<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d-1(a)
(Amendment No. 1) /1/
PARAGON HEALTH NETWORK, INC.
----------------------------
(Name of Issuer)
COMMON STOCK
------------
PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
698940103
(CUSIP Number)
ROBERT W. KADLEC
SIDLEY & AUSTIN
555 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90013-1010
(213) 896-6000
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
APRIL 13, 1998
--------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Note: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
(Continued on following pages)
(Page 1 of 12 Pages)
- ---------------------
/1/ The remainder of this cover page shall be filled out for a reporting a
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 698940103 13D PAGE 2 OF 12 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
APOLLO INVESTMENT FUND III, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
17,777,778
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
17,777,778/2/
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
17,777,778
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES*
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
13
43%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- ------------------------
/2/ See Item 5.
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 698940103 13D PAGE 3 OF 12 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
APOLLO UK PARTNERS III, L.P
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED KINGDOM
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
17,777,778
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
17,777,778/3/
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
17,777,778
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES*
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
13
43%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- ------------------------
/3/ See Item 5.
<PAGE>
- ----------------------- ---------------------
CUSIP NO. 698940103 13D PAGE 4 OF 12 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
APOLLO OVERSEAS PARTNERS III, L.P
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
17,777,778
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
17,777,778/4/
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
17,777,778
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES*
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
13
43%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- ------------------------
/4/ See Item 5.
<PAGE>
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CUSIP NO. 698940103 13D PAGE 5 OF 12 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
APOLLO MANAGEMENT, L.P
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
OO
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
17,777,778
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
17,777,778/5/
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
17,777,778
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES*
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
13
43%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- ------------------------
/5/ See Item 5.
<PAGE>
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CUSIP NO. 698940103 13D PAGE 6 OF 12 PAGES
- ----------------------- ---------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSONS
1 S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
APOLLO ADVISORS II, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
AF
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
5 ITEMS 2(d) or 2(e) [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
DELAWARE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF 0
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
17,777,778
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING 0
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
17,777,778/6/
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
17,777,778
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES CERTAIN SHARES*
12
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11
13
43%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
- ------------------------
/6/ See Item 5.
<PAGE>
13 This Amendment No. 1 (this "Amendment") relates to the Statement on
Schedule 13D dated November 4, 1997 and filed with the Securities and Exchange
Commission on behalf of Apollo Investment Fund III, L.P., a Delaware limited
partnership ("Fund III"), Apollo UK Partners III, L.P., a limited partnership
organized under the laws of the United Kingdom ("UK Partners"), Apollo Overseas
Partners III, L.P., a Delaware limited partnership ("Overseas Partners", and
together with Fund III and UK Partners, the "Apollo Purchasers"), Apollo
Advisors II, L.P., a Delaware limited partnership ("Apollo Advisors") and Apollo
Management, L.P., a Delaware limited partnership ("Apollo Management")
(collectively, the "Reporting Entities") with respect to the common stock, par
value $0.01 per share (the "Common Stock"), of Paragon Health Network, Inc., a
Delaware corporation (the "Issuer").
Item 3 is hereby amended to add the following:
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATIONS
As previously reported, the Reporting Entities acquired beneficial
ownership of 14,367,591 shares of Common Stock (after giving effect to a 3-for-1
stock split effective December 30, 1997) and pursuant to the Proxy and Voting
Agreement, dated as of November 4, Apollo Management was granted a three year
irrevocable proxy to vote the 3,410,187 shares of Common Stock (after giving
effect to a 3-for-1 stock split effective December 30, 1997) acquired by Chase
Equity Associates, L.P., a California limited partnership, Healthcare Equity
Partners, L.P., a Delaware limited partnership, Healthcare Equity QP Partners,
L.P., a Delaware limited partnership, Key Capital Corporation, a Delaware
corporation, Key Equity Partners 97, a Delaware limited partnership, Drax
Holdings, L.P., a Delaware limited partnership, Walnut Growth Partners Limited
Partnership, a Delaware limited partnership, and Keith B. Pitts (collectively,
the "Remaining Purchasers" and together with the Apollo Purchasers, the
"Purchasers") (including transferees) on matters as to which the Remaining
Purchasers are entitled to vote.
In connection with the execution and delivery of an Agreement and Plan of
Merger, dated as of April 13, 1998 (the "Mariner Merger Agreement"), by and
among the Issuer, Paragon Acquisition Corp., Inc., a wholly owned subsidiary of
the Issuer ("Acquisition Sub"), and Mariner Health Group, Inc. ("Mariner"),
Apollo Management and Keith B. Pitts entered into a Termination and Release of
Proxy and Voting Agreement, dated as of April 13, 1998, which provides for the
termination of all rights and obligations under the Proxy and Voting Agreement
with respect to Mr. Pitts and the 150,000 shares of Common Stock he beneficially
owns that are subject to the Proxy and Voting Agreement, effective upon
consummation of the merger of Acquisition Sub and Mariner.
All reference to, and summaries of, the Termination and Release of Proxy
and Voting Agreement in this Schedule 13D are qualified in their entirety by
reference to such agreement, the full text of which is filed as exhibit A hereto
and incorporated herein by this reference.
Page 7 of 12
<PAGE>
Item 4 is hereby amended to add the following:
ITEM 4. PURPOSE OF TRANSACTION
The Apollo Purchasers acquired the shares Common Stock in order to acquire
a significant equity interest in the Issuer and for general investment purposes.
The Apollo Purchasers maintain the right to change their investment intent, and,
subject to the restrictions set forth in the Stockholders Agreement (as
described below), to propose one or more possible transactions to the Issuer and
or other stockholders of the Issuer.
As previously reported, the Purchasers and the Issuer entered into a
Stockholders Agreement (the "Stockholders Agreement"), dated as of November 4,
1997, which, among other things: (i) grants to Apollo Management the right to
nominate six of the eleven nominees to the board of directors of the Issuer,
provided that no more than four of such nominees will be partners, directors,
officers or employees of Apollo (the number of Apollo nominees decreases if the
Apollo Purchasers transfer certain percentages of the shares acquired in the
Recapitalization Merger); and (ii) contains "drag-along" rights which require
the Purchasers to transfer all shares of Common Stock in connection and together
with the sale of all of the shares then owned by Apollo in certain transactions.
In connection with the execution and delivery of the Mariner Merger
Agreement, certain of the Purchasers entered into Amendment No. 1 to
Stockholders Agreement, dated as of April 13, 1998, which, among other things:
(i) reduces Apollo Management's right to nominate nominees to the board of
directors of the Issuer from six of the eleven nominees to five of the eleven
nominees; (ii) extends such nomination rights from November 4, 2000 until the
fifth anniversary of the consummation of the merger of Acquisition Sub and
Mariner; and (iii) terminates all rights and obligations under the Stockholders
Agreement with respect to Mr. Pitts and the 150,000 shares of Common Stock he
beneficially owns that are subject to the Stockholders Agreement, effective upon
consummation of the merger of Acquisition Sub and Mariner.
All reference to, and summaries of Amendment No. 1 to Stockholders
Agreement in this Schedule 13D are qualified in their entirety by reference to
such agreement, the full text of which is filed as exhibit B hereto and
incorporated herein by this reference.
Page 8 of 12
<PAGE>
Item 5 is hereby amended by substituting the following for the first paragraph
and table thereof:
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) and (b)
As of April 13, 1998, the Apollo Purchasers are the beneficial owners of an
aggregate 14,367,591 shares of Common Stock (after giving effect to a 3-for-1
stock split effective December 30, 1997) in the following allocations:
Fund III 13,100,370 shares
UK Partners 484,188 shares
Overseas Partners 783,033 shares
=================
TOTAL 14,367,591 SHARES
In addition, by virtue of the Stockholders Agreement and the Proxy and
Voting Agreement, the Reporting Persons may exercise dispositive and voting
power over the 3,410,187 shares of Common Stock (after giving effect to a 3-for-
1 stock split effective December 30, 1997) held by the Remaining Purchasers.
Upon consummation of the Merger of Acquisition Sub and Mariner such additional
ownership shall be reduced by the 150,000 shares of Common Stock beneficially
owned by Keith B. Pitts.
Item 6 is hereby amended to read in its entirety:
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
In connection with the execution and delivery of the Mariner Merger
Agreement, Apollo Management and the Apollo Purchasers entered into the Parent
Voting Agreement, dated as of April 13, 1998, pursuant to which, among other
things, until the Mariner Merger Agreement is terminated Apollo Management and
the Apollo Purchasers agreed to: (i) vote in favor of the merger of Acquisition
Sub with Mariner and the other transactions contemplated by the Mariner Merger
Agreement; (ii) vote against (A) any other merger, merger agreement,
consolidation, combination, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of or by the Issuer or
(B) any action or agreement that is intended, or could reasonably be expected to
impede, interfere with, delay, or attempt to frustrate, prevent or nullify the
merger of Acquisition Sub with Mariner, the Mariner Merger Agreement or any of
the other transactions contemplated thereby. None of Apollo Management and the
Apollo Purchasers received any consideration from Mariner in connection with the
execution and delivery of the Parent Voting Agreement.
All reference to, and summaries of, the Parent Voting Agreement in this
Schedule 13D are qualified in their entirety by reference to such agreement, the
full text of which is filed as exhibit C hereto and incorporated herein by this
reference.
Page 9 of 12
<PAGE>
The response to Items 3, 4 and 5 of this Schedule 13D are incorporated
herein.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit A: Termination and Release of Proxy and Voting Agreement, dated
as of April 13, 1998
Exhibit B: Amendment No. 1 to Stockholders Agreement, dated as of April
13, 1998
Exhibit C: Parent Voting Agreement, dated as of April 13, 1998
SIGNATURE
After reasonable inquiry and to the best of his knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete, and correct. In addition, by signing below, the undersigned agrees
that this Schedule 13D may be filed jointly on behalf of each of Apollo
Investment Fund III, L.P., Apollo Overseas Partners III, L.P., Apollo UK
Partners III, L.P., and Apollo Advisors II, L.P.
Dated as of this 23rd day of April, 1998.
Page 10 of 12
<PAGE>
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/
---
Name: Michael D. Weiner
Title: Vice President
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/
---
Name: Michael D. Weiner
Title: Vice President
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/
---
Name: Michael D. Weiner
Title: Vice President
Page 11 of 12
<PAGE>
APOLLO ADVISORS II, L.P.
By: Apollo Capital Management II, Inc.,
Its General Partner
By: /s/
---
Name: Michael D. Weiner
Title: Vice President
APOLLO MANAGEMENT, L.P.
By: AIF III Management, Inc.,
Its General Partner
By: /s/
---
Name: Michael D. Weiner
Title: Vice President
Page 12 of 12
<PAGE>
EXHIBIT INDEX TO AMENDMENT NO. 1 TO SCHEDULE 13D
Exhibit A: Termination and Release of Proxy and Voting Agreement, dated as
of April 13, 1998
Exhibit B: Amendment No. 1 to Stockholders Agreement, dated as of April
13, 1998
Exhibit C: Parent Voting Agreement, dated as of April 13, 1998 April 21,
1998
S-1
<PAGE>
TERMINATION AND RELEASE OF
PROXY AND VOTING AGREEMENT
This TERMINATION AND RELEASE OF PROXY AND VOTING AGREEMENT (the
"Termination"), dated as of April 13, 1998, by and among Apollo Management,
L.P., a Delaware limited partnership ("Apollo Management" and together with its
affiliates and managed investment funds, "Apollo") and the stockholders listed
on the signature pages attached hereto (together with each other Person (defined
below) who is or becomes a party to the Proxy and Voting Agreement (defined
below) in accordance with the terms hereof, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Stockholders
Agreement, dated as of November 4, 1997 (the "Stockholders Agreement"), pursuant
to which the parties provided for certain rights and obligations in respect of
the Shares (defined in the Stockholders Agreement);
WHEREAS, in addition to the Stockholders Agreement, the Stockholders provided
for certain voting rights and obligations in respect to Shares pursuant to that
certain Proxy and Voting Agreement, dated as of November 4, 1997, by and among
Apollo Management and the Other Stockholders (defined in the Stockholders
Agreement);
WHEREAS, as an inducement to Mariner Health Group, Inc. ("Mariner") to enter
into that certain Agreement and Plan of Merger (the "Merger Agreement") by and
among the Company, Mariner and Paragon Acquisition Sub, Inc., a wholly owned
subsidiary of the Company ("Sub"), Mariner requested, and Apollo Management,
Keith B. Pitts ("Pitts") and the other parties hereto have agreed to enter into
this Termination to become effective as of the effective time (the "Effective
Time") of the merger of Sub with and into Mariner; and
NOW THEREFORE, the parties hereto agree as follows:
1. Representation and Warranties. Each party hereto hereby represents and
-----------------------------
warrants to the other party as follows:
(a) Authority Relative to this Termination. Each party hereto has the
--------------------------------------
requisite power and authority to execute and deliver this Termination and to
consummate the transactions contemplated hereby. The execution and delivery of
this Termination and the consummation of the transactions contemplated hereby
have been duly and validly authorized by such party and no other proceedings on
the part of such party are necessary to authorize this Termination or to
consummate the transactions so contemplated. This Termination has been duly and
validly executed and delivered by such party, and assuming that this Termination
has been duly and validly authorized, executed and delivered by the other
parties hereto, this Termination constitutes a valid and binding obligation of
such party, enforceable against such party 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).
(b) No Conflicts. Neither the execution and delivery of this
------------
Termination nor the consummation of the transactions contemplated hereby will
conflict with or constitute a violation of or default under any contract,
commitment, agreement, arrangement or restriction of any kind to which such
party is a party or by which such party is bound. Other than the Proxy and
Voting Agreement and with respect to Apollo, that certain Parent Voting
Agreement, dated as of the date hereof, by and between Apollo and Mariner, there
are no other agreements or understandings with respect to the voting of the
Shares.
2. Pitts' Rights and Obligations. As of the Effective Time, Pitts will no
-----------------------------
longer be a Stockholder under the Proxy and Voting Agreement and from and after
the Effective Time Pitts' rights and obligations under the Proxy and Voting
Agreement (including, without limitation, the irrevocable proxy granted by Pitts
to Apollo Management) shall be deemed to be terminated and of no further effect
with respect to Pitts and any shares of Common Stock he beneficially owns.
3. Force and Effect. Except as to the termination of Pitts' rights and
----------------
obligations under the Proxy and Voting
<PAGE>
Agreement, this Termination shall have no effect on the Proxy and Voting
Agreement and the Proxy and Voting Agreement shall remain in full force and
effect after giving effect to this Termination.
4. Termination. This Termination will expire without becoming effective and
-----------
will be of no force and effect upon the termination of the Merger Agreement.
5. Third Party Beneficiary. The parties to this Termination hereby
-----------------------
acknowledge and agree that the termination of Pitts' rights and obligations
pursuant to this Termination is intended to be for the benefit of Mariner and
its stockholders and may be enforced by Mariner stockholders who on the record
date for the meeting at which the Merger Agreement is submitted to Mariner
stockholders for approval, are the record holders of not less than 40% of the
then outstanding shares of Mariner common stock.
6. Governing Law. This Termination shall be governed in all respects,
-------------
including validity, interpretation and effect, by the laws of the State of
Delaware (without giving effect to the provisions thereof relating to conflicts
of law).
7. Counterparts. This Termination may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
8. Descriptive Headings. The headings herein are inserted for convenience of
--------------------
reference only and are not intended to be a part of or to affect the meaning or
interpretation of this Termination.
9. Further Assurances. The parties hereto will execute and deliver all such
------------------
further documents and instruments and take all such further actions as may be
necessary in order to consummate the transactions contemplated hereby.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Termination as of
the date first above written.
APOLLO MANAGEMENT, L.P.,
on behalf of one or more managed
investment funds
By: AIF III Management, Inc.
Its General Partner
By:
Name:
Title:
Keith B. Pitts
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its General Partner
By:
Partner
3
<PAGE>
HEALTHCARE EQUITY PARTNERS, L.P.
By: Beecken, Petty & Company, L.L.C.
Its General Partner
By:
Managing Director
HEALTHCARE EQUITY QP PARTNERS, L.P.
By: Beecken, Petty & Company, L.L.C.
Its General Partner
By:
Managing Director
4
<PAGE>
KEY CAPITAL CORPORATION
By:
Name:
Title:
KEY EQUITY PARTNERS 97
By:
Name:
Title: General Partner
5
<PAGE>
DRAX HOLDINGS L.P.
By: Inman Corporation
Its General Partner
By:
Name:
Title:
WALNUT GROWTH PARTNERS LIMITED
PARTNERSHIP
By: Walnut GP, L.L.C.
Its General Partner
By:
Managing Director
6
<PAGE>
AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT
This AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT (the "Amendment"), dated as of
April 13, 1998, by and among Paragon Health Network, Inc., a Delaware
corporation (the "Company") and the stockholders listed on the signature pages
attached hereto (together with each other Person (defined below) who is or
becomes a party to the Stockholders Agreement (defined below) in accordance with
the terms hereof, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Stockholders
Agreement, dated as of November 4, 1997 (the "Stockholders Agreement"), pursuant
to which the parties provided for certain rights and obligations in respect of
the Shares (defined in the Stockholders Agreement);
WHEREAS, as an inducement to Mariner Health Group, Inc. ("Mariner") to enter
into that certain Agreement and Plan of Merger by and among the Company, Mariner
and Paragon Acquisition Sub, Inc., a wholly owned subsidiary of the Company
("Sub"), Mariner requested, and the Stockholders and the Company have agreed to
enter into this Amendment to become effective as of the effective time (the
"Effective Time") of the merger of Sub with and into Mariner; and
WHEREAS, the 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)
and the holders of a majority of the Shares held by the Stockholders including,
so long as Apollo beneficially owns at least 25% of the Shares held by Apollo on
the Effective Time, the consent of Apollo, and if any amendment or modification
would have a disproportionately material adverse effect on the rights or
obligations of any Other Stockholder or would otherwise unfairly discriminate
against any Other Stockholder, the consent of such Other Stockholder;
WHEREAS, each Stockholder party hereto 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
hereto collectively beneficially own 14,517,591 shares of Common Stock of the
17,777,778 Shares currently held by the Stockholders;
WHEREAS, effective as of the Effective Time, Keith B. Pitts will no longer be
a Stockholder.
NOW THEREFORE, the parties hereto agree as follows:
<PAGE>
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Defined terms used herein and not otherwise defined
herein have the meaning ascribed to them in the Stockholders Agreement as
amended by this Amendment.
ARTICLE II.
REPRESENTATION AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of the Stockholders as
follows:
Section 2.1 Authority for this Amendment. The Company has the requisite
corporate power and authority to execute and deliver this Amendment. The
execution and delivery of this Amendment by the Company have been duly and
validly authorized by 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 of any Stockholder, and no other corporate proceedings on the part of
the Company are necessary to authorize this Amendment. This Amendment has been
duly and validly executed and delivered by the Company and assuming that this
Amendment constitutes a valid and binding obligation of the Stockholders, this
Amendment 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).
Section 2.2 Consents and Approvals; No Violation. Except as set forth on
Schedule 2.2. the execution and delivery of this Amendment by the Company will
not (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, (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,
(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 (v) violate any order, writ injunction, agreement, contract, decree,
statute, rule or regulation applicable to the Company, any of its subsidiaries
2
<PAGE>
or by which any of their respective assets are bound, except for violations
which would not in the aggregate have a Material Adverse Effect.
Section 2.3 No Inconsistent Agreements. As of the Effective Time, there is no
(and from and after the Effective Time 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 Time
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 the Stockholders Agreement as amended by this Amendment.
Without limiting the foregoing, except for the Stockholders Agreement as
amended by this Amendment, that certain Proxy and Voting Agreement, dated as of
November 4, 1997, by and among Apollo and the Other Stockholders and that
certain Parent Voting Agreement, dated as of the date hereof, by and among
Mariner and Apollo, there are no other existing agreements relating to the
voting of any equity securities of the Company or any of its subsidiaries.
Section 2.4 Share Ownership. To the Company's knowledge, no Stockholder has
transferred any Shares following the Effective Date.
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 3.1 Authority for this Agreement. The execution and delivery of this
Amendment by such Stockholder has been duly and validly authorized by all
necessary action on its part. This Amendment has been duly and validly executed
and delivered by such Stockholder and, assuming the representations made by each
Stockholder in Section 3.3 of this Amendment are true and correct and, assuming
this Amendment constitutes a valid and binding obligation of the Company,
constitutes a valid and binding agreement of such Stockholder enforceable
against each 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 3.2 No Violation. The execution and delivery of this Amendment by such
Stockholder will not conflict with or result in any breach of any provision
under such Stockholder's partnership agreement or similar governing documents of
such Stockholder.
Section 3.3 Beneficial Ownership. As of the date of this Amendment, each
Stockholder party hereto beneficially owns the number of shares of Common Stock
set forth under its name on the signature pages attached hereto.
3
<PAGE>
ARTICLE IV.
AMENDMENT OF STOCKHOLDERS AGREEMENT
As of the Effective Time, the following amendments to the Stockholders
Agreement shall become effective.
Section 4.1 Definitions. Section 1.1 of the Stockholders Agreement is hereby
amended by inserting the following definition immediately after the definition
of "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.
Section 4.2 Board Representation. Section 4.1(a) of the Stockholders Agreement
is hereby amended by deleting such subsection in its entirety and inserting the
following subsection in lieu thereof:
"(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 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
4
<PAGE>
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."
Section 4.3 Pitts' Rights and Obligations. As of the Effective Time, Keith B.
Pitts will no longer be a Stockholder or an Other Stockholder under the
Stockholders Agreement and from and after the Effective Time the Stockholders
Agreement as amended by this Amendment shall be deemed to be terminated and of
no further effect with respect to Mr. Pitts and any shares of Common Stock he
beneficially owns.
ARTICLE V.
MISCELLANEOUS
Section 5.1 Force and Effect. Except as expressly modified by this Amendment,
the Stockholders Agreement is hereby ratified and confirmed and shall remain in
full force and effect after the Effective Time.
Section 5.2 Termination. This Amendment will expire without becoming effective
and will be of no force and effect upon the earlier to occur of (i) the
termination of the Merger Agreement and (ii) the amendment or waiver of any
provision of the Merger Agreement without the prior written consent of Apollo.
Section 5.3 Separability. In the event that any provision of this Amendment 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 Amendment 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 Amendment.
Section 5.4 Governing Law. This Amendment 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 5.5 Headings. The headings in this Amendment are for convenience of
reference only and shall not constitute a part of this Amendment, nor shall they
affect their meaning, construction or effect.
Section 5.6 Counterparts. This Amendment 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.
5
<PAGE>
Section 5.7 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 Amendment and the transactions contemplated
hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first above written.
PARAGON HEALTH NETWORK, INC.
By: /s/ R. Jeffrey Taylor
----------------------------
Name: R. Jeffrey Taylor
Title: Senior Vice President
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 Copses
------------------------------
Name: Peter 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 Copses
-------------------------------
Name: Peter Copses
------------------------
Title: Vice President
------------------------
484,188 Shares of Common Stock
7
<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 Copses
--------------------------------
Name: Peter Copses
-------------------------
Title: Vice President
-------------------------
783,033 Shares of Common Stock
OTHER STOCKHOLDERS
/s/ Keith B. Pitts
-------------------------------------
Keith B. Pitts
150,000 Shares of Common Stock
Address for Notice:
c/o Paragon Health Network, Inc.
1 Ravinia Drive, Suite 1500
Atlanta, GA 30346
Telecopy No.: (770) 379-0753
8
<PAGE>
PARENT VOTING AGREEMENT
VOTING AGREEMENT dated as of April 13, 1998 (this "Agreement") by and among
Mariner Health Group, Inc., a Delaware corporation (the "Company"), and Apollo
Management, L.P., Apollo Investment Fund III, L.P., Apollo UK Partners, III,
L.P. and Apollo Overseas Partners III, L.P. (collectively, "Apollo")
WHEREAS, Apollo is the beneficial owner of shares of common stock, par
value $.01 per share (the "Parent Common Stock"), of Paragon Health Network,
Inc., a Delaware corporation ("Parent"), and through a Proxy and Voting
Agreement dated as of November 4, 1997 (the "Proxy and Voting Agreement"),
Apollo has the right to vote additional shares of Parent Common Stock;
WHEREAS, Paragon Acquisition Sub, Inc., a Delaware corporation and wholly
owned subsidiary of the Parent (the "Subsidiary"), Mariner Health Group, Inc.
and Parent have entered into an Agreement and Plan of Merger, dated as of the
date hereof (as the same may be amended or supplemented, the "Merger
Agreement"), with respect to the merger of Subsidiary with and into the Company
(the "Merger") with the Company surviving the Merger; and
WHEREAS, as an inducement to the Company to enter into, execute and deliver
the Merger Agreement, the Company requested that Apollo execute this Agreement
pursuant to which Apollo will agree to vote the shares of Parent Common Stock
which Apollo beneficially owns or has the right to vote as provided herein.
NOW, THEREFORE, in consideration of the execution and delivery by the
Company of the Merger Agreement and the mutual covenants, conditions and
agreements contained herein, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. VOTING AGREEMENTS. Subject to the provisions of Section 6 hereof, in
-----------------
connection with the efforts of the Parent to cause the Merger Agreement and the
Merger to receive the required approval of the stockholders of Parent and to be
consummated, Apollo agrees with, and covenants to, the Company as follows:
(a) At any meeting of stockholders of Parent called to vote upon the
Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstance upon which a vote, consent or other approval of
stockholders of Parent is sought with respect to the issuance of shares of
Parent Common Stock in connection with the Merger and pursuant to the
Merger Agreement (the "Issuance"), Apollo shall (i) appear or otherwise
take appropriate action to ensure that the Apollo Shares (as defined below)
are present at such meeting for the purpose of obtaining a quorum and (ii)
vote (or cause to be voted) or execute a written consent with respect to
the Apollo Shares in favor of the Issuance and each of the other
transactions contemplated by or in any way related to the Merger Agreement.
(b) At any meeting of stockholders of Parent or at any adjournment
thereof or in
<PAGE>
any other circumstance upon which the vote, consent or other approval of
stockholders of Parent is sought, Apollo shall vote (or cause to be voted)
or execute a written consent in connection with the Apollo Shares against
(i) any merger agreement or merger (other than the Merger Agreement and the
Merger), consolidation, combination, sale of substantial assets,
reorganization, recapitalization, dissolution, liquidation or winding up of
or by Parent or (ii) any action or agreement, including any proposed
amendment of Parent's Certificate of Incorporation or By-laws or other
proposal or transaction involving Parent or any of its subsidiaries which
action, agreement, amendment or other proposal or transaction is intended,
or could reasonably be expected to impede, interfere with, delay, or
attempt to frustrate, prevent or nullify the Merger, the Merger Agreement
or any of the other transactions contemplated thereby (each of the
foregoing in clauses (i) or (ii) above, a "Competing Transaction").
2. REPRESENTATIONS AND WARRANTIES. Apollo represents and warrants to the
------------------------------
Company as follows:
(a) Through its beneficial ownership and pursuant to the Proxy and
Voting Agreement, Apollo has the right to vote 17,777,778 shares of Parent
Common Stock (the "Apollo Shares"). Except for the Apollo Shares, Apollo
is not the record or beneficial owner of any shares of Parent Common Stock.
(b) This Agreement has been duly executed and delivered by Apollo and
Apollo intends for this to be a valid and binding agreement and will not
take any action to contest the valid and binding nature of this Agreement.
Apollo is a limited partnership duly formed, validly existing and in good
standing under the laws of the state of its formation with full partnership
power and authority necessary to enter into this Agreement and to perform
its obligations hereunder.
(c) Except as described on Schedule 2(c) hereof, neither the execution
and delivery of this Agreement nor the consummation by Apollo of the
transactions contemplated hereby will result in a violation of, or a
default under, or conflict with, any contract, trust, commitment,
agreement, understanding, arrangement or restriction of any kind to which
Apollo is a party or bound or to which the Apollo Shares are subject.
Neither the execution and delivery of this Agreement nor the consummation
by Apollo of the transactions contemplated hereby will violate, or require
any consent, approval or notice under any provision of any judgment, order
or decree applicable to Apollo or the Apollo Shares, except for any
necessary consent, approval or notice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, or Section 13 of the Securities
Exchange Act of 1934, as amended, and (ii) required by local, state and
federal regulatory agencies, commissions, boards or public authorities with
jurisdiction over health care facilities and providers.
(d) Except as described on Schedule 2(d) hereof, none of which as of
the date hereof impede the ability of Apollo to fulfill its obligations
under this Agreement, the Apollo Shares owned by affiliates of Apollo (the
"Affiliate Shares") and the certificates representing such Shares are now
and at all times during the term hereof will be held by such affiliates, or
by a nominee or custodian for the benefit of such affiliate, free and clear
of all liens, claims, security interests, proxies, voting trusts or
agreements, understandings or arrangements or
2
<PAGE>
any other encumbrances whatsoever, except for any such encumbrances or
proxies arising hereunder.
(e) Apollo understands and acknowledges that the Company is entering
into the Merger Agreement in reliance upon Apollo's execution and delivery
of this Agreement.
3. COVENANTS. Apollo agrees with, and covenants to, the Company as
---------
follows:
(a) Apollo shall not (i) transfer (which terms shall include, without
limitation, for the purposes of this Agreement, any sale, gift, pledge,
alienation, assignment or other disposition, directly or indirectly, by
operation of law, in connection with any merger or otherwise (collectively,
a "Transfer")), or consent to any Transfer of, any or all of the Affiliate
Shares or any interest therein, except pursuant to the Merger or as set
forth on Schedule 3(a) hereof, (ii) enter into any contract, option or
other agreement or understanding with respect to any Transfer of any or all
of the Affiliate Shares or any interest therein, (iii) grant any proxy,
power of attorney or other authorization in or with respect to the
Affiliate Shares, except for this Agreement and any proxy granted in
connection with any meeting of stockholders of Parent called to vote upon
the Issuance or at any adjournment thereof which contains voting
instructions consistent with Apollo's obligations under this Agreement, or
(iv) deposit the Affiliate Shares into a voting trust or enter into a
voting agreement or any other arrangement with respect to such Shares;
provided, that Apollo may, subject to the provisions of Section 4 hereof,
transfer any Affiliate Shares to another affiliate of Apollo or other party
to the Proxy and Voting Agreement so long as Apollo continues to be able to
vote such Shares in accordance with the terms of this Agreement.
(b) Subject to the provisions of Section 6 hereof, Apollo shall not,
in its capacity as a stockholder of Parent, and shall instruct any
investment banker, attorney or other adviser or representative of Apollo
not to, directly or indirectly, (i) solicit, initiate, facilitate, or
encourage any Competing Transactions or (ii) participate in any discussions
or negotiations regarding, or furnish to any person any information with
respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, a Competing Transaction. Apollo shall immediately cease and cause
to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
Without limiting the foregoing, it is understood that solely for purposes
of enabling the Company to avail itself of the remedies available pursuant
to Section 9(h) hereof, any violation of the restrictions set forth in the
preceding sentence by an investment banker, attorney or other adviser or
representative of Apollo, whether or not such person is purporting to act
on behalf of Apollo or otherwise, shall be deemed to be a violation of this
Section 3(b) by Apollo.
4. CERTAIN EVENTS. Apollo agrees that this Agreement and the obligations
--------------
hereunder shall attach to the Apollo Shares and shall be binding upon any person
or entity to which legal or beneficial ownership of the Apollo Shares shall
pass, whether by operation of law or otherwise. In the event of any stock
split, stock dividend, merger, reorganization, recapitalization or other change
in the capital structure of Parent affecting Parent Common Stock, or the
acquisition of additional shares of Parent Common Stock or other voting
securities of Parent by Apollo, the obligations hereunder shall attach to any
additional shares of Parent Common Stock or other voting securities of Parent
issued to or acquired by Apollo.
3
<PAGE>
5. VOIDABILITY. If prior to the execution hereof, the Board of Directors
-----------
of Parent shall not have duly and validly authorized and approved by all
necessary corporate action the Merger Agreement and the transactions
contemplated thereby, so that by the execution and delivery hereof the Company
would become, or could reasonably be expected to become, an "interested
stockholder" with whom Parent would be prevented for any period pursuant to
Section 203 of the DGCL from engaging in any "business combination" (as such
terms are defined in Section 203 of the DGCL), then this Agreement shall be void
and unenforceable until such time as such authorization and approval shall have
been duly and validly obtained.
6. STOCKHOLDER CAPACITY. Certain persons affiliated with Apollo are
--------------------
directors of Parent and Apollo does not make any agreement or understanding
herein with respect to such individuals in their capacity as directors and the
provisions of this Agreement shall not restrict or limit the discharge of their
fiduciary duties as directors of Parent. Apollo signs solely in its capacity as
the beneficial owner or holder of a proxy with respect to the Apollo Shares.
7. REGULATORY APPROVAL. Each of the provisions of this Agreement is
-------------------
subject to compliance with applicable regulatory conditions.
8. FURTHER ASSURANCES. Apollo shall, upon request of the Company,
------------------
execute and deliver any additional documents and take such further actions as
may reasonably be deemed by the Company to be necessary or desirable to carry
out the provisions hereof.
9. TERMINATION. It is a condition precedent to the effectiveness of this
-----------
Agreement that the Merger Agreement shall have been executed and delivered and
be in full force and effect. This Agreement shall automatically terminate and
be of no further force and effect upon the first to occur of (i) the Effective
Time of the Merger or (ii) the date upon which the Merger Agreement is
terminated in accordance with its terms. Upon such termination, except for any
rights any party may have in respect of any breach by any other party of its or
his obligations hereunder, none of the parties hereto shall have any further
obligation or liability hereunder
10. MISCELLANEOUS.
-------------
(a) Capitalized terms used and not otherwise defined in this Agreement
shall have the respective meanings assigned to them in the Merger
Agreement.
(b) All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given upon the
same terms as set forth in Section 8.05 of the Merger Agreement, except
that notices to Apollo shall be sent to:
Apollo Advisors, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
With a copy to:
Robert W. Kadlec
Sidley & Austin
4
<PAGE>
555 West Fifth Street, 40/th/ Floor
Los Angeles, California 90013-1010
(c) The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation
of this Agreement.
(d) This Agreement may be executed in two or more counterparts, all of
which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the
Company and Apollo and delivered to Company, Subsidiary, Parent and Apollo.
(e) This Agreement (including the documents and instruments referred
to herein) constitutes the entire agreement, and supersedes all prior
agreements and undertakings, both written and oral, among the parties with
respect to the subject matter hereof.
(f) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Delaware, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
(g) Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part,
through any merger, by operation of law or otherwise, by any of the parties
without the prior written consent of the other parties, except by laws of
descent or as expressly contemplated by Section 3(a) hereof. Any
assignment in violation of the foregoing shall be void.
(h) Apollo agrees that irreparable damage would occur and that the
Company would not have any adequate remedy at law in the event that any of
the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed
that the Company shall be entitled to an injunction or injunctions to
prevent breaches or threatened breaches by Apollo of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any
court of the United States located in the State of Delaware or in Delaware
state court, this being in addition to any other remedy to which the
Company may be entitled at law or in equity. In addition, each of the
parties hereto irrevocably and unconditionally (i) consents to be subject
to the personal jurisdiction of any Federal court located in the State of
Delaware or any Delaware state court in the event any dispute arises out of
this Agreement or any of the transactions contemplated hereby, (ii) agrees
that such party will not attempt to deny or defeat the personal
jurisdiction of such courts by motion or other request for leave from any
such court, (iii) agrees that such party will not bring any action relating
to this Agreement or any of the transactions contemplated hereby in any
court other than a Federal court sitting in the State of Delaware or a
Delaware state court and (iv) that service of process may also be made on
such party by prepaid certified mail with a proof of mailing receipt
validated by the United States Postal Service constituting evidence of,
valid service, and that service made pursuant to this clause (iv) shall
have the same legal force and effect as if served upon such party
personally within the State of Delaware.
(i) If any term, provision, covenant or restriction herein, or the
application thereof to any circumstance, shall, to any extent, be held by a
court of competent jurisdiction to be
5
<PAGE>
invalid, void, or unenforceable, the remainder of the terms, provisions,
covenants and restrictions herein and the application thereof to any other
circumstances, shall remain in full force and effect, shall not in any way
be affected, impaired, or invalidated, and shall be enforced to the fullest
extent permitted by law and the provision found to be invalid, void or
unenforceable shall be immediately revised by the parties hereto so as to
be valid, binding and enforceable to the greatest extent then permitted by
applicable law.
(j) No amendment, modification or waiver in respect of this Agreement
shall be effective against any party unless it shall be in writing and
signed by such party.
(k) A facsimile of this Agreement containing signatures of all of the
parties hereto shall constitute an original document for all purposes.
[BALANCE OF PAGE INTENTIONALLY OMITTED]
6
<PAGE>
IN WITNESS WHEREOF, the Company and Apollo have caused this Parent Voting
Agreement to be duly executed and delivered on day and year first above written.
MARINER HEALTH GROUP, INC.
By:
Name:
Title:
APOLLO MANAGEMENT, L.P.
By: AIF III Management, Inc.,
Its General Partner
By:
Name:
Title:
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:
Name:
Title:
7
<PAGE>
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:
Name:
Title:
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:
Name:
Title:
8
