According to FORM 10-K for the fiscal year ended December 31, 1999, in May of 1999, the Company entered into a settlement agreement for $2.5 million, all of which is being funded by the insurance carrier who provided coverage to the Company and the individual defendants. The settlement agreement received Federal Court approval in January 2000. The Company expects to recoup from the insurance carrier the expenses related to fees it paid to the attorneys representing the Company and the individual defendants, less the Company's insurance deductible. However, a receivable has not been accrued because the recovery amount was not determinable at December 31, 1999.
In July 1996, the Securities Litigations were consolidated in the United States District Court for the Northern District of New York, and an amended
consolidating complaint (the "Complaint") was served in August 1996. The
Complaint did not name the three additional directors. The Company's auditor,
Deloitte and Touche, LLP, however, was named as an additional defendant. In
October 1996, the Company filed a motion to dismiss the consolidated amended
complaint against the Company as well as the individual defendants. The
Company's auditor likewise filed its own motion to dismiss. By Memorandum
Decision and Order (the "Order"), entered in April 1997, the Court (i) granted
the auditor's motion to dismiss and ordered that the claims against the auditors
be dismissed with prejudice; and (ii) denied the motion to dismiss brought by the individual defendants. Because the Order did not specifically address the
Company's motion to dismiss, in May 1997, the Company moved for reconsideration of its motion to dismiss and dismissal of all claims asserted against it. On reconsideration, the judge clarified his previous ruling expanding it to include
a denial of the Company's motion as well. Following the Court's decision, the
Company filed its answer and defense to the Complaint. In September 1997, the plaintiffs' class was certified and the parties thereafter commenced the discovery process of the litigation.
The original Complaint alleged that the Company's financial statements of August 2, 1994 did not fairly or accurately report the Company's true financial results, in that they stressed cost effective service, rather than improper accounting, as the source of expense reduction, and they violated GAAP. Based on these allegations, plaintiffs allege violations of Sections 10(b) and 20(a) of the 1934 Securities Exchange Act, and Rule 10b-5 promulgated thereunder.
Specifically complaint alleged that on August 2, 1994 the Company reported total revenue of $29,707,000 and net income of $1,466,009, or $0.24 per share, for the quarter. Subsequent quarterly reports indicated similar or better results. On February 14, 1995, the Company reported total revenue of $121,770,000 and net income of $6,238,000, or $1.00 per share, for 1994. The Company's April 1995 Annual Report to Shareholders claimed that the Company was providing high quality health care in a cost-effective manner and noted the Company's revenue and membership growth. On February 14, 1996, the Company reported total revenue of $156,213,000 and net income of $7,814,000, or $1.25 per share, for 1995. Approximately one month later, Barron's, a financial publication, published an article on WMG which, according to plaintiffs, concluded that various unusual transactions had inflated WMG's profits. Barron's based this conclusion on its examination of internal company documents being reviewed by lled "other receivables" which included $4.5 million purportedly owed by various hospitals for medical advances, but which the hospitals in fact claimed was owed to them. The March 16, 1996 Barron's report preceded a drop in stock price from $23.75 to $16.50, and a drop from a class period high of $37. Plaintiffs allege that defendants engaged in deceptive transactions which lacked a valid business purpose and were designed to inflate the reported profits of the Company, thus artificially inflating the value of the Company's securities. The alleged transactions include the various transactions outlined in the Barron's article.