Rule 424 (b)(3) - Registration No. 333-3314
MARINER HEALTH GROUP, INC.
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2,085,388 Shares
Common Stock
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This Prospectus relates to the resale of up to an aggregate of
2,085,388 shares of Common Stock, par value $.01 per share (the "Shares"), of
Mariner Health Group, Inc. ("Mariner" or the "Company") issued to the
stockholders of MedRehab, Inc. ("MedRehab") in connection with the Company's
acquisition of MedRehab. See "SELLING STOCKHOLDERS." The Selling Stockholders
may sell the Shares at market prices prevailing at the time of the sale or at
prices otherwise negotiated. The Shares are to be sold in the over-the-counter
market, in ordinary brokers' transactions or otherwise through Donaldson, Lufkin
& Jenrette Securities Corporation at any time through October 31, 1996. See
"PLAN OF DISTRIBUTION." The Selling Stockholders, and certain persons who
purchase shares from them including broker-dealers acting as principals who may
resell the Shares, may be deemed "underwriters," as that term is defined in the
Securities Act of 1933, as amended (the "Securities Act"). See "PLAN OF
DISTRIBUTION."
None of the proceeds from the resale of the Shares will be received by
the Company. The Company is responsible for the expenses incurred in connection
with the registration of the Shares. The Selling Stockholders will pay or assume
brokerage commissions or other similar charges incurred in the sale of the
Shares. The Company has agreed to indemnify the Selling Stockholders against
certain liabilities, including liabilities under the Securities Act.
Mariner's Common Stock is listed on The Nasdaq National Market under
the symbol "MRNR." The last reported sale price for the Common Stock on May 13,
1996 was $17-3/4, as reported by The Nasdaq National Market.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THESE SECURITIES INVOLVES CERTAIN RISKS. SEE "RISK
FACTORS" APPEARING ON PAGE 4.
The date of this Prospectus is May 14, 1996.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information are available for inspection and copying at the
public reference facilities maintained by the Commission at 450 5th Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained from the Public
Reference Section of the Commission at 450 5th Street, N.W., Washington, D.C.
20549 at prescribed rates. The Common Stock of the Company is quoted on The
Nasdaq National Market and such material may also be inspected and copied at the
offices of the National Association of Security Dealers, Inc., 1735 K Street,
N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (including all amendments thereto, the "Registration Statement") under
the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus does not contain all information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information regarding the Company and
the Common Stock offered hereby, reference is hereby made to the Registration
Statement and to the exhibits and schedules filed therewith. Statements
contained in this Prospectus regarding the contents of any agreement or other
document filed as an exhibit to the Registration Statement are not necessarily
complete, and in each instance reference is made to the copy of such agreement
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement,
including the exhibits and schedules thereto, may be inspected at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549 and copies of all or any part thereof may be
obtained from such office upon payment of the prescribed fees.
INFORMATION INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission
pursuant to the Exchange Act are incorporated in this Prospectus by reference as
of their respective dates (File No. 0-21512): (1) Annual Report on Form 10-K for
the fiscal year ended December 31, 1995 (as amended on April 9, 1996 and May 14,
1996); (2) Current Reports on Form 8-K dated January 2, 1996, April 1, 1996,
April 4, 1996 and April 30, 1996; (3) Current Reports on Form 8-K/A filed on
November 28, 1995 and December 15, 1995; (4) Forms 10-C filed with the
Commission on January 5, 1996 and March 6, 1996; and (5) the sections entitled
"Description of Securities to be Registered" contained in the Company's
Registration Statements on Form 8-A filed with the Commission on April 9, 1993,
as amended, and November 1, 1995.
All documents subsequently filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
offering made hereby, shall be deemed to be incorporated by reference in this
Prospectus from the date of filing of such documents. Any statement contained in
a document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which is also deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the documents described above (other than exhibits to such
documents). Requests for such copies should be directed to Jeffrey W. Kinell,
Chief Financial Officer, Mariner Health Group, Inc., 125 Eugene O'Neill Drive,
New London, Connecticut 06320, telephone (860) 701-2000. Unless the context
otherwise requires references in the Prospectus to the "Company" or "Mariner"
refer to Mariner Health Group, Inc. and its subsidiaries.
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TRADEMARKS
MarinerCare(R) is a registered service mark of the Company.
THE COMPANY
Mariner is a leading provider of outcomes-oriented, post-acute health
care services in selected markets, with a particular clinical expertise in the
treatment of short-stay subacute patients in cost-effective alternate sites. The
Company's services and products include inpatient care, comprehensive inpatient
and outpatient rehabilitations services, medical services and products
(including institutional and home pharmacy services, respiratory and infusion
therapy and durable medical equipment), home care and physician services. By
providing this continuum of care in selected markets, the Company believes that
it will be better able to maintain quality of care and control costs while
coordinating the treatment of patients from the onset of illness to recovery.
The Company seeks to cluster facilities and other post-acute health care
services around large metropolitan areas and major medical centers with large
acute care hospitals from which to generate post-acute admissions.
The Company's principal executive offices are located at 125 Eugene
O'Neill Drive, New London, Connecticut 06320, and its telephone number at such
address is (860) 701-2000.
RECENT DEVELOPMENTS
Sale of $150,000,000 Senior Subordinated Notes
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
are unsecured senior subordinated obligations of the Company. The Company
intends to use the net proceeds from the sale of the Notes to pay down the
indebtedness outstanding under its senior secured revolving credit facility (the
"Credit Facility").
On April 30, 1996, the Company entered into an amendment to its senior
secured revolving credit facility with a syndicate of banks, which amendment
increased the Company's borrowing capacity from $175,000,000 to $200,000,000 and
made certain other changes.
Recent Acquisitions
In January 1996, the Company completed its merger (the "CSI Merger")
with Convalescent Services, Inc. ("CSI"). CSI operates subacute-oriented skilled
nursing facilities that provide restorative nursing care and specialty medical
services, including rehabilitation programs, respiratory therapy, infusion
therapy and wound care treatment. At the time of the CSI Merger, CSI operated 25
skilled nursing facilities, one rehabilitation hospital and one continuing care
retirement community with an aggregate of approximately 3,800 beds primarily in
Texas and Florida. As part of the consideration for the CSI Merger, the Company
issued 5,853,656 shares of Common Stock. From late May 1995 through the
completion of the CSI Merger, Mariner managed the CSI facilities under an
interim management agreement. The CSI Merger enhanced the Company's presence in
certain of its existing markets, expanded its reach into new markets and
provided the Company with significant opportunities to implement MarinerCare
programs at CSI facilities.
During the fourth quarter of 1995, the Company acquired six skilled
nursing facilities with an aggregate of 686 beds in central and northern Florida
(the "Heritage Acquisition"). In May 1996, the Company acquired a company that
operates seven skilled nursing facilities and one assisted living facility with
an aggregate of 960 beds in Florida, Tennessee and Kansas (the "1996 Florida
Acquisition"). Mariner began managing the facilities acquired in the 1996
Florida Acquisition on March 1, 1996. In March 1996, the Company completed its
merger (the "MedRehab Merger") with MedRehab, Inc. ("MedRehab") which, at the
time of the MedRehab Merger, provided contract physical medicine and
rehabilitation services to approximately 227 sites (of which 149 sites are
skilled nursing facilities and the remaining 78 sites include hospitals and
schools). This prospectus relates to the resale of the Shares, which were issued
in the MedRehab Merger. The CSI Merger, Heritage Acquisition, 1996 Florida
Acquisition and MedRehab Merger are referred to herein as the "Recent
Acquisitions."
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RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be carefully considered by prospective investors when
evaluating an investment in the Company's securities.
DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS
Mariner derives a significant portion of its revenue from the Medicaid
and Medicare programs. In the years ended December 31, 1993, 1994 and 1995, the
Company derived 26%, 23%, and 24%, respectively, of its revenue from Medicaid
programs and 29%, 30% and 33%, respectively, of its revenues from the Medicare
program. These programs are subject to retroactive rate adjustments,
administrative rulings and government funding restrictions, all of which may
decrease the level of program reimbursements to the Company. Funds received by
the Company from the Medicare and Medicaid programs are subject to audit which
can result in the Company having to refund overpayments. In addition, there can
be no assurance that facilities owned, leased or managed by Mariner now or in
the future that participate in the Medicare and Medicaid programs will initially
meet or continue to meet the requirements for participation in the Medicare and
Medicaid programs. Legislation and regulations have been proposed on the federal
and state levels that would have the effect of materially limiting or reducing
reimbursement levels for the Company's programs and services. Mariner cannot
predict whether any of these proposals will be adopted or, if adopted, the
effect (if any) such proposals will have on the Company.
In April 1995, the Health Care Financing Administration ("HCFA"), the
federal agency responsible for administering the Medicare program, issued a
memorandum to its Medicare fiscal intermediaries as a guideline to assess costs
incurred by inpatient providers relating to payment of occupational and speech
language pathology services furnished under arrangements that include contracts
between therapy providers and inpatient providers. While not binding on the
fiscal intermediaries, the memorandum suggested certain rates to assist the
fiscal intermediaries in making annual "prudent buyer" assessments of speech and
occupational therapy rates paid by inpatient providers. In addition, HCFA
through its intermediaries is subjecting physical therapy, occupational therapy
and speech therapy to a heightened level of scrutiny resulting in increasing
audit activity. A majority of Mariner's provider and rehabilitation contracts
provide for indemnification of the facilities for potential liabilities in
connection with rehabilitation services. In light of the uncertainty regarding
health care reform, Mariner cannot now determine whether HCFA will continue to
recommend the rates suggested in the memorandum or whether such rates will be
used by HCFA as a basis for developing a salary equivalency based reimbursement
system for speech and occupational therapy services. The Company's gross margins
for its physical therapy services under Medicare's salary equivalency guidelines
are significantly less than for its speech and occupational therapy services
which are currently reimbursed by Medicare under the prudent buyer standard.
There can be no assurance that actions ultimately taken by HCFA with regard to
reimbursement rates for such therapy services will not materially adversely
affect the Company's results of operations.
In addition to reducing revenue from federal and state payors, the
imposition of more stringent reimbursement guidelines or a decrease in the level
of Medicare or Medicaid reimbursement for these services could adversely affect
the ability of skilled nursing facilities or other health care providers that
depend on Medicare or Medicaid reimbursement to pay the Company for
rehabilitation program services and may cause such facilities to reduce the
rates that they are willing to pay the Company for such services. Any
significant decrease in Medicare or Medicaid reimbursement levels, or the
imposition of significant restrictions on participation in Medicare or Medicaid
programs, could have a material adverse effect on the Company. Certain states in
which Mariner operates have undertaken a study of acuity levels and are
considering changes in their reimbursement systems to take levels of acuity into
account. Accordingly, there can be no assurance that the rates paid to Mariner
by Medicare, Medicaid, private payors or by skilled nursing facilities under
rehabilitation programs will continue to be adequate to reimburse the Company
for the costs of providing services to covered beneficiaries. Mariner has also
agreed under certain of its contracts with private payors (and intends to
continue to agree as part of its business strategy) to provide certain health
care services to covered patients on a case rate or capitated basis.
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HEALTH CARE REFORM
Current political, economic and regulatory influences are likely to
lead to fundamental changes in the health care industry in the United States.
Numerous proposals for comprehensive reform of the nation's health care system
have been introduced over the past few years in Congress. Many potential
approaches are under consideration, including controls on health care spending
through limitations on the growth of private health insurance premiums and
Medicare and Medicaid spending and other fundamental changes to the health care
delivery system. In addition, some of the states in which the Company operates
are considering or have adopted various health care reform proposals and are
considering reductions in their state Medicaid budgets. Mariner anticipates that
Congress and state legislatures will continue to review and assess alternative
health care delivery systems and payment methodologies and that public debate of
these issues will likely continue in the future. Due to uncertainties regarding
the ultimate features of reform initiatives and their enactment and
implementation, the Company cannot predict which, if any, of such reform
proposals will be adopted, when they may be adopted or what impact they may have
on the Company. In addition, the cost and service considerations which have
generated proposals for health care reform have also resulted in, and are
expected to continue to result in, strategic realignments and combinations in
the health care industry which may, over time, have a significant impact on the
Company's strategic direction and operating results. There can be no assurance
that future legislation, health care or budgetary, or other changes in the
administration or interpretation of governmental health care programs will not
materially adversely affect the results of operations of Mariner. Concern about
the potential effects of the proposed reform measures have contributed to the
volatility of prices in securities of companies in health care and related
industries, including the Company, and may similarly affect the price of the
Company's Common Stock in the future.
In November 1995, Congress passed the 1995 Balanced Budget Act
providing for, among other things, the reshaping of the Medicare and Medicaid
programs and a proposal to provide funds in the form of block grants to the
states to administer the Medicaid program and certain other existing programs
for the elderly. In December 1995, President Clinton vetoed the 1995 Balanced
Budget Act and proposed alternative Medicare and Medicaid legislation. Each of
the legislative proposals offered by the President and Congress provides for
significant reductions in the overall rate of Medicare and Medicaid spending
growth. In addition to the foregoing, the National Governors Association has
issued a proposal which would allow states the option to reduce or eliminate
benefits to the "medically needy" and other changes to the Medicaid system.
There is active discussion concerning the foregoing and the balancing of the
federal and state budgets, and the form of any final legislation signed into law
could differ significantly from current proposals.
Aspects of certain of the health care proposals, such as reductions in
funding of the Medicare and Medicaid programs, potential changes in
reimbursement regulations by HCFA for contract therapy services, containment of
health care costs, proposals to reimburse health care providers on a basis not
linked to costs on an interim basis that could include a short-term freeze on
prices charged by health care providers and greater state flexibility in the
administration of Medicaid, could materially adversely affect the Company.
UNCERTAINTY OF REGULATION
The Company and the health care industry generally are subject to
extensive federal, state and local regulation governing licensure and conduct of
operations at existing facilities, construction of new facilities, acquisition
of existing facilities, addition of new services, certain capital expenditures,
reimbursement for services rendered and disposal of medical waste. Changes in
applicable laws and regulations or new interpretations of existing laws and
regulations could have a material adverse effect on licensure, eligibility for
participation, permissible activities, operating costs and the levels of
reimbursement from governmental and other sources. There can be no assurance
that regulatory authorities will not adopt changes or new interpretations of
existing regulations that could adversely affect the Company. The failure to
maintain or renew any required regulatory approvals or licenses could prevent
the Company from offering existing services or from obtaining reimbursement. In
certain circumstances, failure to comply at one facility may affect the ability
of the Company to obtain or maintain licenses or approvals under Medicare and
Medicaid programs at other facilities.
Recently effective provisions of the regulations adopted under the
Omnibus Budget Reconciliation Act of 1987 ("OBRA") have expanded remedies
available to HCFA to enforce compliance with the detailed regulations
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mandating minimum health care standards and may significantly affect the
consequences to the Company if annual or other HCFA facility surveys identify
noncompliance with these regulations. Remedies include fines, new patient
admission moratoriums, denial of reimbursement, federal or state monitoring of
operations, closure of facilities and termination of provider reimbursement
agreements. In the ordinary course of its business, the Company receives notices
from time to time of deficiencies for failure to comply with various regulatory
requirements. Although the Company reviews such notices and takes appropriate
corrective action, there can be no assurance that the Company's facilities will
be able to remedy the deficiencies in all situations or remain continuously in
compliance with regulatory requirements. Adverse actions against a facility by
applicable regulatory agencies may adversely affect the facility's ability to
continue to operate, the ability of the Company to provide certain services, and
the facility's eligibility to participate in the Medicare or Medicaid programs.
These actions may adversely affect the Company's business and results of
operations. One of the Company's facilities has been informed that, if certain
alleged deficiencies are not remedied in a timely manner, the agency may take
steps to decertify the facility from participation in the Medicare and Medicaid
programs. The Company currently intends to take all reasonable actions necessary
to remedy such deficiencies in a timely manner.
The Company is also subject to federal and state laws which govern
financial and other arrangements between health care providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between health care providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "Stark
legislations" which prohibit, with limited exceptions, physician ownership of
ancillary service providers and the federal "anti-kickback law" which prohibits,
among other things, the offer, payment, solicitation, or receipt of any form of
remuneration in return for the referral of Medicare and Medicaid patients. The
Office of the Inspector General of the Department of Health and Human Services,
the Department of Justice and other federal agencies interpret these fraud and
abuse provisions liberally and enforce them aggressively. Members of the House
and Senate have proposed legislation that would significantly expand the federal
government's involvement in curtailing fraud and abuse and increase the monetary
penalties for violation of these provisions. In addition, some states restrict
certain business relationships between physicians and other providers of health
care services. Many states prohibit business corporations from providing, or
holding themselves out as a provider of, medical care. Possible sanctions for
violation of any of these restrictions or prohibitions include loss of licensure
or eligibility to participate in reimbursement programs (including Medicare and
Medicaid), asset forfeitures and civil and criminal penalties. These laws vary
from state to state, are often vague and have seldom been interpreted by the
courts or regulatory agencies. From time to time, the Company has sought
guidance as to the interpretation of these laws; however, there can be no
assurance that such laws will ultimately be interpreted in a manner consistent
with the practices of the Company.
Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve certain acquisitions
or capital expenditures in excess of defined levels and determine that a need
exists for certain new bed additions, new services, and the acquisition of such
medical equipment or capital expenditures or other changes prior to beds and/or
services being added. Many states have placed a moratorium on granting
additional certificates of need or otherwise stated their intent not to grant
approval for new beds. To the extent certificates of need or other similar
approvals are required for expansion of Company operations, either through
facility acquisitions or expansion or provision of new services or other
changes, such expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards applicable to such
approvals and possible delays the expenses associated with obtaining such
approvals.
The Company's pharmacy business is also subject to inspection by state
agencies regarding record keeping, inventory control and other aspects of the
pharmacy business.
The Company is unable to predict the future course of federal, state
and local regulation or legislation, including Medicare and Medicaid statutes
and regulations. Further changes in the regulatory framework could have a
material adverse effect on the financial results of the Company's operations.
DIFFICULTY OF INTEGRATING RECENT ACQUISITIONS
The successful integration of the businesses Mariner acquires is
important to the Company's future performance. The anticipated benefits from any
of these acquisitions may not be achieved unless the operations of
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the acquired businesses are successfully combined with those of the Company in a
timely manner. The integration of the Company's recent and proposed acquisitions
will require substantial attention from management. The diversion of the
attention of management, and any difficulties encountered in the transition
process, could have a material adverse effect on Mariner's revenue and operating
results. In addition, the process of integrating the various businesses could
cause the interruption of, or a loss of momentum in, the activities of some or
all of these businesses, which could have a material adverse effect on the
Company's operations and financial results. There can be no assurance that
Mariner will realize any of the anticipated benefits from these acquisitions.
EXPANSION RISKS AND IMPACT ON FUTURE OPERATING RESULTS
Mariner's strategy includes expanding by establishing or acquiring
additional freestanding subacute care facilities, managing subacute care units
within general acute care hospitals and acquiring ancillary health care services
businesses. As part of its strategy, the Company may acquire businesses that
operate one or more freestanding inpatient facilities or rehabilitation,
pharmacy, home care, medical equipment and other health care businesses. There
is significant competition for acquisition and expansion opportunities in the
Company's businesses. As this competition intensifies due to ongoing
consolidation in the health care industry, the costs of capitalizing on such
opportunities may increase. Mariner competes for acquisition and expansion
opportunities with companies that have significantly greater financial and
management resources. There can be no assurance that the Company will be able to
compete successfully for these opportunities, operate the acquired businesses
profitably or otherwise implement successfully its expansion strategy. Mariner's
expansion will depend on its ability to create demand in new markets for its
clinical programs and to staff new facilities and rehabilitation programs, as
well as on the availability of facilities and businesses for acquisition or
management. Such expansion and growth place significant demands on the Company's
financial and management resources. If Mariner is unable to manage its growth
effectively, the quality of its services, its ability to recruit and retain key
personnel and its results of operations could be materially and adversely
affected.
An acquired facility may contain an existing patient population and,
consequently, a significant length of time may be required before such patient
population changes sufficiently to require a level of care, and to have a length
of stay, comparable to that provided in the Company's existing facilities.
During this conversion period, Mariner would generally expect to realize lower
reimbursement rates for these existing patients than could otherwise be obtained
for new patients. If the Company acquires a business that operates multiple
facilities, the time required to convert the acquired facilities may be longer
than that required to convert individual facilities. As a result, the expected
lower reimbursement rates could persist for a longer period, having a material
adverse effect on the Company's operating results. Further, the effort required
to make such newly acquired facilities more comparable to the Company's existing
facilities may place significant demands on Mariner's financial and management
resources.
The Company may also open new freestanding inpatient facilities, which
typically have low initial occupancy rates. Because newly opened facilities
require a basic complement of staff on the day the facility opens regardless of
the patient census, these facilities initially generate significant operating
losses.
As a result of these factors, as well as expansion into new markets and
the addition of ancillary services, Mariner could experience significant
fluctuations in operating results.
LEVERAGE
As of December 31, 1995, on a pro forma basis after giving effect to
the Recent Acquisitions and the sale of the Notes and the application of the
estimated net proceeds therefrom, the Company would have had approximately
$301.6 million of outstanding indebtedness (not including debt under operating
leases), which would have represented 50.2% of its total capitalization
(including current maturities). In addition, on such pro forma basis, the
Company would have had $164.7 million of availability under the Credit Facility.
On April 30, 1996, the Company entered into an amendment to its senior secured
revolving credit facility with a syndicate of banks, which amendment increased
the Company's borrowing capacity from $175,000,000 to $200,000,000 and made
certain other changes. Although the Company's cash flow from operations has been
sufficient to meet its debt service obligations in the past, there can be no
assurance that the Company's operating results will continue to be sufficient
for the Company to meet its obligations. The Company's ability to comply with
the terms of the Notes and the Credit Facility, to make cash payments with
respect to the Notes and under the Credit Facility and to satisfy its other
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debt or to refinance any of such obligations will depend on the future
performance of the Company, which in turn, is subject to prevailing economic
conditions and financial and other factors beyond its control.
The degree to which the Company is leveraged could have important
consequences to the holders of the Company's securities, including the
following: (i) the Company's ability to obtain additional financing for
acquisitions, capital expenditures, working capital or general corporate
purposes may be impaired in the future; (ii) a substantial portion of the
Company's cash flow from operations must be dedicated to the payment of
principal and interest on the Notes and borrowings under the Credit Facility and
other indebtedness, thereby reducing the funds available to the Company for its
operations and other purposes; (iii) certain of the Company's borrowings are and
will continue to be at variable rates of interest, which exposes the Company to
the risk of increased interest rates; and (iv) the Company may be substantially
more leveraged than certain of its competitors, which may place the Company at a
relative competitive disadvantage and make the Company more vulnerable to
changing market conditions and regulations.
RESTRICTIONS IMPOSED BY INDEBTEDNESS
The Credit Facility contains a number of covenants that, among other
things, restrict the ability of the Company to incur additional indebtedness,
pay dividends, prepay subordinated indebtedness, dispose of certain assets,
enter into sale and leaseback transactions, create liens, make capital
expenditures and make certain investments or acquisitions and otherwise restrict
corporate activities. In addition, under the Credit Facility, the Company will
be required to satisfy specified financial covenants, including total
indebtedness to cash flow, fixed charge coverage ratio, current assets to
current liabilities and minimum net worth tests. The ability of the Company to
comply with such provisions may be affected by events beyond the Company's
control. The breach of any of these covenants could result in a default under
the Credit Facility. In the event of any such default, such lenders could elect
to declare all amounts borrowed under the Credit Facility, together with accrued
interest, to be due and payable. The Credit Facility is secured by the capital
stock of the Company's subsidiaries and certain other assets of the Company's
subsidiaries, and if the Company were unable to repay borrowings under the
Credit Facility, the lenders under the Credit Facility (the "Banks") could
proceed against their collateral. If the Banks or the holders of any other
secured indebtedness were to foreclose on the collateral securing the Company's
obligations to them, it is possible that there would be insufficient assets
remaining after satisfaction in full of all such indebtedness to satisfy in full
the claims of the holders of the Notes. The Notes subject the Company to certain
restrictive 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)
restriction on mergers, consolidations and the transfer of all or substantially
all of the assets of the Company to another person. In addition, the loan
instruments governing the indebtedness of certain of the Company's subsidiaries
contain certain restrictive covenants which limit the payment of dividends and
distributions, and the transfer of assets to, the Company and require such
subsidiaries to satisfy specific financial covenants.
DEPENDENCE ON KEY PERSONNEL; DEMAND FOR PERSONNEL
Mariner believes that it has benefited substantially from the
leadership and experience of its executive officers and members of its
management team. If such executive officers were to leave the Company, the
Company's business and results of operations could be materially adversely
affected. Further, the Company's growth strategy is dependent in large part on
its ability to attract and retain management, marketing and other personnel at
its facilities. From time to time, there have been shortages in the supply of
available registered nurses and various types of therapists. Mariner's ability
to provide rehabilitation services is dependent on its ability to recruit and
retain licensed therapists. The Company competes with general acute care
hospitals, skilled nursing facilities, rehabilitation hospitals, contract
rehabilitation companies and other health care providers for the services of
physicians, registered nurses, therapists and other professional personnel.
There can be no assurance that the Company will be able to attract and retain
the qualified personnel necessary for its business and planned growth. The loss
of a significant number of members of this management team, or the failure to
attract or retain the qualified personnel necessary for its business and planned
growth, could have a material adverse effect on the Company's business and
results of operations.
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COMPETITION
The health care industry is highly competitive. Mariner competes with
general acute care hospitals, skilled nursing facilities, rehabilitation
hospitals, contract rehabilitation companies and other health care providers.
Many of the Company's competitors have underutilized facilities and are
expanding into subacute care by converting some of their facilities into
subacute units. In particular, a number of nursing care facilities and acute
care hospitals are adding subacute units. The Company's facilities generally
operate in communities that are also served by competing facilities, some of
which may be newer or offer more programs. Many of these competitors have
significantly greater resources than the Company and are affiliated with
institutions or chains that are larger and have greater access to capital than
the Company or operate on a non-profit or charitable basis. Cost containment
efforts, which encourage more efficient utilization of hospital services, have
resulted in decreased hospital occupancy in recent years. These cost containment
efforts, as well as the prospect of health care reform, have also caused many
health care providers to combine with other health care providers to achieve
greater efficiencies and to reduce costs. The Company expects this trend, which
may increase competition in its markets, to continue.
DEPENDENCE ON CONTRACT RENEWALS
The Company provides rehabilitation program services pursuant to
contracts with skilled nursing facilities and other parties. These contracts are
generally for terms of one year and cancellable on 30 to 90 days' notice by
either party. Although the number of rehabilitation contracts with skilled
nursing facilities has increased from 208 as of December 31, 1993 to 239 as of
December 31, 1995, each year a number of contracts have been cancelled or not
renewed by the Company's clients. In March 1996, the Company completed the
MedRehab Merger, which added physical medicine and rehabilitation services
contracts for approximately 227 sites (including 149 skilled nursing
facilities). The decision by a significant number of Mariner's skilled nursing
facility clients to cancel or not renew these contracts could have a material
adverse effect on the Company's results of operations.
POTENTIAL VOLATILITY OF STOCK PRICE
There has been significant volatility in the market prices of
securities of health care companies. Mariner believes factors such as
legislative and regulatory developments and quarterly variations in financial
results could cause the market price of the Company's Common Stock to fluctuate
substantially. In addition, the stock market has experienced volatility that has
particularly affected the market prices of many health care service companies'
stocks and that often has been unrelated to the operating performance of such
companies. These market fluctuations may adversely affect the price of the
Company's Common Stock.
CONTROL BY SIGNIFICANT STOCKHOLDERS
As of March 1, 1996 and based on their most recent filings with the
Commission on Schedule 13D, one stockholder group (the former owners of CSI)
reported beneficial ownership of 22.9% of the Company's Common Stock. As a
result of such holding and one seat on the board of directors, this stockholder
group may have the ability to exert significant influence over the outcome of
all matters submitted to the Company's stockholders for approval, including the
election of directors.
ANTI-TAKEOVER PROVISIONS; STOCKHOLDER RIGHTS PLAN; POSSIBLE ISSUANCE OF
PREFERRED STOCK
The Company's Stockholders Rights Plan and certain provisions of the
Company's certificate of incorporation and by-laws may make it more difficult
for a third party to acquire, or discourage acquisition bids for, the Company.
In addition, if a change of control (as defined under the terms of the indenture
(the "Indenture") governing the Notes) shall occur then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes in
whole or in part in integral multiples of $1,000 at a purchase price in cash in
an amount equal to 101% of the principal amount of such Notes, plus accrued and
unpaid interest, if any, to the date of purchase. In addition to the obligations
of the Company under the indenture with respect to the Notes in the event of a
change of control the Credit Facility also contains an event of default upon a
"change of control" as defined therein which obligates the Company to repay
amounts outstanding under the Credit Facility upon an acceleration of the
indebtedness issued thereunder. Further, if a "change of control" (as defined in
the Indenture) should occur, each holder of Notes has the right to require that
the Company purchase such holder's Notes at a purchase price in cash equal to
101% of the principal amount of such Notes, plus accrued and unpaid interest
thereon through the date of purchase. These provisions could limit the price
that certain investors might be willing to pay in the future for
-9-
shares of the Company's Common Stock. In addition, shares of Mariner's preferred
stock may be issued in the future without further stockholder approval and upon
such terms and conditions, having such rights, privileges and preferences, as
the Board of Directors may determine. The rights of the holders of the Company's
Common Stock will be subject to, and may be adversely affected by, the rights of
any holders of preferred stock that may be issued in the future. Mariner has no
present plans to issue any shares of preferred stock. The Company may also issue
additional shares of its Common Stock in the future without further stockholder
approval. The issuance of preferred stock or additional shares of the Company's
Common Stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or discouraging a third party from
acquiring, a majority of the outstanding voting stock of the Company.
-10-
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Shares as of March 1, 1996 and the number of Shares which may
be offered for the account of the Selling Stockholders or their transferees or
distributees from time to time. See "Plan of Distribution."
<TABLE>
<CAPTION>
Shares Shares Shares
Beneficially To Be Sold Beneficially
Owned Prior In The Owned After
Selling Stockholder To Offering Offering(1) The Offering (1)
------------------- ----------- ----------- ----------------
<S> <C> <C>
Allstate Insurance Company 649,765 649,765 --
Allstate Life Insurance Company 324,852 324,852 --
Saugatuck Capital Company Limited
Partnership II 974,618 974,618 --
Foster & Foster 12,918 12,918 --
Merifin Capital N.V. 12,861 12,861 --
James Allen Cox 9,688 9,688 --
Gerald W. Duley (2) 7,947 7,947 --
Frederick A. Mathwig (2) 7,947 7,947 --
George H. Hargrave 4,037 4,037 --
Robert J. Lawrence 807 807 --
Robert G. Rush 3,229 3,229 --
Daniel Warner 2,583 2,583 --
Ronald Dodson 2,422 2,422 --
William Albert Kaempfer 1,614 1,614 --
Richard Tinsley 403 403 --
Brian K. Strong 258 258 --
Gary W. Johnson 129 129 --
Alma D. Peters 129 129 --
Robert Schmidt 96 96 --
Frank Perkins 90 90 --
Michele Conyers Goad 64 64 --
Ronald S. Northup 64 64 --
Barbara A. Chesser 19 19 --
LINC Capital Management, a division of
Scientific Leasing, Inc. 5,327 5,327 --
Miroslav Anic 393 393 --
The Bank of New York 10,329 10,329 --
CoreStates, N.A. 1,127 1,127 --
- ---------
(1) Share numbers are estimated, as the Selling Stockholders or their transferees or distributees may sell all or
any part of the Shares pursuant to the offering.
(2) Includes an aggregate of 1,298 Shares which are held in escrow and an aggregate of 812 Shares to be
issued upon satisfaction of certain contingencies.
</TABLE>
-11-
PLAN OF DISTRIBUTION
The Shares offered hereby may be sold from time to time by the Selling
Stockholders acting as principals for their own account through Donaldson,
Lufkin & Jenrette Securities Corporation. The Company is responsible for the
expenses incurred in connection with the registration of the Shares. The Selling
Stockholders will pay or assume brokerage commissions or other charges and
expenses incurred in the sale of the Shares. In addition, Mariner has agreed to
indemnify the Selling Stockholders against certain liabilities, including
liabilities under the Securities Act, and, in the event that any offering is
made by the Selling Stockholders through underwriters, to agree to indemnify
such underwriters for such liabilities.
The distribution of the Shares by the Selling Stockholders is not
currently subject to any underwriting agreement. The Shares covered by this
Prospectus may be sold by the Selling Stockholders or by pledgees, donees,
transferees, or other successors in interest from time to time. Such sales may
be made at fixed prices that may be changed, at market prices prevailing at the
time of sale, at prices related to such prevailing market prices, or at
negotiated prices. Such sales may be effected in the over-the-counter market, on
the National Association of Securities Dealers Automated Quotation System, on
the Nasdaq National Market, or on any exchange on which the Shares may then be
listed. The Shares may be sold by one or more of the following: (a) one or more
block trades in which a broker or dealer so engaged will attempt to sell all or
a portion of the Shares held by the Selling Stockholders as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (b) purchases by a broker or dealer as principal and resale by such
broker or dealer for its account pursuant to this Prospectus; and (c) ordinary
brokerage transactions and transactions in which the broker solicits purchasers.
The Selling Stockholders are required to effect such transactions by selling
Shares to or through Donaldson, Lufkin & Jenrette Securities Corporation, and
such broker-dealer may receive compensation in negotiated amounts in the form of
discounts, concessions, commissions or fees from the Selling Stockholders and/or
the purchasers of the Shares for whom such broker-dealer may act as agent or to
whom it may sell as principal, or both (which compensation might be in excess of
customary commissions). Donaldson, Lufkin & Jenrette Securities Corporation and
the Selling Stockholders may be deemed to be "underwriters" within the meaning
of the Securities Act in connection with such sales, and any commissions
received by such broker-dealers may be deemed to be underwriting compensation.
The Company has agreed to use all reasonable efforts to maintain the
effectiveness of the Registration Statement until October 31, 1996.
Allstate Insurance Company, Allstate Life Insurance Company and
Saugatuck Capital Company Limited Partnership II have agreed not to transfer
more than one-third of the shares received by them in the MedRehab Merger during
any 30-day period without the prior written consent of the Company.
Any securities covered by this Prospectus which qualify for sale
pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather
than pursuant to this Prospectus.
The Selling Stockholders are not restricted as to the price or prices
at which they may sell their Shares. Sales of such Shares at less than the
market prices may depress the market price of the Company's Common Stock. During
the effective time of this Prospectus, the Selling Stockholders have agreed not
to sell or otherwise transfer (except for certain permitted transfers by gifts,
or bequest, transfers to certain qualified trusts and transfers to certain
affiliates) more than one-third of the Shares held by such Selling Stockholder
during any 30-day period without the prior written consent of the Company (which
consent may be withheld by the Company in its reasonable discretion). Otherwise,
the Selling Stockholders are not restricted as to the number of Shares which may
be sold at any one time, and it is possible that a significant number of Shares
could be sold at the same time.
Boston EquiServe, 150 Royall Street, Canton, Massachusetts 02021, is
the transfer agent for the Company's Common Stock.
-12-
LEGAL MATTERS
Certain legal matters with respect to the issuance of the Shares are
being passed upon for the Company by Testa, Hurwitz & Thibeault, LLP, High
Street Tower, 125 High Street, Boston, Massachusetts.
EXPERTS
The consolidated financial statements and the financial statement
schedule of Mariner Health Group, Inc. and subsidiaries appearing in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995
incorporated by reference in this Prospectus have been incorporated herein in
reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The consolidated statements of income, stockholders' equity and cash
flows of Pinnacle Care Corporation for the year ended December 31, 1993 included
in Mariner's consolidated financial statements referred to above and
incorporated by reference in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, to the extent indicated in their report thereon
incorporated herein. Such consolidated financial statements referred to above
are incorporated herein in reliance upon such report, given upon the authority
of such firm as experts in accounting and auditing.
The combined balance sheet as of December 31, 1995 relating to certain
assets and liabilities of Convalescent Services, Inc. and affiliates acquired by
Mariner Health Group, Inc. on January 2, 1996 and the related statement of
operations, cash flows and changes in stockholders' deficit for the year then
ended incorporated by reference in this Prospectus have been incorporated herein
in reliance on the report of Coopers & Lybrand L.L.P., independent accountants,
given on the authority of that firm as experts in accounting.
The combined balance sheets as of December 31, 1993 and 1994 and the
related combined statements of operations, cash flows and changes in
stockholders' deficit for each of the three years in the period ended December
31, 1994 of Convalescent Services, Inc. and Affiliates incorporated by reference
in this Prospectus have been incorporated herein in reliance on the report of
Coopers & Lybrand L.L.P., independent accountants, given on the authority of
that firm as experts in accounting.
The balance sheets of Regency Health Care Centers, Inc. and
subsidiaries as of December 31, 1995 and 1994 and the related statements of
operations, shareholders' equity and cash flows for the years then ended
incorporated by reference in this Prospectus have been incorporated herein in
reliance on the report of Bennett Thrasher & Co. P.C., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
The balance sheet of Heritage Health Care Centers of Central Florida,
Inc. as of December 31, 1994 and the related statement of income, changes in
stockholders' deficit and cash flows for the period from inception (March 15,
1993) to December 31, 1994 incorporated by reference in this Prospectus have
been incorporated herein in reliance on the report of Ryun, Givens, Wenthe &
Co., P.L.C., independent accountants, given on the authority of that firm as
experts in accounting.
The balance sheets of Heritage Health Care Center of Baker County, Inc.
(an S corporation) as of December 31, 1994 and 1993 and the related statements
of income, changes in stockholders' equity (deficit) and cash flows for the
years then ended incorporated by reference in this Prospectus have been
incorporated herein in reliance on the report of Ryun, Givens, Wenthe & Co.,
P.L.C., independent accountants, given on the authority of that firm as experts
in accounting.
-13-
The balance sheets of Inverness Health Care, A Limited Partnership
d/b/a Heritage Health Care Center as of December 31, 1994 and 1993, and the
related statements of income, changes in partners' capital and cash flows for
the years then ended incorporated by reference in this Prospectus have been
incorporated herein in reliance on the report of Ryun, Givens, Wenthe & Co.,
P.L.C., independent accountants, given on the authority of that firm as experts
in accounting.
-14-
==================================================
No dealer, salesperson or any other person has
been authorized to give any information or to make
any representations not contained in this
Prospectus and, if given or made, such information
or representations must not be relied upon as
having been authorized by the Company. This
Prospectus does not constitute an offer to sell,
or a solicitation of an offer to sell, any
securities other than the registered securities to
which it relates, or an offer to or solicitation
of any person in any jurisdiction where such an
offer or solicitation would be unlawful. Neither
the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create
an implication that the information contained
herein is correct as of any time subsequent to the
date hereof.
---------------------
TABLE OF CONTENTS
Page
----
Available Information.......................... 2
Information Incorporated by Reference.......... 2
Trademarks..................................... 3
The Company.................................... 3
Recent Developments............................ 3
Risk Factors................................... 4
Use of Proceeds................................ 11
Selling Stockholders........................... 11
Plan of Distribution........................... 12
Legal Matters.................................. 13
Experts........................................ 13
2,085,388 Shares
MARINER HEALTH GROUP, INC.
Common Stock
--------------------
PROSPECTUS
--------------------
May 14, 1996
==================================================
