SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- - ----- EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
_____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 NO. 06-1251310
-------- --------------
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
125 EUGENE O'NEILL DRIVE, NEW LONDON, CONNECTICUT 06320
-------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(860)701-2000
-------------
(TELEPHONE NUMBER, INCLUDING AREA CODE)
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
--- ---
28,530,649 SHARES OF COMMON STOCK, $.01 PAR VALUE, WERE OUTSTANDING AT MAY 10,
1996.
MARINER HEALTH GROUP, INC.
- - ------------------------------------------------------------------------------
FORM 10-Q - MARCH 31, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 1995 AND MARCH 31, 1996 1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 2
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND 1996 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4-5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12-13
SIGNATURES
</TABLE>
MARINER HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---------------------- ------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,086 $ 2,184
Accounts receivable, less allowance for doubtful accounts of $10,078
and $12,275, respectively 92,537 108,556
Estimated settlements due from third-party payors 12,915 27,375
Prepaid expenses and other current assets 6,757 14,307
Deferred income tax benefit 9,918 9,218
---------------------- ------------------
Total current assets 126,213 161,640
Property, plant, and equipment, net 174,486 308,858
Goodwill, net of accumulated amortization of $19,084 and $6,102, respectively 78,212 159,938
Intangible and other assets, net of accumulated amortization of $6,550
and $4,868 respectively 30,144 14,524
Restricted cash and cash equivalents 1,198 1,568
Deferred income tax benefit 1,273 1,556
---------------------- ------------------
Total assets $411,526 $648,084
====================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations $ 5,156 $ 5,359
Accounts payable 10,904 29,850
Accrued payroll 6,072 8,428
Accrued vacation 5,053 7,246
Other accrued expenses 22,808 32,410
Deferred income taxes 987 987
Other liabilities 1,085 6,108
---------------------- ------------------
Total current liabilities 52,065 90,388
Long-term debt and capital lease obligations,
less current portion 107,910 239,302
Deferred income taxes 6,007 9,149
Deferred gain 2,122 2,082
Redeemable stock and other long-term liabilities 1,030 1,633
-------------------- ------------------
Total liabilities 169,134 342,554
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value; 50,000,000 shares authorized;
22,540,010 issued and outstanding at December 31, 1995 and
28,511,361 shares issued and outstanding at March 31, 1996. 225 285
Additional paid-in capital 247,357 308,388
Unearned compensation (15) (13)
Accumulated deficit (5,175) (3,130)
---------------------- ------------------
Total stockholders' equity 242,392 305,530
---------------------- ------------------
Total liabilities and stockholders' equity $411,526 $648,084
====================== ==================
See accompanying notes
</TABLE>
1
MARINER HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
----------------- -----------------
<S> <C> <C>
Net patient service revenue $ 79,339 $132,629
Other income 820 2,550
----------------- -----------------
Total operating revenue 80,159 135,179
----------------- -----------------
Operating expenses:
Facility operating costs 62,822 104,591
Corporate general and administrative 6,548 17,227
----------------- -----------------
69,370 121,818
----------------- -----------------
Interest expense, net 279 4,392
Facility rent expense, net 355 474
Depreciation and amortization 2,660 5,196
----------------- -----------------
Total operating expenses 72,664 131,880
----------------- -----------------
Income before income taxes 7,495 3,299
Provision for income taxes 2,876 1,254
----------------- -----------------
Net income $ 4,619 $ 2,045
================= =================
Net income per common and common equivalent share:
Weighted average common and common equivalent
shares outstanding 22,677,000 29,235,065
================= =================
Net income per common and common
equivalent share $ 0.20 $ 0.07
================= =================
See accompanying notes
</TABLE>
2
MARINER HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
---------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,619 $ 2,045
Adjustments to reconcile net income to cash provided by operating
activities:
Depreciation and amortization 2,661 5,195
Provision for losses on accounts receivable 499 740
Amortization of deferred gain (143) (40)
Non-cash charge for warrants issued -- 850
Amortization of deferred financing costs -- 195
Charge for abandonment of assets -- 1,061
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (10,148) 1,176
Increase in estimated settlements from third parties (3,361) (4,176)
(Increase) decrease in prepaid expenses and other current assets (730) 1,955
Increase (decrease) in accounts payable (399) 2,227
Increase in accrued liabilities 1,776 4,090
Increase in other current liabilities 254 1,598
----- -----
Net Cash (Used by) Provided by Operating Activities (4,970) 16,916
------ ------
Cash flows from investing activities:
Purchase of plant, property and equipment (2,374) (3,500)
Cash paid for acquisitions (2,618) (43,478)
Working capital deficits acquired -- (4,491)
Increase in intangible and other assets (1,178) (5,273)
------ ------
Net cash used by investing activities (6,170) (56,742)
------ -------
Cash flows from financing activities:
Drawings on line of credit borrowings -- 66,381
Cash deposits applied to capital lease obligation -- (13,155)
Repayments of long term debt and capital lease obligations (461) (15,890)
Proceeds from exercise of employee stock options 908 333
Shares issued under employee stock purchase plan -- 156
Decrease in restricted cash 232 99
------ ------
Net Cash Provided by Financing Activities 679 37,924
------ ------
Decrease in cash and cash equivalents (10,461) (1,902)
Cash and cash equivalents at beginning of period 37,209 4,086
------- -----
Cash and cash equivalents at end of period $ 26,748 $ 2,184
====== =====
See accompanying notes
</TABLE>
3
MARINER HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements as of and for the periods ended
March 31, 1995 and 1996 are unaudited. All adjustments and accruals
have been made which, in the opinion of management, are necessary for a
fair presentation. In addition to normal, recurring adjustments,
corporate general and administrative expenses for the first three
months of 1996 included a charge of $6,511,000 composed of $5,661,000
related to the pooling of interests with MedRehab and a charge of
$850,000 for warrants issued in connection with a preferred provider
agreement. Results of operations for the period ended March 31, 1996
are not necessarily indicative of those expected for any future period.
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and
the rules and regulations of the Securities and Exchange Commission.
These financial statements have been prepared with the assumption that
users of the interim financial information have either read or have
access to the Company's audited consolidated financial statements for
the year ended December 31, 1995. Accordingly, footnote disclosures
which would substantially duplicate the disclosures contained in the
Company's December 31, 1995 audited consolidated financial statements
have been omitted from these unaudited interim consolidated financial
statements. Certain information and footnote disclosures normally
included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to such instructions, rules and regulations. Although the
Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these
unaudited interim consolidated financial statements be read in
conjunction with the audited consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10 - K,
as amended, for the year ended December 31, 1995.
The unaudited interim consolidated financial statements of the Company
have been prepared to give retroactive effect to the merger with
MedRehab, Inc. ("MedRehab") which was accounted for as a pooling of
interests. Accordingly, the accompanying unaudited consolidated
financial statements have been restated to include the accounts and
operations of MedRehab for all periods presented.
2. On March 1, 1996, the Company consummated a merger with MedRehab. The
tax-free, stock-for-stock transaction was accounted for as a pooling of
interests. In total, an aggregate of approximately 2,312,500 shares of
Mariner Common Stock were exchanged for all outstanding shares of
MedRehab capital stock or will be issued upon exercise of options to
purchase shares of MedRehab capital stock. The results of MedRehab
prior to the merger included in the restated financial statements have
not been separately disclosed as they are immaterial to the results of
the combined company. The historical financial statements of the
Company for all periods presented give retroactive effect to the
MedRehab merger.
3. In January 1996, Mariner completed the merger with Convalescent
Services, Inc. ("CSI") and its acquisition of certain related assets.
In the merger, all of the issued and outstanding shares of capital
stock of CSI were converted into the right to receive an aggregate of
5,853,656 shares of the Company's Common Stock and $7,000,000 in cash.
In connection with the CSI Merger, Mariner acquired certain assets that
are related to CSI's business from affiliates of CSI's stockholders for
an aggregate of approximately $17,694,000 in cash and loaned an
aggregate of $1,619,000 to the partnerships that sold certain assets to
the Company. In addition, the Company acquired options to purchase 12
of the facilities leased by CSI from affiliates of CSI's stockholders
at fair market value and made nonrefundable deposits of an aggregate of
$13,155,000 with the lessors of the facilities subject to such options.
The options are exercisable during specified periods between 1998 and
2010. The aggregate estimated
4
fair market value as of the earliest exercise date of the options of,
and the aggregate purchase price for, the 12 facilities subject to the
options is approximately $59,585,000 (which includes the deposit of
$13,155,000 paid by the Company in May 1995). Mariner financed the cash
consideration paid in these transactions with borrowings under the
Company's credit facility.
4. In January 1996, Mariner entered into an agreement to be the preferred
provider of subacute services to AmHS/Premier/Sun Health ("APS"), which
is the largest hospital-health care alliance in the United States with
approximately 1,700 member hospitals. As the preferred subacute
provider, Mariner may contract individually with member hospitals and
systems to provide subacute services. This agreement provides the
Company the opportunity to more quickly expand its services in certain
of its existing markets and enter new markets with lower capital
commitments. Pursuant to this arrangement, an APS affiliate was granted
warrants to purchase 210,000 shares of Mariner Common Stock at an
exercise price of $11.375 per share, as well as warrants to purchase up
to an additional 1,890,000 shares of Mariner Common Stock over a five
year period depending on the performance of the arrangements between
Mariner and APS-affiliated facilities. The Company recorded a charge of
approximately $850,000 in the first quarter of 1996 as a result of the
210,000 warrants granted. The Company will receive management fees
under the agreements it enters with APS-affiliated facilities based on
a percentage of such facility's revenues specified in the agreement.
5
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated historical
financial data as percentages of total operating revenue for the three months
ended March 31, 1995 and 1996 and the percentage changes in the dollar amounts
of revenues and expenses for the first three months of 1995 as compared to the
first three months of 1996.
<TABLE>
<CAPTION>
Three
Months Ended Percentage Increase
(Decrease)
March 31, Three Months Ended
------------------------------------
1995 1996 1996 over 1995
--------------
---------- -------------
Revenues:
<S> <C> <C> <C>
Net patient service revenue 99.0% 98.1% 67.2%
Other income 1.0 1.9 211.0
---------- -------------
Total operating revenue 100.0% 100.0% 68.6
Operating expenses:
Facility operating costs 78.4% 77.4% 66.5
Corporate general and administrative 8.2 12.7 163.1
Interest expense, net 0.3 3.2 1,474.2
Facility rent expense, net 0.4 0.4 33.5
Depreciation and amortization 3.3 3.9 95.3
---------- -------------
Total operating expenses 90.6% 97.6% 81.5
---------- -------------
Income before income taxes 9.4% 2.4% (56.0)
---------- -------------
</TABLE>
6
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
REVENUE. Total operating revenues increased 69% from $80,159,000 during
the three months ended March 31, 1995 to $135,179,000 during the three months
ended March 31, 1996.
Net patient service revenue increased by approximately $53,290,000, or
67% from the first quarter of 1995 to the first quarter of 1996. Net patient
service revenue includes revenue from basic medical and ancillary services
provided by the Company, including rehabilitation, pharmacy and infusion therapy
services and the provision of medical equipment and supplies. The increase was
primarily the result of the inclusion in 1996 of revenues from 31 facilities,
two pharmacies and several home health care agencies acquired after March 31,
1995, increased revenues per rehabilitation site as well as continued
improvements in payor mix at existing facilities. The revenue increase was
partially offset by reductions due to the cancellation or non-renewal of
contracts for certain rehabilitation programs.
Other income aggregated $2,550,000 during the quarter ended March 31,
1996. These revenues were generated from the Company's management activities
related to subacute care units and facilities and consulting fees generated from
providing services to certain rehabilitation contract clients.
FACILITY OPERATING COSTS. Facility operating costs consist primarily of
employee salaries, wages and benefits, food, ancillary supplies, pharmacy
supplies and plant operations. Most clinical staff and rehabilitation therapists
are paid an hourly wage. Salaries, wages and benefits as a percentage of
revenues are higher at newly opened facilities, which require a basic complement
of staff on the day the program opens regardless of the patient census, than at
continuing facilities. As the patient census increases and the payor mix
improves at its inpatient facilities, the Company has experienced decreases in
such expenses as a percent of revenues at those facilities. Various other types
of operating expenses, including medical supplies, pharmacy supplies,
nutritional support services and expenses associated with the provision of
ancillary services, vary more directly with patient census as well as general
rates of inflation.
Facility operating costs increased 67% from $62,822,000 in the first
quarter of 1995 to $104,591,000 in the first quarter of 1996. The increase was
principally the result of the inclusion of expenses for 31 facilities, two
pharmacies and several home health care companies purchased after March 31,
1995, as well as providing more ancillary medical services and adding therapists
and aides to service new rehabilitation programs. As a percentage of total
operating revenues, these costs were 78% and 77% in the first quarters of 1995
and 1996, respectively.
7
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses include the expenses of the Company's corporate office,
which provides marketing, financial and management services, and the expenses
associated with managing subacute care units and facilities. These expenses
increased 163% from $6,548,000 in the first quarter of 1995 to $17,227,000 in
the first quarter of 1996. Corporate general and administrative expenses for the
first three months of 1996 included a charge of $6,511,000 composed of
$5,661,000 related to the pooling of interests with MedRehab and a charge of
$850,000 for warrants issued in connection with a preferred provider agreement.
The remaining increase was primarily the result of incremental corporate
personnel to support the additional businesses acquired and opened during 1995
and 1996. As a percentage of total revenues, these expenses were approximately
8% and 13% in the first quarters of 1995 and 1996, respectively.
INTEREST EXPENSE, NET. Net interest expense increased from $279,000 in
the first quarter of 1995 to $4,392,000 in the first quarter of 1996. This
increase from 1995 to 1996 was primarily attributable to higher outstanding
balances under the Company's credit facility which were used to fund
acquisitions and working capital as well as the inclusion in 1996 of the
interest expense on capital leases incurred in connection with the acquisition
of the CSI facilities.
FACILITY RENT EXPENSE, NET. The Company incurred $474,000 of rent
expense in the first quarter of 1996 related to a facility leased under a
sale/leaseback arrangement and two facilities leased from former CSI affiliates.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 95% from $2,660,000 in the first quarter of 1995 to $5,196,000 in the
first quarter of 1996, principally as the result of acquisitions of facilities,
pharmacies and home health care companies completed after the first quarter of
1995.
PROVISION FOR INCOME TAXES. The effective tax rate for the first
quarter of 1995 and 1996, was 38%. The Company currently expects its effective
tax rate to range from 38% to 41% in 1996 as the impact of the use of net
operating losses acquired in conjunction with the MedRehab merger is uncertain.
LIQUIDITY AND CAPITAL RESOURCES
Mariner has financed its operations, acquisitions and capital
expenditures primarily from cash provided by operations and proceeds from stock
issuances and borrowings. As of March 31, 1996, working capital and cash and
cash equivalents were $71,252,000 and $2,184,000, respectively.
Mariner has a $200,000,000 senior secured revolving credit facility
with a syndicate of banks (the "Credit Facility"). As of April 30, 1996, the
Company entered into an amendment to the Credit Facility to increase the size of
the Credit Facility to $200,000,000 from $175,000,000, extend the maturity of
the Credit Facility and reduce certain restrictions that the Credit Facility
imposes on the operations of the business of the Company and its subsidiaries.
As of December 31, 1995 and March 31, 1996, principal balances outstanding under
the Credit Facility were approximately $64,500,000 and $130,500,000,
respectively, and letters of credit outstanding under this facility were
$2,612,000. On April 5, 1996, the Company repaid all outstanding indebtedness
(other than letters of credit outstanding under the Credit Facility) under the
Credit Facility with proceeds from the offering of the Notes described below.
Mariner has used, and intends to continue to use, borrowings under the Credit
Facility to finance the acquisition and development of additional subacute care
facilities and related businesses, and for general corporate purposes, including
working capital. Mariner's obligations under the Credit Facility are
collateralized by a pledge of the stock of its subsidiaries and are guaranteed
by all of the Company's subsidiaries. In addition, the Credit Facility is
secured by mortgages on certain of the Company's inpatient facilities, leasehold
mortgages on
8
certain inpatient facilities leased by the Company, and security interests in
certain other properties and assets of the Company and its subsidiaries. The
Credit Facility matures on April 30, 1999 and provides for prime or LIBOR-based
interest rate options. The borrowing availability and rate of interest varies
depending upon specified financial ratios. The Credit Facility also contains
covenants which, among other things, require the Company to maintain certain
financial ratios and impose certain limitations or prohibitions on the Company
with respect to the incurrence of indebtedness, senior indebtedness, liens and
capital leases; the payment of dividends on, and the redemption or repurchase
of, its capital stock; investments and acquisitions, including acquisitions of
new facilities; the merger or consolidation of the Company with any person or
entity; and the disposition of any of the Company's properties or assets.
The Company is currently negotiating the terms of an amendment to
further increase the size of the Credit Facility to $250 million and further
reduce certain restrictions imposed by the Credit Facility on the Company and
its subsidiaries. No assurance can be given that the Company will enter into any
such amendment.
On April 4, 1996, the Company sold $150,000,000 aggregate principal
amount of its 9-1/2% Senior Subordinated Notes due 2006 (the "Notes"). The Notes
mature on April 1, 2006. The Notes are uncollateralized senior subordinated
obligations of Mariner and, as such, are subordinated in right of payment to all
existing and future senior indebtedness of Mariner, including indebtedness under
the Credit Facility. From the net proceeds of approximately $144,456,000 from
the sale of the Notes, $131,000,000 was used to repay all outstanding
indebtedness under the Credit Facility (including interest and certain other
fees) and the remainder was used to pay a portion of the purchase price for the
1996 Florida Acquisition (as defined below). The Notes contain certain
covenants, including, among other things, covenants with respect to the
following matters: (i) limitation on indebtedness; (ii) limitation on restricted
payments; (iii) limitation on the incurrence of liens; (iv) restriction on the
issuance of preferred stock of subsidiaries; (v) limitation on transactions with
affiliates; (vi) limitation on sale of assets; (vii) limitation on other senior
subordinated indebtedness; (viii) limitation on guarantees by subsidiaries; (ix)
limitation on the creation of any restriction on the ability of the Company's
subsidiaries to make distributions; and (x) restrictions on mergers,
consolidations and the transfer of all or substantially all of the assets of the
Company to another person. The Notes were issued under an Indenture dated as of
April 4, 1996 by and among the Company and State Street Bank and Trust Company,
as trustee.
Accounts receivable (net of allowances) were $92,537,000 and
$108,556,000 at December 31, 1995 and March 31, 1996, respectively. Estimated
settlements due from third party payors aggregated $12,915,000 and $27,375,000
at December 31, 1995 and March 31, 1996, respectively. The increases primarily
reflect the addition of the CSI facilities. The number of days sales in accounts
receivable and estimated settlements due from third party payors was
approximately 96 at December 31, 1995 and 92 days March 31, 1996. This decrease
was primarily due to improved collections and completion of billing systems
conversions.
In March 1995, Mariner acquired a 60-bed skilled nursing facility
located in St. Petersburg, Florida, for $2,500,000 in available cash. In June
1995, Mariner purchased a 150-bed skilled nursing facility in Nashville,
Tennessee, for a total purchase price of approximately $8,500,000. The purchase
price was financed under the Credit Facility.
In June 1995, the Company purchased an 80,000 square-foot building in
New London, Connecticut to serve as its corporate headquarters. The purchase
price of the new building was
9
$3,050,000 and was financed under the Credit Facility. The Company completed the
relocation to its new headquarters in October 1995.
During the fourth quarter of 1995, Mariner completed its acquisition of
six skilled nursing facilities with an aggregate of 686 beds in central and
northern Florida. The purchase price for such transaction was $42,800,000,
consisting of the payment of $33,000,000 in cash, the assumption of debt in the
amount of $7,200,000 and the issuance of a note in the principal amount of
$2,600,000. The cash portion of the transaction was financed through borrowings
under the Credit Facility.
In October 1995, the Company acquired an institutional pharmacy
operation based in Dallas, Texas, for the total purchase price of approximately
$1,623,000. The purchase price was financed through the Company's Credit
Facility and the issuance of a note to the seller.
During the fourth quarter of 1995, the Company also borrowed
approximately $8,000,000 under the Credit Facility primarily to fund working
capital requirements.
In January 1996, Mariner completed the CSI merger and its acquisition
of certain related assets. In the merger, all of the issued and outstanding
shares of capital stock of CSI were converted into the right to receive an
aggregate of 5,853,656 shares of the Company's Common Stock and $7,000,000 in
cash. In connection with the CSI merger, Mariner acquired certain assets that
are related to CSI's business from affiliates of CSI's stockholders for an
aggregate of approximately $17,694,000 in cash and loaned an aggregate of
$1,619,000 to the partnerships that sold certain assets to the Company. In
addition, the Company acquired options to purchase 12 of the facilities leased
by CSI from affiliates of CSI's stockholders at fair market value and made
nonrefundable deposits of an aggregate of $13,155,000 with the lessors of the
facilities subject to such options. The options are exercisable during specified
periods between 1998 and 2010. The aggregate estimated fair market value as of
the earliest exercise date of the options of, and the aggregate purchase price
for, the 12 facilities subject to the options is approximately $59,585,000
(which includes a deposit of $13,155,000 paid by the Company). Mariner financed
the cash consideration paid in these transactions with borrowings under the
Credit Facility.
On March 1, 1996, the Company completed its merger with MedRehab Inc.
Mariner issued an aggregate of approximately 2,312,500 shares of its Common
Stock for all of MedRehab's outstanding capital stock and options to purchase
MedRehab capital stock in a merger that was accounted for as a pooling of
interests. In addition, the Company prepaid an aggregate principal amount of
approximately $14,000,000 of MedRehab's outstanding indebtedness at the closing
of the MedRehab Merger. The Company repaid this indebtedness with funds it
borrowed under the Credit Facility. Certain former MedRehab stockholders have
the right to require the Company to repurchase their shares of Mariner Common
Stock for approximately $1,500,000 during the period beginning June 30, 1996 and
ending July 31, 1996.
In May, 1996 the Company completed its acquisition of Regency Health
Care Centers, Inc. ("Regency"), which operates seven skilled nursing facilities
and one assisted nursing facility with an aggregate of 960 beds in Florida,
Tennessee and Kansas (the "1996 Florida Acquisition"). All of the issued and
outstanding shares of Regency common stock were converted into the right to
receive an aggregate of approximately $28,050,000 in cash. The Company financed
the consideration paid in the 1996 Florida Acquisition with a portion of the net
proceeds from the sale of the Notes and borrowings under the Credit Facility.
Mariner began managing the
10
facilities acquired in the 1996 Florida Acquisition on March 1, 1996 for a
monthly fee of 6.5% of net operating revenues of each facility.
In March 1996, Mariner acquired a primary care physician organization
in the Orlando, Florida area. In this transaction, Mariner issued an aggregate
of 48,722 shares of its Common Stock and paid an aggregate of approximately
$1,500,000 in cash which was financed under the Credit Facility.
During the first quarter of 1996, the Company also borrowed
approximately $8,000,000 under the Credit Facility primarily to fund working
capital requirements.
The Company's capital expenditures for the quarter ended March 31, 1996
were approximately $3,500,000. The Company has currently budgeted approximately
$30,000,000 for capital expenditures during 1996. The Company's currently
planned capital expenditures include approximately $10,100,000 for upgrading the
Company's information systems, approximately $4,200,000 for dererred maintenance
for the inpatient facilities owned or leased by CSI and approximately
$15,700,000 for expansion of existing facilities and other construction, as well
as the costs of maintaining the Company's inpatient facilities and offices. The
Company currently estimates that it spends approximately $300 per bed per year
for maintenance of its inpatient facilities.
The Company intends to expand its clinical programs in strategically
selected metropolitan areas throughout the United States. The Company also
intends to expand its pharmacy, home care, physician practice management and
rehabilitation services. In addition to acquiring individual facilities, Mariner
may acquire businesses that operate multiple facilities or ancillary health care
services businesses. The Company continuously identifies and evaluates potential
acquisition candidates and, in many cases, engages in discussions and
negotiations regarding potential acquisitions. There can be no assurance that
any of the Company's discussions or negotiations will result in an acquisition.
Further, if the Company makes any acquisitions, there can be no assurance that
it will be able to operate any acquired facilities or businesses profitably or
otherwise successfully implement its expansion strategy.
Mariner believes that its future capital requirements will depend upon
a number of factors, including cash generated from operations and the rate at
which it acquires additional inpatient facilities or other health care services
businesses and the rate at which it adds rehabilitation programs. Mariner
expects to fund such capital expenditures with borrowings under its Credit
Facility, its existing cash resources and cash from operations. Mariner
currently believes that the cash from operations, its existing cash resources
and borrowings under the Credit Facility will be sufficient to meet its needs
for the foreseeable future.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934, including statements regarding, among other items, anticipated trends
in the Company's business and financial performance. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described in "Risk Factors" (included in
Amendment No. 1 on Form 10-K/A to the Company's Annual Report on Form 10-K filed
on April 9, 1996 with respect to the year ended December 31, 1995) including,
among others (i) changes in the health care industry as a result of political,
economic or regulatory influences; (ii) changes in regulations governing the
health care industry; and (iii) changes in the competitive marketplace. In light
of these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this Report will in fact transpire.
11
PART II
OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
The exhibits which are filed with this report, or are incorporated by
reference into this report, are set forth on the Exhibit Index which appears on
page 13 of this report.
(b) Reports on Form 8-K.
January 2, 1996. Item 2 - Acquisition or Disposition of Assets, to
disclose the consummation of the merger of Blue Corporation with and into
Convalescent Services, Inc. ("CSI") and the acquisition of certain related
assets, and Item 5 - Other Events, to disclose the amendment of the Company's
Credit Facility with PNC Bank, N.A., as Agent, to increase the borrowing
capacity thereunder from $120,000,000 to $175,000,000 and Item 7 - Financial
Statements, Pro Forma Financial Information and Exhibits, to disclose certain
financial information relating to CSI.
March 29, 1996. Item 5 - Other Events, to (i) disclose certain
financial and other information relating to the proposed acquisition by Mariner
of Regency Health Care Centers, Inc. ("Regency"), (ii) update the disclosure of
certain financial information relating to the acquisition by Mariner of CSI by
supplementing the historical financial statements of CSI appearing in the
Company's Current Report on Form 8-K dated January 2, 1996, (iii) supplement
certain interim financial information of (x) Heritage Health Care Centers of
Central Florida, Inc., (y) Heritage Health Care Center of Baker County, Inc. and
(z) Inverness Health Care, A Limited Partnership d/b/a Heritage Health Care
Center, appearing in the Company's Current Report on Form 8-K/A dated October 2,
1995 and filed with the Securities and Exchange Commission on December 15, 1995
and (iv) disclose certain pro forma financial information relating to certain
recent and pending transactions by Mariner.
April 4, 1996. Item 5 - Other Events, to disclose the consummation of
the private placement by the Company of $150 million aggregate principal amount
of its 9-1/2% Senior Subordinated Notes due 2006 pursuant to Section 4(2) and
Rule 144A under the Securities Act of 1933.
April 30, 1996. Item 2 - Acquisition or Disposition of Assets, to
disclose the consummation of the merger of Regency with and into Mariner Health
of Florida, Inc., a wholly owned subsidiary of the Company, and the acquisition
of certain related assets, and Item 5 - Other Events, to disclose the amendment
of the Company's Credit Facility with PNC Bank, N.A., as Agent, to increase the
borrowing capacity thereunder from $175,000,000 to $200,000,000 and Item 7 -
Financial Statements, Pro Forma Financial Information and Exhibits, to disclose
certain financial information relating to Regency.
12
EXHIBIT INDEX
Number Description of Exhibits Page
- - ------ ----------------------- ----
10 Form of Employment Agreement between the Company and each of
Jeffrey W. Kinell, Lawrence R. Deering, Jennifer Gallagher,
Phyllis Madigan and certain other employees of the Company
11 Schedule of Computation of Net Earnings Per Share
27 Financial Statement Data Schedule
13
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED DULY THEREUNTO AUTHORIZED.
MARINER HEALTH GROUP, INC.
DATE ________________ BY ________________________________
Jeffrey W. Kinell
Treasurer and Chief Financial Officer
(Authorized officer and principal accounting
and financial officer)
14
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of __________, 1995 ("Agreement"),
by and between Mariner Health Group, Inc., a Delaware corporation (the
"Company"), and _______________________ (the "Executive"):
WITNESSETH:
WHEREAS, the Executive is a senior executive of the Company and has
made and is expected to continue to make major contributions to the
profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most publicly
held companies, the possibility of a Change in Control (as that term is
hereafter defined) exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management in the event of a Change in Control and desires
to establish certain minimum compensation rights of its key senior executive
officers, including the Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to ensure that its senior executives are
not practically disabled from discharging their duties upon a Change in Control;
WHEREAS, this Agreement is not intended to alter materially the
compensation and benefits which the Executive could reasonably expect to receive
from the Company absent a Change in Control and, accordingly, although effective
and binding as of the date hereof, this Agreement shall become operative only
upon the occurrence of a Change in Control; and
WHEREAS, the Executive is willing to render services to the Company on
the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Operation of Agreement. (a) This Agreement shall be effective and
binding immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement shall not become operative unless and
until there shall have occurred a Change in Control. For purposes of this
Agreement, a "Change in Control" shall have occurred if at any time during the
Term (as hereinafter defined) any of the following events shall occur:
(i) The Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
surviving, resulting or reorganized corporation or person immediately
after such transaction is held in the aggregate by the holders of the
then-outstanding securities entitled to vote generally in the election of
directors of the Company ("Voting Stock") immediately prior to such
transaction;
(ii) The Company sells or otherwise transfers all or substantially
all of its assets to any other corporation or other legal person, and as a
result of such sale or transfer less than a majority of the combined
voting power of the then-outstanding securities of such corporation or
person immediately after such sale or transfer is held in the aggregate by
the holders of Voting Stock of the Company immediately prior to such sale
or transfer;
(iii) There is a report filed on Schedule 13D or Schedule 14D-1
(or any successor schedule, form or report), each as promulgated pursuant
to the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
disclosing that any "person" (as such term is used in Section 13(d)(3) or
Section 14(d)(2) of the Exchange Act) has become the "beneficial owner"
(as such term is used in Rule 13d-3 under the Exchange Act) of securities
representing 35% or more of the Voting Stock of the Company;
(iv) The Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Exchange Act disclosing
in response to Form 8-K or Schedule 14A (or any successor schedule, form
or report or item therein) that a change in control of the Company has
occurred; or
(v) If during any period of two consecutive years, individuals who
at the beginning of any such period constitute the Board cease for any
reason to constitute at least a majority thereof, unless the election, or
the nomination for election by the Company's stockholders, of each
director of the Company first elected during such period was approved by a
vote of at least a majority of the directors then still in office who were
directors of the Company at the beginning of any such period;
provided, however, that a "Change in Control" shall not be deemed to have
occurred for purposes of this Agreement solely because (i) the Company, (ii) an
entity in which the Company directly or indirectly beneficially owns 50% or more
of the voting securities, or (iii) any Company-sponsored employee stock
ownership plan or any other employee benefit plan of the Company, either files
or becomes obligated to file a report or a proxy statement under or in response
to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report) under the Exchange Act, disclosing beneficial
ownership by it of shares of Voting Stock or because the Company reports that a
change in control of the Company has occurred by reason of such beneficial
ownership.
(b) Upon the occurrence of a Change in Control at any time during the
Term, this Agreement shall become immediately operative.
(c) The period during which this Agreement shall be in effect (the
"Term") shall commence as of the date hereof and shall expire as of the later of
(i) the close of business on December 31, 1996 and (ii) the expiration of the
Period of Employment (as hereinafter defined); provided, however, that (A)
commencing on January 1, 1997 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for an additional year unless, not
later than September 30 of the immediately preceding year, the Company or the
Executive shall have given notice that it or he, as the case may be, does not
wish to have the Term extended, and (B) subject to Section 9 hereof, if, prior
to a Change in Control, the Executive ceases for any reason to be an officer of
the Company, thereupon the Term shall be deemed to have expired and this
Agreement shall immediately terminate and be of no further effect.
2. Employment; Period of Employment. (a) Subject to the terms and
conditions of this Agreement, upon the occurrence of a Change in Control, the
Company shall continue the Executive in its employ and the Executive shall
remain in the employ of the Company for the period set forth in Section 2(b)
hereof (the "Period of Employment"), in the position and with substantially the
same duties and responsibilities that he had immediately prior to the Change in
Control, or to which the Company and the Executive may hereafter mutually agree
in writing. Throughout the Period of Employment, the Executive shall devote
substantially all of his time during normal business hours (subject to
vacations,
2
sick leave and other absences in accordance with the policies of the Company as
in effect for senior executives immediately prior to the Change in Control) to
the business and affairs of the Company, but nothing in this Agreement shall
preclude the Executive from devoting reasonable periods of time during normal
business hours to (i) serving as a director, trustee or member of or participant
in any organization or business so long as such activity would not constitute a
violation of Section 7 if conducted by the Executive after the Executive's
Termination Date (as hereinafter defined), (ii) engaging in charitable and
community activities, or (iii) managing his personal investments.
(b) The Period of Employment shall commence on the date of an
occurrence of a Change in Control and, subject only to the provisions of Section
4 hereof, shall continue until the earlier of (i) the expiration of the first
anniversary of the occurrence of the Change in Control, (ii) the Executive's
death, or (iii) the Executive's attainment of age 65; provided, however, that
commencing on each anniversary of the Change of Control, the Period of
Employment shall automatically be extended for an additional year unless, not
later than 90 calendar days prior to such anniversary date, either the Company
or the Executive shall have given written notice to the other that the Period of
Employment shall not be so extended.
3. Compensation During Period of Employment. (a) Upon the occurrence of
a Change in Control, the Executive shall receive during the Period of Employment
(i) annual base salary at a rate not less than the Executive's annual fixed or
base compensation (payable monthly or otherwise as in effect for senior
executives of the Company immediately prior to the occurrence of a Change in
Control) or such higher rate as may be determined from time to time by the Board
of Directors of the Company (the "Board") or the Compensation Committee thereof
(the "Committee") (which base salary at such rate is herein referred to as "Base
Pay") and (ii) an annual amount equal to not less than the highest aggregate
annual bonus, incentive or other payments of cash compensation in addition to
the amounts referred to in clause (i) above made or to be made in regard to
services rendered in any calendar year during the three calendar years
immediately preceding the year in which the Change in Control occurred pursuant
to any bonus, incentive, profit-sharing, performance, discretionary pay or
similar policy, plan, program or arrangement of the Company or any successor
thereto providing benefits at least as great as the benefits payable thereunder
prior to a Change in Control ("Incentive Pay"); provided, however, that with the
prior written consent of the Executive, nothing herein shall preclude a change
in the mix between Base Pay and Incentive Pay so long as the aggregate cash
compensation received by the Executive in any one calendar year is not reduced
in connection therewith or as a result thereof; and provided further, however,
that in no event shall any increase in the Executive's aggregate cash
compensation or any portion thereof in any way diminish any other obligation of
the Company under this Agreement.
(b) For his service pursuant to Section 2(a) hereof, during the Period
of Employment the Executive shall be a full participant in, and shall be
entitled to the perquisites, benefits and service credit for benefits as
provided under, any and all employee retirement income and welfare benefit
policies, plans, programs or arrangements in which senior executives of the
Company participate, including any stock option, stock purchase, stock
appreciation, savings, pension, supplemental executive retirement or other
retirement income or welfare benefit, deferred compensation, incentive
compensation, group and/or executive life, health, medical/hospital or other
insurance (whether funded by actual insurance or self-insured by the Company),
disability, salary continuation, expense reimbursement and other employee
benefit policies, plans, programs or arrangements that may now exist or any
equivalent successor policies, plans, programs or arrangements that may be
adopted hereafter by the Company providing perquisites, benefits and service
credit for benefits at least as great as are payable thereunder prior to a
Change in Control (collectively, "Employee Benefits"); provided, however, that
except as expressly provided in, and subject to the terms of, Section 5(a)(ii)
hereof, the Executive's rights thereunder shall be
3
governed by the terms thereof and shall not be enlarged hereunder or otherwise
affected hereby. Subject to the proviso in the immediately preceding sentence,
if and to the extent such perquisites, benefits or service credit for benefits
are not payable or provided under any such policy, plan, program or arrangement
as a result of the amendment or termination thereof, then the Company shall
itself pay or provide therefor. Nothing in this Agreement shall preclude
improvement or enhancement of any such Employee Benefits, provided that no such
improvement shall in any way diminish any other obligation of the Company under
this Agreement.
4. Termination Following a Change in Control. (a) In the event of the
occurrence of a Change in Control, the Executive's employment may be terminated
by the Company during the Period of Employment and the Executive shall not be
entitled to the benefits provided by Section 5 hereof only upon the occurrence
of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive shall become permanently
disabled within the meaning of, and begins actually to receive
disability benefits pursuant to, the long-term disability plan
in effect for senior executives of the Company immediately
prior to the Change in Control; or
(iii) For "Cause", which for purposes of this
Agreement shall mean, prior to any termination pursuant to
Section 4(b) hereof:
(A) the Executive's conviction of any crime
(whether or not involving the Company) which
constitutes a felony in the jurisdiction involved
(other than unintentional motor vehicle felonies);
(B) any intentional act of theft, fraud or
embezzlement by the Executive in connection with his
work with the Company;
(C) the Executive's continuing, repeated and
willful failure or refusal to perform his duties and
services under this Agreement (other than due to his
incapacity due to illness or injury), provided that
such failure or refusal continues uncorrected for a
period of 30 days after the Executive shall have
received written notice from the Board stating with
specificity the nature of such failure or refusal; or
(D) the Executive's violation of Section 7.
Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until there shall
have been delivered to him a copy of a resolution duly adopted
by the affirmative vote of not less than a majority of the
entire Board at a meeting of the Board called and held for
(but not necessarily exclusively for) that purpose (after
reasonable notice to Executive and an opportunity for
Executive, together with counsel of his choice, to be heard by
the Board) finding that Executive has, in good faith opinion
of the Board, engaged in conduct constituting Cause and
specifying the particulars thereof in reasonable detail.
4
(b) In the event of the occurrence of a Change in Control, during the
Period of Employment the Executive shall be entitled to the benefits as provided
in Section 5 hereof upon the occurrence of one or more of the following events:
(i) Any termination by the Company of the employment
of the Executive prior to the date upon which the Executive
shall have attained age 65, which termination shall be for any
reason other than for Cause or as a result of the death of the
Executive or by reason of the Executive's permanent disability
and the actual receipt of disability benefits in accordance
with Section 4(a)(ii) hereof; or
(ii) Termination by the Executive of his employment
with the Company within one year after the Change in Control
upon the occurrence of any of the following events:
(A) Failure to elect, reelect or otherwise
maintain the Executive in the office or position in
the Company which the Executive held immediately
prior to a Change in Control, or the removal of the
Executive as a Director of the Company (or any
successor thereto) if the Executive shall have been a
Director of the Company immediately prior to the
Change in Control;
(B) A significant adverse change in the
nature or scope of the authorities, powers,
functions, responsibilities or duties attached to the
position with the Company which the Executive held
immediately prior to the Change in Control, a
reduction in the aggregate of the Executive's Base
Pay and Incentive Pay received from the Company, or
the termination of the Executive's rights to any
Employee Benefits to which he was entitled
immediately prior to the Change in Control or a
reduction in scope or value thereof without the prior
written consent of the Executive, any of which is not
remedied within 10 calendar days after receipt by the
Company of written notice from the Executive of such
change, reduction or termination, as the case may be;
(C) A determination by the Executive made in
good faith that as a result of a Change in Control
and a change in circumstances thereafter
significantly affecting his position, including
without limitation a change in the scope of the
business or other activities for which he was
responsible immediately prior to the Change in
Control, he has been rendered substantially unable to
carry out, has been substantially hindered in the
performance of, or has suffered a substantial
reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to the
position held by the Executive immediately prior to
the Change in Control, which situation is not
remedied within 10 calendar days after written notice
to the Company from the Executive of such
determination;
(D) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or
transfer of all or a significant portion of its
business and/or assets, unless the successor or
successors (by liquidation, merger, consolidation,
reorganization or otherwise) to which all or a
significant portion of its business and/or assets
have been transferred (directly or by
5
operation of law) shall have assumed all duties and
obligations of the Company under this Agreement
pursuant to Section 11 hereof;
(E) The Company shall relocate its principal
executive offices, or require the Executive to have
his principal location of work changed, to any
location which is in excess of 25 miles from the
location thereof immediately prior to the Change of
Control or the Company shall require the Executive to
travel away from his office in the course of
discharging his responsibilities or duties hereunder
significantly more (in terms of either consecutive
days or aggregate days in any calendar year) than was
required of him prior to the Change of Control
without, in either case, his prior written consent;
or
(F) Without limiting the generality or
effect of the foregoing, any material breach of this
Agreement by the Company or any successor thereto.
(c) A termination by the Company pursuant to Section 4(a) hereof or by
the Executive pursuant to Section 4(b) hereof shall not affect any rights which
the Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company providing Employee Benefits, which rights shall be
governed by the terms thereof. If this Agreement or the employment of the
Executive is terminated under circumstances in which the Executive is not
entitled to any payments under Sections 3 or 5 hereof, the Executive shall have
no further obligation or liability to the Company hereunder with respect to his
prior or any future employment by the Company.
5. Severance Compensation. (a) If, following the occurrence of a Change
in Control, the Company shall terminate the Executive's employment during the
Period of Employment other than pursuant to Section 4(a) hereof, or if the
Executive shall terminate his employment pursuant to Section 4(b) hereof, the
Company shall pay to the Executive the amount specified in Section 5(a)(i)
hereof within five business days after the date (the "Termination Date") that
the Executive's employment is terminated (the effective date of which shall be
the date of termination or such other date that may be specified by the
Executive if the termination is pursuant to Section 4(b) hereof):
(i) In lieu of any further payments to the Executive
for periods subsequent to the Termination Date, but without
affecting the rights of the Executive referred to in Section
5(b) hereof, a lump sum payment (the "Severance Payment") in
an amount equal to the present value (using a discount rate
prescribed for purposes of valuation computations under
Section 280G of the Internal Revenue Code of 1986, as amended,
or any successor provision thereto, or if no such rate is so
prescribed, a rate equal to the then-applicable interest rate
prescribed by the Pension Benefit Guarantee Corporation for
benefit valuations in connection with non-multiemployer
pension plan terminations assuming the immediate commencement
of benefit payments (the "Discount Rate")) of the sum of (A)
the aggregate Base Pay (at the highest rate in effect for any
year prior to the Termination Date) which the Executive would
have received for a period of one year had such termination or
breach not occurred (the "Severance Period"), plus (B) the
aggregate Incentive Pay (based upon the greatest amount of
Incentive Pay paid or payable to the Executive for any year
during the Term but prior to the year in which the Termination
Date occurs), which the Executive would have received pursuant
to this Agreement during the Severance Period.
6
(ii) For the Severance Period the Company shall
arrange to provide the Executive with Employee Benefits
substantially similar to those which the Executive was
receiving or entitled to receive immediately prior to the
Termination Date (and if and to the extent that such benefits
shall not or cannot be paid or provided under any policy,
plan, program or arrangement of the Company solely due to the
fact that the Executive is no longer an officer or employee of
the Company, then the Company shall itself pay or provide for
the payment to the Executive, his dependents and
beneficiaries, such Employee Benefits); and without limiting
the generality of the foregoing, the Severance Period shall be
considered service with the Company for the purpose of service
credits under the Company's retirement income, supplemental
executive retirement and other benefit plans of the Company
applicable to the Executive or his beneficiaries immediately
prior to the Termination Date. Without otherwise limiting the
purposes or effect of Section 6 hereof, Employee Benefits
payable to the Executive pursuant to this Section 5(a)(ii) by
reason of any "welfare benefit plan" of the Company (as the
term "welfare benefit plan" is defined in Section 3(l) of the
Employee Retirement Income Act of 1974, as amended) shall be
reduced to the extent comparable welfare benefits are actually
received by the Executive from another employer during such
period following the Executive's Termination Date until the
expiration of the Period of Employment.
(iii) All outstanding stock options, warrants and the
like held by the Executive at the time of termination which
have not yet vested at the time of such termination shall
immediately be fully vested.
(b) Upon written notice given by the Executive to the Company prior to
the occurrence of a Change in Control, the Executive, at his sole option,
without reduction to reflect the present value of such amounts as aforesaid, may
elect to have all or any of the Severance Payment payable pursuant to Section
5(a)(i) hereof paid to him on a quarterly or monthly basis during the remainder
of the Period of Employment.
(c) There shall be no right of set-off or counterclaim in respect of
any claim, debt or obligation against any payment to or benefit for the
Executive provided for in this Agreement.
(d) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment required to be made hereunder on a
timely basis, the Company shall pay interest on the amount thereof at an
annualized rate of interest equal to the then-applicable Discount Rate.
6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult, and may be impossible, for the Executive to find reasonably
comparable employment following the Termination Date and that the Restrictive
Covenants (as hereinafter defined) contained in Section 7 hereof will further
limit the employment opportunities for the Executive. Accordingly, the parties
hereto expressly agree that the payment of the severance compensation by the
Company to the Executive in accordance with the terms of this Agreement will be
liquidated damages, and that the Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise, nor shall any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise, except as
expressly provided in Section 5(a)(ii) hereof.
7
7. Restrictive Covenants. (a) Executive acknowledges that (i) he has a
major responsibility for the operation, administration, development and growth
of the Company's business, (ii) the Company's business is or may become national
or international in scope, (iii) his work for the Company has brought him and
will continue to bring him into close contact with confidential information of
the Company and its customers, and (iv) the agreements and covenants contained
in this Section 7 are essential to protect the business interests of the Company
and that the Company will not enter into this Agreement but for such agreements
and covenants.
(b) (i) During the Period of Employment and, if the Company shall
terminate the Executive's employment during the Period of Employment other than
pursuant to Section 4(a) hereof or if the Executive shall terminate his
employment pursuant to Section 4(b) hereof, during the Severance Period, the
Executive shall not, directly or indirectly, perform any services in the United
States for any person or entity other than the Company that is in the business,
directly or indirectly, of providing health care services of the type the
Company is providing, or is contemplating providing, at the time of the
Executive's termination (the "Business"); or, without limiting the generality of
the foregoing, be or become or agree to be or become, interested in or
associated with, in any capacity (whether as a partner, shareholder, owner,
officer, director, employee, principal, agent, creditor, trustee, consultant,
co-venturer or otherwise) any individual, corporation, firm, association,
partnership, joint venture or other business entity that competes in the
Business; provided, however, that the Executive may own, solely as an
investment, not more than one percent (1%) of any class of securities of any
corporation that is publicly traded on any national securities exchange in the
United States of America or reported on the National Association of Securities
Dealers, Inc.'s Automated Quotation System.
(ii) During the Period of Employment and, if the Company
shall terminate the Executive's employment during the Period of Employment other
than pursuant to Section 4(a) hereof or if the Executive shall terminate his
employment pursuant to Section 4(b) hereof, during the Severance Period, the
Executive shall not, directly or indirectly, (i) induce or attempt to influence
any employee of the Company or any corporation, partnership or other entity
controlled by the Company (each, a "Subsidiary") to leave its employ, (ii) aid
or agree to aid any competitor, customer or supplier of the Company or its
Subsidiaries in any attempt to hire any person who shall have been employed by
the Company or its Subsidiaries within the one-year period preceding such
requested aid, or (iii) induce or attempt to influence any person or business
entity who was a customer of the Company or its Subsidiaries during [any portion
of the Term or] the Termination Period to transact business with a competitor of
the Company in the Company's business.
(iii) During the Period of Employment, the Termination
Period and thereafter, the Executive shall not disclose to anyone any material
information about the affairs of the Company or its Subsidiaries, including
trade secrets, trade "know-how," inventions, customer lists, business plans,
operational methods, pricing policies, marketing plans, sales plans, identity of
customers, sales, profits or other financial information which is confidential
to the Company or is not generally known in the relevant trade.
(c) If the Executive breaches, or threatens to commit a breach of
Section 7(b) (the "Restrictive Covenants"), the Company shall have the following
rights and remedies, each of which shall be in addition to any other rights and
remedies available to the Company at law or in equity:
(i) The Executive shall account for and pay over to the
Company all compensation, profits, and other benefits, after taxes, which
inure to the Executive's benefit which are derived or
8
received by the Executive or any person or business entity controlled by
the Executive resulting from any actions or transactions constituting a
breach of any of the Restrictive Covenants.
(ii) Notwithstanding the provisions of Section 7(c)(i), the
Executive acknowledges and agrees that in the event of a violation or
threatened violation of any of the provisions of Sections 7(b) , the
Company shall have no adequate remedy at law and shall therefore be
entitled to enforce each such provision by temporary or permanent
injunctive or mandatory relief obtained in any court of competent
jurisdiction without the necessity of proving damages, posting any bond or
other security, and without prejudice to any other rights and remedies
which may be available at law or in equity.
(d) If any of the Restrictive Covenants, or any part thereof, is
held to be invalid or unenforceable, the same shall not affect the remainder of
the covenant or covenants, which shall be given full effect, without regard to
the invalid or unenforceable portions. Without limiting the generality of the
foregoing, if any of the Restrictive Covenants, or any part thereof, is held to
be unenforceable because of the duration of such provision or the area covered
thereby, the parties hereto agree that the court making such determination shall
have the power to reduce the duration and/or area of such provision and, in its
reduced form, such provision shall then be enforceable.
(e) The parties hereto intend to and hereby confer jurisdiction to
enforce the Restrictive Covenants upon the courts of any jurisdiction within the
geographical scope of such Restrictive Covenants. In the event that the courts
of any one or more of such jurisdictions shall hold such Restrictive Covenants
wholly unenforceable by reason of the breadth of such scope or otherwise, it is
the intention of the parties hereto that such determination not bar or in any
way affect the Company's right to the relief provided above in the courts of any
other jurisdictions within the geographical scope of such Restrictive Covenants,
as to breaches of such covenants as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
8. Legal Fees and Expenses. It is the intent of the Company that the
Executive not be required to incur the expenses associated with the enforcement
of his rights under this Agreement by litigation or other legal action because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive hereunder. Accordingly, if it should
appear to the Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or any other
person takes any action to declare this Agreement void or unenforceable, or
institutes any litigation designed to deny, or to recover from, the Executive
the benefits intended to be provided to the Executive hereunder, the Company
irrevocably authorizes the Executive from time to time to retain counsel of his
choice, at the expense of the Company as hereinafter provided, to represent the
Executive in connection with the initiation or defense of any litigation or
other legal action, whether by or against the Company or any director, officer,
stockholder or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. The Company shall pay or
cause to be paid and shall be solely responsible for any and all attorneys' and
related fees and expenses incurred by the Executive as a result of the Company's
failure to perform this Agreement or any provision hereof or as a result of the
Company or any person contesting the validity or enforceability of this
Agreement or any provision hereof as aforesaid.
9
9. Employment Rights. Nothing expressed or implied in this Agreement
shall create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company prior to any Change
in Control; provided, however, that any termination of employment of the
Executive or the removal of the Executive from the office or position in the
Company following the commencement of any discussion with a third person that
ultimately results in a Change in Control shall be deemed to be a termination or
removal of the Executive after a Change in Control for purposes of this
Agreement.
10. Withholding of Taxes. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
11. Successors and Binding Agreement. (a) The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to the
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required to perform if no
such succession had taken place. This Agreement shall be binding upon and inure
to the benefit of the Company and any successor to the Company, including
without limitation any persons acquiring directly or indirectly all or
substantially all of the business and/or assets of the Company whether by
purchase, merger, consolidation, reorganization or otherwise (and such successor
shall thereafter be deemed the "Company" for the purposes of this Agreement),
but shall not otherwise be assignable, transferable or delegable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and/or legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Section 11(a) hereof. Without limiting the generality of the
foregoing, the Executive's right to receive payments hereunder shall not be
assignable, transferable or delegable, whether by pledge, creation of a security
interest or otherwise, other than by a transfer by his will or by the laws of
descent and distribution and, in the event, of any attempted assignment or
transfer contrary to this Section 11(c), the Company shall have no liability to
pay any amount so attempted to be assigned, transferred or delegated.
(d) The Company and the Executive recognize that each party will have
no adequate remedy at law for breach by the other of any of the agreements
contained herein and, in the event of any such breach, the Company and the
Executive hereby agree and consent that the other shall be entitled to a decree
of specific performance, mandamus or other appropriate remedy to enforce
performance of this Agreement.
12. Notices. For all purposes of this Agreement, all communications
including without limitation notices, consents, requests or approvals, provided
for herein shall be in writing and shall be deemed to have been duly given when
delivered or five business days after having been mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the Company (to the attention of the Secretary of the Company) at
its principal executive office and to the Executive at his principal residence,
or to such other address as any party may have furnished to the
10
other in writing and in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
13. Governing Law. The validity interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Connecticut, without giving effect to the principles of conflict of laws
thereof.
14. Validity. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances shall not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid and legal.
15. Miscellaneous. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Prior Agreement. This Agreement contains the entire agreement and
understanding between the Company and the Executive with respect to the subject
matter hereof. No representations or warranties of any kind or nature relating
to the Company or its affiliates or their respective businesses, assets,
liabilities, operations, future plans or prospects have been made by or on
behalf of the Company to the Executive; nor have any representations or
warranties of any kind or nature been made by the Executive to the Company,
expect as expressly set forth in this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
MARINER HEALTH GROUP, INC.
By: ______________________________________
Chairman
______________________________________
[Executive's Name]
EXHIBIT 11: Calculation of shares used in determining net income per common
- - ----------- and common equivalent share (1)
<TABLE>
<CAPTION>
Three months ended March 31,
1995 1996
----------------- ----------------
<S> <C> <C>
Net income $ 4,619,000 $ 2,045,000
================= ================
Weighted average shares outstanding 22,429,225 28,397,175
Shares issuable based on the treasury
stock method 247,775 837,890
----------------- ----------------
22,677,000 29,235,065
================= ================
(1) Fully diluted income per share has not been separately presented, as the
amounts would not be materially different from primary net income per
share.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS DATED MARCH 31, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,184
<SECURITIES> 0
<RECEIVABLES> 110,612
<ALLOWANCES> 12,275
<INVENTORY> 0
<CURRENT-ASSETS> 161,640
<PP&E> 308,858
<DEPRECIATION> 36,593
<TOTAL-ASSETS> 648,084
<CURRENT-LIABILITIES> 90,388
<BONDS> 0
0
0
<COMMON> 285
<OTHER-SE> 305,245
<TOTAL-LIABILITY-AND-EQUITY> 648,084
<SALES> 135,179
<TOTAL-REVENUES> 135,179
<CGS> 0
<TOTAL-COSTS> 121,818
<OTHER-EXPENSES> 5,670
<LOSS-PROVISION> 740
<INTEREST-EXPENSE> 4,392
<INCOME-PRETAX> 3,299
<INCOME-TAX> 1,254
<INCOME-CONTINUING> 2,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,045
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0
</TABLE>
