UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended March 31, 1998
---------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ___________ to ___________
Commission File Number: 1-12306
--------
Integrated Health Services, Inc.
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-2428312
--------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10065 Red Run Boulevard, Owings Mills, MD 21117
----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
(410) 998-8400
--------------
(Registrant's telephone, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Number of shares of common stock of the registrant outstanding as of May 1,
1998: 45,606,346 shares.
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Item 1. - Condensed Financial Statements -
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Earnings
for the three months ended March 31, 1998
and 1997 4
Consolidated Statement of Changes in
Stockholders' Equity for the three
months ended March 31, 1998 5
Consolidated Statements of Cash Flows
for the three months ended March 31, 1998
and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II: OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 6. Exhibits and Reports on Form 8-K 18
2
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------------- -------------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 52,134 $ 52,965
TEMPORARY INVESTMENTS 60,272 8,042
PATIENT ACCOUNTS AND THIRD-PARTY PAYOR SETTLEMENTS
RECEIVABLE, LESS ALLOWANCE FOR DOUBTFUL RECEIVABLES
OF $163,889 AT MARCH 31, 1998 AND $161,438 AT DECEMBER 31, 1997 693,172 603,432
INVENTORIES, PREPAID EXPENSES AND OTHER CURRENT ASSETS 73,728 53,152
------------------- -------------------
TOTAL CURRENT ASSETS 879,306 717,591
------------------- -------------------
PROPERTY, PLANT AND EQUIPMENT, NET 1,314,646 1,318,633
ASSETS HELD FOR SALE 64,642 111,629
INTANGIBLE ASSETS 2,874,867 2,815,272
INVESTMENTS IN AND ADVANCES TO AFFILIATES 30,814 19,527
OTHER ASSETS 82,633 80,492
------------------- -------------------
TOTAL ASSETS $ 5,246,908 $ 5,063,144
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG-TERM DEBT $ 35,526 $ 36,081
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 596,297 615,967
INCOME TAX PAYABLE 23,243 2,426
------------------- -------------------
TOTAL CURRENT LIABILITIES 655,066 654,474
------------------- -------------------
LONG-TERM DEBT:
REVOLVING CREDIT AND TERM LOAN FACILITY LESS CURRENT MATURITIES 1,745,849 1,673,500
MORTGAGES AND OTHER LONG-TERM DEBT LESS CURRENT MATURITIES 160,454 167,606
SUBORDINATED DEBT 1,361,046 1,361,046
------------------- -------------------
TOTAL LONG-TERM DEBT 3,267,349 3,202,152
------------------- -------------------
OTHER LONG-TERM LIABILITIES 115,153 113,042
DEFERRED INCOME TAXES 2,630 -
DEFERRED GAIN ON SALE-LEASEBACK TRANSACTIONS 5,140 5,315
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, AUTHORIZED 15,000,000 SHARES; NO SHARES
ISSUED AND OUTSTANDING - -
COMMON STOCK, $0.001 PAR VALUE. AUTHORIZED 150,000,000
SHARES; ISSUED 45,221,385 AT MARCH 31, 1998 AND 43,098,373 AT
DECEMBER 31, 1997 (INCLUDING 548,500 TREASURY SHARES AT
MARCH 31, 1998 AND DECEMBER 31, 1997) 45 43
ADDITIONAL PAID-IN CAPITAL 1,137,763 1,062,436
RETAINED EARNINGS 83,575 45,495
TREASURY STOCK, AT COST (548,500 SHARES AT MARCH 31, 1998 AND
DECEMBER 31, 1997) (19,813) (19,813)
------------------- -------------------
NET STOCKHOLDERS' EQUITY 1,201,570 1,088,161
------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,246,908 $ 5,063,144
=================== ===================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
NET REVENUES:
BASIC MEDICAL SERVICES $ 234,899 $ 88,755
SPECIALTY MEDICAL SERVICES 612,196 362,689
MANAGEMENT SERVICES AND OTHER 7,785 9,499
---------------- ----------------
TOTAL REVENUES 854,880 460,943
---------------- ----------------
COSTS AND EXPENSES:
OPERATING, GENERAL AND ADMINISTRATIVE 650,137 370,428
DEPRECIATION AND AMORTIZATION 38,591 15,030
RENT 35,414 24,009
INTEREST, NET 66,465 21,421
NON-RECURRING INCOME 0 (1,025)
---------------- ----------------
TOTAL COSTS AND EXPENSES 790,607 429,863
---------------- ----------------
EARNINGS BEFORE EQUITY IN EARNINGS
OF AFFILIATES AND INCOME TAXES 64,273 31,080
EQUITY IN EARNINGS OF AFFILIATES 270 181
---------------- ----------------
EARNINGS BEFORE INCOME TAXES 64,543 31,261
FEDERAL AND STATE INCOME TAXES 26,463 12,192
---------------- ----------------
NET EARNINGS $ 38,080 $ 19,069
================ ================
PER COMMON SHARE:
NET EARNINGS - BASIC $ 0.88 $ 0.81
NET EARNINGS - DILUTED $ 0.74 $ 0.64
================ ================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 $ 43 $ 1,062,436 $ 45,495 $ (19,813) $ 1,088,161
EXERCISE OF EMPLOYEE STOCK OPTIONS
FOR 1,496,611 COMMON SHARES 1 26,076 - - 26,077
ISSUANCE OF 626,401 COMMON SHARES IN
CONNECTION WITH ACQUISITIONS (NOTE 3) 1 16,508 - - 16,509
VALUE OF 1,841,700 OPTIONS ISSUED IN
CONNECTION WITH ACQUISITION OF ROTECH
MEDICAL CORPORATION - 32,743 - - 32,743
NET EARNINGS - - 38,080 - 38,080
-------------------------------------------------------------------------
BALANCE AT MARCH 31, 1998 $ 45 $ 1,137,763 $ 83,575 $ (19,813) $ 1,201,570
=========================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
INTEGRATED HEALTH SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET EARNINGS $ 38,080 $ 19,069
ADJUSTMENTS TO RECONCILE NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
NON-RECURRING INCOME - (1,025)
UNDISTRIBUTED RESULTS OF JOINT VENTURES 83 0
DEPRECIATION AND AMORTIZATION 38,591 15,030
DEFERRED INCOME TAXES AND OTHER NON-CASH ITEMS 4,923 1,396
AMORTIZATION OF GAIN ON SALE-LEASEBACK TRANSACTIONS (175) (299)
INCREASE IN PATIENT ACCOUNTS AND THIRD-PARTY
PAYOR SETTLEMENTS RECEIVABLE, NET (97,558) (10,386)
INCREASE IN SUPPLIES, INVENTORY, PREPAID
EXPENSES AND OTHER CURRENT ASSETS (14,698) (5,581)
INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES 12,153 (18,935)
DECREASE IN INCOME TAXES RECEIVABLE - 10,613
INCREASE IN INCOME TAXES PAYABLE 20,817 -
---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,216 9,882
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
PROCEEDS FROM ISSUANCE OF CAPITAL STOCK, NET 26,077 3,773
PROCEEDS FROM LONG-TERM BORROWINGS 77,367 139,928
REPAYMENT OF LONG-TERM DEBT (11,482) (97,639)
DIVIDENDS PAID (814) (471)
DEFERRED FINANCING COSTS 0 (698)
---------------- ----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 91,148 44,893
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
SALE OF TEMPORARY INVESTMENTS 8,939 355
PURCHASE OF TEMPORARY INVESTMENTS (61,169) (48)
BUSINESS ACQUISITIONS (NOTE 3) (62,391) (10,975)
PURCHASE OF PROPERTY, PLANT AND EQUIPMENT (67,004) (41,096)
DISPOSITION OF ASSETS 99,926 -
OTHER ASSETS (12,496) (3,272)
---------------- ----------------
NET CASH USED BY INVESTING ACTIVITIES (94,195) (55,036)
---------------- ----------------
DECREASE IN CASH AND CASH EQUIVALENTS (831) (261)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 52,965 39,028
---------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 52,134 $ 38,767
================ ================
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements included herein do not contain all
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles. For
further information, such as the significant accounting policies followed by
Integrated Health Services, Inc. ("IHS" or the "Company"), refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997. In
the opinion of management, the consolidated financial statements include all
necessary adjustments (consisting of only normal recurring accruals) for a fair
presentation of the financial position and results of operations for the interim
periods presented. The results of operations for the interim periods presented
are not necessarily indicative of the results that may be expected for the full
year.
NOTE 2: EARNINGS PER SHARE
The Company adopted SFAS No. 128 during the fourth quarter of the year ended
December 31, 1997. SFAS No. 128 establishes revised standards for computing and
presenting earnings per share (EPS) data. It requires dual presentation of
"basic" and "diluted" EPS on the face of the statements of operations and a
reconciliation of the numerators and denominators used in the basic and diluted
EPS calculations. As required by SFAS No. 128, EPS data for prior periods
presented have been restated to conform to the new standard.
Basic EPS is calculated by dividing net earnings (loss) by the weighted average
number of common shares outstanding for the applicable period. Diluted EPS is
calculated after adjusting the numerator and the denominator of the basic EPS
calculation for the effect of all potential dilutive common shares outstanding
during the period. Information related to the calculation of net earnings per
share of common stock is summarized as follows:
7
<PAGE>
<TABLE>
<CAPTION>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
For the three months ended March 31, 1998:
Basic EPS ................................................ $38,080 43,229 $ 0.88
Adjustment for interest on
convertible debentures .................................. 2,388 -- --
Incremental shares from
assumed exercise of dilutive
options and warrants .................................... -- 3,195 --
Incremental shares from assumed
conversion of the convertible
subordinated debentures ................................. -- 8,037 --
------- ------ ------------
Diluted EPS ............................................... $40,468 54,461 $ 0.74
======= ====== ============
For the three months ended March 31, 1997:
Basic EPS ................................................ $19,069 23,660 $ 0.81
Adjustment for interest on
convertible debentures .................................. 2,452 -- --
Incremental shares from
assumed exercise of dilutive
options and warrants ..................................... -- 2,173 --
Incremental shares from assumed
conversion of the convertible
subordinated debentures ................................. -- 7,989 --
------- ------ ------------
Diluted EPS ............................................... $21,521 33,822 $ 0.64
======= ====== ============
</TABLE>
<PAGE>
NOTE 3: NEW ACQUISITIONS
Acquisitions during the three months ended March 31, 1998 and the
manner of payment are summarized as follows:
<TABLE>
<CAPTION>
TOTAL COMMON ACCRUED CASH
MONTH TRANSACTION COSTS STOCK ISSUED LIABILITIES PAID
- ----- ----------- -------- ------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Jan. Stock of Paragon
Rehabilitative
Service, Inc. $ 11,183 $ 10,758 $ 425 --
Feb. Assets of Health
Star, Inc. $ 3,115 -- $ 260 $ 2,855
Feb. Stock of Medicare
Convalescent Aids
of Pinellas d/b/a
Medaids, RxStat,
Prime Medical
Services $ 4,671 $ 3,654 $ 187 $ 830
Feb. Stock of Michigan
Medical Supply $ 2,115 -- $ 215 $ 1,900
Feb. Assets of Nutmeg
Respiratory
Homecare $ 2,547 -- $ 207 $ 2,340
March Assets of Chancy
Healthcare Services,
Inc., Chancy Oxygen
Services, Inc., CHS
Home Infusion Co.,
Chancy Healthcare
Services of
Waynesboro $ 5,670 -- $ 335 $ 5,335
Various 20 acquisitions,
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
TOTAL COMMON ACCRUED CASH
MONTH TRANSACTION COSTS STOCK ISSUED LIABILITIES PAID
- ----- ----------- -------- ------------ ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
each with total
costs of less
than $2,000 $ 21,070 $ 2,097 $ 1,764 $ 17,209
Various Cash payments of
acquisition costs
accrued -- -- ($ 31,922) $ 31,922
-------- --------- ---------- --------
$ 50,371 $ 16,509 ($ 28,529) $ 62,391
======== ========= ========== ========
</TABLE>
The allocation of the total cost of the 1998 acquisitions to the
assets acquired and the liabilities assumed is summarized as follows:
<TABLE>
<CAPTION>
PROPERTY,
CURRENT PLANT & OTHER INTANGIBLE CURRENT LONG-TERM TOTAL
TRANSACTION ASSETS EQUIPMENT ASSETS ASSETS LIABILITIES LIABILITIES COSTS
- ----------- ------ --------- ------ ------ ----------- ----------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Paragon Rehab.
Services, Inc. $ 1,505 $ 85 $ 4 $ 13,036 ($ 3,427) ($ 20) $ 11,183
Health Star, Inc. $ 399 $ 221 -- $ 2,495 -- -- $ 3,115
Medicare Convale-
scent Aids of
Pinellas d/b/a
Medaids, RxStat,
Prime Medical
Services $ 1,040 $ 732 -- $ 3,176 ($ 277) -- $ 4,671
Michigan Medical
Supply $ 550 $ 591 -- $ 1,120 ($ 131) ($ 15) $ 2,115
Nutmeg Respiratory
Homecare $ 536 $ 291 -- $ 1,720 -- -- $ 2,547
Chancy Healthcare
Services, Inc.,
Chancy Oxygen
Services, Inc.,
CHS Home Infusion
Co., Chancy Health-
care Services of
Waynesboro $ 650 $ 80 -- $ 4,940 -- -- $ 5,670
20 acquisitions,
each with total
costs of less
than $2,000 $ 1,975 $ 2,738 -- $ 16,357 -- -- $ 21,070
------- --------- ------ -------- ----------- ----------- --------
$ 6,655 $ 4,738 $ 4 $ 42,844 ($ 3,835) ($ 35) $ 50,371
======= ========= ====== ======== =========== =========== ========
</TABLE>
NOTE 4: TRANSACTIONS WITH LYRIC HEALTH CARE LLC
In January 1998, the Company sold five long-term care facilities to
Omega Healthcare Investors, Inc.("Omega") for $44.5 million, which
facilities were leased back by Lyric Health Care LLC ("LLC"), a newly
formed subsidiary of IHS, at an annual rent of approximately $4.5
million. In a related transaction, TFN Healthcare Investors, LLC
("TFN", an entity in which Timothy F. Nicholson, a director of IHS, is
the principal member) purchased a 50% interest in LLC for $1.0 million
and IHS' interest in LLC was reduced to 50%. IHS also entered into
management and franchise agreements with LLC. The management and
franchise agreements' initial terms are 13 years with two renewal
options of 13 years each. The base management fee is 3% of gross
revenues, subject to increase if gross revenues exceed $350.0 million.
In addition, the agreement provides for an incentive management fee
equal to 70% of annual net cash flow (as defined in the management
agreement). The duties of
9
<PAGE>
IHS as manager include the following: accounting, legal, human
resources, operations, materials and facilities management and
regulatory compliance. The annual franchise fee is 1% of gross
revenues, which grants LLC the authority to use the Company's trade
names and proprietary materials.
The LLC will dissolve on December 31, 2047 unless extended for an
additional 12 months. On February 1, 1998 LLC also entered into a
five-year employment agreement with Timothy F. Nicholson, the
principal stockholder of TFN and a director of the Company. Pursuant
to LLC's operating agreement, Mr. Nicholson will serve as Managing
Director of LLC and will have the day-to-day authority for the
management and operation of LLC and will initiate policy proposals for
business plans, acquisitions, employment policy, approval of budgets,
adoption of insurance programs, additional service offerings,
financing strategy, ancillary service usage, change in material terms
of any lease and adoption/amendment of employee health, benefit and
compensation plans. As a result of the aforementioned transactions,
IHS will account for its investment in Lyric using the equity method
of accounting since IHS no longer controls Lyric. The Company recorded
a $2.5 million loss on the sale of these facilities in 1997.
In March 1998, the Company sold an additional five long-term care
facilities to Omega for approximately $50 million, which facilities
were leased back to LLC at an annual rent of approximately $4.9
million. IHS also entered into management and franchise agreements
with LLC with terms similar to those described above. The Company
recorded no gain or loss on this transaction.
NOTE 5: SALE OF OUTPATIENT CLINICS
In February 1998, the Company sold its outpatient clinics to
Continucare Rehabilitation Services, Inc.for $10.0 million. During the
fourth quarter of 1997, the Company wrote down its investment in its
outpatient clinics to net realizable value. Accordingly, no gain or
loss was recognized by the Company during the first quarter of 1998.
NOTE 6: RECENT ACCOUNTING PRONOUNCEMENTS - COMPREHENSIVE INCOME
In 1998 the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." SFAS No. 130
establishes standards for reporting and display of comprehensive
earnings and its components in a full set of general purpose financial
statements. A reconciliation of the Company's net earnings and
comprehensive earnings follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPT.30 DEC. 31 MAR.31 MAR.31
1996 1996 1997 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET EARNINGS 16,511 2,176 19,069 38,080
INCREASE (DECREASE) IN
UNREALIZED GAIN ON AVAILABLE
FOR SALE SECURITIES 11,483 (2,123) (9,360) -
INCOME TAX EFFECT (4,421) 817 3,604 -
COMPREHENSIVE EARNINGS 23,573 870 13,313 38,080
====== ======= ====== ======
</TABLE>
There were no differences between net earnings and comprehensive earnings
prior to July 1, 1996.
NOTE 7: SUBSEQUENT EVENTS
AGREEMENT WITH MONARCH PROPERTIES, INC.
In April 1998 the Company reached an agreement in principle to sell 44
facilities to Monarch Properties, Inc., a newly-formed real estate
investment trust ("Monarch"), for an aggregate purchase price of
approximately $371 million. It is currently contemplated that Monarch
will lease 42 of these 44 facilities to LLC, and that LLC will engage
the Company to manage the facilities pursuant to the
10
<PAGE>
arrangements described in Note 4. The transactions with Monarch and
LLC are subject to completion of definitive documentation and
completion of Monarch's initial public offering, and there can be no
assurance that the transaction will be completed on these terms, on
different terms, or at all. Dr. Robert N. Elkins, the Company's
Chairman of the Board, Chief Executive Officer and President, is
Chairman of the Board of Directors of Monarch, and it is currently
contemplated that he will beneficially own between five and ten
percent of Monarch following completion of Monarch's public offering.
OTHER ACQUISITIONS
In April 1998, IHS acquired a company operating 13 skilled nursing
facilities for approximately $15.9 million. Also in April 1998, the
Company purchased seven respiratory companies for approximately $5.5
million.
In addition, the Company has reached agreements in principle to
purchase a skilled nursing facility company for approximately $53.2
million, two lithotripsy operations for approximately $20.4 million,
and six respiratory companies for approximately $19.5 million.
There can be no assurance that any of these pending acquisitions will
be consummated on the proposed terms, on different terms, or at all.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
Statements in this Quarterly Report on Form 10-Q concerning the Company's
business outlook or future economic performance; anticipated profitability,
revenues, expenses or other financial items; and product line growth, together
with other statements that are not historical facts, are "forward-looking
statements" as that term is defined under Federal Securities Laws.
Forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual results to differ materially from those stated in such
statements. Such risks and uncertainties and factors include, but are not
limited to, the Company's substantial indebtedness, growth strategy, managed
care strategy, capital requirements and recent acquisitions as well as
competition, government regulation, general economic conditions and the other
risks detailed in the Company's filings with the Securities and Exchange
Commission, including the Annual Report on Form 10-K.
The Company continues to evaluate the impact of the Balanced Budget Act
("BBA") upon future operating results. While the BBA was passed in August 1997,
specific interpretative regulations for various service providers will continue
to be released until the year 2000. The assumptions used by the Company to
evaluate the impact of the BBA on the Company's business lines are based upon
the most accurate information available at each quarter end. Presently the
Company is responding to all of the known changes created by the BBA, however,
it cannot predict the impact future regulations may have on anticipated rates,
service usage and operating costs.
THREE MONTHS ENDED MARCH 31, 1998
COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net revenues for the three months ended March 31, 1998 increased $393.9
million, or 85%, to $854.9 million from the comparable period in 1997. The
increase in revenues was primarily a result of acquisitions consummated
subsequent to March 31, 1997 and increased revenues from
12
<PAGE>
facilities and ancillary companies in operation during both periods partially
offset by the sale of five long-term care facilities in January 1998 and the
sale of its outpatient clinics to Continucare Rehabilitation Services, Inc. in
February 1998. The growth in revenues from facilities was primarily the result
of increased occupancy in the Company's Medical Specialty Units ("MSUs") and the
growth in revenues from ancillary companies was primarily the result of
additional service contracts entered into subsequent to March 31, 1997.
Basic medical services revenue increased 165% from $88.8 million to $234.9
million. This increase resulted from the acquisition of 136 owned or leased
long-term care facilities subsequent to March 31, 1997, partially offset by the
conversion of skilled nursing beds to MSU beds after March 31, 1997 and the sale
of five long-term care facilities in January 1998.
Specialty medical services revenue increased $249.5 million, or 69%, from
$362.7 million to $612.2 million. This increase was attributable to revenue from
acquisitions subsequent to March 31, 1997, increased revenue from facilities and
ancillary companies in operation in both periods, as well as skilled nursing
beds being converted to MSU beds after March 31, 1997, which results in higher
revenue per day, partially offset by the sale of five long-term care facilities
in January 1998 and the sale of its outpatient clinics in February 1998.
Management services and other revenues decreased 18% from $9.5 million to
$7.8 million primarily as a result of the termination of 12 management
agreements subsequent to March 31, 1997, partially offset by management fees
from five facilities which the Company began to manage on behalf of Lyric Health
Care LLC, an entity 50% owned by the Company which is leasing the facilities
sold to Omega.
Total expenses for the period increased to $790.6 million from $429.9
million, an increase of 84%. Of the $360.7 million increase in total expenses,
$279.7 million, or 78%, was due to an increase in operating, general and
administrative expenses. Substantially all of the increase in operating, general
and administrative expenses was due to
13
<PAGE>
acquisitions consummated subsequent to March 31, 1997. Depreciation and
amortization increased to $38.6 million during the three months ended March 31,
1998, an increase of 157%, compared to $15.0 million recorded in the same period
in 1997. This increase is the result of acquisitions consummated subsequent to
the first quarter of 1997. Rent expense increased by $11.4 million, or 48%, over
the comparable period in 1997. This increase is primarily a result of
acquisitions consummated subsequent to the first quarter of 1997, and increases
in contingent rentals which are based on gross revenues of certain leased
facilities. Interest expense, net increased 210%, or $45.0 million, during the
three months ended March 31, 1998 to $66.5 million. The increase in interest
expense is primarily a result of additional term loan borrowings of $400 million
in December 1997 and $750 million in September 1997, the issuance of $450
million of 9-1/2% Senior Subordinated Notes due 2007 in May 1997, and $500
million of the 9-1/4% Senior Subordinated Notes due 2008 in September 1997, and
increased borrowings under its $1.0 billion revolving credit facility; partially
offset by a reduction in interest resulting from the repurchase of substantially
all of the Company's 9-5/8% Senior Subordinated Notes due 2002 and the 10-3/4%
Senior Subordinated Notes due 2004, the payoff of the Company's $700 million
previous revolving credit facility and lower interest rates. During the first
quarter of 1997, the Company realized a $7.6 million gain on its investment in
shares of common stock of Capstone Pharmacy Services, Inc., received in
connection with the sale of its pharmacy division to Capstone in July 1996,
offset by $6.6 million of accounting, legal and other costs related to the
failed merger with Coram Healthcare Corporation. As a result, the Company has
recorded in its statement of earnings $1.0 million of non-recurring income for
the first quarter of 1997.
Earnings before equity in earnings of affiliates and income taxes increased
107% to $64.3 million for the three months ended March 31, 1998, as compared to
$31.1 million for the comparable period in the prior year.
Earnings before income taxes increased 106% to $64.5 million for the three
months ended March 31, 1998, as compared to $31.3 million for the comparable
period in the prior year. The provision for federal and state income taxes was
$26.5 million for the three months ended March 31, 1998, and $12.2 million for
the same period in the prior year. Net earnings and diluted earnings per share
for the quarter were $38.1 million in 1998, or 74 cents per share, as compared
to $19.1 million, or 64 cents per share, for the same period in 1997. Weighted
average shares (diluted) increased 20.6 million shares, or 61%, to 54.5 million
shares from the comparable period in 1997, primarily as the result of the
issuance of approximately 15.6 million shares in October 1997 in connection with
the acquisition of RoTech Medical Corporation.
14
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of $224.2 million, as
compared with $63.1 million at December 31, 1997. The increase in working
capital was primarily due to an increase in temporary investments, an increase
in patient accounts and third party payor settlements receivable and other
current assets and a decrease in accounts payable and accrued expenses. There
were no material capital commitments for capital expenditures as of March 31,
1998. Net patient accounts and third-party payor settlements receivable
increased $89.7 million to $693.2 million at March 31, 1998, as compared to
$603.4 million at December 31, 1997. Of the $89.7 million increase in accounts
receivable, $7.2 million was attributable to related services businesses
acquired subsequent to December 31, 1997 and $94.1 million was due to increased
accounts receivable at facilities in operation and related services businesses
owned at both December 31, 1997 and March 31, 1998, partially offset by
approximately $11.5 million attributable to patient accounts receivable and
third party payor settlements at December 31, 1997 of facilities sold in 1998.
Patient accounts receivable were $804.2 million at March 31, 1998, as compared
with $726.1 million at December 31, 1997. Net third-party payor settlements
receivable from federal and state governments (i.e., Medicare and Medicaid cost
reports) was $52.9 million at March 31, 1998, as compared to $38.7 million at
December 31, 1997. Approximately $15.3 million, or 29%, of the third-party payor
settlements receivable from federal and state governments at March 31, 1998
represent the costs for its MSU patients which exceed regional reimbursement
limits established under Medicare.
The Company's cost of care for its MSU patients generally exceeds regional
reimbursement limits established under Medicare. The Company's ability to obtain
reimbursement for those costs which exceed the Medicare established
reimbursement limits will depend on obtaining waivers of these cost limitations.
The Company has submitted waiver requests for 325 cost reports, covering all
cost report periods through December 31, 1996. To date, final action has been
taken by the Health Care Financing Administration ("HCFA") on all 325 waiver
requests covering cost report periods through December 31, 1996. The Company's
final rates as approved by HCFA represent approximately 95% of the
15
<PAGE>
requested rates as submitted in the waiver requests. There can be no assurance,
however, that the Company will be able to recover its excess costs under any
waiver requests which may be submitted in the future. The Company's failure to
recover substantially all these excess costs would adversely affect its results
of operations and could adversely affect its MSU strategy.
Net cash provided by operating activities for the three months ended March
31, 1998, was $2.2 million as compared to $9.9 million for the comparable period
in 1997.
Net cash provided by financing activities was $91.1 million for the three
month period in 1998 as compared to $44.9 million provided by financing
activities for the comparable period in 1997. In both periods, the Company
received net proceeds from long-term borrowings and made repayments on certain
debt.
Net cash used by investing activities was $94.2 million for the three month
period ended March 31, 1998 as compared to $55.0 million used by investing
activities for the three month period ended March 31, 1997. Cash used for the
acquisition of facilities and ancillary company acquisitions was $62.4 million
in 1998 as compared to $11.0 million for 1997. Cash used for the purchase of
property, plant and equipment was $67.0 million in 1998 and $41.1 million in
1997. In the first quarter of 1998, the Company received $89.9 million related
to the sale of ten long-term care facilities to Omega Healthcare Investors, Inc.
(See Note 4: Transactions with Lyric Health Care LLC)and $10.0 million from the
sale of its Outpatient Clinics to Continucare Rehabilitation Services, Inc. (See
Note 5: Sale of Outpatient Clinics). The net proceeds from such sales were used
to repay debt outstanding under the revolving credit facility and other
corporate purposes, including acquisitions.
As a result of the BBA's implementation of a prospective payment system for
home nursing beginning with cost report periods beginning on or after October 1,
1999, contingent payments in respect of the acquisition of First American Health
Care of Georgia, Inc. in October 1996, aggregating $155 million, became payable
over five years beginning in 2000. The present value of such payments at March
31, 1998 is $115.2 million and is recorded on the balance sheet under the
caption other long-term liabilities.
IHS' contingent liabilities (other than liabilities in respect of
litigation) aggregated approximately $89.4 million as of March 31, 1998. The
Company is obligated to purchase its Greenbriar facility upon a change in
control of IHS. The net price of the facility is approximately $4.0 million. The
Company has guaranteed approximately $6.6 million of the lessor's indebtedness.
IHS is required, upon certain defaults under the lease, to purchase its Orange
Hills facility at a
16
<PAGE>
purchase price equal to the greater of $7.1 million or the facility's fair
market value. The Company has guaranteed approximately $4.0 million owed by
Tutera Group, Inc. and Sunset Plaza Limited Partnership, a partnership
affiliated with a partnership in which IHS has a 49% interest, to Finova Capital
Corporation. IHS has established several irrevocable standby letters of credit
with the Bank of Nova Scotia totaling $33.0 million at March 31, 1998 to secure
certain of the Company's workers' compensation obligations, health benefits and
other obligations. In addition, IHS has several surety bonds in the amount of
$32.5 million to secure certain of the Company's health benefits, patient trust
funds and other obligations. IHS also has established a letter of credit with
NationsBank in the amount of $2.2 million for credit enhancement to an
industrial development bond issued for construction of a facility in Amarillo,
Texas. In addition, with respect to certain acquired businesses IHS is obligated
to make certain contingent payments if earnings targets of the acquired
businesses are met. The Company is obligated to purchase the remaining interests
in its lithotripsy partnerships at a defined price in the event legislation is
passed or regulations adopted that would prevent the physician partners from
owning an interest in the partnership and using the partnership's lithotripsy
equipment for the treatment of his or her patients. In addition, IHS has
obligations under operating leases aggregating approximately $684.0 million at
March 31, 1998.
The Company anticipates that cash from operations and borrowings under
revolving credit facilities will be adequate to cover its scheduled debt
payments and future anticipated capital expenditure requirements throughout
1998. The Company expects to continue to be growth oriented in 1998 through the
expansion of its existing operations, continued implementation of its MSU
programs and by the acquisition of additional facilities, ancillary companies
and management agreements.
YEAR 2000 COMPLIANCE
The Company has conducted a comprehensive review of its computer systems to
identify the systems that are affected by the "Year 2000" issue and has
substantially completed an implementation plan to resolve this issue. This issue
affects computer systems that have date sensitive programs that may not properly
recognize the year 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail, resulting in business
interruption. In 1997, the Company commenced a year 2000 conversion project for
all of its locations to address necessary software upgrades, training, data
conversion, testing and implementation. The Company will incure internal staff
costs as well as consulting and other expenses to complete the project by the
middle of 1999. Costs related to the year 2000 issue are being expensed as
incurred. The Company does not expect the amounts required to be expensed during
the project to have a material effect on its financial position or results of
operation.
The year 2000 issue is expected to affect the systems of various entities
with which the Company interacts, including payors, suppliers and vendors. There
can be no assurance that the systems of other companies on which the Company's
systems rely will be timely converted, or that a failure by another company's
systems to be year 2000 compliant would not have a material adverse effect on
the Company.
17
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PART II: OTHER INFORMATION
Item 2. - Changes in Securities
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
On August 29, 1997, the Company acquired through merger all of the
outstanding stock of Arcadia Services, Inc.("ARCADIA") , which provides home
health care services, medical staffing services and clerical and light
industrial staffing services. The merger consideration was $17.2 million, which
was paid though the issuance of 581,451 shares of the Company's Common Stock
531,198 shares were issued to the Stockholders of Arcadia in August 1997; the
remaining 50,253 shares (the "additional shares") were issued in February 1998.
Because the average price of the 531,198 shares of Common Stock issued to the
Arcadia stockholders at the time of closing of the acquisition (the "Original
Shares") was higher than the average price of the Common Stock at the time such
shares were registered for resale under the Securities Act, the number of
additional shares is equal to the difference between (i) the number of shares
determined by dividing the merger consideration of $17.2 million by the average
closing price of the Common Stock on the NYSE for the 30 trading days ending on
the date immediately preceding the date the registration statement covering the
resale of the Original Shares was declared effective and (ii) the number of
shares determined by dividing the merger consideration of $18.7 million by the
average closing price of the Common Stock on the NYSE for the 30 trading day
period immediately preceding the date which was two trading days prior to the
closing date of the acquisition.
On January 31, 1998, the Company acquired all the outstanding capital stock
of Paragon Rehabilitative Services, Inc. ("PARAGON"), which provides contract
rehabilitation services to nursing homes, long-term care facilities and other
healthcare facilities. The merger consideration was $10.8 million, which was
paid through the issuance of 361,851 shares of the Company's Common Stock. To
the stockholder of Paragon (based on the average closing price of the Common
Stock for the 30 day trading period immediately preceding the date which is
two days prior to the closing date).
On February 28, 1998, the Company acquired an 18% limited partnership
interest in Southwest Lithotripter Partners, Ltd. The purchase price for the
interest was $630,000, which was paid through the issuance of 19,700 shares of
the Company's Common Stock to a Partner (based on the average closing price of
the Common Stock for the 30 day trading period immediately preceding the date
which is two days prior to the closing date).
On February 11, 1998, the Company acquired all of the outstanding capital
stock of Medicare Convalescent Aids of Pinellas, Inc. d/b/a Medaids, RxStat and
Prime Medical Services, Inc. The purchase price was $3.7 million, which was paid
through the issuance of 122,376 shares of the Company's common stock (based on
the average closing price of the Common Stock for the 30 day trading period
immediately preceeding the date which is two days prior to the closing date.
On March 16, 1998, the Company acquired all the assets of Jersey Shore
Portable X-Ray, Inc.("JSP") The purchase price for the assets was $400,000,
which was paid through the issuance of 12,082 shares of the Company's Common
Stock to the stockholder of JSP based on the average closing price of the Common
Stock for the 30 day trading period immediately preceding the date which is two
days prior to the closing date).
The Common Stock issued by the Company in these transactions was not
registered under the Securities Act of 1933, as amended, in reliance upon
exemtions contained in Section 4(2) thereof. Each of the stockholders made
representations to the effect that (i) the shares were being acquired for its
own account and not with a view to, or for sale in connection with, any
distribution; (ii) acknowledging that the shares were restricted securities
under Rule 144; (iii) that it had knowledge and experience in business matters,
was capable of evaluating the merits and risks of the investment, and was able
to bear the risk of loss; (iv) had the opportunity to make inquiries of and
obtain information from IHS. The Company is obligated to register the Common
Stock for resale under the Securities Act of 1933, as amended.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Integrated Health Services, Inc., Supplemental Executive Retirement
Plan ("Plan B")
10.2 Integrated Health Services, Inc., Deferred Compensation Plan for
Senior Vice Presidents and Highly Compensated Employees
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated December 31, 1997, as
amended, Reporting the Acquisition of 139 owned, leased or managed
long-term care facilities, 12 specialty hospitals and certain other
businesses from HEALTHSOUTH Corporation.
The Company Filed a Current Reprt on Form 8-K Date March 4, 1998 reporting
The Company's Reviews and operationg Results For the Fourth Quarter and
Year Ended Decmember 31, 1997.
18
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- SIGNATURES -
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Robert N. Elkins
-----------------------------------------
Robert N. Elkins
Chief Executive Officer
By: /s/ W. Bradley Bennett
-----------------------------------------
W. Bradley Bennett
Executive Vice President and
Chief Accounting Officer
By: /s/ C. Taylor Pickett
-----------------------------------------
C. Taylor Pickett
Executive Vice President-Chief Financial
Officer
Dated: May 13, 1998
INTEGRATED HEALTH SERVICES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
("PLAN B")
Amended and Restated
Effective as of April 1, 1998
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
("PLAN B")
Amended and Restated
Effective as of April 1, 1998
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 ACCOUNT.............................................................. 1
1.2 BENEFICIARY.......................................................... 1
1.3 CHANGE IN CONTROL.................................................... 1
1.4 CODE................................................................. 2
1.5 COMPENSATION......................................................... 2
1.6 COMPENSATION DEFERRAL ACCOUNT........................................ 2
1.7 COMPENSATION DEFERRALS............................................... 2
1.8 EFFECTIVE DATE....................................................... 2
1.9 ELIGIBLE EMPLOYEE.................................................... 2
1.10 EMPLOYER............................................................. 2
1.11 EMPLOYER CONTRIBUTION CREDIT ACCOUNT................................. 2
1.12 EMPLOYER CONTRIBUTION CREDITS........................................ 2
1.13 ENTRY DATE........................................................... 2
1.14 NORMAL RETIREMENT AGE................................................ 2
1.15 PARTICIPANT.......................................................... 2
1.16 PARTICIPANT ENROLLMENT AND ELECTION FORM............................. 3
1.17 PLAN or PLAN B....................................................... 3
1.18 PLAN YEAR............................................................ 3
1.19 TRUST................................................................ 3
1.20 TRUSTEE.............................................................. 3
1.21 VALUATION DATE....................................................... 3
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS......................................................... 3
2.2 RE-EMPLOYMENT........................................................ 3
2.3 CHANGE OF EMPLOYMENT CATEGORY........................................ 3
i
<PAGE>
ARTICLE 3
CONTRIBUTIONS AND CREDITS
3.1 EMPLOYER CONTRIBUTION CREDITS........................................ 4
3.2 PARTICIPANT COMPENSATION DEFERRALS................................... 4
3.3 CONTRIBUTIONS TO THE TRUST........................................... 5
ARTICLE 4
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS.................. 5
4.2 ACCOUNTING FOR DISTRIBUTIONS......................................... 6
4.3 SEPARATE ACCOUNTS.................................................... 6
4.4 INTERIM VALUATIONS................................................... 6
4.5 EXPENSES............................................................. 6
4.6 TAXES................................................................ 6
ARTICLE 5
ENTITLEMENT TO BENEFITS
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT....................... 6
5.2 HARDSHIP DISTRIBUTIONS............................................... 7
5.3 VESTING.............................................................. 7
5.4 RE-EMPLOYMENT OF RECIPIENT........................................... 8
5.5 CHANGE IN CONTROL BENEFITS........................................... 8
ARTICLE 6
DISTRIBUTION OF BENEFITS
6.1 AMOUNT............................................................... 9
6.2 METHOD OF PAYMENT.................................................... 9
6.3 DEATH BENEFITS....................................................... 9
ARTICLE 7
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES......................................... 10
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES.................. 10
ARTICLE 8
ADMINISTRATION
8.1 ADMINISTRATIVE AUTHORITY............................................. 11
8.2 UNIFORMITY OF DISCRETIONARY ACTS..................................... 11
8.3 LITIGATION........................................................... 12
8.4 CLAIMS PROCEDURE..................................................... 12
ARTICLE 9
AMENDMENT
9.1 RIGHT TO AMEND....................................................... 13
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN................. 13
ARTICLE 10
TERMINATION
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<PAGE>
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN........................ 13
10.2 AUTOMATIC TERMINATION OF PLAN........................................ 13
10.3 SUSPENSION OF DEFERRALS.............................................. 13
10.4 ALLOCATION AND DISTRIBUTION.......................................... 14
10.5 SUCCESSOR TO EMPLOYER................................................ 14
ARTICLE 11
THE TRUST
11.1 ESTABLISHMENT OF TRUST............................................... 14
ARTICLE 12
MISCELLANEOUS
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER................................. 14
12.2 CONSTRUCTION......................................................... 15
12.3 SPENDTHRIFT PROVISION................................................ 15
iii
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
("PLAN B")
Amended and Restated
Effective as of April 1, 1998
RECITALS
This amended and restated Integrated Health Services, Inc. Supplemental
Executive Retirement Plan (the "Plan", or "Plan B") is adopted by Integrated
Health Services, Inc. (the "Employer") for certain of its executive and/or
highly compensated employees. The purpose of the Plan is to offer those
employees an opportunity to elect to defer the receipt of compensation in order
to provide termination of employment and related benefits taxable pursuant to
section 451 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Plan is intended to be a "top-hat" plan (i.e., an unfunded deferred compensation
plan maintained for a select group of management or highly-compensated
employees) under sections 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974 ("ERISA").
Accordingly, the following amendment and restatement of the Plan is
adopted.
ARTICLE 1
DEFINITIONS
1.1 ACCOUNT means the balance credited to a Participant's or Beneficiary's
Plan account, including contribution credits and deemed income, gains and losses
(as determined by the Employer, in its discretion) credited thereto. A
Participant's or Beneficiary's Account shall be determined as of the date of
reference.
1.2 BENEFICIARY means any person or person so designated in accordance with
the provisions of Article 7.
1.3 CHANGE IN CONTROL means (a) the purchase or other acquisition by any
person, entity or group of persons, within the meaning of section 13(d) or 14(d)
of the Securities Exchange Act of 1934 (the "Act"), or any comparable successor
provisions, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of thirty percent (30%) or more of either the
outstanding shares of common stock or the combined voting power of the
Employer's then outstanding voting securities entitled to vote generally, or (b)
the approval by the stockholders of the Employer of a reorganization, merger, or
consolidation, in each case with respect to which persons who were stockholders
of the Employer immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than fifty percent (50%)
of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged, or consolidated entity's then outstanding
securities, or (c) a liquidation or dissolution of the Employer, or (d) the sale
of all or substantially all of the Employer's assets. In the case of a Change in
Control event affecting an Employer that is not the common law Employer of the
Participant, such event shall be deemed to constitute a Change in Control only
if the Change in Control event affects an Employer that owns, directly or
through one or more controlled entities, the stock or other equity interests of
the Participant's common law Employer.
1.4 CODE means the Internal Revenue Code of 1986 and the regulations
thereunder, as amended from time to time.
1.5 COMPENSATION means the total current cash remuneration paid by the
Employer to an Eligible Employee with respect to his or her service for the
Employer (as determined by the Employer at its discretion).
1.6 COMPENSATION DEFERRAL ACCOUNT is defined in Section 3.2.
1
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1.7 COMPENSATION DEFERRALS is defined in Section 3.2.
1.8 EFFECTIVE DATE means the effective date of the Plan, which shall be
April 1, 1998.
1.9 ELIGIBLE EMPLOYEE means, for any Plan Year (or applicable portion
thereof), a person employed by the Employer who is determined by the Employer to
be a member of a select group of management or highly compensated employees of
the Employer and whose name appears on Schedule I, attached hereto.
1.10 EMPLOYER means Integrated Health Services, Inc. and its successors and
assigns unless otherwise herein provided, or any other corporation or business
organization which, with the consent of Integrated Health Services, Inc., or its
successors or assigns, assumes the Employer's obligations hereunder, or any
other corporation or business organization which agrees, with the consent of
Integrated Health Services, Inc., to become a party to the Plan.
1.11 EMPLOYER CONTRIBUTION CREDIT ACCOUNT is defined Section 3.1.
1.12 EMPLOYER CONTRIBUTION CREDITS is defined in Section 3.1.
1.13 ENTRY DATE with respect to an individual means the first day of the
pay period following the date on which the individual first is given notice that
he or she is an Eligible Employee.
1.14 NORMAL RETIREMENT AGE means the later of a Participant's sixty-fifth
(65th) birthday or the date on which the Participant has completed five (5)
years of service with the Employer (as determined by the Employer).
1.15 PARTICIPANT means any person so designated in accordance with the
provisions of Article 2, including, where appropriate according to the context
of the Plan, any former employee who is or may become (or whose Beneficiaries
may become) eligible to receive a benefit under the Plan.
1.16 PARTICIPANT ENROLLMENT AND ELECTION FORM means the form or forms on
which a Participant elects to defer Compensation hereunder and on which the
Participant makes certain other designations as required thereon.
1.17 PLAN or PLAN B means this Integrated Health Services, Inc.
Supplemental Executive Retirement Plan, as amended from time to time.
1.18 PLAN YEAR means the twelve (12) month period ending on the December 31
of each year during which the Plan is in effect.
1.19 TRUST means the Trust established pursuant to Article 11.
1.20 TRUSTEE means the trustee of the Trust established pursuant to Article
11.
1.21 VALUATION DATE means the last day of each Plan Year and any other date
that the Employer, in its sole discretion, designates as a Valuation Date.
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS. Every Eligible Employee as of the Effective Date shall be
eligible to become a Participant on the Effective Date. Every other Eligible
Employee shall be eligible to become a Participant on the first Entry Date
occurring on or after the date on which he or she is notified by the Employer
that he or she is an Eligible Employee. No individual shall become a
Participant, however, if he or she is not an Eligible Employee on the date his
or her participation is to begin.
2
<PAGE>
Participation in the Participant Compensation Deferral feature of the
Plan is voluntary. In order to participate in the Participant Compensation
Deferral feature of the Plan, an otherwise Eligible Employee must make written
application in such manner as may be required by Section 3.2 and by the Employer
and must agree to make Compensation Deferrals as provided in Article 3.
Participation in the Employer Contribution Credit Account portion of
the Plan is automatic for all Participants.
2.2 RE-EMPLOYMENT. If a Participant whose employment with the Employer is
terminated is subsequently re-employed, he or she shall become a Participant in
accordance with the provisions of Section 2.1.
2.3 CHANGE OF EMPLOYMENT CATEGORY. During any period in which a Participant
remains in the employ of the Employer, but ceases to be an Eligible Employee, he
or she shall not be eligible to make Compensation Deferrals hereunder.
ARTICLE 3
CONTRIBUTIONS AND CREDITS
3.1 EMPLOYER CONTRIBUTION CREDITS. There shall be established and
maintained a separate Employer Contribution Credit Account in the name of each
Participant. The Participant's Employer Contribution Credit Account shall be
credited or debited, as applicable, with (a) amounts equal to the Employer's
Contribution Credits credited to that Account; and (b) any deemed earnings and
losses (to the extent realized, based upon deemed fair market value of the
Account's deemed assets as determined by the Employer, in its discretion)
allocated to that Account.
For purposes of this Section, the Employer's Contribution Credits
credited to Participants' Employer Contribution Credit Accounts for a particular
Plan Year shall be an amount (if any) determined by the Employer, in its
discretion, by the last day of the third month of such Plan Year. The amount
allocated to each Participant's Employer Contribution Credit Account each year
that the Employer makes an Employer Contribution Credit shall equal the total
Employer Contribution Credits for the Plan Year multiplied by a fraction, the
numerator of which is the Participant's highest base salary (as determined by
the Employer) for the calendar year prior to the Plan Year for which the
Employer Contribution Credit is made and the denominator of which is the total
of all Participants' highest base salaries for such calendar year (as determined
by the Employer).
The Participant's Employer Contribution Credit Account shall be
credited or debited, as applicable, as of each Valuation Date, with deemed
earnings or losses, as applicable. The amount of deemed earnings or losses shall
be as determined by the Employer. The Employer shall have the discretion to
allocate such deemed earnings or losses among Participants' Employer
Contribution Credit Accounts pursuant to such allocation rules as the Employer
deems to be reasonable and administratively practicable.
A Participant shall be vested in amounts credited to his or her
Employer Contribution Credit Account as provided in Section 5.3.
3.2 PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules
established by the Employer, a Participant may elect to defer Compensation which
is due to be earned and which would otherwise be paid to the Participant, in a
lump sum or in any fixed periodic dollar amounts designated by the Participant.
Amounts so deferred will be considered a Participant's "Compensation Deferrals."
Ordinarily, a Participant shall make such an election with respect to a coming
twelve (12) month Plan Year during the period beginning on the December 1 and
ending on the December 31 of the prior Plan Year, or during such other period as
is established by the Employer.
3
<PAGE>
Compensation Deferrals shall be made through regular payroll
deductions or through an election by the Participant to defer the payment of a
bonus not yet payable to him or her at the time of the election. The Participant
may change his or her regular payroll deduction Compensation Deferral amount as
of, and by written notice delivered to the Employer at least seven (7) days
prior to, the beginning of any regular payroll period, with such reduction being
first effective for Compensation to be earned in that payroll period. In the
case of a bonus deferral, the Participant may reduce his or her bonuses due to
be paid by the Employer by giving notice to the Employer of the bonus
Compensation Deferral amount prior to the date the applicable bonus is first due
to be paid.
Once made, a Compensation Deferral regular payroll deduction election
shall continue in force indefinitely, until changed as provided above. A
Compensation Deferral bonus payment election shall continue in force only for
the Plan Year for which the election is first effective. Compensation Deferrals
shall be deducted by the Employer from the pay of a deferring Participant and
shall be credited to the Account of the deferring Participant.
There shall be established and maintained by the Employer a separate
Compensation Deferral Account in the name of each Participant to which shall be
credited or debited: (a) amounts equal to the Participant's Compensation
Deferrals; and (b) amounts equal to any deemed earnings or losses (to the extent
realized, based upon deemed fair market value of the Account's deemed assets, as
determined by the Employer, in its discretion) attributable or allocable
thereto.
A Participant shall at all times be 100% vested in amounts credited to
his or her Participant Compensation Deferral Account.
3.3 CONTRIBUTIONS TO THE TRUST. An amount shall be contributed by the
Employer to the Trust maintained under Section 11.1 equal to the amount(s)
required to be credited to the Participants' Accounts under Sections 3.1 and
3.2. Amounts equal to a Participant's Compensation Deferrals will be contributed
to the Trust with reasonable promptness after the total of such Compensation
Deferrals during any period has been determined. Amounts (if any) equal to a
Participant's Employer Contribution Credits for a particular Plan Year will be
contributed to the Trust by the last day of the third month of such Plan Year.
ARTICLE 4
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. The assets of the
Trust shall be invested in such investments as the Employer shall determine. The
Employer shall direct the Trustee to invest the accounts maintained in the Trust
on behalf of the Participants pursuant to the Employer's investment directions.
The value of the Participant's Account shall be equal to the value of
the account maintained under the Trust on behalf of the Participant. As of each
valuation date of the Trust, the Participant's Account will be credited or
debited to reflect the Participant's deemed investments of the Trust. The
Participant's Plan Account will be credited or debited with the increase or
decrease in the realizable net asset value or credited interest, as applicable,
of the designated deemed investments, as follows. As of each Valuation Date, the
earnings and losses of the Trust fund will be allocated to each Participant's
Plan Account in the ratio that such Account balance bears to all Participant
Account balances.
4.2 ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution
hereunder, the distribution made hereunder to the Participant or his or her
Beneficiary or Beneficiaries shall be charged to such Participant's Account.
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<PAGE>
4.3 SEPARATE ACCOUNTS. A separate account under the Plan shall be
established and maintained by the Employer to reflect the Account for each
Participant, although there shall not be made or maintained an actual physical
division of the assets of the Trust until the time shall arrive for a
distribution hereunder to a Participant or a Beneficiary.
4.4 INTERIM VALUATIONS. If it is determined by the Employer that the value
of a Participant's Account as of any date on which distributions are to be made
differs materially from the value of the Participant's Account on the prior
Valuation Date upon which the distribution is to be based, the Employer, in its
discretion, shall have the right to designate any date in the interim as a
Valuation Date for the purpose of revaluing the Participant's Account so that
the Account will, prior to the distribution, reflect its share of such material
difference in value.
4.5 EXPENSES. Expenses, including Trustee fees, allocable to the
administration or operation of an Account maintained under the Plan shall be
paid by the Employer.
4.6 TAXES. Any taxes payable by the Employer allocable to an Account (or
portion thereof) maintained under the Plan which are payable prior to the
distribution of the Account (or portion thereof) shall be paid by the Employer
and shall not be charged against that Account, as an expense of the Account or
otherwise.
ARTICLE 5
ENTITLEMENT TO BENEFITS
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT. On his or her
Participant Enrollment and Election Form, a Participant may select a fixed
payment date for the payment or commencement of payment of his or her vested
Account (or elect to treat his or her vested Account as three (3) or more
sub-accounts and select fixed payment dates for the payment or commencement of
payment of each sub-account), which will be valued and payable according to the
provisions of Article 6. Such payment dates may be extended to later dates so
long as elections to so extend the dates are made by the Participant at least
six (6) months prior to the date on which the distribution is to be made or
commence. Such payment dates may not be accelerated.
Alternatively, on his or her Participant Enrollment and Election Form,
a Participant may select payment or commencement of payment of his or her vested
Account (or a sub-account thereof) at his or her termination of employment with
the Employer, or at the earlier of a fixed payment date or dates or his or her
termination of employment with the Employer. In this case, the extension and
non-acceleration rules discussed above shall apply to such fixed payment date or
dates and/or termination of employment date, as applicable.
Any fixed payment date elected by a Participant as provided above must
be a date no earlier than the January 1 of the second calendar year after the
calendar year in which the election is made.
If a Participant does not make an election as provided above for any
particular amounts hereunder, and the Participant terminates employment with the
Employer for any reason, the Participant's vested Account at the date of such
termination shall be valued and payable at or commencing at such termination
according to the provisions of Article 6.
5.2 HARDSHIP DISTRIBUTIONS. In the event of financial hardship of the
Participant, as hereinafter defined, the Participant may apply to the Employer
for the distribution of all or any part of his or her vested Account. The
Employer shall consider the circumstances of each such case, and the best
interests of the Participant and his or her family, and shall have the right, in
its sole discretion, if applicable, to allow such distribution, or, if
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<PAGE>
applicable, to direct a distribution of part of the amount requested, or to
refuse to allow any distribution. Upon a finding of financial hardship, the
Employer shall make the appropriate distribution to the Participant from amounts
held by the Employer in respect of the Participant's vested Account. In no event
shall the aggregate amount of the distribution exceed either the full value of
the Participant's vested Account or the amount determined by the Employer to be
necessary to alleviate the Participant's financial hardship (which financial
hardship may be considered to include any taxes due because of the distribution
occurring because of this Section), and which is not reasonably available from
other resources of the Participant. For purposes of this Section, the value of
the Participant's vested Account shall be determined as of the date of the
distribution. "Financial hardship" means (a) a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in Code section 152(a)) of the
Participant, (b) loss of the Participant's property due to casualty, or (c)
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant, each as determined to exist by
the Employer. A distribution may be made under this Section only with the
consent of the Employer.
5.3 VESTING. A Participant shall at all times be one hundred percent (100%)
vested in amounts credited to his or her Compensation Deferral Account. Amounts
credited to a Participant's Employer Contribution Credit Account shall vest
according to the following schedule:
Years of Plan Participation Vested Percentage
--------------------------- -----------------
Less than 1 20%
1 but less than 2 40%
2 but less than 3 60%
3 but less than 4 80%
4 or more 100%
For purposes of this Section, a Participant's years of Plan
participation shall equal the Participant's total number of completed twelve
(12) month periods of employment with the Employer, whether continuous or
noncontinuous, commencing as of the date he or she first becomes a Participant
and ending as of the date of reference.
If a Participant terminates employment because of death, total and
permanent disability (as determined by the Employer in its discretion),
involuntary termination by the Employer other than for cause (as hereinafter
defined), or, except as provided in the following paragraph, for any reason
following attainment of Normal Retirement Age, the Participant shall become one
hundred percent (100%) vested in his or her Employer Contribution Credit
Account. Except as provided in the following paragraph, if a Participant
terminates employment under any other circumstance, he or she shall become
vested in his or her Employer Contribution Credit Account, if at all, under the
vesting schedule set forth above.
If a Participant's employment is terminated by the Employer for cause
prior to a Change in Control, he or she shall forfeit all credits to his or her
Employer Contribution Credit Account not yet received hereunder. For purposes of
this Section, with respect to any particular Participant termination for cause
shall have the same meaning as is used in that Participant's individual
agreement of employment.
5.4 RE-EMPLOYMENT OF RECIPIENT. If a Participant receiving installment
distributions pursuant to Section 6.2 is re-employed by the Employer, the
remaining distributions due to the Participant shall be suspended until such
time as the Participant (or his or her Beneficiary) once again becomes eligible
for benefits under Section 5.1, at which time such distribution shall commence,
subject to the limitations and conditions contained in this Plan.
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5.5 CHANGE IN CONTROL BENEFITS. Notwithstanding anything herein to the
contrary, in the event of a Change in Control of the Employer, each Participant
shall become fully vested in all amounts credited to his or her Employer
Contribution Credit Account, and each Participant shall receive payment of his
or her entire Account immediately following such Change in Control, in a cash
lump sum. In addition, there shall be paid by the Employer to each Participant
immediately following such Change in Control an amount equal to that
Participant's CIC Factor, as hereinafter defined, as of the date of the Change
in Control, multiplied by five million dollars ($5,000,000). For purposes of
this Section, a Participant's CIC Factor is calculated as follows: A participant
is deemed to receive one unit of credit for each month (or portion thereof) in
which he or she holds the position of Executive Vice President of the Employer.
The Participant then is assigned to a category which includes other
Participants, if any, who are deemed to have received an identical amount of
units of credit. A CIC Factor for each category is then calculated by assigning
a numerical factor to that category based upon the number of units of credit
deemed to have been received by each Participant in that category (with a factor
of one (1) assigned to the category with Participants with the fewest units of
credit, a factor of two (2) assigned to the category with Participants with the
next fewest units of credit, and so on), multiplying the numerical factor
assigned to a category by the number of Participants in that category, and
dividing that product by the sum of the factors for all the categories. The CIC
Factor for a category is then divided by the number of Participants in that
category to arrive at the CIC Factor for each such Participant.
ARTICLE 8
DISTRIBUTION OF BENEFITS
6.1 AMOUNT. A Participant (or his or her Beneficiary) shall become entitled
to receive on or about the date or dates selected by the Participant on his or
her Participant Enrollment and Election Form or, if none, on or about the date
of the Participant's termination of employment with the Employer (or earlier as
provided in Article 5), a distribution in an aggregate amount equal to the
Participant's vested Account. Any payment due hereunder from the Trust which is
not paid by the Trust for any reason will be paid by the Employer from its
general assets.
6.2 METHOD OF PAYMENT.
(a) Cash Payments. All payments under the Plan shall be made in cash.
(b) Timing and Manner of Payment. In the case of distributions to a
Participant or his or her Beneficiary by virtue of an entitlement pursuant to
Section 5.1, an aggregate amount equal to the Participant's vested Account will
be paid by the Trust or the Employer as provided by Section 6.1, in a lump sum
or in up to ten (10) substantially equal annual installments (adjusted for gains
and losses), as selected by the Participant as provided in Article 5. If a
Participant fails to designate properly the manner of payment of the
Participant's benefit under the Plan, such payment will be made in a lump sum.
If the whole or any part of a payment hereunder is to be in
installments, the total to be so paid shall continue to be deemed to be invested
pursuant to Section 4.1 under such procedures as the Employer may establish, in
which case any deemed income, gain or loss attributable thereto (as determined
by the Employer, in its discretion) shall be reflected in the installment
payments, in such equitable manner as the Employer shall determine. Except in
the case of a Change in Control (including a Change in Control occurring after
the Participant's receipt of benefits hereunder begin), continued receipt of
installments may be made contingent upon the Participant's compliance with any
contractual obligations he or she may have to the Employer, including, but not
limited to, an obligation that the Participant may not enter into competitive
employment with the Employer or
7
<PAGE>
disclose confidential information following his or her termination of
employment.
6.3 DEATH BENEFITS. If a Participant dies before terminating his or her
employment with the Employer and before the commencement of payments to the
Participant hereunder, the entire value of the Participant's Account shall be
paid, as provided in Section 6.2, to the person or persons designated in
accordance with Section 7.1.
Upon the death of a Participant after payments hereunder have begun
but before he or she has received all payments to which he or she is entitled
under the Plan, the remaining benefit payments shall be paid to the person or
persons designated in accordance with Section 7.1, in the manner in which such
benefits were payable to the Participant, unless the Employer elects a more
rapid form of distribution .
ARTICLE 7
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES. Each Participant from time to time may
designate any person or persons (who may be named contingently or successively)
to receive such benefits as may be payable under the Plan upon or after the
Participant's death, and such designation may be changed from time to time by
the Participant by filing a new designation. Each designation will revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Employer, and will be effective only when filed in writing with the Employer
during the Participant's lifetime.
In the absence of a valid Beneficiary designation, or if, at the time
any benefit payment is due to a Beneficiary, there is no living Beneficiary
validly named by the Participant, the Employer shall pay any such benefit
payment to the Participant's spouse, if then living, but otherwise to the
Participant's then living descendants, if any, per stirpes, but, if none, to the
Participant's estate. In determining the existence or identity of anyone
entitled to a benefit payment, the Employer may rely conclusively upon
information supplied by the Participant's personal representative, executor or
administrator. If a question arises as to the existence or identity of anyone
entitled to receive a benefit payment as aforesaid, or if a dispute arises with
respect to any such payment, then, notwithstanding the foregoing, the Employer,
in its sole discretion, may distribute such payment to the Participant's estate
without liability for any tax or other consequences which might flow therefrom,
or may take such other action as the Employer deems to be appropriate.
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement
or notice addressed to a Participant or to a Beneficiary at his or her last post
office address as shown on the Employer's records shall be binding on the
Participant or Beneficiary for all purposes of the Plan. The Employer shall not
be obliged to search for any Participant or Beneficiary beyond the sending of a
registered letter to such last known address. If the Employer notifies any
Participant or Beneficiary that he or she is entitled to an amount under the
Plan and the Participant or Beneficiary fails to claim such amount or make his
or her location known to the Employer within three (3) years thereafter, then,
except as otherwise required by law, if the location of one or more of the next
of kin of the Participant is known to the Employer, the Employer may direct
distribution of such amount to any one or more or all of such next of kin, and
in such proportions as the Employer determines. If the location of none of the
foregoing persons can be determined, the Employer shall have the right to direct
that the amount payable shall be deemed to be a forfeiture, except that the
dollar amount of the forfeiture, unadjusted for deemed gains or losses in the
interim, shall be paid by the Employer if a claim for the benefit subsequently
is made by the Participant or the Beneficiary to whom it was payable. If a
benefit payable to an unlocated Participant or Beneficiary is subject to escheat
pursuant to applicable state
8
<PAGE>
law, the Employer shall not be liable to any person for any payment made in
accordance with such law.
ARTICLE 8
ADMINISTRATION
8.1 ADMINISTRATIVE AUTHORITY. Except as otherwise specifically provided
herein, the Employer shall have the sole responsibility for and the sole control
of the operation and administration of the Plan, and shall have the power and
authority to take all action and to make all decisions and interpretations which
may be necessary or appropriate in order to administer and operate the Plan,
including, without limiting the generality of the foregoing, the power, duty and
responsibility to:
(a) Resolve and determine all disputes or questions arising under the
Plan, and to remedy any ambiguities, inconsistencies or omissions in the Plan.
(b) Adopt such rules of procedure and regulations as in its opinion
may be necessary for the proper and efficient administration of the Plan and as
are consistent with the Plan.
(c) Implement the Plan in accordance with its terms and the rules and
regulations adopted as above.
(d) Make determinations with respect to the eligibility of any
Eligible Employee as a Participant and make determinations concerning the
crediting of Plan Accounts.
(e) Appoint any persons or firms, or otherwise act to secure
specialized advice or assistance, as it deems necessary or desirable in
connection with the administration and operation of the Plan, and the Employer
shall be entitled to rely conclusively upon, and shall be fully protected in any
action or omission taken by it in good faith reliance upon, the advice or
opinion of such firms or persons. The Employer shall have the power and
authority to delegate from time to time by written instrument all or any part of
its duties, powers or responsibilities under the Plan, both ministerial and
discretionary, as it deems appropriate, to any person or committee, and in the
same manner to revoke any such delegation of duties, powers or responsibilities.
Any action of such person or committee in the exercise of such delegated duties,
powers or responsibilities shall have the same force and effect for all purposes
hereunder as if such action had been taken by the Employer. Further, the
Employer may authorize one or more persons to execute any certificate or
document on behalf of the Employer, in which event any person notified by the
Employer of such authorization shall be entitled to accept and conclusively rely
upon any such certificate or document executed by such person as representing
action by the Employer until such notified person shall have been notified of
the revocation of such authority.
8.2 UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the administration or
operation of the Plan discretionary actions by the Employer are required or
permitted, such actions shall be consistently and uniformly applied to all
persons similarly situated, and no such action shall be taken which shall
discriminate in favor of any particular person or group of persons.
8.3 LITIGATION. Except as may be otherwise required by law, in any action
or judicial proceeding affecting the Plan, no Participant or Beneficiary shall
be entitled to any notice or service of process, and any final judgment entered
in such action shall be binding on all persons interested in, or claiming under,
the Plan.
8.4 CLAIMS PROCEDURE. Any person claiming a benefit under the Plan (a
"Claimant") shall present the claim, in writing, to the Employer, and the
Employer shall respond in writing. If the claim is denied, the written
<PAGE>
notice of denial shall state, in a manner calculated to be understood by the
Claimant:
(a) The specific reason or reasons for the denial, with specific
references to the Plan provisions on which the denial is based;
(b) A description of any additional material or information necessary
for the Claimant to perfect his or her claim and an explanation of why such
material or information is necessary; and
(c) An explanation of the Plan's claims review procedure.
The written notice denying or granting the Claimant's claim shall be
provided to the Claimant within ninety (90) days after the Employer's receipt of
the claim, unless special circumstances require an extension of time for
processing the claim. If such an extension is required, written notice of the
extension shall be furnished by the Employer to the Claimant within the initial
ninety (90) day period and in no event shall such an extension exceed a period
of ninety (90) days from the end of the initial ninety (90) day period. Any
extension notice shall indicate the special circumstances requiring the
extension and the date on which the Employer expects to render a decision on the
claim. Any claim not granted or denied within the period noted above shall be
deemed to have been denied.
Any Claimant whose claim is denied, or deemed to have been denied
under the preceding sentence (or such Claimant's authorized representative),
may, within sixty (60) days after the Claimant's receipt of notice of the
denial, or after the date of the deemed denial, request a review of the denial
by notice given, in writing, to the Employer. Upon such a request for review,
the claim shall be reviewed by the Employer (or its designated representative)
which may, but shall not be required to, grant the Claimant a hearing. In
connection with the review, the Claimant may have representation, may examine
pertinent documents, and may submit issues and comments in writing.
The decision on review normally shall be made within sixty (60) days
of the Employer's receipt of the request for review. If an extension of time is
required due to special circumstances, the Claimant shall be notified, in
writing, by the Employer, and the time limit for the decision on review shall be
extended to one hundred twenty (120) days. The decision on review shall be in
writing and shall state, in a manner calculated to be understood by the
Claimant, the specific reasons for the decision and shall include references to
the relevant Plan provisions on which the decision is based. The written
decision on review shall be given to the Claimant within the sixty (60) day (or,
if applicable, the one hundred twenty (120) day) time limit discussed above. If
the decision on review is not communicated to the Claimant within the sixty (60)
day (or, if applicable, the one hundred twenty (120) day) period discussed
above, the claim shall be deemed to have been denied upon review. All decisions
on review shall be final and binding with respect to all concerned parties.
ARTICLE 9
AMENDMENT
9.1 RIGHT TO AMEND. The Employer, by action of its Board of Directors,
shall have the right to amend the Plan, at any time and with respect to any
provisions hereof, and all parties hereto or claiming any interest hereunder
shall be bound by such amendment; provided, however, that no such amendment
shall deprive a Participant or a Beneficiary of a right accrued hereunder prior
to the date of the amendment.
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN. Notwithstanding
the provisions of Section 9.1, the Plan may be amended by the Employer at any
time, retroactively if required, if found necessary, in the opinion of the
Employer, in order to ensure that the Plan is characterized as
10
<PAGE>
"top-hat" plan of deferred compensation maintained for a select group of
management or highly compensated employees as described under ERISA sections
201(2), 301(a)(3), and 401(a)(1), and to conform the Plan to the provisions and
requirements of any applicable law (including ERISA and the Code). No such
amendment shall be considered prejudicial to any interest of a Participant or a
Beneficiary hereunder.
ARTICLE 10
TERMINATION
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN. The Employer reserves
the right to terminate the Plan and/or its obligation to make further credits to
Plan Accounts, by action of its Board of Directors. The Employer also reserves
the right to suspend the operation of the Plan for a fixed or indeterminate
period of time, by action of its Board of Directors.
10.2 AUTOMATIC TERMINATION OF PLAN. The Plan automatically shall terminate
upon the dissolution of the Employer, or upon its merger into or consolidation
with any other corporation or business organization if there is a failure by the
surviving corporation or business organization to adopt specifically and agree
to continue the Plan.
10.3 SUSPENSION OF DEFERRALS. In the event of a suspension of the Plan, the
Employer shall continue all aspects of the Plan, other than Compensation
Deferrals and Employer Contribution Credits, during the period of the
suspension, in which event payments hereunder will continue to be made during
the period of the suspension in accordance with Articles 5 and 6.
10.4 ALLOCATION AND DISTRIBUTION. This Section shall become operative on a
complete termination of the Plan. The provisions of this Section also shall
become operative in the event of a partial termination of the Plan, as
determined by the Employer, but only with respect to that portion of the Plan
attributable to the Participants to whom the partial termination is applicable.
Upon the effective date of any such event, notwithstanding any other provisions
of the Plan, no persons who were not theretofore Participants shall be eligible
to become Participants and the value of the interest of all Participants and
Beneficiaries shall be fully vested and determined and, after paying Plan
benefits, paid to them as soon as is practicable after such termination.
10.5 SUCCESSOR TO EMPLOYER. Any corporation or other business organization
which is a successor to the Employer by reason of a consolidation, merger or
purchase of substantially all of the assets of the Employer shall have the right
to become a party to the Plan by adopting the same by resolution of the entity's
board of directors or other appropriate governing body. If, within ninety (90)
days from the effective date of such consolidation, merger or sale of assets,
such new entity does not become a party hereto, as above provided, the Plan
automatically shall be terminated, and the provisions of Section 10.4 shall
become operative.
ARTICLE 11
THE TRUST
11.1 ESTABLISHMENT OF TRUST. The Employer shall establish the Trust with
the Trustee pursuant to such terms and conditions as are set forth in the Trust
agreement to be entered into between the Employer and the Trustee. The Trust is
intended to be treated as a "grantor" trust under the Code and the establishment
of the Trust is not intended to cause the Participant to realize current income
on amounts contributed thereto, and the Trust shall be so interpreted.
11
<PAGE>
ARTICLE 12
MISCELLANEOUS
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER. Neither the establishment of the
Plan nor any modification thereof, nor the creation of any account under the
Plan, nor the payment of any benefits under the Plan shall be construed as
giving to any Participant or other person any legal or equitable right against
the Employer, or any officer or employer thereof except as provided by law or by
any Plan provision. The Employer does not in any way guarantee any Participant's
Account from loss or depreciation, whether caused by poor investment performance
of a deemed investment or the inability to realize upon an investment due to an
insolvency affecting an investment vehicle or any other reason. In no event
shall the Employer, or any successor, employee, officer, director or stockholder
of the Employer, be liable to any person on account of any claim arising by
reason of the provisions of the Plan or of any instrument or instruments
implementing its provisions, or for the failure of any Participant, Beneficiary
or other person to be entitled to any particular tax consequences with respect
to the Plan, or any credit or distribution hereunder.
12.2 CONSTRUCTION. If any provision of the Plan is held to be illegal or
void, such illegality or invalidity shall not affect the remaining provisions of
the Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provision had never been inserted herein.
For all purposes of the Plan, where the context admits, the singular shall
include the plural, and the plural shall include the singular. Headings of
Articles and Sections herein are inserted only for convenience of reference and
are not to be considered in the construction of the Plan. The laws of the State
of Maryland shall govern, control and determine all questions of law arising
with respect to the Plan and the interpretation and validity of its respective
provisions, except where those laws are preempted by the laws of the United
States. Participation under the Plan will not give any Participant the right to
be retained in the service of the Employer nor any right or claim to any benefit
under the Plan unless such right or claim has specifically accrued hereunder.
The Plan is intended to be and at all times shall be interpreted and
administered so as to qualify as an unfunded deferred compensation plan, and no
provision of the Plan shall be interpreted so as to give any individual any
right in any assets of the Employer which right is greater than the rights of a
general unsecured creditor of the Employer.
12.3 SPENDTHRIFT PROVISION. No amount payable to a Participant or a
Beneficiary under the Plan will, except as otherwise specifically provided by
law, be subject in any manner to anticipation, alienation, attachment,
garnishment, sale, transfer, assignment (either at law or in equity), levy,
execution, pledge, encumbrance, charge or any other legal or equitable process,
and any attempt to do so will be void; nor will any benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled thereto. Further, (i) the withholding of taxes from Plan
benefit payments, (ii) the recovery under the Plan of overpayments of benefits
previously made to a Participant or Beneficiary, (iii) if applicable, the
transfer of benefit rights from the Plan to another plan, or (iv) the direct
deposit of benefit payments to an account in a banking institution (if not
actually part of an arrangement constituting an assignment or alienation) shall
not be construed as an assignment or alienation.
In the event that any Participant's or Beneficiary's benefits
hereunder are garnished or attached by order of any court, the Employer or
Trustee may bring an action or a declaratory judgment in a court of competent
jurisdiction to determine the proper recipient of the benefits to be paid under
the Plan. During the pendency of said action, any benefits that become payable
shall be held as credits to the Participant's or Beneficiary's Account or, if
the Employer or Trustee prefers, paid into the court as they become payable, to
be distributed by the court to the recipient as the court deems
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proper at the close of said action.
13
<PAGE>
IN WITNESS WHEREOF, the Employer has caused the Plan to be executed and its
seal to be affixed hereto, effective as of the 1st day of April, 1998.
ATTEST/WITNESS INTEGRATED HEALTH SERVICES, INC.
_________________________________________________________ By: __________________
____________________________(SEAL)
Print: __________________________________________ Print Name: ________________
_________________________________
Date: ____________________________
__________________
14
<PAGE>
SCHEDULE I
(Effective April 1, 1998)
Executives participating in Plan B are:
William B. Bennett
Brian K. Davidson
Marshall A. Elkins
John F. Heller, III
Elizabeth Kelly
Francis P. Kirley
Marc B. Levin
Anthony R. Masso
Murry J. Mercier
C. Taylor Pickett
Scott W. Robertson*
Ruth Ann Skaggs
Sally Weisberg
C. Christian Winkle
- ----------
* No further Compensation Deferrals or Employer Contribution Credits will be
credited to Mr. Robertson's Account after March 13, 1998. Upon Mr. Robertson's
termination of employment, he became vested in his Employer Contribution Credit
Account under the vesting schedule set forth in Section 5.3, using years of
participation as of such date of termination plus one additional, deemed year of
participation. The Change in Control Benefit described in Section 5.5 will be
applicable to Mr. Robertson solely with respect to a Change in Control occurring
after March 13, 1998 and on or before December 31, 1998, provided, however, that
in calculating the Change in Control Benefit of Mr. Robertson, any such Change
in Control will be deemed to have occurred on March 13, 1998.
15
INTEGRATED HEALTH SERVICES, INC.
DEFERRED COMPENSATION PLAN
FOR SENIOR VICE PRESIDENTS
AND HIGHLY COMPENSATED EMPLOYEES
AMENDED AND RESTATED
EFFECTIVE AS OF MARCH 1, 1998
<PAGE>
INTEGRATED HEALTH SERVICES, INC.
DEFERRED COMPENSATION PLAN
FOR SENIOR VICE PRESIDENTS
AND HIGHLY COMPENSATED EMPLOYEES
AMENDED AND RESTATED
EFFECTIVE AS OF MARCH 1, 1998
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 ACCOUNT............................................................. 1
1.2 BENEFICIARY......................................................... 1
1.3 CHANGE OF CONTROL................................................... 1
1.4 CODE................................................................ 2
1.5 COMPENSATION........................................................ 2
1.6 COMPENSATION DEFERRAL ACCOUNT....................................... 2
1.7 COMPENSATION DEFERRALS.............................................. 2
1.8 DESIGNATED SENIOR VICE PRESIDENT.................................... 2
1.9 DESIGNATION DATE.................................................... 2
1.10 EFFECTIVE DATE...................................................... 2
1.11 ELIGIBLE EMPLOYEE................................................... 2
1.12 EMPLOYER............................................................ 2
1.13 EMPLOYER CONTRIBUTION CREDIT ACCOUNT................................ 2
1.14 EMPLOYER CONTRIBUTION CREDITS....................................... 2
1.15 ENTRY DATE.......................................................... 2
1.16 HIGHLY COMPENSATED EMPLOYEE......................................... 3
1.17 PARTICIPANT......................................................... 3
1.18 PARTICIPANT ENROLLMENT AND ELECTION FORM............................ 3
1.19 PLAN................................................................ 3
1.20 PLAN YEAR........................................................... 3
1.21 TRUST............................................................... 3
1.22 TRUSTEE............................................................. 3
1.23 VALUATION DATE...................................................... 3
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS........................................................ 3
2.2 RE-EMPLOYMENT....................................................... 4
2.3 CHANGE OF EMPLOYMENT CATEGORY....................................... 4
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ARTICLE 3
CONTRIBUTIONS AND CREDITS
3.1 EMPLOYER CONTRIBUTION CREDITS....................................... 4
3.2 PARTICIPANT COMPENSATION DEFERRALS.................................. 5
3.3 CONTRIBUTIONS TO THE TRUST.......................................... 6
ARTICLE 4
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS................. 6
4.2 ACCOUNTING FOR DISTRIBUTIONS........................................ 7
4.3 SEPARATE ACCOUNTS................................................... 7
4.4 INTERIM VALUATIONS.................................................. 7
4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS........................ 7
4.6 EXPENSES............................................................ 8
4.7 TAXES............................................................... 8
ARTICLE 5
ENTITLEMENT TO BENEFITS
5.1 TERMINATION OF EMPLOYMENT........................................... 9
5.2 HARDSHIP DISTRIBUTIONS.............................................. 9
5.3 VESTING............................................................. 9
ARTICLE 6
DISTRIBUTION OF BENEFITS
6.1 AMOUNT.............................................................. 10
6.2 METHOD OF PAYMENT................................................... 10
6.3 DEATH BENEFITS...................................................... 10
ARTICLE 7
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES........................................ 11
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES................... 11
ARTICLE 8
ADMINISTRATION
8.1 ADMINISTRATIVE AUTHORITY............................................ 12
8.2 UNIFORMITY OF DISCRETIONARY ACTS.................................... 13
8.3 LITIGATION.......................................................... 13
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8.4 CLAIMS PROCEDURE.................................................... 13
ARTICLE 9
AMENDMENT
9.1 RIGHT TO AMEND...................................................... 14
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN................ 14
ARTICLE 10
TERMINATION
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN....................... 14
10.2 AUTOMATIC TERMINATION OF PLAN....................................... 14
10.3 SUSPENSION OF DEFERRALS............................................. 14
10.4 ALLOCATION AND DISTRIBUTION......................................... 15
10.5 SUCCESSOR TO EMPLOYER............................................... 15
ARTICLE 11
THE TRUST
11.1 ESTABLISHMENT OF TRUST.............................................. 15
ARTICLE 12
MISCELLANEOUS
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER................................ 15
12.2 CONSTRUCTION........................................................ 16
12.3 SPENDTHRIFT PROVISION............................................... 16
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INTEGRATED HEALTH SERVICES, INC.
DEFERRED COMPENSATION PLAN
FOR SENIOR VICE PRESIDENTS
AND HIGHLY COMPENSATED EMPLOYEES
AMENDED AND RESTATED
EFFECTIVE AS OF MARCH 1, 1998
RECITALS
This, the Integrated Health Services, Inc. Deferred Compensation Plan for
Senior Vice Presidents and Highly Compensated Employees (the "Plan"), is adopted
by Integrated Health Services, Inc. (the "Employer") for certain of its
executive and/or highly compensated employees. The Plan constitutes an amendment
and restatement of the Integrated Health Services, Inc. Supplemental Deferred
Compensation Plan for Senior Vice Presidents.
The purpose of the Plan is to offer those employees an opportunity to elect
to defer the receipt of compensation in order to provide termination of
employment and related benefits taxable pursuant to section 451 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Plan is intended to be a
"top-hat" plan (i.e., an unfunded deferred compensation plan maintained for a
select group of management or highly-compensated employees) under sections
201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act
of 1974 ("ERISA").
Accordingly, the following Plan is adopted.
ARTICLE 1
DEFINITIONS
1.1 ACCOUNT means the balance credited to a Participant's or Beneficiary's
Plan account, including contribution credits and deemed income, gains and losses
(as determined by the Employer, in its discretion) credited thereto. A
Participant's or Beneficiary's Account shall be determined as of the date of
reference.
1.2 BENEFICIARY means any person or person so designated in accordance with
the provisions of Article 7.
1.3 CHANGE OF CONTROL means (a) the purchase of other acquisition by any
person, entity or group of persons, within the meaning of section 13(d) or 14(d)
of the Securities Exchange Act of 1934 (the "Act"), or any comparable successor
provisions, of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Act) of thirty percent (30%) or more of either the
outstanding shares of common stock or the combined voting power of the
Employer's then outstanding voting securities entitled to vote generally, or (b)
the approval by the stockholders of the Employer of a reorganization, merger, or
consolidation, in each case with respect to which persons who were stockholders
of the Employer immediately prior to such reorganization, merger or
consolidation do not, immediately thereafter, own more than fifty percent (50%)
of the combined voting power entitled to vote generally in the election of
directors of the reorganized, merged, or consolidated entity's then
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outstanding securities, or (c) a liquidation or dissolution of the Employer, or
(d) the sale of all or substantially all of the Employer's assets.
1.4 CODE means the Internal Revenue Code of 1986 and the regulations
thereunder, as amended from time to time.
1.5 COMPENSATION means the total current cash remuneration paid by the
Employer to an Eligible Employee with respect to his or her service for the
Employer (as determined by the Employer at its discretion).
1.6 COMPENSATION DEFERRAL ACCOUNT is defined in Section 3.2.
1.7 COMPENSATION DEFERRALS is defined in Section 3.2.
1.8 DESIGNATED SENIOR VICE PRESIDENT means a person employed by the
Employer in the position of Senior Vice President who is designated by the Board
of Directors of the Employer to be eligible for Designated Senior Vice President
benefits under the Plan.
1.9 DESIGNATION DATE means the date or dates as of which a designation of
deemed investment directions by an individual pursuant to Section 4.5, or any
change in a prior designation of deemed investment directions by an individual
pursuant to Section 4.5, shall become effective. The Designation Dates in any
Plan Year shall be designated by the Employer.
1.10 EFFECTIVE DATE means the effective date of this amended and restated
Plan, which shall be March 1, 1998.
1.11 ELIGIBLE EMPLOYEE means, for any Plan Year (or applicable portion
thereof), any Highly Compensated Employee or Designated Senior Vice President.
1.12 EMPLOYER means Integrated Health Services, Inc. and its successors and
assigns unless otherwise herein provided, or any other corporation or business
organization which, with the consent of Integrated Health Services, Inc., or its
successors or assigns, assumes the Employer's obligations hereunder, or any
other corporation or business organization which agrees, with the consent of
Integrated Health Services, Inc., to become a party to the Plan.
1.13 EMPLOYER CONTRIBUTION CREDIT ACCOUNT is defined Section 3.1.
1.14 EMPLOYER CONTRIBUTION CREDITS is defined in Section 3.1.
1.15 ENTRY DATE with respect to an individual means the first day of the
pay period following the date on which the individual first is given notice that
he or she is an Eligible Employee.
1.16 HIGHLY COMPENSATED EMPLOYEE means a person employed by the Employer,
other than a Designated Senior Vice President, who, for any Plan Year, meets the
definition of "highly compensated employee" under section 414(q) of the Code. In
determining whether such an employee is a Highly Compensated Employee for a Plan
Year, the employee's compensation (within
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the meaning of Code section 414(q)) will be based upon (i) in the case of a
newly hired employee during that Plan Year, his or her projected annual
compensation as of the date of hire, as determined by the Employer in its
discretion, and (ii) in the case of an employee employed by the Employer during
the entire Plan Year, his or her actual compensation through November 1 of that
Plan Year, plus his or her projected compensation for the period November 1
through December 31 of that Plan Year, as determined by the Employer in its
discretion. The preceding notwithstanding, any such employee who met the Code
section 414(q) definition of "highly compensated employee" (as amended by the
Small Business Job Protection Act of 1996) during the 1997 Plan Year will, as of
the Effective Date, be considered a Highly Compensated Employee hereunder. Once
an employee becomes a Highly Compensated Employee, the employee will remain a
Highly Compensated Employee throughout the remainder of his or her employment
with the Employer (unless and until such employee becomes a Designated Senior
Vice President), regardless of whether he or she continues to meet the Code
section 414(q) definition of "highly compensated employee".
1.17 PARTICIPANT means any person so designated in accordance with the
provisions of Article 2, including, where appropriate according to the context
of the Plan, any former employee who is or may become (or whose Beneficiaries
may become) eligible to receive a benefit under the Plan.
1.18 PARTICIPANT ENROLLMENT AND ELECTION FORM means the form or forms on
which a Participant elects to defer Compensation hereunder and on which the
Participant makes certain other designations as required thereon.
1.19 PLAN means this Integrated Health Services, Inc. Deferred Compensation
Plan for Senior Vice Presidents and Highly Compensated Employees, as amended
from time to time.
1.20 PLAN YEAR means the twelve (12) month period ending on the December 31
of each year during which the Plan is in effect.
1.21 TRUST means the Trust established pursuant to Article 11.
1.22 TRUSTEE means the trustee of the Trust established pursuant to Article
11.
1.23 VALUATION DATE means the last day of each Plan Year and any other date
that the Employer, in its sole discretion, designates as a Valuation Date.
ARTICLE 2
ELIGIBILITY AND PARTICIPATION
2.1 REQUIREMENTS. Every Eligible Employee as of the Effective Date shall be
eligible to become a Participant on the Effective Date. Every other Eligible
Employee shall be eligible to become a Participant on the first Entry Date
occurring on or after the date on which he or she is notified by the Employer
that he or she is an Eligible Employee. No individual shall become a
Participant, however, if he or she is not an Eligible Employee on the date his
or her participation is to begin.
Participation in the Participant Compensation Deferral feature of the
Plan is voluntary.
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In order to participate in the Participant Compensation Deferral feature of the
Plan, an otherwise Eligible Employee must make written application in such
manner as may be required by Section 3.2 and by the Employer and must agree to
make Compensation Deferrals as provided in Article 3.
2.2 RE-EMPLOYMENT. If a Participant whose employment with the Employer is
terminated is subsequently re-employed, he or she shall become a Participant in
accordance with the provisions of Section 2.1.
2.3 CHANGE OF EMPLOYMENT CATEGORY. During any period in which a Participant
remains in the employ of the Employer, but ceases to be an Eligible Employee, he
or she shall not be eligible to make Compensation Deferrals hereunder.
ARTICLE 3
CONTRIBUTIONS AND CREDITS
3.1 EMPLOYER CONTRIBUTION CREDITS. There shall be established and
maintained a separate Employer Contribution Credit Account in the name of each
Participant. There shall be established the following two (2) sub-accounts under
a Participant's Employer Contribution Credit Account: (a) the Matching
Contribution Sub-Account; and (b) the Discretionary Contribution Sub-Account.
Each such Account shall be credited or debited, as applicable, with (a) amounts
equal to the Employer's Contribution Credits credited to that Sub-Account; and
(b) any deemed earnings and losses (to the extent realized, based upon deemed
fair market value of the Sub-Account's deemed assets as determined by the
Employer, in its discretion) allocated to that Sub-Account.
For purposes of this Section, the Employer's Contribution Credits
credited to a Participant's Matching Contribution Sub-Account for a particular
Plan Year shall be (i) if the Participant is a Designated Senior Vice President,
an amount equal to fifty percent (50%) of the Participant's Compensation
Deferrals for the Plan Year (not in excess of ten thousand dollars ($10,000) of
Compensation Deferrals), and (ii) if the Participant is not a Designated Senior
Vice President, an amount equal to twenty-five percent (25%) of the
Participant's Compensation Deferrals for the Plan Year (not in excess of ten
thousand dollars ($10,000) of Compensation Deferrals). Notwithstanding the
preceding, a Participant who makes Compensation Deferrals for the calendar month
in which he or she terminates employment with the Employer shall receive no
Employer Contribution Credits to his or her Matching Contribution Sub-Account
with respect to such calendar month.
For purposes of this Section, the Employer's Contribution Credits
credited to a Participant's Discretionary Contribution Sub-Account for a
particular Plan Year shall be an amount (if any) determined by the Employer in
its discretion. The amount allocated to each Participant's Discretionary
Contribution Sub-Account each year that the Employer makes a discretionary
contribution shall depend upon whether or not the Participant is a Designated
Senior Vice President. If the Participant is a Designated Senior Vice President,
the amount allocated to such Participant's Discretionary Contribution
Sub-Account for a Plan Year shall equal the total discretionary contributions
for the Plan Year (if any) made by the Employer on behalf of participating
Designated Senior Vice Presidents multiplied by a fraction, the numerator of
which is the Participant's Compensation for the calendar year prior to the Plan
Year for which the discretionary contribution is made (as determined by the
Employer) and the denominator of which is the total of all participating
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Designated Senior Vice Presidents' Compensation for such calendar year. If the
Participant is not a Designated Senior Vice President, the amount allocated to
such Participant's Discretionary Contribution Sub-Account for a Plan Year shall
equal the total discretionary contributions for the Plan Year (if any) made by
the Employer on behalf of Participants other than Designated Senior Vice
Presidents multiplied by a fraction, the numerator of which is the Participant's
Compensation for the calendar year prior to the Plan Year for which the
discretionary contribution is made (as determined by the Employer) and the
denominator of which is the total of all Participants' (other than Designated
Senior Vice Presidents') Compensation for such calendar year. If a Participant
receives a discretionary contribution for a Plan Year and the Participant
terminates employment voluntarily with the Employer during such Plan Year, the
Participant shall forfeit that portion of the Plan Year's discretionary
contribution that is equal to the amount he or she had allocated to his or her
Discretionary Contribution Sub-Account multiplied by a fraction, the numerator
of which is the number of days in the Plan Year remaining after the
Participant's termination of employment and the denominator of which is three
hundred and sixty-five (365). Any such forfeited amount shall be retained by the
Employer if it had not at such time made a contribution to the Trust in respect
of such discretionary contribution or, if the Employer had made a contribution
to the Trust in respect of such discretionary contribution, any such forfeited
amount shall be returned to the Employer from the Trust (unadjusted for deemed
earnings or losses).
The Participant's Employer Contribution Credit Account shall be
credited or debited, as applicable, as of each Valuation Date, with deemed
earnings or losses, as applicable. The amount of deemed earnings or losses shall
be as determined by the Employer. The Employer shall have the discretion to
allocate such deemed earnings or losses among Participants' Employer
Contribution Credit Accounts and among a Participant's Sub-Accounts pursuant to
such allocation rules as the Employer deems to be reasonable and
administratively practicable.
A Participant shall be vested in amounts credited to his or her
Employer Contribution Credit Account as provided in Section 5.3.
3.2 PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules
established by the Employer, a Participant may elect to defer Compensation which
is due to be earned and which would otherwise be paid to the Participant, in a
lump sum or in any fixed periodic dollar amounts designated by the Participant.
Amounts so deferred will be considered a Participant's "Compensation Deferrals."
Ordinarily, a Participant shall make such an election with respect to a coming
twelve (12) month Plan Year during the period beginning on the November 1 and
ending on the December 31 of the prior Plan Year, or during such other period as
is established by the Employer.
Compensation Deferrals shall be made through regular payroll
deductions or through an election by the Participant to defer the payment of a
bonus not yet payable to him or her at the time of the election. A Participant's
regular payroll deduction Compensation Deferral amount is unlimited for any
regular payroll period, but may not exceed in any Plan Year fifty percent (50%)
of his or her regular Compensation for such Plan Year. The Participant may
change his or her regular payroll deduction Compensation Deferral amount as of,
and by written notice delivered to the Employer at least thirty (30) days prior
to, the beginning of any regular payroll period, with such reduction being first
effective for Compensation to be earned in that payroll period. In the case of a
bonus deferral, the Participant may reduce his or her bonuses due to be paid by
the Employer by giving notice to the
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Employer of the bonus Compensation Deferral amount prior to the date the
applicable bonus is first due to be paid.
Once made, a Compensation Deferral regular payroll deduction election
shall continue in force indefinitely, until changed by the Participant on a
subsequent Participant Enrollment and Election Form provided by the Employer. A
bonus payment election shall continue in force only for the Plan Year for which
the election is first effective. Compensation Deferrals shall be deducted by the
Employer from the pay of a deferring Participant and shall be credited to the
Account of the deferring Participant.
There shall be established and maintained by the Employer a separate
Compensation Deferral Account in the name of each Participant to which shall be
credited or debited: (a) amounts equal to the Participant's Compensation
Deferrals; and (b) amounts equal to any deemed earnings or losses (to the extent
realized, based upon deemed fair market value of the Account's deemed assets, as
determined by the Employer, in its discretion) attributable or allocable
thereto. A Participant shall at all times be 100% vested in amounts credited to
his or her Participant Compensation Deferral Account.
3.3 CONTRIBUTIONS TO THE TRUST. An amount shall be contributed by the
Employer to the Trust maintained under Section 11.1 equal to the amount(s)
required to be credited to the Participants' Accounts under Section 3.2 as soon
as practicable after such amount(s) are determined. An amount shall be
contributed by the Employer to said Trust equal to the amount(s) required to be
credited to the Participants' Accounts under Section 3.1 as soon as practicable
after the end of the calendar month in which such amounts are determined.
ARTICLE 4
ALLOCATION OF FUNDS
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. Subject to Section
4.5, each Participant shall have the right to direct the Employer as to how
amounts in his or her Plan Account shall be deemed to be invested. Subject to
such limitations as may from time to time be required by law, imposed by the
Employer or the Trustee or contained elsewhere in the Plan, and subject to such
operating rules and procedures as may be imposed from time to time by the
Employer, prior to the date on which a direction will become effective, the
Participant shall have the right to direct the Employer as to how amounts in his
or her Account shall be deemed to be invested. The Employer shall direct the
Trustee to invest the account maintained in the Trust on behalf of the
Participant pursuant to the deemed investment directions the Employer properly
has received from the Participant. The value of the Participant's Account shall
be equal to the value of the account maintained under the Trust on behalf of the
Participant. As of each valuation date of the Trust, the Participant's Account
will be credited or debited to reflect the Participant's deemed investments of
the Trust. The Participant's Plan Account will be credited or debited with the
increase or decrease in the realizable net asset value or credited interest, as
applicable, of the designated deemed investments, as follows. As of each
Valuation Date, an amount equal to the net increase or decrease in realizable
net asset value or credited interest, as applicable (as determined by the
Trustee), of each deemed investment option within the Account since the
preceding Valuation Date shall be allocated among all Participants' Accounts
deemed to be invested in that investment option in accordance with the ratio
which the portion of the Account of each Participant which is deemed to be
invested within that investment option, determined
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as provided herein, bears to the aggregate of all amounts deemed to be invested
within that investment option.
4.2 ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution
hereunder, the distribution made hereunder to the Participant or his or her
Beneficiary or Beneficiaries shall be charged to such Participant's Account.
Such amounts shall be charged on a pro rata basis against the investments of the
Trust in which the Participant's Account is deemed to be invested.
4.3 SEPARATE ACCOUNTS. A separate account under the Plan shall be
established and maintained by the Employer to reflect the Account for each
Participant with sub-accounts to show separately the deemed earnings and losses
credited or debited to such Account, and the applicable deemed investments of
the Account.
4.4 INTERIM VALUATIONS. If it is determined by the Employer that the value
of a Participant's Account as of any date on which distributions are to be made
differs materially from the value of the Participant's Account on the prior
Valuation Date upon which the distribution is to be based, the Employer, in its
discretion, shall have the right to designate any date in the interim as a
Valuation Date for the purpose of revaluing the Participant's Account so that
the Account will, prior to the distribution, reflect its share of such material
difference in value.
4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS. Subject to such
limitations as may from time to time be required by law, imposed by the Employer
or the Trustee or contained elsewhere in the Plan, and subject to such operating
rules and procedures as may be imposed from time to time by the Employer, prior
to and effective for each Designation Date, each Participant may communicate to
the Employer a direction as to how his or her Plan Accounts should be deemed to
be invested among such categories of deemed investments as may be made available
by the Employer hereunder. Such direction shall designate the percentage (in any
whole percent multiples) of each portion of the Participant's Plan Accounts
which is requested to be deemed to be invested in such categories of deemed
investments, and shall be subject to the following rules:
(a) Any initial or subsequent deemed investment direction shall be in
writing, on a form supplied by and filed with the Employer, and shall be
effective as of the next Designation Date which is at least ten (10) business
days after such filing. In lieu of such written requirement, the Employer may,
in its discretion, permit any such investment direction to be made through use
of an "automated response unit", in which event such investment direction may be
effective immediately.
(b) All amounts credited to the Participant's Account shall be deemed
to be invested in accordance with the then effective deemed investment
direction, and as of the effective date of any new deemed investment direction,
all or a portion of the Participant's Account at that date shall be reallocated
among the designated deemed investment funds according to the percentages
specified in the new deemed investment direction unless and until a subsequent
deemed investment direction shall be filed and become effective. An election
concerning deemed investment choices shall continue indefinitely as provided in
the Participant's most recent Participant Enrollment and Election Form, or other
form specified by the Employer.
(c) If the Employer receives an initial or revised deemed investment
direction
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which it deems to be incomplete, unclear or improper, the Participant's
investment direction then in effect shall remain in effect (or, in the case of a
deficiency in an initial deemed investment direction, the Participant shall be
deemed to have filed no deemed investment direction) until the next Designation
Date, unless the Employer provides for, and permits the application of,
corrective action prior thereto.
(d) If the Employer possesses (or is deemed to possess as provided in
(c), above) at any time directions as to the deemed investment of less than all
of a Participant's Account, the Participant shall be deemed to have directed
that the undesignated portion of the Account be deemed to be invested in a money
market, fixed income or similar fund made available under the Plan as determined
by the Employer in its discretion.
(e) Each Participant hereunder, as a condition to his or her
participation hereunder, agrees to indemnify and hold harmless the Employer and
its agents and representatives from any losses or damages of any kind relating
to the deemed investment of the Participant's Account hereunder.
(f) Each reference in this Section to a Participant shall be deemed to
include, where applicable, a reference to a Beneficiary.
4.6 EXPENSES. Expenses, including Trustee fees, allocable to the
administration or operation of an Account maintained under the Plan shall be
paid by the Employer.
4.7 TAXES. Any taxes payable by the Employer allocable to an Account (or
portion thereof) maintained under the Plan which are payable prior to the
distribution of the Account (or portion thereof) shall be paid by the Employer
and shall not be charged against that Account, as an expense of the Account or
otherwise.
ARTICLE 5
ENTITLEMENT TO BENEFITS
5.1 TERMINATION OF EMPLOYMENT. A Participant who terminates employment with
the Employer shall receive payment of his or her vested Account as soon as
practicable following his or her termination of employment with the Employer,
such vested Account to be valued and payable at such termination according to
the provisions of Article 6.
5.2 HARDSHIP DISTRIBUTIONS. In the event of financial hardship of the
Participant, as hereinafter defined, the Participant may apply to the Employer
for the distribution of all or any part of his or her vested Account. The
Employer shall consider the circumstances of each such case, and the best
interests of the Participant and his or her family, and shall have the right, in
its sole discretion, if applicable, to allow such distribution, or, if
applicable, to direct a distribution of part of the amount requested, or to
refuse to allow any distribution. Upon a finding of financial hardship, the
Employer shall make the appropriate distribution to the Participant from amounts
held by the Employer in respect of the Participant's vested Account. In no event
shall the aggregate amount of the distribution exceed either the full value of
the Participant's vested Account or the amount determined by the Employer to be
necessary to alleviate the Participant's financial hardship (which financial
hardship may be considered to include any taxes due because of the distribution
occurring because of this Section), and which is not reasonably available from
other resources of the Participant. For purposes of this Section, the value of
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the Participant's vested Account shall be determined as of the date of the
distribution. "Financial hardship" means (a) a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in Code section 152(a)) of the
Participant, (b) loss of the Participant's property due to casualty, or (c)
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant, each as determined to exist by
the Employer. A distribution may be made under this Section only with the
consent of the Employer.
5.3 VESTING. A Participant shall at all times be one hundred percent (100%)
vested in amounts credited to his or her Compensation Deferral Account. Amounts
credited to a Participant's Matching Contribution Sub-Account shall vest
according to the following schedule:
==================================== ===========================================
YEARS OF PLAN PARTICIPATION VESTED PERCENTAGE
==================================== ===========================================
Less than 1 0%
==================================== ===========================================
1 but less than 2 25%
==================================== ===========================================
2 but less than 3 50%
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3 but less than 4 75%
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4 or more 100%
==================================== ===========================================
For purposes of this Section, a Participant's years of Plan
participation shall equal the Participant's total number of completed twelve
(12) month periods of employment with the Employer as of the date of reference,
whether continuous or noncontinuous, after the Effective Date (after August 1,
1997, in the case of a Participant who was a Designated Senior Vice President
between August 1, 1997 and March 1, 1998).
Amounts, if any, credited to a Participant's Discretionary
Contribution Sub-Account shall vest according to a schedule to be determined by
the Employer, in its discretion, and which is expected to be communicated to the
Participant on or about the date the credit is made.
If a Participant terminates employment because of death, total and
permanent disability (as determined by the Employer in its discretion) or
termination by the Employer without cause (as determined by the Employer) or for
any reason within one (1) year following a Change of Control, the Participant
shall become one hundred percent (100%) vested in his or her Employer
Contribution Credit Account. If a Participant terminates employment under any
other circumstance, he or she shall become vested in his or her Employer
Contribution Account, if at all, under the vesting schedules set forth above.
ARTICLE 6
DISTRIBUTION OF BENEFITS
6.1 AMOUNT. A Participant (or his or her Beneficiary) shall become entitled
to receive, on or about the date of the Participant's termination of employment
with the Employer, a distribution in an aggregate amount equal to the
Participant's vested Account. Any payment due hereunder from the
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<PAGE>
Trust which is not paid by the Trust for any reason will be paid by the Employer
from its general assets.
6.2 METHOD OF PAYMENT.
(a) Cash Payments. All payments under the Plan shall be made in cash.
(b) Timing and Manner of Payment. An aggregate amount equal to the
Participant's vested Account will be paid by the Trust or the Employer upon a
Participant's termination of employment with the Employer, as provided by
Section 6.1, in a lump sum or in substantially equal annual installments
(adjusted for gains and losses), as selected by the Participant as provided in
Article 5. If a Participant fails to designate properly the manner of the
Participant's benefit under the Plan, such payment will be in a lump sum.
If the whole or any part of a payment hereunder is to be in
installments, the total to be so paid shall continue to be deemed to be invested
pursuant to Sections 4.1 and 4.5 under such procedures as the Employer may
establish, in which case any deemed income, gain or loss attributable thereto
(as determined by the Employer, in its discretion) shall be reflected in the
installment payments, in such equitable manner as the Employer shall determine.
6.3 DEATH BENEFITS. If a Participant dies before terminating his or her
employment with the Employer and before the commencement of payments to the
Participant hereunder, the entire value of the Participant's Account (which may
include credits for insurance contract death benefits deemed to be received by
the Account) shall be paid, as provided in Section 6.2(a), to the person or
persons designated in accordance with Section 7.1, in a cash lump sum.
Upon the death of a Participant after payments hereunder have begun
but before he or she has received all payments to which he or she is entitled
under the Plan, the remaining benefit payments shall be paid to the person or
persons designated in accordance with Section 7.1, in a lump sum.
ARTICLE 7
BENEFICIARIES; PARTICIPANT DATA
7.1 DESIGNATION OF BENEFICIARIES. Each Participant from time to time may
designate any person or persons (who may be named contingently or successively)
to receive such benefits as may be payable under the Plan upon or after the
Participant's death, and such designation may be changed from time to time by
the Participant by filing a new designation. Each designation will revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Employer, and will be effective only when filed in writing with the Employer
during the Participant's lifetime.
In the absence of a valid Beneficiary designation, or if, at the time
any benefit payment is due to a Beneficiary, there is no living Beneficiary
validly named by the Participant, the Employer shall pay any such benefit
payment to the Participant's spouse, if then living, but otherwise to the
Participant's then living descendants, if any, per stripes, but, if none, to the
Participant's estate. In determining the existence or identity of anyone
entitled to a benefit payment, the Employer may rely conclusively upon
information supplied by the Participant's personal representative, executor or
10
<PAGE>
administrator. If a question arises as to the existence or identity of anyone
entitled to receive a benefit payment as aforesaid, or if a dispute arises with
respect to any such payment, then, notwithstanding the foregoing, the Employer,
in its sole discretion, may distribute such payment to the Participant's estate
without liability for any tax or other consequences which might flow therefrom,
or may take such other action as the Employer deems to be appropriate.
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement
or notice addressed to a Participant or to a Beneficiary at his or her last post
office address as shown on the Employer's records shall be binding on the
Participant or Beneficiary for all purposes of the Plan. The Employer shall not
be obliged to search for any Participant or Beneficiary beyond the sending of a
registered letter to such last known address. If the Employer notifies any
Participant or Beneficiary that he or she is entitled to an amount under the
Plan and the Participant or Beneficiary fails to claim such amount or make his
or her location known to the Employer within three (3) years thereafter, then,
except as otherwise required by law, if the location of one or more of the next
of kin of the Participant is known to the Employer, the Employer may direct
distribution of such amount to any one or more or all of such next of kin, and
in such proportions as the Employer determines. If the location of none of the
foregoing persons can be determined, the Employer shall have the right to direct
that the amount payable shall be deemed to be a forfeiture, except that the
dollar amount of the forfeiture, unadjusted for deemed gains or losses in the
interim, shall be paid by the Employer if a claim for the benefit subsequently
is made by the Participant or the Beneficiary to whom it was payable. If a
benefit payable to an unlocated Participant or Beneficiary is subject to escheat
pursuant to applicable state law, the Employer shall not be liable to any person
for any payment made in accordance with such law.
ARTICLE 8
ADMINISTRATION
8.1 ADMINISTRATIVE AUTHORITY. Except as otherwise specifically provided
herein, the Employer shall have the sole responsibility for and the sole control
of the operation and administration of the Plan, and shall have the power and
authority to take all action and to make all decisions and interpretations which
may be necessary or appropriate in order to administer and operate the Plan,
including, without limiting the generality of the foregoing, the power, duty and
responsibility to:
(a) Resolve and determine all disputes or questions arising under the
Plan, and to remedy any ambiguities, inconsistencies or omissions in the Plan.
(b) Adopt such rules of procedure and regulations as in its opinion
may be necessary for the proper and efficient administration of the Plan and as
are consistent with the Plan.
(c) Implement the Plan in accordance with its terms and the rules and
regulations adopted as above.
(d) Make determinations with respect to the eligibility of any
Eligible Employee as a Participant and make determinations concerning the
crediting of Plan Accounts.
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<PAGE>
(e) Appoint any persons or firms, or otherwise act to secure
specialized advice or assistance, as it deems necessary or desirable in
connection with the administration and operation of the Plan, and the Employer
shall be entitled to rely conclusively upon, and shall be fully protected in any
action or omission taken by it in good faith reliance upon, the advice or
opinion of such firms or persons. The Employer shall have the power and
authority to delegate from time to time by written instrument all or any part of
its duties, powers or responsibilities under the Plan, both ministerial and
discretionary, as it deems appropriate, to any person or committee, and in the
same manner to revoke any such delegation of duties, powers or responsibilities.
Any action of such person or committee in the exercise of such delegated duties,
powers or responsibilities shall have the same force and effect for all purposes
hereunder as if such action had been taken by the Employer. Further, the
Employer may authorize one or more persons to execute any certificate or
document on behalf of the Employer, in which event any person notified by the
Employer of such authorization shall be entitled to accept and conclusively rely
upon any such certificate or document executed by such person as representing
action by the Employer until such notified person shall have been notified of
the revocation of such authority.
8.2 UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the administration or
operation of the Plan discretionary actions by the Employer are required or
permitted, such actions shall be consistently and uniformly applied to all
persons similarly situated, and no such action shall be taken which shall
discriminate in favor of any particular person or group of persons.
8.3 LITIGATION. Except as may be otherwise required by law, in any action
or judicial proceeding affecting the Plan, no Participant or Beneficiary shall
be entitled to any notice or service of process, and any final judgment entered
in such action shall be binding on all persons interested in, or claiming under,
the Plan.
8.4 CLAIMS PROCEDURE. Any person claiming a benefit under the Plan (a
"Claimant") shall present the claim, in writing, to the Employer, and the
Employer shall respond in writing. If the claim is denied, the written notice of
denial shall state, in a manner calculated to be understood by the Claimant:
(a) The specific reason or reasons for the denial, with specific
references to the Plan provisions on which the denial is based;
(b) A description of any additional material or information necessary
for the Claimant to perfect his or her claim and an explanation of why such
material or information is necessary; and
(c) An explanation of the Plan's claims review procedure.
The written notice denying or granting the Claimant's claim shall be
provided to the Claimant within ninety (90) days after the Employer's receipt of
the claim, unless special circumstances require an extension of time for
processing the claim. If such an extension is required, written notice of the
extension shall be furnished by the Employer to the Claimant within the initial
ninety (90) day period and in no event shall such an extension exceed a period
of ninety (90) days from the end of the initial ninety (90) day period. Any
extension notice shall indicate the special circumstances requiring
12
<PAGE>
the extension and the date on which the Employer expects to render a decision on
the claim. Any claim not granted or denied within the period noted above shall
be deemed to have been denied.
Any Claimant whose claim is denied, or deemed to have been denied
under the preceding sentence (or such Claimant's authorized representative),
may, within sixty (60) days after the Claimant's receipt of notice of the
denial, or after the date of the deemed denial, request a review of the denial
by notice given, in writing, to the Employer. Upon such a request for review,
the claim shall be reviewed by the Employer (or its designated representative)
which may, but shall not be required to, grant the Claimant a hearing. In
connection with the review, the Claimant may have representation, may examine
pertinent documents, and may submit issues and comments in writing.
The decision on review normally shall be made within sixty (60) days
of the Employer's receipt of the request for review. If an extension of time is
required due to special circumstances, the Claimant shall be notified, in
writing, by the Employer, and the time limit for the decision on review shall be
extended to one hundred twenty (120) days. The decision on review shall be in
writing and shall state, in a manner calculated to be understood by the
Claimant, the specific reasons for the decision and shall include references to
the relevant Plan provisions on which the decision is based. The written
decision on review shall be given to the Claimant within the sixty (60) day (or,
if applicable, the one hundred twenty (120) day) time limit discussed above. If
the decision on review is not communicated to the Claimant within the sixty (60)
day (or, if applicable, the one hundred twenty (120) day) period discussed
above, the claim shall be deemed to have been denied upon review. All decisions
on review shall be final and binding with respect to all concerned parties.
ARTICLE 9
AMENDMENT
9.1 RIGHT TO AMEND. The Employer, by written instrument executed by the
Employer, shall have the right to amend the Plan, at any time and with respect
to any provisions hereof, and all parties hereto or claiming any interest
hereunder shall be bound by such amendment; provided, however, that no such
amendment shall deprive a Participant or a Beneficiary of a right accrued
hereunder prior to the date of the amendment.
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN. Notwithstanding
the provisions of Section 9.1, the Plan may be amended by the Employer at any
time, retroactively if required, if found necessary, in the opinion of the
Employer, in order to ensure that the Plan is characterized as "top-hat" plan of
deferred compensation maintained for a select group of management or highly
compensated employees as described under ERISA sections 201(2), 301(a)(3), and
401(a)(1), and to conform the Plan to the provisions and requirements of any
applicable law (including ERISA and the Code). No such amendment shall be
considered prejudicial to any interest of a Participant or a Beneficiary
hereunder.
ARTICLE 10
TERMINATION
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN. The Employer reserves
the right to terminate the Plan and/or its obligation to make further credits to
Plan Accounts.
13
<PAGE>
The Employer also reserves the right to suspend the operation of the Plan for a
fixed or indeterminate period of time.
10.2 AUTOMATIC TERMINATION OF PLAN. The Plan automatically shall terminate
upon the dissolution of the Employer, or upon its merger into or consolidation
with any other corporation or business organization if there is a failure by the
surviving corporation or business organization to adopt specifically and agree
to continue the Plan.
10.3 SUSPENSION OF DEFERRALS. In the event of a suspension of the Plan, the
Employer shall continue all aspects of the Plan, other than Compensation
Deferrals and Employer Contribution Credits, during the period of the
suspension, in which event payments hereunder will continue to be made during
the period of the suspension in accordance with Articles 5 and 6.
10.4 ALLOCATION AND DISTRIBUTION. This Section shall become operative on a
complete termination of the Plan. The provisions of this Section also shall
become operative in the event of a partial termination of the Plan, as
determined by the Employer, but only with respect to that portion of the Plan
attributable to the Participants to whom the partial termination is applicable.
Upon the effective date of any such event, notwithstanding any other provisions
of the Plan, no persons who were not theretofore Participants shall be eligible
to become Participants and the value of the interest of all Participants and
Beneficiaries shall be fully vested and determined and, after paying Plan
benefits, paid to them as soon as is practicable after such termination.
10.5 SUCCESSOR TO EMPLOYER. Any corporation or other business organization
which is a successor to the Employer by reason of a consolidation, merger or
purchase of substantially all of the assets of the Employer shall have the right
to become a party to the Plan by adopting the same by resolution of the entity's
board of directors or other appropriate governing body. If, within ninety (90)
days from the effective date of such consolidation, merger or sale of assets,
such new entity does not become a party hereto, as above provided, the Plan
automatically shall be terminated, and the provisions of Section 10.4 shall
become operative.
ARTICLE 11
THE TRUST
11.1 ESTABLISHMENT OF TRUST. The Employer shall establish the Trust with
the Trustee pursuant to such terms and conditions as are set forth in the Trust
agreement to be entered into between the Employer and the Trustee. The Trust is
intended to be treated as a "grantor" trust under the Code and the establishment
of the Trust is not intended to cause the Participant to realize current income
on amounts contributed thereto, and the Trust shall be so interpreted.
ARTICLE 12
MISCELLANEOUS
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER. Neither the establishment of the
Plan nor any modification thereof, nor the creation of any account under the
Plan, nor the payment of any benefits under the Plan shall be construed as
giving to any Participant or other person any legal or equitable right against
the Employer, or any officer or employer thereof except as provided by law or
14
<PAGE>
by any Plan provision. The Employer does not in any way guarantee any
Participant's Account from loss or depreciation, whether caused by poor
investment performance of a deemed investment or the inability to realize upon
an investment due to an insolvency affecting an investment vehicle or any other
reason. In no event shall the Employer, or any successor, employee, officer,
director or stockholder of the Employer, be liable to any person on account of
any claim arising by reason of the provisions of the Plan or of any instrument
or instruments implementing its provisions, or for the failure of any
Participant, Beneficiary or other person to be entitled to any particular tax
consequences with respect to the Plan, or any credit or distribution hereunder.
12.2 CONSTRUCTION. If any provision of the Plan is held to be illegal or
void, such illegality or invalidity shall not affect the remaining provisions of
the Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provision had never been inserted herein.
For all purposes of the Plan, where the context admits, the singular shall
include the plural, and the plural shall include the singular. Headings of
Articles and Sections herein are inserted only for convenience of reference and
are not to be considered in the construction of the Plan. The laws of the State
of Maryland shall govern, control and determine all questions of law arising
with respect to the Plan and the interpretation and validity of its respective
provisions, except where those laws are preempted by the laws of the United
States. Participation under the Plan will not give any Participant the right to
be retained in the service of the Employer nor any right or claim to any benefit
under the Plan unless such right or claim has specifically accrued hereunder.
The Plan is intended to be and at all times shall be interpreted and
administered so as to qualify as an unfunded deferred compensation plan, and no
provision of the Plan shall be interpreted so as to give any individual any
right in any assets of the Employer which right is greater than the rights of a
general unsecured creditor of the Employer.
12.3 SPENDTHRIFT PROVISION. No amount payable to a Participant or a
Beneficiary under the Plan will, except as otherwise specifically provided by
law, be subject in any manner to anticipation, alienation, attachment,
garnishment, sale, transfer, assignment (either at law or in equity), levy,
execution, pledge, encumbrance, charge or any other legal or equitable process,
and any attempt to do so will be void; nor will any benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled thereto. Further, (i) the withholding of taxes from Plan
benefit payments, (ii) the recovery under the Plan of overpayments of benefits
previously made to a Participant or Beneficiary, (iii) if applicable, the
transfer of benefit rights from the Plan to another plan, or (iv) the direct
deposit of benefit payments to an account in a banking institution (if not
actually part of an arrangement constituting an assignment or alienation) shall
not be construed as an assignment or alienation.
In the event that any Participant's or Beneficiary's benefits
hereunder are garnished or attached by order of any court, the Employer or
Trustee may bring an action or a declaratory judgment in a court of competent
jurisdiction to determine the proper recipient of the benefits to be paid under
the Plan. During the pendency of said action, any benefits that become payable
shall be held as credits to the Participant's or Beneficiary's Account or, if
the Employer or Trustee prefers, paid into the court as they become payable, to
be distributed by the court to the recipient as the court deems proper at the
close of said action.
15
<PAGE>
IN WITNESS WHEREOF, the Employer has caused this amended and restated Plan
to be executed and its seal to be affixed hereto, effective as of the 1st day of
March, 1998.
ATTEST/WITNESS: INTEGRATED HEALTH SERVICES, INC.
________________________________ By:____________________________(SEAL)
Print: ____________________________ Print Name: _________________________
Date: __________________________
16
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