[DESCRIPTION] MATERIAL CONTRACT
EX-10.27c Copy of Letter of Intent between
Registrant, WellCare of New York, Inc.
and Primergy, Inc. dated January 7, 1997
WellCare-Primergy Letter of Intent
Page 1
January 7, 1997
LETTER OF INTENT
Subject to receipt of the requisite corporate, contractual and
regulatory approvals, the undersigned agree to:
1. Extend the term of the contract between WellCare of New
York and Valley Medical Services, P.C. (Orange/Xxxxxxxx, Dutchess
and Columbia/Xxxxxx Alliances) to ten years from the date of January
1, 1997 and provide for an annual increase in capitation of 3% for
the first five years of the term with a single negotiation for the
second five years. Annual increase of 3% is "collared" by the CPI
according to the example in attachment "1" which attachment is
hereby incorporate by reference.
2. Extend the term of the contract between WellCare of New
York and Xxxxxx Valley Family Health, P.C. (Ulster Alliance) to ten
years from the date of January 1, 1997 and provide for an annual
increase in capitation of 3% for the first five years of the term
with a single negotiation for the second five years. Annual
increase of 3% is "collared" by the CPI according to the example in
attachment "1".
3. Allow for sharing the hospital in-patient "utilization
surplus pool" 50/50 between WellCare of New York and the
Columbia/Xxxxxx, Dutchess and Ulster Alliances according to the
formula outlined on attachment "2" which attachment is hereby
incorporated by reference.
4. Eliminate paragraph 2, page 3 of the Letter of
Understanding between WellCare of New York and the Alliances dated
September 23, 1996, attachment "3" which attachment is hereby
incorporated by reference. It is replaced with "WellCare will not
be at a price disadvantage to a new payor as long as WellCare
supplies majority membership to the Alliances."
5. Confirm that Primergy's option, subsequent to receiving
notification from FPA that it will merge with Primergy, will be
exercised to have WellCare convert the existing debt of $5.1 million
plus accrued interest to an equity position (class c shares) in
Primergy of exactly 43% of total shares (classes A, B and C shares)
issued at the time FPA Medical Management merges with Primergy.
Primergy's option is being exercised in accordance with the last
paragraph, page three of the Letter of Understanding dated September
23, 1996 signed by Xxxxxx Xxxxx and Xxxxxxx X. Xxxxxxxxx, MD,
WellCare will thus share pro rata, with all other Primergy
shareholders, in the FPA equity and options received by Primergy at
the time of merger between FPA and Primergy.
At the time of merger, WellCare will thus receive 43% of all
considerations (cash, FPA stock and FPA options) paid by FPA to
acquire Primergy stock. It is our current understanding with FPA
that they will pay Primergy shareholders a consideration equal to
six times EBITDA (6xEBITDA) plus 35% of six times EBITDA for EBITDA
greater than $2 million plus 60,000 FPA options at a strike price
which is the trading price on the day of conversion. Those options
are valid for three years, to be vested one-third each year.
6. It is the intent of the parties to transfer the claims
processing to Primergy, the timing and the payment of which will be
negotiated.
7. Confirm that the above items, recent amendments to the
WellCare-Alliance contracts, and the contracts themselves will
survive intact the transfer of ownership or control of WellCare of
WellCare Management Group, Inc.
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January 7, 1997
New York to any other party, or the transfer of ownership or control
of Primergy to FPA or any other party, or the transfer of Valley
Medical Services, P.C. to an IPA and Xxxxxx Valley Family Health,
P.C. to an IPA, so long as ownership control of Primergy remains
with the current shareholders until the equity conversion occurs.
8. These terms and amendments shall terminate 24 months
after the cash infusion date from FPA unless FPA shall have merged
with Primergy prior thereto. If such transaction is not
consummated, this Letter of Intent shall become null and void and
the terms of the September 23, 1996 Letter of Understanding (Xxxxx-Xxxxxxxxx)
will prevail.
9. Confirm that if FPA, after its initial cash infusion,
notifies Primergy that it will not merge Primergy into FPA, Primergy
and WellCare will negotiate in good faith to amend or reaffirm the
above items. If negotiations fail to produce a satisfactory
agreement within ninety days of FPA's notification of failure to
merge, the terms of the September 23, 1996 letter of understanding
(Xxxxx-Xxxxxxxxx) will prevail.
10. Confirm the performance criteria for contract renewal as
noted in attachment 4 which is hereby incorporated by reference.
11. The contract between WellCare of New York, Inc. and
Valley Medical Services, P.C. will be redrafted to incorporate the
terms of: this Letter of Intent, as applicable; the Letter of
Understanding of September 23, 1996, (attachment 3), as applicable;
as well as all applicable Insurance Department and Department of
Health requirements. Said redraft will be written within the next
ninety (90) days.
12. The contract between WellCare of New York, Inc. and
Xxxxxx Valley Family Health, P.C. will be redrafted to incorporate
the terms of: this Letter of Intent, as applicable; the Letter of
Understanding of September 23, 1996, (attachment 3), as applicable;
as well as all applicable Insurance Department and Department of
Health requirements. Said redraft will be written within the next
ninety (90) days.
13. The WellCare Management Group agrees to forbearance of
principal payment of a promissory note between Primergy and WellCare
of $2,099,083. This forbearance will remain in effect until FPA
Medical Management merges with Primergy, at which time the note will
be repaid by FPA as part of the merger agreement or over a three (3)
year amortization schedule with payments beginning immediately
should the FPA cash infusion be revoked, terminated or decreased
bellow $4 million dollars or if Primergy is deemed to be in material
breach of its' contractual obligations after appropriate
notifications and opportunities for remedy to The WellCare
Management Group, Inc., WellCare of New York, or any other WellCare
entity. Commencing with the closing date of infusion of cash from
FPA, Primergy will commence monthly interest payments at prime plus
2%. Should the merger not occur, Primergy agrees to repay said note
at prime plus 2% over a three year amortization schedule from the
time Primergy receives notification that the merger will not occur
but in no event later than 24 months.
14. Also, all other conditions of these amendments will
revert to the current contractual terms (as of the September 23,
1996 letter of agreement) should FPA's cash infusion be revoked,
terminated or decreased below a $4 million line of credit or if
Primergy is deemed to be in material breach of its' contractual
obligations after appropriate notifications and opportunities for
remedy to the WellCare Management Group, WellCare of New York, or
any other WellCare entity or should FPA fail to conclude the equity
conversion within twenty-four (24) months from the closing date of
the $4 million line of credit.
15. During the period between the cash infusion by FPA and
the equity conversion closing date (approximately 1 to 2 years), The
WellCare Management Group, Inc. believes that it will be essential
WellCare Management Group, Inc.
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January 7, 1997
that a single person be responsible for all business issues and have
the appropriate authority level to commit Primergy on a day to day
operational basis. WellCare desires that Xxxx Present, COO be that
person. Similarly, WellCare suggests that Xxxxxx X. Xxxx, COO be
responsible for all business issues relative to The WellCare
Management Group, Inc. A good faith effort will be made to have
both Mr. Xxxxxxx and Xx. Xxxx have such responsibility consistent
with their respective corporate structures.
16. Agree that any changes to this document must be by
mutual written agreement of the parties hereto.
/s/ Xxxxxx X. Xxxxx /s/ Xxxxxxx X. Xxxxxxxxx, M.D.
Xxxxxx X. Xxxxx Xxxxxxx X. Xxxxxxxxx, M.D.
Chairman & CEO President
The WellCare Management Group, Inc. Primergy, Inc.
Date 1/21/97 Date 1/21/97
/s/ Xxxxxx X. Xxxx
President & COO
WellCare of New York, Inc.
Date 1/21/97
WellCare Management Group, Inc.
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January 7, 1997
Attachment 1
CPI "Collar"
"Collared" means that annual increases would be 3% so long as the
appropriate CPI's ranged between 0% and 6%. Should the CPI be
negative or above 6%, the 3% annual increase would be adjusted
accordingly. For example, a 7% CPI increase would yield a 4%
contractual adjustment and likewise, a CPI of -1% (minus one
percent) would yield an annual contractual increase of 2%. Under no
circumstances would the annual contractual increase be more than 6%
or less than 0%.
WellCare Management Group, Inc.
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January 7, 1997
Attachment 2
Calculation of the shared hospital utilization pool.
The Alliance will receive a portion of the surplus generated
from decreased hospital utilization as in the following example
(assume 30,000 Alliance members);
1. If average bed-days/1000 members/year at inception = 290;
2. If average weighted cost per bed-day (re-calculated
annually) at inception = $1000;
3. If the Alliance is able to reduce bed-days/1000/year to
250 after the first quarter;
4. Then the Alliance will receive the following from WCNY:
$150,000.00
5. Rationale:
A. Hospital cost will be reduced by $300,000 per quarter
B. Alliance shares surplus (cost reduction) 50/50 with
WCNY
[290-250 d/s x $1000 X 30 X 50%]
4 Quarters
6. The Alliance shares in the surplus each quarter it
maintains utilization below the number of bed-days/1000
at inception (e.g., below 290 in this example)
The potential surplus will be calculated and paid within 30 days
after the end of each quarter.
The above calculation of hospital surplus sharing shall apply to
commercial members in the Ulster, Dutchess and Columbia/Xxxxxx
Alliances beginning the first day of the month after the FPA cash
infusion.
The formula for sharing of the hospital surplus pool for commercial
members in the Orange/Xxxxxxxx Alliance shall remain as noted in the
September 23, 1996 letter.
WellCare Management Group, Inc.
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January 7, 1997
Attachment 3
(Attach copy of September 23, 1996 letter)
WellCare Management Group, Inc.
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January 7, 1997
Attachment 4
WellCare of New York, Inc. will agree to extend the contract terms
herein referenced for up to a total of ten (10) years provided that
following the initial three (3) year term, annual renewals shall be
conditional upon the following terms: the Alliances being in
material compliance with all aspects of their contract; the
Alliances demonstrating financial viability, according to mutually
agreed upon criteria which at a minimum shall be in accordance with
generally accepted accounting principles; the management of the
Alliances meeting certain mutually agreed upon performance criteria.
Any disputes on this issue shall be governed by the Arbitration
provisions in the WellCare of New York, Inc. Alliance, IPA contracts
referred to in paragraph 1 of the attached Letter of Intent to which
this Attachment 4 is incorporated by reference. Said conditions
shall include but not be limited to:
1. Compliance with IPA contract provisions as defined in contract
2. Current on all medical claims with contracted providers,
according to contractual time limits
3. Satisfactorily resolve Alliance based medical claims to
providers in place at the closing date of the capital infusion
4. Quarterly financials of IPAs will be provided to WCNY, and
will include cash flow analyses
5. Current on obligations to WCNY or WCMG which are in place at
time of contract signing
6. Meet requirements for network adequacy, quality and regulatory
status as defined in contracts and in compliance with federal and
state law
7. Utilization of 240 bed-days/1000 enrollees per year
(commercial) by the end of year two, 210 bed days/1000 enrollees per
year by the end of year three in each Alliance area for which we
have incentive arrangements. Other programs to be negotiated
8. Assist WCNY in reporting requirements per mutual agreement
9. Assist WCNY to provide data for NCQA or similar certification
per mutual agreement
10. Contract with WCNY participating providers to minimize leakage
from FFS or carve out contracts
WellCare Management Group, Inc.
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January 7, 1997
11. Refrain from entering into any arrangements which are
discriminatory or adversely affect policies or procedures
12. Appropriate financial statements and documentation which will
provide WellCare with a demonstration of financial viability
according to mutually agreed upon criteria which at a minimum shall
be in accordance with generally accepted accounting principles.
