AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 18, 1998
REGISTRATION NO. 333-59891
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
INTEGRATED HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 23-2428312
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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10065 Red Run Boulevard, Owings Mills, Maryland 21117, (410) 998-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Marshall A. Elkins, Esq., Executive Vice President and General Counsel
Integrated Health Services, Inc., 10065 Red Run Boulevard, Owings Mills,
Maryland 21117, (410) 998-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies of all communications, including all communications sent
to the agent for service, should be sent to:
<TABLE>
<S> <C>
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
(212) 752-5958(FAX) (410) 998-8400
(410) 998-8500(FAX)
</TABLE>
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Approximate Date of Commencement of Proposed Sale to the Public:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT OF SHARES PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(3) REGISTRATION FEE(1)
<S> <C> <C> <C> <C>
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase
Rights)(3) ............................ 133,728 $ 24.875 $ 3,326,484.00 $ 981.32
====================================================================================================================================
</TABLE>
(1) A registration fee in the amount of $12,927.69 relating to 1,396,691 shares
of Common Stock has previously been paid.
(2) Estimated solely for the purpose of calculating the registration fee. Such
estimates have been calculated in accordance with Rule 457(c) under the
Securities Act of 1933 and are based upon the average of the high and low
prices per share of the Registrant's Common Stock on the New York Stock
Exchange Composite Transaction Tape on August 17, 1998.
(3) The Preferred Stock Purchase Rights, which are attached to the shares of
Common Stock being registered, will be issued for no additional
consideration; no additional registration fee is required.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 18, 1998
PROSPECTUS
1,530,419 SHARES
[GRAPHIC OMITTED]
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
--------------
This Prospectus relates to 1,530,419 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") which are being offered for sale by certain selling
stockholders (the "Selling Stockholders"). See "Selling Stockholders." The
Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "IHS." On August 17, 1998, the closing price of the Common Stock, as
reported in the NYSE consolidated reporting system, was $24.625 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 SECURI-
TIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Prospectus is August , 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration becomes effective.
This prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities law of any such State.
<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-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any 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 forward-looking 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,
including those discussed under "Risk Factors," that could cause actual results
to differ materially from those contemplated in such forward-looking statements.
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 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.
2
<PAGE>
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) The Company's Annual Report on Form 10-K for the year ended December
31, 1997, as amended by Form 10-K/A filed May 29, 1998;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, as amended by Form 10-Q/A filed May 29, 1998;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998;
(d) The Company's Current Report on Form 8-K dated October 17, 1996 and
filed October 25, 1996, reporting the acquisition of First American Health
Care of Georgia, Inc., as amended by Form 8-K/A filed November 26, 1996 and
Amendment No. 1 to Form 8-K/A filed July 11, 1997;
(e) The Company's Current Report on Form 8-K dated September 25, 1997 and
filed October 10, 1997, reporting the Company's acquisition of Community Care
of America, Inc. and the Lithotripsy Division of Coram Healthcare
Corporation, as amended by Form 8-K/A filed November 25, 1997 and Amendment
No. 1 to Form 8-K/A filed May 29, 1998;
(f) The Company's Current Report on Form 8-K dated October 21, 1997 and
filed November 5, 1997, reporting the Company's acquisition of RoTech Medical
Corporation, as amended by Form 8-K/A filed November 25, 1997;
(g) The Company's Current Report on Form 8-K dated December 31, 1997 and
filed January 14, 1998, reporting the acquisition of 139 owned, leased or
managed long-term care facilities, 12 specialty hospitals and certain other
businesses from HEALTHSOUTH Corporation, as amended by Form 8-K/A filed March
16, 1998 and Amendment No. 1 to Form 8-K/A filed May 29, 1998;
(h) The Company's Current Report on Form 8-K dated March 4, 1998 and
filed March 12, 1998, reporting the Company's revenues and operating results
for the fourth quarter and year ended December 31, 1997;
(i) 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
(j) 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 with the Commission 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
statement 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.
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
DIRECTED 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.
3
<PAGE>
THE COMPANY
Integrated Health Services, Inc. ("IHS" or the "Company") is one of the
nation's leading providers of post-acute healthcare services. Post-acute care is
the provision of a continuum of care to patients following discharge from an
acute care hospital. IHS' post-acute care services include subacute care,
skilled nursing facility care, home respiratory care, home health nursing care,
other homecare services and contract rehabilitation, hospice, lithotripsy 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. IHS'
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 "pre-acute" 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 2,000 service
locations in 47 states and the District of Columbia.
The Company's post-acute care network strategy is to provide cost-effective
continuity of care for its patients in multiple settings, 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, IHS has focused on (i) developing market concentration
for its post-acute care services in targeted states due to increasing payor
consolidation and the increased preference of payors, physicians and patients
for dealing with only one service provider; (ii) 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;
and (iii) developing subacute care units. Given the increasing importance of
managed care in the healthcare marketplace and the continued cost containment
pressures from Medicare, Medicaid and private payors, the Company 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 and other payors.
In implementing its post-acute care network strategy, IHS 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, IHS 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 in October 1997 acquired RoTech Medical Corporation
("RoTech"), a provider of home healthcare products and services, with an
emphasis on home respiratory, home medical equipment and infusion therapy,
principally to patients in non-urban areas (the "RoTech Acquisition"). In
October 1997, IHS also acquired (the "Coram Lithotripsy Acquisition") the
lithotripsy division (the "Coram Lithotripsy Division") of Coram Healthcare
Corporation ("Coram"), which provided lithotripsy services and equipment
maintenance in 180 locations in 18 states, in order to expand the mobile
diagnostic treatment and services it offers to patients, payors and other
providers. Lithotripsy is a non-invasive technique that utilizes shock waves to
disintegrate kidney stones. During 1998 the Company has continued to expand its
home healthcare services by acquiring companies which provide home respiratory
and home medical equipment services. 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
respiratory therapy and rehabilitation, outside the hospital or nursing home;
(ii) serve as an entry point for patients into the IHS post-acute care network;
and (iii) provide a cost-effective site for case management and patient
direction.
IHS has also continued to expand its post-acute care network by increasing
the number of facilities it operates or manages. In September 1997, IHS
acquired Community Care of America, Inc. ("CCA"),
4
<PAGE>
which develops and operates skilled nursing facilities in medically underserved
rural communities (the "CCA Acquisition"). IHS believes that CCA will broaden
its post-acute care network to include more rural markets and will complement
its existing home care locations in rural markets as well as RoTech's business.
In addition, in December 1997, IHS acquired from HEALTHSOUTH Corporation
("HEALTHSOUTH") 139 owned, leased or managed long-term care facilities and 12
specialty hospitals, as well as a contract therapy business having over 1,000
contracts and an institutional pharmacy business serving approximately 38,000
beds (the "Facility Acquisition"). During 1998 the Company has continued to add
skilled-nursing facilities in strategic markets.
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
IHS 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.
IHS presently operates 360 geriatric care facilities (302 owned or leased
and 58 managed), excluding eight facilities acquired in the CCA Acquisition and
19 facilities acquired in the Facility Acquisition which are being held for
sale, 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
65%, 70% and 79% of net revenues during the years ended December 31, 1995, 1996
and 1997, respectively, and 79% and 71% of net revenues in the six months ended
June 30, 1997 and 1998, respectively. IHS 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, 1997 and the six months ended June
30, 1998, approximately 35% and 31%, respectively, of IHS' revenues were derived
from home health and hospice care, approximately 44% and 41%, respectively, were
derived from subacute and other ancillary services, approximately 19% and 28%,
respectively, were derived from traditional basic nursing home services, and
approximately 2% and 1%, respectively, were derived from management and other
services. On a pro forma basis after giving effect to the acquisitions
consummated by IHS in 1997, for the year ended December 31, 1997, approximately
30% of IHS' revenues were derived from home health and hospice care,
approximately 43% were derived from subacute and other ancillary services,
approximately 26% were derived from traditional basic nursing home services and
the remaining approximately 1% were derived from management and other services.
Integrated Health Services, Inc. was incorporated in March 1986 as a
Pennsylvania corporation and reorganized as a Delaware corporation in November
1986. IHS' 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, the terms "IHS" and the "Company" include
Integrated Health Services, Inc. and its subsidiaries.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well as
those discussed elsewhere in this Prospectus (including the documents
incorporated by reference herein).
Risks Related to Substantial Indebtedness. The Company's indebtedness is
substantial in relation to its stockholders' equity. At June 30, 1998, IHS'
total long-term debt, including current portion, accounted for 68.4% of its
total capitalization. IHS also has significant lease obligations with respect to
the facilities operated pursuant to long-term leases, which aggregated
approximately $687.0 million at June 30, 1998. For the year ended December 31,
1997 and the six months ended June 30, 1998 the Company's rent expense was
$105.1 million ($163.7 million on a pro forma basis after giving effect to the
acquisitions consummated by IHS in 1997) and $71.0 million, respectively. In
addition, IHS is obligated to pay an additional $155 million in respect of the
acquisition of First American during 2000 to 2004, of which $117.3 million
(representing the present value thereof) has been recorded at June 30, 1998. 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 securityholders, including: (i)
IHS' 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 IHS' 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 IHS for its operations, (iii)
certain of IHS' borrowings bear, and will continue to bear, variable rates of
interest, which expose IHS to increases in interest rates, and (iv) certain of
IHS' 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, IHS' leverage may also adversely affect IHS'
ability to respond to changing business and economic conditions or continue its
growth strategy. There can be no assurance that IHS' operating results will be
sufficient for the payment of IHS' indebtedness. If IHS 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 IHS finances its activities with
additional debt, IHS 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 IHS. See "-- Risks Related to Capital
Requirements."
In connection with IHS' offering of its 9 1/4% Senior Subordinated Notes
due 2008 in September 1997 (the "9 1/4% Senior Notes"), Standard & Poors ("S&P")
confirmed its B rating of IHS' other subordinated debt obligations, but with a
negative outlook, and assigned the same rating to the 9 1/4% Senior Notes. In
November 1997, S&P placed the Company's senior credit and subordinated debt
ratings on CreditWatch with negative implications due to the proposed Facility
Acquisition and in January 1998 S&P downgraded IHS' corporate credit and bank
loan ratings to B+ and its subordinated debt ratings to B- as a result of the
Facility Acquisition. S&P stated that the speculative grade ratings reflect the
Company's high debt leverage and aggressive acquisition strategy, uncertainties
with respect to future government efforts to control Medicare and Medicaid and
the unknown impact on IHS of recent changes in healthcare regulation providing
for a prospective payment system for both nursing homes and home healthcare. S&P
noted IHS' outlook was stable. In connection with the offering of the 9 1/4%
Senior Notes, Moody's Investors Service ("Moody's") downgraded to B2 the
Company's other senior subordinated debt obligations, but noted that the outlook
for the rating was stable, and assigned the new rating to the 9 1/4% Senior
Notes. Moody's stated that the rating action reflects Moody's concern about
6
<PAGE>
the Company's continued rapid growth through acquisitions, which has resulted in
negative tangible equity of $114 million, making no adjustment for the $259
million of convertible debt of IHS outstanding. Moody's also stated that the
availability provided by the Company's new credit facility and the 9 1/4% Senior
Notes positioned the Company to complete sizable acquisition transactions using
solely debt. Moody's further noted that the rating reflects that there are
significant changes underway in the reimbursement of services rendered by IHS,
and that the exact impact of these changes is uncertain.
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
this 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 which provide post-acute care services not
currently provided by the Company and that the Company acquire, lease or acquire
the right to manage for others additional facilities. Such expansion and growth
will depend on the Company's ability to create demand for its post-acute care
programs, the availability of suitable acquisition, lease or management
candidates and the Company's ability to finance such acquisitions and growth.
The successful implementation of the Company's post-acute healthcare system,
including the capitation of rates, will depend on the Company's ability to
expand the amount of post-acute care services it offers directly to its patients
rather than through third-party providers. There can be no assurance that
suitable acquisition candidates will be located, that acquisitions can be
consummated, that acquired facilities and companies can be successfully
integrated into the Company's operations, or that 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, RoTech, CCA, the Coram Lithotripsy Division and the facilities and
other businesses acquired from HEALTHSOUTH, is important to the Company's future
financial performance. The anticipated benefits from any of these acquisitions
may not be achieved unless the operations of the acquired businesses are
successfully combined with those of the Company in a timely manner. The
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. The Company's 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.
7
<PAGE>
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 IHS to focus on obtaining contracts with
managed care organizations and to provide capitated services. The Company
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 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 IHS require licensure as an insurance company, there
can be no assurance that IHS could obtain or maintain the necessary licensure,
or that IHS would be able to meet any financial criteria imposed by a state. If
the Company were 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. 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 senior 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 acquisitions of First American, RoTech, CCA
and the Coram Lithotripsy Division and the Facility Acquisition, and is still in
the process of integrating those acquired businesses. The IHS Board of Directors
and senior management of IHS face a significant challenge in their efforts to
integrate the acquired businesses, including First American, RoTech, CCA, the
Coram Lithotripsy Division and the facilities and other businesses acquired from
HEALTHSOUTH. The dedication of management re-
8
<PAGE>
sources to such integration may detract attention from the day-to-day business
of IHS. The difficulties of integration may be increased by the necessity of
coordinating geographically separated organizations, integrating personnel with
disparate business backgrounds and combining different corporate cultures. 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. Further, 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.
IHS has recently expanded significantly its home healthcare operations.
During the years ended December 31, 1996 and 1997 and the six months ended June
30, 1997 and 1998, home healthcare accounted for approximately 16.3%, 35.4%,
31.1% and 30.0%, respectively, of IHS' total revenues. On a pro forma basis,
after giving effect to the acquisitions and divestitures consummated by IHS in
1996 and 1997, home healthcare accounted for approximately 28.8% and 29.6% of
IHS' total revenues in 1996 and 1997, respectively. On a pro forma basis,
approximately 70.7%, 73.0%, 68.8% and 63.6% of IHS' home healthcare revenues
were derived from Medicare in the years ended December 31, 1996 and 1997 and the
six months ended June 30, 1997 and 1998, respectively. On a pro forma basis,
after giving effect to the acquisitions and divestitures consummated by IHS in
1996 and 1997, home nursing services accounted for approximately 64.2%, 56.2%,
57.0% and 41.8% of IHS' home healthcare revenues for the years ended December
31, 1996 and 1997 and the six months ended June 30, 1997 and 1998, respectively,
Medicare has developed a national fee schedule for infusion 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 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 prior to 1998.
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. The Balanced Budget Act of
1997 (the "BBA"), enacted in August 1997, provides for a reduction in current
cost reimbursement for home nursing care pending implementation of a prospective
payment system for home nursing services for cost reporting periods beginning on
or after October 1, 1999 (which date the Health Care Financing Administration
("HCFA") has indicated it is attempting to delay). 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,
IHS 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 requires IHS to
make contingent payments related to the First American Acquisition of $155
million over a period of five years. Until a prospective payment system for home
nursing services is introduced, of which there can be no assurance, IHS
anticipates that margins for home nursing will remain low and may adversely
impact its financial performance. As a result of the delay in implementation of
a prospective payment system for home nursing and the current reduction in cost
reimbursement for Medicare home nursing and its impact on the Company's
financial performance, the Company is currently evaluating whether home nursing
will remain an integral part of the Company's post-acute care network strategy.
IHS is currently exploring ways to reduce the impact of its home nursing
business on its financial performance, which may include a "spin-off" of, sale
of all or a portion of or discontinuation of such operations. In addition, the
BBA reduces the Medicare national payment limits for oxygen and oxygen equipment
used in home respiratory therapy by 25% in 1998 and 30% (from 1997 levels) in
1999 and each subsequent year. Approximately 50% of RoTech's total revenues for
1997 were derived from the provision of oxygen services to Medicare patients.
The inability of IHS to realize operating efficiencies and 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."
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
9
<PAGE>
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, has resulted in
reduced rates of reimbursement for services provided by IHS, which has adversely
affected, and may continue to adversely affect, IHS' margins, particularly in
its skilled nursing and subacute facilities. Aspects of certain healthcare
reform proposals, such as cutbacks in the Medicare and Medicaid programs,
reductions in Medicare reimbursement rates and/or limitations on reimbursement
rate increases, 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. There can be no assurance that
adequate reimbursement levels will continue to be available for services to be
provided by IHS which are currently being reimbursed by Medicare, Medicaid or
private payors. Significant limits on the scope of services reimbursed and on
reimbursement rates and fees could have a material adverse effect on the
Company's results of operations and financial condition. See "-- Risk of Adverse
Effect of Healthcare Reform." During the years ended December 31, 1995, 1996 and
1997 and the six months ended June 30, 1997 and 1998, the Company derived
approximately 55%, 60%, 66%, 67% and 63%, respectively, of its patient revenues
from Medicare and Medicaid. On a pro forma basis after giving effect to the
acquisitions and divestitures consummated by IHS in 1996 and 1997, approximately
69% of the Company's patient revenues have been derived from Medicare and
Medicaid in each of the years ended December 31, 1996 and 1997.
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.
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. IHS expects that there will continue to be numerous
initiatives on the federal and state levels for comprehensive reforms affecting
the payment for and availability of healthcare services, including proposals
that will further 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 will have on IHS' business. See "-- Risks Related to
Recent Acquisitions" and "-- Reliance on Reimbursement by Third Party Payors."
There can be no assurance
10
<PAGE>
that currently proposed or future healthcare legislation or other changes in the
administration or interpretation of governmental healthcare programs will not
have an adverse effect on the Company or that payments under governmental
programs will remain at levels comparable to present levels or will be
sufficient to cover the costs allocable to patients eligible for reimbursement
pursuant to such programs. Concern about the potential effects of the proposed
reform measures has contributed to the volatility of prices of securities of
companies in healthcare and related industries, including the Company, and may
similarly affect the price of the Company's securities in the future. See "--
Uncertainty of Government Regulation."
The BBA provides, among other things, for a prospective payment system for
skilled nursing facilities to be implemented for cost reporting periods
beginning on or after July 1, 1998, a prospective payment system for home
nursing to be implemented for cost reporting periods beginning on or after
October 1, 1999 (which date HCFA has indicated it is attempting to delay), a
reduction in current cost reimbursement for home nursing care pending
implementation of a prospective payment system, reductions (effective January 1,
1998) in Medicare reimbursement for oxygen and oxygen equipment for home
respiratory therapy and a shift of the bulk of home health coverage from Part A
to Part B of Medicare. The BBA also instituted consolidated billing for skilled
nursing facility services, under which payments for non-physician Part B
services for beneficiaries no longer eligible for Part A skilled nursing
facility care will be made to the facility, regardless of whether the item or
service was furnished by the facility, by others under arrangement or under any
other contracting or consulting arrangement, effective for items or services
furnished on or after July 1, 1997. With respect to Medicaid, the BBA repeals
the so-called Boren Amendment, which required state Medicaid programs to
reimburse nursing facilities for the costs that are incurred by efficiently and
economically operated providers in order to meet quality and safety standards.
As a result, states now have considerable flexibility in establishing payment
rates. 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 generally.
Under the new prospective payment system for Medicare reimbursement to
skilled nursing facilities, facilities will receive a pre-established daily rate
for each individual Medicare beneficiary being cared for, based on the activity
level of the patient. The pre-established daily rate will cover all routine,
ancillary and capital costs. The prospective payment system will be phased in
over four years on a blended rate of the facility-specific costs and the new
federal per diem rate. The blended rate for the first year of transition will
take 75% of the facility-specific per diem rate and 25% of the federal per diem
rate. In each subsequent transition year, the facility-specific per diem rate
component will decrease by 25% and the federal per diem rate component will
increase by 25%, ultimately resulting in a rate based 100% upon the federal per
diem. The facility-specific per diem rate is based upon the facility's 1995 cost
report for routine, ancillary and capital services, updated using a skilled
nursing market basket index. The federal per diem is calculated by the weighted
average of each facility's standardized costs, based upon the historical
national average per diem for freestanding facilities. Prospective payment for
IHS' owned and leased skilled nursing facilities will be effective beginning
January 1, 1999 for all facilities other than the facilities acquired from
HEALTHSOUTH, which will become subject to prospective payment on June 1, 1999.
Prospective payment for skilled nursing facilities managed by IHS will be
effective for each facility at the beginning of its first cost reporting period
beginning on or after July 1, 1998. The new prospective payment system will also
cover ancillary services provided to patients at skilled nursing facilities.
IHS anticipates that the prospective payment system for home nursing will
provide for prospectively established per visit payments to be made for all
covered services, which will then be 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 requires the Company to make contingent payments related to the
acquisition of First American of $155 million over a period of five years. The
failure to implement a prospective payment system for home nursing services in
the next several years could adversely affect IHS' post--
11
<PAGE>
acute care network strategy. There can be no assurance a prospective payment
system for home nursing services will be implemented in the next several years
or at all. See "-- Risks Related to Recent Acquisitions."
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, the quality of services provided and
the manner in which such services are provided and reimbursement for services
rendered. Changes in applicable laws and regulations or new interpretations of
existing laws and regulations could have a material adverse effect on licensure,
eligibility for participation, permissible activities, operating costs and the
levels of reimbursement from governmental and other sources. There can be no
assurance that regulatory authorities will not adopt changes or new
interpretations of existing regulations that could adversely affect the Company.
The failure to maintain or renew any required regulatory approvals or licenses
could prevent the Company from offering existing services or from obtaining
reimbursement. In certain circumstances, failure to comply at one facility may
affect the ability of the Company to obtain or maintain licenses or approvals
under Medicare and Medicaid programs at other facilities. In addition, in the
conduct of its business the Company's operations are subject to review by
federal and state regulatory agencies to assure continued compliance with
various standards, their continued licensing under state law and their
certification under the Medicare and Medicaid programs. In the course of these
reviews, problems are from time to time identified by these agencies. 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 its business,
and the Company believes that it will be able to resolve all current reviews in
a manner satisfactory to the regulatory agencies without a material adverse
effect on its business. However, there can be no assurance that IHS will be able
to satisfactorily resolve all current or future reviews.
In 1995 HCFA implemented stricter guidelines for annual state surveys of
long-term care facilities and expanded remedies available to enforce compliance
with the detailed regulations mandating minimum healthcare standards. 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 acquisition of poorly performing facilities could
adversely affect the Company's business to the extent remedies are imposed at
such facilities.
In September 1997, President Clinton, in an attempt to curb Medicare fraud,
imposed a moratorium on the certification under Medicare of new home healthcare
companies, which moratorium expired in January 1998, and implemented rules
requiring home healthcare providers to reapply for Medicare certification every
three years. In addition, HCFA will double the number of detailed audits of home
healthcare providers it completes each year and increase by 25% the number of
home healthcare claims it reviews each year. IHS cannot predict what effect, if
any, these new rules will have on IHS' business and the expansion of its home
healthcare operations.
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 Acts,"
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 Inspector
12
<PAGE>
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. The BBA contains new civil monetary
penalties for violations of these laws and imposes an affirmative duty on
providers to insure that they do not employ or contract with persons excluded
from the Medicare program. The BBA also provides a minimum 10 year period for
exclusion from participation in Federal healthcare programs of persons convicted
of a prior healthcare violation. 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 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. In addition to these anti-kickback
and self-referral prohibitions, there are various federal and state laws
prohibiting other types of fraud by healthcare providers, including criminal
provisions which prohibit filing false claims or making false statements to
receive payment or certification under Medicare or Medicaid. The false claims
statutes include the Federal False Claims Act, which allows any person to bring
a suit, known as a qui-tam action, alleging false or fraudulent Medicare and
Medicaid claims or other violations of the statute and to share in any amounts
paid by the entity to the government in fines or settlement. The federal and
state governments are devoting increasing attention and resources to anti-fraud
initiatives against healthcare providers.
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
13
<PAGE>
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 qualified
management and other personnel. Any significant failure by IHS to attract and
retain qualified employees could have a material adverse effect on its 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.
14
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information as of June 25, 1998
(except as otherwise indicated) and as adjusted to reflect the sale of the
Common Stock in the offering, as to the security ownership of the Selling
Stockholders. Except as set forth below, none of the Selling Stockholders has
held any position or office or had any other material relationship with the
Company or any of its predecessors or affiliates within the past three years.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
AMERICAN MOBILE HEALTH SYSTEMS, INC.(1)
Peter Hanson ................................................... 39,516 39,516 0
Sol Lewin ...................................................... 34,112 34,112 0
CoreStates Bank, N.A., as escrow agent(2) ...................... 16,006 16,006 0
FIRST COMMUNITY CARE, INC.(3) ................................... 59,376 59,376 0
REGIONAL MEDICAL SUPPLY, INC.(4)
Regional Medical Supply, Inc. .................................. 12,856 12,856 0
Crestar Bank, as escrow agent .................................. 1,895 1,895 0
MEDICARE CONVALESCENT AIDS OF PINELLAS, INC. D/B/A/ MEDAIDS(5)
Arthur Tepper and Elizabeth Tepper, as Trustees FBO Arthur
Tepper UTD 7/14/78, as amended ............................... 29,857 29,857 0
Joseph D. Valenti, as Trustee FBO Joseph D. Valenti Revoca-
ble Trust DTD 6/10/88 ........................................ 28,573 28,573 0
Samuel J. Jarczynski and Helen Leann Jarczynski JTWROS ......... 10,901 10,901 0
Thomas A. Valenti, as Trustee FBO Thomas A. Valenti, Trust
DTD 5/22/96 .................................................. 2,785 2,785 0
Steven G. Tepper ............................................... 557 557 0
CoreStates Bank, N.A., as escrow agent(2) ...................... 10,384 10,384 0
PRIME MEDICAL SERVICES, INC.(6)
Lee T. McCarger ................................................ 25,972 25,972 0
Helen Leann Jarczynski ......................................... 4,328 4,328 0
Elizabeth Tepper ............................................... 2,597 2,597 0
Bernice Brieley ................................................ 1,731 1,731 0
CoreStates Bank, N.A. as escrow(2) ............................. 4,691 4,691 0
METROPOLITAN LITHOTRIPSY BUSINESS(7)
Downstate Lithotripter LLC ..................................... 108,276 108,276 0
Lithotripter Corporation ....................................... 40,025 40,025 0
Long Island Lithotripter, LLC .................................. 12,060 12,060 0
Metro/Litho L.P. ............................................... 188,613 188,613 0
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
PREMIERE ASSOCIATES, INC.(8)
Angell Family Limited Partnership .................. 3,219 3,219 0
Jewel Austin ....................................... 17,358 17,358 0
Bruce W. Covell, Jr. ............................... 17,358 17,358 0
Troy L. Curry, Jr. ................................. 17,358 17,358 0
Laverne P. Herzog(9) ............................... 329,825 329,825 0
M. Rebecca Muenchow ................................ 17,358 17,358 0
W. Stuart Swain(9) ................................. 329,825 329,825 0
HIALEAH(10)
Medical Associates IV, Limited Partnership ......... 68,259 68,259 0
INCON DEVELOPMENT, INC.(11) ......................... 39,012 39,012 0
CORAM HEALTHCARE CORPORATION(12) .................... 40,722 40,722 0
TACOMA RADIOLOGICAL ASSOCIATES(13)
Tacoma Radiological Associates, P.S. ............... 13,062 13,062 0
Radiological Associates ............................ 1,952 1,952 0
</TABLE>
- ----------
(1) The shares of Common Stock offered hereby represent shares received in
connection with the Company's acquisition of American Mobile Health
Systems, Inc. pursuant to an Agreement and Plan of Reorganization dated as
of May 7, 1998. Of the shares of Common Stock being registered hereunder,
12,982 shares are currently being held in escrow to secure indemnification
obligations and post-closing adjustments based on the collectibility of
receivables.
(2) Does not include shares of Common Stock held in escrow for other
acquisitions.
(3) The shares of Common Stock offered hereby represent shares received in
connection with the Company's acquisition of substantially all the assets
of First Community Care, Inc. pursuant to an Agreement for Sale and
Purchase of Assets and Restrictive Covenants dated as of April 29, 1998.
(4) The shares of Common Stock offered hereby represent shares received in
connection with the Company's acquisition of substantially all the assets
of Regional Medical Supply, Inc. pursuant to an Agreement for Sale and
Purchase of Assets and Restrictive Covenants dated as of March 20, 1998.
Of the shares of Common Stock being registered hereunder, 1,895 shares are
currently being held in escrow to secure indemnification obligations and
post-closing adjustments based on the collectibility of receivables.
(5) The shares of Common Stock offered hereby represent shares received in
connection with the acquisition by the Company of Medicare Convalescent
Aids of Pinellas, Inc. d/b/a Medaids pursuant to the Agreement and Plan of
Reorganization dated as of February 10, 1998. Of the shares of Common
Stock being registered hereunder, 10,384 shares are currently being held
in escrow to secure indemnification obligations and post-closing
adjustments based on the collectibility of receivables.
(6) The shares of Common Stock offered hereby represent shares received in
connection with the acquisition by the Company of Prime Medical Services,
Inc. pursuant to the Agreement and Plan of Reorganization dated as of
February 10, 1998. Of the shares of Common Stock being registered
hereunder, 4,691 shares are currently being held in escrow to secure
indemnification obligations and post-closing adjustments based on the
collectibility of receivables.
(7) The shares of Common Stock offered hereby were received in connection with
the acquisition by the Company of substantially all the assets of
Downstate Lithotripter LLC, Lithotripter Corporation, Long Island
Lithotripter, LLC and Metro/Litho L.P. pursuant to the Membership Interest
Purchase Agreement dated as of April 7, 1998.
(8) The shares of Common Stock offered hereby represent shares received in
exchange for the stock of Premiere Associates, Inc. ("Premiere") pursuant
to an Agreement and Plan of Merger dated as of February 27, 1998. Under
the agreement, IHS is obligated to issue additional shares of Common Stock
if the working capital exceeds, and/or long-term liabilities are less
than, specified levels.
(9) Of the 316,769 shares being registered hereunder on behalf of the Selling
Stockholder, 23,087 shares are being held in escrow to secure
indemnification obligations and post-closing adjustments to the merger
consideration based on the levels of Premiere's working capital and
long-term liabilities, 65,964 shares are pledged to Premiere to secure
loans from Premiere and 47,953 shares are pledged to a subsidiary of
Premiere to secure the purchase price of certain assets purchased by the
Selling Stockholder from such subsidiary. The Selling Stockholders will
use the proceeds from the sale of the pledged shares to repay such
obligations.
(10) The shares of Common Stock offered hereby represent shares received in
connection with the acquisition by the Company of the Hialeah Convalescent
Home skilled nursing facility pursuant to the Property Purchase Agreement
dated as of June 30, 1998.
16
<PAGE>
(11) The shares of Common Stock offered hereby represent shares received in
settlement of certain litigation between the Company and Incon
Development, Inc..
(12) The shares of Common Stock offered hereby represent shares received in
connection with the acquisition by the Company of a 69.03% partnership
interest in South Georgia Lithotripsy Partners pursuant to a Partnership
Interest Purchase Agreement dated as of June 1, 1998.
(13) Information as of August 11, 1998. The shares of Common Stock offered
hereby represent shares received in connection with the acquisition by the
Company of substantially all the assets of Tacoma Radiological Associates,
P.S. and Radiological Associates pursuant to an Assets Purchase Agreement
dated as of July 24, 1998.
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
On February 11, 1998, the Company acquired through merger all of the
outstanding capital stock of Medicare Convalescent Aids of Pinellas, Inc. d/b/a
Medaids, which operates a home respiratory and durable medical equipment
business in the State of Florida. The merger consideration was $3.3 million, of
which $2,480,000 was paid through the issuance of 83,057 shares of the Company's
Common Stock (the "Medaids Shares"). The Medaids Shares are being offered
hereby.
On February 11, 1998, the Company acquired through merger all of the
outstanding capital stock of Prime Medical Services, Inc., which operates a home
respiratory and durable medical equipment business in the State of Florida. The
merger consideration was $1.4 million, of which $1,174,000 was paid through the
issuance of 39,319 shares of the Company's Common Stock (the "Prime Medical
Shares"). The Prime Medical Shares are being offered hereby.
On April 8, 1998, the Company acquired substantially all the assets of
Regional Medical Supply, Inc., which operates a home respiratory and durable
medical equipment business in the State of New Mexico. The purchase price for
the assets and certain restrictive covenants agreed to by the seller and its
shareholders was $725,000, of which $575,000 was paid through the issuance of
14,751 shares of the Company's Common Stock (the "Regional Medical Shares").The
Regional Medical Shares are being offered hereby.
On April 30, 1998, the Company acquired substantially all the assets of
First Community Care, Inc., which operates a home respiratory and durable
medical equipment business in the State of New York. The purchase price for the
assets and certain restrictive covenants agreed to by the seller and its
shareholders was $8.6 million, of which $2,282,000 was paid through the issuance
of 59,376 shares of the Company's Common Stock (the "FCC Shares"). The FCC
Shares are being offered hereby.
On May 12, 1998, the Company acquired through merger all the outstanding
capital stock of American Mobile Health Systems, Inc., which provides mobile
x-ray, EKG, ultrasound, holter monitor, vision and audiology services and other
fixed site examinations. The merger consideration was $2.8 million, which was
paid through the issuance of 89,634 shares of the Company's Common Stock (the
"AMHS Shares"). The AMHS Shares are being offered hereby.
On June 18, 1998, the Company acquired all the assets of Downstate
Lithotripter LLC, Metro/ Litho L.P., Long Island Lithotripter, LLC and
Lithotripter Corporation, which provide office facilities, equipment and
management services to Metropolitan Lithotripter Associates, PC, a professional
corporation composed of approximately 200 urologists that provide renal
lithotripsy and other services in the Greater New York metropolitan area. The
purchase price for the assets was paid through the issuance of 40% of the
membership interests of Allied Urological Services, LLC, a subsidiary of the
Company which acquired the assets, and the issuance of 348,974 shares of the
Company's Common Stock (the "Litho Shares") having a value of $10.9 million. The
Litho Shares are being offered hereby.
On June 25, 1998, the Company acquired all the outstanding stock of
Premiere Associates Inc., which operates 30 skilled nursing facilities. The
merger consideration was $53.0 million, of which $26.2 million represents net
assumed liabilities and $26.8 million was paid through the issuance of 732,301
shares of Common Stock (the "Premiere Shares"). Under the agreement, IHS is
obligated to issue additional shares of Common Stock if the working capital
exceeds, and/or long-term liabilities are less than, specified levels. The
Premiere Shares are being offered hereby.
17
<PAGE>
On June 30, 1998, the Company acquired the Hialeah Convalescent Home, a 276
bed skilled-nursing facility in Hialeah, Florida. The purchase price for the
facility was $12.0 million, of which $2.5 million was paid through the issuance
of 68,259 shares of the Company's Common Stock (the "Hialeah Shares"), $6.5
million was paid in cash and $3.0 million was paid through the issuance of
promissory notes due in five equal annual installments beginning January 1,
1999. The Company may, at its election, pay such notes in cash or through the
issuance of shares of Common Stock. The Hialeah Shares are being offered hereby.
On July 8, 1998, the Company settled certain litigation brought by Incon
Development, Inc. ("Incon") alleging breach of contract and other theories of
recovery under an agreement between the Company and Incon. The settlement
payment was $1.5 million, which was paid through the issuance of 39,012 shares
of the Company's Common Stock (the "Incon Shares"). The Incon Shares are being
offered hereby.
On July 9, 1998, the Company acquired a 69.03% partnership interest in
South Georgia Lithotripsy Partners, a Georgia general partnership engaged in the
lithotripsy services business, and certain related assets. The purchase price
for the partnership interest and the related assets was $1,000,000, which was
paid through the issuance of 40,722 shares of the Company's Common Stock (the
"Coram Shares"). The Coram Shares are being offered hereby.
On July 24, 1998, the Company acquired substantially all the assets of
Tacoma Radiological Associates, P.S. and Radiological Associates utilized in
providing mobile x-ray, mobile EKG and mobile ultrasound services, excluding the
physicians' interpretations. The purchase price for the assets was $475,000,
which was paid through the issuance of 15,014 shares of the Company's Common
Stock (the "Tacoma Shares"). The Tacoma Shares are being offered hereby.
18
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the registration
of the Shares offered hereby will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of Shares will be borne by the
Selling Stockholders (or their donees and 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.
The holders of the Medaids Shares, as a group, and the holders of the Prime
Medical Shares, as a group, have each agreed not to sell in excess of 30,000
shares of Common Stock during any 30-day period, the holders of the AMHS Shares,
as a group, have agreed not to sell in excess of 50,000 shares of Common Stock
during any 30-day period, the holders of the Premiere Shares, as a group, have
agreed not to sell in excess of 130,000 shares in any 30-day period during the
first 120 days after the date of this Prospectus and thereafter not more than
100,000 shares in any 30-day period, and the holders of the Litho Shares, as a
group, have agreed not to sell more than 35,000 shares per day during the first
15 trading days after the date of this Prospectus and not more than 75,000
shares in any 30-day period thereafter. Each Selling Stockholder (other than
Incon and the holder of the Coram Shares) has agreed to effect sales solely
through Salomon Smith Barney.
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 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,
Esq., 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, Chief
Executive Officer and President. Mr. Elkins owns 17,299 shares of Common Stock
and options to purchase 336,535 shares of Common Stock.
19
<PAGE>
EXPERTS
The consolidated financial statements of Integrated Health Services, Inc.
and subsidiaries as of December 31, 1996 and 1997 and for each of the years in
the three-year period ended December 31, 1997 have been incorporated by
reference in this Prospectus and elsewhere 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
this Prospectus and in the Registration Statement from IHS' Current Report on
Form 8-K/A, as amended (dated October 17, 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 Marwick 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.
The consolidated financial statements of Community Care of America, Inc. 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 this Prospectus
and in the Registration Statement from IHS' Current Report on Form 8-K (dated
September 25, 1997) 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 the change in accounting method in
1996 to adopt Statement of Financial Accounting Standards No. 121 relating to
the impairment of long-lived assets.
The financial statements of RoTech Medical Corporation as of July 31, 1996
and 1997 and for each of the years in the three year period ended July 31, 1997
incorporated in this Prospectus and in the Registration Statement by reference
from IHS' Current Report on Form 8-K (dated October 21, 1997) have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements of selected facilities operated by Horizon/CMS
Healthcare Corporation to be sold to Integrated Health Services, Inc. as of May
31, 1997 and 1996 and for each of the years in the two year period ended May 31,
1997 incorporated in this Prospectus and in the Registration Statement by
reference from IHS' Amendment No. 1 to Current Report on Form 8-K/A (dated
December 31, 1997) have been audited by Arthur Andersen LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
20
<PAGE>
<TABLE>
<S> <C>
================================================================================
NO PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED
IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE 1,530,419 SHARES
COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE COMMON STOCK [GRAPHIC OMITTED]
OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF INTEGRATED HEALTH
AN OFFER TO BUY ANY OF THE SECURITIES SERVICES, INC.
OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS COMMON STOCK
<CAPTION>
PAGE
-----
<S> <C>
Available Information ............... 2
Incorporation of Certain Documents by
Reference ........................ 3
The Company ......................... 4
Risk Factors ........................ 6 -----------------
Use of Proceeds ..................... 15 PROSPECTUS
Selling Stockholders ................ 15 -----------------
Plan of Distribution ................ 19
Legal Matters ....................... 19
Experts ............................. 20 August , 1998
</TABLE>
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Shares:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
Registration Fee - Securities and Exchange Commission .......... $ 13,909.01
Legal, accounting and printing fees and expenses ............... 35,000.00*
Miscellaneous .................................................. 6,090.99*
------------
Total ....................................................... $ 55,000.00*
============
</TABLE>
- ----------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the DGCL, a corporation may include provisions in its certificate of
incorporation that will relieve its directors of monetary liability for breaches
of their fiduciary duty to the corporation, except under certain circumstances,
including a breach of the director's duty of loyalty, acts or omissions of the
director not in good faith or which involve intentional misconduct or a knowing
violation of law, the approval of an improper payment of a dividend or an
improper purchase by the corporation of stock or any transaction from which the
director derived an improper personal benefit. The Company's Third Restated
Certificate of Incorporation, as amended, provides that the Company's directors
are not liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duty, subject to the described exceptions specified by
the DGCL.
Section 145 of the DGCL grants to the Company the power to indemnify each
officer and director of the Company against liabilities and expenses incurred by
reason of the fact that he is or was an officer or director of the Company if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Company's Third Restated Certificate of Incorporation, as amended,
and By-laws, as amended, provide for indemnification of each officer and
director of the Company to the fullest extent permitted by the DGCL. In
addition, IHS has entered into indemnity agreements with its directors and
executive officers, a form of which is included as Exhibit 10.72 to IHS's
Registration Statement on Form S-1, No. 33-39339, effective March 31, 1992.
Section 145 of the DGCL also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was an officer or director of the
Company against liability asserted against or incurred by him in any such
capacity, whether or 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.
The agreements pursuant to which the AMHS Shares, the FCC Shares, the
Regional Medical Shares, the Medaids Shares, the Prime Medical Shares, the Litho
Shares, the Premiere Shares, the Hialeah Shares, the Coram Shares and the Tacoma
Shares were issued (Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.10 and
2.11, respectively) provide for indemnification by the sellers thereunder of the
Company and its controlling persons, directors and officers for certain
liabilities, including liabilities arising under the Securities Act.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C> <C>
2.1 -- Agreement and Plan of Reorganization dated as of May 7, 1998 among Integrated Health Ser-
vices, Inc., IHS Acquisition No. 37, Inc. and American Mobile Health Systems, Inc. and Peter
Hanson and Sol Lewin.*
2.2 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of April 29, 1998
by and among First Community Care, Inc. ("Seller") each of the holders of capital stock of
Seller, Northeast Medical Equipment, Inc. and Integrated Health Services, Inc.*
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
2.3 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of March 20,
1998 by and among Regional Medical Supply, Inc. ("Seller"), Keith Thomas and Laurie Nuckols,
the shareholders of Seller, Integrated Health Services at Jefferson Hospital, Inc. and Integrated
Health Services, Inc.*
2.4 -- Agreement and Plan of Merger dated as of February 10, 1998 among Integrated Health Services,
Inc. and RoTech Oxygen & Medical Equipment, Inc. and Medicare Convalescent Aids of
Pinellas, Inc. d/b/a Medaids and the Shareholders of the Constituent Corporations.*
2.5 -- Agreement and Plan of Merger dated as of February 10, 1998 among Integrated Health Services,
Inc. and RoTech Oxygen & Medical Equipment, Inc. and Prime Medical Services, Inc. and the
Shareholders of the Constituent Corporations.*
2.6 -- Membership Interest Purchase Agreement, dated as of April 7, 1998, among Integrated Health
Services, Inc., Downstate Lithotripter LLC, Metro/Litho L.P., Long Island Lithotripter, LLC and
Lithotripter Corporation and Allied Urological Services, LLC, as amended as of May 4, 1998.*
2.7 -- Agreement and Plan of Merger dated as of February 27, 1998 among Integrated Health Services,
Inc., Integrated Health Services at Hawthorne Nursing Center, Inc. Inc., and Premiere Associ-
ates, Inc. and its shareholders.*
2.8 -- Property Purchase Agreement dated as of June 30, 1998 among Integrated Health Services, Inc.,
Integrated Health Services of Florida at Hollywood Hills, Inc., Medical Associates IV Limited
Partnership, Hillco PCS (Hialeah) Limited Partnership, Medical Asset Fund, LLC, Todd P.
Robinson, Dr. John J. Sheehan, Sr. and Hialeah Acquisition Fund, L.P.*
2.9 -- Settlement Agreement, dated as of July 8, 1998, between Incon Development, Inc. and Inte-
grated Health Services, Inc.*
2.10 -- Partnership Interest Purchase Agreement, dated as of June 1, 1998, among West Coast Cam-
bridge, Inc., Integrated Health Services, Inc., T2 Medical, Inc. and Coram Healthcare
Corporation.*
2.11 -- Assets Purchase Agreement, dated as of July 24, 1998, among Symphony Diagnostic Services
No. 1, Inc. and Integrated Health Services, Inc. and Tacoma Radiological Associates, P.S. d/b/a
Mobile Medical Diagnostics and Radiological Associates and Shareholders.
4.1 -- Third Restated Certificate of Incorporation, as amended. (2)
4.2 -- Amendment to the Third Restated Certificate of Incorporation, dated May 26, 1995. (3)
4.3 -- Certificate of Designation of Series A Junior Participating Cumulative Preferred Stock (4)
4.4 -- By-laws, as amended. (5)
5 -- Opinion of Marshall A. Elkins, Esq.
23.1 -- Consents of KPMG Peat Marwick LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Marshall A. Elkins, Esq. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).*
99 -- Certified Resolution.*
</TABLE>
- ----------
* Previously filed.
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-41973).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 27, 1995.
(5) Incorporated by reference the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment 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 (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 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 August 17, 1998.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ ROBERT N. ELKINS*
-------------------------------------
Robert N. Elkins, Chairman of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert N. Elkins and C. Taylor Pickett, 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 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT N. ELKINS* Chairman of the Board, President August 17, 1998
- ----------------------------- and Chief Executive Officer
(Robert N. Elkins) (Principal Executive Officer)
/s/ EDWIN M. CRAWFORD* Director August 17, 1998
- -----------------------------
(Edwin M. Crawford)
/s/ KENNETH M. MAZIK* Director August 17, 1998
- -----------------------------
(Kenneth M. Mazik)
/s/ ROBERT A. MITCHELL* Director August 17, 1998
- -----------------------------
(Robert A. Mitchell)
/s/ CHARLES W. NEWHALL, III* Director August 17, 1998
- -----------------------------
(Charles W. Newhall, III)
/s/ TIMOTHY F. NICHOLSON* Director August 17, 1998
- -----------------------------
(Timothy F. Nicholson)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN L. SILVERMAN* Director August 17, 1998
- -----------------------------
(John L. Silverman)
/s/ GEORGE H. STRONG* Director August 17, 1998
- -----------------------------
(George H. Strong)
/s/ C. TAYLOR PICKETT Executive Vice President- August 17, 1998
- ----------------------------- Chief Financial Officer (Principal
(C. Taylor Pickett) Financial Officer)
/s/ W. BRADLEY BENNETT* Executive Vice President- August 17, 1998
- ----------------------------- Chief Accounting Officer
(W. Bradley Bennett) (Principal Accounting Officer)
</TABLE>
*By: /s/ C. TAYLOR PICKETT
---------------------
(C. Taylor Pickett)
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
---- ----------- --------
<S> <C> <C> <C>
2.1 -- Agreement and Plan of Reorganization dated as of May 7, 1998 among Integrated Health
Services, Inc., IHS Acquisition No. 37, Inc. and American Mobile Health Systems, Inc. and
Peter Hanson and Sol Lewin.*
2.2 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of April 29,
1998 by and among First Community Care, Inc. ("Seller") each of the holders of capital stock
of Seller, Northeast Medical Equipment, Inc. and Integrated Health Services, Inc.*
2.3 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of March 20,
1998 by and among Regional Medical Supply, Inc. ("Seller"), Keith Thomas and Laurie
Nuckols, the shareholders of Seller, Integrated Health Services at Jefferson Hospital, Inc. and
Integrated Health Services, Inc.*
2.4 -- Agreement and Plan of Merger dated as of February 10, 1998 among Integrated Health Ser-
vices, Inc. and RoTech Oxygen & Medical Equipment, Inc. and Medicare Convalescent Aids
of Pinellas, Inc. d/b/a Medaids and the Shareholders of the Constituent Corporations.*
2.5 -- Agreement and Plan of Merger dated as of February 10, 1998 among Integrated Health Ser-
vices, Inc. and RoTech Oxygen & Medical Equipment, Inc. and Prime Medical Services, Inc.
and the Shareholders of the Constituent Corporations.*
2.6 -- Membership Interest Purchase Agreement, dated as of April 7, 1998, among Integrated Health
Services, Inc., Downstate Lithotripter LLC, Metro/Litho L.P., Long Island Lithotripter, LLC
and Lithotripter Corporation and Allied Urological Services, LLC, as amended as of May 4,
1998.*
2.7 -- Agreement and Plan of Merger dated as of February 27, 1998 among Integrated Health Ser-
vices, Inc., Integrated Health Services at Hawthorne Nursing Center, Inc., and Premiere Asso-
ciates, Inc and its shareholders.*
2.8 -- Property Purchase Agreement dated as of June 30, 1998 among Integrated Health Services,
Inc., Integrated Health Services of Florida at Hollywood Hills, Inc., Medical Associates IV
Limited Partnership, Hillco PCS (Hialeah) Limited Partnership, Medical Asset Fund, LLC,
Todd P. Robinson, Dr. John J. Sheehan, Sr. and Hialeah Acquisition Fund, L.P.*
2.9 -- Settlement Agreement, dated as of July 8, 1998, between Incon Development, Inc. and Inte-
grated Health Services, Inc.*
2.10 -- Partnership Interest Purchase Agreement, dated as of June 1, 1998, among West Coast Cam-
bridge, Inc., Integrated Health Services, Inc., T2 Medical, Inc. and Coram Healthcare Corpora-
tion.*
2.11 -- Assets Purchase Agreement, dated as of July 24, 1998, among Symphony Diagnostic Services
No. 1, Inc. and Integrated Health Services, Inc. and Tacoma Radiological Associates, P.S. d/b/a
Mobile Medical Diagnostics and Radiological Associates and Shareholders.
4.1 -- Third Restated Certificate of Incorporation, as amended. (2)
4.2 -- Amendment to the Third Restated Certificate of Incorporation, dated May 26, 1995. (3)
4.3 -- Certificate of Designation of Series A Junior Participating Cumulative Preferred Stock (4)
4.4 -- By-laws, as amended. (5)
5 -- Opinion of Marshall A. Elkins, Esq.
23.1 -- Consents of KPMG Peat Marwick LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Marshall A. Elkins, Esq. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).*
99 -- Certified Resolution.*
</TABLE>
- ----------
* Previously filed
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-41973).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 27, 1995.
(5) Incorporated by reference the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
EXHIBIT 2.11
-----------------------------
ASSETS PURCHASE AGREEMENT
DATED AS OF JULY 24, 1998
AMONG
SYMPHONY DIAGNOSTIC SERVICES NO.1, INC.
AND
INTEGRATED HEALTH SERVICES, INC.
AND
TACOMA RADIOLOGICAL ASSOCIATES, P.S.
D/B/A MOBILE MEDICAL DIAGNOSTICS
AND
RADIOLOGICAL ASSOCIATES
AND
SHAREHOLDERS
-----------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I: SALE AND PURCHASE OF ASSETS.......................................1
1.1 Sale and Purchase of Assets.......................................1
1.2 Liabilities.......................................................2
1.3 Designated Contracts..............................................3
1.4 Accounts Receivable...............................................4
1.5 Employees and Consultants.........................................4
ARTICLE II: PURCHASE PRICE....................................................4
2.1 Determination and Payment of Purchase Price.......................4
2.2 Allocation........................................................4
ARTICLE III: IHS STOCK.........................................................5
3.1 IHS Stock.........................................................5
ARTICLE IV: THE CLOSING.......................................................9
4.1 Time and Place of Closing.........................................9
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND
SHAREHOLDERS..............................................................10
5.1 Organization and Standing of the Companies.......................10
5.2 Absence of Conflicting Agreements................................10
5.3 Consents.........................................................10
5.4 Capital Stock and Partnership Interests..........................10
5.5 Assets...........................................................11
5.6 Trademarks.......................................................11
5.7 Contracts........................................................11
5.8 Customers........................................................13
5.9 Financial Statements.............................................13
5.10 Fee Schedules and Reimbursement..................................13
5.11 Material Changes.................................................13
5.12 Licenses and Permits.............................................14
5.13 Title, Condition of Tangible Personal Property...................14
5.14 Legal Proceedings................................................15
5.15 Employees........................................................15
5.16 Collective Bargaining, Labor Contracts,
Employment Practices, Etc .....................................15
5.17 ERISA............................................................16
5.18 Insurance and Surety Agreements..................................17
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C> <C>
5.19 Relationships...................................................17
5.20 Absence of Certain Events.......................................17
5.21 Compliance with Laws............................................18
5.22 Finders.........................................................19
5.23 Tax Returns.....................................................19
5.24 Encumbrances Created by this Agreement..........................19
5.25 Subsidiaries and Joint Ventures.................................19
5.26 Complete Disclosure.............................................20
5.27 Books of Account; Records.......................................20
5.28 Questionable Payments...........................................20
5.29 Reimbursement Matters...........................................20
5.30 Medicare/Medicaid Participation.................................20
5.31 Power and Authority.............................................21
5.32 Capacity........................................................21
5.33 Binding Effect..................................................21
5.34 Questionnaires..................................................21
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF BUYER AND IHS.................21
6.1 Organization and Standing.......................................21
6.2 Power and Authority.............................................21
6.3 Binding Agreement...............................................21
6.4 Absence of Conflicting Agreements...............................22
6.5 Consents........................................................22
6.6 Finders.........................................................22
6.7 Capital Stock...................................................22
ARTICLE VII: INFORMATION AND RECORDS CONCERNING THE COMPANIES
....................................................................22
7.1 Access to Information and Records before Closing................22
ARTICLE VIII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING.......................23
8.1 Conduct of Business Pending Closing.............................23
8.2 Negative Covenants of the Companies and their Subsidiaries......23
8.3 Affirmative Covenants...........................................23
8.4 Pursuit of Consents and Approvals...............................24
8.5 Exclusivity.....................................................24
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS......................25
9.1 Representations and Warranties..................................25
9.2 Performance of Covenants........................................25
9.3 Delivery of Closing Certificate.................................25
9.4 Opinion of Counsel..............................................25
9.5 Legal Matters...................................................25
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C> <C>
9.6 Authorization Documents.........................................25
9.7 Material Change.................................................26
9.8 Approvals.......................................................26
9.9 IRS Form 8594...................................................26
9.10 Insurance.......................................................26
9.11 Good Standing Certificate.......................................26
9.12 Bill of Sale....................................................26
9.13 Regulatory Matters..............................................26
9.14 Title Matters...................................................26
9.15 Leased Property.................................................26
9.16 Sales Tax.......................................................27
9.17 Change of Name..................................................27
9.18 Patient Examination Summary.....................................27
9.20 Other Documents.................................................27
ARTICLE X: CONDITIONS PRECEDENT TO COMPANIES' OBLIGATIONS..................27
10.1 Representations and Warranties..................................27
10.2 Performance of Covenants........................................27
10.3 Delivery of Closing Certificate.................................27
10.4 Opinion of Counsel..............................................28
10.5 Legal Matters...................................................28
10.6 Good Standing Certificates......................................28
10.7 Other Documents.................................................28
ARTICLE XI: OBLIGATIONS OF THE PARTIES AFTER CLOSING........................28
11.1 Survival of Representations and Warranties......................28
11.2 Indemnification by Shareholders and the Companies...............28
11.3 Indemnification by Buyer........................................29
11.4 Control of Defense of Indemnifiable Claims......................29
11.5 Restrictions....................................................30
11.6 Records.........................................................31
11.7 Customer Transition.............................................32
11.8 Use of Premises.................................................32
ARTICLE XII: TERMINATION.....................................................32
12.1 Termination.....................................................32
12.2 Effect of Termination...........................................32
ARTICLE XIII: CASUALTY, RISK OF LOSS..........................................33
13.1 Casualty, Risk of Loss..........................................33
</TABLE>
(iii)
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE XIV: MISCELLANEOUS...................................................33
14.1 Costs and Expenses..............................................33
14.2 Performance.....................................................33
14.3 Binding Effect..................................................33
14.4 Effect and Construction of this Agreement.......................33
14.5 Cooperation - Further Assistance................................34
14.6 Notices.........................................................34
14.7 Waiver, Discharge, Etc..........................................35
14.8 Rights of Persons Not Parties...................................35
14.9 Governing Law...................................................35
14.10 Amendments, Supplements, Etc....................................35
14.11 Severability....................................................35
14.12 Counterparts....................................................35
14.13 Arbitration.....................................................36
14.14 Public Announcements............................................36
</TABLE>
(iv)
<PAGE>
SCHEDULES & EXHIBITS
--------------------
<TABLE>
<S> <C> <C>
Schedule 1.3 - Designated Contracts
Schedule 5.3 - Consent List of Companies
Schedule 5.4 - Capital Stock
Schedule 5.5 - Fixed Assets
Schedule 5.6 - Trademarks
Schedule 5.7 - Contracts
Schedule 5.8 - Customers
Schedule 5.9(a) - Unaudited Financial Statements
Schedule 5.9(b) - Unaudited Interim Financial Statements
Schedule 5.10 - Fee Schedules
Schedule 5.11 - Material Changes
Schedule 5.12 - Licenses, Permits, Certificates of Need
Schedule 5.13(a) - Liens Satisfied at Closing
Schedule 5.13(b) - Leases of Personal Property
Schedule 5.14 - Legal Proceedings
Schedule 5.15 - Employees
Schedule 5.17 - Employment Benefit Plans; COBRA Benefits
Schedule 5.18 - Insurance and Surety Agreements
Schedule 5.19 - Relationships
Schedule 5.20 - Absence of Certain Events
Schedule 5.21 - Compliance with Laws
Schedule 5.23 - Tax Returns
Schedule 5.25 - Subsidiaries, Joint Ventures, etc.
Schedule 5.29 - Reimbursement Matters
Exhibit 5.34 - Questionnaire
Exhibit 9.3 - Closing Certificate of Sellers and the Companies
Exhibit 9.4 - Opinion of Sellers' Counsel
Exhibit 9.12 - Bill of Sale
Exhibit 10.3 - Closing Certificate of Buyer
Exhibit 10.4 - Opinion of Buyer's Counsel
</TABLE>
(v)
<PAGE>
--------------------------
ASSETS PURCHASE AGREEMENT
--------------------------
This Assets Purchase Agreement (the "AGREEMENT") is made as of the 24th day
of July, 1998, among SYMPHONY DIAGNOSTIC SERVICES NO.1, INC., a California
corporation ("Buyer"), INTEGRATED HEALTH SERVICES, INC. ("IHS"), TACOMA
RADIOLOGICAL ASSOCIATES, P.S. D/B/A MOBILE MEDICAL DIAGNOSTICS, a Washington
professional services corporation ("TACOMA"), RADIOLOGICAL ASSOCIATES, a
Washington general partnership ("RADIOLOGICAL") (together Tacoma and
Radiological shall hereafter be referred to as the "COMPANIES" and each a
"COMPANY"), and each of the shareholders of Tacoma and partners of Radiological
whose signatures appear at the end of this Agreement ("SHAREHOLDERS" or
"SELLERS").
WHEREAS, the Companies are the owners of certain assets utilized in
connection with the Companies' mobile x-ray, mobile EKG and mobile ultrasound
services business, excluding the physicians' interpretations (the "BUSINESS");
and
WHEREAS, Buyer wishes to purchase certain of the Companies' assets, and the
Companies wish to sell such assets to Buyer, in accordance with the terms and
conditions hereinafter set forth; and
WHEREAS, IHS is the parent company of Buyer; and
WHEREAS, Shareholders are the owners of all of the issued and outstanding
shares of the common stock of Tacoma and Shareholders are the owners of all of
the partnership interests of Radiological, and Shareholders are willing to be
bound by the non-competition provisions of this Agreement and to join in the
representations and warranties of the Companies hereunder; and
NOW, THEREFORE, for and in consideration of the foregoing premises and the
covenants and agreements contained in this Agreement, Shareholders, Buyer, IHS
and the Companies, intending to be legally bound, agree as follows:
ARTICLE I: SALE AND PURCHASE OF ASSETS
1.1 SALE AND PURCHASE OF ASSETS. Subject to the terms and conditions of
this Agreement, at the Closing (as hereinafter defined), Buyer shall acquire
from the Companies, and the Companies shall sell, assign, transfer and convey to
Buyer, free and clear of all liens, claims and encumbrances, all of the assets
of the Business, including, without limitation, all contract rights, leasehold
interests, fixed and moveable equipment, tangible personal property, inventory
<PAGE>
and supplies, goodwill, trade names (including the name "Mobile Medical
Diagnostics" and any variations thereof), trademarks, patient records and files,
telephone numbers, all customer contracts between Tacoma and any other name
under which the business of Tacoma is conducted, including any affiliate, if
any, and the health care facilities that it services, all of the Companies'
right, title and interest in and to the business name "Mobile Medical
Diagnostics" and any other name under which the Business is conducted, and, to
the extent permitted by law, all permits, licenses and other governmental
approvals, as presently constituted and utilized in the Business (collectively,
the "Assets"), but excluding (i) all cash, whether on hand or in marketable
securities, and accounts receivable of the Companies as of the Closing Date,
(ii) inventory and supplies disposed of in the ordinary course of business from
the date hereof until Closing, (iii) all provider agreements and provider
numbers with Medicare and Medicaid, and (iv) the logo design used with the name
"Mobile Medical Diagnostics". Buyer shall not accept any assignment of the
Companies' or Sellers' provider agreements, provider numbers or any assignment
of any type or relationship with Medicare, Medicaid. Sellers will change the
Mobile Medical Diagnostics name to a name other than Mobile Medical Diagnostics
and Sellers will not change such name to a confusing similar name.
Notwithstanding the foregoing, Sellers shall be permitted to use the "Mobile
Medical Diagnostics" name for purposes of billing and collection only for a
period up to nine (9) months following the Closing Date.
1.2 LIABILITIES.
(A) Buyer shall not assume any liabilities or obligations of the
Companies. For purposes of this Agreement, the term "Liability" means any claim,
lawsuit, liability, obligation or debt of any kind or nature whatsoever, whether
absolute, accrued, due, direct or indirect, contingent or liquidated, matured or
unmatured, joint or several, whether or not for a sum certain, whether for the
payment of money or for the performance or observance of any obligation or
condition, and whether or not of a type which would be reflected as a liability
on a balance sheet (including, without limitation, federal, state and local
taxes of any nature) in accordance with generally accepted accounting
principles, consistently applied ("GAAP"), including without limitation (i) the
full dollar amount of all of Companies' commitments and contingencies over the
remaining life of any leases, contracts or other obligations to which either
Company is a party or subject as of the Closing Date; (ii) malpractice claims
asserted by patients or any other tort claims asserted, claims for breach of
contract, or any claims of any kind asserted by patients, former patients,
employees of Companies or any other party that are based on acts or omissions
occurring on or before the Closing Date; (iii) amounts due or that may become
due to Medicare or Medicaid or any other health care reimbursement or payment
intermediary or any carrier, nursing home or other facility, or other third
party payor on account of any health care reimbursement recapture, adjustment or
overpayment whatsoever with respect to any period on or prior to the Closing
Date ("EXCESS REIMBURSEMENT LIABILITIES"); (iv) any accounts payable, or
employment or other taxes and any other obligation or liability of Companies to
pay money whatsoever; (v) accrued but unpaid compensation or other benefits to
any of the Companies' employees, agents, consultants or advisers, including
accrued vacation; (vi) any amounts due or other obligations arising under the
Companies' transaction with Dr. F. Trunkey; and (vii) any
2
<PAGE>
amounts due or other obligations arising under Tacoma's (i) Money Purchase
Pension Plan and Trust and (ii) Profit Sharing Plan and Trust. Following the
Closing Date, the Purchase Price (as defined below) will be subject to reduction
to any extent that the Buyer becomes liable for the payment of any Liability
which arises from operation of the Company prior to the Closing Date.
(B) Notwithstanding the provisions of the immediately preceding
paragraph, on the Closing Date, contingent upon the consummation of the
transactions contemplated hereby, Buyer shall assume those obligations arising
under the Designated Contracts specified pursuant to Section 1.3, below, and
assigned by Companies to Buyer, with respect to, and only with respect to,
services to be rendered or goods to be supplied to or benefits to be conferred
upon Buyer solely after the Closing Date. Liabilities and obligations under such
Designated Contracts that have accrued, or the performance of which is due, on
or prior to the Closing Date, and all liabilities and obligations under all
other Contracts or which are in payment or consideration for any excluded
assets, shall remain the sole responsibility of Companies and shall be paid or
performed on or prior to the Closing Date.
1.3 DESIGNATED CONTRACTS.
(A) As soon as practicable after the date hereof but in no event later
than the day immediately preceding the Closing Date, Buyer shall deliver notice
in writing to Company designating which, if any, of the Contracts (defined
herein) set forth on Schedule 5.7 will be assigned to and assumed by Buyer (the
"DESIGNATED CONTRACTS"). Such notice of designation will be set forth on
Schedule 1.3 to be attached hereto. If within said period of time Buyer fails to
so deliver notice to Companies, Buyer will be deemed to have designated none of
the Contracts and Companies will remain fully liable thereunder. Upon Closing,
Buyer will provide mobile x-ray and/or mobile EKG services to the facilities or
organizations with which the Companies currently have service contracts. To the
extent Buyer makes any such designation and subject to the rights of third
parties to any assignment, Companies shall at Closing be obligated to assign all
of its right, title and interest under such Contracts to Buyer and Buyer shall
assume the obligations accruing after Closing under such Designated Contracts.
The Companies shall bring current, as of the Closing Date, all amounts due under
the Designated Contracts. At the Closing, the cash portion of the Purchase Price
shall be reduced by an amount equal to the aggregate amount due as of the
Closing under all of the Designated Contracts which are assumed by Buyer, and
such aggregate withheld amount shall be divided among and paid directly to the
such Designated Contract vendors in accordance with the amounts owed to each of
them.
(B) Notwithstanding anything to the contrary contained herein, Buyer is
not assuming and will not be responsible for any liabilities or obligations
under the Designated Contracts incurred on or occurring before the Closing Date;
all such liabilities and obligations remaining the sole and exclusive
responsibility of Companies pursuant to Section 1.2 herein and shall be paid or
performed on or prior to the Closing Date.
3
<PAGE>
(C) Immediately after notice of the designation by Buyer of the
Designated Contracts to be assigned by Companies, Companies will use their best
efforts and shall diligently proceed to obtain any consents of any parties
necessary to permit the assignment of the Designated Contracts. In the event
that any of the Designated Contracts are not assignable, or the parties to such
Designated Contract fail or refuse to consent to any assignment on or before the
Closing Date, Buyer shall have no liability to assume any such Designated
Contracts.
1.4 ACCOUNTS RECEIVABLE. The Assets to be purchased by Buyer shall not
include any accounts receivable of the Company as in existence on the Closing
Date (the "CLOSING DATE RECEIVABLES"). The Companies and the Shareholders will
retain full responsibility and expense for the collection and administration of
the Closing Date Receivables. In the event that the Buyer should receive payment
of any Closing Date Receivables, the proceeds thereof will be paid over to the
Companies within fifteen (15) days after receipt of same by Buyer. Likewise, if
the Companies or the Shareholders should receive payment of any accounts
receivable of Buyer which arise out of the operation of the Assets after the
Closing Date, the proceeds thereof will be paid over to Buyer within fifteen
(15) days after receipt of same by the Companies or the Shareholders.
1.5 EMPLOYEES AND CONSULTANTS. It is expressly understood and agreed that
Buyer's purchase of the Assets does not involve any undertaking on the part of
Buyer to retain any of the employees or consultants of the Companies, although
the Buyer shall have the right to offer employment or engagement to any such
employees or consultants. The Companies and Sellers shall remain fully
responsible for any severance, benefits, costs or liabilities arising out of the
termination by either Company of any of its employees or consultants. The
Companies and Sellers shall also remain fully responsible for any benefits,
costs or liabilities incurred or accrued prior to Closing with respect to each
employee or consultant retained by Buyer.
ARTICLE II: PURCHASE PRICE
2.1 DETERMINATION AND PAYMENT OF PURCHASE PRICE. Subject to adjustment
pursuant to Section 1.2 hereof, the aggregate purchase price to be paid by Buyer
to the Companies for the Assets (the "Purchase Price") and the aforementioned
non-competition agreement of the Companies and Shareholders, shall be FOUR
HUNDRED SEVENTY-FIVE THOUSAND AND 00/100 DOLLARS ($475,000.00), payable to the
Companies by delivery of newly issued shares of the Common Stock, par value
$.001, of IHS (the "IHS STOCK").
2.2 ALLOCATION. The Purchase Price shall be allocated among the Assets and
non-competition agreement for all accounting, reimbursement, and tax reporting
purposes as follows:
(A) $305,000 - customer lists, contracts, goodwill, trademarks and
tradenames;
4
<PAGE>
(B) $95,000 - non-competition covenants set forth in Article XII;
(C) $60,000 - equipment, materials, furnishings, and inventory; and
(D) $15,000 - motor vehicles
ARTICLE III: IHS STOCK
3.1 IHS STOCK. The Purchase Price shall be payable by means of the
delivery to the Companies of IHS Stock in accordance with the following:
(A) SHARE VALUE. The number of shares of IHS Stock issuable at Closing
(the "CLOSING DATE SHARE COUNT") pursuant to Section 2.1 shall be calculated
based upon a price per share of such stock equal to the average closing NYSE
price of such stock for the thirty (30) trading day period immediately preceding
the date which is two (2) trading days before the Closing Date.
(B) REGISTRATION RIGHTS. IHS will use its best efforts to cause to be
prepared, filed and declared effective by the Securities and Exchange Commission
(the "COMMISSION") within ninety (90) days following the Closing Date, a
registration statement for the registration under the Securities Act of 1933
(the "Securities Act") of the IHS Stock issued to Companies pursuant to this
Agreement, including the shares issuable under Section 3.1(c) in respect of any
re-calculation of the Closing Date Share Count, and IHS shall maintain the
effectiveness of such registration statement for a period of one (1) year
following the date on which it becomes effective (the "REGISTRATION DATE"), or
until Companies shall not own any of the IHS Stock issued pursuant to this
Agreement, whichever shall occur first, in each case except to the extent that
an exemption from registration may be available.
(C) SHARE ADJUSTMENT. Upon registration of the IHS Stock as provided
above, the number of shares deliverable as part of the Purchase Price under
Section 2.1 hereof shall be re-calculated based upon the average closing NYSE
price of IHS Stock for the 30-trading day period immediately preceding the date
which is two (2) trading days before the Registration Date. If the number of
shares as re-calculated under this subsection (the "Adjusted Share Count")
exceeds the Closing Date Share Count, the Buyer promptly shall deliver over to
the Companies an additional number of shares of IHS Stock as shall be equal to
the amount of such excess, and such additional shares shall be included in the
aforementioned registration statement by means of an amendment thereto prior to
the Registration Date. If the Closing Date Share Count exceeds the Adjusted
Share Count, the Companies promptly will return to the Buyer that number of
shares of IHS Stock as shall be equal to such excess.
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(D) REGISTRATION EXPENSES. Companies shall not be responsible for, and
Buyer shall bear, all of the reasonable expenses of Buyer related to such
registration including, without limitation, the fees and expenses of its counsel
and accountants, all of its other costs, fees and expenses incident to the
preparation, printing, registration and filing under the Securities Act
of the registration statement and all amendments and supplements thereto, the
cost of furnishing copies of each preliminary prospectus, each final prospectus
and each amendment or supplement thereto to underwriters, dealers and other
purchasers of IHS Stock. Buyer, however, shall not be required to pay
underwriter's or brokerage discounts, commissions or expenses, or to pay any
costs or expenses arising out of the Companies' or any transferee's failure to
comply with its obligations under this Article III.
(E) RESALE LIMITATIONS. All resales of IHS Stock issued pursuant to
this Agreement shall be effected solely through Salomon Smith Barney Inc., as
broker.
(F) REGISTRATION PROCEDURES, ETC. In connection with the registration
rights granted to the Companies with respect to the IHS Stock as provided in
this Section 3.1, IHS covenants and agrees as follows:
(I) At IHS's expense, IHS will keep the registration and
qualification under this Section 3.1 effective (and in compliance with the
Securities Act) by such action as may be necessary or appropriate for a period
of one (1) year following the date on which the registration becomes effective,
except to the extent that an exemption from registration may be available. Buyer
will immediately notify the Companies, at any time when a prospectus relating to
a registration statement under this Section 3.1 is required to be delivered
under the Securities Act, of the happening of any event known to IHS as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
(II) IHS shall furnish the Companies with such number of
prospectuses as shall reasonably be requested.
(III) IHS shall take all necessary action which may be required in
qualifying or registering IHS Stock included in a registration statement for
offering and sale under the securities or Blue Sky laws of such states as
reasonably are requested by the Companies, provided that IHS shall not be
obligated to qualify as a foreign corporation or dealer to do business under the
laws of any such jurisdiction.
(IV) The information included or incorporated by reference in the
registration statement filed pursuant to this Section 3.1 will not, at the time
any such registration statement becomes effective, contain any untrue statement
of a material fact, or omit to state any material fact required to be stated
therein as necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or necessary to correct
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any statement in any earlier filing of such registration statement or any
amendments thereto. The registration statement will comply in all material
respects with the provisions of the Securities Act and the rules and regulations
thereunder. IHS shall indemnify the holders of IHS Stock to be sold pursuant to
the registration statement, their successors and assigns, and each person, if
any, who controls such holders within the meaning of ss.15 of the Securities Act
or ss.20(a) of the Securities Exchange Act of 1934 ("EXCHANGE ACT"), against all
loss, claim, damage expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim whatsoever)
to which any of them may become subject under the Securities Act, the Exchange
Act or any other statute, common law or otherwise, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement executed by IHS or based upon written information
furnished by IHS filed in any jurisdiction in order to qualify IHS Stock under
the securities laws thereof or filed with the Commission, any state securities
commission or agency, NYSE or any securities exchange; or the omission or
alleged omission therefrom of a material fact required to be stated therein or
necessary to make the statements contained therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with written
information furnished to IHS by the Companies expressly for use in such
registration statement, any amendment or supplement thereto or any application,
as the case may be. If any action is brought against the Companies or any
controlling person of the Companies in respect of which indemnity may be sought
against IHS pursuant to this subsection 3.1(f)(iv), the Companies or such
controlling person shall within thirty (30) days after the receipt thereby of a
summons or complaint, notify IHS in writing of the institution of such action
and IHS shall assume the defense of such actions, including the employment and
payment of reasonable fees and expenses of counsel (reasonably satisfactory to
the Companies or such controlling person). The Companies or such controlling
person shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of the
Companies or such controlling person unless (A) the employment of such counsel
shall have been authorized in writing by IHS in connection with the defense of
such action, or (B) IHS shall not have employed counsel to have charge of the
defense of such action, or (C) such indemnified party or parties shall have
reasonably concluded that there may be defenses available to it or them which
are different from or additional to those available to IHS (in which case, IHS
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events the fees and expenses of
not more than one additional firm of attorneys for the Companies and/or such
controlling person shall be borne by IHS. Except as expressly provided in the
previous sentence, in the event that IHS shall not previously have assumed the
defenses of any such action or claim, IHS shall not thereafter be liable to the
Companies or such controlling person in investigating, preparing or defending
any such action or claim. IHS agrees promptly to notify the Companies of the
commencement of any litigation or proceedings against IHS or any of its
officers, directors or controlling persons in connection with the resale of IHS
Stock or in connection with such registration statement.
(V) The holders of IHS Stock to be sold pursuant to a registration
statement, and their successors and assigns, shall severally, and not jointly,
indemnify IHS, its officers and directors and each person, if any, who controls
IHS within the meaning of ss.15 of the
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Securities Act or ss.20(a) of the Exchange Act against all loss, claim, damage,
or expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Securities Act, the Exchange Act or any other
statute, common law or otherwise, arising from information furnished by or on
behalf of such holder, or its successors or assigns for specific inclusion in
such registration statement.
(G) NOTICE OF SALE. If the Companies desire to transfer all or any
portion of IHS Stock, the Companies will deliver written notice to IHS,
describing in reasonable detail their intention to effect the transfer and the
manner of the proposed transfer. If the transfer is to be pursuant to an
effective registration statement as provided herein, the Companies will sell the
IHS Stock in compliance with the disclosure therein and discontinue any offers
and sales thereunder upon notice from IHS that the registration statement
relating to the IHS Stock being transferred is not "current" until IHS gives
further notice that offers and sales may be recommenced. In the event of any
such notice from IHS, IHS agrees to file expeditiously such amendments to the
registration statement as may be necessary to bring it current during the period
specified in Section 3.1(f) and to give prompt notice to the Companies when the
registration statement has again become current. If the Companies deliver to IHS
an opinion of counsel reasonably acceptable to IHS and its counsel and to the
effect that the proposed transfer of IHS Stock may be made without registration
under the Securities Act, the Companies will be entitled to transfer IHS Stock
in accordance with the terms of the notice and opinion of their counsel.
(H) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of IHS to take any action pursuant to this Article III that the
Companies shall furnish to IHS such information regarding themselves, the IHS
Stock held by them, and the intended method of disposition of such securities as
shall be required to effect the registration of their IHS Stock. In that
connection, each transferee of the Companies shall be required to represent to
the Buyer that all such information which is given is both complete and accurate
in all material respects. The Companies shall deliver to IHS a statement in
writing from the beneficial owners of such securities that they bona fide intend
to sell, transfer or otherwise dispose of such securities. Each transferee will,
severally, promptly notify IHS at any time when a prospectus relating to a
registration statement covering such transferee's shares under this Section 3.1
is required to be delivered under the Securities Act, of the happening of any
event known to such transferee as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the statements as then existing.
(I) INVESTMENT REPRESENTATIONS. All shares of IHS Stock to be issued
hereunder will be newly issued shares of IHS. The Companies represent and
warrant to IHS that the IHS Stock being issued hereunder is being acquired, and
will be acquired, by the Companies for investment for their own accounts and not
with a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act or the applicable state securities law, except
pursuant to on effective registration statement in accordance with this Article
III; the Companies acknowledge that the IHS Stock constitutes restricted
securities under Rule 144
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promulgated by the Commission pursuant to the Securities Act, and may have to be
held indefinitely, and the Companies agree that no shares of IHS Stock may be
sold, transferred, assigned, pledged or otherwise disposed of except pursuant to
an effective registration statement or an exemption from registration under the
Securities Act, the rules and regulations thereunder, and under all applicable
state securities laws. The Companies have the knowledge and experience in
financial and business matters, are capable of evaluating the merits and risks
of the investment, and are able to bear the economic risk of such investment.
The Companies have had the opportunity to make inquiries of and obtain from
representatives and employees of IHS such other information about IHS as they
deem necessary in connection with such investment.
(J) LEGEND. It is understood that, prior to sale of any shares of IHS
Stock pursuant to an effective registration pursuant to subsection (b) above,
the certificates evidencing such shares of IHS Stock shall bear the following
(or a similar) legend (in addition to any legends which may be required in the
opinion of IHS's counsel by the applicable securities laws of any state), and
upon sale of such shares pursuant to such an effective registration, new
certificates shall be issued for the shares sold without such legends except as
otherwise required by law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
(K) CERTAIN TRANSFEREES. Prior to the effective date of registration of
the IHS Stock, no transferee shall transfer any shares of IHS Stock to any
person or entity unless such transferee shall have agreed in writing to be bound
by the provisions applicable to the Companies under this Article III.
ARTICLE IV: THE CLOSING
4.1 TIME AND PLACE OF CLOSING. The closing (the "CLOSING") of the
transactions contemplated by this Agreement shall be effective as of 12:01 a.m.
and shall take place on July 24, 1998, by facsimile, or at such other time and
place upon which the parties may agree. The date on which the Closing is held is
hereinafter called the "Closing Date."
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ARTICLE V: REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND
SHAREHOLDERS
The Companies and the Shareholders hereby represent and warrant with
respect to the Companies to Buyer and IHS as follows (it being understood that,
for the purposes of this Article V, "Companies" shall be deemed to refer
collectively to the Companies and their subsidiaries listed on Schedule 5.25,
unless the context requires otherwise):
5.1 ORGANIZATION AND STANDING OF THE COMPANIES. Tacoma is a professional
services corporation duly organized, validly existing and in good standing under
the laws of the State of Washington. Copies of Tacoma's Articles of
Incorporation and By-Laws, and all amendments thereof to date, have been
delivered to Buyer and are complete and correct. Radiological is a general
partnership duly organized, validly existing and in good standing under the laws
of the State of Washington. Copies of Radiological's Partnership Agreement, and
all amendments thereof to date, have been delivered to Buyer and are complete
and correct. The Companies have the power and authority to own the property and
assets now owned by them and to conduct the business presently being conducted
by them. Tacoma and Radiological are qualified to do business as a foreign
corporation or a foreign partnership, as the case may be, in each state where
the ownership of such Company's assets or the conduct of such Company's business
makes such qualification necessary.
5.2 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution nor delivery
of this Agreement including all Schedules and Exhibits hereto, or any of the
other instruments and documents required or contemplated hereby and thereby
("TRANSACTION DOCUMENTS") by Shareholders and the Companies nor the performance
by Shareholders and the Companies of the transactions contemplated hereby and
thereby, conflicts with, or constitutes a breach of or a default under (i) the
Articles of Incorporation or By-Laws of Tacoma or the Partnership Agreement of
Radiological; or (ii) any applicable law, rule, judgment, order, writ,
injunction, or decree of any court, currently in effect, provided that the
consents set forth in Schedule 5.3 are obtained prior to the Closing; or (iii)
any applicable rule or regulation of any administrative agency or other
governmental authority currently in effect; or (iv) any agreement, indenture,
contract or instrument to which either Company is now a party or by which any of
the assets of either Company is bound.
5.3 CONSENTS. Except as set forth in Schedule 5.3, no authorization,
consent, approval, license, exemption by, filing or registration with any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary in connection with
the execution, delivery and performance of this Agreement or any of the
Transaction Documents by the Shareholders or the Companies.
5.4 CAPITAL STOCK AND PARTNERSHIP INTERESTS. Schedule 5.4 sets forth a
complete list and description of the authorized capital stock of Tacoma (the
"Company Stock"), the number of shares issued and outstanding of each class or
series of such capital stock, and the identity of each shareholder of Tacoma, in
each case indicating the class and number of shares held. No shares of the
Company Stock are held in the treasury of Tacoma. The Shareholders are
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the record owners of all of the Company Stock and all of such stock is duly
authorized, validly issued, and fully paid and non-assessable. On the Closing
Date, there will be no preemptive or first refusal rights to purchase or
otherwise acquire shares of capital stock of Tacoma pursuant to any provision of
law or the Articles of Incorporation or By-Laws of Tacoma or by agreement or
otherwise. On the Closing Date, there shall not be outstanding any warrants,
options, or other rights to subscribe for or purchase from Tacoma any shares of
capital stock of Tacoma, nor shall there be outstanding any securities
convertible into or exchangeable for such shares. Schedule 5.4 also sets forth a
complete list and description of the partners of Radiological and their
percentage ownership interest in Radiological.
5.5 ASSETS. As of the Closing, the Assets will include all of the tangible
and intangible assets of the Business as presently constituted; other than cash,
whether on hand or in any deposit accounts or certificates of deposit, the
Closing Date Receivables, provider agreements and provider numbers with Medicare
and Medicaid, and inventory, supplies and other assets disposed of in the
ordinary course of business, consistent with the prior practice of the Business.
Schedule 5.5 sets forth a complete list and description of all fixed assets of
Business, including but not limited to fixtures, equipment and motor vehicles.
The Assets are not subject to any liens, claims or encumbrances, except such
existing liens which will be paid at Closing and are set forth on Schedule 5.5.
5.6 TRADEMARKS. Schedule 5.6 sets forth a complete and accurate list of all
trademarks, service marks, or applications for any of the same, copyrights, and
other items of intellectual property that are owned, possessed or used by the
Business. There are no claims or proceedings pending or, to the knowledge of the
Companies, overtly threatened against the Companies asserting that the use of
any of the aforementioned properties or rights infringes the rights of any other
person, and, to the knowledge of the Companies, the Companies are not infringing
on the intellectual property rights of any other person. To the Companies' and
Sellers' knowledge, there is nothing which would prohibit the transaction of
business by Buyer or any company designated by Buyer in the State of Washington
under the trade name "Mobile Medical Diagnostics".
5.7 CONTRACTS. Schedule 5.7 sets forth a complete and correct list of all
agreements, contracts and commitments of the following type related to the
Business to which either Company is a party or by which either Company or any of
the Companies' assets are bound and as to which either Company has any
outstanding material obligations as of the date hereof (the "CONTRACTS"):
(A) each contract or agreement for the employment or retention of, or
collective bargaining, severance or termination agreement with, any director,
officer, employee, consultant, agent or group of employees of the Companies;
(B) each profit sharing, thrift, bonus, incentive, deferred
compensation, stock option, stock purchase, severance pay, pension, retirement,
hospitalization, insurance or other similar plan, agreement or arrangement;
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(C) each agreement or arrangement for the sale of any of the Companies'
assets, properties or rights outside the ordinary course of business (by sale of
assets, sale of stock, merger or otherwise) which is currently in effect;
(D) each contract currently in effect which contains any provisions
requiring either Company to indemnify or act for, or guarantee the obligation
of, any other person or entity;
(E) each agreement restricting either Company from conducting business
anywhere in the world;
(F) each partnership or joint venture contract or similar arrangement
or agreement which is likely to involve a sharing of profits or future payments
with respect to the Business or any portion thereof;
(G) each licensing, distributor, dealer, franchise, sales or
manufacturer's representative, agency or other similar contract, arrangement or
commitment which involves consideration of more than $5,000;
(H) each contract under which either Company performs mobile
radiological, mobile EKG or mobile ultrasound services for any nursing home,
healthcare or other facility;
(I) each agreement with a nursing home, health care facility or any
other customer with special pricing arrangements, together with a list of such
rates or description of such arrangements;
(J) each lease of real property;
(K) any other radiologist, cardiologist or other physician's
agreements;
(L) each agreement, consent order, settlement or similar arrangement
with any party, including any Governmental Authority (as defined in Section
5.23); or
(M) any other agreement not made in the ordinary and normal course of
business which involves consideration of more than $5,000.
Except as indicated on Schedule 5.7, each of the Contracts was entered into
and requires performance in the ordinary course of business and is in full force
and effect. The Companies are not in material default under any Contract and
there has not been asserted, either by or against the Companies under any
Contract, any written notice of default, set-off or claim of default. To the
knowledge of the Companies, the parties to the Contracts other than the
Companies are not in material default of any of their respective obligations
under the Contracts, and there has not occurred any event which with the passage
of time or the giving of notice (or both) would
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constitute a material default or material breach under any Contract. All amounts
payable under the Contracts are, or will at the Closing Date, be on a current
basis. Each Contract with respect to which consent is required by reason of the
transactions contemplated by this Agreement is identified on Schedule 5.7.
Neither of the Companies nor any Shareholder has received notice or has reason
to believe that any of the Contracts will be terminated by any party thereto
after the date hereof.
5.8 CUSTOMERS. Schedule 5.8 sets forth: (i) a complete and correct list of
the name and address of all current customers of the Companies related to the
Business; and (ii) a summary of the patient examinations and procedures by
customer by month for the two years ended December 31, 1996 and December 31,
1997 and the first five months of 1998 related to the Business. As of the date
hereof, the Companies and Shareholders have received no notice that any customer
related to the Business will cancel a contract or request a change of service.
5.9 FINANCIAL STATEMENTS.
(A) The unaudited balance sheets of the Companies related to the
Business for the fiscal years ended December 31, 1996, and December 31, 1997,
and the related statements of operations and stockholders' equity and statements
of cash flows for the years then ended (the "UNAUDITED FINANCIAL STATEMENTS"),
annexed hereto as Schedule 5.9(a), present fairly in all material respects the
financial condition and results of operations of the Companies related to the
Business at and for the periods therein specified.
(B) The unaudited balance sheet of the Companies related to the
Business as of May 31, 1998, and the related statements of operations and
stockholders' equity and statements of cash flows for the period then ended (the
"UNAUDITED INTERIM FINANCIAL STATEMENTS"), annexed hereto as Schedule 5.9(b),
present fairly in all material respects the financial condition and results of
operations of the Companies related to the Business at and for the periods
therein specified.
5.10 FEE SCHEDULES AND REIMBURSEMENT. Schedule 5.10 sets forth (i) a
complete and correct list of the 1997 and 1998 fee schedules of the Companies
related to the Business, including the amounts charged and the Medicare and
Medicaid allowable rates; and (ii) a complete and correct list of any and all
Medicaid and Medicare refunds paid by the Companies related to the Business or
pending payment by the Companies related to the Business during the last three
(3) fiscal years.
5.11 MATERIAL CHANGES. Except as noted on Schedule 5.11, between the date
of the Unaudited Interim Financial Statements and the date of this Agreement,
there has not been any material adverse change in the condition (financial or
otherwise) of the assets, properties, operations, operating results, Medicare
and Medicaid reimbursement, third party billing and/or direct billing, customer
and employee relations or business prospects of the Companies related solely to
the Business or any damage or destruction of any of the Assets or their places
of business
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by fire or other casualty, whether or not covered by insurance, and during such
period of time the Companies have conducted the Business only in the ordinary
and normal course.
5.12 LICENSES AND PERMITS. Schedule 5.12 sets forth a description of (a)
all licenses and other governmental or other regulatory permits or approvals
required for the operation of the Business that are now in effect, including all
certificates of occupancy issued with respect to the Business; and (b) each
other license, permit, or other authorization that is necessary for the
operation of the Business (collectively, the "Licenses"). Shareholders have
delivered to Buyer copies of all of the Licenses. The Companies own, possess or
have the legal right to use the Licenses, free and clear of all liens, pledges,
claims or other encumbrances of any nature whatsoever. To the knowledge of the
Companies, the Companies are not in default under any such License, and the
Companies have not received any notice of any default or any other claim or
proceeding relating to, any such License. No shareholder, director or officer,
employee or former employee of the Companies, or any person, firm or corporation
other than the Companies owns or has any proprietary, financial or other
interest, direct or indirect, in whole or in part in any of the Licenses.
5.13 TITLE, CONDITION OF TANGIBLE PERSONAL PROPERTY.
(A) The Companies have good and marketable title to, or valid and
subsisting leasehold interests in, all of the tangible personal property located
at their places of business or used in connection with the operation of the
Business, subject to no mortgage, security interest, pledge, lien, claim,
encumbrance or charge, or restraint on transfer whatsoever other than Permitted
Liens (as defined below) or liens or security interests to be paid or satisfied
before Closing as set forth on Schedule 5.13(a) hereof. No other person has any
right to the use or possession of any of such property which is owned and no
currently effective financing statement with respect to such tangible personal
property has been filed under the Uniform Commercial Code in any jurisdiction,
and the Companies have not signed any such financing statement or any security
agreement authorizing any secured party thereunder to file any such financing
statement. All of such tangible personal property comprising equipment,
vehicles, improvements, furniture and other tangible personal property in use by
the Companies, whether owned or leased, is in good operating condition and
repair, subject to normal wear and tear, and comprises the equipment used by the
Companies to operate the Business in a manner consistent with their operation
during the immediately preceding twelve (12) months.
(B) Except as set forth on Schedule 5.13(b), no tangible personal
property used by the Companies in connection with the operation of the Business
is subject to a lease, conditional sale, security interest or similar
arrangement except security interests to be paid before Closing. The Companies
do not lease any of the Assets.
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(C) "Permitted Liens" shall mean:
(I) carriers', warehouseman's, mechanics, materialmen's,
repairmen's or other like liens arising in the ordinary course of business which
are (A) not overdue for a period of more than 30 days or (B) which are being
contested in good faith and by appropriate proceedings, provided that if such
contest shall continue for more than 30 days, the amount thereof shall be bonded
or properly reserved against at the end of such 30-day period;
(II) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of like nature incurred in
the ordinary course of business;
(III) rights of lessors under leases set forth on Schedule 5.13(b);
(IV) pledges or deposits in connection with worker's compensation,
unemployment insurance, and other social security legislation; and
(V) liens for taxes not yet due and payable.
5.14 LEGAL PROCEEDINGS. Other than as set forth on Schedule 5.14, there are
no claims, actions, suits or proceedings or arbitrations, either administrative
or judicial, pending, or, to the knowledge of the Companies, overtly threatened
against or affecting the Business, or the Companies' ability to consummate the
transactions contemplated herein, at law or in equity or otherwise, before or by
any court or governmental agency or body, domestic or foreign, or before an
arbitrator of any kind.
5.15 EMPLOYEES. Schedule 5.15 contains a complete and correct list of the
name, position, and current rate of compensation and any other compensation
arrangements or fringe benefits, and Federal W-2 Forms for the 1997 calendar
year, of (i) each employee related to the Business, and (ii) any consultant or
agent of the Companies related to the Business that are not reflected in any
agreement or document referred to in Schedule 5.7. Except as set forth on
Schedule 5.15, the Companies currently do not have any pension, profit sharing,
or welfare benefit plan applicable to any of the employees of the Companies
related to the Business. No such employee, consultant or agent has any vested or
unvested retirement benefits or other termination benefits, except as described
on Schedule 5.15.
5.16 COLLECTIVE BARGAINING, LABOR CONTRACTS, EMPLOYMENT PRACTICES, ETC.
During the two years prior to the Closing Date, there has been no material
adverse change in the relationship between the Companies related to the Business
and their employees nor any strike or material labor disturbance by such
employees affecting the Business and, to the knowledge of the Companies, there
is no indication that such a change, strike or labor disturbance is likely. The
Companies' employees related to the Business are not represented by any labor
union or similar organization and the Companies have no reason to believe that
there are pending or threatened any activities, the purpose of which is to
achieve such representation, of all or some of the Companies'
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employees related to the Business. Except as set forth on Schedule 5.7 or
Schedule 5.15, the Companies have no collective bargaining or other labor
contracts, employment contracts, pension, profit-sharing, retirement, insurance,
bonus, deferred compensation or other employee benefit plans, agreements or
arrangements in connection with the Business with respect to their employees.
The Companies are in material compliance with the requirements prescribed by all
Federal, state and local statutes, orders and governmental rules and regulations
applicable to any of the employee benefit plans, agreements and arrangements
related to the Business identified on Schedule 5.7 and Schedule 5.15, including,
without limitation, the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the Immigration Reform and Control Act, the Worker Adjustment
and Retraining Notification Act of 1988, any such Government Requirements
respecting employment determination, equal opportunity, affirmative action,
employee privacy, wrongful or unlawful termination, workers' compensation,
occupational safety and health requirements, labor management relations and
unemployment insurance, or related matters and there are no threatened or
pending claims relating thereto, in each case. In the event of termination of
employment of an employee of either Company related to the Business, Buyer will
not, pursuant to any agreement with any Shareholder or either Company or by
reason of any representation made or plan adopted by any Shareholder or either
Company prior to the Closing, be liable to any employee of either Company
related to the Business for so-called "severance pay", parachute payments or any
other similar payments or benefits, including, without limitation, post-
employment healthcare, insurance benefits, accrued vacation and sick days.
5.17 ERISA.
(A) The Companies do not maintain or make contributions to and have not
at any time in the past maintained or made contributions to, any employee
benefit plan related to the Business which is subject to the minimum funding
standards of ERISA. The Companies do not now maintain or make contributions to,
and have not at any time in the past maintained or made contributions to, any
multi-employer plan related to the Business subject to the terms of the
Multi-Employer Pension Plan Amendment Act of 1980 (the "MULTI-EMPLOYER ACT").
(B) Schedule 5.17(b) sets forth each severance agreement, and each
plan, agreement or arrangement, bonus plan, deferred compensation agreement,
employee pension, profit sharing, savings or retirement plan, group life,
health, or accident insurance or other employee benefit plan, agreement,
arrangement or commitment, including, without limitation, any commitment arising
under severance, holiday, vacation, Christmas or other bonus plans (including,
but not limited to, "employee benefit plans", as defined in Section 3(3) of
ERISA maintained by either Company related to the Business for any employees of
either Company, or with respect to which either Company has liability with
respect to any employees of either Company related to the Business, or makes or
has an obligation to make contributions on behalf of employees of either Company
related to the Business ("PLANS").
(C) Schedule 5.17(c) identifies all employees of the Companies related
to the Business on leave of absence eligible to receive health benefits, as
required by the continuation health care provisions of Section 4980B of the
Internal Revenue Code of 1986, as amended or Section 601 through 608 of ERISA
("COBRA"). Notice of the availability of
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COBRA coverage has been provided to all employees of the Companies related to
the Business on leave of absence entitled thereto, and all persons electing such
coverage are being (or have been, if applicable) provided such coverage.
5.18 INSURANCE AND SURETY AGREEMENTS. Schedule 5.18 contains a true and
correct list of: (a) all policies of fire, liability and other forms of
insurance held or owned by either Company in connection with the Business
(including but not limited to medical malpractice insurance, and any state
sponsored plan or program for worker's compensation); and (b) all bonds,
indemnity agreements and other agreements of suretyship made for or held by
either Company in connection with the Business, including a brief description of
the character of the bond or agreement and the name of the surety or
indemnifying party. Schedule 5.18 sets forth for each such insurance policy the
name of the insurer, the amount of coverage, the type of insurance, the policy
number, the annual premium and a brief description of the nature of insurance
included under each such policy and of any claims made thereunder during the
past two years. Such policies are owned by and payable solely to the Companies,
and said policies or renewals or replacements thereof will be outstanding and
duly in force at the Closing Date. All insurance policies listed on Schedule
5.18 are in full force and effect, all premiums due on or before the Closing
Date have been or will be paid on or before the Closing Date, the Companies have
not been advised by any of their insurance carriers of an intention to terminate
or modify any such policies other than under circumstances where the Companies
have received a commitment for a replacement policy, nor have the Companies
failed to comply with any of the material conditions contained in any such
policies.
5.19 RELATIONSHIPS. Except as disclosed on Schedule 5.19 hereto, neither
the Companies nor any Shareholder nor any principal, officer, director,
employee, partner or affiliate of the Companies or any controlling shareholder
has, or at any time within the last two (2) years has had, a material ownership
interest in any business, corporate or otherwise, that is a party to, or in any
property that is the subject of, business relationships or arrangements of any
kind relating to the operation of the Business.
5.20 ABSENCE OF CERTAIN EVENTS. Except as set forth on Schedule 5.20, since
the date of the Unaudited Interim Financial Statements the Companies in
connection with the Business have not, and from the date of this Agreement
through the Closing Date, the Companies in connection with the Business will not
have:
(A) sold, assigned or transferred any of their assets or properties
related to the Business, except in the ordinary course of business;
(B) mortgaged, pledged or subjected to any lien, pledge, mortgage,
security interest, conditional sales contract or other encumbrance of any nature
whatsoever, other than a Permitted Lien, any of the Assets;
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(C) made or suffered any termination of any mobile radiological, mobile
EKG or mobile ultrasound services contract related to the Business other than in
the ordinary course of business;
(D) made or suffered any amendment or termination of any other
contract, commitment, instrument or agreement involving consideration or
liability in excess of $10,000 related to the Business, other than in the
ordinary course of business;
(E) except in the ordinary course of business, or otherwise as
necessary to comply with any applicable minimum wage law, increased the salaries
or other compensation of any of their employees, or made any increase in, or any
additions to, other benefits to which any of such employees may be entitled in
connection with the Business;
(F) failed to pay or discharge when due any liabilities, the failure to
pay or discharge which has caused or will cause any actual damage or give rise
to the risk of a loss to the Companies related to the Business in excess of
$10,000;
(G) changed any of the accounting principles followed by them or the
methods of applying such principles related to the Business;
(H) failed to collect, withhold and/or pay to any proper Governmental
Authority, any Taxes (as defined in Section 5.23) required by applicable law to
be so collected, withheld and/or paid related to the Business;
(I) instituted, settled or agreed to settle any litigation, action or
proceeding before any Governmental Authority relating to them or their property
or received any threat thereof related to the Business; and
(J) entered into any transaction related to the Business other than in
the ordinary course of business involving consideration in excess of $10,000.
5.21 COMPLIANCE WITH LAWS.
(A) The Companies in connection with the Business are in compliance
with all Governmental Requirements (as defined herein). Except for notices of
non-compliance as to which the Companies have taken corrective action acceptable
to the applicable governmental agency, and as set forth in Schedule 5.21, the
Companies in connection with the Business have not, within the period of twelve
months preceding the date of this Agreement, received any written notice that
they fail to comply in any material respect with any applicable Federal, state,
local, Medicare, Medicaid or other governmental laws or ordinances, or any
applicable order, rule or regulation of any Federal, state, local, Medicare,
Medicaid or other governmental agency having jurisdiction over the Business
("GOVERNMENTAL REQUIREMENTS"). The Companies shall report to Buyer, within five
(5) business days after receipt thereof, any written notices that the Companies
are not in compliance in any material respect with any of the foregoing.
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(B) Without limiting the generality of subsection (a) above, the
Companies have at all times complied, and are complying in all respects, with
all federal, state and local environmental laws, rules, regulations, ordinances,
governmental rules and related laws applicable to them, their leased properties,
and all other real properties used by them in the operation of the Business,
including, but not limited to, the Resource Conservation and Recovery Act of
1976, as amended, the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, the Federal Water Pollution Control Act, as
amended by the Clean Water Act, and subsequent amendments, the Federal Toxic
Substances Control Act, as amended, with respect to the environmental or
healthful state, condition or quality of any property related to the Business
(collectively "ENVIRONMENTAL LAWS"). The foregoing representation and warranty
applies to all aspects of the operations of the Business and the use and
ownership of the Assets including, but not limited to, the use, handling,
treatment, storage, transportation and disposal of any hazardous, toxic or
infectious waste, material or substance (including medical waste), and to
petroleum products, material or waste, at any other location of the Business. No
notice from any Governmental Authority has ever been served upon either Company
related to the Business claiming any violation of, or addressing any possible
non-compliance with respect to, any Environmental Law.
5.22 FINDERS. No broker or finder has acted for the Shareholders or the
Companies in connection with the transactions contemplated by this Agreement,
and no other broker or finder is entitled to any broker's or finder's fee or
other commission in respect thereof based in any way on agreements,
understandings or arrangements with the Shareholders or the Companies.
5.23 TAX RETURNS.
(A) Except as set forth in Schedule 5.23, (i) all Tax (as defined
below) returns, statements, reports and forms or extensions with respect thereto
required to be filed with any Federal, state, local or other governmental
department or court or other authority having jurisdiction over it
("GOVERNMENTAL AUTHORITY") on or before the Closing Date by or on behalf of the
Companies, have been or will be timely filed on or before the Closing Date in
accordance in all material respects with all applicable Governmental
Requirements; and (ii) the Companies have timely paid all Taxes payable by it.
(B) For purposes of this Agreement, "Tax" means any net income, gross
income, sales, use, franchise, personal, or real property tax.
5.24 ENCUMBRANCES CREATED BY THIS AGREEMENT. The execution and delivery of
this Agreement, or any of the Companies' Transaction Documents, does not, and
the consummation of the transactions contemplated hereby or thereby will not,
create any liens or other encumbrances on any of the Companies' assets in favor
of third parties.
5.25 SUBSIDIARIES AND JOINT VENTURES. Schedule 5.25 sets forth a complete
list of all subsidiaries, joint ventures and partnerships related to the
Business only in which either Company is the record or beneficial owner of more
than ten (10%) percent of the equity interest.
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All of the issued and outstanding capital stock of the subsidiaries listed on
Schedule 5.25 hereto is owned of record or beneficially by either Company or by
one of the listed subsidiaries except as listed on Schedule 5.25.
5.26 COMPLETE DISCLOSURE. No representation or warranty by the Companies or
the Shareholders in this Agreement or any Exhibit or Schedule referred to herein
and no written statement, certificate or other writing furnished to the Buyer by
or on behalf of the Companies or the Shareholders pursuant to this Agreement,
when considered in conjunction with all other such representations, warranties,
schedules, written statements, certificates or other writings furnished to Buyer
by or on behalf of the Companies or the Shareholders pursuant to this Agreement,
contains any untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein or therein not misleading.
5.27 BOOKS OF ACCOUNT; RECORDS. The Companies' general ledgers, stock
record books, minute books and other material records relating to the assets,
properties, contracts and outstanding legal obligations of the Companies related
to the Business are, in all material respects, complete and correct, and have
been maintained on a consistent basis. All documents furnished to Buyer will be
correct and complete copies.
5.28 QUESTIONABLE PAYMENTS. None of the Shareholders nor the Companies, or
any director, officer, controlling person or employee of the Companies, and no
affiliate of Companies, (a) has used any corporate funds of the Companies to
make any payment to any officer, employee, representative, agent of any
government, or to any political party or official thereof, where such payment
either (i) is unlawful under laws applicable thereto; or (ii) would be unlawful
under the Foreign Corrupt Practices Act of 1977, as amended; or (b) has made or
received an illegal payment, bribe, kickback, political contribution or other
similar questionable payment for any referrals or recommendations or otherwise
in connection with the operation of the Business.
5.29 REIMBURSEMENT MATTERS. Except as disclosed on Schedule 5.29, (i) the
Companies and Sellers have not received any notice of recoupment from the
Medicare or Medicaid programs, or any other third party reimbursement source
(inclusive of managed care organizations), (ii) the Shareholders and the
Companies are not aware of any basis for the assertion after the Closing Date of
any such recoupment claim against the Companies related to the Business, and
(iii) the Sellers have not received notice from any Medicare or Medicaid program
or any other third party reimbursement source (inclusive of managed care
organizations) of any pending or threatened investigations or surveys related to
the Business, and neither the Sellers, nor the Companies have any reason to
believe that any such investigation or survey is pending, threatened or
imminent.
5.30 MEDICARE/MEDICAID PARTICIPATION. All services provided by the
Companies related to the Business are certified for participation or enrollment
in all Medicare and Medicaid programs, have a current and valid provider
contract with the Medicare and Medicaid programs or other third party
reimbursement source (inclusive of managed care organizations), are in
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compliance with the conditions of participation of such programs, and have
received all approvals or qualifications necessary for capital reimbursement, if
applicable.
5.31 POWER AND AUTHORITY. The Companies have all requisite corporate power
and authority to execute, deliver and perform this Agreement, and as of the
Closing, the Companies will have all requisite corporate power and authority to
execute, deliver and perform the Transaction Documents required to be delivered
by them to the Buyer at the Closing. All action required by Tacoma's Articles of
Incorporation, By-Laws or Radiological's Partnership Agreement or otherwise, to
authorize the execution, delivery and performance of this Agreement and the
Transaction Documents has been taken.
5.32 CAPACITY. As of the Closing, the Shareholders have the full legal
power and capacity to make, execute, deliver and perform this Agreement and the
Transaction Documents required or contemplated hereby or thereby to be executed
or delivered by them at the Closing. Such execution, delivery, performance and
consummation have been made in the exercise of each such Shareholder's free will
and volition.
5.33 BINDING EFFECT. This Agreement and all Transaction Documents executed
by the Companies and Shareholders constitute the legal, valid and binding
obligations of each such party, enforceable against such party in accordance
with their respective terms.
5.34 QUESTIONNAIRES. The healthcare law questionnaire heretofore delivered
to the Companies by Buyer (the "Questionnaire") will be attached hereto as
Exhibit 5.34 and will as of the Closing Date have been fully and accurately
completed and will not contain any material misstatement of any fact and will
not omit any fact that would have to be stated in order not to render any
response to such questionnaire materially misleading.
ARTICLE VI: REPRESENTATIONS AND WARRANTIES OF BUYER AND IHS
Buyer and IHS represent and warrant to the Companies and the Shareholders
as follows:
6.1 ORGANIZATION AND STANDING. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
IHS is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.
6.2 POWER AND AUTHORITY. Buyer and IHS have the corporate power and
authority to execute, deliver and perform this Agreement, and as of the Closing,
Buyer and IHS will have the corporate power and authority to execute and deliver
the Transaction Documents required to be delivered by such party to the
Companies at the Closing.
6.3 BINDING AGREEMENT. This Agreement has been duly executed and delivered
by Buyer and IHS. This Agreement is, and when executed and delivered by Buyer
and IHS at the Closing each of the Transaction Documents executed by Buyer and
IHS will be, the legal, valid
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and binding obligations of Buyer and IHS, enforceable against Buyer and IHS in
accordance with their respective terms.
6.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or
delivery of this Agreement or any of the Transaction Documents by Buyer and IHS
nor the performance by the Buyer and IHS of the transactions contemplated hereby
and thereby conflicts with, or constitutes a breach of or a default under (i)
the formation documents of the Buyer and IHS, or (ii) any law, rule, judgment,
order, writ, injunction, or decree of any court currently in effect applicable
to Buyer and IHS, or (iii) any rule or regulation of any administrative agency
or other governmental authority currently in effect applicable to Buyer and IHS,
or (iv) any agreement, indenture, contract or instrument to which the Buyer or
IHS is now a party or by which any of the assets of the Buyer or IHS is bound.
6.5 CONSENTS. No authorization, consent, approval, license, exemption
by, filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign, is or
will be necessary in connection with the execution, delivery and performance of
this Agreement or any of the Transaction Documents by Buyer or IHS.
6.6 FINDERS. No broker or finder has acted for Buyer or IHS in
connection with the transactions contemplated by this Agreement, and no other
broker or finder is entitled to any broker's or finder's fee or other commission
in respect thereof based in any way on agreements, understandings or
arrangements with the Buyer or IHS.
6.7 CAPITAL STOCK. IHS has duly authorized and reserved for issuance
the shares of IHS Stock to be issued in connection herewith, and, when issued in
accordance with the terms of Article III, such shares of IHS Stock will be
validly issued, fully paid, and nonassessable and free of preemptive rights.
ARTICLE VII: INFORMATION AND RECORDS CONCERNING THE COMPANIES
7.1 ACCESS TO INFORMATION AND RECORDS BEFORE CLOSING. Prior to the
Closing Date, Companies' (it being understood that, for the purpose of this
Article VII, "Companies" shall be deemed to refer collectively to the Companies
and their subsidiaries listed on Schedule 5.25) shall make available to Buyer
such records of the Business as reasonably required by Buyer to update its due
diligence review of the Companies and provide access to representatives of the
Companies to discuss the due diligence update process with representatives of
Buyer.
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ARTICLE VIII: OBLIGATIONS OF THE PARTIES UNTIL CLOSING
8.1 CONDUCT OF BUSINESS PENDING CLOSING. Between the date of this
Agreement and the Closing, the Companies and their subsidiaries shall maintain
their existence and shall conduct the Business in the customary and ordinary
course of business consistent with past practice.
8.2 NEGATIVE COVENANTS OF THE COMPANIES AND THEIR SUBSIDIARIES. Without
the prior written approval of Buyer, neither Company nor any of their
subsidiaries shall, between the date hereof and the Closing:
(A) cause or permit to occur any of the events or occurrences
described in Section 5.20 (Absence of Certain Events) of this Agreement related
to the Business;
(B) dissolve, merge or enter into a share exchange with or into any
other entity;
(C) enter into any contract or agreement with any union or other
collective bargaining representative representing any employees of the Business
without the prior written consent of Buyer;
(D) sell off any Assets related to the Business other than in the
ordinary course of business; or
(E) make any change to their by-laws, articles of incorporation or
partnership agreement.
8.3 AFFIRMATIVE COVENANTS. Between the date hereof and the Closing, the
Companies and each of their subsidiaries shall:
(A) maintain the Business in substantially the state of repair,
order and condition as on the date hereof, reasonable wear and tear or loss by
casualty excepted;
(B) maintain in full force and effect all Licenses currently in
effect with respect to the Business unless such License is no longer necessary
for the operation of the Business;
(C) maintain in full force and effect the insurance policies and
binders currently in effect related to the Business, or the replacements thereof
related to the Business, including without limitation those listed on Schedule
5.18;
(D) utilize their reasonable efforts to preserve intact the present
business organization of the Companies and their subsidiaries in connection with
the Business; keep available the services of the Companies' and their
subsidiaries' present employees and agents
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related to the Business; and maintain the Companies' relations and goodwill with
suppliers, employees, affiliated medical personnel and any others having
business relating to the Business;
(E) maintain all of the books and records in accordance with their
past practices in connection with the Business;
(F) comply in all material respects with all provisions of the
Contracts listed in Schedule 5.7 and with any other material agreements that the
Companies and their subsidiaries in connection with the Business have entered
into in the ordinary course of business since the date of this Agreement, and
comply in all material respects with the provisions of all material laws, rules
and regulations applicable to the Business;
(G) cause to be paid when due, all taxes, assessments and charges
or levies imposed upon them in connection with the Business or on any of their
properties in connection with the Business or which they are required to
withhold and pay over in connection with the Business;
(H) to the knowledge of the Sellers or Companies, promptly advise
Buyer in writing of the threat or commencement against the Companies and their
subsidiaries of any claim, action, suit or proceeding, arbitration or
investigation or any other event that would materially adversely affect the
operations, properties, assets or prospects of the Business, including, but not
limited to the threatened cancellation of any contract to provide radiological,
EKG or ultrasound services; and
(I) to the knowledge of the Sellers or Companies, notify the Buyer
in writing of any event involving the Companies and their subsidiaries which has
had or may be reasonably expected to have a material adverse effect on the
business or financial condition of the Companies and their subsidiaries or may
involve the loss of contracts with any of the Companies' or their subsidiaries'
customers.
8.4 PURSUIT OF CONSENTS AND APPROVALS. Prior to the Closing, Buyer
shall use its reasonable efforts to obtain all consents and approvals of
governmental agencies and all other parties necessary for the lawful
consummation of the transactions contemplated hereby and the lawful use,
occupancy and enjoyment of the Companies' and their subsidiaries' businesses in
accordance herewith ("Required Approvals"). The Companies and their subsidiaries
shall cooperate with and use their reasonable efforts to assist Buyer in
obtaining all such approvals.
8.5 EXCLUSIVITY. Until the earlier of Closing or the termination of
this Agreement pursuant to Section 12.1, neither Company nor any Shareholder,
nor any of their respective affiliates, shall enter into any agreement,
commitment or understanding with respect to, or engage in any discussions or
negotiations directly or indirectly with, or encourage or respond to any
solicitations from, any other party with respect to the sale of the Assets, or
in
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respect of the sale of any shares of capital stock in Tacoma, or in respect of
the sale of any partnership interest in Radiological.
ARTICLE IX: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Buyer's obligations to consummate the purchase of the Assets is subject
to the fulfillment, prior to or at the Closing, of each of the following
conditions, any one or more of which may be waived by Buyer in writing. Upon
failure of any of the following conditions, Buyer may terminate this Agreement
pursuant to and in accordance with Article XII herein.
9.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Companies and the Shareholders made pursuant to this Agreement, shall be
true and correct in all material respects at and as of the Closing Date, as
though such representations and warranties were made at and as of such time,
except to the extent affected by the transactions herein contemplated.
9.2 PERFORMANCE OF COVENANTS. The Shareholders and the Companies shall
have performed or complied in all material respects with their respective
agreements and covenants required by this Agreement to be performed or complied
with by it prior to or at the Closing.
9.3 DELIVERY OF CLOSING CERTIFICATE. The Shareholders and the Companies
shall have executed and delivered to Buyer a certificate of its president or
general partners, as the case may be, dated the Closing Date, upon which Buyer
may rely, certifying that the conditions contemplated by Sections 9.1 and 9.2
applicable to it have been satisfied.
9.4 OPINION OF COUNSEL. The Companies shall have delivered to Buyer an
opinion, dated the Closing Date, of its counsel, in substantially the form
attached hereto as Exhibit 9.4. Said opinion shall be addressed to and may be
relied upon by Buyer and its counsel.
9.5 LEGAL MATTERS. No preliminary or permanent injunction or other
order (including a temporary restraining order) of any governmental authority
which prevents the consummation of the transactions contemplated by this
Agreement shall have been issued and remain in effect.
9.6 AUTHORIZATION DOCUMENTS. Buyer shall have received a certificate of
the Secretary or other officer of the Company certifying as of the Closing Date
a copy of Resolutions of Tacoma's Board of Directors and Radiological's managing
partner authorizing their execution and full performance of the Transaction
Documents and the incumbency of their respective officers.
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9.7 MATERIAL CHANGE. Since the date of the Unaudited Interim Financial
Statements, there shall not have been any material adverse changes in the
condition (financial or otherwise) of the assets, properties, operations,
operating results, Medicare and Medicaid reimbursement, third party billing
and/or direct billing, customer and employee relations or business prospects of
the Companies.
9.8 APPROVALS.
(A) The consent or approval of all persons necessary for the
consummation of the transactions contemplated hereby shall have been granted,
including without limitation, the Required Approvals;
(B) None of the foregoing consents or approvals (i) shall have been
conditioned upon the modification, cancellation or termination of any material
lease, contract, commitment, agreement, license, easement, right or other
authorization with respect to the Business, other than as disclosed or approved
hereunder, or (ii) shall impose on the Buyer any material condition or provision
or requirement with respect to the Business or its operation that is more
restrictive than or different from the conditions imposed upon such operation
prior to Closing.
9.9 IRS FORM 8594. The Companies shall have executed and delivered to
Buyer IRS Form 8594 reflecting the allocation of the Purchase Price in
accordance with Section 2.2.
9.10 INSURANCE. If the Companies' existing general and professional
liability coverage is on a claim made basis, then the Companies shall have paid
for and delivered to Buyer a tail policy with respect to liability insurance
coverage satisfactory to Buyer.
9.11 GOOD STANDING CERTIFICATE. Tacoma shall have delivered to Buyer a
good standing certificate issued by the Washington Secretary of State with
respect to Tacoma, dated not more than thirty (30) days prior to the Closing
Date.
9.12 BILL OF SALE. The Companies shall have executed and delivered to
Buyer the Bill of Sale substantially in the form of Exhibit 9.12.
9.13 REGULATORY MATTERS. Companies shall have provided to Buyer all
licenses, permits, and other regulatory materials pertaining to the Business as
shall have been reasonably requested by Buyer.
9.14 TITLE MATTERS. Companies and Sellers shall have furnished all
recorded title documents, mortgages, liens, and other matters affecting title to
the Assets.
9.15 LEASED PROPERTY. Companies shall have purchased any equipment or
vehicles previously leased by the Companies in connection with the Business.
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9.16 SALES TAX. Sellers shall have paid all sales tax for motor
vehicles and equipment, if applicable.
9.17 CHANGE OF NAME. Radiological shall have taken such reasonable
steps as Buyer shall have requested to change its name so as not to include any
trade names or service names included in the Assets.
9.18 PATIENT EXAMINATION SUMMARY. Companies shall have provided Buyer
with a true and correct summary of the mobile x-ray, EKG and ultrasound patient
examinations and procedures for each of their customers by month for the two
years ended December 31, 1997 and the first five months of 1998.
9.19 BOARD APPROVAL. Buyer and IHS shall have received all necessary
Board of Directors Approvals.
9.20 OTHER DOCUMENTS. Shareholders and the Companies shall have
furnished Buyer with all other documents, certificates and other instruments
required to be furnished to Buyer by Shareholders and the Companies pursuant to
the terms hereof.
ARTICLE X: CONDITIONS PRECEDENT TO COMPANIES' OBLIGATIONS
The Companies' obligation to consummate the sale of the Assets is
subject to the fulfillment, prior to or at the Closing, of each of the following
conditions, any one or more of which may be waived by Sellers in writing. Upon
failure of any of the following conditions, Sellers may terminate this Agreement
pursuant to and in accordance with Article XII herein.
10.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buyer made pursuant to this Agreement, shall be true in all material respects
at and as of the Closing Date, as though such representations and warranties
were made at and as of such time, except to the extent affected by the
transactions herein contemplated.
10.2 PERFORMANCE OF COVENANTS. Buyer shall have performed or complied
in all material respects with each of its agreements and covenants required by
this Agreement to be performed or complied with by it prior to or at the
Closing.
10.3 DELIVERY OF CLOSING CERTIFICATE. Buyer shall have delivered to the
Companies a certificate of a senior vice president of Buyer dated the Closing
Date upon which the Companies can rely, certifying that the statements made in
Sections 10.1 and 10.2 are true, correct and complete as of the Closing Date.
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10.4 OPINION OF COUNSEL. Buyer shall have delivered to the Companies an
opinion, dated the Closing Date, of Blass & Driggs, Esqs., counsel for Buyer, in
the form attached as Exhibit 10.4.
10.5 LEGAL MATTERS. No preliminary or permanent injunction or other
order (including a temporary restraining order) of any governmental authority
which prevents the consummation of the transactions contemplated by this
Agreement shall have been issued and remain in effect.
10.6 GOOD STANDING CERTIFICATES. Buyer shall have delivered to the
Companies good standing certificates issued by the California and Washington
Secretaries of State with respect to the Buyer, and IHS shall have delivered to
the Companies a good standing certificate issued by the Delaware Secretary of
State with respect to IHS, all of which shall be dated not more than thirty (30)
days prior to the Closing Date.
10.7 OTHER DOCUMENTS. Buyer shall have furnished the Companies with all
documents, certificates and other instruments required to be furnished to the
Companies by Buyer pursuant to the terms hereof.
ARTICLE XI: OBLIGATIONS OF THE PARTIES AFTER CLOSING
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of the Companies and Shareholders set forth in this Agreement or
in any Schedule, certificate, document or list delivered by any such party
pursuant hereto shall survive the Closing. Notwithstanding any investigation
conducted before or after the Closing or the decision of any party to consummate
the Closing, each party hereto shall be entitled to rely and is hereby declared
to have reasonably relied upon the representations and warranties of the other
party.
11.2 INDEMNIFICATION BY SHAREHOLDERS AND THE COMPANIES. The
Shareholders and the Companies shall indemnify jointly and severally and defend
Buyer and hold it harmless against and with respect to any and all damage, loss,
liability, deficiency, cost and expense (including, without limitation,
reasonable attorney's fees and expenses) (all of the foregoing hereinafter
collectively referred to as "Loss") resulting from:
(A) any inaccuracy in any representation or certification, or
breach of any warranty, made by the Shareholders or the Companies in this
Agreement or any Transaction Document;
(B) the breach of any covenant or undertaking by the Shareholders
or the Companies contained in this Agreement which survives the Closing and is
not waived by Buyer at or prior to the Closing;
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<PAGE>
(C) ownership or operation of the Companies or their business or
assets prior to the Closing Date, including, without limitation, (i) any Excess
Reimbursement Liabilities (as defined in Section 1.2); (ii) any Loss arising out
of any bulk transfer act (whether relating to liabilities in general or taxes or
otherwise; (iii) any Taxes resulting from the operation of the business of the
Companies or ownership of any of the Assets for any period ending on or before
the Closing Date; (iv) any Loss arising out of the noncompliance of the
Companies with COBRA or any like statute; (v) any claim of the type that would
be covered by a standard liability insurance policy, including, without
limitation, professional liability, malpractice, general liability, automobile
liability, workers' compensation and/or employer's liability insurance, arising
out of the operation of the Business prior to the Closing Date, including
payments of any deductibles applicable to the aforesaid policies; and (vi) any
and all actions, suits, proceedings, demands, assessments, judgments,
settlements (to the extent approved by the Companies, such approval not to be
unreasonably withheld, delayed or conditioned), costs and legal expenses
incident to any of the foregoing.
Without limiting the foregoing, the Companies and Shareholders hereby
represent and warrant to Buyer that they have complied with any and all bulk
transfer act or similar procedures applicable to the transactions herein
contemplated.
11.3 INDEMNIFICATION BY BUYER. Buyer shall indemnify and defend
Shareholders and the Companies and hold them harmless against and with respect
to any and all Loss occurring or suffered resulting from:
(A) any inaccuracy in any representation or certification, or
breach of any warranty, made by the Buyer in this Agreement or any Transaction
Document;
(B) the breach of any covenant or undertaking by Buyer which
survives the Closing and is not waived by Shareholders or the Companies at or
prior to the Closing.
11.4 CONTROL OF DEFENSE OF INDEMNIFIABLE CLAIMS.
(A) Buyer shall give Shareholders prompt written notice of the
claim for which it seeks indemnification. Failure of the Buyer to give such
prompt notice shall not relieve the Shareholders of their indemnification
obligation, provided that such indemnification obligation shall be reduced by
any damages suffered by Shareholders resulting from a failure to give prompt
notice hereunder. The Shareholders shall be entitled to participate in the
defense of such claim. If at any time the Buyer acknowledges in writing that the
claim is fully indemnifiable under this Agreement, it shall have the right to
assume total control of the defense of such claim at its own expense. If the
Shareholders do not assume total control of the defense of any such claim, the
Buyer agrees not to settle such claim without the written consent of the
Shareholders, which consent shall not be unreasonably withheld. Nothing
contained in this Section 11.4 shall prevent either party from assuming total
control of the defense and/or settling any claim against it for which
indemnification is not sought under this Agreement.
29
<PAGE>
(B) The Shareholders and the Companies shall give Buyer prompt
written notice of the claim for which they seek indemnification. Failure of the
Shareholders and the Companies to give such prompt notice shall not relieve the
Buyer of its indemnification obligation, provided that such indemnification
obligation shall be reduced by any damages suffered by Buyer resulting from a
failure to give prompt notice hereunder. The Buyer shall be entitled to
participate in the defense of such claim. If at any time the Shareholders and
the Companies acknowledge in writing that the claim is fully indemnifiable under
this Agreement, they shall have the right to assume total control of the defense
of such claim at their own expense. If the Buyer does not assume total control
of the defense of any such claim, the Shareholders and the Companies agree
not to settle such claim without the written consent of the Buyer, which consent
shall not be unreasonably withheld. Nothing contained in this Section 11.4 shall
prevent either party from assuming total control of the defense and/or settling
any claim against it for which indemnification is not sought under this
Agreement.
(C) Notwithstanding anything to the contrary contained in this
Agreement, if there shall be any claim for Excess Reimbursement Liabilities with
respect to which Buyer shall be seeking indemnification, Buyer will have the
sole right to contest or appeal such claim, using at least the same standard of
care as it would apply to contests or appeals with respect to reimbursement
liabilities in general. Buyer may, in its sole and absolute discretion, at any
time discontinue any such contest or appeal or enter into a settlement with
respect thereto prior to the final determination thereof (a "Final
Determination"); provided, however, that if it intends to discontinue or settle
any such appeal or contest prior to Final Determination, then it must provide
the Shareholders with reasonable prior written notice of such intent and of the
current status of the appeal or contest or proposed settlement, and upon request
of the Shareholders, Buyer shall permit the Companies and the Shareholders, as
the indemnifying parties, to thereafter control (without the right to settle the
same unless Buyer shall consent to such settlement, which consent shall not
unreasonably be withheld) the contest and appeal of such Excess Reimbursement
Liabilities claim on behalf of Buyer; it being understood, however, that the
Companies and the Shareholders shall continue to be obligated to indemnify Buyer
for any Excess Reimbursement Liabilities unless the Buyer shall, in its sole
discretion, elect not to permit the Companies and the Shareholders to control
the contest and appeal of any such Excess Reimbursement Liabilities for which
the Shareholders have requested control in accordance with the foregoing.
11.5 RESTRICTIONS.
(A) From and after the Closing Date, neither the Companies nor
the Shareholders shall disclose, directly or indirectly, to any person outside
of Buyer's employ without the express authorization of the Buyer, any patient
lists, customer lists, pricing strategies, customer files, or patient files and
records related to the Business, any proprietary data or trade secrets owned by
the Companies related to the Business or any financial or other information
about the Business not then in the public domain; provided, however, that
Shareholders shall be permitted to make such disclosures as may be required by
law or by a court or governmental
30
<PAGE>
authority; provided further, such patient files and records shall be available
for use by the Companies in connection with other treatment of the Companies'
patients where such treatment is unrelated to the Business.
(B) After the Closing Date, neither the Companies nor the
Shareholders shall engage or participate in any effort or act to induce any of
the customers, physicians, suppliers, associates, employees or independent
contractors of the Business to cease doing business, or their association or
employment, with the Business.
(C) For a period of three (3) years following the Closing Date,
neither the Companies nor the Shareholders shall, directly or indirectly for, or
on behalf of themselves or any other person, firm, entity or other enterprise,
be employed by, be a director or manager of, act as a consultant for, be a
partner in, have a proprietary interest in, give advice to, loan money to any
person, enterprise, partnership, association, corporation, joint venture or
other entity of any type, licensed or unlicensed, which is engaged in or
provides mobile radiological, mobile EKG or mobile ultrasound services in the
State of Washington. Notwithstanding the foregoing, the Shareholders shall not
be restricted from performing radiological interpretations for any party other
than one which is engaged in the mobile radiological, mobile EKG or mobile
ultrasound service business or engaging in any activity or enterprise not
related to a mobile radiological, mobile EKG or mobile ultrasound service
business.
(D) The Shareholders and the Companies acknowledge that the
restrictions contained in this Section 11.5 are reasonable and necessary to
protect the legitimate business interests of Buyer and that any violation
thereof by any of them would result in irreparable harm to Buyer. Accordingly,
Shareholders agree that upon the violation by any of them of any of the
restrictions contained in this Section 11.5, Buyer shall be entitled to obtain
from any court of competent jurisdiction a preliminary and permanent injunction
as well as any other relief provided at law or equity, under this Agreement or
otherwise. In the event any of the foregoing restrictions are adjudged
unreasonable in any proceeding, then the parties agree that the period of time
or the scope of such restrictions (or both) shall be adjusted in such a manner
or for such a time (or both) as is adjudged to be reasonable.
11.6 RECORDS. On the Closing Date, the Companies shall deliver, or
cause to be delivered, to Buyer all records and files not then in Buyer's
possession relating to the operations of the Business, including without
limitation x-ray films, EKG tracings, ultrasound studies, radiology and
cardiology reports, physician orders, customer marketing and advertising
information and personnel records (collectively the "Records"). Buyer shall keep
and maintain the Records in accordance with state and federal requirements, keep
the Records available for review and copying by the Sellers for reasonable
medical or other purposes, and keep a contact person for access to the Records
for so long as state and federal law requires such records to be maintained.
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<PAGE>
11.7 CUSTOMER TRANSITION. Upon Closing, the Companies and certain
Shareholders will join in signing a letter to the Companies' customers
announcing the transfer of the Companies' business to the Buyer, the form of
such letter to be mutually satisfactory to such Shareholders, the Companies, and
the Buyer. The Companies' marketing representative shall be available to
accompany representatives of the Buyer in visiting or otherwise contacting
customers of the Companies to discuss the transition of their existing service
agreements to the Buyer. In addition, the Shareholders and the Companies'
administrator will be available for a period of four (4) months following the
Closing Date for a reasonable period of time per month to answer questions
regarding such transaction.
11.8 USE OF PREMISES. The Companies shall provide, without charge, the
right of access to the Companies' premises at 3402 South 18th Street, Tacoma,
Washington ("PREMISES") during normal business hours to Buyer's employees in
order to use the processor, that Buyer will be acquiring during this transaction
which is located at the Premises, and to store the films and records for a
period of sixty (60) days following the Closing Date. Also, Companies shall
permit Buyer to store and operate Buyer's teleradiography equipment at the
Premises for a period of sixty (60) days following the Closing Date, provided,
Buyer shall pay all costs and expenses related to the installation and operation
of the equipment.
ARTICLE XII: TERMINATION
12.1 TERMINATION. This Agreement may be terminated at any time at or
prior to the Closing by:
(A) Buyer, if any condition precedent to Buyer's obligations
hereunder set forth in Article IX hereof has not been satisfied by the Closing
Date or pursuant to Section 13.1 if any portion of the Assets is damaged or
destroyed as a result of fire, other casualty or for any reason whatsoever;
(B) the Companies, if any condition precedent to Companies'
obligations hereunder set forth in Article X hereof has not been satisfied by
the Closing Date; or
(C) the mutual consent of Buyer and the Companies.
12.2 EFFECT OF TERMINATION. If a party terminates this Agreement
because one of its conditions precedent has not been fulfilled, or if this
Agreement is terminated by mutual consent, or if it is terminated pursuant to
Section 13.1, this Agreement shall become null and void without any liability of
any party to the other; provided, however, that if such termination is by reason
of the breach by any party of any of its representations, warranties or
obligations under this Agreement, the other party shall be entitled to be
indemnified for any Losses incurred by it by reason thereof in accordance with
Article XI hereof (and for such purposes such Article XI shall survive the
termination of this Agreement). Further, nothing in this Section 12.2 shall
affect
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Buyer's right to specific performance of the obligations of the Companies and
Shareholders at Closing hereunder.
ARTICLE XIII: CASUALTY, RISK OF LOSS
13.1 CASUALTY, RISK OF LOSS. The Companies and Shareholders shall bear
the risk of all loss or damage to any of the Assets from all causes which occur
prior to the Closing. If at any time prior to the Closing any portion of the
Assets is damaged or destroyed as a result of fire, other casualty or for any
reason whatsoever, the Companies and Shareholders shall immediately give notice
thereof to Buyer. Buyer shall have the right, in its sole and absolute
discretion, within ten (10) days of receipt of such notice, to (1) elect not to
proceed with the Closing and terminate this Agreement, or (2) proceed to Closing
and consummate the transactions contemplated hereby and receive any and all
insurance proceeds received or receivable by any Shareholder or either Company
on account of any such casualty. Nothing contained in this Section 13.1 shall
limit or adversely affect the right of Buyer to receive indemnification for any
Losses incurred by either of them by reason of any breach by any Shareholder or
either Company of any representation, warranty or obligation under this
Agreement in accordance with Section 11.2 hereof (and for such purposes such
Section 11.2 shall survive the termination of this Agreement).
ARTICLE XIV: MISCELLANEOUS
14.1 COSTS AND EXPENSES. Except as expressly otherwise provided in this
Agreement, Buyer, Shareholders and the Companies shall bear their own costs and
expenses in connection with this Agreement and the transactions contemplated
hereby; provided, however, no such costs and expenses shall be charged to the
Assets.
14.2 PERFORMANCE. In the event of a breach by any party of its
obligations hereunder, the other party shall have the right, in addition to any
other remedies which may be available, to obtain specific performance of the
terms of this Agreement, and, to the extent allowed or not prohibited by
applicable law, the breaching party hereby waives the defense that there may be
an adequate remedy at law. Should any party default in its performance, or other
remedy, the prevailing party shall be entitled to its reasonable attorneys'
fees.
14.3 BINDING EFFECT. This Agreement binds and inures to the benefit of
each party hereto and its successors and proper assigns.
14.4 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement and the
Exhibits and Schedules hereto embody the entire agreement and understanding of
the parties and supersede any and all prior agreements, arrangements and
understandings relating to matters provided for herein. The captions used herein
are for convenience only and shall not control or
33
<PAGE>
affect the meaning or construction of the provisions of this Agreement. This
Agreement may be executed in one or more counterparts, and all such counterparts
shall constitute one and the same instrument.
14.5 COOPERATION - FURTHER ASSISTANCE. From time to time, as and when
reasonably requested by any party hereto after the Closing, the other parties
will (at the expense of the requesting party) execute and deliver, or cause to
be executed and delivered, all such documents, instruments and consents and will
use reasonable efforts to take all such action as may be reasonably requested or
necessary to carry out the intent and purposes of this Agreement, and to vest in
Buyer good title to, possession of and control of all of the Assets.
14.6 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed to be properly given or made when personally
delivered to the party or parties entitled to receive the notice or within five
(5) days when sent by certified or registered mail, postage prepaid, or on the
next business day if sent for next day delivery by a nationally recognized
overnight courier, in either case, properly addressed to the party or parties
entitled to receive such notice at the address stated below:
If to the Companies Tacoma Radiological Associates, P.S.
and Shareholders: P.O. Box 1535
Tacoma, WA 98405
Attn: William Jackson, M.D.
with a copy to: Roy F. Kussmann, Esq.
McGavick Graves
1102 Broadway, Suite 500
P.O. Box 1317
Tacoma, WA 98401-1317
If to the Buyer: Symphony Diagnostic Services No.1, Inc.
8181 W. Broward Blvd., Suite 370
Plantation, FL 33324
Attn: Martin Ardman, Senior Vice President
with a copy to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Marshall A. Elkins, Esq.
With a copy to: Michael S. Blass, Esq.
Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
New York, NY 10017
34
<PAGE>
14.7 WAIVER, DISCHARGE, ETC. This Agreement shall not be released,
discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
14.8 RIGHTS OF PERSONS NOT PARTIES. Nothing contained in this Agreement
shall be deemed to create rights in persons not parties hereto, other than the
successors and proper assigns of the parties hereto.
14.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington, disregarding any rules
relating to the choice or conflict of laws.
14.10 AMENDMENTS, SUPPLEMENTS, ETC. At any time before or after the
execution and delivery of this Agreement by the parties hereto, this Agreement
may be amended or supplemented by additional agreements, articles or
certificates, as may be mutually determined by the parties to be necessary,
appropriate or desirable to further the purposes of this Agreement, to clarify
the intention of the parties, or to add to or to modify the covenants, terms or
conditions hereof or thereof. The parties hereto shall make such technical
changes to this Agreement, not inconsistent with the purposes hereof, as may be
required to effect or facilitate any governmental approval or acceptance of this
Agreement or to effect or facilitate any filing or recording required for the
consummation of any portion of the transactions contemplated hereby. This
Agreement may not be amended except by an instrument in writing signed by each
of the parties.
14.11 SEVERABILITY. Any provision, or distinguishable portion of any
provision, of this Agreement which is determined in any judicial or
administrative proceeding to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction. It
is the intention of the parties that if any provision of Section 11.5 shall be
determined to be overly broad in any respect, then it should be enforceable to
the maximum extent permissible under the law. To the extent permitted by
applicable law, the parties waive any provision of law which renders a provision
hereof prohibited or unenforceable in any respect.
14.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
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14.13 ARBITRATION. Any dispute or controversy between any of the parties
hereto pertaining to the performance or interpretation of this Agreement shall
be settled by binding arbitration pursuant to the rules of the American
Arbitration Association. The venue of any arbitration related to this Agreement
shall be located in the State of Washington. The cost of such proceeding shall
be shared equally by all parties thereto, and each such party shall bear its own
costs incurred as a result of its participation in any such arbitration.
14.14 PUBLIC ANNOUNCEMENTS. Any general public announcements or similar
media publicity with respect to this Agreement or the transactions contemplated
herein shall be at such time and as such manner as Buyer or IHS shall determine;
provided that nothing herein shall prevent either party, upon as much prior
notice as shall be possible under the circumstances to the other, from making
such written announcements as such party's counsel may consider advisable in
order to satisfy the party's legal and contractual obligations in such regard.
[SIGNATURES ON THE FOLLOWING PAGE]
36
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto and in the capacity
indicated below has executed this Agreement as of the day and year first above
written.
TACOMA:
WITNESS: TACOMA RADIOLOGICAL
ASSOCIATES, P.S. D/B/A MOBILE
MEDICAL DIAGNOSTICS
By: /s/ NANCY B. TURNER By: /s/ WILLIAM B. JACKSON
----------------------------- ------------------------------
Name: William B. Jackson
-----------------------------
Title: President
RADIOLOGICAL:
WITNESS: RADIOLOGICAL ASSOCIATES
By: /s/ NANCY B. TURNER By: /s/ WILLIAM B. JACKSON
--------------------------------- -------------------------------
Name: William B. Jackson
----------------------------
Title: Partner
----------------------------
WITNESS: SHAREHOLDERS:
By: /s/ NANCY B. TURNER /s/ WILLIAM B. JACKSON
-------------------------------- ----------------------------------
William B. Jackson, M.D.
WITNESS:
By:/s/ NANCY B. TURNER /s/ EMORY J. BOURDEAU, M.D.
-------------------------------- ---------------------------------
Emory J. Bourdeau, M.D.
WITNESS:
By:/s/ NANCY B. TURNER /s/ ANTHONY S. LAZAR
-------------------------------- ------------------------------
Anthony S. Lazar, M.D.
37
<PAGE>
WITNESS:
By: /s/ NANCY B. TURNER /s/ MILTON S. BLEIWEISS
---------------------------------- ----------------------------------
Milton S. Bleiweiss, M.D.
WITNESS:
By:/s/ NANCY B. TURNER /s/ GEORGE A. WEIS
---------------------------------- ----------------------------------
George A. Weis, M.D.
WITNESS:
By: /s/ NANCY B. TURNER /s/ DENNIS G. SCHOLL
---------------------------------- ----------------------------------
Dennis G. Scholl, M.D.
WITNESS:
By: /s/ NANCY B. TURNER /s/ DONALD R. ROSE
---------------------------------- ----------------------------------
Donald R. Rose, M.D.
WITNESS:
By:/s/ NANCY B. TURNER /s/ RICHARD S. JERDE
---------------------------------- ----------------------------------
Richard S. Jerde, M.D.
WITNESS:
By: /s/ NANCY B. TURNER /s/ RICHARD S. TOBIN
---------------------------------- ----------------------------------
Richard S. Tobin, M.D.
WITNESS:
By: /s/ NANCY B. TURNER /s/ ROBERT R. LIVINGSTON
---------------------------------- ----------------------------------
Robert R. Livingston, M.D.
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<PAGE>
WITNESS:
By:/s/ NANCY B. TURNER /s/ PHILLIP C. LESH
---------------------------------- ---------------------------------
Phillip C. Lesh, M.D.
WITNESS:
By:/s/ NANCY B. TURNER /s/ MARK S. YUHASZ
---------------------------------- ---------------------------------
Mark S. Yuhasz, M.D.
WITNESS:
By: /s/ NANCY B. TURNER /s/ DREW H. DEUTSCH
---------------------------------- ---------------------------------
Drew H. Deutsch, M.D.
WITNESS:
By: /s/ NANCY B. TURNER /s/ RANDOLPH K. OTTO
---------------------------------- ---------------------------------
Randolph K. Otto, M.D.
WITNESS:
By: /s/ NANCY B. TURNER /s/ JOHN H. PEIXOTTO
---------------------------------- ---------------------------------
John H. Peixotto, M.D.
WITNESS:
By: /s/ NANCY B. TURNER /s/ FRANCIS W. WESSBECHER
---------------------------------- ---------------------------------
Francis W. Wessbecher, M.D.
WITNESS:
By:/s/ NANCY B. TURNER /s/ TOD E. WURST
---------------------------------- ---------------------------------
Tod E. Wurst, M.D.
39
<PAGE>
WITNESS:
By: /s/ NANCY B. TURNER /s/ THOMAS S. KESKEY
---------------------------------- ---------------------------------
Thomas S. Keskey, M.D.
WITNESS:
By: /s/ NANCY B. TURNER /s/ THOMAS J. RAFOTH
---------------------------------- ---------------------------------
Thomas J. Rafoth, M.D.
BUYER:
SYMPHONY DIAGNOSTIC SERVICES
NO.1, INC.
By: /s/ MARTIN ARDMAN
------------------------------
Martin Ardman
Senior Vice President
IHS:
INTEGRATED HEALTH SERVICES,
INC.
By: /s/ ELIZABETH B. KELLY
------------------------------
Name: Elizabeth B. Kelly
Executive Vice President
Corporate Development
40
EXHIBIT 5
August 17, 1998
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-3 (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 1,530,419 shares of the Company's
Common Stock, $.001 par value (the "Shares"), to be sold by certain Selling
Stockholders named therein.
I am Executive Vice President and General Counsel of the Company. As
counsel for the Company, I have examined such corporate records, documents and
such questions of law as I have considered necessary or appropriate for the
purposes of this opinion and, upon the basis of such examination, advise you
that in my opinion the Shares to be sold by the Selling Stockholders have been
duly and validly authorized and are legally 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 heading "Legal
Matters" in the Registration Statement. This consent is not to be construed as
an admission that I am a person whose consent is required 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 AUDITORS
The Board of Directors
Integrated Health Services, Inc.:
We consent to the use of our report dated March 25, 1998 relating to the
consolidated financial statements of Integrated Health Services, Inc. ("IHS")
and subsidiaries, incorporated herein by reference, to the incorporation herein
by reference of our report dated April 14, 1997 relating to the consolidated
financial statements of Community Care of America, Inc. and subsidiaries, which
report appears in Amendment No. 1 to Form 8-K/A of IHS dated September 25, 1997
and filed May 29, 1998, 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 Amendment No. 1 to Form 8-K/A of IHS filed on July 11, 1997, and to
the reference to our firm under the heading "Experts" in the registration
statement.
Our report dated March 25, 1998 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 April 14, 1997 refers to the change in accounting
method in 1996 to adopt Statement of Financial Accounting Standards No. 121
relating to impairment of long-lived assets. 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.
KPMG Peat Marwick LLP
Baltimore, Maryland
August 14, 1998
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-3 of Integrated Health Services, Inc. (IHS) of our report dated
September 18, 1997 (October 21, 1997 as to Note 1), appearing in the Annual
Report on Form 10-K of RoTech Medical Corporation for the year ended July 31,
1997, which report appears in the Form 8-K, dated October 21, 1997, as amended,
of IHS, and to the reference to us under the heading "Experts" in the
Registration Statement.
Deloitte & Touche LLP
Orlando, Florida
August 14, 1998
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated March 6, 1998
included in Integrated Health Services, Inc.'s Amendment No. 1 to Current Report
on Form 8-K/A dated December 31, 1997 and to all references to our Firm included
in this registration statement.
Arthur Andersen LLP
Albuquerque, New Mexico
August 13, 1998
