[DESCRIPTION] MATERIAL CONTRACT
EX-10.40a Copy of Letter Agreement dated February
28, 1997, between Registrant and The
1818 Fund II, L.P.
THE 1818 FUND II, L.P.
February 28, 1997
The WellCare Management Group, Inc.
Park West/▇▇▇▇▇▇ Avenue Extension
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Gentlemen:
Reference is made to (i) the Note Purchase Agreement (the
"Note Purchase Agreement") dated as of January 19, 1996, between
The WellCare Management Group, Inc., a New York corporation (the
"Company"), and The 1818 Fund II, L.P., a Delaware limited
partnership (the "Purchaser"), (ii) the 6.0% Subordinated
Convertible Note (the "Note") due December 31, 2002 issued by the
Company to the Purchaser on January 19, 1996 and (iii) the
Registration Rights Agreement (the "Registration Rights Agreement"
and, together with the Note Purchase Agreement and the Note, the
"Transaction Documents"), dated as of January 19, 1996, between
the Company and the Purchaser. Capitalized terms used but not
defined herein shall have the meanings specified in the Note
Purchase Agreement.
The Purchaser and the Company desire to effect certain
amendments to the Transaction Documents and to take certain other
actions specified herein. Therefore, for good and valuable
consideration, the sufficiency of which is hereby acknowledged,
the Purchaser and the Company hereby agree as follows:
I. Amendments of Note Purchase Agreement.
A. Amendment of Section 8.13. Section 8.13 of the Note
Purchase Agreement is hereby deleted in its entirety and replaced
by the following new Section 8.13:
"8.13 Board Representation; Management Rights.
(a) The Company shall at or prior to the Closing Date cause
one vacancy to be created on its Board of Directors (by increasing
the number of members of the Board of Directors or otherwise) and
at the Closing Date shall cause one person designated by the
Purchaser to be elected to its Board of Directors. The Company
shall at the Company's next regularly scheduled Board of Directors
meeting, but in any event on or prior to February 26, 1997, cause
one additional vacancy to be created on the Board of Directors (by
increasing the number of members of the Board of Directors or
otherwise) and shall cause one additional person designated by the
Purchaser to be elected to its Board of Directors. (The persons
elected to the Board of Directors of the Company pursuant to this
Section 8.13(a) are referred to herein as the "Purchaser
Designees.") Each Purchaser Designee shall serve until the next
annual meeting of stockholders of the Company following the
election of such Purchaser Designee to the Board of Directors.
(b) Within a reasonable time after the date (the Amendment
Effective Date") of the amendment and restatement of this Section
8.13 effected pursuant to that certain letter agreement, dated
February 26, 1997, between the Company and the Purchaser, the
Company shall use its reasonable efforts to cause two additional
persons to be elected to the Board of Directors of the Company.
Each such person shall (i) be neither an officer, director or
employee of the Company or any Subsidiary of the Company nor an
Affiliate of the Company and (ii) have experience as a director of
a public company or other relevant experience. (The persons
elected to the Board of Directors of the Company pursuant to this
Section 8.13(b) are referred to herein as the "Outside
Directors"). The qualifications that a person nominated by the
Company as an Outside Director is likely to have will include
experience serving for at least two years as the director of an
issuer (1) whose securities were listed on NASDAQ or the New York
Stock Exchange during such two-year period, (2) that has had (A)
an average equity capitalization of $200,000,000 or more and (B)
that has had positive net income (determined in accordance with
GAAP), in each case throughout the period during which such person
has served as a director thereof. Each Outside Director shall
serve until the next annual meeting of stockholders of the Company
following the election of such Outside Director to the Board of
Directors.
(c) At the annual meeting of stockholders immediately
following the Closing Date, the Purchaser Designee specified in
the first sentence of Section 8.13(a) shall be designated a Class
II director. At the next annual meeting of stockholders of the
Company following the Amendment Effective Date, the Purchaser
Designee specified in the second sentence of Section 8.13(a) and
one Outside Director shall be designated as a Class III Director
and one Outside Director shall be classified as a Class I
Director. At each annual meeting of stockholders of the Company
at which the term of any Purchaser Designee or Outside Director
shall expire, so long as the Purchaser holds (A) Common Shares, or
(B) Notes convertible (after giving effect to any adjustments)
into Common Shares, that in the aggregate represent 2% or more of
the total number of shares of common stock of the Company then
outstanding, (i) the Purchaser shall be entitled to nominate such
number of Purchaser Designees equal to the number of Purchaser
Designees whose terms shall expire at such meeting and (ii) the
Company shall use its reasonable efforts to nominate such number
of persons that meet the criteria for an Outside Director
specified in Section 8.13(b) equal to the number of Outside
Directors whose terms shall expire at such meeting. The Company
shall not amend its Certificate of Incorporation or take any other
action that will cause the Company's Board of Directors to consist
of more than twenty members. The Company shall cause each
Purchaser Nominee and Outside Director to be included in the slate
of nominees recommended by the Board of Directors to the Company's
stockholders for election as directors, and the Company shall use
its best efforts, in the case of a Purchaser Designee, or its
reasonable efforts, in the case of an Outside Director, to cause
the election of such person or persons, including voting all
shares for which the Company holds proxies (unless otherwise
directed by the stockholder submitting such proxy), or is
otherwise entitled to vote, in favor of the election of such
person or persons. The Principal Shareholders each hereby agree
that he shall vote all of his shares of common stock of the
Company, all other securities of the Company that are entitled to
vote for directors and all proxies (unless otherwise directed by
the stockholder submitting such proxy), in each case which he has
the right to vote or power to direct the vote, in favor of the
election of such Purchaser Nominees and such Outside Directors.
(d) In the event that any Purchaser Nominee shall cease to
serve as a director for any reason, other than by reason of the
Purchaser not being entitled to nominate a Purchaser Nominee as
provided in Section 8.13(c), the Company shall use its best
efforts to cause the vacancy resulting thereby to be filled by a
nominee of the Purchaser. In the event that any Outside Director
shall cease to serve as a director for any reason, other than by
reason of the Company no longer being required to use its
reasonable efforts to elect such Outside Director as provided in
Section 8.13(c), the Company shall use its reasonable efforts to
cause the vacancy resulting thereby to be filled by a person that
meets the criteria for an Outside Director specified in Section
8.13(b); provided, however, that any successor to an Outside
Director need not be reasonably acceptable to the Purchaser.
(e) If requested by the Purchaser, the Purchaser shall have
the right to consult with and advise management of the Company and
its Subsidiaries on matters relating to the business and affairs
of the Company, which right shall continue only for so long as may
be required to enable the Purchaser to qualify as a "venture
capital operating company" within the meaning of Section
2510.3-101(d) of the plan asset regulations promulgated by the
United States Department of Labor.
(f) In the event that the Board of Directors of the Company
establishes Executive, Audit and Compensation Committees (or
committees with comparable functions), at least one Purchaser
Nominee shall have the right, upon the Purchaser's request, to
serve on any such committee."
B. Addition of Section 8.15. The following new Section 8.15 is
hereby added to the Note Purchase Agreement: "8.15. Notice of
Issuance of Common Stock. Upon the issuance of any Common Shares
(including the issuance of Common Shares upon the exercise or
conversion of options, warrants or other securities exercisable
for, or convertible into, Common Shares), the Company shall
promptly provide to the Purchaser notice of such issuance, which
shall include the number of Common Shares so issued and the
purchase (or conversion or exercise) price therefor."
II. Amendments of the Note: The Note is hereby amended as
follows:
A. Amendment of Section 2: Section 2 of the note is hereby
amended by adding the following phrase to the end of the first
sentence thereof: "; provided, however, that if the Conversion
Price calculated at the termination of the Calculation Period is
less than $15.00 (appropriately adjusted for stock splits or stock
dividends), then the Company shall, from such date until the
principal amount hereof is paid in full, pay interest on the
principal amount hereof, at a rate of 5.5% per annum."
B. Amendment of Section 5.1: Section 5.1 of the Note is hereby
amended by deleting percentage "125%" from the seventh line
thereof and replacing it with the percentage "130%."
C. Amendment of Section 6.1: Section 6.1 of the Note is hereby
amended by adding the following sentence after the second sentence
thereof and before the third sentence thereof:
"Notwithstanding the forgoing, the Company may redeem the
Notes only if the approval of the Commissioner of Health of
the State of New York (the "Approval") has been obtained and
has not been withdrawn (in each case, in the reasonable
judgment of the holder), and if the Approval has not been
obtained or if obtained and has been withdrawn (in each
case, in the reasonable judgment of the holder) then the
Company shall have no right to redeem the Notes until
Approval has been obtained and has not been withdrawn (in
each case, in the reasonable judgment of the holder). Both
partners will seek to obtain the Approval as soon as
practicable after the Amendment Effective Date."
D. Amendment of Section 6.2: Section 6.2 of the Note is hereby
amended by adding the following sentence to the end thereof:
"In the event a Change of Control occurs within 24 months
after the redemption of any Notes pursuant to this Section 6
and the funds utilized to effect such redemption were
derived in whole or part from sources other than (i) cash
generated from operations of the business or (ii) borrowings
of the Company not guaranteed by third parties, the Company
shall pay to the Persons from whom such Notes were redeemed,
on the date of such Change of Control, an amount equal to
30% of the principal amount of the Notes so redeemed from
such Person."
E. Amendment of Section 7.1. Section 7.1 of the Note is hereby
amended by deleting (i) the parenthetical phrase "(as defined
below)" from the eleventh line thereof and (ii) the third sentence
thereof.
F. Amendment of Section 7.4(b). Section 7.4(b) of the Note is
hereby amended by deleting it in its entirety and replacing it
with the following:
"(b) In case the Company shall at any time or from time to
time issue or sell shares of Common Stock (or securities
convertible into or exchangeable for shares of Common Stock,
or any options, warrants or other rights to acquire shares
of Common Stock) (other than (i) options to acquire shares
of Common Stock granted on or prior to June 30, 1996 to any
officer, director, employee or consultant of the Company or
any Subsidiary of the Company or (ii) up to 100,000 shares
of Common Stock (subject to adjustment) issued upon the
exercise of those certain Stock Purchase Warrants issued by
the Company to ▇.▇. ▇▇▇▇▇▇▇ Associates, Inc. on July 7,
1994), at a price per share less than either the Current
Market Price per share or the Conversion Price per share
then in effect at the record date referred to in the follow-
ing sentence (treating (A) the price per share of any
security convertible or exchangeable or exercisable into
shares of Common Stock as equal to (i) the sum of the price
for such security convertible, exchangeable or exercisable
into shares of Common Stock plus any additional
consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of
such security into shares of Common Stock divided by
(ii) the number of shares of Common Stock initially
underlying such convertible, exchangeable or exercisable
security and (B) the price per share of any security issued
in connection with the settlement or compromise any claim,
action, suit, proceeding or dispute or in connection with
the satisfaction of any judgment relating to the foregoing
as equal to $.01), then, and in each such case, the
Conversion Price then in effect shall be adjusted by
dividing the Conversion Price in effect on the day
immediately prior to such record date by a fraction (x) the
numerator of which shall be the sum of the number of shares
of Common Stock outstanding on such record date plus the
number of additional shares of Common Stock issued or to be
issued (or the maximum number into which such convertible or
exchangeable securities initially may convert or exchange or
for which such options, warrants or other rights initially
may be exercised) and (y) the denominator of which shall be
the sum of the number of shares of Common Stock outstanding
on such record date plus the number of shares of Common
Stock that the aggregate consideration for the total number
of such additional shares of Common Stock so issued (or into
which such convertible or exchangeable securities may
convert or exchange or for which such options, warrants or
other rights may be exercised, plus the aggregate amount of
any additional consideration initially payable upon con-
version, exchange or exercise of such security) would pur-
chase at the greater of the Current Market Price per share
or the Conversion Price per share on such record date. Such
adjustment shall be made whenever such shares of Common
Stock, securities, options, warrants or other rights are
issued, and shall become effective retroactively to a date
immediately following the close of business on the record
date for the determination of holders of shares of Common
Stock entitled to receive such shares of Common Stock,
securities, options, warrants or other rights; provided,
however, that the determination as to whether an adjustment
is required to be made pursuant to this Section 7.4(b) shall
only be made upon the issuance of such shares of Common
Stock or such convertible or exchangeable securities,
options, warrants or other rights, and not upon the issuance
of the security into which such convertible or exchangeable
security converts or exchanges, or the security underlying
such option, warrants or other right; provided further, that
if any convertible or exchangeable securities, options,
warrants or other rights (or any portions thereof) that
shall have given rise to an adjustment pursuant to this
Section 7.4(b) shall have expired or terminated without the
exercise thereof and/or if by reason of the terms of such
convertible or exchangeable securities, options, warrants or
other rights there shall have been an increase or increases,
with the passage of time or otherwise, in the price payable
upon the exercise or conversion thereof, then the Conversion
Price hereunder shall be readjusted (but to no greater
extent than originally adjusted with respect to the related
event) on the basis of (x) eliminating from the computation
any additional shares of Common Stock corresponding to such
convertible or exchangeable securities, options, warrants or
other rights as shall have expired or terminated, (y) treat-
ing the additional shares of Common Stock, if any, actually
issued or issuable pursuant to the previous exercise of such
convertible or exchangeable securities, options, warrants or
other rights as having been issued for the consideration
actually received and receivable therefor and (z) treating
any of such convertible or exchangeable securities, options,
warrants or other rights that remain outstanding as being
subject to exercise or conversion on the basis of such exer-
cise or conversion price as shall be in effect at the time."
G. Amendment of Section 10.5. Section 10.5 of the Note is
hereby amended by deleting the amount "$40,000,000" from the
fourth line thereof and replacing it with the amount $19,500,000.
H. Addition of Section 10.6. The following new Section 10.6 is
hereby added to the Note:
10.6 Quarterly Calculation of Conversion Price. For each
quarterly period of the Company, beginning with the quarterly
period ending December 31, 1996, the Company shall prepare and
deliver a written statement to the holder of this Note within ten
(10) days following the end of such quarterly period that sets
forth a calculation of the Conversion Price of this Note then in
effect; provided, further, that such written statement shall be
accompanied by a statement of the Company's independent
accountants indicating that they have reviewed and are in
agreement with the calculation set forth in the aforementioned
statement.
I. Addition of Section 10.7. The following new Section 10.7 is
hereby added to the Note:
10.7 Repurchases during Calculation Period. Neither the
Company nor any Subsidiary or Affiliate of the Company shall,
during the Calculation Period, repurchase, contract or agree to
repurchase or make any announcement of its intent to repurchase
shares of the Company's Common Stock; provided that nothing in
this Section 10.7 shall prohibit officers and directors of the
Company from purchasing up to an aggregate of 300,000 shares of
Common Stock during the Calculation Period.
J. Amendment of Section 11.1: Section 11.1 of the Note is
hereby amended by adding the following subparagraphs (i) and (j)
to the end thereof:
"(i) The Company or any subsidiary of the Company shall
default in the payment of any indebtedness for money
borrowed having an aggregate principal amount of $250,000 or
more, or any lease obligation having aggregate rental
payments of $250,000 or more beyond any grace period
provided with respect thereto or any other event or
condition shall exist under any agreement or instrument
under which such indebtedness for money borrowed or lease
obligation is created or evidenced beyond any applicable
grace period, if the effect of such event or condition is to
cause the holder of such indebtedness for money borrowed or
lessor (or a trustee on behalf of any such holder or lessor)
to (i) cause such indebtedness for money borrowed or lease
obligation to become due prior to its date of maturity or
(ii) require the borrower or any Person that is a subsidiary
of the borrower to purchase such indebtedness for money
borrowed or assume such lease obligation; or
(j) Any action is taken by a federal, state or local
regulatory authority with respect to the Company and results
in (i) the revocation of any license necessary for the
Company to conduct its business, (ii) the Company being put
into rehabilitation or receivership or (iii) the appointment
of a Custodian for the Company or for all or substantially
all of its business or the taking of similar action."
K. Amendment of Section 12. Section 12 of the Note is hereby
amended as follows:
(i) By inserting the following new sentence after the final
sentence of the defined term Current Market Price:
"Notwithstanding the foregoing, in no event shall the
Current Market Price be less than the Conversion Price in
effect (or assumed to be in effect pursuant to clause (x) of
the definition of Conversion Price) at the time of the
determination of the Current Market Price.";
(ii) By inserting the following at the end of clause (i) of
the defined term Change of Control: "; provided that solely
for purposes of the definition of Contemplated Change of
Control', a Change of Control' in this clause (i) shall
occur when such Person or Persons become such beneficial
holders entitling them to exercise 10% or more of such total
votes"; and
(iii) By inserting the following new defined term after the
defined term Common Stock: " Conversion Price' shall mean as
of the termination of the Calculation Period, an amount
equal to 115% of the average of the Current Price of the
Common Stock for the trading days during the Calculation
Period (excluding from such calculation the five highest
Current Prices and the five lowest Current Prices during the
Calculation Period and if no Current Price is available for
any given day, such trading day shall not be included in the
determination of Conversion Price), as appropriately
adjusted for stock splits or stock dividends, subject to the
Conversion Price as so calculated being no less than $9.00
(appropriately adjusted for stock splits or stock dividends)
or more than $15.00 (appropriately adjusted for stock splits
or stock dividends); provided, however, that the Conversion
Price, as calculated in accordance with the foregoing, shall
then be adjusted for each event that occurred during the
Calculation Period that would, pursuant to Section 7.4,
result in an adjustment in the Conversion Price assuming
that on the date of any such event the Conversion Price was
the amount determined pursuant to this sentence as adjusted
for events occurring prior to such date. As of any date
after termination of the Calculation Period, "Conversion
Price" shall be calculated in accordance with the preceding
sentence (subject to adjustment for events described in
Section 7.4). Calculation Period' shall mean the period
commencing on the first trading day occurring after August
1, 1996 and terminating on the earlier of (a) the trading
day immediately preceding March 1, 1997 or (b) if
applicable, the date prior to March 1, 1997 on which the
notice required in Section 7.1 to exercise the conversion
right is delivered in accordance with the terms and
provisions of such Section 7.1; provided, however, that if a
Contemplated Change of Control shall occur on or prior to
the trading day immediately preceding March 1, 1997 or, if
applicable, the date prior to March 1, 1997 on which the
notice required in Section 7.1 to exercise the conversion
right is delivered in accordance with the terms and
provisions of such Section 7.1, then Calculation Period'
shall mean the period commencing on first trading day
occurring after August 1, 1996 and terminating on (and
including) the date which is eleven trading days preceding
the date of the Contemplated Change of Control. Current
Price' of Common Stock shall mean, on any date, the average
of the reported last bid and asked prices per share of
Common Stock on such date as reported by the National Market
System of the Nasdaq Stock Market. Contemplated Change of
Control' of the Company shall mean such time as (x) there is
an announcement or filing of any document with the
Securities Exchange Commission by the Company or any other
Person which discloses an actual, proposed or contemplated
Change of Control of the Company or (y) there is a public
announcement that the Company has or will retain
professional advisors or consider or conduct a study with
respect to alternatives that could enhance shareholder
value."
III. Amendments of the Registration Rights Agreement. The
Registration Rights Agreement is hereby amended as follows:
A. Amendment of Section 2.1(g). Section 2.1(g) of the
Registration Rights Agreement is hereby amended by deleting the
number "two" from the fourth line thereof and replacing it with
the number "three."
B. Amendments of Section 2.2(a). Section 2.2(a) of the
Registration Rights Agreement is hereby amended by:
(i) Deleting the phrase "Within eighteen months after the
"Closing Date" from the first and second lines thereof and
replacing it with the phrase "On or prior to August 14,
1997"; and
(ii) Deleting the third sentence thereof.
C. Amendment of Section 2.2(c). Section 2.2(c) of the
Registration Rights Agreement is hereby amended by deleting the
final sentence thereof.
IV. Representations and Warranties True. Except as set forth on
Schedule IV, the Company hereby represents and warrants to the
Purchaser that on and as of the date hereof, all representations
and warranties of the Company contained in any of the Transaction
Documents (other than those specified in Section 5.11, Section
5.12, Section 5.13 or, solely so far as it relates to any
representation or warranty specified in Section 5.11, 5.12 or
5.13, Section 5.21 of the Note Purchase Agreement) are true and
correct as of the date hereof as if made on the date hereof and
with the same effect as if set forth in this letter agreement.
V. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Purchaser as follows:
A. Due Authorization. The execution, delivery and performance
by the Company of this Amendment have been duly authorized by all
necessary corporate action, and the provisions of this Amendment
are valid and binding obligations of the Company, enforceable in
accordance with their respective terms.
B. Governmental Authorization; Third Party Consents. No
approval, consent, exemption, authorization, or other action by,
or notice to, or filing with, any (i) Governmental Authority or
(ii) any other Person, is necessary or required in connection with
the execution, delivery or performance by the Company or enforce-
ment against the Company of this letter agreement or the
transactions contemplated hereby except, in the case of (ii) with
respect to any Contractual Obligation, any such consent or other
action that would not, individually or in the aggregate, have a
material adverse effect on the Condition of the Company if not
obtained.
C. Litigation. There are no actions, suits, proceedings,
claims or disputes pending, or to the Company's Knowledge,
threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company or any of its
Subsidiaries:
(a) with respect to this letter agreement or any of the
transactions contemplated hereby; or
(b) except as set forth on Schedule V.C, that would, if
adversely determined, (i) have a material adverse effect on the
Condition of the Company or (ii) have a material adverse effect on
the ability of the Company to perform its obligations under this
letter agreement. No injunction, writ, temporary restraining
order, decree or any order of any nature has been issued by any
court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery and performance of this letter
agreement.
D. Financial Condition. The Company heretofore has delivered
to the Purchaser true and correct copies of (i) the restated
audited consolidated financial statements of the Company and its
Subsidiaries dated as of December 31, 1994 (the "Restated
Financials"), (ii) the audited consolidated financial statements
of the Company and its Subsidiaries dated as of December 31, 1995
(the "1995 Financials"), (iii) the unaudited interim consolidated
financial statements of the Company and its Subsidiaries dated as
of March 31, 1996 (the "March 31 Interim Financials"), (iv) the
unaudited interim consolidated financial statements of the Company
and its Subsidiaries dated as of June 30, 1996 (the "June 30
Interim Financials") and (v) the unaudited interim consolidated
financial statements of the Company and its Subsidiaries dated as
of September 30, 1996 (the "September 30 Interim Financials").
Each of the Restated Financials, the 1995 Financials, the March 31
Interim Financials, the June 30 Interim Financials and the
September 30 Interim Financials have been prepared in accordance
with GAAP applied consistently throughout the periods covered
thereby and, in the case of the March 31 Interim Financials, the
June 30 Interim Financials and the September 30 Interim
Financials, except for normal recurring year-end adjustments.
Each of the Restated Financials, the 1995 Financials, the March 31
Interim Financials, the June 30 Financials and the September 30
Interim Financials presents fairly the consolidated financial
condition of the Company as of the date thereof, and the
consolidated results of operations of the Company for the period
then ended. Except as set forth on Schedule V.D., the March 31
Form 10-Q, the June 30 Form 10-Q or the September 30 10-Q (each as
defined below), neither the Company nor any of its Subsidiaries
has any material direct or indirect indebtedness, liability or
obligation, whether known or unknown, fixed or unfixed, contingent
or otherwise, and whether or not of a kind required by GAAP to be
set forth on a financial statement (collectively "Liabilities"),
other than (i) Liabilities fully and adequately reflected on the
1995 Financials and (ii) those incurred since the date of the 1995
Financials in the ordinary course of business.
E. No Material Adverse Change. Since August 14, 1996, except
as set forth in the September 30 10-Q (as defined herein) and on
Schedule V.E, there has not been any material adverse change in
the Condition of the Company, nor in the opinion of the Company's
senior management is any such change probable.
F. Annual Report on Form 10-K; Quarterly Reports on Form 10-Q;
Commission Documents.
(a) Each of (i) the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 filed by the Company
with the Commission on May 31, 1996 (the "1995 Form 10-K"), (ii)
the Company's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996 filed by the Company with the
Commission on May 31, ▇▇▇▇ (▇▇▇ "▇▇▇▇▇ ▇▇ ▇▇-▇"), (▇▇▇) the
Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1996 filed by the Company with the Commission on
August 14, 1996 (the "June 30 10-Q") and (iv) the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
September 30, 1996 filed by the Company with the Commission on
November 14, 1996 (the "September 30 10-Q") was true and accurate
in all material respects when filed with the Commission and in
compliance in all material respects with the requirements of its
report form.
(b) The Company has, since August 14, 1996, filed all
registration statements, proxy statements, reports and other
documents required to be filed by it under the Securities Act and
the Exchange Act, and all amendments thereto (collectively, the
"Commission Documents"); and the Company has furnished the
Purchaser correct and complete copies of all Commission Documents,
each as filed with the Commission, from and after August 14, 1996.
Each Commission Document was true and accurate in all material
respects when filed with the Commission and in compliance in all
material respects with the requirements of its respective report
form.
VI. Amendment and Restatement of Notes. The Company hereby
agrees that if requested to do so by the Purchaser, it will
execute an amended and restated Note (the "Amended and Restated
Note") incorporating the amendments to the note set forth in
Section II of this letter agreement. Upon delivery of the Amended
and Restated Note, the Purchaser will surrender to the Company the
Note outstanding on the date hereof (the "Old Note"). The Amended
and Restated Note shall be dated the date of, and be in the same
denomination as, the Old Note replaced by it. From and after the
date of delivery of the Amended and Restated Note, all references
in any Transaction Document, as amended hereby, to the term "Note"
or "Notes" shall be deemed to refer to the Amended and Restated
Note.
VII. Counterparts. This letter agreement may be executed in
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
VIII. Effect on Transaction Documents. The Purchaser hereby
waives any claim under the Note Purchase Agreement that, based
upon facts known to the Purchaser on the date hereof, any
representation or warranty of the Company set forth in Section
5.11, Section 5.13 (in respect to Section 5.13 solely with respect
to the financial statements and the notes thereto, Management's
Discussion and Analysis of Financial Condition and Results of
Operations and Selected Financial Information set forth in any
Commission Document) or, solely so far as it relates to any
representation or warranty specified in Section 5.11 or 5.13,
Section 5.21 was not true and correct as of the Closing Date. The
waiver by the Purchaser specified above is made specifically in
reliance upon the independent auditors report of Deloitte &
Touche, LLP contained in the 1995 Form 10-K. The Purchaser hereby
also waives (i) any violation that may have existed under Section
8.1(a) of the Agreement from April 9, 1996 through May 31, 1996,
(ii) any violation that may have existed under Section 8.1(b) of
the Agreement from May 20, 1996 through May 31, 1996, (iii) any
violation that may have existed under Section 8.2(a) or (b) or
Section 8.6(b)(i) or (ii) through the Amendment Effective Date, to
the extent any notice was required thereunder with respect to any
of the items specified in the other numbered clauses of this
sentence or relate to the Company's default under the Loan
Agreement (as defined in the Note) or the class action lawsuits
brought against the Company and certain officers and directors
alleging violation of the federal securities laws and (iv) any
violation of Section 10.5 of the Note that may have existed from
March 31, 1996 through the date hereof, and in each case any Event
of Default (as defined in the Note) that may have resulted
therefrom. Except as specifically set forth in this letter
agreement, the Transaction Documents shall remain unmodified and
in full force and effect and are hereby ratified by the parties
thereto, as amended. The Company acknowledges and agrees that
this letter agreement does not represent an intention by the
Purchaser (other than as set forth herein) to waive, modify or
forebear from exercising any of its rights, powers and privileges
under any Transaction Document and no such commitment, waiver,
modification (other than as set forth herein) or forbearance has
been offered, granted, extended or agreed, nor is any implied, by
the Purchaser.
IX. Entire Agreement. This letter agreement, together with the
Transaction Documents as amended hereby, represents the complete
understanding of the parties with respect to the subject matter
hereof.
X. Expenses. The Company shall promptly pay or reimburse to
the Purchaser the fees and expenses (including fees, expenses and
other charges of ▇▇▇▇, Weiss, Rifkind, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ and
Coopers & ▇▇▇▇▇▇▇) incurred by the Purchaser in connection with
the Company's restatement of its financial statements and related
activities, investigations and other matters and the preparation,
negotiation and execution of this letter agreement and the
transactions contemplated hereby; provided that the Company shall
not be obligated to pay more than $100,000 under this paragraph.
XI. Headings. Headings in this letter agreement are for
reference only, and shall not affect the interpretation or meaning
of any provision of this Amendment.
XII. Governing law. This letter agreement shall be governed by,
and construed and interpreted in accordance with, the laws of the
State of New York applicable to agreements made and to be
performed entirely within such State.
Very truly yours,
THE 1818 FUND II, L.P.
By: ▇▇▇▇▇ Brothers ▇▇▇▇▇▇▇▇ & Co.,
its General Partner
By: /s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Partner
ACKNOWLEDGED AND AGREED:
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: President and Chief Operating Officer
As a material inducement to the Purchaser to
enter into this letter agreement, the undersigned
hereby agrees to continue to be bound by and
perform in accordance with Sections 8.11, 8.13
(as amended by this letter agreement), 8.14 and
10.1 of the Note Purchase Agreement irrespective
of the amendments thereto effected pursuant to
this letter agreement.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
SCHEDULE IV TO LETTER AGREEMENT
DATED FEBRUARY 28, 1997
BY AND BETWEEN THE WELLCARE
MANAGEMENT GROUP, INC. AND
THE 1818 FUND II, L.P.
1. Schedules 3.16 and 5.6
See Schedule V.C.
3. Schedule 5.16
Name of Corporation State of Incorporation
WellCare of New York, Inc. New York
Agente Benefit Consultants, Inc. New York
WellCare Medical Management, Inc. New York
WellCare Development, Inc. New York
WellCare of Connecticut, Inc. Connecticut
4. Schedule 5.17
Name of Individual Type of Relationship Stock Option
Commitment
Marystephanie Corsones Chief Financial 2,000 options at
Officer, employee fair market value
on January 1 of each
contract year
(through January 1997)
▇▇▇▇▇▇▇▇ Group Consultant Stock based on a
formula of hours
worked quarterly
at a rate of
$100/hour.
▇.▇. ▇▇▇▇▇▇▇
Associates, Inc. Consultant Stock Purchase
Warrants issued
July 7, 1994 which
provide for the
holder's purchase
of up to 100,000
shares based upon
a formula purchase
price.
▇▇▇▇▇▇ ▇. ▇▇▇▇ President and 30,000 options per
Chief Operating year on each of
Officer 9/1/97, 9/1/98, and 9/1/99,
at the greater of fair
market value on the date of
the grant or $15, $20, $25,
respectively.
See also attached sheets
5. Section 5.18
See Schedule V.E.1.
6. Section 5.24
See Schedule V.E.2.
SCHEDULE V.C. TO LETTER AGREEMENT
DATED FEBRUARY 28, 1996
BY AND BETWEEN THE WELLCARE
MANAGEMENT GROUP, INC. AND
THE 1818 FUND II, L.P.
1. Hanovice v. The WellCare Management Group, Inc. In September
1995, an ophthalmologist who formerly served as a health care
provider for WellCare of New York, Inc. (the "WellCare HMO"), one
of the Company's health maintenance organizations ("HMOs"),
commenced an action in the Supreme Court of Ulster County of the
State of New York, against the Company, asserting that the Company
breached an implied covenant of good faith and fair dealing, and
"interfered" with the plaintiff's contracts, in terminating his
provider contract with the WellCare HMO. The complaint seeks
$1,000,000 in damages. In October 1995, the Company filed a
motion to dismiss, asserting that (i) the suit was filed against
an improper party, as the Company's subsidiary, not the Company,
was a party to the provider contract; (ii) damages are not
justified in any event as the plaintiff's provider contract was
"at will" and termination was properly effected thereunder; and
(iii) the plaintiff's interference claim was legally insufficient
as pleaded. By Decision and Order, dated April 10, 1996 (the
"Decision and Order"), the Company's motion to dismiss was granted
and the complaint was dismissed as against the Company. Plaintiff
thereafter served an amended complaint against WellCare HMO,
limiting Plaintiff's claim to $14,863.33. Since plaintiff has
failed to timely perfect an appeal of the Decision & Order, his
opportunity to do so has lapsed. Counsel for both parties are
currently attempting to negotiate a settlement of plaintiff's
remaining claim.
2. ▇▇▇▇▇▇▇▇▇ v. WellCare HMO On October 13, 1995, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, a member covered under a WellCare HMO benefit plan (the
"Plaintiff"), commenced an action in the Supreme Court of Ulster
County of the State of New York, against WellCare HMO, asserting
that the Plaintiff had to seek emergency treatment from outside
the network because her participating primary care physician was
not available after she collapsed. On November 24, 1995 Plaintiff
serves a complaint on WellCare HMO, seeking $100,000 in damages,
plus interest from October 20, 1993, disbursements, and attorney's
fees. WellCare HMO believes the claim is without merit and will
continue to contest the action vigorously.
3. Reference is made to class action suits filed against the
Company and the SEC Formal Order of Private Investigation as set
forth in the Company's Quarterly Report of Form 10-Q for the
quarterly period ended September 30, 1996 filed by the Company
with the Securities and Exchange Commission on November 14, 1996.
4. ▇▇▇▇▇ ▇▇▇▇▇▇, M.D. A provider with a variety of contracts
with the Company claims that the Company owes him and his related
corporate entities approximately $140,000. No litigation has yet
been commenced. The Company believes that it has offsetting
claims and that its net liability is approximately $20,000. The
Company is currently attempting to negotiate a settlement of this
claim.
5. New York State Insurance Department Report The New York
State Insurance Department ("NYSID") has completed its triennial
audit of the Company and WellCare HMO, and issued a report thereon
dated January 10, 1997, a copy of which has been provided to
Purchaser (the "NYSID Report"). The NYSID Report includes
recommendations by NYSID with respect to the WellCare HMO and
recommends that WellCare HMO's failure to file all contracts,
riders and rates and to properly adjust the guaranteed rates of
its group contracts and knowingly charging incorrect rates be
referred to the NYSID's Office of General Counsel for disciplinary
action. By letter dated February 12, 1997, the Company indicated
the extent to which it agrees with the NYSID Report and the areas
of disagreement. By letter dated February 18, 1997, the NYSID
advised the Company that it would make no changes to the NYSID
Report.
SCHEDULE V.E. TO LETTER AGREEMENT
DATED FEBRUARY 28, 1997
BY AND BETWEEN THE WELLCARE
MANAGEMENT GROUP, INC. AND
THE 1818 FUND II, L.P.
1. Except as set forth in the NYSID Report.
2. The Company is in the process of renegotiating the
reinsurance agreement with each of Preferred Health Insurance
Company of New York and Preferred Life Insurance Company of New
York.
