UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2 TO FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [No Fee Required]
For the transition period from ______ to __________.
Commission file number 0-21512
MARINER HEALTH GROUP, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1251310
-------- ----------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
125 Eugene O'Neill Drive
New London, Connecticut 06320
----------------------- -----
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (860) 701-2000
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
----------------------------
(Title of Class)
Series A Junior Participating Preferred Stock Purchase Rights
-------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].
The aggregate market value of the Common Stock, $.01 par value, of the
registrant held by non-affiliates of the registrant as of March 26, 1996
(computed based on the closing price of such stock on The Nasdaq National Market
on March 26, 1996) was $417,091,892.37.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of March 26, 1996 was 28,508,361 shares.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, or indicated portions thereof, have been incorporated
in this Report by reference:
1. Specifically identified information in the Registrant's
definitive proxy statement for its annual meeting of
stockholders, which is currently expected to be held on May
21, 1996, is incorporated by reference into Part III hereof.
This Amendment No. 2 on Form 10-K/A to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 (as amended, the "Report"), is being
filed to amend and restate Exhibit 10.36 to the Report. Such Exhibit 10.36 is
hereby amended and restated in its entirety. The other exhibits to the Report
are not being amended and have been previously filed with the Securities and
Exchange Commission with the Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 13 day of May,
1996.
MARINER HEALTH GROUP, INC.
By: /s/ Jeffrey W. Kinell
------------------------
Jeffrey W. Kinell
Executive Vice President, Chief
Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
- - --------- -------- ----
<S> <C> <C>
/s/ Arthur W. Stratton, Jr.* Chairman of the Board of May 13, 1996
- - ------------------------------------ Directors, Chief Executive
Arthur W. Stratton, Jr. Officer, President and Director
(principal executive officer)
/s/ Jeffrey W. Kinell Executive Vice President, Chief May 13, 1996
- - ----------------------------- Financial Officer and Treasurer
Jeffrey W. Kinell (principal financial and
accounting officer)
/s/ David C. Fries* Director May 13, 1996
- - -----------------------------
David C. Fries
/s/ Christopher Grant, Jr.* Director May 13, 1996
- - -----------------------------
Christopher Grant, Jr.
/s/ Stiles A. Kellett, Jr.* Director May 13, 1996
- - -----------------------------
Stiles A. Kellett, Jr.
/s/ John F. Robenalt* Director May 13, 1996
- - -----------------------------
John F. Robenalt
*By: /s/ Jeffrey W. Kinell
-------------------------
Jeffrey W. Kinell, Attorney in Fact.
</TABLE>
DEFINED CARE PARTNER AGREEMENT
This DEFINED CARE PARTNER AGREEMENT is entered into effective as of January
5, 1996 (the "Effective Date") among AmHS Purchasing Partners, L.P., a
California limited partnership ("AmHSPP"), Mariner Health Care, Inc., a Delaware
corporation (the "Partner"), and, solely with respect to Article 3, Section 4.1
and Article 8 hereof, Mariner Health Group, Inc., a Delaware corporation and the
parent company of the Partner (the "Parent"), with reference to the following
facts:
A. AmHSPP and the Partner desire to create a strategic alliance (the
"Association"), on the terms set forth herein, pursuant to which the Partner
will be the AmHSPP-recommended resource to assist the hospitals and other health
facilities which participate in AmHSPP's group purchasing program (the
"Facilities") in developing subacute care, post acute care and other mutually
agreed upon services and resources from among those listed on Appendix 1
attached hereto (collectively, "Defined Care").
B. Primary goals for the Association are as follows:
(1) To establish the Partner as a flexible resource for the Facilities
with the ability, through a variety of potential relationships (e.g., joint
ventures, subcontracting services, co-development of new facilities,
co-investment, etc.), to meet the Defined Care needs of each Facility; and
(2) To develop Defined Care outcome databases for use by the
participants in the Association as set forth herein.
NOW, THEREFORE, based upon the foregoing premises and the mutual covenants
herein set forth, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE 1
CONTRIBUTIONS TO THE ASSOCIATION
1.1 AmHSPP/Facilities.
a. Access. AmHSPP will (1) represent the Partner to the Facilities as the
AmHSPP-selected and endorsed resource for Defined Care and (2) promote the
establishment of business relationships among the Partner and the Facilities for
the use of resources to assist the Facilities in developing or arranging for
Defined Care (with resulting agreements between the Partner and the Facilities
being herein referred to as the "Facility Agreements").
b. Consultant's Services. For interested Facilities electing to
participate in the Association, AmHSPP will make arrangements for the retention
of a consultant (the "Consultant") with expertise in post acute care strategies
and development to assist the Partner and such Facilities in developing mutually
satisfactory relationships. AmHSPP's arrangements with the Consultant are not
intended to obligate the Partner; rather, it is the intention of the parties
that the Partner will compensate the Consultant only in those situations where
the Partner makes arrangements with the Consultant and/or any Facility(ies) to
such effect.
c. Exclusivity. During the Term (defined below), AmHSPP will not enter
into a national agreement with any entity, other than the Partner or its
affiliates, to provide or to arrange to provide to the Facilities those services
described in items 1, 2, 3 and 7 of the first group of items listed on Appendix
1 attached hereto (the "Exclusive Defined Care").
1.2 Partner.
a. Performance Standards. The parties expect that each Facility
Agreement will address the scope, terms and conditions of the Partner's Defined
Care relationship with the respective Facility, as well as performance standards
for the Partner's services; however, in all instances the Partner's performance
will meet or exceed all applicable state and federal standards with respect to
the provision of Defined Care and the maintenance of related facilities and
resources.
b. Efforts.
i. Negotiation with Facilities. The Partner will exercise its
commercially reasonable best efforts to negotiate a mutually acceptable Facility
Agreement with each Facility indicating an interest in working with the Partner
as a Defined Care resource. Such commercially reasonable best efforts will
include, without limitation, the Partner (x) offering to each Facility the
elements set forth on Appendix 2 attached hereto (titled "Guiding Principles")
and (y) making Defined Care available to each interested Facility on such terms
and conditions as the Partner and the Facility may agree.
ii. Terms of Facility Agreements. Without limiting the provisions of
Sections 1.2(a) and 1.2(b)(i) above, the Partner agrees that, at the election of
any Facility, it will negotiate the terms of a Facility Agreement with such
Facility with reference to the elements for a joint venture or management
services arrangement as set forth on Appendix 3 attached hereto.
iii. Market Analysis. At the request of any Facility, and without a
charge or obligating the Facility in any way, the Partner will provide such
Facility with a preliminary
2
analysis regarding the Defined Care market within such Facility's Territory
(defined below).
c. Exclusivity.
i. Statement of Intent. It is the agreement of the parties that each
of the Facilities will have a right of first opportunity, within their
respective geographical territories (each, a "Territory"), to have an exclusive
Facility Agreement for Exclusive Defined Care. However, the parties acknowledge
the following: (1) since each Facility may determine not to enter into a
Facility Agreement, the Partner should thereafter have the ability to work with
other parties in such a Facility's Territory; (2) future acquisitions by the
Partner and/or its affiliates (a "Partner Acquisition") could result in
situations where the Partner and/or its affiliates are working, in Territories,
with parties other than Facilities ("Outside Relationships"); and (3) future
acquisitions by APS Healthcare, Inc., an affiliate of AmHSPP ("APS"), and/or the
affiliates of APS (an "APS Acquisition") could also result in Outside
Relationships despite the desire of affected Facilities to enter into Facility
Agreements.
ii. National Agreement. Notwithstanding any Partner Acquisition,
during the Term the Partner will not enter into, or otherwise maintain, directly
or indirectly, an agreement to provide Exclusive Defined Care resources or
services to the facilities of any national alliance of hospital-based or
hospital dominated health systems (other than APS and its affiliates).
iii. Negotiations with each Facility.
(1) Formal Contact. If the Partner and/or its affiliates
determine to enter a Facility's Territory, the Partner will exercise its
commercially reasonable best efforts to negotiate a mutually acceptable Facility
Agreement with such Facility. The Partner will commence its efforts with respect
to each Facility by formally contacting the Facility in writing and inquiring as
to the Facility's interest regarding discussion/negotiation of a Facility
Agreement. The Partner will advise AmHSPP in writing promptly upon the
initiation of any formal contact by the Partner or its affiliates with any
Facility.
(2) Facility Response and Discussion. If the Facility fails to
respond in writing, within thirty (30) days of the date of the Facility's
receipt of such Partner's formal contact, that it is so interested (e.g., with a
letter of interest from such Facility to the Partner), then the Partner may
enter into arrangements for Exclusive Defined Care with parties other than the
Facility. If the Facility does respond in writing within such thirty (30) day
period that it is interested in pursuing such discussion/negotiation (e.g., with
a letter of interest), then the Partner will exercise its commer-
3
cially reasonable best efforts, for a period of sixty (60) days following
receipt of such response, to negotiate a Facility Agreement (with reference to
the provisions of Section 1.2(b) above and which efforts, without limitation,
shall be exclusive within the Facility's Territory during such period). If,
after such sixty (60) day period, the Facility and the Partner have not achieved
an understanding regarding the material terms of a mutually acceptable Facility
Agreement (with the existence of such an understanding to be ascertained, for
example, by the existence of a non-binding letter of intent between the Partner
and the Facility), then the Partner may enter into arrangements for Exclusive
Defined Care with parties other than the Facility.
(3) Items of Exclusivity. Following compliance by the Partner
with the provisions of the foregoing paragraph (2), if the material terms of a
mutually acceptable Facility Agreement involve less than all "items" of
Exclusive Defined Care (with reference to the items set forth on Appendix 1
attached hereto), then the Partner may enter into arrangements for Exclusive
Defined Care with parties other than the Facility with respect to the excluded
items; however, for those items of Exclusive Defined Care which are or become
the subject of a Facility Agreement, such Facility Agreement with respect
thereto shall be the Partner's exclusive arrangement within the subject
Facility's Territory (subject to the provisions of paragraph (vii) below).
iv. Partner Acquisitions. If (i) a Partner Acquisition results in an
Outside Relationship, (ii) any affected Facility indicates that it desires to
enter into a Facility Agreement and (iii) the terms of such proposed Facility
Agreement are commercially reasonable, then the Partner will, consistent with
its contractual obligations with respect to such Outside Relationship, exercise
its commercially reasonable best efforts to terminate the Outside Relationship
and thereafter establish the proposed Facility Agreement.
v. APS Acquisitions. If (i) an APS Acquisition results in an Outside
Relationship, (ii) any affected Facility indicates that it desires to enter into
a Facility Agreement, and (iii) the terms of such proposed Facility Agreement
are commercially reasonable, then the Partner may (at its option), consistent
with its contractual obligations with respect to such Outside Relationship,
exercise its commercially reasonable best efforts to terminate the Outside
Relationship and thereafter establish the proposed Facility Agreement. However,
if the Outside Relationship should terminate for any reason, then, at such time,
the affected Facility will have a right of first opportunity (with reference to
the provisions of paragraphs (i) and (iii) above) and the Partner will exercise
its commercially reasonable best efforts to establish a Facility Agreement with
such Facility (with reference to the provisions of paragraph (iii) above).
4
vi. Partner's Existing Arrangements. The agreements undertaken by
the Partner prior to the date hereof and identified on Appendix 4 attached
hereto, as well as agreements which may result from current discussions with
parties regarding the provision of Defined Care in territories which are also
identified on such Appendix 4 (collectively, "Outside Agreements"), shall not be
deemed a breach of the Partner's obligations under this Section 1.2; provided,
however, that if any Outside Agreement should terminate for any reason, then, at
such time, any Facility with a Territory affected by such Outside Agreement
shall have a right of first opportunity (with reference to the provisions of
paragraphs (i) and (iii) above) and the Partner will exercise its commercially
reasonable best efforts to establish a Facility Agreement with such Facility
(with reference to the provisions of paragraph (iii) above).
viii. Local Arrangements. This Section 1.2 shall not be deemed to
prevent any Facility from agreeing with the Partner to separate and/or
alternative exclusivity provisions in a Facility Agreement (e.g., exclusivity
for items of Defined Care in addition to Exclusive Defined Care).
1.3 Association Staff/Cost Sharing. An employee of APS, AmHSPP or an
affiliate of AmHSPP (the selection of whom shall be subject to the consent of
the Partner, which consent shall not be unreasonably withheld or delayed) shall
be designated to work on behalf of the Facilities with respect to the
Association (referred to herein as the "Association Staff"). The Association
Staff shall (i) have a broad base of experience with respect to the subacute
care industry, (ii) be dedicated to subacute care issues within the employing
entity and/or its affiliates and (iii) be subject to the employment, travel and
other policies of the employing entity, and such entity shall also determine the
compensation and benefits for the Association Staff. The Partner will pay
[CONFIDENTIAL TREATMENT REQUESTED] per year (to be paid [CONFIDENTIAL TREATMENT
REQUESTED] per calendar quarter, in advance) to the employing entity to cover
the costs and expenses associated with the Association Staff; provided, however,
that the Partner may, in its reasonable discretion, advise the employing entity
of any material problem regarding the performance of the Association Staff and,
if such problem is not substantially cured within sixty (60) days after such
notice, then the Partner may suspend such payments until such time as such
problem is substantially resolved (or new Association Staff has been designated
with such new Association Staff meeting the requirements of this Section 1.3).
Office space and related costs for Association Staff shall be borne by the
hosting entity(ies) (i.e., APS, AmHSPP, the Partner and/or participating
Facilities).
- - --------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2.
5
ARTICLE 2
TERM
2.1 Initial Term and Options to Extend. The initial term of the Association
will commence as of the Effective Date and terminate on December 31, 2000,
subject to a series of two options, if agreed to by each of AmHSPP and the
Partner, to extend the Association an additional five (5) years each
(collectively, as applicable, the "Term").
2.2 Termination. Each of AmHSPP and the Partner will have the right to
terminate the Association without cause upon ninety (90) days' prior written
notice to the other party.
ARTICLE 3
FEES OF GROUP PURCHASING ORGANIZATION
In respect of the formation and intended business of the Association, the
Parent shall grant, execute and deliver to AmHSPP (i) a warrant, in the form of
Exhibit A, to acquire up to 210,000 shares (as such number may be adjusted as
provided in the form of warrant) of common stock, par value $.01 ("Common
Stock"), of the Parent, and (ii) a warrant, in the form of Exhibit B, to acquire
up to 1,890,000 additional shares (as such number may be adjusted as provided in
the form of warrant) of Common Stock (collectively, the "Warrants").
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Parent and Partner. The Parent and the Partner each represent and
warrant to AmHSPP that, as of the Effective Date:
a. Corporate Organization and Qualification. Each of the Parent and the
Partner is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and is in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or operated,
or the business conducted, by it require such qualification except for such
failure to so qualify or to be in such good standing, which, when taken together
with all other such failures, would not have a material adverse effect on the
financial condition, properties, business or results of operations of the Parent
and its subsidiaries, taken as a whole (a "Parent Material Adverse Effect").
Each of the Parent and the Partner has the requisite corporate power and
authority to carry on its business as it is now being conducted. The Parent has
provided AmHSPP with a complete and correct copy of the Parent's Certificate of
Incorporation and By-laws, each as
6
amended to date and each of which, as so provided, is in full force and effect.
b. Corporate Authority. Each of the Parent and the Partner has the
requisite corporate power and authority and has taken all corporate action
necessary in order to execute and deliver this Agreement (and, in the instance
of the Parent, the Warrants) and to consummate the transactions contemplated
hereby. Except as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and general principles of equity and the discretion of a
court in granting equitable remedies (whether validity, binding effect or
enforceability is considered in a proceeding at law or in equity), (i) this
Agreement is a valid and binding agreement of each of the Parent and the
Partner, enforceable against the Parent and the Partner in accordance with its
terms and (ii) the Warrants are the valid and binding agreements of the Parent
enforceable against the Parent in accordance with their terms.
c. Governmental Filings; No Violations.
i. Other than (i) the filing and approval of an application for the
listing of the shares of Common Stock issuable upon any exercise of the Warrants
on the Nasdaq National Market, (ii) those notices, disclosures and similar
regulatory filings which the Partner intends to make, if necessary or advisable,
in the normal course of its affairs, (iii) those notices and filings required
pursuant to applicable state securities or "Blue Sky" laws and (iv) any filings
and/or approvals or clearances required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), no notices, reports or
other filings are required to be made by either the Parent or the Partner with,
nor are any consents, registrations, approvals, clearances, permits or
authorizations required to be obtained by either the Parent or the Partner from,
any governmental or regulatory authority, agency, commission or other entity,
domestic or foreign ("Governmental Entity"), in connection with the execution
and delivery of this Agreement by either the Parent or the Partner and the
consummation by the Parent and the Partner of the transactions contemplated
hereby (including, without limitation, the issuance of the Warrants by the
Parent), the failure to make or obtain any or all of which could prevent,
materially delay or materially burden the transactions contemplated by this
Agreement.
ii. The execution and delivery of this Agreement by the Parent and
the Partner do not, and the consummation of the transactions contemplated hereby
by the Parent and the Partner will not, constitute or result in (1) a breach or
violation of, or a default under, the Parent's or the Partner's Certificate of
Incorporation or By-Laws, or (2) assuming compliance with the matters referred
to in the foregoing
7
paragraph (i), a breach or violation of, a default under, the acceleration of or
the creation of a lien, pledge, security interest or other encumbrance on assets
(with or without the giving of notice or the lapse of time) pursuant to, any
provision of any agreement, lease, contract, note, mortgage, indenture,
arrangement or other obligation (a "Contract") of the Parent or the Partner or
any law, ordinance, rule or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which the Parent or the
Partner is subject, except, in the case of clause (2) above, for such breaches,
violations, defaults or accelerations that, alone or in the aggregate, could not
prevent, materially delay or materially burden the transactions contemplated by
this Agreement.
d. Capital Structure.
i. As of the close of business on January 2, 1996, the authorized
capital stock of the Parent consisted of (i) 1,000,000 shares of preferred
stock, par value $.01 per share, of which 500,000 shares have been designated as
"Series A Junior Participating Preferred Stock," although no shares of preferred
stock were issued and outstanding or held in the treasury of the Parent, and
(ii) 50,000,000 shares of Common Stock, of which 26,326,904 shares were issued
and outstanding and no shares were held in the treasury of the Parent. As of the
close of business on January 2, 1996, there were reserved for issuance (a) under
the Parent's various stock plans (the "Parent Plans") an aggregate of up to
4,516,590 shares of Common Stock, subject to an increase on January 1 of each
year (after 1996) by an amount equal to two percent (2%) of the total number of
shares of Common Stock outstanding on December 31 of the preceding year, (b)
approximately 79,000 shares of Common Stock in connection with a transaction
currently being negotiated by the Parent or its affiliates, (c) under the
Warrants an aggregate of 2,100,000 shares of Common Stock and (d) under the
Rights Agreement dated as of October 31, 1995 (the "Rights Agreement") between
the Parent and State Street Bank & Trust Company an aggregate of 500,000 shares
of Series A Junior Participating Preferred Stock issuable upon the exercise of
rights distributed to the Parent's stockholders pursuant to the Rights Agreement
(the "Rights"), subject to adjustment from time to time in accordance with the
terms of the Rights Agreement. Except for outstanding options to purchase shares
of Common Stock under the Parent Plans and the Rights, and as otherwise provided
in the immediately preceding sentence of this Section 4.1(d)(i), as of the close
of business on January 2, 1996 there were no outstanding options, warrants,
calls, rights, commitments or agreements to which the Parent or the Partner is a
party or by which either the Parent or the Partner is bound obligating the
Parent or the Partner to (x) issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of the Parent or (y)
grant, extend or enter into any such option, warrant, call, right, commitment or
agreement.
8
ii. All outstanding shares of Common Stock are duly authorized,
validly issued, fully paid and nonassessable, and are not subject to preemptive
rights. The shares of Common Stock issuable upon any exercise of the Warrants
have been duly authorized and, when issued and sold after an exercise therefor
pursuant to the terms of the Warrants, will be validly issued, fully paid and
nonassessable and will not be subject to preemptive rights.
iii. All issued and outstanding shares of capital stock of the
Partner are owned by the Parent, and there are no outstanding options, warrants,
calls, rights, commitments or agreements to which the Parent or the Partner is a
party or by which either the Parent or the Partner is bound obligating the
Parent or the Partner to (x) issue, deliver or sell, or cause to be issued,
delivered or sold, shares of capital stock of the Partner or (y) grant, extend
or enter into any such option, warrant, call, right, commitment or agreement.
e. Parent Reports.
i. The Parent has previously furnished to AmHSPP copies of the
following Parent documents: (i) its annual report on Form 10-K for the fiscal
year ended December 31, 1994, as amended on May 1, 1995 and October 30, 1995;
(ii) its quarterly reports on Form 10-Q for the fiscal quarters ended March 31,
1995 (as amended on May 25, 1995), June 30, 1995 (as amended on October 30,
1995) and September 30, 1995; (iii) its current reports on Form 8-K dated July
1, 1994 (as amended on August 12, 1994 and March 16, 1995), September 26, 1994
(as amended on March 16, 1995), September 29, 1994 (as amended on March 16,
1995), October 3, 1994 (as amended on March 16, 1995), October 2, 1995 (as
amended on November 22, 1995 and December 14, 1995) and October 31, 1995; (iv)
the description of the Rights contained in its registration statement on Form
8-A (dated October 31, 1995); (v) the proxy statements dated March 16, 1995 (as
supplemented on April 1, 1995), August 16, 1995 and October 30, 1995; and (vi)
all other reports or registration statements filed by it with the SEC under the
Securities Exchange Act of 1934, as amended, since December 31, 1994 and
publicly available prior to the Effective Date, all in the form (including
exhibits) so filed (collectively, the "Parent Reports"). As of their respective
dates (which shall mean the date of the last amendment of each such Parent
Report which has been amended), the Parent Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that, notwithstanding anything to the contrary in this Agreement, the Parent
makes no representations or warranties regarding its proxy statement dated March
16, 1995 (as supplemented on April 1, 1995).
9
ii. Each of the financial statements of the Parent included in the
Parent Reports has been prepared in accordance with generally accepted
accounting principles applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly presents the consolidated financial
position of the Parent and its subsidiaries as of its date or the consolidated
results of operations, stockholders' equity or cash flows, as is appropriate, of
the Parent and its subsidiaries for the periods then ended (subject, in the case
of unaudited interim financial statements, to normal year-end audit adjustments
and any other adjustments described therein).
f. Absence of Certain Changes or Events. Except as disclosed in the
Parent Reports filed with the SEC and publicly available prior to the Effective
Date, since September 30, 1995 the Parent and its subsidiaries have conducted
their businesses only in the ordinary course, and there has not been (i) any
material adverse change in the assets, liabilities, financial condition or
operating results of the Parent from that reflected in the most recent financial
statements filed with the SEC as part of a Parent Report and publicly available
prior to the Effective Date, (ii) any declaration, setting aside or payment of
any dividend or other distribution (whether in cash, stock or property) with
respect to any of the Parent's capital stock (except for the distribution of the
Rights), (iii) any split, combination or reclassification of any of its capital
stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
Parent's capital stock (except for the distribution of the Rights), (iv) any
damage, destruction or loss, whether or not covered by insurance, which would
have a Parent Material Adverse Effect or (v) any change in accounting methods,
principles or practices by the Parent materially affecting its assets,
liabilities or business, except insofar as may have been required by a change in
generally accepted accounting principles.
g. Brokers and Finders. Neither the Parent nor the Partner, nor any of
their respective officers, directors, affiliates or employees, has employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finders' fees in connection with the transactions contemplated hereby.
h. Information. This Agreement together with the Parent Reports and
other information disclosed by the Partner to AmHSPP, taken as a whole, does not
contain an untrue statement of a material fact made by the Parent or the Partner
or omit to state a material fact necessary to make the statements by the Parent
or the Partner herein and therein, in light of the circumstances in which they
were made, not misleading.
4.2 AmHSPP. AmHSPP represents and warrants to each of the Parent and
the Partner that, as of the Effective Date:
10
a. Organization and Qualification. AmHSPP is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of California and is in good standing in each jurisdiction where the
properties owned, leased or operated, or the business conducted, by it require
such qualification except for such failure to so qualify or to be in such good
standing, which, when taken together with all other such failures, would not
have a material adverse effect on the financial condition, properties, business
or results of operations of AmHSPP. AmHSPP has the requisite power and authority
to carry on its business as it is now being conducted.
b. Authority. AmHSPP has the requisite power and authority and has
taken all action necessary in order to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. Except as may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and general principles of
equity and the discretion of a court in granting equitable remedies (whether
validity, binding effect or enforceability is considered in a proceeding at law
or in equity), this Agreement is a valid and binding agreement of AmHSPP,
enforceable against AmHSPP in accordance with its terms.
c. Governmental Filings; No Violations.
i. Except for (i) those filings which AmHSPP intends to make,
if necessary or advisable, in the normal course of its affairs and (ii) any
filings and/or approvals or clearances required under the HSR Act, no notices,
reports or other filings are required to be made by AmHSPP with, nor are any
consents, registrations, approvals, clearances, permits or authorizations
required to be obtained by AmHSPP from, any Governmental Entity in connection
with the execution and delivery of this Agreement by AmHSPP and the consummation
by AmHSPP of the transactions contemplated hereby, the failure to make or obtain
any or all of which could prevent, materially delay or materially burden the
transactions contemplated by this Agreement.
ii. The execution and delivery of this Agreement by AmHSPP do
not, and the consummation of the transactions contemplated hereby by AmHSPP will
not, constitute or result in (1) a breach or violation of, or a default under,
AmHSPP's Agreement of Limited Partnership or, (2) assuming compliance with the
matters referred to in the foregoing paragraph (i), a breach or violation of, a
default under, the acceleration of or the creation of a lien, pledge, security
interest or other encumbrance on assets (with or without the giving of notice or
the lapse of time) pursuant to, any provision of any Contract of AmHSPP or any
law, ordinance, rule or regulation or judgment, decree, order, award or
governmental or non-governmental permit or license to which AmHSPP is subject,
except, in the case of clause (2) above, for such breaches, violations, defaults
or
11
accelerations that, alone or in the aggregate, could not prevent, materially
delay or materially burden the transactions contemplated by this Agreement.
d. Brokers and Finders. Neither AmHSPP nor any of its officers,
directors, affiliates or employees has employed any broker or finder or incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby.
e. Investment Intent. The Warrants are being, and AmHSPP presently
intends that the shares of Common Stock to be received upon any exercise of the
Warrants (the "Shares") will be, acquired for investment for AmHSPP's own
account and not with a view to the resale or distribution of any part thereof,
and AmHSPP has no present intention of selling, granting any participation in or
otherwise distributing the same. AmHSPP is an "accredited investor" within the
meaning of Rule 501 under the Securities Act of 1933, as amended (the "1933
Act"), and was not organized for the specific purpose of acquiring the Warrants
or the Shares; AmHSPP has sufficient knowledge and experience in investing in
companies similar to the Parent in terms of the Parent's state of development so
as to be able to evaluate the risks and merits of its investment in the Parent
and it is able financially to bear the risks thereof; without limiting the
representations of the Parent and the Partner set forth above in Section 4.1,
AmHSPP has had an opportunity to discuss the Parent's business, management and
financial affairs with the Parent's management and to obtain any additional
information necessary to verify the accuracy of the information furnished to it
concerning the business, management and financial affairs of the Parent; and
AmHSPP understands that (A) the issuance of the Warrants to AmHSPP has not been,
and the issuance of the Shares upon any exercise of the Warrants will not be,
registered under the 1933 Act by reason of their issuances in transactions
exempt from the registration requirements of the 1933 Act (including, without
limitation, pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated
under the 1933 Act), (B) the Warrants and the Shares must be held indefinitely
unless a subsequent disposition thereof is registered under the 1933 Act or is
exempt from such registration, (C) the Warrants and the Shares will bear a
legend to such effect and (D) the Parent will make a notation on its transfer
books to such effect.
ARTICLE 5
OUTCOMES DATABASE
5.1 Database Intent. With respect to each Facility Agreement, the parties
intend that the Partner and the participating Facility will create a separate
Defined Care outcomes database (a "Database") for use by the Facility and the
12
Partner, but solely as set forth herein in the absence of a written agreement
providing for further rights.
5.2 Partner Contributions.
a. Information. The Partner shall contribute (i) the Defined Care
outcomes information of the Partner and its affiliates and other relevant
information to each Database (to the extent permitted by applicable laws and
regulations) and (ii) other specified resources necessary to establish each
Database. The Partner (and/or its affiliates, as applicable) shall retain
ownership of the information contributed by the Partner.
b. Maintenance. The Partner shall (i) maintain the content of each
Database and (ii) make available to each participating Facility options for
accessing the content of its respective Database which are within the reasonable
technical ability of the Partner.
5.3 Participating Facilities. Each participating Facility which desires to
establish a Database with the Partner shall contribute thereto its Defined Care
outcomes information which is generated through its Facility Agreement and
affiliation with the Partner (to the extent permitted by applicable laws and
regulations). Each Facility shall retain ownership of the information
contributed by such Facility.
5.4 Use of the Database.
a. Facilities. Each participating Facility may use its respective
Database, during the term of the Facility Agreement at issue, for (i) best
demonstrated practice comparisons and other comparative purposes and (ii)
contract negotiation and marketing with third parties (including, without
limitation, third party payors). Any other uses of the Database by a
participating Facility (and/or AmHSPP) shall require the prior written consent
of the Partner.
b. Partner. The Partner may use a Database, during the term of the
Facility Agreement at issue, for purposes related directly to such Facility
Agreement. Any other uses of the Database by the Partner shall require the prior
written consent of the participating Facility.
5.5 Facility Agreements. The provisions of this Article 5 may be
modified, with respect to any Facility Agreement, by the terms of such Facility
Agreement.
13
ARTICLE 6
CLINICAL ADVISORY GROUP AND RELATED MATTERS
6.1 Clinical Advisory Group.
a. Formation/Purpose. Within ninety (90) days after the Effective Date,
the parties agree to form a clinical advisory group with representatives from
the Partner and certain of the Facilities interested in participating in the
Association (the "Advisory Group"). The purpose of the Advisory Group will be to
provide information to the Partner, AmHSPP and the Facilities and to assist in
the development of resources available for utilization with respect to the
Association (including, without limitation, an outcomes database, best
demonstrated practices, managed care contracting and clinical protocols and
pathways).
b. Meetings/Attendance. The Advisory Group will plan to meet at least
four times per year, and the Partner and its representatives will attend and
participate in such meetings at their own expense.
c. Speakers. The Partner may provide reasonable financial support to
host and compensate speakers for meetings of the Advisory Group and/or other
national meetings of representatives of the Facilities as may be agreed to by
the Partner from time to time.
6.2 Subacute Care Studies. In the event that one or more Facilities desire
to conduct or otherwise cause the performance of studies relevant to subacute
care, the Partner will consider providing such financial support for the
performance and publishing of such studies as the Partner and such Facility(ies)
shall agree.
ARTICLE 7
PURCHASING AFFILIATION
AmHSPP acknowledges that the Partner meets the requirements for
participation in APS' Affiliates-Corporate Entity ("ACE") program and, at no
additional cost, may have access to AmHSPP's purchasing contracts. The Partner's
participation in the ACE program will be the subject of a separate agreement
between the Partner and APS (or its affiliates) with such reasonable terms and
provisions as shall be mutually satisfactory to the parties; provided, however,
that the Partner acknowledges that it will not be eligible for any dividends or
distributions made to the direct or indirect shareholders of AmHSPP and/or APS
(including, without limitation, dividends resulting from ACE-related revenue).
14
ARTICLE 8
MISCELLANEOUS
8.1 No Partnership. Nothing in this Agreement shall be construed to create
any partnership, joint venture, franchise or similar arrangement among the
parties. No party has the right or authority to enter into any Contract, assume
any obligation or make any warranty or representation on behalf of another,
except where and to the extent specifically authorized in writing to do so.
8.2 Assignment.
a. The Partner acknowledges that the Partner has been selected by
AmHSPP for participation in the Association due to unique attributes of the
Partner. Accordingly, the Partner's involvement in the Association (and any
rights and obligations with respect thereto) may not be assigned by contract
without the prior written consent of AmHSPP (in its sole discretion); provided,
however, that the Partner may (i) assign any or all of its rights and interests
with respect to the Association to one or more or its affiliates and (ii)
designate one or more of its affiliates to perform its obligations with respect
to the Association (in any or all of which cases the Partner nonetheless shall
remain liable and responsible for the performance of all of its obligations with
respect to the Association); and provided, further, that any assignment must not
materially and adversely affect the ability of the parties to comply with the
provisions of Section 8.10 below.
b. Except for any assignment to a direct or indirect affiliate,
AmHSPP's involvement in the Association (and any rights and obligations with
respect thereto) may not be assigned by contract without the prior written
consent of the Partner (in its sole discretion). Without limitation, the Partner
(i) acknowledges that American Healthcare Systems (an affiliate of AmHSPP),
Premier Health Alliance and SunHealth Alliance, Inc. have recently been combined
into APS and (ii) agrees that the Association (and the participation of AmHSPP
and the Facilities therein) shall not be prevented from being integrated with
any successor entities in connection with such combination (so long as the
transactions do not conflict with any material applicable law). Notwithstanding
the foregoing provisions of this Section 8.2(b), any assignment must not
materially and adversely affect the ability of the parties to comply with the
provisions of Section 8.10 below.
8.3 Governing Law. The provisions of this Agreement (including, without
limitation, the Warrants) shall be governed by New York law (without reference
to its conflict of law provisions).
15
8.4 Agreement/Amendment. This Agreement and the Appendices and Exhibits
hereto contain the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior arrangements or understandings
with respect thereto (including, without limitation, that certain Memorandum of
Understanding among the parties dated October 12, 1995). The terms and
provisions of this Agreement may be modified or amended, temporarily or
permanently, only pursuant to the written consent of each of the parties. Any
party to this Agreement may, by written notice to the other parties, waive
compliance with any of the provisions of this Agreement binding on the other
parties for its benefit. The failure of any party hereto to enforce at any time
any of the provisions of this Agreement shall in no way be construed to be a
waiver of any such provision, nor in any way to affect the validity of this
Agreement or the right of such party thereafter to enforce each and every
provision. No waiver of any breach of or non-compliance with this Agreement
shall be held to be the waiver of any other or subsequent breach or
non-compliance.
8.5 Exhibits. The Appendices and Exhibits (including, without limitation,
the Warrants) are incorporated herein by reference as though fully set forth as
a part of this Agreement.
8.6 Notice. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in a
written instrument delivered in person or sent by nationally recognized
overnight courier or first class registered or certified mail, return receipt
requested, postage prepaid, addressed to such party at the address set forth
below or such other address as may hereafter be designated in writing by such
party to the other parties:
a. If to the Partner or the Parent:
Mariner Health Group, Inc.
or Mariner Health Care, Inc.
125 Eugene O'Neill Drive
New London, Connecticut 06320
Attn: Mr. Jeffrey W. Kinell
Chief Financial Officer
With a copy to:
Mariner Health Care, Inc.
125 Eugene O'Neill Drive
New London, Connecticut 06320
Attn: Alison K. Gilligan, Esq.
Vice President and General Counsel
16
b. If to AmHSPP:
AmHS Purchasing Partners, L.P.
12730 High Bluff Drive, Suite 300
San Diego, California 92130-2099
Attn: Mr. John E. Zorich
Director, Business Development
With a copy to:
Pillsbury Madison & Sutro
P.O. Box 7880
San Francisco, California 94120-7880
Attn: John L. Donahue, Esq.
All such notices, requests, consents and other communications shall be deemed to
have been given when received.
8.7 Survival. All representations and warranties herein shall survive the
Effective Date and the issuance of the Warrants and shall in no way be affected
by any investigation of the subject matter thereof made by or on behalf of any
party hereto; provided, however, that the parties acknowledge that said
representations and warranties are made as of the Effective Date and no party
shall have any ongoing obligation under this Agreement to update said
representations and warranties as of any future time. All agreements contained
herein shall survive indefinitely until, by their respective terms, they are no
longer operative. Without limitation, no termination of this Agreement shall
affect the provisions of the Warrants (except, as applicable, the vesting of
additional Shares under the form of warrant which is attached hereto as Exhibit
B) or AmHSPP's rights or the Parent's obligations thereunder.
8.8 Confidentiality. All information furnished by one party (the
"disclosing party") to any other party (the "receiving party") in connection
with this Agreement with respect to the operations and/or strategic planning of
the disclosing party which is marked "CONFIDENTIAL" shall be kept confidential
by the receiving party, except to the extent that such information (i) is or
becomes generally available to the public other than as a result of disclosure
by the receiving party, (ii) was within the possession of the receiving party
prior to its being furnished to the receiving party by or on behalf of the
disclosing party, provided that the source of such information is not known by
the receiving party to be bound by a confidentiality agreement with the
disclosing party with respect to such information, (iii) becomes available to
the receiving party on a non-confidential basis from a source other than the
disclosing party, provided that the source of such information is not known by
the receiving party to be bound by a confidentiality agreement with the
disclosing party with respect to such information, (iv) is independently
developed by the receiving party without reliance upon any information furnished
17
by the disclosing party, (v) is required to be disclosed in any document filed
with the SEC or any other Governmental Authority (in which event prior notice of
such disclosure shall be given) or (vi) is required, upon the advice of the
receiving party's counsel, to be disclosed by law (in which event prior notice
of such disclosure shall be given).
8.9 Transfer Agreements. Notwithstanding the provisions of Appendix 1
attached hereto, "Defined Care" shall specifically exclude transfer agreements
or similar agreements between the Partner and any Facility.
8.10 Group Purchasing Organization. The parties intend that the
arrangements contemplated by this Agreement provide for operation as a Group
Purchasing Organization (pursuant to 42 U.S.C. ss.1320a-7b(b) and the
regulations thereunder).
8.11 Further Actions. Each party 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 intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby. Without limiting the foregoing, the Parent
agrees to effect any necessary or advisable filings with any Governmental Entity
(including, without limitation, the filing of a pre-merger notification and
report form under the HSR Act) in connection with any exercise of the Warrants.
8.12 Counterparts; Headings. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
Agreement, but all such counterparts together shall constitute but one
Agreement. The headings of the Articles and Sections are for convenience of
reference only and shall not be deemed to be a part of this Agreement.
18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the Effective Date.
AmHSPP: PARTNER:
AmHS Purchasing Partners, Mariner Health Care, Inc.
L.P., a California limited a Delaware corporation
partnership
By:_______________________
By: American Healthcare Plans, Its:______________________
Inc., a Delaware corporation
Its: General Partner Solely with respect to
Article 3, Section 4.1 and
By:______________________ Article 8 - PARENT:
Its:_____________________ Mariner Health Group,Inc. ,
a Delaware corporation
By:_______________________ By:_______________________
Its:______________________ Its:______________________
19
SCHEDULE OF EXHIBITS AND APPENDICES
EXHIBITS
A Form of Initial Warrant
B Form of Adjustable Warrant
APPENDICES
1 Partner's Defined Care Services
2 Guiding Principles
3 Elements for Joint Venture or
Management Services Facility
Agreements
4 Partner's Pre-Existing
Arrangements/Discussions
20
APPENDIX 1
PARTNER'S DEFINED CARE SERVICES
The Partner provides the following product lines as part of its integrated
continuum:
1. Inpatient subacute services (hospital-based and freestanding);
2. Rehabilitation therapies (physical, speech, occupational and respiratory);
3. Outpatient rehabilitation clinics;
4. Home care;
5. Pharmacy services;
6. Durable medical equipment (DME) services; and
7. Long term care services.
The Partner offers management services which typically include the following:
o Staffing;
o Education/Training;
o Program Development;
o Implementation of Care Maps;
o Case Management;
o Access to outcomes database;
o Sales/Marketing Activities;
o Physician Education/Recruitment Efforts; and
o Quality Improvement/Outcomes Management.
Additionally, the Partner provides expertise in the following ways for its
product lines:
A. Regulatory Compliance;
B. Reimbursement;
C. Organization and Management of Physician Groups;
D. Unit/Service Design and Construction;
E. Bed Need Analysis;
F. Strategic Planning; and
G. Development of Specialty Programs.
APPENDIX 2
GUIDING PRINCIPLES
I. The Partner intends to provide resources and its commitment to create
a strategic alliance in the local markets of each Facility.
II. The Partner will offer a comprehensive list of services and
"tools" to allow each Facility to pick and choose the package which
fits its needs.
III. The maximum amount of flexibility will be built into each alternative
to maximize the local "fit" and meet the cultural needs of each
Facility. Options discussed include everything from management
services and sub-contracting to formal joint ventures and
co-investments.
IV. The various resources owned by or affiliated with the Partner
(nursing homes, rehabilitation facilities, home care programs,
etc.) will be made available to meeting the needs of both the
Facilities and the Partner. Where AmHSPP and/or Facilities are
interested, the Partner will consider equity ownership and
structure the relationship on a shared risk and return basis.
V. The Partner is prepared to consider investment in facilities to
support the needs of Facilities based upon appropriate due diligence
and planning.
VI. Various information systems and management tools will be made
available to AmHSPP, APS and the Facilities.
VII. Clinical protocols, case management materials and administrative
tools will also be made available to AmHSPP, APS and the Facilities.
VIII.Analysis of peer data for comparative purposes and best demonstrated
clinical practice comparisons will be provided to those Facilities
participating in the Association (through Facility Agreements).
APPENDIX 3
ELEMENTS FOR JOINT VENTURE OR
MANAGEMENT SERVICES FACILITY AGREEMENTS
Joint Venture Terms
o Exit Strategy: an ability for either party to exit the venture, in such
party's discretion, and thereby dissolve the venture.
o Non-Compete: a non-compete covenant by the Partner for the term of the
venture and a reasonable period of time following the dissolution of
any equity relationship (with due respect, as applicable, to antitrust
and related laws).
o Structural Flexibility: structuring of the venture to avoid conflicts
with a Facility's tax-exempt status, general fraud and abuse
considerations and other potentially applicable
restrictions/considerations.
o Governance: creation of (i) a governing body comprised of
representatives of both parties and (ii) a clinical advisory board also
comprised of representatives of both parties (to report to the
governing body).
o Net Income Calculation: a mutually-acceptable method of calculating
venture profit for purposes of determining distributions to the
parties.
o Management Services: the Partner will agree to consider the provision
of management services [CONFIDENTIAL TREATMENT REQUESTED] in any joint
venture relationship pending the negotiation of preferred terms;
however, if a series of joint venture Facility Agreements indicates a
tendency toward a certain fee structure or a selected group of
alternative fee structures, such structure(s) shall be used as a
benchmark for the negotiation of future joint venture Facility
Agreements.
Management Services
o Fees: to be established at competitive market rates; however, the
Partner agrees to limit its subacute care management fees to
[CONFIDENTIAL TREATMENT REQUESTED] percent of any Facility's Defined
Care revenue which is the subject of an agreement with the Partner.
o Term: the Partner is willing to negotiate a three-year term with the
option to renew for two additional terms of three years each.
o Termination: either party may terminate with the written agreement of
the other or upon provision of 90 days' written notice to the other in
such party's discretion.
o Non-Compete: a non-compete covenant by the Partner with terms
satisfactory to both parties (with due respect, as applicable, to
antitrust and related laws).
- - --------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2.
APPENDIX 4
PARTNER'S PRE-EXISTING ARRANGEMENTS/DISCUSSIONS
The following list represents facilities receiving management services
through a contractual arrangement with the Partner or which have an outstanding
proposal for such services:
[CONFIDENTIAL TREATMENT REQUESTED]
Morristown Memorial Hospital (Morristown, NJ)
[CONFIDENTIAL TREATMENT REQUESTED]
Thomas Jefferson University Hospital (Philadelphia, PA)
[CONFIDENTIAL TREATMENT REQUESTED]
- - --------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2.
THIS WARRANT, AND ANY SECURITIES WHICH MAY BE ACQUIRED UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS AN EXEMPTION FROM THE REQUIREMENT OF SUCH
REGISTRATION IS AVAILABLE UNDER THE CIRCUMSTANCES AT THE TIME OBTAINING AND
DEMONSTRATED BY OPINION OF COUNSEL SATISFACTORY TO THE COMPANY.
WARRANT TO PURCHASE
210,000 SHARES
OF THE COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF MARINER HEALTH GROUP, INC.
For value received, AmHS PURCHASING PARTNERS, L.P., a California
limited partnership, or its permitted successors or assigns (collectively, the
"Investor"), are entitled to subscribe for and purchase from MARINER HEALTH
GROUP, INC., a Delaware corporation (the "Company"), from and after the date
hereof, up to 210,000 fully paid and nonassessable shares (the "Shares") of the
Company's common stock, par value $.01 per share ("Common Stock"), at the
purchase price of $11.375 per Share (the "Exercise Price"). The number and
character of Shares issuable pursuant to this Warrant are subject to adjustment
as provided herein. The Investor's right to purchase Shares pursuant to this
Warrant shall terminate on January 5, 2001.
This Warrant is subject to the following additional provisions, terms
and conditions:
1. Exercise of Warrant.
a. Manner of Exercise. This Warrant may be exercised by the holder
hereof, in whole or in part, by surrender of this Warrant, together with written
notice of exercise (a sample form of exercise is attached hereto as Exhibit A),
to the Company at the principal office of the Company (which, for purposes of
this Warrant, shall be deemed to be the Company's address for notice purposes as
provided in Section 8 below) accompanied by payment (in cash, certified check or
bank draft payable to the order of the Company) of the Exercise Price multiplied
by the number of Shares for which this Warrant is being exercised, or by
exercise of the Net Exercise Right as provided in Section 1(b) below.
b. Net Exercise Right. In lieu of payment of the Exercise Price
pursuant to Section 1(a) above, this Warrant may
1
also be exercised, in whole or in part, by surrender of this Warrant together
with written notice of exercise specifying the holder's election to convert all,
or any specified portion, of this Warrant (the "Net Exercise Right") into the
number of Shares equal to the quotient obtained by dividing:
(x) the value of the Shares for which the Warrant is then being
exercised (determined by subtracting the aggregate Exercise Price of
such Shares in effect immediately prior to the exercise of the Net
Exercise Right from the aggregate fair market value of the Shares
immediately prior to the exercise of the Net Exercise Right) by
(y) the fair market value of one Share immediately prior to the
exercise of the Net Exercise Right.
The fair market value of a Share as of a particular date shall be determined as
follows:
(1) If the Common Stock is publicly traded on a particular
valuation date, fair market value on such date shall be:
(i) the closing sale price of the Common Stock, as quoted on any
national securities exchange on which such stock shall be listed and
registered, on the business day immediately preceding the valuation
date;
(ii) the closing sale price of the Common Stock, if such stock is then
quoted on the National Association of Securities Dealers, Inc.
("NASDAQ") National Market, on the business day immediately preceding
the valuation date; or
(iii) if the Common Stock is not then traded on a national securities
exchange or on the NASDAQ National Market, but is quoted on NASDAQ, the
average of the closing bid and asked prices for the Common Stock as
reported on NASDAQ on the business day immediately preceding the
valuation date.
(2) If the Common Stock is not publicly traded on a
particular valuation date, fair market value on such date shall be determined by
the Board of Directors of the Company acting in good faith (taking into account,
as such Board of Directors acting in good faith deems appropriate, any recent
corporate events involving a determination of value for the Company's securities
(e.g., the closing of an offering of securities or the granting of incentive
stock options)).
c. When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected on the date on which the Company issues the Shares
for which the Warrant has been exercised; provided, however, that the Company
shall issue (or cause to be issued) the Shares for which this Warrant has been
exercised within three (3) business days after an exercise
2
pursuant to the provisions of Section 1(a) above (and, if applicable, the Net
Exercise Right provisions of Section 1(b) above).
d. Delivery of Stock Certificates. Certificates representing the Shares
purchased upon any exercise of this Warrant shall bear the restrictive legend
set forth in Section 9 below and shall be delivered to the Investor promptly
following such exercise. A new Warrant exercisable for the number of Shares, if
any, with respect to which this Warrant shall not have been exercised shall also
be delivered to the Investor. No fractional Shares shall be issued upon the
exercise of this Warrant; rather, the Investor shall receive an amount, in cash,
equal to the fair market value of any such fractional Shares (determined with
reference to the provisions of Section 1(b) above).
e. Automatic Exercise. In the event that the fair market value of the
Shares (determined with reference to the provisions of Section 1(b) above) shall
at any time exceed the Exercise Price, on a per-Share basis, by one-hundred
dollars ($100.00), then this Warrant, with respect to all Shares then available,
shall, without action on the part of any party hereto, be deemed automatically
exercised (pursuant to the net exercise provisions of Section 1(b) above, unless
the Investor promptly provides the appropriate Exercise Price amount to the
Company). The Investor will provide the Company with prompt notice regarding any
automatic exercise pursuant to the provisions of this Section 1(e).
2. Shares Issuable Upon Exercise.
a. Reserved. The Company covenants and agrees that all Shares that may
be issued upon the exercise of this Warrant shall, upon issuance pursuant to an
exercise of this Warrant in accordance with its terms, be duly authorized and
validly issued, fully paid and nonassessable Shares, free and clear of all
preemptive rights. The Company will at all times reserve and keep available,
solely for issuance and delivery upon the exercise of this Warrant, such number
of Shares of the Common Stock as shall be issuable from time to time upon the
exercise of this Warrant.
b. Listed. Prior to the issuance of any Shares, the Company shall
secure the listing or quotation of such Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed or traded (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed or traded, such listing or quotation of all
Shares from time to time issuable upon the exercise of this Warrant. The Company
shall so list or secure quotation on each national securities exchange or
automated quotation system, and shall maintain such listing or
3
quotation of, any other shares issuable upon any exercise of this Warrant if and
so long as any shares of the same class shall be listed or quoted on such
national securities exchange or automated quotation system.
3. Adjustment. The Exercise Price and/or the number and type of securities
issuable upon any exercise of this Warrant shall be subject to adjustment from
time to time as hereinafter provided in this Section 3.
a. If the Company, at any time, divides the outstanding shares of its
Common Stock into a greater number of shares (whether pursuant to a stock split,
stock dividend or otherwise), and conversely, if the outstanding shares of its
Common Stock are combined into a smaller number of shares, the Exercise Price in
effect immediately prior to such division or combination shall be
proportionately adjusted to reflect the reduction or increase in outstanding
shares.
b. If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of shares of Common
Stock shall be entitled to receive stock, other securities or assets with
respect to or in exchange for such shares of Common Stock, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale, the
holder of this Warrant shall have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this Warrant and in lieu of
the Shares immediately theretofore purchasable and receivable upon the exercise
of this Warrant, such shares of stock, other securities or assets as would have
been issued or delivered to the Investor if the Investor had exercised this
Warrant and had received such Shares prior to such reorganization,
reclassification, consolidation, merger or sale. The Company shall not effect
any such consolidation or merger unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or merger shall assume by written instrument executed and mailed
to the Investor (i) the obligation to deliver to the Investor such shares of
stock, other securities or assets as, in accordance with the foregoing
provisions, the Investor may be entitled to purchase and (ii) the other
obligations of the Company set forth or referred to in this Warrant.
c. If, after the initial issuance of this Warrant to the Investor, the
Company shall declare a dividend or distribution payable to holders of the
Common Stock (whether payable in cash, securities or other assets of the
Company), upon any exercise of this Warrant the Investor shall be entitled to
receive, and the Company shall promptly pay to the Investor, any such
dividend(s) and/or distribution(s) (as well as any other cash, securities or
other assets which the Investor would
4
have received had it held any securities received in any such dividend(s) and/or
distribution(s)), also giving effect to the other provisions of this Section 3.
d. Upon each adjustment of the Exercise Price, the Investor shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Shares obtained by multiplying the Exercise Price in
effect immediately prior to such adjustment by the number of Shares purchasable
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
e. Promptly following any adjustment of the Exercise Price, the Company
shall give written notice thereof (by first class mail, postage prepaid) to the
Investor (at the Investor's address as shown on the books of the Company), which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease, if any, in the number of Shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
f. The terms of this Warrant shall be binding upon the successors of
the Company.
4. No Rights as Stockholder; Notice.The Investor shall not by virtue of
this Warrant be entitled to any rights of a stockholder of the Company. However,
the Company shall give notice to the Investor if at any time prior to the
expiration or exercise in full of this Warrant any of the following events shall
occur:
(a) the Company shall declare any dividend or distribution with respect to
its capital stock;
(b) a dissolution, liquidation or winding up of the Company shall be
proposed; or
(c) a capital reorganization or reclassification of the capital stock of
the Company, any consolidation or merger of the Company with or into
another corporation, any transaction or series of transactions in which
more than fifty percent (50%) of the voting securities of the Company
are transferred to another person, or of any sale or conveyance to
another corporation of the property of the Company as an entirety or
substantially as an entirety.
Such giving of notice shall be effected at least fifteen (15) business days
prior to the date fixed as a record date or effective date or the date of
closing of the Company's stock transfer books for the determination of the
stockholders entitled to such dividend or distribution, or for the
5
determination of the stockholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation or winding up. Such
notice shall specify such record date or the date of closing the stock transfer
books, as the case may be.
5. Transfers. This Warrant may not be transferred, in whole or in part,
without the prior written consent of the Company; provided, however, that such
consent shall not be unreasonably withheld in the event of any transfer to an
affiliate of the Investor. Until any such transfer, the Company may treat the
registered owner hereof as the owner for all purposes (notwithstanding any
markings or notations on the face of this Warrant).
6. Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of
satisfactory evidence of the loss, theft, destruction or mutilation of this
Warrant and either (in the case of loss, theft or destruction) indemnification
satisfactory to the Company or (in the case of mutilation) the surrender of this
Warrant for cancellation, the Company will execute and deliver to the Investor,
without charge, a Warrant of like denomination.
7. Public Reporting. With a view to making available to the Investor the
benefits of Rule 144 ("Rule 144") promulgated under the Securities Act of 1933,
as amended (the "1933 Act"), and any other rule or regulation of the Securities
and Exchange Commission (the "SEC") that may at any time permit the Investor to
sell Shares to the public without registration, the Company agrees that, for so
long as a class of its securities is registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company will:
(i) make and keep public information available, as those terms are understood
and defined in Rule 144, at all times; (ii) file with the SEC in a timely manner
all reports and other documents required of the Company under the 1933 Act and
the 1934 Act; and (iii) furnish to the Investor, forthwith upon request, (a) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act, (b) a copy of the most
recent annual or quarterly report of the Company filed with the SEC and such
other reports and documents so filed by the Company which the Investor may
reasonably request, and (c) such other information as may be reasonably
requested in availing the Investor of any rule or regulation of the SEC which
permits the selling of any Shares without registration under the 1933 Act.
8. Notices. Any notice or demand desired or required to be given hereunder
shall be in writing and given (except as
6
otherwise provided herein) by personal delivery, certified or registered mail or
air courier addressed as follows:
If to the Company: Mariner Health Group, Inc.
125 Eugene O'Neill Drive
New London, Connecticut 06320
Attn: Mr. Jeffrey W. Kinell
Chief Financial Officer
With a copy to: Testa, Hurwitz & Thibeault
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attn: Mark H. Burnett, Esq.
If to the Investor: AmHS Purchasing Partners, L.P.
12730 High Bluff Drive, Ste. 300
San Diego, California 92130-2099
Attn: Mr. John Zorich
With a copy to: Pillsbury Madison & Sutro
P.O. Box 7880
San Francisco, California 94120-7880
Attn: John L. Donahue, Esq.
or to such other address as the party to receive the notice or request shall
designate by notice to the other. Any notice or request shall be deemed given
when received.
9. Legend. The Company may cause each certificate representing Shares
issued upon exercise of this Warrant to bear a legend in substantially the
following form:
"The securities represented by this certificate have not been registered or
qualified under the Federal Securities Act of 1933 (the "1933 Act") or
applicable state securities laws and are "restricted securities" within the
meaning of Rule 144 promulgated under the 1933 Act. The securities may not
be sold or transferred without complying with Rule 144 in the absence of
effective registration under the 1933 Act or other compliance under or
exemption from the 1933 Act and applicable state securities laws."
10. Taxes. The Company agrees that it will pay, and will hold the Investor
harmless from any and all liability with respect to, any stamp or similar taxes
which may be determined to be payable to the State of Delaware in connection
with the issuance, delivery or exercise of this Warrant (as well as the issuance
or delivery of Shares upon any exercise of this Warrant).
11. Miscellaneous. Neither this Warrant nor any term hereof may be changed,
waived, discharged or terminated orally,
7
but only by an instrument in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought. This
Warrant shall be construed and enforced in accordance with, and governed by, the
laws of the State of Delaware (without regard to conflict of law provisions).
The Section headings in this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and delivered by a duly authorized officer as of the fifth (5th) day of January,
1996.
MARINER HEALTH GROUP, INC.
a Delaware corporation
By:_______________________________
Its:______________________________
Witness:
__________________________________
8
EXHIBIT A
WARRANT EXERCISE
(To be signed only upon an exercise of the Warrant)
The undersigned, the holder of the attached Warrant, hereby elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, ___________ of the Shares of Common Stock of Mariner Health Group,
Inc. to which such Warrant relates and herewith makes payment of $___________
therefor in cash or by certified check or bank draft [OR ELECTION IS MADE WITH
RESPECT TO THE CURRENT EXERCISE OF THE WARRANT TO UTILIZE THE NET EXERCISE RIGHT
AS DESCRIBED IN SUCH WARRANT] and requests that the certificate for such Shares
be issued in the name of, and be delivered to ______________________, whose
address is set forth below the signature of the undersigned.
Dated: ______________________
_____________________________________________
[Signature]
_____________________________________________
_____________________________________________
_____________________________________________
[Address]
THIS WARRANT, AND ANY SECURITIES WHICH MAY BE ACQUIRED UPON THE EXERCISE OF THIS
WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, HYPOTHECATED OR OTHERWISE TRANSFERRED OR DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION, UNLESS AN EXEMPTION FROM THE REQUIREMENT OF SUCH
REGISTRATION IS AVAILABLE UNDER THE CIRCUMSTANCES AT THE TIME OBTAINING AND
DEMONSTRATED BY OPINION OF COUNSEL SATISFACTORY TO THE COMPANY.
WARRANT TO PURCHASE
UP TO 1,890,000 SHARES
OF THE COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF MARINER HEALTH GROUP, INC.
For value received, AmHS PURCHASING PARTNERS, L.P., a California
limited partnership, or its permitted successors or assigns (collectively, the
"Investor"), are entitled to subscribe for and purchase from MARINER HEALTH
GROUP, INC., a Delaware corporation (the "Company"), from and after the date
hereof, up to 1,890,000 fully paid and nonassessable shares (the "Shares") of
the Company's common stock, par value $.01 per share ("Common Stock"). The
number and character of Shares issuable pursuant to this Warrant are subject to
adjustment as provided herein.
This Warrant is subject to the following additional provisions, terms
and conditions:
1. Vesting of Shares; Termination.
a. Measurement Dates. On December 31 of each year following
the date hereof (excluding December 31, 1995) and ending on December 31, 2000
(each such date being herein referred to as a "Measurement Date"), a number of
the Shares (a "Tranche of Shares") shall "vest" (i.e., the Investor's right to
purchase such shares shall become exercisable) as determined pursuant to the
provisions of Schedule 1 attached hereto.
b. Vesting Tranches. Each Tranche of Shares shall be
purchasable at the price per Share (the "Exercise Price") determined pursuant to
Section 2 below. Promptly following each Measurement Date (or as soon thereafter
as information regarding vesting criteria becomes available), the number of
Shares which shall comprise the Tranche of Shares for such Measurement Date
shall be determined (as provided herein), and a statement of such determination
as well as a statement of the Exercise Price for such Tranche of Shares shall be
provided by the Company to the Investor. Copies of such statements for each
Measurement
1
Date shall be kept with the Company's records (and, if the Investor chooses to
do so, attached to this Warrant).
c. Termination of Purchase Right. The right of the Investor
to purchase Shares shall terminate, with respect to each Tranche of Shares, five
years after the relevant Measurement Date for such Tranche of Shares.
2. Exercise Price. The Exercise Price, on a per-share of Common Stock
basis, for each Tranche of Shares shall be the "fair market value" of a Share as
of the relevant Measurement Date for such Tranche of Shares. The "fair market
value" of a Share, as of a particular Measurement Date (or other specified
date), shall be determined as follows:
a. Publicly Traded. If the Common Stock is publicly traded
on a particular Measurement Date (or other specified date), the fair market
value of a Share on such Measurement Date (or other specified date) shall be:
(i) the average of the closing sale prices for the Common Stock, as
quoted on any national securities exchange on which such stock shall be
listed and registered, for the ten trading days ending on the third
trading day prior to the Measurement Date (or other specified date);
(ii) the average of the closing sale prices for the Common Stock, if
such stock is then quoted on the National Association of Securities
Dealers, Inc. ("NASDAQ") National Market, for the ten trading days
ending on the third trading day prior to the Measurement Date (or other
specified date); or
(iii) if the Common Stock is not then traded on a national securities
exchange or on the NASDAQ National Market, but is quoted on NASDAQ, the
average of the closing bid and asked prices for the Common Stock, as
reported on NASDAQ, for the ten trading days ending on the third
trading day prior to the Measurement Date (or other specified date);
provided, however, that if the Company shall declare a dividend or distribution
(as discussed in Section 5(c) below) payable to holders of the Common Stock of
record on any date during the period (inclusive) beginning with the first date
of any period of trading days utilized to determine an Exercise Price (or other
calculation of fair market value) and ending on the date immediately prior to
the Measurement Date (or other specified date), then such Exercise Price (or
other calculation of fair market value) shall be appropriately discounted to
remove the effect of the value of such dividend or distribution from the
calculation of the Exercise Price (or other calculation of fair market value)
for dates prior to and including the record date.
2
b. Not Publicly Traded. If the Common Stock is not publicly
traded on a particular Measurement Date (or other specified date), the fair
market value of a Share as of such Measurement Date (or other specified date)
shall be determined by the Board of Directors of the Company acting in good
faith (taking into account, as such Board of Directors acting in good faith
deems appropriate, any recent corporate events involving a determination of
value for the Company's securities (e.g., the closing of an offering of
securities or the granting of incentive stock options)).
3. Exercise of Warrant.
a. Manner of Exercise. To the extent then exercisable, this
Warrant may be exercised by the holder hereof, in whole or in part, by surrender
of this Warrant, together with written notice of exercise in the form attached
hereto as Exhibit A ("Exercise Notice"), to the Company at the principal office
of the Company (which, for purposes of this Warrant, shall be deemed to be the
Company's address for notice purposes as provided in Section 10 below)
accompanied by payment (in cash, certified check or bank draft payable to the
order of the Company) of the aggregate Exercise Price for the number of Shares
for which this Warrant is being exercised (as set forth in the Exercise Notice),
or by exercise of the Net Exercise Right as provided in Section 3(b) below.
b. Net Exercise Right. To the extent then exercisable, in
lieu of payment of the Exercise Price pursuant to Section 3(a) above this
Warrant may also be exercised, in whole or in part, by surrender of this Warrant
together with a written notice of exercise specifying the holder's election to
convert all, or any specified portion, of the vested portion of this Warrant
(the "Net Exercise Right") into the number of Shares equal to the quotient
obtained by dividing:
(x) the value of the Shares for which the Warrant is then being
exercised (determined by subtracting the aggregate Exercise Price of
such Shares in effect immediately prior to the exercise of the Net
Exercise Right from the aggregate fair market value of the Shares
immediately prior to the exercise of the Net Exercise Right) by
(y) the fair market value of one Share immediately prior to the
exercise of the Net Exercise Right.
The fair market value of a Share as of a particular date shall be determined
pursuant to Section 2 above.
c. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected on the date on which the Company issues
the Shares for which the Warrant has been exercised; provided, however, that the
Company shall issue (or cause to be issued) the Shares for which this Warrant
has
3
been exercised within three (3) business days after an exercise pursuant to the
provisions of Section 3(a) above (and, if applicable, the Net Exercise Right
provisions of Section 3(b) above).
d. Delivery of Stock Certificates. Certificates representing
the Shares purchased upon any exercise of this Warrant shall bear the
restrictive legend set forth in Section 11 below and shall be delivered to the
Investor promptly following such exercise. A new Warrant exercisable for the
number of Shares, if any, with respect to which this Warrant shall not have been
exercised shall also be delivered to the Investor. No fractional Shares shall be
issued upon the exercise of this Warrant; rather, the Investor shall receive an
amount, in cash, equal to the fair market value of any such fractional Shares
(determined with reference to the provisions of Section 2 above).
e. Automatic Exercise. In the event that the fair market
value of any Tranche of Shares (determined with reference to the provisions of
Section 2 above) shall at any time exceed the Exercise Price for such Tranche of
Shares, on a per-Share basis, by one-hundred dollars ($100.00), then this
Warrant, with respect to all Shares within any such Tranche of Shares, shall,
without action on the part of any party hereto, be deemed automatically
exercised (pursuant to the Net Exercise Right provisions of Section 3(b) above,
unless the Investor promptly provides the appropriate Exercise Price amount to
the Company). Such an automatic exercise shall not affect (i) the unvested
portion of this Warrant nor (ii) this Warrant insofar as it relates to any
Tranche of Shares which does not trigger the condition of the first sentence of
this Section 3(e). The Investor will provide the Company with prompt notice
regarding any automatic exercise pursuant to the provisions of this Section
3(e).
4. Shares Issuable Upon Exercise.
a. Reserved. The Company covenants and agrees that all
Shares that may be issued upon the exercise of this Warrant shall, upon issuance
pursuant to an exercise of this Warrant in accordance with its terms, be duly
authorized and validly issued, fully paid and nonassessable Shares, free and
clear of all preemptive rights. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such number of Shares of the Common Stock as shall be issuable from time to time
upon the exercise of this Warrant.
b. Listed. Prior to the issuance of any Shares, the Company
shall secure the listing or quotation of such Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or traded (subject to official notice of issuance
upon
4
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed or traded, such listing or quotation of all
Shares from time to time issuable upon the exercise of this Warrant. The Company
shall so list or secure quotation on each national securities exchange or
automated quotation system, and shall maintain such listing or quotation of, any
other shares issuable upon any exercise of this Warrant if and so long as any
shares of the same class shall be listed or quoted on such national securities
exchange or automated quotation system.
5. Adjustment. The Exercise Price(s) and/or the number and type of
securities issuable upon any exercise of this Warrant shall be subject to
adjustment from time to time as hereinafter provided in this Section 5.
a. If the Company, at any time, divides the outstanding
shares of its Common Stock into a greater number of shares (whether pursuant to
a stock split, stock dividend or otherwise), and conversely, if the outstanding
shares of its Common Stock are combined into a smaller number of shares, the
Exercise Price(s) in effect immediately prior to such division or combination
shall be proportionately adjusted to reflect the reduction or increase in
outstanding shares.
b. If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of shares of
Common Stock shall be entitled to receive stock, other securities or assets with
respect to or in exchange for such shares of Common Stock, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale, the
holder of this Warrant shall have the right to purchase and receive upon the
basis and upon the terms and conditions specified in this Warrant and in lieu of
the Shares immediately theretofore purchasable and receivable upon the exercise
of this Warrant, such shares of stock, other securities or assets as would have
been issued or delivered to the Investor if the Investor had exercised this
Warrant and had received such Shares prior to such reorganization,
reclassification, consolidation, merger or sale. The Company shall not effect
any such consolidation or merger unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or merger shall assume by written instrument executed and mailed
to the Investor (i) the obligation to deliver to the Investor such shares of
stock, other securities or assets as, in accordance with the foregoing
provisions, the Investor may be entitled to purchase and (ii) the other
obligations of the Company set forth or referred to in this Warrant.
c. If the Company shall declare a dividend or distribution
payable to holders of the Common Stock of record on
5
a date on or after the Measurement Date for a vested Tranche of Shares (as
provided in Section 1(a) above) (whether payable in cash, securities or other
assets of the Company), then upon any exercise of this Warrant with respect to
such vested Tranche of Shares the Investor shall be entitled to receive, and the
Company shall promptly pay to the Investor, any such dividend(s) and/or
distribution(s) (as well as any other cash, securities or other assets which the
Investor would have received had it held any securities received in any such
dividend(s) and/or distribution(s)), also giving effect to the other provisions
of this Section 5.
d. Upon each adjustment of the Exercise Price for any
Tranche of Shares, the Investor shall thereafter be entitled to purchase, at the
Exercise Price resulting from such adjustment and with respect to such Tranche
of Shares, the number of Shares obtained by multiplying the applicable Exercise
Price in effect immediately prior to such adjustment by the applicable number of
Shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment. Upon any adjustment contemplated by the first sentence of this
Section 5(d), the number of Shares as to which an Exercise Price has not as of
then been determined (i.e., those Shares which have not become part of a Tranche
of Shares) shall be the subject of an appropriate adjustment to protect fairly
the purchase rights of the Investor.
e. Promptly following any adjustment of an Exercise Price,
the Company shall give written notice thereof (by first class mail, postage
prepaid) to the Investor (at the Investor's address as shown on the books of the
Company), which notice shall state the Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of Shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
f. The terms of this Warrant shall be binding upon the
successors of the Company.
6. No Rights as Stockholder; Notice. The Investor shall not by virtue
of this Warrant be entitled to any rights of a stockholder of the Company.
However, the Company shall give notice to the Investor if at any time prior to
the expiration or exercise in full of this Warrant any of the following events
shall occur:
(a) the Company shall declare any dividend or distribution
with respect to its capital stock;
(b) a dissolution, liquidation or winding up of the Company
shall be proposed; or
6
(c) a capital reorganization or reclassification of the
capital stock of the Company, any consolidation or
merger of the Company with or into another corporation,
any transaction or series of transactions in which more
than fifty percent (50%) of the voting securities of the
Company are transferred to another person, or of any
sale or conveyance to another corporation of the
property of the Company as an entirety or substantially
as an entirety.
Such giving of notice shall be effected at least fifteen (15) business days
prior to the date fixed as a record date or effective date or the date of
closing of the Company's stock transfer books for the determination of the
stockholders entitled to such dividend or distribution, or for the determination
of the stockholders entitled to vote on such proposed merger, consolidation,
sale, conveyance, dissolution, liquidation or winding up. Such notice shall
specify such record date or the date of closing the stock transfer books, as the
case may be.
7. Transfers. This Warrant may not be transferred, in whole or in
part, without the prior written consent of the Company; provided, however, that
such consent shall not be unreasonably withheld in the event of any transfer to
an affiliate of the Investor (except that the Company may withhold its consent
in its sole discretion with respect to a transfer of any portion of this Warrant
which relates to unvested Shares (with reference to Section 1(a) above)). Until
any such transfer, the Company may treat the registered owner hereof as the
owner for all purposes (notwithstanding any markings or notations on the face of
this Warrant).
8. Loss, Theft, Destruction or Mutilation. Upon receipt by the
Company of satisfactory evidence of the loss, theft, destruction or mutilation
of this Warrant and either (in the case of loss, theft or destruction)
indemnification satisfactory to the Company or (in the case of mutilation) the
surrender of this Warrant for cancellation, the Company will execute and deliver
to the Investor, without charge, a Warrant of like denomination.
9. Public Reporting. With a view to making available to the Investor
the benefits of Rule 144 ("Rule 144") promulgated under the Securities Act of
1933, as amended (the "1933 Act"), and any other rule or regulation of the
Securities and Exchange Commission (the "SEC") that may at any time permit the
Investor to sell Shares to the public without registration, the Company agrees
that, for so long as a class of its securities is registered under Section 12 of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company
will: (i) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times; (ii) file with the SEC in a
timely manner all reports and other documents
7
required of the Company under the 1933 Act and the 1934 Act; and (iii) furnish
to the Investor, forthwith upon request, (a) a written statement by the Company
that it has complied with the reporting requirements of Rule 144, the 1933 Act
and the 1934 Act, (b) a copy of the most recent annual or quarterly report of
the Company filed with the SEC and such other reports and documents so filed by
the Company which the Investor may reasonably request, and (c) such other
information as may be reasonably requested in availing the Investor of any rule
or regulation of the SEC which permits the selling of any Shares without
registration under the 1933 Act.
10. Notices. Any notice or demand desired or required to be given
hereunder shall be in writing and given (except as otherwise provided herein) by
personal delivery, certified or registered mail or air courier addressed as
follows:
If to the Company: Mariner Health Group, Inc.
125 Eugene O'Neill Drive
New London, Connecticut 06320
Attn: Mr. Jeffrey W. Kinell
Chief Financial Officer
With a copy to: Testa, Hurwitz & Thibeault
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attn: Mark H. Burnett, Esq.
If to the Investor: AmHS Purchasing Partners, L.P.
12730 High Bluff Drive, Ste. 300
San Diego, California 92130-2099
Attn: Mr. John Zorich
With a copy to: Pillsbury Madison & Sutro
P.O. Box 7880
San Francisco, California 94120-7880
Attn: John L. Donahue, Esq.
or to such other address as the party to receive the notice or request shall
designate by notice to the other. Any notice or request shall be deemed given
when received.
11. Legend. The Company may cause each certificate representing
Shares issued upon exercise of this Warrant to bear a legend in substantially
the following form:
"The securities represented by this certificate have not been
registered or qualified under the Federal Securities Act of 1933 (the
"1933 Act") or applicable state securities laws and are "restricted
securities" within the meaning of Rule 144 promulgated under the 1933
Act. The securities may not be sold or transferred without complying
with Rule 144 in the
8
absence of effective registration under the 1933 Act or other
compliance under or exemption from the 1933 Act and applicable state
securities laws."
12. Taxes. The Company agrees that it will pay, and will hold the
Investor harmless from any and all liability with respect to, any stamp or
similar taxes which may be determined to be payable to the State of Delaware in
connection with the issuance, delivery or exercise of this Warrant (as well as
the issuance or delivery of Shares upon any exercise of this Warrant).
13. Miscellaneous. Neither this Warrant nor any term hereof may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought. This Warrant shall be construed and enforced
in accordance with, and governed by, the laws of the State of Delaware (without
regard to conflict of law provisions). The Section headings in this Warrant are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and delivered by a duly authorized officer as of the fifth (5th) day of January,
1996.
MARINER HEALTH GROUP, INC.
a Delaware corporation
By:_______________________________
Its:______________________________
Witness:
___________________________
9
SCHEDULE 1
VESTING
As referenced, certain terms with initial letters capitalized in this
Schedule 1 shall have their respective meanings as set forth in that certain
Defined Care Partner Agreement dated January 5, 1996 among the Investor, the
Company and Mariner Health Care, Inc. (the "Agreement"). Otherwise, terms with
initial letters capitalized in this Schedule 1 shall have their respective
meanings as set forth in the Warrant to which this Schedule 1 is attached (the
"Warrant").
Insofar as any obligation is set forth in this Schedule 1 for
performance by the Partner (as defined in the Agreement), the Company shall
cause the Partner to perform such obligation or substitute its own performance
in lieu thereof consistent with the provisions of this Schedule 1.
Shares shall vest under the Warrant, as of any particular Measurement
Date, pursuant to the following formula:
SVmd = (PTNII/Ratiomd) - SPV
where:
SVmd = The number of Shares vesting as of any Measurement Date
(which number shall be rounded up to the nearest whole
number), representing the Tranche of Shares for such
Measurement Date;
PTNII = The number of dollars comprising Pre-Tax Net Income (as
defined below) for the applicable Interval (as defined
below);
Ratiomd = The applicable Pre-Tax Net Income-to-Shares conversion
ratio for the applicable Measurement Date (determined
pursuant to the Measurement Date/Conversion Ratio grid
set forth below); and
SPV = The number of Shares previously vested, as of any given
time, under the Warrant pursuant to the provisions of
this Schedule 1.
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Regardless of the results of the foregoing formula:
(1) no more than 1,890,000 Shares, in the aggregate, shall vest or be
issued upon any exercise(s) of the Warrant (subject to adjustment as
provided in Section 5 of the Warrant);
(2) once a Tranche of Shares has vested under the Warrant, such Tranche
of Shares (and all Shares included therein) cannot become divested
(e.g., if the formula produces a negative number for any given
Measurement Date, a vested Tranche of Shares (and all Shares included
therein) shall not be lost under the Warrant as a result); and
(3) if the Agreement is terminated for any reason, then no Shares shall
vest under the Warrant for any period (or as of any date) following the
Measurement Date which immediately precedes the Agreement's date of
termination;
provided, however, that:
(x) if the Agreement's date of termination is a Measurement Date, such
Measurement Date shall be deemed to be the Measurement Date which
immediately precedes the Agreement's date of termination for purposes
of the Warrant and this Schedule 1 (e.g., a Tranche of Shares shall
vest, as provided in the Warrant and this Schedule 1, as of such
Measurement Date despite the Agreement's termination);
(y) to the extent a Tranche of Shares for a Measurement Date preceding
such date of termination has not as of then been determined, the
Agreement's termination shall not affect the determination or vesting
of such Tranche of Shares (including, without limitation, a Tranche of
Shares which is the subject of the foregoing clause (x)); and
(z) the Agreement's termination shall not affect the provisions of the
Warrant with respect to vested Tranches of Shares (and all Shares
included therein).
Pre-Tax Net Income
Pre-Tax Net Income, for purposes of the foregoing formula, shall be
equal to:
(i) the total revenue derived (consistent with the accounting
principles consistently applied by the Partner with
respect to its component of the financial statements of
the Company filed with the SEC) by the Partner (or its
affiliates) pursuant to Facility Agreements (as defined in
the Agreement) in the calendar year leading up to the
relevant Measurement Date (inclusive of such Measurement
Date and, in the
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instance of the first Measurement Date (12/31/96), from
and including the Effective Date (as defined in the
Agreement) through such first Measurement Date - each
period being herein referred to as an "Interval"); LESS
(ii) the sum of (a) plus (b) where:
(a) = the aggregate amount of any reasonable operating
expenses (excluding, without limitation, any allocation for
overhead) incurred by the Partner (or its affiliates) with
respect to such revenue (also consistent with the accounting
principles consistently applied by the Partner with respect to
its component of the financial statements of the Company filed
with the SEC) in the applicable Interval; and
(b) = the aggregate amount of (x) the sum of twenty (20)
percent of the "Interval Value" (as defined below) for each of
the prior Measurement Dates (if any and subject, in any event,
to a maximum of four) plus (y) twenty (20) percent of the
Interval Value for the Measurement Date at issue.1
To calculate Pre-Tax Net Income (and otherwise provide a mechanism whereby the
parties to the Agreement are able to monitor the Association's activities), the
Partner will prepare or cause to be prepared:
(1) separate consolidated monthly statements setting forth total revenue
(pursuant to clause (i) above) and related
___________
1 The intent of using a twenty (20) percent figure and a five-year period is to
apply the "charge" for any given Interval Value over a period of five years;
however, to the extent any such charge (or portion thereof) is thereby extended
beyond the last Measurement Date, the effect of such charge (or portion thereof)
shall not impact the formula.
An example of the application of Interval Value to the determination of
Pre-Tax Net Income is as follows: if, as of the third Measurement Date
(12/31/98), the Interval Value for the first Measurement Date (12/31/96) was
determined (in connection with the vesting of the first Tranche of Shares) to be
$100,000 and the Interval Value for the second Measurement Date (12/31/97) was
determined (in connection with the vesting of the second Tranche of Shares) to
be $60,000, then the amounts of $20,000 (20% of the first Interval Value) and
$12,000 (20% of the second Interval Value) would be added to 20% of the third
Interval Value (the amount of which will depend upon the results of the formula
of this Schedule 1, including solving for the third Interval Value itself) to
derive "(b)" for purposes of clause (ii) of the definition of Pre-Tax Net
Income.
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operating expenses (pursuant to clause (ii)(a) above) and an additional
monthly statement for each venture or relationship between the Partner
(or its affiliates) and any Facility(ies) (as defined in the Agreement)
involving equity ownership;
(2) combined statements, over the period of each Interval, for each
specific venture or relationship between the Partner (or its
affiliates) and any Facility(ies); and
(3) following each Interval, a sufficiently detailed calculation prepared
by the independent accounting firm used by the Partner with respect to
its public reporting (a "Calculation"), with respect to the Interval's
ending Measurement Date, of the value of the Warrant as it relates to
the Tranche of Shares which shall vest pursuant to the Warrant and this
Schedule 1 as of such Measurement Date (which value, with respect to
each Measurement Date, is referred to herein as the "Interval Value").2
Monthly statements shall be distributed by the Partner to the Investor
within sixty (60) days after the applicable month-end, and Interval statements
(which shall include the relevant Calculation) shall be distributed by the
Partner to the Investor within sixty (60) days after the Interval's ending
Measurement Date.
Notwithstanding any Calculation, the Investor may elect to have the
Interval Value as of any Measurement Date determined (a "Determination") by a
third party (e.g., an independent accounting firm, an investment banking firm or
another person or entity reasonably competent to perform a Determination) which
third party shall be reasonably acceptable to the Company. Such election shall
be made by the Investor, with respect to any Measurement Date, within 30 days
after the Investor shall have been advised, in writing, of the Calculation for
such Measurement Date. Thereafter, the parties shall be bound, for purposes of
the Interval Value for any Measurement Date, by the lesser of the amount of
Interval Value derived from (i) the Determination or (ii) the Calculation. The
Company and the Investor shall each bear responsibility for fifty (50) percent
of the fees and expenses of the third party making any
____________
2 Each Calculation shall be performed using the Black-Scholes formula (with such
assumptions as the Partner can reasonably support (e.g., assumptions used by the
Company with respect to public reporting of the value of options granted to
executives and/or employees of the Company and/or its affiliates)).
In the event that any Calculation produces an Interval Value which the
independent accounting firm producing such Calculation determines is immaterial,
the Interval Value at issue shall be deemed to be $0.00.
1-4
Determination; however, each of the Company and the Investor shall have equal
access to the personnel and working papers involved in or pertinent to the
Determination.
The Partner shall keep complete and proper records and accounts of all
Association-related operations in sufficient detail to enable Pre-Tax Net Income
to be determined for each month and Interval. The Investor shall have the right
to appoint an independent certified public accounting firm to audit the records
of the Partner and/or the Company as necessary to verify the amount of Pre-Tax
Net Income set forth in any monthly or Interval statement. Such audit shall be
at the Investor's expense; provided, however, that if the audit discloses that
Pre-Tax Net Income, as calculated by the Partner, is deficient for the related
period by at least five percent (5%), then the Partner shall reimburse the
Investor for any such audit costs and expenses. The Partner and the Company
shall preserve and maintain all such records as may be necessary or advisable
for review in the course of such an audit for a period of three (3) years
following the final Measurement Date (12/31/00).
Measurement Date/Conversion Ratio
The applicable conversion ratio for each Measurement Date (to insert as
the "Ratiomd" for purposes of the formula set forth above) shall be determined
as follows:
Measurement Date Conversion Ratio
---------------- ----------------
12/31/96 [CONFIDENTIAL TREATMENT REQUESTED]
12/31/97 [CONFIDENTIAL TREATMENT REQUESTED]
12/31/98 [CONFIDENTIAL TREATMENT REQUESTED]
12/31/99 [CONFIDENTIAL TREATMENT REQUESTED]
12/31/00 [CONFIDENTIAL TREATMENT REQUESTED]
Example of Calculation
If, in the Interval from 12/31/97 to 12/31/98, Pre-Tax Net Income is
$1,000,000 and 100,000 Shares have previously vested under the Warrant, the
number of Shares (comprising the Tranche of Shares for the 12/31/98 Measurement
Date) which shall vest as of the 12/31/98 Measurement Date shall be calculated
as follows:
SV12/31/98 = (1,000,000/[CONFIDENTIAL TREATMENT REQUESTED]) - 100,000
or [CONFIDENTIAL TREATMENT REQUESTED] Shares vesting as of the 12/31/98
Measurement Date.
- - --------
[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL THAT HAS BEEN OMITTED AND
FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH OMITTED MATERIAL
HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO RULE 24B-2.
1-5
EXHIBIT A
WARRANT EXERCISE
(To be signed only upon an exercise of the Warrant)
The undersigned, the holder of the attached Warrant (terms with initial
capital letters herein are defined in such Warrant), hereby elects to exercise
the purchase right represented by such Warrant for, and to purchase thereunder,
___________ Shares to which the Warrant relates.
The aggregate Exercise Price for such Shares is determined by
multiplying the relevant Exercise Price for each Tranche of Shares by the number
of Shares from each such Tranche of Shares for which the Warrant is being
exercised, as follows:
<TABLE>
<CAPTION>
Measurement Available Shares Shares in Tranche Exercise Price Aggregate Price
Date in Tranche Being Exercised for Tranche
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 [____] [____] $[____] $[____]
December 31, 1997 [____] [____] $[____] $[____]
December 31, 1998 [____] [____] $[____] $[____]
December 31, 1999 [____] [____] $[____] $[____]
December 31, 2000 [____] [____] $[____] $[____]
-------
TOTAL EXERCISE PRICE $[____]
</TABLE>
The undersigned herewith makes payment of $_________ in respect of the current
exercise of the Warrant (as detailed above) in cash or by certified check or
bank draft and [OR ELECTION IS MADE WITH RESPECT TO THE CURRENT EXERCISE OF THE
WARRANT TO UTILIZE THE NET EXERCISE RIGHT AS DESCRIBED IN SUCH WARRANT AND THE
UNDERSIGNED] requests that the certificate for such Shares be issued in the name
of, and be delivered to ______________________, whose address is set forth below
the signature of the undersigned.
Dated: ______________
____________________________
[Signature]
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____________________________
____________________________
____________________________
[Address]
1-7
