1
EXHIBIT 10
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.2. Subsequent Issuance of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3. Closing and Closing Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
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. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.3. Optional Prepayments of the Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.4. Partial Prepayments Pro Rata. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1. Corporate Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2. Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.3. Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4. Corporate Proceedings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.6. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.7. Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.8. Change in Ownership. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.9. Absence of Defaults, Conflicts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.10. Reports and Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11. Absence of Certain Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.12. Material Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.13. Absence of Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.14. Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.15. Tax Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.16. Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.17. Patents, Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.18. Title to Tangible Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.19. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.20. Transactions with Related Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.21. Interest in Competitors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.22. Registration Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.23. Regulation G, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
4.24. Private Offering. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.25. Brokerage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
4.26. Illegal or Unauthorized Payments; Political Contributions. . . . . . . . . . . . . . . . . . . 19
(i)
3
4.27. Takeover Statute; Rights Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.28. Material Facts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 6. ADDITIONAL COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.1. Resale of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.2. Covenants Pending Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.3. Board Nominees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.4. Subscription Right. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.5. Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.6. Amendment to Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 7. INVESTORS' CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1. Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.2. Compliance with Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.3. Injunction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.4. Counsel's Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5. Adverse Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.6. Election of Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.7. Approval of Creditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.8. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.9. Secretary's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.10. Officer's Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.11. Approval of Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.12. Amendment to Rights Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 8. COMPANY CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1. Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2. Compliance with Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3. Injunction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4. Consents and Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.5. Investors' Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 9. CONVERSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 10. ANTI-DILUTION PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 11. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
11.2. Requested Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
11.3. Company Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
11.4. Expenses of Registration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.5. Registration Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
11.6. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
11.7. Information by the Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.8. Rule 144 Reporting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.9. "Market Stand-off" Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.10. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(ii)
4
SECTION 12. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.1. Approval of Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.2. Exchange of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
12.3. Financial and Business Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.4. Inspection. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.5. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.6. Takeover Statute. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
12.7. Rights Agreement Inapplicable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.8. ▇▇▇▇-▇▇▇▇▇ Filings; Consents and
Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.9. Conduct of Business and Maintenance of
Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
12.10. Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.11. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.12. Keeping of Books. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.13. Transfer; Lost, etc. Securities;
Certificates Evidencing Securities (or
Common Stock); Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
12.14. Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 13. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
13.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
13.2. Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 14. INTERPRETATION OF THIS AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
14.1. Terms Defined. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
14.2. Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
14.3. Directly or Indirectly. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
14.4. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
14.5. Paragraph and Section Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
SECTION 15. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.1. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
15.2. Consent to Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
15.3. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
15.4. Expenses and Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
15.5. Reproduction of Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
15.6. Termination and Survival. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
15.7. Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
15.8. Entire Agreement; Amendment and Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
15.9. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
15.10. Limitation on Enforcement of Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
15.11. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
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
(iii)
5
EXHIBIT D Certificate of Incorporation of the Company
EXHIBIT E Bylaws of the Company
EXHIBIT F Voting Trust Agreement
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)
6
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 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
-1-
7
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").
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
-2-
8
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.
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.
-3-
9
(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.
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.
-4-
10
(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 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
-5-
11
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").
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
-6-
12
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 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
-7-
13
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.
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
discrimination. Neither the Company nor
-8-
14
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 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
-9-
15
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 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
-10-
16
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 Section Section 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.
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
-11-
17
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.
4.9 Absence of Defaults, Conflicts, etc.
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.
-12-
18
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 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
-13-
19
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 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
-14-
20
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 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
-15-
21
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, 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
-16-
22
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, 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.
-17-
23
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.
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
-18-
24
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 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,
-19-
25
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 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
-20-
26
intention of distributing the Purchased 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 any state regulatory authority for
approval of its acquisition of the Purchased Securities.
-21-
27
(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.
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
-22-
28
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.
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,
-23-
29
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 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
-24-
30
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.
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
-25-
31
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:
(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.
-26-
32
(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 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
-27-
33
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, 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
-28-
34
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 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.
(xiii) 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
-29-
35
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.
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.
-30-
36
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 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
-31-
37
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.
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.
-32-
38
(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
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).
-33-
39
(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 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 the time of
such Triggering Transaction by a fraction, the numerator of which shall be the
sum of (x) the Number
-34-
40
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 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.
-35-
41
(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 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
-36-
42
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
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
-37-
43
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"), 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
-38-
44
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
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
-39-
45
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:
(10) the Company shall declare any cash dividend
upon its Common Stock, or
(i) 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
(ii) 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
(iii) 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
(iv) 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,
-40-
46
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 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
-41-
47
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).
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
-42-
48
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 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) 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.
-43-
49
(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 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
-44-
50
withdrawn shall also be withdrawn from registration. If the underwriter has
not limited the number of Registrable Securities 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 Investor, if such Investor elects
-45-
51
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.
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
-46-
52
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 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.
-47-
53
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
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
-48-
54
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 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,
-49-
55
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.
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
-50-
56
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.
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
-51-
57
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 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
-52-
58
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
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:
(i) consolidated and consolidating balance sheets of
the Company and any Subsidiaries at the end of such year; and
(ii) 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
-53-
59
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 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
-54-
60
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.
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
-55-
61
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 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.
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
-56-
62
(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 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
-57-
63
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 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.
-58-
64
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
(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
-59-
65
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 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.
-60-
66
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).
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.
-61-
67
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.
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.
-62-
68
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).
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
-63-
69
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.
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.
-64-
70
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.
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.
-65-
71
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 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.
-66-
72
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.
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:
(i) 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
(ii) 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
(iii) 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).
-67-
73
(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 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.
-68-
74
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.
-69-
75
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: Sr. Vice President,
Chief Financial Officer,
Treasurer
WARBURG, ▇▇▇▇▇▇ VENTURES, L.P.
By: WARBURG, ▇▇▇▇▇▇ & CO.,
General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title:
FRANKLIN CAPITAL ASSOCIATES III L.P.
By: FRANKLIN VENTURES III L.P.,
General Partner
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
-70-
76
SCHEDULE I
NAMES OF INVESTORS
Warburg, ▇▇▇▇▇▇ Ventures, ▇.▇.
▇▇▇▇▇▇▇▇ Capital Associates III L.P.
77
SCHEDULE 2.1
INVESTORS
PRINCIPAL AGGREGATE
AMOUNT NUMBER OF PURCHASE
INVESTOR NAME OF ITS NOTE WARRANTS PRICE
(1) Warburg, ▇▇▇▇▇▇ $22,844,980 1,343,822 $24,188,802
Ventures L.P.
(2) Franklin Capital $ 4,000,000 235,294 $ 4,235,294
Associates III L.P.
78
SCHEDULE 2.2
INVESTORS
PRINCIPAL AGGREGATE
AMOUNT NUMBER OF PURCHASE
INVESTOR NAME OF ITS NOTE WARRANTS PRICE
Warburg, ▇▇▇▇▇▇ $13,155,020 773,825 $13,928,845
Ventures L.P.
79
SCHEDULE 7.14
AFFILIATES
Warburg, ▇▇▇▇▇▇ & Co.
80
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."
81
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
82
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.
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
-2-
83
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.
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
-3-
84
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.
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
-4-
85
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-
86
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:
---------------------------
-6-
87
EXHIBIT A
88
EXHIBIT B
89
EXHIBIT C
90
EXHIBIT D
91
EXHIBIT E
92
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
93
Exercise Payment; (c) by surrender to the Company for cancellation of notes
of the Company having an aggregate principal amount plus accrued but unpaid
interest on the date of surrender equal to the Exercise Payment or (d) by a
combination of the methods described in clauses (a), (b) and (c) above. In lieu
of exercising the Warrant, the holder may elect to receive a payment equal to
the difference between (i) the average Market Price for the ten trading days
immediately preceding such payment multiplied by the number of shares as to
which the payment is then being elected and (ii) the Exercise Payment, payable
by the Company to the Holder only in shares of Common Stock valued at the
average Market Price for the ten trading days immediately preceding such payment
("Net Exercise"). For purposes hereof, the term "Market Price" shall mean (a) if
the Common Stock is traded on a national securities exchange, the last reported
sale price of a share of Common Stock, regular way on such date or, in case no
such sale takes place on such date, the average of the closing bid and asked
prices thereof regular way on such date, in either case as officially reported
on the principal national securities exchange on which the Common Stock is then
listed or admitted for trading, or, (b) if the Common Stock is not then listed
or admitted for trading on any national securities exchange but is designated as
a national market system security by the NASD, the last reported trading price
of the Common Stock on such date, or (c) if not listed or admitted to trading on
any national securities exchange or designated as a national market system
security, the average of the reported bid and asked price of the Common Stock on
such date in the over-the-counter market as furnished by the National Quotation
Bureau, Inc., or, if such firm is not then engaged in the business of reporting
such prices, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company or, (d) if the shares of Common
Stock are not so publicly traded, the fair market value thereof, as determined
in good faith by the Board of Directors of the Company.
1.2 Optional Exercise.
(a) Except as provided in Paragraph 1.2(b), this Warrant may not be
exercised at the option of the Company.
(b) The Warrant may not be exercised before ________ __, 2000 at the
Company's option. Thereafter, this Warrant shall be subject to mandatory
exercise, in whole but not in part, at the option of the Company, if the Market
Price of the Common Stock on twenty (20) consecutive trading days during the
period ending within five days prior to the giving of written notice of exercise
by the Company is $17.00 per share (appropriately
-2-
94
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 shares of Common Stock, in which
case the number of shares receivable upon the exercise of this Warrant as a
whole, and the sum payable upon the exercise of this Warrant as a whole, shall
be proportionately reduced. Upon any such partial exercise, the Company at its
expense will forthwith issue to the holder hereof a new Warrant or Warrants of
like tenor calling for the number of shares of Common Stock as to which rights
have not been exercised, such Warrant or Warrants to be issued in the name of
the holder hereof or his nominee (upon payment by such holder of any applicable
transfer taxes).
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as practicable
after the exercise of this Warrant and payment of the Purchase Price, and in
any event within ten (10) days thereafter, the Company, at its expense,
will cause to be issued in the name of and delivered to the holder hereof a
certificate or certificates for the number of fully paid and non-assessable
shares or other securities or property to which such holder shall be entitled
upon such exercise, plus, in lieu of any fractional share to which such holder
would otherwise be entitled, cash in an amount determined in accordance with
Paragraph 3.9 hereof. The Company agrees that the shares so purchased shall be
deemed to be issued to the holder hereof as the record owner of such shares as
of the close of business on the date on which this Warrant shall have been
surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to
prevent dilution of the right granted hereunder, the Purchase Price shall be
subject to adjustment from time to time in accordance with this Paragraph 3. Up
on each adjustment of the Purchase Price pursuant to this Paragraph 3, the
registered Holder of this Warrant shall thereafter be entitled to acquire upon
exercise, at the Purchase Price resulting from such adjustment, the number of
shares of the Company's Common Stock obtainable by multiplying the Purchase
Price in effect immediately prior to such adjustment by the number of shares of
-3-
95
the Company's Common Stock acquirable immediately prior to such adjustment and
dividing the product thereof by the Purchase Price resulting from such
adjustment.
3.1 Adjustment for Issue or Sale of Common Stock at Less than the
Market Price. Except as provided in Paragraph 3.2 or 3.5 below, if and whenever
on or after the date of issuance hereof the Company shall issue or sell, or
shall in accordance with subparagraphs 3.1(1) to (9), inclusive, be deemed to
have issued or sold, any shares of its Common Stock for a consideration per
share less than the average Market Price for the ten trading days immediately
preceding such issuance or sale, then forthwith upon such issue or sale (the
"Triggering Transaction"), the Purchase Price shall, subject to subparagraphs
(1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price (calculated
to the nearest tenth of a cent) determined by multiplying the Purchase Price in
effect immediately prior to the time of such Triggering Transaction by a
fraction, the numerator of which shall be the sum of (x) the Number of Shares
Deemed Outstanding immediately prior to such Triggering Transaction and (y) the
number of shares of Common Stock which the aggregate consideration received by
the Company upon such Triggering Transaction would purchase at the average
Market Price for the ten-day trading period immediately preceding such
Triggering Transaction, and the denominator of which shall be the Number of
Shares Deemed Outstanding immediately after such Triggering Transaction.
For purposes of this Paragraph 3, the term "Number of Common Shares
Deemed Outstanding" at any given time shall mean the sum of (i) the number of
shares of the Company's Common Stock outstanding at such time, and (ii) the
number of shares of the Company's Common Stock deemed to be outstanding under
subparagraphs 3.1(1) to (9), inclusive, at such time.
For purposes of determining the adjusted Purchase Price under this
Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock or any
stock or other securities convertible into or exchangeable for Common Stock
(such rights or options being herein called "Options" and such convertible
or exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert or
-4-
96
exchange any such Convertible Securities are immediately exercisable and
the price per share for which the Common Stock is issuable upon exercise,
conversion or exchange (determined by dividing (x) the total amount, if
any, received or receivable by the Company as consideration for the
granting of such Options, plus the aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities,
the aggregate amount of additional consideration, if any, payable upon the
issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or the conversion or exchange of
such Convertible Securities) shall be less than the average Market Price in
effect for the ten-day trading period immediately prior to the time of the
granting of such Option, then the total maximum amount of Common Stock
issuable upon the exercise of such Options, or, in the case of Options for
Convertible Securities, upon the conversion or exchange of such Convertible
Securities, shall (as of the date of granting of such Options) be deemed to
be outstanding and to have been issued and sold by the Company for such
price per share. No adjustment of the Purchase Price shall be made upon the
actual issue of such shares of Common Stock or such Convertible Securities
upon the exercise of such Options, except as otherwise provided in
subparagraph (3) below.
(2) In case the Company at any time shall in any manner issue
(whether directly or by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange (determined by
dividing (x) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus
the aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange
of all such Convertible Securities) shall be less than the average Market
Price in effect for the ten-day trading period immediately prior to the
time of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such Convertible
Securities) be
-5-
97
be deemed to be outstanding and to have been issued and sold by the Company
for such price per share. No adjustment of the Purchase Price shall be made
upon the actual issue of such Common Stock upon exercise of the rights to
exchange or convert under such Convertible Securities, except as otherwise
provided in subparagraph (3) below.
(3) If the purchase price provided for in any Options referred to in
subparagraph (1), the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities referred to in
subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable
for Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
Paragraph 3.1 or 3.3), the Purchase Price in effect at the time of such
change shall forthwith be readjusted to the Purchase Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold. If the purchase price provided for in any Option
referred to in subparagraph (1) or the rate at which any Convertible
Securities referred to in subparagraphs (1) or (2) are convertible into or
exchangeable for Common Stock, shall be reduced at any time under or by
reason of provisions with respect thereto designed to protect against
dilution, then in case of the delivery of Common Stock upon the exercise of
any such Option or upon conversion or exchange of any such Convertible
Security, the Purchase Price then in effect hereunder shall forthwith be
adjusted to such respective amount as would have been obtained had such
Option or Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares of Common
Stock delivered as aforesaid, but only if as a result of such adjustment
the Purchase Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, the Purchase Price then in
effect hereunder shall forthwith be increased to the Purchase Price which
would have been in effect at the time of such expiration or termination had
such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued.
-6-
98
(5) In case any Options shall be issued in connection with the issue
or sale of other securities of the Company, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to have
been issued without consideration.
(6) In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold or deemed to have been issued or sold
for cash, the consideration received therefor shall be deemed to be the
amount received by the Company therefor (before deduction for expenses or
underwriters' discounts or commissions related to such issue or sale). In
case any shares of Common Stock, Options or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be the fair
value of such consideration as determined in good faith by the Board of
Directors of the Company. In case any shares of Common Stock, Options or
Convertible Securities shall be issued in connection with any merger in
which the Company is the surviving corporation, the amount of consideration
therefor shall be deemed to be the fair value of such portion of the net
assets and business of the non-surviving corporation as shall be attributed
by the Board of Directors of the Company in good faith to such Common
Stock, Options or Convertible Securities, as the case may be as determined
in good faith by the Board of Directors of the Company.
(7) The number of shares of Common Stock outstanding at any given time
shall not include shares owned or held by or for the account of the
Company, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this
Paragraph 3.1.
(8) In case the Company shall declare a dividend or make any other
distribution upon the stock of the Company payable in Options or
Convertible Securities, then in such case any Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this Paragraph 3.1, in case the Company shall take
a record of the holders of its Common Stock for the purpose of entitling
them (x) to receive a dividend or other distribution payable in Common
Stock,
-7-
99
Options or in Convertible Securities, or (y) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right or subscription or purchase,
as the case may be.
3.2 Dividends Not Paid Out of Earnings or Earned Surplus. In the event
the Company shall declare a dividend upon the Common Stock (other than a
dividend payable in Common Stock) payable otherwise than out of earnings or
earned surplus, determined in accordance with generally accepted accounting
principles, including the making of appropriate deductions for minority
interests, if any, in subsidiaries (herein referred to as "Liquidating
Dividends"), then, as soon as possible after the exercise of this Warrant, the
Company shall pay to the person exercising such Warrant an amount equal to the
aggregate value at the time of such exercise of all Liquidating Dividends
(including but not limited to the Common Stock which would have been issued at
the time of such earlier exercise and all other securities which would have been
issued with respect to such Common Stock by reason of stock splits, stock
dividends, mergers or reorganizations, or for any other reason). For the
purposes of this Paragraph 3.2, a dividend other than in cash shall be
considered payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged an amount equal to the fair value of
such dividend as determined in good faith by the Board of Directors of the
Company.
3.3 Subdivisions and Combinations. In case the Corporation shall at
any time (i) subdivide the outstanding Common Stock or (ii) issue a stock
dividend on its outstanding Common Stock, the Purchase Price in effect
immediately prior to such subdivision or dividend shall be proportionately
reduced by the same ratio as the subdivision or dividend. In case the
Corporation shall at any time combine its outstanding Common Stock, Purchase
Price in effect immediately prior to such combination shall be proportionately
increased by the same ratio as the combination.
3.4 Reorganization, Reclassification, Consolidation, Merger or Sale of
Assets. If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of
-8-
100
Common Stock shall be entitled to receive stock, securities, cash or other
property with respect to or in exchange for Common Stock, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale, lawful
and adequate provision shall be made whereby the holder of this Warrant shall
have the right to acquire and receive upon exercise of this Warrant such shares
of stock, securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of the Company's Common
Stock as would have been received upon exercise of this Warrant at the Purchase
Price then in effect. The Company will not effect any such consolidation, merger
or sale, unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument mailed or
delivered to the holder of this Warrant at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase. If a purchase, tender or
exchange offer is made to and accepted by the holders of more than 50% of the
outstanding shares of Common Stock of the Company, the Company shall not effect
any consolidation, merger or sale with the person having made such offer or with
any Affiliate of such person, unless prior to the consummation of such
consolidation, merger or sale the holder of this Warrant shall have been given a
reasonable opportunity to then elect to receive upon the exercise of this
Warrant either the stock, securities or assets then issuable with respect to the
Common Stock of the Company or the stock, securities or assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such offer. For purposes hereof the term "Affiliate" with respect to any given
person shall mean any person controlling, controlled by or under common control
with the given person.
3.5 No Adjustment for Exercise of Certain Options, Warrants, Etc. The
provisions of this Section 3 shall not apply to any Common Stock issued,
issuable or deemed outstanding under subparagraphs 3.1(1) to (9) inclusive: (i)
to any person pursuant to any stock option, stock purchase or similar plan or
arrangement for the benefit of employees, consultants or directors of the
Company or its subsidiaries in effect on the date of issuance hereof or
thereafter adopted by the Board of Directors of the Company (or physicians or
providers contracting with the Company or any of its Subsidiaries), (ii)
pursuant to options, warrants and conversion rights in existence on the date
-9-
101
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 respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up; and
-10-
102
(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
-11-
103
amount of property which such holder could have acquired upon such exercise
at the time or times at which the Company granted, issued or sold such
expired Purchase Rights.
3.8 Adjustment by Board of Directors. If any event occurs as to
which, in the opinion of the Board of Directors of the Company, the provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the rights of the holder of this Warrant in accordance with
the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
rights as aforesaid, but in no event shall any adjustment have the effect of
increasing the Purchase Price as otherwise determined pursuant to any of the
provisions of this Section 3 except in the case of a combination of shares of a
type contemplated in Paragraph 3.3 and then in no event to an amount larger than
the Purchase Price as adjusted pursuant to Paragraph 3.3.
3.9 Fractional Shares. The Company shall not issue fractions of
shares of Common Stock upon exercise of this Warrant or scrip in lieu thereof.
If any fraction of a share of Common Stock would, except for the provisions of
this Paragraph 3.9, be issuable upon exercise of this Warrant, the Company shall
in lieu thereof pay to the person entitled thereto an amount in cash equal to
the Market Price, calculated to the nearest one-hundredth (1/100) of a share.
3.10 Officer's Statement as to Adjustments. Whenever the Purchase
Price shall be adjusted as provided in Section 3 hereof, the Company shall
forthwith file at each office designated for the exercise of this Warrant, a
statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Company, showing in reasonable detail the facts
requiring such adjustment and the Purchase Price that will be effective after
such adjustment. The Company shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to the record
holder of this Warrant at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to in
Paragraph 3.6, such notice shall be included as part of the notice required to
be mailed and published under the provisions of Paragraph 3.6 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
charter or through reorganization, consolidation, merger, dissolution, sale of
assets or any other
-12-
104
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder hereof against dilution or other impairment. Without limiting the
generality of the foregoing, the Company will not increase the par value of any
shares of stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise, and at all times will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable stock upon the exercise of this
Warrant.
5. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF WARRANTS. The
Company shall at all times reserve and keep available out of its authorized but
unissued stock, solely for the issuance and delivery upon the exercise of this
Warrant and other similar Warrants, such number of its duly authorized shares of
Common Stock as from time to time shall be issuable upon the exercise of this
Warrant and all other similar Warrants at the time outstanding.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms,
to all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof, title
to this Warrant may be transferred by endorsement (by the holder
hereof executing the form of assignment at the end hereof
including guaranty of
-13-
105
signature) and delivery in the same manner as in the case of a
negotiable instrument transferable by endorsement and delivery.
(b) Any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is
granted power to transfer absolute title hereto by endorsement
and delivery hereof to a bona fide purchaser hereof for value;
each prior taker or owner waives and renounces all of his
equities or rights in this Warrant in favor of every such bona
fide purchaser, and every such bona fide purchaser shall acquire
title hereto and to all rights represented hereby.
(c) Until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder of this Warrant as
the absolute owner hereof for all purposes without being affected
by any notice to the contrary.
(d) Prior to the exercise of this Warrant, the holder hereof shall
not be entitled to any rights of a shareholder of the Company
with respect to shares for which this Warrant shall be
exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any
preemptive rights, and shall not be entitled to receive any
notice of any proceedings of the Company, except as provided
herein.
(e) The Company shall not be required to pay any Federal or state
transfer tax or charge that may be payable in respect of any
transfer involved in the transfer or delivery of this Warrant or
the issuance or conversion or delivery of certificates for Common
Stock in a name other than that of the registered holder of this
Warrant or to issue or deliver any certificates for Common Stock
upon the exercise of this Warrant until any and all such taxes
and charges shall have been paid by the holder of this Warrant or
until it has been established to the Company's satisfaction that
no such tax or charge is due.
9. SUBDIVISION OF RIGHTS. This Warrant (as well as any new warrants
issued pursuant to the provisions of this paragraph) is exchangeable, upon the
surrender hereof by the holder hereof, at the principal office of the Company
for any number of new
-14-
106
warrants of like tenor and date representing in the aggregate the right to
subscribe for and purchase the number of shares of Common Stock of the Company
which may be subscribed for and purchased hereunder.
10. MAILING OF NOTICES, ETC. All notices and other communications
from the Company to the holder of this Warrant shall be mailed by first-class
certified mail, postage prepaid, to the address furnished to the Company in
writing by the last holder of this Warrant who shall have furnished an address
to the Company in writing.
11. HEADINGS, ETC. The headings in this Warrant are for purposes of
reference only, and shall not limit or otherwise affect the meaning hereof.
12. CHANGE, WAIVER, ETC. Neither this Warrant nor any term hereof may
be changed, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought.
13. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE.
COVENTRY CORPORATION
By:
Name:
Title:
Dated: ____________, 1997
Attest:
-15-
107
[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
-16-
108
[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
-17-
109
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 to receive, when and as
declared, out of the net profits of the
110
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.
2
111
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 the assets of the Corporation shall be deemed to be a
3
112
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 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
4
113
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 Capital Associates III L.P. and Warburg, ▇▇▇▇▇▇
Ventures, L.P. (the "Purchase Agreement")) or pursuant to paragraph 2(a)
hereof; or
5
114
(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 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
6
115
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 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
7
116
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 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.
8
117
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 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
9
118
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 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
10
119
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.
(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
11
120
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.
(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
12
121
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 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
13
122
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
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
14
123
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 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)
15
124
(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, 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,
16
125
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 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
17
126
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 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
18
127
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 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
19
128
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.
(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
20
129
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 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.
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:
21