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Coventry Health Care / Coventry - Capital Contribution & Share Exchange Agreement
EXHIBIT 10.1
CAPITAL CONTRIBUTION
AND
SHARE EXCHANGE AGREEMENT
BY AND AMONG
COVENTRY CORPORATION,
A TENNESSEE CORPORATION,
COVENTRY HEALTH CARE, INC.
A NEWLY-FORMED MARYLAND CORPORATION,
PRINCIPAL HEALTH CARE, INC.,
AN IOWA CORPORATION AND WHOLLY OWNED SUBSIDIARY OF
PRINCIPAL HOLDING COMPANY,
PRINCIPAL HOLDING COMPANY,
AN IOWA CORPORATION AND WHOLLY OWNED SUBSIDIARY OF
PRINCIPAL MUTUAL INSURANCE COMPANY,
AND
PRINCIPAL MUTUAL LIFE INSURANCE COMPANY,
AN IOWA MUTUAL INSURANCE COMPANY
DATED AS OF [NOVEMBER 3], 1997
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TABLE OF CONTENTS
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---- 1. THE SHARE EXCHANGE AND CAPITAL CONTRIBUTION............................ 1
1.1 THE SHARE EXCHANGE............................................ 1
1.2 CONVERSION OF COVENTRY SHARES AND COVENTRY RIGHTS............. 2
1.3 EXCHANGE OF CERTIFICATES REPRESENTING NEWCO COMMON STOCK...... 3
1.4 ADJUSTMENT OF EXCHANGE RATIO.................................. 5
1.5 ISSUANCE OF SHARES OF NEWCO COMMON STOCK, WARRANT AND RIGHTS.. 5
1.6 INDEMNITY REINSURANCE CONTRACT................................ 6
1.7 TAX EFFECT.................................................... 6
2. CLOSING AND EFFECTIVE TIME............................................. 7
2.1 THE CLOSING................................................... 7
2.2 EFFECTIVE TIME................................................ 7
3. REPRESENTATIONS AND WARRANTIES OF COVENTRY............................. 7
3.1 CORPORATE ORGANIZATION........................................ 7
3.2 CAPITALIZATION................................................ 8
3.3 CORPORATE PROCEEDINGS, ETC.................................... 9
3.4 CONSENTS AND APPROVALS........................................10
3.5 COMPLIANCE WITH LAW...........................................10
3.6 LITIGATION AND INVESTIGATIONS.................................13
3.7 ABSENCE OF DEFAULTS, CONFLICTS, ETC...........................14
3.8 CHANGE IN OWNERSHIP...........................................14
3.9 REPORTS AND FINANCIAL STATEMENTS; SEC DOCUMENTS...............15
3.10 ABSENCE OF CERTAIN DEVELOPMENTS...............................16
3.11 MATERIAL CONTRACTS............................................17
3.12 ABSENCE OF UNDISCLOSED LIABILITIES............................17
3.13 EMPLOYEES.....................................................17
3.14 TAX MATTERS...................................................18
3.15 EMPLOYEE BENEFIT PLANS........................................20
3.16 PATENTS, LICENSES, ETC........................................22
3.17 TITLE TO TANGIBLE ASSETS......................................23
3.18 REAL PROPERTY.................................................23
3.19 INSURANCE.....................................................25
3.20 TRANSACTIONS WITH RELATED PARTIES.............................26
3.21 INTEREST IN COMPETITORS.......................................26
3.22 REGISTRATION RIGHTS...........................................26
3.23 BROKERAGE.....................................................26
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3.24 ILLEGAL OR UNAUTHORIZED PAYMENTS AND POLITICAL CONTRIBUTIONS...26
3.25 TAKEOVER STATUTE; RIGHTS PLAN..................................26
3.26 MATERIAL FACTS.................................................27
3.27 COVENTRY MATERIAL ADVERSE EFFECT...............................27
4. REPRESENTATIONS AND WARRANTIES OF PRINCIPAL.............................27
4.1 CORPORATE ORGANIZATION.........................................27
4.2 TITLE TO ASSETS................................................28
4.3 CORPORATE PROCEEDINGS, ETC.....................................28
4.4 CONSENTS AND APPROVALS.........................................29
4.5 COMPLIANCE WITH LAW............................................29
4.6 LITIGATION AND INVESTIGATIONS..................................32
4.7 ABSENCE OF DEFAULTS, CONFLICTS, ETC............................33
4.8 CHANGE IN OWNERSHIP............................................33
4.9 REPORTS AND FINANCIAL STATEMENTS...............................34
4.10 ABSENCE OF CERTAIN DEVELOPMENTS................................35
4.11 MATERIAL CONTRACTS.............................................35
4.12 ABSENCE OF UNDISCLOSED LIABILITIES.............................36
4.13 EMPLOYEES......................................................36
4.14 TAX MATTERS....................................................36
4.15 EMPLOYEE BENEFIT PLANS.........................................39
4.16 PATENTS, LICENSES, ETC.........................................41
4.17 TITLE TO TANGIBLE ASSETS.......................................42
4.18 REAL PROPERTY..................................................42
4.19 INSURANCE......................................................44
4.20 TRANSACTIONS WITH RELATED PARTIES..............................44
4.21 INTEREST IN COMPETITORS........................................44
4.22 BROKERAGE......................................................44
4.23 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS......44
4.24 MATERIAL FACTS.................................................45
4.25 PRINCIPAL MATERIAL ADVERSE EFFECT..............................45
5. REPRESENTATIONS AND WARRANTIES OF MUTUAL................................45
5.1 CORPORATE ORGANIZATION.........................................45
5.2 VALIDITY OF MUTUAL INDEMNITY AGREEMENTS........................46
5.3 CORPORATE PROCEEDINGS, ETC.....................................46
5.4 CONSENTS AND APPROVALS.........................................46
5.5 COMPLIANCE WITH LAW............................................47
5.6 LITIGATION.....................................................48
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5.7 ABSENCE OF DEFAULTS, CONFLICTS, ETC............................48
5.8 PREMIUM INFORMATION............................................48
5.9 OWNERSHIP OF COVENTRY COMMON SHARES............................48
5.10 ABSENCE OF UNDISCLOSED LIABILITIES.............................48
5.11 BROKERAGE......................................................49
5.12 MUTUAL MATERIAL ADVERSE EFFECT.................................49
6. COVENANTS...............................................................49
6.1 ACQUISITION PROPOSALS..........................................49
6.2 BEST EFFORTS...................................................50
6.3 CONDUCT OF BUSINESSES..........................................50
6.4 CONDUCT OF BUSINESSES..........................................52
6.5 REGISTRATION STATEMENT.........................................53
6.6 FINANCIAL STATEMENTS...........................................54
6.7 LISTING APPLICATION............................................54
6.8 MEETING OF COVENTRY'S SHAREHOLDERS.............................54
6.9 FILINGS; OTHER ACTION..........................................54
6.10 INVESTIGATION AND CONFIDENTIALITY..............................55
6.11 PUBLICITY......................................................56
6.12 FURTHER ACTION.................................................56
6.13 EXPENSES.......................................................56
6.14 GOVERNANCE.....................................................56
6.15 EMPLOYMENT AGREEMENT...........................................57
6.16 CORPORATE HEADQUARTERS.........................................57
6.17 CERTAIN BENEFITS...............................................57
6.18 ANCILLARY AGREEMENTS...........................................57
6.19 TANGIBLE NET VALUE.............................................58
6.20 TAXES..........................................................59
7. CONDITIONS..............................................................62
7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS.........................62
7.2 CONDITIONS TO OBLIGATION OF PRINCIPAL AND MUTUAL...............63
7.3 CONDITIONS TO OBLIGATION OF COVENTRY AND NEWCO.................64
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---- 8. TERMINATION.............................................................66
8.1 TERMINATION BY MUTUAL CONSENT..................................66
8.2 TERMINATION BY EITHER COVENTRY OR PRINCIPAL....................66
8.3 TERMINATION BY PRINCIPAL.......................................66
8.4 TERMINATION BY COVENTRY........................................66
8.5 AUTOMATIC TERMINATION..........................................67
8.6 EFFECT OF TERMINATION AND ABANDONMENT..........................67
8.7 EXTENSION; WAIVER..............................................68
9. GENERAL PROVISIONS......................................................68
9.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS......68
9.2 INDEMNIFICATION................................................68
9.3 NOTICES........................................................68
9.4 ASSIGNMENT, BINDING EFFECT; BENEFIT............................71
9.5 ENTIRE AGREEMENT...............................................71
9.6 AMENDMENT......................................................71
9.7 GOVERNING LAW..................................................71
9.8 HEADINGS.......................................................71
9.9 INTERPRETATION.................................................71
9.10 WAIVERS........................................................71
9.11 INCORPORATION OF EXHIBITS......................................72
9.12 SEVERABILITY...................................................72
9.13 ENFORCEMENT OF AGREEMENT.......................................72
9.14 TERMS DEFINED..................................................72
9.15 COUNTERPARTS...................................................79
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LIST OF SCHEDULES - -----------------
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Schedule 1.2(d): Coventry Stock Option Plans
Schedule 1.5(a)(i): Excluded Principal Assets
Schedule 1.5(a)(ii): List of Principal Subsidiaries
Schedule 1.5(b): Excluded Principal Liabilities
Coventry Disclosure Schedule
Principal Disclosure Schedule
Mutual Disclosure Schedule
LIST OF EXHIBITS - ----------------
Exhibit No.
----------- Warburg Consent............................................................ 1
Assignment and Assumption Agreement........................................ 2
Coinsurance Agreement...................................................... 3
Schedule of Mutual Indemnity Agreements.................................... 4
Newco Warrant.............................................................. 5
Kenneth J. Linde Employment Agreement...................................... 6
Newco's Rights Agreement................................................... 7
Renewal Rights Agreement................................................... 8
Transition Agreement....................................................... 9
Management Services Agreement..............................................10
Shareholders' Agreement....................................................11
Tax Benefit Restitution Agreement..........................................12
License Agreement..........................................................13
Marketing Service Agreement................................................14
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CAPITAL CONTRIBUTION AND SHARE EXCHANGE AGREEMENT
This CAPITAL CONTRIBUTION AND SHARE EXCHANGE AGREEMENT (this "Agreement"), is executed as of the [3rd day of November], 1997, by and among COVENTRY CORPORATION, a Tennessee corporation ("Coventry"), COVENTRY HEALTH CARE, INC., a newly-formed Maryland corporation and wholly owned subsidiary of Coventry ("Newco"), PRINCIPAL MUTUAL LIFE INSURANCE COMPANY, an Iowa mutual insurance company ("Mutual"), PRINCIPAL HOLDING COMPANY, an Iowa corporation and wholly owned subsidiary of Mutual ("Holding"), and PRINCIPAL HEALTH CARE, INC., an Iowa corporation and wholly owned subsidiary of Holding ("Principal").
RECITALS
WHEREAS, the Boards of Directors of Coventry and Mutual each have determined that a strategic combination between Coventry and Principal is in the best interests of their respective companies, shareholders and/or policyholders (as appropriate) and presents an opportunity for their respective companies to achieve long-term strategic and financial benefits, and accordingly have agreed to combine their managed care businesses and to enter into this Agreement; and
WHEREAS, for United States federal income tax purposes, it is intended that the transfer of the Principal Assets (as defined below) by Principal to Newco and the share exchange by Coventry's shareholders with Newco contemplated by this Agreement qualify as a transfer subject to Section 351(a) of the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder (the "Code");
NOW, THEREFORE, in consideration of the foregoing, and of the representations, warranties, covenants and agreements contained herein, the parties hereto agree as follows:
1.
THE SHARE EXCHANGE AND CAPITAL CONTRIBUTION
1.1 THE SHARE EXCHANGE. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 2.2 hereof), Coventry shall effect a share exchange (the "Exchange") pursuant to which each issued share of capital stock of Coventry shall be converted into the right to receive one share of capital stock of Newco (the ratio of one share of Newco capital stock divided by one share of Coventry capital stock, as adjusted in accordance with the provisions of Section 1.4 hereof, shall hereinafter be referred to as, the "Exchange Ratio"). At and after the Effective Time, Newco shall own all of the issued shares of capital stock of Coventry and the shareholders of Coventry shall own that number of whole shares of capital stock of Newco equal to the number of shares of capital stock of Coventry formerly owned thereby. The Exchange shall have the effects specified in Section 3-114 of the Maryland General Corporation Law (the
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"MGCL") and Section 48-21-103 of the Tennessee Business Corporation Act (the "TBCA"). For the purposes of the Exchange, the issued shares of capital stock of Coventry shall include shares held by Coventry Health and Life Insurance Company ("Coventry Health").
1.2 CONVERSION OF COVENTRY SHARES AND COVENTRY RIGHTS.
(a) At the Effective Time, (i) each share of Newco's Common Stock, par value $0.01 per share (the "Newco Common Stock"), issued and outstanding and held by Coventry (exclusive of shares held by Coventry Health) immediately prior to the Effective Time shall, by virtue of the Exchange and without any action on the part of Newco or Coventry, be canceled and retired and cease to exist; (ii) each share of Coventry's Common Stock, par value $0.01 per share ("Coventry Common Stock"), issued immediately prior to the Effective Time shall, by virtue of the Exchange and without any action on the part of the holder thereof, be converted into the right to receive that number of whole shares of Newco Common Stock equal to the Exchange Ratio; (iii) each right (collectively, the "Coventry Rights") issued under that certain Rights Agreement, dated February 7, 1996, between Coventry and ChaseMellon Shareholder Services, LLC, as amended by that First Amendment to Rights Agreement, dated May 7, 1997 (as amended, the "Coventry Rights Plan"), issued immediately prior to the Effective Time shall, by virtue of the Exchange and without any action on the part of the holder thereof, be converted into the right to that number of rights (collectively, the "Newco Rights") issuable under that certain Rights Agreement, dated as of the Closing Date between Newco and ChaseMellon Shareholder Services, LLC (the "Newco Rights Agreement"), equal to the Exchange Ratio; and (iv) each share of Coventry's Series A Convertible Preferred Stock, par value $0.01 per share ("Coventry Preferred Stock"), then issued and outstanding shall, by virtue of the Exchange and without any action on the part of the holder thereof, be converted into the right to receive that number of shares of Newco's Series A Convertible Preferred Stock, par value $0.01 per share ("Newco Preferred Stock"), equal to the Exchange Ratio.
(b) As a result of the Exchange and without any action on the part of the holder thereof, (i) all issued shares of Coventry Common Stock shall be deemed to be owned by Newco, which shall effect a reverse stock split at the Effective Time such that the number of shares of Coventry Common Stock then held thereby shall equal 1,000 shares; (ii) each holder of a certificate (a "Common Certificate") representing any shares of Coventry Common Stock shall thereafter cease to have any rights with respect to such shares, except the right to receive the Newco Common Stock upon the surrender of such Common Certificate; (iii) each holder of a Coventry Right will be deemed to be the holder of a Newco Right; (iv) all shares of Coventry Preferred Stock shall be canceled and retired and shall cease to exist; and (v) each holder of a certificate (a "Preferred Certificate") (the Common Certificates and Preferred Certificates, hereinafter collectively being referred to as the "Certificates") representing any shares of Coventry Preferred Stock shall thereafter cease to have any rights with respect to such shares, except the right to receive the Newco Preferred Stock upon the surrender of such Preferred Certificate.
(c) At the Effective Time, each Convertible Subordinated Promissory Note (the "Convertible Notes") issued under that certain Amended and Restated Securities Purchase
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Agreement, dated May 7, 1997 (the "Warburg Agreement"), by and among Coventry, Warburg, Pincus Ventures L.P. ("Warburg") and Franklin Capital Associates III L.P. ("Franklin") and then outstanding shall, by virtue of the Exchange and without any action on the part of the holder thereof, be converted into the right to receive a Convertible Subordinated Promissory Note, in accordance with the terms of the Warburg Consent, a copy of which is attached as Exhibit 1 hereto.
(d) At the Effective Time, each of the options (individually, a "Coventry Option" and collectively, the "Coventry Options") then outstanding under Coventry's stock option plans listed on Schedule 1.2(d) hereto (collectively, the "Coventry Stock Option Plans") shall be converted, without any action on the part of the holder thereof, into the right to purchase that number of shares of Newco equal to the number of shares of Coventry Common Stock issuable upon exercise as set forth in such option. At the Effective Time, such Coventry Options shall, by virtue of the Exchange and without any further action on the part of Coventry or the holder of any such Coventry Option, be assumed by Newco. At the Effective Time, all warrants listed on Schedule 1.2(d) hereto (individually, a "Coventry Warrant" and collectively, the "Coventry Warrants") will be assumed by Newco as provided in this Section 1.2(d). Each Coventry Option or Coventry Warrant assumed by Newco shall be exercisable upon the same terms and conditions as under the applicable Coventry Stock Option Plan and the applicable Coventry Option issued thereunder or under the Coventry Warrant except that (i) each such Coventry Option shall be exercisable for that whole number of shares of Newco Common Stock into which the number of shares of Coventry Common Stock subject to such Coventry Option or Coventry Warrant immediately prior to the Effective Time would be converted under this Section 1.2(d), and (ii) the option or warrant price per share of Newco Common Stock shall be an amount equal to the option or warrant price per share of Coventry Common Stock subject to such Coventry Option or Coventry Warrant in effect immediately prior to the Effective Time. Newco shall reserve for issuance the number of shares of Newco Common Stock that will become issuable upon the exercise of such Coventry Options and Coventry Warrants; shall file as soon as possible after the Effective Time, and maintain the effectiveness during the period the Coventry Options are outstanding, Registration Statements on Forms S-8 under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the shares of Newco Common Stock issuable upon exercise of the Coventry Options and, upon demand by Warburg pursuant to the terms of the Warburg Agreement, will register the shares of Newco Common Stock issuable upon exercise or conversion of the securities issued under the Warburg Agreement; and shall take appropriate action to list all such shares with NASDAQ and to provide appropriate notice of issuance to NASDAQ.
1.3 EXCHANGE OF CERTIFICATES REPRESENTING NEWCO COMMON STOCK.
(a) As of the Effective Time, Newco shall deposit, or shall cause to be deposited, with an exchange agent selected by Coventry, which shall be Coventry's Transfer Agent or such other party reasonably satisfactory to Coventry (the "Exchange Agent"), for the benefit of the holders of shares of Coventry Common Stock and Coventry Preferred Stock, for exchange in accordance with this Article 1, certificates representing the shares of Newco Common Stock and Newco Preferred Stock (such cash and certificates for shares of Newco Common Stock and Newco Preferred Stock, together with any dividends or distributions with respect thereto, being hereinafter referred to as the
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"Exchange Fund") to be issued pursuant to Section 1.2 and paid pursuant to this Section 1.3 in exchange for outstanding shares of Coventry Common Stock and Coventry Preferred Stock.
(b) Promptly after the Effective Time, Coventry shall cause the Exchange Agent to mail to each holder of record of a Certificate or Certificates (i) a letter of transmittal which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Newco may reasonably specify and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing shares of Newco Common Stock and/or Newco Preferred Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent together with such letter of transmittal, duly executed and completed in accordance with the instructions thereto, the holder of such Certificate shall be entitled to promptly receive in exchange therefor (x) a certificate representing that number of whole shares of Newco Common Stock or Newco Preferred Stock, as appropriate, and (y) a check representing the amount of unpaid dividends and distributions, if any, which such holder has the right to receive in respect of the Certificate surrendered pursuant to the provisions of this Section 1.3, after giving effect to any required withholding tax, and the Certificate so surrendered shall forthwith be canceled. No interest will be paid or accrued on the unpaid dividends and distributions, if any, payable to holders of Certificates. In the event of a transfer of ownership of Coventry Common Stock or Coventry Preferred Stock which is not registered in the transfer records of Coventry, a certificate representing the proper number of shares of Newco Common Stock or Newco Preferred Stock, as appropriate, may be issued to such a transferee if the Certificate representing such Coventry Common Stock or Coventry Preferred Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid.
(c) At or after the Effective Time, there shall be no transfers on the stock transfer books of Coventry of the shares of Coventry Common Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to Newco, they shall be canceled and exchanged for certificates evidencing ownership of shares of Newco Common Stock and/or Newco Preferred Stock deliverable in respect thereof pursuant to this Agreement in accordance with the procedures set forth in this Section 1.3.
(d) Any portion of the Exchange Fund (including the proceeds of any investments thereof and any shares of Newco Common Stock and Newco Preferred Stock) that remains unclaimed by the former shareholders of Coventry one year after the Effective Time shall be delivered to Newco. Any former shareholders of Coventry who have not theretofore complied with this Section 1.3 shall thereafter look only to Newco for payment of their shares of Newco Common Stock and/or Newco Preferred Stock, unpaid dividends and distributions on the Newco Common Stock and/or Newco Preferred Stock deliverable in respect of each share of Coventry Common Stock or Coventry Preferred Stock, as appropriate, such shareholder holds as determined pursuant to this Agreement, in each case, without any interest thereon.
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(e) None of Coventry, Principal, Newco, the Exchange Agent or any other person shall be liable to any former holder of shares of Coventry Common Stock or Coventry Preferred Stock for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.
(f) In the event any Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming such Certificate to be lost, stolen or destroyed and, if required by Newco, the posting by such person of a bond in such reasonable amount as Newco may direct as indemnity against any claim that may be made against it with respect to such Certificate, the Exchange Agent will issue in exchange for such lost, stolen or destroyed Certificate the shares of Newco Common Stock and/or Newco Preferred Stock and unpaid dividends and distributions on shares of Newco Common Stock and/or Newco Preferred Stock deliverable in respect thereof pursuant to this Agreement.
1.4 ADJUSTMENT OF EXCHANGE RATIO. In the event that, subsequent to the date of this Agreement but prior to the Effective Time, Coventry changes the number of shares of Coventry Common Stock issued and outstanding as a result of a stock split, reverse stock split, stock dividend, recapitalization or other similar transaction, the Exchange Ratio of one share of Coventry Common Stock for one share of Newco Common Stock and one share of Coventry Preferred Stock for one share of Newco Preferred Stock shall be appropriately adjusted.
1.5 ISSUANCE OF SHARES OF NEWCO COMMON STOCK, WARRANT AND RIGHTS.
(a) Subject to the terms and conditions of this Agreement, at the Effective Time, Principal agrees to grant, contribute, convey, assign, transfer and deliver to Newco (the "Capital Contribution") all right, title and interest in all of its assets, except for those assets listed in Schedule 1.5(a)(i) hereto (the "Excluded Assets") pursuant to an Assignment Agreement substantially in the form attached as Exhibit 2 hereto (the "Assignment and Assumption Agreement") (the assets of Principal so transferred to Newco being collectively referred to as the "Principal Assets"), in consideration of (i) the issuance and delivery by Newco to Principal of such number of shares of Newco Common Stock as shall equal the sum of (A) 66 2/3% of the shares of Newco Common Stock issued to shareholders of Coventry in the Exchange (other than shares issued to Coventry Health) plus (B) 66 2/3% of the shares of Newco Common Stock issuable upon the conversion of the Convertible Notes outstanding at the Effective Time plus (C) 66 2/3% of the shares of Newco Common Stock issuable upon conversion of the Newco Preferred Stock issued and outstanding at the Effective Date (ii) Newco Rights with respect to the shares of Newco Common Stock issuable to Principal pursuant to (i) above. The Principal Assets shall include all of the issued and outstanding capital stock of the wholly owned subsidiaries of Principal listed on Schedule 1.5(a)(ii) under the caption "Principal Subsidiaries" (collectively, the "Principal Subsidiaries"), all real and personal property owned or leased by Principal, all accounts receivable, cash, securities, contract rights, prepaid liabilities and all other assets of Principal, other than the Excluded Assets.
(b) The Principal Assets shall be contributed and transferred to Newco subject to, and Newco agrees to assume, all liabilities, liens, charges, encumbrances and obligations of Principal,
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fixed, contingent or unmatured, disclosed or undisclosed (the "Assumed Liabilities"), except for (the "Excluded Liabilities"), pursuant to the Assignment and Assumption Agreement which Excluded Liabilities shall include (i) all tax liabilities of the Principal Subsidiaries for Pre-Acquisition Date Tax Periods and of any other member of the affiliated group of corporations (as defined in Section 1504(a) of the Code) including Principal or any Principal Subsidiary on or prior to the Closing Date, (ii) any of the Plans (including Pension Plans) as defined in Section 4.15(a) of this Agreement sponsored by Mutual or Principal, and any past, current or future liabilities or obligations with respect to any such Plans or with respect to any Pension Plan subject to Title IV of ERISA in which either Mutual, Principal, any Principal Subsidiary, or any ERISA Affiliate as defined in Section 4.15(h) of this Agreement has ever sponsored, participated in, contributed to or withdrawn from, (iii) all liabilities, liens, charges, encumbrances and obligations of Principal, fixed, contingent or unmatured, disclosed or undisclosed relating to the Excluded Assets, (iv) all liabilities and obligations of Principal associated with the employment agreements with Kenneth J. Linde, Sharon I. Taylor, Francis Soistman, Jr., Charles David Roberts, Robert J. Mrizek, Harvey Pollack and Ron Chaffin and (v) Excluded Liabilities set forth on Section 1.5(b) of the Principal Disclosure Schedules. Principal, Holding and Mutual, jointly and severally, shall indemnify Newco and hold it harmless from any loss, liability, claim, damage or expense (including reasonable legal fees and expenses) suffered or incurred by Newco to the extent arising from any Excluded Liability.
1.6 INDEMNITY REINSURANCE CONTRACT. In consideration of the execution and delivery by Mutual of a Coinsurance Agreement, substantially in the form attached as Exhibit 3 hereto (the "Coinsurance Agreement"), pursuant to which Mutual will cede and Coventry Health will assume through indemnity reinsurance effective January 1, 2000, all indemnity agreements listed in Exhibits 4(a) and 4(b) hereto (as amended from time to time), (collectively, the "Mutual Indemnity Agreements") Newco agrees to issue to Mutual on the Effective Date a warrant (the "Newco Warrant"), substantially in the form of Exhibit 5 hereto, pursuant to which Principal shall have the right to purchase a number of shares of Newco Common Stock, equal to 66 2/3% of the total number of shares of Common Stock issuable upon exercise or conversion of the options and warrants (collectively, the "Option Securities") that shall be issued and outstanding at the Closing, and Exhibits 4(a) and 4(b) will not include any of the other assets owned or leased by Mutual, which excluded assets include, without limitation, Mutual's indemnity agreements in force in counties in which the Principal Subsidiaries and the Coventry Subsidiaries do not currently conduct business or plan to conduct business, the national account indemnity ASO business wherever located, and indemnity agreements relating to non-medical insurance products (i.e. life, disability, dental and vision) wherever located. The indemnity business conducted by Mutual pursuant to the Mutual Indemnity Agreements, renewals thereof and the issuance of new indemnity agreements generally in the same geographic areas shall hereinafter be referred to as the "Mutual Indemnity Business". Within 30 days following the end of each calendar month following the Closing Date and thereafter until December 31, 1999, Mutual shall deliver to Newco an amended and restated Exhibit 4, which shall include all Mutual Indemnity Agreements in force as of the end of the preceding month, including the renewal dates thereof. On the Closing Date, Mutual shall deliver to Coventry a true and complete list of Mutual Indemnity Agreements in effect as of the end of the second month preceding the Closing.
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1.7 TAX EFFECT. It is the intent of the parties that the transfer of the Principal Assets as set in Section 1.6 by Principal to Newco and the share exchange by Coventry's shareholders with Newco contemplated by this Agreement qualify as a transfer subject to Section 351(a) of the Code.
2.
CLOSING AND EFFECTIVE TIME
2.1 THE CLOSING. Subject to the terms and conditions of this Agreement, the closing (the "Closing") of the Exchange and Capital Contribution shall take place (a) at the offices of Bass, Berry & Sims PLC, First American Center, Nashville, Tennessee, at 9:00 a.m., local time, on the third business day immediately following the day on which the last to be fulfilled or waived of the conditions set forth in Articles 6 and 7 hereof shall be fulfilled or waived in accordance herewith or (b) at such other time, date or place as the parties hereto may agree. The date on which the Closing occurs is hereinafter referred to as the "Closing Date."
2.2 EFFECTIVE TIME. If all the conditions to the Exchange and Capital Contribution set forth in Article 7 hereof shall have been fulfilled or waived in accordance herewith and this Agreement shall not have been terminated as provided in Article 8 hereof, the parties hereto shall cause an Articles of Exchange, meeting the requirements of Section 3-110 of the MGCL, and an Articles of Exchange, meeting the requirements of Section 48-21-107 of the TBCA, each to be properly executed and filed with the offices of the Secretary of State of Maryland and Tennessee, respectively, on the Closing Date. The Exchange and the Capital Contribution shall become effective at the time of filing of the Articles of Exchange with the Secretary of State of the State...
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