UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended September 30, 1996
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number: 1-12306
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Integrated Health Services, Inc.
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(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, MD 21117
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(Address of principal executive offices) (Zip Code)
(410) 998-8400
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(Registrant's telephone, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[ X ] Yes [ ] No
Number of shares of common stock of the registrant outstanding as of October 30,
1996: 23,130,642 shares.
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1. - Condensed Financial Statements (Unaudited)
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Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3
Consolidated Statements of Earnings
for the three and nine months ended
September 30, 1996 and 1995 4
Consolidated Statement of Changes in
Stockholders' Equity for the nine
months ended September 30, 1996 5
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996
and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 29
Page 2 of 31
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INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
------
Current Assets:
Cash and cash equivalents $ 41,127 $ 38,917
Temporary investments 1,896 2,387
Patient accounts and third-party payor settlements
receivable, less allowance for doubtful receivables
of $20,327 at September 30, 1996 and $18,128 at
December 31, 1995 261,563 230,282
Supplies, inventories, prepaid expenses
and other current assets 22,415 25,629
Income taxes receivable - 16,517
------------ ------------
Total current assets 327,001 313,732
------------ ------------
Property, plant and equipment, net 865,556 758,127
Intangible assets 316,144 288,033
Other assets 148,484 73,838
------------ ------------
Total assets $ 1,657,185 $ 1,433,730
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Current maturities of long-term debt $ 3,612 $ 5,404
Accounts payable and accrued expenses 207,880 172,013
------------ ------------
Total current liabilities 211,492 177,417
------------ ------------
Long-term Debt:
Convertible subordinated debentures 258,750 258,750
Other long-term debt less current maturities 596,152 506,507
------------ ------------
Total long-term debt 854,902 765,257
------------ ------------
Deferred income taxes 55,797 52,279
Deferred gain on salleaseback transactions 6,500 7,249
Stockholders' equity:
Preferred stock, authorized 15,000,000 shares; no shares
issued and outstanding - -
Common stock, $0.001 par value. Authorized 150,000,000
shares; 23,197,954 shares issued and outstanding at
September 30, 1996 and 21,785,334 shares issued and
21,384,734 shares outstanding at December 31, 1995 23 22
Additional paid-in capital 438,880 410,345
Retained earnings 78,108 33,951
Unrealized gain on available for sale securities 11,483 -
Treasury stock, at cost (400,600 shares at December 31, 1995) - (12,790)
------------ ------------
Net stockholders' equity 528,494 431,528
------------ ------------
Total liabilities and stockholders' equity $ 1,657,185 $ 1,433,730
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 3 of 31
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in Thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1996 1995 1996 1995
------- ------- ------ -------
<S> <C> <C> <C> <C>
Net revenues:
Basic medical services $ 101,189 $ 95,482 $ 296,468 $ 272,183
Specialty medical services 211,904 193,604 658,297 558,093
Management services and other 12,572 10,076 33,953 29,902
Gain on sale of assets 34,298 0 34,298 0
------- ------- --------- -------
Total revenues 359,963 299,162 1,023,016 860,178
------- ------- --------- -------
Costs and expenses:
Operating expenses 241,177 224,457 745,346 646,165
Corporate administrative and general 14,943 14,262 44,890 40,838
Depreciation and amortization 9,130 9,867 25,909 28,509
Rent 18,445 16,726 53,980 49,246
Interest (net of investment income of
$414, $403, $1,459, and $1,295 for the
three months ended September 30,
1996 and 1995, and for the nine months
ended September 30, 1996 and 1995,
respectively) 15,931 10,955 46,033 26,870
Merger costs 0 1,939 0 1,939
------- ------- ------- -------
Total costs and expenses 299,626 278,206 916,158 793,567
------- ------- --------- -------
Earnings before equity in earnings
of affiliates, income taxes and
extraordinary items 60,337 20,956 106,858 66,611
Equity in earnings of affiliates 323 364 1,083 994
------ ------ ------- ------
Earnings before income taxes
and extraordinary items 60,660 21,320 107,941 67,605
Federal and state income taxes 44,149 8,208 62,353 26,028
------ ------ ------- ------
Earnings before extraordinary items 16,511 13,112 45,588 41,577
Extraordinary items (See Note 6) 0 0 1,431 508
------ ------ ------ ------
Net earnings $ 16,511 $ 13,112 $ 44,157 $ 41,069
======== ======== ======== ========
Per Common Share
Earnings before extraordinary
item - primary $ 0.69 $ .60 $ 1.95 $ 1.82
Earnings before extraordinary
item - fully diluted 0.58 0.52 1.68 1.59
Net earnings - primary 0.69 0.60 1.89 1.80
Net earnings - fully diluted 0.58 0.52 1.64 1.57
======== ======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 4 of 31
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain on
Additional Available
Common Paid-In Retained Treasury for Sale
Stock Capital Earnings Stock Securities Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 22 $ 410,345 $ 33,951 $(12,790) $ 0 $ 431,528
Issuance of 1,226,978 shares of
common stock in connection with
acquisition and purchase option
deposits 1 28,977 - - - 28,978
Rissuance of 400,600 shares of
treasury stock in payment of earn-outs
in connection with prior acquisitions - (3,592) - 12,790 - 9,198
Issuance of 68,661 shares of common
stock in connection with employee
stock purchase plan - 1,499 - - - 1,499
Exercise of employee stock options
for 116,981 shares of common stock - 1,651 - - - 1,651
Unrealized gain on available for sale
securities - - - - 11,483 11,483
Net earnings - - 44,157 - - 44,157
---------------------------------------------------------------------------------------
Balance at September 30, 1996 $ 23 $ 438,880 $ 78,108 $ 0 $ 11,483 $ 528,494
====== ========== ========== ========= ========= ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 5 of 31
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 44,157 $ 41,069
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Gain on sale of assets (34,298) -
Extraordinary item 2,327 826
Undistributed results of joint ventures (348) (406)
Depreciation and amortization 25,909 28,509
Deferred income taxes and other non-cash items 3,162 2,869
Amortization of gain on salleaseback transactions (749) (762)
Increase in patient accounts and third-party
payor settlements receivable, net (21,724) (32,075)
Increase in supplies, inventory, prepaid expenses and
other current assets (979) (4,482)
Decrease in accounts payable and accrued expenses (27,025) (23,094)
Decrease in income taxes receivable 16,517 -
Increase in income taxes payable 6,962 4,579
-------- --------
Net cash provided by operating activities 13,911 17,033
-------- --------
Cash flows from financing activities:
Proceeds from issuance of capital stock, net 3,150 7,510
Proceeds from long-term borrowings 832,653 430,915
Repayment of long-term debt (766,450) (288,457)
Deferred financing costs (8,128) (5,102)
Purchase of treasury stock - (12,790)
-------- --------
Net cash provided by financing activities 61,225 132,076
-------- --------
Cash flows from investing activities:
Sale of facilities and divisions 125,000 29,303
Sale of temporary investments 5,086 3,982
Purchase of temporary investments (4,595) (1,287)
Business acquisitions (46,106) (50,752)
Purchase of property, plant and equipment (104,647) (96,532)
Intangible assets - (11,338)
Other assets (47,664) (44,526)
-------- --------
Net cash used by investing activities (72,926) (171,150)
-------- --------
Increase (decrease) in cash and cash equivalents 2,210 (22,041)
Cash and cash equivalents, beginning of period 38,917 57,724
-------- --------
Cash and cash equivalents, end of period $ 41,127 $ 35,683
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
Page 6 of 31
<PAGE>
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Basis of Presentation and Significant Accounting Policies
The consolidated financial statements included herein do not contain
all information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles. For further information, such as the
significant accounting policies followed by Integrated Health
Services, Inc. ("IHS" or "Company"), refer to the consolidated
financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1995. In
the opinion of management, the consolidated financial statements
include all necessary adjustments (consisting of only normal
recurring accruals) for a fair presentation of the financial position
and results of operations for the interim periods presented. The
results of operations for the interim periods presented are not
necessarily indicative of the results that may be expected for the
full year.
Note 2: Earnings Per Share
Primary earnings per share is computed based on the weighted average
number of common and common equivalent shares outstanding during the
periods. Common stock equivalents include options and warrants to
purchase common stock, assumed to be exercised using the treasury
stock method. Fully diluted earnings per share is computed as
described above, except that the weighted average number of common
equivalent shares is determined assuming the dilution resulting from
the issuance of the aforementioned options and warrants at the higher
of the end-of-period price per share or the weighted average price
for the period, and the issuance of common shares upon the assumed
conversion of the convertible subordinated debentures. Additionally,
interest expense and amortization of underwriting costs related to
such debentures are added, net of tax, to income for the purpose of
calculating fully diluted earnings per share. Such amounts and the
resulting net earnings for fully diluted earnings per share purposes
are summarized as follows for the nine months ended September 30,
1996 and 1995, respectively:
1996 1995
------- ------
(in thousands)
Net earnings $44,157 $41,069
Adjustment for interest and underwriting
costs on convertible debentures 7,416 7,416
------- -------
Net earnings for fully diluted EPS $51,573 $48,485
======= =======
Weighted average shares-Primary 23,393 22,864
Weighted average shares-Fully Diluted 31,477 30,854
======= =======
Page 7 of 31
<PAGE>
Note 3: New Acquisitions and Management Contracts
In January 1996, the Company entered into agreements to manage four
assisted living facilities in California and Ohio having a total of
234 beds. The facilities subsequently were transferred to Integrated
Living Communities, Inc. ("ILC"), a wholly-owned subsidiary of the
Company. ILC completed its initial public offering in October 1996
(see Note 8: Sale of Assisted Living Services Division).
On January 29, 1996, the Company purchased Vintage Health Care
Center, a 220 bed skilled nursing and assisted living facility in
Denton, Texas for $6.9 million. A condominium interest in the
assisted living portion of this facility was transferred to ILC.
On March 19, 1996, the Company acquired Rehab Management Systems,
Inc. ("RMS"), which operates rehabilitation therapy clinics in
central Florida. RMS also managed one therapy and one physician
clinic. Total purchase price was $10.0 million, including $8.0
million representing the issuance of 385,542 shares. In addition, the
Company incurred direct costs of acquisition of $2.9 million. Total
goodwill at the date of acquisition was $12.7 million.
In addition, during the first quarter, the Company acquired two
mobile x-ray companies. Total purchase price aggregated approximately
$1.3 million. Total goodwill at the dates of acquisition aggregated
$1.2 million.
In April 1996, the Company assumed a lease for two facilities in Las
Vegas, Nevada, a 98 bed skilled nursing facility and a 240 bed
residential facility.
On May 1, 1996, the Company purchased Hospice of the Great Lakes,
Inc., a hospice company in Northbrook, Illinois. Total purchase price
was $8.2 million representing the issuance of 304,822 shares. The
Company incurred direct costs of acquisition of $1.0 million. Total
goodwill at the date of acquisition aggregated $9.1 million.
In July, the Company assumed a lease for a skilled nursing facility
in Chicago, Illinois
On August 1, 1996, the Company purchased J.R. Rehab Associates, Inc.,
an inpatient and outpatient rehabilitation clinic in Mooresville,
North Carolina. Total purchase price was approximately $2.1 million.
The Company incurred direct costs of acquisition of $200,000. Total
goodwill at the date of acquisition aggregated $3.1 million.
In August 1996, the Company purchased Colorado Portable X-Ray, Inc.,
a mobile x-ray company in Denver, Colorado. Total purchase price was
approximately $422,000. Total goodwill at the date of acquisition was
$372,000.
Page 8 of 31
<PAGE>
On August 12, 1996, the Company acquired Extendicare of Tennessee,
Inc., a home health care company in Memphis, Tennessee. Total
purchase price was approximately $3.4 million. The Company incurred
direct costs of acquisition of $200,000. Total goodwill at the date
of acquisition aggregated $1.9 million.
On August 19, 1996, the Company acquired Edgewater Home Infusion
Services, Inc., a home infusion company in Miami, Florida. Total
purchase price was approximately $8.0 million. The Company incurred
direct costs of acquisition of $300,000. Total goodwill at the date
of acquisition aggregated $7.7 million.
In August 1996, the Company acquired Century Health Services, Inc., a
home health company in Murfreesboro, Tennessee. Total purchase price
was approximately $2.4 million. In addition, the Company repaid
certain debt of Century of approximately $1.5 million. The Company
incurred direct costs of acquisition of $200,000. Total goodwill at
the date of acquisition aggregated $12.1 million.
In September 1996, the Company acquired Signature Home Care, Inc., a
home health care company in Dallas, Texas. Total purchase price was
approximately $9.2 million, including $4.7 million representing the
issuance of 196,374 shares. The Company incurred direct cost of
acquisition of $500,000. Total goodwill at the date of acquisition
aggregated $19.1 million.
During the nine months ended September 30, 1996, the Company paid
purchase option deposits of $10.3 million, including $7.3 million
through the issuance of 305,300 shares of the Company's common stock.
During the nine months ended September 30, 1996, the Company incurred
approximately $8.5 million of pre-acquisition costs.
Note 4: Revolving Credit Facility
In May 1996, the Company entered into a $700 million revolving
credit agreement with Citicorp USA, Inc., the agent and certain
other lenders which replaced its $500 million revolving credit and
term loan facility which closed in April 1995. 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 $700 million revolving credit facility
will be used to finance the Company's working capital requirements,
to make acquisitions and for general corporate purposes. As a result
of this agreement, the Company recorded an extraordinary loss on
extinguishment of debt, net of tax, of $1.4 million. (See Note 6:
Extraordinary Item)
Note 5: 10-1/4% Senior Subordinated Notes due 2006
On May 23, 1996, IHS issued $150,000,000 aggregate principal amount
of its 10-1/4% Senior Subordinated Notes due 2006 (the "Senior
Notes"). Interest on the Senior Notes is payable semi-annually on
April 30 and October 30, commencing October 30, 1996. The Senior
Notes are redeemable for cash at any time on or after April 30, 2001,
at the option of the Company, in whole or in part, at a price
expressed as a percentage of the principal amount, initially equal to
105.125% and declining to 100% on April 30, 2004, plus accrued
interest to the repurchase date. In the event of a change in control
of IHS, each holder of Senior Notes may require IHS to repurchase
such holder's Senior Notes, in whole or in part, at 101% of the
principal amount thereof, plus accrued interest to the repurchase
date. The Indenture under which the Senior Notes were issued contains
certain covenants, including,
Page 9 of 31
<PAGE>
but not limited to, covenants with respect to the following matters:
(i) limitations on additional indebtedness unless certain ratios are
met; (ii) limitations on other subordinated debt; (iii) limitations
on liens; (iv)limitations on the issuance of preferred stock by IHS's
subsidiaries; (v)limitations on transactions with affiliates; (vi)
limitations on certain payments, including dividends; (vii)
application of the proceeds of certain asset sales; (viii)
restrictions on mergers, consolidations and the transfer of all or
substantially all of the assets of IHS to another person, and (ix)
limitations on investments and loans. The Company used the net
proceeds from the sale of the Senior Notes to repay a portion of the
$338.0 million then outstanding under its credit facility.
Note 6: Extraordinary Item
In the second quarter of 1996, the Company replaced its $500 million
revolving credit and term loan facility with the $700 million
revolving credit facility (see Note 4: Revolving Credit Facility).
This event has been accounted for as an extinguishment of debt and
the Company has recorded a loss on extinguishment of debt of
$2,327,000, relating primarily to the write off of deferred financing
costs. Such loss, reduced by the related income tax effect of
$896,000, is presented in the statement of earnings as an
extraordinary item of $1,431,000.
In the second quarter of 1995, the Company replaced its $250 million
revolving credit and term loan facility with a $500 million revolving
credit and term loan facility. This event has been accounted for as
an extinguishment of debt, and the Company has recorded a loss on
extinguishment of debt of $826,000 relating primarily to the write
off of deferred financing costs. Such loss, reduced by the related
income tax effect of $318,000, is presented in the statement of
earnings as an extraordinary item of $508,000.
Note 7: Sale of Pharmacy Division
In July 1996, the Company sold its pharmacy division to Capstone
Pharmacy Services, Inc. ("Capstone") for a purchase price of $150
million, consisting of cash of $125 million and shares of Capstone
stock having a value of $25 million. The Company used the net
proceeds of the sale to repay borrowings under its revolving credit
facility. The Company had a prtax gain of $34.3 million ($300,000
gain after income taxes).
Because the Company's investment in the common stock had a very small
tax basis, the taxable gain on the sale significantly exceeded the
gain for financial reporting purposes; accordingly, the income tax
provision related to the sale was $34.0 million.
The Company's investment in Capstone common stock of $14.6 million
represents less than 20% of the total Capstone shares. Accordingly,
such investment is recorded at carryover cost and classified as
securities available for sale. An unrealized gain
Page 10 of 31
<PAGE>
of $11.5 million is reflected in stockholders' equity with respect to
such investment, as the current market value of the Capstone Shares
is approximately $26.1 million.
The pharmacy division generated revenue of $91.0 million and $63.6
million (of which $17.5 million and $11.3 million, respectively, was
revenue from services to IHS facilities) for the year ended December
31, 1995 and the seven months ended July 31, 1996, respectively.
Note 8: Sale of Assisted Living Services Division
On October 9, 1996, Integrated Living Communities, Inc. ("ILC"), a
wholly-owned subsidiary of the Company which provides assisted living
and related services to the private pay elderly market, completed its
initial public offering. Total proceeds to the Company were
approximately $17.8 million, including a $7.4 million loan repayment.
The Company continues to own approximately 37% of the outstanding
common stock of ILC. The Company used the net proceeds from the sale
to repay borrowings under its revolving credit facility. The Company
expects to record a prtax loss of approximately $4.5 million in the
fourth quarter of 1996 as a result of this transaction.
ILC generated revenue of $16.3 million and $17.1 million for the year
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively.
Note 9: First American Acquisition
On October 17, 1996, Integrated Health Services, Inc. ("the Company")
acquired through merger First American Health Care of Georgia, Inc.
("First American"), a provider of home health services in 21 states,
principally Alabama, California, Florida, Georgia, Michigan,
Pennsylvania and Tennessee.
The purchase price for First American was $154.1 million in cash plus
contingent payments of up to $155 million. The contingent payments
will be payable if (1) legislation is enacted that changes the
Medicare reimbursement methodology for home health services to a
prospectively determined rate methodology, in whole or in part, or
(2) in respect of any year in which the percentage increase in the
seasonally unadjusted Consumer Price index for all Urban Consumers
for Medical Care expenditure category (the "Medical CPI") is less
than 8% or in any subsequent year prior to 2004, the percentage
increase in the Medical CPI is less than 8%. If payable, the
contingent payments will be paid as follows: $10 million for 1999
which must be paid on or before February 14, 2000; $40 million for
2000 which must be paid on or before February 14, 2001; $51 million
for 2001 which must be paid on or before February 14, 2002; $39
million for 2002 which must be paid on or before February 14, 2003;
and $15 million for 2003 which must be paid on or before February 14,
2004. The Company borrowed the cash purchase price paid at the
closing under its $700 million revolving credit facility with
Citibank, N.A., as Administrative Agent, and certain other lenders.
$115 million of the $154.1 million paid at closing was paid to the
Health Care Financing
Page 11 of 31
<PAGE>
Administration ("HCFA"), the Department of Justice and the United
States Attorney for the Southern District of Georgia in settlement
of claims by the United States government seeking repayment from
First American of certain disallowed reimbursements under Medicare,
which claims IHS believes relate to personal or corporate expenses,
rather than carrelated expenses (the "HCFA Claims"). The total
settlement with the United States government was $255 million; the
remaining $140 million will be paid only from the contingent
payments to the extent such payments become due. During the first
quarter of 1996, the Company loaned $18.1 million to First American
to fund certain of First American's pension and tax liabilities. The
loan, which bore interest at a rate per annum equal to the prime
rate plus 4% and was due December 31, 1996, was secured by a pledge
of certain shares of First American stock owned by First American's
principal stockholder.
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.
Note 10: Coram Merger
On October 19, 1996, IHS, IHS Acquisition XIX, Inc., a wholly-owned
subsidiary of IHS ("Merger Sub"), and Coram Healthcare Corporation
("Coram") entered into a definitive agreement and plan of merger
(the "Agreement") providing for the merger of Merger Sub into Coram,
with Coram becoming a wholly-owned subsidiary of IHS. Coram is a
leading provider of alternative site (outside the hospital) infusion
therapy and related services in the United States, operating 132
branches located in 43 states. Infusion therapy involves the
intravenous administration of anti-infective, biotherapy,
chemotherapy, pain management, nutrition and other therapies. Other
services offered by Coram include the provision of lithotripsy and
other non-intravenous products and services.
Under the terms of the Agreement, which was approved by the Board of
Directors of both IHS and Coram, holders of Coram Common Stock
("Coram Common Stock") will receive for each share of Coram Common
Stock 0.2111 of a share of IHS Common Stock, having a market value
of $5.44 based on the closing price of IHS Common Stock on the last
business day prior to the signing of the Agreement. Options and
warrants to purchase Coram Common Stock will be converted at the
closing into options and warrants, respectively, to purchase IHS
Common Stock. At September 30, 1996 Coram had outstanding 42,266,867
shares of Coram Common Stock, options to purchase 6,806,531 shares
of Coram Common Stock ("Coram Options") and warrants to purchase
7,210,118 shares of Coram Common Stock ("Coram Warrants") which
includes warrants of CFI (discussed below). In addition, Coram has
agreed to issue 5,000,000 shares of Coram Common Stock in settlement
of a pending class action lawsuit. IHS will issue approximately
9,978,036 shares of IHS Common Stock which includes shares issued by
Coram in connection with the settlement of a pending class action
lawsuit under the Agreement, and will reserve for issuance of
approximately 2,610,000 shares of IHS Common Stock issuable upon
Page 12 of 31
<PAGE>
exercise of Coram Options and Coram warrants after giving effect to
the transaction with CFI (discussed below). At September 30, 1996,
IHS had outstanding 23,197,954 shares of IHS Common Stock and had
reserved for issuance approximately 10,500,000 shares under stock
option and stock purchase plans and warrants and 7,989,275 shares
upon conversion of outstanding convertible debentures.
The merger is intended to qualify as a tax free reorganization, as
permitted by the Internal Revenue Code, and a "pooling of interests"
for accounting and financial reporting purposes. Completion of the
transaction, which is expected to occur in the first quarter of 1997,
is subject to, among other things, approval by each company's
stockholders, receipt of required regulatory approvals, consent of
senior bank lenders and other customary conditions.
In addition, the Company has agreed to purchase at the effective time
of the merger from Coram Funding, Inc., an affiliate of Donaldson,
Lufkin & Jenrette Securities Corporation ("CFI"), the Coram bridge
notes and warrants to purchase Coram Common Stock (collectively, the
"CFI Securities") purchased by CFI in April 1995. The purchase price
for the CFI Securities will be cash in an amount equal to $172.3
million (plus accrued interest thereon from January 1, 1997 at the
rate of 11% per annum) (the "CFI Securities Cash Purchase Price").
IHS may elect to pay all or a portion of the CFI Securities Cash
Purchase Price through the issuance of 11% Senior Subordinated Notes
due 2007 of IHS (the "11% Notes") in an aggregate principal amount
equal to approximately 101.394% of that portion of the CFI Securities
Cash Purchase Price to be paid through the issuance of 11% Notes.
In addition, the litigation between Coram and Caremark International,
Inc. ("CII"), a wholly-owned subsidiary of MedPartners, Inc., will be
settled at the closing of the transaction, and CII will receive from
Coram a 2-year promissory note in the principal amount of $52.7
million plus accrued interest from September 30, 1996 through closing
in exchange for the approximately $111 million principal amount of
subordinated notes issued by Coram to CII in connection with Coram's
acquisition of an alternate site infusion business from CII. The
Company will assume a total of approximately $375 million of
indebtedness in the merger, including the new debt to be issued to
CFI and CII.
Note 11: The Rehab People Earnout
During the second quarter of 1996, the Company paid an earn-out to
The Rehab People of $10 million, representing the issuance of 435,540
shares of the Company's common stock, including the 400,600 shares of
the Company's treasury stock.
Note 12: Subsequent Events
In October 1996, the Company purchased Total Rehab Services, Inc., a
contract rehab company in Northbrook, Illinois. Total purchase price
was approximately $8.0 million. In November 1996, the Company
purchased Mediq, Inc., a mobile x-ray company in New England. Total
purchase price was approximately $12.5 million. In addition, the
Company has reached agreements in principle to purchase a mobile
x-ray company in California for approximately $5.1 million, a mobile
x-ray company in Michigan for approximately $260,000, a home health
company in Florida for approximately
Page 13 of 31
<PAGE>
$350,000, a home health company in Utah for approximately $3.2
million, a skilled nursing facility in Florida for approximately $6.5
million, an outpatient rehab company in Florida for approximately
$1.5 million, a hospital based respiratory management company in
California for approximately $4.5 million, a home respiratory and
infusion company in Florida for approximately $4.5 million, a
respiratory company in Tennessee for approximately $5.1 million, a
home infusion company for approximately $12.5 million, a hospice
company for approximately $13.5 million and a hospice company for
approximately $30.0 million. In addition, the Company has reached an
agreement in principle to purchase the remaining 90% of a disease
state management company in Miami, Florida. IHS purchased its
original 10% ownership interest in August 1995. Dr. Robert N. Elkins,
Chairman and Chief Executive Officer of the Company, currently owns
65% of the company to be acquired. Total purchase price is
approximately $900,000.
There can be no assurance that any of these pending acquisitions will
be consummated on the proposed terms, on different terms, or at all.
Page 14 of 31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996
Compared to Three Months Ended September 30, 1995
Net revenues for the three months ended September 30, 1996 increased
$60.8 million, or 20%, to $360.0 million from the comparable period in 1995.
Approximately 56% of the increase in revenue was due to the gain on the sale of
the Company's pharmacy division, approximately 16% of the increase was
attributable to the addition of 11 facilities (3 owned, 4 leased and 4 managed
facilities) since September 30, 1995 and approximately 20% due to the
acquisition of companies providing rehabilitation, home health, mobile x-ray and
electrocardiogram services. The remaining increase was due to increased revenues
from facilities and ancillary companies in operation in both periods.
Basic medical services revenue increased from $95.5 million to $101.2
million. Of the $101.2 million in basic medical services revenue in 1996, $8.9
million, or 9%, was attributable to the acquisition of 581 leased beds and 542
owned beds representing 4 leased and 3 owned facilities, respectively,
subsequent to September 30, 1995. Basic medical services revenue of facilities
in operation during both periods decreased during the three months ended
September 30, 1996, as a result of skilled nursing beds being converted to
Medical Specialty Unit (MSU) beds after September 30, 1995.
Specialty medical services revenue increased from $193.6 million to
$211.9 million. Of the $18.3 million increase, $13.0 million, or 71%, was
attributable to revenue from acquisitions subsequent to September 30, 1995. The
remaining increase was due to increased revenue from facilities and ancillary
companies in operation in both periods, facilities and ancillary companies
acquired during the three months ended September 30, 1995, as well as skilled
nursing beds being converted to MSU beds after September 30, 1995. The increase
in specialty medical services revenue was partially offset by the sale of the
Company's pharmacy division in July 1996.
Page 15 of 31
<PAGE>
Management services and other revenues increased from $10.1 million to
$12.6 million. This increase was primarily due to the Company entering into 4
new management contracts subsequent to September 30, 1995 and the improved
operating results which resulted in increased management fees at facilities
which the Company managed in both periods. This increase was partially offset by
the termination in the fourth quarter of 1995 of a contract to manage 23
facilities located in California. Also, the Company entered into operating
leases with two facilities and purchased two facilities which were previously
managed during the three months ended September 30, 1995.
The Company recorded a gain on sale of assets during the three months
ended September 30, 1996 of $34.3 million. Such gain relates to the sale of the
Company's pharmacy division which occurred in July 1996 (see Note 7 to
Consolidated Financial Statements: Sale of Pharmacy Division).
Total expenses for the period increased to $299.6 million from $278.2
million, an increase of 8%. Of the $21.4 million increase, $16.7 million, or
78%, was due to an increase in operating expenses. Of the $241.2 million in
operating expenses, $18.6 million, or 8%, was attributable to acquisitions
consummated subsequent to September 30, 1995. The increase in operating expenses
was offset by the reduction in operating expenses related to the pharmacy
division which was sold in July 1996.
Corporate administrative and general expenses for the three months
ended September 30, 1996 increased by $700,000, or 5%, over the comparable
period in 1995. This increase primarily represents additional operations,
information systems, accounting, finance and other personnel to support the
growth resulting from the acquisition of owned, leased and managed facilities
and ancillary businesses. Depreciation and amortization decreased to $9.1
million during the three months ended September 30, 1996, a 7% decrease as
compared to $9.9 million in the same period in 1995.
Page 16 of 31
<PAGE>
Rent expense increased by $1.7 million, or 10%, over the comparable period in
1995, primarily as a result of the addition of 4 leased facilities subsequent to
September 30, 1995, and increases in contingent rentals which are based on gross
revenues of certain leased facilities, partially offset by a reduction in rent
expense resulting from the sale of the pharmacy division. Interest expense, net
increased $5.0 million, or 45%, during the three months ended September 30, 1996
to $15.9 million. The increase in interest expense was primarily a result of the
Company's issuance of $150 million principal amount of 10-1/4% Senior
Subordinated Notes in May 1996, and increased borrowings under its $700 million
revolving credit facility which closed in May 1996. In the three months ended
September 30, 1995, the Company incurred merger costs of $1.9 million relating
to the acquisition of IntegraCare, Inc., which was accounted for as a pooling of
interests.
Earnings before equity in earnings of affiliates, income taxes and
extraordinary item increased by 188% to $60.3 million for the three months ended
September 30, 1996, as compared to $21.0 million for the comparable period in
the prior year. This increase was due primarily to the gain on the sale of the
pharmacy division. Before giving effect to the gain on the sale of the pharmacy
division, earnings before equity in earnings of affiliates, income taxes and
extraordinary items increased 24% to $26.0 million.
Earnings before income taxes and extraordinary item increased by 185%
to $60.6 million for the three months ended September 30, 1996, as compared to
$21.3 million for the comparable period in the prior year. This increase is due
primarily to the gain on the sale of the pharmacy division. Before giving effect
to the gain on the sale of the pharmacy division, earnings before income taxes
and extraordinary items increased by 24% to $26.4 million. The provision for
federal and state income taxes was $44.1 million for the three months ended
September 30, 1996 (of which $34.0 million resulted from the sale of the
pharmacy division), and $8.2 million for the same period in the prior year. Net
earnings and fully diluted earnings per share for the quarter were $16.5 million
in 1996, or 58 cents per share, as compared to $13.1 million or 52 cents per
share for the same period in 1995. Before giving effect to the gain on
Page 17 of 31
<PAGE>
the sale of the pharmacy division, net earnings and fully-diluted earnings per
share for the three months ended September 30, 1996 were $16.2 million, or 57
cents per share.
Page 18 of 31
<PAGE>
Nine Months Ended September 30, 1996
Compared to Nine Months Ended September 30, 1995
Net revenues for the nine months ended September 30, 1996 increased
$162.8 million, or 19%, to $1.0 billion from the comparable period in 1995.
Approximately 21% of the increase in revenue was due to the gain on the sale of
the pharmacy division, approximately 15% of the increase in revenues was
attributable to the addition of 11 facilities (3 owned, 4 leased and 4 managed
facilities) since September 30, 1995 and approximately 13% was due to the
acquisition of companies providing rehabilitation, home health, mobile x-ray and
electrocardiogram services. The remaining increase was due to increased revenues
from facilities and ancillary companies in operation in both periods.
Basic medical services revenue increased from $272.2 million to $296.5
million. Of the $296.5 million in basic medical services revenue in 1996, $22.5
million, or 8%, was attributable to the acquisition of 581 leased beds and 542
owned beds representing 4 leased and 3 owned facilities, respectively,
subsequent to September 30, 1995. The increase in basic medical services revenue
was partially offset by the conversion of skilled nursing beds to MSU beds
subsequent to September 30, 1995.
Specialty medical services revenue increased from $558.1 million to
$658.3 million. Of the $100.2 million increase, $23.2 million, or 23%, was
attributable to revenue from acquisitions subsequent to September 30, 1995. The
remaining increase was due to increased revenue from facilities in operation in
both periods, facility and ancillary companies acquired during the nine months
ended September 30, 1995, as well as skilled nursing beds being converted to MSU
beds after September 30, 1995. The increase in specialty medical services
revenue was partially offset by the sale of the Company's pharmacy division in
July 1996.
Management services and other revenues increased from $29.9 million to
$34.0 million. This increase was primarily due to the Company entering into 4
new management contracts subsequent to September 30, 1995 and the improved
operating results which resulted in increased management fees at facilities
which the Company managed in both periods. This
Page 19 of 31
<PAGE>
increase was partially offset by the termination in the fourth quarter of 1995
of a contract to manage 23 facilities located in California. Also, the Company
entered into operating leases with two facilities and purchased two facilities
which were previously managed during the nine months ended September 30, 1995.
The Company recorded a gain on sale of assets during the nine months
ended September 30, 1996 of $34.3 million. This gain relates to the sale of the
Company's pharmacy division which occurred in July 1996 (see Note 7 to
Consolidated Financial Statements: Sale of Pharmacy Division).
Total expenses for the period increased to $916.2 million from $793.6
million, an increase of 15%. Of the $122.6 million increase, $99.2 million, or
81%, was due to an increase in operating expenses. Of the $99.2 million increase
in operating expenses, $38.9 million, or 39%, was attributable to acquisitions
consummated subsequent to September 30, 1995. The remainder of the increase in
operating expenses primarily resulted from costs related to the increased
medical acuity level of the Company's patients, partially offset by the
reduction in operating expenses related to the pharmacy division which was sold
in July 1996.
Corporate administrative and general expenses for the nine months ended
September 30, 1996 increased by $4.1 million, or 10%, over the comparable period
in 1995. This increase primarily represents additional operations, information
systems, accounting, finance and other personnel to support the growth resulting
from the acquisition of owned, leased and managed facilities and ancillary
businesses. Depreciation and amortization was $25.9 million and $28.5 million
during the nine months ended September 30, 1996 and 1995, respectively. Rent
expense increased by $4.7 million, or 10%, over the comparable period in 1995,
primarily as a result of the addition of 4 leased facilities subsequent to
September 30, 1995, and increases in contingent rentals which are based on gross
revenues of certain leased facilities, partially offset by a reduction in rent
expense resulting from the sale of the pharmacy division. Interest
Page 20 of 31
<PAGE>
expense, net, increased $19.2 million during the nine months ended September 30,
1996 to $46.0 million. The increase in interest expense was primarily a result
of the Company's issuance of $115 million principle amount of 9-5/8% Senior
Subordinated Notes issued in May 1995, the Company's issuance of $150 million
principal amount of 10-1/4% Senior Subordinated Notes issued in May 1996, and
increased borrowings under its $700 million revolving credit facility which
closed in May 1996, and its $500 million revolving credit and term loan facility
which closed in May 1995. In the nine months ended September 30, 1995, the
Company incurred merger costs of $1.9 million relating to the acquisition of
IntegraCare.
Earnings before equity in earnings of affiliates, income taxes and
extraordinary item increased by 60% to $106.9 million for the nine months ended
September 30, 1996, as compared to $66.6 million for the comparable period in
the prior year. This increase was due primarily to the gain on the sale of the
pharmacy division. Before giving effect to the gain on the sale of the pharmacy
division, earnings before equity in earnings of affiliates, income taxes and
extraordinary item increased by 9% to $72.6 million.
Earnings before income taxes and extraordinary item increased by 60% to
$107.9 million for the nine months ended September 30, 1996, as compared to
$67.6 million for the comparable period in the prior year. This increase is due
primarily to the gain on the sale of the pharmacy division. Before giving effect
to the gain on the sale of the pharmacy division, earnings before income taxes
and extraordinary items increased by 9% to $73.6 million. The provision for
federal and state income taxes was $62.4 million for the nine months ended
September 30, 1996 (of which $34.0 million resulted from the sale of the
Company's pharmacy division), and $26.0 million for the same period in the prior
year. Net earnings and fully diluted earnings per share for the nine months were
$44.2 million in 1996, or $1.64 per share, as compared to $41.1 million or $1.57
per share for the same period in 1995. Before giving effect to the gain on the
sale of the pharmacy division net earnings and fully-diluted earnings per share
for the nine months ended September 30, 1996 were $43.9 million or $1.63 per
share. During the nine months ended September 30, 1996, the Company incurred a
$1.4 million (net of tax), or 5 cents
Page 21 of 31
<PAGE>
per share (fully-diluted), extraordinary loss on the extinguishment of debt.
During the nine months ended September 30, 1995, the Company incurred a 508,000
(net of tax), or 2 cents per share (fully-diluted) extraordinary loss on the
extinguishment of debt.
Page 22 of 31
<PAGE>
Liquidity and Capital Resources
At September 30, 1996, the Company had working capital of $115.5
million, as compared with $136.3 million at December 31, 1995. There were no
material commitments for capital expenditures as of September 30, 1996. Net
patient accounts and third-party payor settlements receivable increased $31.3
million to $261.6 million at September 30, 1996, as compared to $230.3 million
at December 31, 1995. Of the $31.3 million increase in accounts receivable,
$34.1 million was attributable to new facilities and ancillary services
businesses acquired subsequent to December 31, 1995, partially offset by a $17.0
million decrease due to the sale of the pharmacy division, and a $14.2 million
increase due to increased accounts receivable at facilities in operation and
related services businesses owned at both December 31, 1995 and September 30,
1996. Gross patient accounts receivable were $257.4 million at September 30,
1996, as compared to $226.8 million at December 31, 1995. Third- party payor
settlements receivable from federal and state governments (i.e., Medicare and
Medicaid cost reports) was $24.5 million at September 30, 1996, as compared to
$21.6 million at December 31, 1995. Approximately $9.0 million, or 37%, of the
third-party payor settlements receivable from federal and state governments at
September 30, 1996 represent the costs for its MSU patients which exceed
regional reimbursement limits established under Medicare.
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
reimbursement for those costs which exceed the Medicare established
reimbursement limits by obtaining waivers of these cost limitations. The Company
has submitted waiver requests for 224 cost reports, covering all cost report
periods through December 31, 1995. To date, final action has been taken by the
Health Care Financing Administration ("HCFA") on 205 waiver requests covering
cost report periods through December 31, 1995. The Company's final rates as
approved by HCFA represent approximately 95% of the requested rates as submitted
Page 23 of 31
<PAGE>
in the waiver requests. There can be no assurance, however, that the Company
will be able to recover its excess costs under any waiver requests which may be
submitted in the future. The Company's failure to recover substantially all
these excess costs would adversely affect its results of operations and could
adversely affect its MSU strategy.
Net cash provided by operating activities for the nine months ended
September 30, 1996, was $13.9 million as compared to $17.0 million provided by
operating activities for the comparable period in 1995. Net cash provided by
operating activities for the nine months ended September 30, 1996 decreased from
the comparable period in 1995 primarily as a result of changes in the Company's
current assets and liabilities.
Net cash provided by financing activities was $61.2 million for the
nine month period in 1996 as compared to $132.1 million provided by financing
activities for the comparable period in 1995. In both periods, the Company
received net proceeds from long-term borrowings and made repayments on certain
debt.
Net cash used by investing activities was $72.9 million for the nine
month period ended September 30, 1996 as compared to $171.2 million used by
investing activities for the nine month period ended September 30, 1995. Cash
used for the acquisition of facilities and ancillary company acquisitions was
$46.1 million in 1996 as compared to $50.8 million for 1995. Cash used for the
purchase of property, plant and equipment was $104.6 million in 1996 and $96.5
million in 1995. In the nine months ended September 30, 1996, the Company
received $125 million in cash from the sale of the pharmacy division.
The Company's contingent liabilities (other than liabilities in respect
of litigation) aggregated approximately $52.2 million as of September 30, 1996.
The Company is obligated to purchase its Greenbriar facility upon a change in
control of the Company. The net purchase price of the facility is approximately
$4.0 million. The lessor of this facility has the right to require Messrs.
Robert Elkins and Timothy Nicholson to purchase all or any part of 13,944 shares
of common stock owned by it at a per share purchase price equal to the sum of
$12.25 per
Page 24 of 31
<PAGE>
share plus 9% simple interest per annum from May 8, 1988 until the date of such
purchase. The Company has agreed to purchase the shares if Messrs. Elkins and
Nicholson fail to do so. The amount aggregated approximately $353,121 at
September 30, 1996. The Company has guaranteed approximately $6.6 million of
such lessor's indebtedness. The Company is required, upon certain defaults under
the lease, to purchase its Orange Hills facility at a purchase price equal to
the greater of $7.1 million or the facility's fair market value. The Company has
jointly and severally guaranteed a $1.2 million construction loan made to River
City Limited Partnership in which the Company has a 30% general partnership
interest. The Company has guaranteed approximately $3.9 million of a
construction loan for Trizec, the entity from which the Company purchased the
Central Park Lodges facilities. The Company entered into a guaranty agreement
whereby the Company guaranteed approximately $4.0 million owed by Tutera Group,
Inc. and Sunset Plaza Limited Partnership, a partnership affiliated with a
partnership in which the Company has a 49% interest, to Finova Capital
Corporation. The Company has guaranteed approximately $8.9 million owed by
Litchfield Asset Management Corporation to National Health Investors, Inc. The
Company has established several irrevocable letters of credit with the Bank of
Nova Scotia totalling $15.7 million at September 30, 1996 to secure certain of
the Company's workers' compensation, health benefits and other obligations. The
Company has guaranteed approximately $539,000 owed by Dunns Creek to National
Health Investors. In addition, the Company has obligations under operating
leases aggregating approximately $254.2 million at September 30, 1996. In
addition, with respect to certain acquired businesses, the Company is obligated
to make certain contingent payments if earnings of the acquired business
increase or earnings targets are met.
The liquidity of the Company will depend in large part on the timing of
payments by private, third-party and governmental payors, including payments in
excess of regional cost reimbursement limitations established under Medicare.
Costs in excess of the regional reimbursement limits relate primarily to the
delivery of services and patient care to the Company's MSU patients.
Page 25 of 31
<PAGE>
In implementing its post-acute network, the Company expects that it
will continue to add home healthcare and ancillary service companies and
additional geriatric care facilities, implement additional MSU programs at its
existing and new facilities and expand its existing operations. The Company
anticipates that cash from operations, borrowings under revolving credit
facilities and proceeds from the sale of debt and equity securities will be
adequate to cover its scheduled debt payments and future anticipated growth,
including business acquisitions and capital expenditure requirements, for the
foreseeable future.
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 subcommittment
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)
margin of between zero percent and one and onquarter 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 onhalf percent (depending on
certain financial ratios) and the interest rate in the London inter-bank market
for loans in an amount substantially equal to the amount of borrowing and for
the period of the borrowing selected by the Company.
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
Page 26 of 31
<PAGE>
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 $700 million
credit facility replaced the Company's $500 million revolving credit facility
(the "Prior Credit Facility"). As a result, the Company recorded a loss on
extinguishment of debt, net of related tax benefits, of approximately $1.4
million in the second quarter of 1996. On May 15, 1996, the Company borrowed
$328.2 million under the New Credit Facility to repay amounts outstanding under
the Prior Credit Facility. At September 30, 1996, $142.2 million was outstanding
under the New Credit Facility. During October 1996, the Company borrowed an
additional $168 million under the New Credit Facility, including $154 million to
finance the acquisition of First American Health Care of Georgia, Inc. (see Note
9 to Consolidated Financial Statements: First American Acquisition).
On May 23, 1996, IHS issued $150,000,000 aggregate principal amount of
its 10-1/4% Senior Subordinated Notes due 2006 (the "Senior Notes"). Interest on
the Senior Notes is payable semi-annually on April 30 and October 30, commencing
October 30, 1996. The Senior Notes are redeemable for cash at any time on or
after April 30, 2001, at the option of the Company, in whole or in part, at a
price expressed as a percentage of the principal amount, initially equal to
105.125% and declining to 100% on April 30, 2004, plus accrued interest to the
repurchase date. In the event of a change in control of IHS, each holder of
Senior Notes may require IHS to repurchase such holder's Senior Notes, in whole
or in part, at 101% of the principal amount thereof, plus accrued interest to
the repurchase date. The Indenture under which the Senior Notes were issued
contains certain covenants, including, but not limited to, covenants with
respect to the following matters: (i) limitations on additional indebtedness
unless certain ratios are met; (ii) limitations on other subordinated debt;
(iii) limitations on liens; (iv)limitations on the issuance of preferred stock
by IHS's subsidiaries; (v)limitations on transactions with affiliates; (vi)
limitations on certain payments,
Page 27 of 31
<PAGE>
including dividends; (vii) application of the proceeds of certain asset sales;
(viii) restrictions on mergers, consolidations and the transfer of all or
substantially all of the assets of IHS to another person, and (ix) limitations
on investments and loans. The Company used the net proceeds from the sale of the
Senior Notes to repay a portion of the $338.0 million then outstanding under its
credit facility.
Page 28 of 31
<PAGE>
Part II: Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.01 Assets Purchase Agreement dated as of June 20, 1996 by and
among the Company, various subsidiaries of the Company and
Capstone Pharmacy Services, Inc., as amended. (1)
2.02 Stock Purchase Agreement dated as of August 23, 1996 by and
among the Company, Signature and Selling Stockholders of
Signature. (2)
2.03 Merger Agreement dated as of February 21, 1996 among
Integrated Health Services, Inc., IHS Acquisition XIV, Inc.,
and First American Health Care of Georgia, Inc. and its
principal shareholders. (3)
2.04 Amendment to Merger Agreement, dated as of September 9,
1996, by and among Integrated Health Services, Inc., IHS
Acquisition XIV, Inc., First American Health Care of
Georgia, Inc., Robert J. Mills and Margie B. Mills. (3)
2.05 Agreement and Plan of Merger entered into as of October 19,
1996, among Coram Healthcare Corporation, Integrated Health
Services, Inc., and IHS Acquisition XIV, Inc. (4)
10.1 Agreement, dated as of October 19, 1996, among Integrated
Health Services, Inc. and Coram Funding, Inc. (4)
10.2 Agreement, dated as of October 20, 1996, by and between
MedPartners, Inc. and Integrated Health Services, Inc. (4)
10.3 Integrated Health Services, Inc. Stock Option Plan for New
Non-Employee Directors, as amended. (5)
10.4 Integrated Health Services, Inc. Stock Option Compensation
Plan for Non-Employee Directors, as amended. (5)
10.5 Integrated Health Services, Inc. 1995 Stock Option Plan for
Non-Employee Directors. (5)
10.6 Stock Option Agreement, dated as of November 27, 1995, by
and between Integrated Health Services, Inc. and John
Silverman. (5)
10.7 Integrated Health Services, Inc. 1994 Stock Incentive Plan,
as amended. (5)
10.8 1996 Stock Incentive Plan of Integrated Health Services,
Inc.
27. Financial Data Schedule. (5)
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated as of July 30,
1996 relating to the sale of the pharmacy division to Capstone
Pharmacy Services, Inc.
The Company filed a Current Report on Form 8-K dated as of
September 25, 1996 relating to the acquisition of Signature Home
Care, Inc.
The Company filed a Current Report on Form 8-K dated as of October
17, 1996 relating to the acquisition of First American Health Care
of Georgia, Inc.
Page 29 of 31
<PAGE>
The Company filed a Current Report on Form 8-K dated as of October
21, 1996, relating to the proposed merger with Coram Healthcare
Corporation.
- ---------------------------------
(1) Incorporated by reference to the Company's Current Report on Form 8-K
dated as of July 30, 1996.
(2) Incorporated by reference to the Company's Current Report on Form 8-K
dated as of September 25, 1996
(3) Incorporated by reference to the Company's Current Report on Form 8-K
dated as of October 17, 1996.
(4) Incorporated by reference to the Company's Current Report on Form 8-K
dated as of October 19, 1996.
(5) Previously filed in the Company's Report on Form 10-Q for the nine
months ended September 30, 1996.
Page 30 of 31
<PAGE>
- SIGNATURES -
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRATED HEALTH SERVICES, INC.
--------------------------------
By: /s/ W. Bradley Bennett
-------------------------------
W. Bradley Bennett
Executive Vice President and
Chief Accounting Officer
Dated: July 8, 1997
------------------------------
Page 31 of 31
1996 STOCK INCENTIVE PLAN
of
INTEGRATED HEALTH SERVICES, INC.
1. PURPOSES OF THE PLAN. This stock incentive plan (the
"Plan") is designed to provide an incentive to employees, consultants and
directors of INTEGRATED HEALTH SERVICES, INC., a Delaware corporation (the
"Company"), or any of its Subsidiaries (as defined in Paragraph 19), and to
offer an additional inducement in obtaining the services of such persons.
Options granted under the Plan shall be non-qualified stock options which do not
meet the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of Common Stock, $.001 par value
per share, of the Company ("Common Stock") for which options may be granted
under the Plan shall not exceed 2,500,000. Such shares of Common Stock may, in
the discretion of the Board of Directors of the Company (the "Board of
Directors"), consist either in whole or in part of authorized but unissued
shares of Common Stock or shares of Common Stock held in the treasury of the
Company. Subject to the provisions of Paragraph 13, any shares of Common Stock
subject to an option which for any reason expires, is canceled or is terminated
unexercised or which ceases for any reason to be exercisable, shall again become
available for the granting of options under the Plan. The Company shall at all
times during the term of the Plan reserve and keep available such number of
shares of Common Stock as will be sufficient to satisfy the requirements of the
Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be
administered by the Board of Directors or a committee (the "Committee") of the
Board of Directors consisting of not less than two directors (those
administering the Plan are the "Administrators") each of whom meets the
requirements of Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended (as the same may be in effect and interpreted from time to
time, "Rule 16b-3"). Unless otherwise provided in the By-laws of the Company or
resolution of the Board of Directors, a majority of the members of the Committee
shall constitute a quorum, and the acts of a majority of the members present at
any meeting at which a quorum is present, and any acts approved in writing by
all of the members of the Committee without a meeting, shall be the acts of the
Committee.
Subject to the express provisions of the Plan, the
Administrators shall have the authority, in their sole discretion, to determine:
the employees, consultants and directors who shall be granted options; the times
when an option shall be granted; the number of shares of Common Stock to be
subject to each option; the term of each option; the date each option shall
become
<PAGE>
exercisable; whether an option shall be exercisable in whole, in part or in
installments and, if in installments, the number of shares of Common Stock to be
subject to each installment, whether the installments shall be cumulative, the
date each installment shall become exercisable and the term of each installment;
whether to accelerate the date of exercise of any option or installment; whether
shares of Common Stock may be issued upon the exercise of an option as partly
paid and, if so, the dates when future installments of the exercise price shall
become due and the amounts of such installments; the exercise price of each
option; the form of payment of the exercise price; whether to restrict the sale
or other disposition of the shares of Common Stock acquired upon the exercise of
an option and, if so, whether and under what conditions to waive any such
restriction; whether and under what conditions to subject all or a portion of
the grant or exercise of an option or the shares acquired pursuant to the
exercise of an option to the fulfillment of certain restrictions or
contingencies as specified in the contract referred to in Paragraph 11 hereof
(the "Contract"), including without limitation, restrictions or contingencies
relating to entering into a covenant not to compete with the Company, any of its
Subsidiaries or a Parent (as defined in Paragraph 19), to financial objectives
for the Company, any of its Subsidiaries or a Parent, a division of any of the
foregoing, a product line or other category, and/or to the period of continued
employment of the optionee with the Company, any of its Subsidiaries or a
Parent, and to determine whether such restrictions or contingencies have been
met; whether an optionee is Disabled (as defined in Paragraph 19); the amount
necessary to satisfy the obligation of the Company, a Subsidiary or Parent to
withhold taxes or other amounts; the fair market value of a share of Common
Stock; to construe the respective Contracts and the Plan; with the consent of
the optionee, to cancel or modify an option, provided, that the modified
provision is permitted to be included in an option granted under the Plan on the
date of the modification; to prescribe, amend and rescind rules and regulations
relating to the Plan; to approve any provision of the Plan or any option granted
under the Plan, or any amendment to either, which under Rule 16b-3 requires the
approval of the Board of Directors, a committee of non-employee directors or the
stockholders to be exempt (unless otherwise specifically provided herein); and
to make all other determinations necessary or advisable for administering the
Plan. Any controversy or claim arising out of or relating to the Plan, any
option granted under the Plan or any Contract shall be determined unilaterally
by the Administrators in their sole discretion. The determinations of the
Administrators on the matters referred to in this Paragraph 3 shall be
conclusive and binding on the parties. No Administrator or former Administrator
shall be liable for any action, failure to act or determination made in good
faith with respect to the Plan or any option hereunder.
4. ELIGIBILITY. The Administrators may from time to time,
in their sole discretion, consistent with the purposes of the Plan, grant
options to (a) employees (including officers and directors who are employees) of
the Company or any of its Subsidiaries, (b) consultants to the Company or any of
its Subsidiaries and (c) Non-Employee Directors (as defined in Paragraph 19).
Such options granted shall cover such number of shares of Common Stock as the
Administrators may determine, in their sole discretion, as set forth in the
applicable Contract;.
-2-
<PAGE>
5. EXERCISE PRICE. The exercise price of the shares of
Common Stock under each option shall be determined by the Administrators, in
their sole discretion, as set forth in the applicable Contract; provided,
however, that the exercise price of an option shall not be less than the fair
market value of the Common Stock subject to such option on the date of grant.
The fair market value of a share of Common Stock on any
day shall be (a) if the principal market for the Common Stock is a national
securities exchange, the average of the highest and lowest sales prices per
share of Common Stock on such day as reported by such exchange or on a composite
tape reflecting transactions on such exchange, (b) if the principal market for
the Common Stock is not a national securities exchange and the Common Stock is
quoted on The Nasdaq Stock Market ("Nasdaq"), and (i) if actual sales price
information is available with respect to the Common Stock, the average of the
highest and lowest sales prices per share of Common Stock on such day on Nasdaq,
or (ii) if such information is not available, the average of the highest bid and
lowest asked prices per share of Common Stock on such day on Nasdaq, or (c) if
the principal market for the Common Stock is not a national securities exchange
and the Common Stock is not quoted on Nasdaq, the average of the highest bid and
lowest asked prices per share of Common Stock on such day as reported on the OTC
Bulletin Board Service or by National Quotation Bureau, Incorporated or a
comparable service; provided, however, that if clauses (a), (b) and (c) of this
Paragraph are all inapplicable, or if no trades have been made or no quotes are
available for such day, the fair market value of the Common Stock shall be
determined by the Board of Directors by any method consistent with applicable
regulations adopted by the Treasury Department relating to stock options.
6. TERM. Except as may otherwise be expressly provided in
the applicable Contract, each option shall be for a term of 10 years from the
date of grant and shall not be exercisable until the first anniversary of the
date of grant, at which time it shall become exercisable as to 10% of the total
number of shares subject thereto, an additional 10% of the total number of
shares subject thereto on the second anniversary of the date of grant, an
additional 15% of the total number of shares subject thereto on each of the
third and fourth anniversaries of the date of grant, an additional 20% of the
total number of shares subject thereto on the fifth anniversary of the date of
grant and an additional 30% of the total number of shares subject thereto on the
sixth anniversary of the date of grant. Except as may otherwise be expressly
provided in the applicable Contract, the right to purchase shares under an
option shall be cumulative, so that if the full number of shares purchasable in
any period shall not be purchased, the balance may be purchased at any time or
from time to time thereafter, but not after the expiration of the option.
Options shall be subject to earlier termination as
hereinafter provided.
7. EXERCISE. An option (or any part or installment
thereof), to the extent then exercisable, shall be exercised by giving written
notice to the Company at its principal office stating which option is being
exercised, specifying the number of shares of Common Stock as to which such
option is being exercised and accompanied by payment in full of the aggregate
exercise
-3-
<PAGE>
price therefor (or the amount due on exercise if the applicable Contract permits
installment payments) (a) in cash or by certified check or (b) if the applicable
Contract permits, with previously acquired shares of Common Stock having an
aggregate fair market value on the date of exercise (determined in accordance
with Paragraph 5) equal to the aggregate exercise price of all options being
exercised, or with any combination of cash, certified check or shares of Common
Stock having such value. The Company shall not be required to issue any shares
of Common Stock pursuant to any such option until all required payments,
including any required withholding, have been made.
The Administrators may, in their sole discretion, permit
payment of the exercise price of an option by delivery by the optionee of a
properly executed notice, together with a copy of his irrevocable instructions
to a broker acceptable to the Administrators to deliver promptly to the Company
the amount of sale or loan proceeds sufficient to pay such exercise price. In
connection therewith, the Company may enter into agreements for coordinated
procedures with one or more brokerage firms.
A person entitled to receive Common Stock upon the
exercise of an option shall not have the rights of a stockholder with respect to
such shares of Common Stock until the date of issuance of a stock certificate
for such shares or in the case of uncertificated shares, an entry is made on the
books of the Company's transfer agent representing such shares; provided,
however, that until such stock certificate is issued or book entry is made, any
optionee using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a stockholder with
respect to such previously acquired shares.
In no case may a fraction of a share of Common Stock be
purchased or issued under the Plan.
8. TERMINATION OF RELATIONSHIP. Except as may otherwise be
expressly provided in the applicable Contract, an optionee whose relationship
with the Company, its Parent and Subsidiaries as an employee or a consultant has
terminated for any reason (other than as a result of the death or Disability of
the optionee) may exercise the options granted to him as an employee or
consultant, to the extent exercisable on the date of such termination, at any
time within three months after the date of termination, but not thereafter and
in no event after the date the option would otherwise have expired; provided,
however, that if such relationship is terminated either (a) for Cause (as
defined in Paragraph 19), or (b) without the consent of the Company, such option
shall terminate immediately. Except as may otherwise be expressly provided in
the applicable Contract, options granted under the Plan to an employee or
consultant shall not be affected by any change in the status of the optionee so
long as the optionee continues to be an employee of, or a consultant to, the
Company, or any of the Subsidiaries or a Parent (regardless of having changed
from one to the other or having been transferred from one corporation to
another).
-4-
<PAGE>
For the purposes of the Plan, an employment relationship
shall be deemed to exist between an individual and the Company, any of its
Subsidiaries or a Parent if, at the time of the determination, the individual
was an employee of such corporation for purposes of Section 422(a) of the Code.
As a result, an individual on military, sick leave or other bona fide leave of
absence shall continue to be considered an employee for purposes of the Plan
during such leave if the period of the leave does not exceed 90 days, or, if
longer, so long as the individual's right to reemployment with the Company, any
of its Subsidiaries or a Parent is guaranteed either by statute or by contract.
If the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed by statute or by contract, the employment
relationship shall be deemed to have terminated on the 91st day of such leave.
Except as may otherwise be expressly provided in the
applicable Contract, an optionee whose relationship with the Company as a
Non-Employee Director ceases for any reason (other than as a result of his death
or Disability) may exercise the options granted to him as a Non- Employee
Director, to the extent exercisable on the date of such termination, at any time
within three months after the date of termination, but not thereafter and in no
event after the date the option would otherwise have expired; provided, however,
that if such relationship is terminated for Cause, such option shall terminate
immediately. Except as may otherwise be expressly provided in the applicable
Contract, options granted to a Non-Employee Director shall not be affected by
the optionee becoming an employee of the Company, any of its Subsidiaries or a
Parent.
Nothing in the Plan or in any option granted under the
Plan shall confer on any optionee any right to continue in the employ of, or as
a consultant to, the Company, any of its Subsidiaries or a Parent, or as a
director of the Company, or interfere in any way with any right of the Company,
any of its Subsidiaries or a Parent to terminate the optionee's relationship at
any time for any reason whatsoever without liability to the Company, any of its
Subsidiaries or a Parent.
9. DEATH OR DISABILITY OF AN OPTIONEE. Except as may
otherwise be expressly provided in the applicable Contract, if an optionee dies
(a) while he is an employee of, or consultant to, the Company, any of its
Subsidiaries or a Parent, (b) within three months after the termination of such
relationship (unless such termination was for Cause or without the consent of
the Company) or (c) within one year following the termination of such
relationship by reason of his Disability, the options that were granted to him
as an employee or consultant may be exercised, to the extent exercisable on the
date of his death, by his Legal Representative (as defined in Paragraph 19) at
any time within one year after death, but not thereafter and in no event after
the date the option would otherwise have expired.
Except as may otherwise be expressly provided in the
applicable Contract, any optionee whose relationship as an employee of, or
consultant to, the Company, its Parent and Subsidiaries has terminated by reason
of such optionee's Disability may exercise the options that were granted to him
as an employee or consultant, to the extent exercisable upon the effective date
-5-
<PAGE>
of such termination, at any time within one year after such date, but not
thereafter and in no event after the date the option would otherwise have
expired.
Except as may otherwise be expressly provided in the
applicable Contract, any optionee whose relationship as a Non-Employee Director
ceases as a result of his death or Disability may exercise the options that were
granted to him as a Non-Employee Director, to the extent exercisable on the date
of such termination, at any time within one year after the date of termination,
but not thereafter and in no event after the date the option would otherwise
have expired. In the case of the death of the Non-Employee Director, the option
may be exercised by his Legal Representative.
10. COMPLIANCE WITH SECURITIES LAWS. It is a condition to
the exercise of any option that either (a) a Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of Common Stock to be issued upon such exercise shall be effective and
current at the time of exercise, or (b) there is an exemption from registration
under the Securities Act for the issuance of the shares of Common Stock upon
such exercise. Nothing herein shall be construed as requiring the Company to
register shares subject to any option under the Securities Act or to keep any
Registration Statement effective or current.
The Administrators may require, in their sole discretion,
as a condition to the receipt of an option or the exercise of any option that
the optionee execute and deliver to the Company his representations and
warranties, in form, substance and scope satisfactory to the Administrators,
which the Administrators determines are necessary or convenient to facilitate
the perfection of an exemption from the registration requirements of the
Securities Act, applicable state securities laws or other legal requirement,
including without limitation that (a) the shares of Common Stock to be issued
upon the exercise of the option are being acquired by the optionee for his own
account, for investment only and not with a view to the resale or distribution
thereof, and (b) any subsequent resale or distribution of shares of Common Stock
by such optionee will be made only pursuant to (i) a Registration Statement
under the Securities Act which is effective and current with respect to the
shares of Common Stock being sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the optionee shall prior to any offer of sale or sale of such shares of Common
Stock provide the Company with a favorable written opinion of counsel
satisfactory to the Company, in form, substance and scope satisfactory to the
Company, as to the applicability of such exemption to the proposed sale or
distribution.
In addition, if at any time the Administrators shall
determine, in their sole discretion, that the listing or qualification of the
shares of Common Stock subject to any option on any securities exchange, Nasdaq
or under any applicable law, or the consent or approval of any governmental
agency or regulatory body, is necessary or desirable as a condition to, or in
connection with, the granting of an option or the issuing of shares of Common
Stock thereunder,
-6-
<PAGE>
such option may not be granted and such option may not be exercised in whole or
in part unless such listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company.
11. CONTRACTS. Each option shall be evidenced by an
appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms, provisions and conditions not
inconsistent herewith as may be determined by the Administrators. The terms of
each option and Contract need not be identical.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK.
Notwithstanding any other provision of the Plan, in the event of a stock
dividend, recapitalization, merger in which the Company is the surviving
corporation, spin-off, split-up, combination or exchange of shares or the like
which results in a change in the number or kind of shares of Common Stock which
is outstanding immediately prior to such event, the aggregate number and kind of
shares subject to the Plan, the aggregate number and kind of shares subject to
each outstanding option and the exercise price thereof shall be appropriately
adjusted by the Board of Directors, whose determination shall be conclusive and
binding on all parties. Such adjustment may provide for the elimination of
fractional shares which might otherwise be subject to options without payment
therefor.
If there is a change of control of the Company (as defined
below), then (i) all outstanding options shall become fully exercisable whether
or not the vesting conditions, if any, set forth in the related option
agreements have been satisfied, and each optionee shall have the right to
exercise his or her options prior to such change of control and for as long
thereafter as the option shall remain in effect in accordance with its terms and
the provisions hereof, and (ii) all restricted stock Awards shall become
fully-vested, and all restrictions on transferability and all rights of the
Company to repurchase shares of restricted stock shall terminate at the
effective time of such change in control.
If the shareholders of the Company receive capital stock
of another corporation ("Exchange Stock") in exchange for their shares of Common
Stock in any transaction involving a merger (other than a merger of the Company
in which the holders of Common Stock immediately prior to the merger have the
same proportionate ownership of Common Stock in the surviving corporation
immediately after the merger), consolidation, acquisition of property or stock,
separation or reorganization (other than a mere reincorporation or the creation
of a holding company), all options granted hereunder shall be converted into
options to purchase shares of Exchange Stock unless the Company and the
corporation issuing the Exchange Stock, in their sole discretion, determine that
any or all such options granted hereunder shall not be converted into options to
purchase shares of Exchange Stock but instead shall terminate, subject to the
provisions of subparagraph (b) above and the optionees' prior exercise rights
thereunder. The amount and price of converted options shall be determined by
adjusting the amount and price of the options granted hereunder in the same
proportion as used for determining the number of shares of
-7-
<PAGE>
Exchange Stock the holders of the Common Stock receive in such merger,
consolidation, acquisition of property or stock, separation or reorganization.
In accordance with subparagraph (b) above, the converted options shall be fully
vested whether or not the vesting requirements set forth in the option agreement
have been satisfied.
All adjustments under this paragraph 12 shall be made by
the Board, and its determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive.
For purposes hereof, a change in control of the Company is
deemed to occur if (1) there occurs (a) any consolidation or merger in which the
Company is not the continuing or surviving entity or pursuant to which shares of
the Common Stock would be converted into cash, securities or other property,
other than a merger of the Company in which the holders of the Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger, or (b) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all the Company's assets; (2) the
Company's stockholders approve any plan or proposal for the liquidation or
dissolution of the Company; (3) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), shall become the beneficial owner (within the meaning of Rule
13d-3 under the Exchange Act) of 30% or more of the Common Stock other than
pursuant to a plan or arrangement entered into by such person and the Company;
or (4) during any period of two consecutive years, individuals who at the
beginning of such period constitute the entire Board of Directors shall cease
for any reason to constitute a majority of the Board unless the election, or
nomination for election by the Company's stockholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on September 9, 1996. No option may be granted
under the Plan after September 9, 2006. The Board of Directors may at any time
suspend or terminate the Plan, in whole or in part, or amend it from time to
time in such respects as it may deem advisable, including, without limitation,
to comply with the provisions of Rule 16b-3 or any change in applicable law,
regulations, rulings or interpretations of administrative agencies. No
termination, suspension or amendment of the Plan shall, without the consent of
the optionee, adversely affect his rights under any option granted under the
Plan. The power of the Administrators to construe and administer any option
granted under the Plan prior to the termination or suspension of the Plan
nevertheless shall continue after such termination or during such suspension.
14. NON-TRANSFERABILITY. No option granted under the Plan
shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the optionee,
only by the optionee or his Legal Representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged,
-8-
<PAGE>
hypothecated or disposed of in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process,
and any such attempted assignment, transfer, pledge, hypothecation or
disposition shall be null and void ab initio and of no force or effect.
15. WITHHOLDING TAXES. The Company, a Subsidiary or Parent
may withhold (a) cash or (b) with the consent of the Administrators (in the
Contract or otherwise), shares of Common Stock to be issued upon exercise of an
option having an aggregate fair market value on the relevant date (determined in
accordance with Paragraph 5) or a combination of cash and shares, in an amount
equal to the amount which the Company, a Subsidiary or Parent determines is
necessary to satisfy its obligation to withhold Federal, state and local income
taxes or other amounts incurred by reason of the grant, vesting, exercise or
disposition of an option, or the disposition of the underlying shares of Common
Stock. Alternatively, the Company, a Subsidiary or Parent may require the holder
to pay to it such amount, in cash, promptly upon demand.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse
such legend or legends upon the certificates for shares of Common Stock issued
upon exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act and any applicable state securities laws, or (b) implement the provisions of
the Plan or any agreement between the Company and the optionee with respect to
such shares of Common Stock.
The Company shall pay all issuance taxes with respect to
the issuance of shares of Common Stock upon the exercise of an option granted
under the Plan, as well as all fees and expenses incurred by the Company in
connection with such issuance.
17. USE OF PROCEEDS. The cash proceeds received upon the
exercise of an option under the Plan shall be added to the general funds of the
Company and used for such corporate purposes as the Board of Directors may
determine.
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of Directors may substitute new options for prior options of a
Constituent Corporation (as defined in Paragraph 19) or assume the prior options
of such Constituent Corporation.
19. DEFINITIONS. For purposes of the Plan, the following
terms shall be defined as set forth below:
(a) "Cause" shall mean (i) in the case of an
employee or consultant, if there is a written employment or consulting agreement
between the optionee and the Company,
-9-
<PAGE>
any of its Subsidiaries or a Parent which defines termination of such
relationship for cause, cause as defined in such agreement, and (ii) in all
other cases, cause as defined by applicable state law.
(b) "Constituent Corporation" shall mean any
corporation which engages with the Company, any of its Subsidiaries or a Parent
in a transaction to which Section 424(a) of the Code would apply if the option
assumed or substituted were an incentive stock option, or any Parent or any
Subsidiary of such corporation.
(c) "Disability" shall mean a permanent and total
disability within the meaning of Section 22(e)(3) of the Code.
(d) "Legal Representative" shall mean the
executor, administrator or other person who at the time is entitled by law to
exercise the rights of a deceased or incapacitated optionee with respect to an
option granted under the Plan.
(e) "Non-Employee Director" shall mean a person
who is a director of the Company, but is not an employee of the Company, any of
its Subsidiaries or a Parent.
(f) "Parent" shall have the same definition as
"parent corporation" in Section 424(e) of the Code.
(g) "Subsidiary" shall have the same definition as
"subsidiary corporation" in Section 424(f) of the Code.
20. GOVERNING LAW; CONSTRUCTION. The Plan, the options and
Contracts hereunder and all related matters shall be governed by, and construed
in accordance with, the laws of the State of Delaware, without regard to
conflict of law provisions.
Neither the Plan nor any Contract shall be construed or
interpreted with any presumption against the Company by reason of the Company
causing the Plan or Contract to be drafted. Whenever from the context it appears
appropriate, any term stated in either the singular or plural shall include the
singular and plural, and any term stated in the masculine, feminine or neuter
gender shall include the masculine, feminine and neuter.
21. PARTIAL INVALIDITY. The invalidity, illegality or
unenforceability of any provision in the Plan, any option or Contract shall not
affect the validity, legality or enforceability of any other provision, all of
which shall be valid, legal and enforceable to the fullest extent permitted by
applicable law.
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 41,127
<SECURITIES> 1,896
<RECEIVABLES> 281,890
<ALLOWANCES> (20,327)
<INVENTORY> 0
<CURRENT-ASSETS> 327,001
<PP&E> 865,556
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,657,185
<CURRENT-LIABILITIES> 211,492
<BONDS> 365,000
0
0
<COMMON> 23
<OTHER-SE> 528,471
<TOTAL-LIABILITY-AND-EQUITY> 1,657,185
<SALES> 1,023,016
<TOTAL-REVENUES> 1,023,016
<CGS> 0
<TOTAL-COSTS> 916,158
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 46,033
<INCOME-PRETAX> 107,941
<INCOME-TAX> 62,353
<INCOME-CONTINUING> 45,588
<DISCONTINUED> 0
<EXTRAORDINARY> 2,327
<CHANGES> 0
<NET-INCOME> 44,157
<EPS-PRIMARY> 1.89
<EPS-DILUTED> 1.64
</TABLE>
