<PAGE>
As filed with the Securities and Exchange Commission on June 4, 1996
Registration No. 333-4053
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1
to
FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
INTEGRATED HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2428312
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
10065 Red Run Boulevard
Owings Mills, Maryland 21117
(410) 998-8400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
--------------------
MARSHALL A. ELKINS, ESQ.
Executive Vice President and General Counsel
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
(410) 998-8400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------
Copies of all communications, including all communications sent to
the agent for service, should be sent to:
CARL E. KAPLAN, ESQ. LESLIE A. GLEW, ESQ.
Fulbright & Jaworski L.L.P. Vice President and Associate
666 Fifth Avenue General Counsel
New York, New York 10103 Integrated Health Services, Inc.
(212) 318-3000 10065 Red Run Boulevard
Owings Mills, Maryland 21117
(410) 998-8400
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
--------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, check the following box:
| |
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. | | ____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. | | __________________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: | |
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount of Shares Proposed Maximum Offering Proposed Maximum Aggregate Amount of
Securities to be Registered to be Registered Price Per Share(1) Offering Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share 426,822(2) $ 25.9375 $11,070,695.63 $ 3,817.48
Purchase Rights (3)(4) 1,431,204 -- -- --
Total -- -- $11,070,695.63 $ 3,817.48
====================================================================================================================================
<FN>
(1) Pursuant to Rule 457(c), the proposed maximum offering price per
share and proposed maximum aggregate offering price have been
calculated on the basis of the average of the high and low sale
prices of the Common Stock as reported on the New York Stock
Exchange on May 31, 1996.
(2) A registration fee in the amount of $9,372.79 relating to
1,004,382 shares of Common Stock has previously been paid.
(3) No fee pursuant to Rule 457(g).
(4) Purchase Rights related to Common Stock pursuant to Rights
Agreement dated as of September 27, 1995, between Registrant and
American Stock Transfer & Trust Company, Rights Agent.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED JUNE 4, 1996
PROSPECTUS
1,431,204 Shares
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
This Prospectus relates to 1,431,204 shares (the "Shares") of Common
Stock, par value $0.001 per share (the "Common Stock"), of Integrated Health
Services, Inc. ("IHS" or the "Company") which are being offered for sale by
certain selling stockholders (the "Selling Stockholders"). See "Selling
Stockholders." The Company's Common Stock is traded on the New York Stock
Exchange ("NYSE") under the symbol "IHS." On May 31, 1996, the closing price of
the Common Stock, as reported in the consolidated reporting system, was $26.125
per share.
The Company will not receive any of the proceeds from sales of the
Shares by the Selling Stockholders. The Shares may be offered from time to time
by the Selling Stockholders (and their donees and pledgees) through ordinary
brokerage transactions, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution."
The Selling Stockholders may be deemed to be "Underwriters" as defined
in the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used to effect sales, any commissions paid to broker-dealers
and, if broker-dealers purchase any of the Shares as principals, any profits
received by such broker-dealers on the resale of the Shares, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Stockholders may be deemed to be underwriting
commissions. All costs, expenses and fees in connection with the registration of
the Shares will be borne by the Company. Brokerage commissions, if any,
attributable to the sale of the Shares will be borne by the Selling Stockholders
(or their donees).
------------------
See "Risk Factors", which begins on page 5 of this Prospectus,
for certain information that should be considered by prospective investors.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is ____________, 1996
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information filed with the Commission may be
inspected and copied at the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at 500 West Madison Street, Chicago, Illinois 60661, and
Seven World Trade Center, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission at prescribed
rates by writing to the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. In addition, reports, proxy materials and other information concerning
the Company may be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any document are not necessarily complete, and in
each instance reference is made to the copy of such document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which are on file with the Commission (File
No. 1- 12306), are incorporated in this Prospectus by reference and made a part
hereof:
(a) The Company's Annual Report on Form 10-K for the year ended
December 31, 1995, as amended by Form 10-K/A filed April 3, 1996;
(b) The Company's Quarterly report on Form 10-Q for the quarter ended
March 31, 1996;
(c) The Company's Current Report on Form 8-K dated May 24, 1996,
containing information with respect to the Company's agreement to issue
privately $150,000,000 aggregate principal amount of its 10 1/4% Senior
Subordinated Notes due 2006;
(d) The description of the Company's Common Stock contained in Item 1
of the Company's Registration Statement on Form 8-A dated September 1, 1993; and
(e) The description of the Company's Preferred Stock Purchase Rights
contained in Item 1 of the Company's Registration Statement on Form 8-A dated
September 28, 1995.
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<PAGE>
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective dates
of filing of such documents. Any statement contained in a document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for all purposes to the extent that a statement contained in this
Prospectus or any other subsequently filed document that is also incorporated by
reference herein modifies or supersedes such statement. Any such statements so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not
presented herein or delivered herewith. These documents are available upon
request from: Integrated Health Services, Inc., 10065 Red Run Boulevard, Owings
Mills, Maryland 21117, Attention: Marc B. Levin, Executive Vice
President-Investor Relations, (410) 998-8400. The Company undertakes to provide
without charge to each person to whom this Prospectus is delivered, upon written
or oral request of such person, a copy of any or all of the foregoing documents
incorporated by reference herein, other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference into such documents.
THE COMPANY
Integrated Health Services, Inc. is one of the nation's leading
providers of post- acute healthcare services. Post-acute care is the provision
of a continuum of care to patients following discharge from an acute care
hospital. Post-acute care services include subacute care, outpatient and home
care, inpatient and outpatient rehabilitation, hospice and pharmacy services.
The Company's post-acute care network is designed to address the fact that the
cost containment measures implemented by private insurers and managed care
organizations and limitations on government reimbursement of hospital costs have
resulted in the discharge from hospitals of many patients who continue to
require medical and rehabilitative care. The Company's post- acute healthcare
system is intended to provide cost-effective continuity of care for its patients
in multiple settings and enable payors to contract with one provider to provide
all of a patient's needs following discharge from acute care hospitals. IHS'
post-acute care network currently consists of over 600 service locations in 40
states.
The Company's post-acute care strategy is to provide cost-effective
continuity of care for its patients in multiple settings, including using
geriatric care facilities as platforms to provide a wide variety of subacute
medical and rehabilitative services more typically delivered in the acute care
hospital setting and using home healthcare to provide those medical and
rehabilitative services which do not require 24-hour monitoring. To implement
its post-acute care strategy, the Company has focused on (i) developing market
concentration for its post-acute care services in targeted states due to
increasing payor consolidation and the increased preference of payors,
physicians and patients for dealing with only one service provider; (ii)
developing subacute care units; (iii) expanding the range of home healthcare and
related services it offers to patients directly in order to provide patients
with a continuum of care throughout their
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<PAGE>
recovery, to better control costs and to meet the growing desire by payors for
one-stop shopping; and (iv) forming strategic alliances with health maintenance
organizations, hospital groups and physicians.
In implementing its post-acute healthcare strategy, the Company has
recently focused on expanding its home healthcare services to take advantage of
healthcare payors' increasing focus on having healthcare provided in the
lowest-cost setting possible, recent advances in medical technology which have
facilitated the delivery of medical services in alternative sites and patients'
desires to be treated at home. Consistent with the Company's strategy, the
Company recently entered into an agreement to acquire First American Health Care
of Georgia, Inc. ("First American"), a provider of home health services in 23
states, principally Alabama, California, Florida, Georgia, Michigan,
Pennsylvania and Tennessee. First American had over nine million visits to the
home in 1995. See "Recent Developments."
The Company provides subacute care through medical specialty units
("MSUs"), which are typically 20 to 75 bed specialty units with physical
identities, specialized medical technology and staffs separate from the
geriatric care facilities in which they are located. MSUs are designed to
provide comprehensive medical services to patients who have been discharged from
acute care hospitals but who still require subacute or complex medical
treatment. The levels and quality of care provided in the Company's MSUs are
similar to those provided in the hospital but at per diem treatment costs which
the Company believes are generally 30% to 60% below the cost of such care in
acute care hospitals. Because of the high level of specialized care provided,
the Company's MSUs generate substantially higher net revenue and operating
profit per patient day than traditional geriatric care services.
The Company presently operates 201 geriatric care facilities (124 owned
or leased and 77 managed) and 145 MSUs located within 79 of these facilities.
Specialty medical services revenues, which include all MSU charges, all revenue
from providing rehabilitative therapies, pharmaceuticals, medical supplies and
durable medical equipment to all its patients, all revenue from its Alzheimer's
programs and all revenue from its provision of pharmacy, rehabilitation therapy,
home healthcare and similar services to third-parties, constituted approximately
57%, 65%, 64% and 67% of net revenues during the years ended December 31, 1994
and 1995 and the three months ended March 31, 1995 and 1996, respectively. The
Company also offers a wide range of basic medical services as well as a
comprehensive array of respiratory, physical, speech, occupational and
physiatric therapy in all its geriatric care facilities. During the years ended
December 31, 1994 and 1995 and the three months ended March 31, 1995 and 1996,
the Company derived approximately 44%, 45%, 42% and 43%, respectively, of its
patient revenues from private pay sources.
The Company was incorporated in March 1986 as a Pennsylvania
corporation and reorganized as a Delaware corporation in November 1986. The
Company's principal executive offices are located at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 and its telephone number is (410) 998-8400. Unless
the context indicates otherwise, Integrated Health Services, Inc. and its
subsidiaries are referred to herein collectively as "IHS" or the "Company."
-4-
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well as
those discussed elsewhere in this Prospectus.
Substantial Indebtedness. The Company's indebtedness is substantial in
relation to its stockholders' equity. At March 31, 1996, the Company's total
long-term debt, net of current portion, was $852.1 million, and accounted for
65.4% of its total capitalization. The Company also has significant lease
obligations with respect to the facilities operated pursuant to long-term
leases, which aggregated approximately $256.5 million at March 31, 1996. For the
year ended December 31, 1995 and the three months ended March 31, 1996, the
Company's rent expense was $66.1 million and $17.7 million, respectively. The
Company's strategy of expanding its specialty medical services and growing
through acquisitions may require additional borrowing in order to finance
working capital, capital expenditures and the purchase price of any
acquisitions. The degree to which the Company is leveraged, as well as its rent
expense, could have important consequences to stockholders, including: (i) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may be
impaired, (ii) a substantial portion of the Company's cash flow from operations
may be dedicated to the payment of principal and interest on its indebtedness
and rent expense, thereby reducing the funds available to the Company for its
operations, (iii) certain of the Company's borrowings bear, and will continue to
bear, variable rates of interest, which expose the Company to increases in
interest rates, and (iv) certain of the Company's indebtedness contains
financial and other restrictive covenants, including those restricting the
incurrence of additional indebtedness, the creation of liens, the payment of
dividends and sales of assets and imposing minimum net worth requirements. There
can be no assurance that the Company's operating results will be sufficient for
the payment of the Company's indebtedness.
Risk of Adverse Effect of Healthcare Reform. In addition to extensive
existing government healthcare regulation, there are numerous initiatives on the
federal and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including a number of proposals that would
significantly limit reimbursement under Medicare and Medicaid. It is not clear
at this time what proposals, if any, will be adopted or, if adopted, what effect
such proposals would have on the Company's business. Aspects of certain of these
healthcare proposals, such as cutbacks in the Medicare and Medicaid programs,
containment of healthcare costs on an interim basis by means that could include
a short-term freeze on prices charged by healthcare providers, and permitting
greater state flexibility in the administration of Medicaid, could adversely
affect the Company. Congress has proposed converting the current costs
reimbursement system for home health services covered under Medicare to a
prospective payment system beginning in October 1996. The prospective payment
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<PAGE>
system contained in the bill provides for prospectively established per visit
payments to be made for all covered services, which are then subject to an
annual aggregate per episode limit at the end of the year. Home health agencies
that are able to keep their total per visit expenses during the year below their
per episode annual limits will be able to retain a specified percentage of the
difference, subject to certain aggregate limitations. Such changes could have a
material adverse effect on the Company and its growth strategy. See "- Reliance
on Reimbursement by Third Party Payors." There can be no assurance that
currently proposed or future healthcare legislation or other changes in the
administration or interpretation of governmental healthcare programs will not
have an adverse effect on the Company or that payments under governmental
programs will remain at levels comparable to present levels or will be
sufficient to cover the costs allocable to patients eligible for reimbursement
pursuant to such programs. Concern about the potential effects of the proposed
reform measures has contributed to the volatility of prices of securities of
companies in healthcare and related industries, including the Company, and may
similarly affect the price of the Company's Common Stock in the future. See "-
Uncertainty of Government Regulation."
Risks Related to Growth Strategy. The Company's planned expansion and
growth require that additional MSUs be established in the Company's existing
facilities, that the Company acquire, lease or acquire the right to manage for
others additional facilities in which MSUs can be established, that the Company
expand its home healthcare services through the acquisition of additional home
healthcare providers, and that the Company acquire, or establish relationships
with, third parties which provide post-acute care services not currently
provided by the Company. Such expansion and growth will depend on the Company's
ability to create demand for its post-acute care programs, the availability of
suitable acquisition, lease or management candidates and the Company's ability
to finance such acquisitions and growth. The successful implementation of the
Company's post-acute healthcare system, including the capitation of rates, will
depend on the Company's ability to expand the amount of post- acute care
services it offers directly to its patients rather than through third-party
providers. There can be no assurance that suitable acquisition candidates will
be located, that acquisitions can be consummated, that acquired facilities and
companies can be successfully integrated into the Company's operations or that
MSUs can be successfully established in acquired facilities or that the
Company's post-acute healthcare system, including the capitation of rates, can
be successfully implemented. The post-acute care market is highly competitive,
and the Company faces substantial competition from hospitals, subacute care
providers, rehabilitation providers and home healthcare providers, including
competition for acquisitions. The successful integration of acquired businesses
is important to the Company's future financial performance. The anticipated
benefits from any of these acquisitions may not be achieved unless the
operations of the acquired businesses are successfully combined with those of
the Company in a timely manner. The process of integrating the various
businesses could cause the interruption of, or a loss of momentum in, the
activities of some or all of these businesses, which could have a material
adverse effect on the Company's operations and financial results. There can be
no assurance that the Company will realize any of the anticipated benefits from
its acquisitions. The acquisition of service companies that are not profitable,
or the acquisition of new facilities that result in significant integration
costs and inefficiencies, could also adversely affect the
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<PAGE>
Company's profitability. The Company expects to finance new acquisitions from a
combination of funds from operations, borrowings under its bank credit facility
and the issuance of debt and equity securities. Depending on the number, size
and timing of such transactions, the Company may in the future require
additional financing in order to continue to make acquisitions. There is no
assurance that such additional financing, if any, will be available to the
Company on acceptable terms or at all. The Company's new bank credit facility
limits the Company's ability to make acquisitions. See "- Risks Related to
Proposed Acquisition of First American" and "Recent Developments - New Revolving
Credit Facility."
Reliance on Reimbursement by Third Party Payors. The Company receives
payment for services rendered to patients from private insurers and patients
themselves, from the Federal government under Medicare, and from the states in
which certain of its facilities are located under Medicaid. The healthcare
industry is experiencing a trend toward cost containment, as government and
other third party payors seek to impose lower reimbursement and utilization
rates and negotiate reduced payment schedules with service providers. Aspects of
certain healthcare reform proposals, such as cutbacks in the Medicare and
Medicaid programs, containment of healthcare costs on an interim basis by means
that could include a short-term freeze on prices charged by healthcare
providers, and permitting greater state flexibility in the administration of
Medicaid, could adversely affect the Company. See "- Risk of Adverse Effect of
Healthcare Reform." During the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1995 and 1996, the Company derived approximately
56%, 55%, 58% and 57%, respectively, of its patient revenues from Medicare and
Medicaid. The increase in Medicare and Medicaid patient revenues was primarily
the result of the higher level of Medicare and Medicaid patients serviced by the
rehabilitation, home healthcare, pharmacy, mobile x-ray and other related
service companies acquired in 1993, 1994 and 1995 and certain acquisitions of
facilities which had large concentrations of Medicaid patients during 1993 and
1994. Substantially all of First American's revenues are derived from Medicare.
As a result, the consummation of the First American acquisition would
substantially increase the percentage of the Company's revenues derived from
Medicare. The sources and amounts of the Company's patient revenues derived from
the operation of its geriatric care facilities and MSU programs are determined
by a number of factors, including licensed bed capacity of its facilities,
occupancy rate, the mix of patients and the rates of reimbursement among payor
categories (private, Medicare and Medicaid). Changes in the mix of the Company's
patients among the private pay, Medicare and Medicaid categories can
significantly affect the profitability of the Company's operations. The
Company's cost of care for its MSU patients generally exceeds regional
reimbursement limits established under Medicare. The success of the Company's
MSU strategy will depend in part on its ability to obtain per diem rate
approvals for costs which exceed the Medicare established per diem rate limits
and by obtaining waivers of these limitations. There can be no assurance that
the Company will be able to obtain the waivers necessary to enable the Company
to recover its excess costs.
Uncertainty of Government Regulation. The Company and the healthcare
industry generally are subject to extensive federal, state and local regulation
governing licensure and conduct of operations at existing facilities,
construction of new facilities,
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acquisition of existing facilities, additions of new services, certain capital
expenditures and reimbursement for services rendered. Changes in applicable laws
and regulations or new interpretations of existing laws and regulations could
have a material adverse effect on licensure, eligibility for participation,
permissible activities, operating costs and the levels of reimbursement from
governmental and other sources. There can be no assurance that regulatory
authorities will not adopt changes or new interpretations of existing
regulations that could adversely affect the Company. The failure to maintain or
renew any required regulatory approvals or licenses could prevent the Company
from offering existing services or from obtaining reimbursement. In certain
circumstances, failure to comply at one facility may affect the ability of the
Company to obtain or maintain licenses or approvals under Medicare and Medicaid
programs at other facilities.
Recently effective provisions of the regulations adopted under the
Omnibus Budget Reconciliation Act of 1987 ("OBRA") have expanded remedies
available to the Health Care Financing Administration ("HCFA") to enforce
compliance with the detailed regulations mandating minimum healthcare standards
and may significantly affect the consequences to the Company if annual or other
HCFA facility surveys identify noncompliance with these regulations. Remedies
include fines, new patient admission moratoriums, denial of reimbursement,
federal or state monitoring of operations, closure of facilities and termination
of provider reimbursement agreements. These provisions also eliminate the
ability of operators to appeal the scope and severity of any deficiencies and
grant state regulators the authority to impose new remedies, including monetary
penalties, denial of payments and termination of the right to participate in the
Medicare and/or Medicaid programs. The Company believes these new guidelines may
result in an increase in the number of facilities that will not be in
"substantial compliance" with the regulations and, as a result, subject to
increased disciplinary actions and remedies, including admission holds and
termination of the right to participate in the Medicare and/or Medicaid
programs. In ranking facilities, survey results subsequent to October 1990 are
considered. As a result, the Company's strategy of acquiring poorly performing
facilities could adversely affect the Company's business to the extent remedies
are imposed at such facilities.
The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "Stark
legislations" which prohibit, with limited exceptions, physician ownership of
ancillary service providers and the federal "anti-kickback law" which prohibits,
among other things, the offer, payment, solicitation or receipt of any form of
remuneration in return for the referral of Medicare and Medicaid patients. The
Office of the Inspector General of the Department of Health and Human Services,
the Department of Justice and other federal agencies interpret these fraud and
abuse provisions liberally and enforce them aggressively. Members of Congress
have proposed legislation that would significantly expand the federal
government's involvement in curtailing fraud and abuse and increase the monetary
penalties for violation of these provisions. In addition, some states restrict
certain business relationships between
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<PAGE>
physicians and other providers of healthcare services. Many states prohibit
business corporations from providing, or holding themselves out as a provider
of, medical care. Possible sanctions for violation of any of these restrictions
or prohibitions include loss of licensure or eligibility to participate in
reimbursement programs (including Medicare and Medicaid), asset forfeitures and
civil and criminal penalties. These laws vary from state to state, are often
vague and have seldom been interpreted by the courts or regulatory agencies. The
Company seeks to structure its business arrangements in compliance with these
laws, and from time to time the Company has sought guidance as to the
interpretation of these laws; however, there can be no assurance that such laws
ultimately will be interpreted in a manner consistent with the practices of
the Company.
Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve certain acquisitions
or capital expenditures in excess of defined levels and determine that a need
exists for certain new bed additions, new services and the acquisition of such
medical equipment or capital expenditures or other changes prior to beds and/or
services being added. Many states have placed a moratorium on granting
additional certificates of need or otherwise stated their intent not to grant
approval for new beds. To the extent certificates of need or other similar
approvals are required for expansion of Company operations, either through
facility acquisitions or expansion or provision of new services or other
changes, such expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards applicable to such
approvals and possible delays in, and the expenses associated with, obtaining
such approvals.
The Company is unable to predict the future course of federal, state
and local regulation or legislation, including Medicare and Medicaid statutes
and regulations. Further changes in the regulatory framework could have a
material adverse effect on the financial results of the Company's operations.
Risks Related to Proposed Acquisition of First American. The Company
has entered into an agreement to acquire First American Health Care of Georgia,
Inc. ("First American"), a provider of home health services in 23 states. The
proposed purchase price is $150 million plus an earn-out of up to $127.5 million
based on the home healthcare operations of the Company in the years 1999 through
2002. First American has filed for protection under the federal bankruptcy laws.
Consummation of the acquisition is subject to a number of conditions, some of
which are beyond the Company's control, including approval of the acquisition by
the bankruptcy court, resolution of claims by HCFA seeking repayment of certain
disallowed reimbursements under Medicare, which claims IHS believes relate to
personal or corporate expenses, rather than care-related expenses (the "HCFA
Claims"), regulatory approvals and approval from the Company's lenders and other
third parties. There can be no assurance that these conditions will be
satisfied. There can be no assurance that the First American acquisition will be
consummated on the proposed terms, on different terms or at all. Failure to
complete this transaction may have an adverse impact on the near-term expansion
of the Company's post-acute healthcare system. There can be no assurance that
the Company will ultimately realize any benefit from the acquisition of First
American. The resolution of the HCFA Claims will require a restatement of
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First American's financial statements. The HCFA Claims are substantial, and the
restatement of First American's financial statements is likely to have a
material adverse effect on First American's historical financial statements. As
a result, the Company's pro forma results of operations reflecting the First
American acquisition will be adversely affected, and such adverse effect could
be material. See "Recent Developments - Proposed Acquisition of First American."
Competition. The healthcare industry is highly competitive. The Company
competes on a local and regional basis with other providers on the basis of the
breadth and quality of its services, the quality of its facilities and, to a
limited extent, price. The Company also competes with other providers in the
acquisition and development of additional facilities. The Company's current and
potential competitors include national, regional and local operators of
geriatric care facilities, acute care hospitals and rehabilitation hospitals,
extended care centers, retirement centers and community home health agencies,
and similar institutions, many of which have significantly greater financial and
other resources than the Company. In addition, the Company competes with a
number of tax-exempt nonprofit organizations which can finance acquisitions and
capital expenditures on a tax-exempt basis or receive charitable contributions
unavailable to the Company. There can be no assurance that the Company will not
encounter increased competition which could adversely affect its business,
results of operations or financial condition.
RECENT DEVELOPMENTS
New Revolving Credit Facility
- -----------------------------
On May 15, 1996, the Company entered into a $700 million revolving
credit facility, including a $100 million letter of credit subfacility, with
Citibank, N.A., as Administrative Agent, and certain other lenders (the "New
Credit Facility"). The New Credit Facility consists of a $700 million revolving
loan which reduces to $560 million on June 30, 2000 and $315 million on June 30,
2001, with a final maturity on June 30, 2002. The $100 million subcommitment for
letters of credit will remain at $100 million until final maturity. The New
Credit Facility is guaranteed by the Company's subsidiaries and secured by a
pledge of all of the stock of substantially all of the Company's subsidiaries.
At the option of the Company, loans under the New Credit Facility bear interest
at a rate equal to either (i) the sum of (a) the higher of (1) the bank's base
rate or (2) one percent plus the latest overnight federal funds rate plus (b) a
margin of between zero percent and one and one-quarter percent (depending on
certain financial ratios); or (ii) in the case of Eurodollar loans, the sum of
between three quarters of one percent and two and one-half percent (depending on
certain financial ratios) and the interest rate in the London interbank market
for loans in an amount substantially equal to the amount of borrowing and for
the period of the borrowing selected by the Company.
-10-
<PAGE>
The New Credit Facility limits the Company's ability to incur
indebtedness or contingent obligations, to make additional acquisitions, to
create or incur liens on assets, to pay dividends and to purchase or redeem the
Company's stock. In addition, the New Credit Facility requires that the Company
meet certain financial tests, and provides the banks with the right to require
the payment of all of the amounts outstanding under the New Credit Facility if
there is a change in control of the Company or if any person other than Dr.
Robert N. Elkins or a group managed by Dr. Elkins owns more than 40% of the
Company's capital stock. Amounts repaid under the New Credit Facility may be
reborrowed until June 30, 2002. The New Credit Facility replaced the Company's
existing $500 million revolving credit facility (the "Existing Credit
Facility"). As a result, the Company expects to record a loss on extinguishment
of debt, net of related tax benefits, of approximately $1.0 million in the
second quarter of 1996. The Company borrowed $328.2 million under the New Credit
Facility to repay amounts outstanding under the Existing Credit Facility.
Proposed Acquisition of First American
- --------------------------------------
In February 1996, the Company entered into an agreement to acquire
First American Health Care of Georgia, Inc., a provider of home health services
in 23 states, principally Alabama, California, Florida, Georgia, Michigan,
Pennsylvania and Tennessee. The Company believes First American is the fourth
largest (and largest privately-held) provider of home healthcare services in the
United States.
The proposed purchase price for First American is $150 million plus an
earn-out of up to $127.5 million based on the home healthcare operations of the
Company in the years 1999 through 2002. The Company intends to finance the
acquisition through borrowings under the New Credit Facility. During the first
quarter of 1996, the Company loaned $18.1 million to First American to fund
certain of First American's pension liabilities. The loan, which bears interest
at a rate per annum equal to the prime rate plus 4% and is due December 31,
1996, is secured by a pledge of certain shares of First American stock owned by
First American's principal stockholder. Subsequent to the execution of the
acquisition agreement, First American filed for protection under the federal
bankruptcy laws. Consummation of the acquisition is subject to a number of
conditions, some of which are beyond the Company's control, including approval
of the acquisition by the bankruptcy court, resolution of the HCFA Claims
seeking repayment from First American of certain disallowed reimbursements under
Medicare, which claims IHS believes relate to personal or corporate, rather than
care-related, expenses, regulatory approvals and approval from the Company's
lenders and other third parties. There can be no assurance that these conditions
will be satisfied. Under the acquisition agreement, the HCFA Claims will be
satisfied with proceeds of the sale, and will result in a restatement of the
financial statements of First American. There can be no assurance that the First
American acquisition will be consummated on the proposed terms, on different
terms or at all. See "Risk Factors - Risks Related to Proposed Acquisition of
First American."
In August 1995, a federal grand jury handed down an 82 count indictment
against First American and four of its senior executive officers, two of whom
are its principal stockholders, alleging that First American improperly claimed
Medicare reimbursement for costs related to personal flights, political
contributions, "ghost
-11-
<PAGE>
employees" and lobbying. In February 1996, First American, First American's
chief executive officer and principal stockholder, and the chief executive
officer's wife, the other principal stockholder, were convicted.
In addition, HCFA has claimed significant disallowances of costs for
cost report filings made by First American for 1989 through 1995. These claims
are similar to those in the criminal proceeding discussed above and are not
considered by the Company to be operational or clinical in nature. In February
1996, the substantial nature and amount of these claims and HCFA's inability to
resolve these claims with First American led HCFA to stop its bi-weekly periodic
interim payments ("PIP") to First American. Because First American relies almost
entirely on Medicare reimbursement, First American was forced to declare
bankruptcy in February 1996. In March 1996, the bankruptcy court ordered HCFA to
resume PIP payments to First American. In April 1996, First American submitted a
plan of reorganization based on it being acquired by the Company. The plan is
currently being reviewed and considered by the bankruptcy court and First
American's creditors (primarily HCFA). The Company and First American's court
approved interim chief executive officer are currently negotiating the
resolution of the HCFA Claims with HCFA.
The resolution of the HCFA Claims will require a restatement of First
American's financial statements. The HCFA Claims are substantial, and the
restatement of First American's financial statements is likely to have a
material adverse effect on First American's historical financial statements. As
a result, the Company's pro forma results of operations reflecting the First
American acquisition will be adversely affected, and such adverse effect could
be material. See "Risk Factors - Risks Related to Proposed Acquisition of First
American."
Substantially all of First American's revenues are derived from
Medicare. The following table sets forth certain operating data regarding First
American:
<TABLE>
<CAPTION>
Three Months
Ended
Year Ended December 31, March 31,
---------------------------------------------------- ---------------------------------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Visits to patient homes............. 5,036,000 7,433,203 9,024,271 2,272,167 1,926,859
Number of States.................... 17 22 23 22 23
Number of service locations......... 288 379 456 396 456
Number of employees (est.).......... 9,000 12,000 16,000 13,000 15,000
</TABLE>
The Company believes that the acquisition of First American will be an
important component in the implementation of its post-acute healthcare system.
First American, when combined with the Company's existing home healthcare
operations, will give the Company a significant home healthcare presence in 25
states, many of which are the states the Company has targeted for its post-acute
healthcare system. The Company believes that its expanded home healthcare
network will assist it in meeting the desire of payors for one stop shopping, as
well as offering capitated rates
-12-
<PAGE>
to managed care providers. Additionally, the Company expects that Medicare will
implement a prospective payment system for home healthcare services in the next
several years. Currently, Medicare provides reimbursement for home healthcare on
a cost basis which includes a rate of return, subject to a cap. There is no
reward for efficiency, provided that costs are below the cap. Under prospective
pay as currently proposed, a healthcare provider would receive a predetermined
rate for a given service. Providers with costs below the predetermined rate will
be entitled to keep some or all of this difference. Under prospective pay, the
efficient operator will be rewarded. Since the largest component of home
healthcare costs is labor, which is basically fixed, the Company believes the
differentiating factor in profitability will be administrative costs. A large
provider, which the Company would be upon the completion of the First American
acquisition, should be able to achieve administrative efficiencies compared with
the small providers which currently dominate the home healthcare industry,
although there can be no assurance it will be able to do so. There can be no
assurance that Medicare will implement a prospective payment system for home
healthcare services in the next several years or at all. See "Risk Factors -
Risk of Adverse Effect on Healthcare Reform."
Acquisitions
- ------------
The Company continues to acquire and lease additional geriatric care
facilities, enter into new management agreements, acquire rehabilitation, home
healthcare and related service companies and implement its strategy of expanding
the range of related services it offers directly to its patients in order to
serve the full spectrum of patients' post-acute care needs.
During 1995, the Company purchased five geriatric care facilities (two
of which were previously leased), and leased three facilities, all of which were
previously managed. The total cost of these acquisitions was approximately $42.9
million, which includes legal fees and other costs incurred to secure the
facilities or leasehold interests in the facilities. In addition, the Company in
February 1996 purchased one geriatric care facility for approximately $7.0
million. During 1995, the Company also continued to expand its MSU focus by
opening 31 MSU programs totalling 691 beds (including two MSU programs totalling
63 beds at its managed facilities) and expanding existing programs by 177 beds
(including 17 beds at managed facilities).
In 1995, the Company acquired 25 ancillary services businesses which
provide home health services, physical, occupational and speech therapy
services, rehabilitation services, hospice services and mobile x-ray and
electrocardiogram services. The total purchase price for these businesses was
$30.7 million, including $9.8 million representing the issuance of 385,216
shares of the Company's Common Stock. Total goodwill at the dates of acquisition
aggregated $32.6 million. In February 1995, the Company entered into a
management agreement to manage Total Home Health Care, Inc. and Total Health
Service, Inc. (collectively, "Total Home Health"), which are private-duty and
Medicare certified home health agencies in the Dallas/Ft. Worth, Texas market,
pursuant to which a subsidiary of the Company receives a management fee of $10
per home visit by Total Home Health personnel. The Company was also granted a
five-year option to purchase Total Home Health for a purchase price of $5.0
million.
In March 1996, the Company acquired Rehab Management Systems, Inc., an
outpatient rehabilitation company in central Florida, for approximately $10
million
-13-
<PAGE>
(including $8.0 million in shares of the Company's common stock). In May 1996,
the Company acquired a geriatric care facility for $4.25 million. In May 1996,
the Company acquired Hospice of the Great Lakes, Inc., a hospice company in
Chicago, Illinois, for approximately $8.2 million (paid through the issuance of
the Company's Common Stock). Stockholders of Hospice of the Great Lakes, Inc.
are selling stockholders hereunder. See "Selling Stockholders." In addition, the
Company has reached agreements in principle to purchase a home health agency in
Memphis, Tennessee, for approximately $2 million, two diagnostic companies for
approximately $13.2 million and an outpatient clinic for approximately $2.3
million. There can be no assurance that any of these pending acquisitions will
be consummated on the proposed terms, on different terms or at all.
In developing its post-acute healthcare system, the Company
continuously evaluates whether owning and operating businesses which provide
certain ancillary services, or contracting with third parties for such services,
is more cost-effective. As a result, the Company is continuously evaluating its
existing operations to determine whether to retain or divest operations.
Accordingly, the Company may divest certain divisions or assets in the future.
Consent Solicitation
- --------------------
The Company is seeking consent from the holders of its 9 5/8% Senior
Subordinated Notes due 2002, Series A and its 10 3/4% Senior Subordinated Notes
due 2004 to amend the indentures under which such notes were issued in order to
ease the limitations on the incurrence of additional indebtedness. The proposed
amendment is intended to give the Company greater flexibility in implementing
its post-acute healthcare network and in reacting to changes in the healthcare
marketplace. The Company is not in default under this covenant. The Company has
offered to pay a consent fee of up to $7.50 for each $1,000 principal amount of
notes in respect of which consent is given. The consent solicitation is
currently scheduled to expire at 5:00 p.m. New York Time on June 13, 1996,
although the Company may elect to extend it.
Note Offering
- -------------
In May 1996, the Company issued privately $150,000,000 aggregate
principal amount of its 10 1/4% Senior Subordinated Notes due 2006. The proceeds
of the offering were used to repay outstanding indebtedness under the New Credit
Facility. The notes are not registered under the Securities Act and may not be
offered or sold in the United States absent registration of the notes under such
Act or an applicable exemption from registration.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders.
-14-
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth certain information as of April 15, 1996
(except as otherwise indicated) and as adjusted to reflect the sale of the
Common Stock in the offering, as to the security ownership of the Selling
Stockholders. Except as set forth below, none of the Selling Stockholders has
had a material relationship with the Company or any of its predecessors or
affiliates for within the past three years.
Shares of
Shares of Common
Common Stock Stock
Beneficially Beneficially
Owned Prior Shares Owned After
to Offering Being Sold Offering
----------- ---------- --------
The Rehab Management Group
- --------------------------
James Hough (1) 159,101 159,101 0
Summit Ventures III, L.P. 215,861 215,861 0
Summit Investors II, L.P. 4,405 4,405 0
Frank Foster 4,117 4,117 0
Jaime Ellertson 2,058 2,058 0
The Rehab People Group
- ----------------------
Sally N. Weisberg (2) 258,592 215,592 43,000
Dennis D. Hazlak (3) 216,035 215,592 443
Thomas F. Mignone 7,641 4,356 3,285
The Preferred Health Group
- --------------------------
Thomas D. Scott 305,300 305,300 0
The Hospice Group(4)
- --------------------
Timothy Dacy 50,668 50,668 0
David S. Krause 50,668 50,668 0
Frank Berkowitz 38,002 38,002 0
Philip Esformes 58,102 58,102 0
Susan Friedman 50,668 50,668 0
Tutera Group, Inc.(5) 31,036 29,736 1,300
Michael Gross 12,667 12,667 0
American Hospice Management 13,009 13,009 0
Craig P. Colmor 434 434 0
Mark V. Chester 434 434 0
Michael Bonn 434 434 0
- ------------------
(1) Mr. Hough is Vice President of Outpatient Rehabilitation Services for the
Company.
(2) Ms. Weisberg is President of Symphony Rehabilitation Services and Symphony
Respiratory Services, which are subsidiaries of the Company.
(3) Mr. Hazlak is an officer of Rehab People, a subsidiary of the Company.
(4) Information with respect to The Hospice Group is set forth as of May 17,
1996. Shares reflected for The Hospice Group are currently held by TDSPMF,
Inc., formerly Hospice of the Great Lakes, Inc., but will be distributed
to the above named owners of TDSPMF, Inc. prior to being sold. The Shares
sold herewith represent shares received in exchange for the assets of
Hospice of the Great Lakes, Inc. pursuant to the Asset Purchase Agreement
dated as of April 22, 1996. Shares being sold hereunder by the owners of
TDSPMF, Inc. include an aggregate of 20,819 shares being held in escrow to
secure indemnification obligations under the Asset Purchase Agreement.
(5) A wholly-owned subsidiary of Tutera Group, Inc. is the general partner of
a partnership which manages and operates approximately 8,000 geriatric
care and assisted living beds. The Company owns a 49% interest in this
partnership, and has the right to purchase the remaining 51% interest.
<PAGE>
Transactions Involving Selling Stockholders
In May 1996, the Company acquired substantially all the assets of
Hospice of the Great Lakes, Inc., which provides hospice and related services in
Chicago, Illionis. The purchase price was approximately $8.2 million, paid
through the issuance of 304,822 shares of IHS Common Stock (the "Hospice
Shares"). The Hospice Shares are being offered hereby.
In March 1996, the Company acquired all the outstanding stock of Rehab
Management Systems, Inc. ("Rehab Management"), a Florida corporation engaged in
the business of providing outpatient rehabilitation to patients in central
Florida. The Rehab Management stock was acquired by the Company for
approximately $10 million, of which $2 million was paid in cash by wire transfer
at the closing and $8 million was paid through the issuance of 385,542 shares of
IHS Common Stock (the "Rehab Shares"). The Rehab Shares are being offered
hereby.
In March 1995, the Company entered into a management agreement to
manage 34 geriatric care facilities in Texas, California, Florida, Nevada and
Mississippi (the "Preferred Care Facilities"). The management agreement has a
term of ten years and provides for payments to the Company based upon a
percentage of adjusted revenues and adjusted earnings before interest, taxes,
depreciation and amortization of the Preferred Care Facilities. The Company has
also been granted an option to purchase the Preferred Care Facilities, between
March 29, 1996 and the date of the termination of the management services
agreement, for $85.1 million plus adjustments for inflation. The Company paid a
non-refundable purchase option deposit of approximately $17.6 million, of which
$4.25 million was paid through the issuance of 183,300 shares of IHS Common
Stock (the "Preferred Health Shares"). The amount deposited will be applied
against the purchase price if the Company elects to acquire the facilities. The
Preferred Health Shares are being offered hereby.
In November 1994, the Company acquired all of the outstanding stock of
Rehab People, Inc. ("Rehab People"), a company which provides physical,
occupational and speech therapy services to approximately 38 geriatric care
facilities in Delaware, New York, North Carolina and Pennsylvania, for a
purchase price of $10 million paid through the issuance of 318,471 shares of the
Company's Common Stock. In April 1996, the Company issued an additional 435,540
shares of Common Stock (the "Additional Rehab Shares"), having a value of
approximately $10.0 million, to the stockholders of Rehab People in payment of
additional purchase price based on the performance of Rehab People following the
acquisition. The Additional Rehab Shares are being offered hereby.
-15-
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the registration
of the Shares offered hereby will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of Shares will be borne by the
Selling Stockholders (or their donees or pledgees).
Sales of Shares may be effected from time to time in transactions
(which may include block transactions) on the New York Stock Exchange, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Stockholders have advised the Company that
they have not entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their securities. The
Selling Stockholders may effect such transactions by selling Common Stock
directly to purchasers or to or through broker-dealers which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder and/or the
purchasers of Common Stock for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Stockholders and any broker-dealers that act in connection with the sale of the
Common Stock might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the shares of Common Stock as principal might be deemed to be
underwriting
-16-
<PAGE>
discounts and commissions under the Securities Act. The Selling Stockholders may
agree to indemnify any agent, dealer or broker-dealer that participates in
transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act. Liabilities under the
federal securities laws cannot be waived.
The Rehab Management Group has agreed with the Company not to sell, in
the aggregate, in excess of 250,000 shares of Common Stock during any calendar
month. Additionally, neither Summit Ventures III, L.P. nor Summit Investors II,
L.P. will transfer Common Stock to any of its partners unless the partners
receiving such stock shall have agreed in writing to be bound by the resale
limitations set forth above. The Rehab People Group, Thomas D. Scott and The
Hospice Group have agreed with the Company not to sell in excess of 60,000,
100,000 and 100,000 shares, respectively, during any thirty day period and to
effect sales only through Smith Barney Inc.
Because the Selling Stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling
Stockholders will be subject to prospectus delivery requirements under the
Securities Act. Furthermore, in the event of a "distribution" of the shares,
such Selling Stockholder, any selling broker or dealer and any "affiliated
purchasers" may be subject to Rule 10b-6 under the Securities Exchange Act of
1934, as amended, which Rule would prohibit, with certain exceptions, any such
person from bidding for or purchasing any security which is the subject of such
distribution until his participation in that distribution is completed. In
addition, Rule 10b-7 under the Exchange Act prohibits any "stabilizing bid" or
"stabilizing purchase" for the purpose of pegging, fixing or stabilizing the
price of Common Stock in connection with this offering.
The Selling Stockholders may be entitled under agreements entered into
with the Company to indemnification against liabilities under the Securities
Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby have been passed upon for the Company by Marshall A. Elkins,
Executive Vice President and General Counsel of the Company. Mr. Elkins is the
brother of Robert N. Elkins, the Company's Chairman of the Board and Chief
Executive Officer. Mr. Marshall Elkins owns 17,299 shares of the Common Stock
and options to purchase 81,535 shares of the Common Stock.
EXPERTS
The consolidated financial statements of Integrated Health Services,
Inc. and subsidiaries as of December 31, 1995 and 1994 and for each of the years
in the three-year period ended December 31, 1995, incorporated by reference in
this Prospectus and in the Registration Statement have been audited by KPMG Peat
Marwick LLP, independent certified public accountants, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
accounting and auditing.
-17-
<PAGE>
<TABLE>
<CAPTION>
=============================================================================== ==============================================
<S> <C>
No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained in this Prospectus,
and, if given or made, such information or representation must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security 1,431,204
other than the Common Stock offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby Shares
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any date subsequent to the date INTEGRATED HEALTH
hereof. SERVICES, INC.
------------ Common Stock
TABLE OF CONTENTS
-------------------------------
Page
----
Available Information ...................................2 PROSPECTUS
Incorporation of Certain
Documents by Reference ............................... 2
The Company ............................................ 3 -------------------------------
Risk Factors............................................ 5
Recent Developments.................................... 10
Use of Proceeds........................................ 14
Selling Stockholders....................................15
Plan of Distribution....................................16 _______________, 1996
Legal Matters ..........................................17
Experts.................................................17
================================================================================ ==============================================
</TABLE>
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution.
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Shares:
Registration Fee - Securities and Exchange Commission... $ 13,190.27
Legal and accounting fees and expenses.................. 15,000.00 *
Miscellaneous........................................... 3,809.73 *
------------
Total ......................................... $ 32,000.00 *
- ---------------------------
* Estimated.
ITEM 15. Indemnification of Directors and Officers.
Under the Delaware General Corporation Law (the "DGCL"), a corporation
may include provisions in its certificate of incorporation that will relieve its
directors of monetary liability for breaches of their fiduciary duty to the
corporation, except under certain circumstances, including a breach of the
director's duty of loyalty, acts or omissions of the director not in good faith
or which involve intentional misconduct or a knowing violation of law, the
approval of an improper payment of a dividend or an improper purchase by the
corporation of stock or any transaction from which the director derived an
improper personal benefit. The Company's Third Restated Certificate of
Incorporation, as amended, provides that the Company's directors are not liable
to the Company or its stockholders for monetary damages for breach of their
fiduciary duty, subject to the described exceptions specified by the DGCL.
Section 145 of the DGCL grants to the Company the power to indemnify
each officer and director of the Company against liabilities and expenses
incurred by reason of the fact that he is or was an officer or director of the
Company if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The Company's Third Restated Certificate of Incorporation, as
amended, and By-laws, as amended, provide for indemnification of each officer
and director of the Company to the fullest extent permitted by the DGCL. In
addition, IHS has entered into indemnity agreements with its directors and
executive officers, a form of which is included as Exhibit 10.72 to IHS's
Registration Statement on Form S-1, No. 33-39339, effective March 31, 1992.
Section 145 of the DGCL also empowers the Company to purchase and
maintain insurance on behalf of any person who is or was an officer or director
of the Company against liability asserted against or incurred by him in any such
capacity, whether or
II-1
<PAGE>
not the Company would have the power to indemnify such officer or director
against such liability under the provisions of Section 145. The Company has
purchased and maintains a directors' and officers' liability policy for such
purposes.
ITEM 16. Exhibits.
5 - Opinion of Marshall A. Elkins, Esq.*
10 - Stock Purchase Agreement, dated as of March 19, 1996, among the
Company and James Hough, Summit Ventures III, L.P., Summit Investors
II, L.P., Frank Foster and Jaime Ellertson and Rehab Management
Systems, Inc.***
23.1 - Consent of KPMG Peat Marwick LLP.**
23.2 - Consent of Marshall A. Elkins, Esq. (included in Exhibit 5).*
24 - Power of Attorney (included on signature page).**
- -------------------------------
*Filed herewith.
**Previously filed.
***Incorporated by reference to the Company's Annual Report on Form 10-K,
as amended, for the year ended December 31, 1995.
ITEM 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment of this registration statement:
(i) To include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
of any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described under Item 15
above, or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Owings Mills, State of Maryland on June 3, 1996.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Robert N. Elkins*
----------------------------
Robert N. Elkins
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Chairman of the Board
and Chief Executive Officer
/s/ Robert N. Elkins* (Principal Executive Officer) June 3, 1996
- -------------------------------------
(Robert N. Elkins)
President, Chief
Operating Officer and
/s/ Lawrence P. Cirka* Director June 3, 1996
- -------------------------------------
(Lawrence P. Cirka)
- ------------------------------------- Director ____________, 1996
(E. Mac Crawford)
/s/ Kenneth M. Mazik* Director June 3, 1996
- -------------------------------------
(Kenneth M. Mazik)
<PAGE>
/s/ Robert A. Mitchell* Director June 3, 1996
- -------------------------------------
(Robert A. Mitchell)
/s/ Charles W. Newhall, III* Director June 3, 1996
- -------------------------------------
(Charles W. Newhall, III)
/s/ Timothy F. Nicholson* Director June 3, 1996
- -------------------------------------
(Timothy F. Nicholson)
/s/ John L. Silverman* Director June 3, 1996
- -------------------------------------
(John L. Silverman)
/s/ George H. Strong* Director June 3, 1996
- -------------------------------------
(George H. Strong)
Senior Vice President-
Chief Accounting Officer
(Principal Accounting
/s/ W. Bradley Bennett* Officer) June 3, 1996
- -------------------------------------
(W. Bradley Bennett)
Senior Vice
President-Finance
(Principal Financial
/s/ Eleanor C. Harding* Officer) June 3, 1996
- -------------------------------------
(Eleanor C. Harding)
*By: /s/ W. Bradley Bennett June 3, 1996
--------------------------------
Attorney-in-Fact
</TABLE>
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
10065 RED RUN BOULEVARD
OWINGS MILLS, MD 21117.
May 30, 1996
Integrated Health Services, Inc,
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Ladies and Gentlemen:
I refer to the registration statement on Form S-3 (Registration No.
333-4053) (the "Registration Statement"), filed by Integrated Health Services,
Inc. (the "Company") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, relating to 1,431,204 shares of the
Company's Common Stock, $.001 par value (the "Common Stock"), to be sold by
certain Selling Stockholders named therein.
I am Executive Vice President and General Counsel of the Company. As
counsel for the Company, I have examined such corporate records, documents and
such questions of law as I have considered necessary or appropriate for the
purposes of this opinion and, upon the basis of such examination, advise you
that in my opinion the shares of Common Stock to be sold by the Selling
Stockholders have been duly and validly authorized and are legally issued, fully
paid and non-assessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and the reference to me under the caption "Legal Matters" in the
prospectus contained therein. This consent is not to be construed as an
admission that I am a party whose consent is required to be filed with the
Registration Statement under the provisions of the Securities Act of 1933, as
amended.
Very truly yours,
/s/ Marshall A. Elkins
-----------------------------
Marshall A. Elkins
Executive Vice President
and General Counsel
<PAGE>
