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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
AMENDMENT NO. 1 TO FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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 06-125131
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
1881 Worcester Road
FRAMINGHAM, MASSACHUSETTS 01701
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (860) 701-2000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS
(Title of Class)
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______
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
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The aggregate market value of the Common Stock, $.01 par value, of the
registrant held by non-affiliates of the registrant as of March 31, 1998
(computed based on the closing price of such stock on The Nasdaq National Market
on March 31, 1998) was $506,290,932.25.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of March 31, 1998 was 29,564,434 shares.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The Company's Board of Directors (the "Board") is divided into three
classes: the Class I, Class II and Class III directors. Each director is elected
for a three-year term of office, with one class of directors being elected at
each annual meeting of stockholders. Each director holds office until his
successor is elected and qualified or until his earlier death, resignation or
removal.
The information below sets forth for each member of the Board such person's
age, principal occupations during the past five years and certain other
information:
Class I Directors
Christopher Grant, Jr., age 43, has served as a director of the Company
since 1991. Mr. Grant has been the managing member of Salix Partners, LLC, which
serves as the general partner of Salix Ventures, L.P., a venture capital firm,
since January, 1998. Since May 1995, Mr. Grant has also served as the President
of CGJR Capital Management, Inc. ("CGJR Capital"), a venture capital firm. From
May 1994 through May 1995, he was involved in organizing CGJR Health Care
Services Private Equities, L.P., a limited partnership, for which CGJR Capital
serves as the general partner. From January 1994 through May 1994, Mr. Grant
served as the Senior Vice President and Chief Operating Officer of Surgical
Health Corporation, an operator of outpatient surgical centers. From March 1993
through January 1994, Mr. Grant was Executive Vice President, Chief Operating
Officer and a director of Heritage Surgical Corporation, an operator of
outpatient surgical centers. From 1990 through March 1993, Mr. Grant served as
Senior Vice President and, through 1992, Treasurer of Medical Care
International, Inc., an operator of outpatient surgical centers. From 1989
through 1990, Mr. Grant served as President of MediVision, Inc., an operator of
eye surgery and ophthalmic clinics, and from 1986 through 1989, served as its
Chief Financial Officer.
John F. Robenalt, age 45, has served as a director of the Company since
1991. Mr. Robenalt has been the Chief Executive Officer, Chief Operating
Officer, President and a Director of Just Like Home, Inc., a publicly-owned
assisted living company since 1997. Mr. Robenalt was the President of Panama
City Health Care Center, Inc. from 1985 to 1997 and the President of Sarasota
Health Care Center, Inc. from 1990 to 1997, both of which are nursing facilities
located in Florida. Since 1992, Mr. Robenalt has been President of Morgan Hill
Health Care Investors, Inc. (an owner of two nursing facilities in California),
Oak Health Care Investors of Durham, Inc. (a lessee of a nursing facility in
North Carolina) and Century Health Care Investors, Inc. (a company investing
primarily in nursing facilities). Mr. Robenalt has also been an attorney
practicing with Robenalt & Robenalt since 1984, and has been the managing
partner of that firm since 1986. From 1988 to 1991, Mr. Robenalt served as Vice
President of Health Care REIT, Inc., with responsibility for underwriting
investments in health care facilities. Since May 1995, Mr. Robenalt has been a
director of Stacey's Buffet, Inc., a restaurant chain based in Florida.
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Class II Directors
David C. Fries, Ph.D., age 53, has served as a director of the Company
since 1992. Since December 1994, Dr. Fries has been the Chief Executive Officer
and a director of Productivity Solutions, Inc., a software company servicing the
retail industry. From 1987 through December 1994, Dr. Fries was a general
partner of Canaan Ventures, a venture capital firm. Prior to 1987, Dr. Fries had
been an operating executive with General Electric Co. in several of its business
units.
David N. Hansen, age 45, has served as a director of the Company since July
1997. Since October 1996, Mr. Hansen has been an Executive Vice President, Chief
Financial Officer, and Treasurer of the Company. From 1988 through 1996, Mr.
Hansen was a partner at the accounting firm of Coopers & Lybrand L.L.P.
Samuel B. Kellett, age 53, has served as a director of the Company since
July 1997. Mr. Kellett has been owner and president of Samuel B. Kellett
Investments since January 1996. Mr. Kellett was president of Convalescent
Services, Inc. from 1978 to January 1996. See "Certain Transactions -
Transactions with Convalescent Services, Inc."
Class III Director
Arthur W. Stratton, Jr., M.D., age 52, has been Chairman of the Board of
Directors and Chief Executive Officer of the Company since founding the Company
in 1988. He also served as President of the Company since inception until May
1994 and from February 1995 to the present. Prior to founding the Company, Dr.
Stratton was a practicing physician and served in a number of administrative
capacities in acute care hospitals.
Stiles A. Kellett, Jr., age 54, has served as a director of the Company
since July 1995. He became a director of the Company in connection with the
Company's transactions with Convalescent Services, Inc. ("CSI") and its
affiliates. He was Chairman of the Board of Directors of CSI from 1980 to
January 1996. See "Certain Transactions--Transactions with Convalescent
Services, Inc." Mr. Stiles A. Kellett, Jr. is Chairman of Kellett Investment
Corp., a private investment company. Mr. Stiles A. Kellett, Jr. has served as a
director of WorldCom Inc., a telecommunications company, since 1981.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of March 31, 1998, who are elected
on an annual basis and serve at the discretion of the Board of directors, are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES SERVED
- ------------------------------------ ---- ------------------------------------------ ------------
<S> <C> <C> <C>
Arthur W. Stratton, Jr., M.D........ 52 Chairman of the Board, President and Chief 1988-Present
Executive Officer & Director
David N. Hansen..................... 45 Executive Vice President, Chief Financial 1996-Present
Officer and Treasurer
Paul Diaz .......................... 36 Executive Vice President and Chief 1997-Present
Operating Officer
</TABLE>
Dr. Stratton has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since founding the Company in 1988. He also
served as President of the Company since inception until May 1994 and from
February 1995 to the present. Prior to founding the Company, Dr. Stratton was a
practicing physician and served in a number of administrative capacities in
acute care hospitals.
Mr. Hansen has served as Executive Vice President, Chief Financial Officer,
and Treasurer of the Company since October, 1996. Prior to joining Mariner, Mr.
Hansen was a partner at Coopers & Lybrand L.L.P. from 1988 to 1996.
Mr. Diaz joined Mariner in October, 1996 and has served as Chief Operating
Officer of the Company since November, 1997. Prior to that, he was President of
the Inpatient Division. Mr. Diaz served as Chief Executive Officer of Allegis
Health Services from January, 1995 until the company was purchased by Mariner in
October of 1996. He served as Chief Financial Officer and General Counsel of
Allegis Health Services from January, 1991 through December, 1994.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities Exchange Commission.
Officers, directors and greater-than-ten percent stockholders are required by
Securities and Exchange Commission regulations to furnish the Company with all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, the
Company believes that during 1997 all of its officers, directors and
greater-than-ten-percent stockholders complied with all Section 16(a) filing
requirements, except that Dr. Stratton, David C. Fries, Stiles A. Kellett, Jr.,
Samuel B. Kellett, Christopher Grant and John F. Robenalt each filed one late
Form 5. As a result, Dr. Stratton reported seven late transactions; Stiles A.
Kellett, Jr. reported eight late transactions; and David C. Fries, Samuel B.
Kellett, Christopher Grant and John F. Robenalt each reported one late
transaction.
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ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation paid or accrued by the Company for services
rendered to the Company, in all capacities, for the year ended December 31, 1997
by its Chief Executive Officer (the "CEO") and each of the Company's executive
officers other than the CEO whose total salary and bonus exceeded $100,000
during the year ended December 31, 1997 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(A) OPTIONS(#)(B)
<S> <C> <C> <C> <C> <C>
Arthur W. Stratton, Jr., M.D..... 1997 $750,000 $750,000 $174,393(c) 1,360,000(d)
Chief Executive Officer and 1996 700,000 175,000(e) 68,219 --
President 1995 425,000 450,000 -- 1,060,000(f)
David N. Hansen (g) ............. 1997 350,000 350,000 -- --
Executive Vice President, Chief 1996 87,500 100,000 -- 500,000
Financial Officer and 1995 -- -- -- --
Treasurer
Paul J. Diaz (h)................. 1997 247,325 350,000 -- 105,000
Executive Vice President and 1996 -- -- -- --
Chief 1995 -- -- -- --
Operating Officer
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</TABLE>
(a) Except as noted below, does not include perquisites and other personal
benefits, securities or property if the aggregate amount of such
compensation does not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported for the Named Executive Officer.
(b) The Company did not grant any restricted stock awards or stock appreciation
rights or make any long-term incentive plan payouts during the year ended
December 31, 1997.
(c) Includes $72,749 in costs related to Dr. Stratton's non-business use of the
Company airplane and $101,356 in relocation costs.
(d) Pursuant to the rules of the Securities and Exchange Commission, this number
includes (i) options to purchase 460,000 shares which had been previously
granted to Dr. Stratton in 1994, but were repriced on July 14, 1995 and
January 10, 1997 and (ii) options to purchase 600,000 shares which had been
previously granted to Dr. Stratton in 1995, but were repriced on July 14,
1995 and January 10, 1997. See footnote (f).
(e) Represents bonuses paid with respect to the Company's performance during the
first and second quarters of 1996. No bonuses were paid to Dr. Stratton with
respect to the third or fourth quarters of 1996 or the year ended December
31, 1996.
(f) Pursuant to the rules of the Securities and Exchange Commission, this number
consists of (i) options to purchase 460,000 shares which had been previously
granted to Dr. Stratton in 1994, but were repriced on July 14, 1995 and (ii)
options to purchase 600,000 shares granted to Dr. Stratton in 1995, of which
options to purchase 300,000 shares were repriced on July 14, 1995. See
footnote (d).
(g) Mr. Hansen joined the Company in October 1996.
(h) Mr. Diaz joined the Company in October 1996 and became the Executive Vice
President and Chief Operating Officer in November 1997.
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OPTIONS AND STOCK PLANS
Option Grant Table. The following table sets forth certain information
regarding options granted during the year ended December 31, 1997 by the Company
to the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
PERCENT OF REALIZABLE VALUE
NUMBER OF TOTAL OPTIONS AT ASSUMED ANNUAL
SECURITIES GRANTED TO RATES OF STOCK
UNDERLYING EMPLOYEES IN PRICE APPRECIATION
NAME OPTIONS FISCAL YEAR EXERCISE OR EXPIRATION FOR OPTION TERM ($) (B)
GRANTED (#) (%)(A) BASE PRICE ($) DATE 5% 10%
----------- ------ ----------- ------------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Arthur W. Stratton, Jr., 300,000 9.7% $9.125 1/10/07 $1,721,599 $4,362,870
M.D....................... 300,000(c) 9.7% $9.125 12/21/05 $1,721,599 $4,362,870
300,000(c) 9.7% $9.125 3/14/05 $1,721,599 $4,362,870
460,000(c) 14.9% $9.125 6/22/04 $2,639,785 $6,689,734
David N. Hansen........... -- -- -- -- -- --
Paul J. Diaz.............. 5,000 0.2% $9.125 1/10/07 $28,693 $72,714
100,000 3.2% $11.00 5/8/07 $691,784 $1,753,117
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</TABLE>
(a) Based on 3,095,096 options granted in 1997.
(b) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock price appreciation of 5% and
10% compounded annually from the date the respective options were
granted to their expiration dates. These numbers are calculated based
on rules promulgated by the Securities and Exchange Commission and do
not represent an estimate by the Company of its future stock price growth.
Actual gains, if any, on stock option exercises and Common Stock holdings
are dependent on the timing of such exercise and the future performance
of Common Stock. There can be no assurances that the rates of
appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the individuals.
(c) Pursuant to the rules of the Securities and Exchange Commission, these
numbers includes (i) options to purchase 460,000 shares which had been
previously granted to Dr. Stratton in 1994, but were repriced on July 14,
1995 and January 10, 1997 and (ii) options to purchase 600,000 shares which
had been previously granted to Dr. Stratton in 1995, but were repriced on
July 14, 1995 and January 10, 1997.
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Year-End Option Table. The following table sets forth certain information
concerning stock option exercises in fiscal 1997 by the Named Executive Officers
and the value of the unexercised stock options as of December 31, 1997 held by
the Named Executive Officers.
OPTION EXERCISES IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED VALUE YEAR-END (#) YEAR-END ($)(b)
NAME ON REALIZED
EXERCISE (#) ($)(A) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Arthur W. Stratton, Jr., -- -- 211,666 1,213,334 $1,958,245 $8,645,005
M.D.......................
David N. Hansen........... -- -- 120,000 380,000 982,800 3,112,200
Paul J. Diaz.............. -- -- 26,666 128,334 169,397 800,729
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</TABLE>
(a) Amounts disclosed in this column do not reflect amounts actually received
by the Named Executive Officers but are calculated based on the difference
between the fair market value of Common Stock on the date of exercise and
exercise price of the options. Named Executive Officers will receive cash
only if and when they sell the Common Stock issued upon exercise of the
options and the amount of cash, if any, received by such individuals is
dependent on the price of the Company's Common Stock at the time of such
sale.
(b) Value is based on the difference between the option exercise price and the
fair market value at December 31, 1997 year-end ($16.25 per share)
multiplied by the number of shares underlying the option.
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DIRECTORS' COMPENSATION
During the year ended December 31, 1997, non-employee members of the Board
received an annual fee of $10,000, plus $2,000 for each meeting of the Board
attended and $1,500 for each meeting of any of the committees of the Board
attended, if held separately. Directors are also reimbursed for their reasonable
out-of-pocket expenses incurred in attending meetings. Executive officers serve
at the discretion of the Board. There are no family relationships among any of
the executive officers or directors of the Company with the exception of Stiles
A. Kellett, Jr. and Samuel B. Kellett, who are brothers.
The Company's 1995 Non-Employee Director Stock Option Plan (the "Directors
Plan") is administered by the Compensation Committee of the Board. Subject to
availability of shares under the Directors Plan, a director will be
automatically granted on January 1 of each year during the term of the Directors
Plan an option to purchase 2,500 shares of Common Stock at fair market value as
of the date of grant. Each non-employee who becomes a director of the Company in
the future will receive a grant of 2,500 shares on the date such person is first
elected to the Board.
EMPLOYMENT AGREEMENTS
Dr. Stratton. The Company has entered into an employment agreement with
Arthur W. Stratton, Jr., M.D., the Company's President and Chief Executive
Officer. Under this employment agreement, which was amended as of October 20,
1997, Dr. Stratton will serve as the Company's Chief Executive Officer for a
term from October 20, 1997 through December 31, 2002. The term of the employment
agreement automatically extends thereafter for additional one-year periods,
unless terminated by either party at least 90 days prior to the expiration of
the then current term. The Company is also obligated to use all reasonable
efforts to have Dr. Stratton reelected to the Board for as long as he is an
employee of the Company. Pursuant to the employment agreement, Dr. Stratton will
receive a base salary (the "Base Salary") and a bonus of up to 100% of the Base
Salary if the Company meets certain performance objectives established by the
Compensation Committee of the Board (the "Committee"). Dr. Stratton's Base
Salary was $750,000 for 1997 and is $850,000 for 1998. The Company has agreed to
maintain life insurance on the life of Dr. Stratton with total death benefits of
$2,000,000, which is payable in accordance with Dr. Stratton's written
instructions, and disability benefits in the amount of 70% of Dr. Stratton's
average compensation for the three years prior to his disability. Finally, Dr.
Stratton is eligible to participate in the benefits plans maintained by the
Company.
If the Company terminates the employment agreement without Cause (as
defined in the employment agreement) or if Dr. Stratton terminates his
employment due to a material breach by the Company ("Material Breach") of
certain terms of the employment agreement at any time either prior to a Change
in Control (as defined in the employment agreement) or from and after the first
anniversary of a Change in Control, Dr. Stratton will receive an aggregate
severance benefit, payable in equal installments until the fifth anniversary of
such termination, equal to (x) the greater of five times $1 million or the base
salary being paid to Dr. Stratton immediately prior to his termination plus
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(y) the greater of (1) the bonus paid to Dr. Stratton in the most recently
completed fiscal year, (2) the aggregate amount of all bonuses paid to Dr.
Stratton during the 12 months prior to termination or (3) 100% of the Base
Salary being paid to Dr. Stratton immediately prior to termination (the
"Base Severance Amount"). In addition, Dr. Stratton will receive normal
post-termination benefits in accordance with the Company's retirement,
insurance and other benefit plans and arrangements and the Company will
provide coverage for Dr. Stratton and his dependents under its health
benefit plans and arrangements until the fifth anniversary of such
termination. If the Company terminates the employment agreement without
cause, or if Dr. Stratton terminates his employment due to a Material Breach
by the Company, or for Good Reason (as defined in the employment agreement), in
any such case at any time during a period commencing with a Change in Control
and ending one year from such Change in Control, Dr. Stratton will receive an
aggregate severance benefit, payable in equal installments until the seventh
anniversary of such termination, equal to seven times his Base Severance
Amount and normal post-termination benefits, as described above, until the
seventh anniversary of such termination. If the Company terminates the
employment agreement because of permanent disability, Dr. Stratton will receive
compensation at an annual rate equal to the Base Severance Amount for a 54 month
period following such termination. In addition, the Company will pay Dr.
Stratton's normal post-termination benefits and will provide coverage for Dr.
Stratton and his dependents under its health benefit plans and arrangements for
a 54-month period following such termination.
If Dr. Stratton dies or if the Company terminates the employment contract
because of permanent disability before receipt by Dr. Stratton of any or all
payments to which Dr. Stratton is entitled under the employment agreement, the
balance of all payments to which Dr. Stratton is entitled will continue to be
paid to Dr. Stratton or his estate in installments or as a present value lump
sum cash payment. If the Company terminates the employment agreement without
Cause or because of permanent disability at any time, if Dr. Stratton terminates
the employment agreement because of a Material Breach or for Good Reason, or if
Dr. Stratton dies, any options which have not yet vested will vest and Dr.
Stratton will have 60 days after such termination to elect to receive the
present value of the applicable cash severance benefit (as described above) or
any other amount to which he would be entitled. If such election is made by Dr.
Stratton, the Company is obligated to pay such present value amount within 30
days after notice is given by Dr. Stratton. If it is determined that any payment
or distribution paid or deemed paid to Dr. Stratton would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), Dr. Stratton will be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by Dr. Stratton of all
taxes (including any interest or penalties imposed with respect to such taxes),
including any Excise Tax imposed upon the Gross-Up Payment, Dr. Stratton retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
payments.
Dr. Stratton has agreed not to compete with the Company, solicit its
employees or become associated with any competitor of the Company (unless such
association is limited to ownership of less than one percent of any class of
securities of any corporation traded in a national securities exchange or in The
Nasdaq National Market) for three years from the termination of his employment.
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Mr. Hansen. The Company has entered into an employment with David N.
Hansen, the Company's Executive Vice President, Chief Financial Officer and
Treasurer. Under this agreement, Mr. Hansen will serve as the Company's
Executive Vice President and Chief Financial Officer. The original term of the
employment agreement was from September 15, 1996 through December 31, 1996, and
the term of the employment agreement automatically extends thereafter for
additional one-year periods, unless terminated by either party at least 90 days
prior to the expiration of the then current term. Pursuant to the employment
agreement Mr. Hansen will receive a Base Salary and a bonus if the Company meets
certain performance objectives established by the Committee. Mr. Hansen's Base
Salary was $350,000 for 1997 and is $350,000 for 1998. In addition, Mr. Hansen
received stock options to purchase an aggregate of 500,000 shares. Mr. Hansen
also received a $100,000 signing bonus for entering into the employment
agreement. Mr. Hansen is eligible to participate in the benefits plans
maintained by the Company.
If the Company terminates Mr. Hansen's employment agreement without Cause
(as defined in the employment agreement) or if Mr. Hansen terminates his
employment due to a Material Breach by the Company (as defined in the employment
agreement)of certain terms of the employment agreement at any time either prior
to a Change in Control (as defined in the employment agreement) or from and
after the first anniversary of a Change in Control, Mr. Hansen will receive a
severance benefit, payable, until the second anniversary of the termination
equal to the Base Salary paid to him immediately prior to his termination and a
bonus equivalent to the bonus paid to him with respect to the most recently
completed fiscal year. If the Company terminates the employment agreement
without Cause at any period within one year following a Change in Control or if
Mr. Hansen terminates his employment during such period because of a Material
Breach by the Company or for Good Reason (as defined in the employment
agreement), Mr. Hansen will receive a severance benefit until the third
anniversary of the termination equal to the Base Salary paid to him immediately
prior to his termination and a bonus equivalent to the bonus paid to him with
respect to the most recently completed fiscal year. If Mr. Hansen's employment
is terminated for any other reason he will be entitled to receive compensation
and benefits through the date of termination and payment of his normal
post-termination benefits in accordance with the Company's retirement, insurance
and other benefit plans and arrangements. In addition, if Mr. Hansen's
employment is terminated by the Company without Cause or is terminated by him
due to a Material Breach or with Good Reason, fifty percent of options which
have not yet vested will vest. If Mr. Hansen's employment is terminated by the
Company without Cause at any time within one year following a Change of Control
or if Mr. Hansen terminates his employment during such period because of a
Material Breach by the Company or for Good Reason, all options which have not
yet vested will vest and may be exercised by Mr. Hansen within 60 days.
Furthermore, in such a termination situation Mr. Hansen will have 60 days after
such termination to elect to receive an amount equal to the present value of the
Extended Severance Benefit (as defined in the employment agreement). If it is
determined that any payment or distribution paid or deemed paid to Mr. Hansen
would be subject to the excise tax imposed by Section 4999 of the Code, or any
interest or penalties with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), Mr. Hansen will be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by Mr.
Hansen of all taxes (including any interest or penalties imposed with respect to
such taxes),
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including any Excise Tax imposed upon the Gross-Up Payment, Mr. Hansen retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
payments.
Mr. Hansen has agreed not to compete with the Company, solicit its
employees, become associated with any competitor of the Company (unless such
association is limited to ownership of less than one percent of any class of
securities of any corporation traded in a national securities exchange or in The
Nasdaq National Market) or disclose any material information concerning the
Company for the later of (i) three years from the termination of his employment
or (ii) the end of the period during which Mr. Hansen is entitled to receive any
severance benefits.
Mr. Diaz. The Company has entered into an employment with Paul Diaz, the
Company's Executive Vice President and Chief Operating Officer. Under this
agreement, Mr. Diaz will serve as the Company's Executive Vice President and
Chief Operating Officer for a term from November 17, 1997 through December 31,
1998. The term of the employment agreement automatically extends thereafter for
additional one-year periods, unless terminated by either party at least 90 days
prior to the expiration of the then current term. Pursuant to the employment
agreement Mr. Diaz will receive a Base Salary and a bonus if the Company meets
certain performance objectives established by the Committee. Mr. Diaz's Base
Salary, prorated for that period of time during which his employment agreement
was in effect, was $350,000 for 1997 and is $350,000 for 1998. Mr. Diaz is
eligible to participate in the benefits plans maintained by the Company.
If the Company terminates the employment agreement without Cause (as
defined in the employment agreement) or if Mr. Diaz terminates his employment
due to a Material Breach by the Company (as defined in the employment agreement)
of certain terms of the employment agreement at any time either prior to a
Change in Control (as defined in the employment agreement) or from and after the
first anniversary of a Change in Control, Mr. Diaz will receive an aggregate
severance benefit, payable in equal installments until the second anniversary of
such termination, equal to twice the sum of the Base Salary being paid to Mr.
Diaz immediately prior to such termination plus the bonus paid to him in the
fiscal year most recently completed prior to such termination. In addition, Mr.
Diaz will receive normal post-termination benefits in accordance with the
Company's retirement, insurance and other benefit plans and arrangements and the
Company will provide coverage for Mr. Diaz under its health benefit plans and
arrangements until the second anniversary of such termination. If the Company
terminates the employment agreement without Cause (as defined in the employment
agreement) or if Mr. Diaz terminates his employment due to a Material Breach by
the Company at any time during a period commencing with a Change in Control and
ending one year from such Change in Control, Mr. Diaz will receive an aggregate
severance benefit, payable in equal installments until the third anniversary of
such termination, equal to three times the sum of the Base Salary being paid to
Mr. Diaz immediately prior to such termination plus the bonus paid to him in the
fiscal year most
<PAGE> 13
-13-
recently completed prior to such termination. In addition, Mr. Diaz will receive
normal post-termination benefits as described above until the third anniversary
of such termination.
In addition, if Mr. Diaz's employment is terminated by the Company without
Cause or is terminated by him due to a Material Breach or with Good Reason,
fifty percent of options which have not yet vested will vest. If Mr. Diaz's
employment is terminated by the Company without Cause at any time within one
year following a Change of Control or if Mr. Diaz terminates his employment
during such period because of a Material Breach by the Company or for
Good Reason, all options which have not yet vested will vest and may be
exercised by Mr. Diaz within 60 days. Furthermore, in such a termination
situation Mr. Diaz will have 60 days after such termination to elect to receive
an amount equal to the present value of the Extended Severance Benefit (as
defined in the employment agreement). If it is determined that any payment or
distribution paid or deemed paid to Mr. Diaz would be subject to the excise tax
imposed by Section 4999 of the Code, or any interest or penalties with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), Mr.
Diaz will be entitled to receive an additional payment (a "Gross-Up Payment") in
an amount such that after payment by Mr. Diaz of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Gross-Up Payment, Mr. Diaz retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the payments.
Mr. Diaz has agreed not to compete with the Company, solicit its employees,
become associated with any competitor of the Company (unless such association is
limited to ownership of less than one percent of any class of securities of any
corporation traded in a national securities exchange or in The Nasdaq National
Market) or disclose any material information concerning the Company for the
later of (i) two years from the termination of his employment or (ii) the end of
the period during which Mr. Diaz is entitled to receive any severance benefits.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Committee are Messrs. Grant, Fries and Robenalt. No
member of the Committee was at any time during the past year an officer or
employee of the Company or any of its subsidiaries, was formerly an officer of
the Company or any of its subsidiaries, or had any relationship with the Company
requiring disclosure herein.
During the last year, no executive officer of the Company served as a
member of the compensation committee of another entity (or other committee of
the board of directors performing equivalent functions or, in the absence of any
such committee, the entire board of directors), of which either Messrs. Grant,
Fries and Robenalt is an executive officer.
<PAGE> 14
-14-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 31, 1998 (i) by each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares of Common Stock, (ii) by each director of the Company, (iii) by each
executive officer of the Company named in the Summary Compensation Table and
(iv) by all directors and executive officers of the Company as a group. Unless
otherwise indicated below, to the knowledge of the Company, all persons listed
below have sole voting and investment power with respect to their shares of
Common Stock, except to the extent authority is shared by spouses under
applicable law.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENTAGE OF SHARES
NAME OF BENEFICIAL OWNER OWNED(1) BENEFICIALLY OWNED(1)
<S> <C> <C>
Kellett Stockholder Group (2):
Stiles A. Kellett, Jr. (3)................ 3,063,943 10.2%
Samuel B. Kellett (4)..................... 2,178,446 7.4
Others (5)................................ 854,132 2.9
---------- ----
Kellett Stockholder Group (2)........... 6,067,771 20.5
Massachusetts Financial Services Company (6) 2,878,800 9.7
J.P. Morgan & Co., Incorporated (7)......... 2,032,700 6.9
Arthur W. Stratton, Jr., M.D. (8)........... 598,610 2.0
David N. Hansen (9) ....................... 186,667 *
Paul J. Diaz (10)........................... 131,666 *
John F. Robenalt, Esq. (11)................. 22,733 *
Christopher Grant, Jr. (12)................. 15,000 *
David C. Fries, Ph.D. (13).................. 15,777 *
All executive officers and directors
as a group (14)....................... 6,212,842 20.5
- --------------------------
</TABLE>
* Represents less than 1% of the outstanding Common Stock.
(1) As of March 31, 1998, there were 29,564,434 shares of the Company's
Common Stock outstanding. Pursuant to the rules of the Securities and
Exchange Commission, the number of shares of Common Stock deemed
outstanding includes shares issuable pursuant to options held by the
respective person or group which may be exercised within 60 days after
the date of this report ("presently exercisable stock options").
(2) With respect to information relating to the Kellett Stockholder Group,
the Company has relied on information set forth in a Schedule 13D
filing dated January 2, 1996, as amended, filed on behalf of the
Kellett Stockholder Group. The members of the Kellett Stockholder Group
are Stiles A. Kellett, Jr., Samuel B. Kellett, William R. Bassett, as
Trustee of Samuel B. Kellett, Jr. Irrevocable Trust Dated 11/1/91,
William R. Bassett, as Trustee of Charlotte Rich Kellett Irrevocable
Trust Dated 11/1/91, William R. Bassett, as Trustee of Stiles A.
Kellett III Irrevocable Trust Dated 11/1/91, William R. Bassett, as
Trustee of Barbara Katherine Kellett Irrevocable Trust Dated 11/1/91
and Kellett Partners, L.P. The Kellett Stockholder Group does not
include 10,000 shares of Common Stock held by Stiles A. Kellett, Jr.'s
spouse (see footnote (3)) and 18,750 shares of Common Stock held in
trust for one of Samuel B. Kellett's children, of which he is the
trustee (see footnote (4)). See footnotes (3), (4) and (5). The address
of the Kellett Stockholder Group is: c/o Samuel B. Kellett,
Stockholders Agent, 1935 Garraux Road, N.W., Atlanta, GA 30327.
(3) The shares of Common Stock reported for Stiles A. Kellett, Jr., with
the exception of 10,000 shares held by his spouse, are also included in
the holdings of the Kellett Stockholder Group (see footnote (2)). With
respect to information relating to Stiles A. Kellett, Jr., the Company
has relied on information set forth in a Schedule 13D filing dated
January 2, 1996, as amended, filed on behalf of Stiles A. Kellett, Jr.
Includes 10,000 shares of Common Stock issuable pursuant to presently
exercisable stock options, 10,000 shares of Common Stock owned by
Stiles A. Kellett, Jr.'s spouse and 862,760 shares held by Kellett
Partners, L.P., a Georgia limited partnership of which Stiles A.
Kellett, Jr. is the general partner. Does not include an aggregate of
5,000 shares owned directly by Stiles A. Kellett, Jr.'s children. Mr.
Stiles A. Kellett, Jr. disclaims beneficial ownership of the shares
owned by his children. Stiles A. Kellett, Jr.'s address is 200 Galleria
Parkway, Suite 1800, Atlanta, GA 30339.
(4) The shares of Common Stock reported for Samuel B. Kellett, with the
exception of 18,750 shares held in a trust for (a) one of his children
of which he is the trustee, are also included in the holdings of the
Kellett Stockholder Group (see footnote (2)). With respect
<PAGE> 15
-15-
to information relating to Samuel B. Kellett, the Company has relied on
information set forth in a Schedule 13D filing dated January 2, 1996,
as amended, filed on behalf of Samuel B. Kellett. Includes 5,000 shares
of Common Stock issuable pursuant to presently exercisable stock
options and 18,750 shares of Common Stock held in trust for the benefit
of one of Samuel B. Kellett's children of which he is trustee. Does not
include an aggregate of 854,132 shares held in trust for the benefit of
his two other children of which he is not trustee (see footnote (5)).
Mr. Samuel B. Kellett disclaims beneficial ownership of the shares held
in trust for the benefit of his children. Samuel B. Kellett's address
is 1935 Garraux Road, N.W., Atlanta, GA 30327.
(5) The shares of Common Stock reported here are also included in the
holdings of the Kellett Stockholder Group (see footnote (2)). With
respect to information relating to the following trusts, the Company
relied on information set forth in a Schedule 13D filing dated January
2, 1996, as amended, filed on behalf of the Kellett Stockholder Group.
Includes shares of Common Stock of the following trusts: William R.
Bassett, as Trustee of Samuel B. Kellett, Jr. Irrevocable Trust Dated
11/1/91 and William R. Bassett, as Trustee of Charlotte Rich Kellett
Irrevocable Trust Dated 11/1/91. Each of these trusts owns 427,066
shares of Common Stock. See footnote (2).
(6) With respect to information relating to Massachusetts Financial
Services Company ("MFS"), the Company has relied on information set
forth in a Schedule 13G filing dated February 12, 1998 filed on behalf
of MFS. Includes 1,654,200 shares which are also beneficially owned by
MFS Series Trust II - MFS Emerging Growth Fund and 1,224,600 shares
which are also owned by certain other non-reporting entities. MFS'
address is 500 Boylston Street, 15th Floor, Boston, MA 02116.
(7) With respect to information relating to J.P. Morgan & Co. Incorporated
("J.P. Morgan"), the Company has relied on information set forth in
a Schedule 13G filing dated February 13, 1998 filed on behalf of J.P.
Morgan. J.P. Morgan's address is 60 Wall Street, New York, New York
10260.
(8) Consists of 158,900 shares of Common Stock owned jointly by Dr.
Stratton and his spouse, 28,044 shares of Common Stock owned by Dr.
Stratton's spouse and 411,666 shares of Common Stock issuable pursuant
to presently exercisable stock options granted to Dr. Stratton.
(9) Consists of 186,667 shares of Common Stock issuable pursuant to
presently exercisable stock options.
(10) Includes 81,666 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(11) Includes 1,200 shares owned by Mr. Robenalt's spouse and 900 shares
held by a trust for the benefit of his children. Mr. Robenalt disclaims
beneficial ownership of such shares. Also includes 11,000 shares of
Common Stock issuable pursuant to presently exercisable stock options.
(12) Includes 10,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(13) Includes 10,000 shares of Common Stock issuable pursuant to presently
exercisable stock options.
(14) Includes presently exercisable stock options to purchase an
aggregate of 725,999 shares of Common Stock. See footnotes (3), (4),
(6), (7), (8), (9), (10), and (11).
<PAGE> 16
-16-
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH CONVALESCENT SERVICES, INC. AND THE KELLETT PARTNERSHIPS
On January 9, 1995, the Company, CSI, CSI's stockholders and certain of
their affiliates entered into certain agreements governing the merger of Blue
Corporation, a Georgia corporation and wholly owned subsidiary of the Company,
with and into CSI and the acquisition of certain related assets. CSI operated
subacute-oriented skilled nursing facilities that provided restorative nursing
care and specialty medical services, including rehabilitation programs,
respiratory therapy, infusion therapy, wound care treatment and Alzheimer
disease management. The Company acquired 25 skilled nursing facilities, one
rehabilitation hospital and one continuing care retirement community, with an
aggregate of 3,801 beds in connection with this transaction. On January 2, 1996
the CSI merger (the "CSI Merger") was consummated.
Pursuant to the Agreement and Plano of Merger by and between the Company,
CSI and Blue Corporation, a wholly owned subsidiary of the Company, (the "CSI
Merger Agreement"), 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
Common Stock, and $7,000,000 in cash. As a result of the CSI Merger, the Stiles
A. Kellett, Jr. and Samuel B. Kellett (the "Kelletts") each received 2,072,696
shares of Common Stock.
The shares of Common Stock issued in the CSI Merger were not registered
under the Securities Act of 1933 (the "Securities Act") and, consequently,
constitute "restricted securities" as that term is defined in Rule 144 under the
Securities Act. On April 29, 1997 (the effective date of the Rule 144 rule
change), the shares of Common Stock received by the former stockholders of CSI
(the "CSI Stockholders") in the CSI Merger became eligible for sale under Rule
144. The Company and the CSI Stockholders have entered into (i) a Stockholders
Agreement relating to certain voting and stock transfer matters and (ii) a
Registration Rights Agreement granting the CSI Stockholders certain registration
rights with respect to the Common Stock received by them in the CSI Merger (each
described below).
Also on January 2, 1996, the Company acquired substantially all the assets
of Meadow Rehab Corp., a Georgia corporation owned by the Kelletts ("MRC"). The
assets of MRC consisted of a 50% partnership interest in IHS Rehab Partnership,
Ltd. ("IHS Rehab"), which leases the North Dallas Rehabilitation Hospital in
Dallas, Texas. CSI owns the remaining 50% partnership interest in IHS Rehab. The
purchase price for MRC's assets was $1,600,000 in cash and the Company assumed
MRC's outstanding indebtedness, which amounted to approximately $335,000.
In addition, the Company acquired the assets that constituted the skilled
nursing facilities known as Arlington Heights Nursing Center in Fort Worth,
Texas, and Randol Mill Manor in Arlington, Texas. Prior to the CSI Merger, these
facilities were leased by CSI from partnerships owned by the Kelletts. The
purchase prices for these facilities aggregated approximately $9.7 million. In
addition, the Company made interest-free loans to the partnerships that owned
Arlington Heights Nursing Center and Randol Mill Manor, with principal amounts
of $955,521 and $663,256, respectively, which mature on May 24, 1999 and 2000,
respectively. The Kelletts have agreed to guaranty the repayment of these loans.
<PAGE> 17
-17-
In connection with the CSI Merger, CSI (which has since merged with and
into another wholly owned subsidiary of Mariner, Mariner Health Care of
Nashville, Inc.) entered into leases on 14 skilled nursing facilities
(collectively, the "Leased Facilities") from partnerships owned or controlled by
the Kelletts. Each of the leases for the Leased Facilities (the "Leases") has a
base term of eight years and four months from January 2, 1996 as well as a
number of five-year renewal terms at the option of CSI, except that the Lease
for Centerville Care Center has a term of seven years and four months with no
renewal terms. Each Lease provides for a fixed rent, which will not increase
over the base or renewal terms of such Lease. The aggregate annual rent for the
Leased Facilities is approximately $8,040,000. In addition to paying scheduled
rent for each Leased Facility, CSI is required to pay all utilities, insurance
and property taxes and to maintain the Leased Facility, reasonable wear and tear
excepted.
If CSI leases a Leased Facility for all optional renewal terms, CSI may
purchase such Leased Facility at the end of the last renewal term for its fair
market value, as determined by agreement between CSI and the applicable Lessor
or, absent such agreement, by appraisal at such time. For each Leased Facility
other than Bethany Village Health Care Center and North Dallas Restorative Care
Center, CSI also will have the option (the "Options") to purchase the Leased
Facility for a fixed price during specified one-year periods for the applicable
Lease. The Options are exercisable during specified periods between 1998 and
2010. The fixed prices are based on appraisals that estimate the fair market
value of each Leased Facility as of the date the Option for each Leased Facility
is first exercisable. The aggregate estimated fair market value as of the
earliest exercise date of the Options of, and the aggregate purchase price for,
the 12 Leased Facilities subject to the Options is approximately $59,585,000. On
May 24, 1995, the Company made a deposit of an aggregate of $13,155,000 with the
Lessors for the Options. If CSI exercises an Option for a Leased Facility, the
portion of such $13,155,000 deposited by the Company for the Option for that
Leased Facility will be credited toward the purchased price for that Leased
Facility. If an Option is not exercised during the applicable exercise period,
the applicable portion of such deposit will be forfeited by the Company. If an
Option is exercised, approvals from health care regulatory authorities may be
required to consummate the purchase of the Leased Facility.
STOCKHOLDERS AGREEMENT. Pursuant to the terms of a stockholders agreement
(the "Stockholders Agreement") between the Company and the CSI Stockholders, the
CSI Stockholders were prohibited from selling any shares of Common Stock
beneficially owned by them prior to May 24, 1997. Between May 24, 1997 and May
24, 1998, the CSI Stockholders are prohibited from selling more than 50% of the
shares of Common Stock beneficially owned by them. After May 24, 1998, the CSI
Stockholders may sell the shares of Common Stock beneficially owned by them
without limitation as to volume imposed by the Stockholders Agreement. Sales of
such shares must otherwise be made in compliance with the other terms of the
Stockholders Agreement.
The Stockholders Agreement prohibits each of Stiles A. Kellett, Jr. and
the trusts for the benefit of his family members that are CSI Stockholders as a
group, and Samuel B. Kellett and the trusts for the benefit of his family
members that are CSI Stockholders as a group, from acquiring, directly,
indirectly or as part of a group, more than 12.5% of the total voting power of
<PAGE> 18
-18-
the outstanding voting securities of the Company, without the prior written
consent of the Company. The CSI Stockholders have also agreed not to (1) solicit
or initiate any offer or proposal for a business combination involving the
Company or any of its subsidiaries, or involving the acquisition of a
substantial portion of any of their assets; (2) solicit, or become a participant
in any solicitation of, proxies from any holder of voting securities of the
Company in connection with any vote on any matter; (3) participate in a group
with respect to any voting securities of the Company, other than the group that
currently exists among the CSI Stockholders; or (4) grant any proxies with
respect to any voting securities of the Company to any person, unless such proxy
specifies that the person holding the proxy shall vote in compliance with the
Stockholders Agreement (other than as recommended by the Board), or deposit any
voting securities of the Company in a voting trust or enter into any other
arrangement or agreement with respect to the voting thereof.
In addition, the CSI Stockholders have agreed to grant the Company a right
of first refusal on any sale, transfer or other disposition of voting securities
of the Company by a CSI Stockholder or any affiliate of a CSI Stockholder where
such sale, transfer or other disposition involves voting securities of the
Company representing more than 1% of the then issued and outstanding shares of
Common Stock. The right of first refusal does not, however, apply to sales,
transfers or other dispositions of voting securities of the Company in
registered public offerings or in transactions pursuant to Rule 144 or Rule 145
under the Securities Act, if the transferee in such transfer is not known to the
CSI Stockholder.
Under the Stockholders Agreement, an agent designated by the CSI
Stockholders (the "Stockholders Agent") has the right to designate one person to
serve on the Company's Board of Directors. The director designee must be
reasonably acceptable to the Company. The Company is obligated to use all
reasonable efforts to cause the designee to be elected as a director. Stiles A.
Kellett, Jr. has been designated as the initial person to serve as a director of
the Company. Effective as of June 2, 1995, Mr. Stiles A. Kellett, Jr. was
appointed as a director of the Company for a term ending at the Company's annual
meeting of stockholders in 1996, at which time he was elected for a three year
term ending at the Company's Annual Meeting of Stockholders in 1999. Also, in
July, 1997, Samuel Kellett was appointed as a director of the Company for a term
ending at the Company's Annual Meeting of Stockholders in 1998.
The provisions of the Stockholders Agreement relating to the Stockholders
Agent's right to designate a director and voting matters terminate on the date
on which the CSI Stockholders own less than 5% of the total voting power of the
outstanding voting securities of the Company. All other provisions of the
Stockholders Agreement terminate (1) with respect to Stiles A. Kellett, Jr. and
the trusts for the benefit of his family members that are CSI Stockholders as a
group, on the date on which they own less than 2.5% of the total voting power of
the outstanding voting securities of the Company, and (2) with respect to Samuel
B. Kellett and the trusts for the benefit of his family members that are CSI
Stockholders as a group, on the date on which they own less than 2.5% of the
total voting power of the outstanding voting securities of the Company.
Registration Rights Agreement. The CSI Stockholders are also entitled to
require the Company to register under the Securities Act the shares of Common
Stock issued to them in the CSI Merger pursuant to a registration rights
agreement (the "Registration Rights Agreement").
<PAGE> 19
-19-
The Registration Rights Agreement provides that if the Company proposes to
register shares of Common Stock under the Securities Act at any time after May
24, 1997, subject to certain exceptions, the CSI Stockholders shall be entitled
to include the shares of Common Stock issued to them in the Merger in such
registration. If such registration involves an underwritten public offering,
the CSI Stockholders' rights to include shares is subject to the satisfaction
of the rights of the Company's other stockholders who have contractual
registration rights and to the rights of the managing underwriter of the
offering to exclude for marketing reasons some or all of the CSI Stockholders'
shares from such registration.
The CSI Stockholders have the additional right under the Registration
Rights Agreement to require the Company to prepare and file on three occasions a
registration statement under the Securities Act with respect to their shares of
Common Stock. This right became exercisable on May 24, 1997 and, if the person
designated by the Stockholders Agent to be nominated for election as a director
of the Company pursuant to the Stockholders Agreement stands for election and is
not elected, once within 120 days after the meeting at which such designee is
not elected. Except for registrations requested after the Stockholders Agent's
designee is not elected, the Company is not required to register more than 50%
of the shares of Common Stock issued in the Merger between May 24, 1997 and May
24, 1998. The Company is required to use all reasonable efforts to effect such
registration, subject to certain conditions and limitations. The Company is
generally required to bear the expenses of all registrations under the
Registration Rights Agreement, except for underwriter's discounts and
commissions or any stock transfer taxes attributable to the shares being offered
and sold. The CSI Stockholders' right to request such registrations will
terminate when the CSI Stockholders own less than 5% of the total voting power
of the outstanding voting securities of the Company.
Other Agreements related to the Kelletts. As of February 28, 1998 Fort
Worth Medical Investor Ltd., L.P. owed the Company approximately $1,018,000. Mr.
Samuel B. Kellett is the general partner of, and owns a minority interest in,
Fort Worth Medical Investors, Ltd., L.P., the assets of which are managed by the
Company. Also, as of February 28 , 1998, Sun City Center Associates, L.P. owed
the Company approximately $2,943,000 in connection with Lake Towers Retirement
Community, and the Company owed Sun City Center Associates, L.P. approximately
$2,182,000 in connection with the Sun Terrace Health Care Center. The Kelletts
are the sole general and limited partners of Sun City Center Associates, L.P.,
the assets of which are managed by the Company. Such amounts are owed in
connection with the working capital accounts of these managed facilities. The
Kelletts also owe the Company certain amounts in connection with certain
indemnity provisions in various of the CSI Merger agreements relating to
outstanding claims against CSI. All such amounts owed to the Company are
currently being contested by the Kelletts.
<PAGE> 20
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 30th day of
April, 1998.
MARINER HEALTH GROUP, INC.
By:/S/ DAVID N. HANSEN
---------------------
David N. Hansen
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/S/ ARTHUR W. STRATTON, JR.* Chairman of the Board of Directors, Chief April 30, 1998
- --------------------------------------------- Executive Officer, President and
Arthur W. Stratton Director (principal executive officer)
/S/ DAVID N. HANSEN* Executive Vice President, Chief Financial April 30, 1998
- --------------------------------------------- Officer, Treasurer and Director
David N. Hansen (principal financial and accounting
officer)
/S/ DAVID C. FRIES* Director April 30, 1998
- ---------------------------------------------
David C. Fries
/S/ CHRISTOPHER GRANT, JR.* Director April 30, 1998
- ---------------------------------------------
Christopher Grant, Jr.
/S/ STILES A. KELLETT, JR.* Director April 30, 1998
- ---------------------------------------------
Stiles A. Kellett, Jr.
/S/ SAMUEL B. KELLETT* Director April 30, 1998
- ---------------------------------------------
Samuel B. Kellett
/S/ JOHN F. ROBENALT* Director April 30, 1998
- ---------------------------------------------
John F. Robenalt
</TABLE>
BY: /S/ DAVID N. HANSEN
-------------------------------------------
David N. Hansen, Attorney in Fact
<PAGE> 21
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission and are referred to and incorporated by reference to such filings.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
2.1, 10.1 Amendment and Restated Stockholders Agreement dated as of
May 24, 1995 by and among Mariner and the Stockholders
(Incorporated by reference to Exhibit 2.6, 10.6 to the
Company's Form 10-Q for the quarter ended June 30, 1995, as
amended).
2.2, 10.2 Agreement and Plan of Merger dated as of February 27, 1996
by and among the Company, Mariner Health of Florida, Inc.,
Regency Health Care Centers, Inc., MedTx Corporation, Dennis
J. Ferguson, J. Steven Garthe, Joseph V. Lennartz, Deborah
B. Wilson and Ronald E. Hayes, as trustee of the Ronald E.
Hayes Revocable Trust of 1994 (Incorporated by reference to
Exhibit 2.15, 10.15 to the Company's Annual Report on Form
10-K for the year ended December 31, 1995).
2.3, 10.3 Agreement and Plan of Merger dated as of February 9, 1996 by
and among the Company, MRI Acquisition Corp. and MedRehab,
Inc. (Incorporated by reference to Exhibit 2.16, 10.16 to
the Company's Annual Report on Form 10-K for the year ended
December 1995).
2.4, 10.4 Registration Rights Agreement dated as of February 9, 1996
by and among the Company and certain former stockholders of
MedRehab, Inc. (Incorporated by reference to Exhibit 2.17,
10.17 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995).
2.5, 10.5 Asset Purchase Agreement dated July 31, 1996 between and
among Mariner Health Group, Inc.; Mariner Health of
Maryland, Inc.; Allegis Health Services, Inc.; Technicare,
L.L.C.; Rehab Solutions, L.L.C.; Bay Meadow Nursing and
Rehabilitation Center, L.L.C.; Camden Yards Nursing and
Rehabilitation Center, L.L.C.; Kensington Gardens Nursing
and Rehabilitation Center, L.L.C.; Global Healthcare
Center-Overlea, L.L.C.; Allegis Health and Rehabilitation
Center -- Southern Maryland, L.L.C.; Global Healthcare
Center -- Bethesda, L.L.C.; Circle Manor Nursing Home, Inc.;
Arcola Nursing and Rehabilitation Center, Inc.; Technicare
Pharmacy, Inc.; Global Health Investment Associates, L.L.C.;
Paul J. Diaz; Marvin H. Rabovsky; Harvey W. Wertlieb; Roger
C. Lipitz; Gary M. Sudhalter and Jay Mutchnik (Incorporated
by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K dated October 3, 1996)
2.6, 10.6 Amendment Number 1 to Asset Purchase Agreement dated October
2, 1996 between and among Mariner Health Group, Inc.;
Mariner Health of Maryland, Inc.; Allegis Health Services,
Inc.; Technicare, L.L.C.; Rehab Solutions, L.L.C.; Bay
Meadow Nursing and Rehabilitation Center, L.L.C.; Camden
Yards Nursing and Rehabilitation Center, L.L.C.; Kensington
Gardens Nursing and Rehabilitation Center, L.L.C.; Global
Healthcare Center-Overlea, L.L.C.; Allegis Health and
Rehabilitation Center -- Southern Maryland, L.L.C.; Global
Healthcare Center -- Bethesda, L.L.C.; Circle Manor Nursing
Home, Inc.; Arcola Nursing and Rehabilitation Center, Inc.;
Technicare Pharmacy, Inc.; Global Health Investment
Associates, L.L.C.; Paul J. Diaz; Marvin H. Rabovsky; Harvey
W. Wertlieb; Roger C. Lipitz; Gary M. Sudhalter and Jay
Mutchnik (Incorporated by reference to Exhibit 2.2, 10.2 to
the Company's Current Report on Form 8-K dated October 3,
1996)
3.1, 4.1 Restated Certificate of Incorporation of the Company.
(Incorporated by reference to Exhibit 3.2, 4.2 to the
Company's Registration Statement No. 33-60736 ("Registration
Statement No. 33-60736")).
3.2, 4.2 Certificate of Amendment to the Company's Restated
Certificate of Incorporation (Incorporated by reference to
Exhibit 4.2 to the Company's Form 10-Q for the quarter ended
March 31, 1994, as amended).
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EXHIBIT NO. DESCRIPTION
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3.3, 4.3 By-laws, as amended and restated, of the Company
(Incorporated by reference to Exhibit 3.2, 4.2 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 1993).
4.4 Specimen certificate representing the Common Stock
(Incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement No. 33-60736).
4.5 Rights Agreement, dated as of October 31, 1995, between
Mariner Health Group, Inc. and State Street Bank & Trust
Company, which includes as Exhibit A the Form of Certificate
of Designations, as Exhibit B the Form of Rights
Certificate, and as Exhibit C the Summary of Rights to
Purchase Preferred Stock (Incorporated by reference to
Exhibit 4 to the Company's Current Report on Form 8-K dated
October 31, 1995).
4.6, 10.7 Indenture dated as of April 4, 1996 between Mariner Health
Group, Inc. and State Street Bank and Trust Company, as
trustee, including (i) the form of 9 1/2% Senior
Subordinated Note due 2006, Series A and (ii) the form of
9 1/2% Senior Subordinated Note due 2006, Series B
(Incorporated by reference to Exhibit 4.1, 10.1 to the
Company's Current Report on Form 8-K dated April 4, 1996).
4.7 Form of 9 1/2% Senior Subordinated Note due 2006, Series B
(Incorporated by reference to Exhibit 4.2 of the Company's
Form S-4 Registration Statement No. 333-4266).
10.8 Credit Agreement dated as of May 18, 1994 by and among
Mariner Health Group, Inc., PNC Bank, National Association
and the other banks party thereto. (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q/A for the quarter ended June 30, 1994, as
amended).
10.9 Modification Agreement dated as of March 1, 1995 among
Seventeenth Street Associates Limited Partnership,
NationsBank of Tennessee, N.A., NationsBank of Georgia,
N.A., TRI-State Health Corp., Inc. and Pinnacle Care
Corporation of Huntington (Incorporated by reference to
Exhibit 10.28 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.10 Pledge Agreement dated as of March 1, 1995 among Pinnacle
Care Corporation, Pinnacle Care Corporation of Huntington,
NationsBank of Tennessee, N.A., and NationsBank of Georgia,
N.A. (Incorporated by reference to Exhibit 10.29 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1995).
10.11 Guaranty Agreement dated as of March 1, 1995 among Mariner
Health Group Inc., NationsBank of Tennessee, N.A., and
NationsBank of Georgia, N.A. (Incorporated by reference to
Exhibit 10.30 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995).
10.12* 1992 Stock Option Plan (Incorporated by reference to Exhibit
10.1 to the Company's Registration Statement No. 33-60736).
10.13* 1993 Employee Stock Purchase Plan, as amended. (Incorporated
by reference to Exhibit 10.2 to the Company's Form S-1
Registration Statement No. 33-71710).
10.14* 1994 Stock Plan, as amended (Incorporated by reference to
Exhibit 4.5 to the Company's Form S-8, filed November 21,
1995).
10.15* 1995 Non-Employee Director Stock Option Plan (Incorporated
by reference to Exhibit 4.4 to the Company's Form S-8, filed
November 21, 1995).
10.16+ Defined Care Partner Agreement, dated as of January 5, 1996,
by and among AmHS Purchasing Partners, L.P. ("AmHSPP"),
Mariner Health Care, Inc. and the Company, including:
Exhibit A, Warrant to Purchase 210,000 Shares of the
Company's Common Stock by and among AmHSPP and the Company;
and Exhibit B, Warrant to Purchase 1,890,000 Shares of the
Company's Common Stock by and among AmHSPP and the Company
(Incorporated by reference to Exhibit 10.36 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1995).
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EXHIBIT NO. DESCRIPTION
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10.17 Purchase Agreement dated March 29, 1996 among Mariner Health
Group, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Alex. Brown & Sons Incorporated, CS First
Boston Corporation, Hambrecht & Quist LLC and Salomon
Brothers Inc. (Incorporated by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K dated April 4,
1996).
10.18 Registration Rights Agreement dated as of April 4, 1996
among Mariner Health Group, Inc. and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Alex. Brown & Sons
Incorporated, CS First Boston Corporation, Hambrecht & Quist
LLC and Salomon Brothers Inc. (Incorporated by reference to
Exhibit 10.3 to the Company's Current Report on Form 8-K
dated April 4, 1996).
10.19* Form of Employment Agreement between the Company and each of
Jeffrey W. Kinell, Lawrence R. Deering, Jennifer Gallagher,
Phyllis Madigan and certain other employees of the Company
(Incorporated by reference to Exhibit 10 to the Company's
Report on Form 10-Q for the fiscal quarter ended March 31,
1996).
10.20* Employment Agreement dated as of August 16, 1996 by and
between the Company and David N. Hansen (Incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for the
fiscal quarter ended September 30, 1996).
10.21* Amended and Restated Employment Agreement dated as of
October 20, 1997 by and between the Company and Arthur W.
Strattan, Jr.
10.22* Employment Agreement dated as of November 17, 1997 by and
between the Company and Paul Diaz.
10.23 Amendment No. 16 to the Credit Agreement dated as of January
2, 1998 by and among Mariner Health Group, Inc., PNC Bank,
National Association and other banks party thereto.
10.24 Amended and Restated Revolving Credit Agreement dated as of
May 18, 1994, as amended, by and among Mariner Health Group,
Inc., PNC Bank, National Association and other banks party
thereto.
10.25 Lease by and between Mariner Health Group, Inc. and
Framingham-1881 Associates dated as of August 26, 1997.
21 Subsidiaries of the Company.
23 Consent of Coopers & Lybrand L.L.P.
24 Power of Attorney.
27.1 Financial Data Schedule for fiscal year ended 1997.
27.2 Restated Financial Data Schedule for the fiscal quarter
ended September 30, 1997.
27.3 Restated Financial Data Schedule for the fiscal quarter
ended June 30, 1997.
27.4 Restated Financial Data Schedule for the fiscal quarter
ended March 31, 1997.
27.5 Restated Financial Data Schedule for the fiscal year ended
1996.
27.6 Restated Financial Data Schedule for the fiscal quarter
ended September 30, 1996.
27.7 Restated Financial Data Schedule for the fiscal quarter
ended June 30, 1996.
27.8 Restated Financial Data Schedule for the fiscal quarter
ended March 31, 1996.
27.9 Restated Financial Data Schedule for the fiscal year ended
1995.
</TABLE>
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* Indicates a management contract or any compensatory plan, contract or
arrangement.
+ Confidential Treatment Requested.
