AMENDMENT NO. 1 TO
STOCKHOLDERS AGREEMENT
This AMENDMENT NO. 1 TO STOCKHOLDERS AGREEMENT (the "Amendment"), dated as of
April 13, 1998, by and among Paragon Health Network, Inc., a Delaware
corporation (the "Company") and the stockholders listed on the signature pages
attached hereto (together with each other Person (defined below) who is or
becomes a party to the Stockholders Agreement (defined below) in accordance with
the terms hereof, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Stockholders
Agreement, dated as of November 4, 1997 (the "Stockholders Agreement"), pursuant
to which the parties provided for certain rights and obligations in respect of
the Shares (defined in the Stockholders Agreement);
WHEREAS, as an inducement to Mariner Health Group, Inc. ("Mariner") to enter
into that certain Agreement and Plan of Merger by and among the Company, Mariner
and Paragon Acquisition Sub, Inc., a wholly owned subsidiary of the Company
("Sub"), Mariner requested, and the Stockholders and the Company have agreed to
enter into this Amendment to become effective as of the effective time (the
"Effective Time") of the merger of Sub with and into Mariner; and
WHEREAS, the Stockholders Agreement may be amended only in accordance with
Section 7.1 thereof which requires a written instrument executed by the Company
(in accordance with the approval of two-thirds of the entire Board of Directors
of the Company, including a majority of the directors who are not an Affiliate)
and the holders of a majority of the Shares held by the Stockholders including,
so long as Apollo beneficially owns at least 25% of the Shares held by Apollo on
the Effective Time, the consent of Apollo, and if any amendment or modification
would have a disproportionately material adverse effect on the rights or
obligations of any Other Stockholder or would otherwise unfairly discriminate
against any Other Stockholder, the consent of such Other Stockholder;
WHEREAS, each Stockholder party hereto owns the number of shares of common
stock of the Company, par value $.01 per share ("Common Stock") set forth under
its name on the signature pages attached hereto, and the Stockholders party
hereto collectively beneficially own 14,517,591 shares of Common Stock of the
17,777,778 Shares currently held by the Stockholders;
WHEREAS, effective as of the Effective Time, Xxxxx X. Xxxxx will no longer be
a Stockholder.
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
Section 1.1 Definitions. Defined terms used herein and not otherwise defined
herein have the meaning ascribed to them in the Stockholders Agreement as
amended by this Amendment.
ARTICLE II.
REPRESENTATION AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of the Stockholders as
follows:
Section 2.1 Authority for this Amendment. The Company has the requisite
corporate power and authority to execute and deliver this Amendment. The
execution and delivery of this Amendment by the Company have been duly and
validly authorized by two-thirds of the entire Board of Directors of the
Company, including a majority of the directors who are not an Affiliate or an
Associate of any Stockholder, and no other corporate proceedings on the part of
the Company are necessary to authorize this Amendment. This Amendment has been
duly and validly executed and delivered by the Company and assuming that this
Amendment constitutes a valid and binding obligation of the Stockholders, this
Amendment constitutes a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and to general principles of equity (whether
considered in a proceeding in equity or at law).
Section 2.2 Consents and Approvals; No Violation. Except as set forth on
Schedule 2.2. the execution and delivery of this Amendment by the Company will
not (i) conflict with or result in any breach of any provision of the respective
Restated Certificate of Incorporation or Bylaws (or other similar governing
documents) of the Company or any of its subsidiaries, (ii) require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental or regulatory authority, except where the failure to obtain such
consent, approval, authorization or permit, or to make such filing or
notification, would not in the aggregate have a Material Adverse Effect, (iii)
result in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
license, agreement or other instrument or obligation to which the Company is a
party or by which the Company or any of its assets or subsidiaries may be bound,
except for such defaults (or rights of termination, cancellation or
acceleration) which would not in the aggregate have a Material Adverse Effect,
(iv) result in the creation or imposition of any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind on any asset of the Company or any
of its subsidiaries which, in the aggregate, would have a Material Adverse
Effect, or (v) violate any order, writ injunction, agreement, contract, decree,
statute, rule or regulation applicable to the Company, any of its subsidiaries
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or by which any of their respective assets are bound, except for violations
which would not in the aggregate have a Material Adverse Effect.
Section 2.3 No Inconsistent Agreements. As of the Effective Time, there is no
(and from and after the Effective Time the Company will not, and will cause its
subsidiaries not to enter into any) agreement with respect to any securities of
the Company or any of its subsidiaries (and from and after the Effective Time
the Company shall not take, or permit any of its subsidiaries to take, any
action) that is inconsistent in any material respect with the rights granted to
the Stockholders in the Stockholders Agreement as amended by this Amendment.
Without limiting the foregoing, except for the Stockholders Agreement as
amended by this Amendment, that certain Proxy and Voting Agreement, dated as of
November 4, 1997, by and among Apollo and the Other Stockholders and that
certain Parent Voting Agreement, dated as of the date hereof, by and among
Mariner and Apollo, there are no other existing agreements relating to the
voting of any equity securities of the Company or any of its subsidiaries.
Section 2.4 Share Ownership. To the Company's knowledge, no Stockholder has
transferred any Shares following the Effective Date.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder severally as to itself, but not jointly or as to any other
Stockholder, represents and warrants to the Company as follows:
Section 3.1 Authority for this Agreement. The execution and delivery of this
Amendment by such Stockholder has been duly and validly authorized by all
necessary action on its part. This Amendment has been duly and validly executed
and delivered by such Stockholder and, assuming the representations made by each
Stockholder in Section 3.3 of this Amendment are true and correct and, assuming
this Amendment constitutes a valid and binding obligation of the Company,
constitutes a valid and binding agreement of such Stockholder enforceable
against each Stockholder in accordance with the terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws affecting creditor's rights generally and to general principals of equity
(whether considered in a proceeding in equity or at law).
Section 3.2 No Violation. The execution and delivery of this Amendment by such
Stockholder will not conflict with or result in any breach of any provision
under such Stockholder's partnership agreement or similar governing documents of
such Stockholder.
Section 3.3 Beneficial Ownership. As of the date of this Amendment, each
Stockholder party hereto beneficially owns the number of shares of Common Stock
set forth under its name on the signature pages attached hereto.
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ARTICLE IV.
AMENDMENT OF STOCKHOLDERS AGREEMENT
As of the Effective Time, the following amendments to the Stockholders
Agreement shall become effective.
Section 4.1 Definitions. Section 1.1 of the Stockholders Agreement is hereby
amended by inserting the following definition immediately after the definition
of "Commission:"
"Effective Time" shall mean the effective time of the merger of
Paragon Acquisition Sub, Inc., a wholly owned subsidiary of the Company
("Sub"), and Mariner Health Group, Inc. ("Mariner") pursuant to that
certain Agreement and Plan of Merger, dated as of April 13, 1998, by and
among the Company, Sub and Mariner.
Section 4.2 Board Representation. Section 4.1(a) of the Stockholders Agreement
is hereby amended by deleting such subsection in its entirety and inserting the
following subsection in lieu thereof:
"(a) On the Effective Date the size of the Board of Directors
will be fixed at eleven members and the Company will cause the persons
named on Schedule 4.1 (or subject to Section 4.1(i), such other
substitute persons as may be designated by Apollo as Stockholder
Designees) to be initially elected to the Board of Directors by virtue
of the Recapitalization Merger contemplated by the Merger Agreement.
Until the earlier of (i) the date on which the Stockholders beneficially
own, collectively, less than 25% of the Shares or (ii) the date the
Standstill Period ends by virtue of Section 5.2(g) hereof (the
'Stockholder Designee Period'), the Company agrees, subject to Section
4.1(i), to support the nomination of, and the Company's Nominating
Committee shall recommend to the Board of Directors the inclusion in the
slate of nominees recommended by the Board of Directors to stockholders
for election as directors at each annual meeting of stockholders of the
Company (A) five Stockholder Designees if the Stockholders beneficially
own a number of shares of Common Stock equal to 66 2/3% or more of the
Shares, (B) four Stockholder Designees if the Stockholders beneficially
own a number of shares of Common Stock equal to 50% or more but less
than 66 2/3% of the Shares, or (C) two Stockholder Designees if the
Stockholders beneficially own 25% or more but less than 50% of the
Shares (each a 'Beneficial Ownership Threshold'); provided, that in no
event will more than four of such Stockholder Designees be Associates of
Apollo (each Stockholder Designee who is an Associate of Apollo is
hereafter referred to as an 'Apollo Director'). Notwithstanding the
foregoing, if at any time after the fifth anniversary of the Effective
Time, the number of shares of Company Common Stock beneficially owned by
the Stockholders aggregate less than forty percent (40%) of the total
number of shares of the Company's Common Stock of all classes entitled
to vote in the election of directors as are then outstanding ('Total
Shares Outstanding'), the maximum number of Stockholder Designees shall
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be the lowest whole number which when compared to the total number of
directors of the Company (including all vacancies) is equal to or
greater than the percentage which the aggregate number of shares of
Company Common Stock beneficially owned by the Stockholders bears to the
Total Shares Outstanding."
Section 4.3 Xxxxx' Rights and Obligations. As of the Effective Time, Xxxxx X.
Xxxxx will no longer be a Stockholder or an Other Stockholder under the
Stockholders Agreement and from and after the Effective Time the Stockholders
Agreement as amended by this Amendment shall be deemed to be terminated and of
no further effect with respect to Xx. Xxxxx and any shares of Common Stock he
beneficially owns.
ARTICLE V.
MISCELLANEOUS
Section 5.1 Force and Effect. Except as expressly modified by this Amendment,
the Stockholders Agreement is hereby ratified and confirmed and shall remain in
full force and effect after the Effective Time.
Section 5.2 Termination. This Amendment will expire without becoming effective
and will be of no force and effect upon the earlier to occur of (i) the
termination of the Merger Agreement and (ii) the amendment or waiver of any
provision of the Merger Agreement without the prior written consent of Apollo.
Section 5.3 Separability. In the event that any provision of this Amendment or
the application of any provision hereof is declared to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction, the remainder of
this Amendment shall not be affected except to the extent necessary to delete
such illegal, invalid or unenforceable provision unless that provision held
invalid shall substantially impair the benefits of the remaining portions of
this Amendment.
Section 5.4 Governing Law. This Amendment shall be governed by and construed
in accordance with the internal law of the State of Delaware without giving
effect to principles of conflicts of law.
Section 5.5 Headings. The headings in this Amendment are for convenience of
reference only and shall not constitute a part of this Amendment, nor shall they
affect their meaning, construction or effect.
Section 5.6 Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
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Section 5.7 Further Assurances. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Amendment and the transactions contemplated
hereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the
date first above written.
PARAGON HEALTH NETWORK, INC.
By: /s/ R. Xxxxxxx Xxxxxx
----------------------------
Name: R. Xxxxxxx Xxxxxx
Title: Senior Vice President
APOLLO:
APOLLO INVESTMENT FUND III, L.P.
By: Apollo Advisors II, L.P.
Its General Partner
By: Apollo Capital Management II, Inc.
Its General Partner
By: /s/ Xxxxx Xxxxxx
------------------------------
Name: Xxxxx Xxxxxx
-----------------------
Title: Vice President
-----------------------
13,100,370 Shares of Common Stock
APOLLO UK PARTNERS III, L.P.
By: Apollo Advisors II, L.P.
Its General Partner
By: Apollo Capital Management II, Inc.
Its General Partner
By: /s/ Xxxxx Xxxxxx
-------------------------------
Name: Xxxxx Xxxxxx
------------------------
Title: Vice President
------------------------
484,188 Shares of Common Stock
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APOLLO OVERSEAS PARTNERS III, L.P.
By: Apollo Advisors II, L.P.
Its General Partner
By: Apollo Capital Management II, Inc.
Its General Partner
By: /s/ Xxxxx Xxxxxx
--------------------------------
Name: Xxxxx Xxxxxx
-------------------------
Title: Vice President
-------------------------
783,033 Shares of Common Stock
OTHER STOCKHOLDERS
/s/ Xxxxx X. Xxxxx
-------------------------------------
Xxxxx X. Xxxxx
150,000 Shares of Common Stock
Address for Notice:
c/o Paragon Health Network, Inc.
0 Xxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telecopy No.: (000) 000-0000
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