AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 29, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTEGRATED HEALTH SERVICES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2428312
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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10065 Red Run Boulevard
Owings Mills, Maryland 21117
(410) 998-8400
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Marshall A. Elkins, Esq.
Executive Vice President and General Counsel
Integrated Health Services, Inc.
10065 Red Run Boulevard
Owings Mills, Maryland 21117
(410) 998-8400
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies of all communications, including all communications sent to the agent for
service, should be sent to:
Carl E. Kaplan, Esq. Leslie A. Glew, Esq. Frederick W. Kanner, Esq.
Fulbright & Jaworski L.L.P. Senior Vice President and Associate General Counsel Dewey Ballantine LLP
666 Fifth Avenue Integrated Health Services, Inc. 1301 Avenue of the Americas
New York, New York 10103 10065 Red Run Boulevard New York, New York 10019
(212) 318-3000 Owings Mills, Maryland 21117 (212) 259-8000
(212) 752-5958(FAX) (410) 998-8400 (212) 259-6333 (FAX)
(410) 998-8500(FAX)
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: [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AMOUNT OF SHARES PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase
Rights)(3) ............................ 3,579,766 $ 37.00 $132,451,342 $ 39,073.15
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(1) The Registration Statement relates to the issuance by the Registrant of a
maximum of 3,579,766 shares of Common Stock either (1) upon the conversion
of the Registrant's outstanding 6% Convertible Subordinated Debentures due
2003, or (2) pursuant to the standby arrangements described in the
Prospectus, and the sale from time to time by Smith Barney Inc. of any such
shares so acquired by it.
(2) Estimated solely for the purpose of calculating the registration fee. Such
estimates have been calculated in accordance with Rule 457(c) under the
Securities Act of 1933 and are based upon the average of the high and low
prices per share of the Registrant's Common Stock on the New York Stock
Exchange Composite Transaction Tape on May 27, 1998.
(3) The Preferred Stock Purchase Rights, which are attached to the shares of
Common Stock being registered, will be issued for no additional
consideration; no additional registration fee is required.
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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.
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SUBJECT TO COMPLETION, DATED MAY 29, 1998
PROSPECTUS
3,579,766 SHARES
[IHS LOGO]
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
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This Prospectus covers the issuance and sale of up to 3,579,766 shares of
Common Stock, $.001 par value per share (together with the Preferred Stock
Purchase Rights associated therewith, the "Common Stock"), of Integrated Health
Services, Inc., a Delaware corporation ("IHS" or the "Company"), issuable either
to (a) holders of outstanding 6% Convertible Subordinated Debentures due 2003 of
the Company (the "Debentures") upon conversion of the Debentures, or (b) Smith
Barney Inc. (the "Purchaser") pursuant to the standby arrangements described
herein and the resale from time to time by the Purchaser of any such shares of
Common Stock.
The Company has called for redemption on June 29, 1998 (the "Redemption
Date") all Debentures at a redemption price of 103.0% of the principal amount,
plus accrued interest of $29.83 from January 1, 1998 to the Redemption Date for
each $1,000 principal amount of Debentures, making a total of $1,059.83 payable
for each such $1,000 principal amount. Prior to 5:00 p.m. New York City time
(the "Close of Business") on the Redemption Date, at the option of the holder,
the Debentures (or any portion thereof which is $1,000 or an integral multiple
thereof) may be converted into shares of Common Stock of the Company at a
conversion price of $32.125 per share of Common Stock (equivalent to 31.13
shares of Common Stock for each $1,000 principal amount of Debentures). Cash
will be paid in lieu of any fractional shares of Common Stock issuable upon
conversion of the Debentures. Debentures surrendered for conversion will not be
entitled to interest accrued to the date of conversion. See "Redemption of
Debentures and Alternatives to Redemption." ANY DEBENTURES NOT SO SURRENDERED
FOR CONVERSION PRIOR TO THE CLOSE OF BUSINESS ON THE REDEMPTION DATE WILL BE
REDEEMED FOR CASH ON THE REDEMPTION DATE AND NO FURTHER INTEREST SHALL ACCRUE.
After the Redemption Date, the Debentures will no longer be deemed to be
outstanding and all rights of the holders of the Debentures will cease, except
the right to receive the redemption price, without interest from and after the
Redemption Date, upon surrender of the Debentures.
(continued on next page)
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SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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SALOMON SMITH BARNEY
May , 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.
(continued from previous page)
The Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "IHS." On May 28, 1998, the reported closing price of the Common
Stock on the NYSE Composite Tape was $38.1875 per share. A holder of Debentures
who converted such Debentures on that date would have received Common Stock (and
cash in lieu of a fractional share) having a market value, based on such price
on that date, of approximately $1,188.78 for each $1,000 principal amount of
Debentures converted. If such Debentures were surrendered for redemption on the
Redemption Date, such holder would receive $1,059.83 in cash for each $1,000
principal amount.
AS LONG AS THE MARKET PRICE OF THE COMMON STOCK REMAINS AT OR ABOVE $34.05
PER SHARE, THE HOLDERS OF DEBENTURES WHO ELECT TO CONVERT WILL RECEIVE, UPON
CONVERSION, COMMON STOCK (INCLUDING CASH, IF ANY, RECEIVED IN LIEU OF FRACTIONAL
SHARES) HAVING A GREATER MARKET VALUE THAN THE AMOUNT OF CASH RECEIVABLE UPON
REDEMPTION OF SUCH DEBENTURES (BEFORE DEDUCTING ANY TAXES, COMMISSIONS AND OTHER
COSTS WHICH WOULD LIKELY BE INCURRED ON SALE OF THE COMMON STOCK RECEIVED UPON
CONVERSION OF THE DEBENTURES). IT SHOULD BE NOTED, HOWEVER, THAT THE PRICE OF
THE COMMON STOCK RECEIVED UPON CONVERSION WILL FLUCTUATE IN THE MARKET. NO
ASSURANCE CAN BE GIVEN AS TO THE PRICE OF THE COMMON STOCK AT ANY FUTURE TIME,
AND THE HOLDERS SHOULD EXPECT TO INCUR VARIOUS EXPENSES OF SALE IF SUCH COMMON
STOCK IS SOLD.
The conversion right expires at the Close of Business on the Redemption
Date, time being of the essence. From and after that date and time, holders of
Debentures will be entitled only to the redemption price, without interest from
and after the Redemption Date.
The Company has entered into a standby purchase agreement with the
Purchaser pursuant to which the Purchaser has agreed, subject to certain
conditions, to purchase from the Company such number of shares of Common Stock
(the "Purchased Shares") as would have been issuable upon the conversion of
those Debentures which have not been duly surrendered for conversion by the
Close of Business on the Redemption Date. The purchase price for the Purchased
Shares will be an amount equal to a price per share of $34.05. The Purchaser may
also purchase Debentures in the open market or otherwise prior to the Close of
Business on the Redemption Date. The Purchaser has agreed to convert into Common
Stock all Debentures owned by it or so acquired. See "Standby Arrangements" for
a description of the Purchaser's compensation and indemnification arrangements
with the Company.
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Prior to and after the Redemption Date, the Purchaser may offer shares of
Common Stock, including shares of Common Stock acquired pursuant to the standby
arrangements or upon the conversion of Debentures, directly to the public at
prices set from time to time by the Purchaser. The Purchaser may also make sales
to dealers at prices which represent a concession from the prices at which such
shares of Common Stock are then being offered to the public. The amount of such
concessions will be determined from time to time by the Purchaser. In effecting
such transactions, the Purchaser may realize profits or losses independent of
the compensation described under "Standby Arrangements." Any shares of Common
Stock will be offered by the Purchaser when, as and if accepted by the Purchaser
and subject to the Purchaser's right to reject orders in whole or in part. This
Prospectus does not constitute an offer to sell any securities other than the
Common Stock offered by the Purchaser. The Common Stock and any shares acquired
through conversion of Debentures are listed, and application will be made for
listing of the Purchased Shares, on the NYSE.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "STANDBY ARRANGMEMENTS."
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 of 1933, as amended (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.
3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The information in the following documents filed by IHS with the Commission
(File No. 1-12306) pursuant to the Exchange Act is incorporated by reference in
this Prospectus:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1997, as amended by Form 10-K/A filed May 29, 1998;
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, as amended by Form 10-Q/A filed May 29, 1998;
(c) The Company's 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 and Amendment
No. 1 to Form 8-K/A filed May 29, 1998;
(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 and Amendment No. 1 to Form 8-K/A filed May 29, 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 termination of the offering made hereby 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.
4
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE COMMON STOCK OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
COMMON STOCK IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THEREOF OR THAT THE
INFORMATION CONTAINED HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
5
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 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
6
"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.
7
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 March 31, 1998, IHS'
total long-term debt, including current portion, accounted for 73.3% of its
total capitalization (70.8% on a pro forma basis after giving effect to the
redemption of the Debentures and the issuance of Common Stock upon conversion
thereof or pursuant to the standby arrangement with the Purchaser). See
"Capitalization." IHS also has significant lease obligations with respect to the
facilities operated pursuant to long-term leases, which aggregated approximately
$684.0 million at March 31, 1998. For the year ended December 31, 1997 and the
three months ended March 31, 1998 the Company's rent expense was $105.1 million
($163.7 million on a pro forma basis after giving effect to the acquisitions
consummated by IHS in 1997) and $35.4 million, respectively. In addition, IHS is
obligated to pay an additional $155 million in respect of the acquisition of
First American during 2000 to 2004, of which $115.2 million (representing the
present value thereof) has been recorded at March 31, 1998. The Company's
strategy of expanding its specialty medical services and growing through
acquisitions may require additional borrowings in order to finance working
capital, capital expenditures and the purchase price of any acquisitions. The
degree to which the Company is leveraged, as well as its rent expense, could
have important consequences to securityholders, including: (i) IHS' ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or general corporate purposes may be impaired, (ii) a
substantial portion of IHS' cash flow from operations may be dedicated to the
payment of principal and interest on its indebtedness and rent expense, thereby
reducing the funds available to IHS for its operations, (iii) certain of IHS'
borrowings bear, and will continue to bear, variable rates of interest, which
expose IHS to increases in interest rates, and (iv) certain of IHS' indebtedness
contains financial and other restrictive covenants, including those restricting
the incurrence of additional indebtedness, the creation of liens, the payment of
dividends and sales of assets and imposing minimum net worth requirements. In
addition, IHS' leverage may also adversely affect IHS' ability to respond to
changing business and economic conditions or continue its growth strategy. There
can be no assurance that IHS' operating results will be sufficient for the
payment of IHS' indebtedness. If IHS were unable to meet interest, principal or
lease payments, or satisfy financial covenants, it could be required to seek
renegotiation of such payments and/or covenants or obtain additional equity or
debt financing. If additional funds are raised by issuing equity securities, the
Company's stockholders may experience dilution. Further, such equity securities
may have rights, preferences or privileges senior to those of the Common Stock.
To the extent IHS finances its activities with additional debt, IHS may become
subject to certain additional financial and other covenants that may restrict
its ability to pursue its growth strategy and to pay dividends on the Common
Stock. There can be no assurance that any such efforts would be successful or
timely or that the terms of any such financing or refinancing would be
acceptable to IHS. See "-- Risks Related to Capital Requirements."
In connection with IHS' offering of its 9 1/4% Senior Subordinated Notes
due 2008 in September 1997 (the "9 1/4% Senior Notes"), Standard & Poors ("S&P")
confirmed its B rating of IHS' other subordinated debt obligations, but with a
negative outlook, and assigned the same rating to the 9 1/4% Senior Notes. In
November 1997, S&P placed the Company's senior credit and subordinated debt
ratings on CreditWatch with negative implications due to the proposed Facility
Acquisition and in January 1998 S&P downgraded IHS' corporate credit and bank
loan ratings to B+ and its subordinated debt ratings to B- as a result of the
Facility Acquisition. S&P stated that the speculative grade ratings reflect the
Company's high debt leverage and aggressive acquisition strategy, uncertainties
with respect to future government efforts to control Medicare and Medicaid and
the unknown impact on IHS of recent changes in healthcare regulation providing
for a prospective payment system for both nursing homes and home healthcare. S&P
noted IHS' outlook was stable. In connection with the offering of the 9 1/4%
Senior Notes, Moody's Investors Service ("Moody's") downgraded to B2 the
Company's other senior
8
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 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.
9
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 resources to such integration may
detract attention from the day-to-day business of IHS. The difficulties of
10
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. 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 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
11
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. 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."
12
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. With respect to Medicaid, the BBA repeals
the so-called Boren Amendment, which required state Medicaid programs to
reimburse nursing facilities for the costs that are incurred by efficiently and
economically operated providers in order to meet quality and safety standards.
As a result, states now have considerable flexibility in establishing payment
rates. The inability of IHS to provide home healthcare and/or skilled nursing
services at a cost below the established Medicare fee schedule could have a
material adverse effect on IHS' home healthcare operations, post-acute care
network and business generally.
Under the new prospective payment system for Medicare reimbursement to
skilled nursing facilities, facilities will receive a pre-established daily rate
for each individual Medicare beneficiary being cared for, based on the activity
level of the patient. The pre-established daily rate will cover all routine,
ancillary and capital costs. 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' postacute care network
strategy. See "-- Risks Related to Recent Acquisitions."
Uncertainty of Government Regulation. The Company and the healthcare
industry generally are subject to extensive federal, state and local regulation
governing licensure and conduct of operations at existing facilities,
construction of new facilities, acquisition of existing facilities, additions of
new services, certain capital expenditures, the quality of services provided and
the manner in which such services are provided and reimbursement for services
rendered. Changes in applicable laws and regulations or new interpretations of
existing laws and regulations could have a material adverse effect on licensure,
eligibility for participation, permissible activities, operating costs and the
levels of reimbursement from
13
governmental and other sources. There can be no assurance that regulatory
authorities will not adopt changes or new interpretations of existing
regulations that could adversely affect the Company. The failure to maintain or
renew any required regulatory approvals or licenses could prevent the Company
from offering existing services or from obtaining reimbursement. In certain
circumstances, failure to comply at one facility may affect the ability of the
Company to obtain or maintain licenses or approvals under Medicare and Medicaid
programs at other facilities. In addition, in the conduct of its business the
Company's operations are subject to review by federal and state regulatory
agencies to assure continued compliance with various standards, their continued
licensing under state law and their certification under the Medicare and
Medicaid programs. In the course of these reviews, problems are from time to
time identified by these agencies. The Company has to date been able to resolve
these problems in a manner satisfactory to the regulatory agencies without a
material adverse effect on its business, and the Company believes that it will
be able to resolve all current reviews in a manner satisfactory to the
regulatory agencies without a material adverse effect on its business. However,
there can be no assurance that IHS will be able to satisfactorily resolve all
current or future reviews.
In 1995 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.
Federal and state regulatory and law enforcement authorities have recently
expanded the scope of enforcement activities with respect to laws applicable to
the Company's business, including with respect to Medicare and Medicaid fraud
and abuse regulations, other reimbursement laws and laws relating to quality of
patient care. In addition, media attention to enforcement activities has
recently increased. There can be no assurance that any such enforcement
activities with respect to the Company or its competitors, or any resultant
media attention given to such matters, will not directly or indirectly have a
material adverse effect on the Company's business, financial condition, results
of operations or the market price of the Common Stock.
The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "Stark Acts,"
which prohibit, with limited exceptions, financial relationships between
ancillary service providers and referring physicians, and the federal
"anti-kickback law," which prohibits, among other things, the offer, payment,
solicitation or receipt of any form of remuneration in return for the referral
of Medicare and Medicaid patients. The Office of Inspector General of the
Department of Health and Human Services, the Department of Justice and other
federal
14
agencies interpret these fraud and abuse provisions liberally and enforce them
aggressively. The BBA contains new civil monetary penalties for violations of
these laws and imposes an affirmative duty on providers to insure that they do
not employ or contract with persons excluded from the Medicare program. The BBA
also provides a minimum 10 year period for exclusion from participation in
Federal healthcare programs of persons convicted of a prior healthcare
violation. In addition, some states restrict certain business relationships
between physicians and other providers of healthcare services. Many states
prohibit business corporations from providing, or holding themselves out as a
provider of, medical care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or eligibility to
participate in reimbursement programs (including Medicare and Medicaid), asset
forfeitures and civil and criminal penalties. These laws vary from state to
state, are often vague and have seldom been interpreted by the courts or
regulatory agencies. The Company seeks to structure its business arrangements in
compliance with these laws and, from time to time, the Company has sought
guidance as to the interpretation of such laws; however, there can be no
assurance that such laws ultimately will be interpreted in a manner consistent
with the practices of the Company.
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
15
party from attempting to acquire, control of IHS. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of Common Stock. Certain of these provisions allow IHS to issue, without
stockholder approval, preferred stock having voting rights senior to those of
the Common Stock. Other provisions impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. In addition, the IHS Stockholders' Rights Plan, which
provides for discount purchase rights to certain stockholders of IHS upon
certain acquisitions of 20% or more of the outstanding shares of Common Stock,
may also inhibit a change in control of IHS. As a Delaware corporation, IHS is
subject to Section 203 of the DGCL, which, in general, prevents an "interested
stockholder" (defined generally as a person owning 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) for three years following the date such person became
an interested stockholder unless certain conditions are satisfied. See
"Description of Capital Stock -- Stockholders' Rights Plan."
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. In April 1998, the Company also
purchased, for an aggregate of approximately $5.5 million, seven companies which
provide respiratory therapy services. In May 1998 the Company acquired five
companies which provide respiratory therapy services for an aggregate of
approximately $15.1 million.
The Company has reached agreements in principle to purchase a company which
operates 31 skilled nursing facilities for approximately $53.2 million, a
skilled nursing facility for $4.7 million, two lithotripsy operations for an
aggregate of approximately $20.4 million and 18 respiratory companies for
approximately $30.7 million. There can be no assurance that any of these
acquisitions will be consummated on these terms, on different terms or at all.
16
USE OF PROCEEDS
The net proceeds, if any, received by the Company from the sale of Common
Stock to the Purchaser pursuant to the standby arrangements described under
"Standby Arrangements" will be used to fund the redemption of any Debentures not
surrendered for conversion. Any other amounts received by the Company from the
Purchaser pursuant to the standby arrangements will be used for general
corporate purposes. The amount of the proceeds to be received by the Company
from the Purchaser is not determinable at this time, because neither the number
of shares, if any, that will be sold to the Purchaser nor the amount of profit,
if any, that the Purchaser may realize upon resale of such shares can be
determined at this time. The Company will not receive any cash proceeds from the
issuance of Common Stock upon conversion of the Debentures.
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1998 and as adjusted to give effect to the assumed conversion of all the
outstanding Debentures and the issuance of 3,579,766 shares of Common Stock, net
of certain expenses associated therewith.
MARCH 31, 1998
------------------------------
(IN THOUSANDS)
AS
ACTUAL ADJUSTED(1)
------------- --------------
Short-term debt:
Current portion of long-term debt ....................................... $ 35,526 $ 35,526
========== ==========
Long-term debt, less current portion:
Revolving credit and term loan facility ................................. $1,745,849 $1,745,849
Other senior debt ....................................................... 160,454 160,454
9 5/8% Senior Subordinated Notes due 2002, Series A ..................... 25 25
10 3/4% Senior Subordinated Notes due 2004 .............................. 107 107
10 1/4% Senior Subordinated Notes due 2006 .............................. 150,000 150,000
9 1/2% Senior Subordinated Notes due 2007 ............................... 450,000 450,000
9 1/4% Senior Subordinated Notes due 2008 ............................... 500,000 500,000
5 1/4% Convertible Subordinated Debentures due 2003 of RoTech
Medical Corporation ................................................... 2,164 2,164
5 3/4% Convertible Senior Subordinated Debentures due 2001 .............. 143,750 143,750
6% Convertible Subordinated Debentures due 2003 ......................... 115,000 --
---------- ----------
Total long-term debt, less current portion ............................ 3,267,349 3,152,349
---------- ----------
Stockholders' equity:
Preferred Stock, $.01 par value, 15,000,000 shares authorized............ -- --
Common Stock, $.001 par value, 150,000,000 shares authorized;
45,221,385 shares issued; 48,801,151 shares issued as adjusted ........ 45 49
Additional paid-in capital .............................................. 1,137,763 1,248,953
Retained earnings ....................................................... 83,575 83,575
Treasury stock .......................................................... (19,813) (19,813)
---------- ----------
Total stockholders' equity ............................................ 1,201,570 1,312,764
---------- ----------
Total capitalization ................................................. $4,468,919 $4,465,113
========== ==========
- ----------
(1) To the extent that Common Stock is purchased or received upon conversion of
Debentures by the Purchaser pursuant to the standby arrangements, the
Company may incur additional fees payable to the Purchaser, including
underwriting fees. See "Standby Arrangements."
17
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the New York Stock Exchange under the symbol
"IHS." The following table sets forth for the periods indicated the high and low
last reported sale prices for the Common Stock as reported by the New York Stock
Exchange.
HIGH LOW
------------ ------------
CALENDAR YEAR 1996
First Quarter ................................. $ 26 $20 1/8
Second Quarter ................................ 27 7/8 23 3/8
Third Quarter ................................. 25 7/8 20 1/2
Fourth Quarter ................................ 27 22
CALENDAR YEAR 1997
First Quarter ................................. $ 32 3/8 $23 3/4
Second Quarter ................................ 39 26 7/8
Third Quarter ................................. 39 1/8 32 11/16
Fourth Quarter ................................ 33 7/8 28 5/16
CALENDAR YEAR 1998
First Quarter ................................. $ 39 5/16 $28 1/4
Second Quarter (through May 28, 1998) ......... 39 15/16 36
On May 28, 1998, the reported last sales price of the Common Stock on the
NYSE Composite Tape was $38.1875 per share. Prospective purchasers of shares of
Common Stock are urged to obtain current quotations for the market price.
In 1996 and 1997 the Company declared a cash dividend of $0.02 per share.
The payment of any future dividends will be at the discretion of the Company's
Board of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, the general financial condition of the
Company, contractual restrictions and general business conditions. The Company's
term loan and revolving credit facility and the indentures under which the
Company's 10 1/4% Senior Subordinated Notes due 2006, 9 1/2% Senior Subordinated
Notes due 2007 and 9 1/4% Senior Subordinated Notes due 2008 were issued limit
the amount of dividends which may be paid.
18
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables summarize certain selected consolidated financial
data, which should be read in conjunction with the Company's Consolidated
Financial Statements and related Notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" incorporated by reference
herein. The selected consolidated financial data set forth below for each of the
years in the five-year period ended December 31, 1997 and as of the end of each
of such periods have been derived from the Consolidated Financial Statements of
the Company which have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The selected consolidated financial data presented
below for the three months ended March 31, 1997 and 1998 and as of March 31,
1998 have been prepared on the same basis as the audited financial statements
and, in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information set
forth therein. The results as of and for the three months ended March 31, 1998
are not necessarily indicative of the results to be achieved for the full fiscal
year.
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
-------------- -------------- -------------- ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA(1)(2):
Net revenues:
Basic medical services ........................... $ 113,508 $ 269,817 $ 368,569 $ 389,773 $382,274
Specialty medical services ....................... 162,017 404,401 770,554 999,209 1,571,704
Management services and other .................... 20,779 37,884 39,765 45,713 39,219
---------- ---------- --------- --------- ---------
Total ........................................... 296,304 712,102 1,178,888 1,434,695 1,993,197
Costs and expenses:
Operating, general and administrative ............ 229,768 565,172 944,567 1,154,924 1,555,830
Depreciation and amortization .................... 8,126 26,367 39,961 41,681 70,750
Rent ............................................. 23,156 42,158 66,125 77,785 105,136
Interest, net .................................... 5,705 20,602 38,977 64,110 115,201
Loss from impairment of long-lived assets and
other non-recurring charges (income)(3) ......... -- -- 132,960 (14,457) 133,042
---------- ---------- --------- --------- ---------
Earnings (loss) before equity in earnings of
affiliates, income taxes, extraordinary items
and cumulative effect of accounting change 29,549 57,803 (43,702) 110,652 13,238
Equity in earnings of affiliates .................. 1,241 1,176 1,443 828 88
---------- ---------- --------- --------- ---------
Earnings (loss) before income taxes, extraor-
dinary items and cumulative effect of ac-
counting change ................................ 30,790 58,979 (42,259) 111,480 13,326
Income tax provision (benefit) .................... 12,008 22,117 (16,270) 63,715 24,449
---------- ---------- --------- --------- ---------
Earnings (loss) before extraordinary items
and cumulative effect of accounting change 18,782 36,862 (25,989) 47,765 (11,123)
Extraordinary items(4) ............................ 2,275 4,274 1,013 1,431 20,552
---------- ---------- --------- --------- ---------
Earnings (loss) before cumulative effect of
accounting change .............................. 16,507 32,588 (27,002) 46,334 (31,675)
Cumulative effect of accounting change(5) ......... -- -- -- -- 1,830
---------- ---------- --------- --------- ---------
Net earnings (loss) ............................. $ 16,507 $ 32,588 $ (27,002) $ 46,334 $(33,505)
========== ========== ========= ========= =========
Per Common Share(6):
Basic:
Earnings (loss) before extraordinary items
and cumulative effect of accounting change $ 1.50 $ 2.18 $ (1.21) $ 2.12 $ (0.39)
Earnings (loss) before cumulative effect of
accounting change .............................. 1.32 1.93 (1.26) 2.06 (1.12)
Net earnings (loss) ............................. $ 1.32 $ 1.93 $ (1.26) $ 2.06 $ (1.19)
Diluted:
Earnings (loss) before extraordinary items
and cumulative effect of accounting change $ 1.36 $ 1.77 $ (1.21) $ 1.83 $ (0.39)
Earnings (loss) before cumulative effect of
accounting change .............................. 1.23 1.61 (1.26) 1.78 (1.12)
Net earnings (loss) ............................. $ 1.23 $ 1.61 $ (1.26) $ 1.78 $ (1.19)
Weighted average number of common shares out-
standing(6)
Basic ........................................... 12,522 16,910 21,463 22,529 28,253
Diluted ......................................... 17,101 26,558 21,463 31,564 28,253
========== ========== ========= ========= =========
THREE MONTHS
ENDED MARCH 31,
-------------------------
1997 1998
----------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA(1)(2):
Net revenues:
Basic medical services ........................... $ 88,755 $ 234,899
Specialty medical services ....................... 362,689 612,196
Management services and other .................... 9,499 7,785
-------- ---------
Total ........................................... 460,943 854,880
Costs and expenses:
Operating, general and administrative ............ 370,428 650,137
Depreciation and amortization .................... 15,030 38,591
Rent ............................................. 24,009 35,414
Interest, net .................................... 21,421 66,465
Loss from impairment of long-lived assets and
other non-recurring charges (income)(3) ......... (1,025) --
-------- ---------
Earnings (loss) before equity in earnings of
affiliates, income taxes, extraordinary items
and cumulative effect of accounting change 31,080 64,273
Equity in earnings of affiliates .................. 181 270
-------- ---------
Earnings (loss) before income taxes, extraor-
dinary items and cumulative effect of ac-
counting change ................................ 31,261 64,543
Income tax provision (benefit) .................... 12,192 26,463
-------- ---------
Earnings (loss) before extraordinary items
and cumulative effect of accounting change 19,069 38,080
Extraordinary items(4) ............................ -- --
-------- ---------
Earnings (loss) before cumulative effect of
accounting change .............................. 19,069 38,080
Cumulative effect of accounting change(5) ......... -- --
-------- ---------
Net earnings (loss) ............................. $19,069 $ 38,080
======== =========
Per Common Share(6):
Basic:
Earnings (loss) before extraordinary items
and cumulative effect of accounting change $ 0.81 $ 0.88
Earnings (loss) before cumulative effect of
accounting change .............................. 0.81 0.88
Net earnings (loss) ............................. $ 0.81 $ 0.88
Diluted:
Earnings (loss) before extraordinary items
and cumulative effect of accounting change $ 0.64 $ 0.74
Earnings (loss) before cumulative effect of
accounting change .............................. 0.64 0.74
Net earnings (loss) ............................. $ 0.64 $ 0.74
Weighted average number of common shares out-
standing(6)
Basic ........................................... 23,660 43,229
Diluted ......................................... 33,822 54,461
======== =========
19
DECEMBER 31,
--------------------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
----------- ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and temporary investments .................... $ 65,295 $ 63,347 $ 41,304 $ 41,072 $ 61,007 $ 112,406
Working capital ................................... 69,495 76,383 136,315 57,549 63,117 224,240
Total assets ...................................... 776,324 1,255,989 1,433,730 1,993,107 5,063,144 5,246,908
Long-term debt, including current portion ......... 402,536 551,452 770,661 1,054,747 3,238,233 3,302,875
Stockholders' equity .............................. 216,506 453,811 431,528 534,865 1,088,161 1,201,570
- ----------------
(1) The Company has grown substantially through acquisitions and the opening of
MSUs, which acquisitions and MSU openings materially affect the
comparability of the financial data reflected herein. In addition, IHS sold
its pharmacy division in July 1996, a majority interest in its assisted
living services subsidiary ("ILC") in October 1996 and the remaining
interest in ILC in July 1997 (the "ILC Sale").
(2) In 1995, the Company merged with IntegraCare, Inc. ("IntegraCare") in a
transaction accounted for as a pooling of interests. Accordingly, the
Company's historical financial statements for all periods prior to the
effective date of the merger have been restated to include the results of
IntegraCare.
(3) In 1995, consists of (i) expenses of $1,939,000 related to the merger with
IntegraCare, (ii) a $21,915,000 loss on the write-off of accrued management
fees ($8,496,000), loans ($11,097,000) and contract acquisi- tion costs
($2,322,000) related to the Company's termination of its agreement, entered
into in January 1994, to manage 23 long-term care and psychiatric facilities
owned by Crestwood Hospital, (iii) the write-off of $25,785,000 of deferred
pre-opening costs resulting from a change in accounting estimate regarding
the future benefit of deferred pre-opening costs and (iv) a loss of
$83,321,000 resulting from the Company's election in December 1995 of early
implementation of SFAS No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of. In 1996, consists
primarily of (i) a gain of $34,298,000 from the sale of its pharmacy
division, (ii) a loss of $8,497,000 from its sale of shares in its assisted
living services subsidiary, (iii) a $7,825,000 loss on write-off of accrued
management fees and loans resulting from the Company's termination of its
ten year management contract with All Seasons, originally entered into
during September 1994 and (iv) a $3,519,000 exit cost resulting from the
closure of redundant home healthcare agencies. Because IHS' investment in
the Capstone common stock received in the sale of its pharmacy division had
a very small tax basis, the taxable gain on the sale significantly exceeded
the gain for financial reporting purposes, thereby resulting in a
disproportionately higher income tax provision related to the sale. In 1997,
consists primarily of (i) a gain of $7,580,000 realized on the shares of
Capstone common stock received in the sale of its pharmacy division in the
first quarter, (ii) the write-off of $6,555,000 of accounting, legal and
other costs resulting from the proposed merger transaction with Coram in the
first quarter, (iii) the payment to Coram of $21,000,000 in connection with
the termination of the proposed merger transaction with Coram, (iv) a gain
of $3,914,000 from the ILC Sale, (v) a loss of $4,750,000 resulting from
termination payments in connection with the RoTech Acquisition and (vi) a
loss of $112,231,000 resulting from its plan to dispose of certain
non-strategic assets to allow the Company to focus on its core operations.
(4) In 1993, the Company recorded a loss on extinguishment of debt of $3,730,000
relating primarily to the write-off of deferred financing costs. Such loss,
reduced by the related income tax effect of $1,455,000, is presented for the
year ended December 31, 1993 as an extraordinary loss of $2,275,000. In
1994, the Company recorded a loss on extinguishment of debt of $6,839,000
relating primarily to the write-off of deferred financing costs. Such loss,
reduced by the related income tax effect of $2,565,000, is presented for the
year ended December 31, 1994 as an extraordinary loss of $4,274,000. In
1995, the Company recorded a loss on extinguishment of debt of $1,647,000
relating primarily to prepayment charges and the write-off of deferred
financing costs. Such loss, reduced by the related income tax effect of
$634,000, is presented for the year ended December 31, 1995 as an
extraordinary loss of $1,013,000. In 1996, the Company recorded a loss on
extinguishment of debt of $2,327,000, relating primarily to the write-off of
deferred financing costs. Such loss, reduced by the related income tax
effect of $896,000, is presented in the statement of operations for the year
ended December 31, 1996 as an extraordinary loss of $1,431,000. In 1997, IHS
recorded a loss on extinguishment of debt of $33,692,000, representing
approximately (i) $23,554,000 of cash payments for premium and consent fees
relating to the early extinguishment of $214,868,000 aggregate principal
amount of IHS' senior subordinated notes and (ii) $10,138,000 of deferred
financing costs written off in connection with the early extinguishment of
such debt and the Company's revolving credit facility. Such loss, reduced by
the related income tax effect of $13,140,000, is presented in the statement
of operations for the year ended December 31, 1997 as an extraordinary loss
of $20,552,000.
(5) Represents the write-off, net of income tax benefit, of the unamortized
balance of costs of business process reengineering and information
technology projects.
(6) The share and per share information for the years ended December 31, 1993,
1994, 1995 and 1996 and the three months ended March 31, 1997 have been
restated to reflect share and per share information in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
which was required to be adopted by the Company effective with its financial
statements for the year ended December 31, 1997. The diluted weighted
average number of common shares outstanding for the years ended December 31,
1993, 1994 and 1996 and the three months ended March 31, 1997 and 1998
includes the assumed conversion of the Debentures into Common Stock.
Additionally, interest expense and amortization of underwriting costs
related to such Debentures are added, net of tax, to income for the purpose
of calculating diluted earnings per share. Such amounts aggregated
$4,516,000, $10,048,000, $9,888,000, $2,452,000 and $2,388,000 for the years
ended December 31, 1993, 1994 and 1996 and the three months ended March 31,
1997 and 1998, respectively. The diluted weighted average number of common
shares outstanding for the years ended December 31, 1995 and 1997 does not
include the assumed conversion of the Debentures or the related interest
expense and underwriting costs, as such conversion would be anti-dilutive.
20
REDEMPTION OF THE DEBENTURES
AND ALTERNATIVES TO REDEMPTION
The Company has called for redemption, on the Redemption Date (June 29,
1998), unless previously converted into Common Stock, all of the outstanding
Debentures. As of May 28, 1998, $115,000,000 aggregate principal amount of
Debentures was outstanding.
The following alternatives are available to holders of Debentures:
1. Conversion into Common Stock. Holders may convert Debentures (or any
portion thereof which is $1,000 or an integral multiple thereof) into the Common
Stock of the Company at a conversion price of $32.125 per share of Common Stock
(equivalent to 31.13 shares of Common Stock for each $1,000 principal amount of
Debentures). No fractional shares of Common Stock will be issued upon conversion
of Debentures. Instead, the Company will pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the Closing Price (as
defined below) at the Close of Business on the day of conversion (or, if such
day is not a Trading Day (as defined below), on the Trading Day immediately
preceding such day). Debentures surrendered for conversion will not be entitled
to interest accrued to the date of conversion. "Closing Price" means the last
reported sales price regular way or, in case no such reported sale takes place
on such day, the average of the reported closing bid and asked prices regular
way, in either case on the NYSE. "Trading Day" means each Monday, Tuesday,
Wednesday, Thursday and Friday, other than any day on which securities are
generally not traded on the NYSE. The Debentures will not be convertible after
5:00 P.M., New York City time, on the Redemption Date.
To convert Debentures into Common Stock, the holder thereof must surrender
such Debentures prior to 5:00 P.M. New York City time, on the Redemption Date to
The Bank of New York, as paying and conversion agent (the "Paying and Conversion
Agent"). Such surrender of any Debenture must be accompanied by a duly executed
notice of the holder's election to convert in the form provided on the reverse
side of such Debenture (the "Conversion Notice"). The Conversion Notice must
also state the name or names, together with the address or addresses, in which
the Common Stock shall be issuable upon the conversion if different from the
registered holder of the Debentures surrendered. Each Debenture surrendered for
conversion must be accompanied by proper assignments thereof to the Company or
in blank for transfer and any requisite federal or state transfer tax stamps.
The Conversion Notice that must be given to the Paying and Conversion Agent may
be provided by surrendering Debentures accompanied by a properly completed
Letter of Transmittal in the form provided to all registered holders of
Debentures (each, a "Letter of Transmittal"). Each holder's signature in a
Letter of Transmittal or any other Conversion Notice must be guaranteed by a
commercial bank or trust company having an office or correspondent in the United
States, a member firm of a national securities exchange or the National
Association of Securities Dealers, Inc. or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (each, an "Eligible
Institution") if shares of Common Stock are to be delivered other than to and in
the name of the registered holder of the Debentures converted. Holders should
inquire of such Eligible Institutions sufficiently in advance of the Redemption
Date whether there are any dollar limitations on the principal amount of
Debentures with respect to which signatures may be guaranteed by such Eligible
Institutions. A Letter of Transmittal and any other Conversion Notice, once
given to the Paying and Conversion Agent, is not revocable. As promptly as
practicable after the surrender of a Debenture as aforesaid, the Company shall
deliver to the holder at the office of the Paying and Conversion Agent a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Debenture or portion thereof and a check in
an amount equivalent to the value of any fractional shares otherwise issuable
upon such conversion. Debentures surrendered for conversion will not be entitled
to interest accrued to the date of conversion. See "Paying and Conversion
Agent."
Debenture holders wishing to convert their Debentures whose Debentures are
not immediately available or who cannot deliver their Debentures and all other
documents required by the Letter of Transmittal to the Paying and Conversion
Agent on or prior to 5:00 p.m., New York City time, on the Redemption Date may
elect to convert their Debentures pursuant to the following procedures: (a) such
election to convert must be made by or through an Eligible Institution, (b) a
properly completed and
21
duly executed Notice of Guaranteed Delivery in the form provided by the Company
to all registered holders of Debentures (each, a "Notice of Guaranteed
Delivery") must be received by the Paying and Conversion Agent on or prior to
5:00 p.m., New York City time, on the Redemption Date, and (c) the Debentures in
proper form for transfer, together with a properly completed and duly executed
Letter of Transmittal and all other documents required thereby, must be received
by the Paying and Conversion Agent within three business days after the date
such Notice of Guaranteed Delivery is received by the Paying and Conversion
Agent. Notwithstanding the foregoing, shares of Common Stock will be issued in
respect of Debentures surrendered for conversion only after timely receipt by
the Paying and Conversion Agent of the surrendered Debentures, a properly
completed and duly executed Letter of Transmittal and any other documents
required by the Letter of Transmittal.
Each holder of Debentures that does not directly hold certificates for its
Debentures, but instead maintains its holdings indirectly in an account with a
broker or other intermediary (each, a "Beneficial Holder") must comply with the
procedures of such intermediary to convert such Beneficial Holder's Debentures.
Such an intermediary may maintain its holdings with The Depository Trust Company
("DTC"). In those instances, the procedures of DTC must also be followed for a
Beneficial Holder to convert its Debentures.
IT IS THE RESPONSIBILITY OF EACH BENEFICIAL HOLDER TO GIVE INSTRUCTIONS TO
ITS INTERMEDIARY IN SUFFICIENT TIME FOR THAT INTERMEDIARY, ANY HIGHER
INTERMEDIARIES AND THE RECORD HOLDER OF SUCH BENEFICIAL HOLDER'S DEBENTURES
(WHICH MAY BE DTC) TO TAKE THE ACTIONS WHICH ARE NECESSARY TO EFFECT CONVERSION
OF SUCH BENEFICIAL HOLDER'S DEBENTURES PRIOR TO 5:00 P.M., NEW YORK CITY TIME,
ON THE REDEMPTION DATE.
The Company will decide, in its sole discretion, all questions as to the
form of documents and the validity, eligibility (including time of receipt) and
acceptance for conversion by the Company of any Debentures. Any defect or
irregularity in the surrender or delivery of any document in connection with the
conversion of Debentures may result in such Debentures not being converted into
Common Stock and, therefore, being redeemed on the Redemption Date.
THE RIGHT TO CONVERT DEBENTURES INTO COMMON STOCK EXPIRES AT THE CLOSE OF
BUSINESS ON THE REDEMPTION DATE, TIME BEING OF THE ESSENCE. FROM AND AFTER THAT
DATE AND TIME, HOLDERS OF DEBENTURES WILL BE ENTITLED ONLY TO THE REDEMPTION
PRICE, WITHOUT INTEREST.
The Common Stock is traded on the NYSE under the symbol "IHS." On May 28,
1998, the reported closing price of the Common Stock on the NYSE Composite Tape
was $38.1875 per share. A holder of Debentures who converted such Debentures on
that date would have received Common Stock (and cash in lieu of a fractional
share) having a market value, based on such price on that date, of approximately
$1,188.78 for each $1,000 principal amount of Debentures converted. If such
Debentures were surrendered for redemption on the Redemption Date, such holder
would receive $1,059.83 in cash for each $1,000 principal amount.
AS LONG AS THE MARKET PRICE OF THE COMMON STOCK REMAINS AT OR ABOVE $34.05
PER SHARE, THE HOLDERS OF DEBENTURES WHO ELECT TO CONVERT WILL RECEIVE, UPON
CONVERSION, COMMON STOCK (INCLUDING CASH, IF ANY, RECEIVED IN LIEU OF FRACTIONAL
SHARES) HAVING A GREATER MARKET VALUE THAN THE AMOUNT OF CASH RECEIVABLE UPON
REDEMPTION OF SUCH DEBENTURES (BEFORE DEDUCTING ANY TAXES, COMMISSIONS AND OTHER
COSTS WHICH WOULD LIKELY BE INCURRED ON SALE OF THE COMMON STOCK RECEIVED UPON
CONVERSION OF THE DEBENTURES). IT SHOULD BE NOTED, HOWEVER, THAT THE PRICE OF
THE COMMON STOCK RECEIVED UPON CONVERSION WILL FLUCTUATE IN THE MARKET. NO
ASSURANCE CAN BE GIVEN AS TO THE PRICE OF THE COMMON STOCK AT ANY FUTURE TIME,
AND THE HOLDERS SHOULD EXPECT TO INCUR VARIOUS EXPENSES OF SALE IF SUCH COMMON
STOCK IS SOLD.
22
2. Sale in Open Market. Holders may sell the Debentures in the open market.
Holders of Debentures who wish to sell their Debentures in the open market
should consult with their own advisors regarding if and when they should sell
their Debentures and the tax consequences thereof. Holders may incur various
fees and expenses in connection with any such sale.
3. Redemption. Holders may allow the Debentures to be redeemed on June 29,
1998. Pursuant to the terms of the Indenture between the Company and The Bank of
New York, as Trustee, dated as of December 1, 1992, holders of the Debentures
will be entitled to receive upon redemption 103.0% of the principal amount
thereof, plus interest accruing from January 1, 1998 to the Redemption Date (the
"Redemption Price"). A holder of $1,000 principal amount of Debentures redeemed
at the Redemption Price would receive $1,059.83 in cash. Payment of the
Redemption Price will be made by the Paying and Conversion Agent upon surrender
of Debentures to the Paying and Conversion Agent by holders of Debentures
accompanied by a properly completed Letter of Transmittal. Each holder's
signature in a Letter of Transmittal must be guaranteed by an Eligible
Institution if the Redemption Price for Debentures surrendered by such holder
for redemption is to be paid other than to the registered holder of such
Debentures. Holders should inquire of such Eligible Institutions sufficiently in
advance of the Redemption Date whether there are any dollar limitations on the
principal amount of Debentures with respect to which signatures may be
guaranteed by such Eligible Institutions. On and after the Redemption Date,
interest will cease to accrue and holders of Debentures will not have any rights
as such holders other than the right to receive the Redemption Price. See
"Paying and Conversion Agent."
The alternatives available to the holders of Debentures are illustrated,
in tabular form, below, based upon the Redemption Price of $1,059.83. Reference
is made to "Certain Federal Income Tax Considerations."
ALTERNATIVES WITH RESPECT ASSUMPTIONS WITH RESPECT TO CONSIDERATION/VALUE RECEIVED
TO $1,000 PRINCIPAL AMOUNT $1,000 PRINCIPAL AMOUNT WITH RESPECT TO $1,000 PRINCIPAL
OF DEBENTURES OF DEBENTURES AMOUNT OF DEBENTURES
- ----------------------------- -------------------------------- ------------------------------------
Convert Debentures into Market price of Common Stock Common Stock (including cash
Common Stock greater than $34.05 in lieu of any fractional share)
$1,059.83/31.13) having a market value greater
than $1,059.83
Market price of Common Stock Common Stock (including cash
less than $34.05 in lieu of any fractional share)
$1,059.83/31.13) having a market value less than
$ 1,059.83
Redeem Debentures All cases $1,059.83 (in cash)
Sell Debentures in the open All cases Market price on the date of sale,
market less commissions and other ex-
penses
23
PAYING AND CONVERSION AGENT
The Bank of New York has been appointed as Paying and Conversion Agent for
the redemption and conversion of the Debentures. The surrender of Debentures for
conversion or redemption should be accompanied by a properly completed Letter of
Transmittal and be delivered to the Paying and Conversion Agent by hand
delivery, overnight courier or mail as follows:
REDEMPTION ONLY:
BY HAND: BY OVERNIGHT COURIER: BY MAIL:
(registered or certified mail recommended)
The Bank of New York The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street P.O. Box 11265
Fiscal Agencies-7E Fiscal Agencies-7E Church Street Station
New York, NY 10286 New York, NY 10286 New York, NY 10286
Attn: Fiscal Agencies
Dept. 101B-7E
CONVERSION ONLY:
BY HAND: BY OVERNIGHT COURIER: BY MAIL:
(registered or certified mail recommended)
The Bank of New York The Bank of New York The Bank of New York
101 Barclay Street 101 Barclay Street P.O. Box 11265
Reorg. Dept.-7E Reorg. Dept.-7E Church Street Station
New York, NY 10286 New York, NY 10286 New York, NY 10286
Attn: Reorg. Dept. 101B-7E
The Company will pay the Paying and Conversion Agent its reasonable and
customary fees for its services and will reimburse it for all of its reasonable
out-of-pocket expenses in connection therewith.
24
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general summary of certain United States federal income
tax considerations relevant to the conversion, redemption or sale of Debentures
by a beneficial owner of Debentures. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (including
proposed regulations and temporary regulations) promulgated thereunder, Internal
Revenue Service ("IRS") rulings, official pronouncements and judicial decisions,
all as in effect on the date hereof and all of which are subject to change,
possibly with retroactive effect, or different interpretations. This summary is
applicable only to holders who are "United States persons" for federal income
tax purposes and who hold Debentures as capital assets and who will hold any
Common Stock received on conversion of Debentures as capital assets.
Additionally, this summary is not applicable to non-United States persons who
have an indirect interest in Debentures or Common Stock through a United States
partnership, trust or estate, or other flow-through entity.
This summary does not discuss all the tax consequences that may be relevant
to a particular holder in light of the holder's particular circumstances and it
is not intended to be applicable in all respects to all categories of investors,
some of whom -- such as insurance companies, tax-exempt persons, financial
institutions, regulated investment companies, dealers in securities or
currencies, persons that hold the Debentures as a position in a "straddle," as
part of a "synthetic security," "hedge," "conversion transaction" or other
integrated investment, persons that enter into "short sales against the box" or
certain other "constructive sales" involving the Debentures or substantially
identical property, or persons whose functional currency is other than United
States dollars -- may be subject to different rules not discussed below. In
addition, this summary does not address any state, local or foreign tax
considerations that may be relevant to a particular holder.
HOLDERS OF DEBENTURES ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
CONVERSION, SALE OR REDEMPTION OF THE DEBENTURES IN LIGHT OF THEIR OWN
PARTICULAR CIRCUMSTANCES.
CONVERSION OF DEBENTURES
In general, no gain or loss will be recognized on conversion of Debentures
solely into Common Stock. The tax basis for the Common Stock received upon such
conversion will be equal to the tax basis of the Debentures converted (reduced
by the portion of such basis allocable to any fractional share of Common Stock
paid in cash). The holding period for the Common Stock generally will include
the holding period of the Debentures converted. Except as discussed below under
"Market Discount," a holder generally will recognize gain (or loss) upon a
conversion to the extent that any cash paid in lieu of a fractional share of
Common Stock exceeds (or is less than) its tax basis in such fractional share.
SALE OR REDEMPTION OF DEBENTURES
Generally, the sale or redemption of Debentures will result in taxable gain
or loss equal to the difference between (i) the amount realized (except to the
extent such amount is attributable to accrued interest not previously included
in income, which amount generally will be taxable as ordinary income) and (ii)
the holder's adjusted tax basis in the Debentures. Except as discussed below
under "Market Discount," such gain or loss will be capital gain or loss. Such
gain or loss will be long-term capital gain or loss if the holding period for
the Debentures exceeds one year. In the case of a non-corporate holder of
Debentures, any such capital gain will be subject to tax at a maximum federal
income tax rate of 28% if the holder's holding period in the Debentures is more
than one year but not more than 18 months and at a maximum federal income tax
rate of 20% if the holder's holding period in the Debentures is more than 18
months.
MARKET DISCOUNT
Special rules will apply to Debentures acquired with market discount. A
market discount note is, generally, a note the principal amount of which exceeds
the holder's basis in the note immediately after acquisition by more than a
specified de minimis amount. Generally, any gain recognized on the sale or
25
redemption of a market discount note will be treated as ordinary income to the
extent of the accrued market discount on such note not previously included in
income. In general, market discount accrues on a straight line basis or, at the
option of the holder, at a constant yield to maturity basis.
Although the matter is not free from doubt, a holder of a Debenture with
market discount should not have to recognize income on the conversion of the
Debenture, even with respect to market discount that has accrued but has not
been taken into account. Market discount not recognized on conversion will carry
over to the Common Stock acquired upon conversion thereof and will be recognized
as ordinary income to the extent of gain recognized upon the disposition of such
Common Stock, including any deemed disposition of fractional shares of Common
Stock for cash at the time of conversion.
SALE OR DISPOSITION OF COMMON STOCK
Subject to the discussion under "Market Discount" above, a holder will
recognize gain or loss on the sale or exchange of Common Stock received upon
conversion of a Debenture equal to the difference between the amount realized on
such sale or exchange and the holder's adjusted tax basis in the Common Stock
sold or exchanged.
BACKUP WITHHOLDING
A holder of a Debenture or Common Stock issued upon conversion of a
Debenture may be subject to backup withholding at a rate of 31% with respect to
the proceeds of a sale or redemption of such Debenture or Common Stock, as the
case may be, unless (i) such holder is a corporation or comes within certain
other exempt categories and, when required, demonstrates this fact or (ii)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable backup
withholding rules. The amount of backup withholding from a payment to a holder
will be allowed as a credit against the holder's federal income tax liability.
26
DESCRIPTION OF CAPITAL STOCK
The following summary does not purport to be complete and is subject in all
respects to the applicable provisions of the DGCL, IHS' Third Restated
Certificate of Incorporation, as amended (the "IHS Certificate"), and the terms
of IHS' Stockholders' Rights Plan, each of which is an exhibit to the
Registration Statement of which this Prospectus is a part.
AUTHORIZED CAPITAL STOCK
IHS is authorized to issue up to 150,000,000 shares of Common Stock, par
value $.001 per share, 46,425,880 shares of which were issued and outstanding at
May 27, 1998, and 15,000,000 shares of Preferred Stock, none of which is
outstanding as of the date hereof. Each outstanding share of Common Stock
currently has attached to it one preferred share purchase right, as described
under "-- Stockholders' Rights Plan."
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders and do not
have preemptive rights. Subject to preferences that may be applicable to any
outstanding shares of Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the IHS Board of Directors (the "IHS Board") out of funds legally available
therefor. All outstanding shares of Common Stock are fully paid and
nonassessable. In the event of any liquidation, dissolution or winding-up of the
affairs of IHS, holders of Common Stock will be entitled to share ratably in the
assets of IHS remaining after payment or provision for payment of all of IHS'
debts and obligations and liquidation payments to holders of any outstanding
shares of Preferred Stock.
PREFERRED STOCK
The IHS Board, without further stockholder authorization, is authorized to
issue shares of Preferred Stock in one or more series and to determine and fix
the rights, preferences and privileges of each series, including dividend rights
and preferences over dividends on the Common Stock and one or more other series
of Preferred Stock, conversion rights, voting rights (in addition to those
provided by law), redemption rights and the terms of any sinking fund therefor,
and rights upon liquidation, dissolution or winding up, including preferences
over the Common Stock and one or more series of Preferred Stock. Although IHS
has no present plans to issue any shares of Preferred Stock, the issuance of
shares of Preferred Stock, or the issuance of rights to purchase such shares,
may have the effect of delaying, deferring or preventing a change in control of
IHS or an unsolicited acquisition proposal.
IHS has designated 750,000 shares of Preferred Stock as Series A Junior
Participating Cumulative Preferred Stock, $.01 par value per share (the "Series
A Preferred Stock"). The rights, preferences and privileges of the Series A
Preferred Stock are set forth under "-- Stockholders' Rights Plan."
STOCKHOLDERS' RIGHTS PLAN
The following is a description of IHS' Stockholders' Rights Plan (the
"Rights Plan"). The description thereof set forth below is qualified in its
entirety by reference to the Rights Plan, a copy of which has been filed with
the Commission. See "Available Information" and "Incorporation of Certain
Documents by Reference."
The Rights Plan provides that one preferred stock purchase right (a
"Right") will be issued with each share of Common Stock (whether originally
issued or from IHS' treasury) prior to the Rights Distribution Date (as defined
herein). When exercisable, each Right entitles the registered holder to purchase
from IHS one one-hundredth of a share of Series A Preferred Stock at a price of
$135.00 per one one-hundredth of a share of Series A Preferred Stock (the
"Purchase Price"), subject to adjustment.
Until the earlier to occur of (i) 10 days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the outstanding
Common Stock or (ii) 10 business days (or such later date as may be deter-
27
mined by action of the IHS Board prior to such time as any person or group of
affiliated persons becomes an Acquiring Person) following the commencement of,
or announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding Common Stock (the earlier of such dates
being called the "Distribution Date"), the Rights will be evidenced by all the
Common Stock share certificates and will be transferred with the Common Stock
certificates, and no separate Rights certificates will be distributed. As soon
as practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Stock as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire on September 26, 2005 (the "Final Expiration Date"), unless the Final
Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by IHS, in each case, as described below.
The Purchase Price payable, and the number of shares of Series A Preferred
Stock or other securities or property issuable, upon exercise of the Right are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Series A Preferred Stock, (ii) upon the grant to holders of the Series A
Preferred Stock of certain rights or warrants to subscribe for or purchase
shares of Series A Preferred Stock with a conversion price less than the
then-current market price of the Series A Preferred Stock or (iii) upon the
distribution to holders of the Series A Preferred Stock of evidences of
indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in Series A Preferred Stock)
or of subscription rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths of a
share of Series A Preferred Stock issuable upon exercise of each Right are also
subject to adjustment in the event of a stock split of the Common Stock or a
stock dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such case,
prior to the Distribution Date.
Series A Preferred Stock purchasable upon exercise of the Rights will not
be redeemable. Each share of Series A Preferred Stock will be entitled to a
minimum preferential quarterly dividend payment of $1 per share but will be
entitled to an aggregate dividend of 100 times the dividend declared per share
of Common Stock. In the event of liquidation, the holders of the Series A
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $100 per share but will be entitled to an aggregate payment of 100 times the
payment made per share of Common Stock. Each share of Series A Preferred Stock
will have 100 votes, voting together with the shares of Common Stock. Finally,
in the event of any merger, consolidation or other transaction in which Common
Stock is exchanged, each share of Series A Preferred Stock will be entitled to
receive 100 times the amount received per share of Common Stock. These rights
are protected by customary antidilution provisions. The Series A Preferred Stock
will, if issued, be junior to any other series of Preferred Stock which may be
authorized and issued by IHS, unless the terms of any such other series provide
otherwise. Once the shares of Series A Preferred Stock are issued, the IHS
Certificate may not be amended in a manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of
two-thirds or more of the outstanding shares of Series A Preferred Stock, voting
separately as a class.
Because of the nature of the Series A Preferred Stock's dividend,
liquidation and voting rights, the value of the one one-hundredth interest in a
share of Series A Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.
In the event that IHS is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold
after a person or group has become an Acquiring Person, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a
28
market value of two times the exercise price of the Right. In the event that any
person or group of affiliated or associated persons becomes an Acquiring Person,
proper provision shall be made so that each holder of a Right, other than Rights
beneficially owned by the Acquiring Person (which will thereafter be void), will
thereafter have the right to receive upon exercise such number of one
one-hundredths of a share of Series A Preferred Stock as shall equal the result
obtained by (x) multiplying the then current Purchase Price by the number of one
one-hundredths of a share of Series A Preferred Stock for which a Right is then
exercisable and dividing that product by (y) 50% of the then current per share
market price of the Common Stock.
At any time after any person or group becomes an Acquiring Person and prior
to the acquisition by such person or group of 50% or more of the outstanding
Common Stock, the IHS Board may exchange the Rights (other than Rights owned by
such person or group which will have become void), in whole or in part, for
consideration consisting of one-half the securities of IHS that would be
issuable at such time upon exercise of one Right.
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Series A Preferred Stock will be
issued (other than fractions which are integral multiples of one one-hundredth
of a share of Series A Preferred Stock, which may, at the election of IHS, be
evidenced by depositary receipts) and in lieu thereof, an adjustment in cash
will be made based on the market price of the Series A Preferred Stock on the
last trading day prior to the date of exercise.
At any time prior to the tenth day following the acquisition by a person or
group of affiliated or associated persons of beneficial ownership of 20% or more
of the outstanding Common Stock, the IHS Board may redeem the Rights in whole,
but not in part, at a price of $.01 per Right (the "Redemption Price");
provided, however, that, for the 120-day period after any date of a change
(resulting from a proxy or consent solicitation) in a majority of the IHS Board
in office at the commencement of such solicitation, the Rights may only be
redeemed if (A) there are directors then in office who were in office at the
commencement of such solicitation and (B) the IHS Board, with the concurrence of
a majority of such directors then in office, determines that such redemption is,
in their judgment, in the best interests of IHS and its stockholders. The
redemption of the Rights may be made effective at such time on such basis with
such conditions as the IHS Board in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only right of the holders of Rights will be to receive
the Redemption Price.
The terms of the Rights may be amended by the IHS Board without the consent
of the holders of the Rights, except that from and after a Distribution Date no
such amendment may adversely affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of IHS, including, without limitation, the right to vote
or to receive dividends.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire IHS without
conditioning the offer on the Rights being redeemed or a substantial number of
Rights being acquired. The effect of the Rights may be to inhibit a change in
control of IHS (including through a third party tender offer at a price which
reflects a premium to the then prevailing trading price) that may be beneficial
to IHS stockholders. See "Risk Factors -- Effect of Certain Anti-Takeover
Provisions."
LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS
IHS' Certificate contains a provision eliminating or limiting director
liability to IHS and its stockholders for monetary damages arising from acts or
omissions in the director's capacity as a director. The provision does not,
however, eliminate or limit the personal liability of a director (i) for any
breach of such director's duty of loyalty to IHS or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under the DGCL for unlawful dividends or
unlawful stock purchases or redemptions, or (iv) for any transaction from which
the director derived an improper personal benefit. This provision offers persons
who serve on the IHS Board
29
protection against awards of monetary damages resulting from breaches of their
duty of care (except as indicated above). As a result of this provision, the
ability of IHS or a stockholder thereof to successfully prosecute an action
against a director for a breach of his duty of care is limited. However, the
provision does not affect the availability of equitable remedies such as an
injunction or rescission based upon a director's breach of his duty of care. The
Commission has taken the position that the provision will have no effect on
claims arising under the federal securities laws.
In addition, the IHS Certificate and the IHS By-laws provide for mandatory
indemnification rights, subject to limited exceptions, to any director, officer,
employee or agent of IHS who, by reason of the fact that he or she is a
director, officer, employee or agent of IHS, is involved in a legal proceeding
of any nature. Such indemnification rights include reimbursement for expenses
incurred by such director, officer, employee, or agent in advance of the final
disposition of such proceeding in accordance with the applicable provisions of
the DGCL. In addition, IHS has entered into indemnification agreements with its
officers and directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer & Trust Company, New York, New York.
30
STANDBY ARRANGEMENTS
Under the terms and subject to the conditions in the Standby Agreement
dated May 29, 1998 between the Company and the Purchaser (the "Standby
Agreement"), the Purchaser has agreed to purchase from the Company, at the
Company's option, for settlement on July 2, 1998, such number of shares of
Common Stock as would have been issuable upon conversion of any Debentures that
were not surrendered for conversion by the Close of Business on the Redemption
Date for a purchase price per share equal to $34.05.
On or prior to the Redemption Date, the Purchaser may also purchase
Debentures in the open market or otherwise. The Purchaser has agreed to convert
into Common Stock all Debentures owned by it. Such Common Stock may be used by
the Purchaser to cover any short position in the Common Stock established by the
Purchaser.
The Company has been advised by the Purchaser that it proposes to offer for
resale to the public at prices set from time to time by the Purchaser any shares
of Common Stock purchased from the Company or acquired upon conversion and not
used to cover any short position. The Purchaser may also make sales of such
shares to certain securities dealers at prices that may reflect concessions from
the prices at which such shares are then being offered to the public. The amount
of such concessions will be determined from time to time by the Purchaser.
Pursuant to the terms of the Standby Agreement and in consideration of its
obligations thereunder, the Company has agreed to pay the Purchaser the sum of
(1) $1,828,213 and (2) an additional $1.36 per share for Purchased Securities
(as defined below) and Compensible Conversion Securities (as defined below), but
the fee specified in clause (2) will be payable only if the Purchased Securities
and Compensible Conversion Securities exceed, in the aggregate, 178,988 shares
of Common Stock and then only with respect to that number of shares of Purchased
Securities and Compensible Conversion Securities that in the aggregate exceeds
178,988 shares. Additionally, the Purchaser has agreed to pay to the Company 50%
of the excess, if any, of (a) the aggregate proceeds received by the Purchaser
from the sale by the Purchaser of Purchased Securities (net of selling
concessions and other reasonable expenses of sale and any transfer taxes) over
(b) an amount equal to the aggregate number of Purchased Securities multiplied
by the average price paid by the Purchaser for such shares. For purposes hereof,
the term "Purchased Securities" means shares of Common Stock purchased by the
Purchaser pursuant to the Standby Agreement, and "Compensible Conversion
Securities" means shares of Common Stock acquired by the Purchaser upon
conversion of Debentures, or that the Purchaser obtained the right to acquire
upon conversion of Debentures, on a date when the last reported sale price of
the Common Stock on the NYSE was less than or equal to $34.05.
The Company has agreed to indemnify the Purchaser against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Purchaser may be required to make in respect thereof.
The Company and its executive officers have agreed, with certain
exceptions, from the date of the Standby Agreement through the Redemption Date
(and the Company and its executive officers have agreed that, if the Purchaser
purchases or receives, in the aggregate, more than 450,000 shares, for an
additional period of 90 days after the Redemption Date) without the prior
written consent of the Purchaser, not to offer, sell or contract to sell, or
otherwise dispose of (or enter into any transaction which is designed to, or
might reasonably be expected to, result in the disposition (whether by actual
disposition or effective economic disposition due to cash settlement or
otherwise) by the Company or such individuals), directly or indirectly, or
announce the offering of, any other shares of Common Stock or any securities
convertible into, or exchangeable for, shares of Common Stock.
The Purchaser has performed investment banking services for the Company
from time to time in the ordinary course of its business for which it has
received customary compensation, including acting as the financial advisor to
the Company in connection with the Company's acquisition of the Coram
Lithotripsy Division and as lead manager in connection with private offerings of
the Company's 9 1/2% Senior Subordinated Notes due 2007 in May 1997 and the
Company's 9 1/4% Senior Subordinated Notes due 2008 in September 1997. The
Purchaser may assist the Company in providing information regarding conversion
of Debentures but will not receive any compensation by the Company for any such
assistance.
31
In connection with the sale of Common Stock to the Purchaser pursuant to
the Standby Agreement, the Purchaser may purchase Debentures, which may result
in the maintenance of the price of the Common Stock at a level above that which
might otherwise prevail in the open market or may otherwise affect the market
price of the Common Stock. Such purchases are not required, and, if undertaken,
may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Common
Stock offered hereby will be passed upon for the Company by Fulbright & Jaworski
L.L.P., New York, New York and for the Purchaser by Dewey Ballantine LLP, 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 Statement in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing. The report of KPMG Peat Marwick LLP
refers to changes in accounting methods, in 1995, to adopt Statement of
Financial Accounting Standards No. 121 related to impairment of long-lived
assets and, in 1996, from deferring and amortizing pre-opening costs of medical
specialty units to recording them as expenses when incurred.
The consolidated financial statements of First American Health Care of
Georgia, Inc. as of December 31, 1994 and 1995 and for each of the years in the
three-year period ended December 31, 1995 have been incorporated by reference in
this Prospectus and in the Registration Statement from IHS' Current Report on
Form 8-K/A, as amended (dated October 17, 1996), in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. The report of KPMG Peat Marwick LLP contains an explanatory
paragraph regarding the uncertainty with respect to certain contingent payments
which may be payable under a settlement agreement with the Health Care Financing
Administration.
The consolidated financial statements of Community Care of America, Inc. as
of December 31, 1995 and 1996 and for each of the years in the three-year period
ended December 31, 1996 have been incorporated by reference in this Prospectus
and in the Registration Statement from IHS' Current Report on Form 8-K (dated
September 25, 1997) in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing. The
report of KPMG Peat Marwick LLP refers to the change in accounting method in
1996 to adopt Statement of Financial Accounting Standards No. 121 relating to
the impairment of long-lived assets.
The financial statements of RoTech Medical Corporation as of July 31, 1996
and 1997 and for each of the years in the three year period ended July 31, 1997
incorporated in this Prospectus and in the Registration Statement by reference
from IHS' Current Report on Form 8-K (dated October 21, 1997) have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their report, which
is incorporated herein by reference, and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
The financial statements of selected facilities operated by Horizon/CMS
Healthcare Corporation to be sold to Integrated Health Services, Inc. as of May
31, 1997 and 1996 and for each of the years in the two year period ended May 31,
1997 incorporated in this Prospectus and in the Registration Statement by
reference from IHS' 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.
32
================================================================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE PURCHASER.
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 AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
-----------------------------------
TABLE OF CONTENTS
PAGE
-----
Available Information ......................... 3
Incorporation of Certain Documents by
Reference .................................. 4
The Company ................................... 6
Risk Factors .................................. 8
Recent Developments ........................... 16
Use of Proceeds ............................... 17
Capitalization ................................ 17
Price Range of Common Stock and Divi-
dend Policy ................................ 18
Selected Consolidated Financial Data .......... 19
Redemption of the Debentures and Alter-
natives to Redemption ...................... 21
Paying and Conversion Agent ................... 24
Certain Federal Income Tax Considerations 25
Description of Capital Stock .................. 27
Standby Arrangements .......................... 31
Legal Matters ................................. 32
Experts ....................................... 32
================================================================================
================================================================================
3,579,766
SHARES
[IHS LOGO]
INTEGRATED HEALTH
SERVICES, INC.
COMMON STOCK
-----------------------------------
PROSPECTUS
-----------------------------------
May , 1998
SALOMON SMITH BARNEY
================================================================================
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:
ITEM AMOUNT
- --------------------------------------------------------------------- ---------------
Registration Fee - Securities and Exchange Commission .......... $ 39,073.15
New York Stock Exchange listing fee ............................ 12,600.00*
Legal fees and expenses ........................................ 100,000.00*
Accounting fees and expenses ................................... 100,000.00*
Printing and engraving costs ................................... 50,000.00*
Miscellaneous .................................................. 48,326.85*
-------------
Total ....................................................... $ 350,000.00*
=============
- ----------
* 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'
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.
Under Section 8 of the Standby Purchase Agreement, the Purchaser is
obligated under certain circumstances, to indemnify officers, directors and
controlling persons of the Company against certain liabilities, including
liabilities under the Securities Act of 1933. Reference is made to the form of
Standby Purchase Agreement filed as Exhibit 1 hereto.
ITEM 16. EXHIBITS.
1 -- Form of Standby Agreement.
4.1 -- Third Restated Certificate of Incorporation, as amended. (1)
4.2 -- Amendment to the Third Restated Certificate of Incorporation, dated
May 26, 1995. (2)
II-1
4.3 -- Certificate of Designation of Series A Junior Participating
Cumulative Preferred Stock. (3)
4.4 -- By-laws, as amended. (4)
4.5 -- Indenture, dated as of December 1, 1992, between Integrated Health
Services, Inc. and The Bank of New York (as successor in interest
to Signet Trust Company), as Trustee, relating to the Company's
6% Convertible Subordinated Debentures. (5)
4.6 -- Form of 6% Debenture (included in 4.5). (5)
5 -- Opinion of Fulbright & Jaworski L.L.P.
23.1 -- Consents of KPMG Peat Marwick LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- 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).
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Redemption
- ----------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
dated September 27, 1995.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(5) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-54458, effective December 9, 1992.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
II-2
(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
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 28, 1998.
INTEGRATED HEALTH SERVICES, INC.
By: /s/ Robert N. Elkins
------------------------------------
Robert N. Elkins, Chairman of the
Board, President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert N. Elkins and C. Taylor Pickett, jointly
and severally, his true and lawful attorneys-in-fact and agents, each with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
registration statement, and to file the same, with exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------- ---------------------------------- -------------
/s/ ROBERT N. ELKINS Chairman of the Board, President May 28, 1998
- ------------------------------- and Chief Executive Officer
(Robert N. Elkins) (Principal Executive Officer)
Director May , 1998
- -----------------------------
(Edwin M. Crawford )
/s/ KENNETH M. MAZIK Director May 28, 1998
- -----------------------------
(Kenneth M. Mazik)
/s/ ROBERT A. MITCHELL Director May 28, 1998
- -----------------------------
(Robert A. Mitchell)
/s/ CHARLES W. NEWHALL, III Director May 28, 1998
- -----------------------------
(Charles W. Newhall, III)
Director May , 1998
- -----------------------------
(Timothy F. Nicholson)
II-4
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- -------------
/s/ JOHN L. SILVERMAN Director May 28, 1998
- -----------------------------
(John L. Silverman)
Director May , 1998
- -----------------------------
(George H. Strong)
/s/ C. TAYLOR PICKETT Executive Vice President- May 28, 1998
- ----------------------------- Chief Financial Officer (Principal
(C. Taylor Pickett) Financial Officer)
/s/ W. BRADLEY BENNETT Executive Vice President- May 28, 1998
- ----------------------------- Chief Accounting Officer
(W. Bradley Bennett) (Principal Accounting Officer)
II-5
INDEX TO EXHIBITS
1 -- Form of Standby Agreement.
4.1 -- Third Restated Certificate of Incorporation, as amended. (1)
4.2 -- Amendment to the Third Restated Certificate of Incorporation, dated
May 26, 1995. (2)
4.3 -- Certificate of Designation of Series A Junior Participating
Cumulative Preferred Stock. (3)
4.4 -- By-laws, as amended. (4)
4.5 -- Indenture, dated as of December 1, 1992, between Integrated Health
Services, Inc. and The Bank of New York (as successor in interest
to Signet Trust Company), as Trustee, relating to the Company's
6% Convertible Subordinated Debentures. (5)
4.6 -- Form of 6% Debenture (included in 4.5). (5)
5 -- Opinion of Fulbright & Jaworski L.L.P.
23.1 -- Consents of KPMG Peat Marwick LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- 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).
99.1 -- Form of Letter of Transmittal
99.2 -- Form of Notice of Redemption
- ----------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(2) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(3) Incorporated by reference to the Company's Current Report on Form 8-K
dated September 27, 1995.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
(5) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-54458, effective December 9, 1992.