EX-10.40b Copy of Letter Agreement dated January 14,
1998, between registrant and the 1818 Fund
II, L.P.
THE 1818 FUND II, L.P.
January 14, 1998
The WellCare Management Group, Inc.
Park West/Xxxxxx Avenue Extension
X.X. Xxx 0000
Xxxxxxxx, XX 00000
Gentlemen:
Reference is made to (i) the Note Purchase Agreement (as
amended to date by Amendment No. 1 (hereinafter defined), 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") and (ii) the 6.0% Subordinated
Convertible Note (as amended to date by Amendment No. 1, the
"Note") due December 31, 2002 issued by the Company to the
Purchaser on January 19, 1996, each as amended by that certain
amendment No. 1 contained in a Letter Agreement, dated February
28, 1997, between the Company and the Purchaser ("Amendment No.
1"). Capitalized terms used but not defined herein shall have the
meanings specified in the Note Purchase Agreement. The Note
Purchase Agreement and the Note are collectively referred to
herein as the "Transaction Documents".
The Purchaser and the Company desire to effect certain
additional amendments to the Note pursuant to this amendment No. 2
and to take certain other actions specified herein. Therefore,
for good and valuable consideration, the
The WellCare Management Group, Inc.
sufficiency of which is hereby acknowledged, the Purchaser and the
Company hereby agree as follows:
I. AMENDMENTS OF THE NOTE: The Note is hereby amended as follows:
A. AMENDMENT TO HEADING. The heading of the Note is hereby
amended by changing the reference to "6.0% Subordinated Convertible
Note" to "8.0% Subordinated Convertible Note".
B. AMENDMENT TO SECTION 1. Section 1 of the Note
is hereby amended by changing all references to "6.0%
Subordinated Convertible Note" to "8.0% Subordinated
Convertible Note".
C. AMENDMENT TO SECTION 2. Section 2 of the Note
is hereby amended by (i) changing the percentage in the (x)
third line thereof from 6.0% to 8.0% and (y) last line
thereof from 8.0% to 10.0% and (ii) deleting the proviso.
D. AMENDMENT TO SECTION 5.1. Section 5.1 of the
Note is hereby amended by changing 130% to 150% in the
seventh line thereof.
E. AMENDMENT OF SECTION 7.4(b). Section 7.4(b) of
the Note is hereby amended by changing the date in the fifth
line thereof from June 30, 1996 to January 14, 1998.
F. AMENDMENT OF SECTION 7.6. Section 7.6 of the
Note is hereby amended by adding the following sentence at
the end of such Section:
"Within 10 day after the end of each fiscal
quarter of the Company, the Company will provide
the Purchaser with a certificate signed by one
of the aforesaid officers, setting forth the
Conversion Price as of the end of such quarter
and any increases or decreases in the Conversion
Price (and the events giving rise thereto)
during such quarter, which certificate shall be
accompanied by a certification from Deloitte &
Touche, LLP (or any successor thereto or another
nationally recognized independent accounting
firm) of the information set forth in the
Company's certificate."
G. AMENDMENT OF SECTION 10.5. Section 10.5 of the
Note is hereby deleted in its entirety.
The WellCare Management Group, Inc.
H. ADDITION OF SECTION 10.10. The following
Section 10.10 is hereby added to the Note:
10.10 ADDITIONAL INFORMATION. The Company will
deliver to the holder of this Note, as soon as available but
no later than the 15th day of each month, a notice
specifying or attaching the following information as to the
Company, all certified by the Company's Chief Financial
Officer:
(a) statement of cash receipts and
disbursements for the preceding month;
(b) statement of cash balances at preceding
month end for the Company and each of its
Subsidiaries;
(c) itemizing statement of selling, general
and administrative expenses of the Company
and its Subsidiaries for the preceding
month;
(d) enrollment changes by category and region
for the preceding month;
(e) updated month-by-month projection of
sources and uses of cash for the next six
months;
(f) copies of all correspondence with
regulators in the preceding month; and
(g) schedule of in-patient days per thousand
by category of business and region for the
preceding month.
I. AMENDMENT OF SECTION 12. Section 12 of the Note is
hereby amended by deleting the definition of Conversion Price and
replacing it with the following new definition:
" Conversion Price' shall mean (i) $4.00 with respect
to $5,000,000 aggregate principal amount of the Notes and
(ii) $8.00 with respect to the remainder of the Notes, in
each case subject to adjustment (after the date of amendment
No. 2) as set forth in Section 7.4(b)."
The WellCare Management Group, Inc.
II. AMENDMENTS OF THE NOTE PURCHASE AGREEMENT. The Note
Purchase Agreement is hereby amended by changing all references to
the "6.0% Subordinated Convertible Note" to the "8.0% Subordinated
Convertible Note."
III. AMENDMENTS OF THE REGISTRATION RIGHTS AGREEMENT. The
Registration Rights Agreement is hereby amended by changing all
references to the "6.0% Subordinated Convertible Note" to the
"8.0% Subordinated Convertible Note."
IV. CONVERSION OF NOTES. The Company shall use its best efforts
to obtain within 90 days from the date of this letter agreement
the approval of the Commissioner of Health of the State of New
York to the conversion of the Notes by the Purchaser. The Company
shall promptly notify the Purchaser of the receipt of such
approval. Within 15 days of receipt of such approval, the
Purchaser shall convert $5,000,000 aggregate principal amount of
the Notes in accordance with Section 7 of the Note. The Company
shall pay interest on the Note upon such conversion pursuant to
Section 7.3 of the Note.
V. OPTION TO PURCHASE. If the consolidated earnings before
income taxes of the Company and its Subsidiaries for the quarter
ended June 30,1998 or September 30, 1998, as reported in the
consolidated financial statements of the Company and its
Subsidiaries included in the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998 or September 30,
1998, as the case may be, filed by the Company with the Commission
and delivered to the Purchaser are greater than zero (the
"Earnings Condition"), then beginning on the date such Earnings
Condition has been satisfied and ending on December 31, 1998, the
Company shall have the option to purchase from the Purchaser 50%
of the aggregate outstanding principal amount of the Note and 50%
of the Conversion Shares for an aggregate purchase price of
$12,000,000 plus all accrued and unpaid interest on the Note to
the date of purchase. Such option to acquire such portion of the
Note and such shares may be exercised only in its entirety and
only upon 30 days prior written notice to the Purchaser. The
purchase price shall be paid in immediately available funds to an
account designated by the Purchaser. Any transfer of Notes or
shares pursuant to this Section shall be made by the Purchaser
without presentation or warranty of any kind except that the
Purchaser will represent and warrant as to the absence of Liens
created by or through the Purchaser. If the Earnings Condition is
not met, the Company shall have no option to purchase Notes or
Conversion Shares from the Purchaser.
VI. REPRESENTATIONS AND WARRANTIES TRUE. Except as set forth on
Schedule VI, 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
The WellCare Management Group, Inc.
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 or those
specified in Section V. C, D and E of Amendment No. 1 or, solely
so far as it relates to any representation or warranty specified
in Section V. C,D, or E of Amendment No. 1, Section V.F. of
Amendment No. 1) 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 except to the extent superseded by the
representatives and warranties contained in Section VII hereof.
VII. 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.
Other than, with respect to the issuance of Conversion Shares, (i)
any required pre-merger notification and relating filings under
the HSR Act, (ii) the filing of a notification with Nasdaq upon
the first issuance of any Conversion Shares, (iii) filings under
the Securities Act and any applicable state securities or "blue
sky" laws upon the issuance of any Conversion Shares to any Person
other than the Purchaser and (iv) approval by the Commissioner of
Health of the State of New York, 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 enforcement 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 VII.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
The WellCare Management Group, Inc.
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 the
unaudited interim consolidated financial statements of the Company
and its Subsidiaries dated as of September 30, 1997 (the
"September 30 Interim Financials"0. The September 30 Interim
Financials have been prepared in accordance with GAAP applied
consistently throughout the periods covered thereby except for
normal recurring year-end adjustments. The September 30 Interim
Financials present fairly the consolidated financial condition of
the Company as of the date thereof, and the consolidated results
of operations of the Company for the period then ended. Except as
set forth on Schedule VII.D or as set forth in the September 30
Form 10-Q (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 September 30 Interim Financials and
(ii) those incurred since the date of the September 30 Interim
Financials in the ordinary course of business.
E. NO MATERIAL ADVERSE CHANGE. Since September 30, 1997,
except as set forth on Schedule VII.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. QUARTERLY REPORTS ON FORM 10-Q; Commission Documents.
(a) The Company's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1997 filed by the Company
with the Commission on November 14, 1997 (the "September 30 Form
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 filed after the September 30 Form 10-Q
was true and accurate in all material respects when filed with the
The WellCare Management Group, Inc.
Commission and in compliance in a all material respects with the
requirements of its respective report form.
; provided that the Company shall not be deemed to have breached
the representations and warranties set forth in Section VII D. or
F. To the extent that (i) any inaccuracy in any such
representations and warranties, together with all other
inaccuracies in such representations and warranties set forth in
Section VII D. Or F. To the extent that (i) any inaccuracy in any
such representations and warranties, together with all other
inaccuracies in such representations and warranties, give rise to
or result in liabilities, costs and expenses which have or could
have an affect on the cash of the Company and its Subsidiaries (on
a consolidated basis) of less than $5,000,000, in the aggregate,
or (ii) any inaccuracy in any such representations and warranties
result from the shareholder litigation or United States Attorney's
investigation referred to in the September 30 Form 10-Q.
VIII. 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 I 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.
IX. 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.
X. EFFECT ON TRANSACTION DOCUMENTS. The Purchaser hereby
waives any claim under Amendment No. 1 that, based upon facts
known to the Purchaser on the date hereof, any representation or
warranty of the Company set forth in Section V.D., V.E. or V.F (in
respect to Section V.F. solely with respect to the financial
statements and notes thereto, Management's Discussion and Analysis
of Financial Condition and Results of Operations and Selected
Financial Information set forth in any Commission Documents), was
not true on the date of execution of Amendment No. 1. The
Purchaser hereby also waives (i) any default under Section 11.1
(g) of the Note relating to the matters discussed in Item 3 of
Part II of the September 30 Form 10-Q, (ii) any default under
Section V.B. of Amendment No.1 to the extent it failed to set
forth the government approvals or consents set forth in Section
VII.B. hereof, (iii) any violation that may have existed under
Section 8.2 (a) or (b) or Section 8.6 (b)(i) or (ii) through the
The WellCare Management Group, Inc.
date hereof, to the extent notice was required thereunder with
respect to any of the items specified in the other numbered
clauses of this sentence, (iv) any violation of Section 10.5 of
the Note that may have existed from February 28, 1997 to 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.
XI. ENTIRE AGREEMENT. This letter agreement (which constitutes
the second amendment of the Note), together with the Transaction
Documents (including Amendment No. 1 thereto), represents the
complete understanding of the parties with respect to the subject
matter hereof.
XII. EXPENSES. The Company shall promptly pay or reimburse to the
Purchaser the fees and expenses (including fees, expenses and
other charges of Xxxx, Weiss, Rifkind, Xxxxxxx & Xxxxxxxx)
incurred by the Purchaser in connection with the preparation,
negotiation and execution of this letter agreement and the
transactions contemplated hereby.
XIII. HEADINGS. Headings in this letter agreement are for
reference only, and shall not affect the interpretation or meaning
of any provision of this Agreement.
XIV. 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: Xxxxx Brothers Xxxxxxxx & Co.,
its General Partner
By: /s/ Xxxxxxxx X. Xxxxxx
Name: Xxxxxxxx X. Xxxxxx
Title: Partner
ACKNOWLEDGED AND AGREED:
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Xxxxxx X. Xxxx
Name: Xxxxxx X. Xxxx
Title: President/CEO
