPA Agreement. Section 2.7 of the IPA
Agreement is hereby amended in its entirety to read as follows:
<PAGE>
-2-
"2.7 WellCare Right to Contract. On and after the date of this Agreement,
WellCare shall not contract with any primary care physician who is or has been
in the past under any contract with IPA or who, after the date hereof, enters
into any contract with IPA to provide, or any PCP to provide, individually or
through any professional corporation, physician hospital organization, or
otherwise, Covered Services to Members in the IPA Service Area, except that, for
PCPs which have never been under contract with IPA, WellCare shall have to right
to identify any such PCPs by written notice to IPA and IPA shall have 90 days
from the date of such notice within which to negotiate a mutually satisfactory
agreement with such identified PCPs, and after the expiration of such 90 day
period without any executed contract with IPA and such PCP, WellCare shall then
be free to contract with such PCP itself. Nothing herein shall prevent WellCare
from obtaining back-up contracts as required in Section 3.23 of the IPA
Agreement."
4. Amendment of Section 3.2 of the IPA Agreement. Section 3.2 of the IPA
Service Agreement is hereby amended by:
(i) changing the second sentence in clause (a) to read: "Accordingly,
IPA shall (i) use its best efforts to maintain network adequacy
and (ii) contract with, at a minimum, the same number and type of
Specialists in the Service Area with which the Departments
require WellCare to so contract."
(ii) deleting clause (b) thereof.
In addition, Attachment 3.2 to the IPA Service Agreement is also deleted in its
entirety.
5. Amendment of Section 6.1 of the IPA Agreement. Section 6.1 of the IPA
Agreement is hereby amended in its entirety to read as follows:
"6.1 Term. The term of this Agreement shall commence on the Effective Date
and shall continue through July 31, 2002."
6. Amendment of Section 6.2(d). Section 6.2(d) of the IPA Agreement is
hereby amended by adding a new sentence at the end thereof reading as follows:
"In addition an event of material breach hereunder shall occur if IPA shall
fail to bring itself into compliance with the prompt payment regulations of the
State of New York within thirty (30) days after receipt from WellCare of written
notice that IPA is out of compliance therewith."
7. Amendment of Section 6.2(e) of the IPA Agreement. Section 6.2(e) of the
IPA Agreement is hereby deleted in its entirety.
8. Amendment of Section 6.3 of the IPA Agreement. Section 6.3 of the IPA
Agreement is
<PAGE>
-3-
deleted in its entirety.
9. Amendment of Attachment 4.1. Attachment 4.1 to the IPA Agreement is
hereby amended by deleting Section 4 "Quality and Utilization Based
Compensation" in its entirety.
10. Other Terms and Provisions of the IPA Agreement. All other terms and
provision of the IPA Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement intending to
be bound from the date set forth in this Agreement.
ULSTER HEALTH WELLCARE OF NEW YORK, INC.
CARE ALLIANCE IPA, INC.
By: /s/ Richard Weininger By: /s/ Mary Lee Campbell-Wisley
------------------------ ----------------------------
Name: Richard Weininger Name: Mary Lee Campbell-Wisley
Title: President Title: President/CEO
<PAGE>
AMENDMENT TO IPA SERVICE AGREEMENT
This Agreement is dated this 31 TH day of July, 1999 (the "Effective
Date"), by and between WELLCARE OF NEW YORK, INC., a New York business
corporation ("WellCare"), and COLUMBIA GREENE HEALTH CARE ALLIANCE IPA, INC., a
New York business corporation ("IPA").
W I T N E S S E T H:
--------------------
WHEREAS, WellCare is a health maintenance organization certified under
Article 44 of the New York Public Health Law and desires to make primary and
specialty physician services available to its IPA Members (as hereinafter
defined) in the IPA Service Area (as hereinafter defined);
WHEREAS, IPA is duly incorporated under the laws of the State of New York
as an independent practice association organized to arrange for the delivery of
certain primary and specialty health care services and has entered into written
provider agreements with IPA Physicians (as hereinafter defined);
WHEREAS, WellCare and IPA entered into an IPA Service Agreement dated April
21, 1998, (the "IPA Agreement"), under which IPA has agreed to arrange for the
provision of, and be responsible for the payment to IPA Physicians and all other
providers who provide, primary and certain specialty health care services to IPA
Members;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound hereby, the parties agree as follows:
1. Amendment of the IPA Agreement to Remove FPA References. All references
to "FPA Medical Management, Inc." or "FPA" shall be deleted from the IPA
Agreement.
2. Amendment of Section 4.1(a) of the IPA Agreement. Section 4.1(a) of the
IPA Agreement is hereby amended by changing the fourth sentence thereof to read
as follows:
"IPA shall be obligated to pay all interest and any penalties associated
with any failure to comply with all laws and regulations relating to prompt
payment of claims, and shall hold WellCare harmless from any penalties imposed
on WellCare as a result of IPA's failure to pay claims promptly, unless such
failure was caused by actions or lack of actions by WellCare."
3. Amendment of Section 2.7 of the IPA Agreement. Section 2.7 of the IPA
Agreement is
<PAGE>
-2-
hereby amended in its entirety to read as follows:
"2.7 WellCare Right to Contract. On and after the date of this Agreement,
WellCare shall not contract with any primary care physician who is or has been
in the past under any contract with IPA or who, after the date hereof, enters
into any contract with IPA to provide, or any PCP to provide, individually or
through any professional corporation, physician hospital organization, or
otherwise, Covered Services to Members in the IPA Service Area, except that, for
PCPs which have never been under contract with IPA, WellCare shall have to right
to identify any such PCPs by written notice to IPA and IPA shall have 90 days
from the date of such notice within which to negotiate a mutually satisfactory
agreement with such identified PCPs, and after the expiration of such 90 day
period without any executed contract with IPA and such PCP, WellCare shall then
be free to contract with such PCP itself. Nothing herein shall prevent WellCare
from obtaining back-up contracts as required in Section 3.23 of the IPA
Agreement."
4. Amendment of Section 3.2 of the IPA Agreement. Section 3.2 of the IPA
Service Agreement is hereby amended by:
(i) changing the second sentence in clause (a) to read: "Accordingly,
IPA shall (i) use its best efforts to maintain network adequacy
and (ii) contract with, at a minimum, the same number and type of
Specialists in the Service Area with which the Departments
require WellCare to so contract."
(ii) deleting clause (b) thereof.
In addition, Attachment 3.2 to the IPA Service Agreement is also deleted in its
entirety.
5. Amendment of Section 6.1 of the IPA Agreement. Section 6.1 of the IPA
Agreement is hereby amended in its entirety to read as follows:
"6.1 Term. The term of this Agreement shall commence on the Effective Date
and shall continue through July 31, 2002."
6. Amendment of Section 6.2(d). Section 6.2(d) of the IPA Agreement is
hereby amended by adding a new sentence at the end thereof reading as follows:
"In addition an event of material breach hereunder shall occur if IPA shall
fail to bring itself into compliance with the prompt payment regulations of the
State of New York within thirty (30) days after receipt from WellCare of written
notice that IPA is out of compliance therewith."
7. Amendment of Section 6.2(e) of the IPA Agreement. Section 6.2(e) of the
IPA Agreement is hereby deleted in its entirety.
<PAGE>
-3-
8. Amendment of Section 6.3 of the IPA Agreement. Section 6.3 of the IPA
Agreement is deleted in its entirety.
9. Amendment of Attachment 4.1. Attachment 4.1 to the IPA Agreement is
hereby amended by deleting Section 4 "Quality and Utilization Based
Compensation" in its entirety.
10. Other Terms and Provisions of the IPA Agreement. All other terms and
provision of the IPA Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement intending to
be bound from the date set forth in this Agreement.
COLUMBIA GREENE HEALTH WELLCARE OF NEW YORK, INC.
CARE ALLIANCE IPA, INC.
By: /s/ Richard Weininger By: /s/ Mary Lee Campbell-Wisley
------------------------ ----------------------------
Name: Richard Weininger Name: Mary Lee Campbell-Wisley
Title: President Title: President/CEO
<PAGE>
AMENDMENT TO IPA SERVICE AGREEMENT
This Agreement is dated this 31 TH day of July, 1999 (the "Effective
Date"), by and between WELLCARE OF NEW YORK, INC., a New York business
corporation ("WellCare"), and CAPITAL DISTRICT HEALTH CARE ALLIANCE IPA, INC., a
New York business corporation ("IPA").
W I T N E S S E T H:
--------------------
WHEREAS, WellCare is a health maintenance organization certified under
Article 44 of the New York Public Health Law and desires to make primary and
specialty physician services available to its IPA Members (as hereinafter
defined) in the IPA Service Area (as hereinafter defined);
WHEREAS, IPA is duly incorporated under the laws of the State of New York
as an independent practice association organized to arrange for the delivery of
certain primary and specialty health care services and has entered into written
provider agreements with IPA Physicians (as hereinafter defined);
WHEREAS, WellCare and IPA, as a successor to PC, entered into an IPA
Service Agreement dated April 21, 1998, (the "IPA Agreement"), under which IPA
has agreed to arrange for the provision of, and be responsible for the payment
to IPA Physicians and all other providers who provide, primary and certain
specialty health care services to IPA Members;
WHEREAS, the Commissioner (as defined herein) has approved this Agreement
as to form.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound hereby, the parties agree as follows:
1. Amendment of Section 4.1(a) of the IPA Agreement. Section 4.1(a) of the
IPA Agreement is hereby amended by changing the fourth sentence thereof to read
as follows:
"IPA shall be obligated to pay all interest and any penalties associated
with any failure to comply with all laws and regulations relating to prompt
payment of claims, and shall hold WellCare harmless from any penalties imposed
on WellCare as a result of IPA's failure to pay claims promptly, unless such
failure was caused by actions or lack of actions by WellCare."
2. Amendment of Section 6.1 of the IPA Agreement. Section 6.1 of the IPA
Agreement is hereby amended in its entirety to read as follows:
"6.1 Term. The term of this Agreement shall commence on the Effective Date
and shall continue through July 31, 2002."
<PAGE>
-2-
3. Amendment of Section 6.2(d). Section 6.2(d) of the IPA Agreement is
hereby amended by adding a new sentence at the end thereof reading as follows:
"In addition an event of material breach hereunder shall occur if IPA shall
fail to bring itself into compliance with the prompt payment regulations of the
State of New York within thirty (30) days after receipt from WellCare of written
notice that IPA is out of compliance therewith."
4. Amendment of Attachment 4.1. Attachment 4.1 to the IPA Agreement is
hereby amended by deleting Section 3 "Quality and Utilization Based
Compensation" in its entirety.
5. Amendment of Section 6.2(e) and (f) of the IPA Agreement. Sections
6.2(e) and 6.2(f) of the IPA Agreement are hereby deleted in their entirety.
6. Other Terms and Provisions of the IPA Agreement. All other terms and
provision of the IPA Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement intending to
be bound from the date set forth in this Agreement.
CAPITAL DISTRICT HEALTH WELLCARE OF NEW YORK, INC.
ALLIANCE IPA, INC.
By: /s/ Richard Weininger By: /s/ Mary Lee Campbell-Wisley
------------------------ ----------------------------
Name: Richard Weininger Name: Mary Lee Campbell-Wisley
Title: President Title: President/CEO
THE WELLCARE MANAGEMENT GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK
(in thousands, except per share data)
(unaudited)
THREE MONTHS ENDED SEPT 30,
---------------------------
1999 1998
---- ----
LOSS BEFORE INCOME TAXES & (76) (2,949)
EXTRAORDINARY BENEFITS
PROVISION FOR INCOME TAXES -- --
EXTRAORDINARY BENEFIT 3,078
------- --------
NET INCOME (LOSS) $ 3,002 $ (2,949)
======= ========
INCOME (LOSS) PER SHARE -
BEFORE INCOME TAXES &
EXTRAORDINARY BENEFITS $ (0.01) $ (0.39)
======= ========
Weighted average shares of
common stock outstanding 38,717 7,549
======= ========
INCOME (LOSS) PER SHARE - $ 0.08 $ (0.39)
======= ========
Weighted average shares of
common stock outstanding 38,717 7,549
======= ========
INCOME (LOSS) PER SHARE - DILUTED $ 0.08 $ (0.39)
======= ========
Weighted average shares of common
stock and common stock equivalents Not Not
outstanding Applicable Applicable
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000900630
<NAME> THE WELLCARE MANAGEMENT GROUP, INC>
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 6,395
<SECURITIES> 2
<RECEIVABLES> 5,808
<ALLOWANCES> 2,412
<INVENTORY> 0
<CURRENT-ASSETS> 15,296
<PP&E> 5,483
<DEPRECIATION> 4,304
<TOTAL-ASSETS> 20,525
<CURRENT-LIABILITIES> 23,990
<BONDS> 850
2
0
<COMMON> 75
<OTHER-SE> (4,399)
<TOTAL-LIABILITY-AND-EQUITY> 20,525
<SALES> 23,062
<TOTAL-REVENUES> 23,353
<CGS> 20,147
<TOTAL-COSTS> 23,189
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (76)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 3,078
<CHANGES> 0
<NET-INCOME> 3,002
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
