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EXHIBIT 2
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
Amendment No. 1 to Rights Agreement dated as of December 18, 1998
("Amendment No.1"), amending the Rights Agreement dated March 30, 1998, between
Coventry Health Care, Inc., a Delaware corporation (the "Company"), and
ChaseMellon Shareholder Services, L.L.C. (the "Rights Agent").
WHEREAS, on March 30, 1998, the Company and the Rights Agent entered
into the Rights Agreement; and
WHEREAS, Section 27 of the Rights Agreement provides that prior to the
Exercisability Date, the Company may amend the Rights Agreement without the
approval of any holders of certificates representing shares of Common Stock; and
WHEREAS, the Company has determined that this Amendment No. 1 is
necessary or desirable and consistent with the objectives of the Board of
Directors in adopting the Rights Agreement; and
WHEREAS, the Company and the Rights Agent wish to amend the Rights
Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the parties hereby agree as follows:
1. Section 1(a) of the Rights Agreement is hereby amended in its entirety to
read as follows:
(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 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 the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph (a)
has become such inadvertently, and such Person divests as
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promptly as practicable a sufficient number of shares of Common Stock so that
such Person would no longer be an "Acquiring Person," as defined pursuant to the
foregoing provisions of this paragraph (a), then such Person shall not be deemed
to be an "Acquiring Person" for any purposes of this Agreement. Notwithstanding
anything to the contrary in this Agreement,
(i) Warburg, Xxxxxx 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 April 1, 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.
2. Section 1(i) of the Rights Agreement is hereby amended in its entirety to
read as follows:
(i) [intentionally left blank].
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3. Section 1(t) of the Rights Agreement is hereby amended in its entirety to
read as follows:
(t) [intentionally left blank].
4. Section 3(c) of the Rights Agreement is hereby amended in its entirety to
read as follows:
(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, as amended by Amendment No. 1 dated December
18, 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.
5. Section 18(a) of the Rights Agreement is hereby amended to add the following
three sentences at the end of the paragraph:
The indemnity provided herein shall survive termination of this
Agreement and the termination and expiration of the Rights. The costs and
expenses incurred in enforcing this right of indemnification shall be paid by
the Company. Anything to the contrary notwithstanding, in no event shall the
Rights Agent be liable for special, punitive, indirect, consequential or
incidental loss or damage of any kind whatsoever (including but not limited to
lost profits), even if the Rights Agent has been advised of the likelihood of
such loss or damage.
6. Section 23(b) of the Rights Agreement is hereby amended in its entirety to
read as follows:
(b) The Board of Directors of the Company may, at its option, at any
time prior to the
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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, 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"). The
redemption of the Rights by the Board of Directors of the Company may be made
effective at such time, on such basis and with such conditions as the Board of
Directors of the Company, in its sole discretion, may establish.
7. Section 24(a) of the Rights Agreement is hereby amended in its entirety to
read as follows:
(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"). Notwithstanding the forgoing,
the Board of Directors of the Company shall not be empowered to effect such
exchange at any time after any Acquiring Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or any such
Subsidiary, or any entity holding Common Shares for or pursuant to the terms of
any such plan), together with all Affiliates and Associates of such Person,
becomes the Beneficial Owner of 50% or more of the Common Shares then
outstanding.
8. Section 26 of the Rights Agreement is hereby amended in its entirety to read
as follows:
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):
Xxxx Xxxx
Coventry Health Care, Inc.
0000 Xxxxxxxxx Xxxxx, Xxx. 000
Xxxxxxxx, Xxxxxxxx 00000
with a copy to:
Xxx X. Xxxxxxxx, Esq.
Bass, Xxxxx & Xxxx PLC
0000 Xxxxx Xxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxx 00000
Telecopy Number: (000) 000-0000
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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 Xxxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxx, XX 00000-0000
Attention: Xxxx Xxxxxx
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.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 1 to
Rights Agreement to be executed as of the date first written above.
COVENTRY HEALTH CARE, INC.
By: /s/ Xxxxxxx X. Xxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxx
Title: Senior Vice President
CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
By: /s/ Xxxxxxx X. Xxxxxxxxx
-----------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Vice President
