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 June 30, 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, CT 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
----- -----
28,833,524 shares of Common Stock, $.01 par value, were outstanding at August 5,
1996.
MARINER HEALTH GROUP, INC.
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FORM 10-Q - JUNE 30, 1996
INDEX
PART I Financial Information Page
- ------ --------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1996 3
Consolidated Statements of Operations for the
Six Months Ended June 30, 1995 and 1996 and
Three Months Ended June 30, 1995 and 1996 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1995 and 1996 5
Notes to Consolidated Financial Statements 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 13
PART II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Exhibit Index 15
Signatures 16
ITEM 1. FINANCIAL STATEMENTS
MARINER HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
--------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,086 $ 4,601
Accounts receivable, less allowance for doubtful accounts of $10,078
and $8,817, respectively 92,537 112,076
Estimated settlements due from third-party payors 12,915 32,781
Prepaid expenses and other current assets 6,757 14,354
Deferred income tax benefit 9,918 9,918
--------------------------------
Total current assets 126,213 173,730
Property, plant, and equipment, net 174,486 331,390
Goodwill, net of accumulated amortization of $19,084 and $7,187, respectively 78,212 186,014
Intangible and other assets, net of accumulated amortization of $6,550
and $4,880, respectively 30,144 22,021
Restricted cash and cash equivalents 1,198 3,100
Deferred income tax benefit 1,273 1,273
--------------------------------
Total assets $ 411,526 $ 717,528
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt and capital lease obligations $ 5,156 $ 5,607
Accounts payable 10,904 23,905
Accrued payroll 6,072 7,461
Accrued vacation 5,053 7,647
Other accrued expenses 22,808 34,158
Deferred income taxes 987 987
Other liabilities 1,085 4,115
--------------------------------
Total current liabilities 52,065 83,880
Long-term debt and capital lease obligations,
less current portion 107,910 298,498
Deferred income taxes 6,007 14,913
Deferred gain 2,122 2,056
Redeemable stock and other long-term liabilities 1,030 1,854
------------------------------
Total liabilities 169,134 401,201
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
28,815,838 shares issued and outstanding at June 30, 1996. 225 288
Additional paid-in capital 246,660 310,960
Unearned compensation (15) (12)
Retained earnings (deficit) (4,478) 5,091
--------------------------------
Total stockholders' equity 242,392 316,327
--------------------------------
Total liabilities and stockholders' equity $ 411,526 $ 717,528
================================
See accompanying notes
</TABLE>
MARINER HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net patient service revenue $ 161,092 $ 275,690 $ 81,753 $ 143,061
Other revenue 2,632 5,093 1,812 2,543
---------------- --------------- ----------------- -----------------
Total operating revenue 163,724 280,783 83,565 145,604
---------------- --------------- ----------------- -----------------
Operating expenses:
Facility operating costs 127,273 213,914 64,451 109,323
Corporate general and administrative 22,563 28,521 16,015 11,294
---------------- --------------- ----------------- -----------------
149,836 242,435 80,466 120,617
---------------- --------------- ----------------- -----------------
Interest expense, net 731 10,970 452 6,578
Facility rent expense, net 918 1,212 563 738
Depreciation and amortization 5,291 10,328 2,631 5,132
---------------- --------------- ----------------- -----------------
Total operating expenses 156,776 264,945 84,112 133,065
---------------- --------------- ----------------- -----------------
Operating income (loss) 6,948 15,838 (547) 12,539
Loss on sale of facilities (11) --- (11) ---
---------------- --------------- ----------------- -----------------
Income (loss) before income taxes and
extraordinary item 6,937 15,838 (558) 12,539
Provision for (benefit from) income taxes 2,521 6,269 (355) 5,015
---------------- --------------- ----------------- -----------------
Net income (loss) before extraordinary item 4,416 9,569 (203) 7,524
Extraordinary Item (1,138) --- (1,138) ---
---------------- --------------- ----------------- -----------------
Net income (loss) $ 3,278 $ 9,569 $ (1,341) $ 7,524
================ =============== ================= =================
Net income (loss) per common and
common equivalent share:
Weighted average common and common 23,074,000 29,261,000 22,557,000 29,404,000
equivalent shares outstanding
================ =============== ================= =================
Net income (loss) per common and
common equivalent share $ 0.14 $ 0.33 $ (0.06) $ 0.26
================ =============== ================= =================
</TABLE>
See accompanying notes
MARINER HEALTH GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended June 30
1995 1996
-------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income
$ 3,278 $ 9,569
Adjustments to reconcile net income to cash (used by) provided by operating
activities:
Extraordinary item 1,138 ---
Depreciation and amortization 5,291 10,328
Provision for losses on accounts receivable 1,161 1,606
Loss on sale of facilities 20 ---
Amortization of deferred gain (248) (66)
Amortization of stock plan expense 11 3
Earnings from partnerships (7) ---
Non-cash charge for warrants issued --- 850
Amortization of deferred financing costs --- 409
Charge for abandonment of assets --- 1,061
Changes in operating assets and liabilities:
Increase in accounts receivable (17,591) (6,350)
Increase in estimated settlements from third parties (2,973) (13,311)
Increase in prepaid expenses and other current assets (1,907) (6,254)
Increase in accounts payable 1,525 4,381
Increase in accrued liabilities 3,437 3,110
Increase (decrease) in other current liabilities 911 (203)
----------------- -----------------
Net Cash (Used by) Provided by Operating Activities (5,954) 5,133
----------------- -----------------
Cash flows used by investing activities:
Purchase of plant, property and equipment (7,368) (11,078)
Cash paid for acquisitions, net of cash acquired (15,346) (87,679)
Deficits acquired 1,055 4,220
Purchase deposit (19,500) ---
Increase in intangible and other assets (1,601) (4,322)
----------------- -----------------
Net Cash Used by Investing Activities (42,760) (98,859)
----------------- -----------------
Cash flows from financing activities:
Drawings on line of credit 27,500 92,981
Proceeds from notes offering --- 149,666
Repayments on line of credit (9,000) (133,481)
Repayments of long term debt and capital lease obligations (842) (17,376)
Proceeds from exercise of employee stock options and warrants 221 2,506
Shares issued under employee stock purchase plan 920 156
Partnership distributions 39 ---
Decrease (increase) in restricted cash 157 (211)
----------------- -----------------
Net Cash Provided by Financing Activities 18,995 94,241
----------------- -----------------
Decrease (increase) in cash and cash equivalents (29,719) 515
Cash and cash equivalents at beginning of period 37,209 4,086
================= =================
Cash and cash equivalents at end of period $ 7,490 $ 4,601
================= =================
</TABLE>
See accompanying notes
MARINER HEALTH GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements as of and for the periods ended
June 30, 1995 and 1996 are unaudited. All adjustments and accruals have
been made which, in the opinion of the management, are necessary for a
fair presentation. In addition to normal, recurring adjustments,
corporate general and administrative expenses for the first six months
of 1996 included a charge of $6,511,000 composed of $5,661,000 related
to the pooling of interests with MedRehab, Inc. ("MedRehab") and a
charge of $850,000 for warrants issued in connection with a preferred
provider agreement. Results of operations for the period ended June 30,
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 the
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 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. 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 in the 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 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.
3. In January 1996, Mariner entered into an agreement to be the preferred
provider of subacute services to Premier ("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.
4. On March 1, 1996, the Company consummated a merger with MedRehab, Inc.
("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.
5. 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 (as defined herein).
6. 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 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 $144,500,000 from the sale of the Notes, approximately
$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 herein).
7. In May, 1996 the Company completed its acquisition of 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"). All of the issued and outstanding
shares of 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 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.
8. In July 1996, Mariner entered into an agreement to acquire certain
assets from Allegis Health Services, Inc. ("Allegis"). Under the terms
of the agreement, the Company will purchase five inpatient facilities,
assume two operating leases and one capital lease and purchase Allegis'
institutional pharmacy and its rehabilitation program management
subsidiary. The total purchase price of $98,000,000 consists of the
assumption of $15,000,000 in debt, including the capital lease, and
$95,000,000 in cash which will be borrowed under the Credit Facility.
The Purchase Price is subject to adjustment (to a maximum of
$105,000,000 but in no event less than $95,000,000) based on a multiple
of the net operating income of the entities acquired. The closing is
expected to be completed on or about October 1, 1996.
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
and six months ended June 30, 1995 and 1996 and the percentage changes in the
dollar amounts of revenues and expenses for the three and six months ended June
30, 1995 as compared to the three and six months ended June 30, 1996.
<TABLE>
<CAPTION>
Six months Percentage Three months Percentage Increase
ended Increase ended (Decrease)
June 30, Six months ended June 30, Three months ended
1995 1996 1996 over 1995 1995 1996 1996 over 1995
---- ---- -------------- ---- ---- --------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient service revenue 98.4% 98.2% 71.1% 97.8% 98.3% 75.0%
Other revenue 1.6% 1.8% 93.5% 2.2% 1.7% 40.3%
-------- -------- -------- --------
Total operating revenue 100.0% 100.0% 71.5% 100.0% 100.0% 74.2%
Operating and administrative
expenses:
Facility operating costs 77.7% 76.2% 68.1% 77.1% 75.1% 69.6%
Corporate general and 13.8% 10.2% 26.4% 19.2% 7.8% (29.5%)
administrative
Interest expense, net 0.4% 3.9% 1400.7% 0.5% 4.5% 1355.3%
Facility rent expense, net 0.6% 0.4% 32.0% 0.7% 0.5% 31.1%
Depreciation and amortization 3.2% 3.7% 95.2% 3.1% 3.5% 95.1%
-------- -------- -------- --------
Total operating costs and
administrative expense 95.8% 94.4% 69.0% 100.7% 91.4% 58.2%
-------- -------- -------- --------
Income before income tax and
extraordinary item 4.2% 5.6% 128.3% -0.7% 8.6% N/M
-------- -------- -------- --------
</TABLE>
THREE MONTHS ENDED JUNE 30, 1995 AND 1996
REVENUE. Total operating revenue increased 74% from $83,565,000 during
the three months ended June 30, 1995 to $145,604,000 during the three months
ended June 30, 1996.
Net patient service revenue increased by approximately $61,308,000 or
75% from the second quarter of 1995 to the second 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
the result of the inclusion in 1996 of revenue from 38 facilities, two
pharmacies and several home health agencies acquired after June 1995, as well as
increases in revenue per rehabilitation contract.
Other revenue aggregated $2,543,000 during the quarter ended June 30,
1996. This revenue was generated primarily from the Company's management
activities related to subacute care units and facilities.
FACILITY OPERATING COSTS. Facility operating costs consist of primarily
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 patient 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 70% from $64,451,000 in the second
quarter of 1995 to $109,323,000 in the second quarter of 1996. These increases
were principally the result of the inclusion of expenses for 38 facilities, two
pharmacies and several home health care agencies acquired after June 1995. As a
percentage of total operating revenue, these costs aggregated 77.1% and 75.1%
for the three months ended June 30, 1995 and 1996, respectively.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses include the expenses of the Company's corporate and
regional offices, which provide training, marketing, financial and management
services. These expenses decreased 30% from $16,015,000 in the second primarily
quarter of 1995 to $11,294,000 in the second quarter of 1996. This decrease was
the result of a charge incurred during the second quarter of 1995, in which the
Company accrued costs totaling $8,073,000 related to the merger with
Convalescent Services, Inc. ("CSI") and the consolidation of various regional
and satellite offices to the Company's New London, Connecticut office. This
decrease was partially offset by incremental costs associated with the hiring of
additional corporate personnel required to support the additional facilities and
businesses acquired or managed since June 30, 1995.
As a percentage of total revenue, these expenses were approximately
19.2% and 7.8% for the three months ended June 30, 1995 and 1996, respectively.
INTEREST EXPENSE, NET. Interest expense increased from $452,000 in the
second quarter of 1995 to $6,578,000 in the second quarter of 1996. This
increase was the result of interest related to the Notes issued in April 1996
and increased borrowings under the Credit Facility used to fund acquisitions of
facilities and businesses acquired after the second quarter of 1995.
RENT EXPENSE, NET. Rent expense increased 31% from $563,000 in the
second quarter of 1995 to $738,000 in the second quarter of 1996. This increase
was due to additional facilities under operating lease agreements, offset in
part by the purchase of a previously leased facility in the fourth quarter of
1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 95% from $2,631,000 in the second quarter of 1995 to $5,132,000 in the
second quarter of 1996. This increase was primarily attributable to the
facilities and businesses acquired after the second quarter of 1995.
EXTRAORDINARY ITEM. During the second quarter of 1995, the Company
amended certain significant terms of its Credit Facility. As a result of the
amendment, the Company wrote off its remaining unamortized deferred financing
fees of $1,836,000 with a resulting tax benefit of $698,000.
PROVISION FOR INCOME TAX. The Company expects its effective rate for
1996 to be approximately 40%. This increase from 38% in 1995 is due to certain
permanent book to tax differences offset by the utilization of deferred tax
assets related to MedRehab.
SIX MONTHS ENDED JUNE 30, 1995 AND 1996.
REVENUE. Total operating revenue increased 71% from $163,724,000 during
the first six months of 1995 to $280,783,000 in the first six months of 1996.
Net patient service revenue increased by approximately $114,598,000 or
71% from the first six months of 1995 to the first six months of 1996. The
increase was the result of the inclusion in 1996 of revenue from 38 facilities,
two pharmacies and several home health care agencies acquired since June 1995,
as well as increases in revenue per rehabilitation contract.
Other revenue aggregated $5,093,000 during the six months ended June
30, 1996. This revenue was generated primarily from the Company's management
activities related to subacute care units and facilities.
FACILITY OPERATING COSTS. Facility operating costs increased 68% from
$127,273,000 in the first six months of 1995 to $213,914,000 in the first six
months of 1996. These increases were principally the result of the inclusion of
expenses for 38 facilities, two pharmacies and several home health care agencies
acquired after the second quarter of 1995. As a percentage of total operating
revenues, these costs aggregated 77.7% and 76.2% in the first six months of 1995
and 1996, respectively.
CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES. Corporate general and
administrative expenses increased 26% from $22,563,000 in the first six months
of 1995 to $28,521,000 in the first six months of 1996. The increase was
primarily the result of additional corporate personnel required to support the
additional facilities acquired and managed during 1995 and 1996.
During the second quarter of 1995, the Company accrued costs totaling
$8,073,000 related to the merger with CSI and the consolidation of various
regional and satellite offices to the New London, Connecticut office. Of this
total charge, approximately $3,691,000 related to severance and corresponding
payroll costs and approximately $4,382,000 related to expenses incurred to close
the regional offices.
During the first quarter of 1996, these expenses 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.
As a percentage of total operating revenues, these expenses were
approximately 13.8% and 10.2% in the first six months of 1995 and 1996,
respectively.
INTEREST EXPENSE, NET. Interest expense increased from $731,000 in the
first six months of 1995 to $10,970,000 in the first six months of 1996. This
increase was the result of interest on the Notes issued in April 1996 and
borrowings used primarily to fund acquisitions of facilities and businesses
acquired after the second quarter of 1995.
RENT EXPENSE, NET. Rent expense increased 32% from $918,000 in the
first six months of 1995 to $1,212,000 in the first six months of 1996. This
increase was due to additional facilities under operating lease agreements,
offset in part by the purchase of a previously leased facility in the fourth
quarter of 1995.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 95% from $5,291,000 in the first six months of 1995 to $10,328,000 in
the first six months of 1996, principally as the result of the addition of
facilities and businesses after the second quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Mariner has financed its operations, acquisitions and capital
expenditures primarily from borrowings, cash provided by operations and proceeds
from security issuances. As of June 30, 1996, working capital and cash and cash
equivalents were $89,850,000 and $4,601,000, respectively.
Mariner has a $250,000,000 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.
During June of 1996 the terms were amended to provide for borrowings up to
$250,000,000. As of December 31, 1995 and June 30, 1996, principal balances
outstanding under the Credit Facility were approximately $64,500,000 and
$24,000,000, respectively, and letters of credit outstanding under this facility
were $2,612,000. On April 5, 1996, the Company repaid all then 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 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.
On April 4, 1996, the Company issued the Notes. 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 $144,500,000 from the sale of the Notes, approximately
$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. 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)
restriction 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 (the "Indenture").
Accounts receivable (net of allowances) were $92,537,000 and
$112,076,000 at December 31, 1995 and June 30, 1996, respectively. Estimated
settlements due from third party payors aggregated $12,915,000 and $32,781,000
at December 31, 1995 and June 30, 1996, respectively. The increases primarily
reflected the addition of the CSI and Regency facilities. The number of days
sales in accounts receivable and estimated settlements due from third party
payors was approximately 96 days at December 31, 1995 and 91 days at June 30,
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
$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 also completed the acquisition of six skilled nursing facilities
with an aggregate of 686 beds in central and northern Florida (the "Heritage
Acquisition"). 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 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 CSI 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 in the 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 the 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 the MedRehab merger. 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 exercised their
right to require the Company to repurchase their shares of Mariner Common Stock
for approximately $1,326,000 on July 31, 1996.
In May, 1996, the Company completed the 1996 Florida Acquisition which
involved seven skilled nursing facilities and one assisted living facility with
an aggregate of 960 beds in Florida, Tennessee and Kansas. All of the issued and
outstanding shares of 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 Regency Acquisition with a portion of the net
proceeds from the sale of the Notes and borrowings under the Credit Facility.
Mariner began managing the facilities acquired in the 1996 Regency 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.
In July 1996, Mariner entered into an agreement to acquire certain
assets from Allegis. Under the terms of the agreement, the Company will purchase
five inpatient facilities, assume two operating leases and one capital lease and
purchase Allegis' institutional pharmacy and its rehabilitation program
management subsidiary. The total purchase price of $110,000,000 consists of the
assumption of $15,000,000 in debt, including the capital lease, and $95,000,000
in cash which will be borrowed under the Credit Facility. The closing is
expected to be completed on or about October 1, 1996.
During the first six months 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 six months ended June 30,
1996 were approximately $11,078,000.
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 the 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.
PART II
OTHER INFORMATION
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting of stockholders held May 21, 1996, the
Company's stockholders took the following actions:
(1) The Company's stockholders reelected Arthur W. Stratton, Jr., M.D.
and elected Stiles A. Kellett, Jr. as Class III directors to serve for a
three-year term expiring at the Company's annual meeting of stockholders in
1999. Election of the directors was determined by a plurality of the votes cast
at the 1996 annual meeting. With respect to such matter, the votes were cast as
follows: 18,782,455 shares voted for the reelection of Dr. Stratton,no shares
voted against the reelection of Dr. Stratton and 53,525 shares abstained from
voting on the proposal, and 18,782,413 shares voted for the election of Mr.
Kellett, no shares voted against the election of Mr. Kellett and 53,53,567
shares abstained from voting on the proposal. No other persons were nominated,
or received votes, for election as directors of the Company whose term of office
continued after the annual meeting were: David C. Fries, Ph.D., Christopher
Grant, Jr. and John F. Robenalt, Esq.
(2) The Company's stockholders ratified the selection of Coopers &
Lybrand L.L.P., independent public accountants, as auditors for the Company's
fiscal year ending December 31, 1996. With respect to such matter, the votes
were cast as follows: 18,735,193 voted for the proposal, 72,709 shares voted
against the proposal and 28,078 shares abstained from voting on the proposal.
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 14 of this report.
(b) Reports on Form 8-K.
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.
June 13, 1996. Item 5 - Others Events, to (i) disclose certain
historical financial information of Mariner which was restated to give
retroactive effect to the merger with MedRehab, which was accounted for as a
pooling of interests, (ii) supplement certain historical financial information
of Regency, which was acquired by Mariner in May 1996, and (iii) disclose
certain updated pro forma financial information relating to the Company and its
recent acquisitions.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Amendment No. 10 to Credit Agreement and
Waiver dated as of July 1, 1996 by and among
the Company, PNC Bank, National Association,
and the other banks party thereto
10.2 Amendment No. 11 to Credit Agreement and
Consent dated as of July 31, 1996 by and
among the Company, PNC Bank, National
Association, and the other banks party
thereto
11 Computation of shares used in determining net
income per share (1) (Dollars in thousands)
27 Financial Data Schedule
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 thereto authorized.
MARINER HEALTH GROUP, INC.
DATE August 14, 1996 BY /s/ Jeffrey W. Kinell
------------ -----------------------------
Jeffrey W. Kinell
Treasurer and Chief Financial Officer
(Authorized officer and principal
accounting and financial officer)
AMENDMENT NO. 10 TO CREDIT AGREEMENT AND WAIVER
THIS AMENDMENT NO. 10 TO CREDIT AGREEMENT (the "Amendment")
dated as of July 1, 1996 by and among Mariner Health Group, Inc., a Delaware
corporation (the "Borrower"), PNC Bank, National Association, Chemical Bank,
CoreStates Bank, N.A., Creditanstalt-Bankverein, First Union National Bank of
North Carolina, Mellon Bank, N.A., Toronto Dominion (New York), Inc. and
NationsBank of Tennessee, N.A., (collectively, the "Banks"), and PNC Bank,
National Association, in its capacity as agent for the Banks (the "Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Credit
Agreement dated as of May 18, 1994, as amended (the "Credit Agreement"),
pursuant to which the Banks provided a $200,000,000 revolving credit facility to
the Borrower; and
WHEREAS, the Borrower, the Banks and the Agent desire to amend
and restate the Credit Agreement as hereinafter provided, including without
limitation to increase the revolving credit facility to $250,000,000 and to add
Toronto Dominion (New York), Inc. and Chemical Bank as Banks.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:
1. Definitions.
Defined terms used herein unless otherwise defined herein
shall have the meanings ascribed to them in the Credit Agreement as amended by
this Amendment.
2. Amendment of Credit Agreement.
A. Articles I through XI. The parties hereto do
hereby amend and restate the recitals and Articles I through XI to the Credit
Agreement as set forth on Exhibit 1 hereto.
B. Schedules. Schedule 1.01(R)(2) Commitments of
Banks, to the Credit Agreement is hereby amended and restated to read as set
forth on the schedule attached hereto bearing the same numerical reference as
the original schedule. Schedule 6.01(a) and (c)
Qualifications to do Business and Subsidiaries is hereby amended and restated to
read as set forth on the schedule attached hereto bearing the same numerical
references as the original schedule, but the new title, Qualifications to do
Business, Subsidiaries and Excluded Entities.
C. Exhibits. Each of the following exhibits to the
Credit Agreement is hereby amended and restated to read as set forth on the
exhibit attached hereto bearing the same numerical reference as the original
exhibit:
Exhibit 8.01(m)(i) - Acquisition Approval Certificate
Exhibit 8.01(m)(ii) - Acquisition Notice Certificate
Exhibit 8.03(d)(2) - Compliance Certificate for Quarter
Ending 3/31/96 and Thereafter
D. Additional Banks. Toronto Dominion (New York),
Inc. and Chemical Bank upon execution of this Amendment, hereby each became a
Bank party to the Credit Agreement.
3. Conditions of Effectiveness of this Agreement. The
effectiveness of this Amendment is expressly conditioned upon satisfaction of
each of the following conditions precedent:
(a) Representations and Warranties; No Defaults. The
representations and warranties of the Borrower contained in Article VI of the
Credit Agreement shall be true and accurate on the date hereof with the same
effect as though such representations and warranties had been made on and as of
such date (except representations and warranties which relate solely to an
earlier date or time, which representations and warranties shall be true and
correct on and as of the specific dates or times referred to therein), and the
Borrower shall have performed and complied with all covenants and conditions
hereof; no Event of Default or Potential Default under the Credit Agreement
shall have occurred and be continuing or shall exist.
(b) Organization, Authorization and Incumbency. There
shall be delivered to the Agent for the benefit of each Bank a certificate dated
as of the date hereof and signed by the Secretary or an Assistant Secretary of
each Loan Party, certifying as appropriate as to:
(i) all action taken by such Loan Party in
connection with this Amendment and the other
Loan Documents;
(ii) the names of the officer or officers authorized
to sign this Amendment and the other documents
executed and delivered in connection herewith
and described in this Section 3 and the true
signatures of such officer or officers and, in
the case of the Borrower, specifying the
Authorized Officers permitted to
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act on behalf of the Borrower for purposes of
the Loan Documents and the true signatures of
such officers, on which the Agent and each Bank
may conclusively rely; and
(iii)copies of its organizational documents,
including its certificate of incorporation and
bylaws if it is a corporation and its
certificate of partnership and partnership
agreement if it is a partnership, in each case
as in effect on the date hereof, certified by
the appropriate state official where such
documents are filed in a state office together
with certificates from the appropriate state
officials as to the continued existence and good
standing of each of the Loan Parties in each
state where organized; provided that each of the
Loan Parties other than Borrower may, in lieu of
delivering copies of the foregoing
organizational documents and good standing
certificates, certify that the organizational
documents and good standing certificates
previously delivered remain in effect and have
not been amended.
(c) Opinions of Counsel. There shall be delivered to
the Agent for the benefit of each Bank a written opinion dated the date hereof
of Testa, Hurwitz & Thibeault, L.L.P., counsel for the Loan Parties, in form and
substance satisfactory to the Agent.
(d) Fees and Expenses. The Borrower shall pay or
cause to be paid to the Agent for itself and for the account of the Banks to the
extent not previously paid the fees set forth in that certain letter agreement
between the Borrower and the Agent regarding fees of the Agent and certain Banks
with respect to the increase in the Revolving Credit Commitments from $200
million to $250 million and all other fees accrued through the date hereof and
the costs and expenses of the Agent and the Banks including, without limitation,
fees of the Agent's counsel in connection with this Amendment.
(e) Acknowledgment. Each of the Loan Parties, other
than the Borrower, shall have executed the Confirmation of Guaranty in the form
attached hereto as Exhibit 2 hereto.
(f) Legal Details; Counterparts. All legal details
and proceedings in connection with the transactions contemplated by this
Amendment shall be in form and substance satisfactory to the Agent, and the
Agent shall have received all such other counterpart originals or certified or
other copies of such documents and proceedings in connection with such
transactions, in form and substance satisfactory to the Agent.
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(g) Notes. The Borrower shall have delivered to the
Agent on behalf of each Bank a Note in the amount of each Bank's Commitment.
(h) Mariner Health Properties IV, Ltd. Mariner Health
Properties IV, Ltd. (formerly known as Regency Health Properties IV, Ltd.) shall
have executed a joinder to the Guaranty Agreement in form and substance
satisfactory to the Agent.
4. Outstanding Items. The Borrower covenants and agrees to
undertake in good faith to complete as promptly as possible, but no later than
July 31, 1996, all outstanding items required to be completed in connection with
Amendments 1 through 9 of the Credit Agreement, the satisfaction of which it is
expressly agreed has not been waived by the Banks.
5. Mortgages. On or before July 31, 1996, the Borrower shall
cause the Loan Parties to enter into appropriate amendments to the Mortgages,
such amendments to be in form and substance satisfactory to the Agent to set
forth, among other matters, an acknowledgment of the increase in the amount of
the Revolving Credit Commitments to $250 million.
6. Amendment to Certain Other Loan Documents.
(a) Schedule 1 to that certain Guaranty Agreement
made by each Subsidiary of the Borrower party thereto, for the benefit of the
Banks, dated as of May 18, 1994, as amended is hereby amended and restated to
read as set forth on the Schedule attached hereto bearing the same numerical
reference and name.
(b) Schedule A to the following Pledge Agreements is
hereby amended and restated to read as set forth on the schedule attached hereto
bearing the same numerical reference and name:
(i) SCHEDULE A TO THE PLEDGE AGREEMENT (Borrower)
dated as of May 18, 1994, as amended, by the
Borrower, as pledgor in favor of the Agent
(ii) SCHEDULE A TO THE PLEDGE AGREEMENT (Subsidiaries
Pledging Stock) dated as of May 18, 1994, as
amended, by certain Subsidiaries of the
Borrower, as pledgor in favor of the Agent
(iii)SCHEDULE A TO AMENDED AND RESTATED PLEDGE
AGREEMENT (Subsidiaries Pledging Partnership
Interests) dated June 1, 1996, as amended, by
certain Subsidiaries of the Borrower, as pledgor
in favor of the Agent
-4-
7. Force and Effect. Except as expressly modified by this
Amendment, the Credit Agreement and the other Loan Documents are hereby ratified
and confirmed and shall remain in full force and effect after the date hereof.
8. Governing Law. This Amendment shall be deemed to be a contract
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
[INTENTIONALLY BLANK]
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[SIGNATURE PAGE 1 OF __ TO AMENDMENT NO. 10]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MARINER HEALTH GROUP, INC.
By:
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By:
Name:
Title:
CORESTATES BANK, N.A.
By:
Name:
Title:
CREDITANSTALT - BANKVEREIN
By:
Name:
Title:
By:
Name:
Title:
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:
Name:
Title:
[SIGNATURE PAGE 2 OF __ TO AMENDMENT NO. 10]
MELLON BANK, N.A.
By:
Name:
Title:
NATIONSBANK OF TENNESSEE, N.A.
By:
Name:
Title:
[SIGNATURE PAGE 3 OF __ TO AMENDMENT NO. 10]
TORONTO DOMINION (NEW YORK), INC.
By:
Name:
Title:
[SIGNATURE PAGE 4 OF __ TO AMENDMENT NO. 10]
CHEMICAL BANK
By:
Name:
Title:
SCHEDULE 1.01(R)(2)
COMMITMENTS OF BANKS
AMOUNT OF COMMITMENT
BANK FOR REVOLVING CREDIT LOANS
---- --------------------------
PNC BANK, NATIONAL ASSOCIATION $ 45,000,000
CHEMICAL BANK $ 20,000,000
CORESTATES BANK, N.A. $ 35,000,000
CREDITANSTALT-BANKVEREIN $ 20,000,000
FIRST UNION NATIONAL BANK OF NORTH CAROLINA $ 35,000,000
MELLON BANK, N.A. $ 35,000,000
NATIONSBANK OF TENNESSEE, N.A. $ 40,000,000
TORONTO DOMINION (NEW YORK), INC. $ 20,000,000
------------
$250,000,000
AMENDMENT NO. 11 TO CREDIT AGREEMENT AND CONSENT
THIS AMENDMENT NO. 11 TO CREDIT AGREEMENT and Consent (the
"Amendment") dated as of July 31, 1996 by and among Mariner Health Group, Inc.,
a Delaware corporation (the "Borrower"), PNC Bank, National Association,
Chemical Bank, CoreStates Bank, N.A., Creditanstalt-Bankverein, First Union
National Bank of North Carolina, Mellon Bank, N.A., Toronto Dominion (New York),
Inc. and NationsBank of Tennessee, N.A., (collectively, the "Banks"), and PNC
Bank, National Association, in its capacity as agent for the Banks (the
"Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to that certain Credit
Agreement dated as of May 18, 1994, as amended (the "Credit Agreement"),
pursuant to which the Banks provided a $250,000,000 revolving credit facility to
the Borrower; and
WHEREAS, as permitted by Section 8.02(f)(i) of the Credit
Agreement, Convalescent Services, Inc., a Georgia corporation and a wholly-owned
Subsidiary of the Borrower ("CSI") will merge with and into Mariner Health Care
of Nashville, Inc., a Delaware corporation and a wholly-owned Subsidiary of the
Borrower ("Mariner Nashville"); and
WHEREAS, the merger of CSI with and into Mariner Nashville
shall be consummated in accordance with that certain Agreement and Plan of
Merger dated June 15, 1996 between Mariner Nashville and CSI (the "Merger
Agreement"), with Mariner Nashville as the survivor of such merger; and
WHEREAS, the Borrower and the Banks desire to amend the Credit
Agreement as hereinafter provided and to consent to certain matters as
hereinafter provided in connection with the merger of CSI and Mariner Nashville.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, covenant and agree as follows:
1. Definitions.
Defined terms used herein unless otherwise defined herein
shall have the meanings ascribed to them in the Credit Agreement as amended by
this Amendment.
2. Amendment of Credit Agreement.
A. Schedules. Schedules 6.01(a) and (c),
Qualifications to do Business, Subsidiaries and Excluded Entities, are hereby
amended and restated to read as set forth on the schedules attached hereto
bearing the same numerical references and title as the original schedule.
3. Consent in Connection with Merger of CSI with and into Mariner
Nashville. The Banks hereby consent to the assignment by CSI to Mariner
Nashville and the assumption by Mariner Nashville of all of CSI's rights,
duties, obligations and liabilities under the Loan Documents, including without
limitation, under the Guaranty Agreement, Pledge Agreements, Leasehold Mortgages
and Mortgages to which CSI is a party, with such assignment and assumption to be
effective simultaneously with the consummation of the merger of CSI with and
into Mariner Nashville.
4. Conditions of Effectiveness of this Agreement. The
effectiveness of this Amendment is expressly conditioned upon satisfaction of
each of the following conditions precedent:
(a) Representations and Warranties; No Defaults. The
representations and warranties of the Borrower contained in Article VI of the
Credit Agreement, after giving effect to the merger of CSI with and into Mariner
Nashville, shall be true and accurate on the date hereof with the same effect as
though such representations and warranties had been made on and as of such date
(except representations and warranties which relate solely to an earlier date or
time, which representations and warranties shall be true and correct on and as
of the specific dates or times referred to therein), and the Borrower shall have
performed and complied with all covenants and conditions hereof; no Event of
Default or Potential Default under the Credit Agreement shall have occurred and
be continuing or shall exist, after giving effect to the merger of CSI with and
into Mariner Nashville.
(b) Consummation of Merger. The merger of CSI with
and into Mariner Nashville shall be consummated in accordance with the Merger
Agreement, and the Borrower shall have delivered to the Agent for the benefit of
the Banks a copy of Articles of Merger certified by the Secretary of the States
of Georgia and Delaware evidencing the consummation of such merger.
(c) Opinions of Counsel. There shall be delivered to
the Agent for the benefit of each Bank written opinions dated the date hereof of
Testa, Hurwitz & Thibeault, L.L.P., counsel for the Loan Parties and Alison
Gilligan, General Counsel for the Loan Parties, both in form and substance
satisfactory to the Agent.
(d) Joinder of Mariner Nashville. Mariner Nashville
shall have executed and delivered to the Agent, on behalf of the Banks, the
following: (i) joinders to the Guaranty Agreement and the Subordination
Agreement (Intercompany), both in form and substance satisfactory to the Agent;
(ii) an opinion of counsel, in form and substance satisfactory
-2-
to the Agent, and (iii) a certificate signed by the Secretary or an Assistant
Secretary of Mariner Nashville certifying as to all action taken by Mariner
Nashville in connection with the Loan Documents, together with a copy of the
resolutions of the Board of Directors of Mariner Nashville, certifying the names
of the officer or officers authorized to sign the Loan Documents executed and
delivered in connection herewith and the true signatures of such officer or
officers and certifying, together with a copy, the organizational documents of
Mariner Nashville, including its certificate of incorporation and bylaws, as in
effect on the date hereof. Certificates from the appropriate state officials as
to the continued existence and good standing of Mariner Nashville, together with
a certificate from the Secretary of State of Delaware certifying the Certificate
of Incorporation of Mariner Nashville shall be provided to the Agent. All of the
issued and outstanding capital stock of Mariner Nashville shall have been
pledged to the Agent for the benefit of the Banks pursuant to a Pledge Agreement
in form and substance satisfactory to the Agent, and the stock certificate and
stock power therefor shall have been delivered to the Agent for the benefit of
the Banks.
(e) Legal Details; Counterparts. All legal details
and proceedings in connection with the transactions contemplated by this
Amendment shall be in form and substance satisfactory to the Agent, and the
Agent shall have received all such other counterpart originals or certified or
other copies of such documents and proceedings in connection with such
transactions, in form and substance satisfactory to the Agent.
(f) Approvals. All consents and approvals from
governmental authorities or agencies or other persons shall have been obtained
and a copy of each shall have been provided to the Agent.
5. Amendment to Certain Other Loan Documents.
(a) Schedule 1 to that certain Guaranty Agreement
made by each Subsidiary of the Borrower party thereto, for the benefit of the
Banks, dated as of May 18, 1994, as amended is hereby amended and restated to
read as set forth on the Schedule attached hereto bearing the same numerical
reference and name.
(b) Schedule A to the following Pledge Agreements is
hereby amended and restated to read as set forth on the schedule attached hereto
bearing the same numerical reference and name:
(i) SCHEDULE A TO THE PLEDGE AGREEMENT
(Borrower) dated as of May 18, 1994, as
amended, by the Borrower, as pledgor in
favor of the Agent
(ii) SCHEDULE A TO THE PLEDGE AGREEMENT
(Subsidiaries Pledging Stock) dated as of
May 18, 1994, as amended, by certain
Subsidiaries of the Borrower, as pledgor in
favor of the Agent
-3-
(iii)SCHEDULE A TO AMENDED AND RESTATED PLEDGE
AGREEMENT (Subsidiaries pledging Partnership
Interests) dated June 1, 1996, as amended by
certain Subsidiaries of the Borrower, as
pledgor in favor of the Agent
6. Consents and Amendments to Certain Other Documents in
Connection With the Merger. To the extent that any consent of the Banks, any
amendment to any Intercreditor Agreement to which CSI is a party or any
amendment to any Trustee Agreement is required in connection with the merger of
CSI with and into Mariner Nashville, the Banks hereby authorize the Agent to
execute such consent or amendment on behalf of the Banks, with such consent or
amendment to be in form and substance satisfactory to the Banks.
7. Force and Effect. Except as expressly modified by this
Amendment, the Credit Agreement and the other Loan Documents are hereby ratified
and confirmed and shall remain in full force and effect after the date hereof.
8. Governing Law. This Amendment shall be deemed to be a contract
under the laws of the Commonwealth of Pennsylvania and for all purposes shall be
governed by and construed and enforced in accordance with the internal laws of
the Commonwealth of Pennsylvania without regard to its conflict of laws
principles.
[INTENTIONALLY BLANK]
-4-
[SIGNATURE PAGE 1 OF 2 TO AMENDMENT NO. 11]
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
MARINER HEALTH GROUP, INC.
By:
Name:
Title:
PNC BANK, NATIONAL ASSOCIATION,
individually and as Agent
By:
Name:
Title:
CHEMICAL BANK
By:
Name:
Title:
CORESTATES BANK, N.A.
By:
Name:
Title:
CREDITANSTALT - BANKVEREIN
By:
Name:
Title:
By:
Name:
Title:
[SIGNATURE PAGE 2 OF 2 TO AMENDMENT NO. 11]
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By:
Name:
Title:
MELLON BANK, N.A.
By:
Name:
Title:
NATIONSBANK OF TENNESSEE, N.A.
By:
Name:
Title:
TORONTO DOMINION (NEW YORK), INC.
By:
Name:
Title:
Exhibit 11: Computation of shares used in determining net income per share (1)
- -----------
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended June 30, Three Months Ended June 30,
-------------------------------------------------------------
1995 1996 1995 1996
-------------- ------------ ------------------------------
<S> <C> <C> <C> <C>
Net income (loss) $ 3,278 $ 9,569 $ (1,341) $ 7,524
============== ============ ============= =============
Weighted average shares outstanding 22,470,326 28,523,796 22,506,051 28,681,350
Shares issuable based on the treasury stock method:
Options 604,086 663,843 51,741 648,456
Warrants --- 73,539 --- 73,724
------------- ----------- ------------- ------------
23,074,472 29,261,178 22,557,792 29,403,530
============== ============ ============= =============
</TABLE>
(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> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS DATED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,601
<SECURITIES> 0
<RECEIVABLES> 153,674
<ALLOWANCES> 8,817
<INVENTORY> 0
<CURRENT-ASSETS> 173,730
<PP&E> 371,997
<DEPRECIATION> 40,607
<TOTAL-ASSETS> 717,528
<CURRENT-LIABILITIES> 83,880
<BONDS> 0
0
0
<COMMON> 288
<OTHER-SE> 316,039
<TOTAL-LIABILITY-AND-EQUITY> 717,528
<SALES> 280,783
<TOTAL-REVENUES> 280,783
<CGS> 0
<TOTAL-COSTS> 242,435
<OTHER-EXPENSES> 22,510
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,970
<INCOME-PRETAX> 15,838
<INCOME-TAX> 6,269
<INCOME-CONTINUING> 9,569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,569
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
