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EXHIBIT 10.3
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT (this "Agreement"), dated as of [ ], is by
and among Coventry Health Care, Inc., a Maryland 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 Share Exchange and Capital Contribution
Agreement, dated as of November 3, 1997 (the "Exchange Agreement"), by and among
the Company, Coventry Corporation, a Tennessee corporation, Mutual, Principal
Holding Company, an Iowa corporation, and Principal. Capitalized terms not
herein defined shall have the meanings ascribed thereto in the Exchange
Agreement.
WHEREAS, Section 6.18(e) of the Exchange Agreement provides that the
Company, Principal and Mutual execute and deliver this Agreement as a condition
precedent to the effectiveness of the Exchange Agreement;
WHEREAS, the parties hereto desire to effect the to effect the
transactions contemplated by the Exchange 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 Exchange 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 Exchange 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 Exchange 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 8 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.
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(b) Stock Legend. The stock certificates evidencing ownership of the
shares of Common Stock acquired by Principal under the Exchange 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'
AGREEMENT, DATED [ ], 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,
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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 a portion of the Proposed Securities (the "Subscription
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
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.
(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 Exchange 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
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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 29,800 shares of Common Stock Beneficially Owned by
Invista Capital Management, Inc. ("Invista") on November 3, 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
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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 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
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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 Exchange Agreement or pursuant to
the exercise of the Warrant issued under the Exchange Agreement, (ii) any
capital stock of the Company issued as a dividend or other distribution with
respect 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;
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(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
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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; or
(C) The Registrable Securities requested by all
Holders to be registered pursuant to such request do not have
an anticipated aggregate public offering price (before any
underwriting discounts and commissions) of not less than
$20,000,000.
(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
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
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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 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
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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
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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 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
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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 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
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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
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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 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
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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 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 Exchange 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 Exchange 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
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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 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.
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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 [ ] 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.
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10.5 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Maryland, 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 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 HEALTHCARE, INC.
By: By:
------------------------------- -----------------------------------------
Name: Name:
Title: Secretary Title: President and Chief Executive Officer
PRINCIPAL MUTUAL LIFE INSURANCE
COMPANY
By:
-----------------------------------------
Name:
Title:
PRINCIPAL HEALTH CARE, INC.
By:
-----------------------------------------
Name:
Title:
20
