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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
or
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 1-10968
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MARINER POST-ACUTE NETWORK, INC.
(formerly "Paragon Health Network, Inc.")
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2012902
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE RAVINIA DRIVE, SUITE 1500 30346
ATLANTA, GEORGIA (Zip Code)
(Address of principal executive
office)
(678) 443-7000
(Registrant's Telephone Number, Including Area Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
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NAME OF EACH EXCHANGE ON
WHICH REGISTERED
TITLE OF EACH CLASS ------------------------
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Common Stock, Par Value $.01 Per Share................. New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]
The aggregate market value of the outstanding common stock, par value $.01
per share (the "Common Stock"), of the registrant held by non-affiliates of
the registrant as of December 21, 1998 was $403,982,560, based on the closing
sale price of the Common Stock on the New York Stock Exchange on said date.
For purpose of the foregoing sentence only, all directors are assumed to be
affiliates.
There were 73,270,566 shares of Common Stock of the registrant issued and
outstanding as of December 21, 1998, including approximately 160,000 shares
issuable upon the exchange of Certificates formerly representing the common
stock of predecessor corporations acquired by the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
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PART OF FORM 10-K
INCORPORATED DOCUMENT -----------------
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Proxy Statement for the 1999
Annual Meeting of Stockholders............................... Part III
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS....................................................... 1
ITEM 2. PROPERTIES..................................................... 20
ITEM 3. LEGAL PROCEEDINGS.............................................. 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............ 25
ITEM 4A. EXECUTIVE MANAGEMENT OF THE REGISTRANT......................... 25
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS....................................................... 27
ITEM 6. SELECTED FINANCIAL INFORMATION................................. 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................... 29
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...... 45
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................... 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.......................................... 80
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 80
ITEM 11. EXECUTIVE COMPENSATION......................................... 80
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 80
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 80
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K...................................................... 81
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PART I
ITEM 1. BUSINESS
Mariner Post-Acute Network, Inc. (the "Company") was formed through a series
of business combinations commencing with the November 4, 1997 merger of Living
Centers of America, Inc. ("LCA") with Apollo LCA Acquisition Corp., a Delaware
corporation (the "Recapitalization Merger") and subsequent merger of GranCare,
Inc., a Delaware corporation ("GranCare") with and into a wholly-owned
subsidiary of LCA (the "GranCare Merger," and collectively with the
Recapitalization Merger, the "Apollo/LCA/GranCare Mergers"). On July 31, 1998,
a wholly-owned subsidiary of the Company merged with and into Mariner Health
Group, Inc., a Delaware corporation ("Mariner Health") with Mariner Health
surviving the merger and continuing as a wholly-owned subsidiary of the
Company (the "Mariner Merger"). The Company changed its name to "Paragon
Health Network, Inc." following the Recapitalization Merger and subsequently
changed its name to "Mariner Post-Acute Network, Inc." following the Mariner
Merger. All references to "Mariner" or the "Company" are intended to include
the operating subsidiaries through which the services described herein are
directly provided. The GranCare Merger and the Mariner Merger were both
accounted for under the purchase method of accounting and, accordingly, the
results of operations of GranCare and Mariner Health have only been included
in the Company's results from the respective dates of acquisition.
GENERAL
The Company is one of the nation's leading providers of outcomes-oriented,
post-acute health care services, with a particular clinical expertise in the
treatment of short-stay subacute patients in cost-effective alternate sites.
The Company's services and products, which are provided in selected markets,
include post-acute care, inpatient care, comprehensive inpatient and
outpatient rehabilitation services, healthcare services and products
(including institutional and home pharmacy services, respiratory and infusion
therapy and durable medical equipment), physician services, hospital unit
management and rehabilitation staffing. By providing this continuum of care in
selected markets as a network of services, the Company believes that it will
be better able to maintain or improve quality of care and control costs while
coordinating the treatment of patients from the onset of illness to recovery.
The Company seeks to cluster facilities and other post-acute health care
services in and around large metropolitan areas and major medical centers with
large acute care hospitals in order to optimize post-acute admissions. The
Company operates in 40 states with significant concentrations of facilities
and beds in eight states and several metropolitan markets.
The Company operates 428 inpatient and assisted living facilities containing
over 50,000 beds, as well as 41 institutional pharmacies servicing more than
125,000 beds. The Company also operates 175 outpatient rehabilitation clinics,
provides contract therapy services at over 1,200 locations, operates 11 long-
term acute care hospitals ("LTACs") and manages specialty medical programs in
acute care hospitals through more than 100 hospital relationships.
As a result of the Mariner Merger, the Company has increased the density of
the services it provides in many of its markets, which management believes
will result in revenue enhancement opportunities. These opportunities are
expected to be realized by expanding the range of services offered within each
market, increasing patient acuity levels within the Company's facilities,
minimizing the cost of services provided and strengthening relationships with
hospitals, physicians and third-party payors, including managed care
organizations.
The Company has embarked upon the integration of the operations of Mariner
Health and the Company into one operating structure. The Company and Mariner
Health engaged in the Mariner Merger after a strategic assessment of the
strengths of both companies: the Company's strategic leadership, critical mass
of inpatient facilities and ancillary services in key markets and strong
pharmacy component, and Mariner Health's clinical reputation, clinical systems
and census development programs. The Company has assembled a skilled and
experienced management team consisting of executives from both companies. The
Company has also determined where its corporate, regional, and shared services
offices will be located and is in the process of completing its consolidation.
The Company also is in the process of moving away from a divisional
organization to one operating structure offering networked services in key
markets.
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The Company's principal executive offices are located at One Ravinia Drive,
Suite 1500, Atlanta, Georgia 30346, and the Company's phone number at such
address is (678) 443-7000.
INDUSTRY OVERVIEW
The healthcare industry has become one of the largest sectors of the U.S.
economy, representing 13.6% of the nation's gross domestic product ("GDP") in
1995. Care for the elderly encompasses a broad range of healthcare services,
including inpatient services, rehabilitation services, home health care,
assisted living and pharmacy services. In response to increasing demands for
quality care in a cost effective setting, post-acute providers are
increasingly providing care for patients with specialized needs. These
patients typically do not require many of the services provided in an acute
care hospital setting but still have medically complex conditions that require
ongoing nursing and medical supervision as well as access to specialized
equipment and services. The Company believes that the significant factors
affecting its industry are changing demographics, government regulations,
changing reimbursement methodologies, an increasing focus on cost containment
and industry consolidation.
Demographic Trends. According to the U.S. Bureau of the Census, 1997
Statistical Abstract of the United States, approximately 12.7% of the U.S.
population, or approximately 33.9 million people, are over the age of 65.
Furthermore, research indicates that the likelihood of using a nursing home
increases with advanced age (65 years and older). In addition, the Census
Bureau further estimates that both the 65-84 and the 85+ age groups will
increase dramatically through 2050 as the "Baby-Boomer" generation ages.
Specifically, the percentage of the total national population represented by
those people in the 65-84 category is expected to increase from 11.3% in 1996
to 17.6% in the year 2030, before falling to 15.4% in 2050, while the 85+ age
group is expected to rise from 1.4% in 1996, to 2.4% in 2030, and to 4.6% by
2050, more than triple the 1996 numbers. As the elderly population in the
United States continues to increase, the Census Bureau estimates that the
number of nursing facility residents will also increase, from 1.7 million in
1996 to 5.7 million in 2030.
Government Restrictions on Long-Term Care Facilities. While the demand for
long-term care is growing, regulatory factors have served to limit the supply
of long-term care beds. The construction of new long-term care facilities and
the addition of beds to existing facilities are restricted by regulation in
many states, most of which require entities that desire to enter the local
long-term care market to apply for and obtain Certificates of Need ("CON") or
other approvals under similar laws. The application and approval process for a
CON or such other approval generally involves approval by a state regulatory
agency for the construction, acquisition or closure of a long-term care
facility, the addition or reduction of beds at a facility, or the addition of
services provided by a facility. The significant construction costs and start-
up expenses in some markets may further limit the number of new beds.
Reimbursement. Reimbursement rates for long-term care providers are highly
regulated by state and federal governments. A recent Medicare program
initiative for Part A patients, the Prospective Payment System ("PPS"), has
altered the reimbursement methodology to which long-term care providers were
accustomed. Prior to July 1, 1998, long-term care providers were reimbursed
under the federal Medicare program based upon the cost of the services
provided. Beginning on July 1, 1998, the federal government began to phase in
PPS, under which long-term care providers are paid one of 44 per diem amounts
for each of their Part A patients, including any ancillary care provided. PPS
requires providers to prospectively manage the care of the patient and the
resources that are consumed. Under PPS, each patient's clinical status is
evaluated and placed into a payment category. The patient's payment category
dictates the amount that the provider will receive to care for the patient on
a daily basis. Accordingly, the ability to care for a patient with a high
corresponding per diem reimbursement rate at a low cost will be critical to a
company's success under PPS. Therefore, the ability to manage costs will be
more important than ever before. In addition, recently enacted legislation has
imposed limits on the amounts that can be charged for therapy services
provided to Medicare Part B patients. These fee screens were published in
November, 1998 and set forth the amounts that can be charged for specific Part
B services provided. Previously, Medicare Part B therapy services were
reimbursed on a cost basis. These fee screens will be effective January 1,
1999 as well as newly enacted overall per beneficiary limits of $1,500 per
provider.
Emphasis on Cost Containment--Escalating healthcare costs have caused
governmental and other third party payors, including managed care providers,
to implement cost containment initiatives. As a result, an
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increasing proportion of subacute care is being delivered outside the acute
care hospital setting. Subacute care refers to complex medical care and
intensive nursing care and therapies provided to patients with higher acuity
disorders. Management believes that this level of care and these services are
appropriately delivered in a skilled nursing environment where clinical
outcomes are comparable to those achieved in acute care settings and where the
cost structure is significantly lower. Skilled nursing facilities are
significantly less capital intensive and do not require the specialized
equipment used in acute care hospitals. Labor costs are also lower than in
hospitals, which typically have a higher physician to nursing staff ratio and
significantly more administrative personnel, including nursing staff not fully
dedicated to providing care. Because management believes that post-acute care
providers can achieve successful outcomes at a lower cost than acute care
hospitals, management believes that hospital discharge planners, physicians
and managed care and insurance company case managers are referring an
increasing number of patients to post-acute care facilities, including those
operated by affiliates of acute care hospitals.
Industry Consolidation. Currently, approximately 1.7 million people are
cared for in approximately 15,000 long-term care facilities in the United
States. Market share data suggests that the industry is fragmented, with the
30 largest operators accounting for less than 25% of these total beds. The
post-acute care industry has become subject to increasing competitive
pressure, increased government regulation and a changing reimbursement
environment. As a result, management believes that there is a trend towards
consolidation of smaller, local operators, which lack sophisticated management
information systems and services, into larger, more sophisticated national
competitors.
BUSINESS STRATEGY
The Company's strategy is to be a low cost provider of high-quality, post-
acute health care services in select markets through the establishment of
integrated networks of services with a particular emphasis on short-stay
subacute patients. The Company believes that being a low cost provider will
enhance its ability to respond to changes in reimbursement programs and
managed care competition, including its ability to contract with payors on a
case rate or capitated basis as well as with unaffiliated third parties with
respect to the Company's ancillary services.
Develop Industry Leading Infrastructure. The Company has devoted substantial
time and resources integrating the operations of its predecessor corporations
in order to realize significant benefits. The Company plans to continue the
implementation of a "shared services" model under which the Company's product
groups will utilize common information systems and financial reporting and
accounting departments and the establishment of standard policies and
procedures throughout the entire Company. Management believes that
standardized operating processes and procedures throughout the Company will
result in better, more consistent clinical care, improve quality and outcomes,
and lower operating costs throughout the organization. Additionally management
believes that information systems will play an important role in the PPS
environment in establishing clinical protocols, case management, outcomes
measurement, cost management and quality improvement. The Company believes its
enhanced infrastructure, once completed, will enable it to market bundled
services and integrate future acquisitions more efficiently as well as
generate significant cost savings.
Focus on Network Development in Core Markets. The Company's goal is to
maintain and establish integrated networks of post-acute services in core
markets by achieving a critical mass of inpatient facilities and related
specialty medical businesses to form an integrated continuum of care. The
Company will place strategic emphasis on: (i) expanding the services offered
within its existing facilities; (ii) strategically managing its base of
facilities and related services; and (iii) enhancing relationships with acute
care hospitals, managed care providers and physicians.
Attract and Care for Higher Acuity Patients. The Company intends to
capitalize on the current trend towards reducing the length of patient stays
in acute care hospitals by offering specialty medical services such as
enteral, intravenous and respiratory therapies. Under PPS, care for patients
requiring a high degree of therapy will be reimbursed at a higher rate than
most other types of patients. Management believes that the Company's ability
to care for higher acuity patients in a cost-effective manner will improve its
payor mix, expand its customer base and increase operating margins.
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Provide Ancillary Services to Unaffiliated Parties. In addition to providing
pharmacy and rehabilitation services to its own facilities, the Company is a
leading provider of ancillary services to unrelated third parties. The Company
intends to continue to aggressively market these services to others.
Actively Manage Portfolio of Facilities and Services. The Company plans to
aggressively manage its facility base and the services it provides,
particularly in its core markets. In this regard, the Company will pursue a
strategy that includes acquisitions and new construction as well as the
disposition of facilities and businesses. Dispositions of facilities and
businesses will occur primarily in those markets where the Company does not
plan on engaging in network development or where management does not see a
significant strategic benefit in providing a particular service.
OPERATIONS
While the Company is in the process of moving away from a divisional
organization towards an integrated operational structure, the Company's
services will include five principal product groups. These product groups are:
(i) Mariner Inpatient Services; (ii) American Pharmaceutical Services; (iii)
Rehability Health; (iv) Prism Rehab Systems; and (v) Mariner Specialty
Services. For the year ended September 30, 1998, on a pro forma basis
reflecting the Apollo/LCA/GranCare Mergers and the Mariner Merger as if they
had been completed as of the beginning of fiscal 1998, these product groups
accounted for the approximate percentage of revenues set forth below:
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PRO FORMA YEAR ENDED
SEPTEMBER 30, 1998
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Mariner Inpatient Services.............................. 73.3%
American Pharmaceutical Services........................ 9.5%
Prism Rehab Systems..................................... 9.7%
Rehability Health....................................... 3.9%
Mariner Specialty Services.............................. 3.6%
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Total................................................. 100%
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Mariner Inpatient Services
Inpatient Services is the largest source of revenue for the Company. The
Company operates 416 inpatient facilities and 12 freestanding assisted living
facilities encompassing over 50,000 beds in 29 states, and 11 long-term acute
care hospitals ("LTACs") encompassing 591 beds in three states. All of the
Company's inpatient facilities are certified by the appropriate state agencies
for participation in the Medicaid program and substantially all are certified
for participation in the Medicare program.
The Company's inpatient facilities provide care to patients requiring access
to skilled nursing care at anytime. All patients in the Company's inpatient
facilities receive assistance with activities of daily living ("ADL" services)
including feeding, bathing, dressing, eating, transportation, toiletry and
related services. Inpatient care is provided by registered nurses, licensed
practicing nurses and certified nurses aides under the supervision of a
Director of Nursing. Each facility also contracts with a local licensed
physician to serve as its Medical Director, and establishes relationships with
a number of independent local specialists, who are available to care for the
facility's patients. The Company's inpatient facilities provide a broad range
of case management services over the course of treatment, including, as
appropriate, admission into the MarinerCare(R) programs, ongoing medical
evaluation, social service needs, specialty equipment requirements, outcomes
measurement, discharge planning and arrangement for home care. These basic
services are supplemented, in the Company's Medicare certified facilities, by
rehabilitation services, including physical, occupational, speech, respiratory
and psychological therapies.
In addition, the Company operates specialized units in many of its inpatient
facilities, which provide subacute care to patients with medically complex
conditions. Within these specialty units, trained staff members offer care for
patients as an alternative to treatment in the more expensive acute care
hospital setting. In addition to basic therapy services these specialty units
offer enteral therapy, intravenous therapy, specialized wound management,
ventilator care, tracheostomy care, cancer and HIV care. These specialized
units have a higher staffing level per patient than the Company's other
inpatient facilities and compete with acute care and rehabilitation hospitals,
which management believes typically charge rates higher than those charged by
the Company's specialty units.
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The Company's assisted living facilities provide furnished rooms and suites
designed for individuals who are either able to live independently within a
sheltered community or who require minimal supervision. For assisted living
residents, the Company provides basic ADL assistance combined with easy access
to higher acuity settings should the resident's health condition dictate the
need for more intensive services.
This product group is also responsible for the operation of the 11 LTACs
that the Company owns, leases or manages. LTACs provide an intermediate place
to which patients can be discharged from a short-term acute care hospital when
the patient's condition warrants more intensive care than can be provided in a
typical nursing facility. The Company's LTAC's are generally located in areas
where the Company has a significant concentration of inpatient facilities to
which the LTAC patients can be discharged as their condition improves, thus
constituting a key referral source.
Mariner Inpatient Services also provides services to residents with
Alzheimer's disease. Within specially designated and designed portions of
certain of its inpatient facilities, the Company operates 83 units with
approximately 2,863 beds dedicated to addressing the problems of
disorientation and perceptual confusion typically experienced by residents
with Alzheimer's disease. The Alzheimer's care units also provide education
and support to the residents' families. The Company provides specially trained
activity directors and nursing staffs to these units and employs a Director of
Alzheimer's Programming to supervise program development and staff training.
The Company also maintains the MarinerCare(R) clinical program in more than
50 of its facilities. This program is designed to address the medical
requirements of a large group of patients with similar diagnoses in a high-
quality, cost-effective manner. MarinerCare(R) programs are inpatient short-
stay regimens based on defined protocols and utilize various medical services
provided by the Company. These programs are focused on the needs of patients
who are recuperating from a major injury, surgery or illness, and incorporate
specific patient admission, evaluation and discharge criteria and standardized
treatment protocols and regimens, which have been developed over several years
based on the Company's clinical experience. Using these criteria, the Company
evaluates which patients would benefit most from its programs prior to their
admission. Upon admission, a care plan and projected discharge date are
established for each patient. Throughout a patient's inpatient stay, the
Company carefully monitors and evaluates the patient's progress and makes
adjustments to the patient's treatment. Educating patients regarding their
ailments and treatments also comprises a part of each program. MarinerCare(R)
programs typically involve inpatient treatment periods of 20 to 45 days. At
its inpatient facilities, the Company offers a mix of MarinerCare(R) programs
tailored to serve the demands of the local markets. In the facilities it
acquires, the Company intends to focus on treating subacute patients and
implementing appropriate MarinerCare(R) programs or other clinical programs.
The Company currently offers the following MarinerCare(R) programs in
selected facilities:
Orthopedic Recovery. Patients who are recovering from orthopedic surgery
(such as joint replacements or amputations) or serious fractures may be
admitted into this MarinerCare program as early as three days after surgery or
injury. These patients typically require comprehensive rehabilitation,
including physical or occupational therapies, following stabilization of their
conditions or after surgery, and may require traction or fixation devices.
Cardiac Recovery. Patients who are recuperating from heart attacks or heart
surgery, or associated complications, are provided with the nursing and
rehabilitation services necessary to enable them to enter an outpatient
rehabilitation program.
Pulmonary Management. Patients with acute or chronic lung disease, including
those with tracheotomies and those who are on ventilators, are provided with
short-term intensive programs of pulmonary, physical or occupational
therapies.
Vascular and Wound Management. Patients who are recovering from surgery for
circulatory problems or from difficult-to-heal wounds or burns receive
services designed to further the healing process, such as state-of-the-art
dressing techniques, specialized bed therapies, nutritional support and
physical or occupational therapies.
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Oncology Management. Patients who have undergone surgery, chemotherapy,
radiation, immunotherapy or hormone therapy as a result of cancer are provided
with a range of services, including pain management and nutritional and
psychological support.
Stroke Recovery. Patients who are recovering from strokes and require
treatment for related neurological and physical problems are provided with a
range of services, including physical, occupational and speech therapy.
Medically Complex. Under this program Mariner treats patients with medical
complications that prolong their recuperative period from a major illness.
These secondary complications must be resolved or brought under control before
their primary diagnosis can be addressed. These patients typically require
many ancillary services and therapies. The goal of this program is to return
patients to their homes with or without support services when sufficiently
recovered.
American Pharmaceutical Services
The Company's pharmaceutical services product group, American Pharmaceutical
Services, Inc. ("APS"), is the fifth largest provider of institutional
pharmacy services in the United States. Through 41 institutional pharmacies in
15 states, APS provides services and products to more than 1,000 long-term
care centers with more than 125,000 beds in 19 states.
APS specializes in meeting the needs of healthcare providers in subacute
care, long-term care and assisted living settings. APS' primary products are
pharmacy dispensing, intravenous (IV) and enteral therapy supplies and
orthotics. The Company provides infusion therapies, including hydration, total
parenteral nutrition, antibiotic, peritoneal dialysis and pain management
therapies. Infusion therapies are often required in treating patients with
chronic infections, digestive disorders, cancer and chronic and severe pain.
The Company also provides specialized medical equipment and supplies,
including ventilators, oxygen concentrators, diagnostic equipment and various
types of durable medical equipment. Equipment and supplies are available to
patients both in its inpatient facilities and at home.
Through contractual agreements, APS provides consultant pharmacists
specializing in long-term care drug regimen reviews and regulatory monitoring.
Additionally, the division also provides full clinical support for its
products and services through long-term care facility staff education and
quality assurance programs.
Vitalink Pharmacy Services, Inc. ("Vitalink") has the right to provide
pharmaceutical supplies and services and related consulting services to the
skilled nursing facilities that were operated by GranCare as of the effective
time of the February 1997 sale of GranCare's institutional pharmacy business
to Vitalink. These agreements expire in February 2002 and limit the ability of
other pharmacy providers (including APS) to service these facilities.
Prism Rehab Systems
Prism Rehab Systems provides comprehensive rehabilitation programs and
services (physical, occupational and speech therapy) to nursing facility
residents through contracts with over 1,200 inpatient facilities throughout
the United States. This product group also provides a variety of
rehabilitation management consulting services to post-acute and long-term care
facilities. These consulting services focus on enhancing the quality of
rehabilitation therapy and include supervision of clinical procedures,
documentation and billing protocols, as well as monitoring of patient
outcomes. The primary payor for Prism's services is the Medicare program.
Accordingly, the initiation of PPS and the fee screen schedules and therapy
caps for Part B Medicare patients to be implemented on January 1, 1999 are
expected to have an adverse effect on Prism's operations.
The objective of Prism's programs is to assist the patients in attaining
their optimal level of functional independence. Rehabilitation services are
instrumental in lowering the overall cost of care by reducing the length of a
patient's stay and improving a patient's quality of life. Specialized
management staff oversee these rehabilitation programs to ensure high-quality
service delivery, program compliance and achievement of optimal outcomes for
the patient.
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Prism Rehab Systems rehabilitation programs are designed to assist inpatient
facilities in providing comprehensive rehabilitation services and in
attracting patients who would benefit from these services. The Company
provides a contracting facility with the physical, occupational and speech
therapists necessary to provide comprehensive rehabilitation services to the
facility's patients. In selected facilities, the Company also provides
MarinerCare(R) rehabilitation programs which include case management and
quality assurance services, as well as coordination of admissions functions
with key referral services. The Company also offers consulting services
regarding managed care reimbursement and cost containment strategies to these
facilities. By utilizing Prism Rehab Systems rehabilitation programs, the
Company believes that inpatient facilities are able to offer a cost effective
rehabilitation program which will make the facilities' service package more
attractive to managed care organizations.
In implementing a facility's rehabilitation programs, and in accordance with
physician's orders, therapists screen patients in the facility to assess and
identify those with functional problems. A therapist, together with the
patient's attending physician and staff of the facility, designs a plan of
care with specific long and short-term goals. Therapists with specializations
appropriate for the patient's condition meet with the patient on a regular
basis and render the prescribed rehabilitation services. The Company's
therapists assist the facility in working with local hospitals, payors and
managed care organizations to evaluate identified patients who may benefit
from the facility's rehabilitation services. Rehabilitation services are
typically rendered in a dedicated room located within the facility which is
equipped with rehabilitation equipment.
This product group also manages several pediatric programs, provides
temporary staffing to schools, and provides therapists to clinics.
Rehability Health
Rehability Health operates the Company's outpatient rehabilitation clinics,
hospital services, network administration and worksite programs. This product
group currently operates 174 outpatient rehabilitation clinics in 18 states,
with geographic concentrations of clinics in six major metropolitan areas. The
primary focus of these clinics is rehabilitation services related to
occupational, sports and other injuries that are treatable on an outpatient
basis. In addition, Rehability Hospital Services provides inpatient and
outpatient rehabilitation services under 43 contractual arrangements with
acute-care hospitals. Rehability Health also offers rehabilitation services to
corporations for their employees through its Work Health product line, a
network of over 1,600 rehabilitation clinics, and through its Continuum Health
Options, which provides rehabilitation services at the worksite.
Occupational injuries and workers' compensation claims constitute the
majority of Rehability Health's business. The primary payor for Rehability
Health's services are private employers and their insurance carriers.
Rehability Health received approximately 8% of its net patient revenues from
the Medicare program for the year ended September 30, 1998. Accordingly, PPS
and the fee screen schedules to be implemented on January 1, 1999 have not had
and are not expected to have a material impact on Rehability Health.
Mariner Specialty Services
Mariner Specialty Services operates the Company's hospital program
management, home health services and physician practice management businesses.
Through its Specialty Services Group, the Company manages specialty medical
programs in acute care hospitals through more than 100 hospital relationships
in 19 states and more than 30 home health, hospice and private duty branches
in seven states. Effective September 30, 1998, the Company divested itself of
substantially all of its hospice operations and is considering various options
with respect to its remaining home health and other specialty service
operations.
The service offerings for hospital program management include developing and
managing specialty geriatric programs on behalf of acute care hospitals,
including subacute skilled nursing, rehabilitation therapy, geriatric
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mental health, respiratory therapy and geriatric primary care networks. The
Company is generally responsible for managing the clinical and operational
aspects of a prescribed program, including quality control. Following the
design and implementation of a program, the Company provides a program
administrator who is supported by a centralized staff of experts. The Company
receives a management fee, typically based on the number of beds it manages.
The service offerings for home health include home health, private duty
nursing and hospice services. In addition, through its home health agencies,
the Company provides skilled nursing, rehabilitation, pharmacy, infusion
therapy and respiratory services and durable medical equipment and supplies to
individuals needing such services in their homes, permitting the Company to
continue to meet the nursing care needs of patients discharged from its
facilities.
SOURCES OF REVENUE
The Company receives payments for services rendered to patients from the
federal government under Medicare, from the various states where the Company
operates under Medicaid and from private insurers and the patients themselves.
The sources and amounts of the Company's patient revenues are determined by a
number of factors, including licensed bed capacity of its facilities,
occupancy rate, the payor mix, the type of services rendered to the patient
and the rates of reimbursement among payor categories (private, Medicare and
Medicaid). Changes in the mix of the Company's patients among the private pay,
Medicare and Medicaid categories as well as changes in the quality mix will
significantly affect the profitability of the Company's operations.
Historically, private pay patients have been the most profitable and Medicaid
patients have been the least profitable. Also, the Company historically
derived higher revenues from providing specialized medical services than
routine inpatient care. For the year ended September 30, 1998, the Company
derived 29.9%, 31.5% and 38.6% of its net patient revenues from private pay,
Medicare and Medicaid services, respectively (without giving pro forma effect
to the GranCare Merger and Mariner Merger).
On a pro forma basis, the increasing trend in the percentage of revenues
derived from private pay and Medicare sources has been attributable primarily
to the growth in the Company's pharmacy, therapy, contract management and
subacute operations. In addition, the Company's average reimbursement rate per
patient day for Medicare patients has increased more rapidly than for Medicaid
residents due primarily to the higher reimbursement rate associated with an
increase in acuity level. Although reimbursement for Medicare residents
historically generated a higher level of revenue per patient day, with margins
that generally exceeded those of Medicaid patients, profitability was not
proportionally tied to the revenue growth due to the additional costs
associated with providing the higher level of care and other services required
by such residents. The Company anticipates that PPS and fee screens for Part B
Medicare therapy services will further erode the profitability of Medicare
patients as compared to Medicaid patients.
The Company is in the process of evaluating the effect of the recently
established PPS system for the Medicare program on its revenues. Under PPS,
each patient is evaluated and assigned to one of 44 payment groupings, which
determines the per diem reimbursement rate for that patient. The higher the
acuity level of the patient, the more services that are required by that
patient. Accordingly, a higher acuity patient that requires more services will
be assigned to a higher payment grouping, resulting in a higher per diem rate.
The ability of the Company to offer the ancillary services required by higher
acuity patients in a cost effective manner will be critical to the Company's
success and will affect the profitability of the Company's Medicare patients.
MARKETING
In marketing its services, the Company pursues a two-tiered strategy. It
markets its facilities, programs and services, first to payors and managed
care organizations at the regional level and, second, to professionals
responsible for discharging patients at local hospitals at the facility level.
At the regional level, the Company's sales personnel seek to establish
relationships with payors and managed care organizations, who are increasingly
important sources of referrals for subacute patients. The Company develops
contractual relationships with such payors and organizations on a local,
regional and national basis. Regional level marketing will become increasingly
important as the Company establishes networks of services in its key markets.
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Information systems are being developed to provide marketing managers with
the ability to assess competitors, identify and target referral sources and
track several key indicators of sales performance for each local market.
Implementation of this marketing and sales program will also provide the
Company with the ability to manage and measure performance at both the local
and national level allowing the Company to identify shifts in market trends as
they occur.
Local market sales efforts focus on establishing and maintaining cooperative
relationships and networks with physicians, acute care hospitals and other
healthcare providers, with an emphasis on specialists who treat ailments
involving long-term care and rehabilitation. Sales programs targeting managed
care payors are also being implemented at both the local and national level.
Ongoing assessment of customer satisfaction with the Company's services allows
for improvements in product and sales performance.
In key markets, the Company's services are operated as part of a marketing
cluster. This strategy creates a strong focus on identifying more cost
effective methods to provide healthcare. There are opportunities to link
services and offer multiple services to a single payor within these targeted
markets. Development of programs to coordinate marketing efforts for all of
the Company's services within each targeted market will improve the efficiency
and effectiveness of its efforts, while creating an ability to offer a
continuum of care for post-acute services.
The Company plans to take advantage of other opportunities for increased
profitability, including arrangements with healthcare providers such as health
maintenance organizations ("HMOs"). The Company continues to establish
relationships with managed care providers which it believes will increase its
subacute care business. The cluster market approach is expected to enhance the
Company's ability to serve large providers of managed care within its targeted
markets. Typically, patients referred by managed care providers, including
HMOs and preferred provider organizations, generate higher revenues per
patient day than Medicaid patients as a result of the higher acuity of the
enrollees. Management believes that the Company's ability to provide subacute
and specialty medical services at a lower cost than acute care hospitals is a
competitive advantage in becoming the provider of choice for managed care
providers.
COMPLIANCE INITIATIVES
In May 1998, the Company established the Office of Ethics and Compliance
(the "Compliance Office") in order to formalize the adoption of a Company-wide
ethics and compliance program. Located in Washington, D.C., the Compliance
Office is headed by Eric M. Thorson, Senior Vice President-Office of Ethics
and Compliance. Mr. Thorson has had extensive experience in the area of
compliance and most recently served as Chief Investigator, United States
Senate, Committee on Finance and as Chief Investigator, Permanent Subcommittee
on Investigations prior to joining the Company. The purpose of the Compliance
Office is to address the Company's compliance issues, communicate issues to
the Chief Executive Officer and Board of Directors of the Company, monitor the
Company's "hotline," assure ethical and legal conduct by the Company's
management and employees, and to work with the Human Resources, Total Quality
Management, Legal and Internal Audit Departments on compliance training
issues, on quality of care issues and legal matters involving compliance
issues.
The Company's "hotline" is prominently posted in all of the Company's
inpatient facilities and other areas where the Company has operations.
Employees, patients and family members are encouraged to call the hotline,
either in person or anonymously, to report any potential issues that they
might note. Upon receipt of a call, the Compliance Office investigates the
issue and, if necessary, liaisons with the appropriate corporate departments
in order to resolve the issue. Employees are assured that any calls to the
hotline will not result in any retribution by the Company. Management believes
that this program has been highly successful and will help the Company to
identify trends and potential problem areas in a timely fashion for quick
remediation.
Simultaneously with the establishment of the Compliance Office, the Company
adopted a comprehensive Business Ethics Policy and has undertaken a Company-
wide compliance training initiative. The purpose of this program is to
emphasize to the Company's employees their obligation not to engage in
inappropriate behavior
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and, where appropriate, to report allegations of inappropriate actions to the
Compliance Office, which then investigates the matter. The Company plans to
roll out additional compliance training for senior management, key employees
and supervisory personal during 1999. The Company will continue to train all
new employees as part of the new employee orientation.
The Company has also implemented a comprehensive background check initiative
aimed at improving the quality of the Company's workforce and reducing
employee turnover. To the best of the Company's knowledge, the design of this
program meets or exceeds all state and federal regulatory requirements for
background checks and is applied consistently across the entire Company. The
Company believes that these initiatives will enable the Company to become an
industry leader in the area of compliance and improve the quality of its
services.
MANAGEMENT INFORMATION SYSTEMS
The Company has devoted and will continue to devote substantial time and
resources towards integrating the existing information systems of its
constituent corporations. Management expects to complete the installation of a
new client-server based financial and payroll/human resource software package
during 1999. The new software is expected to provide more timely retrieval of
financial and operating data and enhanced analytical review capabilities,
thereby increasing the utility and functionality of the Company's information
systems. In preparation for this implementation, the Company completed a
business process review of its financial and payroll/human resource processing
procedures. This business process review was designed so that maximum benefit
from the functionality offered by the new client-server software package could
be attained, best practices could be adopted for financial and payroll/human
resource processing based on procedures currently in use both within and
outside the industry and customization of software could be minimized.
Management expects the combination of the client-server implementation and
business process review to strategically position the Company to operate under
a shared services model. Benefits of a shared services model are expected to
include standardized financial reporting, streamlined human resource
management and increased access to critical and time-sensitive information
across the Company.
The ability to measure clinical and financial outcomes is central to the
Company's delivery of care and to the Company's success under PPS. The Company
has implemented a program designed to measure a patient's functional ability
on admission, at discharge and, for certain patients, six weeks after
discharge. Patients' rehabilitation potentials are evaluated using a
standardized measurement system, which rates a patient's independence in
performing a number of basic activities of daily living. This rating system
permits the Company to initially assess whether the patient will benefit from
the Company's programs, document the severity of a patient's initial
impairment and measure the outcome and cost of the patient's recuperation.
Using a case management approach, a patient's progress is continually
monitored so that the appropriate level of care is being delivered at the
right time and in the appropriate setting under the applicable clinical
program. The Company believes that its standardized approaches to delivering
care and measuring outcomes are particularly attractive to managed care
organizations and large third-party payors because they facilitate such
organizations' and payors' increasing desire to be provided with outcomes data
in order to manage and contain costs.
In the PPS environment, the ability to manage costs will be increasingly
important. Under PPS, the acuity level of a patient and the level of ancillary
services required will determine the per diem reimbursement rate for that
patient. Accordingly, providing care to high acuity patients at a low cost
will be critical to the Company's success. The Company believes that effective
information management systems will assist the Company in maintaining uniform
clinical protocols, case management procedures, outcomes measurement
procedures, cost management procedures and billing and reporting procedures
throughout the entire Company. Ultimately, once, these protocols and
procedures have been implemented at the Company's facilities, the Company
believes that they will enable the Company to operate more efficiently under
PPS.
QUALITY ASSURANCE
The Company is implementing a uniform, comprehensive quality assurance
program based on the Mariner Health model. This program seeks to ensure that
facilities meet the Company's standards, which include
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comprehensive training requirements and satisfactory results on patient
satisfaction surveys. The Company's quality assurance program includes a
training program for all new employees and periodic training programs for
clinical personnel. The Company believes that its utilization of standardized
protocols will facilitate its clinical staffs' training and skill retention.
The Company has also developed a patient satisfaction questionnaire which is
included in each patient's discharge package. Facility administrators'
performance reviews and bonuses are dependent in part upon the results of the
facility's quality as measured by regulatory surveys and its patient and
family satisfaction questionnaire.
REGULATION
Various aspects of the Company's business are regulated by the federal
government and by the states where the Company has operations. Regulatory
requirements affect the Company's business activities by controlling growth,
requiring licensure and certification for the Company's facilities and
healthcare services, and controlling reimbursement for services provided.
Although certain proceedings have been brought alleging that the Company has
not complied with federal regulatory requirements (see "Legal Proceedings"),
the Company believes it materially complies with applicable regulatory
requirements. However, there can be no assurance that the Company will be able
to maintain such compliance or will not be required to expend significant
amounts to do so. The Company has implemented an enhanced Company wide
compliance program that it believes will reduce the Company's exposure to
third party claims in the future. See "Business -- Compliance Initiatives."
Medicare and Medicaid. The Medicare program was enacted in 1965 to provide a
nationwide, federally funded health insurance program for the elderly. The
Medicaid program is a joint federal-state cooperative arrangement established
for the purpose of enabling states to furnish medical assistance on behalf of
aged, blind, or disabled individuals, or members of families with dependent
children, whose income and resources are insufficient to meet the costs of
necessary medical services. All of the Company's nursing facilities, assisted
living facilities, home health agencies and hospices, pharmacies, and
rehabilitation clinics are licensed under applicable state law and are
certified or approved (other than the assisted living facilities) as providers
or suppliers under Medicare and state Medicaid programs, as applicable.
Cost Based Reimbursement. The Medicare program historically utilized a cost-
based retrospective reimbursement system for nursing facilities, long-term
acute care ("LTAC") hospitals and home health agencies for reasonable direct
and indirect allowable costs incurred in providing "routine service" (as
defined by the program and subject to certain limits) as well as capital costs
and ancillary costs. Pursuant to the Balanced Budget Act of 1997 (the
"Balanced Budget Act") discussed below, Medicare is phasing-in a prospective
payment system ("PPS") for skilled nursing facilities and home health services
starting with cost reporting periods beginning on or after July 1, 1998 for
skilled nursing facilities and October 1, 2000 for home health agencies.
Medicare revenues and Medicaid reimbursement rates have historically been
determined from annual cost reports filed by the Company which are subject to
audit by the respective fiscal intermediaries and agencies administering the
programs. The audits generally focus on the reasonableness and necessity of
the costs incurred by providers. Some Medicare fiscal intermediaries have made
audit adjustments to settle cost reports for some facilities which reduce the
amount of reimbursement that was received by the facilities and which the
Company is appealing. Significant cost adjustments are based on the
intermediaries' denials of the exception to the related organizations
principle with regard to services and supplies furnished by the Company's
pharmacy and rehabilitation divisions to its nursing facilities, and
reductions to costs claimed for therapy services for alleged failures to
comply with prudent buyer requirements. The Company believes it has
substantial arguments in support of its position that the contested costs are
appropriate, but there can be no assurance that the Company will prevail on
all or any appeal issues, nor that it will not be required to expend
significant amounts to complete the appeal process. Adjustments to the
Company's cost reports historically have not had a material adverse effect on
its operating results. However, there can be no assurance that future
adjustments to such cost reports or
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unsuccessful appeals of current adjustments will not have a material adverse
effect on the Company's operating results. The Company files routine cost
limit exception requests with respect to cost reporting periods prior to the
implementation of PPS for the facilities which exceed the limits and fit the
criteria as exception candidates. The Company benefits from these exceptions,
and generally exception requests have been approved. However, there can be no
assurance that any such pending or future requests for the routine cost limit
exception will be granted. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources--Healthcare Regulatory Matters."
Balanced Budget Act--Medicare. The Balanced Budget Act, enacted on August 5,
1997, made numerous changes to the Medicare and Medicaid programs which affect
the Company. With respect to the Medicare program, the new law required the
establishment of a PPS system for Medicare Part A skilled nursing facility
services, under which facilities are paid a federal per diem rate for
virtually all covered services. The PPS system is being phased in over three
cost reporting periods, and started with cost reporting periods beginning on
or after July 1, 1998. The Balanced Budget Act also implemented fee screens
with respect to Medicare Part B therapy services, which will be effective
January 1, 1999. These rates were published in November 1998 and revise the
reimbursement methodology with respect to these services from a cost-basis to
a set fee. The Balanced Budget Act also imposed a per beneficiary cap of
$1,500 per provider per therapy service provided, also effective January 1,
1999. The Balanced Budget Act also instituted consolidated billing for skilled
nursing facility services, under which payments for non-physician Part B
services for beneficiaries no longer eligible for Part A skilled nursing
facility care are made to the facility, regardless of whether the item or
service was directly furnished by the facility or by others under arrangement.
While this provision was to be effective for items or services furnished on or
after July 1, 1998, it has been delayed indefinitely. Likewise, the Balanced
Budget Act required the Secretary of the Department of Health and Human
Services ("HHS") to establish a PPS system for home health services, to be
implemented beginning October 1, 1999. Subsequent legislation in 1998 delayed
the effective date until October 1, 2000. The law also contains provisions
affecting outpatient rehabilitation agencies and providers, including a 10
percent reduction in operating and capital costs for 1998, a fee schedule for
therapy services beginning in 1999, and the application of per beneficiary
therapy caps currently applicable to independent therapists to all outpatient
rehabilitation services beginning in 1999. With regard to hospices, the
Balanced Budget Act limits reimbursement by setting the payment rate increase
at a market basket minus 1.0 percentage point for fiscal years 1998 through
2002. The law also institutes a number of reforms of the hospice benefit,
including a provision that hospices can be reimbursed based on the location
where care is furnished (rather than the location of the hospice), effective
for cost reporting periods beginning on or after October 1, 1997. Other
provisions limited Medicare payments for certain drugs and biologicals,
durable medical equipment and parenteral and enteral nutrients and supplies.
On May 12, 1998, the Health Care Financing Administration ("HCFA") released
the nursing home PPS rates for skilled nursing facilities that are in effect
from July 1, 1998 through September 30, 1998. As of November 30, 1998, 174 of
the Company's facilities were operating under PPS. PPS has resulted in more
intense price competition and lower margins among ancillary service providers
(including the Company's pharmacy, therapy, and hospital services
subsidiaries). However, while the Company believes that PPS will also provide
opportunities for efficiently operated, low cost providers to achieve
economies of scale, there can be no assurance that the Company will be
successful in reducing its costs of services below the PPS reimbursement rates
or the Medicare Part B therapy fee screen rates.
While Congress has implemented PPS with respect to skilled nursing
facilities, no action was taken with respect to LTAC's. However, the Balanced
Budget Act mandated that HHS formulate a legislative proposal to develop a PPS
system for specialty medical care programs within acute care hospitals. The
Company anticipates that this will occur, but cannot anticipate when it will
occur.
Balanced Budget Act--Medicaid. The Balanced Budget Act also contains a
number of changes affecting the Medicaid program. Significantly, the law
repealed the Boren Amendment, which required state Medicaid programs to
reimburse nursing facilities for the costs that are incurred by efficiently
and economically operated
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will adopt changes in their Medicaid reimbursement systems, or, if adopted and
implemented, what effect such initiatives would have on the Company.
Nevertheless, there can be no assurance that future changes in Medicaid
reimbursement rates to nursing facilities will not have an adverse effect on
the Company. Further, the Balanced Budget Act allows states to mandate
enrollment in managed care systems without seeking approval from the Secretary
of HHS for waivers from certain Medicaid requirements as long as certain
standards are met. These managed care programs have historically exempted
institutional care although some states have instituted pilot programs to
provide such care under managed care programs. However, no assurance can be
given that these providers in order to meet quality and safety standards.
Effective for Medicaid services provided on or after October 1, 1997, states
have considerable flexibility in establishing payment rates. The Company is
not able to predict whether any states waiver provisions ultimately will not
change the Medicaid reimbursement systems for long-term care facilities from
cost-based or fee-for-service to managed care negotiated or capitated rates or
otherwise affect the level of payments to the Company.
Future Reform. Healthcare reform remains an issue for healthcare providers.
Many states are currently evaluating various proposals to restructure the
healthcare delivery system within their respective jurisdictions. It is
uncertain at this time what legislation on healthcare reform will ultimately
be implemented or whether other changes in the administration or
interpretation of governmental healthcare programs will occur. Management
anticipates that state legislatures will continue to review and assess various
healthcare reform proposals and alternative healthcare systems and payment
methodologies. Management is unable to predict the ultimate impact of any
future state restructuring of the healthcare system, but such changes could
have a material adverse impact on the results of operations, financial
condition and prospects of the Company.
The Company expects Congress to continue to consider measures to reduce the
growth in Medicare and Medicaid expenditures. The Company cannot predict at
this time whether any additional measures will be adopted or if adopted and
implemented, what effect such proposals would have on the Company. There can
be no assurance that payments under state or federal governmental programs
will remain at levels comparable to present levels or will be sufficient to
cover the costs of patients eligible for reimbursement pursuant to such
programs.
Survey and Certification. Long-term care facilities must comply with certain
requirements to participate either as a skilled nursing facility under
Medicare or a nursing facility under Medicaid. Regulations promulgated
pursuant to the Omnibus Budget Reconciliation Act of 1987, obligate facilities
to demonstrate compliance with requirements relating to resident rights,
resident assessment, quality of care, quality of life, physician services,
nursing services, pharmacy services, dietary services, rehabilitation
services, infection control, physical environment and administration.
Regulations governing survey, certification, and enforcement procedures to be
used by state and federal survey agencies to determine facilities' level of
compliance with the participation requirements for Medicare and Medicaid were
adopted by Health Care Finance Administration ("HCFA") effective July 1, 1995.
These regulations require that surveys focus on residents' outcomes of care
and state that all deviations from participation requirements will be
considered deficiencies, but a facility may have deficiencies and be in
substantial compliance with the regulations. The regulations identify
alternative remedies (meaning remedies other than termination of a facility
from the Medicare or Medicaid programs) against facilities and specify the
categories of deficiencies for which they will be applied. The alternative
remedies include, but are not limited to: civil money penalties of up to
$10,000 per day; facility closure and/or transfer of residents in emergencies;
denial of payment for new or all admissions; directed plans of correction; and
directed in-service training. HCFA requires long-term care providers, home
health agencies and hospices to comply with certain standards as a condition
to participation in the Medicare and Medicaid programs. Failure to comply may
result in termination of the provider's Medicare and Medicaid provider
agreements.
The Company believes that its facilities and service providers materially
comply with applicable regulatory requirements. From time to time, however,
the Company receives notice of noncompliance with various requirements for
Medicare/Medicaid participation or state licensure. The Company reviews such
notices for factual correctness, and based on such review, either takes
appropriate corrective action and/or challenges the stated basis for the
allegation of noncompliance. In most cases, the Company and the reviewing
agency will agree
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upon the measure to be taken to bring the facility or service provider into
compliance. Under certain circumstances, however, such as repeat violations or
perceived severity of the violations, the federal and/or state agencies have
the authority to take adverse actions against a facility or provider,
including the imposition of monetary fines, the decertification of a facility
or provider from participation in the Medicare and/or Medicaid programs, or
licensure revocation. No such enforcement action against a facility or
provider has had a material adverse impact on the Company although there can
be no assurance that such an enforcement action will not have a material
impact on the Company in the future. The Company believes it substantially
complies with these regulatory requirements, but there can be no assurance
that the Company will be able to maintain such compliance, or will not be
required to expend significant amounts to do so.
Referral Restrictions and Fraud and Abuse. The Medicare and Medicaid anti-
kickback statute, 42 U.S.C. Section 1320a-7(b), prohibits the knowing and
willful solicitation or receipt of any remuneration "in return for" referring
an individual, or for recommending or arranging for the purchase, lease, or
ordering, of any item or service for which payment may be made under Medicare
or a state healthcare program. In addition, the statute prohibits the offer or
payment of remuneration "to induce" a person to refer an individual, or to
recommend or arrange for the purchase, lease, or ordering of any item or
service for which payment may be made under the Medicare or state healthcare
programs. Violation of the anti-kickback statute, pursuant to the Balanced
Budget Act, now carries a civil monetary penalty of $50,000 per act, and
treble the remuneration involved without regard to whether any portion of that
remuneration relates to a lawful purpose. The statute contains "safe harbor"
exceptions including those for certain discounts, group purchasing
organizations, employment relationships, management and personal services
arrangements, health plans and certain other practices defined in regulatory
safe harbors.
The Ethics in Patient Referrals Act ("Stark I"), effective January 1, 1992,
generally prohibits physicians from referring Medicare patients to clinical
laboratories for testing if the referring physician (or a member of the
physician's immediate family) has a "financial relationship," through
ownership or compensation, with the laboratory. The Omnibus Budget
Reconciliation Act of 1993 contains provisions commonly known as "Stark II"
("Stark II") expanding Stark I by prohibiting physicians from referring
Medicare and Medicaid patients to an entity with which a physician has a
"financial relationship" for the furnishing of certain items set forth in a
list of "designated health services," including physical therapy, occupational
therapy, home health services, and other services. Subject to certain
exceptions, if such a financial relationship exists, the entity is generally
prohibited from claiming payment for such services under the Medicare or
Medicaid programs, and civil monetary penalties may be assessed for each
prohibited claim submitted.
There are other provisions in the Social Security Act and in other federal
and state laws authorizing the imposition of penalties, including fines and
exclusion from participation in Medicare and Medicaid, for various billing and
other offenses.
Additionally, the Health Insurance Portability and Accountability Act of
1996 (the "Accountability Act") granted expanded enforcement authority to HHS
and the U.S. Department of Justice ("DOJ"), and provided enhanced resources to
support the activities and responsibilities of the Office of Inspector General
("OIG") and DOJ by authorizing large increases in funding for investigating
fraud and abuse violations relating to healthcare delivery and payment. The
Balanced Budget Act also includes numerous health fraud provisions, including
new civil money penalties for contracting with an excluded provider; new
surety bond and information disclosure requirements for certain providers and
suppliers including home health agencies; and an expansion of the mandatory
and permissive exclusions added by the Health Insurance Portability and
Accountability Act of 1996 to any federal healthcare program (other than the
Federal Employees Health Benefits Program).
In 1995, a major anti-fraud demonstration project, "Operation Restore
Trust," was announced by the OIG. A primary purpose for the project was to
scrutinize the activities of healthcare providers who are reimbursed under the
Medicare and Medicaid programs. Investigative efforts focused on skilled
nursing facilities, home health and hospice agencies, and durable medical
equipment suppliers as well as several other types of healthcare services.
Over the longer term, Operation Restore Trust investigative techniques will
eventually be used in all 50
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states, and will be applied throughout the Medicare and Medicaid programs. The
OIG has issued, and will continue to issue, Special Fraud Alert bulletins
identifying "suspect" characteristics of potentially illegal practices by
providers, and illegal arrangements between providers. The bulletins contain
"Hot Line" numbers and encourage Medicare beneficiaries, health care company
employees, competitors, and others to call to report suspected violations.
Enforcement actions could include criminal prosecutions, suit for civil
penalties, and/or Medicare and Medicaid program exclusion.
False claims are prohibited pursuant to criminal and civil statutes.
Criminal provisions at 42 U.S.C. Section 1320a-7(b) prohibit filing false
claims or making false statements to receive payment or certification under
Medicare or Medicaid, or failing to refund overpayments or improper payments;
offenses for violation are felonies punishable by up to five years
imprisonment, and/or $25,000 fines. Civil provisions at 31 U.S.C. Section 3729
prohibit the knowing filing of a false claim or the knowing use of false
statements to obtain payment; penalties for violations are fines of not less
than $5,000 nor more than $10,000, plus treble damages, for each claim filed.
Suits alleging false claims can be brought by individuals, including employees
and competitors. Allegations have been made under the civil provisions of the
statute in certain qui tam actions that the Company has filed false claims.
See "Legal Proceedings" for a discussion of these allegations.
In addition to qui tam actions brought by private parties, the Company
believes that governmental enforcement activities have increased at both the
federal and state levels. The Company has received a request for documents
with respect to certified nurse assistant ("CNA's") billing practices at 20
inpatient facilities. See "Legal Proceedings." There can be no assurance that
substantial amounts will not be expended by the Company to cooperate with
these investigations and proceedings or to defend allegations arising
therefrom. If it were found that any of the Company's practices failed to
comply with any of the anti-fraud provisions discussed in the paragraphs
above, the Company could be materially adversely affected.
Management is unable to predict the effect of future administrative or
judicial interpretations of the laws discussed above, or whether other
legislation or regulations on the federal or state level in any of these areas
will be adopted, what form such legislation or regulations may take, or their
impact on the Company. There can be no assurances that such laws will
ultimately be interpreted in a manner consistent with the Company's practices.
See "Legal Proceedings."
Certificate of Need. CON statutes and regulations control the development
and expansion of healthcare services and facilities in certain states. The CON
process is intended to promote quality healthcare at the lowest possible cost
and to avoid the unnecessary duplication of services, equipment and
facilities. CON or similar laws generally require that approval be obtained
from the designated state health planning agency for certain acquisitions and
capital expenditures, and that such agency determine that a need exists prior
to the expansion of existing facilities, construction of new facilities,
addition of beds, acquisition of major items of equipment or introduction of
new services. Additionally, several states have instituted moratoria on new
CONs or the approval of new beds. CONs or other similar approvals may be
required in connection with the Company's future acquisitions and/or
expansions. There can be no assurance that the Company will be able to obtain
the CONs or other approvals necessary for any or all such projects.
Contract Management Regulation. Contract managers of geriatric mental health
centers, subacute care units, specialty acute hospitals and senior health
centers are not typically subject to direct regulation, although the Company
may be held responsible for violations of certain federal and state laws, such
as the referral restrictions and fraud provisions (if the contract manager is
providing billing services) described above. Further, the facilities managed
by the Company on a contract basis will be subject to regulation. Management
contracts with these facilities may hold the Company accountable in certain
instances to a facility which is cited for non-compliance with regulatory
requirements. Further, there can be no assurance that the facilities managed
by the Company will not be subject to statutory or regulatory changes which
might adversely impact these facilities and, indirectly, the Company's
contract management business.
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Therapy Regulation. The Company furnishes therapy services on a contract
basis to certain providers and to patients in most of its facilities, as well
as through its outpatient clinics. In most instances, the providers bill
Medicare for reimbursement of the amounts paid to the Company for these
services. HCFA has the authority to establish limits on the amount Medicare
reimburses for therapy services. For services other than inpatient hospital
services, these limits are equivalent to the reasonable amount that would have
been paid if provider employees had furnished the services. On January 30,
1998, HCFA issued its new salary equivalency guidelines which change Medicare
reimbursement rates for contracted therapy services. Under salary equivalency,
the Company is reimbursed for contracted therapy services based on the time
spent on the premises by the contract therapist times a fixed rate, depending
on the service provided. While the new rates for physical therapy represent an
increase over what the Company previously received for such services, the new
rates for occupational therapy and speech language pathology represent
decreases from what the Company previously received. The salary equivalency
guidelines will remain in effect until the facility at which such services are
provided, including the Company's facilities and other facilities serviced by
the Company's therapy subsidiaries, start billing under PPS. The Company
believes that while salary equivalency had a slight adverse effect on its
therapy revenue, the Company does not believe that salary equivalency will
have a material adverse effect on the Company's consolidated revenues.
Effective January 1, 1999 a per provider limit of $1,500 applies to all
rehabilitation therapy services provided under Medicare Part B ($1,500 for
physical and speech-language pathology services, and a separate $1,500 for
occupational therapy services). Additionally, effective January 1, 1999,
Medicare Part B therapy services will no longer be reimbursed on a cost basis.
Payment for each service provided will be based on fee screen schedules
published in November, 1998.
Pharmacy Regulation. Pharmacy operations are subject to regulation by the
various states in which the Company conducts its business as well as by the
federal government. The Company's pharmacies are regulated under the Food,
Drug and Cosmetic Act and the Prescription Drug Marketing Act, which are
administered by the United States Food and Drug Administration. Under the
Comprehensive Drug Abuse Prevention and Control Act of 1970, which is
administered by the United States Drug Enforcement Administration ("DEA"), the
pharmacies, as dispensers of controlled substances, must register with the
DEA, file reports of inventories and transactions and provide adequate
security measures. Failure to comply with such requirements could result in
civil or criminal penalties. The Company believes that its pharmacy operations
are in substantial compliance with such regulations.
Home Health/Hospice. Recent legislation requires that home health agencies,
among other things, re-enroll in the Medicare program every three years and,
at the time of re-enrollment, submit to an independent audit of their records
and practices. On September 19, 1997, the OIG issued its report on "Hospice
Patients in Nursing Homes" which made findings of lower frequency of services,
the overlap of services and the questionable enrollment in hospice by certain
nursing home patients, and concluded that current payment levels for hospice
care in nursing homes may be excessive. The OIG recommended that HCFA seek
legislation to modify Medicare or Medicaid payments for hospice patients
living in nursing homes. Until such legislation is adopted, the Company is
unable to predict what impact it will have on the current payment structure.
Nursing Home Enforcement Initiatives. President Clinton has announced
initiatives designed to improve the quality of care in nursing homes and to
reduce fraud in the Medicare program. On July 21, 1998, the President directed
HCFA to ensure that states take tougher enforcement measures in surveying
skilled nursing facilities; including the onsite imposition of fines without
grace periods, the imposition of fines per violation rather than per day of
noncompliance, and increased review of facilities' systems to prevent resident
neglect and abuse. On December 7, 1998, the President announced that the
Administration would continue its crackdown on providers who commit Medicare
program fraud by empowering specialized contractors to track down Medicare
scams and program waste, and by requiring providers to report evidence of
fraud so patterns of fraud can be identified early and stopped. HCFA is to
develop a comprehensive plan to fight waste, fraud, and abuse in the Medicare
program, and to report to the President in early 1999.
Senate Hearing. During the week of July 27, 1998, the Senate Special
Committee on Aging conducted a hearing concerning nursing home quality issues,
which resulted in heightened media attention and increased
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<PAGE>
public scrutiny of the nursing home industry. In the ensuing months, there
appears to have been increased enforcement actions against nursing homes,
including those operated by the Company, by state survey agencies, including
threats to terminate facilities from the Medicare and Medicaid programs, and
the impositions of fines. While no facilities operated by the Company have had
Medicare contracts terminated, a number have had fines imposed. The Company
evaluates each fine imposition and either pays the fine as assessed or appeals
the assessment. See "--Survey and Certification." While the Company believes
that it substantially complies with applicable regulatory requirements, there
can be no assurance that the Company will be able to maintain such compliance,
or will not be required to expend significant amounts to pursue appeals of
fine impositions or other sanctions.
OIG Fiscal Year 1999 Work Plan. In November of 1998, the OIG released its
fiscal year 1999 Work Plan, which summarizes the major projects the OIG
intends to pursue in each of HHS' major operating areas, including HCFA.
Eleven review initiatives concerning nursing homes were announced. Several
initiatives indicated a heightened emphasis within the OIG on quality of care
issues, and several involve an evaluation of the reasonableness of and costs
associated with therapy services provided in skilled nursing facilities. Other
nursing home reviews will include the implementation of PPS, pre-PPS
reimbursement of ancillary medical supplies, and whether mental health
services in nursing homes continue to be inappropriately billed. Reviews
related to drug reimbursement will include an assessment of the impact of
infusion therapy suppliers' charges on nursing home cost reports. While the
Company believes that it provides quality care to the patients in its
facilities and materially complies with all applicable regulatory
requirements, there can be no assurance that the Company will not be required
to expend significant sums in connection with increased governmental
investigatory activity.
COMPETITION
The long-term healthcare industry is segmented into a variety of competitive
areas which market similar services. These competitors include nursing homes,
hospitals, extended care centers, assisted living facilities, retirement
centers and communities and home health and hospice agencies. Many operators
of acute care hospitals offer or may offer post-acute care services in the
future. These operators would have the competitive advantage of being able to
offer services to patients at their affiliated post-acute care operations. The
Company's facilities historically have competed on a local basis with other
long-term care providers, and the Company's competitive position will vary
from center to center within the various communities it serves. Significant
competitive factors include the quality of care provided, reputation, location
and physical appearance of the long-term care facilities and, in the case of
private pay residents, charges for services. Since there is little price
competition with respect to Medicaid and Medicare residents, the range of
services provided by the Company's facilities covered by Medicaid and Medicare
as well as the location and physical condition of its facilities will
significantly affect its competitive position in its markets. Competition in
the institutional pharmaceutical and the rehabilitation services markets
ranges from small local operators to companies that are national in scope and
distribution capability. In order to enhance its ability to compete at both
the national and regional market level, the Company intends to implement
certain marketing and information systems initiatives. See "--Marketing" and
"--Management Information Systems."
INSURANCE
The Company maintains, on behalf of itself and its subsidiaries, insurance
coverages that it deems adequate. The Company also requires that physicians
practicing at its inpatient facilities carry medical malpractice insurance to
cover their individual practice. Moreover, insurance coverage for punitive
damages is not available in certain states, and proceedings involving claims
of punitive damages are pending in certain of these states. Moreover, given
the current regulatory enforcement and litigation environment, there can be no
assurance that the Company's insurance coverages will be adequate to satisfy
any future adverse determinations against the Company. See "Business--
Regulation," "Legal Proceedings" and Note 18 to the Consolidated Financial
Statements.
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<PAGE>
EMPLOYEES
The Company employs over 65,000 employees. The Company depends upon skilled
personnel such as nurses as well as unskilled labor to staff its facilities.
In some areas in which the Company operates there is a labor shortage that
could have a material adverse effect upon the Company's ability to attract or
retain sufficient numbers of skilled personnel and the ability to attract or
retain sufficient numbers of unskilled labor at reasonable wages. The Company
has collective bargaining agreements with unions representing employees at 16
facilities and with employee counsels at two of its facilities. The Company
cannot predict the effect continued union representation or organizational
activities will have on its future activities. However, the aforementioned
organizations have not caused any material work stoppages in the past.
CAUTIONARY STATEMENTS
Information provided herein by the Company contains, and from time to time
the Company may disseminate materials and make statements which may contain
"forward-looking" information, as that term is defined by the Private
Securities Litigation Reform Act of 1995 (the "Act"). In particular, the
information contained in "Management's Discussion and Analysis of Financial
Position and Results of Operations--Liquidity and Capital Resources" contains
information concerning the ability of the Company to service its debt
obligations and other financial commitments as they come due; "Business"
contains information concerning the effects of PPS on the Company's
operations; "Business-Strategy" contains information regarding management's
belief concerning the growth opportunities available to the Company; and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000" contains information concerning management's belief
regarding the Company's and third parties' readiness to face the Year 2000
issue. The aforementioned forward looking statements, as well as other forward
looking statements made herein, are qualified in their entirety by these
cautionary statements, which are being made pursuant to the provisions of the
Act and with the intention of obtaining the benefits of the "safe harbor"
provisions of the Act.
The Company cautions investors that any forward-looking statements made by
the Company are not guarantees of future performance and that actual results
may differ materially from those in the forward-looking statements as a result
of various factors, including, but not limited to, the following:
(i) In recent years, an increasing number of legislative proposals have
been introduced or proposed by Congress and in some state
legislatures which would effect major changes in the healthcare
system. However, the Company cannot predict the type of healthcare
reform legislation which may be proposed or adopted by Congress or by
state legislatures. Accordingly, the Company is unable to assess the
effect of any such legislation on its business. There can be no
assurance that any such legislation will not have a material adverse
impact on the future growth, revenues and net income of the Company.
(ii) The Company derives substantial portions of its revenues from third-
party payors, including government reimbursement programs such as
Medicare and Medicaid, and some portions of its revenues from
nongovernmental sources, such as commercial insurance companies,
health maintenance organizations and other charge-based contracted
payment sources. Both government and non government payors have
undertaken cost-containment measures designed to limit payments to
healthcare providers. There can be no assurance that payments under
governmental and nongovernmental payor programs will be sufficient to
cover the costs allocable to patients eligible for reimbursement,
especially with the implementation of PPS and fee screens with
respect to therapy services. The Company cannot predict whether or
what proposals or cost-containment measures will be adopted in the
future or, if adopted and implemented, what effect, if any, such
proposals might have on the operations of the Company.
(iii) The Company is subject to extensive federal, state and local
regulations governing licensure, conduct of operations at existing
facilities, construction of new facilities, purchase or lease of
existing facilities, addition of new services, certain capital
expenditures, cost-containment and reimbursement for services
rendered. The failure to obtain or renew required regulatory
approvals or licenses, the failure to comply
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<PAGE>
with applicable regulatory requirements, the delicensing of facilities
owned, leased or operated by the Company or the disqualification of
the Company from participation in certain federal and state
reimbursement programs, or the imposition of harsh enforcement
sanctions could have a material adverse effect upon the operations of
the Company.
(iv) There can be no assurance that the Company will be able to continue
its substantial growth or be able to fully implement its strategy to
develop and its business strategies for its inpatient services,
pharmaceutical services, rehabilitation services, or specialty
services divisions.
(v) With respect to the year 2000 disclosure contained in Management's
Discussion and Analysis of Financial Position and Results of
Operations-Year 2000, management is unable to predict the extent to
which its third-party payors will be affected by the Year 2000 Issue
or the extent to which it will be able to remedy issues associated
with embedded chips in critical medical devices located in the
Company's facilities, which may malfunction as a result of the Year
2000 Issue.
(vi) There can be no assurance that an adverse determination in a legal
proceeding or governmental investigation, whether currently asserted
or arising in the future, will not have a material adverse effect on
the Company.
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<PAGE>
ITEM 2. PROPERTIES
The Company operates 428 long-term care facilities (416 skilled nursing
facilities and 12 free standing assisted living facilities) with over 50,000
licensed beds located in 29 states. Licensed beds represent the number of beds
for which a license has been issued and may vary from the actual beds
available for use. The average occupancy rate for the Company's inpatient
facilities (excluding LTACs) was 84.9% for the year ended September 30, 1998
on a pro forma basis after giving effect to the Apollo/LCA/GranCare Mergers
and the Mariner Merger. The Company operates the following facilities:
<TABLE>
<CAPTION>
OWNED LEASED MANAGED TOTAL
----------------- ----------------- ---------------- -----------------
FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS
---------- ------ ---------- ------ ---------- ----- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Alabama................. 7 788 -- -- -- -- 7 788
Arizona................. 4 506 10 1,211 -- -- 14 1,717
California.............. 5 610 34 3,813 4 385 43 4,808
Colorado................ 23 2,340 11 1,320 -- -- 34 3,660
Connecticut............. 2 250 1 90 -- -- 3 340
Delaware................ -- -- -- -- 1 99 1 99
Florida................. 27 3,256 1 120 2 369 30 3,745
Georgia................. 5 570 6 740 -- -- 11 1,310
Iowa.................... 1 82 6 417 -- -- 7 499
Illinois................ 13 1,158 6 747 1 206 20 2,111
Indiana................. -- -- 3 429 -- -- 3 429
Louisiana............... -- -- 8 1,423 -- -- 8 1,423
Maryland................ 11 1,839 2 368 1 138 14 2,345
Massachusetts........... 5 576 -- -- 6 809 11 1,385
Michigan................ 13 1,807 -- -- -- -- 13 1,807
Mississippi............. 1 121 10 1,103 -- -- 11 1,224
Nebraska................ 7 590 -- -- -- -- 7 590
New Jersey.............. -- -- -- -- 1 180 1 180
North Carolina.......... 30 3,574 4 600 1 60 35 4,234
Ohio.................... 1 93 1 100 -- -- 2 193
Oklahoma................ -- -- 1 161 -- -- 1 161
Pennsylvania............ 2 205 -- -- -- -- 2 205
South Carolina.......... 4 565 9 964 -- -- 13 1,529
Tennessee............... 2 210 4 483 -- -- 6 693
Texas................... 57 6,790 44 4,690 2 260 103 11,740
Virginia................ -- -- 5 314 1 60 6 374
West Virginia........... 1 186 -- -- -- -- 1 186
Wisconsin............... 7 1,240 8 926 -- -- 15 2,166
Wyoming................. 4 401 2 140 -- -- 6 541
--- ------ --- ------ --- ----- --- ------
Total................... 232 27,757 176 20,159 20 2,566 428 50,482
=== ====== === ====== === ===== === ======
</TABLE>
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<PAGE>
In addition to long-term care facilities, the Company operates 175
outpatient rehabilitation clinics in 18 states and 41 institutional pharmacies
in 15 states, as follows:
<TABLE>
<CAPTION>
STATE CLINICS PHARMACIES
----- ------- ----------
<S> <C> <C>
Alabama................................................. -- 1
Arkansas................................................ -- 2
California.............................................. 3 --
Colorado................................................ -- 2
Connecticut............................................. 4 --
Florida................................................. 22 10
Georgia................................................. 5 2
Illinois................................................ 2 2
Indiana................................................. -- 1
Kansas.................................................. 7 --
Kentucky................................................ 2 --
Louisiana............................................... 5 2
Maryland................................................ 3 1
Massachusetts........................................... -- 1
Mississippi............................................. 9 1
Missouri................................................ 19 --
Nevada.................................................. 1 --
New Jersey.............................................. -- 1
North Carolina.......................................... 28 2
South Carolina.......................................... 10 --
Tennessee............................................... 16 1
Texas................................................... 28 12
Virginia................................................ 8 --
Wisconsin............................................... 3 --
--- ---
Total................................................... 175 41
=== ===
</TABLE>
Substantially all of the Company's outpatient rehabilitation clinics and
institutional pharmacy facilities are leased under "triple net" leases.
Subject to the exceptions set forth below, the Company's hospital services
division enters into contracts with acute care hospitals for the management of
geriatric specialty programs, generally located inside such hospitals. Such
management contracts do not generally involve the lease or purchase of any
property.
The Company's LTAC product line operates 11 owned, leased or managed LTAC's
located in the following states:
<TABLE>
<CAPTION>
OWNED OR
LEASED MANAGED TOTAL
--------------- --------------- ---------------
FACILITIES BEDS FACILITIES BEDS FACILITIES BEDS
---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Arizona......................... 1 21 -- -- 1 21
Louisiana....................... 3 172 1 20 4 192
Texas........................... 4 302 2 76 6 378
--- --- --- --- --- ---
Total........................... 8 495 3 96 11 591
=== === === === === ===
</TABLE>
The LTAC product line acquired eight of its LTAC's in an acquisition
consummated in July 1998. On a pro forma basis giving effect to this
acquisition the occupancy rate for the Company's LTAC's for the year ended
September 30, 1998 was 41.49%.
Certain of the above properties serve as collateral for various mortgage
debt instruments or capitalized lease obligations. See Notes 10 and 17 to the
Consolidated Financial Statements. The Company regularly reviews its portfolio
of properties and intends to divest those properties which it believes do not
meet quality or financial performance standards or do not fit strategically
into the Company's operations.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
As is typical in the healthcare industry, the Company is and will be subject
to claims that its services have resulted in resident injury or other adverse
effects, the risks of which will be greater for higher acuity residents
receiving services from the Company than for other long-term care residents.
The Company is, from time to time, subject to such negligence claims and other
litigation. In addition, resident, visitor, and employee injuries will also
subject the Company to the risk of litigation. The Company has experienced an
increasing trend in the past year in the number and severity of litigation
claims asserted against the Company. Management believes that this trend is
endemic to the long-term care industry and is a result of several large
judgments against long-term care providers, other than the Company, in the last
year resulting in an increased awareness by plaintiff's lawyers of potentially
large recoveries. The Company also believes that there has been, and will
continue to be, an increase in governmental investigations of long-term care
providers, particularly in the area of false claims, as well as an increase in
enforcement actions resulting from the investigations. While the Company
believes that it provides quality care to the patients in its facilities and
materially complies with all applicable regulatory requirements, an adverse
determination in a legal proceeding or governmental investigation, whether
currently asserted or arising in the future, could have a material adverse
effect on the Company.
From time to time, the Company and its subsidiaries have been parties to
various legal proceedings in the ordinary course of their respective
businesses. In the opinion of management, except as described below, there are
currently no proceedings which, individually or in the aggregate, if determined
adversely to the Company and after taking into account the insurance coverage
maintained by the Company, would have a material adverse effect on the
Company's financial position or results of operations.
On August 26, 1996, a class action complaint was asserted against GranCare in
the Denver, Colorado District Court, Salas, et al. v. GranCare, Inc., and AMS
Properties, Inc., d/b/a Cedars Health Care Center, Inc. Case No. 96 CV 4449,
asserting five claims for relief, including third-party beneficiary, tortious
interference and negligence per se causes of action arising out of quality of
care issues at a healthcare facility formerly owned by GranCare. Pursuant to
the Third Amended Complaint, the class claims were finally identified as third-
party beneficiary of contract; breach of contract; tortious interference with
contract; fraud; and negligence per se. In addition to the class claims, the
named plaintiffs each asserted claims for promissory estoppel and violation of
the Colorado Consumer Protection Act.
On March 15, 1998, the court entered an order in which it certified a class
action in the matter. The court has only certified the class with respect to
the issue of liability and the various class rights to restitution. The court
determined that emotional distress damages are of such an individualized and
personal nature that the class-wide request for emotional distress damages was
not appropriate for class treatment. On May 7, 1998, plaintiff's counsel orally
dismissed her promissory estoppel claims on behalf of the named plaintiffs. In
response to the Company's Motion to Dismiss All Claims and Motion for Summary
Judgment Precluding Recovery of Medicaid Funds, on October 30, 1998, the court
partially granted the Company's motions, dismissing the claims of all
plaintiffs who were at all times during the class period Medicare/Medicaid
patients, for lack of jurisdiction. The court further dismissed all restitution
claims for the remaining plaintiffs, except those relating to emotional
distress for the period beginning with their stay at defendants' facility and
ending at the moment that they first received any Medicare/Medicaid benefits.
No restitution claims of any sort were allowed on the claims for tortuous
interference, fraud and negligence per se. In its order, the court requested a
conference relative to whether the class was large enough to justify continuing
the case as a class action. After this order, at the request of plaintiffs'
counsel, the court stayed all activity and allowed plaintiffs to file a Motion
for Reconsideration. Plaintiffs' Motion for Reconsideration was filed, as
ordered, on November 16, 1998, and the court denied plaintiffs' motion on
November 19, 1998. On December 10, 1998, the court certified as a final
judgment that portion of its order of October 30, 1998 dismissing for lack of
jurisdiction all the claims of plaintiffs who were at all relevant times
Medicare or Medicaid patients. The court further stayed all remaining
proceedings pending
22
<PAGE>
resolution of any appeal of the certified final judgment, and vacated the
trial which had been scheduled for March 15, 1999. The Company intends to
vigorously contest the remaining alleged claims and the certification of the
various classes.
The Company received a letter dated September 5, 1997 from an Assistant
United States Attorney ("AUSA") in the United States Attorney's Office for the
Eastern District of Texas (Beaumont) advising that the office is involved in
an investigation of allegations that services provided at some of the
Company's facilities may violate the Civil False Claims Act. The AUSA informed
the Company that the investigation is the result of a qui tam complaint (which
involves a private citizen requesting the federal government to intervene in
an action because of an alleged violation of a federal statute) filed under
seal against the Company, and the AUSA is investigating the allegations in
order to determine if the United States will intervene in the proceedings. The
AUSA has requested that the Company voluntarily produce a substantial amount
of documents, including medical records of former residents. In November 1997,
counsel for the Company met with the AUSA and the parties engaged in
discussions on whether the voluntary production of former residents' medical
records can be accomplished without violating the residents' rights to privacy
and confidentiality. Based upon the information currently known about the
complaint, the Company believes that given an opportunity to address the
allegations, the AUSA will find intervention by the United States is without
merit. In December 1997, the Company advised the AUSA that absent the United
States agreeing to protect the confidentiality of the residents' medical
records, and to prevent unauthorized disclosure of the information requested
to non-government personnel, the Company would not agree to a voluntary
production. The Company has reopened discussions with the Department of
Justice regarding the Company's position on the alleged claims. The Company
will vigorously contest the alleged claims if the complaint is pursued.
In 1997, the Department of Justice ("DOJ") advised the Company that the
United States had declined to intervene in the qui tam complaint filed against
The Brian Center Corporation ("BCC") and one of its subsidiaries, Med-Therapy
Rehabilitation Services, Inc. ("Med-Therapy"), both wholly-owned subsidiaries
of the Company (and of LCA before the Apollo/LCA/GranCare Mergers) in the
federal district court for the Western District of North Carolina. The
individual plaintiff has continued to pursue the alleged claims that BCC and
Med-Therapy caused certain therapists to make improper therapy record entries
with respect to screening services, and that any claims filed with Medicare
for payments based upon such improper record entries should be viewed as false
claims under the Civil False Claims Act. The Company continues to vigorously
contest these claims. Although the plaintiff's original complaint was
dismissed for failure to state a claim, in September 1998, the court denied
the Company's motion to dismiss an amended complaint. The parties have
recently engaged in settlement negotiations, and if the case does not settle,
discovery will commence. In connection with the Company's acquisition of BCC,
the primary stockholder (Donald C. Beaver) agreed to indemnify and hold
harmless the Company from and against any and all loss, expense, damage,
penalty and liability which could result from this claim, subject to further
adjustment. Mr. Beaver's indemnity requires any payment to the Company to be
in the form of shares of the Company's common stock.
On May 18, 1998, a class action complaint was asserted against the Company,
certain of its predecessor entities and affiliates and certain other parties
in the Tampa, Florida Circuit Court, Wilson, et al, v. Mariner Post-Acute
Network, Inc., et al., case no. 98-03779, asserting seven claims for relief,
including breach of contract, breach of fiduciary duty, unjust enrichment,
violation of Florida Civil Remedies for Criminal Practices Act, violation of
Florida Racketeer and Corrupt Organization Act, false advertising and common-
law conspiracy arising out of quality of care issues at a health care facility
formerly operated by the Brian Center Health and Rehabilitation/Tampa, Inc.
and later by a subsidiary of LCA as a result of the Brian Center Corporation
merger. The Company removed this case to Federal Court on June 10, 1998 and
the matter is currently pending in the United States District Court for the
Middle District of Florida, Tampa division, case no. 98-1205-CIV-T23B. The
plaintiffs filed a motion to remand on June 22, 1998 and the Company filed a
motion to dismiss on June 30, 1998. The Company is currently awaiting the
outcome of these motions. The complaint has only been recently filed and no
discovery has been conducted. Accordingly, the information available to the
Company is very limited and the Company is unable to assess at this point the
magnitude of the allegations. The Company intends to vigorously contest the
request for class certification as well as all alleged claims made by the
plaintiffs.
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<PAGE>
On August 25, 1998, a complaint was filed by the United States against the
Company's GranCare and International X-Ray subsidiaries and certain other
parties under the Civil False Claims Act and in common law and equity. The
lawsuit, U.S. v. Sentry X-Ray, Ltd., et al., civil action no. 98-73722, was
filed in United States District Court for the Eastern District of Michigan.
Valley X-Ray operates a mobile X-Ray company in Michigan. A Company
subsidiary, International X-Ray, owns a minority partnership interest in
defendant Valley X-Ray. The interest in Valley X-Ray was acquired by a
predecessor corporation as an incidental part of a large acquisition.
International X-Ray was not involved in the operation of Valley X-Ray. The
case asserts five claims for relief, including two claims for violation of the
Civil False Claims Act, two alternative claims of common law fraud and unjust
enrichment, and one request for application of the Federal Debt Collection
Procedures Act. The two primary allegations of the complaint are: that the X-
Ray company received Medicare overpayments for transportation costs in the
amount of $657,767; and that the X-Ray company "upcoded" Medicare claims for
EKG services in the amount of $631,090. The United States has requested treble
damages as well as civil penalties of $5,000 to $10,000 for each of the
alleged 388 submitted Medicare claims. The total damages sought varies from
$5.3 to $7.2 million. The Company is vigorously contesting all claims and
filed two motions to dismiss on behalf of its subsidiaries on November 23,
1998. The United States has agreed to the dismissal of GranCare as a party,
and the briefing on the second motion regarding International X-Ray has been
completed and awaits scheduling.
On September 18, 1998, the Company was served with an administrative
subpoena issued by the OIG. The subpoena was addressed to "Paragon Health
Network, Inc." The subpoena seeks, among other things, certain records of
twenty specified current or former LCA nursing facilities. The Company has
been advised that the investigation is civil in nature and focuses on nursing
facilities and nurse aide services. The government has not disclosed the
origin of this civil administrative investigation or its intended scope. The
Company is cooperating with the investigation and has retained experienced
counsel to assist in responding to the subpoena and to advise it with respect
to this investigation. This investigation is still in its preliminary stages;
therefore, the Company is unable to predict the outcome of this matter.
On October 1, 1998, a class action complaint was asserted against certain of
the Company's predecessor entities and affiliates and certain other parties in
the Tampa, Florida, Circuit Court, Ayres, et al v. Donald C. Beaver, et al,
case no 98-7233. The complaint asserts three claims for relief, including
breach of fiduciary duty against one group of defendants, breach of fiduciary
duty against another group of defendants, and civil conspiracy arising out of
issues involving facilities previously operated by the Brian Center
Corporation or one of its subsidiaries, and later by a subsidiary of LCA, as a
result of the merger with Brian Center Corporation. The Company removed this
case to Federal Court on November 2, 1998, and the matter is currently pending
in the United States District Court for the Middle District of Florida, Tampa
Division, case no 98-2240-CIV-T-17C. The plaintiffs filed a Motion to Remand
on November 13, 1998, and the Company will be presenting a brief in
opposition. The complaint has only been recently filed and no discovery has
been conducted. Thus, the information available to the Company is very
limited. At this point, the Company is unable to access the magnitude of the
allegations. The Company intends to vigorously contest all claims, including
all issues relating to the attempted certification of any alleged class.
In October, 1998, the Custodian of Records of Cambridge Bedford, Inc., also
known as Bedford Villa Nursing Center ("Bedford"), a wholly-owned subsidiary
of the Company, was served an administrative subpoena issued by the OIG. The
subpoena seeks, among other things, general information on corporate ownership
and organizational structure, therapy and physician service arrangements, and
medical records of eleven former residents of Bedford. Bedford has been
advised that the investigation is civil in nature, and the OIG has assured the
facility that the OIG will follow all applicable federal laws, including the
Privacy Act, that pertain to the confidentiality of medical records, and that
Bedford will face no violation of confidentiality or privacy laws in producing
the patient medical records requested. The Company is cooperating with the
investigation and has transmitted documents responsive to the subpoena on
November 17, 1998.
In November, 1998, Bedford also received a subpoena duces tecum from the
DOJ, through the U.S. Attorney's Office in Detroit, Michigan, requesting
certain patient medical records as the result of a criminal investigation of a
named physician. The Company has been advised that the facility is not a
subject or target of the investigation. The Company is cooperating with the
U.S. Attorney's Office.
24
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the stockholders of the Company was held on July 28,
1998 in Atlanta, Georgia. At that time, the following matters were voted on
(the votes for, against and abstentions for each matter are summarized below):
<TABLE>
<CAPTION>
VOTES VOTES
FOR AGAINST ABSTENTIONS
---------- --------- -----------
<S> <C> <C> <C>
1. Approval of issuance of Company common
stock to former stockholders of Mariner
Health Group, Inc. in connection with the
Mariner Merger........................... 31,721,175 69,411 25,356
2. Approval of amendment to the Company's
Amended and Restated Certificate of
Incorporation (the "Certificate") to
change the name of the Company from
"Paragon Health Network, Inc." to
"Mariner Post-Acute Network, Inc."....... 31,725,339 65,418 25,185
3. Approval of amendment to the Certificate
to increase the authorized number of
shares of Company common stock to 500
million shares........................... 27,316,038 4,476,299 23,605
4. Approval of increase in shares of Company
common stock available for issuance under
the Company's 1997 Long-Term Incentive
Plan by four million shares.............. 29,450,448 2,302,925 62,569
</TABLE>
ITEM 4A. EXECUTIVE MANAGEMENT OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Keith B. Pitts.......... 41 Chairman of the Board, Chief Executive Officer and Director
Arthur W. Stratton, Jr., 52 Vice Chairman of the Board, President, Chief Operating Officer
M.D.................... and Director
Thomas P. Dixon......... 50 President--Prism Rehab Systems
William R. Korslin...... 48 President--American Pharmaceutical Services
David L. Ward........... 43 President--Rehability Health
Charles B. Carden....... 54 Executive Vice President and Chief Financial Officer
R. Jeffrey Taylor....... 49 Executive Vice President, Development
Ann E. Weiser........... 41 Senior Vice President, Human Resources
Susan Thomas Whittle.... 50 Senior Vice President, General Counsel and Secretary
</TABLE>
Keith B. Pitts serves as Chairman of the Board and Chief Executive Officer
of the Company and has served in such capacity since November 4, 1997. In
addition, Mr. Pitts served as President of the Company from November 4, 1997
to July 31, 1998. From August 1997 to November 4, 1997 Mr. Pitts served as a
consultant to Apollo in connection with the transactions pursuant to which
Apollo acquired its interest in the Company. From February 1997 to August 1997
Mr. Pitts was a consultant to Tenet Healthcare Corp. Mr. Pitts served as the
Executive Vice President and Chief Financial Officer of OrNda HealthCorp, a
healthcare service provider in the United States, from August 1992 until its
merger with Tenet Healthcare Corp. in January 1997. Prior to joining OrNda
HealthCorp, from July 1991 to August 1992, Mr. Pitts was a partner in Ernst &
Young LLP's Southeast Region Health Care Consulting Group, and from January
1988 to July 1991 he was a partner and Regional Director of Ernst & Young
LLP's Western Region Health Care Consulting Group. Mr. Pitts is a director of
Sunburst Hospitality Corporation, a publicly traded corporation engaged in the
hotel business, as well as several private corporations.
Arthur W. Stratton, Jr., M.D. is Vice Chairman of the Board, President and
Chief Operating Officer of the Company and has served in such capacity since
July 31, 1998. Dr. Stratton was Chairman of the Board and Chief
25
<PAGE>
Executive Officer of Mariner Health, serving in such capacities from 1988 to
July 31, 1998. He also served as President of Mariner from its inception to
May 1994 and from February 1995 through July 31, 1998.
Thomas P. Dixon is President of Prism Rehab Systems and has served in such
capacity since November 4, 1997. From January 1996 until October 1997, Mr.
Dixon served as Chief Operating Officer of Prism. Prior to January 1996, Mr.
Dixon served as Senior Vice President of Prism, and President of Prism's
rehabilitation division, and served in such capacities since co-founding Prism
in September 1992.
William R. Korslin is President--American Pharmaceutical Services and has
served in such capacity since November 4, 1997. Prior to that Mr. Korslin
served as a Vice President of LCA from September 1995 and as President of
American Pharmaceutical Services, Inc. ("APS"), LCA's pharmaceutical services
subsidiary, from May 1994 until April 1998. Mr. Korslin joined APS in July
1987 as General Manager Enteral Services. From 1989 through 1992, he served as
Eastern Area Vice President of APS and, from 1992 to 1994, Mr. Korslin was
Senior Vice President in charge of all field operations of APS.
David L. Ward is President--Rehability Health and has served in such
capacity since November 4, 1997. Prior to this, Mr. Ward served as an officer
of LCA's American Rehability Services division since joining LCA in May 1996.
Prior to joining LCA, Mr. Ward served in a variety of management positions
with NovaCare, Inc., a national provider of rehabilitation services to long-
term and other healthcare facilities since January 1988, including the
Southern States Regional President of NovaCare's Outpatient Division, the
Arizona Regional President for NovaCare's Hospital Division, NovaCare's Vice
President of Organizational Planning and Development, the Southwestern Vice
President of NovaCare's Contract Services Division, the Western Vice President
of NovaCare's Contract Services Division and NovaCare's National Sales
Manager.
Charles B. Carden is Executive Vice President and Chief Financial Officer of
the Company and has served in such capacity since November 4, 1997. Prior to
that, Mr. Carden served as Executive Vice President and Chief Financial
Officer of LCA since October 1996. Before joining LCA, Mr. Carden was Chief
Financial Officer of Leaseway Transportation Corp., where he was employed for
14 years. He also has held various supervisory and analytical positions in
corporate finance with Ford Motor Company.
R. Jeffrey Taylor is Executive Vice President, Development of the Company
and has served in such capacity since July 31, 1998. Mr. Taylor served as
Senior Vice President, Development of the Company from November 19, 1997 to
July 31, 1998. Prior to that, Mr. Taylor served as Senior Vice President of
GranCare since January 1997, as President of GranCare's ancillary services
division from November 1996 through January 1997, and as President of GCI
Renal Care, Inc., a subsidiary of GranCare, from February 1996 through
November 1996. Before joining GranCare, Mr. Taylor was Chief Executive Officer
of American Outpatient Services Corporation, a dialysis company, from July
1994 to February 1996. From January 1992 to June 1994 he was President of
Weisman, Taylor, Simpson & Sabatino, a health care merchant banking firm based
in California. From 1982 through 1991 Mr. Taylor served in several executive
capacities with American Medical International, Inc. including General Counsel
and Executive Vice President, Chief Administrative Officer.
Ann E. Weiser is Senior Vice President, Human Resources of the Company and
has served in such capacity since January 1, 1998. Prior to that, Ms. Weiser
served as Senior Vice President-Human Resources for RR Donnelley & Sons
Company from August 1996 until October 1997. Prior to this, Ms. Weiser served
as Vice President Human Resources at Kraft Foods, Inc. from August 1989
through August 1996.
Susan Thomas Whittle is Senior Vice President, General Counsel and Secretary
of the Company and has served in such capacity since November 4, 1997. Prior
to that, Ms. Whittle served as Vice President, General Counsel and Secretary
of LCA from September 1993 to November 4, 1997. Before joining LCA, Ms.
Whittle was a partner with the law firms of Clark, Thomas & Winters of Austin,
Texas since February 1992 and Wood, Lucksinger & Epstein, a national
healthcare law firm, from May 1981 through February 1992.
26
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKETS AND SALES PRICES OF COMMON EQUITY SECURITIES
The Company's common stock was traded on the New York Stock Exchange
("NYSE") under the symbol "LCA," through November 4, 1997 and "PGN" through
July 31, 1998. Since August 1, 1998, the Company's common stock has been
traded on the NYSE under the symbol "MPN." The high and low sales prices for
each quarter for the last two fiscal years is presented in the table below. On
November 24, 1997, the Board of Directors of the Company declared a three-for-
one stock split to stockholders of record as of December 15, 1997 and which
was paid on December 30, 1997. The information below has been adjusted to give
effect to this stock split.
<TABLE>
<CAPTION>
1998 1997
---------------- -------------------
QUARTER ENDED HIGH LOW HIGH LOW
- ------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
December 31................................ $20 3/4 $16 1/4 $ 9 7/16 $ 9 3/16
March 31................................... 21 1/2 17 1/16 11 3/4 11 1/4
June 30.................................... 21 13 7/8 13 1/4 12 15/16
September 30............................... 17 1/4 4 7/8 13 11/16 12 1/2
</TABLE>
NUMBER OF STOCKHOLDERS
As of December 21, 1998, there were approximately 1,900 owners of record of
the Company's common stock.
DIVIDENDS
The Company has not paid any cash dividends on its common stock since
inception and it does not currently anticipate paying any such dividends on
its common stock in the future. The Company's Senior Credit Facility,
indenture with respect to the Company's outstanding Senior Subordinated Notes,
and various other note agreements contain covenants which effectively limit
the ability of the Company to pay cash dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and Note 10 to the Consolidated Financial Statements.
UNREGISTERED STOCK SALES
In connection with the acquisition of Professional Rehability, Inc. and
certain affiliated companies, on May 1, 1998 the Company issued 1,147,225
shares of its common stock as part of the consideration. These were issued
pursuant to the exemption from registration contained in Rule 506 of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act").
In connection with the acquisition by merger of Summit Medical Holdings,
Ltd. on July 13, 1998, the Company issued 1,043,358 shares of its common stock
as part of the consideration. These were issued pursuant to the exemption from
registration contained in Rule 506 of Regulation D promulgated under the
Securities Act.
27
<PAGE>
ITEM 6. SELECTED FINANCIAL INFORMATION
The following selected financial data are derived from the Company's
Consolidated Financial Statements, which have been audited by Ernst & Young
LLP, independent auditors. The Consolidated Financial Statements give
retroactive effect to the acquisition by merger of the Brian Centers
Corporation ("BCC") as though the transaction occurred on September 30, 1993;
such transaction has been accounted for using the pooling of interests method
of accounting. THE CONSOLIDATED FINANCIAL STATEMENTS GIVE EFFECT TO THE
APOLLO/LCA/GRANCARE MERGERS EFFECTIVE NOVEMBER 1, 1997 AND THE MARINER MERGER
EFFECTIVE JULY 31, 1998. The information set forth below is qualified by
reference to, and should be read in conjunction with, the Consolidated
Financial Statements and the Notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this filing. All dollar amounts are presented in thousands, except per
share amounts.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND
STATISTICAL DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net revenues.......... $2,035,529 $1,140,288 $1,114,491 $893,869 $708,873
Income (loss) from op-
erations............. (94,072) 95,108 89,556 57,005 49,468
Interest expense,
net................ 114,302 16,852 12,461 10,817 10,894
Equity
earnings/minority
interests.......... (562) (735) (156) (204) 1,603
Extraordinary loss.. (11,275) -- -- -- --
Net income (loss)... (209,652) 43,917 43,180 24,234 26,616
Pro forma taxes(1).... -- -- -- 599 899
Pro forma net income
(loss)(1)............ (209,652) 43,917 43,180 23,635 25,717
Earnings (loss) per
share--basic(2)...... $ (4.31) $ 0.75 $ 0.72 $ 0.43 $ 0.52
Pro forma earnings
(loss) per share--
basic(1)(2).......... $ (4.31) $ 0.75 $ 0.72 $ 0.42 $ 0.50
Earnings (loss) per
share--diluted(2)(3). $ (4.31) $ 0.73 $ 0.71 $ 0.42 $ --
Pro forma earnings
(loss) per share--
diluted(1)(2)(3)..... $ (4.31) $ 0.73 $ 0.71 $ 0.41 $ --
Weighted average
number of shares
outstanding--basic
(in thousands)(2).... 48,601 58,613 60,372 56,553 51,240
Weighted average
number of shares
outstanding--diluted
(in thousands)(2).... 48,601 59,808 60,946 57,134 --
OPERATING STATISTICS:
Number of centers (end
of period)........... 428 202 206 294 288
Average occupancy
rate................. 84.1% 82.9% 83.9% 85.1% 85.2%
Percentage of patient
revenues from:
Private............. 29.9% 33.4% 31.9% 25.5% 23.7%
Medicare............ 31.5 25.7 25.5 23.9 17.5
Medicaid............ 38.6 40.9 42.6 50.6 58.8
Percentage operating
margin............... (4.6)% 8.3% 8.0% 6.4% 7.0%
<CAPTION>
SEPTEMBER 30,
-------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $ 350,216 $ 102,104 $ 101,091 $ 34,631 $ 14,955
Total assets.......... 3,036,651 874,367 809,612 730,708 525,639
Long term debt, in-
cluding current por-
tion................. 2,024,115 295,959 276,448 216,910 206,097
Stockholders' equity.. 397,014 375,283 329,315 303,596 172,018
Total capitalization.. 2,421,129 671,242 605,763 520,506 378,115
</TABLE>
- --------
(1) Effective July 31, 1995, the Company consummated a merger transaction with
The Brian Center Corporation ("BCC") and 16 related S Corporations. The
merger was accounted for using the pooling of interest methodology. A pro
forma income tax provision has been provided to reflect the estimated
federal and state income taxes as if all BCC S corporations were taxable
entities.
(2) Earnings per share and number of shares outstanding have been adjusted to
reflect the three-for-one stock split.
(3) Diluted weighted average number of shares outstanding not available.
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Effective July 31, 1998, the Company acquired Mariner Health Group, Inc.
("Mariner Health") in a stock for stock merger (the "Mariner Merger") pursuant
to which: (i) Mariner Health became a wholly-owned subsidiary of the Company;
and (ii) the Company changed its name to "Mariner Post-Acute Network, Inc."
The Mariner Merger was accounted for under the purchase method of accounting
and, accordingly, the results of Mariner Health's operations have been
included in the Company's consolidated financial statements since the date of
acquisition.
Effective November 1, 1997 for accounting purposes, the Company completed
two merger transactions. First, pursuant to an agreement and plan of merger
among Apollo Management, L.P. ("Apollo Management," and together with certain
of its affiliates, "Apollo"), Apollo LCA Acquisition Corp. (a corporation
owned by certain Apollo affiliates and other investors, "Apollo Sub") and
Living Centers of America, Inc. ("LCA"), Apollo Sub was capitalized with $240
million in cash and was merged with and into LCA (the "Recapitalization
Merger"). In the Recapitalization Merger, LCA was the surviving corporation
and was renamed Paragon Health Network, Inc. Second, pursuant to an agreement
and plan of merger among LCA, GranCare, Inc. ("GranCare"), Apollo Management
and LCA Acquisition Sub, Inc., a wholly-owned subsidiary of the Company ("LCA
Sub"), GranCare merged with LCA Sub with GranCare surviving as a wholly-owned
subsidiary of the Company (the "GranCare Merger," and collectively with the
Recapitalization Merger, the "Apollo/LCA/GranCare Mergers"). The GranCare
Merger was accounted for under the purchase method of accounting and,
accordingly, the results of GranCare's operations have been included in the
Company's consolidated financial statements since the date of acquisition,
which, for accounting purposes, is November 1, 1997.
Unless otherwise indicated, the information herein does not give pro forma
effect to the Apollo/LCA/GranCare Mergers or the Mariner Merger as if they had
been completed as of the beginning of the period presented. The Company also
completed other acquisitions in fiscal 1998 including Summit Medical Holdings,
Inc. and Professional Rehabilitation, Inc., among others, all of which were
accounted for as purchase business combinations and were not material to the
Company as a whole.
GENERAL
The Company provides a diverse range of services in the health care
continuum including post-acute care, inpatient care, comprehensive inpatient
and outpatient rehabilitation services, health care services and products
(including institutional and home pharmacy services, respiratory and infusion
therapy and durable medical equipment), physician services, hospital unit
management and rehabilitation staffing.
The Company's revenues and profitability will be affected by ongoing efforts
of third-party payors to contain healthcare costs by limiting reimbursement
rates, increasing case management review and negotiating reduced contract
pricing. On a pro forma basis (taking into account both the GranCare Merger
and the Mariner Merger, as if the transactions had occurred on October 1,
1997), the Company's percentage of total net patient revenues derived from
Medicaid and Medicare programs were 37.0% and 30.8%, respectively, for the
year ended September 30, 1998. Government payors, such as state-administered
Medicaid programs and, to a lesser extent, the federal Medicare program,
generally provide more restricted coverage and lower reimbursement rates than
private pay sources. Private payors, on a pro forma basis, taking into account
both the GranCare Merger and the Mariner Merger, accounted for 32.2% of the
Company's total net patient revenues for the year ended September 30, 1998.
RESULTS OF OPERATIONS
Revenues from nursing home operations accounted for $1.5 billion of the
Company's $2.0 billion total net revenues for fiscal 1998. Nursing home
revenues are derived from the provision of two basic services: routine
services ($1,105.3 million or 72.3% in fiscal year 1998) and ancillary
services ($422.8 million or 27.7% in fiscal year 1998) and are a function of
occupancy rates in the Company's long-term care facilities and payor mix.
29
<PAGE>
As identified in the following table, fiscal 1998 weighted average occupancy
increased by 1.2% over fiscal 1997 weighted average occupancy, which included
a 0.2% improvement as a result of the Mariner Merger and a 0.1% improvement as
a result of the GranCare Merger.
<TABLE>
<CAPTION>
YEARS ENDED
SEPTEMBER 30,
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Weighted average licensed bed count................ 46,395 23,028 25,498
Total average residents............................ 39,476 19,095 21,405
Average occupancy.................................. 84.1% 82.9% 83.9%
</TABLE>
Payor mix is the source of payment for the services provided and consists of
private pay, Medicare and Medicaid. Private pay includes revenue from
individuals who pay directly for services without government assistance
through the Medicare and Medicaid programs, managed care companies, commercial
insurers, health maintenance organizations, Veteran's Administration
contractual payments and payments for services provided under contract
management programs. Managed care as a payor source to health care providers
is expected to increase over the next several years. The Company has increased
its managed care contracting capabilities and has created a system which
allows the centralized case management of these patients within targeted
markets. However, the impact to the Company of this payor source can not be
determined at this time.
Reimbursement rates from government sponsored programs, such as Medicare and
Medicaid, are strictly regulated and subject to funding appropriations from
federal and state governments. Changes in reimbursement rates, including the
implementation of PPS and the fee screen schedules and therapy caps for Part B
Medicare patients beginning in 1999, may adversely affect the Company. See
"Business--Regulation." Revenues derived from the Company's pharmacy and
therapy groups are also influenced by payor mix. The table below presents the
approximate percentage of the Company's net patient revenues derived from the
various sources of payment for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Private pay.................................. 29.9% 33.4% 31.9%
Medicare..................................... 31.5% 25.7% 25.5%
Medicaid..................................... 38.6% 40.9% 42.6%
</TABLE>
The percentage of revenues derived from private pay sources declined for
fiscal year 1998, primarily as a result of the GranCare Merger. GranCare has
historically had a lower percentage of private pay revenue than LCA, while
Mariner Health's percentage of private pay revenue for the year ended
September 30, 1998 was approximately the same as compared to LCA. Excluding
the impact of both the GranCare Merger and Mariner Merger, the percentage of
net revenues derived from private pay sources in fiscal 1998 was 34.2%. The
GranCare Merger reduced the percentage of private pay revenue by 5.0% while
the Mariner Merger increased the percentage of private pay revenue by 0.7%.
The combined mix of private pay and Medicare was 61.4% for fiscal 1998 as
compared to 59.1% for fiscal 1997. This was primarily attributable to growth
in the Company's non-nursing home operations and the GranCare Merger because
GranCare's facilities historically had a higher Medicare payor mix than LCA's.
The net revenues from the non-nursing home operations, which are primarily
reimbursed by private pay and Medicare sources, result in a reduction of the
percentage of net revenues derived from the Medicaid program. In addition,
average reimbursement rates for Medicare patients have increased more rapidly
than for Medicaid residents primarily due to the higher reimbursement rates
associated with the increase in acuity levels. Although cost reimbursement for
Medicare residents generates a higher level of net revenue per patient day,
profitability is not proportionally increased due to the additional costs
associated with the required higher level of care and other services for such
residents.
The administrative procedures associated with the Medicare cost
reimbursement program generally preclude final determination of amounts due
the Company until annual cost reports are audited or otherwise reviewed and
settled with the applicable administrative agencies. Certain Medicare fiscal
intermediaries have made audit adjustments to settle cost reports for some of
the Company's facilities that reduce the amount of reimbursement that was
previously received by the facilities. The Company believes that it has
properly recorded revenue under
30
<PAGE>
cost reimbursement programs based on the facts and current regulations. If the
Company was to receive adverse adjustments that it had not contemplated in
recording its revenue in the past, the differences could be significant to the
Company's results of operations in the period of final determination. For cost
reporting periods beginning on or after July 1, 1998, the Medicare program
will change its method of payment to a fixed per diem rate under the adopted
PPS system. See "Business--Regulation" and "Liquidity and Capital Resources--
Healthcare Regulatory Matters" and Note 1 to Consolidated Financial
Statements.
Costs and expenses, excluding depreciation, amortization, recapitalization,
indirect merger and other expenses, and impairment of long-lived assets,
primarily consist of salaries, wages, and employee benefits. Various federal,
state, and local regulations impose, depending on the services provided, a
variety of regulatory standards for the type, quality and level of personnel
required to provide care or services. These regulatory requirements have an
impact on staffing levels, as well as the mix of staff, and therefore impact
total costs and expenses. See "Business--Regulation." The cost of ancillary
services, which includes pharmaceuticals, is also affected by the level of
service provided and patient acuity. General and administrative expenses
include the indirect administrative costs associated with operating the
Company and its lines of business. Insurance expense includes the costs of the
various insurance programs such as automobile, general and professional
liability and workers' compensation.
FISCAL 1998 COMPARED TO FISCAL 1997
Net revenues comprising nursing home and non-nursing home operations totaled
$2.0 billion for the year ended September 30, 1998, an increase of $895.2
million or 78.5%, as compared to fiscal 1997. Revenues from nursing home
operations increased by $780.0 million, which included the acquisition of
GranCare effective November 1, 1997 of $700.4 million, and the acquisition of
Mariner Health effective July 31, 1998 of $129.2 million. With respect to the
former LCA facilities, rate increases of $25.3 million and higher ancillary
service billings resulting from the improvement in mix, primarily Medicare, of
$17.5 million also contributed to the increase, partially offset by a $2.9
million reduction due to a lower average number of residents and a
$4.3 million reduction due to divested facilities. Non-nursing home operations
contributed $115.2 million of the increase, consisting of an increase of $33.6
million for pharmacy services, an increase of $14.6 million for therapy
services, and an increase of $67.0 million from home health, hospital services
and other. Pharmacy services net revenues increased by $5.6 million as a
result of the Mariner Merger and other 1998 acquisitions. The increase in
therapy services net revenues included a $27.2 million increase in therapy
services net revenues resulting from the Mariner Merger and other 1998
acquisitions. Home health, hospital services, and other revenue increased by
$67.0 million as a result of the GranCare and Mariner Mergers and other 1998
acquisitions. In September 1998 the Company entered into a sales agreement to
dispose of the majority of its hospice entities. The Company is evaluating its
options with respect to its remaining hospice and home health agencies.
Pre-tax recapitalization, indirect merger and other expenses totaled $87.3
million for the year ended September 30, 1998, of which $66.2 million related
to the Apollo/LCA/GranCare Mergers, and $12.0 million related to the Mariner
Merger. Approximately $69.3 million of these expenses were paid as of
September 30, 1998. The Company anticipates recording an additional charge
during fiscal year 1999 to close an existing shared service center acquired in
the Mariner Merger and continue the implementation of its shared service
centers consolidation.
In the fourth quarter of fiscal year 1998 the Company recorded a non-cash
charge related to the impairment of certain long-lived assets as required by
the Company's accounting policy which follows the guidelines of SFAS 121. The
non-cash accounting charge was determined based on a detailed analysis of the
Company's long-lived assets and their estimated future cash flows. The
analysis resulted in the identification and measurement of
31
<PAGE>
an impairment loss of $135.8 million related to the Company's nursing
facilities and home health agencies with either cash flow losses or nursing
facilities where management believed an impairment existed as a result of
reduced Medicare reimbursement due to PPS. Management estimated the
undiscounted cash flows to be generated by each of these assets and compared
them to their carrying value. If the undiscounted future cash flow estimates
were less than the carrying value of the asset then the carrying value was
written down to estimated fair value. Goodwill associated with an impaired
asset was included with the carrying value of that asset in performing both
the impairment test and in measuring the amount of impairment loss related to
the asset. Fair value was estimated based on either management's estimate of
fair value, present value of future cash flows, or market value less estimated
cost to sell for certain facilities to be disposed. The decision regarding the
disposition of certain nursing facilities, which had operating losses of $0.7
million during fiscal 1998, was completed during the fourth quarter of fiscal
1998. Nursing facilities and home health agencies to be disposed of had a
carrying value of $54.8 million at September 30, 1998.
31--1
<PAGE>
Insurance expense totaled $59.0 million for the year ended September 30,
1998, an increase of $32.8 million or 125.6% as compared to fiscal 1997. Of
this amount, $12.8 million resulted from the GranCare and Mariner Mergers and
$14.9 million resulted from a non-cash increase in reserves at the Company's
wholly-owned insurance subsidiary related to increased development factors
primarily on claims incurred prior to fiscal 1998. Effective March 31, 1998,
the Company terminated its self-insurance programs through its wholly-owned
insurance subsidiaries and purchased through a third party insurance company a
traditional indemnity insurance policy for workers' compensation liabilities
and general and professional liability insurance with aggregate self-insurance
retention limits.
Costs and expenses excluding recapitalization, indirect merger and other
expenses and impairment of long-lived assets totaled $1.9 billion for the year
ended September 30, 1998, an increase of $863.9 million or 82.9% as compared
to fiscal 1997. Approximately $671.0 million, or 77.7% of the increase, was
due to the acquisition of GranCare while approximately $116.2 million, or
13.5% of the increase, was due to the acquisition of Mariner Health. Excluding
GranCare and Mariner Health, costs for payroll and employee benefits decreased
by $2.6 million, while ancillary and general and administrative expenses
increased by $19.6 and $3.1 million, respectively. The increase in ancillary
costs was the result of higher ancillary service billings in the nursing home
operations and higher pharmaceutical supply costs related to the increase in
pharmacy services revenue.
Provision for bad debts increased by $3.3 million or 12.4% for the year
ended September 30, 1998, which included $8.8 million from the GranCare and
Mariner Mergers and which was partially offset by a $4.9 million reduction at
the Company's therapy operations.
The Company reported a $94.1 million loss from operations for the year ended
September 30, 1998 as compared to $95.1 million of income from operations for
fiscal 1997, largely as a result of the effect of the $135.8 million non-cash
charge for impairment of long-lived assets and the $87.3 million
recapitalization, indirect merger and other expenses discussed above.
Results of operations for fiscal year 1998 were adversely affected by lower
Medicare census in the Company's facilities and higher than expected operating
costs and the transition to the PPS environment.
Interest expense totaled $125.4 million for the year ended September 30,
1998, an increase of $103.9 million as compared to fiscal 1997, which was
primarily a result of $1.7 billion of additional debt incurred in conjunction
with the Apollo/LCA/GranCare Mergers and the Mariner Merger.
For the year ended September 30, 1998, the provision for income taxes was
affected by charges for recapitalization, indirect merger and impairment of
long-lived assets that are not deductible for income tax purposes as well as
additional non-deductible amortization of goodwill associated with the
GranCare Merger. Excluding the effect of the non-recurring non-deductible
items, the effective income tax rate for the year ended September 30, 1998 was
approximately (36)% compared to 43.3% for the same period in 1997. The
effective income tax rate reflected the continuation of previously existing
non-deductible items and the lower pre-tax book income, as well as the
establishment of a valuation allowance to reduce the amount of the deferred
tax asset realized in the current year.
For the year ended September 30, 1998, the Company recognized an
extraordinary loss of $11.3 million (net of a $6.0 million income tax benefit)
associated with prepayment penalties on the early extinguishment of debt and
the write-off of certain deferred financing fees.
FISCAL 1997 COMPARED TO FISCAL 1996
Net revenues comprising nursing home and non-nursing home operations totaled
$1.1 billion for the year ended September 30, 1997, an increase of $25.8
million or 2.3%, as compared to fiscal 1996. Revenues from nursing home
operations decreased by $28.5 million, which included $63.5 million due to
divestitures, primarily the disposition of the DevCon operations in the fourth
quarter of fiscal 1996, and an $8.0 million reduction due to lower average
occupancy rates. Rate increases of $30.2 million and higher ancillary service
billings of $13.8 million resulting from the improvement in mix, primarily
Medicare, partially offset the nursing home revenue decreases. Non-nursing
home revenue increased by $54.3 million which consisted of an increase of
$69.3 million
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for pharmacy services, a decrease of $26.3 million for therapy services, and
an increase of $11.3 million from home health, hospital services and other.
The acquisition of pharmacies in fiscal year 1996 that occurred late in the
year primarily caused the increase in pharmacy services revenue. The closure
of approximately 30 clinics during fiscal 1996 that no longer met the
Company's financial or operating objectives resulted in a decrease in therapy
services revenue. The increase in home health, hospital services and other is
primarily due to the purchase of Colorado Home Care, Inc. in January 1997 and
the purchase of the remaining 50% interest in Heart of America Hospice, LLC
during fiscal year 1997.
Costs and expenses totaled $1.0 billion for the year ended September 30,
1997, an increase of $20.2 million or 2.0%, as compared to fiscal 1996.
Excluding divestitures, costs for payroll and employee benefits, ancillary,
and insurance expense increased by $19.2, $38.1 and $3.7 million,
respectively. The increase in ancillary services expenses was primarily the
result of higher pharmaceutical costs related to the increase in pharmacy
services revenue. Divestitures, primarily DevCon, reduced total expenses by
$53.0 million.
The provision for bad debt expense increased by $9.6 million for the year
ended September 30, 1997, which included a reduction of $1.9 million due to
collection of a note receivable and another receivable that was substantially
reserved. The remaining increase of $11.5 million was primarily due to an
increase in average days outstanding for accounts receivable related to the
increase in pharmacy revenues, which have a higher provision for bad debts,
and focused Medicare reviews in several states for therapy operations, which
delays the payment cycle for Medicare receivables while each claim receives a
medical review. In addition, the centralization of billing and collection for
therapy operations resulted in delayed billing and a longer billing cycle
which resulted in an increase in average days outstanding for receivables. In
order to improve the collection process, therapy operations have improved the
timeliness of billing, implemented new collection procedures, and opened three
new regional collections sites for the clinics. Therapy operations were
partially removed from focused billing review in Texas during the third fiscal
quarter and fully removed in October 1997, although certain other states
remain on billing review. Although significant reductions in average days
outstanding were achieved during the fourth quarter of fiscal 1997, average
days outstanding for the therapy operations remain high compared to historical
levels. As a result, the Company recorded an additional provision for bad
debts of $5.0 million during the fourth quarter to reserve for potential
uncollectibility on the older accounts.
Merger and acquisition costs increased total expenses in fiscal year 1997 by
$2.6 million compared to a reduction of costs and expenses in fiscal 1996 of
$1.1 million from non-recurring items. The merger and acquisition costs of
$2.6 million for fiscal 1997 were related to the Apollo/LCA/GranCare Mergers.
The $1.1 million reduction of expense from non-recurring items for 1996
consisted of a $2.0 million gain from the receipt of life insurance proceeds
on the former President of the Rehabilitation Services Group, a $22.5 million
gain in September 1996 on the sale of the DevCon operations, a $2.9 million
charge primarily related to the closure of the Company's medical supplies
business and write-off of unamortized loan acquisition costs related to the
Second Amended and Restated Credit Agreement, and a $20.5 million impairment
loss.
Net interest expense totaled $16.9 million for the year ended September 30,
1997, an increase of $4.4 million as compared to the same period for fiscal
1996. The increase reflected interest expense to finance the higher average
level of working capital during fiscal year 1997, additional debt to purchase
$20.0 million of the Company's common stock late in fiscal 1996, and
acquisitions, investments, and other capital expenditures during fiscal 1997.
The provision for income taxes totaled $33.6 million in fiscal year 1997, a
decrease of $0.2 million from fiscal year 1996. The 1997 effective tax rate of
43.3% was 0.5% lower than the 1996 effective rate as a result of lower
amortization of non-deductible goodwill amortization and higher tax credits
which were partially offset by non-deductible merger and acquisition costs.
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SEASONALITY
The Company's revenues and operating income generally fluctuate from quarter
to quarter. This seasonality is related to a combination of factors which
include the timing of Medicaid rate increases, the number of work days in the
period and seasonal census cycles.
THE YEAR 2000 ISSUE
In connection with the coming of the Year 2000, the Company is in the
process of evaluating and addressing issues that could arise in connection
with the potential inability of computer programs to recognize dates that
follow December 31, 1999 (the "Year 2000 Issue"). The Year 2000 Issue presents
potential problems not only for computer hardware and software but also for
devices that incorporate embedded chips, such as critical medical devices
utilized in the Company's facilities. To date, the Company's main focus with
respect to the Year 2000 Issue has been to ensure that its company-wide
information systems will function properly in the Year 2000 and beyond. To
address issues inherent in operating disparate information systems utilized by
the Company's predecessor corporations, following the Apollo/LCA/GranCare
Mergers the Company decided to complete the installation of a new client-
server based financial and payroll/human resources software package. The
installation of the new system is in progress and the Company anticipates that
it will be fully operational on or about October 1, 1999. The Company expects
that its corporate systems exposure to the Year 2000 Issue will be
substantially eliminated by approximately May 1999, at which time the
Company's non-Year 2000 compliant corporate systems will have been replaced.
All other systems to be replaced are currently Year 2000 compliant. The
Company has received assurances from the manufacturer that the new systems are
Year 2000 compliant. The implementation of these systems was not in response
to the Year 2000 Issue.
In addition to its primary information system, certain of the Company's
business lines also use business line specific information systems. In this
regard, the Company has formed a committee with members from each of the
Company's business lines as well as representatives from the purchasing,
legal, accounting, payroll, and risk management areas of the Company (the
"Year 2000 Committee"). This committee will report to the Company's senior
management and will be responsible for identifying those business line
specific systems potentially effected by the Year 2000 Issue, as well as
identifying and inventorying those medical devices in the Company's facilities
that could be effected. The Committee is in the process of evaluating the
extent to which these systems or medical devices may be impacted by the Year
2000 Issue. The Year 2000 Committee plans to report its initial assessment to
the Company's Board in February 1999.
The Company is in the process of remediating all local area networks
("LANs"), software and individual computers and anticipates that the process
will be substantially complete by July 1999. With respect to these items, the
Company has not expended significant costs related to the Year 2000 Issue and
is remedying the Year 2000 Issue through replacing computers and software in
the ordinary course. On a going forward basis the Company is endeavoring to
ensure that all software and hardware purchased is Year 2000 compliant through
testing and inserting appropriate language into its purchase contracts.
The Company has also contacted, and will continue to contact, its key
suppliers to gain assurance that they will be year 2000 compliant. This
process will be ongoing, although most key suppliers who have responded to
inquiries have indicated that they expect to be Year 2000 compliant in a
timely fashion. In addition, because the Company maintains a broad base of
vendors and suppliers, it does not believe that it is at risk with respect to
any individual vendor or supplier who may be noncompliant.
To date, the Company has expended $4.3 million to remedy problems associated
with the Year 2000 Issue and estimates that it will expend an additional
approximately $8.2 million in the future. This amount does not include funds
necessary to remedy Year 2000 Issues in the Company's facilities.
The Company is aware of the potential for problems associated with the
heating, ventilation and air conditioning ("HVAC") and other systems in its
facilities, which may contain embedded chips that may cause
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these systems to shut down following December 31, 1999. Although the Company
is conducting a facility by facility examination to determine which facilities
and systems are susceptible to the Year 2000 Issue, the Company does not
believe that there is significant risk in this area. Most of the Company's
facilities are older and thus do not have systems that are dependent on
embedded chips. In the newer facilities and those facilities where Year 2000
Issues are found to exist, the Company plans on remediating any potential
problems. The Company believes that this remediation will be completed on or
before July 1999 and that the costs associated therewith, together with the
costs of remedying issues with respect to embedded chips, will approximate
$3.0 million.
With respect to the Company's customers, the largest source of the Company's
revenues is the state and federal governments through the Medicaid and
Medicare programs, respectively. The Company is reimbursed under these
programs through fiscal intermediaries. The Health Care Financing
Administration ("HCFA"), the government agency that administers the Medicare
program, has publicly stated that it will be Year 2000 compliant by December
31, 1998 and has required all fiscal intermediaries to be Year 2000 compliant
by the same date. HCFA has also stated that it expects state Medicaid agencies
to be Year 2000 compliant by March 31, 1999. However, recent reports by the
General Accounting Office report that the various states may not meet this
schedule. Because the Company has no control over these entities, in the event
the fiscal intermediaries and the state and federal governments are not Year
2000 compliant, the timely receipt of the Company's receivables may be
adversely affected. A significant delay in the receipt of its receivables
would have a material adverse effect on the Company's financial condition and
results of operations.
The Company believes that the principal risks for the Company from the Year
2000 Issue are from the embedded computer chips found in certain critical
medical devices in the Company's facilities and from the potential for delay
in the receipt of payment from third-party payors. With respect to identified
medical devices, the Company plans to evaluate the devices to determine if
they are susceptible to the Year 2000 Issue and, where appropriate, to contact
the manufacturers regarding remedying the Year 2000 Issue. In the event the
Company is unable to complete any required upgrades prior to December 31,
1999, the Company will remove the effected devices from service. Although the
third party payor payables issue is not within the Company's control the
Company plans to ascertain whether the commitments in the previous paragraph
are kept following the end of the calendar year.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
Cash and cash equivalents were $3.3 million at September 30, 1998. Working
capital was $350.2 million, an increase of $248.0 million during the year
ended September 30, 1998. Cash used in operations was $15.5 million which was
net of approximately $69.3 million in payments for recapitalization, indirect
merger, and other expenses. Excluding the acquisition of accrued expenses in
the GranCare and Mariner Mergers, accrued expenses and other current
liabilities increased by $23.7 million primarily as a result of accruals
related to costs, primarily severance, for the Mariner Merger. Excluding the
acquisition of accounts payable in the GranCare and Mariner Mergers, accounts
payable decreased by $21.5 million primarily as a result of the $19.0 million
termination fees paid to Vitalink and Manor Care, Inc. in consideration of the
termination of a non-competition agreement in conjunction with the GranCare
Merger.
Under Medicare cost reimbursement programs, final reimbursement and payment
for services is based on filing annual cost reports and reaching a final
settlement 12 to 24 months after filing. During the previous fiscal year, the
Company experienced an increase in the number of exception requests and
administrative appeal processes necessary to reach final settlement. These
increased exception processes and administrative appeal processes have
increased the required time needed to collect final settlements for open cost
report years. With the implementation of PPS, payments for services will be
entirely determined on a claim by claim basis after patient discharge.
The Company receives payment for nursing facility services based on rates
set by individual state Medicaid programs. Although payment cycles for these
programs vary, payments generally are made within 30 to 60 days
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of services provided. The federal Medicare program, currently changing from a
cost-based reimbursement program to fixed per diem amount under PPS (See "--
Changes in Healthcare Legislation"), with respect to those facilities still
reimbursed on a cost basis, pays interim rates based on estimated costs of
services on a 30 to 45-day basis. Final cost settlements, based on the
difference between audited costs and interim rates are paid following final
cost report audits by Medicare fiscal intermediaries. Because of the cost
report and audit process, final settlement may not occur until up to 24 months
after each facility's Medicare year end. Specialty medical services generally
increase the amount of payments received on a delayed basis. The Company is
also moving to a single operating platform for the inpatient group's accounts
receivable. At September 30, 1998, approximately 79% of the former GranCare
facilities had been converted to the Company's field-based accounts receivable
system. All former Mariner Health facilities are scheduled to be converted to
the Company's field-based accounts receivable system during fiscal 1999. The
Company is reviewing the aging of the Mariner Health accounts receivable and
related allowance and may record a charge during fiscal year 1999 to conform
the Mariner Health reserve calculation to the calculation utilized by the
Company.
In July of 1998 when PPS was initially implemented, the fiscal
intermediaries were not prepared to reimburse the Company and other providers
under the new system. Accordingly, the fiscal intermediaries continued to
reimburse providers based on their interim payment rates. Effective October 1,
1998, the fiscal intermediaries were required to begin reimbursing providers
based on the PPS rates, and the Company believes that substantially all of the
fiscal intermediaries are in compliance. With respect to the period between
the implementation of PPS and October 1, 1998, a settlement process will occur
whereby the difference between the PPS rate and the interim rate will be paid
to the provider or to the fiscal intermediary. The Company only had 17
facilities that might be affected by this settlement process and the Company
does not believe that this process will have a material effect on the
Company's results of operations.
Once the fiscal intermediaries begin reimbursing providers based on the PPS
rates, the Company will submit claims monthly and be reimbursed 14 days
following the receipt by the fiscal intermediary of claims for which no
dispute is outstanding, and there will be no cost report and audit process.
The Company has experienced a delay in the submission of its PPS claims for
reimbursement due to system conversion issues and the problems associated with
adapting to a new reimbursement system. However, the Company does not believe
that these delays have had or will have a material adverse effect on the
Company.
Cash used in investing activities was $211.8 million in the twelve months
ended September 30, 1998, as compared to $77.3 million for the year ended
September 30, 1997. Investing activities for the year ended September 30, 1998
included the use of $81.1 million related to the Mariner Merger, $28.8 million
related to the acquisition of Professional Rehabilitation, Inc., $25.0 million
related to the acquisition of certain long-term care facilities, $7.4 million
related to various pharmacy acquisitions and $17.0 million to purchase certain
LTAC's. Deposits and Other primarily included a deposit to Health and
Retirement Properties Trust ("HRPT") of $15 million reduced by the cash
received in the GranCare Merger. See "--Other Significant Indebtedness." Other
investing activities for the year ended September 30, 1998 included $65.2
million for routine capital expenditures. Capital expenditures are expected to
be funded by cash from operations or the Revolving Credit Facility (defined
below).
Financing activities provided $216.3 million during the year ended September
30, 1998. Cash provided by financing activities included $232.8 million from
the issuance of 17.8 million shares of common stock to Apollo and certain
other investors, $815.0 million in proceeds from the Senior Credit Facility,
and $448.9 million in proceeds from the offering of the Notes (defined below
under "--Senior Subordinated Notes"). Cash of $735.2 million was used to
purchase approximately 90.5% of the issued and outstanding stock of the
Company in conjunction with the Recapitalization Merger, $563.3 million to
repay substantially all amounts outstanding under the Company's and GranCare's
previous credit facilities, and $30.2 million to pay financing fees associated
with the Senior Credit Facility and the Notes.
Senior Credit Facility. As of September 30, 1998, the Senior Credit Facility
consisted of four components: a 6 1/2 year term loan facility in an aggregate
principal amount of $315 million (the "Tranche A Term Loan
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Facility"); a 7 1/2 year term loan facility in an aggregate principal amount
of $250 million (the "Tranche B Term Loan Facility"); an 8 1/2 year term loan
facility in an aggregate principal amount of $250 million (the "Tranche C Term
Loan Facility"); and a 6 1/2 year revolving credit facility in the maximum
amount of $175 million (the "Revolving Credit Facility"). Loans made under the
Tranche A Term Loan Facility ("Tranche A Term Loans"), the Tranche B Term Loan
Facility ("Tranche B Term Loans") and the Tranche C Term Loan Facility
("Tranche C Term Loans") are collectively referred to herein as "Term Loans."
Advances under the Revolving Credit Facility are sometimes referred to as
"Revolving Loans." The proceeds from borrowings under the Term Loans were
used, along with the proceeds of the Notes offering, to fund a portion of the
Recapitalization Merger, refinance a significant portion of LCA's and
GranCare's pre-merger indebtedness and to pay costs and expenses associated
with the Apollo/LCA/GranCare Mergers.
The Senior Credit Facility originally called for Term Loans to be amortized
in quarterly installments approximating $0.0, $6.6 million, $12.3 million,
$12.9 million, $14.1 million, $46.5 million, $59.8 million and $20.0 million
in fiscal years 1998 through 2006, respectively. Principal amounts outstanding
under the Revolving Credit Facility will be due and payable in April 2005. As
of September 30, 1998, there was $21.0 million borrowed under the Revolving
Credit Facility and approximately $6.7 million in letters of credit
outstanding.
The principal amounts of the Tranche A Term Loans and the Revolving Credit
Facility mentioned above reflect increases to those facilities of $75 million
and $25 million, respectively, as part of the First Amendment to the Senior
Credit Facility effective on July 31, 1998, consummated in connection with the
consummation of the Mariner Merger. As a result of the increased principal
amount of the Tranche A Term Loans, aggregate amortization of the Term Loans
increased to the following approximate quarterly amounts: $0.0, $8.4 million,
$15.8 million, $16.6 million, $18.2 million, $48.5 million, $59.8 million and
$20.0 million in fiscal years 1998 through 2006, respectively.
Interest on outstanding borrowings accrue, at the option of the Company, at
the Alternate Base Rate (the "ABR") of The Chase Manhattan Bank ("Chase") or
at a reserve adjusted Eurodollar Rate (the "Eurodollar Rate") plus, in each
case, an Applicable Margin. The term "Applicable Margin" means a percentage
that will vary in accordance with a pricing matrix based upon the respective
term loan tenor and the Company's leverage ratio.
As of September 30, 1998, the Applicable Margins in the pricing matrix
pertaining to Revolving Loans and Tranche A Term Loans ranged from 0% to 1.25%
for loans based on ABR ("ABR Loans"), and from 0.75% to 2.25% for loans based
on the Eurodollar Rate ("Eurodollar Loans"). The Applicable Margin for Tranche
B Term Loans was 1.50% and 2.50% ABR Loans and Eurodollar Loans, and 1.75% and
2.75% for Tranche C Term Loans based on ABR and the Eurodollar Rate,
respectively. As of September 30, 1998, the Applicable Margin in effect for
Revolving Loans and Tranche A Term Loans was 1.25% for ABR Loans and 2.25% for
Eurodollar Loans. Accordingly, as of such date the applicable interest rates
(in each case first for ABR Loans and then for Eurodollar Loans) were as
follows: for Revolving Loans and Tranche A Term Loans, 9.0% and 7.6%; for
Tranche B Term Loans, 9.3% and 7.8%; and for Tranche C Term Loans, 9.5% and
8.1%.
Subsequent to the Company's fiscal year end, the Senior Credit Facility was
amended (the "Second Amendment") effective December 23, 1998 to provide the
Company and its subsidiaries with additional flexibility under certain of the
Senior Credit Facility's financial and operational covenants in exchange for,
among other things, a modification of the related pricing matrix. As a result,
the applicable interest rate margin for Revolving Loans and Tranche A Term
Loans under the ABR will range from 0.25% to 1.25% and for loans under the
Eurodollar rate from 1.75% to 2.75%. The applicable interest rate margin for
Tranche B Term Loans under the ABR will be 2.25% and will be 3.25% for
Eurodollar loans. The applicable interest rate margin for Tranche C Term Loans
under the ABR will be 2.50% and will be 3.50% for Eurodollar loans.
Accordingly, as of September 30, 1998, the resultant interest rates (in each
case first for ABR Loans and then for Eurodollar Loans) were as follows: for
Revolving Loans and Tranche A Term Loans, 9.0% and 8.1%; for Tranche B Term
Loans, 10.0% and 8.6%; and for Tranche C Term Loans, 10.3% and 8.8%.
The covenants contained in the Senior Credit Facility, among other things,
restrict the ability of the Company to dispose of assets, repay other
indebtedness or amend other debt instruments, pay dividends, make
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investments, and make acquisitions. The Company received the consent of the
requisite lenders under the Senior Credit Facility to permit the Mariner Merger
and certain covenants in the Senior Credit Facility were modified to
accommodate the Mariner Merger.
Subject in each case to certain exceptions, the following amounts are
required to be applied, as mandatory prepayments, to prepay the Term Loans: (i)
75% of the net cash proceeds of the sale or issuance of equity by the Company;
(ii) 100% of the net cash proceeds of the incurrence of certain indebtedness;
(iii) 75% of the net cash proceeds of any sale or other disposition by the
Company or any of its subsidiaries of any assets excluding the sale of
inventory and obsolete or worn-out property, and subject to a limited exception
for reinvestment of such proceeds within 12 months; and (iv) 75% of excess cash
flow for each fiscal year, which percentage will be reduced to 50% in the event
the Company's leverage ratio as of the last day of such fiscal year is not
greater than 4.50 to 1.00. Mandatory prepayments will be applied pro rata to
the unmatured installments of the Tranche A Term Loans, the Tranche B Term
Loans and the Tranche C Term Loans; provided, however, that as long as any
Tranche A Term Loans remain outstanding, each holder of a Tranche B Term Loan
or a Tranche C Term Loan will have the right to refuse any such mandatory
prepayment otherwise allocable to it, in which case the amount so refused will
be applied as an additional prepayment of the Tranche A Term Loans. The Company
also has the right to prepay the Senior Credit Facility, in whole or in part,
at its option. Partial prepayments must be in minimum amounts of $1.0 million.
Amounts applied as prepayments of the Revolving Credit Facility may be
reborrowed; amounts prepaid under the Term Loans may not be reborrowed.
Senior Subordinated Notes. In connection with the Apollo/LCA/GranCare
Mergers, on November 4, 1997 the Company completed a private offering to
institutional investors of $275 million of its 9.5% Senior Subordinated Notes
due 2007 (the "Senior Subordinated Notes"), at a price of 99.5% of face value
and $294 million of its 10.5% Senior Subordinated Discount Notes due 2007, at a
price of 59.6% of face value (collectively, the "Notes"). Interest on the
Senior Subordinated Notes is payable semi-annually. Interest on the Senior
Subordinated Discount Notes will accrete until November 1, 2002 at a rate of
10.57% per annum, compounded semi-annually, and will be cash pay at a rate of
10.5% per annum thereafter. The Notes will mature on November 1, 2007. The net
proceeds from this offering, along with proceeds from the Senior Credit
Facility, were used to fund a portion of the Recapitalization Merger, refinance
a significant portion of LCA's and GranCare's pre-merger indebtedness and to
pay costs and expenses associated with the Apollo/LCA/GranCare Mergers.
Pursuant to the terms of the indenture with respect to the Notes, in March
1998, the Company completed an exchange offer with respect to the Notes whereby
Notes registered under the Securities Act of 1933, as amended, were exchanged
for unregistered Notes. The terms of the exchange Notes are identical to the
original Notes. Mariner Health and its subsidiaries are "restricted
subsidiaries" under the indenture pursuant to which the Notes were issued.
Other Significant Indebtedness and Commitments. In connection with the
Apollo/LCA/GranCare Mergers, the Company became a party to various agreements
between GranCare and Health and Retirement Properties Trust ("HRPT") and Omega
Healthcare Investors, Inc. ("Omega"). HRPT was the holder of a mortgage loan to
AMS Properties, Inc. ("AMS Properties"), a wholly-owned subsidiary of the
Company, dated October 1, 1994, in the aggregate principal amount of $11.5
million (the "HRPT Loan"). The HRPT Loan was secured, in part, by mortgage and
security agreements dated as of March 31, 1995 (collectively, the "HRPT
Mortgage") in favor of HRPT and encumbering two nursing facilities in Wisconsin
owned by AMS Properties. HRPT was also the lessor with respect to certain
facilities leased by AMS Properties and GCI Health Care Centers, Inc.
("GCIHCC").
In connection with certain transactions effected in February 1997 by
GranCare's predecessor with Vitalink, Vitalink (i) paid a cash consent fee to
HRPT in the amount of $10 million, which was promptly reimbursed by GranCare
immediately following the consummation of certain transactions with Vitalink
and (ii) entered into a limited guaranty (not to exceed $15 million in the
aggregate) of the obligations by GranCare, AMS and GCIHCC under a master lease
agreement dated June 30, 1992 with respect to seven nursing facilities located
in Arizona, California and South Dakota (the "GCIHCC Lease"), the HRPT Loan and
the HRPT Mortgage (collectively, the "HRPT Obligations") for so long as such
obligations remained outstanding. To support Vitalink's limited
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guaranty of the foregoing obligations, GranCare caused an irrevocable letter
of credit to be issued to Vitalink in the event Vitalink made any payments
under the limited guaranty (the "HRPT Letter of Credit").
In connection with obtaining HRPT's consent to the Apollo/LCA/GranCare
Mergers, GranCare and HRPT executed a Restructure and Asset Exchange Agreement
dated October 31, 1997 pursuant to which HRPT and GranCare restructured their
relationship (the "HRPT/GranCare Restructuring"). As a part of the
HRPT/GranCare Restructuring, HRPT consented to the consummation of the
Apollo/LCA/GranCare Mergers and the transactions related thereto, and HRPT
received an unlimited guaranty by the Company and all subsidiaries of the
Company having an ownership interest in AMS and/or GCIHCC (individually, a
"Tenant Entity" and collectively, the "Tenant Entities") which guaranty is
secured by a cash collateral deposit of $15 million, the earned interest on
which is retained by HRPT. The performance by the Tenant Entities of their
respective obligations to HRPT continues to be secured by a pledge of one
million shares of HRPT common stock beneficially owned by GranCare and, as
part of the HRPT/GranCare Restructuring, GranCare agreed to waive the ability
to request a release of such collateral upon the attainment of certain
financial conditions. Accordingly, the Company does not have the ability to
sell these shares to meet any capital requirements. The terms of the leases
between HRPT and the Tenant Entities were extended to January 31, 2013,
constituting lease extensions ranging from 3 to 7 years and the aggregate base
rental for all facilities leased from HRPT (excluding the Exchange Facilities
(as defined below)) increased by $500,000 per year. AMS Properties also
prepaid the $11.5 million HRPT Loan and HRPT released the HRPT Mortgage upon
completion of a like-kind exchange transaction whereby the Tenant Entities
exchanged (the "Exchange Transaction") five nursing facilities (the two
nursing facilities previously subject to the HRPT Mortgage and three nursing
facilities then owned by the Company (collectively the "Exchange Facilities"))
for four nursing facilities owned by HRPT. Following completion of the
Exchange Transaction, the Tenant Entities leased back the Exchange Facilities
for an aggregate annual rent amount equal to the aggregate rent on the four
HRPT facilities.
In consideration of, and contemporaneously with, the HRPT/GranCare
Restructuring, the Company paid HRPT a one time restructuring payment of $10
million. The Company also paid an aggregate amount of $19.0 million to
Vitalink and Manor Care in connection with the settlement of certain
litigation initiated by Vitalink and Manor Care seeking to enjoin the
consummation of the GranCare Merger.
A wholly-owned subsidiary of the Company, Professional Health Care
Management, Inc. ("PHCMI"), is the borrower under a $58.8 million mortgage
note executed on August 14, 1997 (the "Omega Note") in favor of Omega, and
under the related Michigan loan agreement dated as of June 7, 1992 as amended
(the "Omega Loan Agreement"). All $58.8 million was outstanding as of
September 30, 1998.
The Omega Note bears interest at a rate which is adjusted annually based on
either (i) changes in the Consumer Price Index or (ii) a percentage of the
change in gross revenues of PHCMI and its subsidiaries from year to year,
divided by 58.8 million, whichever is higher, but in any event subject to a
maximum rate not to exceed 105% of the interest rate in effect for the Omega
Note for the prior calendar year. The current interest rate is 15.0% per annum
which is paid monthly. Additional interest accrues on the outstanding
principal of the Omega Note at the rate of 1% per annum. Such interest is
compounded annually and is due and payable on a pro rata basis at the time of
each principal payment or prepayment. Beginning October 1, 2002, quarterly
amortizing installments of principal in the amount of $1.5 million will also
become due and payable on the first day of each calendar quarter. The entire
outstanding principal amount of the Omega Note is due and payable on August
13, 2007. The Omega Note may be prepaid without penalty during the first 100
days following August 14, 2002. Payment of the Omega Note after acceleration
upon the occurrence of an event of default will result in a prepayment penalty
in the nature of a "make whole" premium.
In addition to the interest on the Omega Note described in the preceding
paragraph, and as a condition to obtaining Omega's consent to the February
1997 transaction between Vitalink and GranCare, PHCMI agreed to pay additional
interest to Omega in the amount of $20,500 per month, through and including
July 1, 2002. If the principal balance of the Omega Note for any reason
becomes due and payable prior to that date, there will be added to the
indebtedness owed by PHCMI: (i) the sum of $1.0 million, plus; (ii) interest
thereon at 11% per
39
<PAGE>
annum to the prepayment date; less (iii) the amount of such additional
interest paid to Omega prior to the prepayment date.
The Omega Loan Agreement obligates PHCMI, among other things, to maintain a
minimum tangible net worth of at least $10 million, which may be increased or
decreased under certain circumstances but may not be less than $10 million.
The Company must contribute additional equity to PHCMI, if and when necessary,
to assure that such minimum tangible net worth test is met. PHCMI has
satisfied this test in the past without the contribution of additional equity,
and management believes that it will continue to do so in the future.
Mariner Health Senior Credit Facility. As of September 30, 1998, Mariner
Health was the borrower under a $460.0 million revolving credit facility (the
"Mariner Health Senior Credit Facility"), by and among Mariner Health, the
lenders signatory thereto (the "Mariner Lenders"), and PNC Bank, National
Association ("PNC Bank"), as agent for the Mariner Lenders (the "Mariner
Agent"). As of September 30, 1998, approximately $357.0 million of loans and
$12.0 million of letters of credit were outstanding. The Mariner Health Senior
Credit Facility terminates on January 3, 2000, and provides for prime rate and
Eurodollar - based interest rate options. The borrowing availability and rate
of interest vary depending upon specified financial ratios, with applicable
interest rate margins originally ranging between 0% and 0.25% for prime-base
borrowings, and between 0.50% and 1.75% for Eurodollar - based advances. As of
November 30, 1998, the applicable margins were 0% for prime-based revolving
loans and 1.25% for Eurodollar-based loans. The Mariner Health Senior Credit
Facility also contains covenants which, among other things, require Mariner
Health and its subsidiaries to maintain certain financial ratios and impose
certain limitations or prohibitions on Mariner Health with respect to the
incurrence of indebtedness, liens and capital leases; the payment of dividends
on, and the redemption or repurchase of, its capital stock; investments and
acquisitions, including acquisitions of new facilities; the merger or
consolidation of Mariner Health with any person or entity; and the disposition
of any of Mariner Health's properties or assets.
Effective December 23, 1998, Mariner Health amended the Mariner Health
Senior Credit Facility (the "Mariner Health Senior Credit Facility Amendment")
to (a) reduce the amount of the revolving commitment from $460 million to $250
million, (b) to provide additional financial covenant flexibility for Mariner
Health and its subsidiaries, (c) to increase the applicable interest rate
margins so that they range from 0.25% to 1.25% for prime-based loans, and from
1.75% to 2.75% for Eurodollar-based advances, (d) to modify certain of the
operating covenants referred to in the immediately preceding paragraph, and
(e) to expand the amount and types of collateral pledged to secure the Mariner
Health Senior Credit Facility. Immediately after giving effect to the Mariner
Health Senior Credit Facility Amendment, the applicable interest rate margin
for prime-based advances increased to 0.75%, and the applicable interest rate
margin for Eurodollar-based borrowings increased to 2.25%. Accordingly, the
applicable interest rates on prime-based loans will initially be 7.8%, and for
Eurodollar-based advances, 7.6%.
Mariner Health's obligations under the Mariner Health Senior Credit Facility
are guaranteed by substantially all of its subsidiaries. The Mariner Health
Senior Credit Facility and related guarantees are secured by pledges of the
stock of substantially all of Mariner Health's direct and indirect subsidiary
guarantors, by mortgages on all wholly owned, unencumbered inpatient
facilities of Mariner Health and its subsidiaries, by leasehold mortgages on
certain inpatient facilities leased by Mariner Health or its subsidiaries, and
by security interests in substantially all other property and assets of
Mariner Health and its subsidiaries. As the owner of 100% of the capital stock
of Mariner Health, the Company has pledged such capital stock to Chase as
additional collateral to secure the Company's obligations in connection with
the Senior Credit Facility and the Synthetic Lease (as the latter term is
defined below under "--Other Factors Affecting Liquidity and Capital
Resources").
Contemporaneously with the effectiveness of the Mariner Health Senior Credit
Facility Amendment, Mariner Health entered into a term loan agreement dated as
of the same date (the "Mariner Term Loan Agreement") with PNC Bank, as
administrative agent, First Union National Bank, as syndication agent, and the
financial institutions signatory thereto as lenders (the "Term Lenders"),
pursuant to which the Term Lenders
40
<PAGE>
made a $210 million senior secured term loan to Mariner Health (the "Mariner
Term Loan"). Proceeds of the Term Loan were applied to reduce outstandings
under the Mariner Health Senior Credit Facility in connection with the Mariner
Health Senior Credit Facility Amendment. The interest rate pricing and
covenants contained in the Mariner Health Term Loan Agreement are
substantially similar to the corresponding provisions of the Mariner Health
Senior Credit Facility, as amended by the Mariner Health Senior Credit
Facility Amendment. The Mariner Term Loan matures on January 3, 2000, is
guaranteed by the same subsidiary guarantors as the Mariner Health Senior
Credit Facility, and is cross-defaulted and cross-collateralized with the
Mariner Health Senior Credit Facility.
Mariner Health and its subsidiaries are treated as unrestricted subsidiaries
under the Senior Credit Facility. Unlike other subsidiaries of the Company
(the "Non-Mariner Subsidiaries"), Mariner Health and its subsidiaries neither
guarantee the Company's obligations under the Senior Credit Facility nor
pledge their assets to secure such obligations. Correspondingly, the Company
and the Non-Mariner Subsidiaries do not guarantee or assume any obligations
under the Mariner Health Senior Credit Facility or the Mariner Term Loan.
Mariner Health and its subsidiaries are not subject to the covenants contained
in the Senior Credit Facility, and the covenants contained in the Mariner
Health Senior Credit Facility and the Mariner Term Loan are not binding on the
Company and the Non-Mariner Subsidiaries. Mariner Health and the Mariner
Health subsidiaries are obligated to continue to comply with the covenants
contained in the Mariner Health Senior Credit Facility and the Mariner Term
Loan without taking into account the revenues, expenses, net income, assets or
liabilities of the Company and the Non-Mariner Subsidiaries. The converse is
true with respect to the Company, which (together with its Non-Mariner
Subsidiaries) must continue to comply with the covenants contained in its
Senior Credit Facility without taking into account the revenues, expenses, net
income, assets or liabilities of Mariner Health and its subsidiaries.
Mariner Health Senior Subordinated Notes. Mariner Health is also the issuer
of $150.0 million of 9 1/2% Senior Subordinated Notes due 2006 (the "Mariner
Notes") which were issued pursuant to an indenture dated as of April 4, 1996
(the "Mariner Indenture") with Mariner Health as issuer and State Street Bank
and Trust Company as trustee (the "Mariner Trustee"). The Mariner Notes are
obligations solely of Mariner Health and are not guaranteed by the Company or
any of its subsidiaries.
As a consequence of the Mariner Merger and the resulting change of control
at Mariner Health, the holders of the Mariner Notes had the right under the
Mariner Indenture to require that their Mariner Notes be purchased (the
"Change of Control Purchase"), at a purchase price equal to 101% of the
outstanding principal amount of the Mariner Notes purchased. Effective on
September 11, 1998, Mariner and the Mariner Trustee entered into an amendment
to the Mariner Indenture which permitted Mariner to designate a third-party to
purchase any Mariner Notes tendered pursuant to the Change of Control
Purchase. Mariner Health designated a financial institution as a third-party
purchaser, and on September 21, 1998 such financial institution acquired all
$40,661,000 of the Mariner Notes tendered in connection with the Change of
Control Purchase (the "Tendered Mariner Notes"). In agreeing to act as third-
party purchaser, the financial institution required the Company to enter into
a total return swap agreement (the "Total Return Swap"), with the financial
institution as counterparty. See "Quantitative and Qualitative Disclosures
about Market Risk." The Tendered Mariner Notes remain outstanding and are
owned and controlled by such third-party purchaser. The Company's obligations
under the Total Return Swap are guaranteed by Mariner Health and substantially
all of the subsidiaries of Mariner Health.
Other Mariner Health Indebtedness. As of September 30, 1998, Mariner Health
and its subsidiaries had approximately $64.8 million of facility-specific
mortgage and other term loan indebtedness outstanding and $71.2 million in
capital lease obligations.
Healthcare Regulatory Matters. The Balanced Budget Act enacted in August
1997 (the "Balanced Budget Act"), contains numerous changes to the Medicare
and Medicaid programs with the intent of slowing the growth of payments under
these programs by $115.0 billion and $13.0 billion, respectively, over the
next five years. Approximately 50% of the savings will be achieved through a
reduction in the growth of payments to providers and physicians.
41
<PAGE>
The Balanced Budget Act amended the Medicare program by revising the payment
system for skilled nursing services. Historically, nursing homes were
reimbursed by the Medicare program based on the actual costs of services
provided. However, the Balanced Budget Act required the establishment of a PPS
system for nursing homes for cost reporting periods beginning on or after July
1, 1998. Under PPS, nursing homes receive a fixed per diem rate for each of
their Medicare Part A patients which, during the first three years, is based
on a blend of facility specific rates and Federal acuity adjusted rates.
Thereafter, the per diem rates will be based solely on Federal acuity adjusted
rates. Subsumed in this per diem rate are ancillary services, such as pharmacy
and rehabilitation services, which historically have been provided to many of
the Company's nursing facilities by the Company's pharmacy and therapy
subsidiaries.
The Balanced Budget Act also required the establishment of an interim
payment system for home health services for cost reporting periods beginning
on or after October 1, 1997. The interim payment system continues per visit
limits and establishes new per beneficiary annual cost limits. A permanent
prospective payment system for home health services will be established by
October 1, 2000.
On May 12, 1998, the Health Care Financing Administration released the
nursing home PPS rates for Part A Medicare Patients that are in effect from
July 1, 1998 through September 30, 1999. The Company's experience thus far
under PPS indicates that PPS has resulted in more intense price competition
and lower margins among ancillary service providers (including the Company's
pharmacy, therapy, and hospital services subsidiaries) as well as lower
overall reimbursement and margins for the Company's skilled nursing
facilities.
The Balanced Budget Act also repealed the Boren Amendment ("Boren"), which
had required state Medicaid programs to reimburse nursing facilities for the
costs that are incurred by efficiently and economically operated providers in
order to meet quality and safety standards. Because of the repeal of Boren,
states now have considerable flexibility in establishing Medicaid payment
rates. In addition, Boren provided a dispute resolution mechanism whereby
providers could challenge Medicaid rates set by the various states, the repeal
of which will now make it more difficult to challenge these rates in the
future. The Company is not able to predict whether any states will adopt
changes in their Medicaid reimbursement programs, or, if adopted and
implemented, what effect such initiatives would have on the Company.
On January 30, 1998, the Health Care Financing Administration issued its new
salary equivalency guidelines which change Medicare reimbursement rates for
contracted therapy services. Under salary equivalency, the Company is
reimbursed for contracted therapy services based on the time spent on the
premises by the contract therapist times a fixed rate, depending on the
service provided. While the new rates for physical therapy represent an
increase over what the Company previously received for such services, the new
rates for occupational therapy and speech language pathology represent
decreases from what the Company previously received. The salary equivalency
guidelines will remain in effect until the facility at which such services are
provided, including the Company's facilities and other facilities serviced by
the Company's therapy subsidiaries, start billing under PPS. The Company
believes that while salary equivalency had a slight adverse effect on its
therapy revenue, the Company does not believe that salary equivalency has had
a material adverse effect on the Company's consolidated revenues.
The Balanced Budget Act also revised the reimbursement methodology for
therapy services under Medicare Part B. Historically, Medicare Part B therapy
services were reimbursed based on the cost of the services provided, subject
to prudent buyer and salary equivalency restrictions. In November 1998,
certain fee screen schedules were published setting forth the amounts that can
be charged for specific therapy services. Additionally, the Balanced Budget
Act set forth maximum per beneficiary limits of $1,500 per provider for
physical therapy and speech pathology and $1,500 per provider for occupational
therapy. Both the fee screens and per beneficiary limits are effective for
services rendered following December 31, 1998. The fee screens have only
recently been published and the Company has not yet determined what effect
they will have on the Company's results of operations. In the event that the
fee screens are not sufficient to cover the cost of the therapy services
provided, they would have a material adverse effect on the Company.
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<PAGE>
Certain Medicare fiscal intermediaries have made audit adjustments to settle
cost reports for some of the Company's facilities that reduce the amount of
reimbursement that was previously received by the facilities. The Company is
appealing these adjustments, certain of which are significant. Certain of
these are based on the fiscal intermediaries' denials of the exception to the
related organizations principle with regard to services and supplies furnished
by the Company's pharmacy and rehabilitation divisions to its nursing
facilities, and reductions to costs claimed for therapy services for alleged
failures to comply with prudent buyer requirements.
The prudent buyer principle states, in part, "the prudent and cost-conscious
buyer not only refuses to pay more than the going price for an item or
service, he also seeks to economize by minimizing cost." Some of the fiscal
intermediaries have alleged that the Company was not prudent in its purchasing
of occupational therapy and speech pathology services prior to HCFA's
establishing salary equivalency guidelines for these services effective in
April 1998. Adjustments have been made in settling cost reports that reduced
the cost from the amounts that were paid to contract therapy providers to the
amount that the intermediary calculated would have been paid if the facility
had employed therapists to provide services. Appeals were filed with the
Provider Reimbursement Review Board ("PRRB") and resulted in a favorable
outcome. However, on review the Social Security Administrator reversed the
PRRB and allowed the intermediary's adjustments. The Company believes that it
has substantial arguments to support its position that the contested costs are
allowable and the issue is being pursued through the appropriate legal
processes. There can be no assurance that the Company will prevail or that it
will not be required to expend significant amounts to complete the appeal
process. In addition contracts for therapy services generally provide for the
therapy provider to indemnify the nursing facility in the event of denials or
cost report disallowances. There can be no assurance that the therapy
providers will not contest the indemnity provisions of the contracts or that
they will be able to fund the indemnity provisions.
The related organization principle states, in part, "a provider's allowable
cost for services, facilities, and supplies furnished by a party related to
the provider are the costs the related party incurred in furnishing the items
in question." The regulations provide for an exception to the related
organization principle if certain requirements are met and the Company
believes that it meets these requirements with respect to its pharmacy and
rehabilitation companies. Some fiscal intermediaries have denied the request
for exception and have made adjustments to reduce the allowable cost that is
included in nursing facility cost reports to the cost of the related
organization. The Company has requested PRRB appeals for these adjustments,
but the appeals have not yet been heard. The Company believes that it has
substantial arguments to support its position that the facilities should have
an exception to the related organization principle. However, there can be no
assurance that the Company will prevail or that it will not be required to
expend significant amounts to complete the appeal process.
Other Factors Affecting Liquidity and Capital Resources. In addition to
principal and interest payments on its long-term indebtedness, the Company has
significant rent obligations relating to its leased facilities. The Company's
estimated principal payments, cash interest payments, and rent obligations
(including those of Mariner Health) for fiscal year 1999 are approximately
$295 million.
The Company's operations require capital expenditures for renovations of
existing facilities in order to continue to meet regulatory requirements, to
upgrade facilities for the treatment of subacute patients and to accommodate
the addition of specialty medical services, and to improve the physical
appearance of its facilities for marketing purposes. The Company estimates
that total capital expenditures for the year ending September 30, 1999 will be
approximately $79.3 million of which $38 million is estimated to be
maintenance capital expenditures.
In addition to the Senior Credit Facility, the Company has a lease
arrangement providing for up to $100.0 million to be used as a funding
mechanism for future skilled nursing facility construction, lease conversions,
and other facility acquisitions (the "Synthetic Lease"). This leasing program
allows the Company to complete these projects without committing significant
financing resources. The lease is an unconditional "triple net" lease for a
period of seven years with the annual lease obligation a function of the
amount spent by
43
<PAGE>
the lessor to acquire or construct the project, a variable interest rate, and
commitment and other fees. The Company guarantees a minimum of approximately
83% of the residual value of the leased property and also has an option to
purchase the properties at any time prior to the maturity date at a price
sufficient to pay the entire amount financed, accrued interest, and certain
expenses. At September 30, 1998, approximately $48.6 million of this leasing
arrangement was utilized. The leasing program is accounted for as an operating
lease. The Company also received the consent of the requisite lenders under
the Synthetic Lease transaction to permit the Mariner Merger, and certain
covenants in the Synthetic Lease documents were modified to accommodate the
Mariner Merger. In addition, the Synthetic Lease was further amended on
December 23, 1998 to mirror certain changes made to the Senior Credit
Facility.
The Company has experienced an increasing trend in the past year in the
number and severity of litigation claims asserted against the Company.
Management believes that this trend is endemic to the long-term care industry
and is a result of several large judgments against long-term care providers
other than the Company in the last year resulting in an increased awareness by
plaintiff's lawyers of potentially large recoveries. The Company also believes
that there has been, and will continue to be, an increase in governmental
investigatory activity of long-term care providers, particularly in the area
of false claims. While the Company believes that it provides quality care to
the patients in its facilities and materially complies with all applicable
regulatory requirements, an adverse determination in a legal proceeding or
governmental investigation, whether currently asserted or arising in the
future, could have a material adverse effect on the Company. See "Business-
Regulation" and "Legal Proceedings."
The Company currently maintains two captive insurance subsidiaries to
provide for reinsurance obligations under workers' compensation, general and
professional liability, and automobile liability for periods ended prior to
April 1, 1998. These obligations are funded with long-term, fixed income
investments which are not available to satisfy other obligations of the
Company.
The Mariner Health Senior Credit Facility generally prohibits Mariner Health
from paying dividends or making distributions to the Company, except as
follows: (a) Mariner Health can make a one-time dividend to the Company in an
amount not to exceed Mariner Health's consolidated net income for the most
recent 12 fiscal months subject to the absence of any default under the
Mariner Health Senior Credit Facility and subject further to demonstrating pro
forma compliance with certain financial covenants and; (b) Mariner Health may
reimburse the Company for ordinary course of business expenses paid by the
Company on behalf of Mariner Health or its subsidiaries. In the judgment of
the Company's senior management, these restriction have not had, and are not
expected to have, a material effect on the ability of the Company to meet its
obligations.
The Company believes that the cash flow generated from its operations, the
Company's cash and cash equivalents, together with amounts available under the
Senior Credit Facility and the Mariner Health Senior Credit Facility, should
be sufficient to fund its debt service requirements, working capital needs,
anticipated capital expenditures and other operating expenses. The Revolving
Credit Facility provides the Company with revolving loans in an aggregate
principal amount at any time not to exceed $175 million, of which $147.3
million was available at September 30, 1998 after considering $6.7 million in
outstanding letters of credit and the $21.0 million borrowed. Also as of such
date, $92.0 million was available under the Mariner Health Senior Credit
Facility out of the maximum revolving credit commitment of $460 million, after
taking into account $356.0 million in outstanding revolving loans and
$12.0 million in outstanding letters of credit made or issued pursuant to the
Mariner Health Senior Credit Facility. The Company's future operating
performance and ability to service or refinance the Notes, the Mariner Health
Senior Credit Facility, the Mariner Term Loan and the Mariner Notes and to
extend or refinance the Senior Credit Facility will be subject to future
economic conditions and to financial, business and other factors, many of
which are beyond the Company's control. The Company is currently evaluating
strategic alternatives with respect to certain of its facilities and product
groups. The proceeds from any divestiture generally would be used to pay down
the Company's indebtedness.
44
<PAGE>
Impact of Inflation. The health care industry is labor intensive. Wages and
other labor-related costs are especially sensitive to inflation. Increases in
wages and other labor-related costs as a result of inflation or the increase
in minimum wage requirements without a corresponding increase in Medicaid and
Medicare reimbursement rates would adversely impact the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company periodically enters into interest rate swap agreements (the
"Swap Agreements") to manage its interest rate risk. The Swap Agreements
effectively convert a portion of the Company's floating interest rate debt to
fixed interest rate debt. Notional amounts of interest rate agreements are
used to measure interest to be paid or received relating to such agreements
and do not represent an amount of exposure to credit loss. As of September 30,
1998, the Company had Swap Agreements in effect totaling $60.0 million
notional amount of which $40.0 million will mature in July 2005 and $20.0
million will mature in November 2005. Under the Swap Agreements, the Company
pays interest at an average fixed rate of 6.79% and receives interest at a
rate of three-month LIBOR. At September 30, 1998, the fair market value of the
Swap Agreements would represent a loss of approximately $6.2 million for the
Company. Additionally, in September 1998 the Company entered into a total
return swap agreement relating to approximately $40.7 million face amount of
Mariner Notes (the "Total Return Swap Agreement"). The Total Return Swap
Agreement provides for the Company to receive 9.5% interest on approximately
$40.7 million of Mariner Notes and to pay interest at one-month LIBOR plus
2.25%. Upon expiration of the Total Return Swap, if not extended, the Company
has the right, but not the obligation, to purchase the Mariner Notes. If the
Company chooses not to purchase the Mariner Notes, it is responsible for any
decrease in the market value and receives the benefit of any increase in
market value realized by the third party purchasee. At September 30, 1998, the
fair market value of the Total Return Swap Agreement would represent a gain to
the Company of approximately $0.1 million. Although the market value of the
Mariner Notes has not been directly related to interest rate movements in
recent months, to the extent interest rate movements impact the market value
of the Mariner Notes, such fluctuations would affect the Company's obligations
at expiration of the Total Return Swap Agreement.
Based on average floating rate borrowings outstanding throughout fiscal year
1998, a 100-basis point change in LIBOR would have caused the Company's annual
interest expense to change by approximately $7.8 million. Accordingly, a
significant increase in LIBOR would have a material adverse effect on the
Company's earnings.
45
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors of
Mariner Post-Acute Network, Inc.
We have audited the accompanying consolidated balance sheets of Mariner
Post-Acute Network, Inc. (formerly Paragon Health Network, Inc., formerly
Living Centers of America, Inc.), and subsidiaries as of September 30, 1998
and 1997, and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended
September 30, 1998. Our audits also included the financial statement schedule
listed in the index at Item 14. These consolidated financial statements and
schedule are the responsibility of the management of Mariner Post-Acute
Network, Inc. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Mariner Post-Acute Network, Inc., and subsidiaries at September 30, 1998
and 1997, and the consolidated results of their operations and their cash
flows for each of the three years in the period ended September 30, 1998, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Ernst & Young LLP
Atlanta, Georgia
December 21, 1998
46
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997
---------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 3,314 $ 14,355
Receivables (less allowances of $68,581 and $33,138)... 617,380 211,989
Notes receivable, net.................................. 9,656 2,223
Supplies............................................... 31,516 21,237
Prepaid expenses....................................... 11,943 5,276
Income tax refund receivable........................... 57,323 --
Deferred income taxes.................................. 58,875 24,294
Other (including patient trust funds of $5,399 and
$3,799)............................................... 17,916 7,855
---------- --------
TOTAL CURRENT ASSETS................................. 807,923 287,229
PROPERTY AND EQUIPMENT:
Land, buildings and improvements....................... 863,451 378,251
Furniture, fixtures and equipment...................... 231,682 121,698
Leased property under capital leases................... 89,718 12,551
---------- --------
1,184,851 512,500
Less accumulated depreciation.......................... 257,698 210,117
---------- --------
927,153 302,383
GOODWILL, NET............................................ 1,084,473 196,120
RESTRICTED INVESTMENTS................................... 88,467 51,976
NOTES RECEIVABLE, NET.................................... 20,861 11,200
OTHER ASSETS............................................. 107,774 25,459
---------- --------
$3,036,651 $874,367
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current maturities of long-term debt. $ 46,250 $ 43,196
Accounts payable....................................... 160,240 46,872
Accrued payroll and related expenses................... 127,774 66,866
Accrued property taxes................................. 12,277 5,342
Patient trust funds.................................... 5,399 3,799
Accrued income taxes payable........................... -- 6,231
Accrued interest....................................... 35,057 2,355
Other accrued expenses................................. 70,710 10,464
---------- --------
TOTAL CURRENT LIABILITIES............................ 457,707 185,125
LONG-TERM DEBT, NET OF CURRENT MATURITIES................ 1,977,865 252,763
LONG-TERM INSURANCE RESERVES............................. 61,310 27,555
MINORITY INTEREST........................................ 9,618 733
DEFERRED INCOME TAXES AND OTHER NONCURRENT LIABILITIES... 133,137 32,908
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01; 5,000,000 and
4,650,000 shares authorized; none issued.............. -- --
Series A--Junior participating preferred stock, par
value $.01; none and 350,000 shares authorized and re-
served; none issued................................... -- --
Common stock, par value $.01; 500,000,000 and
75,000,000 shares authorized; 73,276,866 and
60,803,760 shares issued.............................. 733 608
Capital surplus........................................ 980,142 226,972
Retained earnings (deficit)............................ (583,111) 164,650
Unrealized gain (loss) on securities available-for-
sale.................................................. (750) 244
Treasury stock at cost--none and 2,004,444 shares...... -- (17,191)
---------- --------
TOTAL STOCKHOLDERS' EQUITY........................... 397,014 375,283
---------- --------
$3,036,651 $874,367
========== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
47
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
NET REVENUES
Nursing home revenue:
Net patient services..................... $1,513,420 $ 742,046 $ 767,747
Other.................................... 14,645 6,004 8,799
Non-nursing home revenue:
Pharmacy services........................ 230,313 196,748 127,439
Therapy services......................... 194,125 179,506 205,785
Home health, hospital services, and oth-
er...................................... 83,026 15,984 4,721
---------- --------- ---------
2,035,529 1,140,288 1,114,491
COSTS AND EXPENSES:
Salaries and wages......................... 782,520 438,693 455,702
Employee benefits.......................... 158,883 85,712 88,065
Nursing, dietary and other supplies........ 96,462 53,531 60,427
Ancillary services......................... 430,715 224,912 188,937
General and administrative................. 187,701 105,522 110,353
Insurance expense.......................... 58,988 26,142 22,446
Rent....................................... 86,625 42,489 44,185
Depreciation and amortization.............. 75,044 39,309 39,214
Provision for bad debts.................... 29,544 26,282 16,666
Recapitalization, indirect merger and other
expenses.................................. 87,336 2,588 2,917
Impairment of long-lived assets............ 135,783 -- 20,489
Life insurance proceeds.................... -- -- (2,015)
Gain on sale............................... -- -- (22,451)
---------- --------- ---------
2,129,601 1,045,180 1,024,935
---------- --------- ---------
INCOME (LOSS) FROM OPERATIONS.............. (94,072) 95,108 89,556
OTHER INCOME AND EXPENSE:
Interest expense........................... 125,384 21,492 16,750
Interest and dividend income............... (11,082) (4,640) (4,289)
---------- --------- ---------
114,302 16,852 12,461
---------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES, MINORITY
INTEREST, AND EXTRAORDINARY LOSS.......... (208,374) 78,256 77,095
PROVISION (BENEFIT) FOR INCOME TAXES......... (10,559) 33,604 33,759
---------- --------- ---------
INCOME (LOSS) BEFORE MINORITY INTEREST AND
EXTRAORDINARY LOSS........................ (197,815) 44,652 43,336
MINORITY INTEREST............................ (562) (735) (156)
---------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY LOSS.... (198,377) 43,917 43,180
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF
DEBT, NET OF $6,034 INCOME TAX BENEFIT...... (11,275) -- --
---------- --------- ---------
NET INCOME (LOSS)............................ $ (209,652) $ 43,917 $ 43,180
========== ========= =========
EARNINGS (LOSS) PER SHARE:
Basic...................................... $ (4.31) $ 0.75 $ 0.72
========== ========= =========
Diluted.................................... $ (4.31) $ 0.73 $ 0.71
========== ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic...................................... 48,601 58,613 60,372
========== ========= =========
Diluted.................................... 48,601 59,808 60,946
========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
48
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
UNREALIZED
COMMON STOCK RETAINED GAIN TREASURY STOCK
--------------- CAPITAL EARNINGS (LOSS) ON ------------------
SHARES AMOUNT SURPLUS (DEFICIT) SECURITIES SHARES AMOUNT TOTAL
------- ------ --------- --------- ---------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30,
1995................... 60,804 $608 $ 226,694 $ 77,553 -- 231 $ (1,259) $ 303,596
Net income.............. 43,180 43,180
Funding of employee ben-
efit plans............. 736 (138) 846 1,582
Funding of options exer-
cised under 1992 Em-
ployee Stock Option
Plan, net of tax....... 336 (120) 639 975
Purchase of treasury
stock.................. 2,328 (20,000) (20,000)
Unrealized loss on
securities available-
for-sale............... (18) (18)
------- ---- --------- --------- ----- ------- --------- ---------
BALANCE, SEPTEMBER 30,
1996................... 60,804 608 227,766 120,733 (18) 2,301 (19,774) 329,315
Net income.............. 43,917 43,917
Funding of employee ben-
efit plans............. 92 (177) 1,521 1,613
Funding of options exer-
cised under 1992 Em-
ployee Stock Option
Plan, net of tax....... (15) (21) 191 176
Issuance of treasury
stock in exchange for
warrants............... (871) (99) 871 --
Unrealized gain on
securities available-
for-sale............... 262 262
------- ---- --------- --------- ----- ------- --------- ---------
BALANCE, SEPTEMBER 30,
1997................... 60,804 608 226,972 164,650 244 2,004 (17,191) 375,283
Net (loss).............. (209,652) (209,652)
Issuance of shares to
Apollo Management, L.P.
and affiliates, net of
associated costs....... 17,778 178 232,572 232,750
Repurchase of shares in
connection with the Re-
capitalization Merger.. 54,461 (735,223) (735,223)
Retirement of treasury
stock.................. (55,082) (551) (202,060) (538,109) (55,082) 740,720
Issuance of shares and
options in exchange for
GranCare common stock
and options............ 17,440 175 238,814 238,989
Issuance of shares to
Professional
Rehabilitation, Inc. 1,147 11 22,575 22,586
Issuance of shares to
Summit Medical Hold-
ings, Inc.............. 1,043 10 16,690 16,700
Issuance of shares in
exchange for Mariner
Health Group, Inc.
common stock........... 29,615 296 443,922 444,218
Funding of options exer-
cised or canceled under
1992 Employee Stock Op-
tion Plan, net of tax.. (5,918) (1,350) 11,410 5,492
Funding of employee ben-
efit plans 92 (32) 275 367
Issuance of treasury
stock in exchange for
warrants............... (9) (1) 9 --
Issuance of stock under
various stock option
plans, net of tax...... 532 6 6,492 6,498
Unrealized loss on
securities available-
for-sale............... (994) (994)
------- ---- --------- --------- ----- ------- --------- ---------
BALANCE, SEPTEMBER 30,
1998................... 73,277 $733 $ 980,142 $(583,111) $(750) -- -- $ 397,014
======= ==== ========= ========= ===== ======= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
49
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $(209,652) $ 43,917 $ 43,180
Adjustments to reconcile net income to net
cash provided by (used in) operating activi-
ties:
Depreciation and amortization.............. 75,044 39,309 39,214
Interest expense on discounted debt........ 16,995 -- --
Income taxes deferred...................... 478 (753) (9,141)
Equity earnings/minority interest.......... 562 735 156
Provision for bad debts.................... 29,544 26,282 16,666
Gain on sale............................... -- -- (22,451)
Impairment of long-lived assets............ 135,783 -- 20,489
Changes in noncash working capital:
Receivables................................ (71,582) (44,362) (69,634)
Receivable from affiliates................. -- -- 2,698
Supplies................................... (11,670) (3,984) (519)
Prepayments and other current assets....... (3,207) 195 3,832
Accounts payable........................... (21,538) (2,073) (13,774)
Accrued expenses and other current liabili-
ties...................................... 23,749 (5,673) 17,465
Changes in long-term insurance reserves...... 16,308 1,462 3,107
Other........................................ 3,654 (215) 520
--------- -------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIV-
ITIES......................................... (15,532) 54,840 31,808
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisitions and investments................. (171,894) (30,548) (68,710)
Purchases of property and equipment.......... (65,168) (36,961) (53,366)
Proceeds from sale of DevCon................. -- -- 47,500
Disposals of property, equipment and other
assets...................................... 3,289 8,365 2,690
Restricted investments....................... 7,474 (20,543) 5,564
Net collections on notes receivable.......... 21,844 2,580 (538)
Other........................................ (7,340) (211) 209
--------- -------- ---------
NET CASH USED IN INVESTING ACTIVITIES.......... (211,795) (77,318) (66,651)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares to Apollo Management,
L.P......................................... 232,750 -- --
Proceeds from Senior Credit Facility......... 815,000 -- --
Proceeds from Senior Notes................... 448,871 -- --
Proceeds from long-term debt................. -- 1,875 1,469
Net draws under credit line.................. 114,000 22,685 194,615
Repayment of long-term debt.................. (641,924) (9,297) (138,708)
Purchase of treasury stock................... -- -- (20,000)
Repurchase of shares in recapitalization..... (735,223) -- --
Deferred financing fees...................... (30,178) -- --
Other........................................ 12,990 176 975
--------- -------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES...... 216,286 15,439 38,351
--------- -------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVA-
LENTS......................................... (11,041) (7,039) 3,508
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR... 14,355 21,394 17,886
--------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR......... $ 3,314 $ 14,355 $ 21,394
========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
50
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Mariner Post-Acute Network, Inc. (the "Company") changed its name effective
August 1, 1998 from its former name, Paragon Health Network, Inc. ("Paragon"),
following the consummation of the merger (the "Mariner Merger") with Mariner
Health Group, Inc. ("Mariner Health") on July 31, 1998 pursuant to an
agreement and plan of merger dated as of April 13, 1998 (the "Mariner Merger
Agreement"). See Note 4. The Company had previously changed its name from
Living Centers of America, Inc. ("LCA") to Paragon on November 4, 1997. At the
time of the Mariner Merger, Mariner Health operated long-term health care
facilities that provided skilled nursing and residential care services in 16
states and comprehensive rehabilitation services. The Company was formed in
November 1997 through the recapitalization by merger of LCA with a newly-
formed entity owned by certain affiliates of Apollo Management, L.P. and
certain other investors (the "Recapitalization Merger"), and the subsequent
merger of GranCare, Inc. ("GranCare") with a wholly-owned subsidiary of LCA
(the "GranCare Merger" and collectively with the Recapitalization Merger, the
"Apollo/LCA/GranCare Mergers") pursuant to an agreement and plan of merger
dated as of May 7, 1997, as amended and restated as of September 17, 1997 (the
"GranCare Merger Agreement"). See Notes 2 and 3. At the time of the GranCare
Merger, GranCare operated long-term health care facilities that provided
skilled nursing and residential care services in 15 states, a specialty
hospital geriatric services company, and home health operations. The
accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries and all significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH MANAGEMENT
The Company maintains a centralized cash management system in which cash
receipts are transferred daily from facility and ancillary company depository
accounts to cash concentration accounts. Funds are then used to provide for
normal working capital requirements, including reduction of the outstanding
credit lines or placement of excess funds in investment grade investments. To
the extent that cash transferred from the facility and ancillary company
depository accounts is not sufficient to provide for cash disbursement
requirements, a cash advance is obtained from the Senior Credit Facility
and/or the Mariner Senior Secured Facility. See Note 10. Cash equivalents
consist of temporary investments with original maturities of three months or
less.
NOTES RECEIVABLE, NET
Notes receivable, net, aggregating $30.5 and $13.4 million at September 30,
1998 and 1997, respectively, consist primarily of notes which arose from
divestitures of certain operating facilities. These notes, which are generally
collateralized by long-term care facilities, have interest rates ranging
generally from 5% to 12% and maturities through 2012, including approximately
$9.8 million due after 2000. Notes receivable, net, at September 30, 1998 and
1997, include reserves for potential uncollectible amounts of $4.0 million and
$1.2 million, respectively. Management believes the collateral values are
sufficient to recover the net carrying amount of these notes in the event of
default.
SUPPLIES
Supplies, consisting principally of pharmaceutical and medical supplies, are
valued at the lower of cost (first-in, first out) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Capitalized interest related to
funds borrowed to finance construction was not significant for all periods
presented. Maintenance and repairs are charged to operations as
51
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
incurred and replacements and significant improvements are capitalized.
Depreciation and amortization are provided over the estimated useful lives of
the assets on a straight-line basis as follows:
<TABLE>
<S> <C>
Buildings...................................................... 25-40 years
Building improvements.......................................... 10-15 years
Furniture, fixtures and equipment.............................. 3-15 years
</TABLE>
Depreciation expense related to property and equipment for the years ended
September 30, 1998, 1997, and 1996 was $49.1 million, $32.0 million, and $33.6
million, respectively.
GOODWILL, NET
Goodwill represents the excess of purchase price over fair market value of
assets acquired in various purchase transactions and is amortized on a
straight-line basis with lives ranging from 30 to 40 years. Accumulated
amortization at September 30, 1998 and 1997 was $43.3 million and $20.3
million, respectively. Amortization of goodwill charged to expense was $23.0
million, $7.3 million and $5.6 million for the three years ended September 30,
1998, 1997 and 1996, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
In September 1996 the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires
impairment losses to be recognized for long-lived assets when indicators of
impairment are present and the undiscounted cash flows are not sufficient to
recover the assets' carrying amount. Goodwill is also evaluated for
recoverability by estimating the projected undiscounted cash flows, excluding
interest, of the related business activities. The impairment loss of these
assets, including goodwill, is measured by comparing the carrying amount of
the asset to its fair value with any excess of carrying value over fair value
written off. Fair value is based on market prices where available, an estimate
of market value, or determined by various valuation techniques including
discounted cash flow. See Note 13.
RESTRICTED INVESTMENTS
Restricted investments represent cash, other investments, and common stock
holdings that have been designated to (i) pay insurance claims of the
Company's wholly-owned insurance subsidiaries and (ii) serve as partial
collateral for the Company's lease agreements with Health and Retirement
Properties Trust ("HRPT") (See Note 10). These restricted investments have
been classified as available-for-sale securities in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" and are recorded at their estimated fair value.
See Note 19.
INCOME TAXES
Noncurrent deferred income taxes arise primarily from timing differences
resulting from using accelerated depreciation for tax purposes and reserves
for uninsured losses not deductible in the current period. Current deferred
income taxes result from timing differences in the recognition of revenues and
expenses for tax and financial reporting purposes which are expected to
reverse within one year. See Note 16.
The Company files a consolidated federal income tax return. Federal and
state income tax payments made for the three years ended September 30, 1998,
1997 and 1996 were $1.0 million, $40.0 million and $31.5 million,
respectively. The Company received $8.7 million in tax refunds during fiscal
1998 in addition to the $1.0 million in tax payments made by the Company.
52
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TREASURY STOCK
During fiscal year 1996, the Company acquired 2,327,220 shares of treasury
stock (775,740 shares prior to the three-for-one stock split) on the open
market for a total cost of $20.0 million. The shares repurchased were
primarily intended to be used as part of a plan to fund the employer's
contributions to the Company's 401(k) Plan and Deferred Retirement Incentive
Plan and to fund employee purchases made under the Company's Employee Stock
Purchase Plan. See Note 23. All treasury stock was retired effective November
4, 1997 in connection with the Company's recapitalization.
NET REVENUES
Net patient service revenue includes patient revenues payable by patients,
amounts reimbursable by third party payors under contracts, rehabilitation
therapy service revenues from management contracts to provide services to non-
affiliated skilled nursing facilities and other entities and revenues from the
Company's medical products and home health care services. Patient revenues
payable by patients at the Company's facilities are recorded at established
billing rates. Patient revenues to be reimbursed by contracts with third-party
payors are recorded at the amount estimated to be realized under these
contractual arrangements. Revenues from Medicare and Medicaid are generally
based on reimbursement of the reasonable direct and indirect costs of
providing services to program participants or a prospective payment system.
The Company separately estimates revenues due from each third party with which
it has a contractual arrangement and records anticipated settlements with
these parties in the contractual period during which services were rendered.
The amounts actually reimbursable under Medicare and Medicaid under cost
reimbursement programs are determined by filing cost reports which are then
subject to audit and retroactive adjustment by the payor. Legislative changes
to state or federal reimbursement systems may also retroactively affect
recorded revenues. Changes in estimated revenues due in connection with
Medicare and Medicaid may be recorded by the Company subsequent to the year of
origination and prior to final settlement based on improved estimates. Such
adjustments and final settlements with third party payors are reflected in
operations at the time of the adjustment or settlement. Medicare revenues
represented 32%, 26% and 26% and Medicaid revenues represented 39%, 41% and
43% of net revenue for the three years ending September 30, 1998, 1997 and
1996, respectively.
In addition, indirect costs reimbursed under the Medicare program are
subject to regional limits. The Company's costs generally exceed these limits
and accordingly, the Company is required to submit exception requests to
recover such excess costs. The Company believes it will be successful in
collecting these receivables, however, the failure to recover these costs in
the future could materially and adversely affect the Company.
On July 1, 1998, the Company began phasing in its facilities to a
Prospective Payment System ("PPS") for services to Medicare patients. By June
30, 1999, all facilities will be paid by Medicare under PPS, and as such
revenue recorded will consist of the aggregate payments expected from Medicare
for individual claims at the appropriate payment rates.
After July 1, 1998, as its customers transition to PPS, the Company is
amending the relationships with its customers to provide services at a fixed
price based on the acuity of its patient. The Company will generate delivery
of the appropriated level of therapy services to each patient based on the
appropriate determination of need.
The Company's rehabilitation management contracts typically have a term of
one year but frequently include automatic renewals and in general are
terminable on notice of 30 to 90 days by either party. Under certain
contracts, the Company bills Medicare or another third-party payor directly.
Under other contracts, the Company is compensated on a fee for service basis
and in general directly bills the skilled nursing facility, which in turn
receives reimbursement from Medicare, Medicaid, private insurance or the
patient. The Company recognizes
53
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
payments under these latter contracts as payments from private payors. Under
these latter contracts, the Company also generally indemnifies its customers
against reimbursement denials by third-party payors for services determined
not to be medically necessary. The Company has established internal
documentation standards and systems to minimize denials and typically has the
right to appeal denials at its expense. Historically, reimbursement denials
under these contracts have been insignificant; however, an increase in denials
could materially and adversely affect the Company.
Under arrangements in which the Company bills a skilled nursing facility for
its rehabilitation services on a fee for service basis, Medicare reimburses
the facility based on a reasonable cost standard. Specific guidelines exist
for evaluating the reasonable cost of physical, occupational and speech
therapy services. Medicare applies salary-equivalency guidelines in
determining the reasonable cost of physical therapy services, which is the
cost that would be incurred if the therapist were employed by a nursing
facility, plus an amount designed to compensate the provider for certain
general and administrative overhead costs. Medicare pays for occupational and
speech therapy services on a reasonable cost basis, subject to the so-called
"prudent buyer" rule for evaluating the reasonableness of the costs. The
Company's gross margins for its physical therapy services under the salary
equivalency guidelines are significantly less than for its speech and
occupational therapy services under the "prudent buyer" rule. In addition, the
Company provides certain services between subsidiary companies, some of which
are charged at cost and others of which are charged at market rates. The
Company believes that the services which are charged at market rates qualify
for an exception to Medicare's related organization principle. There can be no
assurance, however, that the Health Care Finance Administration ("HFCA") will
endorse the Company's position and the Medicare reimbursement received for
such services may be subject to audit and recoupment in future years.
In April 1995, HCFA issued a memorandum to its Medicare fiscal
intermediaries as a guideline to assess costs incurred by inpatient providers
relating to payment of occupational and speech language pathology services
furnished under arrangements that include contracts between therapy providers
and inpatient providers. While not binding on the fiscal intermediaries, the
memorandum suggested certain rates to assist the fiscal intermediaries in
making annual "prudent buyer" assessments of speech and occupational therapy
rates paid by inpatient providers. In addition, HCFA has promulgated new
salary equivalency guidelines.
Laws and regulations governing the Medicare and Medicaid programs are
complex and subject to interpretation. The Company is aware of one current
investigation and an additional possible investigation involving allegations
of potential wrongdoing. See Note 17. While the Company believes that it is in
compliance with all applicable laws and regulations, compliance with such laws
and regulations can be subject to future government review and interpretation
as well as significant regulatory action including fines, penalties, and
exclusion from the Medicare and Medicaid programs.
STOCK-BASED COMPENSATION
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion 25 "Accounting for Stock Issued to Employees" and, accordingly,
recognizes no compensation expense for the stock option grants.
In October 1995 the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 allows companies the option to retain the
current accounting approach for recognizing stock-based expense in the
financial statements or to adopt a new accounting method based on the
estimated fair value of the employee stock options. Companies that do not
follow the new fair-value based method are required to provide pro forma
disclosures of net income and earnings per share as if the fair-value method
of accounting had been applied. See Note 23 for the pro forma effects on the
Company's reported net income (loss) and earnings per share assuming the
election had been made to recognize compensation expense on stock-based awards
in accordance with SFAS 123.
54
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EARNINGS PER SHARE
In February 1997 the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 is designed to simplify the standards for computing earnings per
share and increase the comparability of earnings per share data on an
international basis. The Company implemented SFAS 128 in the first quarter of
fiscal year 1998. The earnings per share impact of this implementation was not
significant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Although these estimates are based on management's knowledge
of current events, they may ultimately differ from actual results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements and is effective for fiscal years beginning after
December 15, 1997.
In June 1997 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires public
business enterprises to report information about operating segments and
related disclosures about products and services, geographic areas, and major
customers. SFAS 131 is effective for fiscal years beginning after December 15,
1997 and is applicable to interim periods in the second year of application.
Comparative information for earlier years is required to be restated in the
initial year of application.
In February 1998 the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits--an amendment of FASB Statements
No. 87, 88, and 106" ("SFAS 132"). SFAS 132 standardizes disclosure
requirements for pensions and other postretirement benefits, requires
additional information on changes in the benefit obligations and fair values
of plan assets, and eliminates certain existing disclosure requirements. SFAS
132 is effective for fiscal years beginning after December 15, 1997.
SFAS Nos. 130, 131, and 132 become effective in the Company's fiscal year
ending September 30, 1999. The adoption of these statements is not expected to
have a material impact on the Company's financial statements.
In June 1998 the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities.
SFAS 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. SFAS No. 133 will become effective in the Company's fiscal year
ending September 30, 2000. The adoption of this statement is not expected to
have a material impact on the Company's financial statements.
In March 1998 the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or
55
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides guidance as to
whether certain costs for internal-use software should be capitalized or
expensed when incurred. This SOP is effective for fiscal years beginning after
December 15, 1998, but earlier application is encouraged. The Company does not
expect the adoption of this SOP to have a material impact on its financial
statements.
In June 1998 the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
provides guidance on the financial reporting of start-up costs. It requires
costs of start-up activities to be expensed as incurred. This SOP is effective
for fiscal years beginning after December 15, 1998, but earlier application is
encouraged. The Company does not expect the adoption of this SOP to have a
material impact on its financial statements.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1998
financial statement presentation.
NOTE 2. RECAPITALIZATION MERGER
During 1997 the Company entered into the Recapitalization Merger which was
completed effective November 1, 1997 for accounting purposes. In connection
with the Recapitalization Merger, certain affiliates of Apollo and certain
other investors (the "Apollo Investors") invested $240 million to purchase
approximately 17.8 million shares (adjusted for the three-for-one stock split,
see Note 14) of newly issued common stock of LCA. Concurrent with the
Recapitalization Merger, LCA changed its name to Paragon Health Network, Inc.
On November 4, 1997, the Company sold $275 million of its 9.5% Senior
Subordinated Notes due 2007, at a price of 99.5% of face value and $294
million of its 10.5% Senior Subordinated Discount Notes due 2007, at a price
of 59.6% of face value (collectively the "Notes"), in a private offering to
institutional investors. Concurrent with the private Notes offering, the
Company entered into a new Senior Credit Facility which is composed of $740
million in Term Loans and a Revolving Credit Facility which provides for
borrowings of up to an additional $150 million. See Note 10.
The Company used the $240 million invested by the Apollo Investors and the
$1.189 billion of net proceeds provided by the Notes offering and the Term
Loans to (i) purchase approximately 90.5% of the issued and outstanding common
stock of the Company for a per share price of $13.50 (adjusted for the three-
for-one stock split, see Note 14), (ii) to repay substantially all amounts
outstanding under the Company's and under GranCare's (see Note 3 for
description of the GranCare Merger) previous credit facilities and (iii) pay
for certain costs associated with the Apollo/LCA/GranCare Mergers.
NOTE 3. GRANCARE MERGER
Effective November 1, 1997 for accounting purposes, and subsequent to the
Company's recapitalization, the Company completed the merger acquisition of
GranCare pursuant to the GranCare Merger Agreement. In the GranCare Merger
approximately 17.4 million shares (adjusted for the three-for-one stock split,
see Note 14) of the Company's common stock were exchanged for GranCare common
stock and approximately 1.3 million options (adjusted for the three-for-one
stock split, see Note 14) to purchase shares of the Company's common stock
were exchanged for options to purchase GranCare common stock. The Company's
total purchase price of the acquisition was approximately $250.6 million
including legal, consulting and other direct costs. The acquisition was
accounted for under the purchase method of accounting and, accordingly, the
results of
56
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
GranCare's operations are included in the Company's consolidated financial
statements since the date of acquisition. The assets and liabilities of
GranCare have been recorded at fair market value based on the total purchase
price allocation as follows (in thousands):
<TABLE>
<S> <C>
Current assets................................................... $225,617
Property and equipment........................................... 215,455
Goodwill......................................................... 368,741
Restricted investments........................................... 40,987
Other long-term assets........................................... 40,066
Current liabilities.............................................. (117,669)
Long-term debt................................................... (369,871)
Other non-current liabilities.................................... (152,767)
--------
Total purchase price............................................. $250,559
========
</TABLE>
In the quarter ended June 30, 1998, an adjustment was made to record
GranCare's property and equipment at its fair value, assign a purchase price
to unfavorable operating leases for property and equipment and other
unfavorable contract rights, and assign a value to identifiable intangible
assets. The unfavorable operating lease obligation in the amount of $36.4
million is amortized over the lives of the respective leases and is reflected
in the accompanying consolidated balance sheet as other liabilities. Goodwill
resulting from the GranCare Merger is being amortized on a straight-line basis
over 30 years. The Omega Note (see Note 10) assumed by the Company in the
GranCare Merger has been recorded at its fair value. Such amount is being
amortized using the effective interest method over the expected life of the
note. Amortization, which was approximately $4.0 million for the fiscal year
ended September 30, 1998, was recorded as a reduction to interest expense.
NOTE 4. MARINER MERGER
Effective July 31, 1998 the Company completed merger with Mariner Health
pursuant to the terms of the previously announced Mariner Merger Agreement. In
the Mariner Merger approximately 29.6 million shares of the Company's common
stock were exchanged for Mariner Health common stock. The Company's total
purchase price of the acquisition was approximately $535.7 million including
cash payments for options, legal, consulting and other direct costs. The
acquisition was accounted for under the purchase method of accounting and,
accordingly, the results of Mariner Health's operations are included in the
Company's consolidated financial statements since the date of acquisition. The
assets and liabilities of Mariner Health have been recorded at fair market
value based on a preliminary purchase price allocation. The total purchase
price has been allocated as follows (in thousands):
<TABLE>
<S> <C>
Current assets................................................... $213,862
Property and equipment........................................... 420,047
Goodwill......................................................... 564,566
Restricted investments........................................... 3,227
Other long-term assets........................................... 36,378
Current liabilities.............................................. (55,853)
Long-term debt................................................... (600,202)
Other non-current liabilities.................................... (46,344)
--------
Total purchase price............................................. $535,681
========
</TABLE>
57
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5. RECAPITALIZATION, INDIRECT MERGER AND OTHER EXPENSES
Recapitalization, indirect merger and other expenses include approximately
$66.2 million of costs related to the Apollo/LCA/GranCare Mergers,
approximately $12.0 million of costs related to the Mariner Health Merger, and
approximately $8.7 million of other expenses. Approximately $69.3 million of
these costs were paid during the fiscal year ended September 30, 1998.
NOTE 6. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (in thousands,
except per share data) presents the consolidated results of operations of LCA,
GranCare, and Mariner Health as if the Apollo/LCA/GranCare Mergers and the
Mariner Merger had occurred effective October 1, 1996, after giving effect to
certain adjustments, including amortization of goodwill, increased interest
expense on debt related to the Mergers, and related income tax effects. Such
adjustments exclude a $12.0 million charge, net of a $7.0 million income tax
benefit, for termination fees paid by GranCare to Vitalink Pharmacy Services,
Inc. and Manor Care, Inc. in conjunction with the GranCare Merger. The results
of operations for the year ended September 30, 1997 include a $30.0 million
charge, net of a $6.0 million income tax benefit, recorded by GranCare in
February 1997 in connection with the spin-off of its institutional pharmacy
business. The pro forma financial information is not necessarily indicative of
the results of operations that would have been achieved had the
Apollo/LCA/GranCare
58
<PAGE>
Mergers and the Mariner Merger been consummated as of those dates, nor are
they necessarily indicative of future operating results.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER
30
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Net revenues...................................... $2,776,514 $2,732,372
========== ==========
Loss before extraordinary item.................... (229,768) (40,112)
Extraordinary item................................ (11,275) (4,831)
---------- ----------
Net (loss)........................................ $ (241,043) (44,943)
========== ==========
Basic loss per share:
Net loss before extraordinary item.............. $ (3.14) $ (0.55)
Extraordinary item.............................. (0.15) (0.06)
---------- ----------
Net loss........................................ $ (3.29) $ (0.61)
========== ==========
Diluted loss per share:
Net loss before extraordinary item.............. $ (3.14) $ (0.55)
Extraordinary item.............................. (0.15) (0.06)
---------- ----------
Net loss........................................ $ (3.29) $ (0.61)
========== ==========
</TABLE>
Pro forma information for 1997 and other 1998 acquisitions (see Note 7) is
not presented because their operating results, either individually or in the
aggregate, do not have a material effect on the pro forma operating results
presented above.
NOTE 7. ACQUISITIONS
FISCAL YEAR 1998 ACQUISITIONS
In addition to the Mariner Merger and Apollo/LCA/GranCare Mergers discussed
in Notes 1 through 4, during fiscal year 1998 the Company acquired through
merger Professional Rehabilitation, Inc., a provider of rehabilitation
services, in a stock-for-stock transaction. Approximately 1.1 million shares
of the Company's common stock and $27.0 million in cash were exchanged for
Professional Rehabilitation, Inc.'s common stock. In connection with this
transaction, approximately $45.3 million was recorded as goodwill.
The Company also acquired Summit Medical Holdings, Ltd., a provider of long-
term acute care services, during fiscal 1998 in exchange for $10.0 million in
cash and approximately 1.0 million shares of the Company's common stock. In
connection with this transaction, $17.4 million was recorded as goodwill.
In addition, the Company acquired several institutional pharmacies and long-
term care centers as part of several smaller transactions, primarily for cash.
All such acquisitions were recorded using the purchase method of accounting.
FISCAL YEAR 1997 ACQUISITIONS
The Company acquired institutional pharmacies, home health agencies, hospice
and therapy operations as part of several smaller transactions, primarily for
cash. All such acquisitions were recorded using the purchase method of
accounting.
FISCAL YEAR 1996 ACQUISITIONS
In June 1996, the Company acquired certain assets of Lahr Pharmacy, Inc. and
related companies for $13.4 million in cash.
59
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective September 1, 1996, the Company acquired the stock of Allied
Pharmacy Management, Inc., which operated five institutional pharmacies and a
home health care business in Florida, for $29.6 million in cash.
All such acquisitions were recorded using the purchase method of accounting.
NOTE 8. DIVESTITURES
In September 1998, the Company divested of its Hospice operations, which
provided care for terminal patients, for a cash sales price of $6.0 million.
In September 1996, the Company completed the divestiture of its DevCon
operations, which provided training and habilitation services to individuals
with mental retardation and developmental disabilities, through the
recapitalization and subsequent sale of the majority of DevCon's stock for
$47.5 million in cash. The Company retained a small ownership interest in the
recapitalized company. Proceeds from the divestiture were utilized to reduce
debt related to various acquisitions.
NOTE 9. RESTRICTED INVESTMENTS
Restricted investments at September 30, 1998 and 1997 included the following
(in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30, 1998 COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Restricted by self insurance pro-
grams:
U.S. Treasury Notes............... $24,596 $ 761 $ -- $25,357
Asset-backed securities........... 2,402 85 -- 2,487
Corporate debt securities......... 30,716 948 -- 31,664
Mortgage-backed securities........ 3,455 854 -- 4,309
Repurchase Pooling Arrangement.... 587 -- -- 587
Cash.............................. 7,250 -- -- 7,250
------- ------ ------ -------
TOTAL........................... 69,006 2,648 -- 71,654
Restricted by lease agreements:
HRPT common stock................. 18,813 -- 2,000 16,813
------- ------ ------ -------
$87,819 $2,648 $2,000 $88,467
======= ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
SEPTEMBER 30, 1997 COST GAINS LOSSES VALUE
- ------------------ --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Restricted by self insurance pro-
grams:
U.S. Treasury Notes............... $36,234 $234 $ (9) $36,459
Asset-backed securities........... 2,604 32 (2) 2,634
Corporate debt securities......... 5,073 68 -- 5,141
Mortgage-backed securities........ 4,273 54 (2) 4,325
Repurchase Pooling Arrangement.... 539 -- -- 539
Cash.............................. 2,878 -- -- 2,878
------- ---- ---- -------
TOTAL............................ $51,601 $388 $(13) $51,976
======= ==== ==== =======
</TABLE>
Proceeds from the sale and maturities of investments were $95.4 million,
$19.1 million, and $14.5 million for the three years ended September 30, 1998,
1997 and 1996, respectively. Gross gains (losses) were not significant for all
periods presented.
60
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated fair value of debt securities and other
investments at September 30, 1998 by contractual maturity are shown below.
Expected maturities may differ from contractual maturities because borrowers
may have the right to call or repay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
--------- ---------
<S> <C> <C>
Due in one year or less................................ $ 5,485 $ 6,168
Due after one year through five years.................. 33,303 33,331
Due after five years through ten years................. 14,270 15,122
Due after ten years.................................... 2,254 2,400
------- -------
55,312 57,021
Asset-backed securities................................ 2,402 4,309
Mortgage-backed securities............................. 3,455 2,487
Repurchase Pooling Arrangement......................... 587 587
HRPT Common Stock...................................... 18,813 16,813
Cash................................................... 7,250 7,250
------- -------
TOTAL.................................................. $87,819 $88,467
======= =======
</TABLE>
The Repurchase Pooling Arrangement is subject to market risk associated with
changes in the value of the underlying financial instruments as well as the
risk of loss of appreciation if a counter party fails to perform.
NOTE 10. DEBT
Long-term debt at September 30, 1998 and 1997 is summarized in the following
table (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------
1998 1997
---------- --------
<S> <C> <C>
Senior Debt:
Senior Credit Facilities:
Revolving Credit Facility....................... $ 21,000 $ --
Bank Credit Facility............................ -- 255,000
Term Loans...................................... 815,000 --
Mariner Health Senior Credit Facility........... 356,000 --
SouthTrust Bank of Alabama, N.A................... -- 20,000
Variable Annuity Life Insurance Company........... -- 10,000
NationsBank of Texas, N.A......................... -- 3,000
Mortgage notes (6% to 11% due through 2014)....... 55,918 609
Other notes payable (8% to 10% due through 2008).. 91,346 3,547
Subordinated Debt:
Senior Subordinated Notes (due 2007).............. 274,287 --
Senior Subordinated Discount Notes (due 2007)..... 183,968 --
Mariner Health Senior Subordinated Notes (due
2006)............................................ 149,749 --
---------- --------
1,947,268 292,156
Obligations under capital leases.................... 76,847 3,803
---------- --------
2,024,115 295,959
Less short-term notes payable and current portion... (46,250) (43,196)
---------- --------
TOTAL LONG-TERM DEBT................................ $1,977,865 $252,763
========== ========
</TABLE>
61
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest paid on the above debt was $74.5 million, $21.8 million, and $19.3
million during the three years ended September 30, 1998, 1997, and 1996,
respectively.
SENIOR CREDIT FACILITY
The Senior Credit Facility consists of four components: a 6 1/2 year term
loan facility in an aggregate principal amount of $315 million (the "Tranche A
Term Loan Facility"); a 7 1/2 year term loan facility in an aggregate
principal amount of $250 million (the "Tranche B Term Loan Facility"); an 8
1/2 year term loan facility in an aggregate principal amount of $250 million
(the "Tranche C Term Loan Facility"); and a 6 1/2 year revolving credit
facility in the maximum amount of $175 million (the "Revolving Credit
Facility"). Loans made under the Tranche A Term Loan Facility ("Tranche A Term
Loans"), the Tranche B Term Loan Facility ("Tranche B Term Loans") and the
Tranche C Term Loan Facility ("Tranche C Term Loans") are collectively
referred to herein as "Term Loans." Advances under the Revolving Credit
Facility are sometimes referred to as "Revolving Loans." The proceeds from
borrowings under the Term Loans were used, along with the proceeds of the
Notes offering, to fund a portion of the Recapitalization Merger, refinance a
significant portion of LCA's and GranCare's pre-merger indebtedness, and to
pay costs and expenses associated with the Apollo/LCA/GranCare Mergers.
The Term Loans will be amortized in quarterly installments totaling $8.4
million, $15.8 million, $16.6 million, $18.2 million, $48.5 million, $59.8
million, and $20.0 million in the fiscal years 1999, 2000, 2001, 2002, 2003,
2004, 2005 and 2006, respectively. Principal amounts outstanding under the
Revolving Credit Facility will be due and payable in April 2005. As of
September 30, 1998, there was $21.0 million borrowed under the Revolving
Credit Facility in addition to approximately $6.7 million letter of credit
issuances.
Interest on outstanding borrowings accrue, at the option of the Company, at
the customary Alternate Base Rate (the "ABR") of The Chase Manhattan Bank
("Chase") or at a reserve adjusted Eurodollar Rate (the "Eurodollar Rate")
plus, in each case, an Applicable Margin. The term "Applicable Margin" means a
percentage that will vary in accordance with a pricing matrix based upon the
respective term loan tenor and the Company's leverage ratio. Through July
1998, the Applicable Margin for Revolving Loans and Tranche A Term Loans will
equal 1.25% for loans based on ABR ("ABR Loans") and 2.25% for loans based on
the Eurodollar Rate ("Eurodollar Loans"); for Tranche B Term Loans, 1.50% in
the case of ABR Loans and 2.50% in the case of Eurodollar Loans; and for
Tranche C Term Loans, 1.75% in the case of ABR Loans and 2.75% in the case of
Eurodollar Loans. The covenants contained in the Senior Credit Facility
restrict, among other things, the ability of the Company to dispose of assets,
repay other indebtedness or amend other debt instruments, pay dividends, and
make acquisitions.
Subject in each case to certain exceptions, the following amounts are
required to be applied, as mandatory prepayments, to prepay the Term Loans:
(i) 75% of the net cash proceeds of the sale or issuance of equity by the
Company; (ii) 100% of the net cash proceeds of the incurrence of certain
indebtedness; (iii) 75% of the net cash proceeds of any sale or other
disposition by the Company or any of its subsidiaries of any assets (excluding
the sale of inventory and obsolete or worn-out property, and subject to a
limited exception for reinvestment of such proceeds within 12 months); and
(iv) 75% of excess cash flow for each fiscal year, which percentage will be
reduced to 50% in the event the Company's leverage ratio as of the last day of
such fiscal year is not greater than 4.50 to 1.00. Mandatory prepayments will
be applied pro rata to the unmatured installments of the Tranche A Term Loans,
the Tranche B Term Loans and the Tranche C Term Loans; provided, however, that
as long as any Tranche A Term Loan remains outstanding, each holder of a
Tranche B Term Loan or a Tranche C Term Loan will have the right to refuse any
such mandatory prepayment otherwise allocable to it, in which case the amount
so refused will be applied as an additional prepayment of the Tranche A Term
Loans. The Company will also have the right to prepay the Senior Credit
Facility, in whole or in part, at its option. Partial prepayments must be in
minimum amounts of $1 million and in increments of $100,000 in excess thereof.
62
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Amounts applied as prepayments of the Revolving Credit Facility may be
reborrowed; amounts prepaid under the Term Loans may not be reborrowed.
The $255.0 million Bank Credit Facility was repaid in full on November 4,
1997.
SENIOR SUBORDINATED NOTES
Also in connection with the Apollo/LCA/GranCare Mergers, on November 4, 1997
the Company completed a private offering to institutional investors of $275
million of its 9.5% Senior Subordinated Notes due 2007, at a price of 99.5% of
face value and $294 million of its 10.5% Senior Subordinated Discount Notes
due 2007, at a price of 59.6% of face value (collectively, the "Notes").
Interest on the Senior Subordinated Notes is payable semi-annually. Interest
on the Senior Subordinated Discount Notes will accrete until November 1, 2002
at a rate of 10.57% per annum, compounded semi-annually, and will be cash pay
at a rate of 10.5% per annum thereafter. The Notes will mature on November 1,
2007. The net proceeds from this offering, along with proceeds from the Senior
Credit Facility, were used to fund a portion of the Recapitalization Merger,
refinance a significant portion of LCA's and GranCare's pre-merger
indebtedness, and to pay costs and expenses associated with the
Apollo/LCA/GranCare Mergers.
MARINER HEALTH SENIOR CREDIT FACILITY
Mariner Health is the borrower under a $460.0 million senior secured
revolving loan facility (the "Mariner Health Senior Credit Facility"), by and
among Mariner Health, the lenders signatory thereto (the "Mariner Health
Lenders"), and PNC Bank, National Association, as agent for the Mariner Health
Lenders (the "Mariner Health Agent"). As of September 30, 1998, approximately
$356.0 million of loans, and $12.0 million of letters of credit, were
outstanding under the Mariner Health Senior Credit Facility. The Mariner
Health Senior Credit Facility terminates on January 3, 2000, and provides for
prime rate and Eurodollar-based interest rate options. The borrowing
availability and rate of interest vary depending upon specified financial
ratios, with applicable interest rate margins ranging between 0% and 0.25% for
prime-base borrowings, and between 0.50% and 1.75% for Eurodollar-based
advances. As of September 30, 1998, the applicable margins were 0% for prime-
based revolving loans and 1.25% for Eurodollar-based loans. The Mariner Senior
Credit Facility also contains covenants which, among other things, require
Mariner Health to maintain certain financial ratios and impose certain
limitations or prohibitions on Mariner Health with respect to the incurrence
of indebtedness, liens and capital leases; the payment of dividends on, and
the redemption or repurchase of, its capital stock; investments and
acquisitions, including acquisition of new facilities; the merger or
consolidation of Mariner Health with any person or entity; and the disposition
of any of Mariner Health's properties or assets.
Mariner Health's obligations under the Mariner Health Senior Credit Facility
are collateralized by a pledge of the stock of substantially all of its
subsidiaries and are guaranteed by substantially all of its subsidiaries. In
addition, the Mariner Health Senior Credit Facility is collateralized by
mortgages on certain inpatient facilities of Mariner Health and its
subsidiaries, by leasehold mortgages on certain inpatient facilities leased by
Mariner Health or its subsidiaries, and by security interests in certain other
property and assets of Mariner Health and its subsidiaries. As the owner of
100% of the capital stock of Mariner Health, the Company has pledged such
capital stock to Chase as additional collateral to secure the Company's
obligations in connection with the Senior Credit Facility and the Synthetic
Lease (See Note 17).
Mariner Health and its subsidiaries are treated as unrestricted subsidiaries
under the Senior Credit Facility. Unlike subsidiaries of the Company other
than Mariner Health and its subsidiaries (the "Non-Mariner Subsidiaries"),
Mariner Health and its subsidiaries neither guarantee the Company's
obligations under the Senior Credit Facility nor pledge their assets to secure
such obligations. Correspondingly, the Company and the Non-Mariner
Subsidiaries do not guarantee or assume any obligations under the Mariner
Health Senior Credit Facility. Mariner Health and its subsidiaries are not
subject to the covenants contained in the Senior Credit Facility, and
63
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the covenants contained in the Mariner Senior Credit Facility are not binding
on the Company and the Non-Mariner Subsidiaries. Mariner Health and the
Mariner Health subsidiaries are obligated to continue to comply with the
covenants contained in the Mariner Senior Credit Facility without taking into
account the revenues, expenses, net income, assets or liabilities of the
Company and the Non-Mariner Subsidiaries. The converse is true with respect to
the Company, which (together with its Non-Mariner Health Subsidiaries) must
continue to comply with the covenants contained in its Senior Credit Facility
without taking into account the revenues, expenses, net income, assets or
liabilities of Mariner Health and its subsidiaries.
MARINER HEALTH SENIOR SUBORDINATED NOTES.
Mariner Health is also the issuer of certain 9 1/2% Senior Subordinated
Notes due 2006 (the "Mariner Health Notes") which were issued pursuant to that
certain Indenture dated as of April 4, 1996 (the "Mariner Indenture") with
Mariner Health as issuer and State Street Bank and Trust Company as trustee,
and are outstanding in the aggregate principal amount of $150.0 million. The
Mariner Health Notes are unsecured senior subordinated obligations of Mariner
Health and, as such, are subordinated in right of payment to all existing and
future senior indebtedness of Mariner Health, including indebtedness under the
Credit Facility. The Mariner Health Notes contain certain covenants,
including, among other things, covenants with respect to the following
matters: (i) limitation on indebtedness; (ii) limitation on restricted
payments; (iii) limitation on the incurrence of liens; (iv) restriction on the
issuance of preferred stock of subsidiaries; (v) limitation on transactions
with affiliates; (vi) limitation on the sale of assets; (vii) limitation on
other senior subordinated indebtedness; (viii) limitation on guarantees by
subsidiaries; (ix) limitation on the creation of any restriction on the
ability of Mariner Health's subsidiaries to make distributions; and (x)
restriction on mergers, consolidations and the transfer of all or
substantially all of the assets of Mariner Health to another person.
OTHER SIGNIFICANT INDEBTEDNESS.
In connection with the GranCare Merger, the Company became a party to an
agreement between GranCare and Omega Healthcare Investors, Inc. ("Omega").
A wholly-owned subsidiary of the Company, Professional Health Care
Management, Inc. ("PHCMI"), is the borrower under a $58.8 million mortgage
note executed on August 14, 1992 (the "Omega Note") in favor of Omega, and
under the related Michigan loan agreement dated as of June 7, 1992 as amended
(the "Omega Loan Agreement"). All $58.8 million was outstanding as of
September 30, 1998.
The Omega Note bears interest at a rate which is adjusted annually based on
either (i) changes in the Consumer Price Index or (ii) a percentage of the
change in gross revenues of PHCMI and its subsidiaries from year to year,
divided by 58.8 million, whichever is higher, but in any event subject to a
maximum rate not to exceed 105% of the interest rate in effect for the Omega
Note for the prior calendar year. The current interest rate is 15.0% per annum
which is paid monthly. Additional interest accrues on the outstanding
principal of the Omega Note at the rate of 1% per annum. Such interest is
compounded annually and is due and payable on a pro rata basis at the time of
each principal payment or prepayment. Beginning October 1, 2002, quarterly
amortizing installments of principal in the amount of $1.5 million will also
become due and payable on the first day of each calendar quarter. The entire
outstanding principal amount of the Omega Note is due and payable on August
13, 2007. The Omega Note may be prepaid without penalty during the first 100
days following August 14, 2002. Payment of the Omega Note after acceleration
upon the occurrence of an event of default will result in a prepayment penalty
in the nature of a "make whole" premium.
The Omega Loan Agreement obligates PHCMI, among other things, to maintain a
minimum tangible net worth of at least $10 million, which may be increased or
decreased under certain circumstances but may not be less than $10 million.
The Company must contribute additional equity to PHCMI, if and when necessary,
to assure that such minimum tangible net worth test is met. PHCMI has
satisfied this test in the past without the contribution of additional equity,
and management believes that it will continue to do so in the future.
64
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In October 1993 the Company borrowed $20 million from SouthTrust Bank of
Alabama, NA which was unsecured and bore interest at the rate of 6.95%, which
was payable semi-annually. The $20 million principal balance of the note was
repaid in full in November 1997.
In January 1994, the Company issued, in a private placement, a $10 million
note to American General Insurance Company that was later sold to The Variable
Annuity Life Insurance Company at a fixed rate of interest of 7.79%. The note
was unsecured and was repaid in full in November 1997.
Long-term debt, including capital lease obligations, maturing in the next
five fiscal years is presented below (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
<S> <C>
1999.................................................... $ 46,250
2000.................................................... 96,406
2001.................................................... 80,559
2002.................................................... 74,309
2003 and thereafter..................................... 1,726,591
</TABLE>
The Company periodically enters into interest rate swap agreements (the
"Swap Agreements") to manage its interest rate risk. The Swap Agreements
effectively convert a portion of the Company's floating interest rate debt to
fixed interest rate debt. Notional amounts of interest rate agreements are
used to measure interest to be paid or received relating to such agreements
and do not represent an amount of exposure to credit loss. As of September 30,
1998, the Company had Swap Agreements in effect totaling $60.0 million
notional amount of which $40.0 million will mature in July 2005 and $20.0
million will mature in November 2005. Under the Swap Agreements, the Company
pays interest at an average fixed rate of 6.79% and receives interest at a
rate of three-month LIBOR. At September 30, 1998, the fair market value of the
Swap Agreements would represent a loss of approximately $6.2 million for the
Company. Additionally, in September 1998 the Company entered into a total
return swap agreement relating to approximately $40.7 million face amount of
Mariner Notes (the "Total Return Swap Agreement"). The Total Return Swap
Agreement provides for the Company to receive 9.5% interest on approximately
$40.7 million of Mariner Notes and to pay interest at one-month LIBOR plus
2.25%. Upon expiration of the Total Return Swap, if not extended, the Company
has the right, but not the obligation, to purchase the Mariner Notes. If the
Company chooses not to purchase the Mariner Notes, it is responsible for any
decrease in the market value and receives the benefit of any increase in
market value realized by the third party purchase.
Also during quarter ended December 31, 1997, the Company recognized an
extraordinary charge of $11.3 million, net of a $6.0 million income tax
benefit, associated with prepayment penalties incurred on the early
extinguishment of debt and the write-off of certain deferred financing fees in
conjunction with the Apollo/LCA/GranCare Mergers.
NOTE 11. EMPLOYEE RETIREMENT PLANS
The Company's employees are eligible to participate in various defined
contribution retirement plans sponsored by the Company. Company contributions
to these plans represent a matching percentage of certain employee
contributions which for certain plans, is subject to management's discretion
based upon consolidated financial performance. Total combined expense
recognized by the Company under all its defined contribution retirement plans
was $3.8 million, $3.5 million, and $2.2 million for the three years ended
September 30, 1998, 1997, and 1996, respectively.
65
<PAGE>
The Company does not provide post-retirement health care or life insurance
benefits to employees. Accordingly, the Company is not subject to the
requirements of Statement of Financial Accounting Standards No. 106,
"Employers Accounting for Post Retirement Benefits Other Than Pensions."
NOTE 12. LIFE INSURANCE PROCEEDS
In the third quarter of fiscal year 1996 the Company recorded a non-taxable
gain of $2.0 million from the receipt of life insurance proceeds following the
death of Don W. Wortley, former President of TMI.
65--1
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13. IMPAIRMENT OF LONG-LIVED ASSETS
In the fourth quarter of fiscal year 1998 the Company recorded a non-cash
charge related to the impairment of certain long-lived assets as required by
the Company's accounting policy which follows the guidelines of SFAS 121. The
non-cash accounting charge was determined based on a detailed analysis of the
Company's long-lived assets and their estimated future cash flows. The
analysis resulted in the identification and measurement of an impairment loss
of $135.8 million related to the Company's nursing facilities and home health
agencies with either cash flow losses or nursing facilities where management
believed an impairment existed as a result of reduced Medicare reimbursement
due to PPS. Management estimated the undiscounted cash flows to be generated
by each of these assets and compared them to their carrying value. If the
undiscounted future cash flow estimates were less than the carrying value of
the asset then the carrying value was written down to estimated fair value.
Goodwill associated with an impaired asset was included with the carrying
value of that asset in performing both the impairment test and in measuring
the amount of impairment loss related to the asset. Fair value was estimated
based on either management's estimate of fair value, present value of future
cash flows, or market value less estimated cost to sell for certain facilities
to be disposed. The decision regarding the disposition of certain nursing
facilities, which had operating losses of $0.7 million during fiscal 1998, was
completed during the fourth quarter of fiscal 1998. Nursing facilities and
home health agencies to be disposed of had a carrying value of $54.8 million
at September 30, 1998.
In the fourth quarter of fiscal year 1996 the Company recorded an impairment
loss of $20.5 million related to nursing facilities with a history of cash
flow losses, certain other nursing facilities where management believed an
impairment existed as a result of the competitive environment, goodwill, and
other assets to be disposed. Management estimated the undiscounted cash flows
to be generated by each of these assets and compared them to their carrying
value. If the undiscounted future cash flow estimates were less than the
carrying value of the asset then the carrying value was written down to
estimated fair value. Goodwill associated with an impaired asset was included
with the carrying value of that asset in performing both the impairment test
and in measuring the amount of impairment loss related to the asset. Fair
value was estimated based on either management's estimate of fair value,
present value of future cash flows, or market value less estimated cost to
sell for certain facilities to be disposed. The facilities with a history of
cash flow losses operated at a loss for periods ranging from one to four
years. The undiscounted cash flows for TMI were estimated based on the
operating results of TMI subsequent to the death of the President of the
rehabilitation services group (founder of TMI) and adjusted for the loss of
contracts and impending business changes as a result of his death. The
decision regarding the disposition of certain nursing facilities, which had
operating losses of $0.4 million during fiscal 1996, was completed in the
fourth quarter of 1996. Facilities to be disposed of had a carrying value of
$1.5 million at September 30, 1996, and were sold in fiscal year 1997.
NOTE 14. STOCK SPLIT
On November 24, 1997, the Board of Directors of the Company declared a
three-for-one stock split in the form of a stock dividend to stockholders of
record as of December 15, 1997 that was paid on December 30, 1997. In all
instances throughout the financial statements and footnotes, common stock and
additional paid-in capital have been restated to reflect this split.
NOTE 15. RESTRUCTURING PLAN
On June 14, 1996, the Company finalized and approved a plan originating in
June 1995 to restructure the operations and exit certain activities of ARS.
This plan included centralization of billing and collection, closing or
downsizing unprofitable clinics and offsite contracts, and staff reductions of
approximately 300 employees in
66
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MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
both corporate overhead and field management. This plan resulted in an
increase to the original purchase price of the acquisition by $10.1 million,
which was recorded in June 1996 and included an accrual for estimated exit
costs of $4.4 million related to termination/severance for displaced employees
and $4.2 million related to future lease costs for abandoned real property.
During the fourth quarter of fiscal year 1997 the Company lowered its original
estimate of the accrual for exit costs which resulted in a reduction to the
original purchase price of $1.9 million. The revised increase in purchase
price as a result of the restructuring plan includes the following:
<TABLE>
<S> <C>
Termination/severance for displaced employees...................... $3,760
Future lease costs for abandoned real property..................... 2,561
Write off of abandoned tangible and intangible assets at closed lo-
cations........................................................... 1,920
------
Total............................................................ $8,241
======
</TABLE>
The restructuring plan was fully completed during the 1998 fiscal year and
all amounts provided under this charge had been paid.
NOTE 16. INCOME TAXES
The provision (benefit) for income taxes is presented in the table below (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................... $ (10,266) $ 34,214 $ 38,326
State & Local............................. (772) 5,370 5,141
--------- -------- --------
(11,038) 39,584 43,467
Deferred:
Federal................................... 440 (4,922) (8,276)
State & Local............................. 39 (1,058) (1,432)
--------- -------- --------
479 (5,980) (9,708)
--------- -------- --------
Total................................... $ (10,559) $ 33,604 $ 33,759
========= ======== ========
</TABLE>
The provision for income taxes varies from the amount determined by applying
the Federal statutory rate to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
------------------------------
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
Federal statutory income tax rate........ (35.0%) 35.0% 35.0%
Increase (decrease) in taxes resulting
from:
State & local taxes, net of federal tax
benefits.............................. (0.2%) 3.6% 3.4%
Permanent book/tax differences, primar-
ily resulting from goodwill........... 2.9% 2.4% 7.0%
Impairment of long-lived assets ....... 10.1% -- --
Non-deductible merger and acquisition
costs................................. 2.2% 1.0% --
Other, net............................... 0.1% 1.3% (1.6%)
Change in valuation allowance............ 14.8% -- --
--------- -------- --------
Effective tax rate....................... (5.1%) 43.3% 43.8%
========= ======== ========
</TABLE>
67
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The components of the net deferred tax asset (liability) are as follows (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1998 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Amounts relating to property and equipment.......... $(25,457) $(32,967)
Insurance........................................... (3,752) --
Other............................................... -- (5,107)
-------- --------
Total deferred tax liabilities ................... (29,209) (38,074)
-------- --------
Deferred tax assets:
Asset valuation................................... 35,993 16,981
Insurance......................................... -- 7,261
Payroll and benefits.............................. 12,142 4,362
Restructuring reserve............................. 558 863
Purchase accounting............................... 15,716 --
NOL carryforwards................................. 35,282 1,844
Other miscellaneous............................... 4,226 6,183
Accrued expenses.................................. 14,135 --
Tax credits ...................................... 730 --
Timing differences in Medicare.................... 1,628 1,716
-------- --------
Total deferred tax assets......................... 120,410 39,210
Less valuation allowance.............................. (70,252) (1,844)
-------- --------
Net deferred tax asset (liability).................... $ 20,949 $ (708)
======== ========
</TABLE>
The net change in the valuation allowance for deferred tax assets was an
increase of $68.4 million and $0.1 million at September 30, 1998 and 1997,
respectively. The GranCare Merger and Mariner Merger resulted in the addition
of deferred taxes and corresponding valuation allowance in the amount of $37.4
million.
The Company has net operating loss carryforwards of $92.0 million expiring
at various dates through 2018. The net operating losses are subject to various
limitations due to changes in ownership of the Company's subsidiary
corporations during the year.
NOTE 17. COMMITMENTS AND CONTINGENCIES
LEASES
Certain of the Company's facilities are held under operating or capital
leases. All capital leases will expire by 2009. Certain of these leases also
contain provisions allowing the Company to purchase the leased assets during
the term or at the expiration of the lease, at fair market value. Facilities
operating under capital leases are summarized as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1998 1997
------- -------
<S> <C> <C>
Facilities operating under capital leases.................. $89,718 $12,551
Less accumulated amortization.............................. (6,838) (5,799)
------- -------
$82,880 $ 6,752
======= =======
</TABLE>
In October 1996 the Company entered into a leasing program, initially
totaling $70.0 million and subsequently increased to $100.0 million, to be
used as a funding mechanism for future assisted living and skilled nursing
facility construction, lease conversions, and other facility acquisitions. The
lease is an unconditional
68
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"triple net" lease for a period of seven years with the annual lease
obligation a function of the amount spent by the lessor to acquire or
construct the project, a variable interest rate, and commitment and other
fees. The Company guarantees a minimum of approximately 83% of the residual
value of the leased property and also has an option to purchase the properties
at any time prior to the maturity date at a price sufficient to pay the entire
amount financed, accrued interest, and certain expenses. At September 30, 1998
approximately $48.6 million of this leasing arrangement was utilized. The
leasing program is accounted for as an operating lease.
Rental expense, net of sublease rent income and amortization of unfavorable
lease obligation, for all operating leases was $86.6 million, $42.5 million
and $44.2 million for the three years ended September 30, 1998, 1997 and 1996,
respectively. Certain leases also contain increases based on the Consumer
Price Index, Medicaid reimbursement rates, or at amounts specified in the
lease agreement. Sublease rent income was $7.1 million, $6.5 million and $6.9
million for the three years ended September 30, 1998, 1997 and 1996,
respectively. Contingent rent based primarily on revenues was $2.3 million,
$1.8 million and $1.6 million for the three years ended September 30, 1998,
1997 and 1996, respectively.
The table below presents a schedule of the future minimum rental commitments
and sublease income under all noncancellable leases as of September 30, 1998
(in thousands):
<TABLE>
<CAPTION>
SUBLEASE
OPERATING INCOME CAPITAL
---------- -------- --------
<S> <C> <C> <C>
1999........................................ $ 93,421 $ (7,522) $ 10,729
2000........................................ 79,565 (6,459) 9,283
2001........................................ 75,432 (6,459) 8,291
2002........................................ 68,999 (6,105) 8,261
2003........................................ 69,395 (5,699) 15,687
Subsequent years............................ 648,478 (59,526) 52,117
---------- -------- --------
Total minimum rental obligations............ $1,035,290 $(91,770) 104,368
========== ========
Less amount representing interest............................... (27,521)
--------
Present value of capital leases................................. 76,847
Less current portion............................................ (5,544)
--------
Long-term obligations under capital leases...................... $ 71,303
========
</TABLE>
LITIGATION
As is typical in the healthcare industry, the Company is and will be subject
to claims that its services have resulted in resident injury or other adverse
effects, the risks of which will be greater for higher acuity residents
receiving services from the Company than for other long-term care residents.
The Company is, from time to time, subject to such negligence claims and other
litigation. In addition, resident, visitor, and employee injuries will also
subject the Company to the risk of litigation. The Company has experienced an
increasing trend in the past year in the number and severity of litigation
claims asserted against the Company. Management believes that this trend is
endemic to the long-term care industry and is a result of several large
judgments against long-term care providers, other than the Company, in the
last year resulting in an increased awareness by plaintiff's lawyers of
potentially large recoveries. The Company also believes that there has been,
and will continue to be, an increase in governmental investigations of long-
term care providers, particularly in the area of false claims as well as an
increase in enforcement actions resulting from the investigation. While the
Company believes that it provides quality care to the patients in its
facilities and materially complies with all applicable regulatory
requirements, an adverse determination in a legal proceeding or governmental
investigation, whether currently asserted or arising in the future, could have
a material adverse effect on the Company.
69
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
From time to time, the Company and its subsidiaries have been parties to
various legal proceedings in the ordinary course of their respective
businesses. In the opinion of management, except as described below, there are
currently no proceedings which, individually or in the aggregate, if
determined adversely to the Company and after taking into account the
insurance coverage maintained by the Company, would have a material adverse
effect on the Company's financial position or results of operations.
On August 26, 1996, a class action complaint was asserted against GranCare
in the Denver, Colorado District Court, Salas, et al. v. GranCare, Inc., and
AMS Properties, Inc., d/b/a Cedars Health Care Center, Inc. Case No. 96 CV
4449, asserting five claims for relief, including third-party beneficiary,
tortious interference and negligence per se causes of action arising out of
quality of care issues at a healthcare facility formerly owned by GranCare.
Pursuant to the Third Amended Complaint, the class claims were finally
identified as third-party beneficiary of contract; breach of contract;
tortious interference with contract; fraud; and negligence per se. In addition
to the class claims, the named plaintiffs each asserted claims for promissory
estoppel and violation of the Colorado Consumer Protection Act.
On March 15, 1998, the court entered an order in which it certified a class
action in the matter. The court has only certified the class with respect to
the issue of liability and the various class rights to restitution. The court
determined that emotional distress damages are of such an individualized and
personal nature that the class-wide request for emotional distress damages was
not appropriate for class treatment. On May 7, 1998, plaintiff's counsel
orally dismissed her promissory estoppel claims on behalf of the named
plaintiffs. In response to the Company's Motion to Dismiss All Claims and
Motion for Summary Judgment Precluding Recovery of Medicaid Funds, on October
30, 1998, the court partially granted the Company's motions, dismissing the
claims of all plaintiffs who were at all times during the class period
Medicare/Medicaid patients, for lack of jurisdiction. The court further
dismissed all restitution claims for the remaining plaintiffs, except those
relating to emotional distress for the period beginning with their stay at
defendants' facility and ending at the moment that they first received any
Medicare/Medicaid benefits. No restitution claims of any sort were allowed on
the claims for tortuous interference, fraud and negligence per se. In its
order, the court requested a conference relative to whether the class was
large enough to justify continuing the case as a class action. After this
order, at the request of plaintiffs' counsel, the court stayed all activity
and allowed plaintiffs to file a Motion for Reconsideration. Plaintiffs'
Motion for Reconsideration was filed, as ordered, on November 16, 1998, and
the court denied
plaintiffs' motion on November 19, 1998. On December 10, 1998, the court
certified as a final judgment that portion of its order of October 30, 1998
dismissing for lack of jurisdiction all the claims of plaintiffs who were at
all relevant times Medicare or Medicaid patients. The court further stayed all
remaining proceedings pending resolution of any appeal of the certified final
judgment, and vacated the trial which had been scheduled for March 15, 1999.
The Company intends to vigorously contest the remaining alleged claims and the
certification of the various classes.
The Company received a letter dated September 5, 1997 from an Assistant
United States Attorney ("AUSA") in the United States Attorney's Office for the
Eastern District of Texas (Beaumont) advising that the office is involved in
an investigation of allegations that services provided at some of the
Company's facilities may violate the Civil False Claims Act. The AUSA informed
the Company that the investigation is the result of a qui tam complaint (which
involves a private citizen requesting the federal government to intervene in
an action because of an alleged violation of a federal statute) filed under
seal against the Company, and the AUSA is investigating the allegations in
order to determine if the United States will intervene in the proceedings. The
AUSA has requested that the Company voluntarily produce a substantial amount
of documents, including medical records of former residents. In November 1997,
counsel for the Company met with the AUSA and the parties engaged in
discussions on whether the voluntary production of former residents' medical
records can be accomplished without violating the residents' rights to privacy
and confidentiality. Based upon the information currently known about the
complaint, the Company believes that given an opportunity to address the
allegations,
70
<PAGE>
the AUSA will find intervention by the United States is without merit. In
December 1997, the Company advised the AUSA that absent the United States
agreeing to protect the confidentiality of the residents' medical records, and
to prevent unauthorized disclosure of the information requested to non-
government personnel, the Company would not agree to a voluntary production.
The Company has reopened discussions with the Department of Justice regarding
the Company's position on the alleged claims. The Company will vigorously
contest the alleged claims if the complaint is pursued.
In 1997, the Department of Justice ("DOJ") advised the Company that the
United States had declined to intervene in the qui tam complaint filed against
The Brian Center Corporation ("BCC") and one of its subsidiaries, Med-Therapy
Rehabilitation Services, Inc. ("Med-Therapy"), both wholly-owned subsidiaries
of the Company (and of LCA before the Apollo/LCA/GranCare Mergers) in the
federal district court for the Western District of North Carolina. The
individual plaintiff has continued to pursue the alleged claims that BCC and
Med-Therapy caused certain therapists to make improper therapy record entries
with respect to screening services, and that any claims filed with Medicare
for payments based upon such improper record entries should be viewed as false
claims under the Civil False Claims Act. The Company continues to vigorously
contest these claims. Although the plaintiff's original complaint was
dismissed for failure to state a claim, in September 1998, the court denied
the Company's motion to dismiss an amended complaint. The parties have
recently engaged in settlement negotiations, and if the case does not settle,
discovery will commence. In connection with the Company's acquisition of BCC,
the primary stockholder (Donald C. Beaver) agreed to indemnify and hold
harmless the Company from and against any and all loss, expense, damage,
penalty and liability which could result from this claim, subject to further
adjustment. Mr. Beaver's indemnity requires any payment to the Company to be
in the form of shares of the Company's common stock.
On May 18, 1998, a class action complaint was asserted against the Company,
certain of its predecessor entities and affiliates and certain other parties
in the Tampa, Florida Circuit Court, Wilson, et al, v. Mariner Post-Acute
Network, Inc., et al., case no. 98-03779, asserting seven claims for relief,
including breach of contract, breach of fiduciary duty, unjust enrichment,
violation of Florida Civil Remedies for Criminal Practices Act, violation of
Florida Racketeer and Corrupt Organization Act, false advertising and common-
law conspiracy arising out of quality of care issues at a health care facility
formerly operated by the Brian Center Health and Rehabilitation/Tampa, Inc.
and later by a subsidiary of LCA as a result of the Brian Center Corporation
merger. The Company removed this case to Federal Court on June 10, 1998 and
the matter is currently pending in the United States District Court for the
Middle District of Florida, Tampa division, case no. 98-1205-CIV-T23B.
The plaintiffs filed a motion to remand on June 22, 1998 and the Company
filed a motion to dismiss on June 30, 1998. The Company is currently awaiting
the outcome of these motions. The complaint has only been recently filed and
no discovery has been conducted. Accordingly, the information available to the
Company is very limited and the Company is unable to assess at this point the
magnitude of the allegations. The Company intends to vigorously contest the
request for class certification as well as all alleged claims made by the
plaintiffs.
On August 25, 1998, a complaint was filed by the United States against the
Company's GranCare and International X-Ray subsidiaries and certain other
parties under the Civil False Claims Act and in common law and equity. The
lawsuit, U.S. v. Sentry X-Ray, Ltd., et al., civil action no. 98-73722, was
filed in United States District Court for the Eastern District of Michigan.
Valley X-Ray operates a mobile X-Ray company in Michigan. A Company
subsidiary, International X-Ray, owns a minority partnership interest in
defendant Valley X-Ray. The interest in Valley X-Ray was acquired by a
predecessor corporation as an incidental part of a large acquisition.
International X-Ray was not involved in the operation of Valley X-Ray. The
case asserts five claims for relief, including two claims for violation of the
Civil False Claims Act, two alternative claims of common law fraud and unjust
enrichment, and one request for application of the Federal Debt Collection
Procedures Act. The two primary allegations of the complaint are: that the X-
Ray company received Medicare overpayments for transportation costs in the
amount of $657,767; and that the X-Ray company "upcoded" Medicare claims for
EKG services in the amount of $631,090. The United States has requested treble
damages as well as civil penalties of $5,000 to $10,000 for each of the
alleged 388 submitted Medicare claims. The total damages sought varies from
$5.3 to $7.2 million. The Company is vigorously contesting all claims and
filed two motions to
71
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
dismiss on behalf of its subsidiaries on November 23, 1998. The United States
has agreed to the dismissal of GranCare as a party, and the briefing on the
second motion regarding International X-Ray has been completed and awaits
scheduling.
On September 18, 1998, the Company was served with an administrative
subpoena issued by the OIG. The subpoena was addressed to "Paragon Health
Network, Inc." The subpoena seeks, among other things, certain records of
twenty specified current or former LCA nursing facilities. The Company has
been advised that the investigation is civil in nature and focuses on nursing
facilities and nurse aide services. The government has not disclosed the
origin of this civil administrative investigation or its intended scope. The
Company is cooperating with the investigation and has retained experienced
counsel to assist in responding to the subpoena and to advise it with respect
to this investigation. This investigation is still in its preliminary stages;
therefore, the Company is unable to predict the outcome of this matter.
On October 1, 1998, a class action complaint was asserted against certain of
the Company's predecessor entities and affiliates and certain other parties in
the Tampa, Florida, Circuit Court, Ayres, et al v. Donald C. Beaver, et al,
case no 98-7233. The complaint asserts three claims for relief, including
breach of fiduciary duty against one group of defendants, breach of fiduciary
duty against another group of defendants, and civil conspiracy arising out of
issues involving facilities previously operated by the Brian Center
Corporation or one of its subsidiaries, and later by a subsidiary of LCA, as a
result of the merger with Brian Center Corporation. The Company removed this
case to Federal Court on November 2, 1998, and the matter is currently pending
in the United States District Court for the Middle District of Florida, Tampa
Division, case no 98-2240-CIV-T-17C. The plaintiffs filed a Motion to Remand
on November 13, 1998, and the Company will be presenting a brief in
opposition. The complaint has only been recently filed and no discovery has
been conducted. Thus, the information available to the Company is very
limited. At this point, the Company is unable to access the magnitude of the
allegations. The Company intends to vigorously contest all claims, including
all issues relating to the attempted certification of any alleged class.
In October, 1998, the Custodian of Records of Cambridge Bedford, Inc., also
known as Bedford Villa Nursing Center ("Bedford"), a wholly-owned subsidiary
of the Company, was served an administrative subpoena issued by the OIG. The
subpoena seeks, among other things, general information on corporate ownership
and organizational structure, therapy and physician service arrangements, and
medical records of eleven former residents of Bedford. Bedford has been
advised that the investigation is civil in nature, and the
OIG has assured the facility that the OIG will follow all applicable federal
laws, including the Privacy Act, that pertain to the confidentiality of
medical records, and that Bedford will face no violation of confidentiality or
privacy laws in producing the patient medical records requested. The Company
is cooperating with the investigation and has transmitted documents responsive
to the subpoena on November 17, 1998.
In November, 1998, Bedford also received a subpoena duces tecum from the
DOJ, through the U.S. Attorney's Office in Detroit, Michigan, requesting
certain patient medical records as the result of a criminal investigation of a
named physician. The Company has been advised that the facility is not a
subject or target of the investigation. The Company is cooperating with the
U.S. Attorney's Office.
NOTE 18. INSURANCE COVERAGES
The Company insures automobile, general, and professional liability and
workers' compensation risks through insurance policies with third parties.
Some of these third-party policies are subject to reinsurance agreements
between the insurer and MPN Insurance Company, Ltd. (formerly LCA Insurance
Company, Ltd.), a wholly-owned subsidiary of the Company, and GCI Indemnity,
Ltd., a wholly-owned subsidiary of the Company. The business written by MPN
Insurance Company, Ltd. is the reinsurance of policies providing coverage for
72
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MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
nursing home professional liability, automobile liability, and workers'
compensation. All of these are occurrence policies which cover only portions
of the Company and its subsidiaries and their employees. Pursuant to the
reinsurance agreements, MPN Insurance Company, Ltd. is responsible to pay all
losses which are incurred by the company issuing the policies. The maximum
loss exposure with respect to these policies is $0.5 million per occurrence
(policy periods prior to July 1, 1996) and $1.0 million per occurrence (policy
periods subsequent to July 1, 1996) for nursing home professional liability;
$0.25 million per occurrence for automobile liability; and $0.5 million per
occurrence for workers' compensation liability. The business written by GCI
Indemnity, Ltd. is also the reinsurance of policies providing coverage for
nursing home professional liability, automobile liability, and workers'
compensation. All of these are occurrence policies which cover only portions
of the Company and its subsidiaries and their employees. Pursuant to the
reinsurance agreements, GCI Indemnity, Ltd. is responsible to pay all losses
which are incurred by the company issuing the policies. The maximum loss
exposure with respect to these policies is $0.10 million per occurrence for
nursing home professional liability; and $0.35 million per occurrence for
workers' compensation liability.
The liabilities for incurred losses are estimated by independent actuaries
on an undiscounted basis. The obligations of MPN Insurance Company, Ltd. and
GCI Indemnity, Ltd. under the reinsurance agreements are collateralized
through a security trust account which has been designated as restricted
investments to pay for future claims experience applicable to policy periods.
Restricted investments at September 30, 1998 and 1997 designated to pay such
claims were $71.7 million and $52.0 million, respectively.
In 1998, the Company purchased a traditional indemnity insurance policy for
its 1998 workers' compensation liabilities. This transaction resulted in a
reduction in the Company's self-insured liabilities for workers' compensation
during the year ended September 30, 1998 as compared to the same period in
1997. Additionally, in 1998 the Company purchased general and professional
liability insurance through a third party insurance company. The maximum loss
exposure with respect to this policy is $0.1 million per occurrence in every
state except for Texas, in which the maximum loss exposure is $1.0 million per
occurrence. For the policy year beginning March 31, 1998 the Company's total
exposure for general and professional liability claims is limited to $21.5
million.
In 1992, the Company elected under Texas law to decline to participate in
the Texas workers' compensation insurance program. As part of the election,
the Company implemented an employee benefit plan providing for employer-paid
benefits comparable to those provided under the Texas workers' compensation
program and obtained insurance that limits the Company's exposure for any
individual injury. During 1994, the Company established a trust in which to
fund the amount applicable to actuarially determined claims to be incurred for
fiscal year 1994 and subsequent years.
Mariner Health is insured for current and past workers' compensation claims
under various types of insurance and financial plans, certain of which are
loss-sensitive in nature and design, which subject Mariner Health to
additional future premiums for losses incurred in a prior year but paid in a
subsequent fiscal period, as losses develop. In addition, Mariner Health
insured some of their professional and general liability through insurance
contracts with third parties under which Mariner Health's liability is capped
at $0.1 million per claim.
73
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 19. DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short maturity of
those instruments.
NOTES RECEIVABLE
Fair value for each significant note receivable was estimated based on the
net present value of cash flows that would be received on each note over the
remaining note term using current market interest rates rather than stated
interest rates. The discount factor was the estimated rate for long-term debt
in effect at September 30, 1998 and 1997. Further adjustments were made to the
value of the notes based on management's opinion of the credit risk of the
note obligee.
RESTRICTED INVESTMENTS
Fair values for the Company's restricted investments were based on quoted
market rates.
LONG-TERM DEBT
The Company believes that the fair value of the long-term debt is properly
reflected at current carrying amounts except for certain fixed rate debt
instruments. Fair values for each significant fixed rate debt instrument were
estimated based on market quotes, where available, or the net present value of
cash flows that would be paid on each note over the remaining note term using
the Company's current incremental borrowing rate rather than the stated
interest rates on the notes. See Note 10.
INTEREST RATE SWAP AGREEMENTS
Fair values for the Company's various interest rate swap agreements were
based on market quotes which would be required to terminate the agreement.
The estimated values of the Company's financial instruments as of September
30, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------
1998 1997
--------------------- -----------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents........ $ 3,314 $ 3,314 $ 14,355 $ 14,355
Notes receivable................. 30,517 32,160 13,423 14,172
Restricted investments........... 88,467 88,467 51,976 51,976
Long-term debt................... 2,024,115 1,981,561 295,959 298,843
Interest rate swap agreements.... -- (6,196) -- (1,622)
</TABLE>
NOTE 20. CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade receivables. There have been, and
the Company expects that there will continue to be, a number of proposals to
limit reimbursement allowable to skilled nursing facilities. Should the
related government agencies suspend or significantly reduce contributions to
the Medicare or Medicaid programs, the Company's ability to
74
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
collect on its receivables would be adversely affected. Management believes
that the remaining receivable balances from various payors, including
individuals involved in diverse activities, subject to differing economic
conditions, do not represent a concentration of credit risk to the Company.
Management continually monitors and adjusts its allowance for doubtful
accounts and contractual allowances associated with its receivables. Federal
law limits the degree to which states are permitted to alter Medicaid
programs.
NOTE 21. RELATED PARTY TRANSACTIONS
The Company leases 14 facilities under operating and capital leases from
certain organizations in which a board member of the Company has a significant
interest. For the period from August 1, 1998 to September 30, 1998, the
Company made cash payments on such lease obligations of approximately $1.2
million. Capital leases obligations include approximately $94.3 million of
minimum lease payments due over the remaining lease terms.
NOTE 22. EARNINGS PER COMMON SHARE
In February 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128 was designed to simplify the standards for computing earnings per
share and increase the comparability of earnings per share data on an
international basis. SFAS 128 replaces the presentation of primary earnings
per share with a presentation of basic earnings per share and requires dual
presentation of basic and diluted earnings per share on the face of the
statement of income of all entities with complex capital structures. The
Company adopted SFAS 128 during the first quarter of fiscal 1998 and,
accordingly, earnings per share for all prior periods presented have been
restated to conform to the requirements of this new standard. The following
table sets forth the computation of basic and diluted earnings per share (in
thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C>
Numerator for Basic and Diluted Earnings Per
Share:
Net income (loss) before extraordinary item.. $(198,377) $43,917 $43,180
Extraordinary item........................... (11,275) -- --
--------- ------- -------
Net income (loss)............................ $(209,652) $43,917 $43,180
========= ======= =======
Denominator:
Denominator for basic earnings per share-
weighted average shares..................... $ 48,601 $58,613 $60,372
Effect of dilutive securities--Stock options. -- 1,195 574
--------- ------- -------
Denominator for diluted earnings per share-
adjusted weighted-average shares and assumed
conversions................................. $ 48,601 $59,808 $60,946
========= ======= =======
Basic Earnings (Loss) Per Share:
Net income (loss) before extraordinary item.. $ (4.08) $ 0.75 $ 0.72
Extraordinary item........................... (0.23) -- --
--------- ------- -------
Net income (loss) per common share........... $ (4.31) $ 0.75 $ 0.72
========= ======= =======
Diluted Earnings (Loss) Per Share:
Net income (loss) before extraordinary item.. $ (4.08) $ 0.73 $ 0.71
Extraordinary item........................... (0.23) -- --
--------- ------- -------
Net income (loss) per common share........... $ (4.31) $ 0.73 $ 0.71
========= ======= =======
</TABLE>
75
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The effect of dilutive securities for the year ended September 30, 1998 has
been excluded because the effect is antidilutive as a result of the net loss
for the period.
NOTE 23. EMPLOYEE STOCK OPTION AND STOCK PURCHASE PLANS
The Company established an Employee Stock Option Plan in 1997 which
authorizes the granting of incentive stock options, nonqualified options, or
any combination of the foregoing to purchase up to 6,000,000 shares (2,000,000
shares prior to the three-for-one stock split) of the Company's common stock.
An additional 4,000,000 shares were authorized in July, 1998 in connection
with the Mariner Merger. See Note 4. The exercise price per share of common
stock with respect to each incentive stock option is the fair market value of
a share of common stock (defined as the closing price per share of the common
stock on the New York Stock Exchange) on the date such option is granted while
the exercise price per share of common stock with respect to a nonqualified
option is the fair market value of a share of common stock on the date such
option is granted or on a subsequent date or as otherwise provided in any
agreement with the recipient, but in no event will the exercise price with
respect to a nonqualified option be less than 50% of the fair market value of
a share of common stock on the date of the grant. The options have a term as
fixed by the Stock Option Committee, but, in no event, longer than ten years
after the date of grant. Options are exercisable only by the optionee and only
while the optionee is an employee or nonemployee director of the Company or,
unless such optionee's employment is terminated for cause, within three months
after the optionee ceases to be an employee or director of the Company.
Options are exercisable for 12 months after the death or permanent disability
of an optionee. The option exercise price must be paid in cash or, at the
discretion of the Stock Option Committee, may be paid in whole or in part in
shares of common stock valued at fair market value on the date of exercise. As
of September 30, 1998 and 1997, there were 7,091,957 and 3,901,404,
respectively, options granted and outstanding. All shares outstanding as of
September 30, 1997 that were not exercised prior to November 4, 1997, were
cancelled and reissued as applicable in conjunction with the new Plan.
Similarly, Mariner Health Plan options were converted as of July 31, 1998.
The following is a summary of the stock option activity and related
information which has been adjusted to reflect the three-for-one stock split:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------------- -------- -------------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 3,901,404 $ 8.95 3,778,644 $9.18 2,338,875 $ 8.27
Granted................. 7,877,856 13.74 645,972 8.30 2,074,620 10.23
Exercised............... (4,423,153) 9.05 (21,831) 6.86 (118,302) 6.28
Forfeited............... (264,150) 16.15 (501,381) 9.95 (516,549) 9.87
-------------- ------ -------------- ----- -------------- ------
Outstanding at end of
year................... 7,091,957 $13.97 3,901,404 $8.95 3,778,644 $ 9.18
============== ====== ============== ===== ============== ======
Exercisable at end of
year................... 974,457 $ 9.63 1,567,092 $7.71 951,033 $ 6.99
============== ====== ============== ===== ============== ======
Price range............. $0.84 - $46.45 $4.42 - $12.92 $4.42 - $12.92
============== ============== ==============
Weighted average fair
value of options
granted during the
year................... $ 7.84 $5.00 $ 5.59
====== ===== ======
</TABLE>
76
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
123 requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1998, 1997 and 1996 risk-free interest rates
ranging from 5.50% to 6.11%; a dividend yield of 0%; volatility factors of the
expected market price of the Company's common stock ranging from 0.42 to
0.508; and a weighted-average expected life of the option of eight years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in
the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
<TABLE>
<CAPTION>
AVERAGE REMAINING
EXERCISE CONTRACTUAL
RANGE OPTIONS PRICE LIFE (YEARS)
----- --------- -------- -----------
<S> <C> <C> <C>
$.84-$5.40................................. 125,685 $ 3.85 9.19
$7.05-$9.91................................ 519,395 $ 7.80 9.18
$11.00-$12.75.............................. 2,748,940 $12.09 9.17
$16.25-$16.75.............................. 3,299,500 $16.35 9.19
$17.88-$46.45.............................. 398,437 $18.51 9.17
---------
7,091,957
=========
</TABLE>
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for earnings per
share information):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1998 1997 1996
--------- ------- -------
<S> <C> <C> <C>
Pro forma net income (loss)......................... $(212,251) $42,489 $42,405
Pro forma earnings per share........................ $ (4.37) $ 0.72 $ 0.70
</TABLE>
The Company established an Employee Stock Purchase Plan in 1993 (the "LCA-
ESPP"). The LCA-ESPP was terminated effective September 17, 1997. The plan had
previously authorized the purchase of up to 360,000 shares (120,000 shares
prior to the three-for-one stock split) of the Company's common stock by
eligible employees. The provisions of the plan included eligibility for all
full time employees who have completed one year of service, employee
contributions equal to the lesser of 10% of base salary or $10,000, the
purchase price being equal to the lesser of the fair market value of the stock
on the first or the last day of the plan year, and an option to purchase
shares of stock or withdraw all payroll deductions plus interest at the end of
the plan year. As of September 30, 1997 and 1996, a total of 177,789 and
129,480 shares, respectively, (59,263 and 43,160 prior to the three-for-one
stock split) had been issued under the plan.
77
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The table below sets forth summarized quarterly financial data for the years
ended September 30, 1998 and 1997 (in thousands, except per share amounts) and
has been adjusted to reflect the three-for-one stock split:
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
1998 QUARTER QUARTER QUARTER QUARTER
---- --------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues............... $ 632,697 $494,065 $487,161 $421,606
Income (loss) from opera-
tions..................... (132,570)(a) 29,728(b) 22,591 (b) (13,821)(b)
Income (loss) before income
taxes and equity
earnings/minority
interest.................. (171,455) 1,601 (5,371) (33,149)
Equity earnings/minority
interest.................. (16) (247) (127) (172)
Income (loss) before ex-
traordinary loss.......... (164,144) (242) (4,473) (29,518)
Extraordinary loss on early
extinguishment of debt.... -- -- -- (11,275)
Net income (loss).......... $(164,144) $ (242) $ (4,473) $(40,793)
========= ======== ======== ========
Earnings (loss) per share:
Basic.................... $ (2.60) $ (0.01) $ (0.11) $ (0.86)
========= ======== ======== ========
Diluted.................. $ (2.60) $ (0.01) $ (0.11) $ (0.86)
========= ======== ======== ========
Weighted average common and
common equivalent shares
outstanding:
Basic.................... 63,150 42,223 41,208 47,590
========= ======== ======== ========
Diluted.................. 63,150 42,223 41,208 47,590
========= ======== ======== ========
- --------
(a) Includes $21.5 million recapitalization, indirect merger and other expenses
and $135.8 million impairment charge.
(b) Includes adjustments from previously reported results to reflect
recapitalization, indirect merger and other expenses as follows: First
Quarter, $41.0 million; Second Quarter, $13.6 million; and Third Quarter,
$11.2 million.
<CAPTION>
FOURTH THIRD SECOND FIRST
1997 QUARTER QUARTER QUARTER QUARTER
---- --------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues............... $ 286,335 $288,433 $285,318 $280,202
Income from operations..... 19,126(c) 28,456 25,844 21,682
Income before income taxes
and equity
earnings/minority
interest.................. 15,198 23,968 21,462 17,628
Equity earnings/minority
interest.................. (330) (223) (119) (63)
Net income................. $ 7,709 $ 13,669 $ 12,214 $ 10,325
========= ======== ======== ========
Earnings per share:
Basic.................... $ 0.13 $ 0.23 $ 0.21 $ 0.18
========= ======== ======== ========
Diluted.................. $ 0.13 $ 0.23 $ 0.21 $ 0.18
========= ======== ======== ========
Weighted average common and
common equivalent shares
outstanding:
Basic.................... 58,613 58,643 58,616 58,507
========= ======== ======== ========
Diluted.................. 59,808 59,870 59,478 58,957
========= ======== ======== ========
</TABLE>
- --------
(c) Includes $2.6 million recapitalization, indirect merger and other
expenses.
78
<PAGE>
MARINER POST-ACUTE NETWORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 25. TERMINATION OF STOCKHOLDER RIGHTS PLAN
On November 17, 1994, the Company's Board of Directors declared a dividend
of one right for each outstanding share of the Company's Common Stock. Each
right entitled the holder to purchase from the Company one one-hundredth of a
share of Series A Junior Participating Preferred Stock, par value $0.01 per
share, for an exercise price of $160, subject to adjustment. On May 7, 1997,
LCA's Board of Directors amended the Rights Agreement under which the rights
were granted such that the Rights Agreement terminated immediately prior to
the Apollo/LCA/GranCare Mergers. See Note 1 and 3. Such rights were not
exercisable nor transferable apart from the Common Stock until such time as a
person or group acquired 15% of the Company's Common Stock or initiated a
tender offer or exchange offer that would result in ownership of 15% of the
Company's Common Stock.
79
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information on directors of the registrant will appear in the Company's
Proxy Statement for the February 18, 1999 annual meeting of stockholders,
which will be filed with the Securities and Exchange Commission, and is
incorporated herein by reference. Information required by this item for the
Company's executive officers is contained in Item 4a of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information on executive compensation will appear in the Company's Proxy
Statement for the February 18, 1999 annual meeting of stockholders, which will
be filed with the Securities and Exchange Commission, and is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information on security ownership of certain beneficial owners will appear
in the Company's Proxy Statement for the February 18, 1999 annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission,
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information on certain relationships and related transactions will appear in
the Company's Proxy Statement for the February 18, 1999 annual meeting of
stockholders, which will be filed with the Securities and Exchange Commission,
and is incorporated herein by reference.
80
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS
The following reports, financial statements and schedule are filed herewith
on the pages indicated:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors......................................... 46
Consolidated Balance Sheets at September 30, 1997 and 1998............. 47
Consolidated Statements of Income for Fiscal Years 1996, 1997 and 1998. 48
Consolidated Statements of Stockholders' Equity for Fiscal Years 1996,
1997 and 1998......................................................... 49
Consolidated Statements of Cash Flows for Fiscal Years 1996, 1997 and
1998.................................................................. 50
Notes to Consolidated Financial Statements............................. 51
FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Accounts and Reserves............ 90
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and, therefore, have been
omitted.
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*2.1 Agreement and Plan of Merger, dated as of April 13, 1998, among the
Registrant, Mariner Health Group, Inc. ("Mariner Health") and Paragon
Acquisition Sub, Inc. ("Merger Sub") (Annex I to Registrant's
Registration Statement on Form S-4, Registration No. 333-57339, and
incorporated herein by reference).
*2.2 Amended and Restated Agreement and Plan of Merger dated September 17,
1997 among Apollo Management, L.P. ("Apollo"), Apollo LCA Acquisition
Corp. and Living Centers of America, Inc. ("LCA") (filed as Annex I
to Registrant's Registration Statement on Form S-4, Registration No.
333-36525, and incorporated herein by reference).
*2.3 Amended and Restated Agreement and Plan of Merger dated September 17,
1997 among LCA, GranCare, Inc.("GranCare"), Apollo and LCA
Acquisition Sub, Inc. (filed as Annex II to Registrant's Registration
Statement on Form S-4, Registration No. 333-36525, and incorporated
herein by reference).
*3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant (filed as Annex VIII to Registrant's Registration
Statement on Form S-4, Registration No. 333-57339, and incorporated
herein by reference).
*3.2 Second Amended and Restated Bylaws of the Registrant (filed as Annex
IX to Registrant's Registration Statement on Form S-4, Registration
No. 333-57339, and incorporated herein by reference).
4.1 Form of Common Stock Certificate of the Registrant.
4.2 Amended and Restated Stockholders' Agreement dated as of November 25,
1998 by and among the Registrant, Apollo and certain other investors.
*4.3 Registration Rights Agreement dated as of November 4, 1997 among the
Registrant, Apollo and certain other investors (filed as Exhibit 4.7
to Registrant's Registration Statement on Form S-4, Registration No.
333-36525, and incorporated herein by reference).
4.4 Registration Rights Agreement dated as of May 1, 1998 between the
Registrant and Daniel G. Schmidt III.
4.5 Registration Rights Agreement dated as of July 13, 1998 by and among
the Registrant, Rembert T. Cribb and Michael E. Fitzgerald.
</TABLE>
81
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*4.6 Indenture dated as of November 4, 1997, between the Registrant and
IBJ Schroder Bank & Trust Company (the "Company Indenture") (filed as
Exhibit 4.5 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997, and incorporated herein by
reference).
*4.7 10 1/2% Senior Subordinated Discount Note Due 2007 pertaining to the
Company Indenture (filed as Exhibit 4.6 to the Registrant's
Registration Statement on Form S-4, Registration No. 333-43663, and
incorporated herein by reference).
*4.8 9 1/2% Senior Subordinated Note Due 2007 pertaining to the Company
Indenture (filed as Exhibit 4.5 to the Registrant's Registration
Statement on Form S-4, Registration No. 333-43663, and incorporated
herein by reference).
*4.9 Indenture dated as of April 4, 1996 between Mariner Health and State
Street Bank and Trust Company, as trustee (the "Mariner Health
Indenture"), including (i) the form of 9 1/2% Senior Subordinated
Note due 2006, Series A and (ii) the form of 9 1/2% Senior
Subordinated Note due 2006, Series B (Incorporated by reference to
Exhibits 4.1, 4.2, and 10.1 to Mariner Health's Current Report on
Form 8-K dated April 4, 1996).
4.10 Amendment No. 1 to Mariner Health Indenture, dated September 11,
1998.
*10.1 Agreement Regarding Certain Kellett Issues dated June 19, 1998 by and
among Mariner Health, Mariner Health Care of Nashville, Inc., Stiles
A. Kellett, Jr., Samuel B. Kellett, certain partnerships controlled
by the Kelletts, and the Registrant (filed as Exhibit 10.8 to the
Registrant's Registration Statement on Form S-4, Registration
No. 333-57339, and incorporated herein by reference).
10.2 Second Amendment of Amended and Restated Operating Lease dated
June 19, 1998, by and between Belleair East Medical Investors, Ltd.
(L.P.) and Mariner Health Care of Nashville, Inc.
10.3 Second Amendment of Amended and Restated Operating Lease dated
June 19, 1998, by and between Port Charlotte Health Care Associates,
Ltd. (L.P.) and Mariner Health Care of Nashville, Inc.
10.4 First Amendment of Amended and Restated Operating Lease dated June
19, 1998, by and between Denver Medical Investors, Ltd. (L.P.) and
Mariner Health Care of Nashville, Inc.
*10.5 +Employment Agreement between the Registrant and Keith B. Pitts
(filed as Exhibit 10.1 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997 and incorporated herein
by reference).
10.6 +First Amendment to Employment Agreement between the Registrant and
Keith B. Pitts.
*10.7 +Employment Agreement between the Registrant and Arthur W. Stratton,
Jr. M.D. (filed as Exhibit 10.6 to the Registrant's Registration
Statement on Form S-4, Registration No. 333-57339, and incorporated
herein by reference).
*10.8 +Employment Agreement between the Registrant and Susan Thomas Whittle
(filed as Exhibit 10.3 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997 and incorporated herein
by reference).
*10.9 +Employment Agreement between the Registrant and William R. Korslin
(filed as Exhibit 10.4 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997 and incorporated herein
by reference).
*10.10 +Employment Agreement between the Registrant and David L. Ward (filed
as Exhibit 10.7 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1997 and incorporated herein by
reference).
10.11 +Employment Agreement between the Registrant and Thomas P. Dixon.
*10.12 +Employment Agreement between the Registrant and Charles B. Carden
(filed as Exhibit 10.8 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997 and incorporated herein
by reference).
</TABLE>
82
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*10.13 +Employment Agreement between the Registrant and R. Jeffrey Taylor
(filed as Exhibit 10.11 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997 and
incorporated herein by reference).
10.14 +Form of Employment Agreement entered into between the Registrant and
its Senior Vice Presidents.
*10.15 +Form of Employment Agreement entered into between the Registrant and
its Vice Presidents (filed as Exhibit 10.12 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1997 and incorporated herein by reference).
*10.16 +Paragon Health Network, Inc. 1997 Long-Term Incentive Plan (filed as
Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 and incorporated herein by
reference).
10.17 +First Amendment to Paragon Health Network, Inc. 1997 Long-Term
Incentive Plan.
*10.18 +Paragon Health Network, Inc. Incentive Compensation Plan (filed as
Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 and incorporated herein by
reference).
*10.19 +New GranCare, Inc. 1996 Stock Incentive Plan (filed with Amendment
No. 1 to GranCare's Registration Statement on Form S-1, Registration
No. 333-19097, and incorporated herein by reference).
10.20 First Amendment to the New GranCare, Inc. 1996 Stock Incentive Plan.
*10.21 +New GranCare, Inc. 1996 Replacement Stock Option Plan (filed with
Amendment No. 1 to GranCare's Registration Statement on Form S-1,
Registration No. 333-19097, and incorporated herein by reference).
10.22 +First Amendment to the New GranCare, Inc. 1996 Replacement Stock
Option Plan.
*10.23 +New GranCare, Inc. Outside Directors' Stock Incentive Plan (filed
with Amendment No. 1 to GranCare's Registration Statement on
Form S-1, Registration No. 333-19097, and incorporated herein by
reference).
10.24 +First Amendment to the New GranCare, Inc. Outside Directors Stock
Incentive Plan.
10.25 +Second Amendment to the New GranCare, Inc. Outside Directors Stock
Incentive Plan.
*10.26 Indemnification Agreement dated as of February 21, 1992 between LCA
and the ARA Group, Inc. (filed as Exhibit 10.4 to Registrant's
Registration Statement on Form S-1, Registration No. 33-44726, and
incorporated herein by reference).
*10.27 Assignment Agreement dated as of February 21, 1992 between LCA and
the ARA Group, Inc. (filed as Exhibit 10.6 to Registrant's
Registration Statement on Form S-1, Registration No. 33-44726, and
incorporated herein by reference).
*10.28 Termination and Release Agreement dated as of September 3, 1997, by
and among GranCare, Manor Care, Inc. ("Manor Care") and Vitalink
Pharmacy Services, Inc. ("Vitalink"), Apollo and LCA (filed as
Exhibit 10.28 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 and incorporated herein by
reference).
*10.29 Letter Agreement Regarding Liquidated Damages Calculation in
Pharmaceutical Supply Agreements dated September 3, 1997, by and
among GranCare, TeamCare, Inc. and Vitalink (filed as Exhibit 10.29
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997 and incorporated herein by reference).
*10.30 Letter Agreement Regarding Preferred Provider Arrangement dated
August 29, 1997, by and among Vitalink and GranCare (filed as Exhibit
10.30 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1997 and incorporated herein by reference).
</TABLE>
83
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<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*10.31 Amendment to AMS Properties, Inc. Facility Leases dated as of
October 31, 1997 between Health and Retirement Properties Trust
("HRPT") and AMS Properties, Inc. ("AMS") (filed as Exhibit 10.31 to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 and incorporated herein by reference).
*10.32 Collateral Pledge Agreement dated as of October 31, 1997 by and
between the Registrant and HRPT (filed as Exhibit 10.32 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 and incorporated herein by reference).
*10.33 Guaranty by GranCare dated as of October 31, 1997 in favor of HRPT
(filed as Exhibit 10.33 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997 and
incorporated herein by reference).
*10.34 Guaranty by the Registrant dated as of October 31, 1997 in favor of
HRPT (filed as Exhibit 10.34 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997 and
incorporated herein by reference).
*10.35 Restructure and Asset Exchange Agreement dated as of October 31, 1997
among HRPT, GranCare, AMS and GCI Health Care Centers, Inc. ("GCI
Health Care") (filed as Exhibit 10.35 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1997 and
incorporated herein by reference).
*10.36 Subordination Agreement dated as of October 31, 1997 by and among
HRPT and the corporations listed on the signature page thereto (filed
as Exhibit 10.36 to the Registrant's Annual Report on Form 10-K for
the fiscal year ended September 30, 1997 and incorporated herein by
reference).
*10.37 Amendment to GCI Health Care Centers, Inc. Facility Leases dated as
of October 31, 1997 (filed as Exhibit 10.37 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1997 and incorporated herein by reference).
*10.38 Amendment to Acquisition Agreement, Agreement to Lease and Mortgage
Loan Agreement dated as of December 29, 1993 among HRPT, GranCare,
AMS and GCI Health Care (filed with GranCare's Current Report on
Form 8-K filed January 13, 1994, and incorporated herein by
reference).
*10.39 Master Lease Document dated December 28, 1990, between HRPT and AMS
(filed with GranCare's Registration Statement on Form S-1,
Registration No. 33-42595, and incorporated herein by reference).
*10.40 Form of Guaranty dated December 28, 1990, by American Medical
Services, Inc. and each of its subsidiaries in favor of HRPT (filed
with GranCare's Registration Statement on Form S-1, Registration
No. 33-42595, and incorporated herein by reference).
*10.41 Amendment to Master Lease between HRPT and AMS dated as of
December 29, 1993 (filed with GranCare's Current Report on Form 8-K
filed January 13, 1994, and incorporated herein by reference).
*10.42 Amendment to Master Lease Document and Facility Lease between GCI
Health Care and HRPT dated as of October 31, 1994 (filed with
GranCare's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and incorporated herein by reference).
*10.43 Amendment to Master Lease Document and Facility Lease between AMS and
HRPT dated as of October 31, 1994 (filed with GranCare's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 and
incorporated herein by reference).
*10.44 Mortgage and Security Agreement from AMS to HRPT for the Northwest
and River Hills West Health Care Centers dated as of March 31, 1995
(filed with GranCare's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 and incorporated herein by reference).
*10.45 Assumption Agreement by GranCare in favor of HRPT (filed with
GranCare's Amendment No. 1 to Registration Statement on Form S-1,
Registration No. 333-19097, and incorporated herein by reference).
</TABLE>
84
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*10.46 Consent and Amendment to Transaction Documents dated as of
December 31, 1996 (the "Consent and Amendment") among GCI Health
Care, GranCare, Vitalink, HRPT and AMS (filed with GranCare's
Amendment No. 1 to Registration Statement on Form S-1, Registration
No. 333-19097, and incorporated herein by reference).
*10.47 Credit Agreement for $890,000,000 dated as of November 4, 1997, by
and among the Registrant, as Borrower, The Chase Manhattan Bank, as
Administrative Agent, NationsBank, N.A., as Documentation Agent, and
the several lenders from time to time parties thereto (filed as
Exhibit 10.48 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997 and incorporated herein by
reference).
10.48 First Amendment, dated as of July 8, 1998, by and among the
Registrant, The Chase Manhattan Bank, as Administrative Agent,
NationsBank, N.A., as Documentation Agent, and the several lenders
parties thereto, relating to the Credit Agreement identified in
Item 10.47 above.
10.49 Second Amendment, dated as of December 22, 1998, by and among the
Registrant, The Chase Manhattan Bank, as Administrative Agent,
NationsBank, N.A., as Documentation Agent, and the several lender
parties thereto, relating to the Credit Agreement identified in Item
10.47 above.
*10.50 Guarantee and Collateral Agreement dated as of November 4, 1997, by
and among the Registrant and certain of its subsidiaries in favor of
The Chase Manhattan Bank, as Collateral Agent (filed as Exhibit 10.49
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997 and incorporated herein by reference).
*10.51 Amended and Restated Participation Agreement ("FBTC Participation
Agreement") dated November 4, 1997, by and among LCA, as Lessee, FBTC
Leasing Corp. ("FBTC"), as Lessor, The Chase Manhattan Bank, as Agent
for the Lenders, the Fuji Bank Limited (Houston Agency), as Co-Agent,
and the Lenders parties thereto (filed as Exhibit 10.50 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997 and incorporated herein by reference).
10.52 First Amendment to FBTC Participation Agreement dated July 8, 1998.
10.53 Second Amendment to FBTC Participation Agreement dated December 22,
1998.
*10.54 Amended and Restated Guaranty ("FBTC Guarantee") dated November 4,
1997, by and among the Registrant and certain other guarantors
signatory thereto in favor of The Chase Manhattan Bank, as
Administrative Agent (filed as Exhibit 10.51 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1997 and incorporated herein by reference).
10.55 First Amendment to FBTC Guarantee dated July 8, 1998.
10.56 Second Amendment to FBTC Guarantee dated December 22, 1998.
*10.57 Lease dated October 10, 1996, between FBTC, as Lessor, and LCA, as
Lessee (filed as Exhibit 10.52 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997 and
incorporated herein by reference).
*10.58 Amendment to Lease dated as of November 4, 1997 between FBTC and LCA
(filed as Exhibit 10.53 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1997 and
incorporated herein by reference).
*10.59 Form of Mortgage and Security Agreement with respect to five of
GranCare's facilities located in the State of Illinois to secure a
loan in the aggregate principal amount of $16.5 million from Health
Care Capital Finance, Inc., each agreement dated as of March 23, 1995
(filed with GranCare's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 and incorporated herein by reference).
*10.60 Credit Agreement dated as of May 18, 1994 by and among Mariner
Health, PNC Bank, N.A. ("PNC Bank") and the other banks party
thereto. (filed as Exhibit 10.1 to Mariner Health's Quarterly Report
on Form 10-Q/A for the quarter ended June 30, 1994 and incorporated
herein by reference).
</TABLE>
85
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*10.61 +1995 Non-Employee Director Stock Option Plan (filed as Exhibit 4.4
to Mariner Health's Form S-8, filed November 21, 1995, and
incorporated herein by reference).
*10.62 +Defined Care Partner Agreement, dated as of January 5, 1996, by and
among AmHS Purchasing Partners, L.P. ("AmHSPP"), Mariner Health Care,
Inc. and Mariner Health, including: Exhibit A, Warrant to Purchase
210,000 Shares of Mariner Health's Common Stock by and among AmHSPP
and Mariner Health; and Exhibit B, Warrant to Purchase
1,890,000 Shares of Mariner Health's Common Stock by and among AmHSPP
and Mariner Health (filed as Exhibit 10.36 to Mariner Health's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 and
incorporated herein by reference).
10.63 Amended and Restated $250,000,000 Revolving Credit Facility Credit
Agreement (through Amendment No. 18) dated December 23, 1998, by and
among Mariner Health, PNC Bank, as Administrative Agent, First Union,
as Syndication Agent, and the financial institutions referred to
therein, as "Banks".
10.64 +Mariner Savings Plan.
10.65 +First Amendment to Mariner Savings Plan.
10.66 Guaranty and Suretyship Agreement dated as of May 18, 1994, from
various subsidiaries of Mariner Health signatory thereto in favor of
PNC Bank, as Agent.
10.67 Collateral Agency and Sharing Agreement dated as of December 23,
1998, by and among Mariner Health, its subsidiary guarantors and PNC
Bank as Collateral Agent, revolving credit facility Administrative
Agent and term loan Administrative Agent.
10.68 $210,000,000 Term Loan Facility Credit Agreement, dated as of
December 23, 1998, by and among Mariner Health, PNC Bank, as
Administrative Agent, First Union, as Syndication Agent, and the
financial institutions referred to therein as "Banks".
10.69 Amended and Restated Pledge Agreement (Borrower Pledging Stock) dated
as of December 23, 1998, from various subsidiaries of Mariner Health
signatory thereto in favor of PNC Bank, as Collateral Agent, relating
to the pledge of stock of subsidiaries of Mariner Health.
10.70 Amended and Restated Pledge Agreement (Pledging Stock) dated as of
December 23, 1998, from various subsidiaries of Mariner Health
signatory thereto in favor of PNC Bank, as Collateral Agent, relating
to the pledge of stock of subsidiaries of Mariner Health held by the
subsidiary pledgors.
10.71 Amended and Restated Pledge Agreement (Pledging Partnership
Interests) dated as of December 23, 1998, from various subsidiaries
of Mariner Health signatory thereto in favor of PNC Bank, as
Collateral Agent, relating to the pledge of certain partnership
interests held by such subsidiaries.
10.72 Amended and Restated Pledge Agreement (Pledging Limited Liability
Company Interests) dated as of December 23, 1998, from various
subsidiaries of Mariner Health signatory thereto in favor of PNC
Bank, as Collateral Agent, relating to the pledge of certain limited
liability company membership interests held by such subsidiaries.
10.73 Amended and Restated Pledge Agreement (Tri-State Pledging Partnership
Interests) dated as of December 23, 1998, from Tri-State Health Care,
Inc. ("Tri-State") in favor of PNC Bank, as Collateral Agent,
relating to the pledge of certain partnership interests held by Tri-
State.
10.74 Security Agreement dated as of December 23, 1998 from Mariner Health
and its subsidiary guarantors in favor of PNC Bank, as Collateral
Agent.
10.75 Continuing Agreement of Guaranty and Suretyship dated as of December
23, 1998 from various subsidiaries of Mariner Health in favor of the
Collateral Agent relating to the $210,000,000 term loan facility of
Mariner Health.
</TABLE>
86
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
10.76 Confirmation for U.S. Dollar Total Return Swap Transaction dated
September 21, 1998, between NationsBank, N.A. and the Registrant in
connection with the ISDA Master Agreement (1992 form) dated as of
October 31, 1997 between NationsBank, N.A. and the Registrant.
10.77 Guaranty dated as of September 21, 1998, from Mariner Health and the
subsidiaries of Mariner Health signatory thereto, in favor of
NationsBank, N.A. relating to the total return swap referred to in
Item 10.76 above.
10.78 +Paragon Health Network, Inc. Employee Stock Purchase Plan.
10.79 +First Amendment to Mariner Post-Acute Network, Inc. Employee Stock
Purchase Plan (formerly the Paragon Health Network, Inc. Employee
Stock Purchase Plan).
*10.80 Amended and Restated Purchase Option Agreement dated as of May 24,
1995 by and among Convalescent Services, Inc. ("CSI"), Mariner Health
and the Lessors (filed as Exhibits 2.5 and 10.5 to Mariner Health's
Form 10-Q for the quarter ended June 30, 1995, as amended, and
incorporated herein by reference).
*10.81 Form of Lease by and between CSI and each of the following lessors:
(i) Houston-Northwest Medical Investors, Ltd., (ii) Fort Bend Medical
Investors, Ltd., (iii) Northwest Healthcare L.P., (iv) Dallas Medical
Investors, Ltd., (v) Creek Forest Limited, (vi) Denver Medical
Investors, Ltd., (vii) South Denver Healthcare Associates, Ltd.,
(viii) Belleair East Medical Investors, Ltd., (ix) Tallahassee
Healthcare Associates, Ltd., (x) Port Charlotte Healthcare
Associates, Ltd., (xi) Melbourne Healthcare Associates, Ltd., (xii)
Pinellas III Healthcare Associates, Ltd., (xiii) Polk Healthcare
L.P., and (xiv) Orange Healthcare Ltd. (filed as Exhibit 10.37 to
Mariner Health s Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and incorporated herein by reference).
10.82 +GranCare, Inc. Executive Deferred Compensation Plan.
10.83 +First Amendment to the GranCare, Inc. Executive Deferred
Compensation Plan.
10.84 +Second Amendment to the GranCare, Inc. Executive Deferred
Compensation Plan.
21 Subsidiaries of Mariner Post-Acute Network, Inc.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule.
</TABLE>
- --------
* Incorporated by reference as indicated.
+ Represents management contracts or compensatory plans or arrangements
required to be filed as exhibits to this Annual Report by Item
601(d)(10)(iii) of Regulation S-K.
Mariner Post-Acute Network, Inc. will furnish a copy of any exhibit
described above to any beneficial holder of its securities upon receipt of a
written request therefor, provided that such request sets forth a good faith
representation that as of December 30, 1998, the date of record for its 1999
annual stockholders' meeting to be held on February 18, 1999, such beneficial
owner is entitled to vote at such meeting, and provided further that such
holder pays to Mariner Post-Acute Network, Inc. a fee compensating it for its
reasonable expenses in furnishing such exhibits.
(B) REPORTS ON FORM 8-K
On August 11, 1998, the Company filed a report on Form 8-K reporting the
acquisition by merger of Mariner Health on July 31, 1998.
(C) EXHIBITS
The response to this portion of Item 14 is contained in Item 14(a)(3) of
this report.
(D) FINANCIAL STATEMENTS SCHEDULE
The response to this portion of Item 14 is contained in Item 8 of this
report.
87
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
MARINER POST-ACUTE NETWORK, INC.
(Registrant)
By: /s/ Susan Thomas Whittle
------------------------------------
Susan Thomas Whittle
Senior Vice President, General
Counsel
and Secretary
Date: December 29, 1998
88
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/ Keith B. Pitts Chairman of the Board, Chief December 29,
- -------------------------------- Executive Officer and 1998
Keith B. Pitts Director (Principal Executive
Officer)
/s/ Arthur W. Stratton Vice Chairman of the Board, December 29,
- -------------------------------- President, Chief Operating 1998
Arthur W. Stratton Officer and Director
/s/ Charles B. Carden Executive Vice President and December 29,
- -------------------------------- Chief Financial Officer 1998
Charles B. Carden (Principal Financial Officer)
/s/ Laurence M. Berg Director December 29,
- -------------------------------- 1998
Laurence M. Berg
/s/ Gene E. Burleson Director December 29,
- -------------------------------- 1998
Gene E. Burleson
/s/ Peter P. Copses Director December 29,
- -------------------------------- 1998
Peter P. Copses
/s/ Jay M. Gellert Director December 29,
- -------------------------------- 1998
Jay M. Gellert
/s/ Samuel B. Kellett Director December 29,
- -------------------------------- 1998
Samuel B. Kellett
/s/ Joel S. Kanter Director December 29,
- -------------------------------- 1998
Joel S. Kanter
/s/ John H. Kissick Director December 29,
- -------------------------------- 1998
John H. Kissick
/s/ William G. Petty, Jr. Director December 29,
- -------------------------------- 1998
William G. Petty, Jr.
/s/ Robert L. Rosen Director December 29,
- -------------------------------- 1998
Robert L. Rosen
/s/ Ronald W. Fleming Vice President, Controller and December 29,
- -------------------------------- Chief Accounting Officer 1998
Ronald W. Fleming (Principal Accounting
Officer)
89
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
MARINER POST-ACUTE NETWORK, INC.
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE DEDUCTION ADDITIONS BALANCE
BEGINNING CHARGED FROM FROM END OF
OF PERIOD TO INCOME RESERVE ACQUISITIONS PERIOD
--------- --------- --------- ------------ -------
<S> <C> <C> <C> <C> <C>
Fiscal Year 1998:
Allowance for doubtful ac-
counts................... $33,138 29,544 (24,990) 30,889 $68,581
======= ====== ======= ====== =======
Notes receivable reserves. $ 1,188 -- (300) 3,129 $ 4,017
======= ====== ======= ====== =======
Valuation allowance....... $ 1,844 31,028 -- 37,380 $70,252
======= ====== ======= ====== =======
Fiscal Year 1997:
Allowance for doubtful ac-
counts................... $17,405 27,760 (12,027) -- $33,138
======= ====== ======= ====== =======
Notes receivable reserves. $ 3,516 (1,478)(a) (850) -- $ 1,188
======= ====== ======= ====== =======
Valuation allowance....... $ 1,785 59 -- -- $ 1,844
======= ====== ======= ====== =======
Fiscal Year 1996:
Allowance for doubtful ac-
counts................... $13,332 16,666 (14,702) 2,109 $17,405
======= ====== ======= ====== =======
Notes receivable reserves. $ 3,550 -- (34) -- $ 3,516
======= ====== ======= ====== =======
Valuation allowance....... $ 808 977 -- -- $ 1,785
======= ====== ======= ====== =======
</TABLE>
- --------
(a) Includes reversal of reserves based on collections of notes previously
considered doubtful.
90
<PAGE>
<TABLE>
EXHIBIT 4.1
====================================================================================================================================
<S> <C> <C>
____________ ____________
| NUMBER | COMMON STOCK COMMON STOCK | SHARES |
|MPN | PAR VALUE PAR VALUE | |
____________ $.01 PER SHARE $.01 PER SHARE ____________
[LOGO OF MARINER APPEARS HERE]
MARINER
Post-Acute Network
INCORPORATED UNDER THE CUSIP 568459 10 1
LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS
MARINER POST-ACUTE NETWORK, INC.
______________________________________________________________________________________________________
| This is to Certify that |
| |
| |
| |
| is the owner of |
______________________________________________________________________________________________________
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
Mariner Post-Acute Network, Inc. transferable on the books of the Corporation by the holder hereof in
person or by duly authorized attorney, upon surrender of this certificate properly endorsed. This
certificate is not valid until countersigned and registered by the Transfer Agent and Registrar.
[SEAL OF
MARINER In Witness Whereof the Corporation has caused this certificate to be signed in facsimile by its
POST-ACUTE duly authorized officers and sealed with a facsimile of its corporate seal.
APPEARS
HERE] Dated
Countersigned and Registered:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(New York, N.Y.) Transfer Agent and Registrar
By: /s/ Susan Thomas Whittle /s/ ^illegible signature^
Senior Vice President Chairman of the Board
Authorized Signature General Counsel and Secretary and Chief Executive Officer
====================================================================================================================================
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Mariner Post-Acute Network, Inc. will furnish without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of each class of stock or series thereof of the
Corporation, and the qualifications, limitations or restrictions of such preferences and/or rights. Such request may be made to the
Corporation or the transfer agent.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - _________Custodian___________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as tenants Act_________________
in common (State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
| |
______________________________________
____________________________________________________________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
____________________________________________________________________________________________________________________________________
____________________________________________________________________________________________________________________________________
_____________________________________________________________________________________________________________________________ Shares
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
___________________________________________________________________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated _____________________________________
X ________________________________________________________________________
X ________________________________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
NOTICE: WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
By ____________________________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE>
EXHIBIT 4.2
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (the "Agreement"), dated
as of November 4, 1997, amended as of April 13, 1998 and amended and restated as
of November __, 1998 (the "Amended and Restated Agreement") by and among (i)
each of the stockholders listed on the signature pages attached hereto (together
with each other Person (defined below) who becomes a party to this Agreement in
accordance with the terms hereof, the "Stockholders"), and (ii) Mariner Post-
Acute Network, Inc. a Delaware corporation and the successor to Paragon Health
Network, Inc. (the "Company").
W I T N E S S E T H:
WHEREAS, the Company and the Stockholders entered into that certain
Stockholders Agreement, dated as of November 4, 1997 (the "Original Stockholders
Agreement" and as amended as of April 13, 1998, the "Original Amended
Stockholders Agreement");
WHEREAS, the transactions contemplated by the Original Stockholders
Agreement became effective (the "Effective Date") on the date of, and
simultaneously with, the closing under the Amended and Restated Agreement and
Plan of Merger, dated as of September 17, 1997 among the Company, Apollo
Management, L.P., on behalf of one or more managed investment funds, and Apollo
LCA Acquisition Corp. (the "Merger Agreement");
WHEREAS, subsequent to the date of the Original Amended Stockholders
Agreement, the Board of Directors of the Company and the Stockholders have each
determined that it is in the best interests of each of the foregoing entities to
amend and restate the Original Amended Stockholders Agreement to give effect to
the terms and conditions set forth in this Agreement, it being understood and
agreed (i) with respect to any date or time period occurring and ending prior to
the date of this Agreement, the rights and obligations of the parties thereto
shall be governed by the Original Stockholders Agreement and the Original
Amended Stockholders Agreement, as applicable, which for such purposes shall
remain in full force and effect, and (ii) with respect to any date or time
period occurring or ending on or after the date of this Agreement, the rights
and obligations of the parties hereto shall be governed by this Agreement.
WHEREAS, the Original Amended Stockholders Agreement may be amended
only in accordance with Section 7.1 thereof which requires a written instrument
executed by the Company (in accordance with the approval of two-thirds of the
entire Board of Directors of the Company, including a majority of the directors
who are not an Affiliate or an Associate (each as defined below) of any
Stockholder) and the holders of a majority of the Shares (as defined below) held
by the Stockholders including, so long as Apollo (as defined below) beneficially
owns at least 25% of the Shares held by Apollo on November 4, 1997, the consent
of Apollo, and if any amendment or modification would have a disproportionately
material
<PAGE>
adverse effect on the rights or obligations of any Other Stockholder (as defined
below) or would otherwise unfairly discriminate against any Other Stockholder,
the consent of such Other Stockholder;
WHEREAS, after giving effect to the transactions contemplated by the
Merger Agreement and the three-for-one stock split effective on December 30,
1997, on the date of this Amended and Restated Agreement, each Stockholder
beneficially owns the number of shares of common stock of the Company, par value
$.01 per share ("Common Stock") set forth under its name on the signature pages
attached hereto, and the Stockholders party to this Amended and Restated
Agreement collectively beneficially own all of the 17,627,798 shares of Common
Stock issued to the Stockholders (collectively, the "Shares"); and
WHEREAS, the parties hereto desire to provide for certain rights and
obligations in respect to the Shares and the Company as hereinafter provided.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
SECTION I.1 Definitions. Capitalized terms used herein and not
otherwise defined herein have the meaning ascribed to them in the Merger
Agreement. In addition, the following terms shall have the meaning ascribed to
them below:
"Affiliate" of a Person shall have the meaning set forth in Rule 12b-2
of the Exchange Act as in effect on the date of this Agreement, but shall not
include (i) any investment fund in which a Person has invested if the Person
does not otherwise control the investment fund or have, directly or indirectly,
voting or dispositive power over any securities owned by such fund, (ii) any
investor or limited partner of any Person who does not otherwise have voting or
dispositive power over securities owned by that Person and not controlled by
that Person, (iii) in the case of Apollo, any Person other than (A) Apollo
Advisors II, L.P., the sole general partner of each of the Apollo entities party
hereto, (B) Apollo Advisors IV, L.P., (C) Apollo Management, L.P., and (D) the
other investment partnerships or other entities of which Apollo Advisors II,
L.P., Apollo Advisors IV, L.P. or Apollo Management, L.P. is a general or
managing partner or member, (iv) in the case of Chase Equity Associates, L.P.,
any Person other than (A) Chase Capital Partners, its sole general partner, and
(B) the other investment partnerships or other entities of which Chase Capital
Partners is a general or managing partner or member, (v) in the case of
Healthcare Equity Partners, L.P. or Healthcare Equity QP Partners, any Person
other than (A) Beecken, Petty & Company, L.L.C., the sole general partner of
each of them, and (B) the other investment partnerships of which Beecken, Petty
& Company, L.L.C. is a general or managing partner or member, (vi) in the case
of Key Capital Corporation or Key Equity Partners 97, any Person other than (A)
any general partner
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of Key Equity Partners 97 and (B) any of the investment partnerships of which
any general partner of Key Equity Partners is a general or managing partner or
member, (vii) in the case of Drax Holdings L.P., any Person other than (A) any
general partner of Drax Holdings L.P. and (B) the other investment partnerships
or other entities of which any general partner of Drax Holdings L.P. is a
general or managing partner or member, or (viii) in the case of Walnut Growth
Partners Limited Partnership, any Person other than (A) any general partner of
Walnut Growth Partners Limited Partnership and (B) the other investment
partnerships or other entities of which any general partner of Walnut Growth
Partners Limited Partnership is a general or managing partner or member. It is
expressly intended that any Person who now or hereafter controls, directly or
indirectly, any Stockholder shall be subject to the terms of this Agreement as
if it were a Stockholder.
"Apollo" means collectively Apollo Management, L.P., its legal
successors and assigns, and each Person who controls, or is controlled by,
Apollo Management, L.P. including, without limitation, the Stockholders
indicated as such on the Apollo signature page attached hereto.
"Associate" shall mean an officer, director, partner (other than a
limited partner) or executive employee of, or exclusive consultant to, any
Person, but shall not include in the case of Apollo, Keith B. Pitts.
"Beneficial ownership" by a Person of any Voting Securities shall be
determined in accordance with the terms "beneficial ownership" as defined in
Rule 13d-3 under the Exchange Act as in effect on the date of this Agreement,
and in addition, "beneficial ownership" shall include securities which such
Person has the right to acquire (irrespective of whether such right is
exercisable immediately or only after the passage of time, including the passage
of time in excess of sixty (60) days), or exclusive right to vote, pursuant to
any agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options, or otherwise. For purposes of this
Agreement, a Stockholder shall be deemed to beneficially own any Voting
Securities beneficially owned by its Affiliates or any Group of which such
Stockholder or any such Affiliate is a member.
"Board of Directors" shall mean the Board of Directors of the Company.
"Charter Documents" shall mean the Certificate of Incorporation and
Bylaws of the Company.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Time" shall mean the effective time of the merger of
Paragon Acquisition Sub, Inc., a wholly owned subsidiary of the Company ("Sub"),
and Mariner Health Group, Inc. ("Mariner") pursuant to that certain Agreement
and Plan of Merger, dated as of April 13, 1998, by and among the Company, Sub
and Mariner.
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"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Group" shall mean a "group" as such term is used in Section 13(d)(3)
of the Exchange Act as in effect on the date of this Agreement.
"Laws" shall mean all applicable foreign, federal, state and local
laws, statutes, rules, regulations, codes and ordinances.
"Other Stockholders" shall mean the Stockholders other than Apollo.
"Person" shall mean any individual, Group, corporation, general or
limited partnership, limited liability company, governmental entity, joint
venture, estate, trust, association, organization or other entity of any kind or
nature.
"Recapitalization Merger" shall mean the merger of Apollo LCA
Acquisition Corp. with and into Living Centers of America, Inc. (the predecessor
of the Company).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Stockholder Designee" shall mean a person designated for election to
the Board of Directors by Apollo as provided in Section 4.1.
"Voting Securities" shall mean (x) any securities entitled, or which
may be entitled, to vote generally in the election of directors of the Company,
(y) any securities convertible or exercisable into or exchangeable for such
securities (whether or not the right to convert, exercise or exchange is subject
to the passage of time or contingencies or both), or (z) any direct or indirect
rights or options to acquire any such securities; provided that unexercised
options granted pursuant to any employment benefit or similar plan and rights
issued pursuant to any shareholder rights plan shall be deemed not to be "Voting
Securities" (or to have Voting Power).
In addition, the following terms have the definitions specified in the
Sections noted:
TERM SECTION
---- -------
Agreement recitals
Allocation Percentage 6.2
Apollo Directors 4.1(a)
Beneficial Ownership Threshold 4.1(a)
Common Stock recitals
Company recitals
Co-Sale 6.2
Drag Transaction 6.3(a)
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Drag Transaction Closing Date 6.2(a)
Exempted Transfer 6.1
Merger Agreement recitals
Nominating Committee 4.1(d)
Notices 6.4
Proxy Statement 4.2
Purchaser 6.3(a)
Related Price 6.3(a)
Related Person 6.3(a)
Regulated Holder 6.4
Regulated Problem 6.4
Sale Notice 6.3(a)
Shares recitals
Standstill Period 5.1
Stockholders recitals
Stockholder Designee Period 4.1(a)
Third Party Sale 6.2
Third Party Sale Notice 6.1
Total Shares Outstanding 4.1(a)
Unaffiliated Directors 4.1(b)
Unauthorized Transfer 6.2
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of the Stockholders as
follows:
SECTION II.1 Authority for this Agreement. The Company has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of the Company and no other corporate proceedings on the part
of the Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by the Company and, assuming this Agreement constitutes a valid
and binding obligation of the Stockholders, constitutes a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency and similar laws affecting creditors' rights generally and to general
principles of equity (whether considered in a proceeding in equity or at law).
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SECTION II.2 Consents and Approvals; No Violation. Except as set forth on
Schedule 2.2, neither the execution and delivery of this Agreement by the
Company nor the consummation of the transactions contemplated hereby will (i)
conflict with or result in any breach of any provision of the respective
Restated Certificate of Incorporation or Bylaws (or other similar governing
documents) of the Company or any of its subsidiaries, (ii) require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental or regulatory authority, except where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or
notification, would not in the aggregate have a Material Adverse Effect or have
a material adverse effect on the ability of the Company to consummate the
transactions contemplated hereby, (iii) result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, license, agreement or other instrument or
obligation to which the Company is a party or by which the Company or any of its
assets or subsidiaries may be bound, except for such defaults (or rights of
termination, cancellation or acceleration) which would not in the aggregate have
a Material Adverse Effect or have a material adverse effect on the ability of
the Company to consummate the transactions contemplated hereby, (iv) result in
the creation or imposition of any mortgage, lien, pledge, charge, security
interest or encumbrance of any kind on any asset of the Company or any of its
subsidiaries which, in the aggregate, would have a Material Adverse Effect or
have a material adverse effect on the ability of the Company to consummate the
transactions contemplated hereby, or (v) violate any order, writ, injunction,
agreement, contract, decree, statute, rule or regulation applicable to the
Company, any of its subsidiaries or by which any of their respective assets are
bound, except for violations which would not in the aggregate have a Material
Adverse Effect or have a material adverse effect on the ability of the Company
to consummate the transactions contemplated by this Agreement.
SECTION II.3 No Inconsistent Agreements. As of the Effective Date, there
is no (and from and after the Effective Date the Company will not, and will
cause its subsidiaries not to enter into any) agreement with respect to any
securities of the Company or any of its subsidiaries (and from and after the
Effective Date the Company shall not take, or permit any of its subsidiaries to
take, any action) that is inconsistent in any material respect with the rights
granted to the Stockholders in this Agreement.
Without limiting the foregoing, except for this Agreement and the
Registration Rights Agreement, there are no other existing agreements relating
to the voting or, except as set forth on schedule 2.3, registration of any
equity securities of the Company or any of its subsidiaries,
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder severally as to itself, but not jointly or as to any other
Stockholder, represents and warrants to the Company as follows:
SECTION III.1 Authority for this Agreement. The execution and delivery of
this Agreement by such Stockholder and the consummation by such Stockholder of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action on its part. This Agreement has been duly and validly
executed and delivered by such Stockholder and, assuming this Agreement
constitutes a valid and binding obligation of the Company, constitutes a valid
and binding agreement of such Stockholder enforceable against such Stockholder
in accordance with the terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency and similar laws affecting creditor's rights
generally and to general principals of equity (whether considered in a
proceeding in equity or at law).
SECTION III.2 No Violation. Neither the execution and delivery of this
Agreement by such Stockholder nor the consummation of the transactions
contemplated hereby will conflict with or result in any breach of any provision
under such Stockholder's partnership agreement or similar governing documents of
such Stockholder.
ARTICLE IV.
BOARD REPRESENTATION AND VOTING
SECTION VI.1 Board Representation.
(a) On the Effective Date the size of the Board of Directors will be fixed
at eleven members and the Company will cause the persons named on Schedule 4.1
(or subject to Section 4.1(i), such other substitute persons as may be
designated by Apollo as Stockholder Designees) to be initially elected to the
Board of Directors by virtue of the Recapitalization Merger contemplated by the
Merger Agreement. Until the earlier of (i) the date on which the Stockholders
beneficially own, collectively, less than 25% of the Shares or (ii) the date the
Standstill Period ends by virtue of Section 5.2(g) hereof (the "Stockholder
Designee Period"), the Company agrees, subject to Section 4.1(i), to support the
nomination of, and the Company's Nominating Committee shall recommend to the
Board of Directors the inclusion in the slate of nominees recommended by the
Board of Directors to stockholders for election as directors at each annual
meeting of stockholders of the Company (A) five Stockholder Designees if the
Stockholders beneficially own a number of shares of Common Stock equal to
66 2/3% or more of the Shares, (B) four Stockholder Designees if the
Stockholders beneficially own a number of shares of Common Stock equal to 50% or
more but less than 66 2/3% of the
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Shares, or (C) two Stockholder Designees if the Stockholders beneficially own
25% or more but less than 50% of the Shares (each a "Beneficial Ownership
Threshold"); provided, that in no event will more than four of such Stockholder
Designees be Associates of Apollo (each Stockholder Designee who is an Associate
of Apollo is hereafter referred to as an "Apollo Director"). Notwithstanding the
foregoing, if at any time after the fifth anniversary of the Effective Time, the
number of shares of Company Common Stock beneficially owned by the Stockholders
aggregate less than forty percent (40%) of the total number of shares of the
Company's Common Stock of all classes entitled to vote in the election of
directors as are then outstanding ("Total Shares Outstanding"), the maximum
number of Stockholder Designees shall be the lowest whole number which when
compared to the total number of directors of the Company (including all
vacancies) is equal to or greater than the percentage which the aggregate number
of shares of Company Common Stock beneficially owned by the Stockholders bears
to the Total Shares Outstanding.
(b) If any vacancy on the Company's Board of Directors occurs (by virtue of
the death, retirement, disqualification, removal from office or other cause of a
Stockholder Designee), prior to a meeting of the Company's stockholders, the
Nominating Committee shall appoint, subject to Section 4.1(i), a person
designated by Apollo to fill such vacancy (except if such vacancy occurs as a
result of the reduction of the number of Stockholder Designees entitled to be
included on the Board of Directors by reason of a decrease in the Stockholders'
beneficial ownership of Common Stock pursuant to Section 4.1(a)) and each such
person shall be a Stockholder Designee for purposes of this Agreement.
(c) In the event the size of the Company's Board of Directors is increased,
Apollo will have the right, subject to Section 4.1(i) hereof, to nominate such
additional number of persons to serve as Stockholder Designees such that the
total number of Stockholder Designees is equal to the lowest whole number which
when compared to the total number of directors (including all vacancies) of the
Company, is equal to or greater than the percentage which the aggregate number
of shares of Company Common Stock then beneficially owned by the Stockholders
bears to the Total Shares Outstanding.
(d) On the Effective Date, the Company will cause the persons indicated on
Schedule 4.1 to be initially named to a nominating committee (the "Nominating
Committee") of the Board of Directors and at all times during the Stockholder
Designee Period, (i) the size of the Nominating Committee will be fixed at five
members, two of whom will be Stockholder Designees who are Apollo Directors and
one of whom will be the Chief Executive Officer (if he or she is a director),
and (ii) nominees for director that are not Stockholder Designees shall be
designated exclusively by vote of not less than a majority of the members of the
Nominating Committee.
(e) Notwithstanding the foregoing, the Company shall have no obligation to
support the nomination, recommendation or election of any Stockholder Designee
pursuant to this Section 4.1 or any other obligation under this Section 4.1 if
the Stockholders are in breach of any material provision of this Agreement.
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(f) Other than any committee formed for the purpose of considering matters
relating to the Stockholders or as set forth above with respect to the
Nominating Committee, (i) if the Stockholders are entitled to include at least
four Stockholder Designees for election to the Board of Directors under this
Agreement, the Stockholders shall be entitled to have such number of Stockholder
Designees serve on each committee of the Board of Directors that provides the
Stockholders with representation (as a percentage) equal to no less than the
percentage which the number of shares of Common Stock beneficially owned by the
Stockholders bears to the Total Shares Outstanding, provided that under no
circumstances shall Apollo Directors serve as a majority of any committee other
than a committee formed for the purpose of considering matters relating to the
cash or other compensation of officers and employees of the Company; or (ii) if
the Stockholders are entitled to include two Stockholder Designees for election
to the Board of Directors under this agreement, the Stockholders shall be
entitled to have one Stockholder Designee serve on each committee of the Board
of Directors.
(g) Upon any decrease in the Stockholders' beneficial ownership of Common
Stock below any Beneficial Ownership Threshold, Apollo shall use its best
efforts to cause a number of Stockholder Designees to offer to immediately
resign from the Company's Board of Directors (subject to acceptance by the Board
of Directors) such that the number of Stockholder Designees serving on the Board
of Directors immediately thereafter will be equal to the number of Stockholder
Designees which Apollo would then be entitled to designate under Section 4.1(a).
Upon termination of the Stockholder Designee Period, Apollo shall promptly offer
to cause all of the Stockholder Designees to resign from the Board of Directors
(subject to acceptance by the Board of Directors) thereof and the Company's
obligations under this Section 4.1 shall terminate.
(h) The Company and each Stockholder shall use commercially reasonable
efforts to call, or cause the appropriate officers and directors of the Company
to call, a special meeting of stockholders of the Company and to vote all of the
shares of Common Stock owned or held of record by them for, or to cause to be
taken actions by written consent in lieu of any such meeting necessary to cause,
the removal (with or without cause) of any Stockholder Designee if Apollo
requests such director's removal in writing for any reason.
Except as provided in this Section 4.1(h), each Stockholder agrees that, at
any time that it is then entitled to vote for the election or removal of
directors, it will not vote in favor of the removal of any Stockholder Designee
unless (i) such removal shall be at the request of Apollo pursuant to the
provisions of Section 4.1(h), (ii) the right of the party who nominated such
director to do so has terminated in accordance with Section 4.1(a) above, or
(iii) such removal is in accordance with the requirements of Section 4.1(i)
below.
(i) Notwithstanding the provisions of this Section 4.1, Apollo shall not be
entitled to designate any person to the Company's Board of Directors (or any
committee thereof) in the event that (x) the Company receives a written opinion
of its outside counsel that such Stockholder Designee would not be qualified
under applicable law, rule or regulation to serve
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as a director of the Company or (y) if the Nominating Committee objects to such
Stockholder Designee because such Stockholder Designee has been involved in any
of the events enumerated in Item 2(d) or (e) of Schedule 13D or such person is
currently the target of an investigation by any governmental authority or agency
relating to felonious criminal activity or is subject to any order, decree, or
judgment of any court or agency prohibiting service as a director of any public
company or providing investment or financial advisory services and, in any such
event, Apollo shall withdraw the designation of such proposed Stockholder
Designee and designate a replacement therefor (which replacement Stockholder
Designee shall also be subject to the requirements of this Section). The Company
shall use its reasonable best efforts to notify Apollo of any objection to a
Stockholder Designee sufficiently in advance of the date on which proxy
materials are mailed by the Company in connection with such election of
directors to enable Apollo to propose a replacement Stockholder Designee in
accordance with the terms of this Agreement. Apollo agrees to remove any
Stockholder Designee objected to by the Nominating Committee on the grounds
specified in clause (y) above.
(j) The Company shall not, and shall not permit any of its subsidiaries to,
without the consent of two-thirds of the entire Board of Directors of the
Company, take any action that under the Charter Documents or this Agreement
requires the approval of two-thirds of the entire Board of Directors of the
Company if any of the Stockholder Designees approving (and whose vote is
necessary to approve) such action are Persons whose removal from the Board of
Directors has been requested at or prior to the time of such action by Apollo
pursuant to Section 4.1(a), unless such action has been ratified by the
reconstituted Board of Directors following such removal and election of
successors.
(k) Each Stockholder Designee serving on the Board of Directors shall be
entitled to all compensation and stock incentives granted to directors who are
not employees of the Company on the same terms provided to such directors.
(l) Notwithstanding anything in this Agreement to the contrary, in
connection with a Transfer of at least 66 2/3% of the Shares to a single
transferee, whether by a single transaction or a series of transactions, Apollo
may, by written notice to the Company, and with the affirmative approval of not
less than two-thirds of the entire Board of Directors of the Company (including
a vote that complies with Section 3.09(d)(2) of the Company's By-laws) assign
all rights granted to Apollo under this Section 4.1 to such transferee (to the
exclusion of other Stockholders) and, without limiting the foregoing, such
transferee's rights to designate directors under this Section 4.1 shall not be
reduced until such transferee ceases to beneficially own at least 66 2/3%, 50%
or 25%, as the case may be, of the number of Shares or as such number of
directors is otherwise reduced in accordance with Section 4.1. Any approval to
such Transfer by the requisite vote of the Company's Board of Directors shall
constitute the approval referred to in Section 203(a)(1) of the Delaware General
Corporation Law, as amended.
SECTION IV.2 Voting. Each Stockholder agrees that during the Standstill
Period such Stockholder shall, and shall cause its Affiliates to, use
commercially reasonable efforts to
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be present, in person or represented by proxy, at all meetings of stockholders
of the Company so that all Voting Securities beneficially owned by such
Stockholder shall be counted for the purpose of determining the presence of a
quorum at such meetings. Each Stockholder agrees that during the Standstill
Period in connection with the election of directors of the Company, such
Stockholder shall vote or cause to be voted all Voting Securities beneficially
owned by such Stockholder to elect all individuals nominated by the Nominating
Committee, unless to do so would violate the provisions of Section 4.1.
Notwithstanding the foregoing, during the effectiveness of the Proxy and Voting
Agreement (the "Proxy Agreement"), dated the date hereof, between Apollo
Management, L.P. and the Other Stockholders, the Other Stockholders may rely (in
accordance with the terms thereof) on the proxy designated therein to take any
action required by this Section 4.2 on their behalf.
ARTICLE V.
STANDSTILL
SECTION V.1 Standstill. During the period beginning on the date hereof
and ending on the earliest to occur of (A) the tenth anniversary of the
Effective Date, (B) the date on which the Stockholders own, collectively, Voting
Securities which would represent less than 10% of the voting power in the
general election of directors of the Company, on a fully diluted basis, of all
Voting Securities then outstanding or (C) a Termination Event under any
subdivision of Section 5.2 (such period, the "Standstill Period"), each
Stockholder will not, and will cause each of its Affiliates not to, directly or
indirectly:
(i) except with the prior approval of two-thirds of the entire Board
of Directors (which approval is requested in a manner which does not require
disclosure publicly or to any third parties) acquire, offer to acquire (by
tender or exchange offer or otherwise), or agree to acquire, by purchase or
otherwise, beneficial ownership of any Voting Securities or voting rights or
direct or indirect rights or options to acquire any Voting Securities of the
Company or any of its Affiliates other than (A) the exercise of convertible
securities acquired in compliance with the terms of this Agreement, or an
acquisition as a result of a stock split, stock dividend or similar
recapitalization, (B) the acquisition of shares of Common Stock pursuant to the
Merger Agreement or the GranCare Merger Agreement, (C) acquisitions of Voting
Securities provided that the aggregate number of Voting Securities beneficially
owned by all Stockholders and their Affiliates (including the Shares) after
giving effect to such acquisitions does not exceed 49% of the Total Shares
Outstanding; (D) stock options or similar rights granted by the Company to an
Affiliate of such Stockholder as compensation for performance as a director or
officer of the Company or its subsidiaries (and any shares issuable upon
exercise thereof), (E) transfers among Stockholders or (F) any rights which are
granted to all stockholders of the Company (and any share issuable upon exercise
thereof); provided, however, that if the Stockholders or any of their Affiliates
in good faith inadvertently acquire not more than 100,000 shares of Common Stock
in violation of these provisions and within 15 days after the first date on
which the Stockholders have actual
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knowledge (including by way of written notice given by the Company) that a
violation has occurred, the Stockholders or any of their Affiliates shall have
transferred any shares of Common Stock held in violation of these provisions to
unrelated third parties so that the Stockholders and their Affiliates no longer
beneficially own any such shares or have any agreement or understanding relating
to such shares, this Section 5.1 shall be deemed not to have been violated; and
provided further, that no violation of this provision shall be deemed to have
occurred by reason of the indirect acquisition of beneficial ownership of
securities resulting from (aa) investments in investment funds as to which no
Stockholder or Affiliate thereof has control or power to control with respect to
voting or investment decisions or (bb) acquisitions of securities by a limited
partner in any Stockholder or Affiliates thereof as to which limited partner no
Stockholder or its Affiliates has control or power to control;
(ii) except pursuant to this Agreement or the Proxy Agreement, form,
join or in any way participate in a Group with respect to any securities of the
Company or its Affiliates, other than with other Stockholders or Affiliates or
Associates of any Stockholder or Ares Leveraged Investment Fund, L.P., provided,
however, that in the case of securities other than Voting Securities,
Stockholders may participate in a Group with respect thereto with the prior
approval of two-thirds of the entire Board of Directors (which approval is
requested in a manner which does not require disclosure publicly or to any third
party);
(iii) grant a proxy to any Person other than (I) an Affiliate or
Associate of a Stockholder; provided that any such Person shall not, pursuant to
the grant of such proxy or otherwise, have the right or ability to vote shares
of Common Stock representing 50% or more of the Total Shares Outstanding, (II)
the proxy granted to Apollo pursuant to the Proxy Agreement or (III) proxies
designated by the Board of Directors of the Company in connection with any
contested election, or otherwise make, or in any way cause or participate in,
any "solicitation" of "proxies" to vote (as those terms are defined in
Regulation 14A under the Exchange Act) with respect to the Company or its
Affiliates, or communicate with, seek to advise, encourage or influence any
Person, in any manner, with respect to the voting of, securities of the Company
or its Affiliates, or become a "participant" in any "election contest" (as those
terms are defined or used in Rule 14a-11 under the Exchange Act) with respect to
the Company or its Affiliates (other than (A) nonpublic communications with
other Stockholders or Affiliates or Associates of any Stockholder which would
not require public disclosure by any Person or (B) with the prior approval of a
two thirds majority of the entire Board of Directors (which approval is
requested in a manner which does not require disclosure publicly or to any third
party));
(iv) initiate, propose or, except with the prior approval of two-
thirds of the entire Board of Directors (which approval is requested in a manner
which does not require disclosure publicly or to any third parties) otherwise
solicit stockholders for the approval of one or more stockholder proposals with
respect to the Company or its Affiliates or induce or attempt to induce any
other Person to initiate any stockholder proposal or seek election to or seek to
place a representative on the Board of Directors of the Company (except pursuant
to Section 4.1 of this Agreement) or its Affiliates or seek the removal of any
member of the
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Board of Directors of the Company or its Affiliates (for this purpose, the
actions of the Stockholder Designees in communicating (without public disclosure
or disclosure to third parties) with the Board of Directors in their capacity as
directors of the Company, and non-public communication by a Stockholder with
other Stockholders or Affiliates of any Stockholder which would not require
public disclosure by any Person, shall not be deemed to be in contravention of
this paragraph (iv)); or
(v) make any public announcement with respect to, or submit any
proposal for, any transaction involving the Company, on the one hand, and Apollo
or any Affiliates of Apollo, on the other hand, which would be deemed a
"business combination" under the provisions of Section 203(c)(3)(i)-(iv) of the
DGCL, whether or not such proposal might require public disclosure by the
Company, unless such proposal is directed and disclosed solely to the Board.
provided, that this Section 5.1 shall not restrict or inhibit the rights of a
Stockholder to exercise its voting rights as a stockholder of the Company
(subject to Section 4.2).
SECTION V.2 Early Termination of Standstill. The obligations of the
Stockholders under Section 5.1 shall terminate at the election of the
Stockholders (representing a majority of the Shares then held by the
Stockholders) upon the occurrence of any of the following events (each a
"Termination Event"):
(a) At least $10 million in indebtedness for monies borrowed by the
Company or its subsidiaries shall have been accelerated;
(b) One or more judgments or decrees shall be entered against the
Company or any of its Subsidiaries involving in the aggregate a liability (not
paid or fully covered by insurance as to which the relevant insurance company
has acknowledged coverage) of $10 million or more and any such judgments or
decrees shall not have been vacated, discharged, stayed or bonded pending appeal
within 30 days from the entry thereof;
(c) The Company or any material subsidiary shall file a petition in
bankruptcy or for reorganization or for an arrangement or any composition,
readjustment, liquidation, dissolution or similar relief pursuant to Title 11 of
the United States Code or under any similar present or future federal law or the
law of any other jurisdiction or shall be adjudicated a bankrupt or insolvent,
or consent to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official) of the
Company or for all or any substantial part of its property, or shall make a
general assignment for the benefit of its creditors;
(d) A petition or answer shall be filed proposing the adjudication of
the Company or any material subsidiary as bankrupt or its reorganization or
arrangement, or any composition, readjustment, liquidation, dissolution or
similar relief with respect to it pursuant to Title 11 of the United States Code
or under any similar present or future law or the law
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<PAGE>
or any other jurisdiction, and the Company shall consent to or acquiesce in the
filing thereof, or such petition or answer shall not be discharged or denied
within 60 days after the filing thereof;
(e) The Company shall be in material breach of its obligations to the
Stockholders under their Registration Rights Agreement and such breach shall not
have been cured within 20 days after receipt by the Company from the
Stockholders of a written notice specifying such breach and requiring it to be
remedied, and the Company shall not in good faith be contesting whether such
breach has occurred;
(f) If the Company shall, in breach of its obligations under this
Agreement, fail to nominate for election to the Board of Directions any
Stockholder Designee who satisfies the requirements for designation to the Board
of Directors set forth in Section 4.1 (i) or if the stockholders of the Company
shall fail to elect to the Board of Directors all Stockholder Designees
nominated in accordance with Section 4.1;
(g) At any time after the expiration of six (6) years from the
Effective Date; or
(h) Without the prior approval of the Board of Directors, any Person
or Group (other than any Stockholder or its Affiliates or any Group including
any Stockholder or its Affiliates, or any person acting in concert with any of
the foregoing) acquires (by tender or exchange offer or otherwise), offers to
acquire (other than pursuant to a proposal which is not publicly disclosed or
required to be publicly disclosed) or publicly announces the intention to
acquire (other than an offer or announcement of the intention to acquire from
any Stockholder the Voting Securities beneficially owned by such Stockholder)
directly or indirectly, Voting Securities or voting rights or direct or indirect
rights or options to acquire any Voting Securities of the Company representing
30% or more of the Voting Securities of the Company then outstanding.
SECTION V.3 Notice of Proposed Acquisitions. In order to enable the
Stockholders to comply with the provisions of Section 5.1, prior to the end of
the Standstill Period, without the prior written consent of Apollo (other than
as contemplated by Sections 5.1(i)(A), (B), (D), (E) or (F) hereof) none of the
Other Stockholders or their Affiliates shall acquire, offer to acquire (by
tender or exchange offer or otherwise), or agree to acquire, by purchase or
otherwise, (a) Voting Securities or voting rights or direct or indirect rights
or options to acquire any Voting Securities of the Company or any of its
Affiliates that together with all other such securities so acquired by any
Stockholder and its Affiliates since last obtaining consent pursuant to this
Section 5.3 represent an additional 1% of the Total Shares Outstanding on the
date of such purchase, offer or acquisition, or (b) if the Stockholders
collectively own or have the right to acquire 40% or more of the Total Shares
Outstanding and Apollo shall have provided written notice to the Other
Stockholders thereof, any Voting Securities or voting rights or direct or
indirect rights or options to acquire any Voting Securities of the Company or
any of its Affiliates.
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<PAGE>
ARTICLE VI.
TRANSFER
SECTION VI.1 Transfer. Subject to the provisions of the Proxy Agreement,
the Other Stockholders may sell, transfer, assign or otherwise dispose of any of
the Shares; provided, however, that no Other Stockholder shall sell, transfer,
assign or otherwise dispose of any of the Shares unless (i) such Other
Stockholder delivers written notice to Apollo of its intent to transfer Shares
not less than five (5) business days prior to such transfer, and (ii) if such
transfer occurs other than pursuant to an Exempted Transfer (as defined below),
such transferee becomes a party to this Agreement (whereupon such transferee
shall become an "Other Stockholder" hereunder). Any purported transfer in
violation of the provisions of this Agreement (an "Unauthorized Transfer") shall
be null and void. The Company will not register, recognize or give effect to an
Unauthorized Transfer and the purported transferee of any Shares pursuant to an
Unauthorized Transfer will not thereby acquire any rights in such Shares. The
Company will, immediately upon becoming aware of an actual or attempted
Unauthorized Transfer, instruct the transfer agent for the Shares to issue an
appropriate stop transfer order with regard to such transaction or attempted
transaction.
An "Exempted Transfer" hereunder (which shall not be subject to the
transfer conditions set forth in clause (ii) of the first sentence of the
preceding paragraph) shall mean: (a) any transfer by any Other Stockholder to
its respective equity owners, whether by way of a distribution, return of
capital, dividend or otherwise, or (b) any sale of Shares by any Other
Stockholder either (1) pursuant to a registered public offering under the
Securities Act, (2) pursuant to Rule 144 or Rule 145 promulgated under the
Securities Act or (3) pursuant to a broker to broker sale executed on any
national securities exchange or traded on the National Market System of NASDAQ.
SECTION VI.2 Tag-Along Rights. If Apollo or any of their respective
Affiliates proposes to enter into an agreement with respect to or otherwise
enter into a bona fide sale transaction (a "Third-Party Sale") of Shares to a
third party other than an Affiliate of Apollo, Apollo shall first provide the
Company and each Other Stockholder a written notice (the "Third Party Sale
Notice") specifying (i) the nature and amount of consideration to be paid to the
Stockholders upon consummation of the Third Party Sale, (ii) the identity of the
third party purchaser, and (iii) all other material terms of such proposed Third
Party Sale, including the proposed closing date. If an Other Stockholder
delivers a written notice (a "Co-Sale Notice") to Apollo on or prior to the
fifth business day after the giving of the Third Party Sale Notice, such Other
Stockholder shall be permitted to sell, on the same terms as Apollo, a portion
of the total number of Shares sold in such Third Party Sale equal to the lesser
of (i) the amount specified by such Other Stockholder in its Co-Sale Notice and
(ii) the product of (A) such Other Stockholder's Allocation Percentage and (B)
the total number of Shares to be sold in such Third Party Sale. The "Allocation
Percentage" of each Other Stockholder at any time will be a fraction, the
numerator of which is the number of Shares owned by such Other Stockholder and
the denominator of which is the number of Shares owned by all Stockholders
- 15 -
<PAGE>
desiring to include Shares in such Third Party Sale. The provisions of this
Section 6.2 shall not apply to any transfer to an Affiliate of Apollo or
pursuant to a public offering.
SECTION VI.3 Drag-Along Rights. (a) Each Stockholder shall transfer all,
but not less than all Shares then owned by such Stockholder, in connection and
together with the sale of all, but not less than all of the Shares then owned by
Apollo and its Affiliates and the Other Stockholders in a bona fide transaction
(a "Drag Transaction") to any person who is not an Affiliate of Apollo (a
"Purchaser"). Prior to consummating any Drag Transaction, Apollo will deliver to
each Other Stockholder a written notice (a "Sale Notice") specifying (i) the
nature and aggregate amount of consideration (the "Sale Price") to be paid to
the Stockholders upon the consummation of the Drag Transaction, (ii) the
identity of the Purchaser, and (iii) all other material terms of such proposed
Drag Transaction, including the proposed date of the closing of the Drag
Transaction (the "Drag Transaction Closing Date"). On the Drag Transaction
Closing Date, each Stockholder shall sell to the Purchaser 100% of the Shares
then held by such Stockholder on the terms and subject to the conditions set
forth in the Sale Notice. If any Stockholder fails to deliver certificates
representing its Shares as required by this Section 6.3, such Stockholder (i)
shall not be entitled to the consideration it is to receive in the Drag
Transaction until it cures such failure (provided, that after curing such
failure it shall be so entitled to such consideration without interest), (ii)
shall for all purposes be deemed no longer to be a stockholder of the Company
and have no voting rights, (iii) shall not be entitled to any dividends or other
distributions declared after the Drag Transaction Closing Date with respect to
the Shares held by it, (iv) shall have no other rights or privileges granted to
Stockholders under this or any future agreement and (v) in the event of
liquidation of the Company, its rights with respect to any consideration it
would have received if it had complied with this Section 6.3, if any, shall be
subordinate to the rights of any equity holder. This Section 6.3 shall inure to
the benefit of, and be enforceable by, Apollo and its Related Persons. "Related
Person" means, with respect to any person, (i) any Affiliate of such person,
(ii) any investment manager, investment advisor or general partner of such
person, and (iii) any investment fund, investment account or investment entity
whose investment manager, investment advisor or general partner is such person
or a Related Person of such person.
(b) The obligations of the Other Stockholders pursuant to this Section
6.3 are subject to the satisfaction of the following conditions:
(i) if any Stockholder is given an option as to the form and amount of
consideration to be received, all Stockholders will be given the same option
(except that no Stockholder shall be required in any circumstance to accept
consideration for its Shares in a form other than cash, cash equivalents or
securities listed for trading on any national securities exchange or traded on
the National Market System of NASDAQ);
(ii no Other Stockholder shall be obligated to make any out-of-pocket
expenditure prior to the consummation of the Drag Transaction (excluding modest
expenditures for its own postage, copies, etc., and the fees and expenses of
its own counsel retained by it), and no Other Stockholder shall be obligated to
pay more
- 16 -
<PAGE>
than its or his pro rata share (based upon the amount of consideration received
for or with respect to its or his Shares) of reasonable expenses incurred in
connection with such Drag Transaction to the extent such costs are incurred for
the benefit of all Stockholders and are not otherwise paid by the Company or
the acquiring party (including the costs of one counsel chosen by Apollo on
behalf of the Stockholders and one counsel chosen by the holders of a majority
of the Shares held by the Other Stockholders) (costs incurred by or on behalf
of an Other Stockholder for its or his sole benefit will not be considered
costs of the transaction hereunder); provided, however, that any Other
Stockholder's liability for its or his pro rata share of such allocated
expenses shall be capped at the total purchase price received by such Other
Stockholder for its or his Shares; and
(ii) (A) in the event that the Stockholders are required to provide any
representations or warranties in connection with the Drag Transaction, each
Other Stockholder shall only be required to represent and warrant as to its or
his title to its or his Shares, and such Other Stockholder's authority, power,
and right to enter into and consummate such other purchase agreement without
violating any other agreement or legal requirement, and (B) in the event that
the Other Stockholders are required to provide any indemnities in connection
with the Drag Transaction, then each Other Stockholder shall not be liable for
more than his pro rata share (based upon the amount of consideration received
for or with respect to its or his Shares) of any liability for indemnity and
such liability shall not exceed the total purchase price received by such Other
Stockholder for its or his Shares.
SECTION VI.4 Regulatory Compliance Cooperation.
(a) If a Regulated Holder (as defined below) determines that it has a
Regulatory Problem, the Company and the other Stockholders will (i) take all
such actions to avoid or cure such Regulatory Problem as are reasonably
requested by such Regulated Holder in order (A) to effectuate and facilitate a
Transfer by such Regulated Holder of any securities of the Company then held by
such Regulated Holder to any Person designated by such Regulated Holder, (B) to
permit such Regulated Holder (or any Affiliate of such Regulated Holder) to
exchange all or any portion of the Voting Securities of the Company then held by
such Person on a share-for-share basis for shares of a class of nonvoting
Securities of the Company, which nonvoting Securities shall be identical in all
respects to such Voting Securities, except that such nonvoting Securities shall
be nonvoting and shall be convertible into Voting Securities of the Company on
such terms as are requested by such Regulated Holder in light of regulatory
considerations then prevailing, and (C) to preserve and continue the respective
allocation of the voting interests and powers with respect to the Company
arising out of such Regulated Holder's ownership of Voting Securities of the
Company and as provided in this Agreement before the transfers and amendments
referred to above (including entering into such additional agreements as are
reasonably requested by such Regulated Holder to permit a Person designated by
such Regulated Holder to exercise voting power relinquished by such Regulated
Holder upon any exchange of Voting Securities of the Company for nonvoting
securities of the Company), and
- 17 -
<PAGE>
(ii) enter into such additional agreements, adopt such amendments to this
Agreement, the Charter Documents of the Company and other relevant agreements
and take such additional actions, in each case as are reasonably requested by
such Regulated Holder, in order to effectuate the purpose and intent of the
foregoing.
(b) If a Regulated Holder elects to transfer securities of the Company to
another Regulated Holder in order to avoid or cure a Regulatory Problem, the
Company and the other Stockholders shall enter into such agreements with such
other Regulated Holder and its Affiliates as it may reasonably request in order
to assist such other Regulated Holder and its Affiliates in complying with all
Applicable Laws. Such agreements may include restrictions on the conversion,
redemption, repurchase or retirement of securities of the Company that would
result or be reasonably expected to result in such Regulated Holder or its
Affiliates holding more Voting Securities or total equity interests in the
Company than it is permitted to hold under such Applicable Laws.
(c) If a Regulated Holder has the right or opportunity to acquire any of
the Company's or its Subsidiaries' securities (as the result of a preemptive
offer, pro-rata offer or otherwise), at such Regulated Holder's request the
Company will offer to sell (or if the Company is not the seller, to cooperate
with the seller and such Regulated Holder to permit such seller to sell) such
non-voting Securities on the same terms as would have existed had such Regulated
Holder acquired the securities so offered and immediately requested their
exchange for non-voting securities pursuant to Section 6.4(a).
(d) Each Stockholder agrees to cooperate with the Company in complying with
this Section 6.4, including voting to approve amending the Charter Documents or
this Agreement in a manner reasonably requested by the Regulated Holder
requesting such amendment.
(e) The Company and each Stockholder agree not to amend or waive the voting
or other provisions of the Company's certificate or articles of incorporation or
by-laws, or other constitutive and governing instruments and documents, or this
Agreement if in any such case such amendment or waiver would cause any Regulated
Holder to have a Regulatory Problem and such Regulated Holder has so notified
the Company that it would have a Regulatory Problem promptly after it has notice
of such proposed amendment or wavier.
(f) In this Agreement, the following capitalized terms have the meanings
given to them below:
"Regulated Holder" means any holder of the Company's securities that is (or
that is a subsidiary of a bank holding company that is) subject to the various
provisions of Regulation Y of the Board of Governors of the Federal Reserve
Systems. 12 C.F.R., Part 225 (or any successor to Regulation Y).
"Regulatory Problem" means (i) any set of facts or circumstances wherein it
has been asserted by any governmental regulatory agency (or a Regulated Holder
believes that there is a
- 18 -
<PAGE>
significant risk of such assertion) that such Person (or any bank holding
company that controls such Person) is not entitled to hold, or exercise any
material right with respect to, all or any portion of the securities of the
Company which such Person holds or (ii) when such Person and its Affiliates
would own, control or have power (including voting rights) over a greater
quantity of securities of the Company than is permitted under any law or
regulation or any requirement of any governmental authority applicable to such
Person or to which such Person is subject.
SECTION VI.5 Legend. Each certificate issued to represent any Shares
shall bear the following (or a substantially equivalent) legend.
The transfer of these securities is subject to restrictions set forth in a
Stockholders Agreement, dated as of November 4, 1997, a copy of which is
available for inspection at the office of the Corporation.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon the
completion of a public distribution of securities of the Company represented
thereby) shall also bear such legend, unless the restrictions contained in this
Agreement are no longer in effect
ARTICLE VII
MISCELLANEOUS
SECTION VII.1 Amendment and Modification. Any provision of this Agreement
may be waived, provided that such waiver is set forth in a writing executed by
the party against whom the enforcement of such waiver is sought. This Agreement
may not be amended, modified or supplemented other than by a written instrument
signed by (a) the Company (in accordance with the approval of two-thirds of the
entire Board of Directors, including a majority of the directors who are not an
Affiliate or an Associate of any Stockholder), and (b) the holders of a majority
of the Shares held by the Stockholders; provided, however, that so long as
Apollo beneficially owns at least 25% of the Shares held by Apollo on the
Effective Date, without the consent of Apollo, no amendment or modification
which adversely affects the rights or duties of Apollo hereunder may be
effected, and provided, further, that no amendment or modification that would
have a material adverse effect on the rights or obligations of any Other
Stockholder without similarly and proportionately (based on the respective
number of Shares then owned by the Other Stockholders hereunder) affecting the
rights and obligations of all Other Stockholders hereunder, or that would
otherwise unfairly discriminate against any Other Stockholder shall be effective
as to such Other Stockholder unless such Other Stockholder shall have consented
in writing thereto. No course of dealing between or among any Persons having any
interest in this Agreement will be deemed effective to modify, amend or
discharge any part of this Agreement or any rights or obligations of any Person
under or by reason of this Agreement.
- 19 -
<PAGE>
SECTION VII.2 Successors and Assigns: Entire Agreement.
(a) This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns and executors, administrators and heirs; provided, that except as
otherwise specifically permitted pursuant to this Agreement, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by the Company without the prior written consent of each of the
Stockholders.
(b) This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and supersedes
all prior discussions, agreements and understandings of any and every nature
among them.
SECTION VII.3 Separability. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
SECTION VII.4 Notices. All notices, demands, requests, consents or
approvals (collectively, "Notices") required or permitted to be given hereunder
or which are given with respect to this Agreement shall be in writing and shall
be personally delivered or delivered by a reputable overnight courier service
with charges prepaid, or transmitted by hand delivery, telegram, telex or
facsimile, addressed as set forth below, or such other address as such party
shall have specified most recently by written notice. Notice shall be deemed
given or delivered on the date of service or transmission if personally served
or transmitted by telegram, telex or facsimile. Notice otherwise sent as
provided herein shall be deemed given or delivered on the next business day
following delivery of such notice to a reputable overnight courier service.
To the Company:
Mariner Post-Acute Network, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
Attention: Chief Executive Officer
Fax: (770) 698-8199
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<PAGE>
with a copy (which shall not constitute notice) to:
To Apollo:
c/o Apollo Advisors II, L.P.
2 Manhattanville Road
Purchase, New York 10577
Attention: Tony Tortorelli
Fax: (914) 694-8032
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<PAGE>
with a copy (which shall not constitute notice) to:
Sidley & Austin
555 West Fifth Street
Suite 4000
Los Angeles, California 90013
Attention: Robert W. Kadlec, Esq.
Fax: (213) 896-6600
To the Other Stockholders:
To the address specified on the signature page executed by such Other
Stockholder.
SECTION VII.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal law of the State of Delaware without
giving effect to principles of conflicts of law.
SECTION VII.6 Headings. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
SECTION VII.7 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original instrument and
all of which together shall constitute one and the same instrument
SECTION VII.8 Further Assurances. Each party shall cooperate and take
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
SECTION VII.9 Termination. Unless sooner terminated in accordance with
its terms or as otherwise herein provided, this Agreement shall terminate upon
the earlier to occur of (i) the mutual agreement by the parties hereto, (ii)
with respect to any Stockholder, such Stockholder ceasing to own any Shares or
(iii) the tenth anniversary of the Effective Date.
SECTION VII.10 Remedies. In the event of a breach or a threatened
breach by any party to this Agreement of its obligations under this Agreement,
any party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall be
specifically enforceable, it being agreed by the parties that the remedy at law,
including monetary damages, for breach of any such provision will be inadequate
compensation for any loss and that any defense or objection in any action for
specific performance or injunctive relief that a remedy at law would be adequate
is waived.
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<PAGE>
SECTION VII.11 Pronouns. Whenever the context may require, any pronouns
used herein shall be deemed also to include the corresponding neuter, masculine
or feminine forms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MARINER POST-ACUTE NETWORK, INC.
By: /s/ Keith B. Pitts
----------------------------------
Name: Keith B. Pitts
Title: President and Chief
Executive Officer
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<PAGE>
APOLLO
APOLLO INVESTMENT FUND III, L.P.
By: Apollo Advisors II, L.P.
Its General Partner
By: Apollo Capital Management II, Inc.
Its General Partner
By: /s/ Peter P. Copses
---------------------------------------
Name: Peter P. Copses
Title: Vice President
13,100,370 Shares of Common Stock
APOLLO UK PARTNERS III, L.P.
By: Apollo Advisors II, L.P.
Its General Partner
By: Apollo Capital Management II, Inc.
Its General Partner
By: /s/ Peter P. Copses
----------------------------------------
Name: Peter P. Copses
Title: Vice President
484,188 Shares of Common Stock
- 24 -
<PAGE>
APOLLO OVERSEAS PARTNERS III, L.P.
By: Apollo Advisors II, L.P.
Its General Partner
By: Apollo Capital Management II, Inc.
Its General Partner
By: /s/ Peter P. Copses
------------------------------------------
Name: Peter P. Copses
Title: Vice President
783,033 Shares of Common Stock
- 25 -
<PAGE>
OTHER STOCKHOLDERS
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its General Partner
By: /s/ Brian J. Richmand
-------------------------------------
Name: Brian J. Richmand
Title: General Partner
2,000,001 Shares of Common Stock
Address for Notice:
380 Madison Avenue
12th Floor
New York, New York 10017
Attention: Christopher C. Behrens
Telecopy No.: (212) 622-3101
with a copy to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telecopy No.: (212) 408-2420
- 26 -
<PAGE>
HEALTHCARE EQUITY PARTNERS, L.P.
By: Beecken, Petty & Company, L.L.C. Its
General Partner
By: /s/ Gregory A. Moerschel
---------------------------------------
Name: Gregory A. Moerschel
Title: Managing Director
182,592 Shares of Common Stock
Address for Notice:
c/o Beecken, Petty & Company, L.L.C.
901 Warrenville Road, Suite 205
Lisle, Illinois 60532
Attention: David K. Beecken
Telecopy No.: (630) 435-0370
HEALTHCARE EQUITY QP PARTNERS, L.P.
By: Beecken, Petty & Company, L.L.C. Its
General Partner
By: /s/ Gregory S. Moerschel
----------------------------------------------
Name: Gregory S. Moerschel
Title: Managing Director
558,150 Shares of Common Stock
Address for Notice:
c/o Beecken, Petty & Company, L.L.C.
901 Warrenville Road, Suite 205
Lisle, Illinois 60532
Attention: David K. Beecken
Telecopy No.: (630) 435-0370
- 27 -
<PAGE>
KEY CAPITAL CORPORATION
By: /s/ Stephen R. Haynes
-----------------------------------
Stephen R. Haynes
Vice President
277,779 Shares of Common Stock
Address for Notice:
127 Public Square, 6th Floor
Cleveland, OH 44114
Attention: Stephen R. Haynes
Telecopy No.: (216) 689-3204
KEY EQUITY PARTNERS 97
By: /s/ Stephen R. Haynes
----------------------------------
Stephen R. Haynes
Its: General Partner
92,592 Shares of Common Stock
Address for Notice:
127 Public Square, 6th Floor
Cleveland, OH 44114
Attention: Stephen R. Haynes
Telecopy No.: (216) 689-3204
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<PAGE>
DRAX HOLDINGS L.P.
By: Inman Corporation
Its General Partner
By: /s/ Linda Hamilton
----------------------------------------
Name: Linda Ann Hamilton
Title:
75,000 Shares of Common Stock
Address for Notice:
c/o The Drax Group
8889 Pelican Bay Blvd., Suite 403
Naples, FL 34108
Attention: Linda Hamilton
Telecopy No.: (941) 262-0467
WALNUT GROWTH PARTNERS LIMITED PARTNERSHIP
By: Walnut GP, L.L.C
Its General Partner
By: Walnut Funds, Inc.
A Member
By: /s/ Joel Kanter
------------------------------------------
Name: Joel Kanter
Title:
74,073 Shares of Common Stock
Address for Notice:
Suite 700
1227 25th Street, N.W.
Washington, D.C. 20037
Attention: Michael Faber
Telecopy No.: (202) 296-2882
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<PAGE>
SCHEDULE 4.1
Stockholder Designees
- ---------------------
Laurence M. Berg*+
Peter P. Copses*+
John H. Kissick*
Robert L. Rosen
GranCare Nominees
- -----------------
Gene E. Burleson
Joel S. Kanter
William G. Petty, Jr.
LCA Nominees
- ------------
Donald C. Beaver
Chief Executive Officer
- -----------------------
Keith B. Pitts+
____________________________
* Apollo Director
+ Nominating Committee
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<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of May 1,
1998 by and among Paragon Health Network, Inc., a Delaware corporation (the
"Company") and Daniel G. Schmidt III (the "Investor").
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The following terms shall have the meanings
-----------
ascribed to them below:
"Closing Date" means the date of the closing under the Agreement of
Purchase and Plan of Reorganization (the "Exchange Agreement"), dated as of
March 24, 1998, among the Company, Acquisition Sub, Inc., a Delaware
corporation, Professional Rehabilitation, Inc., a South Carolina corporation,
and the Investor.
"Commission" means the Securities and Exchange Commission.
"Demand Registration" means a registration of Registrable Securities
under the Securities Act pursuant to a request made under Section 2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Permitted Transferee" means any member of Investor's "immediate
family" as such term currently is used in Instruction to Item 4.4(a) of
Regulation S-K under the Securities Act, and any trust established for the
benefit of such persons or Investor.
"Person" means any individual or a corporation, partnership, joint
venture, association, trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance on Rule 430A under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and all other
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<PAGE>
amendments and supplements to the Prospectus, including post-effective
amendments, and all materials incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Registrable Security" means each Share issued to the Investor in the
transactions described in the Exchange Agreement (the "Transaction") until (i)
it has been effectively registered under the Securities Act and disposed of
pursuant to an effective registration statement, (ii) it is sold under
circumstances in which all of the applicable conditions of Rule 144 (or any
similar provisions then in force) under the Securities Act are met, including a
sale pursuant to the provisions of Rule 144(k) or (iii) it is otherwise
transferred in accordance with the terms of this Agreement to any person other
than a Permitted Transferee; it being understood that Shares transferred to any
Permitted Transferee shall be "Registrable Securities".
"Registration Statement" means any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Selling Holder" means any person who sells or proposes to sell Shares
pursuant to a registration statement under the Securities Act.
"Shares" means the shares of common stock, par value $.01 per share of
the Company.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
ARTICLE II
REGISTRATION RIGHTS
Section 2.1 Demand Registration.
-------------------
(a) Request for Registration. During the period commencing on the day
------------------------
immediately following the Closing Date and ending 18 months thereafter (the
"Demand Period"), the Investor may make one written request for a Demand
Registration of not less than 50% of the Registrable Securities received by the
Investor in the transaction. The Investor will specify the number of
Registrable Securities proposed to be sold and will also specify the intended
method of disposition thereof.
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<PAGE>
If the Investor requests that such Demand Registration be a "shelf"
registration pursuant to Rule 415 under the Securities Act, the Company shall
file such Demand Registration under Rule 415 and shall keep the Registration
Statement filed in respect thereof effective for a period which shall terminate
on the earlier of (i) six months from the date on which the Commission declares
such Registration Statement effective, (ii) the date on which all Registrable
Securities covered by such Registration Statement have been sold pursuant to
such Registration Statement or (iii) the expiration of the Demand Period.
(b) Effective Registration. A registration will not be deemed to have
----------------------
been effected as a Demand Registration unless it has been declared effective by
the Commission and the Company has complied in all material respects with its
obligations under this Agreement with respect thereto; provided that if after
--------
such Demand Registration has become effective, the offering of Registrable
Securities pursuant to such registration is or becomes the subject of any stop
order, injunction or other order or requirement of the Commission or any other
governmental or administrative agency, or if any court prevents or otherwise
limits the sale of Registrable Securities pursuant to the registration (for any
reason other than the acts or omissions of the Holders), such registration will
be deemed not to have been effected. If (i) a registration requested pursuant
to this Section 2.1 is deemed not to have been effected or (ii) the registration
requested pursuant to this Section 2.1 does not remain effective for a period of
at least 120 days, or six months with respect to a "shelf" registration, beyond
the effective date thereof (or earlier upon the consummation of the distribution
by the Investor of the Registrable Securities included in such registration
statement), then such registration statement shall not count as the Demand
Registration that may be requested by the Investor and the Company shall
continue to be obligated to effect a registration pursuant to this Section 2. 1.
The Investor may withdraw all of the Registrable Securities from a
Demand Registration at any time (whether before or after the filing or effective
date of such Demand Registration), provided that if the Investor bears the
--------
expenses associated with such withdrawn Registration Statement, such
Registration Statement will not count as a Demand Registration and the Company
shall continue to be obligated to effect a registration pursuant to this Section
2.1. The Investor may, with the consent of the Company (and the Underwriter in
the case of a Demand Registration pursuant to Section 2.1(c)), withdraw part of
the Registrable Securities from a Demand Registration provided that such Demand
Registration shall continue to count as the Demand Registration that the Company
is required to effect pursuant to this Section 2.1.
(c) Selection of Underwriter. If the Investor so elects, the offering
------------------------
of Registrable Securities pursuant to a Demand Registration shall be in the form
of an underwritten offering. The Company shall select one or more nationally
recognized firms of investment bankers to act as the book-running managing
Underwriter or Underwriters in connection with such offering and shall select
any additional investment bankers and managers to be used in connection with the
offering.
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<PAGE>
Section 2.2 Piggy-Back Registration. If at any time during the five
-----------------------
(5) year period commencing the day immediately following the Closing Date, the
Company proposes to file a Registration Statement under the Securities Act with
respect to an offering of equity securities by the Company for its own account
or for the account of any security holders of any class of its equity securities
(other than (i) a registration statement on Form S-4 or S-8 (or any substitute
form that may be adopted by the Commission) or (ii) a registration statement
filed in connection with an exchange offer or offering of securities solely to
the Company's existing security holders), then the Company shall give written
notice of such proposed filing to the Investor as soon as practicable (but in no
event less than 20 days before the anticipated filing date), and such notice
shall offer the Investor and the Permitted Transferees, the opportunity to
register such number of shares of Registrable Securities as the Investor may
request, (which request shall specify the Registrable Securities intended to be
disposed of by such Holder and the intended method of distribution thereof) (a
"Piggy-Back Registration") .
The Company shall use its reasonable efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten offering to permit the
Registrable Securities requested by the Investor to be included in a Piggy-Back
Registration (the "Piggy-Back Holders") to be included on the same terms and
conditions as any similar securities of the Company or any other security holder
included therein and to permit the sale or other disposition of such Registrable
Securities in accordance with the intended method of distribution thereof. The
Investor shall have the right to withdraw its request for inclusion of its
Registrable Securities in any registration statement pursuant to this Section
2.2 by giving written notice to the Company of its request to withdraw. Subject
to the provisions of Section 2.1, the Company may withdraw a Registration
Statement for its own account at any time prior to the time it becomes
effective, provided that the Company shall reimburse the Investor for all
--------
reasonable out-of-pocket expenses (including counsel fees and expenses) incurred
by Investor prior to such withdrawal.
No registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligations pursuant to Section 2.1, and no failure to effect a registration
under this Section 2.2 and to complete the sale of Shares in connection
therewith shall relieve the Company of any other obligation under this Agreement
(including, without limitation, the Company's obligations under Sections 3.2 and
5.1).
Section 2.3 Reduction of Offering.
---------------------
(a) Demand Registration. The Company may include in a Demand
-------------------
Registration, Shares for the account of the Company, Registrable Securities for
the account of the Investor (which for purposes of this Agreement "account of
the Investor" includes all Permitted Transferees) and Shares for the account of
other holders thereof exercising contractual piggyback rights, on the same terms
and conditions as the Registrable Securities to be included therein for the
account of the Investor and the Permitted Transferees; provided, however, that
--------
(i) if the managing Underwriter or Underwriters of any underwritten offering
described in Section 2.1 have informed the Company in writing that it is their
opinion that the total number of Shares which the Investor, the Company, and
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<PAGE>
any such other holders intend to include in such offering is such as to
materially and adversely affect the success of such offering, then (x) the
number of Shares to be offered for the account of such other holders shall be
reduced (to zero, if necessary), in the case of this clause (x) pro rata in
--- ----
proportion to the respective number of Shares requested to be registered and (y)
thereafter, if necessary, the number of Shares to be offered for the account of
the Company (if any) shall be reduced (to zero, if necessary), to the extent
necessary to reduce the total number of Shares requested to be included in such
offering to the number of Shares, if any, recommended by such managing
Underwriters (and if the number of Shares to be offered for the account of each
such Person has been reduced to zero, and the number of Shares requested to be
registered by the Investor exceeds the number of Shares recommended by such
managing Underwriters, then the number of Shares to be offered for the account
of the Investor and the Permitted Transferees shall be reduced) and (ii) if the
offering is not underwritten, no other party (other than other holders
exercising contractual piggyback rights), including the Company, shall be
permitted to offer securities under any such Demand Registration unless the
Investor consents to the inclusion of such shares therein.
(b) Piggy-Back Registration.
-----------------------
(i) Notwithstanding anything contained herein, if the managing
Underwriter or Underwriters of any underwritten offering described in Section
2.2 have informed, in writing, the Company that it is their opinion that the
total number of Shares that the Company and any other Persons desiring to
participate in such registration intend to include in such offering is such as
to materially and adversely affect the success of such offering, then the number
of Shares to be offered for the account of the Investor and all such other
Persons (other than the Company) participating in such registration shall be
reduced (to zero, if necessary) or limited pro rata in proportion to the
--- ----
respective number of Shares requested to be registered to the extent necessary
to reduce the total number of Shares requested to be included in such offering
to the number of Shares, if any, recommended by such managing Underwriters;
provided, however, that if such offering is effected for the account of any an
- -----------------
Apollo Holder (as defined in the Registration Rights Agreement dated November 4,
1997 between Paragon and the signatories thereto (the "Apollo Registration
Rights Agreement")) or transferee of an Apollo Holder pursuant thereto, then (x)
the number of Shares to be offered for the account of the Investor and any other
holders that have requested to include Shares in such registration (other than
parties to the Apollo Registration Rights Agreement) shall be reduced (to zero,
if necessary), in the case of this clause (x) pro rata in proportion to the
--- ----
respective number of Shares requested to be registered and (y) thereafter, if
necessary, the number of Shares to be offered for the account of the Company (if
any) shall be reduced (to zero, if necessary), to the extent necessary to reduce
the total number of Shares requested to be included in such offering to the
number of Shares, if any, recommended by such managing Underwriters and (z)
thereafter, if necessary, the Shares to be offered for the accounts of the
parties to the Apollo Registration Rights Agreement shall be reduced as provided
therein.
(ii) If the managing Underwriter or Underwriters of any underwritten
offering described in Section 2.2 notify the Company that the kind of securities
that the Investor, the Company or any other Persons desiring to participate in
such registration intend to include in
-5-
<PAGE>
such offering is such as to materially and adversely affect the success of such
offering, then the Shares to be included in such offering by the Investor shall
be reduced as described in clause (i) above or if such reduction would, in the
judgment of the managing Underwriter or Underwriters, be insufficient to
substantially eliminate the adverse effect that inclusion of the Shares
requested to be included would have on such offering, such Shares will be
excluded from such offering.
ARTICLE III
REGISTRATION PROCEDURES
Section 3.1 Filings; Information. Whenever the Company is required
--------------------
to effect or cause the registration of Registrable Securities pursuant to
Section 2.1, the Company will use its best efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof as quickly as practicable, and in connection with
any such request:
(a) The Company will as expeditiously as possible prepare and file
with the Commission a Registration Statement on any form for which the Company
then qualifies or which counsel for the Company shall deem appropriate and which
form shall be available for the sale of the Registrable Securities to be
registered thereunder in accordance with the intended method of distribution
thereof, and use its best efforts to cause such filed Registration Statement to
become and remain effective for a period of not less than 120 days, or six
months with respect to a "shelf" registration (or such shorter period as is
required to complete the distribution of the shares); provided that the Company
--------
may postpone, not more than three (3) times during the Demand Right period, the
filing of a Registration Statement for a period of not more than 90 days from
the date of receipt of the request in accordance with Section 2.1 if the Company
reasonably determines that such a filing would adversely affect any proposed
financing or acquisition by the Company which is material to the Company, and
furnishes to the Investor a certificate signed by an executive officer of the
Company to such effect. If the Company postpones the filing of a Registration
Statement, it shall promptly notify the Investor in writing when the events or
circumstances permitting such postponement have ended.
(b) The Company will as expeditiously as possible prepare and file
with the Commission such amendments and supplements to such Registration
Statement and the Prospectus used in connection therewith as may be necessary to
keep such Registration Statement continuously effective (subject to the second
to last paragraph of this Section 3.1) for a period of not less than 120 days,
or six months with respect to a "shelf" registration, or such shorter period
which will terminate when all securities covered by such Registration Statement
have been sold or the Demand Period has expired (but not before the expiration
of the 90-day period referred to in Section 4(3) of the Securities Act and Rule
174 thereunder, if applicable) and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by each Selling Holder thereof set forth in such
Registration Statement.
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<PAGE>
(c) The Company will, prior to filing a Registration Statement or
prospectus or any amendment or supplement thereto (including documents that
would be incorporated or deemed to be incorporated therein by reference),
furnish to the Investor, counsel representing the Investor, and each
Underwriter, if any, of the Registrable Securities covered by such Registration
Statement copies of such Registration Statement as proposed to be filed,
together with exhibits thereto, which documents will be subject to review and
comment by the foregoing within five days after delivery, and thereafter furnish
to the Investor, counsel and Underwriter, if any, for their review and comment
such number of copies of such Registration Statement, each amendment and
supplement thereto (in each case including all exhibits thereto and documents
incorporated by reference therein), the Prospectus included in such Registration
Statement and such other documents or information as the Investor, counsel or
Underwriter may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by the Investor.
(d) After the filing of the Registration Statement, the Company will
promptly notify the Investor, (i) when a Prospectus or any supplement thereto or
post-effective amendment has been filed and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to a Registration Statement or related
Prospectus or for additional information, (iii) of the issuance by the
Commission or any other Federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) if at any time when a prospectus is
required by the Securities Act to be delivered in connection with sales of the
Registrable Securities, the representations and warranties of the Company
contained in any agreement contemplated by Section 3.1(h) (including any
underwriting agreement) cease to be true and correct in all material respects,
(v) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the happening of any
event which makes any statement made in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in a Registration Statement, Prospectus or documents incorporated
therein by reference so that, in the case of the Registration Statement, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of 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, and (vii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be necessary.
(e) The Company will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as the Investor reasonably (in light of the
Investor's intended plan of distribution) requests, and (ii)
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<PAGE>
cause such Registrable Securities to be registered with or approved by such
other governmental agencies or authorities in the United States as may be
necessary by virtue of the business and operations of the Company and do any and
all other acts and things that may be reasonably necessary or advisable to
enable the Investor to consummate the disposition of the Registrable Securities
then owned by the Investor and the Permitted Transferee; provided that the
--------
Company will not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (e), (B) subject itself to taxation in any such jurisdiction or (C)
consent to general service of process in any such jurisdiction.
(f) The Company will take all reasonable actions required to prevent
the entry, or obtain the withdrawal, of any order suspending the effectiveness
of a Registration Statement, or the lifting of any suspension of the
qualification (or exemption from qualification) of any Registrable Securities
for sale in any jurisdiction, at the earliest moment.
(g) Upon the occurrence of any event contemplated by paragraph
3.1(d)(vi) or 3.1(d)(vii) above, the Company will (i) prepare a supplement or
post-effective amendment to such Registration Statement or a supplement to the
related Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (ii)
promptly make available to the Investor any such supplement or amendment.
(h) The Company will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form and which is reasonably
satisfactory to the Company) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities (the Investor may, at his option, require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such Underwriters also be made to and for the benefit of the Investor).
(i) The Company will make available to the Investor (and will deliver
to his counsel) and each Underwriter, if any, subject to restrictions imposed by
the United States federal government or any agency or instrumentality thereof,
copies of all correspondence between the Commission and the Company, its counsel
or auditors and will also make available for inspection by the Investor, any
Underwriter participating in any disposition pursuant to such Registration
Statement and any attorney, accountant or other professional retained by the
Investor or Underwriter, all financial and other records, pertinent corporate
documents and properties of the Company (collectively, the "Records") as shall
be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers and employees to supply all
information reasonably requested by any inspectors in connection with such
Registration Statement. The Investor agrees that information obtained by it
solely as a result of such inspections (not including any information obtained
from a third party who, insofar as is known to the Investor after reasonable
inquiry, is not prohibited from providing such information by a contractual,
legal or
-8-
<PAGE>
fiduciary obligation to the Company) shall be deemed confidential and shall not
be used by it as the basis for any market transactions in the securities of the
Company or its affiliates unless and until such information is made generally
available to the public. The Investor further agrees that it will, upon learning
that disclosure of such Records is sought in a court of competent jurisdiction,
give notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of the Records deemed confidential.
(j) The Company will furnish to the Investor and to each Underwriter,
(i) an opinion or opinions of counsel to the Company, and (ii) a comfort letter
or comfort letters from the Company's independent public accountants, each in
customary form and covering such matters of the type customarily covered by
opinions or comfort letters, as the case may be, as the Investor or the managing
Underwriter therefor reasonably requests.
(k) In connection with an underwritten offering, the Company will
participate, to the extent reasonably requested by the managing Underwriter for
the offering or the Investor, in customary efforts to sell the securities under
the offering, including, without limitation, participating in "road shows."
The Company may require the Investor and each Permitted Transferee to
promptly furnish in writing to the Company such information regarding the
distribution of the Registrable Securities by the Investor and each Permitted
Transferee as the Company may from time to time reasonably request and such
other information as may be legally required in connection with such
registration including, without limitation, all such information as may be
requested by the Commission or the NASD. The Company may exclude from such
registration any Holder who fails to provide such information.
The Investor and each Permitted Transferee agrees that, upon receipt
of any notice from the Company of the happening of any event of the kind
described in Sections 3.1(d)(iii), (v), (vi) and (vii) hereof, the Investor will
forthwith discontinue disposition of Registrable Securities pursuant to the
Registration Statement covering such Registrable Securities until the Investor's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3.1(g) hereof, and, if so directed by the Company, the Investor will
deliver to the Company all copies, other than permanent file copies, then in
such Selling Holder's possession of the most recent Prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event the
Company shall give such notice, the Company shall extend the period during which
such Registration Statement shall be maintained effective (including the period
referred to in Section 3.1(a) hereof) by the number of days during the period
from and including the date of the giving of notice pursuant to Section
3.1(d)(iii), (v), (vi) or (vii) hereof to the date when the Company shall make
available to the Investor a Prospectus supplemented or amended to conform with
the requirements of Section 3.1(g) hereof.
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<PAGE>
In connection with any registration of Registrable Securities pursuant
to Section 2.2, the Company will take the actions contemplated by paragraphs
(c), (d), (e), (g), (h), (i) and (j) above.
Section 3.2 Registration Expenses. In connection with the Demand
---------------------
Registrations pursuant to Section 2.1 hereof, and any Registration Statement
filed pursuant to Section 2.2 hereof, the Company shall pay the following
registration expenses incurred in connection with the registration hereunder
(the "Registration Expenses"): (i) all registration and filing fees, (ii) fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv) the
Company's internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties)
and all fees and expenses incident to the performance of or compliance with this
Agreement by the Company, (v) the fees and expenses incurred in connection with
the listing of the Registrable Securities, (vi) reasonable fees and
disbursements of counsel for the Company and customary fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort
letters), (vii) the reasonable fees and expenses of any special experts retained
by the Company in connection with such registration, and (viii) reasonable fees
and expenses of one firm of counsel for the Investor (together with necessary
local counsel fees and expenses), which counsel shall be chosen by the Investor.
The Company shall have no obligation to pay any underwriting fees, discounts or
commissions attributable to the sale of Registrable Securities.
Section 3.3 Financial Statements. Anything in this Article III to
--------------------
the contrary notwithstanding, the Company shall not be obligated to effect any
registration pursuant to Section 2.1 or 2.2 if such registration would require
the Company (i) to furnish any financial statements other than as of the end of
a fiscal quarter or (ii) to furnish any certified financial statements other
than as of the end of a fiscal year unless the Investor agrees to bear the
expenses of furnishing such financial statements.
ARTICLE IV
TRANSFER
Section 4.1 Transfer of Registrable Securities and Legend.
---------------------------------------------
(a) The Investor acknowledges that the Registrable Securities will
not be, except as otherwise provided herein, registered under the Securities
Act, and the Investor agrees, until such Registrable Securities are registered,
not to offer, sell, pledge or otherwise dispose of any Registrable Securities or
any interest therein, unless done pursuant to the terms contained in this
Article IV.
(b) The Investor acknowledges that each certificate representing
Registrable
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<PAGE>
Securities shall bear the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE BLUE SKY LAWS OF ANY STATE AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A REGISTRATION
STATEMENT UNDER SAID ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
THEREUNDER. TRANSFER OF THIS SECURITY IS ALSO SUBJECT TO RESTRICTIONS
CONTAINED IN THAT CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF
____________, 1998, AMONG THE ISSUER HEREOF AND A SHAREHOLDER OF THE
ISSUER."
In the event any of the Registrable Securities are registered under the
Securities Act, the legends set forth in this subsection (b) shall be removed
from the certificates representing such Registrable Securities, and the Company
shall promptly, after presentation by the Investor of any certificates held by
it, cause its transfer agent to issue new certificates without such legends;
provided, however, that if such Registrable Securities are not sold or otherwise
- -------- -------
transferred by the Investor holding such certificates substantially in
accordance with the plan of distribution set forth in the registration statement
and during the time period that the registration statement with respect thereto
is effective under the Securities Act, the Investor shall surrender the
certificates without such legend to the Company and shall receive in exchange
therefor replacement certificates containing the legend set forth above. In
addition, if any Registrable Securities shall be saleable at any time without
restriction under the Securities Act, and the Company receives an opinion of the
Investor's counsel, if requested by the Company and at the Company's cost and
expense, to such effect, with which the Company's counsel reasonably agrees, the
Company shall promptly, after presentation of certificates for such Registrable
Securities by the Investor, issue new certificates without the legend required
by this Section 4.1; provided, however, that no such opinion shall be required
-------- -------
with respect to Registrable Securities that are eligible for sale under
paragraph (k) of Rule 144 or any similar or successor rule.
(c) The Company is hereby authorized to, and shall, issue to its
transfer agent, and shall note upon its books, "stop transfer" instructions with
respect to all of the Registrable Securities.
Section 4.2 Transfer Procedure. The Investor will not sell, pledge,
------------------
transfer or otherwise dispose of any Registrable Securities, other than a
transfer pursuant to Rule 144, or to a Permitted Transferee until the same shall
have been registered under the Securities Act pursuant to Article II or the
Company shall have received the following: (i) written notice describing in
reasonable detail the proposed sale, pledge,
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<PAGE>
transfer or other disposition, (ii) a legal opinion in form and substance
reasonably satisfactory to the Company, to the effect that the proposed sale,
pledge, transfer or other disposition may be legally effected without
registration under the Securities Act; and (iii) such supporting documents and
supplementary assurances, if any, as the Company reasonably and promptly may
request in order to assure compliance with the Securities Act. Upon receipt by
the Company of any such notice and opinion, and any information reasonably
requested in connection therewith, the Investor and each Permitted Transferee
shall thereupon be entitled to transfer such Registrable Securities in
accordance with the terms of the notice delivered by the Investor and each
Permitted transferee to the Company, subject to the requirements of Section 4.3.
Each certificate evidencing the Registrable Securities issued upon the transfer
of any such Registrable Securities (and each certificate evidencing any
untransferred balance of such Registrable Securities) shall bear the legend set
forth in Section 4.1(b) unless in the opinion of the Company's counsel such
legend is not necessary.
ARTICLE V
INDEMNIFICATION AND CONTRIBUTION
Section 5.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless the Investor and each Permitted Transferee and each
person who contracts such Permitted Transferee within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, from and against any
loss, claim, damage, liability, reasonable attorneys' fee, cost or expense and
costs and expenses of investigating and defending any such claim (collectively,
the "Damages"), joint or several, and any action in respect thereof to which the
Investor and each Permitted Transferee may become subject under the Securities
Act or otherwise, insofar as such Damages (or proceedings in respect thereof)
arise out of, or are based upon, any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or
Prospectus relating to the Registrable Securities or any preliminary Prospectus,
or arises out of, or are based upon, 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, except insofar as the same are based upon
information furnished in writing to the Company by the Investor and each
Permitted Transferee or Underwriter expressly for use therein, and shall
reimburse the Investor and each Permitted Transferee for any legal and other
expenses reasonably incurred by the Investor and each Permitted Transferee in
investigating or defending or preparing to defend against any such Damages or
proceedings; provided, however, that the Company shall not be liable to the
-------- -------
Investor and each Permitted Transferee to the extent that (a) any such Damages
arise out of or are based upon an untrue statement or omission made in any
preliminary prospectus if (i) the Investor failed to send or deliver a copy of
the final Prospectus with or prior to the delivery of written confirmation of
the sale by the Investor and each Permitted Transferee to the Person asserting
the claim from which such Damages arise, and (ii) the final Prospectus would
have corrected such untrue statement or such omission; or (b) any such Damages
arise out of or are based upon an untrue statement or omission in any Prospectus
if (x) such untrue statement or omission is corrected in an amendment or
supplement to such Prospectus, and (y) having previously been furnished by or on
behalf of the Company with copies of such Prospectus as so amended or
supplemented, the Investor and each Permitted Transferee thereafter fails to
deliver such Prospectus as so amended or supplemented prior
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<PAGE>
to or concurrently with the sale of a Registrable Security to the Person
asserting the claim from which such Damages arise.
Section 5.2 Indemnification by Investor and each Permitted
----------------------------------------------
Transferee. The Investor and each Permitted Transferee agrees, jointly and
- ----------
severally, to indemnify and hold harmless the Company, its officers, directors,
employees and agents and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, together with the partners, officers, directors, employees and agents of
such controlling Person, to the same extent as the foregoing indemnity from the
Company to the Investor, but only with reference to information related to the
Investor and each Permitted Transferee, or its plan of distribution, furnished
in writing by the Investor and each Permitted Transferee or on the Investor's
and each Permitted Transferee's behalf expressly for use in any Registration
Statement or Prospectus relating to the Registrable Securities, or any amendment
or supplement thereto, or any preliminary Prospectus. In case any action or
proceeding shall be brought against the Company or its officers, directors,
employees or agents or any such controlling Person or its partners, officers,
directors, employees or agents, in respect of which indemnity may be sought
against the Investor and each Permitted Transferee, the Investor and each
Permitted Transferee shall have the rights and duties given to the Company, and
the Company or its officers, directors, employees or agents, controlling Person,
or its partners, officers, directors, employees or agents, shall have the rights
and duties given to the Investor, under Section 5.1. The Investor and each
Permitted Transferee also agrees to indemnify and hold harmless each other
Selling Holder and any Underwriters of the Registrable Securities, and their
respective officers and directors and each Person who controls each such other
Selling Holder or Underwriter on substantially the same basis as that of the
indemnification of the Company provided in this Section 5.2. The Company shall
be entitled to receive indemnities from Underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to information
so furnished in writing by such Persons specifically for inclusion in any
Prospectus or Registration Statement. In no event shall the liability of the
Investor and each Permitted Transferee be greater in amount than the dollar
amount of the proceeds (net of payment of all expenses) received by the Investor
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
Section 5.3 Conduct of Indemnification Proceedings. Promptly after
--------------------------------------
receipt by any Person in respect of which indemnity may be sought pursuant to
Section 5.1 or 5.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the Person against whom such indemnity may be
sought (an "Indemnifying Party") notify the Indemnifying Party in writing of the
claim or the commencement of such action, provided that the failure to notify
--------
the Indemnifying Party shall not relieve it from any liability except to the
extent of any material prejudice resulting therefrom. If any such claim or
action shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party; provided, that the
--------
Indemnifying Party acknowledges, in a writing in form and substance reasonably
satisfactory to such
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<PAGE>
Indemnified Party, such Indemnifying Party's liability for all Damages of such
Indemnified Party to the extent specified in, and in accordance with, this
Article V. After notice from the Indemnifying Party to the Indemnified Party of
its election to assume the defense of such claim or action, the Indemnifying
Party shall not be liable to the Indemnified Party for any legal or other
expenses subsequently incurred by the Indemnified Party in connection with the
defense thereof other than reasonable costs of investigation; provided that the
--------
Indemnified Party shall have the right to employ separate counsel to represent
the Indemnified Party and its controlling Persons who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the Indemnified Party against the Indemnifying Party, but the fees and
expenses of such counsel shall be for the account of such Indemnified Party
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) in the reasonable judgment of
such Indemnified Party, representation of both parties by the same counsel would
be inappropriate due to actual or potential conflicts of interest between them,
it being understood, however, that the Indemnifying Party shall not, in
connection with any one such claim or action or separate but substantially
similar or related claims or actions in the same jurisdiction arising out of the
same general allegations or claims, be liable for the fees and expenses of more
than one separate firm of attorneys (together with appropriate local counsel) at
any time for all Indemnified Parties, or for fees and expenses that are not
reasonable. No Indemnifying Party shall, without the prior written consent of
the Indemnified Party, effect any settlement of any claim or pending or
threatened proceeding in respect of which the Indemnified Party is or could have
been a party and indemnity could have been sought hereunder by such Indemnified
Party, unless such settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such claim or proceeding.
Whether or not the defense of any claim or action is assumed by the Indemnifying
Party, such Indemnifying Party will not be subject to any liability for any
settlement made without its consent, which consent will not be unreasonably
withheld.
Section 5.4 Contribution. If the indemnification provided for in
------------
this Article V is unavailable to the Indemnified Parties in respect of any
Damages referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Damages (i) as between the
Company and the Investor and/or each Permitted Transferee on the one hand and
the Underwriters on the other, in such proportion as is appropriate to reflect
the relative benefits received by the Company and the Investor and/or each
Permitted Transferee on the one hand and the Underwriters on the other from the
offering of the Registrable Securities, or if such allocation is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company and the Investor on
the one band and of the Underwriters on the other in connection with the
statements or omissions which resulted in such Damages, as well as any other
relevant equitable considerations, and (ii) as between the Company on the one
hand and the Investor and/or each Permitted Transferee on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
the Investor and/or each Permitted Transferee in connection with such statements
or omissions, as well as any other relevant equitable considerations. The
relative benefits received by the Company and the Investor on the one hand and
the Underwriters on the other shall be deemed to be in the same proportion as
the total proceeds from
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<PAGE>
the offering (net of underwriting discounts and Commissions but before deducting
expenses) received by the Company and the Investor bear to the total
underwriting discounts and commissions received by the Underwriters, in each
case as set forth in the table on the cover page or underwriting section of the
prospectus. The relative fault of the Company and the Investor and/or each
Permitted Transferee on the one hand and of the Underwriters on the other 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 Company and the Investor
and/or each Permitted Transferee or by the Underwriters. The relative fault of
the Company on the one hand and of each Selling Holder on the other 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 such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company and the Investor agree that it would not be just and
equitable if contribution pursuant to this Section 5.4 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the Damages
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 5.4, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Registrable Securities
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission, and the Investor and each Permitted Investor shall be
required to contribute, jointly and severally, any amount in excess of the
amount by which the total price at which the Registrable Securities of the
Investor and each Permitted Investor and each Permitted Investor were offered to
the public (less underwriting discounts and commissions) exceeds the amount of
any damages which the Investor and each Permitted Investor has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No Person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnity, contribution and expense reimbursement obligations
contained in this Article V are in addition to any liability any Indemnifying
Party may otherwise have to an Indemnified Party or otherwise. The provisions
of this Article V shall survive, notwithstanding any termination of this
Agreement.
-15-
<PAGE>
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations and Warranties of Investor. The Investor
------------------------------------------
for himself and on behalf of any Permitted Transferee hereby represents and
warrants to the Company as follows:
(a) The Investor understands that the Registrable Securities will not
be registered under the Securities Act and will be, until registered,
"restricted securities" as defined in Rule 144 promulgated under the Securities
Act ("Rule 144").
(b) This Agreement is made with the Investor in reliance upon the
Investor's representations and warranties to the Company that the Registrable
Securities received by the Investor will be acquired for investment for the
Investor's own account, and not with a view to the resale or distribution of any
part thereof, and that the Investor has no present intention of selling,
granting participations in, or otherwise distributing the same. By executing
this Agreement, the Investor further represents and warrants that the Investor
does not have presently any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participations to any such person, or to
any third person, with respect to any Registrable Securities.
(c) The Investor understands that the Registrable Securities will not
be registered as of the date hereof under the Securities Act and will be exempt
from registration pursuant to Section 4(2) thereof, and that the Company's
reliance on such exemption is predicated in part on each of the Investor's
representations and warranties set forth herein.
(d) The Investor is experienced in evaluating and investing in
securities issued by companies such as the Company, is able to fend for itself
in the transactions contemplated by this Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of the Investor's investment, and has the ability to bear the
economic risks of the Investor's investment. The Investor further represents
and warrants that the Investor has had, during the course of this transaction
and prior to the issuance of the Registrable Securities, the opportunity to ask
questions of, and receive answers from, the Company and its management and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to the Investor or
to which the Investor had access. Without limiting the generality of the
foregoing, the Investor acknowledges that it has received a copy of all of the
SEC Reports (as defined below).
Section 6.2 Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to the Investor as follows:
(a) The Registrable Securities have been duly authorized and are
validly issued, fully paid, nonassessable and free of preemptive rights.
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<PAGE>
(b) Exhibit A hereto sets forth a list of each registration
---------
statement, report, proxy statement or other filings filed by the Company with
the Commission within the previous three fiscal years ended September 30, 1997
and from such date through the date hereof, accurate and complete copies of
which have been delivered to the Investor, other than registration statements on
Form S-8. The Company has filed all registration statements, proxy statements,
reports and other filings and all amendments thereto which it was required to
file with the Commission. As of its date, none of said filings contained any
untrue statement of a material fact or omitted any material fact necessary to
make the statements therein not misleading, except to the extent any such
statement or omission has been modified or superseded in a document subsequently
filed with the appropriate authority.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Participation in Underwritten Registrations. The
-------------------------------------------
Investor and the Permitted Transferees may not participate in any underwritten
registration hereunder unless the Investor and the Permitted Transferees (a)
agrees to sell the Registrable Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires,
indemnities, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements and these registration rights;
provided that (i) the Investor and each Permitted Transferee shall not be
- --------
required to make any representations or warranties except those which relate
solely to the Investor and each Permitted Transferee and its intended method of
distribution, and (ii) the liability of the Investor and each Permitted
Transferee to any Underwriter under such underwriting agreement will be limited
to liability arising from misstatements or omissions regarding the Investor and
its intended method of distribution and any such liability shall not exceed an
amount equal to the amount of net proceeds the Investor and each Permitted
Transferee derives from such registration; provided, however, that in an
--------
offering by the Company in which the Investor and each Permitted Transferee
requests to be included in a Piggy-Back Registration, the Company shall use its
best efforts to arrange the terms of the offering such that the provisions set
forth in clauses (i) and (ii) of this Section 7.1 are true; provided further,
----------------
that if the Company fails in its best efforts to so arrange the terms, the
Investor and each Permitted Transferee may withdraw all or any part of its
Registrable Securities from the Piggy-Back Registration and the Company shall
reimburse the Investor and each Permitted Transferee for all reasonable out-of-
pocket expenses (including counsel fees and expenses) incurred prior to such
withdrawal.
Section 7.2 Rules 144 and 144A. The Company covenants that it will
------------------
file any reports required to be filed by it under the Securities Act and the
Exchange Act and that it will take such further action as the Investor may
reasonably request, all to the extent required from time to time to enable the
Investor to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
or Rule 144A under the Securities Act, as such Rules may be amended from time to
time, or (b) any similar rule or regulation hereafter
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<PAGE>
adopted by the Commission. Upon the request of the Investor, the Company will
deliver to the Investor a written statement as to whether it has complied with
such requirements.
Section 7.3 Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Holder of Registrable Securities. The
---------------------------------------------------------------
Investor agrees not to effect any public sale or distribution of the issue being
registered or of a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 or Rule 144A under the Securities Act, during the 14
days prior to, and during the 90-day period beginning on, the effective date of
any registration statement filed by the Company (except as part of such
registration), in the case of an underwritten public offering, if, and to the
extent, requested by the managing Underwriter or Underwriters.
(b) Restrictions on Sale by the Company and Others. The Company agrees and
----------------------------------------------
shall use its commercially reasonable best efforts to cause its Affiliates to
agree (i) not to effect any public sale or distribution of any securities
similar to those being registered in accordance with Section 2.1 hereof, or any
securities convertible into or exchangeable or exercisable for such securities,
during the 14 days prior to, and during the 90-day period beginning on, the
effective date of any Registration Statement (except as part of such
Registration Statement), in the case of an underwritten offering, if, and to the
extent, reasonably requested by the managing Underwriter or Underwriters, and
(ii) to use its best efforts to ensure that any agreement entered into after the
date hereof pursuant to which the Company issues or agrees to issue any
privately placed securities (other than to officers or employees) shall contain
a provision under which holders of such securities agree not to effect any sale
or distribution of any such securities during the periods described in (i)
above, in each case including a sale pursuant to Rule 144 or Rule 144A under the
Securities Act (except as part of any such registration, if permitted);
provided, however, that the provisions of this paragraph (b) shall not prevent
- -------- -------
(x) the conversion or exchange of any securities pursuant to their terms into or
for other securities or (y) the issuance of any securities to employees of the
Company or pursuant to any employee plan.
Section 7.4 Amendment and Modification. Any provision of this
--------------------------
Agreement may be waived, provided that such waiver is set forth in a writing
--------
executed by the party against whom the enforcement of such waiver is sought.
This Agreement may not be amended, modified or supplemented other than by a
written instrument signed by the parties hereto. No course of dealing between
or among any Persons having any interest in this Agreement will be deemed
effective to modify, amend or discharge any part of this Agreement or any rights
or obligations of any Person under or by reason of this Agreement.
Section 7.5 Successors and Assigns: Entire Agreement.
----------------------------------------
(a) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns and executors,
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<PAGE>
administrators and heirs; provided, that except as otherwise specifically
permitted pursuant to this Agreement, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by the Company
without the prior written consent of the Investor, provided, however, that this
-------- -------
provision shall not be construed so as to prohibit the Company from engaging in
any merger, other corporate reorganization or change in control without first
obtaining the consent of the Investor.
(b) This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and supersedes
all prior discussions, agreements and understandings of any and every nature
among them.
Section 7.6 Separability. In the event that any provision of this
------------
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
Section 7.7 Notices. All notices, demands, requests, consents or
-------
approvals (collectively, "Notices") required or permitted to be given hereunder
or which are given with respect to this Agreement shall be in writing and shall
be personally delivered or delivered by a reputable overnight courier service
with charges prepaid, or transmitted by hand delivery, telegram, telex or
facsimile, addressed as set forth below, or such other address as such party
shall have specified most recently by written notice. Notice shall be deemed
given or delivered on the date of service or transmission if personally served
or transmitted by telegram, telex or facsimile. Notice otherwise sent as
provided herein shall be deemed given or delivered on the next business day
following delivery of such notice to a reputable overnight courier service.
(a) if to Paragon or Acquisition Sub, to:
Paragon Health Network, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
Attention: Office of the Chief
Executive Officer
Facsimile: (770) 698-8199
with a copy to:
Paragon Health Network, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
Attention: Sydney K. Boone, Jr.
Vice President and Associate General Counsel
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<PAGE>
(b) if to the JDBK or the Stockholder, to:
Daniel G. Schmidt, III
P.O. Box 1715
Easley, SC 29641
Delivery Address:
6 Keynan Court
Simpsonville, South Carolina 29680
with a copy to:
John R. Thomas, Esq.
Mailing Address:
Merline & Thomas, P.A.
P.O. Box 10796
Greenville, SC 29603
Overnight Delivery Address:
Merline & Thomas, P.A.
665 N. Academy Street
Greenville, SC 29601
Facsimile: (864) 242-5758
David Schulman, Esq.
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
Facsimile: (215) 994-2222
Courtesy Notices to:
Kenneth Holcomb, CPA
Brigman, Holcomb, Weeks & Co., P.A.
703 East North Street
Greenville, SC 29601
Facsimile: (864) 235-8107
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<PAGE>
Section 7.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal law of the State of Georgia, without
giving effect to principles of conflicts of law.
Section 7.9 Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
Section 7.10 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original
instrument and all of which together shall constitute one and the same
instrument.
Section 7.11 Further Assurances. Each party shall cooperate and take
------------------
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
Section 7.12 Termination. Unless sooner terminated in accordance
-----------
with its terms or as otherwise herein provided, this Agreement shall terminate
upon the earlier to occur of (i) the mutual agreement by the parties hereto,
(ii) the date on which the Investor ceases to own any Registrable Securities or
(iii) the fifth anniversary of the date hereof, provided, however, that the
-------- -------
indemnification provisions of Article V and the expense provisions of Section
3.2 shall survive any such termination without limitation, and the provisions of
Article IV shall terminate 24 months from the date of this Agreement without
regard to any earlier termination of this Agreement.
Section 7.13 Remedies. In the event of a breach or a threatened
--------
breach by any party to this Agreement of its obligations under this Agreement,
any party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall
be specifically enforceable, it being agreed by the parties that the remedy at
law, including monetary damages, for breach of any such provision will be
inadequate compensation for any loss and that any defense or objection in any
action for specific performance or injunctive relief that a remedy at law would
be adequate is waived.
Section 7.14 Pronouns. Whenever the context may require, any
--------
pronouns used herein shall be deemed also to include the corresponding neuter,
masculine or feminine forms.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PARAGON HEALTH NETWORK, INC.
By: /s/ R. Jeffrey Taylor
------------------------------------
Name: R. Jeffrey Taylor
Title: Senior Vice President - Development
Investor
/s/ Daniel Schmidt
-----------------------------------
By: Daniel Schmidt
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<PAGE>
EXHIBIT 4.5
REGISTRATION RIGHTS AGREEMENT
-----------------------------
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of July 13,
1998 by and among Paragon Health Network, Inc., a Delaware corporation (the
"Company") and Rembert T. Cribb and Michael E. Fitzgerald (collectively, the
"Holders" and individually, a "Holder").
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. The following terms shall have the meanings
-----------
ascribed to them below:
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Commission" means the Securities and Exchange Commission.
"Demand Registration" means a registration of Registrable Securities
under the Securities Act pursuant to a request made under Section 2.1.
"Demanding Holder" means any Holder who has initiated a registration
request in compliance with Section 2.1(a).
"Effective Date" means the date of the closing under the Merger
Agreement, dated as of June 4, 1998, among the Company, SMH Acquisition, Inc.,
the Holders and Summit Medical Holdings, Ltd.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Person" means any individual or a corporation, partnership, joint
venture, association, trust or any other entity or organization, including a
government or political subdivision or an agency or instrumentality thereof.
"Prospectus" means the prospectus included in any Registration
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a
-1-
<PAGE>
prospectus filed as part of an effective registration statement in reliance on
Rule 430A under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by such Registration Statement and all
other amendments and supplements to the Prospectus, including post-effective
amendments, and all materials incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Registrable Security" means each Share held by a Holder received in
consideration of the Merger until (i) it has been effectively registered under
the Securities Act and disposed of pursuant to an effective registration
statement, (ii) it is sold under circumstances in which all of the applicable
conditions of Rule 144 (or any similar provisions then in force) under the
Securities Act are met, including a sale pursuant to the provisions of Rule
144(k) or (iii) it has been otherwise transferred in accordance with the terms
of this Agreement and it may be resold by the Person receiving such Shares
without registration under the Securities Act.
"Registration Statement" means any registration statement of the
Company that covers any of the Registrable Securities pursuant to the provisions
of this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"Selling Holder" means a Holder who sells or proposes to sell Shares
pursuant to a registration statement under the Securities Act.
"Shares" means the shares of common stock, par value $.01 per share of
the Company.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
ARTICLE II
REGISTRATION RIGHTS
Section 2.1 Demand Registration.
-------------------
(a) Request for Registration. During the period commencing on the
------------------------
Closing Date and ending on the later of (a) 24 months thereafter or (b) such
longer period as a Holder(s) remains an Affiliate(s) of the Company or would be
deemed an underwriter(s) (under Section 2(11) of the Securities Act) with
respect to the Registrable Securities (the "Demand Period"),
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<PAGE>
each Holder may make one written request for a Demand Registration of not less
than (i) 25% of the Registrable Securities held by the Holders collectively or
(ii) all of the Registrable Securities then held by the Holder making such
request; provided that the Company shall not be obligated to effect a second
Demand Registration until 90 days following the effectiveness of an earlier
requested Demand Registration. Each such request will specify the number of
Registrable Securities proposed to be sold and will also specify the intended
method of disposition thereof. The Holder making a demand may, with the written
consent of the other Holder, include in his written request to the Company that
shares of such other Holder be included as part of the Demand Registration and
such other Holder shall not be deemed to have exercised his right to make one
written request for Demand Registration but shall otherwise be deemed a
"Demanding Holder."
If a Holder requests that such Demand Registration be a "shelf"
registration pursuant to Rule 415 under the Securities Act, the Company shall
file such Demand Registration under Rule 415 and shall keep the Registration
Statement filed in respect thereof effective for a period which shall terminate
on the earlier of (i) six months from the date on which the Commission declares
such Registration Statement effective, (ii) the date on which all Registrable
Securities covered by such Registration Statement have been sold pursuant to
such Registration Statement or (iii) the expiration of the Demand Period.
(b) Effective Registration. A registration will not be deemed to have
----------------------
been effected as a Demand Registration unless it has been declared effective by
the Commission and the Company has complied in all material respects with its
obligations under this Agreement with respect thereto; provided that if after
--------
such Demand Registration has become effective, the offering of Registrable
Securities pursuant to such registration is or becomes the subject of any stop
order, injunction or other order or requirement of the Commission or any other
governmental or administrative agency, or if any court prevents or otherwise
limits the sale of Registrable Securities pursuant to the registration (for any
reason other than the acts or omissions of the Holders), such registration will
be deemed not to have been effected. If (i) a registration requested pursuant
to this Section 2.1 is deemed not to have been effected or (ii) the registration
requested pursuant to this Section 2.1 does not remain effective for a period of
at least 120 days, or six months with respect to a "shelf" registration, beyond
the effective date thereof, then such registration statement shall not count as
the Demand Registration(s) that may be requested by the Holder(s).
The Demanding Holder(s) may withdraw all or any part of the
Registrable Securities from a Demand Registration at any time (whether before or
after the filing or effective date of such Demand Registration), and if all such
Registrable Securities are withdrawn, to withdraw the demand related thereto.
If at any time a Registration Statement is filed pursuant to a Demand
Registration, and subsequently a sufficient number of Registrable Securities are
withdrawn from the Demand Registration so that such Registration Statement does
not cover at least the required amounts specified by Section 2.1(a), and an
additional number of Registrable Securities is not so included, the Company may
(or shall, if requested by the Demanding
-3-
<PAGE>
Holder(s)) withdraw the Registration Statement, provided that if the Demanding
Holder(s) bear the expenses associated with such withdrawn Registration
Statement, such Registration Statement will not count as a Demand
Registration(s) and the Company shall continue to be obligated to effect a
registration(s) pursuant to this Section 2.1. If the Demanding Holder(s)
determine to bear such expenses, such expenses shall be borne by the Demanding
Holder whose withdrawal of Registrable Securities resulted in such Registration
Statement not covering the specified required amounts.
(c) Selection of Underwriter. During the period commencing on the
------------------------
Closing Date and ending 24 months thereafter, if a Holder so elects, the
offering of Registrable Securities pursuant to a Demand Registration shall be in
the form of an underwritten offering. The Company shall select one or more
nationally recognized investment banking firms to act as the book-running
managing Underwriter or Underwriters in connection with such offering and shall
select any additional investment bankers and managers to be used in connection
with the offering, subject to the approval of the Demanding Holder.
Section 2.2 Piggy-Back Registration. If at any time the Company
-----------------------
proposes to file a Registration Statement under the Securities Act with respect
to an offering of equity securities by the Company for its own account or for
the account of any security holders of any class of its equity securities (other
than (i) a registration statement on Form S-4 or S-8 (or any substitute form
that may be adopted by the Commission) or (ii) a registration statement filed in
connection with an exchange offer or offering of securities solely to the
Company's existing securityholders), including a Registration Statement
relating to a Demand Registration, then the Company shall give written notice of
such proposed filing to the Holder(s) as soon as practicable (but in no event
less than 20 days before the anticipated filing date), and such notice shall
offer the Holder(s) the opportunity to register such number of shares of
Registrable Securities as the Holder(s) may request (which request shall specify
the Registrable Securities intended to be disposed of by such Holder and the
intended method of distribution thereof) (a "Piggy-Back Registration").
The Company shall use its best efforts to cause the managing
Underwriter or Underwriters of a proposed underwritten offering to permit the
Registrable Securities requested by the Holder(s) thereof to be included in a
Piggy-Back Registration (the "Piggy-Back Holders") to be included on the same
terms and conditions as any similar securities of the Company or any other
securityholder included therein and to permit the sale or other disposition of
such Registrable Securities in accordance with the intended method of
distribution thereof. Any Holder shall have the right to withdraw its request
for inclusion of its Registrable Securities in any registration statement
pursuant to this Section 2.2 by giving written notice to the Company of its
request to withdraw. Subject to the provisions of Section 2.1, the Company may
withdraw a Registration Statement for its own account at any time prior to the
time it becomes effective, provided that the Company shall reimburse the Piggy
--------
Back Holders for all reasonable out-of-pocket expenses (including counsel fees
and expenses) incurred prior to such withdrawal.
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<PAGE>
No registration effected under this Section 2.2, and no failure to
effect a registration under this Section 2.2, shall relieve the Company of its
obligations pursuant to Section 2.1, and no failure to effect a registration
under this Section 2.2 and to complete the sale of Shares in connection
therewith shall relieve the Company of any other obligation under this Agreement
(including, without limitation, the Company's obligations under Sections 3.2 and
5.1).
Section 2.3 Reduction of Offering.
---------------------
(a) Demand Registration. The Company may include in a Demand
-------------------
Registration Shares for the account of the Company and Shares for the account of
other holders thereof exercising contractual piggyback rights, on the same terms
and conditions as the Registrable Securities to be included therein for the
account of the Demanding Holder(s); provided, however, that (i) if the managing
--------
Underwriter or Underwriters of any underwritten offering described in Section
2.1 have informed the Company in writing that it is their opinion that the total
number of Shares which the Demanding Holder(s), the Company, and any such other
holders intend to include in such offering is such as to materially and
adversely affect the success of such offering, then (x) the number of Shares to
be offered for the account of such other holders shall be reduced (to zero, if
necessary), in the case of this clause (x) pro rata in proportion to the
--- ----
respective number of Shares requested to be registered and (y) thereafter, if
necessary, the number of Shares to be offered for the account of the Company (if
any) shall be reduced (to zero, if necessary), to the extent necessary to reduce
the total number of Shares requested to be included in such offering to the
number of Shares, if any, recommended by such managing Underwriters (and if the
number of Shares to be offered for the account of each such Person has been
reduced to zero, and the number of Shares requested to be registered by the
Demanding Holder(s) exceeds the number of Shares recommended by such managing
Underwriters, then the number of Shares to be offered for the account of the
Demanding Holder(s) shall be reduced to the extent necessary to reduce the total
number of Shares requested to be included in such offering to the number of
Shares, if any, recommended by such managing Underwriters, and in the case of a
reduction where both Demand Registrations have been exercised, such reduction
shall be pro rata in proportion to the respective number of Shares requested to
be registered by the Demanding Holders), and (ii) if the offering is not
underwritten, no other party (other than Piggy-Back Holders and any other
holders exercising contractual piggyback rights), including the Company, shall
be permitted to offer securities under any such Demand Registration unless a
majority of the Shares held by the Demanding Holder(s) consent to the inclusion
of such shares therein.
(b) Piggy-Back Registration.
-----------------------
(i) Notwithstanding anything contained herein, if the managing
Underwriter or Underwriters of any underwritten offering described in Section
2.2 have informed, in writing, the Piggy-Back Holders that it is their opinion
that the total number of Shares that the Company and any other Persons desiring
to participate in such registration intend
-5-
<PAGE>
to include in such offering is such as to materially and adversely affect the
success of such offering, then the number of Shares to be offered for the
account of the Piggy-Back Holders and all such other Persons (other than the
Company) participating in such registration shall be reduced (to zero, if
necessary) or limited pro rata in proportion to the respective number of Shares
--- ----
requested to be registered to the extent necessary to reduce the total number of
Shares requested to be included in such offering to the number of Shares, if
any, recommended by such managing Underwriters; provided, however, that (A) if
-------- -------
such offering is effected for the account of an Apollo Holder (as defined in the
Registration Rights Agreement dated November 4, 1997 between Paragon and the
signatories thereto (the "Apollo Registration Rights Agreement")) or transferee
of an Apollo Holder, then (x) the number of Shares to be offered for the account
of all holders other than parties to the Apollo Registration Rights Agreement
shall be reduced (to zero, if necessary), in the case of this clause (x) pro
---
rata in proportion to the respective number of Shares requested to be
- ----
registered, (y) thereafter, if necessary, the number of Shares to be offered for
the account of the Company (if any) shall be reduced (to zero, if necessary), to
the extent necessary to reduce the total number of Shares requested to be
included in such offering to the number of Shares, if any, recommended by such
managing Underwriters and (z) thereafter, if necessary, the shares to be offered
for the accounts of the parties to the Apollo Registration Rights Agreement
shall be cut back as provided in such agreement; (B) if such offering is
effected for the account of any other security holder of the Company, pursuant
to the demand registration rights of such securityholder, then (x) the number of
Shares to be offered for the account of a Holder and any other holders that have
requested to include Shares in such registration (but not such securityholders
who have exercised their demand registration rights) shall be reduced (to zero,
if necessary), in the case of this clause (x) pro rata in proportion to the
--- ----
respective number of Shares requested to be registered and (y) thereafter, if
necessary, the number of Shares to be offered for the account of the Company (if
any) shall be reduced (to zero, if necessary), to the extent necessary to reduce
the total number of Shares requested to be included in such offering to the
number of Shares, if any, recommended by such managing Underwriters.
(ii) If the managing Underwriter or Underwriters of any underwritten
offering described in Section 2.2 notify the Piggy-Back Holders or other Persons
requesting inclusion in such offering that the kind of securities that the
Piggy-Back Holders, the Company or any other Persons desiring to participate in
such registration intend to include in such offering is such as to materially
and adversely affect the success of such offering, then the Shares to be
included in such offering by the Piggy-Back Holders shall be reduced as
described in clause (i) above or if such reduction would, in the judgment of the
managing Underwriter or Underwriters, be insufficient to substantially eliminate
the adverse effect that inclusion of the Shares requested to be included would
have on such offering, such Shares will be excluded from such offering.
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<PAGE>
ARTICLE III
REGISTRATION PROCEDURES
Section 3.1 Filings; Information. Whenever the Company is required
--------------------
to effect or cause the registration of Registrable Securities pursuant to
Section 2.1, the Company will use its best efforts to effect the registration
and the sale of such Registrable Securities in accordance with the intended
method of disposition thereof as quickly as practicable, and in connection with
any such request:
(a) The Company will as expeditiously as possible prepare and file
with the Commission a Registration Statement on any form for which the Company
then qualifies or which counsel for the Company shall deem appropriate and which
form shall be available for the sale of the Registrable Securities to be
registered thereunder in accordance with the intended method of distribution
thereof, and use its best efforts to cause such filed Registration Statement to
become and remain effective for a period of not less than 120 days, or six
months with respect to a "shelf" registration (or such shorter period as is
required to complete the distribution of the shares); provided that the Company
--------
may postpone the filing of a Registration Statement for a period of not more
than 90 days from the date of receipt of the request in accordance with Section
2.1 if the Company reasonably determines that such a filing would adversely
affect any proposed financing or acquisition by the Company and furnishes to the
Demanding Holder a certificate signed by an executive officer of the Company to
such effect; provided that the Company shall only be entitled to postpone any
such filing one time in any twelve-month period. If the Company postpones the
filing of a Registration Statement, it shall promptly notify the Demanding
Holder in writing when the events or circumstances permitting such postponement
have ended.
(b) The Company will as expeditiously as possible prepare and file
with the Commission such amendments and supplements to such Registration
Statement and the Prospectus used in connection therewith as may be necessary to
keep such Registration Statement continuously effective (subject to the second
to last paragraph of this Section 3.1) for a period of not less than 120 days,
or six months with respect to a "shelf" registration, or such shorter period
which will terminate when all securities covered by such Registration Statement
have been sold (but not before the expiration of the 90-day period referred to
in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable)
and comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement during such
period in accordance with the intended methods of disposition by each Selling
Holder thereof set forth in such Registration Statement.
(c) The Company will, prior to filing a Registration Statement or
Prospectus or any amendment or supplement thereto (including documents that
would be incorporated or deemed to be incorporated therein by reference),
furnish to each Selling Holder, counsel representing such Selling Holder, and
each Underwriter, if any, of the Registrable
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<PAGE>
Securities covered by such Registration Statement copies of such Registration
Statement as proposed to be filed, together with exhibits thereto, which
documents will be subject to review and comment by the foregoing within five
days after delivery, and thereafter furnish to such Selling Holder, counsel and
Underwriter, if any, for their review and comment such number of copies of such
Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto and documents incorporated by reference therein),
the Prospectus included in such Registration Statement and such other documents
or information as such Selling Holder, counsel or Underwriter may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Selling Holder.
(d) After the filing of the Registration Statement, the Company will
promptly notify each Selling Holder, (i) when a Prospectus or any supplement
thereto or post-effective amendment has been filed and, with respect to a
Registration Statement or any post-effective amendment, when the same has become
effective, (ii) of any request by the Commission or any other federal or state
governmental authority for amendments or supplements to a Registration Statement
or related Prospectus or for additional information, (iii) of the issuance by
the Commission or any other federal or state governmental authority of any stop
order suspending the effectiveness of a Registration Statement or the initiation
of any proceedings for that purpose, (iv) if at any time when a Prospectus is
required by the Securities Act to be delivered in connection with sales of the
Registrable Securities, the representations and warranties of the Company
contained in any agreement contemplated by Section 3.1(h) (including any
underwriting agreement) cease to be true and correct in all material respects,
(v) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (vi) of the happening of any
event which makes any statement made in such Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or which requires the making of any
changes in a Registration Statement, Prospectus or documents incorporated
therein by reference so that, in the case of the Registration Statement, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of 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, and (vii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be necessary.
(e) The Company will use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as the Selling Holders reasonably (in light
of the Selling Holder's intended plan of distribution) request, and (ii) cause
such Registrable Securities to be registered with or approved by such other
governmental agencies or authorities in the United States as may be necessary by
virtue of the business and operations of the Company and do any and all other
acts and things
-8-
<PAGE>
that may be reasonably necessary or advisable to enable the Selling Holders to
consummate the disposition of the Registrable Securities owned by such Selling
Holders; provided that the Company will not be required to (A) qualify generally
--------
to do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (e), (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in any such
jurisdiction.
(f) The Company will take all reasonable actions required to prevent
the entry, or obtain the withdrawal, of any order suspending the effectiveness
of a Registration Statement, or the lifting of any suspension of the
qualification (or exemption from qualification) of any Registrable Securities
for sale in any jurisdiction, at the earliest moment.
(g) Upon the occurrence of any event contemplated by paragraph
3.1(d)(vi) or 3.1(d)(vii) above, the Company will (i) prepare a supplement or
post-effective amendment to such Registration Statement or a supplement to the
related Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers of
the Registrable Securities being sold thereunder, such Prospectus will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (ii)
promptly make available to each Selling Holder any such supplement or amendment.
(h) The Company will enter into customary agreements (including, if
applicable, an underwriting agreement in customary form and which is reasonably
satisfactory to the Company) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities (the Selling Holders may, at their option, require that any or all of
the representations, warranties and covenants of the Company to or for the
benefit of such Underwriters also be made to and for the benefit of such Selling
Holders).
(i) The Company will make available to each Selling Holder (and will
deliver to his counsel) and each Underwriter, if any, subject to restrictions
imposed by the United States federal government or any agency or instrumentality
thereof, copies of all correspondence between the Commission and the Company,
its counsel or auditors and will also make available for inspection by any
Selling Holder, any Underwriter participating in any disposition pursuant to
such Registration Statement and any attorney, accountant or other professional
retained by any such Selling Holder or Underwriter, all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers
and employees to supply all information reasonably requested by any inspectors
in connection with such Registration Statement. Each Selling Holder agrees that
information obtained by it solely as a result of such inspections (not including
any information obtained from a third party who, insofar as is known to the
Investor after reasonable inquiry, is not prohibited from providing such
information by a contractual, legal or fiduciary obligation to the Company)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions in
-9-
<PAGE>
the securities of the Company or its Affiliates unless and until such
information is made generally available to the public. Each Selling Holder
further agrees that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, to the extent permitted by such court, at the Company's
expense, to undertake appropriate action to prevent disclosure of the Records
deemed confidential.
(j) The Company will furnish to each Selling Holder and to each
Underwriter, (i) an opinion or opinions of counsel to the Company, and (ii) a
comfort letter or comfort letters from the Company's independent public
accountants, each in customary form and covering such matters of the type
customarily covered by opinions or comfort letters, as the case may be, as the
Selling Holders or the managing Underwriter therefor reasonably requests.
(k) In connection with an underwritten offering, the Company will
participate, to the extent reasonably requested by the managing Underwriter for
the offering or the Selling Holders, in customary efforts to sell the securities
under the offering, including, without limitation, participating in "road
shows."
The Company may require each Selling Holder to promptly furnish in
writing to the Company such information regarding the distribution of the
Registrable Securities by the Selling Holder as the Company may from time to
time reasonably request and such other information as may be legally required in
connection with such registration including, without limitation, all such
information as may be requested by the Commission or the NASD. The Company may
exclude from such registration any Holder who fails, after twenty (20) days'
written notice of this requirement, to provide such information.
Each Selling Holder agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections
3.1(d)(iii), (v), (vi) and (vii) hereof, such Selling Holder will forthwith
discontinue disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Selling Holder's
receipt of the copies of the supplemented or amended Prospectus contemplated by
Section 3.1(g) hereof, and, if so directed by the Company, such Selling Holder
will deliver to the Company all copies, other than permanent file copies, then
in such Selling Holder's possession of the most recent Prospectus covering such
Registrable Securities at the time of receipt of such notice. In the event the
Company shall give such notice, the Company shall extend the period during which
such Registration Statement shall be maintained effective (including the period
referred to in Section 3.1(a) hereof) by the number of days during the period
from and including the date of the giving of notice pursuant to Section
3.1(d)(iii), (v), (vi) or (vii) hereof to the date when the Company shall make
available to the Selling Holders a Prospectus supplemented or amended to conform
with the requirements of Section 3.1(g) hereof.
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<PAGE>
In connection with any registration of Registrable Securities pursuant
to Section 2.2, the Company will take the actions contemplated by paragraphs
(c), (d), (e), (i) and (j) above.
Section 3.2 Registration Expenses. In connection with the Demand
---------------------
Registrations pursuant to Section 2.1 hereof, and any Registration Statement
filed pursuant to Section 2.2 hereof, the Company shall pay the following
registration expenses incurred in connection with the registration hereunder
(the "Registration Expenses"): (i) all registration and filing fees, (ii) fees
and expenses of compliance with securities or blue sky laws (including
reasonable fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) printing expenses, (iv) the
Company's internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties)
and all fees and expenses incident to the performance of or compliance with this
Agreement by the Company, (v) the fees and expenses incurred in connection with
the listing of the Registrable Securities, (vi) reasonable fees and
disbursements of counsel for the Company and customary fees and expenses for
independent certified public accountants retained by the Company (including the
expenses of any comfort letters or costs associated with the delivery by
independent certified public accountants of a comfort letter or comfort
letters), (vii) the reasonable fees and expenses of any special experts retained
by the Company in connection with such registration, and (viii) reasonable fees
and expenses of one firm of counsel for the Holder(s), (together with necessary
local counsel fees and expenses), which counsel shall be chosen by the
Holder(s). The Company shall have no obligation to pay any underwriting fees,
discounts or commissions attributable to the sale of Registrable Securities.
Section 3.3 Financial Statements. Anything in this Article III to the
--------------------
contrary notwithstanding, the Company shall not be obligated to effect any
registration pursuant to Section 2.1 if such registration would require the
Company (i) to furnish any financial statements other than as of the end of a
fiscal quarter or (ii) to furnish any certified financial statements other than
as of the end of a fiscal year unless the Demanding Holder agrees to bear the
expenses of furnishing such financial statements.
ARTICLE IV
TRANSFER
Section 4.1 Transfer of Registrable Securities and Legend.
---------------------------------------------
(a) Each Holder acknowledges that the Registrable Securities will not
be, except as otherwise provided herein, registered under the Securities Act,
and each Holder agrees, until such Registrable Securities are registered, not to
offer, sell, pledge or otherwise dispose of any Registrable Securities or any
interest therein, unless done pursuant to the terms contained in this Article
IV.
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<PAGE>
(b) Each Holder acknowledges that each certificate representing
Registrable Securities shall bear the following legend:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE BLUE SKY LAWS OF ANY STATE AND MAY NOT BE
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO A REGISTRATION
STATEMENT UNDER SAID ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
THEREUNDER. TRANSFER OF THIS SECURITY IS ALSO SUBJECT TO RESTRICTIONS
CONTAINED IN THAT CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF
____________, 1998, AMONG THE ISSUER HEREOF AND A SHAREHOLDER OF THE
ISSUER."
In the event any of the Registrable Securities are registered under the
Securities Act, the legends set forth in this subsection (b) shall be removed
from the certificates representing such Registrable Securities, and the Company
shall promptly, after presentation by the Holder of any certificates held by it,
cause its transfer agent to issue new certificates without such legends;
provided, however, that if such Registrable Securities are not sold or otherwise
- -------- -------
transferred by the Holder holding such certificates substantially in accordance
with the plan of distribution set forth in the registration statement and during
the time period that the registration statement with respect thereto is
effective under the Securities Act, the Holder shall surrender the certificates
without such legend to the Company and shall receive in exchange therefor
replacement certificates containing the legend set forth above. In addition, if
any Registrable Securities shall be saleable at any time without restriction
under the Securities Act, and the Company receives an opinion of the Holder's
counsel to such effect, with which the Company's counsel reasonably agrees, the
Company shall promptly, after presentation of certificates for such Registrable
Securities by the Holder, issue new certificates without the legend required by
this Section 4.1; provided, however, that no such opinion shall be required with
-------- -------
respect to Registrable Securities that are eligible for sale under paragraph (k)
of Rule 144 or any similar or successor rule.
Section 4.2 Transfer Procedure. Each of the Holders will not sell,
------------------
pledge, transfer or otherwise dispose of any Registrable Securities, other than
a transfer pursuant to Rule 144, until the same shall have been registered under
the Securities Act pursuant to Article II or the Company shall have received the
following: (i) written notice describing in reasonable detail the proposed sale,
pledge, transfer or other disposition, (ii) a legal opinion in form and
substance reasonably satisfactory to the Company, to the effect that the
proposed sale, pledge, transfer or other disposition may be legally effected
without registration under the Securities Act; and (iii) such supporting
documents and supplementary assurances, if any, as the Company reasonably and
promptly may request in order to assure compliance with the Securities Act.
Upon receipt by the Company of any such notice and opinion, and any information
reasonably requested in connection therewith, the Holder shall
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<PAGE>
thereupon be entitled to transfer such Registrable Securities in accordance with
the terms of the notice delivered by the Holder to the Company, subject to the
requirements of Section 4.3. Each certificate evidencing the Registrable
Securities issued upon the transfer of any such Registrable Securities (and each
certificate evidencing any untransferred balance of such Registrable Securities)
shall bear the legend set forth in Section 4.1(b) unless in the opinion of the
Company's counsel such legend is not necessary.
Section 4.3 Standstill Provisions. For a period of two (2) years
---------------------
from the date hereof, without the prior written consent of the Company, each
Holder, singly or as part of a "partnership, limited partnership, syndicate or
other group" (within the meaning of Section 13(d)(3) of the Exchange Act),
directly or indirectly, through one or more intermediaries or otherwise, will
not, and will cause each of its Affiliates and Associates (as defined in Rule
12b-2 of the General Rules and Regulations under the Exchange Act) not to:
(a) purchase, acquire or own (of record or beneficially), or offer or
agree to purchase, acquire or own (of record or beneficially), any Shares if,
after giving effect to such purchase or acquisition, the Holder, together with
its Affiliates and Associates, would own (of record or beneficially) more than
5% of the outstanding Shares.
(b) (i) make, or in any way participate in, encourage, or support
directly or indirectly, any "solicitation" of "proxies" (as such terms are
defined or used in Regulation 14A promulgated pursuant to the Exchange Act) or
become a "participant" or "participant in a solicitation" (as such terms are
defined or used in Rule 14a-11 promulgated pursuant to the Exchange Act) with
respect to the Company, (ii) seek to advise or influence any third person
(within the meaning of Section 13(d)(3) of the Exchange Act) with respect to the
voting of any Shares, (iii) call or seek to call, directly or indirectly, any
special meeting of stockholders of the Company for any reason whatsoever, (iv)
seek, request, or take any action to obtain or retain, directly or indirectly,
any list of holders of any Shares, or (v) assist or encourage any attempt by any
other person to do or seek any of the foregoing; provided, however, that nothing
-------- -------
herein shall restrict the ability of the Holder to vote the Registrable
Securities in its discretion, subject at all time to compliance with the
provisions of this Agreement.
(c) initiate, propose or otherwise solicit holders of Shares for the
approval of one or more stockholder proposals with respect to the Company as
described in Rule 14a-8 promulgated pursuant to the Exchange Act; or
(d) directly or indirectly participate in or encourage the formation
of any "group" (within the meaning of Section 13(d)(3) of the Exchange Act)
which owns or seeks to acquire beneficial ownership of Shares.
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<PAGE>
ARTICLE V
INDEMNIFICATION AND CONTRIBUTION
Section 5.1 Indemnification by the Company. The Company agrees to
------------------------------
indemnify and hold harmless each Selling Holder, any Underwriter and each
Person, if any, who controls such Selling Holder or Underwriter within the
meaning of the Securities Act or the Exchange Act, from and against any loss,
claim, damage, liability, reasonable attorneys' fee, cost or expense and costs
and expenses of investigating and defending any such claim (collectively, the
"Damages"), joint or several, and any action in respect thereof to which any
such Selling Holder, Underwriter or control person may become subject under the
Securities Act, Exchange Act or otherwise, insofar as such Damages (or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus relating to the Registrable Securities or
any preliminary Prospectus, or arises out of, or are based upon, 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, except insofar as
the same are based upon information furnished in writing to the Company by a
Selling Holder or Underwriter expressly for use therein, and shall reimburse
each Selling Holder for any legal and other expenses reasonably incurred by the
Selling Holder in investigating or defending or preparing to defend against any
such Damages or proceedings; provided, however, that the Company shall not be
-------- -------
liable to a Selling Holder to the extent that any such Damages arise out of or
are based upon an untrue statement or omission in any Prospectus if (x) such
untrue statement or omission is corrected in an amendment or supplement to such
Prospectus, and (y) having previously been furnished by or on behalf of the
Company with copies of such Prospectus as so amended or supplemented, the
Selling Holder thereafter fails to deliver such Prospectus as so amended or
supplemented prior to or concurrently with the sale of a Registrable Security to
the Person asserting the claim from which such Damages arise. The Company also
agrees to indemnify any Underwriters of the Registrable Securities, their
officers and directors and each Person who controls such Underwriters on
substantially the same basis as that of the indemnification provided to the
Selling Holder under Section 5.1.
Section 5.2 Indemnification by Selling Holder. Each Selling Holder
---------------------------------
agrees to indemnify and hold harmless the Company, its officers, directors,
employees and agents and each Person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, together with the
partners, officers, directors, employees and agents of such controlling Person,
from and against Damages, joint or several, in so far as such Damages (or
proceedings in respect thereof) arise out of, or are based upon, any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus relating to the Registrable Securities or
any preliminary Prospectus, or arises out of, or are based upon, 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, if and only to the
extent that the same are based solely upon information furnished in writing to
the Company by the Selling Holder expressly for use therein. Each Selling
Holder also agrees to indemnify and hold harmless
-14-
<PAGE>
each other Selling Holder and any Underwriters of the Registrable Securities,
and their respective officers and directors and each Person who controls each
such other Selling Holder or Underwriter on substantially the same basis as that
of the indemnification provided to the Company under this Section 5.2. The
Company shall be entitled to receive indemnities from Underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above, with
respect to information so furnished in writing by such Persons specifically for
inclusion in any Prospectus or Registration Statement. In no event shall the
liability of each Selling Holder be greater in amount than the dollar amount of
the proceeds (net of payment of all expenses) received by each Selling Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation.
Section 5.3 Conduct of Indemnification Proceedings. Promptly after
--------------------------------------
receipt by any Person in respect of which indemnity may be sought pursuant to
Section 5.1 or 5.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the Person against whom such indemnity may be
sought (an "Indemnifying Party") notify the Indemnifying Party in writing of the
claim or the commencement of such action, provided that the failure to notify
--------
the Indemnifying Party shall not relieve it from any liability except to the
extent of any material prejudice resulting therefrom. If any such claim or
action shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party; provided, that the
--------
Indemnifying Party acknowledges, in a writing in form and substance reasonably
satisfactory to such Indemnified Party, such Indemnifying Party's liability for
all Damages of such Indemnified Party to the extent specified in, and in
accordance with, this Article V. After notice from the Indemnifying Party to
the Indemnified Party of its election to assume the defense of such claim or
action, the Indemnifying Party shall not be liable to the Indemnified Party for
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided that the Indemnified Party shall have the right to
--------
employ separate counsel to represent the Indemnified Party and its controlling
Persons who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Indemnified Party against the Indemnifying
Party, but the fees and expenses of such counsel shall be for the account of
such Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or (ii) in the
reasonable judgment of such Indemnified Party, representation of both parties by
the same counsel would be inappropriate due to actual or potential conflicts of
interest between them, it being understood, however, that the Indemnifying Party
shall not, in connection with any one such claim or action or separate but
substantially similar or related claims or actions in the same jurisdiction
arising out of the same general allegations or claims, be liable for the fees
and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all Indemnified Parties, or for fees
and expenses that are not reasonable. No Indemnifying Party shall, without the
prior written
-15-
<PAGE>
consent of the Indemnified Party, effect any settlement of any claim or pending
or threatened proceeding in respect of which the Indemnified Party is or could
have been a party and indemnity could have been sought hereunder by such
Indemnified Party, unless such settlement includes an unconditional release of
such Indemnified Party from all liability arising out of such claim or
proceeding. Whether or not the defense of any claim or action is assumed by the
Indemnifying Party, such Indemnifying Party will not be subject to any liability
for any settlement made without its consent, which consent will not be
unreasonably withheld.
Section 5.4 Contribution. If the indemnification provided for in
------------
this Article V is unavailable to the Indemnified Parties in respect of any
Damages referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Damages (i) as between the
Company on the one hand and the Underwriters on the other, in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company on the one hand and of the Underwriters on the
other in connection with the statements or omissions which resulted in such
Damages, as well as any other relevant equitable considerations, (ii) as between
the Company on the one hand and the Selling Holders on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
the Selling Holders in connection with such statements or omissions, as well as
any other relevant equitable considerations, and (iii) as between the
Underwriters on the one hand and the Selling Holders on the other, in such
proportion as is appropriate to reflect the relative fault of the Underwriters
on the one hand and the Selling Holders on the other in connection with the
statements or omissions which resulted in such Damages, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and Commissions but before deducting expenses) received
by the Company or the Underwriters. The relative fault of the Company, the
Selling Holders and of the Underwriters shall be respectively 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 each and by the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Selling Holders shall be at fault with respect to an
untrue or alleged untrue statement of material fact or the omission or alleged
omission to state a material fact only to the extent the same are based solely
upon information furnished in writing to the Company expressly for use in the
Registration Statement.
The Company and the Selling Holders agree that it would not be just
and equitable if contribution pursuant to this Section 5.4 were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a
-16-
<PAGE>
result of the Damages referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5.4, no Underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and no Selling Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Selling Holder were offered to
the public (less underwriting discounts and commissions) exceeds the amount of
any damages which the Selling Holders have otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations
contained in this Article V are in addition to any liability any Indemnifying
Party may otherwise have to an Indemnified Party or otherwise. The provisions
of this Article V shall survive, notwithstanding any termination of this
Agreement.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.1 Representations and Warranties of Investor. Each Holder
------------------------------------------
hereby represents and warrants to the Company as follows:
(a) The Holder understands that the Registrable Securities will be,
until registered, "restricted securities" as defined in Rule 144 promulgated
under the Securities Act ("Rule 144").
(b) This Agreement is made with the Holder in reliance upon the
Holder's representations and warranties to the Company that the Registrable
Securities received by the Holder will be acquired for investment for the
Holder's own account, and not with a view to the resale or distribution of any
part thereof, and that the Holder has no present intention of selling, granting
participations in, or otherwise distributing the same. By executing this
Agreement, the Investor further represents and warrants that the Holder does not
have presently any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to any such person, or to any
third person, with respect to any Registrable Securities.
(c) The Holder understands that the Registrable Securities will not
be registered under the Securities Act and will be exempt from registration
pursuant to Section 4(2) thereof, and that the Company's reliance on such
exemption is predicated in part on each of the Holder's
-17-
<PAGE>
representations and warranties set forth herein.
(d) The Holder is experienced in evaluating and investing in
securities issued by companies such as the Company, is able to fend for itself
in the transactions contemplated by this Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of the Holder's investment, and has the ability to bear the
economic risks of the Holder's investment. The Holder further represents and
warrants that the Holder has had, during the course of this transaction and
prior to the issuance of the Registrable Securities, the opportunity to ask
questions of, and receive answers from, the Company and its management and to
obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to the Holder or
to which the Holder had access. Without limiting the generality of the
foregoing, the Holder acknowledges that it has received a copy of all of the SEC
Reports (as defined below).
Section 6.2 Representations and Warranties of the Company. The
---------------------------------------------
Company hereby represents and warrants to each Holder as follows:
(a) The Registrable Securities have been duly authorized and are
validly issued, fully paid, nonassessable and free of preemptive rights.
(b) Exhibit A hereto sets forth a list of each registration
---------
statement, report, proxy statement or other filings filed by the Company with
the Commission, accurate and complete copies of which have been delivered to the
Holders, other than registration statements on Form S-8. The Company has filed
all registration statements, proxy statements, reports and other filings and all
amendments thereto which it was required to file with the Commission. As of its
date, none of said filings contained any untrue statement of a material fact or
omitted any material fact necessary to make the statements therein not
misleading, except to the extent any such statement or omission has been
modified or superseded in a document subsequently filed with the appropriate
authority.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Participation in Underwritten Registrations. No Person
-------------------------------------------
may participate in any underwritten registration hereunder unless such Person
(a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements in form consistent with the rights granted to Holders, and (b)
completes and executes all questionnaires, indemnities, underwriting agreements
and other documents reasonably required under the terms of such underwriting
arrangements and these registration rights; provided that (i) no Selling Holder
--------
shall be required to make any representations or warranties except those which
relate solely to such Holder and its intended method of distribution, and (ii)
the liability of each such Holder to any Underwriter
-18-
<PAGE>
under such underwriting agreement will be limited to liability arising from
misstatements or omissions regarding such Holder and its intended method of
distribution and any such liability shall not exceed an amount equal to the
amount of net proceeds any Holder derives from such registration.
Section 7.2 Rules 144 and 144A. The Company covenants that it will
------------------
file any reports required to be filed by it under the Securities Act and the
Exchange Act and that it will take such further action as any Holder may
reasonably request, all to the extent required from time to time to enable
Holders to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 or Rule
144A under the Securities Act, as such Rules may be amended from time to time,
or (b) any similar rule or regulation hereafter adopted by the Commission. Upon
the request of any Holder, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
Section 7.3 Holdback Agreements.
-------------------
(a) Restrictions on Public Sale by Holder of Registrable Securities.
---------------------------------------------------------------
Provided each Holder has received adequate prior written notice thereof, each
such Holder agrees not to effect any public sale or distribution of the issue
being registered or of a similar security of the Company, or any securities
convertible into or exchangeable or exercisable for such securities, including a
sale pursuant to Rule 144 or Rule 144A under the Securities Act, during the 14
days prior to, and during the 90-day period beginning on, the effective date of
any registration statement (other than on Form S-4 or S-8) filed by the Company
(except as part of such registration), in the case of an underwritten public
offering, if, and to the extent, requested in writing by the managing
Underwriter or Underwriters.
(b) Restrictions on Sale by the Company and Others. The Company
----------------------------------------------
agrees and shall use its commercially reasonable best efforts to cause its
Affiliates to agree (i) not to effect any public sale or distribution of any
securities similar to those being registered in accordance with Section 2.1
hereof, or any securities convertible into or exchangeable or exercisable for
such securities, during the 14 days prior to, and during the 90-day period
beginning on, the effective date of any Registration Statement (except as part
of such Registration Statement), in the case of an underwritten offering, if,
and to the extent, reasonably requested by the managing Underwriter or
Underwriters, and (ii) to use its best efforts to ensure that any agreement
entered into after the date hereof pursuant to which the Company issues or
agrees to issue any privately placed securities (other than to officers or
employees) shall contain a provision under which holders of such securities
agree not to effect any sale or distribution of any such securities during the
periods described in (i) above, in each case including a sale pursuant to Rule
144 or Rule 144A under the Securities Act (except as part of any such
registration, if permitted); provided, however, that the provisions of this
-------- -------
paragraph (b) shall not prevent (x) the conversion or exchange of any securities
pursuant to their terms into or for other securities or (y) the issuance of any
securities to employees of the Company or pursuant to any employee plan.
-19-
<PAGE>
Section 7.4 Amendment and Modification. Any provision of this
--------------------------
Agreement may be waived, provided that such waiver is set forth in a writing
--------
executed by the party against whom the enforcement of such waiver is sought.
This Agreement may not be amended, modified or supplemented other than by a
written instrument signed by the parties hereto. No course of dealing between
or among any Persons having any interest in this Agreement will be deemed
effective to modify, amend or discharge any part of this Agreement or any rights
or obligations of any Person under or by reason of this Agreement.
Section 7.5 Successors and Assigns: Entire Agreement.
----------------------------------------
(a) This Agreement and all of the provisions hereof shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns and executors, administrators and heirs; provided, that
except as otherwise specifically permitted pursuant to this Agreement, neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned by the Company without the prior written consent of each Holder. In
the event that the Company engages in a merger or consolidation pursuant to
which the outstanding capital stock of the Company, including the Registrable
Securities, is converted into shares of another corporation, then in connection
with such merger or consolidation, the Company shall cause the issuer of such
shares to be bound by the terms of, and give substantive effect to the intent
of, this Agreement; thereafter, the terms "Registrable Securities" "Company"
and "Registration Statement" shall refer, respectively, to such shares received
by Holders in connection with such merger or consolidation, the issuer of such
shares, and a registration statement filed by such issuer (other provisions of
this Agreement and defined terms shall be given a meaning consistent with the
foregoing). The Holders shall be deemed to have consented to the assignment of
this Agreement upon assumption by the aforementioned issuer of this Agreement.
(b) This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and supersedes
all prior discussions, agreements and understandings of any and every nature
among them.
Section 7.6 Separability. In the event that any provision of this
------------
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
Section 7.7 Notices. All notices, demands, requests, consents or
-------
approvals (collectively, "Notices") required or permitted to be given hereunder
or which are given with respect to this Agreement shall be in writing and shall
be personally delivered or delivered by a reputable overnight courier service
with charges prepaid, or transmitted by hand delivery,
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<PAGE>
telegram, telex or facsimile, addressed as set forth below, or such other
address as such party shall have specified most recently by written notice.
Notice shall be deemed given or delivered on the date of service or transmission
if personally served or transmitted by telegram, telex or facsimile. Notice
otherwise sent as provided herein shall be deemed given or delivered on the next
business day following delivery of such notice to a reputable overnight courier
service.
To the Company:
Paragon Health Network, Inc.
One Ravinia Drive
Suite 1500
Atlanta, Georgia 30346
Attn: General Counsel
Fax: (770) 698.8199
To the Holders:
Rembert T. Cribb
474 South Beach Road
Hobe Sound, Florida 33455
Michael E. Fitzgerald
5675 Glen Errol Road
Atlanta, Georgia 30327
Section 7.8 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal law of the State of Georgia, without
giving effect to principles of conflicts of law.
Section 7.9 Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not constitute a part of this Agreement,
nor shall they affect their meaning, construction or effect.
Section 7.10 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be deemed to be an original
instrument and all of which together shall constitute one and the same
instrument.
Section 7.11 Further Assurances. Each party shall cooperate and take
------------------
such action as may be reasonably requested by another party in order to carry
out the provisions and purposes of this Agreement and the transactions
contemplated hereby.
Section 7.12 Termination. Unless sooner terminated in accordance
-----------
with its terms or as otherwise herein provided, this Agreement shall terminate
upon the earlier to occur
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<PAGE>
of (i) the mutual agreement by the parties hereto, (ii) the date on which the
Investor ceases to own any Registrable Securities or (iii) the termination of
the Demand Period, provided, however, that the indemnification provisions of
-------- -------
Article V and the expense provisions of Section 3.2 shall survive any such
termination and the provisions of Article IV shall terminate 24 months from the
date of this Agreement without regard to any earlier termination of this
Agreement.
Section 7.13 Remedies. In the event of a breach or a threatened
--------
breach by any party to this Agreement of its obligations under this Agreement,
any party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in
addition to being entitled to exercise all rights provided in this Agreement and
granted by law. The parties agree that the provisions of this Agreement shall
be specifically enforceable, it being agreed by the parties that the remedy at
law, including monetary damages, for breach of any such provision will be
inadequate compensation for any loss and that any defense or objection in any
action for specific performance or injunctive relief that a remedy at law would
be adequate is waived.
Section 7.14 Pronouns. Whenever the context may require, any
--------
pronouns used herein shall be deemed also to include the corresponding neuter,
masculine or feminine forms.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PARAGON HEALTH NETWORK, INC.
By: /s/ Jeff Taylor
---------------------------------
Name: R. Jeffrey Taylor
Title: Senior Vice President
Holders
/s/ Rembert T. Cribb
---------------------------------
Rembert T. Cribb
/s/ Michael E. Fitzgerald
---------------------------------
Michael E. Fitzgerald
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<PAGE>
EXHIBIT 4.10
SUPPLEMENTAL INDENTURE, dated as of September 11, 1998, by and between
MARINER HEALTH GROUP, INC., a Delaware corporation (the "Company"), and STATE
STREET BANK AND TRUST COMPANY, as trustee (the "Trustee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company and Trustee have heretofore executed and delivered an
Indenture, dated as of April 4, 1996 (the "Indenture"), providing for the
issuance of $150,000,000 in aggregate principal amount of 9-1/2% Senior
Subordinated Notes due 2006 (the "Securities") of the Company;
WHEREAS, Section 901 of the Indenture provides that the Company and the
Trustee may, without the consent of the Holders, the Guarantors (if any) or any
other obligor upon the securities, when authorized by a resolution of its Board
of Directors and when the interests of the Holders shall not be adversely
affected, enter into a supplemental indenture, in form and substance
satisfactory to the Trustee, for the purpose of amending the Indenture to
supplement any provisions with respect to matters arising under the Indenture;
WHEREAS, Section 1015 of the Indenture requires the Company, upon any Change
of Control, to offer to purchase the Securities from any Holder for cash at the
Change of Control Purchase Price and to purchase any Securities tendered
according to the terms of such offer;
WHEREAS, the Company wishes to amend Section 1015 of the Indenture to permit
the Company, upon a Change of Control, to either (1) purchase tendered
Securities for cash at the Change of Control Purchase Price or (2) cause a
person or entity other than the Company to purchase such Securities for cash at
the Change of Control Purchase Price at the option of the Company;
WHEREAS, the Company and the Trustee have determined that the interests of the
Holders will not be adversely affected by this Supplemental Indenture;
WHEREAS, the Company has been authorized by a resolution of its Board of
Directors to enter into this Supplemental Indenture;
WHEREAS, all other acts and proceedings required by law, by the Indenture and
by the certificate of incorporation (as amended to this date) and by-laws (as
amended to this date) of the Company to make this Supplemental Indenture a valid
and binding agreement for the purposes expressed herein, in accordance with its
terms, have been duly done and performed;
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and
<PAGE>
sufficiency of which is hereby acknowledged, and for the equal and proportionate
benefit of the Holders of the Securities, the Company and the Trustee hereby
agree as follows:
ARTICLE I.
Definitions.
-----------
Capitalized terms used in this Supplemental Indenture and not otherwise
defined herein shall have the meanings assigned to such terms in the Indenture.
ARTICLE II.
Section 1. Amendment of Section 101 (Definitions).
---------------------------------------
Section 101 of the Indenture is hereby amended by inserting the following new
definitions in their appropriate alphabetical order:
"`Alternate Transaction' shall have the meaning ascribed thereto in
---------------------
Section 1015 of this Indenture."
"`Company Transaction' shall have the meaning ascribed thereto in
-------------------
Section 1015 of this Indenture."
"`Designated Purchaser' shall have the meaning ascribed thereto in
--------------------
Section 1015 of this Indenture."
Section 2. Amendment of Section 1015 (Purchase of Securities Upon Change of
----------------------------------------------------------------
Control).
--------
The provisions of Section 1015 of the Indenture are hereby amended by deleting
the text of such Section 1015 in its entirety and inserting in lieu thereof the
following:
"Section 1015. Purchase of Securities upon a Change of Control.
-----------------------------------------------
(a) If a Change of Control shall occur at any time, then each Holder
shall have the right to require that the Company either (1) purchase (the
"Company Transaction") or (2) cause another person or entity designated by
the Company (the "Designated Purchaser") to purchase (the "Alternate
Transaction") such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price (the "Change of Control Purchase
Price") in cash in an amount equal to 101% of the principal amount of such
Securities, plus accrued and unpaid interest, if any, to the date of
purchase (the "Change of Control Purchase Date"), pursuant to the offer
described below in this Section 1015 (the "Change of Control Offer") and in
accordance with the other procedures set forth in Subsections (b), (c), (d)
and (e) of this Section 1015.
-2-
<PAGE>
(b) Within 30 days following any Change of Control, the Company shall
notify the Trustee thereof and give written notice (a "Change of Control
Purchase Notice") of such Change of Control to each Holder, by first-class
mail, postage prepaid, at his address appearing in the Security Register,
stating, among other things:
(1) that a Change of Control has occurred, the date of such
event, and that such Holder has the right to require the Company to
repurchase such Holder's Securities at the Change of Control Purchase
Price;
(2) the circumstances and relevant facts regarding such Change of
Control (including but not limited to information with respect to pro
forma historical income, cash flow and capitalization after giving
effect to such Change of Control);
(3) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the Company,
the most recent subsequently filed Quarterly Report on Form 10-Q, as
applicable, and any Current Report on Form 8-K of the Company filed
subsequent to such Quarterly Report (or in the event the Company is
not required to prepare any of the foregoing Forms, the comparable
information required to be prepared by the Company and any Guarantor
pursuant to Section 1018), (ii) a description of material
developments, if any, in the Company's business subsequent to the date
of the latest of such reports and (iii) such other information, if
any, concerning the business of the Company ,which the Company in good
faith believes will enable such Holders to make an informed investment
decision regarding the Change of Control Offer;
(4) that the Change of Control Offer is being made pursuant to
this Section 1015 and that all Securities properly tendered pursuant
to the Change of Control Offer will be accepted for payment at the
Change of Control Purchase Price;
(5) the Change of Control Purchase Date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act;
(6) the Change of Control Purchase Price;
(7) the names and addresses of the Paying Agent and the offices
or agencies referred to in Section 1002;
-3-
<PAGE>
(8) that Securities must be surrendered on or prior to the Change
of Control Purchase Date to the Paying Agent at the office of the
Paying Agent or to an office or agency referred to in Section 1002 to
collect payment;
(9) that the Change of Control Purchase Price for any Security
which has been properly tendered and not withdrawn will be paid
promptly following the Change of Control Offer Purchase Date;
(10) the procedures that a Holder must follow to accept a Change
of Control Offer or to withdraw such acceptance;
(11) that any Security not tendered will continue to accrue
interest; and
(12) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Securities accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date.
(c) Upon receipt by the Company of the proper tender of Securities, the
Holder of the Security in respect of which such proper tender was made shall
(unless the tender of such Security is properly withdrawn) thereafter be
entitled to receive solely the Change of Control Purchase Price with respect
to such Security. Upon surrender of any such Security for purchase in
accordance with the foregoing provisions, such Security shall be purchased
by, (a) with respect to each Company Transaction, the Company and, (b) with
respect to each Alternate Transaction, the Designated Purchaser, in each
case, at the Change of Control Purchase Price, provided, however, that
installments of interest whose Stated Maturity is on the Change of Control
Purchase Date shall be payable to the Holders of such Securities, or one or
more Predecessor Securities, registered as such on the relevant Regular
Record Dates according to the terms and the provisions of Section 309;
provided, further, that notwithstanding anything herein to the contrary, any
Security which is purchased by a Designated Purchaser shall continue to bear
interest at the rate born by the Security until paid in full in accordance
with the terms herein. If any Security tendered for purchase in accordance
with the provisions of this Section 1015 shall not be so paid or purchased
upon surrender thereof, the principal thereof (and premium, if any, thereon)
shall, until paid, bear interest from the Change of Control Purchase Date at
the rate borne by such Security. Holders electing to have Securities
purchased will be required to surrender such Securities to the Paying Agent
at the address specified in the Change of Control Purchase Notice at least
one Business Day prior to the Change of Control Purchase Date. Any Security
that is to be purchased only in part shall be surrendered to a Paying Agent
at the office of such Paying Agent (with, if the Company, the Security
Registrar or the Trustee so requires, due endorsement by, or a written
-4-
<PAGE>
instrument of transfer in form satisfactory to the Company and the Security
Registrar or the Trustee, as the case may be, duly executed by the Holder
thereof or such Holder's attorney duly authorized in writing), and the
Company shall execute and the Trustee shall authenticate and deliver to the
Holder of such Security, without service charge, one or more new Securities
of any authorized denomination as requested by such Holder in an aggregate
principal amount equal to, and in exchange for, the portion of the principal
amount of the Security so surrendered that is not purchased.
(d) The Company shall (i) not later than the Change of Control Purchase
Date, either (A) cause a Designated Purchaser to accept for purchase
Securities or portions thereof tendered pursuant to the Change of Control
Offer or (B) accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (ii) not later than 10:00 a.m. (New
York time) on the Change of Control Purchase Date, deposit with the Trustee
or with a Paying Agent (or, in the case of an Alternate Transaction, cause
the Designated Purchaser to deposit with the Trustee or with a Paying Agent)
an amount of money in same day funds (or New York Clearing House funds if
such deposit is made prior to the Change of Control Purchase Date)
sufficient to pay the aggregate Change of Control Purchase Price of all the
Securities or portions thereof which are to be purchased (whether by the
Company or a Designated Purchaser) as of the Change of Control Purchase
Date, and (iii) not later than 10:00 a.m. (New York time) on the Change of
Control Purchase Date deliver to the Paying Agent an Officers' Certificate
stating the Securities or portions thereof accepted for payment by, (1) with
respect to each Company Transaction, the Company and, (2) with respect to
each Alternate Transaction, the Designated Purchaser. The Paying Agent
shall promptly mail or deliver to Holders of Securities so accepted payment
in an amount equal to the Change of Control Purchase Price of the Securities
purchased from each such Holder, and the Company shall execute and the
Trustee shall promptly authenticate and mail or deliver to (x) such Holders
a new Security equal in principal amount to any unpurchased portion of the
Security surrendered and (y) any Designated Purchaser a new Security equal
in principal amount to the Securities purchased by such Designated
Purchaser. Any Securities not so accepted shall be promptly mailed or
delivered by the Paying Agent at the Company's expense to the Holder
thereof. The Company will publicly announce the results of the Change of
Control Offer on the Change of Control Purchase Date. For purposes of this
Section 1015 the Company shall choose a Paying Agent which shall not be the
Company. In the event that any Designated Purchaser fails to provide funds
with respect to any Securities tendered hereunder, the Company shall remain
liable with respect thereto for the payment of the Change of Control
Purchase Price and the interest on such Securities until the Change of
Control Purchase Price is paid to such Holder. Notwithstanding anything
herein to the contrary, the Indebtedness evidenced by the Securities
purchased by a Designated Purchaser shall not be deemed to have been
accepted for payment by the Company, not be extinguished by virtue of such
purchase and such Securities continue to bear interest at the rate borne by
such Security.
-5-
<PAGE>
(e) A tender made in response to a Change of Control Purchase Notice
may be withdrawn if the Company receives, not later than one Business Day
prior to the Change of Control Purchase Date, a telegram, telex, facsimile
transmission or letter, specifying, as applicable:
(1) the name of the Holder:
(2) the certificate number of the Security in respect of which
such notice of withdrawal is being submitted,
(3) the principal amount of the Security (which shall be $1,000
or an integral multiple thereof) delivered for purchase by the Holder
as to which such notice of withdrawal is being submitted;
(4) a statement that such Holder is withdrawing his election to
have such principal amount of such Security purchased; and
(5) the principal amount, if any, of such Security (which shall
be $1,000 or an integral multiple thereof) that remains subject to the
original Change of Control Purchase Notice and that has been or will
be delivered for purchase by the Company.
(f) Subject to applicable escheat laws, the Trustee and the Paying
Agent shall return to the Company any cash that remains unclaimed, together
with interest or dividends, if any, thereon, held by them for the payment of
the Change of Control Purchase Price; provided, however, that, (x) to the
extent that the aggregate amount of cash deposited by the Company, pursuant
to clause (ii) of paragraph (d) above exceeds the aggregate Change of
Control Purchase Price of the Securities or portions thereof to be
purchased, then the Trustee shall hold such excess for the Company and (y)
unless otherwise directed by the Company in writing, promptly after the
Business Day following the Change of Control Purchase Date the Trustee shall
return any such excess to the Company together with interest or dividends,
if any, thereon.
(g) The Company and the Designated Purchaser, if any, shall comply, to
the extent applicable, with the applicable tender offer rules, including
Rule 14e- I under the Exchange Act and any other applicable securities laws
or regulations in connection with a Change of Control Offer."
-6-
<PAGE>
ARTICLE III
Section 1. Continuing Effect of Indenture.
------------------------------
Except as expressly provided herein, all of the terms, provisions and
conditions of the Indenture and the Securities outstanding thereunder shall
remain in full force and effect.
Section 2. Construction of Supplemental Indenture.
--------------------------------------
This Supplemental Indenture is executed as, and shall constitute, an indenture
supplemental to the Indenture and shall be construed in connection with and as
part of the Indenture. This Supplemental Indenture shall be governed by and
construed in accordance with the laws of the State of New York.
Section 3. Trust Indenture Act Controls.
----------------------------
If any provision of this Supplemental Indenture limits, qualifies or conflicts
with another provision of this Supplemental Indenture or the Indenture that is
required to be included by the Trust Indenture Act of 1939 as in force at the
date as of which this Supplemental Indenture is executed, the provision required
by said Act shall control.
Section 4. Trustee Disclaimer.
------------------
The recitals contained in this Supplemental Indenture shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Supplemental Indenture.
Section 5. Counterparts.
------------
This Supplemental Indenture may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
[Remainder of Page Intentionally Left Blank]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
MARINER HEALTH GROUP, INC.
By: /s/ Boyd P. Gentry
-----------------------------
Name: Boyd P. Gentry
-----------------------
Title: Vice President and
Treasurer
-----------------------
[SEAL]
Attest: /s/ Stefano M. Miele
-------------------------
Name: Stefano M. Miele
--------------------
Title: Vice President and
Associate General
Counsel
--------------------
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By: /s/ M.L. Stores
-----------------------------
Name: M.L. Stores
-----------------------
Title: Vice President
-----------------------
[SEAL]
-8-
<PAGE>
EXHIBIT 10.2
SECOND AMENDMENT OF
AMENDED AND RESTATED
OPERATING LEASE
STATE OF FLORIDA
COUNTY OF PINELLAS
THIS SECOND AMENDMENT OF AMENDED AND RESTATED OPERATING LEASE (this "Second
Amendment") entered into this 19th day of June, 1998, but made effective as of
the Effective Time as defined in that certain Agreement and Plan of Merger dated
as of April 13, 1998, among Paragon Health Network, Inc., Paragon Acquisition
Sub, Inc. and Mariner Health Group, Inc. (the "Effective Time"), by and between
BELLEAIR EAST MEDICAL INVESTORS, LTD. (L.P.). a Georgia limited partnership
(hereinafter called "Landlord"), and MARINER HEALTH CARE OF NASHVILLE, INC., a
Delaware corporation, successor by merger to Convalescent Services, Inc., a
Georgia corporation (hereinafter called "Tenant").
W I T N E S S E T H :
WHEREAS, Landlord owns a nursing center located in Clearwater, Florida,
formerly known as Belleair East Health Care Center, but now known as Mariner
Health of Clearwater (the "Facility"); and
WHEREAS, Landlord and Tenant entered into that certain Amended and Restated
Operating Lease dated May 24, 1995, but made effective the 2nd day of January,
1996 (the "Amended and Restated Operating Lease"), pursuant to which the parties
amended and restated the original lease between the parties dated July 1, 1994,
wherein the Landlord leased the Facility to the Tenant; and
WHEREAS, Landlord and Tenant entered into a First Amendment of the Amended
and Restated Operating Lease, made effective May 30,1997, making certain
amendments thereto; and
WHEREAS, Landlord and Tenant desire to further amend the Amended and
Restated Operating Lease as set forth hereinafter, with such amendment to become
effective at the Effective Time.
THEREFORE, for and in consideration of the mutual benefits to be gained by
the performance hereof, Landlord and Tenant do hereby amend the Amended and
Restated Operating Lease as follows:
1. The first sentence of Section 2 of the Amended and Restated Operating
Lease is hereby amended to read as follows: "The Term of this Lease shall begin
at 12 o'clock A.M. on January 2, 1996, and shall continue for a period of
thirteen (13) years and four (4) months from January 2, 1996, unless sooner
terminated as provided hereinafter."
4
<PAGE>
2. The first sentence of Subsection 37b.(1) of the Amended and Restated
Operating Lease is hereby amended to read as follows: "Tenant may exercise its
Option granted in this Section 37(b)(1) at any time during the 365-day period
commencing on the anniversary of the Lease Date in the year 2006 (the "Purchase
Option Date").
3. Subject to the amendments set forth herein, the remaining terms and
conditions of the Amended and Restated Operating Lease (as previously amended)
shall remain in full force and effect and are hereby reaffirmed and ratified.
4. This Second Amendment shall become effective at, and shall only be
effective from and after, the Effective Time. Prior to the Effective Time, this
Second Amendment shall be of no force or effect. In the event the Effective Time
(as defined above) has not occurred by June 30, 1999, this Second Amendment
shall be null and void.
IN WITNESS WHEREOF, the parties have duly executed this First Amendment as
of the date hereinabove set forth.
LANDLORD:
BELLEAIR EAST MEDICAL INVESTORS,
LTD. (L.P.)
By:___________________________________
General Partner
TENANT:
MARINER HEALTH CARE OF
NASHVILLE, INC.
By:___________________________________
Title:_____________________________
5
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT OF
AMENDED AND RESTATED
OPERATING LEASE
STATE OF FLORIDA
COUNTY OF CHARLOTTE
THIS SECOND AMENDMENT OF AMENDED AND RESTATED OPERATING LEASE (this "Second
Amendment") entered into this 19th day of June, 1998, but made effective as of
the Effective Time as defined in that certain Agreement and Plan of Merger dated
as of April 13, 1998, among Paragon Health Network, Inc., Paragon Acquisition
Sub, Inc. and Mariner Health Group, Inc. (the "Effective Time"), by and between
PORT CHARLOTTE HEALTHCARE ASSOCIATES, LTD. (L.P.), a Georgia limited partnership
(hereinafter called "Landlord"), and MARINER HEALTH CARE OF NASHVILLE, INC., a
Delaware corporation, successor by merger to Convalescent Services, Inc., a
Georgia corporation (hereinafter called "Tenant").
W I T N E S S E T H :
WHEREAS, Landlord owns a nursing center located in Port Charlotte, Florida,
formerly known as Palmview but now known as Mariner Health of Port Charlotte
(the "Facility"); and
WHEREAS, Landlord and Tenant entered into that certain Amended and Restated
Operating Lease dated May 24, 1995, but made effective the 2nd day of January,
1996 (the "Amended and Restated Operating Lease"), pursuant to which the parties
amended and restated the original lease between the parties dated July 1, 1994,
wherein the Landlord leased the Facility to the Tenant; and
WHEREAS, Landlord and Tenant entered into a First Amendment of the Amended
and Restated Operating Lease, made effective January 2, 1996, making certain
amendments thereto; and
WHEREAS, Landlord and Tenant desire to further amend the Amended and
Restated Operating Lease as set forth hereinafter, with such amendment to become
effective at the Effective Time.
THEREFORE, for and in consideration of the mutual benefits to be gained by
the performance hereof, Landlord and Tenant do hereby amend the Amended and
Restated Operating Lease as follows:
1. The first sentence of Section 2 of the Amended and Restated Operating
Lease is hereby amended to read as follows: "The Term of this Lease shall begin
at 12 o'clock A.M. on January 2, 1996, and shall continue for a period of
thirteen (13) years and four (4) months from January 2, 1996, unless sooner
terminated as provided hereinafter."
2. The first sentence of Subsection 37b.(1) of the Amended and Restated
Operating Lease is hereby amended to read as follows: "Tenant may exercise its
Option granted in this Section
<PAGE>
37(b)(1) at any time during the 365-day period commencing on the anniversary of
the Lease Date in the year 2006 (the "Purchase Option Date").
3. Subject to the amendments set forth herein, the remaining terms and
conditions of the Amended and Restated Operating Lease (as previously amended)
shall remain in full force and effect and are hereby reaffirmed and ratified.
4. This Second Amendment shall become effective at, and shall only be
effective from and after, the Effective Time. Prior to the Effective Time, this
Second Amendment shall be of no force or effect. In the event the Effective Time
(as defined above) has not occurred by June 30, 1999, this Second Amendment
shall be null and void.
IN WITNESS WHEREOF, the parties have duly executed this First Amendment as
of the date hereinabove set forth.
LANDLORD:
PORT CHARLOTTE HEALTHCARE
ASSOCIATES, LTD. (L.P.)
By:___________________________________
General Partner
TENANT:
MARINER HEALTH CARE OF
NASHVILLE, INC.
By:___________________________________
Title:_____________________________
2
<PAGE>
ACKNOWLEDGMENTS
STATE OF GEORGIA
COUNTY OF __________________
On this the _____ day of ____________, 1998, before me, the undersigned
officer, personally appeared ______________________________, known to me to be
the general partner of the aforesaid limited partnership and the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same as general partner of said partnership for the purposes therein
contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
_______________________________________
Notary Public
[NOTARIAL SEAL]
My Commission expires:_______________
STATE/COMMONWEALTH OF _____________________
COUNTY OF _____________________
On this the _____ day of ___________, 1998, before me, the undersigned
officer, personally appeared _______________________________________________,
known to me to be the _________________________________________ of the
aforesaid corporation and the person whose name is subscribed to the within
instrument as such officer of the aforesaid corporation, and acknowledged that
he executed the same in such capacity on behalf of the corporation for the
purposes therein contained.
_______________________________________
Notary Public
[NOTARIAL SEAL]
My Commission expires:_______________
3
<PAGE>
EXHIBIT 10.4
FIRST AMENDMENT OF
AMENDED AND RESTATED
OPERATING LEASE
STATE OF COLORADO
COUNTY OF DENVER
THIS FIRST AMENDMENT OF AMENDED AND RESTATED OPERATING LEASE (this "First
Amendment") is entered into this 19th day of June, 1998, but made effective as
of the Effective Time as defined in that certain Agreement and Plan of Merger
dated as of April 13, 1998, among Paragon Health Network, Inc., Paragon
Acquisition Sub, Inc. and Mariner Health Group, Inc. (the "Effective Time") by
and between DENVER MEDICAL INVESTORS, LTD. (L.P.). a Georgia limited partnership
(hereinafter called "Landlord"), and MARINER HEALTH CARE OF NASHVILLE, INC., a
Delaware corporation, successor by merger to Convalescent Services, Inc., a
Georgia corporation (hereinafter called "Tenant").
W I T N E S S E T H :
WHEREAS, Landlord owns a nursing center located in Denver, Colorado,
formerly known as South Monoco Care Center, but now known as Mariner Health of
Denver (the "Facility"); and
WHEREAS, Landlord and Tenant entered into that certain Amended and Restated
Operating Lease dated May 24, 1995, but made effective the 2nd day of January,
1996 (the "Amended and Restated Operating Lease"), pursuant to which the parties
amended and restated the original lease between the parties dated April 1, 1994
(and amended on January 1, 1995), wherein the Landlord leased the Facility to
the Tenant; and
WHEREAS, Landlord and Tenant desire to amend the Amended and Restated
Operating Lease as set forth hereinafter, with such amendment to become
effective at the Effective Time.
THEREFORE, for and in consideration of the mutual benefits to be gained by
the performance hereof, Landlord and Tenant do hereby amend the Amended and
Restated Operating Lease as follows:
1. The first sentence of Section 2 of the Amended and Restated Operating
Lease is hereby amended to read as follows: "The Term of this Lease shall begin
at 12 o'clock A.M. on January 2, 1996, and shall continue for a period of
eighteen (18) years and four (4) months from January 2, 1996, unless sooner
terminated as provided hereinafter."
2. The first sentence of Subsection 37b.(1) of the Amended and Restated
Operating Lease is hereby amended to read as follows: "Tenant may exercise its
Option granted in this Section 37(b)(1) at any time during the 365-day period
commencing on December 1, 2008 (the "Purchase Option Date").
<PAGE>
3. Subject to the amendments set forth herein, the remaining terms and
conditions of the Amended and Restated Operating Lease (as previously amended)
shall remain in full force and effect and are hereby reaffirmed and ratified.
4. This First Amendment shall become effective at, and shall only be
effective from and after, the Effective Time. Prior to the Effective Time, this
First Amendment shall be of no force or effect. In the event the Effective Time
(as defined above) has not occurred by June 30, 1999, this First Amendment shall
be null and void.
IN WITNESS WHEREOF, the parties have duly executed this First Amendment as
of the date hereinabove set forth.
LANDLORD:
DENVER MEDICAL INVESTORS,
LTD. (L.P.)
By:___________________________________
General Partner
TENANT:
MARINER HEALTH CARE OF
NASHVILLE, INC.
By:___________________________________
Title:_____________________________
2
<PAGE>
ACKNOWLEDGMENTS
STATE OF GEORGIA
COUNTY OF ___________________
On this the _____ day of _________, 1998, before me, the undersigned
officer, personally appeared ______________________________, known to me to be
the general partner of the aforesaid limited partnership and the person whose
name is subscribed to the within instrument and acknowledged that he executed
the same as general partner of said partnership for the purposes therein
contained.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
_______________________________________
Notary Public
[NOTARIAL SEAL]
My Commission expires:_______________
STATE/COMMONWEALTH OF _______________________
COUNTY OF ______________________
On this the _____ day of __________, 1998, before me, the undersigned
officer, personally appeared _______________________________________________,
known to me to be the _________________________________________ of the
aforesaid corporation and the person whose name is subscribed to the within
instrument as such officer of the aforesaid corporation, and acknowledged that
he executed the same in such capacity on behalf of the corporation for the
purposes therein contained.
_______________________________________
Notary Public
[NOTARIAL SEAL]
My Commission expires:_______________
3
<PAGE>
EXHIBIT 10.6
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT dated as of July 31, 1998,
between KEITH B. PITTS (the "Executive") and PARAGON HEALTH NETWORK, INC., a
Delaware corporation (the "Company").
W I T N E S S E T H
-------------------
WHEREAS, the Executive and the Company desire to amend certain provisions
of that certain Employment Agreement dated as of November 4, 1997 between the
Executive and the Company (the "Original Employment Agreement") in order to
provide for revised terms governing base salary, term of the agreement, the
vesting of options in the event of termination of the Executive's employment and
certain healthcare benefits to be extended to the Executive and his dependents;
NOW, THEREFORE, the parties agree, as follows:
1. Paragraph 2 of the Original Employment Agreement shall be deleted in its
entirety and replaced by the following:
2. Term. This Agreement became effective on November 4, 1997 (the
----
"Effective Date"). This Agreement is for the period (the "Term")
commencing on the Effective Date and terminating on the fourth
anniversary of the date of the consummation of the transactions
contemplated by the Agreement and Plan of Merger dated as of April 13,
1998 (the "Mariner Merger Agreement"), among the Company, Mariner
Health Group, Inc. and Paragon Acquisition Sub, Inc. (the date of the
consummation of the transactions contemplated by the Mariner Merger
Agreement is referred to herein as the "Mariner Merger Date"), or upon
the Executive's earlier death, disability or termination of employment
pursuant to Section 11; provided, however, that commencing on the
-------- -------
fourth anniversary of the Mariner Merger Date and on each anniversary
thereafter, the term shall automatically be extended for one
additional year unless, not later than 90 days prior to any such
anniversary, either party hereto shall have notified the other party
hereto in writing that such extension shall not take effect.
2. Section 6(b) of the Original Employment Agreement shall be deleted in
its entirety and replaced by the following:
(b) Base Salary. The Executive's Base Salary hereunder shall be
-----------
$850,000 a year, payable monthly. The Board shall review such base
salary at least annually and make such adjustment from time to time
<PAGE>
as it may deem advisable, but the base salary shall not at any time be
less than $850,000 a year.
3. Subsequent to Section 6(b) in the Original Employment Agreement, each
time the number "$700,000" appears, it shall be deleted and replaced with the
number "$850,000."
4. Section 9 of the Original Employment Agreement shall be deleted in its
entirety and replaced by the following:
9. Pension and Welfare Benefits. During the Term, the Executive
----------------------------
shall be eligible to participate fully in all health benefits,
insurance programs, pension and retirement plans and other employee
benefit and compensation arrangements available to senior officers of
the Company generally. In addition, the Company shall reimburse the
Executive for all out-of-pocket costs incurred and paid by the
Executive relating to the health care of the Executive and his
dependents that are not covered by the health benefit plans or
arrangements of the Company or its subsidiaries through the later of
the Date of Termination or the seventh anniversary of the Effective
Date.
5. Section 10 of the Original Employment Agreement shall be deleted in its
entirety and replaced by the following:
10. Stock Options. The Company, pursuant to the terms of its Stock
-------------
Option Plan (and as approved by the Compensation Committee of the
Board of Directors), granted to the Executive as of the Effective
Date, stock options to purchase 1,465,000 shares (as adjusted for the
3-for-1 stock split which took place on December 29, 1997) of common
stock of the Company which, as of the Effective Date, represented
approximately 3-3/10% (3.3%) of the fully diluted common shares of the
Company. Such stock options shall, in accordance with the Company's
Stock Option Plan, (i) expire ten years from the Effective Date or 90
days after the Executive's Date of Termination, if earlier; (ii) vest
and become exercisable on each of the first four anniversaries of the
Effective Date in an amount equal to one-fourth (1/4) of the stock
options granted; (iii) be exercisable, in the event of the Executive's
termination of employment, for a period of 90 days following his Date
of Termination; and (iv) have an exercise price per share equal to the
fair market value of a share of common stock of the Company as of the
Effective Date, which equaled the closing price of a share of
GranCare, Inc. on the Effective Date, divided by .23457, with the
resulting quotient being further divided by three to reflect the
aforementioned stock split. The Executive shall be eligible for
additional stock option awards under the stock option plan of the
Company and, in this regard, the
2
<PAGE>
Compensation Committee of the Board of Directors may consider whether,
but not be obligated, to award the Executive additional stock options
under such plan.
6. The following subparagraph shall be added immediately following
subparagraph (h) of Section 12 of the Original Employment Agreement:
(i) Continuation of Health Care Reimbursement. Nothing in this
-----------------------------------------
Section 12 or elsewhere in this Agreement shall reduce in any way the
Company's obligations set forth in the second sentence of Section 9
hereof to reimburse the Executive for all out-of-pocket costs incurred
and paid by the Executive relating to the health care of the Executive
and his dependents that are not covered by the health benefit plans or
arrangements of the Company or its subsidiaries throughout the later
of the Date of Termination or the seventh anniversary of the Effective
Date.
7. All capitalized terms used herein but not otherwise defined shall have
the same meanings as set forth in the Original Employment Agreement.
8. Except for such amendments as are specifically provided for herein, the
Original Employment Agreement remains in full force and effect in all respects.
9. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PARAGON HEALTH NETWORK, INC.
By: /s/ Susan Thomas Whittle
--------------------------------
Susan Thomas Whittle
Senior Vice President and
General Counsel
THE EXECUTIVE
/s/ Keith B. Pitts
-----------------------------------
Keith B. Pitts
4
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
Employment Agreement dated as of July 31, 1998 between Thomas P. Dixon (the
"Executive") and Mariner Post-Acute Network, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Company desires to employ the Executive as President, Prism
Rehab Systems, and the Executive desires to accept such employment, for the term
and upon the other conditions hereinafter set forth; and
WHEREAS, as a condition of entering into this Agreement, the Executive
agrees to waive the Executive's rights, if any, against the Company and any
predecessor company (including GranCare, Inc.) under (i) any employment
agreement and (ii) any other plan, arrangement or agreement of any kind that
provides any form of severance payments; and
WHEREAS, the parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship of the Executive with the
Company;
NOW, THEREFORE, the parties agree as follows:
1. Employment. The Company hereby employs the Executive, and the
----------
Executive hereby accepts employment with the Company, upon the terms and subject
to the conditions set forth herein.
2. Term. This Agreement shall commence on the date hereof (the "Effective
----
Date") and continue for the three-year period (the "Term") terminating on the
third anniversary of the Effective Date, or upon the Executive's earlier death,
disability or other termination of employment pursuant to Section 11; provided,
however, that commencing on the second anniversary of the Effective Date and on
each anniversary thereafter, the Term shall automatically be extended for one
additional year unless, not later than 90 days prior to any such anniversary,
either party hereto shall have notified the other party hereto in writing that
such extension shall not take effect.
3. Position. During the Term, the Executive shall serve as President,
--------
Prism Rehab Systems or in such other executive position in the Company as the
Executive shall approve.
4. Duties and Reporting Relationship. During the Term, the Executive
---------------------------------
shall, on a full time basis, use his skills and render services to the best of
his abilities in supervising and conducting the operations of the Company and
shall not engage in any
<PAGE>
other business activities except with the prior written approval of the Board of
Directors of the Company (the "Board") or its duly authorized designee. The
Executive shall also perform such other executive and administrative duties (not
inconsistent with the position of President, Prism Rehab Systems) as the
Executive may reasonably be expected to be capable of performing on behalf of
the Company, as may from time to time be authorized or directed by the Board.
The Executive agrees to be employed by the Company in all such capacities for
the Term, subject to all the covenants and conditions hereinafter set forth.
5. Place of Performance. The Executive shall perform his duties and
--------------------
conduct his business at offices of the Company located in Framingham, MA or as
may be determined by Company, except for required travel on the Company's
business.
6. Salary and Annual Bonus.
-----------------------
(a) Base Salary. The Executive's base salary hereunder shall be
-----------
$300,000.00 a year, payable monthly and prorated for any partial year of
employment. The Board shall review such base salary at least annually and
make such adjustment from time to time as it may deem advisable, but the
base salary shall not at any time be less than $300,000.00 a year.
(b) Annual Bonus. The Company shall provide the Executive with an
------------
opportunity to earn upon achievement of target performance, an annual bonus
equal to sixty percent (60%) of his base salary (the "Target Bonus"), with
a minimum bonus of between fifty percent (50%) of Target Bonus upon
achievement of threshold performance and an opportunity to earn up to one
hundred fifty percent (150%) of the Target Bonus for performance in excess
of the targets.
7. Vacation, Holidays and Sick Leave. During the Term, the Executive
---------------------------------
shall be entitled to paid vacation, paid holidays and sick leave in accordance
with the Company's standard policies for its executive vice presidents.
8. Business Expenses. The Executive shall be reimbursed for all ordinary
-----------------
and necessary business expenses incurred by him in connection with his
employment upon timely submission by the Executive of receipts and other
documentation as required by the Internal Revenue Code and in conformance with
the Company's normal procedures.
9. Pension and Welfare Benefits. During the Term, the Executive shall be
----------------------------
eligible to participate fully in all health benefits, insurance programs,
pension and retirement plans and other employee benefit and compensation
arrangements available to vice presidents of the Company generally.
2
<PAGE>
10. Stock Options The Company, pursuant to the terms of its stock option
-------------
plan, may grant to the Executive, stock options to purchase a number of shares
of common stock.
11. Termination of Employment.
-------------------------
(a) General. The Executive's employment hereunder may be terminated
-------
without any breach of this Agreement only under the following
circumstances.
(b) Death or Disability.
-------------------
(i) The Executive's employment hereunder shall automatically
terminate upon the death of the Executive.
(ii) If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive is unable to perform the
essential functions of his job for any one hundred eighty (180) days
(whether or not consecutive) during any eighteen (18) month period,
and no reasonable accommodation can be made that will allow Executive
to perform his essential functions, the Company may terminate the
Executive's employment hereunder for any such incapacity (a
"Disability").
(c) Termination by the Company. The Company may terminate the
--------------------------
Executive's employment hereunder at any time, whether or not for Cause. For
purposes of this Agreement, "Cause" shall mean (i) the failure or refusal
by the Executive to perform his duties hereunder (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness), which has not ceased within ten (10) days after a written demand
for substantial performance is delivered to the Executive by the Company,
which demand identifies the manner in which the Company believes that the
Executive has not performed such duties, (ii) the engaging by the Executive
in willful misconduct or an act of moral turpitude which is materially
injurious to the Company, monetarily or otherwise (including, but not
limited to, conduct which violates Section 15 hereof) or (iii) the
conviction of the Executive of, or the entering of a plea of nolo
contendere by, the Executive with respect to, a felony.
(d) Termination by the Executive. The Executive shall be entitled to
----------------------------
terminate his employment hereunder (A) for Good Reason, (B) if his health
should become impaired to an extent that makes his continued performance of
his duties hereunder hazardous to his physical or mental health, provided
that the Executive shall have furnished the Company with a written
statement from a qualified doctor to such effect and provided, further,
that, at the Company's
3
<PAGE>
request, the Executive shall submit to an examination by a doctor selected
by the Company and such doctor shall have concurred in the conclusion of
the Executive's doctor or (C) without the Executive's express written
consent, any failure by the Company to comply with any material provision
of this Agreement, which failure has not been cured within ten (10) days
after notice of such noncompliance has been given by the Executive to the
Company. For purposes of this Agreement, "Good Reason" shall mean the
occurrence following a Change in Control during the term of this Agreement,
of any one of the following acts by the Company, or failures by the Company
to act, unless, in the case of any act or failure to act described below,
such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(i) any material diminution in the Executive's authorities or
responsibilities (including reporting responsibilities) which were in
effect immediately prior to the Change in Control or from his status,
title, position or responsibilities (including reporting
responsibilities) which were in effect following a Change in Control
pursuant to the Executive's consent to accept any such change; the
assignment to him of any duties or work responsibilities which are
inconsistent with such status, title, position or work
responsibilities; or any removal of the Executive from, or failure to
reappoint or reelect him to any of such positions, except if any such
changes are because of Disability, retirement, death or Cause;
(ii) a reduction by the Company in the Executive's base salary or
Target Bonus as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary
reductions similarly affecting all senior executives of the Company
and all senior executives of any Person (as defined in Section
11(h)(i) below) in control of the Company provided in no event shall
any such reduction reduce the Executive's base salary below
$300,000.00;
(iii) the relocation of the Executive's office at which he is to
perform his duties, to a location more than fifty (50) miles from the
location at which the Executive performed his duties prior to the
Change in Control, except for required travel on the Company's
business to an extent substantially consistent with his business
travel obligations prior to the Change in Control;
(iv) the failure by the Company, without the Executive's consent,
to pay to the Executive any portion of the Executive's current
compensation;
4
<PAGE>
(v) the failure by the Company to continue to provide the
Executive with benefits substantially similar in value to the
Executive in the aggregate to those enjoyed by the Executive under any
of the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Executive was participating
immediately prior to the Change in Control, unless the Executive
participates after the Change in Control in other comparable benefit
plans generally available to senior executives of the Company and
senior executives of any Person in control of the Company;
(vi) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 11(f) below; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's continued employment for 6 months following any act or failure
to act constituting Good Reason hereunder without the delivery of a Notice of
Termination shall constitute consent to, and a waiver of rights with respect to,
such act or failure to act.
(e) Voluntary Resignation. Should the Executive wish to resign from
---------------------
his position with the Company or terminate his employment for other than
Good Reason during the Term, the Executive shall give sixty (60) days
written notice to the Company ("Notice Period"), setting forth the reasons
and specifying the date as of which his resignation is to become effective.
During the Notice Period, the Executive shall cooperate fully with the
Company in achieving a smooth transition of the Executive's duties and
responsibilities to such person(s) as may be designated by the Company. The
Company reserves the right to accelerate the Date of Termination by giving
the Executive notice and payment of amounts due to the Executive under
Section 6(a) and, to the extent applicable, Section 6(b) for the balance of
the Notice Period. The Company's obligation to continue to employ the
Executive or to continue payment of the amounts described in the preceding
sentence shall cease immediately if: (1) the Executive has not satisfied
his obligations to cooperate fully with a smooth transition or (2) the
Company has grounds to terminate the Executive's employment immediately for
Cause.
(f) Notice of Termination. Any purported termination of the
---------------------
Executive's employment by the Company or by the Executive shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 19. "Notice of Termination" shall mean a notice
that shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to
5
<PAGE>
provide a basis for termination of the Executive's employment under the
provision so indicated.
(g) Date of Termination. "Date of Termination" shall mean (i) if the
-------------------
Executive's employment is terminated because of death, the date of the
Executive's death, (ii) if the Executive's employment is terminated for
Disability, the date Notice of Termination is given, (iii) if the
Executive's employment is terminated pursuant to Subsection (c), (d) or (e)
hereof or for any other reason (other than death or Disability), the date
specified in the Notice of Termination which shall not be less than sixty
(60) days from the date such Notice of Termination is given.
(h) Change in Control. For purposes of this Agreement, a Change in
-----------------
Control of the Company shall have occurred if
(i) any "Person" (as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934 (the "Exchange Act") as modified and used in
Sections 13(d) and 14(d) of the Exchange Act (other than (1) the
Company or any of its subsidiaries, (2) any trustee or other fiduciary
holding securities under an employee benefit plan of the Company or
any of its subsidiaries, (3) an underwriter temporarily holding
securities pursuant to an offering of such securities, (4) any
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
the Company's common stock or (5) Apollo Management, LP, any of its
affiliates and any investments funds managed by it (collectively,
"Apollo"))), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing more than 50% of the combined voting power
of the Company's then outstanding voting securities;
(ii) during any period of not more than two (2) consecutive
years, not including any period prior to the date of this Agreement,
individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person
(other than Apollo) who has entered into an agreement with the Company
to effect a transaction described in clause (i), (iii), or (iv) of
this Section 1l(h)) whose election by the Board or nomination for
election by the Company's stockholders was (A) made pursuant to the
Stockholders Agreement affecting the Company dated November 4, 1997 or
(B) approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or
6
<PAGE>
nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
both (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
50% or more of the combined voting power of the voting securities of
the Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation in
which no person acquires 50% or more of the combined voting power of
the Company's then outstanding securities;
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets (or
any transaction having a similar effect) other than such a sale or
disposition to Apollo; or .
(v) the approval of a sale, spin off, merger, liquidation or
other transaction which results in a disposition of or transfer of
substantially all of the assets of the Rehab Services Division (the
"Division") or one or more subsidiaries which hold substantially all
of the Division's assets.
(i) Return of Property. When the Executive ceases to be employed by
------------------
the Company, the Executive will promptly surrender to the Company all
Company property, including without limitation, all records and other
documents obtained by him or entrusted to him during the course of his
employment with the Company provided, however, that the Executive may
retain copies of such documents as necessary for the Executive's personal
records for federal income tax purposes.
12. Compensation During Disability; Death or Upon Termination.
---------------------------------------------------------
(a) During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("Disability Period"), the Executive shall continue to receive his base
salary at the rate then in effect for such period until his employment is
terminated pursuant to Section 1l(b)(ii) hereof, provided that payments so
made to the Executive during the Disability Period shall be reduced by the
sum of the amounts, if any, payable to the Executive with respect to such
period under disability benefit plans of the
7
<PAGE>
Company or under the Social Security disability insurance program, and
which amounts were not previously applied to reduce any such payment.
(b) If the Executive's employment is terminated by his death or
Disability, the Company shall pay (i) any base salary due to the Executive
under Section 6(a) through the date of such termination and (ii) an amount
equal to the Target Bonus he would have received for the fiscal year that
ends on or immediately after the Date of Termination, assuming the Company
achieved the lowest target level for which a bonus is paid under the plan
described in Section 6(b), prorated for the period beginning on the first
day of the fiscal year in which occurs the Date of Termination through the
Date of Termination. In addition, if the Executive's employment is
terminated by his death, the Company shall continue to pay to his estate
his salary for an additional six months at the rate then in effect.
(c) If the Executive's employment is terminated by the Company for
Cause or by the Executive for other than Good Reason, the Company shall pay
the Executive his base salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given, and the Company shall
have no further obligations to the Executive under this Agreement.
(d) If following a Change in Control (A) the Company terminates the
Executive's employment without Cause, or (B) the Executive terminates his
employment for Good Reason, then
(i) the Company shall pay the Executive his base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given and all other unpaid amounts, if any, to which
the Executive is entitled as of the Date of Termination under any
compensation plan or program of the Company, at the time such payments
are due;
(ii) in lieu of any further salary payments to the Executive for
periods subsequent to the Date of Termination, the Company shall pay
as liquidated damages to the Executive an aggregate amount equal to
the product of (A) the sum of (1) the Executive's base salary at the
rate in effect of the Date of Termination and (2) the average of the
annual bonuses actually paid to the Executive by the Company with
respect to the two (2) fiscal years which immediately precede the year
of the Term which the Date of Termination occurs provided if there was
--------
bonus or bonuses paid to the Executive with respect only to one fiscal
year that immediately precedes the year within the Term in which the
Date of Termination occurs, then such single year's bonus or bonuses
shall be
8
<PAGE>
utilized in the calculation pursuant to this clause (2), provided,
--------
further, that for purposes of this Agreement, if the Date of
-------
Termination occurs before the end of the first fiscal year that ends
after the Effective Date, the amount of the bonus paid by the Company
to the Executive shall be deemed to be the Target Bonus and (B) the
number two and one-half (2.5);
(iii) if it is determined that the Company has met financial
objectives established pursuant to its Incentive Compensation Plan and
to pay bonuses to eligible employees for the fiscal year within which
the Date of Termination occurs, the Company shall pay the Executive,
as long as the Executive is otherwise eligible for such payment, her
bonus prorated for the period beginning on the first day of the fiscal
year in which occurs the Date of Termination through Date of
Termination, payable at the same time and in the same manner as the
Company customarily pays such other bonuses;
(iv) the Company shall continue coverage for the Executive, on
the same terms and conditions as would be applicable if the Executive
were an active Employee, under the Company's life insurance, medical,
health and similar welfare benefit plans (other then group disability
benefits) for a period of thirty-six (36) months. Benefits otherwise
receivable by the Executive pursuant to this Section 12(d)(iv) shall
be reduced to the extent comparable benefits are actually received by
the Executive from a subsequent employer during the period during
which the Company is required to provide such benefits, and the
Executive shall report any such benefits actually received by him to
the Company; and
(v) the payments provided for in this Section 12(d) (other than
Section 12(d)(iv)) shall be made not later than the thirtieth (30th)
day following the Date of Termination, provided, however, that if the
amounts of such payments, and the limitation on such payments set
forth in Section 16 hereof, cannot be finally determined on or before
such day, the Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Company, of the minimum
amount of such payments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with interest at
the rate provided in section 1274(b)(2)(B) of the Code (as defined in
Section 16)) as soon as the amount thereof can be determined but in no
event later than the sixtieth (60th) day after the Date of
Termination. In the event that the amount of the estimated payments
exceeds the amount determined by the Company within six (6) months
after payment to have been due, such excess shall constitute a loan by
the Company to the Executive, payable no later than the thirtieth
(30th) business day after demand by the Company (together
9
<PAGE>
with interest at the rate provided in section 1274(b)(2)(B) of the
Code). At the time that payments are made under this Section 12(d),
the Company shall provide the Executive with a written statement
setting forth the manner in which such payments were calculated and
the basis for such calculations including, without limitation, any
opinions or other advice the Company has received from outside
counsel, auditors or consultants (and any such opinions or advice
which are in writing shall be attached to the statement).
(vi) If the Executive continues to be employed by the Company for
one (1) year after a Change of Control and has not by such time given
Notice of Termination for Good Reason, the Executive will have waived
his right to exercise his rights under Section 12(d) hereof with
respect to any act or failure to act which constitutes Good Reason.
(e) If the Executive terminates his employment under clause (C) of
Section 11(d) hereof or, prior to any Change of Control, the Company
terminates the Executive's employment without Cause, then
(i) the Company shall pay the Executive his base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given and all other unpaid amounts, if any, to which
the Executive is entitled as of the Date of Termination under any
compensation plan or program of the Company, at the time such payments
are due;
(ii) the Company shall pay to the Executive the greater of either
(A) the remaining amount of base salary owed for the Term; or (B) an
aggregate amount equal to the sum of (1) twelve (12) months of the
Executive's base salary at the rate in effect as of the Date of
Termination plus (2) one (1) additional month of the Executive's base
salary at such rate for each full year of service beyond the first
anniversary of this Agreement, not to exceed twenty-four (24) months
of base salary payments; such amount to be paid in substantially equal
monthly installments during the period commencing with the month
immediately following the month in which the Date of Termination
occurs or in a lump sum payment, as decided by the Company;
(iii) if it is determined that the Company has met financial
objectives established pursuant to its Incentive Compensation Plan and
to pay bonuses to eligible employees for the fiscal year within which
the Date of Termination occurs, the Company shall pay the Executive,
as long as the Executive is otherwise eligible for such payment, her
bonus
10
<PAGE>
prorated for the period beginning on the first day of the fiscal
year in which occurs the Date of Termination through Date of
Termination, payable at the same time and in the same manner as the
Company customarily pays such other bonuses;
(iv) the Company shall continue coverage for the Executive, on
the same terms and conditions as would be applicable if the Executive
were an active employee, under the Company's life insurance, medical,
health, and similar welfare benefit plans (other then group
disability) for a period not to exceed the number of months the
Executive will be paid under Section 12(e)(ii) beginning on the Date
of Termination;
(v) benefits otherwise receivable by the Executive pursuant to
clause (iv) of this Section 12(e) shall be reduced to the extent
comparable benefits are actually received by the Executive from a
subsequent employer during the period which the Company is required to
provide such benefits, and the Executive shall report any such
benefits actually received by him to the Company;
(vi) the payments made to the Executive under Section 12(e)
hereof will be reduced by the amount of payments provided for by any
subsequent employer of the executive for a position obtained after the
Date of Termination.
(f) If the Executive experiences a termination under Section 12(d) or
12(e) hereof, until the Executive finds another full-time position or for 6
months, whichever is earlier, the Company shall provide the Executive with
professional outplacement services of the Executive's choosing and shall
reimburse the Executive documented incidental outplacement expenses
directly related to the Executive's job search such as resume mailing,
interview trips, and clerical support, subject to a maximum cost of $10,000
for such outplacement services and incidental expenses. The Executive's
choice of professional outplacement services is subject to the Company's
reasonable prior approval. If the Company has not approved or disapproved
of the Executive's choice within ten (10) business days of receiving notice
of such choice, the Company will be deemed to have given is approval. Any
approval by the Company will be in writing and will state the basis for
such disapproval. The Executive will not be entitled to receive cash or
lieu of the professional outplacement services provided pursuant to this
Section.
(g) If the Executive shall terminate his employment under clause (B)
of Sections 11(d) or 11(e) hereof, the Company shall pay the Executive his
base salary through the Date of Termination at the rate in effect at the
time Notice of
11
<PAGE>
Termination is given, and the Company shall have no further obligations to
the Executive under this Agreement.
(h) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 12 by seeking other employment or
otherwise, and, except as provided in Sections 12(e) hereof, the amount of
any payment or benefit provided for in this Section 12 shall not be reduced
by any compensation earned by the Executive as the result of employment by
another employer or by retirement benefits.
(i) Release. Prior to making any payment pursuant to Sections
-------
12(d)(iii) and 12(d)(iv) or Sections 12(e)(ii) and 12(e)(iii), whichever is
applicable, the Company shall have the right to require the Executive to
sign, and the Executive hereby agrees to sign, an agreement to be bound by
the terms of Section 15 of this Agreement and a waiver of all claims the
Executive may have (including any claims under the Age Discrimination in
Employment Act), and the Company may withhold payment of such amount until
the period during which the Executive may revoke such waiver (normally
seven days) has elapsed.
13. Representations and Covenants.
-----------------------------
(a) The Company represents and warrants that this Agreement has been
authorized by all necessary corporate action of the Company and is a valid
and binding agreement of the Company enforceable against it in accordance
with its terms.
(b) The Executive represents and warrants that he is not a party to
any agreement or instrument which would prevent him from entering into or
performing his duties in any way under this Agreement. The Executive agrees
and covenants that he will obtain, and submit to, such physical
examinations as may be necessary to facilitate the Company obtaining an
insurance policy for its benefit insuring the life of the Executive.
14. Successors: Binding Agreement.
-----------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place.
(b) This Agreement is a personal contract and the rights and interests
of the Executive hereunder may not be sold, transferred, assigned, pledged,
12
<PAGE>
encumbered, or hypothecated by him, except as otherwise expressly permitted
by the provisions of this Agreement. This Agreement shall inure to the
benefit of and be enforceable by the Executive and his personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amount would still be payable to him hereunder had the Executive continued
to live, all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to his devisee, legatee or
other designee or, if there is no such designee, to his estate.
15. Confidentiality and Non-Competition Covenants.
---------------------------------------------
(a) The Executive covenants and agrees that he will not at any time
during or at any time after the end of the Term, directly or indirectly,
use for his own account, or disclose to any person, firm or corporation,
other than authorized officers, directors and employees of the Company or
its subsidiaries, Confidential Information (as hereinafter defined) that is
treated as trade secrets by the Company and will not at any time during or
for a period equal to the number of payments which are being made under
Section 12(e) hereof directly or indirectly, use for his own account, or
disclose to any person, firm or corporation, other than authorized
officers, directors and employees of the Company or its subsidiaries, any
other Confidential Information. As used herein, "Confidential Information"
of the Company means information of any kind, nature or description which
is disclosed to or otherwise known to the Executive as a direct or indirect
consequence of his association with the Company, which information is not
generally known to the public or in the business in which the Company is
engaged or which information relates to specific investment opportunities
within the scope of the Company's business which were considered by the
Executive or the Company during the term of this Agreement. Confidential
Information that is treated as confidential trade secrets by the Company
shall include, but not be limited to, strategic operating plans and
budgets, policy and procedure manuals, computer programs, financial forms
and information, patient or resident lists and accounts, supplier
information, accounting forms and procedures, personnel policies,
information pertaining to the salaries, positions and performance reviews
of the Company's employees, information on the methods of the Company's
operations, research and data developed by or for the benefit of the
Company and information relating to revenues, costs, profits and the
financial condition of the Company. During the Term and for a period of two
years following the termination of the Executive's employment, the
Executive shall not induce any employee of the Company or its subsidiaries
to terminate his or her employment by the Company or its subsidiaries in
order to obtain employment by any person, firm or corporation affiliated
with the Executive.
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<PAGE>
(b) The Executive covenants and agrees that any information,
materials, ideas, discoveries, techniques or programs developed or
discovered by the Executive in connection with the performance of his
duties hereunder shall remain the sole and exclusive property of the
Company and, to the extent it constitutes Confidential Information, shall
be subject to the covenants contained in the preceding paragraph.
(c) The Executive covenants and agrees that during the Term and, if
the Executive's employment is terminated by the Executive for other than
Good Reason, for a period of two (2) years following the termination of the
Executive's employment, the Executive shall not, directly or indirectly,
own an interest in, operate, join, control, or participate as a partner,
director, principal, officer, or agent of, enter into the employment of, or
act as a consultant to, in any case in which he has control or supervision
over a significant portion of any entity of which either (A) (i) the
principal business is the operation of one or more skilled nursing
facilities or (ii) which operates a skilled nursing business that is
material in relation to the Company's comparable business and (iii) in
either case, which derives at least 10% of its skilled nursing facility
revenue from facilities which are located within 35 miles of centers or
facilities operated by the Company or (B) (i) whose principal business is
operating or managing long term, acute hospital care facilities or (ii)
which operates a long term, acute hospital care facility that is material
in relation to the Company's or its subsidiaries' comparable business and
(iii) in either case, which derives at least 10% of its long term, acute
care facility revenue from facilities which are located within 35 miles of
centers or facilities operated by the Company or its subsidiaries.
Notwithstanding anything herein to the contrary, the foregoing provisions
of this Section 15(c) shall not prevent the Executive from acquiring
securities representing not more than 5% of the outstanding voting
securities of any publicly held corporation.
(d) Without limiting the right of the Company to pursue all other
legal and equitable remedies available for violation by the Executive of
the covenants contained in this Section 15, it is expressly agreed by the
Executive and the Company that such other remedies cannot fully compensate
the Company for any such violation and that the Company shall be entitled
to injunctive relief, without the necessity of proving actual monetary
loss, to prevent any such violation or any continuing violation thereof.
Each party intends and agrees that if in any action before any court or
agency legally empowered to enforce the covenants contained in this Section
15, any term, restriction, covenant or promise contained herein is found to
be unreasonable and accordingly unenforceable, then such term, restriction,
covenant or promise shall be deemed modified to the extent necessary to
make it enforceable by such court or agency. The covenants
14
<PAGE>
contained in Section 15 shall survive the conclusion of the Executive's
employment by the Company.
16. Prohibition on Parachute Payments.
---------------------------------
(a) Notwithstanding any other provisions of this Agreement, any
payment or benefit received or to be received by the Executive in
connection with a Change in Control of the Company or the termination of
the Executive's employment (whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the Company, any person
whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (all such payments and benefits, including,
without limitation, base salary and bonus payments, being hereinafter
called "Total Payments") would not be deductible (in whole or in part), by
the Company, an affiliate or any Person making such payment or providing
such benefit as a result of section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), then, to the extent necessary to make such
portion of the Total Payments deductible (and after taking into account any
reduction in the Total Payments provided by reason of section 280G of the
Code in such other plan, arrangement or agreement), (A) such cash payments
shall first be reduced (if necessary, to zero), and (B) all other non-cash
payments by the Company to the Executive shall next be reduced (if
necessary, to zero). For purposes of this limitation (i) no portion o the
Total Payments the receipt or enjoyment of which the Executive shall have
effectively waived in writing prior to the Date of Termination shall be
taken into account, (ii) no portion of the Total Payments shall be taken
into account which in the opinion of tax counsel selected by the Company's
independent auditors and reasonably acceptable to the Executive does not
constitute a "parachute payment" within the meaning of section 280G(b)(2)
of the Code, including by reason of section 280G(b)(4)(A) of the Code,
(iii) such payments shall be reduced only to the extent necessary so that
the Total Payments (other than those referred to in clauses (i) or (ii)) in
their entirety constitute reasonable compensation for services actually
rendered within the meaning of section 280G(b)(4)(B) o the Code or are
otherwise not subject to disallowance as deductions, in the opinion of the
tax counsel referred to in clause (ii); and (iv) the value of any non-cash
benefit or any deferred payment or benefit included in the Total Payments
shall be determined by the Company's independent auditors in accordance
with the principles of sections 280G(d)(3) and (4) of the Code.
(b) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good
faith of the Executive and the Company in applying the terms of this
Section 16, the aggregate "parachute payments" paid to or for the
Executive's benefit are in an amount that would result in any portion of
such "parachute payments" not
15
<PAGE>
being deductible by reason of section 280G of the Code, then the Executive
shall have an obligation to pay the Company upon demand an amount equal to
the sum of (i) the excess of the aggregate "parachute payments" paid to or
for the Executive's benefit over the aggregate "parachute payments" that
could have been paid to or for the Executive's benefit without any portion
of such "parachute payments" not being deductible by reason of section 280G
of the Code; and (ii) interest on the amount set forth in clause (i) of
this sentence at the rate provided in section 1274(b)(2)(B) of the Code
from the date of the Executive's receipt of such excess until the date of
such payment.
17. Entire Agreement. This Agreement contains all the understandings
----------------
between the parties hereto pertaining to the matters referred to herein, and on
the Effective Date shall supersede all undertakings and agreements, whether oral
or in writing, previously entered into by them with respect thereto. The
Executive represents that, in executing this Agreement, he does not rely and has
not relied upon any representation or statement not set forth herein made by the
Company with regard to the subject matter, bases or effect of this Agreement or
otherwise.
18. Amendment or Modification. Waiver. No provision of this Agreement may
---------------------------------
be amended or waived unless such amendment or waiver is agreed to in writing,
signed by the Executive and by a duly authorized officer of the Company. No
waiver by any party hereto of any breach by another party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.
19. Notices. Any notice to be given hereunder shall be in writing and
-------
shall be deemed given when delivered personally, sent by courier or telecopy or
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:
To Executive at: Thomas P. Dixon
1881 Worcester Road
Framingham, MA 01701
To the Company at: Mariner Post-Acute Network, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
Any notice delivered personally or by courier under this Section 19 shall
be deemed given on the date delivered and any notice sent by telecopy or
registered or
16
<PAGE>
certified mail, postage prepaid, return receipt requested, shall be deemed given
on the date telecopied or mailed.
20. Severability. If any provision of this Agreement or the application of
------------
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.
21. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
22. Governing Law: Attorney's Fees.
------------------------------
(a) This Agreement will be governed by and construed in accordance
with the laws of the State of Georgia, without regard to its conflicts of
laws principles.
(b) The prevailing party in any dispute arising out of this Agreement
shall be entitled to be paid its reasonable attorney's fees incurred in
connection with such dispute from the other party to such dispute.
23. Dispute Resolution. The Executive and the Company shall not initiate
------------------
legal proceedings relating in any way to this Agreement or to the Executive's
employment or termination from employment with the Company until thirty (30)
days after the party against whom the claim is made ("respondent") receives
written notice from the claiming party of the specific nature of any purported
claims and the amount of any purported damages attributable to each such claim.
The Executive and the Company further agree that if respondent submits the
claiming party's claim to the CPR Institute for Dispute Resolution,
JAMS/Endispute, or other local dispute resolution service for nonbinding
mediation prior to the expiration of such thirty (30) day period, the claiming
party may not institute arbitration or other legal proceedings against
respondent until the earlier of: (a) the completion of good-faith mediation
efforts or (b) 90 days after the date on which the respondent received written
notice of the claimant's claim(s); provided, however, that nothing in this
Section 23 shall prohibit the Company from pursuing injunctive or other
equitable relief against the Executive prior to, contemporaneous with, or
subsequent to invoking or participating in these dispute resolution processes.
The Company shall pay the cost of the mediator.
17
<PAGE>
24. Headings. All descriptive headings of sections and paragraphs in this
--------
Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
25. Withholdings. All payments to the Executive under this Agreement
------------
shall be reduced by all applicable withholding required by federal, state or
local tax laws.
26. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MARINER POST-ACUTE NETWORK, INC.
BY: /s/ Susan Thomas Whittle
-------------------------------------------
NAME: Susan Thomas Whittle
TITLE: Senior Vice President and General Counsel
EXECUTIVE
/s/ Thomas P. Dixon
-------------------------------------------
THOMAS P. DIXON
18
<PAGE>
EXHIBIT 10.14
[SENIOR VICE PRESIDENT FORM]
EMPLOYMENT AGREEMENT
Employment Agreement dated as of ____________, 19__ between __________ (the
"Executive") and Mariner Post-Acute Network, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Company desires to employ the Executive as a [SENIOR VICE
PRESIDENT], and the Executive desires to accept such employment, for the term
and upon the other conditions hereinafter set forth; and
WHEREAS, as a condition of entering into this Agreement, the Executive
agrees to waive the Executive's rights, if any, against the Company and any
predecessor company under (i) any employment agreement and (ii) any other plan,
arrangement or agreement of any kind that provides any form of severance
payments; and
WHEREAS, the parties desire to enter into this Agreement setting forth the
terms and conditions of the employment relationship of the Executive with the
Company;
NOW, THEREFORE, the parties agree as follows:
1. Employment The Company hereby employs the Executive, and the Executive
----------
hereby accepts employment with the Company, upon the terms and subject to the
conditions set forth herein.
2. Term This Agreement shall commence on the date hereof (the "Effective
----
Date") and continue for the two-year period (the "Term") terminating on the
second anniversary of the Effective Date, or upon the Executive's earlier death,
disability or other termination of employment pursuant to Section 11; provided,
however, that commencing on the second anniversary of the Effective Date and on
each anniversary thereafter, the Term shall automatically be extended for one
additional year unless, not later than 90 days prior to any such anniversary,
either party hereto shall have notified the other party hereto in writing that
such extension shall not take effect.
3. Position. During the Term, the Executive shall serve as [SENIOR VICE
--------
PRESIDENT] of the Company or in such other executive position in the Company as
the Executive shall approve.
4. Duties and Reporting Relationship. During the Term, the Executive
---------------------------------
shall, on a full time basis, use his skills and render services to the best of
his abilities in supervising and conducting the operations of the Company and
shall not engage in any
<PAGE>
other business activities except with the prior written approval of the Board of
Directors of the Company (the "Board") or its duly authorized designee. The
Executive shall also perform such other executive and administrative duties (not
inconsistent with the position of [SENIOR VICE PRESIDENT]) as the Executive may
reasonably be expected to be capable of performing on behalf of the Company, as
may from time to time be authorized or directed by the Board. The Executive
agrees to be employed by the Company in all such capacities for the Term,
subject to all the covenants and conditions hereinafter set forth.
5. Place of Performance. The Executive shall perform his duties and
--------------------
conduct his business at [THE PRINCIPAL EXECUTIVE OFFICES OF THE COMPANY] OR
[SPECIFY OTHER LOCATION], except for required travel on the Company's business.
6. Salary and Annual Bonus.
-----------------------
(a) Base Salary. The Executive's base salary hereunder shall be
-----------
[$_______] a year, payable monthly and prorated for any partial year of
employment. The Board shall review such base salary at least annually and
make such adjustment from time to time as it may deem advisable, but the
base salary shall not at any time be less than [$__________] a year.
(b) Annual Bonus. The Company shall provide the Executive with an
------------
opportunity to earn upon achievement of target performance, an annual bonus
equal to fifty percent (50%) of his base salary (the "Target Bonus"), with
a minimum bonus of between fifty percent (50%) of Target Bonus upon
achievement of threshold performance and an opportunity to earn up to one
hundred fifty percent (150%) of the Target Bonus for performance in excess
of the targets.
7. Vacation, Holidays and Sick Leave. During the Term, the Executive
---------------------------------
shall be entitled to paid vacation, paid holidays and sick leave in accordance
with the Company's standard policies for its senior vice presidents.
8. Business Expenses. The Executive shall be reimbursed for all ordinary
-----------------
and necessary business expenses incurred by him in connection with his
employment upon timely submission by the Executive of receipts and other
documentation as required by the Internal Revenue Code and in conformance with
the Company's normal procedures.
9. Pension and Welfare Benefits. During the Term, the Executive shall be
----------------------------
eligible to participate fully in all health benefits, insurance programs,
pension and retirement plans and other employee benefit and compensation
arrangements available to vice presidents of the Company generally.
2
<PAGE>
10. Stock Options The Company, pursuant to the terms of its stock option
-------------
plan, may grant to the Executive, stock options to purchase a number of shares
of common stock.
11. Termination of Employment.
-------------------------
(a) General. The Executive's employment hereunder may be terminated
-------
without any breach of this Agreement only under the following
circumstances.
(b) Death or Disability.
-------------------
(i) The Executive's employment hereunder shall automatically
terminate upon the death of the Executive.
(ii) If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive is unable to perform the
essential functions of his job for any one hundred eighty (180) days
(whether or not consecutive) during any eighteen (18) month period,
and no reasonable accommodation can be made that will allow Executive
to perform his essential functions, the Company may terminate the
Executive's employment hereunder for any such incapacity (a
"Disability").
(c) Termination by the Company. The Company may terminate the
--------------------------
Executive's employment hereunder at any time, whether or not for Cause. For
purposes of this Agreement, "Cause" shall mean (i) the failure or refusal
by the Executive to perform his duties hereunder (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness), which has not ceased within ten (10) days after a written demand
for substantial performance is delivered to the Executive by the Company,
which demand identifies the manner in which the Company believes that the
Executive has not performed such duties, (ii) the engaging by the Executive
in willful misconduct or an act of moral turpitude which is materially
injurious to the Company, monetarily or otherwise (including, but not
limited to, conduct which violates Section 15 hereof) or (iii) the
conviction of the Executive of, or the entering of a plea of nolo
contendere by, the Executive with respect to, a felony.
(d) Termination by the Executive. The Executive shall be entitled to
----------------------------
terminate his employment hereunder (A) for Good Reason, (B) if his health
should become impaired to an extent that makes his continued performance of
his duties hereunder hazardous to his physical or mental health, provided
that the Executive shall have furnished the Company with a written
statement from a qualified doctor to such effect and provided, further,
that, at the Company's
3
<PAGE>
request, the Executive shall submit to an examination by a doctor selected
by the Company and such doctor shall have concurred in the conclusion of
the Executive's doctor or (C) without the Executive's express written
consent, any failure by the Company to comply with any material provision
of this Agreement, which failure has not been cured within ten (10) days
after notice of such noncompliance has been given by the Executive to the
Company. For purposes of this Agreement, "Good Reason" shall mean the
occurrence following a Change in Control during the term of this Agreement,
of any one of the following acts by the Company, or failures by the Company
to act, unless, in the case of any act or failure to act described below,
such act or failure to act is corrected prior to the Date of Termination
specified in the Notice of Termination given in respect thereof:
(i) any material diminution in the Executive's authorities or
responsibilities (including reporting responsibilities) which were in
effect immediately prior to the Change in Control or from his status,
title, position or responsibilities (including reporting
responsibilities) which were in effect following a Change in Control
pursuant to the Executive's consent to accept any such change; the
assignment to him of any duties or work responsibilities which are
inconsistent with such status, title, position or work
responsibilities; or any removal of the Executive from, or failure to
reappoint or reelect him to any of such positions, except if any such
changes are because of Disability, retirement, death or Cause;
(ii) a reduction by the Company in the Executive's base salary
or Target Bonus as in effect on the date hereof or as the same may be
increased from time to time except for across-the-board salary
reductions similarly affecting all senior executives of the Company
and all senior executives of any Person (as defined in Section
11(h)(i) below) in control of the Company provided in no event shall
any such reduction reduce the Executive's base salary below
[$_________];
(iii) the relocation of the Executive's office at which he is to
perform his duties, to a location more than fifty (50) miles from the
location at which the Executive performed his duties prior to the
Change in Control, except for required travel on the Company's
business to an extent substantially consistent with his business
travel obligations prior to the Change in Control;
(iv) the failure by the Company, without the Executive's
consent, to pay to the Executive any portion of the Executive's
current compensation;
4
<PAGE>
(v) the failure by the Company to continue to provide the
Executive with benefits substantially similar in value to the
Executive in the aggregate to those enjoyed by the Executive under any
of the Company's pension, life insurance, medical, health and
accident, or disability plans in which the Executive was participating
immediately prior to the Change in Control, unless the Executive
participates after the Change in Control in other comparable benefit
plans generally available to senior executives of the Company and
senior executives of any Person in control of the Company;
(vi) any purported termination of the Executive's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 11(f) below; for purposes of this
Agreement, no such purported termination shall be effective.
The Executive's continued employment for 6 months following any act or failure
to act constituting Good Reason hereunder without the delivery of a Notice of
Termination shall constitute consent to, and a waiver of rights with respect to,
such act or failure to act.
(e) Voluntary Resignation. Should the Executive wish to resign from
---------------------
his position with the Company or terminate his employment for other than
Good Reason during the Term, the Executive shall give sixty (60) days
written notice to the Company ("Notice Period"), setting forth the reasons
and specifying the date as of which his resignation is to become effective.
During the Notice Period, the Executive shall cooperate fully with the
Company in achieving a smooth transition of the Executive's duties and
responsibilities to such person(s) as may be designated by the Company. The
Company reserves the right to accelerate the Date of Termination by giving
the Executive notice and payment of amounts due to the Executive under
Section 6(a) and, to the extent applicable, Section 6(b) for the balance of
the Notice Period. The Company's obligation to continue to employ the
Executive or to continue payment of the amounts described in the preceding
sentence shall cease immediately if: (1) the Executive has not satisfied
his obligations to cooperate fully with a smooth transition or (2) the
Company has grounds to terminate the Executive's employment immediately for
Cause.
(f) Notice of Termination. Any purported termination of the
---------------------
Executive's employment by the Company or by the Executive shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 19. "Notice of Termination" shall mean a notice
that shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide
5
<PAGE>
a basis for termination of the Executive's employment under the provision
so indicated.
(g) Date of Termination. "Date of Termination" shall mean (i) if the
-------------------
Executive's employment is terminated because of death, the date of the
Executive's death, (ii) if the Executive's employment is terminated for
Disability, the date Notice of Termination is given, (iii) if the
Executive's employment is terminated pursuant to Subsection (c), (d) or (e)
hereof or for any other reason (other than death or Disability), the date
specified in the Notice of Termination which shall not be less than sixty
(60) days from the date such Notice of Termination is given.
(h) Change in Control. For purposes of this Agreement, a Change in
-----------------
Control of the Company shall have occurred if
(i) any "Person" (as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934 (the "Exchange Act") as modified and
used in Sections 13(d) and 14(d) of the Exchange Act (other than (1)
the Company or any of its subsidiaries, (2) any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or any of its subsidiaries, (3) an underwriter temporarily
holding securities pursuant to an offering of such securities, (4) any
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
the Company's common stock or (5) Apollo Management, LP, any of its
affiliates and any investments funds managed by it (collectively,
"Apollo"))), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities
of the Company representing more than 50% of the combined voting power
of the Company's then outstanding voting securities;
(ii) during any period of not more than two (2) consecutive
years, not including any period prior to the date of this Agreement,
individuals who at the beginning of such period constitute the Board,
and any new director (other than a director designated by a person
(other than Apollo) who has entered into an agreement with the Company
to effect a transaction described in clause (i), (iii), or (iv) of
this Section 1l(h)) whose election by the Board or nomination for
election by the Company's stockholders was (A) made pursuant to the
Stockholders Agreement affecting the Company dated November 4, 1997 or
(B) approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or
6
<PAGE>
nomination for election was previously so approved, cease for any
reason to constitute at least a majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
both (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
50% or more of the combined voting power of the voting securities of
the Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation in
which no person acquires 50% or more of the combined voting power of
the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets (or
any transaction having a similar effect) other than such a sale or
disposition to Apollo.
(i) Return of Property. When the Executive ceases to be employed by
------------------
the Company, the Executive will promptly surrender to the Company all
Company property, including without limitation, all records and other
documents obtained by him or entrusted to him during the course of his
employment with the Company provided, however, that the Executive may
retain copies of such documents as necessary for the Executive's personal
records for federal income tax purposes.
12. Compensation During Disability; Death or Upon Termination.
---------------------------------------------------------
(a) During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("Disability Period"), the Executive shall continue to receive his base
salary at the rate then in effect for such period until his employment is
terminated pursuant to Section 1l(b)(ii) hereof, provided that payments so
made to the Executive during the Disability Period shall be reduced by the
sum of the amounts, if any, payable to the Executive with respect to such
period under disability benefit plans of the Company or under the Social
Security disability insurance program, and which amounts were not
previously applied to reduce any such payment.
7
<PAGE>
(b) If the Executive's employment is terminated by his death or
Disability, the Company shall pay (i) any base salary due to the Executive
under Section 6(a) through the date of such termination and (ii) an amount
equal to the Target Bonus he would have received for the fiscal year that
ends on or immediately after the Date of Termination, assuming the Company
achieved the lowest target level for which a bonus is paid under the plan
described in Section 6(b), prorated for the period beginning on the first
day of the fiscal year in which occurs the Date of Termination through the
Date of Termination. In addition, if the Executive's employment is
terminated by his death, the Company shall continue to pay to his estate
his salary for an additional six months at the rate then in effect.
(c) If the Executive's employment is terminated by the Company for
Cause or by the Executive for other than Good Reason, the Company shall pay
the Executive his base salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given, and the Company shall
have no further obligations to the Executive under this Agreement.
(d) If following a Change in Control (A) the Company terminates the
Executive's employment without Cause, or (B) the Executive terminates his
employment for Good Reason, then
(i) the Company shall pay the Executive his base salary
through the Date of Termination at the rate in effect at the time
Notice of Termination is given and all other unpaid amounts, if any,
to which the Executive is entitled as of the Date of Termination under
any compensation plan or program of the Company, at the time such
payments are due;
(ii) in lieu of any further salary payments to the Executive
for periods subsequent to the Date of Termination, the Company shall
pay as liquidated damages to the Executive an aggregate amount equal
to the product of (A) the sum of (1) the Executive's base salary at
the rate in effect of the Date of Termination and (2) the average of
the annual bonuses actually paid to the Executive by the Company with
respect to the two (2) fiscal years which immediately precede the year
of the Term which the Date of Termination occurs provided if there was
--------
bonus or bonuses paid to the Executive with respect only to one fiscal
year that immediately precedes the year within the Term in which the
Date of Termination occurs, then such single year's bonus or bonuses
shall be utilized in the calculation pursuant to this clause (2),
provided, further, that for purposes of this Agreement, if the Date of
-----------------
Termination occurs before the end of the first fiscal year that ends
after the Effective Date, the
8
<PAGE>
amount of the bonus paid by the Company to the Executive shall be
deemed to be the Target Bonus and (B) the number two (2);
(iii) if it is determined that the Company has met financial
objectives established pursuant to its Incentive Compensation Plan and
to pay bonuses to eligible employees for the fiscal year within which
the Date of Termination occurs, the Company shall pay the Executive,
as long as the Executive is otherwise eligible for such payment,
[his/her] bonus prorated for the period beginning on the first day of
the fiscal year in which occurs the Date of Termination through Date
of Termination, payable at the same time and in the same manner as the
Company customarily pays such other bonuses;
(iv) the Company shall continue coverage for the Executive, on
the same terms and conditions as would be applicable if the Executive
were an active Employee, under the Company's life insurance, medical,
health and similar welfare benefit plans (other then group disability
benefits) for a period of twenty-four (24) months. Benefits otherwise
receivable by the Executive pursuant to this Section 12(d)(iv) shall
be reduced to the extent comparable benefits are actually received by
the Executive from a subsequent employer during the period during
which the Company is required to provide such benefits, and the
Executive shall report any such benefits actually received by him to
the Company; and
(v) the payments provided for in this Section 12(d) (other
than Section 12(d)(iv)) shall be made not later than the thirtieth
(30th) day following the Date of Termination, provided, however, that
if the amounts of such payments, and the limitation on such payments
set forth in Section 16 hereof, cannot be finally determined on or
before such day, the Company shall pay to the Executive on such day an
estimate, as determined in good faith by the Company, of the minimum
amount of such payments to which the Executive is clearly entitled and
shall pay the remainder of such payments (together with interest at
the rate provided in section 1274(b)(2)(B) of the Code (as defined in
Section 16)) as soon as the amount thereof can be determined but in no
event later than the sixtieth (60th) day after the Date of
Termination. In the event that the amount of the estimated payments
exceeds the amount determined by the Company within six (6) months
after payment to have been due, such excess shall constitute a loan by
the Company to the Executive, payable no later than the thirtieth
(30th) business day after demand by the Company (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code).
At the time that payments are made under this Section 12(d), the
Company shall provide the Executive with a written statement setting
forth the
9
<PAGE>
manner in which such payments were calculated and the basis for such
calculations including, without limitation, any opinions or other
advice the Company has received from outside counsel, auditors or
consultants (and any such opinions or advice which are in writing
shall be attached to the statement).
(vi) If the Executive continues to be employed by the Company
for one (1) year after a Change of Control and has not by such time
given Notice of Termination for Good Reason, the Executive will have
waived his right to exercise his rights under Section 12(d) hereof
with respect to any act or failure to act which constitutes Good
Reason.
(e) If the Executive terminates his employment under clause (C) of
Section 11(d) hereof or, prior to any Change of Control, the Company
terminates the Executive's employment without Cause, then
(i) the Company shall pay the Executive his base salary
through the Date of Termination at the rate in effect at the time
Notice of Termination is given and all other unpaid amounts, if any,
to which the Executive is entitled as of the Date of Termination under
any compensation plan or program of the Company, at the time such
payments are due;
(ii) the Company shall pay to the Executive the greater of
either (A) the remaining amount of base salary owed for the Term; or
(B) an aggregate amount equal to the sum of (1) nine (9) months of the
Executive's base salary at the rate in effect as of the Date of
Termination plus (2) one (1) additional month of the Executive's base
salary at such rate for each full year of service beyond the first
anniversary of this Agreement, not to exceed eighteen (18) months of
base salary payments; such amount to be paid in substantially equal
monthly installments during the period commencing with the month
immediately following the month in which the Date of Termination
occurs or in a lump sum payment, as decided by the Company;
(iii) the Company shall pay the Executive his Target Bonus
prorated for the period beginning on the first day of the fiscal year
in which occurs the Date of Termination through the Date of
Termination;
(iv) the Company shall continue coverage for the Executive, on
the same terms and conditions as would be applicable if the Executive
were an active employee, under the Company's life insurance, medical,
health, and similar welfare benefit plans (other then group
disability) for
10
<PAGE>
a period not to exceed the number of months the Executive will be paid
under Section 12(e)(ii) beginning on the Date of Termination;
(v) benefits otherwise receivable by the Executive pursuant to
clause (iv) of this Section 12(e) shall be reduced to the extent
comparable benefits are actually received by the Executive from a
subsequent employer during the period which the Company is required to
provide such benefits, and the Executive shall report any such
benefits actually received by him to the Company;
(vi) the payments made to the Executive under Section 12(e)
hereof will be reduced by the amount of payments provided for by any
subsequent employer of the executive for a position obtained after the
Date of Termination.
(f) If the Executive experiences a termination under Section 12(d) or
12(e) hereof, until the Executive finds another full-time position or for 6
months, whichever is earlier, the Company shall provide the Executive with
professional outplacement services of the Executive's choosing and shall
reimburse the Executive documented incidental outplacement expenses
directly related to the Executive's job search such as resume mailing,
interview trips, and clerical support, subject to a maximum cost of $10,000
for such outplacement services and incidental expenses. The Executive's
choice of professional outplacement services is subject to the Company's
reasonable prior approval. If the Company has not approved or disapproved
of the Executive's choice within ten (10) business days of receiving notice
of such choice, the Company will be deemed to have given is approval. Any
approval by the Company will be in writing and will state the basis for
such disapproval. The Executive will not be entitled to receive cash or
lieu of the professional outplacement services provided pursuant to this
Section.
(g) If the Executive shall terminate his employment under clause (B)
of Sections 11(d) or 11(e) hereof, the Company shall pay the Executive his
base salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, and the Company shall have no further
obligations to the Executive under this Agreement.
(h) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 12 by seeking other employment or
otherwise, and, except as provided in Sections 12(e) hereof, the amount of
any payment or benefit provided for in this Section 12 shall not be reduced
by any compensation earned by the Executive as the result of employment by
another employer or by retirement benefits.
11
<PAGE>
(i) Release. Prior to making any payment pursuant to Sections
-------
12(d)(iii) and 12(d)(iv) or Sections 12(e)(ii) and 12(e)(iii), whichever is
applicable, the Company shall have the right to require the Executive to
sign, and the Executive hereby agrees to sign, an agreement to be bound by
the terms of Section 15 of this Agreement and a waiver of all claims the
Executive may have (including any claims under the Age Discrimination in
Employment Act), and the Company may withhold payment of such amount until
the period during which the Executive may revoke such waiver (normally
seven days) has elapsed.
13. Representations and Covenants.
-----------------------------
(a) The Company represents and warrants that this Agreement has been
authorized by all necessary corporate action of the Company and is a valid
and binding agreement of the Company enforceable against it in accordance
with its terms.
(b) The Executive represents and warrants that he is not a party to
any agreement or instrument which would prevent him from entering into or
performing his duties in any way under this Agreement. The Executive agrees
and covenants that he will obtain, and submit to, such physical
examinations as may be necessary to facilitate the Company obtaining an
insurance policy for its benefit insuring the life of the Executive.
14. Successors: Binding Agreement.
-----------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place.
(b) This Agreement is a personal contract and the rights and
interests of the Executive hereunder may not be sold, transferred,
assigned, pledged, encumbered, or hypothecated by him, except as otherwise
expressly permitted by the provisions of this Agreement. This Agreement
shall inure to the benefit of and be enforceable by the Executive and his
personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If the Executive should die
while any amount would still be payable to him hereunder had the Executive
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to his
devisee, legatee or other designee or, if there is no such designee, to his
estate.
12
<PAGE>
15. Confidentiality and Non-Competition Covenants.
---------------------------------------------
(a) The Executive covenants and agrees that he will not at any time
during or at any time after the end of the Term, directly or indirectly,
use for his own account, or disclose to any person, firm or corporation,
other than authorized officers, directors and employees of the Company or
its subsidiaries, Confidential Information (as hereinafter defined) that is
treated as trade secrets by the Company and will not at any time during or
for a period equal to the number of payments which are being made under
Section 12(e) hereof directly or indirectly, use for his own account, or
disclose to any person, firm or corporation, other than authorized
officers, directors and employees of the Company or its subsidiaries, any
other Confidential Information. As used herein, "Confidential Information"
of the Company means information of any kind, nature or description which
is disclosed to or otherwise known to the Executive as a direct or indirect
consequence of his association with the Company, which information is not
generally known to the public or in the business in which the Company is
engaged or which information relates to specific investment opportunities
within the scope of the Company's business which were considered by the
Executive or the Company during the term of this Agreement. Confidential
Information that is treated as confidential trade secrets by the Company
shall include, but not be limited to, strategic operating plans and
budgets, policy and procedure manuals, computer programs, financial forms
and information, patient or resident lists and accounts, supplier
information, accounting forms and procedures, personnel policies,
information pertaining to the salaries, positions and performance reviews
of the Company's employees, information on the methods of the Company's
operations, research and data developed by or for the benefit of the
Company and information relating to revenues, costs, profits and the
financial condition of the Company. During the Term and for a period of two
years following the termination of the Executive's employment, the
Executive shall not induce any employee of the Company or its subsidiaries
to terminate his or her employment by the Company or its subsidiaries in
order to obtain employment by any person, firm or corporation affiliated
with the Executive.
(b) The Executive covenants and agrees that any information,
materials, ideas, discoveries, techniques or programs developed or
discovered by the Executive in connection with the performance of his
duties hereunder shall remain the sole and exclusive property of the
Company and, to the extent it constitutes Confidential Information, shall
be subject to the covenants contained in the preceding paragraph.
13
<PAGE>
(c) The Executive covenants and agrees that during the Term and, if
the Executive's employment is terminated by the Executive for other than
Good Reason, for a period of two (2) years following the termination of the
Executive's employment, the Executive shall not, directly or indirectly,
own an interest in, operate, join, control, or participate as a partner,
director, principal, officer, or agent of, enter into the employment of, or
act as a consultant to, in any case in which he has control or supervision
over a significant portion of any entity (i) whose principal business is
the operation of one or more skilled nursing facilities or (ii) which
operates a skilled nursing business that is material in relation to the
Company's comparable business and (iii) in either case, which derives at
least 10% of its skilled nursing facility revenue from facilities which are
located within 35 miles of centers or facilities operated by the Company.
Notwithstanding anything herein to the contrary, the foregoing provisions
of this Section 15(c) shall not prevent the Executive from acquiring
securities representing not more than 5% of the outstanding voting
securities of any publicly held corporation.
(d) Without limiting the right of the Company to pursue all other
legal and equitable remedies available for violation by the Executive of
the covenants contained in this Section 15, it is expressly agreed by the
Executive and the Company that such other remedies cannot fully compensate
the Company for any such violation and that the Company shall be entitled
to injunctive relief, without the necessity of proving actual monetary
loss, to prevent any such violation or any continuing violation thereof.
Each party intends and agrees that if in any action before any court or
agency legally empowered to enforce the covenants contained in this Section
15, any term, restriction, covenant or promise contained herein is found to
be unreasonable and accordingly unenforceable, then such term, restriction,
covenant or promise shall be deemed modified to the extent necessary to
make it enforceable by such court or agency. The covenants contained in
Section 15 shall survive the conclusion of the Executive's employment by
the Company.
16. Prohibition on Parachute Payments.
---------------------------------
(a) Notwithstanding any other provisions of this Agreement, any
payment or benefit received or to be received by the Executive in
connection with a Change in Control of the Company or the termination of
the Executive's employment (whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the Company, any person
whose actions result in a Change in Control or any Person affiliated with
the Company or such Person) (all such payments and benefits, including,
without limitation, base salary and bonus payments, being hereinafter
called "Total Payments") would not be deductible (in whole or in part), by
the Company, an affiliate or any Person making such payment or providing
such benefit as a result of section
14
<PAGE>
280G of the Internal Revenue Code of 1986, as amended (the "Code"), then,
to the extent necessary to make such portion of the Total Payments
deductible (and after taking into account any reduction in the Total
Payments provided by reason of section 280G of the Code in such other plan,
arrangement or agreement), (A) such cash payments shall first be reduced
(if necessary, to zero), and (B) all other non-cash payments by the Company
to the Executive shall next be reduced (if necessary, to zero). For
purposes of this limitation (i) no portion of the Total Payments the
receipt or enjoyment of which the Executive shall have effectively waived
in writing prior to the Date of Termination shall be taken into account,
(ii) no portion of the Total Payments shall be taken into account which in
the opinion of tax counsel selected by the Company's independent auditors
and reasonably acceptable to the Executive does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code, including by
reason of section 280G(b)(4)(A) of the Code, (iii) such payments shall be
reduced only to the extent necessary so that the Total Payments (other than
those referred to in clauses (i) or (ii)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning
of section 280G(b)(4)(B) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel referred to
in clause (ii); and (iv) the value of any non-cash benefit or any deferred
payment or benefit included in the Total Payments shall be determined by
the Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code.
(b) If it is established pursuant to a final determination of a court
or an Internal Revenue Service proceeding that, notwithstanding the good
faith of the Executive and the Company in applying the terms of this
Section 16, the aggregate "parachute payments" paid to or for the
Executive's benefit are in an amount that would result in any portion of
such "parachute payments" not being deductible by reason of section 280G of
the Code, then the Executive shall have an obligation to pay the Company
upon demand an amount equal to the sum of (i) the excess of the aggregate
"parachute payments" paid to or for the Executive's benefit over the
aggregate "parachute payments" that could have been paid to or for the
Executive's benefit without any portion of such "parachute payments" not
being deductible by reason of section 280G of the Code; and (ii) interest
on the amount set forth in clause (i) of this sentence at the rate provided
in section 1274(b)(2)(B) of the Code from the date of the Executive's
receipt of such excess until the date of such payment.
17. Entire Agreement. This Agreement contains all the understandings
----------------
between the parties hereto pertaining to the matters referred to herein, and on
the Effective Date shall supersede all undertakings and agreements, whether oral
or in writing, previously entered into by them with respect thereto. The
Executive represents that, in executing this Agreement, he does not rely and has
not relied upon any
15
<PAGE>
representation or statement not set forth herein made by the Company with regard
to the subject matter, bases or effect of this Agreement or otherwise.
18. Amendment or Modification. Waiver. No provision of this Agreement may
---------------------------------
be amended or waived unless such amendment or waiver is agreed to in writing,
signed by the Executive and by a duly authorized officer of the Company. No
waiver by any party hereto of any breach by another party hereto of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.
19. Notices. Any notice to be given hereunder shall be in writing and
-------
shall be deemed given when delivered personally, sent by courier or telecopy or
registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such other
address as such party may subsequently give notice of hereunder in writing:
To Executive at: [FILL IN ADDRESS]
To the Company at: Mariner Post-Acute Network, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
Any notice delivered personally or by courier under this Section 19
shall be deemed given on the date delivered and any notice sent by telecopy or
registered or certified mail, postage prepaid, return receipt requested, shall
be deemed given on the date telecopied or mailed.
20. Severability. If any provision of this Agreement or the application of
------------
any such provision to any party or circumstances shall be determined by any
court of competent jurisdiction to be invalid and unenforceable to any extent,
the remainder of this Agreement or the application of such provision to such
person or circumstances other than those to which it is so determined to be
invalid and unenforceable, shall not be affected thereby, and each provision
hereof shall be validated and shall be enforced to the fullest extent permitted
by law.
21. Survivorship. The respective rights and obligations of the parties
------------
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
16
<PAGE>
22. Governing Law: Attorney's Fees.
------------------------------
(a) This Agreement will be governed by and construed in accordance
with the laws of the State of Georgia, without regard to its conflicts of
laws principles.
(b) The prevailing party in any dispute arising out of this Agreement
shall be entitled to be paid its reasonable attorney's fees incurred in
connection with such dispute from the other party to such dispute.
23. Dispute Resolution. The Executive and the Company shall not initiate
------------------
legal proceedings relating in any way to this Agreement or to the Executive's
employment or termination from employment with the Company until thirty (30)
days after the party against whom the claim is made ("respondent") receives
written notice from the claiming party of the specific nature of any purported
claims and the amount of any purported damages attributable to each such claim.
The Executive and the Company further agree that if respondent submits the
claiming party's claim to the CPR Institute for Dispute Resolution,
JAMS/Endispute, or other local dispute resolution service for nonbinding
mediation prior to the expiration of such thirty (30) day period, the claiming
party may not institute arbitration or other legal proceedings against
respondent until the earlier of: (a) the completion of good-faith mediation
efforts or (b) 90 days after the date on which the respondent received written
notice of the claimant's claim(s); provided, however, that nothing in this
Section 23 shall prohibit the Company from pursuing injunctive or other
equitable relief against the Executive prior to, contemporaneous with, or
subsequent to invoking or participating in these dispute resolution processes.
The Company shall pay the cost of the mediator.
24. Headings. All descriptive headings of sections and paragraphs in this
--------
Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
25. Withholdings. All payments to the Executive under this Agreement
------------
shall be reduced by all applicable withholding required by federal, state or
local tax laws.
26. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MARINER POST-ACUTE NETWORK, INC.
BY:____________________________________
NAME:__________________________________
TITLE:_________________________________
EXECUTIVE
_______________________________________
18
<PAGE>
OPTIONAL PROVISIONS
-------------------
(c) Execution Bonus. On the Effective Date, the Company shall pay to
---------------
the Executive [$______] (subject to any applicable payroll or other taxes
required to be withheld).
Voluntary Resignation. If the Executive terminates his employment for
----------------------
other than Good Reason within twelve (12) months from the Effective Date, the
Executive shall be obligated to refund the amount that was received under
Section 6(c) of this Agreement.
19
<PAGE>
EXHIBIT 10.17
FIRST AMENDMENT TO
PARAGON HEALTH NETWORK, INC.
1997 LONG-TERM INCENTIVE PLAN
THIS FIRST AMENDMENT is made on the day of , 1998, by Paragon
--- --------
Health Network, Inc., a Delaware corporation (the "Corporation").
INTRODUCTION
------------
WHEREAS, the Corporation adopted the Paragon Health Network, Inc. 1997
Long-Term Incentive Plan (the "Plan"), effective November 4, 1997;
WHEREAS, the stockholders of the Corporation approved the Plan at the
Meeting of Stockholders held on , 199 ;
- --------- -------------- --
WHEREAS, the Corporation has entered into an Agreement and Plan of Merger,
dated April 13, 1998 with Mariner Health Group, Inc. ("Mariner") and Paragon
Acquisition Sub, Inc. ("Sub"), pursuant to which Mariner will merge with and
into Sub with Mariner surviving as a wholly-owned subsidiary of the Corporation
(the "Merger");
WHEREAS, in connection with the Merger, the Corporation intends to issue
options to certain of the directors and officers of Mariner, and after the
issuance of such options, the Corporation will have insufficient shares of
common stock, par value $.01 per share, of the Corporation ("Common Stock")
available under the Plan to continue to utilize the Plan as a component of
compensation for qualified officers, key employees and consultants; and
WHEREAS, the Corporation desires to amend the Plan to increase the number
of shares of Common Stock authorized for issuance under the Plan from 6,000,000
(adjusted to reflect a three-for-one stock split that occurred on December 30,
1997, whereby the number of shares of Common Stock available for issuance under
the Plan was increased from 2,000,000 to 6,000,000 pursuant to Section 6.7 of
the Plan) to 10,000,000 shares.
AMENDMENT
---------
NOW, THEREFORE, effective July 31, 1998 and subject to approval by the
holders of Common Stock, the first sentence of Section 1.5 of the Plan is hereby
amended and modified by as follows:
"Subject to adjustment as provided in Section 6.7, 10,000,000
shares of Common Stock shall be available under this Plan,
reduced by the sum of the aggregate number of shares of Common
Stock which become subject to outstanding options, including
Director Options, outstanding Free-Standing SARs, outstanding
Stock Awards and outstanding Performance Shares."
<PAGE>
Except as specifically provided for herein, the Plan shall remain in full
force and effect as prior to this First Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed as of the day and year first above written.
PARAGON HEALTH NETWORK, INC.
By:
-------------------------
Title:
----------------------
ATTEST:
By:
-------------------------
Title:
----------------------
[CORPORATE SEAL]
2
<PAGE>
EXHIBIT 10.20
FIRST AMENDMENT TO THE
NEW GRANCARE, INC.
1996 STOCK INCENTIVE PLAN
THIS FIRST AMENDMENT is made on the _______ day of ___________, 1997, by
GRANCARE, INC., a Delaware corporation (the "Primary Sponsor").
INTRODUCTION:
------------
The Primary Sponsor maintains the New GranCare, Inc. 1996 Stock Incentive Plan
(the "Plan").
The Primary Sponsor has changed its name from New GranCare, Inc. to GranCare,
Inc. and now desires to amend the Plan to reflect the new name of the Primary
Sponsor.
NOW, THEREFORE, the Primary Sponsor does hereby amend the Plan, effective as
of February 12, 1997, so that the Plan will hereinafter be referred to as the
GranCare, Inc. 1996 Stock Incentive Plan and each reference contained in the
Plan to the New GranCare, Inc. 1996 Stock Incentive Plan shall be deemed to be a
reference to the GranCare, Inc. 1996 Stock Incentive Plan.
Except as specifically amended by this First Amendment, the Plan will remain
in full force and effect as prior to this First Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
executed as the day and year first above written.
GRANCARE, INC.
By:
------------------------------
Title:
---------------------------
ATTEST:
By:
-----------------------------
Title:
--------------------------
[CORPORATE SEAL]
9
<PAGE>
EXHIBIT 10.22
FIRST AMENDMENT TO THE
NEW GRANCARE, INC.
1996 REPLACEMENT STOCK OPTION PLAN
THIS FIRST AMENDMENT is made on the _______ day of ___________, 1997, by
GRANCARE, INC., a Delaware corporation (the "Primary Sponsor").
INTRODUCTION:
------------
The Primary Sponsor maintains the New GranCare, Inc. 1996 Replacement Stock
Option Plan (the "Plan").
The Primary Sponsor has changed its name from New GranCare, Inc. to
GranCare, Inc. and now desires to amend the Plan to reflect the new name of the
Primary Sponsor.
NOW, THEREFORE, the Primary Sponsor does hereby amend the Plan, effective as
of February 12, 1997, so that the Plan will hereinafter be referred to as the
GranCare, Inc. 1996 Replacement Stock Option Plan and each reference contained
in the Plan to the New GranCare, Inc. 1996 Replacement Stock Option Plan will be
deemed to be a reference to the GranCare, Inc. 1996 Replacement Stock Option
Plan.
Except as specifically amended by this First Amendment, the Plan will remain
in full force and effect as prior to this First Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
executed as the day and year first above written.
GRANCARE, INC.
By:
----------------------------
Title:
-------------------------
ATTEST:
By:
--------------------------
Title:
-----------------------
[CORPORATE SEAL]
3
<PAGE>
EXHIBIT 10.24
FIRST AMENDMENT TO THE
NEW GRANCARE, INC.
OUTSIDE DIRECTORS STOCK INCENTIVE PLAN
THIS FIRST AMENDMENT is made on the _______ day of ___________, 1997, by
GRANCARE, INC., a Delaware corporation (the "Primary Sponsor").
INTRODUCTION:
------------
The Primary Sponsor maintains the New GranCare, Inc. Outside Directors Stock
Incentive Plan (the "Plan"), effective February 12, 1997.
The Primary Sponsor has changed its name from New GranCare, Inc. to GranCare,
Inc. and now desires to amend the Plan to reflect the new name of the Primary
Sponsor.
NOW, THEREFORE, the Primary Sponsor does hereby amend the Plan, effective as
of February 12, 1997, so that the Plan will hereinafter be referred to as the
GranCare, Inc. Outside Directors Stock Incentive Plan and each reference
contained in the Plan to the New GranCare, Inc. Outside Directors Stock
Incentive Plan will be deemed to be a reference to the GranCare, Inc. Outside
Directors Stock Incentive Plan.
Except as specifically amended by this First Amendment, the Plan will remain
in full force and effect as prior to this First Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
executed as the day and year first above written.
GRANCARE, INC.
By:
----------------------------
Title:
-------------------------
ATTEST:
By:
--------------------------
Title:
-----------------------
[CORPORATE SEAL]
4
<PAGE>
EXHIBIT 10.25
SECOND AMENDMENT TO THE
NEW GRANCARE, INC.
OUTSIDE DIRECTORS STOCK INCENTIVE PLAN
THIS SECOND AMENDMENT is made on the ________ day of ___________, 1997, by
GRANCARE, INC., a Delaware corporation ("Primary Sponsor").
INTRODUCTION
------------
The Primary Sponsor maintains the GranCare, Inc. Outside Directors Stock
Incentive Plan (the "Plan"), effective February 12, 1997.
The Plan currently states that, as of the date of initial election or
appointment of an individual as an eligible director, such director will receive
a stock option (the "Stock Option") to purchase 10,000 shares of common stock of
the Primary Sponsor.
The Primary Sponsor now desires to amend the Plan to increase the number of
shares of common stock of the Primary Sponsor subject to the Stock Option that
directors will receive as of the date of the initial election or appointment as
an eligible director.
AMENDMENT
---------
1. Effective February 12, 1997, the Plan is amended by deleting Section 6.1 in
its entirety and substituting the following language:
"6.1 As of the date of the initial election or appointment of
an individual as an Eligible Director, such Director shall be granted a
Stock Option to purchase 15,000 shares of Common Stock upon the terms and
conditions of this Section 6."
2. Effective February 12, 1997, the Plan is amended by deleting Section 6.2 in
its entirety and substituting the following language:
"6.2 On the date of each annual meeting of the shareholders
of the Company, beginning with the 1997 annual meeting, each individual who
is at that time serving as an Eligible Director, whether or not such
individual is standing for re-election as a member of the Board of
Directors at that particular meeting, shall be granted a Stock Option to
purchase 6,000 shares of Common Stock upon the terms and conditions of the
this Section 6, provided such individual has served as a member of the
Board of Directors for at least six (6) months (service as a member of the
Board of Directors shall include service as a director of GranCare, Inc.
prior to the Distribution of New GranCare, Inc.), until the Director has
received grants of Stock Options under this Plan, covering a total of
27,000 shares of Common Stock."
1
<PAGE>
Except as specifically amended by this Second Amendment, the Plan will
remain in full force and effect as prior to this Second Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
be executed as of the day and the year first above written.
GRANCARE, INC.
By:
-------------------------------
Title:
----------------------------
ATTEST:
By:
-----------------------------
Title:
--------------------------
2
<PAGE>
EXHIBIT 10.48
FIRST AMENDMENT
FIRST AMENDMENT, dated as of July 8, 1998 (this "Amendment"), to the Credit
---------
Agreement, dated as of November 4, 1997 (the "Credit Agreement"), among PARAGON
----------------
HEALTH NETWORK, INC., a Delaware corporation (the "Borrower"), the several banks
--------
and other financial institutions or entities from time to time parties thereto
(the "Lenders"), NATIONSBANK, N.A., as documentation agent (in such capacity,
-------
the "Documentation Agent"), and THE CHASE MANHATTAN BANK, as Administrative
-------------------
Agent (in such capacity, the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to make,
and have made, certain loans and other extensions of credit to the Borrower; and
WHEREAS, the Borrower has requested, and, upon this Amendment becoming
effective, the Lenders have agreed, that certain provisions of the Credit
Agreement be amended in the manner provided for in this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. (a) General. Terms defined in the Credit Agreement
------------- -------
and used herein shall, unless otherwise indicated, have the meanings given to
them in the Credit Agreement. Terms defined and used in this Amendment shall
have the meanings given to them in this Amendment.
(b) Replacement of Definitions. Section 1.1 of the Credit Agreement is
--------------------------
hereby amended by deleting therefrom the definitions of the following
definitions in their entirety and substituting in lieu thereof the following
definitions in the appropriate alphabetical order:
'Consolidated EBITDA': for any period, Consolidated Net Income for such
-------------------
period plus, without duplication and to the extent reflected as a charge in
----
the statement of such Consolidated Net Income for such period, the sum of
(a) total income tax expense, (b) interest expense, amortization or
writeoff of debt discount and debt issuance costs and commissions,
discounts and other fees and charges associated with Indebtedness
(including the Loans), (c) depreciation and amortization expense, (d)
amortization of intangibles (including, but not limited to, goodwill) and
organization costs, (e) any extraordinary or non-recurring expenses or
losses (including, whether or not otherwise includable as a separate item
in the statement of such Consolidated Net Income for such period, losses on
sales of assets outside of the ordinary course of business) or, with
respect to the computation of the financial covenants contained in Section
7.1 for any Reference Period ending on or prior to September 30, 1998,
writeoffs or changes to the income statements increasing the amount of
reserves, in an aggregate amount not to
<PAGE>
2
exceed $15,000,000, of accounts receivable of the Borrower and its
Subsidiaries, (f) any other non-cash charges, (g) with respect to the
computation of the financial covenants contained in Section 7.1 for any
Reference Period ending on or prior to September 30, 1998, fees and
expenses related to the transactions contemplated by the Recapitalization
Agreement (including conforming accounting adjustments) and the financing
thereof in an aggregate amount equal to the lesser of the actual amount of
such expenses and $122,000,000, (h) non-recurring cash charges taken within
six months of the First Amendment Effective Date as a result of the Mariner
Merger in an aggregate amount not to exceed $25,000,000 (such charges not
in excess of such amount, the "Mariner Merger Charges"), (i) any lease
----------------------
payments by Summit Institute for Pulmonary Medicine and Rehabilitation,
Inc. ("Summit") with respect to the Riverside Community Hospital, Bossier
------
City, Bossier Parish, Louisiana, to the extent and in the proportion of the
guarantee by Summit of the then outstanding principal amount of the Summit
IRB (the "Summit Guarantee") and (j) with respect to the computation of the
----------------
financial covenants contained in Section 7.1, for the Reference Period
ending: (i) December 31, 1997, $12,000,000, (ii) March 31, 1998, $9,000,000
and (iii) June 30, 1998, $6,000,000, and minus, to the extent included in
-----
the statement of such Consolidated Net Income for such period, the sum of
(a) interest income, (b) any extraordinary or non-recurring income or gains
(including, whether or not otherwise includable as a separate item in the
statement of such Consolidated Net Income for such period, gains on the
sales of assets outside of the ordinary course of business) and (c) any
other non-cash income, all as determined on a consolidated basis; provided,
--------
that there shall be included in Consolidated EBITDA for such period the
difference (but not below zero) between (a) the amount of Consolidated Net
Income with respect to Mariner and its Subsidiaries for such period, to the
extent of any cash distributions paid by Mariner to the Borrower during
such period and (b) the amount of any investment by the Borrower in or for
the account of Mariner during such period which is not utilized by Mariner
during such period for the purposes set forth in Section 7.8(k).
"Subsidiary": as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board of directors or other
managers of such corporation, partnership or other entity are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower. Unless otherwise specified, the term
"Subsidiary" or "Subsidiaries" shall not include Mariner and its
Subsidiaries and Mariner Merger Sub.
'Substitute Omega Property': any Health Care Facility and related
-------------------------
personal property conveyed to PHCMI after the Closing Date (which Health
Care Facility may be leased to a New PHCMI Subsidiary), or any Health Care
Facility and related personal
<PAGE>
3
property contributed or otherwise transferred by LC-Southeast to the
Substitute Omega Property Subsidiary (which Health Care Facility may be
leased to PHCMI), and which Health Care Facility in either case is or
becomes encumbered by a mortgage, deed to secure debt or deed of trust in
favor of Omega, for the purpose of serving as substitute collateral for the
obligations of PHCMI to Omega, in exchange for the surrender by Omega of
the Omega Letter of Credit; provided that the Substitute Omega Property
--------
shall not, in the aggregate, (i) represent more than $3,500,000 of the
Borrower's Consolidated EBITDA for the most recent Reference Period for
which the relevant financial information is available or (ii) have a
maximum aggregate capacity in excess of 600 beds."
(c) Amendment of Definitions. (i) The definition of the term "Assumed
------------------------
Debt" is hereby amended by adding at the end thereof and prior to the
period the following: "provided, that, notwithstanding the above, the
--------
Summit Guarantee shall be deemed to constitute Assumed Debt, to the extent
the principal amount of Indebtedness guaranteed thereby does not exceed
$3,500,000".
(ii) The definition of the term "Revolving Credit Commitment" is
hereby amended by deleting the number "$150,000,000" in the last line and
substituting in lieu thereof the number "$175,000,000".
(iii) The definition of the term "Tranche A Term Loan Commitment" is
hereby amended by deleting the number "$240,000,000" in the last line and
substituting in lieu thereof the number "$315,000,000".
(d) Addition of Definitions. The following defined terms are hereby
-----------------------
added to Section 1.1 of the Credit Agreement in appropriate alphabetical
order:
'First Amendment': the First Amendment, dated as of July 8, 1998,
---------------
to this Agreement.
'First Amendment Effective Date': the date of effectiveness of
------------------------------
the First Amendment.
'LC-Southeast': Living Centers-Southeast, Inc., a North Carolina
------------
corporation and an indirect Wholly Owned Subsidiary of the Borrower.
'Mariner': Mariner Health Group, Inc., a Delaware corporation.
-------
'Mariner Credit Agreement': the Credit Agreement, dated as of
------------------------
May 18, 1994, among Mariner, the lenders party thereto and PNC Bank,
N.A., as agent, as amended, supplemented, restated or otherwise
modified from time to time.
<PAGE>
4
'Mariner Merger': the merger of Mariner Merger Sub with and into
--------------
Mariner, with Mariner as the continuing or surviving corporation,
pursuant to the Mariner Merger Agreement.
'Mariner Merger Agreement': the Agreement and Plan of Merger,
------------------------
dated as of April 13, 1998, among the Borrower, Mariner Merger Sub and
Mariner, as amended, supplemented, restated or otherwise modified from
time to time in accordance with Section 7.9.
'Mariner Merger Sub': Paragon Acquisition Sub, Inc., a Delaware
------------------
corporation.
'Mariner Notes': the 9-1/2% Senior Subordinated Notes due 2006
-------------
of Mariner, as amended, supplemented or otherwise modified from time
to time.
'Substitute Omega Property Subsidiary': Living Centers-PHCM,
------------------------------------
Inc., a North Carolina corporation and a Wholly Owned Subsidiary of
LC-Southeast.
'Summit': as defined in the definition of "Consolidated EBITDA".
------
'Summit Guarantee': as defined in the definition of "Consolidated
----------------
EBITDA".
'Summit IRB': the series 1987 revenue refunding bonds issued by
----------
the Louisiana Public Facilities Authority with respect to the
Southwest Medical Center, Inc. Project."
2. Amendment to Section 2.1. Section 2.1 of the Credit Agreement is
------------------------
hereby amended by deleting such Section in its entirety and substituting in lieu
thereof the following new Section 2.1:
"2.1 Term Loan Commitments. (a) Subject to the terms and
---------------------
conditions hereof, (i) each Tranche A Term Loan Lender severally
agrees to make a term loan (an "Initial Tranche A Term Loan") to the
---------------------------
Borrower on the Closing Date in an amount equal to the amount of the
Tranche A Term Loan Commitment of such Lender then in effect, (ii)
each Tranche B Term Loan Lender severally agrees to make a term loan
(a "Tranche B Term Loan") to the Borrower on the Closing Date in an
-------------------
amount equal to the amount of the Tranche B Term Loan Commitment of
such Lender and (iii) each Tranche C Term Loan Lender severally agrees
to make a term loan (a "Tranche C Term Loan") to the Borrower on the
-------------------
Closing Date in an amount equal to the amount of the Tranche C Term
Loan Commitment of such Lender and (b) subject to the terms and
conditions of the First Amendment, each Tranche A Term Loan Lender
severally agrees to make a term loan (a "Subsequent Tranche A Term
-------------------------
Loan", and together with such
----
<PAGE>
5
Tranche A Term Loan Lender's Initial Tranche A Term Loan, if any, a
"Tranche A Term Loan") to the Borrower on the First Amendment
-------------------
Effective Date in an amount equal to the difference between such
Tranche A Term Loan Lender's Tranche A Term Loan Commitment on the
First Amendment Effective Date and such Tranche A Term Loan Lender's
Tranche A Term Loan Commitment on the Business Day immediately
preceding the First Amendment Effective Date, if any. The Term Loans
may from time to time be Eurodollar Loans or ABR Loans, as determined
by the Borrower and notified to the Administrative Agent in accordance
with Sections 2.2 and 2.12."
3. Procedure for Borrowing of Subsequent Tranche A Term Loans.
----------------------------------------------------------
Subject to the terms and conditions of the Credit Agreement and this First
Amendment, each Tranche A Term Loan Lender which has a portion of the Increased
Tranche A Term Loan Commitment (as defined below) agrees to make a term loan to
the Borrower on the Effective Date (as defined below). No later than 12:00 noon,
New York City time, one Business Day prior to the Effective Date, the Borrower
shall give the Administrative Agent irrevocable notice requesting that such
Tranche A Term Loan Lenders make the Subsequent Tranche A Term Loans to be made
on the Effective Date. The Subsequent Tranche A Term Loans made on the Effective
Date shall initially be ABR Loans. Upon receipt of such notice the
Administrative Agent shall promptly notify each such Tranche A Term Loan Lender
thereof. Not later than 12:00 Noon, New York City time, on the Effective Date
each such Tranche A Term Loan Lender shall make available to the Administrative
Agent at its office specified in Section 10.2 an amount in immediately available
funds equal to the Subsequent Tranche A Term Loans to be made by such Tranche A
Term Loan Lender on the Effective Date. The Administrative Agent shall credit
the account of the Borrower on the books of such office of the Administrative
Agent with the aggregate of the amounts made available to the Administrative
Agent by such Tranche A Term Loan Lenders in immediately available funds.
4. Amendment to Section 2.3. Section 2.3(a) of the Credit Agreement
------------------------
is hereby amended by deleting such section in its entirety and substituting in
lieu thereof the following new Section 2.3(a):
"(a) The Tranche A Term Loan of each Tranche A Term Loan Lender
shall be repayable in 22 consecutive quarterly installments on the
last day of each December, March, June and September, commencing on
December 31, 1998, each of which shall be in an amount equal to such
Lender's Tranche A Term Loan Percentage multiplied by one-quarter of
the amount set forth below opposite the period during which such
installment is due or, in the case of the installments due from
December 31, 2003 through March 31, 2004, one-half of the amount set
forth below opposite the period during which such installment is due:
Period Principal Amount
------ ----------------
December 31, 1998 through September 30, 1999 $29,531,250
<PAGE>
6
December 31, 1999 through September 30, 2000 $59,062,500
December 31, 2000 through September 30, 2001 $62,343,750
December 31, 2001 through September 30, 2002 $62,343,750
December 31, 2002 through September 30, 2003 $68,906,250
December 31, 2003 through March 31, 2004 $32,812,500
5. Amendment to Section 4.16. Section 4.16 of the Credit Agreement
-------------------------
is hereby amended by deleting such Section in its entirety and substituting in
lieu thereof the following new Section 4.16:
"4.16 Use of Proceeds. The proceeds of the Term Loans (other than
---------------
the Subsequent Tranche A Term Loans) shall be used to finance a
portion of the Recapitalization and to pay related fees and expenses.
The proceeds of the Subsequent Tranche A Term Loans, Revolving Credit
Loans, the Swing Line Loans and the Letters of Credit shall be used
for Permitted Acquisitions, working capital needs and general
corporate purposes (including, without limitation, for the purposes
set forth in Section 7.8(k)); provided, however, that up to
-------- -------
$25,000,000 of the Revolving Credit Loans and Swing Line Loans may be
used to finance a portion of the Recapitalization and to pay related
fees and expenses."
6. Amendment to Section 6.10. Section 6.10 of the Credit Agreement
-------------------------
is hereby amended by adding at the end thereof the following new paragraph (e):
"(e) Notwithstanding anything to the contrary contained herein,
the Substitute Omega Property Subsidiary shall not be required to
comply with any provision of this Section 6.10, and neither the
Property of the Substitute Omega Property Subsidiary nor any of the
Substitute Omega Property Subsidiary's Capital Stock shall be pledged
as Collateral, in any such case, for so long as the Substitute Omega
Property Subsidiary is restricted by any Contractual Obligation from
complying with this Section 6.10 or from having its Capital Stock
pledged as Collateral.".
7. Amendment to Section 7.1. Section 7.1 of the Credit Agreement is
------------------------
hereby amended by deleting paragraph (d) and substituting in lieu thereof the
following new paragraph (d):
"(d) Maintenance of Consolidated Net Worth. Permit Consolidated
-------------------------------------
Net Worth at the last day of any fiscal quarter of the Borrower ending
after December 31, 1997 to be less than (i) all items which were
included on the consolidated balance sheet under shareholders' equity
at December 31, 1997 less $50,000,000, plus (ii) 50% of Consolidated
----
Net Income (if positive) for the period from January 1, 1998 to such
date (not taking into account the Mariner Merger Charges), plus (iii)
----
without duplication, 100% of the amount which would in conformity with
GAAP be included in shareholders' equity on a consolidated balance
sheet of the
<PAGE>
7
Borrower and its Subsidiaries as a result of the issuance of Capital
Stock by, or capital contributions made to, the Borrower or any of its
Subsidiaries after the Closing Date, minus (iv) the amount of the
-----
Mariner Merger Charges on an after-tax basis."
8. Amendment to Section 7.2. Section 7.2 of the Credit Agreement is
------------------------
hereby amended by adding after the word "by" in the fourth line of paragraph (e)
thereof the words "the Substitute Omega Property Subsidiary or".
9. Amendment to Section 7.3. Section 7.3 of the Credit Agreement is
------------------------
hereby amended by (a) inserting immediately after the words "by PHCMI" in the
first line of paragraph (m) thereof the words ", the Substitute Omega Property
Subsidiary", (b) relettering current paragraphs (o) and (p) as (p) and (q) and
(c) inserting the following new paragraph (o) as follows:
"(o) the pledge by Summit in favor of the trustee for the Summit IRB
of its interest in the sinking fund reserve account for the Summit
IRB;".
10. Amendment to Section 7.4. Section 7.4 of the Credit Agreement is
------------------------
hereby amended by deleting paragraphs (c) and (d) thereof in their entirety and
substituting in lieu thereof the following new paragraphs (c) and (d):
"(c) any Subsidiary of the Borrower may Dispose of one or more
Substitute Omega Properties to PHCMI, the Substitute Omega Property
Subsidiary or any of the New PHCMI Subsidiaries in connection with
providing substitute collateral to Omega in exchange for the surrender by
Omega of the Omega Letter of Credit, and PHCMI, the Substitute Omega
Property Subsidiary or any New PHCMI Subsidiary may temporarily lease or
sublease the Substitute Omega Properties to LC-Southeast, provided that any
such lease or sublease to LC-Southeast shall be cancelled as soon as
reasonably practicable after receipt of necessary Governmental Authority
Health Care Permits and Medicare and Medicaid licenses for the Substitute
Omega Properties reissued in the name of PHCMI, the Substitute Omega
Property Subsidiary or any New PHCMI Subsidiary, as applicable;
(d) any acquisition expressly permitted by Section 7.8 may be
structured as a merger with or into the Borrower (provided that the
--------
Borrower shall be the continuing or surviving corporation), with or into
any Wholly Owned Subsidiary Guarantor (provided that the Wholly Owned
--------
Subsidiary Guarantor shall be the continuing or surviving corporation) or,
in the case of the Mariner Merger, with or into Mariner (provided that
--------
Mariner shall be the continuing or surviving corporation); and".
11. Amendment to Section 7.8. Section 7.8 of the Credit Agreement is
------------------------
hereby amended by (a) inserting at the end of paragraph (g) thereof and prior to
the semi-colon the following: "and the capital contribution by LC-Southeast to
the Substitute Omega Property
<PAGE>
8
Subsidiary represented by the transfer of the Substitute Omega Properties to the
Substitute Omega Property Subsidiary, as permitted in Section 7.4(c) hereof",
(b) inserting immediately after the amount "$300,000,000" in the last line of
paragraph (h) thereof the following: "provided, further, the Borrower and
-----------------
Mariner Merger Sub shall be permitted to consummate the Mariner Merger pursuant
to the Mariner Merger Agreement without regard to the foregoing dollar
limitations, and shall be deemed not to be a utilization of such dollar
limitations", (c) deleting the word "and" at the end of paragraph (j) thereof,
(d) relettering current paragraph (k) as paragraph (l), and (e) adding thereto
the following new paragraph (k):
"(k) investments by the Borrower in or for the account of Mariner (i)
to finance the redemption or repurchase by Mariner of the Mariner Notes,
(ii) to make the required payments to holders of the Cash Payment Options
(as such term is defined in the Mariner Merger Agreement) and (iii) to pay
other costs and expenses incurred by Mariner directly associated with the
Mariner Merger, in an aggregate amount for items (i), (ii) and (iii) not to
exceed $100,000,000 during the term of this Agreement; and".
12. Amendment to Section 7.9. Section 7.9 of the Credit Agreement is
------------------------
hereby amended by (a) deleting the word "or" the first time it appears in the
sixth line and substituting in lieu thereof a comma and (b) inserting
immediately after the word "Notes" in the sixth line thereof the words "or the
Mariner Merger Agreement, except for changes to the Mariner Merger Agreement
that do not adversely affect the Lenders in any respect".
13. Amendment to Section 7.10. Section 7.10 of the Credit Agreement
-------------------------
is hereby amended by inserting immediately at the end thereof and prior to the
period the following: "provided, that the foregoing provisions of this Section
--------
7.10 shall not be deemed to prohibit (i) any transaction incidental to the
Mariner Merger, as contemplated in the Mariner Merger Agreement, (ii) the
provision of certain administrative services by the Borrower for Mariner or any
of its Subsidiaries in the ordinary course of business and consistent with the
Borrower's past practice with respect to its other Subsidiaries, (iii) the
payment by the Borrower in the ordinary course of business of certain third
party payment obligations on behalf of Mariner or any of its Subsidiaries to the
extent Mariner or such Subsidiary, as the case may be, provides timely
reimbursement to the Borrower for such payment, but in any event such
reimbursement shall be in the same fiscal quarter in which the Borrower made
such payment (it being understood that the payment of such obligations by the
Borrower in accordance with this clause (iii) shall be deemed not to be a
utilization of the dollar limitations set forth in Section 7.8(k)) or (iv) the
investment permitted pursuant to section 7.8(k)".
14. Amendment to Section 7.14. Section 7.14 of the Credit Agreement
-------------------------
is hereby amended by (a) deleting the word "and" in the fifth line and
substituting in lieu thereof a comma and (b) adding at the end thereof and prior
to the period the following: "and (c) so long as the Summit IRB is outstanding,
any agreement binding on Summit and relating to the Health Care Facility in
Bossier City, Bossier Parish, Louisiana, leased by Summit and financed by the
Summit IRB".
<PAGE>
9
15. Amendment to Section 7.15. Section 7.15 of the Credit Agreement
-------------------------
is hereby amended by (a) deleting the word "and" in the eighth line and
substituting in lieu thereof a comma and (b) adding at the end thereof and prior
to the period the following: "and (iii) Section 6.11(b) of the Amended and
Restated Agreement of Sale, dated as of April 1, 1993, as amended prior to the
date hereof, by and among the Louisiana Public Facilities Authority, Southwest
Medical Center, Inc. and Summit, as guarantor".
16. Amendment to Section 8. Section 8 of the Credit Agreement is
----------------------
hereby amended by (a) deleting paragraph (f) and substituting in lieu thereof
the following new paragraph (f):
"(f) (i) the Borrower or any of its Subsidiaries or Mariner or any of
its Subsidiaries shall commence any case, proceeding or other action (A)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors,
seeking to have an order for relief entered with respect to it, or seeking
to adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (B) seeking appointment
of a receiver, trustee, custodian, conservator or other similar official
for it or for all or any substantial part of its assets, or the Borrower or
any of its Subsidiaries or Mariner or any of its Subsidiaries shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or any of its Subsidiaries or Mariner or any
of its Subsidiaries any case, proceeding or other action of a nature
referred to in clause (i) above which (A) results in the entry of an order
for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 60 days; or (iii)
there shall be commenced against the Borrower or any of its Subsidiaries or
Mariner or any of its Subsidiaries any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 60 days
from the entry thereof; or (iv) the Borrower or any of its Subsidiaries or
Mariner or any of its Subsidiaries shall take any action in furtherance of,
or indicating its consent to, approval of, or acquiescence in, any of the
acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or
any of its Subsidiaries or Mariner or any of its Subsidiaries shall
generally not, or shall be unable to, or shall admit in writing its
inability to, pay its debts as they become due; or",
(b) deleting the word "or" in the last line of paragraph (l) thereof, (c) adding
at the end of paragraph (l) and prior to the semi-colon the following: "or (iv)
the Borrower shall cease to own 100% of the issued and outstanding Capital Stock
of Mariner", (d) adding the word "or" at the end of paragraph (m) thereof and
(e) adding thereto the following new paragraph (n):
"(n) Mariner or any of its Subsidiaries shall default in the
observance or performance of any agreement or condition with respect to the
Mariner Credit Agreement
<PAGE>
10
or the Mariner Notes (including, without limitation, any guarantee
thereof), or contained in any instrument or agreement evidencing, securing
or relating thereto, or any other event shall occur or condition exist, the
effect of which default or event or condition, in each of the foregoing
instances, is to cause, or to permit the holder or beneficiary of the
Mariner Credit Agreement or the Mariner Notes or guarantee thereof (or a
trustee or agent on behalf of such holder or beneficiary) to cause, with
the giving of notice if required, the Mariner Credit Agreement or the
Mariner Notes (or any guarantee thereof) to become due prior to its stated
maturity or (in the case of any such guarantee) to become payable, and such
holder or beneficiary shall cause the Mariner Credit Agreement or the
Mariner Notes (or any guarantee thereof) to become due prior to its stated
maturity or (in the case of any such guarantee) to become payable;".
17. Amendment of Schedule 1.1(a). Schedule 1.1(a) to the Credit
----------------------------
Agreement is hereby amended by adding thereto the following information set
forth on Schedule 1.1(a) attached hereto.
18. Supplement to Schedule 7.14. Schedule 7.14 to the Credit
---------------------------
Agreement is hereby amended by adding thereto the information set forth on Annex
A to this Amendment.
19. Pledge of Mariner Stock. The Borrower hereby assigns and
-----------------------
transfers to the Collateral Agent, and hereby grants to the Collateral Agent,
for the ratable benefit of the Lenders, a security interest in, the shares of
Capital Stock of Mariner listed on Annex B to this Amendment, together with any
other shares, stock certificates, options or rights of any nature whatsoever in
respect of the Capital Stock of Mariner that may be issued or granted to, or
held by, the Borrower while the Credit Agreement is in effect, as collateral
security for the prompt and complete payment and performance when due (whether
at the stated maturity, by acceleration or otherwise) of the Borrower
Obligations, which assignment, transfer and grant shall be governed by the terms
of the Guarantee and Collateral Agreement.
20. Fees. (a) In consideration for the agreement of each Revolving
----
Credit Lender which has agreed to increase its Revolving Credit Commitment
pursuant hereto or any Revolving Credit Lender becoming a Revolving Credit
Lender on the date hereof pursuant hereto (the aggregate increase in the
Revolving Credit Commitments being referred to herein as the "Increased
---------
Revolving Credit Commitment"), the Borrower agrees to pay to each such Revolving
- ---------------------------
Credit Lender, a fee in an amount previously disclosed to such Revolving Credit
Lender by the Administrative Agent in writing, payable on the date on which the
Mariner Merger becomes effective, as provided in the Mariner Merger Agreement
(the "Mariner Merger Effective Date") in immediately available funds.
-----------------------------
(b) In consideration for the agreement of each Tranche A Term Loan
Lender which has agreed to increase its Tranche A Term Loan Commitment pursuant
hereto or any Tranche A Term Loan Lender becoming a Tranche A Term Loan Lender
on the date hereof pursuant hereto (the aggregate increase in the Tranche A Term
Loan Commitments being referred to herein as the "Increased Tranche A Term Loan
-----------------------------
Commitment"), the Borrower agrees
- ----------
<PAGE>
11
to pay to each such Tranche A Term Loan Lender, a fee in an amount previously
disclosed to such Tranche A Term Loan Lender by the Administrative Agent in
writing, payable on the Mariner Merger Effective Date in immediately available
funds.
21. Conditions to Effectiveness. The amendments provided for herein
---------------------------
shall become effective on the date (the "Effective Date") of satisfaction of the
--------------
following conditions precedent:
(a) The Administrative Agent shall have received counterparts of this
Amendment duly executed and delivered by the Borrower and the Required
Lenders (including each Lender which has committed to a portion of the
Increased Revolving Credit Commitment or the Increased Tranche A Term Loan
Commitment).
(b) The Administrative Agent shall have received a copy of the
resolutions of the Borrower, in form and substance satisfactory to the
Administrative Agent, authorizing (i) the execution, delivery and
performance of this Amendment and (ii) the borrowings contemplated by the
Increased Revolving Credit Commitments and the Increased Tranche A Term
Loan Commitments, which resolutions shall be certified by the Secretary or
an Assistant Secretary of the Borrower as of the date hereof, and which
certificate shall be in form and substance satisfactory to the
Administrative Agent and shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded.
(c) The Administrative Agent shall have received a certificate of the
Secretary of the Borrower, dated the date hereof, as to the incumbency and
signature of the officers of the Borrower executing this Amendment
satisfactory in form and substance to the Administrative Agent.
(d) All governmental and third party approvals (including landlords'
and other consents) necessary or advisable in connection with this
Amendment, the making of the loans under the Increased Revolving Credit
Commitment and the Increased Tranche A Term Loan Commitment and the
consummation of the Mariner Merger shall have been obtained and be in full
force and effect (other than certain Health Care Permits relating to Health
Care Facilities owned or operated by Mariner or its Subsidiaries which may
be required as a result of the Mariner Merger and which in any event have
been applied for and are reasonably expected by the management of the
Borrower to be issued in due course and the failure of which to obtain such
Health Care Permits shall not have a Material Adverse Effect), and all
applicable waiting periods shall have expired without any action being
taken or threatened by any competent authority which would restrain,
prevent or otherwise impose materially adverse conditions on the Credit
Agreement as amended by this Amendment, the making of the loans under the
Increased Revolving Credit Commitment and the Increased Tranche A Term Loan
Commitment or the consummation of the Mariner Merger.
(e) The Lenders shall have received the Mariner Merger Agreement.
<PAGE>
12
(f) The Administrative Agent shall have received the executed legal
opinion of Powell, Goldstein, Frazer & Murphy LLP, counsel to the Borrower
dated the date hereof and in form and substance satisfactory to the
Administrative Agent with respect to this Amendment and the transactions
contemplated hereby.
(g) The Administrative Agent shall have received the certificates
representing the shares of Capital Stock of Mariner pledged pursuant to
paragraph 19 above, together with an undated stock power for each such
certificate executed in blank by a duly authorized officer of the Borrower.
(h) The Mariner Merger shall have been consummated pursuant to the
terms of the Mariner Merger Agreement contemporaneously with the
effectiveness of this Amendment.
(i) The requisite lenders under the Mariner Credit Agreement shall
have agreed to amend and waive certain provisions of the Mariner Credit
Agreement on terms and conditions satisfactory to the Administrative Agent,
so that after giving effect to such amendments and waivers and the
consummation of the Mariner Merger, no default or event of default shall
have occurred and be continuing under the Mariner Credit Agreement.
; provided, that, the effectiveness of the amendments set forth in paragraphs
-------- ----
1(c)(i), 9(b) and (c), 14 and 15 and the addition of the definitions "Summit",
"Summit Guarantee" and "Summit IRB" contained in paragraph 1(d) shall be
conditioned only upon the satisfaction of the condition contained in clause (a)
of this paragraph 21.
22. Representations and Warranties. The Borrower as of the date
------------------------------
hereof and after giving effect to the amendment contained herein, hereby
confirms, reaffirms and restates that representations and warranties made by it
in Section 4 of the Credit Agreement; provided, that each reference to the
--------
Credit Agreement therein shall be deemed to be a reference to the Credit
Agreement after giving effect to this Amendment.
23. Payment of Expenses. The Borrower agrees to pay or reimburse the
-------------------
Administrative Agent for all of its out-of-pocket costs and expenses incurred in
connection with the Amendment, any other documents prepared in connection
herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
24. Reference to and Effect on the Loan Documents; Limited Effect.
-------------------------------------------------------------
On and after the date hereof and the satisfaction of the conditions contained in
paragraph 21 of this Amendment, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the other Loan Documents to "the Credit
Agreement", "thereunder", "thereof" or words of like import referring to the
Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended
<PAGE>
13
hereby. The execution, delivery and effectiveness of this Amendment shall not,
except as expressly provided herein, operate as a waiver of any right, power or
remedy of any Lender or any Agent under any of the Loan Documents, nor
constitute a waiver of any provisions of any of the Loan Documents. Except as
expressly amended herein, all of the provisions and covenants of the Credit
Agreement and the other Loan Documents are and shall continue to remain in full
force and effect in accordance with the terms thereof and are hereby in all
respects ratified and confirmed.
25. Counterparts. This Amendment may be executed by one or more of
------------
the parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.
26. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD FOR THE
CONFLICT OF LAWS PRINCIPLES THEREOF).
<PAGE>
14
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
PARAGON HEALTH NETWORK, INC.
By:
---------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as
Administrative Agent and as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
15
Schedule 1.1(a)
---------------
Tranche A Term Revolving
Loan Commitment Credit Commitment
--------------- -----------------
The Chase Manhattan Bank $18,000,000 $ 6,000,000
Nationsbank, N.A. 16,875,000 5,625,000
General Electric Capital Corporation 7,500,000 2,500,000
The Bank of Nova Scotia 7,500,000 2,500,000
First Union National Bank 7,500,000 2,500,000
Wachovia Bank, N.A. 7,500,000 2,500,000
Societe Generale 3,750,000 1,250,000
Skandinaviska Enskilda Banken AB 3,750,000 1,250,000
Transamerica Business Credit
Corporation 2,625,000 875,000
----------- -----------
TOTAL $75,000,000 $25,000,000
=========== ===========
<PAGE>
16
Annex A
-------
NEGATIVE PLEDGES
NONE
<PAGE>
17
Annex B
-------
MARINER PLEDGED STOCK
<TABLE>
<CAPTION>
Certificate Number
Stock Issuer Shareholder Class of Stock Number of Shares
- -------------- ------------------ -------------- ----------- ---------
<S> <C> <C> <C> <C>
Mariner Health Mariner Post-Acute
Group, Inc. Network, Inc. Common 1 1,000
</TABLE>
<PAGE>
EXHIBIT 10.49
SECOND AMENDMENT
SECOND AMENDMENT, dated as of December 22, 1998 (this "Amendment"), to
---------
the Credit Agreement, dated as of November 4, 1997 (as amended by the First
Amendment, dated as of July 8, 1998 and as may be further amended, supplemented
or otherwise modified from time to time, the "Credit Agreement"), among MARINER
----------------
POST-ACUTE NETWORK, INC. (formerly known as Paragon Health Network, Inc.), a
Delaware corporation (the "Borrower"), the several banks and other financial
--------
institutions or entities from time to time parties thereto (the "Lenders"),
-------
NATIONSBANK, N.A., as documentation agent (in such capacity, the "Documentation
-------------
Agent"), and THE CHASE MANHATTAN BANK, as Administrative Agent (in such
- -----
capacity, the "Administrative Agent").
--------------------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed to
make, and have made, certain loans and other extensions of credit to the
Borrower;
WHEREAS, the Borrower has requested, and, upon this Amendment becoming
effective, the Lenders have agreed, that certain provisions of the Credit
Agreement be amended in the manner provided for in this Amendment; and
WHEREAS, Chase Securities Inc. has agreed to act as the lead arranger
and book manager in arranging the consents necessary for the effectiveness of
this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. (a) General. Terms defined in the Credit
------------- -------
Agreement and used herein shall, unless otherwise indicated, have the meanings
given to them in the Credit Agreement. Terms defined and used in this Amendment
shall have the meanings given to them in this Amendment.
(b) Amendment of Definitions.
------------------------
(i) The definition of the term "Applicable Margin" contained in
Section 1.1 of the Credit Agreement is hereby amended by (A) deleting the
percentages "1.50%" and "2.50%" set forth opposite "Tranche B Term Loans" and
substituting in lieu thereof the percentages "2.25%" and "3.25%", respectively
and (B) deleting the percentages "1.75%" and "2.75%" set forth opposite "Tranche
C Term Loans" and substituting in lieu thereof the percentages "2.50%" and
"3.50%", respectively.
<PAGE>
(ii) The definition of the term "Consolidated Leverage Ratio Stepdown
Date" contained in Section 1.1 of the Credit Agreement is hereby amended by
deleting the amount "$125,000,000" in the fourth line and substituting in lieu
thereof the amount "$100,000,000".
(c) Replacement of Definitions. Section 1.1 of the Credit Agreement
--------------------------
is hereby amended by deleting therefrom the definition of "Consolidated EBITDA"
in its entirety and substituting in lieu thereof the following new definition of
"Consolidated EBITDA":
"'Consolidated EBITDA': for any period, Consolidated Net Income for
-------------------
such period plus, without duplication and, other than with respect to item
----
(j) below, to the extent reflected as a charge in the statement of such
Consolidated Net Income for such period, the sum of (a) total income tax
expense, (b) interest expense, amortization or writeoff of debt discount
and debt issuance costs and commissions, discounts and other fees and
charges associated with Indebtedness (including the Loans), (c)
depreciation and amortization expense, (d) amortization of intangibles
(including, but not limited to, goodwill) and organization costs, (e) any
extraordinary or non-recurring expenses or losses (including, whether or
not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, losses on sales of assets outside
of the ordinary course of business), (f) any other non-cash charges, (g)
with respect to the computation of the financial covenants contained in
Section 7.1 for any Reference Period ending on or prior to September 30,
1998, fees and expenses related to the transactions contemplated by the
Recapitalization Agreement (including conforming accounting adjustments)
and the financing thereof in an aggregate amount equal to the lesser of the
actual amount of such expenses and $122,000,000, (h) non-recurring cash
charges taken on or prior to September 30, 1999 as a result of the Mariner
Merger in an aggregate amount not to exceed $35,000,000 (such charges not
in excess of such amount, the "Mariner Merger Charges"), (i) any lease
----------------------
payments by Summit Institute for Pulmonary Medicine and Rehabilitation,
Inc. ("Summit") with respect to the Riverside Community Hospital, Bossier
------
City, Bossier Parish, Louisiana, to the extent and in the proportion of the
guarantee by Summit of the then outstanding principal amount of the Summit
IRB (the "Summit Guarantee") and (j) at any date of determination ending on
----------------
the dates set forth in this clause (j) below, the amount of cost synergies
reasonably projected to be achieved by the Borrower as a result of the
Mariner Merger and which as of such dates have not yet been achieved, up to
a maximum for the determination date ending: (i) December 31, 1998,
$18,000,000, (ii) March 31, 1999, $18,000,000, (iii) June 30, 1999,
$16,000,000 and (iv) September 30, 1999, $14,000,000, and minus, to the
-----
extent included in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any extraordinary or non-
recurring income or gains (including, whether or not otherwise includable
as a separate item in the statement of such Consolidated Net Income for
such period, gains on the sales of assets outside of the ordinary course of
business) and (c) any other non-cash income, all as determined on a
consolidated basis; provided, that there shall be included in Consolidated
--------
EBITDA for such period the difference (but not
<PAGE>
below zero) between (a) the amount of Consolidated Net Income with respect
to Mariner and its Subsidiaries for such period, to the extent of any cash
distributions paid by Mariner to the Borrower during such period and (b)
the amount of any investment by the Borrower in or for the account of
Mariner during such period which is not utilized by Mariner during such
period for the purposes set forth in Section 7.8(k)."
2. Amendment to Section 4. Section 4 of the Credit Agreement is
----------------------
hereby amended by adding thereto the following new Section 4.23:
"4.23 Year 2000 Matters. Any reprogramming required to
-----------------
permit the proper functioning (but only to the extent that such proper
functioning would otherwise be impaired by the occurrence of the year
2000) in and following the year 2000 of computer systems and other
equipment containing embedded microchips, in either case owned or
operated by the Borrower or any of its Subsidiaries or used or relied
upon in the conduct of their business (including any such systems and
other equipment supplied by others or with which the computer systems
of the Borrower or any of its Subsidiaries interface), and the
testing of all such systems and other equipment as so reprogrammed,
will be completed in all material respects by June 30, 1999. The
costs to the Borrower and its Subsidiaries that have not been incurred
as of the date hereof for such reprogramming and testing and for the
other reasonably foreseeable consequences to them of any improper
functioning of other computer systems and equipment containing
embedded microchips due to the occurrence of the year 2000 could not
reasonably be expected to result in a Default or Event of Default or
to have a Material Adverse Effect. Except for any reprogramming
referred to above, the computer systems of the Borrower and its
Subsidiaries are and, with ordinary course upgrading and maintenance,
will continue for the term of this Agreement to be, sufficient for the
conduct of their business as currently conducted."
3. Amendment to Section 7.1(a). Section 7.1(a) of the Credit
---------------------------
Agreement is hereby amended by deleting the table contained therein and
substituting in lieu thereof the following new table:
December 31, 1997 through September 30, 1999 6.75 to 1.00
December 31, 1999 through September 30, 2000 6.50 to 1.00
December 31, 2000 through September 30, 2001 6.00 to 1.00
December 31, 2001 through June 30, 2002 5.00 to 1.00
September 30, 2002 through June 30, 2003 4.75 to 1.00
September 30, 2003 (or, if earlier, the Consolidated
Leverage Ratio Stepdown Date) and thereafter 4.50 to 1.00
<PAGE>
4. Amendment to Section 7.1(b). Section 7.1(b) of the Credit
---------------------------
Agreement is hereby amended by deleting the table contained therein and
substituting in lieu thereof the following new table:
December 31, 1997 through September 30, 1999 1.60 to 1.00
December 31, 1999 through September 30, 2000 1.75 to 1.00
December 31, 2000 through September 30, 2001 1.85 to 1.00
December 31, 2001 through September 30, 2002 2.50 to 1.00
December 31, 2002 and thereafter 2.75 to 1.00
5. Amendment to Section 7.1(c). Section 7.1(c) of the Credit
---------------------------
Agreement is hereby amended by deleting the table contained therein and
substituting in lieu thereof the following new table:
December 31, 1997 through September 30, 2000 1.10 to 1.00
December 31, 2000 through September 30, 2001 1.15 to 1.00
December 31, 2001 and thereafter 1.25 to 1.00
6. Amendment to Section 7.5(f). Section 7.5(f) of the Credit
---------------------------
Agreement is hereby amended by inserting immediately after the word "Borrower"
and prior to the semi-colon in the second line thereof the following: ";
provided, that during the fiscal years of the Borrower ending September 30, 1999
- --------
and September 30, 2000, in addition to the foregoing amount, the Borrower shall
be permitted to make additional sales of assets with a fair market value not to
exceed $150,000,000 in the aggregate for all such additional sales in both of
such fiscal years".
7. Amendment to Section 7.7. Section 7.7 of the Credit Agreement is
------------------------
hereby amended by deleting the amount "$125,000,000" in the seventh line and
substituting in lieu thereof the amount "$100,000,000".
8. Amendment to Section 7.8(h). Section 7.8(h) of the Credit
---------------------------
Agreement is hereby amended by deleting the amount "$125,000,000" in the tenth
line and substituting in lieu thereof the amount "$100,000,000".
9. Amendment to Section 7.8(l). Section 7.8(l) of the Credit
---------------------------
Agreement is hereby amended by deleting such Section in its entirety and
substituting in lieu thereof the following new Section 7.8(l):
"(l) in addition to investments otherwise expressly permitted by this
Section 7.8, investments by the Borrower or any of its Subsidiaries in an
aggregate amount (valued at cost) not to exceed $20,000,000 at any one time
outstanding."
<PAGE>
10. Amendment to Section 7.10. Section 7.10 of the Credit Agreement
-------------------------
is hereby amended by deleting clause (iv) of the proviso thereto added pursuant
to the First Amendment and substituting in lieu thereof the following new clause
(iv): "(iv) the investments permitted pursuant to Sections 7.8(k) and (l)".
11. Replacement of Pricing Grid. Annex A to the Credit Agreement is
---------------------------
hereby amended by deleting such Annex A in its entirety and substituting in lieu
thereof the Pricing Grid attached as Annex A hereto.
12. Fees. In consideration of the agreement of the Lenders to
----
consent to the amendments contained herein, the Borrower agrees to pay to each
Lender which so consents on or prior to December 22, 1998, an amendment fee in
an amount equal to 0.25% of the amount of such Lender's Commitment, payable on
the date hereof in immediately available funds.
13. Conditions to Effectiveness. The amendments provided for herein
---------------------------
shall become effective on the date the Administrative Agent shall have received
counterparts of this Amendment duly executed and delivered by the Borrower and
the Required Lenders.
14. Representations and Warranties. The Borrower as of the date
------------------------------
hereof and after giving effect to the amendment contained herein, hereby
confirms, reaffirms and restates that representations and warranties made by it
in Section 4 of the Credit Agreement; provided, that each reference to the
--------
Credit Agreement therein shall be deemed to be a reference to the Credit
Agreement after giving effect to this Amendment.
15. Payment of Expenses. The Borrower agrees to pay or reimburse the
-------------------
Administrative Agent for all of its out-of-pocket costs and expenses incurred in
connection with the Amendment, any other documents prepared in connection
herewith and the transactions contemplated hereby, including, without
limitation, the reasonable fees and disbursements of counsel to the
Administrative Agent.
16. Reference to and Effect on the Loan Documents; Limited Effect.
-------------------------------------------------------------
On and after the date hereof and the satisfaction of the conditions contained in
paragraph 13 of this Amendment, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the other Loan Documents to "the Credit
Agreement", "thereunder", "thereof" or words of like import referring to the
Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended hereby. The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender or any Agent under any of the Loan
Documents, nor constitute a waiver of any provisions of any of the Loan
Documents. Except as expressly amended herein, all of the provisions and
covenants of the Credit Agreement and the other Loan Documents are and shall
continue to remain in full force and effect in accordance with the terms thereof
and are hereby in all respects ratified and confirmed.
<PAGE>
17. Counterparts. This Amendment may be executed by one or more of
------------
the parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.
18. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
MARINER POST-ACUTE NETWORK, INC.
By:________________________________________
Name:
Title:
THE CHASE MANHATTAN BANK, as Administrative Agent
and as a Lender
By:________________________________________
Name:
Title:
<PAGE>
Annex A
-------
PRICING GRID FOR REVOLVING CREDIT LOANS,SWING LINE LOANS
TRANCHE A TERM LOANS AND COMMITMENT FEES
<TABLE>
<CAPTION>
======================================================================================================
Consolidated Leverage Ratio Applicable Margin Applicable Margin Commitment Fee
for ABR Loans for Eurodollar Loans Rate
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
greater than or equal to 5.25 to 1.0 1.25% 2.75% .50%
- ------------------------------------------------------------------------------------------------------
less than 5.25 to 1.0 and
greater than or equal to 4.75 to 1.0 1.00% 2.50% .50%
- ------------------------------------------------------------------------------------------------------
less than 4.75 to 1.0 and
greater than or equal to 4.25 to 1.0 .75% 2.25% .40%
- ------------------------------------------------------------------------------------------------------
less than 4.25 to 1.0 and
greater than or equal to 3.75 to 1.0 .50% 2.00% .375%
- ------------------------------------------------------------------------------------------------------
less than 3.75 to 1.0 .25% 1.75% .30%
======================================================================================================
</TABLE>
Changes in the Applicable Margin with respect to Revolving Credit Loans, Tranche
A Term Loans or in the Commitment Fee Rate resulting from changes in the
Consolidated Leverage Ratio shall become effective on the date (the "Adjustment
----------
Date") on which financial statements are delivered to the Lenders pursuant to
- ----
Section 6.1 (but in any event not later than the 45th day after the end of each
of the first three quarterly periods of each fiscal year or the 90th day after
the end of each fiscal year, as the case may be) and shall remain in effect
until the next change to be effected pursuant to this paragraph. If any
financial statements referred to above are not delivered within the time periods
specified above, then, until such financial statements are delivered, the
Consolidated Leverage Ratio as at the end of the fiscal period that would have
been covered thereby shall for the purposes hereunder be deemed to be greater
than or equal to 5.25 to 1.0. In addition, at all times while an Event of
Default shall have occurred and be continuing, the Consolidated Leverage Ratio
shall for the purposes hereunder be deemed to be greater than or equal to 5.25
to 1.0. Each determination of the Consolidated Leverage Ratio hereunder shall
be made with respect to the period of four consecutive fiscal quarters of the
Borrower ending at the end of the period covered by the relevant financial
statements.
<PAGE>
EXHIBIT 10.52
FIRST AMENDMENT TO PARTICIPATION AGREEMENT
FIRST AMENDMENT TO PARTICIPATION AGREEMENT, dated as of July 8, 1998
(this "Amendment"), to the Amended and Restated Participation Agreement, dated
---------
as of November 4, 1997 (the "Participation Agreement"), among LIVING CENTERS
-----------------------
HOLDING COMPANY, a Delaware corporation (the "Lessee"), FBTC LEASING CORP., a
------
New York corporation (the "Lessor"), THE CHASE MANHATTAN BANK, a New York
------
banking corporation, as agent (in such capacity, the "Agent") for each of the
-----
financial institutions listed on the signature pages hereof and for the
financial institutions from time to time parties hereto (each, a "Lender";
------
collectively, the "Lenders") and THE FUJI BANK, LIMITED (HOUSTON AGENCY), as co-
-------
agent (in such capacity, the "Co-Agent"). Capitalized terms used but not
--------
otherwise defined in this Amendment shall have the meanings set forth in Annex A
to the Participation Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Participation Agreement, the parties thereto
agreed to participate in a transaction in which, among other things, (i) the
Lenders agreed to make certain loans to the Lessor pursuant to the Amended and
Restated Credit Agreement dated as of November 4, 1997 among the Lessor, the
Agent and the Lenders; (ii) the Lessor agreed to use the proceeds of the Loans
to acquire and construct certain properties; and (iii) the Lessor agreed to
lease such properties to Lessee pursuant to the Lease.
WHEREAS, the Lessee has requested, and, upon this Amendment becoming
effective, the Lenders have agreed, that certain provisions of the Participation
Agreement be amended in the manner provided for in this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. (a) General. Terms defined in the Participation
------------- -------
Agreement and used herein shall, unless otherwise indicated, have the meanings
given to them in the Participation Agreement. Terms defined and used in this
Amendment shall have the meanings given to them in this Amendment.
(b) Replacement of Definitions. The Participation Agreement is
--------------------------
hereby amended by deleting from Annex A thereto the definitions of the following
definitions in their entirety and substituting in lieu thereof the following
definitions in the appropriate alphabetical order:
"'Consolidated EBITDA': for any period, Consolidated Net Income for
-------------------
such period plus, without duplication and to the extent reflected as a
----
charge in the statement of such Consolidated Net Income for such period,
the sum of (a) total income tax expense,
<PAGE>
2
(b) interest expense, amortization or writeoff of debt discount and debt
issuance costs and commissions, discounts and other fees and charges
associated with Indebtedness (including the Loans), (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary or non-
recurring expenses or losses (including, whether or not otherwise
includable as a separate item in the statement of such Consolidated Net
Income for such period, losses on sales of assets outside of the ordinary
course of business) or, with respect to the computation of the financial
covenants contained in Section 11.1 of the Guarantee for any Reference
Period ending on or prior to September 30, 1998, writeoffs or changes to
the income statements increasing the amount of reserves, in an aggregate
amount not to exceed $15,000,000, of accounts receivable of Paragon and its
Subsidiaries, (f) any other non-cash charges, (g) with respect to the
computation of the financial covenants contained in Section 11.1 of the
Guarantee for any Reference Period ending on or prior to September 30,
1998, fees and expenses related to the transactions contemplated by the
Recapitalization Agreement (including conforming accounting adjustments)
and the financing thereof in an aggregate amount equal to the lesser of the
actual amount of such expenses and $122,000,000, (h) non-recurring cash
charges taken within six months of the First Amendment Effective Date as a
result of the Mariner Merger in an aggregate amount not to exceed
$25,000,000 (such charges not in excess of such amount, the "Mariner Merger
--------------
Charges"), (i) any lease payments by Summit Institute for Pulmonary
--------
Medicine and Rehabilitation, Inc. ("Summit") with respect to the Riverside
------
Community Hospital, Bossier City, Bossier Parish, Louisiana, to the extent
and in the proportion of the guarantee by Summit of the then outstanding
principal amount of the Summit IRB (the "Summit Guarantee") and (j) with
----------------
respect to the computation of the financial covenants contained in Section
11.1 of the Guarantee, for the Reference Period ending: (i) December 31,
1997, $12,000,000, (ii) March 31, 1998, $9,000,000 and (iii) June 30, 1998,
$6,000,000, and minus, to the extent included in the statement of such
-----
Consolidated Net Income for such period, the sum of (a) interest income,
(b) any extraordinary or non-recurring income or gains (including, whether
or not otherwise includable as a separate item in the statement of such
Consolidated Net Income for such period, gains on the sales of assets
outside of the ordinary course of business) and (c) any other non-cash
income, all as determined on a consolidated basis; provided, that there
--------
shall be included in Consolidated EBITDA for such period the difference
(but not below zero) between (a) the amount of Consolidated Net Income with
respect to Mariner and its Subsidiaries for such period, to the extent of
any cash dividends paid by Mariner to Paragon during such period and (b)
the amount of any investment by Paragon in or for the account of Mariner
which is not utilized by Mariner for the purposes set forth in subsection
11.8(k) of the Guarantee.
'Subsidiary': as to any Person, a corporation, partnership, limited
----------
liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such
other ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the board
<PAGE>
3
of directors or other managers of such corporation, partnership or other
entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or
both, by such Person. Unless otherwise qualified, all references to a
"Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a
Subsidiary or Subsidiaries of Paragon. Unless otherwise specified, the term
"Subsidiary" or "Subsidiaries" shall not include Mariner and its
Subsidiaries and Mariner Merger Sub."
'Substitute Omega Property': any Health Care Facility and related
-------------------------
personal property conveyed to PHCMI after the Closing Date (which Health
Care Facility may be leased to a New PHCMI Subsidiary), or any Health Care
Facility and related personal property contributed or otherwise transferred
by LC--Southeast to the Substitute Omega Property Subsidiary (which Health
Care Facility may be leased to PHCMI), and which Health Care Facility in
either case is or becomes encumbered by a mortgage, deed to secure debt or
deed of trust in favor of Omega, for the purpose of serving as substitute
collateral for the obligations of PHCMI to Omega, in exchange for the
surrender by Omega of the Omega Letter of Credit; provided that the
--------
Substitute Omega Property shall not, in the aggregate, (i) represent more
than $3,500,000 of Paragon's Consolidated EBITDA for the most recent
Reference Period for which the relevant financial information is available
or (ii) have a maximum aggregate capacity in excess of 600 beds."
(c) Amendment of Definitions. The definition of the term "Assumed
------------------------
Debt" is hereby amended by adding at the end thereof and prior to the
period the following: "provided, that, notwithstanding the above, the
--------
Summit Guarantee shall be deemed to constitute Assumed Debt, to the extent
the principal amount of Indebtedness guaranteed thereby does not exceed
$3,500,000".
(d) Addition of Definitions. The following defined terms are hereby
-----------------------
added to Annex A of the Participation Agreement in appropriate alphabetical
order:
"'First Amendment': the First Amendment, dated as of July 8,
---------------
1998, to this Agreement.
'First Amendment Effective Date': the date of effectiveness of
------------------------------
the First Amendment.
'LC--Southeast': Living Centers--Southeast, Inc., a North
------------
Carolina corporation and an indirect Wholly Owned Subsidiary of the
Borrower.
'Mariner': Mariner Health Group, Inc., a Delaware corporation.
-------
<PAGE>
4
'Mariner Credit Agreement': the Credit Agreement, dated as of
------------------------
May 18, 1994, among Mariner, the lenders party thereto and PNC Bank,
N.A., as agent, as amended supplemented or otherwise modified from
time to time.
'Mariner Merger': the merger of Mariner Merger Sub with and into
--------------
Mariner, with Mariner as the continuing or surviving corporation,
pursuant to the Mariner Merger Agreement.
'Mariner Merger Agreement': the Agreement and Plan of Merger,
------------------------
dated as of April 13, 1998, among Paragon, Mariner Merger Sub and
Mariner, as amended, supplemented or otherwise modified from time to
time in accordance with subsection 11.9 of the Guarantee.
'Mariner Merger Sub': Paragon Acquisition Sub, Inc., a Delaware
------------------
corporation.
'Mariner Notes': the 9-1/2% Senior Subordinated Notes due 2006
-------------
of Mariner, as amended, supplemented or otherwise modified from time
to time.
'Substitute Omega Property Subsidiary': Living Centers - PHCM,
------------------------------------
Inc., a North Carolina corporation and a Wholly Owned Subsidiary of
LCC--Southeast.
'Summit': as defined in the definition of "Consolidated EBITDA".
------
'Summit Guarantee': as defined in the definition of
----------------
"Consolidated EBITDA".
'Summit IRB': the series 1987 revenue refunding bonds issued by
----------
the Louisiana Public Facilities Authority with respect to the
Southwest Medical Center, Inc. Project."
2. Amendment to Section 6.2(q). Section 6.2(q) of the Participation
---------------------------
Agreement is hereby amended by deleting the amount "25,000,000" in the third
line and substituting in lieu thereof the amount "50,000,000".
3. Conditions to Effectiveness. The amendments provided for herein
---------------------------
shall become effective on the date (the "Effective Date") of satisfaction of the
--------------
following conditions precedent:
(a) The Agent shall have received counterparts of this Amendment duly
executed and delivered by the Lessee, the Lessor and the Lenders.
<PAGE>
5
(b) The Agent shall have received a copy of the resolutions, in form
and substance satisfactory to the and the Agent, of the Lessee authorizing
the execution, delivery and performance of this Amendment, certified by the
Secretary or an Assistant Secretary of the Lessee as of the date hereof,
which certificate shall be in form and substance satisfactory to the Agent
and shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded.
(c) The Agent shall have received a certificate of the Secretary or
an Assistant Secretary of the Lessee, dated the date hereof, as to the
incumbency and signature of the officers of the Lessee executing this
Amendment satisfactory in form and substance to the Agent.
(d) The Agent shall have received the executed legal opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to the Lessee dated the
date hereof and in form and substance satisfactory to the Agent with
respect to this Amendment and the transactions contemplated hereby.
;provided, that, the effectiveness of the amendments set forth in paragraphs
-------- ----
1(c) and the addition of the definitions "Summit", "Summit Guarantee" and
"Summit IRB" contained in paragraph 1(d) shall be conditioned only upon the
satisfaction of the condition contained in clause (a) of this paragraph 3.
4. Consent. Notwithstanding the provisions of Section 8.2 of the
-------
Lease, the Agent and the Lenders hereby consent to the financing under the
Credit Agreement of the acquisition and construction in the maximum aggregate
amount of $17,000,000, of an approximately 90,000 square foot office facility
located in Houston, Texas, to be used to for Paragon's shared services
operation.
5. Payment of Expenses. The Lessee agrees to pay or reimburse the
-------------------
Agent for all of its out-of-pocket costs and expenses incurred in connection
with the Amendment, any other documents prepared in connection herewith and the
transactions contemplated hereby, including, without limitation, the reasonable
fees and disbursements of counsel to the Agent.
6. Reference to and Effect on the Loan Documents; Limited Effect. On
-------------------------------------------------------------
and after the date hereof and the satisfaction of the conditions contained in
paragraph 3 of this Amendment, each reference in the Participation Agreement to
"this Agreement", "hereunder", "hereof" or words of like import referring to the
Participation Agreement, and each reference in the other Loan Documents to "the
Participation Agreement", "thereunder", "thereof" or words of like import
referring to the Participation Agreement, shall mean and be a reference to the
Participation Agreement as amended hereby. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of any Lender or any Agent
under any of the Loan Documents, nor constitute a waiver of any provisions of
any of the Loan Documents. Except as expressly amended herein, all of the
provisions and covenants of the Participation Agreement and the other Loan
<PAGE>
6
Documents are and shall continue to remain in full force and effect in
accordance with the terms thereof and are hereby in all respects ratified and
confirmed.
7. Counterparts. This Amendment may be executed by one or more of
------------
the parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.
8. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
7
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
LIVING CENTERS HOLDING COMPANY, as Lessee
By:
--------------------------------
Name:
Title:
FBTC LEASING CORP., as Lessor
By:
--------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK, as Agent and a Lender
By:
--------------------------------
Name:
Title:
THE FUJI BANK, LIMITED, as Co-Agent and a Lender
By:
--------------------------------
Name:
Title:
CITIBANK, N.A., as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
8
NATIONSBANK, N.A., as a Lender
By:
--------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA, as a Lender
By:
--------------------------------
Name:
Title:
BANQUE PARIBAS, as a Lender
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH, as a Lender
By:
--------------------------------
Name:
Title:
DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
<PAGE>
9
FIRST UNION NATIONAL BANK, as a Lender
By:
--------------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, as a Lender
By:
--------------------------------
Name:
Title:
TORONTO DOMINION BANK (TEXAS), INC., as a Lender
By:
--------------------------------
Name:
Title:
THE UNION BANK OF CALIFORNIA, N.A., as a Lender
By:
--------------------------------
Name:
Title:
MARINE MIDLAND BANK, as a Lender
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.53
SECOND AMENDMENT TO PARTICIPATION AGREEMENT
SECOND AMENDMENT TO PARTICIPATION AGREEMENT, dated as of December 22,
1998 (this "Amendment"), to the Amended and Restated Participation Agreement,
-----------
dated as of November 4, 1997 as amended by the First Amendment to the Amended
and Restated Participation Agreement, dated as of July 8, 1998 (as the same may
be further amended, supplemented or otherwise modified from time to time, the
"Participation Agreement"), among LIVING CENTERS HOLDING COMPANY, a Delaware
- -------------------------
corporation (the Lessee"), FBTC LEASING CORP., a New York corporation (the
"Lessor"), THE CHASE MANHATTAN BANK, a New York banking corporation, as agent
- --------
(in such capacity, the "Agent") for each of the financial institutions listed on
-------
the signature pages hereof and for the financial institutions from time to time
parties hereto (each, a "Lender"; collectively, the "Lenders") and THE FUJI
-------- ---------
BANK, LIMITED (HOUSTON AGENCY), as co-agent (in such capacity, the "Co-Agent").
----------
Capitalized terms used but not otherwise defined in this Amendment shall have
the meanings set forth in Annex A to the Participation Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Participation Agreement, the parties thereto
agreed to participate in a transaction in which, among other things, (i) the
Lenders agreed to make certain loans to the Lessor pursuant to the Amended and
Restated Credit Agreement dated as of November 4, 1997 among the Lessor, the
Agent and the Lenders; (ii) the Lessor agreed to use the proceeds of the Loans
to acquire and construct certain properties; and (iii) the Lessor agreed to
lease such properties to Lessee pursuant to the Lease.
WHEREAS, the Lessee has requested, and, upon this Amendment becoming
effective, the Lenders have agreed, that certain provisions of the Participation
Agreement be amended in the manner provided for in this Amendment; and
WHEREAS, Chase Securities Inc. has agreed to act as the lead arranger
and book manager in arranging the consents necessary for the effectiveness of
this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. (a) General. Terms defined in the Participation
------------- -------
Agreement and used herein shall, unless otherwise indicated, have the meanings
given to them in the Participation Agreement. Terms defined and used in this
Amendment shall have the meanings given to them in this Amendment.
(b) Amendment of Definitions.
------------------------
<PAGE>
2
The definition of the term "Consolidated Leverage Ratio Stepdown
Date" contained in Annex A of the Participation Agreement is hereby amended by
deleting the amount "$125,000,000 in the fourth line and substituting in lieu
thereof the amount "$100,000,000".
(c) Replacement of Definitions. The Participation Agreement is hereby
--------------------------
amended by deleting from Annex A thereto the definition "Consolidated
EBITDA" in its entirety and substituting in lieu thereof the following new
definition of "Consolidated EBITDA":
"Consolidated EBITDA": for any period, Consolidated Net Income for
-------------------
such period plus, without duplication and, other than with respect to item
(j) below, to the extent reflected as a charge in the statement of such
Consolidated Net Income for such period, the sum of (a) total income tax
expense, (b) interest expense, amortization or writeoff of debt discount and
debt issuance costs and commissions, discounts and other fees and charges
associated with Indebtedness (including the Loans), (c) depreciation and
amortization expense, (d) amortization of intangibles (including, but not
limited to, goodwill) and organization costs, (e) any extraordinary or non-
recurring expenses or losses (including, whether or not otherwise includable
as a separate item in the statement of such Consolidated Net Income for such
period, losses on sales of assets outside of the ordinary course of
business), (f) any other non-cash charges, (g) with respect to the
computation of the financial covenants contained in Section 7.1 for any
Reference Period ending on or prior to September 30, 1998, fees and expenses
related to the transactions contemplated by the Recapitalization Agreement
(including conforming accounting adjustments) and the financing thereof in an
aggregate amount equal to the lesser of the actual amount of such expenses
and $122,000,000, (h) non-recurring cash charges taken on or prior to
September 30, 1999 as a result of the Mariner Merger in an aggregate amount
not to exceed $35,000,000 (such charges not in excess of such amount, the
"Mariner Merger Charges"), (i) any lease payments by Summit Institute for
----------------------
Pulmonary Medicine and Rehabilitation, Inc. ("Summit") with respect to the
Riverside Community Hospital, Bossier City, Bossier Parish, Louisiana, to the
extent and in the proportion of the guarantee by Summit of the then
outstanding principal amount of the Summit IRB (the "Summit Guarantee") and
----------------
(j) at any date of determination ending on the dates set forth in this clause
(j) below, the amount of cost synergies reasonably projected to be achieved
by Mariner as a result of the Mariner Merger and which as of such dates have
not yet been achieved, up to a maximum for the determination date ending: (i)
December 31, 1998, $18,000,000, (ii) March 31, 1999, $18,000,000, (iii) June
30, 1999, $16,000,000 and (iv) September 30, 1999, $14,000,000, and minus, to
-----
the extent included in the statement of such Consolidated Net Income for such
period, the sum of (a) interest income, (b) any extraordinary or non-
recurring income or gains (including, whether or not otherwise includable as
a separate item in the statement of such Consolidated Net Income for such
period, gains on the sales of assets outside of the ordinary course of
business) and (c) any other non-cash income, all as determined on a
consolidated basis; provided, that there shall be included in Consolidated
EBITDA for such period the difference (but not below zero) between (a) the
amount of Consolidated Net Income with respect to Mariner and its
Subsidiaries for such period, to the extent of any cash distributions paid by
Mariner to Mariner during such period and (b) the amount of any investment by
Mariner in or for the account of Mariner during such period which is not
utilized by Mariner during such period for the purposes set forth in Section
7.8(k)."
<PAGE>
3
(d) Addition of Definitions. The following defined terms are hereby
-----------------------
added to Annex A of the Participation Agreement in appropriate alphabetical
order:
"Mariner": Mariner Post-Acute Network, Inc. (formerly known as
-------
Paragon Health Network, Inc.), a Delaware corporation.
References in the Operative Documents to "Paragon" shall be
deemed to refer to Mariner.
"Second Amendment": the Second Amendment, dated as of December
----------------
22, 1998, to this Agreement.
"Second Amendment Effective Date": the date of effectiveness of
-------------------------------
the Second Amendment.
2. Replacement of Pricing Grid. Schedule 1 to Annex A of the
---------------------------
Participation Agreement is hereby amended by deleting such Schedule 1 in its
entirety and substituting in lieu thereof the Pricing Grid attached as Schedule
1 hereto.
3. Fees. In consideration of the agreement of the Lenders to consent
----
to the amendments contained herein, Mariner agrees to pay to (a) each Lender
which so consents, on or prior to December 22, 1998, an amendment fee in an
amount equal to 0.25% of the amount of such Lender's Commitment, payable on the
date hereof in immediately available funds, and (b) the Lessor, if it should so
consent, on or prior to December 22, 1998 an amendment fee in an amount equal to
0.25% of the amount of the Lessor's Commitment, payable on the date hereof in
immediately available funds.
4. Conditions to Effectiveness. The amendments provided for herein
---------------------------
shall become effective on the date the Agent shall have received counterparts of
this Amendment duly executed and delivered by the Lessee, the Lessor and the
Required Lenders.
5. Reference to and Effect on the Operative Documents; Limited Effect.
------------------------------------------------------------------
On and after the date hereof and the satisfaction of the conditions contained in
paragraph 4 of this Amendment, each reference in the Participation Agreement to
"this Agreement", "hereunder", "hereof" or words of like import referring to the
Participation Agreement, and each reference in the other Operative Documents to
"the Participation Agreement", "thereunder", "thereof" or words of like import
referring to the Participation Agreement, shall mean and be a reference to the
Participation Agreement as amended hereby. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of any Lender or any Agent
under any of the Operative Documents, nor constitute a waiver of any provisions
of any of the Operative Documents. Except as expressly amended herein, all of
the provisions and covenants of the Participation Agreement and the other
<PAGE>
4
Operative Documents are and shall continue to remain in full force and effect in
accordance with the terms thereof and are hereby in all respects ratified and
confirmed.
6. Counterparts. This Amendment may be executed by one or more of the
------------
parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.
7. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
-------------
PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
LIVING CENTERS HOLDING COMPANY, as Lessee
By:
---------------------------------
Name:
Title:
<PAGE>
6
FBTC LEASING CORP., as Lessor
By:
---------------------------------
Name:
Title:
<PAGE>
7
THE CHASE MANHATTAN BANK, as Agent and a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
8
THE FUJI BANK, LIMITED, as Co-Agent and a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
9
CITIBANK, N.A., as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
10
NATIONSBANK, N.A., as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
11
THE BANK OF NOVA SCOTIA, as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
12
BANQUE PARIBAS, as a Lender
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
<PAGE>
13
CREDIT LYONNAIS NEW YORK BRANCH, as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
14
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as a Lender
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
<PAGE>
15
FIRST UNION NATIONAL BANK, as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
16
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
17
TORONTO DOMINION BANK (TEXAS), INC., as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
18
THE UNION BANK OF CALIFORNIA, N.A., as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
19
MARINE MIDLAND BANK, as a Lender
By:
---------------------------------
Name:
Title:
<PAGE>
20
Schedule 1
----------
PRICING GRID FOR REVOLVING CREDIT LOANS, SWING LINE LOANS
TRANCHE A TERM LOANS AND COMMITMENT FEES
<TABLE>
<CAPTION>
=======================================================================================================
Consolidated Leverage Ratio Applicable Margin Applicable Margin Commitment Fee
for ABR Loans for Eurodollar Loans Rate
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
greater than or equal to 5.25 to 1.0 1.25% 2.75% .50%
- -------------------------------------------------------------------------------------------------------
less than 5.25 to 1.0 and
greater than or equal to 4.75 to 1.0 1.00% 2.50% .50%
- -------------------------------------------------------------------------------------------------------
less than 4.75 to 1.0 and
greater than or equal to 4.25 to 1.0 .75% 2.25% .40%
- -------------------------------------------------------------------------------------------------------
less than 4.25 to 1.0 and
greater than or equal to 3.75 to 1.0 .50% 2.00% .375%
- -------------------------------------------------------------------------------------------------------
less than 3.75 to 1.0 .25% 1.75% .30%
=======================================================================================================
</TABLE>
Changes in the Applicable Margin with respect to Revolving Credit Loans, Tranche
A Term Loans or in the Commitment Fee Rate resulting from changes in the
Consolidated Leverage Ratio shall become effective on the date (the "Adjustment
----------
Date") on which financial statements are delivered to the Lenders pursuant to
- ----
Section 6.1 (but in any event not later than the 45th day after the end of each
of the first three quarterly periods of each fiscal year or the 90th day after
the end of each fiscal year, as the case may be) and shall remain in effect
until the next change to be effected pursuant to this paragraph. If any
financial statements referred to above are not delivered within the time periods
specified above, then, until such financial statements are delivered, the
Consolidated Leverage Ratio as at the end of the fiscal period that would have
been covered thereby shall for the purposes hereunder be deemed to be greater
than or equal to 5.25 to 1.0. In addition, at all times while an Event of
Default shall have occurred and be continuing, the Consolidated Leverage Ratio
shall for the purposes hereunder be deemed to be greater than or equal to 5.25
to 1.0. Each determination of the Consolidated Leverage Ratio hereunder shall
be made with respect to the period of four consecutive fiscal quarters of the
Borrower ending at the end of the period covered by the relevant financial
statements.
<PAGE>
EXHIBIT 10.55
FIRST AMENDMENT TO GUARANTEE
FIRST AMENDMENT TO GUARANTEE, dated as of July 8, 1998 (this
"Amendment"), to the Amended and Restated Guarantee, dated as of November 4,
- ----------
1997 (the "Guarantee"), made by PARAGON HEALTH NETWORK, INC., a Delaware
---------
corporation ("Paragon") and the other guarantors which are signatories thereto
-------
(Paragon and each such other guarantor, individually, a "Guarantor";
---------
collectively, the "Guarantors"), in favor of THE CHASE MANHATTAN BANK, as
----------
administrative agent (in such capacity, the "Agent") for the lenders (the
-----
"Lenders") parties to the Amended and Restated Credit Agreement, dated as of the
- --------
date hereof (as further amended, supplemented, extended or otherwise modified
from time to time, the "Credit Agreement"), among FBTC LEASING CORP. (the
----------------
"Borrower"), the Lenders and the Agent.
- ---------
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Guarantee, dated as of November 4, 1997, made
by Guarantor and certain of its subsidiaries in favor of the Agent, Paragon
agreed to guarantee the prompt and complete performance of the Guaranteed
Obligations (as defined in the Guarantee).
WHEREAS, the Guarantor has requested, and, upon this Amendment
becoming effective, the Lenders have agreed, that certain provisions of the
Guarantee be amended in the manner provided for in this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Terms defined in the Guarantee and used herein
-------------
shall, unless otherwise indicated, have the meanings given to them in the
Guarantee. Terms defined and used in this Amendment shall have the meanings
given to them in this Amendment.
2. Amendment to Section 11.1. Section 11.1 of the Guarantee is
-------------------------
hereby amended by deleting paragraph (d) and substituting in lieu thereof the
following new paragraph (d):
"(d) Maintenance of Consolidated Net Worth. Permit Consolidated
-------------------------------------
Net Worth at the last day of any fiscal quarter of Paragon ending
after December 31, 1997 to be less than (i) all items which were
included on the consolidated balance sheet under shareholders' equity
at December 31, 1997 less $50,000,000, plus (ii) 50% of Consolidated
----
Net Income (if positive) for the period from January 1, 1998 to such
date (not taking into account the Mariner Merger Charges), plus (iii)
----
without duplication, 100% of the amount which would in conformity with
GAAP be included in shareholders' equity on a consolidated balance
sheet of Paragon and its Subsidiaries as a result of the issuance of
Capital Stock by, or capital
<PAGE>
2
contributions made to, Paragon or any of its Subsidiaries after the
Closing Date, minus (iv) the amount of the Mariner Merger Charges on
-----
an after-tax basis."
3. Amendment to Section 11.2. Section 11.2 of the Guarantee is
-------------------------
hereby amended by adding after the word "by" in the fourth line of paragraph (e)
thereof the words "the Substitute Omega Property Subsidiary or".
4. Amendment to Section 11.3. Section 11.3 of the Guarantee is
-------------------------
hereby amended by (a) inserting immediately after the words "by PHCMI" in the
first line of paragraph (m) thereof the words ", the Substitute Omega Property
Subsidiary", (b) relettering current paragraphs (o) and (p) as (p) and (q) and
(c) inserting the following new paragraph (o) as follows:
"(o) the pledge by Summit in favor of the trustee for the Summit IRB
of its interest in the sinking fund reserve account for the Summit
IRB;".
5. Amendment to Section 11.4. Section 11.4 of the Guarantee is
-------------------------
hereby amended by deleting paragraphs (c) and (d) thereof in their entirety and
substituting in lieu thereof the following new paragraphs (c) and (d):
"(c) any Subsidiary of Paragon may Dispose of one or more Substitute
Omega Properties to PHCMI, the Substitute Omega Property Subsidiary or any
of the New PHCMI Subsidiaries in connection with providing substitute
collateral to Omega in exchange for the surrender by Omega of the Omega
Letter of Credit, and PHCMI, the Substitute Omega Property Subsidiary or
any New PHCMI Subsidiary may temporarily lease or sublease the Substitute
Omega Properties to LC--Southeast, provided that any such lease or sublease
to LC--Southeast shall be cancelled as soon as reasonably practicable after
receipt of necessary Governmental Authority Health Care Permits and
Medicare and Medicaid licenses for the Substitute Omega Properties reissued
in the name of PHCMI, the Substitute Omega Property Subsidiary or any New
PHCMI Subsidiary, as applicable;
(d) any acquisition expressly permitted by Section 11.8 may be
structured as a merger with or into Paragon (provided that Paragon shall be
--------
the continuing or surviving corporation), with or into any Wholly Owned
Subsidiary Guarantor (provided that the Wholly Owned Subsidiary Guarantor
--------
shall be the continuing or surviving corporation) or, in the case of the
Mariner Merger, with or into Mariner (provided that Mariner shall be the
--------
continuing or surviving corporation); and".
6. Amendment to Section 11.8. Section 11.8 of the Guarantee is
-------------------------
hereby amended by (a) inserting at the end of paragraph (g) thereof and prior to
the semi-colon the following: "and the capital contribution by LC--Southeast to
the Substitute Omega Property Subsidiary represented by the transfer of the
Substitute Omega Properties to the Substitute Omega Property Subsidiary, as
permitted in Section 11.4(c) hereof", (b) inserting immediately after the amount
"$300,000,000" in the last line of paragraph (h) thereof the following:
"provided, further, Paragon and Mariner Merger Sub shall be permitted to
- ------------------
consummate the Mariner Merger pursuant to the Mariner Merger Agreement without
regard to the foregoing
<PAGE>
3
dollar limitations, and shall be deemed not to be a utilization of such dollar
limitations", (c) relettering current paragraph (k) as paragraph (l), and (d)
adding thereto the following new paragraph (k):
"(k) investments by Paragon in or for the account of Mariner (i) to
finance the redemption or repurchase by Mariner of the Mariner Notes, (ii)
to make the required payments to holders of the Cash Payment Options (as
such term is defined in the Mariner Merger Agreement) and (iii) to pay
other costs and expenses incurred by Mariner directly associated with the
Mariner Merger, in an aggregate amount for items (i), (ii) and (iii) not to
exceed $100,000,000 during the term of this Agreement; and".
7. Amendment to Section 11.9. Section 11.9 of the Guarantee is
-------------------------
hereby amended by (a) deleting the word "or" in the seventh line and
substituting in lieu thereof a comma and (b) inserting immediately after the
word "Notes" in the sixth line thereof the words "or the Mariner Merger
Agreement, except for immaterial changes to the Mariner Merger Agreement that do
not adversely affect the Lenders in any respect".
8. Amendment to Section 11.10. Section 11.10 of the Guarantee is
--------------------------
hereby amended by inserting immediately at the end thereof and prior to the
period the following: "provided, that the foregoing provisions of this Section
--------
11.10 shall not be deemed to prohibit (i) any transaction incidental to the
Mariner Merger, as contemplated in the Mariner Merger Agreement, (ii) the
provision of certain administrative services by Paragon for Mariner or any of
its Subsidiaries in the ordinary course of business and consistent with
Paragon's past practice with respect to its other Subsidiaries, (iii) the
payment by Paragon in the ordinary course of business of certain third party
payment obligations on behalf of Mariner or any of its Subsidiaries to the
extent Mariner or such Subsidiary, as the case may be, provides timely
reimbursement to Paragon for such payment, but in any event such reimbursement
shall be in the same fiscal quarter in which Paragon made such payment (it being
understood that the payment of such obligations by Paragon in accordance with
this clause (iii) shall be deemed not to be a utilization of the dollar
limitations set forth in Section 11.8(k)) or (iv) the investment permitted
pursuant to Section 11.8(k)".
9. Amendment to Section 11.14. Section 11.14 of the Guarantee is
--------------------------
hereby amended by (a) deleting the word "and" in the sixth line and substituting
in lieu thereof a comma and (b) adding at the end thereof and prior to the
period the following: "and (c) so long as the Summit IRB is outstanding, any
agreement binding on Summit and relating to the Health Care Facility in Bossier
City, Bossier Parish, Louisiana, leased by Summit and financed by the Summit
IRB".
10. Supplement to Schedule 7.14. Schedule 7.14 to the Guarantee is
---------------------------
hereby amended by adding thereto the information set forth on Annex A to this
Amendment.
<PAGE>
4
11. Amendment to Section 11.15. Section 11.15 of the Guarantee is
--------------------------
hereby amended by (a) deleting the word "and" in the ninth line and substituting
in lieu thereof a comma and (b) adding at the end thereof and prior to the
period the following: "and (iii) Section 6.11(b) of the Amended and Restated
Agreement of Sale, dated as of April 1, 1993, as amended prior to the date
hereof, by and among the Louisiana Public Facilities Authority, Southwest
Medical Center, Inc. and Summit, as guarantor".
12. Conditions to Effectiveness. The amendments provided for herein
---------------------------
shall become effective on the date (the "Effective Date") of satisfaction of the
--------------
following conditions precedent:
(a) The Agent shall have received counterparts of this Amendment duly
executed and delivered by the Guarantors.
(b) The Agent shall have received a copy of the resolutions, in form
and substance satisfactory to the and the Agent, of Paragon authorizing the
execution, delivery and performance of this Amendment, certified by the
Secretary or an Assistant Secretary of Paragon as of the date hereof, which
certificate shall be in form and substance satisfactory to the Agent and
shall state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded.
(c) The Agent shall have received a certificate of the Secretary or
an Assistant Secretary of Paragon, dated the date hereof, as to the
incumbency and signature of the officers of Paragon executing this
Amendment satisfactory in form and substance to the Agent.
(d) The Agent shall have received the executed legal opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to Paragon dated the date
hereof and in form and substance satisfactory to the Agent with respect to
this Amendment and the transactions contemplated hereby.
;provided, that, the effectiveness of the amendments set forth in paragraphs
-------- ----
4(b) and (c), 9 and 11 shall be conditioned only upon the satisfaction of the
condition contained in clause (a) of this paragraph 12.
13. Representations and Warranties. Paragon as of the date hereof
------------------------------
and after giving effect to the amendment contained herein, hereby confirms,
reaffirms and restates that representations and warranties made by it in Section
9 of the Guarantee; provided, that each reference to the Guarantee therein shall
--------
be deemed to be a reference to the Guarantee after giving effect to this
Amendment.
14. Payment of Expenses. Paragon agrees to pay or reimburse the
-------------------
Agent for all of its out-of-pocket costs and expenses incurred in connection
with the Amendment, any other
<PAGE>
5
documents prepared in connection herewith and the transactions contemplated
hereby, including, without limitation, the reasonable fees and disbursements of
counsel to the Agent.
15. Reference to and Effect on the Loan Documents; Limited Effect.
-------------------------------------------------------------
On and after the date hereof and the satisfaction of the conditions contained in
paragraph 12 of this Amendment, each reference in the Guarantee to "this
Guarantee", "hereunder", "hereof" or words of like import referring to the
Guarantee, and each reference in the other Loan Documents to "the Guarantee",
"thereunder", "thereof" or words of like import referring to the Guarantee,
shall mean and be a reference to the Guarantee as amended hereby. The
execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or any Agent under any of the Loan Documents, nor constitute a waiver
of any provisions of any of the Loan Documents. Except as expressly amended
herein, all of the provisions and covenants of the Guarantee and the other Loan
Documents are and shall continue to remain in full force and effect in
accordance with the terms thereof and are hereby in all respects ratified and
confirmed.
16. Counterparts. This Amendment may be executed by one or more of
------------
the parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.
17. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
PARAGON HEALTH NETWORK, INC.
By:
--------------------------------
Title:
<PAGE>
7
AMERICAN-CAL MEDICAL SERVICES, INC.
AMS GREEN TREE, INC.
AMS PROPERTIES, INC.
CONNERWOOD HEALTHCARE, INC.
COORDINATED HOME HEALTH SERVICES, INC.
CORNERSTONE HEALTH MANAGEMENT COMPANY
EH ACQUISITION CORP.
EH ACQUISITION CORP. II
EH ACQUISITION CORP. III
EVERGREEN HEALTHCARE, INC.
EVERGREEN HEALTHCARE LTD., L.P.
GC SERVICES, INC.
GCI BELLA VITA, INC.
GCI CAMELLIA CARE CENTER, INC.
GCI COLTER VILLAGE, INC.
GCI EAST VALLEY MEDICAL & REHABILITATION CENTER, INC.
GCI FAITH NURSING HOME, INC.
GCI HEALTH CARE CENTERS, INC.
GCI JOLLEY ACRES, INC.
GCI PALM COURT, INC.
GCI PRINCE GEORGE, INC.
GCI REALTY, INC.
GCI REHAB, INC.
GCI SPRINGDALE VILLAGE, INC.
GCI THERAPIES, INC.
GCI VALLEY MANOR HEALTH CARE CENTER, INC.
GCI VILLAGE GREEN, INC.
GCI-CAL HEALTH CARE CENTERS, INC.
GCI-CAL THERAPIES COMPANY
GCI-WISCONSIN PROPERTIES, INC.
GRANCARE GPO SERVICES, INC.
GRANCARE HOME HEALTH SERVICES, INC.
GRANCARE, INC.
GRANCARE NURSING SERVICES AND HOSPICE, INC.
GRANCARE OF MICHIGAN, INC.
GRANCARE OF NORTH CAROLINA, INC.
GRANCARE OF NORTHERN CALIFORNIA, INC.
GRANCARE SOUTH CAROLINA, INC.
GRANCARE TRADING, INC.
HERITAGE OF LOUISIANA, INC.
HMI CONVALESCENT CARE, INC.
HOSTMASTERS, INC.
NATIONAL HERITAGE REALTY, INC.
OMEGA/INDIANA CARE CORPORATION
RENAISSANCE MENTAL HEALTH CENTER, INC.
STONECREEK MANAGEMENT COMPANY, INC.
By:
--------------------------------------
Title:
<PAGE>
8
AMERICAN PHARMACEUTICAL SERVICES, INC.
AMERICAN REHABILITY MANAGEMENT, INC.
AMERICAN REHABILITY SERVICES, INC.
AMERICAN SENIOR HEALTH SERVICES, INC.
APS HOLDING COMPANY, INC.
APS PHARMACY MANAGEMENT, INC.
BRIAN CENTER HEALTH & REHABILITATION/TAMPA, INC.
BRIAN CENTER HEALTH & RETIREMENT/ALLEGHANY, INC.
BRIAN CENTER HEALTH & RETIREMENT/BASTIAN, INC.
BRIAN CENTER HEALTH & RETIREMENT/WALLACE, INC.
BRIAN CENTER MANAGEMENT CORPORATION
BRIAN CENTER NURSING CARE/AUSTELL, INC.
BRIAN CENTER NURSING CARE/FINCASTLE, INC.
BRIAN CENTER NURSING CARE/HICKORY, INC.
BRIAN CENTER NURSING CARE/POWDER SPRINGS, INC.
BRIAN CENTER OF ASHEBORO, INC.
BRIAN CENTER OF CENTRAL COLUMBIA, INC.
BRIAN CENTERS HEALTH & RETIREMENT/WALLACE, INC.
DEVCON HOLDING COMPANY
EXTENDED ACUTE HOSPITALS OF AMERICA, INC.
GULF COAST PHYSICAL THERAPY GROUP, INC.
HOME HEALTH MANAGEMENT ASSOCIATES OF AMERICA, INC.
HOMECARE ASSOCIATES OF AMERICA, INC.
HOSPICE ASSOCIATES OF AMERICA, INC.
HOSPICE CARE OF TENNESSEE, INC.
HOSPICE MANAGEMENT PARTNERS, INC.
LC MANAGEMENT COMPANY
LCA OPERATIONAL HOLDING COMPANY
LCR, INC.
LIVING CENTERS DEVELOPMENT COMPANY
LIVING CENTERS - EAST, INC.
LIVING CENTERS HOLDING COMPANY
LIVING CENTERS LTCP DEVELOPMENT COMPANY
LIVING CENTERS OF TEXAS, INC.
LIVING CENTERS - ROCKY MOUNTAIN, INC.
LIVING CENTERS - SOUTHEAST DEVELOPMENT CORPORATION
LIVING CENTERS - SOUTHEAST, INC.
MED-CARE SALES AND RENTALS, INC.
MED-THERAPY REHABILITATION SERVICES, INC.
PROFESSIONAL RX SYSTEMS, INC.
PROGRESSIVE CARE CENTERS OF AMERICA, INC.
REHABILITY HEALTH SERVICES, INC.
REHABILITY HOSPITAL SERVICES, INC.
THERACARE HOME HEALTH AGENCY, INC.
THERAPY MANAGEMENT INNOVATIONS, INC.
TOICA, INC.
WORKHEALTH HEALTHCARE MANAGEMENT INC.
By:
-------------------------------------------
Title:
<PAGE>
9
Annex A
-------
NEGATIVE PLEDGES
<PAGE>
EXHIBIT 10.56
SECOND AMENDMENT TO GUARANTEE
SECOND AMENDMENT TO GUARANTEE, dated as of December 22, 1998 (this
"Amendment"), to the Amended and Restated Guarantee, dated as of November 4,
- ----------
1997, as amended by the First Amendment to Guarantee, dated as of July 8, 1998
(as the same may be further amended, supplemented or otherwise modified from
time to time, the "Guarantee"), made by MARINER POST-ACUTE NETWORK, INC.
---------
(formerly known as Paragon Health Network, Inc.), a Delaware corporation
("Mariner") and the other guarantors which are signatories thereto (Mariner and
- ---------
each such other guarantor, individually, a "Guarantor"; collectively, the
---------
"Guarantors"), in favor of THE CHASE MANHATTAN BANK, as administrative agent (in
- -----------
such capacity, the "Agent") for the lenders (the "Lenders") parties to the
----- -------
Amended and Restated Credit Agreement, dated as of November 4, 1997 (as further
amended, supplemented, extended or otherwise modified from time to time, the
"Credit Agreement"), among FBTC LEASING CORP. (the "Borrower"), the Lenders and
- ----------------- --------
the Agent.
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Amended and Restated Guarantee, dated as of
November 4, 1997, made by Guarantor and certain of its subsidiaries in favor of
the Agent, Paragon Health Network, Inc. agreed to guarantee the prompt and
complete performance of the Guaranteed Obligations (as defined in the
Guarantee).
WHEREAS, the Guarantor has requested, and, upon this Amendment
becoming effective, the Lenders have agreed, that certain provisions of the
Guarantee be amended in the manner provided for in this Amendment; and
WHEREAS, Chase Securities Inc. has agreed to act as the lead arranger
and book manager in arranging the consents necessary for the effectiveness of
this Amendment;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Defined Terms. Terms defined in the Guarantee and used herein
-------------
shall, unless otherwise indicated, have the meanings given to them in the
Guarantee. Terms defined and used in this Amendment shall have the meanings
given to them in this Amendment.
2. Amendment to Section 9. Section 9 of the Guarantee is hereby
----------------------
amended by adding thereto the following new Section 4.23:
"9.22 Year 2000 Matters. Any reprogramming required to permit
-----------------
the proper functioning (but only to the extent that such proper
functioning would otherwise be impaired by the occurrence of the year
2000) in and following the
<PAGE>
2
year 2000 of computer systems and other equipment containing
embedded microchips, in either case owned or operated by Mariner or
any of its Subsidiaries or used or relied upon in the conduct of their
business (including any such systems and other equipment supplied by
others or with which the computer systems of Mariner or any of its
Subsidiaries interface), and the testing of all such systems and other
equipment as so reprogrammed, will be completed in all material
respects by June 30, 1999. The costs to Mariner and its Subsidiaries
that have not been incurred as of the date hereof for such
reprogramming and testing and for the other reasonably foreseeable
consequences to them of any improper functioning of other computer
systems and equipment containing embedded microchips due to the
occurrence of the year 2000 could not reasonably be expected to result
in a Default or Event of Default or to have a Material Adverse Effect.
Except for any reprogramming referred to above, the computer systems
of Mariner and its Subsidiaries are and, with ordinary course
upgrading and maintenance, will continue for the term of this
Agreement to be, sufficient for the conduct of their business as
currently conducted."
3. Amendment to Section 11.1(a). Section 11.1(a) of the Guarantee
----------------------------
is hereby amended by deleting the table contained therein and substituting in
lieu thereof the following new table:
December 31, 1997 through September 30, 1999 6.75 to 1.00
December 31, 1999 through September 30, 2000 6.50 to 1.00
December 31, 2000 through September 30, 2001 6.00 to 1.00
December 31, 2001 through June 30, 2002 5.00 to 1.00
September 30, 2002 through June 30, 2003 4.75 to 1.00
September 30, 2003 (or, if earlier, the Consolidated
Leverage Ratio Stepdown Date) and thereafter 4.50 to 1.00
4. Amendment to Section 11.1(b). Section 11.1(b) of the Guarantee is
----------------------------
hereby amended by deleting the table contained therein and substituting in lieu
thereof the following new table:
December 31, 1997 through September 30, 1999 1.60 to 1.00
December 31, 1999 through September 30, 2000 1.75 to 1.00
December 31, 2000 through September 30, 2001 1.85 to 1.00
December 31, 2001 through September 30, 2002 2.50 to 1.00
December 31, 2002 and thereafter 2.75 to 1.00
5. Amendment to Section 11.1(c). Section 11.1(c) of the Guarantee is
hereby amended by deleting the table contained therein and substituting in lieu
thereof the following new table:
<PAGE>
3
December 31, 1997 through September 30, 2000 1.10 to 1.00
December 31, 2000 through September 30, 2001 1.15 to 1.00
December 31, 2001 and thereafter 1.25 to 1.00
6. Amendment to Section 11.5(f). Section 11.5(f) of the Guarantee
is hereby amended by inserting immediately after the word "Paragon" and prior
to the semi-colon in the second line thereof the following: "; provided, that
during the fiscal years of Mariner ending September 30, 1999 and September 30,
2000, in addition to the foregoing amount, Mariner shall be permitted to make
additional sales of assets with a fair market value not to exceed $150,000,000
in the aggregate for all such additional sales in both of such fiscal years".
7. Amendment to Section 11.7. Section 11.7 of the Guarantee is
-------------------------
hereby amended by deleting the amount "$125,000,000" in the seventh line and
substituting in lieu thereof the amount "$100,000,000".
8. Amendment to Section 11.8(h). Section 11.8(h) of the Guarantee
----------------------------
is hereby amended by deleting the amount "$125,000,000" in the tenth line and
substituting in lieu thereof the amount "$100,000,000".
9. Amendment to Section 11.8(l). Section 11.8(l) of the Guarantee
----------------------------
is hereby amended by deleting such Section in its entirety and substituting in
lieu thereof the following new Section 11.8(l):
"(l) in addition to investments otherwise expressly permitted by this
Section 11.8, investments by Mariner or any of its Subsidiaries in an
aggregate amount (valued at cost) not to exceed $20,000,000 at any one time
outstanding."
[THIS PARAGRAPH WAS FORMERLY PARAGRAPH (k) IN GUARANTEE BUT WAS MOVED TO
PARAGRAPH (l) PURSUANT TO FIRST AMENDMENT]
10. Amendment to Section 11.10. Section 11.10 of the Guarantee is
--------------------------
hereby amended by deleting clause (iv) of the proviso thereto added pursuant to
the First Amendment and substituting in lieu thereof the following new clause
(iv): "(iv) the investments permitted pursuant to Sections 11.8(k) and (l)".
11. Conditions to Effectiveness. The amendments provided for
---------------------------
herein shall become effective on the date the Agent shall have received
counterparts of this Amendment duly executed and delivered by the Guarantor and
the Required Lenders.
12. Representations and Warranties. Mariner as of the date hereof
------------------------------
and after giving effect to the amendment contained herein, hereby confirms,
reaffirms and restates that representations and warranties made by it in Section
9 of the Guarantee; provided, that each reference to the Guarantee therein shall
--------
be deemed to be a reference to the Guarantee after giving effect to this
Amendment.
<PAGE>
4
13. Payment of Expenses. Mariner agrees to pay or reimburse the
-------------------
Agent for all of its out-of-pocket costs and expenses incurred in connection
with this Amendment and the Second Amendment to the Amended and Restated
Participation Agreement, dated as of the date hereof and any other documents
prepared in connection herewith and the transactions contemplated hereby,
including, without limitation, the reasonable fees and disbursements of counsel
to the Agent.
14. Reference to and Effect on the Operative Documents; Limited
-----------------------------------------------------------
Effect. On and after the date hereof and the satisfaction of the conditions
- ------
contained in paragraph 8 of this Amendment, each reference in the Guarantee to
"this Guarantee", "hereunder", "hereof" or words of like import referring to the
Guarantee, and each reference in the other Operative Documents to "the
Guarantee", "thereunder", "thereof" or words of like import referring to the
Guarantee, shall mean and be a reference to the Guarantee as amended hereby.
The execution, delivery and effectiveness of this Amendment shall not, except as
expressly provided herein, operate as a waiver of any right, power or remedy of
any Lender or any Agent under any of the Operative Documents, nor constitute a
waiver of any provisions of any of the Operative Documents. Except as expressly
amended herein, all of the provisions and covenants of the Guarantee and the
other Operative Documents are and shall continue to remain in full force and
effect in accordance with the terms thereof and are hereby in all respects
ratified and confirmed.
15. Counterparts. This Amendment may be executed by one or more of
------------
the parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.
16. GOVERNING LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
-------------
THE PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective proper and duly authorized
officers as of the day and year first above written.
MARINER POST-ACUTE NETWORK, INC., formerly known as
Paragon Health Network, Inc.
By:
------------------------------------
Title:
<PAGE>
AMERICAN-CAL MEDICAL SERVICES, INC.
AMS GREEN TREE, INC.
AMS PROPERTIES, INC.
CONNERWOOD HEALTHCARE, INC.
COORDINATED HOME HEALTH SERVICES, INC.
CORNERSTONE HEALTH MANAGEMENT COMPANY
EH ACQUISITION CORP.
EH ACQUISITION CORP. II
EH ACQUISITION CORP. III
EVERGREEN HEALTHCARE, INC.
EVERGREEN HEALTHCARE LTD., L.P.
GC SERVICES, INC.
GCI BELLA VITA, INC.
GCI CAMELLIA CARE CENTER, INC.
GCI COLTER VILLAGE, INC.
GCI EAST VALLEY MEDICAL & REHABILITATION CENTER, INC.
GCI FAITH NURSING HOME, INC.
GCI HEALTH CARE CENTERS, INC.
GCI JOLLEY ACRES, INC.
GCI PALM COURT, INC.
GCI PRINCE GEORGE, INC.
GCI REALTY, INC.
GCI REHAB, INC.
GCI SPRINGDALE VILLAGE, INC.
GCI THERAPIES, INC.
GCI VALLEY MANOR HEALTH CARE CENTER, INC.
GCI VILLAGE GREEN, INC.
GCI-CAL HEALTH CARE CENTERS, INC.
GCI-CAL THERAPIES COMPANY
GCI-WISCONSIN PROPERTIES, INC.
GRANCARE GPO SERVICES, INC.
GRANCARE HOME HEALTH SERVICES, INC.
GRANCARE, INC.
GRANCARE NURSING SERVICES AND HOSPICE, INC.
GRANCARE OF MICHIGAN, INC.
GRANCARE OF NORTH CAROLINA, INC.
GRANCARE OF NORTHERN CALIFORNIA, INC.
GRANCARE SOUTH CAROLINA, INC.
GRANCARE TRADING, INC.
HERITAGE OF LOUISIANA, INC.
HMI CONVALESCENT CARE, INC.
HOSTMASTERS, INC.
NATIONAL HERITAGE REALTY, INC.
OMEGA/INDIANA CARE CORPORATION
RENAISSANCE MENTAL HEALTH CENTER, INC.
STONECREEK MANAGEMENT COMPANY, INC.
By:
----------------------------------
Title:
<PAGE>
AMERICAN PHARMACEUTICAL SERVICES, INC.
AMERICAN REHABILITY MANAGEMENT, INC.
AMERICAN REHABILITY SERVICES, INC.
AMERICAN SENIOR HEALTH SERVICES, INC.
APS HOLDING COMPANY, INC.
APS PHARMACY MANAGEMENT, INC.
BRIAN CENTER HEALTH & REHABILITATION/TAMPA, INC.
BRIAN CENTER HEALTH & RETIREMENT/ALLEGHANY, INC.
BRIAN CENTER HEALTH & RETIREMENT/BASTIAN, INC.
BRIAN CENTER HEALTH & RETIREMENT/WALLACE, INC.
BRIAN CENTER MANAGEMENT CORPORATION
BRIAN CENTER NURSING CARE/AUSTELL, INC.
BRIAN CENTER NURSING CARE/FINCASTLE, INC.
BRIAN CENTER NURSING CARE/HICKORY, INC.
BRIAN CENTER NURSING CARE/POWDER SPRINGS, INC.
BRIAN CENTER OF ASHEBORO, INC.
BRIAN CENTER OF CENTRAL COLUMBIA, INC.
BRIAN CENTERS HEALTH & RETIREMENT/WALLACE, INC.
DEVCON HOLDING COMPANY
EXTENDED ACUTE HOSPITALS OF AMERICA, INC.
GULF COAST PHYSICAL THERAPY GROUP, INC.
HOME HEALTH MANAGEMENT ASSOCIATES OF AMERICA, INC.
HOMECARE ASSOCIATES OF AMERICA, INC.
HOSPICE ASSOCIATES OF AMERICA, INC.
HOSPICE CARE OF TENNESSEE, INC.
HOSPICE MANAGEMENT PARTNERS, INC.
LC MANAGEMENT COMPANY
LCA OPERATIONAL HOLDING COMPANY
LCR, INC.
LIVING CENTERS DEVELOPMENT COMPANY
LIVING CENTERS - EAST, INC.
LIVING CENTERS HOLDING COMPANY
LIVING CENTERS LTCP DEVELOPMENT COMPANY
LIVING CENTERS OF TEXAS, INC.
LIVING CENTERS - ROCKY MOUNTAIN, INC.
LIVING CENTERS - SOUTHEAST DEVELOPMENT CORPORATION
LIVING CENTERS - SOUTHEAST, INC.
MED-CARE SALES AND RENTALS, INC.
MED-THERAPY REHABILITATION SERVICES, INC.
PROFESSIONAL RX SYSTEMS, INC.
PROGRESSIVE CARE CENTERS OF AMERICA, INC.
REHABILITY HEALTH SERVICES, INC.
REHABILITY HOSPITAL SERVICES, INC.
THERACARE HOME HEALTH AGENCY, INC.
THERAPY MANAGEMENT INNOVATIONS, INC.
TOICA, INC.
WORKHEALTH HEALTHCARE MANAGEMENT INC.
By:
-------------------------------------
Title:
<PAGE>
EXHIBIT 10.63
Execution Draft
$250,000,000 REVOLVING CREDIT FACILITY
CREDIT AGREEMENT
by and among
MARINER HEALTH GROUP, INC.
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent
and
FIRST UNION NATIONAL BANK, as Syndication Agent
Dated as of May 18, 1994, as amended
<PAGE>
TABLE OF CONTENTS
(i)
<PAGE>
SCHEDULES
SCHEDULE 1.01(C) COMMITMENTS OF BANKS
SCHEDULE 1.01(P) PERMITTED LIENS
SCHEDULE 2.09(a) EXISTING LETTERS OF CREDIT; LOANS, INTEREST AND OTHER
OBLIGATIONS UNDER PRIOR CREDIT AGREEMENT
SCHEDULES 6.01(a) QUALIFICATIONS TO DO BUSINESS, SUBSIDIARIES AND
and 6.01(c) EXCLUDED ENTITIES
SCHEDULE 6.01(u) MATERIAL CONTRACTS
SCHEDULE 6.01(y) ENVIRONMENTAL DISCLOSURES
SCHEDULE 6.01(z) CERTAIN DISCLOSURES REGARDING OTHER DEBT OF THE BORROWER
SCHEDULE 6.01(aa) OWNED AND LEASED REAL PROPERTY OF THE LOAN PARTIES; MATTERS
REGARDING CERTAIN LEASED FACILITIES AND INDEBTEDNESS OF
CERTAIN SUBSIDIARIES
SCHEDULE 6.01(cc) CERTAIN AFFILIATE TRANSACTIONS
SCHEDULE 8.01(1) CERTAIN DISCLOSURES REGARDING SUBORDINATION OF INDEBTEDNESS
SCHEDULE 8.02(a) PERMITTED INDEBTEDNESS
SCHEDULE 8.02(c) CERTAIN GUARANTEES
SCHEDULE 8.02(d) RESTRICTED INVESTMENTS
SCHEDULE 8.02(x) EXISTING NEGATIVE PLEDGE COVENANTS
(ii)
<PAGE>
EXHIBITS
EXHIBIT 1.01(A) ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.01(C) CONDITIONS FOR INCURRENCE OF CERTAIN LIENS AND CERTAIN
INDEBTEDNESS
EXHIBIT 1.01(C)(1) COLLATERAL SHARING AGREEMENT
EXHIBIT 1.01(F) FIRST MORTGAGE
EXHIBIT 1.01(G) GUARANTY AND SURETYSHIP AGREEMENT
EXHIBIT 1.01(I) INDEMNITY
EXHIBIT 1.01(I)(1) INTERCREDITOR AGREEMENT - LEASED FACILITY (A) and (B)
EXHIBIT 1.01(I)(2) INTERCREDITOR AGREEMENT - OWNED FACILITY (A) and (B)
EXHIBIT 1.01(P) PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT
EXHIBIT 1.01(P)(1) PLEDGE AGREEMENT (Borrower)
EXHIBIT 1.01(P)(2) PLEDGE AGREEMENT (Subsidiaries Pledging Stock)
EXHIBIT 1.01(P)(3) PLEDGE AGREEMENT (Subsidiaries Pledging Partnership
Interests)
EXHIBIT 1.01(R) REVOLVING CREDIT NOTE
EXHIBIT 1.01(S)(1) SECURITY AGREEMENT
EXHIBIT 1.01(S) SUBORDINATION AGREEMENT (Intercompany)
EXHIBIT 1.01(T) TRUSTEE AGREEMENT
EXHIBIT 2.05 LOAN REQUEST
EXHIBIT 8.01(l) TERMS OF CERTAIN SUBORDINATED INDEBTEDNESS
EXHIBIT 8.01(m)(i) ACQUISITION APPROVAL CERTIFICATE
EXHIBIT 8.01(m)(ii) ACQUISITION NOTICE CERTIFICATE
EXHIBIT 8.03(d) COMPLIANCE CERTIFICATE
(iii)
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of May 18, 1994, as amended and is
made by and among MARINER HEALTH GROUP, INC., a Delaware corporation (the
"Borrower"), the BANKS (as hereinafter defined), FIRST UNION NATIONAL BANK, in
its capacity as syndication agent (hereinafter referred to in such capacity as
the "Syndication Agent"), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as
administrative agent for the Banks under this Agreement (hereinafter referred to
in such capacity as the "Administrative Agent").
WITNESSETH:
WHEREAS, the Borrower, the Administrative Agent and the Banks are
party to that certain Credit Agreement dated as of May 18, 1994 (as amended
prior to the date hereof, the "Existing Revolving Credit Agreement"), pursuant
to which the Banks have heretofore provided the Borrower with a revolving credit
facility (the "Revolving Credit Facility") in an aggregate principal amount not
to exceed $460,000,000; and
WHEREAS, the Borrower has requested that the Revolving Credit Facility
be reduced to $250,000,000 (the "Reduced Revolving Credit Commitment"); and
WHEREAS, on the Eighteenth Amendment Effective Date, the Borrower (the
"Term Loan Borrower") has entered into the Term Loan Agreement pursuant to which
the Term Loan Lenders have provided for a $210,000,000 term loan facility (the
"Term Loan Facility"); and
WHEREAS, in connection with the reduction of the Revolving Credit
Commitments, the Borrower has requested the relaxation of certain financial and
other covenants; and
WHEREAS, the Banks are willing to agree to the foregoing subject to
the terms and conditions hereafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
1.01 Certain Definitions. In addition to words and terms defined
-------------------
elsewhere in this Agreement, the following words and terms shall have the
following meanings, respectively, unless the context hereof clearly requires
otherwise:
Acquisition Approval Certificate shall have the meaning set
--------------------------------
forth in Section 8.01(m)(i).
<PAGE>
Acquisition Income Reporting Period shall mean the period during
-----------------------------------
which Borrower shall measure Consolidated Cash Flow from Operations pursuant to
Section 8.01(m) for purposes of computing Borrower's leverage ratio and its
other financial covenants on the date on which Borrower makes any Permitted
Acquisition, which period shall be either:
(1) the four fiscal quarters ending immediately before the
date of such Permitted Acquisition (the "Immediately Preceding Four Quarters")
if such Permitted Acquisition occurs after the Delivery Date for the financial
statements of Borrower for such Immediately Preceding Four Quarters, or
(2) the four fiscal quarters ending one quarter period prior
to the end of the Immediately Preceding Four Quarters (the "Second Preceding
Four Quarters") if such Permitted Acquisition occurs before the Delivery Date
for the financial statements of Borrower for the Immediately Preceding Four
Quarters.
Acquisition Notice Certificate shall have the meaning given to
------------------------------
such term in Section 8.01(m)(ii).
Acquisition Reporting Certification shall mean any Permitted
-----------------------------------
Acquisition with respect to which Borrower delivers or is required to deliver
either an Acquisition Notice Certificate or an Acquisition Approval Certificate
pursuant to Section 8.01(m).
Adjusted Net Income shall mean for any period of determination
-------------------
an amount equal to the net income (loss) of the Borrower and its Subsidiaries
for such period determined and consolidated in accordance with GAAP; provided,
however, that there shall not be included in such Adjusted Net Income any non-
recurring items related to costs and expenses incurred in connection with
acquisitions and dispositions of assets, merger transactions or other business
combinations, any extraordinary gain or loss, the cumulative effect of a change
in accounting principles and costs related to the discharge of legal judgments
or settlement costs related to the settlement of a bona fide dispute between the
Borrower or any of its Subsidiaries and any other Person.
Adjusted Total Indebtedness shall mean, as of any date of
---------------------------
determination, Total Indebtedness, less, the aggregate amount of the sum without
duplication, of the following items (a), (b) and (c): (a) the outstanding
principal amount of the Subordinated Notes, (b) the outstanding principal amount
of Permitted Subordinated Indebtedness which refinances or is used to purchase
Subordinated Notes, and (c) the outstanding principal amount of Indebtedness
permitted pursuant to Section 8.02(a)(iv). Notwithstanding the foregoing, it is
expressly agreed that Total Indebtedness shall, in no event, be reduced by more
than $150,000,000 with respect to the aggregate amount of items (a) and (b)
described in the previous sentence.
Administrative Agent shall mean PNC Bank, National Association,
--------------------
in its capacity as administrative agent for the Banks under this Agreement and
its successors in such capacity.
2
<PAGE>
Administrative Agent's Fee shall have the meaning assigned to
--------------------------
that term in Section 10.15 hereof.
Affiliate as to any person shall mean any other person (i) which
---------
directly or indirectly controls, is controlled by, or is under common control
with such person, (ii) which beneficially owns or holds 50% or more of any class
of the voting stock of the Borrower, or (iii) 50% or more of the voting stock
(or in the case of a person which is not an individual or a corporation, 50% or
more of the equity interest) of which is beneficially owned or held, directly or
indirectly, by the Borrower. Control, as used herein, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a person, whether through the
ownership of voting securities, by contract or otherwise, including the power to
elect a majority of the directors or trustees of a corporation or trust, as the
case may be.
Agents shall mean collectively the Administrative Agent and the
------
Syndication Agent, and Agent shall mean any one of the Agents, individually.
Agreement shall mean this Credit Agreement as the same may be
---------
supplemented, amended, modified or restated from time to time including all
schedules and exhibits hereto.
Agreement No. 15 shall mean that certain Amendment No. 15 to
----------------
Credit Agreement dated October 3, 1997 among Borrower, the Banks and
Administrative Agent, together with schedules and exhibits thereto.
Agreement No. 17 to Credit Agreement dated July 14, 1998 among
------------------------------------
Borrower, the Banks and Administrative Agent, together with schedules and
exhibits thereto.
Amendment No. 16 shall mean that certain Amendment No. 16 to
----------------
Credit Agreement dated January 2, 1998 among Borrower, the Banks and
Administrative Agent, together with schedules and exhibits thereto.
Ansonia shall mean Mariner Health Care of Southern Connecticut,
-------
a corporation organized and existing under the laws of the State of Connecticut.
Applicable Percentage Over Euro-Rate shall have the meaning
------------------------------------
assigned to such term in Section 4.01(a)(ii).
Approved Charges shall mean, for any period of determination,
----------------
the following charges, determined and consolidated in accordance with GAAP, to
Consolidated Net Income:
(i) charges for Medicare Recoupment (taken or to be taken with
respect to fiscal years 1996, 1997, or 1998 and relating to Medicare's
disallowance of costs under related party rules), not to exceed for the Borrower
and its Subsidiaries on a consolidated basis, $50,000,000 in the aggregate for
the period commencing on the Eighteenth Amendment Effective Date through and
including the Expiration Date;
3
<PAGE>
(ii) charges to increase accounts receivable reserves (solely
for the purpose of achieving consistency of accounts receivable reserve levels
of the Borrower and its Subsidiaries with the policies of MPN), not to exceed
for the Borrower and its Subsidiaries on a consolidated basis, $25,000,000 in
the aggregate for the period commencing on the Eighteenth Amendment Effective
Date through and including the Expiration Date;
(iii) non-recurring cash charges for employee related costs of
the Borrower including, without limitation, relocation and recruitment costs,
retention bonuses, severance payments to employees of the Borrower, reasonable
and customary transaction fees, including without limitation, legal and other
professional fees, paid or to be paid following the Seventeenth Amendment
Effective Date, all as related to the Eighteenth Amendment or the Paragon
Acquisition, not to exceed for the Borrower and its Subsidiaries on a
consolidated basis $13,000,000 and other cash charges of a similar nature which
shall have been approved in writing by the Agents prior to the taking of such
charge; and
(iv) subject to the prior written approval of the Required
Banks, other cash charges (recurring or nonrecurring), extraordinary items, or
non-recurring expenses incurred in connection with any Permitted Acquisition.
Assignment and Assumption Agreement shall mean an Assignment and
-----------------------------------
Assumption Agreement by and among a Purchasing Bank, the Transferor Bank and the
Administrative Agent, as agent and on behalf of the remaining Banks,
substantially in the form of Exhibit 1.01(A) hereto.
---------------
Authorized Officer shall mean with respect to each Loan Party
------------------
those persons designated by written notice to the Administrative Agent from the
Borrower, authorized to execute notices, reports and other documents required
hereunder. The Borrower may amend such list of persons from time to time by
giving written notice of such amendment to the Administrative Agent.
Bank shall mean the financial institutions named on Schedule
---- --------
1.01(R)(2) hereto and their respective successors and assigns as permitted
- ----------
hereunder, each of which is referred to herein as a Bank.
----
Base Rate shall mean the greater of (i) the interest rate per
---------
annum announced from time to time by the Administrative Agent at its Principal
Office as its then prime rate, which rate may not necessarily be the lowest rate
then being charged commercial borrowers by the Administrative Agent, or (ii) the
Federal Funds Effective Rate plus one-half percent (0.5%) per annum.
Base Rate Option shall mean the Revolving Credit Base Rate
----------------
Option.
Benefit Arrangement shall mean at any time an "employee benefit
-------------------
plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan or a
Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to, by any member of the ERISA Group.
4
<PAGE>
Borrower shall mean Mariner Health Group, Inc., a corporation
--------
organized and existing under the laws of the State of Delaware.
Borrowing Date shall mean, with respect to any Loan, the date
--------------
for the making thereof or the renewal thereof or conversion thereof to the same
or a different Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of Loans
-----------------
outstanding as follows: (i) any loan to which a Euro-Rate Option applies which
becomes subject to the same Interest Rate Option under the same Loan Request by
the Borrower and which have the same Interest Period shall constitute one
Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall
constitute one Borrowing Tranche.
Business Day shall mean (i) with respect to matters relating to
------------
the Euro-Rate Option, a day on which banks in the London interbank market are
dealing in U.S. Dollar deposits and on which commercial banks are open for
domestic and international business in Pittsburgh, Pennsylvania and New York,
New York, and (ii) with respect to any other matter, a day on which commercial
banks are open for business in Pittsburgh, Pennsylvania and New York, New York.
Capital Stock shall mean any and all shares, interests,
-------------
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation) and any and all warrants, rights or options to purchase any of
the foregoing.
Change in Ownership shall mean the occurrence of any of the
-------------------
following: (i) if, from and after the Seventeenth Amendment Effective Date, any
person or group within the meaning of Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") excluding the Permitted
Investors, shall at any time designate or obtain the right to designate a
percentage (the "Third Party Board Percentage") equal to 25% or more of the
members of the Board of Directors of MPN unless at such time the percentage of
------
the members of the Board of Directors of MPN designated by the Permitted
Investors is greater than the Third Party Board Percentage; (ii) any "person" or
"group" (as such terms are defined above), excluding the Permitted Investors,
shall at any time become, or obtain rights (whether by means of warrants,
options or otherwise) to become, the "beneficial owner" (as defined in Rule
13(d)3 and 13(d)5 under the Exchange Act), directly or indirectly, of a
percentage (the "Third Party Stock Percentage") equal to 33-1/3% or more of the
Voting Stock of MPN unless at such time the percentage of outstanding Voting
------
Stock of MPN beneficially owned by the Permitted Investors (determined on a
fully diluted basis) is equal to or greater than the Third Party Stock
Percentage, provided, that for the purposes of this clause (ii), Voting Stock
--------
that a Permitted Investor has the power to vote in its sole discretion pursuant
to contract or proxy shall be deemed to be beneficially owned by such Permitted
Investor and not by any other "person" or "group"; (iii) a Specified Change of
Control shall occur; or (iv) MPN shall cease to own, directly or indirectly, one
hundred percent (100%) of all Voting Stock of the Borrower.
5
<PAGE>
Class A Excluded Entities shall mean collectively those Excluded
-------------------------
Entities which have not incurred any Restricted Indebtedness nor are subject to
or bound by the terms of any agreement with respect to Restricted Indebtedness,
and Class A Excluded Entity shall mean separately any Class A Excluded Entity.
-----------------------
Closing Date shall mean May 18, 1994, which is the Business Day
------------
on which the first Loan was made.
Collateral Agent shall mean PNC Bank National Association in its
----------------
capacity as the collateral agent under the Collateral Sharing Agreement and its
successors, and its assigns in such capacity.
Collateral shall mean the Pledge Collateral, the UCC Collateral,
----------
the Intellectual Property Collateral, all of the collateral (consisting of real
or personal property) under the First Mortgages, the Mortgages and the Leasehold
Mortgages and any other collateral security in which any of the Loan Parties may
hereafter grant a security interest or other lien to the Administrative Agent or
the Collateral Agent, as the case may be, for the benefit of the Banks as
security for their obligations under the Loan Documents.
Collateral Sharing Agreement shall mean the Collateral Sharing
----------------------------
Agreement among the Administrative Agent, the Loan Parties, the Term Loan
Parties, the administrative agent under the Term Loan Agreement and the
Collateral Agent, substantially in the form of Exhibit 1.01(C)(1).
-------------------
Combined Commitment shall mean, as to any Bank, as of any date
-------------------
of determination, the aggregate of its Revolving Credit Commitment and its Term
Loan Commitment (if any).
Commitment shall mean as to any Bank its Revolving Credit
----------
Commitment and Commitments shall mean the aggregate of the Revolving Credit
-----------
Commitments of all of the Banks.
Commitment Fee shall have the meaning assigned to that term in
--------------
Section 2.03 hereof.
Compliance Certificate shall have the meaning set forth in
----------------------
Section 8.03(d).
Conditions for Incurrence of Certain Liens and Certain
------------------------------------------------------
Indebtedness shall mean those conditions set forth on Exhibit 1.01(C).
- ------------ ---------------
Consolidated Cash Flow from Operations for any period of
--------------------------------------
determination shall mean the difference between the amounts determined under the
following clauses (i) and (ii): (i) the sum, without duplication, of (X) the sum
of Consolidated Net Income, depreciation, amortization, Approved Charges, other
non-cash charges to Consolidated Net Income (including, without limitation,
ordinary course reserves with respect to bad debts arising out of ordinary
course accounts receivable), interest expense, and income tax expense of the
Borrower and its
6
<PAGE>
Restricted Subsidiaries for such period determined in accordance with GAAP, plus
(Y) the sum of the Consolidated Cash Flow from Operations Adjustment Amount for
all Class A Excluded Entities, minus (ii) non-cash credits to net income of the
Borrower and its Restricted Subsidiaries for such period determined in
accordance with GAAP, subject to the adjustments described in this definition
below.
If the Loan Parties make a Permitted Acquisition and the Banks approve
of the historical and pro forma financial statements of the business acquired in
such Permitted Acquisition pursuant to Section 8.01(m) hereof, Consolidated Cash
Flow from Operations shall be adjusted as set forth in paragraphs (A) and (B)
below. The adjustments in Paragraphs (A) and (B) below shall apply to
computations of the ratios in Sections 2.01, 2.03, 4.01(a), 8.02(f), 8.02(q),
8.02(r), 8.02(s) and 8.02(u) on the date of such Permitted Acquisition and at
the end of each of the four fiscal quarters after such Permitted Acquisition.
(The adjustments described in Paragraph (A) below shall not apply to
computations of such ratios made as of the end of the fiscal quarter immediately
preceding the date of such Permitted Acquisition.)
(A) Consolidated Cash Flow from Operations for periods prior to
such Permitted Acquisition shall include (i) the sum of net income,
depreciation, amortization, other non-cash charges to net income, interest
expense and income tax expense of the acquired business, plus the adjustment, if
any pursuant to clause (B) below, minus (ii) non-cash credits to net income of
such business, in each case as determined in accordance with GAAP; and
(B) To the extent, in the determination of net income of the
acquired business utilized in clause (A) above, deductions were taken in respect
of rental expense pursuant to operating leases in accordance with GAAP and
following the consummation of a Permitted Acquisition the Borrower appropriately
amends such leases so that, in accordance with GAAP, such rental expense
pursuant to operating leases may properly be treated as rental expense pursuant
to capital leases (and the Borrower treats such leases as capital leases for
periods following the consummation by the Borrower of such Permitted
Acquisition) then, such net income for purposes of clause (A) above shall be
increased by the deductions taken in respect of rental expense pursuant to such
operating leases during the period of determination.
Consolidated Cash Flow from Operations Adjustment Amount shall
--------------------------------------------------------
mean, for each Class A Excluded Entity, for any period of determination, the
amount equal to the product of (A) a percentage, as determined by the
Administrative Agent in its reasonable discretion, multiplied by (B) the
difference between (i) the sum of net income, depreciation, amortization, other
non-cash charges to such net income, interest expense and income tax expense of
such Class A Excluded Entity for such period, as determined in accordance with
GAAP, minus (ii) non-cash credits to net income of such Class A Excluded Entity
for such period, as determined in accordance with GAAP. In determining the
applicable percentage under clause (A) above, the Administrative Agent shall
review with the Borrower the constituent documents of each Excluded Entity,
including without limitation, partnership agreements, shareholder agreements and
other relevant documents which the Borrower agrees to provide as the
Administrative Agent may reasonably request, and the Administrative Agent shall
also review the equity ownership interests of the Loan Parties in each Excluded
Entity and the actual
7
<PAGE>
cash flow available to be distributed to the Loan Parties from the operations of
each Excluded Entity.
Consolidated Net Income shall mean for any period of
-----------------------
determination an amount equal to the net income of the Borrower and its
Restricted Subsidiaries for such period determined in accordance with GAAP, but
without regard to net income attributable to Excluded Entities.
Consolidated Net Worth shall mean as of any date of
----------------------
determination total stockholders' equity of the Borrower and its Subsidiaries as
of such date determined and consolidated in accordance with GAAP.
Contamination shall mean the presence or release or threat of
-------------
release of Regulated Substances in, on, under or emanating to or from the
Property, which pursuant to Environmental Laws requires notification or
reporting to an Official Body, or which pursuant to Environmental Laws requires
the identification, investigation, cleanup, removal, remediation, containment,
control, abatement of or other response action or which otherwise constitutes a
violation of Environmental Laws.
Control Investment Affiliate shall mean as to any Person, any
----------------------------
other Person which (a) directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person and (b) is organized by such
Person primarily for the purpose of making equity or debt investments in one or
more companies. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
Corporate Shares shall have the meaning assigned to that term in
----------------
Section 6.01(c).
Corporate Subsidiaries shall mean collectively the Subsidiaries
----------------------
of Borrower which are corporations, and Corporate Subsidiary shall mean
--------------------
individually any of them.
Delivery Date shall mean the date which is the earlier of (i)
-------------
the date on which the Borrower delivers its consolidated financial statements to
the Administrative Agent and the Banks pursuant to Sections 8.03(b) and (c), or
(ii) one Business Day following the date on which such financial statements are
due to be delivered pursuant to such Sections.
Designated Portion of the Subordinated Notes shall mean, as of
--------------------------------------------
any date of determination, that portion of the Subordinated Notes, held by
NationsBank, N.A., pursuant to the LMS Swap Agreement.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful
----------------------------- -
money of the United States of America.
Drawing Date shall have the meaning assigned to that term in
------------
Section 2.09(d).
8
<PAGE>
Eighteenth Amendment shall mean that certain Amendment No. 18 to
--------------------
Credit Agreement, dated as of December 23, 1998 among Borrower, the Banks and
the Agents.
Eighteenth Amendment Effective Date shall mean December 23,
-----------------------------------
1998.
Environmental Complaint shall mean any written complaint by any
-----------------------
Person or Official Body setting forth a cause of action for personal injury or
property damage, natural resource damage, contribution or indemnity for response
costs, civil or administrative penalties, criminal fines or penalties, or
declaratory or equitable relief arising under any Environmental Law or any
order, notice of violation, citation, subpoena, request for information or other
written notice or demand of any type issued by an Official Body pursuant to any
Environmental Law.
Environmental Law shall mean all federal, state, local and
-----------------
foreign Laws and any consent decrees, settlement agreements, judgments, orders,
directives, policies or programs issued by or entered into with an Official Body
pertaining or relating to: (i) pollution or pollution control; (ii) protection
of human health or the environment; (iii) employee safety in the workplace; (iv)
the management, presence, use, generation, processing, extraction, treatment,
recycling, refining, reclamation, labeling, transport, storage, collection,
distribution, disposal or release or threat of release of Regulated Substances;
(v) the presence of Contamination; (vi) the protection of endangered or
threatened species; and (vii) the protection of Environmentally Sensitive Areas.
Environmentally Sensitive Area shall mean (i) any wetland as
------------------------------
defined by applicable Environmental Law; (ii) any area designated as a coastal
zone pursuant to applicable Laws, including Environmental Law; (iii) any area of
historic or archeological significance or scenic area as defined or designated
by applicable Laws, including Environmental Law; (iv) habitats of endangered
species or threatened species as designated by applicable Laws, including
Environmental Law; or (v) a floodplain or other flood hazard area as defined
pursuant to any applicable Laws.
ERISA shall mean the Employee Retirement Income Security Act of
-----
1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
ERISA Group shall mean, at any time, the Borrower and all
-----------
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control and all other entities which,
together with the Borrower, are treated as a single employer under Section 414
of the Internal Revenue Code.
Euro-Rate shall mean with respect to the Loans comprising any
---------
Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period,
the interest rate per annum determined by the Administrative Agent by dividing
(the resulting quotient rounded upward to the nearest 1/100 of 1% per annum) (i)
the rate of interest determined by the Administrative Agent in accordance with
its usual procedures (which determination shall be conclusive absent manifest
error) to be the "offered" eurodollar rate as quoted by Exco-Noonan Incorporated
(or appropriate successor or, if Exco-Noonan or its successor ceases to provide
such
9
<PAGE>
quotes, a comparable replacement as determined by the Administrative Agent) as
evidenced on Dow Jones Markets Service (formerly known as Telerate) display page
4756 (or such other display page on the Dow Jones Markets Service system as may
replace Dow Jones Markets Service display page 4756), two (2) Business Days
prior to the first day of such Interest Period for an amount comparable to such
Borrowing Tranche and having a borrowing date and maturity comparable to such
Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. The Euro-Rate may also be expressed by the following formula:
Dow Jones Markets Service page 4756 as quoted by Exco-Noonan,
Euro-Rate = (or appropriate successor)
--------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective date of any change in the Euro-Rate Reserve Percentage as of
such effective date. The Administrative Agent shall give prompt notice to the
Borrower of the Euro-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive absent manifest error.
Euro-Rate Option shall mean the Revolving Credit Euro-Rate
----------------
Option.
Euro-Rate Reserve Percentage shall mean the maximum percentage
----------------------------
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Administrative Agent (which determination shall be conclusive absent
manifest error) which is in effect during any relevant period, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including, without limitation,
supplemental, marginal and emergency reserve requirements) with respect to
eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a
member bank in such System.
Event of Default shall mean any of the Events of Default
----------------
described in Section 9.01 of this Agreement.
Excluded Entities shall mean (i) any partnership, corporation or
-----------------
limited liability company which is neither MPN nor a MPN Subsidiary nor a
Subsidiary of any Loan Party and with respect to which a Loan Party has made a
Restricted Investment permitted by Section 8.02(d)(iv), and (ii) any
Unrestricted Subsidiary of the Borrower which the Borrower has designated as one
of the Excluded Entities and with respect to which a Loan Party has made a
Restricted Investment permitted by Section 8.02(d)(iv), and Excluded Entity
---------------
shall mean separately any Excluded Entity.
Existing Letters of Credit shall have the meaning given to such
--------------------------
term in Section 2.09.
Expiration Date shall mean, with respect to the Commitments,
---------------
January 3, 2000.
10
<PAGE>
Facility Purchase Option shall mean an option provided by a
------------------------
Lessor Lender or Owned Facility Lender in an Intercreditor Agreement giving the
Administrative Agent or the Banks the right to purchase the Lessor Indebtedness
or Owned Facility Indebtedness from such Lessor Lender or Owned Facility Lender
upon certain events of default relating to such Indebtedness.
FAS 121 shall mean Financial Accounting Standard No. 121
-------
promulgated by the Financial Accounting Standards Board, as in effect from time
to time.
Federal Funds Effective Rate for any day shall mean the rate per
----------------------------
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight Federal funds transactions arranged by Federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day of which such rate was announced.
First Mortgages shall mean the First Mortgages in substantially
---------------
the form of Exhibit 1.01(F) with respect to all owned real property of the Loan
---------------
Parties (other than owned real property subject to a Mortgage as of the
Eighteenth Amendment Effective Date), executed and delivered by the applicable
Loan Party to the Collateral Agent for the benefit of the Banks.
Fixed Charge Coverage Ratio shall have the meaning set forth in
---------------------------
Section 8.02(q).
GAAP shall mean generally accepted accounting principles as are
----
in effect on the Closing Date, subject to the provisions of Section 1.03 hereof,
and applied on a consistent basis (except for changes in application in which
the Borrower's independent certified public accountants concur) both as to
classification of items and amounts.
Guaranty of any person shall mean any obligation of such person
--------
guaranteeing or in effect guaranteeing any liability or obligation of any other
person in any manner, whether directly or indirectly, including, without
limiting the generality of the foregoing, any agreement to indemnify or hold
harmless any other person, any performance bond or other suretyship arrangement
and any other form of assurance against loss, except endorsement of negotiable
or other instruments for deposit or collection in the ordinary course of
business.
Guaranty Agreements shall mean collectively the Guaranty and
-------------------
Suretyship Agreements, in substantially the form attached hereto as Exhibit
-------
1.01(G) executed and delivered by the Subsidiaries of Borrower to the
- -------
Administrative Agent for the benefit of the Banks, and Guaranty Agreement shall
------------------
mean separately any Guaranty Agreement.
11
<PAGE>
Historical Statements shall have the meaning given to such term
---------------------
in Section 6.01(i)(i).
Indebtedness shall mean as to any person at any time, any and
------------
all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, including,
without limitation the Subordinated Notes, (ii) amounts raised under or
liabilities in respect of any note purchase or acceptance credit facility, (iii)
reimbursement obligations under any letter of credit, currency swap agreement,
interest rate swap, cap, collar or floor agreement or other interest rate
protection agreement, (iv) any other transaction (including without limitation
forward sale or purchase agreements, capitalized (not operating) leases required
under GAAP to be disclosed as a liability on the Loan Party's balance sheet and
conditional sales agreements) having the commercial effect of a borrowing of
money entered into by such person to finance its operations or capital
requirements (but not including the deferred portion of any Restricted
Investment in an Excluded Entity if such amount is to be paid from available
cash flow from operations of the Borrower and its Subsidiaries and also not
including trade payables and accrued expenses incurred in the ordinary course of
business which are not represented by a promissory note, instrument or other
evidence of indebtedness and which are not more than ninety (90) days past due
(unless such past due indebtedness is being disputed in good faith and an
appropriate reserve has been established with respect to such indebtedness in
accordance with GAAP)), provided that, for purposes of this clause (iv) the
phrase "other evidence of indebtedness" shall not include any ordinary course
evidence of trade accounts payable of the Borrower or any Subsidiary such as
purchase orders or invoices, or (v) any Guaranty of Indebtedness for borrowed
money.
Indenture shall mean that certain Indenture dated April 4, 1996,
---------
between the Borrower and State Street Bank and Trust Company, as trustee, in
respect of the Subordinated Notes, as the same may be amended, modified,
supplemented or restated from time to time in accordance with this Agreement.
Indemnity shall mean the Indemnity Agreement substantially in
---------
the form of Exhibit 1.01(I) among the Banks, the Collateral Agent, certain of
---------------
the Loan Parties, certain of the Term Loan Parties and the Term Loan Banks
relating to possible environmental liabilities associated with any of the
Property.
Insolvency Proceedings shall mean, with respect to any Person,
----------------------
(a) a case, action or proceeding with respect to such Person (i) before any
court or any other Official Body under any bankruptcy, insolvency,
reorganization or other, similar Law now or hereafter in effect, or (ii) for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of any Loan Party or otherwise
relating to the liquidation, dissolution, winding-up or relief of such Person,
or (b) any general assignment for the benefit of creditors, composition,
marshaling of assets for creditors, or other, similar arrangement in respect of
such Person's creditors generally or any substantial portion of its creditors;
undertaken under any Law.
12
<PAGE>
Intellectual Property Collateral shall mean all of the property
--------------------------------
described in the Patent, Trademark and Copyright Security Agreement.
Intercreditor Agreements shall mean collectively, as of any date
------------------------
of determination, each Intercreditor Agreement entered into between the
Administrative Agent and a Lessor Lender, each Intercreditor Agreement entered
into between the Administrative Agent and an Owned Facility Lender, each
Intercreditor Agreement entered into as required by Section 8.02(d)(iv), and
each other Intercreditor Agreement entered into between the Administrative Agent
or Collateral Agent, as the case may be, and any other Person, as required
pursuant to this Agreement, and Intercreditor Agreement shall mean,
-----------------------
individually, any of the Intercreditor Agreements.
Interest Payment Date shall mean each date specified for the
---------------------
payment of interest in Section 5.03.
Interest Period shall have the meaning assigned to such term in
---------------
Section 4.02.
Interest Rate Option shall mean any Euro-Rate Option or Base
--------------------
Rate Option.
Internal Revenue Code shall mean the Internal Revenue Code of
---------------------
1986, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
Labor Contractors shall have the meaning assigned to that term
-----------------
in Section 6.01(u).
Law shall mean any law (including common law), constitution,
---
statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Leased Facilities shall mean collectively all health care
-----------------
facilities leased by a Subsidiary of Borrower, as lessee, and Leased Facility
---------------
shall mean any of the Leased Facilities, individually.
Leasehold Mortgages shall mean collectively, as of any date of
-------------------
determination, each Leasehold Mortgage granted by a Subsidiary Lessee in favor
of the Administrative Agent (or Collateral Agent, as the case may be) for the
benefit of the Banks with respect to the Leased Facility leased by such
Subsidiary Lessee, and Leasehold Mortgage shall mean individually any of the
------------------
Leasehold Mortgages. To the extent that a Leasehold Mortgage is granted by a
Loan Party, as grantor, on or after the Eighteenth Amendment Effective Date as
required by this Agreement, such Leasehold Mortgage shall be in favor of the
Collateral Agent for the benefit of the Banks and shall be in form and substance
satisfactory to the Administrative Agent, notwithstanding any provisions of this
Agreement to the contrary.
13
<PAGE>
Lessor shall mean with respect to a Leased Facility, the person
------
which owns such facility and leases such facility to a Subsidiary Lessee.
Lessor Indebtedness shall mean Indebtedness of a Lessor either
-------------------
secured by the assets of or related to the Leased Facility owned by such Lessor
or which includes restrictive covenants or other provisions related or
applicable to such Leased Facility.
Lessor Lender shall mean, with respect to any Lessor
-------------
Indebtedness, the obligee thereof.
Letter of Credit shall have the meaning assigned to that term in
----------------
Section 2.09.
Letter of Credit Borrowing shall mean an extension of credit
--------------------------
resulting from a drawing under any Letter of Credit which shall not have been
reimbursed on the date when made and shall not have been converted into a
Revolving Credit Loan under Section 2.09(d).
Letter of Credit Fee shall have the meaning assigned to that
--------------------
term in Section 2.09.
Letters of Credit Outstanding shall mean at any time the sum of
-----------------------------
(i) the aggregate undrawn face amount of outstanding Letters of Credit and (ii)
the aggregate amount of all unpaid and outstanding Reimbursement Obligations.
Lien shall mean any mortgage, deed of trust, pledge, lien,
----
security interest, charge or other encumbrance or security arrangement of any
nature whatsoever, whether voluntarily or involuntarily given, including but not
limited to any conditional sale or title retention arrangement, and any
assignment, deposit arrangement or capitalized lease intended as, or having the
effect of, security and any filed financing statement or other notice of any of
the foregoing (whether or not a lien or other encumbrance is created or exists
at the time of the filing).
Loan Documents shall mean this Agreement, the Collateral Sharing
--------------
Agreement, the First Mortgages, the Notes, the Guaranty Agreements, the Pledge
Agreements, the Mortgages, the Leasehold Mortgages, the Intercreditor
Agreements, the Trustee Agreement, the Subordination Agreement (Intercompany),
the Indemnity, the Patent, Trademark and Copyright Security Agreement, the
Security Agreement and any other instruments, certificates or documents
delivered or contemplated to be delivered hereunder or thereunder or in
connection herewith or therewith, as the same may have previously been or in the
future be supplemented or amended from time to time in accordance herewith or
therewith, and Loan Document shall mean any of the Loan Documents.
-------------
Notwithstanding any provision of this Agreement to the contrary, it is expressly
agreed that: (i) any First Mortgage, Pledge Agreement, Mortgage, Leasehold
Mortgage, Intercreditor Agreement, Security Agreement or Patent, Trademark and
Copyright Security Agreement required to be entered into by a Loan Party as
debtor, pledgor, or mortgagor on or after the Eighteenth Amendment Effective
Date shall, unless otherwise required by the
14
<PAGE>
Administrative Agent, name the Collateral Agent, as secured party, mortgagee,
grantee, pledgee or similar designation, as the case may be, for the ratable
benefit of the Banks and (on a pari passu basis) the Term Loan Banks, and (ii)
any Loan Party formed or acquired on or after the Eighteenth Amendment effective
date shall execute and deliver a joinder to the Collateral Sharing Agreement in
form and substance satisfactory to the Administrative Agent.
Loan Parties shall mean the Borrower and its Subsidiaries, other
------------
than those Subsidiaries which are permitted Excluded Entities.
Loan Request shall mean a request for Revolving Credit Loans
------------
made in accordance with Section 2.05 hereof or a request to select, convert to
or renew a Euro-Rate Option in accordance with Section 4.02 hereof.
Loans shall mean collectively and Loan shall mean separately all
----- ----
Revolving Credit Loans or any Revolving Credit Loan.
Mariner Maryland shall mean Mariner Health Care of Baltimore,
----------------
Inc., a corporation organized and existing under the laws of the Commonwealth of
Massachusetts.
Mariner Nashville shall mean Mariner Health Care of Nashville,
-----------------
Inc., a Delaware corporation, a Subsidiary of the Borrower and the successor by
merger to Convalescent Services Inc., a Georgia corporation.
Material Adverse Change shall mean any set of circumstances or
-----------------------
events which (a) has or could reasonably be expected to have any material
adverse effect whatsoever upon the validity or enforceability of this Agreement
or any other Loan Document, (b) is or could reasonably be expected to be
material and adverse to the business, properties, assets, financial condition,
results of operations or prospects of the Borrower and its Subsidiaries taken as
a whole, (c) impairs materially or could reasonably be expected to impair
materially the ability of the Borrower or any of its Subsidiaries to duly and
punctually pay or perform its Indebtedness, or (d) impairs materially or could
reasonably be expected to impair materially the ability of any Agent or any of
the Banks, to the extent permitted, to enforce their legal remedies pursuant to
this Agreement or any other Loan Document.
Material Subsidiary shall mean any Subsidiary the revenue or net
-------------------
income of which represented more than five percent (5%) of the Borrower's
consolidated revenues or consolidated net income during the preceding four (4)
fiscal quarters.
Member Interests shall have the meaning assigned to that term in
----------------
Section 6.01(c).
Month, with respect to an Interest Period under the Euro-Rate
-----
Option, shall mean the interval between the days in consecutive calendar months
numerically corresponding to the first day of such Interest Period. If any
Interest Period with respect to Loans subject to a Euro-Rate Option begins on a
day of a calendar month for which there is no numerically corresponding day in
the month in which such Interest Period is to end, the final
15
<PAGE>
month of such Interest Period shall be deemed to end on the last Business Day of
such final month.
Mortgages shall mean collectively, as of any date of
---------
determination, the second lien Mortgages granted by a Subsidiary Owner in favor
of the Administrative Agent (or Collateral Agent, as the case may be) for the
benefit of the Banks with respect to the Owned Facility of such Subsidiary
Owner, and Mortgage shall mean individually any of the Mortgages. To the extent
--------
that a Mortgage is granted by a Loan Party, as mortgagor, on or after the
Eighteenth Amendment Effective Date as required by this Agreement, such Mortgage
shall be in favor of the Collateral Agent for the ratable benefit of the Banks
and (on a pari passu basis) the Term Loan Banks, and shall be in form and
substance satisfactory to the Administrative Agent, notwithstanding any
provision of this Agreement to the contrary.
MPN shall mean Mariner Post-Acute Network, Inc., a corporation
---
organized and existing under the laws of the State of Delaware and formerly
known as Paragon Health Network, Inc., together with its successors and assigns.
MPN Credit Agreement shall mean that certain Credit Agreement
--------------------
dated as of November 4, 1997, by and among MPN, as borrower, the lenders party
thereto as lenders, The Chase Manhattan Bank, as administrative agent, swing
line lender and letter of credit bank, and NationsBank, N.A., as documentation
agent, as the same may be amended, supplemented, restated or replaced from time
to time.
MPN Subsidiary shall mean any Subsidiary of MPN other than the
--------------
Borrower or any Subsidiary of the Borrower.
Multiemployer Plan shall mean any employee benefit plan which is
------------------
a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five Plan years,
has made or had an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has two or more
----------------------
contributing sponsors (including the borrower or any member of the ERISA Group)
at least two of whom are not under common control, as such a plan is described
in Sections 4063 and 4064 of ERISA.
NBG shall mean NationsBank of Georgia, N.A.
---
NBT shall mean NationsBank of Tennessee, N.A.
---
Net Sale Proceeds shall mean, with respect to any transaction,
-----------------
an amount equal to the cash proceeds received by the Borrower or any of its
Subsidiaries from or in respect of such transaction (including, when received,
any cash proceeds received as income or other cash proceeds of any non-cash
proceeds of such transaction), less (x) any expenses or charges (including
commissions, fees and taxes paid or payable) reasonably incurred by such Person
in
16
<PAGE>
respect of such transaction, (y) any Indebtedness pertaining to the assets
involved in such transaction which is required to be repaid or prepaid by the
Borrower or any of its Subsidiaries from the proceeds of such transaction as a
result of such transaction and (z) any amounts considered appropriate by the
chief financial officer of the Borrower to provide reserves in accordance with
GAAP for payment of indemnities or liabilities that may be incurred in
connection with such sale or disposition. For purposes of this definition, if
taxes or other expenses payable in connection with the sale or other disposition
of any asset are not known as of the date of such sale or other disposition,
then such fees, commissions, expenses or taxes shall be estimated in good faith
by the chief financial officer of the Borrower and such estimated amounts shall
be deducted. At such time as any reserved amount described in clause (y) above
is no longer required to be held in reserve, the balance thereof, after payment
of the related liabilities or indemnities, shall be used to make a mandatory
prepayment of the Loans or the Term Loans (as applicable) in accordance with
Section 5.05.
Ninth Amendment Effective Date shall mean April 30, 1996, which
------------------------------
shall be the effective date of the Amendment No. 9 to this Agreement.
Non-Disturbance Agreements shall mean collectively, as of any
--------------------------
date of determination, the non-disturbance agreements executed by a Lessor
Lender and the applicable Subsidiary Lessee, each providing in part that the
Lessor Lender shall recognize the rights of the Subsidiary Lessee which is
lessee of the Leased Facility so financed by such Lessor Lender should such
Lessor Lender foreclose upon such Leased Facility.
Notes shall mean the Revolving Credit Notes.
-----
Obligations shall mean all obligations from time to time of any
-----------
Loan Party to any Bank, Agent or the Administrative Agent from time to time
arising under or in connection with or related to or evidenced by or secured by
this Agreement or any other Loan Document, whether such obligations are direct
or indirect, otherwise secured or unsecured, joint or several, absolute or
contingent, due or to become due, whether for payment or performance, now
existing or hereafter arising (specifically including but not limited to
obligations arising or accruing after the commencement of any bankruptcy,
insolvency reorganization or similar proceedings with respect to any Loan Party,
or which would have arisen or accrued but for the commencement of such
proceeding, even if the claim for such obligation is not allowed in such
proceeding under applicable Law). Without limitation of the foregoing, such
obligations include (i) the principal amount of the Loans, interest, letter of
credit reimbursement obligations, and fees, indemnities or expenses under or in
connection with any Loan Document and all refinancings or refundings thereof;
and (ii) all obligations arising from any extensions of credit under or in
connection with the Loan Documents from time to time, regardless of whether any
such extensions of credit are in excess of the amount committed under or
contemplated by the Loan Documents or are made in circumstances in which any
condition to extension of credit is not satisfied. Obligations shall remain
such notwithstanding any assignment or transfer or any subsequent assignment or
transfer of any of the Obligations or any interest therein.
17
<PAGE>
Official Body shall mean any national, federal, state, local or
-------------
other government or political subdivision thereof or any agency, authority,
board, bureau, central bank, commission, department or instrumentality of any
government or political subdivision thereof, or any court, tribunal, grand jury
or arbitrator, in each case whether foreign or domestic.
Owned Facilities shall mean all health care facilities acquired
----------------
by a Subsidiary of the Borrower (or the health care facilities which are owned
by a person which is acquired by a Loan Party and such person thereby becomes a
Subsidiary of the Borrower), which facilities (as of the date of acquisition by
a Loan Party or the date the owner of such facility becomes a Subsidiary of the
Borrower) have outstanding Indebtedness payable to a lender, other than
Indebtedness payable to the Banks pursuant to the Loan Documents or payable to
the lenders under the Term Loan Documents, and Owned Facility shall mean any
--------------
Owned Facilities, individually.
Owned Facility Indebtedness shall mean with respect to an Owned
---------------------------
Facility, the Indebtedness of the Subsidiary Owner thereof payable to a lender
other than the Banks under this Agreement or other than the lenders under the
Term Loan Agreement, which Indebtedness is secured by the assets of such Owned
Facility.
Owned Facility Lender shall mean with respect to a Subsidiary
---------------------
Owner, the obligee of the Owned Facility Indebtedness payable by such Subsidiary
Owner.
Paragon Acquisition shall mean the merger of Paragon Acquisition
-------------------
Sub with and into the Borrower, with the Borrower being the surviving
corporation, whereupon the shareholders of the Borrower received shares of MPN
common stock in exchange for their outstanding shares of the Borrower's capital
stock, and the Borrower became a wholly-owned subsidiary of MPN, all pursuant to
the Paragon Merger Agreement.
Paragon Acquisition Sub shall mean Paragon Acquisition Sub,
-----------------------
Inc., a Delaware corporation and a wholly-owned Subsidiary of MPN.
Paragon Merger Agreement shall mean the Agreement and Plan of
------------------------
Merger, dated as of April 13, 1998, among MPN, Paragon Acquisition Sub and the
Borrower, as amended, supplemented, restated or otherwise modified from time to
time.
Paragon Senior Subordinated Note Indenture shall mean that
------------------------------------------
certain Indenture, dated November 4, 1997, with MPN as issuer and IBJ Schroder
Bank & Trust Company as trustee, with respect to the issuance by MPN of its 9
1/2% Senior Subordinated Notes due 2007 and its 10 1/2% Senior Subordinated
Discount Notes due 2007.
Participation Advance shall mean, with respect to any Bank, such
---------------------
Bank's payment in respect of its participation in a Letter of Credit Borrowing
according to its Ratable Share pursuant to Section 2.09(g).
Partnership Interest shall have the meaning given to such term
--------------------
in Section 6.01(c).
18
<PAGE>
Partnership Subsidiaries shall mean collectively the
------------------------
Subsidiaries of Borrower which are general or limited partnerships and
Partnership Subsidiary shall mean individually any of them.
- ----------------------
Patent, Trademark and Copyright Security Agreement shall mean
--------------------------------------------------
the Patent, Trademark and Copyright Security Agreement in substantially the form
of Exhibit 1.01(P) executed and delivered by each of the Loan Parties to the
Collateral Agent for the benefit of the Banks.
PBGC shall mean the Pension Benefit Guaranty Corporation
----
established pursuant to Subtitle A of Title IV of ERISA or any successor.
Permitted Acquisition shall mean any merger, consolidation or
---------------------
acquisition after the Closing Date described in and permitted under clause (iii)
or (iv) of Section 8.02(f).
Permitted Distribution Amount shall mean:
-----------------------------
(A) for any Subsidiary (the "Payor Subsidiary"), other than
those Subsidiaries listed in (B) below, the permitted amount of distributions to
be made by the Payor Subsidiary which shall equal the applicable amount so that
the ratio of the following (x) to (y) shall be at least equal to or greater than
2.0 to 1.0: (x) the sum of (i) net income, plus (ii) to the extent deducted in
-
determining net income for the applicable period of determination under the
preceding clause (i), interest expense, income tax expense, depreciation,
amortization, operating lease expense, and expense in respect of capital leases
of the Payor Subsidiary, plus (iii) capital expenditures, all for the Payor
Subsidiary, as determined in accordance with GAAP, for the four fiscal quarters
of the Payor Subsidiary immediately preceding the date of the proposed
distribution, to (y) the sum of (i) all payments of principal and other amounts
-- -
due in respect of Indebtedness (without limitation, prepayment fees, penalties
or other amounts) of the Payor Subsidiary during the fiscal quarter when the
proposed distribution shall be made and the following three fiscal quarters,
plus (ii) the sum of the amounts in respect of income tax expense, operating
lease expense, expense in respect of capital leases, and capital expenditures
under clauses (x)(ii) and (iii) above for the Payor Subsidiary for the four
fiscal quarters immediately preceding the date of the proposed distribution,
plus (iii) the aggregate amount of the proposed distribution by the Payor
Subsidiary; and
(B) for each of Mariner Health of Forest Hills, LLC, Mariner
Health of Bel Air, LLC, Tampa Health Properties, LTD (Bay-to-Bay), Westbury
Associates, New Hanover/Mariner Health, LLC (Wilmington), and Global Healthcare
Center -Bethesda, LLC, the permitted amount of distributions to be made by each
of them shall equal the amount permitted to be made in accordance with the
distribution provisions of their respective joint venture agreement, limited
liability company agreement, partnership agreement or similar agreement in
effect on the Sixteenth Amendment Effective Date (a copy of which has been
delivered to the Administrative Agent), and no amendment shall be made to such
provisions regarding distributions in such joint venture agreements, limited
liability company agreements, partnership agreements or similar agreements
following the Sixteenth Amendment Effective Date without the prior written
approval of the Administrative Agent unless any distributions by
19
<PAGE>
such Subsidiary are permitted by the provisions of clause (A) above and
distributions by such Subsidiary are otherwise in compliance with Section
8.02(e).
Permitted General Intangibles shall mean licenses, permits,
-----------------------------
certificates or Medicare/Medicaid reimbursement contracts.
Permitted Investments shall mean:
---------------------
(i) direct obligations of the United States of America or any
agency or instrumentality thereof or obligations backed by the full faith and
credit of the United States of America maturing in twelve months or less from
the date of acquisition;
(ii) commercial paper maturing in 180 days or less rated not
lower than A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors
Service on the date of acquisition;
(iii) demand deposits, time deposits or certificates of
deposit maturing within one year in commercial banks whose obligations are rated
A-1, A or the equivalent or better by Standard & Poor's Corporation or Moody's
Investors Service on the date of acquisition;
(iv) publicly traded debt securities or preferred stocks rated
at least A or better by either Standard & Poor's Corporation or by Moody's
Investors Service which in the aggregate do not have, at any time, a cost basis
under GAAP in excess of $1,000,000;
(v) common stocks, or mutual funds which invest in common
stocks provided that (A) such stocks are of corporations organized and existing
under the laws of the United States of America, (B) such stocks are traded
publicly on a national securities exchange or the "over the counter market", (C)
the Borrower or its Subsidiaries do not have a cost basis in excess of
$15,000,000 in the aggregate in such stocks and mutual funds, (D) the Borrower
or its Subsidiaries invest in such stocks or mutual funds using funds obtained
from sources other than, directly or indirectly, proceeds of Loans hereunder and
(E) the cost basis of the Borrower or its Subsidiaries in such stocks and mutual
funds does not exceed at any time the amount of cash invested in investments
described in clauses (i) through (iv) and (vi) of this definition of Permitted
Investments; and
(vi) investments in money market funds rated AA or AAm-G or
higher by Standard & Poor's Corporation (or equivalent rating) whose net asset
value remains a constant $1.00 per share.
Permitted Investors shall mean Apollo Management L.P., a
-------------------
Delaware limited partnership and its Control Investment Affiliates.
Permitted Leased Facility Liens shall mean, with respect to a
-------------------------------
Subsidiary Lessee, Liens, meeting all of the criteria specified below, solely on
certain of the Permitted General Intangibles of such Subsidiary Lessee, granted
in favor of the Lessor Lender providing
20
<PAGE>
financing to the Lessor which is the lessor of such Subsidiary Lessee's Leased
Facility, and such Liens secure the Lessor Indebtedness provided by such Lessor
Lender. Such Liens are permitted under this Agreement and shall be deemed to be
"Permitted Leased Facility Liens" only if the following limitations are
satisfied:
(i) Such Liens must be terminated on or before the earlier of:
(i) the maturity of the Lessor Indebtedness which such Liens secure (without
giving effect to any extension of such maturity after the Sixteenth Amendment
Effective Date, unless the extension of such maturity is otherwise permitted by
and is in accordance with this Agreement) or (ii) any refinancing, replacement
or substitution of such Lessor Indebtedness which such Lien secures;
(ii) Such Subsidiary Lessee shall have granted to
Administrative Agent (or the Collateral Agent, as the case may be) perfected
security interests in each of the assets of such Subsidiary Lessee encumbered by
such Liens, and the Administrative Agent's (or Collateral Agent's, as the case
may be) security interests shall have priority over all other Liens on such
assets, except that they shall be subordinate to the Liens in favor of the
Lessor Lender unless the Lessor Lender is listed on Schedule 6.01(aa) hereto and
-----------------
such Schedule states that such Lessor Lender has refused to consent to the grant
to Administrative Agent of such second Liens;
(iii) The amount of Lessor Indebtedness secured by such Liens
may not be increased after the date such Subsidiary Lessee becomes a Subsidiary
of the Borrower, and any reductions in the amount of such Lessor Indebtedness
after such date shall be permanent; and
(iv) Any termination by such Lessor Lender of such Liens in an
asset after the date such Subsidiary Lessee becomes a Subsidiary of the Borrower
shall be permanent, and no Loan Party shall thereafter grant any new Lien on
assets of any Loan Party in favor of such Lessor Lender.
Permitted Liens shall mean:
---------------
(i) Liens for taxes, assessments, or similar charges, incurred
in the ordinary course of business and which are not yet due and payable;
(ii) Pledges or deposits made in the ordinary course of
business to secure payment of workers' compensation, or to participate in any
fund in connection with workers' compensation, unemployment insurance, old-age
pensions or other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen, carriers,
or other like Liens, securing obligations incurred in the ordinary course of
business that are not yet due and payable and Liens of landlords securing
obligations to pay lease payments that are not yet due and payable or in
default;
21
<PAGE>
(iv) Good faith pledges or deposits made in the ordinary
course of business to secure performance of bids, tenders, progress or advance
payments, contracts (other than for the repayment of borrowed money) or leases,
not in excess of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other similar bonds
required in the ordinary course of business;
(v) Encumbrances consisting of zoning restrictions, easements,
reservations, rights of way or other restrictions on the use of real property,
none of which materially impairs the use of such property as currently used or
the value thereof, and none of which is violated in any material respect by
existing or proposed structures or land use;
(vi) Liens in favor of the Administrative Agent for the
benefit of the Banks, in favor of the Collateral Agent for the benefit of the
Banks and Liens (which are on a pari passu basis with the Liens in favor of the
Banks, or which are subject to the terms of the Collateral Sharing Agreement) in
favor of the Collateral Agent for the benefit of the Term Loan Banks;
(vii) Liens in respect of capital leases as and to the extent
permitted in Section 8.02(p) and Liens in respect of operating leases;
(viii) Any Lien existing on the Eighteenth Amendment Effective
Date and described on Schedule 1.01(P) hereto (excluding Permitted Leased
----------------
Facility Liens and Permitted Owned Facility Liens which are addressed in clauses
(xi) and (xiii) below) provided that the principal amount secured thereby is not
hereafter increased and no additional assets become subject to such Lien (other
than through after-acquired property clauses in effect on the date hereof);
(ix) Purchase Money Security Interests or other Liens,
provided that the aggregate amount of loans and deferred payments secured by
such Purchase Money Security Interests or other Liens shall not exceed
$15,000,000 (excluding for the purpose of this computation any loans or deferred
payments secured by Liens described on Schedule 1.01(P) hereto);
----------------
(x) The following, (A) if the validity or amount thereof is
being contested in good faith by appropriate and lawful proceedings diligently
conducted so long as levy and execution thereon have been stayed and continue to
be stayed or (B) if a final judgment is entered and such judgment is discharged
within thirty (30) days of entry, and in either case they do not materially
affect the Collateral or, in the aggregate, materially impair the ability of any
Loan Party to perform its obligations hereunder or under the other Loan
Documents:
(1) Claims or Liens for taxes, assessments or charges due
and payable and subject to interest or penalty, provided that such
Loan Party maintains such reserves or other appropriate provisions as
shall be required by GAAP and pays all such taxes, assessments or
charges forthwith upon the commencement of proceedings to foreclose
any such Lien;
22
<PAGE>
(2) Claims, Liens or encumbrances upon, and defects of title
to, real or personal property other than a material portion of the
Collateral, including any attachment of personal or real property or
other legal process prior to adjudication of a dispute on the merits;
or
(3) Claims or Liens of mechanics, materialmen, warehousemen,
carriers, or other statutory nonconsensual Liens;
(xi) Permitted Leased Facility Liens existing as of the
Sixteenth Amendment Effective Date which are described on Schedule 6.01(aa) as
-----------------
of such date, and, after the Sixteenth Amendment Effective Date, subject to the
approval of the Required Banks (including without limitation satisfaction of all
applicable conditions set forth on Exhibit 1.01(C)), additional Permitted Leased
---------------
Facility Liens;
(xii) Permitted Owned Facility Liens existing as of the
Sixteenth Amendment Effective Date which are described on Schedule 6.01(aa) as
-----------------
of such date, and, after the Sixteenth Amendment Effective Date, subject to the
approval of the Required Banks (including without limitation, satisfaction of
all applicable conditions set forth on Exhibit 1.01(C)), additional Permitted
----------------
Owned Facility Liens;
(xiii) With respect to an Unrestricted Subsidiary which is an
Excluded Entity, Liens securing Indebtedness incurred by such Unrestricted
Subsidiary, provided that the sole assets subject to such Lien are assets of
such Unrestricted Subsidiary or assets of a person other than any Loan Party or
other Unrestricted Subsidiary; and
(xiv) With respect to Facilities subject to First Mortgages,
all matters of record other than any mortgages, deeds of trust, deeds to secure
debt, financing statements, judgment liens or tax liens, in favor of Persons
other than the Collateral Agent, and all matters that would be shown by current
survey of such Facility.
Permitted Owned Facility Liens shall mean, with respect to a
------------------------------
Subsidiary Owner, Liens, meeting all of the criteria specified below, on real
and personal property of such Subsidiary Owner relating to the Owned Facility of
such Subsidiary Owner, granted in favor of the Owned Facility Lender providing
financing with respect to such Owned Facility, and such Liens secure the Owned
Facility Indebtedness provided by such Owned Facility Lender. Such Liens are
permitted under this Agreement and shall be deemed to be "Permitted Owned
Facility Liens" only if the following limitations are satisfied:
(i) Such Liens must be terminated on or before the earlier of:
(i) the maturity of the Owned Facility Indebtedness which such Liens secure
(without giving effect to any extension of such maturity after the Sixteenth
Amendment Effective Date, unless the extension of such maturity is otherwise
permitted by and is in accordance with this Agreement) or (ii) any refinancing,
replacement or substitution of the Owned Facility Indebtedness which such Lien
secures;
23
<PAGE>
(ii) The Subsidiary Owner shall have granted to Administrative
Agent (or Collateral Agent, as the case may be) second priority mortgage liens
and security interests in each of the assets which is encumbered by such Liens;
(iii) The amount of Owned Facility Indebtedness secured by
such liens may not be increased after the earlier of the date such Owned
Facility was acquired by a Loan Party or the person owning such facility becomes
a Subsidiary of the Borrower and any reductions in the amount of such Owned
Facility Indebtedness after such date shall be permanent; and
(iv) Any termination by an Owned Facility Lender of such Liens
in an asset after the earlier of the date such Owned Facility was acquired by a
Loan Party or the person owning such facility becomes a Subsidiary of the
Borrower shall be permanent and the Subsidiaries of Borrower may not thereafter
grant any new Lien on assets of any Loan Party in favor of such Owned Facility
Lender.
Permitted Subordinated Indebtedness shall mean Indebtedness of
-----------------------------------
the Borrower in an amount and on terms and conditions (including provisions
subordinating such Indebtedness to the Indebtedness and all other obligations of
the Loan Parties to the Agents and the Banks under the Loan Documents)
satisfactory to the Agents (whose approval will not be unreasonably withheld),
designated by the Agents as "Permitted Subordinated Indebtedness" and which
refinances, in whole or in part, the Subordinated Notes; provided however that,
in addition to the approval of the Agents, the prior written approval of the
Required Banks (which shall not be unreasonably withheld) shall be required for
the Borrower to incur Indebtedness which refinances, in whole or in part, the
Subordinated Notes, if and only if the terms of such new Indebtedness include
any of the following: (x) a provision that amortizes any principal of such new
Indebtedness prior to the Expiration Date, (y) a principal amount of such
Indebtedness in excess of $151.5 million, or (z) any financial covenant which is
more restrictive than any financial covenant contained in this Agreement.
Person shall mean any individual, corporation, partnership,
------
association, joint-stock company, trust, unincorporated organization, joint
venture, government or political subdivision or agency thereof, or any other
entity.
Pinnacle shall mean Pinnacle Care Corporation, a corporation
--------
organized and existing under the laws of the State of Delaware.
Plan shall mean at any time an employee pension benefit plan
----
(including a Multiple Employer Plan but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the Internal Revenue Code and either (i) is maintained by
any member of the ERISA Group for employees of any member of the ERISA Group or
(ii) has at any time within the preceding five years been maintained by any
entity which was at such time a member of the ERISA Group for employees of any
entity which was at such time a member of the ERISA Group.
24
<PAGE>
Pledge Agreements shall mean collectively the Pledge Agreements
-----------------
in substantially the form attached hereto as: (i) Exhibit 1.01(P)(1) executed
------------------
and delivered by the Borrower to the Collateral Agent for the benefit of the
Banks; (ii) Exhibit 1.01(P)(2) executed and delivered by any Subsidiary which
------------------
owns any equity ownership interest in another Corporate Subsidiary to the
Collateral Agent for the benefit of the Banks; (iii) Exhibit 1.01(P)(3) executed
------------------
by any Subsidiary which owns any interest in a Partnership Subsidiary; and (iv)
any other agreement pledging equity interests of a Subsidiary to the Collateral
Agent, for the benefit of the Banks, in form and substance satisfactory to the
Collateral Agent, as any such Pledge Agreement may hereinafter be modified,
amended, restated or replaced from time to time in form and substance
satisfactory to the Administrative Agent, and Pledge Agreement shall mean
----------------
separately any Pledge Agreement.
Pledged Collateral shall have the meaning assigned to that term
------------------
in the respective Pledge Agreements.
PNC Bank shall mean PNC Bank, National Association, a national
--------
banking association, its successors and assigns.
Potential Default shall mean any event or condition which with
-----------------
notice, passage of time or a determination by the Administrative Agent or the
Required Banks, or any combination of the foregoing, would constitute an Event
of Default.
Principal Office shall mean the main banking office of the
----------------
Administrative Agent, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707.
Prior Credit Agreement shall mean that certain Credit Agreement
----------------------
dated as of October 6, 1993 among Borrower, certain of the Banks and PNC Bank,
as agent.
Prior Security Interest shall mean a valid and enforceable
-----------------------
perfected first priority security interest under the Uniform Commercial Code in
the UCC Collateral and the Pledged Collateral, which in the case of the UCC
Collateral is subject only to Liens for taxes not yet due and payable to the
extent such prospective tax payments are given priority by statute or Purchase
Money Security Interests as permitted hereunder.
Prohibited Transaction shall mean any prohibited transaction as
----------------------
defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for
which neither an individual nor a class exemption has been issued by the United
States Department of Labor.
Property shall mean all real property, both owned and leased, of
--------
any Loan Party.
Purchase Money Security Interest shall mean Liens upon tangible
--------------------------------
personal property securing loans to a Loan Party or deferred payments by a Loan
Party in either case, for the purchase of such tangible personal property.
25
<PAGE>
Purchase Price shall mean, with respect to any Permitted
--------------
Acquisition by the Loan Parties, the sum of (i) cash paid at closing, (ii) the
amount of any deferred payments, which are not contingent on the financial
performance of the business being acquired, (iii) the projected amount of any
deferred payments which are contingent on the financial performance of the
business being acquired following the acquisition, provided that it shall be
assumed for purposes of such projection that the cash flow and other financial
performance of the acquired business in each year after the acquisition date
shall be the same as the financial performance of such business during the
twelve (12) months preceding such date, (iv) the amount of any debt assumed or
guaranteed by any Loan Party, (v) if the Loan Parties are acquiring stock of
another person (whether by purchase, merger or otherwise) the amount of debt of
such person outstanding after the acquisition, plus (vi) the value of any stock,
securities or other consideration given by any of the Loan Parties in connection
therewith. If the consideration to be paid in connection with a Permitted
Acquisition includes deferred payments which are contingent on the financial
performance of the acquired business after the acquisition, the Loan Parties
shall compare the amount of deferred payments which the Loan Parties actually
pay (or which become ascertainable if the Loan Parties can ascertain the amount
of any deferred payments before paying them) with the amount which the Loan
Parties projected they would pay pursuant to clause (iii) in the preceding
sentence. The Purchase Price in connection with such acquisition shall be deemed
to increase by the amount of such excess for purposes of determining the
aggregate Purchase Price paid by the Loan Parties in connection with Permitted
Acquisitions pursuant to Sections 8.02(f)(iii)(v) and 8.02(f)(iv)(x).
Purchasing Bank shall mean a Bank which becomes a party to this
---------------
Agreement by executing an Assignment and Assumption Agreement.
Qualifying Asset Sale shall have the meaning set forth in
---------------------
Section 5.05(a).
Ratable Share shall mean the proportion that a Bank's Commitment
-------------
bears to the Commitments of all of the Banks.
Regulated Substances shall mean, without limitation, any
--------------------
substance, material or waste, regardless of its form or nature, defined under
Environmental Law as a "hazardous substance," "pollutant," "pollution,"
"contaminant," "extremely hazardous substance," "toxic chemical," "toxic
substance," "toxic waste," "hazardous waste," "special handling waste,"
"industrial waste," "residual waste," "solid waste," "municipal waste," "mixed
waste," "infectious waste," "chemotherapeutic waste," "medical waste" or
"regulated substance" or any other material, substance or waste, regardless of
its form or nature, which otherwise is regulated by Environmental Law.
Regulation U shall mean Regulation U, T or X as promulgated by
------------
the Board of Governors of the Federal Reserve System, as amended from time to
time.
Reimbursement Obligations shall have the meaning assigned to
-------------------------
such term in Section 2.09(d).
26
<PAGE>
Reportable Event means a reportable event described in Section
----------------
4043 of ERISA and regulations thereunder with respect to a Plan or Multiemployer
Plan and for which the 30-day notice period has not been waived by regulation.
Required Banks shall mean: (i) if there are no Loans,
--------------
Reimbursement Obligations or Letter of Credit Borrowings outstanding, Banks
whose Commitments aggregate at least 51% of the Commitments of all of the Banks,
or (ii) if there are Loans, Reimbursement Obligations or Letter of Credit
Borrowings outstanding, any Bank or group of Banks if the sum of the Loans,
Reimbursement Obligations and Letter of Credit Borrowings then outstanding
aggregates at least 51% of the total principal amount of all of the Loans,
Reimbursement Obligations and Letter of Credit Borrowings then outstanding.
Reimbursement Obligations and Letter of Credit Borrowings shall be deemed, for
purpose of this definition, to be in favor of the Administrative Agent and not a
participating Bank if such Bank has not made its Participation Advance in
respect thereof and shall be deemed to be in favor of such Bank to the extent of
its Participation Advance if it has made its Participation Advance in respect
thereof.
Required Environmental Permits shall mean all permits, licenses,
------------------------------
bonds, consents, programs, approvals or authorizations required under
Environmental Law for the Borrower and/or each of its Subsidiaries to conduct
its operations, maintain the Property or equipment thereon or construct,
maintain, operate or occupy any improvements.
Required Environmental Notices shall mean all notices, reports,
------------------------------
plans, forms or other filings which pursuant to Environmental Law, Required
Environmental Permits or at the request or direction of an Official Body must be
submitted to an Official Body or which otherwise must be maintained with respect
to the Property, Contamination and the operations and activities of the Borrower
and each of its Subsidiaries.
Responsible Officer shall mean, with respect to any Loan Party,
-------------------
the Chief Executive Officer, the Chief Financial Officer or the treasurer
thereof.
Restricted Indebtedness shall mean with respect to the Excluded
-----------------------
Entities, Indebtedness secured by any Liens, other than Indebtedness not to
exceed $250,000 in the aggregate for all Excluded Entities secured by Purchase
Money Security Interests.
Restricted Investments shall mean collectively the following
----------------------
with respect to the Excluded Entities: (i) investments or contributions by any
of the Loan Parties directly or indirectly in or to the capital of or other
payments to (except in connection with transactions for fair value in the
ordinary course of business) an Excluded Entity, (ii) loans by any of the Loan
Parties directly or indirectly to an Excluded Entity, (iii) guaranties by any of
the Loan Parties directly or indirectly of the obligations of an Excluded
Entity, or (iv) other obligations, contingent or otherwise, of any of the Loan
Parties to or for the benefit of an Excluded Entity. If the nature of a
Restricted Investment is tangible property then the amount of such Restricted
Investment shall be determined by valuing such property at fair value in
accordance with the past practice of the Loan Parties and such fair values shall
be satisfactory to the Agents, in their sole discretion.
27
<PAGE>
Restricted Subsidiaries shall mean all Subsidiaries of the
-----------------------
Borrower other than the Unrestricted Subsidiaries of the Borrower which as of
the date of determination are Excluded Entities.
Revolving Credit Base Rate Option shall have the meaning
---------------------------------
assigned to that term in Section 4.01(a)(i).
Revolving Credit Commitment shall mean as to any Bank at any
---------------------------
time, the amount initially set forth opposite its name on Schedule 1.01(C)
----------------
hereto in the column labeled "Amount of Commitment for Revolving Credit Loans,"
and thereafter to give effect to the most recent Assignment and Assumption
Agreement, as such amount shall be reduced from time to time pursuant to
Sections 2.01 and 2.10 hereof, and Revolving Credit Commitments shall mean the
----------------------------
aggregate Revolving Credit Commitments of all of the Banks.
Revolving Credit Euro-Rate Option shall have the meaning
---------------------------------
assigned to that term in Section 4.01(a)(ii).
Revolving Credit Loans shall mean collectively and Revolving
---------------------- ---------
Credit Loan shall mean separately all Revolving Credit Loans or any Revolving
- -----------
Credit Loan made by the Banks or one of the Banks to the Borrower pursuant to
Section 2.01 hereof.
Revolving Credit Notes shall mean collectively all the Revolving
----------------------
Credit Notes of the Borrower in the form of Exhibit 1.01(R) hereto evidencing
---------------
the Revolving Credit Loans together with all amendments, extensions, renewals,
replacements, refinancings or refundings thereof in whole or in part and
Revolving Credit Note shall mean separately any Revolving Credit Note.
- ---------------------
Revolving Facility Usage shall mean at any time the sum of the
------------------------
Revolving Credit Loans outstanding and the Letters of Credit Outstanding.
Security Agreement shall mean the Security Agreement in
------------------
substantially the form of Exhibit 1.01(s)(1) executed and delivered by each of
------------------
the Loan Parties to the Collateral Agent for the benefit of the Banks.
Seventeenth Amendment Effective Date shall mean July 31, 1998.
------------------------------------
Sixteenth Amendment Effective Date shall mean January 2, 1998.
----------------------------------
Solvent shall mean, with respect to any person on a particular
-------
date, that on such date (i) the fair value of the property of such person is
greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of such person, (ii) the present fair saleable value of
the assets of such person is not less than the amount that will be required to
pay the probable liability of such person on its debts as they become absolute
and matured, (iii) such person is able to realize upon its assets and pay its
debts and other liabilities, contingent obligations and other commitments as
they mature in the normal course of business, (iv) such person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
28
<PAGE>
person's ability to pay as such debts and liabilities mature, and (v) such
person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
Special Fee shall have the meaning set forth in Section 2.04.
-----------
Specified Change of Control shall mean a "Change of Control" as
---------------------------
defined in the Paragon Senior Subordinated Note Indenture, as in effect on the
Seventeenth Amendment Effective Date, without regard to any amendments to such
definition subsequent to such date.
Subordinated Indebtedness Incurrence Date shall mean March 28,
-----------------------------------------
1996, the date of issuance by the Borrower of the Subordinated Notes pursuant to
and in accordance with the Indenture.
Subordinated Notes shall mean the $150 million in original
------------------
principal amount of Subordinated Notes due 2006 issued by the Borrower pursuant
to the Indenture. It is acknowledged that prior to the Exchange Offer, the
Subordinated Notes shall consist of the Series A Securities, and following the
Exchange Offer, the Subordinated Notes shall consist of the Series B Securities
and any Series A Securities which are not exchanged in the Exchange Offer, as
such terms are defined in the Indenture.
Subordination Agreement (Intercompany) shall mean that certain
--------------------------------------
Subordination Agreement (Intercompany) in the form of Exhibit 1.01(S) hereto
---------------
executed and delivered by each Loan Party to the Administrative Agent for the
benefit of the Banks.
Subsidiary of any person at any time shall mean (i) any
----------
corporation, limited liability company or trust of which more than 50% (by
number of shares or number of votes) of the outstanding capital stock, member
interests or shares of beneficial interest normally entitled to vote for the
election of one or more directors or trustees (regardless of any contingency
which does or may suspend or dilute the voting rights) is at such time owned
directly or indirectly by such Person or one or more of such Person's
Subsidiaries, or any partnership of which such Person is a general partner or of
which more than 50% of the general or voting partnership interests is at the
time directly or indirectly owned by such Person or one or more of such Person's
Subsidiaries, and (ii) any corporation, trust, limited liability company,
partnership or other entity which is controlled or capable of being controlled
by such Person or one or more of such Person's Subsidiaries.
Subsidiary Lessee shall mean each Subsidiary of Borrower which
-----------------
is the lessee of a Leased Facility.
Subsidiary Owner shall mean, with respect to an Owned Facility,
----------------
the Subsidiary of Borrower which is the owner thereof.
29
<PAGE>
Supermajority Required Banks shall mean: (i) if there are no
----------------------------
Loans, Reimbursement Obligations or Letter of Credit Borrowings outstanding,
Banks whose Commitments aggregate at least 66 and 2/3% of the Commitments of all
of the Banks, or (ii) if there are Loans, Reimbursements Obligations or Letter
of Credit Borrowings outstanding, any Bank or group of Banks if the sum of the
Loans, Reimbursements Obligations and Letter of Credit Borrowings then
outstanding aggregates at least 66 and 2/3% of the total principal amount of all
of the Loans, Reimbursements Obligations and Letter of Credit Borrowings then
outstanding. Reimbursements Obligations and Letter of Credit Borrowings shall be
deemed, for purpose of this definition, to be in favor of the Administrative
Agent and not a participating Bank if such Bank has not made its Participation
Advance in respect thereof and shall be deemed to be in favor of such Bank to
the extent of its Participation Advance if it has made its Participation Advance
in respect thereof.
Term Loan Agreement shall mean that certain Loan Agreement,
-------------------
dated the Eighteenth Amendment Effective Date, among the Term Loan Borrower, PNC
Bank, National Association, as agent, First Union National Bank, as syndication
agent and the Term Loan Banks, providing for a $210,000,000 term loan facility
to the Term Loan Borrower, as such agreement may from time to time be amended,
restated, modified, supplemented or replaced.
Term Loan Banks shall mean the financial institutions signatory
---------------
from time to time to the Term Loan Agreement as "banks" thereunder, together
with their successors and permitted assigns.
Term Loan Borrower shall mean Mariner Health Group, Inc., a
------------------
Delaware corporation, in its capacity as the borrower under the Term Loan
Agreement, together with its successors and permitted assigns in such capacity.
Term Loan Commitment shall have the meaning set forth in the
--------------------
Term Loan Agreement.
Term Loan Documents shall mean the Term Loan Agreement and all
------------------- -------------------
other documents, instruments and agreements now or hereafter executed and
delivered in connection therewith (excluding the Loan Documents), as the same
may be amended, restated, supplemented or replaced from time to time.
Term Loan Parties shall mean, collectively, the Term Loan
-----------------
Borrower and all guarantors, from time to time, of Indebtedness and other
obligation under the Term Documents.
Total Indebtedness shall mean as of any date of determination,
------------------
without duplication, the total Indebtedness of the Borrower and its
Subsidiaries.
Transferor Bank shall mean the selling Bank pursuant to an
---------------
Assignment and Assumption Agreement.
30
<PAGE>
Tri-State shall mean Tri-State Health Care, Inc., a West
---------
Virginia corporation, which is a Subsidiary of Pinnacle and the sole general
partner of Seventeenth Street Partnership.
Trustee Agreement shall mean, as of any date of determination,
-----------------
collectively (i) that certain Paying Agency Agreement executed by Mariner
Nashville, PNC Bank and certain of the Lessors listed on Schedule 6.01(aa), in
-----------------
the form of Exhibit 1.01(T) providing for the payment by Mariner Nashville to
PNC Bank, as trustee for Mariner Nashville and such Lessors, of monies due to
such Lessors under the leases between such Lessors and Mariner Nashville, and
the subsequent payment of such monies by PNC Bank to the Lessors; and (ii) in
accordance with the requirements of this Agreement, each other similar
agreement, in form and substance satisfactory to the Administrative Agent
relating to certain Subsidiaries of the Borrower and certain Lessors.
UCC Collateral shall mean the Pledged Collateral, the property
--------------
of the Loan Parties in which security interests are granted under the Security
Agreement, and that portion of the Collateral under the Mortgages, First
Mortgages, and the Leasehold Mortgages which consists of personal property in
which a security interest was granted under the Uniform Commercial Code.
Uniform Commercial Code shall have the meaning assigned to that
-----------------------
term in Section 6.01(p).
Unrestricted Subsidiary of any person at any time shall mean any
-----------------------
corporation or limited liability company of which more than 50% but less than
80% (by number of shares or number of votes) of the outstanding capital stock or
member interests normally entitled to vote for the election of one or more
directors (regardless of any contingency which does or may suspend or dilute the
voting rights) is at such time owned directly or indirectly by such Person or
one or more of such Person's Subsidiaries, or any partnership of which such
Person is a general partner or of which more than 50% but less than 80% of the
general or voting partnership interests is at the time directly or indirectly
owned by such Person or one or more of such Person's Subsidiaries.
Voting Stock shall mean, with respect to any Person, any class
------------
or series of Capital Stock of such Person that is ordinarily entitled to vote in
the election of directors thereof at a meeting of stockholders called for such
purpose, without the occurrence of any additional event or contingency.
1.02 Construction. Unless the context of this Agreement otherwise
------------
clearly requires, references to the plural include the singular, the singular
the plural and the part the whole, "or" has the inclusive meaning represented by
the phrase "and/or," and "including" has the meaning represented by the phrase
"including without limitation." References in this Agreement to "determination"
of or by any Agent or the Banks shall be deemed to include good faith
calculations by any Agent or the Banks (in the case of quantitative
determinations) and good faith beliefs by any Agent or the Banks (in the case of
qualitative determinations). Whenever any Agent or the Banks are granted the
right herein to act in its or their sole discretion
31
<PAGE>
or to grant or withhold consent such right shall be exercised in good faith. The
words "hereof," "herein," "hereunder" and similar terms in this Agreement refer
to this Agreement as a whole and not to any particular provision of this
Agreement. The section and other headings contained in this Agreement and the
Table of Contents preceding this Agreement are for reference purposes only and
shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and exhibit
references are to this Agreement unless otherwise specified.
1.03 Accounting Principles. Except as otherwise provided in this
---------------------
Agreement, all computations and determinations as to accounting or financial
matters and all financial statements to be delivered pursuant to this Agreement
shall be made and prepared in accordance with GAAP (including principles of
consolidation where appropriate), and all accounting or financial terms shall
have the meanings ascribed to such terms by GAAP. In the event of: (i) any
dissolution or liquidation of any Subsidiary pursuant to Section 8.02(f) of this
Agreement, (ii) any consolidation or merger of any Subsidiary with or into any
person (other than the Borrower or another Subsidiary)pursuant to Section
8.02(f) of this Agreement, or (iii) the sale, transfer, lease or disposition of
assets of the Borrower or any Subsidiary permitted pursuant to Section
8.02(g)(v) of this Agreement, then, in the case of any of the foregoing clauses
(i), (ii) or (iii), any financial covenant to be calculated thereunder
(including, without limitation, those set forth in Section 2.01(c), 4.01, and
8.02(q) through 8.02(u), inclusive) shall be calculated for the period during
which such sale, transfer, lease or other disposition occurs, excluding all
financial items (for example and without limitation, all cash flow, revenues,
expenses, and income) attributable to the assets sold, transferred, leased or
otherwise disposed of. It is expressly agreed that for all periods ending after
the consummation of the Paragon Acquisition, all cash expenses (other than
expenses directly related to the Paragon Acquisition) paid by MPN on behalf of
or for the benefit of the Borrower or any Subsidiary of the Borrower and
reimbursed by the Borrower pursuant to Section 8.02(e)(v) shall be treated as an
expense of the Borrower or such Subsidiary of the Borrower (whether or not GAAP
would require such amount to be included as an expense of the Borrower or such
Subsidiary) for the purpose of determining "net income of the Borrower and its
Subsidiaries in accordance with GAAP" under this Agreement in connection with
the calculation of the applicable financial covenants under this Agreement
(including without limitation in the determination of Consolidated Cash Flow
from Operations, Consolidated Net Income, the numerator of the Fixed Charge
Coverage Ratio in Section 8.02 (q) and the calculations set forth in Section
8.02(e)), it being the express intent of the Borrower, the Agents and the Banks
that notwithstanding payment of expenses by MPN on behalf of or for the benefit
of the Borrower or Subsidiaries of the Borrower that consolidated net income of
the Borrower and its Subsidiaries shall continue to be determined after the
consummation of the Paragon Acquisition as if all expenses of the Borrower and
its Subsidiaries are paid by them.
32
<PAGE>
ARTICLE II
REVOLVING CREDIT FACILITY
-------------------------
2.01 Revolving Credit Commitments; Limitation on Borrowings.
------------------------------------------------------
(a) Revolving Credit Commitments. Subject to the terms and
----------------------------
conditions hereof and relying upon the representations and warranties herein set
forth, each Bank severally agrees to make revolving credit loans (the "Revolving
Credit Loans") to the Borrower at any time and from time to time on or after the
date hereof to, but not including, the Expiration Date in an aggregate principal
amount not to exceed at any one time such Bank's Revolving Credit Commitment
minus such Bank's Ratable Share of the Letters of Credit Outstanding. Within
such limits of time and amount and subject to the other provisions of this
Agreement, the Borrower may borrow, repay and reborrow pursuant to this Section
2.01. In no event shall the aggregate of outstanding Revolving Credit Loans and
Letters of Credit Outstanding as of any date exceed the Revolving Credit
Commitments as of such date, and the entire outstanding principal amount of the
Revolving Credit Loans shall be due and payable on the Expiration Date.
(b) [Intentionally Omitted].
---------------------
(c) Limitation on Borrowings. Notwithstanding the provision of
------------------------
Sections 2.01(a) and 2.01(b) of this Agreement, the outstanding principal amount
of Revolving Credit Loans to the Borrower and aggregate Letters of Credit
Outstanding shall not exceed at any time an amount such that after giving effect
to such borrowings, the ratio of (i) Total Indebtedness to (ii) Consolidated
Cash Flow from Operations exceeds (A) 5.75 to 1.0 from the Eighteenth Amendment
Effective Date through and including June 30, 1999; and (B) 5.50 to 1.0 from
July 1, 1999 and thereafter.
For purposes of such ratio, the amount determined under
clause (i) shall be as of the date of determination and the amount determined
under clause (ii) shall be for the twelve-month period ending on the last day of
the month which precedes such date of determination.
2.02 Nature of Banks' Obligations With Respect to Revolving Credit
-------------------------------------------------------------
Loans. Each Bank shall be obligated to participate in each request for
- -----
Revolving Credit Loans pursuant to Section 2.05 hereof in accordance with its
Ratable Share. The aggregate of each Bank's Revolving Credit Loans outstanding
hereunder to the Borrower at any time shall never exceed its Revolving Credit
Commitment minus its Ratable Share of Letters of Credit Outstanding. The
obligations of each bank hereunder are several. The failure of any Bank to
perform its obligations hereunder shall not affect the obligations of the
Borrower to any other party nor shall any other party be liable for the failure
of such Bank to perform its obligations hereunder. The Bank shall have no
obligation to make Revolving Credit Loans hereunder on or after the Expiration
Date.
2.03 Commitment Fees. Accruing from the Eighteenth Amendment
---------------
Effective Date until the Expiration Date, the Borrower agrees to pay to the
Administrative Agent for the account of each Bank, as consideration for such
Bank's Revolving Credit Commitment
33
<PAGE>
hereunder, a commitment fee (the "Commitment Fee") equal to the applicable
percentage set forth below based on the ratio of Total Indebtedness to
Consolidated Cash Flow from Operations.
<TABLE>
<CAPTION>
Ratio of Total Indebtedness to Commitment Fee
Consolidated Cash Flow from Operations (per annum)
- ----------------------------------------- ------------------
<S> <C>
Greater than 5.25 to 1.0 .50%
Greater than 4.75 to 1.0 but
less than or equal to 5.25 to 1.0 .45%
Greater than 4.25 to 1.0 but
less than or equal to 4.75 to 1.0 .40%
Greater than 3.75 to 1.0 but .35%
less than or equal to 4.25 to 1.0
Less than or equal to 3.75 to 1.0 .30%
</TABLE>
Such ratio shall be computed on the date of each Acquisition Requiring
Certification as more fully set forth in the third sentence of Section
8.01(m)(i) or the second sentence of Section 8.01(m)(ii), as applicable, and any
adjustment to the Commitment Fee attributable to such computation shall be
effective on the date of such Acquisition Requiring Certification. If Borrower
does not make any Acquisition Requiring Certification during any fiscal quarter,
(1) such ratio shall also be computed as of the end of such fiscal quarter, with
Consolidated Cash Flow from Operations computed for the four fiscal quarters
then ended and Total Indebtedness computed as of the end of such fiscal quarter,
and (2) any increase in the Commitment Fee attributable to a change in such
ratio shall be effective as of the Delivery Date for the Borrower's consolidated
financial statements for such quarter and (3) any decrease of the Commitment
Fees attributable to a change in such ratio shall be effective as of the later
of the Delivery Date for such financial statements and the date on which such
financial statements are actually delivered to the Administrative Agent and the
Banks. Commitment Fees shall be computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed on the average daily
unborrowed amount of such Bank's Revolving Credit Commitment (less its Ratable
Share of the Letters of Credit Outstanding) as the same may be constituted from
time to time. All Commitment Fees shall be payable in arrears on the first
Business day of each April, July, October and January after the date hereof
commencing on January 1, 1999 and on the Expiration Date or upon acceleration
of maturity of the Notes.
2.04 Special Fee. Accruing from the Seventeenth Amendment Effective
-----------
Date through and including the Expiration Date, the Borrower agrees to pay to
the Administrative Agent for the account of each Bank in accordance with the
Ratable Share of each Bank, a fee (the "Special Fee") equal to the product of
(x) the per annum rate of 1.50%, multiplied by (y) the lesser of $25 million or
the aggregate amount of any distributions or dividends made by the Borrower to
MPN pursuant to Section 8.02(e)(vi) hereof. Each Special Fee shall be computed
as of the end of each fiscal quarter of the Borrower and shall be payable in
arrears on the first
34
<PAGE>
Business Day of each April, July, October and January after the date hereof,
commencing on January 1, 1999, and on the Expiration Date or upon acceleration
of maturity of the Notes.
2.05 Loan Requests. Except as otherwise provided herein, the
-------------
Borrower may from time to time prior to the Expiration Date request the Banks to
make Revolving Credit Loans, or renew or convert the Interest Rate Option
applicable to existing Loans, by the delivery to the Administrative Agent, not
later than 10:00 A.M. Pittsburgh time (i) three (3) Business Days prior to the
proposed Borrowing Date with respect to the making of Loans to which the Euro-
Rate Option applies or the conversion to or the renewal of the Euro-Rate Option
for any Loans; and (ii) on the Business Day which is the proposed Borrowing Date
with respect to the making of a Loan to which the Base Rate Option applies or
the last day of the preceding Interest Period with respect to the conversion of
the Base Rate Option for any Loan, of a duly completed request therefor
substantially in the form of Exhibit 2.05 hereto or a request by telephone
------------
immediately confirmed in writing by letter, facsimile or telex in such form
(each, a "Loan Request"), it being understood that the Administrative Agent may
rely in good faith on the authority of any person making such telephonic request
and purporting to be an Authorized officer. Each Loan Request shall be
irrevocable and shall (i) specify the proposed Borrowing Date; (ii) specify the
aggregate amount of the proposed Loans comprising the Borrowing Tranche, which
shall be in integral multiples of $500,000 and not less than $5,000,000 for
Loans to which the Euro-Rate Option applies and not less than the lesser of
$500,000 or the maximum amount available for Loans to which the Base Rate Option
applies; (iii) specify whether the Euro-Rate Option or Base Rate Option shall
apply to the proposed Loans comprising the Borrowing Tranche; (iv) specify in
the case of Loans to which the Euro-Rate Option applies, an appropriate Interest
Period for the proposed Loans comprising the Borrowing Tranche; (v) specify the
use by the Borrower of the loan proceeds; (vi) certify that no Event of Default
or Potential Default has occurred and is continuing after giving effect to the
proposed Revolving Credit Loan and without limiting the generality of this
clause (vi), certify compliance with Section 2.01(c) of this Agreement; and
(vii) in the event that the proceeds of the proposed Revolving Credit Loan will
be used to acquire a new health care facility or other business, permitted to be
acquired pursuant to this Agreement, certify, in detail satisfactory to the
Administrative Agent, a calculation of the ratio specified in Section 2.01(c).
2.06 Making Revolving Credit Loans. The Administrative Agent shall,
-----------------------------
promptly after receipt by it of a Loan Request pursuant to Section 2.05, notify
the Banks of its receipt of such Loan Request specifying: (i) the proposed
Borrowing Date and the time and method of disbursement of such Revolving Credit
Loan; (ii) the amount and type of such Revolving Credit Loan and the applicable
Interest Period; and (iii) the apportionment among the Banks of the Revolving
Credit Loans as determined by the Administrative Agent in accordance with
Section 2.02 hereof. Each Bank shall remit the principal amount of each
Revolving Credit Loan to the Administrative Agent such that the Administrative
Agent is able to, and the Administrative Agent shall, to the extent the Banks
have made funds available to it for such purpose, fund such Revolving Credit
Loan to the Borrower in U.S. Dollars and immediately available funds at the
Principal Office prior to 2:00 P.M. Pittsburgh time on the Borrowing Date,
provided that if any Bank fails to remit such funds to the Administrative Agent
in a timely
35
<PAGE>
manner the Administrative Agent may elect in its sole discretion to fund with
its own funds the Revolving Credit Loan of such Bank on the Borrowing Date.
2.07 Revolving Credit Note. The obligation of the Borrower to repay
---------------------
the aggregate unpaid principal amount of the Revolving Credit Loans made to it
by each Bank, together with interest thereon, shall be evidenced by a promissory
note of the Borrower dated the Closing Date in substantially the form attached
hereto as Exhibit 1.01(R) payable to the order of each Bank in a face amount
---------------
equal to the Revolving Credit Commitment of such Bank.
2.08 Use of Proceeds. The proceeds of the Revolving Credit Loans
---------------
shall be used for (a) the acquisition and development of health care related
businesses and facilities and (b) general corporate purposes, which, among other
things, may include working capital (including but not limited to the
reimbursement of MPN by the Borrower of ordinary course business expenses
pursuant to Section 8.02(e)(v)) or intercompany loans to a Subsidiary of the
Borrower provided the Borrower and such Subsidiary comply with Section 8.01(1)
hereof.
2.09 Letter of Credit Subfacility.
----------------------------
(a) Borrower may request the issuance of, on the terms and
conditions hereinafter set forth, standby letters of credit (each a "Letter of
Credit" and collectively, "Letters of Credit") by delivering to the
Administrative Agent a completed application and agreement for letters of credit
in such form as the Administrative Agent may specify from time to time by no
later than 10:00 a.m., Pittsburgh time, at least three (3) Business Days, or
such shorter period as may be agreed to by the Administrative Agent, in advance
of the proposed date of issuance. Subject to the terms and conditions hereof and
in reliance on the agreements of the other Banks set forth in this Section 2.09,
the Administrative Agent will issue a Letter of Credit provided that each Letter
of Credit shall (A) have a maximum maturity of twelve (12) months from the date
of issuance, and (B) in no event expire later than ten (10) Business Days prior
to the Expiration Date and providing that in no event shall (i) the Letters of
Credit Outstanding exceed, at any one time, $30,000,000 or (ii) the Revolving
Facility Usage exceed, at any one time, the Revolving Credit Commitments.
Schedule 2.09(a) hereto lists letters of credit which PNC Bank issued for the
- ----------------
accounts of certain of the Loan Parties prior to the date hereof pursuant to the
Prior Credit Agreement and which shall remain outstanding after the Closing Date
(the "Existing Letters of Credit"). Each Existing Letter of Credit shall be a
Letters of Credit hereunder on and after the Closing Date and the provisions of
this Section 2.09 shall apply to such Existing Letter of Credit.
(b) The Borrower shall pay to the Administrative Agent for the
ratable account of the Banks a fee (the "Letter of Credit Fee") equal to the
applicable interest rate per annum then in effect for Revolving Credit Loans
which are subject to the Euro-Rate Option less the Euro-Rate, which fee shall be
computed on the daily average Letters of Credit Outstanding (computed on the
basis of a year of 360 days and actual days elapsed) and shall be payable
quarterly in arrears commencing with the first Business Day of each April, July,
October and January following issuance of the first Letter of Credit and on the
expiration date for the last Letter of Credit then outstanding, with such fees
accruing through and including the expiration date for each Letter of Credit.
The Borrower shall pay to the Administrative Agent for its own
36
<PAGE>
account a fronting fee equal to 1/8% per annum, which fee shall be computed on
the daily average Letters of Credit Outstanding (computed on the basis of a year
of 360 days and actual days elapsed) and shall be payable quarterly in arrears
commencing with the first business day of each October, January, April and July
following issuance of the first Letter of Credit and on the expiration date for
the last Letter of Credit then outstanding. The Borrower shall also pay to the
Administrative Agent the Administrative Agent's then in effect customary fees
and administrative expenses payable with respect to Letters of Credit as the
Administrative Agent may generally charge or incur from time to time in
connection with the issuance, maintenance, modification (if any), assignment or
transfer (if any), negotiation and administration of Letters of Credit.
(c) Immediately upon the issuance of each Letter of Credit, each
Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to,
purchase from the Administrative Agent a participation in such Letter of Credit
and each drawing thereunder in an amount equal to such Bank's Ratable Share of
the maximum amount available to be drawn under such Letter of Credit and the
amount of such drawing, respectively.
(d) In the event of any request for a drawing under a Letter of
Credit by the beneficiary or transferee thereof, the Administrative Agent will
promptly notify the Borrower. Provided that it shall have received such notice,
the Borrower shall reimburse (such obligation to reimburse the Administrative
Agent shall sometimes be referred to as a "Reimbursement Obligation") the
Administrative Agent prior to 11:00 a.m., Pittsburgh time on each date that an
amount is paid by the Administrative Agent under any Letter of Credit (each such
date, a "Drawing Date") in an amount equal to the amount so paid by the
Administrative Agent. In the event the Borrower fails to reimburse the
Administrative Agent for the full amount of any drawing under any Letter of
Credit by 11:00 a.m., Pittsburgh time, on the Drawing Date, the Administrative
Agent will promptly notify each Bank thereof, and the Borrower shall be deemed
to have requested that Revolving Credit Loans be made by the Banks under the
Base Rate Option to be disbursed on the Drawing Date under such Letter of
Credit, subject to the amount of the unutilized portion of the Revolving Credit
Commitment and subject to the conditions set forth in Section 7.1 [Each
Additional Loan] other than any notice requirements. Any notice given by the
Administrative Agent pursuant to this Section 2.09(d) may be oral if immediately
confirmed in writing; provided that the lack of such an immediate confirmation
shall not affect the conclusiveness or binding effect of such notice.
(e) Each Bank shall upon any notice pursuant to Section 2.09(d)
make available to the Administrative Agent an amount in immediately available
funds equal to its Ratable Share of the amount of the drawing, whereupon the
participating Banks shall (subject to Section 2.09(f)) each be deemed to have
made a Revolving Credit Loan under the Base Rate Option to the Borrower in that
amount. If any Bank so notified fails to make available to the Administrative
Agent for the account of the Administrative Agent the amount of such Bank's
Ratable Share of such amount by no later than 2:00 p.m., Pittsburgh time on the
Drawing Date, then interest shall accrue on such Bank's obligation to make such
payment, from the Drawing Date to the date on which such Bank makes such payment
at a rate per annum equal to the Federal Funds Effective Rate. The
Administrative Agent will promptly give notice of the
37
<PAGE>
occurrence of the Drawing Date, but failure of the Administrative Agent to give
any such notice on the Drawing Date or in sufficient time to enable any Bank to
effect such payment on such date shall not relieve such Bank from its obligation
under this Section 2.09(e).
(f) With respect to any unreimbursed drawing that is not
converted into Revolving Credit Loans under the Base Rate Option to the Borrower
in whole or in part as contemplated by Section 2.09(d), because of the
Borrower's failure to satisfy the conditions set forth in Section 7.1 [Each
Additional Loan] other than any notice requirements or for any other reason, the
Borrower shall be deemed to have incurred from the Administrative Agent a Letter
of Credit Borrowing in the amount of such drawing. Such Letter of Credit
Borrowing shall be due and payable on demand (together with interest) and shall
bear interest at the rate per annum applicable to the Revolving Credit Loans
under the Base Rate Option. Each Bank's payment to the Administrative Agent
pursuant to Section 2.09(e) shall be deemed to be a payment in respect of its
participation in such Letter of Credit Borrowing and shall constitute a
Participation Advance from such Bank in satisfaction of its participation
obligation under this Section 2.09.
(g) (i) Upon (and only upon) receipt by the Administrative Agent
for its account of immediately available funds from Borrower (i) in
reimbursement of any payment made by the Administrative Agent under the Letter
of Credit with respect to which any Bank has made a Participation Advance to the
Administrative Agent, or (ii) in payment of interest on such a payment made by
the Administrative Agent under such a Letter of Credit, the Administrative Agent
will pay to each Bank, in the same funds as those received by the Administrative
Agent, the amount of such Bank's Ratable Share of such funds, except the
Administrative Agent shall retain the amount of the Ratable Share of such funds
of any Bank that did not make a Participation Advance in respect of such payment
by Administrative Agent.
(ii) If the Administrative Agent is required at any time to
return to any Loan Party, or to a trustee, receiver, liquidator, custodian, or
any official in any Insolvency Proceeding, any portion of the payments made by
any Loan Party to the Administrative Agent pursuant to Section 2.09(g)(i) in
reimbursement of a payment made under the Letter of Credit or interest or fee
thereon, each Bank shall, on demand of the Administrative Agent, forthwith
return to the Administrative Agent the amount of its Ratable Share of any
amounts so returned by the Administrative Agent plus interest thereon from the
date such demand is made to the date such amounts are returned by such Bank to
the Administrative Agent, at a rate per annum equal to the Federal Funds
Effective Rate in effect from time to time.
(h) Each Loan Party agrees to be bound by the terms of the
Administrative Agent's application and agreement for letters of credit and the
Administrative Agent's written regulations and customary practices relating to
letters of credit, though such interpretation may be different from the such
Loan Party's own. In the event of a conflict between such application or
agreement and this Agreement, this Agreement shall govern. It is understood and
agreed that, except in the case of gross negligence or willful misconduct, the
Administrative Agent shall not be liable for any error, negligence and/or
mistakes, whether of omission or commission, in following any Loan Party's
instructions or those contained in the Letters of Credit or any modifications,
amendments or supplements thereto.
38
<PAGE>
(i) In determining whether to honor any request for drawing
under any Letter of Credit by the beneficiary thereof, the Administrative Agent
shall be responsible only to determine that the documents and certificates
required to be delivered under such Letter of Credit have been delivered and
that they comply with their face with the requirements of such Letter of Credit.
(j) Each Bank's obligation in accordance with this Agreement to
make the Revolving Credit Loans or Participation Advances, as contemplated by
Section 2.09, as a result of drawing under a Letter of Credit, and the
Obligations of the Borrower to reimburse the Administrative Agent upon a draw
under a Letter of Credit, shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Section 2.09
under all circumstances, including the following circumstances:
(i) any set-off, counterclaim, recoupment, defense or other
right which such Bank may have against the Administrative Agent, the Borrower or
any other Person for any reason whatsoever;
(ii) the failure of any Loan Party or any other Person to
comply, in connection with a Letter of Credit Borrowing, with the conditions set
forth in Section 2.01 [Revolving Credit Commitments], 2.05 [Loan Requests], 2.06
[Making Revolving Credit Loans] or 7.1 [Each Additional Loan] or as otherwise
set forth in this Agreement for the making of a Revolving Credit Loan, it being
acknowledged that such conditions are not required for the making of a Letter of
Credit Borrowing and the obligation of the Banks to make Participation Advances
under Section 2.09;
(iii) any lack of validity or unenforceability of any
Letter of Credit;
(iv) the existence of any claim, set-off, defense or other
right which any Loan Party or any Bank may have at any time against a
beneficiary or any transferee of any Letter of Credit (or any Persons for whom
any such transferee may be acting), the Administrative Agent or any Bank or any
Person or, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any underlying
transaction between any Loan Party or Subsidiaries of a Loan Party and the
beneficiary for which any Letter of Credit was procured);
(v) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect even if the Administrative Agent has been notified
thereof;
(vi) payment by the Administrative Agent under the Letter of
Credit against presentation of a demand, draft or certificate or other document
which does not comply with the terms of such Letter of Credit;
39
<PAGE>
(vii) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of any Loan
Party or Subsidiaries of a Loan Party;
(viii) any breach of this Agreement or any other Loan
Document by any party thereto;
(ix) the occurrence or continuance of an Insolvency
Proceeding with respect to any Loan Party;
(x) the fact that an Event of Default or a Potential Default
shall have occurred and be continuing;
(xi) the fact that the Expiration Date shall have passed or
this Agreement or the Commitments hereunder shall have been terminated; and
(xii) any other circumstances or happening whatsoever,
whether or not similar to any of the foregoing.
(k) In addition to amounts payable as provided in Section 10.05
[Reimbursement of Administrative Agent by Borrower, Etc.], the Borrower hereby
agrees to protect, indemnify, pay and save harmless the Administrative Agent
from and against any and all claims, demands, liabilities, damages, losses,
costs, charges and expenses (including reasonable fees, expenses and
disbursements of counsel and allocated costs of internal counsel) which the
Administrative Agent may incur or be subject to as a consequence, direct or
indirect, of (i) the issuance of any Letter of Credit, other than as a result of
(A) the gross negligence or willful misconduct of the Administrative Agent as
determined by a final judgment of a court of competent jurisdiction or (B)
subject to the following clause (ii), the wrongful dishonor by the
Administrative Agent of a proper demand for payment made under any Letter of
Credit, or (ii) the failure of the Administrative Agent to honor a drawing under
any such Letter of Credit as a result of any act or omission, whether rightful
or wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein called "Governmental
Acts").
(l) As between any Loan Party and the Administrative Agent, such
Loan Party assumes all risks of the acts and omissions of, or misuse of the
Letter of Credit by, the respective beneficiaries of such Letter of Credit. In
furtherance and not in limitation of the foregoing, the Administrative Agent
shall not be responsible for: (i) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in connection
with the application for an issuance of any such Letter of Credit, even if it
should in fact prove to be in any or all respects invalid, insufficient,
inaccurate, fraudulent or forged (even if the Administrative Agent shall have
been notified thereof); (ii) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any such Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (iii) the
failure of the beneficiary of any such Letter of Credit, or any other party to
which such Letter of Credit may be transferred, to comply
40
<PAGE>
fully with any conditions required in order to draw upon such Letter of Credit
or any other claim of any Loan Party against any beneficiary of such Letter of
Credit, or any such transferee, or any dispute between or among any Loan Party
and any beneficiary of any Letter of Credit or any such transferee; (iv) errors,
omissions, interruptions or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(v) errors in interpretation of technical terms; (vi) any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any such Letter of Credit or of the proceeds thereof; (vii) the
misapplication by the beneficiary of any such Letter of Credit of the proceeds
of any drawing under such Letter of Credit; or (viii) any consequences arising
from causes beyond the control of the Administrative Agent, including any
Governmental Acts, and none of the above shall affect or impair, or prevent the
vesting of, any of the Administrative Agent's rights or powers hereunder.
Nothing in the preceding sentence shall relieve the Administrative Agent from
liability for the Administrative Agent's gross negligence or willful misconduct
in connection with actions or omissions described in such clauses (i) through
(viii) of such sentence.
In furtherance and extension and not in limitation of the
specific provisions set forth above, any action taken or omitted by the
Administrative Agent under or in connection with the Letters of Credit issued by
it or any documents and certificates delivered thereunder, if taken or omitted
in good faith, shall not put the Administrative Agent under any resulting
liability to the Borrower or any Bank.
2.10 Voluntary Reduction of Revolving Credit Commitments. The
---------------------------------------------------
Borrower shall have the right at any time and from time to time upon not less
than three (3) Business Days' prior written notice (which notice shall be
irrevocable) to the Administrative Agent to terminate or to permanently and
ratably reduce, in an aggregate amount of not less than $1,000,000 or an
integral multiple thereof, the respective Revolving Credit Commitments without
penalty or premium, except as hereinafter set forth. The Administrative Agent
shall promptly advise each Bank of the date and amount of each such reduction.
After each such reduction, the Commitment Fee shall be calculated upon the
unused portion of the Revolving Credit Commitments as so reduced and the amount
of reduction may not be reinstated.
ARTICLE III
[INTENTIONALLY OMITTED]
ARTICLE IV
INTEREST RATES
--------------
4.01 Interest Rate Options. The Borrower shall pay interest in respect
---------------------
of the outstanding unpaid principal amount of the Loans as selected by it from
the Base Rate Option or Euro-Rate Option set forth below applicable to the Loans
(it being understood that, subject to the provisions of this Agreement, the
Borrower may select different Interest Rate Options and different Interest
Periods to apply simultaneously to the Loans comprising different Borrowing
41
<PAGE>
Tranches and may convert to or renew one or more Interest Rate Options with
respect to all or any portion of the Loans comprising any Borrowing Tranche;
provided that there shall not be at any one time outstanding more than fourteen
(14) Borrowing Tranches in the aggregate among all the Loans accruing interest
at a Euro-Rate Option). The Administrative Agent's determination of a rate of
interest and any change therein shall in the absence of manifest error be
conclusive and binding upon all parties hereto. If at any time the designated
rate applicable to any Loan made by any Bank exceeds such Bank's highest lawful
rate, the rate of interest on such Bank's Loan shall be limited to such Bank's
highest lawful rate.
(a) Revolving Credit Interest Rate Options. The Borrower shall
--------------------------------------
have the right to select from the following Interest Rate Options applicable to
the Revolving Credit Loans for the period commencing on the Eighteenth Amendment
Effective Date and thereafter.
(i) Revolving Credit Base Rate Option: A fluctuating rate per
---------------------------------
annum (computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed) equal to the Base Rate plus the applicable percentage
set forth below, based upon the ratio of (a) Total Indebtedness, to (b)
Consolidated Cash Flow from Operations, such interest rate to change
automatically from time to time effective as of the effective date of each
change in the Base Rate.
<TABLE>
<CAPTION>
Ratio of Total Indebtedness to Applicable
Consolidated Cash Flow from Operations Interest Rate
- ------------------------------------------- ---------------------------
<S> <C>
Greater than 5.25 to 1.0 Base Rate plus 1.25%
Greater than 4.75 to 1.0 but less than or Base Rate plus 1.00%
equal to 5.25 to 1.0
Greater than 4.25 to 1.0 but less than or Base Rate plus .75%
equal to 4.75 to 1.0
Greater than 3.75 to 1.0 but less than or Base Rate plus .50%
equal to 4.25 to 1.0
Less than or equal to 3.75 to 1.0 Base Rate plus .25%
</TABLE>
(ii) Revolving Credit Euro-Rate Option: A fluctuating rate
---------------------------------
per annum (computed on the basis of a year of 360 days and actual days elapsed)
equal to the Euro-Rate plus the applicable percentage (such percentage is
sometimes hereafter referred to as the "Applicable Percentage Over Euro-Rate")
set forth below, based upon the ratio of (a) Total Indebtedness, to (b)
Consolidated Cash Flow from Operations.
<TABLE>
<CAPTION>
Ratio of Total Indebtedness to Applicable
Consolidated Cash Flow from Operations Interest Rate
- ------------------------------------------- ----------------------------------
<S> <C>
Greater than 5.25 to 1.0 Euro-Rate plus 2.75%
Greater than 4.75 to 1.0 but less than or Euro-Rate plus 2.50%
equal to 5.25 to 1.0
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Ratio of Total Indebtedness to Applicable
Consolidated Cash Flow from Operations Interest Rate
- ------------------------------------------- ----------------------------------
<S> <C>
Greater than 4.25 to 1.0 but less than or Euro-Rate plus 2.25%
equal to 4.75 to 1.0
Greater than 3.75 to 1.0 but less than or Euro-Rate plus 2.00%
equal to 4.25 to 1.0
Less than or equal to 3.75 to 1.0 Euro-Rate plus 1.75%
</TABLE>
(b) The ratios pursuant to clause (a) above shall be computed on
the date of each Acquisition Requiring Certification as more fully set forth in
the third sentence of Section 8.01(m)(i) or the second sentence of Section
8.01(m)(ii), as applicable, and any interest rate adjustment attributable to
such computation shall be effective on the date of such Acquisition Requiring
Certification. If Borrower does not make any Acquisition Requiring Certification
during any fiscal quarter, such ratio shall also be computed as of the end of
such quarter with Consolidated Cash Flow from Operations computed for the four
fiscal quarters then ended and Total Indebtedness computed as of the end of such
fiscal quarter, but any interest adjustments attributable to a change in such
ratio shall be effective (x) with respect to an increase of the applicable
interest rate, as of the Delivery Date for the Borrower's consolidated financial
statements for such quarter and (y) with respect to a decrease of the applicable
interest rate, as of the later of the Delivery Date for such financial
statements and the date on which such financial statements are actually
delivered to the Agents and the Banks.
(c) Rate Quotations. The Borrower may call the Administrative
---------------
Agent on or before the date on which a Loan Request is to be delivered to
receive an indication of the rates then in effect, but it is acknowledged that
such indication shall not be binding on the Agents or the Banks nor affect the
rate of interest which thereafter is actually in effect when the election is
made.
4.02 Interest Periods. At any time when the Borrower shall select,
----------------
convert to or renew a Euro-Rate Option, the Borrower shall notify the
Administrative Agent thereof at least three (3) Business Days prior to the
effective date of such Euro-Rate Option by delivering a Loan Request. The
notice shall specify an interest period (the "Interest Period") during which
such Interest Rate Option shall apply, such periods to be one, two, three or six
months, provided, that the following shall apply to any selection of, renewal of
or conversion to a Euro-Rate Option:
(a) any Interest Period which would otherwise end on a date
which is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period which begins on the last day of a
calendar month for which there is no numerically corresponding day in the
subsequent calendar month during which such Interest Period is to end shall end
on the last Business Day of such subsequent month;
43
<PAGE>
(c) each Borrowing Tranche of Loans subject to a Euro-Rate
Option shall be in integral multiples of $500,000 and not less than $5,000,000;
(d) the Borrower shall not select, convert to or renew an
Interest Period for any portion of the Loans that would end after the Expiration
Date; and
(e) in the case of the renewal of a Euro-Rate Option at the end
of an Interest Period, the first day of the new Interest Period shall be the
last day of the preceding Interest Period, without duplication in payment of
interest for such day.
4.03 Interest After Default. To the extent permitted by Law, upon
----------------------
the occurrence and during the continuation of an Event of Default, any
principal, interest, fee or other amount payable hereunder shall bear interest
for each day thereafter until paid in full (before and after judgment) at a rate
per annum which shall be equal to two hundred (200) basis points (2% per annum)
above the rate of interest otherwise applicable with respect to such amount or
two hundred (200) basis points (2% per annum) above the Base Rate if no rate of
interest is otherwise applicable, but in no event in excess of the highest rate
permitted under applicable law. The Borrower acknowledges that such increased
interest rate reflects, among other things, the fact that such Loans or other
amounts have become a substantially greater risk given their default status and
that the Banks are entitled to additional compensation for such risk. If an
Event of Default shall occur and be continuing, the Administrative Agent may in
its discretion limit the Borrower to the Base Rate Option.
4.04 Euro-Rate Unascertainable.
-------------------------
(a) If on any date on which a Euro-Rate would otherwise be
determined, the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that:
(i) adequate and reasonable means do not exist for
ascertaining such Euro-Rate, or
(ii) a contingency has occurred which materially and
adversely affects the London interbank market relating to the Euro-Rate, or
(b) if at any time any Bank shall have determined (which
determination shall be conclusive absent manifest error) that:
(i) the making, maintenance or funding of any Loan to which
a Euro-Rate Option applies has been made impracticable or unlawful by compliance
by such Bank in good faith with any Law or any interpretation or application
thereof by any Official Body or with any request or directive of any such
Official Body (whether or not have the force of Law), or
(ii) such Euro-Rate Option will not adequately and fairly
reflect the cost to such Bank of the establishment or maintenance of any such
Loan, or
44
<PAGE>
(iii) after making all reasonable efforts that deposits of
the relevant amount in Dollars for the relevant Interest Period for a Loan to
which a Euro-Rate Option applies, respectively, are not available to such Bank
with respect to a proposed Euro-Rate Loan in the London interbank market, in the
case of any event specified in subsection (a) above, then the Administrative
Agent shall promptly so notify the Banks and the Borrower thereof and in the
case of any event specified in subsection (b) above, such Bank shall promptly so
notify the Administrative Agent and endorse a certificate to such notice as to
the specific circumstances of such notice and the Administrative Agent shall
promptly send copies of such notice and certificate to the other Banks and the
Borrower. Upon such date as shall be specified in such notice (which shall not
be earlier than the date such notice is given) the obligation of (A) the Banks
in the case of such notice given by the Administrative Agent or (B) such Bank in
the case of such notice given by such Bank to allow the Borrower to select,
convert to or renew a Euro-Rate Option shall be suspended until the
Administrative Agent shall have later notified the Borrower or such Bank shall
have later notified the Administrative Agent, of the Administrative Agent's or
such Bank's, as the case may be, determination (which determination shall be
conclusive absent manifest error) that the circumstances giving rise to such
previous determination no longer exist. If at any time the Administrative Agent
makes a determination under subsection (a) or (b) of this Section 4.04 and the
Borrower has previously notified the Administrative Agent of its selection of,
conversion to or renewal of a Euro-Rate Option and such Interest Rate Option has
not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Base Rate Option otherwise
available with respect to such Loans. If any Bank notifies the Administrative
Agent of a determination under subsection (b) of this Section 4.04, the Borrower
shall, subject to the Borrower's indemnification obligations under Section
5.06(b), as to any Loan of the Bank to which a Euro-Rate Option applies, on the
date specified in such notice either convert such Loan to the Base Rate Option
otherwise available with respect to such Loan or prepay such Loan in accordance
with Section 5.04 hereof. Absent due notice from the Borrower of conversion or
prepayment such Loan shall automatically be converted to the Base Rate Option
otherwise available with respect to such Loan upon such specified date.
4.05 Selection of Interest Rate Options. If the Borrower fails to
----------------------------------
select a new Interest Period to apply to any Borrowing Tranche of Loans under
the Euro-Rate Option at the expiration of an existing Interest Period applicable
to such Borrowing Tranche in accordance with the provisions of Section 4.02, the
Borrower shall be deemed to have converted such Loan or portion thereof to the
Base Rate Option otherwise available with respect to such Loans, commencing upon
the last day of the existing Interest Period. If an Event of Default shall
occur and be continuing, the Administrative Agent may in its discretion limit
the Borrower to the Base Rate Option hereunder.
ARTICLE V
PAYMENTS
--------
5.01 Payments. All payments and prepayments to be made in respect of
--------
principal, interest, Commitment Fees, Closing Fee, Letter of Credit Fees,
Administrative Agent's Fee or other fees or amounts due from the Borrower
hereunder shall be payable prior to 11:00
45
<PAGE>
A.M. (Pittsburgh time) on the date when due without presentment, demand, protest
or notice of any kind, all of which are hereby expressly waived by the Borrower,
and without setoff, counterclaim or other deduction of any nature, and an action
therefor shall immediately accrue. Such payments shall be made to the
Administrative Agent at the Principal Office for the ratable accounts of the
Banks with respect to the Loans in U.S. Dollars and in immediately available
funds, and the Administrative Agent shall promptly distribute such amounts to
the Banks in immediately available funds, provided that in the event payments
are received by 11:00 A.M. (Pittsburgh time) by the Administrative Agent with
respect to the Loans and such payments are not distributed to the Banks on the
same day received by the Administrative Agent, the Administrative Agent shall
pay the Banks the Federal Funds Effective Rate with respect to the amount of
such payments for each day held by the Administrative Agent and not distributed
to the Banks. The Administrative Agent's and each Bank's statement of account,
ledger or other relevant record shall, in the absence of manifest error, be
conclusive as the statement of the amount of principal of and interest on the
Loans and other amounts owing under this Agreement and shall be deemed an
"account stated."
5.02 Pro Rata Treatment of Banks. Each borrowing, and each selection
---------------------------
of, conversion to or renewal of any Interest Rate Option and each payment or
prepayment by the Borrower with respect to principal, interest, Commitment Fees,
Closing Fee, Letter of Credit Fees, or other fees or amounts due from the
Borrower hereunder to the Banks with respect to the Loans, shall (except as
provided in Section 4.04(b) [Euro-Rate Unascertainable], 5.04(b) [Voluntary
Prepayments] or 5.06(a) [Additional Compensation in Certain Circumstances]
hereof) be made in proportion to the Loans outstanding from each Bank and if no
such Loans are then outstanding, in proportion to the Ratable Share of each
Bank.
5.03 Interest Payment Dates. Interest on Loans to which the Base
----------------------
Rate Option applies shall be due and payable in arrears on the first Business
Day of each April, July, October and January after the date hereof and on the
Expiration Date or upon acceleration of the Notes. Interest on Loans to which a
Euro-Rate Option applies shall be due and payable on the last day of each
Interest Period for those Loans, and if any such Interest Period is longer than
three months, also on the last day of every third month during such period.
5.04 Voluntary Prepayments.
---------------------
(a) The Borrower shall have the right at its option from time to
time to prepay the Loans in whole or part without premium or penalty (except as
provided in subsection (b) below or in Section 5.06 hereof):
(i) at any time with respect to any Loan to which the
Base Rate Option applies,
(ii) on the last day of the applicable Interest Period with
respect to Loans to which a Euro-Rate Option applies,
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<PAGE>
(iii) on the date specified in a notice by any Bank
pursuant to Section 4.04(b) [Euro-Rate Unascertainable] hereof with respect to
any Loan to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the Loans, it
shall provide a prepayment notice to the Administrative Agent at least one (1)
Business Day prior to the date of prepayment of Loans setting forth the
following information:
(y) the date, which shall be a Business Day, on
which the proposed prepayment is to be made; and
(z) the total principal amount of such prepayment,
which shall not be less than $5,000,000.
All prepayment notices shall be irrevocable. The principal amount of
the Loans for which a prepayment notice is given, together with interest on such
principal amount except with respect to Loans to which the Base Rate Option
applies, shall be due and payable on the date specified in such prepayment
notice as the date on which the proposed prepayment is to be made. Except as
provided in Section 4.04(b), if the Borrower prepays a Loan but fails to specify
the applicable Borrowing Tranche which the Borrower is prepaying, the prepayment
shall be applied first to Loans to which the Base Rate Option applies, and then
to Loans to which the Euro-Rate Option applies. Any prepayment hereunder shall
be subject to the Borrower's obligation to indemnify the Banks under Section
5.06(b).
(b) In the event any Bank gives notice under Section 4.04(b)
[Euro-Rate Unascertainable] or Section 5.06(a) [Additional Compensation in
Certain Circumstances] hereof, the Borrower shall have the right, with the
consent of the Administrative Agent, which shall not be unreasonably withheld,
to: (y) prepay the Loans of such Bank, in whole together with all interest
accrued thereon and thereby permanently and irrevocably terminate the Commitment
of such Bank, or (z) replace such Bank, so long as, in the case of (y) or (z),
such replacement or prepayment occurs within ninety (90) days after receipt of
such Bank's notice under Section 4.04(b) or 5.06(a), provided the Borrower shall
also pay to such Bank in the case of either the foregoing (y) or (z) at the time
of such prepayment or replacement any amounts required under Section 5.06 and
accrued Commitment Fees due on such amount and all other costs, fees and any
amounts due to such Bank being prepaid or replaced.
5.05 Mandatory Prepayments.
---------------------
(a) Sale of Assets. Subject to the final sentence of this
--------------
paragraph, within five (5) Business Days of either any dissolution or winding up
in a transaction or series of related transactions authorized by Section
8.02(f)(ii) or of any sale of assets or related sales of assets authorized by
Section 8.02(g) hereof with Net Sale Proceeds in excess of $1,000,000 (in either
case a "Qualifying Asset Sale"), the Borrower shall make a mandatory prepayment
of principal on the Revolving Credit Loans, together with accrued interest
thereon plus any amounts required under Section 5.06. At such time as the
aggregate Net Sale Proceeds from all Qualifying Asset Sales pursuant to Section
8.02(f)(ii) or Section 8.02(g) exceed $15,000,000 during the period
47
<PAGE>
from and after the Eighteenth Amendment Effective Date through and including the
date of determination, then any Net Sale Proceeds from Qualifying Asset Sales in
excess of such amount shall be used 50% to repay the outstanding Loans and 50%
to repay outstanding Indebtedness under the Term Loan Agreement. In addition to
the foregoing mandatory prepayment provisions, in the event that any sale of
assets will result in the Borrower or any Subsidiary receiving "Net Cash
Proceeds" which would otherwise become "Excess Proceeds" (as each of those terms
are defined in the Indenture), then at least sixty (60) days prior to the date
any Net Cash Proceeds would become Excess Proceeds under the Indenture, the
Borrower shall give written notice to the Administrative Agent thereof setting
forth the amount of Net Cash Proceeds at issue. After payment in full of the
Term Loans, upon the direction of the Administrative Agent with the consent of
the Required Banks, the Borrower shall make a permanent payment of principal on
the Revolving Credit Loans in the amount of said Net Cash Proceeds, and the
Revolving Credit Commitment of each Bank shall be reduced by its Ratable Share
of the principal payment made to such Bank from the Net Cash Proceeds. To the
extent the aggregate principal amount of Loans then outstanding which bear
interest at the Base Rate Option is less than the principal amount required to
be prepaid, the Borrower may elect to defer the prepayment until the next
Interest Payment Date on its Loans that bear interest at a Euro-Rate Option, by
giving written notice to the Administrative Agent of such election not later
than four (4) Business Days after the asset disposition in question, whereupon
the due date of such prepayment shall automatically be changed to such Interest
Payment Date; provided, however, that Net Cash Proceeds shall, notwithstanding
the foregoing, be required to make the prepayment specified in the prior
sentence at least five days prior to the date such Net Cash Proceeds would
become Excess Proceeds under the Indenture.
(b) Application Among Interest Rate Options. All prepayments
---------------------------------------
required pursuant to Section 5.05 shall first be applied among the Interest Rate
Options to the principal amount of the Loans subject to a Base Rate Option, then
to Loans subject to Euro-Rate Option. In accordance with Section 5.06(b), the
Borrower shall indemnify the Banks for any loss or expense including loss of
margin incurred with respect to any such prepayments applied against Loans
subject to a Euro-Rate Option on any day other than the last day of the
applicable Interest Period.
5.06 Additional Compensation in Certain Circumstances.
------------------------------------------------
(a) Increased Costs or Reduced Return Resulting From Taxes,
-------------------------------------------------------
Reserves, Capital Adequacy Requirements, Expenses, Etc. If any Law, guideline or
- -------------------------------------------------------
interpretation or any change in any Law, guideline or interpretation or
application thereof by any Official Body charged with the interpretation or
administration thereof or compliance with any request or directive (whether or
not having the force of Law) of any central bank or other Official Body:
(i) subjects any Bank to any tax or changes the basis of
taxation with respect to this Agreement, the Notes, the Loans or payments by the
Borrower of principal, interest, Commitment Fees, or other amounts due from the
Borrower hereunder or under the Notes (except for taxes on the overall net
income of such Bank),
48
<PAGE>
(ii) imposes, modifies or deems applicable any reserve,
special deposit or similar requirement against credits or commitments to extend
credit extended by, or assets (funded or contingent) of, deposits with or for
the account of, or other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable any capital
adequacy or similar requirement (A) against assets (funded or contingent) of, or
letters of credit, other credits or commitments to extend credit extended by,
any Bank, or (B) otherwise applicable to the obligations of any Bank under this
Agreement,
and the result under any of the foregoing clauses (i), (ii) or (iii) is to
increase the cost to, reduce the income receivable by, or impose any expense
(including loss of margin) upon any Bank with respect to this Agreement, the
Notes or the making, maintenance or funding of any part of the Loans (or, in the
case of any capital adequacy or similar requirement, to have the effect of
reducing the rate of return on any Bank's capital, taking into consideration
such Bank's customary policies with respect to capital adequacy) by an amount
which such Bank in its sole discretion deems to be material, such Bank shall
from time to time notify the Borrower and the Administrative Agent of the amount
determined in good faith (using any averaging and attribution methods employed
in good faith) by such Bank (which determination shall be conclusive absent
manifest error) to be necessary to compensate such Bank for such increase in
cost, reduction of income or additional expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount shall be due
and payable by the Borrower to such Bank ten (10) Business Days after such
notice is given.
(b) Indemnity. In addition to the compensation required by
---------
subsection (a) of this Section 5.06, the Borrower shall indemnify each Bank
against all liabilities, losses or expenses (including loss of margin, any loss
or expense incurred in liquidating or employing deposits from third parties and
any loss or expense incurred in connection with funds acquired by a Bank to fund
or maintain Loans subject to the Euro-Rate Option) which such Bank sustains or
incurs as a consequence of any:
(i) payment, prepayment, conversion or renewal of any Loan
to which the Euro-Rate Option applies on a day other than the last day of the
corresponding Euro-Rate Interest Period (whether or not such payment or
prepayment is mandatory, voluntary or automatic and whether or not such payment
or prepayment is then due),
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any notice relating to Loan
Requests under Section 2.05 or Section 4.02 or prepayments under Section 5.04,
or reductions of Revolving Credit Commitments under Section 2.10, or
(iii) Event of Default by the Borrower in the performance or
observance of any covenant or condition contained in this Agreement or any other
Loan Document, including without limitation any failure of the Borrower to pay
when due (by acceleration or otherwise) any principal, interest, Commitment Fee
or any other amount due hereunder.
49
<PAGE>
If any Bank sustains or incurs any such loss or expense it shall from
time to time notify the Borrower of the amount determined in good faith by such
Bank (which determination shall be conclusive absent manifest error and may
include such assumptions, allocations of costs and expenses and averaging or
attribution methods as such Bank shall deem reasonable) to be necessary to
indemnify such Bank for such loss or expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such indemnification may
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed, converted
or continued, for the period from the date of such prepayment or of such failure
to borrow, convert or continue to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or continue, the Interest
Period that would have commenced on the date of such failure) in each case at
the applicable rate of interest for such Loans, subject to the Euro-Rate Option
provided for herein (excluding, however, the Applicable Percentage Over Euro-
Rate included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Bank) which would have accrued to such Bank on such amount by
placing such amount on deposit for a comparable period with leading banks in the
interbank Eurodollar market. This covenant shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
6.01 Representations and Warranties. The Borrower represents and
------------------------------
warrants to the Agents and each of the Banks as follows:
(a) Organization and Qualification. The Borrower, each
------------------------------
Restricted Subsidiary of the Borrower and each Excluded Entity in which a
Restricted Investment has been made are duly organized, validly existing and in
good standing under the laws of their respective jurisdiction of organization;
the Borrower, each Restricted Subsidiary of the Borrower and each Excluded
Entity in which a Restricted Investment has been made have the power to own or
lease their properties and to engage in the business they presently conduct or
propose to conduct; and the Borrower and each Subsidiary of the Borrower are
duly qualified as a foreign corporation, limited liability company or
partnership and in good standing in each jurisdiction listed on Schedule 6.01(a)
----------------
hereto and in all other jurisdictions where the property owned or leased by them
or the nature of the business transacted by them or both makes such
qualification necessary, except where the failure to so qualify would not have a
material adverse effect on the Borrower or any Subsidiary.
(b) [Intentionally Omitted].
---------------------
(c) Excluded Entities; Subsidiaries. Schedule 6.01(c) attached
------------------------------- ----------------
hereto states (i) the name of each of the Borrower's Restricted Subsidiaries and
each Excluded Entity in which a Restricted Investment has been made, (ii) in the
case of each Corporate Subsidiary or Excluded Entity which is a corporation, its
jurisdiction of incorporation, its authorized capital stock, the issued and
outstanding shares (referred to herein as the "Corporate Shares") and the
50
<PAGE>
owners thereof, (iii) in the case of each Partnership Subsidiary or Excluded
Entity which is a partnership, the jurisdiction in which it is organized, the
type of organization (limited or general partnership) and the owners of its
partnership interests (the "Partnership Interests"), and (iv) in the case of
each Subsidiary or Excluded Entity which is a limited liability company, the
jurisdiction in which it is organized, its authorized member interests, the
issued and outstanding member interests (the "Member Interests") and the owners
thereof. The Borrower and each Subsidiary have good and valid title to all of
the Corporate Shares, Partnership Interests or Member Interests they purport to
own, free and clear in each case of any Lien other than under the Loan
Documents. All Corporate Shares, Partnership Interests and Member Interests have
been validly issued. All Corporate Shares are fully paid and nonassessable.
There are no options, warrants or other rights outstanding to purchase any
Member Interests, Corporate Shares or Partnership Interests except as indicated
on Schedule 6.01(c).
----------------
(d) Power and Authority. Each Loan Party has full power to enter
-------------------
into, execute, delivery and carry out this Agreement, the other Loan Documents
to which it is a party, to incur the Indebtedness contemplated by the Loan
Documents and to perform its obligations under the Loan Documents to which it is
a party and all such actions have been duly authorized by all necessary
proceedings on its part.
(e) Validity and Binding Effect. This Agreement has been duly
---------------------------
executed and delivered by each Loan Party that is a party hereto, and each other
Loan Document, when duly executed and delivered by each Loan Party which is a
party thereto, will have been duly executed and delivered by such Loan Party.
This Agreement and each other Loan Document delivered by the Loan Parties
pursuant to the provisions hereof will constitute legal, valid and binding
obligations of the Loan Parties thereto, enforceable against such Loan Party in
accordance with their respective terms, except to the extent that (i)
enforceability of any of the foregoing Loan Documents may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or limiting the
right of specific performance or by general equitable principles and (ii) the
exercise by the Banks of their rights with respect to the Collateral would be
subject to the prior approval of health care regulatory authorities.
(f) No Conflict. Neither the execution and delivery of this
-----------
Agreement or the other Loan Documents by the Loan Parties nor the consummation
of the transactions herein or therein contemplated or compliance with the terms
and provisions hereof or thereof by them will conflict with, constitute a
default under or result in any breach of (i) the terms and conditions of the
certificate of incorporation, by-laws or other organizational documents of any
Loan Party or (ii) of any Law or of any material agreement or instrument or
order, writ, judgment, injunction or decree to which any Loan Party is a party
or by which it is bound or to which it is subject, or result in the creation of
enforcement of any Lien, charge or encumbrance whatsoever upon any property (now
or hereafter acquired) of any Loan Party (other than Liens granted under the
Loan Documents).
(g) Litigation. Except as previously disclosed to the
----------
Administrative Agent in that certain letter dated January 2, 1996 by the
Borrower, there are no actions, suits,
51
<PAGE>
proceedings or investigations pending or, to the knowledge of the Borrower,
threatened against the Borrower or any Subsidiary of the Borrower at law or
equity before any Official Body which individually or in the aggregate would
constitute a Material Adverse Change. Neither the Borrower nor any Subsidiary of
the Borrower is in violation of any order, writ, injunction or any decree of any
Official Body which would constitute a Material Adverse Change.
(h) Title to Properties. The Borrower and each Subsidiary of the
-------------------
Borrower have good and marketable title to or valid leasehold interest in all
material properties, assets and other rights which they purport to own or lease
or which are reflected as owned or leased on their respective books and records,
free and clear of all Liens and encumbrances except Permitted Liens, and subject
to the term and conditions of the applicable leases. All material leases of real
property are in full force and effect without the necessity for any consent
which has not previously been obtained for the consummation of the transaction
contemplated hereby.
(i) Financial Statements.
--------------------
(i) Historical Statements.
---------------------
The Borrower has delivered to the Administrative Agent
copies of its audited consolidated year-end financial statements for and as of
the end of the fiscal years ended December 31, 1996, 1997 and the unaudited
consolidated statements for the fiscal quarters ending on March 31, 1998, June
30, 1998 and September 30, 1998 (collectively the "Historical Statements"). The
Historical Statements were compiled from the books and records maintained by the
Borrower's management, fairly present the consolidated financial condition of
the Loan Parties (which were Loan Parties as of the date of the respective
Historical Statements) as of their dates and the results of operations for the
fiscal periods then ended and have been prepared in accordance with GAAP
consistently applied, subject (in the case of the interim statements) to normal
year-end audit adjustments.
(ii) Accuracy of Financial Statements. Neither the Borrower
--------------------------------
nor any Subsidiary of Borrower has any liabilities, contingent or otherwise, or
material forward or long-term commitments that are not disclosed in the
Historical Statements or in the notes thereto or that are required to be
disclosed under GAAP, and except as disclosed therein there are no unrealized or
anticipated losses from any commitments of the Borrower or any Subsidiary which
may cause a Material Adverse Change. Since December 31, 1997, no Material
Adverse Change has occurred; provided, however, that with the written approval
of the Required Banks, express disclosures to the Banks by the Borrower in the
reports provided by the Borrower to the Banks, pursuant to Section 8.03 hereof,
shall be deemed to be an update and an exception to the representation made in
the foregoing portion of this sentence.
(iii) Projections. The Borrower has delivered to the
-----------
Administrative Agent financial projections of the Borrower and its Subsidiaries
prepared on a combined pro-forma basis for the two fiscal years ending September
30, 1998 and September 30, 1999 and for the fiscal quarter of October 1 through
December 31, 1999 (the "Financial Projections") derived from various assumptions
of the Borrower's management. The Financial Projections represent a reasonable
range of possible results in light of the history of the business,
52
<PAGE>
present and foreseeable conditions and the intentions of the management of the
Borrower. The Financial Projections accurately reflect the liabilities of the
Borrower and its Subsidiaries upon consummation of the transactions contemplated
hereby as of the Eighteenth Amendment Effective Date.
(j) Margin Stock. Neither the Borrower nor any Subsidiary
------------
engages or intends to engage principally, or as one of its important activities,
in the business of extending credit for the purpose, immediately, incidentally
or ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Loan has been or will be used,
immediately, incidentally or ultimately, to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock or to refund Indebtedness originally incurred for such purpose, or
for any purpose which entails a violation of or which is inconsistent with the
provisions of the regulations of the Board of Governors of the Federal Reserve
System.
(k) Full Disclosure. Neither this Agreement nor any other Loan
---------------
Document contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which they were made, not
misleading considered as a whole; provided that any information provided after
the date hereof shall be deemed to supersede any prior inconsistent information.
There is no fact known to the Borrower or any Subsidiary which materially
adversely affects the business, property, assets, financial condition, results
of operations or prospects of the Borrower or any Material Subsidiary, which:
(i) prior to or at the date hereof, has not been set forth in the Agreement or
in the certificates, statements, agreements or other documents furnished in
writing to the Administrative Agent and the Banks in connection with the
transactions contemplated hereby or in the Borrower's public filings with the
Securities and Exchange Commission, or (ii) following the date hereof and with
the written approval of the Required Banks, has not been set forth in other
documents furnished in writing to the Administrative Agent and the Banks.
(l) Taxes. All material federal, state, local and other tax
-----
returns required to have been filed with respect to the Borrower or any
Subsidiary have been filed and payment or adequate provision has been made for
the payment of all taxes, fees, assessments and other governmental charges which
have or may become due pursuant to said returns or to assessments received
except to the extent that such taxes, fees, assessments and other charges are
being contested in good faith by appropriate proceedings diligently conducted
and for which such reserves or other appropriate provisions, if any, as shall be
required by GAAP shall have been made. As of the date hereof, there are no
agreements or waivers extending the statutory period of limitations applicable
to any federal income tax return of the Borrower or any Subsidiary for any
period.
(m) Consents and Approvals. Except as may be disclosed by the
----------------------
Borrower to the Administrative Agent pursuant to Section 8.01(p),no consent,
approval, exemption, order or authorization of, or a registration or filing with
any Official Body or any other person is required by any Law or any agreement in
connection with the execution, delivery
53
<PAGE>
and carrying out of this Agreement, or the other Loan Documents by any Loan
Party, all of which have been obtained or made; provided, however, that it is
acknowledged that consent of health care regulatory authorities issuing any
licenses or regulating any health care facilities may be required if the
Administrative Agent on behalf of the Banks exercises the rights and remedies in
respect of the Pledged Collateral and such exercise of remedies results in or
constitutes an assignment of any health care license issued by a health care
regulatory authority or constitutes a change of control with respect to the
ownership of a health care facility.
(n) Compliance With Instruments. Neither the Borrower nor any
---------------------------
Subsidiary is in violation of (i) any term of its certificate of incorporation,
by-laws, or other organizational documents or (ii) any material agreement or
instrument to which it is a party or by which it or any of its properties may be
subject or bound where such violation would constitute a Material Adverse
Change.
(o) Patents, Trademarks, Copyrights, Etc. The Borrower and each
------------------------------------
Subsidiary owns or possesses all the material patents, trademarks, service
marks, trade names, copyrights and other intellectual property rights necessary
to own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by the Borrower and each Subsidiary,
without known conflict with the rights of others.
(p) Security Interests in the Collateral. The Liens and security
------------------------------------
interests granted to the Collateral Agent (or, the Agent, in the case of the
Mortgages and Leasehold Mortgages filed prior to the Eighteenth Amendment
Effective Date, as the case may be) for the benefit of the Banks pursuant to the
Pledge Agreements, the Patent, Trademark and Copyright Security Agreement, the
Security Agreement, the First Mortgages, the Mortgages and Leasehold Mortgages
in the UCC Collateral constitute, and will continue to constitute, Prior
Security Interests under the Uniform Commercial Code as in effect in each
applicable jurisdiction (the "Uniform Commercial Code") or valid first priority
Liens under other applicable Law entitled to all the rights, benefits and
priorities provided by the Uniform Commercial Code or such Law to the fullest
extent permitted by applicable law, except that the security interests in the
Collateral under the Mortgages and Leasehold Mortgages may be subordinated to
the security interests granted to certain of the Lessor Lenders or Owned
Facility Lenders, as indicated on Schedule 6.01(aa) and, except in the case of
the Collateral other than Pledged Collateral, subject to Permitted Liens. Upon
the filing of financing statements relating to said security interests in each
office and in each jurisdiction where required in order to perfect the security
interests described above, recordation of the Patent, Trademark and Copyright
Security Agreement in the United States Patent and Trademark Office (and, to the
extent of any Collateral consisting of copyrights, in the United States
Copyright Office), and taking possession of the stock certificates or
certificates of ownership of member interests in a limited liability company, as
the case may be, evidencing the Pledged Collateral which constitutes stock of a
corporation or certificated member interests of a limited liability company, as
the case may be, all such action as is necessary or advisable to establish such
rights of the Collateral Agent (or, the Agent, in the case of the Mortgages and
Leasehold Mortgages filed prior to the Eighteenth Amendment Effective Date, as
the case may be) will have been taken, and there will be upon execution and
delivery of the Patent, Trademark and Copyright Security Agreement, the Security
Agreement, the First
54
<PAGE>
Mortgages, the Pledge Agreements, Mortgages and Leasehold Mortgages, such
filings, and such taking of possession no necessity for any further action in
order to preserve, protect and continue such rights, except for maintaining
possession of such certificates and filing continuation statements with respect
to such financing statements within six (6) months prior to each five-year
anniversary of the filing of such financing statements. Any expenses in
connection with each such action have been or will be paid by the Borrower. It
is acknowledged that the exercise by the Banks of their rights and remedies in
respect of the Pledged Collateral which would result in or constitute any
assignment of any license issued by a health care regulatory authority or any
change of control with respect to a health care facility may be subject to the
prior approval of such health care regulatory authorities.
(q) First Mortgage Liens. The Liens granted to the Collateral
--------------------
Agent for the benefit of the Banks pursuant to the First Mortgages constitute a
valid first priority Lien under applicable law, subject only to Permitted Liens.
All such action as will be necessary or advisable to establish such Lien of the
Collateral Agent and its priority as described in the preceding sentence will be
taken at or prior to the time required for such purpose, and there will be as of
the date of execution and delivery of the First Mortgages not necessity for any
further action in order to protect, preserve and continue such Lien and such
priority.
(r) Status of the Pledged Collateral. All the shares of capital
---------------------------------
stock, partnership interests, or member interests in a limited liability
company, as the case may be, included in the Pledged Collateral to be pledged
pursuant to the Pledge Agreements are or will be upon issuance duly authorized
and validly issued. All shares of capital stock included in the Pledged
Collateral are or will be upon issuance fully paid and nonassessable. All of the
Pledged Collateral is owned beneficially and of record by the pledgor free and
clear of any Lien or restriction on transfer, except as otherwise provided in
the Pledge Agreements and except as the right of the Collateral Agent and the
Banks to dispose of the Pledged Collateral may be limited by the Securities Act
of 1933, as amended, and the regulations promulgated by the Securities and
Exchange Commission thereunder and by applicable state securities laws. Except
as otherwise disclosed to the Banks, in writing, there are no shareholder or
other agreements or understandings with respect to the Pledged Collateral.
(s) Insurance. The insurance policies and bonds to which the
---------
Borrower or any Subsidiary is a party provide adequate coverage from reputable
and financially sound insurers in amounts sufficient to insure the assets and
risks of the Borrower and its Subsidiaries in accordance with prudent business
practice in the industry of the Borrower and its Subsidiaries, including self-
insurance to the extent customary, and such policies and bonds are valid and in
full force and effect.
(t) Compliance with Laws. The Borrower and its Subsidiaries are
--------------------
in compliance in all material respects with all applicable Laws (other than
Environmental Laws which are specifically addressed in subsection (y)) in all
jurisdictions in which the Borrower or any Subsidiary is presently or will be
doing business except where the failure to do so would not constitute a Material
Adverse Change.
55
<PAGE>
(u) Material Contracts, Licenses, Permits and Approvals.
---------------------------------------------------
(A) As of the date hereof, Schedule 6.01(u) hereto
----------------
lists the following contracts relating to the business operations of the
Borrower and its Subsidiaries: (i) all employee benefit plans, employment
agreements where the compensation paid by the Borrower or any Subsidiary exceeds
$250,000 in any fiscal year, collective bargaining agreements and labor
contracts (the "Labor Contracts"), (ii) all written provider or similar
agreements (the "Provider Agreements") pursuant to which the Borrower and its
Subsidiaries have received or may claim any entitlement to receive reimbursement
from or as a result of (1) Medicaid, Medicare or Blue Cross programs, or (2) any
other public or private reimbursement programs where the payments received by
the Borrower or any Subsidiary exceeded or are expected to exceed $6,000,000 in
the current fiscal year, (iii) all leases of real property where the payments
made by the Borrower or any Subsidiary in the current fiscal year exceed or are
expected to exceed $250,000, (iv) any contract or series of contracts with the
same person for the furnishing or purchase of machinery, equipment, goods or
services, where the payments made by the Borrower or any Subsidiary exceeded or
are expected to exceed $1,000,000 in the aggregate in the current fiscal year;
(v) all management contracts pursuant to which the Borrower or a Subsidiary
provides management services to any other person where the payments received or
expected to be received by the Borrower or any Subsidiary exceed $500,000 in the
current fiscal year; and (vi) all other material contracts filed as exhibits to
any report filed by the Borrower with the SEC during the past twelve months. All
contracts listed on Schedule 6.01(u) and any Provider Agreements which provide
----------------
for annual payments in excess of $6,000,000 which are not listed on Schedule
--------
6.01(u) are valid, binding and enforceable upon the Borrower or its
- -------
Subsidiaries, as the case may be, and, to the best knowledge of the Borrower,
each of the other parties thereto in accordance with their respective terms and
there is no default thereunder, to the knowledge of the Borrower and of its
Subsidiaries, with respect to parties other than the Borrower or any of its
Subsidiaries. There are no patient care agreements with patients or any other
person or organization which deviate in such a material respect from the
standard patient care forms used by the Borrower or any of its Subsidiaries as
to constitute a Material Adverse Change.
(B) Except as set forth on Schedule 6.01(u), the
----------------
Borrower and each of its Subsidiaries has all material accreditations,
authorizations, approvals, certificates of need, consents, licenses, permits and
qualifications (collectively, "Approvals") required (i) for them to construct,
acquire, own, manage, lease and/or operate their facilities and services, (ii)
for them to receive payment and reimbursement from any patient or third party
payor, to the extent in the case of (i) and (ii) such Approvals are presently
required. The Borrower and each of its Subsidiaries have all other material
Approvals required for the lawful operation of their businesses. All material
Approvals of the Borrower and each of its Subsidiaries are in full force and
effect and have not been amended or otherwise modified (except for modifications
which would not have a material adverse effect upon the Borrower or any
Subsidiary) rescinded, revoked or assigned, and no notice has been received of
any violation of applicable Laws or any refusal to renew any Approval which
could reasonably be expected to cause any of such Approvals to be modified,
rescinded or revoked (except for modifications, rescissions or revocations which
would not have a material adverse effect upon the Borrower and
56
<PAGE>
its Subsidiaries taken as a whole). The continuation, validity and effectiveness
of all such Approvals will be in no way be adversely affected by the
transactions contemplated by this Agreement. Neither the Borrower nor any of its
Subsidiaries knows of any reason why any of them will not be able to maintain
all material Approvals necessary or appropriate to construct, own, lease, manage
and operate all of their facilities and to otherwise conduct their businesses as
now conducted and presently proposed to be conducted. There are no deficiencies
to the conditions for participation by the Borrower or any Subsidiary in any
Medicare, Medicaid or other reimbursement programs which would preclude such
participation.
(v) Investment Companies; Public Utility Holding Company. The
----------------------------------------------------
Borrower is not an "investment company" registered or required to be registered
under the Investment Company Act of 1940 or under the "control" of an
"investment company" as such terms are defined in the Investment Company Act of
1940 and shall not become such an "investment company" or under such "control."
The Borrower is not a "holding company" nor a "subsidiary" or "affiliate" of any
Person that is a "holding company" as those terms are defined in the Public
Utility Holding Company Act of 1935.
(w) Plans and Benefit Arrangements.
------------------------------
(i) The Borrower and each member of the ERISA Group are in
compliance in all material respects with any applicable provisions of ERISA with
respect to all Benefit Arrangements, Plans and Multiemployer Plans. There has
been no Prohibited Transaction with respect to any Benefit Arrangement or any
Plan or, to the best knowledge of the Borrower, with respect to any
Multiemployer Plan or Multiple Employer Plan, which could result in any material
liability of the Borrower or any other member of the ERISA Group. The Borrower
and all members of the ERISA Group have made when due any and all payments
required to be made under any agreement relating to a Multiemployer Plan or a
Multiple Employer Plan or any law pertaining thereto. With respect to each Plan
and Multiemployer Plan, the Borrower and each member of the ERISA Group (i) have
fulfilled in all material respects their obligations under the minimum funding
standards of ERISA, (ii) have not incurred any liability to the PBGC and (iii)
have not had asserted against them any penalty for failure to fulfill the
minimum funding requirements of ERISA.
(ii) To the best of the Borrower's knowledge, each
Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder
when due.
(iii) Neither the Borrower nor any other member of the
ERISA Group has instituted or intends to institute proceedings to terminate any
Plan.
(iv) No event requiring notice to the PBGC under Section
302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with
respect to any Plan, and no amendment with respect to which security is required
under Section 307 of ERISA has been made or is reasonably expected to be made to
any Plan.
(v) The aggregate actuarial present value of all benefit
liabilities (whether or not vested) under each Plan, determined on a plan
termination basis, as
57
<PAGE>
disclosed in, and as of the date of, the most recent actuarial report for such
Plan, does not exceed the aggregate fair market value of the assets of such Plan
by an amount in excess of $250,000.
(vi) Neither the Borrower nor any other member of the ERISA
Group has incurred or reasonably expects to incur any material withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer Plan.
Neither the Borrower nor any other member of the ERISA Group has been notified
by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan
or Multiple Employer Plan has been terminated within the meaning of Title IV of
ERISA and, to the best knowledge of the Borrower, no Multiemployer Plan or
Multiple Employer Plan is reasonably expected to be reorganized or terminated,
within the meaning of Title IV of ERISA.
(vii) To the extent that any Benefit Arrangement is
insured, the Borrower and all members of the ERISA Group have paid when due all
premiums required to be paid for all periods. To the extent that any Benefit
Arrangement is funded other than with insurance, the Borrower and all members of
the ERISA Group have made when due all contributions required to be paid for all
periods.
(x) Employment Matters. The Borrower and each of its
------------------
Subsidiaries are in compliance with the Labor Contracts and all applicable
federal, state and local labor and employment Laws including, but not limited
to, those related to equal employment opportunity and affirmative action, labor
relations, minimum wage, overtime, child labor, medical insurance continuation,
worker adjustment and relocation notices, immigration controls and worker and
unemployment compensation, where the failure to comply would constitute a
Material Adverse Change. There are no outstanding grievances, arbitration awards
or appeals therefrom arising out of the Labor Contracts or current or threatened
strikes, picketing, handbilling or other work stoppages or slowdowns at
facilities of the Borrower or any of its Subsidiaries which in any case would
constitute a Material Adverse Change. The Borrower has delivered to the
Administrative Agent true and correct copies of each of the Labor Contracts in
effect as of the date hereof.
(y) Environmental Matters. Except as disclosed on Schedule
--------------------- --------
6.01(y) hereto and except for matters which would not exceed $5,000,000 in the
- -------
aggregate:
(i) Neither Borrower nor any of its Subsidiaries has
received any Environmental Complaint, whether directed or issued to Borrower or
any of its Subsidiaries or relating or pertaining to any prior owner, operator
or occupant of the Property.
(ii) To the knowledge of Borrower and each of its
Subsidiaries, no activity of the Borrower or any of its Subsidiaries at the
Property is being or has been conducted in violation of any Environmental Law or
Required Environmental Permit and to the knowledge of Borrower and each of its
Subsidiaries no activity of any prior owner, operator or occupant of the
Property was conducted in violation of any Environmental Law.
(iii) To the knowledge of Borrower and each of its
Subsidiaries, there are no Regulated Substances present on, in, under or
emanating from, or emanating to, the Property or any portion thereof which
result in Contamination.
58
<PAGE>
(iv) To the knowledge of Borrower and each of its
Subsidiaries, Borrower and each of its Subsidiaries have all Required
Environmental Permits and all such Required Environmental Permits are in full
force and effect.
(v) To the knowledge of Borrower and each of its
Subsidiaries, Borrower and each of its Subsidiaries have submitted all Required
Environmental Notices which they are required to submit to an Official Body and
Borrower and each of its Subsidiaries maintain all Required Environmental
Notices which they are required to maintain.
(vi) To the knowledge of Borrower and each of its
Subsidiaries, no structures, improvements, equipment, fixtures, impoundments,
pits, lagoons or aboveground or underground storage tanks located on the
Property contain or use, except in compliance with Environmental Law and
Required Environmental Permits, Regulated Substances or otherwise are operated
or maintained except in compliance with Environmental Law and Required
Environmental Permits. To the knowledge of Borrower and each of its
Subsidiaries, no structures improvements, equipment, fixtures, impoundments,
pits, lagoons or aboveground or underground storage tanks of prior owners,
operators or occupants of the Property contained or used, except in compliance
with Environmental Law, Regulated Substances or otherwise were operated or
maintained by any such prior owner, operator or occupant except in compliance
with Environmental Law.
(vii) To the knowledge of Borrower and each of its
Subsidiaries, no facility or site to which Borrower or any of its Subsidiaries,
either directly or indirectly by a third party, has sent Regulated Substances
for storage, treatment, disposal or other management has been or is being
operated in violation of Environmental Law or pursuant to Environmental Law is
identified or proposed to be identified on any list of contaminated properties
or other properties which pursuant to Environmental Law are the subject of an
investigation, cleanup, removal, remediation or other response action by an
Official Body.
(viii) To the knowledge of Borrower and each of its
Subsidiaries, no portion of the Property is identified or proposed to be
identified on any list of contaminated properties or other properties which
pursuant to Environmental Law are the subject of an investigation or remediation
action by an Official Body, nor to Borrower's or any of its Subsidiary's
knowledge is any property adjoining or in the proximity of the Property
identified or proposed to be identified on any such lists.
(ix) To the knowledge of Borrower and each of its
Subsidiaries, no portion of the Property constitutes an Environmentally
Sensitive Area.
(x) No lien or other encumbrance authorized by
Environmental Law exists against the Property and neither Borrower nor any of
its Subsidiaries has reason to believe that such a lien or encumbrance may be
imposed.
(xi) To the knowledge of Borrower and each of its
Subsidiaries, there has been no material change in the environmental condition
(including but not limited to the presence of Contamination or the presence of
Regulated Substances in violation of
59
<PAGE>
Environmental Law) of any Property as described in any Phase I Environmental
Site Assessment report or similar report regarding the environmental condition
of such Property or the Borrower's or its Subsidiaries' compliance with
Environmental Law a copy of which Borrower has provided to Agent, except for
such changes which would result in the improvement of the environmental
condition of any such Property or the Borrower's or its Subsidiaries compliance
with Environmental Law.
(z) Senior Debt Status. The obligations of the Borrower under
------------------
this Agreement and the Notes and the obligations of the Subsidiaries of Borrower
under the Guaranties do rank and will rank at least pari passu in priority of
---- -----
payment with all other Indebtedness of the Borrower or such Subsidiaries, as the
case may be, except Indebtedness of the Borrower or its Subsidiaries to the
extent secured by Permitted Liens. The obligations of the Borrower under this
Agreement and the Notes do not conflict with or violate the terms of the
Indenture and any Loans hereafter made to the Borrower will constitute
"Permitted Indebtedness" as such term is defined in the Indenture of the type
described in clause (i) of such definition and will also constitute "Designated
Senior Indebtedness" as such term is also defined in the Indenture. There is no
Lien upon or with respect to any of the properties or income of the Borrower or
any of its Subsidiaries which secures Indebtedness or other obligations of any
person except for Permitted Liens.
(aa) Matters Regarding Leased Facilities and Certain
-----------------------------------------------
Indebtedness of Subsidiaries.
- ----------------------------
(i) Indebtedness Related to Leased Facilities. Schedule
----------------------------------------- --------
6.01(aa) describes each Leased Facility and with respect thereto: (1) the
- --------
Subsidiary Lessee which is the lessee thereof; (2) the Lessor thereof; (3) the
amount of Lessor Indebtedness secured by any assets of such Leased Facility; (4)
the Lessor Lender which is the obligee under such Lessor Indebtedness; (5) any
assets of the Subsidiary Lessee leasing such Leased Facility which relate to
such facility in which such Subsidiary Lessee has granted Liens in favor of the
Lessor (it is acknowledged that the Lessor has assigned such Liens to the Lessor
Lender) or Lessor Lender and confirmation that such Liens are Permitted Leased
Facility Liens and Permitted Liens; (6) the original maturity date of such
Lessor Indebtedness, without giving effect to subsequent amendments unless
permitted by this Agreement; (7) whether a Facility Purchase Option has been
granted as part of an Intercreditor Agreement between the Administrative Agent
(or Collateral Agent, as the case may be) and the Lessor Lender with respect to
such Leased Facility; (8) whether the Lessor Lender and Lessor have consented to
the grant by the Subsidiary Lessee of a Leasehold Mortgage, in favor of the
Administrative Agent (or Collateral Agent, as the case may be)
for the benefit of the Banks and Liens on the assets of such Subsidiary Lessee
(such Liens to be second in priority to the Liens granted by such Subsidiary
Lessee to such Lessor Lender in such assets if such Subsidiary granted Liens in
such assets to such Lessor Lender) with respect to such Leased Facility; (9)
whether the applicable Lessor Lender has agreed to release its liens in the
assets of the applicable Subsidiary Lessee leasing such Leased Facility related
to such facility; (10) whether the applicable Lessor Lender has entered into a
Non-Disturbance Agreement; (11) whether the applicable Lessor Lender has entered
into an Intercreditor Agreement with the Administrative Agent (or Collateral
Agent, as the case may be);
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<PAGE>
and (12) whether the applicable Lessor Lender has entered into a Trustee
Agreement with the Administrative Agent.
(ii) Indebtedness Related to Subsidiary Owned Facilities.
---------------------------------------------------
Schedule 6.01(aa) describes each Owned Facility and with respect thereto: (1)
- -----------------
the Subsidiary Owner; (2) the amount of the Owned Facility Indebtedness, secured
by any assets of such Owned Facility; (3) the Owned Facility lender which is the
obligee under such Owned Facility Indebtedness; (4) the assets of the Subsidiary
Owner relating to such Owned Facility in which the Subsidiary Owner has granted
Liens in favor of such Owned Facility Lender and confirmation that such Liens
are Permitted Owned Facility Liens and Permitted Liens; (5) the original
maturity date of such Owned Facility Indebtedness, without giving effect to
subsequent amendments unless permitted by this Agreement; (6) whether a Facility
Purchase Option has been granted as part of an Intercreditor Agreement between
the Administrative Agent (or Collateral Agent, as the case may be) and the Owned
Facility Lender with respect to such Owned Facility; (7) whether the Owned
Facility Lender has consented to the grant by the Subsidiary Owner of a
Mortgage, in favor of the Administrative Agent (or Collateral Agent, as the case
may be) for the benefit of the Banks and Liens on the assets of such Subsidiary
Owner (such Liens to be second in priority to the Liens granted by such
Subsidiary Owner to such Owned Facility Lender in such assets if such Subsidiary
Owner granted Liens in such assets to such Owned Facility Lender) with respect
to such Owned Facility; and (8) whether the applicable Owned Facility Lender
entered into an Intercreditor Agreement with Administrative Agent (or Collateral
Agent, as the case may be).
(iii) Other matters regarding Owned and Leased Real
---------------------------------------------
Property. In addition to the Owned Facilities and the Leased Facilities,
- --------
Schedule 6.01(aa) sets forth a true and complete list of all other Property of
- -----------------
the Borrower and all other Property of each Subsidiary of the Borrower.
(bb) Mortgage and Leasehold Mortgage Liens. The Liens granted to
-------------------------------------
the Administrative Agent (or Collateral Agent, as the case may be) for the
benefit of the Banks pursuant to the Mortgages and the Leasehold Mortgages
constitute valid Liens under applicable law having priority over all other Liens
except that if otherwise permitted by this Agreement they may be subordinate to
Liens in favor of the Owned Facility Lenders and Lessor Lenders, as the case may
be, and Schedule 6.01(aa) indicates if such Liens are subordinated. All such
-----------------
action as will be necessary or advisable to establish such Liens of the
Administrative Agent (or Collateral Agent, as the case may be) and its priority
as described in the preceding sentence will be taken at or prior to the time
required for such purpose, and there will be as of the date of execution and
delivery of the Mortgages and Leasehold Mortgages no necessity for any further
action in order to protect, preserve and continue such Liens and such priority.
Notwithstanding any provision of this Agreement to the contrary, to the extent a
Loan Party is required to execute and deliver an Intercreditor Agreement,
Leasehold Mortgage or Mortgage, as required by this Agreement, on or after the
Eighteenth Amendment Effective Date, such agreement shall be entered into by
such Loan Party with the Collateral Agent for the ratable benefit of the Banks
and on a pari passu basis, the Term Loan Banks (in lieu of the Administrative
Agent for the benefit of the Banks) unless otherwise required by the
Administrative Agent.
61
<PAGE>
(cc) Affiliate Transactions. Schedule 6.01(cc) hereto sets forth
---------------------- -----------------
a true and complete list of all transactions between the Borrower or any
Subsidiary of the Borrower and MPN or any Affiliate of MPN.
(dd) Year 2000. The Borrower and its Subsidiaries have reviewed
---------
the areas within their business and operations which could be adversely affected
by, and have developed or are developing a program to address on a timely basis,
the risk that certain computer applications used by the Borrower or its
Subsidiaries (or any of their respective material suppliers, customers or
vendors) may be unable to recognize and perform properly date-sensitive
functions involving dates prior to and after December 31, 1999 (the "Year 2000
Problem"). The Year 2000 Problem will not result in any Material Adverse Change.
(ee) Solvency. The Borrower and each other Loan Party is
--------
Solvent. As of the Closing Date and after giving effect to the transactions
contemplated by the Loan Documents and the Term Loan Documents, including all
Loans made under the Loan Documents and the Term Loan Documents, the Liens
granted by the Borrower and each other Loan Party in connection therewith and
the payment of all fees related thereto, the Borrower and each other Loan Party
will be Solvent.
6.02 Updates to Schedules. Should any of the information or
--------------------
disclosures provided on any of the Schedules attached hereto (other than
Schedules relating solely to representations and warranties made solely as of
the date expressly specified therein, which representations and warranties shall
be true and correct as of such specified date) become outdated or incorrect in
any material respect, the Borrower shall promptly provide the Administrative
Agent in writing with such revisions or updates to such Schedule as may be
necessary or appropriate to update or correct the same; provided, however that
no Schedule shall be deemed to have been amended, modified or superseded by any
such correction or update that would disclose the occurrence of an event or
condition which constitutes a Potential Default or Event of Default, nor shall
any breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule be deemed to have been cured thereby, unless
and until the Required Banks, in their sole and absolute discretion, shall have
accepted in writing such revisions or updates to such Schedule.
ARTICLE VII
CONDITIONS OF LENDING
---------------------
The obligation of each Bank to make Revolving Credit Loans and of the
Administrative Agent to issue Letters of Credit hereunder is subject to the
performance by the Borrower of its obligations to be performed hereunder at or
prior to the making of any such Revolving Credit Loans or issuance of such
Letters of Credit and to the satisfaction of the following conditions:
7.01 Each Additional Revolving Credit Loan. At the time of making
-------------------------------------
any Revolving Credit Loans or issuing any Letters of Credit other than the
Revolving Credit Loan made on the Closing Date hereunder and after giving effect
to the proposed borrowings: the representations and warranties of the Borrower
contained in Article VI hereof shall be true on
62
<PAGE>
and as of the date of such additional Revolving Credit Loan with the same effect
as though such representations and warranties had been made on and as of such
date (except representations and warranties which expressly relate solely to an
earlier date or time, which representations and warranties shall be true and
correct on and as of the specific dates or times referred to therein) and the
Borrower shall have performed and complied with all covenants and conditions
hereof; no Event of Default or Potential Default shall have occurred and be
continuing or shall exist; the making of the Revolving Credit Loans or issuing
of such Letters of Credit shall not contravene any Law applicable to the
Borrower or any of the Banks; and the Borrower shall have delivered to the
Administrative Agent a duly executed and completed Loan Request.
ARTICLE VIII
COVENANTS
---------
8.01 Affirmative Covenants. The Borrower covenants and agrees that
---------------------
until payment in full of the Loans and interest thereon, satisfaction of all of
the Borrower's other obligations hereunder and termination of the Commitments,
the Borrower shall comply at all times with the following affirmative covenants:
(a) Preservation of Existence, Etc. The Borrower shall, and
------------------------------
shall cause each of its Subsidiaries to, maintain its corporate existence and
its qualification to do business as a foreign corporation and good standing in
each jurisdiction in which its ownership or lease of property or the nature of
its business makes such qualification necessary, except where the failure to be
so qualified or in such good standing would not constitute a Material Adverse
Change.
(b) Payment of Liabilities, Including Taxes, Etc. The Borrower
--------------------------------------------
shall, and shall cause each of its Subsidiaries to, duly pay and discharge all
liabilities to which it is subject or which are asserted against it, promptly as
and when the same shall become due and payable, including all taxes, assessments
and governmental charges upon it or any of its properties, assets, income or
profits, prior to the date on which penalties attach thereto, except to the
extent that such liabilities, including taxes, assessments or charges, are being
contested in good faith and by appropriate and lawful proceedings diligently
conducted and for which such reserve or other appropriate provisions, if any, as
shall be required by GAAP shall have been made, but only to the extent that
failure to discharge any such liabilities would not result in any additional
liability which would adversely affect to a material extent the financial
condition of the Borrower and its Subsidiaries taken as a whole and which would
affect the Collateral.
(c) Maintenance of Insurance. The Borrower shall, and shall
------------------------
cause each of its Subsidiaries to, insure its properties and assets against loss
or damage by fire and such other insurable hazards as such assets are commonly
insured (including fire, extended coverage, property damage, worker's
compensation, public liability and business interruption insurance) and against
other risks (including errors and omissions) in such amounts as similar
properties and assets are insured by prudent companies in similar circumstances
carrying on similar businesses, and with reputable and financially sound
insurers, including self-insurance to the extent customary. At the request of
the Administrative Agent, the Borrower shall deliver to the
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Administrative Agent certificates of insurance signed by the Borrower's
independent insurance broker describing and certifying as to the existence of
the insurance on the Collateral required to be maintained by this Agreement and
other Loan Documents and a summary schedule indicating all insurance then in
force with respect to the Borrower. Such policies of insurance shall contain
special endorsements, which shall (i) specify the Collateral Agent as additional
insured, mortgagee and lender loss payee as its interests may appear, regardless
of any breach or violation by the Borrower or its applicable subsidiary of any
warranties, declarations or conditions contained in such policies, (ii) provide,
except in the case of public liability insurance and workmen's compensation
insurance, that all insurance proceeds shall be adjusted and payable in
accordance with the terms of the applicable Mortgage or First Mortgage, and
(iii) provide that no cancellation of such policies shall be effective until at
least thirty (30) days after receipt by the Administrative Agent of written
notice of such cancellation or change. Any monies received by the Administrative
Agent or Collateral Agent constituting insurance proceeds or condemnation
proceeds (pursuant to the Mortgage or First Mortgage) shall be applied in
accordance with the terms of the applicable Mortgage or First Mortgage. The
insurance requirements set forth herein may be satisfied through blanket
insurance obtained and maintained by MPN.
(d) Maintenance of Properties and Leases. The Borrower shall,
------------------------------------
and shall cause each of its Subsidiaries to, maintain in good repair, working
order and condition (ordinary wear and tear excepted) in accordance with the
general practice of other businesses of similar character and size, all of those
properties useful or necessary to its business, and from time to time, the
Borrower will make or cause to be made all appropriate repairs, renewals or
replacements thereof.
(e) Maintenance of Patents, Trademarks, Etc. The Borrower shall,
----------------------------------------
and shall cause each of its Subsidiaries to, maintain in full force and effect
all patents, trademarks, trade names, copyrights, licenses, franchises, permits
and other authorizations necessary for the ownership and operation of its
properties and business if the failure so to maintain the same would constitute
a Material Adverse Change.
(f) Visitation Rights. The Borrower shall, and shall cause each
-----------------
of its Subsidiaries to, permit any of the officers or authorized employees or
representatives of any Agent or any of the Banks to visit and inspect any of its
properties and to examine and make excerpts from its books and records and
discuss its business affairs, finances and accounts with its officers, all in
such detail and at such times during normal business hours and as often as any
of the Banks may reasonably request, provided that each Bank shall provide the
Borrower and the Administrative Agent with reasonable notice prior to any visit
or inspection. In the event any Bank desires to conduct an audit of the
Borrower, such Bank shall make a reasonable effort to conduct such audit
contemporaneously with any audit to be performed by the Administrative Agent.
(g) Keeping of Records and Books of Account. The Borrower shall,
----------------------------------------
and shall cause each of its Subsidiaries to, maintain and keep proper books of
record and account which enable the Borrower and its Subsidiaries to issue
financial statements in accordance with GAAP and as otherwise required by
applicable Laws of any Official Body having jurisdiction
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<PAGE>
over the Borrower or any of its Subsidiaries, and which accurately and fairly
reflect the transactions and dispositions of assets of the Borrower or such
Subsidiary.
(h) Plans and Benefit Arrangements. The Borrower shall, and
------------------------------
shall cause each member of the ERISA Group to, comply with ERISA, the Internal
Revenue Code and other applicable Laws applicable to Plans and Benefit
Arrangements except where such failure, alone or in conjunction with any other
failure, would not result in a Material Adverse Change. Without limiting the
generality of the foregoing, the Borrower shall cause all of its Plans and all
Plans maintained by any member of the ERISA Group to be funded in accordance
with the minimum funding requirements of ERISA and shall make, and cause each
member of the ERISA Group to make, in a timely manner, all contributions due to
Plans, Benefit Arrangements and Multiemployer Plans.
(i) Compliance With Laws. The Borrower shall, and shall cause
--------------------
each of its Subsidiaries to, comply with all applicable Laws, including all
Environmental Laws, in all respects provided that it shall not be deemed to be a
violation of this Section 8.01(i) if any failure to comply with any Law would
not result in fines, penalties, other similar liabilities or injunctive relief
which in the aggregate would constitute a Material Adverse Change. Upon the
reasonable request of the Required Banks, the Borrower shall deliver to the
Agents and the Banks such opinions of counsel regarding the Loan Parties'
compliance with the representations set forth in Sections 6.01(m) and 6.01(u)(B)
hereof and other customary matters regarding the compliance of the Loan Parties
with applicable healthcare regulatory Laws.
(j) Use of Proceeds. The Borrower will use the proceeds of the
---------------
Loans only for lawful purposes in accordance with Section 2.08 hereof as
applicable and such uses shall not contravene any applicable Law or any other
provision hereof.
(k) [Intentionally Omitted].
-----------------------
(l) Subordination of Intercompany Loans, Other Loans and
----------------------------------------------------
Advances to the Borrower. Except for Indebtedness described on Schedule 8.01(l),
- ------------------------ ----------------
the Borrower shall cause any intercompany Indebtedness, and shall cause any
other Indebtedness, loans or advances owed by any Loan Party to any other person
(other than a Loan Party) to be subordinated to the Loan Parties' obligations
under the Loan Documents on the terms set forth in Exhibit 8.01(l), with such
---------------
revisions thereto as are reasonably satisfactory to the Agents.
(m) Approval of Financial Statements in Permitted Acquisitions;
-----------------------------------------------------------
Notice of Permitted Acquisition.
- -------------------------------
(i) Approval of Financial Statements. The Borrower shall
--------------------------------
deliver to the Banks a certificate in the form of Exhibit 8.01(m)(i) hereof (the
------------------
"Acquisition Approval Certificate") before making a Permitted Acquisition if
they desire that the cash flow of the business to be acquired during periods
prior to the acquisition shall be included when they compute Cash Flow from
Operations under this Agreement. The Borrower shall attach to such Acquisition
Approval Certificate copies of the historical financial statements of the
business to be acquired including the annual and interim balance sheets and
income statements for at least
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three (3) fiscal years prior to the Permitted Acquisition and pro forma
statements which shall include a combined balance sheet as of the acquisition
date and cash flow statements for the preceding year. The pro forma statements
shall set forth: (1) Consolidated Cash Flow from Operations of the Loan Parties
and the acquired business, adjusted in accordance with clause (A) of the
definition of Consolidated Cash Flow from Operations, for the Acquisition Income
Reporting Period in connection with such Permitted Acquisition, and (2) Total
Indebtedness on the date of the Permitted Acquisition after giving effect to the
acquisition and the Loans to be made on such date, and (3) the ratio of the
amount in clause (2) to the amount in clause (1), which ratio shall not exceed
(A) 5.75 to 1.0 from the Eighteenth Amendment Effective Date through and
including June 30, 1999; and (B) 5.50 to 1.0 from July 1, 1999 and thereafter.
The Acquisition Approval Certificate shall confirm the accuracy of the foregoing
computations and that, after giving effect to the Permitted Acquisition and the
Loans made on the date thereof, no Event of Default shall exist and the Loan
Parties shall be in compliance with all of their covenants hereunder, assuming,
for purposes of Borrower's financial covenants, that all items of income,
expense and cash flow are reported for the Acquisition Income Reporting Period
and that all balance sheet items (such as Indebtedness) are measured on the date
of such Permitted Acquisition. The Loan Parties may make the Permitted
Acquisition prior to receiving the Required Banks' approval of Borrower's
Acquisition Approval Certificate with respect thereto; provided that the Loan
Parties may not, until they have received such approval, include the cash flow
of the business to be acquired for periods prior to the acquisition in their net
income when they compute Consolidated Cash Flow from Operations. The Banks shall
use their best efforts to respond to the Borrower's request for approval of each
Acquisition Approval Certificate within two (2) Business Days following the
Banks' receipt of such certificate and shall not unreasonably withhold or delay
such approval.
(ii) Notice. The Borrower shall deliver to the Banks a
------
notice in the form of Exhibit 8.01(m)(ii) (the "Acquisition Notice Certificate")
-------------------
at least two (2) Business Days before making any Permitted Acquisition except
for: (1) a Permitted Acquisition described in Section 8.01(m)(i) with respect to
which the Borrower is delivering an Acquisition Approval Certificate, or (2) a
Permitted Acquisition if the Purchase Price in connection therewith is less than
$2,500,000. The Acquisition Notice Certificate shall set forth the ratio of (1)
Consolidated Cash Flow From Operations (excluding the cash flow of the acquired
business) for the Acquisition Income Reporting Period in connection with such
Permitted Acquisition, and (2) Total Indebtedness on the date of the Permitted
Acquisition after giving effect to the acquisition and the Loans to be made on
such date, which ratio shall not exceed (A) 5.75 to 1.0 from the Eighteenth
Amendment Effective Date through and including June 30, 1999; and (B) 5.50 to
1.0 from July 1, 1999 and thereafter. The Acquisition Notice Certificate also
shall confirm that, after giving effect to the Permitted Acquisition and the
Loans made on the date thereof, no Event of Default shall exist and the Loan
Parties shall be in compliance with all of their covenants hereunder, assuming,
for purposes of Borrower's financial covenants, that all items of income,
expense and cash flow are reported for the Acquisition Income Reporting Period
and that all balance sheet items (such as Indebtedness) are measured on the date
of such Permitted Acquisition.
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(iii) Additional Information. With respect to any
----------------------
Acquisition Approval Certificate or Acquisition Notice Certificate, the Borrower
shall provide to the Banks, as the Banks may reasonably request detailed
calculations and information supporting the financial calculations therein and
the financial statements attached thereto.
(n) [Intentionally Omitted].
-----------------------
(o) [Intentionally Omitted].
-----------------------
(p) Further Assurances. Each Loan Party shall, from time to
------------------
time, at its expense, faithfully preserve and protect the Administrative Agent's
Lien and the Collateral Agent's Lien on or perfected security interest in the
Collateral as a continuing first priority perfected Lien, subject only to
Permitted Liens, and shall do such other acts and things as the Administrative
Agent or the Collateral Agent, as the case may be, in its sole discretion may
deem necessary or advisable from time to time in order to preserve, perfect and
protect the Liens granted under the Loan Documents and to exercise and enforce
its respective rights and remedies thereunder with respect to the Collateral.
The Loan Parties shall (i) provide to the Administrative Agent and the
Collateral Agent within thirty (30) days of the Eighteenth Amendment Effective
Date a list of all material contracts or agreements which by their terms do not
permit the grant of a security interest therein; (ii) use commercial reasonable
best efforts to obtain within ninety (90) days of the Eighteenth Amendment
Effective Date any consents or approvals of security interests in any such
contract or agreement granted to the Administrative Agent or the Collateral
Agent; (iii) to the extent any such consent or approval is obtained and upon
receipt thereof, promptly deliver to the Administrative Agent and the Collateral
Agent any original of such consent or approval obtained or such other evidence
in a form satisfactory to the Administrative Agent and the Collateral Agent of
any such consent or approval obtained.
(q) Certain Owned Facilities - Termination of Liens;
-----------------------------------------------
Intercreditor Agreements.
- ------------------------
The Borrower shall:
(i) Cause any Lien securing any Owned Facility Indebtedness
to be terminated on or before the earlier of: the maturity of such Owned
Facility Indebtedness (without giving effect to any extension of such maturity
after the Sixteenth Amendment Effective Date, unless such extension of maturity
is otherwise approved in accordance with this Agreement) or any refinancing,
replacement or substitution of such Owned Facility Indebtedness, unless, in the
case of a refinancing, such refinancing is otherwise approved in accordance with
this Agreement;
(ii) Not permit the amount of Owned Facility Indebtedness
secured by Liens in favor of an Owned Facility Lender to exceed the amount of
such Owned Facility Indebtedness existing on the Sixteenth Amendment Effective
Date;
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(iii) Cause each Subsidiary Owner to not grant a Lien on
any asset of such Subsidiary Owner if the Owned Facility Lender has previously
terminated its Liens or has never obtained a Lien on such asset; and
(iv) Cause each Owned Facility Lender and any other person
which loans money to any Subsidiary Owner, or otherwise obtains a Lien in any of
the assets of any Subsidiary Owner relating to any of the Owned Facilities
(whether by assignment of the Owned Facility Indebtedness or otherwise), on the
date of such loan or lien to execute and deliver to Administrative Agent (or the
Collateral Agent, as the case may be) an Intercreditor Agreement and Borrower
shall deliver or cause to be delivered to Administrative Agent a true and
correct copy of the original of each Intercreditor Agreement within one (1)
Business Day after such agreement has been executed. The Borrower shall use its
best efforts to obtain each Intercreditor Agreement in the form of Exhibit
1.01(I)(2)(A), and if the Borrower is not successful in obtaining such form of
Intercreditor Agreement after using best efforts, then the Borrower shall use
best efforts to obtain an Intercreditor Agreement in the form of Exhibit
1.01(I)(2)(B). If the Borrower is not successful, after using best efforts, in
obtaining either such form of Intercreditor Agreement, then the Borrower shall
negotiate such other Intercreditor Agreement as is reasonably satisfactory, in
form and substance, to the Administrative Agent.
(r) Certain Leased Facilities - Termination of Liens;
-------------------------------------------------
Intercreditor Agreements; Trustee Agreements.
- --------------------------------------------
The Borrower shall:
(i) Cause any Lien securing any Lessor Indebtedness to be
terminated on or before the earlier of: (i) the maturity of such Lessor
Indebtedness (without giving effect to any extension of such maturity after the
Sixteenth Amendment Effective Date unless such extension of maturity is
otherwise approved in accordance with this Agreement) or (ii) any refinancing,
replacement or substitution of such Lessor Indebtedness unless, in the case of a
refinancing, such refinancing is otherwise approved in accordance with this
Agreement;
(ii) Not permit the amount of Lessor Indebtedness secured
by Liens in favor of the Lessor Lenders to exceed the amount of such
Indebtedness existing on the Sixteenth Amendment Effective Date; and
(iii) Cause each Subsidiary Lessee not to grant a Lien on
any asset of such Subsidiary Lessee if the applicable Lessor or Lessor Lender
has previously terminated its Liens or has never obtained a Lien on such asset;
(iv) Deliver to the Administrative Agent for the benefit of
the Banks an Intercreditor Agreement with respect each Lessor Lender and, if
reasonably requested by the Administrative Agent, a Non-Disturbance Agreement.
Each Non-Disturbance Agreement shall be satisfactory, in form and substance to
the Agents. Borrower shall deliver or cause to be delivered to Administrative
Agent a true and correct copy of each Non-Disturbance Agreement and the original
of each Intercreditor Agreement within one (1) Business Day after such
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<PAGE>
agreement has been executed pursuant to the preceding sentence. The Borrower
shall use its best efforts to obtain each Intercreditor Agreement in the form of
Exhibit 1.01(I)(1)(A), and if the Borrower is not successful in obtaining such
form of Intercreditor Agreement after using best efforts, then the Borrower
shall use best efforts to obtain an Intercreditor Agreement in the form of
Exhibit 1.01(I)(1)(B). If the Borrower is not successful, after using best
efforts, in obtaining either such form of Intercreditor Agreement, then the
Borrower shall negotiate such other Intercreditor Agreement as is reasonably
satisfactory, in form and substance, to the Administrative Agent; and
(v) Cause if reasonably requested by the Administrative
Agent, each Lessor listed on Schedule 6.01(aa) to execute and deliver to the
-----------------
Administrative Agent a Trustee Agreement; provided, however, that if, with
respect to Leased Facilities leased by Loan Parties prior to the Sixteenth
Amendment Effective Date, following the Sixteenth Amendment Effective Date the
Loan Parties are otherwise in compliance with all requirements under this
Agreement relating to Lessor Indebtedness, Leased Facilities and Permitted
Leased Facility Liens, then no additional Trustee Agreements will be required
with respect to such Leased Facilities so long as the lease of such facility
continues following the Sixteenth Amendment Effective Date on terms and
conditions identical to those approved by the Required Banks prior to the
Sixteenth Amendment Effective Date. Each Trustee Agreement shall be
satisfactory, in form and substance to the Administrative Agent.
8.02 Negative Covenants. The Borrower covenants and agrees that
------------------
until payment in full of the Loans and interest thereon, satisfaction of all of
the Borrower's other obligations hereunder and termination of the Commitments,
the Borrower shall comply with the following negative covenants:
(a) Indebtedness. Subject to Section 8.02(v), the Borrower
------------
shall not, and shall not permit any of its Restricted Subsidiaries to, at any
time create, incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
(ii) Existing Indebtedness as of the Sixteenth Amendment
Effective Date as set forth on Schedule 8.02(a) hereto (including, subject to
----------------
the other provisions of this Agreement, any extensions or renewals thereof
provided there is no increase in the amount thereof or other significant change
in the terms thereof adverse to any Loan Party or to any Bank unless otherwise
specified on Schedule 8.02(a)); provided further that the Owned Facility
-----------------
Indebtedness and Lessor Indebtedness are also subject to the covenants and
limitations described in Sections 8.01(q) and (r) and any refinancing, extension
or renewal of any Owned Facility Indebtedness or Lessor Indebtedness is also
subject to satisfaction of the conditions set forth in Exhibit 1.01(C) hereto;
(iii) Capitalized leases existing as of September 30, 1998
and as and to the extent permitted under Section 8.02(w);
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<PAGE>
(iv) Indebtedness which is subordinated in accordance with
the provisions of Section 8.01(1);
(v) Indebtedness secured by Purchase Money Security
Interests permitted under Section 8.02(b);
(vi) Indebtedness of a Loan Party to the Borrower or to a
wholly-owned Subsidiary of the Borrower;
(vii) the Subordinated Notes, provided that neither the
subordination provisions contained in the Indenture nor Section 1008 [Limitation
on Indebtedness] of the Indenture shall be amended after the Subordinated
Indebtedness Incurrence Date and provided further that the Indenture is not
otherwise amended after the Subordinated Indebtedness Incurrence Date if the
effect thereof would (i) accelerate the due date or increase the amount of any
payment due from the Borrower thereunder, (ii) change the rate at which interest
is charged thereunder, or (iii) impose material restrictions or obligations on
the Borrower or the other Loan Parties which are not imposed thereunder on the
Closing Date or add any term thereto which is less favorable in any material
respect to the Loan Parties than the terms of the Indenture on the Subordinated
Indebtedness Incurrence Date or which is more restrictive to any of the Loan
Parties than the terms of the Credit Agreement;
(viii) Guaranties which constitute Indebtedness as
permitted pursuant to Section 8.02(c);
(ix) Indebtedness not exceeding $500,000 of the Borrower to
First Union National Bank (a.k.a. CoreStates Bank, N.A.) in respect of an
overnight unsecured overdraft facility at any time;
(x) Owned Facility Indebtedness incurred after the
Sixteenth Amendment Effective Date, if the principal amount of and other terms
and conditions with respect to such Owned Facility Indebtedness are acceptable
to the Required Banks, (including, without limitation, satisfaction of all
conditions set forth on Exhibit 1.01(C)); provided, that all Owned Facility
---------------
Indebtedness is subject to the covenants and limitations set forth in Section
8.01(q);
(xi) the Permitted Subordinated Indebtedness;
(xii) Indebtedness under the Term Loan Agreement; and
(xiii) Indebtedness not otherwise permitted under clauses
(i) through (xii) of this Section 8.02(a), provided that the aggregate amount of
Indebtedness outstanding pursuant to this paragraph and Indebtedness outstanding
pursuant to Section 8.02(a)(v) shall not at any time exceed $15,000,000.
(b) Liens. The Borrower shall not, and shall not permit any of
-----
the other Loan Parties or Unrestricted Subsidiary which is an Excluded Entity
with respect to which
70
<PAGE>
Restricted Investments have been made as permitted pursuant to Section
8.02(d)(iv) to, at any time create, incur, assume or suffer to exist any Lien on
any of its or their property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except Permitted Liens.
(c) Guaranties. Except as described in Schedule 8.02(c), the
---------- ----------------
Borrower shall not, and shall not permit any of the other Loan Parties to, at
any time, directly or indirectly, become or be liable in respect of any Guaranty
except: (i) Guaranties of any obligation or liability of another Loan Party that
is permitted under the other provisions of this Agreement, (ii) Guaranties which
are not required by GAAP to be disclosed in the Borrower's audited consolidated
financial statements (including the footnotes thereto), (iii) Guaranties of
Indebtedness incurred as part of a permitted Restricted Investment pursuant to
Section 8.02(d)(iv), (iv) Guaranties which are subordinated on terms reasonably
acceptable to the Administrative Agent, and (v) Guaranties of Indebtedness under
the Term Loan Agreement.
(d) Loans and Investments. The Borrower shall not, and shall
---------------------
not permit any of the other Loan Parties, to, at any time make or suffer to
remain outstanding any loan or advance to, or purchase, acquire or own any
stock, bonds, notes or securities of, or any partnership interest (whether
general or limited) in, or any other investment or interest in, or make any
capital contribution to, any other person, or agree, become or remain liable to
do any of the foregoing, except:
(i) trade credit extended on usual and customary terms in
the ordinary course of business;
(ii) advances to employees to meet expenses incurred by
such employees in the ordinary course of business;
(iii) Permitted Investments;
(iv) Restricted Investments made prior to the Eighteenth
Amendment Effective Date as set forth on Schedule 8.02(d) and, subject to
----------------
Section 8.02(w), Restricted Investments made on or after the Eighteenth
Amendment Effective Date; provided that with respect to any Restricted
Investment, the Borrower is in compliance with all of the following: (i) the
Excluded Entity in which a Restricted Investment is or has been made is engaged
in a business which is ancillary and related to the business of the Loan
Parties; (ii) the Loan Party that makes or made the Restricted Investment is
either a shareholder, member or partner of the Excluded Entity in which the
Restricted Investment was made; (iii) the stock, equity interests in a limited
liability company or partnership interests owned by a Loan Party in the Excluded
Entity in which the Restricted Investment is or has been made are pledged to the
Collateral Agent on a first priority basis for the benefit of the Banks; (iv) to
the extent that any Excluded Entity incurs Indebtedness payable to any person
other than a Loan Party (the "Third Party Lender") in excess of $5,000,000,
prior to incurring such Indebtedness, the Borrower shall cause the Third Party
Lender to enter into an intercreditor agreement with the Collateral Agent on
behalf of the Banks, in form and substance satisfactory to the Administrative
Agent and the Collateral Agent in their sole discretion with respect to the
Indebtedness of such Excluded Entity
71
<PAGE>
payable to the Third Party Lender and any Indebtedness of such Excluded Entity
payable to either the Banks or any Loan Party; and (v) to the extent that any
individual Restricted Investment exceeds $7,500,000 or any series of related
Restricted Investments in the aggregate exceeds $7,500,000 prior to making any
such Restricted Investment, the Borrower obtained the written approval of the
Required Banks;
(v) loans, advances and investments in Restricted
Subsidiaries; and
(vi) loans and advances in the aggregate not to exceed
$8,000,000 at any time outstanding to officers and senior management of the Loan
Parties, so long as each such advance is on terms and conditions reasonably
satisfactory to the Agents and so long as the Borrower gives five (5) Business
Days' prior notice to the Administrative Agent of each loan or advance and the
recipient of each loan or advance is reasonably satisfactory to the Agents.
(e) Amounts Paid by the Borrower to MPN; Dividends and Related
----------------------------------------------------------
Distributions. The Borrower shall not, and shall not permit any of its
- -------------
Subsidiaries to, make or pay, or agree to become or remain liable to make or
pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of their
respective shares of capital stock or partnership interests, as the case may be,
or on account of the purchase, redemption, retirement or acquisition of their
respective shares of capital stock (or warrants, options or rights therefor) or
partnership interests, as the case may be, except (i) dividends or distributions
in respect of a partnership interest or capital stock payable by any Subsidiary
to the Borrower or any other Restricted Subsidiary, (ii) dividends payable by
the Borrower solely in shares of capital stock of the Borrower, (iii) up to the
Permitted Distribution Amount of distributions per year payable in the aggregate
by any Subsidiary of the Borrower which is a limited liability company or
partnership to non-Affiliate members of such limited liability company or non-
Affiliate limited partners of such partnership, so long as after giving effect
thereto no Event of Default or Potential Default has occurred and is continuing
and so long as at least five (5) Business Days prior to the making of any such
distribution the Borrower provides written notice to the Administrative Agent,
together with a detailed calculation, certified by the Chief Financial Officer
of Borrower, setting forth in detail the relevant Subsidiary's compliance with
the ratio set forth in clause (A) of the definition of Permitted Distribution
Amount or, as the case may be, such Subsidiary's compliance with clause (B) of
the definition of Permitted Distribution Amount, in either case with respect to
the proposed distribution as of the date of the making thereof, (iv) so long as
no Event of Default or Potential Default exists and is continuing after giving
effect thereto, a one-time dividend by the Borrower to MPN payable on such date
as the Borrower elects (so long as at least seven (7) days prior to such
payment, the Borrower has delivered to the Administrative Agent a certification
that after giving effect to such dividend or distribution no Event of Default or
Potential Default exists and is continuing and that the Borrower is in pro-forma
compliance with the financial covenants set forth in Section 8.02(r) [Maximum
Leverage Ratio] and Section 8.02(u) [Senior Indebtedness to Cash Flow from
Operations Ratio], with such certification setting forth a detailed calculation
of the Borrower's pro-forma compliance with such financial covenants), in an
amount not exceeding, as of the date
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<PAGE>
of payment, the Adjusted Net Income of the Borrower and its Subsidiaries
determined in accordance with GAAP for the most recent twelve fiscal calendar
months prior to such date of payment; (v) amounts payable by the Borrower to MPN
as reimbursement of ordinary course business expenses of the Borrower paid by
MPN on behalf of the Borrower; and (vi) during periods prior to the
effectiveness of the Eighteenth Amendment, dividends or distributions by the
Borrower to MPN not to exceed in the aggregate $25 million to reimburse MPN for
costs and expenses incurred in connection with the Paragon Acquisition.
For purposes of this Section 8.02(e) and the demonstration
of pro forma compliance with the financial covenants set forth in Sections
8.02(r) and (u):
(i) Adjusted Total Indebtedness and Total Indebtedness
shall be calculated as of each date of determination (after giving effect,
without duplication, to each dividend or distribution and each purchase or
redemption of the Borrower's stock as applicable); and
(ii) Consolidated Cash Flow from Operations and
Consolidated Net Income shall be calculated as of each date of determination
(after giving effect to each dividend or distribution and each purchase or
redemption of the Borrower's stock) based upon the four fiscal quarters most
recently then ended for which a Compliance Certificate has been delivered to the
Administrative Agent.
(f) Liquidations, Mergers, Consolidations, Acquisitions. The
---------------------------------------------------
Borrower shall not, and shall not permit any of the other Loan Parties to,
dissolve, liquidate or wind-up its affairs, or become a party to any merger or
consolidation, or acquire by purchase, lease or otherwise all or substantially
all of the assets or capital stock of any other person, provided that:
(i) any wholly owned Subsidiary of the Borrower may
consolidate or merge into the Borrower (so long as the Borrower is the survivor)
or any other wholly owned Subsidiary of the Borrower;
(ii) a Subsidiary of the Borrower that is not a Material
Subsidiary may be dissolved, liquidated or wound up provided that from the date
of this Agreement through the Expiration Date, the total assets of the non-
Material Subsidiaries which so dissolve, liquidate or wind up shall not exceed
$25,000,000 in the aggregate;
(iii) subject to Section 8.02(w), the Borrower or a
Restricted Subsidiary of the Borrower may acquire all of the capital stock of
another corporation so long as (u) the assets of such acquired corporation are
pledged to the Collateral Agent for the benefit of the Banks on a first priority
perfected basis pursuant to a Security Agreement, First Mortgage and other Loan
Documents, as applicable and such acquired corporation, simultaneous with the
acquisition thereof by a Loan Party, executes and delivers to the Administrative
Agent for the benefit of the Banks a Guaranty Agreement and to the Collateral
Agent for the benefit of the Banks a Pledge Agreement in form and substance
satisfactory to the Administrative Agent, and also delivers to the
Administrative Agent such opinions of counsel and other documents in
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<PAGE>
connection therewith as the Administrative Agent may reasonably request, (v) all
of the issued and outstanding capital stock of such acquired corporation owned
by a Loan Party is pledged to the Collateral Agent for the benefit of the Banks
pursuant to a Pledge Agreement in form and substance satisfactory to the
Administrative Agent, (w) after giving effect to such proposed acquisition, no
Event of Default shall have occurred and be continuing, (x) after giving effect
to such proposed acquisition (and without limiting the generality of the
preceding clause (iii)(w)), the Borrower is in compliance with the Leverage
Ratio set forth in Section 8.02(r) and the Borrower demonstrates such compliance
pursuant to Section 8.01(m) (if Section 8.01(m) requires such demonstration of
compliance), and (y) in the case of a merger involving the Borrower, the
Borrower shall be the survivor of such merger, and in the case of a merger
involving any Restricted Subsidiary the survivor of such merger shall be either
such Restricted Subsidiary or a person which, effective upon consummation of
such merger shall have become a Restricted Subsidiary of the Borrower, shall
have joined this Agreement and the other Loan Documents as a Loan Party
(including, without limitation, execution and delivery of a Guaranty Agreement
substantially in the form of Exhibit 1.01(G)), shall have delivered such
opinions of counsel and other documents as the Administrative Agent may
reasonably request, whose equity interests shall have been pledged to the
Collateral Agent for the benefit of the Banks on a first priority perfected
basis pursuant to a Pledge Agreement and whose assets shall have been pledged to
the Collateral Agent for the benefit of the Banks on a first priority perfected
basis pursuant to a Security Agreement, First Mortgage and other Loan Documents,
as applicable; and
(iv) subject to Section 8.02(w), the Borrower or any
Restricted Subsidiary may merge or consolidate with, or acquire all or
substantially all of the assets of another person so long as (y) after giving
effect to such proposed acquisition, merger or consolidation the Borrower or a
Restricted Subsidiary of the Borrower is the survivor entity, all of the assets
acquired pursuant to such merger are pledged pursuant to a Security Agreement,
First Mortgage and other Loan Documents on a first priority perfected basis, and
no Event of Default shall have occurred and be continuing; and (z) after giving
effect to such proposed acquisition, merger or consolidation, the Borrower is in
compliance with the Leverage Ratio set forth in Section 8.02(r) and the Borrower
demonstrates such compliance pursuant to Section 8.01(m) (if Section 8.01(m)
requires such demonstration of compliance).
For purposes of the preceding clauses (iii)(y) and (iv)(z),
the Leverage Ratio set forth in Section 8.02(r) shall be calculated as follows:
(i) Total Indebtedness shall be determined as of the date of the proposed
acquisition, after giving effect thereto, and (ii) Consolidated Cash Flow from
Operations shall be calculated for the twelve-month period ending on the last
day of the fiscal quarter of the Borrower which precedes such date of
acquisition.
(g) Dispositions of Assets or Subsidiaries. The Borrower shall
--------------------------------------
not, and shall not permit any of the other Loan Parties to, sell, convey,
assign, lease, abandon or otherwise transfer or dispose of, voluntarily or
involuntarily, any of its properties or assets, tangible or intangible
(including but not limited to sale, assignment, discount or other disposition of
accounts, contract rights, chattel paper, equipment or general intangibles with
or without
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<PAGE>
recourse or of capital stock, shares of beneficial interest or partnership
interests of a Subsidiary of the Borrower), except:
(i) any sale, transfer or lease of assets in the ordinary
course of business which are no longer necessary or required in, or which are
not material to, the conduct of the Borrower's or such Subsidiary's business,
provided that such sales, transfers or leases of assets shall not exceed in the
aggregate for the Borrower and its Subsidiaries $10,000,000 (based upon fair
market value at the time of the sale) for the period from and after the
Eighteenth Amendment Effective Date;
(ii) any sale, transfer or lease of assets by any wholly-
owned Loan Party to the Borrower or any other wholly owned Loan Party (or by the
Borrower to a wholly owned Loan Party);
(iii) any sale, transfer or lease of assets in the ordinary
course of business which are replaced by substitute assets acquired or leased
within the parameters of Section 8.02(w) provided such substitute assets are
subject to the Banks' Prior Security Interest;
(iv) any sale or transfer of assets which are obsolete or
no longer used or useful in the business of the Borrower or its Subsidiaries;
provided that such sales, transfers or dispositions shall not exceed, in any
fiscal year, $1,000,000 in the aggregate for the Borrower and its Subsidiaries;
(v) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through (iv) above, which either:
(A) has aggregate Net Sale Proceeds for the Borrower and its Subsidiaries for
the period from and after the Eighteenth Amendment Effective Date which do not
exceed $35,000,000 or (B) is approved by the Required Banks so long as in the
case of a transaction under clause (A) or (B), the Borrower complies with all of
the following: (w) the proceeds received by the applicable Loan Party shall
equal the fair market value of the asset sold, transferred or leased, (x) the
proceeds of such sale, transfer or lease are applied as a mandatory prepayment
of the Loans in accordance with the provisions of Section 5.05 of this
Agreement, (y) after giving effect to such proposed disposition, no Event of
Default or Potential Default shall have occurred and be continuing, and (z)
after giving effect to such proposed disposition (and without limiting the
generality of the foregoing clause (y)), the Borrower is in compliance (and with
respect to sales, transfers or leases of assets which individually or in a
series of related transactions equal or exceed $5,000,000, the Borrower
demonstrates such compliance to the Administrative Agent in detail reasonably
satisfactory to the Administrative Agent by the delivery to the Administrative
Agent, at least five (5) days prior to such transaction of a compliance
certificate,) on a proforma basis, after giving effect to such sale, transfer or
lease, with the financial covenants set forth in Sections 8.02(q), (r), (s), (t)
and (u); and
(vi) any distribution or dividend permitted under Section
8.02 (e) (iv), (v) or (vi).
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<PAGE>
For purposes of this Section 8.02(g) and the demonstration
of pro forma compliance with the financial covenants set forth in Sections
8.02(q), (r), (s), (t) and (u):
(i) Consolidated Net Worth, Adjusted Total Indebtedness and
Total Indebtedness shall be calculated as of each date of determination (after
giving effect to the proposed sale, transfer or lease of assets);
(ii) Consolidated Cash Flow from Operations and
Consolidated Net Income shall be calculated as of each date of determination
based upon the four fiscal quarters most recently then ended for which a
Compliance Certificate has been delivered to the Administrative Agent, but
excluding therefrom all amounts attributable to the assets sold, transferred or
leased; and
(iii) the denominator (set forth in clause (y) of Section
8.02(q)) of the Fixed Charge Coverage Ratio shall be determined after giving
effect to the proposed sale, transfer or lease of assets for purposes of the pro
forma determination of interest expense and of current maturities of long-term
Indebtedness.
(h) Affiliate Transactions. The Borrower shall not, and shall
----------------------
not permit any of its Subsidiaries to, enter into or carry out any transaction
with any Affiliate (including, without limitation, purchasing property or
services from or selling property or services) unless such transaction is
entered into in the ordinary course of business upon terms and conditions that
are no less favorable to the Borrower or such Subsidiary than those that would
be available in comparable transactions in arms-length dealings with unrelated
third parties or unless such transaction is not otherwise prohibited by this
Agreement.
(i) Subsidiary, Partnerships and Joint Ventures. The Borrower
-------------------------------------------
shall not, and shall not permit any Subsidiary to, own or create directly or
indirectly any Subsidiaries other than those listed in Schedule 6.01(c);
----------------
provided, however, that the Borrower or a Restricted Subsidiary may acquire a
Subsidiary pursuant to Section 8.02(f) or form a new Subsidiary so long as (A)
if such Subsidiary is a Restricted Subsidiary it executes and delivers to the
Administrative Agent for the benefit of the Banks a Guaranty Agreement
substantially in the form of Exhibit 1.01(G), and also delivers to the
---------------
Administrative Agent such opinions of counsel and other documents as the
Administrative Agent may reasonably request; and (B) all of the issued and
outstanding capital stock or other equity interests of such Subsidiary owned by
a Loan Party are pledged to the Collateral Agent for the benefit of the Banks,
such pledge to be a first priority perfected pledge pursuant to a Pledge
Agreement and all of the assets of such Subsidiary are pledged on a first
priority perfected basis to the Collateral Agent for the benefit of the Banks
pursuant to a Security Agreement, Mortgage, Leasehold Mortgage and the other
applicable Loan Documents. If Borrower is forming a new Subsidiary (as opposed
to acquiring a Subsidiary) the obligations set forth in clauses (A) and (B) of
the preceding sentence shall arise only at such time as such new Subsidiary
either commences construction of a health care facility or related health care
business, acquires a health care facility or makes another acquisition permitted
under this Agreement or has a net book value, as determined under GAAP, of at
least $250,000. Except for investments permitted under Section 8.02(d)(iv),
neither the Borrower nor any Subsidiary shall
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<PAGE>
become or agree to become a general or limited partner in any general or limited
partnership or a joint venturer in any joint venture.
(j) Continuation of or Change in Business. The Borrower shall
-------------------------------------
not, and shall not permit any Subsidiary to, engage in any business other than
(i) its existing business, substantially as conducted and operated as of the
Closing Date and (ii) related health care businesses.
(k) Plans and Benefit Arrangements. The Borrower shall not,
------------------------------
and shall not permit any of its Subsidiaries to:
(i) fail to satisfy the minimum funding requirements of
ERISA and the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the Internal
Revenue Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan,
Benefit Arrangement or Multiemployer Plan which, alone or in conjunction with
any other circumstances or set of circumstances resulting in liability under
ERISA, would constitute a Material Adverse Change;
(iv) permit the aggregate actuarial present value of all
benefit liabilities (whether or not vested) under each Plan, determined on a
plan termination basis, as disclosed in the most recent actuarial report
completed with respect to such Plan, to exceed, as of any actuarial valuation
date, the fair market value of the assets of such Plan by an amount in excess of
$250,000;
(v) fail to make when due any contribution to any
Multiemployer Plan that the Borrower or any member of the ERISA Group may be
required to make under any agreement relating to such Multiemployer Plan, or any
Law pertaining thereto;
(vi) withdraw (completely or partially) from any
Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA to
withdraw) from any Multiple Employer Plan, where any such withdrawal is likely
to result in a material liability of Borrower or any member of the ERISA Group;
(vii) terminate, or institute proceedings to terminate, any
Plan, where such termination is likely to result in a material liability to the
Borrower or any member of the ERISA Group;
(viii) make any amendment to any Plan with respect to which
security is required under Section 307 of ERISA; or
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<PAGE>
(ix) fail to give any and all notices and make all
disclosures and governmental filings required under ERISA or the Internal
Revenue Code, where such failure is likely to result in a Material Adverse
Change.
(l) Fiscal Year. The Borrower shall not, and shall not permit
-----------
any of its Subsidiaries to, change its fiscal year from the twelve-month period
beginning January 1 and ending December 31.
(m) Issuance of Stock. The Borrower shall not permit any of its
-----------------
Subsidiaries to issue any additional shares of capital stock, partnership
interests or member interests in a limited liability company or any options,
warrants or other rights in respect thereof; provided, however, than an
Unrestricted Subsidiary which is an Excluded Entity may issue additional capital
stock, partnership interests or member interests in a limited liability company
so long as all such capital stock, partnership interests or member interests in
a limited liability company which are owned, beneficially, of record, or
otherwise, by any Loan Party are pledged to the Banks as a first priority
perfected pledge pursuant to a Pledge Agreement, and provided further that any
Restricted Subsidiary may issue additional capital stock, partnership interests
or member interests in a limited liability company so long as such capital
stock, partnership interests or member interests in a limited liability company
are pledged to the Collateral Agent for the benefit of the Banks (subject only
to any pari passu pledge to the Term Loan Banks and to the Collateral Sharing
Agreement) as a first priority perfected pledge pursuant to a Pledge Agreement.
(n) [Intentionally Omitted].
-----------------------
(o) [Intentionally Omitted].
-----------------------
(p) [Intentionally Omitted].
-----------------------
(q) Minimum Fixed Charge Coverage Ratio. The Borrower shall not
-----------------------------------
at any time permit the ratio (the "Fixed Charge Coverage Ratio") of (x) the sum
of Consolidated Cash Flow from Operations and operating lease expense to (y) the
sum of its interest expense, operating lease expense and current maturities of
long-term Indebtedness (other than the sum of (i) current maturities of
obligations in respect of capital leases, (ii) for fiscal quarters ending on and
after March 31, 1999, current maturities of the Loans; and (iii) for fiscal
quarters ending on and after March 31, 1999 current maturities of Indebtedness
under the Term Loan Agreement) in each case determined and consolidated in
accordance with GAAP to be less than 1.85 to 1.0. Such ratio shall be calculated
as of the end of each fiscal quarter. Calculations as of the end of each fiscal
quarter shall be for the four fiscal quarters then ended.
(r) Maximum Leverage Ratio. The Borrower shall not at any time
----------------------
permit the ratio of Total Indebtedness to Consolidated Cash Flow from Operations
to and including June 30, 1999; and (B) 5.50 to 1.0 from July 1, 1999 and
thereafter. For purposes of this Section 8.02(r), Total Indebtedness shall be
calculated as of each date of determination and Consolidated Cash
78
<PAGE>
Flow from Operations shall be calculated as of each date of determination for
the four fiscal quarters then ended.
(s) Minimum Consolidated Cash Flow from Operations. The
----------------------------------------------
Borrower shall not at any time permit Consolidated Cash Flow from Operations as
of the end of any fiscal quarter for the four fiscal quarters then ended to be
less than $116,000,000.
(t) Minimum Net Worth. The Borrower shall not at any time
-----------------
permit Consolidated Net Worth to be less than the amount under the following
clause (A) reduced by the amount under the following clause (B):
(A) The sum of (i) $323,789,000 plus (ii) fifty percent
(50%) of Consolidated Net Income of the Borrower and its Subsidiaries for each
fiscal quarter in which net income was earned (as opposed to a net loss) during
the period October 1, 1998 through (and including) the date of determination,
plus (iii) one hundred percent (100%) of all increases in capital stock and
additional paid-in capital from issuances for cash of equity securities and
other equity capital investments on or after October 1, 1998, plus (iv) one
hundred percent (100%) of all increases in capital stock and additional paid-in
capital from issuances of equity securities in connection with the acquisition
of any Subsidiary on or after October 1, 1998 (so long as the fair market value
at the time of acquisition of the Subsidiary so acquired is at least equal to
the value of the capital stock or other equity securities so issued), reduced by
(B) The sum of (i) the amount of any dividend or other
distribution actually paid by the Borrower to MPN on or after October 1, 1998
pursuant to Section 8.02(e)(iv), plus (ii) the amount of any dividend or other
distribution actually paid by the Borrower to MPN on or after October 1, 1998
pursuant to Section 8.02(e)(vi) in respect of costs or expenses incurred by MPN
in connection with the Paragon Acquisition to the extent that the reimbursed
item is not deducted as an expense in the determination of Consolidated Net
Income of the Borrower and its Subsidiaries, plus (iii) the amount of any net
losses (determined on a consolidated basis for the Borrower and its Restricted
Subsidiaries in accordance with GAAP) arising solely as a result of charges
described in clauses (i), (ii) or (iii) of the definition of Approved Charges,
plus (iv) subject to the prior written approval of the Required Banks, the
amount of any non-cash charges to write-down goodwill in accordance with FAS
121.
(u) Senior Indebtedness to Cash Flow From Operations Ratio. The
------------------------------------------------------
Borrower shall not at any time permit the ratio of (i) Adjusted Total
Indebtedness to (ii) Consolidated Cash Flow from Operations to exceed (A) 4.50
to 1.0 from the Eighteenth Amendment Effective Date through and including June
30, 1999; and (B) 4.25 to 1.0 from July 1, 1999 and thereafter. For purposes of
this Section 8.02(u), Adjusted Total Indebtedness shall be calculated as of each
date of determination and Consolidated Cash Flow from Operations shall be
calculated as of each date of determination for the four fiscal quarters then
ended.
(v) Incurrence of Indebtedness Permitted by the Indenture. So
-----------------------------------------------------
long as any Indebtedness or other obligations (monetary or otherwise) are
outstanding under the Indenture the Borrower shall not, and shall not permit any
of its Subsidiaries to, at any time
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<PAGE>
create, incur, assume or suffer to exist any Indebtedness unless the incurrence
thereof complies with the provisions of Section 1008. [Limitation on
Indebtedness] of the Indenture as in effect on the Ninth Amendment Effective
Date without giving any effect to any grace period under the Indenture or waiver
under the Indenture of any default of such covenant.
(w) Maximum Amount of Certain Expenditures of the Borrower. The
------------------------------------------------------
Borrower shall not and shall not permit any of its Subsidiaries, during the
period commencing on the Eighteenth Amendment Effective Date through and
including the Expiration Date, to make aggregate expenditures in excess of
$61,700,000 (the "Designated Amount") in respect of the following:
(i) acquisitions permitted by clauses (iii) or (iv) of
Section 8.02(f);
(ii) maintenance and replacement capital expenditures and
other capital expenditures;
(iii) amounts expended for construction of facilities which
are not considered capital expenditures under GAAP and therefore would not be
included under clause (ii) above; and
(iv) Restricted Investments made on or after the Eighteenth
Amendment Effective Date as permitted by Section 8.02(d)(iv);
At least seven (7) days prior to making any expenditure
specified in clauses (i), or (iv ), above, the Borrower shall deliver to the
Administrative Agent, for the benefit of the Banks a detailed certificate
showing Borrower's pro-forma compliance with the financial covenants set forth
in Sections 8.02(q), 8.02(r), 8.02(s), 8.02(t) and 8.02(u), after giving effect
to the proposed expenditure, including, without limitation, the effect of any
cash to be expended or Indebtedness to be incurred in connection therewith. The
Borrower expressly agrees that, notwithstanding the foregoing, at least
$20,000,000 of the Designated Amount shall be designated for expenditures by the
Borrower and its Subsidiaries in the nature of maintenance capital expenditures.
For purposes of this Section 8.02(w) and the demonstration
of pro forma compliance with the financial covenants set forth in Sections
8.02(q), (r), (s), (t) and (u):
(i) Consolidated Net Worth, Adjusted Total Indebtedness and
Total Indebtedness shall be calculated as of each date of determination after
giving effect to the proposed transaction under items (i) through (v) above
(including any Indebtedness incurred in connection therewith);
(ii) Consolidated Cash Flow from Operations and
Consolidated Net Income shall be calculated as of each date of determination
based upon the four fiscal quarters most recently then ended for which a
Compliance Certificate has been delivered to the Administrative Agent and shall
be adjusted to give effect to any transaction under items (ii)
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<PAGE>
through (v) above but shall only be adjusted to give effect to any acquisition
under clause (i) above only if permitted by Section 8.01(m); and
(iii) the denominator (set forth in clause (y) of Section
8.02(q)) of the Fixed Charge Coverage Ratio shall be determined after giving
effect to the proposed transaction under items (i) through (v) above (including
any Indebtedness incurred in connection therewith) for purposes, without
limitation, of the pro forma determination of interest expense and of current
maturities of long-term Indebtedness.
(x) Negative Pledges. Except as set forth on Schedule 8.02(x),
---------------- ----------------
Borrower shall not and shall not permit any of its Subsidiaries to enter into
any agreement with any person which prohibits the Loan Parties from granting
Liens to the Collateral Agent, the Agents or the Banks.
(y) Prohibition of Defeasance of Subordinated Notes. The
-----------------------------------------------
Borrower shall not and shall not permit any of its Subsidiaries to make any
payments to the trustee under the Indenture or to any holders of Subordinated
Notes in payment of the defeasance or covenant defeasance of the Subordinated
Notes pursuant to Section 402 or 403 of the Indenture or any similar provision
in any supplement to the Indenture. Nothing in this subsection (y) shall
prohibit the purchase by the Borrower of Subordinated Notes pursuant to Section
8.02(d)(vii) or the refinancing of the Subordinated Notes with Permitted
Subordinated Indebtedness.
8.03 Reporting Requirements. The Borrower covenants and agrees that
----------------------
until payment in full of the Loans and interest thereon, satisfaction of all of
the Borrower's other obligations hereunder and termination of the Commitments,
the Borrower will furnish or cause to be furnished to the Administrative Agent
and each of the Banks:
(a) [Intentionally Omitted].
-----------------------
(b) Quarterly Financial Statements. As soon as available and in
------------------------------
any event within forty-five (45) calendar days after the end of each fiscal
quarter in each fiscal year, financial statements of the Borrower, consisting of
a consolidated balance sheet as of the end of such fiscal quarter and related
consolidated statements of income, retained earnings and cash flows for the
fiscal quarter then ended and the fiscal year through that date, all in
reasonable detail and certified by a Responsible Officer of the Borrower as
having been prepared in accordance with GAAP, consistently applied (subject to
normal year-end audit adjustments), and setting forth in comparative form the
respective financial statements for the corresponding date and period in the
previous fiscal year.
(c) Annual Financial Statements. As soon as available and in any
---------------------------
event within ninety (90) days after the end of each fiscal year of the Borrower,
financial statements of the Borrower consisting of a consolidated balance sheet
as of the end of such fiscal year, and related consolidated statements of
income, retained earnings and cash flows for the fiscal year then ended, all in
reasonable detail and setting forth in comparative form the financial statements
as of the end of and for the preceding fiscal year, and certified by independent
certified public accountants of nationally recognized standing satisfactory to
the Administrative
81
<PAGE>
Agent. The certificate or report of accountants shall be free of qualifications
(other than any consistency qualification that may result from a change in the
method used to prepare the financial statements as to which such accountants
concur) and shall not include a statement which indicates the occurrence or
existence of any event, condition or contingency which would materially impair
the prospect of payment or performance of any covenant, agreement or duty of the
Borrower or any of its Subsidiaries under any of the Loan Documents, together
with a letter of such accountants substantially to the effect that, based upon
their ordinary and customary examination of the affairs of the Borrower and its
Subsidiaries, performed in connection with the preparation of such consolidated
financial statements, and in accordance with generally accepted auditing
standards, they are not aware of the existence of any condition or event with
constitutes an Event of Default or Potential Default or, if they are aware of
such condition or event, stating the nature thereof.
(d) Certificate of the Borrower. Concurrent with the financial
---------------------------
statements of the Borrower furnished to the Administrative Agent and to the
Banks pursuant to Sections 8.03(b) and 8.03(c) hereof, a certificate of the
Borrower signed by a Responsible Officer, in the form of Exhibit 8.03(d) hereto
---------------
(the "Compliance Certificate"), to the effect that, except as described pursuant
to Section 8.03(e) below, (i) the representations and warranties of the Borrower
contained in Article VI hereof are true on and as of the date of such
certificate with the same effect as though such representations and warranties
had been made on and as of such date (except representations and warranties
which expressly relate solely to an earlier date or time) and the Borrower has
performed and complied with all covenants and conditions hereof, (ii) no Event
of Default or Potential Default exists and is continuing on the date of such
certificate, (iii) containing calculations in sufficient detail to demonstrate
compliance as of the date of the financial statements with all financial
covenants contained in Section 8.02 hereof and with the covenant contained in
Section 1008 [Limitation on Indebtedness] of the Indenture with respect to
indebtedness incurred during the period applicable to such compliance
certificate and (iv) setting forth a list of payments summarized by category
only made by the Borrower to MPN as reimbursement of ordinary course business
expenses paid by MPN on behalf of the Borrower during the period applicable to
such certificate and also setting forth all other dividends and distributions to
MPN during such period.
(e) Notice of Default. Promptly after any officer of the
-----------------
Borrower has learned of the occurrence of an Event of Default or Potential
Default, a certificate signed by a Responsible Officer of the Borrower, setting
forth the details of such Event of Default or Potential Default and the action
which the Borrower proposes to take with respect thereto.
(f) Notice of Litigation. Promptly after the commencement
--------------------
thereof, notice of all actions, suits, proceedings or investigations before or
by any Official Body or any other person against the Borrower which relate to
the Collateral, involve a claim or series of related claims in excess of
$1,000,000 or which if adversely determined would constitute a Material Adverse
Change.
(g) Certain Events. Written notice to the Administrative Agent
--------------
(and upon the Administrative Agent's receipt of such notice, the Administrative
Agent shall provide a
82
<PAGE>
copy thereof to each Bank) at least thirty (30) calendar days prior thereto,
with respect to any proposed sale or transfer of assets pursuant to Section
8.02(g)(iii) or (iv).
(h) Budgets, Forecasts, Other Reports and Information. Promptly
-------------------------------------------------
upon their becoming available to the Borrower:
(i) [Intentionally Omitted]
(ii) any reports including management letters submitted to
the Borrower by independent accountants in connection with any annual, interim
or special audit,
(iii) any reports, notices or proxy statements generally
distributed by the Borrower to its stockholders on a date no later than the date
supplied to the stockholders,
(iv) any regular or periodic reports, including Forms 10-K,
10-Q and 8-K, registration statements and prospectuses, filed by the Borrower
with the Securities and Exchange Commission,
(v) a copy of any material order in any proceeding to which
the Borrower or any of its Subsidiaries is a party issued by any Official Body,
(vi) regular, periodic utilization reports including in
detail reasonably satisfactory to the Administrative Agent for the period of
such reports the patient census, the number of occupied beds, the payment source
(Medicare, Medicaid, private pay or otherwise) for each patient,
(vii) such other reports and information as the Banks may
from time to time reasonably request. The Borrower shall also notify the Banks
promptly of the enactment or adoption of any Law or the occurrence of any other
event which may result in a Material Adverse Change with respect to the Borrower
after the Borrower becomes aware or should reasonably have become aware thereof,
and
(viii) annual reports in detail satisfactory to the
Administrative Agent setting forth the real property owned, leased or managed by
the Borrower or any Subsidiary, to be supplied not later than March 31, 1999
with respect to the fiscal year ended December 31, 1998 and thereafter not later
than ninety (90) days after the commencement of the fiscal year to which any of
the foregoing may be applicable.
(i) Notices Regarding Plans and Benefit Arrangements. (i)
------------------------------------------------
Promptly upon becoming aware of the occurrence thereof, notice (including the
nature of the event and, when known, any action taken or threatened by the
Internal Revenue Service or the PBGC with respect thereto) of:
(A) any Reportable Event with respect to the Borrower or
any member of the ERISA Group,
83
<PAGE>
(B) any Prohibited Transaction which could be subject the
Borrower or any member of the ERISA Group to a material civil penalty assessed
pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Internal Revenue Code in connection with any Plan, Benefit Arrangement or any
trust created thereunder,
(C) any assertion of material withdrawal liability with
respect to any Multiemployer Plan,
(D) any partial or complete withdrawal from a Multiemployer
Plan by the Borrower or any member of the ERISA Group under Title IV of ERISA
(or assertion thereof), where such withdrawal is likely to result in material
withdrawal liability,
(E) any cessation of operations (by the Borrower or any
member of the ERISA Group) at a facility in the circumstances described in
Section 4062(e) of ERISA,
(F) withdrawal by the Borrower or any member of the ERISA
Group from a Multiple Employer Plan to which Section 4063 of ERISA applies,
(G) a failure by the Borrower or any member of the ERISA
Group to make a payment to a Plan required to avoid imposition of a lien under
Section 302(f) of ERISA,
(H) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA, or
(I) any change in the actuarial assumptions or funding
methods used for any Plan, where the effect of such change is to materially
increase the unfunded benefit liability or obligation to make periodic
contributions.
(ii) Promptly after receipt thereof, copies of (a) all
notices received by the Borrower or any member of the ERISA Group of the PBGC's
intent to terminate any Plan administered or maintained by the Borrower or any
member of the ERISA Group, or to have a trustee appointed to administer any such
Plan; and (b) at the request of the Administrative Agent or any Bank each annual
report (IRS Form 5500 series) and all accompanying schedules, the most recent
actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Borrower or any
member of the ERISA Group, and schedules showing the amounts contributed to each
such Plan by or on behalf of the Borrower or any member of the ERISA Group in
which any of their personnel participate or from which such personnel may derive
a benefit, and each Schedule B (Actuarial Information) to the annual report
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filed by the Borrower or any member of the ERISA Group with the Internal Revenue
Service with respect to each such Plan.
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(iii) Promptly upon the filing thereof, copies of Form
5310, or any successor or equivalent form to Form 5310, filed with the PBGC in
connection with the termination of any Plan.
(j) Notices With Respect to Indenture. Written notice to the
---------------------------------
Administrative Agent (and upon the Administrative Agent's receipt of each such
notice, the Administrative Agent shall provide a copy thereof to each Bank):
(i) immediately upon the occurrence of a "Default" or an
"Event of Default," as such terms are defined in the Indenture;
(ii) immediately upon a "Change of Control," as such term
is defined in the Indenture;
(iii) immediately upon receipt of a "notice of
acceleration" from either the trustee for the Subordinated Notes or the holders
of the Subordinated Notes pursuant to Section 502 of the Indenture or any
similar provision in any supplement to the Indenture;
(iv) simultaneous with the sending thereof, all notices
required to be sent to the trustee or holders of the Subordinated Notes under
the Indenture; and
(v) immediately upon the receipt thereof, all notices
received from the trustee under the Indenture.
ARTICLE IX
DEFAULT
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9.01 Events of Default. An Event of Default shall mean the
-----------------
occurrence or existence of any one or more of the following events or conditions
(whatever the reason therefor and whether voluntary, involuntary or effected by
operation of Law):
(a) The Borrower shall fail to pay any principal of any Loan
(including scheduled or mandatory prepayments or the payment due at maturity) or
shall fail to pay any interest on any Loan or any other amount owing hereunder
or under the other Loan Documents after such principal or within three (3)
Business Days after such interest or other amount becomes due in accordance with
the terms hereof or thereof;
(b) Any representation and warranty made at any time by the
Borrower herein or by the Borrower or any of its Subsidiaries in any other Loan
Document, or in any certificate, other instrument or statement furnished
pursuant to the provisions hereof or thereof, shall prove to have been false or
misleading in any material respect as of the time it was made or furnished
regardless of whether such representation and warranty was qualified as to
Borrower's knowledge or best knowledge;
(c) The Borrower shall default in the observance or performance
of any covenant contained in Section 8.01(f) or Section 8.02 hereof;
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(d) The Borrower or any of its Subsidiaries shall default in the
observance or performance of any other covenant, condition or provision hereof
or of any other Loan Document and such default shall continue unremedied for a
period of thirty (30) Business Days after any officer of the Borrower or any
Subsidiary becomes aware of the occurrence thereof (such grace period to be
applicable only in the event such default can be remedied by corrective action
of the Borrower or such Subsidiary as determined by the Administrative Agent in
its sole discretion);
(e) A default or event of default shall occur at any time under
the terms of any agreement involving borrowed money or the extension of credit
or any other Indebtedness under which the Borrower or any of its Subsidiaries
may be obligated as borrower or guarantor in excess of $10,000,000 in aggregate
principal amount, and such breach, default or event of default consists of the
failure to pay (beyond any period of grace permitted with respect thereto,
whether waived or not) any indebtedness when due (whether at stated maturity, by
acceleration or otherwise) or if such breach or default permits or causes the
acceleration of any indebtedness (whether or not such right shall have been
waived) or the termination of any commitment to lend;
(f) Any final judgment or orders for the payment of money in
excess of $1,000,000 in the aggregate (not paid or fully covered by insurance)
shall be entered against the Borrower or any of its Subsidiaries by a court
having jurisdiction in the premises which judgment is not discharged, vacated,
bonded or stayed pending appeal within a period of thirty (30) days from the
date of entry;
(g) Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or shall in any way be challenged or
contested or cease to give or provide the respective Liens, security interests,
rights, titles, interests, remedies, powers or privileges intended to be created
thereby;
(h) The Collateral or any other of the Borrower's or any of its
Subsidiaries' assets are attached, seized, levied upon or subject to a writ or
distress warrant; or such come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is not cured
within thirty (30) days thereafter;
(i) A notice of lien or assessment in excess of $1,000,000 is
filed of record with respect to all or any part of the Borrower's or any of its
Subsidiaries' assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, including, without limitation, the Pension Benefit Guaranty
Corporation, or if any taxes or debts owing at any time or times hereafter to
any one of these becomes payable and the same is not paid within thirty (30)
days after the same becomes payable unless the same is being contested in good
faith in accordance with Section 8.01(b);
(j) The Borrower or any of its Material Subsidiaries ceases to
be solvent or admits in writing its inability to pay its debts of as they
mature;
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(k) Any of the following occurs: the Administrative Agent
determines in good faith that the amount of Borrower's liability is likely to
exceed 10% of its Consolidated Net Worth upon the occurrence of (i), (ii), (iii)
or (iv) below: (i) any Reportable Event constitutes grounds for the termination
of any Plan by the PBGC or the appointment of a trustee to administer or
liquidate any Plan, shall have occurred and be continuing; (ii) proceedings
shall have been instituted or other action taken to terminate any Plan or a
termination notice shall have been filed with respect to any Plan; (iii) a
trustee shall be appointed to administer or liquidate any Plan; or (iv) the PBGC
shall give notice of its intent to institute proceedings to terminate any Plan
or Plans or to appoint a trustee to administer or liquidate any Plan; or, with
respect to any of the events specified in (v), (vi), (vii), (viii) or (ix)
below, the Administrative Agent determines in good faith that any such
occurrence could be reasonably likely to materially and adversely affect the
total enterprise represented by the Borrower and the other members of the ERISA
Group; (v) the Borrower or any member of the ERISA Group shall fail to make any
contributions when due to a Plan or a Multiemployer Plan; (vi) the Borrower or
any member of the ERISA Group shall make any amendment to a Plan with respect to
which security is required under Section 307 of ERISA; (vii) the Borrower or any
member of the ERISA Group shall withdraw completely or partially from a
Multiemployer Plan; (viii) the Borrower or any member of the ERISA Group shall
withdraw (or shall be deemed under Section 4062(e) of ERISA to withdraw) from a
Multiple Employer Plan; or (ix) any applicable law is adopted, changed or
interpreted by any Official Body with respect to or otherwise affecting one or
more Plans, Multiemployer Plans or Benefit Arrangements;
(l) The Borrower ceases to conduct its business as contemplated
or the Borrower or any of its Material Subsidiaries is enjoined, restrained or
in any way prevented by court order from conducting all or any material part of
its business and such injunction, restraint or other preventative order is not
dismissed within thirty (30) days after the entry thereof;
(m) A Change of Ownership occurs;
(n) An event of default shall occur at any time under the terms
of the MPN Credit Agreement which causes the acceleration of any indebtedness
thereunder, or an event of default shall occur at any time under the terms of
the Paragon Senior Subordinated Note Indenture which causes the acceleration of
any indebtedness thereunder;
(o) A default or event of default shall occur at any time under
the terms of the Term Loan Agreement, and such breach, default or event of
default consists of the failure to pay (beyond any period of grace permitted
with respect thereto, whether waived or not) any indebtedness when due (whether
at stated maturity, by acceleration or otherwise) or if such breach or default
permits or causes the acceleration of any indebtedness (whether or not such
right shall have been waived) or the termination of any commitment to lend;
(p) A proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
MPN, the Borrower or any Subsidiary of the Borrower in an involuntary case under
any applicable bankruptcy, insolvency, reorganization or other similar law now
or hereafter in effect, or a receiver,
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liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar
official) of MPN, the Borrower, or any Subsidiary of the Borrower for any
substantial part of its property, or for the winding-up or liquidation of its
affairs, and such proceeding shall remain undismissed or unstayed and in effect
for a period of sixty (60) consecutive days or such court shall enter a decree
or order granting any of the relief sought in such proceeding; or
(q) MPN, the Borrower, or any Subsidiary of the Borrower shall
commence a voluntary case under any applicable bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect, shall consent to
the entry of an order for relief in an involuntary case under any such law, or
shall consent to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator, conservator (or other similar
official) of itself or for any substantial part of its property or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any action in furtherance of any of
the foregoing.
9.02 Consequences of Event of Default.
--------------------------------
(a) If an Event of Default specified under subsections (a)
through (o) of Section 9.01 hereof shall occur and be continuing, the Banks
shall be under no further obligation to make Loans hereunder and the
Administrative Agent upon the request of the Required Banks, shall (i) by
written notice to the Borrower, declare the unpaid principal amount of the Notes
then outstanding and all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrower to the Banks hereunder and thereunder to be
forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Administrative Agent for the benefit of each
Bank without presentment, demand, protest or any other notice of any kind, all
of which are hereby expressly waived, and (ii) require the Borrower to, and the
Borrower shall thereupon, deposit in a non-interest bearing account with the
Administrative Agent, as cash collateral for its obligations under the Loan
Documents, an amount equal to the maximum amount currently or at any time
thereafter available to be drawn on all outstanding Letters of Credit, and the
Borrower hereby pledges to the Administrative Agent and the Banks, and grants to
the Administrative Agent and the Banks a security interest in, all such cash as
security for such obligations. Upon the curing of all existing Events of Default
to the satisfaction of the Required Banks, the Administrative Agent shall return
such cash collateral to the Borrower; and
(b) If an Event of Default specified under subsections (p) or
(q) of Section 9.01 hereof shall occur, the Banks shall be under no further
obligations to make Loans hereunder and the unpaid principal amount of the Notes
then outstanding and all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrower to the Banks hereunder and thereunder shall be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived; and
(c) If an Event of Default shall occur and be continuing, any
Bank to whom any obligation is owed by any Loan Party hereunder or under any
other Loan Document or any participant of such Bank which has agreed in writing
to be bound by the provisions of Section 10.13 hereof and any branch, subsidiary
or affiliate of such Bank or participant anywhere
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in the world shall have the right, in addition to all other rights and remedies
available to it, without notice to such Loan party, to set-off against and apply
to the then unpaid balance of all the Loans and all other obligations of such
Loan party hereunder or under any other Loan Document any debt owing to, and any
other fund held in any manner for the account of, such Loan Party by such Bank
or participant or by such branch, subsidiary or affiliate, including, without
limitation, all funds in all deposit accounts (whether time or demand, general
or special, provisionally credited or finally credited, or otherwise) now or
hereafter maintained by such Loan Party for its own account (but not including
funds held in custodian or trust accounts) with such Bank or participant or such
branch, subsidiary or affiliate. Such right shall exist whether or not any Bank
or the Administrative Agent shall have made any demand under this Agreement or
any other Loan Document, whether or not such debt owing to or funds held for the
account of such Loan Party is or are matured or unmatured and regardless of the
existence or adequacy of any Collateral, Guaranty or any other security, right
or remedy available to any Bank or the Administrative Agent; and
(d) If an Event of Default shall occur and be continuing, and
whether or not the Administrative Agent shall have accelerated the maturity of
Loans of the Borrower pursuant to any of the foregoing provisions of this
Section 9.02, the Agents or any Bank, if owed any amount with respect to the
Notes, may proceed to protect and enforce its rights by suit in equity, action
at law and/or other appropriate proceeding, whether for the specific performance
of any covenant or agreement contained in this Agreement or the Notes, including
as permitted by applicable Law the obtaining of the ex parte appointment of a
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receiver, and, if such amount shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the agent or such Bank; and
(e) From and after the date on which the Administrative Agent
has taken any action pursuant to this Section 9.02 and until all obligations of
the Loan Parties have been paid in full, any and all proceeds received by the
Administrative Agent from any sale or other disposition of the Collateral, or
any part thereof, or the exercise of any other remedy by the Administrative
Agent, shall be applied as follows:
(i) first, to reimburse the Administrative Agent and the
Banks for reasonable out-of-pocket costs, expenses and disbursements, including
without limitation reasonable attorneys' fees and legal expenses, incurred by
the Administrative Agent or the Banks in connection with realizing on the
Collateral or collection of any obligations of the Loan Parties under any of the
Loan Documents, including advances made by the Banks or any one of them or the
Administrative Agent for the reasonable maintenance, preservation, protection or
enforcement of, or realization upon, the Collateral, including without
limitation, advances for taxes, insurance, repairs and the like and reasonable
expenses incurred to sell or otherwise realize on, or prepare for sale or other
realization on, any of the Collateral;
(ii) second, to the prepayment of all Indebtedness then due
and unpaid of the Loan Parties to the Banks incurred under this Agreement or any
of the Loan Documents, whether of principal, interest, fees, expenses or
otherwise, in such manner as the
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Administrative Agent may reasonably determine in its discretion and with respect
to principal, interest, and fees, shall be made in proportion to the Ratable
Share of each Bank; and
(iii) the balance, if any, as required by Law.
(f) In addition to all of the rights and remedies contained in
this Agreement or in any of the other Loan Documents, the Administrative Agent
and the Collateral Agent shall have all of the rights and remedies with respect
to the Collateral of a secured party under the Uniform Commercial Code or other
applicable Law, all of which rights and remedies shall be cumulative and non-
exclusive, to the extent permitted by Law. The Administrative Agent may, and
upon the request of the Required Banks shall (or shall, if applicable cause the
Collateral Agent to), exercise all post-default rights granted to the
Administrative Agent (or Collateral Agent, as the case may be) and the Banks
under the Loan Documents or applicable Law.
(g) Following the occurrence and continuance of an Event of
Default, the Borrower, at its cost and expense (including the cost and expense
of any of the following referenced consents, approvals, etc.) will promptly
execute and deliver or cause the execution and delivery of all applications,
certificates, instruments, registration statements, and all other documents and
papers the Administrative Agent may request in connection with the obtaining of
any consent, approval, registration, qualification, permit, license,
accreditation, or authorization of any other Official Body or other person
necessary or appropriate for the effective exercise of any rights hereunder or
under the other Loan Documents. Without limiting the generality of the
foregoing, the Borrower agrees that in the event the Administrative Agent or the
Collateral Agent on behalf of the Banks shall exercise its rights, hereunder or
pursuant to the other Loan Documents, to sell, transfer, or otherwise dispose
of, or vote, consent, operate, or take any other action in connection with any
of the Collateral, the Borrower shall execute and deliver (or cause to be
executed and delivered) all applications, certificates, assignments, and other
documents that the Administrative Agent requests to facilitate such actions and
shall otherwise promptly, fully, and diligently cooperate with the
Administrative Agent or the Collateral Agent and any other necessary persons in
making any application for the prior consent or approval of any Official Body or
any other person to the exercise by the Administrative Agent or the Collateral
Agent on behalf of the Banks of any of such rights relating to all or any of the
Collateral. Furthermore, because the Borrower agrees that the remedies at law,
of the agent on behalf of the Banks, for failure of the Borrower to comply with
the provisions of Section 8.01(f) and of this Section 9.02(g) would be
inadequate and that any such failure would not be adequately compensable in
damages, the Borrower agrees that the covenants of Sections 8.01(f) and 9.02(g)
may be specifically enforced.
(h) Upon the occurrence and continuance of an Event of Default,
the Administrative Agent may request, without limiting the rights and remedies
of the Administrative Agent on behalf of the Banks otherwise provided hereunder
and under the other Loan Documents, that the Borrower do any of the following:
(i) give the Collateral Agent on behalf of the Banks specific assignments of the
accounts receivable of the Borrower and each Subsidiary after such accounts
receivable come into existence, and schedules of such accounts
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receivable, the form and content of such assignment and schedules to be
satisfactory to the Collateral Agent and the Administrative Agent, (ii)
immediately notify the Administrative Agent if any of such accounts receivable
arise out of contracts with the U.S. Government or any department, agency or
instrumentality thereof, and execute any instruments and take any steps required
by the Administrative Agent in order that all moneys due and to become due under
such contract shall be assigned (to the extent permitted by law) to the
Collateral Agent on behalf of the Banks and notice thereof given to the
government under the Federal Assignment of Claims Act, if applicable, or any
other applicable law or regulation; and in order to better secure the Collateral
Agent on behalf of the Banks, in relation to such accounts receivable, and (iii)
to the extent permitted by Law, enter into such lockbox agreements and establish
such lockbox accounts as the Administrative Agent may require, with the local
banks in areas in which the Borrower and its Subsidiaries may be operating (in
such cases, all local lockbox accounts shall be depository transfer accounts
entitled "In trust for PNC Bank, National Association, as Collateral Agent")
which shall have agreed in writing to the Collateral Agent's requirements for
the handling of such accounts and the transfer of account funds to the
Collateral Agent on behalf of the Banks, all at the Borrower's sole expense, and
shall direct all payments from Medicare, Medicaid, Blue Cross and Blue Shield,
private payors, health maintenance organizations, all commercial payors and all
other payors due to the Borrower or any Subsidiary, to such lockbox accounts.
9.03 Notice of Sale. Any notice required to be given by the
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Administrative Agent or Collateral Agent of a sale, lease, or other disposition
of the Collateral or any other intended action by the Administrative Agent or
Collateral Agent, if given ten (10) days prior to such proposed action, shall
constitute commercially reasonable and fair notice thereof to the relevant Loan
Party.
ARTICLE X
THE AGENT
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10.01 Appointment. Each Bank hereby irrevocably designates,
-----------
appoints and authorizes PNC Bank to act as Administrative Agent for such Bank
under this Agreement to execute and deliver or accept on behalf of each of the
Banks the other Loan Documents. Each Bank hereby irrevocably authorizes, and
each holder of any Note by the acceptance of a Note shall be deemed irrevocably
to authorize, the Administrative Agent to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and any other
instruments and agreements referred to herein, and to exercise such powers and
to perform such duties hereunder as are specifically delegated to or required of
the Agents, the Administrative Agent or any of them by the terms hereof,
together with such powers as are reasonably incidental thereto. PNC Bank agrees
to act as the Administrative Agent on behalf of the Banks to the extent provided
in this Agreement, and each of PNC Bank and First Union National Bank agrees to
act as Agent on behalf of the Banks to the extent provided in this Agreement.
10.02 Delegation of Duties. The Agents and the Administrative Agent
--------------------
may perform any of its duties hereunder by or through agents or employees
(provided such delegation does not constitute a relinquishment of its duties as
Agents and the Administrative Agent) and,
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subject to Sections 10.05 and 10.06 hereof, shall be entitled to engage and pay
for the advice or services of any attorneys, accountants or other experts
concerning all matters pertaining to its duties hereunder and to rely upon any
advice so obtained.
10.03 Nature of Duties; Independent Credit Investigation. Neither
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the Agents nor the Administrative Agent shall have any duties or
responsibilities except those expressly set forth in this Agreement and no
implied covenants, functions, responsibilities, duties, obligations, or
liabilities shall be read into this Agreement or otherwise exist. The duties of
the Administrative Agent and of the Agents shall be mechanical and
administrative in nature; neither the Administrative Agent nor the Agents shall
have by reason of this Agreement a fiduciary or trust relationship in respect of
any Bank; and nothing in this Agreement, expressed or implied, is intended to or
shall be so construed as to impose upon the Administrative Agent or any Agent
any obligation in respect of this Agreement except as expressly set forth
herein. Without limiting the generality of the foregoing, the use of the term
"Agents" in this Agreement with reference to the Agents or Administrative Agent,
as the case may be, is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable Law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties. Each Bank expressly acknowledges (i) neither the
Administrative Agent nor any Agent has made any representations and warranties
to it and that no act by the Administrative Agent or any Agent hereafter taken,
including any review of the affairs of the Loan Parties, shall be deemed to
constitute any representation or warranty by the Administrative Agent or any
Agent to any Bank; (ii) that it has made and will continue to make, without
reliance upon the Administrative Agent or any Agent, its own independent
investigation of the financial condition and affairs and its own appraisal of
the creditworthiness of the Loan Parties in connection with this Agreement and
the making and continuance of the Loans hereunder; and (iii) except as expressly
provided herein, that neither the Administrative Agent nor any Agent shall have
any duty or responsibility, either initially or on a continuing basis, to
provide any Bank with any credit or other information with respect thereto,
whether coming into its possession before the making of any Loan or at any time
or times thereafter.
10.04 Actions in Discretion of Agents; Instructions From the Banks.
------------------------------------------------------------
The Administrative Agent and each Agent agrees, upon the written request of the
Required Banks, to take or refrain from taking any action of the type specified
as being within the Administrative Agent's or such Agent's rights, powers or
discretion herein, provided that neither the Administrative Agent nor any Agent
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shall be required to take any action which exposes the Administrative Agent or
any Agent to personal liability or which is contrary to this Agreement or any
other Loan Document or applicable Law. In the absence of a request by the
Required Banks, the Administrative Agent and each Agent shall have authority, in
its sole discretion, to take or not to take any such action, unless this
Agreement specifically requires the consent of the Required Banks or all of the
Banks. Any action taken or failure to act pursuant to such instructions or
discretion shall be binding on the Banks, subject to Section 10.06 hereof.
Subject to the provisions of Section 10.06, no Bank shall have any right of
action whatsoever against the Administrative Agent or any Agent as a result of
the Administrative Agent or any Agent acting or refraining from acting hereunder
in accordance with the instructions of the Required Banks, or
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in the absence of such instructions, in the absolute discretion of the
Administrative Agent or the Agents so long as the Administrative Agent or such
Agent is otherwise authorized to act within its rights and powers as provided in
this Agreement.
10.05 Reimbursement and Indemnification of Agents by the Borrower.
-----------------------------------------------------------
The Borrower unconditionally agrees to pay or reimburse the Administrative Agent
and each Agent and save the Administrative Agent and each Agent harmless against
(a) liability for the payment of all reasonable out-of-pocket costs, expenses
and disbursements, including but not limited to reasonable fees and expenses of
counsel, appraisers and environmental consultants, incurred by the
Administrative Agent or any Agent (i) in connection with the development,
negotiation, preparation, execution, performance by a Loan Party or an Excluded
Entity and interpretation of this Agreement and the other Loan Documents, (ii)
relating to any requested amendments, waivers or consents pursuant to the
provisions hereof, (iii) in connection with the enforcement of this Agreement or
any other Loan Document or collection of amounts due hereunder or thereunder or
the proof and allowability of any claim arising under this Agreement or any
other Loan Document, whether in bankruptcy or receivership proceedings or
otherwise, and (iv) in any workout, restructuring or in connection with the
protection, preservation, exercise or enforcement of any of the terms hereof or
of any rights hereunder or under any other Loan Document or in connection with
any foreclosure, collection or bankruptcy proceedings, and (b) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever including, without
limitation, all documentary stamp tax, non-recurring intangible personal
property tax, recording or transfer taxes due to any Official Body together with
all interest, fines, penalties, costs or other charges thereon which may be
imposed on, incurred by or asserted against the Administrative Agent or any
Agent, in its capacity as such, in any way relating to or arising out of this
Agreement or any other Loan Documents or any action taken or omitted by the
Administrative Agent or any Agent hereunder or thereunder, provided that the
Borrower shall not be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements if the same results from the Administrative Agent's or any Agent's
gross negligence or willful misconduct, or if the Borrower was not given notice
of the subject claim and the opportunity to participate in the defense thereof,
at its expense, or if the same results from a compromise or settlement agreement
entered into without the consent of the Borrower. In addition, upon the
occurrence of an Event of Default, the Borrower agrees to reimburse and pay all
reasonable out-of-pocket expenses of the Administrative Agent's or any Agent's
regular employees and agents engaged periodically to perform audits of the
Borrower's books, records and business properties.
10.06 Exculpatory Provisions. Neither the Administrative Agent, any
----------------------
Agent nor any of their respective directors, officers, employees, agents,
attorneys or affiliates shall (a) be liable to any Bank for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith including
without limitation pursuant to any Loan Document, unless caused by its or their
own gross negligence or willful misconduct, (b) be responsible in any manner to
any of the Banks for the effectiveness, enforceability, genuineness, validity or
the due execution of this Agreement or any other Loan Documents or for any
recital, representation, warranty, document, certificate, report or statement
herein or made or furnished under or in connection
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with this Agreement or any other Loan Documents, unless caused by its or their
own gross negligence or willful misconduct, or (c) be under any obligation to
any of the Banks to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions hereof or thereof on the part of
the Loan Parties or any Excluded Entity, or the financial condition of the Loan
Parties or any Excluded Entity, or the existence or possible existence of any
Event of Default or Potential Default, unless caused by its or their own gross
negligence or willful misconduct. Neither the Agent nor any Bank nor any of
their respective directors, officers, employees, agents, attorneys or affiliates
shall be liable to the Loan Parties or any Excluded Entity for consequential
damages resulting from any breach of contract, tort or other wrong in connection
with the negotiation, documentation, administration or collection of the Loans
or any of the Loan Documents.
10.07 Reimbursement and Indemnification of Agents by Banks. Each
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Bank agrees to reimburse and indemnify the Administrative Agent and each Agent
(to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) in proportion of its Ratable Share from and
against all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the
Administrative Agent, the Agents, or any of them, in their respective capacities
as such, in any way relating to or arising out of this Agreement or any other
Loan Documents or any action taken or omitted by the Administrative Agent or any
Agent hereunder or thereunder, provided that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (a) if the same results from
the Administrative Agent's or any Agent's gross negligence or willful
misconduct, or (b) if such Bank was not given notice of the subject claim and
the opportunity to participate in the defense thereof, at its expense, or (c) if
the same results from a compromise and settlement agreement entered into without
the consent of such Bank. In addition, each Bank agrees promptly to reimburse
the Administrative Agent and each Agent (to the extent not reimbursed by the
Borrower and without limiting the obligation of the Borrower to do so) in
proportion to its Ratable Share for all amounts due and payable by the Borrower
to the Administrative Agent or the Agents in connection with the periodic audit
of the Borrower's books, records and business properties by the Administrative
Agent or the Agents. In the event the Banks reimburse or indemnify the
Administrative Agent or any Agent pursuant to this Section 10.07 and subsequent
thereto the Administrative Agent or such Agent is reimbursed or indemnified by
the Borrower with respect to the same matter for which indemnification or
reimbursement was previously made by the Banks, such Administrative Agent or
Agent will promptly refund to the Banks, in accordance with each Bank's Ratable
Share, the duplicative amount.
10.08 Reliance by Agents. The Administrative Agent and each Agent
------------------
shall be entitled to rely upon any writing, telegram, telex or teletype message,
resolution, notice, consent, certificate, letter, cablegram, statement, order or
other document or conversation by telephone or otherwise believed by it to be
genuine and correct and to have been signed, sent or made by the proper person
or persons, and upon the advice and opinions of counsel and other professional
advisers selected by the Administrative Agent or any Agent. The Administrative
Agent and each Agent shall be fully justified in failing or refusing to take any
action hereunder unless it shall
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first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
10.09 Notice of Default. Neither the Administrative Agent nor any
-----------------
Agent shall be deemed to have knowledge or notice of the occurrence of any
Potential Default or Event of Default unless such person has received written
notice from a Bank or the Borrower referring to this Agreement, describing such
Potential Default or Event of Default and stating that such notice is a "notice
of default."
10.10 Notices. Each of the Administrative Agent and each Agent shall
-------
promptly send to each Bank a copy of all notices received from any Loan Party
pursuant to the provisions of this Agreement or the other Loan Documents
promptly upon receipt thereof. The Administrative Agent shall promptly notify
the Borrower and the other Banks of each change in the Base Rate and the
effective date thereof.
10.11 Banks in Their Individual Capacities. With respect to its
------------------------------------
Commitments and the Loans made by it, the Administrative Agent and each Agent
shall have the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not the Administrative Agent or an Agent,
and the term "Banks" shall, unless the context otherwise indicates, include the
Administrative Agent and each Agent in its individual capacity. PNC Bank and
its affiliates, First Union National Bank and its affiliates and each of the
Banks and their respective affiliates may, without liability to account, except
as prohibited herein, make Loans to, accept deposits from, discount drafts for,
act as trustee under indentures of, and generally engage in any kind of banking
or trust business with, the Borrower and its affiliates, in the case of the
Administrative Agent or any Agent, as though it were not acting as
Administrative Agent or Agent hereunder and in the case of each Bank, as though
such Bank were not a Bank hereunder.
10.12 Holders of Notes. The Administrative Agent and each Agent may
----------------
deem and treat any payee of any Note as the owner thereof for all purposes
hereof unless and until written notice of the assignment or transfer thereof
shall have been filed with the Administrative Agent and the Agents. Any
request, authority or consent of any person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
10.13 Equalization of Banks. The Banks and the holders of any
---------------------
participations in any Notes agree among themselves that, with respect to all
amounts received by any Bank or any such holder for application on any
obligation hereunder or under any Note or under any such participation, whether
received by voluntary payment, by realization upon security, by the exercise of
the right of set-off or banker's lien, by counterclaim or by any other non-pro
rata source, equitable adjustment will be made in the manner stated in the
following sentence so that, in effect, all such excess amounts shall be shared
ratably among the Banks and such holders in proportion to their interests in
payments under the Notes, except as otherwise provided in Sections [4.04(b),
5.04(b) or 5.06(a)] hereof. The Banks or any such holder receiving any such
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amount shall purchase for cash from each of the other Banks an interest in such
Bank's Loans in such amount as shall result in a ratable participation by the
Banks and each such holder in the aggregate unpaid amount under the Notes,
provided that if all or any portion of such excess amount is thereafter
recovered from the Bank or the holder making such purchase, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery,
together with interest or other amounts, if any, required by law (including
court order) to be paid by the Bank or the holder making such purchase.
10.14 Successor Agents. Any Agent or the Administrative Agent (i)
----------------
may resign as Agent or Administrative Agent, as the case may be, or (ii) shall
resign if such resignation is requested by the Required Banks, in the case of
either (i) or (ii) upon not less than thirty (30) days' prior written notice to
the Borrower and the Banks. If any Agent or the Administrative Agent shall
resign under this Agreement, then either (a) the Required Banks shall appoint
from among the Banks a successor Agent or Administrative Agent, as the case may
be, for the Banks, or (b) if a successor Agent shall not be so appointed and
approved within the thirty (30) day period following the Agent's or the
Administrative Agent's notice to the Banks of its resignation, then the
resigning Administrative Agent or resigning Agent, as the case may be, shall
appoint, with the consent of the Borrower, such consent not to be unreasonably
withheld, a successor Agent who shall serve as Agent, or Administrative Agent,
as the case may be, until such time as the Required Banks appoint a successor
agent. Upon its appointment pursuant to either clause (a) or (b) above, such
successor agent shall succeed to the rights, powers and duties of the agent and
the terms "Agent" and "Administrative Agent" shall mean such successor Agent or
Administrative Agent, as the case may be, effective upon its appointment, and
the former Administrative Agent's or Agent's rights, powers and duties as Agent
or Administrative Agent shall be terminated without any other or further act or
deed on the part of such former Agent or Administrative Agent or any of the
parties to this Agreement. After the resignation of any Administrative Agent or
Agent hereunder, the provisions of this Article X shall inure to the benefit of
such former Agent and former Administrative Agent, and such former Agent and
former Administrative Agent shall not by reason of such resignation be deemed to
be released from liability for any actions taken or not taken by it while it was
the Administrative Agent or an Agent under this Agreement.
10.15 Administrative Agent's Fee. The Borrower shall pay to the
--------------------------
Administrative Agent a non refundable, annual fee (the "Administrative Agent's
Fee") as set forth in the agreement dated December 3, 1998, between the Borrower
and the Administrative Agent, such fee to be payable in the manner and on the
dates set forth in such letter agreement.
10.16 Availability of Funds. Unless the Administrative Agent shall
---------------------
have been notified by a Bank prior to the date upon which a Loan is to be made
that such Bank does not intend to make available to the Administrative Agent
such Bank's portion of such Loan, the Administrative Agent may assume that such
Bank has made or will make such proceeds available to the Administrative Agent
on such date and the Administrative Agent may, in reliance upon such assumption
(but shall not be required to), make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the
Administrative Agent by such Bank, the Administrative Agent shall be entitled to
recover such
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amount on demand from such Bank (or, if such Bank fails to pay such amount
forthwith upon such demand from the Borrower) together with interest thereon, in
respect of each day during the period commencing on the date such amount was
made available to the Borrower and ending on the date the Administrative Agent
recovers such amount, at a rate per annum equal to the Federal Funds Effective
Rate in respect of the Loan.
10.17 Calculations. In the absence of gross negligence or willful
------------
misconduct, the Administrative Agent shall not be liable for any error in
computing the amount payable to any Bank whether in respect of the Loans, fees
or any other amounts due to the Banks under this Agreement. In the event an
error in computing any amount payable to any Bank is made, the Administrative
Agent, the Borrower and each affected Bank shall, forthwith upon discovery of
such error, make such adjustments as shall be required to correct such error,
and any compensation therefor will be calculated at the Federal Funds Effective
Rate.
10.18 Beneficiaries. Except as expressly provided herein, the
-------------
provisions of this Article X are solely for the benefit of the Administrative
Agent, each Agent and the Banks, and the Borrower shall not have any rights to
rely on or enforce any of the provisions hereof. In performing its functions
and duties under this Agreement, the Administrative Agent and each Agent shall
act solely as agent of the Banks and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for the Borrower.
10.19 Holding of Loan Documents. Administrative Agent agrees that all
-------------------------
original Loan Documents retained by it shall be retained for the benefit of the
Banks, and the Administrative Agent shall make available copies of such
documents retained by it upon the reasonable request of any of the Banks.
ARTICLE XI
MISCELLANEOUS
-------------
11.01 Modifications, Amendments or Waivers. With the written consent
------------------------------------
of the Required Banks, the Administrative Agent, acting on behalf of the Banks,
and the Borrower or the other applicable Loan Party may from time to time enter
into written agreements amending or changing any provision of this Agreement or
any other Loan Document or the rights of the Banks or the Borrower or such Loan
Party hereunder or thereunder, or may grant written waivers or consents to a
departure from the due performance of the obligations of the Borrower or such
Loan Party hereunder or thereunder. Any such agreement, waiver or consent made
with such written consent shall be effective to bind all the Loan Parties and
all of the Banks; provided that, no such agreement, waiver or consent may be
made which will:
(a) without the written consent of all Banks, reduce the amount
of the Commitment Fee or any other fees payable to any Bank hereunder, or amend
Sections 5.02 [Pro Rata Treatment of Banks], 10.06 [Exculpatory Provisions] or
10.13 [Equalization of Banks] hereof;
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(b) without the written consent of all Banks, whether or not
any Loans are outstanding, extend the time for payment of principal or interest
of any Loan, or reduce the principal amount of or the rate of interest borne by
any Loan;
(c) without the written consent of all Banks, release any
Collateral or other security, if any, for the Borrower's obligations hereunder
(provided that, upon the request by the Borrower and so long as no Potential
Default or Event of Default exists or is continuing as certified by the Borrower
to the Agents and the Banks, with respect to any disposition or sale of assets
which is permitted by Section 8.02(f) or (g), the Administrative Agent is hereby
authorized to release liens on the assets so disposed of or sold and to release
the Guaranty of any Subsidiary sold or disposed of without the consent of any
Bank);
(d) without the written consent of all Banks, release or
terminate any Guaranty Agreement of any Loan Party;
(e) without the written consent of the Supermajority Required
Banks and each Bank whose Combined Commitment equals $25,000,000 or more, amend
Sections 2.01(c), 4.01(a) or 8.02(r), or change the definitions or the method of
computing the ratios contained within such foregoing sections;
(f) without the written consent of all Banks, amend Section
11.01 or change the definition of Supermajority Required Banks or the definition
of Required Banks, or change any requirement providing for the Banks, the
Supermajority Required Banks or the Required Banks to authorize the taking of
any action hereunder; or
(g) without the written consent of all Banks, extend the
Expiration Date or increase the amount of Commitment of any Bank hereunder.
11.02 No Implied Waivers; Cumulative Remedies; Writing Required. No
---------------------------------------------------------
course of dealing and no delay or failure of the Administrative Agent, any Agent
or any Bank in exercising any right, power or remedy or privilege under this
Agreement or any other Loan Document shall affect any other or future exercise
thereof or operate as a waiver thereof; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power, remedy or privilege preclude any further exercise thereof or of
any other right, power, remedy or privilege. The rights and remedies of the
Administrative Agent, each Agent and the Banks under this Agreement and any
other Loan Documents are cumulative and not exclusive of any rights or remedies
which they would otherwise have. Any waiver, permit, consent or approval of any
kind or character on the part of any Bank of any breach or default under this
Agreement or any such waiver of any provision or condition of this Agreement
must be in writing and shall be effective only to the extent specifically set
forth in such writing.
11.03 Reimbursement and Indemnification of Banks by the Borrower;
-----------------------------------------------------------
Taxes. The Borrower agrees unconditionally upon demand to pay or reimburse to
- -----
each Bank (other than the Administrative Agents and the Agents, as to which the
Borrower's obligations are set forth in Section 9.05) and to save such Bank
harmless against (i) liability for the payment of all reasonable out-of-pocket
costs, expenses and disbursements (including reasonable fees and
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expenses of counsel for each Bank except with respect to (a) and (b) below),
incurred by such Bank (a) in connection with the interpretation of this
Agreement, and other instruments and documents to be delivered hereunder, (b)
relating to any requested amendments, waivers or consents pursuant to the
provisions hereof, (c) in connection with the enforcement of this Agreement or
any other Loan Document, or collection of amounts due hereunder or thereunder or
the proof and allowability of any claim arising under this Agreement or any
other Loan Document, whether in bankruptcy or receivership proceedings or
otherwise, and (d) in any workout, restructuring or in connection with the
protection, preservation, exercise or enforcement of any of the terms hereof or
of any rights hereunder or under any other Loan Document or in connection with
any foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever including, without
limitation, all documentary stamp tax, non-recurring intangible personal
property tax, recording or transfer taxes due to any Official Body together with
all interest, fines, penalties, costs or other charges thereon which may be
imposed on, incurred by or asserted against such Bank, in its capacity as such,
in any way relating to or arising out of this Agreement or any other Loan
Documents or any action taken or omitted by such Bank hereunder or thereunder,
provided that the Borrower shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (A) if the same results from such Bank's gross
negligence or willful misconduct, or (B) if the Borrower was not given notice of
the subject claim and the opportunity to participate in the defense thereof, at
its expense, or (C) if the same results from a compromise or settlement
agreement entered into without the consent of the Borrower. The Banks will
attempt to minimize the fees and expenses of legal counsel for the Banks which
are subject to reimbursement by the Borrower hereunder by considering the usage
of one law firm to represent the Banks and the Administrative Agents, and the
Agents if appropriate under the circumstances. The Borrower agrees
unconditionally to pay all stamp, document, transfer, recording or filing taxes
or fees and similar impositions now or hereafter determined by the
Administrative Agent, any Agent or any Bank to be payable in connection with
this Agreement or any other Loan Document, and the Borrower agrees
unconditionally to save the Administrative Agent, each Agent and the Banks
harmless from and against any and all present or future claims, liabilities or
losses with respect to or resulting from any omission to pay or delay in paying
any such taxes, fees or impositions.
11.04 Holidays. Whenever any payment or action to be made or taken
--------
hereunder shall be stated to be due on a day which is not a Business Day, such
payment or action shall be made or taken on the next following Business Day
(except as provided in Sections 4.02(a) and (b) with respect to Interest Periods
for Loans subject to a Euro-Rate Option), and such extension of time shall be
included in computing interest or fees, if any, in connection with such payment
or action.
11.05 Funding by Branch, Subsidiary or Affiliate.
------------------------------------------
(a) Notional Funding. Each Bank shall have the right from time to
----------------
time, without notice to the Borrower, to deem any branch, subsidiary or
affiliate (which for the purposes of this Section 11.05 shall mean any
corporation or association which is directly or
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indirectly controlled by or is under direct or indirect common control with any
corporation or association which directly or indirectly controls such Bank) of
such Bank to have made, maintained or funded any Loan to which the Euro-Rate
Option applies at any time, provided that immediately following (on the
assumption that a payment were then due from the Borrower to such other office)
and as a result of such change the Borrower would not be under any greater
financial obligation pursuant to Section 5.06 hereof than it would have been in
the absence of such change. Notional funding offices may be selected by each
Bank without regard to the Bank's actual methods of making, maintaining or
funding the Loans or any sources of funding actually used by or available to
such Bank.
(b) Actual Funding. Each Bank shall have the right from time to
--------------
time, to make or maintain any Loan by arranging for a branch, subsidiary or
affiliate of such Bank to make or maintain such Loan subject to the last
sentence of this Section 11.05(b). If any Bank causes a branch, subsidiary or
affiliate to make or maintain any part of the Loans hereunder, all terms and
conditions of this Agreement shall, except where the context clearly requires
otherwise, be applicable to such part of the Loans to the same extent as if such
Loans were made or maintained by such Banks but in no event shall any Bank's use
of a branch, subsidiary or affiliate to make or maintain any part of the Loans
hereunder cause such Bank or such branch, subsidiary or affiliate to incur any
cost or expenses payable by the Borrower hereunder or require the Borrower to
pay any other compensation to any Bank (including, without limitation, any
expenses incurred or payable pursuant to Section 5.06 hereof) which would
otherwise not be incurred).
11.06 Notices. All notices, requests, demands, directions and other
-------
communications (collectively "notices") given to or made upon any party hereto
under the provisions of this Agreement shall be by telephone or in writing
(including telex or facsimile communication) unless otherwise expressly
permitted hereunder and shall be delivered or sent by telex or facsimile to the
respective parties at the addresses and numbers set forth under their respective
names on the signature pages hereof or in accordance with any subsequent
unrevoked written direction from any party to the others. All notices shall,
except as otherwise expressly herein provided, be effective (a) in the case of
telex or facsimile, when received, (b) in the case of hand-delivered notice,
when hand delivered, (c) in the case of telephone, when telephoned, provided,
however, that in order to be effective, telephonic notices must be confirmed in
writing no later than the next day by letter, facsimile or telex, (d) if given
by mail, four (4) days after such communication is deposited in the mails with
first class postage prepaid, return receipt requested, and (e) if given by any
other means (including by air courier), when delivered; provided, that notices
to the Administrative Agent shall not be effective until received. Any Bank
giving any notice to the Borrower shall simultaneously send a copy thereof to
the Administrative Agent, and the Administrative Agent shall promptly notify the
other Banks of the receipt by it of any such notice.
11.07 Severability. The provisions of this Agreement are intended to
------------
be severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity and
unenforceability without in any manner affecting the validity or
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enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
11.08 Governing Law. This Agreement shall be deemed to be a contract
-------------
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania without regard to its conflict of laws principles.
11.09 Prior Understanding. This Agreement supersedes all prior
-------------------
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments, except that for
periods from January 1, 1998 through the date prior to the Eighteenth Amendment
Effective Date, the fees and interest rates set forth in the Credit Agreement,
as amended through Amendment No. 17 to Credit Agreement shall be and remain
applicable for such periods.
11.10 Duration; Survival. All representations and warranties of the
------------------
Borrower contained herein or made in connection herewith shall survive the
making of Loans and shall not be waived by the execution and delivery of this
Agreement, any investigation by the Administrative Agent, any Agent or the
Banks, the making of Loans, or payment in full of the Loans. All covenants and
agreements of the Borrower contained in Sections 8.01, 8.02 and 8.03 herein
shall continue in full force and effect from and after the date hereof so long
as the Borrower may borrow hereunder and until termination of the Commitments
and payment in full of the Loans. All covenants and agreements of the Borrower
contained herein relating to the payment of principal, interest, premiums,
additional compensation or expenses and indemnification, including those set
forth in the Notes, Article V and Sections 10.05, 10.07 and 11.03 hereof, shall
survive payment in full of the Loans and termination of the Commitments.
11.11 Successors and Assigns.
----------------------
(i) This Agreement shall be binding upon and shall inure to the
benefit of the Banks, the Agents, the Administrative Agent, the Borrower and
their respective successors and assigns, except that the Borrower may not assign
or transfer any of its rights and obligations hereunder or any interest herein.
Each Bank may, at its own cost, make assignments of or sell participations in
all or any part of its Commitment and the Loans made by it to one or more banks
or other entities, subject in the case of assignments to the consent of the
Borrower (which consent shall not be required (A) during any period in which an
Event of Default exists or (B) in the case of an assignment by a Bank to an
Affiliate of such Bank) and the Administrative Agent with respect to any
assignee, such consent not to be unreasonably withheld, and provided that
assignments may not be made in amounts less than $1,000,000. It is expressly
agreed that upon and after the occurrence and during the continuation of an
Event of Default the consent of the Administrative Agent shall be required,
however the consent of the Borrower shall not be required for a Bank to make an
assignment of all or any part of its Commitment. In order for a Bank, at any
time to sell a participation in all or any part of its Commitment, the consent
of the Administrative Agent shall be required, however the consent of the
Borrower shall not be
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required. In the case of an assignment, upon receipt by the Administrative Agent
of the Assignment and Assumption Agreement and payment to the Administrative
Agent of a fee in the amount of $3,500, the assignee shall have, to the extent
of such assignment (unless otherwise provided therein), the same rights,
benefits and obligations as it would have if it had been a signatory Bank
hereunder, the Commitments in Section 2.01 shall be adjusted accordingly, and
upon surrender of any Note subject to such assignment, the Borrower shall
execute and deliver a new Note to the assignee in an amount equal to the amount
of the Commitment or Loan assumed by it and a new Note to the assigning Bank in
an amount equal to the Commitment or Loan retained by it hereunder. In the case
of a participation, the participant shall only have the rights specified in
Section 9.02(c) (the participant's rights against such Bank in respect of such
participation to be those set forth in the agreement executed by such Bank in
favor of the participant relating thereto and not to include any voting rights
except with respect to changes of the type referenced in clauses (a), (b) or (c)
under Section 11.01 hereof), all of such Bank's obligations under this Agreement
or any other Loan Document shall remain unchanged and all amounts payable by any
Loan party hereunder or thereunder shall be determined as if such Bank had not
sold such participation. Each Bank may furnish any publicly available
information concerning any Loan Party and any other information concerning any
Loan Party in the possession of such Bank from time to time to assignees and
participants (including prospective assignees or participants) provided such
assignees and participants agree to be bound by the provisions of Section 11.2
hereof.
(ii) Notwithstanding any other provision of this Agreement, any
Bank may at any time pledge or grant a security interest in all or any portion
of its rights under this Agreement, its Note and the other Loan Documents to any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Relegation 31 CFR Section 203.14 without notice to or consent of the Borrower or
the Administrative Agent. No such pledge or grant of a security interest shall
release the transferor Bank of its obligations hereunder or under any other Loan
Document.
11.12 Confidentiality. The Agents, the Administrative Agent and the
---------------
Banks each agree to keep confidential all information obtained from any Loan
Party which is nonpublic and confidential or proprietary in nature (including
any information any Loan Party specifically designates as confidential), except
as provided below, and to use such information only in connection with their
respective capacities under this Agreement and for the purposes contemplated
hereby. The Agents, the Administrative Agent and the Banks shall be permitted
to disclose such information (i) to outside legal counsel, accountants and other
professional advisors who need to know such information in connection with the
administration and enforcement of this Agreement, subject to agreement of such
persons to maintain the confidentiality, (ii) assignees and participants as
contemplated by Section 11.11, (iii) to the extent requested by any bank
regulatory authority or, with notice to the Borrower, as otherwise required by
applicable Law or by any subpoena or similar legal process, or in connection
with any investigation or proceeding arising out of the transactions
contemplated by this Agreement, (iv) if it becomes publicly available other than
as a result of a breach of this Agreement or becomes available from a source not
subject to confidentiality restrictions, or (v) the Borrower shall have
consented to such disclosure.
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11.13 Counterparts. This Agreement may be executed by different
------------
parties hereto on any number of separate counterparts, each of which, when so
executed and delivered, shall be an original, and all such counterparts shall
together constitute one and the same instrument.
11.14 Agent's or Bank's Consent. Whenever the Administrative
-------------------------
Agent's, any Agent's or any Bank's consent is required to be obtained under this
Agreement or any of the other Loan Documents as a condition to any action,
inaction, condition or event, the Administrative Agent, each Agent and each Bank
shall be authorized to give or withhold such consent in its sole and absolute
discretion and to condition its consent upon the giving of additional
collateral, the payment of money or any other matter.
11.15 Exceptions. The representations, warranties and covenants
----------
contained herein shall be independent of each other and no exception to any
representation, warranty or covenant shall be deemed to be an exception to any
other representation, warranty or covenant contained herein unless expressly
provided, nor shall any such exceptions be deemed to permit any action or
omission that would be in contravention of applicable Law.
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL. THE BORROWER HEREBY
--------------------------------------
IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON
PLEAS OF ALLEGHENY COUNTY AND UNITED STATES DISTRICT COURT FOR THE WESTERN
DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR
REGISTERED MAIL DIRECTED TO THE BORROWER AT THE ADDRESSES PROVIDED FOR IN
SECTION 11.06 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
ACTUAL RECEIPT THEREOF. THE BORROWER WAIVES ANY OBJECTION TO JURISDICTION AND
VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO
ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. THE BORROWER, THE
ADMINISTRATIVE AGENT, THE AGENTS AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED
TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT
PERMITTED BY LAW.
11.17 Tax Withholding Clause. At least five (5) Business Days prior
----------------------
to the first date on which interest or fees are payable hereunder for the
account of any Bank, each Bank that is not incorporated under the laws of the
United States of America or state thereof agrees that it will deliver to each of
the Borrower and the Administrative Agent two (2) duly completed copies of (i)
Internal Revenue Service Form W-9, 4224 or 1001, or other applicable form
prescribed by the Internal Revenue Service, certifying in either case that such
Bank is entitled to receive payments under this Agreement and the other Loan
Documents without deduction or withholding of any United States federal income
taxes, or is subject to such tax at a reduced rate under an applicable tax
treaty, or (ii) Form W-8 or other applicable form or a certificate of the Bank
indicating that no such exemption or reduced rate is allowable with respect to
such payments.
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Each Bank which so delivers a Form W-8, W-9, 4224 or 1001 further undertakes to
deliver to each of the Borrower and the Administrative Agent two (2) additional
copies of such form (or a successor form) on or before the date that such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested by the Borrower
or the Administrative Agent, either certifying that such Bank is entitled to
receive payments under this Agreement and the other Loan Documents without
deduction or withholding of any United States federal income taxes or is subject
to such tax at a reduced rate under an applicable tax treaty or stating that no
such exemption or reduced rate is allowable. The Administrative Agent shall be
entitled to withhold United States federal income taxes at the full withholding
rate unless the Bank establishes an exemption or at the applicable reduced rate
as established pursuant to the above provisions.
11.18 Appointment of Collateral Agent. Each Agent and each Bank has
-------------------------------
reviewed a copy of the Collateral Sharing Agreement and hereby consents to: (a)
the Collateral Sharing Agreement and the appointment of PNC Bank as Collateral
Agent under the Collateral Sharing Agreement, the First Mortgages, Pledge
Agreements, Security Agreement, Patent, Trademark and Copyright Security
Agreement and other Loan Documents and (b) the execution of the Collateral
Sharing Agreement by the Administrative Agent on behalf of each Agent and each
Bank.
104
<PAGE>
EXHIBIT 1
AMENDED AND RESTATED RECITALS AND ARTICLES I THROUGH XI
OF THE REVOLVING CREDIT AGREEMENT
(Cover Page, table of contents and first
paragraph are also attached for convenience)
105
<PAGE>
EXHIBIT 10.64
MARINER SAVINGS PLAN
THIS INDENTURE made on the _____ day of _____________, 1998, by MARINER
POST-ACUTE NETWORK, INC., a corporation duly organized and existing under the
laws of the State of Delaware (hereinafter called the "Primary Sponsor");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Primary Sponsor desires to establish for the benefit of its
eligible employees and the eligible employees of its adopting subsidiaries a
profit sharing plan with a cash or deferred feature;
WHEREAS, the Plan is intended to be a profit sharing plan within the
meaning of Treasury Regulations Section 1.401-1(b)(1)(ii) and also contains a
cash or deferred arrangement as described in Section 401(k) of the Internal
Revenue Code of 1986; and
NOW, THEREFORE, the Primary Sponsor does hereby establish the Plan,
effective as of October 1, 1998, to read as follows:
<PAGE>
MARINER SAVINGS PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 DEFINITIONS..................................................................................... 1
SECTION 2 ELIGIBILITY..................................................................................... 9
SECTION 3 CONTRIBUTIONS................................................................................... 9
SECTION 4 ALLOCATIONS..................................................................................... 11
SECTION 5 PLAN LOANS...................................................................................... 11
SECTION 6 IN-SERVICE AND HARDSHIP WITHDRAWALS............................................................. 13
SECTION 7 INDIVIDUAL FUNDS AND INVESTMENTS OF TRUST ASSETS................................................ 14
SECTION 8 PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT................................................ 15
SECTION 9 PAYMENT OF BENEFITS ON RETIREMENT............................................................... 17
SECTION 10 DEATH BENEFITS................................................................................. 18
SECTION 11 GENERAL RULES ON DISTRIBUTIONS................................................................. 18
SECTION 12 ADMINISTRATION OF THE PLAN..................................................................... 20
SECTION 13 CLAIM REVIEW PROCEDURE......................................................................... 22
SECTION 14 LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS.. 23
SECTION 15 PROHIBITION AGAINST DIVERSION.................................................................. 24
SECTION 16 LIMITATION OF RIGHTS........................................................................... 24
SECTION 17 AMENDMENT TO OR TERMINATION OF THE PLAN AND THE TRUST.......................................... 25
SECTION 18 ADOPTION OF PLAN BY AFFILIATES................................................................. 26
SECTION 19 QUALIFICATION AND RETURN OF CONTRIBUTIONS...................................................... 26
SECTION 20 INCORPORATION OF SPECIAL LIMITATIONS........................................................... 27
APPENDIX A LIMITATION ON ALLOCATIONS...................................................................... 1
APPENDIX B TOP-HEAVY PROVISIONS........................................................................... 1
APPENDIX C SPECIAL NONDISCRIMINATION RULES................................................................ 1
APPENDIX D SPECIAL TRANSITION RULES....................................................................... 1
</TABLE>
i
<PAGE>
MARINER SAVINGS PLAN
SECTION 1
DEFINITIONS
-----------
Wherever used herein, the masculine pronoun shall be deemed to include
the feminine, and the singular to include the plural, unless the context clearly
indicates otherwise and the following words and phrases shall, when used herein,
have the meanings set forth below:
1.1 "Account" means a Member's aggregate balance in the following
-------
accounts, as adjusted pursuant to the Plan as of any given date:
(a) "Employee Deferral Account" which shall reflect a Member's
-------------------------
interest in contributions made by a Plan Sponsor under Plan Section 3.1.
(b) "Matching Account" which shall reflect a Member's interest in
----------------
matching contributions made by a Plan Sponsor under Plan Section 3.2.
(c) "Prior Matching Account" which shall reflect a Member's interest
----------------------
in matching contributions made under any other tax-qualified plan, the
assets of which have been merged into the Plan.
(d) "Company Account" which shall reflect a Member's interest in the
---------------
Company Account under the GranCare, Inc. 401(k) Savings Plan.
(e) "Rollover Account" which shall reflect a Member's interest in
----------------
Rollover Amounts.
In addition, the Plan Administrator shall allocate the interest of a Member in
any funds transferred to the Plan in a trust-to-trust transfer (other than
Rollover Amounts) or pursuant to the merger of another tax-qualified retirement
plan with the Plan among the above accounts as the Plan Administrator determines
best reflects the interest of the Member.
1.2 "Affiliate" means (a) any corporation which is a member of the same
---------
controlled group of corporations (within the meaning of Code Section 414(b)) as
is a Plan Sponsor, (b) any other trade or business (whether or not incorporated)
under common control (within the meaning of Code Section 414(c)) with a Plan
Sponsor, (c) any other corporation, partnership or other organization which is a
member of an affiliated service group (within the meaning of Code Section
414(m)) with a Plan Sponsor, and (d) any other entity required to be aggregated
with a Plan Sponsor pursuant to regulations under Code Section 414(o).
Notwithstanding the forgoing, for purposes of applying the limitations set forth
in Appendix A and for purposes of determining Annual Compensations under
Appendix A, the references to Code Sections 414(b) and (c) above shall be as
modified by Code Section 415(h).
1.3 "Annual Compensation" means wages within the meaning of Code Section
-------------------
3401(a) (for purposes of income tax withholding at the source) paid to an
Employee by a Plan Sponsor (and Affiliates for purposes of Appendices A, B and
C) during a Plan Year (but without regard to any rules that limit the
remuneration included in wages based on the nature or location of the employment
or the services performed, such as the exception for agricultural labor in Code
Section 3401(a)(2)), to the extent not in excess of the Annual Compensation
<PAGE>
Limit for all purposes under the Plan except determining Highly Compensated
Employees or Key Employees. Notwithstanding the above, Annual Compensation
shall be determined as follows:
(a) in determining with respect to each Plan Sponsor the amount of
contributions made by or on behalf of an Employee under Plan Section 3,
except Plan Section 3.3, and allocations under Plan Section 4, except under
Plan Section 4.1(b), and (2) for purposes of applying the provisions of
Appendix C hereto for such Plan Years as the Secretary of the Treasury may
allow, Annual Compensation shall only include amounts received for the
portion of the Plan Year during which the Employee was a Member;
(b) in determining the amount of contributions made by or on behalf of
an Employee under Plan Section 3 and allocations under Plan Section 4,
Annual Compensation shall exclude car allowances, relocations allowances,
income attributable to stock options and stock grants, severance pay and
taxable fringe benefits;
(c) for purposes of applying the Annual Compensation Limit, the rules
contained in Subsection (c) of the Plan Section containing the definition
of the term "Highly Compensated Employee";
(d) Annual Compensation shall include any amount which would have been
paid during a Plan Year, but was contributed by a Plan Sponsor on behalf of
an Employee pursuant to a salary reduction agreement which is not
includable in the gross income of the Employee under Section 125,
402(g)(3), or 457 of the Code; and
1.4 "Annual Compensation Limit" means $160,000 for the 1998 Plan Year,
-------------------------
which amount may be adjusted in subsequent Plan Years based on changes in the
cost of living as announced by the Secretary of the Treasury.
1.5 "Beneficiary" means the person or trust that a Member designated most
-----------
recently in writing to the Plan Administrator; provided, however, that if the
Member has failed to make a designation, no person designated is alive, no trust
has been established, or no successor Beneficiary has been designated who is
alive, the term "Beneficiary" means (a) the Member's spouse or (b) if no spouse
is alive, the Member's surviving children, or (c) if no children are alive, the
Member's parent or parents, or (d) if no parent is alive, the deceased Member's
estate. Notwithstanding the preceding sentence, the spouse of a married Member
shall be his Beneficiary unless that spouse has consented in writing to the
designation by the Member of some other person or trust and the spouse's consent
acknowledges the effect of the designation and is witnessed by a notary public
or a Plan representative. A Member may change his designation at any time.
However, a Member may not change his designation without further consent of his
spouse under the terms of the preceding sentence unless the spouse's consent
permits designation of another person or trust without further spousal consent
and acknowledges that the spouse has the right to limit consent to a specific
beneficiary and that the spouse voluntarily relinquishes this right.
Notwithstanding the above, the spouse's consent shall not be required if the
Member establishes to the satisfaction of the Plan Administrator that the spouse
cannot be located, if the Member has a court order indicating that he is legally
separated or has been abandoned (within the meaning of local law) unless a
"qualified domestic relations order" (as defined in Code Section 414(p))
provides otherwise, or if there are other circumstances as the Secretary of the
Treasury prescribes. If the spouse is legally incompetent to give consent,
consent by the spouse's legal guardian shall be deemed to be consent by the
2
<PAGE>
spouse. If, subsequent to the death of a Member, the Member's Beneficiary dies
while entitled to receive benefits under the Plan, the successor Beneficiary, if
any, or the Beneficiary listed under Subsection (a), (b) (c) or (d) shall be the
Beneficiary.
1.6 "Board of Directors" means the Board of Directors of the Primary
------------------
Sponsor.
1.7 "Break in Service" means:
----------------
(a) with respect to a Part-Time Employee, the failure of an Employee,
in connection with a termination of employment other than by reason of
death or attainment of a Retirement Date, to complete more than 500 Hours
of Service in any Plan Year; and
(b) with respect to a Full-Time Employee, the failure of an Employee
to perform an Hour of Service within the twelve-consecutive-month period
commencing on his Severance Date.
1.8 "Code" means the Internal Revenue Code of 1986, as amended.
----
1.9 "Company Stock" means the stock of a Plan Sponsor or any other company
-------------
required to be aggregated with the Plan Sponsor under Section 414(b) of the
Code.
1.10 "Deferral Amount" means a contribution of a Plan Sponsor on behalf of
---------------
a Member pursuant to Plan Section 3.1.
1.11 "Direct Rollover" means a payment by the Plan to the Eligible
---------------
Retirement Plan specified by the Distributee.
1.12 "Distributee" means an Employee or former Employee. In addition, the
-----------
Employee's or former Employee's surviving spouse and the Employee's or former
Employee's spouse or former spouse who is the alternate payee under a qualified
domestic relations order (as defined in Code Section 414(p)), are Distributees
with regard to the interest of the spouse or former spouse.
1.13 "Elective Deferrals" means, with respect to any taxable year of the
------------------
Member, the sum of
(a) any Deferral Amounts;
(b) any contributions made by or on behalf of a Member under any other
qualified cash or deferred arrangement as defined in Code Section 401(k),
whether or not maintained by a Plan Sponsor, to the extent such
contributions are not or would not, but for Code Section 402(g)(1) be
included in the Member's gross income for the taxable year; and
(c) any other contributions made by or on behalf of a Member pursuant
to Code Section 402(g)(3).
3
<PAGE>
1.14 "Eligibility Service" means;
-------------------
(a) with respect to a Part-Time Employee, a six-consecutive-month
period during which the Employee completes no less than 500 Hours of
Service beginning on the date on which the Employee first performs an Hour
of Service upon his employment or reemployment or, in the event the
Employee fails to complete 500 Hours of Service in that six-consecutive-
month period, any six-consecutive-month thereafter during which the
Employee completes no less than 500 Hours of Service; provided, however,
that in the event that the Part-Time Employee is granted past service
credit in accordance with the rules set forth in Section 1.25(g),
"Eligibility Service" shall mean six (6) months of Service; and
(b) with respect to a Full-Time Employee, six (6) months of Service.
1.15 "Eligible Employee" means any Employee of a Plan Sponsor other than
-----------------
an Employee who is (a) covered by a collective bargaining agreement between a
union and a Plan Sponsor, provided that retirement benefits were the subject of
good faith bargaining, unless the collective bargaining agreement provides for
participation in the Plan, (b) a leased employee within the meaning of Code
Section 414(n)(2), or (c) deemed to be an Employee of a Plan Sponsor pursuant to
regulations under Code Section 414(o).
1.16 "Eligible Retirement Plan" means an individual retirement account
------------------------
described in Code Section 408(a), an individual retirement annuity described in
Code Section 408(b), an annuity plan described in Code Section 403(a) or a
qualified trust described in Code Section 401(a) that accepts the Distributee's
Eligible Rollover Distribution. However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an Eligible Retirement Plan is an
individual retirement account or individual retirement annuity.
1.17 "Eligible Rollover Distribution" means any distribution of all or
------------------------------
any portion of the Distributee's Account, except that an Eligible Rollover
Distribution does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the Distributee or the joint lives (or
joint life expectancies) of the Distributee and the Distributee's designated
Beneficiary, or for a specified period of ten (10) years or more; any
distribution to the extent such distribution is required under Code Section
401(a)(9); and the portion of any distribution that is not includable in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
1.18 "Employee" means any person who is (a) employed by a Plan Sponsor
--------
or an Affiliate for purposes of the Federal Insurance Contributions Act, (b) a
leased employee within the meaning of Code Section 414(n)(2) with respect to a
Plan Sponsor, or (c) deemed to be an employee of a Plan Sponsor pursuant to
regulations under Code Section 414(o).
1.19 "Entry Date" means the first day of each month.
----------
1.20 "ERISA" means the Employee Retirement Income Security Act of 1974,
-----
as amended.
1.21 "Fiduciary" means each Named Fiduciary and any other person who
---------
exercises or has any discretionary authority or control regarding management or
4
<PAGE>
administration of the Plan, any other person who renders investment advice for a
fee or has any authority or responsibility to do so with respect to any assets
of the Plan, or any other person who exercises or has any authority or control
respecting management or disposition of assets of the Plan.
1.22 "Full-Time Employee" means each Employee who is regularly scheduled
------------------
to work at least 30 hours per week, as reflected on the payroll records of a
Plan Sponsor.
1.23 "Fund" means the amount at any given time of cash and other
----
property held by the Trustee pursuant to the Plan.
1.24 "Highly Compensated Employee" means each Employee who:
---------------------------
(a) (1) was at any time during the Plan Year in the immediately
preceding Plan Year an owner of more than five percent (5%) of the
outstanding stock of a Plan Sponsor or Affiliate or more than five
percent (5%) of the total combined voting power of all stock of a Plan
Sponsor or Affiliate; or
(2) received Annual Compensation in excess of $80,000 (for the
Plan Year beginning in 1997) during the immediately preceding Plan
Year, which amount shall be adjusted for changes in the cost of living
as provided in regulations issued by the Secretary of the Treasury.
(b) For purposes of this Section, a former Employee shall be treated
as a Highly Compensated Employee if (1) the former Employee was a Highly
Compensated Employee at the time the former Employee separated from service
with the Plan Sponsor or Affiliate or (2) the former Employee was a Highly
Compensated Employee at any time after the former Employee attained age 55.
(c) For purposes of this Section, Employees who are nonresident aliens
and who receive no earned income from the Plan Sponsor or an Affiliate from
sources within the United States shall not be treated as Employees.
1.25 "Hour of Service" means:
---------------
(a) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for a Plan Sponsor or any Affiliate during
the applicable computation period, and such hours shall be credited to the
computation period in which the duties are performed;
(b) Each hour for which an Employee is paid, or entitled to payment,
by a Plan Sponsor or any Affiliate on account of a period of time during
which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty or leave of
absence;
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by a Plan Sponsor or any Affiliate,
and such hours shall be credited to the computation period or periods to
which the award or agreement for back pay pertains rather than to the
computation period in which the award, agreement or payment is made;
5
<PAGE>
provided, that the crediting of Hours of Service for back pay awarded or
agreed to with respect to periods described in Subsection (b) of this
Section shall be subject to the limitations set forth in Subsection (f);
(d) Solely for purposes of determining whether a Break in Service has
occurred, each hour during any period that the Employee is absent from work
(1) by reason of the pregnancy of the Employee, (2) by reason of the birth
of a child of the Employee, (3) by reason of the placement of a child with
the Employee in connection with the adoption of the child by the Employee,
or (4) for purposes of caring for such child for a period immediately
following its birth or placement. The hours described in this Subsection
(d) shall be credited (A) only in the computation period in which the
absence from work begins, if the Employee would be prevented from incurring
a Break in Service in that year solely because of that credit, or (B), in
any other case, in the next following computation period;
(e) Without duplication of the Hours of Service counted pursuant to
Subsection (d) hereof and solely for such purposes as required pursuant to
the Family and Medical Leave Act of 1993 and the regulations thereunder
(the "Act"), each hour (as determined pursuant to the Act) for which an
Employee is granted leave under the Act (1) for the birth of a child, (2)
for placement with the Employee of a child for adoption or foster care, (3)
to care for the Employee's spouse, child or parent with a serious health
condition, or (4) for a serious health condition that makes the Employee
unable to perform the functions of the Employee's job;
(f) The Plan Administrator shall credit Hours of Service in accordance
with the provisions of Section 2530.200b-2(b) and (c) of the U.S.
Department of Labor Regulations or such other federal regulations as may
from time to time be applicable and determine Hours of Service from the
employment records of a Plan Sponsor or in any other manner consistent with
regulations promulgated by the Secretary of Labor, and shall construe any
ambiguities in favor of crediting Employees with Hours of Service.
Notwithstanding any other provision of this Section, in no event shall an
Employee be credited with more than 501 Hours of Service during any single
continuous period during which he performs no duties for the Plan Sponsor
or Affiliate; and
(g) In the event that a Plan Sponsor or an Affiliate acquires assets of
another corporation or entity or a controlling interest of the stock of
another corporation, merges with another corporation or entity and is the
surviving entity, or acquires the lease to or management contract for a
facility, then service of an Employee who was employed by the prior
corporation or entity and who is employed by the Plan Sponsor or an
Affiliate at the time of the acquisition or merger shall be counted in the
manner provided, with the consent of an officer of the Primary Sponsor.
1.26 "Individual Fund" means such subfunds of the Fund as may be
---------------
established by the Plan Administrator for the investment of Accounts, other than
the Matching Account.
1.27 "Investment Committee" means a committee which may be established
--------------------
to direct the Trustee with respect to investments of the Fund.
1.28 "Investment Manager" means a Fiduciary, other than the Trustee,
------------------
the Plan Administrator, or a Plan Sponsor, who may be appointed by the Primary
Sponsor:
6
<PAGE>
(a) who has the power to manage, acquire, or dispose of any assets of
the Fund or a portion thereof; and
(b) who (1) is registered as an investment adviser under the Investment
Advisers Act of 1940; (2) is a bank as defined in that Act; or (3) is an
insurance company qualified to perform services described in Subsection (a)
above under the laws of more than one state; and
(c) who has acknowledged in writing that he is a Fiduciary with respect
to the Plan.
1.29 "Member" means any Employee or former Employee who has become a
------
participant in the Plan for so long as his vested Account has not been fully
distributed pursuant to the Plan.
1.30 "Named Fiduciary" means only the following:
---------------
(a) The Plan Administrator;
(b) The Trustee;
(c) The Board of Directors;
(d) The Investment Committee; and
(e) The Investment Manager.
1.31 "Normal Retirement Age" means age 65.
---------------------
1.32 "Part-Time Employee" means each Employee who is regularly
------------------
scheduled to work less than thirty (30) hours per week, as reflected on the
payroll records of a Plan Sponsor.
1.33 "Plan Administrator" means the organization or person designated
------------------
to administer the Plan.
1.34 "Plan Sponsor" means individually the Primary Sponsor and any
------------
Affiliate or other entity which has adopted the Plan and Trust.
1.35 "Plan Year" means the calendar year.
---------
1.36 "Retirement Date" means the date on which the Member retires on
---------------
or after attaining Normal Retirement Age.
1.37 "Rollover Amount" means any amount transferred to the Fund by a
---------------
Member, which amount qualifies as an eligible rollover distribution under Code
Section 402(c)(4), or for rollover treatment under Code Sections 403(a)(4) or
408(d)(3)(A)(ii), and any regulations issued thereunder. However, no amount
transferred from an individual retirement account shall be considered a Rollover
Account.
7
<PAGE>
1.38 "Service" means the sum of each period elapsed between the date
-------
the Employee first performs and Hour of Service due to his employment or
reemployment and any Severance Date immediately following thereafter. In
determining Service, the following rules shall apply:
(a) if an Employee performs one Hour of Service within twelve (12)
months of a Severance Date described in Plan Section 1.39(a), or of the
date the Employee was first absent from service for any other reason, any
period of severance which would otherwise occur shall be ignored and be
required to be taken into account in computing the Employee's period of
Service; and
(b) the period between the first anniversary and second anniversary of
an absence from service for the reasons specified in Plan Section
1.39(b)(2) shall be neither a period of severance nor a period of Service,
except as may otherwise be required under the Family and Medical Leave Act
effective August 5, 1993.
1.39 "Severance Date" means the earlier of:
--------------
(a) the date on which an Employee quits, is discharged, retires or
dies; or
(b) (1) the first anniversary of the first date of a period in which
an Employee remains absent from service (with or without pay) with the
Plan Sponsor for any other reason, such as vacation, layoff, or leave
of absence, except that, effective August 5, 1993, an approved leave
of absence pursuant to the Family and Medical Leave Act will not be
considered as an absence from service for this purpose; or
(2) in the case of an Employee who remains absent from service
beyond the first anniversary of the first day of absence by reason of
the Employee's pregnancy, the birth of the Employee's child, the
placement of a child in the Employee's home or adoption by the
Employee, or the caring for the child for the period immediately
following its birth or adoption, the second anniversary of the first
day of absence from service.
1.40 "Termination Completion Date" means the last day of the fifth
---------------------------
consecutive Break in Service computation period, determined under the Plan
Section that defines Break in Service, in which a Member completes a Break in
Service.
1.41 "Termination of Employment" means the termination of employment of an
-------------------------
Employee from all Plan Sponsors and Affiliates for any reason other than death
or attainment of a Retirement Date. The transfer of an Employee from one Plan
Sponsor to another Plan Sponsor or to an Affiliate shall not be deemed for any
purpose under the Plan to be a Termination of Employment. In addition, transfer
of an Employee to another company in connection with a corporate transaction
involving a sale of assets, merger or sale of an Affiliate, shall not be deemed
to be a Termination of Employment, for purposes of the timing of distributions
(but not vesting or eligibility) under Plan Section 8, if the company to which
such Employee is transferred agrees to accept a transfer of assets from the Plan
to its tax qualified plan in a trust-to-trust transfer meeting the requirements
of Code Section 414(l).
1.42 "Trust" means the trust established under an agreement between the
-----
Primary Sponsor and the Trustee to hold the Fund or any successor agreement.
8
<PAGE>
1.43 "Trustee" means the trustee under the Trust.
-------
1.44 "Valuation Date" means each business day.
--------------
1.45 "Vesting Service" means the number of years, disregarding fractional
---------------
years, of Service credited to that Employee. Notwithstanding anything contained
herein to the contrary, Vesting Service shall not include:
(a) In the case of an Employee who completes five consecutive Breaks
in Service for purposes of determining the vested portion of his Account
derived from Plan Sponsor contributions which accrued before his
Termination Completion Date, all service in Plan Years after his
Termination Completion Date.
(b) In the case of an Employee who completes five consecutive Breaks
in Service and at that time does not have any vested right in Plan Sponsor
contributions, all service before those Breaks in Service commenced.
SECTION 2
ELIGIBILITY
-----------
2.1 Each Eligible Employee shall become a Member as of the Entry Date
coinciding with or next following the date he completes his Eligibility Service.
2.2 Each former Member who is reemployed by a Plan Sponsor shall become a
Member as of the date of his reemployment as an Eligible Employee.
2.3 Solely for the purpose of contributing a Rollover Amount to the Plan,
an Eligible Employee who has not yet become a Member pursuant to any other
provision of this Section 2 shall become a Member as of the date on which the
Rollover Amount is contributed to the Plan.
SECTION 3
CONTRIBUTIONS
-------------
3.1 (a) The Plan Sponsor shall make a contribution to the Fund on behalf
of each Member who is an Eligible Employee and has elected to defer a
portion of Annual Compensation otherwise payable to him for the Plan Year
and to have such portion contributed to the Fund. The election must be
made before the Annual Compensation is payable and may only be made in the
form and manner as the Plan Administrator may prescribe and shall specify
the percentage of Annual Compensation that the Member desires to defer and
to have contributed to the Fund. Once a Member has made an election for a
Plan Year, the Member may revoke or modify his election to reduce the rate
of future deferrals, effective as of the beginning of the payroll period
coinciding with or next following the Plan Administrator's processing of
the revocation or modification pursuant to normal administrative
procedures. Once an election has been revoked or modified, any subsequent
election by the Member shall be effective as of the Entry Date coinciding
with or next following the Plan Administrator's processing of the election
9
<PAGE>
pursuant to normal administrative procedures. The contribution made by a
Plan Sponsor on behalf of a Member under this Section 3.1 shall be in an
amount equal to the amount specified in the Member's election in whole
percentages of the Member's Annual Compensation, but not less than one
percent (1%) or greater than twenty percent (20%) of the Member's Annual
Compensation.
(b) Elective Deferrals shall in no event exceed $10,000 (for 1998) in
any one taxable year of the Member, which amount shall be adjusted for
changes in the cost of living as provided by the Secretary of the Treasury.
In the event the amount of Elective Deferrals exceeds $10,000 (for 1998) as
adjusted, in any one taxable year then, (1) not later than the immediately
following March 1, the Member may designate to the Plan the portion of the
Member's Deferral Amount which consists of excess Elective Deferrals, and
(2) not later than the immediately following April 15, the Plan may
distribute the amount designated to it under Paragraph (1) above, as
adjusted to reflect income, gain, or loss attributable to it through the
date of the distribution, and reduced by any "Excess Deferral Amounts," as
defined in Appendix C hereto, previously distributed or recharacterized
with respect to the Member for the Plan Year beginning with or within that
taxable year. The payment of the excess Elective Deferrals, as adjusted
and reduced, from the Plan shall be made to the Member without regard to
any other provision in the Plan. In the event that a Member's Elective
Deferrals exceed $10,000, as adjusted, in any one taxable year under the
Plan and other plans of the Plan Sponsor and its Affiliates, the Member
shall be deemed to have designated for distribution under the Plan the
amount of excess Elective Deferrals, as adjusted and reduced, by taking
into account only Elective Deferral amounts under the Plan and other plans
of the Plan Sponsor and its Affiliates.
(c) Notwithstanding anything contained in Subsection (a) hereof to the
contrary, in the event that (1) a Member, immediately prior to his
participation in the Plan, was a participant in another tax-qualified plan
containing a cash or deferred arrangement under Code Section 401(k)
maintained by a Plan Sponsor (a "Prior Plan"), (2) such Member's active
participation ceased in the Prior Plan immediately prior to the time he
became a Member, and (3) the Member had an election under the cash or
deferred feature of the Prior Plan in effect immediately prior to the date
he became a Member, the Member's election under such Prior Plan shall be
deemed to be an election under Subsection (a) hereof if the Member is
provided with the opportunity to revoke or otherwise change such election
prior to the date of the first reduction in his Annual Compensation under
the Plan pursuant to Subsection (a).
3.2 The Plan Sponsor proposes to make contributions to the Fund with
respect to each payroll period for each Member who is an Eligible Employee in an
amount equal to fifty percent (50%) of the contribution made on behalf of a
Member pursuant to Plan Section 3.1 for such payroll period, to the extent that
the contribution made on the Member's behalf under Section 3.1 does not exceed
three percent (3%) of the portion of his Annual Compensation payable for such
payroll period.
3.3 Any Eligible Employee may, with the consent of the Plan
Administrator and subject to such rules and conditions as the Plan Administrator
may prescribe, transfer a Rollover Amount to the Fund; provided, however, that
the Plan Administrator shall not administer this provision in a manner which is
discriminatory in favor of Highly Compensated Employees.
10
<PAGE>
3.4 Forfeitures shall be used to reduce Plan Sponsor contributions and not
to increase benefits.
3.5 Contributions may be made only in cash, Company Stock, or other
property which is acceptable to the Trustee. In no event will the sum of
contributions under Plan Sections 3.1, 3.2 and 3.3 exceed the deductible limits
under Code Section 404.
3.6 Notwithstanding any provision of this Plan to the contrary,
contributions, benefits and service credit with respect to qualified military
service will be provided in accordance with Section 414(u) of the Internal
Revenue Code.
SECTION 4
ALLOCATIONS
-----------
4.1 As soon as reasonably practicable following the date of
withholding by the Plan Sponsor, if applicable, and receipt by the Trustee, Plan
Sponsor contributions made on behalf of each Member under Plan Sections 3.1 and
3.2, and Rollover Amounts contributed by the Member, shall be allocated to the
Employee Deferral Account, Matching Account and Rollover Account, respectively,
of the Member on behalf of whom the contributions were made.
4.2 As of each Valuation Date, the Trustee shall determine the net
income or net loss of each Individual Fund pursuant to the provisions of the
Trust. The net income or loss shall be allocated as of the Valuation Date to
each Account in the proportion that the value of the Account invested in that
Individual Fund, as of the preceding Valuation Date, bears to the value of all
Accounts invested in that Individual Fund as of the preceding Valuation Date.
SECTION 5
PLAN LOANS
----------
5.1 Subject to the provisions of the Plan and the Trust, each Member who
is an Employee shall have the right, subject to prior approval by the Plan
Administrator, to borrow from the Fund. In addition, each "party in interest,"
as defined in ERISA Section 3(14), who is (a) a Member but no longer an
Employee, (b) the Beneficiary of a deceased Member, or (c) an alternate payee of
a Member pursuant to the provisions of a "qualified domestic relations order,"
as defined in Code Section 414(p), shall also have the right, subject to prior
approval by the Plan Administrator, to borrow from the Fund; provided, however,
that loans to such parties in interest may not discriminate in favor of Highly
Compensated Employees.
5.2 In order to apply for a loan, a borrower must complete and submit to
the Plan Administrator documents provided by the Plan Administrator for this
purpose.
5.3 Loans shall be available to all eligible borrowers on a reasonably
equivalent basis which may take into account the borrower's creditworthiness,
ability to repay, and ability to provide adequate security. Loans shall not be
made available to Highly Compensated Employees, officers or shareholders of a
Plan Sponsor in an amount greater than the amount made available to other
borrowers. This provision shall be deemed to be satisfied if all borrowers have
the right to borrow the same percentage of their interest in the Member's vested
11
<PAGE>
Account, notwithstanding that the dollar amount of such loans may differ as a
result of differing values of Members' vested Accounts.
5.4 Each loan shall bear a "reasonable rate of interest" and provide that
the loan be amortized in substantially level payments, made no less frequently
than quarterly, over a specified period of time. A "reasonable rate of
interest" shall be that rate that provides the Plan with a return commensurate
with the interest rates charged by persons in the business of lending money for
loans which would be made under similar circumstances.
5.5 Each loan shall be adequately secured, with the security for the
outstanding balance of all loans to the borrower to consist of one-half (1/2) of
the borrower's interest in the Member's vested Account, or such other security
as the Plan Administrator deems acceptable. No portion of the Member's Employee
Deferral Account shall be used as security for any loan hereunder unless and
until such time as the loan amount exceeds the value of the borrower's interest
in the Member's vested Account in all other Accounts.
5.6 Each loan, when added to the outstanding balance of all other loans to
the borrower from all retirement plans of the Plan Sponsor and its Affiliates
which are qualified under Section 401 of the Code, shall not exceed the lesser
of:
(a) $50,000, reduced by the excess, if any, of
(1) the highest outstanding balance of loans made to the borrower
from all retirement plans qualified under Code Section 401 of the Plan
Sponsor and its Affiliates during the one (1) year period immediately
preceding the day prior to the date on which such loan was made, over
(2) the outstanding balance of loans made to the borrower from
all retirement plans qualified under Code Section 401 of the Plan
Sponsor and its Affiliates on the date on which such loan was made, or
(b) one-half (1/2) of the value of the borrower's interest in the
vested Account attributable to the Member's Account.
For purposes of this Section, the value of the vested Account attributable
to a Member's Account shall be established as of the latest preceding
Valuation Date, or any later date on which an available valuation was made,
and shall be adjusted for any distributions or contributions made through
the date of the origination of the loan.
5.7 Each loan, by its terms, shall be repaid within five (5) years, except
that any loan which is used to acquire any dwelling unit which within a
reasonable time is to be used (determined at the time the loan is made) as the
principal residence of the borrower may, by its terms, be repaid within fifteen
(15) years.
5.8 Each loan shall be made in an amount of no less than $1,000.
5.9 A borrower is permitted to have only one loan existing under this Plan
at any one time.
12
<PAGE>
5.10 The entire unpaid principal sum and accrued interest shall, at
the option of the Plan Administrator, become due and payable if (a) a borrower
fails to make any loan payment when due, (b) a borrower ceases to be a "party in
interest", as defined in ERISA Section 3(14), (c) the vested Account held as
security under the Plan for the borrower will, as a result of an impending
distribution or withdrawal, be reduced to an amount less than the amount of all
unpaid principal and accrued interest then outstanding under the loan, or (d) a
borrower makes any untrue representations or warranties in connection with the
obtaining of the loan. In that event, the Plan Administrator may take such
steps as it deems necessary to preserve the assets of the Plan, including, but
not limited to, the following: (1) direct the Trustee to deduct the unpaid
principal sum, accrued interest, and any other applicable charge under the note
evidencing the loan from any benefits that may become payable out of the Plan to
the borrower, (2) direct the Plan Sponsor to deduct and transfer to the Trustee
the unpaid principal balance, accrued interest, and any other applicable charge
under the note evidencing the loan from any amounts owed by the Plan Sponsor to
the borrower, or (3) liquidate the security given by the borrower, other than
amounts attributable to a Member's Employee Deferral Account, and deduct from
the proceeds the unpaid principal balance, accrued interest, and any other
applicable charge under the note evidencing the loan. If any part of the
indebtedness under the note evidencing the loan is collected by law or through
an attorney, the borrower shall be liable for attorneys' fees in an amount equal
to ten percent of the amount then due and all costs of collection.
5.11 Each loan shall be made only in accordance with regulations and
rulings of the Internal Revenue Service and the Department of Labor. The Plan
Administrator shall be authorized to administer the loan program of this Section
and shall act in his sole discretion to ascertain whether the requirements of
such regulations and rulings and this Section have been met.
SECTION 6
IN-SERVICE AND HARDSHIP WITHDRAWALS
-----------------------------------
6.1 The Trustee shall, upon the direction of the Plan Administrator,
withdraw all or a portion of a Member's Employee Deferral Account consisting of
Deferral Amounts (but not earnings thereon) prior to the time such account is
otherwise distributable in accordance with the other provisions of the Plan;
provided, however, that any such withdrawal shall be made only if the Member is
an Employee and demonstrates that he is suffering from "hardship" as determined
herein. For purposes of this Section, a withdrawal will be deemed to be an
account of hardship if the withdrawal is on account of:
(a) expenses for medical care described in Section 213(d) of the
Code incurred by the Member, his spouse, or any dependents of the Member
(as defined in Section 152 of the Code) or necessary for these persons to
obtain medical care described in Code Section 213(d);
(b) purchase (excluding mortgage payments) of a principal
residence for the Member;
(c) payment of tuition and related educational fees for the next
twelve (12) months of post-secondary education for the Member, his spouse,
children, or dependents;
(d) the need to prevent the eviction of the Member from his
principal residence or foreclosure on the mortgage of the Member's
principal residence; or
13
<PAGE>
(e) any other contingency determined by the Internal Revenue
Service to constitute an "immediate and heavy financial need" within the
meaning of Treasury Regulations Section 1.401(k)-1(d).
6.2 In addition to the requirements set forth in Plan Section 6.1,
any withdrawal pursuant to Plan Section 6.1 shall not be in excess of the amount
necessary to satisfy the need determined under Section 6.1 and shall also be
subject to the following requirements:
(a) The Member shall first obtain all withdrawals, other than hardship
withdrawals, and all nontaxable loans currently available under all plans
maintained by the Plan Sponsor;
(b) the Plan Sponsor shall not permit Elective Deferrals or
after-tax employee contributions to be made to the Plan or any other plan
maintained by the Plan Sponsor, for a period of twelve (12) months after
the Member receives the withdrawal pursuant to this Section; and
(c) the Plan Sponsor shall not permit Elective Deferrals to be
made to the Plan or any other plan maintained by the Plan Sponsor for the
Member's taxable year immediately following the taxable year of the
hardship withdrawal in excess of the limit under Plan Section 3.1(b) for
the taxable year, less the amount of the Elective Deferrals made to the
Plan or any other plan maintained by the Plan Sponsor for the taxable year
in which the withdrawal under this Section occurs.
Such withdrawals shall be made only in accordance with such rules, policies,
procedures, restrictions, and conditions as the Plan Administrator may from time
to time adopt. Any determination of the existence of hardship and the amount to
be withdrawn on account thereof shall be made by the Plan Administrator (or such
other person as may be required to make such decisions) in accordance with the
foregoing rules as applied in a uniform and nondiscriminatory manner; provided
that, unless the Member requests otherwise, any such withdrawal shall include
the amount necessary to pay any federal, state and local income taxes and
penalties reasonably anticipated to result from the withdrawal. A withdrawal
under this Section shall be made in a lump sum to the Member, and shall be
subject to the Eligible Rollover Distribution requirements set forth in Plan
Section 11.2.
6.3 Withdrawals from a Member's Rollover Account shall be permitted
subject to the rules prescribed by the Plan Administrator. In no event shall
the amount of any withdrawal under this Section 6.3 be less than the lesser of
$1,000 or the Member's Entire Rollover Account.
6.4 Withdrawals from a Member's vested Account shall be permitted
after age 59 1/2, subject to the rules prescribed by the Plan Administrator.
SECTION 7
INDIVIDUAL FUNDS AND INVESTMENTS OF TRUST ASSETS
------------------------------------------------
7.1 Until such time as the Plan Administrator may direct otherwise,
each Member may direct the Plan Administrator to invest contributions to his
Account other than his or her Matching Account in one or more Individual Funds.
14
<PAGE>
(a) All investment directions shall be in any ratio directed by the
Member; provided that all elections shall be in one percent (1%)
increments. A Member can change the investment of his current contributions
or his existing Account at any time. A new investment direction shall be
effective as soon as reasonably practicable after timely election is
received by the Plan Administrator, provided that the election is made
according to the procedures established by the Plan Administrator.
(b) An investment direction, once given, shall be deemed to be a
continuing direction until changed as otherwise provided herein. If no
direction is effective for the date a contribution is to be made, all
contributions which are to be made for such date shall be invested in such
Individual Fund as the Plan Administrator, the Investment Committee, the
Investment Manager, or the Trustee, as applicable, may determine to best
preserve principal. To the extent permissible by law, no Fiduciary shall be
liable for any loss, which results from a Member's exercise or failure to
exercise his investment election.
(c) Notwithstanding anything contained in Subsection (a) hereof to the
contrary, in the event that (1) a Member, immediately prior to his
participation in the Plan, was a participant in another tax-qualified plan
containing a cash or deferred arrangement under Code Section 401(k)
maintained by a Plan Sponsor (a "Prior Plan"), (2) such Member's active
participation ceased in the Prior Plan immediately prior to the time he
became a Member, and (3) the Member had an investment election under the
Prior Plan in effect immediately prior to the date he became a Member, the
Member's election under such Prior Plan shall be deemed to be an election
under Subsection (a) hereof if the Member is provided with the opportunity
to revoke or otherwise change such election prior to the date of the first
reduction in his Annual Compensation under the Plan pursuant to Subsection
(a). The Plan Administrator shall effect such investment election by
investing such Member's Account among the Individual Funds that most
closely resemble, in the discretion of the Plan Administrator, the
investment alternatives selected by the Member in the Prior Plan.
7.2 Notwithstanding anything in the Plan to the contrary, the
Trustee, at the direction of the Investment Committee, shall invest the assets
of Member's Matching Accounts primarily in shares of Company Stock.
SECTION 8
PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT
------------------------------------------------
8.1 In the event of a Termination of Employment of a Participant, the
Participant's vested Accrued Benefit shall be determined as of' the Valuation
Date coinciding with or immediately preceding the date the Participant's Accrued
Benefit is valued for imminent payout purposes pursuant to normal administrative
procedures, increased by any contributions or Rollover Amounts allocated to the
Account of the Participant after that Valuation Date and reduced by any
distributions therefrom.
15
<PAGE>
8.2 (a) A Member's Accrued Benefit attributable to his Employee Deferred
Account and Rollover Account shall always be 100% vested and
nonforfeitable.
(b) A Member's Accrued Benefit attributable to Plan Sponsor
contributions under Plan Section 3.2 shall become vested based upon the
following vesting schedule:
Years of Vesting Service Vested Percentage
------------------------ -----------------
Less than 1 year 0%
1 years 25%
2 years 50%
3 years 75%
4 years or more 100%
Notwithstanding anything contained in this Section 8.2 to the contrary, a
Member (i) whose employment with the Plan Sponsor terminates by reason of his
death or attains a Retirement Date, (ii) who attains the age of 65, or (iii)
incurs a Disability, shall become 100% vested in his Accrued Benefit
attributable to Plan Sponsor contributions.
8.3 A Member's Accrued Benefit shall be paid to him, or in the event of
his death, to his Beneficiary, in the case of a Member:
(a) who has a vested Accrued Benefit of $5,000 or less, as soon as
practicable after the later of the date he ceases to be an Employee; and
(b) who has a vested Accrued Benefit greater than $5,000, as soon as
practicable following the date the Member's election is processed pursuant
to the administrative procedures adopted by the Plan Administrator but in
no event prior to the date he ceases to be an Employee.
(c) If a retired Member has not previously received a distribution
under Subsection (a) or (b), his Account will be distributed to him on or
before sixty (60) days following the end of the Plan Year in which the
later of the date the Member (1) attains Normal Retirement Age, or (2)
incurs a Retirement Date.
8.4 The payment of a Member's vested Accrued Benefit shall be in the form
of one lump sum in cash to the extent practicable. A Member with a vested
Accrued Benefit greater than $5,000 may instead elect, at the time and in the
manner prescribed by the Plan Administrator, to receive payment of his vested
Accrued Benefit in the form of quarterly installments over a period of not less
than three (3) years and not greater than fifteen (15) years. The first
installment payments will commence as soon as practicable following the date the
Member's election is processed pursuant to the administrative procedures adopted
by the Plan Administrator. Each next installment payment will be made each
third month thereafter. The Account of a Member who elects installment payments
shall be credited with its pro rata share of the net income, gain or loss of the
Fund during the period over which installments are paid. All distributions will
be in cash except to a Member with a Vested Accrued Benefit greater than $5,000
16
<PAGE>
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any shares of Company Stock held in a Member's Account distributed in
kind.
8.5 Except as otherwise provided herein, payment of the Member's Accrued
Benefit shall be made as soon as administratively feasible after the Participant
terminates employment; provided, however, if the Member's Accrued Benefit
exceeds $5,000 it will not be distributed before the Member's attainment of
Normal Retirement Age, without the Member's consent.
8.6 If a Plan amendment directly or indirectly changes the vesting
schedule, the vesting percentage for each Member in his Account accumulated to
the date when the amendment is adopted shall not be reduced as a result of the
amendment. In addition, any Member with at least three (3) years of Vesting
Service may irrevocably elect to remain under the pre-amendment vesting schedule
with respect to all of his benefits accrued both before and after the amendment.
8.7 If a Member has a Termination of Employment and is subsequently
reemployed by a Plan Sponsor or an Affiliate on or prior to receiving a
distribution of his Accrued Benefit, the Member's Account shall be treated as
the Account of a Member who has not terminated employment other than in regard
to allocations of Plan Sponsor contributions which would have been made to his
Account at any Valuation Date occurring while the Member was not employed by a
Plan Sponsor.
SECTION 9
PAYMENT OF BENEFITS ON RETIREMENT
---------------------------------
9.1 Determination of Benefit. The Accrued Benefit of a Member who has
------------------------
attained a Retirement Date or has attained Normal Retirement Age shall be fully
vested and nonforfeitable. As of a Member's Retirement Date while an Employee,
he shall be entitled to his Accrued Benefit to be paid in accordance with this
Plan Section 9. The Accrued Benefit of a Member which is to be paid under this
Section 9 shall be determined as of the Valuation Date coinciding with or
immediately preceding the date the Accrued Benefit is valued for imminent payout
purposes pursuant to normal administrative procedures, and shall be increased by
any amounts allocated to the Member's Account after that Valuation Date and
reduced by any distributions made from the Member's account after that Valuation
Date.
9.2 Form of Payment. The Member shall be entitled to payment from the
---------------
Plan in the form and manner provided under Sections 8.3 and 8.4.
9.3 Consent. Except as otherwise provided herein, payment of the Member's
-------
Accrued Benefit shall be made as soon as administratively feasible after the
Member terminates employment; provided, however, if the Member's Accrued Benefit
exceeds $5,000 it will not be distributed before the Member's attainment of
Normal Retirement Age without the Member's consent.
17
<PAGE>
SECTION 10
DEATH BENEFITS
--------------
If a Member dies before receiving a distribution of his Accrued Benefit,
his Beneficiary shall receive the Member's Accrued Benefit as soon as
administratively feasible following the death of the Member. If a Member dies
before beginning to receive a distribution of his Accrued Benefit, the Member's
Beneficiary shall receive the Member's Accrued Benefit in one lump sum as soon
as administratively feasible following the death of the Member. If a Member
dies after beginning to receive a distribution of his Accrued Benefit, the
Member's Beneficiary shall receive the undistributed portion of the Accrued
Benefit. The Accrued Benefit of a Member who dies while an Employee shall be
fully vested.
SECTION 11
GENERAL RULES ON DISTRIBUTIONS
------------------------------
11.1 Accounts shall not be adjusted for earnings or losses incurred after
the Valuation Date coinciding with or following the date the Account is valued
for imminent payout purposes after the Member's Termination of Employment.
Prior to distribution of an Account, the Account shall be reduced by the amount
necessary to satisfy the unpaid principal, accrued interest, and penalties on
any loan made to the Member.
11.2 Notwithstanding any provisions of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 11, a Distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of a distribution pursuant to this Section which is an
Eligible Rollover Distribution paid directly to an Eligible Retirement Plan
specified by the Distributee in a Direct Rollover so long as all Eligible
Rollover Distributions to a Distributee for a calendar year total or are
expected to total at least $200 and, in the case of a Distributee who elects to
directly receive a portion of an Eligible Rollover Distribution and directly
roll the balance over to an Eligible Retirement Plan, the portion that is to be
directly rolled over totals at least $500. If the Eligible Rollover
Distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such
Eligible Rollover Distribution may commence less than thirty (30) days after the
notice required under section 1.411(a)-11(c) of the Income Tax Regulations is
given, provided that:
(a) the Plan Administrator clearly informs the Distributee that the
Distributee has a right to a period of at least thirty (30) days after
receiving the notice to consider the decision of whether or not to elect a
distribution (and, if applicable, a particular distribution option), and
(b) the Distributee, after receiving the notice, affirmatively elects
a distribution.
11.3 Notwithstanding any other provisions of the Plan,
(a) Prior to the death of a Member, all retirement payments hereunder
shall--
(1) be distributed to the Member not later than the required
beginning date (as defined below) or,
18
<PAGE>
(2) be distributed, commencing not later than the required
beginning date (as defined below)--
(A) in accordance with regulations prescribed by the
Secretary of the Treasury, over the life of the Member or over
the lives of the Member and his designated individual
Beneficiary, if any, or
(B) in accordance with regulations prescribed by the
Secretary of the Treasury, over a period not extending beyond the
life expectancy of the Member or the joint life and last survivor
expectancy of the Member and his designated individual
Beneficiary, if any.
(b) (1) If --
(A) the distribution of a Member's retirement payments have
begun in accordance with Subsection (a)(2) of this Section, and
(B) the Member dies before his entire vested Account has been
distributed to him,
then the remaining portion of his vested Account shall be
distributed at least as rapidly as under the method of distribution
being used under Subsection (a)(2) of this Section as of the date of
his death.
(2) If a Member dies before the commencement of retirement
payments hereunder, the entire interest of the Member shall be
distributed within five (5) years after his death.
(3) If --
(A) any portion of a Member's vested Account is payable to or
for the benefit of the Member's designated individual
Beneficiary, if any,
(B) that portion is to be distributed, in accordance with
regulations prescribed by the Secretary of the Treasury, over the
life of the designated individual Beneficiary or over a period
not extending beyond the life expectancy of the designated
individual Beneficiary, and
(C) the distributions begin not later than one (1) year after
the date of the Member's death or such later date as the
Secretary of the Treasury may by regulations prescribe,
then, for purposes of Paragraph (2) of this Subsection (b), the
portion referred to in Subparagraph (A) of this Paragraph (3) shall be
treated as distributed on the date on which the distributions to the
designated individual Beneficiary begin.
(4) If the designated individual Beneficiary referred to in
Paragraph (3)(A) of this Subsection (b) is the surviving spouse of the
Member, then --
19
<PAGE>
(A) the date on which the distributions are required to begin
under Paragraph (3)(C) of this Subsection (b) shall not be
earlier than the date on which the Member would have attained age
70-1/2, and
(B) if the surviving spouse dies before the distributions to
such spouse begin, this Subsection (b) shall be applied as if the
surviving spouse were the Member.
(c) For purposes of this Section, the term "required beginning date"
means April 1 of the calendar year following the later of the calendar year
in which the Member attains age 70-1/2 or the calendar year in which the
Member retires or otherwise terminates employment. Notwithstanding the
foregoing, in the case of a Member who is described in Section 1(b)(3) of
Appendix B hereto the term "required beginning date" means April 1 of the
calendar year following the calendar year in which the Member attains age
70-1/2.
(d) Distributions will be made in accordance with the regulations under
Code Section 401(a)(9), including the minimum distribution incidental
benefit requirement of Treas. Reg. Section 1.401(a)(9)-2.
SECTION 12
ADMINISTRATION OF THE PLAN
--------------------------
12.1 Trust Agreement. The Primary Sponsor shall establish a Trust with
---------------
the Trustee designated by the Board of Directors for the management of the Fund,
which Trust shall form a part of the Plan and is incorporated herein by
reference.
12.2 Operation of the Plan Administrator. The Primary Sponsor shall
-----------------------------------
appoint a Plan Administrator. If an organization is appointed to serve as the
Plan Administrator, then the Plan Administrator may designate in writing a
person who may act on behalf of the Plan Administrator. The Primary Sponsor
shall have the right to remove the Plan Administrator at any time by notice in
writing. The Plan Administrator may resign at any time by written notice of
resignation to the Trustee and the Primary Sponsor. Upon removal or
resignation, or in the event of the dissolution of the Plan Administrator, the
Primary Sponsor shall appoint a successor.
12.3 Fiduciary Responsibility.
------------------------
(a) The Plan Administrator, as a Named Fiduciary, may allocate its
fiduciary responsibilities among Fiduciaries other than the Trustee,
designated in writing by the Plan Administrator and may designate in
writing persons other than the Trustee to carry out its fiduciary
responsibilities under the Plan. The Plan Administrator may remove any
person designated to carry out its fiduciary responsibilities under the
Plan by notice in writing to such person.
(b) The Plan Administrator and each other Fiduciary may employ persons
to perform services and to render advice with regard to any of the
Fiduciary's responsibilities under the Plan. Charges for all such services
performed and advice rendered may be paid by the Fund to the extent
permitted under ERISA.
20
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(c) Each Plan Sponsor shall indemnify and hold harmless each person
constituting the Plan Administrator or the Investment Committee, if any,
from and against any and all claims, losses, costs, expenses (including,
without limitation, attorney's fees and court costs), damages, actions or
causes of action arising from, on account of or in connection with the
performance by such person of his duties in such capacity, other than such
of the foregoing arising from, on account of or in connection with the
willful neglect or willful misconduct of such person.
12.4 Duties of the Plan Administrator.
--------------------------------
(a) The Plan Administrator shall advise the Trustee with respect to all
payments under the terms of the Plan and shall direct the Trustee in
writing to make such payments from the Fund; provided, however, in no event
shall the Trustee be required to make such payments if the Trustee has
actual knowledge that such payments are contrary to the terms of the Plan
and the Trust.
(b) The Plan Administrator shall from time to time establish rules, not
contrary to the provisions of the Plan and the Trust, for the
administration of the Plan and the transaction of its business. All
elections and designations under the Plan by a Member or Beneficiary shall
be made on forms prescribed by the Plan Administrator. The Plan
Administrator shall have discretionary authority to construe the terms of
the Plan and shall determine all questions arising in the administration,
interpretation and application of the Plan, including, but not limited to,
those concerning eligibility for benefits and it shall not act so as to
discriminate in favor of any person. All determinations of the Plan
Administrator shall be conclusive and binding on all Employees, Members,
Beneficiaries and Fiduciaries, subject to the provisions of the Plan and
the Trust and subject to applicable law.
(c) The Plan Administrator shall furnish Members and Beneficiaries with
all disclosures now or hereafter required by ERISA or the Code. The Plan
Administrator shall file, as required, the various reports and disclosures
concerning the Plan and its operations as required by ERISA and by the
Code, and shall be solely responsible for establishing and maintaining all
records of the Plan and the Trust.
(d) The statement of specific duties for a Plan Administrator in this
Section is not in derogation of any other duties which a Plan Administrator
has under the provisions of the Plan or the Trust or under applicable law.
12.5 Investment Manager. The Primary Sponsor may, by action in writing
------------------
certified by notice to the Trustee, appoint an Investment Manager. Any
Investment Manager may be removed in the same manner in which appointed, and in
the event of any removal, the Investment Manager shall, as soon as possible, but
in no event more than thirty (30) days after notice of removal, turn over all
assets managed by it to the Trustee or to any successor Investment Manager
appointed, and shall make a full accounting to the Primary Sponsor with respect
to all assets managed by it since its appointment as an Investment Manager.
12.6 Investment Committee. The Primary Sponsor may, by action in writing
--------------------
certified by notice to the Trustee, appoint an Investment Committee. The
Primary Sponsor shall have the right to remove any person on the Investment
Committee at any time by notice in writing to such person. A person on the
21
<PAGE>
Investment Committee may resign at any time by written notice of resignation to
the Primary Sponsor. Upon such removal or resignation, or in the event of the
death of a person on the Investment Committee, the Primary Sponsor may appoint a
successor. Until a successor has been appointed, the remaining persons on the
Investment Committee may continue to act as the Investment Committee.
12.7 Action by a Plan Sponsor. Any action to be taken by a Plan Sponsor
------------------------
shall be taken by resolution or written direction duly adopted by its board of
directors or appropriate governing body, as the case may be; provided, however,
that by such resolution or written direction, the board of directors or
appropriate governing body, as the case may be, may delegate to any officer or
other appropriate person of a Plan Sponsor the authority to take any such
actions as may be specified in such resolution or written direction, other than
the power to amend, modify or terminate the Plan or the Trust or to determine
the basis of any Plan Sponsor contributions.
SECTION 13
CLAIM REVIEW PROCEDURE
----------------------
13.1 If a Member or Beneficiary is denied a claim for benefits under a
Plan, the Plan Administrator shall provide to the claimant written notice of the
denial within ninety (90) days after the Plan Administrator receives the claim,
unless special circumstances require an extension of time for processing the
claim. If such an extension of time for processing is required, written notice
of the extension shall be furnished to the claimant prior to the termination of
the initial 90-day period. In no event shall the extension exceed a period of
ninety (90) days from the end of such initial period. The extension notice
shall indicate the special circumstances requiring an extension of time and the
date by which the Plan Administrator expects to render the final decision.
13.2 If the claimant is denied a claim for benefits, the Plan
Administrator shall provide, within the time frame set forth in Plan Section
13.1, written notice of the denial which shall set forth:
(a) the specific reasons for the denial;
(b) specific references to the pertinent provisions of the Plan on which
the denial is based;
(c) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why the
material or information is necessary; and
(d) an explanation of the Plan's claim review procedure.
13.3 After receiving written notice of the denial of a claim, a claimant
or his representative may:
(a) request a full and fair review of the denial by written application
to the Plan Administrator;
22
<PAGE>
(b) review pertinent documents; and
(c) submit issues and comments in writing to the Plan Administrator.
13.4 If the claimant wishes a review of the decision denying his claim to
benefits under the Plan, he must submit the written application to the Plan
Administrator within sixty (60) days after receiving written notice of the
denial.
13.5 Upon receiving the written application for review, the Plan
Administrator may schedule a hearing for purposes of reviewing the claimant's
claim, which hearing shall take place not more than thirty (30) days from the
date on which the Plan Administrator received the written application for
review.
13.6 At least ten (10) days prior to the scheduled hearing, the claimant
and his representative designated in writing by him, if any, shall receive
written notice of the date, time, and place of the scheduled hearing. The
claimant or his representative may request that the hearing be rescheduled for
his convenience on another reasonable date or at another reasonable time or
place.
13.7 All claimants requesting a review of the decision denying their
claim for benefits may employ counsel for purposes of the hearing.
13.8 No later than sixty (60) days following the receipt of the written
application for review, the Plan Administrator shall submit its decision on the
review in writing to the claimant involved and to his representative, if any;
provided, however, a decision on the written application for review may be
extended, in the event special circumstances such as the need to hold a hearing
require an extension of time, to a day no later than one hundred twenty (120)
days after the date of receipt of the written application for review. The
decision shall include specific reasons for the decision and specific references
to the pertinent provisions of the Plan on which the decision is based.
SECTION 14
LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS
----------------------------------------------
14.1 No benefit which shall be payable under the Plan to any person shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; and no such benefit shall in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements or torts of any person, nor shall it
be subject to attachment or legal process for, or against, such person, and the
same shall not be recognized under the Plan, except to such extent as may be
required by law. Notwithstanding the above, this Section shall not apply to a
"qualified domestic relations order" (as defined in Code Section 414(p)), and
benefits may be paid pursuant to the provisions of such an order. The Plan
Administrator shall develop procedures (in accordance with applicable federal
regulations) to determine whether a domestic relations order is qualified, and,
if so, the method and the procedures for complying therewith. In addition, a
distribution to an "alternate payee" (as defined in Code Section 414(p)) shall
be permitted if such distribution is authorized by a Qualified Domestic
23
<PAGE>
Relations Order, even if the affected Member has not yet separated from service
and has not yet reached the "earliest retirement age" (as defined in Code
Section 414(p)).
14.2 If any person who shall be entitled to any benefit under the Plan
shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge such benefit under the Plan, then the payment
of any such benefit in the event a Member or Beneficiary is entitled to payment
shall, in the discretion of the Plan Administrator, cease and terminate and in
that event the Trustee shall hold or apply the same for the benefit of such
person, his spouse, children, other dependents or any of them in such manner and
in such proportion as the Plan Administrator shall determine.
14.3 Whenever any benefit which shall be payable under the Plan is to be
paid to or for the benefit of any person who is then a minor or determined to be
incompetent by qualified medical advice, the Plan Administrator need not require
the appointment of a guardian or custodian, but shall be authorized to cause the
same to be paid over to the person having custody of such minor or incompetent,
or to cause the same to be paid to such minor or incompetent without the
intervention of a guardian or custodian, or to cause the same to be paid to a
legal guardian or custodian of such minor or incompetent if one has been
appointed or to cause the same to be used for the benefit of such minor or
incompetent.
14.4 If the Plan Administrator cannot ascertain the whereabouts of any
Member to whom a payment is due under the Plan, the Plan Administrator may
direct that the payment and all remaining payments otherwise due to the Member
be cancelled on the records of the Plan and the amount thereof applied as a
forfeiture in accordance with Plan Section 3.4, or (c) as applicable, except
that, in the event the Member later notifies the Plan Administrator of his
whereabouts and requests the payments due to him under the Plan, the Plan
Sponsor shall contribute to the Plan an amount equal to the payment to be paid
to him as soon as administratively feasible.
SECTION 15
PROHIBITION AGAINST DIVERSION
-----------------------------
At no time shall any part of the Fund be used for or diverted to purposes
other than the exclusive benefit of the Members or their Beneficiaries, subject,
however, to the payment of all taxes and administrative expenses and subject to
the provisions of the Plan with respect to returns of contributions.
SECTION 16
LIMITATION OF RIGHTS
--------------------
Membership in the Plan shall not give any Employee any right or claim
except to the extent that such right is specifically fixed under the terms of
the Plan. The adoption of the Plan and the Trust by any Plan Sponsor shall not
be construed to give any Employee a right to be continued in the employ of a
Plan Sponsor or as interfering with the right of a Plan Sponsor to terminate the
employment of any Employee at any time.
24
<PAGE>
SECTION 17
AMENDMENT TO OR TERMINATION OF
THE PLAN AND THE TRUST
----------------------
17.1 The Primary Sponsor reserves the right at any time to modify or
amend or terminate the Plan or the Trust in whole or in part; provided, however,
that the Primary Sponsor shall have no power to modify or amend the Plan in such
manner as would cause or permit any portion of the funds held under a Plan to be
used for, or diverted to, purposes other than for the exclusive benefit of
Members or their Beneficiaries, or as would cause or permit any portion of a
fund held under the Plan to become the property of a Plan Sponsor; and provided
further, that the duties or liabilities of the Trustee shall not be increased
without its written consent. No such modifications or amendments shall have the
effect of retroactively changing or depriving Members or Beneficiaries of rights
already accrued under the Plan. No Plan Sponsor other than the Primary Sponsor
shall have the right to so modify, amend or terminate the Plan or the Trust.
Notwithstanding the foregoing, each Plan Sponsor may terminate its own
participation in the Plan and Trust pursuant to the Plan.
17.2 Each Plan Sponsor other than the Primary Sponsor shall have the
right to terminate its participation in the Plan and Trust by resolution of its
board of directors or other appropriate governing body and notice in writing to
the Primary Sponsor and the Trustee unless such termination would result in the
disqualification of the Plan or the Trust or would adversely affect the exempt
status of the Plan or the Trust as to any other Plan Sponsor. If contributions
by or on behalf of a Plan Sponsor are completely terminated, the Plan and Trust
shall be deemed terminated as to such Plan Sponsor. Any termination by a Plan
Sponsor, shall not be a termination as to any other Plan Sponsor.
17.3 (a) If the Plan is terminated by the Primary Sponsor or if
contributions to the Trust should be permanently discontinued, it shall
terminate as to all Plan Sponsors and the Fund shall be used, subject to
the payment of expenses and taxes, for the benefit of Members and
Beneficiaries, and for no other purposes, and the Account of each affected
Member shall be fully vested and nonforfeitable, notwithstanding the
provisions of the Section of the Plan which sets forth the vesting
schedule.
(b) In the event of the partial termination of the Plan, each affected
Member's Account shall be fully vested and nonforfeitable, notwithstanding
the provisions of the Section of the Plan which sets forth the vesting
schedule.
17.4 In the event of the termination of the Plan or the Trust with
respect to a Plan Sponsor, the Accounts of the Members with respect to the Plan
as adopted by such Plan Sponsor shall be held subject to the instructions of the
Plan Administrator; provided that the Trustee shall not be required to make any
distribution until it receives a copy of an Internal Revenue Service
determination letter to the effect that the termination does not affect the
qualified status of the Plan or the exempt status of the Trust or, in the event
that such letter is applied for and is not issued, until the Trustee is
reasonably satisfied that adequate provision has been made for the payment of
all taxes which may be due and owing by the Trust.
17.5 In the case of any merger or consolidation of the Plan with, or any
transfer of the assets or liabilities of the Plan to, any other plan qualified
under Code Section 401, the terms of the merger, consolidation or transfer shall
be such that each Member would receive (in the event of termination of the Plan
or its successor immediately thereafter) a benefit which is no less than the
25
<PAGE>
benefit which the Member would have received in the event of termination of the
Plan immediately before the merger, consolidation or transfer.
17.6 Notwithstanding any other provision of the Plan, an amendment to the
Plan --
(a) which eliminates or reduces an early retirement benefit, if any, or
which eliminates or reduces a retirement-type subsidy (as defined in
regulations issued by the Department of the Treasury), if any, or
(b) which eliminates an optional form of benefit
shall not be effective with respect to benefits attributable to service before
the amendment is adopted. In the case of a retirement-type subsidy described in
Subsection (a) above, this Section shall be applicable only to a Member who
satisfies, either before or after the amendment, the preamendment conditions for
the subsidy.
SECTION 18
ADOPTION OF PLAN BY AFFILIATES
------------------------------
Any corporation or other business entity related to the Primary Sponsor by
function or operation and any Affiliate, if the corporation, business entity or
Affiliate is authorized to do so by written direction adopted by the Board of
Directors, may adopt the Plan and the related Trust by action of the board of
directors or other appropriate governing body of such corporation, business
entity or Affiliate. Any adoption shall be evidenced by certified copies of the
resolutions of the foregoing board of directors or governing body indicating the
adoption and by the execution of the Trust by the adopting corporation, or
business entity or Affiliate. The resolution shall state and define the
effective date of the adoption of the Plan by the Plan Sponsor and, for the
purpose of Code Section 415, the "limitation year" as to such Plan Sponsor.
Notwithstanding the foregoing, however, if the Plan and Trust as adopted by an
Affiliate or other corporation or business entity under the foregoing provisions
shall fail to receive the initial approval of the Internal Revenue Service as a
qualified Plan and Trust under Code Sections 401(a) and 501(a), any
contributions by the Affiliate or other corporation or business entity after
payment of all expenses will be returned to such Plan Sponsor free of any trust,
and the Plan and Trust shall terminate, as to the adopting Affiliate or other
corporation or business entity.
SECTION 19
QUALIFICATION AND RETURN OF CONTRIBUTIONS
-----------------------------------------
19.1 If the Plan and the related Trust fail to receive the initial
approval of the Internal Revenue Service as a qualified plan and trust within
one (1) year after the date of denial of qualification (a) the contribution of a
Plan Sponsor after payment of all expenses will be returned to a Plan Sponsor
free of the Plan and Trust, (b) contributions made by a Member shall be returned
to the Member who made the contributions, and (c) the Plan and Trust shall
thereupon terminate.
19.2 All Plan Sponsor contributions to the Plan are contingent upon
deductibility. To the extent permitted by the Code and other applicable laws
and regulations thereunder, upon a Plan Sponsor's request, a contribution which
was made by reason of a mistake of fact or which was nondeductible under Code
26
<PAGE>
Section 404, shall be returned to a Plan Sponsor within one (1) year after the
payment of the contribution, or the disallowance of the deduction (to the extent
disallowed), whichever is applicable.
In the event of a contribution which was made by reason of a mistake of
fact or which was nondeductible, the amount to be returned to the Plan Sponsor
shall be the excess of the contribution above the amount that would have been
contributed had the mistake of fact or the mistake in determining the deduction
not occurred, less any net loss attributable to the excess. Any net income
attributable to the excess shall not be returned to the Plan Sponsor. No return
of any portion of the excess shall be made to the Plan Sponsor if the return
would cause the balance in a Member's Account to be less than the balance would
have been had the mistaken contribution not been made.
SECTION 20
INCORPORATION OF SPECIAL LIMITATIONS
------------------------------------
Appendices A, B, C and D to the Plan, attached hereto, are incorporated by
reference and the provisions of the same shall apply notwithstanding anything to
the contrary contained herein.
WHEREOF, the Primary Sponsor has caused this indenture to be executed as of
the date first above written.
MARINER POST-ACUTE NETWORK, INC.
By:
-------------------------------
Title:
-----------------------------
ATTEST:
- --------------------------------------
Title:
--------------------------------
CORPORATE SEAL
27
<PAGE>
APPENDIX A
LIMITATION ON ALLOCATIONS
-------------------------
SECTION 1
The "annual addition" for any Member for any one limitation year may not
exceed the lesser of:
(a) $30,000 (or, if greater, one-quarter of the dollar limitation in
effect under Code Section 415(b)(1)(A), as adjusted for changes in the cost
of living as provided in regulations issued by the Secretary of the
Treasury); or
(b) 25% of the Member's Annual Compensation.
SECTION 2
For the purposes of this Appendix A, the term "annual addition" for any
Member means for any limitation year, the sum of certain Plan Sponsor,
Affiliate, and Member contributions, forfeitures, and other amounts as
determined in Code Section 415(c)(2) in effect for that limitation year.
SECTION 3
In the event that a Plan Sponsor maintains a defined benefit plan under
which a Member also participates, the sum of the defined benefit plan fraction
and the defined contribution plan fraction for any limitation year for any
Member may not exceed 1.0.
(a) The defined benefit plan fraction for any limitation year is a
fraction:
(1) the numerator of which is the projected annual benefit of the
Member under the defined benefit plan (determined as of the close of
such year); and
(2) the denominator of which is the lesser of
(A) the product of 1.25, multiplied by the maximum annual
benefit allowable under Code Section 415(b)(1)(A), or
(B) the product of
(i) 1.4, multiplied by
(ii) the maximum amount which may be taken into account
under Section 415(b)(1)(B) of the Code with respect to the
Member under the defined benefit plan for the limitation
year (determined as of the close of the limitation year).
A-1
<PAGE>
(b) The defined contribution plan fraction for any limitation year is a
fraction:
(1) the numerator of which is the sum of a Member's annual
additions as of the close of the year; and
(2) the denominator of which is the sum of the lesser of the
following amounts determined for the year and for all prior limitation
years during which the Member was employed by a Plan Sponsor:
(A) the product of 1.25, multiplied by the dollar limitation in
effect under Code Section 415(c)(1)(A) for the limitation year
(determined without regard to Section 415(c)(6) of the Code); or
(B) the product of
(i) 1.4, multiplied by
(ii) the amount which may be taken into account under Code
Section 415(c)(1)(B) (or Code Section 415(c)(7), if
applicable) with respect to the Member for the limitation
year.
SECTION 4
For purposes of this Appendix A, the term "limitation year" shall mean a
Plan Year unless a Plan Sponsor elects, by adoption of a written resolution, to
use any other twelve-month period adopted in accordance with regulations issued
by the Secretary of the Treasury.
SECTION 5
For purposes of applying the limitations of this Appendix A, all defined
contribution plans maintained or deemed to be maintained by a Plan Sponsor shall
be treated as one defined contribution plan, and all defined benefit plans now
or previously maintained or deemed to be maintained by a Plan Sponsor shall be
treated as one defined benefit plan. In the event any of the actions to be
taken pursuant to Section 5 of this Appendix A or pursuant to any language of
similar import in another defined contribution plan are required to be taken as
a result of the annual additions of a Member exceeding the limitations set forth
in Section 1 of this Appendix A, because of the Member's participation in more
than one defined contribution plan, the actions shall be taken first with regard
to this Plan.
SECTION 6
In the event that as a result of either the allocation of forfeitures to
the Account of a Member or a reasonable error in estimating the Member's Annual
Compensation, the annual addition allocated to the Account of a Member exceeds
the limitations set forth in Section 1 of this Appendix A or in the event that
the aggregate contributions made on behalf of a Member under both a defined
benefit plan and a defined contribution plan, subject to the reduction of
allocations in other defined contribution plans required by Section 5 of this
A-2
<PAGE>
Appendix A, cause the aggregate limitation fraction set forth in Section 3 of
this Appendix A to be exceeded, the Plan Administrator shall, in writing, direct
the Trustee to take such of the following actions as the Plan Administrator
shall deem appropriate, specifying in each case the amount or amounts of
contributions involved:
(a) Contributions made by the Plan Sponsor on behalf of the Member
pursuant to Plan Section 3.1 with respect to which no contribution is made
under Plan Section 3.2 shall be reduced in the amount of the excess and
distributed to the Member;
(b) If further reduction is necessary, contributions made by the Plan
Sponsor on behalf of the Member pursuant to Plan Section 3.1 and
contributions of the Plan Sponsor thereon pursuant to Plan Section 3.2
shall be reduced in the amount of the remaining excess. The amount of the
reduction under Plan Section 3.1 shall be distributed to the Member. The
amount of the reduction under Plan Section 3.2 shall be reallocated to the
Matching Accounts of Members who are not affected by the limitation in the
same proportion as the contribution of the Plan Sponsor for the year is
allocated under Plan Section 4.1 to the Accounts of such Members;
(c) If further reduction is necessary, contributions made by the Plan
on behalf of the Member pursuant to Plan Section 3.3 shall be reduced in
the amount of the remaining excess. The amount of the reduction shall be
reallocated to the Accounts of Members who are not affected by the
limitations in the same proportion as the contribution of the Plan Sponsor
for the year is allocated under Plan Section 4.1(b) to the Accounts of such
Members; and
(d) If the contribution of the Plan Sponsor would cause the annual
addition to exceed the limitations set forth herein with respect to all
Members under the Plan, the portion of such contribution in excess of the
limitations shall be segregated in a suspense account. While the suspense
account is maintained, (1) no Plan Sponsor contributions under the Plan
shall be made which would be precluded by this Appendix B, (2) income,
gains and loses of the Fund shall not be allocated to such suspense account
and (3) amounts in the suspense account shall be allocated in the same
manner as Plan Sponsor contributions and forfeitures under the Plan as of
each Valuation Date on which Plan Sponsor contributions may be allocated
until the suspense account is exhausted. In the event of the termination of
the Plan, the amounts in the suspense account shall be returned to the Plan
Sponsor to the extent that such amounts may not then be allocated to the
Members' Accounts.
A-3
<PAGE>
APPENDIX B
TOP-HEAVY PROVISIONS
--------------------
SECTION 1
As used in this Appendix B, the following words shall have the following
meanings:
(a) "Determination Date" means, with respect to any Plan Year, the
------------------
last day of the preceding Plan Year, or, in the case of the first Plan
Year, means the last day of the first Plan Year.
(b) "Key Employee" means an Employee or former Employee (including a
------------
Beneficiary of a Key Employee or former Key Employee) who at any time
during the Plan Year containing the Determination Date or any of the four
(4) preceding Plan Years is:
(1) An officer of the Plan Sponsor or of any Affiliate whose Annual
Compensation was greater than fifty percent (50%) of the amount in
effect under Code Section 415(b)(1)(A) for the calendar year in which
the Plan Year ends, where the term "officer" means an administrative
executive in regular and continual service to the Plan Sponsor or
Affiliate; provided, however, that in no event shall the number of
officers exceed the lesser of Clause (A) or (B) of this Subparagraph
(1), where:
(A) equals fifty (50) Employees; and
(B) equals the greater of (i) three (3) Employees or (ii) ten
percent (10%) of the number of Employees during the Plan Year, with
any non-integer being increased to the next integer.
If for any year no officer of the Plan Sponsor meets the
requirements of this Subsection (a), the highest paid officer of the
Plan Sponsor for the Plan Year shall be considered an officer for
purposes of this Subsection (a).
(2) One of the ten (10) Employees owning both (A) more than one-
half percent (1/2%) of the outstanding stock of the Plan Sponsor or an
Affiliate, more than one-half percent (1/2%) of the total combined
voting power of all stock of the Plan Sponsor or an Affiliate, or more
than one-half percent (1/2%) of the capital or profits interest in the
Plan Sponsor or an Affiliate, and (B) the largest percentage ownership
interests in the Plan Sponsor or any of its Affiliates, and whose
Annual Compensation is equal to or greater than the amount in effect
under Section 1(a) of Appendix A to the Plan for the calendar year in
which the Determination Date falls; or
(3) An owner of more than five percent (5%) of the outstanding
stock of the Plan Sponsor or an Affiliate or more than five percent
(5%) of the total combined voting power of all stock of the Plan
Sponsor or an Affiliate; or
B-1
<PAGE>
(4) An owner of more than one percent (1%) of the outstanding stock
of the Plan Sponsor or an Affiliate or more than one percent (1%) of
the total combined voting power of all stock of the Plan Sponsor or an
Affiliate, and who in such Plan Year had Annual Compensation from the
Plan Sponsor and all of its Affiliates of more than $150,000.
Employees other than Key Employees are sometimes referred to in this
Appendix B, as "non-key employees."
(c) "Required Aggregation Group" means:
--------------------------
(1) each plan of the Plan Sponsor and its Affiliates which
qualifies under Code Section 401(a) in which a Key Employee is a
Member, and
(2) each other plan of the Plan Sponsor and its Affiliates which
qualifies under Code Section 401 (a) and which enables any plan
described in Subsection (a) of this Section to meet the requirements
of Section 401(a)(4) or 410 of the Code.
(d) (1) "Top-Heavy" means:
---------
(A) if the Plan is not included in a Required Aggregation
Group, the Plan's condition in a Plan Year for which, as of the
Determination Date:
(i) the present value of the cumulative Accounts under the
Plan for all Key Employees exceeds 60 percent of the present
value of the cumulative Accounts under the Plan for all
Members; and
(ii) the Plan, when included in every potential
combination, if any, with any or all of:
(I) any Required Aggregation Group, and
(II) any plan of the Plan Sponsor which is not part
of any Required Aggregation Group and which qualifies
under Code Section 401 (a)
is part of a Top-Heavy Group (as defined in Paragraph (2)
of this Subsection); and
(B) if the Plan is included in a Required Aggregation Group,
the Plan's condition in a Plan Year for which, as of the
Determination Date:
(i) the Required Aggregation Group is a Top-Heavy Group
(as defined in Paragraph (2) of this Subsection); and
B-2
<PAGE>
(ii) the Required Aggregation Group, when included in
every potential combination, if any, with any or all of the
plans of the Plan Sponsor and its Affiliates which are not
part of the Required Aggregation Group and which qualify under
Code Section 401(a), is part of a Top-Heavy Group (as defined
in Paragraph (2) of this Subsection).
(C) For purposes of Subparagraphs (A)(ii) and (B)(ii) of this
Paragraph (1), any combination of plans must satisfy the
requirements of Sections 401(a)(4) and 410 of the Code.
(2) A group shall be deemed to be a Top-Heavy Group if:
(A) the sum, as of the Determination Date, of the present
value of the cumulative accrued benefits for all Key Employees
under all plans included in such group exceeds
(B) sixty percent (60%) of a similar sum determined for all
participants in such plans.
(3)(A) For purposes of this Section, the present value of the
accrued benefit for any participant in a defined contribution
plan as of any Determination Date or last day of a plan year
shall be the sum of:
(i) as to any defined contribution plan other than a
simplified employee pension, the account balance as of the
most recent valuation date occurring within the plan year
ending on the Determination Date or last day of a plan year,
and
(ii) as to any simplified employee pension, the aggregate
employer contributions, and
(iii) an adjustment for contributions due as of the
Determination Date or last day of a plan year.
In the case of a plan that is not subject to the minimum
funding requirements of Code Section 412, the adjustment in
Clause (iii) of this Subparagraph (A) shall be the amount of any
contributions actually made after the valuation date but on or
before the Determination Date or last day of the plan year to the
extent not included under Clause (i) or (ii) of this Subparagraph
(A); provided, however, that in the first plan year of the plan,
the adjustment in Clause (iii) of this Subparagraph (A) shall
also reflect the amount of any contributions made thereafter that
are allocated as of a date in such first plan year. In the case
of a plan that is subject to the minimum funding requirements,
the account balance in Clause (i) and the aggregate contributions
in Clause (ii) of this Subparagraph (A) shall include
contributions that would be allocated as of a date not later than
the Determination Date or last day of a plan year, even though
those amounts are not yet required to be contributed, and the
adjustment in Clause (iii) of this Subparagraph (A) shall be the
amount of any contribution actually made (or due to be made)
B-3
<PAGE>
after the valuation date but before the expiration of the
extended payment period in Code Section 412(c)(10) to the extent
not included under Clause (i) or (ii) of this Subparagraph (A).
(B) For purposes of this Subsection, the present value of the
accrued benefit for any participant in a defined benefit plan as
of any Determination Date or last day of a plan year must be
determined as of the most recent valuation date which is within a
12-month period ending on the Determination Date or last day of a
plan year as if such participant terminated as of such valuation
date; provided, however, that in the first plan year of a plan,
the present value of the accrued benefit for a current
participant must be determined either (i) as if the participant
terminated service as of the Determination Date or last day of a
plan year or (ii) as if the participant terminated service as of
such valuation date, but taking into account the estimated
accrued benefit as of the Determination Date or last day of a
plan year. For purposes of this Subparagraph (B), the valuation
date must be the same valuation date used for computing plan
costs for minimum funding, regardless of whether a valuation is
performed that year. The actuarial assumptions utilized in
calculating the present value of the accrued benefit for any
participant in a defined benefit plan for purposes of this
Subparagraph (B) shall be established by the Plan Administrator
after consultation with the actuary for the plan, and shall be
reasonable in the aggregate and shall comport with the
requirements set forth by the Internal Revenue Service in Q&A T-
26 and T-27 of Regulation Section 1.416-1.
(C) For purposes of determining the present value of the
cumulative accrued benefit under a plan for any participant in
accordance with this Subsection, the present value shall be
increased by the aggregate distributions made with respect to the
participant (including distributions paid on account of death to
the extent they do not exceed the present value of the cumulative
accrued benefit existing immediately prior to death) under each
plan being considered, and under any terminated plan which if it
had not been terminated would have been in a Required Aggregation
Group with the Plan, during the 5-year period ending on the
Determination Date or last day of the plan year that falls within
the calendar year in which the Determination Date falls.
(D) For purposes of this Paragraph (3), participant
contributions which are deductible as "qualified retirement
contributions" within the meaning of Code Section 219 or any
successor, as adjusted to reflect income, gains, losses, and
other credits or charges attributable thereto, shall not be
considered to be part of the accrued benefits under any plan.
(E) For purposes of this Paragraph (3), if any employee is not
a Key Employee with respect to any plan for any plan year, but
such employee was a Key Employee with respect to such plan for
any prior plan year, any accrued benefit for such employee shall
not be taken into account.
B-4
<PAGE>
(F) For purposes of this Paragraph (3), if any employee has
not performed any service for any Plan Sponsor or Affiliate
maintaining the plan during the five-year period ending on the
Determination Date, any accrued benefit for that employee shall
not be taken into account.
(G) (i) In the case of an "unrelated rollover" (as defined
below) between plans which qualify under Code Section 401(a),
(a) the plan providing the distribution shall count the
distribution as a distribution under Subparagraph (C) of this
Paragraph (3), and (b) the plan accepting the distribution
shall not consider the distribution part of the accrued
benefit under this Section; and
(ii) in the case of a "related rollover" (as defined
below) between plans which qualify under Code Section 401(a),
(a) the plan providing the distribution shall not count the
distribution as a distribution under Subparagraph (C) of this
Paragraph (3), and (b) the plan accepting the distribution
shall consider the distribution part of the accrued benefit
under this Section.
For purposes of this Subparagraph (G), an "unrelated rollover" is a rollover as
defined in Code Section 402(c)(4) or 408(d)(3) or a plan-to-plan transfer which
is both initiated by the participant and made from a plan maintained by one
employer to a plan maintained by another employer where the employers are not
Affiliates. For purposes of this Subparagraph (G), a "related rollover" is a
rollover as defined in Code Section 402(c)(4) or 408(d)(3) or a plan-to-plan
transfer which is either not initiated by the participant or made to a plan
maintained by the employer or an Affiliate.
SECTION 2
(a) Notwithstanding anything contained in the Plan to the contrary,
except as otherwise provided in Subsection (b) of this Section, in any Plan
Year during which the Plan is Top-Heavy, allocations of Plan Sponsor
contributions for the Plan Year for the Account of each Member who is not a
Key Employee and who has not separated from service with the Plan Sponsor
prior to the end of the Plan Year shall not be less than 3 percent of the
Member's Annual Compensation. For purposes of this Subsection, an
allocation to a Member's Account resulting from any Plan Sponsor
contribution attributable to a salary reduction or similar arrangement
shall not be taken into account.
(b) (1) The percentage referred to in Subsection (a) of this Section
for any Plan Year shall not exceed the percentage at which allocations
are made or required to be made under the Plan for the Plan Year for
the Key Employee for whom the percentage is highest for the Plan Year.
For purposes of this Paragraph, an allocation to the Account of a Key
Employee resulting from any Plan Sponsor contribution attributable to a
salary reduction or similar agreement shall be taken into account.
(2) For purposes of this Subsection (b), all defined contribution
plans which are members of a Required Aggregation Group shall be
treated as part of the Plan.
B-5
<PAGE>
(3) This Subsection (b) shall not apply to any plan which is a
member of a Required Aggregation Group if the plan enables a defined
benefit plan which is a member of the Required Aggregation Group to
meet the requirements of Code Section 401(a)(4) or 410.
SECTION 3
In any limitation year (as defined in Section 4 of Appendix A to the Plan)
which contains any portion of a Plan Year in which the Plan is Top-Heavy, the
number "1.0" shall be substituted for the number "1.25" in Section 3 of Appendix
A to the Plan.
SECTION 4
Notwithstanding anything contained in the Plan to the contrary, in any Plan
Year during which the Plan is Top-Heavy, a Member's interest in his Account
shall not vest at any rate which is slower than the following schedule,
effective as of the first day of that Plan Year:
Full Years of Percentage
Vesting Service Vested
--------------- ----------
Less than 3 0%
3 or More 100%
B-6
<PAGE>
APPENDIX C
SPECIAL NONDISCRIMINATION RULES
-------------------------------
SECTION 1
As used in this Appendix, the following words shall have the following
meanings:
(a) "Eligible Member" means a Member who is an Employee during any
---------------
particular Plan Year.
(b) "Highly Compensated Eligible Member" means any Eligible Member
----------------------------------
who is a Highly Compensated Employee.
(c) "Matching Contribution" means any contribution made by a Plan
---------------------
Sponsor to a Matching Account and any other contribution made to a plan by
a Plan Sponsor or an Affiliate on behalf of an Employee on account of a
contribution made by an Employee or on account of an Elective Deferral.
(d) "Qualified Matching Contributions" means Matching Contributions
--------------------------------
which are immediately nonforfeitable when made, and which would be
nonforfeitable, regardless of the age or service of the Employee or whether
the Employee is employed on a certain date, and which may not be
distributed, except upon one of the events described under Section
401(k)(2)(B) of the Code and the regulations thereunder.
(e) "Qualified Nonelective Contributions" means contributions of the
-----------------------------------
Plan Sponsor or an Affiliate, other than Matching Contributions or Elective
Deferrals, which are nonforfeitable when made, and which would be
nonforfeitable regardless of the age or service of the Employee or whether
the Employee is employed on a certain date, and which may not be
distributed, except upon one of the events described under Code Section
401(k)(2)(B) and the regulations thereunder.
SECTION 2
In addition to any other limitations set forth in the Plan, for each Plan
Year one of the following tests must be satisfied:
(a) the actual deferral percentage for the Highly Compensated Eligible
Members for the Plan Year must not be more than the actual deferral
percentage of all other Eligible Members for the preceding Plan Year
multiplied by 1.25; or
(b) the excess of the actual deferral percentage for the Highly
Compensated Eligible Members for the Plan Year over that of all other
Eligible Members for the preceding Plan Year must not be more than two (2)
percentage points, and the actual deferral percentage for the Highly
Compensated Eligible Members for the Plan Year must not be more than the
actual deferral percentage of all other Eligible Members for the preceding
Plan Year multiplied by two (2).
C-1
<PAGE>
The "actual deferral percentage" for the Highly Compensated Eligible Members and
all other Eligible Members for a Plan Year is the average in each group of the
ratios, calculated separately for each Employee, of the Deferral Amounts
contributed by the Plan Sponsor on behalf of an Employee for the Plan Year to
the Annual Compensation of the Employee in the Plan Year. In addition, for
purposes of calculating the "actual deferral percentage" as described above,
Deferral Amounts of Employees who are not Highly Compensated Employees which are
prohibited by Code Section 401(a)(30) shall not be taken into consideration.
Except to the extent limited by Treasury Regulation section 1.401(k)-1(b)(5) and
any other applicable regulations promulgated by the Secretary of the Treasury,
all or part of the Qualified Matching Contributions and Qualified Nonelective
Contributions made pursuant to the Plan may be treated as Deferral Amounts for
purposes of determining the "actual deferral percentage."
Notwithstanding anything to the contrary in the Plan, the Plan may utilize
the transition rule under Internal Revenue Service Notice 97-2 regarding the use
of current year data for calculating the actual deferral percentage.
SECTION 3
If the Deferral Amounts contributed on behalf of any Highly Compensated
Eligible Member exceeds the amount permitted under the "actual deferral
percentage" test described in Section 2 of this Appendix C for any given Plan
Year, then before the end of the Plan Year following the Plan Year for which the
Excess Deferral Amount was contributed, (a) the amount of the Excess Deferral
Amount for the Plan Year, as adjusted to reflect income, gain, or loss
attributable to it through the date the Excess Deferral Amount is distributed to
the Member and reduced by any excess Elective Deferrals as determined pursuant
to Plan Section 3.1 previously distributed to the Member for the Member's
taxable year ending with or within the Plan Year, may be distributed to the
Highly Compensated Eligible Member. The income allocable to such Excess
Deferral Amount shall be determined in a similar manner as described in Section
4.2 of the Plan. The Excess Deferral Amount to be distributed shall be reduced
by Deferral Amounts previously distributed for the taxable year ending in the
same Plan Year, and shall also be reduced by Deferral Amounts previously
distributed for the Plan Year beginning in such taxable year. For all other
purposes under the Plan other than this Appendix C recharacterized amounts shall
continue to be treated as Deferral Amounts. In the event the multiple use of
limitations contained in Sections 2(b) and 5(b) of this Appendix C, pursuant to
Treasury Regulations section 1.401(m)-2 as promulgated by the Secretary of the
Treasury, requires a corrective distribution, such distribution shall be made
pursuant to this Section 3, and not Section 6 of Appendix C.
For purposes of this Section 3, "Excess Deferral Amount" means, with
respect to a Plan Year, the excess of:
(a) the aggregate amount of Deferral Amounts contributed by a Plan
Sponsor on behalf of Highly Compensated Eligible Members for the Plan Year,
over
(b) the maximum amount of Deferral Amounts permitted under Section 2 of
this Appendix C for the Plan Year, which shall be determined by reducing
the Deferral Amounts contributed on behalf of Highly Compensated Eligible
Members in order of the amount of Deferral Amounts contributed by such
Eligible Members beginning with the greatest of such amounts.
C-2
<PAGE>
Distribution of the Excess Deferral Amounts for any Plan Year shall be made to
the Highly Compensated Eligible Members on the basis of the respective portions
of the Excess Deferral Amount attributable to each Highly Compensated Eligible
Member.
SECTION 4
The Plan Administrator shall have the responsibility of monitoring the
Plan's compliance with the limitations of this Appendix C and shall have the
power to take all steps it deems necessary or appropriate to ensure compliance,
including, without limitation, restricting the amount which Highly Compensated
Eligible Members can elect to have contributed pursuant to Plan Section 3.1.
Any actions taken by the Plan Administrator pursuant to this Section 4 shall be
pursuant to non-discriminatory procedures consistently applied.
SECTION 5
In addition to any other limitations set forth in the Plan, Matching
Contributions under the Plan and the amount of nondeductible employee
contributions under the Plan, for each Plan Year must satisfy one of the
following tests:
(a) The contribution percentage for Highly Compensated Eligible Members
for the Plan Year must not exceed 125% of the contribution percentage for
all other Eligible Members for the preceding Plan Year; or
(b) The contribution percentage for Highly Compensated Eligible Members
for the Plan Year must not exceed the lesser of (1) 200% of the
contribution percentage for all other Eligible Members for the preceding
Plan Year, and (2) the contribution percentage for all other Eligible
Members for the preceding Plan Year plus two (2) percentage points.
Notwithstanding the foregoing, for purposes of this Section 5, the terms
Highly Compensated Eligible Member and Eligible Member shall not include any
Member who is not eligible to receive a Matching Contribution under the
provisions of the Plan, other than as a result of the Member failing to
contribute to the Plan or failing to have an Elective Deferral contributed to
the Plan on the Member's behalf. Notwithstanding the foregoing, if Qualified
Matching Contributions are taken into account for purposes of applying the test
contained in Section 2 of this Appendix C, they shall not be taken into account
under this Section 5. In applying the above tests, the Plan Administrator shall
comply with any regulations promulgated by the Secretary of the Treasury which
prevent or restrict the use of the test contained in Section 2(b) of this
Appendix C and the test contained in Section 5(b) of this Appendix C. The
"contribution percentage" for Highly Compensated Eligible Members and for all
other Eligible Members for a Plan Year shall be the average of the ratios,
calculated separately for each Member, of (A) to (B), where (A) is the amount of
Matching Contributions under the Plan (excluding Qualified Matching
Contributions which are used to apply the test set forth in Section 2 of this
Appendix C or Matching Contributions which are used to satisfy the minimum
required contributions to the Accounts of Eligible Members who are not Key
Employees pursuant to Section 1 of Appendix B to the Plan) and nondeductible
employee contributions made under the Plan for the Eligible Member for the Plan
Year, and where (B) is the Annual Compensation of the Eligible Member for the
Plan Year. Except to the extent limited by Treasury Regulation Section
C-3
<PAGE>
1.401(m)-1(b)(5) and any other applicable regulations promulgated by the
Secretary of the Treasury, a Plan Sponsor may elect to treat Deferral Amounts
and Qualified Nonelective Contributions as Matching Contributions for purpose of
determining the "contribution percentage," provided the Deferral Amounts,
excluding those treated as Matching Contributions, satisfy the test set forth in
Section 2 of Appendix C.
Notwithstanding anything to the contrary in the Plan, the Plan may utilize
the transition rule under Internal Revenue Service Notice 97-2 regarding the use
of current year data for calculating the contribution percentage.
SECTION 6
If the Matching Contributions and nondeductible employee contributions and,
if taken into account under Section 5 of this Appendix C, the Deferral Amounts
made by or on behalf of Highly Compensated Eligible Members exceed the amount
permitted under the "contribution percentage test" for any given Plan Year,
then, before the close of the Plan Year following the Plan Year for which the
excess aggregate contributions were made, the amount of the excess aggregate
contributions attributable to the Plan for the Plan Year, as adjusted to reflect
any income, gain or loss attributable to such contributions through the date the
excess aggregate contributions are distributed or forfeited, shall be
distributed or, if the excess aggregate contributions are forfeitable,
forfeited. The income allocable to such contributions shall be determined in a
similar manner as described in Section 4.2 of the Plan. As to any Highly
Compensated Employee, any distribution or forfeiture of his allocable portion of
the excess aggregate contributions for a Plan Year shall first be attributed to
any nondeductible employee contributions made by the Member during the Plan Year
for which no corresponding Plan Sponsor contribution is made and then to any
remaining nondeductible employee contributions made by the Member during the
Plan Year and any Matching Contributions thereon. As between the Plan and any
other plan or plans maintained by the Plan Sponsor in which excess aggregate
contributions for a Plan Year are held, each such plan shall distribute or
forfeit a pro rata share of each class of contribution based on the respective
amounts of a class of contribution made to each plan during the Plan Year. The
payment of the excess aggregate contributions shall be made without regard to
any other provision in the Plan. In the event the multiple use of limitations
contained in Sections 2(b) and 5(b) of this Appendix C, pursuant to Treasury
Regulation section 1.401(m)-2 as promulgated by the Secretary of the Treasury,
requires a corrective distribution, such distribution shall be made pursuant to
Section 3 of Appendix C, and not this Section 6.
For purposes of this Section 6, with respect to any Plan Year, "excess
aggregate contributions" means the excess of:
(a) the aggregate amount of the Matching Contributions and
nondeductible employee contributions and, if taken into account under
Section 5 of this Appendix C, the Deferral Amounts actually made on behalf
of Highly Compensated Eligible Members for the Plan Year, over
(b) the maximum amount of the contributions permitted under the
limitations of Section 5 of this Appendix C, determined by reducing
contributions made on behalf of Highly Compensated Eligible Members in
order of the amount of such contributions beginning with the greatest of
such amounts.
C-4
<PAGE>
Distribution or forfeiture of nondeductible employee contributions or Matching
Contributions in the amount of the excess aggregate contributions for any Plan
Year shall be made with respect to Highly Compensated Employees on the basis of
the respective portions of the excess aggregate contributions attributable to
each Highly Compensated Employee. Forfeitures of excess aggregate contributions
may not be allocated to Members whose contributions are reduced under this
Section 6.
The determination of the amount of excess aggregate contributions under
this Section 6 shall be made after (1) first determining the excess Elective
Deferrals under Section 3.1(b) of the Plan, and (2) then determining the Excess
Deferral Amounts under Section 3 of this Appendix C.
SECTION 7
Except to the extent limited by rules promulgated by the Secretary of the
Treasury, if a Highly Compensated Eligible Member is a participant in any other
plan of the Plan Sponsor or any Affiliate which includes Matching Contributions,
deferrals under a cash or deferred arrangement pursuant to Code Section 401(k),
or nondeductible employee contributions, any contributions made by or on behalf
of the Member to the other plan shall be allocated with the same class of
contributions under the Plan for purposes of determining the "actual deferral
percentage" and "contribution percentage" under the Plan; provided, however,
contributions that are made under an "employee stock ownership plan" (within the
meaning of Code Section 4975(e)(7)) shall not be combined with contributions
under any plan which is not an employee stock ownership plan (within the meaning
of Code Section 4975(e)(7)).
Except to the extent limited by rules promulgated by the Secretary of the
Treasury, if the Plan and any other plans which include Matching Contributions,
deferrals under a cash or deferred arrangement pursuant to Code Section 401(k),
or nondeductible employee contributions are considered as one plan for purposes
of Code Section 401(a)(4) and 410(b)(1), any contributions under the other plans
shall be allocated with the same class of contributions under the Plan for
purposes of determining the "contribution percentage" and "actual deferral
percentage" under the Plan; provided, however, contributions that are made under
an "employee stock ownership plan" (within the meaning of Code Section
4975(e)(7)) shall not be combined with contributions under any plan which is not
an employee stock ownership plan (within the meaning of Code Section
4975(e)(7)).
C-5
<PAGE>
APPENDIX D
SPECIAL TRANSITION RULES
SECTION 1
GRANCARE , INC. 401(K) SAVINGS PLAN PARTICIPANTS
Notwithstanding the provisions of Section 8 of the Plan upon the merger of
the GranCare, Inc. 401(k) Savings Plan with the Plan, the Accrued Benefit of a
Member who was a participant in the GranCare, Inc. 401(k) Savings Plan shall be
and become at all times 100% vested and nonforfeitable thereafter.
D-1
<PAGE>
EXHIBIT 10.65
FIRST AMENDMENT TO THE
MARINER SAVINGS PLAN
THIS FIRST AMENDMENT is made on this day of , 1998, by MARINER
--- --------
POST-ACUTE NETWORK, INC., a corporation duly organized and existing under the
laws of the State of Delaware (the "Plan Sponsor").
W I T N E S S E T H:
-------------------
WHEREAS, the Plan Sponsor established by indenture the Mariner Savings Plan
(the "Plan"), effective October 1, 1998; and
WHEREAS, the Plan Sponsor desires to amend the Plan to reflect the
preservation of optional forms of benefit, within the meaning of Section
411(d)(6) of the Internal Revenue Code of 1986, as a result of the receipt of a
direct transfer of assets from the Mariner Health Care Retirement Savings Plan,
as well as to make certain other changes;
NOW, THEREFORE, the Plan is hereby amended to read as follows:
1. Effective October 1, 1998, , a new Section 1.46 shall be added to the
Plan, to read as follows:
"1.46 `Disability' means a disability of a Member within the meaning
----------
of Code Section 72(m)(7), to the extent that the Member is, or would be,
entitled to disability retirement benefits under the federal Social
Security Act or to the extent that the Member is entitled to recover
benefits under any long term disability plan or policy maintained by the
Plan Sponsor. The determination of whether or not a Disability exists
shall be determined by the Plan Administrator and shall be substantiated by
competent medical evidence."
2. Effective October 1, 1998, existing Section 3.1(a) of the Plan shall be
deleted in its entirety and the following new Section 3.1(a) shall be
substituted therefor:
"3.1 (a) The Plan Sponsor shall make a contribution to the Fund on
behalf of each Member who is an Eligible Employee and has elected to defer
a portion of Annual Compensation otherwise payable to him for the Plan Year
and to have such portion contributed to the Fund. The election to defer may
be made by a Member at any time, but must be made before the Annual
Compensation is payable, may only be made in the form and manner as the
Plan Administrator may prescribe, and shall specify the percentage of
Annual Compensation that the Member desires to defer and to have
contributed to the Fund. A Member may revoke his election, or may modify
his election, either to increase or decrease the
<PAGE>
rate of future deferrals, at any time during the Plan Year,
such revocation or modification to be effective as soon as reasonably
practicable pursuant to the Plan's normal administrative procedures.
Further, once an election has been revoked or modified, any subsequent
election by the Member shall be effective as soon as reasonably practicable
pursuant to the Plan's normal administrative procedures. The contribution
made by a Plan Sponsor on behalf of a Member under this Section 3.1 shall
be in an amount equal to the amount specified in the Member's election in
whole percentages of the Member's Annual Compensation, but not less than
one percent (1%) or greater than twenty percent (20%) of the Member's
Annual Compensation."
3. Effective October 1, 1998, Section 8.3(a) of the Plan shall be deleted
in its entirety, and the following new Section 8.3(a) shall be substituted
therefor:
"(a) who has a vested Accrued Benefit of $5,000 or less, as soon as
practicable after he ceases to be an Employee; and"
4. By adding the following new Section 2 to Appendix D, which shall
be effective as of December 1, 1998:
"SECTION 2
MARINER HEALTHCARE RETIREMENT SAVINGS PLAN
2.1 `Old Mariner Plan' means the Mariner Health Care Retirement
-----------------
Savings Plan, as amended, originally effective March 1, 1993.
2.2 Notwithstanding the provisions of Section 8 of the Plan, a Member
may elect, with respect to the portion of his account, if any, attributable
to amounts transferred to the Trust from the Old Mariner Plan, to have
distributions made in whole or in part in the form of:
(a) Payments over a period certain in monthly, quarterly, semi-
annual or annual installments. The period over which such payments are
to be made shall not extend beyond the Member's life expectancy (or
the life expectancy of the Member and his designated Beneficiary).
(b) An immediate annuity for the life of the Member with a
survivor annuity for the life of his spouse which is fifty percent
(50%) of the amount of the annuity payable during the joint lives of
the Member and his spouse and which is the actuarial equivalent of an
immediate lump sum payment of such Member's Account balance
(hereinafter referred to as `Qualified Joint and Survivor Annuity').
If the Member's Account balance is payable in the form of a Qualified
Joint and Survivor Annuity, and the Member dies before beginning to
receive benefits under the Plan, the Member's spouse shall receive a
single life annuity, payable in monthly installments, which is an
immediate annuity for the life of the
2
<PAGE>
spouse and which is the actuarial equivalent of an immediate lump
sum payment of such Member's Account balance (hereinafter referred to
as `Qualified Pre-Retirement Survivor Annuity'); or
(c) A joint and survivor annuity, payable in monthly
installments, which is an immediate annuity for the life of the Member
with a survivor annuity for the life of his designated Beneficiary
which is fifty percent (50%) of the amount of the annuity payable
during the joint lives of the Member and his designated Beneficiary
and which is the actuarial equivalent of an immediate lump sum payment
of such Member's Account balance; or
(d) A single life annuity, payable in monthly installments for
the life of the Member which is the actuarial equivalent of an
immediate lump sum payment of such Member's account balance.
If an annuity is to be paid pursuant to this Plan Section, such
annuity may be purchased from an insurance company designated by the Plan
Administrator in writing to the Trustee, and may be distributed to the
Member or his Beneficiary, as the case may be. The distribution, if any,
shall be in full satisfaction of the benefits to which the Member or his
Beneficiary is entitled under the Plan. For purposes of this Section,
actuarial equivalence shall be determined based on the factors employed by
the insurance company from which the annuity is purchased and any
commissions or other costs associated with the purchase.
2.3 (a) Notwithstanding anything to the contrary herein, if the
Member has elected to receive an annuity and is married on the date of
his or her death or the date distributions are to commence, the
benefit shall be payable in the form of a Qualified Joint and Survivor
Annuity in accordance with Section 2.2 above, unless an optional form
of distribution is selected during the applicable election period in
accordance with Subparagraphs (d) and (e) below.
(b) If a Member elects to receive an annuity, the Plan
Administrator shall furnish to the Member a written explanation of:
(1) the terms and conditions of the Qualified Joint and
Survivor Annuity and the Qualified Pre-Retirement Survivor
Annuity,
(2) the Member's right to make, and the effect of, an
election not to receive the Qualified Joint and Survivor Annuity
or the Qualified Pre-Retirement Survivor Annuity,
(3) the rights of the Member's spouse as described below, and
3
<PAGE>
(4) the right to make, and the effect of, an election pursuant to
this Subparagraph.
(c) The written explanation of the Qualified Joint and Survivor
Annuity shall be provided to the Member not less than thirty (30) days nor
more than ninety (90) days prior to the first date on which he is entitled
to payment from the Fund. The written explanation of the Qualified Pre-
Retirement Survivor Annuity shall be provided to the Member in whichever of
the following periods ends last:
(1) the period beginning with the first day of the Plan Year in
which the Member attains age thirty-two (32) and ending with the close
of the Plan Year preceding the Plan Year in which the Member attains
age thirty-five (35);
(2) the period beginning one year before and ending one year
after the Employee first becomes a Member;
(3) the period beginning one year before and ending one year
after the provisions of this Subsection apply to the Member; or
(4) a reasonable period of time after separation from Service in
the case of a Member who separates from Service before attaining age
thirty-five (35).
(d) A Member who elects to receive an annuity pursuant to Section 2.2
of this Appendix D may elect during the applicable election period not to
receive the Qualified Joint and Survivor Annuity or Qualified Pre-
Retirement Survivor Annuity by execution and delivery to the Plan
Administrator of a form provided for that purpose by the Plan
Administrator.
(e) The term `applicable election period' means with respect to a
Qualified Joint and Survivor Annuity, the 90-day period ending on the first
date on which the Member is entitled to payment from the Fund, and with
respect to a Qualified Pre-Retirement Survivor Annuity, the period which
begins on the first day of the Plan Year in which the Employee becomes a
Member and ends on the Member's death. In the case of a Member who has a
spouse, no election shall be effective unless:
(1) the spouse of the Member has consented in writing to the
election (including, if applicable, the identity of any Beneficiary
selected other than the Member's spouse and the optional form of
payment selected), and the spouse's consent
4
<PAGE>
acknowledges the effect of the election and is witnessed by a notary
public or Plan representative, or
(2) the Member establishes to the satisfaction of the Plan
Administrator that the consent required pursuant to Subsection
(1) may not be obtained because the spouse cannot be located, the
Member has a court order indicating that he is legally separated
or has been abandoned (within the meaning of local law) unless a
`qualified domestic relations order' (as defined in Code Section
414(p)) provides otherwise, or there are other circumstances as
the Secretary of the Treasury prescribes.
If an election is made, the Member's vested accrued benefit shall be paid in
the optional form of payment chosen by the Member by written instrument
delivered to the Plan Administrator. Any waiver of a Qualified Pre-
Retirement Survivor Annuity made prior to the first day of the Plan Year in
which the Member attains age thirty-five (35) shall become invalid as of the
first day of the Plan Year in which the Member attains age thirty-five (35)
and a Qualified Pre-Retirement Survivor Annuity shall be provided unless a
new waiver is obtained. The Member may revoke any election not to receive
payment in the form of a Qualified Joint and Survivor Annuity or a Qualified
Pre-Retirement Survivor Annuity at any time prior to commencement of
payments from the Fund, and may make a new election at any time prior to the
commencement of payments from the Fund."
Except as specifically amended hereby, the Plan shall remain in full force
and effect as prior to this First Amendment.
IN WITNESS WHEREOF, the Plan Sponsor has caused this First Amendment to be
executed on the day and year first above written.
MARINER POST-ACUTE NETWORK, INC.
By:
--------------------------
Title:
-------------------------
ATTEST:
By:
--------------------------
Title:
-----------------------
[CORPORATE SEAL]
5
<PAGE>
EXHIBIT 10.66
GUARANTY AND SURETYSHIP AGREEMENT
---------------------------------
This Agreement (the "Agreement") dated as of May 18, 1994, is made and
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given by the undersigned signatories, each a subsidiary of Mariner Health Group,
Inc., a Delaware corporation, identified in Schedule 1 attached hereto and made
a part hereof (each a "Guarantor" and collectively, the "Guarantors"), in favor
of the Banks (as defined in that certain Credit Agreement dated as of even date
herewith (as it may hereinafter from time to time be amended, restated, modified
or supplemented, the "Credit Agreement") among PNC Bank, National Association, a
national banking association, as agent (the "Agent"), the Banks party thereto
and Mariner Health Group, Inc., a Delaware corporation (the "Borrower")) and PNC
BANK, NATIONAL ASSOCIATION, in its capacity as Agent for the Banks under the
Credit Agreement.
W I T N E S S E T H:
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WHEREAS, Borrower has entered into the Credit Agreement with the Agent and
the Banks; and
WHEREAS, this Agreement is made by the Guarantors among other things to
induce the Agent and the Banks to enter into and make loan advances pursuant to
the Credit Agreement, to induce the Agent and the Banks to extend credit to the
Borrower from time to time under the Credit Agreement, and to comply with the
requirements of the Credit Agreement; and
WHEREAS, the respective businesses and investments of the Guarantors are
interdependent and loans made to the Borrower under the Credit Agreement are
with the expectation that the profits and other opportunities from such
investment will directly or indirectly inure to the benefit of each Guarantor
and to all of them taken as an affiliated group.
NOW, THEREFORE, in consideration of the premises, and intending to be
legally bound, the Guarantors hereby agree as follows:
ARTICLE I
DEFINITIONS
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1.01. Definitions. Capitalized terms used herein and not otherwise
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defined herein shall have such meanings as given to them in the Credit
Agreement. In addition to the other terms defined elsewhere in this Agreement,
the following terms shall have the following meanings:
"Guaranteed Obligations" shall mean all obligations from time to time
of the Borrower to the Agent and the Banks under or in connection with the
Credit Agreement or any other Loan Document or which arise in any other
manner, whether for principal, interest, fees, indemnities, expenses or
otherwise, and all refinancings or refundings thereof, whether such
obligations are direct or indirect, otherwise secured or unsecured, joint
or several, absolute or contingent, due or to become due, whether for
payment or performance, now existing or hereafter arising (specifically
including but not limited to
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obligations arising or accruing after the commencement of any bankruptcy,
insolvency, reorganization or similar proceeding with respect to the
Borrower or any other individual or entity including any Guarantor (a
"Person") or which would have arisen or accrued but for the commencement of
such proceeding, even if the claim for such obligation is not enforceable
or allowable in such proceeding). Without limitation of the foregoing, such
obligations include all obligations arising from any extensions of credit
under or in connection with the Loan Documents from time to time,
regardless of whether any such extensions of credit are in excess of the
amount committed under or contemplated by the Loan Documents or are made in
circumstances in which any condition to extension of credit is not
satisfied. Without limitation of the foregoing, the Agent and the Banks (or
any successive assignee or transferee) from time to time may assign or
otherwise transfer all of their respective rights and obligations under the
Loan Documents (including, without limitation, all of any commitment to
extend credit), or any other Guaranteed Obligations, to any other Person,
and such Guaranteed Obligations (including, without limitation, any
Guaranteed Obligations resulting from extension of credit by such other
Person under or in connection with the Loan Documents) shall be and remain
Guaranteed Obligations entitled to the benefit of this Agreement.
ARTICLE II
GUARANTY AND SURETYSHIP
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2.01 Guaranty and Suretyship. The Guarantors jointly and severally
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hereby absolutely, unconditionally and irrevocably guarantee and become surety
for the full and punctual payment and performance of the Guaranteed Obligations
as and when such payment or performance shall become due (at scheduled maturity,
by acceleration or otherwise) in accordance with the terms of the Loan
Documents. This Agreement is an agreement of suretyship as well as of guaranty,
is a guarantee of payment and performance and not merely of collectibility, and
is in no way conditioned upon any attempt to collect from or proceed against the
Borrower or any other Person or any other event or circumstance. The obligations
of the Guarantors under this Agreement are direct and primary obligations of
each Guarantor and are independent of the Guaranteed Obligations, and a separate
action or actions may be brought against any one or more of the Guarantors
regardless of whether action is brought against the Borrower, any other
Guarantor or any other Person or whether the Borrower, any other Guarantor or
any other Person is joined in any such action or actions.
2.02 Obligations Absolute. The Guarantors agree that the Guaranteed
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Obligations will be paid and performed strictly in accordance with the terms of
the Loan Documents, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting the Guaranteed Obligations, any of the
terms of the Loan Documents or the rights of the Agent and the Banks or any
other Person with respect thereto. The obligations of the Guarantors under this
Agreement shall be absolute, unconditional and irrevocable, irrespective of any
of the following:
(a) Any lack of genuineness, legality, validity, enforceability or
allowability (in a bankruptcy, insolvency, reorganization or similar proceeding,
or otherwise), or
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any avoidance or subordination, in whole or in part, of any Loan Document or any
of the Guaranteed Obligations.
(b) Any increase, decrease or change in the amount, nature, type or
purpose of any of the Guaranteed Obligations (whether or not contemplated by the
Loan Documents as presently constituted); any change in the time, manner, method
or place of payment or performance of, or in any other term of, any of the
Guaranteed Obligations; any execution or delivery of any additional Loan
Documents; or any amendment, modification or supplement to, or refinancing or
refunding of, any Loan Document or any of the Guaranteed Obligations.
(c) Any failure to assert any breach of or default under any Loan
Document or any of the Guaranteed Obligations; any extensions of credit in
excess of the amount committed under or contemplated by the Loan Documents, or
in circumstances in which any condition to such extensions of credit has not
been satisfied; any other exercise or non-exercise, or any other failure,
omission, breach, default, delay or wrongful action in connection with any
exercise or non-exercise, of any right or remedy against the Borrower or any
other Person under or in connection with any Loan Document or any of the
Guaranteed Obligations; any refusal of payment or performance of any of the
Guaranteed Obligations, whether or not with any reservation of rights against
any Guarantor; or any application of collections (including but not limited to
collections resulting from realization upon any direct or indirect security for
the Guaranteed Obligations) to other obligations, if any, not entitled to the
benefits of this Agreement, in preference to Guaranteed Obligations entitled to
the benefits of this Agreement, or if any collections are applied to Guaranteed
Obligations, any application to particular Guaranteed Obligations.
(d) Any taking, exchange, amendment, modification, supplement,
termination, subordination, release, loss or impairment of, Or any failure to
protect, perfect, or preserve the value of, Or any enforcement of, realization
upon, or exercise of rights, or remedies under or in connection with, Or any
failure, omission, breach, default, delay or wrongful action by the Agent and
the Banks, or any of them, or any other Person in connection with the
enforcement of, realization upon, or exercise of rights or remedies under or in
connection with, Or, any other action or inaction by the Agent and the Banks, or
any of them, or any other Person in respect of, any direct or indirect security
for any of the Guaranteed Obligations. As used in this Agreement, "direct or
indirect security" for the Guaranteed Obligations, and similar phrases, includes
but is not limited to any collateral security, guaranty, suretyship, letter of
credit, capital maintenance agreement, put option, subordination agreement or
other right or arrangement of any nature providing direct or indirect assurance
of payment or performance of any of the Guaranteed Obligations, made by or on
behalf of any Person.
(e) Any merger, consolidation, liquidation, dissolution, winding-up,
charter revocation or forfeiture, or other change in, restructuring or
termination of the corporate structure or existence of, the Borrower or any
other Person; any bankruptcy, insolvency, reorganization or similar proceeding
with respect to the Borrower or any other Person; or any action taken or
election made by the Agent and the Banks, or any of them (including but not
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limited to any election under Section 1111(b)(2) of the United States Bankruptcy
Code), the Borrower or any other Person in connection with any such proceeding.
(f) Any defense, setoff or counterclaim (excluding only the defense of
full, strict and indefeasible payment and performance), which may at any time be
available to or be asserted by the Borrower or any other person with respect to
any Loan Document or any of the Guaranteed Obligations; or any discharge by
operation of law or release of the Borrower or any other Person from the
performance or observance of any Loan Document or any of the Guaranteed
Obligations.
(g) Any other event or circumstance, whether similar or dissimilar to
the foregoing, and whether known or unknown, which might otherwise constitute a
defense available to, or limit the liability of, any Guarantor, a guarantor or a
surety, excepting only full, strict and indefeasible payment and performance of
the Guaranteed Obligations in full.
2.03. Waivers, etc. The Guarantors hereby waive any defense to or
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limitation on their obligations under this Agreement arising out of or based on
any event or circumstance referred to in Section 2.02 hereof. Without
limitation and to the full extent permitted by applicable law, the Guarantors
waive each of the following:
(a) All notices, disclosures and demand of any nature which otherwise
might be required from time to time to preserve intact any rights against any
Guarantor, including without limitation the following: any notice of any event
or circumstance described in Section 2.02 hereof; any notice required by any
law, regulation or order now or hereafter in effect in any jurisdiction; any
notice of nonpayment, nonperformance, dishonor, or protest under any Loan
Document or any of the Guaranteed Obligations; any notice of the incurrence of
any Guaranteed obligation; any notice of any default or any failure on the part
of the Borrower or any other Person to comply with any Loan Document or any of
the Guaranteed Obligations or any direct or indirect security for any of the
Guaranteed Obligations; and any notice of any information pertaining to the
business, operations, condition (financial or otherwise) or prospects of the
Borrower or any other Person.
(b) Any right to any marshalling of assets, to the filing of any claim
against the Borrower or any other Person in the event of any bankruptcy,
insolvency, reorganization or similar proceeding, or to the exercise against the
Borrower or any other Person of any other right or remedy under or in connection
with any Loan Document or any of the Guaranteed Obligations or any direct or
indirect security for any of the Guaranteed Obligations; any requirement of
promptness or diligence on the part of the Agent and the Banks, or any of them,
or any other Person; any requirement to exhaust any remedies under or in
connection with, or to mitigate the damages resulting from default under, any
Loan Document or any of the Guaranteed Obligations or any direct or indirect
security for any of the Guaranteed Obligations; any benefit of any statute of
limitations; and any requirement of acceptance of this Agreement, and any
requirement that any Guarantor receive notice of such acceptance.
(c) Any defense or other right arising by reason of any law now or
hereafter in effect in any jurisdiction pertaining to election of remedies
(including but not limited to anti-deficiency laws, "one action" laws or the
like), or by reason of any election of remedies or
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other action or inaction by the Agent and the Banks, or any of them (including
but not limited to commencement or completion of any judicial proceeding or
nonjudicial sale or other action in respect of collateral security for any of
the Guaranteed Obligations), which results in denial or impairment of the right
of the Agent and the Banks, or any of them, to seek a deficiency against the
Borrower or any other Person or which otherwise discharges or impairs any of the
Guaranteed Obligations.
2.04. Reinstatement. This Agreement shall continue to be effective, or be
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automatically reinstated, as the case may be, if at any time payment of any of
the Guaranteed Obligations is avoided, rescinded or must otherwise be returned
by the Agent and the Banks, or any of them, for any reason (including, without
limitation, by reason of such payment being a preference, fraudulent transfer or
fraudulent conveyance), all as though such payment had not been made.
2.05. No Stay. Without limitation of any other provision of this
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Agreement, if any declaration of default or acceleration or other exercise or
condition to exercise of rights or remedies under or with respect to any
Guaranteed obligation shall at any time be stayed, enjoined or prevented for any
reason (including but not limited to stay or injunction resulting from the
pendency against the Borrower or any other Person of a bankruptcy, insolvency,
reorganization or similar proceeding), the Guarantors agree that, for the
purposes of this Agreement and their obligations hereunder, the Guaranteed
Obligations shall be deemed to have been declared in default or accelerated, and
such other exercise or conditions to exercise shall be deemed to have been taken
or met.
2.06. Payments. All payments to be made by any Guarantor pursuant to this
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Agreement shall be made without setoff, counterclaim, withholding or other
deduction of any nature.
2.07. Continuing Guaranty. This Agreement is a continuing agreement and
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shall continue in full force and effect (notwithstanding that no Guaranteed
Obligations may be outstanding from time to time, or any other event or
circumstance) until all Guaranteed Obligations and all other amounts payable
under this Agreement have been paid and performed in full, and all commitments
to extend credit under the Loan Documents have terminated, subject in any event
to reinstatement in accordance with Section 2.04 hereof. Any purported
termination, revocation or discharge of this Agreement shall be void and of no
effect. For purposes of this Agreement the Guaranteed Obligations shall not be
deemed to have been paid in full until the Agent and the Banks shall have
indefeasibly received payment of the Guaranteed Obligations in full and in cash
and all commitments to extend credit under the Loan Documents have terminated.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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Each Guarantor hereby represents and warrants to the Agent and the Banks
with respect to itself as follows:
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3.01. No Conditions Precedent. There are no conditions precedent to the
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effectiveness of this Guaranty that have not been satisfied or waived.
3.02. No Reliance. The Guarantor has, independently and without reliance
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upon the Agent and the Banks, or any of them, and based upon such documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement.
3.03. Representations and Warranties Remade at Each Extension of Credit.
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Each request (including any deemed request) by the Borrower for any extension of
credit under the Credit Agreement shall be deemed to constitute a representation
and warranty by each Guarantor to the Agent and the Banks that the
representations and warranties made by each Guarantor in this Agreement are true
and correct on and as of the date of such request with the same effect as though
made on and as of such date. Failure by the Agent and the Banks to receive
notice from such Guarantor to the contrary before the Agent and the Banks make
any extension of credit under any Loan Document shall constitute a further
representation and warranty by such Guarantor to the Agent and the Banks that
the representations and warranties made by the Borrower are true and correct on
and as of the date of such extension of credit with the same effect as though
made on and as of such date.
ARTICLE IV
MISCELLANEOUS
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4.01. Amendments, etc. No amendment to or waiver of any provision of this
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Agreement, and no consent to any departure by any Guarantor herefrom, shall in
any event be effective unless in a writing manually signed by or on behalf of
the Agent and the Banks. Any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
4.02. No Implied Waiver; Remedies Cumulative. No delay or failure of the
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Agent and the Banks, or any of them, in exercising any right or remedy under
this Agreement shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right or remedy preclude any other or further
exercise thereof or the exercise of any other right or remedy. The rights and
remedies of the Agent and the Banks under this Agreement are cumulative and not
exclusive of any other rights or remedies available hereunder, under any other
agreement or instrument, by law, or otherwise.
4.03. Notices. Each Guarantor agrees that all notices, statements,
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requests, demands and other communications under this Agreement shall be given
to such Guarantor at the address set forth below its name on the signature page
hereof in the manner provided in Section 11.06 of the Credit Agreement. The
Agent and the Banks may rely on any notice (whether or not made in a manner
contemplated by this Agreement) purportedly made by or on behalf of a Guarantor,
and the Agent and the Banks shall have no duty to verify the identity or
authority of the Person giving such notice.
4.04. Expenses. Each Guarantor unconditionally agrees to pay all costs and
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expenses, including reasonable attorney's fees incurred by the Agent and any of
the Banks in enforcing this Agreement against any Guarantor.
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4.05. Prior Understandings. This Agreement constitutes the entire
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agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous understandings and agreements.
4.06. Survival. All representations and warranties of the Guarantors
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contained in or made in connection with this Agreement shall survive, and shall
not be waived by, the execution and delivery of this Agreement, any
investigation by or knowledge of the Agent and the Banks, or any of them, any
extension of credit, or any other event or circumstance whatsoever.
4.07. Counterparts. This Agreement may be executed in any number of
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counterparts, each of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute but one and the same instrument.
4.08. Setoff. In the event that at any time any obligation of the
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Guarantors now or hereafter existing under this Agreement shall have become due
and payable, the Agent and the Banks, or any of them, shall have the right from
time to time, without notice to any Guarantor, to set off against and apply to
such due and payable amount any obligation of any nature of the Agent and the
Banks to any Guarantor, including but not limited to all deposits (whether time
or demand, general or special, provisionally credited or finally credited,
however evidenced) now or hereafter maintained by any Guarantor with the Agent
or the Banks. Such right shall be absolute and unconditional in all
circumstances and, without limitation, shall exist whether or not the Agent
and/or the Banks, or any of them, shall have given any notice or made any demand
under this Agreement or under such obligation to the Guarantor, whether such
obligation to the Guarantor is absolute or contingent, matured or unmatured (it
being agreed that the Agent and the Banks, or any of them, may deem such
obligation to be then due and payable at the time of such setoff), and
regardless of the existence or adequacy of any collateral, guaranty or other
direct or indirect security, right or remedy available to the Agent and the
Banks. The rights of the Agent and the Banks under this Section are in addition
to such other rights and remedies (including, without limitation, other rights
of setoff and banker's lien) which the Agent and the Banks, or any of them, may
have, and nothing in this Agreement or in any other Loan Document shall be
deemed a waiver of or restriction on the right of setoff or banker's lien of the
Agent and the Banks, or any of them. The Guarantors hereby agree that, to the
fullest extent permitted by law, any affiliate of the Agent and the Banks, or
any of them, and any holder of a participation in any obligation of any
Guarantor under this Agreement, shall have the same rights of setoff as the
Agent and the Banks as provided in this Section 4.08 (regardless of whether such
affiliate or participant otherwise would be deemed a creditor of the Guarantor).
4.09. Construction. The section and other headings contained in this
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Agreement are for reference purposes only and shall not affect interpretation of
this Agreement in any respect. This Agreement has been fully negotiated between
the applicable parties, each party having the benefit of legal counsel, and
accordingly neither any doctrine of construction of guaranties or suretyships in
favor of the guarantor or surety, nor any doctrine of construction of
ambiguities in agreement or instruments against the party controlling the
drafting thereof, shall apply to this Agreement.
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4.10. Successors and Assigns. This Agreement shall be binding upon each
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Guarantor, its successors and assigns, and shall inure to the benefit of and be
enforceable by the Agent and the Banks, or any of them, and their successors and
assigns. Without limitation of the foregoing, the Agent and the Banks, or any of
them (and any successive assignee or transferee), from time to time may assign
or otherwise transfer all or any portion of its rights or obligations under the
Loan Documents (including, without limitation, all or any portion of any
commitment to extend credit), or any other Guaranteed Obligations, to any other
person and such Guaranteed Obligations (including, without limitation, any
Guaranteed Obligations resulting from extension of credit by such other Person
under or in connection with the Loan Documents) shall be and remain Guaranteed
Obligations entitled to the benefit of this Agreement, and to the extent of its
interest in such Guaranteed Obligations such other Person shall be vested with
all the benefits in respect thereof granted to the Agent and the Banks in this
Agreement or otherwise.
4.11. Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
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(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND
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ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
(b) Certain Waivers. EACH GUARANTOR HEREBY IRREVOCABLY:
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(i) CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON PLEAS
OF ALLEGHENY COUNTY AND THE UNITED STATES DISTRICT COURT FOR THE WESTERN
DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR
REGISTERED MAIL DIRECTED TO THE BORROWER AT THE ADDRESS PROVIDED FOR IN THE
CREDIT AGREEMENT AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL
RECEIPT THEREOF;
(ii) WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED
AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO ASSERT ANY DEFENSE BASED ON LACK
OF JURISDICTION OR VENUE; AND
(iii) WAIVES TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM
OF ANY KIND ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE CREDIT AGREEMENT,
ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT PERMITTED BY LAW.
(c) Limitation of Liability. TO THE FULLEST EXTENT PERMITTED BY LAW, NO
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CLAIM MAY BE MADE BY ANY GUARANTOR OR ANY OTHER PERSON AGAINST THE AGENT AND THE
BANKS, OR ANY OF THEM, OR ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE, ATTORNEY
OR AGENT OF THE AGENT AND THE BANKS FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM ARISING FROM OR RELATING TO THIS
AGREEMENT OR ANY STATEMENT, COURSE OF CONDUCT, ACT, OMISSION, OR EVENT
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OCCURRING IN CONNECTION HEREWITH (WHETHER FOR BREACH OF CONTRACT, TORT OR ANY
OTHER THEORY OF LIABILITY); AND EACH GUARANTOR HEREBY WAIVES, RELEASES AND
AGREES NOT TO SUE UPON ANY CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED
AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR.
4.12. Severability; Modification to Conform to Law.
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(a) It is the intention of the parties that this Agreement be enforceable to
the fullest extent permissible under applicable law, but that the
unenforceability (or modification to conform to such Law) of any provision or
provisions hereof shall not render unenforceable, or impair, the remainder
hereof. If any provision in this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, this Agreement shall, as
to such jurisdiction, be deemed amended to modify or delete, as necessary, the
offending provision or provisions and to alter the bounds thereof in order to
render it or them valid and enforceable to the maximum extent permitted by
applicable Law, without in any matter affecting the validity or enforceability
of such provision or provisions in any other jurisdiction or the remaining
provisions hereof in any jurisdiction.
(b) Without limitation of the preceding subsection (a), to the extent that
mandatory applicable law (including but not limited to applicable laws
pertaining to fraudulent conveyance or fraudulent transfer) otherwise would
render the full amount of the Guarantor's obligations hereunder invalid or
unenforceable, the Guarantor's obligations hereunder shall be limited to the
maximum amount which does not result in such invalidity or unenforceability.
(c) Notwithstanding anything to the contrary in this Section 4.12 or
elsewhere in this Agreement, this Agreement shall be presumptively valid and
enforceable to its full extent in accordance with its terms, as if this Section
4.12 (and references elsewhere in this Agreement to enforceability to the
fullest extent permitted by Law) were not a part of this Agreement, and in any
related litigation the burden of proof shall be on the party asserting the
invalidity or unenforceability of any provision hereof or asserting any
limitation on any Guarantor's obligations hereunder as to each element of such
assertion.
4.13. Additional Guarantors. At any time after the initial execution and
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delivery of this Agreement to the Agent and the Banks, additional Persons may
become parties to this Agreement and thereby acquire the duties and rights of
being Guarantors hereunder by executing and delivering to the Agent and the
Banks a counterpart signature page for attachment hereto. No notice of the
addition of any Guarantor shall be required to be given to any pre-existing
Guarantor.
4.14. WARRANT OF ATTORNEY TO ENTER JUDGMENT BY CONFESSION.
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(a) EACH GUARANTOR ACKNOWLEDGES THAT (I) IT HAS READ AND UNDERSTANDS, AFTER
CONSULTATION WITH ITS COUNSEL, THAT THE PROVISIONS OF SECTION 4.14(B) COULD
ENABLE THE AGENT AND THE BANKS, OR ANY OF THEM, TO OBTAIN A JUDGMENT AGAINST
SUCH GUARANTOR AND
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COMMENCE EXECUTION PROCEEDINGS THAT RESULT IN THE SEIZURE OF ASSETS OF SUCH
GUARANTOR, IN EITHER CASE, WITHOUT SUCH GUARANTOR HAVING THE BENEFIT OF PRIOR
NOTICE OR A HEARING; AND (II) SUCH GUARANTOR NEVERTHELESS KNOWINGLY AND
VOLUNTARILY AGREES TO SUCH POSSIBLE CONSEQUENCES AND THE PROVISIONS OF SECTION
4.14(B).
(b) EACH GUARANTOR DOES HEREBY EMPOWER THE PROTHONOTARY OR ANY ATTORNEY OF
ANY FEDERAL OR STATE COURT OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA TO
APPEAR FOR ANY GUARANTOR, AND WITH OR WITHOUT ONE OR MORE COMPLAINTS FILED,
CONFESS A JUDGMENT OR JUDGMENTS AGAINST GUARANTOR IN ANY FEDERAL OR STATE COURT
OF RECORD WITHIN THE COMMONWEALTH OF PENNSYLVANIA, AT ANY TIME AFTER DEFAULT BY
BORROWER UNDER THE LOAN DOCUMENTS OR THE FAILURE BY GUARANTOR TO PERFORM ANY OF
ITS OBLIGATIONS UNDER THIS AGREEMENT, IN FAVOR OF THE AGENT AND THE BANKS, OR
ANY OF THEM, OR THEIR SUCCESSORS OR ASSIGNS FOR THE UNPAID BALANCE OF THE
GUARANTEED OBLIGATIONS, TOGETHER WITH COSTS OF SUIT AND REASONABLE ATTORNEY'S
COMMISSION FOR COLLECTION, AND UNDERSIGNED HEREBY FOREVER WAIVES AND RELEASES
ANY AND ALL ERRORS IN SAID PROCEEDINGS AND WAIVES STAY OF EXECUTION AND STAY,
CONTINUANCE OR ADJOURNMENT OF SALE ON EXECUTION, THE RIGHT OF INQUISITION AND
EXTENSION OF TIME OF PAYMENT, AND AGREES TO CONDEMNATION OF ANY PROPERTY LEVIED
UPON BY VIRTUE OF ANY EXECUTION ISSUED ON ANY SUCH JUDGMENT, AND EACH GUARANTOR
SPECIFICALLY WAIVES ALL EXEMPTIONS FROM LEVY AND SALE OF ANY PROPERTY THAT NOW
IS OR MAY HEREAFTER BE EXEMPT UNDER ANY EXISTING OR FUTURE LAWS OF THE UNITED
STATES OF AMERICA OR THE COMMONWEALTH OF PENNSYLVANIA OR OF ANY OTHER
JURISDICTION. THE AUTHORITY AND POWER TO APPEAR FOR AND ENTER JUDGMENT AGAINST
UNDERSIGNED SHALL NOT BE EXHAUSTED BY ONE OR MORE EXERCISES THEREOF, AND MAY BE
EXERCISED FROM TIME TO TIME AND AS OFTEN AS THE AGENT AND THE BANKS, OR ANY OF
THEM, OR THEIR SUCCESSORS OR ASSIGNS SHALL DEEM NECESSARY OR DESIRABLE.
4.15. Joint and Several Obligations. The obligations of each Guarantor under
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this Agreement are joint and several.
4.16 Receipt of Credit Agreement and Other Loan Documents. Each Guarantor
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hereby acknowledges that it has received a copy of the Credit Agreement and the
other Loan Documents and each Guarantor certifies that the representations and
warranties made therein with respect to such Guarantor are true and correct.
Further, each Guarantor acknowledges and agrees to perform, comply with and be
bound by all of the provisions of the Credit Agreement and the other Loan
Documents including, without limitation, those covenants contained in Sections
8.01 and 8.02 of the Credit Agreement.
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[SIGNATURE PAGE 1 OF 1 TO THE GUARANTY AND SURETYSHIP AGREEMENT]
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly
executed and delivered as of the date first above written.
GUARANTORS:
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ATTEST: EACH GUARANTOR LISTED ON
SCHEDULE 1 WHICH IS A
CORPORATION
By: By:
--------------------------- -----------------------------------------
Title:
------------------------ -----------------------------------[Name]
the [Title] of
-------------------------------
each Guarantor listed on Schedule 1 which is
a corporation
-11-
<PAGE>
SCHEDULE 1
TO THE GUARANTY AND SURETYSHIP AGREEMENT
DATED AS OF MAY ___, 1994
PNC BANK, NATIONAL ASSOCIATION, AS AGENT
<TABLE>
<CAPTION>
STATE OF FOREIGN
SUBSIDIARIES INCORPORATION QUALIFICATION
- --------------------------------------------------- ------------- -------------
Subsidiaries of Mariner:
- -----------------------
<C> <S> <C> <C>
1. Compass Pharmacy Services, Inc. MA --
2. Bride Brook Nursing & Rehabilitation
Center, Inc. CT --
3. Longwood Rehabilitation Center, Inc. MA --
4. Long Ridge Nursing & Rehabilitation
Center, Inc. CT --
5. Mansfield Nursing & Rehabilitation
Center, Inc. CT --
6. Mariner Health Care, Inc. MA CT
7. Mariner Health Care of Greater
Laurel, Inc. MA MD
8. Mariner Health Care of North
Hills, Inc. DE PA
9. Mariner Health Resources, Inc. MA PA, CT
10. Merrimack Valley Nursing &
Rehabilitation Center, Inc. MA --
11. Methuen Nursing & Rehabilitation
Center, Inc. MA --
12. Mystic Nursing & Rehabilitation
Center, Inc. MA --
13. Park Terrace Nursing &
Rehabilitation Center, Inc. MA --
14. Pendleton Nursing &
Rehabilitation Center, Inc. CT --
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
STATE OF FOREIGN
SUBSIDIARIES INCORPORATION QUALIFICATION
- --------------------------------------------------- ------------- -------------
<C> <S> <C> <C>
15. Pinnacle Care Corporation ("PCC") DE TN
16. Rehabilitation Network, Inc. MA CT
17. Sassaquin Nursing & Rehabilitation
Center, Inc. MA --
18. Windward Health Care, Inc. MA --
Subsidiaries of PCC:
- -------------------
19. Acme Repackaging, Inc. TN --
20. Pinnacle Care Corporation of
Huntington ("PCCH") TN WV
21. Pinnacle Care Corporation of Hutchinson TN --
22. Pinnacle Care Corporation of Lexington TN --
23. Pinnacle Care Corporation of Louisville TN --
24. Pinnacle Care Corporation of Marion TN --
25. Pinnacle Care Corporation of McMurray TN --
26. Pinnacle Care Corporation of Morganton TN --
27. Pinnacle Care Corporation of Nashville TN --
28. Pinnacle Care Corporation of North Carolina TN NC
29. Pinnacle Care Corporation of Salina TN --
30. Pinnacle Care Corporation of Seneca TN SC
31. Pinnacle Care Corporation of Sumter ("PCCS") TN SC
32. Pinnacle Care Corporation of Williams Bay TN WI
33. Pinnacle Care Corporation of Wilmington TN NC
34. Pinnacle Care Management Corp. TN IA, KY, PA
</TABLE>
-13-
<PAGE>
<TABLE>
<CAPTION>
STATE OF FOREIGN
SUBSIDIARIES INCORPORATION QUALIFICATION
- --------------------------------------------------- ------------- -------------
<C> <S> <C> <C>
35. Pinnacle Pharmaceutical Services, Inc. TN KY
36. Pinnacle Rehabilitation, Inc. ("PR") TN NC, WI, FL,
GA, KY, SC,
WV, OH, IA, PA
37. Pinnacle Rehabilitation of Georgia, Inc. TN GA
38. Tennessee Occupational Medicine, Inc. TN --
Subsidiary of PCCH:
- ------------------
39. Tri-State Health Care, Inc. WV --
Subsidiaries of PCCS:
- --------------------
40. Cypress Nursing Facility, Inc. SC --
41. Hampton Nursing Center, Inc. SC --
Subsidiaries of PR:
- ------------------
42. Pinnacle Rehabilitation of Missouri, Inc. MO AK, IA, KS
43. Mid-America Professional Services, Inc. KY FL, TN, IL, OH
("MAPS")
Subsidiaries of MAPS:
- --------------------
44. Pinnacle Rehabilitation of Florida, Inc. FL NC, TX, VA
45. Seventeenth Street Associates Limited WV --
Partnership
</TABLE>
-14-
<PAGE>
EXHIBIT 10.67
COLLATERAL AGENCY AND SHARING AGREEMENT
dated as of December 23, 1998
among
MARINER HEALTH GROUP, INC.,
SUBSIDIARY GUARANTORS,
CERTAIN BANKS AND THEIR AGENTS,
and
PNC BANK, NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
1. DEFINITIONS; CONSTRUCTION ........................ 2
-------------------------
1.1 Certain Definitions........................... 2
-------------------
1.2 Construction.................................. 7
------------
2. SECURED PARTY DOCUMENTS........................... 7
-----------------------
2.1 Subsidiary Guarantors......................... 7
---------------------
2.2 Amendments to Loan Documents.................. 7
----------------------------
2.3 Delivery of Documents......................... 8
---------------------
2.4 Termination of a Secured Party................ 8
------------------------------
2.5 Certain Intercreditor Matters................. 8
-----------------------------
3. SHARED SECURITY ACTIONS........................... 9
-----------------------
3.1 General Relation to Secured Parties........... 9
-----------------------------------
3.2 Directing Party Direction;
---------------------------
Directing Party Appointment................... 9
---------------------------
3.3 Form of Directing Party Direction.............10
---------------------------------
3.4 Requested Directions..........................10
--------------------
3.5 Release of Collateral;
-----------------------
Distributions; Waivers; Amendments............10
----------------------------------
4. ACCOUNTS; UNSHARED COLLATERAL.....................10
-----------------------------
4.1 Shared Collateral Account.....................10
-------------------------
4.2 Investment....................................10
----------
4.3 Deposits......................................11
--------
4.4 Distributions.................................11
-------------
4.5 Calculations..................................12
------------
4.6 Application of Monies.........................12
---------------------
4.7 General Provisions Relating to Accounts.......12
---------------------------------------
4.8 Unshared Collateral...........................13
-------------------
5. THE COLLATERAL AGENT..............................14
--------------------
5.1 Appointment...................................14
-----------
5.2 General Nature of Collateral Agent's Duties...14
-------------------------------------------
5.3 Exercise of Powers............................15
------------------
5.4 General Exculpatory Provisions................15
------------------------------
5.5 Administration by the Collateral Agent........16
--------------------------------------
5.6 Collateral Agent in its Individual Capacity...18
-------------------------------------------
5.7 Facility Parties..............................18
----------------
5.8 Successor Collateral Agent....................18
--------------------------
5.9 Calculations..................................19
------------
5.10 Collateral Agent's Fee.......................19
----------------------
5.11 Expenses; Indemnity..........................19
-------------------
5.12 Monies Held As Collateral Agent..............20
-------------------------------
<PAGE>
6. MISCELLANEOUS.....................................20
-------------
6.1 Notices.......................................20
-------
6.2 No Implied Waiver; Cumulative Remedies........21
--------------------------------------
6.3 Severability..................................21
------------
6.4 Prior Understandings..........................21
--------------------
6.5 Counterparts..................................22
------------
6.6 Termination of Liens;.........................22
---------------------
Termination of this Agreement.
-----------------------------
6.7 Successors and Assigns........................22
----------------------
6.8 Governing Law; Submission to Jurisdiction;
-----------------------------------------
Waiver of Jury Trial; Limitation of Liability.22
---------------------------------------------
<PAGE>
COLLATERAL AGENCY AND SHARING AGREEMENT
THIS COLLATERAL AGENCY AND SHARING AGREEMENT is dated as of December 23,
1998, among Mariner Health Group, Inc., a Delaware corporation ("Mariner"), the
Guarantors (as defined herein), the Term Loan Agent (as defined herein) on
behalf of the Term Loan Banks (as defined herein), the Revolving Credit Agent
(as defined herein) on behalf of the Revolving Credit Banks (as defined herein),
and PNC Bank, National Association, as collateral agent (in such capacity,
together with its successors in such capacity, the "Collateral Agent").
W I T N E S S E T H
-------------------
WHEREAS, Mariner has entered into a Term Loan Agreement, dated as of
December 23, 1998, with and among the banks from time to time parties thereto,
First Union National Bank, as syndication agent, and PNC Bank, National
Association, in its capacity as administrative agent for such banks (in such
capacity, the "Term Loan Agent") (such agreement, as amended, restated,
modified, or supplemented from time to time, being referred to herein as the
"Term Loan Agreement"), with the obligations of Mariner under the Term Loan
Agreement being guarantied by certain Mariner subsidiaries (the "Term Loan
Guarantors") pursuant to and as more fully set forth in an Agreement of Guaranty
and Suretyship, dated as of December 23, 1998, given by the Term Loan Guarantors
to the Term Loan Agent for the benefit of such banks (Mariner and the Term Loan
Guarantors are collectively referred to herein as the "Term Loan Parties");
WHEREAS, Mariner has entered into a Credit Agreement dated as of May 18,
1994, as amended, with and among the banks from time to time parties, First
Union National Bank, as syndication agent, and PNC Bank, National Association,
in its capacity as Administrative Agent for such banks (in such capacity, the
"Revolving Credit Agent") (such agreement, as amended, restated, modified, or
supplemented from time to time, being referred to herein as the "Revolving
Credit Agreement"), with the obligations of Mariner under the Revolving Credit
Agreement being guarantied by certain Mariner subsidiaries (the "Revolving
Credit Guarantors") pursuant to and as more fully set forth in that certain
Guaranty and Suretyship Agreement, dated as of May 18, 1994, given by the
Revolving Credit Guarantors to the Revolving Credit Agent for the benefit of
such banks (Mariner and the Revolving Credit Guarantors are collectively
referred to herein as the " Revolving Credit Loan Parties");
WHEREAS, to secure the obligations of the Term Loan Parties in connection
with the Term Loan Agreement, the Term Loan Parties have entered into, and may
continue to grant security in certain of their assets pursuant to, various
security documents in favor of the Collateral Agent or the Term Loan Agent for
the benefit of the Term Loan Agent and the Term Loan Banks; and
WHEREAS, to secure the obligations of the Revolving Credit Loan Parties in
connection with the Revolving Credit Agreement, the Revolving Credit Loan
Parties have entered into, and may continue to grant security in certain of
their assets pursuant to, various security documents
<PAGE>
in favor of the Collateral Agent or the Revolving Credit Agent for the benefit
of the Revolving Credit Agent and the Revolving Credit Banks.
NOW, THEREFORE, intending to be legally bound hereby, incorporating the
above-defined terms herein, and for good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto hereby
agree as follows:
1. DEFINITIONS; CONSTRUCTION
-------------------------
1.1 Certain Definitions.
-------------------
All capitalized terms used herein and not otherwise defined herein shall
have the meanings specified in the Revolving Credit Agreement. In addition to
other words and terms defined elsewhere in this Agreement, as used herein the
following words and terms shall have the following meanings, respectively,
unless the context hereof otherwise clearly requires:
"Bankruptcy Proceeding" shall mean any bankruptcy, insolvency,
reorganization, receivership, dissolution (but excluding any dissolution
permitted pursuant to Section 8.02(f)(ii) of the Revolving Credit Agreement or
Section 8.20(f)(ii) of the Term Loan Agreement) or similar proceeding or the
assignment for the benefit of creditors or any other marshalling of assets and
liabilities.
"Business Day" shall mean any day other than a Saturday, Sunday, public
holiday under the laws of the Commonwealth of Pennsylvania or other day on which
banking institutions are authorized or obligated to close in the city in which
is located the Collateral Agent's Office.
"Collateral Agent Obligations" shall mean all obligations from time to time
of any of the Revolving Credit Loan Parties or of any of the Term Loan Parties
to the Collateral Agent in its capacity as such, including but not limited to
amounts payable pursuant to Sections 5.10 and 5.11 of this Agreement, in each
case whether such obligations are direct or indirect, otherwise secured or
unsecured, joint or several, absolute or contingent, due or to become due,
whether for payment or performance, now existing or hereafter arising
(specifically including but not limited to obligations arising or accruing after
the commencement of any bankruptcy, insolvency or similar proceedings with
respect to any such Loan Party, or which would have arisen or accrued but for
the commencement of such proceeding, even if the claim for such obligation is
not allowed in such proceeding under applicable Law).
"Collateral Agent's Office" shall mean the office of the Collateral Agent
located at One PNC Plaza, Pittsburgh, Pennsylvania, or at such other domestic
office or offices of the Collateral Agent as may be designated in writing from
time to time by the Collateral Agent to Mariner, the Term Loan Agent and the
Revolving Credit Agent.
"Contingent Indemnification Obligations" shall mean collectively the
Contingent Indemnification Revolving Credit Obligations and the Contingent
Indemnification Term Loan Obligations.
2
<PAGE>
"Contingent Indemnification Revolving Credit Obligations" at any time shall
mean Revolving Credit Obligations which at such time are contingent obligations
under indemnification provisions of the Revolving Credit Loan Documents, which
survive indefinitely; provided, that a Revolving Credit Obligation under such an
--------
indemnification provision shall not constitute a Contingent Indemnification
Revolving Credit Obligation to the extent that (a) an unsatisfied claim for
payment of such Revolving Credit Obligation has been made, or (b) an action,
suit or proceeding is pending or threatened at such time which may give rise to
a claim under such indemnification provision.
"Contingent Indemnification Term Loan Obligations" at any time shall mean
Term Loan Obligations which at such time are contingent obligations under
indemnification provisions of the Term Loan Documents, which survive
indefinitely; provided, that a Term Loan Obligation under such an
--------
indemnification provision shall not constitute a Contingent Indemnification Term
Loan Obligation to the extent that (a) an unsatisfied claim for payment of such
Term Loan Obligation has been made, or (b) an action, suit or proceeding is
pending or threatened at such time which may give rise to a claim under such
indemnification provision.
"Directing Party" at any time shall mean the Revolving Credit Agent, unless
all Revolving Credit Obligations (other than Contingent Indemnification
Revolving Credit Obligations) have been paid in full and all commitments to
extend credit under the Revolving Credit Loan Documents have terminated, in
which case "Directing Party" shall mean the Term Loan Agent.
"Facility Parties" shall mean the Term Loan Agent on behalf of the Term
Loan Banks, and each of the Term Loan Banks, and the Revolving Credit Agent on
behalf of the Revolving Credit Banks, and each of the Revolving Credit Banks.
"Foreclosure Action" shall mean any Revolving Credit Bank or the Revolving
Credit Agent or any Term Loan Bank or the Term Loan Agent (i) takes any action
to foreclose upon, collect, or otherwise realize upon the Shared Collateral or
any portion thereof or takes any other action with respect to the Shared
Collateral or any portion thereof, (ii) receives any amount on account of the
Obligations through the exercise of any set-off, banker's lien or similar right,
and/or (iii) makes any demand under or institutes any action, suit or proceeding
against any party to any of the Shared Security Documents with respect to the
Shared Collateral.
"Guarantors" shall mean collectively the Term Loan Guarantors and the
Revolving Credit Guarantors.
"Guaranty Agreements" shall mean collectively the Revolving Credit Guaranty
Agreement and the Term Loan Guaranty Agreement.
"Loan Documents" shall mean collectively the Revolving Credit Loan
Documents and the Term Loan Documents.
3
<PAGE>
"Loan Party" shall mean any of the Revolving Credit Loan Parties or any of
the Term Loan Parties.
"Obligations" shall mean all Revolving Credit Obligations, Term Loan
Obligations and Collateral Agent Obligations.
"Restricted Investments" shall mean: (a) readily marketable obligations
backed by the full faith and credit of the United States of America, maturing
not later than 90 days from the date of acquisition; (b) overnight dollar-
denominated deposits in, overnight certificates of deposit in, or overnight
repurchase agreements with, a United States commercial bank having shareholders'
equity of at least $1,000,000,000 which has outstanding general unsecured short-
term debt rated "A-1" or better, and general unsecured short-term debt rated "P-
1," in each case by Moody's Investors Service, Inc.; (c) readily marketable
commercial paper maturing not later than 90 days from the date of acquisition
and rated "P-1" by Moody's Investors Service, Inc.; and (d) freely redeemable
shares of stock or beneficial interest in a money market mutual fund,
substantially all of the assets of which consist of obligations described in the
foregoing clauses (a) through (c).
"Revolving Credit Agent" is defined in the Preamble.
"Revolving Credit Bank" shall mean each Person which is defined as a Bank
under the Revolving Credit Agreement.
"Revolving Credit Collateral" shall mean all real and personal property now
and hereafter in or upon which a Revolving Credit Loan Party or other third
Person has granted to any Revolving Credit Bank or to the Revolving Credit Agent
for the benefit of the Revolving Credit Banks a lien, security interest,
mortgage, encumbrance, or the like to secure one or more of the Revolving Credit
Obligations, or any guaranty which is in favor of any Revolving Credit Bank or
the Revolving Credit Agent for the benefit of the Revolving Credit Banks, but
excluding any Shared Collateral.
"Revolving Credit Collateral Documents" shall mean collectively the
Guaranty Agreements given or to be given in connection with the Revolving Credit
Agreement and all other documents, instruments and agreements that now or
hereafter grant a Lien on any Collateral to the Revolving Credit Agent for the
benefit of any of the Revolving Credit Banks, as any of the foregoing may be
restated, supplemented, modified, or amended from time to time in accordance
therewith.
"Revolving Credit Guarantors" are defined in the Preamble.
"Revolving Credit Guaranty Agreement" shall mean any Guaranty Agreement as
such term is defined in the Revolving Credit Agreement.
"Revolving Credit Loan Documents" shall mean those documents which are
defined as Loan Documents in the Revolving Credit Agreement.
4
<PAGE>
"Revolving Credit Obligations" shall mean all obligations from time to time
of any Revolving Credit Loan Party to any Revolving Credit Bank or the Revolving
Credit Agent from time to time arising under or in connection with or related to
or evidenced by or secured by the Revolving Credit Agreement or any other
Revolving Credit Loan Document, whether such obligations are direct or indirect,
otherwise secured or unsecured, joint or several, absolute or contingent, due or
to become due, whether for payment or performance, now existing or hereafter
arising (specifically including but not limited to obligations arising or
accruing after the commencement of any bankruptcy, insolvency reorganization or
similar proceedings with respect to any Revolving Credit Loan Party, or which
would have arisen or accrued but for the commencement of such proceeding, even
if the claim for such obligation is not allowed in such proceeding under
applicable Law). Without limitation of the foregoing, such obligations include
(i) the principal amount of Revolving Credit Loans, interest, letter of credit
reimbursement obligations, and fees, indemnities or expenses under or in
connection with any Revolving Credit Loan Document and all refinancings or
refundings thereof; (ii) all obligations arising from any extensions of credit
under or in connection with the Revolving Credit Loan Documents from time to
time, regardless of whether any such extensions of credit are in excess of the
amount committed under or contemplated by the Revolving Credit Loan Documents or
are made in circumstances in which any condition to extension of credit is not
satisfied; and (iii) with respect to Revolving Credit Guarantors, their
guarantee and suretyship obligations under the Revolving Credit Guaranty
Agreement. Revolving Credit Obligations shall remain such notwithstanding any
assignment or transfer or any subsequent assignment or transfer of any of the
Revolving Credit Obligations or any interest therein.
"Secured Party" shall mean each of the Collateral Agent and Facility
Parties.
"Secured Party Documents" shall mean the Revolving Credit Loan Documents,
the Term Loan Documents, and the Shared Security Documents.
"Shared Collateral" shall mean all real and personal property now and
hereafter in or upon which a Term Loan Party, Revolving Credit Loan Party, or
other third Person has granted to all of the Secured Parties or to the
Collateral Agent for the benefit of all Secured Parties or to both the Revolving
Credit Banks and the Term Loan Banks or to both the Revolving Credit Agent for
the benefit of the Revolving Credit Banks and to the Term Loan Agent for the
benefit of the Term Loan Banks, a lien, security interest, mortgage,
encumbrance, or the like to secure all of the Obligations (or all Obligations
other than those to the Collateral Agent) or any guaranty which is in favor of
all of the Secured Parties or the Collateral Agent for the benefit of all
Secured Parties or both the Revolving Credit Banks and the Term Loan Banks or
both the Revolving Credit Agent for the benefit of the Revolving Credit Banks
and the Term Loan Agent for the benefit of the Term Loan Banks.
"Shared Collateral Account" shall have the meaning given that term in
Section 4.1 of this Agreement.
"Shared Obligations" shall mean those Obligations secured by the Shared
Collateral.
5
<PAGE>
"Shared Security Documents" shall mean (i) this Agreement and any document,
instrument, or agreement that now or hereafter grants a lien, security interest,
mortgage, encumbrance, or the like on any Shared Collateral, and (ii) any Term
Loan Guaranty Agreement or Revolving Credit Guaranty Agreement or other guaranty
that guaranties payment or performance of all of the Revolving Credit
Obligations and the Term Loan Obligations.
"Term Loan Agent" is defined in the Preamble.
"Term Loan Bank" shall mean each Person which is defined as a Bank under
the Term Loan Agreement.
"Term Loan Collateral" shall mean all real and personal property now and
hereafter in or upon which a Term Loan Party or other third Person has granted
to any Term Loan Bank or to the Term Loan Agent for the benefit of the Term Loan
Banks, a lien, security interest, mortgage, encumbrance, or the like to secure
one or more of the Term Loan Obligations, or any guaranty which is in favor of
any Term Loan Bank or the Term Loan Agent for the benefit of the Term Loan
Banks, but excluding any Shared Collateral.
"Term Loan Collateral Documents" shall mean collectively the Guaranty
Agreements given or to be given in connection with the Term Loan Agreement and
all other documents, instruments and agreements that now or hereafter grant a
Lien on any Collateral (as such term is defined in the Term Loan Agreement) to
the Term Loan Agent for the benefit of any of the Term Loan Banks, as any of the
foregoing may be restated, supplemented, modified, or restated from time to time
in accordance therewith.
"Term Loan Documents" shall mean those documents which are defined as Loan
Documents in the Term Loan Agreement.
"Term Loan Guarantors" are defined in the Preamble.
"Term Loan Guaranty Agreement" shall mean any Guaranty Agreement as such
term is defined in the Term Loan Agreement.
"Term Loan Obligations" shall mean all obligations from time to time of any
Term Loan Party to any Term Loan Bank or the Term Loan Agent from time to time
arising under or in connection with or related to or evidenced by or secured by
the Term Loan Agreement or any other Term Loan Document, whether such
obligations are direct or indirect, otherwise secured or unsecured, joint or
several, absolute or contingent, due or to become due, whether for payment or
performance, now existing or hereafter arising (specifically including but not
limited to obligations arising or accruing after the commencement of any
bankruptcy, insolvency reorganization or similar proceedings with respect to any
Term Loan Party, or which would have arisen or accrued but for the commencement
of such proceeding, even if the claim for such obligation is not allowed in such
proceeding under applicable Law). Without limitation of the foregoing, such
obligations include (i) the principal amount of Term Loans (as defined in the
Term Loan Agreement), interest, and fees, indemnities or expenses under or in
connection with
6
<PAGE>
any Term Loan Document and all refinancings or refundings thereof; (ii) all
obligations arising from any extensions of credit under or in connection with
the Term Loan Documents from time to time, regardless of whether any such
extensions of credit are in excess of the amount committed under or contemplated
by the Term Loan Documents or are made in circumstances in which any condition
to extension of credit is not satisfied; and (iii) with respect to the Term Loan
Guarantors, their guarantee and suretyship obligations under the Term Loan
Agreement Guaranty Agreement. Term Loan Obligations shall remain such
notwithstanding any assignment or transfer or any subsequent assignment or
transfer of any of the Term Loan Obligations or any interest therein.
1.2 Construction.
------------
In this Agreement, unless the context otherwise clearly requires,
references to the plural include the singular, the singular the plural, and the
part the whole; the neuter case includes the masculine and feminine cases; and
"or" is not exclusive. In this Agreement, any references to property (or
similar terms) include any interest in such property (or other item referred
to); "include," "includes," "including" and similar terms are not limiting;
"hereof," "herein," "hereunder" and similar terms refer to this Agreement as a
whole and not to any particular provision; and "expenses," "costs," "out-of-
pocket expenses" and similar terms include the charges of in-house counsel,
auditors and other professionals of the relevant Person to the extent that such
charges are routinely identified and charged under such Person's cost accounting
system. Section and other headings in this Agreement, and any table of contents
herein, are for reference purposes only and shall not affect the interpretation
of this Agreement in any respect. Section and other references in this
Agreement are to this Agreement unless otherwise specified. This Agreement has
been fully negotiated between the applicable parties, each party having the
benefit of legal counsel, and accordingly neither any doctrine of construction
of security documents in favor of a borrower, nor any doctrine of construction
of ambiguities against the party controlling the drafting, shall apply to this
Agreement.
2. SECURED PARTY DOCUMENTS
-----------------------
2.1 Subsidiary Guarantors.
---------------------
As provided in the Term Loan Documents and the Revolving Credit Loan
Documents, each Person which now or hereafter becomes a Term Loan Party or a
Revolving Credit Loan Party as a Term Loan Guarantor or a Revolving Credit
Guarantor shall, by such act, become a party to this Agreement and shall be
subject to and bound by all of the provisions hereof.
2.2 Amendments to Loan Documents.
----------- -----------------
This Agreement shall remain in full force and effect in accordance with its
terms regardless of any amendment, modification, restatement, or supplement to,
or refinancing of, the Revolving Credit Agreement or the Term Loan Agreement or
any other Term Loan Document or Revolving Credit Loan Document, and no consent
of any party hereto shall be required in connection therewith. Without
limitation of the foregoing, this Agreement shall apply in
7
<PAGE>
accordance with its terms notwithstanding any increase, decrease, addition or
change in the amount, nature, type or purpose of any of the Obligations or any
execution or delivery of any Term Loan Document or any Revolving Credit Loan
Document from time to time.
2.3 Delivery of Documents.
---------------------
Mariner shall, promptly upon the execution thereof, deliver to the
Collateral Agent a true and complete copy of any and all Shared Security
Documents and all amendments, modifications, restatements, and supplements to
any of the Shared Security Documents, the Revolving Credit Loan Documents and
all amendments, modifications, restatements, and supplements to any of the
Revolving Credit Loan Documents, and the Term Loan Documents and all amendments,
modifications, restatements, and supplements to any of the Term Loan Documents.
2.4 Termination of a Secured Party.
------------------------------
In the event there is delivered to the Collateral Agent at any time written
notice from any Facility Party, referring specifically to this Section 2.4, to
the effect that such Facility Party wishes to cease to be a Secured Party
hereunder, then such party shall for all purposes hereof cease to be a Secured
Party.
2.5 Certain Intercreditor Matters.
-----------------------------
(a) Payment Obligations Not Subordinated. The provisions of Section 4.4
------------------------------------
[Distributions] apply solely to priorities of distributions resulting from
realization on the Shared Collateral, and not to the priorities of the
Obligations. Nothing contained in this Agreement is intended to effect a
subordination of any Obligation to any other Obligation. Nothing contained in
this Agreement shall limit or impair the right of each Secured Party to receive
payment of the Obligations owing to it when due (whether at the stated maturity
thereof, by acceleration or otherwise) or to institute suit for the enforcement
of such payment on or after such due date.
(b) Rights and Remedies of Secured Parties Not Impaired. Except to the
---------------------------------------------------
extent specifically provided in this Agreement, nothing contained herein shall
be construed to limit any right or remedy otherwise available to any Secured
Party under any Shared Security Document or any Revolving Credit Loan Document,
any Term Loan Document, or at law, in equity, or otherwise. Nothing contained in
this Agreement shall limit or otherwise derogate from the right of any Revolving
Credit Bank or Term Loan Bank or of the Revolving Credit Agent or the Term Loan
Agent to initiate a proceeding with respect to any Revolving Credit Loan Party
or Term Loan Party under the U.S. Bankruptcy Code or similar Laws or to file,
vote, give or withhold consent or otherwise exercise rights in respect to
Obligations or any claim in respect thereof in connection with any proceeding
under the U.S. Bankruptcy Code or similar Laws.
(c) Shared Security. The Secured Parties hereby agree that, if any Secured
---------------
Party (other than the Collateral Agent, in its capacity as such) shall realize
any funds from any Foreclosure Action with respect to any Shared Collateral,
such Secured Party shall forthwith
8
<PAGE>
remit the same to the Collateral Agent, who shall deposit the same in the Shared
Collateral Account. If, during the course of or pursuant to, any Bankruptcy
Proceeding of any Loan Party, a Secured Party (the "Returning Secured Party") is
required by a court or other tribunal of competent jurisdiction to disgorge,
refund, rebate, or otherwise return any payment or distribution received in
connection with a Foreclosure Action with respect to Shared Collateral
(including any proceeds thereof) (each such payment or distribution referred to
herein as a "Disputed Payment") (whether by reason that such Disputed Payment
constituted or was alleged to constitute a preference, a fraudulent transfer, or
for such other reason as such court or tribunal shall find), the other Secured
Parties shall immediately pay (out of the Shared Collateral Account to the
extent available) to the Returning Secured Party their pro rata share of such
Disputed Payment, such pro rata share being determined on the basis of each
Secured Party's share of the Shared Obligations at the time of such return. Each
holder of a participation in any of the Shared Obligations shall be bound by
this Subsection 2.5(c) [Shared Security] fully as if it were a Secured Party
hereunder.
3. SHARED SECURITY ACTIONS
-----------------------
3.1 General Relation to Secured Parties.
-----------------------------------
Each Secured Party hereby appoints and authorizes the Collateral Agent to
act as its exclusive agent for the purposes of enforcing such Secured Party's
rights pursuant to the Shared Security Documents.
3.2 Directing Party Direction; Directing Party Appointment.
------------------------------------------------------
The Collateral Agent agrees to file financing statements and take other
action to perfect security interests or liens granted pursuant to the Shared
Security Documents in the public record offices as directed by, and to make such
demands and give such notices with respect to the Shared Collateral under the
Shared Security Documents as may be requested by, to take such action with
respect to the Shared Collateral, and to enforce the Shared Security Documents
and to foreclose upon, collect, and realize upon the Shared Collateral or any
portion thereof or take any other action with respect to the Shared Collateral
or any portion thereof as may be directed by, the Directing Party; provided,
---------
however, that the Collateral Agent shall not be required to take any action that
- -------
is in its opinion contrary to law or to the terms of this Agreement or the
Shared Security Documents or which would in its reasonable opinion subject it or
its officers, agents, employees, or directors to liability.
Each Secured Party hereby irrevocably appoints, designates, and authorizes
the Revolving Credit Agent to act as the Directing Party as set forth herein and
as reasonably incidental hereto, and each Secured Party hereby agrees to
indemnity and hold harmless the Directing Party and each of its affiliates and
subsidiaries and each of their officers, agents, directors, and employees from
any and all loss, liability, claims, judgments, costs, and disbursements arising
out of any actions or inactions taken or not taken by the Directing Party
hereunder except to the extent caused by the gross negligence or willful
misconduct of the Directing Party as determined by a final judgment rendered by
a court of competent jurisdiction.
9
<PAGE>
3.3 Form of Directing Party Direction.
---------------------------------
Any request or direction given by the Directing Party to the Collateral
Agent shall be: (i) in writing and (ii) provided in any manner consistent with
the terms of Section 6.1 [Notices] hereof.
3.4 Requested Directions.
--------------------
The Collateral Agent may at any time request directions in connection with
a Foreclosure Action in connection with Shared Collateral from the Directing
Party as to any course of action or other matter relating to the performance of
its duties under this Agreement and the Secured Party Documents or the Shared
Security Documents. The Directing Party will promptly comply with any such
request. Directions given to the Collateral Agent by the Directing Party in a
manner consistent with the terms of this Article 3 [Shared Security Actions]
shall, as between the Collateral Agent and each Secured Party, be binding on
each of the Secured Parties.
3.5 Release of Collateral; Distributions; Waivers; Amendments.
---------------------------------------------------------
The Collateral Agent shall not, without the consent of the Directing Party,
(i) release any security interest, mortgage, lien, or other encumbrance on any
of the Shared Collateral, other than as permitted by each Shared Security
Document and Secured Party Document relevant thereto, (ii) make any
distributions of proceeds or other monies or property received from or with
respect to any Foreclosure Action with respect to Shared Collateral, other than
as set forth in Section 4.4 [Distributions] hereof, (iii) waive any provision of
a Secured Party Document or Shared Security Document or (iv) amend or modify
this Agreement.
4. ACCOUNTS; UNSHARED COLLATERAL
-----------------------------
4.1 Shared Collateral Account.
-------------------------
Not later than the first date on which funds are required to be deposited
therein pursuant to this Agreement or any other Shared Security Document, the
Collateral Agent shall maintain one or more accounts (collectively, the "Shared
Collateral Account") at such office of the Collateral Agent as it may designate
from time to time in its own name as Collateral Agent. All right, title and
interest in and to the Shared Collateral Account shall vest in the Collateral
Agent and the Shared Collateral Account shall be subject to the exclusive
dominion and control of the Collateral Agent.
4.2 Investment.
----------
The Collateral Agent shall invest and reinvest monies on deposit in the
Shared Collateral Account in its own name in such Restricted Investments as the
Collateral Agent may select in its discretion, and all such investments and the
interest and income received thereon and the net proceeds on the sale or
redemption thereof shall be held in the Shared Collateral Account. The
Collateral Agent shall not be responsible or liable for any loss or decline in
value of such
10
<PAGE>
investments or any loss or penalties incurred in the liquidation or sale
thereof. The Collateral Agent may liquidate investments prior to maturity to
make a distribution pursuant to Section 4.4 [Distributions] or otherwise as
permitted or required by this Agreement.
4.3 Deposits.
--------
Except to the extent, if any, otherwise expressly provided in this
Agreement, all monies which are required by this Agreement or any other Shared
Security Document to be delivered to the Collateral Agent in its capacity as
such, or which are received by the Collateral Agent in its capacity as such in
respect of any property described in any of the Shared Security Documents (as
proceeds of Shared Collateral or otherwise) or pursuant to the terms of any of
the Shared Security Documents, shall be deposited by the Collateral Agent in the
Shared Collateral Account. No other funds shall be deposited in the Shared
Collateral Account or commingled with funds in the Shared Collateral Account.
Any non-cash proceeds and any cash proceeds resulting from a Foreclosure Action
with respect to Shared Collateral or received by the Collateral Agent in its
capacity as such in respect of any Shared Collateral which, due to a restraining
order or otherwise are not permitted to be applied, or because the Collateral
Agent determined it to be impracticable to divide and apply such proceeds to the
payment of any of the Shared Obligations owed to the Secured Parties ("Non-
available Proceeds"), shall be held by the Collateral Agent or, as the case may
be, the Secured Party so receiving such Proceeds as agent for the Secured
Parties until such Non-available Proceeds are later converted to cash or such
Non-available Proceeds are later permitted to be applied, or later become
practicable to divide and may otherwise be applied, against any of the
obligations enumerated above and shall be divided at such time in accordance
with the terms of this Agreement.
4.4 Distributions.
-------------
The Collateral Agent shall make distributions from the Shared Collateral
Account from time to time when directed by the Directing Party or at such other
times as it may in good faith believe are required by Law, except that the
Collateral Agent shall have the right at any time to apply monies held by it in
the Shared Collateral Account to the payment of due and unpaid Collateral Agent
Obligations. All remaining monies held by the Collateral Agent in the Shared
Collateral Account shall be distributed by the Collateral Agent as follows:
First, to the Collateral Agent for any Collateral Agent Obligations
due and unpaid upon such distribution date;
Second, to each of the Revolving Credit Agent and the Term Loan Agent,
for the payment of all amounts respectively due to each in its capacity as
such which are unpaid on such distribution date; provided, that if such
----------
monies to be distributed by the Collateral Agent shall be insufficient to
pay in full the amounts referred to in this clause, then such distribution
shall be made ratably (without priority of any one over any other) to the
Revolving Credit Agent and the Term Loan Agent in proportion to the
respective amounts of the Obligations respectively owing to the Revolving
Credit Agent and the Term Loan Agent on such distribution date;
11
<PAGE>
Third, to (a) the Revolving Credit Agent, for the account of the
Revolving Credit Banks, in an amount equal to all amounts due and payable
to the Revolving Credit Banks on such distribution date with respect to the
Revolving Credit Obligations, (b) the Term Loan Agent, for the account of
the Term Loan Banks, in an amount equal to all amounts due and payable to
the Term Loan Banks on such distribution date with respect to the Term Loan
Obligations; provided, that if such monies to be distributed by the
---------
Collateral Agent shall be insufficient to pay in full the amounts referred
to in the foregoing clauses (a) and (b), then such distribution shall be
made ratably (without priority of any one over any other) to the designated
parties in proportion to the respective amounts of the Obligations referred
to in the foregoing clauses (a) and (b) on such distribution date; and
Finally, if all Obligations (other than Contingent Indemnification
Obligations) shall have been indefeasibly paid in full in cash and all
Commitments to extend credit under the Revolving Credit Agreement and the
Term Loan Agreement shall have terminated, any surplus then remaining shall
be paid to whomsoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct.
4.5 Calculations.
------------
In making the determinations and allocations required by Section 4.4
[Distributions], the Collateral Agent may rely upon information supplied by the
Revolving Credit Agent or the Term Loan Agent, with any discrepancies in any
such information being resolved by the Directing Party. The Collateral Agent
shall have no liability to any Secured Party for actions taken in reliance on
such information. All distributions made by the Collateral Agent pursuant to
Section 4.4 [Distributions] shall be final as against the Collateral Agent
(subject to any decree of any court of competent jurisdiction), and the
Collateral Agent shall have no duty to inquire as to the application by any
Secured Party of any amounts distributed to it.
4.6 Application of Monies.
---------------------
Each Secured Party agrees to apply monies distributed under Section 4.4
[Distributions] to the corresponding obligation described therein.
4.7 General Provisions Relating to Accounts.
---------------------------------------
(a) General. To the extent that the Collateral Agent is permitted or
-------
required by this Agreement or any other Shared Security Document to establish or
maintain any deposit, custody or other account (including, but not limited to,
the Shared Collateral Account), Mariner shall from time to time pay to the
Collateral Agent, for its own account, all custodial fees, service charges, and
other fees and charges as the Collateral Agent customarily charges in respect of
similar accounts from time to time. The Collateral Agent may establish and
maintain such subaccounts as it may elect from time to time within any such
account, and to the extent it does so, each such subaccount shall be accounted
for separately and the Collateral Agent may apportion deposits and withdrawals
among such subaccounts in such manner as it may elect. Nothing in this Agreement
or any other Secured Party Document shall be construed to require or
12
<PAGE>
prohibit the Collateral Agent to make any investment in the Collateral Agent's
own certificates of deposit or in other investment media of the Collateral
Agent. Notwithstanding any other provision of this Agreement or any other
Secured Party Document, the Collateral Agent shall not be liable for any failure
to perform, inability to perform, or delay in performance due to acts of God,
war, civil commotion, governmental action, fire, explosion, strikes, other labor
disturbances, equipment malfunction, interruption of communications facilities,
any action, non-action or delayed action on the part of any other Person other
than the Collateral Agent, or causes beyond the Collateral Agent's reasonable
control.
(b) Security Interest. As security for the Obligations, each Loan Party
-----------------
hereby grants to and creates in favor of the Collateral Agent for the benefit of
the Secured Parties, a security interest in all right, title and interest of
such Loan Party in, to or under the following, whether now or hereafter existing
or acquired: the Shared Collateral Account and all other accounts (custodial,
deposit or other) from time to time maintained by or with the Collateral Agent
pursuant to the Shared Security Documents, all cash, securities, instruments,
investment property, financial assets and other property from time to time in
transit to or held therein, all cash, securities, instruments, investment
property, financial assets and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any of the
foregoing, and all proceeds of any of the foregoing. Each Loan Party agrees that
such security interest shall at all times be a valid and perfected first
priority security interest on the foregoing collateral, and no Loan Party shall
create or suffer to exist any Lien on any of the foregoing collateral, other
than the Lien in favor of the Collateral Agent granted under this Subsection
4.7(b) [Security Interest].
4.8 Unshared Collateral.
-------------------
With respect to the Revolving Credit Collateral, the Revolving Credit Agent
and each Revolving Credit Bank hereby agrees, to the extent practicable and
without in any manner jeopardizing any rights it may have to the Shared
Collateral, to apply the Revolving Credit Collateral to the Revolving Credit
Obligations prior to the application of Shared Collateral to any such
Obligations. With respect to the Term Loan Collateral, the Term Loan Agent and
each Term Loan Bank hereby agrees, to the extent practicable and without in any
manner jeopardizing any rights it may have to the Shared Collateral, to apply
the Term Loan Collateral to the Term Loan Obligations prior to the application
of Shared Collateral to any such Obligations. In the event that any Term Loan
Bank or the Term Loan Agent or any Revolving Credit Bank or the Revolving Credit
Agent shall take any action whatsoever to foreclose upon or collect any Term
Loan Collateral or Revolving Credit Collateral, respectively, it shall provide
five (5) days prior written notice thereof to the Collateral Agent who shall
thereupon provide a copy of such notice to the Revolving Credit Agent and the
Term Loan Agent for the other parties hereto (other than any Loan Party).
13
<PAGE>
5. THE COLLATERAL AGENT
--------------------
5.1 Appointment.
-----------
Each Facility Party hereby irrevocably appoints PNC Bank, National
Association, to act as Collateral Agent for such Facility Party under this
Agreement and the other Shared Security Documents. PNC Bank, National
Association, hereby agrees to act as Collateral Agent on behalf of the Facility
Parties on the terms and conditions set forth in this Agreement and the other
Shared Security Documents, subject to its right to resign as provided herein.
The Directing Party and each Secured Party hereby appoints any officer or agent
of the Collateral Agent as its true and lawful attorney, for it and in its name,
to or to cause to record or file and enforce and realize upon the Shared
Security Documents with respect to the Shared Collateral, granting unto said
attorney full power to do any and all things it may consider reasonably
necessary or appropriate to be done with respect to the Shared Collateral and
the Shared Security Documents as fully and effectively as the Directing Party or
Secured Party might or could do, and hereby ratifies and confirms all that its
said attorney shall lawfully do or cause to be done by virtue hereof. This
power of attorney is coupled with an interest and shall be irrevocable for the
term of this Agreement and all transactions hereunder.
5.2 General Nature of Collateral Agent's Duties.
-------------------------------------------
(a) No Implied Duties. The Collateral Agent shall have no duties or
-----------------
responsibilities except those expressly set forth in this Agreement. The
Collateral Agent shall not be responsible to the Facility Parties for any
recitals, statements, representations, or warranties contained in this
Agreement, any Shared Security Document, any other Secured Party Documents, or
in any certificate or other document referred to or provided for herein or
therein, or for the value, validity, effectiveness, genuineness, enforceability,
or sufficiency of this Agreement, any Shared Security Document, any other
Secured Party Documents, or any other document referred to or provided for
herein or therein, or any security interest, lien, mortgage, encumbrance, or the
like granted by any of the Loan Parties or the perfection or priority of any
such security interest, lien, mortgage, encumbrance, or the like or for any
failure by any of the Loan Parties to perform any of their obligations under any
document, instrument, or agreement, or otherwise. The Collateral Agent may
employ agents and attorneys-in-fact and shall not be responsible for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it.
(b) Not a Fiduciary. The duties and responsibilities of the Collateral
---------------
Agent under this Agreement and the other Shared Security Documents shall be
mechanical and administrative in nature, and the Collateral Agent shall not have
a fiduciary relationship in respect of any Facility Party or Loan Party.
(c) Agent of Facility Parties. The Collateral Agent is and shall be solely
-------------------------
the agent of the Facility Parties. The Collateral Agent does not assume, and
shall not at any time be deemed to have, any relationship of agency or trust
with or for any Loan Party or any Person other than the Facility Parties. The
provisions of this Article 5 [The Collateral Agent] are for the benefit of the
Facility Parties (and the other Persons named in Sections 5.5 [Administration by
Collateral
14
<PAGE>
Agent] and 5.11 [Expenses; Indemnity]), and no Loan Party shall have any rights
under any of the provisions of this Article 5 [The Collateral Agent].
(d) No Obligation to Take Action. The Collateral Agent shall be under no
----------------------------
obligation to take any action hereunder or under any other Shared Security
Document or otherwise if the Collateral Agent believes in good faith that taking
such action may conflict with any Law or any provision of this Agreement or any
other Shared Security Document, may expose the Collateral Agent or any Secured
Party to liability or may require the Collateral Agent to qualify to do business
in any jurisdiction where it is not then so qualified.
5.3 Exercise of Powers.
------------------
Subject to the other provisions of this Agreement and the other Shared
Security Documents, the Collateral Agent shall take any action of the type
specified in this Agreement or any other Shared Security Document as being
within the Collateral Agent's rights, powers or discretion in accordance with
directions from the Directing Party (or, to the extent this Agreement or such
Shared Security Document expressly requires the direction or consent of some
other Person or Persons, then instead in accordance with the directions of such
other Person or Persons). In the absence of such directions, the Collateral
Agent shall have the authority (but under no circumstances shall be obligated),
in its sole discretion, to take any such action, except to the extent this
Agreement or such Shared Security Document expressly requires the direction or
consent of the Directing Party (or some other Person or Persons), in which case
the Collateral Agent shall not take such action absent such direction or
consent. Any action or inaction pursuant to such direction, discretion or
consent shall be binding on all the Facility Parties. The Collateral Agent
shall not have any liability to any Person as a result of (x) the Collateral
Agent acting or refraining from acting in accordance with the directions of the
Directing Party (or other applicable Person or Persons), (y) the Collateral
Agent refraining from acting in the absence of instructions to act from the
Directing Party (or other applicable Person or Persons), whether or not the
Collateral Agent has discretionary power to take such action, or (z) the
Collateral Agent taking discretionary action it is authorized to take under this
Section 5.3 (subject, in the case of this clause (z), to the provisions of
Section 5.2 [General Nature of Collateral Agent's Duties] ).
5.4 General Exculpatory Provisions.
------------------------------
(a) General. Neither the Collateral Agent nor any of its directors,
-------
officers, employees, attorneys, or agents shall be liable or responsible for any
action taken or omitted to be taken by it or them hereunder or in connection
with any Shared Security Document, except for its or their own gross negligence
or willful misconduct as determined by a final judgment of a court of competent
jurisdiction.
(b) Collateral Agent Not Responsible for Shared Security Documents, Etc.
-------------------------------------------------------------------
The Collateral Agent shall not be responsible for (i) the execution, delivery,
effectiveness, enforceability, genuineness, validity or adequacy of this
Agreement or any Shared Security Document or any other Secured Party Document,
(ii) any recital, representation, warranty, document, certificate, report or
statement in, provided for in, or received under or in connection
15
<PAGE>
with, this Agreement or any other Shared Security Document or any other Secured
Party Document, (iii) any failure of any Loan Party or any Facility Party to
perform any of their respective obligations under this Agreement or any other
Shared Security Document or any other Secured Party Document, or (iv) the
existence, validity, enforceability, perfection, recordation, priority, adequacy
or value, now or hereafter, of any lien or other direct or indirect security
afforded or purported to be afforded by any of the Shared Security Documents or
any other Secured Party Document or otherwise from time to time.
(c) No Duty of Inquiry. The Collateral Agent shall not be under any
------------------
obligation hereunder to ascertain, inquire or give any notice relating to (i)
the performance or observance of any of the terms or conditions of this
Agreement or any other Shared Security Document or any other Secured Party
Document on the part of any Loan Party, (ii) the business, operations, condition
(financial or otherwise) or prospects of any other Person, or (iii) the
existence of any default under any Shared Security Document or any other Secured
Party Document.
(d) Notices. Except as expressly set forth in Section 4.8 of this
-------
Agreement, the Collateral Agent shall not be under any obligation hereunder,
either initially or on a continuing basis, to provide any Facility Party with
any notices, reports or information of any nature.
5.5 Administration by the Collateral Agent.
--------------------------------------
(a) Reliance on Notices, etc. The Collateral Agent may rely upon any notice
or other communication of any nature (written or oral, including but not limited
to telephone conversations, whether or not such notice or other communication is
made in a manner permitted or required by this Agreement or any Shared Security
Document or any other Secured Party Document) purportedly made by or on behalf
of the proper party or parties, and the Collateral Agent shall not have any duty
to verify the identity or authority of any Person giving such notice or other
communication. The Collateral Agent shall in all cases be duly protected in
acting, or in refraining from acting, hereunder in accordance with instructions
signed by the Directing Party, which instructions and action taken or failure to
act pursuant thereto shall, as between Collateral Agent and Secured Parties, be
binding on all of the Secured Parties. The Collateral Agent may deem and treat
the payee of any promissory note or other evidence of indebtedness relating to
the Shared Obligations as the owner thereof for all purposes hereof unless and
until a written notice of the assignment or transfer thereof, signed by such
payee and in form satisfactory to the Collateral Agent, shall have been filed
with the Collateral Agent. Any request, authority, or consent of any Person who
at the time of making such request or giving such authority or consent is the
holder of any such note or other evidence of indebtedness shall be conclusive
and binding on any subsequent holder, transferee, or assignee of such note or
evidence and of any note or notes or evidence issued in exchange therefor.
Except as expressly directed by the Directing Party, the Collateral Agent shall
have no duty to take any affirmative action with respect to the collection of
any amount payable in respect of any Shared Collateral or any Revolving Credit
Collateral or any Term Loan Collateral. The Collateral Agent shall incur no
liability as a result of any sale of any Shared Collateral or any Revolving
Credit Collateral or any Term Loan Collateral at any private sale conducted at
the direction of the Directing Party.
16
<PAGE>
(b) Consultation. The Collateral Agent may consult with legal counsel
------------
(including, without limitation, in-house counsel for the Collateral Agent or in-
house or other counsel for the Loan Parties), independent public accountants and
any other experts selected by it from time to time, and the Collateral Agent
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts.
(c) Reliance on Certificates, etc. The Collateral Agent may conclusively
-----------------------------
rely upon the truth of the statements and the correctness of the opinions
expressed in any certificates or opinions furnished to the Collateral Agent in
accordance with the requirements of this Agreement or any other Shared Security
Document or any other Secured Party Document. Whenever the Collateral Agent
shall deem it necessary or desirable that a matter be proved or established with
respect to any Loan Party or any Facility Party, such matter may be established
by a certificate of such Loan Party or Facility Party, as the case may be, and
the Collateral Agent may conclusively rely upon such certificate (unless other
evidence with respect to such matter is specifically prescribed in this
Agreement or another Shared Security Document).
(d) Indemnity. Each Revolving Credit Bank and each Term Loan Bank agrees to
---------
indemnify, ratably as hereafter provided, the Collateral Agent, its directors,
officers, attorneys, agents and employees, to the extent not reimbursed by any
of the Loan Parties, for any and all liabilities, penalties, actions, judgments,
suits, costs, expenses (including reasonable attorney's fees), or disbursements
of any kind and nature whatsoever which may be imposed on, incurred by, or
asserted against the Collateral Agent in any way relating to or arising out of
this Agreement, any Shared Security Document, or any Secured Party Document or
any other document contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby or the enforcement of any of the
terms hereof or of any such other documents; provided, however, that no
-----------------
Revolving Credit Bank or Term Loan Bank shall be liable for, or shall indemnify
the Collateral Agent for, any of the foregoing to the extent they arise from the
gross negligence or willful misconduct of the Collateral Agent as determined by
a final judgment of a court of competent jurisdiction. Each Revolving Credit
Bank's and Term Loan Bank's indemnity obligations hereunder shall be ratable
based upon its then existing Revolving Credit Loans and Term Loans outstanding
under the Revolving Credit Agreement and the Term Loan Agreement, respectively.
Except for action expressly required of the Collateral Agent hereunder, the
Collateral Agent may fail or refuse to take any action unless it shall be
indemnified to its reasonable satisfaction from time to time against any and all
amounts, liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature which
may be imposed on, incurred by or asserted against the Collateral Agent by
reason of taking or continuing to take any such action.
(e) Performance through Agents. The Collateral Agent may perform any of its
--------------------------
duties under this Agreement or any other Shared Security Document by or through
agents or attorneys-in-fact. The Collateral Agent shall not be responsible for
the negligence or misconduct of any agents or attorneys-in-fact selected by it
with reasonable care.
17
<PAGE>
5.6 Collateral Agent in its Individual Capacity.
-------------------------------------------
The Collateral Agent may be one or more Facility Parties, and in such event
the Collateral Agent, in its capacity as any such Facility Party, shall have the
same rights and powers under this Agreement and each other Shared Security
Document and other Secured Party Document as any other Facility Party and may
exercise the same as though it were not the Collateral Agent. The Collateral
Agent and its affiliates may, without liability to account, make loans to,
accept deposits from, acquire debt or equity interests in, enter into interest
rate or currency hedging transactions with, act as trustee under indentures of,
and engage in any other business or transaction with, the Loan Parties or any
stockholder, subsidiary or affiliate of the Loan Parties as though the
Collateral Agent were not the Collateral Agent hereunder.
5.7 Facility Parties.
----------------
Each Facility Party agrees to deliver to the Collateral Agent promptly upon
its request such information with respect to the Obligations held by such
Facility Party as the Collateral Agent may request from time to time for the
purpose of taking any action required or permitted to be taken by the Collateral
Agent under this Agreement or any other Shared Security Document, and the
Collateral Agent may rely conclusively upon such information. Without limiting
the generality of the foregoing, the Collateral Agent may rely conclusively upon
information supplied by each of the Revolving Credit Agent and Term Loan Agent
as to the identity of each Facility Party respectively under the Revolving
Credit Agreement and Term Loan Agreement. Any authority, direction or consent
of any Person who at the time of giving such authority, direction or consent is
a Facility Party shall be conclusive and binding on each present and subsequent
holder, transferee or assignee of such Facility Party.
5.8 Successor Collateral Agent.
--------------------------
The Collateral Agent may resign at any time by giving forty-five (45) days'
prior written notice thereof to each of the Revolving Credit Agent, the Term
Loan Agent, and Mariner. The Collateral Agent may be removed by the Directing
Party at any time by giving ten (10) days' prior written notice thereof to the
Collateral Agent, the Term Loan Agent, and Mariner. Upon any such resignation
or removal the Directing Party shall have the right to appoint a successor
Collateral Agent. If no successor Collateral Agent shall have been so appointed
and consented to, and shall have accepted such appointment, within thirty (30)
days after such notice of resignation or removal, then the retiring Collateral
Agent may (but shall not be required to) appoint a successor Collateral Agent.
If no successor Collateral Agent shall be appointed and shall have accepted such
appointment within thirty (30) days after such notice of resignation or removal,
any Facility Party may apply to any court of competent jurisdiction to appoint a
successor Collateral Agent until such time, if any, as a successor Collateral
Agent shall have been appointed as provided in this Section 5.8. Any successor
so appointed by such court shall immediately and without further act be
superseded by any successor Collateral Agent appointed by the Directing Party as
provided in this Section 5.8. Each successor Collateral Agent shall be a
commercial bank or trust company organized under or operating pursuant to the
laws of the
18
<PAGE>
United States of America or any State thereof and having a combined capital and
surplus of at least $500,000,000. Upon the acceptance by a successor Collateral
Agent of its appointment as Collateral Agent hereunder, such successor
Collateral Agent shall thereupon succeed to and become vested with all the
properties, rights, powers, privileges and duties of the former Collateral Agent
in its capacity as such, without further act, deed or conveyance. Upon the
effective date of resignation or removal of a retiring Collateral Agent, such
Collateral Agent shall be discharged from its duties as such under this
Agreement and the other Shared Security Documents, but the provisions of this
Agreement shall inure to its benefit as to any actions taken or omitted by it
while it was Collateral Agent under this Agreement. Notwithstanding any other
provision of this Agreement or any other Shared Security Document or any other
Secured Party Document to the contrary, neither the Collateral Agent nor any of
its directors, officers, employees or agents shall be liable to any Facility
Party for any action taken or omitted to be taken by it or them under or in
connection with this Section 5.8.
5.9 Calculations.
------------
The Collateral Agent shall not be liable for any calculation, apportionment
or distribution of payments made by it in good faith. If such calculation,
apportionment or distribution is subsequently determined to have been made in
error, the sole recourse of any Facility Party to whom payment was due but not
made shall be to recover from the other Facility Parties any payment in excess
of the amount to which they are determined to be entitled or, if the amount due
was not paid by a Loan Party, to recover such amount from such Loan Party.
5.10 Collateral Agent's Fee.
----------------------
Mariner hereby agrees to pay to the Collateral Agent, from time to time
upon demand, reasonable compensation (which shall not be limited by any
provision of Law in regard to compensation of fiduciaries or of a trustee of an
express trust) for its services hereunder and under the other Shared Security
Documents; provided, that if and so long as the Collateral Agent is also the
Revolving Credit Agent and no Event of Default has occurred and is continuing,
the Collateral Agent shall not be entitled to any compensation under this
Section .
5.11 Expenses; Indemnity.
-------------------
(a) Expenses. Mariner agrees to pay or cause to be paid and to save the
--------
Collateral Agent, its officers, directors, employees, and agents harmless
against liability for the payment of all reasonable out-of-pocket costs and
expenses (including but not limited to reasonable fees and expenses of outside
counsel, including local counsel, auditors, and all other professional,
accounting, evaluation and consulting costs) incurred by the Collateral Agent
from time to time arising from or relating to (i) the negotiation, preparation,
execution, delivery, administration and performance of this Agreement and the
other Shared Security Documents, and any other documents and agreements related
hereto or referenced herein, (ii) any requested amendments, modifications,
supplements, waivers or consents (whether or not ultimately entered into or
granted) to this Agreement or any Shared Security Document or any other document
or agreement related hereto or referenced herein, (iii) the enforcement or
preservation of rights
19
<PAGE>
under this Agreement or any Shared Security Document or any other document or
agreement related hereto or referenced herein (including but not limited to any
such costs or expenses arising from or relating to (A) the creation, perfection
or protection of any Lien on any Shared Collateral, (B) the protection,
collection, lease, sale, taking possession of, preservation of, or realization
on, any Shared Collateral, including without limitation advances for taxes,
filing fees and the like, (C) collection or enforcement by the Collateral Agent
of any amount owing hereunder or thereunder, and (D) any litigation, proceeding,
dispute, work-out, restructuring or rescheduling related in any way to this
Agreement or the Shared Security Documents or any other document or agreement
related hereto or referenced herein).
(b) Interest. All amounts payable by any Loan Party to the Collateral
--------
Agent in its capacity as such under this Agreement or any other Shared Security
Document shall bear interest for each day from the date when due to the date of
payment (before and after judgment) at a rate per annum (based on a year of 365
or 366 days, as the case may be, and actual days elapsed) equal to 2% above the
Revolving Credit Base Rate Option then in effect.
(c) Survival. The agreements contained in this Section 5.11 shall
--------
survive the termination of this Agreement and the other Shared Security
Documents.
5.12 Monies Held As Collateral Agent.
- ---- -------------------------------
All monies received by the Collateral Agent (other than fees and costs and
expenses, as provided in Sections 5.10 and 5.11) under or pursuant to any
provision of this Agreement or any other Shared Security Document shall be held
by it as agent for the purposes for which they were paid or are held. The
Collateral Agent shall not be liable for any interest thereon (except to the
extent, if any, otherwise expressly provided herein or therein).
6. MISCELLANEOUS
-------------
6.1 Notices.
-------
(a) Generally. Except to the extent otherwise expressly permitted
---------
hereunder or thereunder, all notices, requests, demands, directions and other
communications (collectively "notices") to any party under this Agreement or any
other Shared Security Document shall be given in writing (including telexes and
facsimile transmission) and shall be sent by first-class mail, or by nationally-
recognized overnight courier, or by telex or facsimile transmission (with
confirmation in writing mailed first-class or sent by such an overnight courier)
or by personal delivery. All notices shall be sent to, in the case of a Loan
Party or Facility Party, to its address for notices pursuant to the Revolving
Credit Agreement or Term Loan Agreement, as the case may be, or in accordance
with the last unrevoked written direction from such party to the other parties
hereto, in all cases with postage or other charges prepaid. Any such properly
given notice to any Secured Party shall be effective when received. Any such
properly given notice to a Loan Party shall be effective upon the earliest to
occur of receipt, telephone confirmation of receipt of telex or facsimile
transmission, one (1) Business Day after delivery to a nationally-recognized
overnight courier, or three (3) Business Days after deposit in the mail.
20
<PAGE>
(b) Multiple Capacities. To the extent that this Agreement or any
-------------------
other Shared Security Document permits or requires any notice to be given by a
Person to itself, acting in a different capacity (such as notices by the
Collateral Agent to the Revolving Credit Agent, or vice versa, when the same
Person is acting in both such capacities), such Person need not give actual
notice to itself, but may deem such notice to have been given.
6.2 No Implied Waiver; Cumulative Remedies.
--------------------------------------
No course of dealing and no delay or failure of any Secured Party in
exercising any right, power or privilege hereunder or under any other Shared
Security Document, or any other documents or instruments pursuant to or in
connection herewith shall affect any other or future exercise thereof or
exercise of any other right, power or privilege; nor shall any single or partial
exercise of any such right, power or privilege or any abandonment or
discontinuance of steps to enforce such a right, power or privilege preclude any
further exercise thereof or of any other right, power or privilege. The rights
and remedies of each Secured Party under this Agreement, the other Shared
Security Documents, and all other agreements and instruments pursuant to or in
connection herewith or therewith are cumulative and not exclusive of any rights
or remedies which any of them would otherwise have. Any waiver, permit, consent
or approval of any kind or character on the part of any Secured Party of any
breach or default under, or term or condition of, this Agreement, the other
Shared Security Documents, and all other agreements and instruments pursuant to
or in connection herewith or therewith shall be in writing and shall be
effective only to the extent specifically set forth in such writing.
6.3 Severability.
------------
The provisions of this Agreement and of the other Shared Security Documents
are intended to be severable. If any provision of this Agreement or any other
Shared Security Document shall be held invalid or unenforceable in whole or in
part in any jurisdiction such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without in any
manner affecting the validity or enforceability thereof in any other
jurisdiction or the remaining provisions hereof or thereof in any jurisdiction.
Where, however, such invalidity or unenforceability may be waived, it is hereby
waived by the Loan Parties to the fullest extent permitted by Law, to the end
that this Agreement and the other Shared Security Documents shall be valid and
binding agreements enforceable in accordance with their terms.
6.4 Prior Understandings.
--------------------
This Agreement and the other Shared Security Documents supersede all prior
understandings and agreements, whether written or oral, among the parties hereto
relating to the transactions provided for herein.
21
<PAGE>
6.5 Counterparts.
------------
This Agreement and any other Shared Security Document may be executed in
any number of counterparts and by the different parties hereto or thereto on
separate counterparts each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute but one and the same
instrument.
6.6 Termination of Liens; Termination of this Agreement.
---------------------------------------------------
(a) Upon indefeasible payment in full of all Obligations (other than
Contingent Indemnification Obligations) and receipt by the Collateral Agent of
written notices from each of the Revolving Credit Agent and Term Loan Agent to
the effect that any liens or other security created by the Shared Security
Documents are to be released and discharged and have been paid in full in cash,
the Collateral Agent shall, at the request of Mariner, release or cause to be
released any liens or security interests created by the Shared Security
Documents with respect to the Shared Collateral.
(b) In the event all Obligations are paid in full and liens or security
interests in the Shared Collateral are released in accordance with Section
6.6(a), upon the indefeasible payment in full of the Contingent Indemnification
Obligations this Agreement shall be terminated and the parties hereto released
of any further obligations under this Agreement, except for outstanding
indemnification obligations, if any, under Sections 5.5(a) [Reliance on Notices,
etc.], 5.5(d) [Indemnity] and 5.11[Expenses; Indemnity] which shall survive
termination of this Agreement.
6.7 Successors and Assigns.
----------------------
This Agreement shall be binding upon and inure to the benefit of the
Collateral Agent, the Facility Parties, the Loan Parties and their respective
successors and assigns, except that no Loan Party may assign or transfer any of
its rights hereunder or any interest therein, and any such purported assignment
or transfer shall be void. No other Person, including without limitation any
Loan Party, shall have any rights hereunder or shall be entitled to rely on any
provision hereof.
6.8 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial; Limitation
---------------------------------------------------------------------------
of Liability.
------------
(a) Governing Law. This Agreement and all other Shared Security
-------------
Documents (except to the extent, if any, otherwise expressly stated in such
other Shared Security Documents) shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania, without regard to
conflict of law principles.
(b) Certain Waivers. Each of the parties hereto irrevocably and
---------------
unconditionally:
(i) agrees that any action, suit or proceeding by any Person
arising from or relating to this Agreement or any other Shared Security Document
or any statement,
22
<PAGE>
course of conduct, act, omission or event occurring in connection herewith or
therewith (collectively, "Related Litigation") may be brought in any state or
federal court of competent jurisdiction sitting in Allegheny County,
Pennsylvania, submits to the non-exclusive jurisdiction of such courts, and to
the fullest extent permitted by Law agrees that will not bring any Related
Litigation in any other forum (but nothing herein shall affect the right of any
Secured Party to bring any action, suit or proceeding in any other forum);
(ii) waives any objection which it may have at any time to the laying
of venue of any Related Litigation brought in any such court, waives any claim
that any such Related Litigation has been brought in an inconvenient forum, and
waives any right to object, with respect to any Related Litigation brought in
any such court, that such court does not have jurisdiction over such Loan Party;
(iii) consents and agrees to service of any summons, complaint or
other legal process in any Related Litigation by registered or certified U.S.
mail, postage prepaid, to such Loan Party at the address for notices described
in Section 6.1, and consents and agrees that such service shall constitute in
every respect valid and effective service (but nothing herein shall affect the
validity or effectiveness of process served in any other manner permitted by
Law); and
(iv) waives the right to trial by jury in any Related Litigation.
(c) Limitation of Liability. To the fullest extent permitted by Law,
-----------------------
no claim may be made by any Loan Party against any Secured Party or any
affiliate, director, officer, employee, attorney or agent of any of them for any
special, incidental, indirect, consequential or punitive damages in respect of
any claim arising from or relating to this Agreement or any other Shared
Security Document or any statement, course of conduct, act, omission, or event
occurring in connection herewith or therewith (whether for breach of contract,
tort or any other theory of liability). Each Loan Party hereby waives, releases
and agrees not to sue upon any claim for any such damages, whether such claim
presently exists or arises hereafter and whether or not such claim is known or
suspected to exist in its favor.
(d) Conflict. To the extent that there is an irreconcilable conflict or
--------
inconsistency with the terms of this Agreement and any of the agreements among
any of the Secured Parties or with an agreement among a Secured Party and any
one or more Loan Parties, this Agreement shall control as between the parties
hereto. All of the terms of this Agreement shall be binding upon and inure to
the benefit of and be enforceable by the respective parties hereto and their
respective successors and assigns, and shall be binding upon and inure to the
benefit of and be enforceable by any holder or holders at any time of the
obligations owed to a Secured Party, or any part thereof.
[SIGNATURES APPEAR ON NEXT PAGE]
23
<PAGE>
[SIGNATURE PAGE 1 OF 2 TO
COLLATERAL AGENCY AND SHARING AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed and delivered this Agreement as of the date first
above written.
PNC BANK, NATIONAL ASSOCIATION, as Collateral
Agent
By:
----------------------------------------
Title:
----------------------------------------
PNC BANK, NATIONAL ASSOCIATION, as Term Loan
Agent, on its on behalf in such capacity and on
behalf of each Term Loan Bank
By:
----------------------------------------
Title:
----------------------------------------
PNC BANK, NATIONAL ASSOCIATION, as Revolving
Credit Agent, on its on behalf in such capacity
and on behalf of each Revolving Credit Bank
By:
----------------------------------------
Title:
----------------------------------------
24
<PAGE>
[SIGNATURE PAGE 2 OF 2 TO
COLLATERAL AGENCY AND SHARING AGREEMENT]
MARINER HEALTH GROUP, INC.
EACH SUBSIDIARY OF MARINER HEALTH GROUP, INC.
WHICH IS A CORPORATION AND WHICH IS LISTED AS A
"COMPANY" ON SCHEDULE 6.01(c) OF THE CREDIT
AGREEMENT BOTH FOR ITSELF AND, IF APPLICABLE: (i)
AS GENERAL PARTNER OF EACH OTHER SUBSIDIARY OF
MARINER HEALTH GROUP, INC. WHICH IS A PARTNERSHIP
AND WHICH IS LISTED AS A "COMPANY" ON SCHEDULE
6.01(c) OF THE CREDIT AGREEMENT, AND (ii) AS A
MEMBER OF EACH OTHER SUBSIDIARY OF MARINER HEALTH
GROUP, INC. WHICH IS A LIMITED LIABILITY COMPANY
AND WHICH IS LISTED AS A "COMPANY" ON SCHEDULE
6.01(c) OF THE CREDIT AGREEMENT
By:
----------------------------------------
Name: Boyd P. Gentry
Title: Vice President/Treasurer of each
of the foregoing corporations
25
<PAGE>
EXHIBIT 10.68
Execution Draft
$210,000,000 TERM LOAN FACILITY
CREDIT AGREEMENT
by and among
MARINER HEALTH GROUP, INC.
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION, as Administrative Agent
and
FIRST UNION NATIONAL BANK, as Syndication Agent
Dated as of December 23, 1998
<PAGE>
TABLE OF CONTENTS
(i)
<PAGE>
SCHEDULES
SCHEDULE 1.01(C) COMMITMENTS OF BANKS
SCHEDULE 1.01(P) PERMITTED LIENS
SCHEDULES 6.01(a) QUALIFICATIONS TO DO BUSINESS, SUBSIDIARIES AND
and 6.01(c) EXCLUDED ENTITIES
SCHEDULE 6.01(u) MATERIAL CONTRACTS
SCHEDULE 6.01(y) ENVIRONMENTAL DISCLOSURES
SCHEDULE 6.01(z) CERTAIN DISCLOSURES REGARDING OTHER DEBT OF THE BORROWER
SCHEDULE 6.01(aa) OWNED AND LEASED REAL PROPERTY OF THE LOAN PARTIES; MATTERS
REGARDING CERTAIN LEASED FACILITIES AND INDEBTEDNESS OF
CERTAIN SUBSIDIARIES
SCHEDULE 6.01(cc) CERTAIN AFFILIATE TRANSACTIONS
SCHEDULE 8.01(1) CERTAIN DISCLOSURES REGARDING SUBORDINATION OF INDEBTEDNESS
SCHEDULE 8.02(a) PERMITTED INDEBTEDNESS
SCHEDULE 8.02(c) CERTAIN GUARANTEES
SCHEDULE 8.02(d) RESTRICTED INVESTMENTS
SCHEDULE 8.02(x) EXISTING NEGATIVE PLEDGE COVENANTS
(ii)
<PAGE>
EXHIBITS
EXHIBIT 1.01(A) ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.01(C) CONDITIONS FOR INCURRENCE OF CERTAIN LIENS AND CERTAIN
INDEBTEDNESS
EXHIBIT 1.01(C)(1) COLLATERAL SHARING AGREEMENT
EXHIBIT 1.01(F) FIRST MORTGAGE
EXHIBIT 1.01(G) GUARANTY AND SURETYSHIP AGREEMENT
EXHIBIT 1.01(I) INDEMNITY
EXHIBIT 1.01(P) PATENT, TRADEMARK AND COPYRIGHT SECURITY AGREEMENT
EXHIBIT 1.01(S)(1) SECURITY AGREEMENT
EXHIBIT 1.01(S) SUBORDINATION AGREEMENT (Intercompany)
EXHIBIT 1.01(T) TERM NOTE
EXHIBIT 2.05 LOAN REQUEST
EXHIBIT 8.01(l) TERMS OF CERTAIN SUBORDINATED INDEBTEDNESS
EXHIBIT 8.01(m)(i) ACQUISITION APPROVAL CERTIFICATE
EXHIBIT 8.01(m)(ii) ACQUISITION NOTICE CERTIFICATE
EXHIBIT 8.03(d) COMPLIANCE CERTIFICATE
(iii)
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is dated as of December 23, 1998 , and is made
by and among MARINER HEALTH GROUP, INC., a Delaware corporation (the
"Borrower"), the BANKS (as hereinafter defined), FIRST UNION NATIONAL BANK, in
its capacity as syndication agent (hereinafter referred to in such capacity as
the "Syndication Agent"), and PNC BANK, NATIONAL ASSOCIATION, in its capacity as
administrative agent for the Banks under this Agreement (hereinafter referred to
in such capacity as the "Administrative Agent").
WITNESSETH:
WHEREAS, the Borrower has requested that the Agents and the Banks
provide a $210,000,000 term loan facility to the Borrower (the "Term Loan
Facility"); and
WHEREAS, the Banks are willing to agree to the foregoing subject to
the terms and conditions hereafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of their mutual
covenants and agreements hereinafter set forth and intending to be legally bound
hereby, covenant and agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
1.01 Certain Definitions. In addition to words and terms defined
-------------------
elsewhere in this Agreement, the following words and terms shall have the
following meanings, respectively, unless the context hereof clearly requires
otherwise:
Acquisition Approval Certificate shall have the meaning set
--------------------------------
forth in Section 8.01(m)(i).
Acquisition Income Reporting Period shall mean the period during
-----------------------------------
which Borrower shall measure Consolidated Cash Flow from Operations pursuant to
Section 8.01(m) for purposes of computing Borrower's leverage ratio and its
other financial covenants on the date on which Borrower makes any Permitted
Acquisition, which period shall be either:
(1) the four fiscal quarters ending immediately before the
date of such Permitted Acquisition (the "Immediately Preceding Four Quarters")
if such Permitted Acquisition occurs after the Delivery Date for the financial
statements of Borrower for such Immediately Preceding Four Quarters, or
(2) the four fiscal quarters ending one quarter period
prior to the end of the Immediately Preceding Four Quarters (the "Second
Preceding Four Quarters") if such Permitted Acquisition occurs before the
Delivery Date for the financial statements of Borrower for the Immediately
Preceding Four Quarters.
<PAGE>
Acquisition Notice Certificate shall have the meaning given to
------------------------------
such term in Section 8.01(m)(ii).
Acquisition Reporting Certification shall mean any Permitted
-----------------------------------
Acquisition with respect to which Borrower delivers or is required to deliver
either an Acquisition Notice Certificate or an Acquisition Approval Certificate
pursuant to Section 8.01(m).
Adjusted Net Income shall mean for any period of determination
-------------------
an amount equal to the net income (loss) of the Borrower and its Subsidiaries
for such period determined and consolidated in accordance with GAAP; provided,
however, that there shall not be included in such Adjusted Net Income any non-
recurring items related to costs and expenses incurred in connection with
acquisitions and dispositions of assets, merger transactions or other business
combinations, any extraordinary gain or loss, the cumulative effect of a change
in accounting principles and costs related to the discharge of legal judgments
or settlement costs related to the settlement of a bona fide dispute between the
Borrower or any of its Subsidiaries and any other Person.
Adjusted Total Indebtedness shall mean, as of any date of
---------------------------
determination, Total Indebtedness, less, the aggregate amount of the sum without
duplication, of the following items (a), (b) and (c): (a) the outstanding
principal amount of the Subordinated Notes, (b) the outstanding principal amount
of Permitted Subordinated Indebtedness which refinances or is used to purchase
Subordinated Notes, and (c) the outstanding principal amount of Indebtedness
permitted pursuant to Section 8.02(a)(iv) of the Revolving Credit Agreement.
Notwithstanding the foregoing, it is expressly agreed that Total Indebtedness
shall, in no event, be reduced by more than $150,000,000 with respect to the
aggregate amount of items (a) and (b) described in the previous sentence.
Administrative Agent shall mean PNC Bank, National Association,
--------------------
in its capacity as administrative agent for the Banks under this Agreement and
its successors in such capacity.
Administrative Agent's Fee shall have the meaning assigned to
--------------------------
that term in Section 10.15 hereof.
Affiliate as to any person shall mean any other person (i) which
---------
directly or indirectly controls, is controlled by, or is under common control
with such person, (ii) which beneficially owns or holds 50% or more of any class
of the voting stock of the Borrower, or (iii) 50% or more of the voting stock
(or in the case of a person which is not an individual or a corporation, 50% or
more of the equity interest) of which is beneficially owned or held, directly or
indirectly, by the Borrower. Control, as used herein, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of voting
securities, by contract or otherwise, including the power to elect a majority of
the directors or trustees of a corporation or trust, as the case may be.
Agents shall mean collectively the Administrative Agent and the
------
Syndication Agent, and Agent shall mean any one of the Agents, individually.
2
<PAGE>
Agreement shall mean this Credit Agreement as the same may be
---------
supplemented, amended, modified or restated from time to time including all
schedules and exhibits hereto.
Ansonia shall mean Mariner Health Care of Southern Connecticut,
-------
a corporation organized and existing under the laws of the State of Connecticut.
Applicable Percentage Over Euro-Rate shall have the meaning
------------------------------------
assigned to such term in Section 4.01(a)(ii).
Approved Charges shall mean, for any period of determination,
----------------
the following charges, determined and consolidated in accordance with GAAP, to
Consolidated Net Income:
(i) charges for Medicare Recoupment (taken or to be taken
with respect to fiscal years 1996, 1997, or 1998 and relating to Medicare's
disallowance of costs under related party rules), not to exceed for the Borrower
and its Subsidiaries on a consolidated basis, $50,000,000 in the aggregate for
the period commencing on the Closing Date through and including the Expiration
Date;
(ii) charges to increase accounts receivable reserves
(solely for the purpose of achieving consistency of accounts receivable reserve
levels of the Borrower and its Subsidiaries with the policies of MPN), not to
exceed for the Borrower and its Subsidiaries on a consolidated basis,
$25,000,000 in the aggregate for the period commencing on the Closing Date
through and including the Expiration Date;
(iii) non-recurring cash charges for employee related
costs of the Borrower including, without limitation, relocation and recruitment
costs, retention bonuses, severance payments to employees of the Borrower,
reasonable and customary transaction fees, including without limitation, legal
and other professional fees, paid or to be paid following the Seventeenth
Amendment Effective Date, all as related to the Eighteenth Amendment to the
Revolving Credit Agreement or the Paragon Acquisition, not to exceed for the
Borrower and its Subsidiaries on a consolidated basis $13,000,000 and other cash
charges of a similar nature which shall have been approved in writing by the
Agents prior to the taking of such charge; and
(iv) subject to the prior written approval of the Required
Banks, other cash charges (recurring or nonrecurring), extraordinary items, or
non-recurring expenses incurred in connection with any Permitted Acquisition.
Assignment and Assumption Agreement shall mean an Assignment and
-----------------------------------
Assumption Agreement by and among a Purchasing Bank, the Transferor Bank and the
Administrative Agent, as agent and on behalf of the remaining Banks,
substantially in the form of Exhibit 1.01(A) hereto.
---------------
Authorized Officer shall mean with respect to each Loan Party
------------------
those persons designated by written notice to the Administrative Agent from the
Borrower, authorized
3
<PAGE>
to execute notices, reports and other documents required hereunder. The Borrower
may amend such list of persons from time to time by giving written notice of
such amendment to the Administrative Agent.
Bank shall mean the financial institutions named on Schedule
---- --------
1.01(R)(2) hereto and their respective successors and assigns as permitted
- ----------
hereunder, each of which is referred to herein as a Bank.
----
Base Rate shall mean the greater of (i) the interest rate per
---------
annum announced from time to time by the Administrative Agent at its Principal
Office as its then prime rate, which rate may not necessarily be the lowest rate
then being charged commercial borrowers by the Administrative Agent, or (ii) the
Federal Funds Effective Rate plus one-half percent (0.5%) per annum.
Base Rate Option shall mean the Term Loan Base Rate Option.
----------------
Benefit Arrangement shall mean at any time an "employee benefit
-------------------
plan," within the meaning of Section 3(3) of ERISA, which is neither a Plan or a
Multiemployer Plan and which is maintained, sponsored or otherwise contributed
to, by any member of the ERISA Group.
Borrower shall mean Mariner Health Group, Inc., a corporation
--------
organized and existing under the laws of the State of Delaware.
Borrowing Date shall mean, with respect to any Loan, the date
--------------
for the making thereof or the renewal thereof or conversion thereof to the same
or a different Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of Loans
-----------------
outstanding as follows: (i) any loan to which a Euro-Rate Option applies which
becomes subject to the same Interest Rate Option under the same Loan Request by
the Borrower and which have the same Interest Period shall constitute one
Borrowing Tranche, and (ii) all Loans to which a Base Rate Option applies shall
constitute one Borrowing Tranche.
Business Day shall mean (i) with respect to matters relating to
------------
the Euro-Rate Option, a day on which banks in the London interbank market are
dealing in U.S. Dollar deposits and on which commercial banks are open for
domestic and international business in Pittsburgh, Pennsylvania and New York,
New York, and (ii) with respect to any other matter, a day on which commercial
banks are open for business in Pittsburgh, Pennsylvania and New York, New York.
Capital Stock shall mean any and all shares, interests,
-------------
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other than
a corporation) and any and all warrants, rights or options to purchase any of
the foregoing.
4
<PAGE>
Change in Ownership shall mean the occurrence of any of the
-------------------
following: (i) if, from and after the Seventeenth Amendment Effective Date, any
person or group within the meaning of Section 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") excluding the Permitted
Investors, shall at any time designate or obtain the right to designate a
percentage (the "Third Party Board Percentage") equal to 25% or more of the
members of the Board of Directors of MPN unless at such time the percentage of
------
the members of the Board of Directors of MPN designated by the Permitted
Investors is greater than the Third Party Board Percentage; (ii) any "person" or
"group" (as such terms are defined above), excluding the Permitted Investors,
shall at any time become, or obtain rights (whether by means of warrants,
options or otherwise) to become, the "beneficial owner" (as defined in Rule
13(d)3 and 13(d)5 under the Exchange Act), directly or indirectly, of a
percentage (the "Third Party Stock Percentage") equal to 33-1/3% or more of the
Voting Stock of MPN unless at such time the percentage of outstanding Voting
------
Stock of MPN beneficially owned by the Permitted Investors (determined on a
fully diluted basis) is equal to or greater than the Third Party Stock
Percentage, provided, that for the purposes of this clause (ii), Voting Stock
--------
that a Permitted Investor has the power to vote in its sole discretion pursuant
to contract or proxy shall be deemed to be beneficially owned by such Permitted
Investor and not by any other "person" or "group"; (iii) a Specified Change of
Control shall occur; or (iv) MPN shall cease to own, directly or indirectly, one
hundred percent (100%) of all Voting Stock of the Borrower.
Class A Excluded Entities shall mean collectively those Excluded
-------------------------
Entities which have not incurred any Restricted Indebtedness nor are subject to
or bound by the terms of any agreement with respect to Restricted Indebtedness,
and Class A Excluded Entity shall mean separately any Class A Excluded Entity.
-----------------------
Closing Date shall mean December 23, 1998.
------------
Collateral Agent shall mean PNC Bank National Association in its
----------------
capacity as the collateral agent under the Collateral Sharing Agreement and its
successors, and its assigns in such capacity.
Collateral shall mean the Pledge Collateral, the UCC Collateral,
----------
the Intellectual Property Collateral, all of the collateral (consisting of real
or personal property) under the First Mortgages, the Mortgages and the Leasehold
Mortgages and any other collateral security in which any of the Loan Parties may
hereafter grant a security interest or other lien to the Administrative Agent or
the Collateral Agent, as the case may be, for the benefit of the Banks as
security for their obligations under the Loan Documents.
Collateral Sharing Agreement shall mean the Collateral Sharing
----------------------------
Agreement among the Administrative Agent, the Loan Parties, the Revolving Credit
Loan Parties, the Revolving Agent and the Collateral Agent, substantially in the
form of Exhibit 1.01(C)(1).
------------------
Combined Commitment shall mean, as to any Bank, as of any date
-------------------
of determination, the aggregate of its Revolving Credit Commitment (if any) and
its Term Loan Commitment.
5
<PAGE>
Commitment shall mean as to any Bank its Term Loan Commitment
----------
and Commitments shall mean the aggregate of the Term Loan Commitments of all of
-----------
the Banks.
Compliance Certificate shall have the meaning set forth in
----------------------
Section 8.03(d).
Conditions for Incurrence of Certain Liens and Certain
------------------------------------------------------
Indebtedness shall mean those conditions set forth on Exhibit 1.01(C).
- ------------ ---------------
Consolidated Cash Flow from Operations for any period of
--------------------------------------
determination shall mean the difference between the amounts determined under the
following clauses (i) and (ii): (i) the sum, without duplication, of (X) the sum
of Consolidated Net Income, depreciation, amortization, Approved Charges, other
non-cash charges to Consolidated Net Income (including, without limitation,
ordinary course reserves with respect to bad debts arising out of ordinary
course accounts receivable), interest expense, and income tax expense of the
Borrower and its Restricted Subsidiaries for such period determined in
accordance with GAAP, plus (Y) the sum of the Consolidated Cash Flow from
Operations Adjustment Amount for all Class A Excluded Entities, minus (ii) non-
cash credits to net income of the Borrower and its Restricted Subsidiaries for
such period determined in accordance with GAAP, subject to the adjustments
described in this definition below.
If the Loan Parties make a Permitted Acquisition and the Banks
approve of the historical and pro forma financial statements of the business
acquired in such Permitted Acquisition pursuant to Section 8.01(m) hereof,
Consolidated Cash Flow from Operations shall be adjusted as set forth in
paragraphs (A) and (B) below. The adjustments in Paragraphs (A) and (B) below
shall apply to computations of the ratios in Sections 2.01, 2.03, 4.01(a),
8.02(f), 8.02(q), 8.02(r), 8.02(s) and 8.02(u) on the date of such Permitted
Acquisition and at the end of each of the four fiscal quarters after such
Permitted Acquisition. (The adjustments described in Paragraph (A) below shall
not apply to computations of such ratios made as of the end of the fiscal
quarter immediately preceding the date of such Permitted Acquisition.)
(A) Consolidated Cash Flow from Operations for periods
prior to such Permitted Acquisition shall include (i) the sum of net income,
depreciation, amortization, other non-cash charges to net income, interest
expense and income tax expense of the acquired business, plus the adjustment, if
any pursuant to clause (B) below, minus (ii) non-cash credits to net income of
such business, in each case as determined in accordance with GAAP; and
(B) To the extent, in the determination of net income of
the acquired business utilized in clause (A) above, deductions were taken in
respect of rental expense pursuant to operating leases in accordance with GAAP
and following the consummation of a Permitted Acquisition the Borrower
appropriately amends such leases so that, in accordance with GAAP, such rental
expense pursuant to operating leases may properly be treated as rental expense
pursuant to capital leases (and the Borrower treats such leases as capital
leases for periods following the consummation by the Borrower of such Permitted
Acquisition) then, such net income for purposes of clause (A) above shall be
increased by the deductions taken in respect of rental expense pursuant to such
operating leases during the period of determination.
6
<PAGE>
Consolidated Cash Flow from Operations Adjustment Amount shall
--------------------------------------------------------
mean, for each Class A Excluded Entity, for any period of determination, the
amount equal to the product of (A) a percentage, as determined by the
Administrative Agent in its reasonable discretion, multiplied by (B) the
difference between (i) the sum of net income, depreciation, amortization, other
non-cash charges to such net income, interest expense and income tax expense of
such Class A Excluded Entity for such period, as determined in accordance with
GAAP, minus (ii) non-cash credits to net income of such Class A Excluded Entity
for such period, as determined in accordance with GAAP. In determining the
applicable percentage under clause (A) above, the Administrative Agent shall
review with the Borrower the constituent documents of each Excluded Entity,
including without limitation, partnership agreements, shareholder agreements and
other relevant documents which the Borrower agrees to provide as the
Administrative Agent may reasonably request, and the Administrative Agent shall
also review the equity ownership interests of the Loan Parties in each Excluded
Entity and the actual cash flow available to be distributed to the Loan Parties
from the operations of each Excluded Entity.
Consolidated Net Income shall mean for any period of
-----------------------
determination an amount equal to the net income of the Borrower and its
Restricted Subsidiaries for such period determined in accordance with GAAP, but
without regard to net income attributable to Excluded Entities.
Consolidated Net Worth shall mean as of any date of
----------------------
determination total stockholders' equity of the Borrower and its Subsidiaries as
of such date determined and consolidated in accordance with GAAP.
Contamination shall mean the presence or release or threat of
-------------
release of Regulated Substances in, on, under or emanating to or from the
Property, which pursuant to Environmental Laws requires notification or
reporting to an Official Body, or which pursuant to Environmental Laws requires
the identification, investigation, cleanup, removal, remediation, containment,
control, abatement of or other response action or which otherwise constitutes a
violation of Environmental Laws.
Control Investment Affiliate shall mean as to any Person, any
----------------------------
other Person which (a) directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person and (b) is organized by such
Person primarily for the purpose of making equity or debt investments in one or
more companies. For purposes of this definition, "control" of a Person means the
power, directly or indirectly, to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
Corporate Shares shall have the meaning assigned to that term in
----------------
Section 6.01(c).
Corporate Subsidiaries shall mean collectively the Subsidiaries
----------------------
of Borrower which are corporations, and Corporate Subsidiary shall mean
--------------------
individually any of them.
7
<PAGE>
Delivery Date shall mean the date which is the earlier of (i)
-------------
the date on which the Borrower delivers its consolidated financial statements to
the Administrative Agent and the Banks pursuant to Sections 8.03(b) and (c), or
(ii) one Business Day following the date on which such financial statements are
due to be delivered pursuant to such Sections.
Designated Portion of the Subordinated Notes shall mean, as of
--------------------------------------------
any date of determination, that portion of the Subordinated Notes, held by
NationsBank, N.A., pursuant to the LMS Swap Agreement.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful
----------------------------- -
money of the United States of America.
Drawing Date shall have the meaning assigned to that term in
------------
Section 2.09(d).
Eighteenth Amendment to Revolving Credit Agreement shall mean
--------------------------------------------------
that certain Amendment No. 18 to Revolving Credit Agreement, dated December 23,
1998 among Borrower, the Banks and the Agents.
Eighteenth Amendment Effective Date shall mean December 23,
-----------------------------------
1998.
Environmental Complaint shall mean any written complaint by any
-----------------------
Person or Official Body setting forth a cause of action for personal injury or
property damage, natural resource damage, contribution or indemnity for response
costs, civil or administrative penalties, criminal fines or penalties, or
declaratory or equitable relief arising under any Environmental Law or any
order, notice of violation, citation, subpoena, request for information or other
written notice or demand of any type issued by an Official Body pursuant to any
Environmental Law.
Environmental Law shall mean all federal, state, local and
-----------------
foreign Laws and any consent decrees, settlement agreements, judgments, orders,
directives, policies or programs issued by or entered into with an Official Body
pertaining or relating to: (i) pollution or pollution control; (ii) protection
of human health or the environment; (iii) employee safety in the workplace; (iv)
the management, presence, use, generation, processing, extraction, treatment,
recycling, refining, reclamation, labeling, transport, storage, collection,
distribution, disposal or release or threat of release of Regulated Substances;
(v) the presence of Contamination; (vi) the protection of endangered or
threatened species; and (vii) the protection of Environmentally Sensitive Areas.
Environmentally Sensitive Area shall mean (i) any wetland as
------------------------------
defined by applicable Environmental Law; (ii) any area designated as a coastal
zone pursuant to applicable Laws, including Environmental Law; (iii) any area of
historic or archeological significance or scenic area as defined or designated
by applicable Laws, including Environmental Law; (iv) habitats of endangered
species or threatened species as designated by applicable Laws, including
Environmental Law; or (v) a floodplain or other flood hazard area as defined
pursuant to any applicable Laws.
8
<PAGE>
ERISA shall mean the Employee Retirement Income Security Act of
-----
1974, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
ERISA Group shall mean, at any time, the Borrower and all
-----------
members of a controlled group of corporations and all trades or businesses
(whether or not incorporated) under common control and all other entities which,
together with the Borrower, are treated as a single employer under Section 414
of the Internal Revenue Code.
Euro-Rate shall mean with respect to the Loans comprising any
---------
Borrowing Tranche to which the Euro-Rate Option applies for any Interest Period,
the interest rate per annum determined by the Administrative Agent by dividing
(the resulting quotient rounded upward to the nearest 1/100 of 1% per annum) (i)
the rate of interest determined by the Administrative Agent in accordance with
its usual procedures (which determination shall be conclusive absent manifest
error) to be the "offered" eurodollar rate as quoted by Exco-Noonan Incorporated
(or appropriate successor or, if Exco-Noonan or its successor ceases to provide
such quotes, a comparable replacement as determined by the Administrative Agent)
as evidenced on Dow Jones Markets Service (formerly known as Telerate) display
page 4756 (or such other display page on the Dow Jones Markets Service system as
may replace Dow Jones Markets Service display page 4756), two (2) Business Days
prior to the first day of such Interest Period for an amount comparable to such
Borrowing Tranche and having a borrowing date and maturity comparable to such
Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve
Percentage. The Euro-Rate may also be expressed by the following formula:
Dow Jones Markets Service page 4756 as quoted by Exco-Noonan,
Euro-Rate = (or appropriate successor)
--------------------------
1.00 - Euro-Rate Reserve Percentage
The Euro-Rate shall be adjusted with respect to any Euro-Rate Option outstanding
on the effective date of any change in the Euro-Rate Reserve Percentage as of
such effective date. The Administrative Agent shall give prompt notice to the
Borrower of the Euro-Rate as determined or adjusted in accordance herewith,
which determination shall be conclusive absent manifest error.
Euro-Rate Option shall mean the Term Loan Euro-Rate Option.
----------------
Euro-Rate Reserve Percentage shall mean the maximum percentage
----------------------------
(expressed as a decimal rounded upward to the nearest 1/100 of 1%) as determined
by the Administrative Agent (which determination shall be conclusive absent
manifest error) which is in effect during any relevant period, as prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
determining the reserve requirements (including, without limitation,
supplemental, marginal and emergency reserve requirements) with respect to
eurocurrency funding (currently referred to as "Eurocurrency Liabilities") of a
member bank in such System.
Event of Default shall mean any of the Events of Default
----------------
described in Section 9.01 of this Agreement.
9
<PAGE>
Excluded Entities shall mean (i) any partnership, corporation or
-----------------
limited liability company which is neither MPN nor a MPN Subsidiary nor a
Subsidiary of any Loan Party and with respect to which a Loan Party has made a
Restricted Investment permitted by Section 8.02(d)(iv), and (ii) any
Unrestricted Subsidiary of the Borrower which the Borrower has designated as one
of the Excluded Entities and with respect to which a Loan Party has made a
Restricted Investment permitted by Section 8.02(d)(iv), and Excluded Entity
---------------
shall mean separately any Excluded Entity.
Expiration Date shall mean, with respect to the Commitments,
---------------
January 3, 2000.
Facility Purchase Option shall mean an option provided by a
------------------------
Lessor Lender or Owned Facility Lender in an Intercreditor Agreement giving the
Administrative Agent or the Banks the right to purchase the Lessor Indebtedness
or Owned Facility Indebtedness from such Lessor Lender or Owned Facility Lender
upon certain events of default relating to such Indebtedness.
FAS 121 shall mean Financial Accounting Standard No. 121
-------
promulgated by the Financial Accounting Standards Board, as in effect from time
to time.
Federal Funds Effective Rate for any day shall mean the rate per
----------------------------
annum (based on a year of 360 days and actual days elapsed and rounded upward to
the nearest 1/100 of 1%) announced by the Federal Reserve Bank of New York (or
any successor) on such day as being the weighted average of the rates on
overnight Federal funds transactions arranged by Federal funds brokers on the
previous trading day, as computed and announced by such Federal Reserve Bank (or
any successor) in substantially the same manner as such Federal Reserve Bank
computes and announces the weighted average it refers to as the "Federal Funds
Effective Rate" as of the date of this Agreement; provided, if such Federal
Reserve Bank (or its successor) does not announce such rate on any day, the
"Federal Funds Effective Rate" for such day shall be the Federal Funds Effective
Rate for the last day of which such rate was announced.
First Mortgages shall mean the First Mortgages in substantially
---------------
the form of Exhibit 1.01(F) with respect to all owned real property of the Loan
---------------
Parties (other than owned real property subject to a Mortgage as of the
Eighteenth Amendment Effective Date), executed and delivered by the applicable
Loan Party to the Collateral Agent for the benefit of the Banks.
Fixed Charge Coverage Ratio shall have the meaning set forth in
---------------------------
Section 8.02(q).
GAAP shall mean generally accepted accounting principles as are
----
in effect on the Closing Date, subject to the provisions of Section 1.03 hereof,
and applied on a consistent basis (except for changes in application in which
the Borrower's independent certified public accountants concur) both as to
classification of items and amounts.
Guaranty of any person shall mean any obligation of such person
--------
guaranteeing or in effect guaranteeing any liability or obligation of any other
person in any
10
<PAGE>
manner, whether directly or indirectly, including, without limiting the
generality of the foregoing, any agreement to indemnify or hold harmless any
other person, any performance bond or other suretyship arrangement and any other
form of assurance against loss, except endorsement of negotiable or other
instruments for deposit or collection in the ordinary course of business.
Guaranty Agreements shall mean collectively the Guaranty and
-------------------
Suretyship Agreements, in substantially the form attached hereto as Exhibit
-------
1.01(G) executed and delivered by the Subsidiaries of Borrower to the
- -------
Administrative Agent for the benefit of the Banks, and Guaranty Agreement shall
------------------
mean separately any Guaranty Agreement.
Historical Statements shall have the meaning given to such term
---------------------
in Section 6.01(i)(i).
Indebtedness shall mean as to any person at any time, any and
------------
all indebtedness, obligations or liabilities (whether matured or unmatured,
liquidated or unliquidated, direct or indirect, absolute or contingent, or joint
or several) of such person for or in respect of: (i) borrowed money, including,
without limitation the Subordinated Notes, (ii) amounts raised under or
liabilities in respect of any note purchase or acceptance credit facility, (iii)
reimbursement obligations under any letter of credit, currency swap agreement,
interest rate swap, cap, collar or floor agreement or other interest rate
protection agreement, (iv) any other transaction (including without limitation
forward sale or purchase agreements, capitalized (not operating) leases required
under GAAP to be disclosed as a liability on the Loan Party's balance sheet and
conditional sales agreements) having the commercial effect of a borrowing of
money entered into by such person to finance its operations or capital
requirements (but not including the deferred portion of any Restricted
Investment in an Excluded Entity if such amount is to be paid from available
cash flow from operations of the Borrower and its Subsidiaries and also not
including trade payables and accrued expenses incurred in the ordinary course of
business which are not represented by a promissory note, instrument or other
evidence of indebtedness and which are not more than ninety (90) days past due
(unless such past due indebtedness is being disputed in good faith and an
appropriate reserve has been established with respect to such indebtedness in
accordance with GAAP)), provided that, for purposes of this clause (iv) the
phrase "other evidence of indebtedness" shall not include any ordinary course
evidence of trade accounts payable of the Borrower or any Subsidiary such as
purchase orders or invoices, or (v) any Guaranty of Indebtedness for borrowed
money.
Indenture shall mean that certain Indenture dated April 4, 1996,
---------
between the Borrower and State Street Bank and Trust Company, as trustee, in
respect of the Subordinated Notes, as the same may be amended, modified,
supplemented or restated from time to time in accordance with this Agreement.
Indemnity shall mean the Indemnity Agreement substantially in
---------
the form of Exhibit 1.01(I) among the Banks, the Collateral Agent, certain of
---------------
the Loan Parties, certain of the Revolving Credit Loan Parties and the Revolving
Credit Banks relating to possible environmental liabilities associated with any
of the Property.
11
<PAGE>
Insolvency Proceedings shall mean, with respect to any Person,
----------------------
(a) a case, action or proceeding with respect to such Person (i) before any
court or any other Official Body under any bankruptcy, insolvency,
reorganization or other, similar Law now or hereafter in effect, or (ii) for the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of any Loan Party or otherwise
relating to the liquidation, dissolution, winding-up or relief of such Person,
or (b) any general assignment for the benefit of creditors, composition,
marshaling of assets for creditors, or other, similar arrangement in respect of
such Person's creditors generally or any substantial portion of its creditors;
undertaken under any Law.
Intellectual Property Collateral shall mean all of the property
--------------------------------
described in the Patent, Trademark and Copyright Security Agreement.
Intercreditor Agreements shall mean collectively, as of any date
------------------------
of determination, each Intercreditor Agreement entered into between the
Collateral Agent and a Lessor Lender, each Intercreditor Agreement entered into
between the Collateral Agent and an Owned Facility Lender, each Intercreditor
Agreement entered into as required by Section 8.02(d)(iv), and each other
Intercreditor Agreement entered into between the Collateral Agent and any other
Person, as required pursuant to this Agreement, and Intercreditor Agreement
-----------------------
shall mean, individually, any of the Intercreditor Agreements.
Interest Payment Date shall mean each date specified for the
---------------------
payment of interest in Section 5.03.
Interest Period shall have the meaning assigned to such term in
---------------
Section 4.02.
Interest Rate Option shall mean any Euro-Rate Option or Base
--------------------
Rate Option.
Internal Revenue Code shall mean the Internal Revenue Code of
---------------------
1986, as the same may be amended or supplemented from time to time, and any
successor statute of similar import, and the rules and regulations thereunder,
as from time to time in effect.
Labor Contractors shall have the meaning assigned to that term
-----------------
in Section 6.01(u).
Law shall mean any law (including common law), constitution,
---
statute, treaty, regulation, rule, ordinance, opinion, release, ruling, order,
injunction, writ, decree or award of any Official Body.
Leased Facilities shall mean collectively all health care
-----------------
facilities leased by a Subsidiary of Borrower, as lessee, and Leased Facility
---------------
shall mean any of the Leased Facilities, individually.
12
<PAGE>
Leasehold Mortgages shall mean collectively, as of any date of
-------------------
determination, each Leasehold Mortgage granted by a Subsidiary Lessee in favor
of the Collateral Agent for the benefit of the Banks with respect to the Leased
Facility leased by such Subsidiary Lessee, and Leasehold Mortgage shall mean
------------------
individually any of the Leasehold Mortgages, all in form and substance
satisfactory to the Administrative Agent, notwithstanding any provisions of this
Agreement to the contrary.
Lessor shall mean with respect to a Leased Facility, the person
------
which owns such facility and leases such facility to a Subsidiary Lessee.
Lessor Indebtedness shall mean Indebtedness of a Lessor either
-------------------
secured by the assets of or related to the Leased Facility owned by such Lessor
or which includes restrictive covenants or other provisions related or
applicable to such Leased Facility.
Lessor Lender shall mean, with respect to any Lessor
-------------
Indebtedness, the obligee thereof.
Lien shall mean any mortgage, deed of trust, pledge, lien,
----
security interest, charge or other encumbrance or security arrangement of any
nature whatsoever, whether voluntarily or involuntarily given, including but not
limited to any conditional sale or title retention arrangement, and any
assignment, deposit arrangement or capitalized lease intended as, or having the
effect of, security and any filed financing statement or other notice of any of
the foregoing (whether or not a lien or other encumbrance is created or exists
at the time of the filing).
Loan Documents shall mean this Agreement, the Collateral Sharing
--------------
Agreement, the First Mortgages, the Notes, the Guaranty Agreements, the Pledge
Agreements, the Mortgages, the Leasehold Mortgages, the Intercreditor
Agreements, the Subordination Agreement (Intercompany), the Indemnity, the
Patent, Trademark and Copyright Security Agreement, the Security Agreement and
any other instruments, certificates or documents delivered or contemplated to be
delivered hereunder or thereunder or in connection herewith or therewith, as the
same may have previously been or in the future be supplemented or amended from
time to time in accordance herewith or therewith, and Loan Document shall mean
-------------
any of the Loan Documents. It is expressly agreed that: (i) any First Mortgage,
Pledge Agreement, Mortgage, Leasehold Mortgage, Intercreditor Agreement,
Security Agreement or Patent, Trademark and Copyright Security Agreement
required to be entered into by a Loan Party as debtor, pledgor, or mortgagor on
or after the Closing Date shall, unless otherwise required by the Administrative
Agent, name the Collateral Agent, as secured party, mortgagee, grantee, pledgee
or similar designation, as the case may be, for the ratable benefit of the Banks
and (on a pari passu basis) the Revolving Credit Banks, and (ii) any Loan Party
formed or acquired on or after the Closing Date shall execute and deliver a
joinder to the Collateral Sharing Agreement in form and substance satisfactory
to the Administrative Agent.
Loan Parties shall mean the Borrower and its Subsidiaries, other
------------
than those Subsidiaries which are permitted Excluded Entities.
13
<PAGE>
Loan Request shall mean a request to select, convert to or renew
------------
a Euro-Rate Option in accordance with Section 4.02 hereof.
Loans shall mean collectively and Loan shall mean separately all
----- ----
Term Loans or any Term Loan.
Mariner Maryland shall mean Mariner Health Care of Baltimore,
----------------
Inc., a corporation organized and existing under the laws of the Commonwealth of
Massachusetts.
Mariner Nashville shall mean Mariner Health Care of Nashville,
-----------------
Inc., a Delaware corporation, a Subsidiary of the Borrower and the successor by
merger to Convalescent Services Inc., a Georgia corporation.
Material Adverse Change shall mean any set of circumstances or
-----------------------
events which (a) has or could reasonably be expected to have any material
adverse effect whatsoever upon the validity or enforceability of this Agreement
or any other Loan Document, (b) is or could reasonably be expected to be
material and adverse to the business, properties, assets, financial condition,
results of operations or prospects of the Borrower and its Subsidiaries taken as
a whole, (c) impairs materially or could reasonably be expected to impair
materially the ability of the Borrower or any of its Subsidiaries to duly and
punctually pay or perform its Indebtedness, or (d) impairs materially or could
reasonably be expected to impair materially the ability of any Agent or any of
the Banks, to the extent permitted, to enforce their legal remedies pursuant to
this Agreement or any other Loan Document.
Material Subsidiary shall mean any Subsidiary the revenue or net
-------------------
income of which represented more than five percent (5%) of the Borrower's
consolidated revenues or consolidated net income during the preceding four (4)
fiscal quarters.
Member Interests shall have the meaning assigned to that term in
----------------
Section 6.01(c).
Month, with respect to an Interest Period under the Euro-Rate
-----
Option, shall mean the interval between the days in consecutive calendar months
numerically corresponding to the first day of such Interest Period. If any
Interest Period with respect to Loans subject to a Euro-Rate Option begins on a
day of a calendar month for which there is no numerically corresponding day in
the month in which such Interest Period is to end, the final month of such
Interest Period shall be deemed to end on the last Business Day of such final
month.
Mortgages shall mean collectively, as of any date of
---------
determination, the second lien Mortgages granted by a Subsidiary Owner in favor
of the Collateral Agent) for the benefit of the Banks with respect to the Owned
Facility of such Subsidiary Owner, and Mortgage shall mean individually any of
--------
the Mortgages, all in form and substance satisfactory to the Administrative
Agent.
14
<PAGE>
MPN shall mean Mariner Post-Acute Network, Inc., a corporation
---
organized and existing under the laws of the State of Delaware and formerly
known as Paragon Health Network, Inc., together with its successors and assigns.
MPN Credit Agreement shall mean that certain Credit Agreement
--------------------
dated as of November 4, 1997, by and among MPN, as borrower, the lenders party
thereto as lenders, The Chase Manhattan Bank, as administrative agent, swing
line lender and letter of credit bank, and NationsBank, N.A., as documentation
agent, as the same may be amended, supplemented, restated or replaced from time
to time.
MPN Subsidiary shall mean any Subsidiary of MPN other than the
--------------
Borrower or any Subsidiary of the Borrower.
Multiemployer Plan shall mean any employee benefit plan which is
------------------
a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any member of the ERISA Group is then making or accruing
an obligation to make contributions or, within the preceding five Plan years,
has made or had an obligation to make such contributions.
Multiple Employer Plan shall mean a Plan which has two or more
----------------------
contributing sponsors (including the borrower or any member of the ERISA Group)
at least two of whom are not under common control, as such a plan is described
in Sections 4063 and 4064 of ERISA.
NBG shall mean NationsBank of Georgia, N.A.
---
NBT shall mean NationsBank of Tennessee, N.A.
---
Net Sale Proceeds shall mean, with respect to any transaction,
-----------------
an amount equal to the cash proceeds received by the Borrower or any of its
Subsidiaries from or in respect of such transaction (including, when received,
any cash proceeds received as income or other cash proceeds of any non-cash
proceeds of such transaction), less (x) any expenses or charges (including
commissions, fees and taxes paid or payable) reasonably incurred by such Person
in respect of such transaction, (y) any Indebtedness pertaining to the assets
involved in such transaction which is required to be repaid or prepaid by the
Borrower or any of its Subsidiaries from the proceeds of such transaction as a
result of such transaction and (z) any amounts considered appropriate by the
chief financial officer of the Borrower to provide reserves in accordance with
GAAP for payment of indemnities or liabilities that may be incurred in
connection with such sale or disposition. For purposes of this definition, if
taxes or other expenses payable in connection with the sale or other disposition
of any asset are not known as of the date of such sale or other disposition,
then such fees, commissions, expenses or taxes shall be estimated in good faith
by the chief financial officer of the Borrower and such estimated amounts shall
be deducted. At such time as any reserved amount described in clause (y) above
is no longer required to be held in reserve, the balance thereof, after payment
of the related liabilities or indemnities, shall be used to make a mandatory
prepayment of the Loans or the Revolving Credit Loans (as applicable) in
accordance with Section 5.05.
15
<PAGE>
Non-Disturbance Agreements shall mean collectively, as of any
--------------------------
date of determination, the non-disturbance agreements executed by a Lessor
Lender and the applicable Subsidiary Lessee, each providing in part that the
Lessor Lender shall recognize the rights of the Subsidiary Lessee which is
lessee of the Leased Facility so financed by such Lessor Lender should such
Lessor Lender foreclose upon such Leased Facility.
Notes shall mean the Term Notes.
-----
Obligations shall mean all obligations from time to time of any
-----------
Loan Party to any Bank, Agent or the Administrative Agent from time to time
arising under or in connection with or related to or evidenced by or secured by
this Agreement or any other Loan Document, whether such obligations are direct
or indirect, otherwise secured or unsecured, joint or several, absolute or
contingent, due or to become due, whether for payment or performance, now
existing or hereafter arising (specifically including but not limited to
obligations arising or accruing after the commencement of any bankruptcy,
insolvency reorganization or similar proceedings with respect to any Loan Party,
or which would have arisen or accrued but for the commencement of such
proceeding, even if the claim for such obligation is not allowed in such
proceeding under applicable Law). Without limitation of the foregoing, such
obligations include (i) the principal amount of the Loans, interest, letter of
credit reimbursement obligations, and fees, indemnities or expenses under or in
connection with any Loan Document and all refinancings or refundings thereof;
and (ii) all obligations arising from any extensions of credit under or in
connection with the Loan Documents from time to time, regardless of whether any
such extensions of credit are in excess of the amount committed under or
contemplated by the Loan Documents or are made in circumstances in which any
condition to extension of credit is not satisfied. Obligations shall remain such
notwithstanding any assignment or transfer or any subsequent assignment or
transfer of any of the Obligations or any interest therein.
Official Body shall mean any national, federal, state, local or
-------------
other government or political subdivision thereof or any agency, authority,
board, bureau, central bank, commission, department or instrumentality of any
government or political subdivision thereof, or any court, tribunal, grand jury
or arbitrator, in each case whether foreign or domestic.
Owned Facilities shall mean all health care facilities acquired
----------------
by a Subsidiary of the Borrower (or the health care facilities which are owned
by a person which is acquired by a Loan Party and such person thereby becomes a
Subsidiary of the Borrower), which facilities (as of the date of acquisition by
a Loan Party or the date the owner of such facility becomes a Subsidiary of the
Borrower) have outstanding Indebtedness payable to a lender, other than
Indebtedness payable to the Banks pursuant to the Loan Documents or payable to
the lenders under the Revolving Credit Loan Documents, and Owned Facility shall
--------------
mean any Owned Facilities, individually.
Owned Facility Indebtedness shall mean with respect to an Owned
---------------------------
Facility, the Indebtedness of the Subsidiary Owner thereof payable to a lender
other than the Banks under this Agreement or other than the lenders under the
Revolving Credit Agreement, which Indebtedness is secured by the assets of such
Owned Facility.
16
<PAGE>
Owned Facility Lender shall mean with respect to a Subsidiary
---------------------
Owner, the obligee of the Owned Facility Indebtedness payable by such Subsidiary
Owner.
Paragon Acquisition shall mean the merger of Paragon Acquisition
-------------------
Sub with and into the Borrower, with the Borrower being the surviving
corporation, whereupon the shareholders of the Borrower received shares of MPN
common stock in exchange for their outstanding shares of the Borrower's capital
stock, and the Borrower became a wholly-owned subsidiary of MPN, all pursuant to
the Paragon Merger Agreement.
Paragon Acquisition Sub shall mean Paragon Acquisition Sub,
-----------------------
Inc., a Delaware corporation and a wholly-owned Subsidiary of MPN.
Paragon Merger Agreement shall mean the Agreement and Plan of
------------------------
Merger, dated as of April 13, 1998, among MPN, Paragon Acquisition Sub and the
Borrower, as amended, supplemented, restated or otherwise modified from time to
time.
Paragon Senior Subordinated Note Indenture shall mean that
------------------------------------------
certain Indenture, dated November 4, 1997, with MPN as issuer and IBJ Schroder
Bank & Trust Company as trustee, with respect to the issuance by MPN of its 9
1/2% Senior Subordinated Notes due 2007 and its 10 1/2% Senior Subordinated
Discount Notes due 2007.
Partnership Interest shall have the meaning given to such term
--------------------
in Section 6.01(c).
Partnership Subsidiaries shall mean collectively the
------------------------
Subsidiaries of Borrower which are general or limited partnerships and
Partnership Subsidiary shall mean individually any of them.
- ----------------------
Patent, Trademark and Copyright Security Agreement shall mean
--------------------------------------------------
the Patent, Trademark and Copyright Security Agreement in substantially the form
of Exhibit 1.01(P) executed and delivered by each of the Loan Parties to the
---------------
Collateral Agent for the benefit of the Banks.
PBGC shall mean the Pension Benefit Guaranty Corporation
----
established pursuant to Subtitle A of Title IV of ERISA or any successor.
Permitted Acquisition shall mean any merger, consolidation or
---------------------
acquisition after the Closing Date described in and permitted under clause (iii)
or (iv) of Section 8.02(f).
Permitted Distribution Amount shall mean:
-----------------------------
(A) for any Subsidiary (the "Payor Subsidiary"), other
than those Subsidiaries listed in (B) below, the permitted amount of
distributions to be made by the Payor Subsidiary which shall equal the
applicable amount so that the ratio of the following (x) to (y) shall be at
least equal to or greater than 2.0 to 1.0: (x) the sum of (i) net income, plus
(ii) to the extent deducted in determining net income for the applicable period
of determination under
17
<PAGE>
the preceding clause (i), interest expense, income tax expense, depreciation,
amortization, operating lease expense, and expense in respect of capital leases
of the Payor Subsidiary, plus (iii) capital expenditures, all for the Payor
Subsidiary, as determined in accordance with GAAP, for the four fiscal quarters
of the Payor Subsidiary immediately preceding the date of the proposed
distribution, to (y) the sum of (i) all payments of principal and other amounts
due in respect of Indebtedness (without limitation, prepayment fees, penalties
or other amounts) of the Payor Subsidiary during the fiscal quarter when the
proposed distribution shall be made and the following three fiscal quarters,
plus (ii) the sum of the amounts in respect of income tax expense, operating
lease expense, expense in respect of capital leases, and capital expenditures
under clauses (x)(ii) and (iii) above for the Payor Subsidiary for the four
fiscal quarters immediately preceding the date of the proposed distribution,
plus (iii) the aggregate amount of the proposed distribution by the Payor
Subsidiary; and
(B) for each of Mariner Health of Forest Hills, LLC,
Mariner Health of Bel Air, LLC, Tampa Health Properties, LTD (Bay-to-Bay),
Westbury Associates, New Hanover/Mariner Health, LLC (Wilmington), and Global
Healthcare Center -Bethesda, LLC, the permitted amount of distributions to be
made by each of them shall equal the amount permitted to be made in accordance
with the distribution provisions of their respective joint venture agreement,
limited liability company agreement, partnership agreement or similar agreement
in effect on the Sixteenth Amendment Effective Date (a copy of which has been
delivered to the Administrative Agent), and no amendment shall be made to such
provisions regarding distributions in such joint venture agreements, limited
liability company agreements, partnership agreements or similar agreements
following the Sixteenth Amendment Effective Date without the prior written
approval of the Administrative Agent unless any distributions by such Subsidiary
are permitted by the provisions of clause (A) above and distributions by such
Subsidiary are otherwise in compliance with Section 8.02(e).
Permitted General Intangibles shall mean licenses, permits,
-----------------------------
certificates or Medicare/Medicaid reimbursement contracts.
Permitted Investments shall mean:
---------------------
(i) direct obligations of the United States of America or
any agency or instrumentality thereof or obligations backed by the full faith
and credit of the United States of America maturing in twelve months or less
from the date of acquisition;
(ii) commercial paper maturing in 180 days or less rated
not lower than A-1 by Standard & Poor's Corporation or P-1 by Moody's Investors
Service on the date of acquisition;
(iii) demand deposits, time deposits or certificates of
deposit maturing within one year in commercial banks whose obligations are rated
A-1, A or the equivalent or better by Standard & Poor's Corporation or Moody's
Investors Service on the date of acquisition;
18
<PAGE>
(iv) publicly traded debt securities or preferred stocks
rated at least A or better by either Standard & Poor's Corporation or by Moody's
Investors Service which in the aggregate do not have, at any time, a cost basis
under GAAP in excess of $1,000,000;
(v) common stocks, or mutual funds which invest in common
stocks provided that (A) such stocks are of corporations organized and existing
under the laws of the United States of America, (B) such stocks are traded
publicly on a national securities exchange or the "over the counter market", (C)
the Borrower or its Subsidiaries do not have a cost basis in excess of
$15,000,000 in the aggregate in such stocks and mutual funds, (D) the Borrower
or its Subsidiaries invest in such stocks or mutual funds using funds obtained
from sources other than, directly or indirectly, proceeds of Loans hereunder and
(E) the cost basis of the Borrower or its Subsidiaries in such stocks and mutual
funds does not exceed at any time the amount of cash invested in investments
described in clauses (i) through (iv) and (vi) of this definition of Permitted
Investments; and
(vi) investments in money market funds rated AA or AAm-G
or higher by Standard & Poor's Corporation (or equivalent rating) whose net
asset value remains a constant $1.00 per share.
Permitted Investors shall mean Apollo Management L.P., a
-------------------
Delaware limited partnership and its Control Investment Affiliates.
Permitted Leased Facility Liens shall mean, with respect to a
-------------------------------
Subsidiary Lessee, Liens, meeting all of the criteria specified below, solely on
certain of the Permitted General Intangibles of such Subsidiary Lessee, granted
in favor of the Lessor Lender providing financing to the Lessor which is the
lessor of such Subsidiary Lessee's Leased Facility, and such Liens secure the
Lessor Indebtedness provided by such Lessor Lender. Such Liens are permitted
under this Agreement and shall be deemed to be "Permitted Leased Facility Liens"
only if the following limitations are satisfied:
(i) Such Liens must be terminated on or before the earlier
of: (i) the maturity of the Lessor Indebtedness which such Liens secure (without
giving effect to any extension of such maturity after the Sixteenth Amendment
Effective Date, unless the extension of such maturity is otherwise permitted by
and is in accordance with this Agreement) or (ii) any refinancing, replacement
or substitution of such Lessor Indebtedness which such Lien secures;
(ii) Such Subsidiary Lessee shall have granted to the
Collateral Agent (or the Revolving Agent, if granted prior to the Closing Date)
perfected security interests in each of the assets of such Subsidiary Lessee
encumbered by such Liens, and the (or the Revolving Agent, if granted prior to
the Closing Date) Collateral Agent's security interests shall have priority over
all other Liens on such assets, except that they shall be subordinate to the
Liens in favor of the Lessor Lender unless the Lessor Lender is listed on
Schedule 6.01(aa) hereto and such Schedule states that such Lessor Lender has
- -----------------
refused to consent to the grant to Collateral Agent of such second Liens;
19
<PAGE>
(iii) The amount of Lessor Indebtedness secured by such
Liens may not be increased after the date such Subsidiary Lessee becomes a
Subsidiary of the Borrower, and any reductions in the amount of such Lessor
Indebtedness after such date shall be permanent; and
(iv) Any termination by such Lessor Lender of such Liens
in an asset after the date such Subsidiary Lessee becomes a Subsidiary of the
Borrower shall be permanent, and no Loan Party shall thereafter grant any new
Lien on assets of any Loan Party in favor of such Lessor Lender.
Permitted Liens shall mean:
---------------
(i) Liens for taxes, assessments, or similar charges,
incurred in the ordinary course of business and which are not yet due and
payable;
(ii) Pledges or deposits made in the ordinary course of
business to secure payment of workers' compensation, or to participate in any
fund in connection with workers' compensation, unemployment insurance, old-age
pensions or other social security programs;
(iii) Liens of mechanics, materialmen, warehousemen,
carriers, or other like Liens, securing obligations incurred in the ordinary
course of business that are not yet due and payable and Liens of landlords
securing obligations to pay lease payments that are not yet due and payable or
in default;
(iv) Good faith pledges or deposits made in the ordinary
course of business to secure performance of bids, tenders, progress or advance
payments, contracts (other than for the repayment of borrowed money) or leases,
not in excess of the aggregate amount due thereunder, or to secure statutory
obligations, or surety, appeal, indemnity, performance or other similar bonds
required in the ordinary course of business;
(v) Encumbrances consisting of zoning restrictions,
easements, reservations, rights of way or other restrictions on the use of real
property, none of which materially impairs the use of such property as currently
used or the value thereof, and none of which is violated in any material respect
by existing or proposed structures or land use;
(vi) Liens in favor of the Collateral Agent for the
benefit of the Banks and Liens (which are on a pari passu basis with the Liens
in favor of the Banks, or which are subject to the terms of the Collateral
Sharing Agreement) in favor of the Collateral Agent for the benefit of the
Revolving Credit Banks;
(vii) Liens in respect of capital leases as and to the
extent permitted in Section 8.02(p) and Liens in respect of operating leases;
(viii) Any Lien existing on the Closing Date and described
on Schedule 1.01(P) hereto (excluding Permitted Leased Facility Liens and
----------------
Permitted Owned
20
<PAGE>
Facility Liens which are addressed in clauses (xi) and (xiii) below) provided
that the principal amount secured thereby is not hereafter increased and no
additional assets become subject to such Lien (other than through after-acquired
property clauses in effect on the date hereof);
(ix) Purchase Money Security Interests or other Liens,
provided that the aggregate amount of loans and deferred payments secured by
such Purchase Money Security Interests or other Liens shall not exceed
$15,000,000 (excluding for the purpose of this computation any loans or deferred
payments secured by Liens described on Schedule 1.01(P) hereto);
----------------
(x) The following, (A) if the validity or amount thereof
is being contested in good faith by appropriate and lawful proceedings
diligently conducted so long as levy and execution thereon have been stayed and
continue to be stayed or (B) if a final judgment is entered and such judgment is
discharged within thirty (30) days of entry, and in either case they do not
materially affect the Collateral or, in the aggregate, materially impair the
ability of any Loan Party to perform its obligations hereunder or under the
other Loan Documents:
(1) Claims or Liens for taxes, assessments or charges
due and payable and subject to interest or penalty, provided that such
Loan Party maintains such reserves or other appropriate provisions as
shall be required by GAAP and pays all such taxes, assessments or
charges forthwith upon the commencement of proceedings to foreclose
any such Lien;
(2) Claims, Liens or encumbrances upon, and defects of
title to, real or personal property other than a material portion of
the Collateral, including any attachment of personal or real property
or other legal process prior to adjudication of a dispute on the
merits; or
(3) Claims or Liens of mechanics, materialmen,
warehousemen, carriers, or other statutory nonconsensual Liens;
(xi) Permitted Leased Facility Liens existing as of the
Closing Date which are described on Schedule 6.01(aa) as of such date, and,
-----------------
thereafter subject to the approval of the Required Banks (including without
limitation satisfaction of all applicable conditions set forth on Exhibit
-------
1.01(C)), additional Permitted Leased Facility Liens;
- -------
(xii) Permitted Owned Facility Liens existing as of the
Closing Date which are described on Schedule 6.01(aa) as of such date, and,
-----------------
thereafter subject to the approval of the Required Banks (including without
limitation, satisfaction of all applicable conditions set forth on Exhibit
-------
1.01(C)), additional Permitted Owned Facility Liens;
- -------
(xiii) With respect to an Unrestricted Subsidiary which is
an Excluded Entity, Liens securing Indebtedness incurred by such Unrestricted
Subsidiary, provided that the sole assets subject to such Lien are assets of
such Unrestricted Subsidiary or assets of a person other than any Loan Party or
other Unrestricted Subsidiary; and
21
<PAGE>
(xiv) With respect to Facilities subject to First Mortgages, all
matters of record other than any mortgages, deeds of trust, deeds to secure
debt, financing statements, judgment liens or tax liens, in favor of Persons
other than the Collateral Agent, and all matters that would be shown by current
survey of such Facility.
Permitted Owned Facility Liens shall mean, with respect to a
------------------------------
Subsidiary Owner, Liens, meeting all of the criteria specified below, on real
and personal property of such Subsidiary Owner relating to the Owned Facility of
such Subsidiary Owner, granted in favor of the Owned Facility Lender providing
financing with respect to such Owned Facility, and such Liens secure the Owned
Facility Indebtedness provided by such Owned Facility Lender. Such Liens are
permitted under this Agreement and shall be deemed to be "Permitted Owned
Facility Liens" only if the following limitations are satisfied:
(i) Such Liens must be terminated on or before the earlier
of: (i) the maturity of the Owned Facility Indebtedness which such Liens secure
(without giving effect to any extension of such maturity after the Sixteenth
Amendment Effective Date, unless the extension of such maturity is otherwise
permitted by and is in accordance with this Agreement) or (ii) any refinancing,
replacement or substitution of the Owned Facility Indebtedness which such Lien
secures;
(ii) The Subsidiary Owner shall have granted to the
Collateral Agent (or the Revolving Agent if granted prior to the Closing Date)
second priority mortgage liens and security interests in each of the assets
which is encumbered by such Liens;
(iii) The amount of Owned Facility Indebtedness secured by
such liens may not be increased after the earlier of the date such Owned
Facility was acquired by a Loan Party or the person owning such facility becomes
a Subsidiary of the Borrower and any reductions in the amount of such Owned
Facility Indebtedness after such date shall be permanent; and
(iv) Any termination by an Owned Facility Lender of such
Liens in an asset after the earlier of the date such Owned Facility was acquired
by a Loan Party or the person owning such facility becomes a Subsidiary of the
Borrower shall be permanent and the Subsidiaries of Borrower may not thereafter
grant any new Lien on assets of any Loan Party in favor of such Owned Facility
Lender.
Permitted Subordinated Indebtedness shall mean Indebtedness of
-----------------------------------
the Borrower in an amount and on terms and conditions (including provisions
subordinating such Indebtedness to the Indebtedness and all other obligations of
the Loan Parties to the Agents and the Banks under the Loan Documents)
satisfactory to the Agents (whose approval will not be unreasonably withheld),
designated by the Agents as "Permitted Subordinated Indebtedness" and which
refinances, in whole or in part, the Subordinated Notes; provided however that,
in addition to the approval of the Agents, the prior written approval of the
Required Banks (which shall not be unreasonably withheld) shall be required for
the Borrower to incur Indebtedness which refinances, in whole or in part, the
Subordinated Notes, if and only if the terms of such new Indebtedness include
any of the following: (x) a provision that amortizes any principal of such
22
<PAGE>
new Indebtedness prior to the Expiration Date, (y) a principal amount of such
Indebtedness in excess of $151.5 million, or (z) any financial covenant which is
more restrictive than any financial covenant contained in this Agreement.
Person shall mean any individual, corporation, partnership,
------
association, joint-stock company, trust, unincorporated organization, joint
venture, government or political subdivision or agency thereof, or any other
entity.
Pinnacle shall mean Pinnacle Care Corporation, a corporation
--------
organized and existing under the laws of the State of Delaware.
Plan shall mean at any time an employee pension benefit plan
----
(including a Multiple Employer Plan but not a Multiemployer Plan) which is
covered by Title IV of ERISA or is subject to the minimum funding standards
under Section 412 of the Internal Revenue Code and either (i) is maintained by
any member of the ERISA Group for employees of any member of the ERISA Group or
(ii) has at any time within the preceding five years been maintained by any
entity which was at such time a member of the ERISA Group for employees of any
entity which was at such time a member of the ERISA Group.
Pledge Agreements shall mean collectively the Pledge Agreements
-----------------
in executed and delivered by the Borrower to the Collateral Agent for the
benefit of the Banks and executed and delivered by any Subsidiary which owns any
equity ownership interest in another Subsidiary to the Collateral Agent for the
benefit of the Banks all in form and substance satisfactory to the Collateral
Agent and the Administrative Agent, as any such Pledge Agreement may hereinafter
be modified, amended, restated or replaced from time to time, and Pledge
------
Agreement shall mean separately any Pledge Agreement.
- ---------
Pledged Collateral shall have the meaning assigned to that term
------------------
in the respective Pledge Agreements.
PNC Bank shall mean PNC Bank, National Association, a national
--------
banking association, its successors and assigns.
Potential Default shall mean any event or condition which with
-----------------
notice, passage of time or a determination by the Administrative Agent or the
Required Banks, or any combination of the foregoing, would constitute an Event
of Default.
Principal Office shall mean the main banking office of the
----------------
Administrative Agent, 249 Fifth Avenue, Pittsburgh, Pennsylvania 15222-2707.
Prior Security Interest shall mean a valid and enforceable
-----------------------
perfected first priority security interest under the Uniform Commercial Code in
the UCC Collateral and the Pledged Collateral, which in the case of the UCC
Collateral is subject only to Liens for taxes not yet due and payable to the
extent such prospective tax payments are given priority by statute or Purchase
Money Security Interests as permitted hereunder.
23
<PAGE>
Prohibited Transaction shall mean any prohibited transaction as
----------------------
defined in Section 4975 of the Internal Revenue Code or Section 406 of ERISA for
which neither an individual nor a class exemption has been issued by the United
States Department of Labor.
Property shall mean all real property, both owned and leased, of
--------
any Loan Party.
Purchase Money Security Interest shall mean Liens upon tangible
--------------------------------
personal property securing loans to a Loan Party or deferred payments by a Loan
Party in either case, for the purchase of such tangible personal property.
Purchase Price shall mean, with respect to any Permitted Acquisition
--------------
by the Loan Parties, the sum of (i) cash paid at closing, (ii) the amount of any
deferred payments, which are not contingent on the financial performance of the
business being acquired, (iii) the projected amount of any deferred payments
which are contingent on the financial performance of the business being acquired
following the acquisition, provided that it shall be assumed for purposes of
such projection that the cash flow and other financial performance of the
acquired business in each year after the acquisition date shall be the same as
the financial performance of such business during the twelve (12) months
preceding such date, (iv) the amount of any debt assumed or guaranteed by any
Loan Party, (v) if the Loan Parties are acquiring stock of another person
(whether by purchase, merger or otherwise) the amount of debt of such person
outstanding after the acquisition, plus (vi) the value of any stock, securities
or other consideration given by any of the Loan Parties in connection therewith.
If the consideration to be paid in connection with a Permitted Acquisition
includes deferred payments which are contingent on the financial performance of
the acquired business after the acquisition, the Loan Parties shall compare the
amount of deferred payments which the Loan Parties actually pay (or which become
ascertainable if the Loan Parties can ascertain the amount of any deferred
payments before paying them) with the amount which the Loan Parties projected
they would pay pursuant to clause (iii) in the preceding sentence. The Purchase
Price in connection with such acquisition shall be deemed to increase by the
amount of such excess for purposes of determining the aggregate Purchase Price
paid by the Loan Parties in connection with Permitted Acquisitions pursuant to
Sections 8.02(f)(iii)(v) and 8.02(f)(iv)(x).
Purchasing Bank shall mean a Bank which becomes a party to this
---------------
Agreement by executing an Assignment and Assumption Agreement.
Qualifying Asset Sale shall have the meaning set forth in Section
---------------------
5.05(a).
Ratable Share shall mean the proportion that a Bank's Commitment
-------------
bears to the Commitments of all of the Banks.
Regulated Substances shall mean, without limitation, any substance,
--------------------
material or waste, regardless of its form or nature, defined under Environmental
Law as a "hazardous substance," "pollutant," "pollution," "contaminant,"
"extremely hazardous substance," "toxic chemical," "toxic substance," "toxic
waste," "hazardous waste," "special handling waste," "industrial waste,"
"residual waste," "solid waste," "municipal waste," "mixed
24
<PAGE>
waste," "infectious waste," "chemotherapeutic waste," "medical waste" or
"regulated substance" or any other material, substance or waste, regardless of
its form or nature, which otherwise is regulated by Environmental Law.
Regulation U shall mean Regulation U, T or X as promulgated by the
------------
Board of Governors of the Federal Reserve System, as amended from time to time.
Reimbursement Obligations shall have the meaning assigned to such
-------------------------
term in Section 2.09(d).
Reportable Event means a reportable event described in Section 4043 of
----------------
ERISA and regulations thereunder with respect to a Plan or Multiemployer Plan
and for which the 30-day notice period has not been waived by regulation.
Required Banks shall mean: (i) if there are no Loans, outstanding,
--------------
Banks whose Commitments aggregate at least 51% of the Commitments of all of the
Banks, or (ii) if there are Loans outstanding, any Bank or group of Banks if its
Loans then outstanding aggregates at least 51% of the total principal amount of
all of the Loans then outstanding.
Required Environmental Permits shall mean all permits, licenses,
------------------------------
bonds, consents, programs, approvals or authorizations required under
Environmental Law for the Borrower and/or each of its Subsidiaries to conduct
its operations, maintain the Property or equipment thereon or construct,
maintain, operate or occupy any improvements.
Required Environmental Notices shall mean all notices, reports, plans,
------------------------------
forms or other filings which pursuant to Environmental Law, Required
Environmental Permits or at the request or direction of an Official Body must be
submitted to an Official Body or which otherwise must be maintained with respect
to the Property, Contamination and the operations and activities of the Borrower
and each of its Subsidiaries.
Responsible Officer shall mean, with respect to any Loan Party, the
-------------------
Chief Executive Officer, the Chief Financial Officer or the treasurer thereof.
Restricted Indebtedness shall mean with respect to the Excluded
-----------------------
Entities, Indebtedness secured by any Liens, other than Indebtedness not to
exceed $250,000 in the aggregate for all Excluded Entities secured by Purchase
Money Security Interests.
Restricted Investments shall mean collectively the following with
----------------------
respect to the Excluded Entities: (i) investments or contributions by any of
the Loan Parties directly or indirectly in or to the capital of or other
payments to (except in connection with transactions for fair value in the
ordinary course of business) an Excluded Entity, (ii) loans by any of the Loan
Parties directly or indirectly to an Excluded Entity, (iii) guaranties by any of
the Loan Parties directly or indirectly of the obligations of an Excluded
Entity, or (iv) other obligations, contingent or otherwise, of any of the Loan
Parties to or for the benefit of an Excluded Entity. If the nature of a
Restricted Investment is tangible property then the amount of such Restricted
Investment shall be determined by valuing such property at fair value in
accordance with the past
25
<PAGE>
practice of the Loan Parties and such fair values shall be satisfactory to the
Agents, in their sole discretion.
Restricted Subsidiaries shall mean all Subsidiaries of the Borrower
-----------------------
other than the Unrestricted Subsidiaries of the Borrower which as of the date of
determination are Excluded Entities.
Revolving Agent shall mean the administrative agent, its successors
---------------
and assigns, under the Revolving Credit Agreement.
Revolving Credit Agreement shall mean that certain Loan Agreement,
--------------------------
dated May 18, 1994 as amended, among the Revolving Credit Borrower, PNC Bank,
National Association, as agent, First Union National Bank, as syndication agent
and the Revolving Credit Banks, providing for a $250,000,000 revolving credit
facility to the Revolving Credit Borrower, as such agreement may from time to
time be amended, restated, modified, supplemented or replaced.
Revolving Credit Banks shall mean the financial institutions signatory
----------------------
from time to time to the Revolving Credit Agreement as "banks" thereunder,
together with their successors and permitted assigns.
Revolving Credit Borrower shall mean Mariner Health Group, Inc., a
-------------------------
Delaware corporation, in its capacity as the borrower under the Revolving Credit
Agreement, together with its successors and permitted assigns in such capacity.
Revolving Credit Commitment shall have the meaning set forth in
---------------------------
the Revolving Credit Agreement.
Revolving Credit Loan Documents shall mean the Revolving Credit Loan
------------------------------- ---------------------
Agreement and all other documents, instruments and agreements now or hereafter
- ---------
executed and delivered in connection therewith (excluding the Loan Documents),
as the same may be amended, restated, supplemented or replaced from time to
time.
Revolving Credit Loan Parties shall mean, collectively, the Revolving
-----------------------------
Credit Borrower and all guarantors, from time to time, of Indebtedness and other
obligations, under the Revolving Credit Loan Documents.
Security Agreement shall mean the Security Agreement in substantially
------------------
the form of Exhibit 1.01(s)(1) executed and delivered by each of the Loan
------------------
Parties to the Collateral Agent for the benefit of the Banks.
Seventeenth Amendment Effective Date shall mean July 31, 1998.
------------------------------------
Sixteenth Amendment Effective Date shall mean January 2, 1998.
----------------------------------
Solvent shall mean, with respect to any person on a particular date,
-------
that on such date (i) the fair value of the property of such person is greater
than the total amount of
26
<PAGE>
liabilities, including, without limitation, contingent liabilities, of such
person, (ii) the present fair saleable value of the assets of such person is not
less than the amount that will be required to pay the probable liability of such
person on its debts as they become absolute and matured, (iii) such person is
able to realize upon its assets and pay its debts and other liabilities,
contingent obligations and other commitments as they mature in the normal course
of business, (iv) such person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such person's ability to pay as such
debts and liabilities mature, and (v) such person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such person's property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in which
such person is engaged. In computing the amount of contingent liabilities at any
time, it is intended that such liabilities will be computed at the amount which,
in light of all the facts and circumstances existing at such time, represents
the amount that can reasonably be expected to become an actual or matured
liability.
Specified Change of Control shall mean a "Change of Control" as
---------------------------
defined in the Paragon Senior Subordinated Note Indenture, as in effect on the
Seventeenth Amendment Effective Date, without regard to any amendments to such
definition subsequent to such date.
Subordinated Indebtedness Incurrence Date shall mean March 28, 1996,
-----------------------------------------
the date of issuance by the Borrower of the Subordinated Notes pursuant to and
in accordance with the Indenture.
Subordinated Notes shall mean the $150 million in original principal
------------------
amount of Subordinated Notes due 2006 issued by the Borrower pursuant to the
Indenture. It is acknowledged that prior to the Exchange Offer, the
Subordinated Notes shall consist of the Series A Securities, and following the
Exchange Offer, the Subordinated Notes shall consist of the Series B Securities
and any Series A Securities which are not exchanged in the Exchange Offer, as
such terms are defined in the Indenture.
Subordination Agreement (Intercompany) shall mean that certain
--------------------------------------
Subordination Agreement (Intercompany) in the form of Exhibit 1.01(S) hereto
---------------
executed and delivered by each Loan Party to the Administrative Agent for the
benefit of the Banks.
Subsidiary of any person at any time shall mean (i) any corporation,
----------
limited liability company or trust of which more than 50% (by number of shares
or number of votes) of the outstanding capital stock, member interests or shares
of beneficial interest normally entitled to vote for the election of one or more
directors or trustees (regardless of any contingency which does or may suspend
or dilute the voting rights) is at such time owned directly or indirectly by
such Person or one or more of such Person's Subsidiaries, or any partnership of
which such Person is a general partner or of which more than 50% of the general
or voting partnership interests is at the time directly or indirectly owned by
such Person or one or more of such Person's Subsidiaries, and (ii) any
corporation, trust, limited liability company, partnership or other entity which
is controlled or capable of being controlled by such Person or one or more of
such Person's Subsidiaries.
27
<PAGE>
Subsidiary Lessee shall mean each Subsidiary of Borrower which is
-----------------
the lessee of a Leased Facility.
Subsidiary Owner shall mean, with respect to an Owned Facility,
----------------
the Subsidiary of Borrower which is the owner thereof.
Supermajority Required Banks shall mean: (i) if there are no Loans,
----------------------------
outstanding, Banks whose Commitments aggregate at least 66 and 2/3% of the
Commitments of all of the Banks, or (ii) if there are Loans, outstanding, any
Bank or group of Banks if its Loans, then outstanding aggregates at least 66 and
2/3% of the total principal amount of all of the Loans then outstanding.
Term Loan Base Rate Option shall have the meaning assigned to
--------------------------
that term in Section 4.01(a)(i).
Term Loan Commitment shall mean as to any Bank at any time, the amount
--------------------
initially set forth opposite its name on Schedule 1.01(C) hereto in the column
----------------
labeled "Amount of Commitment for Term Loans," and thereafter to give effect to
the most recent Assignment and Assumption Agreement, as such amount shall be
reduced from time to time pursuant to Sections 2.01 and 2.10 hereof, and Term
----
Loan Commitments shall mean the aggregate Term Loan Commitments of all of the
- ----------------
Banks.
Term Loan Euro-Rate Option shall have the meaning assigned to
--------------------------
that term in Section 4.01(a)(ii).
Term Loans shall mean collectively and Term Loan shall mean separately
---------- ---------
all Term Loans or any Term Loan made by the Banks or one of the Banks to the
Borrower pursuant to Section 2.01 hereof.
Term Notes shall mean collectively all the Term Notes of the Borrower
----------
in the form of Exhibit 1.01(T) hereto evidencing the Term Loans together with
---------------
all amendments, extensions, renewals, replacements, refinancings or refundings
thereof in whole or in part and Term Note shall mean separately any Term Note.
---------
Total Indebtedness shall mean as of any date of determination, without
------------------
duplication, the total Indebtedness of the Borrower and its Subsidiaries.
Transferor Bank shall mean the selling Bank pursuant to an
---------------
Assignment and Assumption Agreement.
Tri-State shall mean Tri-State Health Care, Inc., a West Virginia
---------
corporation, which is a Subsidiary of Pinnacle and the sole general partner of
Seventeenth Street Partnership.
Trustee Agreement shall mean, as of any date of determination,
-----------------
collectively (i) that certain Paying Agency Agreement executed by Mariner
Nashville, PNC
28
<PAGE>
Bank, National Association, and certain of the Lessors listed on
Schedule 6.01(aa), in the form of Exhibit 1.01(T) to the Revolving Credit Loan
- ----------------- ---------------
Agreement providing for the payment by Mariner Nashville to PNC Bank, National
Association, as trustee for Mariner Nashville and such Lessors, of monies due to
such Lessors under the leases between such Lessors and Mariner Nashville, and
the subsequent payment of such monies by PNC Bank to the Lessors; and (ii) in
accordance with the requirements of this Agreement, each other similar
agreement, in form and substance satisfactory to the Administrative Agent
relating to certain Subsidiaries of the Borrower and certain Lessors.
UCC Collateral shall mean the Pledged Collateral, the property of the
--------------
Loan Parties in which security interests are granted under the Security
Agreement, and that portion of the Collateral under the Mortgages, First
Mortgages, and the Leasehold Mortgages which consists of personal property in
which a security interest may be granted under the Uniform Commercial Code.
Uniform Commercial Code shall have the meaning assigned to that
-----------------------
term in Section 6.01(p).
Unrestricted Subsidiary of any person at any time shall mean any
-----------------------
corporation or limited liability company of which more than 50% but less than
80% (by number of shares or number of votes) of the outstanding capital stock or
member interests normally entitled to vote for the election of one or more
directors (regardless of any contingency which does or may suspend or dilute the
voting rights) is at such time owned directly or indirectly by such Person or
one or more of such Person's Subsidiaries, or any partnership of which such
Person is a general partner or of which more than 50% but less than 80% of the
general or voting partnership interests is at the time directly or indirectly
owned by such Person or one or more of such Person's Subsidiaries.
Voting Stock shall mean, with respect to any Person, any class or
------------
series of Capital Stock of such Person that is ordinarily entitled to vote in
the election of directors thereof at a meeting of stockholders called for such
purpose, without the occurrence of any additional event or contingency.
1.02 Construction. Unless the context of this Agreement otherwise
------------
clearly requires, references to the plural include the singular, the singular
the plural and the part the whole, "or" has the inclusive meaning represented by
the phrase "and/or," and "including" has the meaning represented by the phrase
"including without limitation." References in this Agreement to "determination"
of or by any Agent or the Banks shall be deemed to include good faith
calculations by any Agent or the Banks (in the case of quantitative
determinations) and good faith beliefs by any Agent or the Banks (in the case of
qualitative determinations). Whenever any Agent or the Banks are granted the
right herein to act in its or their sole discretion or to grant or withhold
consent such right shall be exercised in good faith. The words "hereof,"
"herein," "hereunder" and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
section and other headings contained in this Agreement and the Table of Contents
preceding this Agreement are for reference purposes
29
<PAGE>
only and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and exhibit
references are to this Agreement unless otherwise specified.
1.03 Accounting Principles. Except as otherwise provided in this
---------------------
Agreement, all computations and determinations as to accounting or financial
matters and all financial statements to be delivered pursuant to this Agreement
shall be made and prepared in accordance with GAAP (including principles of
consolidation where appropriate), and all accounting or financial terms shall
have the meanings ascribed to such terms by GAAP. In the event of: (i) any
dissolution or liquidation of any Subsidiary pursuant to Section 8.02(f) of this
Agreement, (ii) any consolidation or merger of any Subsidiary with or into any
person (other than the Borrower or another Subsidiary)pursuant to Section
8.02(f) of this Agreement, or (iii) the sale, transfer, lease or disposition of
assets of the Borrower or any Subsidiary permitted pursuant to Section
8.02(g)(v) of this Agreement, then, in the case of any of the foregoing clauses
(i), (ii) or (iii), any financial covenant to be calculated thereunder
(including, without limitation, those set forth in Section 4.01, and 8.02(q)
through 8.02(u), inclusive) shall be calculated for the period during which such
sale, transfer, lease or other disposition occurs, excluding all financial items
(for example and without limitation, all cash flow, revenues, expenses, and
income) attributable to the assets sold, transferred, leased or otherwise
disposed of. It is expressly agreed that for all periods ending after the
consummation of the Paragon Acquisition, all cash expenses (other than expenses
directly related to the Paragon Acquisition) paid by MPN on behalf of or for the
benefit of the Borrower or any Subsidiary of the Borrower and reimbursed by the
Borrower pursuant to Section 8.02(e)(v) shall be treated as an expense of the
Borrower or such Subsidiary of the Borrower (whether or not GAAP would require
such amount to be included as an expense of the Borrower or such Subsidiary) for
the purpose of determining "net income of the Borrower and its Subsidiaries in
accordance with GAAP" under this Agreement in connection with the calculation of
the applicable financial covenants under this Agreement (including without
limitation in the determination of Consolidated Cash Flow from Operations,
Consolidated Net Income, the numerator of the Fixed Charge Coverage Ratio in
Section 8.02(q) and the calculations set forth in Section 8.02(e)), it being the
express intent of the Borrower, the Agents and the Banks that notwithstanding
payment of expenses by MPN on behalf of or for the benefit of the Borrower or
Subsidiaries of the Borrower that consolidated net income of the Borrower and
its Subsidiaries shall continue to be determined after the consummation of the
Paragon Acquisition as if all expenses of the Borrower and its Subsidiaries are
paid by them.
ARTICLE II
TERM LOAN FACILITY
------------------
2.01 Term Loan Commitments.
---------------------
(a) Term Loan Commitments. Subject to the terms and conditions
---------------------
hereof and relying upon the representations and warranties herein set forth,
each Bank severally agrees to make a term loan (the "Term Loan") to the Borrower
on the Closing Date in such principal amount as the Borrower shall request up
to, but not exceeding, such Bank's Term Loan Commitment.
30
<PAGE>
2.02 Nature of Banks' Obligations With Respect to Term Loans. The
-------------------------------------------------------
obligations of each Bank to make a Term Loan to the Borrower shall be in the
proportion that such Bank's Term Loan Commitment bears to the Term Loan
Commitments of all Banks to the Borrower, but each Bank's Term Loan to the
Borrower shall never exceed its Term Loan Commitment. The failure of any Bank
to make a Term Loan shall not relieve any other Bank of its obligations to make
a Term Loan nor shall it impose any additional liability on any other Bank
hereunder. The Banks shall have no obligation to make Term Loans hereunder
after the Closing Date. The Term Loan Commitments are not revolving credit
commitments, and the Borrower shall not have the right to borrow, repay and
reborrow the Term Loans.
2.03 Loan Requests. Except as otherwise provided herein, the
-------------
Borrower may from time to time prior to the Expiration Date request the Banks to
renew or convert the Interest Rate Option applicable to existing Loans, by the
delivery to the Administrative Agent, not later than 10:00 A.M. Pittsburgh time
(i) three (3) Business Days prior to the proposed Borrowing Date with respect to
the conversion to or the renewal of the Euro-Rate Option for any Loans; and (ii)
on the Business Day which is the last day of the preceding Interest Period with
respect to the conversion to the Base Rate Option for any Loan, of a duly
completed request therefor substantially in the form of Exhibit 2.05 hereto or a
------------
request by telephone immediately confirmed in writing by letter, facsimile or
telex in such form (each, a "Loan Request"), it being understood that the
Administrative Agent may rely in good faith on the authority of any person
making such telephonic request and purporting to be an Authorized officer. Each
Loan Request shall be irrevocable and shall (i) specify the proposed Borrowing
Date; (ii) specify the aggregate amount of the proposed Loans comprising the
Borrowing Tranche, which shall be in integral multiples of $500,000 and not less
than $5,000,000 for Loans to which the Euro-Rate Option applies and not less
than the lesser of $500,000 or the maximum amount available for Loans to which
the Base Rate Option applies; (iii) specify whether the Euro-Rate Option or Base
Rate Option shall apply to the proposed Loans comprising the Borrowing Tranche;
(iv) specify in the case of Loans to which the Euro-Rate Option applies, an
appropriate Interest Period for the proposed Loans comprising the Borrowing
Tranche; and (v) certify that no Event of Default or Potential Default has
occurred and is continuing.
2.04 Term Note. The obligation of the Borrower to repay the
---------
aggregate unpaid principal amount of the Term Loans made to it by each Bank,
together with interest thereon, shall be evidenced by a promissory note of the
Borrower dated the Closing Date in substantially the form attached hereto as
Exhibit 1.01(T) payable to the order of each Bank in a face amount equal to the
- ---------------
Commitment of such Bank.
2.05 Use of Proceeds. The proceeds of the Term Loans shall be used
---------------
for general corporate purpose
31
<PAGE>
ARTICLE III
[INTENTIONALLY OMITTED]
ARTICLE IV
INTEREST RATES
--------------
4.01 Interest Rate Options. The Borrower shall pay interest in
---------------------
respect of the outstanding unpaid principal amount of the Loans as selected by
it from the Base Rate Option or Euro-Rate Option set forth below applicable to
the Loans (it being understood that, subject to the provisions of this
Agreement, the Borrower may select different Interest Rate Options and different
Interest Periods to apply simultaneously to the Loans comprising different
Borrowing Tranches and may convert to or renew one or more Interest Rate Options
with respect to all or any portion of the Loans comprising any Borrowing
Tranche; provided that there shall not be at any one time outstanding more than
five (5) Borrowing Tranches in the aggregate among all the Loans accruing
interest at a Euro-Rate Option). The Administrative Agent's determination of a
rate of interest and any change therein shall in the absence of manifest error
be conclusive and binding upon all parties hereto. If at any time the
designated rate applicable to any Loan made by any Bank exceeds such Bank's
highest lawful rate, the rate of interest on such Bank's Loan shall be limited
to such Bank's highest lawful rate.
(a) Interest Rate Options. The Borrower shall have the right to
---------------------
select from the following Interest Rate Options applicable to the Term Loans for
the period commencing on the Closing Date and thereafter:
(i) Base Rate Option: A fluctuating rate per annum (computed
----------------
on the basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed) equal to the Base Rate plus the applicable percentage set forth below,
based upon the ratio of (a) Total Indebtedness, to (b) Consolidated Cash Flow
from Operations, such interest rate to change automatically from time to time
effective as of the effective date of each change in the Base Rate.
<TABLE>
<CAPTION>
Ratio of Total Indebtedness to Applicable
Consolidated Cash Flow from Operations Interest Rate
- ------------------------------------------- ---------------------------
<S> <C>
Greater than 5.25 to 1.0 Base Rate plus 1.25%
Greater than 4.75 to 1.0 but less than or Base Rate plus 1.00%
equal to 5.25 to 1.0
Greater than 4.25 to 1.0 but less than or Base Rate plus .75%
equal to 4.75 to 1.0
Greater than 3.75 to 1.0 but less than or Base Rate plus .50%
equal to 4.25 to 1.0
Less than or equal to 3.75 to 1.0 Base Rate plus .25%
</TABLE>
(ii) Euro-Rate Option: A fluctuating rate per annum
----------------
(computed on the basis of a year of 360 days and actual days elapsed) equal to
the Euro-Rate plus the
32
<PAGE>
applicable percentage (such percentage is sometimes hereafter referred to as the
"Applicable Percentage Over Euro-Rate") set forth below, based upon the ratio of
(a) Total Indebtedness, to (b) Consolidated Cash Flow from Operations.
<TABLE>
<CAPTION>
Ratio of Total Indebtedness to Applicable
Consolidated Cash Flow from Operations Interest Rate
- ------------------------------------------- ------------------------------------
<S> <C>
Greater than 5.25 to 1.0 Euro-Rate plus 2.75%
Greater than 4.75 to 1.0 but less than or Euro-Rate plus 2.50%
equal to 5.25 to 1.0
Greater than 4.25 to 1.0 but less than or Euro-Rate plus 2.25%
equal to 4.75 to 1.0
Greater than 3.75 to 1.0 but less than or Euro-Rate plus 2.00%
equal to 4.25 to 1.0
Less than or equal to 3.75 to 1.0 Euro-Rate plus 1.75%
</TABLE>
(b) The ratios pursuant to clause (a) above shall be computed on
the date of each Acquisition Requiring Certification as more fully set forth in
the third sentence of Section 8.01(m)(i) or the second sentence of Section
8.01(m)(ii), as applicable, and any interest rate adjustment attributable to
such computation shall be effective on the date of such Acquisition Requiring
Certification. If Borrower does not make any Acquisition Requiring Certification
during any fiscal quarter, such ratio shall also be computed as of the end of
such quarter with Consolidated Cash Flow from Operations computed for the four
fiscal quarters then ended and Total Indebtedness computed as of the end of such
fiscal quarter, but any interest adjustments attributable to a change in such
ratio shall be effective (x) with respect to an increase of the applicable
interest rate, as of the Delivery Date for the Borrower's consolidated financial
statements for such quarter and (y) with respect to a decrease of the applicable
interest rate, as of the later of the Delivery Date for such financial
statements and the date on which such financial statements are actually
delivered to the Agents and the Banks.
(c) Rate Quotations. The Borrower may call the Administrative
---------------
Agent on or before the date on which a Loan Request is to be delivered to
receive an indication of the rates then in effect, but it is acknowledged that
such indication shall not be binding on the Agents or the Banks nor affect the
rate of interest which thereafter is actually in effect when the election is
made.
4.02 Interest Periods. At any time when the Borrower shall select,
----------------
convert to or renew a Euro-Rate Option, the Borrower shall notify the
Administrative Agent thereof at least three (3) Business Days prior to the
effective date of such Euro-Rate Option by delivering a Loan Request. The
notice shall specify an interest period (the "Interest Period") during which
such Interest Rate Option shall apply, such periods to be one, two, three or six
months, provided, that the following shall apply to any selection of, renewal of
or conversion to a Euro-Rate Option:
33
<PAGE>
(a) any Interest Period which would otherwise end on a date
which is not a Business Day shall be extended to the next succeeding Business
Day unless such Business Day falls in the next calendar month, in which case
such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period which begins on the last day of a
calendar month for which there is no numerically corresponding day in the
subsequent calendar month during which such Interest Period is to end shall end
on the last Business Day of such subsequent month;
(c) each Borrowing Tranche of Loans subject to a Euro-Rate
Option shall be in integral multiples of $500,000 and not less than $5,000,000;
(d) the Borrower shall not select, convert to or renew an
Interest Period for any portion of the Loans that would end after the Expiration
Date; and
(e) in the case of the renewal of a Euro-Rate Option at the end
of an Interest Period, the first day of the new Interest Period shall be the
last day of the preceding Interest Period, without duplication in payment of
interest for such day.
4.03 Interest After Default. To the extent permitted by Law, upon
----------------------
the occurrence and during the continuation of an Event of Default, any
principal, interest, fee or other amount payable hereunder shall bear interest
for each day thereafter until paid in full (before and after judgment) at a rate
per annum which shall be equal to two hundred (200) basis points (2% per annum)
above the rate of interest otherwise applicable with respect to such amount or
two hundred (200) basis points (2% per annum) above the Base Rate if no rate of
interest is otherwise applicable, but in no event in excess of the highest rate
permitted under applicable law. The Borrower acknowledges that such increased
interest rate reflects, among other things, the fact that such Loans or other
amounts have become a substantially greater risk given their default status and
that the Banks are entitled to additional compensation for such risk. If an
Event of Default shall occur and be continuing, the Administrative Agent may in
its discretion limit the Borrower to the Base Rate Option.
4.04 Euro-Rate Unascertainable.
-------------------------
(a) If on any date on which a Euro-Rate would otherwise be
determined, the Administrative Agent shall have determined (which determination
shall be conclusive absent manifest error) that:
(i) adequate and reasonable means do not exist for
ascertaining such Euro-Rate, or
(ii) a contingency has occurred which materially and
adversely affects the London interbank market relating to the Euro-Rate, or
34
<PAGE>
(b) if at any time any Bank shall have determined (which
determination shall be conclusive absent manifest error) that:
(i) the making, maintenance or funding of any Loan to which
a Euro-Rate Option applies has been made impracticable or unlawful by compliance
by such Bank in good faith with any Law or any interpretation or application
thereof by any Official Body or with any request or directive of any such
Official Body (whether or not have the force of Law), or
(ii) such Euro-Rate Option will not adequately and fairly
reflect the cost to such Bank of the establishment or maintenance of any such
Loan, or
(iii) after making all reasonable efforts that deposits of
the relevant amount in Dollars for the relevant Interest Period for a Loan to
which a Euro-Rate Option applies, respectively, are not available to such Bank
with respect to a proposed Euro-Rate Loan in the London interbank market, in the
case of any event specified in subsection (a) above, then the Administrative
Agent shall promptly so notify the Banks and the Borrower thereof and in the
case of any event specified in subsection (b) above, such Bank shall promptly so
notify the Administrative Agent and endorse a certificate to such notice as to
the specific circumstances of such notice and the Administrative Agent shall
promptly send copies of such notice and certificate to the other Banks and the
Borrower. Upon such date as shall be specified in such notice (which shall not
be earlier than the date such notice is given) the obligation of (A) the Banks
in the case of such notice given by the Administrative Agent or (B) such Bank in
the case of such notice given by such Bank to allow the Borrower to select,
convert to or renew a Euro-Rate Option shall be suspended until the
Administrative Agent shall have later notified the Borrower or such Bank shall
have later notified the Administrative Agent, of the Administrative Agent's or
such Bank's, as the case may be, determination (which determination shall be
conclusive absent manifest error) that the circumstances giving rise to such
previous determination no longer exist. If at any time the Administrative Agent
makes a determination under subsection (a) or (b) of this Section 4.04 and the
Borrower has previously notified the Administrative Agent of its selection of,
conversion to or renewal of a Euro-Rate Option and such Interest Rate Option has
not yet gone into effect, such notification shall be deemed to provide for
selection of, conversion to or renewal of the Base Rate Option otherwise
available with respect to such Loans. If any Bank notifies the Administrative
Agent of a determination under subsection (b) of this Section 4.04, the Borrower
shall, subject to the Borrower's indemnification obligations under Section
5.06(b), as to any Loan of the Bank to which a Euro-Rate Option applies, on the
date specified in such notice either convert such Loan to the Base Rate Option
otherwise available with respect to such Loan or prepay such Loan in accordance
with Section 5.04 hereof. Absent due notice from the Borrower of conversion or
prepayment such Loan shall automatically be converted to the Base Rate Option
otherwise available with respect to such Loan upon such specified date.
4.05 Selection of Interest Rate Options. If the Borrower fails to
----------------------------------
select a new Interest Period to apply to any Borrowing Tranche of Loans under
the Euro-Rate Option at the expiration of an existing Interest Period applicable
to such Borrowing Tranche in accordance
35
<PAGE>
with the provisions of Section 4.02, the Borrower shall be deemed to have
converted such Loan or portion thereof to the Base Rate Option otherwise
available with respect to such Loans, commencing upon the last day of the
existing Interest Period. If an Event of Default shall occur and be continuing,
the Administrative Agent may in its discretion limit the Borrower to the Base
Rate Option hereunder.
ARTICLE V
PAYMENTS
--------
5.01 Payments. All payments and prepayments to be made in respect of
--------
principal, interest, Administrative Agent's Fee or other fees or amounts due
from the Borrower hereunder shall be payable prior to 11:00 A.M. (Pittsburgh
time) on the date when due without presentment, demand, protest or notice of any
kind, all of which are hereby expressly waived by the Borrower, and without
setoff, counterclaim or other deduction of any nature, and an action therefor
shall immediately accrue. Such payments shall be made to the Administrative
Agent at the Principal Office for the ratable accounts of the Banks with respect
to the Loans in U.S. Dollars and in immediately available funds, and the
Administrative Agent shall promptly distribute such amounts to the Banks in
immediately available funds, provided that in the event payments are received by
11:00 A.M. (Pittsburgh time) by the Administrative Agent with respect to the
Loans and such payments are not distributed to the Banks on the same day
received by the Administrative Agent, the Administrative Agent shall pay the
Banks the Federal Funds Effective Rate with respect to the amount of such
payments for each day held by the Administrative Agent and not distributed to
the Banks. The Administrative Agent's and each Bank's statement of account,
ledger or other relevant record shall, in the absence of manifest error, be
conclusive as the statement of the amount of principal of and interest on the
Loans and other amounts owing under this Agreement and shall be deemed an
"account stated."
5.02 Pro Rata Treatment of Banks. Each borrowing, and each selection
---------------------------
of, conversion to or renewal of any Interest Rate Option and each payment or
prepayment by the Borrower with respect to principal, interest or other fees or
amounts due from the Borrower hereunder to the Banks with respect to the Loans,
shall (except as provided in Section 4.04(b) [Euro-Rate Unascertainable],
5.04(b) [Voluntary Prepayments] or 5.06(a) [Additional Compensation in Certain
Circumstances] hereof) be made in proportion to the Loans outstanding from each
Bank.
5.03 Interest Payment Dates. Interest on Loans to which the Base
----------------------
Rate Option applies shall be due and payable in arrears on the first Business
Day of each April, July, October and January after the date hereof and on the
Expiration Date or upon acceleration of the Notes. Interest on Loans to which a
Euro-Rate Option applies shall be due and payable on the last day of each
Interest Period for those Loans, and if any such Interest Period is longer than
three months, also on the last day of every third month during such period.
5.04 Voluntary Prepayments.
---------------------
36
<PAGE>
(a) The Borrower shall have the right at its option from time to
time to prepay the Loans in whole or part without premium or penalty (except as
provided in subsection (b) below or in Section 5.06 hereof):
(i) at any time with respect to any Loan to which the Base
Rate Option applies,
(ii) on the last day of the applicable Interest Period with
respect to Loans to which a Euro-Rate Option applies,
(iii) on the date specified in a notice by any Bank pursuant
to Section 4.04(b) [Euro-Rate Unascertainable] hereof with respect to any Loan
to which a Euro-Rate Option applies.
Whenever the Borrower desires to prepay any part of the Loans, it
shall provide a prepayment notice to the Administrative Agent at least one (1)
Business Day prior to the date of prepayment of Loans setting forth the
following information:
(y) the date, which shall be a Business Day, on which
the proposed prepayment is to be made; and
(z) the total principal amount of such prepayment, which
shall not be less than $5,000,000.
All prepayment notices shall be irrevocable. The principal amount of
the Loans for which a prepayment notice is given, together with interest on such
principal amount except with respect to Loans to which the Base Rate Option
applies, shall be due and payable on the date specified in such prepayment
notice as the date on which the proposed prepayment is to be made. Except as
provided in Section 4.04(b), if the Borrower prepays a Loan but fails to specify
the applicable Borrowing Tranche which the Borrower is prepaying, the prepayment
shall be applied first to Loans to which the Base Rate Option applies, and then
to Loans to which the Euro-Rate Option applies. Any prepayment hereunder shall
be subject to the Borrower's obligation to indemnify the Banks under Section
5.06(b).
(b) In the event any Bank gives notice under Section 4.04(b)
[Euro-Rate Unascertainable] or Section 5.06(a) [Additional Compensation in
Certain Circumstances] hereof, the Borrower shall have the right, with the
consent of the Administrative Agent, which shall not be unreasonably withheld,
to: (y) prepay the Loans of such Bank, in whole together with all interest
accrued thereon and thereby permanently and irrevocably terminate the Commitment
of such Bank, or (z) replace such Bank, so long as, in the case of (y) or (z),
such replacement or prepayment occurs within ninety (90) days after receipt of
such Bank's notice under Section 4.04(b) or 5.06(a), provided the Borrower shall
also pay to such Bank in the case of either the foregoing (y) or (z) at the time
of such prepayment or replacement any amounts required under Section 5.06 and
accrued Commitment Fees due on such amount and all other costs, fees and any
amounts due to such Bank being prepaid or replaced.
37
<PAGE>
5.05 Mandatory Prepayments.
---------------------
(a) Sale of Assets. It is understood and acknowledged that,
--------------
within five (5) Business Days of either any dissolution or winding up in a
transaction or series of related transactions authorized by Section 8.02(f)(ii)
or of any sale of assets or related sales of assets authorized by Section
8.02(g) hereof with Net Sale Proceeds in excess of $1,000,000 (in either case a
"Qualifying Asset Sale"), the Borrower shall make a mandatory prepayment of
principal on the Revolving Credit Loans, together with accrued interest thereon
plus any amounts required under Section 5.06. At such time as the aggregate Net
Sale Proceeds from all Qualifying Asset Sales pursuant to Section 8.02(f)(ii) or
Section 8.02(g) exceed $15,000,000 during the period from and after the Closing
Date through and including the date of determination, then any Net Sale Proceeds
from Qualifying Asset Sales in excess of such amount shall be used 50% to repay
the outstanding Loans and 50% to repay outstanding Indebtedness under the
Revolving Credit Loan Agreement. In addition to the foregoing mandatory
prepayment provisions, in the event that any sale of assets will result in the
Borrower or any Subsidiary receiving "Net Cash Proceeds" which would otherwise
become "Excess Proceeds" (as each of those terms are defined in the Indenture),
then at least sixty (60) days prior to the date any Net Cash Proceeds would
become Excess Proceeds under the Indenture, the Borrower shall give written
notice to the Administrative Agent thereof setting forth the amount of Net Cash
Proceeds at issue. Upon the direction of the Administrative Agent with the
consent of the Required Banks, the Borrower shall make a permanent payment of
principal on the Loans in the amount of said Net Cash Proceeds. To the extent
the aggregate principal amount of Loans then outstanding which bear interest at
the Base Rate Option is less than the principal amount required to be prepaid,
the Borrower may elect to defer the prepayment until the next Interest Payment
Date on its Loans that bear interest at a Euro-Rate Option, by giving written
notice to the Administrative Agent of such election not later than four (4)
Business Days after the asset disposition in question, whereupon the due date of
such prepayment shall automatically be changed to such Interest Payment Date;
provided, however, that Net Cash Proceeds shall, notwithstanding the foregoing,
be required to make the prepayment specified in the prior sentence at least five
days prior to the date such Net Cash Proceeds would become Excess Proceeds under
the Indenture.
(b) Application Among Interest Rate Options. All prepayments
---------------------------------------
required pursuant to Section 5.05 shall first be applied among the Interest Rate
Options to the principal amount of the Loans subject to a Base Rate Option, then
to Loans subject to Euro-Rate Option. In accordance with Section 5.06(b), the
Borrower shall indemnify the Banks for any loss or expense including loss of
margin incurred with respect to any such prepayments applied against Loans
subject to a Euro-Rate Option on any day other than the last day of the
applicable Interest Period.
5.06 Additional Compensation in Certain Circumstances.
------------------------------------------------
(a) Increased Costs or Reduced Return Resulting From Taxes,
-------------------------------------------------------
Reserves, Capital Adequacy Requirements, Expenses, Etc. If any Law, guideline or
- -------------------------------------------------------
interpretation or any change in any Law, guideline or interpretation or
application thereof by any Official Body
38
<PAGE>
charged with the interpretation or administration thereof or compliance with any
request or directive (whether or not having the force of Law) of any central
bank or other Official Body:
(i) subjects any Bank to any tax or changes the basis of
taxation with respect to this Agreement, the Notes, the Loans or payments by the
Borrower of principal, interest, or other amounts due from the Borrower
hereunder or under the Notes (except for taxes on the overall net income of such
Bank),
(ii) imposes, modifies or deems applicable any reserve,
special deposit or similar requirement against credits or commitments to extend
credit extended by, or assets (funded or contingent) of, deposits with or for
the account of, or other acquisitions of funds by, any Bank, or
(iii) imposes, modifies or deems applicable any capital
adequacy or similar requirement (A) against assets (funded or contingent) of, or
letters of credit, other credits or commitments to extend credit extended by,
any Bank, or (B) otherwise applicable to the obligations of any Bank under this
Agreement,
and the result under any of the foregoing clauses (i), (ii) or (iii) is to
increase the cost to, reduce the income receivable by, or impose any expense
(including loss of margin) upon any Bank with respect to this Agreement, the
Notes or the making, maintenance or funding of any part of the Loans (or, in the
case of any capital adequacy or similar requirement, to have the effect of
reducing the rate of return on any Bank's capital, taking into consideration
such Bank's customary policies with respect to capital adequacy) by an amount
which such Bank in its sole discretion deems to be material, such Bank shall
from time to time notify the Borrower and the Administrative Agent of the amount
determined in good faith (using any averaging and attribution methods employed
in good faith) by such Bank (which determination shall be conclusive absent
manifest error) to be necessary to compensate such Bank for such increase in
cost, reduction of income or additional expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such amount shall be due
and payable by the Borrower to such Bank ten (10) Business Days after such
notice is given.
(b) Indemnity. In addition to the compensation required by
---------
subsection (a) of this Section 5.06, the Borrower shall indemnify each Bank
against all liabilities, losses or expenses (including loss of margin, any loss
or expense incurred in liquidating or employing deposits from third parties and
any loss or expense incurred in connection with funds acquired by a Bank to fund
or maintain Loans subject to the Euro-Rate Option) which such Bank sustains or
incurs as a consequence of any:
(i) payment, prepayment, conversion or renewal of any Loan
to which the Euro-Rate Option applies on a day other than the last day of the
corresponding Euro-Rate Interest Period (whether or not such payment or
prepayment is mandatory, voluntary or automatic and whether or not such payment
or prepayment is then due),
39
<PAGE>
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any notice relating to Loan
Requests under Section 2.03 or Section 4.02 or prepayments under Section 5.04,
or
(iii) Event of Default by the Borrower in the performance or
observance of any covenant or condition contained in this Agreement or any other
Loan Document, including without limitation any failure of the Borrower to pay
when due (by acceleration or otherwise) any principal, interest, or any other
amount due hereunder.
If any Bank sustains or incurs any such loss or expense it shall from
time to time notify the Borrower of the amount determined in good faith by such
Bank (which determination shall be conclusive absent manifest error and may
include such assumptions, allocations of costs and expenses and averaging or
attribution methods as such Bank shall deem reasonable) to be necessary to
indemnify such Bank for such loss or expense. Such notice shall set forth in
reasonable detail the basis for such determination. Such indemnification may
include an amount equal to the excess, if any, of (i) the amount of interest
which would have accrued on the amount so prepaid, or not so borrowed, converted
or continued, for the period from the date of such prepayment or of such failure
to borrow, convert or continue to the last day of the applicable Interest Period
(or, in the case of a failure to borrow, convert or continue, the Interest
Period that would have commenced on the date of such failure) in each case at
the applicable rate of interest for such Loans, subject to the Euro-Rate Option
provided for herein (excluding, however, the Applicable Percentage Over Euro-
Rate included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Bank) which would have accrued to such Bank on such amount by
placing such amount on deposit for a comparable period with leading banks in the
interbank Eurodollar market. This covenant shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder. Such amount shall be due and payable by the Borrower to such Bank
ten (10) Business Days after such notice is given.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
------------------------------
6.01 Representations and Warranties. The Borrower represents and
------------------------------
warrants to the Agents and each of the Banks as follows:
(a) Organization and Qualification. The Borrower, each
------------------------------
Restricted Subsidiary of the Borrower and each Excluded Entity in which a
Restricted Investment has been made are duly organized, validly existing and in
good standing under the laws of their respective jurisdiction of organization;
the Borrower, each Restricted Subsidiary of the Borrower and each Excluded
Entity in which a Restricted Investment has been made have the power to own or
lease their properties and to engage in the business they presently conduct or
propose to conduct; and the Borrower and each Subsidiary of the Borrower are
duly qualified as a foreign corporation, limited liability company or
partnership and in good standing in each jurisdiction listed on Schedule 6.01(a)
----------------
hereto and in all other jurisdictions where the property owned or leased by them
or the nature of the business transacted by them or both makes such
qualification necessary,
40
<PAGE>
except where the failure to so qualify would not have a material adverse effect
on the Borrower or any Subsidiary.
(b) [Intentionally Omitted].
---------------------
(c) Excluded Entities; Subsidiaries. Schedule 6.01(c) attached
------------------------------- ----------------
hereto states (i) the name of each of the Borrower's Restricted Subsidiaries and
each Excluded Entity in which a Restricted Investment has been made, (ii) in the
case of each Corporate Subsidiary or Excluded Entity which is a corporation, its
jurisdiction of incorporation, its authorized capital stock, the issued and
outstanding shares (referred to herein as the "Corporate Shares") and the owners
thereof, (iii) in the case of each Partnership Subsidiary or Excluded Entity
which is a partnership, the jurisdiction in which it is organized, the type of
organization (limited or general partnership) and the owners of its partnership
interests (the "Partnership Interests"), and (iv) in the case of each Subsidiary
or Excluded Entity which is a limited liability company, the jurisdiction in
which it is organized, its authorized member interests, the issued and
outstanding member interests (the "Member Interests") and the owners thereof.
The Borrower and each Subsidiary have good and valid title to all of the
Corporate Shares, Partnership Interests or Member Interests they purport to own,
free and clear in each case of any Lien other than under the Loan Documents. All
Corporate Shares, Partnership Interests and Member Interests have been validly
issued. All Corporate Shares are fully paid and nonassessable. There are no
options, warrants or other rights outstanding to purchase any Member Interests,
Corporate Shares or Partnership Interests except as indicated on Schedule
--------
6.01(c).
- -------
(d) Power and Authority. Each Loan Party has full power to enter
-------------------
into, execute, delivery and carry out this Agreement, the other Loan Documents
to which it is a party, to incur the Indebtedness contemplated by the Loan
Documents and to perform its obligations under the Loan Documents to which it is
a party and all such actions have been duly authorized by all necessary
proceedings on its part.
(e) Validity and Binding Effect. This Agreement has been duly
---------------------------
executed and delivered by each Loan Party that is a party hereto, and each other
Loan Document, when duly executed and delivered by each Loan Party which is a
party thereto, will have been duly executed and delivered by such Loan Party.
This Agreement and each other Loan Document delivered by the Loan Parties
pursuant to the provisions hereof will constitute legal, valid and binding
obligations of the Loan Parties thereto, enforceable against such Loan Party in
accordance with their respective terms, except to the extent that (i)
enforceability of any of the foregoing Loan Documents may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforceability of creditors' rights generally or limiting the
right of specific performance or by general equitable principles and (ii) the
exercise by the Banks of their rights with respect to the Collateral would be
subject to the prior approval of health care regulatory authorities.
(f) No Conflict. Neither the execution and delivery of this
-----------
Agreement or the other Loan Documents by the Loan Parties nor the consummation
of the transactions herein or therein contemplated or compliance with the terms
and provisions hereof or thereof by
41
<PAGE>
them will conflict with, constitute a default under or result in any breach of
(i) the terms and conditions of the certificate of incorporation, by-laws or
other organizational documents of any Loan Party or (ii) of any Law or of any
material agreement or instrument or order, writ, judgment, injunction or decree
to which any Loan Party is a party or by which it is bound or to which it is
subject, or result in the creation of enforcement of any Lien, charge or
encumbrance whatsoever upon any property (now or hereafter acquired) of any Loan
Party (other than Liens granted under the Loan Documents).
(g) Litigation. Except as previously disclosed to the
----------
Administrative Agent in that certain letter dated January 2, 1996 there are no
actions, suits, proceedings or investigations pending or, to the knowledge of
the Borrower, threatened against the Borrower or any Subsidiary of the Borrower
at law or equity before any Official Body which individually or in the aggregate
would constitute a Material Adverse Change. Neither the Borrower nor any
Subsidiary of the Borrower is in violation of any order, writ, injunction or any
decree of any Official Body which would constitute a Material Adverse Change.
(h) Title to Properties. The Borrower and each Subsidiary of the
-------------------
Borrower have good and marketable title to or valid leasehold interest in all
material properties, assets and other rights which they purport to own or lease
or which are reflected as owned or leased on their respective books and records,
free and clear of all Liens and encumbrances except Permitted Liens, and subject
to the term and conditions of the applicable leases. All material leases of real
property are in full force and effect without the necessity for any consent
which has not previously been obtained for the consummation of the transaction
contemplated hereby.
(i) Financial Statements.
--------------------
(i) Historical Statements.
---------------------
The Borrower has delivered to the Administrative
Agent copies of its audited consolidated year-end financial statements for and
as of the end of the fiscal years ended December 31, 1996, 1997 and the
unaudited consolidated statements for the fiscal quarters ending on March 31,
1998, June 30, 1998 and September 30, 1998 (collectively the "Historical
Statements"). The Historical Statements were compiled from the books and records
maintained by the Borrower's management, fairly present the consolidated
financial condition of the Loan Parties (which were Loan Parties as of the date
of the respective Historical Statements) as of their dates and the results of
operations for the fiscal periods then ended and have been prepared in
accordance with GAAP consistently applied, subject (in the case of the interim
statements) to normal year-end audit adjustments.
(ii) Accuracy of Financial Statements. Neither the Borrower
--------------------------------
nor any Subsidiary of Borrower has any liabilities, contingent or otherwise, or
material forward or long-term commitments that are not disclosed in the
Historical Statements or in the notes thereto or that are required to be
disclosed under GAAP, and except as disclosed therein there are no unrealized
or anticipated losses from any commitments of the Borrower or any Subsidiary
which may cause a Material Adverse Change. Since December 31, 1997, no Material
Adverse Change has occurred; provided, however, that with the written approval
of the Required Banks,
42
<PAGE>
express disclosures to the Banks by the Borrower in the reports provided by the
Borrower to the Banks, pursuant to Section 8.03 hereof, shall be deemed to be an
update and an exception to the representation made in the foregoing portion of
this sentence.
(iii) Projections. The Borrower has delivered to the
-----------
Administrative Agent financial projections of the Borrower and its Subsidiaries
prepared on a combined pro-forma basis for the two fiscal years ending September
30, 1998 and September 30, 1999 and for the fiscal quarter of October 1 through
December 31, 1999 (the "Financial Projections") derived from various assumptions
of the Borrower's management. The Financial Projections represent a reasonable
range of possible results in light of the history of the business, present and
foreseeable conditions and the intentions of the management of the Borrower. The
Financial Projections accurately reflect the liabilities of the Borrower and its
Subsidiaries upon consummation of the transactions contemplated hereby as of the
Closing Date.
(j) Margin Stock. Neither the Borrower nor any Subsidiary
------------
engages or intends to engage principally, or as one of its important activities,
in the business of extending credit for the purpose, immediately, incidentally
or ultimately, of purchasing or carrying margin stock (within the meaning of
Regulation U). No part of the proceeds of any Loan has been or will be used,
immediately, incidentally or ultimately, to purchase or carry any margin stock
or to extend credit to others for the purpose of purchasing or carrying any
margin stock or to refund Indebtedness originally incurred for such purpose, or
for any purpose which entails a violation of or which is inconsistent with the
provisions of the regulations of the Board of Governors of the Federal Reserve
System.
(k) Full Disclosure. Neither this Agreement nor any other Loan
---------------
Document contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which they were made, not
misleading considered as a whole; provided that any information provided after
the date hereof shall be deemed to supersede any prior inconsistent information.
There is no fact known to the Borrower or any Subsidiary which materially
adversely affects the business, property, assets, financial condition, results
of operations or prospects of the Borrower or any Material Subsidiary, which:
(i) prior to or at the date hereof, has not been set forth in the Agreement or
in the certificates, statements, agreements or other documents furnished in
writing to the Administrative Agent and the Banks in connection with the
transactions contemplated hereby or in the Borrower's public filings with the
Securities and Exchange Commission, or (ii) following the date hereof and with
the written approval of the Required Banks, has not been set forth in other
documents furnished in writing to the Administrative Agent and the Banks.
(l) Taxes. All material federal, state, local and other tax
-----
returns required to have been filed with respect to the Borrower or any
Subsidiary have been filed and payment or adequate provision has been made for
the payment of all taxes, fees, assessments and other governmental charges which
have or may become due pursuant to said returns or to assessments received
except to the extent that such taxes, fees, assessments and other charges are
being contested in good faith by appropriate proceedings diligently
conducted and for which
43
<PAGE>
such reserves or other appropriate provisions, if any, as shall be required by
GAAP shall have been made. As of the date hereof, there are no agreements or
waivers extending the statutory period of limitations applicable to any federal
income tax return of the Borrower or any Subsidiary for any period.
(m) Consents and Approvals. Except as may be disclosed by the
----------------------
Borrower to the Administrative Agent pursuant to Section 8.01(p), no consent,
approval, exemption, order or authorization of, or a registration or filing with
any Official Body or any other person is required by any Law or any agreement in
connection with the execution, delivery and carrying out of this Agreement, or
the other Loan Documents by any Loan Party, all of which have been obtained or
made; provided, however, that it is acknowledged that consent of health care
regulatory authorities issuing any licenses or regulating any health care
facilities may be required if the Administrative Agent on behalf of the Banks
exercises the rights and remedies in respect of the Pledged Collateral and such
exercise of remedies results in or constitutes an assignment of any health care
license issued by a health care regulatory authority or constitutes a change of
control with respect to the ownership of a health care facility.
(n) Compliance With Instruments. Neither the Borrower nor any
---------------------------
Subsidiary is in violation of (i) any term of its certificate of incorporation,
by-laws, or other organizational documents or (ii) any material agreement or
instrument to which it is a party or by which it or any of its properties may be
subject or bound where such violation would constitute a Material Adverse
Change.
(o) Patents, Trademarks, Copyrights, Etc. The Borrower and each
------------------------------------
Subsidiary owns or possesses all the material patents, trademarks, service
marks, trade names, copyrights and other intellectual property rights necessary
to own and operate its properties and to carry on its business as presently
conducted and planned to be conducted by the Borrower and each Subsidiary,
without known conflict with the rights of others.
(p) Security Interests in the Collateral. The Liens and security
------------------------------------
interests granted to the Collateral Agent for the benefit of the Banks pursuant
to the Pledge Agreements, the Patent, Trademark and Copyright Security
Agreement, the Security Agreement, the First Mortgages, the Mortgages and
Leasehold Mortgages in the UCC Collateral constitute, and will continue to
constitute, Prior Security Interests under the Uniform Commercial Code as in
effect in each applicable jurisdiction (the "Uniform Commercial Code") or valid
first priority Liens under other applicable Law entitled to all the rights,
benefits and priorities provided by the Uniform Commercial Code or such Law to
the fullest extent permitted by applicable law, except that the security
interests in the Collateral under the Mortgages and Leasehold Mortgages may be
subordinated to the security interests granted to certain of the Lessor Lenders
or Owned Facility Lenders, as indicated on Schedule 6.01(aa) and, except in the
case of the Collateral other than Pledged Collateral, subject to Permitted
Liens. Upon the filing of financing statements relating to said security
interests in each office and in each jurisdiction where required in order to
perfect the security interests described above, recordation of the Patent,
Trademark and Copyright Security Agreement in the United States Patent and
Trademark Office (and, to the extent of any Collateral consisting of copyrights,
in the United States Copyright Office), and taking possession
44
<PAGE>
of the stock certificates or certificates of ownership of member interests in a
limited liability company, as the case may be, evidencing the Pledged Collateral
which constitutes stock of a corporation or certificated member interests of a
limited liability company, as the case may be, all such action as is necessary
or advisable to establish such rights of the Collateral Agent will have been
taken, and there will be upon execution and delivery of the Patent, Trademark
and Copyright Security Agreement, the Security Agreement, the First Mortgages,
the Pledge Agreements, Mortgages and Leasehold Mortgages, such filings, and such
taking of possession no necessity for any further action in order to preserve,
protect and continue such rights, except for maintaining possession of such
certificates and filing continuation statements with respect to such financing
statements within six (6) months prior to each five-year anniversary of the
filing of such financing statements. Any expenses in connection with each such
action have been or will be paid by the Borrower. It is acknowledged that the
exercise by the Banks of their rights and remedies in respect of the Pledged
Collateral which would result in or constitute any assignment of any license
issued by a health care regulatory authority or any change of control with
respect to a health care facility may be subject to the prior approval of such
health care regulatory authorities.
(q) First Mortgage Liens. The Liens granted to the Collateral
--------------------
Agent for the benefit of the Banks pursuant to the First Mortgages constitute a
valid first priority Lien under applicable law, subject only to Permitted Liens.
All such action as will be necessary or advisable to establish such Lien of the
Collateral Agent and its priority as described in the preceding sentence will be
taken at or prior to the time required for such purpose, and there will be as of
the date of execution and delivery of the First Mortgages not necessity for any
further action in order to protect, preserve and continue such Lien and such
priority.
(r) Status of the Pledged Collateral. All the shares of capital
--------------------------------
stock, partnership interests, or member interests in a limited liability
company, as the case may be, included in the Pledged Collateral to be pledged
pursuant to the Pledge Agreements are or will be upon issuance duly authorized
and validly issued. All shares of capital stock included in the Pledged
Collateral are or will be upon issuance fully paid and nonassessable. All of the
Pledged Collateral is owned beneficially and of record by the pledgor free and
clear of any Lien or restriction on transfer, except as otherwise provided in
the Pledge Agreements and except as the right of the Collateral Agent and the
Banks to dispose of the Pledged Collateral may be limited by the Securities Act
of 1933, as amended, and the regulations promulgated by the Securities and
Exchange Commission thereunder and by applicable state securities laws. Except
as otherwise disclosed to the Banks, in writing, there are no shareholder or
other agreements or understandings with respect to the Pledged Collateral.
(s) Insurance. The insurance policies and bonds to which the
---------
Borrower or any Subsidiary is a party provide adequate coverage from reputable
and financially sound insurers in amounts sufficient to insure the assets and
risks of the Borrower and its Subsidiaries in accordance with prudent business
practice in the industry of the Borrower and its Subsidiaries, including self-
insurance to the extent customary, and such policies and bonds are valid and in
full force and effect.
45
<PAGE>
(t) Compliance with Laws. The Borrower and its Subsidiaries are
--------------------
in compliance in all material respects with all applicable Laws (other than
Environmental Laws which are specifically addressed in subsection (y)) in all
jurisdictions in which the Borrower or any Subsidiary is presently or will be
doing business except where the failure to do so would not constitute a Material
Adverse Change.
(u) Material Contracts, Licenses, Permits and Approvals.
---------------------------------------------------
(A) As of the date hereof, Schedule 6.01(u) hereto
----------------
lists the following contracts relating to the business operations of the
Borrower and its Subsidiaries: (i) all employee benefit plans, employment
agreements where the compensation paid by the Borrower or any Subsidiary exceeds
$250,000 in any fiscal year, collective bargaining agreements and labor
contracts (the "Labor Contracts"), (ii) all written provider or similar
agreements (the "Provider Agreements") pursuant to which the Borrower and its
Subsidiaries have received or may claim any entitlement to receive reimbursement
from or as a result of (1) Medicaid, Medicare or Blue Cross programs, or (2) any
other public or private reimbursement programs where the payments received by
the Borrower or any Subsidiary exceeded or are expected to exceed $6,000,000 in
the current fiscal year, (iii) all leases of real property where the payments
made by the Borrower or any Subsidiary in the current fiscal year exceed or are
expected to exceed $250,000, (iv) any contract or series of contracts with the
same person for the furnishing or purchase of machinery, equipment, goods or
services, where the payments made by the Borrower or any Subsidiary exceeded or
are expected to exceed $1,000,000 in the aggregate in the current fiscal year;
(v) all management contracts pursuant to which the Borrower or a Subsidiary
provides management services to any other person where the payments received or
expected to be received by the Borrower or any Subsidiary exceed $500,000 in the
current fiscal year; and (vi) all other material contracts filed as exhibits to
any report filed by the Borrower with the SEC during the past twelve months. All
contracts listed on Schedule 6.01(u) and any Provider Agreements which provide
----------------
for annual payments in excess of $6,000,000 which are not listed on Schedule
--------
6.01(u) are valid, binding and enforceable upon the Borrower or its
- -------
Subsidiaries, as the case may be, and, to the best knowledge of the Borrower,
each of the other parties thereto in accordance with their respective terms and
there is no default thereunder, to the knowledge of the Borrower and of its
Subsidiaries, with respect to parties other than the Borrower or any of its
Subsidiaries. There are no patient care agreements with patients or any other
person or organization which deviate in such a material respect from the
standard patient care forms used by the Borrower or any of its Subsidiaries as
to constitute a Material Adverse Change.
(B) Except as set forth on Schedule 6.01(u), the
----------------
Borrower and each of its Subsidiaries has all material accreditations,
authorizations, approvals, certificates of need, consents, licenses, permits and
qualifications (collectively, "Approvals") required (i) for them to construct,
acquire, own, manage, lease and/or operate their facilities and services, (ii)
for them to receive payment and reimbursement from any patient or third party
payor, to the extent in the case of (i) and (ii) such Approvals are presently
required. The Borrower and each of its Subsidiaries have all other material
Approvals required for the lawful operation of their businesses. All material
Approvals of the Borrower and each of its
46
<PAGE>
Subsidiaries are in full force and effect and have not been amended or otherwise
modified (except for modifications which would not have a material adverse
effect upon the Borrower or any Subsidiary) rescinded, revoked or assigned, and
no notice has been received of any violation of applicable Laws or any refusal
to renew any Approval which could reasonably be expected to cause any of such
Approvals to be modified, rescinded or revoked (except for modifications,
rescissions or revocations which would not have a material adverse effect upon
the Borrower and its Subsidiaries taken as a whole). The continuation, validity
and effectiveness of all such Approvals will be in no way be adversely affected
by the transactions contemplated by this Agreement. Neither the Borrower nor any
of its Subsidiaries knows of any reason why any of them will not be able to
maintain all material Approvals necessary or appropriate to construct, own,
lease, manage and operate all of their facilities and to otherwise conduct their
businesses as now conducted and presently proposed to be conducted. There are no
deficiencies to the conditions for participation by the Borrower or any
Subsidiary in any Medicare, Medicaid or other reimbursement programs which would
preclude such participation.
(v) Investment Companies; Public Utility Holding Company. The
----------------------------------------------------
Borrower is not an "investment company" registered or required to be registered
under the Investment Company Act of 1940 or under the "control" of an
"investment company" as such terms are defined in the Investment Company Act of
1940 and shall not become such an "investment company" or under such "control."
The Borrower is not a "holding company" nor a "subsidiary" or "affiliate" of any
Person that is a "holding company" as those terms are defined in the Public
Utility Holding Company Act of 1935.
(w) Plans and Benefit Arrangements.
------------------------------
(i) The Borrower and each member of the ERISA Group are in
compliance in all material respects with any applicable provisions of ERISA with
respect to all Benefit Arrangements, Plans and Multiemployer Plans. There has
been no Prohibited Transaction with respect to any Benefit Arrangement or any
Plan or, to the best knowledge of the Borrower, with respect to any
Multiemployer Plan or Multiple Employer Plan, which could result in any material
liability of the Borrower or any other member of the ERISA Group. The Borrower
and all members of the ERISA Group have made when due any and all payments
required to be made under any agreement relating to a Multiemployer Plan or a
Multiple Employer Plan or any law pertaining thereto. With respect to each Plan
and Multiemployer Plan, the Borrower and each member of the ERISA Group (i) have
fulfilled in all material respects their obligations under the minimum funding
standards of ERISA, (ii) have not incurred any liability to the PBGC and (iii)
have not had asserted against them any penalty for failure to fulfill the
minimum funding requirements of ERISA.
(ii) To the best of the Borrower's knowledge, each
Multiemployer Plan and Multiple Employer Plan is able to pay benefits thereunder
when due.
(iii) Neither the Borrower nor any other member of the ERISA
Group has instituted or intends to institute proceedings to terminate any Plan.
47
<PAGE>
(iv) No event requiring notice to the PBGC under Section
302(f)(4)(A) of ERISA has occurred or is reasonably expected to occur with
respect to any Plan, and no amendment with respect to which security is required
under Section 307 of ERISA has been made or is reasonably expected to be made to
any Plan.
(v) The aggregate actuarial present value of all benefit
liabilities (whether or not vested) under each Plan, determined on a plan
termination basis, as disclosed in, and as of the date of, the most recent
actuarial report for such Plan, does not exceed the aggregate fair market value
of the assets of such Plan by an amount in excess of $250,000.
(vi) Neither the Borrower nor any other member of the ERISA
Group has incurred or reasonably expects to incur any material withdrawal
liability under ERISA to any Multiemployer Plan or Multiple Employer Plan.
Neither the Borrower nor any other member of the ERISA Group has been notified
by any Multiemployer Plan or Multiple Employer Plan that such Multiemployer Plan
or Multiple Employer Plan has been terminated within the meaning of Title IV of
ERISA and, to the best knowledge of the Borrower, no Multiemployer Plan or
Multiple Employer Plan is reasonably expected to be reorganized or terminated,
within the meaning of Title IV of ERISA.
(vii) To the extent that any Benefit Arrangement is insured,
the Borrower and all members of the ERISA Group have paid when due all premiums
required to be paid for all periods. To the extent that any Benefit Arrangement
is funded other than with insurance, the Borrower and all members of the ERISA
Group have made when due all contributions required to be paid for all periods.
(x) Employment Matters. The Borrower and each of its
------------------
Subsidiaries are in compliance with the Labor Contracts and all applicable
federal, state and local labor and employment Laws including, but not limited
to, those related to equal employment opportunity and affirmative action, labor
relations, minimum wage, overtime, child labor, medical insurance continuation,
worker adjustment and relocation notices, immigration controls and worker and
unemployment compensation, where the failure to comply would constitute a
Material Adverse Change. There are no outstanding grievances, arbitration awards
or appeals therefrom arising out of the Labor Contracts or current or threatened
strikes, picketing, handbilling or other work stoppages or slowdowns at
facilities of the Borrower or any of its Subsidiaries which in any case would
constitute a Material Adverse Change. The Borrower has delivered to the
Administrative Agent true and correct copies of each of the Labor Contracts in
effect as of the date hereof.
(y) Environmental Matters. Except as disclosed on Schedule
---------------------
6.01(y) hereto and except for matters which would not exceed $5,000,000 in the
aggregate:
(i) Neither Borrower nor any of its Subsidiaries has
received any Environmental Complaint, whether directed or issued to Borrower or
any of its Subsidiaries or relating or pertaining to any prior owner, operator
or occupant of the Property.
(ii) To the knowledge of Borrower and each of its
Subsidiaries, no activity of the Borrower or any of its Subsidiaries at the
Property is being or has been
48
<PAGE>
conducted in violation of any Environmental Law or Required Environmental Permit
and to the knowledge of Borrower and each of its Subsidiaries no activity of any
prior owner, operator or occupant of the Property was conducted in violation of
any Environmental Law.
(iii) To the knowledge of Borrower and each of its
Subsidiaries, there are no Regulated Substances present on, in, under or
emanating from, or emanating to, the Property or any portion thereof which
result in Contamination.
(iv) To the knowledge of Borrower and each of its
Subsidiaries, Borrower and each of its Subsidiaries have all Required
Environmental Permits and all such Required Environmental Permits are in full
force and effect.
(v) To the knowledge of Borrower and each of its
Subsidiaries, Borrower and each of its Subsidiaries have submitted all Required
Environmental Notices which they are required to submit to an Official Body and
Borrower and each of its Subsidiaries maintain all Required Environmental
Notices which they are required to maintain.
(vi) To the knowledge of Borrower and each of its
Subsidiaries, no structures, improvements, equipment, fixtures, impoundments,
pits, lagoons or aboveground or underground storage tanks located on the
Property contain or use, except in compliance with Environmental Law and
Required Environmental Permits, Regulated Substances or otherwise are operated
or maintained except in compliance with Environmental Law and Required
Environmental Permits. To the knowledge of Borrower and each of its
Subsidiaries, no structures improvements, equipment, fixtures, impoundments,
pits, lagoons or aboveground or underground storage tanks of prior owners,
operators or occupants of the Property contained or used, except in compliance
with Environmental Law, Regulated Substances or otherwise were operated or
maintained by any such prior owner, operator or occupant except in compliance
with Environmental Law.
(vii) To the knowledge of Borrower and each of its
Subsidiaries, no facility or site to which Borrower or any of its Subsidiaries,
either directly or indirectly by a third party, has sent Regulated Substances
for storage, treatment, disposal or other management has been or is being
operated in violation of Environmental Law or pursuant to Environmental Law is
identified or proposed to be identified on any list of contaminated properties
or other properties which pursuant to Environmental Law are the subject of an
investigation, cleanup, removal, remediation or other response action by an
Official Body.
(viii) To the knowledge of Borrower and each of its
Subsidiaries, no portion of the Property is identified or proposed to be
identified on any list of contaminated properties or other properties which
pursuant to Environmental Law are the subject of an investigation or remediation
action by an Official Body, nor to Borrower's or any of its Subsidiary's
knowledge is any property adjoining or in the proximity of the Property
identified or proposed to be identified on any such lists.
(ix) To the knowledge of Borrower and each of its
Subsidiaries, no portion of the Property constitutes an Environmentally
Sensitive Area.
49
<PAGE>
(x) No lien or other encumbrance authorized by Environmental
Law exists against the Property and neither Borrower nor any of its Subsidiaries
has reason to believe that such a lien or encumbrance may be imposed.
(xi) To the knowledge of Borrower and each of its
Subsidiaries, there has been no material change in the environmental condition
(including but not limited to the presence of Contamination or the presence of
Regulated Substances in violation of Environmental Law) of any Property as
described in any Phase I Environmental Site Assessment report or similar report
regarding the environmental condition of such Property or the Borrower's or its
Subsidiaries' compliance with Environmental Law a copy of which Borrower has
provided to Agent, except for such changes which would result in the improvement
of the environmental condition of any such Property or the Borrower's or its
Subsidiaries compliance with Environmental Law.
(z) Senior Debt Status. The obligations of the Borrower under
------------------
this Agreement and the Notes and the obligations of the Subsidiaries of Borrower
under the Guaranties do rank and will rank at least pari passu in priority of
----------
payment with all other Indebtedness of the Borrower or such Subsidiaries, as the
case may be, except Indebtedness of the Borrower or its Subsidiaries to the
extent secured by Permitted Liens. The obligations of the Borrower under this
Agreement and the Notes do not conflict with or violate the terms of the
Indenture and the Loans made under this Agreement to the Borrower constitute
"Designated Senior Indebtedness" as such term is defined in the Indenture. There
is no Lien upon or with respect to any of the properties or income of the
Borrower or any of its Subsidiaries which secures Indebtedness or other
obligations of any person except for Permitted Liens.
(aa) Matters Regarding Leased Facilities and Certain
-----------------------------------------------
Indebtedness of Subsidiaries.
- ----------------------------
(i) Indebtedness Related to Leased Facilities. Schedule
----------------------------------------- --------
6.01(aa) describes each Leased Facility and with respect thereto: (1) the
- --------
Subsidiary Lessee which is the lessee thereof; (2) the Lessor thereof; (3) the
amount of Lessor Indebtedness secured by any assets of such Leased Facility; (4)
the Lessor Lender which is the obligee under such Lessor Indebtedness; (5) any
assets of the Subsidiary Lessee leasing such Leased Facility which relate to
such facility in which such Subsidiary Lessee has granted Liens in favor of the
Lessor (it is acknowledged that the Lessor has assigned such Liens to the Lessor
Lender) or Lessor Lender and confirmation that such Liens are Permitted Leased
Facility Liens and Permitted Liens; (6) the original maturity date of such
Lessor Indebtedness, without giving effect to subsequent amendments unless
permitted by this Agreement; (7) whether a Facility Purchase Option has been
granted as part of an Intercreditor Agreement between the Collateral Agent and
the Lessor Lender with respect to such Leased Facility; (8) whether the Lessor
Lender and Lessor have consented to the grant by the Subsidiary Lessee of a
Leasehold Mortgage, in favor of the Collateral Agent for the benefit of the
Banks and Liens on the assets of such Subsidiary Lessee (such Liens to be second
in priority to the Liens granted by such Subsidiary Lessee to such Lessor Lender
in such assets if such Subsidiary granted Liens in such assets to such Lessor
Lender) with respect to such Leased Facility; (9) whether the applicable Lessor
Lender has
50
<PAGE>
agreed to release its liens in the assets of the applicable Subsidiary Lessee
leasing such Leased Facility related to such facility; (10) whether the
applicable Lessor Lender has entered into a Non-Disturbance Agreement; (11)
whether the applicable Lessor Lender has entered into an Intercreditor Agreement
with the Collateral Agent; and (12) whether the applicable Lessor Lender has
entered into a Trustee Agreement with the Collateral Agent.
(ii) Indebtedness Related to Subsidiary Owned Facilities.
---------------------------------------------------
Schedule 6.01(aa) describes each Owned Facility and with respect thereto: (1)
- -----------------
the Subsidiary Owner; (2) the amount of the Owned Facility Indebtedness, secured
by any assets of such Owned Facility; (3) the Owned Facility lender which is the
obligee under such Owned Facility Indebtedness; (4) the assets of the Subsidiary
Owner relating to such Owned Facility in which the Subsidiary Owner has granted
Liens in favor of such Owned Facility Lender and confirmation that such Liens
are Permitted Owned Facility Liens and Permitted Liens; (5) the original
maturity date of such Owned Facility Indebtedness, without giving effect to
subsequent amendments unless permitted by this Agreement; (6) whether a Facility
Purchase Option has been granted as part of an Intercreditor Agreement between
the Collateral Agent and the Owned Facility Lender with respect to such Owned
Facility; (7) whether the Owned Facility Lender has consented to the grant by
the Subsidiary Owner of a Mortgage, in favor of the Collateral Agent for the
benefit of the Banks and Liens on the assets of such Subsidiary Owner (such
Liens to be second in priority to the Liens granted by such Subsidiary Owner to
such Owned Facility Lender in such assets if such Subsidiary Owner granted Liens
in such assets to such Owned Facility Lender) with respect to such Owned
Facility; and (8) whether the applicable Owned Facility Lender entered into an
Intercreditor Agreement with the Collateral Agent.
(iii) Other matters regarding Owned and Leased Real
---------------------------------------------
Property. In addition to the Owned Facilities and the Leased Facilities,
- --------
Schedule 6.01(aa) sets forth a true and complete list of all other Property of
- ----------------
the Borrower and all other Property of each Subsidiary of the Borrower.
(bb) Mortgage and Leasehold Mortgage Liens. The Liens granted to
-------------------------------------
the Collateral Agent for the benefit of the Banks pursuant to the Mortgages and
the Leasehold Mortgages constitute valid Liens under applicable law having
priority over all other Liens except that if otherwise permitted by this
Agreement they may be subordinate to Liens in favor of the Owned Facility
Lenders and Lessor Lenders, as the case may be, and Schedule 6.01(aa)
-----------------
indicates if such Liens are subordinated. All such action as will be necessary
or advisable to establish such Liens of the Collateral Agent and its priority as
described in the preceding sentence will be taken at or prior to the time
required for such purpose, and there will be as of the date of execution and
delivery of the Mortgages and Leasehold Mortgages no necessity for any further
action in order to protect, preserve and continue such Liens and such priority.
Notwithstanding any provision of this Agreement to the contrary, to the extent a
Loan Party is required to execute and deliver an Intercreditor Agreement,
Leasehold Mortgage or Mortgage, as required by this Agreement, on or after the
Closing Date, such agreement shall be entered into by such Loan Party with the
Collateral Agent for the ratable benefit of the Banks and on a pari passu basis,
the Revolving Credit Loan Banks unless otherwise required by the Administrative
Agent.
51
<PAGE>
(cc) Affiliate Transactions. Schedule 6.01(cc) hereto sets forth
---------------------- -----------------
a true and complete list of all transactions between the Borrower or any
Subsidiary of the Borrower and MPN or any Affiliate of MPN.
(dd) Year 2000. The Borrower and its Subsidiaries have reviewed
---------
the areas within their business and operations which could be adversely affected
by, and have developed or are developing a program to address on a timely basis,
the risk that certain computer applications used by the Borrower or its
Subsidiaries (or any of their respective material suppliers, customers or
vendors) may be unable to recognize and perform properly date-sensitive
functions involving dates prior to and after December 31, 1999 (the "Year 2000
Problem"). The Year 2000 Problem will not result in any Material Adverse Change.
(ee) Solvency. The Borrower and each other Loan Party is
--------
Solvent. As of the Closing Date and after giving effect to the transactions
contemplated by the Loan Documents and the Term Loan Documents, including all
Loans made under the Loan Documents and the Term Loan Documents, the Liens
granted by the Borrower and each other Loan Party in connection therewith and
the payment of all fees related thereto, the Borrower and each other Loan Party
will be Solvent.
6.02 Updates to Schedules. Should any of the information or
--------------------
disclosures provided on any of the Schedules attached hereto (other than
Schedules relating solely to representations and warranties made solely as of
the date expressly specified therein, which representations and warranties shall
be true and correct as of such specified date) become outdated or incorrect in
any material respect, the Borrower shall promptly provide the Administrative
Agent in writing with such revisions or updates to such Schedule as may be
necessary or appropriate to update or correct the same; provided, however that
no Schedule shall be deemed to have been amended, modified or superseded by any
such correction or update that would disclose the occurrence of an event or
condition which constitutes a Potential Default or Event of Default, nor shall
any breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule be deemed to have been cured thereby, unless
and until the Required Banks, in their sole and absolute discretion, shall have
accepted in writing such revisions or updates to such Schedule.
ARTICLE VII
CONDITIONS OF LENDING
---------------------
The obligation of each Bank to make the Term Loans hereunder is
subject to the performance by the Borrower of its obligations to be performed
hereunder at or prior to the making of the Term Loans to the satisfaction of the
following conditions:
7.01 Loans.
-----
On the Closing Date:
(a) Officer's Certificate. The representations and warranties of
---------------------
each of the Borrower contained in Article VI and in each of the other Loan
Documents shall be true and
52
<PAGE>
accurate on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date (except
representations and warranties which relate solely to an earlier date or time,
which representations and warranties shall be true and correct on and as of the
specific dates or times referred to therein), and all conditions precedent
herein and therein to the making of the Term Loans shall have been satisfied, no
Event of Default or Potential Default shall have occurred and be continuing or
shall exist; and there shall be delivered to the Administrative Agent for the
benefit of each Bank a certificate of each of the Loan Parties, dated the
Closing Date and signed by a Responsible Officer of each of the Loan Parties, to
each such effect.
(b) Secretary's Certificate. There shall be delivered to the
-----------------------
Administrative Agent for the benefit of each Bank a certificate dated the
Closing Date and signed by the Secretary or an Assistant Secretary of each of
the Loan Parties, certifying as appropriate as to:
(i) all action taken by each Loan Party in connection with
this Agreement and the other Loan Documents;
(i) the names of the officer or officers authorized to sign
this Agreement and the other Loan Documents and the true signatures of such
officer or officers and specifying the Authorized Officers permitted to act on
behalf of each Loan Party for purposes of this Agreement and the true signatures
of such officers, on which the Administrative Agent and each Bank may
conclusively rely; and
(ii) copies of its organizational documents, including its
certificate of incorporation, bylaws, certificate of limited partnership,
partnership agreement, certificate of formation, and limited liability company
agreement as in effect on the Closing Date certified by the appropriate state
official where such documents are filed in a state office together with
certificates from the appropriate state officials as to the continued existence
and good standing of each Loan Party in each state where organized or qualified
to do business; provided that each of the Loan Parties other than the Borrower
may, in lieu of delivering copies of the foregoing organizational documents and
good standing certificates, certify that such Loan Party is in good standing as
of the date hereof and that the organizational documents previously delivered by
the Loan Parties to the Administrative Agent remain in effect and have not been
amended.
(c) Delivery of Loan Documents. The Collateral Sharing
--------------------------
Agreement, Guaranty Agreement, Indemnity, First Mortgages, Notes, Patent,
Trademark and Security Agreement, Pledge Agreements, Intercompany Subordination
Agreement and Security Agreement shall have been duly executed and delivered to
the Collateral Agent for the benefit of the Banks, together with all appropriate
financing statements and (to the extent not previously delivered to the
Collateral Agent) appropriate stock powers and certificates evidencing the
Shares, the Partnership Interests and the LLC Interests.
(d) Opinion of Counsel. There shall be delivered to the
------------------
Administrative Agent for the benefit of each Bank a written opinion of Powell,
Goldstein, Frazer & Murphy
53
<PAGE>
LLP, counsel for the Loan Parties (who may rely on the opinions of such other
counsel as may be acceptable to the Agent), dated the Closing Date and in form
and substance satisfactory to the Agent and its counsel:
(i) as to the matters set forth in Exhibit 7.1.4; and
-------------
(ii) as to such other matters incident to the transactions
contemplated herein as the Administrative Agent may reasonably request.
(e) Legal Details. All legal details and proceedings in
-------------
connection with the transactions contemplated by this Agreement and the other
Loan Documents shall be in form and substance satisfactory to the Agents and
counsel for the Administrative Agent, and the Administrative Agent shall have
received all such other counterpart originals or certified or other copies of
such documents and proceedings in connection with such transactions, in form and
substance satisfactory to the Agents and said counsel, as the Agents or said
counsel may reasonably request.
(f) Payment of Fees. The Borrower shall have paid or caused to
---------------
be paid to the Administrative Agent for itself and for the account of the Banks
to the extent not previously paid all fees accrued through the Closing Date and
the costs and expenses for which the Agents and the Banks are entitled to be
reimbursed.
(g) Environmental Audit. The Loan Parties shall cause to be
-------------------
delivered to the Administrative Agent a copy of all existing environmental audit
reports with respect to the skilled nursing facilities subject to the First
Mortgages. The environmental condition of the Loan Parties' and their
Subsidiaries' assets, as substantiated by such audit, shall be reasonably
satisfactory to the Administrative Agent in all respects.
(h) Consents. All material consents required to effectuate the
--------
transactions contemplated hereby as set forth on Schedule 6.01(m)(2) shall have
-------------------
been obtained.
(i) Officer's Certificate Regarding MACs. Since September 30,
------------------------------------
1998, no Material Adverse Change in the Borrower, or any of its Subsidiaries
shall have occurred; prior to the Closing Date, there shall have been no
material change in the management of any Loan Party or Subsidiary of any Loan
Party not previously disclosed to the Agents; and there shall have been
delivered to the Administrative Agent for the benefit of each Bank a certificate
dated the Closing Date and signed by a Responsible Officer of each Loan Party to
each such effect.
(j) No Violation of Laws. The making of the Loans and the
--------------------
issuance of the Letters of Credit shall not contravene any Law applicable to any
Loan Party or any of the Banks.
(k) No Actions or Proceedings. No action, proceeding,
-------------------------
investigation, regulation or legislation shall have been instituted, threatened
or proposed before any court, governmental agency or legislative body to enjoin,
restrain or prohibit, or to obtain damages in respect of, this Agreement, the
other Loan Documents or the consummation of the transactions
54
<PAGE>
contemplated hereby or thereby or which, in the Administrative Agent's
reasonable discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement or any of the other Loan Documents.
(l) Insurance Policies; Certificates of Insurance; Endorsements.
-----------------------------------------------------------
The Loan Parties shall have delivered evidence acceptable to the Administrative
Agent that adequate insurance in compliance with Section 8.01(c) [Maintenance of
Insurance] is in full force and effect and that all premiums then due thereon
have been paid, together with a certified copy of each Loan Party's casualty
insurance policy or policies evidencing coverage satisfactory to the
Administrative Agent, with additional insured, mortgagee and lender loss payable
special endorsements attached thereto in form and substance satisfactory to the
Administrative Agent and its counsel naming the Administrative Agent as
additional insured, mortgagee and lender loss payee.
(m) Title Certificate. The Loan Parties shall deliver title
-----------------
insurance certificates to the Collateral Agent for the benefit of the Banks,
issued by a title insurance company acceptable to the Administrative Agent and
certifying the name of the record owner, all existing mortgages, judgment liens
and tax liens encumbering the skilled nursing facilities subject to the First
Mortgages and a true and correct and complete legal description of the
applicable Loan Parties' fee simple title to all such owned real property of the
Loan Parties, as the case may be, and all improvements and all appurtenances
thereto.
(n) Filing. The Administrative Agent shall have received (1) a
------
deposit sufficient for payment of all taxes, filing fees, recording fees or
similar charges required by any governmental authority for recordation or filing
necessary to perfect the Lien of the Collateral Agent for the benefit of the
Banks on the Collateral (or other arrangements with respect to such taxes, fees
and charges shall have been made by the Borrower to the satisfaction of the
Administrative Agent); and (2) evidence in a form acceptable to the
Administrative Agent that upon such recordation or filing and payment of such
taxes, filing fees, recording fees or similar charges, such Liens will
constitute a Prior Security Interest in favor of the Collateral Agent for the
benefit of the Banks in the case of the UCC Collateral, in the case of the First
Mortgages a valid and perfected first priority Lien.
(o) Amendment No. 18 to the Revolving Credit Agreement.
--------------------------------------------------
Simultaneously with the closing and effectiveness of this Agreement, the closing
of Amendment No. 18 to the Revolving Credit Agreement shall have occurred, and
the documentation of the revolving credit facility shall be satisfactory in form
and substance to the Agents.
(p) Lien and Judgment Searches. Borrower shall have delivered to
--------------------------
the Administrative Agent the results of a lien and judgment search satisfactory
in scope, form and substance to the Administrative Agent evidencing that no
Liens exist on the assets of the Borrower or any Subsidiary of the Borrower,
except for Permitted Liens.
(q) UCC Financing Statements. The Loan Parties shall have
------------------------
delivered to the Administrative Agent all UCC-1 financing statements necessary
to perfect the Collateral Agent's Prior Security Interest in the Collateral.
55
<PAGE>
(r) Closing Certificate. There shall be delivered to the
-------------------
Administrative Agent for the benefit of each Bank a certificate, dated as of the
date hereof and signed by a Responsible Officer of the Borrower, certifying as
to compliance with all financial covenants in the Credit Agreement and
containing calculations in sufficient detail to demonstrate such compliance.
Calculation of such pro-forma compliance shall be based upon the consolidated
balance sheet and income statement of the Borrower and its Subsidiaries as of
September 30, 1998 for the four quarters then ended and shall give effect to all
outstanding Indebtedness of the Loan Parties after giving effect to the closing
of this Agreement, the Revolving Credit Loan outstanding on the date hereof and
the making of the Loans hereunder. Such pro-forma covenants shall establish the
levels of interest rates and other fees hereunder, effective as of the date
hereof provided that, notwithstanding the above, until the next Delivery Date
following the Closing Date, for the purpose of establishing the levels of
interest rates, the applicable interest rate shall be deemed to be Euro-Rate
plus 2.25% and Base Rate plus .75%.
(s) Projections. The Borrower shall have delivered to the
-----------
Administrative Agent financial projections of the Borrower and its Subsidiaries
prepared on a combined pro-forma basis for the two fiscal years ending September
30, 1998 and September 30, 1999 and for the fiscal quarter of October 1 through
December 31, 1999 (the "Financial Projections") derived from various assumptions
of the Borrower's management. The Borrower represents and warrants, by execution
of this Agreement, that: (i) the Financial Projections represent a reasonable
range of possible results in light of the history of the business, present and
foreseeable conditions and the intentions of the management of the Borrower, and
(ii) the Financial Projections accurately reflect the liabilities of the
Borrower and its Subsidiaries upon consummation of the transactions contemplated
by this Agreement, all outstanding loans under the Revolving Credit Agreement
and Indebtedness of the Borrower hereunder as of the Closing Date.
(t) Indenture Certificate. There shall be delivered to the
---------------------
Administrative Agent for the benefit of each Bank a certificate, dated as of the
date hereof and signed by a Responsible Officer of the Borrower, (i) certifying
as to compliance with Section 1008 of the Indenture after giving effect to the
amount of loans outstanding under the Revolving Credit Agreement on the date
hereof and the $210,000,000 Term Loan hereunder to be made on the date hereof
and (ii) representing and warranting to the Agents and each of the Banks that
the Term Loans made on the date hereof or hereafter made to the Borrower under
the Revolving Credit Agreement will constitute "Designated Senior Indebtedness"
as such term is defined in the Indenture.
ARTICLE VIII
COVENANTS
---------
8.01 Affirmative Covenants. The Borrower covenants and agrees that
---------------------
until payment in full of the Loans and interest thereon, satisfaction of all of
the Borrower's other obligations hereunder and termination of the Commitments,
the Borrower shall comply at all times with the following affirmative covenants:
56
<PAGE>
(a) Preservation of Existence, Etc. The Borrower shall, and
------------------------------
shall cause each of its Subsidiaries to, maintain its corporate existence and
its qualification to do business as a foreign corporation and good standing in
each jurisdiction in which its ownership or lease of property or the nature of
its business makes such qualification necessary, except where the failure to be
so qualified or in such good standing would not constitute a Material Adverse
Change.
(b) Payment of Liabilities, Including Taxes, Etc. The Borrower
--------------------------------------------
shall, and shall cause each of its Subsidiaries to, duly pay and discharge all
liabilities to which it is subject or which are asserted against it, promptly as
and when the same shall become due and payable, including all taxes, assessments
and governmental charges upon it or any of its properties, assets, income or
profits, prior to the date on which penalties attach thereto, except to the
extent that such liabilities, including taxes, assessments or charges, are being
contested in good faith and by appropriate and lawful proceedings diligently
conducted and for which such reserve or other appropriate provisions, if any, as
shall be required by GAAP shall have been made, but only to the extent that
failure to discharge any such liabilities would not result in any additional
liability which would adversely affect to a material extent the financial
condition of the Borrower and its Subsidiaries taken as a whole and which would
affect the Collateral.
(c) Maintenance of Insurance. The Borrower shall, and shall
------------------------
cause each of its Subsidiaries to, insure its properties and assets against loss
or damage by fire and such other insurable hazards as such assets are commonly
insured (including fire, extended coverage, property damage, worker's
compensation, public liability and business interruption insurance) and against
other risks (including errors and omissions) in such amounts as similar
properties and assets are insured by prudent companies in similar circumstances
carrying on similar businesses, and with reputable and financially sound
insurers, including self-insurance to the extent customary. At the request of
the Administrative Agent, the Borrower shall deliver to the Administrative Agent
certificates of insurance signed by the Borrower's independent insurance broker
describing and certifying as to the existence of the insurance on the Collateral
required to be maintained by this Agreement and other Loan Documents and a
summary schedule indicating all insurance then in force with respect to the
Borrower. Such policies of insurance shall contain special endorsements, which
shall (i) specify the Collateral Agent as additional insured, mortgagee and
lender loss payee as its interests may appear, regardless of any breach or
violation by the Borrower or its applicable subsidiary of any warranties,
declarations or conditions contained in such policies, (ii) provide, except in
the case of public liability insurance and workmen's compensation insurance,
that all insurance proceeds shall be adjusted and payable in accordance with the
terms of the applicable Mortgage or First Mortgage, and (iii) provide that no
cancellation of such policies shall be effective until at least thirty (30) days
after receipt by the Administrative Agent of written notice of such cancellation
or change. Any monies received by the Administrative Agent or Collateral Agent
constituting insurance proceeds or condemnation proceeds (pursuant to the
Mortgage or First Mortgage) shall be applied in accordance with the terms of the
applicable Mortgage or First Mortgage. The insurance requirements set forth
herein may be satisfied through blanket insurance obtained and maintained by
MPN.
57
<PAGE>
(d) Maintenance of Properties and Leases. The Borrower shall,
------------------------------------
and shall cause each of its Subsidiaries to, maintain in good repair, working
order and condition (ordinary wear and tear excepted) in accordance with the
general practice of other businesses of similar character and size, all of those
properties useful or necessary to its business, and from time to time, the
Borrower will make or cause to be made all appropriate repairs, renewals or
replacements thereof.
(e) Maintenance of Patents, Trademarks, Etc. The Borrower shall,
---------------------------------------
and shall cause each of its Subsidiaries to, maintain in full force and effect
all patents, trademarks, trade names, copyrights, licenses, franchises, permits
and other authorizations necessary for the ownership and operation of its
properties and business if the failure so to maintain the same would constitute
a Material Adverse Change.
(f) Visitation Rights. The Borrower shall, and shall cause each
-----------------
of its Subsidiaries to, permit any of the officers or authorized employees or
representatives of any Agent or any of the Banks to visit and inspect any of its
properties and to examine and make excerpts from its books and records and
discuss its business affairs, finances and accounts with its officers, all in
such detail and at such times during normal business hours and as often as any
of the Banks may reasonably request, provided that each Bank shall provide the
Borrower and the Administrative Agent with reasonable notice prior to any visit
or inspection. In the event any Bank desires to conduct an audit of the
Borrower, such Bank shall make a reasonable effort to conduct such audit
contemporaneously with any audit to be performed by the Administrative Agent.
(g) Keeping of Records and Books of Account. The Borrower shall,
---------------------------------------
and shall cause each of its Subsidiaries to, maintain and keep proper books of
record and account which enable the Borrower and its Subsidiaries to issue
financial statements in accordance with GAAP and as otherwise required by
applicable Laws of any Official Body having jurisdiction over the Borrower or
any of its Subsidiaries, and which accurately and fairly reflect the
transactions and dispositions of assets of the Borrower or such Subsidiary.
(h) Plans and Benefit Arrangements. The Borrower shall, and
------------------------------
shall cause each member of the ERISA Group to, comply with ERISA, the Internal
Revenue Code and other applicable Laws applicable to Plans and Benefit
Arrangements except where such failure, alone or in conjunction with any other
failure, would not result in a Material Adverse Change. Without limiting the
generality of the foregoing, the Borrower shall cause all of its Plans and all
Plans maintained by any member of the ERISA Group to be funded in accordance
with the minimum funding requirements of ERISA and shall make, and cause each
member of the ERISA Group to make, in a timely manner, all contributions due to
Plans, Benefit Arrangements and Multiemployer Plans.
(i) Compliance With Laws. The Borrower shall, and shall cause
--------------------
each of its Subsidiaries to, comply with all applicable Laws, including all
Environmental Laws, in all respects provided that it shall not be deemed to be a
violation of this Section 8.01(i) if any failure to comply with any Law would
not result in fines, penalties, other similar liabilities or injunctive
58
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relief which in the aggregate would constitute a Material Adverse Change. Upon
the reasonable request of the Required Banks, the Borrower shall deliver to the
Agents and the Banks such opinions of counsel regarding the Loan Parties'
compliance with the representations set forth in Sections 6.01(m) and 6.01(u)(B)
hereof and other customary matters regarding the compliance of the Loan Parties
with applicable healthcare regulatory Laws.
(j) Use of Proceeds. The Borrower will use the proceeds of the
---------------
Loans only for lawful purposes in accordance with Section 2.05 hereof as
applicable and such uses shall not contravene any applicable Law or any other
provision hereof.
(k) [Intentionally Omitted].
-----------------------
(l) Subordination of Intercompany Loans, Other Loans and
----------------------------------------------------
Advances to the Borrower. Except for Indebtedness described on Schedule 8.01(l),
- ------------------------ ----------------
the Borrower shall cause any intercompany Indebtedness, and shall cause any
other Indebtedness, loans or advances owed by any Loan Party to any other person
(other than a Loan Party) to be subordinated to the Loan Parties' obligations
under the Loan Documents on the terms set forth in Exhibit 8.01(l), with such
---------------
revisions thereto as are reasonably satisfactory to the Agents.
(m) Approval of Financial Statements in Permitted Acquisitions;
-----------------------------------------------------------
Notice of Permitted Acquisition.
- -------------------------------
(i) Approval of Financial Statements. The Borrower shall
--------------------------------
deliver to the Banks a certificate in the form of Exhibit 8.01(m)(i) hereof (the
------------------
"Acquisition Approval Certificate") before making a Permitted Acquisition if
they desire that the cash flow of the business to be acquired during periods
prior to the acquisition shall be included when they compute Cash Flow from
Operations under this Agreement. The Borrower shall attach to such Acquisition
Approval Certificate copies of the historical financial statements of the
business to be acquired including the annual and interim balance sheets and
income statements for at least three (3) fiscal years prior to the Permitted
Acquisition and pro forma statements which shall include a combined balance
sheet as of the acquisition date and cash flow statements for the preceding
year. The pro forma statements shall set forth: (1) Consolidated Cash Flow from
Operations of the Loan Parties and the acquired business, adjusted in accordance
with clause (A) of the definition of Consolidated Cash Flow from Operations, for
the Acquisition Income Reporting Period in connection with such Permitted
Acquisition, and (2) Total Indebtedness on the date of the Permitted Acquisition
after giving effect to the acquisition and all outstanding Indebtedness on such
date, and (3) the ratio of the amount in clause (2) to the amount in clause (1),
which ratio shall not exceed (A) 5.75 to 1.0 from the Eighteenth Amendment
Effective Date through and including June 30, 1999; and (B) 5.50 to 1.0 from
July 1, 1999 and thereafter. The Acquisition Approval Certificate shall confirm
the accuracy of the foregoing computations and that, after giving effect to the
Permitted Acquisition and all outstanding Indebtedness on the date thereof, no
Event of Default shall exist and the Loan Parties shall be in compliance with
all of their covenants hereunder, assuming, for purposes of Borrower's financial
covenants, that all items of income, expense and cash flow are reported for the
Acquisition Income Reporting Period and that all balance sheet items (such as
Indebtedness) are measured on the date of such
59
<PAGE>
Permitted Acquisition. The Loan Parties may make the Permitted Acquisition prior
to receiving the Required Banks' approval of Borrower's Acquisition Approval
Certificate with respect thereto; provided that the Loan Parties may not, until
they have received such approval, include the cash flow of the business to be
acquired for periods prior to the acquisition in their net income when they
compute Consolidated Cash Flow from Operations. The Banks shall use their best
efforts to respond to the Borrower's request for approval of each Acquisition
Approval Certificate within two (2) Business Days following the Banks' receipt
of such certificate and shall not unreasonably withhold or delay such approval.
(ii) Notice. The Borrower shall deliver to the Banks a notice in
------
the form of Exhibit 8.01(m)(ii) (the "Acquisition Notice Certificate") at least
-------------------
two (2) Business Days before making any Permitted Acquisition except for: (1) a
Permitted Acquisition described in Section 8.01(m)(i) with respect to which the
Borrower is delivering an Acquisition Approval Certificate, or (2) a Permitted
Acquisition if the Purchase Price in connection therewith is less than
$2,500,000. The Acquisition Notice Certificate shall set forth the ratio of (1)
Consolidated Cash Flow From Operations (excluding the cash flow of the acquired
business) for the Acquisition Income Reporting Period in connection with such
Permitted Acquisition, and (2) Total Indebtedness on the date of the Permitted
Acquisition after giving effect to the acquisition and all outstanding
Indebtedness on such date, which ratio shall not exceed (A) 5.75 to 1.0 from the
Eighteenth Amendment Effective Date through and including June 30, 1999; and (B)
5.50 to 1.0 from July 1, 1999 and thereafter. The Acquisition Notice Certificate
also shall confirm that, after giving effect to the Permitted Acquisition and
all outstanding Indebtedness on the date thereof, no Event of Default shall
exist and the Loan Parties shall be in compliance with all of their covenants
hereunder, assuming, for purposes of Borrower's financial covenants, that all
items of income, expense and cash flow are reported for the Acquisition Income
Reporting Period and that all balance sheet items (such as Indebtedness) are
measured on the date of such Permitted Acquisition.
(iii) Additional Information. With respect to any
----------------------
Acquisition Approval Certificate or Acquisition Notice Certificate, the Borrower
shall provide to the Banks, as the Banks may reasonably request detailed
calculations and information supporting the financial calculations therein and
the financial statements attached thereto.
(n) [Intentionally Omitted].
-----------------------
(o) [Intentionally Omitted].
-----------------------
(p) Further Assurances. Each Loan Party shall, from time to
------------------
time, at its expense, faithfully preserve and protect the Collateral Agent's
Lien on or perfected security interest in the Collateral as a continuing first
priority perfected Lien, subject only to Permitted Liens, and shall do such
other acts and things as the Administrative Agent or the Collateral Agent, as
the case may be, in its sole discretion may deem necessary or advisable from
time to time in order to preserve, perfect and protect the Liens granted under
the Loan Documents and to exercise and enforce its respective rights and
remedies thereunder with respect to the Collateral. The Loan Parties shall
(i) provide to the Administrative Agent and the Collateral Agent within
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<PAGE>
thirty (30) days of the Closing Date a list of all material contracts or
agreements which by their terms do not permit the grant of a security interest
therein; (ii) use commercial resonable best efforts to obtain within ninety (90)
days of the Closing Date any consents or approvals of security interests in any
such contract or agreement granted to the Administrative Agent or the Collateral
Agent; (iii) to the extent any such consent or approval is obtained and upon
receipt thereof, promptly deliver to the Administrative Agent and the Collateral
Agent any original of such consent or approval obtained or such other evidence
in a form satisfactory to the Administrative Agent and the Collateral Agent of
any such consent or approval obtained.
(q) Certain Owned Facilities - Termination of Liens;
------------------------------------------------
Intercreditor Agreements.
- ------------------------
The Borrower shall:
(i) Cause any Lien securing any Owned Facility Indebtedness
to be terminated on or before the earlier of: the maturity of such Owned
Facility Indebtedness (without giving effect to any extension of such maturity
after the Sixteenth Amendment Effective Date, unless such extension of maturity
is otherwise approved in accordance with this Agreement) or any refinancing,
replacement or substitution of such Owned Facility Indebtedness, unless, in the
case of a refinancing, such refinancing is otherwise approved in accordance with
this Agreement;
(ii) Not permit the amount of Owned Facility Indebtedness
secured by Liens in favor of an Owned Facility Lender to exceed the amount of
such Owned Facility Indebtedness existing on the Sixteenth Amendment Effective
Date;
(iii) Cause each Subsidiary Owner to not grant a Lien on any
asset of such Subsidiary Owner if the Owned Facility Lender has previously
terminated its Liens or has never obtained a Lien on such asset; and
(iv) Cause each Owned Facility Lender and any other person
which loans money to any Subsidiary Owner, or otherwise obtains a Lien on any of
the assets of any Subsidiary Owner relating to any of the Owned Facilities
(whether by assignment of the Owned Facility Indebtedness or otherwise), on the
date of such loan or lien to execute and deliver to the Collateral Agent an
Intercreditor Agreement and Borrower shall deliver or cause to be delivered to
Administrative Agent a true and correct copy of the original of each
Intercreditor Agreement within one (1) Business Day after such agreement has
been executed. The Borrower shall use its best efforts to obtain an
Intercreditor Agreement.
(r) Certain Leased Facilities - Termination of Liens;
-------------------------------------------------
Intercreditor Agreements; Trustee Agreements.
- --------------------------------------------
The Borrower shall:
(i) Cause any Lien securing any Lessor Indebtedness to be
terminated on or before the earlier of: (i) the maturity of such Lessor
Indebtedness (without
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<PAGE>
giving effect to any extension of such maturity after the Sixteenth Amendment
Effective Date unless such extension of maturity is otherwise approved in
accordance with this Agreement) or (ii) any refinancing, replacement or
substitution of such Lessor Indebtedness unless, in the case of a refinancing,
such refinancing is otherwise approved in accordance with this Agreement;
(ii) Not permit the amount of Lessor Indebtedness secured by
Liens in favor of the Lessor Lenders to exceed the amount of such Indebtedness
existing on the Sixteenth Amendment Effective Date; and
(iii) Cause each Subsidiary Lessee not to grant a Lien on
any asset of such Subsidiary Lessee if the applicable Lessor or Lessor Lender
has previously terminated its Liens or has never obtained a Lien on such asset;
(iv) Deliver to the Administrative Agent for the benefit of
the Banks an Intercreditor Agreement with respect each Lessor Lender and, if
reasonably requested by the Administrative Agent, a Non-Disturbance Agreement.
Each Non-Disturbance Agreement shall be satisfactory, in form and substance to
the Agents. Borrower shall deliver or cause to be delivered to Administrative
Agent a true and correct copy of each Non-Disturbance Agreement and the original
of each Intercreditor Agreement within one (1) Business Day after such agreement
has been executed pursuant to the preceding sentence. The Borrower shall use its
best efforts to obtain each Intercreditor Agreement as is reasonably
satisfactory, in form and substance, to the Administrative Agent; and
(v) Cause if reasonably requested by the Administrative
Agent, each Lessor listed on Schedule 6.01(aa) to execute and deliver to the
-----------------
Administrative Agent a Trustee Agreement; provided, however, that if, with
respect to Leased Facilities leased by Loan Parties prior to the Closing Date,
following the Closing Date the Loan Parties are otherwise in compliance with all
requirements under this Agreement relating to Lessor Indebtedness, Leased
Facilities and Permitted Leased Facility Liens, then no additional Trustee
Agreements will be required with respect to such Leased Facilities so long as
the lease of such facility continues following the Closing Date on terms and
conditions identical to those in effect prior to the Closing Date. Each Trustee
Agreement shall be satisfactory, in form and substance to the Administrative
Agent.
8.02 Negative Covenants. The Borrower covenants and agrees that
------------------
until payment in full of the Loans and interest thereon, satisfaction of all of
the Borrower's other obligations hereunder and termination of the Commitments,
the Borrower shall comply with the following negative covenants:
(a) Indebtedness. Subject to Section 8.02(v), the Borrower shall
------------
not, and shall not permit any of its Restricted Subsidiaries to, at any time
create, incur, assume or suffer to exist any Indebtedness, except:
(i) Indebtedness under the Loan Documents;
62
<PAGE>
(ii) Existing Indebtedness as of the Closing Date as set
forth on Schedule 8.02(a) hereto (including, subject to the other provisions of
----------------
this Agreement, any extensions or renewals thereof provided there is no increase
in the amount thereof or other significant change in the terms thereof adverse
to any Loan Party or to any Bank unless otherwise specified on Schedule
--------
8.02(a)); provided further that the Owned Facility Indebtedness and Lessor
- --------
Indebtedness are also subject to the covenants and limitations described in
Sections 8.01(q) and (r) and any refinancing, extension or renewal of any Owned
Facility Indebtedness or Lessor Indebtedness is also subject to satisfaction of
the conditions set forth in Exhibit 1.01(C) hereto;
---------------
(iii) Capitalized leases existing as of September 30, 1998
and as and to the extent permitted under Section 8.02(w);
(iv) Indebtedness which is subordinated in accordance with
the provisions of Section 8.01(1);
(v) Indebtedness secured by Purchase Money Security
Interests permitted under Section 8.02(b);
(vi) Indebtedness of a Loan Party to the Borrower or to a
wholly-owned Subsidiary of the Borrower;
(vii) the Subordinated Notes, provided that neither the
subordination provisions contained in the Indenture nor Section 1008 [Limitation
on Indebtedness] of the Indenture shall be amended after the Subordinated
Indebtedness Incurrence Date and provided further that the Indenture is not
otherwise amended after the Subordinated Indebtedness Incurrence Date if the
effect thereof would (i) accelerate the due date or increase the amount of any
payment due from the Borrower thereunder, (ii) change the rate at which interest
is charged thereunder, or (iii) impose material restrictions or obligations on
the Borrower or the other Loan Parties which are not imposed thereunder on the
Closing Date or add any term thereto which is less favorable in any material
respect to the Loan Parties than the terms of the Indenture on the Subordinated
Indebtedness Incurrence Date or which is more restrictive to any of the Loan
Parties than the terms of the Credit Agreement;
(viii) Guaranties which constitute Indebtedness as permitted
pursuant to Section 8.02(c);
(ix) Indebtedness not exceeding $500,000 of the Borrower to
First Union National Bank (f.k.a. CoreStates Bank, N.A.) in respect of an
overnight unsecured overdraft facility at any time;
(x) Owned Facility Indebtedness incurred after the Closing
Date, if the principal amount of and other terms and conditions with respect to
such Owned Facility Indebtedness are acceptable to the Required Banks,
(including, without limitation, satisfaction of all conditions set forth on
Exhibit 1.01(C)); provided, that all Owned Facility Indebtedness is subject
- ----------------
to the covenants and limitations set forth in Section 8.01(q);
63
<PAGE>
(xi) the Permitted Subordinated Indebtedness;
(xii) Indebtedness under the Revolving Credit Loan
Agreement; and
(xiii) Indebtedness not otherwise permitted under clauses
(i) through (xii) of this Section 8.02(a), provided that the aggregate amount of
Indebtedness outstanding pursuant to this paragraph and Indebtedness outstanding
pursuant to Section 8.02(a)(v) shall not at any time exceed $15,000,000.
(b) Liens. The Borrower shall not, and shall not permit any of
-----
the other Loan Parties or Unrestricted Subsidiary which is an Excluded Entity
with respect to which Restricted Investments have been made as permitted
pursuant to Section 8.02(d)(iv) to, at any time create, incur, assume or suffer
to exist any Lien on any of its or their property or assets, tangible or
intangible, now owned or hereafter acquired, or agree or become liable to do so,
except Permitted Liens.
(c) Guaranties. Except as described in Schedule 8.02(c), the
---------- ----------------
Borrower shall not, and shall not permit any of the other Loan Parties to, at
any time, directly or indirectly, become or be liable in respect of any Guaranty
except: (i) Guaranties of any obligation or liability of another Loan Party that
is permitted under the other provisions of this Agreement, (ii) Guaranties which
are not required by GAAP to be disclosed in the Borrower's audited consolidated
financial statements (including the footnotes thereto), (iii) Guaranties of
Indebtedness incurred as part of a permitted Restricted Investment pursuant to
Section 8.02(d)(iv), (iv) Guaranties which are subordinated on terms reasonably
acceptable to the Administrative Agent, and (v) Guaranties of Indebtedness under
the Revolving Credit Loan Agreement.
(d) Loans and Investments. The Borrower shall not, and shall not
---------------------
permit any of the other Loan Parties, to, at any time make or suffer to remain
outstanding any loan or advance to, or purchase, acquire or own any stock,
bonds, notes or securities of, or any partnership interest (whether general or
limited) in, or any other investment or interest in, or make any capital
contribution to, any other person, or agree, become or remain liable to do any
of the foregoing, except:
(i) trade credit extended on usual and customary terms in
the ordinary course of business;
(ii) advances to employees to meet expenses incurred by such
employees in the ordinary course of business;
(iii) Permitted Investments;
(iv) Restricted Investments made prior to the Closing Date
as set forth on Schedule 8.02(d) and, subject to Section 8.02(w), Restricted
----------------
Investments made on or after the Closing Date; provided that with respect to any
Restricted Investment, the Borrower is
64
<PAGE>
in compliance with all of the following: (i) the Excluded Entity in which a
Restricted Investment is or has been made is engaged in a business which is
ancillary and related to the business of the Loan Parties; (ii) the Loan Party
that makes or made the Restricted Investment is either a shareholder, member or
partner of the Excluded Entity in which the Restricted Investment was made;
(iii) the stock, equity interests in a limited liability company or partnership
interests owned by a Loan Party in the Excluded Entity in which the Restricted
Investment is or has been made are pledged to the Collateral Agent on a first
priority basis for the benefit of the Banks; (iv) to the extent that any
Excluded Entity incurs Indebtedness payable to any person other than a Loan
Party (the "Third Party Lender") in excess of $5,000,000, prior to incurring
such Indebtedness, the Borrower shall cause the Third Party Lender to enter into
an intercreditor agreement with the Collateral Agent on behalf of the Banks, in
form and substance satisfactory to the Administrative Agent and the Collateral
Agent in its sole discretion with respect to the Indebtedness of such Excluded
Entity payable to the Third Party Lender and any Indebtedness of such Excluded
Entity payable to either the Banks or any Loan Party; and (v) to the extent that
any individual Restricted Investment exceeds $7,500,000 or any series of related
Restricted Investments in the aggregate exceeds $7,500,000 prior to making any
such Restricted Investment, the Borrower obtained the written approval of the
Required Banks;
(v) loans, advances and investments in Restricted
Subsidiaries; and
(vi) loans and advances in the aggregate not to exceed
$8,000,000 at any time outstanding to officers and senior management of the Loan
Parties, so long as each such advance is on terms and conditions reasonably
satisfactory to the Agents and so long as the Borrower gives five (5) Business
Days' prior notice to the Administrative Agent of each loan or advance and the
recipient of each loan or advance is reasonably satisfactory to the Agents.
(e) Amounts Paid by the Borrower to MPN; Dividends and Related
----------------------------------------------------------
Distributions. The Borrower shall not, and shall not permit any of its
- -------------
Subsidiaries to, make or pay, or agree to become or remain liable to make or
pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of or in respect of their
respective shares of capital stock or partnership interests, as the case may be,
or on account of the purchase, redemption, retirement or acquisition of their
respective shares of capital stock (or warrants, options or rights therefor) or
partnership interests, as the case may be, except (i) dividends or distributions
in respect of a partnership interest or capital stock payable by any Subsidiary
to the Borrower or any other Restricted Subsidiary, (ii) dividends payable by
the Borrower solely in shares of capital stock of the Borrower, (iii) up to the
Permitted Distribution Amount of distributions per year payable in the aggregate
by any Subsidiary of the Borrower which is a limited liability company or
partnership to non-Affiliate members of such limited liability company or non-
Affiliate limited partners of such partnership, so long as after giving effect
thereto no Event of Default or Potential Default has occurred and is continuing
and so long as at least five (5) Business Days prior to the making of any such
distribution the Borrower provides written notice to the Administrative Agent,
together with a detailed calculation, certified by the Chief Financial Officer
of Borrower, setting forth in detail the relevant Subsidiary's
65
<PAGE>
compliance with the ratio set forth in clause (A) of the definition of Permitted
Distribution Amount or, as the case may be, such Subsidiary's compliance with
clause (B) of the definition of Permitted Distribution Amount, in either case
with respect to the proposed distribution as of the date of the making thereof,
(iv) so long as no Event of Default or Potential Default exists and is
continuing after giving effect thereto, a one-time dividend by the Borrower to
MPN payable on such date as the Borrower elects (so long as at least seven (7)
days prior to such payment, the Borrower has delivered to the Administrative
Agent a certification that after giving effect to such dividend or distribution
no Event of Default or Potential Default exists and is continuing and that the
Borrower is in pro-forma compliance with the financial covenants set forth in
Section 8.02(r) [Maximum Leverage Ratio] and Section 8.02(u) [Senior
Indebtedness to Cash Flow from Operations Ratio], with such certification
setting forth a detailed calculation of the Borrower's pro-forma compliance with
such financial covenants), in an amount not exceeding, as of the date of
payment, the Adjusted Net Income of the Borrower and its Subsidiaries determined
in accordance with GAAP for the most recent twelve fiscal calendar months prior
to such date of payment; (v) amounts payable by the Borrower to MPN as
reimbursement of ordinary course business expenses of the Borrower paid by MPN
on behalf of the Borrower; and (vi) during periods prior to the effectiveness of
the Eighteenth Amendment , dividends or distributions by the Borrower to MPN not
to exceed in the aggregate $25 million to reimburse MPN for costs and expenses
incurred in connection with the Paragon Acquisition.
For purposes of this Section 8.02(e) and the demonstration
of pro forma compliance with the financial covenants set forth in Sections 8.02,
(r), and (u):
(i) Adjusted Total Indebtedness and Total Indebtedness shall
be calculated as of each date of determination (after giving effect, without
duplication, to each dividend or distribution and each purchase or redemption of
the Borrower's stock, as applicable); and
(ii) Consolidated Cash Flow from Operations and Consolidated
Net Income shall be calculated as of each date of determination (after giving
effect to each dividend or distribution and each purchase or redemption of the
Borrower's stock) based upon the four fiscal quarters most recently then ended
for which a Compliance Certificate has been delivered to the Administrative
Agent.
(iii)
(f) Liquidations, Mergers, Consolidations, Acquisitions. The
---------------------------------------------------
Borrower shall not, and shall not permit any of the other Loan Parties to,
dissolve, liquidate or wind-up its affairs, or become a party to any merger or
consolidation, or acquire by purchase, lease or otherwise all or substantially
all of the assets or capital stock of any other person, provided that:
(i) any wholly owned Subsidiary of the Borrower may
consolidate or merge into the Borrower (so long as the Borrower is the survivor)
or any other wholly owned Subsidiary of the Borrower;
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<PAGE>
(ii) a Subsidiary of the Borrower that is not a Material
Subsidiary may be dissolved, liquidated or wound up provided that from the date
of this Agreement through the Expiration Date, the total assets of the non-
Material Subsidiaries which so dissolve, liquidate or wind up shall not exceed
$25,000,000 in the aggregate;
(iii) subject to Section 8.02(w), the Borrower or a
Restricted Subsidiary of the Borrower may acquire all of the capital stock of
another corporation so long as (u) the assets of such acquired corporation are
pledged to the Collateral Agent for the benefit of the Banks on a first priority
perfected basis pursuant to a Security Agreement, First Mortgage and other Loan
Documents, as applicable and such acquired corporation, simultaneous with the
acquisition thereof by a Loan Party, executes and delivers to the Administrative
Agent for the benefit of the Banks a Guaranty Agreement and to the Collateral
Agent for the benefit of the Banks a Pledge Agreement in form and substance
satisfactory to the Administrative Agent, and also delivers to the
Administrative Agent such opinions of counsel and other documents in connection
therewith as the Administrative Agent may reasonably request, (v) all of the
issued and outstanding capital stock of such acquired corporation owned by a
Loan Party is pledged to the Collateral Agent for the benefit of the Banks
pursuant to a Pledge Agreement in form and substance satisfactory to the
Administrative Agent, (w) after giving effect to such proposed acquisition, no
Event of Default shall have occurred and be continuing, (x) after giving effect
to such proposed acquisition (and without limiting the generality of the
preceding clause (iii)(w)), the Borrower is in compliance with the Leverage
Ratio set forth in Section 8.02(r) and the Borrower demonstrates such compliance
pursuant to Section 8.01(m) (if Section 8.01(m) requires such demonstration of
compliance), and (y) in the case of a merger involving the Borrower, the
Borrower shall be the survivor of such merger, and in the case of a merger
involving any Restricted Subsidiary the survivor of such merger shall be either
such Restricted Subsidiary or a person which, effective upon consummation of
such merger shall have become a Restricted Subsidiary of the Borrower, shall
have joined this Agreement and the other Loan Documents as a Loan Party
(including, without limitation, execution and delivery of a Guaranty Agreement
substantially in the form of Exhibit 1.01(G)), shall have delivered such
---------------
opinions of counsel and other documents as the Administrative Agent may
reasonably request, whose equity interests shall have been pledged to the
Collateral Agent for the benefit of the Banks on a first priority perfected
basis pursuant to a Pledge Agreement and whose assets shall have been pledged to
the Collateral Agent for the benefit of the Banks on a first priority perfected
basis pursuant to a Security Agreement, First Mortgage and other Loan Documents,
as applicable; and
(iv) subject to Section 8.02(w), the Borrower or any
Restricted Subsidiary may merge or consolidate with, or acquire all or
substantially all of the assets of another person so long as (y) after giving
effect to such proposed acquisition, merger or consolidation the Borrower or a
Restricted Subsidiary of the Borrower is the survivor entity, all of the assets
acquired pursuant to such merger are pledged pursuant to a Security Agreement,
First Mortgage and other Loan Documents on a first priority perfected basis, and
no Event of Default shall have occurred and be continuing; and (z) after giving
effect to such proposed acquisition, merger or consolidation, the Borrower is in
compliance with the Leverage Ratio set forth in Section 8.02(r) and the Borrower
demonstrates such compliance pursuant to Section 8.01(m) (if Section 8.01(m)
requires such demonstration of compliance).
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For purposes of the preceding clauses (iii)(y) and (iv)(z),
the Leverage Ratio set forth in Section 8.02(r) shall be calculated as follows:
(i) Total Indebtedness shall be determined as of the date of the proposed
acquisition, after giving effect thereto, and (ii) Consolidated Cash Flow from
Operations shall be calculated for the twelve-month period ending on the last
day of the fiscal quarter of the Borrower which precedes such date of
acquisition.
(g) Dispositions of Assets or Subsidiaries. The Borrower shall
--------------------------------------
not, and shall not permit any of the other Loan Parties to, sell, convey,
assign, lease, abandon or otherwise transfer or dispose of, voluntarily or
involuntarily, any of its properties or assets, tangible or intangible
(including but not limited to sale, assignment, discount or other disposition of
accounts, contract rights, chattel paper, equipment or general intangibles with
or without recourse or of capital stock, shares of beneficial interest or
partnership interests of a Subsidiary of the Borrower), except:
(i) any sale, transfer or lease of assets in the ordinary
course of business which are no longer necessary or required in, or which are
not material to, the conduct of the Borrower's or such Subsidiary's business,
provided that such sales, transfers or leases of assets shall not exceed in the
aggregate for the Borrower and its Subsidiaries $10,000,000 (based upon fair
market value at the time of the sale) for the period from and after the
Eighteenth Amendment Effective Date;
(ii) any sale, transfer or lease of assets by any wholly-
owned Loan Party to the Borrower or any other wholly owned Loan Party (or by the
Borrower to a wholly owned Loan Party);
(iii) any sale, transfer or lease of assets in the ordinary
course of business which are replaced by substitute assets acquired or leased
within the parameters of Section 8.02(w) provided such substitute assets are
subject to the Banks' Prior Security Interest;
(iv) any sale or transfer of assets which are obsolete or no
longer used or useful in the business of the Borrower or its Subsidiaries;
provided that such sales, transfers or dispositions shall not exceed, in any
fiscal year, $1,000,000 in the aggregate for the Borrower and its Subsidiaries;
(v) any sale, transfer or lease of assets, other than those
specifically excepted pursuant to clauses (i) through (iv) above, which either:
(A) has aggregate Net Sale Proceeds for the Borrower and its Subsidiaries for
the period from and after the Closing Date which do not exceed $35,000,000 or
(B) is approved by the Required Banks so long as in the case of a transaction
under clause (A) or (B), the Borrower complies with all of the following: (w)
the proceeds received by the applicable Loan Party shall equal the fair market
value of the asset sold, transferred or leased, (x) the proceeds of such sale,
transfer or lease are applied as a mandatory prepayment of the Loans in
accordance with the provisions of Section 5.05 of this Agreement, (y) after
giving effect to such proposed disposition, no Event of Default or Potential
Default shall have occurred and be continuing, and (z) after giving effect to
such proposed disposition (and without limiting the generality of the foregoing
clause (y)), the
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<PAGE>
Borrower is in compliance (and with respect to sales, transfers or leases of
assets which individually or in a series of related transactions equal or exceed
$5,000,000, the Borrower demonstrates such compliance to the Administrative
Agent in detail reasonably satisfactory to the Administrative Agent by the
delivery to the Administrative Agent, at least five (5) days prior to such
transaction of a compliance certificate,) on a proforma basis, after giving
effect to such sale, transfer or lease, with the financial covenants set forth
in Sections 8.02(q), (r), (s), (t) and (u); and
(vi) any distribution or dividend permitted under Section
8.02 (e) (iv), (v), or (vi).
For purposes of this Section 8.02(g) and the demonstration
of pro forma compliance with the financial covenants set forth in Sections
8.02(q), (r), (s), (t) and (u):
(i) Consolidated Net Worth, Adjusted Total Indebtedness and
Total Indebtedness shall be calculated as of each date of determination (after
giving effect to the proposed sale, transfer or lease of assets);
(ii) Consolidated Cash Flow from Operations and Consolidated
Net Income shall be calculated as of each date of determination based upon the
four fiscal quarters most recently then ended for which a Compliance Certificate
has been delivered to the Administrative Agent, but excluding therefrom all
amounts attributable to the assets sold, transferred or leased; and
(iii) the denominator (set forth in clause (y) of Section
8.02(q)) of the Fixed Charge Coverage Ratio shall be determined after giving
effect to the proposed sale, transfer or lease of assets for purposes of the pro
forma determination of interest expense and of current maturities of long-term
Indebtedness.
(h) Affiliate Transactions. The Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into or carry out any transaction
with any Affiliate (including, without limitation, purchasing property or
services from or selling property or services) unless such transaction is
entered into in the ordinary course of business upon terms and conditions that
are no less favorable to the Borrower or such Subsidiary than those that would
be available in comparable transactions in arms-length dealings with unrelated
third parties or unless such transaction is not otherwise prohibited by this
Agreement.
(i) Subsidiary, Partnerships and Joint Ventures. The Borrower
shall not, and shall not permit any Subsidiary to, own or create directly or
indirectly any Subsidiaries other than those listed in Schedule 6.01(c);
----------------
provided, however, that the Borrower or a Restricted Subsidiary may acquire a
Subsidiary pursuant to Section 8.02(f) or form a new Subsidiary so long as (A)
if such Subsidiary is a Restricted Subsidiary it executes and delivers to the
Administrative Agent for the benefit of the Banks a Guaranty Agreement
substantially in the form of Exhibit 1.01(G), and also delivers to the
---------------
Administrative Agent such opinions of counsel and other documents as the
Administrative Agent may reasonably request; and (B) all of the issued
and outstanding capital stock or other equity interests of such Subsidiary
owned by a Loan
69
<PAGE>
Party are pledged to the Collateral Agent for the benefit of the Banks, such
pledge to be a first priority perfected pledge pursuant to a Pledge Agreement
and all of the assets of such Subsidiary are pledged on a first priority
perfected basis to the Collateral Agent for the benefit of the Banks pursuant to
a Security Agreement, First Mortgage, Leasehold Mortgage and the other
applicable Loan Documents. If Borrower is forming a new Subsidiary (as opposed
to acquiring a Subsidiary) the obligations set forth in clauses (A) and (B) of
the preceding sentence shall arise only at such time as such new Subsidiary
either commences construction of a health care facility or related health care
business, acquires a health care facility or makes another acquisition permitted
under this Agreement or has a net book value, as determined under GAAP, of at
least $250,000. Except for investments permitted under Section 8.02(d)(iv),
neither the Borrower nor any Subsidiary shall become or agree to become a
general or limited partner in any general or limited partnership or a joint
venturer in any joint venture.
(j) Continuation of or Change in Business. The Borrower shall
-------------------------------------
not, and shall not permit any Subsidiary to, engage in any business other than
(i) its existing business, substantially as conducted and operated as of the
Closing Date and (ii) related health care businesses.
(k) Plans and Benefit Arrangements. The Borrower shall not, and
------------------------------
shall not permit any of its Subsidiaries to:
(i) fail to satisfy the minimum funding requirements of
ERISA and the Internal Revenue Code with respect to any Plan;
(ii) request a minimum funding waiver from the Internal
Revenue Service with respect to any Plan;
(iii) engage in a Prohibited Transaction with any Plan,
Benefit Arrangement or Multiemployer Plan which, alone or in conjunction with
any other circumstances or set of circumstances resulting in liability under
ERISA, would constitute a Material Adverse Change;
(iv) permit the aggregate actuarial present value of all
benefit liabilities (whether or not vested) under each Plan, determined on a
plan termination basis, as disclosed in the most recent actuarial report
completed with respect to such Plan, to exceed, as of any actuarial valuation
date, the fair market value of the assets of such Plan by an amount in excess of
$250,000;
(v) fail to make when due any contribution to any
Multiemployer Plan that the Borrower or any member of the ERISA Group may be
required to make under any agreement relating to such Multiemployer Plan, or any
Law pertaining thereto;
(vi) withdraw (completely or partially) from any
Multiemployer Plan or withdraw (or be deemed under Section 4062(e) of ERISA to
withdraw) from any Multiple Employer Plan, where any such withdrawal is likely
to result in a material liability of Borrower or any member of the ERISA Group;
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<PAGE>
(vii) terminate, or institute proceedings to terminate, any
Plan, where such termination is likely to result in a material liability to the
Borrower or any member of the ERISA Group;
(viii) make any amendment to any Plan with respect to which
security is required under Section 307 of ERISA; or
(ix) fail to give any and all notices and make all
disclosures and governmental filings required under ERISA or the Internal
Revenue Code, where such failure is likely to result in a Material Adverse
Change.
(l) Fiscal Year. The Borrower shall not, and shall not permit
-----------
any of its Subsidiaries to, change its fiscal year from the twelve-month period
beginning January 1 and ending December 31.
(m) Issuance of Stock. The Borrower shall not permit any of its
-----------------
Subsidiaries to issue any additional shares of capital stock, partnership
interests or member interests in a limited liability company or any options,
warrants or other rights in respect thereof; provided, however, than an
Unrestricted Subsidiary which is an Excluded Entity may issue additional capital
stock, partnership interests or member interests in a limited liability company
so long as all such capital stock, partnership interests or member interests in
a limited liability company which are owned, beneficially, of record, or
otherwise, by any Loan Party are pledged to the Banks as a first priority
perfected pledge pursuant to a Pledge Agreement, and provided further that any
Restricted Subsidiary may issue additional capital stock, partnership interests
or member interests in a limited liability company so long as such capital
stock, partnership interests or member interests in a limited liability company
are pledged to the Collateral Agent for the benefit of the Banks (subject only
to any pari passu pledge to the Revolving Credit Banks and the Collateral
Sharing Agreement) as a first priority perfected pledge pursuant to a Pledge
Agreement.
(n) [Intentionally Omitted].
-----------------------
(o) [Intentionally Omitted].
-----------------------
(p) [Intentionally Omitted].
-----------------------
(q) Minimum Fixed Charge Coverage Ratio. The Borrower shall not
-----------------------------------
at any time permit the ratio (the "Fixed Charge Coverage Ratio") of (x) the sum
of Consolidated Cash Flow from Operations and operating lease expense to (y) the
sum of its interest expense, operating lease expense and current maturities of
long-term Indebtedness (other than the sum of (i) current maturities of
obligations in respect of capital leases, (ii) for fiscal quarters ending on and
after March 31, 1999, current maturities of the Loans; and (iii) for fiscal
quarters ending on and after March 31, 1999 current maturities of Indebtedness
under the Revolving Credit Loan Agreement) in each case determined and
consolidated in accordance with GAAP to be less than 1.85 to 1.0. Such ratio
shall be calculated as of the end of each fiscal quarter. Calculations as of the
end of each fiscal quarter shall be for the four fiscal quarters then ended.
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(r) Maximum Leverage Ratio. The Borrower shall not at any time
----------------------
permit the ratio of Total Indebtedness to Consolidated Cash Flow from Operations
to exceed (A) 5.75 to 1.0 from the Closing Date through and including June 30,
1999; and (B) 5.50 to 1.0 from July 1, 1999 and thereafter. For purposes of this
Section 8.02(r), Total Indebtedness shall be calculated as of each date of
determination and Consolidated Cash Flow from Operations shall be calculated as
of each date of determination for the four fiscal quarters then ended.
(s) Minimum Consolidated Cash Flow from Operations. The Borrower
----------------------------------------------
shall not at any time permit Consolidated Cash Flow from Operations as of the
end of any fiscal quarter for the four fiscal quarters then ended to be less
than $116,000,000.
(t) Minimum Net Worth. The Borrower shall not at any time permit
-----------------
Consolidated Net Worth to be less than the amount under the following clause (A)
reduced by the amount under the following clause (B):
(A) The sum of (i) $323,789,000 plus (ii) fifty percent
(50%) of Consolidated Net Income of the Borrower and its Subsidiaries for each
fiscal quarter in which net income was earned (as opposed to a net loss) during
the period from October 1, 1998 through (and including) the date of
determination, plus (iii) one hundred percent (100%) of all increases in capital
stock and additional paid-in capital from issuances for cash of equity
securities and other equity capital investments on or after October 1, 1998,
plus (iv) one hundred percent (100%) of all increases in capital stock and
additional paid-in capital from issuances of equity securities in connection
with the acquisition of any Subsidiary on or after October 1, 1998 (so long as
the fair market value at the time of acquisition of the Subsidiary so acquired
is at least equal to the value of the capital stock or other equity securities
so issued), reduced by
(B) The sum of (i) the amount of any dividend or other
distribution actually paid by the Borrower to MPN on or after October 1, 1998
pursuant to Section 8.02(e)(iv), plus (ii) the amount of any dividend or other
distribution actually paid by the Borrower to MPN on or after October 1, 1998
pursuant to Section 8.02(e)(vi) in respect of costs or expenses incurred by MPN
in connection with the Paragon Acquisition to the extent that the reimbursed
item is not deducted as an expense in the determination of Consolidated Net
Income of the Borrower and its Subsidiaries, plus (iii) the amount of any net
losses (determined on a consolidated basis for the Borrower and its Restricted
Subsidiaries in accordance with GAAP) arising solely as a result of charges
described in clauses (i), (ii) or (iii) of the definition of Approved Charges,
plus (iv) subject to the prior written approval of the Required Banks, the
amount of any non-cash charges to write-down goodwill in accordance with FAS
121.
(u) Senior Indebtedness to Cash Flow From Operations Ratio. The
------------------------------------------------------
Borrower shall not at any time permit the ratio of (i) Adjusted Total
Indebtedness to (ii) Consolidated Cash Flow from Operations to exceed (A) 4.50
to 1.0 from the Closing Date through and including June 30, 1999; and (B) 4.25
to 1.0 from July 1, 1999 and thereafter. For purposes of this Section 8.02(u),
Adjusted Total Indebtedness shall be calculated as of each date
72
<PAGE>
of determination and Consolidated Cash Flow from Operations shall be calculated
as of each date of determination for the four fiscal quarters then ended.
(v) Incurrence of Indebtedness Permitted by the Indenture. So
-----------------------------------------------------
long as any Indebtedness or other obligations (monetary or otherwise) are
outstanding under the Indenture the Borrower shall not, and shall not permit any
of its Subsidiaries to, at any time create, incur, assume or suffer to exist any
Indebtedness unless the incurrence thereof complies with the provisions of
Section 1008. [Limitation on Indebtedness] of the Indenture as in effect on the
Ninth Amendment Effective Date without giving any effect to any grace period
under the Indenture or waiver under the Indenture of any default of such
covenant.
(w) Maximum Amount of Certain Expenditures of the Borrower. The
------------------------------------------------------
Borrower shall not and shall not permit any of its Subsidiaries, during the
period commencing on the Closing Date through and including the Expiration Date,
to make aggregate expenditures in excess of $61,700,000 (the "Designated
Amount") in respect of the following:
(i) acquisitions permitted by clauses (iii) or (iv) of
Section 8.02(f);
(ii) maintenance and replacement capital expenditures and
other capital expenditures;
(iii) amounts expended for construction of facilities which
are not considered capital expenditures under GAAP and therefore would not be
included under clause (ii) above; and
(iv) Restricted Investments made on or after the Closing
Date as permitted by Section 8.02(d)(iv);
At least seven (7) days prior to making any expenditure
specified in clauses (i) or (iv), above, the Borrower shall deliver to the
Administrative Agent, for the benefit of the Banks a detailed certificate
showing Borrower's pro-forma compliance with the financial covenants set forth
in Sections 8.02(q), 8.02(r), 8.02(s), 8.02(t) and 8.02(u), after giving effect
to the proposed expenditure, including, without limitation, the effect of any
cash to be expended or Indebtedness to be incurred in connection therewith. The
Borrower expressly agrees that, notwithstanding the foregoing, at least
$20,000,000 of the Designated Amount shall be designated for expenditures by the
Borrower and its Subsidiaries in the nature of maintenance capital expenditures.
For purposes of this Section 8.02(w) and the demonstration
of pro forma compliance with the financial covenants set forth in Sections
8.02(q), (r), (s), (t) and (u):
(i) Consolidated Net Worth, Adjusted Total Indebtedness and
Total Indebtedness shall be calculated as of each date of determination after
giving effect to the proposed transaction under items (i) through (v) above
(including any Indebtedness incurred in connection therewith);
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<PAGE>
(ii) Consolidated Cash Flow from Operations and Consolidated
Net Income shall be calculated as of each date of determination based upon the
four fiscal quarters most recently then ended for which a Compliance Certificate
has been delivered to the Administrative Agent and shall be adjusted to give
effect to any transaction under items (ii) through (v) above but shall only be
adjusted to give effect to any acquisition under clause (i) above only if
permitted by Section 8.01(m); and
(iii) the denominator (set forth in clause (y) of Section
8.02(q)) of the Fixed Charge Coverage Ratio shall be determined after giving
effect to the proposed transaction under items (i) through (v) above (including
any Indebtedness incurred in connection therewith) for purposes, without
limitation, of the pro forma determination of interest expense and of current
maturities of long-term Indebtedness.
(x) Negative Pledges. Except as set forth on Schedule 8.02(x),
---------------- ----------------
Borrower shall not and shall not permit any of its Subsidiaries to enter into
any agreement with any person which prohibits the Loan Parties from granting
Liens to the Collateral Agent, the Agents or the Banks.
(y) Prohibition of Defeasance of Subordinated Notes. The
-----------------------------------------------
Borrower shall not and shall not permit any of its Subsidiaries to make any
payments to the trustee under the Indenture or to any holders of Subordinated
Notes in payment of the defeasance or covenant defeasance of the Subordinated
Notes pursuant to Section 402 or 403 of the Indenture or any similar provision
in any supplement to the Indenture. Nothing in this subsection (y) shall
prohibit the purchase by the Borrower of Subordinated Notes pursuant to Section
8.02(d)(vii) or the refinancing of the Subordinated Notes with Permitted
Subordinated Indebtedness.
8.03 Reporting Requirements. The Borrower covenants and agrees
----------------------
that until payment in full of the Loans and interest thereon, satisfaction of
all of the Borrower's other obligations hereunder and termination of the
Commitments, the Borrower will furnish or cause to be furnished to the
Administrative Agent and each of the Banks:
(a) [Intentionally Omitted].
-----------------------
(b) Quarterly Financial Statements. As soon as available and in
------------------------------
any event within forty-five (45) calendar days after the end of each fiscal
quarter in each fiscal year, financial statements of the Borrower, consisting of
a consolidated balance sheet as of the end of such fiscal quarter and related
consolidated statements of income, retained earnings and cash flows for the
fiscal quarter then ended and the fiscal year through that date, all in
reasonable detail and certified by a Responsible Officer of the Borrower as
having been prepared in accordance with GAAP, consistently applied (subject to
normal year-end audit adjustments), and setting forth in comparative form the
respective financial statements for the corresponding date and period in the
previous fiscal year.
(c) Annual Financial Statements. As soon as available and in any
---------------------------
event within ninety (90) days after the end of each fiscal year of the Borrower,
financial statements of the Borrower consisting of a consolidated balance sheet
as of the end of such fiscal
74
<PAGE>
year, and related consolidated statements of income, retained earnings and cash
flows for the fiscal year then ended, all in reasonable detail and setting forth
in comparative form the financial statements as of the end of and for the
preceding fiscal year, and certified by independent certified public accountants
of nationally recognized standing satisfactory to the Administrative Agent. The
certificate or report of accountants shall be free of qualifications (other than
any consistency qualification that may result from a change in the method used
to prepare the financial statements as to which such accountants concur) and
shall not include a statement which indicates the occurrence or existence of any
event, condition or contingency which would materially impair the prospect of
payment or performance of any covenant, agreement or duty of the Borrower or any
of its Subsidiaries under any of the Loan Documents, together with a letter of
such accountants substantially to the effect that, based upon their ordinary and
customary examination of the affairs of the Borrower and its Subsidiaries,
performed in connection with the preparation of such consolidated financial
statements, and in accordance with generally accepted auditing standards, they
are not aware of the existence of any condition or event with constitutes an
Event of Default or Potential Default or, if they are aware of such condition or
event, stating the nature thereof.
(d) Certificate of the Borrower. Concurrent with the financial
---------------------------
statements of the Borrower furnished to the Administrative Agent and to the
Banks pursuant to Sections 8.03(b) and 8.03(c) hereof, a certificate of the
Borrower signed by a Responsible Officer in the form of Exhibit 8.03(d) hereto
---------------
(the "Compliance Certificate"), to the effect that, except as described pursuant
to Section 8.03(e) below, (i) the representations and warranties of the Borrower
contained in Article VI hereof are true on and as of the date of such
certificate with the same effect as though such representations and warranties
had been made on and as of such date (except representations and warranties
which expressly relate solely to an earlier date or time) and the Borrower has
performed and complied with all covenants and conditions hereof, (ii) no Event
of Default or Potential Default exists and is continuing on the date of such
certificate, (iii) containing calculations in sufficient detail to demonstrate
compliance as of the date of the financial statements with all financial
covenants contained in Section 8.02 hereof and with the covenant contained in
Section 1008 [Limitation on Indebtedness] of the Indenture with respect to
indebtedness incurred during the period applicable to such compliance
certificate and (iv) setting forth a list of payments summarized by category
only made by the Borrower to MPN as reimbursement of ordinary course business
expenses paid by MPN on behalf of the Borrower during the period applicable to
such certificate and also setting forth all other dividends and distributions to
MPN during such period.
(e) Notice of Default. Promptly after any officer of the
-----------------
Borrower has learned of the occurrence of an Event of Default or Potential
Default, a certificate signed by a Responsible Officer of the Borrower, setting
forth the details of such Event of Default or Potential Default and the action
which the Borrower proposes to take with respect thereto.
(f) Notice of Litigation. Promptly after the commencement
--------------------
thereof, notice of all actions, suits, proceedings or investigations before or
by any Official Body or any other person against the Borrower which relate to
the Collateral, involve a claim or series of
75
<PAGE>
related claims in excess of $1,000,000 or which if adversely determined would
constitute a Material Adverse Change.
(g) Certain Events. Written notice to the Administrative Agent
--------------
(and upon the Agent's receipt of such notice, the Administrative Agent shall
provide a copy thereof to each Bank) at least thirty (30) calendar days prior
thereto, with respect to any proposed sale or transfer of assets pursuant to
Section 8.02(g)(iii) or (iv).
(h) Budgets, Forecasts, Other Reports and Information. Promptly
-------------------------------------------------
upon their becoming available to the Borrower:
(i) [Intentionally Omitted]
(ii) any reports including management letters submitted
to the Borrower by independent accountants in connection with any annual,
interim or special audit,
(iii) any reports, notices or proxy statements generally
distributed by the Borrower to its stockholders on a date no later than the date
supplied to the stockholders,
(iv) any regular or periodic reports, including Forms
10-K, 10-Q and 8-K, registration statements and prospectuses, filed by the
Borrower with the Securities and Exchange Commission,
(v) a copy of any material order in any proceeding to
which the Borrower or any of its Subsidiaries is a party issued by any Official
Body,
(vi) regular, periodic utilization reports including in
detail reasonably satisfactory to the Administrative Agent for the period of
such reports the patient census, the number of occupied beds, the payment source
(Medicare, Medicaid, private pay or otherwise) for each patient,
(vii) such other reports and information as the Banks
may from time to time reasonably request. The Borrower shall also notify the
Banks promptly of the enactment or adoption of any Law or the occurrence of any
other event which may result in a Material Adverse Change with respect to the
Borrower after the Borrower becomes aware or should reasonably have become aware
thereof, and
(viii) annual reports in detail satisfactory to the
Administrative Agent setting forth the real property owned, leased or managed by
the Borrower or any Subsidiary, to be supplied not later than March 31, 1999
with respect to the fiscal year ended December 31, 1998 and thereafter not later
than ninety (90) days after the commencement of the fiscal year to which any of
the foregoing may be applicable.
(i) Notices Regarding Plans and Benefit Arrangements. (i)
------------------------------------------------
Promptly upon becoming aware of the occurrence thereof, notice (including the
nature of the event and,
76
<PAGE>
when known, any action taken or threatened by the Internal Revenue Service or
the PBGC with respect thereto) of:
(A) any Reportable Event with respect to the Borrower or
any member of the ERISA Group,
(B) any Prohibited Transaction which could be subject
the Borrower or any member of the ERISA Group to a material civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Internal Revenue Code in connection with any Plan, Benefit Arrangement or
any trust created thereunder,
(C) any assertion of material withdrawal liability with
respect to any Multiemployer Plan,
(D) any partial or complete withdrawal from a
Multiemployer Plan by the Borrower or any member of the ERISA Group under Title
IV of ERISA (or assertion thereof), where such withdrawal is likely to result in
material withdrawal liability,
(E) any cessation of operations (by the Borrower or any
member of the ERISA Group) at a facility in the circumstances described in
Section 4062(e) of ERISA,
(F) withdrawal by the Borrower or any member of the
ERISA Group from a Multiple Employer Plan to which Section 4063 of ERISA
applies,
(G) a failure by the Borrower or any member of the ERISA
Group to make a payment to a Plan required to avoid imposition of a lien under
Section 302(f) of ERISA,
(H) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA, or
(I) any change in the actuarial assumptions or funding
methods used for any Plan, where the effect of such change is to materially
increase the unfunded benefit liability or obligation to make periodic
contributions.
(ii) Promptly after receipt thereof, copies of (a) all
notices received by the Borrower or any member of the ERISA Group of the PBGC's
intent to terminate any Plan administered or maintained by the Borrower or any
member of the ERISA Group, or to have a trustee appointed to administer any such
Plan; and (b) at the request of the Administrative Agent or any Bank each annual
report (IRS Form 5500 series) and all accompanying schedules, the most recent
actuarial reports, the most recent financial information concerning the
financial status of each Plan administered or maintained by the Borrower or any
member of the ERISA Group, and schedules showing the amounts contributed to each
such Plan by or on behalf of the Borrower or any member of the ERISA Group in
which any of their personnel participate or
77
<PAGE>
from which such personnel may derive a benefit, and each Schedule B (Actuarial
----------
Information) to the annual report filed by the Borrower or any member of the
ERISA Group with the Internal Revenue Service with respect to each such Plan.
(iii) Promptly upon the filing thereof, copies of Form
5310, or any successor or equivalent form to Form 5310, filed with the PBGC in
connection with the termination of any Plan.
(j) Notices With Respect to Indenture. Written notice to the
---------------------------------
Administrative Agent (and upon the Administrative Agent's receipt of each such
notice, the Administrative Agent shall provide a copy thereof to each Bank):
(i) immediately upon the occurrence of a "Default" or an
"Event of Default," as such terms are defined in the Indenture;
(ii) immediately upon a "Change of Control," as such
term is defined in the Indenture;
(iii) immediately upon receipt of a "notice of
acceleration" from either the trustee for the Subordinated Notes or the holders
of the Subordinated Notes pursuant to Section 502 of the Indenture or any
similar provision in any supplement to the Indenture;
(iv) simultaneous with the sending thereof, all notices
required to be sent to the trustee or holders of the Subordinated Notes
under the Indenture; and
(v) immediately upon the receipt thereof, all notices
received from the trustee under the Indenture.
ARTICLE IX
DEFAULT
-------
9.01 Events of Default. An Event of Default shall mean the
-----------------
occurrence or existence of any one or more of the following events or conditions
(whatever the reason therefor and whether voluntary, involuntary or effected by
operation of Law):
(a) The Borrower shall fail to pay any principal of any Loan
(including scheduled or mandatory prepayments or the payment due at maturity) or
shall fail to pay any interest on any Loan or any other amount owing hereunder
or under the other Loan Documents after such principal or within three (3)
Business Days after such interest or other amount becomes due in accordance with
the terms hereof or thereof;
(b) Any representation and warranty made at any time by the
Borrower herein or by the Borrower or any of its Subsidiaries in any other Loan
Document, or in any certificate, other instrument or statement furnished
pursuant to the provisions hereof or thereof, shall prove to have been false or
misleading in any material respect as of the time it was made or
78
<PAGE>
furnished regardless of whether such representation and warranty was qualified
as to Borrower's knowledge or best knowledge;
(c) The Borrower shall default in the observance or performance
of any covenant contained in Section 8.01(f) or Section 8.02 hereof;
(d) The Borrower or any of its Subsidiaries shall default in the
observance or performance of any other covenant, condition or provision hereof
or of any other Loan Document and such default shall continue unremedied for a
period of thirty (30) Business Days after any officer of the Borrower or any
Subsidiary becomes aware of the occurrence thereof (such grace period to be
applicable only in the event such default can be remedied by corrective action
of the Borrower or such Subsidiary as determined by the Administrative Agent in
its sole discretion);
(e) A default or event of default shall occur at any time under
the terms of any agreement involving borrowed money or the extension of credit
or any other Indebtedness under which the Borrower or any of its Subsidiaries
may be obligated as borrower or guarantor in excess of $10,000,000 in aggregate
principal amount, and such breach, default or event of default consists of the
failure to pay (beyond any period of grace permitted with respect thereto,
whether waived or not) any indebtedness when due (whether at stated maturity, by
acceleration or otherwise) or if such breach or default permits or causes the
acceleration of any indebtedness (whether or not such right shall have been
waived) or the termination of any commitment to lend;
(f) Any final judgment or orders for the payment of money in
excess of $1,000,000 in the aggregate (not paid or fully covered by insurance)
shall be entered against the Borrower or any of its Subsidiaries by a court
having jurisdiction in the premises which judgment is not discharged, vacated,
bonded or stayed pending appeal within a period of thirty (30) days from the
date of entry;
(g) Any of the Loan Documents shall cease to be legal, valid and
binding agreements enforceable against the party executing the same or such
party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or shall in any way be challenged or
contested or cease to give or provide the respective Liens, security interests,
rights, titles, interests, remedies, powers or privileges intended to be created
thereby;
(h) The Collateral or any other of the Borrower's or any of its
Subsidiaries' assets are attached, seized, levied upon or subject to a writ or
distress warrant; or such come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is not cured
within thirty (30) days thereafter;
(i) A notice of lien or assessment in excess of $1,000,000 is
filed of record with respect to all or any part of the Borrower's or any of its
Subsidiaries' assets by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipal or other
governmental agency, including, without limitation, the Pension Benefit
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Guaranty Corporation, or if any taxes or debts owing at any time or times
hereafter to any one of these becomes payable and the same is not paid within
thirty (30) days after the same becomes payable unless the same is being
contested in good faith in accordance with Section 8.01(b);
(j) The Borrower or any of its Material Subsidiaries ceases to
be solvent or admits in writing its inability to pay its debts of as they
mature;
(k) Any of the following occurs: the Administrative Agent
determines in good faith that the amount of Borrower's liability is likely to
exceed 10% of its Consolidated Net Worth upon the occurrence of (i), (ii), (iii)
or (iv) below: (i) any Reportable Event constitutes grounds for the termination
of any Plan by the PBGC or the appointment of a trustee to administer or
liquidate any Plan, shall have occurred and be continuing; (ii) proceedings
shall have been instituted or other action taken to terminate any Plan or a
termination notice shall have been filed with respect to any Plan; (iii) a
trustee shall be appointed to administer or liquidate any Plan; or (iv) the PBGC
shall give notice of its intent to institute proceedings to terminate any Plan
or Plans or to appoint a trustee to administer or liquidate any Plan; or, with
respect to any of the events specified in (v), (vi), (vii), (viii) or (ix)
below, the Administrative Agent determines in good faith that any such
occurrence could be reasonably likely to materially and adversely affect the
total enterprise represented by the Borrower and the other members of the ERISA
Group; (v) the Borrower or any member of the ERISA Group shall fail to make any
contributions when due to a Plan or a Multiemployer Plan; (vi) the Borrower or
any member of the ERISA Group shall make any amendment to a Plan with respect to
which security is required under Section 307 of ERISA; (vii) the Borrower or any
member of the ERISA Group shall withdraw completely or partially from a
Multiemployer Plan; (viii) the Borrower or any member of the ERISA Group shall
withdraw (or shall be deemed under Section 4062(e) of ERISA to withdraw) from a
Multiple Employer Plan; or (ix) any applicable law is adopted, changed or
interpreted by any Official Body with respect to or otherwise affecting one or
more Plans, Multiemployer Plans or Benefit Arrangements;
(l) The Borrower ceases to conduct its business as contemplated
or the Borrower or any of its Material Subsidiaries is enjoined, restrained or
in any way prevented by court order from conducting all or any material part of
its business and such injunction, restraint or other preventative order is not
dismissed within thirty (30) days after the entry thereof;
(m) A Change of Ownership occurs;
(n) An event of default shall occur at any time under the terms
of the MPN Credit Agreement which causes the acceleration of any indebtedness
thereunder, or an event of default shall occur at any time under the terms of
the Paragon Senior Subordinated Note Indenture which causes the acceleration of
any indebtedness thereunder;
(o) A default or event of default shall occur at any time under
the terms of the Revolving Credit Loan Agreement, and such breach, default or
event of default consists of the failure to pay (beyond any period of grace
permitted with respect thereto, whether waived or not) any indebtedness when due
(whether at stated maturity, by acceleration or
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otherwise) or if such breach or default permits or causes the acceleration of
any indebtedness (whether or not such right shall have been waived) or the
termination of any commitment to lend;
(p) A proceeding shall have been instituted in a court having
jurisdiction in the premises seeking a decree or order for relief in respect of
MPN, the Borrower or any Subsidiary of the Borrower in an involuntary case under
any applicable bankruptcy, insolvency, reorganization or other similar law now
or hereafter in effect, or a receiver, liquidator, assignee, custodian, trustee,
sequestrator, conservator (or similar official) of MPN, the Borrower, or any
Subsidiary of the Borrower for any substantial part of its property, or for the
winding-up or liquidation of its affairs, and such proceeding shall remain
undismissed or unstayed and in effect for a period of sixty (60) consecutive
days or such court shall enter a decree or order granting any of the relief
sought in such proceeding; or
(q) MPN, the Borrower, or any Subsidiary of the Borrower shall
commence a voluntary case under any applicable bankruptcy, insolvency,
reorganization or other similar law now or hereafter in effect, shall consent to
the entry of an order for relief in an involuntary case under any such law, or
shall consent to the appointment or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator, conservator (or other similar
official) of itself or for any substantial part of its property or shall make a
general assignment for the benefit of creditors, or shall fail generally to pay
its debts as they become due, or shall take any action in furtherance of any of
the foregoing.
[PAZ: DO NOT CHANGE # OF (P) OR (Q) - CROSS REF. MTG]
9.02 Consequences of Event of Default.
--------------------------------
(a) If an Event of Default specified under subsections (a)
through (o) of Section 9.01 hereof shall occur and be continuing, the Banks
shall be under no further obligation to make Loans hereunder and the
Administrative Agent upon the request of the Required Banks, shall by written
notice to the Borrower, declare the unpaid principal amount of the Notes then
outstanding and all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrower to the Banks hereunder and thereunder to be
forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Administrative Agent for the benefit of each
Bank without presentment, demand, protest or any other notice of any kind, all
of which are hereby expressly waived; and
(b) If an Event of Default specified under subsections (p) or
(q) of Section 9.01 hereof shall occur, the Banks shall be under no further
obligations to make Loans hereunder and the unpaid principal amount of the Notes
then outstanding and all interest accrued thereon, any unpaid fees and all other
Indebtedness of the Borrower to the Banks hereunder and thereunder shall be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived; and
(c) If an Event of Default shall occur and be continuing, any
Bank to whom any obligation is owed by any Loan Party hereunder or under any
other Loan Document or any participant of such Bank which has agreed in writing
to be bound by the provisions of
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Section 10.13 hereof and any branch, subsidiary or affiliate of such Bank or
participant anywhere in the world shall have the right, in addition to all other
rights and remedies available to it, without notice to such Loan party, to set-
off against and apply to the then unpaid balance of all the Loans and all other
obligations of such Loan party hereunder or under any other Loan Document any
debt owing to, and any other fund held in any manner for the account of, such
Loan Party by such Bank or participant or by such branch, subsidiary or
affiliate, including, without limitation, all funds in all deposit accounts
(whether time or demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by such Loan Party for its
own account (but not including funds held in custodian or trust accounts) with
such Bank or participant or such branch, subsidiary or affiliate. Such right
shall exist whether or not any Bank or the Administrative Agent shall have made
any demand under this Agreement or any other Loan Document, whether or not such
debt owing to or funds held for the account of such Loan Party is or are matured
or unmatured and regardless of the existence or adequacy of any Collateral,
Guaranty or any other security, right or remedy available to any Bank or the
Administrative Agent; and
(d) If an Event of Default shall occur and be continuing, and
whether or not the Administrative Agent shall have accelerated the maturity of
Loans of the Borrower pursuant to any of the foregoing provisions of this
Section 9.02, the Agents or any Bank, if owed any amount with respect to the
Notes, may proceed to protect and enforce its rights by suit in equity, action
at law and/or other appropriate proceeding, whether for the specific performance
of any covenant or agreement contained in this Agreement or the Notes, including
as permitted by applicable Law the obtaining of the ex parte appointment of a
-- -----
receiver, and, if such amount shall have become due, by declaration or
otherwise, proceed to enforce the payment thereof or any other legal or
equitable right of the agent or such Bank; and
(e) From and after the date on which the Administrative Agent
has taken any action pursuant to this Section 9.02 and until all obligations of
the Loan Parties have been paid in full, any and all proceeds received by the
Administrative Agent from any sale or other disposition of the Collateral, or
any part thereof, or the exercise of any other remedy by the Administrative
Agent, shall be applied as follows:
(i) first, to reimburse the Administrative Agent and the
Banks for reasonable out-of-pocket costs, expenses and disbursements, including
without limitation reasonable attorneys' fees and legal expenses, incurred by
the Administrative Agent or the Banks in connection with realizing on the
Collateral or collection of any obligations of the Loan Parties under any of the
Loan Documents, including advances made by the Banks or any one of them or the
Administrative Agent for the reasonable maintenance, preservation, protection or
enforcement of, or realization upon, the Collateral, including without
limitation, advances for taxes, insurance, repairs and the like and reasonable
expenses incurred to sell or otherwise realize on, or prepare for sale or other
realization on, any of the Collateral;
(ii) second, to the prepayment of all Indebtedness then
due and unpaid of the Loan Parties to the Banks incurred under this Agreement or
any of the Loan Documents, whether of principal, interest, fees, expenses or
otherwise, in such manner as the
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Administrative Agent may reasonably determine in its discretion and with respect
to principal, interest, and fees, shall be made in proportion to the Ratable
Share of each Bank; and
(iii) the balance, if any, as required by Law.
(f) In addition to all of the rights and remedies contained in
this Agreement or in any of the other Loan Documents, the Administrative Agent
and the Collateral Agent shall have all of the rights and remedies with respect
to the Collateral of a secured party under the Uniform Commercial Code or other
applicable Law, all of which rights and remedies shall be cumulative and non-
exclusive, to the extent permitted by Law. The Administrative Agent may, and
upon the request of the Required Banks shall (or shall, if applicable cause the
Collateral Agent to), exercise all post-default rights granted to the
Administrative Agent (or Collateral Agent, as the case may be) and the Banks
under the Loan Documents or applicable Law.
(g) Following the occurrence and continuance of an Event of
Default, the Borrower, at its cost and expense (including the cost and expense
of obtaining any of the following referenced consents, approvals, etc.) will
promptly execute and deliver or cause the execution and delivery of all
applications, certificates, instruments, registration statements, and all other
documents and papers the Administrative Agent may request in connection with the
obtaining of any consent, approval, registration, qualification, permit,
license, accreditation, or authorization of any other Official Body or other
person necessary or appropriate for the effective exercise of any rights
hereunder or under the other Loan Documents. Without limiting the generality of
the foregoing, the Borrower agrees that in the event the Administrative Agent or
the Collateral Agent on behalf of the Banks shall exercise its rights, hereunder
or pursuant to the other Loan Documents, to sell, transfer, or otherwise dispose
of, or vote, consent, operate, or take any other action in connection with any
of the Collateral, the Borrower shall execute and deliver (or cause to be
executed and delivered) all applications, certificates, assignments, and other
documents that the Administrative Agent requests to facilitate such actions and
shall otherwise promptly, fully, and diligently cooperate with the
Administrative Agent and the Collateral Agent and any other necessary persons in
making any application for the prior consent or approval of any Official Body or
any other person to the exercise by the Administrative Agent or the Collateral
Agent on behalf of the Banks of any of such rights relating to all or any of the
Collateral. Furthermore, because the Borrower agrees that the remedies at law,
of the agent on behalf of the Banks, for failure of the Borrower to comply with
the provisions of Section 8.01(f) and of this Section 9.02(g) would be
inadequate and that any such failure would not be adequately compensable in
damages, the Borrower agrees that the covenants of Sections 8.01(f) and 9.02(g)
may be specifically enforced.
(h) Upon the occurrence and continuance of an Event of Default,
the Administrative Agent may request, without limiting the rights and remedies
of the Administrative Agent on behalf of the Banks otherwise provided hereunder
and under the other Loan Documents, that the Borrower do any of the following:
(i) give the Collateral Agent on behalf of the Banks specific assignments of the
accounts receivable of the Borrower and each Subsidiary after such accounts
receivable come into existence, and schedules of such accounts
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receivable, the form and content of such assignment and schedules to be
satisfactory to the Collateral Agent and the Administrative Agent, (ii)
immediately notify the Administrative Agent if any of such accounts receivable
arise out of contracts with the U.S. Government or any department, agency or
instrumentality thereof, and execute any instruments and take any steps required
by the Administrative Agent in order that all moneys due and to become due under
such contract shall be assigned (to the extent permitted by law) to the
Collateral Agent on behalf of the Banks and notice thereof given to the
government under the Federal Assignment of Claims Act, if applicable, or any
other applicable law or regulation; and in order to better secure the Collateral
Agent on behalf of the Banks, in relation to such accounts receivable, and (iii)
to the extent permitted by Law, enter into such lockbox agreements and establish
such lockbox accounts as the Administrative Agent may require, with the local
banks in areas in which the Borrower and its Subsidiaries may be operating (in
such cases, all local lockbox accounts shall be depository transfer accounts
entitled "In trust for PNC Bank, National Association, as Collateral Agent")
which shall have agreed in writing to the Collateral Agent's requirements for
the handling of such accounts and the transfer of account funds to the
Collateral Agent on behalf of the Banks, all at the Borrower's sole expense, and
shall direct all payments from Medicare, Medicaid, Blue Cross and Blue Shield,
private payors, health maintenance organizations, all commercial payors and all
other payors due to the Borrower or any Subsidiary, to such lockbox accounts.
9.03 Notice of Sale. Any notice required to be given by the
--------------
Administrative Agent or Collateral Agent of a sale, lease, or other disposition
of the Collateral or any other intended action by the Administrative Agent or
Collateral Agent, if given ten (10) days prior to such proposed action, shall
constitute commercially reasonable and fair notice thereof to the relevant Loan
Party.
ARTICLE X
THE AGENT
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10.01 Appointment. Each Bank hereby irrevocably designates,
-----------
appoints and authorizes PNC Bank to act as Administrative Agent for such Bank
under this Agreement to execute and deliver or accept on behalf of each of the
Banks the other Loan Documents. Each Bank hereby irrevocably authorizes, and
each holder of any Note by the acceptance of a Note shall be deemed irrevocably
to authorize, the Administrative Agent to take such action on its behalf under
the provisions of this Agreement and the other Loan Documents and any other
instruments and agreements referred to herein, and to exercise such powers and
to perform such duties hereunder as are specifically delegated to or required of
the Agents, the Administrative Agent or any of them by the terms hereof,
together with such powers as are reasonably incidental thereto. PNC Bank agrees
to act as the Administrative Agent on behalf of the Banks to the extent provided
in this Agreement, and each of PNC Bank and First Union National Bank agrees to
act as Agent on behalf of the Banks to the extent provided in this Agreement.
10.02 Delegation of Duties. The Agents and the Administrative Agent
--------------------
may perform any of its duties hereunder by or through agents or employees
(provided such delegation does not constitute a relinquishment of its duties as
Agents and the Administrative Agent) and,
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subject to Sections 10.05 and 10.06 hereof, shall be entitled to engage and pay
for the advice or services of any attorneys, accountants or other experts
concerning all matters pertaining to its duties hereunder and to rely upon any
advice so obtained.
10.03 Nature of Duties; Independent Credit Investigation. Neither
--------------------------------------------------
the Agents nor the Administrative Agent shall have any duties or
responsibilities except those expressly set forth in this Agreement and no
implied covenants, functions, responsibilities, duties, obligations, or
liabilities shall be read into this Agreement or otherwise exist. The duties of
the Administrative Agent and of the Agents shall be mechanical and
administrative in nature; neither the Administrative Agent nor the Agents shall
have by reason of this Agreement a fiduciary or trust relationship in respect of
any Bank; and nothing in this Agreement, expressed or implied, is intended to or
shall be so construed as to impose upon the Administrative Agent or any Agent
any obligation in respect of this Agreement except as expressly set forth
herein. Without limiting the generality of the foregoing, the use of the term
"Agents" in this Agreement with reference to the Agents or Administrative Agent,
as the case may be, is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable Law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties. Each Bank expressly acknowledges (i) neither the
Administrative Agent nor any Agent has made any representations and warranties
to it and that no act by the Administrative Agent or any Agent hereafter taken,
including any review of the affairs of the Loan Parties, shall be deemed to
constitute any representation or warranty by the Administrative Agent or any
Agent to any Bank; (ii) that it has made and will continue to make, without
reliance upon the Administrative Agent or any Agent, its own independent
investigation of the financial condition and affairs and its own appraisal of
the creditworthiness of the Loan Parties in connection with this Agreement and
the making and continuance of the Loans hereunder; and (iii) except as expressly
provided herein, that neither the Administrative Agent nor any Agent shall have
any duty or responsibility, either initially or on a continuing basis, to
provide any Bank with any credit or other information with respect thereto,
whether coming into its possession before the making of any Loan or at any time
or times thereafter.
10.04 Actions in Discretion of Agents; Instructions From the Banks.
------------------------------------------------------------
The Administrative Agent and each Agent agrees, upon the written request of the
Required Banks, to take or refrain from taking any action of the type specified
as being within the Administrative Agent's or such Agent's rights, powers or
discretion herein, provided that neither the Administrative Agent nor any Agent
--------
shall be required to take any action which exposes the Administrative Agent or
any Agent to personal liability or which is contrary to this Agreement or any
other Loan Document or applicable Law. In the absence of a request by the
Required Banks, the Administrative Agent and each Agent shall have authority, in
its sole discretion, to take or not to take any such action, unless this
Agreement specifically requires the consent of the Required Banks or all of the
Banks. Any action taken or failure to act pursuant to such instructions or
discretion shall be binding on the Banks, subject to Section 10.06 hereof.
Subject to the provisions of Section 10.06, no Bank shall have any right of
action whatsoever against the Administrative Agent or any Agent as a result of
the Administrative Agent or any Agent acting or refraining from acting hereunder
in accordance with the instructions of the Required Banks, or
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in the absence of such instructions, in the absolute discretion of the
Administrative Agent or the Agents so long as the Administrative Agent or such
Agent is otherwise authorized to act within its rights and powers as provided in
this Agreement.
10.05 Reimbursement and Indemnification of Agents by the Borrower.
-----------------------------------------------------------
The Borrower unconditionally agrees to pay or reimburse the Administrative Agent
and each Agent and save the Administrative Agent and each Agent harmless against
(a) liability for the payment of all reasonable out-of-pocket costs, expenses
and disbursements, including but not limited to reasonable fees and expenses of
counsel, appraisers and environmental consultants, incurred by the
Administrative Agent or any Agent (i) in connection with the development,
negotiation, preparation, execution, performance by a Loan Party or an Excluded
Entity and interpretation of this Agreement and the other Loan Documents, (ii)
relating to any requested amendments, waivers or consents pursuant to the
provisions hereof, (iii) in connection with the enforcement of this Agreement or
any other Loan Document or collection of amounts due hereunder or thereunder or
the proof and allowability of any claim arising under this Agreement or any
other Loan Document, whether in bankruptcy or receivership proceedings or
otherwise, and (iv) in any workout, restructuring or in connection with the
protection, preservation, exercise or enforcement of any of the terms hereof or
of any rights hereunder or under any other Loan Document or in connection with
any foreclosure, collection or bankruptcy proceedings, and (b) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever including, without
limitation, all documentary stamp tax, non-recurring intangible personal
property tax, recording or transfer taxes due to any Official Body together with
all interest, fines, penalties, costs or other charges thereon which may be
imposed on, incurred by or asserted against the Administrative Agent or any
Agent, in its capacity as such, in any way relating to or arising out of this
Agreement or any other Loan Documents or any action taken or omitted by the
Administrative Agent or any Agent hereunder or thereunder, provided that the
Borrower shall not be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements if the same results from the Administrative Agent's or any Agent's
gross negligence or willful misconduct, or if the Borrower was not given notice
of the subject claim and the opportunity to participate in the defense thereof,
at its expense, or if the same results from a compromise or settlement agreement
entered into without the consent of the Borrower. In addition, upon the
occurrence of an Event of Default, the Borrower agrees to reimburse and pay all
reasonable out-of-pocket expenses of the Administrative Agent's or any Agent's
regular employees and agents engaged periodically to perform audits of the
Borrower's books, records and business properties.
10.06 Exculpatory Provisions. Neither the Administrative Agent, any
----------------------
Agent nor any of their respective directors, officers, employees, agents,
attorneys or affiliates shall (a) be liable to any Bank for any action taken or
omitted to be taken by it or them hereunder, or in connection herewith including
without limitation pursuant to any Loan Document, unless caused by its or their
own gross negligence or willful misconduct, (b) be responsible in any manner to
any of the Banks for the effectiveness, enforceability, genuineness, validity or
the due execution of this Agreement or any other Loan Documents or for any
recital, representation, warranty, document, certificate, report or statement
herein or made or furnished under or in connection
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with this Agreement or any other Loan Documents, unless caused by its or their
own gross negligence or willful misconduct, or (c) be under any obligation to
any of the Banks to ascertain or to inquire as to the performance or observance
of any of the terms, covenants or conditions hereof or thereof on the part of
the Loan Parties or any Excluded Entity, or the financial condition of the Loan
Parties or any Excluded Entity, or the existence or possible existence of any
Event of Default or Potential Default, unless caused by its or their own gross
negligence or willful misconduct. Neither the Agent nor any Bank nor any of
their respective directors, officers, employees, agents, attorneys or affiliates
shall be liable to the Loan Parties or any Excluded Entity for consequential
damages resulting from any breach of contract, tort or other wrong in connection
with the negotiation, documentation, administration or collection of the Loans
or any of the Loan Documents.
10.07 Reimbursement and Indemnification of Agents by Banks. Each
----------------------------------------------------
Bank agrees to reimburse and indemnify the Administrative Agent and each Agent
(to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so) in proportion of its Ratable Share from and
against all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the
Administrative Agent, the Agents, or any of them, in their respective capacities
as such, in any way relating to or arising out of this Agreement or any other
Loan Documents or any action taken or omitted by the Administrative Agent or any
Agent hereunder or thereunder, provided that no Bank shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (a) if the same results from
the Administrative Agent's or any Agent's gross negligence or willful
misconduct, or (b) if such Bank was not given notice of the subject claim and
the opportunity to participate in the defense thereof, at its expense, or (c) if
the same results from a compromise and settlement agreement entered into without
the consent of such Bank. In addition, each Bank agrees promptly to reimburse
the Administrative Agent and each Agent (to the extent not reimbursed by the
Borrower and without limiting the obligation of the Borrower to do so) in
proportion to its Ratable Share for all amounts due and payable by the Borrower
to the Administrative Agent or the Agents in connection with the periodic audit
of the Borrower's books, records and business properties by the Administrative
Agent or the Agents. In the event the Banks reimburse or indemnify the
Administrative Agent or any Agent pursuant to this Section 10.07 and subsequent
thereto the Administrative Agent or such Agent is reimbursed or indemnified by
the Borrower with respect to the same matter for which indemnification or
reimbursement was previously made by the Banks, such Administrative Agent or
Agent will promptly refund to the Banks, in accordance with each Bank's Ratable
Share, the duplicative amount.
10.08 Reliance by Agents. The Administrative Agent and each Agent
------------------
shall be entitled to rely upon any writing, telegram, telex or teletype message,
resolution, notice, consent, certificate, letter, cablegram, statement, order or
other document or conversation by telephone or otherwise believed by it to be
genuine and correct and to have been signed, sent or made by the proper person
or persons, and upon the advice and opinions of counsel and other professional
advisers selected by the Administrative Agent or any Agent. The Administrative
Agent and each Agent shall be fully justified in failing or refusing to take any
action hereunder unless it shall
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first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.
10.09 Notice of Default. Neither the Administrative Agent nor any
-----------------
Agent shall be deemed to have knowledge or notice of the occurrence of any
Potential Default or Event of Default unless such person has received written
notice from a Bank or the Borrower referring to this Agreement, describing such
Potential Default or Event of Default and stating that such notice is a "notice
of default."
10.10 Notices. Each of the Administrative Agent and each Agent shall
-------
promptly send to each Bank a copy of all notices received from any Loan Party
pursuant to the provisions of this Agreement or the other Loan Documents
promptly upon receipt thereof. The Administrative Agent shall promptly notify
the Borrower and the other Banks of each change in the Base Rate and the
effective date thereof.
10.11 Banks in Their Individual Capacities. With respect to its
------------------------------------
Commitments and the Loans made by it, the Administrative Agent and each Agent
shall have the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not the Administrative Agent or an Agent,
and the term "Banks" shall, unless the context otherwise indicates, include the
Administrative Agent and each Agent in its individual capacity. PNC Bank and
its affiliates, First Union National Bank and its affiliates and each of the
Banks and their respective affiliates may, without liability to account, except
as prohibited herein, make Loans to, accept deposits from, discount drafts for,
act as trustee under indentures of, and generally engage in any kind of banking
or trust business with, the Borrower and its affiliates, in the case of the
Administrative Agent or any Agent, as though it were not acting as
Administrative Agent or Agent hereunder and in the case of each Bank, as though
such Bank were not a Bank hereunder.
10.12 Holders of Notes. The Administrative Agent and each Agent may
----------------
deem and treat any payee of any Note as the owner thereof for all purposes
hereof unless and until written notice of the assignment or transfer thereof
shall have been filed with the Administrative Agent and the Agents. Any
request, authority or consent of any person who at the time of making such
request or giving such authority or consent is the holder of any Note shall be
conclusive and binding on any subsequent holder, transferee or assignee of such
Note or of any Note or Notes issued in exchange therefor.
10.13 Equalization of Banks. The Banks and the holders of any
---------------------
participations in any Notes agree among themselves that, with respect to all
amounts received by any Bank or any such holder for application on any
obligation hereunder or under any Note or under any such participation, whether
received by voluntary payment, by realization upon security, by the exercise of
the right of set-off or banker's lien, by counterclaim or by any other non-pro
rata source, equitable adjustment will be made in the manner stated in the
following sentence so that, in effect, all such excess amounts shall be shared
ratably among the Banks and such holders in proportion to their interests in
payments under the Notes, except as otherwise provided in Sections [4.04(b),
5.04(b) or 5.06(a)] hereof. The Banks or any such holder receiving any such
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amount shall purchase for cash from each of the other Banks an interest in such
Bank's Loans in such amount as shall result in a ratable participation by the
Banks and each such holder in the aggregate unpaid amount under the Notes,
provided that if all or any portion of such excess amount is thereafter
recovered from the Bank or the holder making such purchase, such purchase shall
be rescinded and the purchase price restored to the extent of such recovery,
together with interest or other amounts, if any, required by law (including
court order) to be paid by the Bank or the holder making such purchase.
10.14 Successor Agents. Any Agent or the Administrative Agent (i)
----------------
may resign as Agent or Administrative Agent, as the case may be, or (ii) shall
resign if such resignation is requested by the Required Banks, in the case of
either (i) or (ii) upon not less than thirty (30) days' prior written notice to
the Borrower and the Banks. If any Agent or the Administrative Agent shall
resign under this Agreement, then either (a) the Required Banks shall appoint
from among the Banks a successor Agent or Administrative Agent, as the case may
be, for the Banks, or (b) if a successor Agent shall not be so appointed and
approved within the thirty (30) day period following the Agent's or the
Administrative Agent's notice to the Banks of its resignation, then the
resigning Administrative Agent or resigning Agent, as the case may be, shall
appoint, with the consent of the Borrower, such consent not to be unreasonably
withheld, a successor Agent who shall serve as Agent, or Administrative Agent,
as the case may be, until such time as the Required Banks appoint a successor
agent. Upon its appointment pursuant to either clause (a) or (b) above, such
successor agent shall succeed to the rights, powers and duties of the agent and
the terms "Agent" and "Administrative Agent" shall mean such successor Agent or
Administrative Agent, as the case may be, effective upon its appointment, and
the former Administrative Agent's or Agent's rights, powers and duties as Agent
or Administrative Agent shall be terminated without any other or further act or
deed on the part of such former Agent or Administrative Agent or any of the
parties to this Agreement. After the resignation of any Administrative Agent or
Agent hereunder, the provisions of this Article X shall inure to the benefit of
such former Agent and former Administrative Agent, and such former Agent and
former Administrative Agent shall not by reason of such resignation be deemed to
be released from liability for any actions taken or not taken by it while it was
the Administrative Agent or an Agent under this Agreement.
10.15 Administrative Agent's Fee. The Borrower shall pay to the
--------------------------
Administrative Agent a non refundable, annual fee (the "Administrative Agent's
Fee") as set forth in the agreement dated December 3, 1998, between the Borrower
and the Administrative Agent, such fee to be payable in the manner and on the
dates set forth in such letter agreement.
10.16 Availability of Funds. Unless the Administrative Agent shall
---------------------
have been notified by a Bank prior to the date upon which a Loan is to be made
that such Bank does not intend to make available to the Administrative Agent
such Bank's portion of such Loan, the Administrative Agent may assume that such
Bank has made or will make such proceeds available to the Administrative Agent
on such date and the Administrative Agent may, in reliance upon such assumption
(but shall not be required to), make available to the Borrower a corresponding
amount. If such corresponding amount is not in fact made available to the
Administrative Agent by such Bank, the Administrative Agent shall be entitled to
recover such
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amount on demand from such Bank (or, if such Bank fails to pay such amount
forthwith upon such demand from the Borrower) together with interest thereon, in
respect of each day during the period commencing on the date such amount was
made available to the Borrower and ending on the date the Administrative Agent
recovers such amount, at a rate per annum equal to the Federal Funds Effective
Rate in respect of the Loan.
10.17 Calculations. In the absence of gross negligence or willful
------------
misconduct, the Administrative Agent shall not be liable for any error in
computing the amount payable to any Bank whether in respect of the Loans, fees
or any other amounts due to the Banks under this Agreement. In the event an
error in computing any amount payable to any Bank is made, the Administrative
Agent, the Borrower and each affected Bank shall, forthwith upon discovery of
such error, make such adjustments as shall be required to correct such error,
and any compensation therefor will be calculated at the Federal Funds Effective
Rate.
10.18 Beneficiaries. Except as expressly provided herein, the
-------------
provisions of this Article X are solely for the benefit of the Administrative
Agent, each Agent and the Banks, and the Borrower shall not have any rights to
rely on or enforce any of the provisions hereof. In performing its functions
and duties under this Agreement, the Administrative Agent and each Agent shall
act solely as agent of the Banks and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for the Borrower.
10.19 Holding of Loan Documents. Administrative Agent agrees that all
-------------------------
original Loan Documents retained by it shall be retained for the benefit of the
Banks, and the Administrative Agent shall make available copies of such
documents retained by it upon the reasonable request of any of the Banks.
ARTICLE XI
MISCELLANEOUS
-------------
11.01 Modifications, Amendments or Waivers. With the written consent
------------------------------------
of the Required Banks, the Administrative Agent, acting on behalf of the Banks,
and the Borrower or the other applicable Loan Party may from time to time enter
into written agreements amending or changing any provision of this Agreement or
any other Loan Document or the rights of the Banks or the Borrower or such Loan
Party hereunder or thereunder, or may grant written waivers or consents to a
departure from the due performance of the obligations of the Borrower or such
Loan Party hereunder or thereunder. Any such agreement, waiver or consent made
with such written consent shall be effective to bind all the Loan Parties and
all of the Banks; provided that, no such agreement, waiver or consent may be
made which will:
(a) without the written consent of all Banks, reduce the amount
of the Commitment Fee or any other fees payable to any Bank hereunder, or amend
Sections 5.02 [Pro Rata Treatment of Banks], 10.06 [Exculpatory Provisions] or
10.13 [Equalization of Banks] hereof;
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(b) without the written consent of all Banks, whether or not any
Loans are outstanding, extend the time for payment of principal or interest of
any Loan, or reduce the principal amount of or the rate of interest borne by any
Loan;
(c) without the written consent of all Banks, release any
Collateral or other security, if any, for the Borrower's obligations hereunder
(provided that, upon the request by the Borrower and so long as no Potential
Default or Event of Default exists or is continuing as certified by the Borrower
to the Agents and the Banks, with respect to any disposition or sale of assets
which is permitted by Section 8.02(f) or (g), the Administrative Agent is hereby
authorized to release liens on the assets so disposed of or sold and to release
the Guaranty of any Subsidiary sold or disposed of without the consent of any
Bank);
(d) without the written consent of all Banks, release or
terminate any Guaranty Agreement of any Loan Party;
(e) without the written consent of the Supermajority Required
Banks and each Bank whose Combined Commitment equals $25,000,000 or more, amend
Sections 4.01(a) or 8.02(r), or change the definitions or the method of
computing the ratios contained within such foregoing sections;
(f) without the written consent of all Banks, amend Section
11.01 or change the definition of Supermajority Required Banks or the definition
of Required Banks, or change any requirement providing for the Banks, the
Supermajority Required Banks or the Required Banks to authorize the taking of
any action hereunder; or
(g) without the written consent of all Banks, extend the
Expiration Date or increase the amount of Commitment of any Bank hereunder.
11.02 No Implied Waivers; Cumulative Remedies; Writing Required. No
---------------------------------------------------------
course of dealing and no delay or failure of the Administrative Agent, any Agent
or any Bank in exercising any right, power or remedy or privilege under this
Agreement or any other Loan Document shall affect any other or future exercise
thereof or operate as a waiver thereof; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power, remedy or privilege preclude any further exercise thereof or of
any other right, power, remedy or privilege. The rights and remedies of the
Administrative Agent, each Agent and the Banks under this Agreement and any
other Loan Documents are cumulative and not exclusive of any rights or remedies
which they would otherwise have. Any waiver, permit, consent or approval of any
kind or character on the part of any Bank of any breach or default under this
Agreement or any such waiver of any provision or condition of this Agreement
must be in writing and shall be effective only to the extent specifically set
forth in such writing.
11.03 Reimbursement and Indemnification of Banks by the Borrower;
-----------------------------------------------------------
Taxes. The Borrower agrees unconditionally upon demand to pay or reimburse to
- -----
each Bank (other than the Administrative Agents and the Agents, as to which the
Borrower's obligations are set forth in Section 9.05) and to save such Bank
harmless against (i) liability for the payment of all reasonable out-of-pocket
costs, expenses and disbursements (including reasonable fees and
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expenses of counsel for each Bank except with respect to (a) and (b) below),
incurred by such Bank (a) in connection with the interpretation of this
Agreement, and other instruments and documents to be delivered hereunder, (b)
relating to any requested amendments, waivers or consents pursuant to the
provisions hereof, (c) in connection with the enforcement of this Agreement or
any other Loan Document, or collection of amounts due hereunder or thereunder or
the proof and allowability of any claim arising under this Agreement or any
other Loan Document, whether in bankruptcy or receivership proceedings or
otherwise, and (d) in any workout, restructuring or in connection with the
protection, preservation, exercise or enforcement of any of the terms hereof or
of any rights hereunder or under any other Loan Document or in connection with
any foreclosure, collection or bankruptcy proceedings, or (ii) all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever including, without
limitation, all documentary stamp tax, non-recurring intangible personal
property tax, recording or transfer taxes due to any Official Body together with
all interest, fines, penalties, costs or other charges thereon which may be
imposed on, incurred by or asserted against such Bank, in its capacity as such,
in any way relating to or arising out of this Agreement or any other Loan
Documents or any action taken or omitted by such Bank hereunder or thereunder,
provided that the Borrower shall not be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements (A) if the same results from such Bank's gross
negligence or willful misconduct, or (B) if the Borrower was not given notice of
the subject claim and the opportunity to participate in the defense thereof, at
its expense, or (C) if the same results from a compromise or settlement
agreement entered into without the consent of the Borrower. The Banks will
attempt to minimize the fees and expenses of legal counsel for the Banks which
are subject to reimbursement by the Borrower hereunder by considering the usage
of one law firm to represent the Banks and the Administrative Agents, and the
Agents if appropriate under the circumstances. The Borrower agrees
unconditionally to pay all stamp, document, transfer, recording or filing taxes
or fees and similar impositions now or hereafter determined by the
Administrative Agent, any Agent or any Bank to be payable in connection with
this Agreement or any other Loan Document, and the Borrower agrees
unconditionally to save the Administrative Agent, each Agent and the Banks
harmless from and against any and all present or future claims, liabilities or
losses with respect to or resulting from any omission to pay or delay in paying
any such taxes, fees or impositions.
11.04 Holidays. Whenever any payment or action to be made or taken
--------
hereunder shall be stated to be due on a day which is not a Business Day, such
payment or action shall be made or taken on the next following Business Day
(except as provided in Sections 4.02(a) and (b) with respect to Interest Periods
for Loans subject to a Euro-Rate Option), and such extension of time shall be
included in computing interest or fees, if any, in connection with such payment
or action.
11.05 Funding by Branch, Subsidiary or Affiliate.
------------------------------------------
(a) Notional Funding. Each Bank shall have the right from time
----------------
to time, without notice to the Borrower, to deem any branch, subsidiary or
affiliate (which for the purposes of this Section 11.05 shall mean any
corporation or association which is directly or
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indirectly controlled by or is under direct or indirect common control with any
corporation or association which directly or indirectly controls such Bank) of
such Bank to have made, maintained or funded any Loan to which the Euro-Rate
Option applies at any time, provided that immediately following (on the
assumption that a payment were then due from the Borrower to such other office)
and as a result of such change the Borrower would not be under any greater
financial obligation pursuant to Section 5.06 hereof than it would have been in
the absence of such change. Notional funding offices may be selected by each
Bank without regard to the Bank's actual methods of making, maintaining or
funding the Loans or any sources of funding actually used by or available to
such Bank.
(b) Actual Funding. Each Bank shall have the right from time to
--------------
time, to make or maintain any Loan by arranging for a branch, subsidiary or
affiliate of such Bank to make or maintain such Loan subject to the last
sentence of this Section 11.05(b). If any Bank causes a branch, subsidiary or
affiliate to make or maintain any part of the Loans hereunder, all terms and
conditions of this Agreement shall, except where the context clearly requires
otherwise, be applicable to such part of the Loans to the same extent as if such
Loans were made or maintained by such Banks but in no event shall any Bank's use
of a branch, subsidiary or affiliate to make or maintain any part of the Loans
hereunder cause such Bank or such branch, subsidiary or affiliate to incur any
cost or expenses payable by the Borrower hereunder or require the Borrower to
pay any other compensation to any Bank (including, without limitation, any
expenses incurred or payable pursuant to Section 5.06 hereof) which would
otherwise not be incurred).
11.06 Notices. All notices, requests, demands, directions and other
-------
communications (collectively "notices") given to or made upon any party hereto
under the provisions of this Agreement shall be by telephone or in writing
(including telex or facsimile communication) unless otherwise expressly
permitted hereunder and shall be delivered or sent by telex or facsimile to the
respective parties at the addresses and numbers set forth under their respective
names on the signature pages hereof or in accordance with any subsequent
unrevoked written direction from any party to the others. All notices shall,
except as otherwise expressly herein provided, be effective (a) in the case of
telex or facsimile, when received, (b) in the case of hand-delivered notice,
when hand delivered, (c) in the case of telephone, when telephoned, provided,
however, that in order to be effective, telephonic notices must be confirmed in
writing no later than the next day by letter, facsimile or telex, (d) if given
by mail, four (4) days after such communication is deposited in the mails with
first class postage prepaid, return receipt requested, and (e) if given by any
other means (including by air courier), when delivered; provided, that notices
to the Administrative Agent shall not be effective until received. Any Bank
giving any notice to the Borrower shall simultaneously send a copy thereof to
the Administrative Agent, and the Administrative Agent shall promptly notify the
other Banks of the receipt by it of any such notice.
11.07 Severability. The provisions of this Agreement are intended to
------------
be severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity and
unenforceability without in any manner affecting the validity or
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enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
11.08 Governing Law. This Agreement shall be deemed to be a contract
-------------
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania without regard to its conflict of laws principles.
11.09 Prior Understanding. This Agreement supersedes all prior
-------------------
understandings and agreements, whether written or oral, between the parties
hereto and thereto relating to the transactions provided for herein and therein,
including any prior confidentiality agreements and commitments.
11.10 Duration; Survival. All representations and warranties of the
------------------
Borrower contained herein or made in connection herewith shall survive the
making of Loans and shall not be waived by the execution and delivery of this
Agreement, any investigation by the Administrative Agent, any Agent or the
Banks, the making of Loans, or payment in full of the Loans. All covenants and
agreements of the Borrower contained in Sections 8.01, 8.02 and 8.03 herein
shall continue in full force and effect from and after the date hereof so long
as the Borrower may borrow hereunder and until termination of the Commitments
and payment in full of the Loans. All covenants and agreements of the Borrower
contained herein relating to the payment of principal, interest, premiums,
additional compensation or expenses and indemnification, including those set
forth in the Notes, Article V and Sections 10.05, 10.07 and 11.03 hereof, shall
survive payment in full of the Loans and termination of the Commitments.
11.11 Successors and Assigns.
----------------------
(i) This Agreement shall be binding upon and shall inure
to the benefit of the Banks, the Agents, the Administrative Agent, the Borrower
and their respective successors and assigns, except that the Borrower may not
assign or transfer any of its rights and obligations hereunder or any interest
herein. Each Bank may, at its own cost, make assignments of or sell
participations in all or any part of its Commitment and the Loans made by it to
one or more banks or other entities, subject in the case of assignments to the
consent of the Borrower (which consent shall not be required (A) during any
period in which an Event of Default exists or (B) in the case of an assignment
by a Bank to an Affiliate of such Bank) and the Administrative Agent with
respect to any assignee, such consent not to be unreasonably withheld, and
provided that assignments may not be made in amounts less than $1,000,000. It is
expressly agreed that upon and after the occurrence and during the continuation
of an Event of Default the consent of the Administrative Agent shall be
required, however the consent of the Borrower shall not be required for a Bank
to make an assignment of all or any part of its Commitment. In order for a Bank,
at any time to sell a participation in all or any part of its Commitment, the
consent of the Administrative Agent shall be required, however the consent of
the Borrower shall not be required. In the case of an assignment, upon receipt
by the Administrative Agent of the Assignment and Assumption Agreement and
payment to the Administrative Agent of a fee in the amount of $3,500, the
assignee shall have, to the extent of such assignment (unless otherwise
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provided therein), the same rights, benefits and obligations as it would have if
it had been a signatory Bank hereunder, the Commitments in Section 2.01 shall be
adjusted accordingly, and upon surrender of any Note subject to such assignment,
the Borrower shall execute and deliver a new Note to the assignee in an amount
equal to the amount of the Commitment or Loan assumed by it and a new Note to
the assigning Bank in an amount equal to the Commitment or Loan retained by it
hereunder. In the case of a participation, the participant shall only have the
rights specified in Section 9.02(c) (the participant's rights against such Bank
in respect of such participation to be those set forth in the agreement executed
by such Bank in favor of the participant relating thereto and not to include any
voting rights except with respect to changes of the type referenced in clauses
(a), (b) or (c) under Section 11.01 hereof), all of such Bank's obligations
under this Agreement or any other Loan Document shall remain unchanged and all
amounts payable by any Loan party hereunder or thereunder shall be determined as
if such Bank had not sold such participation. Each Bank may furnish any publicly
available information concerning any Loan Party and any other information
concerning any Loan Party in the possession of such Bank from time to time to
assignees and participants (including prospective assignees or participants)
provided such assignees and participants agree to be bound by the provisions of
Section 11.2 hereof.
(ii) Notwithstanding any other provision of this
Agreement, any Bank may at any time pledge or grant a security interest in all
or any portion of its rights under this Agreement, its Note and the other Loan
Documents to any Federal Reserve Bank in accordance with Regulation A of the FRB
or U.S. Treasury Relegation 31 CFR Section 203.14 without notice to or consent
of the Borrower or the Administrative Agent. No such pledge or grant of a
security interest shall release the transferor Bank of its obligations hereunder
or under any other Loan Document.
11.12 Confidentiality. The Agents, the Administrative Agent and the
---------------
Banks each agree to keep confidential all information obtained from any Loan
Party which is nonpublic and confidential or proprietary in nature (including
any information any Loan Party specifically designates as confidential), except
as provided below, and to use such information only in connection with their
respective capacities under this Agreement and for the purposes contemplated
hereby. The Agents, the Administrative Agent and the Banks shall be permitted
to disclose such information (i) to outside legal counsel, accountants and other
professional advisors who need to know such information in connection with the
administration and enforcement of this Agreement, subject to agreement of such
persons to maintain the confidentiality, (ii) assignees and participants as
contemplated by Section 11.11, (iii) to the extent requested by any bank
regulatory authority or, with notice to the Borrower, as otherwise required by
applicable Law or by any subpoena or similar legal process, or in connection
with any investigation or proceeding arising out of the transactions
contemplated by this Agreement, (iv) if it becomes publicly available other than
as a result of a breach of this Agreement or becomes available from a source not
subject to confidentiality restrictions, or (v) the Borrower shall have
consented to such disclosure.
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11.13 Counterparts. This Agreement may be executed by different
------------
parties hereto on any number of separate counterparts, each of which, when so
executed and delivered, shall be an original, and all such counterparts shall
together constitute one and the same instrument.
11.14 Agent's or Bank's Consent. Whenever the Administrative
-------------------------
Agent's, any Agent's or any Bank's consent is required to be obtained under this
Agreement or any of the other Loan Documents as a condition to any action,
inaction, condition or event, the Administrative Agent, each Agent and each Bank
shall be authorized to give or withhold such consent in its sole and absolute
discretion and to condition its consent upon the giving of additional
collateral, the payment of money or any other matter.
11.15 Exceptions. The representations, warranties and covenants
----------
contained herein shall be independent of each other and no exception to any
representation, warranty or covenant shall be deemed to be an exception to any
other representation, warranty or covenant contained herein unless expressly
provided, nor shall any such exceptions be deemed to permit any action or
omission that would be in contravention of applicable Law.
11.16 CONSENT TO FORUM; WAIVER OF JURY TRIAL. THE BORROWER HEREBY
--------------------------------------
IRREVOCABLY CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF THE COURT OF COMMON
PLEAS OF ALLEGHENY COUNTY AND UNITED STATES DISTRICT COURT FOR THE WESTERN
DISTRICT OF PENNSYLVANIA, AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS
UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY CERTIFIED OR
REGISTERED MAIL DIRECTED TO THE BORROWER AT THE ADDRESSES PROVIDED FOR IN
SECTION 11.06 HEREOF AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON
ACTUAL RECEIPT THEREOF. THE BORROWER WAIVES ANY OBJECTION TO JURISDICTION AND
VENUE OF ANY ACTION INSTITUTED AGAINST IT AS PROVIDED HEREIN AND AGREES NOT TO
ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. THE BORROWER, THE
ADMINISTRATIVE AGENT, THE AGENTS AND THE BANKS HEREBY WAIVE TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED
TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE COLLATERAL TO THE FULL EXTENT
PERMITTED BY LAW.
11.17 Tax Withholding Clause. At least five (5) Business Days prior
----------------------
to the first date on which interest or fees are payable hereunder for the
account of any Bank, each Bank that is not incorporated under the laws of the
United States of America or state thereof agrees that it will deliver to each of
the Borrower and the Administrative Agent two (2) duly completed copies of (i)
Internal Revenue Service Form W-9, 4224 or 1001, or other applicable form
prescribed by the Internal Revenue Service, certifying in either case that such
Bank is entitled to receive payments under this Agreement and the other Loan
Documents without deduction or withholding of any United States federal income
taxes, or is subject to such tax at a reduced rate under an applicable tax
treaty, or (ii) Form W-8 or other applicable form or a certificate of the Bank
indicating that no such exemption or reduced rate is allowable with respect to
such payments.
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Each Bank which so delivers a Form W-8, W-9, 4224 or 1001 further undertakes to
deliver to each of the Borrower and the Administrative Agent two (2) additional
copies of such form (or a successor form) on or before the date that such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form so delivered by it, and such amendments thereto
or extensions or renewals thereof as may be reasonably requested by the Borrower
or the Administrative Agent, either certifying that such Bank is entitled to
receive payments under this Agreement and the other Loan Documents without
deduction or withholding of any United States federal income taxes or is subject
to such tax at a reduced rate under an applicable tax treaty or stating that no
such exemption or reduced rate is allowable. The Administrative Agent shall be
entitled to withhold United States federal income taxes at the full withholding
rate unless the Bank establishes an exemption or at the applicable reduced rate
as established pursuant to the above provisions.
11.18 Appointment of Collateral Agent. Each Agent and each Bank has
-------------------------------
reviewed a copy of the Collateral Sharing Agreement and hereby consents to: (a)
the Collateral Sharing Agreement and the appointment of PNC Bank as Collateral
Agent under the Collateral Sharing Agreement, the First Mortgages, Pledge
Agreements, Security Agreement, Patent, Trademark and Copyright Security
Agreement and other Loan Documents and (b) the execution of the Collateral
Sharing Agreement by the Administrative Agent on behalf of each Agent and each
Bank.
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EXHIBIT 1
AMENDED AND RESTATED RECITALS AND ARTICLES I THROUGH XI
OF THE REVOLVING CREDIT AGREEMENT
(Cover Page, table of contents and first
paragraph are also attached for convenience)
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EXHIBIT 10.69
AMENDED AND RESTATED PLEDGE AGREEMENT
(BORROWER PLEDGING STOCK)
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Agreement"), dated as of
December 23, 1998, is made and entered into by and between MARINER HEALTH GROUP,
INC., a Delaware corporation (the "Debtor"), and PNC BANK, NATIONAL ASSOCIATION,
a national banking association in its capacity as Collateral Agent, as
hereinafter defined (the "Secured Party").
WITNESSETH THAT:
WHEREAS, Debtor, as borrower, PNC Bank, National Association, as
administrative agent, First Union National Bank, as syndication agent, and the
lenders party thereto (the "Banks"), are parties to that certain Credit
Agreement dated as of May 18, 1994, as amended (as it may hereafter from time
to time be amended, restated, modified or supplemented, the "Revolving Credit
Agreement"), pursuant to which the Banks have agreed to make certain revolving
credit loans to the Debtor upon the terms and subject to the conditions set
forth therein;
WHEREAS, Mariner Health Group, Inc. (the "Term Loan Borrower"), as
borrower, PNC Bank, National Association, as administrative agent, First Union
National Bank, as syndication agent, and the lenders party thereto (the "Term
Loan Banks"), are parties to that certain Term Loan Agreement dated of even date
herewith (as it may hereafter from time to time be amended, restated, modified
or supplemented, the "Term Loan Agreement"; the Revolving Credit Agreement and
the Term Loan Agreement are hereinafter collectively referred to as the "Credit
Agreements"), pursuant to which the Term Loan Banks have agreed to make certain
term loans to the Term Loan Borrower upon the terms and subject to the
conditions set forth therein;
WHEREAS, pursuant to that certain Collateral Agency and Sharing Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Collateral Sharing Agreement"), among
the Debtor, the Term Loan Borrower, the other Loan Parties (as defined therein),
the Revolving Credit Agent and the Term Loan Agent (as such terms are defined in
the Collateral Sharing Agreement), and PNC Bank, National Association, as
Collateral Agent (together with its successors and assigns, the "Collateral
Agent"), the Facility Parties (as defined in the Collateral Sharing Agreement),
in order to secure the Obligations (as defined in the Collateral Sharing
Agreement), have agreed to share certain collateral as provided in the
Collateral Sharing Agreement;
WHEREAS, the Debtor and the Administrative Agent (as defined in the
Revolving Credit Agreement) are currently parties to that certain Pledge
Agreement (Subsidiaries Pledging Stock) dated May 18, 1994, as amended (the
"Original Pledge Agreement"), pursuant to which certain collateral is pledged to
secure the Revolving Credit Obligations (as defined in the Collateral Sharing
Agreement);
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WHEREAS, Debtor owns the outstanding capital stock of each Subsidiary of
the Debtor as set forth on Schedule A attached hereto and made a part hereof;
----------
and
WHEREAS, the parties to the Original Pledge Agreement now wish to amend and
restate the Original Pledge Agreement as provided herein, and as so amended,
this Agreement shall be a Shared Security Document (as defined in the Collateral
Sharing Agreement).
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Amendment and Restatement; No Novation.
- -- --------------------------------------
The Original Pledge Agreement is hereby amended and restated as
provided herein. No novation, suspension of continuity, satisfaction, discharge
of prior duties, or termination of the Obligations, or the collateral therefore
(including, without limitation, the Pledged Collateral), is intended or
consented to by the parties hereto. The Debtor and the Secured Party
acknowledge and agree that the Original Pledge Agreement has continued to secure
the Revolving Credit Obligations since the day of the execution of the Original
Pledge Agreement; that this Agreement is entitled to all rights and benefits
originally pertaining to the Original Pledge Agreement; and that in the event a
court or other authority shall determine that a novation has occurred as a
result of the execution of this Agreement or any other Loan Documents (as
defined in the Collateral Sharing Agreement), or otherwise, and the Secured
Party's security interest in the Pledged Collateral created under the Original
Pledge Agreement is avoided or the Secured Party's priority with respect thereto
is materially and adversely affected, then the rights, privileges, obligations
and remedies of the parities hereto shall be governed as if this Agreement had
not been executed by any party hereto, and the parties hereto agree to negotiate
in good faith to achieve the objectives of this Agreement.
2. Defined Terms.
- -- -------------
(a) Except as otherwise expressly provided herein, capitalized terms used
in this Agreement shall have the respective meanings assigned to them in the
Credit Agreements. Where applicable and except as otherwise expressly provided
herein, terms used herein (whether or not capitalized) shall have the respective
meanings assigned to them in the Uniform Commercial Code as enacted in each
applicable jurisdiction and as may be amended from time to time (the "Code").
(b) "Pledged Collateral" shall mean and include the following: (i) all of
the securities owned by Debtor listed on Schedule A attached hereto and made a
----------
part hereof, together with all related rights, including without limitation, all
securities and additional securities receivable in respect of or in exchange for
any such securities, all rights to subscribe for securities incident to or
arising from ownership of any such securities, all cash, interest, stock and
other cash and non-cash dividends and distributions (including, without
limitation, stock dividends) paid or payable on any such securities, and all
books, records, and documents concerning any of the items described above
including, without limitation, all stock record and
2
<PAGE>
transfer books, both that which Debtor now owns and that which Debtor acquires
hereafter; (ii) any and all other securities hereafter pledged to the Secured
Party to secure the Secured Obligations (as hereinafter defined) of Debtor or
Debtor's Subsidiaries, and all rights and privileges pertaining thereto,
including, without limitation, all securities and additional securities
receivable in respect of or in exchange for any such securities, all rights to
subscribe for securities incident to or arising from ownership of any such
securities, all cash, interest, stock and other cash and non-cash dividends and
distributions paid or payable on such securities and all books and records
pertaining to the foregoing including, without limitation, all stock record and
transfer books, and (iii) all substitutions therefor, additions thereto, and
proceeds thereof with respect to any of the foregoing.
3. Grant of Security Interests.
- -- ---------------------------
(a) Debtor, as security for the payment and performance of Debtor's
Obligations and of all other indebtedness and obligations of every nature it
owes under the Loan Documents (all of the foregoing indebtedness and obligations
being referred to herein as the "Secured Obligations"), hereby grants to the
Secured Party a first priority security interest in all of Debtor's now existing
and hereafter acquired and/or arising right, title and interest in, to and under
the Pledged Collateral owned by Debtor, whether now existing or hereafter
acquired and wherever located, subject to Permitted Liens.
(b) Prior to or concurrently with the execution and delivery of this
Agreement, Debtor has delivered to and deposited with the Secured Party in
pledge, stock certificates and any other instruments evidencing the Pledged
Collateral, together with updated Stock Powers signed in blank by Debtor.
4. Further Assurances.
- -- ------------------
Prior to or concurrently with the execution of this Agreement, and
thereafter at any time and from time to time upon reasonable request of the
Secured Party, Debtor shall execute and deliver to the Secured Party all
financing statements, continuation or amendment financing statements,
termination statements, assignments, certificates and documents of title,
affidavits, reports, notices, schedules of account, letters of authority,
further pledges, powers of attorney and all other documents (collectively, the
"Security Documents") which the Secured Party may reasonably request, in form
reasonably satisfactory to the Secured Party, and take such other action which
the Secured Party may request, to perfect and continue perfected and to create
and maintain the first priority status (object only to Permitted Liens) of the
Secured Party's security interest in the Pledged Collateral and to fully
consummate the transactions contemplated under the Credit Agreements, the other
Loan Documents and this Agreement. Debtor hereby irrevocably makes, constitutes
and appoints the Secured Party (and any of the Secured Party's officers or
employees or agents designated by the Secured Party) as Debtor's true and lawful
attorney with power to sign the name of Debtor on all or any of the Security
Documents which the Secured Party reasonably determines must be executed, filed,
recorded or sent in order to perfect or continue perfected the Secured Party's
security interest in the Pledged Collateral. Such power, being coupled
3
<PAGE>
with an interest, is irrevocable until all of the Secured Obligations have been
indefeasibly paid in full and the Commitments have terminated.
5. Representations, Warranties and Certain Covenants.
- -- -------------------------------------------------
In addition to the representations and warranties of Debtor set forth
in the Loan Documents (which representations and warranties are hereby
incorporated herein by reference), Debtor hereby represents, warrants and
covenants to the Secured Party as follows:
(a) Debtor has, and will continue to have (or, in the case of after-
acquired Pledged Collateral, at the time Debtor acquires rights in such Pledged
Collateral, will have), title to the Pledged Collateral, free and clear of all
Liens other than Permitted Liens.
(b) The shares of capital stock constituting the Pledged Collateral have
been duly authorized and validly issued to the Debtor, are fully paid and
nonassessable, have no outstanding assessments, and constitute all of the issued
and outstanding shares of capital stock of the issuer thereof owned by Debtor.
(c) Except for Permitted Liens, the security interests in the Pledged
Collateral granted hereunder are valid, perfected and of first priority.
(d) There are no restrictions upon the transfer of the Pledged Collateral
and Debtor has the power and authority and right to transfer the Pledged
Collateral free of any encumbrances and without obtaining the consent of any
other Person except to the extent that a transfer upon the exercise of Secured
Party's rights and remedies under this Agreement and the other Loan Documents
would result in or constitute an assignment of any license relating to a health
care facility or a change of control with respect to the ownership of a health
care facility which is subject to the prior approval of health care regulatory
authorities issuing such license or regulating such health care facility. It is
acknowledged that a transfer of the Pledged Collateral by Secured Party
following foreclosure may require compliance with federal and state securities
laws.
(e) Debtor has all necessary power to execute, deliver and perform this
Agreement and all necessary action to authorize the execution, delivery and
performance of this Agreement has been properly taken.
(f) There are no actions, suits, or proceedings pending or, to Debtor's
best knowledge after due inquiry, threatened against or affecting Debtor with
respect to the Pledged Collateral, at law or in equity or before or by any
commissions, board, bureau, agency, department or instrumentality, and Debtor is
not in default with respect to any judgment, writ, injunction, decree, rule or
regulation which would adversely affect Debtor's performance hereunder.
(g) This Agreement has been duly executed and delivered and constitutes the
valid and legally binding obligation of Debtor, enforceable in accordance with
its
4
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terms, except to the extent that (i) enforceability of this Agreement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws affecting the enforceability of creditors' rights generally
or limiting the right of specific performance or by general equitable
principles; and (ii) the exercise by Secured Party of its rights and remedies in
respect of the Pledged Collateral which would result in or constitute any
assignment of any license relating to a health care facility or any change of
control with respect to the ownership of a health care facility is subject to
the prior approval of health care regulatory authorities issuing such license or
regulating such health care facility.
(h) Neither the execution and delivery by the Debtor of this Agreement, nor
the compliance with the terms and provisions hereof, will violate any provision
of the Articles of Incorporation or Bylaws of the Debtor or any Law or conflict
with or result in a breach of any of the terms, conditions or provisions of any
judgment, order, injunction, decree or ruling of any court or arbitration
tribunal or any governmental authority to which Debtor is subject or any
provision of any material agreement, understanding or arrangement to which
Debtor is a party or by which Debtor is bound.
(i) The Debtor's principal place of business and chief executive office is
as set forth on the signature page hereto.
6. General Covenants.
- -- -----------------
In addition to any covenants and agreements of the Debtor set forth in
the other Loan Documents, which are incorporated herein by this reference,
Debtor hereby covenants and agrees as follows:
(a) Debtor shall do all reasonable acts that may be necessary and
appropriate to maintain, preserve and protect the Pledged Collateral; Debtor
shall be responsible for the risk of loss of, damage to, or destruction of the
Pledged Collateral owned by Debtor, unless such loss is the result of the gross
negligence or willful misconduct of the Secured Party. Debtor shall notify the
Secured Party in writing ten (10) Business Days prior to any change in the
Debtor's name, the address and location of Debtor's chief executive office or
the address and location of Debtor's principal place of business.
(b) Debtor shall pay promptly when due all taxes, assessments, charges and
obligations secured by encumbrances and liens now or hereafter imposed upon or
affecting any of the Pledged Collateral, except as otherwise expressly permitted
under the Credit Agreements.
(c) Debtor shall appear in and defend any action or proceeding of which
Debtor is aware which could reasonably be expected to affect Debtor's title to,
or the Secured Party's interest in, the Pledged Collateral owned by Debtor and
the proceeds thereof; provided, however, that Debtor may settle such actions or
-------- -------
proceedings with respect to the
5
<PAGE>
Pledged Collateral Debtor owns with the consent of the Secured Party, which
consent shall not be unreasonably withheld or delayed.
(d) Debtor shall keep separate, accurate and complete records of the
Pledged Collateral owned by Debtor, disclosing the Secured Party's security
interest hereunder.
(e) Debtor shall permit the Secured Party, its officers, employees and
agents at reasonable times and on reasonable prior notice to inspect all books
and records related to the Pledged Collateral.
(f) To the extent, following the date hereof, Debtor acquires capital stock
of a Subsidiary of Debtor or any of the interests, rights, property or
securities described in the definition of Pledged Collateral with respect to
Debtor's Subsidiaries, such interests stocks, rights, property or securities
shall be, upon such acquisition, pledged to the Secured Party, and Debtor shall
deliver the original certificates for such securities, stock powers executed in
blank, and an updated Schedule A hereto to the Secured Party.
----------
(g) During the term of this Agreement, Debtor shall not sell, assign,
transfer, pledge, grant a security interest in, place a lien on or otherwise
dispose of the Pledged Collateral except as permitted under the Credit
Agreements.
7. Other Rights With Respect to Pledged Collateral.
- -- -----------------------------------------------
In addition to the other rights with respect to the Pledged Collateral
granted to the Secured Party hereunder, at any time and from time to time, after
and during the continuation of an Event of Default, the Secured Party, at its
option and at the expense of the Debtor, may (a) transfer into its own name, or
into the name of its nominee, all or any part of the Pledged Collateral,
thereafter receiving all dividends, income or other distributions upon the
Pledged Collateral; (b) take control of and manage all or any of the Pledged
Collateral; (c) apply to the payment of any of the Secured Obligations, whether
any be due and payable or not, any moneys, including cash dividends and income
from any Pledged Collateral, now or hereafter in the hands of the Secured Party
or any Affiliate of the Secured Party, on deposit or otherwise, belonging to
Debtor, as the Secured Party, in its sole discretion, shall determine; and (d)
do anything which Debtor is required but fails to do hereunder. The exercise by
the Secured Party of its rights and remedies with respect to the Pledged
Collateral is subject to the licensing power of health care regulatory
authorities. The proceeds of any collection, sale or other disposition of the
Pledged Collateral of Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the
Collateral Sharing Agreement.
6
<PAGE>
8. Additional Remedies Upon Event of Default.
- -- -----------------------------------------
Upon the occurrence of any Event of Default and while such Event of
Default shall be continuing, the Secured Party shall have, in addition to all
rights and remedies of a secured party under the Code or other applicable Law,
and in addition to its rights under Section 7 above and under the other Loan
Documents, the following rights and remedies:
(a) The Secured Party may, after ten (10) days' advance notice to the
Debtor, sell, assign, give an option or options to purchase or otherwise dispose
of the Pledged Collateral or any part thereof at public or private sale, at any
of the Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Secured Party may deem commercially
reasonable. Debtor agrees that ten (10) days' advance notice of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Secured Party shall not be
obligated to make any sale of Pledged Collateral regardless of notice of sale
having been given. The Secured Party may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Debtor recognizes that the Secured Party may be compelled to resort
to one or more private sales of the Pledged Collateral to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
securities for its own account for investment and not with a view to the
distribution or resale thereof. Debtor acknowledges and agrees that any such
private sale may result in prices and other terms less favorable than if such
sale were a public sale and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially reasonable
manner. The Secured Party shall be under no obligation to delay sale of any of
the Pledged Collateral for the period of time necessary to permit Debtor to
register such securities for public sale under the Securities Act of 1933, as
amended, or under applicable state securities laws, even if Debtor would agree
to do so.
(b) The proceeds of any collection, sale or other disposition of the
Pledged Collateral of Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the
Collateral Sharing Agreement.
9. Secured Party's Duties.
- -- ----------------------
The powers conferred on the Secured Party hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any Pledged
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Secured Party shall have no duty as to any Pledged Collateral
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Pledged Collateral. Further, the
exercise by the Secured Party
7
<PAGE>
of its rights and remedies with respect to the Pledged Collateral or as
otherwise provided under this Agreement shall only be an exercise of rights with
respect to the Pledged Collateral and shall not in any manner constitute an
assumption of any liabilities with respect to the Pledged Collateral.
10. No Waiver; Cumulative Remedies.
- --- ------------------------------
No failure to exercise, and no delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any further exercise thereof or the exercise of any
other right, power or privilege. The remedies herein provided are cumulative
and not exclusive of any remedies provided under the other Loan Documents or by
Law. Debtor waives any right to require the Secured Party to proceed against
any other Person or to exhaust any of the Pledged Collateral or other security
for the Secured Obligations or to pursue any remedy in the Secured Party's
power.
11. Assignment.
- --- ----------
All rights of the Secured Party under this Agreement shall inure to
the benefit of its successors and assigns. All obligations of Debtor shall bind
its successors and assigns; provided, however, Debtor may not assign or transfer
-------- -------
any of its rights and obligations hereunder or any interest herein.
12. Severability.
- --- ------------
Any provision of this Agreement which shall be held invalid or
unenforceable shall be ineffective without invalidating the remaining provisions
hereof.
13. Governing Law.
- --- -------------
This Agreement shall be construed in accordance with and governed by
the internal laws of the Commonwealth of Pennsylvania without regard to its
conflicts of law principles, except to the extent the validity or perfection of
the security interests or the remedies hereunder in respect of any Pledged
Collateral are governed by the law of a jurisdiction other than the Commonwealth
of Pennsylvania.
14. Notices.
- --- -------
Debtor agree that all notices, statements, requests, demands and other
communications under this Agreement shall be given in the manner provided in
Section 11.06 of the Credit Agreements, and shall be addressed (a) to the Debtor
at the address set forth below the Debtor's name on the signature page of this
Agreement, and (b) to the Secured Party at the address set forth below the
Secured Party's name on the signature page of this Agreement.
8
<PAGE>
15. Specific Performance.
- --- --------------------
Debtor acknowledges and agrees that, in addition to the other rights
of the Secured Party hereunder and under the other Loan Documents, because the
Secured Party's remedies at law for failure of the Debtor to comply with the
provisions hereof relating to the Secured Party's rights (i) to inspect the
books and records related to the Pledged Collateral, (ii) to receive the various
notifications the Debtor are required to deliver hereunder, (iii) to obtain
copies of agreements and documents as provided herein with respect to the
Pledged Collateral, (iv) to enforce the provisions hereof pursuant to which the
Debtor has appointed the Secured Party its attorney-in-fact, and (v) to enforce
the Secured Party's remedies hereunder, would be inadequate and that any such
failure would not be adequately compensable in damages, Debtor agrees that each
such provision hereof may be specifically enforced.
16. Dividends; Voting Rights in Respect of the Pledged Collateral.
- --- -------------------------------------------------------------
So long as no Event of Default shall occur and be continuing under any
of the Loan Documents, Debtor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral owned by Debtor or any
part thereof for any purpose not inconsistent with the terms of this Agreement
or the other Loan Documents; provided, however, that Debtor will not exercise
-------- -------
or will refrain from exercising any such right, as the case may be, if such
action would be inconsistent with the covenants and obligations of Debtor under
the Credit Agreements and the other Loan Documents or would have a material
adverse effect on the value of any Pledged Collateral. So long as no Event of
Default has occurred and is continuing, any lawful dividends paid in cash to a
Debtor in respect of the Pledged Collateral may be used or applied by Debtor for
any purpose permitted by the Credit Agreements.
17. Entire Agreement; Amendments.
- --- ----------------------------
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements
relating to a grant of a security interest in the Pledged Collateral by the
Debtor. This Agreement may not be amended or supplemented except by a writing
signed by the Secured Party and the Debtor.
18. Counterparts.
- --- ------------
This Agreement may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
19. Descriptive Headings.
- --- --------------------
The descriptive headings which are used in this Agreement are for the
convenience of the parties only and shall not affect the meaning of any
provision of this Agreement.
9
<PAGE>
[SIGNATURE PAGE 1 OF 1 TO THE AMENDED AND RESTATED PLEDGE AGREEMENT
(BORROWER PLEDGING STOCK)]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SECURED PARTY:
PNC BANK, NATIONAL ASSOCIATION,
as Collateral Agent
By:_________________________________
Title:________________________________
Address for Notices for Secured Party:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
DEBTOR:
MARINER HEALTH GROUP, INC.,
a Delaware corporation
By: _________________________________
Title: ________________________________
Address for Notices for Debtor:
Mariner Health Group, Inc.
One Ravinia Drive, Suite 1500
Atlanta, GA 30346
10
<PAGE>
SCHEDULE A
----------
PLEDGE AGREEMENT
(BORROWER PLEDGING STOCK)
Description of Securities Owned by Debtor
-----------------------------------------
11
<PAGE>
EXHIBIT 10.70
AMENDED AND RESTATED PLEDGE AGREEMENT
(PLEDGING STOCK)
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Agreement"), dated as of
December 23, 1998, is made and entered into by and among the undersigned debtors
(each a "Debtor" and collectively, the "Debtors"), and PNC BANK, NATIONAL
ASSOCIATION, a national banking association in its capacity as Collateral Agent
(as hereinafter defined) for the benefit of the Facility Parties (as hereinafter
defined)(the "Secured Party").
WITNESSETH THAT:
WHEREAS, Mariner Health Group, Inc., a Delaware corporation (the
"Borrower"), as borrower, PNC Bank, National Association, as administrative
agent, First Union National Bank, as syndication agent, and the lenders party
thereto (the "Banks"), are parties to that certain Credit Agreement dated as of
May 18, 1994, as amended (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Revolving Credit Agreement"), pursuant
to which the Banks have agreed to make certain revolving credit loans to the
Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS, Mariner Health Group, Inc. (the "Term Loan Borrower"), as
borrower, PNC Bank, National Association, as administrative agent, First Union
National Bank, as syndication agent, and the lenders party thereto (the "Term
Loan Banks"), are parties to that certain Term Loan Agreement dated of even date
herewith (as it may hereafter from time to time be amended, restated, modified
or supplemented, the "Term Loan Agreement"; the Revolving Credit Agreement and
the Term Loan Agreement are hereinafter collectively referred to as the "Credit
Agreements"), pursuant to which the Term Loan Banks have agreed to make certain
term loans to the Term Loan Borrower upon the terms and subject to the
conditions set forth therein;
WHEREAS, pursuant to that certain Collateral Agency and Sharing Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Collateral Sharing Agreement"), among
the Borrower, the Term Loan Borrower, the other Loan Parties (as defined
therein), the Revolving Credit Agent and the Term Loan Agent (as such terms are
defined in the Collateral Sharing Agreement), and PNC Bank, National
Association, as Collateral Agent (together with its successors and assigns, the
"Collateral Agent"), the Facility Parties (as defined in the Collateral Sharing
Agreement), in order to secure the Obligations (as defined in the Collateral
Sharing Agreement), have agreed to share certain collateral as provided in the
Collateral Sharing Agreement;
WHEREAS, the Debtors and the Administrative Agent (as defined in the
Revolving Credit Agreement) are currently parties to that certain Pledge
Agreement (Subsidiaries Pledging Stock) dated May 18, 1994, as amended (the
"Original Pledge Agreement"), pursuant to which certain collateral is pledged to
secure the Revolving Credit Obligations (as defined in the Collateral Sharing
Agreement);
<PAGE>
WHEREAS, each Debtor owns the outstanding capital stock of each Subsidiary
or of each Excluded Entity as set forth on Schedule A attached hereto and made a
----------
part hereof; and
WHEREAS, the parties to the Original Pledge Agreement now wish to amend and
restate the Original Pledge Agreement as provided herein, and as so amended,
this Agreement shall be a Shared Security Document (as defined in the Collateral
Sharing Agreement).
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Amendment and Restatement; No Novation.
- -- --------------------------------------
The Original Pledge Agreement is hereby amended and restated as
provided herein. No novation, suspension of continuity, satisfaction, discharge
of prior duties, or termination of the Obligations, or the collateral therefore
(including, without limitation, the Pledged Collateral), is intended or
consented to by the parties hereto. The Debtors and the Secured Party
acknowledge and agree that the Original Pledge Agreement has continued to secure
the Revolving Credit Obligations since the day of the execution of the Original
Pledge Agreement; that this Agreement is entitled to all rights and benefits
originally pertaining to the Original Pledge Agreement; and that in the event a
court or other authority shall determine that a novation has occurred as a
result of the execution of this Agreement or any other Loan Documents (as
defined in the Collateral Sharing Agreement), or otherwise, and the Secured
Party's security interest in the Pledged Collateral created under the Original
Pledge Agreement is avoided or the Secured Party's priority with respect thereto
is materially and adversely affected, then the rights, privileges, obligations
and remedies of the parities hereto shall be governed as if this Agreement had
not been executed by any party hereto, and the parties hereto agree to negotiate
in good faith to achieve the objectives of this Agreement.
2. Defined Terms.
- -- -------------
(a) Except as otherwise expressly provided herein, capitalized terms used
in this Agreement shall have the respective meanings assigned to them in the
Credit Agreements. Where applicable and except as otherwise expressly provided
herein, terms used herein (whether or not capitalized) shall have the respective
meanings assigned to them in the Uniform Commercial Code as enacted in each
applicable jurisdiction and as may be amended from time to time (the "Code").
(b) "Pledged Collateral" shall mean and include the following: (i) all of
the securities owned by each Debtor listed on Schedule A attached hereto and
----------
made a part hereof, together with all related rights, including without
limitation, all securities and additional securities receivable in respect of or
in exchange for any such securities, all rights to subscribe for securities
incident to or arising from ownership of any such securities, all cash,
interest, stock and other cash and non-cash dividends and distributions
(including, without limitation, stock dividends) paid or payable on any such
securities, and all books, records, and documents concerning any of the items
described above including, without limitation, all stock record and
2
<PAGE>
transfer books, both that which any Debtor now owns and that which any Debtor
acquires hereafter; (ii) any and all other securities hereafter pledged to the
Secured Party to secure the Secured Obligations (as hereinafter defined) of any
Debtor or any Debtor's Subsidiaries, and all rights and privileges pertaining
thereto, including, without limitation, all securities and additional securities
receivable in respect of or in exchange for any such securities, all rights to
subscribe for securities incident to or arising from ownership of any such
securities, all cash, interest, stock and other cash and non-cash dividends and
distributions paid or payable on such securities and all books and records
pertaining to the foregoing including, without limitation, all stock record and
transfer books, and (iii) all substitutions therefor, additions thereto, and
proceeds thereof with respect to any of the foregoing.
3. Grant of Security Interests.
- -- ---------------------------
(a) Each Debtor, as security for the payment and performance of such
Debtor's Obligations and of all other indebtedness and obligations of every
nature it owes under the Loan Documents (all of the foregoing indebtedness and
obligations being referred to herein as the "Secured Obligations"), hereby
grants to the Secured Party a first priority security interest in all of such
Debtor's now existing and hereafter acquired and/or arising right, title and
interest in, to and under the Pledged Collateral owned by such Debtor, whether
now existing or hereafter acquired and wherever located, subject only to
Permitted Liens.
(b) Prior to or concurrently with the execution and delivery of this
Agreement, each Debtor has delivered to and deposited with the Secured Party in
pledge, stock certificates and any other instruments evidencing the Pledged
Collateral, together with updated Stock Powers signed in blank by each such
Debtor.
4. Further Assurances.
- -- ------------------
Prior to or concurrently with the execution of this Agreement, and
thereafter at any time and from time to time upon reasonable request of the
Secured Party, each Debtor shall execute and deliver to the Secured Party all
financing statements, continuation or amendment financing statements,
termination statements, assignments, certificates and documents of title,
affidavits, reports, notices, schedules of account, letters of authority,
further pledges, powers of attorney and all other documents (collectively, the
"Security Documents") which the Secured Party may reasonably request, in form
reasonably satisfactory to the Secured Party, and take such other action which
the Secured Party may request, to perfect and continue perfected and to create
and maintain the first priority status (object only to Permitted Liens) of the
Secured Party's security interest in the Pledged Collateral and to fully
consummate the transactions contemplated under the Credit Agreements, the other
Loan Documents and this Agreement. Each Debtor hereby irrevocably makes,
constitutes and appoints the Secured Party (and any of the Secured Party's
officers or employees or agents designated by the Secured Party) as such
Debtor's true and lawful attorney with power to sign the name of such Debtor on
all or any of the Security Documents which the Secured Party reasonably
determines must be executed, filed, recorded or sent in order to perfect or
continue perfected the Secured Party's security interest in the Pledged
Collateral. Such
3
<PAGE>
power, being coupled with an interest, is irrevocable until all of the Secured
Obligations have been indefeasibly paid in full and the Commitments have
terminated.
5. Representations, Warranties and Certain Covenants.
- -- -------------------------------------------------
In addition to the representations and warranties of Debtors set forth
in the Loan Documents (which representations and warranties are hereby
incorporated herein by reference), each of the Debtors hereby represents,
warrants and covenants to the Secured Party as follows:
(a) Debtor has, and will continue to have (or, in the case of after-
acquired Pledged Collateral, at the time Debtor acquires rights in such Pledged
Collateral, will have), title to the Pledged Collateral, free and clear of all
Liens other than Permitted Liens.
(b) The shares of capital stock constituting the Pledged Collateral have
been duly authorized and validly issued to the Debtor, are fully paid and
nonassessable, have no outstanding assessments, and constitute all of the issued
and outstanding shares of capital stock of the issuer thereof owned by Debtor.
(c) Except for Permitted Liens, the security interests in the Pledged
Collateral granted hereunder are valid, perfected and of first priority.
(d) There are no restrictions upon the transfer of the Pledged Collateral
and Debtor has the power and authority and right to transfer the Pledged
Collateral free of any encumbrances and without obtaining the consent of any
other Person except to the extent that a transfer upon the exercise of Secured
Party's rights and remedies under this Agreement and the other Loan Documents
would result in or constitute an assignment of any license relating to a health
care facility or a change of control with respect to the ownership of a health
care facility which is subject to the prior approval of health care regulatory
authorities issuing such license or regulating such health care facility. It is
acknowledged that a transfer of the Pledged Collateral by Secured Party
following foreclosure may require compliance with federal and state securities
laws.
(e) Debtor has all necessary power to execute, deliver and perform this
Agreement and all necessary action to authorize the execution, delivery and
performance of this Agreement has been properly taken.
(f) There are no actions, suits, or proceedings pending or, to Debtor's
best knowledge after due inquiry, threatened against or affecting Debtor with
respect to the Pledged Collateral, at law or in equity or before or by any
commissions, board, bureau, agency, department or instrumentality, and Debtor is
not in default with respect to any judgment, writ, injunction, decree, rule or
regulation which would adversely affect Debtor's performance hereunder.
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<PAGE>
(g) This Agreement has been duly executed and delivered and constitutes the
valid and legally binding obligation of Debtor, enforceable in accordance with
its terms, except to the extent that (i) enforceability of this Agreement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws affecting the enforceability of creditors' rights generally
or limiting the right of specific performance or by general equitable
principles; and (ii) the exercise by Secured Party of its rights and remedies in
respect of the Pledged Collateral which would result in or constitute any
assignment of any license relating to a health care facility or any change of
control with respect to the ownership of a health care facility is subject to
the prior approval of health care regulatory authorities issuing such license or
regulating such health care facility.
(h) Neither the execution and delivery by the Debtor of this Agreement, nor
the compliance with the terms and provisions hereof, will violate any provision
of the Articles of Incorporation or Bylaws of the Debtor or any Law or conflict
with or result in a breach of any of the terms, conditions or provisions of any
judgment, order, injunction, decree or ruling of any court or arbitration
tribunal or any governmental authority to which Debtor is subject or any
provision of any material agreement, understanding or arrangement to which
Debtor is a party or by which Debtor is bound.
(i) The Debtor's principal place of business and chief executive office is
as set forth on the signature page hereto.
6. General Covenants.
- -- -----------------
In addition to any covenants and agreements of the Debtors set forth
in the other Loan Documents, which are incorporated herein by this reference,
each Debtor hereby covenants and agrees as follows:
(a) Debtor shall do all reasonable acts that may be necessary and
appropriate to maintain, preserve and protect the Pledged Collateral; Debtor
shall be responsible for the risk of loss of, damage to, or destruction of the
Pledged Collateral owned by Debtor, unless such loss is the result of the gross
negligence or willful misconduct of the Secured Party. Debtor shall notify the
Secured Party in writing ten (10) Business Days prior to any change in the
Debtor's name, the address and location of Debtor's chief executive office or
the address and location of Debtor's principal place of business.
(b) Debtor shall pay promptly when due all taxes, assessments, charges and
obligations secured by encumbrances and liens now or hereafter imposed upon or
affecting any of the Pledged Collateral, except as otherwise expressly permitted
under the Credit Agreements.
(c) Debtor shall appear in and defend any action or proceeding of which
Debtor is aware which could reasonably be expected to affect Debtor's title to,
or the Secured Party's interest in, the Pledged Collateral owned by Debtor and
the proceeds thereof; provided, however, that Debtor may settle such actions or
-------- -------
proceedings with respect to the
5
<PAGE>
Pledged Collateral Debtor owns with the consent of the Secured Party, which
consent shall not be unreasonably withheld or delayed.
(d) Debtor shall keep separate, accurate and complete records of the
Pledged Collateral owned by Debtor, disclosing the Secured Party's security
interest hereunder.
(e) Debtor shall permit the Secured Party, its officers, employees and
agents at reasonable times and on reasonable prior notice to inspect all books
and records related to the Pledged Collateral.
(f) To the extent, following the date hereof, Debtor acquires capital stock
of a Subsidiary of such Debtor or any of the interests, rights, property or
securities described in the definition of Pledged Collateral with respect to
Debtor's Subsidiaries, such interests stocks, rights, property or securities
shall be, upon such acquisition, pledged to the Secured Party, and Debtor shall
deliver the original certificates for such securities, stock powers executed in
blank, and an updated Schedule A hereto to the Secured Party.
----------
(g) During the term of this Agreement, Debtor shall not sell, assign,
transfer, pledge, grant a security interest in, place a lien on or otherwise
dispose of the Pledged Collateral except as permitted under the Credit
Agreements.
7. Other Rights With Respect to Pledged Collateral.
- -- -----------------------------------------------
6
<PAGE>
In addition to the other rights with respect to the Pledged Collateral
granted to the Secured Party hereunder, at any time and from time to time, after
and during the continuation of an Event of Default, the Secured Party, at its
option and at the expense of the Debtors, may (a) transfer into its own name, or
into the name of its nominee, all or any part of the Pledged Collateral,
thereafter receiving all dividends, income or other distributions upon the
Pledged Collateral; (b) take control of and manage all or any of the Pledged
Collateral; (c) apply to the payment of any of the Secured Obligations, whether
any be due and payable or not, any moneys, including cash dividends and income
from any Pledged Collateral, now or hereafter in the hands of the Secured Party
or any Affiliate of the Secured Party, on deposit or otherwise, belonging to any
Debtor, as the Secured Party, in its sole discretion, shall determine; and (d)
do anything which any Debtor is required but fails to do hereunder. The
exercise by the Secured Party of its rights and remedies with respect to the
Pledged Collateral is subject to the licensing power of health care regulatory
authorities. The proceeds of any collection, sale or other disposition of the
Pledged Collateral of any Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the
Collateral Sharing Agreement.
8. Additional Remedies Upon Event of Default.
- -- -----------------------------------------
Upon the occurrence of any Event of Default and while such Event of
Default shall be continuing, the Secured Party shall have, in addition to all
rights and remedies of a secured party under the Code or other applicable Law,
and in addition to its rights under Section 7 above and under the other Loan
Documents, the following rights and remedies:
(a) The Secured Party may, after ten (10) days' advance notice to the
Debtors, sell, assign, give an option or options to purchase or otherwise
dispose of the Pledged Collateral or any part thereof at public or private sale,
at any of the Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Secured Party may deem
commercially reasonable. Each Debtor agrees that ten (10) days' advance notice
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Secured Party
shall not be obligated to make any sale of Pledged Collateral regardless of
notice of sale having been given. The Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Each Debtor recognizes that the Secured
Party may be compelled to resort to one or more private sales of the Pledged
Collateral to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such securities for its own account for
investment and not with a view to the distribution or resale thereof. Each
Debtor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such
7
<PAGE>
private sale shall be deemed to have been made in a commercially reasonable
manner. The Secured Party shall be under no obligation to delay sale of any of
the Pledged Collateral for the period of time necessary to permit any Debtor to
register such securities for public sale under the Securities Act of 1933, as
amended, or under applicable state securities laws, even if such Debtor would
agree to do so.
(b) The proceeds of any collection, sale or other disposition of the
Pledged Collateral of any Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the
Collateral Sharing Agreement.
9. Secured Party's Duties.
- -- ----------------------
The powers conferred on the Secured Party hereunder are solely to
protect its interest in the Pledged Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the safe custody of any Pledged
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Secured Party shall have no duty as to any Pledged Collateral
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any Pledged Collateral. Further, the
exercise by the Secured Party of its rights and remedies with respect to the
Pledged Collateral or as otherwise provided under this Agreement shall only be
an exercise of rights with respect to the Pledged Collateral and shall not in
any manner constitute an assumption of any liabilities with respect to the
Pledged Collateral.
10. No Waiver; Cumulative Remedies.
- --- ------------------------------
No failure to exercise, and no delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any further exercise thereof or the exercise of any
other right, power or privilege. The remedies herein provided are cumulative
and not exclusive of any remedies provided under the other Loan Documents or by
Law. Each Debtor waives any right to require the Secured Party to proceed
against any other Person or to exhaust any of the Pledged Collateral or other
security for the Secured Obligations or to pursue any remedy in the Secured
Party's power.
11. Assignment.
- --- ----------
All rights of the Secured Party under this Agreement shall inure to
the benefit of its successors and assigns. All obligations of each Debtor shall
bind its successors and assigns; provided, however, no Debtor may assign or
-------- -------
transfer any of its rights and obligations hereunder or any interest herein.
8
<PAGE>
12. Severability.
- --- ------------
Any provision of this Agreement which shall be held invalid or
unenforceable shall be ineffective without invalidating the remaining provisions
hereof.
13. Governing Law.
- --- -------------
This Agreement shall be construed in accordance with and governed by
the internal laws of the Commonwealth of Pennsylvania without regard to its
conflicts of law principles, except to the extent the validity or perfection of
the security interests or the remedies hereunder in respect of any Pledged
Collateral are governed by the law of a jurisdiction other than the Commonwealth
of Pennsylvania.
14. Notices.
- --- -------
Debtors agree that all notices, statements, requests, demands and other
communications under this Agreement shall be given in the manner provided in
Section 11.06 of the Credit Agreements, and shall be addressed (a) to the
Debtors at the address set forth below the Debtors' names on the signature pages
of this Agreement, and (b) to the Secured Party at the address set forth below
the Secured Party's name on the signature pages of this Agreement.
9
<PAGE>
15. Specific Performance.
- --- --------------------
Each Debtor acknowledges and agrees that, in addition to the other
rights of the Secured Party hereunder and under the other Loan Documents,
because the Secured Party's remedies at law for failure of the Debtors to comply
with the provisions hereof relating to the Secured Party's rights (i) to inspect
the books and records related to the Pledged Collateral, (ii) to receive the
various notifications the Debtors are required to deliver hereunder, (iii) to
obtain copies of agreements and documents as provided herein with respect to the
Pledged Collateral, (iv) to enforce the provisions hereof pursuant to which the
Debtors have appointed the Secured Party their attorney-in-fact, and (v) to
enforce the Secured Party's remedies hereunder, would be inadequate and that any
such failure would not be adequately compensable in damages, each Debtor agrees
that each such provision hereof may be specifically enforced.
16. Dividends; Voting Rights in Respect of the Pledged Collateral.
- --- -------------------------------------------------------------
So long as no Event of Default shall occur and be continuing under any
of the Loan Documents, each Debtor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral owned by such Debtor or
any part thereof for any purpose not inconsistent with the terms of this
Agreement or the other Loan Documents; provided, however, that such Debtor will
-------- -------
not exercise or will refrain from exercising any such right, as the case may be,
if such action would be inconsistent with the covenants and obligations of
Debtors under the Credit Agreements and the other Loan Documents or would have a
material adverse effect on the value of any Pledged Collateral. So long as no
Event of Default has occurred and is continuing, any lawful dividends paid in
cash to a Debtor in respect of the Pledged Collateral may be used or applied by
such Debtor for any purpose permitted by the Credit Agreements.
17. Entire Agreement; Amendments.
- --- ----------------------------
This Agreement constitutes the entire agreement between the parties
with respect to the subject matter hereof and supersedes all prior agreements
relating to a grant of a security interest in the Pledged Collateral by the
Debtors. This Agreement may not be amended or supplemented except by a writing
signed by the Secured Party and the Debtors.
18. Counterparts.
- --- ------------
This Agreement may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
19. Descriptive Headings.
- --- --------------------
10
<PAGE>
The descriptive headings which are used in this Agreement are for the
convenience of the parties only and shall not affect the meaning of any
provision of this Agreement.
20. Additional Debtors.
- --- ------------------
Each Loan Party which pursuant to a Credit Agreement hereafter is
required to pledge securities of another Subsidiary or Excluded Entity shall
execute a Joinder to this Agreement in form and substance satisfactory to the
Collateral Agent.
INTENTIONALLY LEFT BLANK
11
<PAGE>
[SIGNATURE PAGE 1 OF 1 TO THE AMENDED AND RESTATED
PLEDGE AGREEMENT PLEDGING STOCK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SECURED PARTY:
PNC BANK, NATIONAL ASSOCIATION,
as Collateral Agent
By:_________________________________
Title:______________________________
Address for Notices for Secured Party:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
DEBTORS:
Address for Notices for Debtors:
c/o Mariner Health Group, Inc.
One Ravinia Drive, Suite 1500
Atlanta, GA 30346
12
<PAGE>
SCHEDULE A
----------
PLEDGE AGREEMENT
(PLEDGING STOCK)
Debtor Description of Securities Owned by Debtor
------ -----------------------------------------
13
<PAGE>
EXHIBIT 10.71
BIPC DRAFT - 12/22/98
AMENDED AND RESTATED PLEDGE AGREEMENT
(PLEDGING PARTNERSHIP INTERESTS)
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Agreement"), dated as of
December 23, 1998, is made and entered into by and among the undersigned debtors
(each a "Debtor" and collectively, the "Debtors"), and PNC BANK, NATIONAL
ASSOCIATION, a national banking association, in its capacity as Collateral Agent
(as hereinafter defined) for the benefit of the Facility Parties (as hereinafter
defined) (the "Secured Party").
WITNESSETH THAT:
WHEREAS, Mariner Health Group, Inc., a Delaware corporation (the
"Borrower"), as borrower, PNC Bank, National Association, as administrative
agent, First Union National Bank, as syndication agent, and the lenders party
thereto (the "Banks"), are parties to that certain Credit Agreement dated as of
May 18, 1994, as amended (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Revolving Credit Agreement"), pursuant
to which the Banks have agreed to make certain revolving credit loans to the
Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS Mariner Health Group, Inc., a Delaware corporation (the "Term Loan
Borrower"), as borrower, PNC Bank, National Association, as administrative
agent, First Union National Bank, as syndication agent, and the lenders party
thereto (the "Term Loan Banks"), are parties to that certain Term Loan Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Term Loan Agreement"; the Revolving
Credit Agreement and the Term Loan Agreement are hereinafter collectively
referred to as the "Credit Agreements"), pursuant to which the Term Loan Banks
have agreed to make certain term loans to the Term Loan Borrower upon the terms
and subject to the conditions set forth therein;
WHEREAS, pursuant to that certain Collateral Agency and Sharing Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Collateral Sharing Agreement"), among
the Borrower, the Term Loan Borrower, the other Loan Parties (as defined
therein), the Revolving Credit Agent and the Term Loan Agent (as such terms are
defined in the Collateral Sharing Agreement), and PNC Bank, National
Association, as Collateral Agent (together with its successors and assigns, the
"Collateral Agent"), the Facility Parties (as defined in the Collateral Sharing
Agreement), in order to secure the Obligations (as defined in the Collateral
Sharing Agreement), have agreed to share certain collateral as provided in the
Collateral Sharing Agreement;
WHEREAS, the Debtors and the Administrative Agent (as defined in the
Revolving Credit Agreement) are currently parties to that certain Amended and
Restated Pledge Agreement
<PAGE>
(Subsidiaries Pledging Partnership Interests) dated April 30, 1996, as amended
(the "Original Pledge Agreement"), pursuant to which certain collateral is
pledged to secure the Revolving Credit Obligations (as defined in the Collateral
Sharing Agreement);
WHEREAS, each Debtor owns the outstanding partnership interests of each
Subsidiary or of each Excluded Entity as set forth on Schedule A attached hereto
----------
and made a part hereof; and
WHEREAS, the parties to the Original Pledge Agreement now wish to amend and
restate the Original Pledge Agreement as provided herein, and as so amended,
this Agreement shall be a Shared Security Document (as defined in the Collateral
Sharing Agreement).
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Amendment and Restatement; No Novation.
- -- --------------------------------------
The Original Pledge Agreement is hereby amended and restated as provided
herein. No novation, suspension of continuity, satisfaction, discharge of prior
duties, or termination of the Obligations, or the collateral therefore
(including, without limitation, the Pledged Collateral), is intended or
consented to by the parties hereto. The Debtors and the Secured Party
acknowledge and agree that the Original Pledge Agreement has continued to secure
the Revolving Credit Obligations since the day of the execution of the Original
Pledge Agreement; that this Agreement is entitled to all rights and benefits
originally pertaining to the Original Pledge Agreement; and that in the event a
court or other authority shall determine that a novation has occurred as a
result of the execution of this Agreement or any other Loan Documents (as
defined in the Collateral Sharing Agreement), or otherwise, and the Secured
Party's security interest in the Pledged Collateral created under the Original
Pledge Agreement is avoided or the Secured Party's priority with respect thereto
is materially and adversely affected, then the rights, privileges, obligations
and remedies of the parities hereto shall be governed as if this Agreement had
not been executed by any party hereto, and the parties hereto agree to negotiate
in good faith to achieve the objectives of this Agreement.
2. Defined Terms.
- -- -------------
(a) Except as otherwise expressly provided herein, capitalized terms used in
this Agreement shall have the respective meanings assigned to them in the Credit
Agreements. Where applicable and except as otherwise expressly provided herein,
terms used herein (whether or not capitalized) shall have the respective
meanings assigned to them in the Uniform Commercial Code as enacted in each
applicable jurisdiction and as may be amended from time to time (the "Code").
(b) "Pledged Collateral" shall mean and include the following: (i) all of
the partnership interests owned by each Debtor listed on Schedule A attached
----------
hereto and made a part hereof, together with all related rights, including
without limitation, all partnership interests and additional partnership
interests receivable in respect of or in exchange for any such partnership
interests, all rights to subscribe for partnership interests incident to or
arising from ownership of
2
<PAGE>
any such partnership interests, all cash, interest, and other cash and non-cash
distributions paid or payable on any such partnership interests, and all books,
records, and documents concerning any of the items described above, both that
which any Debtor now owns and that which any Debtor acquires hereafter; (ii) any
and all other partnership interests hereafter pledged to the Secured Party to
secure the Secured Obligations (as hereinafter defined) of any Debtor or any
Debtor's Subsidiaries, and all rights and privileges pertaining thereto,
including, without limitation, all partnership interests and additional
partnership interests receivable in respect of or in exchange for any such
partnership interests, all rights to subscribe for partnership interests
incident to or arising from ownership of any such partnership interests, all
cash, interest, and other cash and non-cash distributions paid or payable on
such partnership interests and all books and records pertaining to the
foregoing, and (iii) all substitutions therefor, additions thereto, and proceeds
thereof with respect to any of the foregoing.
3. Grant of Security Interests.
- -- ---------------------------
Each Debtor, as security for the payment and performance of such Debtor's
Obligations and of all other indebtedness and obligations of every nature it
owes under the Loan Documents (as defined in the Collateral Sharing Agreement)
(all of the foregoing indebtedness and obligations being referred to herein as
the "Secured Obligations"), hereby grants to the Secured Party a first priority
security interest in all of such Debtor's now existing and hereafter acquired
and/or arising right, title and interest in, to and under the Pledged Collateral
owned by such Debtor, whether now existing or hereafter acquired and wherever
located, subject only to Permitted Liens.
4. Further Assurances.
- -- ------------------
Prior to or concurrently with the execution of this Agreement, and
thereafter at any time and from time to time upon reasonable request of the
Secured Party, each Debtor shall (a) execute and deliver to the Secured Party
all financing statements, continuation or amendment financing statements,
termination statements, assignments, certificates and documents of title,
affidavits, reports, notices, schedules of account, letters of authority,
further pledges, powers of attorney and all other documents (collectively, the
"Security Documents") which the Secured Party may reasonably request, in form
reasonably satisfactory to the Secured Party, (b) provide each partnership that
has issued or shall issue Pledged Collateral with a copy of this Agreement and
direct the Custodian of the books and records of each such partnership to
register the pledge of the applicable Pledged Collateral on such partnership's
books and records, (c) cause each partnership that has issued or shall issue
Pledged Collateral to execute and deliver to the Secured Party an Agreement and
Acknowledgment, in form and substance acceptable to the Secured Party (which
shall, among other things, provide that the Custodian of the books and records
of the partnership represents, acknowledges, warrants and confirms that it is
holding of record the partnership interests of the Debtors which constitute part
of the Pledged Collateral in its capacity as authorized custodial agent, bailee,
representative and nominee for the Secured Party, it has noted this fact by
means of appropriate entries made on the books and records of the partnership,
and except as contemplated by this Agreement, the Custodian will not cause or
permit to occur any change, alteration or modification of any kind in the form
of the Pledged Collateral,
3
<PAGE>
including, without limitation, any conversion of the Pledged Collateral or any
part thereof to certificated, bearer or any other form, without the prior
written consent of the Secured Party), and (d) take such other action which the
Secured Party may request, to perfect and continue perfected and to create and
maintain the first priority status (subject only to Permitted Liens) of the
Secured Party's security interest in the Pledged Collateral and to fully
consummate the transactions contemplated under the Credit Agreements, the other
Loan Documents and this Agreement. Each Debtor hereby irrevocably makes,
constitutes and appoints the Secured Party (and any of the Secured Party's
officers or employees or agents designated by the Secured Party) as such
Debtor's true and lawful attorney with power to sign the name of such Debtor on
all or any of the Security Documents which the Secured Party reasonably
determines must be executed, filed, recorded or sent in order to perfect or
continue perfected the Secured Party's security interest in the Pledged
Collateral. Such power, being coupled with an interest, is irrevocable until all
of the Secured Obligations have been indefeasibly paid in full and the
Commitments have terminated.
5. Representations, Warranties and Certain Covenants.
- -- -------------------------------------------------
In addition to the representations and warranties of Debtors set forth in
the Loan Documents (which representations and warranties are hereby incorporated
herein by reference), each of the Debtors hereby represents, warrants and
covenants to the Secured Party as follows:
(a) Debtor has, and will continue to have (or, in the case of after-
acquired Pledged Collateral, at the time Debtor acquires rights in such Pledged
Collateral, will have), title to the Pledged Collateral, free and clear of all
Liens other than Permitted Liens.
(b) The partnership interests constituting the Pledged Collateral have been
duly authorized and validly issued to the Debtor, are fully paid and
nonassessable, have no outstanding assessments, and constitute all of the issued
and outstanding partnership interests of the issuer thereof owned by Debtor.
(c) Except for Permitted Liens the security interests in the Pledged
Collateral granted hereunder are valid, perfected and of first priority.
(d) There are no restrictions upon the transfer of the Pledged Collateral
and Debtor has the power and authority and right to transfer the Pledged
Collateral free of any encumbrances and without obtaining the consent of any
other Person except to the extent that a transfer upon the exercise of Secured
Party's rights and remedies under this Agreement and the other Loan Documents
would result in or constitute an assignment of any license relating to a health
care facility or a change of control with respect to the ownership of a health
care facility which is subject to the prior approval of health care regulatory
authorities issuing such license or regulating such health care facility. It is
acknowledged that a transfer of the Pledged Collateral by Secured Party
following foreclosure may require compliance with federal and state securities
laws.
4
<PAGE>
(e) Debtor has all necessary power to execute, deliver and perform this
Agreement and all necessary action to authorize the execution, delivery and
performance of this Agreement has been properly taken.
(f) There are no actions, suits, or proceedings pending or, to Debtor's
best knowledge after due inquiry, threatened against or affecting Debtor with
respect to the Pledged Collateral, at law or in equity or before or by any
commissions, board, bureau, agency, department or instrumentality, and Debtor is
not in default with respect to any judgment, writ, injunction, decree, rule or
regulation which would adversely affect Debtor's performance hereunder.
(g) This Agreement has been duly executed and delivered and constitutes the
valid and legally binding obligation of Debtor, enforceable in accordance with
its terms, except to the extent that (i) enforceability of this Agreement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws affecting the enforceability of creditors' rights generally
or limiting the right of specific performance or by general equitable
principles; and (ii) the exercise by Secured Party of its rights and remedies in
respect of the Pledged Collateral which would result in or constitute any
assignment of any license relating to a health care facility or any change of
control with respect to the ownership of a health care facility is subject to
the prior approval of health care regulatory authorities issuing such license or
regulating such health care facility.
(h) Neither the execution and delivery by the Debtor of this Agreement, nor
the compliance with the terms and provisions hereof, will violate any provision
of the Articles of Incorporation or Bylaws of the Debtor or any Law or conflict
with or result in a breach of any of the terms, conditions or provisions of any
judgment, order, injunction, decree or ruling of any court or arbitration
tribunal or any governmental authority to which Debtor is subject or any
provision of any material agreement, understanding or arrangement to which
Debtor is a party or by which Debtor is bound.
(i) The Debtor's principal place of business and chief executive office is
as set forth on the signature page hereto.
(j) No certificate has been or, during the term hereof shall be issued, to
evidence the Pledged Collateral, and no partnership interest which is Pledged
Collateral constitutes a "certificated security" (as such term is defined in
Section 8-102 of the Code).
6. General Covenants.
- -- -----------------
In addition to any covenants and agreements of the Debtors set forth in the
other Loan Documents, which are incorporated herein by this reference, each
Debtor hereby covenants and agrees as follows:
(a) Debtor shall do all reasonable acts that may be necessary and
appropriate to maintain, preserve and protect the Pledged Collateral; Debtor
shall be responsible for the risk of loss of, damage to, or destruction of the
Pledged Collateral owned by Debtor, unless such loss is the result of the gross
negligence or willful misconduct of the Secured Party. Debtor shall notify
5
<PAGE>
the Secured Party in writing ten (10) Business Days prior to any change in the
Debtor's name, the address and location of Debtor's chief executive office or
the address and location of Debtor's principal place of business.
(b) Debtor shall pay promptly when due all taxes, assessments, charges and
obligations secured by encumbrances and liens now or hereafter imposed upon or
affecting any of the Pledged Collateral, except as otherwise expressly permitted
under the Credit Agreements.
(c) Debtor shall appear in and defend any action or proceeding of which
Debtor is aware which could reasonably be expected to affect Debtor's title to,
or the Secured Party's interest in, the Pledged Collateral owned by Debtor and
the proceeds thereof; provided, however, that Debtor may settle such actions or
-------- -------
proceedings with respect to the Pledged Collateral Debtor owns with the consent
of the Secured Party, which consent shall not be unreasonably withheld or
delayed.
(d) Debtor shall keep separate, accurate and complete records of the
Pledged Collateral owned by Debtor, disclosing the Secured Party's security
interest hereunder.
(e) Debtor shall permit the Secured Party, its officers, employees and
agents at reasonable times and on reasonable prior notice to inspect all books
and records related to the Pledged Collateral.
(f) To the extent, following the date hereof, Debtor acquires a partnership
interest in Debtor's Subsidiaries or any of the interests, rights, property or
securities described in the definition of Pledged Collateral with respect to
Debtor's Subsidiaries, such interests stocks, rights, property or securities
shall be, upon such acquisition, pledged to the Secured Party, and Debtor shall
deliver an updated Schedule A hereto to the Secured Party. To the extent,
----------
following the date hereof, any of the Pledged Collateral constitutes a
"certificated security," Debtor shall immediately upon receipt of any original
certificates for such Pledged Collateral deliver such original certificates to
the Secured Party.
(g) During the term of this Agreement, Debtor shall not sell, assign,
transfer, pledge, grant a security interest in, place a lien on or otherwise
dispose of the Pledged Collateral except as permitted under the Credit
Agreements.
7. Other Rights With Respect to Pledged Collateral.
- -- -----------------------------------------------
In addition to the other rights with respect to the Pledged Collateral
granted to the Secured Party hereunder, at any time and from time to time, after
and during the continuation of an Event of Default, the Secured Party, at its
option and at the expense of the Debtors, may (a) transfer into its own name, or
into the name of its nominee, all or any part of the Pledged Collateral,
thereafter receiving all income or other distributions upon the Pledged
Collateral; (b) take control of and manage all or any of the Pledged Collateral;
(c) apply to the payment of any of the Secured Obligations, whether any be due
and payable or not, any moneys, including cash distributions and income from any
Pledged Collateral, now or hereafter in the hands of the Secured Party or any
Affiliate of the Secured Party, on deposit or otherwise, belonging to any
6
<PAGE>
Debtor, as the Secured Party, in its sole discretion, shall determine; and (d)
do anything which any Debtor is required but fails to do hereunder. The
exercise by the Secured Party of its rights and remedies with respect to the
Pledged Collateral is subject to the licensing power of health care regulatory
authorities. The proceeds of any collection, sale or other disposition of the
Pledged Collateral of any Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the
Collateral Sharing Agreement.
8. Additional Remedies Upon Event of Default.
- -- -----------------------------------------
Upon the occurrence of any Event of Default and while such Event of Default
shall be continuing, the Secured Party shall have, in addition to all rights and
remedies of a secured party under the Code or other applicable Law, and in
addition to its rights under Section 7 above and under the other Loan Documents,
the following rights and remedies:
(a) The Secured Party may, after ten (10) days' advance notice to the
Debtors, sell, assign, give an option or options to purchase or otherwise
dispose of the Pledged Collateral or any part thereof at public or private sale,
at any of the Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Secured Party may deem
commercially reasonable. Each Debtor agrees that ten (10) days' advance notice
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Secured Party
shall not be obligated to make any sale of Pledged Collateral regardless of
notice of sale having been given. The Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Each Debtor recognizes that the Secured
Party may be compelled to resort to one or more private sales of the Pledged
Collateral to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such securities for its own account for
investment and not with a view to the distribution or resale thereof. Each
Debtor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Secured Party
shall be under no obligation to delay sale of any of the Pledged Collateral for
the period of time necessary to permit any Debtor to register such securities
for public sale under the Securities Act of 1933, as amended, or under
applicable state securities laws, even if such Debtor would agree to do so.
(b) The proceeds of any collection, sale or other disposition of the
Pledged Collateral of any Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
7
<PAGE>
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the
Collateral Sharing Agreement.
9. Secured Party's Duties.
- -- ----------------------
The powers conferred on the Secured Party hereunder are solely to protect
its interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Pledged Collateral
in its possession and the accounting for moneys actually received by it
hereunder, the Secured Party shall have no duty as to any Pledged Collateral or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Pledged Collateral. Further, the exercise
by the Secured Party of its rights and remedies with respect to the Pledged
Collateral or as otherwise provided under this Agreement shall only be an
exercise of rights with respect to the Pledged Collateral and shall not in any
manner constitute an assumption of any liabilities with respect to the Pledged
Collateral.
10. No Waiver; Cumulative Remedies.
- --- ------------------------------
No failure to exercise, and no delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any further exercise thereof or the exercise of any
other right, power or privilege. The remedies herein provided are cumulative
and not exclusive of any remedies provided under the other Loan Documents or by
Law. Each Debtor waives any right to require the Secured Party to proceed
against any other Person or to exhaust any of the Pledged Collateral or other
security for the Secured Obligations or to pursue any remedy in the Secured
Party's power.
11. Assignment.
- --- ----------
All rights of the Secured Party under this Agreement shall inure to the
benefit of its successors and assigns. All obligations of each Debtor shall
bind its successors and assigns; provided, however, no Debtor may assign or
-------- -------
transfer any of its rights and obligations hereunder or any interest herein.
12. Severability.
- --- ------------
Any provision of this Agreement which shall be held invalid or
unenforceable shall be ineffective without invalidating the remaining provisions
hereof.
13. Governing Law.
- --- -------------
This Agreement shall be construed in accordance with and governed by the
internal laws of the Commonwealth of Pennsylvania without regard to its
conflicts of law principles, except to the extent the validity or perfection of
the security interests or the remedies hereunder in respect
8
<PAGE>
of any Pledged Collateral are governed by the law of a jurisdiction other than
the Commonwealth of Pennsylvania.
14. Notices.
- --- -------
Debtors agree that all notices, statements, requests, demands and other
communications under this Agreement shall be given in the manner provided in
Section 11.06 of the Credit Agreements, and shall be addressed (a) to the
Debtors at the address set forth below the Debtors' names on the signature pages
of this Agreement, and (b) to the Secured Party at the address set forth below
the Secured Party's name on the signature pages of this Agreement.
15. Specific Performance.
- --- --------------------
Each Debtor acknowledges and agrees that, in addition to the other rights
of the Secured Party hereunder and under the other Loan Documents, because the
Secured Party's remedies at law for failure of the Debtors to comply with the
provisions hereof relating to the Secured Party's rights (i) to inspect the
books and records related to the Pledged Collateral, (ii) to receive the various
notifications the Debtors are required to deliver hereunder, (iii) to obtain
copies of agreements and documents as provided herein with respect to the
Pledged Collateral, (iv) to enforce the provisions hereof pursuant to which the
Debtors have appointed the Secured Party their attorney-in-fact, and (v) to
enforce the Secured Party's remedies hereunder, would be inadequate and that any
such failure would not be adequately compensable in damages, each Debtor agrees
that each such provision hereof may be specifically enforced.
16. Voting Rights in Respect of the Pledged Collateral.
- --- --------------------------------------------------
So long as no Event of Default shall occur and be continuing under any of
the Loan Documents, each Debtor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral owned by such Debtor or
any part thereof for any purpose not inconsistent with the terms of this
Agreement or the other Loan Documents; provided, however, that such Debtor will
-------- -------
not exercise or will refrain from exercising any such right, as the case may be,
if such action would be inconsistent with the covenants and obligations of
Debtors under the Credit Agreements and the other Loan Documents or would have a
material adverse effect on the value of any Pledged Collateral. So long as no
Event of Default has occurred and is continuing, any lawful distributions paid
in cash to a Debtor in respect of the Pledged Collateral may be used or applied
by such Debtor for any purpose permitted by the Credit Agreements.
17. Entire Agreement; Amendments.
- --- ----------------------------
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements
relating to a grant of a security interest in the Pledged Collateral by the
Debtors. This Agreement may not be amended or supplemented except by a writing
signed by the Secured Party and the Debtors.
18. Counterparts.
- --- ------------
9
<PAGE>
This Agreement may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
19. Descriptive Headings.
- --- --------------------
The descriptive headings which are used in this Agreement are for the
convenience of the parties only and shall not affect the meaning of any
provision of this Agreement.
20. Additional Debtors.
- --- ------------------
Each Loan Party which pursuant to a Credit Agreement hereafter is required
to pledge partnership interests of another Subsidiary or Excluded Entity shall
execute a Joinder to this Agreement in form and substance satisfactory to the
Collateral Agent.
INTENTIONALLY LEFT BLANK
10
<PAGE>
[SIGNATURE PAGE 1 OF 1 TO THE PLEDGE AGREEMENT
PLEDGING PARTNERSHIP INTERESTS]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SECURED PARTY:
PNC BANK, NATIONAL ASSOCIATION, as Collateral
Agent
By: ____________________________________
Title: _________________________________
Address for Notices for Secured Party:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
DEBTORS:
Address for Notices for Debtors:
c/o Mariner Health Group, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
11
<PAGE>
SCHEDULE A
----------
PLEDGE AGREEMENT
(PLEDGING PARTNERSHIP INTERESTS)
DESCRIPTION OF PARTNERSHIP
DEBTOR INTERESTS OWNED BY DEBTOR
12
<PAGE>
EXHIBIT 10.72
AMENDED AND RESTATED PLEDGE AGREEMENT
(PLEDGING LIMITED LIABILITY COMPANY INTERESTS)
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Agreement"), dated as of
December 23, 1998, is made and entered into by and among the undersigned debtors
(each a "Debtor" and collectively, the "Debtors"), and PNC BANK, NATIONAL
ASSOCIATION, a national banking association, in its capacity as Collateral Agent
(as hereinafter defined) for the benefit of the Facility Parties (as hereinafter
defined) (the "Secured Party").
WITNESSETH THAT:
WHEREAS, Mariner Health Group, Inc., a Delaware corporation (the
"Borrower"), as borrower, PNC Bank, National Association, as administrative
agent, First Union National Bank, as syndication agent, and the lenders party
thereto (the "Banks") are parties to that certain Credit Agreement dated as of
May 18, 1994, as amended (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Revolving Credit Agreement"), pursuant
to which the Banks have agreed to make certain revolving credit loans to the
Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS, Mariner Health Group, Inc., a Delaware corporation (the "Term Loan
Borrower"), as borrower, PNC Bank, National Association, as administrative
agent, First Union National Bank, as syndication agent, and the lenders party
thereto (the "Term Loan Banks"), are parties to that certain Term Loan Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Term Loan Agreement"; the Revolving
Credit Agreement and the Term Loan Agreement are hereinafter collectively
referred to as the "Credit Agreements"), pursuant to which the Term Loan Banks
have agreed to make certain term loans to the Term Loan Borrower upon the terms
and subject to the conditions set forth therein;
WHEREAS, pursuant to that certain Collateral Agency and Sharing Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Collateral Sharing Agreement"), among
the Borrower, the Term Loan Borrower, the other Loan Parties (as defined
therein), the Revolving Credit Agent and the Term Loan Agent (as such terms are
defined in the Collateral Sharing Agreement), and PNC Bank, National
Association, as Collateral Agent (together with its successors and assigns, the
"Collateral Agent"), the Facility Parties (as defined in the Collateral Sharing
Agreement), in order to secure the Obligations (as defined in the Collateral
Sharing Agreement), have agreed to share certain collateral as provided in the
Collateral Sharing Agreement;
WHEREAS, the Debtors and the Administrative Agent (as defined in the
Revolving Credit Agreement) are currently parties to that certain Pledge
Agreement (Subsidiaries Pledging Limited Liability Company Interests) dated
October 3, 1996, as amended (the "Original Pledge
<PAGE>
Agreement"), pursuant to which certain collateral is pledged to secure the
Revolving Credit Obligations (as defined in the Collateral Sharing Agreement);
WHEREAS, each Debtor owns the outstanding limited liability company
interests of each Subsidiary or of each Excluded Entity as set forth on Schedule
--------
A attached hereto and made a part hereof; and
- -
WHEREAS, the parties to the Original Pledge Agreement now wish to amend and
restate the Original Pledge Agreement as provided herein, and as so amended,
this Agreement shall be a Shared Security Document (as defined in the Collateral
Sharing Agreement).
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Amendment and Restatement; No Novation.
- -- --------------------------------------
The Original Pledge Agreement is hereby amended and restated as provided
herein. No novation, suspension of continuity, satisfaction, discharge of prior
duties, or termination of the Obligations, or the collateral therefore
(including, without limitation, the Pledged Collateral), is intended or
consented to by the parties hereto. The Debtors and the Secured Party
acknowledge and agree that the Original Pledge Agreement has continued to secure
the Revolving Credit Obligations since the day of the execution of the Original
Pledge Agreement; that this Agreement is entitled to all rights and benefits
originally pertaining to the Original Pledge Agreement; and that in the event a
court or other authority shall determine that a novation has occurred as a
result of the execution of this Agreement or any other Loan Documents (as
defined in the Collateral Sharing Agreement), or otherwise, and the Secured
Party's security interest in the Pledged Collateral created under the Original
Pledge Agreement is avoided or the Secured Party's priority with respect thereto
is materially and adversely affected, then the rights, privileges, obligations
and remedies of the parities hereto shall be governed as if this Agreement had
not been executed by any party hereto, and the parties hereto agree to negotiate
in good faith to achieve the objectives of this Agreement.
2. Defined Terms.
- -- -------------
(a) Except as otherwise expressly provided herein, capitalized terms used
in this Agreement shall have the respective meanings assigned to them in the
Credit Agreements. Where applicable and except as otherwise expressly provided
herein, terms used herein (whether or not capitalized) shall have the respective
meanings assigned to them in the Uniform Commercial Code as enacted in each
applicable jurisdiction and as may be amended from time to time (the "Code").
(b) "Pledged Collateral" shall mean and include the following: (i) all of
the limited liability company interests owned by each Debtor listed on Schedule
--------
A attached hereto and made a part hereof, together with all related rights,
- -
including without limitation, all limited liability company interests and
additional limited liability company interests receivable in respect of or in
exchange for any such limited liability company interests, all rights to
subscribe for limited
2
<PAGE>
liability company interests incident to or arising from ownership of any such
limited liability company interests, all cash, interest, and other cash and non-
cash distributions paid or payable on any such limited liability company
interests, and all books, records, and documents concerning any of the items
described above, both that which any Debtor now owns and that which any Debtor
acquires hereafter; (ii) any and all other limited liability company interests
hereafter pledged to the Secured Party to secure the Secured Obligations (as
hereinafter defined) of any Debtor or any Debtor's Subsidiaries, and all rights
and privileges pertaining thereto, including, without limitation, all limited
liability company interests and additional limited liability company interests
receivable in respect of or in exchange for any such limited liability company
interests, all rights to subscribe for limited liability company interests
incident to or arising from ownership of any such limited liability company
interests, all cash, interest, and other cash and non-cash distributions paid or
payable on such limited liability company interests and all books and records
pertaining to the foregoing, and (iii) all substitutions therefor, additions
thereto, and proceeds thereof with respect to any of the foregoing.
3. Grant of Security Interests.
- -- ---------------------------
Each Debtor, as security for the payment and performance of such Debtor's
Obligations and of all other indebtedness and obligations of every nature it
owes under the Loan Documents (all of the foregoing indebtedness and obligations
being referred to herein as the "Secured Obligations"), hereby grants to the
Secured Party a first priority security interest in all of such Debtor's now
existing and hereafter acquired and/or arising right, title and interest in, to
and under the Pledged Collateral owned by such Debtor, whether now existing or
hereafter acquired and wherever located, subject only to Permitted Liens.
4. Further Assurances.
- -- ------------------
Prior to or concurrently with the execution of this Agreement, and
thereafter at any time and from time to time upon reasonable request of the
Secured Party, each Debtor shall (a) execute and deliver to the Secured Party
all financing statements, continuation or amendment financing statements,
termination statements, assignments, certificates and documents of title,
affidavits, reports, notices, schedules of account, letters of authority,
further pledges, powers of attorney and all other documents (collectively, the
"Security Documents") which the Secured Party may reasonably request, in form
reasonably satisfactory to the Secured Party, (b) provide each limited liability
company that has issued or shall issue Pledged Collateral with a copy of this
Agreement and direct the Custodian of the books and records of each such limited
liability company to register the pledge of the applicable Pledged Collateral on
such limited liability company's books and records, (c) cause each limited
liability company that has issued or shall issue Pledged Collateral to execute
and deliver to the Secured Party an Agreement and Acknowledgment, in form and
substance acceptable to the Secured Party (which shall, among other things,
provide that the Custodian of the books and records of the limited liability
company represents, acknowledges, warrants and confirms that it is holding of
record the limited liability company interests of the Debtors which constitute
part of the Pledged Collateral in its capacity as authorized custodial agent,
bailee, representative and nominee for the Secured Party, it has noted this fact
by means of appropriate entries made on the books and records of the limited
liability
3
<PAGE>
company, and except as contemplated by this Agreement, the Custodian will not
cause or permit to occur any change, alteration or modification of any kind in
the form of the Pledged Collateral, including, without limitation, any
conversion of the Pledged Collateral or any part thereof to certificated, bearer
or any other form, without the prior written consent of the Secured Party), and
(d) take such other action which the Secured Party may request, to perfect and
continue perfected and to create and maintain the first priority status of the
Secured Party's security interest in the Pledged Collateral and to fully
consummate the transactions contemplated under the Credit Agreements, the other
Loan Documents and this Agreement. Each Debtor hereby irrevocably makes,
constitutes and appoints the Secured Party (and any of the Secured Party's
officers or employees or agents designated by the Secured Party) as such
Debtor's true and lawful attorney with power to sign the name of such Debtor on
all or any of the Security Documents which the Secured Party reasonably
determines must be executed, filed, recorded or sent in order to perfect or
continue perfected the Secured Party's security interest in the Pledged
Collateral. Such power, being coupled with an interest, is irrevocable until all
of the Secured Obligations have been indefeasibly paid in full and the
Commitments have terminated.
5. Representations, Warranties and Certain Covenants.
- -- -------------------------------------------------
In addition to the representations and warranties of Debtors set forth in
the Loan Documents (which representations and warranties are hereby incorporated
herein by reference), each of the Debtors hereby represents, warrants and
covenants to the Secured Party as follows:
(a) Debtor has, and will continue to have (or, in the case of after-
acquired Pledged Collateral, at the time Debtor acquires rights in such Pledged
Collateral, will have), title to the Pledged Collateral, free and clear of all
Liens.
(b) The limited liability company interests constituting the Pledged
Collateral have been duly authorized and validly issued to the Debtor, are fully
paid and nonassessable, have no outstanding assessments, and constitute all of
the issued and outstanding limited liability company interests of the issuer
thereof owned by Debtor.
(c) The security interests in the Pledged Collateral granted hereunder are
valid, perfected and of first priority.
(d) There are no restrictions upon the transfer of the Pledged Collateral
and Debtor has the power and authority and right to transfer the Pledged
Collateral free of any encumbrances and without obtaining the consent of any
other Person except to the extent that a transfer upon the exercise of Secured
Party's rights and remedies under this Agreement and the other Loan Documents
would result in or constitute an assignment of any license relating to a health
care facility or a change of control with respect to the ownership of a health
care facility which is subject to the prior approval of health care regulatory
authorities issuing such license or regulating such health care facility. It is
acknowledged that a transfer of the Pledged Collateral by Secured Party
following foreclosure may require compliance with federal and state securities
laws.
4
<PAGE>
(e) Debtor has all necessary power to execute, deliver and perform this
Agreement and all necessary action to authorize the execution, delivery and
performance of this Agreement has been properly taken.
(f) There are no actions, suits, or proceedings pending or, to Debtor's
best knowledge after due inquiry, threatened against or affecting Debtor with
respect to the Pledged Collateral, at law or in equity or before or by any
commissions, board, bureau, agency, department or instrumentality, and Debtor is
not in default with respect to any judgment, writ, injunction, decree, rule or
regulation which would adversely affect Debtor's performance hereunder.
(g) This Agreement has been duly executed and delivered and constitutes the
valid and legally binding obligation of Debtor, enforceable in accordance with
its terms, except to the extent that (i) enforceability of this Agreement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws affecting the enforceability of creditors' rights generally
or limiting the right of specific performance or by general equitable
principles; and (ii) the exercise by Secured Party of its rights and remedies in
respect of the Pledged Collateral which would result in or constitute any
assignment of any license relating to a health care facility or any change of
control with respect to the ownership of a health care facility is subject to
the prior approval of health care regulatory authorities issuing such license or
regulating such health care facility.
(h) Neither the execution and delivery by the Debtor of this Agreement, nor
the compliance with the terms and provisions hereof, will violate any provision
of the Articles of Incorporation or Bylaws of the Debtor or any Law or conflict
with or result in a breach of any of the terms, conditions or provisions of any
judgment, order, injunction, decree or ruling of any court or arbitration
tribunal or any governmental authority to which Debtor is subject or any
provision of any material agreement, understanding or arrangement to which
Debtor is a party or by which Debtor is bound.
(i) The Debtor's principal place of business and chief executive office is
as set forth on the signature page hereto.
(j) No certificate has been or, during the term hereof shall be issued, to
evidence the Pledged Collateral, and no limited liability company interest which
is Pledged Collateral constitutes a "certificated security" (as such term is
defined in Section 8-102 of the Code).
6. General Covenants.
- -- -----------------
In addition to any covenants and agreements of the Debtors set forth in the
other Loan Documents, which are incorporated herein by this reference, each
Debtor hereby covenants and agrees as follows:
(a) Debtor shall do all reasonable acts that may be necessary and
appropriate to maintain, preserve and protect the Pledged Collateral; Debtor
shall be responsible for the risk of loss of, damage to, or destruction of the
Pledged Collateral owned by Debtor, unless such loss is the result of the gross
negligence or willful misconduct of the Secured Party. Debtor shall notify
5
<PAGE>
the Secured Party in writing ten (10) Business Days prior to any change in the
Debtor's name, the address and location of Debtor's chief executive office or
the address and location of Debtor's principal place of business.
(b) Debtor shall pay promptly when due all taxes, assessments, charges and
obligations secured by encumbrances and liens now or hereafter imposed upon or
affecting any of the Pledged Collateral, except as otherwise expressly permitted
under the Credit Agreements.
(c) Debtor shall appear in and defend any action or proceeding of which
Debtor is aware which could reasonably be expected to affect Debtor's title to,
or the Secured Party's interest in, the Pledged Collateral owned by Debtor and
the proceeds thereof; provided, however, that Debtor may settle such actions or
-------- -------
proceedings with respect to the Pledged Collateral Debtor owns with the consent
of the Secured Party, which consent shall not be unreasonably withheld or
delayed.
(d) Debtor shall keep separate, accurate and complete records of the
Pledged Collateral owned by Debtor, disclosing the Secured Party's security
interest hereunder.
(e) Debtor shall permit the Secured Party, its officers, employees and
agents at reasonable times and on reasonable prior notice to inspect all books
and records related to the Pledged Collateral.
(f) To the extent, following the date hereof, Debtor acquires a limited
liability company interest in Debtor's Subsidiaries or any of the interests,
rights, property or securities described in the definition of Pledged Collateral
with respect to Debtor's Subsidiaries, such interests stocks, rights, property
or securities shall be, upon such acquisition, pledged to the Secured Party, and
Debtor shall deliver an updated Schedule A hereto to the Secured Party. To the
-------- -
extent, following the date hereof, any of the Pledged Collateral constitutes a
"certificated security," Debtor shall immediately upon receipt of any original
certificates for such Pledged Collateral deliver such original certificates to
the Secured Party.
(g) During the term of this Agreement, Debtor shall not sell, assign,
transfer, pledge, grant a security interest in, place a lien on or otherwise
dispose of the Pledged Collateral except as permitted under the Credit
Agreements.
7. Other Rights With Respect to Pledged Collateral.
- -- -----------------------------------------------
In addition to the other rights with respect to the Pledged Collateral
granted to the Secured Party hereunder, at any time and from time to time, after
and during the continuation of an Event of Default, the Secured Party, at its
option and at the expense of the Debtors, may (a) transfer into its own name, or
into the name of its nominee, all or any part of the Pledged Collateral,
thereafter receiving all income or other distributions upon the Pledged
Collateral; (b) take control of and manage all or any of the Pledged Collateral;
(c) apply to the payment of any of the Secured Obligations, whether any be due
and payable or not, any moneys, including cash distributions and income from any
Pledged Collateral, now or hereafter in the hands of the Secured Party or any
Affiliate of the Secured Party, on deposit or otherwise, belonging to any
6
<PAGE>
Debtor, as the Secured Party, in its sole discretion, shall determine; and (d)
do anything which any Debtor is required but fails to do hereunder. The
exercise by the Secured Party of its rights and remedies with respect to the
Pledged Collateral is subject to the licensing power of health care regulatory
authorities. The proceeds of any collection, sale or other disposition of the
Pledged Collateral of any Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the
Collateral Sharing Agreement.
8. Additional Remedies Upon Event of Default.
- -- -----------------------------------------
Upon the occurrence of any Event of Default and while such Event of Default
shall be continuing, the Secured Party shall have, in addition to all rights and
remedies of a secured party under the Code or other applicable Law, and in
addition to its rights under Section 7 above and under the other Loan Documents,
the following rights and remedies:
(a) The Secured Party may, after ten (10) days' advance notice to the
Debtors, sell, assign, give an option or options to purchase or otherwise
dispose of the Pledged Collateral or any part thereof at public or private sale,
at any of the Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Secured Party may deem
commercially reasonable. Each Debtor agrees that ten (10) days' advance notice
of the time and place of any public sale or the time after which any private
sale is to be made shall constitute reasonable notification. The Secured Party
shall not be obligated to make any sale of Pledged Collateral regardless of
notice of sale having been given. The Secured Party may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned. Each Debtor recognizes that the Secured
Party may be compelled to resort to one or more private sales of the Pledged
Collateral to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such securities for its own account for
investment and not with a view to the distribution or resale thereof. Each
Debtor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Secured Party
shall be under no obligation to delay sale of any of the Pledged Collateral for
the period of time necessary to permit any Debtor to register such securities
for public sale under the Securities Act of 1933, as amended, or under
applicable state securities laws, even if such Debtor would agree to do so.
(b) The proceeds of any collection, sale or other disposition of the
Pledged Collateral of any Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
7
<PAGE>
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the
Collateral Sharing Agreement.
9. Secured Party's Duties.
- -- ----------------------
The powers conferred on the Secured Party hereunder are solely to protect
its interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Pledged Collateral
in its possession and the accounting for moneys actually received by it
hereunder, the Secured Party shall have no duty as to any Pledged Collateral or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Pledged Collateral. Further, the exercise
by the Secured Party of its rights and remedies with respect to the Pledged
Collateral or as otherwise provided under this Agreement shall only be an
exercise of rights with respect to the Pledged Collateral and shall not in any
manner constitute an assumption of any liabilities with respect to the Pledged
Collateral.
10. No Waiver; Cumulative Remedies.
- --- ------------------------------
No failure to exercise, and no delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any further exercise thereof or the exercise of any
other right, power or privilege. The remedies herein provided are cumulative
and not exclusive of any remedies provided under the other Loan Documents or by
Law. Each Debtor waives any right to require the Secured Party to proceed
against any other Person or to exhaust any of the Pledged Collateral or other
security for the Secured Obligations or to pursue any remedy in the Secured
Party's power.
11. Assignment.
- --- ----------
All rights of the Secured Party under this Agreement shall inure to the
benefit of its successors and assigns. All obligations of each Debtor shall
bind its successors and assigns; provided, however, no Debtor may assign or
-------- -------
transfer any of its rights and obligations hereunder or any interest herein.
12. Severability.
- --- ------------
Any provision of this Agreement which shall be held invalid or
unenforceable shall be ineffective without invalidating the remaining provisions
hereof.
13. Governing Law.
- --- -------------
This Agreement shall be construed in accordance with and governed by the
internal laws of the Commonwealth of Pennsylvania without regard to its
conflicts of law principles, except to the extent the validity or perfection of
the security interests or the remedies hereunder in respect
8
<PAGE>
of any Pledged Collateral are governed by the law of a jurisdiction other than
the Commonwealth of Pennsylvania.
14. Notices.
- --- -------
Debtors agree that all notices, statements, requests, demands and other
communications under this Agreement shall be given in the manner provided in
Section 11.06 of the Credit Agreements, and shall be addressed (a) to the
Debtors at the address set forth below the Debtors' names on the signature pages
of this Agreement, and (b) to the Secured Party at the address set forth below
the Secured Party's name on the signature pages of this Agreement.
15. Specific Performance.
- --- --------------------
Each Debtor acknowledges and agrees that, in addition to the other rights
of the Secured Party hereunder and under the other Loan Documents, because the
Secured Party's remedies at law for failure of the Debtors to comply with the
provisions hereof relating to the Secured Party's rights (i) to inspect the
books and records related to the Pledged Collateral, (ii) to receive the various
notifications the Debtors are required to deliver hereunder, (iii) to obtain
copies of agreements and documents as provided herein with respect to the
Pledged Collateral, (iv) to enforce the provisions hereof pursuant to which the
Debtors have appointed the Secured Party their attorney-in-fact, and (v) to
enforce the Secured Party's remedies hereunder, would be inadequate and that any
such failure would not be adequately compensable in damages, each Debtor agrees
that each such provision hereof may be specifically enforced.
16. Voting Rights in Respect of the Pledged Collateral.
- --- --------------------------------------------------
So long as no Event of Default shall occur and be continuing under any of
the Loan Documents, each Debtor may exercise any and all voting and other
consensual rights pertaining to the Pledged Collateral owned by such Debtor or
any part thereof for any purpose not inconsistent with the terms of this
Agreement or the other Loan Documents; provided, however, that such Debtor will
-------- -------
not exercise or will refrain from exercising any such right, as the case may be,
if such action would be inconsistent with the covenants and obligations of
Debtors under the Credit Agreements and the other Loan Documents or would have a
material adverse effect on the value of any Pledged Collateral. So long as no
Event of Default has occurred and is continuing, any lawful distributions paid
in cash to a Debtor in respect of the Pledged Collateral may be used or applied
by such Debtor for any purpose permitted by the Credit Agreements.
17. Entire Agreement; Amendments.
- --- ----------------------------
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements
relating to a grant of a security interest in the Pledged Collateral by the
Debtors. This Agreement may not be amended or supplemented except by a writing
signed by the Secured Party and the Debtors.
18. Counterparts.
- --- ------------
9
<PAGE>
This Agreement may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
19. Descriptive Headings.
- --- --------------------
The descriptive headings which are used in this Agreement are for the
convenience of the parties only and shall not affect the meaning of any
provision of this Agreement.
20. Additional Debtors.
- --- ------------------
Each Loan Party which pursuant to a Credit Agreement hereafter is required
to pledge limited liability company interests of another Subsidiary or Excluded
Entity shall execute a Joinder to this Agreement in form and substance
satisfactory to the Collateral Agent.
INTENTIONALLY LEFT BLANK
10
<PAGE>
[SIGNATURE PAGE 1 OF 1 TO THE AMENDED AND RESTATED
PLEDGE AGREEMENT PLEDGING LIMITED LIABILITY COMPANY INTERESTS]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SECURED PARTY:
PNC BANK, NATIONAL ASSOCIATION, as Collateral
Agent
By:_____________________________________
Title:__________________________________
Address for Notices for Secured Party:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
DEBTORS:
Address for Notices for Debtors:
c/o Mariner Health Group, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
11
<PAGE>
SCHEDULE A
----------
PLEDGE AGREEMENT
(PLEDGING LIMITED LIABILITY COMPANY INTERESTS)
DESCRIPTION OF LIMITED LIABILITY
Debtor COMPANY INTERESTS OWNED BY DEBTOR
------ ---------------------------------
12
<PAGE>
EXHIBIT 10.73
BIPC DRAFT - 12/22/98
AMENDED AND RESTATED PLEDGE AGREEMENT
(TRI-STATE PLEDGING PARTNERSHIP INTERESTS)
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Agreement"), dated as of
December 23, 1998, is made and entered into by and between TRI-STATE HEALTH
CARE, INC., a West Virginia corporation (the "Debtor"), and PNC BANK, NATIONAL
ASSOCIATION, a national banking association, in its capacity as Collateral Agent
(as hereinafter defined) for the benefit of the Facility Parties (as hereinafter
defined) (the "Secured Party").
WITNESSETH THAT:
WHEREAS, Mariner Health Group, Inc., a Delaware corporation (the
"Borrower"), as borrower, PNC Bank, National Association, as administrative
agent, First Union National Bank, as syndication agent, and the lenders party
thereto (the "Banks"), are parties to that certain Credit Agreement dated as of
May 18, 1994, as amended (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Revolving Credit Agreement"), pursuant
to which the Banks have agreed to make certain revolving credit loans to the
Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS, Mariner Health Group, Inc., a Delaware corporation (the "Term Loan
Borrower"), as borrower, PNC Bank, National Association, as administrative
agent, First Union National Bank, as syndication agent, and the lenders party
thereto (the "Term Loan Banks") are parties to that certain Term Loan Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Term Loan Agreement"; the Revolving
Credit Agreement and the Term Loan Agreement are hereinafter collectively
referred to as the "Credit Agreements"), pursuant to which the Term Loan Banks
have agreed to make certain term loans to the Term Loan Borrower upon the terms
and subject to the conditions set forth therein;
WHEREAS, pursuant to that certain Collateral Agency and Sharing Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Collateral Sharing Agreement"), among
the Borrower, the Term Loan Borrower, the other Loan Parties (as defined
therein), the Revolving Credit Agent and the Term Loan Agent (as such terms are
defined in the Collateral Sharing Agreement), and PNC Bank, National
Association, as Collateral Agent (together with its successors and assigns, the
"Collateral Agent"), the Facility Parties (as defined in the Collateral Sharing
Agreement), in order to secure the Obligations (as defined in the Collateral
Sharing Agreement), have agreed to share certain collateral as provided in the
Collateral Sharing Agreement;
WHEREAS, the Debtor and the Administrative Agent (as defined in the
Revolving Credit Agreement) are currently parties to that certain Pledge
Agreement (Subsidiaries Pledging Partnership Interests) (Tri-State Health Care,
Inc.) dated May 18, 1994, as amended (the
<PAGE>
"Original Pledge Agreement"), pursuant to which certain collateral is pledged to
secure the Revolving Credit Obligations (as defined in the Collateral Sharing
Agreement);
WHEREAS, Debtor owns the outstanding partnership interests of its
Subsidiary as set forth on Schedule A attached hereto and made a part hereof;
----------
and
WHEREAS, the parties to the Original Pledge Agreement now wish to amend and
restate the Original Pledge Agreement as provided herein, and as so amended,
this Agreement shall be a Shared Security Document (as defined in the Collateral
Sharing Agreement).
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Amendment and Restatement; No Novation.
- -- --------------------------------------
The Original Pledge Agreement is hereby amended and restated as provided
herein. No novation, suspension of continuity, satisfaction, discharge of prior
duties, or termination of the Obligations, or the collateral therefore
(including, without limitation, the Pledged Collateral), is intended or
consented to by the parties hereto. The Debtor and the Secured Party
acknowledge and agree that the Original Pledge Agreement has continued to secure
the Revolving Credit Obligations since the day of the execution of the Original
Pledge Agreement; that this Agreement is entitled to all rights and benefits
originally pertaining to the Original Pledge Agreement; and that in the event a
court or other authority shall determine that a novation has occurred as a
result of the execution of this Agreement or any other Loan Documents (as
defined in the Collateral Sharing Agreement), or otherwise, and the Secured
Party's security interest in the Pledged Collateral created under the Original
Pledge Agreement is avoided or the Secured Party's priority with respect thereto
is materially and adversely affected, then the rights, privileges, obligations
and remedies of the parities hereto shall be governed as if this Agreement had
not been executed by any party hereto, and the parties hereto agree to negotiate
in good faith to achieve the objectives of this Agreement.
2. Defined Terms.
- -- -------------
(a) Except as otherwise expressly provided herein, capitalized terms used
in this Agreement shall have the respective meanings assigned to them in the
Credit Agreements. Where applicable and except as otherwise expressly provided
herein, terms used herein (whether or not capitalized) shall have the respective
meanings assigned to them in the Uniform Commercial Code as enacted in each
applicable jurisdiction and as may be amended from time to time (the "Code").
(b) "Pledged Collateral" shall mean and include the following: (i) all of
the partnership interests owned by Debtor listed on Schedule A attached hereto
----------
and made a part hereof, together with all related rights, including without
limitation, all partnership interests and additional partnership interests
receivable in respect of or in exchange for any such partnership interests, all
rights to subscribe for partnership interests incident to or arising from
ownership of any such partnership interests, all cash, interest, and other cash
and non-cash distributions paid or
2
<PAGE>
payable on any such partnership interests, and all books, records, and documents
concerning any of the items described above, both that which Debtor now owns and
that which Debtor acquires hereafter; (ii) any and all other partnership
interests hereafter pledged to the Secured Party to secure the Secured
Obligations (as hereinafter defined) of Debtor or Debtor's Subsidiaries, and all
rights and privileges pertaining thereto, including, without limitation, all
partnership interests and additional partnership interests receivable in respect
of or in exchange for any such partnership interests, all rights to subscribe
for partnership interests incident to or arising from ownership of any such
partnership interests, all cash, interest, and other cash and non-cash
distributions paid or payable on such partnership interests and all books and
records pertaining to the foregoing, and (iii) all substitutions therefor,
additions thereto, and proceeds thereof with respect to any of the foregoing.
3. Grant of Security Interests.
- -- ---------------------------
Debtor, as security for the payment and performance of Debtor's Obligations
and of all other indebtedness and obligations of every nature it owes under the
Loan Documents (as defined in the Collateral Sharing Agreement) (all of the
foregoing indebtedness and obligations being referred to herein as the "Secured
Obligations"), hereby grants to the Secured Party a first priority security
interest in all of Debtor's now existing and hereafter acquired and/or arising
right, title and interest in, to and under the Pledged Collateral owned by
Debtor, whether now existing or hereafter acquired and wherever located, subject
only to Permitted Liens.
4. Further Assurances.
- -- ------------------
Prior to or concurrently with the execution of this Agreement, and
thereafter at any time and from time to time upon reasonable request of the
Secured Party, Debtor shall (a) execute and deliver to the Secured Party all
financing statements, continuation or amendment financing statements,
termination statements, assignments, certificates and documents of title,
affidavits, reports, notices, schedules of account, letters of authority,
further pledges, powers of attorney and all other documents (collectively, the
"Security Documents") which the Secured Party may reasonably request, in form
reasonably satisfactory to the Secured Party, (b) provide each partnership that
has issued or shall issue Pledged Collateral with a copy of this Agreement and
direct the Custodian of the books and records of each such partnership to
register the pledge of the applicable Pledged Collateral on such partnership's
books and records, (c) cause each partnership that has issued or shall issue
Pledged Collateral to execute and deliver to the Secured Party an Agreement and
Acknowledgment, in form and substance acceptable to the Secured Party (which
shall, among other things, provide that the Custodian of the books and records
of the partnership represents, acknowledges, warrants and confirms that it is
holding of record the partnership interests of the Debtor which constitute part
of the Pledged Collateral in its capacity as authorized custodial agent, bailee,
representative and nominee for the Secured Party, it has noted this fact by
means of appropriate entries made on the books and records of the partnership,
and except as contemplated by this Agreement, the Custodian will not cause or
permit to occur any change, alteration or modification of any kind in the form
of the Pledged Collateral, including, without limitation, any conversion of the
Pledged Collateral or any part thereof to certificated, bearer or any other
form, without the prior written consent of the Secured Party), and
3
<PAGE>
(d) take such other action which the Secured Party may request, to perfect and
continue perfected and to create and maintain the first priority status (subject
only to Permitted Liens) of the Secured Party's security interest in the Pledged
Collateral and to fully consummate the transactions contemplated under the
Credit Agreements, the other Loan Documents and this Agreement. Debtor hereby
irrevocably makes, constitutes and appoints the Secured Party (and any of the
Secured Party's officers or employees or agents designated by the Secured Party)
as Debtor's true and lawful attorney with power to sign the name of Debtor on
all or any of the Security Documents which the Secured Party reasonably
determines must be executed, filed, recorded or sent in order to perfect or
continue perfected the Secured Party's security interest in the Pledged
Collateral. Such power, being coupled with an interest, is irrevocable until all
of the Secured Obligations have been indefeasibly paid in full and the
Commitments have terminated.
5. Representations, Warranties and Certain Covenants.
- -- -------------------------------------------------
In addition to the representations and warranties of Debtor set forth in
the Loan Documents (which representations and warranties are hereby incorporated
herein by reference), Debtor hereby represents, warrants and covenants to the
Secured Party as follows:
(a) Debtor has, and will continue to have (or, in the case of after-
acquired Pledged Collateral, at the time Debtor acquires rights in such Pledged
Collateral, will have), title to the Pledged Collateral, free and clear of all
Liens other than Permitted Liens.
(b) The partnership interests constituting the Pledged Collateral have been
duly authorized and validly issued to the Debtor, are fully paid and
nonassessable, have no outstanding assessments, and constitute all of the issued
and outstanding partnership interests of the issuer thereof owned by Debtor.
(c) Except for Permitted Liens the security interests in the Pledged
Collateral granted hereunder are valid, perfected and of first priority.
(d) There are no restrictions upon the transfer of the Pledged Collateral
and Debtor has the power and authority and right to transfer the Pledged
Collateral free of any encumbrances and without obtaining the consent of any
other Person except to the extent that a transfer upon the exercise of Secured
Party's rights and remedies under this Agreement and the other Loan Documents
would result in or constitute an assignment of any license relating to a health
care facility or a change of control with respect to the ownership of a health
care facility which is subject to the prior approval of health care regulatory
authorities issuing such license or regulating such health care facility. It is
acknowledged that a transfer of the Pledged Collateral by Secured Party
following foreclosure may require compliance with federal and state securities
laws.
(e) Debtor has all necessary power to execute, deliver and perform this
Agreement and all necessary action to authorize the execution, delivery and
performance of this Agreement has been properly taken.
4
<PAGE>
(f) There are no actions, suits, or proceedings pending or, to Debtor's
best knowledge after due inquiry, threatened against or affecting Debtor with
respect to the Pledged Collateral, at law or in equity or before or by any
commissions, board, bureau, agency, department or instrumentality, and Debtor is
not in default with respect to any judgment, writ, injunction, decree, rule or
regulation which would adversely affect Debtor's performance hereunder.
(g) This Agreement has been duly executed and delivered and constitutes the
valid and legally binding obligation of Debtor, enforceable in accordance with
its terms, except to the extent that (i) enforceability of this Agreement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws affecting the enforceability of creditors' rights generally
or limiting the right of specific performance or by general equitable
principles; and (ii) the exercise by Secured Party of its rights and remedies in
respect of the Pledged Collateral which would result in or constitute any
assignment of any license relating to a health care facility or any change of
control with respect to the ownership of a health care facility is subject to
the prior approval of health care regulatory authorities issuing such license or
regulating such health care facility.
(h) Neither the execution and delivery by the Debtor of this Agreement, nor
the compliance with the terms and provisions hereof, will violate any provision
of the Articles of Incorporation or Bylaws of the Debtor or any Law or conflict
with or result in a breach of any of the terms, conditions or provisions of any
judgment, order, injunction, decree or ruling of any court or arbitration
tribunal or any governmental authority to which Debtor is subject or any
provision of any material agreement, understanding or arrangement to which
Debtor is a party or by which Debtor is bound.
(i) The Debtor's principal place of business and chief executive office is
as set forth on the signature page hereto.
(j) No certificate has been or, during the term hereof shall be issued, to
evidence the Pledged Collateral, and no partnership interest which is Pledged
Collateral constitutes a "certificated security" (as such term is defined in
Section 8-102 of the Code).
6. General Covenants.
- -- -----------------
In addition to any covenants and agreements of the Debtor set forth in the
other Loan Documents, which are incorporated herein by this reference, Debtor
hereby covenants and agrees as follows:
(a) Debtor shall do all reasonable acts that may be necessary and
appropriate to maintain, preserve and protect the Pledged Collateral; Debtor
shall be responsible for the risk of loss of, damage to, or destruction of the
Pledged Collateral owned by Debtor, unless such loss is the result of the gross
negligence or willful misconduct of the Secured Party. Debtor shall notify the
Secured Party in writing ten (10) Business Days prior to any change in the
Debtor's name, the address and location of Debtor's chief executive office or
the address and location of Debtor's principal place of business.
5
<PAGE>
(b) Debtor shall pay promptly when due all taxes, assessments, charges and
obligations secured by encumbrances and liens now or hereafter imposed upon or
affecting any of the Pledged Collateral, except as otherwise expressly permitted
under the Credit Agreements.
(c) Debtor shall appear in and defend any action or proceeding of which
Debtor is aware which could reasonably be expected to affect Debtor's title to,
or the Secured Party's interest in, the Pledged Collateral owned by Debtor and
the proceeds thereof; provided, however, that Debtor may settle such actions or
-------- -------
proceedings with respect to the Pledged Collateral Debtor owns with the consent
of the Secured Party, which consent shall not be unreasonably withheld or
delayed.
(d) Debtor shall keep separate, accurate and complete records of the
Pledged Collateral owned by Debtor, disclosing the Secured Party's security
interest hereunder.
(e) Debtor shall permit the Secured Party, its officers, employees and
agents at reasonable times and on reasonable prior notice to inspect all books
and records related to the Pledged Collateral.
(f) To the extent, following the date hereof, Debtor acquires a partnership
interest in Debtor's Subsidiaries or any of the interests, rights, property or
securities described in the definition of Pledged Collateral with respect to
Debtor's Subsidiaries, such interests stocks, rights, property or securities
shall be, upon such acquisition, pledged to the Secured Party, and Debtor shall
deliver an updated Schedule A hereto to the Secured Party. To the extent,
----------
following the date hereof, any of the Pledged Collateral constitutes a
"certificated security," Debtor shall immediately upon receipt of any original
certificates for such Pledged Collateral deliver such original certificates to
the Secured Party.
(g) During the term of this Agreement, Debtor shall not sell, assign,
transfer, pledge, grant a security interest in, place a lien on or otherwise
dispose of the Pledged Collateral except as permitted under the Credit
Agreements.
7. Other Rights With Respect to Pledged Collateral.
- -- -----------------------------------------------
In addition to the other rights with respect to the Pledged Collateral
granted to the Secured Party hereunder, at any time and from time to time, after
and during the continuation of an Event of Default, the Secured Party, at its
option and at the expense of the Debtor, may (a) transfer into its own name, or
into the name of its nominee, all or any part of the Pledged Collateral,
thereafter receiving all income or other distributions upon the Pledged
Collateral; (b) take control of and manage all or any of the Pledged Collateral;
(c) apply to the payment of any of the Secured Obligations, whether any be due
and payable or not, any moneys, including cash distributions and income from any
Pledged Collateral, now or hereafter in the hands of the Secured Party or any
Affiliate of the Secured Party, on deposit or otherwise, belonging to Debtor, as
the Secured Party, in its sole discretion, shall determine; and (d) do anything
which Debtor is required but fails to do hereunder. The exercise by the Secured
Party of its rights and remedies with respect to the Pledged Collateral is
subject to the licensing power of health care regulatory authorities. The
proceeds of any collection, sale or other disposition of the Pledged Collateral
of
6
<PAGE>
Debtor, or any part thereof, shall, after the Secured Party has made all
deductions of expenses, including but not limited to reasonable attorneys' fees
and other expenses incurred in connection with repossession, collection, sale or
disposition of such Pledged Collateral or in connection with the enforcement of
the Secured Party's rights with respect to the Pledged Collateral in any
insolvency, bankruptcy or reorganization proceedings, be applied against the
Secured Obligations, whether or not all the same be then due and payable, in
such manner and order as set forth in the Collateral Sharing Agreement.
8. Additional Remedies Upon Event of Default.
- -- -----------------------------------------
Upon the occurrence of any Event of Default and while such Event of Default
shall be continuing, the Secured Party shall have, in addition to all rights and
remedies of a secured party under the Code or other applicable Law, and in
addition to its rights under Section 7 above and under the other Loan Documents,
the following rights and remedies:
(a) The Secured Party may, after ten (10) days' advance notice to the
Debtor, sell, assign, give an option or options to purchase or otherwise dispose
of the Pledged Collateral or any part thereof at public or private sale, at any
of the Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Secured Party may deem commercially
reasonable. Debtor agrees that ten (10) days' advance notice of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Secured Party shall not be
obligated to make any sale of Pledged Collateral regardless of notice of sale
having been given. The Secured Party may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. Debtor recognizes that the Secured Party may be compelled to resort
to one or more private sales of the Pledged Collateral to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
securities for its own account for investment and not with a view to the
distribution or resale thereof. Debtor acknowledges and agrees that any such
private sale may result in prices and other terms less favorable than if such
sale were a public sale and, notwithstanding such circumstances, agrees that any
such private sale shall be deemed to have been made in a commercially reasonable
manner. The Secured Party shall be under no obligation to delay sale of any of
the Pledged Collateral for the period of time necessary to permit Debtor to
register such securities for public sale under the Securities Act of 1933, as
amended, or under applicable state securities laws, even if Debtor would agree
to do so.
(b) The proceeds of any collection, sale or other disposition of the
Pledged Collateral of Debtor, or any part thereof, shall, after the Secured
Party has made all deductions of expenses, including but not limited to
reasonable attorneys' fees and other expenses incurred in connection with
repossession, collection, sale or disposition of such Pledged Collateral or in
connection with the enforcement of the Secured Party's rights with respect to
the Pledged Collateral in any insolvency, bankruptcy or reorganization
proceedings, be applied against the Secured Obligations, whether or not all the
same be then due and payable, in such manner and order as set forth in the
Collateral Sharing Agreement.
7
<PAGE>
9. Secured Party's Duties.
- -- ----------------------
The powers conferred on the Secured Party hereunder are solely to protect
its interest in the Pledged Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the safe custody of any Pledged Collateral
in its possession and the accounting for moneys actually received by it
hereunder, the Secured Party shall have no duty as to any Pledged Collateral or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Pledged Collateral. Further, the exercise
by the Secured Party of its rights and remedies with respect to the Pledged
Collateral or as otherwise provided under this Agreement shall only be an
exercise of rights with respect to the Pledged Collateral and shall not in any
manner constitute an assumption of any liabilities with respect to the Pledged
Collateral.
10. No Waiver; Cumulative Remedies.
- --- ------------------------------
No failure to exercise, and no delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any further exercise thereof or the exercise of any
other right, power or privilege. The remedies herein provided are cumulative
and not exclusive of any remedies provided under the other Loan Documents or by
Law. Debtor waives any right to require the Secured Party to proceed against any
other Person or to exhaust any of the Pledged Collateral or other security for
the Secured Obligations or to pursue any remedy in the Secured Party's power.
11. Assignment.
- --- ----------
All rights of the Secured Party under this Agreement shall inure to the
benefit of its successors and assigns. All obligations of Debtor shall bind its
successors and assigns; provided, however, Debtor may not assign or transfer any
-------- -------
of its rights and obligations hereunder or any interest herein.
12. Severability.
- --- ------------
Any provision of this Agreement which shall be held invalid or
unenforceable shall be ineffective without invalidating the remaining provisions
hereof.
13. Governing Law.
- --- -------------
This Agreement shall be construed in accordance with and governed by the
internal laws of the Commonwealth of Pennsylvania without regard to its
conflicts of law principles, except to the extent the validity or perfection of
the security interests or the remedies hereunder in respect of any Pledged
Collateral are governed by the law of a jurisdiction other than the Commonwealth
of Pennsylvania.
14. Notices.
- --- -------
8
<PAGE>
Debtor agrees that all notices, statements, requests, demands and other
communications under this Agreement shall be given in the manner provided in
Section 11.06 of the Credit Agreements, and shall be addressed (a) to the Debtor
at the address set forth below the Debtor's name on the signature page of this
Agreement, and (b) to the Secured Party at the address set forth below the
Secured Party's name on the signature page of this Agreement.
15. Specific Performance.
- --- --------------------
Debtor acknowledges and agrees that, in addition to the other rights of the
Secured Party hereunder and under the other Loan Documents, because the Secured
Party's remedies at law for failure of the Debtor to comply with the provisions
hereof relating to the Secured Party's rights (i) to inspect the books and
records related to the Pledged Collateral, (ii) to receive the various
notifications the Debtor is required to deliver hereunder, (iii) to obtain
copies of agreements and documents as provided herein with respect to the
Pledged Collateral, (iv) to enforce the provisions hereof pursuant to which the
Debtor has appointed the Secured Party its attorney-in-fact, and (v) to enforce
the Secured Party's remedies hereunder, would be inadequate and that any such
failure would not be adequately compensable in damages, Debtor agrees that each
such provision hereof may be specifically enforced.
16. Voting Rights in Respect of the Pledged Collateral.
- --- --------------------------------------------------
So long as no Event of Default shall occur and be continuing under any of
the Loan Documents, Debtor may exercise any and all voting and other consensual
rights pertaining to the Pledged Collateral owned by Debtor or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the other
Loan Documents; provided, however, that Debtor will not exercise or will
-------- -------
refrain from exercising any such right, as the case may be, if such action would
be inconsistent with the covenants and obligations of Debtor under the Credit
Agreements and the other Loan Documents or would have a material adverse effect
on the value of any Pledged Collateral. So long as no Event of Default has
occurred and is continuing, any lawful distributions paid in cash to Debtor in
respect of the Pledged Collateral may be used or applied by Debtor for any
purpose permitted by the Credit Agreements.
17. Entire Agreement; Amendments.
- --- ----------------------------
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements
relating to a grant of a security interest in the Pledged Collateral by the
Debtor. This Agreement may not be amended or supplemented except by a writing
signed by the Secured Party and the Debtor.
18. Counterparts.
- --- ------------
This Agreement may be executed in any number of counterparts, and by
different parties hereto in separate counterparts, each of which when so
executed shall be deemed an original and all of which taken together shall
constitute but one and the same agreement.
19. Descriptive Headings.
- --- --------------------
9
<PAGE>
The descriptive headings which are used in this Agreement are for the
convenience of the parties only and shall not affect the meaning of any
provision of this Agreement.
INTENTIONALLY LEFT BLANK
10
<PAGE>
[SIGNATURE PAGE 1 OF 1 TO THE PLEDGE AGREEMENT
- TRI-STATE PLEDGING PARTNERSHIP INTERESTS]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
SECURED PARTY:
PNC BANK, NATIONAL ASSOCIATION,
as Collateral Agent
By: ___________________________________
Title: ________________________________
Address for Notices for Secured Party:
One PNC Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15222-2707
DEBTOR:
TRI-STATE HEALTH CARE, INC., a West Virginia
corporation
By: ________________________________
Title: _____________________________
Address for Notices for Debtor:
c/o Mariner Health Group, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
11
<PAGE>
SCHEDULE A
----------
PLEDGE AGREEMENT
(TRI-STATE PLEDGING PARTNERSHIP INTERESTS)
DESCRIPTION OF PARTNERSHIP INTERESTS OWNED BY DEBTOR
- ----------------------------------------------------
12
<PAGE>
EXHIBIT 10.74
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of December 23, 1998, is made and entered
into by and among the undersigned debtors (each a "Debtor" and collectively, the
"Debtors"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association
in its capacity as Collateral Agent (as hereinafter defined) for the benefit of
the Facility Parties (as hereinafter defined) (the "Secured Party").
WITNESSETH THAT:
WHEREAS, Mariner Health Group, Inc., a Delaware corporation (the
"Borrower"), as borrower, PNC Bank, National Association, as administrative
agent, First Union National Bank, as syndication agent, and the lenders party
thereto (the "Banks"), are parties to that certain Credit Agreement dated as of
May 18, 1994, as amended (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Revolving Credit Agreement"), pursuant
to which the Banks have agreed to make certain revolving credit loans to the
Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS, Mariner Health Group, Inc., a Delaware corporation (the "Term Loan
Borrower"), as borrower, PNC Bank, National Association, as administrative
agent, First Union National Bank, as syndication agent, and the lenders party
thereto (the "Term Loan Banks"), are parties to that certain Term Loan Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Term Loan Agreement"; the Revolving
Credit Agreement and the Term Loan Agreement are hereinafter collectively
referred to as the "Credit Agreements"), pursuant to which the Term Loan Banks
have agreed to make certain term loans to the Term Loan Borrower upon the terms
and subject to the conditions set forth therein;
WHEREAS, pursuant to that certain Collateral Agency and Sharing Agreement
dated of even date herewith (as it may hereafter from time to time be amended,
restated, modified or supplemented, the "Collateral Sharing Agreement"), among
the Borrower, the Term Loan Borrower, the other Loan Parties (as defined in the
Collateral Sharing Agreement), the Revolving Credit Agent and the Term Loan
Agent (as such terms are defined in the Collateral Sharing Agreement), and PNC
Bank, National Association, as Collateral Agent (together with its successors
and assigns, the "Collateral Agent"), the Facility Parties (as defined in the
Collateral Sharing Agreement), in order to secure the Obligations (as defined in
the Collateral Sharing Agreement), have agreed to share certain collateral as
provided in the Collateral Sharing Agreement;
WHEREAS, this Security Agreement shall be a Shared Security Document (as
defined in the Collateral Sharing Agreement); and
<PAGE>
WHEREAS, each Debtor is (or will be with respect to after-acquired
property) the legal and beneficial owner and holder of its respective Collateral
(as defined in Section 1 hereof), and has agreed to grant a security interest in
such Collateral to the Secured Party on the terms and conditions set forth
herein.
NOW, THEREFORE, intending to be legally bound hereby and for value
received, the parties hereto covenant and agree as follows:
1. Definitions. Except as otherwise expressly provided herein,
-----------
capitalized terms used in this Security Agreement shall have the respective
meanings assigned to them in the Credit Agreements. In addition to the words and
terms defined elsewhere in this Security Agreement, the following words and
terms shall have the following meanings, respectively, unless the context
otherwise clearly requires:
(a) "Code" shall mean the Uniform Commercial Code of each state as
enacted and in effect on the date hereof in each applicable jurisdiction,
and as the same may subsequently be amended from time to time.
(b) "Collateral" shall mean, in the case of each Debtor, all of its
right, title and interest in, to and under the following described
property, whether now owned or hereafter acquired (words and terms defined
in the Code shall have the same meanings when used herein):
(i) all general intangibles of the Debtor, including general
intangibles now in existence and those that shall hereafter arise;
(ii) all accounts of the Debtor, including accounts now in
existence and those that shall hereafter arise;
(iii) all inventory of the Debtor, including inventory which it
now owns and that which it shall hereafter acquire;
(iv) all chattel paper of the Debtor, including chattel paper
which it now owns and that which it shall hereafter acquire;
(v) all investment property of the Debtor, including investment
property which it now owns and that which it shall hereafter acquire;
(vi) all equipment (including fixtures) of the Debtor, including
equipment which it now owns and that which it shall hereafter acquire;
(vii) all documents of the Debtor, including documents which it
now owns and those which it shall hereafter acquire;
(viii) all instruments, letters of credit and advices of credit
of the Debtor, including those which it now owns and those which it
shall hereafter acquire;
2
<PAGE>
(ix) all cash, depository accounts (including, without
limitation, any deposits in any lockbox accounts created pursuant to
the provisions of Section 9.02(h) of the Credit Agreements) or other
property of the Debtor at any time delivered to, in the possession of,
or under the control of the Secured Party;
(x) any property the Debtor has given or may give in the future
to the Secured Party to secure the Secured Indebtedness; and
(xi) all additions to and substitutions for, and products and
proceeds (including insurance proceeds whether or not the Secured
Party is the loss payee thereof) of, any of the properties mentioned
in clauses (i) through (x) above, or any indemnity, warranty or
guaranty payable by reason of loss or damage to or otherwise with
respect to any of such properties.
Without limiting the generality of the foregoing, the term
"Collateral" shall expressly include all royalty, licensing and know-how
agreements, all patents, copyrights, trademarks, tradenames, service marks,
trade secrets, know-how, goodwill, computer software, computer programs,
licensed computer software (to the extent assignable), licensed computer
programs (to the extent assignable), tapes, discs and other documents or
transcribed information of any type, whether expressed in ordinary or
machine readable language.
(c) "Secured Indebtedness" shall mean, collectively, (i) all
indebtedness and obligations, including, without limitation, all
Obligations (as defined in the Collateral Sharing Agreement), whether of
principal, interest, fees, expenses or otherwise, of any of the Loan
Parties (as defined in the Collateral Sharing Agreement) to any of the
Facility Parties (as defined in the Collateral Sharing Agreement), whether
now existing or hereafter incurred under the Credit Agreements or any of
the Loan Documents (as defined in the Collateral Sharing Agreement), as any
of the same may from time to time be amended, modified or supplemented,
together with any and all extensions, renewals, refinancings or refundings
thereof in whole or in part by the Facility Parties, (ii) all out-of-pocket
costs, expenses and disbursements, including reasonable attorneys' fees and
legal expenses, incurred by the Facility Parties or any one of them, or the
Secured Party, in the collection of any of the obligations referred to in
clause (i) above; and (iii) any advances made, subsequent to an Event of
Default, by the Facility Parties or any one of them, or the Secured Party,
for the reasonable maintenance, preservation, protection or enforcement of,
or realization upon, the Collateral, including advances for taxes,
insurance, repairs and the like and reasonable expenses incurred to sell or
otherwise realize on, or prepare for sale or other realization on, any of
the Collateral.
2. Assignment and Grant of Security Interests. As security for the due
------------------------------------------
and punctual payment and performance in full of the Secured Indebtedness, each
Debtor hereby agrees that the Secured Party shall have, and each Debtor hereby
grants to and creates in favor of the Secured Party, for the benefit of the
Secured Party and the Facility Parties, a continuing first priority security
interest in and to each Debtor's respective Collateral subject only to Permitted
Liens.
3
<PAGE>
Without limiting the generality of Section 4 below, each Debtor further agrees
that with respect to each item of Collateral as to which (i) the creation of a
valid and enforceable security interest is not governed exclusively by the Code
or (ii) the perfection of a valid and enforceable security interest therein
under the Code cannot be accomplished by the Secured Party or any other Facility
Party taking possession thereof or by the filing in appropriate locations of
appropriate Code financing statements executed by the Debtor, such Debtor will
at its expense execute and deliver to the Secured Party such documents,
agreements, notices, assignments and instruments and take such further actions
as may be requested by the Secured Party from time to time for the purpose of
creating a valid and perfected first priority Lien on such item, subject only to
Permitted Liens, enforceable against the Debtor and all third parties to secure
the Secured Indebtedness; provided, however that Debtor shall not be required to
--------
take any actions required under Sections 9.02(g) and 9.02(h) of the Credit
Agreements until an Event of Default has occurred under the Credit Agreements.
To the extent the granting of any of the foregoing security interest is subject
to any material contracts or agreements which by their terms prohibit the
granting by the applicable Debtor of a security interest therein such Debtor
shall: (i) provide to the Collateral Agent within thirty (30) days of the
Closing Date a list of all such material contracts and agreements; (ii) use its
commercially reasonable best efforts to obtain within ninety (90) days of the
Closing Date any consent or approval of a security interest in any such contract
or agreement granted to the Collateral Agent; and (iii) to the extent any such
consent or approval is obtained and upon receipt thereof, promptly deliver to
the Collateral Agent any original of such consent or approval obtained or such
other evidence in a form satisfactory to the Collateral Agent of any such
consent or approval obtained.
3. Representations and Warranties. Each Debtor jointly and severally
------------------------------
represents, warrants and covenants to the Secured Party (with respect to itself
only) that:
(a) Such Debtor is the legal and beneficial owner and holder of its
respective Collateral and such Debtor has and will continue to have good
and marketable title to the Collateral which such Debtor purports to own or
which is reflected as owned in its books and records.
(b) Each Debtor has received value from each of the Facility Parties
for such Debtor's grant of a security interest hereunder and, except for
the security interest granted to and created in favor of the Secured Party
hereunder and any Permitted Liens, all of such Collateral is and will
continue to be free and clear of all Liens.
(c) Such Debtor has full power to enter into, execute, deliver and
carry out this Security Agreement and to perform its obligations hereunder
and all such actions have been duly authorized by all necessary proceedings
on its part. This Security Agreement has been duly and validly executed and
delivered by such Debtor. This Security Agreement constitutes the legal,
valid and binding obligation of such Debtor, enforceable against it in
accordance with its terms, except to the extent that enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforceability of creditors' rights generally or
limiting the right of specific performance.
4
<PAGE>
(d) Neither the execution and delivery of this Security Agreement nor
compliance with the terms and provisions hereof (i) will conflict with or
result in any breach of the terms and conditions of the declaration of
trust, articles or certificates of incorporation, by-laws, partnership
agreement, limited liability company agreement, management or operating
agreement or equivalent documents of such Debtor or of any Law or of any
material agreement or instrument to which such Debtor is a party or by
which it is bound or to which it is subject, (ii) will constitute a default
thereunder or (iii) will result in the creation or enforcement of any Lien
whatsoever upon any property (now or hereafter acquired) of such Debtor
(other than Liens granted to the Secured Party on behalf of the Facility
Parties under the Loan Documents).
(e) As of the date hereof, all information contained on Schedule 1 is
----------
accurate and complete and contains no omission or misrepresentation of any
material fact necessary for the creation and/or perfection of a security
interest in the Collateral. The Debtors shall promptly notify the Secured
Party of any changes in the information set forth thereon.
(f) During the past five (5) years no Debtor has operated under any
other legal name, trade name or fictitious name other than such Debtor's
current legal name as specified on the signature pages to this Security
Agreement or as otherwise disclosed on Schedule 1.
----------
4. Further Assurances. Each Debtor will, from time to time, at its
------------------
expense, faithfully preserve and protect the Secured Party's security interest
in such Debtor's Collateral as a continuing first priority perfected security
interest, subject only to Permitted Liens, and will do all such other acts and
things and will, upon request therefor by the Secured Party, execute, deliver,
file and record all such other documents and instruments, including financing
statements, continuation or amendment financing statements, security agreements,
pledges, assignments, documents and powers of attorney with respect to such
Debtor's Collateral, and pay all filing fees and taxes related thereto, as the
Secured Party in its sole discretion may deem necessary or advisable from time
to time in order to attach, preserve, protect, perfect or continue perfected any
security interest granted or purported to be granted hereby or to enable the
Secured Party to exercise and enforce its rights and remedies hereunder with
respect to any of the Collateral. Without limiting the generality of the
foregoing, to the extent Article 9 of the Code does not govern the creation
and/or perfection of the security interests intended to be created hereunder,
each Debtor agrees to execute and deliver such further documents and instruments
and do such further acts as the Secured Party may from time to time require.
5. Covenants. Each Debtor jointly and severally covenants and agrees that
---------
(a) it will defend the Secured Party's right, title and security interest in and
to the Collateral and the proceeds thereof against the claims and demands of all
Persons whomsoever, (b) it will not suffer or permit to exist on any Collateral
any Lien except for Liens granted herein or in the other Loan Documents and
Permitted Liens, (c) it will maintain in good condition and repair and shall
protect and preserve its Collateral, as and to the extent required in the Credit
Agreements, and such Collateral will be insured in accordance with the
provisions of the Credit Agreements; (d) it
5
<PAGE>
will not sell, assign or otherwise dispose of any portion of its Collateral
except sales or dispositions expressly permitted under the terms of the Credit
Agreements; (e) it will obtain and maintain sole and exclusive possession of its
Collateral; (f) it will maintain and keep its chief executive office, the
location of the Collateral and the location of the records pertaining thereto,
at the location(s) specified on Schedule 1 attached hereto, or at such other
----------
location as it may reasonably designate from time to time by not less than
thirty (30) Business Days' prior written notice to the Secured Party; (g) it
will keep materially accurate and complete books and records concerning its
Collateral and such other books and records as may be required under the Credit
Agreements; (h) it will promptly furnish to the Secured Party such information
and documents relating to its Collateral as the Secured Party may reasonably
request in order to confirm the status of the Secured Party's security interest
in such Collateral; (i) it will not take or omit to take any actions, the taking
or the omission of which might result in a material adverse alteration or
impairment of its Collateral or in a violation of this Security Agreement; (j)
it will not, without the prior written consent of the Secured Party, waive or
release any material obligation of any party to any material part of its
Collateral, except in the ordinary course of Debtor's business or in connection
with the disposition of assets permitted under the Credit Agreements; (k) it
will execute and deliver to the Secured Party and record such amendments and
supplements to this Security Agreement and other Loan Documents and additional
assignments as the Secured Party reasonably may request to evidence and confirm
the security interest herein contained; (l) it will, from and after the
occurrence of any Event of Default, comply with all default and remedy
provisions contained in the Credit Agreements (including, without limitation,
the provisions of Sections 9.02(g) and 9.02(h) of the Credit Agreements); and
(m) to the extent required by Section 8.02(i) of the Credit Agreements it will
cause each of its Subsidiaries which may hereafter be created or acquired to
enter into and become a party and signatory to this Security Agreement and do
all such acts and things and execute, deliver and file all such documents and
instruments as the Secured Party may deem necessary and desirable to attach,
create, protect, perfect and continue perfected a first priority security
interest in the Collateral of such Subsidiary.
6. Preservation of Security Interests. Each Debtor assumes full
----------------------------------
responsibility for taking and hereby agrees to take any and all necessary steps
to preserve and defend the Secured Party's right, title and security interest in
and to such Debtor's Collateral against the claims and demands of all Persons
(other than those holding Permitted Liens). The Secured Party shall be deemed
to have exercised reasonable care in the custody and preservation of a Debtor's
Collateral in the Secured Party's possession if, prior to the existence of an
Event of Default or Potential Default, the Secured Party takes such action for
that purpose as such Debtor shall reasonably request in writing, provided that
--------
such requested action will not, in the judgment of the Secured Party, impair the
security interest in such Debtor's Collateral created hereby or the Secured
Party's rights in, or the value of, such Collateral, and provided further that
-------- -------
such written request is received by the Secured Party in sufficient time to
permit the Secured Party to take the requested action.
7. Secured Party's Rights with Respect to the Collateral. At any time and
-----------------------------------------------------
from time to time, whether or not an Event of Default shall have occurred, and
without notice to or consent of the Debtors, the Secured Party may, at its
option, do any or all of the following: (a) take any
6
<PAGE>
actions the Secured Party deems appropriate to attach, perfect, continue
perfected, preserve and protect the Secured Party's security interest in the
Collateral; (b) do anything which the Debtors are required but fail to do
hereunder, and in particular the Secured Party may, if any of the Debtors fail
to do so, (i) insure or take any reasonable steps to maintain, repair and
protect the Collateral of any Debtor, (ii) pay any or all taxes, levies,
expenses and costs arising with respect to the Collateral of any Debtor, or
(iii) pay any or all premiums payable on any policy of insurance required to be
obtained or maintained hereunder, and add any amounts paid under this Section 7
to the principal amount of any of the Secured Indebtedness and other
indebtedness and liabilities secured by this Security Agreement; and (c)
inspect, audit and verify the Collateral of any Debtor at any time upon on Event
of Default or otherwise at any reasonable time and upon reasonable prior notice
to Debtor, including reviewing all of Debtors' books and records and copying and
making excerpts therefrom, in accordance with the terms of the Credit
Agreements.
8. Remedies on Default. If there shall have occurred and be continuing an
-------------------
Event of Default under the terms of the Credit Agreements or the other Loan
Documents:
(a) The Secured Party shall have such rights and remedies with respect
to the Collateral or any part thereof and the proceeds thereof as are
provided by the Code and such other rights and remedies with respect
thereto which it may have at Law or in equity or under this Security
Agreement and the Other Loan Documents, including to the extent not
inconsistent with the provisions of the Code, the right to take over and
collect all or any of Debtor's accounts and all or any of the other
Collateral which consists of amounts owing to any Debtor, and to this end,
the Debtor hereby appoints the Secured Party, its officers, employees and
agents, as its irrevocable, true and lawful attorneys-in-fact with all
necessary power and authority to (i) take possession immediately, with or
without notice, demand, or legal process, of any of or all of the
Collateral wherever found, and for such purposes, enter upon any premises
upon which the Collateral may be found and remove the Collateral therefrom,
(ii) require the Debtors to assemble the Collateral and deliver it to the
Secured Party or to any place designated by the Secured Party at the
Debtors' expense, (iii) receive, open and dispose of all mail addressed to
the Debtors (or any of them), (iv) demand payment of the Debtors' accounts
receivable, (v) enforce payment of the Debtors' accounts receivable by
legal proceedings or otherwise, (vi) exercise all of the Debtors' rights
and remedies with respect to the collection of the Debtors' accounts
receivable, (vii) to the extent permitted by applicable Law, settle,
adjust, compromise, extend or renew the Debtors' accounts receivable,
(viii) settle, adjust or compromise any legal proceedings brought to
collect the Debtors' accounts receivable, (ix) to the extent permitted by
applicable Law, sell or assign the Debtors' accounts receivable upon such
terms, for such amounts and at such time or times as the Secured Party
deems advisable, (x) discharge and release the Debtors' accounts
receivable, (xi) take control, in any manner, of any item of payment or
proceeds from any account debtor, (xii) prepare, file and sign the Debtor's
name on any Proof of Claim in Bankruptcy or similar document against any
account debtor, (xiii) prepare, file and sign the Debtor's name on any
notice of lien, assignment or satisfaction of lien or similar document in
connection with the Debtors' accounts receivable, (xiv) do all acts and
things necessary, in the Secured Party's sole discretion, to fulfill the
Debtor's obligations
7
<PAGE>
under the Credit Agreements and other Loan Documents, (xv) endorse the name
of the Debtor upon any check, chattel paper, document, instrument, invoice,
freight bill, bill of lading or similar document or agreement relating to
the Debtors' accounts receivable or inventory; (xvi) use the Debtors'
stationery and sign the Debtors' name to verifications of the Debtors'
accounts receivable and notices thereof to account debtors; (xvii) access
and use the information recorded on or contained in any data processing
equipment or computer hardware or software relating to the Debtors'
accounts receivable, inventory, or other Collateral or proceeds thereof to
which the Debtor has access, (xviii) demand, sue for, collect, compromise
and give acquittances for any and all Collateral, (xix) prosecute, defend
or compromise any action, claim or proceeding with respect to any of the
Collateral, (xx) direct payments to, and take all necessary actions with
respect to, lockbox agreements and lockbox accounts created pursuant to the
provisions of Section 9.02(h) of the Credit Agreements, and (xxi) take such
other action as the Secured Party may deem appropriate, including extending
or modifying the terms of payment of the Debtors' debtors. This power of
attorney, being coupled with an interest, shall be irrevocable for the life
of this Security Agreement. To the extent permitted by Law, the Debtor
hereby waives all claims of damages due to or arising from or connected
with any of the rights or remedies exercised by the Secured Party pursuant
to this Security Agreement, except claims for damage to the Collateral
arising from gross negligence or willful misconduct by the Secured Party.
(b) The Secured Party shall have the right to lease, sell or otherwise
dispose of all or any of the Collateral at public or private sale or sales
for cash, credit or any combination thereof, with such notice as may be
required by Law (it being agreed by the Debtor that, in the absence of any
contrary requirement of Law, ten (10) days' prior notice of a public or
private sale of Collateral shall be deemed reasonable notice), in lots or
in bulk, for cash or on credit, all as the Secured Party, in its sole and
absolute discretion, may deem advisable. Such sales may be adjourned from
time to time with or without notice. The Secured Party shall have the right
to conduct such sales on the Debtors' premises or elsewhere and shall have
the right to use the Debtors' premises without charge for such sales for
such time or times as the Secured Party may see fit. The Secured Party and
the Facility Parties may purchase all or any part of the Collateral at
public or, if permitted by Law, private sale and, in lieu of actual payment
of such purchase price, may set off the amount of such price against the
Secured Indebtedness.
(c) In the event of a breach by any of the Debtors in the performance
of any of the terms of this Security Agreement, the Secured Party may
demand specific performance of this Security Agreement and seek injunctive
relief and may exercise any other remedy, available at law or in equity, it
being recognized that the remedies of the Secured Party at Law may not
fully compensate the Secured Party for the damages the Secured Party or any
of the Facility Parties may suffer in the event of a breach hereof.
9. Application of Proceeds. The proceeds of any collection, sale or other
-----------------------
disposition of the Collateral of any Debtor, or any part thereof, shall, after
the Secured Party has made all deductions of expenses, including but not limited
to reasonable attorneys' fees and other expenses
8
<PAGE>
incurred in connection with repossession, collection, sale or disposition of
such Collateral or in connection with the enforcement of the Secured Party's
rights with respect to the Collateral in any insolvency, bankruptcy or
reorganization proceedings, be applied against the Secured Indebtedness, whether
or not all the same be then due and payable, in such manner and order as set
forth in the Collateral Sharing Agreement. The Debtors shall be liable for any
deficiency if the proceeds of any sale, assignment, giving of an option or
options to purchase or other disposition of the Collateral is insufficient to
pay all of the Secured Indebtedness.
10. Attorneys-in-Fact. Each of the Debtors hereby irrevocably appoints the
-----------------
Secured Party, its officers, employees and agents, or any of them, as attorneys-
in-fact, with full power of substitution, for such Debtor for the purpose of
carrying out the provisions of this Security Agreement and the Other Loan
Documents, and taking any action and executing, delivering, filing and recording
any instruments which the Secured Party may deem necessary or advisable to
accomplish the purposes hereof and thereof, which power of attorney being given
for security is coupled with an interest and irrevocable. Each Debtor hereby
ratifies and confirms and agrees to ratify and confirm all action taken by the
Secured Party, its officers, employees or agents pursuant to the foregoing power
of attorney.
11. Indemnity and Expenses.
----------------------
(a) The Debtors unconditionally and jointly and severally agree to
indemnify the Secured Party from and against any and all claims, losses and
liabilities arising out of or resulting from this Security Agreement
(including enforcement of this Security Agreement), except claims, losses
or liabilities resulting from the gross negligence or willful misconduct of
the Secured Party or any of the Facility Parties.
(b) The Debtors unconditionally and jointly and severally agree upon
demand to pay to the Secured Party the amount of any and all reasonable and
necessary out-of-pocket costs, expenses and disbursements for which
reimbursement is customarily obtained, including reasonable fees and
expenses of their counsel actually incurred, which the Secured Party may
incur in connection with (i) the administration of this Security Agreement,
(ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii)
the exercise or enforcement of any of the rights of the Secured Party
hereunder or (iv) the failure by the Debtors to perform or observe any of
the provisions hereof.
12. Security Interest Absolute; Waiver of Notices. All rights of the
---------------------------------------------
Secured Party hereunder, all security interests hereunder, and all obligations
of the Debtors hereunder shall be absolute and unconditional, irrespective of:
(a) any lack of validity or enforceability of the Credit Agreements, the
promissory notes or guaranties evidencing the Secured Indebtedness, or any of
the other Loan Documents; (b) any change in the time, manner or place or payment
of, or in any other term of, all or any of the Secured Indebtedness or any other
amendment or waiver of or any consent to any departure from the Credit
Agreements or any of the other Loan Documents; (c) any exchange, release or non-
perfection of any other Collateral, or any release or amendment or waiver of or
consent to departure from any guaranty, for all or any of the Secured
9
<PAGE>
Indebtedness; or (d) any other circumstance which might otherwise constitute a
defense available to, or a discharge of, any Debtor or any third party
mortgagors, pledgors or Debtors of security interests. Each Debtor (other than
the Borrower and the Term Loan Borrower with respect to notices otherwise
provided for in the Credit Agreements and the other Loan Documents) waives any
and all notice with respect to acceptance by the Secured Party of this Security
Agreement, the provisions of the Credit Agreements, or any of the other Loan
Documents or any other promissory note, guaranty, instrument or agreement
relating to the Secured Indebtedness, and any default in connection with the
Secured Indebtedness. Each Debtor waives any presentment, demand, notice of
dishonor or nonpayment, protest, notice of protest and any other notice of any
kind in connection with the Secured Indebtedness, except for notices expressly
required under the Loan Documents.
Until the indefeasible payment in full in cash of the Obligations and so
long as any Obligations remain outstanding or any commitment to extend credit to
the Borrower pursuant to the Revolving Credit Agreement remains in effect each
Debtor waives and agrees not to enforce any of the rights of such Debtor against
the Borrower, the Term Loan Borrower or any other Debtor, including: (i) any
right of such Debtor to be subrogated in whole or in part to any right or claim
with respect to any Secured Indebtedness or any portion thereof to the Secured
Party which might otherwise arise from payment by any Debtor to the Secured
Party or any other Facility Party on the account of the Secured Indebtedness or
any portion thereof; and (ii) any right of any Debtor to require the marshalling
of assets of the Borrower, the Term Loan Borrower or any other Debtor which
might otherwise arise from payment by any Debtor to the Secured Party or any
other Facility Party on account of the Secured Indebtedness or any portion
thereof. If any amount shall be paid to any Debtor in violation of the preceding
sentence, such amount shall be deemed to have been paid to such Debtor for the
benefit of, and held in trust for the benefit of, the Secured Party and shall
forthwith be paid to the Secured Party to be credited and applied upon the
Secured Indebtedness, whether matured or unmatured in accordance with the terms
of the Collateral Sharing Agreement. Each Debtor acknowledges that it will
receive direct and indirect benefits from the financing arrangements
contemplated by the Credit Agreements and that the waivers set forth in this
Section are knowingly made in contemplation of such benefits.
13. Termination. Upon payment in full of the Secured Indebtedness and
-----------
termination of the Credit Agreements and the Commitments, this Security
Agreement shall terminate and be of no further force and effect, and the Secured
Party, at the Debtors' expense, shall thereupon promptly return to each Debtor
such of its Collateral and such other documents delivered by each Debtor
hereunder as may then be in the Secured Party's possession. Upon any such
termination, the Secured Party will, at the Debtor's expense, execute and
deliver to each Debtor such documents as that Debtor shall reasonably request to
evidence such termination. The Secured Party, upon request of any Debtor, shall
release the Secured Party's security interest in any of such Debtor's Collateral
which is sold prior to the occurrence of an Event of Default (but not the
proceeds thereof), provided such sale is permitted by, and made in accordance
--------
with, the provisions of the Credit Agreements.
14. Modifications, Amendments and Waivers. Any and all agreements amending
-------------------------------------
or changing any provision of this Security Agreement or the rights of the
Secured Party or the
10
<PAGE>
Debtors hereunder, and any and all waivers or consents to Events of Default or
other departures from the due performance of the Debtors hereunder shall be made
only pursuant to the provisions of the Credit Agreements, except that any
amendment or change that affects less than all of the Debtors shall be effective
with the written consent of the affected Debtors.
15. No Implied Waivers; Cumulative Remedies. No course of dealing and no
---------------------------------------
failure or delay on the part of the Secured Party in exercising any right,
remedy, power or privilege hereunder shall operate as a waiver thereof or of any
other right, remedy, power or privilege of the Secured Party hereunder; and no
single or partial exercise of any such right, remedy, power or privilege shall
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights and remedies of the Secured Party
under this Security Agreement are cumulative and not exclusive of any rights or
remedies which it may otherwise have.
16. Notices. All notices, statements, requests, demands and other
-------
communications under this Security Agreement shall be given in the manner
provided in Section 11.06 of the Credit Agreements, and shall be addressed (a)
to the Debtors at the Borrower's chief executive office as set forth on
Schedule 1, and (b) to the Secured Party at the address set forth in the Credit
- ----------
Agreements.
17. Severability.
------------
(a) Each Debtor agrees that the provisions of this Security Agreement
are severable, and in an action or proceeding involving any state or
federal bankruptcy, insolvency or other law affecting the rights of
creditors generally:
(i) if any clause or provision shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect only such clause or
provision, or part thereof, in such jurisdiction and shall not in any
manner affect such clause or provision in any other jurisdiction, or
any other clause or provision in this Security Agreement in any
jurisdiction; and
(ii) if this Security Agreement would be held or determined to be
void, invalid or unenforceable on account of the amount of the
aggregate liability of a Debtor (other than the Borrower or the Term
Loan Borrower) under this Security Agreement, then, notwithstanding
any other provision of this Security Agreement to the contrary, the
aggregate amount of such liability shall, without any further action
by the Secured Party, such Debtor or any other person, be
automatically limited and reduced to the highest amount which is valid
and enforceable as determined in such action or proceeding.
(b) If the grant of a security interest hereunder by any one or more
Debtors is held or determined to be void, invalid or unenforceable, in
whole or in part, such holding or determination shall not impair or affect:
11
<PAGE>
(i) the validity and enforceability of the security interest
granted hereunder by any other Debtor, which shall continue in full
force and effect in accordance with its terms; or
(ii) the validity and enforceability of any clause or provision
not so held to be void, invalid or unenforceable.
18. Governing Law. This Security Agreement shall be deemed to be a
-------------
contract under the laws of the Commonwealth of Pennsylvania and for all purposes
shall be governed by and construed in accordance with the internal laws of said
Commonwealth, without reference to its conflicts of law principles, except as
required by mandatory provisions of law and except to the extent that the
validity or perfection of security interests hereunder, or remedies hereunder
with respect to any particular Collateral, is governed by the laws of a
jurisdiction other than the law of the Commonwealth of Pennsylvania.
19. Successors and Assigns. This Security Agreement shall be freely
----------------------
assignable and transferable by the Secured Party in connection with the
assignment or transfer of the Secured Indebtedness; provided, however, the
-------- -------
duties and obligations of the Debtors may not be delegated or transferred by the
Debtors, except to the extent specifically permitted in the Credit Agreements.
The rights and privileges of the Secured Party shall inure to the benefit of its
successors and assigns, and the duties and obligations of the Debtors shall bind
the Debtors and their respective successors and permitted assigns. Except to the
extent otherwise required by the context of this Security Agreement, the word
"Facility Parties" where used in this Security Agreement shall include, without
limitation, any holder of a promissory note, or assignee of an interest therein,
originally issued to a Facility Party under the Credit Agreements, and each such
holder of a promissory note, or assignee of an interest therein, shall be bound
by and have the benefits of this Security Agreement to the same extent as if
such holder had been a signatory hereto.
20. Election. Each Debtor acknowledges that the Secured Party may, in its
--------
sole discretion, elect to exercise its rights under this Security Agreement
against any one or more of the Debtors, or the Collateral of any one or more of
the Debtors, without any duty or responsibility to pursue any other Debtor, and
that such an election by the Secured Party shall not be a defense to any action
the Secured Party may elect to take against any one or more of the Debtors.
21. Counterparts. This Security Agreement may be executed in any number of
------------
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed and delivered, shall be deemed an original, but all
such counterparts shall constitute but one and the same instrument.
22. Consent to Jurisdiction; Waiver of Jury Trial. Each of the Debtors
---------------------------------------------
hereby irrevocably consents to the non-exclusive jurisdiction of the Court of
Common Pleas of Allegheny County and the United States District Court for the
Western District of Pennsylvania, and waives personal service of any and all
process upon it and consents that all such service of process be made by
certified or registered mail directed to the Debtors at the addresses set forth
12
<PAGE>
or referred to in Section 16 hereof and service so made shall be deemed to be
completed upon actual receipt thereof. Each of the Debtors waives any objection
to jurisdiction and venue of any action instituted against it as provided herein
and agrees not to assert any defense based on lack of jurisdiction or venue, AND
THE SECURED PARTY AND EACH OF THE DEBTORS WAIVE TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM WITH RESPECT TO THIS SECURITY AGREEMENT TO THE
FULL EXTENT PERMITTED BY LAW.
[SIGNATURES BEGIN ON NEXT PAGE]
13
<PAGE>
[SIGNATURE PAGE 1 OF 1 TO SECURITY AGREEMENT]
WITNESS the due execution hereof as of the day and year first above
written.
SECURED PARTY:
PNC BANK, NATIONAL ASSOCIATION, as Collateral
Agent
By:
-------------------------------------
Title:
----------------------------------
DEBTORS:
MARINER HEALTH GROUP, INC.
EACH SUBSIDIARY OF MARINER HEALTH GROUP, INC.
WHICH IS A CORPORATION AND WHICH IS LISTED AS A
"COMPANY" ON SCHEDULE 6.01(c) OF THE CREDIT
AGREEMENT BOTH FOR ITSELF AND, IF APPLICABLE: (i)
AS GENERAL PARTNER OF EACH OTHER SUBSIDIARY OF
MARINER HEALTH GROUP, INC. WHICH IS A PARTNERSHIP
AND WHICH IS LISTED AS A "COMPANY" ON SCHEDULE
6.01(c) OF THE CREDIT AGREEMENT, AND (ii) AS A
MEMBER OF EACH OTHER SUBSIDIARY OF MARINER HEALTH
GROUP, INC. WHICH IS A LIMITED LIABILITY COMPANY
AND WHICH IS LISTED AS A "COMPANY" ON SCHEDULE
6.01(c) OF THE CREDIT AGREEMENT
By:
-------------------------------------
Name: Boyd P. Gentry
Title: Vice President/Treasurer of each
of the foregoing corporations
<PAGE>
SCHEDULE 1
TO
SECURITY AGREEMENT
SECURITY INTEREST DATA SUMMARY
------------------------------
1. The chief executive office of each Debtor is located as follows:
Borrower:
Term Loan Borrower:
Other Debtors:
2. Each Debtor's true, full and current corporate name is as set forth on
the signature pages to this Security Agreement. No Debtor has used or currently
uses any legal name, trade names or fictitious names, other than its current
legal name or as follows:
Debtor Name Other Legal, Trade or Fictitious Names
----------- --------------------------------------
3. All of each Debtor's personal property which has not been delivered to
the Secured Party pursuant to the terms of this Agreement or the Credit
Agreement is now, and will be at all future times, located at the Debtor's chief
executive office as described in Paragraph 1 above, or at the following
locations:
Debtor Name Collateral Locations
----------- --------------------
<PAGE>
EXHIBIT 10.75
CONTINUING AGREEMENT OF GUARANTY AND SURETYSHIP
This Continuing Agreement of Guaranty and Suretyship (the "Guarantee") is
made and entered into as of this 23rd day of December, 1998, by and between the
Guarantors, each a Subsidiary of Mariner Health Group, Inc., a Delaware
corporation, listed on Schedule I hereto (collectively the "Guarantors" and each
individually a "Guarantor") in favor of PNC BANK, NATIONAL ASSOCIATION, a
national banking association, in its capacity as administrative agent ("Agent")
for the benefit of the Banks (as hereinafter defined and hereinafter referred to
collectively as the "Bank" or "Banks").
BACKGROUND
In order to induce the Agent and the Banks to make loans to MARINER HEALTH
GROUP, INC., a Delaware corporation (the "Borrower"), in accordance with that
certain Term Loan Agreement of even date herewith (as it may hereafter from time
to time be amended, restated, modified or supplemented, the "Term Loan
Agreement") by and between the Borrower, the Agent, First Union National Bank,
as syndication agent and the banks party thereto (the "Banks"), each Guarantor
hereby unconditionally and irrevocably guarantees and becomes surety as though
he was a primary obligor for the full and timely payment when due, whether at
maturity, by declaration, acceleration or otherwise, of the principal of and
interest and fees on all Loans (as defined in the Term Loan Agreement), both
those now in existence and those that shall hereafter be made, of the Bank to
the Borrower under the Term Loan Agreement and the Notes issued by the Borrower
in connection therewith and any extensions, renewals, replacements or refundings
thereof, and each and every other obligation or liability (both those now in
existence and those that shall hereafter arise and including, without
limitation, all costs and expenses of enforcement and collection, including
reasonable attorney's fees) of the Borrower to the Bank under the Term Loan
Agreement and the other Loan Documents (as defined in the Term Loan Agreement)
except this Agreement, and any extensions, renewals, replacements or refundings
thereof (hereinafter referred to as the "Guaranteed Indebtedness"), whether or
not such Guaranteed Indebtedness or any portion thereof shall hereafter be
released or discharged or is for any reason invalid or unenforceable.
1. Capitalized terms used herein and not otherwise defined herein shall
have such meanings given to them in the Term Loan Agreement.
2. Each Guarantor agrees to make such full payment forthwith upon demand of
the Bank when the Guaranteed Indebtedness or any portion thereof is due to be
paid by the Borrower to the Agent and the Banks, whether at stated maturity, by
declaration, acceleration or otherwise. Each Guarantor agrees to make such full
payment irrespective of whether or not any one or more of the following events
has occurred: (i) the Agent and the Banks, or any of them, have made any demand
on the Borrower or the other Guarantor; (ii) the Agent and the Banks, or any of
them, have taken any action of any nature against the Borrower or the other
Guarantor; (iii) the Agent and the Banks, or any of them, have pursued any
rights which it has against any other
<PAGE>
Person who may be liable for the Guaranteed Indebtedness; (iv) the Agent and the
Banks, or any of them, holds or has resorted to any security for the Guaranteed
Indebtedness; or (v) the Bank has invoked any other remedy or right it has
available with respect to the Guaranteed Indebtedness. Each Guarantor further
agrees to make full payment to the Agent and the Banks even if circumstances
exist which otherwise constitute a legal or equitable discharge of such
Guarantor as surety or guarantor.
3. Each Guarantor warrants to the Agent and the Banks that: (i) no other
agreement, representation or special condition exists between such Guarantor and
the Agent or any of the Banks regarding the liability of such Guarantor
hereunder, nor does any understanding exist between such Guarantor and the Agent
or any of the Banks that the obligations of such Guarantor hereunder are or will
be other than as set forth herein; and (ii) as of the date hereof, such
Guarantor has no defense whatsoever to any action or proceeding that may be
brought to enforce this Guarantee.
4. Each Guarantor waives and agrees not to enforce any of the rights of
such Guarantor against the Borrower or any other Guarantor, including, but not
limited to: (i) any right of such Guarantor to be subrogated in whole or in part
to any right or claim with respect to any Guaranteed Indebtedness or any portion
thereof to the Agent and the Banks or any of them which might otherwise arise
from payment by any Guarantor to the Agent and the Banks, or any of them, on the
account of the Guaranteed Indebtedness or any portion thereof; and (ii) any
right of any Guarantor to require the marshalling of assets of the Borrower or
any other Guarantor which might otherwise arise from payment by any Guarantor to
the Bank on account of the Guaranteed Indebtedness or any portion thereof. If
any amount shall be paid to any Guarantor in violation of the preceding
sentence, such amount shall be deemed to have been paid to such Guarantor for
the benefit of, and held in trust for the benefit of, the Agent and the Banks
and shall forthwith be paid to the Agent to be Term Loaned and applied upon the
Guaranteed Indebtedness, whether matured or unmatured, in accordance with the
terms of the Term Loan Agreement. Each Guarantor acknowledges that such
Guarantor will receive direct and indirect benefits from the financing
arrangements contemplated by the Term Loan Agreement and that the waivers set
forth in this Section are knowingly made in contemplation of such benefits.
5. Each Guarantor waives promptness and diligence by the Agent and the
Banks, or any of them, with respect to his rights under the Term Loan Agreement
or any of the other Loan Documents, including, but not limited to, this
Guarantee.
6. Each Guarantor waives any and all notice with respect to: (i) acceptance
by the Agent and the Banks of this Guarantee; (ii) the provisions of any note,
instrument or agreement relating to the Guaranteed Indebtedness; and (iii) any
default in connection with the Guaranteed Indebtedness.
7. Each Guarantor waives any presentment, demand, notice of dishonor or
nonpayment, protest, and notice of protest in connection with the Guaranteed
Indebtedness.
8. Each Guarantor agrees that the Agent and the Banks, or any of them, may
from time to time and as many times as such Agent or any Bank, in its sole
discretion, deems
2
<PAGE>
appropriate, do any of the following without notice to any Guarantor and without
adversely affecting the validity or enforceability of this Guarantee: (i)
release, surrender, exchange, compromise, or settle the Guaranteed Indebtedness
or any portion thereof; (ii) change, renew, or waive the terms of the Guaranteed
Indebtedness or any portion thereof; (iii) change, renew, or waive the terms,
including without limitation, the rate of interest charged to the Borrower or
any Guarantor, of any note, instrument, or agreement relating to the Guaranteed
Indebtedness or any portion thereof; (iv) grant any extension or indulgence with
respect to the payment to the Agent and the Banks, or any of them, of the
Guaranteed Indebtedness or any portion thereof; (v) enter into any agreement of
forbearance with respect to the Guaranteed Indebtedness or any portion thereof;
(vi) release, surrender, exchange or compromise any security held by the Agent
and the Banks, or any of them, for the Guaranteed Indebtedness; (vii) release
any Person who is a guarantor or surety or who has agreed to purchase the
Guaranteed Indebtedness or any portion thereof; and (viii) release, surrender,
exchange or compromise any security or Lien held by the Agent and the Banks, or
any of them, for the liabilities of any Person who is a guarantor or surety for
the Guaranteed Indebtedness or any portion thereof. Each Guarantor agrees that
the Agent and the Banks may do any of the above as it deems necessary or
advisable, in its sole discretion, without giving any notice to any Guarantor,
and that each Guarantor will remain liable for full payment to the Agent and the
Banks of the Guaranteed Indebtedness.
9. Each Guarantor agrees to be jointly and severally bound by the terms of
this Guarantee and jointly and severally liable under this Guarantee. As a
result of such liability, each Guarantor acknowledges that the Agent and the
Banks may, in their sole discretion, elect to enforce this Guarantee for the
total Guaranteed Indebtedness against any Guarantor without any duty or
responsibility to pursue any other Guarantor and that such an election by the
Agent and the Banks, or any of them, shall not be a defense to any action the
Agent and the Banks, or any of them, may elect to take against any Guarantor.
10. If any amount owing hereunder shall have become due and payable (by
acceleration or otherwise), the Agent or any Bank and any branch, subsidiary or
affiliate of the Agent or any of the Banks anywhere in the world shall each have
the right, at any time and from time to time to the fullest extent permitted by
Law, in addition to all other rights and remedies available to it, without prior
notice to any Guarantor, to set-off against and to appropriate and apply to such
due and payable amounts any debt owing to, and any other funds held in any
manner for the account of any Guarantor by the Agent or any Bank or any such
branch, subsidiary or affiliate including, without limitation, all funds in all
deposit accounts (whether time or demand, general or special, provisionally Term
Loaned or finally Term Loaned, or otherwise) now or hereafter maintained by any
Guarantor with the Agent or any of the Banks or such branch, subsidiary or
affiliate. Such right shall exist whether or not the Agent or any of the Banks
shall have given notice or made any demand hereunder or under any of the Notes
or Loan Documents, whether or not such debt owing to or funds held for the
account of any Guarantor is or are matured or unmatured, and regardless of the
existence or adequacy of any collateral, guarantee or any other security, right
or remedy available to the Bank. Each Guarantor hereby consents to and confirms
the foregoing arrangements, and confirms the Agents and each of the Banks'
rights and each such branch's, subsidiary's and affiliate's rights of banker's
lien and set-off.
3
<PAGE>
11. Each Guarantor recognizes and agrees that the Borrower, after the date
hereof, may incur additional Indebtedness or other obligations, fees and
expenses to the Agent and the Banks under the Term Loan Agreement, refinance
existing Guaranteed Indebtedness or pay existing Guaranteed Indebtedness and
subsequently incur additional Indebtedness to the Agent and the Banks under the
Term Loan Agreement, and that in any such transaction, even if such transaction
is not now contemplated, the Agent and the Banks will rely in any such case upon
this Guarantee and the enforceability thereof against each Guarantor and that
this Guarantee shall remain in full force and effect with respect to such future
Indebtedness of the Borrower to the Agent and the Banks and such Indebtedness
shall for all purposes constitute Guaranteed Indebtedness.
12. Each Guarantor further agrees that, if at any time all or any part of
any payment, from whomever received, theretofore applied by the Agent and the
Banks, or any of them, to any of the Guaranteed Indebtedness is or must be
rescinded or returned by such Agent or Bank for any reason whatsoever including,
without limitation, the insolvency, bankruptcy or reorganization of any
Guarantor, such liability shall, for the purposes of this Guarantee, to the
extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence, notwithstanding such application by the Agent and the
Banks, or any of them, and this Guarantee shall continue to be effective or be
reinstated, as the case may be, as to such liabilities, all as though such
application by the Agent and the Banks, or any of them, had not been made.
13. Each Guarantor agrees that no failure or delay on the part of the Agent
and the Banks, or any of them, to exercise any of their rights, powers or
privileges under this Guarantee shall be a wavier of such rights, powers or
privileges or a waiver of any default, nor shall any single or partial exercise
of any of the Agent's or any Bank's rights, powers or privileges preclude other
or further exercise thereof or the exercise of any other right, power or
privilege or be construed as a waiver of any default. Each Guarantor further
agrees that no waiver or modification of any rights of the Agent and the Banks
under this Guarantee shall be effective unless in writing and signed by the
Agent and the Banks. Each Guarantor further agrees that each written waiver
shall extend only to the specific instance actually recited in such written
waiver and shall not impair the rights of the Agent and the Banks in any other
respect.
14. Each Guarantor unconditionally agrees to pay all costs and expenses,
including attorney's fees, incurred by the Agent and the Banks, or any of them,
in enforcing this Guarantee against any Guarantor.
15. Each Guarantor agrees that this Guarantee and the rights and
obligations of the parties hereto shall for all purposes be governed by and
construed and enforced in accordance with the substantive law of the
Commonwealth of Pennsylvania without giving effect to its principles of conflict
of laws.
16. Each Guarantor recognizes that this Guarantee when executed constitutes
a sealed instrument and as a result the instrument will be enforceable as such
without regard to any statute of limitations which might otherwise be applicable
and without any consideration.
4
<PAGE>
17. Each Guarantor acknowledges that in addition to binding itself to this
Guarantee, at the time of execution of this Guarantee the Agent offered to such
Guarantor a copy of this Guarantee in the form in which it was executed and that
by acknowledging this fact such Guarantor may not later be able to claim that a
copy of the Guarantee was not received by it.
18. Each Guarantor agrees that this Guarantee shall be binding upon each
Guarantor, its successors and assigns; provided, however, that no Guarantor may
-------- -------
assign or transfer any of its rights and obligations hereunder or any interest
herein. Each Guarantor further agrees that (i) this Guarantee is freely
assignable and transferable by the Agent or any Bank in connection with any
assignment or transfer of the Guaranteed Indebtedness and (ii) this Guarantee
shall inure to the benefit of the Agent and the Banks, their successors and
assigns.
19. Each Guarantor hereby acknowledges that it has a received a copy of the
Term Loan Agreement and the other Loan Documents and each Guarantor certifies
that the representations and warranties made therein with respect to such
Guarantor are true and correct. Further, each Guarantor acknowledges and agrees
to perform, comply with and be bound by all of the provisions of the Term Loan
Agreement and the other Loan Documents including, without limitation, those
covenants contained in Sections 8.01 and 8.02 of the Term Loan Agreement.
20. Each Guarantor agrees that if any Guarantor fails to perform any
covenant or agreement hereunder or if there occurs an Event of Default under the
Term Loan Agreement, all or any part of the Guaranteed Indebtedness may be
declared to be forthwith due and payable and, in the case of an Event of Default
described in Sections 9.01(p) and 9.01(q) of the Term Loan Agreement, the
Guaranteed Indebtedness shall be immediately due and payable, in any case
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived.
21. Each Guarantor agrees that the enumeration of the Agents and the Banks'
rights and remedies set forth in this Guarantee is not intended to be exhaustive
and the exercise by the Agent and the Banks, or any of them, of any right or
remedy shall not preclude the exercise of any other rights or remedies, all of
which shall be cumulative and shall be in addition to any other right or remedy
given hereunder or under any other agreement among the parties to the Loan
Documents or which may now or hereafter exist at law or in equity or by suit or
otherwise.
22. Each Guarantor agrees that all notices, statements, requests, demands
and other communications under this Guarantee shall be given to each of the
Guarantors at its Chief Executive Office at c/o Mariner Health Group, Inc., One
Raviania Drive, Suite 1500, Atlanta, GA 30346, or at such other office or
offices as the Guarantors may advise, in writing, the Agent.
23. (a) Each Guarantor agrees that the provisions of this Guarantee are
severable, and in an action or proceeding involving any state or federal
bankruptcy, insolvency or other law affecting the rights of Term Loanors
generally:
(i) if any clause or provision shall be held invalid or unenforceable in
whole or in part in any jurisdiction, then such invalidity or unenforceability
shall affect only such clause or provision, or part thereof, in such
jurisdiction and shall not in any manner affect such clause or
5
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provision in any other jurisdiction, or any other clause or provision in this
Guarantee in any jurisdiction.
(ii) if this Guarantee would be held or determined to be void, invalid
or unenforceable on account of the amount of a Guarantor's aggregate liability
under this Guarantee, then, notwithstanding any other provision of this
Guarantee to the contrary, the aggregate amount of such liability shall, without
any further action by the Agent or any of the Banks, such Guarantor or any other
Person, be automatically limited and reduced to the highest amount which is
valid and enforceable as determined in such action or proceeding, which (without
limiting the generality of the foregoing) may be an amount which is not greater
than the greater of:
(A) the fair consideration actually received by such Guarantor under
the terms of and as a result of the Loan Documents, including, without
limiting the generality of the foregoing, and to the extent not
inconsistent with applicable federal and state laws affecting the
enforceability of guarantees, distributions or advances made to such
Guarantor with the proceeds of any Term Loan extended under the Loan
Documents in exchange for its guaranty of the Guaranteed Indebtedness, or
(B) the excess of (1) the amount of the fair saleable value of the
assets of such Guarantor as of the date of this Guarantee as determined in
accordance with applicable federal and state laws governing determinations
of the insolvency of debtors as in effect on the date thereof over (2) the
amount of all liabilities of such Guarantor as of the date of this
Guarantee, also as determined on the basis of applicable federal and state
laws governing the insolvency of debtors as in effect on the date thereof.
(b) If the guarantee by any one or more Guarantors of the Guaranteed
Indebtedness is held or determined to be void, invalid or unenforceable, in
whole or in part, such holding or determination shall not impair or affect:
(i) the validity and enforceability of the guarantee hereunder by any
other Guarantor, which shall continue in full force and effect in accordance
with its terms; or
(ii) the validity and enforceability of any clause or provision not
so held to be void, invalid or unenforceable.
24. EACH GUARANTOR AGREES UPON THE OCCURRENCE OF AN EVENT OF DEFAULT (AS
DEFINED IN THE TERM LOAN AGREEMENT) OR A DEFAULT HEREUNDER, ANY ATTORNEY OF ANY
COURT OF RECORD IS EMPOWERED WITHIN THE UNITED STATES OF AMERICA, OR ELSEWHERE,
TO APPEAR FOR EACH GUARANTOR AND, WITH OR WITHOUT A DECLARATION FILED, TO
CONFESS JUDGMENT OR A SERIES OF JUDGMENTS AGAINST EACH GUARANTOR IN FAVOR OF THE
AGENT AND THE BANKS, OR ANY OF THEM, AS OF ANY TERM OR TERMS, FOR ANY AND ALL
SUMS THEN PAYABLE UNDER THE TERMS OF THE LOAN DOCUMENTS FOR WHICH JUDGMENT HAS
NOT THERETOFORE BEEN ENTERED, TOGETHER WITH COSTS OF SUIT AND A REASONABLE
ATTORNEY'S COMMISSION FOR COLLECTION, AND EACH
6
<PAGE>
GUARANTOR HEREBY FOREVER WAIVES AND RELEASES ANY AND ALL ERRORS IN SAID
PROCEEDINGS, WAIVES STAY OF EXECUTION, STAY, CONTINUANCE OR ADJOURNMENT OF SALE
ON EXECUTION, THE RIGHT TO PETITION TO SET ASIDE SALE OR ORDER A RESALE, THE
RIGHT TO EXCEPT TO THE SHERIFF'S SCHEDULE OF PROPOSED DISTRIBUTION, THE RIGHT OF
INQUISITION AND EXTENSION OF TIME OF PAYMENT, AND AGREES TO CONDEMNATION OF ANY
PROPERTY LEVIED UPON BY VIRTUE OF ANY EXECUTION ISSUED ON ANY SUCH JUDGMENT, AND
EACH GUARANTOR SPECIFICALLY WAIVES ALL EXEMPTIONS FROM LEVY AND SALE OF ANY
PROPERTY THAT NOW IS OR MAY HEREAFTER BE EXEMPT UNDER THE EXISTING OR FUTURE
LAWS OF THE UNITED STATES OF AMERICA, OR OF THE COMMONWEALTH OF PENNSYLVANIA OR
OF ANY OTHER JURISDICTION.
25. EACH GUARANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY
LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS GUARANTEE. EACH GUARANTOR (I) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF THE AGENT AND THE BANKS, OR ANY OF THEM, HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER, AND EXECUTION AND DELIVERY HEREOF BY EACH
GUARANTOR, AND (II) ACKNOWLEDGES THAT THE ENTERING INTO OF THE TERM LOAN
AGREEMENT BY THE AGENT AND THE BANKS HAS BEEN INDUCED BY, AMONG OTHER THINGS,
THE WAIVERS AND CERTIFICATIONS SET FORTH IN THIS SECTION.
26. Each Guarantor (i) hereby irrevocably submits to the nonexclusive
jurisdiction of the Court of Common Pleas of Allegheny County, Commonwealth of
Pennsylvania, or any successor to said court, and to the nonexclusive
jurisdiction of the United States District Court for the Western District of
Pennsylvania, or any successor to said court (hereinafter referred to as the
"Pennsylvania Courts") for purposes of any suit, action or other proceeding
which relates to this Guarantee or any other Loan Document, (ii) to the extent
permitted by applicable Law, hereby waives and agrees not to assert by way of
motion, as a defense or otherwise in any such suit, action or proceeding, any
claim that such Guarantor is not personally subject to the jurisdiction of the
Pennsylvania Courts; that such suit, action or proceeding is brought in an
inconvenient forum; that the venue of such suit, action or proceeding is
improper; or that this Guarantee or any Loan Document may not be enforced in or
by the Pennsylvania Courts, (iii) hereby agrees not to seek, and hereby waives,
any collateral review by any other court, which may be called upon to enforce
the judgment of any of the Pennsylvania Courts, of the merits of any such suit,
action or proceeding or the jurisdiction of the Pennsylvania Courts, and (iv)
waives personal service of any and all process upon it and consents that all
such service of process by made by certified or registered mail addressed as
provided in Section 22 hereof and service so made shall be deemed to be
completed upon actual receipt thereof. Nothing herein
7
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shall limit the Agent or any Banks' right to bring any suit, action or other
proceeding against any Guarantor or any of Guarantor's assets or to serve
process on any Guarantor by any means authorized by Law.
8
<PAGE>
[SIGNATURE PAGE 1 OF 1 TO GUARANTY AND SURETYSHIP AGREEMENT]
IN WITNESS WHEREOF, each Guarantor intending to be legally bound, has
executed this Guarantee as of the date first above written with the intention
that this Guarantee shall constitute a sealed instrument.
GUARANTORS:
ATTEST: EACH SUBSIDIARY OF MARINER HEALTH GROUP, INC.
WHICH IS A CORPORATION AND WHICH IS LISTED AS
A "COMPANY" ON SCHEDULE 6.01(c) OF THE CREDIT
AGREEMENT BOTH FOR ITSELF AND, IF APPLICABLE:
(i) AS GENERAL PARTNER OF EACH OTHER
SUBSIDIARY OF MARINER HEALTH GROUP, INC. WHICH
IS A PARTNERSHIP AND WHICH IS LISTED AS A
"COMPANY" ON SCHEDULE 6.01(c) OF THE CREDIT
AGREEMENT, AND (ii) AS A MEMBER OF EACH OTHER
SUBSIDIARY OF MARINER HEALTH GROUP, INC. WHICH
IS A LIMITED LIABILITY COMPANY AND WHICH IS
LISTED AS A "COMPANY" ON SCHEDULE 6.01(c) OF
THE CREDIT AGREEMENT.
By:____________________________ By: _____________________________
Name: Stefano M. Miele Name: Boyd P. Gentry
Title: Secretary of each of the Title: Vice President/Treasurer of
foregoing corporations each of the foregoing corporations
[SEAL]
9
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SCHEDULE I
List of Guarantors: See Schedule 6.01(c) to the Credit Agreement
10
<PAGE>
EXHIBIT 10.76
CONFIRMATION FOR U.S. DOLLAR TOTAL RETURN SWAP
TRANSACTION TO BE SUBJECT TO 1992 MASTER AGREEMENT
To: Mariner Post-Acute Network, Inc. ("Party B")
Suite 1500, One Ravinia Drive
Atlanta, GA 30346
Attn: Boyd P. Gentry, Treasurer
Fax: (678) 443-6874
Phone: (678) 443-6872
FROM: NationsBank, N.A. ("Party A")
233 S. Wacker Drive
Chicago, Illinois 60606
ATTN: Rick Briggs/Dan Caldwell
Date: September 21, 1998
Our Reference No. __________
The purpose of this letter agreement is to confirm the terms and
conditions of the Swap Transaction entered into between us on the Trade Date
specified below (the "Swap Transaction"). This letter agreement constitutes a
"Confirmation" as referred to in the Master Agreement specified below.
1. The definitions and provisions contained in the 1991 ISDA
Definitions (as published by the International Swaps and Derivatives
Association, Inc. (the "Definitions") are incorporated into this Confirmation.
In the event of any inconsistency between the Definitions and this
Confirmation, this Confirmation will govern. Each party represents and
warrants to the other that (i) it is duly authorized to enter into this Swap
Transaction and to perform its obligations hereunder, (ii) the Swap Transaction
and the performance of its obligations hereunder do not violate any material
obligation of such party, and (iii) the person executing this Confirmation is
duly authorized to execute and deliver it.
2. This Confirmation supplements, forms part of, and is subject to,
the 1992 ISDA Master Agreement between Party B (formerly known as Paragon Health
Network, Inc.) and Party A, dated as of October 31, 1997 (the "Agreement").
This Confirmation shall supplement, form part of, and be subject to that
Agreement, and all provisions contained or incorporated by reference in the
Agreement shall govern this Confirmation except as expressly modified below.
3. The terms of the Swap Transaction to which this Confirmation
relates are as follows:
Calculation Agent: Party A
Notional Amount: USD 40,661,000, subject to the Prepayment,
Voluntary Early Termination and Current
Notional Amount provisions below.
Trade Date: September 21, 1998
Effective Date: September 21, 1998
Reference Asset: 9.500% Mariner Health Group, Inc.
(the "Obligor") Senior Subordinated
Notes due 2006 (the "Notes").
Initial Price: 101%
Termination Date: The earlier of (i) April 5, 1999, (ii) the date
on which the Party A Notional Amount is reduced
to zero and (iii) the day on which the USD
990,000,000 Mariner Post-Acute Network, Inc.
Credit Agreement dated as of November 4, 1997,
as
1
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amended (the "MPN Credit Agreement"), is
amended, modified, renewed, refinanced or
replaced in order to refinance the USD
460,000,000 Mariner Health Group, Inc. Revolving
Credit Facility dated as of May 18, 1994, as
amended (the "Mariner Credit Agreement"), unless
designated sooner pursuant to the Early
Termination provisions below.
A. PAYMENTS BY PARTY A:
Party A First Payment Amount
----------------------------
Party A Notional
Amount: The Notional Amount.
Party A First
Payment Amount: Any interest and fees, if any, actually
received by Party A in respect of the Party
A Notional Amount of the Reference Asset for
the relevant Calculation Period.
Party A First
Payment Amount
Payment Dates: Two Business Days after Party A's receipt of the
Party A First Payment Amount (if any),
commencing on the first such date to occur after
the Effective Date, and ending on the
Termination Date subject to adjustment in
accordance with the Modified Following Business
Day Convention.
Party A First Payment
Amount Business Days: New York
Party A Second Payment Amount
-----------------------------
Party A Second
Payment Amount: Capital Appreciation (as defined
below), if any.
Party A Second
Payment Amount
Payment Date: The Termination Date
B. PAYMENTS BY PARTY B:
Party B First Payment Amount
----------------------------
Party B First Payment
Notional Amount: Notional Amount x Initial Price
Party B First Payment
Amount Payment Dates: Two Business Days following each Period End Date
and, with respect to the Period End Date ending
on the Termination Date, the Termination Date,
subject to adjustment in accordance with the
Modified Following Business Day Convention.
Period End Dates October 1, 1998, April 1, 1999 and the
Termination Date.
Party B First Payment
Amount Business Days: New York, London
Party B First Payment
Day Count Fraction: Actual/360
2
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Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: One Month
Spread: Initially plus 2.250%, subject to any
corresponding adjustment with respect to the
applicable margin for borrowing under the MPN
Credit Agreement.
Reset Date: The first Business Day of each month
Initial Rate: 7.875%
Averaging: Inapplicable
Compounding: Applicable
Rounding Factor: One-Hundred-Thousandth of One Percent
Party B Second Payment Amount
-----------------------------
Party B Second
Payment Amount: Capital Depreciation (as defined
below), if any.
Party B Second
Payment Amount
Payment Date: The Termination Date
4. CAPITAL APPRECIATION/
CAPITAL DEPRECIATION: Capital Appreciation/Capital Depreciation is
defined by the following formula:
US Dollar Market Value - Current Notional Amount
where,
The US Dollar Market Value is the U.S. Dollar
amount of the Reference Asset as determined
immediately below (unless otherwise specified
herein), and
Current Notional Amount will be the Party B
First Payment Notional Amount.
If such amount is positive, such amount is the
"Capital Appreciation" and if such amount is
negative, the absolute value of such amount is
the "Capital Depreciation."
Unless otherwise specified herein, the US Dollar Market
Value of the Reference Asset shall mean one of the following
as the context requires at the Calculation Agent's
discretion:
(a) the price for the Reference Asset, expressed as a
percentage, as determined by the Calculation Agent in a
commercially reasonable manner as of 5:00 p.m. New York City
time on the third New York Business Day prior to the
Termination Date based on the weighted average sale price of
the Reference Asset;
(b) the Calculation Agent or its designee shall offer the
Reference Asset for sale to Reference Investors (as defined
below) no later than 12:00 noon, New York Time, four New
York Business Days before the Termination Date. Firm Bids
(as defined below) to purchase the Reference Asset will be
due to the Calculation Agent or its designee no later than
12:00 noon, New York time, three New York Business Days
before the Termination Date. A "Firm Bid" shall be a bid for
value on the Termination Date to purchase all of the
Reference Asset; such bids shall include accrued interest,
if any, and shall be net of all taxes, duties, customary
fees or commissions. The weighted average of the highest bid
or bids for the Reference Asset shall be the "US Dollar
Market Value" of the Reference Asset. The US Dollar Market
Value shall be deemed
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<PAGE>
to be zero for purposes of calculating Capital
Appreciation/Capital Depreciation for the Reference Asset if
no such "Firm Bid" is provided; or,
(c) the latest "bid" price for the Reference Asset as of
any date and time selected by the Calculation Agent, as
determined by the Calculation Agent in a commercially
reasonable manner and taking into account (without
limitation) the current bid price(s) for other debt of
comparable term, structure and credit quality as the
Reference Asset including, but not limited to, the
Mariner Post-Acute Network, Inc. 9 1/2 % Senior
Subordinated Notes due 2007.
The Reference Investors will be high yield bond investors or
dealers, mutually acceptable to both Party A and Party B,
selected to bid on the Reference Asset. Party A and Party
B, or their designees acceptable to both Party A and Party
B, may submit bids.
5. PREPAYMENT: (1) Should the Obligor elect to redeem the Notes in full,
for purposes of determining the Capital Appreciation or
Capital Depreciation on the Termination Date, US Dollar
Market Value shall be equal to the actual amount paid
by the Obligor to holders of the Notes in a principal
amount equal to the principal amount of the Reference
Asset and the date of such redemption shall be deemed
to be the Termination Date (if such redemption occurs
on a date other than the scheduled Termination Date).
(2) Should Party B commence a Voluntary Early Termination
during any period in which the Obligor or Party B is
undertaking a tender offer for the Notes, then for
purposes of determining the Capital Appreciation or
Capital Depreciation for the Relevant Calculation
Period, US Dollar Market Value shall be equal to the
tender price of the Notes, and the Termination Date
shall be deemed to be the settlement date of the tender
offer of the Notes. If the tender offer is not
consummated, such Voluntary Early Termination by Party
B shall not be effective.
6. FORMULA AMOUNT: In the event that all or any portion of this
Transaction is terminated prior to April 5, 1999, then
in addition to any other payments due on the new
Termination Date, which shall include (as the case may
be) Capital Appreciation/Depreciation and any
applicable Fixed/Floating Amounts accruing up to but
excluding the new Termination Date, one Party shall pay
to the other Party the following:
(L1 - L2) * D1 * Current Notional Amount
------------------------------------------------------
360
Where:
L1 = the Party B First Payment Floating Rate applicable
on the new Termination Date (excluding the
Spread).
L2 = USD-LIBOR-BBA, with the Designated Maturity equal
to D1 (as defined below) and the new Termination
Date as the Reset Date. If there is no such
Designated Maturity, Linear Interpolation of the
next shorter and next longer published Designated
Maturities of USD-LIBOR-BBA (whichever is closer
to the Reset Date) shall be used.
D1 = the actual number of days remaining in the
Calculation Period, from and including the new
Termination Date, up to but excluding the next
Reset Date.
If such amount calculated from the above formula
(the "Formula Amount") is a positive amount, Party B
shall pay Party A this amount on the Termination Date.
If such Formula Amount is a negative amount, Party A
shall pay Party B the absolute value of this amount on
the Termination Date.
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7. PARTY A VOLUNTARY
EARLY TERMINATION: Party A has the right to change the Termination Date of
this Swap Transaction to any New York Business Day from
the Effective Date up to but excluding the scheduled
Termination Date upon the occurrence of a Credit Event
(as defined below), provided that Party A has furnished
notice to Party B by 1:00 p.m. New York time on any New
York Business Day within the first thirty (30) New York
Business Days after the occurrence of such Credit
Event, provided further that Party A has delivered such
notice to Party B at least three New York Business Days
prior to the date selected by Party A as the new
Termination Date, and provided further still that no
such notices or notice periods shall apply if Party B
shall be a Defaulting Party under the Agreement.
"Credit Event" means the occurrence or existence of any
of the following events:
(1) the Obligor shall fail to make any payment due
under the Notes;
(2) any event of default under the MPN Credit
Agreement;
(3) any event of default under the Mariner Credit
Agreement; provided, however, that the event of default
shall have occurred and be continuing for a period of
at least thirty (30) days; or
(4) an Event of Default under the Agreement occurs
with respect to Party B, except that Section 5(a)(vi)
of the Agreement shall not apply to this Transaction.
8. PARTY B VOLUNTARY
EARLY TERMINATION: Party B shall have the right to change the Termination
Date of this Swap Transaction to any New York Business
Day from the Effective Date up to but excluding the
scheduled Termination Date, by providing notice five
New York Business Days in advance to Party A by 1:00
p.m. New York time. If the Swap Transaction is
terminated early, in addition to any other payments due
on the new Termination Date, which shall include (as
the case may be) Capital Appreciation/Depreciation and
any applicable Fixed/Floating Amounts accruing up to
but excluding the new Termination Date, one Party shall
pay to the other Party the Formula Amount.
9. OTHER PROVISIONS:
Security Mariner Health Group, Inc. and the other
guarantors under the Mariner Credit
Agreement shall guarantee the obligations of
Party B under this Agreement pursuant to a
Guaranty dated as of September 21, 1998,
subject to the limitations set forth in such
Guaranty.
Assignment: This Swap Transaction may be assigned only
with prior written consent.
Legal and Out-of-Pocket
Expenses: For each party's own account.
Governing Law: The Laws of the State of New York (without
reference to the conflicts of laws
principles thereof).
Recording of Conversations: Each party to this Swap Agreement
acknowledges and agrees to the tape or
electronic recording of conversations
between the parties to this Agreement
whether by one or other or both of the
parties, and that any such recordings may be
submitted in evidence in any action or
proceeding relating to the Agreement or any
Transaction.
Relationship Between Parties: In connection with this Confirmation, the
Transaction to which this Confirmation
relates and any other documentation
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<PAGE>
relating to the Agreement, each party to
this Confirmation represents and
acknowledges to the other party that:
(i) it is not relying on any advice,
statements or recommendations (whether
written or oral) of the other party
regarding the Transaction, other than the
written representations expressly made by
that other party in the Agreement and in
this Confirmation in respect of the
Transaction; and
(ii) in respect of the Transaction under
the Agreement,
(a) it has the capacity to evaluate
(internally or through independent professional
advice) the Transaction (including decisions
regarding the appropriateness or suitability of
the Transaction) and has made its own decision
to enter into the Transaction:
(b) it understands the terms, conditions
and risks of the transaction and is willing to
accept those terms and conditions to assume
(financially and otherwise) those risks;
(c) it is entering into the transaction
as principal and not as an agent for any other
party and the power to vote or dispose of any
Notes held by Party A shall at all times within
the sole control of Party A; and
(d) it acknowledges and agrees that the
other party is not acting as a fiduciary or
advisor to it in connection with the
Transaction.
Payment to NationsBank: Payment to Mariner Post-Acute Network, Inc.:
(f/k/a Paragon Health Network, Inc.)
NATIONSBANK N.A., Chase Bank of Texas
CHARLOTTE ABA #113000609
ABA 053000196 Acct: 00100235234
ACCT: 10852016511 Ref: MRNR Bond Swap
ATTN: CREDIT DERIVATIVE OPS
Please confirm that the foregoing correctly sets forth the terms and
conditions of our agreement by responding with three (3) Business Days by either
returning this revised Confirmation in person or via telecopier to the attention
of Swap Operations, Fax No.(312) 234-3160; Telephone No. (312) 234-2934.
Failure to respond within such period shall not affect the validity or
enforceability or of this Swap Transaction, and shall be deemed to be an
affirmation of the terms and conditions contained herein, absent manifest error.
Yours Sincerely,
NATIONSBANK, N.A.
By:
------------------------------
, Vice President
--------------
Authorized Signatory
6
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Confirmed as of the date
first written above:
MARINER POST-ACUTE NETWORK, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Authorized Signatory
7
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EXHIBIT 10.77
GUARANTY
THIS GUARANTY dated as of September 21, 1998 (the "Guaranty") is given by
--------
MARINER HEALTH GROUP, INC., a Delaware corporation ("Mariner"), each of its
-------
subsidiaries signatory hereto (collectively, the "Mariner Subsidiary
------------------
Guarantors," and together with Mariner, the "Guarantors") in favor of
----------
NATIONSBANK, N.A., a national banking association organized under the laws of
the United States ("NationsBank"), as Agent (in such capacity, "Agent") for the
----------- -----
Purchasers, as that term is defined in the LMS Confirmation referred to
hereinbelow (the "Purchasers").
----------
1. Unconditional Guaranty
----------------------
In consideration of and to induce NationsBank to enter into a liability
management swap transaction (the "LMS Transaction") with the Guarantors'
---------------
affiliate, Mariner Post-Acute Network, Inc., a Delaware corporation (formerly
known as Paragon Health Network, Inc. and referred to herein as "Counterparty"),
------------
pursuant to the ISDA Master Agreement dated as of October 31, 1997 between
Counterparty and NationsBank (the "Master Swap Agreement") and the Confirmation
---------------------
for U.S. Dollar Total Return Swap Transaction to be Subject to 1992 Master Swap
Agreement dated September 21, 1998 between Counterparty and NationsBank (the
"LMS Confirmation"), the Guarantors unconditionally guarantee to Agent, its
- -----------------
successors and assigns, for the benefit of the Purchasers, the prompt payment
when due, whether at maturity, upon acceleration or otherwise, of all present
and future obligations and liabilities of all kinds (including any renewals,
extensions or modifications thereof) arising out of the LMS Confirmation, but
excluding any obligations arising in connection with the Master Swap Agreement
not related solely to the LMS Transaction (the "Obligations"), subject to the
-----------
limitations set forth herein.
Except as specifically set forth herein, this Guaranty is an unconditional
guaranty of payment and not merely of collection and shall not be affected by
the genuineness, validity, regularity or enforceability of the Obligations or
any instrument evidencing any Obligations, or by the existence, validity,
enforceability, perfection, or extent of any collateral therefor, or by any
circumstance relating to the Obligations which might otherwise constitute a
defense to this Guaranty. Except as specifically set forth herein, this
Guaranty is absolute and unconditional and shall remain in full force and effect
and be binding upon the Guarantors, their successors and assigns until all of
the Obligations have been satisfied in full. In the event that any payment by
the Counterparty in respect of any Obligations is rescinded or must otherwise be
returned for any reason whatsoever, the Guarantors shall remain liable hereunder
in respect of such Obligations as if such payment had not been made.
The Guarantors agree that Agent may resort to the Guarantors for payment of
any of the Obligations whether or not Agent has proceeded against any other
obligor principally or secondarily liable for any Obligations, including the
Counterparty. Agent shall not be obligated to file any claim relating to the
Obligations, including any claim in the event that the Counterparty becomes
subject to a bankruptcy, reorganization or similar proceeding, and the failure
of Agent to file any such claim shall not affect the Guarantors' obligations
hereunder. The Guarantors also specifically waive the presentment to or demand
of payment from anyone whomsoever liable upon any of the Obligations, including
presentment, demand, protest or notice of dishonor, and all other notices
whatsoever (other than any notices expressly required under the Master Swap
Agreement or the LMS Confirmation).
Notwithstanding anything to the contrary contained herein, in the Master
Swap Agreement or the LMS Confirmation, (a) the obligations of each Guarantor
hereunder shall be limited to an aggregate amount equal to the largest amount
that would not render its obligations hereunder subject to avoidance under
Section 548 of the United States Bankruptcy Code or any comparable provisions of
any applicable state law; and (b) if the execution or delivery of this Guaranty
by any entity listed on the signature page hereof as a Mariner Subsidiary
Guarantor, or the performance by such entity of its obligations hereunder,
violates its organizational documents as in existence on the date hereof or any
material agreement to which such entity is a party as of the date hereof, or is
otherwise prohibited by any such organizational document or material
<PAGE>
agreement, then such entity shall automatically be deemed not to be a Mariner
Subsidiary Guarantor and shall not be obligated hereunder in any way.
2. Consents
--------
The Guarantors agree that the Agent may at any time extend the time of
payment of or renew any of the Obligations, or make any agreement with the
Counterparty or with any other party or person liable on any of the Obligations,
for the extension, renewal, payment, compromise, discharge or release of the
Obligations (in whole or in part), or for any modification of the terms thereof
or of any agreement between the Agent and Counterparty or any such other party
or person, without in any way impairing or affecting this Guaranty for any
outstanding Obligations.
3. Rights; Expenses
----------------
No failure by the Agent or any Purchaser to exercise, and no delay in
exercising, any right, remedy or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise by Agent or any Purchaser of
any right, remedy or power hereunder preclude any other or future exercise of
any right, remedy or power. Each and every right, remedy and power hereby
granted to Agent or any Purchaser or allowed by law or other agreement shall be
cumulative and not exclusive of any other right, remedy or power. The Guarantors
agree to pay on demand all out-of-pocket expenses (including the reasonable fees
and expenses of Agent's counsel) actually incurred by the Agent in any way
relating to the enforcement or protection of Agent's rights under this Guaranty.
4. Subrogation
-----------
The Guarantors shall not exercise any rights which they may have or
acquire by way of subrogation until all of the Obligations are paid in full to
the Agent. If any amounts are paid to the Guarantors in violation of the
foregoing limitation, then such amounts shall be held in trust for the benefit
of the Agent and shall forthwith be paid to the Agent to reduce the amount of
outstanding Obligations, whether matured or unmatured. Subject to the
foregoing, upon payment of all of the Obligations to the Agent, the Guarantors
shall be subrogated to the rights of the Agent against the Counterparty, and the
Agent agrees to take at the Guarantors' expense such actions as the Guarantors
may reasonably require to implement such subrogation.
5. Assignment; Termination
-----------------------
The Guarantors shall not assign their respective rights, interest, duties
or obligations hereunder to any other person without the Agent's prior written
consent; provided, however, that the assignment of the obligations of any
-------- -------
Mariner Subsidiary Guarantor (including, without limitation, any assignment
thereof by operation of law) shall be permitted in connection with any merger or
consolidation, or sale of all or substantially all of the assets of such Mariner
Subsidiary Guarantor, which is permitted under the terms of (i) that certain
Credit Agreement dated as of May 18, 1994, by and among Mariner, as borrower,
the financial institutions signatory thereto as lenders, and PNC Bank, National
Association, as agent for such lenders, as such Credit Agreement may be amended,
modified, restated, extended, refinanced or replaced from time to time, and (ii)
the Indenture dated as of April 4, 1996 between Mariner and State Street Bank
and Trust Company, as trustee, pursuant to which the Notes were issued, as such
Indenture may be supplemented, amended, refinanced or replaced from time to
time. None of the terms or provisions of this Guaranty may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
the party or parties against whom such amendment is to be enforced.
6. Taxes
-----
All payments by the Guarantors hereunder will be made in full without set-
off or counterclaim and free and clear of and without withholding or deduction
for or on account of any present or future taxes,
2
<PAGE>
duties or other charges, unless the withholding or deduction of such taxes or
duties is required by law. In any such event, however, the Guarantors shall pay
such additional amounts as may be necessary in order that the net amount
received by the Agent and/or Purchasers after such withholding or deduction
shall equal the full amounts of moneys which would have been received by the
Bank in the absence of such withholding or deduction. The Guarantors will pay
all stamp duties and other documentary taxes payable in connection with this
Guaranty and will keep the Agent and Purchasers indemnified against failure to
pay the same.
7. Payments
--------
Each Guarantor hereby guarantees that the Obligation will be paid to the
Agent without set-off or counterclaim, in lawful currency of the United States
of America at the offices of the Agent as specified in the LMS Confirmation.
8. Representations
---------------
The Guarantors are duly organized, validly subsisting and in good standing
under the laws of their respective jurisdiction of incorporation or
organization, and each has full corporate power to execute, deliver and perform
this Guaranty. The Guarantors have duly authorized this Guaranty, and the
signatories of this Guaranty have been duly authorized and have full power to
execute and deliver this Guaranty on behalf of each Guarantor. This Guaranty
and the providing thereof to the Agent does not violate Mariner's constitutive
documents, and this Guaranty does not violate any law, regulation or agreement
applicable to Mariner or its assets. This Guaranty constitutes a valid and
binding agreement of the Guarantors in accordance with its terms.
9. Governing Law; Jurisdiction
---------------------------
This Guaranty shall be governed by and construed in accordance with, the
laws of the State of New York, without reference to its conflicts of laws
principles. With respect to any suit, action or proceeding concerning this
Guaranty, the Agent and the Guarantors submit to the non-exclusive jurisdiction
of the Federal and State courts located in the City, County and State of New
York. The Agent and the Guarantors specifically and irrevocably waive (i) any
objection which it may have at any time to the laying of venue of any suit,
action or proceeding brought in such courts, (ii) any claim that the same has
been brought in an inconvenient forum, and (iii) the right to object that such
courts do not have jurisdiction over it.
3
<PAGE>
IN WITNESS WHEREOF, this Guaranty has been duly executed and delivered by
the Guarantors to Agent as of the date first above written.
MARINER HEALTH GROUP, INC.
By:
------------------
Name: Boyd P. Gentry
Title: Vice President
4
<PAGE>
EXHIBIT 10.78
PARAGON HEALTH NETWORK, INC.
EMPLOYEE STOCK PURCHASE PLAN
<PAGE>
PARAGON HEALTH NETWORK, INC.
EMPLOYEE STOCK PURCHASE PLAN
TABLE OF CONTENTS
Page
1. PURPOSE.......................................................... 1
2. DEFINITIONS...................................................... 1
3. ELIGIBILITY AND PARTICIPATION.................................... 2
4. PAYROLL DEDUCTIONS............................................... 3
5. WITHDRAWALS AND DISTRIBUTIONS UPON TERMINATION OF PARTICIPATION.. 3
6. GRANT OF OPTION AND OPTION EXERCISE PRICE........................ 4
7. STOCK SUBJECT TO PLAN............................................ 5
8. ADMINISTRATION................................................... 5
9. ADMINISTRATIVE FEES.............................................. 6
10. TRANSFERABILITY.................................................. 6
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION....................... 6
12. GENERAL RESTRICTION.............................................. 7
13. AMENDMENT OR TERMINATION......................................... 7
14. NOTICES.......................................................... 8
15. NO CONTRACT...................................................... 8
16. HEADINGS AND CONSTRUCTION........................................ 8
17. APPROVAL OF STOCKHOLDERS......................................... 8
i
<PAGE>
PARAGON HEALTH NETWORK, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Paragon Health Network, Inc. Employee
Stock Purchase Plan (the "Plan") is to provide employees of Paragon Health
Network, Inc., a Delaware corporation (the "Company"), and its subsidiary
companies with an opportunity to acquire an interest in the Company and share in
the success of the Company through the purchase of Common Stock of the Company
("Common Stock"), and to encourage such employees to remain in the employ of the
Company. The Company intends the Plan to qualify as an employee stock purchase
plan under Section 423 of the Internal Revenue Code. Accordingly, the
provisions of the Plan shall be construed so as to extend and limit
participation in a manner consistent with the requirements of Section 423. This
Plan shall be effective as of April 1, 1998.
2. DEFINITIONS.
(a) "Board of Directors" means the board of directors of the Company.
------------------
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Compensation" means salary and wages paid to an Eligible
------------
Employee by the Company or a Subsidiary, including commissions and bonuses,
but excluding income attributable to the exercise of stock options, and
awards and other forms of remuneration.
(d) "Contribution Account" means the bookkeeping account
--------------------
established on behalf of a Participant to which shall be credited the
amount of the Participant's payroll deductions and from which shall be
debited all funds used to purchase Common Stock for the Participant under
the Plan.
(e) "Eligible Employee" means any Employee of the Company or a
-----------------
Subsidiary excluding:
(1) any Employee who customarily is employed for twenty (20)
hours per week or less;
(2) any Employee who would own (immediately after the grant
of an option under the Plan and applying the rules of Code Section
424(d) in determining stock ownership) shares, and/or hold outstanding
options to purchase shares, possessing five percent (5%) or more of
the total combined voting power or value of all classes of shares of
the Company or of any Parent or Subsidiary; and
(3) any Employee who is customarily employed for not more
than five (5) months in any calendar year.
(f) "Employee" means any person who is employed by the Company or
--------
a Subsidiary for purposes of the Federal Insurance Contributions Act.
1
<PAGE>
(g) "Entry Date" means April 1st and October 1st of each calendar
----------
year.
(h) "Parent" means a corporation, if any, having the relationship
------
to the Company described in Section 424(e) of the Code.
(i) "Participant" means an Employee who participates in the Plan
-----------
pursuant to Paragraph 3.
(j) "Purchase Period" means each six-month period ending March 31
---------------
and September 30.
(k) "Subsidiary" means any corporation having a relations to the
----------
Company described in Section 424(f) of the Code and which the Board of
Directors, or its designee, has designated as eligible to participate in
the Plan.
3. ELIGIBILITY AND PARTICIPATION
(a) Any person who is an Eligible Employee on an Entry Date shall
be eligible to become a Participant in the Plan beginning on that Entry
Date and shall become a Participant as of that Entry Date by completing an
enrollment form provided by the Company, in the form and containing such
terms and conditions as the Company from time to time may determine (the
"Authorization Form"), and filing it with the Company by the date required
by the Company.
(b) Any person who first becomes an Eligible Employee shall be
eligible to become a Participant in the Plan as of the first day of the
Purchase Period beginning after the date on which that person became an
Eligible Employee and shall become a Participant as of such date by
completing an Authorization Form and filing it with the Company by the date
required by the Company;
(c) A person shall cease to be a Participant upon the earliest to
occur of:
(1) the date the Participant ceases to be an Eligible
Employee, for any reason;
(2) the first day after the Purchase Period following a
cessation of payroll deductions for the Participant under the Plan
pursuant to Paragraph 4; or
(3) the date of a withdrawal from the Plan by the
Participant under Paragraph 5.
4. PAYROLL DEDUCTIONS. A Participant may contribute to the Plan through
payroll deductions as follows:
(a) A Participant shall on his Authorization Form elect to have
payroll deductions made from his Compensation at a rate which, expressed as
a whole
2
<PAGE>
percentage, shall be at least one percent (1%) and not exceed
fifteen percent (15%) of his Compensation.
(b) Payroll deductions for a Participant shall be made during the
period for which the Authorization Form is effective and shall continue
until the effective date of an Employee's authorization to change the rate
of his payroll deductions or stop payroll deductions.
(c) A Participant may change the rate of his payroll deductions
effective on the first day of any Purchase Period, provided the Employee
files with the Company his Authorization Form by the date required by the
Company.
(d) A Participant may elect to discontinue payroll deductions any
time after the first day of the payroll period coinciding with or
immediately following the Company's processing the Participant's
Authorization Form. If upon cessation of payroll deductions a Participant
has cash credited to his Contribution Account which he has not elected to
withdraw pursuant to Paragraph 5, he shall remain a Participant in the Plan
until the end of the then current Purchase Period.
(e) All payroll deductions made for a Participant shall be
credited to his Contribution Account under the Plan and will be used for
the purchase of Common Stock pursuant to Section 6 hereof. All payroll
deductions made for a Participant under the Plan shall be commingled with
the general assets of the Company and no separate fund shall be established
for each such Participant. Participants' Contribution Accounts are solely
for bookkeeping purposes and the Company shall not be obligated to pay
Participants interest on Contribution Account balances.
(f) A Participant may not make any separate cash payments or
other contributions to his Contribution Account in a manner other than
through payroll deductions as set forth in this Paragraph 4.
5. WITHDRAWALS AND DISTRIBUTIONS UPON TERMINATION OF PARTICIPATION.
(a) A Participant may elect to cease participating in the Plan
and to withdraw the balance of the cash credited to his Contribution
Account under the Plan by giving written notice to the Company prior to the
date specified by the Company before the end of the current Purchase
Period. A Participant who receives a withdrawal of the cash balance of his
Contribution Account under the Plan shall not be entitled to participate in
the Plan until the next Entry Date.
(b) The Company shall pay the cash balance of a Participant's
Contribution Account to the Participant as soon as administratively
feasible following (i) the date of processing of the withdrawal request or
(ii) the date a person ceases to be a Participant pursuant to Paragraph
3(c), as applicable (clauses (i) and (ii) collectively, a "Termination
Event").
3
<PAGE>
(c) Upon the occurrence of a Termination Event, the Participant's
outstanding options under Section 6 of the Plan to purchase shares of
Common Stock, shall immediately terminate.
(d) Upon the occurrence of a Termination Event, no further
payroll deductions will be made from the Participant's Compensation.
6. GRANT OF OPTION AND OPTION EXERCISE PRICE.
(a) As of the beginning of each Purchase Period, a Participant is
granted an option to purchase that whole number of shares of Common Stock
as does not exceed in value the result of dividing 15% of the Participant's
Compensation for that Purchase Period by eighty-five (85%) of the fair
market value of the Common Stock on the last business day of the Purchase
Period. On the last business day of each Purchase Period, each Participant
will be deemed to have exercised his option to the extent of the funds then
held in the Participant's Contribution Account and such funds will be
applied to the purchase of whole shares of Common Stock; provided, however,
the number of shares purchased for a Participant shall not be less than 1
share. The price of each share of Common Stock to be purchased with a
Participant's Contribution Account during a Purchase Period shall be
eighty-five (85%) of the fair market value of one share of Common Stock on
the last day of the Purchase Period. Any funds remaining after the
application of a Participant's Contribution Account to the purchase of
shares of Common Stock shall continue to be credited to the Participant's
Contribution Account and available for purchases of shares on the last
business day of the next succeeding Purchase Period.
(b) Notwithstanding the preceding subparagraph or any other
provisions of the Plan, no Participant shall be granted an option which
permits his rights to purchase shares under all employee stock purchase
plans of the Company and its Parent and Subsidiaries to accrue at a rate
which exceeds $25,000 of the fair market value of the shares (determined at
the time the option is granted) for each calendar year in which such stock
option is outstanding at any time.
(c) For purposes of the preceding subparagraphs, the fair market
value of a share of Common Stock shall be determined as of each relevant
date as follows:
(1) if the Common Stock is traded on a national securities
exchange, the closing sale price on that date;
(2) if the Common Stock is not traded on any such exchange,
the closing sale price as reported by the NASDAQ Stock Market;
(3) if no such closing sale price information is available,
the average of the closing bid and asked prices as reported by the
NASDAQ Stock Market; or
(4) if there are no such closing bid and asked prices, the
average of the closing bid and asked prices as reported by any other
commercial service.
4
<PAGE>
(d) All options granted during an Offering Period shall expire on
the last day of that Offering Period.
7. STOCK SUBJECT TO PLAN.
(a) The shares of Common Stock (the "Shares") to be sold to
Participants under the Plan may, at the election of the Company, be either
treasury shares, shares originally issued for such purpose or shares
acquired on the open market. The maximum number of Shares made available
for sale under the Plan shall be 4,000,000, subject to adjustment upon
changes in capitalization of the Company as provided in Paragraph 11. If
the total number of Shares elected to be purchased under the Plan exceeds
the number of Shares then available under the Plan, the Company shall make
a pro rata allocation of the Shares available in as nearly a uniform manner
as shall be practicable and as it shall determine to be equitable.
(b) A Participant shall not have rights as a stockholder with
respect to any Shares covered by his option until the last day of the
Purchase Period on which the Shares are purchased. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash, securities
or other property) or distributions or other rights for which the record
date is prior to the date the Shares are purchased, except as otherwise
provided in the Plan.
(c) Shares to be delivered to a Participant under the Plan will
be registered in the name of the Participant, or if so directed by the
Participant and if permissible under applicable law, in the names of the
Participant and one other person designated by the Participant, as joint
tenants with rights of survivorship.
8. ADMINISTRATION AND INDEMNIFICATION OF COMMITTEE.
(a) The Plan shall be administered by a committee appointed by the
Board of Directors (the "Committee"). The Committee shall consist of not
less than two members of the Company's Board of Directors. The Board of
Directors may from time to time remove members from or add members to the
Committee. Vacancies on the Committee shall be filled by the Board of
Directors. The Committee shall select one of its members as Chairman, and
shall hold meetings at such times and places as it may determine. Acts
approved by a majority of the Committee in a meeting at which a quorum is
present, or acts reduced to or approved in writing by a majority of the
members of the Committee, shall be the valid acts of the Committee.
(b) The Committee acting in its absolute discretion shall
exercise such power and take such action as expressly called for under the
Plan, and further, the Committee shall have the power to interpret the Plan
to take such other action (except to the extent the right to take such
action is expressly and exclusively reserved for the Board of Directors or
the Company's stockholders) in the administration and operation of the Plan
as the Committee deems equitable under the circumstances, which action
shall be binding on the Company, on each affected participant and on each
other person directly or indirectly affected by such action. No member of
the Board of Directors or the
5
<PAGE>
Committee shall be liable for any action or determination made in good
faith with respect to the Plan or any option granted under it.
(c) In addition to such other rights of indemnification that they
may have as directors of the Company or a member of the Committee, the
members of the Committee shall be indemnified by the Company against the
reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding,
or in connection with any appeal therein, to which they or any of them may
be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided the settlement is
approved by independent legal counsel selected by the Company) or paid by
them in satisfaction of a judgment in any such action, suit or proceeding
except in relation to matters as to which it shall be adjudged in the
action, suit or proceeding that the Committee member is liable for
negligence or misconduct in the performance of his or her duties; provided
that within sixty (60) days after institution of the action, suit or
proceeding a Committee member shall in writing offer the Company the
opportunity, at its own expense, to handle and defend it.
9. ADMINISTRATIVE FEES. The Committee may charge Participants' accounts
for reasonable administrative fees to defray the administrative costs of the
Plan, which shall in no event exceed the actual administrative costs of the
Plan.
10. TRANSFERABILITY. Neither payroll deductions credited to a
Participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged, or
otherwise disposed of in any way by the Participant. Any attempted assignment,
transfer, pledge, or other disposition shall be without effect.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The Committee will adjust
the total number of shares and any outstanding options for any increase or
decrease in the number of outstanding shares of Common Stock resulting from a
stock split or a payment of a stock dividend on the shares of Common Stock, a
subdivision or combination of the shares of Common Stock, a reclassification of
the shares of Common Stock, a merger or consolidation of the Company or any
other like changes in the Common Stock or in their value. No fractional shares
will be issued as a result of any of these changes, and any fractional shares
that result from a change will be eliminated from the outstanding options. All
adjustments made by the Committee under this paragraph shall be final,
conclusive and binding on all Participants and, further, shall not constitute an
increase in the "aggregate number of shares which may be issued under options"
pursuant to Section 7 of the Plan.
12. GENERAL RESTRICTION. Notwithstanding anything contained herein or in
any of the Agreements to the contrary, no purported exercise of any option
granted pursuant to the Plan shall be effective without the written approval of
the Company, which may be withheld to the extent that the exercise, either
individually or in the aggregate together with the exercise of other previously
exercised stock options and/or offers and sales pursuant to any prior or
contemplated offering of securities, would, in the sole and absolute judgment of
the Company, require the filing of a registration statement with the United
States Securities and Exchange Commission or
6
<PAGE>
with the securities commission of any state. The Company shall avail itself of
any exemptions from registration contained in applicable federal and state
securities laws which are reasonably available to the Company on terms which, in
its sole and absolute discretion, it deems reasonable and not unduly burdensome
or costly. If an option cannot be exercised at the time it would otherwise
expire due to the restrictions contained in this Section, the exercise period
for that option shall be extended for successive one-year periods until that
option can be exercised in accordance with this Section. Each Participant shall,
prior to the exercise of an option, deliver to the Company any reasonable
request in order for the Company to be able to satisfy itself that the Common
Stock to be acquired in accordance with the terms of an applicable exemption
from the securities registration requirements or applicable federal state
securities laws.
13. AMENDMENT OR TERMINATION.
(a) The Committee may at any time terminate or amend the Plan.
(b) Prior approval of the stockholders of the Company shall be
required with respect to any amendment for which such appraisal is
necessary in order to comply with the requirements of Code Section 423
including the sale of more shares of Common Stock than are authorized under
Paragraph 7 of the Plan.
(c) If required by Rule 16b-3 of the Securities Exchange Act of
1934 or any successor thereto promulgated under the Exchange Act, prior
approval of the stockholders of the Company shall be required with respect
to any amendment which would materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements as to
eligibility for participation in the Plan.
14. NOTICES. All notices or other communications by a Participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the written form specified by the Company at the
location, or by the person, designated by the Company.
15. NO CONTRACT. The Plan shall not be deemed to constitute a contract
between the Company or any Subsidiary and any Employee or to be a consideration
or an inducement for the employment of any Employee. Nothing contained in the
Plan shall be deemed to give any Employee the right to be retained in the
service of the Company or any Subsidiary or to interfere with the right of the
Company or any Subsidiary to discharge any Employee at any time, regardless of
the effect which such discharge shall have upon him as a Participant.
16. HEADINGS AND CONSTRUCTION. The headings to Paragraphs in the Plan
have been included for convenience of reference only. The Plan shall be
interpreted and construed in accordance with the laws of the State of Delaware.
17. APPROVAL OF STOCKHOLDERS. The Plan shall be submitted to the
stockholders of the Company for their approval within twelve (12) months after
the adoption of the Plan by the Board of Directors. The Plan is conditioned
upon the approval of the stockholders of the Company, and failure to receive
their approval shall render the Plan and all outstanding options issued
thereunder void and of no effect.
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be executed as of
this day of , 1998.
--- ---------
PARAGON HEALTH NETWORK, INC.
By:
-------------------------------
Title:
-----------------------------
ATTEST:
- ------------------------
Title:
------------------
[CORPORATE SEAL]
8
<PAGE>
EXHIBIT 10.79
FIRST AMENDMENT
TO THE MARINER POST-ACUTE NETWORK, INC.
EMPLOYEE STOCK PURCHASE PLAN
(FORMERLY THE PARAGON HEALTH NETWORK, INC.
EMPLOYEE STOCK PURCHASE PLAN)
THIS FIRST AMENDMENT is made on this _________ day of ____________, 1998, by
Mariner Post-Acute Network, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Company").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company maintains the Paragon Health Network, Inc. Employee Stock
Purchase Plan (the "Plan") under an indenture effective April 1, 1998, the
purpose of which is to provide employees of the Company and any subsidiary
corporations with an opportunity to acquire an interest in the Company through
the purchase of its Common Stock; and
WHEREAS, the Company desires to amend the Plan to reflect its new name and to
provide for the purchase of fractional shares in addition to the purchase of
whole shares of Common Stock:
NOW, THEREFORE, the Company does hereby amend the Plan, effective October 1,
1998, as follows:
1. By deleting the existing Company name Paragon Health Network, Inc.
wherever it may be written in the Plan and by substituting the following
Company name in its place:
"Mariner Post-Acute Network, Inc."
2. By deleting the existing Plan name Paragon Health Network, Inc. Employee
Stock Purchase Plan wherever it may be written in the Plan and by
substituting the following Plan name in its place:
"Mariner Post-Acute Network, Inc. Employee Stock Purchase Plan"
3. By replacing existing Plan Section 6(a) with the following new Plan Section
6(a):
"(a) As of the beginning of each Purchase Period, a Participant is
granted an option to purchase that number of shares, including fractional
shares, of Common Stock as does not exceed in value the result of dividing
fifteen percent (15%) of the Participant's Compensation for that Purchase
Period by eighty-five percent (85%) of the fair market value of the Common
Stock on the last business day of the Purchase Period. On the last business
day of each Purchase Period, each Participant will be deemed to have
exercised his option to the extent of the funds then held in the
Participant's Contribution Account and such funds will be applied to the
purchase of shares, including fractional shares, of Common Stock. The
price of each share of Common Stock to be purchased with a Participant's
<PAGE>
Contribution Account during a Purchase Period shall be eighty-five (85%) of
the fair market value of one share of Common Stock on the last day of the
Purchase Period.
4. By replacing existing Plan Section 11 with the following new Plan Section
11:
"11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The Committee will
adjust the total number of shares and any outstanding options for any
increase or decrease in the number of outstanding shares of Common Stock
resulting from a stock split or a payment of a stock dividend on the shares
of Common Stock, a subdivision or combination of the shares of Common
Stock, a reclassification of the shares of Common Stock, a merger or
consolidation of the Company or any other like changes in the Common Stock
or in their value. Fractional shares may be issued as a result of any of
these changes. All adjustments made by the Committee under this paragraph
shall be final, conclusive and binding on all Participants and, further,
shall not constitute an increase in the "aggregate number of shares which
may be issued under options" pursuant to Section 7 of the Plan."
Except as specifically amended hereby, the Plan shall remain in force and
effect as prior to this First Amendment.
IN WITNESS WHEREOF, the Company has caused this First Amendment to be executed
as of this _____ day of _______________, 1998.
MARINER POST-ACUTE NETWORK, INC.
By:
-----------------------------
Title:
--------------------------
[CORPORATE SEAL]
Attest:
- --------------------------------
-2-
<PAGE>
EXHIBIT 10.82
GRANCARE, INC. EXECUTIVE DEFERRED COMPENSATION PLAN
Effective as of January 1, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS....................................................... 1
SECTION 2. PARTICIPATION..................................................... 6
2.1. Date of Participation.......................................... 6
2.2. Commencement of Deferral Period................................ 6
2.3. Termination of Participation................................... 6
2.4. Benefit Agreement.............................................. 6
2.5. Leave of Absence............................................... 7
2.6. Executive and Leadership Group Deferred Compensation Plans..... 7
SECTION 3. DEFERRAL ELECTIONS................................................ 7
3.1. Election of Deferral........................................... 7
3.2. Company Matching Contribution.................................. 7
SECTION 4. ESTABLISHMENT OF AND CREDITING OF ACCOUNTS........................ 7
4.1. Establishment of Accounts...................................... 7
4.2. Crediting of Deferrals......................................... 8
4.3. Crediting of Contributions..................................... 8
SECTION 5. INVESTMENT OF ALLOCATED ACCOUNTS.................................. 8
5.1. Investment Direction........................................... 8
5.2. Investment Experience.......................................... 8
SECTION 6. HARDSHIP LOANS.................................................... 8
6.1. Financial Hardship............................................. 8
6.2. Payment for Hardship........................................... 9
6.3. Suspension of Deferrals........................................ 9
SECTION 7. RETIREMENT INCOME BENEFITS........................................ 9
7.1. Normal Retirement Benefit...................................... 9
7.2. Termination Benefit............................................ 9
7.3. Disability..................................................... 10
7.4. Change in Control Benefit...................................... 10
7.5. Alternative Forms of Benefit................................... 10
7.6 Scheduled Withdrawal........................................... 10
SECTION 8. DEATH BENEFITS.................................................... 10
8.1. Pre-Retirement Death Benefit................................... 10
8.2. Post-Retirement Death Benefit.................................. 11
SECTION 9. ADMINISTRATION OF PLAN............................................ 11
9.1. Operation of the Committee..................................... 11
9.2. Duties of the Committee........................................ 11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.3. Action by Company or a Plan Sponsor........................... 11
SECTION 10. CLAIMS REVIEW PROCEDURE......................................... 12
10.1. Denial of Claims.............................................. 12
10.2. Appeal of Denial.............................................. 12
10.3. Written Notice for Review..................................... 12
10.4. Hearing....................................................... 12
10.5. Counsel....................................................... 13
10.6. Decision on Appeal............................................ 13
SECTION 11. LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS................ 13
11.1. No Alienation................................................. 13
11.2. Attempts to Transfer.......................................... 13
11.3. Minors or Incompetents........................................ 13
11.4. Missing Persons............................................... 14
SECTION 12. LIMITATION OF RIGHTS............................................ 14
SECTION 13. AMENDMENT OR TERMINATION OF PLAN................................ 14
13.1. Amendment and Termination..................................... 14
13.2. Termination by Plan Sponsor................................... 14
13.3. Termination by Company........................................ 14
SECTION 14. ADOPTION OF PLAN BY AFFILIATES.................................. 15
SECTION 15. MISCELLANEOUS................................................... 15
15.1. Unfunded Plan................................................. 15
15.2 Withholding................................................... 15
15.3 Governing Law................................................. 15
</TABLE>
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<PAGE>
GRANCARE, INC. EXECUTIVE DEFERRED COMPENSATION PLAN
SECTION 1. DEFINITIONS
Whenever used herein, the masculine pronoun shall be deemed to include the
feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following words and phrases shall, when used
herein, have the meanings set forth below:
1.1. "Account" means the bookkeeping accounts established and maintained
-------
by the Committee to reflect the interest of a Participant under the Plan and
shall include the following:
(a) "Employee Deferred Account" which shall reflect deferrals by a
-------------------------
Participant pursuant to Plan Sections 3.1 and 4.1 and, if the Participant
maintained Accounts under the Executive Deferred Compensation Plan and/or
the Leadership Group Deferred Compensation Plan, the balance of such
Accounts, as adjusted to reflect other credits or charges.
(b) "Company Matching Account" which shall reflect credits to a
------------------------
Participant's Account made on his behalf pursuant to Plan Sections 3.2 and
4.1, as adjusted to reflect other credits or charges.
A sub-account shall be maintained to reflect any Deferrals made by the
Participant under a Benefit Agreement to be received as a lump-sum payment on a
Scheduled Distribution Date.
1.2. "Act" means the Employee Retirement Income Security Act of 1974
---
(ERISA), as amended from time to time.
1.3. "Affiliate" means (a) any corporation which is a member of the same
---------
controlled group of corporations (within the meaning of Code Section 414(b)) as
is the Company and (b) any other trade or business (whether or not incorporated)
under common control (within the meaning of Code Section 414(c)) with a Plan
Sponsor.
1.4. "Anniversary Date" means any January 1 after the Effective Date.
----------------
1.5. "Base Salary" means the amount paid to an Employee by the Company
-----------
during the portion of the Plan Year during which he is a Participant as
compensation that would be subject to income tax withholding under Code Section
3401(a), excluding bonuses, expense reimbursements and other non-recurring forms
of remuneration, but increased by salary deferrals or other pre-tax
contributions under this Plan or any plan maintained by the Company.
1.6. "Beneficiary" means the person or entity designated in writing by
-----------
the Participant on forms provided by the Committee to receive distribution of
certain death benefits under the Plan in the event of the Participant's death.
A Participant may change the designated Beneficiary from time to time by filing
a new written designation with the Committee, and such designation shall be
effective upon receipt by the Committee. The designation of a Beneficiary other
than the Participant's spouse must be consented to in writing by the spouse. If
a Participant has not designated a Beneficiary, or if a designated Beneficiary
is not living or in existence at the time of a Participant's death, the term
Beneficiary means (a) the Participant's spouse, or (b) if no spouse is
<PAGE>
alive, the Participant's surviving children, or (c) if no children are alive,
the Participant's parent or parents, or (d) if no parents are alive, the legal
representative of the Participant's estate.
1.7. "Benefit Agreement" means the form of agreement described in
-----------------
Sections 2.4 and 3.1 on which a Participant records his Deferral election
attributable to a specific Plan Year.
1.8. "Board of Directors" means the Board of Directors of the Company.
------------------
1.9. "Change in Control" means, the first to occur of the following
-----------------
events:
(a) any person (as defined in Section 3(a)(9) of the Exchange Act
and as used in Sections 13(d) and 14(d) thereof), excluding the Company,
any Subsidiary and any employee benefit plan sponsored or maintained by the
Company or any Subsidiary (including any trustee of such plan acting as
trustee) (the Company, all Subsidiaries, and such employee benefit plans
and trustees acting as trustees being hereafter referred to as the "Company
-------
Group"), but including a `group' as defined in Section 13(d)(3) of the
-----
Exchange Act (a "Person"), becomes the beneficial owner of shares of the
------
Company having at least thirty percent (30%) of the total number of votes
that may be cast for the election of directors of the Company (the "Voting
------
Shares"); provided that no Change of Control will occur as a result of an
------
acquisition of stock by the Company Group which increases, proportionately,
the stock representing the voting power of the Company beneficially owned
by such person or group above thirty percent (30%) of the voting power of
the Company, and provided further that if such person or group acquires
beneficial ownership of stock representing more than thirty percent (30%)
of the voting power of the Company by reason of share purchases by the
Company Group, and after such share purchases by the Company Group acquires
any additional shares representing voting power of the Company, then a
Change of Control shall occur;
(b) the shareholders of the Company shall approve any merger or
other business combination of the Company, sale of the Company's assets or
combination of the foregoing transactions (a "Transaction") other than a
-----------
Transaction involving only the Company and one or more of its Subsidiaries,
or a Transaction immediately following which the shareholders of the
Company immediately prior to the Transaction continue to have a majority of
the voting power in the resulting entity excluding for this purpose any
shareholder owning directly or indirectly more than ten percent (10%) of
the shares of the other company involved in the merger; or
(c) within any 24-month period, the persons who were directors of
the Company immediately before the beginning of such period (the "Incumbent
---------
Directors") shall cease (for any reason other than death) to constitute at
---------
least a majority of the Board of Directors or the board of directors of any
successor to the Company, provided that any director who was not a director
as of the effective date of this Plan shall be deemed to be an Incumbent
Director if such director was elected to the Board of Directors by, or on
the recommendation of or with the approval of, at least two-thirds of the
directors who then
-2-
<PAGE>
qualified as Incumbent Directors either actually or by prior operation of
this clause (c); and provided further that any director elected to the
Board of Directors to avoid or settle a threatened or actual proxy contest
shall in no event be deemed to be an Incumbent Director.
1.10. "Claims Coordinator" means the individual(s) designated by the
------------------
Committee to receive applications for benefits by Participants or their
Beneficiaries.
1.11. "Code" means the Internal Revenue Code of 1986, as amended.
----
1.12. "Committee" means the Committee appointed by the Board of Directors
---------
which is responsible for administration of the Plan.
1.13. "Company" means New GranCare, Inc., a Delaware corporation, its
-------
successors and assigns.
1.14. "Covered Bonus" means any incentive compensation payable to an
-------------
Eligible Employee in a Plan Year.
1.15. "Covered Salary" means the excess of an Eligible Employee's annual
--------------
Base Salary, excluding any bonus or other form of remuneration, payable in a
Plan Year, over the Social Security Taxable Wage Base for such Plan Year.
1.16. "Deferral" means the portion of a Participant's Covered Salary
--------
and/or Covered Bonus that has been deferred to the Participant's Employee
Deferred Account at the election of a Participant pursuant to Section 3.1. The
Company contributes Deferral amounts to the Trust.
1.17. "Deferral Period" means the first Plan Year with respect to which a
---------------
Participant executed a Benefit Agreement and the three consecutive Plan Years
thereafter.
1.18. "Disability" has the same meaning provided in the long-term
----------
disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any affiliate of the Company for
the Participant. If no long-term disability policy was ever maintained on behalf
of the Participant, Disability shall mean that condition described in Code
Section 72(m)(7), as amended from time to time, to the extent that the
Participant is entitled to disability retirement benefits under the federal
Social Security Act. In the event of a dispute, the determination of Disability
shall be made by the Committee and shall be so supported by the advice of a
physician competent in the area to which such Disability relates.
1.19. "Distribution" means the distribution by GranCare, Inc., a
------------
California corporation, to its subsidiaries of all the issued and outstanding
shares of the Company.
1.20. "Distribution Record Date" means the date established by the board
------------------------
of directors of GranCare, Inc., a California corporation, for determining
shareholders of record for purposes of the Distribution.
-3-
<PAGE>
1.21. "Effective Date" means January 1, 1997, the effective date of the
--------------
adoption of the Plan.
1.22. "Eligible Employee" means any Employee of the Company (a) who is
-----------------
considered to be a "management" or "highly compensated" employee of the Company
within the meaning of Section 201(2) of the Act; (b) who is a member of the New
GranCare, Inc., a Delaware corporation, Leadership Group; and (c) who has been
specifically designated by the Board of Directors as eligible to become a Plan
Participant, such designation not having been revoked.
1.23. "Employee" mean any person who is employed by a Plan Sponsor or an
--------
Affiliate for purposes of the Federal Insurance Contribution Act.
1.24. "Executive Deferred Compensation Plan" means the GranCare, Inc.
------------------------------------
Executive Deferred Compensation Plan, as maintained by GranCare, Inc., a
California corporation, effective as of October 1, 1993.
1.25. "Leadership Group Deferred Compensation Plan" means the GranCare
-------------------------------------------
Leadership Group Deferred Compensation Plan, as maintained by GranCare, Inc., a
California corporation, effective as of January 1, 1992.
1.26. "Leave" means any period during which an Eligible Employee who is
-----
employed by the Company immediately prior to the commencement thereof is absent
from the Company pursuant to a leave of absence granted by the Company.
1.27. "Minimum Annual Deferral" means the minimum amount of Deferral that
-----------------------
a Participant may make in any Plan Year under Section 3.1.
1.28. "Normal Retirement Date" means the first day of the month coinciding
----------------------
with or next following the Participant's attainment of age 65.
1.29. "Participant" means an Eligible Employee who has made a written
-----------
election to participate in the Plan in accordance with Section 2.1.
1.30. "Plan" means the GranCare, Inc. Executive Deferred Compensation
----
Plan, as maintained by New GranCare, Inc., a Delaware corporation, as described
herein and as hereafter amended.
1.31. "Plan Sponsor" means individually the Company or any other affiliate
------------
or other entity which has adopted the Plan with the consent of the Company.
1.32. "Plan Year" means the calendar year.
---------
1.33. "Post-Retirement Death Benefit" means the benefit payable to the
-----------------------------
Beneficiary of
-4-
<PAGE>
a Participant who dies after the commencement of his Retirement Income Benefit,
as described in Section 8.2.
1.34. "Pre-Retirement Death Benefit" means the benefit payable to the
----------------------------
Beneficiary of a Participant who dies prior to the commencement of his
Retirement Income Benefit, as described in Section 8.1.
1.35. "Retirement Income Benefit" means the retirement benefit described
-------------------------
in Section 7.
1.36. "Scheduled Distribution Date" means January of the year selected by
---------------------------
the Participant on the Benefit Agreement, prior to the date the Participant
would otherwise be entitled to receive a distribution under Section 7 or Section
8 of the Plan, on which he shall receive a lump-sum payment of the portion of
the Participant's sub-account attributable to Deferrals in the Plan Year for
which the Benefit Agreement applies.
1.37. "Trust Agreement" means the GranCare, Inc. Executive Deferred
---------------
Compensation Plan Trust Agreement entered into between the Company and the
Trustee as of January 1, 1997.
1.38. "Trustee" means UMB Bank, N.A.
-------
1.39. "Unforeseen Emergency" means a severe financial hardship to a
--------------------
Participant resulting from a sudden and unexpected illness or accident of a
Participant or of a dependent (as defined in Code Section 152) of the
Participant, loss of the Participant's property due to casualty or other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant. The circumstances that shall constitute
an Unforeseen Emergency shall depend upon the facts of each case, but, in any
case, payment may not be made to the extent Unforeseen Emergency is or may be
relieved (a) through reimbursement or compensation by insurance or otherwise, or
(b) by liquidation of the Participant's assets, to the extent the liquidation of
such assets would not itself cause severe financial hardship. Examples of what
would not be considered as an Unforeseen Emergency include the need to send a
Participant's child to college or the desire to purchase a home. Any
determination of the existence of an Unforeseen Emergency and the amount to be
distributed on account thereof shall be made by the Committee (or such other
person as may be required to make such decisions) in accordance with rules
applied in a uniform and nondiscriminatory manner.
1.40. "Year of Service" means a 12-consecutive month period during which
---------------
the Participant has been in the continuous employ of the Company, commencing on
or after the October 1, 1993 and shall include a period during which the
Participant had been in the continuous employ of GranCare, Inc., a California
corporation.
SECTION 2. PARTICIPATION
2.1. Date of Participation. An Eligible Employee shall become a
---------------------
Participant hereunder
-5-
<PAGE>
upon execution by the Eligible Employee and the Committee of a Benefit
Agreement. Eligible Employees who were participants in the Executive Deferred
Compensation Plan and/or the Leadership Group Deferred Compensation Plan prior
to the Distribution Record Date shall be given the opportunity for immediate
participation in the Plan; provided that, the Eligible Employee delivers to the
Committee within ninety (90) days of the Distribution Record Date, a signed
release form releasing GranCare, Inc., a California corporation, its
subsidiaries, affiliates and their successors from liability for any benefits
under the Executive Deferred Compensation Plan and/or the Leadership Group
Deferred Compensation Plan.
2.2. Commencement of Deferral Period. For the Plan Year commencing
-------------------------------
January 1, 1997, the Benefit Agreement may be executed by the parties on or
before January 31, 1997; for all subsequent Plan Years, the Benefit Agreement
must be executed by the parties on or before December 1 of the year immediately
preceding the Plan Year to which such Benefit Agreement shall relate.
2.3. Termination of Participation. The participation of any Participant
----------------------------
(other than a disabled Participant described in Section 7.3) may be terminated
prospectively at any time upon written notice from the Chairman of the Board of
Directors. Any provision of the Plan to the contrary notwithstanding, effective
upon such termination, the Participant shall no longer be entitled to make any
further Deferrals or to be credited with any further Company Matching
contributions, and such Participant may continue to direct the investment of his
Accounts until they are distributed in accordance with Section 7 or Section 8.
2.4. Benefit Agreement. The Committee shall provide to each Eligible
-----------------
Employee a form of Benefit Agreement with respect to each Plan Year for which
the Committee will permit the Eligible Employee to make Deferrals, which shall
set forth the Eligible Employee's acceptance of the benefits provided hereunder,
his agreement to be bound by the terms of the Plan, any Scheduled Distribution
Date with respect to Deferrals to be made during that Plan Year and such other
matters as are set forth in this Plan or deemed advisable by the Committee.
2.5. Leave of Absence. An Eligible Employee who is on Leave, with or
----------------
without salary, for a period of not more than six months, shall be deemed to be
an Eligible Employee employed by the Employer during such Leave. An Eligible
Employee who is on Leave without salary for a period in excess of six months
shall be deemed to have voluntarily terminated his employment as of the end of
such six-month period.
2.6. Executive and Leadership Group Deferred Compensation Plans. If an
----------------------------------------------------------
Eligible Employee, prior to the Distribution Record Date, maintained account
balances in the Executive Deferred Compensation Plan and/or the Leadership Group
Deferred Compensation Plan and the Eligible Employee elects immediate
participation in the Plan and provides the appropriate release as described in
Section 2.1, the account balances maintained under the Executive Deferred
Compensation Plan and/or the Leadership Group Deferred Compensation Plan shall
be credited to the Employee Deferred Account as of the Distribution Record Date.
-6-
<PAGE>
SECTION 3. DEFERRAL ELECTIONS
3.1. Election of Deferral. Each Participant shall complete a Benefit
--------------------
Agreement form in which he elects the Deferral that he will make, and in which
he indicates the amount of the Deferral which relates to covered Bonus and the
amount of the Deferral which relates to covered Salary. Such Deferral shall not
exceed 100% of the Participant's Covered Bonus and shall not exceed 50% of the
Participant's Covered Salary. The minimum Deferral shall be $5,000 for each year
of the Deferral Period. Each Benefit Agreement shall indicate whether the
Participant wishes to receive distribution of benefits in a lump sum, or in
reasonably level payments over a five, ten or fifteen year period. Subject to
Section 2.3, the elections made in a Benefit Agreement shall be irrevocable.
3.2. Company Matching Contribution. Each year the Company will decide
-----------------------------
whether it will match a portion or all of the Deferrals of Participants for that
year.
SECTION 4. ESTABLISHMENT OF AND CREDITING OF ACCOUNTS
4.1. Establishment of Accounts.
-------------------------
(a) The Committee shall establish an Employee Deferred Account for
each Participant to which the Participant's Deferrals shall be credited,
hypothetical earnings in accordance with Section 5.2 shall be credited, and
distributions shall be debited. A Participant shall be 100% vested in his
Employee Deferred Account at all times.
(b) The Committee shall establish a Company Matching Account for
each Participant to which the Participant's Company Matching contributions
shall be credited, hypothetical earnings in accordance with Section 5.2
shall be credited, and distributions shall be debited. A Participant shall
be 100% vested in his Company Matching Account upon the completion of three
(3) Years of Service with the Company, or upon the occurrence of a Change
in Control.
4.2. Crediting of Deferrals. Deferrals for a Plan Year shall be credited
----------------------
to Participants' Employee Deferred Account as of the end of the month in which
the Deferral is withheld from the Participant's Covered Bonus or Covered Salary.
4.3. Crediting of Contributions. If the Company chooses to provide a
--------------------------
Company Matching Contribution, each affected Participant's Company Matching
Account will be credited with the amount of the Company Matching Contribution
properly allocable to such Participant, as of the last day of the Plan Year to
which the matching contribution relates.
-7-
<PAGE>
SECTION 5. INVESTMENT OF ALLOCATED ACCOUNTS
5.1. Investment Direction. Each Participant shall be permitted, as of
--------------------
each calendar quarter, to direct the Committee in writing, utilizing a form to
be furnished by the Committee, to credit or debit the Participant's Accounts as
though the Account assets were actually invested in one or more of the following
types of investment funds in multiples of 10% of the Participant's Accounts:
Emerging Growth Equity, Common Stock, Real Estate Securities, Balanced Assets,
Capital Growth Bond and Money Market. The Committee will select, from time to
time, a publicly traded mutual fund or separate accounts under a specified group
insurance contract having the requisite investment characteristics for the
purpose of determining the appropriate rates of return to credit Participant's
Accounts. Earnings and losses will be credited or debited to the Participant's
Accounts as if such Accounts were actually invested as directed by the
Participant. Under no circumstance will the Committee be required to instruct
the Trustee to invest any portion of the Plan assets in accordance with the
elections submitted by the Participants. The Committee may, however, instruct
the Trustee to do so in order to minimize its risk of loss.
5.2. Investment Experience. Investment earnings or losses determined with
---------------------
reference to a Participant's investment elections shall be credited or debited
to such Participant's Accounts as of the last day of each month. The Company
may, in its sole discretion, make interim debits or credits in the event of a
substantial shift in the investment marketplace, provided that such debits and
credits are made uniformly to all similarly situated Participants.
SECTION 6. HARDSHIP WITHDRAWALS
6.1. Financial Hardship. The Committee may pay all or a portion of a
------------------
Participant's Account prior to the Normal Retirement Date; provided, however,
that any such distribution shall be made only if the Participant is an Employee
and demonstrates that he will suffer a financial hardship if he does not receive
a distribution due to an Unforeseen Emergency determined to constitute a
hardship by the Committee. The Committee shall have the sole and absolute
discretion to determine if a Unforeseen Emergency exists with respect to a
Participant.
6.2. Payments for Hardship. Hardship payments shall be made to a
---------------------
Participant only in accordance with such rules, policies, procedures,
restrictions, and conditions as the Committee may from time to time adopt. Any
determination of the amount to be distributed on account of an Unforeseen
Emergency shall be made by the Committee. A payment under this Plan Section
shall be made in a lump sum in cash to the Participant and shall be charged
against the Participant's Deferral Account as of the day coinciding with or
immediately preceding the date on which payment is made.
6.3. Suspension of Deferrals. Notwithstanding the foregoing, a
-----------------------
Participant who receives a payment of all or any portion of his Employee
Deferred Account pursuant to this Section 6 shall be suspended from making
deferrals under Plan Section 3 for a period of 12 months immediately following
the date the Participant receives a payment under this Section 6.
-8-
<PAGE>
SECTION 7. RETIREMENT INCOME BENEFITS
7.1. Normal Retirement Benefit. Each Participant who retires, or
-------------------------
voluntarily or involuntarily terminates employment, at his Normal Retirement
Date shall be entitled to a Retirement Income Benefit commencing at Normal
Retirement Date. The Participant's Retirement Income Benefit shall be paid, in
accordance with the Participant's selection in his Benefit Agreement, either in
a single lump sum distribution of the Participant's Accounts, or in equal annual
installments of 5, 10, or 15 years. Payment of the Participant's Retirement
Income Benefit in equal installments shall only be made if the entire balance in
the Participant's Accounts is equal to or greater than $25,000. The amount of
the annual payments shall be calculated to pay out over the specified period the
entire balance in the Participant's Accounts as of his Normal Retirement Date
with earnings. The Participant's Accounts shall continue to be credited with
earnings until they are fully distributed to the Participant. Payment of
benefits hereunder shall be made or shall commence as soon as possible after the
first day of the month following the end of the calendar quarter following the
quarter in which the Participant terminates employment or dies.
7.2. Termination Benefit. A Participant who voluntarily terminates
-------------------
employment or who is discharged from employment prior to his Normal Retirement
Date shall be entitled to a termination benefit. The termination benefit shall
be a lump-sum payment made within ninety (90) days after the Participant
terminates his employment, equal to the value of his Accounts as vested as of
the date of distribution including earnings. A Participant who is discharged for
cause will receive the sum of his Deferrals without earnings thereon. After a
Participant has received a termination benefit under the Plan, neither the
Participant nor his spouse or other Beneficiary shall be entitled to any further
benefit hereunder.
7.3. Disability. A Participant who has suffered a Disability shall be
----------
deemed to be an Eligible Employee during such period and shall continue to be
eligible for Retirement Income Benefits under Section 7.1 without reduction and
Pre-Retirement and Post-Retirement Death Benefits under Sections 8.1 and 8.2. If
the period of Disability occurs within a Deferral Period, he shall be excused
from making the required minimum Deferral set forth in Section 3.1 for each Plan
Year of Disability, but no amounts shall be credited to his Accounts with
respect to such excused Deferral(s). However, if he returns to employment within
the Deferral Period, he may elect, upon his return, to make the required minimum
Deferrals that were previously excused to the extent that the amount of such
Deferrals does not exceed the amount of compensation which the Participant
expects to receive but has not yet been paid during the remainder of the Plan
Year.
7.4. Right to Accelerate. The Board of Directors in its sole discretion
-------------------
may accelerate all vested benefits upon termination of the Plan, and pay such
benefits in a single, actuarially equivalent lump-sum.
7.5. Alternative Forms of Benefit. The Committee in its sole discretion,
----------------------------
but with the consent of the recipient, may elect to pay the Participant, Spouse
or Beneficiary an actuarially
-9-
<PAGE>
equivalent lump-sum or other form of benefit that it deems appropriate in lieu
of the form of benefit otherwise provided.
7.6. Scheduled Withdrawal. A Participant may elect, on a Benefit
--------------------
Agreement form, to receive or commence receiving distributions on a Scheduled
Distribution Date. If a Scheduled Distribution Date is selected, the Participant
shall receive on the Scheduled Distribution Date a single lump-sum distribution
from the Participant's Accounts. The lump sum distribution will be from the sub-
account of the Participant's Accounts attributable to Deferrals in the Plan Year
for which the Benefit Agreement applies. The initial election must be for a
Scheduled Distribution Date that is four (4) years or more from the date of the
Benefit Agreement. If the initial election is for a Scheduled Distribution Date,
then a Participant may delay receipt of the scheduled distribution provided that
his subsequent election is filed with the Committee at least one year (365 days)
prior to his Scheduled Distribution Date. Notwithstanding this Section 7.6, in
no event shall a Scheduled Distribution Date remain in effect beyond the date
the Participant would otherwise be entitled to receive a distribution under
Section 7 or Section 8 of this Plan.
SECTION 8. DEATH BENEFITS
8.1. Pre-Retirement Death Benefit. If a Participant dies while employed
----------------------------
by the Company, or if a Participant dies after termination of employment, but
prior to the commencement of his Retirement Income Benefit, his Beneficiary
shall be entitled to receive the balance in the Participant's Accounts as of the
Participant's date of death. This amount will be paid to the Beneficiary in a
lump-sum as soon as possible after the first day of the month following the end
of the calendar quarter following the calendar quarter in which the Participant
died.
8.2. Post-Retirement Death Benefit. The Beneficiary of a Participant who
-----------------------------
dies after commencement of his Retirement Income Benefit shall be entitled to
continue to receive the Retirement Income Benefit payments being made to the
Participant under Section 7.1 for the remainder of the period specified in that
section.
SECTION 9.
9.1. Operation of the Committee. The Board of Directors shall have the
--------------------------
right to remove any member of the Committee at any time by notice in writing.
Any member of the Committee may resign at any time by written notice of
resignation to the Board of Directors. Upon removal or resignation of a member
of the Committee, the Board of Directors shall appoint a successor.
-10-
<PAGE>
9.2. Duties of the Committee.
-----------------------
(a) The Committee shall make all payments under the terms of the
Plan.
(b) The Committee shall from time to time establish rules, not
contrary to the provisions of the Plan, for the administration of the Plan
and the transaction of its business. All elections and designations under
the Plan by a Participant or Beneficiary shall be made on forms prescribed
by the Committee. The Committee shall have discretionary authority to
construe the terms of the Plan and shall determine all questions arising in
the administration, interpretation and application of the Plan, including,
but not limited to, those concerning eligibility for benefits and it shall
not act so as to discriminate in favor of any person. All determinations of
the Committee shall be conclusive and binding on all Employees,
Participants, and Beneficiaries, subject to the provisions of the Plan and
subject to applicable law.
(c) The Committee shall furnish Participants and Beneficiaries
with all disclosures now or hereafter required by the Act. The Committee
shall file, as required, the various reports and disclosures concerning the
Plan and its operations as required by the Act and by the Code, and shall
be solely responsible for establishing and maintaining all records of the
Plan.
(d) The statement of specific duties for a Committee in this Plan
Section is not in derogation of any other duties which a Committee has
under the provisions of the Plan or under applicable law.
9.3. Action by the Company or a Plan Sponsor. Any action to be taken by
---------------------------------------
the Company or a Plan Sponsor shall be taken by resolution or written direction
duly adopted by its board of directors or appropriate governing body, as the
case may be; provided, however, that by such resolution or written direction,
the board of directors or appropriate governing body, as the case may be, may
delegate to any officer or other appropriate person of a Plan Sponsor the
authority to take any such actions as may be specified in such resolution or
written direction, other than the power to amend, modify or terminate the Plan
or to determine the basis of any Plan Sponsor contributions.
SECTION 10. Error! Bookmark not defined.
10.1. Denial of Claims. In the event that a Participant or Beneficiary is
----------------
denied a claim for benefits under a Plan, the Committee shall provide to such
claimant written notice of the denial which shall set forth:
(a) the specific reasons for the denial;
-11-
<PAGE>
(b) specific references to the pertinent provisions of the Plan on
which the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(d) an explanation of the Plan's claim review procedure.
10.2. Appeal of Denial. After receiving written notice of the denial of a
----------------
claim, a claimant or his representative may:
(a) request a full and fair review of such denial by written
application to the Committee;
(b) review pertinent documents; and
(c) submit issues and comments in writing to the Committee.
10.3. Written Notice for Review. If the claimant wishes such a review of
-------------------------
the decision denying his claim to benefits under the Plan, he must submit such
written applications to the Committee within sixty (60) days after receiving
written notice of the denial.
10.4. Hearing. Upon receiving such written application for review, the
-------
Committee may schedule a hearing for purposes of reviewing the claimant's claim,
which hearing shall take place not more than thirty (30) days from the date on
which the Committee received such written application for review. At least ten
(10) days prior to the scheduled hearing, the claimant and his representative
designated in writing by him, if any, shall receive written notice of the date,
time, and place of such scheduled hearing. The claimant or his representative,
if any, may request that the hearing be rescheduled, for his convenience, on
another reasonable date or at another reasonable time or place.
10.5. Counsel. All claimants requesting a review of the decision denying
-------
their claim for benefits may employ counsel for purposes of the hearing.
10.6. Decision on Appeal. No later than sixty (60) days following the
------------------
receipt of the written application for review, the Committee shall submit its
decision on the review in writing to the claimant involved and to his
representative, if any; provided, however, a decision on the written application
for review may be extended, in the event special circumstances such as the need
to hold a hearing require an extension of time, to a day no later than one
hundred twenty (120) days after the date of receipt of the written application
for review. The decision shall include specific reasons for the decision and
specific references to the pertinent provisions of the Plan on which the
decision is based.
-12-
<PAGE>
SECTION 11. LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS
11.1. No Alienation. No benefit which shall be payable under the Plan to
-------------
any person shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber or charge the
same shall be void; and no such benefit shall in any manner be liable for, or
subject to, the debts, contracts, liabilities, engagements or torts of any
person, nor shall it be subject to attachment or legal process for, or against,
such person, and the same shall not be recognized under the Plan, except to such
extent as may be required by law.
11.2. Attempt To Transfer. If any person who shall be entitled to any
-------------------
benefit under the Plan shall become bankrupt or shall attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge such benefit under
the Plan, then the payment of any such benefit in the event a Participant or
Beneficiary is entitled to payment shall, in the discretion of the Committee,
cease and terminate and in that event the Committee shall apply the same for the
benefit of such person, his spouse, children, other dependents or any of them in
such manner and in such proportion as the Committee shall determine.
11.3. Minors or Incompetents. Whenever any benefit which shall be payable
----------------------
under the Plan is to be paid to or for the benefit of any person who is then a
minor or determined to be incompetent by qualified medical advice, the Committee
need not require the appointment of a guardian or custodian, but shall be
authorized to cause the same to be paid over to the person having custody of
such minor or incompetent, or to cause the same to be paid to such minor or
incompetent without the intervention of a guardian or custodian, or to cause the
same to be paid to a legal guardian or custodian of such minor or incompetent if
one has been appointed or to cause the same to be used for the benefit of such
minor or incompetent.
11.4. Missing Persons. Whenever the Committee cannot, within a reasonable
---------------
time after payments are to commence, locate any person to or for the benefit of
whom such payments are to be made, after making a reasonable effort to locate
such person, the Committee may direct that the payment and any remaining
payments otherwise due to the Participant be cancelled on the records of the
Plan, except that in the event the Participant later notifies the Committee of
his whereabouts and requests the payments due to him under the Plan, the Plan
Sponsor shall re-credit the Participant's account and provide for payment of the
re-credited amount to the Participant as soon as administratively feasible.
SECTION 12. LIMITATION OF RIGHTS
Participation in the Plan shall not give any Employee any right or claim
except to the extent that such right is specifically fixed under the terms of
the Plan. The adoption of the Plan by any
-13-
<PAGE>
Plan Sponsor shall not be construed to give any Employee a right to be continued
in the employ of a Plan Sponsor or as interfering with the right of a Plan
Sponsor to terminate the employment of any Employee at any time.
SECTION 13. AMENDMENT TO OR TERMINATION OF THE PLAN
13.1. Amendment and Termination. The Company or any successor thereto
-------------------------
reserves the right by action of its Board of Directors or its delegatee at any
time to modify or amend or terminate the Plan. No such modifications or
amendments shall have the effect of retroactively changing or depriving
Participants or Beneficiaries of benefits already accrued under the Plan.
Notwithstanding anything contained in the Plan to the contrary, upon termination
of the Plan each Participant's Account shall be payable to the Participant as
soon thereafter as is reasonably practicable. No Plan Sponsor other than the
Company shall have the right to so modify, amend or terminate the Plan.
Notwithstanding the foregoing, each Plan Sponsor may terminate its own
participation in the Plan.
13.2. Termination by Plan Sponsor. Each Plan Sponsor other than the
---------------------------
Company shall have the right to terminate its participation in the Plan by
resolution of its board of directors or other appropriate governing body and
notice in writing to the Company. Any termination by a Plan Sponsor, shall not
be a termination as to any other Plan Sponsor.
13.3. Termination by Company. If the Plan is terminated by the Company it
----------------------
shall terminate as to all Plan Sponsors.
SECTION 14. ADOPTION OF PLAN BY AFFILIATES
Any corporation or other business entity related to the Company by function
or operation and any Affiliate, if the corporation, business entity or Affiliate
is authorized to do so by written direction adopted by the Board of Directors,
may adopt the Plan by action of the board of directors or other appropriate
governing body of such corporation, business entity or Affiliate. Any adoption
shall be evidenced by certified copies of the resolutions of the foregoing board
of directors or governing body indicating the adoption by the adopting
corporation, or business entity or Affiliate. The resolution shall state and
define the effective date of the adoption of the Plan by the Plan Sponsor.
-14-
<PAGE>
SECTION 15. MISCELLANEOUS
15.1. Unfunded Plan. All payments provided under the Plan shall be paid
-------------
from the general assets of the applicable Plan Sponsor and no separate fund
shall be established to secure payment. Notwithstanding the foregoing, the
Company may establish a grantor trust to assist it in funding its obligations
under the Plan, and any payments made to a Participant or Beneficiary from such
trust shall relieve the Plan Sponsor from any further obligations under the Plan
only to the extent of such payment.
15.2. Withholding. Each Plan Sponsor shall withhold from any benefits
-----------
payable under the Plan all federal, state and local income taxes or other taxes
required to be withheld pursuant to applicable law.
15.3. Governing Law. To the extent not preempted by applicable federal
-------------
law, the Plan shall be governed by and construed in accordance with the laws of
the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed this
_____ day of _______________, 199__.
NEW GRANCARE, INC., a Delaware company
By______________________________________
Title___________________________________
ATTEST
By_________________________
Title______________________
[CORPORATE SEAL]
-15-
<PAGE>
EXHIBIT 10.83
FIRST AMENDMENT TO THE
GRANCARE, INC. EXECUTIVE DEFERRED
COMPENSATION PLAN
THIS FIRST AMENDMENT made on the 12th day of February, 1997, by NEW
GRANCARE, INC., a Delaware corporation (the "Primary Sponsor");
W I T N E S S E T H:
-------------------
WHEREAS, the Primary Sponsor maintains the GranCare, Inc. Executive
Deferred Compensation Plan, effective as of January 1, 1997 (the "Plan"); and
WHEREAS, the Primary Sponsor now desires to amend the Plan to allow
participants to direct a committee administering the Plan to credit or debit
their accounts as though the account assets were actually invested in New
GranCare, Inc. common stock, $.001 par value;
NOW, THEREFORE, the Primary Sponsor does hereby amend the Plan, effective
as of February 12, 1997 for those participants in the Plan who are officers of
the Primary Sponsor or its affiliates and effective as of April 1, 1997 for all
other participants in the Plan, by substituting the following language for the
existing language of Plan Section 5.1:
"5.1 Investment Direction. Each Participant shall be permitted, as of
--------------------
each calendar quarter, to direct the Committee in writing, utilizing a
form to be furnished by the Committee, to credit or debit the Participant's
Accounts as though the Account assets were actually invested in one or more
of the following types of investment funds in multiples of 10% of the
Participant's Accounts: Emerging Growth Equity, Common Stock, Real Estate
Securities, Balanced Assets, Capital Growth Bond, Money Market and New
GranCare Common Stock, $.001 par value. With respect to investments other
than New GranCare Common Stock, the Committee will select, from time to
time, a publicly traded mutual fund or separate accounts under a specified
group insurance contract having the requisite investment characteristics
for the purpose of determining the appropriate rates of return to credit
Participant's Accounts. Earnings and losses will be credited or debited to
the Participant's Accounts as if such Accounts were actually invested as
directed by the Participant. Under no circumstance will the Committee be
required to instruct the Trustee to invest any portion of the Plan assets
in accordance with the elections submitted by the Participants. The
Committee may, however, instruct the Trustee to do so in order to minimize
its risk of loss."
Except as specifically provided herein, the Plan shall remain in full force
and effect as prior to the First Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed as of the day and year first above written.
NEW GRANCARE, INC.
By:________________________________
Title:_____________________________
ATTEST:
By:____________________________
Title:_________________________
[CORPORATE SEAL]
<PAGE>
EXHIBIT 10.84
SECOND AMENDMENT TO GRANCARE, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
THIS SECOND AMENDMENT, made on this ____ day of ____________, 1997, by
GRANCARE, INC. (the "Company"), a corporation duly organized and existing under
the laws of the State of Delaware;
W I T N E S S E T H:
-------------------
WHEREAS, the Company maintains the Grancare, Inc. Executive Deferred
Compensation Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan to change the definition of
eligible employee;
NOW, THEREFORE, the Plan is hereby amended effective as of the first
written above by deleting Plan Section 1.22 and replacing it with the following:
"1.22. `Eligible Employee' means any Employee of the
-----------------
Company (a) who is considered to be a `management' or
`highly compensated employee' of the Company within the
meaning of Section 201(2) of the Act and (b) who has
been specifically designated by the Board of Directors
as eligible to become a Plan Participants."
Except as specifically amended hereby, the Plan shall remain in full force
and effect as prior to this Second Amendment.
IN WITNESS WHEREOF, the Company has caused this Second Amendment to be
executed on the day and year first above written.
GRANCARE, INC.
By:
--------------------------------
Title:
-----------------------------
ATTEST:
- ----------------------------
Title:
----------------------
[CORPORATE SEAL]
<PAGE>
GRANCARE, INC.
RESOLUTIONS
RESOLVED, that the Company does hereby approve the adoption of the Second
Amendment to the GranCare, Inc. Executive Deferred Compensation Plan (the
"Second Amendment") in the form and substance substantially similar to that
presented to and reviewed by the Board of Directors of the Company.
RESOLVED, that the officers of the Company, and their respective designees,
are hereby authorized and directed to take all actions and to finalize, execute
and deliver all agreements, instruments, and other documents as they shall
respectively deem necessary to carry out the intent of the foregoing
resolutions, including, without limitation, executing and delivering the Second
Amendment.
RESOLVED, that the signature of any officer or his designee on any
agreement, instrument, indenture, or document shall be conclusive evidence of
his authority.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
MARINER POST-ACUTE NETWORK, INC.
DIRECT AND INDIRECT SUBSIDIARIES
State/Country
Incorporated
AMS Green Tree, Inc. (WI)
AMS Properties, Inc. (DE)
APS Holding Company, Inc. (NV)
APS Pharmacy Management, Inc. (TX)
Acme Repackaging, Inc. (TN)
Aid and Assistance, Inc. (CT)
American--Cal Medical Services, Inc. (CA)
American Geriatric Management Services, Inc. (TX)
American Pharmaceutical Services, Inc. (DE)
American Rehability Management, Inc. (TN)
American Rehability Services, Inc. (UT)
American Senior Health Services, Inc. (DE)
Amerra Health Services, Inc. (DE)
Amerra Properties, Inc. (DE)
Beaver Properties/Newco, Inc. (NC)
Beechwood Heritage Retirement Community, Inc. (MD)
Brian Center of Asheboro, Inc. (NC)
Brian Center of Central Columbia, Inc. (SC)
Brian Center Health & Rehabilitation/Tampa, Inc. (AL)
Brian Center Health & Retirement/Alleghany, Inc. (NC)
Brian Center Health & Retirement/Bastian, Inc. (NC)
Brian Center Health & Retirement/Wallace, Inc. (NC)
Brian Center Management Corporation (NC)
Brian Center Nursing Care/Austell, Inc. (GA)
Brian Center Nursing Care/Fincastle, Inc. (NC)
Brain Center Nursing Care/Hickory, Inc. (NC)
Brian Center Nursing Care/Powder Springs, Inc. (NC)
Bride Brook Nursing & Rehabilitation Center, Inc. (CT)
Cambridge Bedford, Inc. (MI)
Cambridge East, Inc. (MI)
Cambridge North, Inc. (MI)
Cambridge South, Inc. (MI)
Clintonaire Nursing Home, Inc. (MI)
Compass Pharmacy Services of Maryland, Inc. (DE)
Compass Pharmacy Services of Texas, Inc. (DE)
Compass Pharmacy Services, Inc. (MA)
Connerwood Healthcare, Inc. (IN)
Coordinated Home Health Services, Inc. (CA)
Cornerstone Health Management Company (DE)
Crestmont Health Center, Inc. (MI)
Cypress Nursing Facility, Inc.(SC)
Devcon Holding Company (DE)
EH Acquisition Corp. (GA)
EH Acquisition Corp. II (GA)
i
<PAGE>
EH Acquisition Corp. III (GA)
Evergreen Healthcare, Inc. (GA)
Frenchtown Nursing Home, Inc. (MI)
Functional Enhancements, Inc. (DE)
GC Services, Inc. (CA)
GCI Bella Vita, Inc. (CO)
GCI-Cal Health Care Centers, Inc. (CA)
GCI-Cal Therapies Company (CA)
GCI Camellia Care Center, Inc. (CO)
GCI Colter Village, Inc. (AZ)
GCI East Valley Medical & Rehabilitation Center, Inc. (AZ)
GCI Faith Nursing Home, Inc. (SC)
GCI Health Care Centers, Inc. (DE)
GCI Indemnity, Inc. (VT)
GCI Jolley Acres, Inc. (SC)
GCI Palm Court, Inc. (CA)
GCI Prince George, Inc. (SC)
GCI Realty, Inc. (DE)
GCI Rehab, Inc. (CA)
GCI Springdale Village, Inc. (SC)
GCI Therapies, Inc. (CA)
GCI Valley Manor Health Care Center, Inc. (CO)
GCI Village Green, Inc. (SC)
GCI-Wisconsin Properties, Inc. (WI)
GW Acquisition Corp. (GA)
GranCare, Inc. (DE)
GranCare of Michigan, Inc. (MI)
GranCare of North Carolina, Inc. (NC)
GranCare of Northern California, Inc. (CA)
GranCare GPO Services, Inc. (GA)
GranCare Home Health Services, Inc. (CA)
GranCare Nursing Services And Hospice, Inc. (WI)
GranCare South Carolina, Inc. (SC)
GranCare Trading, Inc. (GA)
Gulf Coast Physical Therapy Group, Inc. (MS)
HMI Convalescent Care, Inc. (CA)
Hampton Nursing Center, Inc. (SC)
Heritage of Louisiana, Inc. (LA)
Heritage Nursing Home, Inc. (MI)
HomeCare Associates of America, Inc. (DE)
Home Health Management Associates of America, Inc. (DE)
Hospice Associates of America, Inc. (DE)
Hospice Care of Tennessee, Inc. (DE)
Hospice Management Partners, Inc. (DE)
HostMasters, Inc. (CA)
International Health Care Management, Inc. (MI)
International X-Ray, Inc. (MI)
LC Management Company (DE)
LCA Insurance Co. Ltd. (Grand Cayman Islands)
LCA Operational Holding Company (DE)
LCR, Inc. (DE)
Living Centers--East, Inc. (DE)
ii
<PAGE>
Living Centers--PHCM, Inc. (NC)
Living Centers--Rocky Mountain, Inc. (NV)
Living Centers--Southeast, Inc. (NC)
Living Centers--Southeast Development Corporation (NC)
Living Centers of Texas, Inc. (DE)
Living Centers Development Company (DE)
Living Centers Holding Company (DE)
Living Centers LTCP Development Company (DE)
Long Ridge Nursing & Rehabilitation Center, Inc. (CT)
Longwood Rehabilitation Center, Inc. (MA)
MHC Rehab Corp. (DE)
MHC Transportation, Inc. (DE)
Madonna Nursing Center, Inc. (MI)
Mansfield Nursing & Rehabilitation Center, Inc. (CT)
Mariner Health at Bonifay, Inc. (DE)
Mariner Health Care, Inc. (MA)
Mariner Health Care of Baltimore, Inc. (MA)
Mariner Health Care of Fort Wayne, Inc. (DE)
Mariner Health Care of Greater Laurel, Inc. (MA)
Mariner Health Care of Lake Worth, Inc. (DE)
Mariner Health Care of Nashville, Inc. (DE)
Mariner Health Care of North Hills, Inc. (DE)
Mariner Health Care of Orange City, Inc. (DE)
Mariner Health Care of Palm City, Inc. (DE)
Mariner Health Care of Pinellas Point, Inc. (DE)
Mariner Health Care of Port Orange, Inc. (DE)
Mariner Health Care of Southern Connecticut, Inc. (CT)
Mariner Health Care of Toledo, Inc. (DE)
Mariner Health Care of West Hills, Inc. (DE)
Mariner Health Central, Inc. (DE)
Mariner Health Group, Inc. (DE)
Mariner Health Home Care, Inc. (DE)
Mariner Health of Atlantic Shores, Inc (DE).
Mariner Health of Deland, Inc. (DE)
Mariner Health of Florida, Inc. (DE)
Mariner Health of Inverness, Inc. (DE)
Mariner Health of Jacksonville, Inc. (DE)
Mariner Health of MacClenny, Inc. (DE)
Mariner Health of Maryland, Inc. (DE)
Mariner Health of Metrowest, Inc. (DE)
Mariner Health of Orlando, Inc. (DE)
Mariner Health of Palmetto, Inc. (DE)
Mariner Health of Tampa, Inc. (DE)
Mariner Health of Tuskawilla, Inc. (DE)
Mariner Health Resources, Inc. (MA)
Mariner Home Care of Florida, Inc. (DE)
Mariner Physician Services, Inc. (DE)
Mariner Practice Corporation (DE)
Mariner Supply Services, Inc. (DE)
MarinerSelect Staffing Solutions, Inc. (DE)
Med-Care Sales and Rentals, Inc. (NC)
MedRehab, Inc. (DE)
iii
<PAGE>
MedRehab of Florida, Inc. (FL)
MedRehab of Illinois, Inc. (DE)
MedRehab of Indiana, Inc. (IN)
MedRehab of Louisiana, Inc. (LA)
MedRehab of Missouri, Inc. (MO)
MedRehab of Texas, Inc. (TX)
MedRehab of Wisconsin, Inc. (WI)
Med-Therapy Rehabilitation Services, Inc. (NC)
Merrimack Valley Nursing & Rehabilitation Center, Inc. (MA)
Methuen Nursing & Rehabilitation Center, Inc. (MA)
Mid-America Professional Services, Inc. (KY)
Middlebelt Nursing Home Inc. (MI)
Middlebelt-Hope Nursing Home, Inc. (MI)
Mystic Nursing & Rehabilitation Center, Inc. (MA)
Nan-Dan Corp. (FL)
National Health Strategies, Inc. (MA)
National Heritage Realty, Inc. (LA)
Nightingale East Nursing Center, Inc. (MI)
Ocean Pharmacy, Inc. (CT)
Omega/Indiana Care Corp. (DE)
PHG Ventures, Inc. (MA)
Park Terrace Nursing & Rehabilitation Center, Inc. (MA)
Pendleton Nursing & Rehabilitation Center, Inc. (CT)
Pinnacle Care Corporation (DE)
Pinnacle Care Corporation of Huntington (TN)
Pinnacle Care Corporation of Hutchinson (TN)
Pinnacle Care Corporation of Lexington (TN)
Pinnacle Care Corporation of Louisville (TN)
Pinnacle Care Corporation of Marion (TN)
Pinnacle Care Corporation of McMurray (TN)
Pinnacle Care Corporation of Morganton (TN)
Pinnacle Care Corporation of Nashville (TN)
Pinnacle Care Corporation of North Carolina (TN)
Pinnacle Care Corporation of Salina (TN)
Pinnacle Care Corporation Seneca (TN)
Pinnacle Care Corporation of Sumter (TN)
Pinnacle Care Corporation of Williams Bay (TN)
Pinnacle Care Corporation of Wilmington (TN)
Pinnacle Care Management Corp. (TN)
Pinnacle Pharmaceutical Services, Inc. (TN)
Pinnacle Rehabilitation, Inc. (MA)
Pinnacle Rehabilitation, Inc. (TN)
Pinnacle Rehabilitation of Florida, Inc. (FL)
Pinnacle Rehabilitation of Georgia, Inc. (TN)
Pinnacle Rehabilitation of Illinois, Inc. (IL)
Pinnacle Rehabilitation of Missouri, Inc. (MO)
Pinnacle Rehabilitation of Texas, Inc. (DE)
Prism Care Centers, Inc. (MA)
Prism Health Group, Inc. (MA)
Prism Home Care Company, Inc. (MA)
Prism Home Care, Inc. (MA)
Prism Home Health Services, Inc. (MA)
iv
<PAGE>
Prism Hospital Ventures, Inc. (TX)
Prism Rehab Systems, Inc. (MA)
Professional Health Care Management, Inc. (MI)
Professional Rx Systems, Inc. (FL)
Professional Rehabilitation, Inc. (DE)
Professional Rehabilitation of Georgia, Inc. (GA)
Professional Rehabilitation Agency, Inc. (SC)
Progressive Care Centers of America, Inc. (DE)
Rehability Health Services, Inc. (TX)
Rehability Hospital Services, Inc. (DE)
Renaissance Mental Health Center, Inc. (WI)
St. Anthony Nursing Home, Inc. (MI)
Sassaquin Nursing & Rehabilitation Center, Inc. (MA)
StoneCreek Management Company, Inc. (MO)
Summit Hospital Holdings, Inc. (GA)
Summit Hospital of East Georgia, Inc. (GA)
Summit Hospital of Southeast Arizona, Inc. (GA)
Summit Hospital of Southeast Texas, Inc. (GA)
Summit Hospital of Southwest Louisiana, Inc. (GA)
Summit Hospital of West Georgia, Inc. (GA)
Summit Institute for Pulmonary Medicine and Rehabilitation, Inc. (GA)
Summit Institute of Austin, Inc. (GA)
Summit Institute of West Monroe, Inc. (GA)
Summit Medical Holdings, Ltd. (DE)
Summit Medical Management, Inc. (GA)
Tampa Medical Associates, Inc. (FL)
TN Occupational Medicine, Inc. (TN)
TOICA, Inc. (DE)
TheraCare Home Health Agency, Inc. (TN)
Therapy Management Innovations, Inc. (NV)
Tri-State Health Care, Inc. (WV)
Windward Health Care, Inc. (MA)
WorkHealth Healthcare Management, Inc. (DE)
v
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(No. 333-57339 (as amended), 333-62859 and 333-39485 (as amended)) pertaining
to (i) the 1995 Non-Employee Director Stock Option Plan and Outstanding
Options of Mariner Health Group, Inc.; (ii) the Paragon Health Network, Inc.
Employee Stock Purchase Plan, and (iii) the Paragon Health Network, Inc. Long-
Term Incentive Plan; GranCare, Inc. 401(k) Savings Plan; GranCare, Inc. 1996
Stock Incentive Plan; GranCare, Inc. 1996 Replacement Stock Option Plan;
GranCare, Inc. Outside Directors' Stock Incentive Plan; and Evergreen
Healthcare, Inc. Employees' 401(k) Profit Sharing Plan, of our report dated
December 21, 1998, with respect to the consolidated financial statements and
schedule of Mariner Post-Acute Network, Inc. included in this Annual Report
(Form 10-K) for the year ended September 30, 1998.
Ernst & Young LLP
December 22, 1998
Atlanta, Georgia
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 3,314
<SECURITIES> 0
<RECEIVABLES> 650,518
<ALLOWANCES> 33,138
<INVENTORY> 31,516
<CURRENT-ASSETS> 807,923
<PP&E> 1,184,851
<DEPRECIATION> 257,698
<TOTAL-ASSETS> 3,036,651
<CURRENT-LIABILITIES> 457,707
<BONDS> 1,977,865
0
0
<COMMON> 733
<OTHER-SE> 396,281
<TOTAL-LIABILITY-AND-EQUITY> 3,036,651
<SALES> 2,035,529
<TOTAL-REVENUES> 2,035,529
<CGS> 0
<TOTAL-COSTS> 2,129,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114,302
<INCOME-PRETAX> (208,374)
<INCOME-TAX> (10,559)
<INCOME-CONTINUING> (198,377)
<DISCONTINUED> 0
<EXTRAORDINARY> (11,275)
<CHANGES> 0
<NET-INCOME> (209,652)
<EPS-PRIMARY> (4.31)
<EPS-DILUTED> (4.31)
</TABLE>
