SECURITIES AND UNITED STATES EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 3)*
THE WELLCARE MANAGEMENT GROUP, INC.
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(Name of Issuer)
COMMON STOCK, $.01 PAR VALUE
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(Title of Class of Securities)
949470 10 8
--------------
(CUSIP Number)
February 28, 1997
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(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box. |_|
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
(Continued on following pages)
(Page 1 of 25 Pages)
(List of Exhibits is on Page 4)
- -----------------------
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 (the "Act") or otherwise subject to the liabilities of that section
of the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
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Page 2 of 25 Pages
SCHEDULE 13D
CUSIP No. 949470 10 8
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1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OR ABOVE PERSON
Robert W. Morey, Jr., S.S. ####-##-####
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2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a)|_|
(b)|X|
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3. SEC USE ONLY
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4. SOURCE OF FUNDS
00 See Item 3.
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5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(D) OR 2(E) |_|
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6. CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.A.
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7. SOLE VOTING POWER
NUMBER OF 787,157
BENEFICIALLY ------------------------------------------------------------
OWNED BY EACH 8. SHARED VOTING POWER
REPORTING 0
PERSON WITH ------------------------------------------------------------
9. SOLE DISPOSITIVE POWER
787,157
------------------------------------------------------------
10. SHARED DISPOSITIVE POWER
0
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11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
787,157 See Item 5(a).
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12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES |_|
- --------------------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
15.1% See Item 5(a).
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14. TYPE OF REPORTING PERSON
IN
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Page 3 of 25 Pages
Item 5. Interest in Securities of the Issuer.
Item 5 is hereby supplemented as follows:
(a) The aggregate number of shares of common stock, $0.01 par value
("Common Stock"), of The Wellcare Management Group, Inc., a corporation
organized under the laws of the State of New York (the "Issuer"), and the
percentage of outstanding shares of Common Stock (based upon the 4,928,684
shares of Common Stock outstanding on December 31, 1996 as represented by the
Issuer) beneficially owned by Mr. Morey and the persons who may be deemed to
comprise a "group" within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, as of the close of business on March 1, 1997,
are set forth below:
Shares Percentage of Outstanding
Name of Holder Beneficially Owned Shares of Common Stock
- -------------- ------------------ ----------------------
Robert W. Morey, Jr. 787,157 (1) 15.1% (2)
Edward A. Ullmann 763,155 (3) 13.4% (2)
The 1818 Fund II, L.P. 1,333,333 (4) 21.3%
2,222,222 (4) 31.1%
- -------------------------
(1) Includes 281,957 shares of Class A Common Stock, $.01 par value ("Class A
Common Stock"), which are identical to the shares of Common Stock in all
respects except that the Class A Common Stock has ten votes per share as
compared to one vote for each share of Common Stock, is not transferable,
and is convertible into shares of Common Stock on a share-for-share basis
at the option of the holder. Also includes 2,000 shares of Common Stock
purchased by RWM Management Co. Defined Benefit Pension Plan (the "Plan")
on January 7, 1997. Mr. Morey, the trustee of the Plan, disclaims
beneficial ownership of all shares of Common Stock beneficially owned by
the Plan.
(2) As a result of their Class A Common Stock ownership, Mr. Morey and Mr.
Ullmann are the beneficial owners of 17.9% and 40.3%, respectively, of the
total combined votes of the outstanding shares of Common Stock and Class A
Common Stock (based on the 4,928,684 shares of Common Stock and 1,369,492
shares of Class A Common Stock outstanding as of December 31, 1996 as
represented by the Issuer).
(3) Includes (i) 750,110 shares of Class A Common Stock and (ii) 11,045 shares
of Common Stock owned by a not-for-profit corporation for which Mr.
Ullmann serves as President, and for which beneficial ownership is
disclaimed by Mr. Ullmann.
(4) On February 28, 1997, the 6% Subordinated Convertible Note (the "Note") in
the principal amount of $20,000,000 due December 31, 2002, originally
issued by the Issuer to The 1818 Fund II, L.P., a Delaware limited
partnership (the "Fund") on January 19, 1996, was amended by a Letter
Agreement, dated February 28, 1997, between the Issuer and the Fund (the
"Letter Agreement," a copy of which is attached hereto as Exhibit 1 hereto
and incorporated herein by reference thereto). The Note, as amended, is
convertible into shares of Common Stock over a specified period of time.
Although the exact number of shares issuable upon conversion cannot be
ascertained at this time, the minimum and maximum number of shares of
Common Stock issuable to the Fund upon conversion is 1,333,33 and
2,222,222, respectively.
(b) Mr. Morey has sole power to vote or direct the vote and sole power to
dispose of or direct the disposition of the shares of Common Stock and Class A
Common Stock beneficially owned by him.
(c) See Item 5(a) footnote (4) above.
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Page 4 of 25 Pages
Item 6. Contracts, Arrangements, Understandings or Relationships With
Respect to Securities of the Issuer.
The first paragraph of Item 6 is hereby supplemented as follows:
The Note Purchase Agreement, dated January 19, 1996, between the Issuer
and the Fund was amended by the Letter Agreement, each of which was agreed to by
Robert W. Morey, Jr. and Edward A. Ullmann (the "Principal Shareholders").
Pursuant to the Letter Agreement, the Issuer is also required to use its
reasonable efforts to cause two persons to be elected to the Issuer's Board of
Directors, each of whom shall (i) be neither an officer, director or employee of
the Issuer or any subsidiary of the Issuer nor an affiliate of the Issuer or
(ii) have experience as a director of a public company or other relevant
experience (each an "Outside Director"). Also pursuant to the Letter Agreement,
each Principal Shareholder has agreed that he shall vote all shares of Common
Stock of the Issuer, all other securities of the Issuer that are entitled to
vote for directors and all proxies (unless otherwise directed by the stockholder
submitting such proxy) in favor of the election of such Outside Directors to the
Issuer's Board of Directors.
Item 7. Material to be filed as Exhibits.
Item 7 is hereby supplemented as follows:
1. Letter Agreement, dated as of February 28, 1997, by and between the
Issuer and the Fund.
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete, and
correct.
March 25,1997
--------------------------
(Date)
/s/ Robert W. Morey, Jr.
--------------------------
(Signature)
Robert W. Morey, Jr.
--------------------------
(Name/Title)
THE 1818 FUND II, L.P.
February 28, 1997
The WellCare Management Group, Inc.
Park West/Hurley Avenue Extension
P.O. Box 4059
Kingston, NY 12401
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:
<PAGE>
The WellCare Management Group, Inc. 2
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.
<PAGE>
The WellCare Management Group, Inc. 3
(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.
<PAGE>
The WellCare Management Group, Inc. 4
(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
<PAGE>
The WellCare Management Group, Inc. 5
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 J.J. Farrell 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 following 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 converti-
<PAGE>
The WellCare Management Group, Inc. 6
ble, 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
conversion, exchange or exercise of such security) would purchase 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
<PAGE>
The WellCare Management Group, Inc. 7
or terminated, (y) treating 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 exercise 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
<PAGE>
The WellCare Management Group, Inc. 8
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);
<PAGE>
The WellCare Management Group, Inc. 9
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:
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The WellCare Management Group, Inc. 10
(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
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
<PAGE>
The WellCare Management Group, Inc. 11
(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.
<PAGE>
The WellCare Management Group, Inc. 12
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, 1996 (the "March 31 10-Q"), (iii) 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
<PAGE>
The WellCare Management Group, Inc. 13
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 Paul, Weiss,
Rifkind, Wharton & Garrison and Coopers & Lybrand) 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.
<PAGE>
The WellCare Management Group, Inc. 14
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: Brown Brothers Harriman & Co.,
its General Partner
By: /s/ Lawrence C. Tucker
----------------------------
Name: Lawrence C. Tucker
Title: Partner
ACKNOWLEDGED AND AGREED:
THE WELLCARE MANAGEMENT GROUP, INC.
By: /s/ Joseph R. Papa
---------------------
Name: Joseph R. Papa
Title: President and
Chief Operating Officer
<PAGE>
The WellCare Management Group, Inc. 15
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/ Robert W. Morey, Jr.
------------------------
Robert W. Morey, Jr.
/s/ Edward A. Ullmann
------------------------
Edward A. Ullmann
<PAGE>
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
<TABLE>
<CAPTION>
Name of Individual Type of Relationship Stock Option Commitment
- ------------------ -------------------- -----------------------
<S> <C> <C>
Marystephanie Corsones Chief Financial 2,000 options at fair market value on
Officer, employee January 1 of each contract year
(through January 1997)
Lawrence Group Consultant Stock based on
a formula of hours worked
quarterly at a rate of
$100/hour.
J.J. Farrell Consultant Stock Purchase Warrants issued July
Associates, Inc. 7, 1994 which provide for the
holder's purchase of up to 100,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
shares based upon a formula
purchase price.
Joseph R. Papa President and 30,000 options per year on each of
Chief Operating 9/1/97, 9/1/98, and 9/1/99, at the
Officer greater of fair market value on
the date of the grant or $15,
$20, $25, respectively.
</TABLE>
See also attached sheets
5. Section 5.18
See Schedule V.E.1.
6. Section 5.24
See Schedule V.E.2.
2
<PAGE>
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. Rosenberg v. WellCare HMO On October 13, 1995, Justin Rosenberg,
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. Errol Nadler, 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.
<PAGE>
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.
2
<PAGE>
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.
