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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'
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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.
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(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 0000 Xxxxxxxxx Xxxxx, Xxxxx 000,
Xxxxxxxx, Xxxxxxxx 00000 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/ Xxxxxxx X. Xxxxx By: /s/ Xxxxx X. Xxxx
------------------------- ------------------------------------
Name: Xxxxxxx X. Xxxxx Name: Xxxxx X. Xxxx
Title: Secretary Title: President and Chief Executive
Officer
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY
By: /s/ Xxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxx X. Xxxx
Title: Senior Vice President
PRINCIPAL HEALTH CARE, INC.
By: /s/ Xxxxxx X. Xxxx
-----------------------------------
Name: Xxxxxx X. Xxxx
Title: Executive Vice President
15
