o Confidential, for Use of the
Commission Only (as permitted by Rule 14a-6(e)(2))
o Definitive
Proxy Statement
o Definitive
Additional Materials
o Soliciting
Material Pursuant to §240.14a-12
WellCare
Health Plans, Inc.
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
x
No fee
required.
o
Fee computed
on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1)
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each class of securities to which transaction applies:
(2)
Aggregate
number of securities to which transaction applies:
(3)
Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
(4)
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maximum aggregate value of transaction:
(5)
Total fee
paid:
o
Fee
paid previously with preliminary materials.
o
Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its
filing.
You are
cordially invited to attend the 2009 annual meeting of shareholders of WellCare
Health Plans, Inc. to be held on July 30, 2009, at 10:00 a.m. Eastern Time, at
the Grand Hyatt Tampa Bay, 2900 Bayport Drive, Tampa, Florida33607.
At the meeting you will be asked to:
(a) elect seven Directors; (b) approve and adopt an amendment to our certificate
of incorporation to declassify our Board of Directors; (c) approve and adopt
an amendment to our certificate of incorporation to provide that Directors
may be removed with or without cause (except for Class III Directors
serving the remaining portion of a multi-year term, who, if the amendment is
approved and adopted, could not be removed without cause prior to the end of
their current multi-year term); ( d ) ratify the appointment of Deloitte
& Touche LLP as our independent registered public accounting firm for fiscal
year 2009; and ( e ) transact such other business as may properly come
before the meeting or any adjournment or postponement of the
meeting.
The accompanying proxy statement
provides a detailed description of these proposals. We urge you to
read the accompanying materials so that you will be informed about the business
to be addressed at the annual meeting.
It is important that your shares be
represented at the annual meeting. Accordingly, we ask you, whether
or not you plan to attend the annual meeting, to complete, sign and date your
proxy card and return it to us promptly in the enclosed envelope or to otherwise
vote in accordance with the instructions on your proxy card. You
could save us money by voting through the internet or by
telephone. If you attend the meeting, you may vote in person, even if
you have previously mailed in your proxy. However, if you hold your
shares in a brokerage account, or “street name,” you will need to provide a
proxy from the institution that holds your shares reflecting stock ownership as
of the record date to be able to vote by ballot at the meeting.
We look forward to seeing you at the
meeting.
IF
YOU PLAN TO ATTEND THE MEETING:
Registration and seating will begin
at 9:30 a.m. Eastern Time on July 30, 2009. Shareholders and their
guests will be asked to sign-in and may be asked to present valid picture
identification. Shareholders holding stock in street name will need
to obtain a proxy from the institution that holds their shares to evidence stock
ownership as of the record date. If you require special accommodations (such as
wheelchair access) to participate in this meeting, please send a written request
to Timothy S. Susanin, our Secretary, at WellCare Health Plans, Inc., 8735
Henderson Road, Tampa, Florida33634 by July 1, 2009 with your request.
After July 1, we cannot guarantee that we can accommodate your
request.
c.
To approve and adopt an amendment to our certificate of
incorporation to provide that Directors may be removed with or
without cause (except for Class III Directors serving the remaining
portion of a multi-year term, who, if the amendment is approved and
adopted, could not be removed without cause prior to the end of their
current multi-year term);
d.
To ratify the appointment of Deloitte & Touche LLP as our independent
registered public accounting firm for fiscal year 2009; and
e. To
transact such other business as may properly come before the meeting or
any adjournment or postponement of the meeting.
RECORD
DATE
You
can vote if you were a shareholder of record at the close of business on
June 3, 2009.
PROXY
VOTING
It
is important that you vote your shares. You can vote your
shares by completing and returning the proxy card sent to
you. Most shareholders have the option of voting through the
internet or by telephone. Please refer to your proxy card to
determine if there are other voting options available to
you. You can revoke a proxy at any time prior to its exercise
at the meeting by following the instructions in the accompanying proxy
statement.
This
notice and the enclosed proxy statement are first being made available to our
shareholders on or about June ___, 2009.
Timothy
S. Susanin
Senior
Vice President, General Counsel and
Secretary
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL
MEETING
OF SHAREHOLDERS TO BE HELD ON JULY 30, 2009:
This
proxy statement and our annual report to shareholders are available on
our
This proxy statement is being
furnished to shareholders of WellCare Health Plans, Inc., a Delaware
corporation, in connection with the solicitation of proxies by our Board of
Directors for use at our annual meeting of shareholders to be held on July 30,2009, at 10:00 a.m. Eastern Time, at the Grand Hyatt Tampa Bay, 2900 Bayport
Drive, Tampa, Florida33607, and any adjournment or postponement of the
meeting. This proxy statement is dated June ___, 2009 and is first
being made available to shareholders on or about June ___, 2009.
REDUCE
PRINTING AND MAILING COSTS
If you share the same last name with
other shareholders living in your household, you may receive only one copy of
our proxy statement and 2008 annual report. Please see the section
entitled “Multiple
Shareholders Having the Same Address” at the end of this proxy statement
for more information on this important initiative to reduce printing and mailing
costs.
You may help us reduce printing and
mailing costs further by opting to receive future proxy materials by
e-mail. Please see the response to the question “Can I access the proxy materials on
the internet?” below for more information on electronic delivery of proxy
materials.
ABOUT THE MEETING
What
is the purpose of the annual meeting?
At the annual meeting, shareholders
will be asked to consider and vote upon four proposals: (a) to elect
seven Directors; (b) to approve and adopt an amendment to our certificate of
incorporation to declassify our Board of Directors ; (c) to approve and adopt
an amendment to our certificate of incorporation to provide that Directors
may be removed with or without cause (except for Class III Directors serving the
remaining portion of a multi-year term, who, if the amendment is approved and
adopted, could not be removed without cause prior to the end of their current
multi-year term); and (d) to ratify the appointment of Deloitte &
Touche LLP as our independent registered public accounting firm for fiscal year
2009. You will also be asked to vote on such other business as may
properly come before the meeting or any adjournment or postponement of the
meeting. In addition, management will report on our performance and
respond to your questions.
Who
is entitled to vote at the meeting?
Only shareholders of record at the
close of business on June 3, 2009, the date our Board of Directors fixed as the
record date for determining holders of issued and outstanding shares of our
common stock, par value $0.01 per share, are entitled to notice of and to vote
at the annual meeting.
What
constitutes a quorum and why is one required?
The
presence at the meeting, in person or by proxy, of the holders of a majority of
the aggregate voting power of our common stock issued and outstanding on the
record date will constitute a quorum for the transaction of business at the
annual meeting. A quorum is required by law for any action to be
taken at the annual meeting. As of the record date, there were
42,227,869 shares of common stock issued and outstanding.
1
Abstentions, withhold votes and broker non-votes are counted for purposes of
determining the number of shares considered to be present or represented at the
meeting for purposes of determining quorum, but will not be considered cast on a
matter. A broker non-vote occurs when a broker or nominee, holding
shares in street name for the beneficial owner, has not received voting
instructions from the beneficial owner and either does not have discretionary
authority to vote on the matter or has such discretionary authority but does not
vote on the matter.
How
do I vote?
If you complete and properly sign and
return the accompanying proxy card in time for the meeting, it will be voted as
you direct. If you are a registered shareholder and attend the
meeting, you may deliver your completed proxy card in person. If your
shares are held by a broker in street name and you wish to vote at the meeting
in person or by proxy, you must obtain a proxy from your broker to evidence your
ownership and voting rights.
Can
I vote by telephone or electronically?
You may vote by telephone or
electronically through the internet by following the instructions included on
your proxy card. We encourage you to vote by telephone or through the
internet because such votes are less costly for us to collect and
tally. The deadline for voting by telephone or through the internet
is 1:00 a.m., Eastern Time, on July 30, 2009.
How
many votes do I have?
Each share of common stock is
entitled to one vote. The enclosed proxy card shows the number of
shares of common stock that you are entitled to vote.
Can
I change my vote?
Unless your
proxy specifies otherwise, proxies will be voted: (a) FOR the election of the
nominated Directors; (b) FOR the amendment to our
certificate of incorporation to
declassify our Board of Directors; (c) FOR the
amendment to our certificate of incorporation to provide that Directors may be
removed with or without cause (except for Class III Directors serving the
remaining portion
of a multi-year term, who, if the amendment is approved and adopted, could not
be removed without cause prior to the end of their current multi-year term);
(d) FOR the ratification of
Deloitte & Touche LLP as our independent registered public accounting firm
for fiscal year 2009; and ( e ) otherwise in the discretion of the proxies
as to any other matter that may come before the annual meeting or any
adjournment or postponement of the meeting.
Any shareholder who has given a proxy
has the power to revoke such proxy at any time before it is voted either: (a) by
filing a written revocation or a duly executed proxy bearing a later date with
Timothy S. Susanin, our secretary, at WellCare Health Plans, Inc., 8735
Henderson Road, Tampa, Florida33634; (b) by appearing at the annual meeting and
voting in person; or (c) by re-voting by telephone or on the
internet. Attendance at the annual meeting will not in and of itself
constitute the revocation of a proxy. Voting by those present during
the conduct of the annual meeting will be by ballot.
How
will my votes be counted?
One or more inspectors of election
will count and tabulate all votes at the annual meeting.
What
vote is required to approve each proposal?
Proposal One – Election
of Directors. The affirmative vote of a plurality of the votes
of the shares present by person or represented by proxy at the meeting and
entitled to vote in the election of Directors is required to elect a Director
nominee. Withhold votes and broker non-votes will not be treated as
voting on this proposal and, accordingly, will have no affect on the outcome of
the vote. There is no cumulative voting for Directors.
Proposal Two – Amendment of Certificate of Incorporation To
Provide For Annual Election Of All Directors. The
affirmative vote of the holders of at least 66 2/3 percent of
the voting power of all shares entitled to vote generally in the election of
Directors, voting together as a single class, is required to approve Proposal
Two. Because the number of votes required to pass this proposal is
66 2/3
percent of the number of shares entitled to vote, rather than the number of
shares actually present and voting, abstentions and broker non-votes will be
votes not cast for this proposal and would therefore have the same effect as
votes against this proposal. Proposals Two and Three are
cross-conditioned on each other. If either Proposal Two or Proposal
Three is not approved, then neither proposal will be approved.
2
Proposal Three – Amendment of Certificate of Incorporation To
Provide That Directors May Be Removed With Or Without
Cause. The affirmative vote of the holders of at least
66 2/3 percent
of the voting power of all shares entitled to vote generally in the election of
Directors, voting together as a single class, is required to approve Proposal
Three. Because the number of votes required to pass this proposal is
66 2/3 percent
of the number of shares entitled to vote, rather than the number of shares
actually present and voting, abstentions and broker non-votes will be votes not
cast for this proposal and would therefore have the same effect as votes against
this proposal. Proposals Two and Three are cross-conditioned on each
other. If either Proposal Two or Proposal Three is not approved, then
neither proposal will be approved.
Proposal Four – Ratification of Appointment of Independent Registered
Public Accounting Firm. The affirmative vote of the holders of
a majority of the shares of common stock represented in person or by proxy and
entitled to vote at the meeting is required to approve this
proposal. Abstentions will be counted as represented and entitled to
vote and will therefore have the effect of a negative vote on this
proposal. Broker non-votes will not be treated as voting on this
proposal and, accordingly, will have no affect on the outcome of this
vote.
The Notice of Annual Meeting, Proxy
Statement and 2008 Annual Report are available on our website at http://www.wellcare.com/2009shareholdermeeting. Instead
of receiving future copies of these materials by mail, most shareholders can
elect to receive an e-mail that will provide electronic links to
them. Opting to receive your proxy materials online will save us the
cost of producing and mailing documents to your home or business.
If you are a shareholder of record
you can enroll in the electronic proxy delivery service electronically by going
to www.investorvote.com. If
you hold your shares in a brokerage account, you may also have the opportunity
to receive copies of these documents electronically. Please check the
information provided in the proxy materials mailed to you by the institution
that holds your shares regarding the availability of this service.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Who are the largest owners of our
stock?
The table below sets forth certain
information regarding beneficial owners known to us as of June 17 , 2009
of more than 5% of our outstanding shares of common stock. The
ownership percentage is based on the number of shares reported by the applicable
beneficial owner and the number of shares of our common stock outstanding as of
June 17 , 2009.
This
disclosure is based upon a Schedule 13G/A filed by Fairholme Capital
Management, L.L.C. (“Fairholme”) and other affiliated entities with the
SEC on February 17, 2009. Fairholme and the other affiliated
entities reported shared voting and dispositive power as of December 31,2008 as follows: (i) Fairholme, shared voting power as to 5,088,603 shares
and shared dispositive power as to 8,025,777 shares; (ii) Bruce R.
Berkowitz, sole voting and dispositive power as to 287,630 shares, shared
voting power as to 5,088,603 shares and shared dispositive power as to
8,025,777 shares; and (iii) Fairholme Funds, Inc., shared voting and
dispositive power as to 4,166,200 shares. We have not attempted
to verify independently any of the information contained in the Schedule
13G/A.
(2)
This
disclosure is based upon a Schedule 13G filed by Renaissance Technologies
LLC (“Renaissance”) and James H. Simons (“Simons”) with the SEC on
February 13, 2009. Renaissance and Simons reported sole voting and
dispositive power as of December 31, 2008 as to 2,857,200
shares. We have not attempted to verify independently any of
the information contained in the Schedule 13G.
(3)
This
disclosure is based upon a Schedule 13G filed by Barclays Global
Investors, N.A. (“Barclays”) and other affiliated entities with the SEC on
February 5, 2009. Barclays and the other affiliated entities
reported sole voting and dispositive power as of December 31, 2008 as
follows: (i) Barclays, sole voting power as to 1,171,495 shares and sole
dispositive power as to 1,397,117 shares; (ii) Barclays Global Fund
Advisors, sole voting power as to 581,075 and sole dispositive power as to
816,712 shares; (iii) Barclays Global Investors, Ltd., sole voting power
as to 19,090 shares and sole dispositive power as to 53,029 shares; (iv)
Barclays Global Investors Japan Limited, sole voting and dispositive power
as to 15,330 shares; (v) Barclays Global Investors Canada Limited, sole
voting and dispositive power as to 24,781 shares; and (vi) Barclays Global
Investors Australia Limited and Barclays Global Investors (Deutschland)
AG, sole voting and dispositive power as to no shares. We have
not attempted to verify independently any of the information contained in
the Schedule 13G.
3
How
much stock do our executive officers and Directors own?
The following table sets forth
certain information with regard to the beneficial ownership of our common stock
as of the close of business on June 17 , 2009 by: (a) each Director;
(b) each of the executive officers named in the Summary Compensation Table;
and (c) all Directors and executive officers (including seven executive officers who
are not named in the Summary
Compensation Table) as a group.
Name
Common Stock (1)
Percent
David
Gallitano
14,354
*
Robert
Graham
17,260
*
Regina
Herzlinger
46,959
*
Kevin
Hickey
44,353
*
Alif
Hourani
18,871
*
Ruben
King-Shaw, Jr.
25,746
*
Christian
Michalik
82,997
*
Neal
Moszkowski
25,107
*
Charles
G. Berg
380,799
*
Heath
G. Schiesser
520,979
1.2
Todd
S. Farha(2)
618,835
(5)
1.5
Thomas
L. Tran
75,000
*
Paul
L. Behrens(3)
197,977
(5)
*
Anil
Kottoor(4)
—
(5)
*
Adam
T. Miller
64,605
*
Thomas
F. O’Neil III
70,912
*
All
Directors and Executive Officers as a Group (20 persons)
1,689,991
3.9
*
Less
than one percent
(1)
Certain
of our executive officers and Directors hold their shares in brokerage
accounts where there may be a loan balance from time to time that is
secured by all of the assets in the account, including shares of our
common stock. Accordingly, even though there may be substantial
assets in the account, the shares of our stock in these accounts could
technically be sold in a margin sale.
(2)
Mr.
Farha resigned his positions as chairman and as President and Chief
Executive Officer effective January 25, 2008 and ceased employment with us
on March 31, 2008.
(3)
Mr.
Behrens resigned his positions as Senior Vice President and Chief
Financial Officer effective January 25, 2008 and ceased employment with us
on March 31, 2008.
(4)
Mr.
Kottoor’s employment was terminated effective December 19,2008.
(5)
Based
on information known to the
Company.
How
is beneficial ownership determined?
For purposes of the preceding table,
“beneficial ownership” is determined in accordance with Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), pursuant
to which a person or group of persons is deemed to have “beneficial ownership”
of any common stock that such person or group has the right to acquire within 60
days after June 17 , 2009. For purposes of computing the
percentage of outstanding common stock beneficially owned by each person named
above, any shares that such person has the right to acquire within 60 days after
June 17 , 2009 are deemed outstanding but such shares are not deemed to be
outstanding for purposes of computing the percentage ownership of any other
person. Each person has sole voting and dispositive power with
respect to all of the shares of common stock shown as beneficially owned,
subject to community property laws, where applicable. The table below
provides additional detail regarding management’s securities
ownership.
4
Included
Excluded
Name
Common
Stock
Unvested
Common Stock
Vested
Stock
Options
Stock
Options that Vest within 60 Days
Stock
Options that Vest in More than 60 Days
Restricted
Stock Units that Vest in More than 60 Days
Performance
Shares that Vest in More than 60 Days
David
Gallitano
—
14,354
—
—
—
—
—
Robert
Graham
2,777
—
14,483
—
—
—
—
Regina
Herzlinger
18,331
—
28,628
—
—
—
—
Kevin
Hickey
26,063
—
18,290
—
—
—
—
Alif
Hourani
581
—
18,290
—
—
—
—
Ruben
King-Shaw, Jr.
15,081
—
10,665
—
—
—
—
Christian
Michalik
31,050
—
51,947
—
—
—
—
Neal
Moszkowski
10,822
—
14,285
—
—
—
—
Charles
G. Berg
80,799
75,000
187,500
37,500
75,000
—
—
Heath
G. Schiesser
101,904
175,709
217,543
25,823
324,675
—
—
Todd
S. Farha
618,835
—
—
—
—
—
130,000
(1)
Thomas
L. Tran
—
50,000
—
25,000
75,000
8,232
—
Paul
L. Behrens
197,977
—
—
—
—
—
—
Anil
Kottoor
—
—
—
—
—
—
—
Adam
T. Miller
13,732
14,054
35,409
1,410
80,458
10,681
—
Thomas
F. O’Neil III
8,412
37,500
25,000
—
75,000
13,109
—
All
Directors and Executive Officers as a Group (20
persons)
329,755
479,928
774,889
105,419
1,007,505
72,535
130,000
(1)
Pursuant
to an award agreement dated June 6, 2005, Mr. Farha was eligible to
receive a maximum of 130,000 shares of our common stock based upon the
achievement of certain performance criteria. Specifically, Mr.
Farha was eligible to earn, if any shares, a (i) threshold of 32,500
shares, (ii) target of 65,000 shares, or (iii) a maximum of 130,000 shares
on June 6, 2008 based on the achievement of compounded annual percentage
increases in diluted net income per share over the three-year period
measured from January 1, 2005 through December 31, 2007. It has
not yet been determined whether Mr. Farha has earned any of these
shares. See “Potential Payments to Named
Executive Officers upon Termination or Change in Control” above for
a discussion of Mr. Farha’s separation agreement and the treatment of
these shares.
5
PROPOSAL
NUMBER ONE – ELECTION OF DIRECTORS
Background
to Proposal Number One
Our certificate of incorporation
currently provides for a Board of Directors divided into three classes, as
nearly equal in number as the then total number of Directors constituting the
entire Board permits, with the term of office of one class expiring each year at
the annual meeting of shareholders. Each class of Directors is
currently elected for a term of three years.
The Board of Directors presently
consists of ten persons: Charles G. Berg, David J. Gallitano, D. Robert Graham,
Regina E. Herzlinger, Kevin F. Hickey, Alif A. Hourani, Ruben Jose King-Shaw,
Jr., Christian P. Michalik, Neal Moszkowski and Heath G.
Schiesser. On January 25, 2008, the Board, acting upon the
recommendation of the Nominating and Corporate Governance Committee, appointed
Messrs. Schiesser and Berg to serve as Directors. On March 23, 2009,
the Board, acting upon the recommendation of the Nominating and Corporate
Governance Committee, appointed Mr. Gallitano to serve as a Director. Therefore,
Messrs. Schiesser, Berg and Gallitano are being considered for election by the
shareholders for the first time at our 2009 annual meeting. The Board
of Directors currently has two vacancies. The Nominating and
Corporate Governance Committee and management are currently assessing the need
for and possible candidates to fill these vacancies.
The term of the current Class I
Directors (comprised of Messrs. Gallitano, Hickey and Schiesser and Dr.
Herzlinger) was to expire at our 2008 annual meeting of shareholders (the “2008
Annual Meeting”); the term of the Class II Directors (comprised of Messrs.
Graham, King-Shaw and Michalik) will expire at our 2009 annual meeting of
shareholders (the “2009 Annual Meeting”); and the term of the Class III
Directors (comprised of Messrs. Berg, Hourani and Moszkowski) will expire at our
2010 annual meeting of shareholders (the “2010 Annual
Meeting”). Because we did not hold the 2008 Annual Meeting, Class I
Directors were not elected in 2008 and, accordingly, the successors to the Class
I Directors will be elected and qualified at the 2009 Annual
Meeting.
Relationship
of Proposal One to Proposals Two and Three
As discussed below, pursuant to
Proposals Two and Three, the shareholders are being asked to approve and
adopt amendment s to our certificate of incorporation to declassify
our Board of Directors and to provide that Directors may be removed with or
without cause (except for Class III Directors currently serving the remaining
portion of a multi-year term, who, if the amendment is approved and adopted,
could not be removed without cause prior to the end of their current multi-year
term). Because both the Class I and Class II Directors are up for
election at the 2009 Annual Meeting, if they are elected and the proposed
amendment s to our certificate of incorporation are approved,
the Class I and Class II Directors will be up for election for one-year terms at
the 2009 Annual Meeting. However, if the proposed
amendment s are not approved, the Class I Directors (if elected)
will serve for a two-year term to expire at our 2011 annual meeting of
shareholders (the “2011 Annual Meeting”) and the Class II Directors (if elected)
will serve for a three-year term to expire at our 2012 annual meeting of
shareholders (the “2012 Annual Meeting”).
Class
I Director Nominees
The Board of Directors
proposes that David J. Gallitano, Regina E. Herzlinger, Kevin F. Hickey and
Heath G. Schiesser be elected to serve as Class I Directors. The
Board proposes that each of the Directors serve (i) for a one-year term to
expire at the 2010 Annual Meeting, if Proposal Two and
Proposal Three are
approved by the shareholders or (ii) for a two-year term to expire at the 2011
Annual Meeting, if Proposal Two and
Proposal Three are not approved by the shareholders. Unless a
shareholder WITHHOLDS
AUTHORITY, the holders of proxies representing shares of common stock
will vote FOR
the election of David J. Gallitano, Regina E. Herzlinger, Kevin F. Hickey and
Heath G. Schiesser as Class I Directors. All of these nominees have
informed the Board of Directors that they are willing to serve as
Directors. The Board of Directors has no reason to believe that any
nominee will decline or be unable to serve as a Director. However, if
a nominee shall be unavailable for any reason, then the proxies may be voted for
the election of such person as may be recommended by the Board of
Directors.
Class
II Director Nominees
The Board of
Directors proposes that D. Robert Graham, Ruben Jose King-Shaw, Jr. and
Christian P. Michalik be elected to serve as Class II Directors. The
Board proposes that each of the Directors serve (i) for a one-year term to
expire at the 2010 Annual Meeting, if Proposal Two and Proposal Three
are approved by the shareholders or (ii) for a three-year term to
expire at the 2012 Annual Meeting, if Proposal Two and Proposal Three
are not approved by the shareholders. Unless a shareholder
WITHHOLDS AUTHORITY, the
holders of proxies representing shares of common stock will vote FOR the election of D. Robert
Graham, Ruben Jose King-Shaw, Jr. and Christian P. Michalik. All of
these nominees have informed the Board of Directors that they are willing to
serve as Directors. The Board of Directors has no reason to believe
that any nominee will decline or be unable to serve as a
Director. However, if a nominee shall be unavailable for any
reason, then the proxies may be voted for the election of such person as
may be recommended by the Board of Directors.
6
The affirmative vote of a plurality
of the votes of the shares present by person or represented by proxy at the
meeting and entitled to vote in the election of Directors is required to elect a
nominee.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE “FOR”
THE
ELECTION OF DAVID J. GALLITANO, REGINA E. HERZLINGER,
KEVIN
F. HICKEY, HEATH G. SCHIESSER, D. ROBERT GRAHAM,
RUBEN
JOSE KING-SHAW, JR. AND CHRISTIAN P. MICHALIK
7
BOARD
OF DIRECTORS
Certain
Information Regarding Our Directors
The following is certain information
regarding our Directors and their ages as of June 5, 2009:
Nominees
Class I
David J. Gallitano (age 61)
has been a member of our Board since March 2009. Mr. Gallitano has
been President of Tucker, Inc., a private investment and consulting firm, since
2002. Prior to that, Mr. Gallitano was the Chairman and Chief
Executive Officer of APW, Ltd., a manufacturer of specialized industrial
products and provider of related services, from 2003 to 2005. From
1993 to 2002, Mr. Gallitano served as Chairman and Chief Executive Officer of
Columbia National Inc., a mortgage banking company. From 1986 to 1993
Mr. Gallitano was the Executive Vice President, Principal Transactions Group,
for PaineWebber Incorporated. From 1982 to 1986 Mr. Gallitano was
with General Electric Corporation, first as Vice President, Strategic Planning
and Business Development for General Electric Credit Corporation and then as
President and Chief Executive Officer of General Electric Mortgage Capital
Corporation. Mr. Gallitano was a consultant with McKinsey &
Company from 1975 to 1982 and he served as an electronics specialist with the
United States Air Force from 1966 to 1970. Mr. Gallitano currently
serves on the board of directors of The Hanover Insurance Group, Inc., a
provider of a variety of commercial and personal insurance products, where he
also serves on the audit committee of the board. Mr. Gallitano holds
a Bachelor of Business Administration from The George Washington University and
a Master of Business Administration from the University of Chicago.
Regina E. Herzlinger (age 65)
has been a member of our Board since
August 2003. Dr. Herzlinger is the Nancy R. McPherson
Professor of Business Administration at the Harvard Business School and has been
teaching at Harvard since 1971. Dr. Herzlinger serves as a
director of a privately-held company. Dr. Herzlinger received
her undergraduate degree from the Massachusetts Institute of Technology and her
Doctorate from Harvard Business School.
Kevin F. Hickey (age 57) has
been a member of our Board since November 2002. Since January 2008,
Mr. Hickey has served as Principal of HES Advisors, a strategic advisory firm
serving the health care, health care technology and life sciences
industries. Mr. Hickey also currently serves as a Senior Advisor to
Verisk, Inc., a company specializing in health care predictive
analytics. From January 2006 to December 2007, Mr. Hickey served as
President of D2Hawkeye, Inc. (now a part of Verisk, Inc.). From
October 1998 until January 2005, Mr. Hickey served as the Chairman and Chief
Executive Officer of IntelliClaim, Inc., a privately-held application service
provider that provides insurance payors with capabilities for enhancing claim
processing efficiency and productivity. From September 1997 until
August 1998, Mr. Hickey was Executive Vice President of Operations and
Technology for Oxford Health Plans, Inc. Mr. Hickey also serves as a
director of a privately-held company. Mr. Hickey received his
undergraduate degree from Harvard University, a Master in Health Services
Administration from the University of Michigan and a Juris Doctorate from Loyola
College of Law.
Heath G. Schiesser (age 41)
has served as our President and Chief Executive Officer and as a member of our
Board since January 2008. Mr. Schiesser originally joined WellCare in
2002 as Senior Vice President of Marketing and Sales. From January
2005 to July 2006, Mr. Schiesser also served as President of WellCare
Prescription Insurance. From July 2006 to January 2008, Mr. Schiesser
served as Senior Advisor to WellCare. Prior to joining WellCare, Mr. Schiesser
worked at the management consulting firm of McKinsey & Company, co-founded
an online pharmacy for Express Scripts, and worked in the development of new
ventures. A graduate of Trinity University, Mr. Schiesser received a
Master of Business Administration from Harvard University.
Class II
D. Robert Graham (age 72) has
been a member of our Board since April 2007. Senator Graham is
currently Chair of the Board of Oversight of the Bob Graham Center for Public
Service, a political and civic leadership center at the University of Florida
and the University of Miami. From September 2005 until June 2006,
Senator Graham served a one-year term as a senior Fellow at Harvard University’s
John F. Kennedy School of Government. From January 1987 to January
2005, he served in the United States Senate. From January 1979 to
January 1987 Senator Graham was the Governor of the State of
Florida. Senator Graham received his Bachelor of Arts degree from the
University of Florida and his Bachelor of Laws degree from Harvard Law
School.
8
Ruben José King-Shaw, Jr. (age 47) has been a member of our Board
since August 2003. Since September 2008, Mr. King-Shaw has served as
Chief Executive Officer of All-Med Services of Florida, Inc., a durable medical
supplies, respiratory therapy and infusion pharmacy. Mr. King-Shaw
has served as Chairman and Chief Executive Officer of Mansa Equity Partners
Inc., a private equity investment and advisory firm specializing in the health
care sector, since July 2006. From October 2004 until June 2006, Mr.
King-Shaw was a partner of Pine Creek Healthcare Capital, LLC and from February
2004 until February 2005, he served as President of United
Biosource. Mr. King-Shaw served as Senior Advisor to the Secretary of
the Department of the Treasury from January 2003 to June 2003. From
July 2001 to April 2003, Mr. King-Shaw served as Chief Operating Officer and
Deputy Administrator of the federal government’s Centers for Medicare &
Medicaid Services. Prior to that, from January 1999 to July 2001, he
served as Secretary of the Agency for Health Care Administration of the State of
Florida. Mr. King-Shaw serves as a director of several privately-held
companies. Mr. King-Shaw received his undergraduate degree from
Cornell University and a Master of Business Administration and a Master in
Health Services Administration from Florida International
University.
Christian P. Michalik (age
40) has been a member of our Board since May 2002. Since July 2004,
Mr. Michalik has served as Managing Director of Kinderhook Industries, a private
equity investment firm. Previously he was a partner in Soros Private
Equity Partners LLC, the private equity investment business of Soros Fund
Management LLC, from January 1999 through December 2003. From 1997 to
1998, Mr. Michalik was an investment manager with Capital Resource Partners, a
private equity investment firm. From 1995 to 1996, Mr. Michalik was
an associate at Colony Capital, a real estate investment firm. Mr.
Michalik serves as a director of several privately-held
companies. Mr. Michalik received his undergraduate degree from Yale
University and a Master of Business Administration from Harvard Business
School.
Directors continuing in
office
Charles G. Berg (age 51) has
served as our Executive Chairman and as a member of our Board since January
2008. Mr. Berg also served as senior advisor to Welsh, Carson,
Anderson & Stowe, a private equity firm from January 2007 until
April 2009 . From July 2004 to September 2006, Mr. Berg served as
an executive of UnitedHealth Group. From April 1998 to July 2004, Mr.
Berg held various executive positions with Oxford Health Plans, Inc., which
included Chief Executive Officer from November 2002 to July 2004, President and
Chief Operating Officer from March 2001 to November 2002, and Executive Vice
President, Medical Delivery, from April 1998 to March 2001. Mr. Berg
serves as a director of DaVita, Inc. Mr. Berg received his undergraduate degree
from Macalester College and a Juris Doctorate from the Georgetown University Law
Center.
Alif A. Hourani (age 56) has
been a member of our Board since August 2003. Since 1997, Mr. Hourani
has served as Chairman and Chief Executive Officer, currently as Executive
Chairman, of Pulse Systems, Inc., a practice management and clinical records
software company. From 1987 to 1997, Mr. Hourani held various
positions, including Chief Executive Officer of Physician Corporation of
America/Data Systems, Senior Vice President of Management Information Systems of
Physician Corporation of America and Manager of Computer Engineering at the Wolf
Creek Nuclear Operating Corporation. Mr. Hourani serves as a director
of the Kansas Heart Hospital. Mr. Hourani received his undergraduate
degree from the University of Lyon and a Master of Science degree and Doctorate
from the University of Strasbourg.
Neal Moszkowski (age 43) has
been a member of our Board since May 2002, serving as chairman from May 2002
through October 2006. Since April 2005, Mr. Moszkowski has been
Co-Chief Executive Officer of TowerBrook Capital Partners LP, a private equity
investment company. Prior to joining TowerBrook, Mr. Moszkowski was
Managing Director and Co-Head of Soros Private Equity Partners LLC, the private
equity investment business of Soros Fund Management LLC, where he served since
August 1998. From August 1993 to August 1998, Mr. Moszkowski served
as Vice President and Executive Director in the Principal Investment area for
Goldman, Sachs & Co. and Affiliates. Mr. Moszkowski serves as a
director of Bluefly, Inc., Integra LifeSciences Holdings Corporation and
Spheris, Inc. as well as several privately-held companies. Mr.
Moszkowski received his undergraduate degree from Amherst College and a Master
of Business Administration from the Graduate School of Business of Stanford
University.
EXECUTIVE
OFFICERS
Rex M. Adams (age 47) has
served as our Chief Operating Officer since
September 2008. Prior to joining WellCare, Mr. Adams was
the President and Chief Executive Officer of AT&T Incorporated’s East
Region, from January 2007 to March 2008. For the period
prior to AT&T’s acquisition of BellSouth, Mr. Adams was an officer of
BellSouth Corporation from July 2001 to December 2006, serving in
various leadership positions. During the merger transition period
from February 2006 to December 2006, Mr. Adams served as Web
Development Officer. From December 2004 to January 2006,
Mr. Adams was the President of BellSouth Wholesale Services, and had
similar responsibilities as President and Chief Executive Officer of AT&T
East Region. From January 2004 to November 2004,
Mr. Adams was Vice-President, Product Development and Management of
BellSouth Corporation, where he was responsible for product profitability,
development and commercialization. From July 2001 to
November 2004, Mr. Adams was President of BellSouth Long Distance
Services, where he was responsible for profit and loss and all areas of
BellSouth’s long distance business. From September 2007 to
October 2008, Mr. Adams served on the board of trustees for Yale-New
Haven Hospital, a premier teaching and research hospital, and as a member of its
Finance and Audit Committee. Mr. Adams holds a B.S. from the
United States Military Academy at West Point and a Masters of Business
Administration from the Harvard Business School.
9
Walter W. Cooper (age 46)
joined us in October 2006 as Senior Vice President of Strategic
Initiatives. He currently holds the position of Senior Vice President of
Marketing and Sales and has recently acted as the interim Senior Vice President
of Human Resources and is currently acting as the interim Senior Vice
President of Health Services. Prior to joining WellCare, Mr. Cooper served in
senior-level positions with UnitedHealth Group, including positions as Senior
Vice President of United Retiree Solutions, Vice President of Marketing and
Product and Vice President of Strategic Initiatives for Specialized Care
Services from November 2004 to September 2006. Mr. Cooper
received his Bachelor of Science in Mechanical Engineering and
his Masters in Business Administration degrees from Gannon
University.
Michael L. Cotton (age 48)
joined us in December 2005 and holds the position of President, South
Division. Prior to joining the Company, Mr. Cotton was World Wide
Partner and Managing Director for Mercer Human Resources Consulting from October
2001 to December 2005. Prior to joining Mercer, Mr. Cotton was
President and Chief Executive Officer of Mid-Valley CareNet, a physician
hospital organization, from November 1998 to October 2001. Mr. Cotton
attended the Ohio State University and received his undergraduate degree
from Franklin University and a Masters in Business Administration from Cleveland
State University.
Alec Cunningham (age 42)
joined us in January 2005. He has held several positions within the
Company, including Vice President of Business Development, Senior Vice President
of Government Relations, and currently President, Florida and Hawaii
Division. Prior to joining us, Mr. Cunningham held several positions
with WellPoint Health Networks, Inc. from September 1996 to December 2004, most
recently Vice President of Business Development and Compliance. From
August 1994 to September 1996, Mr. Cunningham worked for the Oklahoma Health
Care Authority developing a statewide Medicaid managed care
program. Mr. Cunningham received his undergraduate degree from
Oklahoma State University and his Master in Business Administration from the
University of Southern California.
Adam T. Miller (age 43)
joined us in January 2006. He has held several positions within the
Company, including currently Senior Vice President, National Medicare and
Government Relations and previously President, National Medicare and Chief
Operating Officer of our Medicare Prescription Drug Plan and Private
Fee-For-Service businesses,. From July 2001 to
November 2005, Mr. Miller ran UnitedHealth Group’s Arizona Medicaid
program and a related Medicare Special Needs program. Earlier in his
career, Mr. Miller was with General Electric in its Medical Systems
business (GE Medical) in a series of strategy, business development and
operational roles, from May 1997 to June 2001. In his last
role at GE Medical, Mr. Miller served as Vice President and General Manager
of its global Cardiology Systems division. Prior to joining GE
Medical, Mr. Miller was with the Boston Consulting Group where he worked
with clients in the pharmaceutical, managed care and medical device industries
on issues of growth and profitability enhancement, from 1993 to
1997. Mr. Miller is a graduate of Harvard Business School and
the Wharton School of Business at The University of Pennsylvania.
Thomas F. O’Neil III (age 52)
was appointed our executive Vice Chairman on June 3, 2009. Prior to
that, he served as our Senior Vice President, General Counsel and Secretary
since April 2008. Prior to joining WellCare, Mr. O’Neil was
a partner of the law firm DLA Piper US LLP and its predecessor from
June 2002 through March 2008. From December 1995 to
June 2002, Mr. O’Neil served as Vice President, Chief Litigation
Counsel of MCI Communications Corp., Senior Vice President, Chief Counsel of MCI
WorldCom, Inc. and General Counsel of The MCI Group. Earlier in
his career Mr. O’Neil was a partner of the law firm of Hogan &
Hartson LLP and he served as Assistant U.S. Attorney at the U.S. Department of
Justice from March 1986 to December 1989. Mr. O’Neil
received his A.B. from Dartmouth College and his Juris Doctorate from Georgetown
University Law Center. Mr. O’Neil is a member of the Board of
Regents of Georgetown University and the Board of Visitors of Georgetown
University Law Center.
Daniel M. Parietti (age 46)
joined us in September 2002 and has served in various capacities, currently as
President, North Division. From September 2001 to January 2002 Mr.
Parietti served as Chief Operating Officer of La Cruz Azul de Puerto Rico, a
Puerto Rican health plan. From May 2000 to September 2001, Mr.
Parietti served as Vice President, Network and Delivery Systems Management for
Health Net, Inc. From September 1993 to May 2000, Mr. Parietti
worked in various leadership positions for Humana, Inc. Mr. Parietti
received his undergraduate degree from the United States Military Academy at
West Point, and a Masters in Business Administration from George Mason
University.
10
Jonathan P. Rich (age 48) has served as our Senior Vice President and
Chief Compliance Officer since August 2008. From July 2006 to
July 2008, Mr. Rich was the General Counsel and Chief Compliance Officer
for health insurer Aveta Inc. From 1998 to 2006, Mr. Rich was a
senior executive at Oxford Health Plans, Inc. serving first as Vice President
and Director of Litigation and Legal Affairs and later as Senior Vice President
and General Counsel. From 1989 to 1998, Mr. Rich was an
associate at the law firm of Simpson, Thacher & Bartlett in New
York. Mr. Rich is a graduate of the University of North Carolina and
Columbia University Law School.
Timothy S. Susanin (age
45) joined
WellCare in November 2008 as our Vice President and Chief Counsel - Dispute
Management. Since June 2009 Mr. Susanin has been our Senior Vice
President, General Counsel and Secretary. Prior to joining WellCare, Mr.
Susanin was with the Gibbons law firm from 2001 to October 2008, first as
counsel and then as partner. Mr. Susanin was an Assistant U.S. Attorney
for the District of Columbia and the Eastern District of Pennsylvania from 1992
to 1998 and an Associate Independent Counsel on the Whitewater investigation
from 1998 to 2000. He also served in the U.S. Navy Judge Advocate
General’s Corps from 1988 to 1992. Mr. Susanin received his undergraduate
degree from Franklin & Marshall College and his Juris Doctorate from the
Villanova University School of Law.
Thomas L. Tran (age 52) has served as
our Senior Vice President and Chief Financial Officer since July
2008. Prior to joining WellCare, Mr. Tran was the President, Chief
Operating Officer and Chief Financial Officer of CareGuide, Inc., a
publicly-traded population health management company, from June 2007 to June
2008. From July 2005 to June 2007, Mr. Tran was Senior Vice President
and Chief Financial Officer of Uniprise, one of the principal operating
businesses of UnitedHealth Group that manages health care benefits programs for
employers. From December 1998 to July 2005, Mr. Tran served as Chief
Financial Officer of ConnectiCare, Inc., an HMO based in
Connecticut. Prior to ConnectiCare, Mr. Tran was Chief Financial
Officer of Blue Cross Blue Shield of Massachusetts from May 1996 to July 1997,
and Vice President of Finance and Controller of CIGNA HealthCare from February
1993 to May 1996. Mr. Tran holds a degree in accounting from Seton
Hall University and a Masters of Business Administration in Finance from New
York University.
Certain Legal
Proceedings
As previously disclosed, in
connection with government investigations, five putative shareholder derivative
actions were filed between October 29, 2007 and November 15, 2007, naming as
defendants certain of our current and former officers and Directors. The first
two of these putative shareholder derivative actions, entitled Rosky v. Farha,
et al. and Rooney v. Farha, et al., respectively, are supposedly brought on
behalf of the Company and were filed in the United States District Court for the
Middle District of Florida. Two additional actions, entitled Intermountain
Ironworkers Trust Fund v. Farha, et al., and Myra Kahn Trust v. Farha, et al.,
were filed in Circuit Court for Hillsborough County, Florida. All four of these
actions are asserted against all Company directors (and former director Todd
Farha) except for David Gallitano, D. Robert Graham, Heath Schiesser and Charles
Berg and also name the Company as a nominal defendant. A fifth action, entitled
Irvin v. Behrens, et al., was filed in the United States District Court for the
Middle District of Florida and asserts claims against all Company directors (and
former director Todd Farha) except Heath Schiesser, David Gallitano and Charles
Berg and against two former Company officers, Paul Behrens and Thaddeus Bereday.
All five actions contend, among other things, that the defendants allegedly
allowed or caused the Company to misrepresent its reported financial results, in
amounts unspecified in the pleadings, and seek damages and equitable relief for,
among other things, the defendants’ supposed breach of fiduciary duty, waste and
unjust enrichment. The three actions in federal court have been consolidated.
Subsequent to that consolidation, an additional derivative complaint entitled
City of Philadelphia Board of Pensions and Retirement Fund v. Farha, et al. was
filed in the same federal court, but thereafter was consolidated with the
existing consolidated action. A motion to consolidate the two state court
actions, to which all parties consented, was granted, and plaintiffs filed a
consolidated complaint on April 7, 2008. On October 31, 2008, amended
complaints were filed in the federal court and the state court derivative
actions. On December 30, 2008, the Company filed substantially similar
motions to dismiss both actions, contesting, among other things, the standing of
the plaintiffs in each of these derivative actions to prosecute the purported
claims in the Company’s name. In an Order entered on March 30, 2009 in the
consolidated federal action, the court denied the motions to dismiss the Second
Amended Consolidated Complaint. On April 28, 2009, in the consolidated
state action, the court denied the motions to dismiss the Second Amended
Consolidated Complaint. On April 29, 2009, upon the recommendation of the
Nominating and Corporate Governance Committee of the Company’s Board of
Directors, the Board adopted a resolution forming a Special Litigation
Committee, comprised of a newly-appointed independent director, David J.
Gallitano, to investigate the facts and circumstances underlying the claims
asserted in the federal and state derivative cases and to take such action with
respect to such claims as the Special Litigation Committee determines to be in
the best interests of the Company. On May 1, 2009, the Special Litigation
Committee filed in the consolidated federal action a motion to stay the matter
until November 2009 to allow the Special Litigation Committee to complete
its investigation, and following a hearing on May 14, 2009, the Court granted
that motion and stayed the federal action. The Special
Litigation Committee filed a substantially identical motion in the
consolidated state action, and that motion remains pending. At this time,
neither the Company nor any of its subsidiaries can predict the probable outcome
of these claims. For more information related to the Special
Litigation Committee, please see “Corporate Governance and Related
Matters” below.
11
CORPORATE
GOVERNANCE AND RELATED MATTERS
Corporate
Governance Guidelines
The Board has developed and adopted
Corporate Governance Guidelines to promote the functioning of the Board and its
committees. Among other things, the corporate governance guidelines
set forth criteria regarding Board member selection and qualification,
establishment of committees and committee composition, executive sessions,
management succession and director compensation. The guidelines also
address the Board’s expectations of each Director in furtherance of the Board’s
primary responsibility of exercising its business judgment in the best interests
of the Company. In particular, the guidelines address meeting
attendance and participation, other directorships and access to independent
advisors as well as new director orientation. The Corporate
Governance Guidelines also require that the Board conduct an annual performance
evaluation to determine whether it and its committees are functioning
effectively. The Corporate Governance Guidelines are available on our
website at www.wellcare.com. Alternatively,
any shareholder may request a print copy of our Corporate Governance Guidelines
by contacting us as described in the section entitled “Requests for More
Information” below.
Director
Independence
Independence Standards
Our Corporate Governance Guidelines
provide that a majority of the members of our Board must meet the criteria of
independence as required by the listing standards of the New York Stock Exchange
(the “NYSE”). In addition, each member of the Board’s Audit
Committee, Compensation Committee and Nominating and Corporate Governance
Committee must be independent. No Director qualifies as independent
unless the Board determines that the Director has no direct or indirect material
relationship with the Company. The Board reviews the independence of
its members by requiring that each member complete disclosure and independence
questionnaires and by considering all transactions and relationships between
each Director or any member of his or her immediate family and the Company and
its subsidiaries. The purpose of this review is to determine whether
any such relationships or transactions are inconsistent with a determination
that the Director is independent. In making independence
determinations, the Board applies the standards of the NYSE as follows, in
addition to any other relevant facts and circumstances:
·
A
Director, who is, or has been within the last three years, an employee of
the Company or any subsidiary, or whose immediate family member is, or has
been within the last three years, an executive officer of the Company, is
not independent until three years after the end of such employment
relationship;
·
A
Director who has received, or has an immediate family member who has
received, more than $120,000 per year in direct compensation from the
Company or any subsidiary, other than director and committee fees and
pension or other forms of deferred compensation for prior service
(provided such compensation is not contingent in any way on continued
service), is not independent until three years after he or she ceases to
receive more than $120,000 per year in such
compensation;
·
A
Director is not independent if he or she: is a current partner or employee
of the firm that is the internal or external auditor of the Company or any
subsidiary; has an immediate family member who is a current partner of
such firm; has an immediate family member who is a current
employee of such firm and who personally worked on the Company’s audit;
was, or has, an immediate family member who was, within the last three
years, a partner or employee of such firm and personally worked on the
Company’s audit within that time;
·
A
Director or an immediate family member who is, or has been within the last
three years, employed as an executive officer of another company where any
of our present executives at the same time serves or served on that
company’s compensation committee, is not independent until three years
after the end of such service or the employment relationship;
and
·
A
Director who, or whose immediate family member, is a current executive
officer of a company that has made payments to, or received payments from,
our Company or any of our subsidiaries for property or services in an
amount which, in any of the last three fiscal years, exceeded the greater
of $1 million or 2% of such other company’s consolidated gross revenues,
is not independent until three years after such payments fall below such
threshold.
12
In addition, the
Exchange Act and the NYSE rules impose additional independence and qualification
standards on our Audit Committee members. Under these standards, each
Audit Committee member, in addition to meeting the definition of independence
applicable to all Directors, is prohibited from having any direct or indirect
financial relationship with the Company, and cannot be an affiliate of the
Company or any subsidiary of the Company. The Board has determined
that each member of the Audit Committee satisfies these additional
standards.
Independent Directors
Under the standards set forth above,
based upon recommendations from the Nominating and Corporate Governance
Committee of the Board (the “Nominating Committee”), the Board has determined
that seven of its current members, including each of the members of the Audit
Committee, the Compensation Committee and the Nominating Committee, are
independent. The members that the Board has determined are
independent are Senator Graham, Dr. Herzlinger and Messrs. Gallitano, Hickey,
Hourani, Michalik and Moszkowski.
In making this determination, the
Board considered the recommendation of the Nominating Committee as well as the
following relationships:
·
Senator
Graham and/or his immediate family members have an ownership interest of
approximately 23% in The Graham Companies, the landlord under a lease
agreement with one of our subsidiaries with respect to office space in
south Florida. The Board concluded that this relationship did
not impair Senator Graham’s independence primarily because we have had a
relationship with The Graham Companies for many years prior to Senator
Graham becoming a member of our
Board.
·
Mr.
Hickey is a senior advisor to D2Hawkeye, Inc., now a part of Verisk, Inc.,
a company where he previously served as President from January 2006 to
December 2007. In February 2007, we entered into a services
contract with D2Hawkeye pursuant to which D2Hawkeye has developed an
internet-based portal for certain of our health care
providers. The Board has reviewed the salient facts regarding
this relationship, including compensation received from D2Hawkeye by Mr.
Hickey, Mr. Hickey’s former ownership interest in D2Hawkeye, amounts paid
by us to D2Hawkeye, D2Hawkeye’s revenues, the fact that D2Hawkeye has
since been purchased by a larger company, Insurance Services Office, Inc.
(ISO), and other facts. Following this review, our Board
concluded that this relationship did not impair Mr. Hickey’s independence
under the standards set forth above. In particular, our
payments to D2Hawkeye did not exceed the greater of $1 million or 2% of
D2Hawkeye’s gross revenues in any
year.
·
Todd
Farha, the Company’s President and Chief Executive Officer until his
resignation in January 2008, in the past had invested in several funds
managed, directly or indirectly, by private equity firms affiliated with
Messrs. Michalik and Moszkowski. In each case Mr. Farha’s
investment represented less than 1% of the funds’ aggregate committed
capital. Mr. Farha also had a small direct investment in a
company in which Mr. Michalik’s firm held a majority ownership
interest. Based on a review of these circumstances, our Board
determined that these relationships did not impair the independence of
Messrs. Michalik and Moszkowski. In addition, Mr. Farha is a
first cousin of Mr. Hourani. However, our Board determined that
this relationship did not impair Mr. Hourani’s
independence.
Non-Independent
Directors
Mr. King-Shaw has been the Chief
Executive Officer of All-Med Services of Florida, Inc., or All-Med, since
September 2008. Since December 2002, two of our subsidiaries have
been parties to agreements with All-Med pursuant to which All-Med provides
durable medical equipment to members of the Company’s Florida health
plans. Under these agreements, our subsidiaries paid All-Med an
aggregate amount in 2008 that exceeded both $1 million and 2% of All-Med’s
consolidated gross revenues. Therefore, the Board has determined that
Mr. King-Shaw is not independent.
The Board determined that Messrs.
Schiesser and Berg are not independent based on the fact that each also serves
as an executive officer.
Board
and Committee Meetings and Annual Meeting Attendance
During 2008, the Board of Directors
held a total of 26 meetings. No incumbent Director attended fewer
than 75% of the aggregate number of meetings of the Board held during the period
in which the Director served on the Board and the number of meetings held by all
committees of the Board on which the Director served during the periods in which
he or she served.
13
As
stated in our Corporate Governance Guidelines, we believe it is important for
the members of our Board to attend the annual meeting of
shareholders. The Corporate Governance Guidelines further provide
that, to the extent reasonably practicable, we will endeavor to schedule a
regular meeting of the Board on the same date as the annual meeting of
shareholders. No current member of our Board attended our last annual
meeting of shareholders in 2007.
Presiding
Director
The Board has designated Mr. Hickey
to preside over executive sessions of our non-management and independent
Directors. In addition, Mr. Hickey has been designated the presiding
Director for purposes of receiving communications from interested parties
pursuant to the corporate governance rules of the NYSE and from shareholders
pursuant to rules of the SEC. You may express your concerns, whether
such concerns relate to accounting-related matters or otherwise, by contacting
the presiding Director through the communication channels set forth in the
section entitled “Communications with
Directors” below.
Committees
of the Board of Directors
The Board of Directors has
established the following standing committees: Audit Committee,
Compensation Committee, Nominating Committee, Regulatory Compliance
Committee and Health Care Quality and Access Committee. The
functions, responsibilities and members of each of these standing committees are
described briefly below. Each of these committees operates pursuant to a charter
which is posted on our website at www.wellcare.com. All
members of the Audit Committee, the Compensation Committee and the
Nominating Committee are independent Directors under our Director
independence standards as described above and the corporate governance rules of
the NYSE. In addition, all members of our Audit Committee are
independent Directors under the SEC rules for Audit Committees and are
financially literate under the NYSE corporate governance rules.
Our five standing committees are
described below and the members of these committees are identified in the
following table.
Director
Audit
Committee
Compensation
Committee
Nominating
and Corporate Governance Committee
Regulatory
Compliance Committee
Health
Care Quality and Access Committee
Charles
Berg
X
David
Gallitano
X
X
X
D.
Robert Graham
X
X
(chair)
X
Regina
Herzlinger
X*
(chair)
Kevin
Hickey
X
(chair)
X
X
Alif
Hourani
X
X
X
Ruben
King-Shaw, Jr.
X
(chair)
Christian
Michalik
X*
X
Neal
Moszkowski
X
(chair)
Heath
Schiesser
X
*
Dr.
Herzlinger and Mr. Michalik are our “audit committee financial experts,”
as defined in the Exchange Act, and each has accounting or related
financial management expertise.
Audit
Committee
The principal purpose of the Audit
Committee is to assist the Board in the oversight of the integrity of our
financial statements, our compliance with legal and regulatory requirements, the
qualification and independence of our independent auditors and the performance
of our internal audit function and independent auditors. The Audit
Committee also appoints, reviews the plans and results of the audit engagement
and compensates and oversees the engagement and provision of services by our
independent auditors. The Audit Committee pre-approves all audit,
audit-related, tax and other services conducted by our independent
auditors. The Audit Committee also coordinates with our Regulatory
Compliance Committee and Health Care Quality and Access Committee regarding
regulatory compliance and quality measurement matters that may have an effect on
our business, financial statements, compliance policies or internal audit
function. The Audit Committee held 18 meetings during
2008.
14
Dr. Herzlinger, Mr. Hourani and Mr.
Michalik currently serve as the members of the Audit Committee, with Dr.
Herzlinger serving as chairperson. The Board has determined that each
of the members of the Audit Committee is financially literate and that each of
Dr. Herzlinger and Mr. Michalik is an “audit committee financial expert” as such
term is defined under Item 407(d) of SEC Regulation S-K. All members
of the Audit Committee meet the independence requirements prescribed by the NYSE
and the Audit Committee independence requirements prescribed by the
SEC.
Nominating and Corporate Governance
Committee
The Nominating Committee is
responsible for developing our Corporate Governance Guidelines and for
recommending those guidelines to the Board for adoption. The
Nominating Committee is also responsible for periodically reviewing the
composition of the full Board to determine whether additional Board members with
different qualifications or areas of expertise are needed and making
recommendations to the Board regarding the size, composition and functions of
the Board and its committees. The Nominating Committee identifies and
reviews the qualifications of new Director nominees consistent with selection
criteria established by the Board and recommends the slate of nominees for
inclusion in the proxy statement. The Nominating Committee’s process
for selecting nominees to the Board is described in more detail below under
“Nominating and Corporate
Governance Committee’s Process for Selecting Nominees to the
Board.” The Nominating Committee is also responsible for
overseeing the periodic evaluation of the performance of the Board and its
committees, for considering questions of independence and possible conflicts of
interest of members of the Board and executive officers and for ensuring we are
compliant with NYSE corporate governance listing requirements. The
Nominating Committee held two meetings during 2008.
Compensation
Committee
The Compensation Committee provides
oversight and guidance for compensation and benefit programs for our associates,
executive officers and Board of Directors, reviews and approves the
compensation, including base salary and incentive awards and other significant
terms of employment, for our executive officers and reviews and make
recommendations with respect to incentive compensation plans, equity-based plans
and Board compensation. The Compensation Committee reviews and
discusses the Compensation Discussion and Analysis, or the “CD&A,” with
management and makes a recommendation to the Board for inclusion of the CD&A
in our proxy statement. The Compensation Committee also reviews and
approves performance goals and objectives (both at the corporate and individual
level) applicable to our named executive officers’ compensation (including our
Chief Executive Officer), evaluates the named executive officers’ performance in
light of those goals and objectives and has sole authority to determine the
named executive officers’ compensation based on this evaluation. The
Compensation Committee held 12 meetings during 2008.
Under its charter, the Compensation
Committee has the
authority to obtain advice and assistance from any officer or employee of the
Company or from any outside legal expert or other advisor. Pursuant
to this authority, the Compensation Committee has engaged Watson Wyatt
Worldwide, or Watson Wyatt, as its compensation consultant.
In
connection with our annual associate review and evaluation process, incentive
compensation decisions for our executive officers, including the named executive
officers, are generally made by the Compensation Committee in early March and
are largely based on prior fiscal year Company and individual
performance. For example, in March of a given year, the following
decisions are typically made by the Compensation Committee for our executive
officers: base salary adjustments; annual cash bonus awards related to prior
fiscal year performance based on targets established in the prior fiscal year;
long-term incentive awards based on targets established in the prior fiscal
year; new annual cash bonus targets; and new long-term incentive
targets. Annual cash bonuses and long-term incentive awards are
discretionary (except as might otherwise be required by an executive’s
employment agreement) and are based on targets that are increased or decreased
for overall Company performance and individual performance, each as subjectively
determined by the Compensation Committee after receiving recommendations from
our Chief Executive Officer for his direct reports.
The Compensation Committee generally
reviews the compensation being paid to the members of the Board of Directors on
an annual basis. The Compensation Committee works closely with the
Chief Executive Officer as well as Watson Wyatt when evaluating committee fees
(both annual retainer and meeting fees) as well as the value of equity awards,
if any, to be awarded to our Board members.
Additional information on executive
compensation programs, including the respective roles of the Compensation
Committee, the Chief Executive Officer and Watson Wyatt, is provided in the
CD&A in this proxy statement.
15
Regulatory Compliance
Committee
The principal purpose of the
Regulatory Compliance Committee is to assist the Board in overseeing our
regulatory compliance program, including: (i) compliance with federal and state
laws, rules and regulations applicable to our business; and (ii) compliance with
our corporate ethics and compliance program and related policies by our
employees, officers and Directors. The Regulatory Compliance
Committee held one meeting during 2008.
Health Care Quality and Access
Committee
The principal purpose of the Health
Care Quality and Access Committee is to assist the Board by providing general
oversight of our policies and procedures governing health care quality and
access for our members. In furtherance of this purpose, the Health
Care Quality and Access Committee's primary responsibilities are to (i)
establish and maintain the corporate definition of health care quality and
access and (ii) develop, review and approve our health care quality and access
strategy. The Health Care Quality and Access Committee held three
meetings during 2008.
Special Committee and
Special Litigation Committee
In addition to the above-described
standing committees, the Board has established a Special Committee and a Special
Litigation Committee. In connection with the previously disclosed
government investigations, the Special Committee was formed in October 2007 to
investigate independently and otherwise assess the facts and circumstances
raised in any federal or state regulatory or enforcement inquiries (including,
without limitation, any matters relating to accounting and operational issues)
and in any private party proceedings, and to develop and recommend remedial
measures to the Board for its consideration. The members of the Special
Committee are Neal Moszkowski (Chair), Christian Michalik and Ruben King-Shaw,
Jr. During 2008, the Special Committee met 12 times. In
addition, on April 29, 2009, upon the recommendation of the Nominating
Committee, the Board formed a Special Litigation Committee, comprised of a
newly-appointed independent Director, to investigate the facts and circumstances
underlying the claims asserted in the federal and state derivative suits and to
take such action with respect to such claims as the Special Litigation Committee
determines to be in the best interests of the Company. David
Gallitano is the sole member of the Special Litigation Committee.
Nominating and Corporate Governance
Committee’s Process for Selecting Nominees to the Board
The Nominating Committee considers
candidates for Board membership who are suggested by its members and other Board
members, as well as by management, shareholders and other interested
parties. The Nominating Committee may also retain a third-party
search firm to identify candidates from time to time. For example,
the Nominating Committee retained a search firm to assist in identifying and
assessing Mr. Gallitano as a candidate for our Board. Shareholders
can recommend a prospective nominee for the Board by writing to our corporate
secretary at our corporate headquarters and providing the information required
by our bylaws, along with whatever additional supporting material the
shareholder considers appropriate.
The Nominating Committee’s assessment
of a nominee’s qualification for Board membership includes, among other things,
the following criteria:
·
The
diversity, age, background and experience of the
candidate;
·
The
personal qualities and characteristics, accomplishments and reputation in
the community of the candidate;
·
The
knowledge and contacts of the candidate in the communities in which we
conduct business and in our business industry or other industries relevant
to our business;
·
The
ability and expertise of the candidate in various activities deemed
appropriate by the Board; and
·
The
fit of the candidate’s skills, experience and personality with those of
other Directors in maintaining an effective, collegial and responsive
Board.
The initial determination to seek a
Board candidate is usually based on the need for additional Board members to
fill vacancies or to expand the size of the Board, although the decision can
also be based on the need for certain skill sets or qualifications, such as
financial expertise. The Nominating Committee’s process for
evaluating nominees for Director is the same no matter who makes the
recommendation.
16
Once the Nominating Committee has
determined, in consultation with other Board members if appropriate, that
additional consideration of a candidate is warranted, the Nominating Committee
may, or it may request third parties to, gather additional information about the
prospective candidate’s background, experience and
independence. Following review of this information, if the Nominating
Committee determines it is appropriate to proceed, the Nominating Committee or
other members of the Board will generally interview the prospective
candidate. The Nominating Committee then evaluates the prospective
nominee against the standards and qualifications set forth above and such other
relevant factors that the Nominating Committee or the Board deems appropriate,
including the current composition of the Board and the candidate’s personal
qualities, skills and characteristics.
Following this evaluation, if the
Nominating Committee believes that the prospective candidate is qualified for
nomination, generally the Nominating Committee will make a recommendation to the
full Board, and the full Board will make the final determination whether the
candidate should be appointed, or nominated for election, to the
Board.
Related
Person Transactions
We have a written policy for reviewing transactions between us and our executive
officers, Directors and certain of their immediate family members and other
related persons, including those required to be reported under Item 404 of
Regulation S-K. Under this policy, the Nominating Committee must
approve any transaction in which we participate that involves more than $100,000
and in which a related person has a direct or indirect
interest. Furthermore, related person transactions that involve
executive compensation or compensation for the members of our Board must be
approved by the Compensation Committee. Pursuant to our policy, we
enter into a transaction with such related persons only if the transaction is on
terms comparable to those that could be obtained in arm’s length dealings with
an unrelated third party and is otherwise fair to us.
As a member of our Board of Directors, Mr. King-Shaw is a related person under
our policy. As discussed above, in September 2008, Mr. King-Shaw
became the Chief Executive Officer of All-Med, a company with which two of our
subsidiaries have contracted for the provision of durable medical equipment to
members of the Company’s Florida health plans. These agreements have
been in place since 2002. Under these agreements, our subsidiaries
paid All-Med an aggregate amount of approximately $6.9 million in
2008. Because these agreements continued after Mr. King-Shaw became
the Chief Executive Officer of All-Med, the Nominating Committee reviewed the
agreements under our policy and ratified them after determining they were on
terms comparable to those that could be obtained in an arm’s length transaction
and were fair to us. Mr. King-Shaw’s compensation as Chief Executive
Officer of All-Med is not conditioned on these agreements or otherwise directly
related to them.
The
Corporate Compliance Program
Under the direction of our Chief
Compliance Officer, our General Counsel and the Board, we recently implemented a
comprehensive new and enhanced corporate ethics and compliance program that
includes structural enhancements, improved communications with and reporting to
our regulators, a new employee training program, called iCare, a new Code of
Conduct and Business Ethics (the “Code of Conduct”) and improved policies and
procedures. The corporate compliance program covers all aspects of
our company and is designed to assist us with conducting our business in
accordance with applicable federal and state laws and high standards of business
ethics. The corporate compliance program applies to members of our
Board, our officers and all of our associates. The following are
several of the ways in which we have redesigned and enhanced our compliance
program:
•
Formation of the Regulatory
Compliance Committee. As discussed above, our Board
formed a Regulatory Compliance Committee to oversee our compliance
activities and programs. This committee receives periodic reports from our
Chief Compliance Officer and is responsible for oversight of management’s
corporate compliance committee, which is discussed
below.
•
Appointment of the Chief
Compliance Officer. Our Chief Compliance Officer reports directly
to our Chief Executive Officer and the Regulatory Compliance
Committee. The Chief Compliance Officer is responsible for
monitoring regulatory reporting and regulatory communications, affiliated
company arrangements, and political contributions and fund-raising, among
other things.
17
•
Reorganization of the
compliance department. We have separated the compliance
function from our legal department and created a standalone compliance
department under the supervision of our Chief Compliance
Officer. In addition, under the leadership of our Chief
Compliance Officer, the compliance department has been reorganized into
the following units: Medicare, Medicaid, privacy and corporate
compliance.
•
Enhanced corporate compliance
committee. Our corporate compliance committee operates under a
charter approved by the Board’s Regulatory Compliance
Committee. The reconstituted corporate compliance committee is
chaired by our Chief Compliance Officer and comprised of other members of
senior management, including our General Counsel, Chief Operating Officer
and leaders of our Medicare and Medicaid businesses. The
corporate compliance committee
has recently introduced iCare, an improved corporate ethics and compliance
program for all of our lines of business and corporate
functions. In addition, the corporate compliance committee
reviews areas of legal, regulatory and compliance risk throughout the
Company and, under the oversight of the Regulatory Compliance Committee,
is responsible for developing appropriate policies and procedures to
address such risks.
•
Communications with
regulators. We are implementing a comprehensive program to help us
identify regulatory reporting issues and report such issues to the
appropriate federal or state regulator. The program, which is
administered under the supervision of our Chief Compliance Officer, is
designed to ensure the reliability of the information we communicate to
regulators. As part of this program, we have established an
internal certification process relating to the data contained in, and
preparation of, the reports that we file with regulators. In addition, we
will audit sample reports we have filed with state regulators to confirm
that they were prepared in compliance with applicable law and are
otherwise accurate and complete.
•
Effective compliance
training. iCare includes mandatory compliance training programs, or
training modules, for all associates. So far, we have
implemented a general compliance training module and a training module on
fraud, waste and abuse, and intend to add new training modules from time
to time. These training modules are designed to strengthen our
associates’ competency, independent judgment and identification of
potential violations of applicable law or Company
policy.
•
Enhanced communication of
non-retaliation policies and improved reporting channels. As an
integral part of the iCare program, we are re-emphasizing to all of our
associates that any form of employee retaliation or retribution is
prohibited and will result in disciplinary action, including possible
termination. We are also continuing to encourage our associates
to express concerns or report violations of which they have become aware
or have observed. Associates may express concerns through a
variety of channels, including an anonymous telephonic hotline, the
Company’s compliance intranet, or by contacting directly our Chief
Compliance Officer or any member of our legal
department.
•
Enhancement of written
policies and procedures. We have adopted new or revised written
policies and procedures to reflect a clear commitment to corporate
integrity and compliance and a duty to report. As part of this process,
earlier this year the Board adopted a new Code of Conduct, which replaced
our previous standards of conduct. The Code of Conduct applies
to all of our Directors and associates, including our Chief Executive
Officer, Chief Financial Officer and Chief Accounting
Officer. Collectively, these written policies will serve as
guiding principles that emphasize, among other things, our commitment to
financial reporting integrity.
Our Code of Conduct is available on our
website at www.wellcare.com. We
intend to disclose future amendments to, or waivers from, the provisions of the
Code of Conduct, if any, made with respect to any of our Directors and executive
officers on our website.
Communications with
Directors
The Board has adopted procedures
relating to communications sent to Directors to ensure that such communications
are properly managed. Shareholders may contact our Lead
Director, non-management members of our Board as a group, the full Board or any
individual member of the Board, by writing to the following
address:
The communication should clearly
identify the issue being raised, the name of the party initiating the
communication and contact information for potential follow-up by the
recipient.
In addition, our Board and Audit
Committee have established separate procedures for the receipt, retention and
treatment of communications related to accounting, internal accounting controls
or auditing matters. Both the Director and the Audit Committee
communication procedures are available on our website at www.wellcare.com. As
described in more detail in the procedures as posted on our website, we
generally will not forward to the Directors a communication that is primarily
commercial in nature, relates to an improper or irrelevant topic, or requests
general information regarding WellCare.
The procedures regarding communicating with the Board and the Audit
Committee supplement our Code of Conduct, which is discussed above in the
section titled “The Corporate
Compliance
Program.”
Section 16(a) of the Exchange Act requires our officers and Directors,
and persons who own more than 10% of our common stock, to file reports of
ownership and changes in ownership with the SEC and NYSE. Officers,
Directors and greater than 10% stockholders are required by the SEC to furnish
us with copies of all Section 16(a) forms that they file.
Based solely on our review of the
copies of such forms, or written representations from reporting persons that all
reportable transactions were reported, we believe that all our executive
officers, Directors and greater than 10% beneficial owners timely filed all
reports they were required to file under Section 16(a) during the
fiscal year 2008.
DIRECTOR
COMPENSATION AND RELATED INFORMATION
2008 Director
Compensation
In February 2008, the Board
appointed Mr. Hickey as Lead Director. Further, in
April 2008, the Board established a Regulatory Compliance Committee and a
Health Care Quality and Access Committee. In recognition of these new
committees and the appointment of a Lead Director, the Board approved the
payment of an additional fee of $10,000 per year to the Lead Director and the
payment of an additional fee of $2,500 per year for the chair, and $2,000 per
year for each non-chair member, of each of the Regulatory Compliance Committee
and the Health Care Quality and Access Committee. In addition, the
Board approved the payment of an additional fee of $2,500 per year for the
chair, and $2,000 per year for each non-chair member of the
Nominating Committee, the members of which did not previously receive
additional fees for service on this committee. Neither Mr. Schiesser
nor Mr. Berg, who are executive officers of the Company, receives additional
compensation for his Board service.
The following table summarizes the
fees paid to our Board and committee members as of April 2008:
Annual
Board Fee
Annual
Audit
Committee
Chair Fee
Annual Audit
Committee
Non-Chair
Member Fee
Annual
Special
Committee
Chair Fee
Annual
Special
Committee
Non-Chair
Fee
Annual Fee
for Serving
As the Chair
of Other
Committees(1)
Annual Fee
for Serving
as a Non-
Chair
Member of
Other
Committees(1)
Annual
Lead
Director
Fee
$
37,500
$
10,000
$
5,000
$
90,000
$
60,000
$
2,500
$
2,000
$
10,000
(1)
These
fees are for the Compensation Committee, the Nominating and Corporate
Governance Committee, the Regulatory Compliance Committee and the Health
Care Quality and Access Committee.
As
discussed below under “Compensation Discussion and Analysis
— Equity Award
Process,” in July 2006, the
Compensation Committee determined that all annual equity awards to Board members
will be issued effective as of the date of the annual meeting of
shareholders. Historically, we have granted equity awards to Board
members upon their initial appointment or election to the Board as well as
annually although we have not had a standard plan or program as to the number or
type of equity awards granted to our non-employee Directors. We did
not hold our 2008 annual meeting of shareholders, and consequently, no equity
awards were made to the Directors during fiscal year 2008.
19
2009
Director Compensation
On March 23, 2009, the Board approved a
new Non-Employee Director Compensation Policy (the “Director Compensation
Policy”). The Director Compensation Policy is applicable to our
non-employee Directors effective for the fiscal quarter commencing April 1,2009. Similar to the compensation structure of our executives, our
Board’s historical compensation was heavily weighted toward equity
compensation. Following the commencement of the governmental
investigations in October 2007 and the subsequent decline in our stock price,
our Board determined it was necessary to analyze our Board compensation
program. In addition to trying to balance the distribution of Board
compensation between cash and equity,
the Board
also felt it was necessary to review our Board compensation practices in order
to be able to attract new Board members and to bring such practices in-line with
market standards. The Compensation Committee retained Watson Wyatt to
conduct an analysis of compensation practices at comparable companies and make
recommendations as to how to structure our Board compensation
policy. The Director Compensation Policy was adopted based in part
upon the Watson Wyatt analysis and recommendations.
Under the Director Compensation Policy,
each non-employee Director earns an annual retainer and Board and committee fees
as set forth below, paid on a quarterly basis at the end of the applicable
quarter. Each non-employee member of the Board and its committees who
serves during any portion of a quarterly period, shall be paid the full
quarterly retainer and applicable fees.
The following table summarizes the
standing fees paid to our Board and committee members as of
April 2009:
Annual
Board Fee
Annual
Audit
Committee
Chair Fee
Annual
Audit
Committee
Non-Chair
Member Fee
Annual
Special
Committee
Chair Fee
Annual
Special
Committee
Non-Chair
Fee
Annual
Special
Litigation Committee Fee
Annual Fee
for Serving
As the Chair
of Other
Committees(1)
Annual Fee
for Serving
as a Non-
Chair
Member of
Other
Committees(1)
Annual
Lead
Director
Fee
$
50,000
$
20,000
$
12,000
$
90,000
$
60,000
$
90,000
$
12,000
$
8,000
$
15,000
(1) These
fees are for the Compensation Committee, the Nominating Committee, the
Regulatory Compliance Committee and the Health Care Quality and Access
Committee.
In addition to the cash retainers
described above, each non-employee Director receives $2,000 for each meeting of
the full Board attended in person, telephonically or by way of other remote or
electronic means. In addition, unless otherwise determined by the
Compensation Committee and subject to the Compensation Committee’s approval,
each non-employee Director, other than a non-employee Director joining the Board
at the annual shareholders meeting, receives an annual grant of restricted stock
valued at approximately $100,000 (based on the closing price on the date of
grant), pursuant to and in accordance with the terms and provisions of a
restricted stock agreement and the 2004 Equity Incentive Plan (the “2004 Equity
Plan”). Unless otherwise determined by the Compensation Committee,
all such annual grants are granted on the date of the Company’s annual meeting
of shareholders and vest in full on the earlier of the first anniversary of the
date of grant or the date of the next annual shareholder
meeting. Further, unless otherwise determined by the Compensation
Committee and subject to the Compensation Committee’s approval, newly elected or
appointed non-employee members of the Board receive an initial grant of
restricted stock valued at approximately $150,000 (based on the closing price on
the date of grant), pursuant to and in accordance with the terms and provisions
of a restricted stock agreement and the 2004 Equity Plan. Such grants
of restricted stock vest equally on the first, second and third anniversary of
the date of grant.
Other
Components of Director Compensation
We pay all reasonable expenses incurred
by Directors for attending Board and committee meetings, for certain director
continuing education programs and related expenses and maintain directors and
officers liability insurance. We do not provide a retirement plan or
perquisites for our non-employee Directors. We have entered into
indemnification agreements with each of our Directors in addition to the
indemnification that is provided for in our certificate of incorporation and
bylaws. These agreements, among other things, provide for the
indemnification of expenses specified in the agreements, including attorneys’
fees, judgments, fines and settlement amounts, incurred by the Directors in any
action or proceeding arising out of their service as Directors for us, any of
our subsidiaries or any other entity to which the Directors provide services at
our request.
20
All of our Directors’ unvested
restricted stock awards and unvested stock options were issued under our 2004
Equity Plan, except for a portion of Mr. Michalik’s stock
options. The circumstances under which the vesting of equity awards
under the 2004 Equity Plan will accelerate are described below under “Potential Payments to Named
Executive Officers upon Termination or Change in Control.”
Under the provisions of the new
Director Compensation Policy described above, we awarded $150,000, or 14,354
shares, of restricted stock to Mr. Gallitano upon his appointment to the Board
and expect to award $100,000 worth of restricted stock to each of the
non-employee members of the Board on the date of our 2009 annual shareholders
meeting.
Stock
Ownership Guidelines
Under the new Director Compensation
Policy, each non-employee Director is required to own shares of our common stock
(the “Ownership Requirement”) having a value (as described below) equal to the
sum of three times the base annual retainer payable to each non-employee
Director.
For purposes of determining ownership,
the following will be included in determining whether a non-employee Director
has satisfied the Ownership Requirement:
·
One
hundred percent (100%) of the value of shares of our common stock owned
individually, either directly or indirectly, including vested and unvested
restricted stock or restricted stock unit awards or shares acquired upon
exercise of stock options; and
·
Shares
of our common stock owned jointly, or separately by a spouse, domestic
partner and/or minor children, directly or
indirectly.
No other rights to acquire shares of
our common stock (including stock options or similar rights) shall be considered
shares of our common stock owned for purposes of meeting the Ownership
Requirements under the Director Compensation Policy.
For purposes hereof, the value of a
share of the Company’s common stock, including vested and unvested restricted
stock and restricted stock units, shall be calculated on the last trading day of
each calendar year based on the average closing price of our common stock during
the prior year (a “Determination Date”). Any subsequent change in the
value of the shares of our common stock during that year will not affect the
amount of stock a non-employee Director should hold during that year under the
policy. If the value of the shares of our common stock increases from
year to year, each non-employee Director shall have one year in which to meet
the Ownership Requirement.
In the event the annual retainer
increases, each non-employee Director will have four years from the time of the
increase to acquire any additional shares needed to satisfy the Ownership
Requirement.
A non-employee Director shall have
until the first Determination Date following the fourth anniversary of such
non-employee Director’s election or appointment to the Board or upon otherwise
becoming a non-employee Director of the Board to satisfy the Ownership
Requirement; provided, however, that a non-employee Director who was a
non-employee Director of the Company as of April 1, 2009, shall have until
December 31, 2013 to meet the Ownership Requirement.
Director
Compensation Table
The table below sets forth the
compensation paid to each non-employee member of our Board of Directors in
fiscal year 2008.
Name
Fees Earned or
Paid in
Cash
($)
Stock
Awards(1)
($)
Option
Awards(1)
($)
Total
($)
Robert
Graham
50,250
125,170
—
175,420
Regina
Herzlinger
59,875
—
1,189
61,064
Kevin
Hickey
57,375
—
594
57,969
Alif
Hourani
57,125
—
594
57,719
Ruben
King-Shaw, Jr.
123,750
—
594
124,344
Christian
Michalik
129,625
—
594
130,219
Neal
Moszkowski
164,375
125,180
—
289,555
David
Gallitano(2)
—
—
—
—
(1)
The
amounts included in the “Stock Awards” and “Option Awards” columns are the
amounts of compensation cost related to restricted stock and stock option
awards, respectively, recognized by us in our financial statements during
fiscal year 2008 in accordance with Statement of Financial Accounting
Standards No. 123R (“FAS 123R”). Pursuant to SEC rules,
the amounts shown exclude the impact of estimated forfeitures related to
service-based vesting conditions, as applicable. These amounts
reflect our accounting expense for these awards and do not correspond to
the actual value that will be realized by the Directors. For a
discussion of valuation assumptions and methodologies, see Note 2 to our
2008 consolidated financial statements included in our annual report on
Form 10-K for the year-ended December 31,2008.
(2)
Mr. Gallitano
was appointed to our Board of Directors in March
2009.
21
The following table sets forth certain
information regarding unexercised options and stock that has not vested for each
non-employee member of our Board of Directors outstanding as of
December 31, 2008.
Option Awards
Stock
Awards
Name
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested(1)
($)
Robert
Graham
10,693
—
90.05
10/26/11
1,389
(2)
17,863
3,790
—
90.52
12/12/11
—
—
Regina
Herzlinger
10,000
—
17.00
07/07/14
—
—
7,000
—
36.45
07/27/12
—
—
6,500
—
47.40
06/07/13
—
—
5,128
—
90.52
12/12/11
—
—
Kevin
Hickey
5,000
—
17.00
07/07/14
—
—
4,500
—
36.45
07/27/12
—
—
5,000
—
47.40
06/07/13
—
—
3,790
—
90.52
12/12/11
—
—
Alif
Hourani
5,000
—
17.00
07/07/14
—
—
4,500
—
36.45
07/27/12
—
—
5,000
—
47.40
06/07/13
—
—
3,790
—
90.52
12/12/11
—
—
Ruben
King-Shaw, Jr.
1,875
—
17.00
07/07/14
—
—
5,000
—
47.40
06/07/13
—
—
3,790
—
90.52
12/12/11
—
—
Christian
Michalik
33,657
—
6.47
12/31/13
—
—
5,000
—
17.00
07/07/14
—
—
4,500
—
36.45
07/27/12
—
—
5,000
—
47.40
06/07/13
—
—
3,790
—
90.52
12/12/11
—
—
Neal
Moszkowski
10,495
—
91.64
10/20/11
1,364
(3)
17,541
3,790
—
90.52
12/12/11
—
—
David
Gallitano(4)
—
—
—
—
—
—
(1)
Value
based on $12.86 per share which was the closing price of our common stock
on the NYSE on December 31, 2008.
Mr. Gallitano
was appointed to our Board of Directors in March 2009.
22
The table
below sets forth the number of stock options exercised and the value realized
upon exercise of the stock options, or the vesting of restricted stock and the
value realized, for each non-employee member of our Board of Directors in fiscal
year 2008.
Option Awards
Stock Awards
Name
Number of
Shares
Acquired
on Exercise
(#)
Value Realized
on Exercise(1)
($)
Number of
Shares
Acquired
on Vesting
(#)
Value Realized
on Vesting(2)
($ )
Robert
Graham
—
—
1,388
56,936
Regina
Herzlinger
—
—
—
—
Kevin
Hickey
—
—
—
—
Alif
Hourani
—
—
—
—
Ruben
King-Shaw, Jr.
—
—
—
—
Christian
Michalik
—
—
—
—
Neal
Moszkowski
—
—
1,364
58,106
David
Gallitano(3)
—
—
—
—
(1)
The
value realized is calculated by multiplying the number of shares by the
difference between the market price of our common stock at time of
exercise and the exercise price of the stock option.
(2)
The
value realized is calculated by multiplying the number of shares vested by
the closing market price of our common stock on the date of
vesting.
(3)
Mr. Gallitano
was appointed to our Board of Directors in March
2009.
COMPENSATION
DISCUSSION AND ANALYSIS
Overview
This Compensation Discussion and
Analysis discusses our historical compensation philosophy and program for fiscal
year 2008 as it pertained to our named executive officers, and also addresses
compensation decisions that were made in early 2009 that relate to 2008
performance and, in some cases, 2009 and beyond.
The following individuals constituted
our “named executive officers” for 2008:
·
Heath
G. Schiesser and Todd S. Farha, two individuals who served as our
principal executive officer during
2008;
·
Thomas
L. Tran and Paul L. Behrens, two individuals who served as our principal
financial officer during 2008;
·
Charles
G. Berg, Adam T. Miller and Thomas F. O’Neil III, our three other most
highly compensated executive officers who were serving as executive
officers at the end of 2008; and
·
Anil
Kottoor, an individual who would have been one of our three other most
highly compensated executive officers if he had served as an executive
officer at the end of 2008.
Messrs. Schiesser, Tran, Berg and
O’Neil were each appointed to their respective positions during
2008. Each of these executives negotiated employment agreements in
connection with their appointment. Consequently, compensation for
2008 for these executives was largely dictated by the terms of their respective
employment agreements, which included, among other things, base salary, initial
equity awards of restricted stock and stock options, and in some instances,
sign-on bonuses and minimum guaranteed bonuses for the first year of
employment. Mr. O’Neil’s employment agreement was amended and
restated on June 3, 2009. For information related to his amended and restated
agreement, see “Executive
Compensation – Additional Information With Respect to the Summary Compensation
Table and Grants of Plan-Based Awards – Employment Agreements with Named
Executive Officers” and “Executive Compensation – Potential
Payments to Named Executive Officers upon Termination or Change in
Control.”
Decisions relating to 2008 compensation
for Messrs. Miller and Kottoor were driven largely by our desire to retain their
services following the commencement of the governmental investigations in
October 2007 (as described under “Legal Proceedings” in our
quarterly report on Form 10-Q for the quarterly period ended March 31, 2009),
and were also designed to increase their total compensation to be in line with
similarly-situated executives at companies in our peer group. In the
case of Mr. Kottoor, who terminated his employment in December 2008, his
compensation was also dictated in part by the terms of his separation
agreement. See “Separation Agreements” below
for a description of Mr. Kottoor’s separation agreement.
23
Messrs.
Farha and Behrens each resigned from their respective positions in January 2008,
which was before 2008 annual compensation decisions were determined by the
Compensation Committee. Consequently, virtually no decisions relating
to 2008 compensation were made with regard to either of these individuals;
rather, their compensation was dictated by the terms of their separation
agreements. See “Separation Agreements” below
for a description of Messrs. Farha’s and Behrens’ separation
agreements.
Compensation
Philosophy
We have not, and we currently do not,
pre-establish performance goals with respect to our performance-based
compensation. Our executive compensation program, including decisions
relating to performance-based compensation, have been, and continue to be, based
on the Compensation Committee’s subjective and discretionary review of overall
company and individual executive officer performance, each as subjectively
determined by the Compensation Committee after receiving recommendations from
our Chief Executive Officer for his direct reports.
We believe that, prior to 2008, our
compensation philosophy and processes reflected those of a newly-public company
in many respects. Prior to 2008, our senior management team was in
large part the same team that built and helped bring the Company public in
2004. Following our Initial Public Offering (“IPO”), we experienced
significant growth which was reflected in the price of our stock, which
increased from our IPO price of $17.00 in July 2004 to $122.27 by
October 23, 2007, the day before the commencement of the government
investigations. Due to the value that our stock represented to our
associates, including senior management, the focus of our compensation program
prior to 2008 was equity awards in the form of restricted stock and stock
options, which were granted on a discretionary basis. Conversely, our cash
compensation, including base salaries and annual cash bonuses, was typically
less than other companies within the health care industry due to our emphasis
on, and success of, our equity compensation program. Accordingly, as a
general matter, prior to 2008 we were able to attract and retain our executives
with compensation packages providing for relatively low amounts of cash
compensation and uncertain future equity awards in exchange for an attractive
initial equity grant.
However, following the commencement of
the governmental investigations in October 2007, and the subsequent
significant decrease in our stock price, which decreased from $122.27 on October23, 2007 to $22.87 on November 1, 2007, our ability to attract and retain our
associates, including our executives, became much more
challenging. In light of this, our Compensation Committee determined
we could no longer rely solely on initial equity grants as our primary
recruitment and retention tool. To help address these concerns, our
Compensation Committee retained Watson Wyatt Worldwide in November 2007 to
advise us with respect to how the amounts and composition of executive
compensation paid by us, including base salary and annual cash and long-term
equity incentive compensation targets, compared to market compensation levels
(see “Benchmarking”
below). As a result of this review, and as discussed in more detail
below, the Compensation Committee approved a compensation package that it felt
was more effective given the Company’s maturation to a larger, post-IPO
company.
We anticipate that the Compensation
Committee will continue to work with Watson Wyatt, the Board and
Mr. Schiesser to develop an evolving compensation program that reflects our
continued maturation as a public company and the need to attract and retain
talented management during our current challenges and beyond.
Although no significant changes were
made in 2009 to the Company’s overall compensation philosophy and structure, we
aggressively reduced administrative costs during 2008 in response to various
changes in our business and have and are implementing additional cost-cutting
measures in 2009, including a salary freeze, management bonus reductions and the
suspension of 401(k) retirement plan Company matching
contributions. As discussed below, these initiatives affected the
2008 compensation of some of the named executive officers.
Benchmarking
As discussed above, due to the decline
in our stock price and the Compensation Committee’s consequential focus on
alternative retention mechanisms, the Compensation Committee engaged Watson
Wyatt to perform an analysis of the amounts and composition of executive
compensation paid by WellCare, including base salary, annual cash and long-term
equity incentive targets, as compared to amounts being paid to
similarly-situated employees at companies we believed to be in our peer
group.
For purposes of determining our
relevant peer group, Watson Wyatt prepared an analysis, based on the then most
recently filed proxy statements, of the compensation practices and levels of
publicly-traded comparable medical service and health plan
providers. The companies were the following:
24
2008
Peer Group
· Aetna
Inc.
·
Express Scripts Inc.
·
AMERIGROUP Corp.
·
Health Net, Inc.
·
Centene Corp.
·
HealthSpring Inc.
·
Cigna Corp.
·
Humana, Inc.
·
Coventry Health Care, Inc.
·
Sierra Health Services, Inc.
As of December 31, 2007, the
market capitalization of these companies ranged from approximately $1.0 billion
to $28.9 billion, with a median of $7.2 billion, and revenues ranged from
approximately $1.6 billion to $27.6 billion, with a median of $14.1
billion. This compared to our December 31, 2007 market
capitalization of approximately $1.8 billion and revenues of approximately $5.3
billion. While our market capitalization and revenues represented the
lower end of the peer group range, these companies were nevertheless selected
principally because they are representative of the pool of companies in which we
compete for talent. These companies were also selected based on their
similarity of product offerings, and the size and growth rate of their Medicare
and Medicaid businesses.
In addition to peer group data, Watson
Wyatt also analyzed comparable market data from the following published survey
sources:
·
Watson
Wyatt 2007/08 Survey Report on Top Management Compensation;
·
Watson
Wyatt 2007/08 Survey Report on Health, Annuity, and Life Insurance
Management Compensation;
·
2007
U.S. Mercer Benchmark Database: Executive Survey Report; and
·
2007
Mercer Integrated Health Networks (IHN): U.S. Integrated Health Networks
Compensation Survey Suite.
While the Compensation Committee
reviewed and considered the comparable market data provided by these surveys, it
did not consider or review the compensation paid to executives at the component
companies included within such surveys; however, the data from these surveys was
scaled to our size using either regression analysis based on revenues or
corresponding revenue ranges as provided by the various surveys.
The peer group data prepared by Watson
Wyatt, as well as the comparable market data analyzed by Watson Wyatt, is
collectively referred to as the “market data.”
The fiscal year 2008 market data
prepared by Watson Wyatt indicated the following:
·
cash
compensation paid to our executives in the aggregate, consisting of base
salary and annual incentive cash compensation, was 16% below the median of
the market data; and
·
ongoing
equity awards to our executives in the aggregate was 40% above the 75th
percentile of the market data.
This analysis, coupled with our revised
retention mechanisms in light of the Company’s circumstances and decline in
stock price, resulted in the Compensation Committee’s determination that base
salaries for certain of our associates, including Messrs. Kottoor and
Miller, should be increased to be competitive with the median of the market
data. With respect to annual and long-term incentive opportunities
(consisting of cash and equity awards), the Compensation Committee, upon the
recommendation of Mr. Schiesser, determined to target the 50th to 75th
percentile of the market data. These changes resulted in our
executives’ total direct compensation to range from the 50th to 75th percentile
of the market data. In addition to the decreased efficacy of using
initial equity awards as the primary retention tool due to our decreased stock
price, the Compensation Committee felt targeting this segment of the market data
was appropriate as, consistent with other post-IPO companies, base salary and
annual cash bonuses would likely begin to become a more significant element of
executive compensation as the Company matures.
As discussed below, for 2008, each of
Messrs. Kottoor and Miller’s base salary was increased to bring each
executive in line with the median of the market data. In addition,
the targeted total cash compensation for Messrs. Kottoor and Miller was at
the 70th percentile of the market data, which the Compensation Committee deemed
necessary for retention purposes. As discussed in more detail below,
Mr. Miller’s base salary and annual cash incentive compensation was
subsequently adjusted for additional retention purposes in April 2008,
resulting in his targeted total cash compensation above the 75th
percentile.
25
Negotiation
of Employment Agreement Terms for 2008 Hires
We experienced a significant turnover
in our senior management team during 2008. Messrs. Schiesser, Tran,
Berg and O’Neil were all appointed to their respective positions during
2008. Recruiting executives was challenging in light of our
circumstances following the government investigations. In framing the
general compensation package for each of these named executive officers, the
Compensation Committee considered a number of quantitative and qualitative
factors, including the market data as described in “Benchmarking” above, the
total cost of each compensation package, the compensation packages developed for
other senior executives in the Company and the terms and conditions that other
job candidates were seeking. However, the final terms of each
employment agreement were reached after arm’s-length negotiations between us and
these executives and were determined by the Compensation Committee, based in
part on market data received from Watson Wyatt, to be reasonable. The
Compensation Committee also determined that the negotiated terms were necessary
to recruit these individuals in a relatively short time frame, and bring the
experience the Company needed in light of the challenges we were
facing. See “Employment Agreements with Named
Executive Officers” below for a description of the employment
agreements.
Compensation
Program Process and Components
In connection with our annual associate
review and evaluation process, incentive compensation decisions for our
executive officers, including the named executive officers, are generally made
in early March and are largely based on prior fiscal year company and individual
performance. For example, in March of a given year, the following
decisions are typically made by the Compensation Committee for our executive
officers:
·
base
salary adjustments;
·
annual
cash bonus awards related to prior fiscal year performance based on
targets established in the prior fiscal
year;
·
long-term
incentive awards based on targets established in the prior fiscal
year;
·
new
annual cash bonus targets; and
·
new
long-term incentive targets.
Annual cash bonuses and long-term
incentive awards are discretionary (except as might otherwise be required by an
executive’s employment agreement) and are based on targets that are increased or
decreased for overall company performance and individual performance, each as
subjectively determined by the Compensation Committee after receiving
recommendations from our Chief Executive Officer for his direct
reports.
During fiscal year 2008, our executive
compensation program consisted of the following four elements:
·
base
salary;
·
an
annual cash bonus;
·
long-term
incentive awards in the form of cash, restricted stock and stock options;
and
·
retention-related
incentive awards in the form of cash and stock
options.
Base
Salary
We pay base salary to attract talented
executives and to provide a fixed base of cash compensation. Base
salaries for executive officers are determined by the Compensation Committee,
after considering the market data (as described in “Benchmarking” above), the
scope and complexities of an individual’s role, internal equity (in this
context, meaning striving to ensure that our executives with similar
responsibilities, experience and historical performance are rewarded comparably)
and individual performance. The Compensation Committee is mindful of
setting the appropriate level of base salary in order to ensure that total
direct compensation is both competitive and reasonable.
26
In general, the Compensation Committee
considers three factors when determining whether to approve an increase to an
executive officer’s base pay: annual merit increases, promotions or changes in
role, and market adjustments.
·
Annual
merit increases. The Compensation Committee begins to
review potential merit increases in February and merit increases, if any,
are usually effective in mid-February or early March. Annual
merit increases are not guaranteed and any adjustments take into account
the individual’s performance, responsibilities and
experience. When making these determinations, the Compensation
Committee relies to a large extent on the Chief Executive Officer’s
evaluation of the performance of executive officers who report directly to
him.
·
Promotions
or changes in role. The Compensation Committee may
determine to increase an executive’s base salary to recognize an increase
in responsibilities resulting from a change in an executive’s role or a
promotion to a new position. The Compensation Committee
considers new responsibilities, market data and internal pay equity in
addition to past performance and experience when approving any such salary
increases.
·
Market
adjustments. Market adjustments may be awarded to an
executive when, in the judgment of the Compensation Committee, a
significant gap between the market data and the individual’s base salary
is recognized. In general, market adjustments are determined as
part of the annual merit review
process.
Fiscal Year 2008
Salaries
In connection with the review of base
salaries for fiscal year 2008, the Compensation Committee determined to approve
a base salary increase for Mr. Kottoor of $65,000, from $250,000 to
$315,000. The Compensation Committee also determined to approve a
base salary increase for Mr. Miller of $45,000, from $280,000 to
$325,000. These increases represented market adjustments, and brought
each executive’s base salary in line with the median of the market data, while
keeping total cash compensation at the 70th percentile of the market
data. Following the determination of 2008 base salaries, in
April 2008 Messrs. Schiesser and Miller entered into further
discussions regarding an additional base salary increase for
Mr. Miller. Due to concerns over retaining Mr. Miller, and given
the significant increase in our prescription drug plan and private fee-for
service Medicare business and the resulting responsibilities of Mr. Miller
since the time of his hire – during which time his overall compensation remained
relatively static – the Compensation Committee approved an additional increase
in Mr. Miller’s base salary of $75,000, retroactive to February 2008
when other 2008 base salaries increases were effective, bringing his base salary
rate for 2008 to $400,000.
As discussed above, Messrs. Schiesser,
Tran, Berg and O’Neil each negotiated base salaries in connection with being
recruited by us in 2008. For 2008, the base salaries for Messrs.
Schiesser, Tran, Berg and O’Neil were $400,000, $475,000, $500,000 and $500,000,
respectively, and such salaries were all included as a term of each executive’s
employment agreement executed during 2008. See “Negotiation of Employment Agreement
Terms for 2008 Hires” above and “Employment Agreements with Named
Executive Officers” below for a description of these employment
agreements.
Messrs. Farha and Behrens each resigned
from their respective positions in January 2008, which was before annual
compensation decisions were determined by the Compensation
Committee. Consequently, no changes were made to their base salaries
prior to their respective resignations. See “Separation Agreements” below
for a description of these separation agreements.
Fiscal Year 2009
Salaries
No salary adjustments for 2009 were
made for Messrs. Schiesser, Tran, Berg, Miller or O’Neil.
Incentive
Awards
As a component of total compensation,
the Compensation Committee may choose to pay performance-based incentive awards
with the intention of driving the achievement of key goals and initiatives for
the Company and recognizing individuals based on their contributions to those
results. Incentive awards consist of an annual cash bonus award,
incentive cash awards that vest over a long-term, restricted stock and/or stock
options. Incentive awards are discretionary (except as might
otherwise be required by an executive’s employment agreement) and are generally
based on pre-established targets that are increased or decreased depending on
overall company performance (the “company performance modifier”) and individual
performance (the “individual performance modifier”), each as subjectively
determined by the Compensation Committee.
27
In determining the company performance
modifier for a fiscal year, the Compensation Committee uses its discretion in
considering a number of quantitative and qualitative factors it considers
relevant for that fiscal year. In a favorable or unfavorable year as
determined by the Compensation Committee, the company performance modifier could
be above or below 100% respectively. The individual performance
modifier is based on an executive’s annual performance review and ranges from 0%
to 150%, with higher performing executives receiving higher performance
multipliers.
Once the performance modifiers are
determined by the Compensation Committee, the bonus payouts are formulaic as
follows:
Bonus
Payout
=
Pre-Established
Bonus Target
x
Company
Performance Modifier
x
Individual
Performance Modifier
For 2008, the Compensation Committee
determined the company performance modifier to be 60%, which was applied to all
bonus-eligible associates across the Company equally, after considering the
following factors:
·
budgets
that were achieved, including revenue, membership and selling, general and
administrative expenses (when adjusted to exclude investigation-related
expenses);
·
budgets
that were not achieved, including
earnings;
·
expansion
into the Hawaii market;
·
Medicare
growth versus our industry’s growth
rate;
·
major
projects, including the completion of CMS and NCQA audits and Medicaid
compliance;
·
medical
cost improvements in our Ohio
market;
·
improving
regulatory relationships; and
·
our
stock price performance.
Each executive’s individual performance
modifier is also approved by the Compensation Committee, largely based on the
recommendations of Mr. Schiesser with respect to his direct reports, including
Messrs. Tran, Miller and O’Neil. For fiscal year 2008 performance,
the Compensation Committee determined Mr. Tran’s individual performance modifier
at 110%, Mr. Miller’s individual performance modifier at 115% and Mr. O’Neil’s
individual performance modifier at 150%. Mr. Tran’s individual
performance modifier was based on success in managing the audit process and our
financial statement filings. Mr. Miller’s individual performance
modifier was based on success in growing and managing our Medicare products in
2008. Mr. O’Neil’s individual performance modifier was based on his
leadership in managing the legal challenges facing the Company.
Messrs. Schiesser and Berg each
requested they be paid no cash bonuses for 2008 and, therefore, they did not
receive any such bonuses. Messrs. Schiesser and Berg also requested
that the Compensation Committee make long-term incentive award determinations
with respect to them at a later date.
As discussed below under “Separation Agreements” and
“Potential Payments to Named
Executive Officers upon Termination or Change in Control,” no bonuses
were awarded to Messrs. Farha and Behrens for 2008 and Mr. Kottoor’s bonus
payment for 2008 was dictated by the terms of his July 2008 letter
agreement.
Annual Cash Bonus
Awards
As discussed above, annual cash bonus
awards are discretionary (except as might otherwise be required by an
executive’s employment agreement) and generally based on pre-established targets
that are increased or decreased based on the company and individual performance
modifiers.
28
Fiscal Year 2008
·
2008 Annual
Cash Bonus Targets. For 2008,
the Compensation Committee established new annual cash bonus targets for
Messrs. Kottoor and Miller for their annual cash bonus to be paid in
March 2009 (the annual cash bonus related to fiscal year 2008
performance is referred to as the “2008 Annual Cash Bonus
Award”). Mr. Kottoor’s target was increased from 35% of base
salary to 80% of base salary. Mr. Miller’s target was increased
from 50% of base salary to 80% of base salary. The new bonus
targets were largely based on the recommendation of Mr. Schiesser and
reflected the Compensation Committee’s desire to target total cash
compensation of Messrs. Kottoor and Miller at the 70th percentile of
the market data. As a result of the further discussions with
Mr. Miller in April 2008, as discussed above under “Base Salary – Fiscal Year
2008,” the Compensation Committee approved increasing
Mr. Miller’s fiscal year 2008 bonus target from 80% to 100% of base
salary.
Messrs.
Schiesser, Tran, Berg and O’Neil were each hired for their respective
positions during 2008. Each of these executives, with the
exception of Mr. Berg, negotiated an annual cash incentive bonus target in
connection with being recruited as discussed above. Although
Mr. Berg did not negotiate a specific target, his employment agreement
provides that he is eligible to receive an annual cash bonus as determined
in the discretion of the Compensation Committee. For 2008, and
as set forth in their respective employment agreements, the annual cash
bonus targets for Messrs. Schiesser, Tran and O’Neil are 200%, 100% and
50% of base salary, respectively. In addition, Messrs. Tran and
O’Neil negotiated guaranteed minimum bonuses of $475,000 (pro rated for
the portion of the calendar year employed) and $250,000, respectively, for
the initial calendar year of employment. See “Employment Agreements with
Named Executive Officers” below for a description of these
agreements.
·
2008 Annual
Cash Bonus Awards. Applying
the company performance modifier of 60% and Mr. Miller’s individual
performance modifier of 115% to Mr. Miller’s annual cash bonus target
(100% of base salary) resulted in a payout of $276,000, or 69% of his base
salary, in 2009 related to 2008 performance. Messrs. Tran and
O’Neil received the guaranteed minimum bonus payouts of $212,706 and
$250,000, respectively, in 2009 related to 2008 performance, each in
accordance with the terms of their respective employment
agreements. Pursuant to the terms of his severance agreement,
Mr. Kottoor was paid a bonus in the amount of $201,600, as discussed below
under “Separation
Agreements” and “Potential Payments to Named
Executive Officers upon Termination or Change in
Control.” As discussed above, Messrs. Schiesser and Berg
requested that they not be paid cash bonuses for 2008. As
discussed below under “Separation Agreements”
and “Potential Payments
to Named Executive Officers upon Termination or Change in Control,”
no bonuses were awarded to Messrs. Farha and Behrens for fiscal year
2008.
Fiscal Year
2009
No changes were made to annual cash
bonus targets for fiscal year 2009 for any of the named executive
officers. As discussed above, a specific target has not been
established for Mr. Berg, but he will continue to be eligible to receive an
annual cash bonus as determined in the discretion of the Compensation
Committee.
Long-Term Incentive
Awards
We issue both restricted stock and
non-qualified stock options to our executives as long-term
incentives. We believe that a combination of restricted stock and
stock options aligns our executives’ interests with those of our shareholders
and provides meaningful retention compensation. When making equity
awards, our practice is to determine the dollar amount of equity compensation
that we desire to provide to the executive and then grant a number of shares of
restricted stock or a number of stock options that have a fair value equal to
that amount on the date of grant. For additional information on our
equity award process, see “Equity Award Process”
below.
Prior to 2008, our practice was to use
equity awards both as a retention tool and reward for each executive’s prior
year performance (pursuant to an annual equity award) as well as a periodic
incentive and retention tool (typically pursuant to a mid-year equity award), as
recommended by Mr. Farha. However, such awards were
discretionary and were not made pursuant to any pre-established program or
policy. In addition, there was no set allocation between restricted
stock and option awards; rather, award determinations were based primarily on
the recommendations of Mr. Farha. However, as discussed below,
beginning in 2008, the Compensation Committee determined to provide additional
structure and consistency to our long-term incentive compensation program by
establishing long-term incentive targets for our executives. The
Compensation Committee also determined, on a going forward basis, to award 50%
of an executive’s long-term incentive value in restricted stock and 50% in stock
options as the Compensation Committee values both types of awards to balance
retention needs with future incentive tied to share price.
29
This new
structure was first implemented for awards made in
March 2008. However, due to securities law restrictions to which
we were then subject as a result not being timely in our SEC filings, we were
not able to issue restricted stock at that time. In lieu of the
restricted stock component of an executive’s long-term incentive award in
March 2008, the Compensation Committee approved a special performance-based
long-term potential cash incentive award, as discussed
below. Determinations made in March 2009 also represented a deviation
from our goal of awarding 50% of an executive’s long-term incentive value in
restricted stock and 50% in stock options due to the limitations on shares
available for issuance under our 2004 Equity Plan and current volatile economic
conditions, as well as restrictions on our ability to grant restricted stock in
March 2009. In lieu of an equity award in March 2009, the
Compensation Committee determined to approve a special long-term potential cash
incentive representing 50% of an executive’s long-term incentive value and defer
making determinations with regard to the other half until a later
time.
Fiscal Year 2008
·
2008
Long-Term Incentive Targets. In
March 2008, in order to impose more structure and consistency to our
equity compensation program, the Compensation Committee set long-term
incentive targets for each of Messrs. Kottoor and
Miller. Expressed as a percentage of each officer’s fiscal year
2008 base salary, the long-term incentive targets were established at 150%
for each executive and were determined based on the desire of the
Compensation Committee to target annual and long-term incentive
compensation at the 50th to 75th percentile of the market
data. Although the long-term incentive targets were first
established by the Compensation Committee and communicated to the
executives in March 2008, these targets were used to determine the
long-term incentive awards made in March 2008 and were also the
basis for determining the long-term incentive awards to be made in
March 2009 (other than for Mr. Kottoor, whose annual 2009
long-term incentive award was determined in connection with the
termination of his employment effective December 19, 2008) (the
long-term incentive award related to fiscal year 2008 performance is
referred to as the “2008 Long-Term
Incentive”).
·
2008
Long-Term Incentive Stock Option Award. As
discussed above, each executive’s long-term incentive award
granted in March 2008 (related to fiscal year 2007 performance) was
divided between a stock option award and a potential performance-based
long-term cash incentive award, each as described in more detail
below. In March 2008, based on the recommendation of
Mr. Schiesser, the Compensation Committee approved a stock option
award to purchase 17,898 shares of common stock for Mr. Kottoor and a
stock option award to purchase 16,004 shares of common stock for Mr.
Miller. The options have an exercise price of $43.45 per share
and will vest in equal annual installments on each of the first through
fourth anniversaries of the grant date of the award. These
stock option awards were determined based on 50% of each executive’s
long-term incentive target, adjusted based on each executive’s overall
fiscal year 2007 performance. In determining the size of Mr.
Kottoor’s award, the Compensation Committee considered his progress in
building our information technology team, upgrading and stabilizing our
information technology systems and building new capabilities in our
enrollment process. In determining the size of Mr. Miller’s
award, the Compensation Committee considered the growth in our private
fee-for-service business and Mr. Miller’s leadership in addressing
compliance concerns with CMS. See the table entitled “Grants of Plan-Based
Awards” below for details regarding these equity
awards.
·
2008
Special Performance-Based Long-Term Cash Incentive Award. As stated
above, in March 2008, each of Messrs. Kottoor and Miller
received an annual equity award consisting solely of stock options which
represented half of their targeted long-term incentive award opportunity
related to fiscal year 2007 performance. Because we could not
issue restricted stock for the other half of their long-term incentive
award opportunity due to securities law restrictions we were then subject
to as discussed above, the Compensation Committee approved a special
performance-based long-term cash incentive opportunity (the “2008 Special
Performance-Based Long-Term Cash Incentive Award”), payable in
September 2009 (other than for Mr. Kottoor, as discussed below),
in lieu of a restricted stock award. All associates eligible to
receive a long-term incentive award in March 2008, including
Messrs. Kottoor and Miller, are eligible to participate in this
special incentive program.
The
target amounts for each associate, including Messrs. Kottoor and
Miller, were determined by the Compensation Committee based on 50% of each
executive’s targeted long-term incentive award opportunity, as adjusted
for individual performance. The target amounts are subject to
increase or decrease by the Board by up to 50% at the conclusion of the
period based on the Board’s subjective review of the Company’s performance
during the period (that is, March 2008 through
September 2009). Mr. Kottoor was awarded a target amount
of $354,375 and Mr. Miller was awarded a target amount of
$316,875. As a result of the termination of Mr. Kottoor’s
employment, Mr. Kottoor’s bonus was paid at target on
December 29, 2008 pursuant to the terms of his severance
agreement. See “Separation Agreements”
and “Potential
Payments to Named Executive Officers
upon Termination or Change in Control” below for the 2008 Special
Performance-Based Long-Term Cash Incentive Award paid to
Mr. Kottoor.
·
2008 New
Hire Equity Awards. As discussed above, Messrs.
Schiesser, Tran, Berg and O’Neil each negotiated an initial equity award
of restricted stock and non-qualified stock options in connection with
being recruited in 2008. For a description of their initial equity awards,
see “Negotiation of
Employment Agreement Terms for 2008 Hires” above and “Employment Agreements with
Named Executive Officers” below. See also the table
entitled “Grants of
Plan-Based Awards” below for details regarding these equity
awards.
30
Fiscal Year 2009
·
2009
Long-Term Incentive Targets. Messrs.
Schiesser, Tran, Berg and O’Neil were each hired for their respective
positions during 2008. Only Mr. Tran negotiated a long-term
incentive target in connection with being hired, equal to 150% of base
salary and included a guaranteed minimum for the initial calendar year of
employment. Although Messrs. Schiesser, Berg and O’Neil did not
negotiate specific targets, their respective employment agreements provide
that each is eligible to receive an annual equity award as determined in
the discretion of the Compensation Committee. In March 2009,
the Compensation Committee determined to establish a long-term incentive
target for Mr. O’Neil at 150% of base salary, which was applied to awards
related to fiscal year 2008 performance and also will be the basis for
determining his long-term incentive awards in future years, unless
otherwise adjusted by the Compensation Committee. Mr. O’Neil’s
target was determined by the Compensation Committee to be reasonable and
in line with the other senior executives at Mr. O’Neil’s level, based in
part on market data provided by Watson Wyatt.
As discussed above, the Compensation
Committee has not established long-term incentive targets for Messrs.
Schiesser or Berg. No changes were made to long-term incentive
targets for fiscal year 2009 for any of the named executive officers for
their long-term incentive awards to be granted, if at all, in
March 2010.
·
2009
Long-Term Cash Bonus Awards. As discussed above, due to
the limitations on shares available for issuance under our 2004 Equity
Plan and current volatile economic conditions as well as restrictions on
our ability to grant restricted stock in March 2009, in lieu of
awarding an executive’s long-term incentive related to fiscal year 2008
performance entirely in equity, the Compensation Committee determined to
approve a special long-term potential cash incentive representing 50% of
an executive’s long-term incentive award opportunity. All
associates eligible to receive a long-term incentive award in
March 2009, other than Messrs. Schiesser and Berg, were granted a
2009 Long-Term Cash Bonus Award. In March 2009, at the request
of Mr. Schiesser, Mr. Tran agreed to an amendment to his employment
agreement providing for a cash award in lieu of 50% of the equity award
that he would otherwise be entitled to receive under his employment
agreement.
The
target amounts for each associate, including Messrs. Tran, Miller and
O’Neil, were determined by the Compensation Committee based on 50% of each
executive’s targeted long-term incentive award opportunity, as adjusted
for individual performance. Applying the company performance
modifier of 60% and each executive’s individual performance modifier as
discussed above to 50% of each executive’s long-term incentive target
results in awards of $159,530, $207,000 and $254,052 to Messrs. Tran,
Miller and O’Neil respectively. As provided under the 2009
Long-Term Cash Bonus Plan, 50% of each executive’s award will be paid in
September 2010 and 50% will be paid in September 2011, each payment
subject to continued employment. The 2009 Long-Term Cash Bonus
Plan also provides for acceleration of any unpaid amounts in the event an
executive’s employment is terminated without cause within one year
following a change in control. As stated above, no long-term
cash awards were made to Messrs. Schiesser or
Berg.
·
2009 Equity
Awards. As discussed above, due to the limitations on
shares available for issuance under our 2004 Equity Plan and current
volatile economic conditions as well as restrictions on our ability to
grant restricted stock in March 2009, the Compensation Committee has
deferred making determinations with regard to the other half of long-term
incentive awards related to 2008 performance until a later
date. The Compensation Committee has not determined when, if at
all, equity awards will be granted in
2009.
31
Retention-Related
Incentive Awards
Special Retention Bonus
In light of our concerns relating to
retention of our associates, as well as the concerns of our associates relating
to job security, in November 2007 the Compensation Committee approved a
one-time special cash retention bonus (the “Special Retention Bonus”), payable
in January 2009, to bonus-eligible associates who were employed on
October 31, 2007 assuming each associate remained with the Company through
December 31, 2008. Messrs. Kottoor and Miller were eligible
to participate in this program; Mr. Schiesser was not in a bonus-eligible
position on October 31, 2007; Messrs. Tran, Berg and O’Neil were not employed by
the Company on October 31, 2007; and Messrs. Farha and Behrens were specifically
excluded from participating in the program.
Pursuant to the terms of the special
retention bonus plan, all eligible associates in the level of vice president or
above, including Messrs. Kottoor and Miller, were eligible to earn a
retention bonus equal to 50% of their base salaries as of December 31,2008. Accordingly, Mr. Kottoor was eligible to earn a special
retention bonus in the amount of $157,500. With respect to
Mr. Miller, although his base salary was increased to $400,000 in
April 2008 (see “Base
Salary — Fiscal Year 2008” above), Mr. Miller’s special retention
bonus of $162,500 was based on 50% of his initial base salary increase for
fiscal year 2008. For the amount of the Special Retention Bonus paid
to Mr. Kottoor upon the termination of his employment, see “Potential Payments to Named Executive Officers upon
Termination or Change in Control” below.
Equity Retention Stock Option
Award
In addition to the special retention
bonus discussed above, and due to the retention risk and the significant drop in
our stock price which reduced financial ties to our Company, in March 2008
the Compensation Committee approved the grant of additional stock option
retention awards (the “Equity Retention Stock Option Award”) to all members of
our senior management team, other than Messrs. Schiesser and Berg. At
the time this award was granted, neither Mr. Tran nor Mr. O’Neil had been hired
yet. The grants were determined based on the Compensation Committee’s
review of an internally prepared analysis which showed, for each of
Messrs. Kottoor and Miller, the decrease in value of the equity awards held
by each executive as a result of our significant stock price decline in
October 2007. The analysis showed that the stock options
then-held by each such officer were below the exercise price of the options
(that is, the options were “underwater”). Because the Compensation
Committee and the Board believed it to be imperative that each executive be
retained and provided with an incentive to remain with the Company, the
Compensation Committee approved a stock option award to purchase 55,000 shares
of common stock for Mr. Kottoor and a stock option awards to purchase 40,000
shares of common stock for Mr. Miller as an additional retention
incentive. The options have an exercise price of $45.25 per share and
vest in full, based on the continued employment of the executive, in
November 2009. See the table entitled “Grants of Plan-Based Awards”
below for details regarding these equity awards.
As a result of termination of
Mr. Kottoor’s employment, Mr. Kottoor’s equity retention stock option
award accelerated in full, effective December 19, 2008. See
“Separation Agreements”
and “Potential
Payments to Named Executive Officers upon
Termination or Change in Control” below.
Clawback Policies for Special Retention
Bonus and Equity Retention Stock Option Awards
The terms of the special retention
bonus and the equity retention stock option awards each provide that, if it is
determined by the Board, in its sole and absolute discretion, that an associate
receiving such award, including Messrs. Kottoor and Miller, has committed
any:
·
wrongdoing
that contributed to (i) any material misstatement or omission from
any report or statement filed by WellCare with the SEC, or (ii) any
statement, certification, cost report, claim for payment or other filing
made under Medicare or Medicaid that was false, fraudulent, or for an item
or service not provided as claimed;
then, in
the case of the special retention bonus, the associate will be required to pay
back to WellCare any payments the associate has received pursuant to the special
retention bonus plan. In the case of the equity retention stock
option award, the option will be immediately forfeited and
cancelled. If the option has been exercised prior to the Board’s
determination, the associate is required to pay to WellCare an amount equal to
the difference between the aggregate value of the shares acquired upon exercise
of the option at the date of the Board determination and the aggregate exercise
price paid by the associate.
Equity
Award Process
We maintain an equity award process to
ensure that the authorization, timing and pricing of all equity awards are
processed, recorded, disclosed and accounted for in full compliance with all
applicable laws and regulations. For equity awards issued to existing
executive officers and associates, the awards are effective and, in the case of
options, the exercise price is set, as of the date of the
approval. For equity awards issued to newly-hired executive officers,
the awards are effective and, in the case of options, the exercise price is set,
as of the later of the individual’s first date of employment or the date of
approval. For equity awards to new Board members, the awards are
effective and, in the case of options, the exercise price is set, as of the
first date of service as a Board member. In July 2006, the
Compensation Committee also developed a policy whereby annual equity awards to
incumbent Board members will be effective, and in the case of stock options, the
exercise price will be set, as of the date of our annual shareholders
meeting. Approval for all equity awards is obtained in advance of or
on the date of grant. The exercise price for all stock option awards
is the officially-quoted closing selling price of our common stock on the NYSE
on the date of grant (or the officially-quoted closing selling price of our
common stock on the next trading day if the NYSE is closed on the date in
question). Commencing in April 2009, the Board adopted a Non-Employee
Director Compensation Policy. See “Director Compensation – 2009
Director Compensation” above for a description of this new
policy.
Because we hold our Board and committee
meetings shortly before we announce our quarterly and annual financial results,
there are times when equity awards for our executive officers are approved and,
according to our process, are effective, shortly before we announce
earnings. However, we do not have a program, plan or practice to time
our equity awards in coordination with the release of material, non-public
information.
Perquisites
Pursuant to the terms of their
respective employment agreements, Mr. Farha was entitled to a monthly
allowance of $4,000 to maintain an apartment in New York, and each of
Messrs. Farha and Behrens were entitled to an annual allowance of $5,000
and $3,000, respectively, to be applied toward supplemental life and disability
insurance policies, although Mr. Behrens decided not to renew his
disability policy since fiscal year 2006. Because we believed that
these executives should receive the total amount of their benefit, we grossed up
these allowance payments to cover any income taxes attributed to the
payments.
Messrs. Tran and O’Neil are entitled to
monthly allowances of $6,000 and $4,600, respectively, from their respective
dates of hire through December 2009 to cover housing and automobile expenses in
Tampa, Florida. Mr. O’Neil is also entitled to be reimbursed for
expenses incurred in traveling between Baltimore, Maryland and Tampa, Florida;
however, beginning in February 2009, in order to reduce administrative burdens
and also limit expenses, Mr. O’Neil agreed to accept a monthly allowance of
$1,800 to cover these expenses. Although we grossed up certain
reimbursement payments related to commuting expenses, we discontinued this
practice in February 2009.
In addition, as negotiated with Messrs.
Tran, Kottoor and Miller upon their hire, we agreed to pay reasonable expenses
incurred by each of them to relocate to Tampa, Florida. We also
reimbursed Messrs. Schiesser, Tran, Berg and O’Neil for legal fees and expenses
in connection with the negotiation of their employment agreements upon
hire.
We own a corporate aircraft that is
used primarily for business travel. Families and invited guests of
Directors and executives occasionally fly on our corporate aircraft as
additional passengers on business flights, which is treated as a personal
benefit to the Director or executive. In those cases, the aggregate
incremental cost to us is a de
minimis amount. For tax reporting purposes, when family members or
guests of a Director or executive travel on business flights, the value of such
personal use, determined using a method based on the Standard Industry Fair
Level (“SIFL”) rates as published by the Internal Revenue Service, is imputed as
income to such Director or executive. Such imputed income would be
included in taxable income for the Director or executive and reflected in
compensation tables herein to the extent the SIFL rate exceeds the amount
reimbursed by the Director or executive. None of our Directors or
executives were attributed any such income in fiscal year 2008.
33
Overall, we view the cost to the Company of these perquisites as de minimis as compared to the
goodwill established between the Company and the executives.
Tax
and Accounting Implications
Tax deductibility
Section 162(m) of the
Internal Revenue Code limits deductibility to any publicly-held corporation of
certain compensation for a “covered employee,” consisting of our Chief Executive
Officer and three most highly paid executive officers who are employed on the
last day of our fiscal year (other than the Chief Financial Officer), in excess
of $1 million per year. If certain conditions are met,
performance-based compensation may be excluded from this
limitation. While we do not design our compensation programs for tax
purposes, we do design our plans to be tax efficient for the Company where
possible. However, if following the requirements of
Section 162(m) would not be in the best interests of the Company and
our shareholders, the Compensation Committee may conclude that the payment of
non-deductible compensation is appropriate under the circumstances to allow us
to pay competitive compensation to our executive officers. During
2008, certain compensation paid to Messrs. Schiesser and Berg was non-deductible
under Section 162(m).
Accounting for stock-based
compensation
Beginning on January 1, 2006, we
began accounting for stock-based payments, including stock options, performance
shares and restricted stock awards, in accordance with FAS 123R. The
Compensation Committee and the Chief Executive Officer take into consideration
the accounting treatment under FAS 123R of alternative award proposals when
determining the form and amount of equity compensation
awards. Because our determinations regarding equity awards are
generally based on a dollar value, as discussed above, FAS 123R has impacted the
size and terms of our equity awards.
Compensation
Committee Report
The Compensation Committee, comprised
solely of independent Directors, has reviewed and discussed the Compensation
Discussion and Analysis with the Company’s management. Based on this
review and discussion, the Compensation Committee recommended to the Board that
the Compensation Discussion and Analysis be included in this proxy statement on
Schedule 14A.
The
Compensation Committee
Neal
Moszkowski (Chairperson)
Alif
Hourani
Kevin
Hickey
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal year 2008, Messrs.
Hickey, Hourani and Moszkowski served as the members of the Compensation
Committee, with Mr. Moszkowski serving as the chairperson. None of
these members has ever been an officer or employee of the Company or any of its
subsidiaries or had any relationship during fiscal year 2008 that would require
disclosure under Item 404 of SEC Regulation S-K. During fiscal year
2008, none of our executive officers served on the Compensation Committee (or
its equivalent) or Board of Directors of another entity, one of whose executive
officers served on our Board or Compensation Committee.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The following table and footnotes
discuss the compensation of Heath G. Schiesser and Todd S. Farha, the two
individuals who served as our principal executive officer during 2008; Thomas L.
Tran and Paul L. Behrens, the two individuals who served as our principal
financial officer during 2008; Charles G. Berg, Adam T. Miller and Thomas F.
O’Neil III, our three other most highly compensated executive officers who were
serving as executive officers at the end of 2008; and Anil Kottoor, an
individual who would have been one of our three other most highly compensated
executive officers if he had served as an executive officer at the end of
2008.
34
Name and
Principal Position
Year
Salary(9)
($)
Bonus(10)
($)
Stock
Awards(11)
($)
Option
Awards(11)
($)
Non-Equity
Incentive Plan Compensation(12)
($)
All Other
Compensation(13)
($)
Total
($)
Heath
G. Schiesser
President and Chief Executive Officer(1)
2008
365,292
—
2,609,963
2,379,614
—
2,722,849
8,077,718
Todd
S. Farha
Chairman, President and
Chief Executive Officer(2)
2008
109,231
—
551,132
511,894
—
43,079
1,215,336
2007
400,000
—
3,383,307
2,224,015
—
86,790
6,094,112
2006
400,000
400,000
2,758,269
1,635,495
—
77,061
5,270,825
Thomas
L. Tran
Senior Vice President and
Chief Financial Officer(3)
2008
200,962
287,706
163,717
139,165
—
41,309
832,859
Paul
L. Behrens
Senior Vice President and
Chief Financial Officer(4)
2008
83,462
—
80,002
39,369
—
662
203,495
2007
305,000
—
341,438
382,134
—
—
1,028,572
2006
282,269
200,000
361,232
136,597
—
4,079
984,177
Charles
G. Berg
Executive Chairman(5)
2008
453,846
—
4,019,086
2,582,640
—
118,162
7,173,734
Anil
Kottoor
Senior Vice President and
Chief Information Officer(6)
2008
305,000
—
1,094,079
962,027
—
718,855
3,079,961
2007
244,231
131,250
206,013
204,504
—
20,031
806,029
Adam
T. Miller
Senior Vice President, National Medicare
and Government Relations(7)
2008
381,539
276,000
295,596
538,071
162,500
6,673
1,660,379
2007
278,077
182,000
249,320
262,261
—
10,687
982,345
Thomas
F. O’Neil III
Vice
Chairman(8)
2008
365,385
350,000
372,862
335,826
—
57,113
1,481,186
(1)
Mr.
Schiesser began his service as principal executive officer in January
2008. Compensation for Mr. Schiesser is provided only for 2008
because he was not a named executive officer for 2006 or
2007.
(2)
Mr.
Farha’s service as principal executive officer terminated in January
2008.
(3)
Mr.
Tran began his service as principal financial officer in July
2008. Mr. Tran was not employed by the Company prior to July
2008.
(4)
Mr.
Behrens’ service as principal financial officer terminated in January
2008.
(5)
Mr.
Berg began his service as an executive officer in January
2008. Mr. Berg was not employed by the Company prior to January
2008.
(6)
Mr.
Kottoor’s service as an executive officer terminated in December
2008. Compensation for Mr. Kottoor is provided only for 2007
and 2008 because he was not employed by the Company in
2006.
(7)
Compensation
for Mr. Miller is provided only for 2007 and 2008 because he was not a
named executive officer for 2006.
(8)
Mr.
O’Neil began his service as an executive officer in April
2008. Mr. O’Neil was not employed by the Company prior to April
2008. On June 3, 2009, Mr. O’Neil ceased serving as our
Senior Vice President, General Counsel and Secretary and was appointed our
executive Vice Chairman.
(9)
Represents
total salary earned by these named executive officers and includes amounts
of compensation contributed by the named executive officers to our
401(k) savings plan for each respective fiscal
year.
(10)
Represents
discretionary bonuses earned by the named executive officers during each
respective fiscal year. Mr. Tran’s bonus for 2008 consists of a
signing bonus in the amount of $75,000 and a minimum guaranteed bonus for
2008 in the amount of $212,706. Mr. O’Neil’s bonus for 2008
consists of a signing bonus in the amount of $100,000 and a minimum
guaranteed bonus for 2008 in the amount of $250,000. See “Employment Agreements with
Named Executive Officers” below.
(11)
The
amounts included in the “Stock Awards” and “Option Awards” columns are the
amounts of compensation cost related to performance shares (with respect
to Mr. Farha only), restricted stock awards and stock option awards,
respectively, recognized by us in our financial statements during fiscal
years 2008, 2007 and 2006, respectively, in accordance with FAS
123R. Pursuant to SEC rules, the amounts shown exclude the
impact of estimated forfeitures related to service-based vesting
conditions. These amounts reflect our accounting expense for these awards
and do not correspond to the actual value that will be realized by the
executives. For a discussion of valuation assumptions and
methodologies, see Note 2 to our 2008 consolidated financial statements
included in our annual report on Form 10-K for the year-ended
December 31, 2008; Note 2 to our 2007
consolidated financial statements included in our annual report on Form
10-K for the year-ended December 31, 2007; Note 2 to our 2006 consolidated
financial statements included in our annual report on Form 10-K for
the year-ended December 31, 2006; and Note 14 to our 2005
consolidated financial statements included in our annual report on
Form 10-K for the year-ended December 31,2005.
(12)
Represents
bonus earned by Mr. Miller in 2008 under the WellCare Health Plans, Inc.
Special Retention Bonus Plan. See “Retention-Related Incentive
Awards – Special Retention Bonus” above.
(13)
The
following table shows the components of the “All Other Compensation” for
fiscal year 2008:
35
Name
Year
Separation
Payments(1)
($)
Housing &
Automobile
Allowance(2)
($)
Commuting
Reimbursements(3)
($)
Relocation(4)
($)
401(k)
Match
($)
Legal
Fees and Expenses(5)
($)
Tax
Gross-Ups(6)
($)
All Other
Compensation
($)
Heath
G. Schiesser
2008
—
—
—
—
1,266
240,591
2,480,992
2,722,849
Todd
S. Farha
2008
17,223
16,000
—
—
2,100
—
7,756
43,079
Thomas
L. Tran
2008
—
30,000
3,516
538
4,925
1,380
950
41,309
Paul
L. Behrens
2008
662
—
—
—
—
—
—
662
Charles
G. Berg
2008
—
—
—
—
—
118,162
—
118,162
Anil
Kottoor
2008
713,475
—
—
—
5,380
—
—
718,855
Adam
T. Miller
2008
—
—
—
—
6,673
—
—
6,673
Thomas
F. O’Neil III
2008
—
41,400
4,369
44
5,768
3,318
2,214
57,113
(1)
Represents
amounts paid upon separation of employment. With respect to
Messrs. Farha and Behrens, the amounts represent the value of accrued but
unused vacation days as of their respective dates of termination of
employment. With respect to Mr. Kottoor, the amount represents
the payment made in 2008 pursuant to his separation agreement and general
release. Subject to Mr. Kottoor’s compliance with
non-competition, non-solicitation, confidentiality and non-disparagement
covenants, he is also entitled to additional payments during 2009 and 2010
totaling $666,346. See “Potential
Payments to Named Executive Officers
upon Termination or Change in Control” below.
(2)
Represents
cash allowances to cover housing and automobile expenses in New York, New
York with respect to Mr. Farha and in Tampa, Florida with respect to
Messrs. Tran and O’Neil. See “Employment Agreements with
Named Executive Officers” below.
(3)
Represents
amounts paid by the Company or reimbursed to the executive for travel
between executive’s home and the Company’s headquarters in Tampa,
Florida.
(4)
Represents
amounts paid by the Company for the relocation of Messrs. Tran and
O’Neil to Tampa, Florida in connection with their hire. See
“Employment Agreements
with Named Executive Officers” below.
(5)
Represents
amounts paid by the Company for legal fees and expenses in connection with
the negotiation of executive’s employment agreement and related
agreements, including, in the case of Messrs. Schiesser and Berg, legal
diligence with regard to the pending governmental investigations and civil
actions. See “Employment Agreements with
Named Executive Officers” below.
(6)
With
respect to Mr. Schiesser, the amount represents the payment to cover
income taxes in connection with Mr. Schiesser making an election under
Section 83(b) of the Internal Revenue Code of 1986, as amended, with
respect to 100,000 shares of restricted stock granted in January
2008. See “Employment Agreements”
below. With respect to Mr. Farha, the amount represents the
payment to cover income taxes attributed to his housing and automobile
allowance. With respect to Messrs. Tran and O’Neil, the amounts
represent the payments to cover income taxes attributed to their
respective commuting reimbursements. See “Employment Agreements with
Named Executive Officers”
below.
Grants
of Plan-Based Awards
The following table sets forth
information regarding each grant of a plan-based award made to a named executive
officer during fiscal year 2008.
Name
Grant
Date(1)
Approval
Date(1)
Estimated
Future Payouts
Under
Non-Equity
Incentive
Plan Awards(2)
All Other
Stock
Awards:
Number
of
Shares
of Stock
or Units(3)
(#)
All Other
Option
Awards:
Number
of Securities
Underlying
Options(4)
(#)
Exercise
or Base
Price of
Option
Awards(5)
($/Sh)
Grant
Date Fair
Value of
Stock
and
Option
Awards(6)
($)
Threshold
($)
Target
($)
Maximum
($)
Heath
G. Schiesser
01/25/08
01/25/08
—
—
—
250,000
(7)
—
—
10,780,000
01/25/08
01/25/08
—
—
—
—
500,000
(8)
43.12
9,599,450
Thomas
L. Tran
07/21/08
07/14/08
—
—
—
50,000
(9)
—
—
1,461,500
07/21/08
07/14/08
—
—
—
—
100,000
(9)
29.23
1,242,320
Charles
G. Berg
01/25/08
01/25/08
—
—
—
200,000
(10)
—
—
8,624,000
01/25/08
01/25/08
—
—
—
—
300,000
(11)
43.12
5,541,750
Anil
Kottoor
—
—
177,188
354,375
531,563
—
—
—
—
03/05/08
03/05/08
—
—
—
—
55,000
(12)
45.25
737,088
03/06/08
03/06/08
—
—
—
—
17,898
(9)
43.45
304,568
Adam
T. Miller
—
—
158,438
316,875
475,313
—
—
—
—
03/05/08
03/05/08
—
—
—
—
40,000
(13)
45.25
536,064
03/06/08
03/06/08
—
—
—
—
16,004
(9)
43.45
272,338
Thomas
F. O’Neil III
04/01/08
03/03/08
—
—
—
50,000
(9)
—
—
1,985,000
04/01/08
03/03/08
—
—
—
—
100,000
(9)
39.70
1,787,830
(1)
Our
equity award process is described in more detail under “Equity Award Process”
above.
(2)
This
column shows the 2008 Special Performance-Based Long-Term Cash Incentive
Awards made in March 2008 and payable in September 2009. See
“2008 Special
Performance-Based Long-Term Cash Incentive Award” above for a
description of these awards. With regard to Mr. Kottoor, his
award was paid at target pursuant to his separation agreement and general
release. See “Separation Agreements”
and “Potential
Payments to Named Executive Officers
upon Termination or Change in Control” below.
(3)
This
column shows the number of shares of restricted stock granted to our named
executive officers in fiscal year 2008. All grants were made
under our 2004 Equity Incentive Plan, except the grant to Mr. O’Neil which
was a non-plan grant. These awards are subject to continued
service through the applicable vesting dates, and are not subject to
pre-established performance goals. Acceleration of vesting of
awards is described in more detail below under “Potential Payments to Named
Executive Officers upon Termination or Change in
Control.”
36
(4)
This
column shows the number of stock options granted to our named executive
officers in fiscal year 2008. All grants were made under our
2004 Equity Incentive Plan, except the grant to Mr. O’Neil which was a
non-plan grant. These awards are subject to continued service
through the applicable vesting dates, and are not subject to
pre-established performance goals. Acceleration of vesting of
awards is described in more detail below under “Potential Payments to Named
Executive Officers upon Termination or Change in
Control.”
(5)
This
column shows the exercise price for the stock options granted, which was
the closing market price of our stock on the date of
grant.
(6)
This
column shows the full grant date fair value of stock options and
restricted stock granted to our named executive officers in fiscal year
2008 calculated in accordance with FAS 123R. These amounts
reflect the accounting expense that we will recognize over the vesting
term for these awards and do not correspond to the actual value that will
be realized by the executives.
(7)
Award
vests in equal quarterly installments on the 25th day of every third
calendar month for forty-eight months, commencing on the date of
grant.
(8)
Award
vests in approximately equal monthly installments on the 25th day of each
calendar month following the date of grant for forty-eight consecutive
months.
(9)
Award
vests in equal annual installments on each of the first through fourth
anniversaries of the date of grant.
(10)
Award
vests as to twenty-five percent (25%) on the 25th day of the sixth
calendar month following the date of grant and the remaining balance vest
in equal quarterly installments on the 25th day of every third calendar
month for eighteen months.
(11)
Award
vests in equal quarterly installments on the 25th day of every third
calendar month for twenty-four months, commencing on the date of
grant. The original terms of this award were amended in 2008 to
accurately reflect the intent of the parties as expressed in Mr. Berg’s
employment agreement that, in the event of any termination of employment
by Mr. Berg without good reason (as defined in the employment agreement)
on or after January 25, 2010, the option would remain exercisable for its
full ten-year term. See “Employment Agreements with
Named Executive Officers” below.
(12)
Award
originally scheduled to vest in full in November 2009. However,
this award was amended in 2008 and vested in full in December 2008 in
connection with Mr. Kottoor’s termination of
employment. See “Potential
Payments to Named Executive Officers
upon Termination or Change in Control” below.
(13)
Award
vests in full in November 2009.
Additional
Information With Respect to the Summary Compensation Table and Grants of
Plan-Based Awards
In addition to the information provided
below, see “Compensation
Discussion and Analysis” above for a discussion of certain named
executive officers’ amount of salary and bonus compared to total
compensation.
Employment
Agreements with Named Executive Officers
Heath G. Schiesser
Pursuant to an employment agreement
with Mr. Schiesser, dated January 25, 2008, Mr. Schiesser agreed to serve as our
President and Chief Executive Officer, with an initial base salary of
$400,000. He is also entitled to receive an annual cash bonus based
on his achievement of performance objectives set by the Compensation Committee,
after consultation with Mr. Schiesser, with a targeted bonus of 200% of his
annual salary for each fiscal year, as well as special bonuses at the discretion
of the Compensation Committee. Mr. Schiesser is also entitled to
participate in all Company benefit plans on the most favorable basis available
to any senior executive of the Company. The employment agreement
provides that the Company will reimburse Mr. Schiesser for legal fees and
expenses in connection with the negotiation of his employment
agreement. The employment agreement also includes confidentiality and
non-competition provisions, including a requirement that Mr. Schiesser not seek
employment with, or ownership in, a company in direct competition with the
Company and its subsidiaries for a period of one year after the termination of
his employment. The employment agreement has an initial term of four
years and will automatically renew for successive one-year periods thereafter
unless either party notifies the other that the term will not be
extended.
Pursuant to the employment agreement,
Mr. Schiesser also received (i) a non-qualified stock option to purchase 500,000
shares of the Company’s common stock and (ii) 250,000 restricted shares of the
Company’s common stock, each of which was granted pursuant to our 2004 Equity
Plan. See “Grants
of Plan-Based Awards” above. The non-qualified stock options
have a ten year term and a per share exercise price of $43.12, which was based
on the closing price of our common stock on the date of grant. The
non-qualified stock options vest in equal monthly installments on the 25th day
of each calendar month following January 25, 2008 for forty-eight consecutive
months. The restricted shares vest in equal quarterly installments on
the 25th day of every third calendar month for forty-eight months, commencing on
January 25, 2008. The employment agreement also provides that we will
pay, on a fully-grossed up basis, all federal, state, and local income taxes
incurred by Mr. Schiesser on compensation resulting from Mr. Schiesser making an
election under Section 83(b) of the Code on the 100,000 restricted shares that
are scheduled to vest first. See footnote 13 in the “Summary Compensation Table”
above. In addition, Mr. Schiesser is entitled to earn future equity compensation
awards and/or other long term incentive compensation as determined in the
discretion of the Compensation Committee.
37
Pursuant
to the employment agreement described above, Mr. Schiesser is also entitled
to certain additional payments and benefits in the event of a change in control
or his employment is terminated under certain circumstances. For a
description of these payments and benefits, see “Potential Payments to Named
Executive Officers upon Termination or Change in Control.”
Todd S. Farha
Mr. Farha terminated his
employment as our President and Chief Executive Officer in January 2008;
however, Mr. Farha served as our President and Chief Executive Officer
pursuant to an amended and restated employment agreement dated June 6,2005, pursuant to which he was entitled to certain payments and benefits upon
termination of employment or a change in control. For a description
of each of these provisions and payments, as well as the separation agreement
entered into between the Company and Mr. Farha, see “Separation Agreements” and
“Potential Payments to Named
Executive Officers upon Termination or Change in Control.”
Thomas L. Tran
Pursuant to an employment agreement
with Mr. Tran, dated July 21, 2008, Mr. Tran agreed to serve as our
Senior Vice President and Chief Financial Officer, with an initial annual base
salary of $475,000 and an initial annual cash bonus target of 100% of his base
salary, with a minimum guaranteed bonus of $475,000 for fiscal year 2008, pro
rated for the portion of the calendar year Mr. Tran is employed. In
addition, the employment agreement provided for a one-time cash signing bonus of
$75,000 and that we will pay Mr. Tran an allowance of $6,000 per month through
December 2009 as an allowance for housing in the Tampa area and as an automobile
allowance. In addition, the employment agreement provided that we
would pay reasonable relocation expenses, up to $25,000, for him to relocate to
Tampa, Florida in connection with his employment by us, and that the Company
will reimburse Mr. Tran for legal fees and expenses in connection with the
negotiation of his employment agreement. The employment agreement
also includes confidentiality and non-competition provisions, including a
requirement that Mr. Tran not seek employment with, or ownership in, a company
in direct competition with the Company and its subsidiaries for a period of one
year after the termination of his employment. The employment
agreement has an initial term of four years and will automatically renew for
successive one-year periods thereafter unless either party notifies the other
that the term will not be extended.
Pursuant to the employment agreement,
Mr. Tran also received (i) a non-qualified stock option to purchase 100,000
shares of the Company’s common stock and (ii) 50,000 restricted shares of the
Company’s common stock, each of which was granted pursuant to our 2004 Equity
Plan. See “Grants of
Plan-Based Awards” above. The non-qualified stock options have
a ten year term and a per share exercise price of $29.23, which was based on the
closing price of our common stock on the date of grant. Both the
non-qualified stock options and the restricted shares of common stock will vest
in equal annual installments on each of the first through fourth anniversaries
of the grant date of the award. In addition, Mr. Tran will be
entitled to earn equity compensation awards based upon Mr. Tran’s achievement of
specified performance objectives, with an annual equity compensation award
target of 150% of Mr. Tran’s annual salary for each fiscal year (with a minimum
guaranteed annual equity compensation award in 2009 (related to fiscal year 2008
performance) of 100% of Mr. Tran’s annual salary for fiscal year 2008, pro-rated
for the portion of the calendar year Mr. Tran is employed).
The employment agreement described
above was amended on March 10, 2009 to provide that 50% of Mr. Tran’s minimum
guaranteed equity compensation award in 2009 would be paid in the form of a cash
award under the 2009 Long Term Cash Bonus Plan.
Pursuant to the employment agreement
described above, Mr. Tran is also entitled to certain additional payments
and benefits in the event his employment is terminated under certain
circumstances. For a description of these payments and benefits, see
“Potential Payments to Named
Executive Officers upon Termination or Change in Control.”
Paul L. Behrens
Mr. Behrens terminated his
employment as our Senior Vice President and Chief Financial Officer in
January 2008; however, Mr. Behrens served as our Senior Vice President
and Chief Financial Officer pursuant to an employment agreement dated
September 15, 2003, pursuant to which he was entitled to certain payments
and benefits upon termination. For a description of each of these
provisions and payments, as well as the separation agreement entered into
between the Company and Mr. Behrens, see “Separation Agreements” and
“Potential Payments to Named
Executive Officers upon Termination or Change in Control.”
38
Charles
G. Berg
Pursuant to a letter agreement with Mr.
Berg, dated January 25, 2008, Mr. Berg agreed to serve as our Executive
Chairman, with an initial base salary of $500,000. Mr. Berg will be
eligible to participate in the employee benefit plans maintained by the Company
and its subsidiaries for senior executives on the same basis as other executive
officers. He will also be eligible to receive, in the sole discretion
of the Compensation Committee, an annual bonus based on his individual
performance and the performance of the Company. The letter agreement
provides that the Company will reimburse Mr. Berg for legal fees and expenses in
connection with the negotiation of his letter agreement. The letter
agreement provides that Mr. Berg not seek employment with, or ownership in, a
company in direct competition with the Company and its subsidiaries during any
period in which he is receiving severance payments. The letter
agreement has a term of two years.
Pursuant to the letter agreement, Mr.
Berg also received (i) a non-qualified stock option to purchase 300,000 shares
of the Company’s common stock and (ii) 200,000 restricted shares of the
Company’s common stock, each of which was granted pursuant to our 2004 Equity
Plan. See “Grants of
Plan-Based Awards” above. The non-qualified stock options have
a ten year term and a per share exercise price of $43.12, which was based on the
closing price of the Company’s common stock on the date of grant. The
non-qualified stock options vest and become exercisable in eight quarterly
installments beginning three months after January 25, 2008 and continuing
quarterly thereafter. Twenty-five percent (25%) of the restricted
shares vested six months after January 25, 2008 and the remaining restricted
shares vest quarterly thereafter.
Pursuant to the letter agreement,
Mr. Berg is also entitled to certain additional payments and benefits in
the event of a change in control or his employment is terminated under certain
circumstances. For a description of these payments and benefits, see
“Potential Payments to Named
Executive Officers upon Termination or Change in Control.”
Anil Kottoor
Mr. Kottoor’s service as our
Senior Vice President and Chief Information Officer terminated in
December 2008; however, Mr. Kottoor served as our Senior Vice
President and Chief Information Officer pursuant to an offer letter dated
December 18, 2006 and a letter agreement dated July 2, 2008, pursuant to which
he was entitled to certain payments and benefits upon
termination. For a description of each of these provisions and
payments, as well as the separation agreement entered into between the Company
and Mr. Kottoor, see “Separation Agreements” and
“Potential Payments to Named
Executive Officers upon Termination or Change in Control.”
Adam T. Miller
Pursuant to an offer letter with
Mr. Miller, dated January 17, 2006, Mr. Miller agreed to serve as
our Chief Operating Officer, PDP with an initial annual base salary of $270,000
and an initial annual cash bonus target of 50% of his base salary, with a
guaranteed cash bonus of 35% of his base salary during fiscal year
2006. Mr. Miller also received a grant of (i) 25,000 shares of
restricted stock and (ii) a stock option to purchase 60,000 shares of common
stock, each of which vest over a five-year period and was granted pursuant to
our 2004 Equity Plan. See “Grants of Plan-Based Awards”
above.
Pursuant to the offer letter described
above, Mr. Miller is also entitled to certain additional payments and
benefits in the event his employment is terminated under certain
circumstances. For a description of these payments and benefits, see
“Potential Payments to Named
Executive Officers upon Termination or Change in Control.”
As discussed in the “Compensation Discussion and
Analysis” above, since the execution of his 2006 offer letter, Mr. Miller
has received, among other things, increases in his base salary and bonus
targets, as well as additional equity awards.
Thomas F. O’Neil III
Pursuant to an employment agreement
with Mr. O’Neil, dated April 1, 2008, Mr. O’Neil agreed to serve as
our Senior Vice President, General Counsel and Secretary, with an initial annual
base salary of $500,000 and an initial annual cash bonus target of 50% of his
base salary, with a minimum guaranteed cash bonus of $250,000 for fiscal year
2008. In addition, the employment agreement provided for a one-time
cash signing bonus of $100,000 and that we will pay Mr. O’Neil an allowance of
$4,600 per month through December 2009 to cover expenses incurred in connection
with his housing and car allowance. The employment agreement also
provides that we will pay or reimburse Mr. O’Neil for expenses incurred in
traveling between Baltimore, Maryland and Tampa, Florida (although, as discussed
below, this provision was amended in 2009), and that the Company will reimburse
Mr. O’Neil for legal fees and expenses in connection with the negotiation of his
employment agreement. The employment agreement also includes
confidentiality and non-competition provisions, including a requirement that Mr.
O’Neil not seek employment with, or ownership in, a company in direct
competition with the Company and its subsidiaries for a period of one-year after
the termination of his employment. The employment agreement has an
initial term of four years and will automatically renew for successive one-year
periods thereafter unless either party notifies the other that the term will not
be extended.
39
Pursuant to the employment agreement,
Mr. O’Neil also received (i) a non-qualified stock option to purchase 100,000
shares of the Company’s common stock and (ii) 50,000 restricted shares of the
Company’s common stock. See “Grants of Plan-Based Awards”
above. The non-qualified stock options have a ten year term and a per share
exercise price of $39.70, which was based on the closing price of our common
stock on the date of grant. Both the non-qualified stock options and
the restricted shares of common stock vest in equal annual installments on each
of the first through fourth anniversaries of the grant date of the
award. In addition, Mr. O’Neil is entitled to earn future equity
compensation awards and/or other long term incentive compensation as determined
in the discretion of the Compensation Committee.
The employment agreement was amended on
February 23, 2009 to provide that commencing in February 2009, Mr. O’Neil will
receive an allowance of $1,800 per month to cover expenses incurred in traveling
between Baltimore, Maryland and Tampa, Florida in lieu of what the employment
agreement originally provided with regard to travel between Baltimore and
Tampa.
Mr. O’Neil’s employment agreement was
further amended and restated on June 3, 2009 in connection with his appointment
as our executive Vice Chairman. Pursuant to the amended and restated
agreement, Mr. O’Neil ceased serving as our Senior Vice President, General
Counsel and Secretary. The amended and restated employment agreement
provides for the continuation of Mr. O’Neil’s current base salary of not
less than $41,667 per month and a cash bonus opportunity for calendar year 2009
to be paid based on the achievement of certain performance objectives to be
agreed to by us and Mr. O’Neil, with a bonus target of 50% of his annual
base salary. So long as Mr. O’Neil remains employed by us
through December 31, 2009, he also will be entitled to receive an
additional amount in cash equal to the sum of (i) $500,000 and
(ii) the higher of his (x) annual cash bonus for calendar year 2008
(which was $250,000) or (y) annual cash bonus for calendar year 2009 (which
is expected to be determined in 2010). Of this additional amount, $500,000
is required to be paid on December 31, 2009 and the remainder not later
than March 15, 2010. Mr. O’Neil will receive all group insurance,
pension plan and other fringe benefits offered by us to other senior executives,
and he will continue to receive an allowance of $4,600 per month to cover
certain living expenses through September 11, 2009 (prorated for the
partial month of September 2009).
Pursuant to the employment agreement
described above, Mr. O’Neil is also entitled to certain additional payments
and benefits in the event his employment is terminated under certain
circumstances. For a description of these payments and benefits, see
“Potential Payments to Named
Executive Officers upon Termination or Change in Control.”
Separation
Agreements
Messrs. Farha and
Behrens
On January 25, 2008, we entered
into separation agreements with each of Messrs. Farha and Behrens providing
for their respective resignations from the Company and its
subsidiaries. Pursuant to the separation agreements, each officer
agreed that his resignation would be a “voluntary termination” pursuant to his
respective employment agreement. The separation agreements provided
for no new severance or other payments or benefits. Accordingly, each
officer received only a cash amount equal to his accrued but unpaid vacation as
provided for in their respective employment agreements. In addition,
Mr. Farha may potentially earn a portion of his 2005 performance share
award, in a maximum amount of 130,000 shares. For a discussion of the
circumstances pursuant to which Mr. Farha may earn these shares, as well as
each officer’s separation agreement, see “Potential Payments to Named
Executive Officers upon Termination or Change in Control”
below.
Mr. Kottoor
In July 2008, we entered into a
letter agreement with Mr. Kottoor. Except as set forth
immediately below, the letter agreement did not provide Mr. Kottoor with
any additional compensatory awards. Instead, the letter agreement
provided for the acceleration of the Special Retention Bonus, 2008 Special
Performance-Based Long-Term Cash Incentive Award and the 2008 Annual Cash Bonus
Award (each as defined above in “Compensation Discussion and
Analysis”) in the event Mr. Kottoor’s employment was terminated
under certain circumstances.
In addition, the letter agreement
provided for the following additional compensation and/or acceleration of awards
if Mr. Kottoor was terminated under the circumstances described
below:
40
·
A
potential additional retention bonus (the “Additional Retention Bonus”) in
the amount of $236,250, which such amount represented 50% of
Mr. Kottoor’s target 2008 Long-Term Incentive opportunity, as
described above. The Additional Retention Bonus was payable in
the event Mr. Kottoor’s employment terminated prior to vesting of the
equity awards, if any, awarded pursuant to his 2008 Long-Term Incentive
opportunity, as described above, or in the event his employment terminated
for any reason prior to June 1,2009.
·
Continuation
of Mr. Kottoor’s base salary as in effect on the date of termination
of employment from the date of termination through May 1, 2010 (the
“Severance Payment”).
·
Accelerated
vesting of all of his unvested restricted stock grants, as of July 2,2008, or a total of 13,934 shares, to the
extent not already vested on his termination
date.
·
Accelerated
vesting of his Equity Retention Stock Option Award, exercisable for 55,000
shares.
Mr. Kottoor’s employment was
terminated in December 2008. Consistent with the terms of the letter
agreement described above, we entered into a separation agreement with Mr.
Kottoor on December 19, 2008 providing for the following:
·
A lump-sum
payment of $713,475 on December 29, 2008, consisting of his (i) Special
Retention Bonus in the amount of $157,500, (ii) 2008 Special
Performance-Based Long-Term Cash Incentive Award in the amount of $354,375
and (iii) 2008 Annual Cash Bonus in the amount of $201,600 (representing
80% of his target) (See “Summary Compensation
Table” above);
·
Continuation
of Mr. Kottoor’s base salary from December 19, 2008 through May 1, 2010,
in the aggregate amount of $430,096;
and
The separation agreement also includes
confidentiality and non-competition provisions, including a requirement that Mr.
Kottoor not seek employment with, or ownership in, a company in direct
competition with the Company and its subsidiaries for a period beginning on the
date of his termination of employment and ending on May 1, 2010.
For a discussion of the payments made
to Mr. Kottoor based upon the letter agreement and the termination of his
employment effective December 19, 2008, see “Potential Payments to Named Executive Officers upon
Termination or Change in Control” below. See also “Summary Compensation Table”
for the payments made to Mr. Kottoor in 2008 in connection with this
agreement.
41
Outstanding
Equity Awards at Fiscal Year-End
The following table sets forth certain
information regarding unexercised options, stock that has not vested and, with
respect to Mr. Farha only, performance share awards for the named executive
officers outstanding as of December 31, 2008. Unless otherwise
noted, all vesting is based upon the continued service of the
executive.
Option Awards
Stock Awards
Name
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Option
Exercise
Price
($)
Option
Expiration
Date
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested(1)
($)
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested(1)
($)
Heath
G. Schiesser
1,186
—
8.33
02/06/14
600
(6)
7,716
—
—
10,740
7,160
(2)
36.45
07/27/12
5,751
(7)
73,958
—
—
28,600
—
48.50
06/08/13
203,125
(8)
2,612,188
—
—
4,582
4,230
(3)
50.16
07/27/13
—
—
—
—
2,885
8,658
(4)
85.53
09/13/11
—
—
—
—
114,581
385,419
(5)
43.12
01/25/18
—
—
—
—
Todd
S. Farha
—
—
—
—
—
—
130,000
(9)
1,671,800
Thomas
L. Tran
—
100,000
(10)
29.23
07/21/15
50,000
(11)
643,000
—
—
Charles
G. Berg
112,500
187,500
(12)
43.12
01/25/18
125,000
(13)
1,607,500
—
—
Anil
Kottoor
5,903
(14)
—
69.14
04/15/09
—
—
—
—
981
(14)
—
85.53
04/15/09
—
—
—
—
3,121
(14)
—
85.53
04/15/09
—
—
—
—
55,000
(14)
—
45.25
04/15/09
—
—
—
—
Adam
T. Miller
12,000
36,000
(15)
38.11
01/18/13
15,000
(20)
192,900
—
—
3,172
4,230
(16)
50.16
07/27/13
720
(21)
9,259
—
—
817
2,453
(17)
85.53
09/13/11
1,169
(22)
15,033
—
—
2,601
—
85.53
09/13/11
2,696
(23)
34,671
—
—
—
40,000
(18)
45.25
11/28/12
—
—
—
—
—
16,004
(19)
43.45
03/06/15
—
—
—
—
Thomas
F. O’Neil III
—
100,000
(24)
39.70
04/01/18
50,000
(25)
643,000
—
—
(1)
Value
based on $12.86 per share which was the closing price of our common stock
on the NYSE on December 31, 2008.
Of
this amount, 10,417 options vested on January 1, 2009; 10,416 options
vested on February 25, 2009; 10,417 vested on March 25, 2009; 10,416
options vested on April 25, 2009; and approximately 10,417 options vest on
the 25th
day of each calendar month thereafter until fully
vested.
Pursuant
to an award agreement dated June 6, 2005, Mr. Farha was eligible
to receive a maximum of 240,279 shares of our common stock based upon the
achievement of certain performance criteria. Specifically, Mr. Farha
was eligible to earn a (i) threshold of 32,500 shares,
(ii) target of 65,000 shares, or (iii) a maximum of 130,000
shares subject to the award (the maximum of 130,000 shares are referred to
as the “First Tranche Shares”) on June 6, 2008 based on achievement
of compounded annual percentage increases in diluted net income per share
(“EPS”) over the three-year period measured from January 1, 2005
through December 31, 2007. Any portion of the First
Tranche Shares not earned as of June 6, 2008 were to be available for
issuance on June 6, 2010 (together with the remaining 110,279 shares)
based on achievement of cumulative EPS goals for the five-year period
measured from January 1, 2005 through December 31, 2010 (the
“Second Tranche Shares”). Due to his termination of employment
in January 2008, Mr. Farha forfeited the Second Tranche
Shares. As of December 31, 2008, our cumulative EPS growth
over the three-year performance period applicable to the First Tranche
Shares exceeded the maximum cumulative EPS goal of $5.59 per
share. Accordingly, pursuant to SEC disclosure requirements, we
have included the maximum number of shares subject to the First Tranche
Shares in the table above; however, Mr. Farha’s ability to receive
these shares is subject in entirety to the additional conditions and terms
of his separation agreement with us, as discussed under “Potential Payments to Named
Executive Officers upon Termination or Change in Control”
below.
The table below sets forth the number
of stock options exercised and the value realized upon exercise of the stock
options, or the vesting of restricted stock and the value realized, for the
named executive officers during fiscal year 2008.
Option Awards
Stock Awards
Name
Number of
Shares
Acquired
on Exercise
(#)
Value Realized
on Exercise(1)
($)
Number of
Shares
Acquired
on Vesting
(#)
Value Realized
on Vesting(2)
($ )
Heath
G.
Schiesser
—
—
49,392
1,625,754
Todd
S. Farha
191,315
2,864,286
4,000
149,720
Thomas
L. Tran
—
—
—
—
Paul
L. Behrens
8,131
278,162
3,978
148,289
Charles
G. Berg
—
—
75,000
2,309,250
Anil
Kottoor
—
—
16,453
299,715
Adam
Miller
—
—
6,206
315,605
Thomas
F. O’Neil III
—
—
—
—
(1)
The
value realized is calculated by multiplying the number of shares by the
difference between the market price of our common stock at time of
exercise and the exercise price of the stock option.
(2)
The
value realized is calculated by multiplying the number of shares vested by
the closing market price of our common stock on the date of
vesting.
Pension
Benefits and Nonqualified Deferred Compensation
We did not maintain a pension or
nonqualified deferred compensation plan during fiscal year 2008.
Potential
Payments to Named Executive Officers upon Termination or Change in
Control
Overview
Messrs. Schiesser, Tran and O’Neil
serve as executive officers pursuant to employment agreements. Mr.
Berg serves as an executive officer pursuant to a letter agreement and Mr.
Miller serves as an executive officer pursuant to an offer
letter. The employment agreements, letter agreement and offer letter
include provisions providing for certain payments and benefits upon certain
terminations of employment with us, as discussed under “Termination Benefits”
below. In addition, as discussed under “Treatment of Equity Awards”
below, each executive’s equity award agreements provide for accelerated vesting
of awards upon certain terminations of employment, and in the case of Messrs.
Schiesser and Berg, upon a change in control of the Company without termination
of employment. Below are descriptions of the circumstances under
which Messrs. Schiesser, Tran, Berg and O’Neil would be entitled to payments and
benefits upon the occurrence of a change in control or termination of
employment, as applicable, as of December 31, 2008, and a quantification of such
payments and benefits under the terms of the applicable agreements between us
and each named executive officer. All of the descriptions are
qualified by reference to the applicable agreements between us and each named
executive officer and the quantification of the hypothetical payments are
subject to the assumptions described below. The actual amounts to be
paid to Messrs. Schiesser, Tran, Berg and O’Neil will only be determined at the
time of their actual termination.
43
As discussed above, Messrs. Farha and
Behrens resigned from their respective executive officer and Director positions
on January 25, 2008, and Mr. Kottoor’s employment was terminated effective
December 19, 2008. Below are descriptions of the actual payments and
benefits received by these individuals upon their actual termination of
employment.
Definitions
For the purpose of the following
discussion, the following terms generally have the following
meanings:
·
A
“change in control” generally occurs upon: (i) certain
persons acquiring more than 50% of our outstanding voting shares or more
than 50% of the fair market value of such shares; (ii) a majority of
our incumbent Directors being replaced under certain circumstances;
(iii) the consummation of a merger, consolidation or other business
combination in which more than 50% of the outstanding common stock of the
Company is no longer held by the shareholders of the Company prior to such
transaction; or (iv) or a liquidation or sale of all or substantially all
of our assets under certain
circumstances.
·
“termination
for good reason” generally means that the executive terminated as the
result of: (i) a material diminution in authority, duties
and responsibilities or change in title; (ii) any material diminution
of executive’s base salary or bonus opportunity; (iii) any material breach
by the Company of the terms of the respective agreement; (iv) a
change in the executive’s office location by more than 50 miles from the
executive’s offices in Tampa, Florida; or (v) with respect to Messrs.
Schiesser and Berg only, removal from the Board other than pursuant to
cause, pursuant to shareholder vote or due to executive’s resignation from
the Board, in each case, subject to notice and the Company’s right to a
reasonable opportunity to cure.
·
“termination
for cause” generally means that we terminate the executive as the result
of: (i) any willful act or omission by the executive
representing a material breach of the respective agreement; (ii) the
executive being convicted of, or pleading guilty to, a felony or other
crime that involves fraud, conversion, misappropriation or embezzlement
under any federal or state law; or (iii) the executive’s bad faith,
willful acts in the performance of executive’s duties, to the material
detriment of the Company; in each case, subject to notice and the
executive’s right to a reasonable opportunity to
cure.
·
“termination
for disability” generally means the executive’s employment is terminated
as of result of the executive being unable to engage in any substantial
gainful business activity, by reason of any medically determinable
physical or mental impairment, that has caused the executive to be unable
to carry out his duties for specified time
periods.
Termination Benefits Under Employment
Arrangements
·
Mr. Schiesser. If Mr.
Schiesser’s employment is terminated by the Company without cause or by
Mr. Schiesser for good reason, he will be entitled to severance benefits
including: (i) a lump sum cash payment equal to two times (or if the
termination date occurs on or after January 25, 2009, one times) the sum
of Mr. Schiesser’s annual salary as in effect on the termination date and
the greater of Mr. Schiesser’s target bonus for the fiscal year during
which the termination date occurs or the highest performance bonus earned
by Mr. Schiesser with respect to any preceding fiscal year; and (ii) for a
period of twenty-four months (or, if the termination date occurs on or
after January 25, 2009, twelve months) after the termination date,
reimbursement on an after-tax basis for the cost of continued
participation in the medical, dental and vision care and life insurance
benefits in which Mr. Schiesser and his family participated prior to the
termination date. In the event of Mr. Schiesser’s death or
disability, he (or his estate, as the case may be) will be entitled to
severance benefits including: (i) a lump sum cash payment equal to the sum
of Mr. Schiesser’s annual salary as in effect on the termination date and
the greater of Mr. Schiesser’s target bonus for the fiscal year during
which the termination date occurs or the highest performance bonus earned
by Mr. Schiesser with respect to any preceding fiscal year; and (ii) for a
period of twelve months after the termination date, reimbursement on an
after-tax basis for the cost of continued participation in the medical,
dental and vision care and life insurance benefits in which Mr. Schiesser
and his family participated prior to the termination date. If
Mr. Schiesser’s employment is terminated by the Company for
cause or by Mr. Schiesser without good reason, Mr. Schiesser will be
entitled to receive the value of his accrued vacation time as of the time
of termination of his employment. For a discussion of the
treatment of Mr. Schiesser’s equity awards upon certain termination
benefits, see “Treatment
of Equity Awards”
below.
44
·
Mr. Tran. If Mr. Tran’s
employment is terminated by the Company without cause or by Mr. Tran for
good reason, he will be entitled to severance benefits that include: (i) a
lump sum cash payment equal to one times (or if the termination date
occurs within one year of a change in control, one-and-a-half times) the
sum of Mr. Tran’s annual salary as in effect on the termination date and
the average of the two highest cash bonuses earned by Mr. Tran over the
three prior years or, if Mr. Tran has not been employed for three years,
the target cash bonus for the year in which the termination occurs, and
(ii) for the duration of the applicable COBRA period (generally 18 months,
but under certain circumstances up to 36 months following termination),
reimbursement on an after-tax basis for the cost of continued
participation in the medical, dental and vision care and life insurance
benefits in which Mr. Tran and his family participated prior to the
termination date. In the event of Mr. Tran’s death or
disability, or if his employment is terminated by the Company for cause or
by Mr. Tran without good reason, Mr. Tran (or his estate, as the case may
be) will be entitled to receive the value of his accrued vacation time as
of the time of termination of his employment. For a discussion
of the treatment of Mr. Tran’s equity awards upon certain termination
benefits, see “Treatment
of Equity Awards” below.
·
Mr. Berg. If Mr. Berg’s
employment is terminated prior to the end of the term of his letter
agreement on January 25, 2010 (i) by the Company without cause;
(ii) by Mr. Berg for good reason; or (iii) by reason of Mr.
Berg’s death or disability, Mr. Berg will receive an amount equal to his
base salary for the remainder of the term. For a discussion of
the treatment of Mr. Berg’s equity awards upon certain termination
benefits, see “Treatment
of Equity Awards” below.
·
Mr. Miller. If Mr.
Miller’s employment is terminated by the Company without cause or by Mr.
Miller for good reason, he will be entitled to severance benefits that
include: (i) continuation of his base salary in effect immediately prior
to such termination for twelve months following the date of termination;
(ii) continuation of medical benefits for twelve months following the date
of termination; and (iii) an outplacement service provided by
us. For a discussion of the treatment of Mr. Miller’s equity
awards upon certain termination benefits, see “Treatment of Equity
Awards” below.
·
Mr. O’Neil. If Mr.
O’Neil’s employment is terminated by the Company without cause or by Mr.
O’Neil for good reason, he will be entitled to severance benefits that
include: (i) a lump sum cash payment equal to one times (or if the
termination date occurs within one year of a change in control, two times)
the sum of Mr. O’Neil’s annual salary as in effect on the termination date
and the average of the two highest cash bonuses earned by Mr. O’Neil over
the three prior years or, if Mr. O’Neil has not been employed for three
years, the target cash bonus for the year in which the termination occurs,
and (ii) for the duration of the applicable COBRA period (generally 18
months, but under certain circumstances up to 36 months following
termination), reimbursement on an after-tax basis for the cost of
continued participation in the medical, dental and vision care and life
insurance benefits in which Mr. O’Neil and his family participated prior
to the termination date. In the event of Mr. O’Neil’s death or
disability, or if his employment is terminated by the Company for cause or
by Mr. O’Neil without good reason, Mr. O’Neil (or his estate, as the case
may be) will be entitled to receive the value of his accrued vacation time
as of the time of termination of his employment. For a
discussion of the treatment of Mr. O’Neil’s equity awards upon certain
termination benefits, see “Treatment of Equity
Awards” below. Mr. O’Neil’s employment agreement was amended
and restated on June 3, 2009. The amended and restated
employment agreement provides some terms that differ from his employment
agreement in effect as of December 31, 2008 as relating to his termination
under certain circumstances. See below under “Amended and Restated
Employment Agreement.”
In addition, to the extent that any
payment or benefit received or to be received by Messrs. Schiesser, Tran, Berg
or O’Neil (including any benefits upon a change in control) would be subject to
an excise tax under the Internal Revenue Code of 1986, as amended (the “Code”),
the Company is required to pay to such executive an additional amount such that
the net amount received by such executive is equal to what he would have
received if none of his payments or benefits were subject to an excise tax,
provided that if the amount of payments subject to an excise tax exceeds the
safe harbor under Section 280G of the Code by less than ten percent of such
executive’s base salary in the case of Messrs. Schiesser, Tran and O’Neil or
$50,000 in the case of Mr. Berg, then such executive’s payment will be reduced
so that no amounts are subject to an excise tax.
45
Treatment of Equity Awards
·
Mr. Schiesser. Mr.
Schiesser’s unvested stock options and shares of restricted stock will
immediately vest: (i) in the event of a change of control of the Company
or (ii) in the event of Mr. Schiesser’s death or disability. If
Mr. Schiesser’s employment is terminated by the Company without cause or
by Mr. Schiesser for good reason, Mr. Schiesser’s unvested stock options
and shares of restricted stock will vest to the same extent, and over the
same period, that such awards would have vested had Mr. Schiesser’s
employment continued for 24 months (or, if the termination date occurs on
or after January 25, 2009, twelve months) after the termination date. In
addition to the foregoing, unvested shares of restricted stock issued to
Mr. Schiesser prior to January 25, 2008 will immediately vest in the event
of Mr. Schiesser’s retirement.
·
Mr. Tran. Mr. Tran’s
unvested stock options and shares of restricted stock will immediately
vest: (i) in the event of Mr. Tran’s death or disability; or (ii) if there
is a change in control of the Company and Mr. Tran’s employment is
terminated within one year following the change in control by the Company
without cause or by Mr. Tran for good
reason.
·
Mr. Berg. Mr. Berg’s
unvested stock options and shares of restricted stock will immediately
vest: (i) in the event of a change in control of the Company; (ii) in the
event Mr. Berg’s death or disability; or (iii) in the event Mr. Berg’s
employment is terminated by the Company without cause or by Mr. Berg for
good reason.
·
Mr. Miller. Mr.
Miller’s unvested awards of restricted stock will immediately vest:
(i) in the event of Mr. Miller’s death, disability or retirement; or
(ii) if there is a change in control of the Company and Mr. Miller’s
employment is terminated within one year of the change in control by the
Company without cause or by Mr. Miller for good
reason. Unvested awards of stock options will immediately vest
if there is a change in control of the Company and Mr. Miller’s employment
is terminated within one year of the change in control: (i) by the
Company without cause; (ii) by Mr. Miller for good reason; or
(iii) by reason of Mr. Miller’s death, disability or
retirement.
·
Mr.
O’Neil. Mr. O’Neil’s
unvested stock options and shares of restricted stock will vest: (i) in
the event of Mr. O’Neil’s death or disability; or (ii) if there is a
change in control of the Company and Mr O’Neil’s employment is terminated
within one year following the change in control by the Company without
cause or by Mr. O’Neil for good
reason.
Assumptions and Certain
Conditions
For purposes of quantifying any
payments to be made to the executives in the event of termination of employment
or upon a change in control, other than as set forth below with respect to
Messrs. Farha, Behrens and Kottoor, it is assumed that the hypothetical
termination event occurred on December 31, 2008. For purposes of
valuing the acceleration of vesting of equity awards, restricted stock award
values are equal to the number of restricted shares multiplied by $12.86, which
was the closing price of our common stock on the NYSE on December 31,2008. No value is attributed to options because in each case the
exercise price of the stock option exceeded $12.86, and therefore each stock
option was “underwater.”
In calculating the amounts estimated to
be paid to Messrs. Schiesser, Tran, Berg and O’Neil upon a change in
control of the Company pursuant to Section 4999 of the Internal Revenue
Code, it was assumed that: (i) the change in control and the
executive’s termination occurred on December 31, 2008; (ii) all equity
awards vested and were sold on December 31, 2008; (iii) the
executive’s fiscal year 2008 base salary rate was used to calculate his salary
severance payments; and (iv) the Social Security Wage Base was reached
prior to the executive’s termination date. In addition, the following
tax rates were assumed to apply: excise tax rate of 20%; Medicare tax
rate of 1.45%; applicable state tax rate of 5% in Connecticut for Messrs. Tran
and Berg, 0% in Florida for Mr. Schiesser and 5.5% in Maryland for Mr. O’Neil;
and a Federal tax rate of 35%.
46
In order for named executive officers
to be eligible to receive severance payments pursuant to their respective
agreements with us, they are each generally required to execute and deliver a
waiver and release of claims agreement within 30 days after the applicable
termination date.
Termination
by Executive for Good Reason or by the Company without
Cause
Name
Severance
Payment
($)
Acceleration
of
Vesting
of
Stock Options
(#)
Acceleration
of
Vesting
of
Stock Options
($)
Acceleration
of
Vesting
of
Restricted Stock
(#)
Acceleration
of
Vesting
of
Restricted Stock
($)
Accrued
Vacation
($)
Welfare
Benefits
($)
Out-placement
Services
($)
Excise
Taxes
and
Gross-Ups
($)
Total
($)
Heath
G. Schiesser
2,400,000
265,748
—
129,434
1,664,521
7,692
13,951
—
8,002
4,094,166
Thomas
L. Tran
950,000
—
—
—
—
9,135
12,237
—
8,663
980,035
Charles
G. Berg
541,667
187,500
—
125,000
1,607,500
—
—
—
—
2,149,167
Adam
T. Miller
400,000
—
—
—
—
—
7,061
7,000
—
414,061
Thomas
F. O’Neil III
750,000
—
—
—
—
25,481
6,698
—
5,041
787,220
Termination
upon Death or Disability
Name
Severance
Payment
($)
Acceleration
of
Vesting
of
Stock Options
(#)
Acceleration
of
Vesting
of
Stock Options
($)
Acceleration
of
Vesting
of
Restricted Stock
(#)
Acceleration
of
Vesting
of
Restricted Stock
($)
Accrued
Vacation
($)
Welfare
Benefits
($)
Out-placement
Services
($)
Excise
Taxes
and
Gross-Ups
($)
Total
($)
Heath
G. Schiesser
1,200,000
405,467
—
209,476
2,693,861
7,692
6,975
—
4,001
3,912,529
Thomas
L. Tran
—
100,000
—
50,000
643,000
9,135
—
—
—
652,135
Charles
G. Berg
541,667
187,500
—
125,000
1,607,500
—
—
—
—
2,149,167
Adam
T. Miller
—
—
—
19,585
251,863
—
—
—
—
251,863
Thomas
F. O’Neil III
—
100,000
—
50,000
643,000
25,481
—
—
—
668,481
Termination
upon Retirement
Name
Severance
Payment
($)
Acceleration
of
Vesting
of
Stock Options
(#)
Acceleration
of
Vesting
of
Stock Options
($)
Acceleration
of
Vesting
of
Restricted Stock
(#)
Acceleration
of
Vesting
of
Restricted Stock
($)
Accrued
Vacation
($)
Welfare
Benefits
($)
Out-placement
Services
($)
Excise
Taxes
and
Gross-Ups
($)
Total
($)
Heath
G. Schiesser
—
—
—
6,351
81,674
—
—
—
—
81,674
Thomas
L. Tran
—
—
—
—
—
—
—
—
—
—
Charles
G. Berg
—
—
—
—
—
—
—
—
—
—
Adam
T. Miller
—
—
—
19,585
251,863
—
—
—
—
251,863
Thomas
F. O’Neil III
—
—
—
—
—
—
—
—
—
—
47
Termination
by Executive for Good Reason or by the Company without Cause within twelve
(12) months following a Change in Control
Name
Severance
Payment
($)
Acceleration
of
Vesting
of
Stock Options
(#)
Acceleration
of
Vesting
of
Stock Options
($)
Acceleration
of
Vesting
of
Restricted Stock
(#)
Acceleration
of
Vesting
of
Restricted Stock
($)
Accrued
Vacation
($)
Welfare
Benefits
($)
Out-placement
Services
($)
Excise
Taxes
and
Gross-Ups
($)
Total
($)
Heath
G. Schiesser
2,400,000
405,467
—
209,476
2,693,861
7,692
13,951
—
1,153,788
6,269,292
Thomas
L. Tran
1,425,000
100,000
—
50,000
643,000
9,135
12,237
—
8,663
2,098,035
Charles
G. Berg
541,667
187,500
—
125,000
1,607,500
—
—
—
—
2,149,167
Adam
T. Miller
400,000
98,687
—
19,585
251,863
—
7,061
7,000
—
665,924
Thomas
F. O’Neil III
1,500,000
100,000
—
50,000
643,000
25,481
6,698
—
5,041
2,180,220
Change
in Control
Name
Severance
Payment
($)
Acceleration
of
Vesting
of
Stock Options
(#)
Acceleration
of
Vesting
of
Stock Options
($)
Acceleration
of
Vesting
of
Restricted Stock
(#)
Acceleration
of
Vesting
of
Restricted Stock
($)
Accrued
Vacation
($)
Welfare
Benefits
($)
Out-placement
Services
($)
Excise
Taxes
and
Gross-Ups
($)
Total
($)
Heath
G. Schiesser
—
405,467
—
209,476
2,693,861
—
—
—
—
2,693,861
Thomas
L. Tran
—
—
—
—
—
—
—
—
—
—
Charles
G. Berg
—
187,500
—
125,000
1,607,500
—
—
—
—
1,607,500
Adam
T. Miller
—
—
—
—
—
—
—
—
—
—
Thomas
F. O’Neil III
—
—
—
—
—
—
—
—
—
—
Termination
by Executive without Good Reason or by the Company with
Cause
Name
Severance
Payment
($)
Acceleration
of
Vesting
of
Stock Options
(#)
Acceleration
of
Vesting
of
Stock Options
($)
Acceleration
of
Vesting
of
Restricted Stock
(#)
Acceleration
of
Vesting
of
Restricted Stock
($)
Accrued
Vacation
($)
Welfare
Benefits
($)
Out-placement
Services
($)
Excise
Taxes
and
Gross-Ups
($)
Total
($)
Heath
G. Schiesser
—
—
—
—
—
7,692
—
—
—
7,692
Thomas
L. Tran
—
—
—
—
—
9,135
—
—
—
9,135
Charles
G. Berg
—
—
—
—
—
—
—
—
—
—
Adam
T. Miller
—
—
—
—
—
—
—
—
—
—
Thomas
F. O’Neil III
—
—
—
—
—
25,481
—
—
—
25,481
Actual
Benefits Received upon Termination of Employment During
2008
$713,475
was paid on December 29, 2008 and the remaining amount of $236,250 will be
paid on May 1, 2010 subject to Mr. Kottoor’s compliance with
non-competition, non-solicitation, confidentiality and non-disparagement
covenants.
(3)
A
stock option to purchase 55,000 shares of common stock vested in full upon
termination of employment. In addition, Mr. Kottoor’s
post-termination exercise period was extended for options to purchase up
to 10,005 shares of our common stock until 30 days after the date on which
the exercise of such options will no longer violate applicable Federal,
state, local and foreign laws, including securities laws. The
exercise prices of Mr. Kottoor’s stock options discussed above exceeded
the closing price of our common stock on the NYSE on Mr. Kottoor’s date of
termination, and therefore such options expired
unexercised.
(4)
13,164
shares of restricted stock vested in full upon Mr. Kottoor’s termination
of employment. The amount represents the value of such shares
based on the closing price of our stock on the NYSE on Mr. Kottoor’s date
of termination.
(5)
Mr.
Farha’s performance share award agreement was amended so that he is
eligible to vest in up to 130,000 of his unvested performance shares if
certain specified conditions have been satisfied prior to June 6, 2010,
and the value of shares that vest, if any, will be based on the closing
price of our common stock on the vesting date. Specifically,
Mr. Farha’s rights to receive up to 130,000 of the shares subject to the
performance award are to be extinguished and will lapse unless all of the
following conditions have been met by June 6, 2010:
·
the Company has achieved the maximum cumulative adjusted EPS goal
for the vesting of the full 130,000 shares, the target cumulative adjusted
EPS goal for the vesting of 65,000 shares, or the threshold cumulative
adjusted EPS goal for the vesting of 32,500 shares, as applicable, for the
measurement period of January 1, 2005 through December 31,2007;
· no
loss contingencies have been identified for subsequent periods which, had
they been identified and accrued in such measurement period, would have
resulted in the cumulative adjusted EPS not meeting the relevant
cumulative adjusted EPS described above;
·
Mr. Farha has not become subject to any legal proceeding brought or
threatened, or that could be but has not yet been brought, by any
governmental entity in connection with the ongoing investigations;
and
· we
have not been required to have entered into or become subject to any
criminal or civil order of any court or agency relating to the ongoing
investigations, or any agreement with any governmental agency, by which
there has been found to have been violations of laws, rules or regulation
by us during the measurement period for such shares, or the period prior
thereto.
Amended and Restated Employment
Agreement
As described above under “Additional Information With Respect
to the Summary Compensation Table and Grants of Plan-Based Awards – Thomas F.
O’Neil III,” Mr. O’Neil’s employment agreement was amended and restated
on June 3, 2009 in connection with his appointment as our executive Vice
Chairman. Pursuant to the amended and restated agreement,
Mr. O’Neil is entitled to certain payments and benefits in the event his
employment is terminated prior to December 31, 2009 under certain
circumstances. If Mr. O’Neil’s employment is terminated by us without
“cause” (as defined in the agreement) or by Mr. O’Neil for “good reason”
(as defined in the agreement), following his execution of a release of claims he
will be entitled to the following amounts: (i) a lump sum cash payment
equal to the sum of (x) his base salary from his termination date through
December 31, 2009; (y) $750,000; and (z) his target annual bonus
for calendar year 2009, (ii) continued participation in our medical, dental
and vision care and life insurance benefit plans for up to eighteen months
following termination, and (iii) any earned but unpaid base salary,
incentive compensation and other cash compensation, the value of his accrued but
unused vacation time as of the time of termination and any outstanding expense
reimbursements.
In addition, to the extent that any
payment or benefit received or to be received by Mr. O’Neil pursuant to the
agreement would be subject to an excise tax under Section 4999 of the
Internal Revenue Code, we are required to pay to him an additional amount such
that the net amount received by him is equal to what he would have received if
none of his payments or benefits were subject to the excise tax; provided that
if the amount of payments subject to the excise tax exceeds the safe harbor
under Section 280G of the Internal Revenue Code by less than ten percent of
his base salary, then Mr. O’Neil’s payments will be reduced so that no
amounts are subject to the excise tax. The agreement also includes
confidentiality, non-competition and non-solicitation provisions, including a
requirement that Mr. O’Neil not seek employment with, or ownership in, a
company in direct competition with us and/or our subsidiaries for a period of
one year after the termination of his employment.
Our Amended and Restated Certificate
of Incorporation (the “Restated Certificate of Incorporation”) currently
provides that the Board will be divided into three classes, as nearly equal in
size as practicable, with one class to be elected by the shareholders every
year, thereby making the term of each class of Directors three
years. Upon the recommendation of the Nominating Committee, the Board
has approved, and hereby recommends to the shareholders for approval, an
amendment to the Restated Certificate of Incorporation to provide for the
annual election of all Directors each year, thereby declassifying the
Board.
If approved by the
shareholders, the amendment will become effective upon the filing of a
Certificate of Amendment of the Restated Certificate of Incorporation containing
this amendment with the Secretary of State of the State of Delaware,
which we
intend to file promptly after shareholder approval is
obtained. Directors elected prior to the effectiveness of the
amendment (which include all of our current Directors) will stand for
election for one-year terms once their then-current terms expire. As
discussed below, because the transition to annual election of Directors will be
phased-in over time, the Board would not be fully declassified until after the
2010 Annual Meeting.
49
The term of the current Class I
Directors (comprised of Messrs. Gallitano, Hickey and Schiesser and Dr.
Herzlinger) was to expire at the 2008 Annual Meeting; the term of the Class II
Directors (comprised of Messrs. Graham, King-Shaw and Michalik) will expire at
the 2009 Annual Meeting; and the term of the Class III Directors (comprised of
Messrs. Berg, Hourani and Moszkowski) will expire at the 2010 Annual
Meeting. Because we did not hold the 2008 Annual Meeting, Class I
Directors were not elected in 2008 and, accordingly, the successors to the Class
I Directors will be elected and qualified at the 2009 Annual
Meeting. Thus, if the proposed amendment to the Restated
Certificate of Incorporation is approved, the Class I and Class II
Directors will be up for election for one-year terms at the 2009 Annual
Meeting. At the 2010 Annual Meeting – when the term of Class III
Directors will expire – and every subsequent annual meeting of shareholders
thereafter, all Directors will be up for election for one-year terms and the
Board will be fully declassified. Any Director chosen as a result of
a newly created directorship or to fill a vacancy on the Board after the 2009
annual meeting will hold office for a term expiring at the next A nnual
M eeting of shareholders.
This proposal would not change
the present number of Directors or the Board’s authority to change that number
and to fill any vacancies or newly created directorships.
Paragraphs (D) and (H) of
Article V of our Restated Certificate of Incorporation contains the
provisions that will be affected if this proposal and Proposal Three below
are adopted. Appendix B to this proxy
statement shows the proposed changes to paragraphs (D) and (H) of Article V with
deletions indicated by strikethroughs and additions indicated by
underlining.
Reasons
for the Proposal
The proposal is a result of our
ongoing review of corporate governance matters by the Nominating Committee and
the Board. The Board, assisted by the Nominating Committee,
considered the advantages and disadvantages of maintaining the current
classified board structure. The Board considered the view of
proponents of a classified board structure that it promotes continuity and
stability in the management of the business and affairs of the Company because a
majority of Directors always have prior experience as Directors of the Company,
and because a classified structure encourages a long-term perspective on the
part of the Directors. However, the Board also considered the view of
proponents of a de-classified board structure and their belief that a classified
board has the effect of reducing accountability of directors to shareholders
because classified boards limit the ability of shareholders to evaluate and
elect all directors on an annual basis.
After considering these different
views, the Board concluded that eliminating the classified structure to provide
for the annual election of all Directors would increase the Board’s
accountability to shareholders by providing shareholders with a means for
evaluating each Director each year. Therefore, on the recommendation
of the Nominating Committee, the Board approved the amendments, and now
recommends that the shareholders approve them.
For
th e
reasons described above, the Board recommends that shareholders vote FOR
Proposal Two, which is a proposal to amend our existing Restated Certificate of
Incorporation in
order to provide for annual elections of all directors, as described above. In
order for the proposed Amended and Restated Certificate of Incorporation to be
approved and adopted, shareholders must approve both thi s
Proposal Two and Proposal Three below, and by approving both proposals,
shareholders will be approving and adopting the proposed Amended and Restated
Certificate of Incorporation in the form attached as Appendix
B to this proxy statement.
The affirmative vote of the holders
of at least 66 2/3 percent of the
voting power of all shares entitled to vote generally in the election of
Directors, voting together as a single class, is required to approve this
proposal.
In accordance with Delaware law, unless a corporation’s certificate of
incorporation provides otherwise, directors of a corporation with a classified
board may only be removed for cause. Currently, the Restated
Certificate of Incorporation provides that Directors may be removed only for
cause. Accordingly, together with our proposal to declassify our
Board, the Board believes it is appropriate to amend our Restated Certificate of
Incorporation to provide that Directors may be removed with or without
cause. Thus, if the amendments to our Restated Certificate of
Incorporation are approved, Directors may be removed with or without cause at a
meeting of shareholders duly called for such purpose; provided, however, that
prior to the 2010 Annual Meeting, no current Class III Director serving the
remaining portion of a multi-year term may be removed during any part of his or
her remaining multi-year term except for cause. After the 2010 Annual
Meeting, all Directors may be removed with or without cause at a meeting of
shareholders duly called for such purpose.
Paragraphs (D) and (H) of Article V of our Restated Certificate of
Incorporation contains the provisions that will be affected if this proposal and
Proposal Two above are adopted. Appendix B to this proxy statement
shows the proposed changes to paragraphs (D) and (H) of Article V with deletions
indicated by strikethroughs and additions indicated by
underlining.
For the reasons described above, and for the reasons set forth under “Proposal Number Two - Amendment of
Certificate of Incorporation To Provide For Annual Election of
All Directors - Reasons For The Proposal,” the Board recommends that
shareholders vote FOR Proposal Three,
which is a proposal to amend our existing Restated Certificate of Incorporation
in order to provide that directors may be removed with or without cause (except
for Class III Directors serving the remaining portion of a multi-year term, who,
if the amendment is approved and adopted, could not be removed without cause
prior to the end of their current multi-year term). In order for the
proposed Amended and Restated Certificate of Incorporation to be approved and
adopted, shareholders must approve both this Proposal Three and Proposal Two
above, and by approving both proposals, shareholders will be approving and
adopting the proposed Amended and Restated Certificate of Incorporation in the
form attached as Appendix B to
this proxy statement.
The affirmative vote of the holders of at least 66 2/3 percent of the
voting power of all shares entitled to vote generally in the election of
Directors, voting together as a single class, is required to approve this
proposal.
THAT
DIRECTORS MAY BE REMOVED WITH OR WITHOUT CAUSE (EXCEPT FOR ANY CLASS III
DIRECTOR SERVING THE REMAINING PORTION OF A
MULTI-YEAR
TERM, WHO, IF THE AMENDMENT IS APPROVED AND ADOPTED, COULD NOT BE REMOVED
WITHOUT CAUSE UNTIL PRIOR TO THE
END
OF SUCH CURRENT MULTI-YEAR TERM).
51
AUDIT
MATTERS
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Independent
Registered Public Accounting Firm
The table
below presents fees for professional audit services billed by Deloitte &
Touche LLP for the years ended December 31, 2008 and 2007 and fees billed for
other services rendered by Deloitte & Touche LLP during those
periods.
All
Other
Fees........................................................................................................................................
—
—
(1)
The
audit services billed by Deloitte & Touche LLP in 2008 and 2007
include services rendered for the audit of our annual consolidated
financial statements, management’s assessment on internal control over
financial reporting, the effectiveness of internal control over financial
reporting and review of the interim financial statements included in our
quarterly reports on Form 10-Q. This amount also includes fees billed
for services normally provided by an independent auditor in connection
with subsidiary audits, statutory requirements, regulatory filings and
similar engagements. The 2008 audit fees include services
provided to expand the audit scope relating to the investigation of the
Company by certain federal and state agencies in connection with the audit
of the 2007 financial statements and the restatement of the Company’s
2004, 2005 and 2006 financial statements.
(2)
The
audit-related services billed by Deloitte & Touche LLP in 2008
and 2007 related to consultations regarding financial accounting and
reporting standards, information systems audits and other attest
services.
Audit
and Non-Audit Services Pre-Approval
Policy
The Audit Committee has adopted an Audit and Non-Audit Services Pre-Approval
Policy which is designed to assure that the services performed for us by the
independent registered public accounting firm do not impair its independence
from the Company. This policy sets forth guidelines and procedures
the Audit Committee must follow when retaining the independent registered public
accounting firm to perform audit, audit-related, tax and other
services. The policy provides detailed descriptions of the types of
services that may be provided under these four categories and also sets forth a
list of services that the independent registered public accounting firm may not
perform for us.
Prior to engagement, the Audit
Committee pre-approves the services and fees of the independent registered
public accounting firm within each of the above categories. During
the year, it may become necessary to engage the independent registered public
accounting firm for additional services not previously contemplated as part of
the engagement. In those instances, the Audit and Non-Audit Services
Pre-Approval Policy requires that the Audit Committee specifically approve the
services prior to the independent registered public accounting firm’s
commencement of those additional services. Under the Audit and
Non-Audit Services Pre-Approval Policy, the Audit Committee has delegated the
ability to pre-approve audit and non-audit services to the Audit Committee
chairperson provided the chairperson reports any pre-approval decision to the
Audit Committee at its next scheduled meeting. The policy does not
provide for a de
minimis exception to the pre-approval
requirements. Accordingly, all of the 2008 and 2007 fees described
above were pre-approved by the Audit Committee in accordance with the Audit and
Non-Audit Services Pre-Approval Policy.
REPORT
OF THE AUDIT COMMITTEE
The role of the Audit Committee is to
assist the Board of Directors in the oversight of the integrity of our financial
statements, our compliance with legal, financial and regulatory requirements,
the qualification and independence of our independent auditors, and the
performance of our internal audit function and independent auditors. The Audit Committee
operates pursuant to a charter that is available on our website at www.wellcare.com and which
sets forth the specific duties and responsibilities of the Audit
Committee. As set forth in the charter, the planning and conduct of
the audit is the responsibility of the independent auditors and the financial
statements are the responsibility of our management. The Audit
Committee has the authority and responsibility to retain and terminate our
independent auditors.
52
In
performance of this oversight function, the Audit Committee has considered and
discussed the audited financial statements included in our annual report on Form
10-K for the year ended December 31, 2008 with management and the independent
auditors. The Audit Committee has discussed with Deloitte &
Touche LLP, our independent registered public accounting firm, the matters
required to be discussed by Auditing Standards No. 61, as amended and replaced
by SAS 114 (AICPA, Professional
Standards, Vol 1. AU section 380), as adopted by the Public Accounting
Oversight Board in Rule 3200T. The Audit Committee has also received
the written disclosures and the letter from Deloitte & Touche LLP required
by applicable requirements of the Public Company Accounting Oversight Board
regarding the independent accountant’s communications with the Audit Committee
concerning independence, and has discussed with Deloitte & Touche LLP their
independence.
The members of the Audit Committee
are advised by the independent auditors. The independent auditors are
experts in the fields of accounting and auditing, including in respect of
auditor independence. Members of the Audit Committee rely without
independent verification on the information provided to them and on the
representations made by management and the independent
auditors. Accordingly, management is solely responsible for
maintaining appropriate accounting and financial reporting principles and
policies and internal control and procedures designed to assure compliance with
accounting standards and applicable laws and
regulations. Furthermore, the Audit Committee’s considerations and
discussions referred to above do not assure that the audit of our financial
statements has been carried out in accordance with generally accepted auditing
standards.
Based upon the reports and
discussions described in this report, and subject to the limitations on the role
and responsibilities of the Audit Committee referred to above and in the
charter, the Audit Committee recommended to the Board that the audited financial
statements be included in our annual report on Form 10-K for the year ended
December 31, 2008, as filed with the SEC. In addition, the Audit
Committee has approved the appointment of Deloitte & Touche LLP as our
independent registered public accounting firm for the fiscal year ending
December 31, 2009.
The
Audit Committee
Regina
Herzlinger (Chairperson)
Alif
Hourani
Christian
Michalik
PROPOSAL
NUMBER FOUR – RATIFICATION OF APPOINTMENT OF INDEPENDENT
REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed the
firm of Deloitte & Touche LLP as our independent registered public
accounting firm for fiscal year 2009, and has directed that such appointment be
submitted to our shareholders for ratification at the annual
meeting. Our organizational documents do not require that our
shareholders ratify the appointment of our independent registered public
accounting firm. We are submitting the appointment of Deloitte &
Touche LLP to our shareholders for ratification because we believe it is a
matter of good corporate governance. In the event of a negative vote
on such ratification, the Audit Committee will reconsider its selection, but may
still retain Deloitte & Touche LLP. We anticipate that a
representative of Deloitte & Touche LLP will be present at the annual
meeting to respond to appropriate questions and to make such statements as they
may desire.
The affirmative vote of the holders
of a majority of the shares of common stock represented in person or by proxy
and entitled to vote at the meeting is required to approve this
proposal.
THE
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE “FOR” THIS PROPOSAL.
*
* * * *
53
ADDITIONAL
INFORMATION
Shareholder
Proposals
We expect that our 2010 annual
meeting of shareholders will be more than 30 days from the date of the 2009
annual meeting of shareholders. Shareholders who intend to submit a
proposal at the 2010 annual meeting of shareholders and desire that such
proposal be included in the proxy materials for such meeting must follow the
procedures prescribed in Rule 14a-8 under the Exchange
Act.
To be eligible for inclusion in the
proxy materials, shareholder proposals must be received by our secretary at our
principal offices in Tampa, Florida, on or before December 1, 2009, which we
believe is a reasonable time before we will begin to print and send our proxy
materials for the 2010 annual meeting. Nothing in this paragraph
shall be deemed to require us to include in our proxy statement and proxy
relating to the 2010 annual meeting any shareholder proposal which may be
omitted from our proxy materials under applicable regulations of the SEC in
effect at the time such proposal is received.
In addition, under the advance notice
provisions of our bylaws (Section 11), any shareholder proposal for
consideration at the 2010 annual meeting of shareholders submitted outside the
processes of Rule 14a-8 of the Exchange Act, including any shareholder
nominations for the Board of Directors, will be untimely unless it is received
by our secretary not less than 90 days nor more than 120 days prior to the date
of the one-year anniversary of the 2009 annual meeting; provided that if our
2010 annual meeting is held on a date more than 30 days prior to or delayed by
more than 60 days after such anniversary date, notice by the shareholder in
order to be timely must be received not earlier than 120 prior to such annual
meeting, and not later than the later of the close of business 90 days prior to
such annual meeting or the 10th day following the day on which such notice of
the date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made.
Because our 2009 annual meeting is
being held on July 30, 2009, under our bylaws we would normally have to receive
written notice of a shareholder proposal submitted other than pursuant to Rule
14a-8 by May 1, 2010, but no earlier than April 1, 2010, to be considered at the
2010 annual meeting of shareholders. However, as noted above, we currently
expect that our 2010 annual meeting will be held on a date more than 30 days
prior to the 2009 annual meeting and, as such, please refer to the description
of the advance notice requirements under Section 11 of our bylaws under these
circumstances.
Multiple
Shareholders Having the Same Address
We have adopted a process called
“householding” for mailing proxy materials in order to reduce
costs. Householding means that shareholders who share the same last
name and address will receive only one copy of our proxy materials, unless we
receive contrary instructions. We will continue to mail a proxy card
to each shareholder of record. If you prefer to receive multiple
copies of the proxy materials at the same address, additional copies will be
provided to you promptly upon request. If you hold your shares in
street name, you should direct your request to your bank or
broker. If you are a registered holder, you should direct your
request to WellCare Health Plans, Inc., C/O Computershare Investor Services, P.O
Box 43078, Providence, RI02940-3078, telephone number (781)
575-2879. You may also request copies of our proxy materials by
writing to Investor Relations Department, WellCare Health Plans,
Inc., P.O. Box 31379 , Tampa, Florida33631-3379 , or by
calling (813) 865-1284. The Company’s 2008 annual report to
shareholders, annual report on Form 10-K for the year ended December 31, 2008
and this proxy statement are also available on our website at http://wellcare.com/2009shareholdermeeting.
Committee
Reports
The information contained in the
Report of the Compensation Committee and the Report of the Audit Committee does
not constitute soliciting material and should not be deemed filed or
incorporated by reference into any other of our filings under the Securities Act
of 1933 or the Exchange Act, except to the extent the filing specifically
incorporates such information by reference therein.
Solicitation
All costs and expenses associated
with soliciting proxies will be borne by us. In addition to the use
of the mails, the Directors, officers and our associates by personal interview,
telephone or telegram may solicit proxies. Such Directors, officers
and associates will not be additionally compensated for such solicitation but
may be reimbursed for out-of-pocket expenses incurred in connection
therewith. Arrangements will also be made with custodians, nominees
and fiduciaries for the forwarding of solicitation material to the beneficial
owners of our common stock held of record by such persons, and we will reimburse
such custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses incurred in connection therewith. We have retained
Georgeson Inc., a proxy soliciting firm, to assist with the solicitation of
proxies for a fee not to exceed $8,500 plus reimbursement for out-of-pocket
expenses and shareholder outreach services.
54
Other
Matters for Consideration
As of the date of this proxy
statement, the Board of Directors is not aware of any other business or matters
to be presented for consideration at the meeting other than as set forth in the
notice of meeting attached to this proxy statement. However, if any
other business shall come before the meeting or any adjournment or postponement
thereof and be voted upon, the enclosed proxy shall be deemed to confer
discretionary authority on the individuals named to vote the shares represented
by such proxy as to any such matters.
Requests
for More Information
We will provide without
charge to each beneficial holder of our common stock on the record date, upon
the written request of any such person, a copy of our 2008 annual report to
shareholders and annual report on Form 10-K (without exhibits) for the fiscal
year ended December 31, 2008, as filed with the SEC. We will also
provide to any person without charge, upon request, a copy of our Code of
Conduct and Business Ethics our corporate governance guidelines and our Board
committee charters. Any such requests should be made in writing to
the Investor Relations Department, WellCare Health Plans, Inc., P.O. Box 31379 ,
Tampa, Florida33631-3379 . A copy of these documents and our
other SEC filings are also available on our website at http://wellcare.com/2009shareholdermeeting. We
intend to disclose future amendments to, or waivers from, the provisions of the
Code of Conduct and Business Ethics, if any, made with respect to any of our
Directors and executive officers on our website.
55
APPENDIX
A –
AUDIT
COMMITTEE CHARTER
WellCare
Health Plans, Inc.
Audit
Committee Charter
Purpose
The
principal purposes of the audit committee (the “audit
committee” or “committee”)
of the board of directors (the “board”) of
WellCare Health Plans, Inc. (the “Corporation”)
are to (A) assist the board of directors in the oversight of (i) the integrity
of the financial statements of the Corporation, (ii) the compliance by the
Corporation with legal, financial and regulatory requirements, (iii) the
qualification and independence of the Corporation’s outside auditors, and (iv)
the performance of the Corporation’s internal audit function and independent
auditors, and (B) prepare an audit committee report as required by the
Securities and Exchange Commission to be included in the Corporation’s annual
proxy statement.
While the
audit committee has the responsibilities and powers set forth in this Charter,
its function is one of oversight, and it is not the duty of the committee to
plan or conduct audits or to determine that the Corporation’s financial
statements are complete and accurate and are in accordance with accounting
principles generally accepted in the United States of America. The
planning and conduct of the audit is the responsibility of the independent
auditors and the financial statements are the responsibility of management.
Except as otherwise provided herein, it is not the duty of the audit
committee to conduct investigations or to assure compliance with laws and
regulations and the Corporation’s internal policies.
Authority
The audit
committee has authority to conduct or authorize investigations into any matters
within its scope of responsibility. It shall be directly responsible
for:
·
The
appointment, compensation, retention and oversight of the work of any
registered public accounting firm engaged by the Corporation for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services for the Corporation, and such firm shall report
directly to the audit committee.
·
The
resolution of any disagreements between management and the independent
auditors regarding the Corporation’s financial
reporting.
·
Seeking
any information it requires from employees providing services for the
Corporation or its affiliates—all of whom are directed to cooperate with
the committee’s requests—or external
parties.
·
Meeting
with the Corporation’s officers, independent auditors, or outside counsel,
as necessary.
The audit
committee may form, and to the extent legally permissible may delegate authority
to, subcommittees when the committee deems it appropriate or
desirable.
The
committee shall have the sole authority, to the extent it deems necessary or
appropriate, to retain and engage financial, legal or other advisors, including
any independent counsel, accountants, or others, to advise the committee or
assist in the conduct of an investigation within its scope of responsibility
that it initiates, and shall have the sole authority to approve the advisors’
fees and other retention terms.
The
committee shall have the sole authority to, and shall, review and pre-approve,
either pursuant to a policy adopted by the committee or through a separate
pre-approval by the committee, any engagement of the Corporation’s independent
auditors to provide any audit services and/or any permitted non-audit services
to the Corporation that are not prohibited by law. The committee
shall have the ability to delegate the authority to pre-approve audit and
non-audit services to one or more designated members of the committee. If
such authority is delegated, the delegated member(s) of the committee shall
report to the full committee, at the next committee meeting, all items
pre-approved by the designated member(s).
A-1
The
committee shall advise the Corporation of the funding requirements necessary to
pay (i) the independent auditors for the purpose of rendering the audit report
or performing other audit, review or attestation services, (ii) any other
advisors employed by the committee, and (iii) ordinary administrative expenses
of the committee that are necessary or appropriate in carrying out its
duties.
Composition and
Qualification
The audit
committee will consist of at least three independent members of the board of
directors. Each member of the committee will serve until such member’s successor
is duly appointed and qualified or until such member’s earlier resignation or
removal. Committee members will be appointed by the board based on
nominations recommended by the Corporation’s nominating and corporate governance
committee. The nominating and corporate governance committee will
recommend, and the board will appoint, one member of the audit committee to
serve as chairperson of the audit committee. The committee
chairperson will preside, when present, at all meetings of the
committee. In the event the committee chairperson is not present at a
meeting, the committee members present at the meeting will designate one such
member as the acting chairperson of the meeting. Committee members
may be removed by the board of directors.
Each
committee member will be both independent of management and financially literate
pursuant to the applicable rules and regulations of the federal securities laws
and the New York Stock Exchange, all as in effect from time to time and as
interpreted by the board in its business judgment. At least one member
shall be designated as an “audit committee financial expert,” as defined by
applicable regulations of the Securities and Exchange Commission, and at least
one member shall have accounting or related financial management expertise
(which member also may be the audit committee financial
expert). Because of the committee’s demanding role and
responsibilities, and the time commitment of each attendant to committee
membership, no member of the committee, including the chairman, shall serve on
the audit committee of more than two other public companies (aside from the
Corporation’s audit committee) at any one time, unless it is determined, based
on the individual facts, that such other service will not interfere with service
on the Corporation’s audit committee.
To ensure
independence and to otherwise avoid any potential conflicts of interest, members
of the committee may not (other than fees and equity received as compensation
for serving as a director) accept or receive, directly or indirectly, any
consulting, advisory or other compensatory fee from the Corporation or any of
its subsidiaries, or be an affiliated person of the Corporation or any of its
subsidiaries, of an amount or in a manner that would disqualify them from being
deemed independent in accordance with Rule 10A-3 of the Securities Exchange Act
of 1934, as amended.
Meetings
The
committee will meet at least four times a year, with authority to convene
additional meetings as circumstances require. Notice of such meetings
will be given in a manner consistent with the procedure for giving notice of
special meetings of the Corporation’s board of directors as set forth in the
Corporation’s bylaws, as amended. All committee members are expected
to attend each meeting, in person or via tele- or video-conference, and the
committee may take action by written consent. The committee will
invite members of management, auditors, outside counsel or others to attend
meetings and provide pertinent information, as necessary. It will hold
private meetings with auditors (see below) and executive sessions, as necessary.
Meeting agendas will be prepared and provided in advance to members,
along with appropriate briefing materials. Minutes of each meeting will be
prepared and distributed to all members of the Committee.
A-2
Responsibilities
The
committee will carry out the following responsibilities:
Financial
Statements
·
Review
significant accounting and reporting issues, including complex or unusual
transactions and critical accounting policies, including matters that
involve or require significant judgments or estimates, and recent
professional and regulatory pronouncements, and understand their impact on
the financial statements. The committee shall review regular
periodic reports from the independent auditors on the critical policies
and practices of the Corporation, and all alternative treatments of
financial information within generally accepted accounting principles that
have been discussed with
management.
·
Review
with the independent auditors the results of the audit, any audit problems
or difficulties encountered and management’s response to such problems or
difficulties, including any restrictions on the scope of the independent
auditors’ activities or on access to requested information, and any
significant disagreements with management. Such review may also
include a discussion of:
-
any
accounting adjustments that were noted or proposed by the independent
auditors but were passed (as immaterial or
otherwise);
-
any
communications between the independent auditors and its national office
respecting auditing or accounting issues presented by the
engagement;
-
any
“management” or “internal control” letters issued, or proposed to be
issued, by the independent auditors to the Corporation, including any
required attestation reports; and
-
the
responsibilities, budget and staffing of the internal audit
function.
·
Review
and discuss earnings press releases (paying particular attention to any
use of “pro forma” or “adjusted” financial measures and any other non-GAAP
information), as well as other financial information and earnings guidance
provided to analysts and rating
agencies.
·
Review
with management and the independent auditors the annual audited financial
statements and disclosures contained in drafts of the Corporation’s annual
reports on Form 10-K, including without limitation under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations,”
including their judgment about the quality, not just the acceptability, of
accounting principles, the reasonableness of significant accounting and
actuarial judgments and estimates, and the clarity of the disclosures in
the financial statements. Also, the committee shall discuss the results of
the annual audit and any other matters required to be communicated to the
committee by the independent auditors under generally accepted auditing
standards.
·
Review
the interim financial statements and disclosures under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”
with management and the independent auditors prior to the filing of the
Corporation’s Quarterly Report on Form 10-Q with the Securities and
Exchange Commission. Also, the committee shall discuss the
results of the quarterly review and any other matters required to be
communicated to the committee by the independent auditors under generally
accepted auditing standards.
·
In
connection with the committee’s review of the Corporation’s annual audited
and/or quarterly unaudited financial statements, review and discuss the
following:
-
Major
issues regarding accounting principles and financial statement
presentations, including any significant changes in the Corporation’s
selection or application of accounting principles, and any major issues as
to the adequacy of the Corporation’s internal controls and any special
audit steps adopted in light of any identified significant deficiencies or
material weaknesses;
-
Analyses
prepared by management and/or the independent auditors setting forth
significant financial reporting issues and accounting and actuarial
judgments and estimates made in connection with the preparation of the
financial statements, including analyses of the effects of alternative
generally accepted accounting principle methods on the financial
statements; and
-
The
effect of regulatory and accounting initiatives, as well as off-balance
sheet structures, on the Corporation’s financial
statements.
·
Review
the following matters with the independent auditors (such matters shall be
timely reported to the committee by the independent
auditors):
-
All
critical accounting policies and practices to be used, including without
limitation, significant accounting and actuarial judgments and
estimates;
-
All
alternative treatments of financial information within generally accepted
accounting principles that have been discussed with management,
ramifications of the use of such alternative disclosures and treatments,
and the preferred treatment of the auditor;
and
-
Other
material written communications between the independent auditors and
management, including any management letter or schedule of unadjusted
differences.
A-3
Internal
Control
·
Consider
the effectiveness of the Corporation’s internal control system, including
information technology security and
control.
·
Understand
the scope of internal and independent auditors’ review of internal control
over financial reporting, and obtain reports on significant findings and
recommendations, together with management’s
responses.
Internal
Audit
·
Review
with management and the head of internal audit the charter, plans,
activities, staffing, and organizational structure of the internal audit
function.
·
Ensure
there are no unjustified restrictions or limitations on internal auditing
activities, and review and concur in the appointment, replacement, or
dismissal of the head of internal
audit.
·
Review
the effectiveness of the internal audit
function.
·
On
a regular basis, meet separately with the head of internal audit to
discuss any matters that the committee or internal audit believes should
be discussed privately.
·
Review
management’s annual report on internal control over financial reporting
prior to the Corporation’s inclusion of such annual report in the
Corporation’s Annual Report on Form
10-K.
·
Review
and discuss with the independent auditors the independent auditors’
attestation report regarding management’s assessment of the Corporation’s
internal control over financial reporting prior to the inclusion of such
attestation report in the Corporation’s Annual Report on Form
10-K.
·
Review
with management any changes in the Corporation’s internal control over
financial reporting that occurred during the most recently completed
fiscal quarter that have materially affected, or are reasonably likely to
materially affect, the Corporation’s internal control over financial
reporting.
·
Review
any significant deficiencies or material weaknesses identified in the
Corporation’s internal control over financial reporting, and any special
steps taken as a result thereof.
Independent
Auditors
·
Review
the independent auditors’ proposed audit scope and approach, including
coordination of audit effort with internal
audit.
·
Review
the performance and qualifications of the independent auditors, and
exercise final approval on the appointment or discharge of the
auditors.
·
Review
and confirm the independence of the independent auditors by obtaining
statements from the auditors on relationships between the auditors and the
Corporation, including any non-audit services, and discussing the
relationships with the
auditors.
·
Review
a report, at least annually, by the independent auditors describing the
auditors’ internal quality control procedures, and any material issues
raised by the most recent internal quality control review, or peer review,
of the firm, or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years, respecting one
or more independent audits carried out by the firm, and any steps taken to
deal with any such issues.
·
Discuss
with the independent auditors the matters required to be discussed by
Statement on Auditing Standards No. 61, as amended, relating to the
conduct of the audit.
·
Request
a representation letter from the Corporation’s independent auditors prior
to the commencement of the audit engagement confirming that (i) the lead
(or coordinating) audit partner and the reviewing audit partner have not
performed audit services for the Corporation for more than five (5)
consecutive years, and (ii) if either of such persons performed audit
services for the Corporation for five (5) consecutive years, the last year
of such period was more than five (5) years
ago.
·
Consider
whether, in order to assure continuing auditor independence, it is
appropriate to adopt a policy of rotating the lead audit partner or even
the independent auditing firm itself on a regular
basis.
·
Set
polices regarding hiring by the Corporation of employees or former
employees of the independent
auditors.
·
On
a regular basis, meet separately with the independent auditors to discuss
any matters that the committee or auditors believe should be discussed
privately.
A-4
Compliance
·
Establish
and periodically review procedures for the receipt, retention, and
treatment of complaints received by the Corporation regarding accounting,
internal accounting controls, or auditing matters, and the confidential,
anonymous submission by employees providing services for the Corporation
or its affiliates of concerns regarding questionable accounting or
auditing matters.
·
Receive
reports from, and coordinate with, the Regulatory Compliance Committee
regarding regulatory compliance matters that may affect the Corporation’s
business, financial statements or related compliance policies, including
any material reports or inquiries from regulatory or governmental agencies
as necessary.
·
Report
to, and coordinate with, the Regulatory Compliance Committee regarding
regulatory compliance issues arising as a result of the Corporation’s
internal audit function as
necessary.
Reporting
Responsibilities
·
Regularly
report to the board of directors about committee activities, issues, and
related recommendations.
·
Provide
an open avenue of communication between internal auditors, the independent
auditors, and the board of
directors.
·
Report
annually to the shareholders, describing the committee’s composition,
responsibilities and how they were discharged, and any other information
required by rule, including approval of non-audit
services.
·
Review
any other reports the Corporation issues that relate to committee
responsibilities.
Other
Responsibilities
·
On
a regular basis, meet separately with management to discuss any matters
that the committee or management believe should be discussed
privately.
·
Perform
other activities related to this Charter as requested by the board of
directors.
·
Discuss
the Corporation’s policies with respect to risk assessment and risk
management, including the Corporation’s major financial risk exposures and
the steps management has taken to monitor and control such
exposures.
·
Review
and assess the adequacy of the committee charter annually, requesting
board approval for proposed changes, and ensure appropriate disclosure as
may be required by law or
regulation.
·
Confirm
annually that all responsibilities outlined in this Charter have been
carried out.
·
Self-evaluate
the committee’s performance on an annual
basis.
Disclosure
Publish
this Charter to the Corporation’s website.
WellCare Health Plans, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware, hereby certifies as
follows:
1.
The corporation was incorporated on February 5, 2004, under the name WellCare
Group, Inc., pursuant to the General Corporation Law of the State of
Delaware.
2.
Pursuant to Sections 242 and 245 of the General
Corporation Law of the State of Delaware, this Amended and Restated Certificate
of Incorporation restates and integrates and further amends the provisions of
the Certificate of Incorporation of the corporation.
The name of the Corporation is WellCare Health Plans, Inc.
(the "Corporation").
ARTICLE
II
REGISTERED
OFFICE AND AGENT
The address of the Corporation's
registered office in the State of Delaware is 2711 Centerville Road, Suite 400,
City of Wilmington, County of New Castle. The name of its registered agent at
such address is Corporation Service Company.
ARTICLE
III
PURPOSE
The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "DGCL").
ARTICLE
IV
CAPITAL
STOCK
The total number of shares of all
classes of capital stock which the Corporation shall have authority to issue is
One Hundred Twenty Million (120,000,000) shares, of which:
One Hundred Million (100,000,000) shares, par value $0.01 per share, shall be
shares of common stock (the "Common Stock"); and
Twenty Million (20,000,000) shares, par value $0.01 per share, shall
be shares of preferred stock (the "Preferred Stock").
(A)
Common Stock. Except
as (1) otherwise required by law or (2) expressly provided in this Amended and
Restated Certificate of Incorporation (as amended from time to time), each share
of Common Stock shall have the same powers, rights and privileges and shall rank
equally, share ratably and be identical in all respects as to all
matters.
(1) Dividends. Subject to
the rights of the holders of Preferred Stock, and to the other provisions of
this Amended and Restated Certificate of Incorporation (as amended from time to
time), holders of Common Stock shall be entitled to receive equally, on a per
share basis, such dividends and other distributions in cash, securities or other
property of the Corporation as may be declared thereon by the Board of Directors
from time to time out of assets or funds of the Corporation legally available
therefore.
B
- 1
(2) Voting Rights. At
every annual or special meeting of stockholders of the Corporation, each holder
of Common Stock shall be entitled to cast one (1) vote for each share of Common
Stock standing in such holder's name on the stock transfer records of the
Corporation.
(3) Liquidation Rights.
In the event of any liquidation, dissolution or winding up of the affairs of the
Corporation, whether voluntary or involuntary, after payment or provision for
payment of the Corporation's debts and amounts payable upon shares of Preferred
Stock entitled to a preference, if any, over holders of Common Stock upon such
dissolution, liquidation or winding up, the remaining net assets of the
Corporation shall be distributed among holders of shares of Common Stock equally
on a per share basis. A merger or consolidation of the Corporation with or into
any other corporation or other entity, or a sale or conveyance of all or any
part of the assets of the Corporation (which shall not in fact result in the
liquidation of the Corporation and the distribution of assets to its
stockholders) shall not be deemed to be a voluntary or involuntary liquidation
or dissolution or winding up of the Corporation within the meaning of this
Paragraph (A)(3).
(B) Preferred Stock. The
Board of Directors is authorized, subject to limitations prescribed by law, to
provide by resolution or resolutions for the issuance of shares of Preferred
Stock in one or more series, to establish the number of shares to be included in
each such series, and to fix the voting powers (if any), designations, powers,
preferences, and relative, participating, optional or other rights, if any, of
the shares of each such series, and any qualifications, limitations or
restrictions thereof. Irrespective of the provisions of Section 242(b)(2) of the
DGCL, the number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority in voting power of the stock of
the Corporation entitled to vote, without the separate vote of the holders of
the Preferred Stock as a class.
ARTICLE
V
BOARD
OF DIRECTORS
(A) Management. The
business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors. The Board of Directors may exercise all
such authority and powers of the Corporation and do all such lawful acts and
things as are not by statute or this Amended and Restated Certificate of
Incorporation directed or required to be exercised or done by the
stockholders.
(B) Number of Directors.
The number of directors of the Corporation shall be fixed from time to time in
the manner provided in the Amended and Restated Bylaws.
(C) Newly-Created Directorships
and Vacancies. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or any other cause may be filled by the Board of Directors, provided that
a quorum is then in office and present, or by a majority of the directors then
in office, if less than a quorum is then in office, or by the sole remaining
director. Directors elected to fill a newly created directorship or other
vacancies shall hold office until such director's successor has been duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
(D) Removal of
Directors. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any director may be removed from office at
any time forwith or
without cause, at a meeting
called for that purpose, andbut
only by the affirmative vote of the holders of at least 66-2/3% of the voting
power of all shares of the Corporation entitled to vote generally in the
election of directors, voting together as a single class;
provided, however, that no existing Class III director serving the remaining
portion of a multi-year term may be removed during any part of his or her
remaining multi-year term except for cause.
B-2
(E) Rights of Holders of
Preferred Stock. Notwithstanding the foregoing provisions of
this Article V, whenever the holders of one or more series of Preferred Stock
issued by the Corporation shall have the right, voting separately or together by
series, to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies and other features of such
directorship shall be governed by the rights of such Preferred Stock as set
forth in the certificate of designations governing such
series.
(F) Written Ballot Not
Required. Elections of directors need not be by written ballot unless the
Amended and Restated Bylaws of the Corporation shall otherwise
provide.
(G) Bylaws. The Board of
Directors is expressly authorized to adopt, amend or repeal the bylaws of the
Corporation. Any bylaws made by the directors under the powers conferred hereby
may be amended or repealed by the directors or by the stockholders.
Notwithstanding the foregoing and anything contained in this Amended and
Restated Certificate of Incorporation to the contrary, the bylaws of the
Corporation shall not be amended or repealed by the stockholders, and no
provision inconsistent therewith shall be adopted by the stockholders, without
the affirmative vote of the holders of 66-2/3% of the voting power of all shares
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class.
(H) ClassificationElection of Directors. ;
Declassification of Board. At each annual meeting of
stockholders, directors of the Corporation shall be elected to hold office until
the expiration of the term for which they are elected, and until their
successors have been duly elected and qualified; except that if any such
election shall be not so held, such election shall take place at a
stockholders'’ meeting called and held in
accordance with the DGCL. The Until
the 2010 annual meeting of stockholders, the directors of the Corporation
shall be divided into three classes as nearly equal in size as is
practicable, hereby
designated. At the 2009 annual meeting of
stockholders, both the Class I and Class II directors shall be elected for
one-year terms expiring at the 2010 annual meeting of stockholders; and at the
2010 annual meeting of stockholders, the terms of the then-serving
Class I, Class II and Class III. The term of office of
the initial Class I directors shall expire at the next succeeding annual meeting
of stockholders, the term of office of the initial Class II directors shall
expire at the second succeeding annual meeting of stockholders and the term of
office of the initial Class III directors shall expire at the third succeeding
annual meeting of the stockholders. For the purposes hereof, the initial Class
I, Class II and Class III directors shall be those directors elected by the sole
stockholder of the Corporation in connection with the adoption of this Amended
and Restated Certificate of Incorporation. At each annual meeting after the
first directors shall expire, and at such annual
meeting and at each annual meeting of stockholders thereafter,
all directors
to replace those of
a Class whose terms expire at such annual meeting shall be elected to hold office until the
third succeeding annual meeting and until their respective successors shall have
been duly elected and qualified. If the number of directors is hereafter
changed, any newly created directorships or decrease in directorships shall be
so apportioned among the classes as to make all classes as nearly equal in
number as practicable.for
one-year terms expiring at the next annual meeting and shall serve until his or
her successor shall be elected and qualified. From and after the 2010
annual meeting of stockholders, the directors shall no longer be divided into
classes. Each Class I and Class II director elected at the 2009
annual meeting of stockholders shall serve for a one-year term as provided
herein notwithstanding that the amendments to effect the declassification of the
Board of Directors as provided herein may be filed with the Secretary of State
of the State of Delaware after the 2009 annual meeting of stockholders at which
such Class I or Class II director was elected and such amendments were approved
and adopted by the stockholders.
ARTICLE
VI
LIMITATION
OF LIABILITY
A
director of the Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director; provided,
however, that the foregoing shall not eliminate or limit the liability of
a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. If the DGCL is hereafter amended to permit
further elimination or limitation of the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the DGCL as so amended. Any repeal or
modification of this Article VI by the stockholders of the Corporation or
otherwise shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or
modification.
B-3
ARTICLE
VII
INDEMNIFICATION
Each
person who was or is made a party or is threatened to be made a party to or is
involved (including, without limitation, as a witness) in any actual or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding"), by reason of the fact that he is
or was a director or officer of the Corporation or is or was serving at the
request of the Corporation as a director or officer of another corporation or of
a partnership, limited liability company, joint venture, trust or other entity,
including service with respect to an employee benefit plan (hereinafter an
"Indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director or officer or in any other capacity while so
serving, shall be indemnified and held harmless by the Corporation to the full
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), or by other
applicable law as then in effect, against all costs, expenses, liabilities and
losses (including attorneys' fees and related costs, judgments, fines, excise
taxes or penalties under the Employee Retirement Income Security Act of 1974, as
amended from time to time ("ERISA"), penalties and amounts paid or to be paid in
settlement) actually and reasonably incurred or suffered by such Indemnitee in
connection therewith, and such indemnification shall continue as to a person who
has ceased to be a director, officer, partner, member or trustee and shall inure
to the benefit of his or her heirs, executors and administrators. Each person
who is or was serving as a director or officer of a subsidiary of the
Corporation shall be deemed to be serving, or have served, at the request of the
Corporation.
(A) Procedure. Any
indemnification (but not advancement of expenses) under this Article VII (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director or
officer is proper in the circumstances because he has met the applicable
standard of conduct set forth in the DGCL, as the same exists or hereafter may
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment). Such
determination shall be made with respect to a person who is a director or
officer at the time of such determination (a) by a majority vote of the
directors who were not parties to such proceeding (the "Disinterested
Directors"), even though less than a quorum, (b) by a committee of Disinterested
Directors designated by a majority vote of Disinterested Directors, even though
less than a quorum, (c) if there are no such Disinterested Directors, or if such
Disinterested Directors so direct, by independent legal counsel in a written
opinion, or (d) by the stockholders.
(B) Advances for
Expenses. Expenses (including attorneys' fees, costs and charges)
incurred by a director or officer of the Corporation in defending a proceeding
shall be paid by the Corporation in advance of the final disposition of such
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay all amounts so advanced in the event that it shall ultimately
be determined that such director or officer is not entitled to be indemnified by
the Corporation as authorized in this Article VII. The majority of the
Disinterested Directors may, in the manner set forth above, and upon approval of
such director or officer of the Corporation, authorize the Corporation's counsel
to represent such person, in any proceeding, whether or not the Corporation is a
party to such proceeding.
(C) Procedure for
Indemnification. Any indemnification or advance of expenses (including
attorney's fees, costs and charges) under this Article VII shall be made
promptly, and in any event within 60 days upon the written request of the
director or officer (and, in the case of advance of expenses, receipt of a
written undertaking by or on behalf of Indemnitee to repay such amount if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
therefore pursuant to the terms of this Article VII). The right to
indemnification or advances as granted by this Article VII shall be enforceable
by the director or officer in any court of competent jurisdiction, if the
Corporation denies such request, in whole or in part, or if no disposition
thereof is made within 60 days. Such person's costs and expenses incurred in
connection with successfully establishing his/her right to indemnification, in
whole or in part, in any such action shall also be indemnified by the
Corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of expenses (including attorney's
fees, costs and charges) under this Article VII where the required undertaking,
if any, has been received by the Corporation) that the claimant has not met the
standard of conduct set forth in the DGCL, as the same exists or hereafter may
be amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment), but the
burden of proving such defense shall be on the Corporation. Neither the failure
of the Corporation (including its Board of Directors, its independent legal
counsel and its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he/she has met the applicable standard of conduct set
forth in the DGCL, as the same exists or hereafter may be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), nor the fact that there has
been an actual determination by the Corporation (including its Board of
Directors, its independent legal counsel and its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that the claimant has not met the applicable
standard of conduct.
B-4
(D) Other Rights; Continuation
of Right to Indemnification. The indemnification and advancement of
expenses provided by this Article VII shall not be deemed exclusive of any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under any law (common or statutory), bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in
his/her official capacity and as to action in another capacity while holding
office or while employed by or acting as agent for the Corporation, and shall
continue as to a person who has ceased to be a director or officer, and shall
inure to the benefit of the estate, heirs, executors and administers of such
person. All rights to indemnification under this Article VII shall be deemed to
be a contract between the Corporation and each director or officer of the
Corporation who serves or served in such capacity at any time while this Article
VII is in effect. Any repeal or modification of this Article VII or any repeal
or modification of relevant provisions of the DGCL or any other applicable laws
shall not in any way diminish any rights to indemnification of such director or
officer or the obligations of the Corporation arising hereunder with respect to
any proceeding arising out of, or relating to, any actions, transactions or
facts occurring prior to the final adoption of such modification or repeal. For
the purposes of this Article VII, references to "the Corporation" include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation, so that any person who, following such
consolidation or merger, is a director or officer of such a constituent
corporation or is serving at the request of such constituent corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other entity shall stand in the same position under the provisions of this
Article VII, with respect to the resulting or surviving corporation during the
period following such consolidation or merger, as he would if he/she had served
the resulting or surviving corporation in the same capacity.
(E) Insurance. The
Corporation shall have power to purchase and maintain insurance on behalf of any
person who is or was or has agreed to become a director or officer of the
Corporation, or is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other entity, against any liability asserted against him and incurred by him or
on his behalf in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article VII; provided, however, that
such insurance is available on acceptable terms, which determination shall be
made by a vote of a majority of the Board of Directors.
(F) Savings Clause. If
this Article VII or any portion hereof shall be invalidated on any ground by any
court of competent jurisdiction, then the Corporation shall nevertheless
indemnify each person entitled to indemnification under the first paragraph of
this Article VII as to all costs, expenses, liabilities and losses (including
attorneys' fees and related costs, judgments, fines, ERISA excise taxes and
penalties, penalties and amounts paid or to be paid in settlement) actually and
reasonably incurred or suffered by such person and for which indemnification is
available to such person pursuant to this Article VII to the full extent
permitted by any applicable portion of this Article VII that shall not have been
invalidated and to the full extent permitted by applicable law.
B-5
ARTICLE
VIII
ACTION
BY WRITTEN CONSENT/SPECIAL MEETINGS OF STOCKHOLDERS
For so
long as either the Corporation's Common Stock is registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the
Corporation is required to file periodic reports with the Securities and
Exchange Commission pursuant to Section 15(d) of the Exchange Act with respect
to the Corporation's Common Stock: (i) the stockholders of the Corporation may
not take any action by written consent in lieu of a meeting, and must take any
actions at a duly called annual or special meeting of stockholders and the power
of stockholders to consent in writing without a meeting is specifically denied
and (ii) special meetings of stockholders of the Corporation may be called only
by either the Board of Directors pursuant to a resolution adopted by the
affirmative vote of the majority of the total number of directors then in office
or by the chief executive officer of the Corporation.
ARTICLE
IX
AMENDMENT
The
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Amended and Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding any
other provision of this Amended and Restated Certificate of Incorporation or the
Amended and Restated Bylaws of the Corporation, and notwithstanding the fact
that a lesser percentage or separate class vote may be specified by law, this
Amended and Restated Certificate of Incorporation, the Amended and Restated
Bylaws of the Corporation or otherwise, but in addition to any affirmative vote
of the holders of any particular class or series of the capital stock required
by law, this Amended and Restated Certificate of Incorporation, the Amended and
Restated Bylaws of the Corporation or otherwise, the affirmative vote of the
holders of at least 66-2/3% of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to adopt any provision inconsistent with, to
amend or repeal any provision of, or to adopt a bylaw inconsistent with,
Articles V, VI, VII, VIII or IX of this Amended and Restated Certificate of
Incorporation."
* * *
B-6
4.
The foregoing amendment and restatement of the Certificate of
Incorporation has been duly approved by the Board of Directors of the
corporation in accordance with the provisions of Sections 144, 242 and 245 of
the General Corporation Law of the State of Delaware.
5.
The foregoing amendment and restatement of the Certificate of
Incorporation has been duly approved by the written consent of the sole
stockholder in accordance with Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware.
IN
WITNESS WHEREOF, the corporation has causes this Amended and Restated
Certificate of Incorporation to be signed by its ______________ on this _____th
day of _______, 2009.
WELLCARE
HEALTH PLANS, INC
By
____________________________
B-7
Electronic
Voting Instructions
You
can vote by Internet or telephone!
Available
24 hours a day, 7 days a week!
Instead
of mailing your proxy, you may choose one of the two voting methods
outlined below to vote your proxy.
VALIDATION
DETAILS ARE LOCATED BELOW IN THE TITLE BAR.
Proxies
submitted by the Internet or telephone must be received by 1:00 a.m.,
Eastern Time, on July 30, 2009.
Using
a black
ink pen, mark your
votes with an X as shown
in
this
example. Please do not write outside the designated areas.
• Follow the steps outlined on the secured website.
Vote
by telephone
• Call toll free 1-800-652-VOTE (8683) within the United
States, Canada & Puerto Rico any time on a touch tone
telephone. There is NO
CHARGE to you for the call.
• Follow the instructions provided by the recorded message.
Annual
Meeting Proxy
Card
IF YOU
HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE.
A Proposals — The Board of Directors recommends a vote
FOR
all the Director nominees listed below and FOR
Proposals 2, 3, and 4.
1.
Election of Class I and Class II Directors: (A) for, in the case of Dr.
Herzlinger and Messrs. Gallitano, Hickey and Schiesser, a (i) one-year term to
expire at the Company’s 2010 annual meeting if Proposal Two and Proposal
Three are
approved or (ii) two-year term to expire at the Company’s 2011 annual meeting if
Proposal Two and Proposal Three are
not
approved, and (B) for, in the case of Senator Graham and Messrs.
King-Shaw and Michalik, a (i) one-year term to expire at the Company's 2010
annual meeting if Proposal Two and Proposal Three are
approved
or (ii) three-year term to expire at the Company’s 2012 annual meeting if
Proposal Two and Proposal Three are not
approved.
For
Withhold
For
Withhold
For
Against
Abstain
01
- Kevin Hickey
¨
¨
05 - Christian
Michalik
¨
¨
2.
Approval and adoption of an amendment to the Company’s certificate of
incorporation to declassify the Company’s Board of
Directors .
3. Approval
and adoption of an amendment to the Company's certificate of
incorporation to provide that Directors may be removed with or without
cause (except for Class III Directors serving the remaining
portion of a multi-year term, who, if the amendment is approved and
adopted, could not be removed without cause prior to the end of such
current multi-year term).
Both
Proposals Two and Three are cross-conditioned on each other. By
approving Proposals Two and Three, shareholders will be approving and
adopting the proposed Amended and Restated Certification of
Incorporation. If either Proposal Two or Three is not approved,
then neither Proposal Two or Three will be
approved.
¨
¨
¨
02
- Regina Herzlinger
¨
¨
06 - Ruben Jose
King-Shaw, Jr.
¨
¨
For
¨
Against
¨
Abstain
¨
03
- Heath Schiesser
04 - David Gallitano
¨
¨
¨
¨
07 - D. Robert
Graham
¨
¨
For
Against
Abstain
4.
Ratification of the appointment of Deloitte & Touche LLP as the
Company’s independent registered public accounting firm for fiscal year
2009.
¨
¨
¨
For
Against
Abstain
5.
As the proxies may in their discretion determine in respect of any other
business properly to come before the annual meeting (the
Board of Directors currently knowing of no such other
business).
¨
¨
¨
B Non-Voting Items
Change of Address —
Please print new address below.
C
Authorized Signatures — This section must be completed for your vote to be
counted — Date and Sign Below
Please
sign in the same form as name appears hereon. Executors and other fiduciaries
should indicate their titles. If signed on behalf of a corporation, give title
of officer signing.
Date
(mm/dd/yyyy) — Please print date below
Signature
1 — Please keep signature within the box
Signature
2 — Please keep signature within the box.
/
/
IF YOU
HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD
ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED
ENVELOPE.
The
undersigned hereby appoints Heath Schiesser, Chief Executive Officer, and
Timothy S. Susanin, Secretary, and each of them, attorneys with full power of
substitution, to vote as directed on the reverse side all shares of Common Stock
of WellCare Health Plans, Inc. registered in the name of the undersigned, or
which the undersigned may be entitled to vote, at the 2009 Annual Meeting to be
held at the Grand Hyatt Tampa Bay, 2900 Bayport Drive, Tampa, Florida33607, on
July 30, 2009, at 10:00 a.m. and at any adjournment or postponement
thereof.
UNLESS
THE STOCKHOLDER DIRECTS OTHERWISE, THIS PROXY WILL BE VOTED FOR
THE ELECTION OF ALL OF THE DIRECTOR NOMINEES
LISTED
IN PROPOSAL 1 AND FOR
PROPOSALS 2, 3 AND 4 , AND IN THE DISCRETION OF THE PROXY HOLDERS AS TO
ANY OTHER MATTERS.
Dates Referenced Herein and Documents Incorporated by Reference
