<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1998
REGISTRATION NO. 333-48947
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
INTEGRATED HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 23-2428312
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
--------------
10065 Red Run Boulevard, Owings Mills, Maryland 21117, (410) 998-8400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------
Marshall A. Elkins, Esq., Executive Vice President and General Counsel
Integrated Health Services, Inc., 10065 Red Run Boulevard, Owings Mills,
Maryland 21117, (410) 998-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
<TABLE>
<S> <C>
Carl E. Kaplan, Esq. Leslie A. Glew, Esq.
Fulbright & Jaworski L.L.P. Senior Vice President and Associate General Counsel
666 Fifth Avenue Integrated Health Services, Inc.
New York, New York 10103 10065 Red Run Boulevard
(212) 318-3000 Owings Mills, Maryland 21117
(212) 752-5958(FAX) (410) 998-8400
(410) 998-8500(FAX)
</TABLE>
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Approximate Date of Commencement of Proposed Sale to the Public:
From time to time after the effective date of this Registration Statement.
--------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 21, 1998
PROSPECTUS
981,421 SHARES
[GRAPHIC OMITTED]
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
--------------
This Prospectus relates to 981,421 shares (the "Shares") of Common Stock,
par value $0.001 per share (together with the Preferred Stock Purchase Rights
associated therewith, the "Common Stock"), of Integrated Health Services, Inc.
("IHS" or the "Company") which are being offered for sale by certain selling
stockholders (the "Selling Stockholders"). See "Selling Stockholders." The
Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "IHS." On May 20, 1998, the closing price of the Common Stock, as
reported in the NYSE consolidated reporting system, was $38.50 per share.
The Company will not receive any of the proceeds from sales of the Shares
by the Selling Stockholders. The Shares may be offered from time to time by the
Selling Stockholders (and their donees and pledgees) through ordinary brokerage
transactions, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution."
The Selling Stockholders may be deemed to be "Underwriters" as defined in
the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used to effect sales, any commissions paid to broker-dealers
and, if broker-dealers purchase any of the Shares as principals, any profits
received by such broker-dealers on the resale of the Shares, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Stockholders may be deemed to be underwriting
commissions. All costs, expenses and fees in connection with the registration of
the Shares will be borne by the Company. Brokerage commissions, if any,
attributable to the sale of the Shares will be borne by the Selling Stockholders
(or their donees and pledgees).
--------------
SEE "RISK FACTORS," WHICH BEGINS ON PAGE 6 OF THIS PROSPECTUS, FOR CERTAIN
INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURI-
TIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CON-
TRARY IS A CRIMINAL OFFENSE.
--------------
The date of this Prospectus is , 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also may be obtained by mail from the
Public Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
materials and other information concerning the Company may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Additionally,
the Commission maintains a Web site on the Internet that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission and that is located at http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. Copies of the Registration
Statement together with exhibits may be inspected at the offices of the
Commission as indicated above without charge and copies thereof may be obtained
therefrom upon payment of a prescribed fee.
Private Securities Litigation Reform Act Safe Harbor Statement. This
Prospectus (including the documents incorporated by reference herein) contains
certain forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to IHS that
are based on the beliefs of the management of IHS, as well as assumptions made
by and information currently available to the management of IHS. When used in
this Prospectus, the words "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements reflect the current views of IHS
with respect to future events and are subject to risks and uncertainties,
including those discussed under "Risk Factors," that could cause actual results
to differ materially from those contemplated in such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. IHS does not undertake any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information in the following documents filed by IHS with the Commission
(File No. 1-12306) pursuant to the Exchange Act is incorporated by reference in
this Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1997;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998;
(c) The Company's Current Report on Form 8-K dated October 17, 1996 and
filed October 25, 1996, reporting the acquisition of First American Health
Care of Georgia, Inc., as amended by Form 8-K/A filed November 26, 1996 and
Amendment No. 1 to Form 8-K/A filed July 11, 1997;
(d) The Company's Current Report on Form 8-K dated September 25, 1997 and
filed October 10, 1997, reporting the Company's acquisition of Community Care
of America, Inc. and the Lithotripsy Division of Coram Healthcare
Corporation, as amended by Form 8-K/A filed November 25, 1997;
(e) The Company's Current Report on Form 8-K dated October 21, 1997 and
filed November 5, 1997, reporting the Company's acquisition of RoTech Medical
Corporation, as amended by Form 8-K/A filed November 25, 1997;
(f) The Company's Current Report on Form 8-K dated December 31, 1997 and
filed January 14, 1998, reporting the acquisition of 139 owned, leased or
managed long-term care facilities, 12 specialty hospitals and certain other
businesses from HEALTHSOUTH Corporation, as amended by Form 8-K/A filed March
16, 1998;
(g) The Company's Current Report on Form 8-K dated March 4, 1998 and
filed March 12, 1998, reporting the Company's revenues and operating results
for the fourth quarter and year ended December 31, 1997;
(h) The description of the Company's Common Stock contained in Item 1 of
the Company's Registration Statement on Form 8-A dated September 1, 1993; and
(i) The description of the Company's Preferred Stock Purchase Rights
contained in Item 1 of the Company's Registration Statement on Form 8-A dated
September 28, 1995.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus
and prior to the filing of a post-effective amendment which indicates that all
Shares offered have been sold or which deregisters all Shares then remaining
unsold shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained herein or in a previously filed document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or was deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The information relating to IHS contained in this Prospectus should be read
together with the information in the documents incorporated by reference.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE DIRECTED TO
INTEGRATED HEALTH SERVICES, INC., 10065 RED RUN BOULEVARD, OWINGS MILLS,
MARYLAND 21117, ATTENTION: MARC B. LEVIN, EXECUTIVE VICE PRESIDENT-INVESTOR
RELATIONS, TELEPHONE: (410) 998-8400.
3
<PAGE>
THE COMPANY
Integrated Health Services, Inc. ("IHS" or the "Company") is one of the
nation's leading providers of post-acute healthcare services. Post-acute care is
the provision of a continuum of care to patients following discharge from an
acute care hospital. IHS' post-acute care services include subacute care,
skilled nursing facility care, home respiratory care, home health nursing care,
other homecare services and contract rehabilitation, hospice, lithotripsy and
diagnostic services. The Company's post-acute care network is designed to
address the fact that the cost containment measures implemented by private
insurers and managed care organizations and limitations on government
reimbursement of hospital costs have resulted in the discharge from hospitals of
many patients who continue to require medical and rehabilitative care. IHS'
post-acute healthcare system is intended to provide cost-effective continuity of
care for its patients in multiple settings and enable payors to contract with
one provider to provide all of a patient's needs following discharge from acute
care hospitals. The Company believes that its post-acute care network can be
extended beyond post-acute care to also provide "pre-acute" care, i.e., services
to patients which reduce the likelihood of a need for a hospital stay. IHS'
post-acute care network currently consists of approximately 2,000 service
locations in 47 states and the District of Columbia.
The Company's post-acute care network strategy is to provide cost-effective
continuity of care for its patients in multiple settings, using geriatric care
facilities as platforms to provide a wide variety of subacute medical and
rehabilitative services more typically delivered in the acute care hospital
setting and using home healthcare to provide those medical and rehabilitative
services which do not require 24-hour monitoring. To implement its post-acute
care network strategy, IHS has focused on (i) developing market concentration
for its post-acute care services in targeted states due to increasing payor
consolidation and the increased preference of payors, physicians and patients
for dealing with only one service provider; (ii) expanding the range of home
healthcare and related services it offers to patients directly in order to
provide patients with a continuum of care throughout their recovery, to better
control costs and to meet the growing desire by payors for one-stop shopping;
and (iii) developing subacute care units. Given the increasing importance of
managed care in the healthcare marketplace and the continued cost containment
pressures from Medicare, Medicaid and private payors, the Company has been
restructuring its operations to enable IHS to focus on obtaining contracts with
managed care organizations and to provide capitated services. IHS' strategy is
to become a preferred or exclusive provider of post-acute care services to
managed care organizations and other payors.
In implementing its post-acute care network strategy, IHS has recently
focused on expanding its home healthcare services to take advantage of
healthcare payors' increasing focus on having healthcare provided in the
lowest-cost setting possible, recent advances in medical technology which have
facilitated the delivery of medical services in alternative sites and patients'
desires to be treated at home. Consistent with the Company's strategy, IHS in
October 1996 acquired First American Health Care of Georgia, Inc. ("First
American"), a provider of home health services, principally home nursing, in 21
states, primarily Alabama, California, Florida, Georgia, Michigan, Pennsylvania
and Tennessee. IHS in October 1997 acquired RoTech Medical Corporation
("RoTech"), a provider of home healthcare products and services, with an
emphasis on home respiratory, home medical equipment and infusion therapy,
principally to patients in non-urban areas (the "RoTech Acquisition"). In
October 1997, IHS also acquired (the "Coram Lithotripsy Acquisition") the
lithotripsy division (the "Coram Lithotripsy Division") of Coram Healthcare
Corporation ("Coram"), which provided lithotripsy services and equipment
maintenance in 180 locations in 18 states, in order to expand the mobile
diagnostic treatment and services it offers to patients, payors and other
providers. Lithotripsy is a non-invasive technique that utilizes shock waves to
disintegrate kidney stones. IHS intends to use the home healthcare setting and
the delivery franchise of the home healthcare branch and agency network to (i)
deliver sophisticated care, such as skilled nursing care, home respiratory
therapy and rehabilitation, outside the hospital or nursing home; (ii) serve as
an entry point for patients into the IHS post-acute care network; and (iii)
provide a cost-effective site for case management and patient direction.
IHS has also continued to expand its post-acute care network by increasing
the number of facilities it operates or manages. In September 1997, IHS acquired
Community Care of America, Inc. ("CCA"), which develops and operates skilled
nursing facilities in medically underserved rural communities (the
4
<PAGE>
"CCA Acquisition"). IHS believes that CCA will broaden its post-acute care
network to include more rural markets and will complement its existing home care
locations in rural markets as well as RoTech's business. In addition, in
December 1997, IHS acquired from HEALTHSOUTH Corporation ("HEALTHSOUTH") 139
owned, leased or managed long-term care facilities and 12 specialty hospitals,
as well as a contract therapy business having over 1,000 contracts and an
institutional pharmacy business serving approximately 38,000 beds (the "Facility
Acquisition").
The Company provides subacute care through medical specialty units
("MSUs"), which are typically 20 to 75 bed specialty units with physical
identities, specialized medical technology and staffs separate from the
geriatric care facilities in which they are located. MSUs are designed to
provide comprehensive medical services to patients who have been discharged from
acute care hospitals but who still require subacute or complex medical
treatment. The levels and quality of care provided in the Company's MSUs are
similar to those provided in the hospital but at per diem treatment costs which
IHS believes are generally 30% to 60% below the cost of such care in acute care
hospitals. Because of the high level of specialized care provided, the Company's
MSUs generate substantially higher net revenue and operating profit per patient
day than traditional geriatric care services.
IHS presently operates 313 geriatric care facilities (258 owned or leased
and 55 managed), excluding 13 facilities acquired in the CCA Acquisition and 42
facilities acquired in the Facility Acquisition which are being held for sale,
and 158 MSUs located within 84 of these facilities. Specialty medical services
revenues, which include all MSU charges, all revenue from providing
rehabilitative therapies, pharmaceuticals, medical supplies and durable medical
equipment to all its patients, all revenue from its Alzheimer's programs and all
revenue from its provision of pharmacy, rehabilitation therapy, home healthcare,
hospice care and similar services to third-parties, constituted approximately
65%, 70% and 79% of net revenues during the years ended December 31, 1995, 1996
and 1997, respectively, and 79% and 72% of net revenues in the three months
ended March 31, 1997 and 1998, respectively. IHS also offers a wide range of
basic medical services as well as a comprehensive array of respiratory,
physical, speech, occupational and physiatric therapy in all its geriatric care
facilities. For the year ended December 31, 1997 and the three months ended
March 31, 1998, approximately 35% and 31%, respectively, of IHS' revenues were
derived from home health and hospice care, approximately 44% and 41%,
respectively, were derived from subacute and other ancillary services,
approximately 19% and 28%, respectively, were derived from traditional basic
nursing home services, and approximately 2% and 1%, respectively, were derived
from management and other services. On a pro forma basis after giving effect to
the acquisitions consummated by IHS in 1997, for the year ended December 31,
1997, approximately 30% of IHS' revenues were derived from home health and
hospice care, approximately 43% were derived from subacute and other ancillary
services, approximately 26% were derived from traditional basic nursing home
services and the remaining approximately 1% were derived from management and
other services.
Integrated Health Services, Inc. was incorporated in March 1986 as a
Pennsylvania corporation and reorganized as a Delaware corporation in November
1986. IHS' principal executive offices are located at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 and its telephone number is (410) 998-8400. Unless
the context indicates otherwise, the terms "IHS" and the "Company" include
Integrated Health Services, Inc. and its subsidiaries.
5
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well as
those discussed elsewhere in this Prospectus (including the documents
incorporated by reference herein).
Risks Related to Substantial Indebtedness. The Company's indebtedness is
substantial in relation to its stockholders' equity. At December 31, 1997, IHS'
total long-term debt, including current portion, accounted for 74.8% of its
total capitalization. IHS also has significant lease obligations with respect to
the facilities operated pursuant to long-term leases, which aggregated
approximately $704.9 million at December 31, 1997. For the year ended December
31, 1997 the Company's rent expense was $105.1 million ($163.7 million on a pro
forma basis after giving effect to the acquisitions consummated by IHS in 1997).
In addition, IHS is obligated to pay an additional $155 million in respect of
the acquisition of First American during 2000 to 2004, of which $113.0 million
(representing the present value thereof) has been recorded at December 31, 1997.
The Company's strategy of expanding its specialty medical services and growing
through acquisitions may require additional borrowings in order to finance
working capital, capital expenditures and the purchase price of any
acquisitions. The degree to which the Company is leveraged, as well as its rent
expense, could have important consequences to securityholders, including: (i)
IHS' ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired, (ii) a substantial portion of IHS' cash flow from operations may be
dedicated to the payment of principal and interest on its indebtedness and rent
expense, thereby reducing the funds available to IHS for its operations, (iii)
certain of IHS' borrowings bear, and will continue to bear, variable rates of
interest, which expose IHS to increases in interest rates, and (iv) certain of
IHS' indebtedness contains financial and other restrictive covenants, including
those restricting the incurrence of additional indebtedness, the creation of
liens, the payment of dividends and sales of assets and imposing minimum net
worth requirements. In addition, IHS' leverage may also adversely affect IHS'
ability to respond to changing business and economic conditions or continue its
growth strategy. There can be no assurance that IHS' operating results will be
sufficient for the payment of IHS' indebtedness. If IHS were unable to meet
interest, principal or lease payments, or satisfy financial covenants, it could
be required to seek renegotiation of such payments and/or covenants or obtain
additional equity or debt financing. If additional funds are raised by issuing
equity securities, the Company's stockholders may experience dilution. Further,
such equity securities may have rights, preferences or privileges senior to
those of the Common Stock. To the extent IHS finances its activities with
additional debt, IHS may become subject to certain additional financial and
other covenants that may restrict its ability to pursue its growth strategy and
to pay dividends on the Common Stock. There can be no assurance that any such
efforts would be successful or timely or that the terms of any such financing or
refinancing would be acceptable to IHS. See "-- Risks Related to Capital
Requirements."
In connection with IHS' offering of its 9 1/4% Senior Subordinated Notes
due 2008 in September 1997 (the "9 1/4% Senior Notes"), Standard & Poors ("S&P")
confirmed its B rating of IHS' other subordinated debt obligations, but with a
negative outlook, and assigned the same rating to the 9 1/4% Senior Notes. In
November 1997, S&P placed the Company's senior credit and subordinated debt
ratings on CreditWatch with negative implications due to the proposed Facility
Acquisition and in January 1998 S&P downgraded IHS' corporate credit and bank
loan ratings to B+ and its subordinated debt ratings to B- as a result of the
Facility Acquisition. S&P stated that the speculative grade ratings reflect the
Company's high debt leverage and aggressive acquisition strategy, uncertainties
with respect to future government efforts to control Medicare and Medicaid and
the unknown impact on IHS of recent changes in healthcare regulation providing
for a prospective payment system for both nursing homes and home healthcare. S&P
noted IHS' outlook was stable. In connection with the offering of the 9 1/4%
Senior Notes, Moody's Investors Service ("Moody's") downgraded to B2 the
Company's other senior subordinated debt obligations, but noted that the outlook
for the rating was stable, and assigned the new rating to the 9 1/4% Senior
Notes. Moody's stated that the rating action reflects Moody's concern about
6
<PAGE>
the Company's continued rapid growth through acquisitions, which has resulted in
negative tangible equity of $114 million, making no adjustment for the $259
million of convertible debt of IHS outstanding. Moody's also stated that the
availability provided by the Company's new credit facility and the 9 1/4% Senior
Notes positioned the Company to complete sizable acquisition transactions using
solely debt. Moody's further noted that the rating reflects that there are
significant changes underway in the reimbursement of services rendered by IHS,
and that the exact impact of these changes is uncertain.
Risks Associated with Growth Through Acquisitions and Internal Development.
IHS' growth strategy involves growth through acquisitions and internal
development and, as a result, IHS is subject to various risks associated with
this growth strategy. The Company's planned expansion and growth require that
the Company expand its home healthcare services through the acquisition of
additional home healthcare providers and that the Company acquire, or establish
relationships with, third parties which provide post-acute care services not
currently provided by the Company and that the Company acquire, lease or acquire
the right to manage for others additional facilities. Such expansion and growth
will depend on the Company's ability to create demand for its post-acute care
programs, the availability of suitable acquisition, lease or management
candidates and the Company's ability to finance such acquisitions and growth.
The successful implementation of the Company's post-acute healthcare system,
including the capitation of rates, will depend on the Company's ability to
expand the amount of post-acute care services it offers directly to its patients
rather than through third-party providers. There can be no assurance that
suitable acquisition candidates will be located, that acquisitions can be
consummated, that acquired facilities and companies can be successfully
integrated into the Company's operations, or that the Company's post-acute
healthcare system, including the capitation of rates, can be successfully
implemented. The post-acute care market is highly competitive, and the Company
faces substantial competition from hospitals, subacute care providers,
rehabilitation providers and home healthcare providers, including competition
for acquisitions. The Company anticipates that competition for acquisition
opportunities will intensify due to the ongoing consolidation in the healthcare
industry. See "-- Risks Related to Managed Care Strategy" and "-- Competition."
The successful integration of acquired businesses, including First
American, RoTech, CCA, the Coram Lithotripsy Division and the facilities and
other businesses acquired from HEALTHSOUTH, is important to the Company's future
financial performance. The anticipated benefits from any of these acquisitions
may not be achieved unless the operations of the acquired businesses are
successfully combined with those of the Company in a timely manner. The
integration of the Company's recent acquisitions will require substantial
attention from management. The diversion of the attention of management, and any
difficulties encountered in the transition process, could have a material
adverse effect on the Company's operations and financial results. In addition,
the process of integrating the various businesses could cause the interruption
of, or a loss of momentum in, the activities of some or all of these businesses,
which could have a material adverse effect on the Company's operations and
financial results. There can be no assurance that the Company will realize any
of the anticipated benefits from its acquisitions. The acquisition of service
companies that are not profitable, or the acquisition of new facilities that
result in significant integration costs and inefficiencies, could also adversely
affect the Company's profitability.
IHS' current and anticipated future growth has placed, and will continue to
place, significant demands on the management, operational and financial
resources of IHS. The Company's ability to manage its growth effectively will
require it to continue to improve its operational, financial and management
information systems and to continue to attract, train, motivate, manage and
retain key employees. There can be no assurance that IHS will be able to manage
its expanded operations effectively. See "-- Risks Related to Capital
Requirements."
There can be no assurance that the Company will be successful in
implementing its strategy or in responding to ongoing changes in the healthcare
industry which may require adjustments to its strategy. If IHS fails to
implement its strategy successfully or does not respond timely and adequately to
ongoing changes in the healthcare industry, the Company's business, financial
condition and results of operations will be materially adversely affected.
7
<PAGE>
Risks Related to Managed Care Strategy. Managed care payors and traditional
indemnity insurers have experienced pressure from their policyholders to curb or
reduce the growth in premiums paid to such organizations for healthcare
services. This pressure has resulted in demands on healthcare service providers
to reduce their prices or to share in the financial risk of providing care
through alternate fee structures such as capitation or fixed case rates. Given
the increasing importance of managed care in the healthcare marketplace and the
continued cost containment pressures from Medicare and Medicaid, IHS has been
restructuring its operations to enable IHS to focus on obtaining contracts with
managed care organizations and to provide capitated services. The Company
believes that its home healthcare capabilities will be an important component of
its ability to provide services under capitated and other alternate fee
arrangements. However, to date there has been limited demand among managed care
organizations for post-acute care network services, and there can be no
assurance that demand for such services will increase. Further, IHS has limited
experience in providing services under capitated and other alternate fee
arrangements and setting the applicable rates. Accordingly, there can be no
assurance that the fees received by IHS will cover the cost of services
provided. If revenue for capitated services is insufficient to cover the
treatment costs, IHS' operating results could be adversely affected. As a
result, the success of IHS' managed care strategy will depend in large part on
its ability to increase demand for post-acute care services among managed care
organizations, to obtain favorable agreements with managed care organizations
and to manage effectively its operating and healthcare delivery costs through
various methods, including utilization management and competitive pricing for
purchased services. Additionally, there can be no assurance that pricing
pressures faced by healthcare providers will not have a material adverse effect
on the Company's business, results of operations and financial condition.
Further, pursuing a strategy focused on risk-sharing fee arrangements
entails certain regulatory risks. Many states impose restrictions on a service
provider's ability to provide capitated services unless it meets certain
financial criteria, and may view capitated fee arrangements as an insurance
activity, subjecting the entity accepting the capitated fee to regulation as an
insurance company rather than merely a licensed healthcare provider accepting a
business risk in connection with the manner in which it is charging for its
services. The laws governing risk-sharing fee arrangements for healthcare
service providers are evolving and are not certain at this time. If the
risk-sharing activities of IHS require licensure as an insurance company, there
can be no assurance that IHS could obtain or maintain the necessary licensure,
or that IHS would be able to meet any financial criteria imposed by a state. If
the Company were precluded from providing services under risk-sharing fee
arrangements, its managed care strategy would be adversely affected. See "--
Uncertainty of Government Regulation."
Risks Related to Capital Requirements. IHS' growth strategy requires
substantial capital for the acquisition of additional home healthcare and
related service providers and geriatric care facilities. The effective
integration, operation and expansion of the existing businesses will also
require substantial capital. The Company expects to finance new acquisitions
from a combination of funds from operations, borrowings under its bank credit
facility and the issuance of debt and equity securities. IHS may raise
additional capital through the issuance of long-term or short-term indebtedness
or the issuance of additional equity securities in private or public
transactions, at such times as management deems appropriate and the market
allows. Any of such financings could result in dilution of existing equity
positions, increased interest and amortization expense or decreased income to
fund future expansion. There can be no assurance that acceptable financing for
future acquisitions or for the integration and expansion of existing businesses
and operations can be obtained. The Company's bank credit facility limits the
Company's ability to make acquisitions, and certain of the indentures under
which the Company's outstanding senior subordinated debt securities were issued
limit the Company's ability to incur additional indebtedness unless certain
financial tests are met. See "-- Risks Related to Substantial Indebtedness."
Risks Related to Recent Acquisitions. IHS has recently completed several
major acquisitions, including the acquisitions of First American, RoTech, CCA
and the Coram Lithotripsy Division and the Facility Acquisition, and is still in
the process of integrating those acquired businesses. The IHS Board of Directors
and senior management of IHS face a significant challenge in their efforts to
integrate the acquired businesses, including First American, RoTech, CCA, the
Coram Lithotripsy Division and the facilities and other businesses acquired from
HEALTHSOUTH. The dedication of management re-
8
<PAGE>
sources to such integration may detract attention from the day-to-day business
of IHS. The difficulties of integration may be increased by the necessity of
coordinating geographically separated organizations, integrating personnel with
disparate business backgrounds and combining different corporate cultures. There
can be no assurance that there will not be substantial costs associated with
such activities or that there will not be other material adverse effects of
these integration efforts. Further, there can be no assurance that management's
efforts to integrate the operations of IHS and newly acquired companies will be
successful or that the anticipated benefits of the recent acquisitions will be
fully realized.
IHS has recently expanded significantly its home healthcare operations.
During the years ended December 31, 1996 and 1997 and the three months ended
March 31, 1997 and 1998; home healthcare accounted for approximately 16.3%,
35.4%, 33.8% and 30.2%, respectively, of IHS' total revenues. On a pro forma
basis, after giving effect to the acquisitions and divestitures consummated by
IHS in 1996 and 1997, home healthcare accounted for approximately 28.8% and
29.6% of IHS' total revenues in 1996 and 1997, respectively. On a pro forma
basis, approximately 70.7% and 73.0% of IHS' home healthcare revenues were
derived from Medicare in the years ended December 31, 1996 and 1997,
respectively. On a pro forma basis, after giving effect to the acquisitions and
divestitures consummated by IHS in 1996 and 1997, home nursing services
accounted for approximately 64.2% and 56.2%, respectively, of IHS' home
healthcare revenues in these periods. Medicare has developed a national fee
schedule for infusion therapy and home medical equipment which provides
reimbursement at 80% of the amount of any fee on the schedule. The remaining 20%
is paid by other third party payors (including Medicaid in the case of
"medically indigent" patients) or patients. With respect to home nursing,
Medicare generally reimburses for the cost of providing such services, up to a
regionally adjusted allowable maximum per visit and per discipline with no fixed
limit on the number of visits prior to 1998. There generally is no deductible or
coinsurance. As a result, there is no reward for efficiency, provided that costs
are below the cap, and traditional home healthcare services carry relatively low
margins. The Balanced Budget Act of 1997 (the "BBA"), enacted in August 1997,
provides for a reduction in current cost reimbursement for home nursing care
pending implementation of a prospective payment system for home nursing services
for cost reporting periods beginning on or after October 1, 1999, and
implementation of a prospective payment system will be a critical element to the
success of IHS' expansion into home nursing services. Based upon prior
legislative proposals, IHS believes that a prospective payment system would most
likely provide a healthcare provider a predetermined rate for a given service,
with providers that have costs below the predetermined rate being entitled to
keep some or all of this difference. There can be no assurance that Medicare
will implement a prospective payment system for home nursing services in the
next several years or at all. The implementation of a prospective payment system
requires IHS to make contingent payments related to the First American
Acquisition of $155 million over a period of five years. Until a prospective
payment system for home nursing services is introduced, IHS anticipates that
margins for home nursing will remain low and may adversely impact its financial
performance. IHS is currently exploring ways to reduce the impact of its home
nursing business on its financial performance, which may include a "spin-off" of
such operations. In addition, the BBA reduces the Medicare national payment
limits for oxygen and oxygen equipment used in home respiratory therapy by 25%
in 1998 and 30% (from 1997 levels) in 1999 and each subsequent year.
Approximately 50% of RoTech's total revenues for 1997 were derived from the
provision of oxygen services to Medicare patients. The inability of IHS to
realize operating efficiencies and provide home healthcare services at a cost
below the established Medicare fee schedule could have a material adverse effect
on IHS' home healthcare operations and its post-acute care network. See "-- Risk
of Adverse Effect of Healthcare Reform."
Reliance on Reimbursement by Third Party Payors. The Company receives
payment for services rendered to patients from private insurers and patients
themselves, from the Federal government under Medicare, and from the states in
which it operates under Medicaid. The healthcare industry is experiencing a
trend toward cost containment, as government and other third party payors seek
to impose lower reimbursement and utilization rates and negotiate reduced
payment schedules with service providers. These cost containment measures,
combined with the increasing influence of managed care payors and competition
for patients, has resulted in reduced rates of reimbursement for services
provided by IHS, which has adversely affected, and may continue to adversely
affect, IHS' margins, particularly in its
9
<PAGE>
skilled nursing and subacute facilities. Aspects of certain healthcare reform
proposals, such as cutbacks in the Medicare and Medicaid programs, reductions in
Medicare reimbursement rates and/or limitations on reimbursement rate increases,
containment of healthcare costs on an interim basis by means that could include
a short-term freeze on prices charged by healthcare providers, and permitting
greater state flexibility in the administration of Medicaid, could adversely
affect the Company. There can be no assurance that adequate reimbursement levels
will continue to be available for services to be provided by IHS which are
currently being reimbursed by Medicare, Medicaid or private payors. Significant
limits on the scope of services reimbursed and on reimbursement rates and fees
could have a material adverse effect on the Company's results of operations and
financial condition. See "-- Risk of Adverse Effect of Healthcare Reform."
During the years ended December 31, 1995, 1996 and 1997 and the three months
ended March 31, 1997 and 1998, the Company derived approximately 55%, 60%, 66%,
67% and 63%, respectively, of its patient revenues from Medicare and Medicaid.
On a pro forma basis after giving effect to the acquisitions and divestitures
consummated by IHS in 1996 and 1997, approximately 69% of the Company's patient
revenues have been derived from Medicare and Medicaid in each of the years ended
December 31, 1996 and 1997.
The sources and amounts of the Company's patient revenues derived from the
operation of its geriatric care facilities and MSU programs are determined by a
number of factors, including licensed bed capacity of its facilities, occupancy
rate, the mix of patients and the rates of reimbursement among payor categories
(private, Medicare and Medicaid). Changes in the mix of the Company's patients
among the private pay, Medicare and Medicaid categories can significantly affect
the profitability of the Company's operations. The Company's cost of care for
its MSU patients generally exceeds regional reimbursement limits established
under Medicare. The success of the Company's MSU strategy will depend in part on
its ability to obtain per diem rate approvals for costs which exceed the
Medicare established per diem rate limits and by obtaining waivers of these
limitations. There can be no assurance that the Company will be able to obtain
the waivers necessary to enable the Company to recover its excess costs.
Managed care organizations and other third party payors have continued to
consolidate to enhance their ability to influence the delivery of healthcare
services. Consequently, the healthcare needs of a large percentage of the United
States population are provided by a small number of managed care organizations
and third party payors. These organizations generally enter into service
agreements with a limited number of providers for needed services. To the extent
such organizations terminate IHS as a preferred provider and/or engage IHS'
competitors as a preferred or exclusive provider, the business of IHS could be
materially adversely affected.
Risk of Adverse Effect of Healthcare Reform. In addition to extensive
existing government healthcare regulation, there are numerous initiatives on the
federal and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including a number of proposals that would
significantly limit reimbursement under Medicare and Medicaid. It is not clear
at this time what proposals, if any, will be adopted or, if adopted, what effect
such proposals would have on the Company's business. Aspects of certain of these
healthcare proposals, such as cutbacks in the Medicare and Medicaid programs,
containment of healthcare costs on an interim basis by means that could include
a short-term freeze on prices charged by healthcare providers, and permitting
greater state flexibility in the administration of Medicaid, could adversely
affect the Company. The BBA provides, among other things, for a prospective
payment system for skilled nursing facilities to be implemented for cost
reporting periods beginning on or after July 1, 1998, a prospective payment
system for home nursing to be implemented for cost reporting periods beginning
on or after October 1, 1999, a reduction in current cost reimbursement for home
nursing care pending implementation of a prospective payment system, reductions
(effective January 1, 1998) in Medicare reimbursement for oxygen and oxygen
equipment for home respiratory therapy and a shift of the bulk of home health
coverage from Part A to Part B of Medicare. The BBA also instituted consolidated
billing for skilled nursing facility services, under which payments for
non-physician Part B services for beneficiaries no longer eligible for Part A
skilled nursing facility care will be made to the facility, regardless of
whether the item or service was furnished by the facility, by others under
arrangement or under any other contracting or consulting arrangement, effective
for items or services furnished on or after July 1, 1997. The inability of IHS
to provide home
10
<PAGE>
healthcare and/or skilled nursing services at a cost below the established
Medicare fee schedule could have a material adverse effect on IHS' home
healthcare operations, post-acute care network and business generally. IHS
expects that there will continue to be numerous initiatives on the federal and
state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including proposals that will further limit
reimbursement under Medicare and Medicaid. It is not clear at this time what
proposals, if any, will be adopted or, if adopted, what effect such proposals
will have on IHS' business. See "-- Risks Related to Recent Acquisitions" and
"-- Reliance on Reimbursement by Third Party Payors." There can be no assurance
that currently proposed or future healthcare legislation or other changes in the
administration or interpretation of governmental healthcare programs will not
have an adverse effect on the Company or that payments under governmental
programs will remain at levels comparable to present levels or will be
sufficient to cover the costs allocable to patients eligible for reimbursement
pursuant to such programs. Concern about the potential effects of the proposed
reform measures has contributed to the volatility of prices of securities of
companies in healthcare and related industries, including the Company, and may
similarly affect the price of the Company's securities in the future. See "--
Uncertainty of Government Regulation."
Under the new prospective payment system for Medicare reimbursement to
skilled nursing facilities, facilities will receive a pre-established daily rate
for each individual Medicare beneficiary being cared for, based on the activity
level of the patient. The pre-established daily rate will cover all routine,
ancillary and capital costs. It is anticipated that this prospective payment
system will be phased in over four years on a blended rate of the
facility-specific costs and the new federal per diem, which has not to date been
established. The blended rate for the first year of transition will take 75% of
the facility-specific per diem rate and 25% of the federal per diem rate. In
each subsequent transition year, the facility-specific per diem rate component
will decrease by 25% and the federal per diem rate component will increase by
25%, ultimately resulting in a rate based 100% upon the federal per diem. The
facility-specific per diem rate is based upon the facility's 1995 cost report
for routine, ancillary and capital services, updated using a skilled nursing
market basket index. The federal per diem is calculated by the weighted average
of each facility's standardized costs, based upon the historical national
average per diem for freestanding facilities. Prospective payment for IHS' owned
and leased skilled nursing facilities will be effective beginning January 1,
1999 for all facilities other than the facilities acquired from HEALTHSOUTH,
which will become subject to prospective payment on June 1, 1999. Prospective
payment for skilled nursing facilities managed by IHS will be effective for each
facility at the beginning of its first cost reporting period beginning on or
after July 1, 1998. The new prospective payment system will also cover ancillary
services provided to patients at skilled nursing facilities.
IHS anticipates that the prospective payment system for home nursing will
provide for prospectively established per visit payments to be made for all
covered services, which will then be subject to an annual aggregate per episode
limit at the end of the year. Home health agencies that are able to keep their
total expenses per visit during the year below their per episode annual limits
will be able to retain a specified percentage of the difference, subject to
certain aggregate limitations. Such changes could have a material adverse effect
on the Company and its growth strategy. The implementation of a prospective
payment system requires the Company to make contingent payments related to the
acquisition of First American of $155 million over a period of five years. The
failure to implement a prospective payment system for home nursing services in
the next several years could adversely affect IHS' post- acute care network
strategy. See "-- Risks Related to Recent Acquisitions."
With respect to Medicaid, the BBA repeals the so-called Boren Amendment,
which required state Medicaid programs to reimburse nursing facilities for the
costs that are incurred by efficiently and economically operated providers in
order to meet quality and safety standards. As a result, states now have
considerable flexibility in establishing payment rates.
Uncertainty of Government Regulation. The Company and the healthcare
industry generally are subject to extensive federal, state and local regulation
governing licensure and conduct of operations at existing facilities,
construction of new facilities, acquisition of existing facilities, additions of
new services, certain capital expenditures, the quality of services provided and
the manner in which such services are provided and reimbursement for services
rendered. Changes in applicable laws and regulations
11
<PAGE>
or new interpretations of existing laws and regulations could have a material
adverse effect on licensure, eligibility for participation, permissible
activities, operating costs and the levels of reimbursement from governmental
and other sources. There can be no assurance that regulatory authorities will
not adopt changes or new interpretations of existing regulations that could
adversely affect the Company. The failure to maintain or renew any required
regulatory approvals or licenses could prevent the Company from offering
existing services or from obtaining reimbursement. In certain circumstances,
failure to comply at one facility may affect the ability of the Company to
obtain or maintain licenses or approvals under Medicare and Medicaid programs at
other facilities. In addition, in the conduct of its business the Company's
operations are subject to review by federal and state regulatory agencies to
assure continued compliance with various standards, their continued licensing
under state law and their certification under the Medicare and Medicaid
programs. In the course of these reviews, problems are from time to time
identified by these agencies. Although the Company has to date been able to
resolve these problems in a manner satisfactory to the regulatory agencies
without a material adverse effect on its business, there can be no assurance
that it will be able to do so in the future.
In 1995 the Health Care Financing Administration ("HCFA") implemented
stricter guidelines for annual state surveys of long-term care facilities and
expanded remedies available to enforce compliance with the detailed regulations
mandating minimum healthcare standards. Remedies include fines, new patient
admission moratoriums, denial of reimbursement, federal or state monitoring of
operations, closure of facilities and termination of provider reimbursement
agreements. These provisions eliminate the ability of operators to appeal the
scope and severity of any deficiencies and grant state regulators the authority
to impose new remedies, including monetary penalties, denial of payments and
termination of the right to participate in the Medicare and/or Medicaid
programs. The Company believes these new guidelines may result in an increase in
the number of facilities that will not be in "substantial compliance" with the
regulations and, as a result, subject to increased disciplinary actions and
remedies, including admission holds and termination of the right to participate
in the Medicare and/or Medicaid programs. In ranking facilities, survey results
subsequent to October 1990 are considered. As a result, the Company's
acquisition of poorly performing facilities could adversely affect the Company's
business to the extent remedies are imposed at such facilities.
In September 1997, President Clinton, in an attempt to curb Medicare fraud,
imposed a moratorium on the certification under Medicare of new home healthcare
companies, which moratorium expired in January 1998, and implemented rules
requiring home healthcare providers to reapply for Medicare certification every
three years. In addition, HCFA will double the number of detailed audits of home
healthcare providers it completes each year and increase by 25% the number of
home healthcare claims it reviews each year. IHS cannot predict what effect, if
any, these new rules will have on IHS' business and the expansion of its home
healthcare operations.
The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "Stark Bills,"
which prohibit, with limited exceptions, financial relationships between
ancillary service providers and referring physicians, and the federal
"anti-kickback law," which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. The Office of Inspector General of the
Department of Health and Human Services, the Department of Justice and other
federal agencies interpret these fraud and abuse provisions liberally and
enforce them aggressively. The BBA contains new civil monetary penalties for
violations of these laws and imposes an affirmative duty on providers to insure
that they do not employ or contract with persons excluded from the Medicare
program. The BBA also provides a minimum 10 year period for exclusion from
participation in Federal healthcare programs of persons convicted of a prior
healthcare violation. In addition, some states restrict certain business
relationships between physicians and other providers of healthcare services.
Many states prohibit business corporations from providing, or holding themselves
out as a provider of, medical care. Possible sanctions for violation of any of
these restrictions or prohibitions include loss of licensure or eligibility to
participate in reimbursement programs (including Medicare and Medicaid), asset
forfeitures
12
<PAGE>
and civil and criminal penalties. These laws vary from state to state, are often
vague and have seldom been interpreted by the courts or regulatory agencies. The
Company seeks to structure its business arrangements in compliance with these
laws and, from time to time, the Company has sought guidance as to the
interpretation of such laws; however, there can be no assurance that such laws
ultimately will be interpreted in a manner consistent with the practices of the
Company.
Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve certain acquisitions
or capital expenditures in excess of defined levels and determine that a need
exists for certain new bed additions, new services and the acquisition of such
medical equipment or capital expenditures or other changes prior to beds and/or
services being added. Many states have placed a moratorium on granting
additional certificates of need or otherwise stated their intent not to grant
approval for new beds. To the extent certificates of need or other similar
approvals are required for expansion of the Company's operations, either through
facility acquisitions or expansion or provision of new services or other
changes, such expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards applicable to such
approvals and possible delays in, and the expenses associated with, obtaining
such approvals.
The Company is unable to predict the future course of federal, state or
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "-- Risk of Adverse Effect of Healthcare Reform."
Competition. The healthcare industry is highly competitive and is subject
to continuing changes in the provision of services and the selection and
compensation of providers. The Company competes on a local and regional basis
with other providers on the basis of the breadth and quality of its services,
the quality of its facilities and, to a more limited extent, price. The Company
also competes with other providers in the acquisition and development of
additional facilities and service providers. The Company's current and potential
competitors include national, regional and local operators of geriatric care
facilities, acute care hospitals and rehabilitation hospitals, extended care
centers, retirement centers and community home health agencies, other home
healthcare companies and similar institutions, many of which have significantly
greater financial and other resources than the Company. In addition, the Company
competes with a number of tax-exempt nonprofit organizations which can finance
acquisitions and capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to the Company. New service introductions
and enhancements, acquisitions, continued industry consolidation and the
development of strategic relationships by IHS' competitors could cause a
significant decline in sales or loss of market acceptance of IHS' services or
intense price competition or make IHS' services noncompetitive. Further,
technological advances in drug delivery systems and the development of new
medical treatments that cure certain complex diseases or reduce the need for
healthcare services could adversely impact the business of IHS. There can be no
assurance that IHS will be able to compete successfully against current or
future competitors or that competitive pressures will not have a material
adverse effect on IHS' business, financial condition and results of operations.
IHS also competes with various healthcare providers with respect to attracting
and retaining qualified management and other personnel. Any significant failure
by IHS to attract and retain qualified employees could have a material adverse
effect on its business, results of operations and financial condition.
Effect of Certain Anti-Takeover Provisions. IHS' Third Restated Certificate
of Incorporation and By-laws, as well as the Delaware General Corporation Law
(the "DGCL"), contain certain provisions that could have the effect of making it
more difficult for a third party to acquire, or discouraging a third party from
attempting to acquire, control of IHS. These provisions could limit the price
that certain investors might be willing to pay in the future for shares of
Common Stock. Certain of these provisions allow IHS to issue, without
stockholder approval, preferred stock having voting rights senior to those of
the Common Stock. Other provisions impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. In addition, the IHS Stockholders' Rights Plan, which
provides for discount purchase rights to certain stockholders of IHS upon
certain acquisitions of 20% or more of the outstanding shares of Common Stock,
may also inhibit a change in control of IHS. As a Delaware corporation, IHS is
subject to Section 203 of the DGCL, which,
13
<PAGE>
in general, prevents an "interested stockholder" (defined generally as a person
owning 15% or more of the corporation's outstanding voting stock) from engaging
in a "business combination" (as defined) for three years following the date such
person became an interested stockholder unless certain conditions are satisfied.
Possible Volatility of Stock Price. There may be significant volatility in
the market price of the Common Stock. Quarterly operating results of IHS,
changes in general conditions in the economy, the financial markets or the
healthcare industry, or other developments affecting IHS or its competitors,
could cause the market price of the Common Stock to fluctuate substantially. In
addition, in recent years the stock market and, in particular, the healthcare
industry segment, has experienced significant price and volume fluctuations.
This volatility has affected the market price of securities issued by many
companies for reasons unrelated to their operating performance. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been initiated against such
company. Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon IHS' business, operating results and financial condition.
RECENT DEVELOPMENTS
In March 1998 the Company sold five long-term care facilities to Omega
Healthcare Investors, Inc. ("Omega"), a publicly-traded real estate investment
trust, for approximately $50.5 million. Omega immediately leased these
facilities to Lyric Health Care LLC ("Lyric") at an annual rent of approximately
$4.95 million. Lyric is a newly-formed company 50% owned by IHS and 50% owned by
TFN Healthcare Investors, Inc., an entity controlled by Timothy Nicholson, a
director of the Company. The Company manages these facilities as well as five
other long-term care facilities which the Company sold to Omega and Omega leased
to Lyric in January 1998. The Company receives a base management fee of 3% of
gross revenues, subject to increase if gross revenues exceed $350 million, and a
franchise fee of 1% of gross revenues. The management agreement with Lyric
provides for an incentive management fee equal to 70% of annual net cash flow
(as defined in the management agreement). IHS did not recognize a gain or loss
on the sale.
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 Lyric, and that Lyric will engage the Company to manage the
facilities pursuant to the arrangements described above. The transactions with
Monarch and Lyric 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.
In April 1998 IHS acquired a company that operates 13 skilled nursing
facilities for approximately $15.9 million. The stockholder of this company is a
Selling Stockholder hereunder. The Company also purchased, for approximately
$5.5 million, seven companies which provide respiratory therapy services in
April 1998. In May 1998 the Company acquired four companies which provide
respiratory therapy services for approximately $14.9 million.
The Company has reached agreements in principle to purchase a company which
operates 31 skilled nursing facilities for approximately $53.2 million, two
lithotripsy operations for approximately $20.4 million and 12 respiratory
companies for approximately $10.8 million. There can be no assurance that any of
these acquisitions will be consummated on these terms, on different terms or at
all.
14
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information as of February 1, 1998
(except as otherwise indicated) and as adjusted to reflect the sale of the
Common Stock in the offering, as to the security ownership of the Selling
Stockholders. Except as set forth below, none of the Selling Stockholders has
held any position or office or had any other material relationship with the
Company or any of its predecessors or affiliates within the past three years.
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
ARCADIA SERVICES, INC.(1)
Nanci J. Rands ................................................ 195 34 178
Joseph F. Galvin .............................................. 390 34 356
Stuart Sinai .................................................. 390 34 356
Ronald H. Riback .............................................. 390 34 356
James C. Foresman ............................................. 390 34 356
Lawrence N. Dudek ............................................. 195 17 178
Phillip J. Shefferly .......................................... 195 17 178
David B. Gunsberg ............................................. 195 17 178
David J. Gould and Laura M. Gould, joint tenants with rights
of survivorship ............................................. 195 17 178
Eli K. Zoller ................................................. 53 5 48
Sasha A. Zoller ............................................... 53 5 48
Lilly H. Zoller ............................................... 89 7 82
Michael J. Eizelman and Shelley E. Eizelman, joint tenants with
rights of survivorship ...................................... 195 17 178
Robert J. Sandler ............................................. 780 67 713
Herbert J. Graebner ........................................... 70,767 13,203 57,564
Barbara Brewer ................................................ 6,899 596 6,303
Leonard E. Bellinson, Trustee, Leonard E. Bellinson Agree-
ment of Trust Dated 3/1/82, as amended ...................... 121,439 13,742 107,697
Conbet Associates ............................................. 18,397 1,590 16,807
Beth Elaine Lowenstein Trust U/A/D 7/30/92 .................... 9,198 795 8,403
Rita M. Lord .................................................. 6,899 596 6,303
Jill Bader .................................................... 13,797 1,192 12,605
Charles Bader ................................................. 13,797 1,192 12,605
James C. Foresman and Cheryl A. Busbey, as Trustee of the
Douglas E. Busbey Trust dated 3/5/75, as amended ............ 390 34 356
Robert M. Egren ............................................... 531 46 485
Morris Rochlin ................................................ 13,267 1,147 12,120
Nicholas J. Pyett ............................................. 1,062 92 970
Cameron D. Hosner ............................................. 11,728 1,014 10,714
James L. Bellinson ............................................ 14,951 3,267 11,684
Gregory G. Glaesmer ........................................... 4,776 413 4,363
Gerald Vargo .................................................. 1,062 92 970
Arcadia Bidco Corporation ..................................... 30,760 3,912 26,848
Mark E. Schlussel ............................................. 390 34 356
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
<S> <C> <C> <C>
Donald B. Lifton ......................................... 390 34 356
Joel M. Shere ............................................ 195 17 178
Daniel D. Swanson ........................................ 195 17 178
Carol Simon .............................................. 390 34 356
United Jewish Foundation of Metropolitan Detroit ......... 1,366 119 1,247
CoreStates Bank, N.A., as Escrow Agent(2) ................ 78,568 6,791 71,777
PARAGON REHABILITIVE SERVICES, INC.(3)
Philip Slive ............................................. 345,032 345,032 0
CoreStates Bank, N.A. as Escrow Agent(2) ................. 16,819 16,819 0
Blass & Driggs(4) ......................................... 64,490 64,490 0
Calo Agostino(5) .......................................... 10,428 10,428 0
Terry L. Cash(6) .......................................... 435,886 435,886 0
Harbor Side Real Estate Consultants(7) .................... 1,098 1,098 0
Maher & Kallas, P.C.(4) ................................... 4,803 4,803 0
Panza, Maurer, Maynard & Neel, P.A.(4) .................... 5,296 5,296 0
Pamela J. Reichart(8) ..................................... 12,082 12,082 0
Uro-Tech, Ltd.(9) ......................................... 19,700 19,700 0
Vinick & Docherty(4) ...................................... 16,629 16,629 0
</TABLE>
- ----------
(1) The shares offered hereby represent additional shares of Common Stock (the
"Additional Shares") received in exchange for the stock of Arcadia Services,
Inc. ("Arcadia") pursuant to the Agreement and Plan of Reorganization dated
as of July 24, 1997 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 $18.7 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. The column "Shares of Common Stock
Beneficially Owned Prior to Offering" includes, and the column "Shares of
Common Stock Beneficially Owned After Offering" consists of, shares of
Common Stock received at the closing of the acquisition. Of the shares of
Common Stock being registered hereunder, 6,791 shares are currently being
held in escrow, together with shares issued at the closing, to secure
indemnification obligations, accounts receivable with respect to a litigated
matter and merger consideration adjustments pursuant to the Agreement and
Plan of Reorganization. Merger consideration adjustments may be based on a
review of the working capital and long-term liabilities of Arcadia as of the
closing date, all on the terms set forth in the Agreement and Plan of
Reorganization.
(2) Does not include shares of Common Stock held in escrow for other
acquisitions.
(3) The shares offered hereby were received in exchange for the stock of Paragon
Rehabilitative Services, Inc. ("Paragon") pursuant to the Agreement and Plan
of Merger dated as of January 9, 1998. Of the shares of Common Stock being
registered hereunder, 16,819 shares are currently being held in escrow to
secure indemnification obligations and post-closing adjustments to the
merger consideration based on the levels of Paragon's working capital and
long-term liabilities on the closing date.
(4) The shares offered hereby were received in payment for legal services
rendered to the Company.
(5) The shares offered hereby were received in payment for legal services
rendered to the Company. Includes shares owned and being offered by Harbor
Side Real Estate Consultants, a wholly-owned subsidiary of Calo Agostino.
See Note 7 below.
(6) The shares offered hereby were received in exchange for the stock of The
Magnolia Group, Inc. ("Magnolia") and Medi-Serve, Inc. ("Medi-Serve")
pursuant to an Agreement and Plan of Merger dated as of February 28, 1998.
Of the 435,886 shares being registered hereunder, 14,416 shares are being
held in escrow to secure indemnification obligations and post-closing
adjustments to the merger consideration based on the levels of Magnolia's
and Medi-Serve's working capital and long-term liabilities. Under the
agreement, IHS is obligated to issue additional shares of Common Stock if
the working capital exceeds, and/or long-term liabilities are less than,
specified levels.
(7) The shares offered hereby were received in payment for real estate
consulting services rendered to the Company. This Selling Stockholder is
owned by Calo Agostino. See Note 5 above.
(8) The shares offered hereby were received in exchange for the assets of Jersey
Shore Portable X-Ray, Inc. pursuant to an Asset Purchase Agreement dated as
of March 16, 1998.
(9) The shares offered hereby were received in exchange for an 18% partnership
interest in Southwest Lithotripter Partners, Ltd. pursuant to a Limited
Partnership Interest Purchase Agreement dated as of February 28, 1998.
16
<PAGE>
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
On August 29, 1997, the Company acquired through merger all of the
outstanding stock of Arcadia Services, Inc., which provides home health care
services, medical staffing services and clerical and light industrial staffing
services. The merger consideration was $18.7 million (before post-closing
adjustments), which was paid though the issuance of 581,451 shares of the
Company's Common Stock. The Additional Shares are being offered hereby.
On January 31, 1998, the Company acquired all the outstanding capital stock
of Paragon Rehabilitative Services, Inc., 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 (the "Paragon
Shares"). The Paragon Shares are being offered hereby.
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 (the "Uro-Tech Shares"). The Uro-Tech Shares are
being offered hereby.
On March 16, 1998, the Company acquired all the assets of Jersey Shore
Portable X-Ray, Inc. 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 (the
"JSP Shares"). The JSP Shares are being offered hereby.
On April 24, 1998, the Company acquired all the outstanding stock of The
Magnolia Group, Inc., which operates 13 skilled nursing facilities, and
Medi-Serve, Inc., which provides pharmaceutical and Medicare Part B services.
The merger consideration was $16.0 million, which was paid through the issuance
of 435,886 shares of Common Stock (the "Magnolia Shares"). The Magnolia Shares
are being offered hereby.
17
<PAGE>
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the registration
of the Shares offered hereby will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of Shares will be borne by the
Selling Stockholders (or their donees and pledgees).
Sales of Shares may be effected from time to time in transactions (which
may include block transactions) on the New York Stock Exchange, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at the time of sale, or at
negotiated prices. The Selling Stockholders have advised the Company that they
have not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities. The
Selling Stockholders may effect such transactions by selling Common Stock
directly to purchasers or to or through broker-dealers which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder and/or the
purchasers of Common Stock for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Stockholders and any broker-dealers that act in connection with the sale of the
Common Stock might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. Liabilities
under the federal securities laws cannot be waived.
The Arcadia Group has agreed not to sell in excess of 100,000 shares of
Common Stock during any 30-day period and to effect sales solely through Salomon
Smith Barney. The holder of the Paragon Shares has agreed not to sell in excess
of 75,000 shares of Common Stock during any 30-day period and to effect sales
solely through Salomon Smith Barney. The holder of the Magnolia Shares has
agreed not to sell in excess of 130,000 shares in any 30-day period during the
first 120 days after the date of this Prospectus and thereafter not more than
100,000 shares in any 30-day period, and in each case to effect sales solely
through Salomon Smith Barney. The holder of the JSP Shares has agreed to effect
sales solely through Salomon Smith Barney.
Because the Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholders
will be subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of the Shares, such Selling
Stockholder, any selling broker or dealer and any "affiliated purchasers" may be
subject to Regulation M under the Securities Exchange Act of 1934, as amended,
which Regulation would prohibit, with certain exceptions, any such person from
bidding for or purchasing any security which is the subject of such distribution
until his participation in that distribution is completed. In addition,
Regulation M under the Exchange Act prohibits, with certain exceptions, any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of Common Stock in connection with this offering.
The Selling Stockholders may be entitled under agreements entered into with
the Company to indemnification against liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby have been passed upon for the Company by Fulbright & Jaworski
L.L.P., New York, New York. At April 30, 1998, partners of Fulbright & Jaworski
L.L.P. owned an aggregate of 300 shares of Common Stock.
EXPERTS
The consolidated financial statements of Integrated Health Services, Inc.
and subsidiaries as of December 31, 1996 and 1997 and for each of the years in
the three-year period ended December 31, 1997 have been incorporated by
reference in this Prospectus and elsewhere in the Registration State-
18
<PAGE>
ment in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing. The report of KPMG Peat Marwick
LLP refers to changes in accounting methods, in 1995, to adopt Statement of
Financial Accounting Standards No. 121 related to impairment of long-lived
assets and, in 1996, from deferring and amortizing pre-opening costs of Medical
Specialty Units to recording them as expenses when incurred.
The consolidated financial statements of First American Health Care of
Georgia, Inc. as of December 31, 1994 and 1995 and for each of the years in the
three-year period ended December 31, 1995 have been incorporated by reference in
this Prospectus and in the Registration Statement from IHS' Current Report on
Form 8-K/A, as amended (dated October 17, 1996), in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP contains an explanatory
paragraph regarding the uncertainty with respect to certain contingent payments
which may be payable under a settlement agreement with the Health Care Financing
Administration.
The consolidated financial statements of Community Care of America, Inc. as
of December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996 have been incorporated by reference in this Prospectus
and in the Registration Statement from IHS' Current Report on Form 8-K (dated
September 25, 1997) in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to the change in accounting method in
1996 to adopt Statement of Financial Accounting Standards No. 121 relating to
the impairment of long-lived assets.
The financial statements of RoTech Medical Corporation as of July 31, 1996
and 1997 and for each of the years in the three year period ended July 31, 1997
incorporated in this Prospectus and in the Registration Statement by reference
from IHS' Current Report on Form 8-K (dated October 21, 1997) have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements of selected facilities operated by Horizon/CMS
Healthcare Corporation to be sold to Integrated Health Services, Inc. as of May
31, 1997 and 1996 and for each of the years in the three year period ended May
31, 1997 incorporated in this Prospectus and in the Registration Statement by
reference from IHS' Current Report on Form 8-K (dated December 31, 1997) have
been audited by Arthur Andersen LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
19
<PAGE>
================================================================================
NO PERSON IS AUTHORIZED IN
CONNECTION WITH ANY OFFERING MADE
HEREBY TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATION NOT CONTAINED 981,421
IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR SHARES
REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY
SECURITY OTHER THAN THE COMMON STOCK
OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF [GRAPHIC OMITTED]
AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY TO ANY PERSON IN ANY INTEGRATED HEALTH
JURISDICTION IN WHICH IT IS UNLAWFUL SERVICES, INC.
TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE
ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
COMMON STOCK
PAGE
----
Available Information ........... 2
Incorporation of Certain
Documents by Reference ....... 3 --------------
The Company ..................... 4 PROSPECTUS
Risk Factors .................... 6 --------------
Recent Developments ............. 14
Use of Proceeds ................. 15
Selling Stockholders ............ 15
Plan of Distribution ............ 18
Legal Matters ................... 18
Experts ......................... 18 , 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of the estimated amounts of all
expenses payable by the Registrant in connection with the registration of the
Shares:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ------
<S> <C>
Registration Fee - Securities and Exchange Commission .......... $ 11,139.68
Legal, accounting and printing fees and expenses ............... 35,000.00*
Miscellaneous .................................................. 3,860.32*
-----------
Total ....................................................... $ 50,000.00*
===========
</TABLE>
- ----------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the DGCL, a corporation may include provisions in its certificate of
incorporation that will relieve its directors of monetary liability for breaches
of their fiduciary duty to the corporation, except under certain circumstances,
including a breach of the director's duty of loyalty, acts or omissions of the
director not in good faith or which involve intentional misconduct or a knowing
violation of law, the approval of an improper payment of a dividend or an
improper purchase by the corporation of stock or any transaction from which the
director derived an improper personal benefit. The Company's Third Restated
Certificate of Incorporation, as amended, provides that the Company's directors
are not liable to the Company or its stockholders for monetary damages for
breach of their fiduciary duty, subject to the described exceptions specified by
the DGCL.
Section 145 of the DGCL grants to the Company the power to indemnify each
officer and director of the Company against liabilities and expenses incurred by
reason of the fact that he is or was an officer or director of the Company if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Company's Third Restated Certificate of Incorporation, as amended,
and By-laws, as amended, provide for indemnification of each officer and
director of the Company to the fullest extent permitted by the DGCL. In
addition, IHS has entered into indemnity agreements with its directors and
executive officers, a form of which is included as Exhibit 10.72 to IHS's
Registration Statement on Form S-1, No. 33-39339, effective March 31, 1992.
Section 145 of the DGCL also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was an officer or director of the
Company against liability asserted against or incurred by him in any such
capacity, whether or not the Company would have the power to indemnify such
officer or director against such liability under the provisions of Section 145.
The Company has purchased and maintains a directors' and officers' liability
policy for such purposes.
The agreements pursuant to which the Arcadia Shares and the Paragon Shares
were issued (Exhibits 2.1 and 2.2, respectively) provide for indemnification by
the sellers thereunder of the Company and its controlling persons, directors and
officers for certain liabilities, including liabilities arising under the
Securities Act.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C> <C>
2.1 -- Agreement and Plan of Reorganization, dated as of July 24, 1997,
among the Company, Integrated AG Acquisition, Inc., Arcadia
Services, Inc. and the other parties thereto.(1)
2.2 -- Agreement and Plan of Merger dated as of January 9, 1998, among
Integrated Health Ser- vices, Inc., IHS Acquisition XXXIV, Inc.
and Paragon Rehabilitative Services, Inc. and Phillip Slive.*
</TABLE>
II-1
<PAGE>
<TABLE>
<S> <C> <C>
2.3 -- Amended and Restated Agreement and Plan of Merger dated as of
February 27, 1998 among Integrated Health Services, Inc., IHS
Acquisition No. 35, Inc., IHS Acquisition No. 36, Inc., and The
Magnolia Group, Inc. and Medi-Serve, Inc. and Terry L. Cash.*
2.4 -- Limited Partnership Interest Purchase Agreement dated as of
February 28, 1998, among Cambridge Health Services of Texas, Inc.,
Integrated Health Services, Inc. and Uro-Tech, Ltd.
2.5 -- Asset Purchase Agreement dated as of March 16, 1998 among Symphony
Diagnostic Services No. 1, Inc. and Pamela Reichart and Jersey
Shore Portable X-Ray, Inc.*
4.1 -- Third Restated Certificate of Incorporation, as amended. (2)
4.2 -- Amendment to the Third Restated Certificate of Incorporation,
dated May 26, 1995. (3)
4.3 -- Certificate of Designation of Series A Junior Participating
Cumulative Preferred Stock (4)
4.4 -- By-laws, as amended. (5)
5 -- Opinion of Fulbright & Jaworski L.L.P.
23.1 -- Consents of KPMG Peat Marwick LLP.+
23.2 -- Consent of Deloitte & Touche LLP.+
23.2 -- Consent of Arthur Andersen LLP+
23.4 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).*
99 -- Certified Resolution.+
</TABLE>
- ----------
+ To be filed by amendment.
* Previously filed.
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-41973).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 27, 1995.
(5) Incorporated by reference the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
II-2
<PAGE>
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Owings Mills, State of Maryland on May 21, 1998.
INTEGRATED HEALTH SERVICES, INC.
By
------------------------------------
Robert N. Elkins, Chairman of the Board,
President and Chief Executive Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROBERT N. ELKINS* Chairman of the Board, President May 21, 1998
- ----------------------------- and Chief Executive Officer
(Robert N. Elkins) (Principal Executive Officer)
/s/ EDWIN M. CRAWFORD* Director May 21, 1998
- -----------------------------
(Edwin M. Crawford )
/s/ KENNETH M. MAZIK* Director May 21, 1998
- -----------------------------
(Kenneth M. Mazik)
/s/ ROBERT A. MITCHELL* Director May 21, 1998
- -----------------------------
(Robert A. Mitchell)
/s/ CHARLES W. NEWHALL, III* Director May 21, 1998
- -----------------------------
(Charles W. Newhall, III)
/s/ TIMOTHY F. NICHOLSON* Director May 21, 1998
- -----------------------------
(Timothy F. Nicholson)
/s/ JOHN L. SILVERMAN* Director May 21, 1998
- -----------------------------
(John L. Silverman)
/s/ GEORGE H. STRONG* Director May 21, 1998
- -----------------------------
(George H. Strong)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ C. TAYLOR PICKETT Executive Vice President- May 21, 1998
- ----------------------------- Chief Financial Officer (Principal
(C. Taylor Pickett) Financial Officer)
/s/ W. BRADLEY BENNETT* Executive Vice President- May 21, 1998
- ----------------------------- Chief Accounting Officer
(W. Bradley Bennett) (Principal Accounting Officer)
</TABLE>
*By: /s/ C. TAYLOR PICKETT
------------------------
(C. Taylor Pickett)
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
--- ----------- --------
<S> <C> <C> <C>
2.1 -- Agreement and Plan of Reorganization, dated as of July 24, 1997,
among the Company, Integrated AG Acquisition, Inc., Arcadia
Services, Inc. and the other parties thereto.(1)
2.2 -- Agreement and Plan of Merger dated as of January 9, 1998, among
Integrated Health Services, Inc., IHS Acquisition XXXIV, Inc.
and Paragon Rehabilitative Services, Inc. and Phillip Slive.*
2.3 -- Amended and Restated Agreement and Plan of Merger dated as of
February 27, 1998 among Integrated Health Services, Inc., IHS
Acquisition No. 35, Inc., IHS Acquisition No. 36, Inc., and The
Magnolia Group, Inc. and Medi-Serve, Inc. and Terry L. Cash.*
2.4 -- Limited Partnership Interest Purchase Agreement dated as of
February 28, 1998, among Cambridge Health Services of Texas,
Inc., Integrated Health Services, Inc. and Uro-Tech, Ltd.
2.5 -- Asset Purchase Agreement dated as of March 16, 1998 among
Symphony Diag- nostic Services No. 1, Inc. and Pamela Reichart
and Jersey Shore Portable X-Ray, Inc.*
4.1 -- Third Restated Certificate of Incorporation, as amended. (2)
4.2 -- Amendment to the Third Restated Certificate of Incorporation,
dated May 26, 1995. (3)
4.3 -- Certificate of Designation of Series A Junior Participating
Cumulative Preferred Stock (4)
4.4 -- By-laws, as amended. (5)
5 -- Opinion of Fulbright & Jaworski L.L.P.
23.1 -- Consents of KPMG Peat Marwick LLP.+
23.2 -- Consent of Deloitte & Touche LLP.+
23.2 -- Consent of Arthur Andersen LLP+
23.4 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).*
99 -- Certified Resolution.+
</TABLE>
- ----------
+ To be filed by amendment.
* Previously filed.
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-41973).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 27, 1995.
(5) Incorporated by reference the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
-----------------------------
LIMITED PARTNERSHIP INTEREST PURCHASE AGREEMENT
DATED AS OF FEBRUARY 28, 1998
AMONG
CAMBRIDGE HEALTH SERVICES OF TEXAS, INC.,
INTEGRATED HEALTH SERVICES, INC.,
AND
URO-TECH, LTD.
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LIMITED PARTNERSHIP INTEREST PURCHASE AGREEMENT
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This Limited Partnership Interest Purchase Agreement (this "AGREEMENT") is
made as of the 28th day of February, 1998, among Cambridge Health Services of
Texas, Inc., a Texas corporation (the "BUYER"), Integrated Health Services, Inc.
("IHS"), and Uro-Tech, Ltd., a Texas limited partnership (the "Seller").
PREMISES
WHEREAS, the Seller is the owner of an 18% limited partnership interest
(the "Limited Partnership Interest") in Southwest Lithotripter Partners, Ltd.
("Southwest"), a Texas limited partnership; and
WHEREAS, Buyer wishes to acquire Seller's Limited Partnership Interest from
the Seller, and the Seller wishes to sell the Limited Partnership Interest to
Buyer, in accordance with the terms and conditions hereinafter set forth; and
WHEREAS, Buyer is a wholly owned subsidiary of IHS; and
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged by the parties hereto, Seller, IHS and Buyer, intending to be
legally bound, agree as follows:
ARTICLE I: SALE AND PURCHASE OF LIMITED PARTNERSHIP INTEREST
1.1 SALE AND PURCHASE OF LIMITED PARTNERSHIP INTEREST. Subject to the terms
and conditions of this Agreement, Buyer hereby acquires from the Seller, and the
Seller hereby sells, assigns, transfers and conveys to Buyer, Seller's right,
title and interest in or to the Limited Partnership Interest and all rights
arising out of the Limited Partnership Interest (the "Rights"), including
without limitation, all rights to distributions from Southwest (whether or not
currently due or hereafter arising), and all rights to Seller's Capital Account
(as such term is defined in the First Restatement of Agreement of Limited
Partnership of Southwest (the "Limited Partnership Agreement")). Concurrently
herewith Seller is delivering a Limited Partnership Interest Transfer Instrument
to Buyer.
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ARTICLE II: PURCHASE PRICE
2.1 PURCHASE PRICE.
Amount and Payment. Seller hereby acknowledges its receipt from the
Buyer of the purchase price (the "Purchase Price") for the Limited Partnership
Interest in the amount of SIX HUNDRED THIRTY THOUSAND DOLLARS ($630,000) payable
by the delivery of Nineteen Thousand Seven Hundred (19,700) newly issued shares
(as may be adjusted, the "IHS Shares"), par value $.001 per share, of Integrated
Health Services, Inc. ("IHS Stock") subject to re-calculation as set forth in
Section 3.1(c) below.
ARTICLE III: IHS STOCK
3.1 IHS STOCK. All of the IHS Shares are being delivered in accordance
with the following:
(a) SHARE VALUE. The number of shares of IHS Stock issued pursuant to
Section 2.1 has been calculated based upon a price per share of such stock equal
to the average closing NYSE price of such stock for the thirty (30) trading day
period immediately preceding the Closing Date, and certificates representing
such shares of IHS Stock shall be delivered to Seller within three (3) business
days of the date hereof. The parties agree that such per share price is $31.98.
(b) REGISTRATION RIGHTS. IHS shall use its best efforts to cause to be
prepared and filed within fifteen (15) calendar days of the date hereof, a
registration statement for the registration under the Securities Act of 1933
(the "SECURITIES ACT") of the IHS Stock issued to Seller pursuant to this
Agreement; provided, in any event, IHS shall use its best efforts to cause the
registration statement to be declared effective by May 1, 1998. If the
registration statement is not reviewed by the Securities and Exchange Commission
(the "COMMISSION"), IHS shall use its reasonable best efforts to have the
registration statement declared effective by the Commission and to deliver to
Buyer the final prospectus within fourteen (14) days of the date IHS receives
notice from the commission that it will not review the registration statement
and IHS shall maintain the effectiveness of such registration statement for a
period of one (1) year following the date on which it becomes effective (the
"REGISTRATION DATE"), or until Seller shall not own any of the IHS Stock issued
pursuant to this Agreement, whichever shall occur first.
(c) SHARE ADJUSTMENT. For purposes hereof, the "SHARE VALUE AMOUNT"
shall mean $630,000; provided that, if the Share Adjustment Date (as defined
below) shall not occur by May 1, 1998, the Share Value Amount shall increase by
an amount equal to the amount of the interest that would have accrued thereon at
an annual rate (compounded daily) of eight percent (8%) during the period
commencing on May 2, 1998 and ending on the Share Adjustment Date. Promptly, and
in any event, within three (3) business days, following the Share Adjustment
Date, the number of shares of IHS Stock deliverable as the Purchase Price shall
be re-calculated (the "ADJUSTED SHARE COUNT") to the extent necessary so that
such shares will have an aggregate value (the "RECALCULATED VALUE") equal to the
Share Value Amount based upon the average closing NYSE price for IHS Stock for
the 30-trading day period immediately preceding the Share Adjustment Date. If
the Adjusted Share Count exceeds the number of shares of IHS Stock issued as of
the Closing
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Date (the "CLOSING DATE SHARE COUNT"), IHS promptly shall deliver over to the
Seller an additional number of shares of IHS Stock as shall have a value equal
to the amount of such excess (using the Recalculated Value for determining the
number of such shares of IHS Stock to be delivered), and such additional shares
shall be included in the aforementioned registration statement by means of a
post-effective amendment thereto. If the Closing Date Share Count exceeds the
Adjusted Share Count, Seller shall promptly return to IHS the number of shares
of IHS Stock having a value equal to the amount by which the the Closing Date
Share Count exceeds the Adjusted Share Count (using the Recalculated Value for
determining the number of shares of IHS Stock to be delivered). For purposes
hereof, "SHARE ADJUSTMENT DATE" shall mean the first to occur of: (x) the
Registration Date and (y) the date on which such IHS Shares become saleable in
accordance with Rule 144 promulgated pursuant to the Securities Act ("RULE
144"). If any IHS Shares are transferred by Seller prior to the Share Adjustment
Date, appropriate adjustments shall be made to exclude the amount of the Share
Value Amount allocable to such transferred shares from the adjustments required
by this subsection (c).
(d) REGISTRATION EXPENSES. IHS shall bear all of the expenses of IHS
related to such registration and incident to IHS's performance of or compliance
with this Article III including, without limitation, the fees and expenses of
its counsel, accountants and any other person retained by IHS, all of its
messenger and delivery expenses and fees and all of its other costs, fees and
expenses incident to the preparation, printing, registration and filing under
the Securities Act of the registration statement and all amendments and
supplements thereto, the cost of furnishing copies of each preliminary
prospectus, each final prospectus and each amendment or supplement thereto to
underwriters, dealers and other purchasers of IHS Stock and the costs and
expenses (including fees and disbursements of its counsel) incurred in
connection with the qualification of IHS Stock under the Blue Sky laws of
various jurisdictions. IHS, however, shall not be required to pay underwriter's
or brokerage discounts, commissions or expenses, or to pay any costs or expenses
arising out of Seller's or any transferee=s failure to comply with its
obligations under this Article III.
(e) REGISTRATION PROCEDURES. In connection with the registration
rights granted to the Seller with respect to the IHS Shares as provided in this
Section 3.1, IHS covenants and agrees as follows:
(i) At IHS's expense, IHS will file with the Commission such
amendments and post-effective amendments to the registration statement as may be
necessary to keep the registration and qualification under this Section 3.1
effective (and in compliance with the Securities Act) and will take such other
actions as may be necessary or appropriate with respect thereto for so long as
Seller owns any of the IHS Stock except to the extent that an exemption from
registration may be available. IHS will immediately notify Seller, at any time
when a prospectus relating to a registration statement under this Section 3.1 is
required to be delivered under the Securities Act, of the happening of any event
known to IHS as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing.
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(ii) IHS shall furnish Seller with such number of prospectuses as
shall reasonably be requested.
(iii) IHS shall take all necessary action which may be required
in qualifying or registering IHS Stock included in a registration statement for
offering and sale under the securities or Blue Sky laws of such states as
reasonably are requested by Seller, provided that IHS shall not be obligated to
qualify as a foreign corporation or dealer to do business under the laws of any
such jurisdiction.
(iv) The information included or incorporated by reference in the
registration statement filed pursuant to this Section 3.1 will not, at the time
any such registration statement becomes effective, contain any untrue statement
of a material fact, or omit to state any material fact required to be stated
therein as necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading or necessary to correct
any statement in any earlier filing of such registration statement or any
amendments thereto. IHS shall, as soon as practicable, notify the Seller, at any
time when a prospectus relating to such registration statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus contained in such registration statement, as then in
effect, includes an untrue statement of material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing and at
the request of the Seller prepare and furnish to the Seller a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchaser of such IHS Shares,
such prospectus shall not include any untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The registration statement will comply in all material respects with
the provisions of the Securities Act and the rules and regulations thereunder.
(f) INDEMNIFICATION.
(i) IHS, without limitation as to time, shall indemnify Seller,
any successors and assigns and the officers, directors, agents and employees of
each of them, and each person, if any, who controls Seller within the meaning of
Section 15 of the Securities Act or Section 20(a) of the Securities Exchange Act
of 1934 ("EXCHANGE ACT") and the officers, directors, agents and employees of
such controlling person, against all losses, claims, damages, liabilities, costs
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) and expenses (collectively, "Losses") to
which any of them may become subject under the Securities Act, the Exchange Act
or any other statute, common law or otherwise, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement (and any prospectus contained therein) executed by
IHS or based upon written information furnished by IHS filed in any jurisdiction
in order to qualify IHS Stock under the securities laws thereof or filed with
the Commission, any state securities commission or agency, NYSE or any
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements contained
therein not misleading, unless such statement or omission was made in reliance
upon and in conformity with written information furnished to IHS by Seller
expressly for use in such registration statement, any
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amendment or supplement thereto or any application, as the case may be. If any
action is brought against Seller or any controlling person of Seller or any
officer, director, agent or employee of Seller or of such controlling person
(collectively, the "SELLER INDEMNIFIED PARTIES" and each, a "SELLER INDEMNIFIED
PARTY") in respect of which indemnity may be sought against IHS pursuant to this
subsection 3.1(e)(iv), the Seller Indemnified Party shall within thirty (30)
days after the receipt thereby of a summons or complaint, notify IHS in writing
of the institution of such action and IHS shall assume the defense of such
actions, including the employment and payment of fees and expenses of counsel
(reasonably satisfactory to the Seller Indemnified Party); provided, however,
that the failure to so notify IHS will not relieve IHS from any obligation or
liability except to the extent that IHS has been prejudiced materially by such
failure. The Seller Indemnified Party shall have the right to employ its or
their own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of the Seller Indemnified Party unless (A) the
employment of such counsel shall have been authorized in writing by IHS in
connection with the defense of such action, or (B) IHS shall not have employed
counsel to have charge of the defense of such action, or (C) such Seller
Indemnified Party shall have reasonably concluded that there may be defenses
available to it or them which are different from or additional to those
available to IHS (in which case, IHS shall not have the right to direct the
defense of such action on behalf of the Seller Indemnified Party), in any of
which events the fees and expenses of not more than one additional firm of
attorneys for such Seller Indemnified Party shall be borne by IHS. Except as
expressly provided in the previous sentence, in the event that IHS shall not
previously have assumed the defenses of any such action or claim, and if it is
not otherwise required to so hereunder, IHS shall not thereafter be liable to
any Seller Indemnified Party in investigating, preparing or defending any such
action or claim and if it is not otherwise required to do so hereunder. IHS
agrees promptly to notify Seller of the commencement or any litigation or
proceedings against IHS or any of its officers, directors or controlling persons
in connection with the resale of IHS Shares or in connection with such
registration statement.
(ii) The Seller of IHS Shares to be sold pursuant to a
registration statement, and its successors and assigns, shall indemnify IHS, or
any officer, director, agent or employee of Buyer or of such controlling person
(collectively, the "BUYER INDEMNIFIED PARTIES") and each a "BUYER INDEMNIFIED
PARTY" against any Losses to which they may become subject under the Securities
Act, the Exchange Act or any other statute, common law or otherwise, arising out
of or based upon any untrue statement of a material fact contained in the
registration statement, prospectus or preliminary prospectus or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any
information so furnished in writing by Seller to IHS expressly for use in such
registration statement or prospectus and was relied upon by IHS in the
preparation of such registration statement, prospectus or preliminary
prospectus. In no event will the liability of Seller hereunder be greater in
amount than the dollar amount of the proceeds (net of payment of all expenses)
received by Seller upon the sale of the IHS Shares giving rise to such
indemnification obligation.
(g) CONTRIBUTION. If the indemnification provided for in this Section
3.1 is unavailable to an indemnified party under Section 3.1(f)(i) or 3.1(f)(ii)
hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying
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party, in lieu of indemnifying such indemnified party, will, jointly and
severally, contribute to the amount paid or payable by such indemnified party as
a result of such Losses, in such proportion as is appropriate to reflect the
relative fault of the indemnifying party or indemnifying parties, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such indemnifying
party or indemnifying parties, on the one hand, and such indemnified party, on
the other hand, will be determined by reference to, among other things, whether
any action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or related to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses will
be deemed to include any legal or other fees or expenses incurred by such party
in connection with any action or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 3.1(g) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 3.1(g), Seller will not be
required to contribute any amount in excess of the amount by which the dollar
amount of the proceeds (net of payment of expenses) received by Seller upon the
sale of the IHS Shares exceed the amount of any damages which Seller has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of IHS
hereunder will be in addition to any liability IHS may otherwise have hereunder
or otherwise. The provisions of this Section 3.1 will survive so long as the IHS
Shares remain outstanding, notwithstanding any transfer of the IHS Shares by
Seller or any termination of this Agreement.
(h) NOTICE OF SALE. Prior to the effective date of the registration
statement, if Seller desires to transfer all or any portion of IHS Stock, Seller
will deliver written notice to IHS, describing in reasonable detail its
intention to effect the transfer and the manner of the proposed transfer. If the
transfer is to be pursuant to an effective statement as provided herein, Seller
will sell the IHS Stock in compliance with the disclosure therein and
discontinue any offers and sales thereunder upon notice from IHS that the
registration statement relating to the IHS Stock being transferred is not
Acurrent@ until IHS gives further notice that offers and sales may be
recommenced. If Seller delivers to IHS an opinion of counsel reasonably
acceptable to IHS and its counsel and to the effect that the proposed transfer
of IHS Stock may be made without registration under the Securities Act, Seller
will be entitled to transfer IHS Stock in accordance with the terms of the
notice and opinion of their counsel.
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(i) MISCELLANEOUS. If Seller desires to transfer all or any portion of
IHS Stock, Seller will deliver written notice to IHS, describing in reasonable
detail its intention to effect the transfer and the manner of the proposed
transfer. If the transfer is to be pursuant to an effective registration
statement as provided herein, Seller will sell the IHS Stock in compliance with
the disclosure therein and discontinue any offers and sales thereunder upon
notice from IHS that the registration statement relating to the IHS Stock being
transferred is not "current" until IHS gives further notice that offers and
sales may be recommenced. In the event of any such notice from IHS, IHS agrees
to file expeditiously such amendments to the registration statement as may be
necessary to bring it current during the period specified in Section 3.1(b) and
to give prompt notice to Seller when the registration statement has again become
current. If Seller delivers to IHS an opinion of counsel reasonably acceptable
to IHS and its counsel and to the effect that the proposed transfer of IHS Stock
may be made without registration under the Securities Act, Seller will be
entitled to transfer IHS Stock in accordance with the terms of the notice and
opinion of their counsel.
(j) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the IHS to take any action pursuant to this Article III that
Seller shall furnish to the IHS such information regarding itself, the IHS Stock
held by it, and the intended method of disposition of such securities as shall
be reasonably required to effect the registration of their IHS Stock. In that
connection, each transferee of Seller shall be required to represent to the IHS
that all such information which is given is both complete and accurate in all
material respects. Seller shall deliver to IHS a statement in writing from the
beneficial owners of such securities that it has a bona fide intent to sell,
transfer or otherwise dispose of such securities. Each transferee will,
severally, promptly notify IHS at any time when a prospectus relating to a
registration statement covering such transferee's shares under this Section 3.1
is required to be delivered under the Securities Act, of the happening of any
event known to such transferee as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the statements as then existing.
(ii) INVESTMENT REPRESENTATIONS. All shares of IHS Stock issued
hereunder have been duly authorized and validly issued and are fully paid and
non-assessable shares of IHS. Seller represents and warrants to IHS that the IHS
Stock being issued hereunder is being acquired, and will be acquired, by Seller
for investment for its own accounts and not with a view to or for sale in
connection with any distribution thereof within the meaning of the Securities
Act or the applicable state securities law; Seller acknowledges that the IHS
Stock constitutes restricted securities under Rule 144 promulgated by the
Commission pursuant to the Securities Act, and may have to be held indefinitely,
and Seller agrees that no shares of IHS Stock may be sold, transferred,
assigned, pledged or otherwise disposed of except pursuant to an effective
registration statement or an exemption from registration under the Securities
Act, the rules and regulations thereunder, and under all applicable state
securities laws. Seller has the knowledge and experience in financial and
business matters, is capable of evaluating the merits and risks of the
investment, and is able to bear the economic risk of such investment. Seller has
had the opportunity to make inquiries of and obtain from representatives and
employees of IHS such other information about IHS as it deems necessary in
connection with such investment.
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(iii) LEGEND. It is understood that, prior to sale of any shares
of IHS Stock pursuant to an effective registration pursuant to subsection (b)
above, the certificates evidencing such shares of IHS Stock shall bear the
following (or a similar) legend (in addition to any legends which may be
required in the opinion of IHS's counsel by the applicable securities laws of
any state), and upon sale of such shares pursuant to such an effective
registration, new certificates shall be issued for the shares sold without such
legends except as otherwise required by law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SHARES UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY=S COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
(i) CERTAIN TRANSFEREES. Prior to the effective date of
registration of the IHS Shares, no transferee shall transfer any IHS Shares to
any person or entity unless such transferee shall have agreed in writing to be
bound by the provisions applicable to Seller under this Article III.
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE BUYER AND IHS
The Buyer and IHS hereby represent and warrant to the Seller as follows:
4.1 ORGANIZATION AND STANDING OF THE BUYER. Each of the Buyer and IHS is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, and it has the power and authority to own the
property and assets now owned by it and the Limited Partnership Interest and to
conduct the business presently being conducted by it and to enter into this
Agreement and each of the Buyer/IHS Transaction Documents (as defined below in
Section 4.2) to which it is a party and to perform its obligations hereunder and
thereunder.
4.2 AUTHORITY. Each of the Buyer and IHS has the full corporate power and
authority to make, execute, deliver and perform this Agreement (including all
Schedules and Exhibits hereto), and all other agreements, instruments,
certificates and documents required or contemplated hereby or thereby
(collectively "BUYER/IHS TRANSACTION DOCUMENTS"), to be executed or delivered by
it, and to consummate all of the transactions contemplated hereby and thereby.
Such execution, delivery, performance and consummation have been duly authorized
by all necessary action, corporate or otherwise, on the part of the Buyer or
IHS, as the case may be, and all necessary consents of third parties (including
holders of indebtedness of the Buyer or IHS, as the case may be) to the
transactions contemplated by this Agreement have been obtained.
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4.3 BINDING EFFECT. This Agreement and each Buyer/IHS Transaction Document
constitutes the legal, valid and binding obligation of the Buyer enforceable
against it in accordance with its terms.
4.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement or any of the Buyer/IHS Transaction Documents by the Buyer or IHS
nor the performance by the Buyer or IHS of the transactions contemplated hereby
and thereby, conflicts with, or constitutes a breach of or a default under or
the termination of (a) its respective Certificate of Incorporation or other
governing document; or (b) any judgment, order, writ, injunction, decree,
statute, law, rule, regulation, directive, mandate, ordinance or guideline
("GOVERNMENTAL REQUIREMENTS") of any Federal, state, local or other governmental
or quasi-governmental agency, bureau, board, council, administrator, court,
arbitrator, commission, department, instrumentality, body or other authority
("GOVERNMENTAL AUTHORITIES") applicable to it or the operation of its respective
business; or (c) any agreement, indenture, contract or instrument to which it is
now a party or by which it or any of its respective assets is bound.
4.5 CONSENTS. Except for consents that Seller must obtain from its
partners, no authorization, consent, approval, license, filing or registration
by Buyer or IHS with any Governmental Authority or any other person or entity is
or will be necessary in connection with the entry into, execution, delivery and
performance of this Agreement or any of the Buyer/IHS Transaction Documents or
for the consummation of the transactions contemplated hereby and thereby.
4.6 INVESTMENT INTENT. The Limited Partnership Interest and the Rights are
being acquired for Buyer's own account, for investment and with no intention of
distributing or reselling the Limited Partnership Interest or Rights or any part
thereof or interest therein in any transaction that would violate any securities
laws.
ARTICLE V: REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
5.1 ORGANIZATION AND STANDING OF THE SELLER. The Seller is a limited
partnership duly organized and validly existing under the laws of its state of
formation, and it has the partnership power and authority to own the property
and assets now owned by it and to conduct the business presently being conducted
by it and to enter into this Agreement and each of the Seller Transaction
Documents (as defined below in Section 5.2) to which it is a party and to
perform its obligations hereunder and thereunder.
5.2 AUTHORITY. The Seller has the full partnership power and authority to
make, execute, deliver and perform this Agreement (including all Schedules and
Exhibits hereto), and all other agreements, instruments, certificates and
documents required or contemplated hereby or thereby (collectively "SELLER
TRANSACTION DOCUMENTS") to be executed or delivered by it, and to consummate all
of the transactions contemplated hereby and thereby. Such execution, delivery,
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performance and consummation have been duly authorized by all necessary action,
limited partnership or otherwise, on the part of the Seller, and all necessary
consents of holders of indebtedness of the Seller to the transactions
contemplated by this Agreement have been obtained.
5.3 BINDING EFFECT. This Agreement and each Seller Transaction Document
constitutes the legal, valid and binding obligations of the Seller enforceable
against it in accordance with its terms.
5.4 ABSENCE OF CONFLICTING AGREEMENTS. Neither the execution or delivery of
this Agreement or any of the Seller Transaction Documents by the Seller nor the
performance by the Seller of the transactions contemplated hereby and thereby,
conflicts with, or constitutes a breach of or a default under or the termination
of (a) its partnership agreement or other governing document; or (b) any
Governmental Requirements applicable to it or the operations of its business or
the ownership of any of the Limited Partnership Interest; or (c) any agreement,
indenture, contract or instrument to which it is now a party or by which it or
any of its assets is bound.
5.5 CONSENTS. No authorization, consent, approval, license, filing or
registration by Seller with any Governmental Authority or any other person or
entity, is or will be necessary in connection with the entry into, execution,
delivery and performance of this Agreement or any of the Seller Transaction
Documents by Seller, or for the consummation of the transactions contemplated
hereby and thereby by Seller.
5.6 LIMITED PARTNERSHIP INTEREST AND RIGHTS. Seller is the lawful record
and beneficial owner of the Limited Partnership Interest and the Rights free and
clear of all liens, claims, pledges, security interests, restrictions and
encumbrances (other than as expressly set forth in the Limited Partnership
Agreement), and the Limited Partnership Interest is duly authorized, validly
issued, and fully paid and non-assessable. Seller has the full legal power to
transfer and deliver the Limited Partnership Interest and the Rights in
accordance with this Agreement, and delivery of such Limited Partnership
Interest to Buyer pursuant hereto will convey good and marketable title thereto.
5.7 LIMITED PARTNERSHIP AGREEMENT. Seller is not in breach of the Limited
Partnership Agreement in any material respect.
ARTICLE VI: INDEMNIFICATION
6.1 INDEMNIFICATION BY SELLER. Seller shall indemnify and defend Buyer and
IHS and each of their respective shareholders, officers, directors, agents,
employees and advisors, and their respective successors and assigns ("BUYER/IHS
INDEMNITEES") and hold each of them harmless against and with respect to any and
all damage, loss, liability, deficiency, cost and expense (including, without
limitation, reasonable attorney's fees and expenses) (all of the foregoing
hereinafter collectively referred to as "Loss") resulting from or arising out
of: (a) any inaccuracy in any representation, or breach of any warranty or
certification, made by Seller pursuant to this Agreement; (b) the breach of any
covenant or undertaking by Seller made pursuant to this Agreement; and (c) and
any action, suit, proceeding, demand, assessment, judgment, settlement (to
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the extent approved by Seller, such approval not to be unreasonably withheld,
delayed or conditioned), cost or legal or other expense incident to any of the
foregoing.
6.2 INDEMNIFICATION BY BUYER AND IHS. Buyer and IHS shall indemnify and
defend Seller and hold it and its partners, agents, employees and advisors and
their respective successors and assigns (the "SELLER INDEMNITEES") harmless
against and with respect to any and all Loss resulting from or arising out of:
(a) any inaccuracy in any representation, or breach of any warranty or
certification, made by Buyer or IHS pursuant to this Agreement; (b) the breach
of any covenant or undertaking by Buyer or IHS made pursuant to this Agreement;
or (c) any action, suit, proceeding, demand, assessment, judgment, settlement
(to the extent approved by Buyer or IHS, such approval not to be unreasonably
withheld, delayed or conditioned), cost or legal or other expenses incident to
any of the foregoing.
ARTICLE VII: TAXES
7.1 RESPECTIVE OBLIGATIONS; TAX LIABILITY. Seller shall be liable for all
federal, state and local income taxes arising out of the ownership of the
Limited Partnership Interest and the Rights with respect to all periods on or
prior to the date hereof, and Buyer shall be liable for all federal, state and
local income taxes arising out of the ownership of the Limited Partnership
Interest and the Rights with respect to all periods after the date hereof. Buyer
and Seller agree that, for the purpose of determining the amount of income
arising or attributable to Seller's ownership of the Limited Partnership
Interest and the Rights, the Partnership's books shall be closed for tax
purposes as of the close of business on the Closing Date, as permitted by
Treasury Regulations section 1.706-1(c)(2)(i), and Seller shall recognize and
report its distributive share of all Partnership income, gain, loss, deduction
or credit arising during the short period beginning January 1, 1998 and ending
on the Closing Date.
7.2 ALLOCATION OF PURCHASE PRICE. Buyer and Seller shall agree, no later
than ten days subsequent to the Closing Date, with respect to the allocation of
the purchase price among the assets of the Partnership, which allocation shall
be used by the Partnership in the event an election under Section 754 of the
Internal Revenue Code of 1986, as amended, is currently in force or is made by
the Partnership for the 1997 tax year. In the event that Buyer and Seller cannot
agree to such allocation within such time period, Buyer and Seller agree to
refer such allocation to binding arbitration, which shall be conducted by a
single-member arbitration panel selected by mutual agreement of Buyer and Seller
and administered by the American Arbitration Association in accordance with its
rules.
ARTICLE VIII: MISCELLANEOUS
8.1 BENEFIT AND ASSIGNMENT. This Agreement binds and inures to the benefit
of each party hereto and its successors and proper assigns. Either party may
assign its rights and interests under this Agreement to any other person or
entity without the other party's prior consent but no such assignment will
relieve the assigning party of its obligations and duties hereunder.
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8.2 EFFECT AND CONSTRUCTION OF THIS AGREEMENT. This Agreement and the Buyer
Transaction Documents and Seller Transaction Documents embody the entire
agreement and understanding of the parties and supersede any and all prior
representations, warranties, agreements, arrangements and understandings
relating to matters provided for herein. The captions used herein are for
convenience only and shall not control or affect the meaning or construction of
the provisions of this Agreement. This Agreement may be executed in one or more
counterparts, and all such counterparts shall constitute one and the same
agreement. Notwithstanding the foregoing, Seller acknowledges that it shall
continue to be bound by the provisions of the Non-Compete and Proprietary
Information Agreement, dated as of December 31, 1993, to which it is a party
until the provisions thereof terminate in accordance with the terms thereof.
8.3 COOPERATION - FURTHER ASSISTANCE. From time to time, as and when
reasonably requested by either party hereto after the date hereof, the other
party will (at the expense of the requesting party) execute and deliver, or
cause to be executed and delivered, all such documents, instruments and consents
and will use reasonable efforts to take all such action as may be reasonably
necessary to carry out the intent and purposes of this Agreement.
8.4 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed to be properly given when personally delivered to
the party or parties entitled to receive the notice or three (3) business days
after sent by certified or registered mail, postage prepaid, or on the business
day after sent by nationally recognized overnight courier, in each case,
properly addressed to the party or parties entitled to receive such notice at
the address stated below:
If to the Seller: Uro-Tech, Ltd.
1500 Three Lincoln Centre
5430 LBJ Freeway
Dallas, Texas 75240
Attention: Gary B. Wood, Ph.D.
with a copy to: Vinson & Elkins, L.L.P.
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201-2975
Attention: Michael D. Wortley
If to the Buyer: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
Attn: Tony Masso
Executive Vice President
and
with a copy to: Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, MD 21117
12
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Attn: Marshall A. Elkins, General Counsel
and
Blass & Driggs, Esqs.
461 Fifth Avenue, 19th Floor
New York, NY 10017
Attention: Andrew S. Bogen, Esq.
8.5 WAIVER, DISCHARGE, ETC. This Agreement shall not be released,
discharged, abandoned, changed or modified in any manner, except by an
instrument in writing executed by or on behalf of each of the parties hereto by
their duly authorized officer or representative. The failure of any party to
enforce at any time any of the provisions of this Agreement shall in no way be
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any part hereof or the right of any party
thereafter to enforce each and every such provision. No waiver of any breach of
this Agreement shall be held to be a waiver of any other or subsequent breach.
8.6 RIGHTS OF PERSONS NOT PARTIES. Nothing contained in this Agreement
shall be deemed to create rights in persons not parties hereto (other than the
Buyer/IHS Indemnitees and Seller Indemnitees under Article VI hereof), other
than the successors and proper assigns of the parties hereto.
8.7 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, disregarding any contrary rules
relating to the choice or conflict of laws.
8.8 AMENDMENTS, SUPPLEMENTS, ETC. This Agreement may not be amended except
by an instrument in writing signed by each of the parties.
8.9 SEVERABILITY. Any provision, or distinguishable portion of any
provision, of this Agreement which is determined in any judicial or
administrative proceeding to be prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction only, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
not invalidate or render unenforceable such provision in any other jurisdiction.
To the extent permitted by applicable law, the parties waive any provision of
law which renders a provision hereof prohibited or unenforceable in any respect.
8.10 EXPENSES. Except as otherwise expressly provided in this Agreement or
as provided by law, all costs and expenses incurred by the parties hereto in
connection with the consummation of the transactions contemplated hereby shall
be borne by the party which has incurred such costs and expenses.
[SIGNATURES ON THE FOLLOWING PAGE]
13
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IN WITNESS WHEREOF, each of the parties hereto and in the capacity
indicated below has executed this Agreement as of the day and year first above
written.
CAMBRIDGE HEALTH SERVICES OF
TEXAS, INC.
By:
----------------------------
Its:
----------------------------
INTEGRATED HEALTH SERVICES, INC.
By:
-----------------------------
Its:
----------------------------
URO-TECH, LTD.
By: URO-TECH MANAGEMENT
CORPORATION, General Partner
By:
-----------------------------
Gary B. Wood, Ph.D.
Chairman of the Board
14
EXHIBIT 5
[LETTERHEAD OF FULBRIGHT & JAWORSKI L.L.P.]
May 8, 1998
The Board of Directors
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
Dear Sirs:
We refer to the Registration Statement on Form S-3 (the "Registration
Statement"), to be filed by Integrated Health Services, Inc. (the "Company") on
behalf of certain selling stockholders (the "Selling Stockholders") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
relating to 981,421 shares of Common Stock, $.001 par value (the "Shares"), to
be sold by the Selling Stockholders named therein.
As counsel for the Company, we have examined such corporate records,
documents and such questions of law as we have considered necessary or
appropriate for purposes of this opinion and, upon the basis of such
examination, advise you that in our opinion the Shares to be sold by the Selling
Stockholders have been duly and validly authorized and are legally issued, fully
paid and non-assessable.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and the reference to this firm under the caption "Legal Matters" in
the prospectus contained therein and elsewhere in the Registration Statement and
prospectus. This consent is not to be construed as an admission that we are a
party whose consent is required to be filed with the Registration Statement
under the provisions of the Securities Act of 1933, as amended.
Very truly yours,
/s/ Fulbright & Jaworski L.L.P.
