<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
April 8, 1998 (April 1, 1998)
COVENTRY HEALTH CARE, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware N/A 52-2073000
- - ----------------------------- --------------------- ----------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
6705 Rockledge Drive, Suite 100
Bethesda, Maryland 20817
- - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (301) 581-0600
Coventry Corporation
6705 Rockledge Drive, Suite 100
Bethesda, Maryland 20817
- - --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. Acquisition or Disposition of Assets
- - --------------------------------------------------------------------------------
Effective April 1, 1998, Coventry Corporation, a Tennessee corporation
("Coventry"), consummated the transactions (the "Combination") contemplated by
the Capital Contribution and Merger Agreement dated as of November 3, 1997 by
and among Coventry, Coventry Health Care, Inc., a Delaware corporation ("CHC"),
Coventry Health Care, Inc., a Maryland corporation, Principal Health Care, Inc.
("PHC"), Principal Holding Company, and Principal Mutual Life Insurance Company
("Principal Mutual"). As a result of the Combination, the HMO operations of PHC,
an indirect subsidiary of Principal Mutual, were combined with the assets and
operations of Coventry. The Combination was approved at a special meeting of
shareholders of Coventry on March 31, 1998.
Pursuant to the terms of the Combination, Coventry Merger Corporation,
a Tennessee corporation and wholly owned subsidiary of CHC was merged with and
into Coventry (the "Merger") whereby (i) each issued and outstanding share of
Coventry's common stock, par value $0.01 per share ("Coventry Common Stock"),
was converted into one share of CHC's common stock, par value $0.01 per share
(the "CHC Common Stock"), and one right (collectively, the "CHC Rights") issued
pursuant to a rights agreement between CHC and ChaseMellon Shareholder Services,
LLC; (ii) each right issued under that certain Rights Agreement, dated February
7, 1996 and amended as of May 7, 1997, by and between Coventry and ChaseMellon
Shareholder Services, LLC, was canceled, retired, and ceased to exist; and (iii)
each of the outstanding convertible exchangeable subordinated promissory notes
(the "Coventry Convertible Notes") issued by Coventry under that certain Amended
and Restated Securities Purchase Agreement, dated May 7, 1997, was converted
into convertible notes of CHC (the "CHC Convertible Notes") containing
substantially the same terms and conditions as the Coventry Convertible Notes.
Coventry shareholders received approximately 33 million shares of CHC Common
Stock and CHC Rights, constituting 60% of the total of (i) the outstanding
shares of CHC Common Stock and (ii) the shares of CHC Common Stock issuable upon
conversion of the CHC Convertible Notes.
Concurrently with the Merger, PHC effected a capital contribution (the
"Capital Contribution") to CHC of certain assets, including the issued and
outstanding stock of certain of PHC's wholly-owned subsidiaries (including
health maintenance organization subsidiaries which have operations in sixteen
states, including Alabama, Delaware, Florida, Georgia, Illinois, Indiana, Iowa,
Kansas, Louisiana, Maryland, Missouri, Nebraska, New Jersey, North Carolina,
Pennsylvania and South Carolina), all real or personal property owned or leased
by PHC, all accounts receivable, cash, securities, contract rights, prepaid
liabilities, and all other assets except for specified excluded assets (the PHC
assets being transferred, collectively, the "PHC Assets"); CHC assumed all of
the liabilities of PHC, including all liabilities of PHC relating to the PHC
Assets and the stock options issued under PHC's 1997 Non-Qualified Stock Option
Plan but excluding liabilities under PHC's other employee benefit plans, tax
liabilities with respect to the pre-closing operations of PHC and its
subsidiaries, liabilities relating to certain assets of PHC not transferred to
CHC and certain other specified excluded
2
<PAGE> 3
liabilities. CHC issued to PHC approximately 26 million shares of CHC Common
Stock and associated CHC Rights, constituting 40% of the total of (i) the
outstanding shares of CHC Common Stock and (ii) the shares of CHC Common Stock
issuable upon conversion of the CHC Convertible Notes.
With the completion of the Combination, the CHC Common Stock and CHC
Rights issued to Coventry's shareholders shall be deemed to be registered under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "34'
Act"), pursuant to Rule 12g-3(a) of the Securities and Exchange Commission. The
CHC Common Stock will trade on The Nasdaq National Market under the symbol
"CVTY" (although the symbol will be "CVTYD" for a 20 day period).
Item 7. Financial Statements and Exhibits
- - --------------------------------------------------------------------------------
(a) The audited financial statements of PHC for each of the
three years ended December 31, 1997, required by this Item 7(a), are included
herein on pages F-1 through F-28.
(b) The pro forma financial information required by this Item
7(b) is included herein on pages F-29 through F-32.
(c) Exhibits.
2.1 Capital Contribution and Merger Agreement dated as of November 3, 1997
("Combination Agreement") by and among Coventry Corporation, Coventry
Health Care, Inc., a Delaware corporation, Coventry Health Care, Inc., a
Maryland corporation, Principal Mutual Life Insurance Company, Principal
Holding Company and Principal Health Care, Inc. (Incorporated by
reference to Exhibit 2.1 to Form S-4, as amended, Registration Statement
No. 333-45821, of Coventry Health Care, Inc.).
2.2 Agreement and Plan of Merger by and among Coventry Corporation, Coventry
Health Care, Inc. and Coventry Merger Corporation (Incorporated by
reference to Exhibit 2.2 to Form S-4, as amended, Registration Statement
No. 333-45821, of Coventry Health Care, Inc.).
4.1 Specimen Common Stock Certificate
4.2 Rights Agreement dated March 30, 1998 between Coventry Health Care, Inc.
and ChaseMellon Shareholder Services, L.L.C.
4.3 Amended and Restated Securities purchase Agreement dated as of April 2,
1997, by and among Coventry Corporation, Warburg, Pincus Ventures, L.P.
("Warburg") and Franklin Capital Associates III, L.P., together with
Exhibit A (Form of Convertible Note), Exhibit B (Form of Warrant) and
Exhibit C (Form of Certificate of Designation of Series A Preferred
Stock) (Incorporated by reference to Exhibit 10 to Coventry Corporation
Form 8-K dated May 7, 1997).
4.4 Amended Form of Convertible Note (incorporated by reference to Exhibit
4.5 to Coventry Corporation Form 10-K dated March 24, 1998).
4.5 Common Stock Purchase Warrant dated as of April 1, 1998.
4.6 Form of Common Stock Purchase Warrant, as amended, of Coventry (assumed
by CHC as of April 1, 1998).
4.7 Consent of Warburg, Pincus Ventures, L.P. dated December 18, 1997.
4.8 Shareholders' Agreement dated as of April 1, 1998, by and among Coventry
Health Care, Inc., Principal Mutual Life Insurance Company, and Principal
Health Care, Inc.
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COVENTRY HEALTH CARE, INC.
Date: April 8, 1998 By: /s/ Dale B. Wolf
------------------------------
Dale B. Wolf
Chief Financial Officer
4
<PAGE> 5
Consolidated Financial Statements
Principal Health Care, Inc.
and Subsidiaries
Years ended December 31, 1997 and 1996
with Report of Independent Auditors
<PAGE> 6
Principal Health Care, Inc. and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1997 and 1996
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors................................................1
Consolidated Financial Statements
Consolidated Balance Sheets.................................................2-3
Consolidated Statements of Income.............................................4
Consolidated Statements of Stockholder's Equity...............................5
Consolidated Statements of Cash Flows.........................................6
Notes to Consolidated Financial Statements....................................7
</TABLE>
<PAGE> 7
Report of Independent Auditors
Board of Directors
Principal Health Care, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Principal
Health Care, Inc. and Subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholder's equity, and cash flows
for the years ended December 31, 1995, 1996, and 1997. These financial
statements are the responsibility of PHC's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Principal Health
Care, Inc. and Subsidiaries at December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for the years ended December
31, 1995, 1996, and 1997 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
March 2, 1998
F-1
<PAGE> 8
Principal Health Care, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $129,109,818 $127,677,238
Short-term investments 46,902,532 68,226,237
Premiums receivable, less allowance for doubtful
accounts of $10,235,091 in 1996 and $5,716,830 in 1997 26,184,159 22,545,898
Interest and other receivables 15,113,757 13,619,240
ASO receivable 5,202,890 3,094,725
Prepaid expenses and other assets 2,747,364 3,007,408
Due from Mutual 13,187,083 10,724,244
Deferred tax asset 11,359,402 8,647,605
----------------------------
Total current assets 249,807,005 257,542,595
Investments 60,588,463 64,096,594
Equity investment in associated companies 16,672,000 22,867,589
Property and equipment:
Furniture and equipment 12,969,092 12,238,138
Data processing equipment 29,916,905 24,741,026
Leasehold improvements 1,105,386 5,231,746
----------------------------
43,991,383 42,210,910
Less accumulated depreciation 19,586,859 18,837,777
----------------------------
24,404,524 23,373,133
Deferred tax asset, less current portion 743,508 2,346,843
Intangible assets:
Goodwill 124,214,754 117,310,151
Other intangible assets 12,989,373 8,164,770
----------------------------
137,204,127 125,474,921
Less accumulated amortization 26,651,892 23,505,187
----------------------------
110,552,235 101,969,734
----------------------------
Total assets $462,767,735 $472,196,488
============================
</TABLE>
See accompanying notes.
F-2
<PAGE> 9
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
-----------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Estimated claims payable (reported and unreported) $131,156,534 $125,582,899
Premium deficiency reserve 8,469,000 11,986,900
Accounts payable and accrued expenses 54,838,288 73,578,464
Line of credit due Mutual 22,000,000
Deferred tax liability 24,532 196,149
Current portion of notes payable and capital leases 1,398,223 925,549
Current portion of other long-term liabilities 225,000 471,388
-----------------------------
Total current liabilities 196,111,577 234,741,349
Profit-sharing payable 1,016,871 1,129,673
Payable to OPM 1,280,192 1,280,192
Notes payable and capital leases, less current portion 1,448,592 133,472
Deferred tax liability, less current portion 8,259,397 9,641,582
Other long-term liabilities, less current portion 174,200 658,167
Stockholder's equity:
Common stock, par value $5 and $.001 a share--5,000
and 27,000,000 authorized, 5,000 and 26,000,000
issued and outstanding, at December 31, 1996 and
1997, respectively 25,000 26,000
Additional paid-in capital 281,913,621 281,919,458
Retained deficit (27,756,591) (58,358,446)
Unrealized gains on available-for-sale securities, net of tax 294,876 1,025,041
-----------------------------
Total stockholder's equity 254,476,906 224,612,053
=============================
Total liabilities and stockholder's equity $462,767,735 $472,196,488
=============================
</TABLE>
See accompanying notes.
F-3
<PAGE> 10
Principal Health Care, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997
---------------------------------------------------
<S> <C> <C> <C>
Operating revenues:
Managed care premiums $574,359,628 $806,350,787 $887,554,350
PPO, contract, ASO and other non-risk fees 75,408,235 67,710,723 45,577,448
Other 1,568,511 1,524,371 927,205
---------------------------------------------------
Total operating revenues 651,336,374 875,585,881 934,059,003
Operating expenses:
Health benefits 519,975,132 740,972,490 771,151,678
Selling, general and administrative 166,126,151 196,357,591 211,929,353
Depreciation and amortization 11,649,066 15,745,326 15,249,713
Loss on impairment of goodwill 6,000,000
---------------------------------------------------
Total operating expenses 697,750,349 953,075,407 1,004,330,744
---------------------------------------------------
Operating loss (46,413,975) (77,489,526) (70,271,741)
Investment income 11,464,836 14,161,963 14,297,803
Gain on investment and equity in net income of
associated companies 2,572,000 5,481,046
Gain on sale of subsidiaries 8,004,282
Other income, net 1,726,939 159,881 782,836
---------------------------------------------------
Loss before income tax benefit (33,222,200) (60,595,682) (41,705,774)
Benefit from income tax 10,528,964 20,187,412 10,319,767
---------------------------------------------------
Net loss $(22,693,236) $(40,408,270) $(31,386,007)
===================================================
</TABLE>
See accompanying notes.
F-4
<PAGE> 11
Principal Health Care, Inc. and Subsidiaries
Consolidated Statements of Stockholder's Equity
<TABLE>
<CAPTION>
ADDITIONAL RETAINED UNREALIZED
COMMON PAID-IN EARNINGS NET GAIN
STOCK CAPITAL (DEFICIT) ON SECURITIES TOTAL
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $25,000 $176,235,300 $ 35,344,915 $211,605,215
Cash capital contribution from Holding 44,200,000 44,200,000
Net loss (22,693,236) (22,693,236)
Net change in unrealized gains on
available-for-sale securities, net of
income taxes of $640,505 $1,189,510 1,189,510
-----------------------------------------------------------------------
Balance at December 31, 1995 25,000 220,435,300 12,651,679 1,189,510 234,301,489
Cash capital contribution from Holding 50,378,321 50,378,321
Non-cash capital contribution from Holding 11,100,000 11,100,000
Net loss (40,408,270) (40,408,270)
Net change in unrealized gains on
available-for-sale securities, net of
income taxes of $481,724 (894,634) (894,634)
-----------------------------------------------------------------------
Balance at December 31, 1996 25,000 281,913,621 (27,756,591) 294,876 254,476,906
Cash capital contribution from Holding 42,059,334 42,059,334
Transfer of AHP to Holding (20,000,000) (1,103,759) (21,103,759)
Transfer of Admar to Holding (22,052,497) 1,887,911 (20,164,586)
Conversion of 5,000 shares ($5 par) for
26,000,000 shares ($.001 par) 1,000 (1,000)
Net loss (31,386,007) (31,386,007)
Net change in unrealized gains on
available-for-sale securities, net of
income taxes of $393,121 730,165 730,165
-----------------------------------------------------------------------
Balance at December 31, 1997 $26,000 $281,919,458 $(58,358,446) $1,025,041 $224,612,053
=======================================================================
</TABLE>
See accompanying notes.
F-5
<PAGE> 12
Principal Health Care, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1996 1997
-------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(22,693,236) $(40,408,270) $(31,386,007)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Depreciation and amortization 11,649,066 15,745,326 15,249,713
Loss on disposal of fixed assets 4,267,680 195,987 1,979,849
Net amortization of investment discount (premium) 268,390 (444,314) (634,429)
Gain on investment and equity in net income of
associated companies (2,572,000) (5,481,046)
Gain on sale of subsidiaries (8,004,282)
Loss on impairment of goodwill 6,000,000
Deferred taxes (6,375,346) (323,433) 3,227,198
Premium deficiency 5,633,607 336,000 1,218,500
Deferred rent expense 2,166,837
Changes in operating assets and liabilities:
Premiums receivable, net (5,687,670) (3,610,433) 5,094,174
Interest and other receivables (14,295,368) 13,361,937 1,125,215
Prepaid expenses and other assets (503,610) (14,676) (774,220)
Due from/to Mutual 4,354,669 5,688,986 4,287,266
Estimated claims payable 19,303,820 35,630,671 (13,263,548)
Accounts payable, accrued expenses, and other
liabilities (1,964,813) 11,168,728 12,215,631
-------------------------------------------------
Net cash (used in) provided by operating activities (6,042,811) 34,754,509 (6,979,149)
INVESTING ACTIVITIES
Purchases of property and equipment (18,336,381) (7,509,201) (9,230,626)
Purchases of investments (available-for-sale) (61,086,972) (63,924,048) (38,089,260)
Proceeds from sale and maturity of investments
(available-for-sale) 50,261,005 13,094,595
Proceeds from maturity of investments
(held-to-maturity) 7,579,875
Proceeds from sale of PHCMA 4,185,928
Proceeds from sale of PBHC 7,000,000
Acquisitions, net of cash acquired (45,367,259) (23,984,840)
Deferred organization and network development costs (7,620) (1,968,550) (398,569)
-------------------------------------------------
Net cash used in investing activities (71,851,098) (68,508,053) (47,422,772)
FINANCING ACTIVITIES
Proceeds from capital contributions 44,200,000 50,378,321 42,059,334
Return of capital and dividend of AHP to Holding (8,725,864)
Return of capital of Admar to Holding (1,693,974)
Proceeds from draw on line of credit 22,000,000
Principal payments on capital lease obligations (151,447) (183,263) (102,261)
Issuance of notes payable 3,345,037 599,703
Principal payments on notes payable (904,808) (1,669,860) (1,411,051)
Additions to long-term liabilities 387,060 1,125,854
Payment of long-term liabilities (3,029,131) (282,697)
-------------------------------------------------
Net cash provided by financing activities 46,488,782 46,482,830 52,969,341
-------------------------------------------------
(Decrease) increase in cash and cash equivalents (31,405,127) 12,729,286 (1,432,580)
Cash and cash equivalents at beginning of year 147,785,659 116,380,532 129,109,818
-------------------------------------------------
Cash and cash equivalents at end of year $116,380,532 $129,109,818 $127,677,238
=================================================
</TABLE>
See accompanying notes.
F-6
<PAGE> 13
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995, 1996, and 1997
1. ORGANIZATION
Principal Health Care, Inc. was incorporated in Iowa on January 7, 1987.
Principal Health Care, Inc. and its subsidiaries (collectively referred to
herein as PHC) are wholly owned subsidiaries of Principal Holding Company, Inc.
(Holding), which is wholly owned by Principal Mutual Life Insurance Company
(Mutual).
PHC was formed to manage and insure the health care benefits of subscribers
under employee benefit plans in the private and public sectors nationwide. PHC's
primary operations are currently located in Florida, Iowa, Illinois, and Texas.
Services are typically provided under one-year contracts with employers under
which PHC will insure the health benefits of the employees that select HMO
coverage. The HMO members also receive services under the standard contract that
includes utilization management, network management and claims services. In
addition, PHC operates PPOs and proprietary health care provider networks and
offers Administrative Services Only Contracts (ASO) with employee benefit plans
to provide a full range of health care options without assuming insurance risk,
as well as combined HMO and indemnity products such as Triple Option Plans in
conjunction with Mutual.
On November 3, 1997, a definitive Capital Contribution and Merger Agreement (the
Merger Agreement) was entered into by and among Mutual, Holding, PHC, Coventry
Corporation (Coventry), and Coventry Health Care, Inc. (CHC), a newly formed
Maryland Corporation. Pursuant to the Merger Agreement, Coventry's shareholders
will effect a one for one tax free merger (Merger) with CHC and PHC will effect
a capital contribution (the Capital Contribution) to CHC of all of the PHC
Assets except for specified excluded assets and all of the PHC Liabilities
except for specified excluded liabilities. In addition, Mutual will enter into
certain agreements for CHC to provide management services for certain of
Mutual's indemnity business and marketing services in the CHC market areas.
Under the Merger, CHC will issue Coventry's shareholders approximately 53
million shares of CHC Common Stock, representing approximately 60% of CHC's
outstanding equity. Under the Capital Contribution, CHC will issue to PHC
approximately 26 million shares of CHC Common Stock representing approximately
40% of CHC's outstanding equity.
F-7
<PAGE> 14
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION (CONTINUED)
The transaction will be treated as a purchase of PHC by CHC, the successor to
Coventry. Coventry is a managed care company with approximately $1.2 billion in
1997 revenues and 915,000 members in 6 markets in Pennsylvania, Ohio, West
Virginia, Missouri, Illinois, and Virginia. The transaction is expected to close
in the first quarter of 1998.
2. ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Principal Health
Care, Inc. and its subsidiaries, all of which are wholly owned. Significant
intercompany accounts and transactions have been eliminated.
Estimation Process
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change in the future as
more information becomes known, which could affect the amounts reported and
disclosed herein.
Cash Equivalents
PHC considers all highly liquid investments with a maturity of three months or
less when purchased to be cash equivalents. The carrying amounts reported in the
accompanying balance sheets for these financial instruments approximate their
fair values.
Investments
Investments are classified as available-for-sale and are stated at fair value,
with the unrealized gains and losses, net of tax, reported as a separate
component of stockholder's equity. These investments also include restricted
statutory deposits. The cost of securities sold is based on the specific
identification method. Realized gains or losses are recorded in investment
income.
Equity investments held by PHC that represent in excess of 20% of the investees
common stock are accounted for by the equity method of accounting. (See Note 4)
F-8
<PAGE> 15
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, which vary
from three to seven years.
Long-Lived Assets
Effective January 1, 1996, PHC adopted Statement of Financial Accounting
Standards Number 121 (SFAS 121), "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of." Following the criteria set
forth in SFAS 121, long-lived assets to be held are reviewed by PHC for events
or changes in circumstances which would indicate that the carrying value may not
be recoverable. In making that determination, PHC considers a number of factors,
including undiscounted future estimated cash flows, prior to interest expense.
The Company measures an impairment loss by comparing the fair value of the
assets to its carrying value. Fair values are measured by using market prices
for similar assets, if available, or discounted future estimated cash flows,
prior to interest expense. Assets held for sale are recorded at the lower of the
carrying amount of fair value, less any costs associated with disposition.
Intangible Assets
Goodwill has been accumulated in the purchase of PHC subsidiaries. The recorded
amount represents the excess of the purchase price of those subsidiaries over
the net fair value of the assets and liabilities acquired that can be identified
and valued. Goodwill is amortized over its estimated useful life. The remaining
unamortized goodwill balances at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
ESTIMATED ACCUMULATED
USEFUL LIFE GOODWILL AMORTIZATION NET BOOK VALUE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than 10 $ 1,941,745 $ 1,941,745
10 2,950,209 2,830,197 $ 120,012
15 16,895,752 2,364,000 14,531,752
25 41,300,000 413,000 40,887,000
40 54,222,445 11,270,998 42,951,447
------------------------------------------------------
Total $117,310,151 $18,819,940 $98,490,211
======================================================
</TABLE>
F-9
<PAGE> 16
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Intangible Assets (continued)
Other intangible assets consist of organization costs, the allocated value of
acquired employer groups and provider contracts, and operating leases and
origination costs. These costs are generally being amortized over a period of
five years.
In accordance with SFAS 121 and APB 17, PHC periodically evaluates the
recoverability of goodwill and intangible assets and the reasonableness of the
related lives in the same manner as that used to evaluate the impairment of
other long-lived assets.
On February 13, 1998, PHC entered into an amended letter of intent outlining the
significant terms of a proposed sale of Principal Health Care of Texas, Inc.
(PHC of Texas) If the transaction is completed in accordance with the letter of
intent, PHC will realize a net loss of approximately $6 million. This
anticipated loss has been deemed to be evidence of an impairment of recorded
goodwill for PHC of Texas. The impairment has been reflected in the 1997
financial statements. For the year ended December 31, 1997 PHC of Texas reported
revenues of approximately $57.2 million and a net loss of approximately $4.9
million.
Estimated Claims Payable and Loss Adjustment Expense
PHC provides for the liability arising from services rendered to members but
unpaid at year-end, including the future costs of settling those claims, based
upon the experience of PHC and cost-per-member trends. Although considerable
variability is inherent in such estimates, management believes that the
liability is adequate. PHC also establishes reserves, if required, for the
probability that anticipated future health care and maintenance costs under the
group of existing contracts will exceed anticipated future premiums and
stop-loss insurance recoveries on those contracts. The estimated future costs
include fixed and variable, direct and allocable, indirect costs.
Contracts are grouped in a manner consistent with PHC's method for establishing
premium rates. Any required revisions to these estimates are reflected in the
operations of the period in which such revisions are determined.
F-10
<PAGE> 17
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Income Recognition
Premium revenue is recognized in the month that members are entitled to health
care services. Contract revenue is recognized based on contracted percentage
rates of the amount of cost savings realized by payor clients which access PHC's
health care provider network. In addition, PPO revenue is earned through monthly
administrative fees based on a per-employee rate multiplied by the current
number of participants in the plan.
PHC has contractual arrangements with the Office of Personnel Management (OPM)
to provide health services to federal employees on an experience or
community-rated basis. Such contracts are generally terminable by either party
with sixty days' notice.
Under the experience-rated contracts, PHC is permitted to draw funds from a line
of credit to the extent that administrative and claims expenses have been paid.
PHC's policy is to account for this arrangement as an ASO contract, as the OPM
is effectively self-insured for these federal employees, and report only
administrative fees earned in the financial statements.
Under the community-rated contracts, revenue is recognized based upon a
predetermined monthly premium based on anticipated community rates. Anticipated
contractual rate adjustments, made to reflect actual community rates, are
recorded by PHC in the annual contract year to which they relate.
In addition, under ASO and other non-risk contracts, PHC provides administrative
and claims processing services to certain groups without retaining any risk of
claim loss. Accordingly, PHC reflects only the contracted fee for services in
its financial statements.
Income Taxes
PHC is taxed at corporate rates based on existing tax laws and included in the
consolidated federal and state returns filed by Mutual. The income tax provision
includes federal and state income taxes both currently payable and deferred
because of differences between financial reporting and tax bases of assets and
liabilities. Deferred income tax assets or liabilities are measured based on
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
F-11
<PAGE> 18
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income," which is
effective for fiscal years beginning after December 15, 1997. SFAS 130 requires
that changes in the amounts of certain items, including gains and losses on
certain securities, be shown in the financial statements as a part of
Comprehensive Income. Management does not believe that adoption of this standard
will have a material effect on its consolidated financial statements.
The FASB also issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." This standard requires that a public business
enterprise report financial descriptive information about its reportable
operating segments. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate resources and in
assessing performance. SFAS No. 131 also requires that all public business
enterprises report information about the revenues derived from the enterprise's
products or services (or groups of similar products or services), about the
countries in which the enterprise earns revenues and holds assets and about
major customers regardless of whether that information is used in making
operating decisions. This statement is effective for financial statements for
periods beginning after December 15, 1997. Management does not believe that
adoption of this standard will have a material effect on its consolidated
financial statements.
F-12
<PAGE> 19
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. ACQUISITION AND DISPOSAL OF SUBSIDIARIES
The following table summarizes PHC's acquisition of wholly owned subsidiaries
over the last three years. Each acquisition listed was accounted for as a
purchase. The results of operations of the respective subsidiary are included in
the consolidated financial statements of PHC commencing upon the closing of the
transaction. Intangible assets acquired in the transactions are being amortized
over periods of ten to forty years.
<TABLE>
<CAPTION>
INTANGIBLE
DATE DESCRIPTION OF BUSINESS NET CASH TOTAL COST ASSETS
ACQUIRED PAID ACQUIRED
- - ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mar - 96 Admar Group, Inc., a national
proprietary healthcare
provider network $21,590,000 $25,320,000 $20,100,000
Mar - 96 MetraHealth Care Plan of St.
Louis, Inc., a 31,000 member
HMO operating in Missouri $18,862,650 $23,732,650 $16,788,750
Oct - 97 PacifiCare Health Plan
Administrators, Inc., a 54,000
member HMO operating in Illinois $28,832,090 $41,300,000 $41,300,000
</TABLE>
Acquisition of MetraHealth
The acquisition of MetraHealth Care Plan of St. Louis, Inc. was subject to an
escrow agreement whereby $9,200,000 was being held in escrow to reimburse PHC
for unfavorable changes, if any, in the total number of enrollees through the
settlement date. The amount due to PHC based on the settlement of enrollment was
determined to be approximately $4.9 million in March 1997. Final resolution of
the settlement and other financial transition issues was accomplished in
December 1997. The actual settlement was received in December 1997, and the
goodwill related to the acquisition was adjusted accordingly.
Acquisition of PacifiCare Health Plan Administrators
In October 1997, PHC entered into a stock purchase agreement with PacifiCare
Health Plan Administrators, Inc. to acquire all of the outstanding shares of
capital stock
F-13
<PAGE> 20
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. ACQUISITION AND DISPOSAL OF SUBSIDIARIES (CONTINUED)
Acquisition of PacifiCare Health Plan Administrators (continued)
of FHP of Illinois, Inc. The final purchase price is contingent on an audit of
the net assets acquired and changes in the total number of enrollees from
acquisition to settlement. The final purchase price is expected to be settled in
the first quarter of 1998.
Purchase Contingencies
The purchase contracts related to three PHC subsidiaries included agreements to
share a portion of the net profits of those acquired companies with the previous
owners for a period of years. Amounts to be paid under these contracts are
expensed as earned. The subsidiaries with such agreements are a follows:
<TABLE>
<CAPTION>
REMAINING LIFE OF
PERCENTAGE OF NET PROFIT THE AGREEMENT AT DATE
TO BE SHARED DECEMBER 31, 1997 PAYABLE
-------------------------------------------------------------
<S> <C> <C> <C>
PHC of Florida, Inc. 15% of profit related to 3 years yearly
members selecting certain
primary care physicians
PHC of Texas, Inc. 10% 2 years yearly
PHC of Georgia, Inc. 10% 7 years 12/31/99 and
12/31/04
</TABLE>
PHC of Delaware, Inc. has a similar agreement related to the extension of a
noncompete agreement with the previous owners of the plan. The agreement
requires PHC of Delaware, Inc. to share 10% of their cumulative net profits to
be paid on October 1, 1998. Amounts accrued under this agreement are charged to
earnings in the period in which the profits are generated.
Sale of Principal Behavioral Health Care
On September 26, 1997, PHC executed a stock purchase agreement with American
Psych Systems Inc. (APS), to sell all of the common stock of Principal
Behavioral Health Care, Inc. (PBHC), for $7,000,000 in cash and 2,705,182 shares
of APS common stock. PHC retained all accounts receivable and substantially all
liabilities of PBHC relating to transactions prior to the date of escrow.
F-14
<PAGE> 21
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. ACQUISITION AND DISPOSAL OF SUBSIDIARIES (CONTINUED)
Sale of Principal Behavioral Health Care (continued)
Concurrent this transaction, PHC's HMO subsidiaries entered into an agreement
with APS whereby APS will continue to provide behavioral health services to
those subsidiaries for a period of ten years at substantially the same terms and
conditions to those in existence prior to the acquisition. After five years, the
agreement is cancelable without cause by PHC with 90 days notice and subject to
a partial return of the original purchase price.
The transaction resulted in a gain of approximately $4.6 million.
Sale of Principal Health Care of the Mid-Atlantic
On December 31, 1997, PHC executed a stock purchase agreement to sell all of the
common stock of Principal Health Care of the Mid Atlantic, Inc. (PHCMA), for
approximately $8.3 million in cash. PHC retained through the assignment of
contracts all employer groups located in Baltimore Maryland. In addition PHC
retained all receivables accrued through the closing date, certain fixed assets
and all cash held by PHCMA in excess of amounts necessary to meet statutory
minimum net worth requirements.
The final purchase price will be contingent upon the adequacy of the liability
for claims incurred but not reported as of the close date and any unfavorable
changes in the total number of enrollees in employer groups from acquisition to
settlement. An escrow agreement was entered into that provides for approximately
$823,000 to be held in an interest bearing account to be settled December 31,
1998.
The transaction resulted in a gain of approximately $3.4 million.
Transfers to Holding
In July 1997, PHC transferred to Holding its ownership of America's Health Plan,
Inc. The transaction was accounted for as a dividend and return of capital.
In October 1997, PHC transferred to Holding its ownership in the Admar Group,
Inc. The transaction was accounted for as a return of capital.
F-15
<PAGE> 22
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. ACQUISITION AND DISPOSAL OF SUBSIDIARIES (CONTINUED)
Proforma Results
Proforma consolidated revenue and net income of PHC, assuming the above
described acquisitions, disposals and transfers each occurred at the beginning
of the year preceding the respective transactions are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-----------------------------------------------------------
<S> <C> <C> <C>
Total revenue $ 737,717,204 $950,743,599 $976,588,554
===========================================================
Net loss $ (18,463,660) $(39,072,251) $(25,026,591)
===========================================================
</TABLE>
4. INVESTMENTS
The following is a summary of investments classified as available-for-sale:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Certificates of deposit $ 5,632,196 $ 5,632,196
Money market accounts 839,604 839,604
Corporate bonds 16,288,540 $ 237,438 $ (56,414) 16,469,564
U. S. government securities 84,276,998 508,053 (235,420) 84,549,631
-----------------------------------------------------------------------
$107,037,338 $ 745,491 $(291,834) $107,490,995
=======================================================================
DECEMBER 31, 1997
Certificates of deposit $ 5,832,196 $ 5,832,196
Money market accounts 1,223,102 1,223,102
Corporate bonds 15,497,565 $ 366,160 $ (8,763) 15,854,962
U. S. government securities 108,192,978 1,219,593 109,412,571
-----------------------------------------------------------------------
$130,745,841 $1,585,753 $ (8,763) $132,322,831
=======================================================================
</TABLE>
Fair values of these investments have been determined by PHC from independent
quotations.
F-16
<PAGE> 23
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (CONTINUED)
The amortized cost and fair values of the available-for-sale investments at
December 31, 1997, by expected maturity, are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------------------------------
<S> <C> <C>
Due in less than one year $ 75,672,968 $ 75,706,809
Due in one through five years 15,099,026 15,296,688
Due after five years through ten years 2,636,855 2,785,859
Due after ten years 37,336,992 38,533,475
-------------------------------
$130,745,841 $132,322,831
===============================
</TABLE>
There were no sales of securities during the year ended 1995. PHC recognized
gross realized gains of approximately $960,000 and $2,300 and gross realized
losses of approximately $77,000 and $238,000 on securities sold during the years
ended December 31, 1996 and 1997, respectively, which were based on the original
cost of the investment and the selling price.
Investment in UP&UP
On June 10, 1996, PHC received one share of UP & UP preferred stock in the form
of a capital contribution from Mutual. On July 2, 1996 UP&UP issued 2.76 million
shares of common stock in an initial public offering (IPO). Immediately
preceding the IPO, PHC converted its preferred stock into 4,400,000 shares or
50% of UP & UP's then outstanding common stock. At the completion of the
transaction, PHC owned approximately 38.1% of the common stock of UP & UP, with
a carrying value of approximately $14,080,000 and a fair value based on the
listed stock price of approximately $48,400,000. The amount contributed to PHC
was reported at Mutual's historical book value, adjusted to reflect their
proportionate share of the IPO proceeds in excess of the proportionate net book
value of the shares sold in the IPO.
At December 31, 1996 and 1997 PHC's investment in UP & UP had a fair value of
approximately $60,500,000 and $84,700,000, respectively, which was based on the
published market price of its common stock.
F-17
<PAGE> 24
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. INVESTMENTS (CONTINUED)
Investment in UP&UP (continued)
Summary financial information for UP & UP the year ended December 31:
<TABLE>
<CAPTION>
1996 1997
-----------------------------------
<S> <C> <C>
Current assets $35,200,000 $35,300,000
Non current assets 18,100,000 47,200,000
Current liabilities 7,000,000 10,800,000
Non current liabilities 1,000,000 13,400,000
Operating revenue 35,400,000 61,000,000
Operating expenses 18,600,000 37,100,000
Income before taxes 17,800,000 25,400,000
Net income 10,600,000 15,000,000
</TABLE>
Investment in APS
As a term of the sale of PHCMA, PHC received 17% of the common stock of APS
which PHC reported at a carrying value of approximately $700,000 which
represented 17% of the assets sold to APS. APS is privately held and as such
there is no market value for its stock.
F-18
<PAGE> 25
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. REINSURANCE
PHC carries reinsurance coverage with Mutual and another insurance carrier for
instances when medical service costs for an individual member exceed various
contracted amounts in a one-year period. Reinsurance premiums for 1995, 1996 and
1997 were approximately $11,812,000, $18,565,000, and $17,927,000, respectively.
Reinsurance recoveries for 1995, 1996 and 1997 were approximately $14,324,000,
$16,167,000, and $15,974,000, respectively, and are included as an offset to
hospitalization expense. PHC is contingently liable for reinsured losses to the
extent that the reinsurance companies cannot meet their obligations under the
reinsurance contracts. To minimize its exposure to significant losses from
reinsurer insolvencies, the Company evaluates the financial condition of its
reinsurers on an annual basis. Mutual, the primary reinsurer, is currently rated
an A+ by the A.M. Best Company, and maintains an AA+ claims paying ability
rating by Standard & Poor's. Accordingly, the reinsurance coverage with Mutual
was not considered to be a significant credit risk to PHC.
6. OPERATING LEASES
PHC leases office facilities and equipment under operating leases which include
certain abatement and escalation clauses. PHC subleases a small portion of its
office space and receives monthly rental payments. Future minimum lease payments
under these leases are as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
-----------
<S> <C>
1998 $10,888,818
1999 8,400,593
2000 5,032,018
2001 4,417,163
2002 3,773,043
Thereafter 13,014,517
-----------
Total minimum lease payments $45,526,152
===========
</TABLE>
Total rent expense was approximately $7,811,000, $11,571,000, and $14,389,000
for 1995, 1996, and 1997, respectively.
F-19
<PAGE> 26
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. NOTES PAYABLE AND CAPITAL LEASES
PHC has multiple promissory notes payable totaling $1,059,021 at December 31,
1997, bearing interest at 8.3%, with principal and interest payments due monthly
through 1999. The carrying values of these notes approximate their fair values.
Aggregate principal maturities and payments on notes payable are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 925,549
1999 133,472
----------
1,059,021
Less current portion (925,549)
----------
Total $ 133,472
==========
</TABLE>
PHC recognized and paid approximately $61,000, $31,000, and $39,000 of interest
expense on capital leases in 1995, 1996, and 1997, respectively. Amortization of
the assets related to capital leases is included in depreciation and
amortization expense. As of December 31, 1997 all capital leases had expired.
8. STOCKHOLDER'S EQUITY
On December 18, 1997, PHC increased the number of authorized shares of common
stock to 27,000,000 and converted its then outstanding 5,000 shares of common
stock having a par value of $5.00 per share to 26,000,000 shares of common stock
having a par value of $.001 per share issued and outstanding. The 1,000,000
un-issued shares are reserved for issuance under the Stock Option Plan.
Stock Option Plan
In 1997 PHC adopted a non qualified stock option plan whereby PHC may grant
options and other rights with respect to PHC common stock to officers, other key
employees, consultants and outside directors of PHC. A total of 1,000,000 shares
of PHC common stock are reserved for issuance under this plan. As of December
31, 1997, PHC had issued options to purchase a total of 750,000 shares of PHC
common stock at an option price per share equal to $14.50. None of the options
granted under this plan are currently vested and exercisable.
F-20
<PAGE> 27
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. STOCKHOLDER'S EQUITY (CONTINUED)
Stock Option Plan (continued)
PHC follows APB No. 25, under which no compensation cost has been recognized in
connection with stock option grants. Had compensation cost been determined
consistent with FASB Statement No. 123, effective January 1, 1997, the effect on
PHC's net income would have been immaterial.
9. RELATED PARTY TRANSACTIONS
Certain administrative functions related to human resources, legal, tax,
financial management, actuarial, and information systems support are provided to
PHC by Mutual. Certain local marketing, provider network development and
management and other consulting services related managed care and other health
products are provided by PHC to Mutual. all direct costs and an allocation of
indirect costs of performing these functions are charged from the organization
providing the services to the organization receiving the services. Management
believes that the allocations are reasonable. The net cost to PHC resulting from
these arrangements amounted to $1,062,051, $912,856, and $2,496,952 in 1995,
1996, and 1997, respectively.
PHC periodically invests available cash in a demand deposit pooled investment
fund maintained by Mutual. PHC held approximately $1,950,000 and $277,000 in
this fund at December 31, 1996 and 1997, respectively. PHC earned approximately
$2,597,000, $220,000, and $118,000 on amounts invested in this fund during 1995,
1996, and 1997, respectively.
During 1997 PHC entered into a $25 million revolving credit agreement with
Mutual to facilitate PHC's business purpose. At December 31, 1997 PHC has a
balance of $22 million drawn against the line of credit.
PHC and Mutual entered into an agreement whereby both agreed to provide medical
benefits to employees and dependents of employer groups electing the Triple
Option Plan, a Mutual product. Mutual reimburses PHC for claims and capitation
expenses and pays an administrative fee to PHC for Triple Option members who
have selected one of
F-21
<PAGE> 28
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
PHC's HMO options. Administrative fees earned of approximately $10,717,000,
$11,791,000, and $8,089,000 are included in non-risk fee revenue in 1995, 1996,
and 1997, respectively.
In addition, Mutual pays PHC a fee for use of its provider network. These fees
paid by Mutual of approximately $15,778,000, $19,908,000, and $14,654,000 are
included in non-risk fee revenue in 1995, 1996, and 1997, respectively.
Cross-selling of PHC's HMO product and Mutual's indemnity product has resulted
in net expense of approximately $890,000 and $160,000 in 1995 and 1996,
respectively, and net revenue of $287,000 in 1997 which is included in
marketing, general and administrative expense.
PHC and Mutual have an agreement whereby employee assistance program services
are provided to certain Mutual members by PHC. Mutual pays an administrative fee
to PHC for these members. Administrative fees earned of approximately
$1,731,000, $4,504,000, and $3,376,000 are included in non-risk fee revenue in
1995, 1996, and 1997, respectively.
10. INCOME TAXES
PHC is taxed at corporate rates based on existing tax laws. PHC's taxable income
or loss is included in the consolidated federal income tax return filed by
Mutual and the consolidated State income tax returns filed by Mutual.
Mutual has adopted the policy of allocating current income tax expense and
benefits to members of the consolidated group based upon the subsidiaries' pro
rata contribution of taxable income or taxable losses. As of December 31, 1996,
and 1997, current federal taxes receivable of approximately $3,850,000, and
$8,271,000 are included in the balance due from Mutual, respectively. Taxes
refunded from Mutual during 1995, 1996, and 1997 were approximately $9,129,000,
$17,028,000, and $10,291,000 respectively.
F-22
<PAGE> 29
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The benefit from income taxes for the year ended December 31 consists of the
following:
<TABLE>
<CAPTION>
1995 1996 1997
------------------------------------------------
<S> <C> <C> <C>
Current taxes:
Federal $ (6,578,049) $(20,247,671) $(13,852,990)
State 2,385,973 432,285 306,025
Other 38,458 (48,593)
------------------------------------------------
(4,153,618) (19,863,979) (13,546,965)
Deferred taxes:
Federal (6,120,332) (310,496) 2,896,203
State (255,014) (12,937) 330,995
------------------------------------------------
(6,375,346) (323,433) 3,227,198
------------------------------------------------
Benefit from income taxes $(10,528,964) $(20,187,412) $(10,319,767)
================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of deferred tax assets and deferred tax liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1996 1997
-----------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 3,991,685 $ 2,233,457
Premium deficiency reserve 3,302,910 3,777,891
Discount on loss reserves 1,699,136 1,586,780
Deferred premiums 422,506 747,943
Other 2,686,673 2,648,377
------------------------------
Deferred tax assets 12,102,910 10,994,448
Deferred tax liabilities:
Difference in book to tax basis of equity in associated
company (4,552,080) (6,689,688)
Difference in book to tax basis of intangible assets (1,560,000) (666,643)
Difference in book to tax basis of property and equipment (1,087,791) (2,285,251)
Other (1,084,058) (196,149)
------------------------------
Deferred tax liabilities (8,283,929) (9,837,731)
==============================
Net deferred tax asset $ 3,818,981 $ 1,156,717
==============================
</TABLE>
F-23
<PAGE> 30
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. INCOME TAXES (CONTINUED)
The reconciliation of income tax from continuing operations at the U.S. federal
statutory tax rate for the year ended December 31 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate (35%) (35%) (35%)
State income taxes, net of federal tax benefit 5 1
Nondeductibility of goodwill 6 5 11
Loss on disposal of assets (6)
Other (2) (4) (1)
----------------------------
Effective tax rate (32%) (33%) (25%)
============================
</TABLE>
11. STATUTORY REQUIREMENTS
PHC is subject to various insurance regulations that require it to maintain
minimum amounts on deposit, minimum statutory net worth, and restricts the
payment of dividends without prior state approval in which PHC does business.
PHC has approximately $13,090,000 and $14,482,000 of investments held on deposit
with states and maintains at least minimum amounts of statutory net worth in
each of these states at December 31, 1996 and 1997, respectively.
Effective January 13, 1998, PHC's subsidiary, PHC of Illinois, Inc. received a
Corrective Action Order from the Illinois Department of Insurance whereby they
may no longer solicit or accept renewal business until certain corrective
actions relative to the subsidiary's ongoing financial condition are resolved.
Management believes corrective actions satisfactory to the Department of
Insurance can be put in place before the Corrective Action Order has any
significant negative impact on the subsidiary's revenue, cash flow or results
from operations.
12. EMPLOYEE BENEFIT PLANS
PHC has a defined qualified benefit pension plan covering substantially all of
its employees. The benefits are based on years of service and the employee's
compensation during the last five years of employment. PHC's funding policy is
to contribute annually the maximum amount that can be deducted for federal
income tax purposes. The actuarial cost method used in this plan is the entry
age normal-frozen initial liability method. Contributions are intended to
provide not only for benefits attributed to service to date but also for those
expected to be earned in the future.
F-24
<PAGE> 31
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the qualified plan's funded status and amounts
recognized in PHC's consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
1996 1997
---------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $2,952,706 and $7,371,825
as of December 31, 1996 and 1997, respectively $ (5,131,690) $ (7,371,825)
============================
Projected benefit obligation for service rendered to date (11,617,364) (13,935,124)
Plan assets at fair value, primarily listed stocks and
U.S. bonds 6,996,879 9,800,384
----------------------------
Projected benefit obligation in excess of plan assets (4,620,485) (4,134,740)
Unrecognized net gain from past experience different
from that assumed and effects of changes in assumptions (2,093,111) (5,267,633)
Prior service cost not yet recognized in net periodic cost 1,560,976 1,451,616
Unrecognized net asset amortized over 21.33 years,
net of amortization (55,436) (51,277)
----------------------------
Accrued pension cost included in accounts payable
and accrued expenses $ (5,208,056) $ (8,002,034)
============================
</TABLE>
Net periodic pension cost for the year ended December 31 included the following
components:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $2,287,034 $3,329,473 $ 3,570,690
Interest cost on projected benefit obligation 357,168 560,323 841,589
Actual return on plan assets (563,455) (860,085) (1,749,043)
Net amortization and deferral 373,583 446,767 1,220,116
---------------------------------------------
Net periodic pension cost $2,454,330 $3,476,478 $ 3,883,352
=============================================
</TABLE>
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation was 7.25% at December 31, 1995, 1996 and 1997. The expected long-term
rate of return on plan assets was 8.0% in 1995 and 1996, and 7.75% in 1997.
F-25
<PAGE> 32
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
On December 15, 1997, PHC announced that the qualified plan would be frozen.
Effective December 31, 1997 no additional benefits will be earned under the
qualified plan. On February 27, 1998 PHC notified the plan participants of its
intentions to terminate the plan as of April 30, 1998. The combined effect of
the curtailment and settlement of benefits is expected to be a gain of
approximately $10 million. As both actions were taken as a result of the
Coventry merger, the gain will be recognized as of the effective date of the
merger.
Beginning in 1995, PHC has a nonqualified defined benefit pension plan covering
highly compensated employees. The benefits are based on years of service and the
employee's compensation during the last five years of employment. The actuarial
cost method used in the plan is the entry age normal method. Contributions are
intended to provide not only for benefits attributed to service date, but also
for those expected to be earned in the future.
The following table sets forth the nonqualified plan's funded status and amounts
recognized in PHC's consolidated balance sheet at December 31:
<TABLE>
<CAPTION>
1996 1997
==============================
<S> <C> <C>
Actuarial present value of accumulated benefit obligation,
including vested benefits of $149,734 and $645,643 as of
December 31, 1996 and 1997, respectively $ (270,461) $ (852,929)
==============================
Projected benefit obligation for service rendered to date (1,568,608) (2,648,168)
Plan assets at fair value 4,273 2,997
------------------------------
Projected benefit obligation in excess of plan assets (1,564,335) (2,645,171)
Unrecognized net gain from past experience different
from that assumed and effects of changes in assumptions (432,609) 336,162
Prior service cost not yet recognized in net periodic cost (334,317) (307,334)
Unrecognized net asset amortized over 21.33 years,
net of amortization 1,352,736 1,248,679
------------------------------
Accrued pension cost included in accounts payable
and accrued expenses $ (978,525) $(1,367,664)
==============================
</TABLE>
F-26
<PAGE> 33
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net periodic pension cost for the year ended December 31 included the following
components:
<TABLE>
<CAPTION>
1995 1996 1997
----------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $252,160 $270,442 $278,331
Interest cost on projected benefit obligation 113,162 139,647 113,724
Actual return on plan assets 1,007 1,276
Net amortization and deferral 104,057 103,050 (4,192)
----------------------------------
Net periodic pension cost $469,379 $514,146 $389,139
==================================
</TABLE>
The weighted-average discount rate and rate of increase in future compensation
levels used in determining the actuarial present value of the projected benefit
obligation was 7.25% at December 31, 1995, 1996, and 1997. The expected
long-term rate of return on plan assets was 8.0%, 6.05%, and 5.00% in 1995,
1996, and 1997, respectively.
PHC's employees are also eligible for coverage in the savings plans of Mutual,
consisting of a 401(k) savings plan. Under the 401(k) defined contribution plan,
subject to certain limitations, employees may contribute up to 15% of their
salary to the plan, which PHC matches at a rate of 50% up to the first 4% of the
employee's contribution to a maximum of 2% of their total salary. Employees
become eligible for coverage in the plans upon achievement of certain age and
length of service requirements. PHC contributed approximately $419,000,
$668,000, and $879,000 to this plan in 1995, 1996, and 1997, respectively.
PHC's employees are also eligible for coverage in the defined benefit
postretirement medical and life benefit plan of Mutual. A portion of the costs
associated with PHC's participation in the plan was allocated from Mutual and
recorded during 1995, 1996, and 1997.
F-27
<PAGE> 34
Principal Health Care, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. CONTINGENCIES
PHC is involved in various legal actions arising in the normal course of
business. After review, including consultation with legal counsel, management
believes any ultimate liability that could arise from these actions would not
materially affect PHC's consolidated financial position or results of
operations.
14. YEAR 2000 ISSUE - UNAUDITED
PHC has developed a plan to modify its information technology to be ready for
the year 2000 and has begun converting critical data processing systems. Such
programs have not yet been completed and are subject to the failure of third
party vendors to comply with planned software revisions. The Parent does not
expect this project to have a significant effect on operations.
F-28
<PAGE> 35
PRO FORMA SELECTED FINANCIAL DATA
(UNAUDITED)
The unaudited pro forma statements of operating data for the year ended
December 31, 1997 have been prepared based on the historical operating
statements of Coventry and PHC, as adjusted for PHC to reflect the elimination
of certain businesses of PHC that are not included in the Business Combination
and thereafter adjusted to give pro forma effect to reflect the issuance of the
additional shares and warrant, as if the Business Combination and related
transactions had occurred and the additional shares and warrant had been issued
on January 1, 1997. The unaudited pro forma balance sheet data as of December
31, 1997 has been prepared based on the historical balance sheets of Coventry
and PHC, as adjusted to reflect the purchase of the PHC Business by Coventry.
The allocation of the purchase price to the acquired assets is tentative and
subject to the final determination of relative fair market value of the assets.
Management believes the final purchase price allocation will not vary materially
from the tentative allocation. The pro forma statements of operating data may
not be indicative of the future results of operations and what the actual
results of operations would have been had the Business Combination and related
transactions described above been effective January 1, 1997. The pro forma
selected financial data should be read in connection with the historical
financial statements and notes thereto of Coventry and PHC.
F-29
<PAGE> 36
PRO FORMA BALANCE SHEET DATA
DECEMBER 31, 1997
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PHC ADJUSTED PRO FORMA CONSOLIDATED
COVENTRY PHC ADJUSTMENTS PHC ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents............. $153,979 $127,677 $ (10,236)(a) $101,456 $(10,000)(e) $245,435
(15,985)(c)
Short-term investments................ 3,870 68,226 (3,359)(a) 64,867 68,737
Accounts receivable, net.............. 40,005 22,546 (3,317)(a) 19,229 59,234
Other receivables..................... 16,663 16,714 (155)(a) 16,559 33,222
Deferred income taxes................. 17,920 8,648 (2,689)(a) 5,959 23,879
Other current assets.................. 4,687 13,732 (741)(a) 2,062 6,749
(10,929)(c)
-------- -------- --------- -------- -------- ----------
Total current assets.......... 237,124 257,543 (47,411) 210,132 (10,000) 437,256
Long-term investments................. 76,288 86,965 (22,574)(a) 64,058 140,346
(333)(c)
Property and equipment, net........... 21,937 23,373 (500)(a) 22,873 44,810
Goodwill and intangible assets, net... 108,637 101,970 (19,488)(a) 82,482 124,416(e) 340,535
25,000(d)
Other assets.......................... 25,345 2,346 (466)(a) 1,880 27,255
-------- -------- --------- -------- -------- ----------
Total assets.................. $469,331 $472,197 $ (90,772) $381,425 $139,416 $ 990,172
======== ======== ========= ======== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Medical claim liabilities............. $118,022 $125,583 $ (11,051)(a) $114,532 $ $ 232,554
Accounts payable and other accrued
liabilities......................... 102,981 97,793 (3,383)(a) 64,291 167,272
(30,119)(c)
Deferred revenue...................... 39,093 10,439 (415)(a) 10,024 49,117
Current portion of long-term debt and
notes payable....................... 765 926 926 1,691
-------- -------- --------- -------- -------- ----------
Total current liabilities..... 260,861 234,741 (44,968) 189,773 450,634
Convertible exchangeable subordinated
notes............................... 42,042 42,042
Long-term debt........................ 43,677 134 134 43,811
Other long-term liabilities........... 4,933 12,710 (6,674)(a) 6,036 10,969
Stockholders' equity:
Common Stock, $.01 par value;
100,000,000 shares authorized;
33,712,665 issued (including 439,560
shares owned by a subsidiary),
33,273,105 shares outstanding in
1997 and 33,001,296 shares issued
and outstanding in 1996............. 337 26 (26)(c) 251(e) 588
Additional paid-in capital............ 146,426 281,919 (43,222)(a) 185,482 114,165(e) 471,073
(53,215)(c) 25,000(d)
Net unrealized investment gain........ 592 1,025 (1,025)(c) 592
Accumulated deficit................... (24,537) (58,358) 1,220 (a) (24,537)
57,138 (c)
Treasury stock, at cost, 439,560
shares.............................. (5,000) (5,000)
-------- -------- --------- -------- -------- ----------
Total stockholders' equity.... 117,818 224,612 (39,130) 185,482 139,416 442,716
-------- -------- --------- -------- -------- ----------
Total liabilities and
stockholders' equity........ $469,331 $472,197 $ (90,772) $381,425 $139,416 $ 990,172
======== ======== ========= ======== ======== ==========
</TABLE>
F-30
<PAGE> 37
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 30, 1997
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PHC ADJUSTED PRO FORMA CONSOLIDATED
COVENTRY PHC ADJUSTMENTS PHC ADJUSTMENTS PRO FORMA
---------- ---------- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Managed care premiums......... $1,208,149 $887,554 $(93,352)(a) $865,759 $ $2,073,908
71,557 (b)
Management services........... 20,202 46,505 (22,093)(a) 24,412 44,614
-------- -------- -------- -------- -------- ----------
Total operating
revenues............. 1,228,351 934,059 (43,888) 890,171 2,118,522
Operating expenses:
Health benefits............... 1,039,860 771,152 (80,313)(a) 758,244 1,798,104
67,405 (b)
Selling, general and
administrative.............. 170,017 211,929 (39,020)(a) 180,729 350,746
7,820 (b)
Depreciation and
amortization................ 12,735 21,250 (11,158)(a) 10,413 3,259(d) 31,485
321 (b) 5,078(e)
-------- -------- -------- -------- -------- ----------
Total operating
expenses............. 1,222,612 1,004,331 (54,945) 949,386 8,337 2,180,335
-------- -------- -------- -------- -------- ----------
Operating earnings (loss)....... 5,739 (70,272) 11,057 (59,215) (8,337) (61,813)
Other income, net............... 24,880 28,566 (6,773)(a) 23,274 48,154
1,481 (b)
Interest expense................ (10,275) (10,275)
-------- -------- -------- -------- -------- ----------
Earnings (loss) before income
taxes and minority interest... 20,344 (41,706) 5,765 (35,941) (8,337) (23,934)
Provision for (benefit from)
income taxes.................. 8,422 (10,320) 3,226 (a) (8,072) (1,417)(f) (1,067)
(978)(b)
Minority interest in loss of
consolidated subsidiary, net
of income tax................. 19 19
-------- -------- -------- -------- -------- ----------
Net earnings (loss)............. $ 11,903 $(31,386) $ 3,517 $(27,869) $ (6,920) $ (22,886)
======== ======== ======== ======== ======== ==========
Earnings (loss) per share,
basic and diluted............. $ 0.36 $ (0.39)
======== ==========
</TABLE>
F-31
<PAGE> 38
COVENTRY HEALTH CARE, INC.
NOTES TO PRO FORMA SELECTED FINANCIAL DATA
DECEMBER 31, 1997
(a) Reflects the elimination of certain assets of PHC that are not included in
the Business Combination (Principal Health Care of the Mid-Atlantic, Inc.,
Principal Health Care of Texas, Inc., the equity investment in United
Payors and United Providers, Inc., 50% of the equity investment in American
Psych Systems, Inc., the Admar Group, Inc. and 50% of the common stock
warrants for Accordant Health Systems, Inc. and Advanced ParadigM, Inc.)
excluded from the proposed transaction, using an effective tax rate of 39%.
In July 1997, PHC transferred its ownership interest of America's Health
Plan ("AHP") to Holding as a dividend and return of capital. AHP's
operating results are included in the pro forma statement of operations
until the effective date of the transfer. AHP's operating results are not
material to the pro forma statements of operations.
(b) Reflects the results of operations for the nine months ended September 30,
1997 of FHP of Illinois, Inc. ("FHP") using an effective tax rate of 39%.
FHP was acquired by PHC effective October 1, 1997, and as a result, is not
included in the historical financial statements of PHC as of that date.
(c) Reflects transaction related adjustments such as the retention of certain
liabilities by PHC and the adjustment to arrive at the target tangible net
worth amount of $103 million.
(d) Reflects the issuance of the Coventry Health Care Warrant valued at
approximately $25.0 million. This value was determined through the
application of standard option pricing methodology to the schedule of
warrant terms, and reflecting the volatility of the underlying equity
security and Coventry's historical lapse experience for employee options.
The value was allocated between the Management Services Agreement and the
Renewal Rights Agreement and the Coinsurance Agreement to be assumed by
Newco at the end of the Management Services Agreement. The allocations were
$4.7 million and $20.3 million for the Management Services Agreement and
the Renewal Rights Agreement or the Coinsurance Agreement, respectively.
The useful lives were established at 1.75 years for the Management Services
Agreement and 35 years for the Renewal Rights Agreement or the Coinsurance
Agreement.
(e) Reflects the issuance of approximately 25.1 million shares of Coventry
Health Care Common Stock valued at market on November 3, 1997 for Coventry
Common Stock ($14.50) and transaction costs to purchase certain assets and
liabilities of PHC. Due to the restricted nature of the shares to be
issued, the Company has applied a discount of 17.5% to the trading market
value of the shares. Of the goodwill and other intangible assets recorded,
$1.5 million was allocated to the Marketing Services Agreement, $5.0
million was allocated to the customer lists and $10.0 million was allocated
to the HMO licenses with the remainder of the purchase price allocated to
the goodwill of the PHC Business. The amortization periods of 1.75 years, 5
years, 20 years and 35 years were assigned to the Marketing Services
Agreement, customer lists, licenses and the goodwill, respectively. The
increase in depreciation and amortization represents the incremental
amounts over the amounts contained in the historical financial statements
of PHC. The allocations above are tentative. Final allocations are not
anticipated to differ materially from the above allocations.
(f) Reflects an estimated effective tax benefit on the adjusting entries of
17%.
(g) Co-incident with the closing of the transactions, the Company entered
into a Marketing Services Agreement and a Management Services Agreement
with Mutual. Both agreements are initially scheduled to terminate on
December 31, 1999. The Company expects to receive payments under the
agreements of approximately $24.7 million and $26.4 million in 1998 and
1999, respectively. These amounts have not been included in the Pro Forma
Selected Financial Data presented herein. Had the effect of these contracts
been included in the Pro Forma Selected Financial Data for the period
presented, net loss would have been $(1.6) million. Pro Forma loss per
share would have been $(0.03).
F-32
<PAGE> 39
EXHIBIT INDEX
2.1 Capital Contribution and Merger Agreement dated as of November 3, 1997
("Combination Agreement") by and among Coventry Corporation, Coventry
Health Care, Inc., a Delaware corporation, Coventry Health Care, Inc., a
Maryland corporation, Principal Mutual Life Insurance Company, Principal
Holding Company and Principal Health Care, Inc. (Incorporated by
reference to Exhibit 2.1 to Form S-4, as amended, Registration Statement
No. 333-45821, of Coventry Health Care, Inc.).
2.2 Agreement and Plan of Merger by and among Coventry Corporation, Coventry
Health Care, Inc. and Coventry Merger Corporation (Incorporated by
reference to Exhibit 2.2 to Form S-4, as amended, Registration Statement
No. 333-45821, of Coventry Health Care, Inc.).
4.1 Specimen Common Stock Certificate
4.2 Rights Agreement dated March 30, 1998 between Coventry Health Care, Inc.
and ChaseMellon Shareholder Services, L.L.C.
4.3 Amended and Restated Securities purchase Agreement dated as of April 2,
1997, by and among Coventry Corporation, Warburg, Pincus Ventures, L.P.
("Warburg") and Franklin Capital Associates III, L.P., together with
Exhibit A (Form of Convertible Note), Exhibit B (Form of Warrant) and
Exhibit C (Form of Certificate of Designation of Series A Preferred
Stock) (Incorporated by reference to Exhibit 10 to Coventry Corporation
Form 8-K dated May 7, 1997).
4.4 Amended Form of Convertible Note (incorporated by reference to Exhibit
4.5 to Coventry Corporation Form 10-K dated March 24, 1998).
4.5 Common Stock Purchase Warrant dated as of April 1, 1998.
4.6 Form of Common Stock Purchase Warrant, as amended, of Coventry (assumed
by CHC as of April 1, 1998).
4.7 Consent of Warburg, Pincus Ventures, L.P. dated December 18, 1997.
4.8 Shareholders' Agreement dated as of April 1, 1998, by and among Coventry
Health Care, Inc., Principal Mutual Life Insurance Company, and Principal
Health Care, Inc.
<PAGE> 1
Exhibit 4.1
COVENTRY HEALTH CARE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
NUMBER SHARES
CHC
CUSIP 222862 10 4
COMMON STOCK COMMON STOCK
THIS CERTIFIES that
SEE REVERSE FOR
CERTAIN DEFINITIONS
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK. PAR VALUE OF ONE CENT
($.01) EACH OF
COVENTRY HEALTH CARE, INC.
transferable on the books of the Company by the holder hereof in person or by
authorized attorney upon surrender of this certificate properly endorsed.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Company and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ SHIRLEY R. SMITH /s/ ALLEN F. WISE
SECRETARY [SEAL] PRESIDENT
Countersigned and Registered:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
Transfer Agent
By and Registrar
Authorized Signature
<PAGE> 2
This certificate also evidences and entitles the holder hereof to certain rights
as set forth in the Rights Agreement between Coventry Health Care, Inc. (the
"Company") and ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent"),
dated as of March 30, 1998 (the "Rights Agreement"), the terms of which are
hereby incorporated herein by reference and a copy of which is on the file at
the principal office of the stock transfer administration office of the Rights
Agent. Under certain circumstances, as set forth in the Rights Agreement, such
Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date of mailing,
without charge promptly after receipt of a written request therefor. Under
certain circumstances set forth in the Rights Agreement, Rights issued to, or
held by, any Person who is, was or becomes an Acquiring Person or any Affiliate
or Associate thereof (as such terms are defined in the Rights Agreement),
whether currently held by or on behalf of such Person or by any subsequent
holder, may become null and void.
COVENTRY HEALTH CARE, INC.
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS
A COPY OF THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS ON SUCH
PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COME -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIF MIN ACT -- ________ Custodian _____________
(Cust) (Minor)
under Uniform Gifts to Minors
Act for ________________________
(State)
Additional abbreviations may also be used through not in the above list.
For Value Received, _______________________ hereby sell, assign and tranfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
_____________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Company with full
power of substitution in the premises.
Dated: _____________________
________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
SIGNATURE(S) GUARANTEED: _______________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO
THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
EXHIBIT 4.2
COVENTRY HEALTH CARE, INC.
and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
RIGHTS AGENT
---------------
RIGHTS AGREEMENT
DATED MARCH 30, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Section 1. Certain Definitions........................................................................... 1
Section 2. Appointment of Rights Agent................................................................... 5
Section 3. Issuance of Rights Certificates............................................................... 5
Section 4. Form of Rights Certificates................................................................... 7
Section 5. Countersignature and Registration............................................................. 8
Section 6. Transfer, Split Up, Combination and Exchange of Rights Certificates;
Mutilated, Destroyed, Lost or Stolen Rights Certificates...................................... 9
Section 7. Exercise of Rights; Exercise Price; Expiration Date of Rights................................ 10
Section 8. Cancellation and Destruction of Rights Certificates........................................... 12
Section 9. Reservation and Availability of Common Stock.................................................. 13
Section 10. Common Stock Record Date...................................................................... 14
Section 11. Adjustment of Exercise Price, Number and Kind of Shares or Number of
Rights........................................................................................ 15
Section 12. Certificate of Adjusted Exercise Price or Number of Shares.................................... 21
Section 13. Merger or Sale or Transfer of Assets or Earning Power......................................... 22
Section 14. Fractional Rights and Fractional Shares....................................................... 26
Section 15. Rights of Action.............................................................................. 27
Section 16. Agreement of Rights Holders................................................................... 27
Section 17. Rights Certificate Holder Not Deemed a Stockholder............................................ 28
Section 18. Concerning the Rights Agent................................................................... 28
Section 19. Merger or Change of Name of Rights Agent...................................................... 29
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 20. Duties of Rights Agent....................................................................... 29
Section 21. Change of Rights Agent....................................................................... 32
Section 22. Issuance of New Rights Certificates.......................................................... 32
Section 23. Redemption................................................................................... 33
Section 24. Exchange..................................................................................... 34
Section 25. Notice of Certain Events..................................................................... 35
Section 26. Notices...................................................................................... 36
Section 27. Supplements and Amendments................................................................... 37
Section 28. Determinations and Actions by the Board of Directors, etc.................................... 38
Section 29. Successors................................................................................... 38
Section 30. Benefits of this Agreement................................................................... 38
Section 31. Severability................................................................................. 39
Section 32. Governing Law................................................................................ 39
Section 33. Counterparts................................................................................. 39
Section 34. Descriptive Headings......................................................................... 40
Signatures............................................................................................ 40
Exhibit A. Form of Rights Certificate................................................................... A-1
Exhibit B. Summary of Rights to Purchase Common Stock................................................... B-1
</TABLE>
ii
<PAGE> 4
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of the 30th day of March, 1998 (the
"Agreement"), between Coventry Health Care, Inc., a Delaware corporation (the
"Company"), and ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent").
R E C I T A L S
WHEREAS, pursuant to that certain Capital Contribution and Merger
Agreement (the "Combination Agreement") by and between Coventry Corporation
("Coventry"), the Company, Coventry Health Care, Inc., a Maryland corporation,
Principal Health Care, Inc., Principal Holding Company, and Principal Mutual
Life Insurance Company, the Board of Directors of the Company (the "Board")
authorized and declared a distribution of one Right (as defined in Section 1
hereof) for each share of common stock, $.01 par value, ("Coventry Common
Stock"), of Coventry issued immediately prior to the Record Date (as defined in
Section 1 hereof), subject to the execution of this Agreement and to certain
other conditions, and the issuance of one Right (as such number may hereinafter
be adjusted pursuant hereto) with respect to each share of common stock, $.01
par value, ("Common Stock") of the Company issued (whether originally issued or
delivered from the Company's treasury) between the Record Date and the earlier
of the Exercisability Date (as defined in Section 3(a) hereof) or the Expiration
Date (as defined in Section 7(a) hereof), each Right initially representing the
right to purchase, upon the terms and subject to the conditions hereinafter set
forth, one tenth of one share of Common Stock;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section
1. Certain Definitions.
For purposes of this Agreement, the following terms have the meanings
indicated:
(a) "Acquiring Person" means any Person which (or which, together with
all its Affiliates and Associates) shall be the Beneficial Owner of 15% or more
of the shares of Common Stock then outstanding. Notwithstanding the foregoing,
(x) the term "Acquiring Person" shall not include the Company, any Subsidiary of
the Company, any employee benefit plan maintained by the Company or any of its
Subsidiaries, or any trustee or fiduciary with respect to such plan acting in
such capacity; and (y) no Person shall become an "Acquiring Person" as the
result of (A) the acquisition of Common Stock (or other securities convertible
into shares of Common Stock or other rights with respect to Common Stock)
directly from the Company, or (B) an acquisition of Common Stock by the Company
which, by reducing the number of shares outstanding, increases
1
<PAGE> 5
the proportionate number of shares beneficially owned by such Person (alone or
together with all Affiliates and Associates) to 15% or more of the shares of
Common Stock then outstanding; provided, however, that if a Person (together
with its Affiliates and Associates) becomes the Beneficial Owner of 15% or more
of the Common Stock then outstanding by reason of share purchases by the
Company, and such Person (or an Affiliate or Associate) subsequently becomes the
Beneficial Owner of any additional Common Stock, then such Person shall be
deemed to be an "Acquiring Person." Notwithstanding anything to the contrary in
this Agreement,
(i) Warburg, Pincus Ventures, L.P. (the "Purchaser") shall not
be deemed an "Acquiring Person" hereunder as a result of the
transactions contemplated by that certain Amended and Restated
Securities Purchase Agreement, dated as of April 2, 1997, by and among
the Company, the Purchaser and Franklin Capital Associates III L.P.
(the "Purchase Agreement") unless and until the Purchaser without the
prior written consent of the Board of Directors of the Company: (A)
shall become (or together with all its Affiliates and Associates shall
become) the Beneficial Owner of more than 30% of the shares of Common
Stock outstanding on a fully diluted basis; or (B) directly or
indirectly (or any of its Affiliates or Associates directly or
indirectly), commences or participates in a solicitation of proxies in
opposition to any written proposal to shareholders by the Company's
Board of Directors or in favor of any shareholder proposal opposed by
the Company's Board of Directors, or (ii) solicits or assists any third
party to make a tender or exchange offer to purchase any shares of
Common Stock or submit any written proposal to the Board of Directors
of the Company for a merger, share exchange (other than any exercise,
exchange or conversion of the shares pursuant to the Purchase
Agreement), acquisition of substantially all assets or similar
transaction involving the Company; provided, however, that the
provisions of this sentence apply only to the Purchaser and any
Affiliate or Associate of the Purchaser to whom the Purchaser may
transfer the shares of Common Stock or securities convertible into, or
exercisable for, shares of Common Stock acquired by the Purchaser; and
(ii) None of Principal Mutual Life Insurance Company, an Iowa
mutual life insurance company ("Mutual"), and any Affiliate or
Associate of Mutual shall be deemed an "Acquiring Person" hereunder for
so long as none of Mutual and any Affiliate or Associate thereof shall
have breached, in any material respect, any provision of Sections 1(a)
or 4 of that certain Shareholders' Agreement, dated as of [ ], 1998, by
and among Mutual, Principal Health Care, Inc. and the Company (the
"Shareholders' Agreement"), and, after the Shareholder Agreement shall
no longer be effective, until such time as Mutual and any of its
Affiliates or Associates shall Beneficially Own less than 15% of the
Common Stock.
(b) "Affiliate" and "Associate" have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect
on the date of this Agreement.
(c) A Person shall be deemed the "Beneficial Owner" of and shall be
deemed to "beneficially own" any securities:
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<PAGE> 6
(i) of which such Person or any of such Person's Affiliates
or Associates is considered to be a "beneficial owner" under Rule 13d-3
of the General Rules and Regulations under the Exchange Act (the
"Exchange Act Regulations") as in effect on the date hereof; provided,
however, that a Person shall not be deemed the "Beneficial Owner" of,
or to "beneficially own," any security under this subparagraph (i) as a
result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding (A) arises
solely from a revocable proxy given in response to a proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the Exchange Act and the Exchange Act Regulations, and
(B) is not reportable by such Person on Schedule 13D under the Exchange
Act (or any comparable or successor report);
(ii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate of such other Person)
with which such Person (or any of such Person's Affiliates or
Associates) has any agreement, arrangement or understanding (whether or
not in writing) for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in the proviso to
subparagraph (i) of this paragraph (c)) or disposing of such securities
(other than customary agreements with and between underwriters and
selling group members with respect to a bona fide public offering of
securities); or
(iii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether
such right is exercisable immediately or only after the passage of time
or upon the satisfaction of conditions) pursuant to any agreement,
arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or
options, or otherwise;
provided, however, that under this paragraph (c), a Person shall not be deemed
the "Beneficial Owner" of, or to "beneficially own," (x) securities tendered
pursuant to a tender or exchange offer made by or on behalf of such Person or
any of such Person's Affiliates or Associates until such tendered securities are
accepted for purchase or exchange, (y) securities that may be issued upon
exercise of Rights at any time prior to the occurrence of a Triggering Event, or
(z) securities that may be issued upon exercise of Rights from and after the
occurrence of a Triggering Event, which Rights were acquired by such Person or
any of such Person's Affiliates or Associates prior to the Exercisability Date
or pursuant to Section 3(a) or Section 22 hereof (the "Original Rights") or
pursuant to Section 11(i) hereof in connection with an adjustment made with
respect to any Original Rights.
Notwithstanding anything in this definition of Beneficial Ownership to
the contrary, the phrase "then outstanding", when used with reference to a
person's Beneficial Ownership of securities of the Company, shall mean the
number of securities then issued and outstanding
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<PAGE> 7
together with the number of such securities not then actually issued and
outstanding which such Person would be deemed to own beneficially hereunder.
(d) "Board" has the meaning set forth in the Recitals.
(e) "Business Day" means any day other than a Saturday, a Sunday, or a
day on which banking institutions in Nashville, Tennessee or Pittsburgh,
Pennsylvania are authorized or obligated by law or executive order to close.
(f) "Close of Business" on any given date means 5:00 P.M., Pittsburgh,
Pennsylvania time, on such date; provided, however, that if such date is not a
Business Day it shall mean 5:00 P.M., Pittsburgh, Pennsylvania time, on the next
succeeding Business Day.
(g) "common stock" of any Person other than the Company means such
Person's capital stock with the greatest voting power, or, if such Person shall
have no capital stock, the equity securities or other equity interest having
power to control or direct the management of such Person.
(h) "Common Stock" means the shares of common stock, $.01 par value, of
the Company or, in the event of a stock split or reverse stock split with
respect to such shares of Common Stock, the shares of Common Stock of the
Company resulting from such stock split or reverse stock split.
(i) "Continuing Director" means any Person who is a member of the
Board, while such Person is a member of the Board, who is not an Acquiring
Person, or an Affiliate or Associate of an Acquiring Person, or a nominee or
representative of an Acquiring Person or of an Acquiring Person's Affiliate or
Associate, and who (i) was a member of the Board prior to the date of this
Agreement, or (ii) becomes a member of the Board after the date of this
Agreement if such Person's nomination for election to the Board is recommended
or approved by a majority of the Continuing Directors.
(j) "Exercisability Date" has the meaning set forth in Section 3(a)
hereof.
(k) "Exercise Price" has the meaning set forth in Section 7(b) hereof.
(l) "Expiration Date" has the meaning set forth in Section 7(a) hereof.
(m) "Final Expiration Date" has the meaning set forth in Section 7(a)
hereof.
(n) "Interested Stockholder" means any Acquiring Person, any Affiliate
or Associate of an Acquiring Person, any other Person in which any such
Acquiring Person, Affiliate or Associate has an interest, or any other Person
acting directly or indirectly on behalf of or in concert with any such Acquiring
Person, Affiliate or Associate.
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<PAGE> 8
(o) "Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as any
syndicate or group deemed to be a person under Section 14(d)(2) of the Exchange
Act.
(p) "Record Date" means the Effective Time (as defined in the
Combination Agreement).
(q) "Redemption Date" has the meaning set forth in Section 7(a) hereof.
(r) "Right" means one of the stock purchase rights created hereunder.
(s) "Rights Certificate" has the meaning set forth in Section 3(a)
hereof.
(t) "Rights Dividend Declaration Date" has the meaning set forth in the
Recitals.
(u) "Section 11(a)(ii) Event" means any event described in Section
11(a)(ii) hereof.
(v) "Section 13 Event" means any event described in clause (x), (y) or
(z) of Section 13(a) hereof.
(w) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such.
(x) "Subsidiary" means, with reference to any Person, any corporation
of which an amount of voting securities sufficient to elect at least a majority
of the directors of such corporation is beneficially owned, directly or
indirectly, by such Person, or otherwise controlled by such Person.
(y) "Triggering Event" means any Section 11(a)(ii) Event or any Section
13 Event.
Section 2. Appointment of Rights Agent.
The Company hereby appoints the Rights Agent to act as agent for the
Company in accordance with the terms and conditions hereof, and the Rights Agent
hereby accepts such appointment. The Company may from time to time appoint such
Co-Rights Agents as it may deem necessary or desirable.
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<PAGE> 9
Section 3. Issuance of Rights Certificates.
(a) Until the earlier of:
(i) the Close of Business on the tenth day after the Stock
Acquisition Date, and
(ii) the Close of Business on such date as a majority of the
Board shall determine, which date shall follow the commencement of a
tender offer (as determined by reference to Rule 14d-2(a) under the
Exchange Act) or exchange offer by any Person (other than the Company,
any Subsidiary of the Company, any employee benefit plan maintained by
the Company or any of its Subsidiaries, or any trustee or fiduciary
with respect to such plan acting in such capacity), if upon
consummation thereof such Person would become an Acquiring Person (the
earlier of (i) and (ii) above being the "Exercisability Date"),
the Rights:
(x) will be evidenced (subject to the provisions of paragraph
(b) of this Section 3) by the certificates for shares of Common Stock
registered in the names of the holders thereof as of and subsequent to
the Record Date (which certificates for shares of Common Stock shall be
deemed also to be certificates for Rights) and not by separate
certificates, and
(y) will be transferable only in connection with the transfer
of the underlying shares of Common Stock (including a transfer to the
Company).
As soon as practicable after the Exercisability Date, the Rights Agent will send
by first-class, insured, postage prepaid mail, to each record holder of shares
of Common Stock as of the Close of Business on the Exercisability Date, at the
address of such holder shown on the records of the Company, a certificate for
Rights, substantially in the form of Exhibit A attached hereto (the "Rights
Certificate"), evidencing one Right for each share of Common Stock so held,
subject to adjustment as provided herein. In the event that an adjustment in the
number of Rights per share of Common Stock has been made pursuant to Section 11
hereof, then at the time of distribution of the Rights Certificates, the Company
shall make the necessary and appropriate rounding adjustments (in accordance
with Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are distributed and cash is paid in lieu of any fractional
Rights. As of and after the Exercisability Date, the Rights will be evidenced
solely by such Rights Certificates.
(b) On the Record Date or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Common Stock, in
substantially the form attached hereto as Exhibit B (the "Summary of Rights"),
by first-class, postage prepaid mail, to each record holder of Common Stock as
of the Close of Business on the Record Date at the address of such holder shown
on the records of the company. With respect to certificates for Common Stock
outstanding as of the Record Date, until the earlier of the Exercisability Date,
the Expiration Date and the
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<PAGE> 10
Final Expiration Date (as such terms are defined in this Section 3 and in
Section 7 hereof), the Rights will be evidenced by such certificates for Common
Stock registered in the names of the holders thereof (together with a copy of
the Summary of Rights). Until the earlier of the Exercisability Date, the
Expiration Date and the Final Expiration Date, the surrender for transfer of any
certificate for Common Stock outstanding on the Record Date, with or without a
copy of the Summary of Rights attached thereto, shall also constitute the
transfer of the Rights associated with the Common Stock represented thereby.
(c) Rights shall, without any further action, be issued in respect of
all shares of Common Stock which are issued (including any shares of Common
Stock held in treasury) after the Record Date but prior to the earlier of the
Exercisability Date and the Expiration Date. Certificates representing such
shares of Common Stock issued after the Record Date shall bear the following
legend:
This certificate also evidences and entitles the holder hereof
to certain rights as set forth in the Rights Agreement between Coventry
Health Care, Inc. (the "Company") and ChaseMellon Shareholder Services,
L.L.C. (the "Rights Agent") dated as of March 30, 1998 (the "Rights
Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal office of the
stock transfer administration office of the Rights Agent. Under certain
circumstances, as set forth in the Rights Agreement, such Rights will
be evidenced by separate certificates and will no longer be evidenced
by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date of
mailing, without charge promptly after receipt of a written request
therefor. Under certain circumstances set forth in the Rights
Agreement, Rights issued to, or held by, any Person who is, was or
becomes an Acquiring Person or any Affiliate or Associate thereof (as
such terms are defined in the Rights Agreement), whether currently held
by or on behalf of such Person or by any subsequent holder, may become
null and void.
With respect to certificates representing shares of Common Stock (whether or not
such certificates include the foregoing legend), until the earlier of the
Exercisability Date and the Expiration Date, (i) the Rights associated with the
shares of Common Stock represented by such certificates shall be evidenced by
such certificates alone, (ii) registered holders of the shares of Common Stock
shall also be the registered holders of the associated Rights, and (iii) the
transfer of any of such certificates shall also constitute the transfer of the
Rights associated with the shares of Common Stock represented by such
certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase
Common Stock and of assignment to be printed on the reverse thereof) each shall
be substantially in the form of Exhibit A attached hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are not
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<PAGE> 11
inconsistent with the provisions of this Agreement, or as may be required to
comply with any applicable law or any rule or regulation thereunder or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders thereof
to purchase such number of shares of Common Stock as shall be set forth therein
at the price per share set forth therein (the "Exercise Price"), but the amount
and type of securities, cash or other assets that may be acquired upon the
exercise of each Right and the Exercise Price thereof shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate issued pursuant hereto that represents
Rights that are beneficially owned by:
(i) an Acquiring Person or any Affiliate or Associate of an
Acquiring Person,
(ii) a transferee of an Acquiring Person (or of any such
Affiliate or Associate) which becomes a transferee after the Acquiring
Person becomes such, or
(iii) a transferee of an Acquiring Person (or of any such
Affiliate or Associate) which becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and which receives
such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person (or any such Affiliate or
Associate) to holders of equity interests therein, or to any Person
with whom such Acquiring Person (or Affiliate or Associate) has any
continuing agreement, arrangement or understanding regarding the
transferred Rights, shares of Common Stock, or the Company, or (B) a
transfer which a majority of the Board has determined to be part of a
plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of Section 7(e) hereof,
shall, upon the written direction of a majority of the Board, contain (to the
extent feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person (as such terms are
defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of such Agreement.
The provisions of Section 7(e) of this Rights Agreement shall be operative
whether or not the foregoing legend is contained on any Rights Certificate.
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<PAGE> 12
Section 5. Countersignature and Registration.
(a) Rights Certificates shall be executed on behalf of the Company by
its Chairman of the Board, Chief Executive Officer, President, any Vice
President, or Treasurer and shall be attested by its Secretary or one of its
Assistant Secretaries. The signature of any of these officers on the Rights
Certificates may be manual or facsimile. The Rights Certificates shall be
countersigned by the Rights Agent, by manual signature of an authorized officer,
and no Rights Certificate shall be entitled to any benefit under this Agreement
or be valid for any purpose unless so countersigned. A Rights Certificate
bearing the manual or facsimile signatures of individuals who were the proper
officers of the Company at the actual date of execution of such Rights
Certificate shall bind the Company, notwithstanding that such individuals or any
of them ceased to hold such offices prior to the countersignature of such Rights
Certificate or did not hold such offices at the date of execution of this Rights
Agreement. Such countersignature upon any Rights Certificate shall be conclusive
evidence, and the only evidence, that such Rights Certificate has been duly
countersigned as required hereunder.
(b) Following the Exercisability Date, the Rights Agent will keep or
cause to be kept, at its office designated as the appropriate place for
surrender of Rights Certificates upon exercise or transfer, books for
registration and transfer of the Rights Certificates issued hereunder. Such
books shall show the name and address of each holder of a Rights Certificate,
the number of Rights evidenced on its face by each Rights Certificate, and the
certificate number and date of each Rights Certificate.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights
Certificates.
(a) Subject to the provisions of Sections 4(b), 7(e) and 14 hereof, at
any time after the Close of Business on the Exercisability Date, and at or prior
to the Close of Business on the Expiration Date, any Rights Certificate or
Certificates may be transferred, split up, combined, or exchanged for another
Rights Certificate or Certificates entitling the registered holder to purchase
the number of shares of Common Stock (or, following a Triggering Event, other
securities, cash or other assets, as the case may be) as the Rights Certificate
or Certificates surrendered then entitle such holder to purchase. Any registered
holder desiring to transfer, split up, combine or exchange any Rights
Certificate or Certificates shall make such request in writing delivered to the
Rights Agent and shall execute and surrender the Rights Certificate or
Certificates to be transferred, split up, combined or exchanged at the office of
the Rights Agent designated for such purpose. Neither the Rights Agent nor the
Company shall be obligated to take any action whatsoever with respect to the
transfer of any such surrendered Rights Certificate until the registered holder
shall have completed and signed the certificate contained in the form of
assignment set forth on the reverse side of such Rights Certificate and shall
have provided such additional evidence of the identity of the Beneficial Owner
or former Beneficial Owner (or Affiliates or Associates thereof) of the Rights
represented by such Rights Certificate as the Company shall reasonably request;
whereupon the Rights Agent shall, subject to the provisions of Sections 4(b),
7(e) and 14 hereof, countersign and deliver to the Person entitled thereto a
Rights Certificate or Rights Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
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<PAGE> 13
governmental charge that may be imposed in connection with any transfer, split
up, combination or exchange of Rights Certificates.
(b) If a Rights Certificate shall be mutilated, lost, stolen or
destroyed, upon request by the registered holder of the Rights represented
thereby, there shall be issued, in exchange for and upon cancellation of the
mutilated Rights Certificate, or in substitution for the lost, stolen or
destroyed Rights Certificate, a new Rights Certificate, in substantially the
form of the prior Rights Certificate, of like tenor and representing the
equivalent number of Rights; provided, however, that a new Rights Certificate
shall be issued only upon reimbursement to the Company or the Rights Agent (as
the case may be) of all reasonable expenses incidental thereto, if such
reimbursement is requested by the Company or the Rights Agent; and provided
further, that, in the case of loss, theft or destruction of a Rights
Certificate, a new Rights Certificate shall be issued only upon receipt of
evidence satisfactory to the Company and the Rights Agent of such loss, theft or
destruction and, if requested by the Company or the Rights Agent, indemnity or
security reasonably satisfactory to the Company or the Rights Agent (as the case
may be).
Section 7. Exercise of Rights; Exercise Price; Expiration Date of
Rights.
(a) At any time after the Exercisability Date and prior to the earlier
of (i) the Close of Business on February 7, 2006 (the "Final Expiration Date"),
or (ii) the time at which the Rights are redeemed as provided in Section 23
hereof (the "Redemption Date") (the earlier of (i) and (ii) being the
"Expiration Date"), the registered holder of any Rights Certificate may, subject
to the provisions of Section 7(e) hereof, exercise the Rights evidenced thereby
in whole or in part upon surrender of the Rights Certificate, with the form of
election to purchase and the certificate on the reverse side thereof duly
executed, to the Rights Agent at the office of the Rights Agent designated for
such purpose, together with payment of the aggregate Exercise Price (as
hereinafter defined) for the number of shares of Common Stock (or, following a
Triggering Event, other securities, cash or other assets, as the case may be)
for which such surrendered Rights are then exercisable.
(b) The purchase price for each one tenth of one share of Common Stock
upon exercise of the Rights initially shall be $80.00, subject to adjustment
from time to time as provided in the next sentence and in Sections 11 and 13(a)
hereof (such purchase price, as so adjusted, being the "Exercise Price"), and
shall be payable in accordance with paragraph (c) below. Anything in this
Agreement to the contrary notwithstanding, in the event that, at any time after
the date of this Agreement and prior to the Exercisability Date, the Company
shall (i) declare a dividend on the Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock in a reclassification of the Common Stock; then, in
any such case, each share of Common Stock outstanding following such dividend,
subdivision, combination or reclassification shall continue to have a Right
associated therewith, and the Exercise Price following any such event shall be
proportionately adjusted to equal the result obtained by multiplying the
Exercise Price immediately prior to such event by a fraction, the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the
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<PAGE> 14
occurrence of the event and the denominator of which shall be the total number
of shares of Common Stock outstanding immediately following the occurrence of
such event. The adjustment provided for in the preceding sentence shall be made
successively whenever such a dividend is declared or such a subdivision,
combination or reclassification is effected.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment in the manner described below, with respect to each Right
so exercised, of the Exercise Price for the shares of Common Stock (or,
following a Triggering Event, other securities, cash or other assets, as the
case may be) to be purchased thereby, and of an amount equal to any applicable
transfer tax required to be paid by the holder in accordance with Section 6
hereof or evidence satisfactory to the Company of payment of such tax), the
Rights Agent shall, subject to Section 20(j) hereof, thereupon promptly:
(i) requisition from the transfer agent for the Common Stock
certificates for such number of shares of Common Stock as are to be
purchased, and the Company will direct the transfer agent to comply
with such request;
(ii) requisition from the Company the amount of cash, if any,
to be paid in lieu of fractional shares in accordance with Section 14
hereof;
(iii) after receipt of such Common Stock certificates, cause
the same to be delivered to or upon the order of the registered holder
of such Rights Certificate, registered in such name or names as may be
designated by such holder; and
(iv) after receipt of such cash, if any, deliver the same to
or upon the order of the registered holder of such Rights Certificate.
In the event that the Company is obligated to issue other securities of the
Company, pay cash and/or distribute other property pursuant to Section 11(a)
hereof, the Company will make all arrangements necessary so that such other
securities, cash and/or other property are available for distribution by the
Rights Agent, if and when appropriate. The payment of the Exercise Price (as
such amount may be reduced pursuant to Section 11(a)(iii) hereof) may be made in
cash or by certified or bank check or bank draft payable to the order of the
Company.
(d) In the event of an exercise of the Rights by a holder pursuant to
Section 11(a)(ii) hereof, the Rights Agent shall return such Rights Certificate
to the registered holder thereof after imprinting, stamping, or otherwise
indicating thereon that the rights represented by such Rights Certificate no
longer include the rights provided by Section 11(a)(ii) of the Rights Agreement.
In addition, in the event that the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing the Rights remaining unexercised (and, if some of the
Rights exercised were exercised pursuant to Section 11(a)(ii), indicating by
imprint, stamp or otherwise the number of Rights remaining which continue to
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<PAGE> 15
include rights provided by Section 11(a)(ii)) shall be issued by the Rights
Agent and delivered to, or upon the order of, the registered holder of such
Rights Certificate, registered in such name or names as may be designated by
such holder, subject to the provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by any of the Persons described below shall be null and void
without any further action, and no holder of such Rights shall have any rights
whatsoever with respect to such Rights, whether under any provision of this
Agreement or otherwise:
(i) an Acquiring Person or an Affiliate or Associate of an
Acquiring Person;
(ii) a transferee of an Acquiring Person (or of any such
Affiliate or Associate) which becomes a transferee after the Acquiring
Person becomes such; or
(iii) a transferee of an Acquiring Person (or of any such
Affiliate or Associate) which becomes a transferee prior to or
concurrently with the Acquiring Person becoming such and which receives
such Rights pursuant to either (A) a transfer (whether or not for
consideration) from the Acquiring Person (or any such Affiliate or
Associate) to holders of equity interests therein, or to any Person
with whom such Acquiring Person (or Affiliate or Associate) has any
continuing agreement, arrangement or understanding regarding the
transferred Rights, shares of Common Stock, or the Company, or (B) a
transfer which a majority of the Board has determined to be part of a
plan, arrangement or understanding which has as a primary purpose or
effect the avoidance of this Section 7(e).
The Company shall use all reasonable efforts to ensure that the provisions of
this Section 7(e) and Section 4(b) hereof are complied with, but shall have no
liability to any holder of Rights or any other Person as a result of its failure
to make any determination under this Section 7(e) or such Section 4(b) with
respect to an Acquiring Person or its Affiliates, Associates or transferees.
(f) Notwithstanding anything in this Agreement or any Rights
Certificate to the contrary, neither the Rights Agent nor the Company shall be
obligated to undertake any action with respect to a registered holder upon the
occurrence of any purported exercise by such registered holder unless such
registered holder shall have (i) completed and executed the certificate
following the form of election to purchase set forth on the reverse side of the
Rights Certificate surrendered for such exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner or former Beneficial
Owner (or Affiliates or Associates thereof) of the Rights represented by such
Rights Certificate as the Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates.
All Rights Certificates surrendered for the purpose of exercise,
transfer, split up, combination or exchange shall, if surrendered to the Company
or any of its agents, be delivered
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to the Rights Agent for cancellation or in canceled form, or, if surrendered to
the Rights Agent, shall be canceled by it, and no Rights Certificates shall be
issued in lieu thereof except as expressly permitted by this Agreement. The
Company shall deliver to the Rights Agent for cancellation and retirement, and
the Rights Agent shall so cancel and retire, any Rights Certificates acquired by
the Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all canceled Rights Certificates to the Company, or, at the written
request of the Company, shall destroy such canceled Rights Certificates and, in
such case, shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Common Stock.
(a) The Company shall (i) at all times prior to the Expiration Date
cause to be reserved and kept available out of its authorized and unissued
shares of Common Stock, or any authorized and issued shares of Common Stock held
in its treasury, the number of shares of Common Stock that, as provided in this
Agreement, including, without limitation, Section 11(a)(iii) hereof, will be
sufficient to permit the exercise in full of all outstanding Rights; and (ii) at
all times following the occurrence of a Section 11(a)(ii) Event, shall so
reserve and keep available a sufficient number of any other securities that may
be required to permit the exercise in full of the Rights pursuant to this
Agreement.
(b) The Company shall use its best efforts:
(i) as soon as practicable following (A) the occurrence of a
Section 11(a)(ii) Event and a determination by the Company in
accordance with Section 11(a)(iii) hereof of the consideration to be
delivered by the Company upon exercise of the Rights or (B) if so
required by law, the Exercisability Date, to file a registration
statement (the "Registration Statement") on an appropriate form under
the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities that may be acquired upon exercise of the
Rights;
(ii) to cause the Registration Statement to become effective
as soon as practicable after the date of such filing (such date being
the "Registration Date");
(iii) to cause the Registration Statement to continue to be
effective (and to include a prospectus complying with the requirements
of the Securities Act) until the earlier of (A) the date as of which
the Rights are no longer exercisable for the securities covered by the
Registration Statement, and (B) the Expiration Date; and
(iv) as soon as practicable following the Registration Date,
to take such action as may be required to ensure that any acquisition
of securities upon exercise of the Rights complies with any applicable
state securities or "blue sky" laws.
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The Company may temporarily suspend the exercisability of the Rights, for a
period of time not to exceed ninety (90) days after the date set forth in
subclause (A) or (B), whichever applies, of clause (i) of the first sentence of
this Section 9(b) in order to prepare and file such Registration Statement and
permit it to become effective. Upon any such suspension of exercisability, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended and, upon termination of such suspension,
the Company shall issue a public announcement stating that the suspension is no
longer in effect. In addition, if the Company shall determine that a
Registration Statement is required following the Exercisability Date, the
Company may temporarily suspend the exercisability of the Rights until such time
as such Registration Statement has been declared effective. Notwithstanding any
provision of this Agreement to the contrary, the Rights shall not be exercisable
in any jurisdiction if the requisite qualification in such jurisdiction shall
not have been obtained, the exercise thereof shall not be permitted under
applicable law, or a Registration Statement, as described above, shall not have
been declared effective.
(c) The Company shall take such action as may be necessary to ensure
that all shares of Common Stock (and, following the occurrence of a Triggering
Event, any other securities) that may be delivered upon exercise of Rights shall
be, at the time of delivery of the certificates for such securities, duly and
validly authorized and issued, and fully paid and nonassessable.
(d) So long as the shares of Common Stock (and, after the occurrence of
a Triggering Event, any other securities) issuable upon the exercise of the
Rights may be listed on any national securities exchange, the Company shall use
its best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such exchange
upon official notice of issuance upon such exercise.
(e) The Company may pay or may require the Rights holder to pay any
documentary, stamp or transfer tax imposed in connection with the issuance or
delivery of the Rights Certificates or certificates for shares of Common Stock
(or, following the occurrence of a Triggering Event, any other securities or
other assets) upon the exercise of Rights. The Company shall not be required to
issue or deliver any certificates for shares of Common Stock (or any other
securities, cash or assets, as the case may be) to or in the name of the
registered holder upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by the holder of such Rights Certificate
at the time of surrender) or until it has been established to the Company's
satisfaction that no such tax is due.
Section 10. Common Stock Record Date.
Each Person in whose name any certificate for shares of Common Stock
(or, following the occurrence of a Triggering Event, other securities) is issued
upon the exercise of Rights shall for all purposes be deemed to have become the
holder of record of such shares of Common Stock or other securities represented
thereby on, and such certificate shall be dated, the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of the
Exercise
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<PAGE> 18
Price (and any applicable transfer taxes) was made; provided, however, that if
the date of such surrender and payment is a date upon which the Common Stock (or
other securities) transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such securities on, and such
certificate shall be dated as of, the next succeeding Business Day on which the
Common Stock (or other securities) transfer books of the Company are open. Prior
to the exercise of the Rights evidenced thereby, the holder of a Rights
Certificate shall not be entitled to any rights of a stockholder of the Company
with respect to securities for which the Rights shall be exercisable, including,
without limitation, the right to vote, to receive dividends or other
distributions, or to exercise any preemptive rights, and shall not be entitled
to receive any notice of any proceedings of the Company, except as provided
herein.
Section 11. Adjustment of Exercise Price, Number and Kind of Shares or
Number of Rights.
The Exercise Price, the number and kind of securities covered by each
Right, and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) In the event that the Company, at any time after the
date of this Agreement, shall (A) declare a dividend on the Common
Stock payable in shares of Common Stock, (B) subdivide the outstanding
Common Stock, (C) combine the outstanding Common Stock into a smaller
number of shares, or (D) issue any shares of its capital stock in a
reclassification of the Common Stock (including any such
reclassification in connection with a share exchange or merger in which
the Company is the continuing or surviving corporation), except as
otherwise provided in this Section 11(a) and Section 7(e) hereof, the
Exercise Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision, combination or
reclassification, and the number and kind of shares of Common Stock or
other capital stock, as the case may be, issuable on such date upon
exercise of the Rights, shall be proportionately adjusted so that the
holder of any Right exercised after such time shall be entitled to
receive, upon payment of the Exercise Price then in effect, the
aggregate number and kind of shares of Common Stock or other capital
stock, as the case may be, which, if such Right had been exercised
immediately prior to such date, such holder would have owned upon such
exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification; provided, however, that
if the record date for any such dividend, subdivision, combination or
reclassification shall occur prior to the Exercisability Date, the
Company shall make an appropriate adjustment to the Exercise Price in
lieu of adjusting (as described above) the number of shares of Common
Stock (or other capital stock, as the case may be) issuable upon
exercise of the Rights. If an event occurs which would require an
adjustment under both this Section 11(a)(i) and Section 11(a)(ii)
hereof, the adjustment provided for in this Section 11(a)(i) shall be
in addition to, and shall be made prior to, any adjustment required
pursuant to Section 11(a)(ii) hereof.
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<PAGE> 19
(ii) In the event that any Person shall become an Acquiring
Person, other than pursuant to any transaction set forth in Section
13(a) hereof, then, promptly following the occurrence of such event (a
"Section 11(a)(ii) Event"), proper provision shall be made so that each
holder of a Right (except as provided below and in Section 7(e) hereof)
shall thereafter have, and proper provision shall be made so that each
such holder shall have, the right to receive, upon exercise thereof at
a price equal to the then current Exercise Price in accordance with the
terms of this Agreement, such number of shares of Common Stock as shall
equal the result obtained by (x) multiplying the then current Exercise
Price by the number of tenths of one share of Common Stock for which a
Right was potentially exercisable immediately prior to the first
occurrence of a Section 11(a)(ii) Event (such that if the Right was
potentially exercisable for one tenth of one share of Common Stock
immediately prior to such Section 11(a)(ii) Event, the Exercise Price
would be multiplied by one), and dividing that product by (y) 50% of
the current market price (as determined pursuant to Section 11(d)
hereof) per share of the Common Stock on the date of the first
occurrence of a Section 11(a)(ii) Event (such number of shares, the
"Adjustment Shares").
(iii) In the event that the number of shares of Common Stock
which are authorized by the Company's Certificate of Incorporation but
are not outstanding and are not reserved for issuance for purposes
other than upon exercise of the Rights are not sufficient to permit the
exercise in full of the Rights in accordance with the foregoing
subparagraph (ii) of this Section 11(a), the Company, by a vote of the
majority of the Board of Directors, shall:
(A) determine the excess of (1) the value of the
Adjustment Shares issuable upon the exercise of a Right (the
"Current Value") over (2) the Exercise Price (such excess
being the "Spread"); and
(B) with respect to each Right, make adequate
provision to substitute for the Adjustment Shares, upon
payment of the applicable Exercise Price, (1) cash, (2) a
reduction in the Exercise Price, (3) other equity securities
of the Company, (such other equity securities being referred
to as "capital stock equivalents"), (4) debt securities of the
Company, (5) other assets, or (6) any combination of the
foregoing, such substituted items having an aggregate value
equal to the Current Value, where such aggregate value has
been determined by a majority of the Board of Directors after
receiving advice from a nationally recognized investment
banking firm;
provided, however, that if the Company shall not have made adequate
provision to deliver value pursuant to clause (B) above within thirty
(30) days following the later of (x) the first occurrence of a Section
11(a)(ii) Event and (y) the date on which the Company's right of
redemption pursuant to Section 23(a) expires (the later of (x) and (y)
being referred to herein as the "Section 11(a)(ii) Trigger Date"), then
the Company shall be obligated to
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<PAGE> 20
deliver, upon the surrender for exercise of a Right and without
requiring payment of the Exercise Price, shares of Common Stock (to the
extent available) and then, if necessary, cash, which shares and/or
cash shall have an aggregate value equal to the Spread. To the extent
that the Company determines that some action need be taken pursuant to
the first sentence of this Section 11(a)(iii), the Company shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights. For purposes of this Section
11(a)(iii), the value of the Common Stock shall be the current market
price (as determined pursuant to Section 11(d) hereof) per share of
Common Stock on the Section 11(a)(ii) Trigger Date and the value of any
"common stock equivalent" shall be deemed to have the same value as the
Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Common Stock entitling them to
subscribe for or purchase (for a period expiring within forty-five (45) calendar
days after such record date) Common Stock (or shares having the same rights,
privileges and preferences as shares of Common Stock ("equivalent common
stock")) or securities convertible into Common Stock or equivalent common stock
at a price per share of Common Stock or per share of equivalent common stock (or
having a conversion price per share, if a security convertible into Common Stock
or equivalent common stock) less than the current market price (as determined
pursuant to Section 11(d) hereof) per share of Common Stock on such record date,
then the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, 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
shares of Common Stock which the aggregate offering price of the total number of
shares of Common Stock and/or equivalent common stock so to be offered (and/or
the aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price, and the denominator of
which shall be the number of shares of Common Stock outstanding on such record
date plus the number of additional shares of Common Stock and/or equivalent
common stock to be offered for subscription or purchase (or into which the
convertible securities so to be offered are initially convertible). In case such
subscription price may be paid by delivery of consideration part or all of which
may be in a form other than cash, the value of such consideration shall be as
determined in good faith by a majority of the Board of Directors, whose
determination shall be described in a statement filed with the Rights Agent and
shall be binding on the Rights Agent and the holders of the Rights. Shares of
Common Stock owned by or held for the account of the Company or any Subsidiary
shall not be deemed outstanding for the purpose of any such computation. Such
adjustment shall be made successively whenever such a record date is fixed, and
in the event that such rights or warrants are not so issued, the Exercise Price
shall be adjusted to be the Exercise Price which would then be in effect if such
record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of shares of Common Stock (including any such distribution made in
connection with a share exchange or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a regular
quarterly cash dividend out of the earnings or retained earnings of the
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<PAGE> 21
Company), assets (other than a dividend payable in shares of Common Stock but
including any dividend payable in stock other than Common Stock) or subscription
rights or warrants (excluding those referred to in Section 11(b) hereof), then
the Exercise Price to be in effect after such record date shall be determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction, the numerator of which shall be the then current market price (as
determined pursuant to Section 11(d) hereof) per share of Common Stock on such
record date less the fair market value (as determined in good faith by a
majority of the Board of Directors, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the Rights Agent
and the holders of the Rights) of the portion of the cash, assets or evidences
of indebtedness so to be distributed or of such subscription rights or warrants
applicable to a share of Common Stock and the denominator of which shall be such
current market price (as determined pursuant to Section 11(d) hereof) per share
of Common Stock. Such adjustments shall be made successively whenever such a
record date is fixed, and in the event that such distribution is not so made,
the Exercise Price shall be adjusted to be the Exercise Price which would have
been in effect if such record date had not been fixed.
(d) For the purpose of any computation hereunder, the "current market
price" per share of Common Stock (or, after the occurrence of a Triggering
Event, any other securities) on any date shall be deemed to be the average of
the daily closing prices per share of such Common Stock or other securities for
the thirty (30) consecutive Trading Days (as such term is hereinafter defined)
immediately prior to such date; provided, however, that if, prior to the
expiration of such requisite thirty Trading Day period, the issuer announces
either (A) a dividend or distribution on such Common Stock (or other securities)
payable in such Common Stock (or other securities) or securities convertible
into such Common Stock (or other securities), other than the Rights, or (B) any
subdivision, combination or reclassification of such Common Stock (or other
securities), then, following the ex-dividend date for such dividend or the
record date for such subdivision, as the case may be, the "current market price"
shall be properly adjusted to take into account such event. The closing price
for each day shall be, if the shares of Common Stock (or other securities) are
listed and admitted to trading on a national securities exchange, as reported in
the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which such
shares are listed or admitted to trading or, if such shares of Common Stock (or
other securities) are not listed or admitted to trading on any national
securities exchange, the last quoted sales price or, if not so quoted, the
average of the high bid and low asked prices in the over-the-counter market, as
reported on The Nasdaq Stock Market's National Market (the "Nasdaq National
Market") or such other system then in use, or, if on any such date such shares
are not quoted by any such organization, the average of the closing bid and
asked prices as furnished by a professional market maker making a market in the
shares of Common Stock (or other securities) selected by a majority of the Board
of Directors. If on any such date no market maker is making a market in such
shares, the fair value of such shares on such date as determined in good faith
by a majority of the Board of Directors, shall be used. The term "Trading Day"
shall mean a Business Day or, if such shares are listed or admitted to trading
on any national securities exchange, a day on which the principal national
securities exchange on which such shares are listed or admitted to trading is
open for the transaction of business.
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<PAGE> 22
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Exercise Price;
provided, however, that any adjustments which by reason of this Section 11(e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-thousandth of a share of Common Stock
(or other securities). Notwithstanding the first sentence of this Section 11(e),
any adjustment required by this Section 11 shall be made no later than the
earlier of (i) three years from the date of the transaction which mandates such
adjustment or (ii) the Expiration Date.
(f) If, as a result of an adjustment made pursuant to Sections
11(a)(ii) or 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of any
Right and the Exercise Price thereof shall be subject to adjustment from time to
time in the manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Sections 11(a), (b),
(c), (e), (g), (h), (i), (j), (k), and (m), and the provisions of Sections 7, 9,
10, 13 and 14 hereof with respect to the Common Stock shall apply on like terms
to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Exercise Price hereunder shall evidence the right to
purchase, at the adjusted Exercise Price, the number of shares of Common Stock
(or other securities or amount of cash or combination thereof) that may be
acquired from time to time hereunder upon exercise of the Rights, all subject to
further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided in
Section 11(i) hereof, upon each adjustment of the Exercise Price as a result of
the calculations made in Sections 11(b) and (c) hereof, each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of shares of
Common Stock or other securities (calculated to the nearest one-millionth of a
share) obtained by
(i) multiplying (x) the number of shares of Common Stock or
other securities covered by a Right immediately prior to this
adjustment by (y) the Exercise Price in effect immediately prior to
such adjustment of the Exercise Price; and
(ii) dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment of the Exercise Price.
(i) The Company may elect on or after the date of any adjustment of the
Exercise Price to adjust the number of Rights, in lieu of any adjustment in the
number of shares of Common Stock (or other securities) that may be acquired upon
the exercise of a Right. Each of the Rights outstanding after the adjustment in
the number of Rights shall be exercisable for the number of
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<PAGE> 23
shares of Common Stock (or other securities) for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest ten-thousandth) obtained by dividing the Exercise
Price in effect immediately prior to adjustment of the Exercise Price by the
Exercise Price in effect immediately after adjustment of the Exercise Price. The
Company shall make a public announcement of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Exercise Price is adjusted or any day thereafter, but, if the
Rights Certificates have been issued, shall be at least ten days later than the
date of such public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates to be so
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Exercise
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Exercise Price or
the number of shares of Common Stock (or other securities) issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Exercise Price per share and the number of
shares of Common Stock (or other securities) which were expressed in the initial
Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Exercise Price below the then par value, if any, of the number of shares of
Common Stock (or other securities) issuable upon exercise of the Rights, the
Company shall take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
such fully paid and nonassessable number of shares of Common Stock (or other
securities) at such adjusted Exercise Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised after such record date
of that number of shares of Common Stock and shares of other capital stock or
securities of the Company, if any, issuable upon such exercise over and above
the number of shares of Common Stock and shares of other capital stock or
securities of the Company, if any, issuable upon such exercise on the basis of
the Exercise Price in effect prior to such adjustment; provided, however, that
the Company shall deliver to such holder a due bill or other appropriate
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<PAGE> 24
instrument evidencing such holder's right to receive such additional shares
(fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Exercise Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in their good faith judgment a majority of the Board of
Directors shall determine to be advisable in order that any (i) consolidation or
subdivision of the Common Stock, (ii) issuance wholly for cash of any shares of
Common Stock at less than the current market price, (iii) issuance wholly for
cash of shares of Common Stock or securities which by their terms are
convertible into or exchangeable for shares of Common Stock, (iv) stock
dividends or (v) issuance of rights, options or warrants referred to in this
Section 11, hereafter made by the Company to holders of its Common Stock, shall
not be taxable to such holders or shall reduce the taxes payable by such
holders.
(n) The Company shall not, at any time after the Exercisability Date:
(i) effect a share exchange with any other Person (other than
a Subsidiary of the Company in a transaction which complies with
Section 11(o) hereof);
(ii) merge with or into any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section
11(o) hereof); or
(iii) sell or transfer (or permit any Subsidiary to sell or
transfer), in one transaction, or a series of transactions, assets or
earning power aggregating more than 50% of the assets or earning power
of the Company and its Subsidiaries (taken as a whole) to any other
Person or Persons (other than the Company and/or any of its
Subsidiaries in one or more transactions each of which complies with
Section 11(o) hereof); if
(x) at the time of or immediately after such share
exchange, merger or sale, there are any rights, warrants or other
instruments or securities outstanding or agreements in effect which
would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights; or
(y) prior to, simultaneously with, or immediately
after such share exchange, merger or sale, the Person which
constitutes, or would constitute, the "Principal Party" for purposes of
Section 13(a) hereof shall have distributed or otherwise transferred to
its stockholders (or other persons holding an equity interest in such
Person) Rights previously owned by such Person or any of its Affiliates
and Associates;
provided, however, that this Section 11(n) shall not affect the ability of any
Subsidiary of the Company to effect a share exchange with, merge with or into,
or sell or transfer assets or earning power to, any other Subsidiary of the
Company.
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(o) After the Exercisability Date, the Company shall not, except as
permitted by Section 23 or Section 27 hereof, take (or permit any Subsidiary to
take) any action if at the time such action is taken it is reasonably
foreseeable that such action will materially diminish or otherwise eliminate the
benefits intended to be afforded by the Rights.
Section 12. Certificate of Adjusted Exercise Price or Number of
Shares.
Whenever an adjustment is made as provided in Section 11 and Section 13
hereof, the Company shall (a) promptly prepare a certificate setting forth such
adjustment and a brief statement of the facts accounting for such adjustment,
(b) promptly file with the Rights Agent, and with each transfer agent for the
Common Stock, a copy of such certificate, and (c) mail a brief summary thereof
to each holder of a Rights Certificate (or, if prior to the Exercisability Date,
to each holder of a certificate representing shares of Common Stock) in
accordance with Section 26 hereof. The Rights Agent shall be fully protected in
relying on any such certificate and on any adjustment therein contained and
shall not be deemed to have knowledge of any such adjustment unless and until it
shall have received such certificate.
Section 13. Merger or Sale or Transfer of Assets or Earning Power.
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly:
(x) the Company shall effect a share exchange with, or merge
with and into, any other Person (other than a Subsidiary of the Company
in a transaction which complies with Section 11(o) hereof), and the
Company shall not be the continuing or surviving corporation of such
share exchange or merger,
(y) any Person (other than a Subsidiary of the Company in a
transaction which complies with Section 11(o) hereof) shall effect a
share exchange with, or merge with or into, the Company, and the
Company shall be the continuing or surviving corporation of such share
exchange or merger and, in connection with such share exchange or
merger, all or part of the outstanding shares of Common Stock shall be
converted into or exchanged for stock or other securities of any other
Person or cash or any other property, or
(z) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer) to any
Person or Persons (other than the Company or any of its Subsidiaries in
one or more transactions each of which complies with Section 11(o)
hereof), in one or more transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company
and its Subsidiaries (taken as a whole),
(any such event described in clause x,y or z above being a "Section 13 Event");
then, and in each such case, proper provision shall be made so that:
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<PAGE> 26
(i) each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive, upon the exercise
thereof at the then current Exercise Price (disregarding any adjustment
of the Exercise Price pursuant to Section 11(a)(ii) hereof), such
number of validly authorized and issued, fully paid, nonassessable and
freely tradeable shares of common stock of the Principal Party (as such
term is hereinafter defined), which shares shall not be subject to any
liens, encumbrances, rights of first refusal, transfer restrictions or
other adverse claims, as shall be equal to the result obtained by:
(A) multiplying the then current Exercise Price by
the number of tenths of a share of Common Stock for which a
Right is exercisable immediately prior to the first occurrence
of a Section 13 Event (or, if a Section 11(a)(ii) Event has
occurred prior to the first occurrence of a Section 13 Event,
multiplying the number of tenths of a share of such Common
Stock for which a Right was exercisable immediately prior to
the first occurrence of such Section 11(a)(ii) Event by the
Exercise Price in effect immediately prior to such first
occurrence), and
(B) dividing that product (which, following the first
occurrence of a Section 13 Event, shall be the "Exercise
Price" for all purposes of this Agreement) by 50% of the
current market price (determined pursuant to Section 11(d)
hereof) per share of the common stock of such Principal Party
on the date of consummation of such Section 13 Event;
(ii) such Principal Party shall thereafter be liable for, and
shall assume, by virtue of such Section 13 Event, all the obligations
and duties of the Company pursuant to this Agreement;
(iii) the term "Company" shall thereafter be deemed to refer
to such Principal Party, it being specifically intended that the
provisions of Section 11 hereof shall apply only to such Principal
Party following the first occurrence of a Section 13 Event;
(iv) such Principal Party shall take such steps (including,
but not limited to, the reservation of a sufficient number of shares of
its common stock) in connection with the consummation of any such
transaction as may be necessary to ensure that the provisions of this
Agreement shall thereafter be applicable to its shares of common stock
thereafter deliverable upon the exercise of the Rights; and
(v) the provisions of Section 11(a)(ii) hereof shall be of no
further effect following the first occurrence of any Section 13 Event.
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<PAGE> 27
(b) "Principal Party" shall mean:
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a) hereof, (A) the Person that
is the issuer of any securities into which shares of Common Stock are
converted in such merger or share exchange, or, if there is more than
one such issuer, the issuer of common stock that has the highest
aggregate current market price (determined pursuant to Section 11(d)
hereof) and (B) if no securities are so issued, the Person that is the
other party to such merger or share exchange, or, if there is more than
one such Person, the Person the common stock of which has the highest
aggregate current market price (determined pursuant to Section 11(d)
hereof); and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section 13(a) hereof, the Person that is the
party receiving the largest portion of the assets or earning power
transferred pursuant to such transaction or transactions, or, if each
Person that is a party to such transaction or transactions receives the
same portion of the assets or earning power transferred pursuant to
such transaction or transactions or if the Person receiving the largest
portion of the assets or earning power cannot be determined, whichever
Person the common stock of which has the highest aggregate current
market price (determined pursuant to Section 11(d) hereof); provided,
however, that in any such case:
(A) if the common stock of such Person is not at such
time, and has not been continuously over the preceding
twelve-month period, registered under Section 12 of the
Exchange Act ("Registered Common Stock"), or such Person is
not a corporation, and such Person is a direct or indirect
Subsidiary of another Person that has Registered Common Stock
outstanding, "Principal Party" shall refer to such other
Person;
(B) if the common stock of such Person is not
Registered Common Stock or such Person is not a corporation,
and such Person is a direct or indirect Subsidiary of another
Person but is not a direct or indirect Subsidiary of another
Person which has Registered Common Stock outstanding,
"Principal Party" shall refer to the ultimate parent entity of
such first-mentioned Person;
(C) if the common stock of such Person is not
Registered Common Stock or such Person is not a corporation,
and such Person is directly or indirectly controlled by more
than one Person, and one or more of such other Persons has
Registered Common Stock outstanding, "Principal Party" shall
refer to whichever of such other Persons is the issuer of the
Registered Common Stock having the highest aggregate current
market price (determined pursuant to Section 11(d) hereof);
and
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(D) if the common stock of such Person is not
Registered Common Stock or such Person is not a corporation,
and such Person is directly or indirectly controlled by more
than one Person, and none of such other Persons have
Registered Common Stock outstanding, "Principal Party" shall
refer to whichever ultimate parent entity is the corporation
having the greatest stockholders equity or, if no such
ultimate parent entity is a corporation, shall refer to
whichever ultimate parent entity is the entity having the
greatest net assets.
(c) The Company shall not consummate any such share exchange, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its common stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13, and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that the Principal Party will:
(i) (A) file on an appropriate form, as soon as practicable
following the execution of such agreement, a registration statement
under the Securities Act with respect to the common stock that may be
acquired upon exercise of the Rights, (B) cause such registration
statement to remain effective (and to include a prospectus complying
with the requirement of the Securities Act) until the Expiration Date,
and (C) as soon as practicable following the execution of such
agreement, take such action as may be required to ensure that any
acquisition of such common stock upon the exercise of the Rights
complies with any applicable state securities or "blue sky" laws; and
(ii) deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which
comply in all respects with the requirements for registration on Form
10 under the Exchange Act.
(d) In case the Principal Party which is to be a party to a transaction
referred to in this Section 13 has a provision in any of its authorized
securities or in its Certificate of Incorporation or Bylaws or other instrument
governing its corporate affairs, which provision would have the effect of
(i) causing such Principal Party to issue, in connection with,
or as a consequence of, the consummation of a transaction referred to
in this Section 13, shares of common stock of such Principal Party at
less than the then current market price per share (determined pursuant
to Section 11(d) hereof) or securities exercisable for, or convertible
into, common stock of such Principal Party at less than such then
current market price (other than to holders of Rights pursuant to this
Section 13); or
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(ii) providing for any special payment, tax or similar
provisions in connection with the issuance of the common stock of such
Principal Party pursuant to the provisions of Section 13;
then, in such event, the Company shall not consummate any such transaction
unless prior thereto the Company and such Principal Party shall have executed
and delivered to the Rights Agent a supplemental agreement providing that the
provision in question of such Principal Party shall have been canceled, waived
or amended, or that the authorized securities shall be redeemed, so that the
applicable provision will have no effect in connection with, or as a consequence
of, the consummation of the proposed transaction.
(e) The provisions of this Section 13 shall similarly apply to
successive mergers or share exchanges or sales or other transfers. In the event
that a Section 13 Event shall occur at any time after the occurrence of a
Section 11(a)(ii) Event, the Rights which have not theretofore been exercised
shall thereafter become exercisable in the manner described in Section 13(a)
hereof.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights or
to distribute Rights Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the Persons to which such
fractional Rights would otherwise be issuable an amount in cash equal to such
fraction of the market value of a whole Right. For purposes of this Section
14(a), the market value of a whole Right shall be the closing price of the
Rights for the Trading Day immediately prior to the date on which such
fractional Rights would have been otherwise issuable.
The closing price of the Rights for any day shall be:
(i) if the Rights are listed or admitted to trading on a
national securities exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the Rights are listed
or admitted to trading; or
(ii) if the Rights are not listed or admitted to trading on
any national securities exchange, the last quoted sales price; or
(iii) if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported on the Nasdaq
National Market or such other system then in use; or
(iv) if on any such date the Rights are not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in the Rights
selected by a majority of the Board of Directors; or
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(v) if on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as
determined in good faith by a majority of the Board of Directors, which
determination shall be described in a statement filed with the Rights
Agent and the holders of the Rights.
(b) The Company shall not be required to issue fractions of shares of
Common Stock (or other securities) upon exercise of the Rights or to distribute
certificates which evidence such fractional shares of Common Stock (or other
securities). In lieu of such fractional shares of Common Stock (or other
securities), the Company may pay to the registered holders of Rights
Certificates at the time such Rights are exercised as herein provided an amount
in cash equal to the same fraction of the then current market value of one share
of Common Stock (or other securities). For purposes of this Section 14(b), the
current market value of one share of Common Stock (or other securities) shall be
the closing price (as the term "closing price" is used in Section 11(d) hereof)
of one share of Common Stock (or other securities) for the Trading Day
immediately prior to the date of such exercise.
(c) The holder of a Right, by the acceptance of the Right, expressly
waives his or her right to receive any fractional Rights or any fractional
shares upon exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action.
All rights of action in respect of this Agreement, other than rights of
action vested in the Rights Agent pursuant to Section 18 hereof, are vested in
the respective registered holders of the Rights Certificates (and, prior to the
Exercisability Date, the registered holders of certificates representing shares
of Common Stock); and any registered holder of a Rights Certificate (or, prior
to the Exercisability Date, of a certificate representing shares of Common
Stock), without the consent of the Rights Agent or of the holder of any other
Rights Certificate (or, prior to the Exercisability Date, of a certificate
representing shares of Common Stock), may, in his own behalf and for his own
benefit, enforce (and may institute and maintain any suit, action or proceeding
against the Company or any other Person to enforce, or otherwise act in respect
of) his right to exercise the Rights evidenced by such Rights Certificate in the
manner provided in such Rights Certificate and in this Agreement. Without
limiting the foregoing or any remedies available to the holders of Rights, it is
specifically acknowledged that the holders of Rights would not have an adequate
remedy at law for any breach of this Agreement and shall be entitled to specific
performance of the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to this
Agreement.
Section 16. Agreement of Rights Holders.
Every holder of a Right, by accepting the same, consents and agrees
with the Company and the Rights Agent and with every other holder of a Right
that:
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(a) prior to the Exercisability Date, the Rights shall be
transferable only in connection with the transfer of Common Stock;
(b) after the Exercisability Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if
surrendered at the office of the Rights Agent designated for such
purpose, duly endorsed or accompanied by a proper instrument of
transfer and with the appropriate forms and certificates duly executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose
name a Rights Certificate (or, prior to the Exercisability Date, the
associated Common Stock certificate) is registered as the absolute
owner thereof and of the Rights evidenced thereby (notwithstanding any
notations of ownership or writing on the Rights Certificate or the
associated Common Stock Certificate made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and neither
the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be affected by any notice to the contrary;
and
(d) notwithstanding anything in this Agreement to the
contrary, neither the Company nor the Rights Agent shall have any
liability to any holder of a Right or any other Person as a result of
its inability to perform any of its obligations under this Agreement by
reason of any preliminary or permanent injunction or other order,
decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by
any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, that the Company
must use its best efforts to have any such order, decree or ruling
lifted or otherwise overturned as promptly as practicable.
Section 17. Rights Certificate Holder Not Deemed a Stockholder.
No holder, as such, of any Rights Certificate shall be entitled to
vote, receive dividends or be deemed for any purpose the holder of the shares of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise of the Rights represented thereby; nor shall anything
contained herein or in any Rights Certificate be construed to confer upon the
holder of any Rights Certificate, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stock holders at any meeting thereof, or to give or withhold
consent to any corporate action, or, except as provided in Section 25 hereof, to
receive notice of meetings or other actions affecting stock holders, or to
receive dividends or subscription rights, or otherwise, until the Right or
Rights evidenced by such Rights Certificate shall have been exercised in
accordance with the provisions hereof.
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Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses, including reasonable
fees and disbursements of its counsel, incurred in connection with the execution
and administration of this Agreement and the exercise and performance of its
duties hereunder. The Company shall indemnify the Rights Agent, its officers,
employees, agents and directors for, and hold each of them harmless against, any
losses, expenses, claims, damages or liabilities incurred without gross
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent or such other indemnified party in
connection with the acceptance or administration of this Agreement and
performance hereunder, including without limitation, the costs and expenses of
defending against any claim of liability therefrom, directly or indirectly, and
will promptly reimburse the Rights Agent for legal and other expenses reasonably
incurred in defending any such loss, expense, claim, damage or liability.
(b) The Rights Agent shall be protected by the indemnity provided by
this Section and shall incur no liability for or in respect of any action taken,
suffered or omitted by it in connection with its administration of this
Agreement or the performance of its duties hereunder in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement or other
paper or document believed by it to be genuine and to have been signed, executed
and, where necessary, verified or acknowledged by the proper Person or Persons.
Section 19. Merger or Change of Name of Rights Agent.
(a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may effect a share exchange, or any
corporation resulting from any merger or share exchange to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust or stockholder services businesses of the
Rights Agent or any successor Rights Agent, shall be the successor to the Rights
Agent under this Agreement without the execution or filing of any document or
any further act on the part of any of the parties hereto; provided, however,
that such corporation would be eligible for appointment as a successor Rights
Agent under the provisions of Section 21 hereof. In case, at the time such
successor Rights Agent shall succeed to the agency created by this Agreement,
any of the Rights Certificates shall have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature of a predecessor
Rights Agent and deliver such Rights Certificates so countersigned; and in case
at that time any of the Rights Certificates shall not have been countersigned,
any successor Rights Agent may countersign such Rights Certificates either in
the name of the predecessor or in the name of the successor Rights Agent; and in
all such cases such Rights Certificates shall have the full force provided in
the Rights Certificates and in this Agreement.
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(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent.
The Rights Agent undertakes the duties and obligations expressly
imposed by this Agreement (and no implied duties or obligations shall be read
into this Agreement against the Rights Agent) upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person, Affiliate
or Associate and the determination of "current market price") be proved or
established by the Company prior to taking or suffering any action hereunder,
such fact or matter (unless other evidence in respect thereof be specified
herein) may be deemed to be conclusively proved and established by a certificate
signed by any person reasonably believed by the Rights Agent to be the Chairman
of the Board, the Chief Executive Officer, the President, any Vice President,
the Treasurer, any Assistant Treasurer, the Secretary or any Assistant Secretary
of the Company and delivered to the Rights Agent; provided, however, that such
certificate shall be full authorization to the Rights Agent for any action taken
or suffered in good faith by it under the provisions of this Agreement in
reliance upon such certificate.
(c) The Rights Agent shall not be liable for or by reason of any of the
statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(d) The Rights Agent is serving as an administrative agent and,
accordingly, shall not have any responsibility for the validity or legality of
any provision of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Rights Agent) or for the validity, legality or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or failure
by the Company to satisfy conditions contained in this Agreement or in any
Rights Certificate; nor shall it be responsible for
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any adjustment required under the provisions of Section 11 or Section 13 hereof
or for the manner, method or amount of any such adjustment or the ascertaining
of the existence of facts that would require any such adjustment (except with
respect to the exercise of Rights evidenced by Rights Certificates after receipt
by the Rights Agent of the certificate describing any such adjustment
contemplated by Section 12 hereof); nor shall it by any act hereunder be deemed
to make any representation or warranty as to the authorization or reservation of
any shares of Common Stock or any other securities to be issued pursuant to this
Agreement or any Rights Certificate or as to whether any shares of Common Stock
or any other securities will, when so issued, be validly authorized and issued,
fully paid and nonassessable.
(e) The Company shall perform, execute, acknowledge and deliver or
cause to be performed, executed, acknowledged and delivered all such further
acts, instruments and assurances as may reasonably be required by the Rights
Agent for the performance by the Rights Agent of its duties under this
Agreement.
(f) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be the Chairman of the Board,
the Chief Executive Officer, the President, any Vice President, the Secretary,
any Assistant Secretary, the Treasurer or any Assistant Treasurer of the
Company, and to apply to such officers for advice or instructions in connection
with its duties; and it shall not be liable to the Company, the holder of any
Rights Certificate or any stockholder of the Company for any action taken or
suffered to be taken by it in good faith in accordance with instructions of any
such officer or for any delay in acting while awaiting instructions. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Rights Agreement and the date
on and/or after which such action shall be taken or such omission shall be
effective. The Rights Agent shall not be liable for any action taken by, or
omission of, the Rights Agent in accordance with a proposal included in any such
application on or after the date specified in such application (which date shall
not be less than five Business Days after the date any such officer of the
Company actually receives such application, unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking any such action
(or the effective date in the case of an omission), the Rights Agent shall have
received written instructions in response to such application specifying the
action to be taken or omitted.
(g) The Rights Agent and any stockholder, director, officer or employee
of the Rights Agent may buy, sell or deal in any of the Rights or offer
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.
(h) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the
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Rights Agent shall not be answerable or accountable for any act, default,
neglect or misconduct of any such attorneys or agents or for any loss to the
Company resulting from any such act, default, neglect or misconduct if
reasonable care was exercised in the selection and continued employment thereof.
(i) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties or in the exercise of its rights hereunder if
the Rights Agent in its sole judgment shall have reasonable grounds for
believing that repayment of such funds or adequate indemnification against such
risk or liability is not reasonably assured to it.
(j) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, either has not
been completed, has not been signed, or indicates an affirmative response to
clause 1 and/or 2 thereof, the Rights Agent shall not take any further action
with respect to such requested exercise or transfer without first consulting
with the Company. If such certificate has been completed and signed, the Rights
Agent may assume without further inquiry that the Rights Certificate is not
owned by a person described in Section 4(b) or Section 7(e) hereof and shall not
be charged with any knowledge to the contrary.
(k) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct.
Section 21. Change of Rights Agent.
The Rights Agent or any successor Rights Agent may resign and be
discharged from its duties under this Agreement upon thirty (30) days' notice in
writing mailed to the Company and to each transfer agent of the Common Stock by
registered or certified mail, and to the holders of Rights Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon thirty (30) days' notice in writing mailed to the Rights Agent
or successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock by registered or certified mail, and to the holders of the Rights
Certificates by first-class mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of thirty (30) days after giving notice of such
removal or after it has been notified in writing of such resignation or
incapacity by the resigning or incapacitated Rights Agent or by the holder of a
Rights Certificate (who shall, with such notice, submit his Rights Certificate
for inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the appointment
of a new Rights Agent. Any successor Rights Agent, whether appointed by the
Company or by such a court, shall be a corporation organized and doing business
under the laws of the United States or any state of the United States, in good
standing, and may be the Company or a Subsidiary of the Company. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and
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responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer
to the successor Rights Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary for
the purpose. Not later than the effective date of any such appointment, the
Company shall file notice thereof in writing with the predecessor Rights Agent
and each transfer agent of the Common Stock, and mail a notice thereof in
writing to the registered holders of the Rights Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent.
Section 22. Issuance of New Rights Certificates.
Notwithstanding any of the provisions of this Agreement or the Rights
to the contrary, the Company may, at its option, issue new Rights Certificates
evidencing Rights in such form as may be approved by a majority of the Board of
Directors to reflect any adjustment or change made in accordance with the
provisions of this Agreement in the Exercise Price or the number or kind or
class of shares or other securities or property that may be acquired under the
Rights Certificates. In addition, in connection with the issuance or sale of
shares of Common Stock following the Exercisability Date and prior to the
Expiration Date, the Company:
(i) shall, with respect to shares of Common Stock so issued
or sold pursuant to the exercise of stock options or under any employee plan or
arrangement, or upon the exercise, conversion or exchange of securities
hereinafter issued by the Company, and
(ii) may, in any other case, if deemed necessary or
appropriate by the Board of Directors, issue Rights Certificates
representing the appropriate number of Rights in connection with such
issuance or sale; provided, however, that no such Rights Certificate
shall be issued if, and to the extent that (x) the Company shall be
advised by counsel that such issuance would create a significant risk
of material adverse tax consequences to the Company or the person to
whom such Rights Certificate would be issued, or (y) appropriate
adjustment shall otherwise have been made in lieu of the issuance
thereof.
Section 23. Redemption.
(a) The Rights may be redeemed by action of the Board of
Directors of the Company pursuant to paragraph (b) of this Section 23 and shall
not be redeemed in any other manner. Notwithstanding anything contained or
implied in this Agreement to the contrary, the Rights shall not be exercisable
after the occurrence of a Section 11(a)(ii) Event until such time as the
Company's right of redemption hereunder have expired.
(b) The Board of Directors of the Company may, at its option,
at any time prior to the Close of Business on the tenth Business Day after the
Stock Acquisition Date, redeem all, but not less than all, the then outstanding
Rights at a redemption price of $.001 per Right,
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appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such redemption price being
hereinafter referred to as the "Redemption Price"); provided, however, that with
respect to any redemption of Rights under either of the circumstances set forth
in clauses (i) and (ii) below, the Rights may be redeemed only if there are
Continuing Directors then in office and the Board of Directors of the Company,
with the concurrence of a majority of the Continuing Directors then in office,
approves such redemption: (i) such approval occurs at any time after any Person
becomes an Acquiring Person, or (ii) such approval occurs at any time after a
change (resulting from a proxy solicitation or from a vote of stockholders or in
any other manner) in a majority of the directors in office at the commencement
of such solicitation, or prior to such vote if any Person who is a participant
in such solicitation or vote has stated (or, if the majority of the directors in
office at the commencement of such solicitation or prior to such vote has
determined in good faith) that such Person (or any of its Affiliates or
Associates) intends to take or may consider taking, any action that would result
in such Person becoming an Acquiring Person or that would result in the
occurrence of a Section 11(a)(ii) Event. The Company may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based on the current per share
market price of shares of Common Stock at the time of redemption determined
pursuant to Section 11(d) hereof) or any other form of consideration deemed
appropriate by the Board of Directors of the Company; provided that if the
Company elects to pay the Redemption Price in shares of Common Stock, the
Company shall not be required to issue fractional shares of Common Stock. In
lieu of such fractional shares of Common Stock, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional shares of Common Stock would otherwise be issuable an amount of cash
equal to the same fraction of the current per share market price of a whole
share of Common Stock.
(c) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights pursuant to paragraph (b) of this
Section 23, and without any further action and without any notice, the right to
exercise the Rights will terminate and the only right thereafter of the holders
of Rights shall be to receive the Redemption Price. The Company shall promptly
give public notice of any such redemption; provided, however, that the failure
to give, or any defect in, any such notice shall not affect the validity of such
redemption. Within 10 days after such action of the Board of Directors ordering
the redemption of the Rights pursuant to paragraph (b), the Company shall mail a
notice of redemption to all the holders of the then outstanding Rights at their
addresses as they appear upon the registry books of the Rights Agent or, prior
to the Exercisability Date, on the registry books of the transfer agent for the
Common Stock of the Company. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by which the payment of the
Redemption Price will be made. Neither the Company nor any of its Affiliates or
Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24 hereof and other than in connection with the purchase of shares of
Common Stock prior to the Exercisability Date.
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Section 24. Exchange.
(a) The Board of Directors of the Company may, at its option.
at any time after any Person becomes an Acquiring Person, exchange all or any
part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 11(a)(ii)
hereof) for shares of Common Stock at an exchange ratio of one share of Common
Stock per Right, appropriately adjusted to reflect any stock split, stock
dividend or similar transaction occurring after the date hereof (such exchange
ratio being hereinafter referred to as the "Exchange Ratio"); provided, however,
that with respect to any such action by the Board of Directors as to such an
exchange, the Rights may be so exchanged only if (i) there are Continuing
Directors then in office and (ii) the Board of Directors of the Company approves
such exchange with the concurrence of a majority of the Continuing Directors
then in office.
(b) Immediately upon the action of the Board of Directors of
the Company ordering the exchange of any Rights pursuant to paragraph (a) of
this Section 24, and without any further action and without any notice, the
right to exercise such Rights shall terminate and the only right thereafter of a
holder of such Rights shall be to receive that number of shares of Common Stock
equal to the number of such Rights held by such holder multiplied by the
Exchange Ratio. The Company shall promptly give public notice of any such
exchange; provided, however, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company shall
promptly mail a notice of any such exchange to all of the holders of such Rights
at their addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange will
state the method by which the exchange of the shares of Common Stock for Rights
will be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(ii) hereof) held by each holder of Rights.
(c) In the event that there shall not be sufficient shares of
Common Stock issued but not outstanding or authorized but unissued to permit any
exchange of Rights as contemplated in accordance with this Section 24, the
Company shall take all such action as may be necessary to authorize additional
shares of Common Stock for issuance upon exchange of the Rights.
(d) The Company shall not be required to issue fractions of
shares of Common Stock or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of such fractional shares of Common Stock, the
Company shall pay to the registered holders of the Right Certificates with
regard to which such fractional shares of Common Stock would otherwise be
issuable an amount in cash equal to the same fraction of the current per share
market price of a whole share of Common Stock. For the purposes of this
paragraph (d), the current market price of a whole share of Common Stock shall
be the closing price of a share of Common Stock (as determined pursuant to the
second and third sentences of Section 11(d) hereof) for the Trading Day
immediately prior to the date of exchange pursuant to this Section 24.
35
<PAGE> 39
Section 25. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Exercisability Date,
(i) to pay any dividend payable in stock of any class to the
holders of Common Stock or to make any other distribution to the
holders of Common Stock (other than a regular quarterly cash dividend
out of earnings or retained earnings of the company);
(ii) to offer to the holders of Common Stock rights or
warrants to subscribe for or to purchase any additional shares of
Common Stock or shares of stock of any class or any other securities,
rights or options;
(iii) to effect any reclassification of its Common Stock
(other than a reclassification involving only the subdivision of
outstanding shares of Common Stock);
(iv) to effect any share exchange or merger into or with any
other Person (other than a Subsidiary of the Company in a transaction
which complies with Section 11(o) hereof), or to effect any sale or
other transfer (or to permit one or more of its Subsidiaries to effect
any sale or other transfer), in one or more transactions, of more than
50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the
Company and/or any of its Subsidiaries in one or more transactions each
of which complies with Section 11(o) hereof); or
(v) to effect the liquidation, dissolution or winding up of
the Company;
then, in each such case, the Company shall give to each holder of a Rights
Certificate, to the extent feasible and in accordance with Section 26 hereof, a
notice of such proposed action (which shall specify the record date for the
purposes of such stock dividend or distribution of rights or warrants, or the
date on which such reclassification, share exchange, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Common Stock, if any such
date is to be fixed), and such notice shall be so given in the case of any
action covered by clause (i) or (ii) above at least twenty (20) days prior to
the record date for determining holders of the shares of Common Stock for
purposes of such action, and in the case of any such other action, at least
twenty (20) days prior to the date of the taking of such proposed action or the
date of participation therein by the holders of the shares of Common Stock,
whichever shall be the earlier; provided, however, that no such notice shall be
required pursuant to this Section 25 if any Subsidiary of the Company effects a
share exchange or merger with or into, or effects a sale or other transfer of
assets or earning power to, any other Subsidiary of the Company.
(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 26 hereof, a notice of the
36
<PAGE> 40
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof.
Section 26. Notices.
All notices and other communications provided for hereunder shall,
unless otherwise stated herein, be in writing (including by telex, telegram or
cable) and be mailed or sent or delivered, if to the Company, at the following
address (until another address is filed in writing by the Company):
Dale Wolf
Coventry Health Care, Inc.
501 Corporate Drive, Suite 400
Franklin, Tennessee 37067
with a copy to:
Bob F. Thompson, Esq.
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238
Telecopy Number: (615) 742-6298
and, if to the Rights Agent, at the following address (until another address is
filed in writing by the Rights Agent):
ChaseMellon Shareholder Services, L.L.C.
Four Station Square, 3rd Floor
Pittsburgh, PA 15219-1173
Attention: Harry Richards
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Exercisability Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed to such holder at the address of
such holder as shown on the registry books of the Company.
Section 27. Supplements and Amendments.
Prior to the Exercisability Date and subject to the penultimate
sentence of this Section 27, the Company and the Rights Agent shall, if the
Company so directs, supplement or amend any provision of this Agreement without
the approval of any holders of certificates representing shares of Common Stock.
From and after the Exercisability Date and subject to the penultimate sentence
37
<PAGE> 41
of this Section 27, the Company and the Rights Agent shall, if the Company so
directs, supplement or amend this Agreement without the approval of any holders
of Rights Certificates in order:
(i) to cure any ambiguity;
(ii) to correct or supplement any provision contained herein
which may be defective or inconsistent with any other provisions
herein;
(iii) to shorten or lengthen any time period hereunder; or
(iv) to change or supplement the provisions hereunder in any
manner which the Company may deem necessary or desirable and which
shall be consistent with, and for the purpose of fulfilling, the
objectives of the Board in adopting this Agreement, including any
change in the number or class of shares of capital stock of the Company
for which the Rights are potentially exercisable prior to a Triggering
Event;
provided, however, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights; and provided, further,
that this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence (A) subject to Section 31 hereof, a time period
relating to when the Rights may be redeemed at such time as the Rights are not
then redeemable, or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Without limiting the foregoing, the Company
may at any time prior to such time as any Person becomes an Acquiring Person
amend this Agreement to change the Exercise Price hereunder. Upon the delivery
of a certificate from an appropriate officer of the Company or, so long as any
Person is an Acquiring Person hereunder, from the majority of the Board of
Directors, which states that the proposed supplement or amendment is in
compliance with the terms of this Section 27, the Rights Agent shall execute
such supplement or amendment. Notwithstanding anything contained in this
Agreement to the contrary, no supplement or amendment which changes the rights
and duties of the Rights Agent under this Agreement shall be effective without
the consent of the Rights Agent, and no supplement or amendment shall be made
which changes the Redemption Price, the Exercise Price, the Expiration Date or
the number of shares of Common Stock (or other securities) for which a Right is
exercisable without the approval of a majority of the Board of Directors. Prior
to the Exercisability Date, the interests of the holders of Rights shall be
deemed coincident with the interests of the holders of Common Stock.
Section 28. Determinations and Actions by the Board of Directors, etc.
For all purposes of this Agreement, any calculation of the number of
shares of Common Stock or other securities outstanding at any particular time,
including for purposes of determining the particular percentage of outstanding
shares of Common Stock of which any Person is the Beneficial Owner, shall be
made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the
38
<PAGE> 42
Exchange Act Regulations as in effect on the date hereof. Except as otherwise
specifically provided herein, the Board of Directors of the Company shall have
the exclusive power and authority to administer this Agreement and to exercise
all rights and powers specifically granted to the Board, or to the Company, or
as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power (i) to interpret the
provisions of this Agreement, and (ii) to make all determinations deemed
necessary or advisable for the administration of this Agreement. All such
actions, calculations, interpretations and determinations (including, for
purposes of clause (y) below, all omissions with respect to the foregoing) which
are done or made by the Board or by a majority of the Board in good faith (x)
shall be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights and all other parties, and (y) shall not subject the Board
or any member thereof to any liability to the holders of the Rights.
Section 29. Successors.
All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit
of their respective successors and assigns hereunder.
Section 30. Benefits of this Agreement.
Nothing in this Agreement shall be construed to give to any Person
other than the Company, the Rights Agent and the registered holders of the
Rights Certificates (and, prior to the Exercisability Date, registered holders
of shares of Common Stock) any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Rights Agent and the registered holders of the Rights
Certificates (and, prior to the Exercisability Date, registered holders of
shares of Common Stock).
Section 31. Severability.
If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or other authority to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated; provided, however, that
notwithstanding anything in this Agreement to the contrary, if (i) any such
term, provision, covenant or restriction is held by such court or authority to
be invalid, void or unenforceable, and a majority of the Board determines in its
good faith judgment that severing the invalid language from this Agreement would
adversely affect the purpose or effect of this Agreement; and (ii) at the time
of such holding by such court or authority, the Rights are not redeemable, then
the right of redemption set forth in Section 23 hereof shall be reinstated and
shall not expire until the Close of Business on the tenth day following the date
of such determination by a majority of the Board as described above.
39
<PAGE> 43
Section 32. Governing Law.
This Agreement, each Right and each Rights Certificate issued hereunder
shall be governed by, and construed in accordance with, the laws of the State of
Delaware.
Section 33. Counterparts.
This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original, but all of which taken together shall
constitute one and the same instrument.
[Remainder of Page Intentionally Left Blank]
40
<PAGE> 44
Section 34. Descriptive Headings.
The headings contained in this Agreement are for descriptive purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the date first above written.
COVENTRY HEALTH CARE, INC.
By: /s/ Dale B. Wolf
------------------------------------
Name: Dale B. Wolf
Title: President
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
By: /s/ Harry T. Richards
------------------------------------
Name: Harry T. Richards
Title: Assistant Vice President
As of March 30, 1998
41
<PAGE> 45
EXHIBIT A
[Form of Rights Certificate]
Certificate No. ___________ Rights
NOT EXERCISABLE AFTER THE EXPIRATION DATE (AS DEFINED IN THE RIGHTS
AGREEMENT). THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY,
ON THE TERMS SET FORTH IN THE AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED
IN THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY ACQUIRING PERSONS (AS
DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY
BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR
WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN
AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE
RIGHTS AGREEMENT). ACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS
REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN
SECTION 7(e) OF SUCH AGREEMENT.] *
Rights Certificate
COVENTRY HEALTH CARE, INC.
This certifies that [ ], or registered assigns, is the registered
holder of the number of Rights set forth above, each of which entitles the
registered holder thereof, subject to the terms and conditions of the Rights
Agreement dated February __, 1996 (the "Rights Agreement") between Coventry
Health Care, Inc., a Delaware corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (the "Rights Agent", which term
shall include any successor Rights Agent under the Rights Agreement), to
purchase from the
- - --------
The portion of the legend in brackets shall be inserted only if
applicable and shall replace the preceding sentence.
<PAGE> 46
Company at any time after the Exercisability Date (as such term is defined in
the Rights Agreement) and prior to the Expiration Date (as such term is defined
in the Rights Agreement) at the office of the Rights Agent or its successor
designated for such purpose, one-tenth of one fully paid nonassessable share of
Common Stock, $.01 par value, of the Company (the "Common Stock") at the
Exercise Price initially of $80 per one tenth of one share of Common Stock, upon
presentation and surrender of this Rights Certificate with the Election to
Purchase and related certificate duly executed. The number of Rights evidenced
by this Rights Certificate (and the number of shares of Common Stock which may
be purchased upon exercise thereof) set forth above, and the Purchase Price per
share set forth above shall be subject to adjustment in certain events as
provided in the Rights Agreement.
Upon the occurrence of a Section 11(a)(ii) Event (as such term is
defined in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by an Acquiring Person or an Affiliate or
Associate of any such Acquiring Person (as such terms are defined in the Rights
Agreement) or, under certain circumstances described in the Rights Agreement, a
transferee of any such Acquiring Person, Associate or Affiliate, such Rights
shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section 11(a)(ii)
Event.
In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the registered holder thereof to purchase shares of
capital stock of an entity other than the Company or receive cash or other
assets, all as provided in the Rights Agreement.
This Rights Certificate is subject to all of the terms and conditions
of the Rights Agreement, which terms and conditions are hereby incorporated
herein by reference and made a part hereof and to which Rights Agreement
reference is hereby made for a full description of the
<PAGE> 47
rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Rights Certificates. Copies
of the Rights Agreement are on file at the principal office of the Rights Agent
and are available from the Company upon written request.
This Rights Certificate, with or without other Rights Certificates,
upon surrender at the office of the Rights Agent designated for such purpose,
may be exchanged for another Rights Certificate or Rights Certificates of like
tenor and date evidencing an aggregate number of Rights equal to the aggregate
number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the
registered holder shall be entitled to receive, upon surrender hereof, another
Rights Certificate or Rights Certificates for the number of whole Rights not
exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Certificate may be redeemed by the Company under certain circumstances
at its option at a redemption price of $.001 per Right, payable at the Company's
option in cash or in Common Stock, subject to adjustment in certain events as
provided in the Rights Agreement.
No fractional shares of Common Stock will be issued upon the exercise
of any Right or Rights evidenced hereby, but in lieu thereof a cash payment will
be made, as provided in the Rights Agreement.
No holder of this Rights Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of Common
Stock or of any other securities which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein
be construed to confer upon the holder hereof, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter
<PAGE> 48
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in the Rights Agreement), or to
receive dividends or subscription rights, or otherwise, until the Rights
evidenced by this Rights Certificate shall have been exercised as provided in
the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the signature of the proper officers of the Company. Dated as
of ________________________.
ATTEST: COVENTRY HEALTH CARE, INC.
____________________________ By:_________________________________
Title:______________________ Title:______________________________
Countersigned:
____________________________
By _________________________
Authorized Signature
<PAGE> 49
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if
such holder desires to transfer the
Rights Certificate)
FOR VALUE RECEIVED __________________________________ hereby sells, assigns and
transfers unto _________________________________ (Please
print name and address of transferee)
____________________________________________________________________ this Rights
Certificate, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint ____________________________ Attorney,
to transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated:__________________________, [____].
__________________________________
Signature
Signature Guaranteed:
<PAGE> 50
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
pursuant to the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, it
[ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from
any person who is, was or subsequently became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person.
Dated:_______________, [____]. ________________________________
Signature
Signature Guaranteed:
_____________________________________________________________________________
NOTICE
This signature to the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
Signature must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
In the event the certification set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and, in the case of an Assignment, will affix a
legend to that effect on any Rights Certificates issued in exchange for this
Rights Certificate.
<PAGE> 51
FORM OF ELECTION TO PURCHASE
(To be executed if the registered holder
desires to exercise Rights represented
by the Rights Certificate)
To: COVENTRY HEALTH CARE, INC.
The undersigned hereby irrevocably elects to exercise __________ Rights
represented by this Rights Certificate to purchase the shares of Common Stock,
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of the
Rights) and requests that certificates for such shares be issued in the name of
and delivered to:
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Please insert social security or other identifying number: _____________________
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Please insert social security or other identifying number: _____________________
Dated:_________________________, [____].
____________________________________
Signature
Signature Guaranteed:
_______________________________________________________________________________
<PAGE> 52
Certificate
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
beneficially owned by an Acquiring Person or an Affiliate or an Associate
thereof (as defined in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Rights
Certificate from any person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate thereof.
Dated:_______________, [____]. _______________________________
Signature
Signature Guaranteed:
_______________________________________________________________________________
NOTICE
This signature to the foregoing Election to Purchase and Certificate
must conform to the name as written upon the face of this Rights Certificate in
every particular, without alteration or enlargement or any change whatsoever.
Signature must be guaranteed by a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc., or a commercial bank or trust company having an office or correspondent in
the United States.
In the event the certification set forth above is not completed, the
Company will deem the beneficial owner of the Rights evidenced by this Rights
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement) and, in the case of an Assignment, will affix a
legend to that effect on any Rights Certificates issued in exchange for this
Rights Certificate.
<PAGE> 53
EXHIBIT B
SUMMARY OF RIGHTS AGREEMENT
Each holder of shares of COVENTRY HEALTH CARE, INC. Common Stock as of
the Record Date will receive, a distribution of one Stock Purchase Right per
share of Coventry Health Care, Inc. Common Stock in accordance with and pursuant
to the Rights Agreement (a "Right"). A Right will also accompany each share of
Coventry Common Stock issued following the Record Date. Each Right, when it
first becomes exercisable, entitles the holder to purchase from Coventry Health
Care, Inc. one-tenth of one share of Common Stock at an initial exercise price
of $80 per tenth of one share (the "Exercise Price"), subject to adjustment.
Exercisability of Rights. Initially, the Rights will not be exercisable
or transferable apart from the shares of Coventry Common Stock with respect to
which they were distributed, and will be evidenced only by the certificates
representing such shares. The Rights will become exercisable and transferable
apart from the Coventry Common Stock on a date (the "Exercisability Date") that
is the earlier of (a) the close of business on the tenth day after the Stock
Acquisition Date, defined as the first date of a public announcement that a
person or group of affiliated or associated persons has become an Acquiring
Person (as defined below), or (b) the close of business on such date as a
majority of the Coventry Board of Directors shall determine, which date shall
follow the commencement of a tender or exchange offer that, if consummated,
would result in a person or group becoming an Acquiring Person. The Rights will
be exercisable from the Exercisability Date until the Expiration Date (which is
the earlier of the close of business on February 7, 2006 (the "Final Expiration
Date") or the date the Rights are redeemed by Coventry Health Care, Inc. (the
"Redemption Date")), at which time they will expire.
With certain exceptions described in the Rights Agreement, a person or
group becomes an Acquiring Person when such person or group acquires or obtains
the rights to acquire beneficial ownership of 15% or more of the then
outstanding shares of Coventry Common Stock.
Transferability of Rights. Prior to the Exercisability Date, the Rights
will not be transferable apart from the shares of Coventry Common Stock to which
they are attached. Thus, the surrender or transfer of any Coventry Common Stock
certificate prior to that date will also constitute the transfer of the Rights
associated with the shares represented by such certificate. As soon as
practicable after the Exercisability Date, separate certificates evidencing the
Rights ("Rights Certificates") will be mailed to each record holder of shares of
Coventry Common Stock as of the close of business on the Exercisability Date
and, in certain circumstances, holders of certain shares issued after the
Exercisability Date.
Flip-In Rights. Upon the acquisition of 15% of Coventry Common Stock by
an Acquiring Person (a "Flip-In Event"), each holder of a Right will thereafter
have the right (the "Flip-In Right") to receive, upon exercise, the number of
shares of Coventry Common Stock having a market value immediately prior to the
Flip-In Event equal to two times the then current Exercise Price of the Right,
provided, however, that any Right that is (or, in certain circumstances
specified
<PAGE> 54
in the Rights Agreement, was) beneficially owned by an Acquiring Person (or any
of its affiliates or associates) will become null and void upon the occurrence
of the Flip-In Event. Cash will be paid in lieu of issuing fractional shares.
Flip-Over Rights. If, at any time following an Exercisability Date,
either (i) Coventry is acquired in a merger or other business combination
transaction or (ii) Coventry sells or otherwise transfers more than 50% of its
aggregate assets or earning power, each holder of a Right (except Rights
previously voided as described above) will thereafter have the right (the
"Flip-Over Right") to receive, upon exercise, shares of common stock of the
Acquiring Person having a value equal to two times the then current Exercise
Price of the Right. The Flip-Over Right shall be exercisable apart from, and
regardless of the exercise or surrender of, the Flip-In Right.
Redemption of the Rights. At any time prior to the earlier of (i) the
close of business on the tenth day following the Stock Acquisition Date, or (b)
the close of business on the Final Expiration Date, and in certain other
circumstances, the Coventry Board of Directors may redeem the Rights in whole
but not in part at a Redemption Price of $.001 per Right.
Exchange of the Rights. At any time after any person becomes an
Acquiring Person, the Board of Directors of the Company may exchange the Rights
(other than Rights owned by such Acquiring Person which have become void), in
whole or in part, at an exchange ratio of one share of Common Stock per right.
Notwithstanding the foregoing, the Board of Directors shall not be empowered to
effect such exchange at any time after such Acquiring Person becomes the
beneficial owner of 50% or more of the shares of Common Stock then outstanding.
Amendment of the Rights Agreement. At any time prior to the
Exercisability Date, the Coventry Board of Directors may amend any provision of
the Rights Agreement in any manner. Thereafter, the Board may amend the
Agreement in certain respects, including generally (a) to shorten or lengthen
any time period under the Agreement or (b) in any manner that the Board deems
necessary or desirable, so long as such amendment is consistent with and for the
purpose of fulfilling the objectives of the Board in originally adopting the
Rights Plan. Certain amendments (including changes to the Redemption Price,
Exercise Price, Expiration Date, or number of shares for which a Right is
exercisable), whether prior to the Exercisability Date or thereafter, are
permitted only upon approval by a majority of the Coventry Board.
<PAGE> 1
EXHIBIT 4.5
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE SECURITIES
ACT OR IN A TRANSACTION WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY
TO COVENTRY HEALTH CARE, INC., IS EXEMPT FROM SUCH REGISTRATION.
COVENTRY HEALTH CARE, INC.
COMMON STOCK PURCHASE WARRANT
Attached hereto as Exhibit 1 is a list (the "Option List") of issued
and outstanding options (each, an "Option"), and warrants (each, a "Warrant,"
and together with the Options the "Option Securities") that give the respective
holders thereof the right to acquire shares of Common Stock, par value $0.01 per
share (the "Common Stock"), of COVENTRY HEALTH CARE, INC., a Delaware
corporation (the "Company"). The Option List sets forth the name of each holder
of an Option Security, the date on which such Option Security may be exercised,
the date on which such Option Security expires, and the exercise price per share
of Common Stock issuable upon the exercise of such Option Security. Reference is
made herein to that certain Capital Contribution and Merger Agreement (effective
as of November 3, 1997, and amending and restating the Capital Contribution and
Share Exchange Agreement dated November 3, 1997), executed on December 19, 1997
(the "Merger Agreement"), by and among the Company, Coventry Health Care, Inc.
(a Maryland corporation), Coventry Corporation, a Tennessee corporation,
Principal Mutual Life Insurance Company, an Iowa mutual insurance company
("Principal Mutual"), Principal Holding Company, an Iowa corporation, and
Principal Health Care, Inc., an Iowa corporation ("Principal"). Capitalized
terms not herein defined shall have the meanings ascribed thereto in the Merger
Agreement.
The Company hereby certifies that, for value received, Principal or its
successor or assigns (the "Holder"), is entitled, subject to the terms set forth
below, to purchase from the Company, at any time and from time to time during
the period beginning on the date hereof and ending on the latest date of
expiration set forth on the Option List (the "Exercise Period") for each Option
Security set forth on the Option List (and only during the period from the date
each such Option Security is exercised and ending on the later of the
termination date of the Option Security without regard to the actual date of
exercise by the holder of the Option Security, or the thirtieth day after Holder
receives notice from the Company of the exercise of the Option Security) a
corresponding number of shares of Common Stock equal to 66 2/3% of the number of
shares of Common Stock purchasable under such Option Security, at the exercise
price set forth on the Option List for such Option Security, provided that in
the event any Option Security shall not have been exercised and shall be
cancelled, then the right to purchase hereunder shall be correspondingly reduced
by 66 2/3% of the number of shares of Common Stock covered by such cancelled
option. This Warrant is herein called the "Principal Warrant."
<PAGE> 2
1. EXERCISE OF WARRANT.
1.1 Delivery of Exercise Notice. During the Exercise Period,
on or before the fifth business day immediately following the last calendar day
of March, June, September and December during each year of the Exercise Period,
and at least twenty (20) days before any meeting of the Company's shareholders
or any other action involving a vote of the Company's Common Stock, the chief
financial officer of the Company shall deliver to the Holder a written notice
(each, a "Warrant Notice") that sets forth (i) the number of shares of Common
Stock that the Holder shall thereafter be entitled to purchase, which number
shall be equal to the product of (x) 66 2/3% and (y) the number of shares of
Common Stock that were issued by the Company upon the exercise of any Option
Securities since the last Warrant Notice through the record date for the
shareholder meeting or voting event requiring the immediate Warrant Notice or,
in all other cases, through the period ending thirty (30) days before such
Warrant Notice; (ii) the price per share (the "Notice Price") received by the
Company upon such exercise of each of such Option Securities; and (iii) a
description of any Option Securities that have expired or have been canceled
during the same period.
1.2 Exercise. The purchase rights evidenced by this Warrant
shall be exercised by the Holder delivering to the Company a written notice
substantially in the form attached as Exhibit 2 hereto (the "Exercise Notice"),
duly executed by such Holder, accompanied by payment (the "Exercise Payment") of
an amount equal to the Notice Price multiplied by the number of shares being
purchased pursuant to such exercise, payable as follows: (a) by payment to the
Company in cash, by check, or by wire transfer of the Exercise Payment, or (b)
by surrender to the Company for cancellation of securities of the Company having
a Market Price (as hereinafter defined) on the date of exercise equal to the
Exercise Payment.
For purposes hereof, the term "Market Price" shall mean (a) if
the Common Stock is traded on a national securities exchange, the last reported
sale price of a share of Common Stock, regular way on such date or, in case no
such sale takes place on such date, the average of the closing bid and asked
prices thereof regular way on such date, in either case as officially reported
on the principal national securities exchange on which the Common Stock is then
listed or admitted for trading, or, (b) if the Common Stock is not then listed
or admitted for trading on any national securities exchange but is designated as
a national market system security by the National Association of Securities
Dealers, Inc. ("NASD"), the last reported trading price of the Common Stock on
such date, or (c) if not listed or admitted to trading on any national
securities exchange or designated as a national market system security, the
average of the reported bid and asked price of the Common Stock on such date in
the over-the-counter market as furnished by the National Quotation Bureau, Inc.,
or, if such firm is not then engaged in the business of reporting such prices,
as furnished by any member of the NASD selected by the Company or, (d) if the
shares of Common Stock are not so publicly traded, the fair market value
thereof, as determined in good faith by the Board of Directors of the Company.
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after any exercise of this Principal Warrant and receipt of the Exercise
Payment, and in any event within ten business days thereafter, the Company, at
its expense, will cause to be issued in the name
-2-
<PAGE> 3
of and delivered to the Holder a certificate or certificates for the number of
fully paid and non-assessable shares of Common Stock or property to which such
holder shall be entitled upon such exercise, plus, in lieu of any fractional
share to which such holder would otherwise be entitled, cash in an amount
determined in accordance with Section 3.5 hereof. The Company agrees that the
shares so purchased shall be deemed to be issued to the holder hereof as the
record owner of such shares as of the close of business on the date the Exercise
Notice shall have been delivered and payment made for such shares as aforesaid.
3. OTHER ADJUSTMENTS. The number of shares of Common Stock issuable
upon exercise of this Principal Warrant shall be subject to adjustment from time
to time in accordance with this Section 3.
3.1 Cancellation or Expiration of Option Convertible
Securities. If any Option Security shall expire or shall be canceled without
being exercised, in whole or in part, and any obligation of the Company to issue
shares of Common Stock thereunder shall terminate, then the right of the Holder
to acquire any shares of Common Stock relating to such canceled Option Security
shall immediately terminate and no longer be in effect.
3.2 Principal Warrant Adjustment. In the event the Exercise
Price and/or the number of shares underlying any Option Security shall be
adjusted as a result of the anti-dilution rights pertaining to such Option
Security, then this Principal Warrant shall likewise be adjusted with respect to
such Option Security.
3.3 Reorganization, Reclassification, Consolidation, Merger or
Sale of Assets. If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash or other property with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder of this Principal Warrant shall have the right
to acquire and receive upon exercise of this Principal Warrant such shares of
stock, securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of the Company's Common
Stock (the "Reorganization Consideration") as shall equal the product of (x)
forty percent (40%) and (y) any Reorganization Consideration payable to the
holders of the Option Securities in connection with their ownership of such
Option Securities.
3.4 Adjustment by Board of Directors. If any event occurs as
to which, in the opinion of the Board of Directors of the Company, the
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holder of this Principal
Warrant in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in the
application of such provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid.
-3-
<PAGE> 4
3.5 Fractional Shares. The Company shall not issue fractions
of shares of Common Stock upon exercise of this Principal Warrant or scrip in
lieu thereof. If any fraction of a share of Common Stock would, except for the
provisions of this Section 3.5, be issuable upon exercise of this Principal
Warrant, the Company shall in lieu thereof pay to the person entitled thereto an
amount in cash equal to the Market Price, calculated to the nearest
one-hundredth (1/100) of a share.
3.6 Officer's Statement as to Adjustments. Whenever the number
of shares issuable upon exercise of this Principal Warrant shall be adjusted as
provided in this Section 3, the Company shall deliver to the Holder, a
statement, signed by the Chief Financial Officer of the Company, showing in
reasonable detail an amended and restated Exhibit 1 to this Principal Warrant
that will be effective after such adjustment.
4. RESERVATION OF STOCK. The Company shall at all times reserve and
keep available out of its authorized but unissued stock, solely for the issuance
and delivery upon the exercise of this Principal Warrant, such number of its
duly authorized shares of Common Stock as from time to time shall be issuable
upon the exercise of this Principal Warrant.
5. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Principal Warrant and (in the case of loss, theft or destruction) upon
delivery of an indemnity agreement (with surety if reasonably required) in an
amount reasonably satisfactory to it, or (in the case of mutilation) upon
surrender and cancellation thereof, the Company will issue, in lieu thereof, a
new warrant of like tenor.
6. REMEDIES. The Company stipulates that the remedies at law of the
Holder in the event of any default by the Company in the performance of or
compliance with any of the terms of this Principal Warrant are not and will not
be adequate, and that the same may be specifically enforced.
7. NEGOTIABILITY, ETC. This Principal Warrant and any shares of Common
Stock issuable under this Principal Warrant may not be sold, pledged,
hypothecated or otherwise transferred except in accordance with the provisions
of that certain Shareholders' Agreement, of even date herewith, by and among the
Company, Principal and Principal Mutual.
8. NOTICES. All notices, consents, waivers, and other communications
under this Principal Warrant must be in writing and will be deemed to have been
duly given when (a) delivered by hand (with written confirmation of receipt),
(b) sent by telecopier (with written confirmation of receipt) provided that a
copy is mailed by registered mail, return receipt requested, or (c) when
received by the addressee, if sent by a nationally recognized overnight courier
service (receipt requested), in each case to the appropriate address and
telecopier number set forth below (or such other address and telecopier number
as the Company or the Principal may designate by notice to the other party):
-4-
<PAGE> 5
(i) if to the Company:
Dale Wolf
Coventry Health Care, Inc.
53 Century Boulevard
Nashville, Tennessee 37214
Telecopy Number:
with a copy to:
Bob F. Thompson, Esq.
Bass, Berry & Sims PLC
2700 First American Center
Nashville, Tennessee 37238
Telecopy Number: (615) 742-6298
(ii) if to the Principal:
Kenneth J. Linde
Principal Health Care, Inc.
6705 Rockledge Drive
Suite 100
Bethesda, Maryland 20817
Telecopy Number:
with a copy to:
Thomas M. Farah, Esq.
Epstein, Becker & Green, P.C.
1227 25th Street, N.W., Suite 700
Washington, D.C. 20037
Telecopy Number: (202) 296-2882
and
Robert J. Mrizek, Esq.
Principal Health Care, Inc.
6705 Rockledge Drive
Suite 100
Bethesda, MD 20817
Telecopy Number: (301) 493-0743
-5-
<PAGE> 6
and
Mark Movic
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392
Telecopy Number: (515) 247-0130
and
Karen E. Shaff, Esq.
Principal Mutual Life Insurance Company
711 High Street
Des Moines, Iowa 50392
Telecopy Number: (515) 248-3011
9. HEADINGS, ETC. The headings in this Principal Warrant are for
purposes of reference only, and shall not limit or otherwise affect the meaning
hereof.
10. CHANGE, WAIVER, ETC. Neither this Principal Warrant nor any term
hereof may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
11. GOVERNING LAW. THIS PRINCIPAL WARRANT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
CONFLICT OF LAWS PRINCIPLES IN EFFECT THEREIN.
-6-
<PAGE> 7
IN WITNESS WHEREOF, COVENTRY HEALTH CARE, INC. has caused its duly
authorized officer to execute this Principal Warrant in its name and on its
behalf on the 31st day of March, 1998.
ATTEST: COVENTRY HEALTH CARE, INC.
By: /s/ Shirley R. Smith By: /s/ Dale B. Wolf
---------------------------- --------------------------------
Name: Shirley R. Smith Name: Dale B. Wolf
---------------------------- --------------------------------
Title: Secretary Title: President
---------------------------- --------------------------------
Dated: March 31, 1998
----------------------------
-7-
<PAGE> 8
EXHIBIT 1
COVENTRY HEALTH CARE, INC.
PERSONNEL SUMMARY
AS OF 3/31/98
Shares Outstanding is greater than 0
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Adkins, Jennifer 000580 7/15/97 1993/NQ 15,000 $15.9375 0 0 0 15,000 15,000 0
Ajoku, Rosemary 000711 7/15/97 1997/NQ 750 $15.9375 0 0 0 750 750 0
Allan, Kimberly A. 000162 7/ 1/94 1993/NQ 1,000 $18.1250 0 500 500 0 500 500
000581 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
R00218 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
Allen, Carmella 000575 7/15/97 1993/NQ 2,000 $15.9375 0 0 0 2,000 2,000 0
C00057 9/12/96 1993/NQ 2,000 $12.5000 0 0 0 2,000 2,000 0
Arnold, Edward D. 000551 11/13/96 1993/NQ 40,000 $11.0000 10,000 10,000 0 30,000 30,000 0
000596 7/15/97 1993/NQ 6,000 $15.9375 0 0 0 6,000 6,000 0
Austin, M.D., John H. 000004 12/14/89 1989/NQ 1,668 $ 5.0000 0 1,668 0 0 1,668 1,668
000005 12/14/89 1989/NQ 1,666 $ 6.3750 0 1,666 0 0 1,666 1,666
000134 1/ 1/93 93D/NQ 2,000 $11.3150 0 2,000 0 0 2,000 2,000
000135 1/ 1/94 93D/NQ 2,000 $21.2500 0 2,000 0 0 2,000 2,000
000136 1/ 1/95 93D/NQ 2,000 $24.5000 0 2,000 0 0 2,000 2,000
000498 1/ 1/96 93D/NQ 6,000 $20.6250 0 6,000 0 0 6,000 6,000
000556 1/ 1/97 93D/NQ 6,000 $ 9.2656 0 6,000 0 0 6,000 6,000
000720 1/ 1/98 93D/NQ 6,000 $15.2500 0 0 0 6,000 6,000 0
Baechle, Kim 000662 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Baer, David 000597 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
Bailey, Don 000663 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
Becker, Arthur 000598 7/15/97 1993/NQ 2,000 $15.9375 0 0 0 2,000 2,000 0
Bednar, Connie 000447 7/28/95 1993/NQ 2,500 $15.8750 0 625 1,875 0 625 625
000631 7/15/97 1993/NQ 4,000 $15.9375 0 0 0 4,000 4,000 0
R00012 9/ 6/96 1993/NQ 1,875 $12.7500 0 625 0 1,250 1,875 625
Benhardt, Suzanne 000685 7/15/97 1993/NQ 1,500 $15.9375 0 0 0 1,500 1,500 0
Bennett, George E. 000008 7/ 1/94 1989/NQ 60,000 $18.1250 0 45,000 0 15,000 60,000 45,000
Benson, Donald T. 000565 4/17/97 1993/NQ 100,000 $11.7500 0 0 0 100,000 100,000 0
Beswick, Robert 000599 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Boody, Patricia 000600 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
Bowser, Pamra A. 000176 7/ 1/94 1993/NQ 1,000 $18.1250 0 500 500 0 500 500
000446 7/28/95 1993/NQ 2,500 $15.8750 0 625 1,875 0 625 625
000632 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
R00018 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
R00019 9/ 6/96 1993/NQ 1,875 $12.7500 0 625 0 1,250 1,875 625
Brady, Michael P. 000706 9/ 2/97 1997/NQ 50,000 $17.4375 0 0 0 50,000 50,000 0
Brahmam, Manu 000177 7/ 1/94 1993/NQ 250 $18.1250 0 126 124 0 126 126
000601 7/15/97 1993/NQ 1,800 $15.9375 0 0 0 1,800 1,800 0
R00020 9/ 6/96 1993/NQ 124 $12.7500 0 62 0 62 124 62
R00021 9/ 6/96 1993/NQ 100 $12.7500 0 25 0 75 100 25
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Brandt, Gary 000633 7/15/97 1993/NQ 250 $15.9375 0 0 0 250 250 0
Brennen, Susan J. 000179 7/ 1/94 1993/NQ 1,000 $18.1250 250 500 500 0 250 250
R00023 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
Buonarosa, Mary 000602 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
Butler, Martha G. 000183 7/ 1/94 1993/NQ 800 $18.1250 0 400 400 0 400 400
000664 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
R00026 9/ 6/96 1993/NQ 400 $12.7500 0 200 0 200 400 200
Butler, Tony C. 000563 3/27/97 1993/NQ 12,500 $11.6250 0 3,125 0 9,375 12,500 3,125
Cable, Margaret E. 000185 7/ 1/94 1993/NQ 2,500 $18.1250 0 1,250 1,250 0 1,250 1,250
000634 7/15/97 1993/NQ 4,000 $15.9375 0 0 0 4,000 4,000 0
R00028 9/ 6/96 1993/NQ 1,250 $12.7500 0 625 0 625 1,250 625
Calderon, Mark 000728 2/24/98 1997/NQ 5,000 $16.3125 0 0 0 5,000 5,000 0
Carroll, Joseph N. 000548 10/14/96 1993/NQ 100,000 $10.5625 0 25,000 0 75,000 100,000 25,000
Chaffin, Ronald M. 00000732 3/31/98 1998/NQ 50,000 $14.5000 0 0 0 50,000 50,000 0
Champion, Lori B. 000487 7/28/95 1993/NQ 500 $15.8750 0 125 375 0 125 125
000665 7/15/97 1993/NQ 2,000 $15.9375 0 0 0 2,000 2,000 0
R00030 9/ 6/96 1993/NQ 375 $12.7500 0 125 0 250 375 125
Clark, Alanna M. 000189 7/ 1/94 1993/NQ 1,000 $18.1250 0 500 500 0 500 500
R00031 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
Clay, Bernadine 000582 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Cole, Barbara L. 000190 7/ 1/94 1993/NQ 500 $18.1250 0 250 250 0 250 250
000603 7/15/97 1993/NQ 1,800 $15.9375 0 0 0 1,800 1,800 0
R00033 9/ 6/96 1993/NQ 250 $12.7500 0 125 0 125 250 125
Condo, Frank 000635 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Cook, Gregg C00059 9/12/96 1993/NQ 2,000 $12.5000 0 0 0 2,000 2,000 0
Coronado, M.D., Raul 000530 7/15/96 1993/NQ 10,000 $12.1250 0 2,500 7,500 0 2,500 2,500
000561 3/27/97 1993/NQ 25,000 $11.6250 0 6,250 18,750 0 6,250 6,250
D'Antonio, Frank 00000731 3/23/98 1997/NQ 10,000 $17.1250 0 0 0 10,000 10,000 0
Davis, Glenn 000576 7/15/97 1993/NQ 7,500 $15.9375 0 0 0 7,500 7,500 0
RR0002 7/15/97 1993/NQ 625 $15.9375 0 0 0 625 625 0
Davis, Michele 000636 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
DeFrance, Laurence 000020 8/16/90 1989/NQ 1,668 $ 5.0000 0 1,668 0 0 1,668 1,668
000021 8/16/90 1989/NQ 1,666 $ 7.5000 0 1,666 0 0 1,666 1,666
000137 1/ 1/93 93D/NQ 2,000 $11.3150 0 2,000 0 0 2,000 2,000
000138 1/ 1/94 93D/NQ 2,000 $21.2500 0 2,000 0 0 2,000 2,000
000139 1/ 1/95 93D/NQ 2,000 $24.5000 0 2,000 0 0 2,000 2,000
000499 1/ 1/96 93D/NQ 2,000 $20.6250 0 2,000 0 0 2,000 2,000
000555 1/ 1/97 93D/NQ 2,000 $ 9.2656 0 2,000 0 0 2,000 2,000
000721 1/ 1/98 93D/NQ 2,000 $15.2500 0 0 0 2,000 2,000 0
DeMovick, Harvey 000569 7/ 1/97 1989/NQ 125,000 $14.8125 0 0 0 125,000 125,000 0
Dengler, Steve 00000729 3/30/98 1997/NQ 10,000 $16.9375 0 0 0 10,000 10,000 0
</TABLE>
<PAGE> 10
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Donofrio, Lisa K. 000209 7/ 1/94 1993/NQ 500 $18.1250 0 250 250 0 250 250
000604 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
R00049 9/ 6/96 1993/NQ 250 $12.7500 0 125 0 125 250 125
R00050 9/ 6/96 1993/NQ 100 $12.7500 0 25 0 75 100 25
Dougherty, Jeff 000605 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Dougherty, Lisa 000606 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Doyle, Janine 000666 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Drake, Janet L. 000574 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
CR0009 9/ 6/96 1993/NQ 5,000 $12.7500 0 0 0 5,000 5,000 0
Farley, Jr. MD,
Emerson D. R00052 9/ 6/96 1993/NQ 7,500 $12.7500 0 5,000 0 2,500 7,500 5,000
R00234 11/ 6/96 1993/NQ 2,000 $12.7500 0 2,000 0 0 2,000 2,000
R00235 11/ 6/96 1993/NQ 2,500 $12.7500 0 2,500 0 0 2,500 2,500
Felice, M.D., Civie D. R00238 9/ 6/96 1993/NQ 250 $12.7500 125 125 0 125 125 0
Fosselman, Larry R. 000221 8/15/94 1993/NQ 1,000 $18.7500 0 250 750 0 250 250
000712 7/15/97 1997/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
R00060 9/ 6/96 1993/NQ 750 $12.7500 0 500 0 250 750 500
Franzi, Cynthia 000607 7/15/97 1993/NQ 3,000 $15.9375 0 0 0 3,000 3,000 0
Gall, Dan 000713 7/15/97 1997/NQ 500 $15.9375 0 0 0 500 500 0
Galupi, Louis 000608 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
Gans, Joanne 000667 7/15/97 1993/NQ 6,000 $15.9375 0 0 0 6,000 6,000 0
R00062 9/ 6/96 1993/NQ 5,000 $12.7500 2,500 2,500 0 2,500 2,500 0
R00063 9/ 6/96 1993/NQ 5,000 $12.7500 1,250 1,250 0 3,750 3,750 0
RR0018 7/15/97 1993/NQ 625 $15.9375 0 0 0 625 625 0
Gardner, J. Kevin 000029 12/31/93 1989/NQ 1,000 $21.2500 0 1,000 0 0 1,000 1,000
Geesaman, Patricia 000226 7/ 1/94 1993/NQ 1,000 $18.1250 0 500 500 0 500 500
000714 7/15/97 1997/NQ 750 $15.9375 0 0 0 750 750 0
R00064 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
Giardina, James 000637 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Gore, James L. 000541 9/ 6/96 1993/NQ 10,000 $12.7500 0 2,500 0 7,500 10,000 2,500
000696 7/15/97 1989/NQ 20,000 $15.9375 0 0 0 20,000 20,000 0
R00066 9/ 6/96 1993/NQ 30,000 $12.7500 0 20,000 0 10,000 30,000 20,000
R00232 9/ 6/96 1993/NQ 15,000 $12.7500 0 3,750 0 11,250 15,000 3,750
R00512 2/20/96 1993/NQ 40,000 $18.1250 0 10,000 30,000 0 10,000 10,000
Gravely, Maria M. 000584 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Green, Christine 000638 7/15/97 1993/NQ 500 $15.9375 0 0 0 500 500 0
Gribble, Debbie K. 000463 7/28/95 1993/NQ 12,000 $15.8750 0 2,000 10,000 0 2,000 2,000
000668 7/15/97 1993/NQ 10,000 $15.9375 0 0 0 10,000 10,000 0
CR0020 9/ 6/96 1993/NQ 10,000 $12.7500 0 2,000 4,000 4,000 6,000 2,000
RR0016 7/15/97 1993/NQ 1,500 $15.9375 0 0 0 1,500 1,500 0
RR0017 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Groff, Jeffrey 000639 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Gronefeld, Diana 000669 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
</TABLE>
<PAGE> 11
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Guarneschelli, N.
Timothy 000442 7/28/95 1993/NQ 2,500 $15.8750 0 625 1,875 0 625 625
000640 7/15/97 1993/NQ 6,000 $15.9375 0 0 0 6,000 6,000 0
CR0022 9/ 6/96 1993/NQ 2,000 $12.7500 0 0 0 2,000 2,000 0
R00069 9/ 6/96 1993/NQ 1,875 $12.7500 0 625 0 1,250 1,875 625
Guertin, Shawn M. 000725 1/22/98 1997/NQ 50,000 $13.6250 0 0 0 50,000 50,000 0
Hailey, James R. 000234 7/ 1/94 1993/NQ 10,000 $18.1250 0 5,000 5,000 0 5,000 5,000
000429 7/28/95 1993/NQ 10,000 $15.8750 0 2,500 7,500 0 2,500 2,500
000699 7/15/97 1997/NQ 8,000 $15.9375 0 0 0 8,000 8,000 0
CR0023 9/ 6/96 1993/NQ 6,000 $12.7500 0 0 0 6,000 6,000 0
R00070 9/ 6/96 1993/NQ 5,000 $12.7500 0 2,500 0 2,500 5,000 2,500
R00071 9/ 6/96 1993/NQ 7,500 $12.7500 0 2,500 0 5,000 7,500 2,500
R00072 9/ 6/96 1993/NQ 10,000 $12.7500 0 10,000 0 0 10,000 10,000
R00517 2/20/96 1993/NQ 20,000 $18.1250 0 10,000 10,000 0 10,000 10,000
Halleran, Laura 000610 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Harger, Patricia S. 000670 7/15/97 1993/NQ 7,500 $15.9375 0 0 0 7,500 7,500 0
R00075 9/ 6/96 1993/NQ 5,000 $12.7500 0 2,500 0 2,500 5,000 2,500
RR0003 7/15/97 1993/NQ 1,500 $15.9375 0 0 0 1,500 1,500 0
Hawkins, Alicia 000611 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
Hayes, Darin D. 000243 7/ 1/94 1993/NQ 500 $18.1250 0 250 250 0 250 250
000612 7/15/97 1993/NQ 4,500 $15.9375 0 0 0 4,500 4,500 0
R00078 9/ 6/96 1993/NQ 250 $12.7500 0 125 0 125 250 125
Hengelsberg,
Richard C. 000244 7/ 1/94 1993/NQ 1,000 $18.1250 0 500 500 0 500 500
000613 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
R00079 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
R00080 9/ 6/96 1993/NQ 100 $12.7500 0 25 0 75 100 25
Henry, Susan 000641 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Hodges, Jan H. 000044 2/ 7/91 1989/NQ 834 $ 5.0000 0 834 0 0 834 834
000045 2/ 7/91 1989/NQ 834 $ 7.5000 0 834 0 0 834 834
000247 1/ 1/93 1993/NQ 1,000 $11.3150 0 1,000 0 0 1,000 1,000
000248 7/ 1/94 1993/NQ 5,000 $18.1250 0 2,500 2,500 0 2,500 2,500
000428 7/28/95 1993/NQ 10,000 $15.8750 0 2,500 7,500 0 2,500 2,500
000528 7/15/96 1993/NQ 25,000 $12.1250 0 6,250 0 18,750 25,000 6,250
000700 7/15/97 1997/NQ 30,000 $15.9375 0 0 0 30,000 30,000 0
CR0025 9/ 6/96 1993/NQ 6,000 $12.7500 0 0 0 6,000 6,000 0
R00083 9/ 6/96 1993/NQ 2,500 $12.7500 0 1,250 0 1,250 2,500 1,250
R00084 9/ 6/96 1993/NQ 7,500 $12.7500 0 2,500 0 5,000 7,500 2,500
R00085 9/ 6/96 1989/NQ 2,500 $12.7500 0 2,500 0 0 2,500 2,500
R00518 2/20/96 1989/NQ 5,000 $18.1250 0 2,500 2,500 0 2,500 2,500
Hoffman, Kay 000642 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Hollingsworth,
Jenifer J. 000532 9/12/96 1993/NQ 500 $12.5000 125 125 0 375 375 0
000687 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Holub, Sharon P. 000250 7/ 1/94 1993/NQ 500 $18.1250 0 250 250 0 250 250
R00087 9/ 6/96 1993/NQ 250 $12.7500 0 125 0 125 250 125
Hornberger, Krista 000614 7/15/97 1993/NQ 2,000 $15.9375 0 0 0 2,000 2,000 0
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Huether, Jamie 000671 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
Hutt, MD, Edward D. 000705 10/ 1/97 1997/NQ 30,000 $16.8750 0 0 0 30,000 30,000 0
Jacobs, Kenneth A. 000048 6/19/90 1989/NQ 334 $ 5.0000 0 334 0 0 334 334
000049 6/19/90 1989/NQ 334 $ 7.5000 0 334 0 0 334 334
000254 7/ 1/94 1993/NQ 2,000 $18.1250 0 1,000 1,000 0 1,000 1,000
000456 7/28/95 1993/NQ 5,000 $15.8750 0 1,250 3,750 0 1,250 1,250
R00090 9/ 6/96 1993/NQ 1,000 $12.7500 0 500 0 500 1,000 500
R00091 9/ 6/96 1993/NQ 3,750 $12.7500 0 1,250 0 2,500 3,750 1,250
R00092 9/ 6/96 1993/NQ 100 $12.7500 0 25 0 75 100 25
Jones, Richard H. 000050 6/18/90 1989/NQ 8,334 $ 5.0000 6,668 8,334 0 0 1,666 1,666
000051 11/16/90 1989/NQ 8,334 $ 5.0000 6,668 8,334 0 0 1,666 1,666
000052 11/16/90 1989/NQ 8,334 $ 7.5000 6,668 8,334 0 0 1,666 1,666
000053 11/16/91 1989/NQ 20,000 $ 6.3750 12,000 20,000 0 0 8,000 8,000
000054 1/ 1/93 1989/NQ 80,000 $11.3150 6,128 80,000 0 0 73,872 73,872
000398 6/18/90 1989/NQ 8,334 $ 7.5000 6,668 8,334 0 0 1,666 1,666
000496 7/28/95 1993/NQ 25,000 $15.8750 0 6,250 18,750 0 6,250 6,250
000538 9/ 6/96 1993/NQ 75,000 $12.7500 0 18,750 0 56,250 75,000 18,750
000697 7/15/97 1993/NQ 50,000 $15.9375 0 0 0 50,000 50,000 0
R00093 9/ 6/96 1993/NQ 18,750 $12.7500 0 6,250 0 12,500 18,750 6,250
R00094 9/ 6/96 1989/NQ 17,500 $12.7500 0 17,500 0 0 17,500 17,500
R00228 9/ 6/96 1993/NQ 25,000 $12.7500 0 6,250 0 18,750 25,000 6,250
R00508 2/20/96 1989/NQ 35,000 $18.1250 0 17,500 17,500 0 17,500 17,500
Juergens, Patricia 000571 4/14/97 1993/NQ 10,000 $11.1250 0 0 0 10,000 10,000 0
000643 7/15/97 1993/NQ 4,000 $15.9375 0 0 0 4,000 4,000 0
Keim, M.D., Peter J. 000259 11/30/94 1993/NQ 5,000 $25.0000 0 1,250 3,750 0 1,250 1,250
R00098 9/ 6/96 1993/NQ 3,750 $12.7500 0 2,500 0 1,250 3,750 2,500
Kelley, M.D., Suzanne 000644 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Kelliher, Steve 00000730 2/ 2/98 1997/NQ 2,500 $14.5000 0 0 0 2,500 2,500 0
Killeen, Sean 000586 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
King, Ray 000715 7/15/97 1997/NQ 750 $15.9375 0 0 0 750 750 0
Kleja, Stanley G. 000263 7/ 1/94 1993/NQ 500 $18.1250 0 250 250 0 250 250
000615 7/15/97 1993/NQ 5,000 $15.9375 0 0 0 5,000 5,000 0
R00103 9/ 6/96 1993/NQ 250 $12.7500 0 125 0 125 250 125
R00104 9/ 6/96 1993/NQ 100 $12.7500 0 25 0 75 100 25
Knight, Margarette E. 000265 7/ 1/94 1993/NQ 1,000 $18.1250 0 500 500 0 500 500
000646 7/15/97 1993/NQ 4,000 $15.9375 0 0 0 4,000 4,000 0
R00106 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
Krebs, Paul 000572 3/10/97 1993/NQ 7,500 $11.2500 0 1,875 0 5,625 7,500 1,875
Kugelman, Lawrence N. 000144 1/ 1/94 93D/NQ 2,000 $21.2500 0 2,000 0 0 2,000 2,000
000145 1/ 1/95 93D/NQ 2,000 $24.5000 0 2,000 0 0 2,000 2,000
000554 1/ 1/97 93D/NQ 2,000 $ 9.2656 0 2,000 0 0 2,000 2,000
000719 1/ 1/98 93D/NQ 2,000 $15.2500 0 0 0 2,000 2,000 0
R00236 11/ 6/96 1993/NQ 25,000 $12.7500 0 25,000 0 0 25,000 25,000
Landis, Constance 000647 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lane, Davina 000529 7/15/96 1993/NQ 50,000 $12.1250 0 12,500 0 37,500 50,000 12,500
000698 7/15/97 1993/NQ 25,000 $15.9375 0 0 0 25,000 25,000 0
C00054 7/15/96 1993/NQ 50,000 $12.1250 0 0 0 50,000 50,000 0
Lavelle, Amy 000616 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Lavelle, Stewart 000726 1/27/98 1997/NQ 100,000 $13.3750 0 0 0 100,000 100,000 0
Lester, Gail 000587 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Linde, Kenneth J. 00000733 3/31/98 1998/NQ 400,000 $14.5000 0 0 0 400,000 400,000 0
Lodder, Ron M. 000062 1/30/90 1989/NQ 16,668 $ 7.5000 0 16,668 0 0 16,668 16,668
Lytwyniuk, Sue 000723 1/ 5/98 1997/NQ 20,000 $15.2500 0 0 0 20,000 20,000 0
Maddux, Susan V. 000280 7/ 1/94 1993/NQ 800 $18.1250 0 400 400 0 400 400
000672 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
R00219 9/ 6/96 1993/NQ 400 $12.7500 0 200 0 200 400 200
Marcocci, Kendall L. 000283 7/ 1/94 1993/NQ 1,000 $18.1250 0 500 500 0 500 500
000648 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
R00118 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
Martinez, Ainette 000577 7/15/97 1993/NQ 5,000 $15.9375 0 0 0 5,000 5,000 0
C00056 9/12/96 1993/NQ 5,000 $12.5000 0 0 0 5,000 5,000 0
Mayer, Robert A. 000560 2/10/97 1989/NQ 100,000 $ 7.3125 0 33,333 0 66,667 100,000 33,333
000564 3/27/97 1993/NQ 50,000 $11.6250 0 12,500 0 37,500 50,000 12,500
000703 4/14/97 1997/NQ 50,000 $11.1250 0 0 0 50,000 50,000 0
McNulty, M.D.,
Barbara M. R00237 9/ 6/96 1993/NQ 250 $12.7500 125 125 0 125 125 0
Medley, Rick 000595 6/16/97 1993/NQ 35,000 $15.3750 0 0 0 35,000 35,000 0
Merkel, Frederick G. R00509 2/20/96 1989/NQ 15,000 $18.1250 0 7,500 7,500 0 7,500 7,500
R00510 2/20/96 1993/NQ 60,000 $18.1250 0 30,000 30,000 0 30,000 30,000
Mientus, Robert J. 000300 7/ 1/94 1993/NQ 1,000 $18.1250 0 500 500 0 500 500
000457 7/28/95 1993/NQ 2,500 $15.8750 0 625 1,875 0 625 625
000618 7/15/97 1993/NQ 3,000 $15.9375 0 0 0 3,000 3,000 0
R00131 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
R00132 9/ 6/96 1993/NQ 1,875 $12.7500 0 625 0 1,250 1,875 625
Miller, Rex A. 000535 9/ 6/96 1993/NQ 7,500 $12.7500 1,875 1,875 0 5,625 5,625 0
000688 7/15/97 1993/NQ 5,000 $15.9375 0 0 0 5,000 5,000 0
Moser, Phillip C. 000304 7/ 1/94 1993/NQ 800 $18.1250 0 400 400 0 400 400
000673 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
R00135 9/ 6/96 1993/NQ 400 $12.7500 0 200 0 200 400 200
Mrizek, Robert J. 00000734 3/31/98 1998/NQ 50,000 $14.5000 0 0 0 50,000 50,000 0
Mullenix, Elizabeth O. 000464 7/28/95 1993/NQ 7,000 $15.8750 0 750 6,250 0 750 750
000674 7/15/97 1993/NQ 500 $15.9375 0 0 0 500 500 0
CR0032 9/ 6/96 1993/NQ 6,250 $12.7500 0 750 4,000 1,500 2,250 750
RR0004 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Mullner, Terry W. 000306 7/ 1/94 1993/NQ 500 $18.1250 0 250 250 0 250 250
000619 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
R00136 9/ 6/96 1993/NQ 250 $12.7500 0 125 0 125 250 125
</TABLE>
<PAGE> 14
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mulvaney, James 000469 7/28/95 1993/NQ 4,000 $15.8750 0 250 3,750 0 250 250
CR0033 9/ 6/96 1993/NQ 3,750 $12.7500 0 250 3,000 500 750 250
RR0005 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Murchison, Marvin M. 000588 7/15/97 1993/NQ 10,000 $15.9375 0 0 0 10,000 10,000 0
RR0006 7/15/97 1993/NQ 625 $15.9375 0 0 0 625 625 0
Murray, Thomas J. CR0035 9/ 6/96 1993/NQ 20,000 $12.7500 0 0 0 20,000 20,000 0
R00137 9/ 6/96 1993/NQ 18,750 $12.7500 6,250 6,250 0 12,500 12,500 0
R00513 2/20/96 1989/NQ 12,000 $18.1250 0 6,000 6,000 0 6,000 6,000
Muscarella, Sharon M. 000308 7/ 1/94 1993/NQ 10,000 $18.1250 0 5,000 5,000 0 5,000 5,000
000443 7/28/95 1993/NQ 5,000 $15.8750 0 1,250 3,750 0 1,250 1,250
000649 7/15/97 1993/NQ 26,000 $15.9375 0 0 0 26,000 26,000 0
R00139 9/ 6/96 1993/NQ 5,000 $12.7500 0 2,500 0 2,500 5,000 2,500
R00140 9/ 6/96 1993/NQ 3,750 $12.7500 0 1,250 0 2,500 3,750 1,250
RR0007 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
RR0014 7/15/97 1993/NQ 1,750 $15.9375 0 0 0 1,750 1,750 0
Neff, Kathleen
Kunselman 000269 7/ 1/94 1993/NQ 1,500 $18.1250 0 750 750 0 750 750
000722 7/15/97 1993/NQ 4,500 $15.9375 0 0 0 4,500 4,500 0
R00108 9/ 6/96 1993/NQ 750 $12.7500 0 375 0 375 750 375
Ockerman, Jefferson H. 000488 7/28/95 1993/NQ 5,000 $15.8750 0 1,250 3,750 0 1,250 1,250
000527 7/10/96 1993/NQ 2,500 $12.5000 0 625 0 1,875 2,500 625
000689 7/15/97 1993/NQ 25,000 $15.9375 0 0 0 25,000 25,000 0
R00144 9/ 6/96 1993/NQ 3,750 $12.7500 0 1,250 0 2,500 3,750 1,250
Ogle, M.D., Kim A. R00240 9/ 6/96 1993/NQ 250 $12.7500 0 125 0 125 250 125
Passwater, Keith 000684 5/27/97 1993/NQ 7,500 $13.6250 0 0 0 7,500 7,500 0
000727 2/24/98 1997/NQ 2,500 $16.3125 0 0 0 2,500 2,500 0
Patterson, William 000620 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Payne, Tim 000675 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
Peterson, Susan 000536 9/ 6/96 1993/NQ 500 $12.7500 0 125 0 375 500 125
000691 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Petru, Suzanne 000550 10/21/96 1993/NQ 22,500 $ 9.8750 0 5,625 0 16,875 22,500 5,625
Pluckhorn, Fred B. 000710 10/ 6/97 1997/NQ 7,500 $16.9375 0 0 0 7,500 7,500 0
Pollak, Harvey 00000735 3/31/98 1998/NQ 50,000 $14.5000 0 0 0 50,000 50,000 0
Rembisz, David W. 000621 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
R00160 9/ 6/96 1993/NQ 100 $12.7500 0 25 0 75 100 25
Richards, Judith B. 000335 7/ 1/94 1993/NQ 8,000 $18.1250 0 4,000 4,000 0 4,000 4,000
000451 7/28/95 1993/NQ 5,000 $15.8750 0 1,250 3,750 0 1,250 1,250
R00162 9/ 6/96 1993/NQ 4,000 $12.7500 0 2,000 0 2,000 4,000 2,000
R00163 9/ 6/96 1993/NQ 3,750 $12.7500 0 1,250 0 2,500 3,750 1,250
Roberts, C. David 00000736 3/31/98 1998/NQ 50,000 $14.5000 0 0 0 50,000 50,000 0
Rominger, M.D.,
Michael P. 000724 1/ 5/98 1997/NQ 5,000 $15.2500 0 0 0 5,000 5,000 0
Rosenbayger, Lyn 000717 7/15/97 1997/NQ 500 $15.9375 0 0 0 500 500 0
Saeger, Jeffrey 000652 7/15/97 1993/NQ 250 $15.9375 0 0 0 250 250 0
Sanner, Dianne 000622 7/15/97 1993/NQ 2,000 $15.9375 0 0 0 2,000 2,000 0
Saur, Robert J. 000709 10/ 6/97 1997/NQ 7,500 $16.9375 0 0 0 7,500 7,500 0
</TABLE>
<PAGE> 15
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Schlueter, Ann L. 000553 12/18/96 1993/NQ 5,000 $10.0000 0 1,250 0 3,750 5,000 1,250
000676 7/15/97 1993/NQ 7,500 $15.9375 0 0 0 7,500 7,500 0
Schultz, Christine 000348 7/ 1/94 1993/NQ 500 $18.1250 0 250 250 0 250 250
000454 7/28/95 1993/NQ 500 $15.8750 0 125 375 0 125 125
000718 7/15/97 1997/NQ 500 $15.9375 0 0 0 500 500 0
R00171 9/ 6/96 1993/NQ 250 $12.7500 0 125 0 125 250 125
R00172 9/ 6/96 1993/NQ 375 $12.7500 0 125 0 250 375 125
Schuster, Deb 000677 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Scott, April 000693 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Sesterhenn, MD,
Steven E. 000708 8/11/97 1997/NQ 25,000 $17.5000 0 0 0 25,000 25,000 0
Shank, Cathlene Porco 000623 7/15/97 1993/NQ 2,000 $15.9375 0 0 0 2,000 2,000 0
Slayton, M.D., Val 000624 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
000707 7/11/97 1997/NQ 10,000 $16.5000 0 0 0 10,000 10,000 0
Smith, Shirley R. 000108 4/ 3/89 1989/NQ 668 $ 5.0000 0 668 0 0 668 668
000109 4/ 3/89 1989/NQ 666 $ 6.3750 0 666 0 0 666 666
000110 1/ 4/93 1989/NQ 3,000 $11.0000 0 3,000 0 0 3,000 3,000
000353 1/ 1/93 1993/NQ 1,000 $11.3150 0 1,000 0 0 1,000 1,000
000354 7/ 1/94 1993/NQ 5,000 $18.1250 0 2,500 2,500 0 2,500 2,500
000426 7/28/95 1993/NQ 10,000 $15.8750 0 2,500 7,500 0 2,500 2,500
000545 9/ 6/96 1993/NQ 6,000 $12.7500 0 1,500 0 4,500 6,000 1,500
000701 7/15/97 1997/NQ 25,000 $15.9375 0 0 0 25,000 25,000 0
R00176 9/ 6/96 1993/NQ 2,500 $12.7500 0 1,250 0 1,250 2,500 1,250
R00177 9/ 6/96 1993/NQ 7,500 $12.7500 0 2,500 0 5,000 7,500 2,500
R00178 9/ 6/96 1989/NQ 5,000 $12.7500 0 5,000 0 0 5,000 5,000
R00519 2/20/96 1989/NQ 10,000 $18.1250 0 5,000 5,000 0 5,000 5,000
RR0008 7/15/97 1993/NQ 1,500 $15.9375 0 0 0 1,500 1,500 0
Smith, Timothy 000653 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
Soistman, Jr.,
Francis S. 00000737 3/31/98 1998/NQ 50,000 $14.5000 0 0 0 50,000 50,000 0
Stelben, John J. 000356 8/ 8/94 1993/NQ 1,600 $16.8750 0 800 800 0 800 800
000432 8/ 7/95 1993/NQ 2,500 $15.6250 0 625 1,875 0 625 625
000694 7/15/97 1993/NQ 14,000 $15.9375 0 0 0 14,000 14,000 0
Stelben, John
(continued) R00180 9/ 6/96 1993/NQ 800 $12.7500 0 400 0 400 800 400
R00181 9/ 6/96 1993/NQ 1,875 $12.7500 0 625 0 1,250 1,875 625
RR0009 7/15/97 1993/NQ 1,500 $15.9375 0 0 0 1,500 1,500 0
Stone, Christopher 000695 7/15/97 1993/NQ 500 $15.9375 0 0 0 500 500 0
Stoner, Audrey 000654 7/15/97 1993/NQ 4,000 $15.9375 0 0 0 4,000 4,000 0
Sucheski, Steve 000655 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Sullivan, Robert 000589 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
Swarner, Yvonne 000656 7/15/97 1993/NQ 250 $15.9375 0 0 0 250 250 0
Tabor, Bonnie 000364 8/11/94 1993/NQ 2,500 $22.7500 0 625 1,875 0 625 625
000444 7/28/95 1993/NQ 2,500 $15.8750 0 625 1,875 0 625 625
R00188 9/ 6/96 1993/NQ 1,875 $12.7500 0 1,250 0 625 1,875 1,250
R00189 9/ 6/96 1993/NQ 1,875 $12.7500 0 625 0 1,250 1,875 625
Tamilia, Christine L. R00190 9/ 6/96 1993/NQ 100 $12.7500 0 25 0 75 100 25
</TABLE>
<PAGE> 16
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taylor, Priscilla 000678 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
Taylor, Sharon I. 00000738 3/31/98 1998/NQ 100,000 $14.5000 0 0 0 100,000 100,000 0
Tony, Brian D. C00060 9/12/96 1993/NQ 2,000 $12.5000 0 0 0 2,000 2,000 0
R00193 9/ 6/96 1993/NQ 100 $12.7500 0 25 0 75 100 25
Torek, Dina 000626 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
Trautlein, M.D.,
Joseph J. 000371 7/ 1/94 1993/NQ 5,500 $18.1250 0 2,750 2,750 0 2,750 2,750
000657 7/15/97 1993/NQ 4,000 $15.9375 0 0 0 4,000 4,000 0
R00194 9/ 6/96 1993/NQ 2,750 $12.7500 0 1,375 0 1,375 2,750 1,375
Tully, Michael 000679 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Turner, John 000590 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Ultmann, M.D.,
Michelle C. R00239 9/ 6/96 1993/NQ 250 $12.7500 125 125 0 125 125 0
Valora, Michael 000680 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Veno, Gene G. 000448 7/28/95 1993/NQ 5,000 $15.8750 0 1,250 3,750 0 1,250 1,250
R00197 9/ 6/96 1993/NQ 3,750 $12.7500 0 1,250 2,500 0 1,250 1,250
R00198 9/ 6/96 1993/NQ 1,875 $12.7500 0 1,250 625 0 1,250 1,250
R00515 2/20/96 1993/NQ 2,500 $18.1250 0 625 1,875 0 625 625
Wallendjack, MD,
John C. 000379 7/ 1/94 1993/NQ 10,000 $18.1250 0 5,000 5,000 0 5,000 5,000
000441 7/28/95 1993/NQ 2,500 $15.8750 0 625 1,875 0 625 625
000659 7/15/97 1993/NQ 3,750 $15.9375 0 0 0 3,750 3,750 0
R00200 9/ 6/96 1993/NQ 5,000 $12.7500 0 2,500 0 2,500 5,000 2,500
R00201 9/ 6/96 1993/NQ 1,875 $12.7500 0 625 0 1,250 1,875 625
RR0012 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
Walter, Eileen P. 000437 7/28/95 1993/NQ 2,500 $15.8750 0 625 1,875 0 625 625
000591 7/15/97 1993/NQ 10,000 $15.9375 0 0 0 10,000 10,000 0
CR0050 9/ 6/96 1993/NQ 2,500 $12.7500 0 0 0 2,500 2,500 0
R00202 9/ 6/96 1993/NQ 1,875 $12.7500 0 625 0 1,250 1,875 625
Walter, Janis A. 000380 7/ 1/94 1993/NQ 800 $18.1250 0 400 400 0 400 400
R00203 9/ 6/96 1993/NQ 400 $12.7500 0 200 0 200 400 200
Wargo, Thomas 000627 7/15/97 1993/NQ 500 $15.9375 0 0 0 500 500 0
Washington, Terri 000660 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
Wayland, Charles 000592 7/15/97 1993/NQ 7,500 $15.9375 0 0 0 7,500 7,500 0
Wayne, Janet C00062 9/12/96 1993/NQ 2,000 $12.5000 0 0 0 2,000 2,000 0
Wetzel, Teresa R. 000384 7/ 1/94 1993/NQ 800 $18.1250 0 400 400 0 400 400
R00207 9/ 6/96 1993/NQ 400 $12.7500 0 200 0 200 400 200
Whaley, Linda 000579 7/15/97 1993/NQ 2,000 $15.9375 0 0 0 2,000 2,000 0
C00058 9/12/96 1993/NQ 2,000 $12.5000 0 0 0 2,000 2,000 0
Wheeler, Jr.,
George B. 000160 9/21/93 SHMC/ISO 6,872 $3.7800 3,500 6,872 0 0 3,372 3,372
000594 7/15/97 1993/NQ 10,000 $15.9375 0 0 0 10,000 10,000 0
RR0013 7/15/97 1993/NQ 625 $15.9375 0 0 0 625 625 0
Wheeler, Lisa 000593 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
Whitaker, Gregory
Scott 000483 7/28/95 1993/NQ 1,000 $15.8750 0 250 750 0 250 250
R00208 9/ 6/96 1993/NQ 750 $12.7500 0 250 500 0 250 250
White, Marilyn 000628 7/15/97 1993/NQ 1,250 $15.9375 0 0 0 1,250 1,250 0
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Williams, Lisa W. 000387 7/ 1/94 1993/NQ 800 $18.1250 0 400 400 0 400 400
000466 7/28/95 1993/NQ 14,000 $15.8750 0 2,500 11,500 0 2,500 2,500
000682 7/15/97 1993/NQ 5,000 $15.9375 0 0 0 5,000 5,000 0
CR0052 9/ 6/96 1993/NQ 11,500 $12.7500 0 2,500 4,000 5,000 7,500 2,500
R00211 9/ 6/96 1993/NQ 400 $12.7500 0 200 0 200 400 200
RR0020 7/15/97 1993/NQ 1,500 $15.9375 0 0 0 1,500 1,500 0
RR0021 7/15/97 1993/NQ 1,000 $15.9375 0 0 0 1,000 1,000 0
Williams, Steve 000683 7/15/97 1993/NQ 3,500 $15.9375 0 0 0 3,500 3,500 0
Williamson, Sheri Cope CR0006 9/ 6/96 1993/NQ 1,000 $12.7500 0 0 0 1,000 1,000 0
Winfield, Lesley 000661 7/15/97 1993/NQ 2,500 $15.9375 0 0 0 2,500 2,500 0
Winter, Gail A. 000390 7/ 1/94 1993/NQ 1,000 $18.1250 0 500 500 0 500 500
000629 7/15/97 1993/NQ 4,000 $15.9375 0 0 0 4,000 4,000 0
R00214 9/ 6/96 1993/NQ 500 $12.7500 0 250 0 250 500 250
Wise, Allen F. 000533 10/ 7/96 1993/NQ 400,000 $11.0000 0 133,333 0 266,667 400,000 133,333
000704 7/17/97 1997/NQ 150,000 $17.0000 0 0 0 150,000 150,000 0
S00001 7/17/97 1997/RSP 50,000 $17.0000 0 0 0 50,000 50,000 0
Wolf, Dale 000552 11/18/96 1993/NQ 100,000 $10.3750 0 25,000 0 75,000 100,000 25,000
000562 3/27/97 1993/NQ 50,000 $11.6250 0 12,500 0 37,500 50,000 12,500
000702 7/15/97 1997/NQ 50,000 $15.9375 0 0 0 50,000 50,000 0
Zuroski, Deborah 000630 7/15/97 1993/NQ 750 $15.9375 0 0 0 750 750 0
ZZ-Butsch, MD,
Richard H. W00001 5/ 1/97 WARR/ISO 400 $12.6250 0 0 0 400 400 0
ZZ-Craig, MD, Johnetta W00015 5/ 1/97 WARR/ISO 300 $12.6250 0 0 0 300 300 0
ZZ-Cross, MD, Betty S. W00002 5/ 1/97 WARR/ISO 800 $12.6250 0 0 0 800 800 0
ZZ-Dichsen, MD,
Donald V. W00003 5/ 1/97 WARR/ISO 1,925 $12.6250 0 0 0 1,925 1,925 0
W00016 5/ 1/97 WARR/ISO 1,000 $12.6250 0 0 0 1,000 1,000 0
ZZ-Glaser, MD, Jeff W00017 5/ 1/97 WARR/ISO 400 $12.6250 0 0 0 400 400 0
ZZ-Ireland, MD, Kim C. W00004 5/ 1/97 WARR/ISO 800 $12.6250 0 0 0 800 800 0
W00018 5/ 1/97 WARR/ISO 300 $12.6250 0 0 0 300 300 0
ZZ-Jacobson,MD, Steve W00019 5/ 1/97 WARR/ISO 1,000 $12.6250 0 0 0 1,000 1,000 0
ZZ-Jones, MD, Gilbert W00020 5/ 1/97 WARR/ISO 300 $12.6250 0 0 0 300 300 0
ZZ-Lee, MD, Chong B. W00005 5/ 1/97 WARR/ISO 1,925 $12.6250 0 0 0 1,925 1,925 0
W00021 5/ 1/97 WARR/ISO 1,000 $12.6250 0 0 0 1,000 1,000 0
ZZ-Maret, MD,
Christopher R. W00006 5/ 1/97 WARR/ISO 1,925 $12.6250 0 0 0 1,925 1,925 0
W00022 5/ 1/97 WARR/ISO 400 $12.6250 0 0 0 400 400 0
ZZ-McDonald,MD,
Sharon G. W00007 5/ 1/97 WARR/ISO 1,925 $12.6250 0 0 0 1,925 1,925 0
ZZ-Meghjee, MD, Zinnat W00023 5/ 1/97 WARR/ISO 300 $12.6250 0 0 0 300 300 0
ZZ-Moeser, MD,
Pierre J. W00008 5/ 1/97 WARR/ISO 400 $12.6250 0 0 0 400 400 0
W00024 5/ 1/97 WARR/ISO 1,000 $12.6250 0 0 0 1,000 1,000 0
ZZ-Ngo, MD, Khai W00009 5/ 1/97 WARR/ISO 800 $12.6250 0 0 0 800 800 0
W00025 5/ 1/97 WARR/ISO 300 $12.6250 0 0 0 300 300 0
ZZ-Perlstein,MD,
Laurence W00010 5/ 1/97 WARR/ISO 1,925 $12.6250 0 0 0 1,925 1,925 0
W00026 5/ 1/97 WARR/ISO 1,000 $12.6250 0 0 0 1,000 1,000 0
ZZ-Piontek, Ronald F. W00011 5/ 1/97 WARR/ISO 400 $12.6250 0 0 0 400 400 0
W00027 5/ 1/97 WARR/ISO 300 $12.6250 0 0 0 300 300 0
</TABLE>
<PAGE> 18
<TABLE>
<CAPTION>
Option Option
Name Number Date Plan/Type Shares Price Exercised Vested Cancelled Unvested Outstanding Exercisable
- - ---- ------ ------ --------- ------ ----- --------- ------ --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ZZ-Ream, MD, Sheryl W00028 5/ 1/97 WARR/ISO 400 $12.6250 0 0 0 400 400 0
ZZ-Rugen, MD,
Rebecca V. W00012 5/ 1/97 WARR/ISO 400 $12.6250 0 0 0 400 400 0
ZZ-Schacht, MD, Larry W00029 5/ 1/97 WARR/ISO 1,000 $12.6250 0 0 0 1,000 1,000 0
ZZ-Valentine, Claudia W00013 5/ 1/97 WARR/ISO 400 $12.6250 0 0 0 400 400 0
ZZ-Warrant,
FranklinCapital 000567 5/ 9/97 WARR/ISO 235,294 $10.6250 0 235,294 0 0 235,294 235,294
ZZ-Warrant, Warburg,
Pincus 000566 5/ 9/97 WARR/ISO 1,343,822 $10.6250 0 1,343,822 0 0 1,343,822 1,343,822
000568 6/30/97 WARR/ISO 773,825 $10.6250 0 773,825 0 0 773,825 773,825
ZZ-Warrant, West
Penn. Hosp 000482 7/ 1/95 WARR/ISO 100,000 $14.1250 0 66,666 0 33,334 100,000 66,666
ZZ-Zimmerman,MD,
Deborah W00014 5/ 1/97 WARR/ISO 800 $12.6250 0 0 0 800 800 0
W00030 5/ 1/97 WARR/ISO 1,000 $12.6250 0 0 0 1,000 1,000 0
--------- ------ --------- ------- --------- --------- ---------
TOTALS 6,930,854 70,925 3,319,550 309,449 3,301,855 6,550,480 3,248,625
</TABLE>
<PAGE> 19
EXHIBIT 2
FORM OF EXERCISE NOTICE
[TO BE SIGNED ONLY UPON EXERCISE OF WARRANT]
TO COVENTRY HEALTH CARE, INC.:
The undersigned, the holder of that certain Principal Warrant, dated
[ ], 1998 (the "Warrant"), issued by you, hereby acknowledges receipt of a
Warrant Notice on __________ from you; hereby irrevocably elects to exercise
the purchase right represented by such Principal Warrant for, and to purchase
thereunder, ______ shares of Common Stock, par value $0.01 per share, of
Coventry Health Care, Inc., herewith makes payment of $______ therefor; and
requests that the stock certificate for such shares be issued in the name of,
and be delivered, to the person listed below at the address listed under such
person's name:
Name:
---------------------------------------------------
Address:
--------------------------------------------------
--------------------------------------------------
Dated:
----------------
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant)
<PAGE> 1
EXHIBIT 4.6
WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN A TRANSACTION
WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO COVENTRY
CORPORATION, IS EXEMPT FROM SUCH REGISTRATION.
COVENTRY CORPORATION
COMMON STOCK PURCHASE WARRANT
COVENTRY CORPORATION, a Tennessee corporation (the "Company"), hereby
certifies that, for value received, Warburg, Pincus Ventures, L.P., a Delaware
limited partnership, (the "Holder"), or its assigns, is entitled, subject to the
terms set forth below, to purchase from the Company, at any time and from time
to time during the period beginning on May 9, 1997 and ending on May 9, 2004 in
whole or in part, an aggregate of One Million Three Hundred and Forty-Three
Thousand Eight Hundred and Twenty-Two (1,343,822) fully paid and non-assessable
shares of the Common Stock of the Company at a purchase price, subject to the
provisions of Paragraph 3 hereof, of $10.625 per share (the "Purchase Price").
The Purchase Price and the number and character of such shares are subject to
adjustment as provided below, and the term "Common Stock" shall mean, unless the
context otherwise requires, the stock or other securities or property at the
time deliverable upon the exercise of this Warrant. This Warrant is herein
called the "Warrant."
Notwithstanding anything contained in this Warrant to the contrary,
this Warrant shall not be exercisable by Warburg, Pincus Ventures, L.P., a
Delaware limited partnership ("Warburg"), if, after giving effect to the shares
of Common Stock of the Company issuable to Warburg upon such exercise (or
partial exercise), Warburg would beneficially own ten percent (10%) or more
of the outstanding Voting Securities of the Company (the "Control Threshold"),
unless Warburg shall have obtained any Required Approval. For purposes of the
this Warrant, (i) beneficial ownership shall be determined in accordance with
Rule 13d-3 of the Securities Exchange Act of 1934, as amended, (ii) Voting
Securities of the Company shall mean all shares of Common Stock and all
securities convertible into or exchangeable for shares of Common Stock other
than this Warrant or the Warrant issued to Warburg, dated May 9, 1997, and
(iii) "Required Approval" shall mean any approval required by any state
insurance regulatory or similar authority to which the Company or any of its
assets is subject, in connection with an acquisition of control of the Company
or any of its subsidiaries. The foregoing provisions are specifically intended
to prevent the acquisition of control (as defined or presumed to exist under
any such state insurance or similar regulatory authority) of the Company or any
of its subsidiaries by Warburg unless and until Warburg obtains the Required
Approval.
1. EXERCISE OF WARRANT.
1.1 Exercise. The purchase rights evidenced by this Warrant shall be
exercised by the holder surrendering this Warrant, with the form of subscription
at the end hereof duly executed by such holder, to the Company at its office in
Nashville, Tennessee, accompanied by payment, of an amount (the "Exercise
Payment") equal to the Purchase Price multiplied by the number of shares being
purchased pursuant to such exercise, payable as follows: (a) by payment to the
Company in cash, by certified or official bank check, or by wire transfer of the
Exercise Payment, (b) by surrender to the Company for cancellation of securities
of the Company having a Market Price (as hereinafter defined) on the date of
exercise equal to the
<PAGE> 2
Exercise Payment; (c) by surrender to the Company for cancellation of notes
of the Company having an aggregate principal amount plus accrued but unpaid
interest on the date of surrender equal to the Exercise Payment or (d) by a
combination of the methods described in clauses (a), (b) and (c) above. In lieu
of exercising the Warrant, the holder may elect to receive a payment equal to
the difference between (i) the average Market Price for the ten trading days
immediately preceding such payment multiplied by the number of shares as to
which the payment is then being elected and (ii) the Exercise Payment, payable
by the Company to the Holder only in shares of Common Stock valued at the
average Market Price for the ten trading days immediately preceding such payment
("Net Exercise"). For purposes hereof, the term "Market Price" shall mean (a) if
the Common Stock is traded on a national securities exchange, the last reported
sale price of a share of Common Stock, regular way on such date or, in case no
such sale takes place on such date, the average of the closing bid and asked
prices thereof regular way on such date, in either case as officially reported
on the principal national securities exchange on which the Common Stock is then
listed or admitted for trading, or, (b) if the Common Stock is not then listed
or admitted for trading on any national securities exchange but is designated as
a national market system security by the NASD, the last reported trading price
of the Common Stock on such date, or (c) if not listed or admitted to trading on
any national securities exchange or designated as a national market system
security, the average of the reported bid and asked price of the Common Stock on
such date in the over-the-counter market as furnished by the National Quotation
Bureau, Inc., or, if such firm is not then engaged in the business of reporting
such prices, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company or, (d) if the shares of Common
Stock are not so publicly traded, the fair market value thereof, as determined
in good faith by the Board of Directors of the Company.
1.2 Optional Exercise.
(a) Except as provided in Paragraph 1.2(b), this Warrant may not be
exercised at the option of the Company.
(b) The Warrant may not be exercised before June 30, 2000 at the
Company's option. Thereafter, this Warrant shall be subject to mandatory
exercise, in whole but not in part, at the option of the Company, if the Market
Price of the Common Stock on twenty (20) consecutive trading days during the
period ending within five days prior to the giving of written notice of exercise
by the Company is $17.00 per share (appropriately
-2-
<PAGE> 3
adjusted for any stock split, stock dividend or similar event) (the "Mandatory
Exercise"). In the event the Company delivers such notice to the Holder pursuant
to Paragraph 1.2(b) (the "Optional Exercise Notice"), the Holder shall have ten
days to elect the manner in which the Exercise Payment shall be made. If the
Holder fails to notify the Company in writing as to the manner in which the
Exercise Payment is to be made within such ten-day period, the Holder shall be
deemed to have elected a Net Exercise. For purposes of this Paragraph 1.2(b),
the amount of the Net Exercise shall be valued at the average Market Price for
the ten trading days immediately preceding the date on which the Company
delivers the Optional Exercise Notice.
Notwithstanding anything contained in this Warrant to the contrary,
if, after giving effect to the shares of Common Stock issuable upon exercise
(or partial exercise) of this Warrant pursuant to the Mandatory Exercise,
Warburg would exceed the Control Threshold, then the following provisions shall
apply:
(i) Warburg shall use its reasonable best efforts to obtain all
Required Approvals as soon as practicable following receipt of the Optional
Exercise Notice, unless Warburg notifies the Company that it intends to sell or
otherwise transfer shares of Common Stock so that, after giving effect to the
Mandatory Exercise, it will not exceed the Control Threshold. Without limiting
the generality of the foregoing, at the request of Warburg, the Company shall
register the shares to be issued to Warburg pursuant to the Mandatory Exercise
in the names of the partners of Warburg unless, in the opinion of counsel to
the Company, such shares are not at the time of such registration freely
transferable by such partners pursuant to Rule 144(k) or another similar
exemption from the registration requirements of the Securities Act of 1933, as
amended.
(ii) In no event shall any shares of Common Stock be issued to
Warburg pursuant to the Mandatory Exercise unless and until Warburg notifies
the Company in writing that all Required Approvals have been obtained or that
it has transferred or sold such number of shares of Common Stock such that,
after giving effect to the issuance of the shares of Common Stock pursuant to
the Mandatory Exercise, the Control Threshold would not be exceeded.
1.3 Partial Exercise. This Warrant may be exercised at the option of
the holder for less than the full number of shares of Common Stock, in which
case the number of shares receivable upon the exercise of this Warrant as a
whole, and the sum payable upon the exercise of this Warrant as a whole, shall
be proportionately reduced. Upon any such partial exercise, the Company at its
expense will forthwith issue to the holder hereof a new Warrant or Warrants of
like tenor calling for the number of shares of Common Stock as to which rights
have not been exercised, such Warrant or Warrants to be issued in the name of
the holder hereof or his nominee (upon payment by such holder of any applicable
transfer taxes).
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant and payment of the Purchase Price, and in
any event within ten (10) days thereafter, the Company, at its expense,
will cause to be issued in the name of and delivered to the holder hereof a
certificate or certificates for the number of fully paid and non-assessable
shares or other securities or property to which such holder shall be entitled
upon such exercise, plus, in lieu of any fractional share to which such holder
would otherwise be entitled, cash in an amount determined in accordance with
Paragraph 3.9 hereof. The Company agrees that the shares so purchased shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to
prevent dilution of the right granted hereunder, the Purchase Price shall be
subject to adjustment from time to time in accordance with this Paragraph 3. Up
on each adjustment of the Purchase Price pursuant to this Paragraph 3, the
registered Holder of this Warrant shall thereafter be entitled to acquire upon
exercise, at the Purchase Price resulting from such adjustment, the number of
shares of the Company's Common Stock obtainable by multiplying the Purchase
Price in effect immediately prior to such adjustment by the number of shares of
-3-
<PAGE> 4
the Company's Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Purchase Price resulting from such
adjustment.
3.1 Adjustment for Issue or Sale of Common Stock at Less than the
Market Price. Except as provided in Paragraph 3.2 or 3.5 below, if and whenever
on or after the date of issuance hereof the Company shall issue or sell, or
shall in accordance with subparagraphs 3.1(1) to (9), inclusive, be deemed to
have issued or sold, any shares of its Common Stock for a consideration per
share less than the average Market Price for the ten trading days immediately
preceding such issuance or sale, then forthwith upon such issue or sale (the
"Triggering Transaction"), the Purchase Price shall, subject to subparagraphs
(1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price (calculated
to the nearest tenth of a cent) determined by multiplying the Purchase Price in
effect immediately prior to the time of such Triggering Transaction by a
fraction, the numerator of which shall be the sum of (x) the Number of Shares
Deemed Outstanding immediately prior to such Triggering Transaction and (y) the
number of shares of Common Stock which the aggregate consideration received by
the Company upon such Triggering Transaction would purchase at the average
Market Price for the ten-day trading period immediately preceding such
Triggering Transaction, and the denominator of which shall be the Number of
Shares Deemed Outstanding immediately after such Triggering Transaction.
For purposes of this Paragraph 3, the term "Number of Common Shares
Deemed Outstanding" at any given time shall mean the sum of (i) the number of
shares of the Company's Common Stock outstanding at such time, and (ii) the
number of shares of the Company's Common Stock deemed to be outstanding under
subparagraphs 3.1(1) to (9), inclusive, at such time.
For purposes of determining the adjusted Purchase Price under this
Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock or any
stock or other securities convertible into or exchangeable for Common Stock
(such rights or options being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert or
-4-
<PAGE> 5
exchange any such Convertible Securities are immediately exercisable and
the price per share for which the Common Stock is issuable upon exercise,
conversion or exchange (determined by dividing (x) the total amount, if
any, received or receivable by the Company as consideration for the
granting of such Options, plus the aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities,
the aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities) shall be less than the average Market Price in
effect for the ten-day trading period immediately prior to the time of the
granting of such Option, then the total maximum amount of Common Stock
issuable upon the exercise of such Options, or, in the case of Options for
Convertible Securities, upon the conversion or exchange of such Convertible
Securities, shall (as of the date of granting of such Options) be deemed to
be outstanding and to have been issued and sold by the Company for such
price per share. No adjustment of the Purchase Price shall be made upon the
actual issue of such shares of Common Stock or such Convertible Securities
upon the exercise of such Options, except as otherwise provided in
subparagraph (3) below.
(2) In case the Company at any time shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange (determined by
dividing (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus
the aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities) shall be less than the average Market
Price in effect for the ten-day trading period immediately prior to the
time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such Convertible
Securities) be
-5-
<PAGE> 6
be deemed to be outstanding and to have been issued and sold by the Company
for such price per share. No adjustment of the Purchase Price shall be made
upon the actual issue of such Common Stock upon exercise of the rights to
exchange or convert under such Convertible Securities, except as otherwise
provided in subparagraph (3) below.
(3) If the purchase price provided for in any Options referred to in
subparagraph (1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable
for Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
Paragraph 3.1 or 3.3), the Purchase Price in effect at the time of such
change shall forthwith be readjusted to the Purchase Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. If the purchase price provided for in any Option
referred to in subparagraph (1) or the rate at which any Convertible
Securities referred to in subparagraphs (1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then in case of the delivery of Common Stock upon the exercise of
any such Option or upon conversion or exchange of any such Convertible
Security, the Purchase Price then in effect hereunder shall forthwith be
adjusted to such respective amount as would have been obtained had such
Option or Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such adjustment
the Purchase Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, the Purchase Price then in
effect hereunder shall forthwith be increased to the Purchase Price which
would have been in effect at the time of such expiration or termination had
such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued.
-6-
<PAGE> 7
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the
amount received by the Company therefor (before deduction for expenses or
underwriters' discounts or commissions related to such issue or sale). In
case any shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be the fair
value of such consideration as determined in good faith by the Board of
Directors of the Company. In case any shares of Common Stock, Options or
Convertible Securities shall be issued in connection with any merger in
which the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the net
assets and business of the non-surviving corporation as shall be attributed
by the Board of Directors of the Company in good faith to such Common
Stock, Options or Convertible Securities, as the case may be as determined
in good faith by the Board of Directors of the Company.
(7) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this
Paragraph 3.1.
(8) In case the Company shall declare a dividend or make any other
distribution upon the stock of the Company payable in Options or
Convertible Securities, then in such case any Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this Paragraph 3.1, in case the Company shall take
a record of the holders of its Common Stock for the purpose of entitling
them (x) to receive a dividend or other distribution payable in Common
Stock,
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<PAGE> 8
Options or in Convertible Securities, or (y) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right or subscription or purchase,
as the case may be.
3.2 Dividends Not Paid Out of Earnings or Earned Surplus. In the event
the Company shall declare a dividend upon the Common Stock (other than a
dividend payable in Common Stock) payable otherwise than out of earnings or
earned surplus, determined in accordance with generally accepted accounting
principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries (herein referred to as "Liquidating
Dividends"), then, as soon as possible after the exercise of this Warrant, the
Company shall pay to the person exercising such Warrant an amount equal to the
aggregate value at the time of such exercise of all Liquidating Dividends
(including but not limited to the Common Stock which would have been issued at
the time of such earlier exercise and all other securities which would have been
issued with respect to such Common Stock by reason of stock splits, stock
dividends, mergers or reorganizations, or for any other reason). For the
purposes of this Paragraph 3.2, a dividend other than in cash shall be
considered payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged an amount equal to the fair value of
such dividend as determined in good faith by the Board of Directors of the
Company.
3.3 Subdivisions and Combinations. In case the Corporation shall at
any time (i) subdivide the outstanding Common Stock or (ii) issue a stock
dividend on its outstanding Common Stock, the Purchase Price in effect
immediately prior to such subdivision or dividend shall be proportionately
reduced by the same ratio as the subdivision or dividend. In case the
Corporation shall at any time combine its outstanding Common Stock, Purchase
Price in effect immediately prior to such combination shall be proportionately
increased by the same ratio as the combination.
3.4 Reorganization, Reclassification, Consolidation, Merger or Sale of
Assets. If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of
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<PAGE> 9
Common Stock shall be entitled to receive stock, securities, cash or other
property with respect to or in exchange for Common Stock, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale, lawful
and adequate provision shall be made whereby the holder of this Warrant shall
have the right to acquire and receive upon exercise of this Warrant such shares
of stock, securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of the Company's Common
Stock as would have been received upon exercise of this Warrant at the Purchase
Price then in effect. The Company will not effect any such consolidation, merger
or sale, unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument mailed or
delivered to the holder of this Warrant at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock of the Company, the Company shall not effect
any consolidation, merger or sale with the person having made such offer or with
any Affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the holder of this Warrant shall have been given a
reasonable opportunity to then elect to receive upon the exercise of this
Warrant either the stock, securities or assets then issuable with respect to the
Common Stock of the Company or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer. For purposes hereof the term "Affiliate" with respect to any given
person shall mean any person controlling, controlled by or under common control
with the given person.
3.5 No Adjustment for Exercise of Certain Options, Warrants, Etc. The
provisions of this Section 3 shall not apply to any Common Stock issued,
issuable or deemed outstanding under subparagraphs 3.1(1) to (9) inclusive: (i)
to any person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees, consultants or directors of the
Company or its subsidiaries in effect on the date of issuance hereof or
thereafter adopted by the Board of Directors of the Company (or physicians or
providers contracting with the Company or any of its Subsidiaries), (ii)
pursuant to options, warrants and conversion rights in existence on the date
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<PAGE> 10
of issuance hereof, (iii) upon exercise of the Warrants issued to Franklin
Capital Associates, III L.P. ("Franklin") and Warburg, Pincus Ventures, L.P.
("Warburg") pursuant to the Amended and Restated Securities Purchase Agreement,
dated as of April 2, 1997, by and among the Company, Franklin and Warburg, (iv)
on conversion of the Series A Preferred Stock or the sale of any additional
shares of Series A Preferred Stock or the issuance of additional shares of
Series A Preferred Stock as dividends pursuant to Section 2(a) of the
Certificate of Designation, Number, Voting Powers, Preferences and Rights of
Series A Convertible Preferred Stock of the Company, or (v) in connection with
underwritten public offerings for cash pursuant to a registration statement
filed under the Securities Act of Common Stock, Options or Convertible
Securities.
3.6 Notices of Record Date, Etc. In the event that:
(1) the Company shall declare any cash dividend upon its Common Stock,
or
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or other
rights, or
(4) there shall be any capital reorganization or reclassification of
the capital stock of the Company, including any subdivision or combination
of its outstanding shares of Common Stock, or consolidation or merger of
the Company with, or sale of all or substantially all of its assets to,
another corporation, or
(5) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in connection with such event, the Company shall give to the holder of
this Warrant:
(i) at least twenty (20) days' prior written notice of the date on
which the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up; and
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<PAGE> 11
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (i)
shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto and the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holder of this Warrant at the address of such
holder as shown on the books of the Company.
3.7 Grant, Issue or Sale of Options, Convertible Securities, or
Rights. If at any time or from time to time on or after the date of issuance
hereof, the Company shall grant, issue or sell any Options, Convertible
Securities or rights to purchase property (the "Purchase Rights") pro rata to
the record holders of any class of Common Stock of the Company and such grants,
issuances or sales do not result in an adjustment of the Purchase Price under
Paragraph 3.1 hereof, then the holder of this Warrant shall be entitled to
acquire (within thirty (30) days after the later to occur of the initial
exercise date of such Purchase Rights or receipt by such holder of the notice
concerning Purchase Rights to which such holder shall be entitled under
Paragraph 3.6) and upon the terms applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of shares of Common Stock acquirable
upon exercise of this Warrant immediately before the grant, issuance or
sale of such Purchase Rights; provided that if any Purchase Rights were
distributed to holders of Common Stock without the payment of additional
consideration by such holders, corresponding Purchase Rights shall be
distributed to the exercising holder of this Warrant as soon as possible
after such exercise and it shall not be necessary for the exercising holder
of this Warrant specifically to request delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have expired or
shall expire prior to the end of said thirty (30) day period, the number of
shares of Common Stock or the
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<PAGE> 12
amount of property which such holder could have acquired upon such exercise
at the time or times at which the Company granted, issued or sold such
expired Purchase Rights.
3.8 Adjustment by Board of Directors. If any event occurs as to
which, in the opinion of the Board of Directors of the Company, the provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the rights of the holder of this Warrant in accordance with
the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
rights as aforesaid, but in no event shall any adjustment have the effect of
increasing the Purchase Price as otherwise determined pursuant to any of the
provisions of this Section 3 except in the case of a combination of shares of a
type contemplated in Paragraph 3.3 and then in no event to an amount larger than
the Purchase Price as adjusted pursuant to Paragraph 3.3.
3.9 Fractional Shares. The Company shall not issue fractions of
shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof.
If any fraction of a share of Common Stock would, except for the provisions of
this Paragraph 3.9, be issuable upon exercise of this Warrant, the Company shall
in lieu thereof pay to the person entitled thereto an amount in cash equal to
the Market Price, calculated to the nearest one-hundredth (1/100) of a share.
3.10 Officer's Statement as to Adjustments. Whenever the Purchase
Price shall be adjusted as provided in Section 3 hereof, the Company shall
forthwith file at each office designated for the exercise of this Warrant, a
statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Company, showing in reasonable detail the facts
requiring such adjustment and the Purchase Price that will be effective after
such adjustment. The Company shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to the record
holder of this Warrant at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to in
Paragraph 3.6, such notice shall be included as part of the notice required to
be mailed and published under the provisions of Paragraph 3.6 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other
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<PAGE> 13
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder hereof against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and at all times will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable stock upon the exercise of this
Warrant.
5. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The
Company shall at all times reserve and keep available out of its authorized but
unissued stock, solely for the issuance and delivery upon the exercise of this
Warrant and other similar Warrants, such number of its duly authorized shares of
Common Stock as from time to time shall be issuable upon the exercise of this
Warrant and all other similar Warrants at the time outstanding.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms,
to all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof, title
to this Warrant may be transferred by endorsement (by the holder
hereof executing the form of assignment at the end hereof
including guaranty of
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<PAGE> 14
signature) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is
granted power to transfer absolute title hereto by endorsement
and delivery hereof to a bona fide purchaser hereof for value;
each prior taker or owner waives and renounces all of his
equities or rights in this Warrant in favor of every such bona
fide purchaser, and every such bona fide purchaser shall acquire
title hereto and to all rights represented hereby.
(c) Until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder of this Warrant as
the absolute owner hereof for all purposes without being affected
by any notice to the contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall
not be entitled to any rights of a shareholder of the Company
with respect to shares for which this Warrant shall be
exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided
herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any
transfer involved in the transfer or delivery of this Warrant or
the issuance or conversion or delivery of certificates for Common
Stock in a name other than that of the registered holder of this
Warrant or to issue or deliver any certificates for Common Stock
upon the exercise of this Warrant until any and all such taxes
and charges shall have been paid by the holder of this Warrant or
until it has been established to the Company's satisfaction that
no such tax or charge is due.
9. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants
issued pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new
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<PAGE> 15
warrants of like tenor and date representing in the aggregate the right to
subscribe for and purchase the number of shares of Common Stock of the Company
which may be subscribed for and purchased hereunder.
10. MAILING OF NOTICES, ETC. All notices and other communications
from the Company to the holder of this Warrant shall be mailed by first-class
certified mail, postage prepaid, to the address furnished to the Company in
writing by the last holder of this Warrant who shall have furnished an address
to the Company in writing.
11. HEADINGS, ETC. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
12. CHANGE, WAIVER, ETC. Neither this Warrant nor any term hereof may
be changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE.
COVENTRY CORPORATION
By:
Name:
Title:
Dated: ____________, 1997
Attest:
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<PAGE> 16
[To be signed only upon exercise of Warrant]
To Coventry Corporation:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, _____________ shares of Common Stock of Coventry
Corporation and herewith makes payment of $________________ therefor, and
requests that the certificates for such shares be issued in the name of, and
be delivered to ______________________________, whose address is _____________
__________________________________.
Dated:
(Signature must conform in all respects to name of Holder as specified on the
face of the Warrant)
Address
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<PAGE> 17
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto________________________ the right represented by the within Warrant to
purchase the _________shares of the Common Stock of Coventry Corporation to
which the within Warrant relates, and appoints ____________________________
attorney to transfer said right on the books of Coventry Corporation with full
power of substitution in the premises.
Dated:
(Signature must conform in all respects to name of Holder as specified on the
face of the Warrant)
Address
In the presence of
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<PAGE> 1
EXHIBIT 4.7
CONSENT
Reference is made to the Amended and Restated Securities Purchase
Agreement dated as of April 2, 1997 (the "Securities Purchase Agreement") by and
among Warburg, Pincus Ventures, L.P., Franklin Capital Associates III L.P. and
Coventry Corporation; the capitalized terms herein shall have the meanings set
forth in the Securities Purchase Agreement, except as herein noted. The
undersigned, Warburg, Pincus & Co., as General Partner, on behalf of Warburg,
Pincus Ventures, L.P. hereby consents to the transactions contemplated by the
Capital Contribution and Merger Agreement (effective as of November 3, 1997, and
amending and restating the Capital Contribution and Share Exchange Agreement
dated November 3, 1997) ("Merger Agreement") to be executed by and among
Principal Health Care, Inc., Principal Mutual Life Insurance Company, Principal
Holding Company, Coventry Health Care, Inc. (a Delaware corporation), Coventry
Health Care, Inc. (a Maryland corporation) and Coventry Corporation in
substantially the same form as the copy most recently provided to the
undersigned or to counsel for the undersigned, and to waive any and all rights
to which Warburg, Pincus Ventures, L.P. would otherwise be entitled solely as a
result of the transactions contemplated by the Merger Agreement, and in
furtherance of such waiver, to agree, as Majority Noteholder, to an amendment to
the terms of the Notes, the Warrant and the Series A Preferred Stock so as to
provide that the issuance of the consideration to Principal Health Care, Inc.
("PHC") described in Section 1.6 of the Merger Agreement, including the warrant
attached as Exhibit 1 thereto (the "PHC Warrant"), will not result in an
anti-dilution adjustment, as described in Section 10 of the Securities Purchase
Agreement (with respect to the Notes), Section 6 of the Certificate of
Designation and Section 3 of the Warrants.
It is acknowledged that the parties to the Merger Agreement are
relying upon this Consent as a condition to entering into said Merger Agreement.
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co., General Partner
By: /s/ PATRICK T. HACKETT
---------------------------------------
(Signature)
PATRICK T. HACKETT
-------------------------------------------
(Print Name)
Title: Managing Director
------------------------------------
Dated: December 18, 1997
<PAGE> 1
Exhibit 4.8
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (this "Agreement"), dated as of April 1, 1998
is by and among Coventry Health Care, Inc., a Delaware corporation (the
"Company"), Principal Mutual Life Insurance Company, an Iowa mutual insurance
company ("Mutual"), and Principal Health Care, Inc., an Iowa corporation
("Principal"). Reference is made herein to that certain Capital Contribution
and Merger Agreement (effective as of November 3, 1997, and amending and
restating the Capital Contribution and Share Exchange Agreement dated as of
November 3, 1997) executed on December 19, 1997 (the "Merger Agreement") by and
among the Company, Coventry Corporation, a Tennessee corporation, Coventry
Health Care, Inc., a Maryland corporation, Mutual, Principal Holding Company, an
Iowa corporation, and Principal. Capitalized terms not herein defined shall have
the meanings ascribed thereto in the Merger Agreement.
WHEREAS, Section 6.18(e) of the Merger Agreement provides that the Company,
Principal and Mutual execute and deliver this Agreement as a condition precedent
to the effectiveness of the Merger Agreement;
WHEREAS, the parties hereto desire to effect the transactions contemplated
by the Merger Agreement and to enter into this Agreement in order to set forth
certain agreements and understandings with respect to the obligations, rights
and privileges of Principal as a shareholder of the Company;
NOW THEREFORE, in consideration of promises and mutual covenants and
agreements set forth herein and in the Merger Agreement, intending to be legally
bound hereby, the parties hereto agree as follows:
SECTION 1. RESTRICTION ON RESALE; LEGEND.
(a) RESALE OF SECURITIES. Principal and Mutual each hereby covenant
that:
(i) it will not, directly or indirectly, sell or otherwise transfer
the shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"), acquired thereby under the Merger Agreement or
otherwise except pursuant to an effective registration under the
Securities Act of 1933, (the "Securities Act") or in a transaction
which, in the opinion of counsel reasonably satisfactory to the Company,
qualifies as an exempt transaction under the Securities Act and the
rules and regulations promulgated thereunder; and
(ii) on or before the fifth anniversary hereof, it will not,
directly or indirectly, sell or otherwise transfer, or permit any of its
subsidiaries, directly or indirectly, to sell or to transfer, the shares
of Common Stock acquired thereby under the Merger Agreement or
otherwise, to any person other than an entity that is an Affiliate (as
defined under Rule 13d-3 of the Securities and Exchange Act of 1934, as
amended) of Mutual and/or Principal (such Affiliate, now or in the
future, a "Mutual Affiliate") which agrees to be bound by the terms of
this Agreement, unless such sale or transfer (A) is made in accordance
with the provisions of Section 9 hereof, (B) is made pursuant to and in
compliance with Rule 144 under the Securities Act, or (C) shall have
been approved by the written consent of the Company's Board of
Directors.
(b) STOCK LEGEND. The stock certificates evidencing ownership of the
shares of Common Stock acquired by Principal under the Merger Agreement
will bear substantially the following legends:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION UNDER THE ACT OR IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, IS
EXEMPT FROM SUCH REGISTRATION.
THE SECURITIES EVIDENCED HEREBY ARE SUBJECT TO RESTRICTIONS ON
TRANSFER CONTAINED IN THAT CERTAIN SHAREHOLDERS'
<PAGE> 2
AGREEMENT, DATED APRIL 1, 1998, BETWEEN PRINCIPAL MUTUAL LIFE
INSURANCE COMPANY, PRINCIPAL HEALTH CARE, INC. AND THE
COMPANY, A COPY OF WHICH AGREEMENT IS ON FILE AT THE OFFICE OF
THE SECRETARY OF THE COMPANY. ANY ATTEMPTED TRANSFER OF THE
SECURITIES IN VIOLATION OF THE PROVISIONS OF THE SHAREHOLDERS'
AGREEMENT SHALL BE VOID AB INITIO AND SHALL NOT BE RECOGNIZED
BY THE COMPANY.
The legend in the first paragraph above shall be removed by the Company
from and after the expiration of the holding period for restricted securities
under the Act, if the Company shall receive an opinion of counsel, from counsel
reasonably acceptable to the Company, that such legend is not required under the
Securities Act or any state securities laws. In addition, whenever any shares
cease to be subject to this Agreement and are not otherwise restricted
securities, the shareholder thereof shall be entitled to receive from the
Company, without expense, upon surrender to the Company of the certificate
representing such shares, a new certificate representing such shares, of like
tenor but without a legend of the character set forth above.
SECTION 2. SUBSCRIPTION RIGHT. If at any time after the date hereof, the Company
proposes to issue equity securities of any kind (the term "equity securities"
shall include for these purposes any warrants, options or other rights to
acquire equity securities and debt securities convertible into equity securities
but shall not include the issuance of securities (i) upon conversion of the
Preferred Stock ("Preferred Stock") or Convertible Promissory Notes
("Convertible Notes") issued under the Warburg Agreement, as amended by the
Warburg Consent, (ii) pursuant to which the Company or any of its subsidiaries
acquires another corporation or other entity by merger, consolidation, exchange
offer, share exchange, purchase of substantially all of the assets or stock, or
other form of reorganization, (iii) pursuant to any employee or director stock
option or incentive plans, stock bonus plan, employee stock purchase plan,
employee savings plan, supplemental executive retirement plan, management equity
program, or similar employee or director stock plan (iv) to providers and/or
customers of the Company in an amount not to exceed 2% of the shares of Common
Stock outstanding from and after the date hereof, (vi) pursuant to that certain
Rights Agreement dated as of the Closing Date between the Company and
ChaseMellon Shareholder Services, LLC ("Rights Agreement"), or (viii) under the
Warrant Agreement between the Company and Principal dated of even date herewith)
then, as to Principal, the Company shall:
(a) give written notice setting forth in reasonable detail (i) the
designation and all of the terms and provisions of the securities proposed
to be issued (the "Proposed Securities"), including, where applicable, the
voting powers, preferences and relative participating, optional or other
special rights, and the qualification, limitations or restrictions thereof
and interest rate and maturity; (ii) the price and other terms of the
proposed sale of such securities; (iii) the amount of such securities
proposed to be issued; and (iv) such other information as the holders of
the Securities may reasonably request in order to evaluate the proposed
issuance;
(b) offer to issue to Principal (and/or to any other Mutual Affiliate
which shall own shares of Common Stock) upon the terms described in
subparagraph (a) above an amount of Equity Securities identical to the
Proposed Securities (the "Subscription Securities") equal to (i) the number
of Proposed Securities to be issued times (ii) such percentage as will
allow Principal and the Mutual Affiliates to own, following the issuance of
the Proposed Securities, a percentage of such Equity Securities equal to a
percentage determined by dividing (x) the number of shares of Common Stock
owned by Principal and/or any Mutual Affiliate immediately preceding the
issuance of the Proposed Securities, by (y) the total number of shares of
Common Stock outstanding immediately preceding the issuance of the Proposed
Securities (provided that in no event shall such percentage determined by
dividing (x) by (y) exceed 40%).
(c) Principal and/or Mutual Affiliate must notify the Company of its
intent to exercise its purchase rights hereunder within ten (10) days after
receipt of such notice from the Company and purchase the Subscription
Securities upon the closing of the issuance of the Proposed Securities.
2
<PAGE> 3
(d) Upon the expiration of the offering period described above, the
Company will be free to sell such Subscription Securities that Principal
and/or any Mutual Affiliate has not elected to purchase during the ninety
(90) days following such expiration on terms and conditions no more
favorable to the purchasers thereof than those offered to Principal and/or
any Mutual Affiliate. Any Subscription Securities offered or sold by the
Company after such ninety (90) day period must be reoffered to Principal
and/or any Mutual Affiliate pursuant to this Section 2.
(e) The election by Principal and/or any Mutual Affiliate not to
exercise its subscription rights under this Section 2 in any one instance
shall not affect its right (other than in respect of a reduction in its
percentage holdings) as to any subsequent proposed issuance. Any sale of
such securities by the Company without first giving Principal and/or any
Mutual Affiliate the rights described in this Section 2 shall be void and
of no force and effect.
SECTION 3. EFFECT OF RIGHTS AGREEMENT. At or prior to the Closing, the Company
shall have adopted the Rights Agreement, substantially in the form attached as
Exhibit 8 to the Merger Agreement, pursuant to which Principal, Mutual and/or
any Mutual Affiliate shall be exempt from the definition of an "Acquiring
Person" (as defined under the Rights Agreement) for so long as none of
Principal, Mutual and/or any Mutual Affiliate has breached in any material
respect, any provision of Sections 1(a) or, 4 of this Agreement while such
sections remain effective, and after such sections shall no longer be effective,
until such time as Mutual and the Mutual Affiliates shall collectively
Beneficially Own less than fifteen percent (15%) of the Common Stock.
SECTION 4. STANDSTILL. Mutual hereby covenants and agrees that, on or before the
fifth anniversary of the date hereof, it will not, and will cause Mutual
Affiliates to not, without the prior written consent of a majority of the
members of the Company's Board of Directors, do any of the following except
pursuant to Section 2 hereof:
(a) acquire, offer or agree to acquire any shares of Common Stock (or
options or warrants to acquire, or securities convertible into or
exchangeable for, shares of Common Stock) if, as a result of such
acquisition, Mutual (together with any Mutual Affiliates) would
Beneficially Own more than a number of shares of Common Stock in excess of
a number equal to forty percent (40%) of the outstanding shares of Common
Stock plus forty percent (40%) of the shares of Common Stock issuable upon
conversion of the Convertible Notes plus forty percent (40%) of the number
of shares of Common Stock issuable upon conversation of the Preferred
Stock; provided, however, that, for purposes of computing such amount, the
37,900 shares of Common Stock Beneficially Owned by Invista Capital
Management, Inc. ("Invista") on December , 1997 shall be excluded from
such calculation for as long as such shares are regarded as Beneficially
Owned by Invista (and no longer) and provided that no executive officer or
director of Mutual or Principal or any employee of Mutual, Principal, or
any of their affiliates other than officers, directors or employees of
Invista charged with the responsibility thereof shall participate in the
voting of such shares and provided further that for so long as the
Convertible Notes are outstanding, Mutual and the Mutual Affiliates, in the
aggregate, will not vote or act on written consent in any matter coming
before shareholders at any shareholder meeting or shareholder action in
excess of forty percent (40%) of the shares of Common Stock outstanding
plus forty percent (40%) of the shares of Preferred Stock outstanding;
(b) directly or indirectly commence or participate in a solicitation
of proxies either to oppose the election of any Person to the Board of
Directors or to seek the removal of any Person from the Board of Directors,
which Person has been nominated by the Nominating Committee of the Board of
Directors;
(c) vote its shares of Common Stock for the election of any Person to
the Board of Directors other than the Persons nominated by the Nominating
Committee of the Board of Directors; or
(d) directly or indirectly make or solicit or assist any third party
to make a tender or exchange offer to purchase any shares of Common Stock
or make any public announcement concerning, or submit any written proposal
to the Board of Directors of the Company for a merger, share exchange,
acquisition of substantially all of the assets or similar transaction
involving the Company.
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SECTION 5. SUSPENSION OF COVENANTS. The provisions of Section 1(a)(ii) and 4
hereof shall thereafter cease to apply in the event of any of the following:
(a) the Company issues voting securities in an acquisition by the
Company of another corporation or entity by merger, consolidation, exchange
offer, purchase of substantially all of the assets or stock, or other form
of business combination ("Company Acquisition") to any Person as a result
of which such Person, together with its affiliates, shall own a number of
shares of voting securities that shall equal or exceed the number of such
shares owned by Mutual and the Mutual Affiliates in the aggregate;
(b) the number of shares of Common Stock then owned by Mutual and the
Mutual Affiliates, in the aggregate, shall be less than 10% of the then
issued and outstanding shares of Common Stock; or
(c) the number of shares of Common Stock then owed by any Person
(other than Warburg, or a Person who acquired a number of shares of Common
Stock in a Company Acquisition which did not equal or exceed the number of
shares owned by Mutual and the Mutual Affiliates in the aggregate, so long
as the Company does not permit such person to acquire additional shares of
Common Stock) and the Affiliates of such Person, in the aggregate, shall be
greater than 15% of the insured and outstanding shares of Common Stock
SECTION 6. RIGHT TO MATCH OFFER. During such period as Section 4 shall be
effective, in the event a third party makes a bona fide tender or exchange offer
(a "Bona Fide Offer") to purchase a majority of the issued and outstanding
shares of Common Stock or to effect a merger or share exchange in which the
acquisition of substantially all of the assets or similar transaction involving
the Company, then not withstanding the provisions of section 4, Mutual shall be
permitted to make a competing offer (the "Mutual Offer") to the Board of
Directors of the Company. Upon the receipt of any Bona Fide Offer, the Board of
Directors shall establish a special committee (the "Special Committee"),
consisting of members of the Board of Directors that are neither members of the
Company's management nor members of the Board of Directors designated by Mutual
pursuant to the terms of Section 7 hereof. The Special Committee shall determine
whether it is advisable and in the best interest of the Company to solicit
additional offers from any other party or parties, shall retain any legal or
financial advisory services deemed necessary or advisable to assist it in its
analysis of the Bona Fide Offer, the Mutual Offer and any other offers solicited
from third parties by the Company, and shall establish any procedures deemed
necessary or advisable to regulate the process pursuant to which the Company
entertains and analyzes the competing offers. The Special Committee shall
analyze each such offer and shall make a recommendation to the entire Board of
Directors with respect to whether any such offer is one that the Company should
recommend to its shareholders. If the Special Committee shall determine that the
value of the Bona Fide Offer or any other offer solicited from a third party is
greater than the value of the Mutual Offer, then Mutual shall have the
opportunity to amend the Mutual Offer to match or exceed the value of the higher
offer and each of the other parties that has submitted an offer to the Company
shall have the right to submit a revised offer to the Company. If the Special
Committee shall determine that, after the Company shall have received the final
offer from each such party, the value of the Mutual Offer is equal to or greater
than any other offer received by the Company and that the Mutual Offer is
advisable and in the best interest of the Company's shareholders, then,
notwithstanding the provisions of Section 4(a) hereof to the contrary, Mutual
shall be permitted to take any action deemed necessary or convenient to acquire
that number of shares of Common Stock as specified in the Mutual Offer for the
terms (including price) set forth in the Mutual Offer.
SECTION 7. VOTING BY MUTUAL. During such period as Section 4 shall be effective,
in the event that (i) a third party makes a Bona Fide Offer to purchase all of
the issued and outstanding shares of Common Stock or to effect a merger, share
exchange or similar transaction as contemplated in Section 6 hereof and the
Special Committee shall determine in accordance with the procedures set forth in
Section 6 that the acceptance of the Bona Fide Offer is in the best interests of
the Company's shareholders or (ii) a Special Committee organized pursuant to the
procedures set forth in Section 6 determines that it is in the best interests of
the Company's shareholders for the Company to issue shares of Common Stock in
connection with a Company acquisition and, in connection with such acquisition
the Company a vote of the holder's of the Company's Common Stock is required by
law or by applicable requirements of the National Association of Securities
Dealers, Inc.'s
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National Market System or any other securities exchange on which shares of the
Common Stock are traded, then, in either event, Mutual agrees to refrain from
voting and to cause each Mutual Affiliate to refrain from voting all of their
shares of Common Stock at any meeting of the Company's shareholders held for the
purpose of considering such proposal (or, if an approval of shareholders is
required by reference to all shares outstanding, to vote its shares of Common
Stock and to cause each Mutual Affiliate to vote its shares of Common Stock in
favor of such proposal) provided that each of the following conditions set forth
below are satisfied at such time:
(a) the date of the shareholders meeting shall be on or after the date
that is eighteen (18) months following the Effective Date and during the
period as Section 4 shall be effective;
(b) the Board shall have received the written opinion of a nationally
recognized investment banking firm selected by the Company and reasonably
acceptable to Mutual that the proposed transaction is fair to the Company
and its shareholders from a financial standpoint; and
(c) the Company's shareholders (other than Mutual and the Mutual
Affiliates) shall have voted in favor of the proposed transaction by
majority vote;
SECTION 8. MUTUAL NOMINEES TO BOARD. For so long as Mutual Beneficially Owns at
least 10% (the "Minimum Percentage") of the then issued and outstanding shares
of Common Stock and shall not have breached in any material respect, without
cure, any provision of this Agreement, the Company will (i) nominate and use its
best efforts to cause its shareholders to elect and to retain as directors on
the Board of Directors at least one nominee designated by Mutual for each 6% of
the issued and outstanding Common Stock then held by Mutual (such nominees are
collectively hereinafter referred to as the "Mutual Directors") and (ii) use its
best efforts to cause its Board of Directors to limit the number of members of
the Compensation Committee, Audit Committee and Finance Committee of the Board
of Directors to three directors and to cause one Mutual Director to be appointed
as a member of each such committee. Any vacancy created by the death,
disability, retirement or removal of any Mutual Director on the Board of
Directors or on any such committee of the Board of Directors shall be filled by
the Board of Directors in accordance with written instructions of Mutual. In the
event the number of members of the Board of Directors is increased to more than
15 directors, for so long as Mutual owns the Minimum Percentage, Mutual shall be
entitled to the whole number of Mutual Directors obtained by multiplying (a) the
number of directors on the Board of Directors (including Mutual Directors) by
(b) a fraction, (x) the numerator of which is equal to the number of shares of
Common Stock then beneficially owned (within the meaning of Rule 13d-3 under the
Exchange Act) by Mutual and (y) the denominator of which is equal to the total
number of shares of Common Stock then issued and outstanding. In the event any
calculation of the number of Directors that Mutual is entitled to designate
under this Section 7 shall not produce a whole number of Mutual Directors, then
the number of Mutual Directors shall be rounded to the nearest whole number
(with percentages greater than or equal to 50% being rounded up to the next
whole number and percentages less than 50% being rounded down to the next whole
number.) In the event that any of Mutual's nominees shall fail to be elected to
the Board of Directors, the provisions of Sections 1(a)(ii) and 4 hereof shall
terminate and be of no further force or effect. In the event that after the
expiration of Section 4, Mutual or any of the affiliates shall take any of the
actions specified in Section 4(b) or 4(c), then the Company's obligations
hereunder will cease.
SECTION 9. REGISTRATION RIGHTS.
9.1 DEFINITIONS. As used in this Section 9:
(a) the terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and any post-effective amendments filed
or required to be filed) and the declaration or ordering of effectiveness
of such registration statement;
(b) the term "Registrable Securities" means (i) shares of Common Stock
acquired by Principal under the Merger Agreement or pursuant to the
exercise of the Warrant issued under the Merger Agreement, (ii) any capital
stock of the Company issued as a dividend or other distribution with
respect
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to, or in exchange for or in replacement of, the shares of Common Stock, if
any, referred to in clause (i) hereof and any additional shares of Common
Stock acquired by Principal or a Mutual Affiliate from the Company pursuant
to the provisions of Section 2 hereof;
(c) the term "Holder" shall mean any holder of Registrable Securities;
(d) the term "Initiating Holder" shall mean any Holder or Holders who
in the aggregate are Holders of more than fifty percent (50.0%) of the then
outstanding Registrable Securities;
(e) "Registration Expenses" shall mean all expenses incurred by the
Company in compliance with Sections 9.2 and 9.3 hereof, including, without
limitation, all registration, filing fees and NASD fees, printing expenses,
fees and disbursements of counsel for the Company and of its independent
public accountants, fees and disbursements of one counsel for all the
Holders, blue sky fees and expenses and the expense of any special audits
or "cold comfort" letters incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which
shall be paid in any event by the Company) and any fees and disbursements
of underwriters customarily paid by issuers or sellers of securities, but
excluding Selling Expenses; and
(f) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities and
all fees and disbursements of counsel for each of the Holders other than
fees and expenses of one counsel for all the Holders.
9.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall receive from an
Initiating Holder a written request that the Company effect any
registration with respect to all or a part of the Registrable Securities
and specifying the intended method of disposition thereon, the Company
will:
(i) give written notice of the proposed registration, qualification
or compliance to all other Holders of Registrable Securities promptly,
and in any event within 10 business days; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration as may be so requested (in accordance with the
intended method thereof as aforesaid) and as would permit or facilitate
the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such
portion of the Registrable Securities of any Holder or Holders joining
in such request as are specified in a written request received by the
Company within ten (10) business days after written notice from the
Company is given under Section 9.2(a)(i) above; provided that the
Company shall not be obligated to effect, or take any action to effect,
any such registration pursuant to this Section 9.2:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except
as may be required by the Securities Act or applicable rules or
regulations thereunder;
(B) After the Company has effected four (4) such registrations
pursuant to this Section 9.2 and such registrations have been
declared or ordered effective and the sales of such Registrable
Securities shall have closed; provided that any Holder may
participate in any such registration to the extent provided in
Section 9.2 if the registration as the result of a request of another
Initiating Holder;
(C) If the Registrable Securities requested by all Holders to be
registered pursuant to such request have an anticipated aggregate
public offering price (before any underwriting discounts and
commissions) of less than $20,000,000; or
(D) If in the good faith judgment of the Board based upon the
written opinion of a nationally recognized investment banking firm
selected by the Company and reasonably acceptable to the Holders,
such registration would have a material adverse effect on the market
price of the shares of Common Stock, the Company shall have the right
to limit the number of
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Registrable Securities requested by all Holders to be registered
pursuant to such request; provided, however, that the Company shall
use reasonable commercial efforts to register not less than fifty
percent (50%) of the number of Registrable Securities requested to be
registered or to facilitate a private sale of such number of
Registrable Securities to institutional investors in a manner that
would ameliorate the anticipated material adverse effect of any such
sale on the market price of the shares of Common Stock; provided,
further, that in the event the total number of shares that the
Selling Holders (as hereinafter defined) shall request to be
registered by the Company equals a number that is equal to or less
than twenty percent (20%) of the then outstanding shares of Common
Stock, then the provisions of this Subsection (i)(E) shall not apply;
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Section 9.2(b) below, include other
securities of the Company which are held by Persons who, by virtue of agreements
with the Company, are entitled to include their securities in any such
registration.
(b) UNDERWRITING. If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to Section 9.2. If holders of securities of the Company other
than Registrable Securities who are entitled, by contract with the Company
or otherwise, to have securities included in such a registration (the
"Other Stockholders") request such inclusion, the Holders shall offer to
include the securities of such Other Stockholders in the underwriting and
may condition such offer on their acceptance of the further applicable
provisions of this Section 9. The Holders whose shares are to be included
in such registration and the Company shall (together with all Other
Stockholders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with
the representative of the underwriter or underwriters selected for such
underwriting by the Initiating Holders and reasonably acceptable to the
Company. Notwithstanding any other provision of this Section 9.2, if the
representative advises the Holders in writing that marketing factors
require a limitation on the number of shares to be underwritten, the
securities of the Company held by Other Stockholders shall be excluded from
such registration to the extent so required by such limitation. If, after
the exclusion of such shares, further reductions are still required, the
number of shares included in the registration by each Holder shall be
reduced on a pro rata basis (based on the number of shares held by such
Holder), by such minimum number of shares as is necessary to comply with
such request. No Registrable Securities or any other securities excluded
from the underwriting by reason of the underwriter's marketing limitation
shall be included in such registration. If any of the Holders or any Other
Stockholder who has requested inclusion in such registration as provided
above disapproves of the terms of the underwriting, such person may elect
to withdraw therefrom by written notice to the Company, the underwriter and
the Initiating Holders. The securities so withdrawn shall also be withdrawn
from registration. If the underwriter has not limited the number of
Registrable Securities and securities of the Company held by Other
Shareholders to be underwritten, the Company may include its securities for
its own account in such registration if the representative so agrees and if
the number of Registrable Securities and securities of the Company held by
Other Shareholders which would otherwise have been included in such
registration and underwriting will not thereby be limited.
9.3 COMPANY REGISTRATION.
(a) INCLUSION IN REGISTRATION. If the Company shall determine to
register any of its equity securities either for its own account or for the
account of a security holder or holders exercising their respective demand
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a SEC Rule 145
transaction, or a registration on any registration form which does not
permit secondary sales or does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of Registrable Securities, the Company will:
(i) promptly, and in event within 10 business days, give to each of
the Holders a written notice thereof, its intended method of
disposition, such Holder's rights under this Section 9.3 and a list of
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the jurisdictions in which the Company intends to attempt to qualify
such securities under the applicable blue sky or other state securities
laws; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written
request or requests, made by the Holders within fifteen (15) days after
receipt of the written notice from the Company described in clause (i)
above, except as set forth in Section 9.3(b) below. Such written request
may specify all or a part of the Holders' Registrable Securities. No
registration effected under this Section 9.3 shall relieve the Company
of its obligations to effect any registration upon request under Section
9.2.
(b) UNDERWRITING. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 9.3(a)(i). In such event, the right of each of
the Holders to registration pursuant to this Section 9.3 shall be
conditioned upon such Holders' participation in such underwriting and the
inclusion of such Holders' Registrable Securities in the underwriting to
the extent provided herein; provided, however, that Mutual shall not be
required to participate in such underwriting if Mutual notifies the Company
that it is seeking registration of its shares solely to enable it to
distribute such shares to its shareholders or holders of mutual interests
issued thereby. The Holders whose shares are to be included in such
registration (other than Mutual if it elects not to participate in such
underwriting) shall (together with the Company and the Other Stockholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 9.3, if the
representative determines that marketing factors require a limitation on
the number of shares to be underwritten, the representative may (subject to
the allocation priority set forth below) limit the number of Registrable
Securities to be included in the registration and underwriting to not less
than fifteen percent (15.0%) of the securities included therein (based on
aggregate market values). The Company shall so advise all holders of
securities requesting registration, and the number of shares of securities
that are entitled to be included in the registration and underwriting shall
be allocated in the following manner: The securities of the Company held by
Other Stockholders of the Company (other than Registrable Securities and
other than securities held by holders who by contractual right demanded
such registration ("Demanding Holders")) shall be excluded from such
registration and underwriting to the extent required by such limitation,
and, if a limitation on the number of shares is still required, the number
of shares that may be included in the registration and underwriting by each
of the Holders and Demanding Holders shall be reduced, on a pro rata basis
(based on the number of shares held by such Holder), by such minimum number
of shares as is necessary to comply with such limitation. If any of the
Holders or any Other Stockholder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice
to the Company and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
9.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section 9 shall be borne by the Company, and all Selling Expenses shall be borne
by the persons selling shares so registered pro rata on the basis of the number
of their shares so registered. Notwithstanding the foregoing, if the Holders
request registration pursuant to Section 9.2 and, at the time of such request,
all shares then requested to be sold could be sold pursuant to Rule 144(k) under
the Act, then the Company shall not be obligated to pay Registration Expenses of
more than $75,000 in connection with such registration.
9.5 REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Section 9, the Company will keep the Holders, as
applicable, advised in writing as to the initiation of each registration and as
to the completion thereof. At its expense, the Company will:
(a) prepare and file with the SEC such appropriate form of
registration statement as shall be selected by the Company, and, in the
case of a registration pursuant to Section as shall be reasonably
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acceptable to Holders owning a majority (by number of Registrable
Securities) of the Registrable Securities so to be registered, to effect
such registration and thereafter use its best efforts to cause such
registration statement to become effective; provided, however, that in the
case of a registration requested pursuant to Section 9.2, if the Company
shall furnish to the Initiating Holders a certificate signed by the
Chairman of the Board stating that, in the good faith judgment of the
Board, the timing of the disclosure of any information that would be
required to be disclosed in such registration statement would be a serious
detriment to the Company and its shareholders if such disclosure were made
on or before the date the filing of such registration statement would be
required, then the Company shall have one additional period of not more
than 60 days within which to file such registration statement;
(b) (i) prepare and file with the SEC such amendments to such
registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period
of either (1) not less than 270 days or, if such registration statement
relates to an underwritten offering, such longer period as in the opinion
of counsel for the underwriters a prospectus is required by law to be
delivered in connection with sales of Registrable Securities by an
underwriter or dealer or (2) such shorter period which will terminate when
all of the Registrable Securities covered by such registration statement
have been disposed of in accordance with the intended method of disposition
by the Holders selling Registrable securities covered by such registration
statement (a "Selling Holder") (or other sellers of securities
thereunder)(but in any event not before the expiration of any longer period
required under the Securities Act), and (ii) comply with the provisions of
the Securities Act with respect to the disposition of all Registrable
Securities covered by such registration statement until such time as all of
such securities have been disposed of in accordance with the intended
method of disposition by the Selling Holders (or other sellers of
securities thereunder);
(c) furnish to each Selling Holder such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under the Securities Act, and such other documents in order to
facilitate the disposition of the Registrable Securities owned by such
Selling Holder as such Selling Holder may reasonably request;
(d) use its best efforts to register or qualify such Registrable
Securities and other securities covered by such registration statement
under such other securities or blue sky laws of such jurisdictions as each
Selling Shareholder and each other seller of securities thereunder shall
reasonably request, to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable such
Selling Holder to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Selling Holder;
(e) use its best efforts to cause all Registrable Securities and other
securities covered by such registration statement to be registered with or
approved by, and make any other necessary registrations or filings with,
all other governmental authorities as may be necessary by virtue of the
business and operations of the Company to enable the Selling Holder and any
other sellers of securities thereunder to consummate the disposition of
such Shares;
(f) furnish to each Selling Holder a signed counterpart, addressed to
such Selling Holder (and the underwriters, if any) of an opinion of the
Company's counsel and a "cold comfort" letter from the Company's
independent public accountants, each in such form and covering such matters
as are customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in under-written public
offerings of securities and, in the case of the accountants' letter, such
other financial matters, and, in the case of the legal opinion, such other
legal matters, as such Selling Holder may reasonably request;
(g) notify each Selling Holder selling Registrable Securities under
such registration statement, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, upon discovery that,
or upon the happening of any event as a result of which, the prospectus
included in such
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registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances under which they were made, and at the request
of any such Selling Holder promptly prepare and furnish to such Selling
Holder a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made;
(h) otherwise use its best efforts to comply with all applicable rules
and regulations of the SEC;
(i) provide and cause to be maintained a transfer agent and registrar
for all Registrable Securities covered by such registration statement from
and after a date not later than the effective date of such registration
statement; and
(j) use its best efforts to list all Registrable Securities covered by
such registration statement on each securities exchange on which similar
securities issued by the Company are then listed or on the National
Association of Securities Dealers Automated Quotation System or an
internationally recognized stock exchange.
9.6 INDEMNIFICATION.
(a) The Company will indemnify each of the Holders, as applicable,
each of its officers, directors and partners, and each person controlling
each of the Holders, with respect to each registration which has been
effected pursuant to this Section 9, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
any related registration statement, notification or the like) incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any
rule or regulation thereunder applicable to the Company and relating to
action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each of the
Holders, each of its officers, directors and partners, and each person
controlling each of the Holders, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the
Company by the Holders or underwriter and stated to be specifically for use
therein.
(b) Each of the Holders will, if Registrable Securities held by it are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors
and officers and each underwriter, if any, of the Company's securities
covered by such a registration statement, each person who controls the
Company or such underwriter, each Other Stockholder and each of their
officers, directors, and partners, and each person controlling such Other
Stockholder against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such
registration statement, prospectus, offering circular or other document
made by such Holder, or any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements by such Holder therein not misleading, and will reimburse the
Company and such Other Stockholders, directors, officers, partners,
persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written
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information furnished to the Company by such Holder for use therein;
provided, however, that the obligations of each of the Holders hereunder
shall be limited to an amount equal to the net proceeds to such Holder of
securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 9.6 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom; provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld) and the
Indemnified Party may participate in such defense at such party's expense
(unless the Indemnified Party shall have reasonably concluded that there
may be a conflict of interest between the Indemnifying Party and the
Indemnified Party in such action, in which case the fees and expenses of
counsel shall be at the expense of the Indemnifying Party), and provided,
further, that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 9 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(d) If the indemnification provided for in this Section 9.6 is held by
a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim,
damage or expense in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the
Indemnified Party on the other in connection with the statements or
omissions which resulted in such loss, liability, claim, damage or expense,
as well as any other relevant equitable considerations. The relative fault
of the Indemnifying Party and of the Indemnified Party shall be determined
by reference to, among other things, whether the untrue (or alleged untrue)
statement of a material fact or the omission (or alleged omission) to state
a material fact relates to information supplied by the Indemnifying Party
or by the Indemnified Party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with any underwritten public offering
contemplated by this Agreement are in conflict with the foregoing
provisions, the provisions in such underwriting agreement shall be
controlling.
(f) The foregoing indemnity agreement of the Company and the Holders
is subject to the condition that, insofar as they relate to any loss,
claim, liability or damage made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the Commission at the
time the registration statement in question becomes effective or the
amended prospectus filed with the Commission pursuant to Commission Rule
424(b) (the "Final Prospectus"), such indemnity agreement shall not inure
to the benefit of any underwriter if a copy of the Final Prospectus was
furnished to the underwriter and was not furnished to the person asserting
the loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act.
9.7 INFORMATION BY THE HOLDERS. Each of the Holders holding securities
included in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder
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as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 9.
9.8 RULE 144 REPORTING. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of
restricted securities to the public without registration, the Company agrees to:
(a) make and keep public information available as those terms are
understood and defined in Rule 144;
(b) use its best efforts to file with the SEC in a timely manner all
reports and other documents required of the Company under the Securities
Act and the Merger Act at any time after it has become subject to such
reporting requirements; and
(c) so long as the Holder owns any Registrable Securities, furnish to
the Holder upon request, a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from
and after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Merger
Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without
registration.
9.9 "MARKET STAND-OFF" AGREEMENT.
(a) Each of the Holders agrees, if requested by the Company and an
underwriter of Common Stock (or other securities) of the Company, not to
sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder during the 90-day period
following the effective date of a registration statement of the Company
filed under the Securities Act, provided that all executive officers and
directors of the Company enter into similar agreements. If requested by the
underwriters, the Holders shall execute a separate agreement to the
foregoing effect. The Company may impose stop-transfer instructions with
respect to the shares (or securities) subject to the foregoing restriction
until the end of said 90-day period. The provisions of this Section 9.8
shall be binding upon any transferee who acquires Registrable Securities,
whether or not such transferee is entitled to the registration rights
provided hereunder.
(b) The Company agrees, if requested by the Holders and the
underwriter selected thereby pursuant to Section 9.2(b), not to sell or
otherwise transfer or dispose of any Common Stock (or other securities) of
the Company pursuant to a public offering (other than an offering under
Form S-8) during the 90-day period following the effective date of a
registration statement of the Company filed under the Securities Act in
accordance with the provisions of Section 9.2 hereof, provided that all
Holders enter a "stand off" agreement under Section 9.9(a) hereof.
9.10 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the Holders owning Shares to
be registered under such registration statement, their underwriters, if any, and
their respective counsel and accountants (the "Inspectors"), the opportunity to
participate in the preparation of such registration statement, each prospectus
included therein or filed with the SEC, and each amendment or supplement
thereto, and will give each of them such access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have certified its financial statements
as shall be necessary, in the opinion of such Holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act. Records which the Company determines in good faith to be
confidential and which it notifies the Inspectors in writing are confidential
shall be treated as confidential by each Inspector in accordance with such
procedures as such Inspector applies generally to information of this kind
unless (a) disclosure of such records is necessary to avoid or correct a
misstatement or omission in the registration statement or any prospectus used in
connection
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therewith, (b) the information contained in such records has become generally
available to the public, (c) disclosure is required in any report, statement or
testimony required to be submitted to any governments authority having or
claiming to have jurisdiction over such Inspector), or (d) disclosure is
required in response to any summons or subpoena or in connection with any
litigation.
9.11 ADJUSTMENT AFFECTING SHARES. The Company will not effect or permit to
occur any combination or subdivision of the Registrable Securities which would
adversely affect the ability of the Holders to include the Registrable
Securities in any registration of its securities contemplated by this Article 9
or the marketability of the Registrable Securities under any such registration.
9.12 TERMINATION. The registration rights set forth in this Section 9
shall not be available to any Holder if, in the opinion of counsel to the
Company, all of the Registrable Securities then owned by such Holder could be
sold in any 90-day period pursuant to Rule 144 under the Securities Act (without
giving effect to the provisions of Rule 144(k) in the case of a Holder owing
more than three percent (3.0%) of the Common Stock then outstanding).
9.13 ASSIGNMENT. The registration rights set forth in this Section 9 shall
be assignable, in whole or in part, to any transferee of Common Stock in a
private placement or other unregistered sale (who shall be bound by all
obligations of this Section 9).
SECTION 10. MISCELLANEOUS.
10.1 NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile and by courier service (with
proof of service), hand delivery or certified or registered mail (return receipt
requested and first-class postage prepaid), addressed: (x) if to the Company, at
the Company's principal business address at 6705 Rockledge Drive, Suite 100,
Bethesda, Maryland 20817 or (y) if to Mutual, at the address of Mutual listed
in the stock records of the Company, or (z) to such other address as any party
shall specify by written notice so given, and such notice shall be deemed to
have been delivered as of the date so telecommunicated, personally delivered or
if mailed, the date of receipt.
10.2 ASSIGNMENT, BINDING EFFECT; BENEFIT. Unless expressly provided in
this Agreement, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
10.3 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
10.4 AMENDMENT. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
10.5 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to its rules
of conflict of laws.
10.6 HEADINGS. Headings of the sections of this Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
10.7 INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
10.8 WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision
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hereunder shall not operate or be construed as a waiver of any prior or
subsequent breach of the same or any other provision hereunder.
10.9 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.10 ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof, this being in addition to any other remedy to
which they are entitled at law or in equity.
10.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which
together shall be considered one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
Attest: COVENTRY HEALTH CARE, INC.
By: /s/ Shirley R. Smith By: /s/ Allen F. Wise
------------------------- ------------------------------------
Name: Shirley R. Smith Name: Allen F. Wise
Title: Secretary Title: President and Chief Executive
Officer
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By: /s/ Thomas J. Graf
-----------------------------------
Name: Thomas J. Graf
Title: Senior Vice President
PRINCIPAL HEALTH CARE, INC.
By: /s/ Thomas J. Graf
-----------------------------------
Name: Thomas J. Graf
Title: Executive Vice President
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