AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INTEGRATED HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2428312
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
10065 RED RUN BOULEVARD
OWINGS MILLS, MARYLAND 21117
(410) 998-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
INTEGRATED HEALTH SERVICES, INC.
1996 STOCK INCENTIVE PLAN
(full title of the plan)
MARSHALL A. ELKINS, ESQ.
EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL
INTEGRATED HEALTH SERVICES, INC.
10065 RED RUN BOULEVARD
OWINGS MILLS, MARYLAND 21117
(410) 998-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
CARL E. KAPLAN, ESQ. LESLIE A. GLEW, ESQ.
FULBRIGHT & JAWORSKI L.L.P. SENIOR VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL
666 FIFTH AVENUE INTEGRATED HEALTH SERVICES, INC.
NEW YORK, NEW YORK 10103 10065 RED RUN BOULEVARD
(212) 318-3000 OWINGS MILLS, MARYLAND 21117
(410) 998-8400
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
Title of Securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered offering price per unit aggregate offering price registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase 1,256,900
Rights)(1)................................... shares $22.50(2) $28,280,250 $8,569.77
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase 175,000
Rights)(1)................................... shares $22.63(2) $3,960,250 $1,200.08
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase
Rights)(1)................................... 77,350 shares $30.00(2) $2,320,500 $703.18
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase 700,000
Rights)(1)................................... shares $32.50(2) $22,750,000 $6,893.94
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase 290,750
Rights)(1)................................... shares $35.00(3) $10,176,250 $3,083.71
------- ----------- ---------
2,500,000
TOTAL........................................ shares $67,487,250 $20,450.68
====================================================================================================================================
</TABLE>
(1) The Preferred Stock Purchase Rights, which are attached to the shares
of IHS Common Stock being registered, will be issued for no additional
consideration; no additional registration fee is required.
(2) Represents the price at which the indicated options may be exercised.
(3) The price is estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457(h)(1). The offering price and fee
are computed based on the average of the high and low prices of the
Common Stock as reported on the New York Stock Exchange on May 23,
1997.
<PAGE>
PROSPECTUS
2,500,000 SHARES
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
UNDER THE INTEGRATED HEALTH SERVICES, INC.
1996 STOCK INCENTIVE PLAN
This Prospectus relates to the offer and sale of up to 2,500,000 shares
(the "Shares") of Common Stock, par value $0.001 per share (together with the
Preferred Stock Purchase Rights associated therewith, the "Common Stock"), of
Integrated Health Services, Inc. ("IHS" or the "Company"). The Shares are being
offered for sale by certain stockholders of the Company (the "Selling
Stockholders") who acquire such Shares pursuant to the Company's 1996 Stock
Incentive Plan (the "Plan"). See "Selling Stockholders." The Company's Common
Stock is traded on the New York Stock Exchange ("NYSE") under the symbol "IHS."
On May 30, 1997, the closing price of the Common Stock, as reported in the
consolidated reporting system, was $36 per share.
The Company will not receive any of the proceeds from sales of the
Shares by the Selling Stockholders. The Shares may be offered from time to time
by the Selling Stockholders (and their donees and pledgees) through ordinary
brokerage transactions, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution."
The Selling Stockholders may be deemed to be "Underwriters" as defined
in the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used to effect sales, any commissions paid to broker-dealers
and, if broker-dealers purchase any of the Shares as principals, any profits
received by such broker-dealers on the resale of the Shares, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Stockholders may be deemed to be underwriting
commissions. All costs, expenses and fees in connection with the registration of
the Shares will be borne by the Company. Brokerage commissions, if any,
attributable to the sale of the Shares will be borne by the Selling Stockholders
(or their donees and pledgees).
------------------
SEE "RISK FACTORS", WHICH BEGINS ON PAGE 6 OF THIS PROSPECTUS,
FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 2, 1997
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also may be obtained by mail from the
Public Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
materials and other information concerning the Company may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Additionally,
the Commission maintains a Web site on the Internet that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission and that is located at http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form
S-8 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. Copies of the Registration
Statement together with exhibits may be inspected at the offices of the
Commission as indicated above without charge and copies thereof may be obtained
therefrom upon payment of a prescribed fee.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT. This
Prospectus (including the documents incorporated by reference herein) contains
certain forwardlooking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to IHS that
are based on the beliefs of the management of IHS, as well as assumptions made
by and information currently available to the management of IHS. When used in
this Prospectus, the words "estimate", "project", "believe", "anticipate",
"intend", "expect" and similar expressions are intended to identify
forward-looking statements. Such statements reflect the current views of IHS
with respect to future events and are subject to risks and uncertainties that
could cause actual results to differ materially from those contemplated in such
forward-looking statements, including those discussed under "Risk Factors."
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. IHS does not undertake any
obligation to publicly
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<PAGE>
release any revisions to these forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information in the following documents filed by IHS with the
Commission (File No. 1-12306) pursuant to the Exchange Act is incorporated by
reference in this Prospectus:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1997;
(c) Current Report on Form 8-K dated October 17, 1996 reporting the
acquisition of First American Health Care of Georgia, Inc., as amended by
Form 8-K/A filed November 26, 1996;
(d) Current Report on Form 8-K dated October 19, 1996 reporting the
execution of the Agreement and Plan of Merger among the Company, IHS
Acquisition XIX, Inc. and Coram Healthcare Corporation (the "Merger
Agreement"), as amended by Form 8-K/A filed April 11, 1997, reporting the
termination of the Merger Agreement;
(e) Current Report on Form 8-K dated May 23, 1997 reporting the
Company's agreement to issue privately an aggregate of $450 million
principal amount of 9 1/2% Senior Subordinated Notes due 2007;
(f) Current Report on Form 8-K dated May 30, 1997 reporting (i) the
Company's issuance of an aggregate of $450 million principal amount of 9
1/2% Senior Subordinated Notes due 2007 and (ii) the Company's acceptance
for payment of an aggregate of $114,975,000 principal amount of its 9 5/8%
Senior Subordinated Notes due 2002, Series A and an aggregate of
$99,893,000 principal amount of its 10 3/4% Senior Subordinated Notes due
2004 pursuant to cash tender offers;
(g) The description of the Company's Common Stock contained in Item 1
of the Company's Registration Statement on Form 8-A dated September 1,
1993; and
(h) The description of the Company's Preferred Stock Purchase Rights
contained in Item 1 of the Company's Registration Statement on Form 8-A
dated September 28, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the filing of a post-effective amendment which indicates that all Shares offered
have been sold or which deregisters all Shares then remaining unsold shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a previously filed document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or was deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statements so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The information relating to IHS contained in this Prospectus should be
read together with the information in the documents incorporated by reference.
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<PAGE>
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECT TO
INTEGRATED HEALTH SERVICES, INC., 10065 RED RUN BOULEVARD, OWINGS MILLS,
MARYLAND 21117, ATTENTION: MARC B. LEVIN, EXECUTIVE VICE PRESIDENT-INVESTOR
RELATIONS, TELEPHONE: (410) 998-8400.
THE COMPANY
Integrated Health Services, Inc. is one of the nation's leading
providers of postacute healthcare services. Post-acute care is the provision of
a continuum of care to patients following discharge from an acute care hospital.
IHS' post-acute care services include subacute care, home care and inpatient and
outpatient rehabilitation, hospice and diagnostic services. The Company's
post-acute care network is designed to address the fact that the cost
containment measures implemented by private insurers and managed care
organizations and limitations on government reimbursement of hospital costs have
resulted in the discharge from hospitals of many patients who continue to
require medical and rehabilitative care. The Company's post-acute healthcare
system is intended to provide cost-effective continuity of care for its patients
in multiple settings and enable payors to contract with one provider to provide
all of a patient's needs following discharge from acute care hospitals. The
Company believes that its post-acute care network can be extended beyond
post-acute care to also provide "preacute" care, I.E., services to patients
which reduce the likelihood of a need for a hospital stay. IHS' post-acute care
network currently consists of approximately 1,100 service locations in 41
states.
The Company's post-acute care network strategy is to provide
cost-effective continuity of care for its patients in multiple settings,
including using geriatric care facilities as platforms to provide a wide variety
of subacute medical and rehabilitative services more typically delivered in the
acute care hospital setting and using home healthcare to provide those medical
and rehabilitative services which do not require 24- hour monitoring. To
implement its post-acute care network strategy, the Company has focused on (i)
expanding the range of home healthcare and related services it offers to
patients directly in order to provide patients with a continuum of care
throughout their recovery, to better control costs and to meet the growing
desire by payors for one-stop shopping; (ii) developing market concentration for
its post-acute care services in targeted states due to increasing payor
consolidation and the increased preference of payors, physicians and patients
for dealing with only one service provider; (iii) developing subacute care
units; and (iv) forming strategic alliances with health maintenance
organizations, hospital groups and physicians. Given the increasing importance
of managed care in the healthcare marketplace and the continued cost containment
pressures from Medicare, Medicaid and private payors, IHS has been restructuring
its operations to enable IHS to focus on obtaining contracts with managed care
organizations and to provide capitated services. IHS' strategy is to become a
preferred or exclusive provider of post-acute care services to managed care
organizations.
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<PAGE>
In implementing its post-acute care network strategy, the Company has
recently focused on expanding its home healthcare services to take advantage of
healthcare payors' increasing focus on having healthcare provided in the
lowest-cost setting possible, recent advances in medical technology which have
facilitated the delivery of medical services in alternative sites and patients'
desires to be treated at home. Consistent with the Company's strategy, the
Company in October 1996 acquired First American Health Care of Georgia, Inc.
("First American"), a provider of home health services, principally home
nursing, in 21 states, primarily Alabama, California, Florida, Georgia,
Michigan, Pennsylvania and Tennessee. IHS intends to use the home healthcare
setting and the delivery franchise of the home healthcare branch and agency
network to (i) deliver sophisticated care, such as skilled nursing care, home
infusion therapy and rehabilitation, outside the hospital or nursing home; (ii)
serve as a referral base for IHS' other services and healthcare capabilities;
and (iii) provide a cost-effective site for case management and patient
direction.
The Company provides subacute care through medical specialty units
("MSUs"), which are typically 20 to 75 bed specialty units with physical
identities, specialized medical technology and staffs separate from the
geriatric care facilities in which they are located. MSUs are designed to
provide comprehensive medical services to patients who have been discharged from
acute care hospitals but who still require subacute or complex medical
treatment. The levels and quality of care provided in the Company's MSUs are
similar to those provided in the hospital but at per diem treatment costs which
the Company believes are generally 30% to 60% below the cost of such care in
acute care hospitals. Because of the high level of specialized care provided,
the Company's MSUs generate substantially higher net revenue and operating
profit per patient day than traditional geriatric care services.
The Company presently operates 174 geriatric care facilities (118 owned
or leased and 56 managed) and 158 MSUs located within 84 of these facilities.
Specialty medical services revenues, which include all MSU charges, all revenue
from providing rehabilitative therapies, pharmaceuticals, medical supplies and
durable medical equipment to all its patients, all revenue from its Alzheimer's
programs and all revenue from its provision of pharmacy, rehabilitation therapy,
home healthcare, hospice care and similar services to third-parties, constituted
approximately 57%, 65% and 70% of net revenues during the years ended December
31, 1994, 1995 and 1996, respectively. The Company also offers a wide range of
basic medical services as well as a comprehensive array of respiratory,
physical, speech, occupational and physiatric therapy in all its geriatric care
facilities. For the year ended December 31, 1996, approximately 17% of IHS'
revenues were derived from home health and hospice care, approximately 53% were
derived from subacute and other ancillary services, approximately 27% were
derived from traditional basic nursing services, and approximately 3% were
derived from management and other services. On a pro forma basis after giving
effect to the acquisition of First American, for the year ended December 31,
1996, approximately 35% of IHS' revenues were derived from home health and
hospice care, approximately 41% were derived from subacute and other ancillary
services, approximately 21% were derived from traditional basic nursing home
services and the remaining approximately 3% were derived from management and
other services.
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<PAGE>
The Company was incorporated in March 1986 as a Pennsylvania
corporation and reorganized as a Delaware corporation in November 1986. The
Company's principal executive offices are located at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 and its telephone number is (410) 998-8400. Unless
the context indicates otherwise, Integrated Health Services, Inc. and its
subsidiaries are referred to herein collectively as "IHS" or the "Company."
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well as
those discussed elsewhere in this Prospectus.
RISKS RELATED TO SUBSTANTIAL INDEBTEDNESS. The Company's indebtedness
is substantial in relation to its stockholders' equity. At March 31, 1997, the
Company's total long-term debt, net of current portion, accounted for 65.3% of
its total capitalization(66.7% on a pro forma basis after giving effect to the
issuance of $450 million aggregate principal amount of its 95/8% Senior
Subordinated Notes due 2007 and the use of proceeds therefrom to repurchase
approximately $214.9 million of its outstanding senior subordinated notes and to
repay approximately $191 million under its revolving credit facility). The
Company also has significant lease obligations with respect to the facilities
operated pursuant to long-term leases, which aggregated approximately $224.0
million at March 31, 1997. For the year ended December 31, 1996 and the three
months ended March 31, 1996 and 1997, the Company's rent expense was $77.8
million ($77.0 million on a pro forma basis after giving effect to the
acquisition of First American, the sale of IHS' pharmacy division and a majority
interest in its assisted living services division and certain other acquisitions
consummated in 1996), $17.7 million and $24.0 million, respectively. In
addition, the Company is obligated to pay up to an additional $155 million in
respect of the acquisition of First American during 2000 to 2004 under certain
circumstances. The Company's strategy of expanding its specialty medical
services and growing through acquisitions may require additional borrowings in
order to finance working capital, capital expenditures and the purchase price of
any acquisitions. The degree to which the Company is leveraged, as well as its
rent expense, could have important consequences to stockholders, including: (i)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes may be
impaired; (ii) a substantial portion of the Company's cash flow from operations
may be dedicated to the payment of principal and interest on its indebtedness
and rent expense, thereby reducing the funds available to the Company for its
operations; (iii) certain of the Company's borrowings bear, and will continue to
bear, variable rates of interest, which expose the Company to increases in
interest rates; and (iv) certain of the Company's indebtedness contains
financial and other restrictive covenants, including those restricting the
incurrence of additional indebtedness, the creation of liens, the payment of
dividends and sales of assets and imposing minimum net worth requirements. In
addition, the Company's leverage may also adversely affect the Company's ability
to respond to changing business and economic conditions or continue its growth
strategy. There can be no assurance that the Company's operating results will be
sufficient for the payment of the Company's indebtedness. Both Moody's and
Standard & Poors in May 1997 confirmed their ratings of IHS' long-term debt
obligations, but with a negative outlook. Moody's stated that it retained a
negative outlook anticipating that IHS will continue to be an aggressive
acquirer of companies, and that it would view negatively any increase in
leverage. Standard & Poors stated that its ratings reflected the Company's
aggressive transition towards becoming a full service alternate-site healthcare
provider and its limited cash flow relative to its heavy debt burden.
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<PAGE>
If the Company were unable to meet interest, principal or lease payments, or
satisfy financial covenants, it could be required to seek renegotiation of such
payments and/or covenants or obtain additional equity or debt financing. If
additional funds are raised by issuing equity securities, the Company's
stockholders may experience dilution. Further, such equity securities may have
rights, preferences or privileges senior to those of the Common Stock. To the
extent the Company finances its activities with additional debt, the Company may
become subject to certain additional financial and other covenants that may
restrict its ability to pursue its growth strategy and to pay dividends on the
Common Stock. There can be no assurance that any such efforts would be
successful or timely or that the terms of any such financing or refinancing
would be acceptable to the Company. See "--Risks Related to Capital
Requirements."
RISKS ASSOCIATED WITH GROWTH THROUGH ACQUISITIONS AND INTERNAL
DEVELOPMENT. IHS' growth strategy involves growth through acquisitions and
internal development and, as a result, IHS is subject to various risks
associated with its growth strategy. The Company's planned expansion and growth
require that the Company expand its home healthcare services through the
acquisition of additional home healthcare providers and that the Company
acquire, or establish relationships with, third parties that provide post-acute
care services not currently provided by the Company, that additional MSUs be
established in the Company's existing facilities and that the Company acquire,
lease or acquire the right to manage for others additional facilities in which
MSUs can be established. Such expansion and growth will depend on the Company's
ability to create demand for its post-acute care programs, the availability of
suitable acquisition, lease or management candidates and the Company's ability
to finance such acquisitions and growth. The successful implementation of the
Company's post-acute healthcare system, including the capitation of rates, will
depend on the Company's ability to expand the amount of post-acute care services
it offers directly to its patients rather than through third-party providers.
There can be no assurance that suitable acquisition candidates will be located,
that acquisitions can be consummated, that acquired facilities and companies can
be successfully integrated into the Company's operations, that MSUs can be
successfully established in acquired facilities or that the Company's post-acute
healthcare system, including the capitation of rates, can be successfully
implemented. The post-acute care market is highly competitive, and the Company
faces substantial competition from hospitals, subacute care providers,
rehabilitation providers and home healthcare providers, including competition
for acquisitions. The Company anticipates that competition for acquisition
opportunities will intensify due to the ongoing consolidation in the healthcare
industry. See "--Risks Related to Managed Care Strategy" and "--Competition."
The successful integration of acquired businesses, including First
American, is important to the Company's future financial performance. The
anticipated benefits from any of these acquisitions may not be achieved unless
the operations of the
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<PAGE>
acquired businesses are successfully combined with those of the Company in a
timely manner. The integration of the Company's recent acquisitions will require
substantial attention from management. The diversion of the attention of
management, and any difficulties encountered in the transition process, could
have a material adverse effect on the Company's operations and financial
results. In addition, the process of integrating the various businesses could
cause the interruption of, or a loss of momentum in, the activities of some or
all of these businesses, which could have a material adverse effect on the
Company's operations and financial results. There can be no assurance that the
Company will realize any of the anticipated benefits from its acquisitions. The
acquisition of service companies that are not profitable, or the acquisition of
new facilities that result in significant integration costs and inefficiencies,
could also adversely affect the Company's profitability.
IHS' current and anticipated future growth has placed, and will
continue to place, significant demands on the management, operational and
financial resources of IHS. IHS' ability to manage its growth effectively will
require it to continue to improve its operational, financial and management
information systems and to continue to attract, train, motivate, manage and
retain key employees. There can be no assurance that IHS will be able to manage
its expanded operations effectively. See "--Risks Related to Capital
Requirements."
There can be no assurance that the Company will be successful in
implementing its strategy or in responding to ongoing changes in the healthcare
industry which may require adjustments to its strategy. If IHS fails to
implement its strategy successfully or does not respond timely and adequately to
ongoing changes in the healthcare industry, the Company's business, financial
condition and results of operations will be materially adversely affected.
RISKS RELATED TO MANAGED CARE STRATEGY. Managed care payors and
traditional indemnity insurers have experienced pressure from their
policyholders to curb or reduce the growth in premiums paid to such
organizations for healthcare services. This pressure has resulted in demands on
healthcare service providers to reduce their prices or to share in the financial
risk of providing care through alternate fee structures such as capitation or
fixed case rates. Given the increasing importance of managed care in the
healthcare marketplace and the continued cost containment pressures from
Medicare and Medicaid, IHS has been restructuring its operations to enable the
Company to focus on obtaining contracts with managed care organizations and to
provide capitated services. IHS believes that its home healthcare capabilities
will be an important component of its ability to provide services under
capitated and other alternate fee arrangements. However, to date there has been
limited demand among managed care organizations for post-acute care network
services, and there can be no assurance that demand for such services will
increase. Further, IHS has limited experience in providing services under
capitated and other alternate fee arrangements and setting the applicable rates.
Accordingly, there can be no assurance that the fees received by IHS will cover
the cost of services provided. If revenue for capitated services is insufficient
to cover the treatment costs, IHS' operating results could be adversely
affected. As a result, the success of IHS' managed care strategy will depend in
large part on its ability to increase demand for post-acute care services among
managed care organizations, to obtain favorable agreements with managed care
organizations and to manage effectively its operating and healthcare delivery
costs through various methods, including utilization management and competitive
pricing for purchased services. Additionally, there can be no assurance that
pricing pressures faced
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<PAGE>
by healthcare providers will not have a material adverse effect on the Company's
business, results of operations and financial condition.
Further, pursuing a strategy focused on risk sharing fee arrangements
entails certain regulatory risks. Many states impose restrictions on a service
provider's ability to provide capitated services unless it meets certain
financial criteria, and may view capitated fee arrangements as an insurance
activity, subjecting the entity accepting the capitated fee to regulation as an
insurance company rather than merely a licensed healthcare provider accepting a
business risk in connection with the manner in which it is charging for its
services. The laws governing risk sharing fee arrangements for healthcare
service providers are evolving and are not certain at this time. If the risk
sharing activities of the Company require licensure as an insurance company,
there can be no assurance that the Company could obtain or maintain the
necessary licensure, or that the Company would be able to meet any financial
criteria imposed by a state. If the Company was precluded from providing
services under risk sharing fee arrangements, its managed care strategy would be
adversely affected. See "--Uncertainty of Government Regulation."
RISKS RELATED TO CAPITAL REQUIREMENTS. IHS' growth strategy requires
substantial capital for the acquisition of additional home healthcare and
related service providers and geriatric care facilities and the establishment of
new, and expansion of existing, MSUs. The effective integration, operation and
expansion of the existing businesses will also require substantial capital. The
Company expects to finance new acquisitions from a combination of funds from
operations, borrowings under its bank credit facility and the issuance of debt
and equity securities. IHS may raise additional capital through the issuance of
long-term or short-term indebtedness or the issuance of additional equity
securities in private or public transactions, at such times as management deems
appropriate and the market allows. Any of such financings could result in
dilution of existing equity positions, increased interest and amortization
expense or decreased income to fund future expansion. There can be no assurance
that acceptable financing for future acquisitions or for the integration and
expansion of existing businesses and operations can be obtained. The Company's
bank credit facility limits the Company's ability to make acquisitions, and
certain of the indentures under which the Company's outstanding subordinated
debt securities were issued limit the Company's ability to incur additional
indebtedness unless certain financial tests are met. See "--Risks Related to
Substantial Indebtedness."
RISKS RELATED TO RECENT ACQUISITIONS. IHS has recently completed
several major acquisitions, including the First American acquisition, and is
still in the process of integrating those acquired businesses. The Company's
Board of Directors and senior management face a significant challenge in their
efforts to integrate the acquired businesses, including First American. The
dedication of management resources to such integration may detract attention
from the day-to-day business of IHS. There can be no assurance that there will
not be substantial costs associated with such activities or that there will not
be other material adverse effects of these integration efforts. There can be no
assurance that management's efforts to integrate the operations of IHS and newly
acquired companies will be successful or that the anticipated benefits of the
recent acquisitions will be fully realized.
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IHS has recently expanded significantly its home healthcare operations.
On a pro forma basis, after giving effect to the acquisition of First American
(which derives substantially all its revenue from Medicare), approximately 88%,
89% and 85% of IHS' home healthcare revenues were derived from Medicare in the
year ended December 31, 1996 and the three months ended March 31, 1996 and 1997,
respectively. On a pro forma basis, after giving effect to the First American
acquisition, home nursing services accounted for approximately 97.6%, 97.3% and
92.9%, respectively, of IHS' home healthcare revenues in these periods. Medicare
has developed a national fee schedule for infusion therapy, respiratory therapy
and home medical equipment which provides reimbursement at 80% of the amount of
any fee on the schedule. The remaining 20% is paid by other third party payors
(including Medicaid in the case of "medically indigent" patients) or patients;
with respect to home nursing, Medicare generally reimburses for the cost
(including a rate of return) of providing such services, up to a regionally
adjusted allowable maximum per visit and per discipline with no fixed limit on
the number of visits. There generally is no deductible or coinsurance. As a
result, there is no reward for efficiency, provided that costs are below the
cap, and traditional home healthcare services carry relatively low margins.
However, IHS expects that Medicare will implement a prospective payment system
for home nursing services in the next several years, and implementation of a
prospective payment system will be a critical element to the success of IHS'
expansion into home nursing services. Based upon prior legislative proposals,
the Company believes that a prospective payment system would most likely provide
a healthcare provider a predetermined rate for a given service, with providers
that have costs below the predetermined rate being entitled to keep some or all
of this difference. There can be no assurance that Medicare will implement a
prospective payment system for home nursing services in the next several years
or at all. The implementation of a prospective payment system will require IHS
to make contingent payments related to the First American acquisition of $155
million over a period of five years. The inability of IHS to realize operating
efficiencies and to provide home healthcare services at a cost below the
established Medicare fee schedule could have a material adverse effect on IHS'
home healthcare operations and its post-acute care network. See "--Risk of
Adverse Effect of Healthcare Reform."
RISKS RELATED TO HISTORICAL FINANCIAL PERFORMANCE OF FIRST AMERICAN.
During the year ended December 31, 1995 and the nine months ended September 30,
1996, First American recorded a net loss of $110.4 million and $36.2 million,
respectively. Numerous factors have affected First American's performance and
financial condition to date, including, among others, high administrative costs
and the settlement of claims for reimbursement of certain overpayments and
unallowable reimbursements under Medicare (which settlement resulted in a
reduction to patient service revenues of $54.6 million for the year ended
December 31, 1995 and $10.4 million for the nine months ended September 30,
1996). In addition, in February 1996, in response to the stoppage by the Health
Care Financing Administration ("HCFA") of its bi-weekly periodic interim
payments ("PIP") to First American, First American was forced to declare
bankruptcy. In March 1996, the bankruptcy court ordered HCFA to resume PIP
payments to First American. However, the bankruptcy filing and operation of
First American in bankruptcy until its acquisition by IHS has adversely affected
the business, results of operations and financial condition of First American.
There can be no assurance that these factors or the First American bankruptcy
will not continue to have an adverse effect on First American's and IHS'
business, financial condition and results of
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operations in the future. There can be no assurance that the historical losses
incurred by First American will not continue.
RELIANCE ON REIMBURSEMENT BY THIRD PARTY PAYORS. The Company receives
payment for services rendered to patients from private insurers and patients
themselves, from the federal government under Medicare, and from the states in
which it operates under Medicaid. The healthcare industry is experiencing a
trend toward cost containment, as government and other third party payors seek
to impose lower reimbursement and utilization rates and negotiate reduced
payment schedules with service providers. These cost containment measures,
combined with the increasing influence of managed care payors and competition
for patients, have resulted in reduced rates of reimbursement for services
provided by IHS. Aspects of certain healthcare reform proposals, such as
cutbacks in the Medicare and Medicaid programs, containment of healthcare costs
on an interim basis by means that could include a short-term freeze on prices
charged by healthcare providers, and permitting greater state flexibility in the
administration of Medicaid, could adversely affect the Company. See "--Risk of
Adverse Effect of Healthcare Reform." During the years ended December 31, 1994,
1995 and 1996 and the three months ended March 31, 1996 and 1997, the Company
derived approximately 56%, 55%, 60%, 57% and 67%, respectively, of its patient
revenues from Medicare and Medicaid. Substantially all of First American's
revenues are derived from Medicare. On a pro forma basis after giving effect to
the First American acquisition and the sale of a majority interest in its
assisted living division, approximately 69%, 68%, 68% and 67% of the Company's
patient revenues would have been derived from Medicare and Medicaid during the
years ended December 31, 1995 and 1996 and the three months ended March 31, 1996
and 1997, respectively.
The sources and amounts of the Company's patient revenues derived from
the operation of its geriatric care facilities and MSU programs are determined
by a number of factors, including licensed bed capacity of its facilities,
occupancy rate, the mix of patients and the rates of reimbursement among payor
categories (private, Medicare and Medicaid). Changes in the mix of the Company's
patients among the private pay, Medicare and Medicaid categories can
significantly affect the profitability of the Company's operations. The
Company's cost of care for its MSU patients generally exceeds regional
reimbursement limits established under Medicare. The success of the Company's
MSU strategy will depend in part on its ability to obtain per diem rate
approvals for costs which exceed the Medicare established per diem rate limits
and by obtaining waivers of these limitations. There can be no assurance that
the Company will be able to obtain the waivers necessary to enable the Company
to recover its excess costs.
Managed care organizations and other third party payors have continued
to consolidate to enhance their ability to influence the delivery of healthcare
services. Consequently, the healthcare needs of a large percentage of the United
States population are provided by a small number of managed care organizations
and third party payors. These organizations generally enter into service
agreements with a limited number of providers for needed services. To the extent
such organizations terminate IHS as a preferred provider and/or engage IHS'
competitors as a preferred or exclusive provider, the business of IHS could be
materially adversely affected.
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<PAGE>
RISK OF ADVERSE EFFECT OF HEALTHCARE REFORM. In addition to extensive
existing government healthcare regulation, there are numerous initiatives on the
federal and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including a number of proposals that would
significantly limit reimbursement under Medicare and Medicaid. It is not clear
at this time what proposals, if any, will be adopted or, if adopted, what effect
such proposals would have on the Company's business. Aspects of certain of these
healthcare proposals, such as cutbacks in the Medicare and Medicaid programs,
containment of healthcare costs on an interim basis by means that could include
a short-term freeze on prices charged by healthcare providers, and permitting
greater state flexibility in the administration of Medicaid, could adversely
affect the Company. In addition, there have been proposals to convert the
current cost reimbursement system for home nursing services covered under
Medicare to a prospective payment system. The prospective payment system
proposals generally provide for prospectively established per visit payments to
be made for all covered services, which are then subject to an annual aggregate
per episode limit at the end of the year. Home health agencies that are able to
keep their total expenses per visit during the year below their per episode
annual limits will be able to retain a specified percentage of the difference,
subject to certain aggregate limitations. Such changes could have a material
adverse effect on the Company and its growth strategy. The implementation of a
prospective payment system will require the Company to make contingent payments
related to the First American acquisition of $155 million over a period of five
years. Additionally, the May 1997 balanced budget agreement between the
President and Congress contemplates changing Medicare payments for skilled
nursing facilities and home nursing services from a cost-reimbursement system to
a prospective payment system. The inability of IHS to provide home healthcare
and/or skilled nursing services at a cost below the established Medicare fee
schedule could have a material adverse effect on IHS' home healthcare
operations, post-acute care network and business. See "--Risks Related to Recent
Acquisitions" and "--Reliance on Reimbursement by Third Party Payors." There can
be no assurance that currently proposed or future healthcare legislation or
other changes in the administration or interpretation of governmental healthcare
programs will not have an adverse effect on the Company or that payments under
governmental programs will remain at levels comparable to present levels or will
be sufficient to cover the costs allocable to patients eligible for
reimbursement pursuant to such programs. See "--Uncertainty of Government
Regulation."
UNCERTAINTY OF GOVERNMENT REGULATION. The Company and the healthcare
industry generally are subject to extensive federal, state and local regulation
governing licensure and conduct of operations at existing facilities,
construction of new facilities, acquisition of existing facilities, additions of
new services, certain capital expenditures and reimbursement for services
rendered. Changes in applicable laws and regulations or new interpretations of
existing laws and regulations could have a material adverse effect on licensure,
eligibility for participation, permissible activities, operating costs and the
levels of reimbursement from governmental and other sources. There can be no
assurance that regulatory authorities will not adopt changes or new
interpretations of existing regulations that could adversely affect the Company.
The failure to maintain or renew any required regulatory approvals or licenses
could prevent the Company from offering existing services or from obtaining
reimbursement. In certain circumstances, failure to comply at one facility may
affect the ability of the Company
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<PAGE>
to obtain or maintain licenses or approvals under Medicare and Medicaid programs
at other facilities. In addition, in the conduct of its business the Company's
operations are subject to review by federal and state regulatory agencies. In
the course of these reviews, problems are from time to time identified by these
agencies. Although the Company has to date been able to resolve these problems
in a manner satisfactory to the regulatory agencies without a material adverse
effect on the Company, there can be no assurance that the Company will be able
to do so in the future.
Recently effective provisions of the regulations adopted under the
Omnibus Budget Reconciliation Act of 1987 ("OBRA") have implemented stricter
guidelines for annual state surveys of long-term care facilities and expanded
remedies available to HCFA to enforce compliance with the detailed regulations
mandating minimum healthcare standards and may significantly affect the
consequences to the Company if annual or other HCFA facility surveys identify
noncompliance with these regulations. Remedies include fines, new patient
admission moratoriums, denial of reimbursement, federal or state monitoring of
operations, closure of facilities and termination of provider reimbursement
agreements. These provisions eliminate the ability of operators to appeal the
scope and severity of any deficiencies and grant state regulators the authority
to impose new remedies, including monetary penalties, denial of payments and
termination of the right to participate in the Medicare and/or Medicaid
programs. The Company believes these new guidelines may result in an increase in
the number of facilities that will not be in "substantial compliance" with the
regulations and, as a result, subject to increased disciplinary actions and
remedies, including admission holds and termination of the right to participate
in the Medicare and/or Medicaid programs. In ranking facilities, survey results
subsequent to October 1990 are considered. As a result, the Company's strategy
of acquiring poorly performing facilities could adversely affect the Company's
business to the extent remedies are imposed at such facilities.
The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "Stark Bills,"
which prohibit, with limited exceptions, financial relationships between
ancillary service providers and referring physicians, and the federal
"anti-kickback law," which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. The Office of the Inspector General of the
Department of Health and Human Services, the Department of Justice and other
federal agencies interpret these fraud and abuse provisions liberally and
enforce them aggressively. Members of Congress have proposed legislation that
would significantly expand the federal government's involvement in curtailing
fraud and abuse and increase the monetary penalties for violation of these
provisions. In addition, some states restrict certain business relationships
between physicians and other providers of healthcare services. Many states
prohibit business corporations from providing, or holding themselves out as a
provider of, medical care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or eligibility to
participate in reimbursement programs (including Medicare and Medicaid), asset
forfeitures and civil and criminal penalties. These laws vary from state to
state, are often vague and
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<PAGE>
have seldom been interpreted by the courts or regulatory agencies. The Company
seeks to structure its business arrangements in compliance with these laws, and
from time to time the Company has sought guidance as to the interpretation of
such laws; however, there can be no assurance that such laws ultimately will be
interpreted in a manner consistent with the practices of the Company.
Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve certain acquisitions
or capital expenditures in excess of defined levels and determine that a need
exists for certain new bed additions, new services and the acquisition of such
medical equipment or capital expenditures or other changes prior to beds and/or
services being added. Many states have placed a moratorium on granting
additional certificates of need or otherwise stated their intent not to grant
approval for new beds. To the extent certificates of need or other similar
approvals are required for expansion of the Company's operations, either through
facility acquisitions or expansion or provision of new services or other
changes, such expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards applicable to such
approvals and possible delays in, and the expenses associated with, obtaining
such approvals.
The Company is unable to predict the future course of federal, state or
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "--Risk of Adverse Effect of Healthcare Reform."
COMPETITION. The healthcare industry is highly competitive and is
subject to continuing changes in the provision of services and the selection and
compensation of providers. The Company competes on a local and regional basis
with other providers on the basis of the breadth and quality of its services,
the quality of its facilities and, to a more limited extent, price. The Company
also competes with other providers in the acquisition and development of
additional facilities and service providers. The Company's current and potential
competitors include national, regional and local operators of geriatric care
facilities, acute care hospitals and rehabilitation hospitals, extended care
centers, retirement centers and community home health agencies, other home
healthcare companies and similar institutions, many of which have significantly
greater financial and other resources than the Company. In addition, the Company
competes with a number of tax-exempt nonprofit organizations which can finance
acquisitions and capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to the Company. New service introductions
and enhancements, acquisitions, continued industry consolidation and the
development of strategic relationships by IHS' competitors could cause a
significant decline in sales or loss of market acceptance of IHS' services or
intense price competition, or make IHS' services noncompetitive. Further,
technological advances in drug delivery systems and the development of new
medical treatments that cure certain complex diseases or reduce the need for
healthcare services could adversely impact the business of IHS. There can be no
assurance that IHS will be able to compete successfully against current or
future competitors or that competitive pressures will not have a material
adverse effect on IHS' business, financial condition and results of operations.
IHS also competes with various healthcare providers with respect to attracting
and retaining
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<PAGE>
qualified management and other personnel. Any significant failure by IHS to
attract and retain qualified employees could have a material adverse effect on
IHS' business, results of operations and financial condition.
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS. IHS' Third Restated
Certificate of Incorporation and By-laws, as well as the Delaware General
Corporation Law (the "DGCL"), contain certain provisions that could have the
effect of making it more difficult for a third party to acquire, or discouraging
a third party from attempting to acquire, control of IHS. These provisions could
limit the price that certain investors might be willing to pay in the future for
shares of Common Stock. Certain of these provisions allow IHS to issue, without
stockholder approval, preferred stock having voting rights senior to those of
the Common Stock. Other provisions impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. In addition, the IHS Stockholders' Rights Plan, which
provides for discount purchase rights to certain stockholders of IHS upon
certain acquisitions of 20% or more of the outstanding shares of Common Stock,
may also inhibit a change in control of IHS. As a Delaware corporation, IHS is
subject to Section 203 of the DGCL, which, in general, prevents an "interested
stockholder" (defined generally as a person owning 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) for three years following the date such person became
an interested stockholder unless certain conditions are satisfied.
POSSIBLE VOLATILITY OF STOCK PRICE. There may be significant volatility
in the market price of the Common Stock. Quarterly operating results of IHS,
changes in general conditions in the economy, the financial markets or the
healthcare industry, or other developments affecting IHS or its competitors,
could cause the market price of the Common Stock to fluctuate substantially. In
addition, in recent years the stock market and, in particular, the healthcare
industry segment, has experienced significant price and volume fluctuations.
This volatility has affected the market price of securities issued by many
companies for reasons unrelated to their operating performance. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been initiated against such
company. Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon IHS' business, operating results and financial condition.
15
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock
by the Selling Stockholders.
SELLING STOCKHOLDERS
The Company will supplement this Prospectus from time to time to
include certain information concerning the security ownership of the Selling
Stockholders and the position, office or other material relationship which a
Selling Stockholder has had within the past three years with the Company or any
of its predecessors or affiliates.
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the registration
of the Shares offered hereby will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of Shares will be borne by the
Selling Stockholders (or their donees or pledgees).
Sales of Shares may be effected from time to time in transactions
(which may include block transactions) on the New York Stock Exchange, in
negotiated transactions, or a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale, or
at negotiated prices. The Selling Stockholders have advised the Company that
they have not entered into any agreements, understandings or arrangements with
any underwriters or broker-dealers regarding the sale of their securities. The
Selling Stockholders may effect such transactions by selling Common Stock
directly to purchasers or to or through broker-dealers which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder and/or the
purchasers of Common Stock for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Stockholders and any broker-dealers that act in connection with the sale of the
Common Stock might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. Liabilities
under the federal securities laws cannot be waived.
Because the Selling Stockholders may be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, the Selling
Stockholders will be subject to prospectus delivery requirements under the
Securities Act. Furthermore, in the event of a "distribution" of the Shares,
such Selling Stockholder, any selling broker or dealer and any "affiliated
purchasers" may be subject to Regulation M under the Securities
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<PAGE>
Exchange Act of 1934, as amended, which Regulation would prohibit, with certain
exceptions, any such person from bidding for or purchasing any security which is
the subject of such distribution until his participation in that distribution is
completed. In addition, Regulation M under the Exchange Act prohibits, with
certain exceptions, any "stabilizing bid" or "stabilizing purchase" for the
purpose of pegging, fixing or stabilizing the price of Common Stock in
connection with this offering.
The Selling Stockholders may be entitled under agreements entered into
with the Company to indemnification against liabilities under the Securities
Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby have been passed upon for the Company by Marshall A. Elkins,
Executive Vice President and General Counsel of the Company. Mr. Elkins is the
brother of Robert N. Elkins, the Company's Chairman of the Board and Chief
Executive Officer. Mr. Marshall Elkins owns 17,299 shares of Common Stock and
options to purchase 161,535 shares of Common Stock.
EXPERTS
The consolidated financial statements of Integrated Health Services,
Inc. and subsidiaries as of December 31, 1995 and 1996 and for each of the years
in the three-year period ended December 31, 1996 have been incorporated by
reference in the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP refers to changes in accounting
methods, in 1995, to adopt Statement of Financial Accounting Standards No. 121
related to impairment of long-lived assets and, in 1996, from deferring and
amortizing pre-opening costs of medical specialty units to recording them as
expenses when incurred.
The consolidated financial statements of First American Health Care of
Georgia, Inc. as of December 31, 1994 and 1995 and for each of the years in the
three-year period ended December 31, 1995 have been incorporated by reference in
the Registration Statement from IHS' Current Report on Form 8-K/A (dated October
17, 1996 and filed with the Commission on November 26, 1996), in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The report of KPMG Peat Markwick LLP contains an
explanatory paragraph regarding the uncertainty with respect to certain
contingent payments which may be payable under a settlement agreement with the
Health Care Financing Administration.
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========================================= =================================
NO PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE HEREBY
TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A 2,500,000
SOLICITATION OF AN OFFER TO BUY ANY Shares
SECURITY OTHER THAN THE COMMON STOCK
OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES INTEGRATED HEALTH
OFFERED HEREBY TO ANY PERSON IN ANY SERVICES, INC.
JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER Common Stock
ANY CIRCUMSTANCES CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE
DATE HEREOF.
TABLE OF CONTENTS
-------------------------
PAGE
Available Information ................. PROSPECTUS
Incorporation of Certain
Documents by Reference .............
The Company .......................... --------------------------
Risk Factors..........................
Use of Proceeds.......................
Selling Stockholder....................
Plan of Distribution................... June 2, 1997
Legal Matters .........................
Experts................................
========================================= =================================
18
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PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The information in the following documents filed by IHS with the
Commission (File No. 1-12306) pursuant to the Exchange Act is incorporated by
reference in this Registration Statement:
(a) Annual Report on Form 10-K for the year ended December 31, 1996;
(b) Quarterly Report on Form 10-Q for the quarter ended March 31,
1997;
(c) Current Report on Form 8-K dated October 17, 1996 reporting the
acquisition of First American Health Care of Georgia, Inc., as amended by
Form 8-K/A filed November 26, 1996;
(d) Current Report on Form 8-K dated October 19, 1996 reporting the
execution of the Agreement and Plan of Merger among the Company, IHS
Acquisition XIX, Inc. and Coram Healthcare Corporation (the "Merger
Agreement"), as amended by Form 8-K/A filed April 11, 1997, reporting the
termination of the Merger Agreement;
(e) Current Report on Form 8-K dated May 23, 1997 reporting the
Company's agreement to issue privately an aggregate of $450 million
principal amount of 9 1/2% Senior Subordinated Notes due 2007;
(f) Current Report on Form 8-K dated May 30, 1997 reporting (i) the
Company's issuance of an aggregate of $450 million principal amount of 9
1/2% Senior Subordinated Notes due 2007 and (ii) the Company's acceptance
for payment of an aggregate of $114,975,000 principal amount of its 9 5/8%
Senior Subordinated Notes due 2002, Series A and an aggregate of
$99,893,000 principal amount of its 10 3/4% Senior Subordinated Notes due
2004 pursuant to cash tender offers;
(g) The description of the Company's Common Stock contained in Item 1
of the Company's Registration Statement on Form 8-A dated September 1,
1993; and
(h) The description of the Company's Preferred Stock Purchase Rights
contained in Item 1 of the Company's Registration Statement on Form 8-A
dated September 28, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the filing of a post-effective amendment which indicates that all Shares offered
have been sold or which deregisters all Shares then remaining unsold shall be
deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a previously filed document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or was deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statements so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
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<PAGE>
Item 4. DESCRIPTION OF SECURITIES
Not applicable.
Item 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
Certain legal matters with respect to the validity of the
Common Stock offered hereby have been passed upon for the Company by Marshall A.
Elkins, Executive Vice President and General Counsel of the Company. Mr. Elkins
is the brother of Robert N. Elkins, the Company's Chairman of the Board and
Chief Executive Officer. Mr. Marshall Elkins owns 17,299 shares of Common Stock
and options to purchase 161,535 shares of Common Stock.
Item 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the General Corporation Law of the State of Delaware
(the "DGCL"), a corporation may include provisions in its certificate of
incorporation that will relieve its directors of monetary liability for breaches
of their fiduciary duty to the corporation, except under certain circumstances,
including a breach of the director's duty of loyalty, acts or omissions of the
director not in good faith or which involve intentional misconduct or a knowing
violation of law, the approval of an improper payment of a dividend or an
improper purchase by the corporation of stock or any transaction from which the
director derived an improper personal benefit. The Company's Third Restated
Certificate of Incorporation, as amended, provides that the Company's Directors
are not liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duty, subject to the described exceptions specified by
the DGCL.
Section 145 of the DGCL grants the Company the power to
indemnify each officer and director of the Company against liabilities and
expenses incurred by reason of the fact that he is or was an officer or director
of the Company if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The Company's Third Restated Certificate of Incorporation,
as amended, and By-laws, as amended, provide for the indemnification of each
officer and director of the Company to the fullest extent permitted by the DGCL.
In addition, the Company has entered into Indemnity Agreements with its
directors and executive officers, a form of which is included as Exhibit 10.72
to the Company's Registration Statement on Form S-1, No. 33-39339, effective
March 31, 1992.
Section 145 of the DGCL also empowers the Company to purchase
and maintain insurance on behalf of any person who is or was an officer or
director of the Company against liability asserted against or incurred by him in
any such capacity, whether or not the Company would have the power to indemnify
such officer or director against such liability under the provisions of Section
145. The Company has purchased and maintains a directors' and officers'
liability policy for such purposes.
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<PAGE>
Item 7. EXEMPTION FROM REGISTRATION CLAIMED
Not Applicable.
Item 8. EXHIBITS
Exhibit
No. Description
- ------- -----------
4 Integrated Health Services, Inc.
1996 Stock Incentive Plan
5 Opinion of Marshall A. Elkins, Esq.
23.1 Consents of KPMG Peat Marwick LLP
23.2 Consent of Marshall A. Elkins, Esq.
(filed as part of Exhibit 5)
24 Power of Attorney (included on signature page)
Item 9. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers
or sales are being made, a post-effective
amendment to this registration statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any
facts or events arising after the
effective date of the registration
statement (or the most recent
post-effective amendment thereof)
which, individually or in the
aggregate, represent a fundamental
change in the information set forth
in the registration statement;
(iii) To include any material information
with respect to the plan of
distribution not previously disclosed
in the registration statement or any
material change to such information
in the registration statement;
provided, however, that paragraphs
(1)(i) and (1)(ii) do not apply if
the registration statement is on Form
II-3
<PAGE>
S-3 or Form S-8, and the information
required to be included in a
post-effective amendment by those
paragraphs is contained in periodic
reports filed by the registrant
pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
that are incorporated by reference in
the registration statement.
(2) That, for the purpose of determining any
liability under the Securities Act of 1933,
each such post-effective amendment shall be
deemed to be a new registration statement
relating to the securities offered therein,
and the offering of such securities at that
time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the
securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that,
for purposes of determining any liability under the
Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration
statement shall be deemed to be a new registration
statement relating to the securities offered therein,
and the offering of such securities at that time
shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission
such indemnification is against public policy as
expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other
than the payment by the registrant of expenses
incurred or paid by a director, officer, or
controlling person of the registrant in the
successful defense of any action, suit or proceeding)
is asserted by such director, officer, or controlling
person of the registrant in connection with the
securities being registered, the registrant will,
unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question
whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Owings Mills, State of Maryland, on June 2,
1997.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Robert N. Elkins
----------------------------
Robert N. Elkins
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert N. Elkins, Lawrence P. Cirka and
W. Bradley Bennett, jointly and severally, his true and lawful attorneys-in-fact
and agents, each with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
Signature Title Date
- --------- ----- ----
Chairman of the Board
and Chief Executive Officer
/s/ Robert N. Elkins (Principal Executive Officer) June 2, 1997
- ----------------------------
(Robert N. Elkins)
President
/s/ Lawrence P. Cirka and Director June 2, 1997
- ----------------------------
(Lawrence P. Cirka)
/s/ Edwin M. Crawford Director June 2, 1997
- ----------------------------
(Edwin M. Crawford)
II-5
<PAGE>
/s/ Kenneth M. Mazik Director June 2, 1997
- ----------------------------
(Kenneth M. Mazik)
/s/ Robert A. Mitchell Director June 2, 1997
- ----------------------------
(Robert A. Mitchell)
/s/ Charles W. Newhall, III Director June 2, 1997
- ----------------------------
(Charles W. Newhall, III)
/s/ Timothy F. Nicholson Director June 2, 1997
- ----------------------------
(Timothy F. Nicholson)
/s/ John L. Silverman Director June 2, 1997
- ----------------------------
(John L. Silverman)
/s/ George H. Strong Director June 2, 1997
- ----------------------------
(George H. Strong)
Executive Vice President-
Chief Accounting Officer
/s/ W. Bradley Bennett (Principal Accounting Officer) June 2, 1997
- ----------------------------
(W. Bradley Bennett)
Executive Vice President-Finance
/s/ Eleanor C. Harding (Principal Financial Officer) June 2, 1997
- ----------------------------
(Eleanor C. Harding)
II-6
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE NO.
4 Integrated Health Services, Inc.
1996 Stock Incentive Plan.
5 Opinion of Marshall Elkins, Esq.
23.1 Consents of KPMG Peat Marwick LLP.
23.2 Consent of Marshall A. Elkins, Esq.
(filed as part of Exhibit 5).
24 Power of Attorney (included on signature page).
II-7
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,
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<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.
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June 2,1997
The Board of Directors
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Dear Sirs:
I refer to the Registration Statement on Form S-8 (the "Registration
Statement") to be filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), on behalf of Integrated Health
Services, Inc. (the "Company"), relating to 2,500,000 shares of the Company's
Common Stock, $.001 par value (the "Shares"), to be issued pursuant to the
Company's 1996 Stock Incentive Plan (the "Plan").
As counsel for the Company, I have examined such corporate records,
other documents and such questions of law as I have considered necessary or
appropriate for the purposes of this opinion and, upon the basis of such
examination, advise you that in my opinion all necessary corporate proceedings
by the Company have been duly taken to authorize the issuance of the Shares
pursuant to the Plan and that the Shares being registered pursuant to the
Registration Statement, when issued and paid for in accordance with the terms of
the Plan, will be duly authorized, validly issued, fully paid and
non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the headings "Legal
Matters" and "Interests of Named Experts and Counsel" in the Registration
Statement. This consent is not to be construed as an admission that I am a
person whose consent is to be filed with the Registration Statement under the
provisions of the Act.
Very truly yours,
/s/ Marshall A. Elkins
Marshall A. Elkins
Executive Vice President and
General Counsel
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Integrated Health Services, Inc.:
We consent to the use of our report dated March 24, 1997 relating to the
consolidated financial statements of Integrated Health Services, Inc. and
subsidiaries, incorporated herein by reference, to the incorporation herein by
reference of our report dated October 17, 1996 relating to the consolidated
financial statements of First American Health Care of Georgia, Inc. and
subsidiaries, which report appears in Form 8-K/A of Integrated Health Services,
Inc. filed on November 26, 1996, and to the reference to our firm under the
heading "Experts" in the registration statement on Form S-8.
Our report dated March 24, 1997 refers to changes in accounting methods, in
1995, to adopt Statement of Financial Accounting Standards No. 121 relating to
impairment of long-lived assets and, in 1996, from deferring and amortizing
pre-opening costs of medical specialty units to recording them as expenses when
incurred. Our report dated October 17, 1996 contains an explanatory paragraph
regarding the uncertainty with respect to certain contingent payments which may
be payable under a settlement agreement with the Health Care Financing
Administration.
/s/ KPMG Peat Marwick LLP
Baltimore, Maryland
May 30, 1997
