EXHIBIT 1
================================================================================
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
by and among
WARBURG, ▇▇▇▇▇▇ VENTURES, L.P.,
FRANKLIN CAPITAL ASSOCIATES III L.P.
and
COVENTRY CORPORATION
dated
as of
April 2, 1997
================================================================================
TABLE OF CONTENTS
PAGE
SECTION 1. AUTHORIZATION OF ISSUE OF SECURITIES............................1
1.1. Convertible Exchangeable Notes..................................1
1.2. Warrants........................................................2
1.3. Convertible Preferred Stock.....................................2
SECTION 2. PURCHASE AND SALE OF SECURITIES.................................2
2.1. Initial Issuance of Securities..................................3
2.2. Subsequent Issuance of Securities...............................3
2.3. Closing and Closing Date........................................4
2.4. Tax Basis.......................................................4
SECTION 3. SCHEDULED PAYMENTS AND PREPAYMENTS ON THE NOTES.................4
3.1. General.........................................................4
3.2. Mandatory Prepayments of the Notes..............................5
3.3. Optional Prepayments of the Notes...............................5
3.4. Partial Prepayments Pro Rata....................................6
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................6
4.1. Corporate Organization..........................................6
4.2. Subsidiaries....................................................7
4.3. Capitalization..................................................7
4.4. Corporate Proceedings, etc......................................9
4.5. Consents and Approvals..........................................9
4.6. Compliance with Law.............................................9
4.7. Litigation.....................................................12
4.8. Change in Ownership............................................13
4.9. Absence of Defaults, Conflicts, etc............................13
4.10. Reports and Financial Statements...............................14
4.11. Absence of Certain Developments................................15
4.12. Material Contracts.............................................16
4.13. Absence of Undisclosed Liabilities.............................16
4.14. Employees......................................................16
4.15. Tax Matters....................................................17
4.16. Employee Benefit Plans.........................................18
4.17. Patents, Licenses, etc.........................................18
4.18. Title to Tangible Assets.......................................19
4.19. Insurance......................................................19
4.20. Transactions with Related Parties..............................20
4.21. Interest in Competitors........................................20
4.22. Registration Rights............................................20
4.23. Regulation G, etc..............................................20
4.24. Private Offering...............................................21
4.25. Brokerage......................................................21
4.26. Illegal or Unauthorized Payments; Political Contributions......21
4.27. Takeover Statute; Rights Plan..................................22
4.28. Material Facts.................................................22
(i)
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS................22
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES............................24
6.1. Resale of Securities...........................................24
6.2. Covenants Pending Closing......................................24
6.3. Board Nominees.................................................25
6.4. Subscription Right.............................................26
6.5. Use of Proceeds................................................27
6.6. Amendment to Rights Agreement..................................28
SECTION 7. INVESTORS' CLOSING CONDITIONS..................................28
7.1. Representations and Warranties.................................28
7.2. Compliance with Agreement......................................28
7.3. Injunction.....................................................28
7.4. Counsel's Opinion..............................................28
7.5. Adverse Development............................................32
7.6. Election of Directors..........................................32
7.7. Approval of Creditors..........................................32
7.8. Consents and Approvals.........................................32
7.9. Secretary's Certificate........................................33
7.10. Officer's Certificate..........................................33
7.11. Approval of Proceedings........................................33
7.12. Amendment to Rights Agreement..................................33
SECTION 8. COMPANY CLOSING CONDITIONS.....................................34
8.1. Representations and Warranties.................................34
8.2. Compliance with Agreement......................................34
8.3. Injunction.....................................................34
8.4. Consents and Approvals.........................................35
8.5. Investors' Certificate.........................................35
SECTION 9. CONVERSION.....................................................35
SECTION 10. ANTI-DILUTION PROVISIONS.......................................37
SECTION 11. REGISTRATION RIGHTS............................................46
11.1. Definitions....................................................46
11.2. Requested Registration.........................................46
11.3. Company Registration...........................................49
11.4. Expenses of Registration.......................................50
11.5. Registration Procedures........................................51
11.6. Indemnification................................................52
11.7. Information by the Holders.....................................54
11.8. Rule 144 Reporting.............................................55
11.9. "Market Stand-off" Agreement...................................55
11.10.Termination....................................................56
SECTION 12. COVENANTS......................................................56
12.1. Approval of Preferred Stock....................................56
(ii)
12.2. Exchange of Notes..............................................56
12.3. Financial and Business Information.............................57
12.4. Inspection.....................................................59
12.5. Confidentiality................................................60
12.6. Takeover Statute...............................................60
12.7. Rights Agreement Inapplicable..................................60
12.8. ▇▇▇▇-▇▇▇▇▇ Filings; Consents and Approvals.....................61
12.9. Conduct of Business and Maintenance of Existence...............62
12.10.Compliance with Laws...........................................62
▇▇.▇▇.▇▇▇▇▇▇▇▇▇......................................................62
12.12.Keeping of Books...............................................62
12.13.Transfer; Lost, etc. Securities; Certificates
Evidencing Securities (or Common Stock); Exchange.........62
12.14.Licenses.......................................................64
SECTION 13. EVENTS OF DEFAULT..............................................64
13.1. Events of Default..............................................64
13.2. Other Remedies.................................................65
SECTION 14. INTERPRETATION OF THIS AGREEMENT...............................66
14.1. Terms Defined..................................................66
14.2. Accounting Principles..........................................71
14.3. Directly or Indirectly.........................................71
14.4. Governing Law..................................................72
14.5. Paragraph and Section Headings.................................72
SECTION 15. MISCELLANEOUS..................................................72
15.1. Payments.......................................................72
15.2. Consent to Amendments..........................................72
15.3. Notices........................................................73
15.4. Expenses and Taxes.............................................73
15.5. Reproduction of Documents......................................74
15.6. Termination and Survival.......................................75
15.7. Successors and Assigns.........................................75
15.8. Entire Agreement; Amendment and Waiver.........................75
15.9. Severability...................................................75
15.10.Limitation on Enforcement of Remedies..........................75
15.11.Counterparts...................................................77
EXHIBIT A Form of Note
EXHIBIT B Form of Warrant
EXHIBIT C Form of Certificate of Designation of Series A
Convertible Preferred Stock of the Company
EXHIBIT D Certificate of Incorporation of the Company
EXHIBIT E Bylaws of the Company
EXHIBIT F Voting Trust Agreement
(iii)
Schedule I Names of Investors
Schedule 2.1 Investors
Schedule 4.2 Subsidiaries
Schedule 4.3 Stockholders and Conversion Rights
Schedule 4.5 Consents and Approvals
Schedule 4.6 Compliance with Law
Schedule 4.12 Key Agreements and Instruments
Schedule 4.16 Employee Benefit Arrangements
Schedule 7.14 Affiliates
Schedule 12.14 Licenses
(iv)
COVENTRY CORPORATION
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
Dated as of April 2, 1997
To the Investors whose
names and addresses are
set forth on Schedule I hereto
Dear Sirs:
Coventry Corporation, a Tennessee corporation (the "Company"),
hereby agrees with Warburg, ▇▇▇▇▇▇ Ventures, L.P., a Delaware limited
partnership ("Warburg"), and Franklin Capital Associates III L.P., a Delaware
limited partnership ("Franklin" and together with Warburg, the "Investors") as
follows:
SECTION 1. AUTHORIZATION OF ISSUE OF SECURITIES
1.1. Convertible Exchangeable Notes.
The Company has authorized the issuance, sale and delivery to
the Investors of its convertible, exchangeable senior subordinated notes
(together with any replaced or exchanged notes referred to herein as the
"Notes") in the aggregate principal amount of $40,000,000, to be dated a Closing
Date and to bear interest on the unpaid balance thereof from the date thereof at
the rate of 8.3% per annum until the second anniversary of its respective
Closing Date and at the rate of 5.0% per annum thereafter, until the principal
thereof shall become due and payable (whether at maturity, upon notice of
prepayment or otherwise). The Notes shall be substantially in the form of
Exhibit A attached hereto. Interest on the Notes will be payable semi-annually
in arrears on the last day of the applicable month, commencing six months from
its respective Closing Date, and if such date is not a Business Day on the next
Business Day thereafter; provided, however, that the Company shall issue
interest notes ("Interest Notes" and individually called an "Interest Note") in
payment of any or all interest due on or before the second anniversary of the
applicable Closing Date, which Interest Notes shall bear interest on the unpaid
balance thereof at the rate of 8.3% per annum (computed on the basis of a
360-day year of twelve 30-day months) from the date of issuance thereof until
the second anniversary of the applicable Closing Date and at the rate of 5.0%
per annum (computed on the basis of
-2-
a 360-day year of twelve 30-day months) thereafter until the principal thereof
shall become due and payable (whether at maturity, upon notice of prepayment or
otherwise); and, provided, further, that the Company may, at its sole option,
issue Interest Notes in lieu of a cash payment of any or all interest due after
the second anniversary of the Closing Date, which Interest Notes shall bear
interest on the unpaid balance thereof from the date of issuance thereof at the
rate of 5.0% per annum (computed on the basis of a 360-day year of twelve 30-day
months) until the principal thereof shall become due and payable (whether at
maturity, upon notice of prepayment or otherwise). Interest on the Interest
Notes will be payable semi-annually in arrears on the last day of the applicable
month, commencing six months from the date of issuance thereof, and if such date
is not a Business Day on the next Business Day thereafter. Such Interest Notes
shall be substantially in the form of Exhibit A attached hereto. For purposes of
this Agreement, all references to the Notes or a Note shall be deemed to include
any and all Interest Notes.
1.2. Warrants.
The Company has authorized and created Warrants (herein,
together with any such warrants which may be issued hereunder in substitution or
exchange therefor collectively called the "Warrants" and individually called a
"Warrant"), initially evidencing the right to purchase an aggregate of 2,352,941
shares of Common Stock, par value $0.01 per share, of the Company (the "Common
Stock"), to be dated a Closing Date and to be substantially in the form of
Exhibit B hereto. Each Warrant will be immediately exercisable and transferable
at the sole option of its holder.
1.3. Convertible Preferred Stock.
The Board has authorized and has proposed to submit to the
shareholders of the Company for their approval at the next annual meeting of
shareholders of the Company the creation, issuance and sale of a series of
Series A Convertible Preferred Stock, $0.01 par value per share (the "Series A
Preferred Stock"), consisting of 6,000,000 shares and designated as its "Series
A Convertible Preferred Stock." The terms, limitations and relative rights and
preferences of any such Series A Preferred Stock are set forth in the form of
Certificate of Designations, Number, Voting Powers, Preferences and Rights of
Series A Convertible Preferred Stock of the Company, a copy of which is attached
hereto as Exhibit C (the "Certificate of Designation").
-3-
SECTION 2. PURCHASE AND SALE OF SECURITIES
2.1. Initial Issuance of Securities.
Subject to the terms and conditions set forth in this
Agreement and in reliance upon the Company's and the Investors' representations
set forth below, on the First Closing Date (as defined below) the Company shall
sell to the Investors, and the Investors shall purchase from the Company, the
Securities set forth opposite their respective names on Schedule 2.1, at the
aggregate cash purchase prices (each a "First Closing Purchase Price") set forth
opposite their respective names on Schedule 2.1 (such Securities collectively
referred to herein as the "First Closing Securities"). Such sale and purchase
shall be effected on the First Closing Date by the Company executing and
delivering to each of the Investors, duly registered in its name or in the name
of its nominee or other designee designated in writing to the Company at least
one day prior to the First Closing Date, a duly executed Note and a duly
executed Warrant in the amount set forth on Schedule 2.1, against delivery by
each of the Investors to the Company of the First Closing Purchase Price by wire
transfer of immediately available funds to such account as the Company shall
designate in writing.
2.2. Subsequent Issuance of Securities.
(b) Subject to the terms set forth in this Agreement, to the
conditions set forth in Section 2.3(b) and in reliance upon the Company's and
the Investors' representations set forth below, on the Second Closing Date (as
defined below) the Company shall sell to the Investors, and the Investors shall
purchase from the Company, the Securities set forth opposite their respective
names on Schedule 2.2, at the aggregate cash purchase prices (each a "Second
Closing Purchase Price," and together with the respective First Closing Purchase
Price, the "Purchase Price") set forth opposite their respective names on
Schedule 2.2 (such Securities collectively referred to herein as the "Second
Closing Securities," and together with the First Closing Securities, the
"Purchased Securities"). Such sale and purchase shall be effected on the Second
Closing Date by the Company executing and delivering to each of the Investors,
duly registered in its name or in the name of its nominee or other designee
designated in writing to the Company at least one day prior to the Second
Closing Date, a duly executed Note and a duly executed Warrant in the amount set
forth on Schedule 2.2, against delivery by each of the Investors to the Company
of the Second Closing Purchase Price by wire transfer of immediately available
funds to such account as the Company shall designate in writing.
-4-
2.3. Closing and Closing Date.
(a) The First Closing. The closing of the transactions
contemplated by Section 2.1 (the "First Closing") shall take place at 10:00
A.M., New York City time, on the third Business Day following the date on which
the last to be fulfilled or waived of the conditions set forth in Sections 7 and
8 hereof shall be fulfilled or waived in accordance with this Agreement, or such
other date as the Investors and the Company agree in writing (the "First Closing
Date"), at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, 153 East 53rd Street, New
York, New York, or such other location as the Investors and the Company shall
mutually select.
(b) The Second Closing. The closing of the transactions
contemplated by Section 2.2 (the "Second Closing," and together with the First
Closing, the "Closings," and each a "Closing") shall take place at 10:00 A.M.,
New York City time, on the third Business Day following the date on which the
last to be fulfilled or waived of the conditions set forth in Sections 7.1, 7.2,
7.3, 7.4, 7.5, 7.9, 7.10, 7.11 and Section 8 hereof (the "Second Closing
Conditions") shall be fulfilled or waived in accordance with this Agreement, or
such other date as the Investors and the Company agree in writing (the "Second
Closing Date," and together with the First Closing Date, the "Closing Dates" and
each a "Closing Date"), at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, 153 East
53rd Street, New York, New York, or such other location as the Investors and the
Company shall mutually select. The obligation of each of the Investors and the
Company required to be performed by it pursuant to this Section 2.3(b) shall be
subject to the performance by each of the other parties of their agreements
theretofore to be performed pursuant to this Section 2.3(b) and the satisfaction
of Second Closing Conditions.
2.4. Tax Basis.
The Company and the Investors agree that the aggregate
Purchase Price of $42,352,941 shall be allocated as follows: $40,000,000 to the
Notes and $2,352,941 to the Warrants. The Company and the Investors shall each
file all income tax and similar documents (including information and reporting
forms) consistent with such allocation.
-5-
SECTION 3. SCHEDULED PAYMENTS AND PREPAYMENTS ON THE NOTES.
3.1. General.
The Notes shall be subject to scheduled payment and mandatory
prepayments as specified in Section 3.2 and to the optional prepayments under
the circumstances set forth in Section 3.3.
3.2. Mandatory Prepayments of the Notes.
(a) Scheduled Payments of the Notes. On the fifth, sixth and
seventh anniversaries of each Closing Date, the Company shall apply to the
outstanding principal balance of the Notes purchased on such Closing Date,
without premium or penalty, an amount equal to 33.33%, 50.0% and 100.0%,
respectively, of the aggregate outstanding principal amount of the Notes as of
such date, and such aggregate principal amount of the Notes, together with all
accrued and unpaid interest thereon to such payment date, shall become due and
payable on such payment date.
(b) Prepayment Upon Change of Control. Upon a Change of
Control the Company shall, upon the written request of the Majority Holders,
prepay on the effective date of the Change of Control 100.0% of the aggregate
outstanding principal balance of the Notes or such other portion of the
principal amount of the Notes requested by the Majority Holders to be prepaid at
a price in cash equal to the principal amount to be prepaid plus all accrued but
unpaid interest thereon through the date of payment.
The Company shall notify each Investor as promptly as
practicable prior to the occurrence of any event constituting a Change of
Control but in any event not less than thirty (30) days prior to a Change of
Control. Such notice shall specify the date of the proposed Change of Control
and that such prepayment would be made pursuant to this Section 3.2(b). If an
Investor requests prepayment it shall thereafter furnish to the Company written
notice of such election pursuant to this Section 3.2(b). Notice of prepayment
having been given as aforesaid, the prepayment price calculated as set forth
above shall become due and payable on the effective date of the Change of
Control.
3.3. Optional Prepayments of the Notes.
(a) Except as provided in Section 3.3(b), the Notes may not be
prepaid at the option of the Company.
(b) The Notes may not be prepaid before the third anniversary
of their respective Closing Date. Thereafter, the Notes shall be subject to
prepayment, in whole but not in part, at the option of the Company, if the
Market Price of the Common Stock on each of the twenty (20) consecutive days on
which there was a price for such shares during the period ending within five
days prior to the giving of written notice of prepayment as
-6-
provided in Section 15.3 is at least $17.00 per share (appropriately adjusted
for any stock split, stock dividend or similar event), at a price in cash equal
to (x) the aggregate outstanding principal amount of the Notes to be prepaid
plus (y) all accrued and unpaid interest thereon up to and including the date of
prepayment.
3.4. Partial Prepayments Pro Rata.
For so long as there is more than one holder of the Notes, the
aggregate principal amount of each partial prepayment of the Notes under Section
3.1 shall be allocated among the holders of the Notes at the time outstanding in
proportion to the unpaid principal amounts of the Notes respectively held by
each such holder (to the nearest $1,000).
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investors that
except as expressly set forth in the correspondingly numbered section on the
disclosure schedule attached hereto to the extent specifically disclosed with
respect to the representation to which such exception applies:
4.1. Corporate Organization.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Tennessee. Attached
hereto as Exhibits D and E, respectively, are true and complete copies of the
Certificate of Incorporation and Bylaws of the Company, as amended through the
date hereof (collectively, the "Organizational Documents").
(b) The Company has all requisite power and authority and has
all necessary approvals, licenses, permits and authorization to own its
properties and to carry on its business as now conducted. The Company has all
requisite power and authority to execute and deliver the Transaction Documents
and to perform its obligations hereunder and thereunder.
(c) The Company has filed all necessary documents to qualify
to do business as a foreign corporation in, and the Company is in good standing
under the laws of each jurisdiction in which the conduct of the Company's
business or the nature of the property owned requires such qualification, except
where the failure to so qualify would not have a material adverse affect on the
business, properties, prospects, profits or condition (financial or otherwise)
of the Company and its Subsidiaries taken as a whole (a "Material Adverse
Effect").
-7-
4.2. Subsidiaries.
The Company has no Subsidiaries and no interests or
investments in any partnership, trust or other entity or organization. Each
Subsidiary listed on Schedule 4.2 has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the jurisdiction of
its incorporation, has all requisite corporate power and authority to own its
properties and assets and to conduct its business and is duly registered,
qualified and authorized to transact business and is in good standing in each
jurisdiction in which the conduct of its business or the nature of its
properties requires such registration, qualification or authorization, except
where the failure to be so registered, qualified or authorized would not have a
Material Adverse Effect. All of the issued and outstanding capital stock of each
Subsidiary has been duly authorized and validly issued, is fully paid and
non-assessable, and is owned of record and beneficially, directly or indirectly,
by the Company free and clear of any mortgage, pledge, lien, charge, security
interest, claim or other legal or equitable encumbrance, limitation or
restriction. There are no outstanding options, warrants, agreements, conversion
rights, preemptive rights or other rights to subscribe for, purchase or
otherwise acquire any issued or unissued shares of capital stock of any
Subsidiary.
4.3. Capitalization.
(a) On the date hereof, the authorized capital stock of the
Company consists of 100,000,000 shares of Common Stock. On the date hereof, the
issued and outstanding shares of capital stock of the Company consists of
33,021,374 shares of Common Stock and 439,560 shares of Common Stock which are
held by Coventry Health & Life Insurance Company, one of the Company's
wholly-owned subsidiaries, pursuant to applicable insurance laws, and accounted
for as shares of treasury stock of the Company. The Company has no other shares
of treasury stock. As of the date hereof, there are no bonds, debentures, notes
or other evidences of indebtedness having the right to vote on any matters on
which the Company's stockholders may vote issued or outstanding.
(b) All the outstanding shares of capital stock of the Company
have been duly and validly issued and are fully paid and non-assessable, and
were issued in accordance with the registration or qualification requirements of
the Securities Act and any relevant state securities laws or pursuant to valid
exemptions therefrom. Upon issuance, sale and delivery as contemplated by this
Agreement, the Purchased Securities will be duly authorized and validly issued
obligations of the Company. Upon their issuance in accordance with the terms
-8-
of the Purchased Securities, the shares of Common Stock and shares of Series A
Preferred Stock, if any, issuable upon conversion, exchange or exercise of the
Purchased Securities or the Series A Preferred Stock will be duly authorized,
validly issued, fully paid and non-assessable shares of the capital stock of the
Company, free and clear of any and all security interests, pledges, liens,
charges, claims, options, rights, restrictions on transfer, preemptive rights,
proxies and voting or other agreements, or other encumbrances of any nature
whatsoever, except for those provided for herein and other than restrictions on
transfer imposed by federal or state securities laws.
(c) Except for the conversion and exchange rights which attach
to the warrants, options and convertible securities which are listed on Schedule
4.3 hereto and to the Purchased Securities, on the Closing Dates there will be
no shares of Common Stock or any other equity security of the Company issuable
upon conversion, exchange or exercise of any security of the Company or any
Subsidiary of the Company nor will there be any rights, options, calls or
warrants outstanding or other agreements to acquire shares of Common Stock nor
will the Company be contractually obligated to purchase, redeem or otherwise
acquire any of its outstanding shares. No stockholder of the Company is entitled
to any preemptive or similar rights to subscribe for shares of capital stock of
the Company.
-9-
4.4. Corporate Proceedings, etc.
The Company has authorized the execution, delivery, and
performance of the Transaction Documents and each of the transactions and
agreements contemplated hereby and thereby. No other corporate action (including
stockholder approval) is necessary to authorize such execution, delivery and
performance of the Transaction Documents, and upon such execution and delivery
each of the Transaction Documents shall constitute the valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that such enforcement may be subject to bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights and general principles of equity. The
Company has authorized the issuance and delivery of the Purchased Securities in
accordance with this Agreement and, subject to the issuance of the Purchased
Securities, the Company has reserved for issuance shares of Common Stock
initially issuable upon conversion, exchange or exercise of the Purchased
Securities. Prior to any exchange of Series A Preferred Stock for the Notes, the
Company shall reserve for issuance shares of Common Stock initially issuable
upon conversion of the Series A Preferred Stock.
4.5. Consents and Approvals.
The execution and delivery by the Company of the Transaction
Documents, the issuance of any of the Securities, the performance by the Company
of its obligations hereunder and thereunder and the consummation by the Company
of the transactions contemplated hereby and thereby do not require the Company
or any of its Subsidiaries to obtain any consent, approval, clearance or action
of, or make any filing, submission or registration with, or give any notice to,
any Person or judicial authority.
4.6. Compliance with Law.
(a) The Company and each of its Subsidiaries are in compliance
in all material respects with, and are not in violation or default in any
material respect under, all federal, state and local laws, ordinances,
government rules and regulations applicable to their business operations,
properties, or assets, including without limitation laws or regulations relating
to: the environment; occupational health and safety; insurance companies; HMOs;
preferred provider organizations; point-of-service health plans; third party
administrators; the provision or arrangement for the provision of health
services; employer benefits; ERISA plans; wages; work place safety; equal
employment opportunity and race; and religious, sex and age
-10-
discrimination. Neither the Company nor any of its Subsidiaries have any
knowledge of any actual or claimed violation or default with respect to any of
the foregoing. No material expenditures, to the Company's knowledge, are or will
be required in order to cause the current operations or properties of the
Company or any of its Subsidiaries to comply with any applicable laws,
ordinances, governmental rules or regulations at either Closing.
(b) The Company and each of its Subsidiaries have all
licenses, permits, franchises or other governmental authorizations ("Approvals")
necessary to the ownership of their property and to the operation of their
respective businesses, which if violated or not obtained could reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary has finally been denied any application for any such Approvals
necessary for their property or for the operation of their business. There is no
action pending, or to the best knowledge of the Company or any of its
Subsidiaries, threatened or recommended by appropriate state or federal agencies
having jurisdiction thereof, to either revoke, withdraw, or suspend any such
Approvals, or which would have a Material Adverse Effect on such Approvals, or
to terminate the participation of the Company or any of its Subsidiaries in
Medicare, Medicaid, or other government program, or any decision not to renew
any such Approvals.
(c) The Company and its Subsidiaries have complied in all
material respects with all laws, rules, conditions of participation, and
regulations governing all Medicare, Medicaid, and any other arrangements with
any Governmental Entity and have filed all returns, cost reports and other
filings in any manner prescribed thereby except where the failure to so comply,
together with all other such failures, would not have a Material Adverse Effect.
All returns, cost reports and other filings made by the Company and its
Subsidiaries since January 1, 1993 to Medicare, Medicaid or any other
Governmental Entity or third party payor are true and complete except where the
failure to be so true and complete, together with all other such failures, would
not have a Material Adverse Effect. Since January 1, 1993, no deficiency in any
such returns, costs reports and other filings, including deficiencies for late
filings, has been asserted or to the best of the Company's knowledge, after
reasonable investigation, threatened by any federal, state or local agency or
instrumentality or other entities relating to Medicare or Medicaid or other
government payor or third party payor claims and to the best of the Company's
knowledge, after reasonable investigation, there is no basis for any successful
claims or requests for recoupment from any such agency, instrumentality, entity
or third party payor except for any
-11-
claims or requests which, together with all other such claims or requests, would
not have a Material Adverse Effect. Neither the Company, nor any of its
Subsidiaries has been subject to any written finding of fraudulent procedures or
practices arising out of the provision of health care insurance, managed care,
claims administration, or health care services or benefits relating to Medicare,
Medicaid, or any other Governmental Entity with which the Company or any of its
Subsidiaries has a contract to provide insurance, managed care, claims
administration, or health care services or benefits and, neither the Company nor
any of its Subsidiaries is currently subject to any pending or threatened audit
relating to such fraudulent procedures or practices.
(d) In each state in which the Company or any of its
Subsidiaries operates HMOs, PPOs, point of service plans, insurance plans or
other health care plans, the Company and each of its Subsidiaries has filed
copies of its (i) standard employer and other individual and group subscriber
agreements, (ii) contracts with physicians, hospitals and other health care
entities, and (iii) contracts for management and administrative services
(collectively, "Agreements") with the applicable state authorities to the extent
required by law, including, but not limited to contracts required to be filed
with the state Departments of Insurance, Departments of Health or the agencies
responsible for each state's Medicaid program. The Company and each of its
Subsidiaries are not providing services under any Agreements that have not been
filed and approved by the state regulatory authorities except where the failure
to so file would not have a Material Adverse Effect.
(e) The Company and each of its Subsidiaries is and has
operated in material compliance with all contractual, statutory, regulatory, and
other requirements applicable to entities furnishing coverage to employees of
federal, state and local governments and subdivisions and to beneficiaries under
programs sponsored or administered by any such governments or subdivisions
thereof (collectively "Government Contracts"). Except as set forth in the
Company's SEC Reports, neither the Company nor any of its Subsidiaries is
subject to any claim, penalty, fine, return of premium, repayment of costs
charged, or renegotiation of charges or fees as a result of any audit,
adjustment, charge, retroactive restatements of costs or charges, or other
liability with respect to any Government Contract, except where such claim,
penalty, fine, return of premium, repayment or renegotiation would not have a
Material Adverse Effect.
(f) The Company and each of its Subsidiaries has filed all
reports, filings and notices required to be filed with all
-12-
applicable Departments of Insurance, Departments of Health and HMO regulatory
bodies since January 1, 1992 except where the failure to so file would not have
a Material Adverse Effect (as such documents have since the time of their filing
been amended, the "DOI Reports"). As of their respective dates, the DOI Reports
complied in all material respects with the requirements of the laws, rules and
regulations applicable to such DOI Reports, and none of the DOI Reports
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the material statements
therein, in light of the circumstances under which they were made, not
misleading, except for such statements, if any, as have been modified by
subsequent filings prior to the date hereof.
(g) Neither the Company nor any of its Subsidiaries has any
knowledge of any proposed change in any laws, rules or regulations (other than
laws of general applicability) that is reasonably likely to be adopted, would
have a Material Adverse Effect on the transactions contemplated by this
Agreement or all or any material part of the assets or the operations of the
Company or any of its Subsidiaries.
(h) Neither the Company nor any of its Subsidiaries, nor the
officers, directors, employees or agents of the Company or any of its
Subsidiaries, and to the Company's knowledge none of the persons who provide
professional services under agreements with the Company or any of its
Subsidiaries (as agents of such entities) has engaged in any activities which
are prohibited, or are cause for civil penalties or mandatory or permissive
exclusion from Medicare or Medicaid, under (beta)(beta) 1320a-7, 1320a-7a,
1320a-7b, or 1395nn of Title 42 of the United States Code, the federal CHAMPUS
statute, or the regulations promulgated pursuant to such statutes or regulations
or related state or local statutes or, to the Company's knowledge, which are
prohibited by any private accrediting organization from which the Company or any
of its Subsidiaries seeks accreditation.
(i) The Company and each of its Subsidiaries have applied for
accreditation from the National Committee for Quality Assurance ("NCQA") for
each managed care product eligible for NCQA accreditation. Each such managed
care product has either (a) received full accreditation from NCQA, (b) received
one-year accreditation from NCQA, or (c) has yet to receive any accreditation
determination from NCQA.
-13-
4.7. Litigation.
Except as disclosed in the Company SEC Reports, there is no
legal action, suit, arbitration or other legal, administrative or other
governmental investigation, inquiry or proceeding (whether federal, state, local
or foreign) pending or, to the best of the Company's knowledge, threatened
against or affecting the Company or any Subsidiary or any of their respective
properties, assets or businesses, except for actions, suits, arbitrations,
investigation, inquiries or proceedings that could not reasonably be expected to
have a Material Adverse Effect. After reasonable inquiry of its employees, the
Company is not aware of any fact which might result in or form the basis for any
such action, suit, arbitration, investigation, inquiry or other proceeding.
Except as set forth in the Company SEC Reports, there are no formally initiated
grievances or litigation pending against the Company or any of its Subsidiaries
involving claims from accounts, clients, covered persons, or enrollees relating
to coverage of health claims or any claim for punitive, exemplary or other
extra-contractual damage except for grievances, litigation or claims which could
not reasonably be expected to have a Material Adverse Effect. Neither the
Company nor any Subsidiary is subject to any order, writ, judgment, injunction,
decree, determination or award of any court or of any governmental agency or
instrumentality (whether federal, state, local or foreign) which could
reasonably be expected to have a Material Adverse Effect.
4.8. Change in Ownership.
Neither the purchase of the Securities by the Investors nor
the consummation of the transactions contemplated by this Agreement will result
in (i) any material adverse change in the business operations of the Company or
any of its Subsidiaries, (ii) the loss of the benefits of any material
relationship with any subscriber group, employee, union trust, or governmental
program, payor or customer, physician, hospital, health care provider, claims
administrator, or supplier, (iii) the acceleration of the vesting of any
outstanding option, warrant, call, commitment, agreement, conversion right,
preemptive right or other right to subscribe for, purchase or otherwise acquire
any of the shares of the capital stock of the Company or any of the stock of the
Company or any of its Subsidiaries, or debt securities of the Company or any of
its Subsidiaries (collectively "Commitments", and each individually a
"Commitment"), (iv) any obligation of the Company to grant, extend or enter into
any Commitment, or (v) any right in favor of any Person to terminate or cancel
any Key Agreement or Instrument.
-14-
4.9. Absence of Defaults, Conflicts, etc.
(a) The execution and delivery of the Transaction Documents
and the issuance, sale and delivery by the Company of any of the Securities do
not, and the fulfillment of the terms hereof and thereof by the Company, and the
issuance of any of the Securities will not result in a breach of any of the
terms, conditions or provisions of, or constitute a default under, or result in
the modification of, or permit the acceleration of rights under or termination
of, any indenture, mortgage, deed of trust, credit agreement, note or other
evidence of indebtedness, or other material agreement, contract, commitment,
understanding, arrangement or restriction of the Company or any of its
Subsidiaries (collectively the "Key Agreements and Instruments"), or the
Organizational Documents, or any law, ordinance, code, standard, judgment, rule
or regulation of any court or federal, state or foreign regulatory board or body
or administrative agency having jurisdiction over the Company or any of its
Subsidiaries or over their respective properties or businesses.
(b) Neither any of the Company nor any of its Subsidiaries is
in default under or in violation of (and no event has occurred and no condition
exists which, upon notice or the passage of time (or both), would constitute a
default under) (i) the Organizational Documents, (ii) any Key Agreement and
Instrument, or (iii) any order, writ, injunction or decree of any court or any
Federal, state, municipal or other domestic or foreign governmental department,
commission, board, bureau, agency or instrumentality except, in the case of
clause (ii), for defaults or violations which would not have a Material Adverse
Effect.
4.10. Reports and Financial Statements.
The Company has furnished the Investors with true and complete
copies of the Company's (i) Annual Reports on Form 10-K for the fiscal years
ended December 31, 1994, December 31, 1995 and December 31, 1996, as filed with
the Commission, (ii) Quarterly Reports on Form 10-Q for the quarters ended March
31, 1996, June 30, 1996, and September 30, 1996, as filed with the Commission,
(iii) proxy statements related to all meetings of its stockholders (whether
annual or special) held since January 1, 1995, and (iv) all other reports filed
with or registration statements declared effective by the Commission since
January 1, 1995, except registration statements on Form S-8 relating to employee
benefit plans, which are all the documents (other than preliminary material)
that the Company was required to file with the Commission since that date
(clauses (i) through (iv) being referred to herein collectively as the "Company
SEC Reports"). As of their respective dates, the Company SEC Reports were duly
filed and complied in all material respects with the requirements
-15-
of the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such Company SEC Reports.
As of their respective dates, the Company SEC Reports did not contain any 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, in light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and unaudited interim financial statements of
the Company included in the Company SEC Reports comply as to form in all
material respects with applicable accounting requirements of the Securities Act
and with the published rules and regulations of the Commission with respect
thereto. The financial statements included in the Company SEC Reports (i) have
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis (except as may be indicated therein or in
the notes thereto), (ii) present fairly, in all material respects, the financial
position of the Company and its Subsidiaries as at the dates thereof and the
results of their operations and cash flow for the periods then ended subject, in
the case of the unaudited interim financial statements, to normal year-end audit
adjustments and any other adjustments described therein and the fact that
certain information and notes have been condensed or omitted in accordance with
the Exchange Act and the rules promulgated thereunder, and (iii) are in all
material respects, in accordance with the books of account and records of the
Company except as indicated therein.
4.11. Absence of Certain Developments.
Except as disclosed in the Company SEC Reports, since December
31, 1995, there has been no (i) change or event which could reasonably be
expected to have a Material Adverse Effect, (ii) declaration, setting aside or
payment of any dividend or other distribution with respect to the capital stock
of the Company, (iii) issuance of capital stock (other than pursuant to the
exercise of options, warrants, or convertible securities outstanding at such
date) or options, warrants or rights to acquire capital stock (other than the
rights granted to the Investors hereunder), (iv) material loss, destruction or
damage to any property of the Company or any Subsidiary, whether or not insured,
(v) acceleration or prepayment of any indebtedness for borrowed money or the
refunding of any such indebtedness, (vi) labor trouble involving the Company or
any Subsidiary or any material change in their personnel or the terms and
conditions of employment, (vii) waiver of any valuable right in favor of the
Company or any Subsidiary, (viii) loan or extension of credit to any officer or
employee of the Company or any Subsidiary other than advances for travel-related
expenses and similar advances to
-16-
officers and employees of the Company in the ordinary course of business or (ix)
acquisition or disposition of any material assets (or any contract or
arrangement therefor), or any other material transaction by the Company or any
Subsidiary otherwise than for fair value in the ordinary course of business. No
event that would constitute an Event of Default has occurred and is continuing.
4.12. Material Contracts.
Schedule 4.12 sets forth a true and complete list of each Key
Agreement and Instrument other than Key Agreements and Instruments filed as an
exhibit to a Company SEC Report. Each Key Agreement and Instrument and any other
material contract filed as an exhibit to a Company SEC Report that is currently
in effect, is valid, binding and enforceable against the Company or such
Subsidiary and, to the Company's best knowledge, the other parties thereto, in
accordance with its terms, and in full force and effect on the date hereof.
4.13. Absence of Undisclosed Liabilities.
Neither the Company nor any of its Subsidiaries has any debt,
obligation or liability (whether accrued, absolute, contingent, liquidated or
otherwise, whether due or to become due, whether or not known to the Company)
arising out of any transaction entered into at or prior to either Closing, or
any act or omission at or prior to either Closing, or any state of facts
existing at or prior to either Closing, including taxes with respect to or based
upon the transactions or events occurring at or prior to either Closing, and
including, without limitation, unfunded past service liabilities under any
pension, profit sharing or similar plan, except liabilities disclosed in the
Company's Form 10-K for the fiscal year ended December 31, 1996, current
liabilities incurred since December 31, 1996, obligations under agreements set
forth on Schedule 4.12 and obligations under agreements entered into, in the
usual and ordinary course of business, none of which (individually or in the
aggregate) could have a Material Adverse Effect.
4.14. Employees.
(a) The Company and its Subsidiaries are in full compliance
with all laws regarding employment, wages, hours, equal opportunity, collective
bargaining and payment of social security and other taxes except to the extent
that noncompliance would not have a Material Adverse Effect. As of the date of
this Agreement, no complaint of any unfair labor practice or discriminatory
employment practice against the Company or any Subsidiary has been filed or, to
the best of the Company's
-17-
knowledge, threatened to be filed with or by the National Labor Relations Board,
the Equal Employment Opportunity Commission or any other administrative agency,
federal or state, that regulates labor or employment practices, nor is any
grievance filed or, to the best of the Company's knowledge, threatened to be
filed, against the Company or any Subsidiary by any employee pursuant to any
collective bargaining or other employment agreement to which the Company or any
Subsidiary is a party or is bound. After the date hereof, the representations
set forth in the previous sentence shall be true and correct, except as would
not reasonably be expected to have a Material Adverse Effect. The Company and
its Subsidiaries are in compliance with all applicable federal, state and local
laws and regulations regarding occupational safety and health standards except
to the extent that noncompliance will not have a Material Adverse Effect, and
have received no complaints from any federal, state or local agency or
regulatory body alleging violations of any such laws and regulations.
(b) The employment of all Persons employed by the Company or
any of its Subsidiaries is terminable at will without any penalty or severance
obligation of any kind on the part of the employer. All sums due for employee
compensation and benefits and all vacation time owing to any employees of the
Company or any of its Subsidiaries have been duly and adequately accrued on the
accounting records of the Company and its Subsidiaries.
(c) The Company is not aware that any of its executive
officers is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of such executive officer's best efforts to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted.
(d) The Company is not aware that any officer or key employee,
or that any group of key employees, intends to terminate their employment with
the Company, nor does the Company have a present intention to terminate the
employment of any of the foregoing.
4.15. Tax Matters.
There are no federal, state, county or local taxes due and
payable by the Company or any of its Subsidiaries which have not been paid. The
provisions for taxes on the audited and unaudited balance sheets described in
Section 4.10 are, and the audited balance sheets described in Section 7.13 will
be,
-18-
sufficient for the payment in all material respects of all accrued and unpaid
federal, state, county and local taxes of the Company and its Subsidiaries
whether or not assessed or disputed as of the respective dates of such balance
sheets. Prior to January 1, 1994, the Company and its Subsidiaries have duly
filed all federal, state, county and local tax returns required to have been
filed by it and there are in effect no waivers of applicable statutes of
limitations with respect to taxes for any year except where the failure to file
such returns or the existence of waivers of applicable statutes of limitations
is not reasonably likely to have a Material Adverse Effect. Since January 1,
1994, the Company and its Subsidiaries have duly filed all federal, state,
county and local tax returns required to have been filed by it and there are in
effect no waivers of applicable statutes of limitations with respect to taxes.
Neither the Company nor any of its Subsidiaries has been subject to a federal or
state tax audit of any kind.
4.16. Employee Benefit Plans.
The Company and its Subsidiaries have no employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974) covering former and current employees of the Company or any of its
Subsidiaries, or under which the Company or any of its Subsidiaries has any
obligation or liability. Schedule 4.16 lists all material plans, contracts,
bonuses, commissions, profit-sharing, savings, stock options, insurance,
deferred compensation, or other similar fringe or employee benefits covering
former or current employees of the Company or any of its Subsidiaries or under
which the Company or any of its Subsidiaries has any obligation or liability
(each, a "Benefit Arrangement"). True and complete copies of all Benefit
Arrangements have been provided or made available to the Investors prior to the
date hereof. The Benefit Arrangements are and have been administered in
substantial compliance with their terms and with the requirements of applicable
law. All payments to current or former employees of the Company or any of its
Subsidiaries pursuant to the Benefit Arrangements are and have been fully
deductible under the Code.
4.17. Patents, Licenses, etc.
The Company or one of its Subsidiaries owns, free and clear of
all encumbrances, restrictions, liens, security interests and charges, and have
good and marketable title to, or hold adequate licenses or otherwise possess all
such rights as are necessary to use all patents (and applications therefor),
patent disclosures, trademarks, service marks, trade names, copyrights (and
applications therefor), inventions, discoveries,
-19-
processes, know-how, scientific, technical, engineering and marketing data,
formulae and techniques used or proposed to be used, in or necessary for the
conduct of its business as now conducted or as proposed to be conducted
(collectively, "Intellectual Property").
Neither the Company nor any of its Subsidiaries has received
notice nor otherwise has reason to know of any conflict or alleged conflict with
the rights of others pertaining to the Intellectual Property described in this
Section 4.17 where the effect of such conflict could have a Material Adverse
Effect. To the Company's best knowledge, the Company's business, as presently
conducted and as proposed to be conducted, does not infringe upon or violate any
patent rights or trade secrets of others. To the Company's best knowledge, the
Company and its Subsidiaries have the right to use all trade secrets, processes,
customer lists and other rights incident to their respective businesses as now
conducted or as proposed to be conducted.
To the Company's best knowledge, no employee of the Company or
any of its Subsidiaries has violated any employment agreement or proprietary
information agreement which he had with a previous employer or any patent policy
of such employer, or is a party to or threatened by any litigation concerning
any patents, trademarks, trade secrets, service names, trade names, copyrights,
licenses and the like.
4.18. Title to Tangible Assets.
The Company and its Subsidiaries have good title to their
properties and assets and good title to all their leasehold estates, in each
case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other
than or resulting from taxes which have not yet become delinquent and minor
liens and encumbrances which do not in any case materially detract from the
value of the property subject thereto or materially impair the operations of the
Company and its Subsidiaries and which have not arisen otherwise than in the
ordinary course of business.
4.19. Insurance.
The Company and its Subsidiaries and their respective
properties are insured in such amounts, against such losses and with such
insurers as are prudent when considered in light of the nature of the properties
and businesses of the Company and its Subsidiaries and customary in light of the
Company's exposure. No notice of any termination or threatened termination of
any of such policies has been received and such policies are in full force and
effect.
-20-
4.20. Transactions with Related Parties.
Neither the Company nor any Subsidiary is a party to any
agreement with any of the Company's directors, officers or stockholders or any
Affiliate or family member of any of the foregoing under which it: (i) leases
any real or personal property (either to or from such Person), (ii) licenses
technology (either to or from such Person), (iii) is obligated to purchase any
tangible or intangible asset from or sell such asset to such Person, (iv)
purchases products or services from such Person or (v) has borrowed money from
or lent money to such Person. Neither the Company nor any Subsidiary employs as
an employee or engages as a consultant any family member of any of the Company's
directors or officers. To the best knowledge of the Company, there exist no
agreements among stockholders of the Company to act in concert with respect to
their voting or holding of Company securities.
4.21. Interest in Competitors.
Neither the Company nor any of its officers or, to the best of
its knowledge, directors, has any interest, either by way of contract or by way
of investment (other than as holder of not more than 2% of the outstanding
capital stock of a publicly traded Person) or otherwise, directly or indirectly,
in any Person other than the Company that (i) provides any services or designs,
produces or sells any product or product lines or engages in any activity
similar to or competitive with any activity currently proposed to be conducted
by the Company or any of its Subsidiaries or (ii) has any direct or indirect
interest in any asset or property, real or personal, tangible or intangible, of
the Company.
4.22. Registration Rights.
Except as provided by Section 11, the Company will not, as of
the Closing Dates, be under any obligation to register any of its securities
under the Securities Act.
4.23. Regulation G, etc.
Neither the Company nor any of its Subsidiaries owns or has
any present intention of acquiring any "margin stock" as defined in Regulation G
(12 CFR Part 207) of the Board of Governors of the Federal Reserve System
(herein called "margin stock"). All of the proceeds of the sale of the Notes
will be used by the Company as set forth in Section 6.5. None of the proceeds
from the sale of the Notes will be used, directly or indirectly, for the purpose
of purchasing or carrying any margin
-21-
stock or for the purpose of reducing or retiring any indebtedness which was
originally incurred to purchase or carry margin stock or for any other purpose
which might constitute this transaction a "purpose credit" within the meaning of
Regulation G. Neither the Company, any of its Subsidiaries nor any agent acting
on their behalf has taken or will take any action which might cause this
Agreement or the Notes to violate Regulation G, Regulation T, Regulation X or
any other regulation of the Board of Governors of the Federal Reserve System or
to violate the 1934 Act, in each case as in effect now or as the same may
hereafter be in effect.
4.24. Private Offering.
Neither the Company nor anyone acting on its behalf has sold
or has offered any of the Securities for sale to, or solicited offers to buy
from, or otherwise approached or negotiated with respect thereto with, any
prospective purchaser of the Securities, other than the Investors. Neither the
Company nor anyone acting on its behalf shall offer the Securities for issue or
sale to, or solicit any offer to acquire any of the same from, anyone so as to
bring the issuance and sale of such Securities, or any part thereof, within the
provisions of Section 5 of the Securities Act. Based upon the representations of
the Investors set forth in Section 5, the offer, issuance and sale of the
Securities are and will be exempt from the registration and prospectus delivery
requirements of the Securities Act, and have been registered or qualified (or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities laws.
4.25. Brokerage.
There are no claims for brokerage commissions or finder's fees
or similar compensation in connection with the transactions contemplated by this
Agreement based on any arrangement made by or on behalf of the Company and the
Company agrees to indemnify and hold the Investors harmless against any costs or
damages incurred as a result of any such claim.
4.26. Illegal or Unauthorized Payments; Political
Contributions.
Neither the Company or any of its Subsidiaries nor, to the
best of the Company's knowledge (after reasonable inquiry of its executive
officers and directors), any of the current officers and directors of the
Company or any of its Subsidiaries has, directly or indirectly, made or
authorized any payment, contribution or gift of money, property, or services,
(a) as a kickback or bribe to any Person or (b) to any political organization,
or the holder of or any aspirant to any elective or
-22-
appointive public office except for personal political contributions not
involving the use of funds of the Company or any of its Subsidiaries.
4.27. Takeover Statute; Rights Plan.
Neither of the Investors is, as a result of its execution and
delivery of this Agreement, the performance of its obligations hereunder or the
acquisition of any Securities, an "interested shareholder" prohibited from
entering into a business combination with the Company or any subsidiary pursuant
to Section ▇▇-▇▇▇-▇▇▇ of the Business Combination Act of the State of Tennessee
or an "Acquiring Person" within the meaning of the Rights Agreement. A
"Triggering Event" (as defined in the Rights Agreement) shall not be deemed to
have occurred and the Rights (as defined in the Rights Agreement) shall not
separate from the Common Stock as a result of any of the transactions
contemplated hereby. No other Takeover Statute is applicable to the transactions
contemplated hereby.
4.28. Material Facts.
This Agreement, the schedules furnished contemporaneously
herewith, and the other agreements, documents, certificates or written
statements furnished or to be furnished to the Investors through the Closing
Dates by or on behalf of the Company in connection with the transactions
contemplated hereby taken as a whole, do not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein or herein, in light of the circumstances in which they were
made, not misleading. There is no fact which is known to the Company and which
has not been disclosed herein or otherwise by the Company to the Investors which
is reasonably likely to materially adversely affect the business, properties,
assets or condition, financial or otherwise, of the Company and its Subsidiaries
taken as a whole.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
Each of the Investors represents and warrants to the Company
as follows:
(a) It is acquiring the Purchased Securities (and will acquire
the Common Stock issuable upon conversion or exercise of the Purchased
Securities and may acquire the Series A Preferred Stock, if any, issuable upon
exchange of the Purchased Securities) for its own account for investment and not
with a view towards the resale, transfer or distribution thereof, nor with any
present intention of distributing the Purchased
-23-
Securities (or the Common Stock acquired upon conversion of the Purchased
Securities, and Series A Preferred Stock, if any, acquired upon exchange of the
Purchased Securities), but subject, nevertheless, to any requirement of law that
the disposition of either Investor's property shall at all times be within such
Investor's control, and without prejudice to such Investor's right at all times
to sell or otherwise dispose of all or any part of such securities under a
registration under the Securities Act or under an exemption from said
registration available under the Securities Act.
(b) It has full power and legal right to execute and deliver
this Agreement and to perform its obligations hereunder.
(c) It is a validly existing limited partnership, duly
organized under the laws of Delaware.
(d) It has taken all partnership action necessary for the
authorization, execution, delivery, and performance of this Agreement and its
obligations hereunder, and, upon execution and delivery by the Company, this
Agreement shall constitute the valid and binding obligation of the Investors,
enforceable against the Investors in accordance with its terms, except that such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
and general principles of equity.
(e) There are no claims for brokerage commissions or finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement made by or on behalf of the Investors
and the Investors agree to indemnify and hold the Company harmless against any
costs or damages incurred as a result of any such claim.
(f) It has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of its
investment in the Company as contemplated by this Agreement, and is able to bear
the economic risk of such investment for an indefinite period of time. It has
been furnished access to such information and documents as it has requested and
has been afforded an opportunity to ask questions of and receive answers from
representatives of the Company concerning the terms and conditions of this
Agreement and the purchase of the Purchased Securities contemplated hereby.
(g) Neither Investor is aware of any material fact or
circumstance relating to it which would be grounds for disapproval of any
application required to be filed by it with
-24-
any state regulatory authority for approval of its acquisition of the Purchased
Securities.
(h) Each Investor is an "accredited investor" as defined under
Regulation D of the Securities Act.
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES
6.1. Resale of Securities.
(a) Each of the Investors severally covenants that it will not
sell or otherwise transfer the Securities except pursuant to an effective
registration under 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.
(b) The Securities will bear substantially the following
legend reflecting the foregoing restrictions on the transfer of such securities:
"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."
6.2. Covenants Pending Closing.
Pending the Closings, the Company will conduct and will cause
its Subsidiaries to conduct their respective businesses in the ordinary course,
and will not, and will not permit any of its Subsidiaries to, without the prior
written consent of the Majority Holders, take any action which would result in
any of the representations or warranties contained in this Agreement not being
true at and as of the time immediately after such action, or in any of the
covenants contained in this Agreement becoming incapable of performance. The
Company will promptly advise the Investors of any action or event of which it
becomes aware which has the effect of making incorrect any of such
representations or warranties or which has the effect of rendering any of such
covenants incapable of performance.
-25-
6.3. Board Nominees.
(a) For so long as the Notes remain outstanding, the Board
will recommend to the nominating committee of the Board and use its best efforts
to elect (including recommending the election of the Nominees to the
stockholders of the Company) and to cause to remain as directors on the Board
two (2) Nominees designated by the Majority Holders. If any Event of Default
shall occur and be continuing, the Company will nominate and use its best
efforts to elect and to cause to remain as a director on the Board for so long
as such Event of Default continues, one (1) additional Nominee designated by the
Majority Holders. For so long as the Investors own beneficially (within the
meaning of Rule 13d-3 under the Exchange Act) at least 50% of the shares of
Common Stock of the Company beneficially owned by them (within the meaning of
Rule 13d-3 under the Exchange Act) on the Closing Dates, the Company will
nominate and use its best efforts to elect and to cause to remain as directors
on the Board at least one Nominee designated by the Majority Holders. Any
vacancy created by the death, disability, retirement or removal of any such
individual may be filled by the Majority Holders. In the event the Board is
increased to more than nine directors, for so long as the Notes remain
outstanding the Majority Holders shall be entitled to the whole number of
Nominees obtained by multiplying (a) the number of directors on the Board
(including the Nominees) by (b) a fraction, the numerator of which is equal to
the number of shares of Common Stock issuable upon conversion or Exchange of the
Notes and the denominator of which is equal to the total number of shares of
capital stock of the Company then outstanding as measured in each case on an as
converted to Common Stock basis. Notwithstanding anything contained in this
Section 6.3 to the contrary, the Majority Holders shall have no right to
nominate or have elected to the Board any Nominees unless and until the
Investors shall have made all filings required under the ▇▇▇▇-▇▇▇▇▇ Act in
connection with the acquisition of the Notes and the waiting period thereunder
shall have expired or been terminated.
(b) Following the Exchange, and for so long as at least
1,000,000 shares of Series A Preferred Stock remain outstanding (subject to
adjustment in the event of any stock dividend, stock split, stock distribution
or combination with respect to such shares), if a vacancy is created on the
Board of Directors of the Company by the death, disability, retirement or
removal of any Series A Director (as defined in the Certificate of Designation),
the Company will appoint an individual designated by the Majority Holders to
serve the remainder of the term that would otherwise have been served by such
Series A Director.
-26-
6.4. Subscription Right.
(a) 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) of the
Company (other than the issuance of securities (i) upon conversion of the
Securities, (ii) to the public in a firm commitment underwriting pursuant to a
registration statement filed under the Act, (iii) pursuant to the acquisition of
another corporation by the Company by merger, purchase of substantially all of
the assets or other form of reorganization, (iv) pursuant to an employee or
director stock option plan, stock bonus plan, stock purchase plan or other
management equity program or (v) to providers, customers and consultants to the
Company or employees of the Company), then, as to each holder of the Securities,
the Company shall:
(i) give written notice setting forth in reasonable detail
(1) 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; (2) the price and other terms of the proposed sale of
such securities; (3) the amount of such securities proposed to be
issued; and (4) such other information as the holders of the
Securities may reasonably request in order to evaluate the proposed
issuance; and
(ii) offer to issue to each holder of the Securities upon
the terms described in subparagraph (i) 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 beneficially owned (within the meaning of Rule 13d-3 under the
Exchange Act) by such holder of Securities, by (y) the total number of
shares of Common Stock beneficially owned (within the meaning of Rule
13d-3 under the Exchange Act) by all holders of Common Stock, Options
or Convertible Securities immediately preceding the issuance of the
Proposed Securities.
(b) Each holder of the Securities must exercise its purchase
rights hereunder within ten (10) days after receipt of such notice from the
Company. If all of the Subscription Securities offered to the holders of the
Securities are not fully subscribed by such holders of the Securities, the
remaining
-27-
Subscription Securities will be reoffered to the holders of the Securities
purchasing their full allotment upon the terms set forth in this Section 6.4,
until all such Subscription Securities are fully subscribed for or until all
such holders of the Securities have subscribed for all such Subscription
Securities which they desire to purchase, except that such holders of the
Securities must exercise their purchase rights within five days after receipt of
all such reoffers. To the extent that the Company offers two or more securities
in units, the holders of the Securities must purchase such units as a whole and
will not be given the opportunity to purchase only one of the securities making
up such unit.
(c) Upon the expiration of the offering periods described
above, the Company will be free to sell such Subscription Securities that the
holders of the Securities have 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 such holders. Any Subscription
Securities offered or sold by the Company after such 90 day period must be
reoffered to the holders of the Securities pursuant to this Section 6.4.
(d) The election by any holder of the Securities not to
exercise its subscription rights under this Section 6.4 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 the holders of the Securities the
rights described in this Section 6.4 shall be void and of no force and effect.
(e) The rights set forth in this Section 6.4 shall be
assignable to any purchaser that purchases from either Investor at least 50% of
the shares of Common Stock of the Company beneficially owned by such Investor
(within the meaning of Rule 13d-3 under the Exchange Act). Notwithstanding the
foregoing, the rights set forth in this Section 6.4 shall terminate if Warburg
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) less
than 5% of the then outstanding shares of Common Stock on a fully diluted basis.
6.5. Use of Proceeds.
Fifty percent (50%) of the proceeds received by the Company
from the issuance and sale of the Purchased Securities shall be used by the
Company to pay down existing indebtedness and the remaining proceeds shall be
used by the Company for general corporate purposes.
-28-
6.6. Amendment to Rights Agreement.
Without the prior written consent of the Board, the Investors
shall not acquire, offer or agree to acquire any shares of Common Stock (or
securities convertible into or exchangeable for shares of Common Stock) if, as a
result of such acquisition, Investors would beneficially own (within the meaning
of Rule 13d-3 under the Exchange Act) more than thirty percent (30%) of the then
outstanding shares of Common Stock on a fully diluted basis (the "Investor
Threshold").
SECTION 7. INVESTORS' CLOSING CONDITIONS
The obligation of the Investors to purchase and pay for the
Purchased Securities on the Closing Dates, as provided in Section 2 hereof,
shall be subject to the performance by the Company of its agreements theretofore
to be performed hereunder and to the satisfaction, prior thereto or concurrently
therewith, of the following further conditions:
7.1. Representations and Warranties.
The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date as though such warranties and representations were made at and
as of such date, except as otherwise affected by the transactions contemplated
hereby.
7.2. Compliance with Agreement.
The Company shall have performed and complied in all material
respects with all agreements, covenants and conditions contained in this
Agreement which are required to be performed or complied with by the Company
prior to or on the Closing Date.
7.3. Injunction.
There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided.
7.4. Counsel's Opinion.
Each of the Investors shall have received from the Company's
counsel, Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC, an opinion, dated the Closing Date,
substantially to the effect that:
-29-
(i) The Company is duly organized and validly existing in
good standing under the laws of Tennessee, has the all requisite
corporate power and authority to own its properties and assets and to
carry on its business as now conducted. The Company has all requisite
power and authority to execute and deliver the Transaction Documents
and to perform its obligations thereunder.
(ii) The Company is duly qualified as a foreign corporation
in every jurisdiction in which such qualification is necessary, except
where the failure to so qualify would not have a material adverse
effect on the Company.
(iii) Section 4.3(a) of the Agreement accurately sets forth
the authorized and issued capital stock of the Company and the Company
has duly reserved for issuance of shares of Common Stock initially
issuable upon conversion, exchange or exercise of the Purchased
Securities.
(iv) Except for the conversion and exchange rights which
attach to the Securities and to the warrants, options and convertible
securities listed on Schedule 4.3 hereto, to the best knowledge of
such counsel, there are no shares of Common Stock, issuable upon
conversion of any security of the Company nor are there any rights,
options or warrants outstanding or other agreements to acquire shares
of Common Stock from the Company nor is the Company contractually
obligated to purchase, redeem or otherwise acquire any of its
outstanding shares of Common Stock. No stockholder of the Company is
entitled to any statutory preemptive right or, to the best knowledge
of such counsel, other similar rights to subscribe for shares of
capital stock of the Company.
(v) Upon their issuance in accordance with the terms of the
Securities, the shares of Common Stock or Series A Preferred Stock, if
any, issuable upon conversion or exchange or exercise of the
Securities will be duly authorized, validly issued, fully paid and
-30-
non-assessable shares of Common Stock or Series A Preferred Stock, if
any, of the Company, free of all preemptive or similar rights.
(vi) The Company has duly authorized the execution,
delivery, and performance of the Transaction Documents and each of the
transactions and agreements contemplated thereby, and no other
corporate action is necessary to authorize such execution, delivery or
performance. The Transaction Documents have been duly executed and
delivered on behalf of the Company and constitute the valid and
binding obligation of the Company, enforceable against the Company in
accordance with their terms, except as such enforcement may be subject
to bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights and
general principles of equity.
(vii) The execution and delivery by the Company of the
Transaction Documents, the performance by the Company of its
obligations thereunder and the consummation by the Company of the
transactions contemplated thereby do not require the Company to obtain
any consent, approval or action of, or make any filing with or give
any notice to, any corporation, person or firm or any public,
governmental or judicial authority except such as have been duly
obtained or made, as the case may be, and are in full force and
effect.
(viii) The execution and delivery of the Transaction
Documents, and the adoption by the Board of the Certificate of
Designation, if any, the fulfillment of the terms hereof and thereof
by the Company and the issuance of shares of Common Stock or Series A
Preferred Stock, if any, upon conversion exchange or exercise of the
Securities as herein contemplated will not, (A) result in a breach of
any of the terms, conditions or provisions of, or constitute a default
under, any material indenture, mortgage, deed of trust, credit
agreement, security agreement,
-31-
note or other evidence of indebtedness, or other material agreement to
which the Company or any of its Subsidiaries is a party and of which
such counsel is aware, (B) violate the Organizational Documents
(except that the approval of the Company's stockholders is required to
issue the Series A Preferred Stock), or any federal or state law, rule
or regulation known to such counsel of any court or federal, state or
other regulatory board or body or administrative agency having
jurisdiction over the Company or over its properties or businesses or
(C) conflict with or constitute a default under any judgment, writ,
decree or order known to such counsel to be applicable by its terms to
the Company or any of its Subsidiaries.
(ix) To the best knowledge of such counsel, there is no
action, suit, investigation or proceeding pending or threatened,
against the Company or any of its properties or assets by or before
any court, arbitrator or governmental body, department, commission,
board, bureau, agency or instrumentality, which questions the validity
of the Transaction Documents or, the Purchased Securities, the
Certificate of Designation, if any, or the Securities or any action
taken or to be taken pursuant hereto or thereto.
(x) Assuming the representations and warranties of the
Company and the Investors set forth in the Transaction Documents are
true and correct, the issuance and sale of the Securities do not
require registration under Section 5 of the Securities Act or
qualification under any state securities or Blue Sky laws.
(xi) The consummation of the transactions contemplated by
the Transaction Documents and the application of the proceeds thereof
by the Company do not violate Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.
(xii) In rendering the foregoing opinions numbered (vii),
(viii) and (ix), Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC shall be entitled to rely on
-32-
opinions of local counsel in each state so long as each such local
counsel opinion is in form and substance reasonably acceptable to the
Investors.
(xiii) In rendering the foregoing opinions numbered (vii),
(viii) and (ix), Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC shall be entitled to rely on
certificates of applicable public officials in each state and
certificates solely as to matters of fact that are not known to Bass,
▇▇▇▇▇ & ▇▇▇▇, after due inquiry, executed by executive officers of the
Company if each such certificate is in form and substance reasonably
acceptable to the Investors.
7.5. Adverse Development.
There shall have been no developments in the business of the
Company or any of its Subsidiaries which since the date of this Agreement have
had a Material Adverse Effect. There shall exist no events of default under the
provisions of any instrument evidencing Debt of the Company or its Subsidiaries
or any event that would constitute an Event of Default under the Notes.
7.6. Election of Directors.
Messrs. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, III and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall
have been elected to the Board, effective upon the First Closing.
7.7. Approval of Creditors.
Each senior lender of the Company shall have consented to the
Company entering into and performing this Agreement and to the consummation of
the transactions contemplated hereby, and a writing to that effect shall have
been delivered to the Investors which, as of the First Closing Date, shall not
have been revoked.
7.8. Consents and Approvals.
All consents, waivers, authorizations, licenses, permits,
certificates and approvals of any Person required in connection with the
execution, delivery and performance of this Agreement, including, without
limitation, the approval of each entity set forth on Schedule 4.5 hereto shall
have been duly obtained and shall be in full force and effect on the Closing
Date.
-33-
7.9. Secretary's Certificate.
Each Investor shall have received a certificate, dated the
Closing Date, of the Secretary of the Company attaching (i) a true and complete
copy of the Certificate of Incorporation of the Company as filed with the
Secretary of State of the State of Tennessee, with all amendments thereto, (ii)
true and complete copies of the Company's By-Laws in effect as of such date,
(iii) certificates of good standing of the appropriate officials of the
jurisdictions of incorporation of the Company and of each state in which the
Company is qualified to do business as a foreign corporation and (iv)
resolutions of the Board authorizing the execution and delivery of this
Agreement and the Transaction Documents and the transactions contemplated hereby
and thereby, the issuance of the Securities and the reservation for issuance of
a sufficient number of shares of Common Stock and Series A Preferred Stock, if
any, into which the Securities may be converted.
7.10. Officer's Certificate.
Each of the Investors shall have received a certificate, dated
the Closing Date, signed by each of the President and the Chief Financial
Officer of the Company, certifying that the conditions specified in the
foregoing Sections 7.1, 7.2, 7.3, 7.5 and 7.8 hereof have been fulfilled.
7.11. Approval of Proceedings.
All proceedings to be taken in connection with the
transactions contemplated by this Agreement, and all documents incident thereto,
shall be satisfactory in form and substance to the Investors and their special
counsel, ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇; and the Investors shall have received copies
of all documents or other evidence which it and ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ may
request in connection with such transactions and of all records of corporate
proceedings in connection therewith in form and substance satisfactory to the
Investors and ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇.
7.12. Amendment to Rights Agreement.
The Rights Agreement shall have been amended on terms
reasonably acceptable to the Majority Holders to permit the Investors to (i)
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act)
Securities of the Company up to the Investor Threshold and (ii) transfer any
securities of the Company beneficially owned (within the meaning of Rule 13d-3
under the Exchange Act) by the Investors to an Affiliate set forth on Schedule
7.14 without (a) resulting in the occurrence of
-34-
a "Triggering Event" under the Rights Agreement, (b) causing either Investor to
become an "Acquiring Person" as defined in the Rights Agreement or (c) otherwise
causing the exercise of any "Right" issued pursuant to the Rights Agreement or
the issuance, exercise or separation of any "Rights Certificate" under the
Rights Agreement.
SECTION 8. COMPANY CLOSING CONDITIONS
The obligation of the Company to issue and deliver the
Purchased Securities on the Closing Dates, as provided in Section 2 hereof,
shall be subject to the performance by the Investors of their agreements
theretofore to be performed hereunder and to the satisfaction, prior thereto or
concurrently therewith, of the following further conditions:
8.1. Representations and Warranties.
The representations and warranties of the Investors contained
in this Agreement shall be true and correct in all material respects on and as
of the Closing Date as though such warranties and representations were made at
and as of such date, except as otherwise affected by the transactions
contemplated hereby.
8.2. Compliance with Agreement.
The Investors shall have performed and complied in all
material respects with all agreements, covenants and conditions contained in
this Agreement which are required to be performed or complied with by it prior
to or on the Closing Date.
8.3. Injunction.
There shall be no effective injunction, writ, preliminary
restraining order or any order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein or any of them
not be consummated as herein provided.
-35-
8.4. Consents and Approvals.
All consents, waivers, authorizations, licenses, permits,
certificates and approvals of any Person required in connection with the
execution, delivery and performance of this Agreement, including, without
limitation, the approval of each entity set forth on Schedule 4.5 hereto shall
have been duly obtained and shall be in full force and effect on the Closing
Date.
8.5. Investors' Certificate.
The Company shall have received a certificate from each of the
Investors, dated the Closing Date, signed by a duly authorized representative of
such Investor, certifying that the conditions specified in the foregoing
Sections 8.1 and 8.2 hereof have been fulfilled.
SECTION 9. CONVERSION.
(a) Each Note may be converted at any time, in whole or in
part, at the option of the holder thereof, in the manner hereinafter provided,
into fully-paid and nonassessable shares of Common Stock. The Notes shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price for such shares with the consent of the Majority Holders.
(b) The initial conversion rate for the Notes shall be 100
shares of Common Stock for each $1,000 in aggregate principal amount of the
Notes representing an initial Conversion Price (for purposes of Section 10) of
$10.00 per share of the Common Stock. The applicable conversion rate and
Conversion Price from time to time in effect is subject to adjustment as
hereinafter provided.
(c) The Company shall not issue fractions of shares of Common
Stock upon conversion of the Notes or scrip in lieu thereof. If any fraction of
a share of Common Stock would, except for the provisions of this Section 9(c),
be issuable upon conversion of either Note or the Notes, the Company shall in
lieu thereof pay to the person entitled thereto an amount in cash equal to the
Market Price of such fraction, calculated to the nearest one-hundredth (1/100)
of a share.
(d) Whenever the conversion rate and Conversion Price shall be
adjusted as provided in Section 10 hereof, the Company shall forthwith file at
each office designated for the conversion of the Notes, a statement, signed by
the Chairman of the Board, the President, any Vice President or Treasurer of the
Company, showing in reasonable detail the facts requiring such adjustment and
the conversion rate that will be effective after such
-36-
adjustment. The Company shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to the holders of
the Notes. If such notice relates to an adjustment resulting from an event
referred to in paragraph 10(g), such notice shall be included as part of the
notice required to be mailed and published under the provisions of paragraph
10(g) hereof.
(e) In order to exercise the conversion right, each holder of
a Note shall surrender its Note therefore to the Company at its principal
office, and shall give written notice to the Company at such office that such
holder elects to convert its Note. Such notice shall also state the name or
names (with address) in which the certificate or certificates for shares of
Common Stock which shall be issuable on such conversion shall be issued, subject
to any restrictions on transfer relating to such Note or shares of Common Stock
upon conversion thereof. If so required by the Company, the Note or Notes
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form reasonably satisfactory to the
Company, duly authorized in writing. The date of receipt by the Company of the
certificates and notice shall be the conversion date. As soon as practicable
after receipt of such notice and the surrender of the as aforesaid, the Company
shall cause to be issued and delivered at such office to such holder, or on his
or its written order, a certificate or certificates for the number of full
shares of Common Stock issuable on such conversion in accordance with the
provisions hereof and cash as provided in Section 9(c) in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(f) Upon any conversion of all or any part of the Notes
hereunder, the holders of the Notes shall be entitled to receive, at the
election of the Company, cash in respect of any accrued but unpaid interest or
additional shares of Common Stock equal to the amount of accrued but unpaid
interest as of the date of conversion, divided by the Conversion Price then in
effect.
(g) In the event of a partial conversion of either Note or the
Notes, the Company, at its expense, will forthwith issue to the holder or
holders thereof a new Note or Notes of like tenor representing the portion of
the Note or Notes that have not been converted, such Note or Notes to be issued
in the name of the holder thereof or its nominee (upon payment by such holder of
any applicable transfer taxes).
(h) The Company shall at all times when the Notes shall be
outstanding reserve and keep available out of its authorized but unissued stock,
for the purposes of effecting the conversion of the Notes, such number of its
duly authorized
-37-
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of the Notes. Before taking any action which would cause an
adjustment reducing the conversion price below the then par value of the shares
of Common Stock issuable upon conversion of the Notes, the Company will take any
corporate action which may, in the opinion of its counsel, be necessary in order
that the Company may validly and legally issue fully-paid and nonassessable
shares of such Common Stock at such adjusted Conversion Price.
SECTION 10. ANTI-DILUTION PROVISIONS.
(a) In order to prevent dilution of the right granted
hereunder, the Conversion Price shall be subject to adjustment from time to time
in accordance with this Section 10. At any given time the Conversion Price,
whether as the initial price ($10.00 per share) or as last adjusted, shall be
that dollar (or part of a dollar) amount the payment of which shall be
sufficient at the given time to acquire one share of Common Stock upon
conversion of the Notes. Upon each adjustment of the Conversion Price pursuant
to this Section 10, the registered holder of each Note shall thereafter be
entitled to acquire upon exercise, at the Conversion Price resulting from such
adjustment, the number of shares of the Common Stock obtainable by multiplying
the Conversion Price in effect immediately prior to such adjustment by the
number of shares of the Company's Common Stock acquirable immediately prior to
such adjustment and dividing the product thereof by the Conversion Price
resulting from such adjustment. For purposes of this Section 10, the term
"Number of Common Shares Deemed Outstanding" at any given time shall mean the
sum of (x) the number of shares of the Company's Common Stock outstanding at
such time, (y) the number of shares of the Company's Common Stock issuable
assuming conversion at such time of the Company's Notes and Warrants and (z) the
number of shares of the Company's Common Stock deemed to be outstanding under
subparagraphs 10(b)(1) to (9), inclusive, at such time.
(b) Except as provided in Section 10(c) or 10(f) below, if and
whenever on or after either Closing Date, the Company shall issue or sell, or
shall in accordance with subparagraphs 10(b)(1) to (9), inclusive, be deemed to
have issued or sold any shares of its Common Stock for a consideration per share
less than the average Market Price for the ten trading days immediately
preceding such issuance or sale, then forthwith upon such issue or sale (the
"Triggering Transaction"), the Conversion Price shall, subject to subparagraphs
(1) to (9) of this Section 10(b), be reduced to the Conversion Price (calculated
to the nearest tenth of a cent) determined by multiplying the Conversion Price
in effect immediately prior to
-38-
the time of such Triggering Transaction by a fraction, the numerator of which
shall be the sum of (x) the Number of Shares Deemed Outstanding immediately
prior to such Triggering Transaction and (y) the number of shares of Common
Stock which the aggregate consideration received by the Company upon such
Triggering Transaction would purchase at the average Market Price for the
ten-day trading period immediately preceding such Triggering Transaction, and
the denominator of which shall be the Number of Shares Deemed Outstanding
immediately after such Triggering Transaction.
For purposes of determining the adjusted Conversion Price
under this Section 10, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any
manner grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or
other securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Options"
and such convertible or exchangeable stock or securities being
herein called "Convertible Securities"), whether or not such
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable and the
price per share for which the Common Stock is issuable upon
exercise, conversion or exchange (determined by dividing (x)
the total amount, if any, received or receivable by the
Company as consideration for the granting of such Options,
plus the aggregate amount of additional consideration payable
to the Company upon the exercise of all such Options, plus, in
the case of such Options which relate to Convertible
Securities, the aggregate amount of additional consideration,
if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof, by (y)
the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or the conversion or
exchange of such Convertible Securities) shall be less than
the average Market Price in effect for the ten-day trading
period immediately prior to the time of the granting of such
Option, then the total maximum amount of Common Stock issuable
upon the exercise of such Options or in the case of Options
for Convertible Securities, upon the conversion or exchange of
such Convertible Securities, shall (as of the date of granting
of such Options) be deemed to be outstanding and to have been
issued and
-39-
sold by the Company for such price per share. No adjustment of
the Conversion Price shall be made upon the actual issue of
such shares of Common Stock or such Convertible Securities
upon the exercise of such Options, except as otherwise
provided in subparagraph (3) below.
(2) In case the Company at any time shall in any
manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by
dividing (x) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the aggregate amount of
additional consideration, if any, payable to the Company upon
the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less
than the average Market Price in effect for the ten-day
trading period immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to
have been issued and sold by the Company for such price per
share. No adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock upon exercise of
the rights to exchange or convert under such Convertible
Securities, except as otherwise provided in subparagraph (3)
below.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration,
if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraphs (1) or
(2), or the rate at which any Convertible Securities referred
to in subparagraph (1) or (2) are convertible into or
exchangeable for Common Stock shall change at any time (other
than under or by reason of provisions designed to protect
against dilution of the type set forth in Sections 10(b) or
10(d)), the Conversion Price in effect at the time of such
change shall forthwith be readjusted to the Conversion Price
which would have been in effect at
-40-
such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may
be, at the time initially granted, issued or sold. If the
purchase price provided for in any Option referred to in
subparagraph (1) or the rate at which any Convertible
Securities referred to in subparagraphs (1) or (2) are
convertible into or exchangeable for Common Stock, shall be
reduced at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in
case of the delivery of Common Stock upon the exercise of any
such Option or upon conversion or exchange of any such
Convertible Security, the Conversion Price then in effect
hereunder shall forthwith be adjusted to such respective
amount as would have been obtained had such Option or
Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares
of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Conversion Price then in effect
hereunder is hereby reduced.
(4) On the expiration of any Option or the
termination of any right to convert or exchange any
Convertible Securities, the Conversion Price then in effect
hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or
termination, never been issued.
(5) In case any Options shall be issued in connection
with the issue or sale of other securities of the Company,
together comprising one integral transaction in which no
specific consideration is allocated to such Options by the
parties thereto, such Options shall be deemed to have been
issued without consideration.
(6) In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Company therefor. In case any shares of Common Stock, Options
or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Company shall be the fair
-41-
value of such consideration as determined in good faith by the
Board. In case any shares of Common Stock, Options or
Convertible Securities shall be issued in connection with any
merger in which the Company is the surviving corporation, the
amount of consideration therefor shall be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving corporation as shall be attributed by the
Board in good faith to such Common Stock, Options or
Convertible Securities, as the case may be as determined in
good faith by the Board.
(7) The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any
shares so owned or held shall be considered an issue or sale
of Common Stock for the purpose of this Section 10.
(8) In case the Company shall declare a dividend or
make any other distribution upon the stock of the Company
payable in Common Stock, Options, or Convertible Securities,
then in such case any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued
or sold without consideration.
(9) For purposes of this Section 10, in case the
Company shall take a record of the holders of its Common Stock
for the purpose of entitling them (x) to receive a dividend or
other distribution payable in Common Stock, Options or in
Convertible Securities, or (y) to subscribe for or purchase
Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such
right or subscription or purchase, as the case may be.
(c) In the event the Company shall declare a dividend upon the
Common Stock (other than a dividend payable in Common Stock covered by Section
10(b)(8)) payable otherwise than out of earnings or earned surplus, determined
in accordance with generally accepted accounting principles, including the
making of appropriate deductions for minority interests, if any, in Subsidiaries
(herein referred to as "Liquidating Dividends"),
-42-
then, as soon as possible after the conversion of any Purchased Securities, the
Company shall pay to the person converting such Purchased Securities an amount
equal to the aggregate value at the time of such exercise of all Liquidating
Dividends (including but not limited to the Common Stock which would have been
issued at the time of such earlier exercise and all other securities which would
have been issued with respect to such Common Stock by reason of stock splits,
stock dividends, mergers or reorganizations, or for any other reason). For the
purposes of this Section 10(c), a dividend other than in cash shall be
considered payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged an amount equal to the fair value of
such dividend as determined in good faith by the Board.
(d) In case the Company shall at any time subdivide (other
than by means of a dividend payable in Common Stock covered by Section 10(b)(8))
its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller number of shares,
the Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(e) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or other property with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holders of the Notes shall have the
right to acquire and receive upon conversion of the Notes, which right shall be
prior to the rights of the holders of stock, such shares of stock, securities,
cash or other property issuable or payable (as part of the reorganization,
reclassification, consolidation, merger or sale) with respect to or in exchange
for such number of outstanding shares of the Company's Common Stock as would
have been received upon conversion of the Notes at the Conversion Price then in
effect. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument mailed or delivered to
the holders of the Notes at the
-43-
last address of each such holder appearing on the books of the Company, the
obligation to deliver to each such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holder may be
entitled to purchase. If a purchase, tender or exchange offer is made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock of the Company, the Company shall not effect any consolidation, merger or
sale with the person having made such offer or with any Affiliate of such
person, unless prior to the consummation of such consolidation, merger or sale
the holders of the Notes shall have been given a reasonable opportunity to then
elect to receive upon the conversion of the Notes either the stock, securities
or assets then issuable with respect to the Common Stock of the Company or the
stock, securities or assets, or the equivalent, issued to previous holders of
the Common Stock in accordance with such offer. For purposes hereof, the term
"Affiliate" with respect to any given person shall mean any person controlling,
controlled by or under common control with the given person.
(f) The provisions of this Section 10 shall not apply to any
Common Stock issued, issuable or deemed outstanding under Sections 10(b)(1) to
(9) inclusive: (i) to any person pursuant to any stock option, stock purchase or
similar plan or arrangement for the benefit of employees, consultants or
directors of the Company or its Subsidiaries in effect on the Closing Dates or
thereafter adopted by the Board (or physicians or providers contracting with the
Company or any of its Subsidiaries), (ii) pursuant to options, warrants and
conversion rights in existence on the Closing Dates, (iii) upon exercise of the
Warrants, (iv) on conversion of a Note or (v) in connection with underwritten
public offerings for cash pursuant to a registration statement filed under the
Securities Act relating to Common Stock, Options or Convertible Securities.
(g) In the event that:
(1) the Company shall declare any cash dividend upon its Common
Stock, or
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to
the holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Company,
-44-
including any subdivision or combination of its outstanding shares of
Common Stock, or consolidation or merger of the Company with, or sale of
all or substantially all of its assets to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the holders of
the Notes:
(i) at least twenty (20) days prior written notice of
the date on which the books of the Company shall
close or a record shall be taken for such dividend,
distribution or subscription rights or for
determining rights to vote in respect of any such
reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding
up; and
(ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least
twenty (20) days prior written notice of the
date when the same shall take place. Such notice
in accordance with the foregoing clause (i)
shall also specify, in the case of any such
dividend, distribution or subscription rights,
the date on which the holders of Common Stock
shall be entitled thereto, and such notice in
accordance with the foregoing clause (ii) shall
also specify the date on which the holders of
Common Stock shall be entitled to exchange their
Common Stock for securities or other property
deliverable upon such reorganization,
reclassification consolidation, merger, sale,
dissolution, liquidation or winding up, as the
case may be. Each such written notice shall be
given by first class mail, postage prepaid,
addressed to each holder of a Note at the
address of such holder as shown on the books of
the Company.
(h) If at any time or from time to time on or after either
Closing Date, the Company shall grant, issue or sell any Options, Convertible
Securities or rights to purchase property (the "Purchase Rights") pro rata to
the record holders of any class of Common Stock of the Company and such grants,
issuances or sales do not result in an adjustment of the Conversion Price under
Section 10(b) hereof, then each holder of Purchased Securities shall be
-45-
entitled to acquire (within thirty (30) days after the later to occur of the
initial exercise date of such Purchase Rights or receipt by such holder of the
notice concerning Purchase Rights to which such holder shall be entitled under
Section 10(g)) and upon the terms applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder
could have acquired if it had held the number of
shares of Common Stock acquirable upon
conversion of the Purchased Securities
immediately before the grant, issuance or sale
of such Purchase Rights; provided that if any
Purchase Rights were distributed to holders of
Common Stock without the payment of additional
consideration by such holders, corresponding
Purchase Rights shall be distributed to the
exercising holders of the Purchased Securities
as soon as possible after such exercise and it
shall not be necessary for the exercising holder
of the Purchased Securities specifically to
request delivery of such rights; or
(ii) in the event that any such Purchase Rights shall
have expired or shall expire prior to the end of
said thirty (30) day period, the number of shares
of Common Stock or the amount of property which
such holder could have acquired upon such exercise
at the time or times at which the Company granted,
issued or sold such expired Purchase Rights.
(i) If any event occurs as to which, in the opinion of the
Board, the provisions of this Section 10 are not strictly applicable or if
strictly applicable would not fairly protect the rights of the holders of the
Notes in accordance with the essential intent and principles of such provisions,
then the Board shall make an adjustment in the application of such provisions,
in accordance with such essential intent and principles, so as to protect such
rights as aforesaid, but in no event shall any adjustment have the effect of
increasing the Conversion Price as otherwise determined pursuant to any of the
provisions of this Section 10 except in the case of a combination of shares of a
type contemplated in Section 10(d) and then in no event to an amount larger than
the Conversion Price as adjusted pursuant to Section 10(d).
-46-
SECTION 11. REGISTRATION RIGHTS
11.1. Definitions.
As used in this Section 11:
(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, if any, issuable on conversion or exchange of the Securities, (ii)
any additional shares of Common Stock, if any, acquired by the Investors and
(iii) 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) or (ii);
(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 50% of the then
outstanding Registrable Securities;
(e) "Registration Expenses" shall mean all expenses incurred
by the Company in compliance with Sections 11.2 and 11.3 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, fees and expenses of one counsel
for all the Holders in an amount not to exceed $15,000, blue sky fees and
expenses and the expense of any special audits 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
(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 in an amount not to exceed $15,000.
11.2. Requested Registration.
(a) Request for Registration. If the Company shall receive
from an Initiating Holder a written request that the
-47-
Company effect any registration with respect to all or a part of the Registrable
Securities, the Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders of Registrable Securities; and
(ii) as soon as practicable, use its diligent best efforts to
effect such registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act) as may be so
requested 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 10 business days after written notice from the Company is
given under Section 11.2(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 11.2:
(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 two (2) such registrations
pursuant to this Section 11.2 and such registrations have been declared or
ordered effective and the sales of such Registrable Securities shall have
closed; or
(C) If 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, such
registration would be seriously detrimental to the Company, the Company shall
have the right to delay registration for up to 90 days but not more than once in
any twelve month period.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions
-48-
of Section 11.2(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.
The registration rights set forth in this Section 11 shall be
assignable, in whole or in part, to any transferee of Common Stock (who shall be
bound by all obligations of this Section 11).
(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 11.2.
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 11. 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 11.2, 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
-49-
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 which would otherwise have been included in such
registration and underwriting will not thereby be limited.
11.3. 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 give to each of the Holders a written notice
thereof (which shall include 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 clause (i) above, except as set forth in Section 11.3(b)
below. Such written request may specify all or a part of the Holders'
Registrable Securities.
(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 11.3(a)(i). In such event, the right of each of the
Holders to registration pursuant to this Section 11.3 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 neither Investor shall be required to
participate in such underwriting if such Investor notifies the Company that it
is seeking registration of its shares solely to enable it to distribute such
shares to its partners. The Holders whose shares are to be included in such
registration (other than either
-50-
Investor, if such Investor 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 11.3, 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%) 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.
11.4. Expenses of Registration.
All Registration Expenses incurred in connection with any
registration, qualification or compliance pursuant to this Section 11 shall be
borne by the Company, and all Selling Expenses shall be borne by the Holders of
the securities 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 11.2 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.
-51-
11.5. Registration Procedures.
In the case of each registration effected by the Company
pursuant to this Section 11, 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:
(i) keep such registration effective for a period of one
hundred twenty (120) days or until the Holders, as applicable, have
completed the distribution described in the registration statement
relating thereto, whichever first occurs; provided, however, that such
120-day period shall be extended for a period of time equal to the
period during which the Holders, as applicable, refrain from selling
any securities included in such registration in accordance with
provisions in Section 11.9 hereof;
(ii) furnish such number of prospectuses and other documents
incident thereto as each of the Holders, as applicable, from time to
time may reasonably request;
(iii) notify each Holder of Registrable Securities covered by
such registration at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of 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 a material fact required to be
stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(iv) furnish, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being
sold through underwriters or, if such securities are not being sold
through underwriters, on the date that the registration statement with
respect to such securities becomes effective, (1) an opinion, dated as
of such date, of the counsel representing the Company for the purposes
of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders participating in
such registration, addressed to the underwriters, if any, and to the
Holders participating in such registration and (2) a letter, dated as
of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
-52-
offering and reasonably satisfactory to a majority in interest of the
Holders participating in such registration, addressed to the
underwriters, if any, and if permitted by applicable accounting
standards, to the Holders participating in such registration.
11.6. 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 11, 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
-53-
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 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
11.6 (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 11 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
-54-
be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(d) If the indemnification provided for in this Section 11.6
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.
-55-
11.7. 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 11.
11.8. 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:
(i) make and keep public information available as those terms
are understood and defined in Rule 144;
(ii) 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
(iii) 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 in availing
itself of any rule or regulation of the Commission allowing the Holder
to sell any such securities without registration.
11.9. "Market Stand-off" Agreement.
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.
-56-
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
11.9 shall be binding upon any transferee who acquires Registrable Securities,
whether or not such transferee is entitled to the registration rights provided
hereunder.
11.10. Termination.
The registration rights set forth in this Section 11 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%) of the Common Stock then outstanding).
SECTION 12. COVENANTS
All covenants contained herein shall be given independent
effect so that if a particular action or condition is not permitted by any such
covenants, the fact that such action or condition would be permitted by an
exception to, or otherwise be within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or condition
exists.
12.1. Approval of Preferred Stock.
The Company will use its best efforts to obtain the requisite
approval of the holders of the outstanding shares of Common Stock to the
creation, issuance, sale and delivery of the Series A Preferred Stock to the
holders of the Notes upon the terms and conditions set forth in this Agreement
and in Exhibit C hereto as soon as practicable following the First Closing Date.
12.2. Exchange of Notes.
(a) In the event that the stockholders of the Company
authorize the Series A Preferred Stock, the Company may upon written notice to
the holders of the Notes (the "Notice"), exchange the Notes for shares of Series
A Preferred Stock (the "Exchange"), provided that the Certificate of Designation
for the Series A Preferred Stock shall be substantially in the form of Exhibit C
hereto.
(b) In the event the Company elects to effect the Exchange,
the holders of the Notes shall be entitled to receive a
-57-
number of shares of Series A Preferred Stock equal to the aggregate principal
amount of the Notes then being exchanged, together with all accrued interest
thereon, divided by the conversion price for the Series A Preferred Stock
(assuming that the Series A Preferred Stock had been issued on the First Closing
Date, and, therefore, that the conversion price for the Series A Preferred Stock
is appropriately adjusted pursuant to the terms of Section 6 of the Certificate
of Designation for any events that occur between the First Closing Date and the
date on which the Exchange occurs).
(c) As soon as practicable after the date on which the Company
delivers to the holders of the Notes the Notice, and in any event within ten
(10) days thereafter, the Company, at its expense, will cause to be issued in
the name of and delivered to the holders of the Notes a certificate or
certificates for the number of fully paid and non-assessable shares of Series A
Preferred Stock to which such holder shall be entitled plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in an
amount determined in accordance with Section 9(c). The Company agrees that the
shares of Series A Preferred Stock so issued shall be deemed to be issued to the
holders of the Notes pro rata as the record owner of such shares as of the close
or business on the date on which the Notice shall have been delivered to the
holders of the Notes. The holders of the Notes shall promptly surrender the
Notes upon receipt of the certificate or certificates for the Series A Preferred
Stock. The failure of either holder of the Notes to surrender the Notes shall
not affect the validity of the issuance of the Series A Preferred Stock.
12.3. Financial and Business Information.
From and after the date hereof, the Company shall deliver to
Warburg so long Warburg owns beneficially (within the meaning of Rule 13d-3
under the Exchange Act) at least twenty-five percent (25%) of the shares of
Common Stock beneficially owned (within the meaning of Rule 13d-3 under the
Exchange Act) by it on the First Closing Date or, if the Second Closing occurs,
at least twenty-five percent (25%) of the shares of Common Stock beneficially
owned (within the meaning of Rule 13d-3 under the Exchange Act) as of the Second
Closing Date:
(a) Monthly and Quarterly Statements - as soon as practicable,
and in any event within 30 days after the close of each month of each fiscal
year of the Company other than at the end of a fiscal quarter of the Company in
the case of monthly statements and 45 days after the close of each of the first
three fiscal quarters of each fiscal year of the Company in the case of
quarterly statements, a consolidated balance sheet, statement of
-58-
income and statement of cash flows of the Company and any Subsidiaries as at the
close of such month or quarter and covering operations for such month or
quarter, as the case may be, and the portion of the Company's fiscal year ending
on the last day of such month or quarter, all in reasonable detail and prepared
in accordance with GAAP, subject to audit and year-end adjustments, setting
forth in each case in comparative form the figures for the comparable period of
the previous fiscal year. The Company shall also provide comparisons of each
pertinent item to the budget referred to in subsection (c) below.
(b) Annual Statements - as soon as practicable after the end
of each fiscal year of the Company, and in any event within 90 days thereafter,
duplicate copies of:
(1) consolidated and consolidating balance sheets of the
Company and any Subsidiaries at the end of such year; and
(2) consolidated and consolidating statements of income,
stockholders' equity and cash flows of the Company and any Subsidiaries
for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and
accompanied by an opinion thereon of independent certified public
accountants of recognized national standing selected by the Company,
which opinion shall state that such financial statements fairly present
the financial position of the Company and any Subsidiaries on a
consolidated basis and have been prepared in accordance with GAAP
(except for changes in application in which such accountants concur)
and that the examination of such accountants in connection with such
financial statements has been made in accordance with generally
accepted auditing standards, and accordingly included such tests of the
accounting records and such other auditing procedures as were
considered necessary in the circumstances, and the Company shall also
provide comparisons of each pertinent item to the budget referred to in
subsection (c) below.
(c) Business Plan; Projections - prior to the commencement of
each fiscal year of the Company, an annual business plan of the Company and
projections of operating results, prepared on a monthly basis. Such business
plans and projections shall contain such substance and detail and shall be in
such form as will be reasonably acceptable to the Majority Holders.
(d) Audit Reports - promptly upon receipt thereof, one copy of
each other financial report and internal control letter
-59-
submitted to the Company by independent accountants in connection with any
annual, interim or special audit made by them of the books of the Company.
(e) Other Reports - promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement sent by
the Company to stockholders generally, of each financial statement, report,
notice or proxy statement sent by the Company or any of its Subsidiaries to the
Commission or any successor agency, if applicable, of each regular or periodic
report and any registration statement, prospectus or written communication
(other than transmittal letters) in respect thereof filed by the Company or any
Subsidiary with, or received by such Person in connection therewith from, any
domestic or foreign securities exchange, the Commission or any successor agency
or any foreign regulatory authority performing functions similar to the
Commission, of any press release issued by the Company or any Subsidiary, and of
any material of any nature whatsoever prepared by the Commission or any
successor agency thereto or any state blue sky or securities law commission
which relates to or affects in any way the Company or any Subsidiary.
(f) Requested Information - with reasonable promptness, the
Company shall furnish the Investors with such other data and information as from
time to time may be reasonably requested.
12.4. Inspection.
As long as Warburg owns beneficially (within the meaning of
Rule 13d-3 under the Exchange Act) at least twenty-five percent (25%) of the
shares of Common Stock beneficially owned (within the meaning of Rule 13d-3
under the Exchange Act) by it on the First Closing Date or, if the Second
Closing occurs, at least twenty-five percent (25%) of the shares of Common Stock
beneficially owned (within the meaning of Rule 13d-3 under the Exchange Act) as
of the Second Closing Date, of the outstanding Common Stock, the Company shall
permit Warburg, its nominee, assignee, and its representative to visit and
inspect any of the properties of the Company and its Subsidiaries, to examine
all its books of account, records, reports and other papers not contractually
required of the Company to be confidential or secret, to make copies and
extracts therefrom, and to discuss its affairs, finances and accounts with its
officers, directors, key employees and independent public accountants or any of
them (and by this provision the Company authorizes said accountants to discuss
with Warburg, its nominees, assignees and representatives the finances and
affairs of the Company and any Subsidiaries), all at such reasonable times and
as often as may be reasonably requested.
-60-
12.5. Confidentiality.
As to so much of the information and other material furnished
under or in connection with this Agreement (whether furnished before, on or
after the date hereof, including without limitation information furnished
pursuant to Sections 12.3 and 12.4 hereof) as constitutes or contains
confidential business, financial or other information of the Company or any
Subsidiary, each of the Investors covenants for itself and its directors,
officers and partners that it will use due care to prevent its officers,
directors, partners, employees, counsel, accountants and other representatives
from disclosing such information to Persons other than their respective
authorized employees, counsel, accountants, shareholders, partners, limited
partners and other authorized representatives; provided, however, that either
Investor may disclose or deliver any information or other material disclosed to
or received by it should such Investor be advised by its counsel that such
disclosure or delivery is required by law, regulation or judicial or
administrative order but only after so much prior written notice as is
reasonably practicable under the circumstances to the Company that it proposes
to make such disclosures. In the event of any termination of this Agreement
prior to either Closing Date, each Investor shall return to the Company all
confidential material previously furnished to it or its officers, directors,
partners, employees, counsel, accountants and other representatives in
connection with this transaction. For purposes of this Section 12.5, "due care"
means at least the same level of care that such Investors would use to protect
the confidentiality of their own sensitive or proprietary information, and this
obligation shall survive termination of this Agreement.
12.6. Takeover Statute.
If any Takeover Statute shall become applicable to the
transactions contemplated hereby, including without limitation any takeover
provision under the laws of the State of Tennessee, the Company and the members
of the Board shall grant such approvals and take such actions as are necessary
so that the transactions contemplated hereby may be consummated as promptly as
practicable on the terms contemplated hereby and otherwise act to eliminate or
minimize the effects of such statue or regulation on the transactions
contemplated hereby.
12.7. Rights Agreement Inapplicable.
If the transactions contemplated hereby or the conversion or
exchange or exercise of any of the Securities upon its terms would (a) result in
the occurrence of a "Triggering
-61-
Event" under the Rights Agreement, (b) cause either Investor to become an
"Acquiring Person" as defined in the Rights Agreement or (c) otherwise cause the
exercise of any "Right" issued pursuant to the Rights Agreement or the issuance
or exercise of any "Rights Certificate" under the Rights Agreement, the Company
will promptly cause the Rights Agreement to be duly amended to prevent any such
characterization.
12.8. ▇▇▇▇-▇▇▇▇▇ Filings; Consents and Approvals.
The Company and the Investors will promptly prepare and file,
or cause to be prepared and filed, any notification or response to any request
for additional information required to be filed under the ▇▇▇▇-▇▇▇▇▇ Act and the
rules and regulations promulgated thereunder with respect to the acquisition of
shares of Common Stock and Series A Preferred Stock, if any, by the Investors
upon conversion, Exchange or exercise of any of the Securities. If any
additional filings are required under the ▇▇▇▇-▇▇▇▇▇ Act in connection with the
exercise of the Warrants, the Exchange or the acquisition of any other
Securities, the Company shall promptly, and in any event within ten-days
following a written request from the Majority Holders or any other holder of the
Securities, prepare and file, or cause to be prepared and filed, any
notification or response to any request for additional information required to
be filed under the ▇▇▇▇-▇▇▇▇▇ Act and the rules and regulations promulgated
thereunder in connection with any acquisition, conversion, Exchange or exercise
of any of the Securities. The Company and the Investors will use their
respective best efforts to obtain as promptly as practicable any consent or
approval of any Person, including any regulatory authority, required in
connection with the transactions contemplated hereby.
-62-
12.9. Conduct of Business and Maintenance of Existence.
The Company will continue to engage in business of the same
general type as now conducted by it, and preserve, renew and keep in full force
and effect its corporate existence and take all reasonable action to maintain
all rights, privileges and franchises necessary or desirable in the normal
conduct of its business. Without the consent of the Majority Holders, the
Company shall not (i) amend, alter or modify its Certificate of Incorporation or
Bylaws, (ii) create or authorize the issuance of any shares of preferred stock
having rights as to dividends or rights upon liquidation senior to the Series A
Preferred stock or (iii) issue any shares of Series A Preferred Stock to any
Person other than upon Exchange of the Notes.
12.10. Compliance with Laws.
The Company and its Subsidiaries will comply in all material
respects with all applicable laws, rules, regulations and orders except where
the failure to comply would not have a material adverse effect on the business,
properties, operations, prospects or financial condition of the Company.
12.11. Insurance.
The Company will maintain insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies of similar size and credit standing
engaged in similar business and owning similar properties, provided that such
insurance is and remains available to the Company at commercially reasonable
rates.
12.12. Keeping of Books.
The Company will keep proper books of record and account, in
which full and correct entries shall be made of all financial transactions and
the assets and business of the Company and its Subsidiaries in accordance with
GAAP.
12.13. Transfer; Lost, etc. Securities; Certificates
Evidencing Securities (or Common Stock); Exchange.
(a) The Notes are issuable as registered Notes transferable by
endorsement and delivery, each without coupons in the denominations of $1,000
and any larger integral multiple of $1,000. The Company shall keep at its
principal office a register in which the Company shall provide for the
registration
-63-
of the Notes. Upon surrender for registration of transfer of any registered Note
at such office, the Company shall, at its expense, execute and deliver one or
more replacing Notes of like tenor and of a like aggregate principal amount
which replacing Notes shall be registered Notes. At the option of the holder of
any Note, such Note may be exchanged for other Notes of any authorized
denominations, of a like tenor and of a like aggregate principal amount, upon
surrender of such Note, to be exchanged at the office of the Company. Whenever
any Notes are so surrendered for exchange, the Company shall execute and
deliver, at its expense, the Notes which the holder thereof making the exchange
is entitled to receive. Every Note presented or surrendered for registration of
transfer shall be duly endorsed, or be accompanied by a written instrument of
transfer duly executed, by the holder of the Note, or his attorney duly
authorized in writing. Any Note or Notes issued in exchange for or upon transfer
shall carry the rights to unpaid interest and interest to accrue which were
carried by the Note so exchanged or transferred, so that neither gain nor loss
of interest shall result from any such transfer or exchange. Upon receipt of
written notice from any holder of a Note or other evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of the
Note held by such holder and, in the case of any such loss, theft or
destruction, upon receipt of its unsecured indemnity agreement, or other
indemnity reasonably satisfactory to the Company, or in the case of any such
mutilation upon surrender and cancellation of such Note, the Company will make
and deliver a replacing Note of like tenor, in lieu of such lost, stolen,
destroyed or mutilated Note.
(b) Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any
certificate evidencing any Securities and (in the case of loss, theft or
destruction) of an unsecured indemnity satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of such certificate, if mutilated, the Company
will make and deliver in lieu of such certificate a new certificate of like
tenor and for the number of shares evidenced by such certificate which remain
outstanding. The Investors' agreement of indemnity shall constitute indemnity
satisfactory to the Company for purposes of this Section 12.13. Upon surrender
of any certificate representing any Securities (or shares of Common Stock) for
exchange at the office of the Company, the Company at its expense will cause to
be issued in exchange therefor new certificates in such denomination or
denominations as may be requested for the same aggregate number of Securities or
shares of Common Stock, as the case may be, represented by the certificate so
surrendered and registered as such holder may
-64-
request. The Company will also pay the cost of all deliveries of certificates
for such shares to the office of such Investor (including the cost of insurance
against loss or theft in an amount satisfactory to the holders) upon any
exchange provided for in this Section 12.13.
12.14. Licenses.
The Company shall use, and the Company shall cause each of its
Subsidiaries to use, its best efforts to obtain all licenses, authorizations,
certificates and permits set forth on Schedule 12.14 hereto.
SECTION 13. EVENTS OF DEFAULT
13.1. Events of Default.
If any of the following events shall occur and be continuing
for any reason whatsoever (and whether such occurrence shall be voluntary or
involuntary or come about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any principal of
the Notes or any mandatory prepayment of the Notes when the same shall
become due, either by the terms thereof or otherwise as herein
provided; or
(ii) the Company defaults in the payment when due of any
interest on the Notes and such default continues for five Business
Days; or
(iii) the Company makes an assignment for the benefit of
creditors or is generally not paying its debts as such debts become
due; or
(iv) any decree or order for relief in respect of the
Company is entered under any bankruptcy, reorganization, compromise,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation or similar law, whether now or hereafter in effect (herein
called the "Bankruptcy Law"), of any jurisdiction; or
(v) the Company petitions or applies to any tribunal for, or
consents to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator or similar official of the Company, or
of any substantial part of the assets of the Company, or commences a
voluntary case under the Bankruptcy Law of the United States or any
proceedings relating to the Company under the Bankruptcy Law of any
other jurisdiction; or
-65-
(vi) any such petition or application is filed, or any such
proceedings are commenced, against the Company and the Company by any
act indicates its approval thereof, consent thereto or acquiescence
therein, or an order, judgment or decree is entered appointing any
such trustee, receiver, custodian, liquidator or similar official, or
approving the petition in any such proceedings, and such order,
judgment or decree remains unstayed and in effect for more than 30
days; or
(vii) any order, judgment or decree is entered in any
proceedings against the decreeing the dissolution of the Company and
such order, judgment or decree remains unstayed and in effect for more
than 60 days;
then (A) upon the occurrence of any Event of Default described in the foregoing
clauses (iii), (iv), (v), (vi) or (vii), the unpaid principal amount of and
accrued interest on the Notes outstanding shall automatically become immediately
due and payable, without presentment, demand, protest or other requirements of
any kind, all of which are hereby expressly waived by the Company, and (B) upon
the occurrence of any other Event of Default, the Majority Holders may, at their
option and in addition to any right, power or remedy permitted by law or equity,
by notice in writing to the Company, declare the Notes to be, and the Notes
shall thereupon be and become, forthwith due and payable together with interest
accrued thereon.
13.2. Other Remedies.
If any Event of Default shall occur and be continuing, (i) the
aggregate principal amount of the Notes then outstanding and any overdue
interest thereon, if any, shall bear interest (x) at the rate of 10.3% per annum
if such Event of Default shall have occurred on or prior to the second
anniversary of the applicable Closing Date and (y) at the rate of 8.0% per annum
if such Event of Default shall have occurred after the second anniversary of the
applicable Closing Date, until such outstanding amount and interest thereon has
been paid in full, and (ii) each holder of a Note may proceed to protect and
enforce its rights under this Agreement and its Note by exercising such remedies
as are available to such holder in respect thereof under applicable law, either
by suit in equity or by action at law, or both, whether for specific performance
of any covenant or other agreement contained in this Agreement or in aid of the
exercise of any power granted in this Agreement. No remedy conferred in this
Agreement upon the holder of a Note is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other
-66-
remedy conferred herein or now or hereafter existing at law or in equity or by
statute or otherwise.
SECTION 14. INTERPRETATION OF THIS AGREEMENT
14.1. Terms Defined.
As used in this Agreement, the following terms have the
respective meanings set forth below or set forth in the Section hereof following
such term:
Affiliate: means any Person or entity, directly or indirectly,
controlling, controlled by or under common control with such Person or entity.
Agreements: shall have the meaning set forth in Section
4.6(d).
Approvals: shall have the meaning set forth in Section 4.6.
Bankruptcy Law: shall have the meaning set forth in Section
13.1.
Benefit Arrangement: shall have the meaning set forth in
Section 4.16.
Board: shall mean the board of directors of the Company.
Business Day: shall mean a day other than a Saturday, Sunday
or other day on which banks in the State of New York are not required or
authorized to close.
Certificate of Designation: shall have the meaning set forth
in Section 1.3.
Change of Control: shall mean any transaction or series of
transactions in which any Person purchases 50% or more of the Company's
outstanding Common Stock, whether by merger, consolidation, purchase of capital
stock or otherwise, (ii) the sale of all or substantially all of the Company's
assets or (iii) the liquidation, dissolution or winding up of the Company.
Closing: shall have the meaning set forth in Section 2.3(b).
Closing Date: shall have the meaning set forth in Section
2.3(b).
-67-
Code: shall mean the Internal Revenue Code of 1986, as
amended.
Common Stock: shall have the meaning set forth in Section 1.2.
Commission: the Securities and Exchange Commission.
Commitment: shall have the meaning set forth in Section 4.8.
Company SEC Reports: shall have the meaning set forth in
Section 4.10.
Convertible Security: shall have the meaning set forth in
Section 10.
Credit Agreement: shall mean the Third Amended and Restated
Credit Agreement, dated as of March 28, 1997, among the Company, the banks
listed therein and ▇▇▇▇▇▇ Guaranty Trust Company of New York, as Agent, as
amended, supplemented and restated from time to time.
Debt: of any Person shall mean:
(1) all indebtedness of such Person for borrowed
money, including without limitation obligations evidenced by bonds,
debentures, notes, or other similar instruments;
(2) all indebtedness guaranteed in any manner by such
Person, or in effect guaranteed by such Person through an agreement to
purchase, contingent or otherwise (other than endorsements for
collections or deposits in the ordinary course of business); or
(3) all indebtedness secured by any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in
property owned by such Person, even though such Person has not assumed
or become liable for the payment of such indebtedness.
Demanding Holders: shall have the meaning set forth in Section
11.3.
DOI Reports: shall have the meaning set forth in Section 4.6.
Event of Default: shall mean the occurrence of any of the
events set forth in Section 13.1.
-68-
Exchange: shall have the meaning set forth in Section 12.2.
Exchange Act: shall mean the Securities Exchange Act of 1934,
as amended.
First Closing: shall have the meaning set forth in Section
2.3(a).
First Closing Date: shall have the meaning set forth in
Section 2.3(a).
First Closing Purchase Price: shall have the meaning set forth
in Section 2.1.
First Closing Securities: shall have the meaning set forth in
Section 2.1.
GAAP: shall have the meaning set forth in Section 4.10.
Governmental Entity: shall mean any law, ordinance,
regulation, offer or writ of any governmental or regulatory authority, domestic
or foreign.
Government Contract: shall have the meaning set forth in
Section 4.6.
▇▇▇▇-▇▇▇▇▇ Act: shall mean the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust
Improvements Act of 1976, as amended.
Indemnified Party: shall have the meaning set forth in Section
11.6.
Intellectual Property: shall have the meaning set forth in
Section 4.17.
Interest Notes: shall have the meaning set forth in Section
1.1.
Investor Threshold: shall have the meaning set forth in
Section 6.6.
Key Agreements and Instruments: shall have the meaning set
forth in Section 4.9.
Liquidating Dividend: shall have the meaning set forth in
Section 10(c).
-69-
Majority Holders: shall mean the holders of a majority of the
aggregate principal amount of the Notes then outstanding, the Common Stock
issuable upon conversion of the Notes or the Series A Preferred Stock issuable
upon Exchange of the Notes.
Market Price: shall mean (a) if the Common Stock is traded on
a national securities exchange, the last reported sale price of a share of
Common Stock, regular way on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof regular way
on such date, in either case as officially reported on the principal national
securities exchange on which the Common Stock is then listed or admitted for
trading, or, (b) if the Common Stock is not then listed or admitted for trading
on any national securities exchange but is designated as a national market
system security by the NASD, the last reported trading price of the Common Stock
on such date, or (c) if not listed or admitted to trading on any national
securities exchange or designated as a national market system security, the
average of the reported bid and asked price of the Common Stock on such date in
the over-the-counter market as furnished by the National Quotation Bureau, Inc.,
or, if such firm is not then engaged in the business of reporting such prices,
as furnished by any member of the National Association of Securities Dealers,
Inc. selected by the Company or, (d) if the shares of Common Stock are not so
publicly traded, the fair market value thereof, as determined in good faith by
the Board.
Material Adverse Effect: shall have the meaning set forth in
Section 4.1(c).
NCQA: shall have the meaning set forth in Section 4.6.
Nominee: shall mean (i) a partner, officer or employee of
Warburg or an Affiliate, or (ii) a person who is not a member of the board of
directors or an employee of, or a consultant to, any company which owns, manages
or provides services to health maintenance organizations ("HMOs") or preferred
provider organizations ("PPOs") in any of the geographic markets in which the
Company, its Subsidiaries, or the HMOs and PPOs managed by the Company or its
Subsidiaries operate HMOs or PPOs as of the date such person agrees to be
designated by the Majority Holders to the Board.
Notes: shall have the meaning set forth in Section 1.1.
Notice: shall have the meaning set forth in Section 12.2.
-70-
Options: shall have the meaning set forth in Section 10.
Organizational Documents: shall have the meaning set forth in
Section 4.1(a).
Other Stockholders: shall have the meaning set forth in
Section 11.2(b).
Person: shall mean an individual, partnership, joint-stock
company, corporation, limited liability company, trust or unincorporated
organization, and a government, agency, regulatory authority or political
subdivision thereof.
Proposed Securities: shall have the meaning set forth in
Section 6.4.
Purchase Price: shall have the meaning set forth in Section
2.2.
Purchase Rights: shall have the meaning set forth in Section
10(h).
Purchased Securities: shall have the meaning set forth in
Section 2.2.
Rights Agreement: shall mean the Rights Agreement, dated
February 7, 1996, between the Company and Chemical Mellon Shareholder Services,
L.L.C., as Rights Agent, as amended.
Second Closing: shall have the meaning set forth in Section
2.3(b).
Second Closing Conditions: shall have the meaning set forth in
Section 2.3(b).
Second Closing Date: shall have the meaning set forth in
Section 2.3(b).
Second Closing Purchase Price: shall have the meaning set
forth in Section 2.2.
Second Closing Securities: shall have the meaning set forth in
Section 2.2.
Securities: shall mean the Notes, the Warrants, the Series A
Preferred Stock and the shares of Common stock issuable upon conversion of the
Notes, upon exercise of the Warrants or upon conversion of the Series A
Preferred Stock.
-71-
Securities Act: shall mean the Securities Act of 1933, as
amended.
Series A Preferred Stock: shall have the meaning set forth in
Section 1.3.
SERP Plan: shall mean the Company's Supplemental Executive
Retirement Plan.
Subscription Securities: shall have the meaning set forth in
Section 6.4.
Subsidiary: shall mean a corporation of which a Person owns,
directly or indirectly, more than 50% of the Voting Stock.
Takeover Statute: shall mean any corporate takeover provision
under laws of the State of Tennessee or any other state or federal "fair price",
"moratorium", "control share acquisition" or other similar antitakeover statute
or regulation except any state health maintenance organization or insurance
change of control statute set forth on Schedule 4.5.
Transaction Documents: shall mean this Agreement, the Notes
and the Warrants.
Triggering Transactions: shall have the meaning set forth in
Section 10.
Voting Stock: shall mean securities of any class or classes of
a corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors (or
Persons performing similar functions).
Warrants: shall have the meaning set forth in Section 1.2.
14.2. Accounting Principles.
Where the character or amount of any asset or amount of any
asset or liability or item of income or expense is required to be determined or
any consolidation or other accounting computation is required to be made for the
purposes of this Agreement, this shall be done in accordance with GAAP at the
time in effect, to the extent applicable, except where such principles are
inconsistent with the requirements of this Agreement.
14.3. Directly or Indirectly.
Where any provision in this Agreement refers to action to be
taken by any Person, or which such Person is prohibited
-72-
from taking, such provision shall be applicable whether such action is taken
directly or indirectly by such Person.
14.4. Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State.
14.5. Paragraph and Section Headings.
The headings of the sections and subsections of this Agreement
are inserted for convenience only and shall not be deemed to constitute a part
thereof.
SECTION 15. MISCELLANEOUS
15.1. Payments.
The Company agrees that it will make payments of principal of,
premium (if any), interest and redemption payments on the Notes not later than
12:00 o'clock noon, New York time, on the date such payment is due, by transfer
of immediately available funds for credit to the holders of the Notes. Payments
shall be made to the account of each holder in the United States as such holder
may designate in writing, notwithstanding any contrary provision contained
herein or in the Notes with respect to the place of payment.
15.2. Consent to Amendments.
This Agreement may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company shall have obtained the written consent to
such amendment, action or omission to act of the Majority Holders or if the
Notes have been Exchanged for Series A Preferred Stock, a majority of the
holders of Series A Preferred Stock or the Common Stock issuable upon conversion
of such shares. The Company shall promptly send copies of any amendment, waiver
or consent (and any request for any such amendment, waiver or consent) relating
to this Agreement or the Notes to each Investor and, to the extent practicable,
shall consult with each Investor in connection with each such amendment, consent
and waiver. No course of dealing between the Company and the Investors nor any
delay in exercising any rights hereunder shall operate as a waiver of any rights
of any holders of the Notes. As used herein and in the Securities, the term
"this Agreement" and references thereto shall mean this Agreement as it may,
from time to time, be amended or supplemented.
-73-
15.3. Notices.
(a) All communications under this Agreement shall be in
writing and shall be delivered by hand, by facsimile or mailed by overnight
courier or by registered mail or certified mail, postage prepaid:
(1) if to Warburg, at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇ (facsimile: (▇▇▇) ▇▇▇-▇▇▇▇), marked for attention of
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, or at such other address as Warburg may
have furnished the Company and Franklin in writing (with a
copy to ▇▇▇▇▇▇▇ ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ (facsimile:
212-821-8111), or at such other address it may have furnished
the Company and Franklin in writing), or
(2) if to Franklin, at ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (facsimile: (▇▇▇) ▇▇▇-▇▇▇▇), marked for
attention of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, or at such other address as
Franklin may have furnished the Company and Warburg in
writing, or
(3) if to the Company, at ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, (facsimile: (▇▇▇) ▇▇▇-▇▇▇▇) marked
for attention of Chief Financial Officer, or at such other
address as the Company may have furnished the Investors in
writing (with a copy to Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC, Attention: ▇▇▇
▇. ▇▇▇▇▇▇▇▇ (facsimile: 615-742-6298) or at such other address
as it may have furnished in writing to the Investors).
(b) Any notice so addressed shall be deemed to be given: if
delivered by hand, on the date of such delivery; if mailed by courier, on the
first business day following the date of such mailing; and if mailed by
registered or certified mail, on the third business day after the date of such
mailing.
15.4. Expenses and Taxes.
(a) Whether or not the Closings shall have occurred, the
Company agrees to pay the reasonable out-of-pocket fees and expenses incurred by
the Investors (including itemized fees and expenses of the Investors' counsel)
in connection with the negotiation, preparation, execution and delivery of this
Agreement, the Notes, the Warrants, the form of the Certificate of Designation
and the other instruments and agreements entered into pursuant to this
Agreement, and any amendments to the same, said payment to be made no later than
30 days after a ▇▇▇▇ for
-74-
such fees and/or expenses has been sent to the Company; provided, however, that
such fees and expenses shall not exceed $250,000.
(b) The Company will pay, and save and hold the Investors
harmless from any and all liabilities (including interest and penalties) with
respect to, or resulting from any delay or failure in paying, stamp and other
taxes (other than income taxes), if any, which may be payable or determined to
be payable on the execution and delivery or acquisition of the Securities or the
shares of Common Stock issuable upon conversion or exchange of the Securities.
15.5. Reproduction of Documents.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications which may hereafter
be executed, (b) documents received by the Investors on the Closing Dates
(except for certificates evidencing the Securities themselves), and (c)
financial statements, certificates and other information previously or hereafter
furnished to the Investors, may be reproduced by the Investors by any
photographic, photostatic, microfilm, micro-card, miniature photographic or
other similar process and the Investors may destroy any original document so
reproduced. All parties hereto agree and stipulate that any such reproduction
shall be admissible in evidence as the original itself in any judicial or
administrative proceeding (whether or not the original is in existence and
whether or not such reproduction was made by an Investor in the regular course
of business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
-75-
15.6. Termination and Survival.
Unless the Closings have occurred prior thereto, this
Agreement and, except as herein provided, all the rights of the parties hereto,
shall terminate on July 31, 1997 (unless such date is extended by mutual written
consent); provided, however, that this date may be extended by the Company or
the Investors to September 30, 1997 if all required regulatory approvals have
not been obtained by July 31, 1997. Notwithstanding the foregoing, Section 15.4
hereof shall survive the termination of this Agreement. All warranties,
representations, and covenants made by the Investors and the Company herein or
in any certificate or other instrument delivered by one of the Investors or the
Company under this Agreement shall be considered to have been relied upon by the
Company or the Investors, as the case may be, and shall survive all deliveries
to the Investors of the Securities, or payment to the Company for such
Securities, regardless of any investigation made by the Company or an Investor,
as the case may be, or on the Company's or an Investor's behalf. All statements
in any such certificate or other instrument shall constitute warranties and
representation by the Company hereunder.
15.7. Successors and Assigns.
This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties.
15.8. Entire Agreement; Amendment and Waiver.
This Agreement and the agreements attached as Exhibits hereto
constitute the entire understandings of the parties hereto and supersede all
prior agreements or understandings with respect to the subject matter hereof
among such parties. This Agreement may be amended, and the observance of any
term of this Agreement may be waived, with (and only with) the written consent
of the Company and the Majority Holders.
15.9. Severability.
In the event that any part or parts of this Agreement shall be
held illegal or unenforceable by any court or administrative body of competent
jurisdiction, such determination shall not effect the remaining provisions of
this Agreement which shall remain in full force and effect.
15.10. Limitation on Enforcement of Remedies.
The Company hereby agrees that it will not assert against the
limited partners of either of the Investors any claim it may have under this
Agreement by reason of any failure or alleged failure by such Investor to meet
its obligations hereunder.
-76-
15.11. 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.
Very truly yours,
COVENTRY CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇
----------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇
Title:Senior Vice President
Chief Financial Officer
and Treasurer
WARBURG, ▇▇▇▇▇▇ VENTURES, L.P.
By: WARBURG, ▇▇▇▇▇▇ & CO.,
General Partner
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------
Name:▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title:Managing Director
FRANKLIN CAPITAL ASSOCIATES III L.P.
By: FRANKLIN VENTURES III L.P.,
General Partner
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------
Name:▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title:General Partner
-77-
SCHEDULE I
Names of Investors
Warburg, ▇▇▇▇▇▇ Ventures, ▇.▇.
▇▇▇▇▇▇▇▇ Capital Associates III L.P.
SCHEDULE 2.1
Investors
Principal Amount Number of Aggregate
Investor Name of its Note Warrants Purchase Price
(1) Warburg, ▇▇▇▇▇▇
Ventures L.P. $22,844,980 1,343,822 $24,188,802
(2) Franklin Capital
Associates III L.P. $4,000,000 235,294 $4,235,294
SCHEDULE 2.2
Investors
Principal Amount Number of Aggregate
Investor Name of its Note Warrants Purchase Price
Warburg, ▇▇▇▇▇▇
Ventures L.P. $13,155,020 773,825 $13,928,845
SCHEDULE 7.14
Affiliates
Warburg, ▇▇▇▇▇▇ & Co.
SCHEDULE 12.14
Licenses Required
Entity License State
------ ------- -----
HealthAmerica Pennsylvania, Inc. Insurance Administrator Pennsylvania
HealthCare USA, Inc./ Insurance Administrator Pennsylvania
Pennsylvania
HealthCare USA, Inc.
HealthCare USA, Inc. Third Party Administrator Missouri
Southern Health Benefits, Inc./ Administration (TPA) California
Coventry HealthCare Management
Corporation (VA)
Pennsylvania HealthMate, Inc. Insurance Administrator Pennsylvania
Name Correction Required
________________________
In addition, the following license needs to be corrected:
1. Group Health Plan, Inc. holds a Third Party Administrator license in Missouri
under the name "Care Management Resources." The name on the license should be
changed to "Group Health Plan, Inc."
EXHIBIT A
Form of Convertible Exchangeable Senior Subordinated Note
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 Coventry Corporation, is exempt from such
registration.
THIS NOTE IS SUBORDINATED TO CERTAIN SENIOR DEBT
(AS DEFINED HEREIN) TO THE EXTENT PROVIDED HEREIN.
COVENTRY CORPORATION
8.3% Convertible Exchangeable Senior Subordinated Note
due ________ , 2004
R-1 Date:__________
$_______________ New York, New York
FOR VALUE RECEIVED, the undersigned, COVENTRY CORPORATION, a
corporation organized and existing under the laws of the State of Tennessee
(herein called the "Company"), hereby promises to pay to _____________________,
a Delaware limited partnership (the "Holder") or registered assigns, the
principal sum of ___________ MILLION DOLLARS ($__________________) in scheduled
payments as provided in the Agreement (as hereinafter defined) until _______,
2004, with interest on the unpaid balance hereof at the rate of 8.3% per annum
(computed on the basis of a 360-day year of twelve 30-day months) until the
second anniversary of the date hereof and at the rate of 5.0% per annum
(computed on the basis of a 360-day year of the twelve 30-day months)
thereafter, until the principal thereof shall become due and payable (whether at
maturity, upon notice of prepayment or otherwise). Interest will be payable
semi-annually in arrears on the last day of the applicable month, commencing six
months from the date hereof, and if such date is not a Business Day on the next
Business Day thereafter; provided, however, that the Company shall issue
interest notes ("Interest Notes" and individually called an "Interest Note") in
payment of any or all interest due on or before the second anniversary of the
date hereof which Interest Notes shall bear interest on the unpaid balance
thereof at the rate of 8.3% per annum (computed on the basis of a 360-day year
of twelve 30-day months) from the date of issuance thereof until the second
anniversary of the date hereof and at the rate of 5.0% per annum (computed on
the basis of a 360-day year of twelve 30-day months) thereafter until the
principal thereof shall become due and payable (whether at maturity, upon notice
of prepayment or otherwise); and, provided, further, that the Company may, at
its sole option, issue Interest Notes in lieu of a cash payment of any or all
interest due after the second anniversary of the date hereof, which Interest
Notes shall bear interest on the unpaid balance thereof from the date of
issuance thereof at the rate of 5.0% per annum (computed on the basis of a
360-day year of twelve 30-day months) until the principal thereof shall become
due and payable (whether at maturity, upon notice of prepayment or otherwise).
Interest on the Interest Notes will be payable semi-annually in arrears on the
last day of the applicable month, commencing six months from the date of
issuance thereof, and if such date is not a Business Day on the next Business
Day thereafter.
Payments of both principal and interest are to be made at the address
shown on the Company's registry or at such other place as the holder hereof
shall designate to the Company in writing, in lawful money of the United States
of America.
This Note is issued pursuant to a Amended and Restated Securities
Purchase Agreement dated as of April 2, 1997 (the "Agreement") by and among the
Company, Warburg, ▇▇▇▇▇▇ Ventures, L.P. and Franklin Capital Associates III L.P.
and is entitled to the benefits of the Agreement. As provided in the Agreement,
this Note is subject to prepayment in whole or in part in certain cases as
specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or his attorney duly authorized in writing, a new Note for a like
principal amount will be issued to, and registered in the name of, the
transferee. Prior to due presentment for registration of transfer, the Company
may treat the person in whose name this Note is registered as the owner hereof
for the purpose of receiving payment and for all other purposes, and the Company
shall not be affected by any notice to the contrary.
The Company agrees to prepay this Note upon a Change of Control, as
specified in the Agreement.
(2)
This Note shall be subordinate and junior in right of payment to all
Senior Debt (as hereinafter defined) to the extent and in the manner provided in
this Note.
Senior Debt means the principal amount of, and accrued interest
(including interest accruing or that would have accrued after the commencement
of bankruptcy proceedings involving the Company as debtor, whether or not such
interest is allowed) on, the loans outstanding under the Third Amended and
Restated Credit Agreement, dated as of March 28, 1997, among the Company, the
Banks named therein and ▇▇▇▇▇▇ Guaranty Trust Company of New York, as Agent, as
the same shall be amended from time to time (the "Credit Agreement"), and any
fees or other amounts payable pursuant to the Credit Agreement or any related
agreement.
No payment or prepayment of any principal of or interest on this Note
shall be due and payable, or paid, unless and until all Senior Debt shall have
been paid in full in cash; provided, that the foregoing shall not limit (x) the
payment of interest through increases in the principal amount of this Note in
accordance with the provisions of Section 1.1 and Section 3 of the Agreement,
(y) the Company's right to cause the Exchange of this Note for Series A
Preferred Stock pursuant to the provisions of Section 12.2 of the Agreement, or
(z) the holder of this Note's and the Majority Holders' right to convert this
Note into Common Stock pursuant to the provisions of Section 9 of the Agreement.
In furtherance of the foregoing, the holders of Senior Debt shall be entitled to
receive payments or distributions of any kind or character (other than those
permitted by the proviso to the preceding sentence), whether in cash or property
or securities, which may be payable or deliverable (including in any insolvency
or bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings, relative to the Company or to its creditors, as such,
or to its property, or in the event of any proceedings for voluntary
liquidation, dissolution or other winding up of the Company, whether or not
involving insolvency or bankruptcy) in respect of this Note.
If, notwithstanding the provisions set forth above, any payment or
distribution of assets of the Company of any kind or character (other than as
permitted by the proviso to the first sentence of the preceding paragraph)
whether in cash, property or securities, shall be received by the holder of this
Note in respect of this Note before all Senior Debt is paid in full in cash,
such payment or distribution shall be held in trust for the benefit of, and
shall be paid over or delivered to the Agent under the Credit Agreement, for the
ratable account of the holders of such Senior Debt for application to the
payment of all Senior Debt remaining unpaid to the extent necessary to pay such
Senior Debt in full, in accordance with its terms, after giving effect to any
concurrent payment or distribution to the holders of such Senior Debt.
(3)
No holder of Senior Debt shall be prejudiced in its right to enforce
subordination of this Note by any act or failure to act on the part of the
Company. The provisions of this Note are solely for the purpose of defining the
relative rights of the holders of Senior Debt, on the one hand, and the holder
of this Note, on the other hand, and nothing herein shall impair, as between the
Company and the holder of this Note, the obligation of the Company, which
(except as expressly stated above) is unconditional and absolute, to pay to the
holder of this Note the principal thereof and interest thereon in accordance
with its terms and the terms of the Agreement, nor shall anything herein prevent
the holder of this Note from exercising all remedies otherwise permitted by
applicable law, the Agreement or this Note upon default thereunder, subject to
the rights under this Note of holders of Senior Debt to receive cash, property
or securities otherwise payable or deliverable to the holder of this Note.
The holders of Senior Debt shall be intended third-party beneficiaries
of the foregoing terms of this Note and shall have the direct right to enforce
such terms including the right to intervene in any action or proceeding relating
to the payment of amounts under this Note and to enjoin any such payment.
Subject to the payment in full in cash of all Senior Debt, the holder
of this Note shall be subrogated to the rights of the holders of Senior Debt to
receive payments or distribution of assets of the Company payable or
distributable to the holders of Senior Debt and, as among the Company, its
creditors other than the holders of Senior Debt, and the holder of this Note, no
payments or distributions otherwise payable or deliverable in respect of this
Note but, by virtue of the provisions thereof and of this paragraph, paid or
delivered to the holders of Senior Debt shall be deemed to be a payment by the
Company on account of Senior Debt.
This Note is exchangeable, at the option of the Company, into shares of
Series A Preferred Stock (as defined in the Agreement) and convertible, at the
option of the holder hereof, into shares of Common Stock, on the terms and
conditions set forth in the Agreement.
Any voluntary or mandatory prepayment of this Note shall be applied
first to the payment of interest accrued and unpaid on this Note and second to
the payment of installments of principal of this Note in the inverse order of
their maturity.
(4)
Upon the occurrence of an Event of Default (as defined in the
Agreement), (i) this Note shall become due and payable as set forth in the
Agreement and (ii) the aggregate principal amount of this Note then outstanding
and any overdue interest thereon, if any, shall bear interest (x) at the rate of
10.3% per annum if such Event of Default occurs on or prior to the second
anniversary of the date hereof and (y) at the rate of 8.0% if such Event of
Default occurs after the second anniversary of the date hereof until such
outstanding amount and interest thereon has been paid in full.
The Company agrees to pay the holder hereof all expenses incurred by
such holder, including reasonable attorneys' fees, in enforcing and collecting
this Note.
The Company hereby forever waives presentment, demand, presentment for
payment, protest, notice of protest, notice of dishonor of this Note and all
other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Note.
This Note shall be paid without deduction by reason of any set-off,
defense or counterclaim of the Company.
(5)
This Note shall be governed and construed in accordance with the laws
of the State of New York applicable to agreements made and to be performed
entirely in such state and shall be binding upon the heirs or legal
representatives of the Maker and shall inure to the benefit of the successors
and assigns of the Holder.
COVENTRY CORPORATION
By:____________________________
Name:
Title:
ATTEST:_____________________
EXHIBIT B
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN A TRANSACTION
WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO COVENTRY
CORPORATION, IS EXEMPT FROM SUCH REGISTRATION.
COVENTRY CORPORATION
Common Stock Purchase Warrant
COVENTRY CORPORATION, a Tennessee corporation (the "Company"),
hereby certifies that, for value received, ____________________, a Delaware
limited partnership, (the "Holder"), or its assigns, is entitled, subject to the
terms set forth below, to purchase from the Company, at any time and from time
to time during the period beginning on ______ __, 1997 and ending on _____ __,
2004 in whole or in part, an aggregate of
________________________________________________________________ (_________)
fully paid and non-assessable shares of the Common Stock of the Company at a
purchase price, subject to the provisions of Paragraph 3 hereof, of $10.625 per
share (the "Purchase Price"). The Purchase Price and the number and character of
such shares are subject to adjustment as provided below, and the term "Common
Stock" shall mean, unless the context otherwise requires, the stock or other
securities or property at the time deliverable upon the exercise of this
Warrant. This Warrant is herein called the "Warrant."
1. EXERCISE OF WARRANT.
1.1. Exercise. The purchase rights evidenced by this Warrant
shall be exercised by the holder surrendering this Warrant, with the form of
subscription at the end hereof duly executed by such holder, to the Company at
its office in Nashville, Tennessee, accompanied by payment, of an amount (the
"Exercise Payment") equal to the Purchase Price multiplied by the number of
shares being purchased pursuant to such exercise, payable as follows: (a) by
payment to the Company in cash, by certified or official bank check, or by wire
transfer of the Exercise Payment, (b) by surrender to the Company for
cancellation of securities of the Company having a Market Price (as hereinafter
defined) on the date of exercise equal to the Exercise Payment; (c) by surrender
to the Company for cancellation of notes of the Company having an aggregate
principal amount plus accrued but unpaid interest on the date of surrender equal
to the Exercise Payment or (d) by a combination of the methods described in
clauses (a), (b) and (c) above. In lieu of exercising the Warrant, the holder
may elect to receive a
1
payment equal to the difference between (i) the average Market Price for the ten
trading days immediately preceding such payment multiplied by the number of
shares as to which the payment is then being elected and (ii) the Exercise
Payment, payable by the Company to the Holder only in shares of Common Stock
valued at the average Market Price for the ten trading days immediately
preceding such payment ("Net Exercise"). For purposes hereof, the term "Market
Price" shall mean (a) if the Common Stock is traded on a national securities
exchange, the last reported sale price of a share of Common Stock, regular way
on such date or, in case no such sale takes place on such date, the average of
the closing bid and asked prices thereof regular way on such date, in either
case as officially reported on the principal national securities exchange on
which the Common Stock is then listed or admitted for trading, or, (b) if the
Common Stock is not then listed or admitted for trading on any national
securities exchange but is designated as a national market system security by
the NASD, the last reported trading price of the Common Stock on such date, or
(c) if not listed or admitted to trading on any national securities exchange or
designated as a national market system security, the average of the reported bid
and asked price of the Common Stock on such date in the over-the-counter market
as furnished by the National Quotation Bureau, Inc., or, if such firm is not
then engaged in the business of reporting such prices, as furnished by any
member of the National Association of Securities Dealers, Inc. selected by the
Company or, (d) if the shares of Common Stock are not so publicly traded, the
fair market value thereof, as determined in good faith by the Board of Directors
of the Company.
1.2. Optional Exercise.
(a) Except as provided in Paragraph 1.2(b), this Warrant may not
be exercised at the option of the Company.
(b) The Warrant may not be exercised before ________ __, 2000 at
the Company's option. Thereafter, this Warrant shall be subject to mandatory
exercise, in whole but not in part, at the option of the Company, if the Market
Price of the Common Stock on twenty (20) consecutive trading days during the
period ending within five days prior to the giving of written notice of exercise
by the Company is $17.00 per share (appropriately adjusted for any stock split,
stock dividend or similar event). In the event the Company delivers such notice
to the Holder pursuant to Paragraph 1.2(b), the Holder shall have ten days to
elect the manner in which the Exercise Payment shall be made. If the Holder
fails to notify the Company in writing as to the manner in which the Exercise
Payment is to be made within such ten-day period, the Holder shall be deemed to
have elected a Net Exercise.
1.3. Partial Exercise. This Warrant may be exercised at the
option of the holder for less than the full number of
2
shares of Common Stock, in which case the number of shares receivable upon the
exercise of this Warrant as a whole, and the sum payable upon the exercise of
this Warrant as a whole, shall be proportionately reduced. Upon any such partial
exercise, the Company at its expense will forthwith issue to the holder hereof a
new Warrant or Warrants of like tenor calling for the number of shares of Common
Stock as to which rights have not been exercised, such Warrant or Warrants to be
issued in the name of the holder hereof or his nominee (upon payment by such
holder of any applicable transfer taxes).
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as
practicable after the exercise of this Warrant and payment of the Purchase
Price, and in any event within ten (10) days thereafter, the Company, at its
expense, will cause to be issued in the name of and delivered to the holder
hereof a certificate or certificates for the number of fully paid and
non-assessable shares or other securities or property to which such holder shall
be entitled upon such exercise, plus, in lieu of any fractional share to which
such holder would otherwise be entitled, cash in an amount determined in
accordance with Paragraph 3.9 hereof. The Company agrees that the shares so
purchased shall be deemed to be issued to the holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to
prevent dilution of the right granted hereunder, the Purchase Price shall be
subject to adjustment from time to time in accordance with this Paragraph 3.
Upon each adjustment of the Purchase Price pursuant to this Paragraph 3, the
registered Holder of this Warrant shall thereafter be entitled to acquire upon
exercise, at the Purchase Price resulting from such adjustment, the number of
shares of the Company's Common Stock obtainable by multiplying the Purchase
Price in effect immediately prior to such adjustment by the number of shares of
the Company's Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Purchase Price resulting from such
adjustment.
3.1. Adjustment for Issue or Sale of Common Stock at Less than
the Market Price. Except as provided in Paragraph 3.2 or 3.5 below, if and
whenever on or after the date of issuance hereof the Company shall issue or
sell, or shall in accordance with subparagraphs 3.1(1) to (9), inclusive, be
deemed to have issued or sold, any shares of its Common Stock for a
consideration per share less than the average Market Price for the ten trading
days immediately preceding such issuance or sale, then forthwith upon such issue
or sale (the "Triggering Transaction"), the Purchase Price shall, subject to
subparagraphs (1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price
(calculated to the nearest tenth of a cent) determined by
3
multiplying the Purchase Price in effect immediately prior to the time of such
Triggering Transaction by a fraction, the numerator of which shall be the sum of
(x) the Number of Shares Deemed Outstanding immediately prior to such Triggering
Transaction and (y) the number of shares of Common Stock which the aggregate
consideration received by the Company upon such Triggering Transaction would
purchase at the average Market Price for the ten-day trading period immediately
preceding such Triggering Transaction, and the denominator of which shall be the
Number of Shares Deemed Outstanding immediately after such Triggering
Transaction.
For purposes of this Paragraph 3, the term "Number of Common
Shares Deemed Outstanding" at any given time shall mean the sum of (i) the
number of shares of the Company's Common Stock outstanding at such time, and
(ii) the number of shares of the Company's Common Stock deemed to be outstanding
under subparagraphs 3.1(1) to (9), inclusive, at such time.
For purposes of determining the adjusted Purchase Price under
this Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any manner grant
(whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"), whether or
not such Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable and the price per
share for which the Common Stock is issuable upon exercise, conversion
or exchange (determined by dividing (x) the total amount, if any,
received or receivable by the Company as consideration for the
granting of such Options, plus the aggregate amount of additional
consideration payable to the Company upon the exercise of all such
Options, plus, in the case of such Options which relate to Convertible
Securities, the aggregate amount of additional consideration, if any,
payable upon the issue or sale of such Convertible Securities and upon
the conversion or exchange thereof, by (y) the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or
the conversion or exchange of such Convertible Securities) shall be
less than the average Market Price in effect for the ten-day trading
period immediately prior to the time of the granting of such Option,
then the total maximum amount of Common Stock issuable upon the
exercise of such Options, or, in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible
Securities, shall
4
(as of the date of granting of such Options) be deemed to be
outstanding and to have been issued and sold by the Company for such
price per share. No adjustment of the Purchase Price shall be made
upon the actual issue of such shares of Common Stock or such
Convertible Securities upon the exercise of such Options, except as
otherwise provided in subparagraph (3) below.
(2) In case the Company at any time shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell
any Convertible Securities, whether or not the rights to exchange or
convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (x) the total amount received or
receivable by the Company as consideration for the issue or sale of
such Convertible Securities, plus the aggregate amount of additional
consideration, if any, payable to the Company upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities) shall be less than the average Market Price in effect for
the ten-day trading period immediately prior to the time of such issue
or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. No adjustment
of the Purchase Price shall be made upon the actual issue of such
Common Stock upon exercise of the rights to exchange or convert under
such Convertible Securities, except as otherwise provided in
subparagraph (3) below.
(3) If the purchase price provided for in any Options referred to
in subparagraph (1), the additional consideration, if any, payable
upon the conversion or exchange of any Convertible Securities referred
to in subparagraphs (1) or (2), or the rate at which any Convertible
Securities referred to in subparagraph (1) or (2) are convertible into
or exchangeable for Common Stock shall change at any time (other than
under or by reason of provisions designed to protect against dilution
of the type set forth in Paragraph 3.1 or 3.3), the Purchase Price in
effect at the time of such change shall forthwith be readjusted to the
Purchase Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate,
as the case may be, at the time initially granted, issued or sold. If
the purchase price provided for in any Option referred to in
subparagraph (1) or the rate at which any Convertible Securities
referred to in subparagraphs (1) or
5
(2) are convertible into or exchangeable for Common Stock, shall be
reduced at any time under or by reason of provisions with respect
thereto designed to protect against dilution, then in case of the
delivery of Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Security, the Purchase
Price then in effect hereunder shall forthwith be adjusted to such
respective amount as would have been obtained had such Option or
Convertible Security never been issued as to such Common Stock and had
adjustments been made upon the issuance of the shares of Common Stock
delivered as aforesaid, but only if as a result of such adjustment the
Purchase Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities, the Purchase
Price then in effect hereunder shall forthwith be increased to the
Purchase Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities,
to the extent outstanding immediately prior to such expiration or
termination, never been issued.
(5) In case any Options shall be issued in connection with the
issue or sale of other securities of the Company, together comprising
one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall
be deemed to have been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to
be the amount received by the Company therefor (before deduction for
expenses or underwriters' discounts or commissions related to such
issue or sale). In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold for a consideration
other than cash, the amount of the consideration other than cash
received by the Company shall be the fair value of such consideration
as determined in good faith by the Board of Directors of the Company.
In case any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger in which the Company is
the surviving corporation, the amount of consideration therefor shall
be deemed to be the fair value of such portion of the net assets and
business of the non-surviving corporation as shall be attributed by
the Board of Directors of the Company in good faith to such Common
Stock, Options or Convertible Securities, as the case may be as
determined in good faith by the Board of Directors of the Company.
6
(7) The number of shares of Common Stock outstanding at any given
time shall not include shares owned or held by or for the account of
the Company, and the disposition of any shares so owned or held shall
be considered an issue or sale of Common Stock for the purpose of this
Paragraph 3.1.
(8) In case the Company shall declare a dividend or make any
other distribution upon the stock of the Company payable in Options or
Convertible Securities, then in such case any Options or Convertible
Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this Paragraph 3.1, in case the Company shall
take a record of the holders of its Common Stock for the purpose of
entitling them (x) to receive a dividend or other distribution payable
in Common Stock, Options or in Convertible Securities, or (y) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of
such other distribution or the date of the granting of such right or
subscription or purchase, as the case may be.
3.2. Dividends Not Paid Out of Earnings or Earned Surplus. In
the event the Company shall declare a dividend upon the Common Stock (other than
a dividend payable in Common Stock) payable otherwise than out of earnings or
earned surplus, determined in accordance with generally accepted accounting
principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries (herein referred to as "Liquidating
Dividends"), then, as soon as possible after the exercise of this Warrant, the
Company shall pay to the person exercising such Warrant an amount equal to the
aggregate value at the time of such exercise of all Liquidating Dividends
(including but not limited to the Common Stock which would have been issued at
the time of such earlier exercise and all other securities which would have been
issued with respect to such Common Stock by reason of stock splits, stock
dividends, mergers or reorganizations, or for any other reason). For the
purposes of this Paragraph 3.2, a dividend other than in cash shall be
considered payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged an amount equal to the fair value of
such dividend as determined in good faith by the Board of Directors of the
Company.
3.3. Subdivisions and Combinations. In case the Corporation
shall at any time (i) subdivide the outstanding Common Stock or (ii) issue a
stock dividend on its outstanding Common Stock, the Purchase Price in effect
immediately prior to
7
such subdivision or dividend shall be proportionately reduced by the same ratio
as the subdivision or dividend. In case the Corporation shall at any time
combine its outstanding Common Stock, Purchase Price in effect immediately prior
to such combination shall be proportionately increased by the same ratio as the
combination.
3.4. Reorganization, Reclassification, Consolidation, Merger or
Sale of Assets. If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, cash or other property with respect to
or in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder of this Warrant shall have the right to acquire
and receive upon exercise of this Warrant such shares of stock, securities, cash
or other property issuable or payable (as part of the reorganization,
reclassification, consolidation, merger or sale) with respect to or in exchange
for such number of outstanding shares of the Company's Common Stock as would
have been received upon exercise of this Warrant at the Purchase Price then in
effect. The Company will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument mailed or delivered to
the holder of this Warrant at the last address of such holder appearing on the
books of the Company, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase. If a purchase, tender or exchange offer
is made to and accepted by the holders of more than 50% of the outstanding
shares of Common Stock of the Company, the Company shall not effect any
consolidation, merger or sale with the person having made such offer or with any
Affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the holder of this Warrant shall have been given a
reasonable opportunity to then elect to receive upon the exercise of this
Warrant either the stock, securities or assets then issuable with respect to the
Common Stock of the Company or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer. For purposes hereof the term "Affiliate" with respect to any given
person shall mean any person controlling, controlled by or under common control
with the given person.
3.5. No Adjustment for Exercise of Certain Options, Warrants,
Etc. The provisions of this Section 3 shall not apply to any Common Stock
issued, issuable or deemed outstanding under
8
subparagraphs 3.1(1) to (9) inclusive: (i) to any person pursuant to any stock
option, stock purchase or similar plan or arrangement for the benefit of
employees, consultants or directors of the Company or its subsidiaries in effect
on the date of issuance hereof or thereafter adopted by the Board of Directors
of the Company (or physicians or providers contracting with the Company or any
of its Subsidiaries), (ii) pursuant to options, warrants and conversion rights
in existence on the date of issuance hereof, (iii) upon exercise of the Warrants
issued to Franklin Capital Associates, III L.P. ("Franklin") and Warburg, ▇▇▇▇▇▇
Ventures, L.P. ("Warburg") pursuant to the Amended and Restated Securities
Purchase Agreement, dated as of April 2, 1997, by and among the Company,
Franklin and Warburg, (iv) on conversion of the Series A Preferred Stock or the
sale of any additional shares of Series A Preferred Stock or the issuance of
additional shares of Series A Preferred Stock as dividends pursuant to Section
2(a) of the Certificate of Designation, Number, Voting Powers, Preferences and
Rights of Series A Convertible Preferred Stock of the Company, or (v) in
connection with underwritten public offerings for cash pursuant to a
registration statement filed under the Securities Act of Common Stock, Options
or Convertible Securities.
3.6. Notices of Record Date, Etc. In the event that:
(1) the Company shall declare any cash dividend upon its Common
Stock, or
(2) the Company shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to
the holders of its Common Stock, or
(3) the Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or other rights, or
(4) there shall be any capital reorganization or reclassification
of the capital stock of the Company, including any subdivision or
combination of its outstanding shares of Common Stock, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the holder of
this Warrant:
(i) at least twenty (20) days' prior written notice of the date
on which the books of the Company shall close or a record shall be taken
for such dividend, distribution or subscription rights or for
determining rights to vote in
9
respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at
least twenty (20) days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause
(i) shall also specify, in the case of any such dividend, distribution
or subscription rights, the date on which the holders of Common Stock
shall be entitled thereto and the date on which the holders of Common
Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon such reorganization, reclassification
consolidation, merger, sale, dissolution, liquidation or winding up, as
the case may be. Each such written notice shall be given by first class
mail, postage prepaid, addressed to the holder of this Warrant at the
address of such holder as shown on the books of the Company.
3.7. Grant, Issue or Sale of Options, Convertible Securities, or
Rights. If at any time or from time to time on or after the date of issuance
hereof, the Company shall grant, issue or sell any Options, Convertible
Securities or rights to purchase property (the "Purchase Rights") pro rata to
the record holders of any class of Common Stock of the Company and such grants,
issuances or sales do not result in an adjustment of the Purchase Price under
Paragraph 3.1 hereof, then the holder of this Warrant shall be entitled to
acquire (within thirty (30) days after the later to occur of the initial
exercise date of such Purchase Rights or receipt by such holder of the notice
concerning Purchase Rights to which such holder shall be entitled under
Paragraph 3.6) and upon the terms applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of shares of Common Stock acquirable
upon exercise of this Warrant immediately before the grant, issuance or
sale of such Purchase Rights; provided that if any Purchase Rights were
distributed to holders of Common Stock without the payment of additional
consideration by such holders, corresponding Purchase Rights shall be
distributed to the exercising holder of this Warrant as soon as possible
after such exercise and it shall not be necessary for the exercising
holder of this Warrant specifically to request delivery of such rights;
or
(ii) in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said thirty (30) day period,
the number of shares of Common Stock or the amount of property which
such holder could have acquired
10
upon such exercise at the time or times at which the Company granted,
issued or sold such expired Purchase Rights.
3.8. Adjustment by Board of Directors. If any event occurs as to
which, in the opinion of the Board of Directors of the Company, the provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the rights of the holder of this Warrant in accordance with
the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
rights as aforesaid, but in no event shall any adjustment have the effect of
increasing the Purchase Price as otherwise determined pursuant to any of the
provisions of this Section 3 except in the case of a combination of shares of a
type contemplated in Paragraph 3.3 and then in no event to an amount larger than
the Purchase Price as adjusted pursuant to Paragraph 3.3.
3.9. Fractional Shares. The Company shall not issue fractions of
shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof.
If any fraction of a share of Common Stock would, except for the provisions of
this Paragraph 3.9, be issuable upon exercise of this Warrant, the Company shall
in lieu thereof pay to the person entitled thereto an amount in cash equal to
the Market Price, calculated to the nearest one-hundredth (1/100) of a share.
3.10. Officer's Statement as to Adjustments. Whenever the
Purchase Price shall be adjusted as provided in Section 3 hereof, the Company
shall forthwith file at each office designated for the exercise of this Warrant,
a statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Company, showing in reasonable detail the facts
requiring such adjustment and the Purchase Price that will be effective after
such adjustment. The Company shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to the record
holder of this Warrant at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to in
Paragraph 3.6, such notice shall be included as part of the notice required to
be mailed and published under the provisions of Paragraph 3.6 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment
of its charter or through reorganization, consolidation, merger, dissolution,
sale of assets or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder hereof against dilution or other impairment. Without
limiting the
11
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and at all times will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable stock upon the exercise of this
Warrant.
5. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS.
The Company shall at all times reserve and keep available out of its authorized
but unissued stock, solely for the issuance and delivery upon the exercise of
this Warrant and other similar Warrants, such number of its duly authorized
shares of Common Stock as from time to time shall be issuable upon the exercise
of this Warrant and all other similar Warrants at the time outstanding.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of
the holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. NEGOTIABILITY, ETC. This Warrant is issued upon the following
terms, to all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof,
title to this Warrant may be transferred by endorsement
(by the holder hereof executing the form of assignment at
the end hereof including guaranty of signature) and
delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery.
(b) Any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute
owner hereof and is granted power to transfer absolute
title hereto by endorsement and delivery hereof to a
bona fide purchaser hereof for value; each prior taker
or owner waives and renounces all of his equities or
rights in this Warrant in favor of every such bona fide
purchaser, and every such bona fide purchaser
12
shall acquire title hereto and to all rights represented
hereby.
(c) Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder of
this Warrant as the absolute owner hereof for all purposes
without being affected by any notice to the contrary.
(d) Prior to the exercise of this Warrant, the holder hereof
shall not be entitled to any rights of a shareholder of
the Company with respect to shares for which this Warrant
shall be exercisable, including, without limitation, the
right to vote, to receive dividends or other distributions
or to exercise any preemptive rights, and shall not be
entitled to receive any notice of any proceedings of the
Company, except as provided herein.
(e) The Company shall not be required to pay any Federal or
state transfer tax or charge that may be payable in
respect of any transfer involved in the transfer or
delivery of this Warrant or the issuance or conversion
or delivery of certificates for Common Stock in a name
other than that of the registered holder of this Warrant
or to issue or deliver any certificates for Common Stock
upon the exercise of this Warrant until any and all such
taxes and charges shall have been paid by the holder of
this Warrant or until it has been established to the
Company's satisfaction that no such tax or charge is
due.
9. SUBDIVISION OF RIGHTS. This Warrant (as well as any new
warrants issued pursuant to the provisions of this paragraph) is exchangeable,
upon the surrender hereof by the holder hereof, at the principal office of the
Company for any number of new warrants of like tenor and date representing in
the aggregate the right to subscribe for and purchase the number of shares of
Common Stock of the Company which may be subscribed for and purchased hereunder.
10. MAILING OF NOTICES, ETC. All notices and other
communications from the Company to the holder of this Warrant shall be mailed by
first-class certified mail, postage prepaid, to the address furnished to the
Company in writing by the last holder of this Warrant who shall have furnished
an address to the Company in writing.
11. HEADINGS, ETC. The headings in this Warrant are for purposes
of reference only, and shall not limit or otherwise affect the meaning hereof.
13
12. CHANGE, WAIVER, ETC. Neither this Warrant nor any term
hereof may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
13. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE.
COVENTRY CORPORATION
By:___________________
Name:
Title:
Dated: ________ ___, 1997
Attest:
___________________________
14
[To be signed only upon exercise of Warrant]
To Coventry Corporation:
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder,_______ shares of Common Stock of Coventry
Corporation and herewith makes payment of $ ______ therefor, and requests that
the certificates for such shares be issued in the name of, and be delivered to
______________________________, whose address is
_______________________________________________.
Dated:
_________________________
__________________________
(Signature must conform in all respects to name of Holder as specified on the
face of the Warrant)
_______________________
Address
15
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________ the right represented by the within Warrant to
purchase the ____________________ shares of the Common Stock of Coventry
Corporation to which the within Warrant relates, and appoints
_______________________ attorney to transfer said right on the books of Coventry
Corporation with full power of substitution in the premises.
Dated:
________________________
(Signature must conform in all respects to name of Holder as specified on the
face of the Warrant)
_______________________
Address
In the presence of
________________________
16
EXHIBIT C
FORM OF
CERTIFICATE OF DESIGNATIONS, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS OF SERIES A CONVERTIBLE
PREFERRED STOCK
OF
COVENTRY CORPORATION
Pursuant to Section ▇▇-▇▇-▇▇▇ of the Business
Corporation Act of the State of Tennessee
The undersigned DOES HEREBY CERTIFY that the following resolution
was duly adopted by the Board of Directors of Coventry Corporation, a Tennessee
corporation (hereinafter called the "Corporation"), with the preferences and
rights set forth therein relating to dividends, conversion, redemption,
dissolution and distribution of assets of the Corporation having been fixed by
the Board of Directors pursuant to authority granted to it under Article
__________ of the Corporation's Certificate of Incorporation and in accordance
with the provisions of Section ▇▇-▇▇-▇▇▇ of the Business Corporation Act of the
State of Tennessee.
RESOLVED: That, pursuant to authority conferred upon the Board of
Directors by the Certificate of Incorporation of the Corporation, the Board of
Directors hereby authorizes the issuance of 6,000,000 shares of Series A
Convertible Preferred Stock of the Corporation, and hereby fixes the
designations, powers, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, of
such shares, in addition to those set forth in the Certificate of Incorporation
of the Corporation, as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated "Series A Convertible Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting such series shall be 6,000,000.
2. DIVIDENDS.
(a) From the date of issuance hereof, until ___________, 1999 [the
second anniversary of the Second Closing Date under the Purchase Agreement
unless the Second Closing does not occur, in which case such date shall be the
second anniversary of the First Closing Date](the "Dividend Payment Date"), the
holders of Series A Preferred Stock shall be entitled
2
to receive, when and as declared, out of the net profits of the Corporation,
dividends at the rate of $0.83 per annum, payable in additional shares of Series
A Preferred Stock, before any dividends shall be set apart for or paid upon the
Common Stock or any other stock ranking on liquidation junior to the Series A
Preferred Stock (such stock being referred to hereinafter collectively as
"Junior Stock") in any year. The number of shares of Series A Preferred Stock to
be issued in payment of the dividend with respect to each outstanding share of
Series A Preferred Stock shall be determined by dividing the amount of the
dividend that would have been payable had such dividend been paid in cash by
$10.00. To the extent that any such dividend would result in the issuance of a
fractional share of Series A Preferred Stock (which shall be determined with
respect to the aggregate number of shares of Series A Preferred Stock held of
record by each holder) then the amount of such fraction multiplied by $10.00
shall be paid in cash (unless there are no legally available funds with which to
make such cash payment, in which event such cash payment shall be made as soon
as possible). All dividends declared upon Series A Preferred Stock shall be
declared pro rata per share.
(b) Dividends on the Series A Preferred Stock through the Dividend
Payment Date shall be cumulative, whether or not in either fiscal year there
shall be net profits or surplus available for the payment of dividends in such
fiscal year, so that if in either fiscal year, dividends in whole or in part are
not paid upon the Series A Preferred Stock, unpaid dividends shall accumulate as
against the holders of the Junior Stock and no sums in that fiscal year or any
subsequent fiscal year shall be paid to the holders of Junior Stock unless and
until all dividends accrued and payable in respect of the Series A Preferred
Stock have been paid or a sum sufficient for such payment shall have been set
apart.
(c) At all times after the Dividend Payment Date, if, as and when
the Board of Directors of the Corporation declares any cash dividend on the
shares of Common Stock, the Board of Directors shall declare a cash dividend on
each share of Series A Preferred Stock equal to the dividend payable on each
share of Common Stock multiplied by the number of shares of Common Stock into
which such share of Series A Preferred Stock is convertible on the record date
for such dividend. Such dividend shall be payable at the same time and otherwise
on the same terms as any dividend paid on the Common Stock.
3
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other Preferred Stock of the Corporation ranking on liquidation
prior and in preference to the Series A hereinafter as "Senior Preferred Stock")
upon such liquidation, dissolution or winding up, but before any payment shall
be made to the holders of Junior Stock, an amount equal to $10.00 per share
(subject to adjustment in the event of any, dividend, stock split, stock
distribution or combination with respect to such shares), plus any accrued but
unpaid dividends as of the date of such liquidation, dissolution or winding-up.
If upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for the distribution to its
stockholders after payment in full of amounts required to be paid or distributed
to holders of Senior Preferred Stock shall be insufficient to pay the holders of
shares of Series A Preferred Stock the full amount to which they shall be
entitled, the holders of shares of Series A Preferred Stock, and any class of
stock ranking on liquidation on a parity with the Series A Preferred Stock,
shall share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect to the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(b) After the payment of all preferential amounts required to be
paid to the holders of Senior Preferred Stock and Series A Preferred Stock and
any other series of Preferred Stock upon the dissolution, liquidation or winding
up of the Corporation, the holders of shares of Common Stock then outstanding
shall be entitled to receive the remaining assets and funds of the Corporation
available for distribution to its stockholders.
(c) The merger or consolidation of the Corporation into or with
another corporation, the merger or consolidation of any other corporation into
or with the Corporation, or the sale, conveyance, mortgage, pledge or lease of
all or substantially all
4
the assets of the Corporation shall be deemed to be a liquidation, dissolution
or winding up of the Corporation for purposes of this Section 3, unless waived
by the holders of a majority of the then outstanding shares of Series A
Preferred Stock or unless, as of the date immediately preceding such merger or
consolidation, the Market Price is such that the outstanding shares of Series A
Preferred Stock would be otherwise redeemable pursuant to Section 8(b) hereof,
notwithstanding that such merger or consolidation occurs prior to ____________
[the third anniversary of the Second Closing Date].
4. VOTING.
(a) Each issued and outstanding share of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which each such share of Series A Preferred Stock is convertible (as
adjusted from time to time pursuant to Section 5 thereof), at each meeting of
stockholders of the Corporation with respect to any and all matters presented to
the stockholders of the Corporation for their action or consideration other than
the election of directors (as to which the Series A Preferred Stock shall have
rights voting separately as a class as set out in paragraph (b) below). Except
as provided by law, by the provisions of paragraphs (b), (c) and (d) below,
holders of Series A Preferred Stock and of any other outstanding Preferred Stock
shall vote together with the holders of Common Stock as a single class.
(b) For so long as at least 1,000,000 shares of Series A Preferred
Stock remain outstanding (subject to adjustment in the event of any stock
dividend, stock split, stock distribution or combination with respect to such
shares), the holders of Series A Preferred Stock shall have the exclusive right,
voting separately as a class, to elect two directors (herein referred to as the
"Series A Directors"). In the event the Board of Directors is increased to more
than nine directors, for so long as any shares of Series A Preferred Stock
remain outstanding, the holders of record of a majority of the outstanding
shares of Series A Preferred Stock shall be entitled to select the whole number
of Series A Directors obtained by multiplying (a) the number of directors on the
Board of Directors (including the Series A Directors) by (b) a fraction, the
numerator of which is equal to the number of shares of Series A Preferred Stock
then outstanding and the denominator of which is equal to the total number of
shares of capital stock of the Company then outstanding
5
measured in each case on an as converted to Common Stock basis. Each such Series
A Director shall be (x)(i) a partner, officer or employee of Warburg, ▇▇▇▇▇▇
Ventures, L.P. or any of its affiliates or (ii) a person who is not a member of
the board of directors or an employee or consultant of any company which owns,
manages or provides services to health maintenance organizations ("HMOs") or
preferred provider organizations ("PPOs") in any of the geographic markets in
which the Corporation, its subsidiaries, or the HMOs and PPOs managed by the
Corporation or its subsidiaries operate HMOs or PPOs as of the date such person
agrees to be designated to the Board of Directors of the Corporation, and (y)
elected by the affirmative vote of the holders of record of a majority of the
outstanding shares of Series A Preferred Stock either at meetings of
stockholders at which directors are elected, a special meeting of holders of
Series A Preferred Stock or by written consent without a meeting in accordance
with the Business Corporation Act of Tennessee. Each Series A Director so
elected shall be in a separate class from the other Series A Director, and each
shall serve for the term of that class. In addition to any other requirement
herein, any vacancy in the position of a Series A Director shall require the
affirmative vote of the holders of a majority of the Series A Preferred Stock in
order to be filled. In addition to any other requirement herein, the removal of
a Series A Director shall require the affirmative vote, at a special meeting of
holders of Series A Preferred Stock called for such purpose, or the written
consent, of the holders of record of a majority of the outstanding shares of
Series A Preferred Stock.
(c) In addition to any other rights provided by law, the Corporation
shall not, without first obtaining the affirmative vote or written consent of a
majority of the holders of Series A Preferred Stock:
(i) amend, alter or repeal any provision of the Corporation's
Certificate of Incorporation or amend, alter or repeal any provision of
the By-Laws that would adversely affect the rights of the holders of
Series A Preferred Stock, including, without limitation, any increase in
the number of shares of Series A Preferred Stock;
(ii) issue any shares of Series A Preferred Stock other than upon
exchange of the Note (as defined in the Amended and Restated Securities
Purchase Agreement, dated as of April 2, 1997, by and among the
Corporation, Franklin
6
Capital Associates III L.P. and Warburg, ▇▇▇▇▇▇ Ventures, L.P.
(the "Purchase Agreement")) or pursuant to paragraph 2(a) hereof; or
(iii) amend, alter or repeal the preferences, special rights or
other powers of the Series A Preferred Stock so as to affect adversely the
Series A Preferred Stock. For this purpose, the authorization or issuance
of any series of Preferred Stock with preference or priority over, or
being on a parity with the Series A Preferred Stock as to the right to
receive dividends or amounts distributable upon liquidation, dissolution
or winding up of the Corporation shall be deemed so to affect adversely
the Series A Preferred Stock.
5. OPTIONAL CONVERSION. Each share of Series A Preferred Stock may
be converted at any time, at the option of the holder thereof, in the manner
hereinafter provided, into fully-paid and nonassessable shares of Common Stock,
provided, however, that on any redemption of any Series A Preferred Stock or any
liquidation of the Corporation, the right of conversion shall terminate at the
close of business on the full business day next preceding the date fixed for
such redemption or for the payment of any amounts distributable on liquidation
to the holders of Series A Preferred Stock.
(a) The initial conversion rate for the Series A Preferred Stock
shall be one share of Common stock for each one share of Series A Preferred
Stock surrendered for conversion, representing an initial Conversion Price (for
purposes of Section 6) of $10.00 per share of the Corporation's Common Stock
plus a number of additional shares of Common Stock equal to the amount of
accrued but unpaid dividends (whether or not currently payable) through the date
of such conversion divided by the Conversion Price then in effect. The
applicable conversion rate and Conversion Price from time to time in effect is
subject to adjustment as hereinafter provided.
(b) The Corporation shall not issue fractions of shares of Common
Stock upon conversion of Series A Preferred Stock or scrip in lieu thereof. If
any fraction of a share of Common Stock would, except for the provisions of this
paragraph (b), be issuable upon conversion of any Series A Preferred Stock, the
Corporation shall in lieu thereof pay to the person entitled thereto an amount
in cash equal to the average Market Price for
7
the ten-day trading period preceding such issuance and sale of such fraction,
calculated to the nearest one-hundredth (1/100) of a share. For purposes hereof,
the term "Market Price" shall mean (i) if the Common Stock is traded on a
national securities exchange, the last reported sale price of a share of Common
Stock, regular way on such date or, in case no such sale takes place on such
date, the average of the closing bid and asked prices thereof regular way on
such date, in either case as officially reported on the principal national
securities exchange on which the Common Stock is then listed or admitted for
trading, or, (ii) if the Common Stock is not then listed or admitted for trading
on any national securities exchange but is designated as a national market
system security by the NASD, the last reported trading price of the Common Stock
on such date, or (iii) if not listed or admitted to trading on any national
securities exchange or designated as a national market system security, the
average of the reported bid and asked price of the Common Stock on such date in
the over-the-counter market as furnished by the National Quotation Bureau, Inc.,
or, if such firm is not then engaged in the business of reporting such prices,
as furnished by any member of the National Association of Securities Dealers,
Inc. selected by the Corporation or, (iv) if the shares of Common Stock are not
so publicly traded, the fair market value thereof, as determined in good faith
by the Board of Directors of the Corporation.
(c) Whenever the Conversion Price shall be adjusted as provided in
Section 6 hereof, the Corporation shall forthwith file at each office designated
for the conversion of Series A Preferred Stock, a statement, signed by the
Chairman of the Board, the President, any Vice President or Treasurer of the
Corporation, showing in reasonable detail the facts requiring such adjustment.
The Corporation shall also cause a notice setting forth any such adjustments to
be sent by mail, first class, postage prepaid, to each record holder of Series A
Preferred Stock at his or its address appearing on the stock register. If such
notice relates to an adjustment resulting from an event referred to in paragraph
6(g), such notice shall be included as part of the notice required to be mailed
and published under the provisions of paragraph 6(g) hereof.
(d) In order to exercise the conversion right, the holder of any
Series A Preferred Stock to be converted shall surrender his or its certificate
or certificates therefore to the principal office of the transfer agent for the
Series A Preferred Stock (or if no transfer agent be at the time appointed, then
the
8
Corporation at its principal office), and shall give written notice to the
Corporation at such office that the holder elects to convert the Series A
Preferred Stock represented by such certificates, or any number thereof. Such
notice shall also state the name or names (with address) in which the
certificate or certificates for shares of Common Stock which shall be issuable
on such conversion shall be issued, subject to any restrictions on transfer
relating to shares of the Series A Preferred Stock or shares of Common Stock
upon conversion thereof. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form reasonably satisfactory to the
Corporation, duly authorized in writing. The date of receipt by the transfer
agent (or by the Corporation if the Corporation serves as its own transfer
agent) of the certificates and notice shall be the conversion date. As soon as
practicable after receipt of such notice and the surrender of the certificate or
certificates for Series A Preferred Stock as aforesaid, the Corporation shall
cause to be issued and delivered at such office to such holder, or on his or its
written order, a certificate or certificates for the number of full shares of
Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in paragraph (b) of this Section 5 in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(e) The Corporation shall at all times when the Series A Preferred
Stock shall be outstanding reserve and keep available out of its authorized but
unissued stock, for the purposes of effecting the conversion of the Series A
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which would cause
an adjustment reducing the Conversion Price below the then par value of the
shares of Common Stock issuable upon conversion of the Series A Preferred Stock,
the Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully-paid and nonassessable shares of such Common Stock at such adjusted
Conversion Price.
(f) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and
9
to vote, shall forthwith cease and terminate except only the right of the holder
thereof to receive shares of Common Stock in exchange therefor. Any shares of
Series A Preferred Stock so converted shall be retired and cancelled and shall
not be reissued, and the Corporation may from time to time take such appropriate
action as may be necessary to reduce the authorized Series A Preferred Stock
accordingly.
6. ANTI-DILUTION PROVISIONS.
(a) In order to prevent dilution of the right granted hereunder, the
Conversion Price shall be subject to adjustment from time to time in accordance
with this paragraph 6(a). At any given time the Conversion Price shall be that
dollar (or part of a dollar) amount the payment of which shall be sufficient at
the given time to acquire one share of the Corporation's Common Stock upon
conversion of shares of Series A Preferred Stock. Upon each adjustment of the
Conversion Price pursuant to Section 6, the registered Holder of shares of
Series A Preferred Stock shall thereafter be entitled to acquire upon exercise,
at the Conversion Price resulting from such adjustment, the number of shares of
the Corporation's Common Stock obtainable by multiplying the Conversion Price in
effect immediately prior to such adjustment by the number of shares of the
Corporation's Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Conversion Price resulting from such
adjustment. For purposes of this Section 6, the term "Number of Common Shares
Deemed Outstanding" at any given time shall mean the sum of (x) the number of
shares of the Corporation's Common Stock outstanding at such time, (y) the
number of shares of the Corporation's Common Stock issuable assuming conversion
at such time of the Corporation's other series of convertible preferred stock,
if any, and (z) the number of shares of the Corporation's Common Stock deemed to
be outstanding under subparagraphs 6(b)(1) to (9), inclusive, at such time.
(b) Except as provided in paragraph 6(c) or 6(f) below, if and
whenever on or after the date of initial issuance of the Series A Preferred
Stock (the "Initial Issuance Date"), the Corporation shall issue or sell, or
shall in accordance with subparagraphs 6(b)(1) to (9), inclusive, be deemed to
have issued or sold any shares of its Common Stock for a consideration per share
less than the average Market Price for the ten trading days immediately
preceding such issuance or sale, then forthwith upon
10
such issue or sale (the "Triggering Transaction"), the Conversion Price shall,
subject to subparagraphs (1) to (9) of this paragraph 6(b), be reduced to the
Conversion Price (calculated to the nearest tenth of a cent) determined by
multiplying the Conversion Price in effect immediately prior to the time of such
Triggering Transaction by a fraction, the numerator of which shall be the sum of
(x) the Number of Shares Deemed Outstanding immediately prior to such Triggering
Transaction and (y) the number of shares of Common Stock which the aggregate
consideration received by the Corporation upon such Triggering Transaction would
purchase at the average Market Price for the ten-day period immediately
preceding such Triggering Transaction, and the denominator of which shall be the
Number of Shares Deemed Outstanding immediately after such Triggering
Transaction.
For purposes of determining the adjusted Conversion Price under this
paragraph 6(b), the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Corporation at any time shall in any manner
grant (whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or other securities
convertible into or exchangeable for Common Stock (such rights or
options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable
and the price per share for which the Common Stock is issuable upon
exercise, conversion or exchange (determined by dividing (x) the
total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the aggregate
amount of additional consideration payable to the Corporation upon
the exercise of all such Options, plus, in the case of such Options
which relate to Convertible Securities, the aggregate amount of
additional consideration, if any, payable upon the issue or sale of
such Convertible Securities and upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities) shall be less
11
than the average Market Price in effect for the ten-day trading
period immediately prior to the time of the granting of such Option,
then the total maximum amount of Common Stock issuable upon the
exercise of such Options or in the case of Options for Convertible
Securities, upon the conversion or exchange of such Convertible
Securities shall (as of the date of granting of such Options) be
deemed to be outstanding and to have been issued and sold by the
Corporation for such price per share. No adjustment of the
Conversion Price shall be made upon the actual issue of such shares
of Common Stock or such Convertible Securities upon the exercise of
such Options, except as otherwise provided in subparagraph (3)
below.
(2) In case the Corporation at any time shall in any manner
issue (whether directly or by assumption in a merger or otherwise)
or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the
price per share for which Common Stock is issuable upon such
conversion or exchange (determined by dividing (x) the total amount
received or receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the aggregate
amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities) shall be
less than the average Market Price in effect for the ten-day trading
period immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall (as
of the date of the issue or sale of such Convertible Securities) be
deemed to be outstanding and to have been issued and sold by the
Corporation for such price per share. No adjustment of the
Conversion Price shall be made upon the actual issue of such Common
Stock upon exercise of the rights to exchange or convert under such
Convertible Securities, except as otherwise provided in subparagraph
(3) below.
12
(3) If the purchase price provided for in any Options referred
to in subparagraph (1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraphs (1) or (2), or the rate at
which any Convertible Securities referred to in subparagraph (1) or
(2) are convertible into or exchangeable for Common Stock shall
change at any time (other than under or by reason of provisions
designed to protect against dilution of the type set forth in
paragraphs 6(b) or 6(d)), the Conversion Price in effect at the time
of such change shall forthwith be readjusted to the Conversion Price
which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration at the time initially
granted, issued or sold. If the purchase price provided for in any
Option referred to in subparagraph (1) or the rate at which any
Convertible Securities referred to in subparagraphs (1) or (2) are
convertible into or exchangeable for Common Stock, shall be reduced
at any time under or by reason of provisions with respect thereto
designed to protect against dilution, then in case of the delivery
of Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Security, the
Conversion Price then in effect hereunder shall forthwith be
adjusted to such respective amount as would have been obtained had
such Option or Convertible Security never been issued as to such
Common Stock and had adjustments been made upon the issuance of the
shares of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Conversion Price then in effect
hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any
right to convert or exchange any Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have been in effect at
the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior
to such expiration or termination, never been issued.
13
(5) In case any Options shall be issued in connection with the
issue or sale of other securities of the Corporation, together
comprising one integral transaction in which no specific
consideration is allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued without
consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed
to be the amount received by the Corporation therefor (before
deduction for expenses or underwriters discounts or commissions
related to such issue or sale). In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other
than cash received by the Corporation shall be the fair value of
such consideration as determined in good faith by the Board of
Directors of the Corporation. In case any shares of Common Stock,
Options or Convertible Securities shall be issued in connection with
any merger in which the Corporation is the surviving corporation,
the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the
non-surviving corporation as shall be attributable to such Common
Stock, Options or Convertible Securities, as the case may be as
determined in good faith by the Board of Directors of the
Corporation.
(7) The number of shares of Common Stock outstanding at any
given time shall not include shares owned or held by or for the
account of the Corporation and the disposition of any shares so
owned or held shall be considered an issue or sale of Common Stock
for the purpose of this paragraph 6(b).
(8) In case the Corporation shall declare a dividend or make
any other distribution upon the stock of the Corporation payable in
Common Stock, Options, or Convertible Securities, then in such case
any Common Stock, Options or Convertible Securities, as the case may
be, issuable in payment of such dividend or
14
distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this paragraph 6(b), in case the
Corporation shall take a record of the holders of its Common Stock
for the purpose of entitling them (x) to receive a dividend or other
distribution payable in Common Stock, Options or in Convertible
Securities, or (y) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date
of the granting of such right or subscription or purchase, as the
case may be.
(c) In the event the Corporation shall declare a dividend upon the
Common Stock (other than a dividend payable in Common Stock covered by
subparagraph 6(b)(8)) payable otherwise than out of earnings or earned surplus,
determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries (herein referred to as "Liquidating Dividends"), then, as soon
as possible after the conversion of any Series A Preferred Stock, the
Corporation shall pay to the person converting such Series A Preferred Stock an
amount equal to the aggregate value at the time of such exercise of all
Liquidating Dividends (including but not limited to the Common Stock which would
have been issued at the time of such earlier exercise and all other securities
which would have been issued with respect to such Common Stock by reason of
stock splits, stock dividends, mergers or reorganizations, or for any other
reason). For the purposes of this paragraph 6(c), a dividend other than in cash
shall be considered payable out of earnings or earned surplus only to the extent
that such earnings or earned surplus are charged an amount equal to the fair
value of such dividend as determined in good faith by the Board of Directors of
the Corporation.
(d) In case the Corporation shall at any time subdivide (other than
by means of a dividend payable in Common Stock covered by paragraph 6(b)(8)) its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
15
proportionately reduced, and, conversely, in case the outstanding shares of
Common Stock of the Corporation shall be combined into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
(e) If any capital reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger of the Corporation with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or other property with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holders of the Series A Preferred
Stock shall have the right to acquire and receive upon conversion of the Series
A Preferred Stock, which right shall be prior to the rights of the holders of
Junior Stock (but after and subject to the rights of holders of Senior Preferred
Stock, if any), such shares of stock, securities, cash or other property
issuable or payable (as part of the reorganization, reclassification,
consolidation, merger or sale) with respect to or in exchange for such number of
outstanding shares of the Corporation's Common Stock as would have been received
upon conversion of the Series A Preferred Stock at the Conversion Price then in
effect. The Corporation will not effect any such consolidation, merger or sale,
unless prior to the consummation thereof the successor corporation (if other
than the Corporation) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument mailed or
delivered to the holders of the Series A Preferred Stock at the last address of
each such holder appearing on the books of the Corporation, the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase. If a purchase, tender or exchange offer is made to and accepted by the
holders of more than 50% of the outstanding shares of Common Stock of the
Corporation, the Corporation shall not effect any consolidation, merger or sale
with the person having made such offer or with any Affiliate of such person,
unless prior to the consummation of such consolidation, merger or sale the
holders of the Series A Preferred Stock shall have been given a reasonable
opportunity to then elect to receive upon the conversion of the Series A
Preferred Stock either the stock, securities or assets
16
then issuable with respect to the Common Stock of the Corporation or the stock,
securities or assets, or the equivalent, issued to previous holders of the
Common Stock in accordance with such offer. For purposes hereof, the term
"Affiliate" with respect to any given person shall mean any person controlling,
controlled by or under common control with the given person.
(f) The provisions of this Section 6 shall not apply to any Common
Stock issued, issuable or deemed outstanding under subparagraphs 6(b)(1) to (9)
inclusive: (i) to any person pursuant to any stock option, stock purchase or
similar plan or arrangement for the benefit of employees, consultants or
directors of the Corporation or its subsidiaries in effect on the Initial
Issuance Date or thereafter adopted by the Board of Directors of the Corporation
(or physicians or providers contracting with the Corporation or any of its
Subsidiaries) (ii) pursuant to options, warrants and conversion rights in
existence on the Initial Issuance Date, (iii) upon exercise of the Warrants
issued to Franklin Capital Associates, III L.P. ("Franklin") and Warburg, ▇▇▇▇▇▇
Ventures, L.P. ("Warburg") pursuant to the Purchase Agreement, (iv) on
conversion of the Series A Preferred Stock or the sale of any additional shares
of Series A Preferred Stock or the issuance of additional shares of Series A
Preferred Stock as dividends pursuant to Section 2(a) hereof, or (v) in
connection with underwritten public offerings for cash pursuant to a
registration statement filed under the Securities Act of Common Stock, Options
or Convertible Securities.
(g) In the event that:
(1) the Corporation shall declare any cash dividend upon its
Common Stock, or
(2) the Corporation shall declare any dividend upon its Common Stock
payable in stock or make any special dividend or other distribution to the
holders of its Common Stock, or
(3) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation,
17
including any subdivision or combination of its outstanding shares of
Common Stock, or consolidation or merger of the Corporation with, or sale
of all or substantially all of its assets to, another corporation, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the holders
of the Series A Preferred Stock:
(i) at least twenty (20) days prior written notice of the date on
which the books of the Corporation shall close or a record
shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any
such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up, at least twenty (20) days prior written notice
of the date when the same shall take place. Such notice in
accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of
Common Stock shall be entitled thereto, and such notice in
accordance with the foregoing clause (ii) shall also
specify the date on which the holders of Common Stock shall
be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization,
reclassification consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be. Each such
written notice shall be given by first class mail, postage
prepaid, addressed to the holders of the Series A Preferred
Stock at the address of each such holder as shown on the
books of the Corporation.
(h) If at any time or from time to time on or after the Initial
Issuance Date, the Corporation shall grant, issue or
18
sell any Options, Convertible Securities or rights to purchase property (the
"Purchase Rights") pro rata to the record holders of any class of Common Stock
of the Corporation and such grants, issuances or sales do not result in an
adjustment of the Conversion Price under paragraph 6(b) hereof, then each holder
of Series A Preferred Stock shall be entitled to acquire (within thirty (30)
days after the later to occur of the initial exercise date of such Purchase
Rights or receipt by such holder of the notice concerning Purchase Rights to
which such holder shall be entitled under paragraph 6(g)) and upon the terms
applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have
acquired if it had held the number of shares of Common
Stock acquirable upon conversion of the Series A Preferred
Stock immediately before the grant, issuance or sale of
such Purchase Rights; provided that if any Purchase Rights
were distributed to holders of Common Stock without the
payment of additional consideration by such holders,
corresponding Purchase Rights shall be distributed to the
exercising holders of the Series A Preferred Stock as soon
as possible after such exercise and it shall not be
necessary for the exercising holder of the Series A
Preferred Stock specifically to request delivery of such
rights; or
(ii) in the event that any such Purchase Rights shall have expired
or shall expire prior to the end of said thirty (30) day
period, the number of shares of Common Stock or the amount of
property which such holder could have acquired upon such
exercise at the time or times at which the Corporation
granted, issued or sold such expired Purchase Rights.
(i) If any event occurs as to which, in the opinion of the Board of
Directors of the Corporation, the provisions of this Section 6 are not strictly
applicable or if strictly applicable would not fairly protect the rights of the
holders of the Series A Preferred Stock in accordance with the essential intent
and principles of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with such
essential intent and principles, so as to
19
protect such rights as aforesaid, but in no event shall any adjustment have the
effect of increasing the Conversion Price as otherwise determined pursuant to
any of the provisions of this Section 6 except in the case of a combination of
shares of a type contemplated in paragraph 6(d) and then in no event to an
amount larger than the Conversion Price as adjusted pursuant to paragraph 6(d).
7. MANDATORY CONVERSION.
(a) Each share of Series A Preferred Stock shall automatically be
converted into shares of Common Stock at the then effective Conversion Price for
such shares upon the vote to so convert of the holders of at least a majority of
the shares of Series A Preferred Stock then outstanding.
(b) All holders of record of shares of Series A Preferred Stock will
be given at least 10 days' prior written notice of the date fixed and the place
designated for mandatory conversion of all of such shares of Series A Preferred
Stock pursuant to this Section 7. Such notice will be sent by mail, first class,
postage prepaid, to each record holder of shares of Series A Preferred Stock at
such holder's address appearing on the stock register. On or before the date
fixed for conversion each holder of shares of Series A Preferred Stock shall
surrender his or its certificates or certificates for all such shares to the
Corporation at the place designated in such notice, and shall thereafter receive
certificates for the number of shares of Common Stock to which such holder is
entitled pursuant to this Section 7. On the date fixed for conversion, all
rights with respect to the Series A Preferred Stock so converted will terminate,
except only the right of the holders thereof, upon surrender of their
certificate or certificates therefore, to receive certificates for the number of
shares of Common Stock into which such Series A Preferred Stock has been
converted. If so required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by written instrument or instruments
of transfer, in form satisfactory to the Corporation, duly executed by the
registered holder or by his attorneys duly authorized in writing. All
certificates evidencing shares of Series A Preferred Stock which are required to
be surrendered for conversion in accordance with the provisions hereof shall,
from and after the date such certificates are so required to be surrendered, be
deemed to have been retired and cancelled and the shares of Series A Preferred
20
Stock represented thereby converted into Common Stock for all purposes,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. As soon as practicable after the date of
such mandatory conversion and the surrender of the certificate or certificates
for Series A Preferred Stock as aforesaid, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of full shares of Common Stock
issuable on such conversion in accordance with the provisions hereof and cash as
provided in paragraph (b) of Section 5 in respect of any fraction of a share of
Common Stock otherwise issuable upon such conversion.
8. REDEMPTION.
(a) The Corporation shall redeem (to the extent that such redemption
shall not violate any applicable provisions of the laws of the State of
Tennessee) at a price of $10.00 per share (subject to adjustment in the event of
any stock dividend, stock split, stock distribution or combination with respect
to such shares), plus an amount equal to any dividends accrued but unpaid
thereon (such amount is hereinafter referred to as the "Redemption Price"), on
May 15 (the "Redemption Date") of each of the years 2002 through 2004
thirty-three and one-third percent (33 1/3%) of the shares of Series A Preferred
Stock outstanding on the first Redemption Date or such lesser number of shares
as shall then be outstanding. If the Corporation is unable at any Redemption
Date to redeem any shares of Preferred Stock then to be redeemed because such
redemption would violate the applicable laws of the State of Tennessee, then the
Corporation shall redeem such shares as soon thereafter as redemption would not
violate such laws.
(b) The Series A Preferred Stock may not be redeemed before
___________, 2000 [the third anniversary of the Second Closing Date].
Thereafter, the Series A Preferred Stock shall be subject to redemption, in
whole but not in part, at the option of the Corporation, if the Market Price of
the Common Stock on each of the twenty (20) consecutive days on which there was
a price for such shares during the period ending within five days prior to the
giving of written notice of redemption as provided in paragraph (d) below is at
least $17.00 per share (appropriately adjusted for any stock split, stock
dividend or similar event) at a price in cash equal to the Redemption Price then
in effect.
21
(c) In the event of any redemption of only a part of the then
outstanding Series A Preferred Stock, the Corporation shall effect such
redemption pro rata among the holders thereof (based on the number of shares of
Series A Preferred Stock held on the date of notice of redemption).
(d) At least thirty (30) days prior to each Redemption Date, written
notice shall be mailed, postage prepaid, to each holder of record of Series A
Preferred Stock to be redeemed, at his or its post office address last shown on
the records of the Corporation, notifying such holder of the number of shares so
to be redeemed, specifying the Redemption Date and the date on which such
holder's conversion rights (pursuant to Section 5 hereof) as to such shares
terminate and calling upon such holder to surrender to the Corporation, in the
manner and at the place designated, his or its certificate or certificates
representing the shares to be redeemed (such notice is hereinafter referred to
as the "Redemption Notice"). On or prior to each Redemption Date, each holder of
Series A Preferred Stock to be redeemed shall surrender his or its certificate
or certificates representing such shares to the Corporation, in the manner and
at the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares shall be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate shall be cancelled. In the event less than all the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. From and after the Redemption
Date, unless there shall have been a default in payment of the Redemption Price,
all rights of the holders of the Series A Preferred Stock designated for
redemption in the Redemption Notice as holders of Series A Preferred Stock of
the Corporation (except the right to receive the Redemption Price without
interest upon surrender of their certificate or certificates) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever.
(e) Except as provided in paragraph (a) above, the Corporation shall
have no right to redeem the shares of Series A Preferred Stock. Any shares of
Series A Preferred Stock so redeemed shall be permanently retired, shall no
longer be deemed outstanding and shall not under any circumstances be reissued,
and the Corporation may from time to time take such appropriate
22
corporate action as may be necessary to reduce the authorized Series A Preferred
Stock accordingly. Nothing herein contained shall prevent or restrict the
purchase by the Corporation, from time to time either at public or private sale,
of the whole or any part of the Series A Preferred Stock at such price or prices
as the Corporation may determine, subject to the provisions of applicable law.
23
IN WITNESS WHEREOF, Coventry Corporation has caused this Certificate
of Designations, Number, Voting Powers, Preferences and Rights of Series A
Convertible Preferred Stock to be duly executed by its [Vice President] this
____ day of _________.
COVENTRY CORPORATION
By:_______________________
Name:
Title:
24
EXHIBIT D
CHARTER
OF
COVENTRY CORPORATION
The undersigned natural person, having capacity to contract, and
acting as the Incorporator of a corporation under the Tennessee Business
Corporation Act, adopts the following Charter for Coventry Corporation (the
"Company"):
ARTICLE I.
NAME
The name of the Company is Coventry Corporation.
ARTICLE II.
PRINCIPAL OFFICE; REGISTERED OFFICE AND AGENT
1. The street address of the Company's principal office is:
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
County of Davidson
2. The street address of the Company's initial registered office in
the State of Tennessee is:
▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
County of Davidson
3. The name of the Company's initial registered agent in the State
of Tennessee is ▇▇▇▇▇ ▇. ▇▇▇▇.
ARTICLE III.
PURPOSE
The Company is organized for profit. The purpose of the Company is to
engage in any lawful act or activity for which corporations may now or hereafter
be organized under the Tennessee Business Corporation Act, as amended from time
to time.
1
ARTICLE IV.
STOCK
The total number of shares of stock which the Company shall have
authority to issue is 100,000,000 shares of Common Stock, par value of $0.01 per
share (the "Common Stock").
The shareholders of the Company shall not have preemptive rights.
The designation, powers, preferences and rights, and the
qualifications, limitations and restrictions thereof in respect of shares of
Common Stock are as follows:
1. Voting Rights. Except as set forth herein or otherwise required by
law, each outstanding share of Common Stock shall be entitled to vote on each
matter on which the stockholder of the Company shall be entitled to vote, and
each holder of Common Stock shall be entitled to one vote for each share of such
stock held by such holder.
2. Dividends. The Board of Directors of the Company may cause
dividends or other distributions to be paid to holders of shares of Common Stock
out of funds legally available therefor.
ARTICLE V.
BOARD OF DIRECTORS
1. Former Employees or Officers as Directors. The Board of Directors
of the Company shall at all times contain a majority of members who are not
present or former officers or employees of the Company or any subsidiary of the
Company and are not members of the immediate family of, controlled by, or under
common control with any such officers or employee.
2. Power to Adopt, Amend or Repeal Bylaws. The Board of Directors
shall have the power to adopt, amend or repeal the bylaws of the Company.
3. Number, Election and Term. The number of directors shall be a
number (not less than three) as fixed from time to time by the affirmative vote
of a majority of the entire Board of Directors. The directors shall be divided
into three classes, designated Class I, Class II and Class III. All classes
shall be as nearly equal in number as possible. The term of the initial Class I
Directors shall expire on the date of the annual meeting of the shareholders of
the Company to be held in 1998. The term of the initial Class II Directors shall
expire on the date of the annual meeting of the shareholders of the Company to
be held in 1999. The term of the initial Class III Directors shall expire on the
date of the annual meeting of the shareholders of the Company to be held in
1997. At each annual meeting of the stockholders of the Company, the successors
of the class of directors whose term expires at that meeting shall be elected to
hold office for a term
2
expiring at the annual meeting of shareholders held in the third year following
the year of their election. Each director shall hold office until the expiration
of his or her term and until his or her successor is elected and qualified or
until his or her earlier death, resignation or removal. If the number of
directors is changed, any newly created directorships or any decrease in
directorships shall be so apportioned among the classes so as to make all
classes as nearly equal as possible. Election of directors need not be by ballot
unless the bylaws of the Company so provide.
4. Newly Created Directorships and Vacancies. Newly created
directorships resulting from any increase in the number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled by the affirmative vote
of a majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors is present. Any director elected in accordance
with the preceding sentence shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director=s successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
5. Removal. Any director may be removed from office for cause by the
affirmative vote of the holders of a majority of the combined voting power of
the then outstanding shares of stock entitled to vote generally in the election
of directors, voting together as a single class; provided, however, a director
may be removed Afor cause@ only upon a finding that (i) the director engaged in
fraudulent or dishonest conduct, or gross abuse of authority or discretion, with
respect to the Company, and (ii) removal is in the best interests of the
Company. Any director may be removed from office for any reason other than cause
only upon the affirmative vote of the holders of not less than two-thirds (2/3)
of the outstanding shares of capital stock of the Company entitled to vote
thereon.
6. Special Meetings of Shareholders. Special Meetings of shareholders
may be called by the holders of not less than 50% of all shares entitled to vote
at the meeting, or by the Chief Executive Officer, the President or the Board of
Directors.
7. Amendment or Repeal of this Article V. Notwithstanding anything
contained in this Charter to the contrary, the affirmative vote of the holders
of at least 75 percent of the voting power of all shares of stock entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to alter, amend, adopt any provision inconsistent with, or
repeal any provision of this Article V.
ARTICLE VI.
INDEMNIFICATION
To the fullest extent permitted by the Tennessee Business Corporation
Act, as amended from time to time, a person who is or was a director, officer,
employee or agent of the Company shall not be liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
officer, employee or agent and shall be indemnified against any
3
liability or expense incurred by reason of the fact that such person is or was a
director, officer, employee or agent of the Company, if such person acted in
good faith and in, or not opposed to, the best interests of the Company, and,
with respect to any criminal action, had no reasonable cause to believe his
conduct was unlawful. Notwithstanding anything contained in this Charter to the
contrary, the affirmative vote of the holders of at least 75 percent of the
voting power of all shares of stock entitled to vote generally in the election
of directors, voting together as a single class, shall be required to alter,
amend, adopt any provision inconsistent with, or repeal this Article VI.
ARTICLE VII.
AMENDMENT
The Company reserves the right to amend this Charter in any manner
permitted by the Tennessee Business Corporation Act, as amended from time to
time, and not inconsistent herewith, and all rights and powers conferred herein
on shareholders, directors and officers, if any, are subject to this reserved
power.
DATED: April 14, 1997
_______________________________________
N. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, INCORPORATOR
4
EXHIBIT E
BYLAWS OF
COVENTRY CORPORATION
ARTICLE 1. OFFICES
1.1 Principal Offices. The principal offices of the Corporation shall
be established by the Board of Directors from time to time.
1.2 Other Offices. The Corporation also may have offices at such other
places, both within and without the State of Tennessee, as the Board of
Directors may from time to time decide are necessary or proper for the business
of the Corporation.
ARTICLE 2. SHAREHOLDERS
2.1 Place of Meetings. All meetings of the shareholders for any
purpose shall be held at such time and place, within or without the State of
Tennessee, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof. If no place is fixed by the Board of Directors, the
meeting shall be held at the principal office of the Corporation.
2.2 Annual Meetings. Annual meeting of the shareholders shall be held
on the third Thursday of June of each year (unless such day shall fall on a
legal holiday, in which event such meeting shall be held on the next full
business day following such legal holiday) or at such time as shall be
designated by the Chairman of the Board of Directors and stated in the notice of
such meeting. At each such annual meeting, the shareholders shall elect a Board
of Directors and transact such other business as properly may be brought before
the meeting.
2.3 Special Meetings. Special meetings of the shareholders may be
called for any purpose at any time by the Chief Executive Officer, the
President, the Board of Directors, or the holders of a majority in amount of the
shares entitled to vote at the meeting.
2.4 Notice of Meetings. Written notice stating the place, day and hour
of the meeting and, in the case of a special meeting, the purpose for which the
meeting is called, shall be delivered not less than ten (10) days nor more than
sixty (60) days before the date of the meeting, either personally or by mail.
2.5 Quorum of Shareholders. The holders of a majority of the shares
issued and outstanding and entitled to vote at such meeting, present in person
or represented by proxy shall constitute a quorum for the transaction of
business at all meetings of the shareholders.
2.6 Action by Shareholders. When a quorum is present at any meeting,
the vote of the holders of a majority of the shares having voting power, present
in person or represented by proxy, shall decide any question brought before such
meeting.
1
2.7 Voting. Each outstanding share having voting power shall be
entitled to one vote on each matter submitted to a vote at a meeting of the
shareholders. Such votes may be cast in person or by written proxy executed in
writing by the shareholder or his duly authorized attorney-in-fact.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
If a quorum of a voting group shall not be present or represented at
any meeting, the shares entitled to vote thereat shall have power to adjourn the
meeting to a different date, time or place without notice other than
announcement at the meeting of the new time, date or place to which the meeting
is adjourned. At any adjourned meeting at which a quorum of any voting group
shall be present or represented, any business may be transacted by such voting
group which might have been transacted at the meeting as originally called.
(a) Voting of Shares. Unless otherwise provided by the Act or the
Charter, each outstanding share is entitled to one (1) vote on each matter voted
on at a shareholders' meeting. Only shares are entitled to vote.
If a quorum exists, approval of action on a matter (other than the
election of directors) by a voting group entitled to vote thereon is received if
the votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the Charter or the Act requires a greater number of
affirmative votes. Unless otherwise provided in the Charter, directors are
elected by a plurality of the votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present.
(b) Proxies. A shareholder may vote his shares in person or by proxy.
A shareholder may appoint a proxy to vote or otherwise act for him by signing an
appointment either personally or by his attorney-in-fact. An appointment of a
proxy is effective when received by the Secretary or other officer or agent
authorized to tabulate votes. An appointment is valid for eleven (11) months
unless another period is expressly provided in the appointment form. An
appointment of a proxy is revocable by the shareholder unless the appointment
form conspicuously states that it is irrevocable and the appointment is coupled
with an interest.
(c) Acceptance of Shareholder Documents. If the name signed on a
shareholder document (a vote, consent, waiver, or proxy appointment) corresponds
to the name of a shareholder, the Corporation, if acting in good faith, is
entitled to accept such shareholder document and give it effect as the act of
the shareholder. If the name signed on such shareholder document does not
correspond to the name of a shareholder, the Corporation, if acting in good
faith, is nevertheless entitled to accept such shareholder document and to give
it effect as the act of the shareholder if:
2
(i) the shareholder is an entity and the name signed
purports to be that of an officer or agent of the entity;
(ii) the name signed purports to be that of a fiduciary
representing the shareholder and, if the Corporation requests, evidence
of fiduciary status acceptable to the Corporation has been presented
with respect to such shareholder document;
(iii) the name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the Corporation
requests, evidence of this status acceptable to the Corporation has
been presented with respect to the shareholder document;
(iv) the name signed purports to be that of a pledgee,
beneficial owner or attorney-in-fact of the shareholder and, if the
Corporation requests, evidence acceptable to the Corporation of the
signatory's authority to sign for the shareholder has been presented
with respect to such shareholder document; or
(v) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one
(1) of the co-owners and the person signing appears to be acting on
behalf of all the co-owners.
The Corporation is entitled to reject a shareholder document if the
Secretary or other officer or agent authorized to tabulate votes, acting in good
faith, has a reasonable basis for doubt about the validity of the signature on
such shareholder document or about the signatory's authority to sign for the
shareholder.
2.8 Consents of Absentees. No defect in the calling or noticing of a
shareholders= meeting will affect the validity of any action at the meeting if a
quorum was present, and if each shareholder not present in person or by proxy
signs a written waiver of notice, consent to the holding of the meeting, or
approval of the minutes, either before or after the meeting, such waivers,
consents, or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
2.9 Record Date Closing Transfer Books. The Board of Directors shall
fix in advance a record date for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of the shareholders. The record
date shall not precede the date upon which the resolution fixing the record date
is adopted, and shall not be not less than ten (10) nor more than sixty (60)
days prior to said meeting.
2.10 Shareholder List. A complete list of the shareholders entitled to
vote at the meeting, arranged in alphabetical order, with the address of each
and the number of voting shares held by each, shall be prepared. Such list, for
a period of ten (10) days prior to the meeting, shall be kept on file at a place
within the city where the meeting is to be held and shall be subject to
3
inspection by any shareholder, for any purpose germane to the meeting, during
usual business hours. Such list shall be kept open at the meeting and shall be
subject to the inspection of any shareholder.
2.11 Order of Business. The order of business of each meeting of the
shareholders of the Corporation shall be determined by the chairman of the
meeting. The chairman of the meeting shall have the right and authority to
prescribe such rules, regulations, and procedures and to do all such acts and
things as are necessary or desirable for the conduct of the meeting, including,
without limitation, the establishment of procedures for the dismissal of
business not properly presented, the maintenance of order and safety,
limitations on the time allotted to questions or comments on the affairs of the
Corporation, restrictions on entry to such meetings after the time prescribed
for commencement thereof, and opening and closing of the voting polls.
2.12 Notice of Shareholder Business. At an annual or special meeting of
the shareholders, only such business shall be conducted as shall have been
brought before the meeting (a) by or at the direction of the Board of Directors
or (b) by any shareholder of the Corporation entitled to vote at such annual or
special meeting who complies with the notice procedures set forth in this
Section 2.12. For business to be properly brought before an annual or special
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal executive
offices of the Corporation, not less than thirty (30) days nor more than sixty
(60) days prior to the meeting; provided, however, that in the event that less
than forty (40) days' notice or prior public disclosure of the date of the
meeting is given or made to the shareholders, notice by the shareholder to be
timely must be received not later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the annual or special
meeting was mailed or such public disclosure was made. Such shareholder=s notice
to the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual or special meeting (a) a brief description of the
business desired to be brought before the annual or special meeting and the
reasons for conducting such business at the annual or special meeting; (b) the
name and address, as they appear on the Corporation's books, of such
shareholder; (c) the class and number of each class or series of the shares of
the Corporation which are beneficially owned by such shareholder; and (d) any
material interest of such shareholder in such business. Notwithstanding anything
in these bylaws to the contrary, no business shall be conducted at an annual or
special meeting except in accordance with the procedures set forth in this
Section 2.12. The chairman of a annual or special meeting shall, if the facts
warrant, determine that business was not properly brought before the meeting and
in accordance with the provisions of this Section 2.12, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this Section 2.12, a shareholder seeking to have a
proposal included in the Corporation=s proxy statement shall comply with the
requirements of Regulation 14A under the Securities Exchange Act of 1934, as
amended (including, but not limited to, Rule 14a-8 or its successor provision).
4
(a) Action Without Meeting. Action required or permitted by the Act to
be taken at a shareholders' meeting may be taken without a meeting. If all
shareholders entitled to vote on the action consent to taking such action
without a meeting, the affirmative vote of the number of shares that would be
necessary to authorize or take such action at a meeting is the act of the
shareholders.
The action must be evidenced by one (1) or more written consents
describing the action taken, at least one of which is signed by each shareholder
entitled to vote on the action in one (1) or more counterparts, indicating such
signing shareholder's vote or abstention on the action and delivered to the
Corporation for inclusion in the minutes or for filing with the corporate
records.
If the Act or the Charter requires that notice of a proposed action be
given to nonvoting shareholders and the action is to be taken by consent of the
voting shareholders, then the Corporation shall give its nonvoting shareholders
written notice of the proposed action at least ten (10) days before such action
is taken. Such notice shall contain or be accompanied by the same material that
would have been required to be sent to nonvoting shareholders in a notice of a
meeting at which the proposed action would have been submitted to the
shareholders for action.
2.13 Notice of Shareholder Nominees. Only persons who are nominated in
accordance with the procedures set forth in these bylaws shall be eligible for
election as directors. Nominations of persons for election to the Board of
Directors of the Corporation may be made at a meeting of shareholders (a) by or
at the direction of the Board of Directors or (b) by any shareholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 2.13. Nominations
by shareholders shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than thirty (30) days nor more than sixty (60) days prior
to the meeting; provided, however, that in the event that less than forty (40)
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must be so received
not later than the close of business on the tenth (l0th) day following the day
on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice shall set forth (a) as to each
person whom the shareholder proposes to nominate for election or reelection as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if elected);
and (b) as to the shareholder giving-the notice (i) the name and address, as
they appear on the Corporation's books, of such shareholder and (ii) the class,
series and number of shares of the Corporation which are beneficially owned by
such shareholder. At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
shareholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the
5
Corporation unless nominated in accordance with the procedures set forth in
these bylaws. The chairman of the meeting shall, if the facts warrant, determine
that a nomination was not made in accordance with the procedures prescribed by
these bylaws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded.
2.14 Presiding Officer and Secretary. Meetings of the shareholders
shall be presided over by the President, or if the President is not present, by
a chairman chosen by a majority of the shareholders entitled to vote at such
meeting. The Secretary or, in his absence, an Assistant Secretary shall act as
secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present, a majority of the shareholders entitled to vote at such
meeting shall choose any person present to act as secretary of the meeting.
ARTICLE 3. DIRECTORS
3.1 Powers of Directors. The business and affairs of the Corporation
shall be managed by its Board of Directors, which may exercise all powers of the
Corporation and do all lawful acts and things as are not by statute or by the
Articles of Incorporation or by these bylaws directed or required to be
exercised or done by the shareholders. The Board of Directors shall constitute
the governing body of the Corporation and shall be responsible to the
shareholders for setting policy, long range planning and providing oversight of
the management of the Corporation.
3.2 Number and Qualification. The number of directors, which shall
constitute the Board of Directors, shall be not less than three or more than 11
as the Board shall from time to time determine; provided however, if all the
shares of the Corporation are owned of record by less than three shareholders,
the number of directors may be less than three, but not less than the number of
shareholders of record. No decrease shall have the effect of shortening the term
of any incumbent director.
3.3 Election and Term. The directors shall be classified with respect
to the time for which they shall severally hold office by dividing them into
three (3) classes, Class I, Class II, and Class III, each consisting of
approximately one-third (1/3) of the whole number of the Board of Directors, and
each director of the Corporation shall hold office until his successor is
elected and qualified or until his death, resignation, or removal. Each class of
directors shall be as nearly equal in number of directors as possible and shall
be denominated in such manner as the Board of Directors may determine. The term
of office of those of Class I will expire at the first annual meeting of
shareholders following their election; of Class II one year thereafter; of Class
III two years thereafter; and at each annual election held after such
classification and election, the successors to the class of directors whose
terms shall expire that year shall be elected to hold office for a term of three
(3) years, so that the term of office for one class of directors shall expire in
each year. Directors need not be shareholders of the Corporation or residents of
the State of Tennessee.
6
3.4 Filling Vacancies. Any vacancy occurring in the Board of Directors
by reason of death, resignation, or removal shall be filled by the affirmative
vote of a majority of the remaining directors entitled to vote although less
than a quorum of the Board of Directors. A director elected to fill a vacancy
shall be elected for the unexpired term of his predecessor in office. Any
directorship to be filled by reason of an increase in the number of directors
may be filled by election at a regular meeting or a special meeting of the Board
of Directors called for that purpose, or at an annual meeting or a special
meeting of shareholders called for that purpose.
3.5 Resignation of Directors. Any director may resign from his office
at any time by delivering his written resignation to the Secretary, and such
resignation shall be effective immediately upon delivery to the Secretary.
3.6 Removal of Directors. Any director may be removed from the Board of
Directors at any time for cause by the affirmative vote of the holders of a
majority of the outstanding shares of capital stock of the Corporation entitled
to be cast for the election of directors; provided, however, a director may be
removed "for cause" only upon a finding that (i) the director engaged in
fraudulent or dishonest conduct, or gross abuse of authority or discretion, with
respect to the Corporation, and (ii) removal is in the best interests of the
Corporation. Directors of the Corporation may be removed for any reason other
than cause only upon the affirmative vote of the holders of not less than
two-thirds (2/3) of the outstanding shares of capital stock of the Corporation
entitled to vote thereon.
(a) Vacancies. Unless the Charter otherwise provides, if a vacancy
occurs on the Board of Directors, including a vacancy resulting from an increase
in the number of directors or a vacancy resulting from the removal of a director
with or without cause, either the shareholders or the Board of Directors may
fill such vacancy. If the directors remaining in office constitute fewer than a
quorum of the Board of Directors, they may fill such vacancy by the affirmative
vote of a majority of all the directors remaining in office. If the vacant
office was held by a director elected by a voting group of shareholders, only
the holders of shares of that voting group shall be entitled to vote to fill the
vacancy if it is filled by the shareholders.
3.7 Place of Meetings. Regular or special meetings of the Board of
Directors may be held either within or without the State of Tennessee.
3.8 Chairman of the Board. The Chairman of the Board of Directors, if
one be elected by the Board of Directors, shall preside at all meetings of the
Board of Directors and shall have such other powers and duties as may from time
to time be prescribed by the Board of Directors, upon written direction given to
such Chairman pursuant to resolution duly adopted by the Board of Directors.
3.9 Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such time and place as shall from time to time be
determined by the Board of Directors. The Board shall meet at least annually. At
such meetings, the Board shall ensure that
7
the officers or other management personnel of the Corporation report on
management's progress in carrying out the policies of the Board and shall
discuss management's recommendations for changes in policy.
3.10 Special Meetings. Special meetings of the Board of Directors may
be called by the Chairman of the Board of Directors, the Chief Executive Officer
or the President and shall be called by the Secretary on the written request of
two (2) directors. Notice of any special meeting of the Board of Directors shall
be given to each director at least three (3) days before the date of the
meeting.
3.11 Quorum of Directors. At all meetings of the Board of Directors, a
majority of the directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not be present at any meeting of the directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
3.12 Committees. The Board of Directors by resolution passed by a
majority of the entire Board of Directors, may from time to time designate
members of the Board of Directors to constitute committees, including an
executive committee, which shall in each case consist of such number of
directors, not less than two (2), and shall have and may exercise such powers as
the Board of Directors may determine and specify in the respective resolutions
appointing them. A majority of all the members of any such committee may
determine its action and fix the time and place of any meeting, unless the Board
of Directors shall otherwise direct. The Board of Directors shall have power at
any time to change the number and the members of any such committee, to fill
vacancies and to discharge any such committee.
3.13 Action by Unanimous Written Consent. Any action required or
permitted to be taken at a meeting of the Board of Directors or any committee
may be taken without a meeting if a consent in writing, setting forth the
actions so taken, is signed by all the members of the Board of Directors or such
committee, as the case may be.
3.14 Compensation of Directors. By resolution of the Board of
Directors, the directors may be paid their expenses, if any, for attending each
meeting of the Board of Directors and may be paid a fixed sum for attending each
meeting of the Board of Directors and may be paid a fixed sum for attending each
meeting of the Board of Directors or a stated salary for serving as a director.
No such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefore. Members of the executive
committee or of special or standing committees may, by resolution of the Board
of Directors, be allowed like compensation for attending committee meetings.
3.15. Minutes of Meetings. The Board of Directors shall keep regular
minutes of its proceedings and such minutes shall be placed in the minute book
of the Corporation. Committees of the Board of Directors shall maintain a
separate record of the minutes of their proceedings.
8
ARTICLE 4. NOTICES AND MEETINGS.
4.1. Method of Giving Notice. Any notice to directors or shareholders
shall be in writing and shall be delivered personally or mailed to the directors
or shareholders at their respective addresses appearing on the books of the
Corporation. Notice by mail shall be deemed to be given at the time when the
same shall be deposited in the United States mail, postage paid.
4.2. Waiver of Notice. Any notice required to be given may be subject
to a waiver thereof in writing signed by the person or persons entitled to
receive such notice, whether before or after the time stated therein, and such
waiver shall be deemed equivalent to the giving of such notice in a timely
manner. Any such signed waiver of notice, or a signed copy thereof, shall be
placed in the minute book of the Corporation. Attendance of such persons at any
meeting shall constitute a waiver of notice of such meetings, except where there
persons attend for the express purpose of objecting that the meeting is not
lawfully convened.
4.3 Voting. If a quorum is present when a vote is taken, the
affirmative vote of a majority of directors present is the act of the Board of
Directors, unless the Charter or these Bylaws require the vote of a greater
number of directors. A director who is present at a meeting of the Board of
Directors when corporate action is taken is deemed to have assented to such
action unless:
(i) he objects at the beginning of the meeting (or
promptly upon his arrival) to holding the meeting or transacting
business at the meeting;
(ii) his dissent or abstention from the action taken
is entered in the minutes of the meeting; or
(iii) he delivers written notice of his dissent or abstention
to the presiding officer of the meeting before its adjournment or to
the Corporation immediately after adjournment of the meeting. The right
of dissent or abstention is not available to a director who votes in
favor of the action taken.
4.4. Telephone Meetings. Subject to the requirements of the Tennessee
Business Corporation Act, as amended, or these bylaws for notice, shareholders,
members of the Board of Directors, or members of any committee designated by
such Board of Directors, may participate in and hold a meeting of such
shareholders, Board of Directors, or committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 4.3 of Article 4 shall constitute presence in person at
such meeting.
9
4.5. Place of Meetings. All meetings of the shareholders shall be held
at the registered office of the Corporation, or any other place within or
without this State, as may be designated for that purpose from time to time by
the Board of Directors.
ARTICLE 5. OFFICERS
5.1. Qualifications. The officers of the Corporation need not be
shareholders of the Corporation or residents of the State of Tennessee. The
Board of Directors shall elect a President, a Treasurer and a Secretary and such
other officers, including a Chairman of the Board of Directors, and assistant
officers as the Board of Directors may deem desirable to have to conduct the
affairs of the Corporation. Any two (2) or more offices may be held by the same
person, except that the offices of President and Secretary may not be held by
the same person.
5.2. Compensation of Officers. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors. The Board of Directors
shall have the power to enter into contracts for the employment and compensation
of officers on such terms as the Board of Directors deems advisable. No officer
shall be disqualified from receiving a salary or other compensation by reason of
the fact that he is also a director of the Corporation.
5.3. Term and Vacancies. The officers of the Corporation shall hold
office until their successors are elected or appointed and qualified, or until
their death, resignation, or removal from office. Any vacancy occurring in any
office of the Corporation by death, resignation, removal, or otherwise, may be
filled by the Board of Directors.
5.4. Resignation and Removal of Officers. An officer may resign at any
time by delivering notice to the Corporation. Such resignation is effective when
such notice is delivered unless such notice specifies a later effective date. An
officer's resignation does not affect the Corporation's contract rights, if any,
with the officer. Any officer elected or appointed by the Board of Directors may
be removed at any time by the Board of Directors.
5.5. General Authority of Officers. The Board of Directors, except as
otherwise provided in these bylaws, may authorize any officer to enter into any
contract or execute and deliver any instrument in the name of and on behalf of
the Corporation, and such authority may be general or confined to specific
instances. Unless so authorized, no officer, agent or employee shall have any
power or authority to bind the Corporation by any contract or engagement or to
pledge its credit or to render it liable pecuniarily for any purpose or in any
amount.
5.6. Duties of President. The President shall have general and active
management control of the business and affairs of the Corporation and shall see
that all orders and resolutions of the Board of Directors are carried into
effect. The President shall call regular and special meetings of the
shareholders and directors in accordance with law and these bylaws and shall
preside at such meetings. The President shall appoint, discharge and fix the
compensation of
10
officers, agents and employees other than those appointed by the Board of
Directors. The President shall sign all certificates representing shares of
stock in the Corporation. The President shall perform such other duties as may
be prescribed from time to time by the Board of Directors.
5.7. Duties of Vice President. The Vice Presidents, in the order of
their seniority, unless otherwise determined by the Board of Directors, shall,
in the absence or disability of the President, perform the duties and have the
authority and exercise the powers of the President. They shall perform such
other duties and have such other authority and powers as the Board of Directors
may from time to time prescribe, or as the President may from time to time
delegate.
5.8. Duties of Secretary. The Secretary shall attend all meetings of
the Board of Directors and of the shareholders and record all business
transacted at such meetings in a minute book to be kept for that purpose and
shall perform like duties for the standing committee when required. The
Secretary shall give, or cause to be given, notice of all meetings of the
shareholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors, or President,
under whose supervision the Secretary shall be. The Secretary shall take and
keep custody of the seal of the Corporation and, when authorized by the Board of
Directors, shall affix the same to any instrument requiring it and, when so
affixed, is shall be attested by the signature of the Secretary or by the
signature of an assistant Secretary or of the Treasurer.
5.9. Duties of Assistant Secretaries. The assistant secretaries, in
the order of their seniority, unless otherwise determined by the Board of
Directors, shall, in the absence or disability of the Secretary, perform the
duties and have the authority and exercise the powers of the Secretary. They
shall perform such other duties and have such other powers as the Board of
Directors may from time to time prescribe or as the President or Secretary from
time to time may delegate.
5.10. Duties of the Treasurer. The Treasurer shall have the custody of
the Corporation's funds and securities, shall keep full and accurate accounts
and records of receipts, disbursements and other transactions in books belonging
to the Corporation and shall deposit all funds and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. The Treasurer shall disburse funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors at the regular meetings of the Board, or whenever they may require it,
an account of all the Treasurer's transactions as Treasurer and of the financial
conditions of the Corporation. The Treasurer shall perform such other duties and
have such other authority as the Board of Directors may from time to time
prescribe, or as the President may from time to time delegate.
5.11. Duties of Assistant Treasurer. The assistant treasurers in the
order of their seniority, unless otherwise determined by the Board of Directors,
shall, in the absence or disability of the Treasurer, perform the duties and
have the authority and exercise the powers of the
11
Treasurer. They shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe or as the President or
Treasurer may from time to time delegate.
5.12. Execution of Instruments. All documents, instruments or writings
of any nature shall be signed, executed, verified, acknowledged and delivered by
such officer or officers or such agents of the Corporation and in such manner as
the Board of Directors from time to time may determine. All notes, drafts,
acceptances, checks, endorsements, and all evidence of indebtedness of the
Corporation whatsoever, shall be signed by such officers or officers or such
agent or agents of the Corporation and in such manner as the Board of Directors
from time to time may determine. Endorsements for deposit to the credit of the
Corporation in any of its duly authorized depositories shall be made in such
manner as the Board of Directors may from time to time determine.
ARTICLE 6. CERTIFICATES AND SHAREHOLDERS
6.1. Forms of Certificates. Certificates shall be delivered
representing all shares of stock in the Corporation to which shareholders are
entitled. Certificates for shares of the stock of the Corporation shall be in
such form as shall be required by law and as shall be approved by the Board of
Directors. Every certificate for shares issued by the Corporation must be signed
by the Chairman of the Board of Directors or the President, or a Vice President,
and the Secretary, or an assistant Secretary. Such certificates shall bear a
legend or legends in the form and containing the restrictions required to be
stated thereon by the Tennessee Business Corporation Act, other provisions of
law, the Articles of Incorporation or these bylaws. Certificates shall be
consecutively numbered and shall be entered into the books of the Corporation as
they are issued. Each certificate shall state on the face thereof the holder's
name, the number of class of shares, the par value of such shares, and such
other matters as may be required by law, the Articles of Incorporation or these
bylaws.
6.2. Transfer of Shares. Shares of stock shall be transferable only on
the books of the Corporation by the holder thereof in person or by such holder's
duly authorized attorney. Upon surrender to the Corporation or its transfer
agent of a certificate representing shares properly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, the
Corporation or its transfer agent shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
6.3 Subscriptions for Shares. Subscriptions for shares of the
Corporation shall be valid only if they are in writing. Unless the subscription
agreement provides otherwise, subscriptions for shares, regardless of the time
when they are made, shall be paid in full at such time, or in such installments
and at such periods, as shall be determined by the Board of Directors. All calls
for payment on subscriptions shall be uniform as to all shares of the same class
or of the same series, unless the subscription agreement specifies otherwise.
12
6.4. Record Ownership Conclusive. The Corporation shall be entitled to
treat the holder of any share or shares of stock in the Corporation as the
holder in fact thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any person, whether or not it has express or other notice thereof, except as
otherwise provided by law or by any stock purchase and redemption agreement to
which the stock may be subject, if such agreement has been formally executed or
accepted by the Corporation.
6.5. Replacement of Certificates. No new certificates shall be issued
until the former certificates of the shares represented thereby shall have been
surrendered and canceled, except in the case of lost or destroyed certificates
for which the Board of Directors may order new certificates to be issued upon
such terms, conditions, and guarantees as the Board may see fit to impose,
including the filing of sufficient indemnity.
ARTICLE 7. OTHER PROVISIONS
7.1. Dividends. Dividends may be declared by the Board of Directors at
any regular or special meeting and may be paid in cash, in property, or in
shares of the Corporation, subject to the provisions of the Certificate of
Incorporation, as amended, and to the laws of the State of Tennessee. The
declaration and payment of dividends shall be at the discretion of the Board of
Directors.
7.2. Records. The Corporation shall keep correct and complete books
and records of account and shall keep minutes of the proceedings of its
shareholders and Board of Directors, and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the name and addresses of all
shareholders and the number and class of the shares held by each.
7.3. Fiscal Year. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
7.4. Seal. The Corporation's seal shall be in such form as may be
prescribed by the Board of Directors. The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner reproduced.
7.5 Contracts. Unless otherwise required by the Board of Directors,
the President or any Vice President shall execute contracts or other instruments
on behalf of and in the name of the Corporation. The Board of Directors may from
time to time authorize any other officer, assistant officer or agent to enter
into any contract or execute any instrument in the name of and on behalf of the
Corporation as it may deem appropriate, and such authority may be general or
confined to specific instances.
13
7.6 Loans. No loans shall be contracted on behalf of the Corporation
and no evidence of indebtedness shall be issued in its name unless authorized by
the President or the Board of Directors. Such authority may be general or
confined to specific instances.
7.7 Checks, Drafts, Etc. Unless otherwise required by the Board of
Directors, all checks, drafts, bills of exchange and other negotiable
instruments of the Corporation shall be signed by either the President, a Vice
President or such other officer, assistant officer or agent of the Corporation
as may be authorized so to do by the Board of Directors. Such authority may be
general or confined to specific business, and, if so directed by the Board, the
signatures of two or more such officers may be required.
7.8 Deposits. All funds of the Company not otherwise employed shall be
deposited from time to time to the credit of the Corporation in such banks or
other depositories as the Board of Directors may authorize.
7.9 Voting Securities Held by the Corporation. Unless otherwise
required by the Board of Directors, the President shall have full power and
authority on behalf of the Corporation to attend any meeting of security
holders, or to take action on written consent as a security holder, of other
corporations in which the Corporation may hold securities. In connection
therewith the President shall possess and may exercise any and all rights and
powers incident to the ownership of such securities which the Corporation
possesses. The Board of Directors may, from time to time, confer like powers
upon any other person or persons.
ARTICLE 8. INDEMNIFICATION OF DIRECTORS,
OFFICERS AND OTHER AUTHORIZED REPRESENTATIVES
8.1. Third Party Proceedings. The Corporation shall indemnify any
person who was or is a party or was or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative t other than an action by or in the
right of the Corporation) by reason of the fact that the person is or was a
director, officer, employee or agent (including without limitation members of
advisory boards of health care organizations and other facilities owned by the
Corporation and physicians serving on medical staff committees of such
healthcare organizations) of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or not taken by such person while
acting in any such capacity, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (whether with or without court
approval) actually and reasonably incurred by such person in connection with
such action, suit Or proceeding if he acted in good faith and in a manner the
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was
14
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
8.2. Actions By or In the Right of the Corporation. The Corporation
shall indemnify any person who is or was a party or is or was threatened to be
made a party to any threatened, pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director, officer, employee or agent
(including without limitation members of advisory boards of hospitals and other
facilities owned by the Corporation and physicians serving on medical staff
committees of such hospitals) of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action alleged to have been taken or not taken by him while acting in any
such capacity, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation. The
termination of any such threatened or actual action or suit by a settlement or
by an adverse judgment or order shall not of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in, or not opposed to, the best interests of the Corporation.
Nevertheless, there shall be no indemnification with respect to expenses
incurred in connection with any claim, issue or matter as to which such person
shall have been adjudged to be liable 'or negligence or misconduct in the
performance of his duty to the Corporation unless, and only to the extent that,
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
8.3. Absolute Right. To the extent that a director, officer, employee
or agent of the Corporation, or a person serving in any other enterprises at the
request of the Corporation, shall have been successful on the merits or
otherwise in defending against any threatened or actual action, suit or
proceeding referred to in Section 8.1 hereof or any threatened or actual action
or suit referred to in Section 8.2 hereof, or in defense of any claim, issue-or
matter therein, he shall be indemnified against all expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
8.4. Determination of Conduct. Any indemnification under Sections 8.1
or 8.2 hereof (unless ordered by a court), shall be made by the Corporation only
as authorized in the specific cases upon a determination that indemnification is
proper in the circumstances because the person claiming indemnification has met
the applicable standard of conduct set forth in such Sections. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit, or
proceeding, or (ii) if such
15
quorum is not obtainable, or even if obtainable a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or
(iii) by the shareholders.
8.5. Payment of Expenses in Advance.
(1) Expenses incurred in defending a civil or criminal
action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the
Board of Directors in the specific case upon receipt
of an undertaking by or on behalf of a director,
officer, employee or agent to repay such amount
unless it shall ultimately be determined that he is
entitled to be indemnified by the Corporation as
authorized in this Article 8.
(2) Expenses actually and reasonably incurred in
defending a third party or corporate proceeding shall
be paid on behalf of an authorized representative
other than a director by the Corporation in advance
of the final disposition of such third party or
corporate proceeding as authorized by the Board of
Directors upon receipt of an undertaking by or on
behalf of such authorized representative to repay if
it shall ultimately be determined that such person is
not entitled to be indemnified by the Corporation as
authorized in this Article 8.
(3) The financial ability of any authorized
representative to make a repayment contemplated by
this Section shall not be a prerequisite to the
making of an advance.
8.6. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article 8.
8.7. Indemnity Not Exclusive. The indemnification provided hereunder
shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any other bylaw, agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent of the Corporation or engaged in any other enterprise
at the request of the Corporation and shall inure to the benefit of the heirs,
executors and administrators of such a person.
16
8.8. Reliance on Provisions. Each person who shall act as an
authorized representative of the Corporation shall be deemed to be doing so in
reliance upon rights of indemnification provided by this Article 8.
8.9. Definitions. For purposes of this Article:
(1) "authorized representative" shall mean a director or
officer of the Corporation, or a person serving at
the request of the Corporation as a director,
officer, or trustee, of another corporation,
partnership, joint venture, trust or other
enterprise;
(2) "corporation" shall include, in addition to the
resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate
existence had continued, would have had power and
authority to indemnify its directors, officers,
employees or agents, so that any person who is or was
a director, officer, employee or agent of such
constituent corporation, or is or was serving at the
request of such constituent corporation as a
director, officer, employee or agent of another
corporation, partnership, joint venture, trust or
other enterprise, shall stand in the same position
under the provisions of this Article 8 with respect
to the resulting or surviving corporation as such
person would have with respect to such constituent
corporation if its separate existence had continued;
(3) "corporate proceeding" shall mean any threatened,
pending or completed action or suit by or in the
right of the Corporation to procure a judgment in its
favor or investigative proceeding by the Corporation;
(4) "criminal third party proceeding" shall include any
action or investigation which could or does lead to a
criminal third party proceeding;
(5) "expenses" shall include attorneys' fees and
disbursements;
(6) "fines" shall include any excise taxes assessed
on a person with respect to an
employee benefit plan;
(7) "not opposed to the best interests of the
Corporation" shall include actions taken in good
faith and in a manner the authorized representative
reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit
plan;
(8) "other enterprises" shall include employee benefit
plans;
17
(9) "party" shall include the giving of testimony or
similar involvement;
(10) "serving at the request of the Corporation" shall
include any service as a director, officer or
employee of the Corporation which imposes duties on,
or involves services by, such director, officer or
employee with respect to an employee benefit plan,
its participants, or beneficiaries; and
(ll) "third party proceeding" shall mean any threatened,
pending or completed action, suit or proceeding,
whether civil, criminal, administrative, or
investigative, other than an action by or in the
right of the Corporation.
ARTICLE 9. AMENDMENT AND CONSTRUCTION
9.1. Amendment. The power to alter, amend, or repeal these bylaws or
adopt new bylaws shall be vested in the Board of Directors. The shareholders may
not amend, delete or otherwise alter these bylaws except upon the affirmative
vote of the holders of not less than 75% of the outstanding capital stock of the
Corporation entitled to vote thereon.
18
EXHIBIT F
VOTING TRUST AGREEMENT
AGREEMENT, dated April 15, 1997, by and among Warburg, ▇▇▇▇▇▇
Ventures, L.P., a Delaware limited partnership ("Warburg"), and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇ (who together with any successor or
successors hereunder are hereinafter called the "Trustees"):
WHEREAS, Warburg has entered into a Securities Purchase
Agreement, dated as of April 2, 1997 (the "Purchase Agreement"), by and among
Warburg, Coventry Corporation, a Tennessee corporation ("Coventry"), and
Franklin Capital Associates III L.P., a Delaware limited partnership;
WHEREAS, pursuant to the Purchase Agreement, and subject to
certain conditions set forth therein, Warburg has acquired the right to purchase
from Coventry (i) a convertible, exchangeable senior subordinated note (the
"Note") issued by Coventry in the aggregate principal amount of $36,000,000 and
(ii) warrants issued by Coventry (the "Warrants"), initially evidencing the
right to purchase an aggregate of 2,117,647 shares of the common stock, par
value $0.01 per share of Coventry (the "Common Stock"), subject to certain
adjustments as set forth in the Warrants;
1
WHEREAS, Warburg deems it in its best interests, as well as in
the best interests of Coventry, to vest in the Trustees as herein provided the
power to vote all of the shares of Series A Preferred Stock for which the Note
may be exchanged, all additional shares of Series A Preferred Stock that may be
issued in lieu of a payment of cash dividends on the Series A Preferred Stock,
all of the shares of Common Stock into which the Note and any Interest Notes (as
defined in the Purchase Agreement) may be converted, all of the shares of Common
Stock issuable upon exercise of the Warrants and all other shares of the capital
stock of Coventry hereinafter issued to Warburg pursuant to the Purchase
Agreement during the term of this Agreement (collectively, the "Stock"); and
WHEREAS, Warburg has directed that, during the term of this
Agreement, stock certificates representing the Stock be issued to the Trustees,
as Trustees, if, when and as the Stock is issued pursuant to the Purchase
Agreement, for the purpose of vesting in the Trustees the right to vote the
Stock for the period and upon the terms and conditions stated herein, and that
it appear in such Stock when issued that the same has been issued to the
Trustees, as Trustees, pursuant to this Agreement, and that Coventry cause such
issuance to be duly noted on its books and records.
NOW, THEREFORE, in consideration of the premises, of the
mutual covenants herein contained, of ONE DOLLAR ($1.00) paid
2
by Warburg to the Trustees, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, it is agreed by and
among Warburg and the Trustees as follows:
(1) For the duration of this Agreement, the Trustees shall
have the sole, exclusive, absolute, and unqualified power to (i) vote the Stock
with discretion as to how to vote the Stock and (ii) execute stockholders'
consents at every annual and special meeting of the stockholders of Coventry and
in any and all proceedings wherein the vote or consent of such stockholders may
be required or authorized and to vote upon any and all questions arising
thereat.
(2) The Trustees may act hereunder either by a vote of a
majority of the Trustees, in person, at a meeting duly called and held, and such
vote shall be deemed the decision or act of all of the Trustees, or by a written
instrument without a meeting of the Trustees signed by a majority of the
Trustees. The Trustees may adopt their own rules of procedure and shall keep
reasonable minutes of their proceedings and shall keep a record of the trust
certificates issued hereunder.
(3) The Trustees hereby accept the trust created, and covenant
and agree faithfully and diligently to perform the covenants and agreements
contained herein.
3
(4) If requested by Warburg, the Trustees shall issue a trust
certificate, which shall be in substantially the form of Schedule A hereto.
(5) Warburg shall be entitled to receive and disburse in its
sole discretion any and all cash dividends declared on the Stock and, if the
same be paid to the Trustees, such dividends shall be disbursed by the Trustees
to Warburg forthwith. The Trustees shall be entitled to receive dividends paid
in-kind on the Stock, or any distributions made in the form of shares of capital
stock of Coventry which shall be held by the Trustees subject to the terms of
this Agreement, and the Trustees shall issue trust certificates representing
such stock certificates to Warburg, if so requested.
(6) This Agreement and the voting trust hereby created shall
be irrevocable and continue in force for ten (10) years from the date hereof,
unless at any time Warburg shall be deemed to own beneficially (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934) less than ten
percent (10%) of the then outstanding shares of Common Stock (a "Termination
Event"), in which case this Agreement and the voting trust created hereby shall
be terminated upon written notice from Warburg to the Trustees. Upon
termination, the Trustees, upon surrender to them of any outstanding trust
certificates or the receipt by them of a proper acquittance from Warburg, and,
upon
4
payment of any stamp taxes or other governmental charges in connection with such
surrender and delivery, will cause to be delivered to Warburg or its successors
or assigns certificates of capital stock of Coventry in amounts corresponding to
the Stock issued, delivered or transferred to the Trustees at any time pursuant
to this Agreement.
(7) Except in the case of a Termination Event, Warburg agrees
that at least thirty (30) calendar days prior to the termination of this
Agreement to notify the Department of Insurance of each of the states listed on
Schedule B hereto of its intention either to extend this Agreement for an
additional period or to have application made for approval of the acquisition of
control of Coventry pursuant to the applicable provisions of the respective
insurance laws of each of the states listed on Schedule B hereto, if necessary.
(8) This Agreement may be amended by unanimous action of the
Trustees and Warburg provided that such amendment is reviewed and approved by
the applicable Department of Insurance of each of the states listed on Schedule
B hereto.
(9) No Trustee shall assume any responsibility or incur any
liability as stockholder, trustee or otherwise, or by reason of any error of
judgment or mistake of law or other mistake, or for any act or omission of any
other Trustee or of any agent or attorney employed by the Trustees or for the
5
misconstruction of this Agreement, or for any action taken or omitted thereunder
or believed by him to be in accordance with the provisions and intentions
thereof, or otherwise, except for his own willful misconduct. Any Trustee may
be, act and receive compensation as, a director or officer of, or be otherwise
associated with, Coventry.
(10) Any Trustee or successor Trustee may at any time resign
by delivering to the other Trustees and to Warburg his resignation in writing.
Any Trustee or successor Trustee shall be deemed to have resigned automatically
without further action on the part of such Trustee or successor Trustee in the
event such Trustee or successor Trustee is not employed for any reason by ▇.▇.
▇▇▇▇▇▇▇, ▇▇▇▇▇▇ & Co., LLC ("EMW"), any successor to EMW or any affiliate of
EMW. In the event of a vacancy or vacancies occurring in the office of Trustee
or successor Trustee through the death, incapacity, resignation, refusal to act,
removal from his position as an employee or partner of Warburg, or any of its
affiliates, or removal from the role of Trustee under this Agreement, in the
sole discretion of Warburg, of an original Trustee or of a successor Trustee,
the remaining Trustees may appoint a successor Trustee to fill such vacancy upon
the recommendation and prior written approval of Warburg, by an instrument in
writing, signed by the remaining Trustees and Warburg, a copy of which shall be
kept on file at the registered office of Warburg. The appointment of a successor
Trustee and
6
his capacity to act as such shall be subject to the prior review by and approval
of the applicable Department of Insurance of each of the states listed on
Schedule B hereto. The successor Trustee so appointed shall be clothed with all
the rights, privileges, duties and powers conferred upon the Trustees herein
named.
(11) Upon the appointment of a successor Trustee, a new
certificate or certificates for the Stock may be issued in the names of the
Trustees at that time duly appointed hereunder.
(12) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to contracts made
and to be performed entirely within such State, without giving effect to the
choice of law provisions thereof.
(13) This Agreement shall inure to the benefit of and be
binding upon the successors and assigns of each of the parties.
(14) This Agreement constitutes the entire understanding of
the parties hereto and supersedes all prior agreements or understandings with
respect to the subject matter hereof among the parties.
(15) In the event that any part or parts of this Agreement
shall be held illegal and unenforceable by any court or administrative body of
competent jurisdiction, such determination
7
shall not affect the remaining provisions of this Agreement which shall remain
in full force and effect.
(16) The Trustees hereby agree that they will not assert
against the limited partners of Warburg any claim they may have under this
Agreement by reason of any failure or alleged failure by Warburg to meet its
obligations hereunder.
(17) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original.
8
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed and delivered as of the date first above written.
WARBURG, ▇▇▇▇▇▇ VENTURES, L.P.
By: Warburg, ▇▇▇▇▇▇ & Co.,
its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Managing Director
TRUSTEES:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------
Name: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇
9
SCHEDULE A
CERTIFICATE
of the Trustees for WARBURG, ▇▇▇▇▇▇ VENTURES, L.P.
for stock of Coventry Corporation under the Voting
Trust Agreement, dated as of April 15, 1997, by and
among the Trustees named therein and Warburg, ▇▇▇▇▇▇
Ventures, L.P., a Delaware limited partnership (the
"Voting Trust Agreement").
Description of
No.________ Stock: _______________
THIS IS TO CERTIFY THAT, upon the termination of the Voting
Trust Agreement, upon the surrender hereof and upon payment of all stamp taxes
or governmental charges, WARBURG, ▇▇▇▇▇▇ VENTURES, L.P., or its successors or
assigns, will be entitled to any securities of COVENTRY CORPORATION held by the
undersigned as Trustees, subject and pursuant to the terms, conditions and
stipulations of the Voting Trust Agreement (the "Voting Trust Agreement") which
have been acquired pursuant to that certain Securities Purchase Agreement, dated
as of April 2, 1997, by and among Coventry Corporation, a Delaware corporation,
Warburg, ▇▇▇▇▇▇ Ventures, L.P., a Delaware limited partnership, and Franklin
Capital Associates III L.P., a Delaware limited partnership or the Voting Trust
Agreement.
This certificate is transferable only on the books of the
Trustees by the holder thereof, in person or by attorney, upon surrender of his
certificate, properly endorsed and upon payment of all stamp taxes and other
governmental charges in connection therewith; whereupon a like new certificate
will be issued to the proper owner thereof of record.
IN WITNESS WHEREOF, the undersigned Trustees, pursuant to said
Voting Trust Agreement have hereunto set their hands and seals, this ____ day of
____________.
____________________________
____________________________
____________________________
SCHEDULE B
Illinois
Missouri
Ohio
Pennsylvania
Texas
Virginia
West Virginia