AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 24, 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)
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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)
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Copies of all communications, including all communications sent
to the agent for service, should be sent to:
Carl E. Kaplan, Esq. Leslie A. Glew, Esq.
Fulbright & Jaworski L.L.P. Senior Vice President and
Associate General Counsel Integrated Health Services, Inc.
666 Fifth Avenue 10065 Red Run Boulevard
New York, New York 10103 Owings Mills, Maryland 21117
(212) 318-3000 (410) 998-8400
(212) 752-5958(FAX) (410) 998-8500(FAX)
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Approximate Date of Commencement of Proposed Sale to the Public:
From time to time after the effective date of this Registration Statement.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF AOUMNT OF SHARES PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED TO BE REGISTERED PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $.001 par value per share
(including the Preferred Stock Purchase
Rights)(2) ............................ 1,396,691 $ 34.28125 $ 47,880,313.34 $ 12,927.69
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(1) 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 July 23, 1998.
(2) 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.
SUBJECT TO COMPLETION, DATED JULY 24, 1998
PROSPECTUS
1,396,691 SHARES
[GRAPHIC OMITTED]
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
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This Prospectus relates to 1,396,691 shares (the "Shares") of Common Stock,
par value $0.001 per share (together with the Preferred Stock Purchase Rights
associated therewith, the "Common Stock"), of Integrated Health Services, Inc.
("IHS" or the "Company") which are being offered for sale by certain selling
stockholders (the "Selling Stockholders"). See "Selling Stockholders." The
Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under
the symbol "IHS." On July 23, 1998, the closing price of the Common Stock, as
reported in the NYSE consolidated reporting system, was $32.875 per share.
The Company will not receive any of the proceeds from sales of the Shares
by the Selling Stockholders. The Shares may be offered from time to time by the
Selling Stockholders (and their donees and pledgees) through ordinary brokerage
transactions, in negotiated transactions or otherwise, at market prices
prevailing at the time of sale or at negotiated prices. See "Plan of
Distribution."
The Selling Stockholders may be deemed to be "Underwriters" as defined in
the Securities Act of 1933, as amended (the "Securities Act"). If any
broker-dealers are used to effect sales, any commissions paid to broker-dealers
and, if broker-dealers purchase any of the Shares as principals, any profits
received by such broker-dealers on the resale of the Shares, may be deemed to be
underwriting discounts or commissions under the Securities Act. In addition, any
profits realized by the Selling Stockholders may be deemed to be underwriting
commissions. All costs, expenses and fees in connection with the registration of
the Shares will be borne by the Company. Brokerage commissions, if any,
attributable to the sale of the Shares will be borne by the Selling Stockholders
(or their donees and pledgees).
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SEE "RISK FACTORS," WHICH BEGINS ON PAGE 6 OF THIS PROSPECTUS, 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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The date of this Prospectus is , 1998
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration becomes effective.
This prospectus shall not constitute an offer to sell or the solicitation of an
offer to buy nor shall there be any sale of these securities in any State in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities law of any such State.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities of the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material also may be obtained by mail from the
Public Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, reports, proxy
materials and other information concerning the Company may be inspected at the
offices of the NYSE, 20 Broad Street, New York, New York 10005. Additionally,
the Commission maintains a Web site on the Internet that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission and that is located at http://www.sec.gov.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock, reference is
hereby made to the Registration Statement. Statements contained herein
concerning the provisions of any contract, agreement or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. Copies of the Registration
Statement together with exhibits may be inspected at the offices of the
Commission as indicated above without charge and copies thereof may be obtained
therefrom upon payment of a prescribed fee.
Private Securities Litigation Reform Act Safe Harbor Statement. This
Prospectus (including the documents incorporated by reference herein) contains
certain forward-looking statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995) and information relating to IHS that
are based on the beliefs of the management of IHS, as well as assumptions made
by and information currently available to the management of IHS. When used in
this Prospectus, the words "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions are intended to identify
forward-looking statements. Such statements reflect the current views of IHS
with respect to future events and are subject to risks and uncertainties,
including those discussed under "Risk Factors," that could cause actual results
to differ materially from those contemplated in such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. IHS does not undertake any
obligation to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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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 filing of a post-effective amendment which indicates that all
Shares offered have been sold or which deregisters all Shares then remaining
unsold shall be deemed to be incorporated by reference in this Prospectus and to
be a part hereof from the date of filing of such documents. Any statement
contained herein or in a previously filed document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or was deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The information relating to IHS contained in this Prospectus should be read
together with the information in the documents incorporated by reference.
THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE)
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS IS
DELIVERED, UPON WRITTEN OR ORAL REQUEST. REQUESTS FOR SUCH DOCUMENTS SHOULD BE
DIRECTED TO INTEGRATED HEALTH SERVICES, INC., 10065 RED RUN BOULEVARD, OWINGS
MILLS, MARYLAND 21117, ATTENTION: MARC B. LEVIN, EXECUTIVE VICE
PRESIDENT-INVESTOR RELATIONS, TELEPHONE: (410) 998-8400.
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THE COMPANY
Integrated Health Services, Inc. ("IHS" or the "Company") is one of the
nation's leading providers of post-acute healthcare services. Post-acute care is
the provision of a continuum of care to patients following discharge from an
acute care hospital. IHS' post-acute care services include subacute care,
skilled nursing facility care, home respiratory care, home health nursing care,
other homecare services and contract rehabilitation, hospice, lithotripsy and
diagnostic services. The Company's post-acute care network is designed to
address the fact that the cost containment measures implemented by private
insurers and managed care organizations and limitations on government
reimbursement of hospital costs have resulted in the discharge from hospitals of
many patients who continue to require medical and rehabilitative care. IHS'
post-acute healthcare system is intended to provide cost-effective continuity of
care for its patients in multiple settings and enable payors to contract with
one provider to provide all of a patient's needs following discharge from acute
care hospitals. The Company believes that its post-acute care network can be
extended beyond post-acute care to also provide "pre-acute" care, i.e., services
to patients which reduce the likelihood of a need for a hospital stay. IHS'
post-acute care network currently consists of approximately 2,000 service
locations in 47 states and the District of Columbia.
The Company's post-acute care network strategy is to provide cost-effective
continuity of care for its patients in multiple settings, using geriatric care
facilities as platforms to provide a wide variety of subacute medical and
rehabilitative services more typically delivered in the acute care hospital
setting and using home healthcare to provide those medical and rehabilitative
services which do not require 24-hour monitoring. To implement its post-acute
care network strategy, IHS has focused on (i) developing market concentration
for its post-acute care services in targeted states due to increasing payor
consolidation and the increased preference of payors, physicians and patients
for dealing with only one service provider; (ii) expanding the range of home
healthcare and related services it offers to patients directly in order to
provide patients with a continuum of care throughout their recovery, to better
control costs and to meet the growing desire by payors for one-stop shopping;
and (iii) developing subacute care units. Given the increasing importance of
managed care in the healthcare marketplace and the continued cost containment
pressures from Medicare, Medicaid and private payors, the Company has been
restructuring its operations to enable IHS to focus on obtaining contracts with
managed care organizations and to provide capitated services. IHS' strategy is
to become a preferred or exclusive provider of post-acute care services to
managed care organizations and other payors.
In implementing its post-acute care network strategy, IHS has recently
focused on expanding its home healthcare services to take advantage of
healthcare payors' increasing focus on having healthcare provided in the
lowest-cost setting possible, recent advances in medical technology which have
facilitated the delivery of medical services in alternative sites and patients'
desires to be treated at home. Consistent with the Company's strategy, IHS in
October 1996 acquired First American Health Care of Georgia, Inc. ("First
American"), a provider of home health services, principally home nursing, in 21
states, primarily Alabama, California, Florida, Georgia, Michigan, Pennsylvania
and Tennessee. IHS in October 1997 acquired RoTech Medical Corporation
("RoTech"), a provider of home healthcare products and services, with an
emphasis on home respiratory, home medical equipment and infusion therapy,
principally to patients in non-urban areas (the "RoTech Acquisition"). In
October 1997, IHS also acquired (the "Coram Lithotripsy Acquisition") the
lithotripsy division (the "Coram Lithotripsy Division") of Coram Healthcare
Corporation ("Coram"), which provided lithotripsy services and equipment
maintenance in 180 locations in 18 states, in order to expand the mobile
diagnostic treatment and services it offers to patients, payors and other
providers. Lithotripsy is a non-invasive technique that utilizes shock waves to
disintegrate kidney stones. IHS intends to use the home healthcare setting and
the delivery franchise of the home healthcare branch and agency network to (i)
deliver sophisticated care, such as skilled nursing care, home respiratory
therapy and rehabilitation, outside the hospital or nursing home; (ii) serve as
an entry point for patients into the IHS post-acute care network; and (iii)
provide a cost-effective site for case management and patient direction.
IHS has also continued to expand its post-acute care network by increasing
the number of facilities it operates or manages. In September 1997, IHS acquired
Community Care of America, Inc. ("CCA"), which develops and operates skilled
nursing facilities in medically underserved rural communities (the
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"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 359 geriatric care facilities (303 owned or leased
and 56 managed), excluding 10 facilities acquired in the CCA Acquisition and 19
facilities acquired in the Facility Acquisition which are being held for sale,
and 158 MSUs located within 84 of these facilities. Specialty medical services
revenues, which include all MSU charges, all revenue from providing
rehabilitative therapies, pharmaceuticals, medical supplies and durable medical
equipment to all its patients, all revenue from its Alzheimer's programs and all
revenue from its provision of pharmacy, rehabilitation therapy, home healthcare,
hospice care and similar services to third-parties, constituted approximately
65%, 70% and 79% of net revenues during the years ended December 31, 1995, 1996
and 1997, respectively, and 79% and 71% of net revenues in the six months ended
June 30, 1997 and 1998, respectively. IHS also offers a wide range of basic
medical services as well as a comprehensive array of respiratory, physical,
speech, occupational and physiatric therapy in all its geriatric care
facilities. For the year ended December 31, 1997 and the six months ended June
30, 1998, approximately 35% and 31%, respectively, of IHS' revenues were derived
from home health and hospice care, approximately 44% and 41%, respectively, were
derived from subacute and other ancillary services, approximately 19% and 28%,
respectively, were derived from traditional basic nursing home services, and
approximately 2% and 1%, respectively, were derived from management and other
services. On a pro forma basis after giving effect to the acquisitions
consummated by IHS in 1997, for the year ended December 31, 1997, approximately
30% of IHS' revenues were derived from home health and hospice care,
approximately 43% were derived from subacute and other ancillary services,
approximately 26% were derived from traditional basic nursing home services and
the remaining approximately 1% were derived from management and other services.
Integrated Health Services, Inc. was incorporated in March 1986 as a
Pennsylvania corporation and reorganized as a Delaware corporation in November
1986. IHS' principal executive offices are located at 10065 Red Run Boulevard,
Owings Mills, Maryland 21117 and its telephone number is (410) 998-8400. Unless
the context indicates otherwise, the terms "IHS" and the "Company" include
Integrated Health Services, Inc. and its subsidiaries.
5
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below, as well as
those discussed elsewhere in this Prospectus (including the documents
incorporated by reference herein).
Risks Related to Substantial Indebtedness. The Company's indebtedness is
substantial in relation to its stockholders' equity. At June 30, 1998, IHS'
total long-term debt, including current portion, accounted for 68.7% of its
total capitalization. IHS also has significant lease obligations with respect to
the facilities operated pursuant to long-term leases, which aggregated
approximately $687.0 million at June 30, 1998. For the year ended December 31,
1997 and the six months ended June 30, 1998 the Company's rent expense was
$105.1 million ($163.7 million on a pro forma basis after giving effect to the
acquisitions consummated by IHS in 1997) and $71.0 million, respectively. In
addition, IHS is obligated to pay an additional $155 million in respect of the
acquisition of First American during 2000 to 2004, of which $117.3 million
(representing the present value thereof) has been recorded at June 30, 1998. The
Company's strategy of expanding its specialty medical services and growing
through acquisitions may require additional borrowings in order to finance
working capital, capital expenditures and the purchase price of any
acquisitions. The degree to which the Company is leveraged, as well as its rent
expense, could have important consequences to securityholders, including: (i)
IHS' ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions or general corporate purposes may be
impaired, (ii) a substantial portion of IHS' cash flow from operations may be
dedicated to the payment of principal and interest on its indebtedness and rent
expense, thereby reducing the funds available to IHS for its operations, (iii)
certain of IHS' borrowings bear, and will continue to bear, variable rates of
interest, which expose IHS to increases in interest rates, and (iv) certain of
IHS' indebtedness contains financial and other restrictive covenants, including
those restricting the incurrence of additional indebtedness, the creation of
liens, the payment of dividends and sales of assets and imposing minimum net
worth requirements. In addition, IHS' leverage may also adversely affect IHS'
ability to respond to changing business and economic conditions or continue its
growth strategy. There can be no assurance that IHS' operating results will be
sufficient for the payment of IHS' indebtedness. If IHS were unable to meet
interest, principal or lease payments, or satisfy financial covenants, it could
be required to seek renegotiation of such payments and/or covenants or obtain
additional equity or debt financing. If additional funds are raised by issuing
equity securities, the Company's stockholders may experience dilution. Further,
such equity securities may have rights, preferences or privileges senior to
those of the Common Stock. To the extent IHS finances its activities with
additional debt, IHS may become subject to certain additional financial and
other covenants that may restrict its ability to pursue its growth strategy and
to pay dividends on the Common Stock. There can be no assurance that any such
efforts would be successful or timely or that the terms of any such financing or
refinancing would be acceptable to IHS. See "-- Risks Related to Capital
Requirements."
In connection with IHS' offering of its 9 1/4% Senior Subordinated Notes
due 2008 in September 1997 (the "9 1/4% Senior Notes"), Standard & Poors ("S&P")
confirmed its B rating of IHS' other subordinated debt obligations, but with a
negative outlook, and assigned the same rating to the 9 1/4% Senior Notes. In
November 1997, S&P placed the Company's senior credit and subordinated debt
ratings on CreditWatch with negative implications due to the proposed Facility
Acquisition and in January 1998 S&P downgraded IHS' corporate credit and bank
loan ratings to B+ and its subordinated debt ratings to B- as a result of the
Facility Acquisition. S&P stated that the speculative grade ratings reflect the
Company's high debt leverage and aggressive acquisition strategy, uncertainties
with respect to future government efforts to control Medicare and Medicaid and
the unknown impact on IHS of recent changes in healthcare regulation providing
for a prospective payment system for both nursing homes and home healthcare. S&P
noted IHS' outlook was stable. In connection with the offering of the 9 1/4%
Senior Notes, Moody's Investors Service ("Moody's") downgraded to B2 the
Company's other senior subordinated debt obligations, but noted that the outlook
for the rating was stable, and assigned the new rating to the 9 1/4% Senior
Notes. Moody's stated that the rating action reflects Moody's concern about
6
the Company's continued rapid growth through acquisitions, which has resulted in
negative tangible equity of $114 million, making no adjustment for the $259
million of convertible debt of IHS outstanding. Moody's also stated that the
availability provided by the Company's new credit facility and the 9 1/4% Senior
Notes positioned the Company to complete sizable acquisition transactions using
solely debt. Moody's further noted that the rating reflects that there are
significant changes underway in the reimbursement of services rendered by IHS,
and that the exact impact of these changes is uncertain.
Risks Associated with Growth Through Acquisitions and Internal Development.
IHS' growth strategy involves growth through acquisitions and internal
development and, as a result, IHS is subject to various risks associated with
this growth strategy. The Company's planned expansion and growth require that
the Company expand its home healthcare services through the acquisition of
additional home healthcare providers and that the Company acquire, or establish
relationships with, third parties which provide post-acute care services not
currently provided by the Company and that the Company acquire, lease or acquire
the right to manage for others additional facilities. Such expansion and growth
will depend on the Company's ability to create demand for its post-acute care
programs, the availability of suitable acquisition, lease or management
candidates and the Company's ability to finance such acquisitions and growth.
The successful implementation of the Company's post-acute healthcare system,
including the capitation of rates, will depend on the Company's ability to
expand the amount of post-acute care services it offers directly to its patients
rather than through third-party providers. There can be no assurance that
suitable acquisition candidates will be located, that acquisitions can be
consummated, that acquired facilities and companies can be successfully
integrated into the Company's operations, or that the Company's post-acute
healthcare system, including the capitation of rates, can be successfully
implemented. The post-acute care market is highly competitive, and the Company
faces substantial competition from hospitals, subacute care providers,
rehabilitation providers and home healthcare providers, including competition
for acquisitions. The Company anticipates that competition for acquisition
opportunities will intensify due to the ongoing consolidation in the healthcare
industry. See "-- Risks Related to Managed Care Strategy" and "-- Competition."
The successful integration of acquired businesses, including First
American, RoTech, CCA, the Coram Lithotripsy Division and the facilities and
other businesses acquired from HEALTHSOUTH, is important to the Company's future
financial performance. The anticipated benefits from any of these acquisitions
may not be achieved unless the operations of the acquired businesses are
successfully combined with those of the Company in a timely manner. The
integration of the Company's recent acquisitions will require substantial
attention from management. The diversion of the attention of management, and any
difficulties encountered in the transition process, could have a material
adverse effect on the Company's operations and financial results. In addition,
the process of integrating the various businesses could cause the interruption
of, or a loss of momentum in, the activities of some or all of these businesses,
which could have a material adverse effect on the Company's operations and
financial results. There can be no assurance that the Company will realize any
of the anticipated benefits from its acquisitions. The acquisition of service
companies that are not profitable, or the acquisition of new facilities that
result in significant integration costs and inefficiencies, could also adversely
affect the Company's profitability.
IHS' current and anticipated future growth has placed, and will continue to
place, significant demands on the management, operational and financial
resources of IHS. The Company's ability to manage its growth effectively will
require it to continue to improve its operational, financial and management
information systems and to continue to attract, train, motivate, manage and
retain key employees. There can be no assurance that IHS will be able to manage
its expanded operations effectively. See "-- Risks Related to Capital
Requirements."
There can be no assurance that the Company will be successful in
implementing its strategy or in responding to ongoing changes in the healthcare
industry which may require adjustments to its strategy. If IHS fails to
implement its strategy successfully or does not respond timely and adequately to
ongoing changes in the healthcare industry, the Company's business, financial
condition and results of operations will be materially adversely affected.
7
Risks Related to Managed Care Strategy. Managed care payors and traditional
indemnity insurers have experienced pressure from their policyholders to curb or
reduce the growth in premiums paid to such organizations for healthcare
services. This pressure has resulted in demands on healthcare service providers
to reduce their prices or to share in the financial risk of providing care
through alternate fee structures such as capitation or fixed case rates. Given
the increasing importance of managed care in the healthcare marketplace and the
continued cost containment pressures from Medicare and Medicaid, IHS has been
restructuring its operations to enable IHS to focus on obtaining contracts with
managed care organizations and to provide capitated services. The Company
believes that its home healthcare capabilities will be an important component of
its ability to provide services under capitated and other alternate fee
arrangements. However, to date there has been limited demand among managed care
organizations for post-acute care network services, and there can be no
assurance that demand for such services will increase. Further, IHS has limited
experience in providing services under capitated and other alternate fee
arrangements and setting the applicable rates. Accordingly, there can be no
assurance that the fees received by IHS will cover the cost of services
provided. If revenue for capitated services is insufficient to cover the
treatment costs, IHS' operating results could be adversely affected. As a
result, the success of IHS' managed care strategy will depend in large part on
its ability to increase demand for post-acute care services among managed care
organizations, to obtain favorable agreements with managed care organizations
and to manage effectively its operating and healthcare delivery costs through
various methods, including utilization management and competitive pricing for
purchased services. Additionally, there can be no assurance that pricing
pressures faced by healthcare providers will not have a material adverse effect
on the Company's business, results of operations and financial condition.
Further, pursuing a strategy focused on risk-sharing fee arrangements
entails certain regulatory risks. Many states impose restrictions on a service
provider's ability to provide capitated services unless it meets certain
financial criteria, and may view capitated fee arrangements as an insurance
activity, subjecting the entity accepting the capitated fee to regulation as an
insurance company rather than merely a licensed healthcare provider accepting a
business risk in connection with the manner in which it is charging for its
services. The laws governing risk-sharing fee arrangements for healthcare
service providers are evolving and are not certain at this time. If the
risk-sharing activities of IHS require licensure as an insurance company, there
can be no assurance that IHS could obtain or maintain the necessary licensure,
or that IHS would be able to meet any financial criteria imposed by a state. If
the Company were precluded from providing services under risk-sharing fee
arrangements, its managed care strategy would be adversely affected. See
"-Uncertainty of Government Regulation."
Risks Related to Capital Requirements. IHS' growth strategy requires
substantial capital for the acquisition of additional home healthcare and
related service providers and geriatric care facilities. The effective
integration, operation and expansion of the existing businesses will also
require substantial capital. The Company expects to finance new acquisitions
from a combination of funds from operations, borrowings under its bank credit
facility and the issuance of debt and equity securities. IHS may raise
additional capital through the issuance of long-term or short-term indebtedness
or the issuance of additional equity securities in private or public
transactions, at such times as management deems appropriate and the market
allows. Any of such financings could result in dilution of existing equity
positions, increased interest and amortization expense or decreased income to
fund future expansion. There can be no assurance that acceptable financing for
future acquisitions or for the integration and expansion of existing businesses
and operations can be obtained. The Company's bank credit facility limits the
Company's ability to make acquisitions, and certain of the indentures under
which the Company's outstanding senior subordinated debt securities were issued
limit the Company's ability to incur additional indebtedness unless certain
financial tests are met. See "-- Risks Related to Substantial Indebtedness."
Risks Related to Recent Acquisitions. IHS has recently completed several
major acquisitions, including the acquisitions of First American, RoTech, CCA
and the Coram Lithotripsy Division and the Facility Acquisition, and is still in
the process of integrating those acquired businesses. The IHS Board of Directors
and senior management of IHS face a significant challenge in their efforts to
integrate the acquired businesses, including First American, RoTech, CCA, the
Coram Lithotripsy Division and the facilities and other businesses acquired from
HEALTHSOUTH. The dedication of management re-
8
sources to such integration may detract attention from the day-to-day business
of IHS. The difficulties of integration may be increased by the necessity of
coordinating geographically separated organizations, integrating personnel with
disparate business backgrounds and combining different corporate cultures. There
can be no assurance that there will not be substantial costs associated with
such activities or that there will not be other material adverse effects of
these integration efforts. Further, there can be no assurance that management's
efforts to integrate the operations of IHS and newly acquired companies will be
successful or that the anticipated benefits of the recent acquisitions will be
fully realized.
IHS has recently expanded significantly its home healthcare operations.
During the years ended December 31, 1996 and 1997 and the six months ended June
30, 1997 and 1998, home healthcare accounted for approximately 16.3%, 35.4%,
30.8% and 29.9%, 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
9
in the Medicare and Medicaid programs, reductions in Medicare reimbursement
rates and/or limitations on reimbursement rate increases, containment of
healthcare costs on an interim basis by means that could include a short-term
freeze on prices charged by healthcare providers, and permitting greater state
flexibility in the administration of Medicaid, could adversely affect the
Company. There can be no assurance that adequate reimbursement levels will
continue to be available for services to be provided by IHS which are currently
being reimbursed by Medicare, Medicaid or private payors. Significant limits on
the scope of services reimbursed and on reimbursement rates and fees could have
a material adverse effect on the Company's results of operations and financial
condition. See "-- Risk of Adverse Effect of Healthcare Reform." During the
years ended December 31, 1995, 1996 and 1997 and the six months ended June 30,
1997 and 1998, the Company derived approximately 55%, 60%, 66%, 67% and 63%,
respectively, of its patient revenues from Medicare and Medicaid. On a pro forma
basis after giving effect to the acquisitions and divestitures consummated by
IHS in 1996 and 1997, approximately 69% of the Company's patient revenues have
been derived from Medicare and Medicaid in each of the years ended December 31,
1996 and 1997.
The sources and amounts of the Company's patient revenues derived from the
operation of its geriatric care facilities and MSU programs are determined by a
number of factors, including licensed bed capacity of its facilities, occupancy
rate, the mix of patients and the rates of reimbursement among payor categories
(private, Medicare and Medicaid). Changes in the mix of the Company's patients
among the private pay, Medicare and Medicaid categories can significantly affect
the profitability of the Company's operations. The Company's cost of care for
its MSU patients generally exceeds regional reimbursement limits established
under Medicare. The success of the Company's MSU strategy will depend in part on
its ability to obtain per diem rate approvals for costs which exceed the
Medicare established per diem rate limits and by obtaining waivers of these
limitations. There can be no assurance that the Company will be able to obtain
the waivers necessary to enable the Company to recover its excess costs.
Managed care organizations and other third party payors have continued to
consolidate to enhance their ability to influence the delivery of healthcare
services. Consequently, the healthcare needs of a large percentage of the United
States population are provided by a small number of managed care organizations
and third party payors. These organizations generally enter into service
agreements with a limited number of providers for needed services. To the extent
such organizations terminate IHS as a preferred provider and/or engage IHS'
competitors as a preferred or exclusive provider, the business of IHS could be
materially adversely affected.
Risk of Adverse Effect of Healthcare Reform. In addition to extensive
existing government healthcare regulation, there are numerous initiatives on the
federal and state levels for comprehensive reforms affecting the payment for and
availability of healthcare services, including a number of proposals that would
significantly limit reimbursement under Medicare and Medicaid. It is not clear
at this time what proposals, if any, will be adopted or, if adopted, what effect
such proposals would have on the Company's business. Aspects of certain of these
healthcare proposals, such as cutbacks in the Medicare and Medicaid programs,
containment of healthcare costs on an interim basis by means that could include
a short-term freeze on prices charged by healthcare providers, and permitting
greater state flexibility in the administration of Medicaid, could adversely
affect the Company. IHS expects that there will continue to be numerous
initiatives on the federal and state levels for comprehensive reforms affecting
the payment for and availability of healthcare services, including proposals
that will further limit reimbursement under Medicare and Medicaid. It is not
clear at this time what proposals, if any, will be adopted or, if adopted, what
effect such proposals will have on IHS' business. See "-- Risks Related to
Recent Acquisitions" and "-- Reliance on Reimbursement by Third Party Payors."
There can be no assurance 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
10
prices of securities of companies in healthcare and related industries,
including the Company, and may similarly affect the price of the Company's
securities in the future. See "-- Uncertainty of Government Regulation."
The BBA provides, among other things, for a prospective payment system for
skilled nursing facilities to be implemented for cost reporting periods
beginning on or after July 1, 1998, a prospective payment system for home
nursing to be implemented for cost reporting periods beginning on or after
October 1, 1999, a reduction in current cost reimbursement for home nursing care
pending implementation of a prospective payment system, reductions (effective
January 1, 1998) in Medicare reimbursement for oxygen and oxygen equipment for
home respiratory therapy and a shift of the bulk of home health coverage from
Part A to Part B of Medicare. The BBA also instituted consolidated billing for
skilled nursing facility services, under which payments for non-physician Part B
services for beneficiaries no longer eligible for Part A skilled nursing
facility care will be made to the facility, regardless of whether the item or
service was furnished by the facility, by others under arrangement or under any
other contracting or consulting arrangement, effective for items or services
furnished on or after July 1, 1997. With respect to Medicaid, the BBA repeals
the so-called Boren Amendment, which required state Medicaid programs to
reimburse nursing facilities for the costs that are incurred by efficiently and
economically operated providers in order to meet quality and safety standards.
As a result, states now have considerable flexibility in establishing payment
rates. The inability of IHS to provide home healthcare and/or skilled nursing
services at a cost below the established Medicare fee schedule could have a
material adverse effect on IHS' home healthcare operations, post-acute care
network and business generally.
Under the new prospective payment system for Medicare reimbursement to
skilled nursing facilities, facilities will receive a pre-established daily rate
for each individual Medicare beneficiary being cared for, based on the activity
level of the patient. The pre-established daily rate will cover all routine,
ancillary and capital costs. The prospective payment system will be phased in
over four years on a blended rate of the facility-specific costs and the new
federal per diem rate. The blended rate for the first year of transition will
take 75% of the facility-specific per diem rate and 25% of the federal per diem
rate. In each subsequent transition year, the facility-specific per diem rate
component will decrease by 25% and the federal per diem rate component will
increase by 25%, ultimately resulting in a rate based 100% upon the federal per
diem. The facility-specific per diem rate is based upon the facility's 1995 cost
report for routine, ancillary and capital services, updated using a skilled
nursing market basket index. The federal per diem is calculated by the weighted
average of each facility's standardized costs, based upon the historical
national average per diem for freestanding facilities. Prospective payment for
IHS' owned and leased skilled nursing facilities will be effective beginning
January 1, 1999 for all facilities other than the facilities acquired from
HEALTHSOUTH, which will become subject to prospective payment on June 1, 1999.
Prospective payment for skilled nursing facilities managed by IHS will be
effective for each facility at the beginning of its first cost reporting period
beginning on or after July 1, 1998. The new prospective payment system will also
cover ancillary services provided to patients at skilled nursing facilities.
IHS anticipates that the prospective payment system for home nursing will
provide for prospectively established per visit payments to be made for all
covered services, which will then be subject to an annual aggregate per episode
limit at the end of the year. Home health agencies that are able to keep their
total expenses per visit during the year below their per episode annual limits
will be able to retain a specified percentage of the difference, subject to
certain aggregate limitations. Such changes could have a material adverse effect
on the Company and its growth strategy. The implementation of a prospective
payment system requires the Company to make contingent payments related to the
acquisition of First American of $155 million over a period of five years. The
failure to implement a prospective payment system for home nursing services in
the next several years could adversely affect IHS' post- acute 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 ser-
11
vices, certain capital expenditures, the quality of services provided and the
manner in which such services are provided and reimbursement for services
rendered. Changes in applicable laws and regulations or new interpretations of
existing laws and regulations could have a material adverse effect on licensure,
eligibility for participation, permissible activities, operating costs and the
levels of reimbursement from governmental and other sources. There can be no
assurance that regulatory authorities will not adopt changes or new
interpretations of existing regulations that could adversely affect the Company.
The failure to maintain or renew any required regulatory approvals or licenses
could prevent the Company from offering existing services or from obtaining
reimbursement. In certain circumstances, failure to comply at one facility may
affect the ability of the Company to obtain or maintain licenses or approvals
under Medicare and Medicaid programs at other facilities. In addition, in the
conduct of its business the Company's operations are subject to review by
federal and state regulatory agencies to assure continued compliance with
various standards, their continued licensing under state law and their
certification under the Medicare and Medicaid programs. In the course of these
reviews, problems are from time to time identified by these agencies. The
Company has to date been able to resolve these problems in a manner satisfactory
to the regulatory agencies without a material adverse effect on its business,
and the Company believes that it will be able to resolve all current reviews in
a manner satisfactory to the regulatory agencies without a material adverse
effect on its business. However, there can be no assurance that IHS will be able
to satisfactorily resolve all current or future reviews.
In 1995 the Health Care Financing Administration ("HCFA") implemented
stricter guidelines for annual state surveys of long-term care facilities and
expanded remedies available to enforce compliance with the detailed regulations
mandating minimum healthcare standards. Remedies include fines, new patient
admission moratoriums, denial of reimbursement, federal or state monitoring of
operations, closure of facilities and termination of provider reimbursement
agreements. These provisions eliminate the ability of operators to appeal the
scope and severity of any deficiencies and grant state regulators the authority
to impose new remedies, including monetary penalties, denial of payments and
termination of the right to participate in the Medicare and/or Medicaid
programs. The Company believes these new guidelines may result in an increase in
the number of facilities that will not be in "substantial compliance" with the
regulations and, as a result, subject to increased disciplinary actions and
remedies, including admission holds and termination of the right to participate
in the Medicare and/or Medicaid programs. In ranking facilities, survey results
subsequent to October 1990 are considered. As a result, the Company's
acquisition of poorly performing facilities could adversely affect the Company's
business to the extent remedies are imposed at such facilities.
In September 1997, President Clinton, in an attempt to curb Medicare fraud,
imposed a moratorium on the certification under Medicare of new home healthcare
companies, which moratorium expired in January 1998, and implemented rules
requiring home healthcare providers to reapply for Medicare certification every
three years. In addition, HCFA will double the number of detailed audits of home
healthcare providers it completes each year and increase by 25% the number of
home healthcare claims it reviews each year. IHS cannot predict what effect, if
any, these new rules will have on IHS' business and the expansion of its home
healthcare operations.
The Company is also subject to federal and state laws which govern
financial and other arrangements between healthcare providers. These laws often
prohibit certain direct and indirect payments or fee-splitting arrangements
between healthcare providers that are designed to induce or encourage the
referral of patients to, or the recommendation of, a particular provider for
medical products and services. These laws include the federal "Stark 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 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
12
certain business relationships between physicians and other providers of
healthcare services. Many states prohibit business corporations from providing,
or holding themselves out as a provider of, medical care. Possible sanctions for
violation of any of these restrictions or prohibitions include loss of licensure
or eligibility to participate in reimbursement programs (including Medicare and
Medicaid), asset forfeitures and civil and criminal penalties. These laws vary
from state to state, are often vague and have seldom been interpreted by the
courts or regulatory agencies. The Company seeks to structure its business
arrangements in compliance with these laws and, from time to time, the Company
has sought guidance as to the interpretation of such laws; however, there can be
no assurance that such laws ultimately will be interpreted in a manner
consistent with the practices of the Company. In addition to these anti-kickback
and self-referral prohibitions, there are various federal and state laws
prohibiting other types of fraud by healthcare providers, including criminal
provisions which prohibit filing false claims or making false statements to
receive payment or certification under Medicare or Medicaid. The false claims
statutes include the Federal False Claims Act, which allows any person to bring
a suit, known as a qui-tam action, alleging false or fraudulent Medicare and
Medicaid claims or other violations of the statute and to share in any amounts
paid by the entity to the government in fines or settlement. The federal and
state governments are devoting increasing attention and resources to anti-fraud
initiatives against healthcare providers.
Many states have adopted certificate of need or similar laws which
generally require that the appropriate state agency approve certain acquisitions
or capital expenditures in excess of defined levels and determine that a need
exists for certain new bed additions, new services and the acquisition of such
medical equipment or capital expenditures or other changes prior to beds and/or
services being added. Many states have placed a moratorium on granting
additional certificates of need or otherwise stated their intent not to grant
approval for new beds. To the extent certificates of need or other similar
approvals are required for expansion of the Company's operations, either through
facility acquisitions or expansion or provision of new services or other
changes, such expansion could be adversely affected by the failure or inability
to obtain the necessary approvals, changes in the standards applicable to such
approvals and possible delays in, and the expenses associated with, obtaining
such approvals.
The Company is unable to predict the future course of federal, state or
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Further changes in the regulatory framework could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "-- Risk of Adverse Effect of Healthcare Reform."
Competition. The healthcare industry is highly competitive and is subject
to continuing changes in the provision of services and the selection and
compensation of providers. The Company competes on a local and regional basis
with other providers on the basis of the breadth and quality of its services,
the quality of its facilities and, to a more limited extent, price. The Company
also competes with other providers in the acquisition and development of
additional facilities and service providers. The Company's current and potential
competitors include national, regional and local operators of geriatric care
facilities, acute care hospitals and rehabilitation hospitals, extended care
centers, retirement centers and community home health agencies, other home
healthcare companies and similar institutions, many of which have significantly
greater financial and other resources than the Company. In addition, the Company
competes with a number of tax-exempt nonprofit organizations which can finance
acquisitions and capital expenditures on a tax-exempt basis or receive
charitable contributions unavailable to the Company. New service introductions
and enhancements, acquisitions, continued industry consolidation and the
development of strategic relationships by IHS' competitors could cause a
significant decline in sales or loss of market acceptance of IHS' services or
intense price competition or make IHS' services noncompetitive. Further,
technological advances in drug delivery systems and the development of new
medical treatments that cure certain complex diseases or reduce the need for
healthcare services could 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.
13
Effect of Certain Anti-Takeover Provisions. IHS' Third Restated Certificate
of Incorporation and By-laws, as well as the Delaware General Corporation Law
(the "DGCL"), contain certain provisions that could have the effect of making it
more difficult for a third party to acquire, or discouraging a third party from
attempting to acquire, control of IHS. These provisions could limit the price
that certain investors might be willing to pay in the future for shares of
Common Stock. Certain of these provisions allow IHS to issue, without
stockholder approval, preferred stock having voting rights senior to those of
the Common Stock. Other provisions impose various procedural and other
requirements that could make it more difficult for stockholders to effect
certain corporate actions. In addition, the IHS Stockholders' Rights Plan, which
provides for discount purchase rights to certain stockholders of IHS upon
certain acquisitions of 20% or more of the outstanding shares of Common Stock,
may also inhibit a change in control of IHS. As a Delaware corporation, IHS is
subject to Section 203 of the DGCL, which, in general, prevents an "interested
stockholder" (defined generally as a person owning 15% or more of the
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) for three years following the date such person became
an interested stockholder unless certain conditions are satisfied.
Possible Volatility of Stock Price. There may be significant volatility in
the market price of the Common Stock. Quarterly operating results of IHS,
changes in general conditions in the economy, the financial markets or the
healthcare industry, or other developments affecting IHS or its competitors,
could cause the market price of the Common Stock to fluctuate substantially. In
addition, in recent years the stock market and, in particular, the healthcare
industry segment, has experienced significant price and volume fluctuations.
This volatility has affected the market price of securities issued by many
companies for reasons unrelated to their operating performance. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been initiated against such
company. Such litigation could result in substantial costs and a diversion of
management's attention and resources, which could have a material adverse effect
upon IHS' business, operating results and financial condition.
14
RECENT DEVELOPMENTS
Set forth below is certain unaudited summary information with respect to
the Company's operations for the three and six months ended June 30, 1997 and
1998 and balance sheet data as of June 30, 1998.
STATEMENT OF OPERATIONS:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
============================ ==============================
1998 1997 1998 1997
------------- ------------ -------------- -------------
($ IN THOUSANDS)
Net revenues
Basic medical services ........................ $ 232,349 $ 88,055 $ 467,248 $ 176,810
Specialty medical services .................... 575,829 360,113 1,188,025 722,802
Management services and other ................. 8,680 9,722 16,735 19,402
--------- -------- ----------- ---------
Total revenues .............................. 816,858 457,890 1,672,008 919,014
--------- -------- ----------- ---------
Costs and expenses
Operating, general and administrative ......... 607,739 356,871 1,257,876 727,299
Depreciation and amortization ................. 39,180 15,814 77,771 30,844
Rent .......................................... 35,580 25,786 70,994 49,795
Interest, net ................................. 64,025 23,224 130,490 44,645
Non-recurring charges(1) ...................... -- 21,072 -- 20,047
--------- -------- ----------- ---------
Total costs and expenses .................... 746,524 442,767 1,537,131 872,630
--------- -------- ----------- ---------
Earnings before income taxes and ex-
traordinary items .......................... 70,334 15,123 134,877 46,384
Federal and state income taxes ................. 28,837 5,898 55,300 18,090
--------- -------- ----------- ---------
Earnings before extraordinary items ......... 41,497 9,225 79,577 28,294
Extraordinary items(2) ......................... -- 18,168 -- 18,168
--------- -------- ----------- ---------
Net earnings (loss) ......................... $ 41,497 $ (8,943) $ 79,577 $ 10,126
========= ======== =========== =========
Per Common Share -- (Basic)
Earnings before extraordinary items ......... $ 0.90 $ 0.37 $ 1.78 $ 1.17
========= ======== =========== =========
Net earnings (loss) ......................... $ 0.90 $ (0.36) $ 1.78 $ 0.42
========= ======== =========== =========
Per Common Share -- (Diluted)
Earnings before extraordinary items ......... $ 0.76 $ 0.32 $ 1.50 $ 0.95
--------- -------- ----------- ---------
Net earnings (loss) ......................... $ 0.76 $ (0.18) $ 1.50 $ 0.43
========= ======== =========== =========
Weighted average shares (Basic) ................ 44,770 24,273
=========== =========
Weighted average shares (Diluted) .............. 56,081 34,951
=========== =========
- ----------
(1) Consists primarily of (i) a gain in the first quarter of $7,578,000 realized
on the shares of Capstone Pharmacy Services, Inc. common stock received in
the sale of the Company's pharmacy division, (ii) the write-off in the first
quarter of $6,555,000 of accounting, legal and other costs resulting from
the proposed merger transaction with Coram and (iii) the payment in the
second quarter to Coram of $21,000,000 in connection with the termination of
the proposed merger transaction with Coram.
(2) Extraordinary items relate to extinguishment of debt. During the three and
six months ended June 30, 1997, IHS recorded a loss on extinguishment of
debt of $29,784,000, representing approximately (i) $23,554,000 of cash
payments of premium and consent fees relating to the early extinguishment of
$214,868,000 aggregate principal amount of IHS' senior subordinated notes
and (ii) $6,230,000 of deferred financing costs written-off in connection
with the early extinguishment of such debt. Such loss, reduced by the
related income tax effect of $11,616,000, is presented in the statement of
operations for three and six months ended June 30, 1997 as an extraordinary
loss of $18,168,000.
15
BALANCE SHEET DATA:
JUNE 30,
1998
-----------------
($ IN THOUSANDS)
Cash and temporary investments .................... $ 88,669
Working capital ................................... 231,552
Total assets ...................................... 5,392,875
Long-term debt, including current portion ......... 3,187,277
Stockholders' equity .............................. 1,454,779
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 12 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. The sellers of two of these respiratory
businesses are Selling Stockholders hereunder. See "Selling Stockholders --
Transactions Involving Selling Stockholders."
In May 1998 the Company acquired eight companies which provide respiratory
therapy services for an aggregate of approximately $17.1 million and one company
which provides mobile diagnostic services for approximately $2.8 million. The
stockholders of the mobile diagnostic services company are Selling Stockholders
hereunder. See "Selling Stockholders -- Transactions Involving Selling
Stockholders."
In June 1998 the Company purchased a skilled nursing facility which it had
previously leased for approximately $12.0 million, eight companies which provide
respiratory therapy services for an aggregate of approximately $9.5 million, a
company which operates 30 skilled nursing facilities for approximately $53.0
million and a lithotripsy operation for approximately $11.9 million. The
stockholders of the owner of the skilled nursing facility, the stockholders of
the skilled nursing facility operator and the stockholders of the lithotripsy
operation are Selling Stockholders hereunder. See "Selling Stockholders --
Transactions Involving Selling Stockholders."
The Company has reached agreements in principle to purchase two skilled
nursing facilities for approximately $16.7 million, a lithotripsy operation for
approximately $10.2 million and 19 respiratory
16
companies for an aggregate of approximately $33.4 million. There can be no
assurance that any of these acquisitions will be consummated on these terms, on
different terms or at all.
In July 1998 the Company acquired a 69.03% partnership interest in a
general partnership which provides lithotripsy services for $1,000,000. The
seller of the partnership interest is a Selling Stockholder hereunder. See
"Selling Stockholders -- Transactions Involving Selling Stockholders."
On May 29, 1998, the Company called for redemption on June 29, 1998 all of
its outstanding 6% Convertible Subordinated Debentures due 2003 (the "6%
Debentures"). Of the $115,000,000 principal amount of 6% Debentures outstanding,
holders of $114,799,000 principal amount of the 6% Debentures converted their 6%
Debentures into an aggregate of 3,573,446 shares of Common Stock. Holders of the
remaining $201,000 principal amount of 6% Debentures received a cash redemption
aggregating $213,026 ($1,059.83 per $1,000 principal amount of the 6%
Debentures), equal to approximately $34.05 per underlying share of Common Stock
in lieu of conversion.
17
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information as of June 25, 1998
(except as otherwise indicated) and as adjusted to reflect the sale of the
Common Stock in the offering, as to the security ownership of the Selling
Stockholders. Except as set forth below, none of the Selling Stockholders has
held any position or office or had any other material relationship with the
Company or any of its predecessors or affiliates within the past three years.
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
AMERICAN MOBILE HEALTH SYSTEMS, INC.(1)
Peter Hanson ................................................... 32,050 32,050 0
Sol Lewin ...................................................... 27,667 27,667
CoreStates Bank, N.A., as escrow agent(2) ...................... 12,982 12,982 0
FIRST COMMUNITY CARE, INC.(3) ................................... 59,376 59,376 0
REGIONAL MEDICAL SUPPLY, INC.(4)
Regional Medical Supply, Inc. ................................... 12,856 12,856 0
Crestar Bank, as escrow agent ................................... 1,895 1,895 0
MEDICARE CONVALESCENT AIDS OF PINELLAS, INC. D/B/A/ MEDAIDS(5)
Arthur Tepper and Elizabeth Tepper, as Trustees FBO Arthur
Tepper UTD 7/14/78, as amended ............................... 29,857 29,857 0
Joseph D. Valenti, as Trustee FBO Joseph D. Valenti Revoca-
ble Trust DTD 6/10/88 ........................................ 28,573 28,573 0
Samuel J. Jarczynski and Helen Leann Jarczynski JTWROS ......... 10,901 10,901 0
Thomas A. Valenti, as Trustee FBO Thomas A. Valenti, Trust
DTD 5/22/96 .................................................. 2,785 2,785 0
Steven G. Tepper ............................................... 557 557 0
CoreStates Bank, N.A., as escrow agent(2) ...................... 10,384 10,384 0
PRIME MEDICAL SERVICES, INC.(6)
Lee T. McCarger ................................................ 25,972 25,972 0
Helen Leann Jarczynski ......................................... 4,328 4,328 0
Elizabeth Tepper ............................................... 2,597 2,597 0
Bernice Brieley ................................................ 1,731 1,731 0
CoreStates Bank, N.A. as escrow(2) ............................. 4,691 4,691 0
METROPOLITAN LITHOTRIPSY BUSINESS(7)
Downstate Lithotripter LLC ..................................... 89,253 89,253 0
Lithotripter Corporation ....................................... 32,993 32,993 0
Long Island Lithotripter, LLC .................................. 9,941 9,941 0
Metro/Litho L.P. ............................................... 155,475 155,475 0
18
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
PREMIERE ASSOCIATES, INC.(8)
Angell Family Limited Partnership .................. 3,219 3,219 0
Jewel Austin ....................................... 17,358 17,358 0
Bruce W. Covell, Jr. ............................... 17,358 17,358 0
Troy L. Curry, Jr. ................................. 17,358 17,358 0
Laverne P. Herzog(9) ............................... 316,769 316,769 0
M. Rebecca Muenchow ................................ 17,358 17,358 0
W. Stuart Swain(9) ................................. 316,769 316,769 0
HIALEAH(10)
Medical Associates IV, Limited Partnership ......... 68,259 68,259 0
INCON DEVELOPMENT, INC.(11) ......................... 39,012 39,012 0
CORAM HEALTHCARE CORPORATION(12) .................... 26,367 26,367 0
- ----------
(1) The shares of Common Stock offered hereby represent shares received in
connection with the Company's acquisition of American Mobile Health Systems,
Inc. pursuant to an Agreement and Plan of Reorganization dated as of May 7,
1998. Of the shares of Common Stock being registered hereunder, 12,982
shares are currently being held in escrow to secure indemnification
obligations and post-closing adjustments based on the collectibility of
receivables.
(2) Does not include shares of Common Stock held in escrow for other
acquisitions.
(3) The shares of Common Stock offered hereby represent shares received in
connection with the Company's acquisition of substantially all the assets of
First Community Care, Inc. pursuant to an Agreement for Sale and Purchase of
Assets and Restrictive Covenants dated as of April 29, 1998.
(4) The shares of Common Stock offered hereby represent shares received in
connection with the Company's acquisition of substantially all the assets of
Regional Medical Supply, Inc. pursuant to an Agreement for Sale and Purchase
of Assets and Restrictive Covenants dated as of March 20, 1998. Of the
shares of Common Stock being registered hereunder, 1,895 shares are
currently being held in escrow to secure indemnification obligations and
post-closing adjustments based on the collectibility of receivables.
(5) The shares of Common Stock offered hereby represent shares received in
connection with the acquisition by the Company of Medicare Convalescent Aids
of Pinellas, Inc. d/b/a Medaids pursuant to the Agreement and Plan of
Reorganization dated as of February 10, 1998. Of the shares of Common Stock
being registered hereunder, 10,384 shares are currently being held in escrow
to secure indemnification obligations and post-closing adjustments based on
the collectibility of receivables.
(6) The shares of Common Stock offered hereby represent shares received in
connection with the acquisition by the Company of Prime Medical Services,
Inc. pursuant to the Agreement and Plan of Reorganization dated as of
February 10, 1998. Of the shares of Common Stock being registered hereunder,
4,691 shares are currently being held in escrow to secure indemnification
obligations and post-closing adjustments based on the collectibility of
receivables.
(7) The shares of Common Stock offered hereby were received in connection with
the acquisition by the Company of substantially all the assets of Downstate
Lithotripter LLC, Lithotripter Corporation, Long Island Lithotripter, LLC
and Metro/Litho L.P. pursuant to the Membership Interest
Purchase Agreement dated as of April 7, 1998.
(8) The shares of Common Stock offered hereby represent shares received in
exchange for the stock of Premiere Associates, Inc. ("Premiere") pursuant to
an Agreement and Plan of Merger dated as of February 27, 1998. Under the
agreement, IHS is obligated to issue additional shares of Common Stock if
the working capital exceeds, and/or long-term liabilities are less than,
specified levels.
(9) Of the 316,769 shares being registered hereunder on behalf of the Selling
Stockholder, 23,087 shares are being held in escrow to secure
indemnification obligations and post-closing adjustments to the merger
consideration based on the levels of Premiere's working capital and
long-term liabilities, 65,964 shares are pledged to Premiere to secure loans
from Premiere and 47,953 shares are pledged to a subsidiary of Premiere to
secure the purchase price of certain assets purchased by the Selling
Stockholder from such subsidiary. The Selling Stockholders will use the
proceeds from the sale of the pledged shares to repay such obligations.
(10) The shares of Common Stock offered hereby represent shares received in
connection with the acquisition by the Company of the Hialeah Convalescent
Home skilled nursing facility pursuant to the Property Purchase Agreement
dated as of June 30, 1998.
(11) The shares of Common Stock offered hereby represent shares received in
settlement of certain litigation between the Company and Incon Development,
Inc..
(12) The shares of Common Stock offered hereby represent shares received in
connection with the acquisition by the Company of a 69.03% partnership
interest in South Georgia Lithotripsy Partners pursuant to a Partnership
Interest Purchase Agreement dated as of June 1, 1998.
19
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
On February 11, 1998, the Company acquired through merger all of the
outstanding capital stock of Medicare Convalescent Aids of Pinellas, Inc. d/b/a
Medaids, which operates a home respiratory and durable medical equipment
business in the State of Florida. The merger consideration was $3.3 million, of
which $2,683,000 was paid through the issuance of 83,057 shares of the Company's
Common Stock (the "Medaids Shares"). The Medaids Shares are being offered
hereby.
On February 11, 1998, the Company acquired through merger all of the
outstanding capital stock of Prime Medical Services, Inc., which operates a home
respiratory and durable medical equipment business in the State of Florida. The
merger consideration was $1.4 million, of which $1,174,000 was paid through the
issuance of 39,319 shares of the Company's Common Stock (the "Prime Medical
Shares"). The Prime Medical Shares are being offered hereby.
On April 8, 1998, the Company acquired substantially all the assets of
Regional Medical Supply, Inc., which operates a home respiratory and durable
medical equipment business in the State of New Mexico. The purchase price for
the assets and certain restrictive covenants agreed to by the seller and its
shareholders was $725,000, of which $575,000 was paid through the issuance of
14,751 shares of the Company's Common Stock (the "Regional Medical Shares").The
Regional Medical Shares are being offered hereby.
On April 30, 1998, the Company acquired substantially all the assets of
First Community Care, Inc., which operates a home respiratory and durable
medical equipment business in the State of New York. The purchase price for the
assets and certain restrictive covenants agreed to by the seller and its
shareholders was $8.6 million, of which $2,282,000 was paid through the issuance
of 59,376 shares of the Company's Common Stock (the "FCC Shares"). The FCC
Shares are being offered hereby.
On May 12, 1998, the Company acquired through merger all the outstanding
capital stock of American Mobile Health Systems, Inc., which provides mobile
x-ray, EKG, ultrasound, holter monitor, vision and audiology services and other
fixed site examinations. The merger consideration was $2.8 million, which was
paid through the issuance of 72,699 shares of the Company's Common Stock (the
"AMHS Shares"). The AMHS Shares are being offered hereby.
On June 18, 1998, the Company acquired all the assets of Downstate
Lithotripter LLC, Metro/ Litho L.P. and Long Island Lithotripter, LLC and all
the stock of Lithotripter Corporation, which provide office facilities,
equipment and management services to Metropolitan Lithotripter Associates, PC, a
professional corporation composed of approximately 200 urologists that provide
renal lithotripsy and other services in the Greater New York metropolitan area.
The purchase price for the assets and stock was $11.9 million, which was paid
through the issuance of 40% of the membership interests of Allied Urological
Services, LLC, a subsidiary of the Company which acquired the assets and stock,
and 287,662 shares of the Company's Common Stock (the "Litho Shares"). The Litho
Shares are being offered hereby.
On June 25, 1998, the Company acquired all the outstanding stock of
Premiere Associates Inc., which operates 30 skilled nursing facilities. The
merger consideration was $53.0 million, of which $26.2 million represents net
assumed liabilities and $26.8 million was paid through the issuance of 706,189
shares of Common Stock (the "Premiere Shares"). The Premiere Shares are being
offered hereby.
On June 30, 1998, the Company acquired the Hialeah Convalescent Home, a 276
bed skilled-nursing facility in Hialeah, Florida. The purchase price for the
facility was $12.0 million, of which $2.5 million was paid through the issuance
of 68,259 shares of the Company's Common Stock (the "Hialeah Shares"), $6.5
million was paid in cash and $3.0 million was paid through the issuance of
promissory notes due in five equal annual installments beginning January 1,
1999. The Company may, at its election, pay such notes in cash or through the
issuance of shares of Common Stock. The Hialeah Shares are being offered hereby.
20
On July 8, 1998, the Company settled certain litigation brought by Incon
Development, Inc. ("Incon") alleging breach of contract and other theories of
recovery under an agreement between the Company and Incon. The settlement
payment was $1.5 million, which was paid through the issuance of 39,012 shares
of the Company's Common Stock (the "Incon Shares"). The Incon Shares are being
offered hereby.
On July 9, 1998, the Company acquired a 69.03% partnership interest in
South Georgia Lithotripsy Partners, a Georgia general partnership engaged in the
lithotripsy services business, and certain related assets. The purchase price
for the partnership interest and the related assets was $1,000,000, which was
paid through the issuance of 26,367 shares of the Company's Common Stock (the
"Coram Shares"). The Coram Shares are being offered hereby.
21
PLAN OF DISTRIBUTION
The Company is registering the Shares on behalf of the Selling
Stockholders. All costs, expenses and fees in connection with the registration
of the Shares offered hereby will be borne by the Company. Brokerage
commissions, if any, attributable to the sale of Shares will be borne by the
Selling Stockholders (or their donees and pledgees).
Sales of Shares may be effected from time to time in transactions (which
may include block transactions) on the New York Stock Exchange, in negotiated
transactions, or a combination of such methods of sale, at fixed prices which
may be changed, at market prices prevailing at the time of sale, or at
negotiated prices. The Selling Stockholders have advised the Company that they
have not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities. The
Selling Stockholders may effect such transactions by selling Common Stock
directly to purchasers or to or through broker-dealers which may act as agents
or principals. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholder and/or the
purchasers of Common Stock for whom such broker-dealers may act as agents or to
whom they sell as principal, or both (which compensation as to a particular
broker-dealer might be in excess of customary commissions). The Selling
Stockholders and any broker-dealers that act in connection with the sale of the
Common Stock might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commission received by them and any profit
on the resale of the shares of Common Stock as principal might be deemed to be
underwriting discounts and commissions under the Securities Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. Liabilities
under the federal securities laws cannot be waived.
The holders of the Medaids Shares, as a group, and the holders of the Prime
Medical Shares, as a group, have each agreed not to sell in excess of 30,000
shares of Common Stock during any 30-day period, the holders of the AMHS Shares,
as a group, have agreed not to sell in excess of 50,000 shares of Common Stock
during any 30-day period, the holders of the Premiere Shares, as a group, have
agreed not to sell in excess of 130,000 shares in any 30-day period during the
first 120 days after the date of this Prospectus and thereafter not more than
100,000 shares in any 30-day period, and the holders of the Litho Shares, as a
group, have agreed not to sell more than 35,000 shares per day during the first
15 trading days after the date of this Prospectus and not more than 75,000
shares in any 30-day period thereafter. Each Selling Stockholder (other than
Incon and the holder of the Coram Shares) has agreed to effect sales solely
through Salomon Smith Barney.
Because the Selling Stockholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the Selling Stockholders
will be subject to prospectus delivery requirements under the Securities Act.
Furthermore, in the event of a "distribution" of the Shares, such Selling
Stockholder, any selling broker or dealer and any "affiliated purchasers" may be
subject to Regulation M under the Securities Exchange Act of 1934, as amended,
which Regulation would prohibit, with certain exceptions, any such person from
bidding for or purchasing any security which is the subject of such distribution
until his participation in that distribution is completed. In addition,
Regulation M under the Exchange Act prohibits, with certain exceptions, any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of Common Stock in connection with this offering.
The Selling Stockholders may be entitled under agreements entered into with
the Company to indemnification against liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
offered hereby have been passed upon for the Company by Marshall A. Elkins,
Esq., Executive Vice President and General Counsel of the Company. Mr. Elkins
is the brother of Robert N. Elkins, the Company's Chairman of the Board, Chief
Executive Officer and President. Mr. Elkins owns 17,299 shares of Common Stock
and options to purchase 336,535 shares of Common Stock.
22
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.
23
======================================================================== ===============================================
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY 1,396,691 Shares
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON IHS LOGO OMMITTED]
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 INTEGRATED HEALTH
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY SERVICES, INC.
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
-------------------------------
TABLE OF CONTENTS
PAGE COMMON STOCK
-----
Available Information ............... 2
Incorporation of Certain Documents by
Reference ........................ 3
The Company ......................... 4 -----------------
Risk Factors ........................ 6 PROSPECTUS
Recent Developments ................. 15 -----------------
Use of Proceeds ..................... 18
Selling Stockholders ................ 18
Plan of Distribution ................ 22
Legal Matters ....................... 22
Experts ............................. 23 July , 1998
=================================================================== ===============================================
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 .......... $ 12,927.69
Legal, accounting and printing fees and expenses ............... 35,000.00*
Miscellaneous .................................................. 2,072.31*
-----------
Total ....................................................... $ 50,000.00*
============
- ----------
* 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's
Registration Statement on Form S-1, No. 33-39339, effective March 31, 1992.
Section 145 of the DGCL also empowers the Company to purchase and maintain
insurance on behalf of any person who is or was an officer or director of the
Company against liability asserted against or incurred by him in any such
capacity, whether or not the Company would have the power to indemnify such
officer or director against such liability under the provisions of Section 145.
The Company has purchased and maintains a directors' and officers' liability
policy for such purposes.
The agreements pursuant to which the AMHS Shares, the FCC Shares, the
Regional Medical Shares, the Medaids Shares, the Prime Medical Shares, the Litho
Shares, the Premiere Shares, the Hialeah Shares and the Coram Shares were issued
(Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8 and 2.10, respectively) provide
for indemnification by the sellers thereunder of the Company and its controlling
persons, directors and officers for certain liabilities, including liabilities
arising under the Securities Act.
ITEM 16. EXHIBITS.
2.1 -- Agreement and Plan of Reorganization dated as of May 7, 1998 among
Integrated Health Services, Inc., IHS Acquisition No. 37, Inc. and
American Mobile Health Systems, Inc. and Peter Hanson and Sol Lewin.
II-1
2.2 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants
made as of April 29, 1998 by and among First Community Care, Inc.
("Seller") each of the holders of capital stock of Seller, Northeast
Medical Equipment, Inc. and Integrated Health Services, Inc.
2.3 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants
made as of March 20, 1998 by and among Regional Medical Supply, Inc.
("Seller"), Keith Thomas and Laurie Nuckols, the shareholders of
Seller, Integrated Health Services at Jefferson Hospital, Inc. and
Integrated Health Services, Inc.
2.4 -- Agreement and Plan of Merger dated as of February 10, 1998 among
Integrated Health Services, Inc. and RoTech Oxygen & Medical
Equipment, Inc. and Medicare Convalescent Aids of Pinellas, Inc.
d/b/a Medaids and the Shareholders of the Constituent Corporations.
2.5 -- Agreement and Plan of Merger dated as of February 10, 1998 among
Integrated Health Services, Inc. and RoTech Oxygen & Medical
Equipment, Inc. and Prime Medical Services, Inc. and the
Shareholders of the Constituent Corporations.
2.6 -- Membership Interest Purchase Agreement, dated as of April 7, 1998,
among Integrated Health Services, Inc., Downstate Lithotripter LLC,
Metro/Litho L.P., Long Island Lithotripter, LLC and Lithotripter
Corporation and Allied Urological Services, LLC, as amended as of
May 4, 1998.
2.7 -- Agreement and Plan of Merger dated as of February 27, 1998 among
Integrated Health Services, Inc., Integrated Health Services at
Hawthorne Nursing Center, Inc. Inc., and Pre- miere Associates, Inc.
and its shareholders.
2.8 -- Property Purchase Agreement dated as of June 30, 1998 among
Integrated Health Services, Inc., Integrated Health Services of
Florida at Hollywood Hills, Inc., Medical Associates IV Limited
Partnership, Hillco PCS (Hialeah) Limited Partnership, Medical Asset
Fund, LLC, Todd P. Robinson, Dr. John J. Sheehan, Sr. and Hialeah
Acquisition Fund, L.P.
2.9 -- Settlement Agreement, dated as of July 8, 1998, between Incon
Development, Inc. and Inte- grated Health Services, Inc.
2.10 -- Partnership Interest Purchase Agreement, dated as of June 1, 1998,
among West Coast Cam- bridge, Inc., Integrated Health Services,
Inc., T2 Medical, Inc. and Coram Healthcare Corporation.
4.1 -- Third Restated Certificate of Incorporation, as amended. (2)
4.2 -- Amendment to the Third Restated Certificate of Incorporation, dated
May 26, 1995. (3)
4.3 -- Certificate of Designation of Series A Junior Participating
Cumulative Preferred Stock (4)
4.4 -- By-laws, as amended. (5)
5 -- Opinion of Marshall A. Elkins, Esq.
23.1 -- Consents of KPMG Peat Marwick LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).
99 -- Certified Resolution.
- ----------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-41973).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 27, 1995.
(5) Incorporated by reference the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
II-2
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
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 July 23, 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 July 23, 1998
- ----------------------------- and Chief Executive Officer
(Robert N. Elkins) (Principal Executive Officer)
/s/ EDWIN M. CRAWFORD Director July 23, 1998
- -----------------------------
(Edwin M. Crawford)
/s/ KENNETH M. MAZIK Director July 23, 1998
- -----------------------------
(Kenneth M. Mazik)
/s/ ROBERT A. MITCHELL Director July 23, 1998
- -----------------------------
(Robert A. Mitchell)
/s/ CHARLES W. NEWHALL, III Director July 23, 1998
- -----------------------------
(Charles W. Newhall, III)
/s/ TIMOTHY F. NICHOLSON Director July 23, 1998
- -----------------------------
(Timothy F. Nicholson)
II-4
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- --------------
/s/ JOHN L. SILVERMAN Director July 23, 1998
- -----------------------------
(John L. Silverman)
/s/ GEORGE H. STRONG Director July 23, 1998
- -----------------------------
(George H. Strong)
/s/ C. TAYLOR PICKETT Executive Vice President- July 23, 1998
- ----------------------------- Chief Financial Officer (Principal
(C. Taylor Pickett) Financial Officer)
/s/ W. BRADLEY BENNETT Executive Vice President- July 23, 1998
- ----------------------------- Chief Accounting Officer
(W. Bradley Bennett) (Principal Accounting Officer)
II-5
INDEX TO EXHIBITS
EXHIBIT PAGE
NO. DESCRIPTION NO.
--- ----------- ---
2.1 -- Agreement and Plan of Reorganization dated as of May 7, 1998 among
Integrated Health Services, Inc., IHS Acquisition No. 37, Inc. and
American Mobile Health Systems, Inc. and Peter Hanson and Sol Lewin.
2.2 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants
made as of April 29, 1998 by and among First Community Care, Inc.
("Seller") each of the holders of capital stock of Seller, Northeast
Medical Equipment, Inc. and Integrated Health Services, Inc.
2.3 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants
made as of March 20, 1998 by and among Regional Medical Supply, Inc.
("Seller"), Keith Thomas and Laurie Nuckols, the shareholders of
Seller, Integrated Health Services at Jefferson Hospital, Inc. and
Integrated Health Services, Inc.
2.4 -- Agreement and Plan of Merger dated as of February 10, 1998 among
Integrated Health Services, Inc. and RoTech Oxygen & Medical
Equipment, Inc. and Medicare Convalescent Aids of Pinellas, Inc.
d/b/a Medaids and the Shareholders of the Constituent Corporations.
2.5 -- Agreement and Plan of Merger dated as of February 10, 1998 among
Integrated Health Services, Inc. and RoTech Oxygen & Medical
Equipment, Inc. and Prime Medical Services, Inc. and the
Shareholders of the Constituent Corporations.
2.6 -- Membership Interest Purchase Agreement, dated as of April 7, 1998,
among Integrated Health Services, Inc., Downstate Lithotripter LLC,
Metro/Litho L.P., Long Island Lithotripter, LLC and Lithotripter
Corporation and Allied Urological Services, LLC, as amended as of
May 4, 1998.
2.7 -- Agreement and Plan of Merger dated as of February 27, 1998 among
Integrated Health Services, Inc., Integrated Health Services at
Hawthorne Nursing Center, Inc. Inc., and Pre- miere Associates, Inc.
and its shareholders.
2.8 -- Property Purchase Agreement dated as of June 30, 1998 among
Integrated Health Services, Inc., Integrated Health Services of
Florida at Hollywood Hills, Inc., Medical Associates IV Limited
Partnership, Hillco PCS (Hialeah) Limited Partnership, Medical Asset
Fund, LLC, Todd P. Robinson, Dr. John J. Sheehan, Sr. and Hialeah
Acquisition Fund, L.P.
2.9 -- Settlement Agreement, dated as of July 8, 1998, between Incon
Development, Inc. and Inte- grated Health Services, Inc.
2.10 -- Partnership Interest Purchase Agreement, dated as of June 1, 1998,
among West Coast Cam- bridge, Inc., Integrated Health Services,
Inc., T2 Medical, Inc. and Coram Healthcare Corporation.
4.1 -- Third Restated Certificate of Incorporation, as amended. (2)
4.2 -- Amendment to the Third Restated Certificate of Incorporation, dated
May 26, 1995. (3)
4.3 -- Certificate of Designation of Series A Junior Participating
Cumulative Preferred Stock (4)
4.4 -- By-laws, as amended. (5)
5 -- Opinion of Marshall A. Elkins, Esq.
23.1 -- Consents of KPMG Peat Marwick LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Fulbright & Jaworski L.L.P. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).
99 -- Certified Resolution.
- ----------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-41973).
(2) Incorporated by reference to the Company's Registration Statement on Form
S-3, No. 33-77754, effective June 29, 1994.
(3) Incorporated by reference to the Company's Registration Statement on Form
S-4, No. 33-94130, effective September 15, 1995.
(4) Incorporated by reference to the Company's Current Report on Form 8-K dated
September 27, 1995.
(5) Incorporated by reference the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.