<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K/A*
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
1-10968
-------
(Commission File No.)
MARINER POST-ACUTE NETWORK, INC.
(formerly "Paragon Health Network, Inc.")
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 74-2012902
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
ONE RAVINIA DRIVE, SUITE 1500 30346
ATLANTA, GEORGIA (Zip Code)
(Address of Principal Executive Office)
(678) 443-7000
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
------------------- --------------------------
Common Stock, Par Value $.01 Per Share..... OTCBB
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]
The aggregate market value of the outstanding common stock, par value
$.01 per share (the "Common Stock"), of the registrant held by non-affiliates of
the registrant as of September 29, 2000 was $6,539,944, based on a closing sale
price for the Common Stock of $.09 per share as reported on the OTCBB on said
date. For purposes of the foregoing sentence only, all directors are assumed to
be affiliates.
There were 73,688,379 shares of Common Stock of the registrant issued and
outstanding as of September 29, 2000.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subject to the distribution of securities under a plan
confirmed by a court. Yes [_] No [_] N/A [X] Due to the recent nature of the
filings made by the registrant and its subsidiaries under Chapter 11 of the
Bankruptcy Code, no plan of reorganization has been confirmed by a bankruptcy
court.
DOCUMENTS INCORPORATED BY REFERENCE
INCORPORATED DOCUMENT PART OF FORM 10-K
* The purpose of this Amendment is to include the information required by
Items 11, 12 and 13 of Part III of Form 10-K.
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<PAGE>
TABLE OF CONTENTS
PAGE
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PART III
ITEM 11. EXECUTIVE COMPENSATION........................................1
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT....................................................6
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................7
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
compensation earned during fiscal 1999 by the individuals serving as the Chief
Executive Officers of the Company during fiscal 1999 and the six other most
highly compensated executive officers of the Company serving at September 30,
1999 who earned over $100,000 in salary and bonus. See "--Employment and
Severance Agreements" below for a description of the employment and severance
agreements entered into with the executives named below.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION ($) COMPENSATION
---------------------------------- ---------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS/SARS(#) COMPENSATION
--------------------------- --------- ---------- ---------- ------------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francis W. Cash 1999(1) $ 30,769 -- --(5) -- $ 200,000(2)
Chairman of the Board, 1998(1) -- -- -- -- --
Chief Executive Officer 1997(1) -- -- -- -- --
and President
Keith B. Pitts 1999(3) $ 751,360 $ 100,000(4) __ $ 163,462(6)
Chairman of the Board and 1998(3) 641,154 -- 1,715,500 200,000(7)
Chief Executive Officer 1997(3) -- -- -- --
George D. Morgan 1999(8) $ 299,467 $ 61,747(4) -- $ 500,000(9)
Executive Vice President 1998(8) -- -- -- -- --
and Chief Financial Officer 1997(8) -- -- -- -- --
Susan Thomas Whittle 1999 $ 290,936 -- -- -- --
Senior Vice President, 1998 278,315 -- $ 51,977(4) -- $ 350,000(7)
General Counsel and 1997 177,121 48,458 -- -- --
Secretary(15)
C. Christian Winkle 1999(10) $ 338,478 -- $ 15,453(4) -- --
Executive Vice President 1998(10) -- -- -- -- --
and Chief Operating 1997(10) -- -- -- -- --
Officer (16)
William R. Korslin 1999 $ 300,000 $ 22,500 -- -- --
President-Pharmaceutical 1998 300,000 22,500 -- 165,000 300,000(7)
Services Division 1997 207,577 80,640 -- 3,750 --
Arthur W. Stratton, Jr., M.D. 1999(11) $ 663,665 -- -- -- $ 104,588(12)
Vice Chairman of the Board, 1998(11) 70,833 -- -- -- --
President, Chief Operating 1997(11) -- -- -- -- --
Officer
R. Jeffrey Taylor 1999(13) $ 243,146 $ 122,500 -- -- $ 107,692(14)
Executive Vice President 1998(13) 271,741 -- -- 185,000 250,000(7)
and Chief Development 1997(13) -- -- -- -- --
Officer
--------------
</TABLE>
(1) Mr. Cash's employment commenced September 8, 1999, and Mr. Cash resigned
from the Company effective April 1, 2000. Accordingly, compensation
information for fiscal 1999 reflects a partial year of service and
compensation information for fiscal 1998 and 1997 is not reflected.
Because Mr. Cash voluntarily terminated his employment, he is not
entitled to benefits or compensation post-resignation.
(2) Represents a signing bonus paid to Mr. Cash upon the commencement of his
employment with the Company.
1
<PAGE>
(3) Mr. Pitts' employment commenced November 4, 1997. Accordingly,
compensation information for fiscal 1998 reflects a partial year of
service and compensation information for fiscal 1997 is not reflected.
Mr. Pitts resigned from the Company June 11, 1999. Accordingly,
compensation information for fiscal 1999 reflects a partial year of
service and severance payments from the date of termination through the
fiscal year end.
(4) Represents relocation expenses.
(5) Does not reflect non-cash compensation in the form of personal benefits
provided by the Company that may have value to the recipient. Although
such compensation cannot be determined precisely, the Company has
concluded that the aggregate value of such benefits awarded to this named
executive officer did not exceed the lesser of $50,000 or 10% of his
salary and bonus for any fiscal year to which such benefits pertain.
(6) Represents severance payments made to Mr. Pits following the termination
of his employment.
(7) Represents signing bonuses paid by the Company following the Apollo/LCA/
GranCare Mergers.
(8) Mr. Morgan's employment commenced January 25, 1999. Accordingly,
compensation information for fiscal 1999 reflects a partial year of
service and compensation information for fiscal 1998 and 1997 is not
reflected.
(9) Represents a signing bonus paid to Mr. Morgan upon the commencement of
his employment with the Company.
(10) Mr. Winkle's employment commenced January 20, 1999. Accordingly,
compensation information for fiscal 1999 reflects a partial year of
service and compensation information for fiscal 1998 and 1997 is not
reflected.
(11) Dr. Stratton's employment commenced July 31, 1998. Accordingly,
compensation information for fiscal 1998 reflects a partial year of
service and compensation information for fiscal 1997 is not reflected.
Dr. Stratton resigned from the Company April 31, 1999. Accordingly,
compensation information for fiscal 1999 reflects a partial year of
service and severance payments from the date of termination through the
fiscal year end.
(12) Represents severance payments made to Dr. Stratton following termination
of his employment.
(13) Mr. Taylor's employment with the Company commenced on November 19, 1997.
Accordingly, compensation information for fiscal 1998 reflects a partial
year of service and compensation information for fiscal 1997 is not
reflected. Mr. Taylor resigned from the Company May 1, 1999. Accordingly,
compensation information for 1999 reflects a partial year of service and
severance payments from the date of termination through fiscal year end.
(14) Represents severance payments made to Mr. Taylor following the
termination of his employment.
(15) Effective April 17, 2000, Ms. Whittle was named as an Executive Vice
President.
(16) Effective March 21, 2000, Mr. Winkle was appointed Chief Executive
Officer and was elected as a Director.
OPTIONS GRANTS, EXERCISES AND YEAR-END VALUE TABLES
The following tables provide information on options to purchase Common
Stock that were granted during the fiscal year ended September 30, 1999 and
summarize the value of such options held at the end of such fiscal year.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS GRAND DATE VALUE
UNDERLYING GRANTED TO EXERCISE OR --------------------
OPTIONS/SARS EMPLOYEES IN BASE PRICE GRANT DATE
NAME GRANTED FISCAL YEAR ($/SH) PRESENT VALUE ($)(1)
----- -------------- ---------------- -------------- --------------------
<S> <C> <C> <C> <C>
Mr. Cash............................. 0 0% $ 0 $ 0
Mr. Pitts............................ 0 0% $ 0 $ 0
Mr. Morgan........................... 250,000 12% $ 4.8125 $ 830,000
Ms. Whittle.......................... 7,500 .36% $ 2.50 $ 12,975
50,000 2.40% $ 2.1875 $ 76,000
Mr. Winkle........................... 250,000 12% $ 4.375 $ 765,000
Mr. Korslin.......................... 7,500 .36% $ 2.50 $ 12,975
Mr. Stratton......................... 0 0% $ 0 $ 0
Mr. Taylor........................... 0 0% $ 0 $ 0
--------------
</TABLE>
(1) Calculated using the Black-Scholes option pricing model.
2
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE OPTION/SAR EXERCISES DURING LAST FISCAL YEAR
AND VALUE OF OPTIONS/SARS AT FISCAL YEAR-END
SHARES NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED SECURITIES UNDERLYING IN-THE-MONEY
ON VALUE OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
NAME EXERCISABLE EXERCISE(#) REALIZED($) YEAR-END YEAR-END($)(1)
----------------- ------------- ------------ ------------------------------ -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Mr. Cash (2)........ -- -- -- -- -- --
Mr. Pitts (2)....... -- -- -- -- -- --
Mr. Morgan.......... -- -- -- 250,000(3) -- --
Ms. Whittle......... -- -- 42,500(4) 110,000(5) -- --
Mr. Winkle.......... -- -- -- 250,000(6) -- --
Mr. Korslin (2)..... -- -- -- -- -- --
Mr. Stratton (2).... -- -- -- -- -- --
Mr. Taylor (2)...... -- -- -- -- -- --
--------------
</TABLE>
(1) As of September 30, 1999 the exercise prices of all options held by the
named executive officers were above the closing price of the Common Stock
on that date ($0.375).
(2) The named executive officer is no longer employed by the Company. Messrs.
Cash, Pitts, Korslin, Stratton and Taylor terminated their employment
effective April 1, 2000, June 11, 1999, November 15, 1999, March 31, 1999
and May 1, 1999, respectively.
(3) Represents options to purchase 250,000 shares of Common Stock at the
exercise price of $4.8125.
(4) Includes options to purchase 37,500 and 5,000 shares of Common Stock at
exercise prices of $16.35 and $12.125, respectively. (5) Includes options
to purchase 37,500, 15,000, 7,500 and 50,000 shares of Common Stock at
exercise prices of $16.35, $12.125, $2.50 and $2.1875, respectively.
(6) Represents options to purchase 250,000 shares of Common Stock at the
exercise price of $4.375.
EMPLOYMENT AND SEVERANCE AGREEMENTS
The Company has entered into employment and severance agreements with its
current Chief Executive Officer, Mr. Cash and each of the executive officers
named in the Summary Compensation Table above. The material terms of these
agreements are set forth below. On January 18, 2000, the Company and
substantially all of its subsidiaries filed voluntary petitions (the "Chapter 11
Filings") in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") under Title 11 of the United States Code, 11 U.S.C.
ss.ss. 101 et. seq. (the "Bankruptcy Code"). None of the agreements referred to
below have been accepted or rejected by the Company. With respect to the
officers and other employees whose employment relationship with the Company was
terminated prior to January 18, 2000, the Company and its subsidiaries ceased
making severance payments on the date of the Chapter 11 Filings in accordance
with applicable law.
FRANCIS W. CASH. The Company entered into an employment agreement with Mr.
Cash dated as of September 8, 1999. However, Mr. Cash resigned from the Company
effective April 1, 2000. Because Mr. Cash voluntarily terminated his employment
with the Company, he is not entitled to compensation or benefits
post-resignation under the terms of his employment contract.
KEITH B. PITTS. Keith B. Pitts and the Company entered into a separation
agreement dated June 11, 1999 (the "Pitts Separation Agreement") under which Mr.
Pitts was terminated as Chief Executive Officer of the Company without cause.
Under the terms of the Pitts Separation Agreement, Mr. Pitts received the
separation package to which he was entitled under the terms of his former
Employment Agreement with the Company. The Pitts Separation Agreement also
provides that the Company will provide Mr. Pitts and his dependents with
continued health insurance coverage until the earlier of (A) November 4, 2004,
(B) such time as Mr. Pitts fails to timely pay the applicable premiums or (C)
when Mr. Pitts can obtain other coverage under an employer provided health plan.
The Company also agreed to reimburse Mr. Pitts for out of pocket costs related
to health care services until November 4, 2004. Further, the Company agreed to
provide Mr. Pitts with continuing coverage under the Company's life insurance
plan as well as certain other welfare benefits until the earlier of (A) July 31,
2002, (B) when Mr. Pitts fails to timely pay the applicable premiums or (C) such
time as Mr. Pitts can obtain similar coverage under an employer provided plan.
Mr. Pitts also agreed to a general release of any and all claims or causes
3
<PAGE>
of action arising out of his employment relationship with the Company. In
addition, Mr. Pitts agreed to certain non-competition and non-solicitation
provisions.
In connection with the termination of this employment, Mr. Pitts received
severance compensation in accordance with the terms of his employment agreement
from July 30, 1999 until the time of the Company's Chapter 11 Filings.
GEORGE D. MORGAN. The Company entered into an employment agreement with
Mr. Morgan dated January 25, 1999. Mr. Morgan's agreement provides for a
three-year term, with annual automatic extensions of the term for an additional
year unless, not later than 90 days prior to any such anniversary, either party
notifies the other that such extension shall not take effect. The agreement
provides for a base salary to Mr. Morgan of $450,000 per year. The agreement
permits Mr. Morgan to earn an annual bonus of between 80% and 150% of his annual
base salary if the Company achieves certain financial targets established in
connection with one of the Company's incentive compensation plans (the "Morgan
Target Bonus"). Upon executing his agreement Mr. Morgan received a signing bonus
of $500,000.
The agreement may be terminated at any time by Mr. Morgan for "good
reason" (consisting of certain actions or failures to act by the Company
following a "Change of Control," (as defined in the agreement), or with 60 days'
prior written notice for any other reason. If, following any Change of Control,
the Company terminates Mr. Morgan's employment without "Cause" (as defined in
the agreement), or Mr. Morgan terminates his employment for good reason, then
the Company is required to pay Mr. Morgan his full salary through the "Date of
Termination" (as defined in the agreement) and all other unpaid amounts due
under any other compensation plan, together with liquidated damages which,
subject to certain limited exceptions, are equal to two and one-half times the
sum of Mr. Morgan's annual salary and the Morgan Target Bonus at the rate then
in effect. In addition, if the Company has met certain financial objectives
established pursuant to one of its incentive compensation plans, Mr. Morgan
shall be entitled to receive any bonus he would have otherwise received, pro
rated to reflect the portion of the fiscal year worked by Mr. Morgan prior to
the termination of his employment. If, prior to a Change of Control, the Company
terminates Mr. Morgan's employment without cause, or Mr. Morgan resigns as a
result of the Company's failure to comply with a material provision of the
agreement, the Company is required to pay Mr. Morgan his full salary through the
date of termination and all other unpaid amounts due under any compensation
plan, together with liquidated damages equal to the sum of (A) 12 months of Mr.
Morgan's base salary, plus (B) one additional month of Mr. Morgan's base salary
at the aforementioned rate for each full year of service beyond the first
anniversary of his employment agreement with a maximum of 24 months of base
salary payments. In such event, the Company is also required to pay Mr. Morgan
the Morgan Target Bonus then in effect, pro rated to reflect the portion of the
fiscal year worked by Mr. Morgan prior to the termination of his employment.
SUSAN THOMAS WHITTLE. The Company entered into an employment agreement
with Ms. Whittle dated November 4, 1997. Ms. Whittle's agreement provides for a
two-year term, with annual automatic extensions of the term for an additional
year unless, not later than 90 days prior to any such anniversary, either party
notifies the other that such extension shall not take effect. The agreement
provides for a base salary to Ms. Whittle of $333,500 per year. The agreement
currently permits Ms. Whittle to earn an annual bonus of between 25% and 150% of
her annual base salary if certain performance standards established by the
Compensation Committee of the Board of Directors (the "Compensation Committee")
are achieved.
The agreement may be terminated at any time by Ms. Whittle for "good
reason" (consisting of certain actions or failures to act by the Company
following a "Change of Control," (as defined in the agreement), or with 60 days'
prior written notice for any other reason. If, following any Change of Control,
the Company terminates Ms. Whittle's employment in breach of the agreement, or
Ms. Whittle terminates her employment for good reason, then the Company is
required to pay Ms. Whittle her full salary through the "Date of Termination"
(as defined in the agreement) and all other unpaid amounts due under any other
compensation plan, together with liquidated damages which, subject to certain
limited exceptions, are equal to two times the sum of Ms. Whittle's annual
salary and average bonuses for the two previous fiscal years. In addition, the
Company is also required to pay Ms. Whittle a bonus (a "Separation Bonus") at a
specified target performance level, pro rated to reflect the portion of the
fiscal year worked by Ms. Whittle prior to the termination of her employment.
If, prior to a Change of Control, the Company terminates Ms. Whittle's
employment without cause, or Ms. Whittle resigns as a result of the Company's
failure to comply with a material provision of the agreement, the Company is
required to pay Ms. Whittle her full salary through the date of termination and
all other unpaid amounts due under any compensation plan, together with
liquidated damages equal to the greater of either (A) the remaining amount of
base salary owed for the term of the
4
<PAGE>
agreement; or (B) an amount equal to a sum of (x) nine months of Ms. Whittle's
base salary, plus (y) one additional month of Ms. Whittle's base salary at the
aforementioned rate for each full year of service beyond the first anniversary
of her employment agreement, with a maximum of 18 months of base salary
payments. In such event, the Company is also required to pay Ms. Whittle the
Separation Bonus.
C. CHRISTIAN WINKLE. The Company entered into an employment agreement
with Mr. Winkle dated January 20, 1999. Mr Winkle's agreement provides for a
three-year term, with annual automatic extensions of the term for an additional
year unless, not later than 90 days prior to any such anniversary, either party
notifies the other that such extension shall not take effect. The agreement
provides for a base salary to Mr. Winkle of $500,000 per year. However,
effective April 1, 2000, Mr. Winkle's base salary was increased to $650,000 per
year. The agreement permits Mr. Winkle to earn an annual bonus of between 80%
(the "Winkle Target Bonus") and 150% of his annual base salary if the Company
achieves certain financial targets. Under the agreement, Mr. Winkle also
received a one-time payment of $200,000 to assist him with certain relocation
expenses.
Upon satisfying certain requirements, the agreement may be terminated at
any time by Mr. Winkle for "good reason" (consisting of certain actions or
failures to act by the Company), or with 60 days' prior written notice for any
other reason. If, following a change of control, the Company terminates Mr.
Winkle's employment without Cause (as defined in the agreement) or Mr. Winkle
terminates his employment for good reason, then the Company is required to pay
Mr. Winkle his full salary through the "Date of Termination" (as defined in the
agreement) and all other unpaid amounts due under any other compensation plan,
together with liquidated damages which, subject to certain limited exceptions,
are equal to two and one-half times the sum of Mr. Winkle's annual salary and
the Winkle Target Bonus then in effect. In addition, if it is determined that
the Company has met certain financial objectives established in connection with
certain incentive compensation plans, the Company shall pay Mr. Winkle the bonus
for which he would otherwise be eligible, pro rated to reflect the portion of
the fiscal year worked by Mr. Winkle prior to the termination of his employment.
If, prior to a change of control, the Company terminates Mr. Winkle's employment
without Cause, or Mr. Winkle terminates his employment for good reason, the
Company is required to pay Mr. Winkle his full salary and bonuses for which he
would otherwise be eligible through the later of the Date of Termination (as
defined in the agreement) or two years from the date of the agreement.
WILLIAM R. KORSLIN. The Company entered into an employment agreement with
Mr. Korslin dated November 4, 1997. Mr. Korslin voluntarily terminated his
employment with the Company on November 15, 1999. Upon his termination, Mr.
Korslin entered into a Severance Agreement with the Company providing
substantially for the benefits Mr. Korslin would have received under his
employment agreement in connection with a "not for cause" termination. Under his
Severance Agreement Mr. Korslin is entitled to receive (i) base salary through
the effective date of Mr. Korslin's resignation, (ii) salary continuation
through November 4, 2001, (iii) his bonus for fiscal year end 1999 in the amount
of $41,000, (iv) a pro rata target bonus for fiscal year 200 prorated to January
15, 2000, (v) continued coverage through November 4, 2001 under the Company's
benefit plans, and (vi) outplacement services for six months. All of the
proceeding benefits are subject to mitigation in the event Mr. Korslin obtains
similar benefits from a subsequent employer. Mr. Korslin also agreed to certain
non-competition and non-solicitation arrangements for a period of time following
his termination.
In connection with the termination of his employment, Mr. Korslin
received severance compensation in accordance with the terms of his employment
agreement until the time of the Company's Chapter 11 Filings, at which time all
payments of severance compensation were terminated.
ARTHUR W. STRATTON, JR., M.D. The Company entered into an employment
agreement with Dr. Stratton dated July 31, 1998. Dr. Stratton voluntarily
terminated his employment with the Company on April 31, 1999 and waived any
benefits to which he might have been entitled under his employment agreement.
R. JEFFREY TAYLOR. The Company entered into an employment agreement with
Mr. Taylor dated November 19, 1997. Mr. Taylor voluntarily terminated his
employment with the Company on May 1, 1999. Upon his termination, Mr. Taylor
entered into a Severance Agreement with the Company. Under his Severance
Agreement, Mr. Taylor is entitled to receive (i) base salary through the
effective date of Mr. Taylor's termination, (ii) salary continuation through
November 4, 2000, (iii) his bonus for fiscal year 1999 in the amount of
$122,500, prorated through April 30, 1999 and (iv) continued coverage through
November 4, 2000 under the Company's benefit plans. The non-competition,
non-solicitation and mitigation provisions of Mr. Taylor's employment agreement
were waived by the Company. In addition, Mr. Taylor entered into a consulting
agreement with the Company whereby he provided consulting services to the
Company during the months of May, June and July for a fee of $10,000 per month.
5
<PAGE>
In connection with the termination of his employment, Mr. Taylor received
severance compensation in accordance with the terms of his employment agreement
with the Company until the time of the Chapter 11 Filings, at which time all
payments of severance compensation were terminated.
COMPENSATION OF OUTSIDE DIRECTORS
Upon their election to the Board of Directors, non-employee directors
receive options to purchase 15,000 shares of Common Stock. In addition, on the
date of each subsequent annual meeting of stockholders, directors who were not
initially elected to the Board of Directors during the previous six months,
receive options to purchase an additional 6,000 shares of Common Stock. The
exercise price of the options is equal to the fair market value of the Common
Stock on the date of grant, and the options vest in 25% annual increments
beginning on the first anniversary of the date of grant.
In addition to the option grants described above, each non-employee
director receives an annual retainer of $25,000 in four quarterly installments.
Committee chairmen receive an additional $5,000 per calendar. Non-employee
directors also receive $1,500 per Board meeting attended, $1,000 per committee
meeting attended and $500 for each telephonic meeting in which they participate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the Company's fiscal year ended September 30, 1999, the Compensation
Committee was composed of Messrs. Copses (Chairman), Berg and Kanter. None of
such directors had any "interlock" relationship to report during the fiscal year
ended September 30, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of September 29, 2000, the number and
percentage of shares of Common Stock beneficially owned (as defined in Rule
13d-4 adopted under the Securities Exchange Act of 1934) by (i) all persons
known to the Company to own beneficially more than 5% of the Common Stock of the
Company; (ii) each of the Company's directors; (iii) the Company's current and
former Chief Executive Officers and the executive officers named in the Summary
Compensation Table elsewhere in this Proxy Statement; and (iv) all current
directors and current and former executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
BENEFICIAL OWNER SHARES OWNED OWNED
----------------- ---------------- ------------
<S> <C> <C>
Credit Suisse First Boston..................................................... 16,364,771 22.2%
11 Madison Avenue, New York, New York 10010-3629
Francis W. Cash................................................................ 0 *
Keith B. Pitts................................................................. 0 *
George D. Morgan............................................................... 87,500(1) *
Susan Thomas Whittle........................................................... 45,975(2) *
C. Christian Winkle............................................................ 62,500(3) *
Arthur W. Stratton, Jr., M.D................................................... 0 *
R. Jeffrey Taylor.............................................................. 0 *
Gene E. Burleson............................................................... 645,433(4) *
Joel S. Kanter................................................................. 216,800(5) *
William G. Petty, Jr........................................................... 489,515(6) *
All current directors and executive officers as a group (7 persons)............ 1,547,723(7) 2.10%
--------------
</TABLE>
* Represents less than one percent of the outstanding shares of Common Stock
at September 29, 2000
(1) Includes exercisable options to purchase 62,500
shares of Common Stock.
(2) Includes exercisable options to purchase 44,375 shares of Common Stock,
as well as 600 shares held in an estate over which Ms. Whittle has
beneficial ownership and as to which Ms. Whittle has sole voting power
and sole dispositive power.
(3) Represents options to acquire shares of Common Stock.
(4) Includes exercisable options to purchase 227,004
shares of Common Stock.
6
<PAGE>
(5) Includes 95,000 shares owned of record by the Kanter Family Foundation; 3
shares owned of record by Walnut Capital, over which Mr. Kanter has sole
voting power and sole dispositive power and as to which Mr. Kanter
disclaims beneficial ownership; 80,000 shares owned of record by Windy
City, Inc., over which Mr. Kanter has sole voting power and sole
dispositive power and as to which Mr. Kanter disclaims beneficial
ownership; 1,000 shares owned in Mr. Kanter's spouse's individual
retirement account. Also includes exercisable options to purchase 36,444
shares of Common Stock.
(6) Includes 288,942 shares owned of record by a trust of which Mr. Petty is
a beneficiary over which Mr. Petty has sole voting power and sole
dispositive power, 102,960 shares owned by his spouse and exercisable
options to purchase 92,565 shares of Common Stock.
(7) Includes 525,388 shares subject to exercisable options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AGREEMENTS WITH APOLLO
The Company was previously a party to certain agreements with Apollo
Management, L.P., certain of their affiliates and certain other investors
entered into in connection with the November 4, 1997 recapitalization of Living
Centers of America, Inc. ("Living Centers") and subsequent acquisition by Living
Centers of GranCare, Inc. these included (i) a Stockholders Agreement dated
November 4, 1997, as amended (the "Stockholders Agreement") and (ii) a Proxy and
Voting Agreement dated November 4, 1997, as amended (the "Proxy and Voting
Agreement"). The Stockholders Agreement and Proxy and Voting Agreement
(collectively the "Agreements") were terminated on December 20, 1999. The
Agreements provided for, among other things, Apollo's right to designate members
for election to the Company's Board of Directors, certain standstill provisions
and control of certain of the shares of Company Common Stock by Apollo. Apollo
sold its shares of Company Common Stock to Credit Suisse First Boston in
December 1999. On January 2, 2000, the members of the Company's Board of
Directors appointed by Apollo resigned.
CERTAIN ARRANGEMENTS WITH THE KELLETTS AND THEIR AFFILIATES
Samuel B. Kellett resigned from the Company's Board of Directors
effective August 31, 2000. In January 1996, Mariner Health Group, Inc. ("Mariner
Health") engaged in a merger transaction (the "CSI Merger") with Convalescent
Services, Inc. ("CSI"), an entity owned by Samuel B. Kellett and Stiles A.
Kellett, Jr. (collectively, the "Kelletts"). Samuel B. Kellett is a member of
the Company's Board of Directors. In addition to the CSI Merger, Mariner Health
acquired certain assets consisting of the skilled nursing facilities known as
Arlington Heights Nursing Center in Fort Worth, Texas, and Randol Mill Manor in
Arlington, Texas. Prior to the CSI Merger, these facilities were leased by CSI
from partnerships owned by the Kelletts. As part of the aforementioned asset
purchase transaction, Mariner Health made interest-free loans to the
partnerships that owned Arlington Heights Nursing Center (the "Arlington Heights
Partnership") and Randol Mill Manor, in the principal amounts of $955,521 (the
"Arlington Heights Note") and $663,256 (the "Randol Mill Note" together with the
Arlington Heights Note, the "Kellett Partnership Notes"), respectively, which
mature on May 24, 1999 and 2000, respectively. The Kelletts have personally
guaranteed the repayment of these loans.
On October 13, 1999, Mariner Health delivered to the Arlington Heights
Partnership a demand for payment of the Arlington Heights Promissory Note that
matured on May 24, 1999, as well as a demand for performance by the Kelletts of
their obligations arising pursuant to their respective personal guarantees of
such note. The Kelletts have advised Mariner Health that the promissory note
will not be paid and that they will not fulfill their obligations arising under
their personal guarantees. The Kelletts have asserted that certain partnerships
controlled by the Kelletts that own nursing facilities previously managed by
Mariner Health incurred damages as a result of certain alleged acts of
mismanagement by Mariner Health. The Kelletts further allege that the amount of
such alleged damages exceeds, in the aggregate, the outstanding principal
amounts of both promissory notes, and that such damages can be offset against
any obligations of the Kelletts or the Arlington Heights Partnership under the
above note. Mariner Health disputes the alleged mismanagement and the Kelletts'
right to offset any such alleged damages against the obligations relating to the
note or the Kelletts' guarantee thereof. The Arlington Heights Note provides
that, as a result of the failure to pay the promissory note at maturity, the
note will accrue interest from May 24, 1999 at the lesser of 12% per annum or
the maximum interest rate allowed by applicable law. The terms of such note also
provide that Mariner Health is entitled to reimbursement for all collection
costs, including reasonable attorney's fees and court costs.
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Also in connection with the CSI Merger, Mariner Health entered into
leases for 14 skilled nursing facilities (collectively, the "Leased Facilities")
from partnerships owned or controlled by the Kelletts. Most of the leases for
the Leased Facilities (the "Leases"), certain of which were amended in
connection with the Mariner Merger as described below, have a base term of eight
years and four months from January 2, 1996 as well as three five-year renewal
terms at the option of Mariner Health, except that the Lease for Mariner Health
of Tallahassee has a term of seven years and four months with two five-year
renewal terms; Mariner Health of Woodwind Lakes, a term of eight years and four
months with one five-year renewal term; Mariner Health of North Dallas, a term
of eight years and four months with two five-year renewal terms; Mariner Health
of Belleair, a term of thirteen years and four months with three five-year
terms; Mariner Health of Port Charlotte, a term of thirteen years and four
months with two five-year renewal terms; and Mariner Health of Denver, a term of
eighteen years and four months with one five-year renewal term. Each Lease
provides for a fixed rent, which will not increase over the base or renewal
terms of such Lease. The aggregate annual rent for the Leased Facilities is
approximately $8.0 million. In addition to paying scheduled rent for each Leased
Facility, Mariner Health is required to pay all utilities, insurance and
property taxes and to maintain the condition of the Leased Facility. On March
30, 2000, the Bankruptcy Court approved the rejection and termination of the
lease relating to the Bethany facility. As of September 11, 2000, the management
of the Bethany facility was transitioned to a manager designated by the
Kelletts.
In addition, Mariner Health managed certain nursing facilities on behalf
of partnerships controlled by the Kelletts, for which Mariner Health earned
approximately $350,000 in the aggregate during the fiscal year ended September
30, 1999. As a result of certain disagreements with Mariner Health, the Kelletts
terminated all of the management arrangements during fiscal 1999. As of
September 30, 1999, Mariner Health believes that it is owed approximately
$600,000 in unpaid management fees.
Under the subject management arrangements, the owner of the managed
facility is responsible for the fees and expenses of the managed facility, which
were generally paid by Mariner Health and reimbursed by the owner. As of
September 30, 1999, Mariner Health believes that it is owed approximately $3.1
million, net of payables owing to the Kelletts or Kellett partnerships, in
respect of these working capital advances primarily related to for units
that were vacated in accordance with membership agreements and recoupment
requirements from a third party intermediary. Mariner Health and the Kelletts
are presently in discussions regarding the actual amounts owed to Mariner
Health. Mariner Health also provided rehabilitation therapy services to one of
the managed facilities, for which Mariner Health received approximately $500,000
during the fiscal year ended September 30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the Registrant
and in the capacity and on the date indicated.
MARINER POST-ACUTE NETWORK, INC.
(Registrant)
By: /S/ SUSAN THOMAS WHITTLE
----------------------------------------
Susan Thomas Whittle
Executive Vice President, General Counsel
and Secretary
Date: September 29, 2000
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