<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------
SCHEDULE 13D
(Rule 13d - 101)
Under the Securities Exchange Act of 1934
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO 13d 1(a) AND
AMENDMENTS THERETO FILED PURSUANT TO 13d-2(a)
Paragon Health Network, Inc.
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(Name of Issuer)
Common Stock, par value $.01 per share
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(Title of class of securities)
698940103
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(CUSIP number)
Michael F. Killea, Esq.
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza, 24th Floor
New York, New York 10112
(212) 408-2400
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(Name, address and telephone number of person
authorized to receive notices and communications)
November 4, 1997
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(Date of event which required 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 being sent.
(Page 1 of 13 Pages)
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SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
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1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Chase Equity Associates, L.P. (IRS Number 13-3371826)
- -------------------------------------------------------------------------------
2 CHECK THE APPROPIATE BOX IF A MEMBER OF A GROUP (a) [X]
(b) [ ]
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3 SEC USE ONLY
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4 SOURCE OF FUND*
WC
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) or 2(e)
[ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
California
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7 SOLE VOTING POWER
0 (See Items 2, 3, 4, 5 and 6)
NUMBER OF SHARES
BENEFICIALLY OWNED BY
EACH REPORTING PERSON
WITH
- -------------------------------------------------------------------------------
8 SHARED VOTING POWER
0 (See Items 2, 3, 4, 5 and 6)
- -------------------------------------------------------------------------------
9 SOLE DISPOSITIVE POWER
0 (See Items 2, 5 and 6)
- --------------------------- ---------------------------------------------------
- - 10 SHARED DISPOSITIVE POWER
5,925,926 (See Items 2, 5 and 6)
- ------------- -----------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
5,925,926 (See Items 2, 5 and 6)
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- - 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
44%
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14 TYPE OF REPORTING PERSON
PN
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*SEE INSTRUCTIONS BEFORE FILLING OUT!
(Page 2 of 13 Pages)
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SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
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Item 1. Security and Issuer.
-------------------
The name of the issuer is Paragon Health Network,
Inc., a Delaware corporation (the "Company" or the "Issuer"). The
address of the Issuer's principal executive offices is One Ravinia
Drive, Suite 1500, Atlanta, Georgia 30346. This statement relates to
the Issuer's Common Stock, $.01 par value per share (the "Common
Stock").
Item 2. Identity and Background.
------------------------
This statement is being filed by Chase Equity
Associates, L.P., a California limited partnership, ("CEA"). The
principal office of CEA is located at c/o Chase Capital Partners, 380
Madison Avenue, 12th Floor, New York, New York 10017.
CEA is engaged in the venture capital and leveraged
buyout business. The general partner of CEA is Chase Capital Partners,
a New York general partnership ("CCP"), which is also engaged in the
venture capital and leveraged buyout business and whose principal
office is located at the same address as CEA.
Set forth below are the names of each general partner
of CCP who is a natural person. Each such general partner is a U.S.
citizen whose principal occupation is general partner of CCP and whose
business address (except for Messrs. Ferguson and Soghikian) is c/o
Chase Capital Partners, 380 Madison Avenue, 12th Floor, New York, New
York 10017.
John R. Baron
Mitchell J. Blutt, M.D.
Arnold L. Chavkin
David L. Ferguson
Michael R. Hannon
Donald J. Hofmann
Stephen P. Murray
Brian J. Richmand
Shahan D. Soghikian
Jeffrey C. Walker
Damion E. Wicker, M.D.
Mr. Ferguson's address is c/o Chase Capital Partners, 840 Apollo
Street, Suite 223, El Segundo, California 90245. Mr. Soghikian's
principal business office address is c/o Chase Capital Partners, 125
London Wall, London EC2Y5AJ.
Jeffrey C. Walker is the managing general partner of
CCP. The remaining general partners of CCP are Chase Capital
Corporation, a New York corporation formerly known as Chemical Capital
Corporation ("Chase Capital"), CCP Principals, L.P., a Delaware limited
partnership ("Principals") and CCP European Principals, L.P., a
Delaware limited partnership ("European Principals"), each of whose
principal office is located at 380 Madison Avenue, 12th Floor, New
York, New York 10017. Chase Capital is a wholly owned subsidiary
(Page 3 of 13 Pages)
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
- -------------------------------------------------------------------------------
of The Chase Manhattan Corporation, a Delaware corporation ("Chase").
The general partner of each of Principals and European Principals is
Chase Capital. Chase Capital, Principals and European Principals are
each engaged in the venture capital and leveraged buyout business. Set
forth in Schedule A hereto and incorporated herein by reference are the
names, business addresses and principal occupations or employments of
each executive officer and director of Chase Capital, each of whom is a
U.S. citizen.
Chase is a Delaware corporation engaged (primarily
through subsidiaries) in the commercial banking business with its
principal office located at 270 Park Avenue, New York, New York 10017.
Set forth in Schedule B hereto and incorporated herein by reference are
the names, business addresses, principal occupations or employments and
citizenship of each executive officer and director of Chase.
To CEA's knowledge, the response to Items 2(d) and
(e) of Schedule 13D is negative with respect to CEA and all persons
regarding whom information is required hereunder by virtue of CEA's
responses to Item 2.
Isofar as the requirements of Items 3-6 inclusive of
this Schedule 13D Statement require that in addition to CEA, the
information called for therein should be given with respect to each of
the persons listed in this Item 2, including CCP, CCP's individual
general partners, Chase Capital, Chase Capital's executive officers and
directors, Principals, Principal's controlling partners, European
Principals, European Principal's controlling partners, Chase and
Chase's executive officers and directors, the information provided in
Items 3-6 with respect to CEA should also be considered fully
responsive with respect to the aforementioned persons who have no
separate interests in the Issuer's Common Stock which is required to be
reported thereunder. Although the definition of "beneficial ownership"
in Rule 13d-3 under the Securities and Exchange Act of 1934, as amended
(the "Exchange Act"), might also be deemed to constitute these persons
beneficial owners of the Issuer's Common Stock acquired by CEA, neither
the filing of this statement nor any of its contents shall be deemed an
admission that any of such persons is a beneficial owner of the
Issuer's Common Stock acquired by CEA or a member of a group together
with CEA, either for the purpose of Schedule 13D of the Exchange Act or
for any other purpose with respect to the Issuer's Common Stock.
Item 3. Source and Amount of Funds or Other Considerations
------ --------------------------------------------------
Pursuant to an Amended and Restated Agreement and
Plan of Merger, dated as of September 17, 1997, entered into by Apollo
LCA Acquisition Corp., a Delaware corporation ("Acquisition Corp."),
Apollo Management, L.P., a Delaware limited partnership ("Apollo
Management"), and Living Centers of America, Inc. ("LCA"), a Delaware
corporation (the "Recapitalization Agreement"), LCA was recapitalized
as Paragon Health Network, Inc., the Issuer, and each share of
Acquisition Corp. common stock outstanding was converted into the right
to receive one share of common stock of the Issuer ("Common Stock").
The merger effecting the recapitalization became effective on November
4, 1997.
Pursuant to a Stock Purchase Agreement, dated as of
September 17, 1997 (the "Stock Purchase Agreement"), entered into by
Acquisition Corp., Healthcare Equity Partners,
(Page 4 of 13 Pages)
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
- -------------------------------------------------------------------------------
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, Keith B. Pitts (collectively, the "Remaining Purchasers"),
CEA and Apollo Investment Fund III, L.P., a Delaware limited
partnership, ("Fund III"), Apollo U.K. 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") (the Apollo Purchasers, CEA and the
Remaining Purchasers are collectively referred to as the "Purchasers"),
purchased shares of Common Stock of Acquisition Corp. for the sum
$40.50 per share, in cash. Acquisition Corp. issued 5,925,926 shares of
its common stock as follows:
Apollo Purchasers 4,789,197 shares
CEA 666,667 shares
Remaining Purchasers 470,062 shares
----------
Total 5,925,926 shares
In connection with the Stock Purchase Agreement,
Apollo Management, CEA and the Remaining Purchasers entered into the
Proxy and Voting Agreement, dated as of November 4, 1997, by which,
among other things: (i) Apollo Management was granted an irrevocable
proxy, with full power of substitution, as attorneys and proxies to
vote all shares acquired by CEA and the Remaining Purchasers on matters
as to which CEA and the Remaining Purchasers are entitled to vote at a
meeting of the stockholders of the Issuer or to which they are entitled
to express consent or dissent to corporate action in writing without a
meeting, in Apollo Management's absolute, sole and binding discretion
for a period of three years, and (ii) CEA and the Remaining Purchasers
agreed not to transfer their interest in the Issuer unless Apollo
Management is given notice five business days in advance of the
transfer, and the transferee becomes a party to the Proxy and Voting
Agreement.
All reference to, and summaries of, the Recapitalization
Agreement, the Stock Purchase Agreement, and the Proxy and Voting
Agreement in this Schedule 13D are qualified in their entirety by
reference to such agreements, the full text of which are filed as
Exhibits 1, 2 and 3 hereto, respectively, and incorporated herein by
this reference.
Item 4. Purpose of the Transactions.
---------------------------
The acquisition of the Company's Common Stock has
been made by CEA for investment purposes.
(Page 5 of 13 Pages)
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
- -------------------------------------------------------------------------------
Pursuant to a Warrant Purchase Agreement, dated as of
September 17, 1997, between the Apollo Purchasers and CEA, on November
4, 1997, the Apollo Purchasers granted to CEA a warrant evidencing the
right to purchase a total of 197, 531 shares of Common Stock at a price
of $0.001 per share. The number of shares of Common Stock which may be
purchased from each of the Apollo Purchasers is as follows:
Fund III 180,109 shares
UK Partners 6,657 shares
Overseas Partners 10,765 shares
----------
Total 197,531 shares
The Purchasers and the Issuer entered into a
Stockholders Agreement (the "Stockholders Agreement") dated as of
November 4, 1997, which, among other things: (i) provides that Apollo
Management, and each person who controls or is controlled by Apollo
Management, including each of the Apollo Purchasers (collectively,
"Apollo"), has 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); (ii) requires that the Purchasers vote in
favor of the Issuer's Board of Directors' nominees for election as
directors of the Issuer; (iii) contains certain "standstill" provisions
limiting the Purchasers' ability to purchase additional shares of
Common Stock of the Issuer; and (iv) 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.
The Purchasers and the Issuer also entered into a
Registration Rights Agreement, dated as of November 4, 1997 (the
"Registration Rights Agreement"), which, among other things, entitles
the Purchasers to (i) require the Issuer to register under the
Securities Act of 1933 the shares of Common Stock that were acquired by
the Purchasers in connection with the Recapitalization Agreement
("Registrable Shares") and (ii) subject to certain exceptions, require
the Issuer to include the Registrable Shares in any registration of
equity securities of the Issuer under the Securities Act of 1933.
All reference to, and summaries of, the Warrant
Purchase Agreement, the Stockholders Agreement, and the Registration
Rights Agreement in this Schedule 13D are qualified in their entirety
by reference to such agreements, the full text of which are filed as
Exhibits 4, 5 and 6 hereto, respectively, and incorporated herein by
this reference.
Although CEA has no present intention to do so, CEA
may make additional purchases of Common Stock either in the open market
or in privately negotiated transactions, including transactions with
the Company, depending on an evaluation of the Company's business
prospects and financial condition, the market for the Common Stock,
other available investment opportunities, money and stock market
conditions and other future developments. Depending on these factors,
CEA may decide to sell all or part of its holdings of the Company's
Common Stock in one or more public or private transactions.
(Page 6 of 13 Pages)
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
- -------------------------------------------------------------------------------
Except as set forth in this Item 4, CEA has no
present plans or proposals that relate to or would result in any of the
actions specified in clauses (a) through (j) of Item 4 of Schedule 13D.
However, CEA reserves the right to propose or participate in future
transactions which may result in a merger, reorganization or
liquidation, of a material amount of assets of the Company or its
subsidiaries, or other transactions which might have the effect of
causing the Company's Common Stock to cease to be listed on the New
York Stock Exchange or causing the Common Stock to become eligible for
termination of registration, under Section 12(g) of the Exchange Act.
Item 5. Interest in Securities of the Issuer.
------------------------------------
CEA is the beneficial owner of 666,667 shares of
Common Stock (representing 4.94% of the outstanding shares of Common
Stock as of November 4, 1997) and, by virtue of the Warrant Purchase
Agreement, CEA is deemed to be the beneficial owner of an additional
197,531 shares of Common Stock (representing 1.46% of the outstanding
shares of Common Stock as of November 4, 1997).
CEA is deemed to be the beneficial owner of 5,925,926
shares of the Issuer's Common Stock by virtue of the Stockholders
Agreement, the Proxy and Voting Agreement, and the attribution rules of
Rules 13d-3 and 13-d-5(b) of the Exchange Act. CEA's deemed beneficial
ownership represents 44% of the Common Stock outstanding at November 4,
1997.
As described in Item 2, 3, 4, 5, and 6, by virtue of
the Proxy and Voting Agreement, Apollo Management maintains sole voting
power over the 666,667 shares of Common Stock issued to CEA. By virtue
of the Stockholders Agreement, CEA may share disposition power over the
aggregate 5,925,926 shares of Common Stock issued to the Purchasers,
representing 44% of the shares of Common Stock outstanding. CEA
disclaims beneficial ownership of such shares.
All such ownership percentages of the Issuer's Common
Stock reported herein and in Item 6 below are based on information
provided CEA by the Company.
Except as reported in Items 3-6 herein and
incorporated herein by reference, there have been no transactions in
the Common Stock during the past sixty days which are required to be
reported in this Statement. No person other than CEA has the right to
receive or the power to direct the receipt of dividends from or the
proceeds from the sale of the Common Stock owned beneficially by CEA.
Item 6. Contracts, Arrangements, Understandings or
Relationships With Respect to Securities of the
Issuer.
-----------------------------------------------
Reference is made to the information disclosed under
Items 2, 3 and 4 of this Statement which is incorporated by reference
in response to this Item.
(Page 7 of 13 Pages)
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
- -------------------------------------------------------------------------------
Item 7. Material to be Filed as Exhibits
------ --------------------------------
(1) Recapitalization Agreement
(2) Stock Purchase Agreement
(3) Proxy and Voting Agreement
(4) Warrant Purchase Agreement
(5) Stockholders Agreement
(6) Registration Rights Agreement
SCHEDULE A
----------
Item 2 information for executive officers and
directors of Chase Capital Corporation.
SCHEDULE B
----------
Item 2 information for executive officers and
directors of The Chase Manhattan Corporation.
(Page 8 of 13 Pages)
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
- -------------------------------------------------------------------------------
SIGNATURE
---------
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
CHASE EQUITY ASSOCIATES, L.P.
By: CHASE CAPITAL PARTNERS, its
General Partner
by: /s/ Jeffrey C. Walker
--------------------------
Jeffrey C. Walker
Partner
Date: November 12, 1997
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
- -------------------------------------------------------------------------------
SCHEDULE A
----------
CHASE CAPITAL CORPORATION
(formerly Chemical Capital Corporation)
Executive Officers
------------------
Chief Executive Officer William B. Harrison, Jr.
President Jeffrey C. Walker**
Executive Vice President Mitchell J. Blutt, M.D.**
Vice President & Secretary Gregory S. Meredith*
Vice President George E. Kelts, III**
Assistant Secretary Robert C. Carroll*
Directors
---------
William B. Harrison, Jr.*
Jeffrey C. Walker**
- ---------------------------
* Principal occupation is employee and/or officer of Chase. Business address is
c/o The Chase Manhattan Corporation, 270 Park Avenue, New York, New York 10017.
** Principal occupation is employee of Chase and/or general partner of CCP.
Business address is c/o Chase Capital Partners, 380 Madison Avenue, New York,
New York 10017.
(Page 10 of 13 Pages)
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
- -------------------------------------------------------------------------------
SCHEDULE B
----------
THE CHASE MANHATTAN CORPORATION
Executive Officers*
------------------
Walter V. Shipley, Chairman and Chief Executive Officer
Edward D. Miller, Senior Vice Chairman of the Board
Thomas G. Labrecque, President and Chief Operating Officer
William B. Harrison, Jr., Vice Chairman of the Board
Joseph G. Sponholz, Chief Administrative Officer
<TABLE>
<CAPTION>
- ------------------------------------------------------- --------------------------------------------------------------------
Principal Occupation or Employment;
Name Business and Residence Address
---- ------------------------------
- ------------------------------------------------------- --------------------------------------------------------------------
<S> <C>
Frank A. Bennack, Jr. President and Chief Executive Officer
The Hearst Corporation
959 Eighth Avenue
New York, NY 10019
- ------------------------------------------------------- --------------------------------------------------------------------
Susan V. Berresford President
The Ford Foundation
320 East 43rd Street
New York, NY 10017
- ------------------------------------------------------- --------------------------------------------------------------------
M. Anthony Burns Chairman, President and CEO
Ryder System, Inc.
3600 N.W., S2nd Avenue
Miami, FL 33166
- ------------------------------------------------------- --------------------------------------------------------------------
H. Laurance Fuller Chairman of the Board and Chief Executive Officer
Amoco Corporation
200 East Randolph Drive
Chicago, IL 60601
- ------------------------------------------------------- --------------------------------------------------------------------
Melvin R. Goodes Chairman of the Board and Chief Executive Officer
Warner-Lambert Company
201 Tabor Road
Morris Plains, NJ 07950
- ------------------------------------------------------- --------------------------------------------------------------------
</TABLE>
- -----------------------------
* Principal occupation is executive officer and/or employee of The Chase
Manhattan Bank. Business address is c/o The Chase Manhattan Bank, 270 Park
Avenue, New York, New York 10017.
(Page 11 of 13 Pages)
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
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<TABLE>
<CAPTION>
- ------------------------------------------------------- --------------------------------------------------------------------
Principal Occupation or Employment;
Name Business and Residence Address
---- ------------------------------
- ------------------------------------------------------- --------------------------------------------------------------------
<S> <C>
William H. Gray, III President and Chief Executive Officer
United Negro College Fund
8260 Willow Oaks Corporate Drive
P.O. Box 10444
Fairfax, VA 22031
- ------------------------------------------------------- --------------------------------------------------------------------
George V. Grune Retired Chairman and Chief Executive Officer the Reader's Digest
Association, Inc.
Chairman of the Board
The DeWitt Wallace-Reader's Digest Fund
Lila Wallace-Reader's Digest Fund
2 Park Avenue, 23rd Floor
New York, NY 10016
- ------------------------------------------------------- --------------------------------------------------------------------
William B. Harrison, Jr. Vice Chairman of the Board
The Chase Manhattan Corporation
270 Park Avenue, 8th Floor
New York, NY 10017-2070
- ------------------------------------------------------- --------------------------------------------------------------------
Harold S. Hook Chairman of the Board
American General Corporation
2929 Allen Parkway
Houston, TX 77019
- ------------------------------------------------------- --------------------------------------------------------------------
Helene L. Kaplan Of Counsel
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue - Room 29-72
New York, NY 10022
- ------------------------------------------------------- --------------------------------------------------------------------
Thomas G. Labrecque President and Chief Operating Officer
The Chase Manhattan Corporation
270 Park Avenue, 8th Floor
New York, NY 10017-2070
- ------------------------------------------------------- --------------------------------------------------------------------
J. Bruce Llewellyn Chairman of the Board
The Philadelphia Coca-Cola Bottling Company
The Coca-Cola Bottling Company of Wilmington, Inc. and Queen City
Broadcasting, Inc.
The Philadelphia Coca-Cola Bottling Company
30 Rockefeller Plaza, 29th Floor
New York, NY 10112
- ------------------------------------------------------- --------------------------------------------------------------------
</TABLE>
(Page 12 of 13 Pages)
<PAGE>
SCHEDULE 13D
------------
Issuer: Paragon Health Network, Inc. CUSIP Number: 698940103
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------- --------------------------------------------------------------------
Principal Occupation or Employment;
Name Business and Residence Address
---- ------------------------------
- ------------------------------------------------------- --------------------------------------------------------------------
<S> <C>
Edward D. Miller Senior Vice Chairman of the Board
The Chase Manhattan Corporation
270 Park Avenue, 8th Floor
New York, NY 10017-2070
- ------------------------------------------------------- --------------------------------------------------------------------
Edmund T. Pratt, Jr. Chairman Emeritus
Pfizer Inc.
Astors Lane
Port Washington, NY 11050
- ------------------------------------------------------- --------------------------------------------------------------------
Henry B. Schacht Chairman of the Board
Executive Officer
Lucent Technologies, Inc.
600 Mountain Avenue - Room 6A511
Murray Hill, NJ 07974
- ------------------------------------------------------- --------------------------------------------------------------------
Walter V. Shipley Chairman of the Board
Executive Officer
The Chase Manhattan Corporation
270 Park Avenue, 8th Floor
New York, NY 10017-2070
- ------------------------------------------------------- --------------------------------------------------------------------
Andrew C. Sigler Retired Chairman of the Board
and Chair Executive Officer
Champion International Corporation
1 Champion Plaza
Stamford, CT 06921
- ------------------------------------------------------- --------------------------------------------------------------------
John R. Stafford Chairman, President and Chief Executive Officer
American Home Products Corporation
Five Giralda Farms
Madison, NJ 07940
- ------------------------------------------------------- --------------------------------------------------------------------
Marina v.N. Whitman Professor of Business Administration and Public Policy
The University of Michigan
School of Public Policy
411 Lorch Hall, 611 Tappan Street
Ann Arbor, MI 48109-1220
- ------------------------------------------------------- --------------------------------------------------------------------
</TABLE>
(Page 13 of 13 Pages)
<PAGE>
PARAGON HEALTH NETWORK, INC. SCHEDULE 13D EXHIBIT I
ANNEX I
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated
as of May 7, 1997, amended as of June 12, 1997 and September 9, 1997 and
amended and restated as of September 17, 1997 (this "Amended and Restated
Agreement") among Apollo Management, L.P., a Delaware limited partnership on
behalf of one or more managed investment funds (the "Parent"), Apollo LCA
Acquisition Corp., a Delaware corporation and a subsidiary of Parent (the
"Sub"), and Living Centers of America, Inc., a Delaware corporation (the
"Company").
RECITALS
WHEREAS, the Parent, the Sub and the Company entered into that certain
Agreement and Plan of Merger dated as of May 7, 1997 (the "Original Merger
Agreement" and as amended and restated as of June 12, 1997 and further amended
as of September 9, 1997, the "Amended Original Merger Agreement");
WHEREAS, subsequent to the date of the Amended Original Merger Agreement,
the Parent, the Sub and the Company have each determined that it is in the
best interests of each of the foregoing entities to enter into this Agreement,
which amends and restates the Amended Original Merger Agreement;
WHEREAS, the Board of Directors of each of the Sub and the Company has
determined that it is fair and in the best interests of their respective
stockholders for the Sub to merge with and into the Company (the "Merger")
pursuant to Section 251 of the Delaware General Corporation Law ("DGCL") upon
the terms and subject to the conditions set forth herein;
WHEREAS, a condition of the Merger is satisfaction of all other conditions
to a merger (the "GranCare Merger") of a wholly-owned subsidiary of the
Company with and into GranCare, Inc., a Delaware corporation ("GranCare") ;
WHEREAS, the Board of Directors of the Company has adopted resolutions
approving the Merger, this Agreement, the issuance of shares of common stock
of the Company, $.01 par value (the "Shares") in connection with the GranCare
Merger, certain amendments to the Company's Certificate of Incoporation and
the transactions contemplated hereby, and has agreed to recommend that the
Company's stockholders approve the Merger, this Agreement, such issuance of
Shares, and such amendments;
WHEREAS, the Sub and the Company have agreed (subject to the terms and
conditions of this Agreement), as soon as practicable following the approval
by the stockholders of the Company, to effect the Merger, as more fully
described herein;
WHEREAS, the Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with this Agreement; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes;
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER
Section 1.01 The Merger.
Upon the terms and subject to the conditions hereof, and in accordance with
the relevant provisions of the DGCL, the Sub shall be merged with and into the
Company as soon as practicable following the satisfaction or waiver, if
permissible, of the conditions set forth in Article VI hereof.
I-1
<PAGE>
The Company shall be the surviving corporation in the Merger (in such
capacity, sometimes referred to herein as the "Surviving Corporation") under
the name Living Centers of America, Inc. (or such other name as the parties
shall agree) and shall continue its existence under the laws of Delaware. The
separate corporate existence of the Sub shall cease.
Section 1.02 Consummation of the Merger.
Subject to the provisions of this Agreement, the parties hereto shall cause
the Merger to be consummated by filing with the Secretary of State of the
State of Delaware a duly executed and verified certificate of merger, as
required by the DGCL, and shall take all such other and further actions as may
be required by law to make the Merger effective as promptly as practicable.
Prior to the filing referred to in this Section, a closing (the "Closing")
will be held at the offices of Cleary, Gottlieb, Steen & Hamilton, One Liberty
Plaza, New York, New York (or such other place as the parties may agree) for
the purpose of confirming all the foregoing. The time the Merger becomes
effective in accordance with applicable law is referred to as the "Effective
Time."
Section 1.03 Effects of the Merger.
The Merger shall have the effects set forth in the applicable provisions of
the DGCL and set forth herein.
Section 1.04 Certificate of Incorporation and Bylaws.
At the Effective Time, the Certificate of Incorporation of the Company shall
be amended and restated to read in its entirety as set forth in Exhibit A (and
the amendments effected thereby shall be submitted to the stockholders of the
Company as contemplated by Section 1.06) and, as so amended, shall be the
Certificate of Incorporation of the Surviving Corporation. At the Effective
Time, the Bylaws of the Sub, as in effect immediately prior thereto (after
giving effect to Section 5.15 hereof), shall be the Bylaws of the Surviving
Corporation.
Section 1.05 Directors and Officers.
The directors of the Sub immediately prior to the Effective Time (after
giving effect to Section 5.12 hereof) and the officers of the Company
immediately prior to the Effective Time shall be the directors and officers,
respectively, of the Surviving Corporation until their respective successors
are duly elected and qualified.
Section 1.06 Company Actions.
The Company hereby represents and warrants that (a) its Board of Directors
(at a meeting duly called and held), has (i) determined that the Merger is
fair to and in the best interests of the stockholders of the Company, (ii)
resolved to approve (A) this Agreement, the Merger, the issuance of Shares to
the stockholders of the Sub in connection with the Merger (B) the amendment of
the Company's Certificate of Incorporation as contemplated by Section 1.04
(the "Amendment Proposal"), and (C) the issuance of Shares (the "Stock
Issuance Proposal") pursuant to the GranCare Merger contemplated by the
amended and restated agreement and plan of merger (the "GranCare Merger
Agreement") by and among GranCare, the Company, a wholly-owned subsidiary of
the Company ("Merger Sub") and the Parent, and to recommend (subject to its
fiduciary duties as advised by legal counsel) approval of this Agreement, the
Amendment Proposal and the Stock Issuance Proposal (collectively, the
"Stockholder Approvals") by the stockholders of the Company, (iii) taken all
necessary steps to render Section 203 of the DGCL and Article Tenth of the
Company's Restated Certificate of Incorporation inapplicable to the Merger,
(iv) resolved to elect not to be subject, to the extent permitted by law, to
any state takeover law other than Section 203 of the DGCL that may purport to
be applicable to the Merger, or the transactions contemplated by this
Agreement and (v) approved the Rights Agreement Amendment (as defined below),
and (b) Credit Suisse First Boston ("CSFB") and NationsBanc Capital Markets,
Inc. ("NationsBanc"), the Company's financial advisors, have advised the
Company's Board of Directors that, in their opinion, the consideration to be
paid to or retained by the Company's stockholders in the Merger and the
GranCare Merger is fair, from a financial point of view, to such stockholders.
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ARTICLE II
EFFECTS OF THE MERGER
Section 2.01 Conversion of Shares.
(a) Each Share issued and outstanding immediately prior to the Effective
Time (other than Shares owned by the Parent, the Sub or any subsidiary of the
Parent or the Sub or held in the treasury of the Company (collectively
"Excluded Shares"), all of which shall be canceled and cease to exist, without
consideration being payable therefore and Dissenting Shares (as defined in
Section 2.06)) shall, by virtue of the Merger, remain outstanding or be
converted at the Effective Time into the following (the "Merger
Consideration"), upon the surrender of the certificate representing such
Shares as provided in Section 2.07 and subject to Section 2.03 hereof:
(i) for each Share with respect to which an election to retain such Share
has been effectively made and not revoked or lost, pursuant to Sections
2.02(c), (d) and (e) ("Electing Shares"), the right to retain one fully
paid and nonassessable share of Common Stock of the Surviving Corporation
(a "Retained LCA Share"); and
(ii) for each such Share (other than Retained LCA Shares), the right to
receive in cash from the Company following the Merger an amount equal to
$40.50 (the "Cash Election Price").
(b) As of the Effective Time of the Merger, all Shares (other than Excluded
Shares and Retained LCA Shares) issued and outstanding immediately prior to
the Effective Time of the Merger, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist and each holder
of a certificate representing any such Shares shall, to the extent such
certificate represents such Shares, cease to have any rights with respect
thereto, except the right to receive cash, including such in lieu of
fractional shares to be issued or paid in consideration therefor upon
surrender of such certificate in accordance with Section 2.07 and except for
the rights of Dissenting Shares as provided in Section 262 of the DGCL.
Section 2.02 Elections.
(a) Each person who, on or prior to the Election Date referred to in
paragraph (c) below, is a record holder of Shares will be entitled, with
respect to all or any portion of his Shares, to make an unconditional election
(an "LCA Stock Election") on or prior to such Election Date to retain Retained
LCA Shares (subject to Section 2.03), on the basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined below), the Sub
shall appoint a bank or trust company to act as paying agent (the "Paying
Agent") for the payment of the Merger Consideration.
(c) The Company shall prepare and mail a form of election, which form shall
be subject to the reasonable approval of the Sub (the "Form of Election"),
with the Proxy Statement to the record holders of Shares as of the record date
for the Stockholders Meeting (as defined below), which Form of Election shall
be used by each record holder of Shares who wishes to make an LCA Stock
Election for any or all Shares held, subject to the provisions of Section 2.03
hereof, by such holder. The Company will use commercially reasonable efforts
to make the Form of Election and the Proxy Statement available to all persons
who become holders of Shares during the period between such record date and
the Election Date referred to below. Any such holder's election to retain
Retained LCA Shares shall have been properly made only if the Paying Agent
shall have received at its designated office, by 5:00 p.m., New York City time
on the business day (the "Election Date") next preceding the day on which the
vote on the Stockholder Approvals is taken at the Stockholders Meeting a Form
of Election properly completed and signed and accompanied by certificates for
the Shares to which such Form of Election relates (or by an appropriate
guarantee of delivery of such certificates as set forth in such Form of
Election from a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or trust company having an office or correspondent in the
United States, provided such certificates are in fact delivered to the Paying
Agent within three (3) NYSE trading days after the date of execution of such
guarantee of delivery).
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(d) Any Form of Election may be revoked by the stockholder submitting it to
the Paying Agent only by written notice received by the Paying Agent (i) prior
to 5:00 p.m., New York City time on the Election Date or (ii) after the date
of the Stockholders Meeting, if (and to the extent that) the Paying Agent is
legally required to permit revocations and the Effective Time of the Merger
shall not have occurred prior to such date. In addition, all Forms of Election
shall automatically be revoked if the Paying Agent is notified in writing by
the Sub and the Company that the Merger has been abandoned. If a Form of
Election is revoked, the certificate or certificates (or guarantees of
delivery, as appropriate) for the Shares to which such form of Election
relates shall be promptly returned to the stockholder submitting the same to
the Paying Agent.
(e) The determination of the Paying Agent shall be binding whether or not
elections to retain Retained LCA Shares have been properly made or revoked
pursuant to this Section 2.02 with respect to Shares and when elections and
revocations were received by it. If the Paying Agent determines that any
election to retain Retained LCA Shares was not properly made with respect to
Shares, such Shares shall be treated by the Paying Agent as Shares which were
not Electing Shares at the Effective Time of the Merger, and such Shares shall
be exchanged in the Merger for cash pursuant to Section 2.01(a)(ii). The
Paying Agent shall also make all computations as to the allocation and the
proration contemplated by Section 2.03, and any such computation shall be
conclusive and binding on the holders of Shares. The Paying Agent may, with
the mutual agreement of the Sub and the Company, make such rules as are
consistent with this Section 2.02 for the implementation of the elections
provided for herein as shall be necessary or desirable fully to effect such
elections.
Section 2.03 Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of Shares to remain outstanding as Retained LCA Shares in the
Surviving Corporation at the Effective Time of the Merger shall be equal to
1,905,748, (the "Retained Share Number").
(b) If the number of Electing Shares exceeds the Retained Share Number, then
each Electing Share shall be converted into the right to retain Retained LCA
Shares or receive cash in accordance with the terms of Section 2.01(a) in the
following manner:
(i) A proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Retained Share Number by the total number of
Electing Shares.
(ii) Subject to Section 2.07(e), the number of Electing Shares covered by
each LCA Stock Election to be retained (on a consistent basis among
stockholders who made the election referred to in Section 2.01(a)(i) pro
rata to the number of shares as to which they made such elections) shall be
equal to the product of the Non-Cash Proration Factor multiplied by the
total number of Electing Shares.
(iii) Subject to Section 2.07(e), each Electing Share other than those
shares retained as Retained LCA Shares in accordance with Section
2.03(b)(ii), shall be converted into the right to receive the cash price
(on a consistent basis among stockholders who made the election referred to
in Section 2.01(a)(i), pro rata to the number of shares as to which they
made such election) as if such shares were not Electing Shares in
accordance with the terms of Section 2.01(a)(ii).
(c) If the number of Electing Shares is less than the Retained Share Number,
then:
(i) All Electing Shares shall remain outstanding as Retained LCA Shares
in New LCA in accordance with the terms of Section 2.01(a))(i);
(ii) Subject to Section 2.07(e), additional Shares other than Electing
Shares shall be retained (on a consistent basis among stockholders who held
Shares as to which they did not make the election referred to in Section
2.01(a)(i) pro rata to the number of such Shares as to which no such
election had been made) as Retained LCA Shares in accordance with the terms
of Section 2.01(a) in the following manner: the number of Shares in
addition to Electing Shares to be retained as Retained LCA Shares (the
"Non-Electing Retained LCA Shares") (on a basis consistent among
stockholders who held Shares as to which they did not make the election
referred to in Section 2.01(a)(i) pro rata to the number of such Shares as
to which no such election had been made) shall be equal to the excess of
the Retained Share Number over the number of Electing Shares.
(iii) Each other Share shall be converted into the right to receive the
cash price.
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Section 2.04 Conversion of Common Stock of the Sub.
Each share of common stock, par value $.01 per share, of the Sub issued and
outstanding immediately prior to the Effective Time shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and become at the Effective Time one share of common stock of the
Surviving Corporation.
Section 2.05 Stockholders' Meeting.
Subject to applicable law, the Company, acting through its Board of
Directors, shall, in accordance with applicable law, duly call, give notice
of, convene and hold a special meeting (which, as may be duly adjourned, shall
be referred to as the "Special Meeting" or the "Stockholders Meeting") of its
stockholders as soon as practicable for the purpose of obtaining the
Stockholder Approvals and, subject to the fiduciary duties of its Board of
Directors under applicable law as determined by such directors in good faith
after consultation with and based upon the advice of Cleary, Gottlieb, Steen &
Hamilton, as legal counsel to the Company, include in the joint proxy
statement (the "Proxy Statement") of each of the Company and GranCare for use
in connection with the stockholders meeting of each of the Company and
GranCare, the recommendation of the Company's Board of Directors that
stockholders of the Company vote in favor of the Stockholder Approvals. The
Parent, the Sub and the Company agree to use commercially reasonable efforts
to cause the Special Meeting to occur within forty-five (45) days after the
Company has responded to all SEC comments with respect to the preliminary
Proxy Statement as provided in Section 5.07.
Section 2.06 Dissenting Shares.
Notwithstanding anything in this Agreement to the contrary, Shares which are
issued and outstanding immediately prior to the Effective Time and which are
held by stockholders who did not vote in favor of the Merger and who comply
with all of the relevant provisions of Section 262 of the DGCL (the
"Dissenting Shares") shall not be converted into or be exchangeable for the
right to receive the Merger Consideration (but instead shall be converted into
the right to receive payment from the Surviving Corporation with respect to
such Dissenting Shares in accordance with the DGCL), unless and until such
holders shall have failed to perfect or shall have effectively withdrawn or
lost their rights to appraisal under the DGCL. If any such holder shall have
failed to perfect or shall have effectively withdrawn or lost such right, such
holder's Shares shall be treated at the Company's sole discretion as either
(i) a Share (other than an Electing Share) that had been converted as of the
Effective Time of the Merger into the right to receive Merger Consideration in
accordance with Section 2.01(a) or (ii) an Electing Share. The Company shall
give prompt notice to the Sub of any demands received by the Company for
appraisal of Shares, and the Sub and Parent shall have the right to
participate in and direct all negotiations and proceedings with respect to
such demands. The Company shall not, except with the prior written consent of
the Sub and Parent, make any payment with respect to, or settle or offer to
settle, any such demands.
Section 2.07 Exchange of Certificates.
(a) As soon as reasonably practicable as of or after the Effective Time of
the Merger, the Corporation shall deposit with the Paying Agent, for the
benefit of the holders of Shares, for exchange in accordance with this Article
II, the cash portion of the Merger Consideration.
(b) As of or promptly after the Effective Time of the Merger, each holder of
an outstanding certificate or certificates which prior thereto represented
Shares shall, upon surrender to the Paying Agent of such certificate or
certificates and acceptance thereof by the Paying Agent, be entitled to a
certificate or certificates representing the number of full shares in the
Surviving Corporation, if any, to be retained by the holder thereof as
Retained LCA Shares pursuant to this Agreement and the amount of cash, if any,
into which the number of Shares previously represented by such certificate or
certificates surrendered shall have been converted pursuant to this Agreement.
The Paying Agent shall accept such certificates upon compliance with such
reasonable terms and conditions as the Paying Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. After
the Effective Time of the Merger, there shall be no further transfer on the
records of the Company or its transfer agent of certificates representing (i)
Shares which have been converted, in whole or in part, pursuant to this
Agreement into the right to receive cash, and if such certificates are
presented to the Company for transfer, they shall be canceled against delivery
of cash and, if appropriate, certificates for Retained
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LCA Shares. If any certificate for such Retained LCA Shares is to be issued
in, or if cash is to be remitted to, a name other than that in which the
certificate for Shares surrendered for exchange is registered, it shall be a
condition of such exchange that the certificate so surrendered shall be
properly endorsed, with signature guaranteed or otherwise in proper form for
transfer and that the person requesting such exchange shall pay to the Company
or its transfer agent any transfer or other taxes required by reason of the
issuance of certificates for such Retained LCA Shares in a name other than
that of the registered holder of the certificate surrendered, or establish to
the satisfaction of the Company or its transfer agent that such tax has been
paid or is not applicable. Until surrendered as contemplated by this Section
2.07(b), each certificate for Shares shall be deemed at any time after the
Effective Time of the Merger to represent only the right to receive upon such
surrender the Merger Consideration as contemplated by Section 2.01.
(c) No dividends or other distributions with respect to Retained LCA Shares
with a record date after the Effective Time of the Merger shall be paid to the
holder of any unsurrendered certificate for Shares with respect to the
Retained LCA Shares represented thereby and no cash payment in lieu of
fractional Shares shall be paid to any such holder pursuant to Section 2.07(e)
until the surrender of such certificate in accordance with this Article II.
Subject to the effect of applicable laws, following surrender of any such
certificate, there shall be paid to the holder of the certificate representing
whole Retained LCA Shares issued in connection therewith, without interest (i)
at the time of such surrender, the amount of any cash payable in lieu of a
fraction of a Retained LCA Share to which such holder is entitled pursuant to
Section 2.07(e) and the proportionate amount of dividends or other
distributions with a record date after the Effective Time of the Merger
therefor paid with respect to such Retained LCA Shares, and (ii) at the
appropriate payment date, the proportionate amount of dividends or other
distributions with a record date after the Effective Time of the Merger but
prior to such surrender and a payment date subsequent to such surrender
payable with respect to such whole Retained LCA Shares.
(d) All cash paid upon the surrender for exchange of certificates
representing Shares in accordance with the terms of this Article II (including
any cash paid pursuant to Section 2.07(e) shall be deemed to have been issued
(and paid) in full satisfaction of all rights pertaining to the Shares
exchanged for cash theretofore represented by such certificates.
(e) Notwithstanding any other provision of this Agreement, each holder of
Retained LCA Shares retained pursuant to the Merger who would otherwise have
been entitled to retain a fraction of a Retained LCA Share (after taking into
account all Shares delivered by such holder) shall receive, in lieu thereof, a
cash payment (without interest) equal to such fraction multiplied by $40.50.
(f) Any portion of the Merger Consideration deposited with the Paying Agent
pursuant to this Section 2.07 (the "Exchange Fund") which remains
undistributed to the holders of the certificates representing Shares for six
months after the Effective Time of the Merger shall be delivered to the
Surviving Corporation and any holders of Shares prior to the Merger who have
not theretofore complied with this Article II shall thereafter look only to
the Surviving Corporation and only as general creditors thereof for payment of
their claim for cash, if any.
(g) None of the Sub or the Company or the Paying Agent shall be liable to
any person in respect of any cash from the Exchange Fund delivered to a public
office pursuant to any applicable abandoned property, escheat or similar law.
If any certificates representing Shares shall not have been surrendered prior
to one year after the Effective Time of the Merger (or immediately prior to
such earlier date on which any cash in respect of such certificate would
otherwise escheat to or become the property of any Governmental Authority),
any such cash in respect of such certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and
clear of all claims or interest of any person previously entitled thereto.
(h) The Paying Agent shall invest any cash included in the Exchange Fund, as
directed by the Company, on a daily basis. Any interest and other income
resulting from such investments shall be paid to the Company. To the extent
that there are losses with respect to such investments, or the Exchange Fund
diminishes for other reasons below the level required to make prompt payments
of the Merger Consideration as contemplated hereby, the Parent shall promptly
replace or restore the portion of the Exchange Fund lost through investments
or other events so as to ensure that the Exchange Fund is, at all times,
maintained at a level sufficient to make such payments.
(i) The Company shall pay all charges and expenses of the Paying Agent.
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Section 2.08 Rights Under Stock Right Plans.
Immediately prior to the Effective Time, the Company shall take such action
as may be necessary so that each then outstanding option, warrant, or right
(including stock purchase rights and options granted to outside directors) to
purchase Shares, each holder of any other right to receive Shares subject to
vesting, settlement or other conditions (whether or not conditioned upon the
payment of consideration by such holder), each employee who has made an
election on or before the date hereof to purchase Shares under a stock
purchase arrangement in effect on or before the date hereof (regardless of
whether such Shares have been purchased or have been allocated from treasury
stock in response to such election or whether the settlement or allocation of
such Shares is subject to vesting or other conditions, but, in the case of the
salary reduction plans, only with respect to Shares to be allocated with
respect to reductions in salary if such salary reduction relates to the period
prior to the Effective Time), and each holder of Shares subject to vesting or
other restrictions pursuant to any employee benefit or stock plan (including,
without limitation, any stock option, stock purchase, restricted stock or
other plan) (all of the options, warrants, rights, elections to purchase,
whether through salary reduction or otherwise, and plans referred to above
being defined as the "Stock Right Plans"), whether or not such options or
rights are then vested or exercisable, or such elections have been fulfilled
or honored or such restrictions have lapsed or terminated (the "Rights"),
shall be cancelled by the Company, and each holder of a Right to be cancelled
shall be entitled to receive that number of Shares as is equal to the product
of (i) the total number of Shares subject to such holder's Rights, and (ii)
the excess, if any, of (x) $40.50 over (y) the exercise price per Share
previously subject to each such Right, and (iii) 0.02469 (the "Right
Consideration") upon cancellation of such Rights immediately prior to the
Effective Time, and such holder shall be given the opportunity to make the
elections described in Section 2.02 (subject to proration as provided in
Section 2.03) with respect to the Shares to be issued as such Right
Consideration; provided, however, that with respect to any person subject to
Section 16 of the Exchange Act, to the extent that the payment or the right to
receive payment with respect to the Rights (or the Shares relating thereto)
would cause such person to have any liability under Section 16 of the Exchange
Act, any such amount shall be paid on (and shall not be payable until) the
first business day following the expiration of six months after any such Right
was granted and shall not be due and payable prior thereto (and the Parent,
the Sub and the Company agree, for the benefit of such persons, not to assert
that any such person has any liability pursuant to Section 16(b) of the
Exchange Act with respect to any such amount). In all other instances, the
Parent and the Surviving Corporation shall cause the Right Consideration to be
paid within five business days after the Effective Time. The surrender of a
Right to the Company in exchange for the Right Consideration shall be deemed a
release of any and all rights the holder had or may have had in respect of
such Right. Prior to the Effective Time, the Company shall use all reasonable
efforts to obtain all necessary consents or releases from holders of Rights
under the Stock Right Plans or otherwise and take all such other action
requested by the Sub, consistent with applicable law and the terms of the
Stock Right Plans and the Rights as may be necessary to give effect to the
transactions contemplated by this Section 2.08. The foregoing shall not limit
or affect any provision of a Stock Right Plan that would accelerate the
vesting of any Right or prevent the acceleration, settlement, or exercise of
any Right that would otherwise be required or permitted pursuant to the terms
of a Stock Right Plan (whether by reason of the consummation of the Offer or
otherwise). No salaries shall be reduced with respect to employment subsequent
to the Effective Time pursuant to stock purchase elections under the salary
reduction plan.
Section 2.09 Nonqualified Deferred Compensation Plan.
At the Effective Time, each participant in the Living Centers of America,
Inc. Deferred Retirement Income Plan and each participant in the Company's
Retirement Savings 401(k) Plan (the "Deferred Plans") shall become vested in
his or her entire account balances under each Deferred Plan including, without
limitation, any portion of such account balance maintained in Shares or Shares
Units as provided under such Deferred Plans. Prior to the Effective Time, the
Company may continue to match deferrals of compensation with Shares as
provided pursuant to the Deferred Plans. Subject to Section 5.6, after the
Effective Time, the Surviving Corporation may discontinue contributions or
otherwise amend the Deferred Plans; provided that the Surviving Corporation
shall continue to maintain in full force and effect, or otherwise preserve the
tax benefits provided by, such Deferred Plans.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants as of the date hereof (or such other
date as shall be expressly specified) to the Parent and the Sub as follows:
Section 3.01 Organization and Qualification.
Each of the Company and its subsidiaries is a duly organized and validly
existing corporation in good standing under the laws of its jurisdiction of
incorporation, with all requisite corporate power and other authority to own
its properties and conduct its business as it is being conducted on the date
hereof, and is duly qualified and in good standing as a foreign corporation
authorized to do business in each of the jurisdictions in which the character
of the properties owned or held under lease by it or the nature of the
business transacted by it makes such qualification necessary. The Company has
heretofore made available to the Sub accurate and complete copies of the
Certificates of Incorporation and Bylaws as currently in effect of the Company
and its subsidiaries.
Section 3.02 Capitalization.
(a) The authorized capital stock of the Company consists of 75,000,000
Shares and 5,000,000 shares of preferred stock, par value $.01 (the "Preferred
Stock"), of which 350,000 shares have been designated as Series A Junior
Participating Preferred Stock (the "Junior Preferred Stock"). As of the close
of business on March 31, 1997 (the "Capitalization Date"): 19,547,616 Shares
were issued and outstanding; no shares of Preferred Stock were issued and
outstanding; 720,304 Shares were held in the Company's treasury; and there
were outstanding Rights with respect to 1,635,447 Shares as set forth in
Section 3.02(a) of the disclosure letter, dated the date hereof, delivered by
the Company to the Parent on May 7, 1997 setting forth certain matters
referred to in this Agreement (the "Disclosure Letter"); and there were
outstanding rights (the "Rights Agreement Rights") under the Rights Agreement
dated November 17, 1994 between the Company and Chemical Bank, as amended by
an amendment dated as of July 31, 1995 (the "Rights Agreement"). Since the
Capitalization Date, except as set forth in Section 3.02(a) of the Disclosure
Letter or in the SEC Reports (as defined in Section 3.05) filed prior to May
7, 1997, the Company (i) has not issued any Shares other than upon the
exercise or vesting of Rights outstanding on such date, (ii) has not granted
any options or rights to purchase or acquire Shares (under the Stock Right
Plans or otherwise) and (iii) has not split, combined or reclassified any of
its shares of capital stock. All of the outstanding Shares have been duly
authorized and validly issued and are fully paid and nonassessable and are
free of preemptive rights. Except as set forth in this Section 3.02 or in
Section 3.02(a) of the Disclosure Letter or in the SEC Reports filed prior to
May 7, 1997, there are outstanding (i) no shares of capital stock or other
voting securities of the Company, (ii) no securities of the Company
convertible into or exchangeable for shares of capital stock or voting
securities of the Company and (iii) no options, warrants, rights, or other
agreements or commitments to acquire from the Company, and no obligation of
the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company, and no obligation of the Company to grant, extend or enter into any
subscription, warrant, option, right, convertible or exchangeable security or
other similar agreement or commitment (the items in clauses (i), (ii) and
(iii) being referred to collectively as the "Company Securities"). Except as
set forth in Section 3.02(a) of the Disclosure Letter, there are no
outstanding obligations of the Company or any subsidiary to repurchase, redeem
or otherwise acquire any Company Securities. There are no voting trusts or
other agreements or understandings to which the Company or any of its
subsidiaries is a party with respect to the voting of capital stock of the
Company or any of its subsidiaries. Notwithstanding the foregoing, the Company
will issue Shares pursuant to the Equity Commitment (as hereinafter defined)
and also will issue shares pursuant to the GranCare Merger.
(b) Except as set forth in Section 3.02(b) of the Disclosure Letter or in
the SEC Reports filed prior to May 7, 1997, the Company is, directly or
indirectly, the record and beneficial owner of all the outstanding shares of
capital stock of each of its subsidiaries, free and clear of any lien,
mortgage, pledge, charge, security interest or encumbrance of any kind, and
there are no irrevocable proxies with respect to any such shares. Except as
set forth in Section 3.02(b) of the Disclosure Letter or in the SEC Reports
filed prior to May 7, 1997, there are no
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outstanding (i) securities of the Company or any subsidiary convertible into
or exchangeable for shares of capital stock or other voting securities or
ownership interests in any subsidiary, or (ii) options or other rights to
acquire from the Company or any of its subsidiaries, and no other obligation
of the Company or any of its subsidiaries to issue, any capital stock, voting
securities or other ownership interests in, or any securities convertible into
or exchangeable for any capital stock, voting securities or ownership
interests in, any of its subsidiaries, or any other obligation of the Company
or any of its subsidiaries to grant, extend or enter into any subscription,
warrant, right, convertible or exchangeable security or other similar
agreement or commitment (the items in clauses (i) and (ii) being referred to
collectively as the "Subsidiary Securities"). There are no outstanding
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any outstanding Subsidiary Securities.
Section 3.03 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,
other than the approval and adoption of the agreement of merger (as such term
is used in Section 251 of the DGCL) contained in this Agreement and the
approval of the Merger by the holders of a majority of the outstanding Shares.
This Agreement has been duly and validly executed and delivered by the Company
and, assuming this Agreement constitutes a valid and binding obligation of
each of the Parent and the Sub, 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 3.04 Absence of Certain Changes.
Except as disclosed in the SEC Reports filed prior to May 7, 1997 or as set
forth in the capitalization information set forth in Section 3.02 of the
Disclosure Letter from September 30, 1996 through the date hereof, (i) the
Company and its subsidiaries have not suffered any Material Adverse Effect (as
defined in Section 5.11), (ii) the Company and its subsidiaries have, in all
material respects, conducted their respective businesses only in the ordinary
course consistent with past practice, except in connection with the
negotiation and execution and delivery of this Agreement and the solicitation
or receipt of other offers to acquire the Company, and (iii) there has not
been (a) any declaration, setting aside or payment of any dividend or other
distribution in respect of the Shares or any repurchase, redemption or other
acquisition by the Company or any of its subsidiaries of any Company
Securities or Subsidiary Securities; or (b) any action by the Company which if
taken after the date hereof, would constitute a breach of Section 5.01 hereof.
Except as disclosed in the SEC Reports filed prior to May 7, 1997 or in
Section 3.04 of the Disclosure Letter, since September 30, 1996, there has not
been any change by the Company in accounting methods, principles or practices
except as permitted by United States generally accepted accounting principles.
Section 3.05 Reports.
(a) The Company has timely filed with the SEC all forms, reports and
documents required to be filed by it pursuant to the federal securities laws
and the SEC rules and regulations thereunder on and after September 30, 1995,
all of which have heretofor been filed or are hereafter filed (the "SEC
Reports") have complied or will comply in form as of their respective filing
dates in all material respects with all applicable requirements of the
Exchange Act and the rules promulgated thereunder applicable thereto. None of
the SEC Reports, at the time filed, contained or will contain any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(b) As of their respective dates, the audited and unaudited consolidated
financial statements of the Company included (or incorporated by reference) in
the SEC Reports were prepared (or will have been prepared) in all
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material respects in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods therein
indicated (except as may be indicated in the notes thereto) and presented
fairly the consolidated financial position of the Company, and the
consolidated results of operations and changes in consolidated financial
position or cash flows for the periods presented therein, subject, in the case
of the unaudited interim financial statements, to normal year-end audit
adjustments and any other adjustments described therein which were not
expected to have a Material Adverse Effect.
(c) As of March 31, 1997, neither the Company nor any of its subsidiaries
had any liabilities of any nature, whether accrued, absolute, contingent or
otherwise, whether due or to become due that are required to be recorded or
reflected on a balance sheet under United States generally accepted accounting
principles, except as reflected or reserved against or disclosed in the
financial statements of the Company included in the SEC Reports filed prior to
May 7, 1997 or the Disclosure Letter or as otherwise disclosed in the SEC
Reports filed prior to May 7, 1997 or the Disclosure Letter.
Section 3.06 Information Supplied.
Any documents to be filed by the Company with the SEC or any other
governmental or regulatory authority in connection with the Merger and the
other transactions contemplated hereby will not, on the date of its filing or,
with respect to the Proxy Statement, as supplemented if necessary, on the date
it is sent or given to stockholders, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading, except that no
representation is made by the Company with respect to information supplied in
writing by or on behalf of the Parent, the Sub or GranCare expressly for
inclusion therein and information incorporated by reference therein from
documents filed by GranCare with the SEC. The Proxy Statement and any such
other documents filed by the Company with the SEC under the Exchange Act or
with any other governmental or regulatory authority under applicable law will
comply as to form in all material respects with the provisions of the Exchange
Act and the rules and regulations thereunder.
Section 3.07 Consents and Approvals; No Violation.
Neither the execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated hereby will conflict with or
result in any breach of any provision of the respective Certificate of
Incorporation or Bylaws (or other similar governing documents) of the Company
or any of its subsidiaries and except as disclosed in Section 3.07 of the
Disclosure Letter and except for filings, permits, authorizations, notices,
consents and approvals as may be required under, and other applicable
requirements of, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the Exchange Act, the DGCL, and the "takeover" or
blue sky laws of various states and consents, approvals, authorizations or
filings under laws of jurisdictions outside the United States, and filings,
notices, consents, authorizations and approvals as may be required by local,
state, and federal regulatory agencies, commissions, boards, or public
authorities with jurisdiction over health care facilities and providers, (i)
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; (ii) 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, (iii) 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 (iv) violate any order, writ, injunction, agreement,
contract, decree, statute, rule or regulation applicable to the
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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 3.08 Brokers.
No broker, finder or other investment banker (other than CSFB and
NationsBanc, a copy of whose engagement letters have been furnished to the
Parent) is entitled to receive any brokerage, finder's or other fee or
commission in connection with this Agreement or the transactions contemplated
hereby based upon agreements made by or on behalf of the Company.
Section 3.09 Employee Benefit Matters.
(a) For purposes of this Agreement, the term "Plan" shall refer to the
following maintained by the Company, any of its subsidiaries or any of their
respective ERISA Affiliates (as defined below), or with respect to which the
Company, any of its subsidiaries or any of their respective ERISA Affiliates
contributes or has any obligation to contribute or has any liability
(including, without limitation, a liability arising out of an indemnification,
guarantee, hold harmless or similar agreement): any plan, program,
arrangement, agreement or commitment, whether written or oral, which is an
employment, consulting, deferred compensation or change-in-control agreement,
or an executive compensation, incentive bonus or other bonus, employee
pension, profit-sharing, savings, retirement, stock option, stock purchase,
severance pay, change-in-control, life, health, disability or accident
insurance plan, or other employee benefit plan, program, arrangement,
agreement or commitment, whether written or oral, including, without
limitation, any "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). Section
3.09(a) of the Disclosure Letter sets forth each employment agreement with a
person who is entitled to receive at least $100,000 per year from the Company
or any of its subsidiaries (other than an employment agreement terminable
without material liability (not otherwise disclosed) on no more than sixty
(60) days' notice).
(b) Except as set forth in Section 3.09(b) of the Disclosure Letter, none of
the Company, its subsidiaries nor any of their respective ERISA Affiliates
maintains or contributes to, nor have they maintained or contributed to, any:
(A) defined benefit plan subject to Title IV of ERISA; or
(B) "Multiemployer plan" as defined in Section 4001 of ERISA.
(c) No event has occurred and no condition or circumstance currently exists,
in connection with which the Company, any of its subsidiaries, their
respective ERISA Affiliates or any Plan, directly or indirectly, are likely to
be subject to any liability under ERISA, the Code or any other law, regulation
or governmental order applicable to any Plan which would be reasonably likely
to have a Material Adverse Effect.
(d) With respect to each Plan, (A) all material payments due from the
Company or any of its subsidiaries to date have been made and all material
amounts properly accrued to date or as of the Effective Time as liabilities of
the Company or any of its subsidiaries which have not been paid have been
properly recorded on the books of the Company; (B) each such Plan which is an
"employee pension benefit plan" (as defined in Section 3(2) of ERISA) and
intended to qualify under Section 401 of the Code has either received a
favorable determination letter from the Internal Revenue Service with respect
to such qualification as of the date specified in Section 3.09(d) of the
Disclosure Letter or has filed for such a determination letter with the
Internal Revenue Service within the time permitted under Rev. Proc. 95-12
(December 29, 1994), 1995-3 IRB 24, and nothing has occurred since the date of
such letter that has resulted in or is likely to result in a tax qualification
defect which would have a Material Adverse Effect; and (C) there are no
material actions, suits or claims pending (other than routine claims for
benefits) or, to the best of the Company's knowledge, threatened with respect
to such Plan or against the assets of such Plan.
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(e) The Company has made available to the Parent, with respect to each Plan
for which the following exists:
(A) a copy of the most recent annual report on Form 5500, with respect to
such Plan including any Schedule B thereto;
(B) a copy of the Summary Plan Description, together with each Summary of
Material Modifications with respect to such Plan and, unless the Plan is
embodied entirely in an insurance policy to which the Company or any of its
subsidiaries is a Party, a true and complete copy of such Plan; and
(C) if the Plan is funded through a trust or any third party funding
vehicle (other than an insurance policy), a copy of the trust or other
funding agreement and the latest financial statements thereof.
(f) Except as disclosed in Section 3.09(g) of the Disclosure Letter or in
the SEC Reports filed prior to May 7, 1997, neither the Company nor any of its
subsidiaries has any announced plan or legally binding commitment to create
any additional material Plans or to make any material amendment or
modification to any existing Plan, except in the ordinary course of business
in accordance with its customary practices or as required by law or as
necessary to maintain tax-qualified status.
(g) For purposes of this Section 3.09, ERISA Affiliates include each
corporation that is a member of the same controlled group as the Company or
any of its subsidiaries within the meaning of Section 414(b) of the Code, any
trade or business, whether or not incorporated, under common control with the
Company or any of its subsidiaries within the meaning of Section 414(c) of the
Code and any member of an affiliated service group that includes the Company,
any of its subsidiaries and any of the corporations, trades or business
described above, within the meaning of Section 414(m) of the Code.
Section 3.10 Litigation, etc.
Except as set forth in Section 3.10 of the Disclosure Letter or as disclosed
in the SEC Reports filed prior to May 7, 1997, as of the date hereof there is
no pending audit, claim, action, proceeding or citizen's suit and, to the
knowledge of the Company, no audit, claim, action, proceeding or citizen's
suit or governmental investigation has been threatened against the Company or
any of its subsidiaries before any court or governmental or regulatory
authority which, in the aggregate, (i) would have a Material Adverse Effect or
(ii) would have a material adverse effect on the ability of the Company to
consummate the transactions contemplated by this Agreement. Except as set
forth in Section 3.10 of the Disclosure Letter or as disclosed in the SEC
Reports, filed prior to May 7, 1997 neither the Company nor any subsidiary of
the Company is subject to any outstanding judicial, administrative or
arbitration order, writ, injunction or decree that (i) has had a Material
Adverse Effect or (ii) would have a material adverse effect on the ability of
the Company to consummate the transactions contemplated by this Agreement.
Section 3.11 Tax Matters.
The Company and each of its subsidiaries has duly filed all tax returns and
reports required to be filed by it, or requests for extensions to file such
returns or reports have been timely filed and granted and have not expired,
except to the extent that such failures to file, in the aggregate, would not
have a Material Adverse Effect, and such returns and reports are true, correct
and complete in all material respects. The Company and each of its
subsidiaries has duly paid in full (or the Company has paid on its behalf) or
made adequate provision in the Company's accounting records for all taxes for
all past and current periods for which the Company or any of its Subsidiaries
is liable. The most recent financial statements contained in the SEC Reports
filed prior to May 7, 1997 reflect adequate reserves for all taxes payable by
the Company and its subsidiaries for all taxable periods and portions thereof
accrued through the date of such financial statements, and no deficiencies for
any taxes have been proposed, asserted or assessed against the Company or any
of its subsidiaries that are not adequately reserved for, except for
inadequately reserved taxes and inadequately reserved deficiencies that would
not, in the aggregate, have a Material Adverse Effect. No requests for waivers
of the time to assess any taxes against the Company or any of its subsidiaries
have been granted or are pending, except for requests with respect to such
taxes that have been adequately reserved for in the most recent financial
statements contained in the SEC
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Reports filed prior to May 7, 1997, or, to the extent not adequately reserved,
the assessment of which would not, in the aggregate, have a Material Adverse
Effect. Except as set forth in Section 3.11 of the Disclosure Letter, neither
the Company nor any of its subsidiaries has made any payments, or is obligated
to make any payments, or is a party to any agreement that under certain
circumstances could obligate it to make any payments that will not be
deductible under Section 280G of the Internal Revenue Code. Neither the
Company nor any of its subsidiaries has been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Internal Revenue Code. As used in this Agreement the
term "taxes" includes all federal, state, local and foreign income, franchise,
property, sales, use, excise and other taxes, including without limitation
obligations for withholding taxes from payments due or made to any other
person and any interest, penalties or additions to tax.
Section 3.12 Compliance with Law.
Except as set forth in Section 3.12 of the Disclosure Letter or in the SEC
Reports filed prior to May 7, 1997, neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, any law,
rule, regulation, order, judgment or decree applicable to the Company or any
subsidiary or by which any property or asset of the Company or any subsidiary
is bound or affected, except for any such conflicts, defaults or violations
that would not in the aggregate have a Material Adverse Effect. Except as set
forth in Section 3.12 of the Disclosure Letter or in the SEC Reports filed
prior to May 7, 1997, the Company and its subsidiaries have all permits,
licenses, authorizations, consents, approvals and franchises from governmental
agencies required to conduct their businesses as now being conducted (the
"Company Permits"), except for such permits, licenses, authorizations,
consents, approvals and franchises the absence of which would not in the
aggregate have a Material Adverse Effect. Except as set forth in Section 3.12
of the Disclosure Letter or in the SEC Reports filed prior to May 7, 1997, the
Company and its subsidiaries are in compliance with the terms of the Company
Permits, except where the failure so to comply would not in the aggregate have
a Material Adverse Effect.
Section 3.13 Environmental Compliance.
Except as set forth in Section 3.13 of the Disclosure Letter or in the SEC
Reports filed prior to May 7, 1997, (i) the assets, properties, businesses and
operations of the Company and its subsidiaries are in compliance with
applicable Environmental Laws (as defined in Section 8.11 hereof), except for
such non-compliance which has not had and will not have a Material Adverse
Effect; (ii) the Company and its subsidiaries have obtained and, as currently
operating, are in compliance with all Company Permits necessary under any
Environmental Law for the conduct of the business and operations of the
Company and its subsidiaries in the manner now conducted except for such non-
compliance which has not had and will not have a Material Adverse Effect; and
(iii) neither the Company nor any of its subsidiaries nor any of their
respective assets, properties, businesses or operations has received or is
subject to any outstanding order, decree, judgment, complaint, agreement,
claim, citation, notice, or proceeding indicating that the Company or any of
its subsidiaries is or may be (a) liable for a violation of any Environmental
Law or (b) liable for any Environmental Liabilities and Costs, where in each
case such liability would have a Material Adverse Effect.
Section 3.14 Insurance.
Except as set forth in the SEC Reports filed prior to May 7, 1997, the
Company and each of its Subsidiaries maintains, and through the Closing Date
will maintain, insurance with reputable insurers (or pursuant to prudent self-
insurance programs) in such amounts and covering such risks as are in
accordance with normal industry practice for companies engaged in businesses
similar to those of the Company and each of its Subsidiaries and owning
property in the same general areas in which the Company and each of its
Subsidiaries conducts their businesses. The Company and each of its
Subsidiaries may terminate each of its insurance policies or binders at or
after the closing and will incur no material penalties or other material costs
in doing so. None of such policies or binders was obtained through the use of
false or misleading information or the failure to provide the insurer with all
information requested in order to evaluate the liabilities and risks insured.
There is no material default
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with respect to any provision contained in any such policy or binder, nor has
the Company or any of its Subsidiaries failed to give any material notice or
present any material claim under any such policy or binders in due and timely
fashion. There are no billed but unpaid premiums past due under any such
policy or binder, the failure of which to be paid would result in the
cancellation of such policy or binder. Except as otherwise set forth in the
SEC Reports filed prior to May 7, 1997 or the Disclosure Letter, (a) there are
no outstanding claims (in excess of normal retentions) that are not covered
under any such policies or binders and, to the best knowledge of the Company,
there has not occurred any event that might reasonably form the basis of any
claim (in excess of normal retentions) that are not covered against or
relating to the Company or any of its Subsidiaries that is not covered by any
of such policies or binders; (b) no notice of cancellation or non-renewal of
any such policies or binders has been received; and (c) there are no
performance bonds outstanding with respect to the Company or any of its
Subsidiaries.
Section 3.15 Vote Required.
Assuming the accuracy of the representations by the Parent and the Sub in
Section 4.08, the affirmative vote of holders of a majority of the outstanding
Shares is the only vote of the holders of any class or series of the Company's
capital stock or other voting securities necessary to approve this Agreement
and the Merger; approval of the Stock Issuance Proposal requires the
affirmative vote of the majority of the Shares actually present and voting at
the Special Meeting at which such proposal is submitted (provided that at
least 50% of the issued and outstanding Shares are actually voted on the Stock
Issuance Proposal at such special meeting); and approval of the Amendment
Proposal requires the affirmative vote of not less than 66 2/3% of the
outstanding Shares, which vote with respect to the amendments to Articles
Tenth and Eleventh of the Certificate of Incorporation must also include the
affirmative vote of not less than 66 2/3% of the issued and outstanding Shares
excluding those shares beneficially owned by any "Related Person" (as defined
in the Certificate of Incorporation).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE SUB
The Parent and the Sub, jointly and severally, represent and warrant to the
Company as of the date hereof (or such other date as shall be expressly
specified) as follows:
Section 4.01 Organization and Qualification.
Each of the Parent and the Sub is duly organized and validly existing in
good standing under the laws of the state of its organization, with all
requisite power and authority to own its properties and conduct its business.
All of the current issued and outstanding capital stock of the Sub is owned
directly by the Parent, free and clear of any lien, mortgage, pledge, charge,
security interest or encumbrance of any kind, and at the Effective Time the
Sub will be a direct or indirect subsidiary of Parent.
Section 4.02 Authority Relative to this Agreement.
Each of the Parent and the Sub has full 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 Parent and the Sub and the
consummation by the Parent and the Sub of the transactions contemplated hereby
have been duly and validly authorized by all necessary action. This Agreement
has been duly and validly executed and delivered by the Parent and the Sub
and, assuming this Agreement constitutes the valid and binding obligation of
the Company, this Agreement constitutes a valid and binding agreement of each
of the Parent and the Sub, enforceable against each of the Parent and the Sub
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 4.03 Consents and Approvals; No Violation.
The execution and delivery of this Agreement by each of the Parent or the
Sub and the consummation of the transactions contemplated hereby will not (i)
conflict with or result in any breach of any provision of the respective
Certificates of Incorporation or Bylaws (or other similar governing documents)
of the Parent, the Sub or any of their subsidiaries; (ii) require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, except (A) in connection with the HSR
Act,
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(B) pursuant to the Exchange Act, (C) the filing of a certificate of merger
pursuant to the DGCL, (D) any applicable filings under state securities, blue
sky or "takeover" laws, (E) consents, approvals, authorizations or filings
under laws of jurisdictions outside the United States, (F) filings, notices,
consents, authorizations and approvals as may be required by local, state and
federal regulatory agencies, commissions, boards or public authorities with
jurisdiction over health care facilities and providers or (G) where the
failure to obtain such consent, approval, authorization or permit, or to make
such filing or notification, would not in the aggregate have an adverse effect
on the financial condition, business or results of operation of the Parent or
the Sub and their subsidiaries which is material to the Parent and its
subsidiaries taken as a whole or has a material adverse effect on the ability
of the Parent or the Sub 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
Parent or the Sub or any of their subsidiaries is a party or by which any of
its subsidiaries or any of their respective assets may be bound, except for
such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which would not in
the aggregate have an adverse effect on the financial condition, business or
results of operations of the Parent or the Sub and their subsidiaries which is
material to the Parent and its subsidiaries taken as a whole or has a material
adverse effect on the ability of the Parent or the Sub 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 Parent or the Sub or any of their subsidiaries which,
individually or in the aggregate, would have a material adverse effect on the
ability of the Parent or the Sub to consummate the transactions contemplated
hereby; or (v) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Parent, the Sub or any of their subsidiaries or
any of their respective assets, except for violations which would not in the
aggregate have an adverse effect on the financial condition, business or
results of operations of the Parent or the Sub and their subsidiaries which is
material to the Parent and its subsidiaries taken as a whole or has a material
adverse effect on the ability of the Parent or the Sub to consummate the
transactions contemplated hereby.
Section 4.04 Financing.
Subject to the conditions set forth in Sections 6.01 and 6.03, the Parent
will make, or cause a subsidiary to make, the Sub Equity Contribution
described in Section 5.14 (the "Equity Commitment"). The Parent has received a
binding written commitment, addressed to the Parent, the Sub and the Company
from Chase Securities, Inc. and The Chase Manhattan Bank (the "Debt
Commitment"), a true and correct copy of which was furnished to the Company,
to obtain, subject to the terms and conditions of the Debt Commitment, the
financing necessary (together with the Sub Equity Contribution (as defined in
Section 5.14)) to pay the Cash Election Price pursuant to the Merger, to pay
(or provide the funds for the Company to pay) all amounts contemplated by
Section 2.08 and Section 5.06 when due, to refinance any indebtedness or other
obligation of the Company, GranCare and their respective subsidiaries which
may become due as a result of this Agreement, the GranCare Merger Agreement or
any of the transactions contemplated hereby or thereby, and to pay all related
fees and expenses, which Debt Commitment is in full force and affect as of the
date hereof. Such Debt Commitment has been affirmed in writing as of
September , 1997 (and the term "Debt Commitment" refers to such commitment
as so affirmed). It is the good faith belief of Parent and its affiliates, as
of the date of this Amended and Restated Agreement, that the financing
contemplated by the Debt Commitment will be obtained, and the Parent shall use
commercially reasonable efforts to obtain such financing, including using
commercially reasonable efforts to fulfill or cause the fulfillment of any of
the conditions thereto. If such financing is not available, the Parent shall
(notwithstanding the provisions of Section 6.03(e)) use commercially
reasonable efforts to obtain other financing.
Section 4.05 Brokers.
No broker, finder or other investment banker is entitled to receive any
brokerage, finder's or other fee or commission in connection with this
Agreement or the transactions contemplated hereby based upon agreements made
by or on behalf of the Parent or the Sub.
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Section 4.06 Litigation, etc.
As of the date hereof there is no claim, action, proceeding or governmental
investigation pending or, to the best knowledge of the Parent or the Sub,
threatened against the Parent or any of its subsidiaries, including the Sub,
before any court or governmental or regulatory authority which, in the
aggregate would have a material adverse effect on the ability of the Parent or
the Sub to consummate the transactions contemplated by this Agreement. Neither
the Parent nor any of its subsidiaries, including the Sub is subject to any
outstanding order, writ, injunction or decree that would have a material
adverse effect on the ability of the Parent or the Sub to consummate the
transactions contemplated by this Agreement.
Section 4.07 Information Supplied.
The information supplied in writing by or on behalf of the Parent and the
Sub expressly for inclusion in the Proxy Statement, as supplemented if
necessary, and any other documents to be filed by the Company with the SEC or
any other governmental or regulatory authority in connection with the Merger
or the GranCare Merger and the other transactions contemplated hereby will
not, on the date of its filing or, with respect to the Proxy Statement, on the
date first sent or given to stockholders of the Company and stockholders of
GranCare contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not misleading.
Section 4.08 Ownership of Shares.
As of the date hereof, none of the Parent, the Sub or their affiliates
beneficially owns (within the meaning of Rule l3d-3 under the Exchange Act)
any Shares.
ARTICLE V
COVENANTS
Section 5.01 Conduct of Business of the Company.
Except as contemplated by this Agreement and in the Disclosure Letter,
during the period from the date of this Agreement to the Effective Date, the
Company and its subsidiaries will each conduct its operations according to its
ordinary and usual course of business and consistent with past practice and
will use all commercially reasonable efforts consistent with prudent business
practice to preserve intact the business organization of the Company and each
of its subsidiaries, to keep available the services of its and their current
officers and key employees and to maintain existing relationships with those
having significant business relationships with the Company and its
subsidiaries, in each case in all material respects. Without limiting the
generality of the foregoing, except as set forth in Section 5.01 of the
Disclosure Letter and except as otherwise expressly provided in or
contemplated by this Agreement or the Disclosure Letter, prior to the time
specified in the preceding sentence, neither the Company nor any of its
subsidiaries, as the case may be, will, without the prior written consent of
the Parent (not to be unreasonably withheld), (i) except for issuances of
capital stock of the Company's subsidiaries to the Company or a wholly-owned
subsidiary of the Company, issue, sell or pledge, or authorize or propose the
issuance, sale or pledge of (A) Company Securities or Subsidiary Securities,
in each case, other than Shares issuable upon exercise or vesting of the
Rights or allocations or issuances pursuant to the Stock Plans or the exercise
of rights under any Plan or any agreement referred to in Section 3.02 of the
Disclosure Letter, or (B) any other securities in respect of, in lieu of or in
substitution for Shares outstanding on the date hereof; (ii) otherwise acquire
or redeem, directly or indirectly, any Company Securities or Subsidiary
Securities (including the Shares); (iii) split, combine or reclassify its
capital stock or declare, set aside, make or pay any dividend or distribution
(whether in cash, stock or property) on any shares of capital stock of the
Company or any of its subsidiaries (other than cash dividends paid to the
Company by its wholly-owned subsidiaries with regard to their capital stock);
(iv) (A) make any acquisition, by means of a merger or otherwise, of assets or
securities, or any sale, lease, encumbrance or other disposition of assets or
securities, in each case involving the payment or receipt of consideration of
$10,000,000 or more outside the ordinary and usual course of business
consistent with past practice in all material respects, or (B) other than in
the ordinary course of
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business, enter into a material contract or grant any release or
relinquishment of any material contract rights; (v) incur or assume any long-
term debt for borrowed money except for debt incurred in the ordinary course
of business consistent in all material respects with past practice; (vi)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person
except wholly-owned subsidiaries of the Company, except in the ordinary course
of business consistent in all material respects with past practice; (vii)
except in connection with transactions permitted by (iv) above, make any
loans, advances or capital contributions to, or investments in, any other
person (other than wholly-owned subsidiaries of the Company) the aggregate in
excess of $10,000,000, except in the ordinary course of business consistent in
all material respects with past practice; (viii) change any of the accounting
principles or practices used by it or any of its subsidiaries, except as
required by the SEC or required by United States generally accented accounting
principles; (ix) adopt any amendments to the Certificate of Incorporation or
Bylaws (or similar documents) of the Company or any subsidiary; (x) except as,
may be required under any previously existing agreement or Plan, grant any
stock related awards; (xi) enter into any new, or amend any existing, employee
benefit, pension or other plan (whether or not subject to ERISA), employment,
severance, consulting or salary continuation agreements with any officers,
directors or key employees, or grant any increases in the compensation or
benefits to officers, directors and key employees; (xii) enter into, amend, or
extend any material collective bargaining or other labor agreement, except as
required by law; (xiii) adopt, make any material amendment to or terminate any
material employee benefit plan except as required by law or to maintain tax
qualified status or as requested by the Internal Revenue Service in order to
receive a determination letter for such employee benefit plan; (xiv) merge or
consolidate with or transfer all or substantially all of its assets to another
corporation or other business entity or individual, (xv) liquidate, wind-up or
dissolve (or suffer any liquidation or dissolution); or (xvi) agree in writing
or otherwise to take any of the foregoing actions.
Section 5.02 No Solicitation.
Immediately following the execution of this Agreement, the Company will
terminate any and all existing activities, discussions and negotiations with
third parties (other than Parent and GranCare) with respect to any possible
Acquisition Transaction (as defined below). The Company and its subsidiaries
and their respective officers, directors and employees shall not, and the
Company and its subsidiaries will use all reasonable efforts to cause their
representatives, agents or affiliates not to, directly or indirectly,
knowingly encourage, solicit, or initiate any discussions or negotiations
with, any corporation, partnership, person or other entity or group (other
than the Parent, the Sub and GranCare and any affiliate or associate of the
Parent, the Sub and GranCare and any of their respective directors, officers,
employees, representatives and agents) concerning any merger, consolidation,
business combination, liquidation, reorganization, sale of substantial assets,
sale of shares of capital stock or similar transactions involving the Company
or any material subsidiary of the Company (each an "Acquisition Transaction");
provided, however, that if during the 45 days following the date of this
Agreement, the Company's Board of Directors determines, after consultation
with counsel, that it is required to do so in the exercise of its fiduciary
duties to the Company or its stockholders, the Board of Directors may respond
to, or engage in discussions with respect to, a written offer for an
Acquisition Transaction during such 45 day period; and provided further that
nothing contained in this Section 5.02 shall prohibit the Company or its Board
of Directors from taking and disclosing to the Company's stockholders a
position with respect to a tender offer by a third party pursuant to Rules
14d-9 and 14e-2(a) promulgated under the Exchange Act or from making such
other disclosure to the Company's stockholders which, as advised by outside
counsel, is required under applicable law. The Company will promptly
communicate to Parent the terms and conditions of any proposal for an
Acquisition Transaction that it may receive and will keep Parent informed as
to the status of any actions, including any discussions, taken pursuant to
such proposed or contemplated Acquisition Transaction.
Section 5.03 Access to Information.
(a) Between the date of this Agreement and the Effective Time, the Company
will, upon reasonable notice to an executive officer of the Company, (i) give
the Parent and the Sub and their authorized representatives access (during
regular business hours), in a manner so as not to interfere with the normal
operations of the Company and its subsidiaries and subject to reasonable
restrictions imposed by an executive officer of the Company, to all
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key employees, offices and other facilities and to all books and records of
the Company and its subsidiaries and cause the Company's and its subsidiaries'
independent public accountants to provide access to their work papers and such
other information as the Parent or the Sub may reasonably request, (ii) permit
the Parent and the Sub to make such inspections as they may reasonably require
and (iii) cause its officers and those of its subsidiaries to furnish the
Parent and the Sub with such financial and operating data and other
information with respect to the business, properties and personnel of the
Company and its subsidiaries as the Parent or the Sub may from time to time
reasonably request.
(b) Information obtained by the Parent or the Sub or their respective
representatives pursuant to this Section 5.03 shall be subject to the
provisions of the letter agreement between GranCare and the Company (the
"Confidentiality Agreement") the terms of which are incorporated herein by
reference.
Section 5.04 Reasonable Efforts, Filings.
Subject to the terms and conditions herein provided for and to the fiduciary
duties of the Board of Directors of the Company under applicable law as
advised by legal counsel each of the parties hereto agrees to use commercially
reasonable efforts to take, or cause to be taken, all appropriate action, and
to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective, as soon as
practicable, the transactions contemplated by this Agreement. In connection
with and without limiting the foregoing, (a) (i) the Company, the Parent and
the Sub shall use all reasonable efforts to make promptly any required
submissions under the HSR Act which the Company and the Parent or the Sub
determines should be made, in each case, with respect to the Merger, and the
transactions contemplated by this Agreement (ii) the Company, the Parent and
the Sub shall use all reasonable efforts to respond as promptly as practicable
to all inquiries received from the Federal Trade Commission (the "FTC") and
the Antitrust Division of the Department of Justice (the "Antitrust Division")
for additional information or documentation and to respond as promptly as
practicable to all inquiries and requests received from any State Attorney
General or other governmental authority in connection with antitrust matters,
and (iii) if required by the FTC, the Antitrust Division, any State Attorney
General or any other governmental authority, or if otherwise necessary or
required in order to consummate the Merger, Parent agrees promptly to take all
commercially reasonable steps (including executing agreements and submitting
to judicial or administrative orders) to effect the sale or other disposition
of, or to hold separate assets or businesses of Parent or the Company or any
of their respective subsidiaries or affiliates (including, without limitation,
pursuant to arrangements which limit or prohibit access to such assets or
businesses) unless such sale or other disposition would have a Material
Adverse Effect on the Company, (b) the Parent, the Sub and the Company will
take all such action as may be necessary under federal and state securities
laws applicable or necessary for, and will file and, if appropriate, use all
reasonable efforts to have declared effective or approved all documents and
notifications with the SEC and other governmental or regulating bodies which
the Parent, the Sub and the Company determines, in each case, is necessary for
the consummation of the Merger and the transactions contemplated hereby and
each party shall give the other information requested by it which is
reasonably necessary to enable it to take such action, (c) the Parent, the Sub
and the Company will, and will cause each of their respective subsidiaries to,
use commercially reasonable efforts to obtain consents of all third parties
and governmental bodies (other than with respect to healthcare regulatory
licenses, certifications or permits or provider agreements) necessary or, in
the reasonable opinion of the Parent or the Company, advisable to consummate
the Merger and the transactions contemplated by this Agreement and (d) prior
to the Effective Time, the Parent, Sub and the Company will take, and cause
their respective subsidiaries to take, such actions to apply for such
governmental approvals or consents, or make filings with governmental bodies,
with respect to healthcare regulatory licenses, certifications, or permits or
provider agreements as may be required by applicable law. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the Parent shall cause the proper officers
and directors of the Surviving Corporation, the Parent or the Sub, as the case
may be to take all such necessary action.
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Section 5.05 Indemnification and Insurance.
(a) The Sub agrees that all rights to indemnification existing in favor of
the present or former directors, officers and employees of the Company (as
such) or any of its subsidiaries or present or former directors of the Company
or any of its subsidiaries serving or who served at the Company's or any of
its subsidiaries' request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, as provided in the Company's Certificate of Incorporation or
Bylaws, or the articles of incorporation, bylaws or similar documents of any
of the Company's subsidiaries and the indemnification agreements with such
present and former directors, officers and employees as in effect as of the
date hereof with respect to matters occurring at or prior to the Effective
Time shall survive the Merger and shall continue in full force and effect and
without modification (other than modifications which would enlarge the
indemnification rights) for a period of not less than the statutes of
limitations applicable to such matters, and the Surviving Corporation shall
comply fully with its obligations hereunder and thereunder. Without limiting
the foregoing, the Company shall, and after the Effective Time, the Surviving
Corporation shall periodically advance expenses as incurred with respect to
the foregoing (including with respect to any action to enforce rights to
indemnification or the advancement of expenses) to the fullest extent
permitted under applicable law; provided, however, that the person to whom the
expenses are advanced provides an undertaking (without delivering a bond or
other security) to repay such advance if it is ultimately determined that such
person is not entitled to indemnification.
(b) For a period of six (6) years after the Effective Time, the Surviving
Corporation shall maintain officers' and directors' liability insurance and
fiduciary liability insurance covering the persons described in paragraph (a)
of this Section 5.05 (whether or not they are entitled to indemnification
thereunder) who are currently covered by the Company's existing officers' and
directors' or fiduciary liability insurance policies on terms no less
advantageous to such indemnified parties than such existing insurance.
(c) The Surviving Corporation shall indemnify and hold harmless (and shall
advance expenses to), to the fullest extent permitted under applicable law,
each director, officer, employee, fiduciary and agent of the Company or any
subsidiary of the Company including, without limitation, officers and
directors, serving as such on the date hereof against any costs and expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation relating to any of the
transactions contemplated hereby, and in the event of any such claim, action,
suit, proceeding or investigation (whether arising before or after the
Effective Time), (i) the Surviving Corporation shall pay the reasonable fees
and expenses of counsel selected by the indemnified parties, promptly as
statements therefor are received and (ii) the parties hereto will cooperate in
the defense of any such matter; provided, however, that the Surviving
Corporation shall not be liable for any settlement effected without its prior
written consent, which consent shall not unreasonably be withheld.
(d) The Surviving Corporation shall pay all reasonable costs and expenses,
including attorneys' fees, that may be incurred by any indemnified parties in
enforcing the indemnity and other obligations provided for in this Section
5.05.
(e) In the event the Surviving Corporation or any of its respective
successors or assigns (i) consolidates with or merges into any other person
and is not the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, proper provisions shall be made so that
the successors and assigns of the Surviving Corporation assumes the
obligations set forth in this Section 5.05.
(f) This Section 5.05, which shall survive the consummation of the Merger at
the Effective Time and shall continue for the periods specified herein, is
intended to benefit the Company, the Surviving Corporation, and any person or
entity referenced in this Section 5.05 or indemnified hereunder each of whom
may enforce the provisions of this Section 5.05 (whether or not parties to
this Agreement).
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Section 5.06 Employee Plans and Benefits and Employment Contracts.
(a) From and after the Effective Time, the Surviving Corporation and its
subsidiaries will honor in accordance with their terms all existing
employment, severance, consulting and salary continuation agreements between
the Company or any of its subsidiaries and any current or former officer,
director, employee or consultant of the Company or any of its subsidiaries or
group of such officers, directors, employees or consultants described in
Sections 3.09 and 5.06(a) of the Disclosure Letter.
(b) In addition to honoring the agreements referred to in Section 5.06(a),
until the first anniversary of the Effective Time, the Surviving Corporation
and its subsidiaries will provide or will cause to be provided to each current
or former employee (presently entitled to benefits) of the Company or its
subsidiaries (excluding employees covered by collective bargaining agreements)
(i) employee compensation, benefit plans, programs, policies and arrangements,
that are no less favorable in the aggregate than those currently provided by
the Company and its subsidiaries to each such employees and former employee;
and (ii) severance benefits that are in the aggregate no less favorable to any
employee of the Company or any of its subsidiaries than those currently
provided to each such employee. Nothing in this Section 5.06(b) shall be
deemed to prevent the Surviving Corporation or any of its subsidiaries from
making any change required by law.
(c) To the extent permitted under applicable law, each employee of the
Company or its subsidiaries shall be given credit for all service with the
Company or its Subsidiaries (or service credited by the Company or its
subsidiaries) under all employee benefit plans, programs, policies and
arrangements maintained by the Surviving Corporation in which they participate
or in which they become participants for purposes of eligibility, vesting and
benefit accrual including, without limitation, for purposes of determining (i)
short-term and long-term disability benefits, (ii) severance benefits, (iii)
vacation benefits and (iv) benefits under any retirement plan.
(d) This Section 5.06, which shall survive the consummation of the Merger at
the Effective Time and shall continue without limit, is intended to benefit
and bind the Company, the Surviving Corporation and any person or entity
referenced in this Section 5.06, each of whom may enforce the provisions of
this Section 5.06 whether or not parties to this Agreement. Except as provided
in clause (a) above, nothing contained in this Section 5.06 shall create any
beneficiary rights in any employee or former employee (including any dependent
thereof) of the Company, any of its subsidiaries or the Surviving Corporation
in respect of continued employment for any specified period of any nature or
kind whatsoever.
Section 5.07 Proxy Statement.
The Company shall prepare and file with the SEC, as soon as practicable, a
preliminary Proxy Statement relating to the Stockholder Approvals as required
by the Exchange Act and the rules and regulations thereunder. The Company,
GranCare, the Parent and the Sub will cooperate with each other in the
preparation of the preliminary Proxy Statement. The Company shall use all
reasonable efforts to respond promptly, together with GranCare, to any
comments made by the SEC with respect to the preliminary Proxy Statement, and
to cause the Proxy Statement to be mailed to the Company's stockholders and
GranCare's stockholders at the earliest practicable date.
Section 5.08 Notification of Certain Matters.
The Company shall give prompt notice to the Parent and the Sub, and the
Parent or the Sub, as the case may be, shall give prompt notice to the
Company, of (i) the occurrence, or non-occurrence, of any event the effect of
which is likely to cause any representation or warranty of such party
contained in this Agreement to be untrue or inaccurate in any material respect
at or prior to the Effective Time and (ii) any material failure of such party
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.08 shall not limit or otherwise affect the
remedies available hereunder to any of the parties receiving such notice.
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Section 5.09 Rights Agreement Amendment.
Subject to the terms and conditions of this Agreement, (a) the Company shall
promptly enter into an amendment to the Rights Agreement (the "Rights
Agreement Amendment") pursuant to which the Rights Agreement and the Rights
Agreement Rights will not be applicable to the Merger, shall not result in a
"Distribution Date" under the Rights Agreement and consummation of the Merger
shall not result in the Parent or the Sub or their affiliates being an
"Acquiring Person" or result in the occurrence of a "Flip-In Event" or a
"Flip-Over Event" thereunder, and (b) the Company shall cause the Rights
Agreement to be further amended at or prior to the Effective Time to provide
that the Effective Date shall constitute the "Expiration Date" thereunder.
Section 5.10 Solvency Letter.
(a) The Parent shall use commercially reasonable efforts to deliver to the
Board of Directors of the Company prior to the consummation of the Merger, a
letter (the "Solvency Letter") from an independent third party selected by the
Parent and reasonably satisfactory to the Company (the "Appraiser") attesting
that, immediately after the Effective Time, the Surviving Corporation: (i)
will be solvent (in that both the fair value of its assets is not less than
the sum of its debts and that the present fair saleable value of its assets
will not be less than the amount required to pay its probable liability on its
debts as they become absolute and matured), (ii) will have adequate capital
with which to engage in its business; and (iii) will not have incurred and
does not plan to incur debts beyond its ability to pay as they become absolute
and matured, based upon the proposed financing structure for the Mergers and
certain other financial information to be provided to the Appraiser by the
Parent and the Company and after giving effect to any changes in the Company's
assets and liabilities as a result of the Merger, the GranCare Merger and the
financing relating thereto. Subject to the foregoing, the Solvency Letter
shall be in form and substance reasonably satisfactory to the Company. Except
with the prior written consent of the Company's Board of Directors, the Parent
will not consummate the Merger unless and until such Board shall have received
the Solvency Letter (the "Solvency Letter Conditions").
(b) The Parent will request the Appraiser to deliver the Solvency Letter as
promptly as practicable. The parties agree to cooperate with the Appraiser in
connection with the preparation of the Solvency Letter, including, without
limitations providing the Appraiser with any information reasonably available
to them necessary for the Appraiser's preparation of such letter.
(c) The Sub shall provide to the Board any appraisals, opinions or other
statements relating to the solvency and adequate capitalization of the
Surviving Corporation and the Surviving Corporation's ability to pay its
debts, at the same time that such materials are given to any banks or other
lenders in connection with the Merger.
Section 5.11 New York Stock Exchange Listing.
Each party agrees to use commercially reasonable efforts to retain the
listing of the Retained LCA Shares on the New York Stock Exchange following
the Effective Time.
Section 5.12 Election to the Company's Board of Directors; Stockholders
Agreement.
Prior to the Effective Time of the Merger, the Sub shall increase the size
of its board of directors to eleven and cause to be elected as directors of
Sub (and to be in office immediately prior to the Effective Time) six nominees
of Parent (in compliance with the requirements of the Stockholders Agreement
referred to below), three nominees of GranCare, one of the current directors
of the Company (mutually satisfactory to Parent and the Company) and Keith B.
Pitts, the Chief Executive Officer of the Surviving Corporation. In addition,
at the Effective Time, the Surviving Corporation and the Parent shall enter
into a stockholders agreement substantially in the form of Exhibit C hereto
(the "Stockholders Agreement").
Section 5.13 Registration Rights Agreement.
Prior to the Effective Time, the Company shall execute and deliver to Parent
a registration rights agreement (the "Registration Rights Agreement") in a
form mutually acceptable to Parent and the Company, such agreement to provide
Parent with two demand registration rights and ancillary registration rights
for its Shares all subject to customary terms and provisions.
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Section 5.14 Capitalization of Sub.
Subject to the terms and conditions of this Agreement, the Parent agrees to
contribute, or cause to be contributed, to Sub not less than $240 million and,
at Parent's sole election, up to $250 million (the total amount actually so
contributed being referred to as the "Sub Equity Contribution") in exchange
for shares of the Sub at a price of $40.50 per share (and such shares of the
Sub shall be converted into shares of the Surviving Corporation pursuant to
Section 2.04). As of the date hereof, and at all times on and before the
Effective Time, the Sub (i) has not issued and will not issue any shares
(except for a minimal number of shares for minimal consideration, which shares
shall be cancelled prior to the Effective Time); (ii) has not granted and will
not grant any options or rights to purchase or acquire shares; (iii) has not
granted or entered into and will not grant or enter into any options,
warrants, rights, or other agreements or commitments to issue, any capital
stock, voting securities or securities convertible into or exchangeable for
capital stock or voting securities of the Sub; and (iv) does not have and will
not have any obligation to grant, extend or enter into any subscription,
warrant, option, right, convertible or exchangeable security or other similar
agreement or commitment, other than that number of shares of common stock of
the Sub as is equal to the Sub Equity Contribution divided by $40.50.
Section 5.15 Sub Bylaws.
The Sub shall, prior to the Effective Time, amend its Bylaws to read in
their entirety as set forth in Exhibit B hereto, with such changes as shall be
approved in advance by the Parent, GranCare and the Company.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 6.01 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger are subject to
the satisfaction or waiver, where permissible, prior to the proposed Effective
Time, of the following conditions:
(a) Company stockholder approval of this Agreement and the Stock Issuance
Proposal shall have been obtained as required by and in accordance with
applicable law and the Company's Certificate of Incorporation;
(b) no statute, rule, regulation, executive order, decree or injunction
shall have been enacted, entered, promulgated or enforced by any court or
governmental authority against the Parent, the Sub or the Company and be in
effect that prohibits or restricts the consummation of the Merger or makes
such consummation illegal (each party agreeing to use commercially
reasonable efforts to have any such prohibition lifted);
(c) the conditions to each party's obligations to effect the GranCare
Merger (other than the consummation of the Merger) shall have been
satisfied or waived; provided, however, that neither the Company nor the
Surviving Corporation may waive any such condition or modify or amend the
terms of such merger agreement without the prior written consent of Parent;
and
(d) the waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated and all filings required
to be made prior to the Effective Time with, and all consents, approvals,
authorizations and permits required to be obtained prior to the Effective
Time from, any Governmental Authority in connection with the consummation
of the Merger shall have been made or obtained (as the case may be), except
where the failure to obtain such consents, approvals, authorizations and
permits would not be reasonably likely to result in a Material Adverse
Effect on the Company or to materially adversely affect the consummation of
the Merger.
(e) no action shall have been taken and be continuing, and no statute,
rule, regulation, judgment, administrative interpretation, order or
injunction shall have been enacted, promulgated, entered, enforced or
deemed applicable to the Merger, which would make illegal or prohibit the
consummation of the Merger; and
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(f) the conditions set forth in the Debt Commitment shall have been
satisfied or waived (other than the conditions relating to the consummation
of the Merger and the GranCare Merger);
Section 6.02 Additional Condition to the Company's Obligation to Effect the
Merger.
The obligation of the Company to effect the Merger is subject to the
satisfaction or waiver by the Company, prior to the proposed Effective Time,
of the following conditions:
(a) the Solvency Letter Condition; and
(b) the representations and warranties of the Parent and the Sub set
forth in Article III shall be true and correct in all material respects as
of the Effective Time as though made on and as of that time, and the Parent
and the Sub shall have (i) executed and delivered the Stockholders
Agreement, (ii) amended its Bylaws as contemplated by Section 5.15, and
(iii) performed in all material respects all other covenants and agreements
required to be performed by it under this Agreement at or prior to the
Effective Time.
Section 6.03 Additional Conditions to the Parent's and the Sub's Obligations
to Effect the Merger.
The obligations of the Parent and the Sub to effect the Merger shall be
subject to the satisfaction or waiver by the Parent and the Sub, prior to the
proposed Effective Time, of the following conditions:
(a) no action or proceeding brought by any governmental, regulatory or
administrative agency, authority or commission shall have been instituted
and be pending that would be reasonably likely to result in any of the
consequences referred to in clauses (b) or (e) of Section 6.01 above and
there shall be no proceeding or other action (including, without
limitation, relating to health care, regulatory, environmental and pension
matters) pending or threatened against the Company, GranCare or their
respective subsidiaries brought by any governmental, regulatory or
administrative agency, authority or commission which is reasonably likely
to have a Material Adverse Effect;
(b) during the 30 calendar day period ending on the date of the Closing,
there shall not have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange or
in the over-the-counter market in the United States, (ii) the declaration
of any banking moratorium or any suspension of payments in respect of banks
or any material limitation (whether or not mandatory) on the extension of
credit by lending institutions in the United States, (iii) the commencement
of a war, material armed hostilities or any other material international or
national calamity involving the United States having a significant adverse
effect on the functioning of the financial markets in the United States, or
(iv) in the case of any of the foregoing existing at the time of the
execution of the Merger Agreement, a material acceleration or worsening
thereof;
(c) since September 30, 1996, with respect to the Company, and December
31, 1996, with respect to GranCare, no change shall have occurred or have
been threatened in the business, operations, prospects, properties or
condition (financial or other) of the Company, GranCare or any of their
respective subsidiaries that would have or would be reasonably likely to
have a Material Adverse Effect provided, that the transactions contemplated
by the Recapitalization Agreement and the Merger Agreement shall not be
deemed to be such a materially adverse change;
(d) the representations and warranties of the Company set forth in
Article IV shall be true and correct in all material respects as of the
Effective Time as though made on and as of that time, and the Company shall
have (i) executed and delivered the Stockholders Agreement, (ii) amended
the Rights Agreement as contemplated by clause (b) of Section 5.09, and
(iii) performed in all material respects all other covenants and agreements
required to be performed by them under this Agreement at or prior to the
Effective Time;
(e) the transactions contemplated by the Debt Commitment shall have been
consummated pursuant to definitive agreements in form and substance
reflecting the terms of the Debt Commitment and otherwise reasonably
satisfactory to Parent; any other refinancings, or amendments or consents
relating to existing financing of the Company or GranCare made or obtained
in connection with the Merger or the GranCare
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Merger shall be reasonably satisfactory to Parent; and all proceeds
received by the Surviving Corporation on the Closing Date under or as a
result of the transactions contemplated by the Debt Commitment and as a
result of the Merger shall be used (or shall be usable) solely to
consummate the transactions contemplated by this Agreement and the GranCare
Merger Agreement, including payment of fees and expenses thereof, the
refinancing of existing indebtedness and to provide working capital to the
Surviving Corporation and its subsidiaries;
(f) the Company's stockholders shall have approved the Amendment
Proposal, including specifically the affirmative vote of not less than 66
2/3% of the outstanding Shares as of the record date (including as to the
amendments to Articles Tenth and Eleventh of the Company's Certificate of
Corporation, as in effect prior to such vote, the affirmative vote of not
less than 66 2/3% of such shares excluding Shares owned by a "Related
Person" as defined in such Company Certificate of Incorporation).
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
Section 7.01 Termination.
This Agreement may be terminated and the Merger may be abandoned at any time
notwithstanding approval thereof by the stockholders of the Company, but prior
to the Effective Time:
(a) by mutual written consent of the Boards of Directors of the Company
and the Parent;
(b) by the Parent or the Company if the Effective Time shall not have
occurred on or before November 17, 1997 (provided that the right to
terminate this Agreement under this Section 7.01(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
has been the cause of or resulted in the failure of the Effective Time to
occur on or before such date);
(c) by the Parent or the Company if any court of competent jurisdiction
in the United States or other United States governmental body shall have
issued an order, decree or ruling, or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and non-appealable;
(d) prior to obtaining the Stockholder Approvals, by the Parent if the
Board of Directors of the Company withdraws or modifies in a manner adverse
to the Parent or the Sub its favorable recommendation with respect to the
Stockholder Approvals or shall have recommended an Acquisition Transaction
with a party other than the Parent or any of its affiliates;
(e) by the Company if (i) any of the representations and warranties of
the Parent or the Sub contained in this Agreement were untrue in any
material respect when made or have since become, and at the time of
termination remain, untrue in any material respect, or (ii) the Parent or
the Sub shall have breached or failed to comply in any material respect
with any of its obligations under this Agreement and such breach or failure
shall continue unremedied for ten (10) business days after the Parent or
the Sub has received written notice from the Company of the occurrence of
such breach or failure;
(f) prior to obtaining Stockholder Approvals, by the Company if the
Company receives a written offer with respect to any Acquisition
Transaction with a party other than the Parent or its affiliates or such
other party has commenced a tender offer which, in either case, the Board
of Directors of the Company believes in good faith is more favorable to the
Company's stockholders than the transactions contemplated by this
Agreement;
(g) by the Parent, if (x) any of the representations and warranties of
the Company contained in this Agreement shall fail to be true and correct
in any material respect, in each case either as of when made or have since
become, and at the time of termination remain, untrue in any material
respect, or (y) the Company shall have breached or failed to comply in any
material respect with any of its obligations under this Agreement (other
than as a result of a breach by the Parent or the Sub of any of their
obligations under this Agreement) and, with respect to a representation or
warranty, such breach shall continue unremedied for ten (10) days after the
Company has received written notice from the Parent or the Sub of the
occurrence of such breach or failure;
I-24
<PAGE>
(h) by the Parent or the Company if the GranCare Merger Agreement is
terminated; or
(i) by the Parent or the Company if the Company fails to obtain approval
of its stockholders of this Agreement or the Stock Issuance Proposal, or by
the Parent, if the Company fails to obtain approval of its stockholders of
the Amendment Proposal, in either case at the meeting held for such purpose
(or any adjournment thereof).
Section 7.02 Effect of Termination.
If this Agreement is terminated and the Merger is abandoned pursuant to
Section 7.01 hereof, this Agreement, except for the provisions of Sections
5.03(b), this Section 7.02 and 8.10 hereof, shall forthwith become void and
have no effect, without any liability on the part of any party or its
directors, officers or stockholders. The Confidentiality Agreement shall
remain in full force and effect following any termination of this Agreement.
If this Agreement is terminated pursuant to Section 7.01(d) or (f), the
Company promptly, but in no event later than one business day after
termination of this Agreement will pay to the Parent a fee (the "Termination
Fee") equal to $20 million in same day funds, plus interest on such amount
from the date payable until paid at a rate equal to 9% per annum. If this
Agreement is terminated pursuant to Section 7.01(i) and, at the time of the
stockholder vote referred to herein, any person has made (or publicly
disclosed an intention to make) a proposal to effect an Acquisition
Transaction (and shall not have irrevocably withdrawn such proposal), and
within 180 days after such termination an Acquisition Transaction shall be
consummated, the Company shall promptly, but in no event later than one
business day after such consummation, pay the Termination Fee. If this
Agreement is terminated pursuant to Section 7.01(d), (f), (g) or (i), the
Company shall also pay the out-of-pocket fees and expenses reasonably incurred
by the Parent and the Sub in connection with this Agreement, provided that
such fees and expenses shall not exceed $6,000,000 expenses (plus reasonable
fees and of up to $1,000,000 in connection with any litigation with respect to
this Agreement). Nothing in this Section 7.02 shall relieve any party to this
Agreement of liability for breach of this Agreement.
Section 7.03 Amendment.
To the extent permitted by applicable law, this Agreement may be amended by
action taken by or on behalf of the Boards of Directors of the Company, the
Parent and the Sub at any time before or after adoption of this Agreement by
the stockholders of the Company but, after any such stockholder approval, no
amendment shall be made which decreases the Merger Consideration or which
adversely affects the rights of the Company's stockholders hereunder without
the approval of the stockholders of the Company. This Agreement may not be
amended except by an instrument in writing signed on behalf of all of the
parties.
Section 7.04 Extension; Waiver.
At any time prior to the Effective Time, the parties hereto, by action taken
by or on behalf of the respective Boards of Directors of the Company, the
Parent and the Sub may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein by any
other applicable party or in any document, certificate or writing delivered
pursuant hereto by any other applicable party or (iii) waive compliance with
any of the agreements or conditions contained herein. Any agreement on the
part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
I-25
<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Survival of Representations and Warranties.
The representations and warranties made in Articles III and IV shall not
survive beyond the Effective Time. This Section 8.01 shall not limit any
covenant or agreement of the parties hereto which by its terms contemplates
performance after the Effective Time.
Section 8.02 Entire Agreement; Assignment.
Except for the Confidentiality Agreement and the Disclosure Letter, this
Agreement (a) constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof and (b) shall not be assigned by operation of law or
otherwise; provided, however, that the Parent or the Sub may assign any of its
rights and obligations (i) to any subsidiary of the Parent or the Sub
incorporated in Delaware, or (ii) the right to purchase, directly or
indirectly, up to 40% of the issued and outstanding shares of the Sub
immediately prior to the Effective Time, but no such assignment shall relieve
the Parent or the Sub, as the case may be, of its obligations hereunder.
Section 8.03 Enforcement of the Agreement; Jurisdiction.
The parties hereto agree that irreparable damage would occur 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 parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and
provisions hereof in any federal or state court located in the State of
Delaware, this being in addition to any other remedy to which they are
entitled at law or in equity.
The parties hereto consent and agree that the state or federal courts
located in Delaware shall have exclusive jurisdiction to hear and determine
any claims or disputes pertaining to this Agreement or to any matter arising
out of or related to this Agreement and each party hereto waives any objection
that it may have based upon lack of personal jurisdiction, improper venue or
forum non conveniens and hereby consents to the granting of such legal or
equitable relief as is deemed appropriate by such court.
Section 8.04 Validity.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
Section 8.05 Notices.
All notices, requests, claims, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by facsimile transmission with confirmation of receipt, or by
registered or certified mail (postage prepaid, return receipt requested) to
the respective parties as follows:
if to the Parent or the Sub:
c/o Apollo Management, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
I-26
<PAGE>
with a copy to:
Sidley & Austin
555 W. Fifth Street, Suite 4000
Los Angeles, California 90013
Attention: Robert W. Kadlec, Esq.
if to the Company:
Living Centers of America, Inc.
15415 Katy Freeway, Suite 800
Houston, Texas 77094
Attention: Susan Thomas Whittle, Esq., General Counsel
Sydney K. Boone, Jr., Esq., Associate General Counsel
with copies to:
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Victor I. Lewkow, Esq.
Mayor, Day, Caldwell & Keeton L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Attention: Jeff C. Dodd, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
Section 8.06 Governing Law.
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 principles of conflicts of laws applicable thereto.
Section 8.07 Descriptive Headings.
The descriptive headings herein are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
Section 8.08 Parties in Interest.
This Agreement shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended
to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement except for Sections 2.08, 5.05
and 5.06 (which are intended to be for the benefit of the persons referred to
therein, and may be enforced by any such persons).
Section 8.09 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but all of which shall constitute one and the same
agreement.
I-27
<PAGE>
Section 8.10 Fees and Expenses.
If the Merger is not consummated, all costs and expenses incurred in
connection with the transactions contemplated by this Agreement shall be paid
by the party incurring such expenses, except as provided expressly to the
contrary herein. If the Merger is consummated, the Surviving Corporation shall
reimburse Parent for all such costs and expenses.
Section 8.11 Certain Definitions; Interpretation.
(a) "business day" shall mean any day that is not a Saturday, Sunday or
other day on which banking institutions in New York, New York are authorized
or required by law or executive order to close;
(b) "Environmental Law" means any law, regulation, decree, judgment, permit
or authorization relating to works or public safety and the indoor and outdoor
environment, including, without limitation, pollution, contamination, clean-
up, regulation and protection of the air, water or soils in the indoor or
outdoor environment;
(c) "Environmental Liabilities and Costs" means all damages, penalties,
obligations or clean-up costs assessed or levied pursuant to any Environmental
Law;
(d) "Material Adverse Effect" shall mean any adverse change in the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries that is material to the Company and its subsidiaries taken as a
whole, excluding any such adverse change that is due to events, occurrences,
facts, conditions, changes, developments or effects which affect the economy
generally; and
(e) "subsidiary" shall mean, when used with reference to an entity, any
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions, or a majority of the outstanding voting
securities of which, are owned directly or indirectly by such entity.
Section 8.12 Disclosure Letter.
Any disclosure under one section of the Disclosure Letter shall be deemed
disclosure under all sections of the Disclosure Letter. Disclosure of any
matter in the Disclosure Letter shall not constitute an expression of a view
that such matter is material or is required to be disclosed pursuant to this
Agreement.
Section 8.13 Press Releases.
Subject to the proviso to this sentence, the Parent, the Sub and the Company
will consult with each other before issuing any press release or otherwise
making any public statements with respect to the transactions contemplated
hereby and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law or by
obligations pursuant to the rules of The New York Stock Exchange, Inc. and any
other appropriate exchange.
Section 8.14 Obligation of the Parent.
Whenever this Agreement requires Sub to take any action, such requirement
shall be deemed to include an undertaking on the part of Parent to cause Sub
to take such action.
Section 8.15. No Waiver.
Any reference in this Agreement to the "date hereof," the "date of this
Agreement" or the "date of execution of this Agreement" shall be deemed to
refer to May 7, 1997, the date of the Original Merger Agreement, but any
reference to the "date of this Amended and Restated Agreement" or the "date of
execution of this Amended and Restated Agreement" shall refer to September 17,
1997. The parties' execution and delivery of this Amended and Restated
Agreement (or any previously executed and delivered amendment and/or
restatement of the Original Merger Agreement) shall not constitute a waiver of
any rights that any of the parties hereto may have by reason of any event,
condition, misrepresentation or breach of covenant of the Original Merger
Agreement having occurred prior to the date of execution and delivery of this
Amended and Restated Agreement (or any previously executed and delivered
amendment and/or restatement of the Original Merger Agreement), whether or not
known to any or all of the parties hereto. No representation or warranty of
any party in this Agreement shall be affected or limited by reason of the
knowledge of any other party at any time that such representation or warranty
is not, or may not be, true and correct.
I-28
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized.
APOLLO MANAGEMENT, L.P.
By: AIF III Management, Inc.
Its General Partner
By: /s/ Peter P. Copses
----------------------------------
Name: Peter P. Copses
Title: Vice President
APOLLO LCA ACQUISITION CORP.
By: /s/ Peter P. Copses
----------------------------------
Name: Peter P. Copses
Title: President
LIVING CENTERS OF AMERICA, INC.
By: /s/ Edward L. Kuntz
----------------------------------
Name: Edward L. Kuntz
Title: Chief Executive Officer
I-29
<PAGE>
Paragon Health Network, Inc. Schedule 13D Exhibit 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made as of this 17th day
of September, 1997 by and between Apollo LCA Acquisition Corp., a Delaware
corporation (the "Company"), and the purchasers listed on the signature pages
hereto (the "Purchasers"), with reference to the following facts:
WHEREAS, the stockholders of the Company are currently contemplating the
acquisition of a controlling interest in Living Centers of America, Inc., a
Delaware corporation ("LCA"), by means of a merger (the "Merger") of the Company
with and into LCA pursuant to an Amended and Restated Agreement and Plan of
Merger (the "Merger Agreement"), dated as of September 17, 1997, by and among
LCA, Apollo Management, L.P., on behalf of one or more managed investment funds
(collectively, "Apollo"), and the Company;
WHEREAS, pursuant to the terms of the Merger Agreement, upon consummation
of the Merger, each outstanding share of the Company's common stock par value
$.01 per share will be converted into a duly authorized, validly issued, fully
paid and nonassessable share of common stock of LCA, the surviving corporation,
under the name Paragon Health Network, Inc. ("Paragon");
WHEREAS, pursuant to the terms of the Merger Agreement, Apollo has agreed
to contribute, or cause to be contributed, to the Company not less than $240
million in exchange for shares of the Company's common stock at a price of
$40.50 per share;
WHEREAS, the Purchasers wish to purchase, and the Company is willing to
issue and sell to the Purchasers, 5,925,926 shares of the Company's common stock
on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the foregoing and intending to be
legally bound, the parties hereto hereby agree as follows:
1. Purchase of Company Common Stock.
--------------------------------
(a) Each Purchaser hereby agrees to purchase and accept from the
Company, and the Company hereby agrees to issue and sell to each Purchaser, such
number of shares of common stock, par value $.01 per share, of the Company
("Company Common Stock") indicated on such Purchaser's signature page attached
hereto, for a purchase price equal to, and payable by delivery of, cash in an
amount equal to $40.50 per share of Company Common Stock (the "Issuance").
(b) The closing of the Issuance (the "Closing") shall take place at
8:00 a.m., local time, on such date as of which all of the conditions to the
Company's
<PAGE>
performance under the Merger Agreement shall have been satisfied or duly waived
and immediately prior to the consummation of the Merger or at such other time
and date as the parties hereto shall agree in writing (the "Closing Date"), at
the offices of Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York,
New York 10006 or at such other place as the parties hereto shall agree in
writing.
At the Closing (a) each Purchaser shall deliver to the Company cash in
an amount equal to $40.50 per share of Company Common Stock being purchased by
such Purchaser pursuant to Section 1(a), and (b) the Company shall deliver to
each Purchaser, against payment of the purchase price therefor, certificates
representing the Company Common Stock being purchased by such Purchaser pursuant
to Section 1(a). The Company Common Stock shall be in definitive form and
registered in the name of each Purchaser.
(c) If the consummation of the Merger and the merger of GranCare,
Inc., a Delaware corporation, with and into a wholly-owned subsidiary of LCA
does not occur within five (5) business days after the Closing of the Issuance,
the Company shall purchase from each Purchaser, at the option of such Purchaser
other than Apollo, any or all of the shares of Company Common Stock acquired by
such Purchaser pursuant to this Agreement, for a purchase price equal to, and
payable by delivery of, cash in an amount equal to $40.50 per share of Company
Common Stock.
As used in this Agreement, (i) the term "Shares" includes the shares
of the Company Common Stock sold in the Issuance and all shares of capital stock
of the Company or any successor to the Company issued as a result of any stock
dividend on, or stock split or reclassification or conversion of, any Shares or
issued with respect to any Shares in connection with any merger or
reorganization involving the Company including, without limitation, the Merger,
(ii) the term "Holders" means the Purchasers and all subsequent holders of
Shares who acquired the same directly or indirectly from the Purchasers in a
transaction or series of transactions not involving any public offering and
(iii) the terms "Other Holders" means the Holders other than the Purchasers
identified on the signature pages hereto as Apollo Purchasers and the subsequent
transferees of such Purchasers..
2. Representations and Warranties of the Company. In order to
---------------------------------------------
induce the Purchasers to purchase the Company Common Stock, the Company hereby
makes the following representations and warranties to the Purchasers, which
representations and warranties shall survive the execution hereof.
2.1 Organization and Corporate Powers.
---------------------------------
(a) The Company is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Delaware.
(b) The Company has the right, power and authority to own
its properties and assets, and to transact the business in which it is engaged.
-2-
<PAGE>
(c) The Company has sufficient authorized but unissued
shares of Company Common Stock to issue all the Shares to be purchased pursuant
to Section 1(a).
2.2 Authorization.
-------------
(a) The Company has the right, power and authority to
execute, deliver and perform the terms and provisions of this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by 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.
(b) The execution, delivery and performance by the Company
of the terms and provisions of this Agreement and the consummation of the
transactions contemplated hereby do not and will not violate any provision of
any agreement or instrument to which the Company is a party or by which it is
bound, or to which any of its properties or assets is subject, or of any
applicable law. The Company has duly executed and delivered this Agreement and,
at the Closing, will have duly executed and delivered the other agreements
contemplated by this Agreement and the Merger Agreement to which it is a party.
This Agreement constitutes, and the agreements contemplated hereby when executed
and delivered by the Company, and, assuming the due execution by the other
parties hereto and thereto, will constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law).
(c) No consent, authorization or order of, or filing or
registration with, any governmental authority or other person including, without
limitation, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), is required to be obtained or made by the Company for
the execution, deliver and performance by the Company of this Agreement or any
agreements contemplated by this Agreement or the Merger Agreement to which it is
a party or the consummation of any of the transactions contemplated hereby or
thereby except for those that will have been made or obtained on or prior to the
Closing Date .
2.3 Due Issuance. When issued to the Purchasers at the Closing
------------
Date, following receipt of the consideration required to be paid therefor by the
Purchasers under the terms of this Agreement, such Shares will be duly
authorized validly issued, fully paid and nonassessable with no personal
liability attaching to the ownership thereof. Immediately following the Closing,
the capital stock of the Company will consist of 6,000,000 authorized shares of
Company Common Stock, of which an aggregate of 5,925,926 shares will
-3-
<PAGE>
be issued and outstanding, all of which will be held by the Purchasers in the
amounts set forth on the signature pages attached hereto.
2.4 Absence of Business. As of the date hereof and the Closing
-------------------
Date, except for obligations or liabilities incurred in connection with its
incorporation or organization and the transactions contemplated by the Merger
Agreement and this Agreement and except for the Merger Agreement and this
Agreement and any other agreements or arrangements contemplated by the Merger
Agreement and this Agreement, the Company has not and will not have incurred,
directly or indirectly, through any subsidiary or affiliate, any liabilities or
obligations or engaged in any business activities of any type or kind whatsoever
or entered into any agreements or arrangements with any person.
3. Representations and Warranties of the Purchasers. In order to
------------------------------------------------
induce the Company to sell the Shares, each Purchaser, severally as to itself
only and not jointly or as to any other Purchaser, hereby makes the following
representations and warranties to the Company, which representations and
warranties shall survive the execution hereof.
3.1 Authorization.
-------------
(a) Such Purchaser has the right, power and authority to
execute, deliver and perform the terms and provisions of this Agreement. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by such
Purchaser and no other proceedings on the part of such Purchaser are necessary
to authorize this Agreement or to consummate the transactions so contemplated.
(b) The execution, delivery and performance by such
Purchaser of the terms and provisions of this Agreement and the consummation of
the transactions contemplated hereby do not and will not violate any provision
of any agreement or instrument to which such Purchaser is a party or by which it
is bound, or to which any of its properties or assets is subject, or of any
applicable law. Such Purchaser has duly executed and delivered this Agreement
and, at the Closing, will have duly executed and delivered the other agreements
contemplated by this Agreement and the Merger Agreement to which it is a party.
This Agreement constitutes, and the agreements contemplated hereby when executed
and delivered by such Purchaser, and, assuming the due execution by the other
parties hereto and thereto, will constitute the legal, valid and binding
obligations of such Purchaser, enforceable against such Purchaser in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
(c) No consent, authorization or order of, or filing or
registration with, any governmental authority or other person including, without
limitation, the HSR Act, is required to be obtained or made by the Purchaser for
the execution, deliver and
-4-
<PAGE>
performance by the Purchaser of this Agreement or any agreements contemplated by
this Agreement or the Merger Agreement to which it is a party or the
consummation of any of the transactions contemplated hereby or thereby except
for those that will have been made or obtained on or prior to the Closing Date.
3.2 Private Placement.
-----------------
(a) Each Holder represents and warrants to the Company,
severally as to itself only and not jointly or as to any other Holder, that (i)
all Shares pur chased or otherwise acquired by such Holder pursuant to this
Agreement are being or will be acquired by such Holder for such Holder's own
account for investment and not with a view to resale or distribution within the
meaning of the Securities Act of 1933, as amended (the "Act"), (ii) such Holder
is an "accredited investor" as such term is defined in Rule 501 of Regulation D
promulgated under the Act or a "qualified institutional buyer" as such term is
defined in Rule 144A of the Act, (iii) such Holder's financial situation is such
that such Holder can afford to bear the economic risk of holding the Shares for
an indefinite period of time and suffer complete loss of its investment, (iv)
such Holder's knowledge and experience in financial and business matters are
such that such Holder is capable of evaluating the merits and risks of an
investment in the Shares, and (v) such Holder will not sell or otherwise dispose
of any Shares except in compliance with the Act, the rules and regulations of
the Securities and Exchange Commission (the "Commission") thereunder and the
terms of this Agreement, the Stockholders Agreement and the Proxy Agreement
(each as defined below). By making payment for, or taking delivery of, any
Shares, each Holder shall be deemed to have reaffirmed such representation at
and as of the date of such payment or delivery.
(b) Each Holder acknowledges that such Holder will be unable
to sell any Shares without either registration under the Act or the existence of
an exemption from such registration requirement. Each Holder further
acknowledges that the shares of LCA Common Stock into which the original shares
will convert by virtue of the Merger, will by virtue of Rule 145 adopted by the
Commission be subject to significant restrictions on resale so long as the Proxy
Agreement remains in effect.
(c) Each Holder hereby agrees that each certificate issued
to represent Shares acquired pursuant to this Agreement, or any certificate
issued in exchange for any similarly legended certificate shall bear the
following legend until such time as, in the opinion of counsel to the Company,
the legend specified below is no longer required under the applicable
requirements of the Act or applicable state securities or "blue sky" laws:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY STATE SECURITIES LAWS, AND MAY BE OFFERED AND SOLD ONLY
IF SO REGISTERED OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
-5-
<PAGE>
4. Stockholders Agreement and Proxy. Each Purchaser hereby agrees
--------------------------------
to enter into a Stockholders Agreement, substantially in the form of Exhibit A
attached hereto (the "Stockholders Agreement") at the Closing, each Purchaser
agrees to enter into a Registration Rights Agreement substantially in the form
of Exhibit B attached hereto (the "Registration Rights Agreement") at the
Closing and each Purchaser (other than Apollo and its Related Persons) hereby
agrees to enter into a Proxy and Voting Agreement, substantially in the form of
Exhibit C attached hereto (the "Proxy Agreement") at the Closing. "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.
5. HSR Act Filing. The Company and each of the Stockholders shall
--------------
use all reasonable efforts to make promptly any required submissions under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")
which the Company and the Stockholders determine should be made with respect to
the Issuance and the transactions contemplated by this Agreement.
6. Conditions.
----------
(a) The obligations of the Company to complete the Issuance
of the Shares to be purchased by the Purchasers at the Closing Date pursuant
hereto are subject to the satisfaction or waiver by Company on or prior to the
Closing Date of the following conditions:
(i) the representations and warranties of the Purchasers
set forth in Section 3 hereof shall be true and correct in all material respects
on the Closing Date as though made on and as of such date;
(ii) the Purchasers shall have paid or tendered the
purchase price for the Shares being purchased; and
(iii) the Purchasers shall have executed and delivered
the Stockholders Agreement, the Proxy Agreement and the Registration Rights
Agreement as applicable to them.
(b) The obligations of each Purchaser to complete its
purchase of the Shares to be purchased by it hereunder are subject to the
satisfaction or waiver by such Purchaser, on or prior to the Closing Date, of
each of the following conditions :
(i) the representations and warranties of the Company
set forth in Section 2 hereof shall be true and correct in all material respects
on the Closing Date as though made on and as of such date;
-6-
<PAGE>
(ii) the Company shall have performed in all material
respects all obligations required to be performed by it under this Agreement at
or prior to the Closing;
(iii) no amendment to or modification (including the
waiver of any conditions thereto) of the Merger Agreement that would (i)
materially adversely affect the economic or financial terms of a Purchaser's
investment in Shares or (ii) require, as determined by the board of directors of
either LCA or GranCare in good faith after consultation with and based upon the
advice of counsel, that an amendment or supplement to the Proxy Statement (as
defined in the Merger Agreement) be prepared, filed with the Securities and
Exchange Commission and mailed to the stockholders of LCA and GranCare, shall
have been effected without the written consent of such Purchaser; provided,
--------
that, a Purchaser's failure to consent to any such amendment or modification
within 24 hours of receipt of written notice thereof shall be deemed to be a
termination by such Purchaser of its rights and obligations under this
Agreement;
(iv) Paragon shall have executed and delivered the
Stockholders Agreement and the Registration Rights Agreement;
(v) the waiting period applicable to the consummation of
the Issuance under the HSR Act shall have expired or been terminated;
(vi) no federal, state, local or foreign statute, rule
or regulation shall have been enacted, and no litigation, proceeding, government
inquiry or investigation shall be pending which prohibits or seeks to prohibit,
or materially restricts or delays, the consummation of the transactions
contemplated by this Agreement or materially impairs the ability of a Purchaser
to own an equity interest in the Company or Paragon; and
(vii) the Purchasers shall have received true, correct
and complete copies of the resolutions adopted by the Board of Directors of the
Company authorizing the transactions contemplated hereby.
7. Notices. All notices or other communications under this
-------
Agreement shall be given in writing and shall be deemed duly given and received
on the fifth full business day following the day of the mailing thereof by
registered or certified mail, return receipt requested, or when delivered
personally as follows:
(a) if to the Company, at its principal offices at the time
of the giving of such notice, or at such other place as the Company shall have
designated by notice as herein provided to the Purchaser;
(b) if to the Purchasers, at the addresses of the Purchasers
as they appear on the signature pages to this Agreement, or at such other place
as the Purchasers shall have designated by notice as herein provided to the
Company; and
-7-
<PAGE>
(c) if to any other Holder, at such Holder's last address
appearing in the Company's stock transfer records.
8. Specific Performance. Due to the fact that the securities
--------------------
of the Company cannot be readily purchased or sold in the open market, and for
other reasons, the parties will be irreparably damaged in the event that this
Agreement is not specifically enforced. In the event of a breach or threatened
breach of the terms, covenants and/or conditions of this Agreement by any of the
parties hereto, the other parties shall, in addition to all other remedies, be
entitled (without any bond or other security being required) to a temporary
and/or permanent injunction, without showing any actual damage or that monetary
damages would not provide an adequate remedy, and/or a decree for specific
performance, in accordance with the provisions hereof.
9. Miscellaneous.
-------------
(a) Each Purchaser confirms with each other Purchaser that
each Purchaser has conducted its own due diligence in connection with its
investment in the Shares and regarding LCA and GranCare, Inc. and the other
Purchasers may therefore have information different from, or additional to, the
information possessed by such Purchaser. In addition, although certain of the
Purchasers (the "Supplying Purchasers") may have shared information received by
them (including information contained in third party reports prepared for such
Purchasers) with such Purchaser, no representation or warranty is being made
with respect to such information by any Supplying Purchaser or any such third
party.
(b) This Agreement may be modified or amended, and any
provision hereof may be waived, by a written agreement signed by the Company and
the Holders of a majority interest (on the basis of the number of Shares then
owned or being purchased pursuant to this Agreement) of all of the Holders of
Shares, which amendment, modification or waiver shall bind each Holder whether
or not such Holder has agreed thereto; provided, however, that (i) no amendment,
-------- -------
modification or waiver that would have a material adverse effect on the rights
or obligations of the Other Purchasers shall be effective unless the Holders of
a majority interest (on the basis of the number of Shares then owned or being
purchased pursuant to this Agreement) of all of the Other Holders shall have
consented in writing thereto, (ii) no amendment, modification or waiver that
would have a material adverse effect on the rights or obligations of any Holder
without similarly and proportionately (based on the respective number of Shares
then owned or to be acquired by the Holders hereunder) affecting the rights and
obligations of all Holders hereunder, or that would otherwise unfairly
discriminate against any Holder, shall be effective as to such Holder unless
such Holder shall have consented in writing thereto and (iii) the number of
shares of Company Common Stock to be purchased by a Purchaser or the per share
purchase price therefor shall not be modified without the prior written consent
of such Purchaser. Any such modification, amendment, or waiver signed by, or
binding upon, the Purchasers shall be valid and binding upon any and all persons
or entities who may, at any time, have or claim any rights under or pursuant to
this Agreement (including all Holders hereunder) in respect of the Shares
originally acquired by the
-8-
<PAGE>
Purchasers. No waiver of any breach or default hereunder shall be deemed a
waiver of any subsequent breach or default of the same or similar nature.
(c) This Agreement shall terminate without any action by any
of the parties hereto upon termination of the Merger Agreement by the Company.
In addition, this Agreement may be terminated (i) by a Purchaser at any time
after November 17, 1997, and (ii) by the Company with respect to a Purchaser if
such Purchaser fails to consent in writing within 24 hours of the delivery of a
written notice with respect to an amendment or modification of the Merger
Agreement.
(d) Except as otherwise expressly provided herein, this
Agreement shall be binding upon and inure to the benefit of the Company, its
successors and assigns, and the Purchasers and their respective successors and
assigns; provided, however, that nothing contained herein shall be construed as
permitting the Purchasers to transfer any Shares without complying with the
applicable provisions of this Agreement, the Stockholders Agreement and the
Proxy Agreement.
(e) If any provision of this Agreement shall be invalid or
unenforceable, such invalidity or unenforceability shall attach only to such
provision and shall not in any manner affect or render invalid or unenforceable
any other severable provision of this Agreement, and this Agreement shall be
carried out as if any such invalid or unenforceable provision were not contained
herein.
(f) The section headings contained herein are for the
purposes of convenience only and are not intended to define or limit the
contents of said sections.
(g) Each party hereto shall cooperate and shall take such
further action and shall execute and deliver such further documents as may be
reasonably requested by any other party in order to carry out the provisions and
purposes of this Agreement.
(h) This Agreement shall be deemed to be a contract under
the laws of the State of Delaware and for all purposes shall be construed and
enforced in accordance with the internal laws of said state without regard to
the principles of conflicts of law.
10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have set their hands hereunto as of
the day and year first above written.
APOLLO LCA ACQUISITION CORP.,
a Delaware corporation
By: /s/ Peter P. Copses
--------------------
Name:
Title:
<PAGE>
APOLLO PURCHASER
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:
Title:
4,366,790 shares of Company Common Stock
Address: c/o Apollo Management, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
Telecopy No.: (310) 201-4166
-11-
<PAGE>
APOLLO PURCHASER
APOLLO UK PARTNERS III, L.P.
By: Apollo Advisors II, L.P.
Its Managing General Partner
By: Apollo Capital Management II, Inc.,
Its General Partner
By: /s/ Peter P. Copses
--------------------
Name:
Title:
161,396 shares of Company Common Stock
Address: c/o Apollo Management, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
Telecopy No.: (310) 201-4166
-12-
<PAGE>
APOLLO PURCHASER
APOLLO OVERSEAS PARTNERS III, L.P.
By: Apollo Advisors II, L.P.,
Its Managing General Partner
By: Apollo Capital Management II, Inc.,
Its General Partner
By: /s/ Peter P. Copses
--------------------
Name:
Title:
261,011 shares of Company Common Stock
Address: c/o Apollo Management, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
Telecopy No.: (310) 201-4166
-13-
<PAGE>
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its General Partner
By: /s/ Brian J. Richmand
---------------------
Partner
666,667 shares of Company Common Stock
Address: 380 Madison Avenue
12th Floor
New York, New York 10017
Attention: Christopher C. Behrens
Telecopy No.: (212) 622-3101
with a copy of notices and other communications to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telecopy No.: (212) 408-2420
-14-
<PAGE>
HEALTHCARE EQUITY PARTNERS, L.P.
By: Beecken, Petty & Company, L.L.C.
Its General Partner
By: /s/ Gregory A. Moerschel
------------------------
Gregory A. Moerschel
Managing Director
60,864 shares of Company Common Stock
Address: 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
-15-
<PAGE>
HEALTHCARE EQUITY QP PARTNERS, L.P.
By: Beecken, Petty & Company, L.L.C.
Its General Partner
By: /s/ Gregory A. Moerschel
-----------------------
Gregory A. Moerschel
Managing Director
186,050 shares of Company Common Stock
Address: 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
-16-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-17-
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
-18-
<PAGE>
DRAX HOLDINGS L.P.
By: Inman Corporation
Its: General Partner
By: /s/ Burton W. Kanter
--------------------
Burton W. Kanter, President
25,000 shares of Company Common Stock
Address: _______________________________________
_______________________________________
_______________________________________
Attention: _________________________
Telecopy No.: ___________________
-19-
<PAGE>
WALNUT GROWTH PARTNERS LIMITED PARTNERSHIP
By: Walnut GP, L.L.C.
Its: General Partner
By: /s/ Michael Faber
-----------------
Michael Faber, its Managing Member
24,691 shares of Company Common Stock
Address: Suite 700
1227 25th Street, NW
Washington, DC 20037
Attention: Michael Faber
Telecopy No.: 202-246-2882
-20-
<PAGE>
KEY CAPITAL CORPORATION
By: /s/ Stephen R. Haynes, V.P.
---------------------------
Stephen R. Haynes, Vice President
92,593 shares of Company Common Stock
Address: 127 Public Square, 6th Floor
Cleveland, OH 44114
Attention: Stephen R. Haynes
Telecopy No.: (216) 689-3204
21
<PAGE>
KEY EQUITY PARTNERS 97
By: /s/ Stephen R. Haynes G.P.
--------------------------
Stephen R. Haynes
Its: General Partner
30,864 shares of Company Common Stock
Address: 127 Public Square, 6th Floor
Cleveland, OH 44114
Attention: Stephen R. Haynes
Telecopy No.: (216) 689-3204
-22-
<PAGE>
/s/ Keith B. Pitts
------------------
Keith B. Pitts
50,000 shares of Company Common Stock
Address: c/o GranCare, Inc.
1 Ravinia Drive, Suite 1500
Atlanta, GA 30346
Attention: Keith B. Pitts
Telecopy No.: 770-379-0753
-23-
<PAGE>
Paragon Health Network Exhibit 3
SCHEDULE 13D
PROXY AND VOTING AGREEMENT
--------------------------
THIS PROXY AND VOTING AGREEMENT (this "Agreement") is made and entered
into as of this 4th day of November, 1997, 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 hereto (the "Stockholders").
WHEREAS, Living Centers of America, Inc., a Delaware corporation
("LCA"), Apollo Management, on behalf of one or more managed investment funds,
and Apollo LCA Acquisition Corp., a Delaware corporation ("Apollo Sub" and
together with any other successor thereto including LCA upon consummation of the
Merger (as defined below), the "Company"), have entered into an agreement (the
"Merger Agreement"), with respect to a merger of Apollo Sub with and into LCA
(the "Merger") pursuant to which LCA will be the surviving corporation; and
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as
September 17, 1997 (the "Stock Purchase Agreement"), the Stockholders have
agreed to purchase and Apollo Sub has agreed to issue and sell 5,925,920 shares
of common stock of Apollo Sub, par value $.01 per share (the "Apollo Sub Common
Stock");
WHEREAS, pursuant to the terms of the Merger Agreement, upon
consummation of the Merger, each outstanding share of Apollo Sub Common Stock
will be converted into a duly authorized, validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of LCA (or any
successor) (the "Company Common Stock"), the surviving corporation;
WHEREAS, in connection with the Stock Purchase Agreement and the
Merger Agreement, and in order to provide for certain rights and obligations in
respect of the shares of common stock of the Company owned by each of them as of
the date hereof, each of the Stockholders has agreed to enter into a
Stockholders Agreement, substantially in the form of Exhibit A to the Stock
Purchase Agreement (the "Stockholders Agreement"); and
WHEREAS, in addition to the Stockholders Agreement, the parties hereto
desire to provide for certain voting rights and obligations in respect of the
Shares as provided herein.
NOW, THEREFORE, in consideration of the foregoing, and the
representations, warranties, covenants and agreements contained herein and in
the Stock Purchase Agreement, and intending to be legally bound, the parties
hereto agree as follows:
1. Definitions. As used in this Agreement, (i) the term "Shares"
-----------
includes the shares of Apollo Sub Common Stock sold pursuant to the Stock
Purchase Agreement, the
<PAGE>
shares of Apollo Sub Common Stock subject to a warrant sold pursuant to that
certain Warrant Purchase Agreement, dated as of September 17, 1997, and all
shares of capital stock of the Company issued as a result of any stock dividend
on, or stock split or reclassification or conversion of, any such shares or
issued with respect to any such shares in connection with any merger or
reorganization involving the Company including, without limitation, the shares
of Company Common Stock issued upon consummation of the Merger, and (ii) the
term "Holders" means Apollo, the Stockholders and all subsequent holders of
Shares who acquired the same directly or indirectly from the Stockholders in a
transaction or series of transactions not involving any public offering.
2. Grant of Proxy. For a period ending on the third anniversary of
--------------
the consummation of the Merger, each Stockholder hereby appoints Apollo
Management, with full power of substitution (Apollo Management and its
substitutes being referred to herein as the "Proxy"), as attorneys and proxies
to vote all the Shares on matters as to which such Stockholder is entitled to
vote at a meeting of the stockholders of the Company or to which it is entitled
to express consent or dissent to corporate action in writing without a meeting,
in the Proxy's absolute, sole and binding discretion. Each Stockholder agrees
that the Proxy may, in such Stockholder's name and stead, (i) attend any annual
or special meeting of the stockholders of the Company and vote all the Shares at
any such annual or special meeting, and (ii) execute with respect to all the
Shares any written consent to, or dissent from, corporate action in writing
without a meeting. Except as contemplated by Section 3 of this Agreement or
with the prior written consent of Proxy, each Stockholder agrees to refrain from
(A) voting at any annual or special meeting of the stockholders of the Company,
(B) executing any written consent in lieu of a meeting of the stockholders of
the Company, (C) exercising any rights of dissent with respect to the Shares,
and (D) granting any proxy or authorization to any person with respect to the
voting of the Shares, except pursuant to this Agreement, or taking any action
contrary to or in any manner inconsistent with the terms of this Agreement. Each
Stockholder agrees that this grant of proxy is irrevocable and coupled with an
interest in accordance with the provisions of Section 212 of the Delaware
General Corporation Law and agrees that the person designated as Proxy pursuant
hereto may at any time name any other person as its substituted Proxy to act
pursuant hereto, either as to a specific matter or as to all matters. Each
Stockholder hereby revokes any proxy previously granted by it with respect to
the Shares. In discharging its powers under this Agreement, the Proxy may rely
upon advice of counsel to Apollo Management, and any vote made or action taken
by the Proxy in reliance upon such advice of counsel shall be deemed to have
been made in good faith by the Proxy.
3. Voting Agreement. If requested by Proxy, each Stockholder hereby
----------------
agrees to appear (in person or by proxy) at any annual or special meeting of
stockholders of the Company for the purpose of obtaining a quorum. For a period
ending on the third anniversary of the consummation of the Merger, each
Stockholder hereby agrees to vote all of the Shares at any annual or special
meeting of stockholders or by executing any written consent: (i) in favor of the
approval and adoption of the Merger Agreement and all related matters, (ii)
against any action or agreement that would result in a breach in any material
respect of any covenant, representation or warranty or any other obligation or
agreement of the
2
<PAGE>
Company under the Merger Agreement; (iii) against any action or agreement (other
than the Merger Agreement or the transactions contemplated thereby) that would
impede, interfere with, delay, postpone or attempt to discourage the Merger; and
(iv) in accordance with the instructions of Apollo Management with respect to
any other action.
4. Transfer. Subject to the provisions of the Stock Purchase
--------
Agreement and the Stockholders Agreement, the Stockholders may sell, transfer,
assign or otherwise dispose of any of the Shares; provided, however, that each
Stockholder hereby agrees not to sell, transfer, assign or otherwise dispose of
any of the Shares unless (i) such Stockholder delivers written notice to Apollo
Management of its intent to transfer Shares not less than five (5) business days
prior to such transfer, and (ii) such transferee becomes a party to this
Agreement. 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 any 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.
5. Standstill. Apollo and each Stockholder hereby agrees not to
----------
take any action in its capacity as Proxy or as a Stockholder, as the case may
be, that would cause any Stockholder to be in breach of Article V of the
Stockholders Agreement.
6. Termination. This Agreement shall terminate upon the earlier to
-----------
occur of (i) the third anniversary of the consummation of the Merger and (ii)
the termination of the Merger Agreement in accordance with its terms.
7. Representations and Warranties. Each Stockholder, severally as
------------------------------
to itself and not jointly or as to any other Stockholder, hereby represents and
warrants to Apollo as follows:
(a) Authority Relative to this Agreement. Such Stockholder has all
------------------------------------
necessary power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by such Stockholder and no other proceedings on
the part of such Stockholder are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly and
validly executed and delivered by such Stockholder and, assuming that this
Agreement has been duly and validly authorized, executed and delivered by Apollo
Management, this Agreement constitutes a valid and binding agreement of such
Stockholder, enforceable against such Stockholder in accordance with its terms.
(b) Ownership of Shares. Such Stockholder has good and marketable
-------------------
title to all of the shares of the Company Common Stock indicated opposite the
Stockholder's
3
<PAGE>
name on the signature page hereto, which constitute all the shares of the
Company Common Stock owned by such Stockholder. There are no restrictions on the
voting rights pertaining to such shares of Company Common Stock except pursuant
to this Agreement and the Stockholders Agreement.
(c) No Conflicts. Neither the execution and delivery of this
------------
Agreement nor the consummation by such Stockholder 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 Stockholder is a party or by which such Stockholder is bound.
Other than this Agreement and the Stockholders Agreement, there are no other
agreements or understandings with respect to the voting of the Shares, and such
Stockholder hereby agrees that it will not enter into such an agreement.
8. Entire Agreement. This Agreement (a) constitutes the entire
----------------
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all other prior agreements and understandings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof; (b) shall not be amended, altered or modified in any manner whatsoever,
except by a written instrument executed by the parties hereto; and (c) 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).
9. Specific Performance. The parties hereto acknowledge that
--------------------
damages would be an inadequate remedy for a breach of this Agreement and that
the obligations of the parties hereto shall be specifically enforceable.
10. Parties in Interest. This Agreement shall be binding upon and
-------------------
inure solely to the benefit of each party hereto and their respective
successors, assigns, heirs, executors, administrators and other legal
representatives. Nothing in this Agreement, express or implied, is intended to
confer upon any other person not a party hereto any rights or remedies of any
nature whatsoever under or by reason of this Agreement.
11. Counterparts. This Agreement 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.
12. Notices. Any notices or other communications required or
-------
permitted hereunder shall be in writing and shall be deemed duly given upon (a)
transmitter's confirmation of a receipt of a facsimile transmission, (b)
confirmed delivery by a standard overnight carrier or (c) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address as the
parties hereto shall specify by like notice):
4
<PAGE>
(a) If to Apollo Management to:
Apollo Management, L.P.
1999 Avenue of the Stars
Los Angeles, California 90067
Telecopy No.: (310) 201-4166
Attention: Michael D. Weiner
with a copy to:
Sidley & Austin
555 W. Fifth Street, Suite 4000
Los Angeles, California 90013
Telecopy No.: (213) 896-6600
Attention: Robert W. Kadlec, Esq.
(b) If to the Stockholders, to the addresses noted on the
signature pages hereto.
13. Descriptive Headings. The headings herein are inserted for
--------------------
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
14. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, each of which shall remain in full force and effect
parties hereto.
15. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
5
<PAGE>
APOLLO MANAGEMENT, L.P.,
on behalf of one or more managed investment funds
By: AIF III Management, Inc.
Its General Partner
By: /s/ Michael D. Weiner
---------------------
Name:
Title:
6
<PAGE>
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its General Partner
By: /s/ Brian J. Richmand
---------------------
Partner
666,667 shares of Company Common Stock
Address: 380 Madison Avenue
12th Floor
New York, New York 10017
Attention: Christopher C. Behrens
Telecopy No.: (212) 622-3101
with a copy of notices and other communications to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telecopy No.: (212) 408-2420
7
<PAGE>
HEALTHCARE EQUITY PARTNERS, L.P.
By: Beecken, Petty & Company, L.L.C.
Its General Partner
By: /s/ John W. Kneen
-----------------
Managing Director
60,864 shares of Company Common Stock
Address: 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/ John W. Kneen
-----------------
Managing Director
186,050 shares of Company Common Stock
Address: 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
8
<PAGE>
KEY CAPITAL CORPORATION
By: /s/ Stephen R. Haynes
---------------------
Stephen R. Haynes, Vice President
92,593 shares of Company Common Stock
Address: 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
30,864 shares of Company Common Stock
Address: 127 Public Square, 6th Floor
Cleveland, OH 44114
Attention: Stephen R. Haynes
Telecopy No.: (216) 689-3204
9
<PAGE>
DRAX HOLDINGS L.P.
By: Inman Corporation
Its: General Partner
By: /s/Burton W. Kanter
-------------------
Burton W. Kanter, President
25,000 shares of Company Common Stock
Address: 281 Broad Avenue South
Naples, FL 33940
Attention: Linda Hamilton
Telecopy No.: (941) 262-0467
WALNUT GROWTH PARTNERS LIMITED PARTNERSHIP
By: Walnut GP, L.L.C.
Its: General Partner
By: /s/ Michael Faber
-----------------
Michael Faber, its Managing Member
24,691 shares of Company Common Stock
Address: Suite 700
1227 25th Street, N.W.
Washington, D.C. 20037
Attention: Michael Faber
Telecopy No.: (202) 296-2882
10
<PAGE>
/s/ Keith B. Pitts
------------------
Keith B. Pitts
50,000 shares of Company Common Stock
Address: c/o Paragon Health Network, Inc.
1 Ravinia Drive, Suite 1500
Atlanta, GA 30346
Telecopy No.: (770) 379-0753
11
<PAGE>
WARRANT PURCHASE AGREEMENT dated as of
September 17, 1997, between APOLLO
INVESTMENT FUND III, L.P., a Delaware
limited partnership ("AIF"), APOLLO UK
PARTNERS III, L.P., a Delaware limited
partnership ("Apollo UK"), APOLLO OVERSEAS
PARTNERS III, L.P., a Delaware limited
partnership ("Overseas," and together with
AIF and Apollo UK, "Apollo"), and CHASE
EQUITY ASSOCIATES, L.P., a California
limited partnership ("CEA," and together
with its successors and assigns hereunder,
the "Holders," and individually, a
"Holder").
Reference is made to the Stock Purchase Agreement dated as of the date
hereof (as the same may be amended from time to time, the "Purchase Agreement")
among Apollo LCA Acquisition Corp., a Delaware corporation (together with its
successors, the "Corporation"), and the Purchasers (as defined therein),
including Apollo and CEA. Apollo and CEA are entering into this Agreement to
provide for CEA's purchase from Apollo of warrants to purchase shares of capital
stock of the Corporation that will be acquired by Apollo from the Corporation
simultaneously with the closing hereunder, all on the terms and subject to the
conditions set forth in this Agreement.
ACCORDINGLY, the parties to this Agreement hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1. Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which banks are authorized or required to be closed in New York, New
York; provided, however, that any determination of a Business Day relating to a
securities exchange shall mean a Business Day on which such exchange is open for
trading.
"Common Stock" shall mean the Common Stock, $.01 par value, of the
Corporation.
"Closing" shall have the meaning given to such term in Section 2.1.
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"Closing Date" shall have the meaning given to such term in Section
2.1.
"Corporation" shall have the meaning given to such term in the
Preamble.
"Exercise Price" shall mean $.001 per share of Common Stock, subject
to adjustment from time to time in the manner provided in the Warrant.
"Governmental Authority" shall mean any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, or any court, in each case whether of the United States of
America or foreign.
"Holder" shall have the meaning given to such term in the Preamble.
"HSR Act" shall mean the Hart-Scott Rodino Anti-Trust Improvements
Act of 1976, as amended.
"Person" is to be construed in the broadest sense, and shall include
any natural person, company, partnership, joint venture, corporation, business
trust, unincorporated organization or Governmental Authority.
"Warrant" shall have the meaning given to such term in Section 2.2.
"Warrant Shares" shall mean (a) the shares of Common Stock
transferred or transferable upon exercise or exchange of a Warrant, (b) all
other securities or other property transferred or transferable upon any such
exercise or exchange in accordance with this Agreement, and (c) any securities
of the Corporation or its successor distributed with respect to the securities
referred to in the preceding clauses (a) and (b).
ARTICLE II
CLOSING; ISSUANCE OF WARRANT
2.1. Closing; Termination of Agreement.
The closing (the "Closing") for the purchase, sale and delivery of the
Warrant shall take place simultaneously with the closing under the Purchase
Agreement of the transactions contemplated thereby. The date on which the
Closing occurs is called the "Closing Date" herein. The obligations hereunder of
each of Apollo and CEA at the Closing shall be subject to the satisfaction or
waiver by Apollo or CEA, as the case may be, at or prior to the Closing, of the
conditions set forth in Section 6(b) of the Purchase Agreement and the
representations and warranties contained in Sections 3.1 and 3.2, respectively,
being true and correct in all material respects on the Closing Date as if made
on and as of the Closing Date. Anything contained herein to the contrary
notwithstanding, this Agreement shall terminate simultaneously with the
termination of the Purchase Agreement as between CEA and the Corporation, if the
Closing hereunder shall not theretofore have occurred.
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2.2. Purchase and Sale of Warrant.
At the Closing, Apollo shall execute, sell and deliver to CEA, and CEA
shall purchase and take from Apollo, a warrant in substantially the form of
Exhibit A, and otherwise in form and substance satisfactory to Apollo and CEA
(the "Warrant"), evidencing the right to purchase a total of 197,531 shares of
Common Stock of the Corporation, comprised of 180,109 shares to be purchased
from AIF, 6,657 shares to be purchased from Apollo UK and 10,765 shares to be
purchased from Overseas, at a price per share equal to the Exercise Price. The
purchase price to be paid at the Closing by CEA to Apollo for the Warrant shall
be $7,999,807.80, and shall be payable at the Closing by wire transfer of
immediately available funds (i) in an amount equal to $7,294,234.30 to an
account or accounts designated by AIF, (ii) in an amount equal to $269,601.84 to
an account or accounts designated by Apollo UK and (iii) in an amount equal to
$435,971.73 to an account or accounts designated by Overseas. The number of
Warrant Shares which may be purchased upon exercise of such Warrant and the
Exercise Price to be paid for such Warrant Shares are subject to adjustment in
the manner provided in the Warrant.
ARTICLE III
3.1. Representations and Warranties of Apollo.
Apollo hereby makes the following representations and warranties to
CEA, which representations and warranties shall survive the execution hereof.
(a) Apollo has the right, power and authority to execute, deliver and
perform the terms and provisions of this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by Apollo and no other proceedings on the
part of Apollo are necessary to authorize this Agreement or to consummate the
transactions so contemplated.
(b) The execution, delivery and performance by Apollo of the terms and
provisions of this Agreement and the consummation of the transactions
contemplated hereby do not and will not violate any provision of any agreement
or instrument to which Apollo is a party or by which it is bound, or to which
any of its properties or assets is subject, or of any applicable law. Apollo has
duly executed and delivered this Agreement. This Agreement constitutes the
legal, valid and binding obligations of Apollo, enforceable against Apollo in
accordance with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
(c) No consent, authorization or order of, or filing or registration
with, any governmental authority or other person including, without limitation,
the HSR Act, is required to be obtained or made by Apollo for the execution,
delivery and performance by Apollo of this Agreement or the consummation of any
of the transactions contemplated hereby except for those that will have been
made or obtained on or prior to the Closing Date.
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3.2. Representations, Warranties, Etc. of CEA.
CEA hereby represents, warrants, acknowledges and agrees to and with
Apollo as follows, which representations, warranties, acknowledgments and
agreements shall survive the execution hereof.
(a) CEA has the right, power and authority to execute, deliver and
perform the terms and provisions of this Agreement. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by CEA and no other proceedings on the
part of CEA are necessary to authorize this Agreement or to consummate the
transactions so contemplated.
(b) The execution, delivery and performance by CEA of the terms and
provisions of this Agreement and the consummation of the transactions
contemplated hereby do not and will not violate any provision of any agreement
or instrument to which CEA is a party or by which it is bound, or to which any
of its properties or assets is subject, or of any applicable law. CEA has duly
executed and delivered this Agreement. This Agreement constitutes the legal,
valid and binding obligations of CEA, enforceable against CEA in accordance with
its terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law).
(c) No consent, authorization or order of, or filing or registration
with, any governmental authority or other person including, without limitation,
the HSR Act, is required to be obtained or made by CEA for the execution,
delivery and performance by CEA of this Agreement or the consummation of any of
the transactions contemplated hereby except for those that will have been made
or obtained on or prior to the Closing Date.
(d) CEA has conducted its own due diligence in connection with its
investment in the Warrant and the Warrant Shares and regarding the Corporation
and Living Centers of America, Inc., and GranCare, Inc., and Apollo may
therefore have information different from, or additional to, the information
possessed by CEA. In addition, although Apollo may have shared information
received by them (including information contained in third party reports
prepared for Apollo) with CEA, no representation or warranty is being made with
respect to such information by Apollo or any such third party.
(e) (i) The Warrant and all Warrant Shares purchased or otherwise
acquired by CEA pursuant to the Warrant are being or will be acquired by CEA for
its own account for investment and not with a view to resale or distribution
within the meaning of the Securities Act of 1933, as amended (the "Act") in a
manner that violates the Act, (ii) CEA is an "accredited investor" as such term
is defined in Rule 501 of Regulation D promulgated under the Act or a "qualified
institutional buyer" as such term is defined in Rule 144A of the Act, (iii)
CEA's financial situation is such that it can afford to bear the economic risk
of holding the Warrant and the Warrant Shares for an indefinite period of time
and suffer complete loss of its investment, (iv) CEA's knowledge and experience
in financial and business matters are such that it is capable of evaluating the
merits and risks of an investment in the Warrant and the Warrant Shares, and (v)
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CEA will not sell or otherwise dispose of the Warrant or any Warrant Shares
except in compliance with the Act, the rules and regulations of the Securities
and Exchange Commission (the "Commission") thereunder and the terms of this
Agreement, the Stockholders Agreement and the Proxy Agreement (each as defined
in the Purchase Agreement). By making payment for, or taking delivery of, any
Warrant Shares, CEA shall be deemed to have reaffirmed such representation at
and as of the date of such payment or delivery.
(f) CEA will be unable to sell the Warrant or any Warrant Shares
without either registration under the Act or the existence of an exemption from
such registration requirement, and that the shares of LCA Common Stock (as
defined in the Purchase Agreement) into which the original shares will convert
by virtue of the Merger (as defined in the Purchase Agreement), will by virtue
of Rule 145 adopted by the Commission be subject to significant restrictions on
resale so long as the Proxy Agreement remains in effect.
(g) Each certificate delivered to represent the Warrant or issued to
represent Warrant Shares, or any certificate issued in exchange for any
similarly legended certificate, shall bear the following legend until such time
as, in the opinion of counsel reasonably acceptable to Apollo, the legend
specified below is no longer required under the applicable requirements of the
Act or applicable state securities or "blue sky" laws:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS, AND MAY BE
OFFERED AND SOLD ONLY IF SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION IS AVAILABLE.
(h) Neither Apollo nor the Corporation shall have any liability or
obligation whatsoever to a Holder who is a Regulated Holder (as defined in the
form of Warrant attached hereto) with respect to any Regulatory Problem (as
defined in the form of Warrant attached hereto) that such Holder may have as a
result of this Purchase Agreement or transactions contemplated hereby (except
that this sentence shall not in any way amend, modify or otherwise affect in any
way the provisions of Section 6.4 of the Stockholders Agreement (as defined in
the Purchase Agreement).
ARTICLE IV
MISCELLANEOUS
4.1 Notices.
All notices, demands and requests of any kind to be delivered to any
party hereto in connection with this Agreement shall be in writing (i) delivered
personally, (ii) sent by nationally-recognized overnight courier, (iii) sent by
first class, registered or certified mail, return receipt requested or (iv) sent
by facsimile, in each case to such party at its address on the
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signature attached hereto. Any notice, demand or request so delivered shall
constitute valid notice under this Agreement and shall be deemed to have been
received (i) on the day of actual delivery in the case of personal delivery,
(ii) on the next Business Day after the date when sent in the case of delivery
by nationally-recognized overnight courier, (iii) on the fifth Business Day
after the date of deposit in the U.S. mail in the case of mailing or (iv) upon
receipt in the case of a facsimile transmission. Any party hereto may from time
to time by notice in writing served upon the other as aforesaid designate a
different mailing address or a different Person to which all such notices,
demands or requests thereafter are to be addressed.
4.2. Amendments and Waivers.
Any provision of this Agreement may be amended or waived, but only
pursuant to a written agreement signed by Apollo and the Holder.
4.3. Assignment of Agreement.
Neither this Agreement nor any right, benefit or obligation hereunder
may be assigned, transferred or delegated by any party hereto except with the
prior written consent of the other parties hereto; provided, however, that a
party may assign its rights or delegate its obligations hereunder to one or more
of its Affiliates without such consent so long as such Affiliate agrees in
writing for the benefit of the other parties hereto to be bound by and to comply
with this Agreement.
4.4. Counterparts.
This Agreement may be executed in two or more counterparts each of
which shall constitute an original but all of which when taken together shall
constitute but one agreement.
4.5. Governing Law.
ALL QUESTIONS CONCERNING THE CONSTRUCTION, INTERPRETATION AND VALIDITY
OF THIS AGREEMENT AND THE WARRANTS SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE, WITHOUT
GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER IN THE
STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF
THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF DELAWARE WILL CONTROL THE
INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH
JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF
SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
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4.6. Headings.
Section headings in this Agreement have been inserted for convenience
of reference only and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
4.7. Binding Effect.
Except as otherwise provided herein, this Agreement will bind and inure
to the benefit of and be enforceable by Apollo and its successors and permitted
assigns and CEA and any permitted subsequent holders of Warrants or Warrant
Shares and their respective successors and permitted assigns, so long as they
hold Warrants or Warrant Shares.
4.8. Further Assurances.
Each party hereto shall do and perform or cause to be done and
performed all such further acts and things and shall execute and deliver all
such other agreements, certificates, instruments, and documents as any other
party hereto reasonably may request in order to carry out the provisions of this
Agreement and the consummation of the transactions contemplated hereby.
4.9. Tax Treatment
Apollo and CEA agree that the Closing and the issuance of the Warrant
constitute for federal, state and local income tax purposes a purchase of the
Warrant Shares by the Holders at the Closing for an amount equal to the purchase
price paid at closing plus the aggregate Exercise Price with respect to the
Warrant Shares. Apollo and the Holders covenant and agree to file all income tax
returns and reports in a manner consistent with the preceding sentence.
4.10. Specific Performance.
Due to the fact that the securities of the Corporation cannot be
readily purchased or sold in the open market, and for other reasons, the parties
will be irreparably damaged in the event that this Agreement is not specifically
enforced. In the event of a breach or threatened breach of the terms, covenants
and/or conditions of this Agreement by any of the parties hereto, the other
parties shall, in addition to all other remedies, be entitled (without any bond
or other security being required) to a temporary and/or permanent injunction,
without showing any actual damage or that monetary damages would not provide an
adequate remedy, and/or a decree for specific performance, in accordance with
the provisions hereof.
* * * *
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their authorized officers, all as of the date and
year first above written.
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/ Laurence M. Berg
----------------------------------------
Name: Laurence M. Berg
Title: VP
Address:
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
Telecopy No.: (310) 201-4166
with a copy of notices and other communications to:
Sidley & Austin
555 West Fifth Street, Suite 4000
Los Angeles, California 90013
Attention: Robert W. Kadlec, Esq.
Telecopy No.: (213) 896-6600
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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/ Laurence M. Berg
-------------------------------------------
Name: Laurence M. Berg
Title: VP
Address:
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
Telecopy No.: (310) 201-4166
with a copy of notices and other communications to:
Sidley & Austin
555 West Fifth Street, Suite 4000
Los Angeles, California 90013
Attention: Robert W. Kadlec, Esq.
Telecopy No.: (213) 896-6600
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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/ Laurence M. Berg
------------------------------------
Name: Laurence M. Berg
Title: VP
Address:
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Peter P. Copses
Telecopy No.: (310) 201-4166
with a copy of notices and other communications to:
Sidley & Austin
555 West Fifth Street, Suite 4000
Los Angeles, California 90013
Attention: Robert W. Kadlec, Esq.
Telecopy No.: (213) 896-6600
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CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
its General Partner
By: /s/ Brian J. Richmand
--------------------------------
Partner
Address: 380 Madison Avenue, 12th Floor
New York, New York 10017
Attention: Christopher C. Behrens
Telecopy No.: (212) 622-3101
with a copy of notices and other communications to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telecopy No.: (212) 408-2420
<PAGE>
EXHIBIT A TO WARRANT AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF AND HAVE NOT BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES OR BLUE SKY LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST
THEREIN MAY BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION UNDER SUCH ACT OR LAWS AND THE
RULES AND REGULATIONS THEREUNDER. IN ADDITION, THIS WARRANT, AND THE WARRANT
SHARES TRANSFERABLE UPON THE EXERCISE HEREOF, ARE SUBJECT TO THE TERMS OF (A)
THE STOCKHOLDERS AGREEMENT DATED AS OF OCTOBER __, 1997, BY AND AMONG PARAGON
HEALTH NETWORK, INC., AND THE STOCKHOLDERS PARTY THERETO, AND (B) THE PROXY AND
VOTING AGREEMENT DATED AS OF OCTOBER __, 1997, BY AND AMONG APOLLO MANAGEMENT,
L.P., AND THE STOCKHOLDERS PARTY THERETO.
October __, 1997
Warrant to Purchase 197,531 Shares
of Common Stock, $.01 par value,
of Apollo LCA Acquisition Corp., a Delaware corporation
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This certifies that, for value received, Chase Equity Associates, L.P.,
a California limited partnership ("CEA"; and together with its successors and
assigns (the "Holder"), is entitled to purchase from APOLLO INVESTMENT FUND III,
L.P., a Delaware limited partnership ("AIF"), APOLLO UK PARTNERS III, L.P., a
Delaware limited partnership ("Apollo UK"), and APOLLO OVERSEAS PARTNERS III,
L.P., a Delaware limited partnership ("Overseas," and together with AIF and
Apollo UK, "Apollo"), an aggregate of 197,531 shares of Common Stock, $.01 par
value (the "Corporation Common Stock"), of APOLLO LCA ACQUISITION CORP., a
Delaware corporation (the "Corporation"), at a per share price equal to U.S.
$0.001 (as adjusted from time to time as provided in Section 3 hereof, the
"Exercise Price"), at any time or from time to time after the date hereof.
This Warrant is one of one or more warrants (the "Warrants") of the
same form and having the same terms as this Warrant (other than differences in
the number of Warrant Shares issuable), entitling the holders of such Warrants
(collectively, the "Holders" and each, individually, a "Holder") initially to
purchase up to an aggregate of 197,531 shares of Corporation Common Stock,
comprised of 180,109 shares to be purchased from AIF, 6,657 shares to be
purchased from Apollo UK and 10,765 shares to be purchased from Overseas. The
Warrants have been issued pursuant to a certain Warrant Purchase Agreement dated
as of September 17, 1997 (as amended from time to time, the "Purchase
Agreement"), between AIF, Apollo UK, Overseas and CEA.
Certain terms used in this Warrant are defined in Section 11 herein.
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SECTION 1. Exercise of Warrant.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part at any time or from time to time (provided
that any such exercise shall be deemed to have been made pro rata with respect
to the Warrant Shares held by each of AIF, Apollo UK and Overseas), by
delivering to Apollo at their office set forth on the signature pages hereof (or
at such other office of Apollo as they may designate by notice in writing to the
Holder at the address of such Holder appearing on the signature pages hereof),
the following three items:
(i) a written notice executed by the Holder (or its authorized
representative) electing to exercise all or any portion of this Warrant, and
if the Holder is exercising this Warrant in part, identifying the number of
Warrant Shares to be acquired, such notice to be substantially in the form
of the Notice of Exercise attached hereto,
(ii) this Warrant, and
(iii) payment to each of AIF, Apollo UK and Overseas of the
Exercise Price for each share being purchased from it by delivery of any
combination of one or more of the following:
(A) cash, wire transfer or check, and/or
(B) delivery of securities of the Corporation valued
for such purposes at their Market Price (as defined below) on the date of
exercise.
Upon any exercise of this Warrant, if the Warrant Shares are to be transferred
to a Person other than the Holder, the Notice of Exercise shall also state the
name of the Person to whom the certificates for the Warrant Shares are to be
transferred, and if the number of Warrant Shares to be transferred does not
include all the Warrant Shares purchasable hereunder, it shall also state the
name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be delivered. In the event of any exercise of the rights
represented by this Warrant, Apollo shall submit to the Corporation (or its
transfer agent) within a reasonable period of time, not exceeding ten Business
Days, after such exercise a certificate or certificates representing the Warrant
Shares, and any other documentation reasonably requested by the Corporation (or
its transfer agent), for transfer to the Person entitled to receive the same,
such number of Warrant Shares to be transferred upon such exercise, and shall
deliver to the Person entitled to receive the same, within a reasonable time,
not exceeding ten days, after the rights represented by this Warrant shall have
been so exercised, a new Warrant representing the number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised. The
Person in whose name any certificate for Warrant Shares is transferred upon
exercise of this Warrant shall for all purposes be deemed to have become the
Holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate. The Holder shall pay all expenses, transfer
taxes and other charges payable in connection with the preparation and delivery
of certificates for the Warrant Shares and new Warrants for any unexercised
portion.
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(b) Anything contained in this Warrant to the contrary notwithstanding,
if the Holder is a Regulated Holder, then in no event may such Regulated Holder
exercise or assign or transfer this Warrant as any portion hereof to the extent
that such exercise or assignment or transfer would result in such Regulated
Holder having a Regulatory Problem, as determined by such Regulated Holder in
its sole discretion. Apollo and the Corporation shall be entitled to rely on the
Holder's determination of its status as a Regulated Holder and its determination
as to whether or not it may have a Regulatory Problem, and neither Apollo nor
the Corporation shall have any liability or obligation whatsoever to the Holder
with respect to such determinations made by the Holder.
SECTION 2. Covenants of Apollo. Apollo covenants and agrees that:
(a) Notwithstanding any other provision hereof, if the exercise of any
portion of this Warrant is to be made in connection with a public offering of
the Securities of the Corporation or sale of effective voting control of the
Corporation, the exercise of any portion of this Warrant may, at the election of
the Holder, be conditioned upon the consummation of the public offering or sale
in which case such exercise shall not be deemed to be effective until the
consummation of such transaction.
(b) Apollo shall not avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate to protect the rights of the Holder
hereof against impairment.
(c) Apollo shall hold at all times a sufficient number of shares of
Corporation Common Stock so that Apollo will be able to deliver to the Holder
the number of Warrant Shares obtainable upon exercise of this Warrant (provided,
however, that Apollo may transfer such shares of Corporation Common Stock to a
third party, reasonably acceptable to the Holder, in connection with or upon the
consummation of the sale or other transfer of Apollo's investment in the
Corporation Common Stock, and upon such transfer and the execution and delivery
to the Holder of a similar Warrant of like tenor by such transferee, Apollo and
its affiliates and agents shall be released from their obligations under this
Warrant).
SECTION 3. Adjustment of Number of Shares and Exercise Price. In order to
prevent dilution or avoidance of the rights granted under this Warrant, the
Exercise Price shall be subject to adjustment from time to time as provided in
this Section 3, and the number of Warrant Shares obtainable upon exercise of
this Warrant shall be subject to adjustment from time to time as provided in
this Section 3.
(a) Subdivision or Combination of Corporation Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend or other
distribution payable in shares of Corporation Common Stock, recapitalization or
otherwise) the outstanding shares of Corporation Common Stock into a greater
number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
obtainable upon exercise of this Warrant shall be proportionately increased. If
the Corporation at any time combines (by reverse stock split or otherwise) the
outstanding shares of
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Corporation Common Stock into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination shall be proportionately increased
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be proportionately decreased.
(b) Reorganization, Reclassification, Consolidation, Merger or Sale.
Any recapitalization (other than a subdivision or combination of Corporation
Common Stock described in Section 3(a) hereof), reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Corporation's assets (determined on a consolidated basis) to another Person or
other transaction which is effected in such a way that holders of Corporation
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, cash, securities or assets with respect to or in exchange
for Corporation Common Stock is referred to herein as an "Organic Change". In
the event of any Organic Change, the Holder shall thereafter have the right to
acquire and receive in lieu of or addition to (as the case may be) the Warrant
Shares immediately theretofore acquirable and receivable upon the exercise of
this Warrant, such shares of stock, cash, securities or assets as such Holder
would have received in connection with such Organic Change if such Holder had
exercised such Warrant immediately prior to such Organic Change.
(c) Notices. To the extent it receives written notice from the
Corporation, Apollo shall:
(i) promptly upon any adjustment of the Exercise Price, give
written notice thereof to the Holder, setting forth in reasonable detail and
certifying the calculation of such adjustment;
(ii) give written notice to the Holder promptly after
becoming aware that the Corporation proposes to take any action or of the
date on which the Corporation closes its books or takes a record (A) with
respect to any dividend or distribution upon the Corporation Common Stock,
(B) with respect to any pro rata subscription offer to holders of
Corporation Common Stock or (C) for determining rights to vote with respect
to any Organic Change, dissolution or liquidation; and
(iii) also give written notice to the Holder of the date on
which any Organic Change, dissolution or liquidation shall take place.
SECTION 4. Dividends; Purchase Rights.
(a) If the Corporation declares or pays a dividend upon the Corporation
Common Stock payable (i) in cash out of earnings or earned surplus (determined
accordance with generally accepted accounting principles, consistently applied)
(a "Cash Dividend") or (ii) otherwise than in cash out of earnings or earned
surplus (determined in accordance with generally accepted accounting principles,
consistently applied) except for a stock dividend payable in shares of
Corporation Common Stock (a "Liquidating Dividend"), then Apollo shall pay to
the Holder of this Warrant at the time of payment thereof the Liquidating
Dividend or Cash Dividend, as the case may be, which would have been paid to
such Holder on the Warrant Shares had this Warrant been fully exercised
immediately prior to the date on which a record is taken for such
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Liquidating Dividend or Cash Dividend, as the case may be, or, if no record is
taken, the date as of which the record holders of Corporation Common Stock
entitled to such dividends are to be determined.
(b) If at any time the Corporation grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of Corporation Common
Stock (the "Purchase Rights"), then the Holder of this Warrant shall be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate number or amount of such stock, warrants, securities or other property
which such Holder could have acquired if such Holder had held the Warrant Shares
acquirable upon complete exercise of this Warrant immediately before the date on
which a record is taken for the grant, issuance or sale of such Purchase Rights,
or, if no such record is taken, the date as of which the record holders of
Corporation Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
SECTION 5. No Voting Rights. The Holder shall not be entitled to any voting
rights as a stockholder of the Corporation by reason of the rights granted under
this Warrant until the Holder shall purchase shares of Corporation Common Stock
hereunder.
SECTION 6. Exchange and Transfer of Warrant.
(a) Exchange of Warrant. The Holder may exchange this Warrant for
another Warrant or Warrants of like kind and tenor representing in aggregate
the right to purchase the same number of Warrant Shares which could be purchased
pursuant to this Warrant. In order to effect such exchange, the Holder shall
deliver this Warrant to Apollo accompanied by a written request signed by the
Holder specifying the number and denominations of Warrants to be issued in such
exchange and the names in which such Warrants are to be issued. As soon as
reasonably practicable after receipt of such a request, Apollo shall execute and
deliver to the Holder the Warrant or Warrants to be issued in such exchange.
(b) Transfer of Warrant. This Warrant may be transferred by the Holder
hereof (but only with the prior written consent of Apollo if the transferee is
not an Affiliate of CEA) by delivering this Warrant to Apollo accompanied by a
properly completed Assignment Form and executed copies of the Stockholders
Agreement dated as of October __, 1997, and the Proxy and Voting Agreement,
dated as of October ___, 1997, duly executed by such transferee, the written
affirmation by such transferee of the representations, warranties,
acknowledgments and agreements contained in Section 3.2 of the Purchase
Agreement, and any other documents reasonably requested by Apollo. As soon as
reasonably practicable after receipt of such Assignment Form, Apollo shall
execute and deliver to the Holder a new Warrant or Warrants of like kind and
tenor representing in the aggregate the right to purchase the same number of
Warrant Shares which could be purchased pursuant to the Warrant being
transferred. In all cases of transfer by an attorney, the original power of
attorney, duly approved, or a copy thereof, duly certified, shall be delivered
to and shall remain with Apollo. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced and may be required to be
deposited and remain with Apollo in its discretion.
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SECTION 7. Loss, Theft, Destruction of Warrant Certificates. Upon receipt of
evidence satisfactory to Apollo of the ownership of and the loss, theft,
destruction or mutilation of any Warrant and, in the case of any such loss,
theft or destruction, upon receipt of indemnity or security satisfactory to
Apollo (it being understood and agreed that if the Holder of such Warrant is CEA
or one of its Affiliates, then a written agreement of indemnity given by such
Person alone shall be satisfactory to Apollo and no further security shall be
required) or, in the case of any such mutilation, upon surrender and
cancellation of such Warrant, Apollo will make and deliver, in lieu of such
lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and
representing the right to purchase the same aggregate number of Warrant Shares.
SECTION 8. Successors. All the provisions of this Warrant by or for the
benefit of the Issuer or the Holder shall bind and inure to the benefit of their
respective successors and assigns.
SECTION 9. Headings. The headings of sections of this Warrant have been
inserted for convenience of reference only, are not to be considered a part
hereof and shall in no way modify or restrict any of the terms or provisions
hereof.
SECTION 10. Remedies; Amendment and Waiver.
(a) No failure or delay of any party in exercising any power or right
hereunder shall operate as a waiver thereof (except where a specific time period
for the exercise of such power or right is expressly set forth herein), nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. No notice or demand on any party in any case shall entitle such
party to any other or future notice or demand in similar or other circumstances.
The rights and remedies of the Holder or the Issuer are cumulative and not
exclusive of any rights or remedies which it would otherwise have.
(b) This Warrant may only be amended or modified by a written
instrument signed by the Holder and Apollo. The provisions of this Warrant may
be waived only by a writing signed by the party to be charged with such waiver.
SECTION 11. Severability. Whenever possible, each provision of this
Warrant will be interpreted in such manner as to be effective and valid under
Applicable Law, but if any provision of this Warrant is held to be invalid,
illegal or unenforceable in any respect under any Applicable Law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, and such invalid, void or
otherwise unenforceable provisions shall be null and void. It is the intent of
the parties, however, that any invalid, void or otherwise unenforceable
provisions be automatically replaced by other provisions which are as similar as
possible in terms to such invalid, void or otherwise unenforceable provisions
but are valid and enforceable to the fullest extent permitted by law.
SECTION 12. Definitions, Interpretation.
(a) Definitions The following terms have meanings set forth below:
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<PAGE>
(i) "Affiliate" means, with respect to any Person, (i) a
director, officer or stockholder of such Person, (ii) a spouse, parent,
sibling or descendant of such Person (or spouse, parent, sibling or
descendant of any director or executive officer of such Person), and (iii)
any other Person that, directly or indirectly through one or more
intermediaries, Controls, or is Controlled by, or is under common Control
with, such Person.
(ii) "Applicable Law" means, with respect to any Person,
property, transaction or event, all present or future applicable laws,
statutes, regulations, treaties, judgments and decrees and all applicable
official directives, rules, consents, approvals, authorizations, orders,
guidelines and policies of any Governmental Authority or Persons having
authority over or applicable to such Person or any of its assets or
properties.
(iii) "Business Day" means any day other than a Saturday,
Sunday or a day on which banks are authorized or required to be closed in
New York, New York.
(iv) "Control" means, with respect to any Person, 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.
(v) "Convertible Securities" means any stock or other
securities convertible into or exchangeable for Corporation Common Stock.
(vi) "Governmental Authority" means any federal, state,
provincial, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, or any court, in each case whether of the
United States of America or any political subdivision thereof, or of any
other country.
(vii) "Options" means any rights or options to subscribe for
or to purchase Corporation Common Stock.
(viii) "Person" shall be construed broadly and shall include
an individual, a partnership, a corporation, a limited liability company, an
association a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity (or any department,
agency or political subdivision thereof).
(ix) "Regulated Holder" means any holder of the
Corporation'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).
(x) "Regulatory Problem" means (i) any set of facts or
circumstances wherein it has been asserted by any governmental regulatory
agency (or CEA believes that there is a 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
7
<PAGE>
material right with respect to, all or any portion of the Securities of the
Corporation 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 Corporation 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.
(xi) "Securities" means, with respect to any Person, such
Person's capital stock or any options, warrants or other Securities which
are directly or indirectly convertible into, or exercisable or exchangeable
for, such Person's capital stock (whether or not such derivative Securities
are issued by the Corporation). Whenever a reference herein to Securities
refers to any derivative Securities, the rights of CEA shall apply to such
derivative Securities and all underlying Securities directly or indirectly
issuable upon conversion, exchange or exercise of such derivative
Securities.
(xii) "Subsidiary" means, with respect to the Corporation,
(i) any Person of which either (x) 50% or more of the shares of stock or
other interests entitled to vote in the election of directors or comparable
Persons performing similar functions (excluding shares or other interests
entitled to vote only upon the failure to pay dividends thereon or other
contingencies) or (y) a 50% or greater interest in the profits or capital of
such Person, are at the time owned directly or indirectly through one or
more Subsidiaries by the Corporation, or (ii) whose net earnings, or
portions thereof, are consolidated with the net earnings of the Corporation
and are recorded on the books of the Corporation for financial reporting
purposes in accordance with generally accepted accounting principles.
(xiii) "US$" and "United States Dollars" shall each mean
lawful currency of the United States.
(xiv) "Warrant Shares" means the shares of Corporation
Common Stock issued or issuable upon exercise of this Warrant; provided
however, that if there is a change such that the securities issuable upon
exercise of this Warrant are issued by an entity other than the Corporation
or there is a change in the class of securities so issuable, then the term
"Warrant Shares" shall mean the securities issuable upon exercise of this
Warrant.
(b) Terms Generally. The definitions contained in this Warrant shall
apply equally to the singular and plural forms of the terms defined. Whenever
the context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include," "includes" and "including" shall
be deemed to be followed by the phrase "without limitation."
(c) Currency. Unless otherwise specified herein, all statements or
references to dollar amounts or $ set forth herein shall refer to United States
Dollars.
SECTION 13. GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
INTERPRETATION AND VALIDITY OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC
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LAWS OF THE STATE OF DELAWARE WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER IN THE STATE OF DELAWARE OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF DELAWARE.
SECTION 14. Notices. All notices, demands and requests of any kind to be
delivered to any party hereto in connection with this Warrant shall be in
writing, (a) delivered personally, (b) sent by internationally-recognized
overnight courier, (c) sent by first class, registered or certified mail, return
receipt requested or (d) by telecopy, telegram or other means of recorded
telecommunication with confirmed receipt (with hard copy to follow). Any
notice, demand or request so delivered shall constitute valid notice under this
Warrant and shall be deemed to have been received (i) on the day of actual
delivery in the case of personal delivery, (ii) on the next Business Day after
the date when sent, in the case of delivery by internationally-recognized
overnight courier, (iii) on the fifth Business Day after the date of deposit in
the U.S. mail in the case of mailing or (iv) one business day after being sent
by telecopy with confirmed receipt (with hard copy to follow). The mailing
addresses of Apollo and CEA are set forth on the signature pages hereto. Any
party hereto may, from time to time by notice in writing served upon the other
as aforesaid, designate a different mailing address or a different person to
which all such notices, demands or requests thereafter are to be addressed.
SECTION 15. Conflicting Agreements. Apollo shall not enter into any
agreements or arrangements of any kind with any Person with respect to the
Warrant Shares containing terms inconsistent with the provisions of this
Warrant, including agreements or arrangements with respect to the acquisition or
disposition of securities of the Corporation in a manner which is inconsistent
with this Warrant.
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<PAGE>
IN WITNESS WHEREOF, the Issuer, has caused this Warrant to be executed
by its duly authorized officers under its corporate seal, and this Warrant to be
dated as of the date first set forth above.
[APOLLO]
By:
---------------------------------
Name:
Title:
Address: c/o Apollo Management, L.P.
1999 Avenue of the Stars, Suite 1900
Los Angeles, California 90067
Attention: Michael D. Weiner, Esq.
Telecopy No.: (310) 201-4166
ACCEPTED:
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its General Partner
By:
---------------------------
Partner
Address: 380 Madison Avenue, 12th Floor
New York, New York 10017
Attention: Christopher C. Behrens
Telecopy No.: (212) 622-3101
with a copy of notices and other communications to:
O'Sullivan Graev & Karabell, LLP
30 Rockefeller Plaza
New York, New York 10112
Attention: Michael F. Killea, Esq.
Telecopy No.: (212) 408-2420
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FORM OF EXERCISE
[To be signed upon exercise of Warrant]
To APOLLO INVESTMENT FUND III, L.P., a Delaware limited partnership
("AIF"), APOLLO UK PARTNERS III, L.P., a Delaware limited partnership ("Apollo
UK"), and APOLLO OVERSEAS PARTNERS III, L.P., a Delaware limited partnership
("Overseas"):
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder,____ shares of Corporation Common Stock of Apollo LCA
Acquisition Corporation and herewith tenders payment of [identify amount and
form of payment] in full payment of the purchase price for such shares, and
requests that such shares be transferred to, and the certificates for such
shares be issued in the name of, and be delivered to, ______, whose address is
____________________.
In connection with such exercise, the Holder hereby reaffirms the
representations, warranties, acknowledgments and agreements contained in Section
3.2 of the Purchase Agreement (as defined in the within Warrant).
Dated:
------------------------
----------------------------------------
(Signature)
(Address)
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FORM OF ASSIGNMENT
[To be signed only upon transfer of Warrant]
For value received, the undersigned hereby sells, assigns and transfers
unto ________________, all of the rights represented by the within Warrant to
purchase shares of Common Stock of Apollo LCA Acquisition Corporation to which
the within Warrant relates.
Dated:
----------------------------
----------------------------------
(Signature)
(Address of Assignor)
Signed in the presence of:
Address of Assignee:
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STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT (the "Agreement"), dated as of November 4, 1997 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) Paragon Health Network, Inc., a Delaware corporation and the successor to
Living Centers of America, Inc. (the "Company").
W I T N E S S E T H:
WHEREAS, the transactions contemplated by this Agreement shall become
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, on the Effective Date, after giving effect to the transactions
contemplated by the Merger Agreement, each Stockholder shall beneficially own
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 shall collectively beneficially own 5,925,926
shares of Common Stock (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 1.1 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 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; (iv) 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 or (v) in the case of Key Capital
Corporation or Key Equity Partners 97, any Person other than (A) any
general partner 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. 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.
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"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, Associates or any Group of which such Stockholder or any
such Affiliate or Associate 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.
"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).
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<PAGE>
In addition, the following terms have the definitions specified in the
Sections noted:
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
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)
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
</TABLE>
ARTICLE II.
Representations and Warranties of the Company
The Company hereby represents and warrants to each of the Stockholders as
follows:
Section 2.1 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).
3
<PAGE>
Section 2.2 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 2.3 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.
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
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 3.2 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.
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<PAGE>
ARTICLE IV.
Board Representation and Voting
Section 4.1 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) six
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 third anniversary of the Effective Date,
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 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
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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 4.2 Voting. Each Stockholder agrees that during the Standstill
Period such Stockholder shall, and shall cause its Affiliates to, use
commercially reasonable efforts to 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 5.1 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 and Associates
(provided, however, that this Section 5.1 shall not relate to Voting
Securities of Associates to the extent such Voting Securities were originally
acquired by such Associates pursuant to the Merger Agreement or the GranCare
Merger Agreement or were acquired prior to the date hereof) not to, directly
or indirectly:
(i) acquire, offer to acquire (by tender or exchange offer or otherwise),
or agree to acquire, by purchase or otherwise, 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 by all Stockholders, their Affiliates and
Associates in the aggregate of Voting Securities representing up to the
lesser of (x) an additional 5% of the total number of Voting Securities
outstanding immediately after the Effective Time (as such number may
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be appropriately adjusted to reflect stock splits, reverse stock splits,
stock dividends or any other recapitalization of the Company) or (y) an
aggregate number of Voting Securities (including the Shares) equal to 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 or Associates 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 knowledge (including by way of written
notice given by the Company) that a violation has occurred, the
Stockholders or any of their Affiliates or Associates 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 or Associates 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 or Associate 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 or Associates thereof as
to which limited partner no Stockholder or its Affiliates or Associates 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; 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, (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) non-public 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 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
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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 5.2 Early Termination of Standstill. The obligations of the
Stockholders under Section 5.1 shall terminate at the election of the
Stockholders (by majority vote) 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 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; or
(g) At any time after the expiration of six (6) years from the Effective
Date.
Section 5.3 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, none of the Other Stockholders shall acquire, offer to
acquire (by tender or exchange offer or otherwise), or agree to acquire, by
purchase or otherwise, 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 as contemplated by Sections 5.1(i)(A), (B),
(D), (E) or (F) hereof) without prior written consent of Apollo.
ARTICLE VI.
Transfer
Section 6.1 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
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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 6.2 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 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 6.3 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
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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 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
(iii) (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 6.4 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
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securities of the Company), and (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 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 6.5 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.
12
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ARTICLE VII.
Miscellaneous
Section 7.1 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.
Section 7.2 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 7.3 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.
13
<PAGE>
Section 7.4 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:
Paragon Health Network, Inc.
One Ravinia Drive, Suite 1500
Atlanta, Georgia 30346
Attn: Chief Executive Officer
Fax: (770) 698-8199
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
Attn: Tony Tortorelli
Fax: (914) 694-8032
with a copy (which shall not constitute notice) to:
Sidley & Austin
555 West Fifth Street
Suite 4000
Los Angeles, California 90013
Attn: 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 7.5 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 7.6 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 7.7 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 7.8 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 7.9 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.
14
<PAGE>
Section 7.10 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.
Section 7.11 Pronouns. Whenever the context may require, any pronouns used
herein shall be deemed also to include the corresponding neuter, masculine or
feminine forms.
15
<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
----------------------------------
Name:
Title:
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/ Michael Weiner
----------------------------------
Name:
Title:
4,366,790 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/ Michael Weiner
----------------------------------
Name:
Title:
161,396 Shares of Common Stock
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/ Michael Weiner
----------------------------------
Name:
Title:
261,011 Shares of Common Stock
16
<PAGE>
OTHER STOCKHOLDERS
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its General Partner
By:/s/ Brian J. Richmond
----------------------------------
Name:
Title:
666,667 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
17
<PAGE>
HEALTHCARE EQUITY PARTNERS, L.P.
By: Beecken, Petty & Company, L.L.C.
Its General Partner
By:/s/ John W. Kneen
----------------------------------
Name: John W. Kneen
Title: Managing Director
60,864 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/ John W. Kneen
----------------------------------
Name: John W. Kneen
Title: Managing Director
186,050 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
18
<PAGE>
KEY CAPITAL CORPORATION
By:/s/ Stephen R. Haynes, V.P.
----------------------------------
Stephen R. Haynes
Vice President
92,593 Shares of Company 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, G.P.
----------------------------------
Stephen R. Haynes
Its: General Partner
30,864 Shares of Company Common Stock
Address for Notice:
127 Public Square, 6th Floor
Cleveland, OH 44114
Attention: Stephen R. Haynes
Telecopy No.: (216) 689-3204
19
<PAGE>
DRAX HOLDINGS L.P.
By: Inman Corporation
Its General Partner
By:/s/ Burton W. Kanter
----------------------------------
Name: Burton W. Kanter
Title: President
25,000 Shares of Common Stock
Address for Notice:
281 Broad Avenue South
Naples, FL 33940
Attention: Linda Hamilton
Telecopy No.: (941) 262-0467
WALNUT GROWTH PARTNERS
LIMITED PARTNERSHIP
By: Walnut GP, L.L.C.
Its General Partner
By:/s/ Michael Faber
----------------------------------
Name: Michael Faber
Title: Managing Member
24,691 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
20
<PAGE>
/s/ Keith B. Pitts
-------------------------------------
Keith B. Pitts
50,000 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
21
<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
22
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of November 4,
1997 by and among Paragon Health Network, Inc., a Delaware corporation (the
"Company"), and each other person executing this Agreement (the "Investors").
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:
"Apollo Holders" means, collectively, Apollo Investment Fund III, L.P.,
Apollo UK Partners III, L.P., and Apollo Overseas Partners III, L.P., and any
transferee of an Apollo Holder unless the transferor notifies the Company that
such transferee shall not be entitled to any of the rights of an Apollo Holder
under Section 2.1 hereof.
"Demanding Holder" means any Holder who has initiated a registration request
in compliance with Section 2.1(a); provided, that any action required or
permitted to be taken under this Agreement by any Demanding Holders shall be
taken by action of the holders of a majority of the Registrable Securities
held by such Demanding Holders.
"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.
"Effective Date" means the date of the closing under the Amended and
Restated Agreement and Plan of Merger, dated as of September 17, 1997, among
Apollo Management, L.P., on behalf of one or more managed investment funds,
Apollo LCA Acquisition Corp. and the Company.
"Holder" means each Investor that holds Registrable Securities and any party
who shall hereafter acquire from an Investor and hold Registrable Securities.
"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 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 until (i) it has
been effectively registered under the Securities Act and disposed of pursuant
to an effective registration statement (other than the Registration Statement
on Form S-4 filed in connection with the Merger), (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 and it may be resold by the person receiving such Share
without registration under the Securities Act.
1
<PAGE>
"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 Registrable
Securities 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. At any time and from time to time on or after
the Effective Date the Apollo Holders collectively may make a total of two
written requests for a Demand Registration of not less than 10% of the
Registrable Securities held by the Apollo Holders; provided, that the Company
shall in no event be obligated to effect more than one Demand Registration in
any 12-month period. Each such request will specify the number of Registrable
Securities proposed to be sold and will also specify the intended method of
disposition thereof.
If Holders of a majority of the then outstanding Registrable Securities
requested to be included in such registration pursuant to Section 2.1(a)
request 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) twelve months from the date on which the Commission declares such
Registration Statement effective and (ii) the date on which all Registrable
Securities covered by such Registration Statement have been sold pursuant to
such Registration Statement.
(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, the
amount of Registrable Securities to be registered on behalf of the Demanding
Holders is reduced by more than 10% pursuant to Section 2.3(a) hereof or 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 200 days, or twelve months with
respect to a "shelf" registration, beyond the effective date thereof or until
the consummation of the distribution by the Holders of the Registrable
Securities included in such registration statement, then such registration
statement shall not count as one of the two Demand Registrations that may be
requested by the Demanding Holder(s) in question and the Company shall
continue to be obligated to effect a registration pursuant to this Section
2.1.
2
<PAGE>
The Demanding Holders 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 Holders) withdraw the
Registration Statement, provided that if the Demanding Holders bear 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. If the Demanding Holders determine to bear such expenses, such
expenses shall be borne by the Demanding Holder(s) whose withdrawal of
Registrable Securities resulted in such Registration Statement not covering
the specified required amounts.
(c) Selection of Underwriter. If the Demanding Holders so elect, the
offering of Registrable Securities pursuant to a Demand Registration shall be
in the form of an underwritten offering. The Demanding Holders 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.
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 securityholders 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 Holders as soon as practicable (but in no event
less than 20 days before the anticipated filing date), and such notice shall
offer such Holders the opportunity to register such number of shares of
Registrable Securities as each such Holder 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 Holders 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 Piggy-Back Registration 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.
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 4.1).
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 Registrable Securities for the
account of the Piggy-Back Holders and Shares for the account
3
<PAGE>
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 Holders; 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 Holders, the Company, any
Piggy-Back Holders 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 Holders and the
Piggy-Back Holders exceeds the number of Shares recommended by such managing
Underwriters, then the number of Shares to be offered for the account of the
Demanding Holders and the Piggy-Back Holders shall be reduced pro rata in
proportion to the respective number of Shares requested to be registered by
the Demanding Holders and the Piggy-Back 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 not subject to the reduction
contemplated by this clause (ii)), 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 or Holders 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 Holders of Registrable Securities
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 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 Demanding Holders
pursuant to Section 2.1, then the number of Shares to be offered for the
account of each Person shall be reduced in accordance with Section 2.3(a), and
(B) if such offering is effected for the account of any other securityholder
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
the Piggy-Back Holders 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 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
Shares to be included in such offering by such 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.
4
<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 200 days, or
twelve 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 Purchasers 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 penultimate
paragraph of this Section 3.1) for a period of not less than 200 days, or
twelve 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 Holders, 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 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 of Registrable Securities covered by such
Registration Statement, and (if requested by any such Selling Holder) confirm
such notice in writing, (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,
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(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 any Selling Holder reasonably (in light
of such Selling Holder's intended plan of distribution) requests, 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 that may be reasonably necessary or advisable to
enable such Selling Holder to consummate the disposition of the Registrable
Securities owned by such Selling Holder; 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 their 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
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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 Selling Holder 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 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, at its 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,
if any, a signed counterpart, addressed to such Selling Holder or Underwriter,
of (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) The Company will otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
covering a period of 12 months, beginning within three months after the
effective date of the Registration Statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act.
(l) The Company will use its best efforts (a) to cause the Registrable
Securities to be listed on a national securities exchange (if such shares are
not already so listed) and on each additional national securities exchange on
which similar securities issued by the Company are then listed (if any), if
the listing of such Registrable Securities is then permitted under the rules
of such exchange or (b) to secure designation of all such Registrable
Securities covered by such registration statement as a NASDAQ "national market
system security" within the meaning of Rule 11Aa2-1 of the Commission or,
failing that, to secure NASDAQ authorization for such Registrable Securities
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register as such with respect to such Registrable
Securities with the National Association of Securities Dealers, Inc. (the
"NASD").
(m) The Company will appoint a transfer agent and registrar for all such
Registrable Securities covered by such registration statement not later than
the effective date of such Registration Statement.
(n) Prior to the effective date of the first Demand Registration or the
first Piggy-Back Registration, whichever shall occur first, (i) provide the
transfer agent with printed certificates for the Registrable Securities in a
form eligible for deposit with The Depository Trust Company, and (ii) provide
a CUSIP number for the Registrable Securities.
(o) 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 such 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 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
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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.
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), (j), (k), (1) and (n) 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 requested pursuant to Section 3.10) hereof), (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 Holders (together with necessary local counsel
fees and expenses), which counsel shall be chosen by the Demanding Holders or,
if none, by the Holders of a majority of the Registrable Securities being
included in such Registration Statement. The Company shall have no obligation
to pay any underwriting fees, discounts or commissions attributable to the
sale of Registrable Securities.
ARTICLE IV
INDEMNIFICATION AND CONTRIBUTION
Section 4.1 Indemnification by the Company. The Company agrees to indemnify
and hold harmless each Selling Holder, its partners, officers, directors,
employees and agents, and each Person, if any, who controls such Selling
Holder 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 (collectively, the "Controlling
Persons"), 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 such Selling Holder, its partners,
officers, directors, employees and agents, and any such Controlling Person 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 a Selling Holder or Underwriter expressly for use therein, and
shall reimburse each Selling Holder, its partners, officers, directors,
employees and agents, and each such Controlling Person for any legal
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and other expenses reasonably incurred by that Selling Holder, its partners,
officers, directors, employees and agents, or any such Controlling Person in
investigating or defending or preparing to defend against any such Damages or
proceedings; provided, however, that the Company shall not be liable to any
Selling Holder 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) such Holder failed to send or deliver a copy of the final Prospectus
with or prior to the delivery of written confirmation of the sale by such
Selling Holder 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, such
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 of the Selling
Holders provided in this Section 4.1.
Section 4.2 Indemnification by Holders of Registrable Securities. Each
Selling Holder agrees, severally but not jointly, 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 such
Selling Holder, but only with reference to information related to such Selling
Holder, or its plan of distribution, furnished in writing by such Selling
Holder or on such Selling Holder'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 such Selling Holder, such Selling Holder 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 such Selling
Holder, under Section 4.1. Each Selling Holder 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 4.2. 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 any Selling Holder
be greater in amount than the dollar amount of the proceeds (net of payment of
all expenses) received by such Selling Holder upon the sale of the Registrable
Securities giving rise to such indemnification obligation.
Section 4.3 Conduct of Indemnification Proceedings. Promptly after receipt
by any Person in respect of which indemnity may be sought pursuant to Section
4.1 or 4.2 (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
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Article IV. 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 4.4 Contribution. If the indemnification provided for in this
Article IV 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 Selling Holders 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 Selling Holders 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 Selling Holders 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 each Selling Holder on the other, in
such proportion as is appropriate to reflect the relative fault of the Company
and of each Selling Holder in connection with such statements or omissions, as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Holders 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 and the
Selling Holders 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 Selling Holders 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 Selling Holders 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 Selling Holders agree that it would not be just and
equitable if contribution pursuant to this Section 4.4 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
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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 4.4, 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 such Selling Holder 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. Each Selling Holder's
obligation to contribute pursuant to this Section 4.4 is several and not
joint.
The indemnity, contribution and expense reimbursement obligations contained
in this Article IV are in addition to any liability any Indemnifying Party may
otherwise have to an Indemnified Party or otherwise. The provisions of this
Article IV shall survive, notwithstanding any transfer of the Registrable
Securities by any Holder or any termination of this Agreement.
ARTICLE V
MISCELLANEOUS
Section 5.1 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, 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 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 such Holder derives from such
registration; provided, however, that in an offering by the Company in which
any Holder 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 5.1 are true;
provided further, that if the Company fails in its best efforts to so arrange
the terms, the Holder may withdraw all or any part of its Registrable
Securities from the Piggy-Back Registration and the Company shall reimburse
such Holder for all reasonable out-of-pocket expenses (including counsel fees
and expenses) incurred prior to such withdrawal.
Section 5.2 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 5.3 Holdback Agreements.
(a) Restrictions on Public Sale by Holder of Registrable Securities. Each
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
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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.
The foregoing provisions shall not apply to any Holder that is prevented by
applicable statute or regulation from entering into any such agreement;
provided, however, that any such Holder shall undertake not to effect any
public sale or distribution of the class of securities covered by such
registration statement (except as part of such underwritten offering) during
such period unless it has provided 60 days' prior written notice of such sale
or distribution to the managing underwriter.
(b) Restrictions on Sale by the Company and Others. The Company agrees and
shall 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 5.4 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 (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 Holder (each as defined in the
Stockholders Agreement, dated as of the date hereof)), and (b) the holders of
a majority of the Registrable Securities held by the Holders; provided,
however, that so long as the Apollo Holders beneficially owns at least 25% of
the Registrable Securities held by the Apollo Holders on the Effective Date,
without the consent of the Apollo Holders, no amendment or modification which
adversely affects the rights or duties of the Apollo Holders 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 Holder
without similarly and proportionately (based on the respective number of
Shares then owned by the Holders hereunder) affecting the rights and
obligations of all Holders hereunder, or that would otherwise unfairly
discriminate against any Holder, shall be effective as to such Holder unless
such Holder 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.
Section 5.5 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 (i) 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
Holders and (ii) an Apollo Holder may assign a right to request a Demand
Registration in connection with a transfer of Registrable Securities held by
it.
(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 5.6 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
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or unenforceable provision unless that provision held invalid shall
substantially impair the benefits of the remaining portions of this Agreement.
Section 5.7 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.
To the Company:
Paragon Health Network, Inc.
One Ravinia Drive
Suite 1500
Atlanta, Georgia 30346
Attn:
Fax: (770) 698-8199
with a copy (which shall not constitute notice) to:
To Apollo Holders:
c/o Apollo Advisors II, L.P.
2 Manhattanville Road
Purchase, New York 10577
Attn: Tony Tortorelli
Fax: (914) 694-8032
with a copy (which shall not constitute notice) to:
Sidley & Austin
555 West Fifth Street
Suite 4000
Los Angeles, California 90013
Attn: Robert W. Kadlec, Esq.
Fax: (213) 896-6600
To the other Investors:
To the address specified on the signature page executed by such other
Investor.
Section 5.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal law of the State of New York, without giving
effect to principles of conflicts of law.
Section 5.9 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 5.10 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.
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Section 5.11 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 5.12 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) with
respect to any Holder, such Holder ceasing to own any Registrable Securities
or such Holder waiving, rescinding and terminating all of such Holder's rights
under this Agreement or (iii) the fifteenth anniversary of the Effective Date.
Section 5.13 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 5.14 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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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
----------------------------------
Name:
Title:
APOLLO HOLDERS
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/ Michael Weiner
----------------------------------
Name:
Title:
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/ Michael Weiner
----------------------------------
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: /s/ Michael Weiner
----------------------------------
Name:
Title:
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OTHER INVESTORS
CHASE EQUITY ASSOCIATES, L.P.
By: Chase Capital Partners
Its General Partner
By: /s/ Brian J. Richmond
----------------------------------
Name:
Title:
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
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HEALTHCARE EQUITY PARTNERS, L.P.
By: Beecken, Petty & Company, L.L.C.
Its General Partner
By: /s/ John W. Kneen
----------------------------------
Name: John W. Kneen
Title: Managing Director
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/ John W. Kneen
----------------------------------
Name: John W. Kneen
Title: Managing Director
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
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KEY CAPITAL CORPORATION
By: /s/ Stephen R. Haynes
----------------------------------
Name: Stephen R. Haynes
Title: Vice President
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
----------------------------------
Name: Stephen R. Haynes
Title: General Partner
Address for Notice:
127 Public Square, 6th Floor
Cleveland, OH 44114
Attention: Stephen R. Haynes
Telecopy No.: (216) 689-3204
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DRAX HOLDINGS L.P.
By: Inman Corporation
Its General Partner
By: /s/ Burton W. Kanter
----------------------------------
Name: Burton W. Kanter
Title: President
Address for Notice:
281 Broad Avenue South
Naples, FL 33940
Attention: Linda Hamilton
Telecopy No.: (941) 262-0467
WALNUT GROWTH PARTNERS LIMITED
PARTNERSHIP
By: Walnut GP, L.L.C.
Its General Partner
By: /s/ Michael Faber
----------------------------------
Name: Michael Faber
Title: Managing Member
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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/s/ Keith B. Pitts
-------------------------------------
Keith B. Pitts
Address for Notice:
c/o Paragon Health Network, Inc.
1 Ravinia Drive, Suite 1500
Atlanta, GA 30346
Telecopy No.: (770) 379-0753
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