AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 1999
================================================================================
REGISTRATION NO. 333-
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
666 Fifth Avenue Integrated Health Services, Inc.
New York, New York 10103 10065 Red Run Boulevard
(212) 318-3000 Owings Mills, Maryland 21117
(212) 752-5958(Fax) (410) 998-8400
(410) 998-8500(Fax)
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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
====================================================================================================================================
TITLE OF EACH CLASS OF AMOUNT OF SHARES PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PRICE PER SHARE(1) PRICE PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.001 par value per share
(including the Preferred Stock Purchase
Rights)(2) ............................ 1,076,601 $ 5.125 $5,517,580.13 $1,534.00
====================================================================================================================================
(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 April 5, 1999.
(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 APRIL 6, 1999
PROSPECTUS
1,076,601 SHARES
[GRAPHIC OMITTED]
INTEGRATED HEALTH SERVICES, INC.
COMMON STOCK
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Our stockholders listed in this prospectus are offering and selling from
time to time an aggregate of shares of our Common Stock. All but two of these
stockholders obtained their shares in connection with our purchase of their
businesses, at which time we agreed to register their shares for resale. The
other two stockholders are deferred compensation plans for certain of our senior
executives; we contributed shares of our Common Stock, rather than cash, to
these plans in 1998.
We 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.
Our Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "IHS." On April 5, 1999, the closing price of our Common Stock,
as reported by the NYSE, was $4.375 per share.
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SEE "RISK FACTORS," WHICH BEGINS ON PAGE 6 OF THIS PROSPECTUS, FOR CERTAIN
INFORMATION THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THE SHARES BEING
OFFERED PURSUANT TO THIS PROSPECTUS.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE IHS COMMON STOCK BEING OFFERED
PURSUANT TO THIS PROSPECTUS OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is , 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
TABLE OF CONTENTS
PAGE
-----
About this Prospectus .............................. 2
Where You Can Find More Information ................ 2
Note Regarding Forward-Looking Statements .......... 3
The Company ........................................ 4
Risk Factors ....................................... 6
Use of Proceeds .................................... 14
Selling Stockholders ............................... 14
Plan of Distribution ............................... 17
Legal Matters ...................................... 17
Experts ............................................ 18
ABOUT THIS PROSPECTUS
This prospectus is a part of a registration statement on Form S-3 filed
by us with the Securities and Exchange Commission (the "SEC") to register
1,076,601 shares of our Common Stock on behalf of the Selling Stockholders. 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 SEC. Accordingly, you should refer to the registration
statement and its exhibits for further information about us and our Common
Stock. Copies of the registration statement and its exhibits are on file with
the SEC. Statements contained in this prospectus concerning the documents we
have filed with the SEC are not intended to be comprehensive, and in each
instance we refer you to the copy of the actual document filed as an exhibit to
the registration statement or otherwise filed with the SEC. Each such statement
is qualified in its entirety by such reference.
You should rely only on the information provided in this prospectus and the
registration statement. We have not authorized anyone to provide you with
different information. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of Common Stock.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, therefore, file reports,
proxy statements and other information with the SEC. You can read and copy all
of our filings at the SEC's public reference facilities in Washington, D.C., New
York, New York and Chicago, Illinois. You may obtain information on the
operation of the SEC's public reference facilities by calling the SEC at
1-800-SEC-0300. You can also read and copy all of our filings at the offices of
the NYSE, 20 Broad Street, New York, New York 10005. You may also obtain our SEC
filings from the SEC's Web site on the Internet that is located at
http://www.sec.gov.
The SEC allows us to "incorporate by reference" much of the information we
file with them (File No. 1-12306), which means that we can disclose important
information to you by referring you to those publicly available documents. The
information that we incorporate by reference is considered to be part of this
prospectus. Because we are incorporating by reference our future filings with
the SEC, this prospectus is continually updated and those future filings may
modify or supersede some or all of the information included or incorporated in
this prospectus. This means that you must look at all of the SEC filings that we
incorporate by reference to determine if any of the statements in this
prospectus or in any
2
document previously incorporated by reference have been modified or superseded.
This prospectus incorporates by reference the documents listed below and any
future filings we will make with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act until the selling stockholders sell all their shares
of stock:
(a) Our Annual Report on Form 10-K for the year ended December 31, 1998;
(b) Our Current Report on Form 8-K dated September 25, 1997 and filed
October 10, 1997, reporting our 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;
(c) Our Current Report on Form 8-K dated October 21, 1997 and filed
November 5, 1997, reporting our acquisition of RoTech Medical Corporation, as
amended by Form 8-K/A filed November 25, 1997;
(d) Our Current Report on Form 8-K dated December 31, 1997 and filed
January 14, 1998, reporting our 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;
(e) The description of our Common Stock contained in Item 1 of our
Registration Statement on Form 8-A dated September 1, 1993; and
(f) The description of our Preferred Stock Purchase Rights contained in
Item 1 of our Registration Statement on Form 8-A dated September 28, 1995.
The information about us contained in this prospectus should be read
together with the information in the documents incorporated by reference. You
may request a copy of any or all of these filings, at no cost, by writing or
telephoning us at 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.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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 about our
financial condition, results of operations and business that are based on our
current and future expectations. You can find many of these statements by
looking for words such as "estimate," "project," "believe," "anticipate,"
"intend," "expect" and similar expressions. Such statements reflect our current
views with respect to future events and are subject to risks and uncertainties,
including those discussed under "Risk Factors," that could cause our actual
results to differ materially from those contemplated in such forward-looking
statements. We caution you that no forward-looking statement is a guarantee of
future performance and you should not place undue reliance on these
forward-looking statements, which speak only as of the date of this prospectus.
We do 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 which may cause our
actual results to differ from those expressed or implied by the forward-looking
statements contained in this prospectus.
3
THE COMPANY
We are 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. Our post-acute care services
and products include:
(i) inpatient services, including subacute care, skilled nursing
facility care, contract rehabilitation and hospice services;
(ii) home respiratory care, infusion and durable medical equipment;
(iii) lithotripsy services; and
(iv) diagnostic services.
Our 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. Our post-acute healthcare system is
intended to provide cost-effective continuity of care for our patients and
enable payors to contract with one provider to provide all of a patient's needs
following discharge from acute care hospitals. Our post-acute care network
currently consists of over 1,700 service locations in 47 states and the District
of Columbia.
Our post-acute care network strategy is to provide cost-effective
continuity of care for our patients, 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. To
implement our post-acute care network strategy, we have focused on:
(i) developing market concentration for our 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 services we offer 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.
We presently operate 370 geriatric care facilities (285 owned or leased and
85 managed) and 17 specialty hospitals. We provide a wide range of basic medical
and subacute care services as well as a comprehensive array of respiratory,
physical, speech, occupational and physiatric therapy in all of our geriatric
care facilities. We have over 10,000 contracts to provide services, primarily
physical, occupational, speech and respiratory therapies, to skilled nursing
facilities, subacute care centers, assisted living facilities, hospitals and
other locations. We also provide mobile diagnostics such as portable x-ray and
EKG to patients in geriatric care facilities and other settings, lithotripsy
services on an outpatient basis, as well as diversified home respiratory care,
home infusion therapy and other pharmacy-related services and products and
durable medical equipment products from approximately 800 primarily non-urban
locations in 44 states and the District of Columbia.
In implementing our post-acute care network strategy, we focused in 1996,
1997 and 1998 on expanding the services we provide to take advantage of
healthcare payors' increasing focus on having healthcare provided in the
lowest-cost setting possible and recent advances in medical technology which
have facilitated the delivery of medical services in alternative sites.
Consistent with our strategy, in October 1997 we 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, we 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 we offer to patients, payors and other
providers. Lithotripsy is a non-invasive technique that
4
utilizes shock waves to disintegrate kidney stones. Following these
acquisitions, we continued to acquire smaller companies providing home
respiratory care and mobile diagnostic services. We are currently exploring the
sale of our home respiratory, infusion and durable medical equipment business.
We have also continued to expand our post-acute care network by increasing
the number of facilities we operate or manage. In September 1997, we acquired
Community Care of America, Inc. ("CCA"), which developed and operated skilled
nursing facilities in medically underserved rural communities (the "CCA
Acquisition"). CCA broadened our post-acute care network to include more rural
markets, which we believed would complement RoTech's business, which has also
focused on non-urban locations. In addition, in December 1997, we acquired from
HEALTHSOUTH Corporation ("HEALTHSOUTH") 139 owned, leased or managed long-term
care facilities (13 of which were subsequently sold) 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").
In 1996 and 1997 we also focused on providing home health nursing in order
to meet patients' desires to be treated at home. Consistent with this strategy,
in October 1996 we 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. Following the acquisition we continued to acquire smaller
companies providing home health nursing services. Prior to implementation of an
interim payment system for home health nursing, we intended 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 our post-acute care
network; and (iii) provide a cost-effective site for case management and patient
direction.
However, the delay in the implementation of a prospective payment system
("PPS") for Medicare home health nursing until after October 1, 2000 at the
earliest and a reduction in current cost reimbursement for Medicare home health
nursing pending implementation of a prospective payment system mandated in the
Balanced Budget Act of 1997 ("BBA"), enacted in August 1997, adversely impacted
our financial performance. Accordingly, in the third quarter of 1998 we
determined to exit the home health nursing business, and sold substantially all
of this business in the first quarter of 1999.
In 1999, we intend to focus primarily on ensuring that our core business is
operating efficiently and profitably under PPS. We also intend to take advantage
of attractive acquisition opportunities which we believe will occur as smaller
companies have difficulty in operating successfully under PPS.
We were incorporated in March 1986 as a Pennsylvania corporation, but we
reorganized as a Delaware corporation in November 1986. Our principal executive
offices are located at 10065 Red Run Boulevard, Owings Mills, Maryland 21117 and
our telephone number is (410) 998-8400. Unless the context indicates otherwise,
the terms "we," "us," "our," "IHS" and the "Company" include Integrated Health
Services, Inc. and our subsidiaries.
5
RISK FACTORS
In addition to the other information in this prospectus, you should
carefully consider the following factors in evaluating us and our 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).
OUR SUBSTANTIAL INDEBTEDNESS COULD LIMIT OUR GROWTH AND OUR ABILITY TO RESPOND
TO CHANGING CONDITIONS
We have a large amount of indebtedness when compared to the equity of our
stockholders. At December 31, 1998, our total long-term debt, including current
portion, accounted for 71.7% of our total capitalization. We also have
significant lease obligations with respect to the facilities operated pursuant
to long-term leases, which aggregated approximately $878.0 million at December
31, 1998. For the year ended December 31, 1998 our rent expense was $126.2
million. In addition, pursuant to the agreement relating to the acquisition of
First American, we are obligated to pay an additional $155.0 million in respect
of the acquisition of First American during 2000 to 2004. Our December 31, 1998
balance sheet includes as a liability the $122.1 million present value of this
$155.0 million payment. We have discontinued our home health nursing business
and sold substantially all of it.
Our strategy of 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 we are leveraged, as
well as our rent expense, could have important consequences to securityholders,
including:
(i) our 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 our cash flow from operations may be
dedicated to the payment of principal and interest on our
indebtedness and rent expense, thereby reducing the funds
available to us for our operations;
(iii) certain of our borrowings bear, and will continue to bear,
variable rates of interest, which exposes us to increases in
interest rates; and
(iv) certain of our 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, our substantial debt may also adversely affect our ability to
respond to changing business and economic conditions or continue our growth
strategy.
Our ability to satisfy our liabilities depends upon our future operating
performance, which may be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond our control. We
cannot assure you that our operating results will be sufficient to pay our debt.
If we are unable to meet interest, principal or lease payments, or satisfy
financial covenants, we could be required to seek renegotiation of such payments
and/or covenants or obtain additional equity or debt financing. If we raise
additional funds by issuing equity securities, our stockholders, including you,
may experience dilution. Further, such equity securities may have rights,
preferences or privileges senior to those of the Common Stock. To the extent we
finance activities with additional debt, we may become subject to certain
additional financial and other covenants that may restrict our ability to pursue
our growth strategy and to pay dividends on the Common Stock. We cannot assure
you that any such efforts would be successful or timely or that the terms of any
such financing or refinancing would be acceptable to us. See "-- We May Need
Additional Funds to Implement Our Growth Strategy."
In March 1999, Standard & Poors ("S&P") lowered our corporate credit and
bank loan ratings from B+ to B- and our subordinated debt rating from B- to CCC.
S&P stated that it took this action in light of our high debt leverage and the
impact of PPS. Our debt remains on CreditWatch with negative implications.
6
WE HAVE LIMITED EXPERIENCE WITH THE NEW MEDICARE PROSPECTIVE PAYMENT SYSTEM FOR
SKILLED NURSING FACILITIES
The BBA, enacted in August 1997, made numerous changes to the Medicare and
Medicaid programs that are significantly affecting our operations. The BBA
provides for the phase-in of PPS for skilled nursing facilities over a four year
period effective January 1, 1999 for our owned and leased facilities other than
the facilities we acquired in the Facility Acquisition, which facilities will
become subject to PPS on June 1, 1999. Under PPS, Medicare will pay skilled
nursing facilities a fixed fee per patient day based on the acuity level of the
patient to cover all post-hospital extended care routine service costs, as well
as substantially all items and services, such as rehabilitation therapy,
furnished during a covered stay for which reimbursement was formerly made
separately under Medicare. During the first three years of the phase-in,
reimbursement will be based on a blend of the facility's historical costs and
federal costs. Thereafter, the per diem rates will be based 100% on federal
costs. It is unclear what the impact of PPS will be on us, and we cannot assure
you that the implementation of PPS will not have a material adverse effect on
our results of operations and financial condition. To date, the implementation
of PPS has resulted in reduced demand for, and reduced operating margins from,
the rehabilitation services we provide to third parties because such providers
are admitting fewer Medicare patients and are reducing utilization of
rehabilitation services.
The profitability of our inpatient services segment will be significantly
affected by the amount of the federally established per diem rate and our cost
of providing care. There can be no assurance that the per diem rate will cover
our cost of providing care, particularly with respect to higher acuity patients.
Although our cost of care for subacute patients generally exceeded regional
reimbursement limits established under Medicare prior to the implementation of
PPS, we were historically able to recover a significant portion of these excess
costs. However, under PPS we will receive reimbursement at a pre-established
daily rate, regardless of our cost of care. We cannot assure you that this daily
rate, which over time will be based less on our historical cost of care and more
on a blended rate based on all facilities' costs of care, will be sufficient to
cover our actual cost of care and to provide us with a reasonable profit. As a
result, there can be no assurance that our financial condition and results of
operations will not be materially and adversely affected.
The BBA also reduced significantly Medicare payment amounts for oxygen and
oxygen equipment, and froze fees for durable medical equipment and certain
infusion levels. There can be no assurance that these fees will cover our cost
of providing such services. As a result, there can be no assurance that our
financial condition and results of operations will not be materially and
adversely affected.
SUCCESS OF OUR GROWTH STRATEGY MAY BE LIMITED BY OUR ABILITY TO ACQUIRE OTHER
BUSINESSES AND TO GROW THROUGH INTERNAL DEVELOPMENT
Our growth strategy involves growth through acquisitions and internal
development and, as a result, we are subject to various risks associated with
this growth strategy. Our planned expansion and growth require that we expand
our home respiratory, infusion and durable medical equipment services through
the acquisition of additional providers and that we acquire, or establish
relationships with, third parties which provide post-acute care services which
we do not currently provide and that we acquire, lease or acquire the right to
manage for others additional facilities. Such expansion and growth will depend
on our ability to create demand for our post-acute care programs, the
availability of suitable acquisition, lease or management candidates and our
ability to finance such acquisitions and growth. The successful implementation
of our post-acute healthcare system will depend on our ability to expand the
amount of post-acute care services we offer directly to our patients rather than
through third-party providers. However, we may not be able to locate suitable
acquisition candidates, complete acquisitions or successfully integrate acquired
facilities and companies into our operations. Even if we successfully accomplish
the foregoing, it will not guaranty that our post-acute healthcare system,
including the capitation of rates, can be successfully implemented. The
post-acute care market is highly competitive, and we face substantial
competition from hospitals, subacute care providers, rehabilitation providers
and home healthcare providers, including competition for acquisitions. We
anticipate that competition for acquisition opportunities will intensify due to
the ongoing consolidation in the healthcare industry. See "-- The Industry in
Which We Compete is Highly Competitive."
7
The successful integration of acquired businesses is important to our
future financial performance. We may not achieve the anticipated benefits from
any acquisition unless the operations of the acquired business are successfully
combined with ours in a timely manner. The integration of our acquisitions will
require substantial attention from our management. The diversion of the
attention of our management, and any difficulties encountered in the transition
process, could have a material adverse effect on our operations and financial
results. 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. In addition, the process of integrating the various
businesses could also 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 our operations and financial results. There can be no
assurance that we will realize any of the anticipated benefits from our
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 our profitability.
Our current and anticipated future growth has placed, and will continue to
place, significant demands on our management, operational and financial
resources. Our ability to manage our growth effectively will require us to
continue to improve our operational, financial and management information
systems and to continue to attract, train, motivate, manage and retain key
employees. We may not be able to manage our expanded operations effectively. See
"-- We May Need Additional Funds to Implement Our Growth Strategy."
We may not be successful in implementing our strategy or in responding to
ongoing changes in the healthcare industry which may require adjustments to our
strategy. If we are unable to implement our strategy successfully or do not
respond timely and adequately to ongoing changes in the healthcare industry, our
business, financial condition and results of operations will be materially
adversely affected.
WE MAY NEED ADDITIONAL FUNDS TO IMPLEMENT OUR GROWTH STRATEGY
Our growth strategy requires substantial capital for the acquisition of
additional service providers and geriatric care facilities. The effective
integration, operation and expansion of our existing businesses will also
require substantial capital. We expect to finance new acquisitions from a
combination of funds from operations, borrowings under our bank credit facility
and the issuance of debt and equity securities. We may raise additional capital
through the issuance of long-term or short-term debt or the issuance of
additional equity securities in private or public transactions, at such times as
we deem 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. We may not be able to
obtain financing for future acquisitions or for the integration and expansion of
existing businesses and operations on terms which we find acceptable or at all.
Our bank credit facility limits our ability to make acquisitions, and certain of
the indentures under which our outstanding senior subordinated debt securities
were issued limit our ability to incur additional indebtedness unless certain
financial tests are met. See "-- Our Substantial Indebtedness Could Limit Our
Growth and Our Ability to Respond to Changing Conditions."
WE RELY ON THIRD PARTY PAYORS TO PAY FOR OUR SERVICES
We receive payment for services rendered to patients from private insurers
and patients themselves, from the Federal government under Medicare, and from
the states in which we operate 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 us, which has adversely affected, and may
continue to adversely affect, our margins, particularly in our inpatient
facilities. Aspects of certain healthcare reform proposals, such as cutbacks in
the Medicare and Medicaid programs, reductions in Medicare reimbursement rates
8
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 us. The BBA makes
numerous changes to the Medicare and Medicaid programs which will significantly
impact our business and financial results. We cannot assure you that we will be
reimbursed by Medicare and private insurers in amounts that are adequate to
cover our costs of providing services and to provide us with a reasonable
profit. Significant limits on the scope of services reimbursed and on
reimbursement rates and fees could have a material adverse effect on our results
of operations and financial condition. See "-- Additional Healthcare Reform
Measures Could Adversely Affect Our Business." During the years ended December
31, 1996, 1997 and 1998, we derived approximately 62%, 46% and 46%,
respectively, of our patient revenues from Medicare and Medicaid.
The sources and amounts of our patient revenues derived from our operation
of our geriatric care facilities are determined by a number of factors,
including licensed bed capacity of our facilities, occupancy rate, the mix of
patients and the rates of reimbursement among payor categories (private,
Medicare and Medicaid). Changes in the mix of our patients among the private
pay, Medicare and Medicaid categories can significantly affect our
profitability. We also contract with private payors, including health
maintenance organizations and other managed care organizations, to provide
certain healthcare services to patients for a set per diem payment for each
patient. The rates we receive from those payors may not be adequate to cover our
cost of providing services to covered beneficiaries.
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 us as a preferred provider and/or engage our
competitors as a preferred or exclusive provider, our business could be
materially adversely affected. In addition, private payors, including managed
care payors, increasingly are demanding discounted fee structures or the
assumption by healthcare providers of all or a portion of the financial costs
through prepaid capitation.
ADDITIONAL HEALTHCARE REFORM MEASURES COULD ADVERSELY AFFECT OUR BUSINESS
In addition to extensive existing government healthcare regulation, in
recent years a number of laws have been enacted which have effected major
changes in the healthcare system, both nationally and at the state level. The
BBA makes numerous changes to the Medicare and Medicaid programs which will
significantly impact us. 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 (subsequently delayed to October 1, 2000), 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. Our inability to provide inpatient services
and/or home respiratory, infusion and durable medical equipment services at a
cost below the established Medicare fee schedule could have a material adverse
effect on our home healthcare operations, post-acute care network and business
generally. We expect 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 our business. See "-- We Rely on Third Party Payors to Pay for Our
Services." There can be no assurance that currently proposed or future
healthcare legislation or
9
other changes in the administration or interpretation of governmental healthcare
programs will not have an adverse effect on our business or that payments under
governmental programs will remain at levels comparable to present levels or will
be sufficient to cover the costs allocable to patients eligible for
reimbursement pursuant to such programs. Concern about the potential effects of
the proposed reform measures has contributed to the volatility of prices of
securities of companies in healthcare and related industries, including ours,
and may similarly affect the price of our Common Stock in the future. See "--
Government Regulation Could Adversely Affect Our Business ."
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 acuity
level of the patient. The pre-established daily rate will cover all routine,
ancillary and capital costs. It is anticipated that this prospective payment
system will be phased in over four years on a blended rate of the
facility-specific costs and the new federal per diem. 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 began January 1, 1999 for our owned and leased
skilled nursing facilities other than the facilities we acquired from
HEALTHSOUTH, which facilities will become subject to prospective payment on June
1, 1999. Prospective payment for skilled nursing facilities which we manage
becomes 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.
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, and we believe many
states will move towards a prospective payment type system similar to PPS.
While we have prepared certain estimates of the impact of PPS, it is not
possible to fully quantify the effect of the recent legislation, the
interpretation or administration of such legislation or any other governmental
initiatives on our business. Accordingly, there can be no assurance that the
impact of PPS will not be greater than estimated or that these legislative
changes or any future healthcare legislation will not adversely affect our
business.
We anticipate that federal and state governments will continue to review
and assess alternative healthcare delivery systems and payment methodologies.
There can be no assurance that future healthcare legislation or other changes in
the administration or interpretation of government healthcare programs will not
have an adverse effect on our operations.
GOVERNMENT REGULATION COULD ADVERSELY AFFECT OUR BUSINESS
The healthcare industry generally, including us, is subject to extensive
federal, state and local regulation governing licensure and conduct of
operations at existing facilities, construction of new facilities, acquisition
of existing facilities, additions of new services, certain capital expenditures,
the quality of services provided and the manner in which such services are
provided and reimbursement for services rendered. Changes in applicable laws and
regulations or new interpretations of existing laws and regulations could have a
material adverse effect on licensure, eligibility for participation, permissible
activities, operating costs and the levels of reimbursement from governmental
and other sources. There can be no assurance that regulatory authorities will
not adopt changes or new interpretations of existing regulations that could
adversely affect our business. The failure to maintain or renew any required
regulatory approvals or licenses could prevent us from offering existing
services or from obtaining reimbursement. In certain circumstances, our failure
to comply at one facility may affect our ability to obtain or maintain licenses
or approvals under Medicare and Medicaid programs at other facilities. In
10
addition, our 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 ordinary course of our business, our facilities receive notices of
deficiencies for failure to comply with various regulatory requirements.
Generally, the facility and the reviewing agency will agree upon the measures to
be taken to bring the facility into compliance with regulatory requirements. In
some cases or upon repeat violations, the reviewing agency may take adverse
actions against a facility, including the imposition of fines, temporary
suspension of admission of new patients to the facility, suspension or
decertification from participation in the Medicare or Medicaid programs, and, in
extreme circumstances, revocation of a facility's license. These adverse actions
may adversely affect the ability of the facility to operate or to provide
certain services and its eligibility to participate in the Medicare or Medicaid
programs. In addition, such adverse actions may adversely affect other
facilities we operate. There can be no assurance that we will be able to
maintain compliance with all regulatory requirements or that it will not be
required to expend significant amounts to do so.
We are also subject to federal and state laws which govern financial and
other arrangements between healthcare providers. These laws often prohibit
certain direct and indirect payments or fee-splitting arrangements between
healthcare providers that are designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider for medical
products and services. These laws include the federal "Stark Bills," which
prohibit, with limited exceptions, financial relationships between ancillary
service providers and referring physicians, and the federal "anti-kickback law,"
which prohibits, among other things, the offer, payment, solicitation or receipt
of any form of remuneration in return for the referral of Medicare and Medicaid
patients. The Office of Inspector General of the Department of Health and Human
Services (the "OIG"), the Department of Justice and other federal agencies
interpret these fraud and abuse provisions liberally and enforce them
aggressively. The BBA contains new civil monetary penalties for violations of
these laws and imposes an affirmative duty on providers to insure that they do
not employ or contract with persons excluded from the Medicare program. The BBA
also provides a minimum 10 year period for exclusion from participation in
Federal healthcare programs of persons convicted of a prior healthcare
violation. In addition, some states restrict certain business relationships
between physicians and other providers of healthcare services. Many states
prohibit business corporations from providing, or holding themselves out as a
provider of, medical care. Possible sanctions for violation of any of these
restrictions or prohibitions include loss of licensure or eligibility to
participate in reimbursement programs (including Medicare and Medicaid), asset
forfeitures and civil and criminal penalties. These laws vary from state to
state, are often vague and have seldom been interpreted by the courts or
regulatory agencies. We seek to structure our business arrangements in
compliance with these laws and, from time to time, we have 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 our practices.
In 1995, a major anti-fraud demonstration project, "Operation Restore
Trust," was announced by the OIG. A primary purpose for the project was to
scrutinize the activities of healthcare providers which are reimbursed under the
Medicare and Medicaid programs. Investigative efforts focused on skilled nursing
facilities, home health and hospice agencies and durable medical equipment
suppliers, as well as several other types of healthcare services. Operation
Restore Trust originally focused on California, Florida, Illinois, New York and
Texas, but has now been expanded to all states. This effort is focused on
problems with claims for services not rendered or not provided as claimed and
claims falsified to circumvent coverage limitations on medical supplies. We
expect these types of efforts to continue.
False claims are prohibited pursuant to criminal and civil statutes.
Criminal provisions prohibit filing false claims or making false statements to
receive payment or certification under Medicare or Medicaid, or failing to
refund overpayments or improper payments; offenses for violation are felonies
punishable by up to five years' imprisonment and/or $25,000 fines. Civil
provisions prohibit the knowing filing of a false claim or the knowing use of
false statements to obtain payment; penalties for violations are fines of not
less than $5,000 nor more than $10,000, plus treble damages, for each claim
filed. Suits alleging false claims can be brought by individuals, including
employees and competitors, who share in any amounts paid by the entity to the
government in fines or settlement. In addition to qui tam actions brought by
11
private parties, we believe that governmental enforcement activities have
increased at both the federal and state levels. If it were found that any of our
practices failed to comply with any of the anti-fraud provisions discussed in
the paragraphs above, our business could be materially adversely affected.
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 before we can expand our 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.
We are 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 our business, results of operations and financial condition.
See "-- Additional Healthcare Reform Measures Could Adversely Affect Our
Business."
THE INDUSTRY IN WHICH WE COMPETE IS HIGHLY COMPETITIVE
The healthcare industry is highly competitive and is subject to continuing
changes in the provision of services and the selection and compensation of
providers. We compete on a local and regional basis with other providers on the
basis of the breadth and quality of our services, the quality of our facilities
and, to a more limited extent, price. We also compete with other providers in
the acquisition and development of additional facilities and service providers.
Our 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 other home respiratory
care, infusion and durable medical equipment companies and similar institutions,
many of which have significantly greater financial and other resources than we
do. In addition, we compete 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 us. New service introductions
and enhancements, acquisitions, continued industry consolidation and the
development of strategic relationships by our competitors could cause a
significant decline in sales or loss of market acceptance of our services or
intense price competition or make our 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 our business. There can be no
assurance that we will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on our business, financial condition and results of operations. We also
compete with various healthcare providers with respect to attracting and
retaining qualified management and other personnel. Any significant failure by
us to attract and retain qualified employees could have a material adverse
effect on our business, results of operations and financial condition.
CERTAIN PROVISIONS OF DELAWARE LAW AND OUR CORPORATE GOVERNANCE DOCUMENTS MAY
AFFECT A THIRD PARTY'S ABILITY TO ACQUIRE IHS
Our 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 our Common Stock. Certain of these provisions allow
us 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, our Stockholders' Rights Plan,
which provides for discount purchase rights to certain of our stockholders upon
certain acquisitions of 20% or more of the outstanding shares of
12
Common Stock, may also inhibit a change in control of IHS. As a Delaware
corporation, we are 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.
OUR STOCK PRICE HAS BEEN VOLATILE
There has been significant volatility in the market price of our Common
Stock, and it is likely that the price of our Common Stock will fluctuate in the
future. Factors such as the following could have a significant effect on our
stock price:
o fluctuations in our operating results;
o changes in government regulations;
o developments affecting our competitors;
o changes in analysts' recommendations regarding us and our competitors;
and
o changes in general conditions in the economy, the financial markets or
the healthcare industry.
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 our business, operating results and financial condition.
13
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 November 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
-------------- ------------ -------------
FARMERS AND MERCHANTS BANK & TRUST, TRUSTEE(1) .......... 376,471 376,471 0
FBO Integrated Health Services, Inc. Supplemental
Deferred Compensation Plan
SMITH BARNEY PRIVATE TRUST COMPANY, TRUSTEE(2) .......... 282,353 282,353 0
FBO Integrated Health Services, Inc. Key
Employee Supplemental Executive Retirement Plan (Plan A)
ACCUCARE MEDICAL CORPORATION(3)
Walter/Hendry Revocable Trust of 1998 .................. 82,918 82,918 0
Steven Richards & Associates, Inc.(4) .................. 10,727 8,701 2,026
Paul A. Bernou ......................................... 3,455 3,455 0
CoreStates Bank, N.A., as escrow agent(5) .............. 33,898 33,898 0
AMERICAN OXYGEN SERVICES OF TENNESSEE, INC.(6)
Timothy O. Bates ....................................... 9,149 9,149 0
Michael Campbell ....................................... 27,448 27,448 0
Amerimed Healthcare, Inc. .............................. 18,299 18,299 0
Crestar Bank, as escrow agent(5) ....................... 6,165 6,165 0
THOMAS D. SCOTT(7) ...................................... 24,089 14,089 10,000
INDIANA RESPIRATORY CARE, INC.(8)
Indiana Respiratory Care, Inc. ......................... 47,850 47,850 0
Strausser, Inc.(9) ..................................... 2,696 2,696 0
CoreStates Bank, N.A., as escrow agent(5) .............. 16,849 16,849 0
FIRST COMMUNITY CARE, INC.(10)
Aaron Bowser ........................................... 232 80 152
Gary Colella ........................................... 2,779 958 1,821
Dacian Connell ......................................... 1,696 585 1,111
James Connell .......................................... 12,107 4,175 7,932
Maurice Jack Connell ................................... 9,204 3,174 6,030
Peter Cummiskey ........................................ 7,830 2,700 5,130
Francis Fermoile ....................................... 3,114 1,074 2,040
Elizabeth Fox .......................................... 1,696 585 1,111
Under Uniform Gifts To Minors
Emily Fox .............................................. 1,696 585 1,111
Under Uniform Gifts To Minors ........................
Patricia Connell Fox ................................... 12,305 4,243 8,062
Gregory Guay ........................................... 4,832 1,666 3,166
Richard Keilman ........................................ 175 60 115
John Koss .............................................. 175 60 115
Joan M. Myers .......................................... 175 60 115
George Navik ........................................... 175 60 115
14
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR SHARES OWNED AFTER
TO OFFERING BEING SOLD OFFERING
-------------- ------------ -------------
Peter Parisi ................................................. 175 60 115
Maureen DaCosta Redmond ...................................... 12,107 4,175 7,932
Zebadiah Redmond ............................................. 1,696 585 1,111
Joann Shaw Smith and James M. Shaw, Joint Tenants with
Rights of Survivorship ..................................... 1,105 381 724
Constance Verity ............................................. 350 121 229
David Verity ................................................. 7,830 2,700 5,130
Betty Watts .................................................. 232 80 152
Richard J. Wilwohl ........................................... 3,178 1,096 2,082
John Young ................................................... 5,763 1,988 3,775
MEDICAL CONVALESCENT AIDS OF PINELLAS, INC. D/B/A MEDAIDS(11)
Arthur Tepper and Elizabeth Tepper, as Trustees, FBO Arthur
Tepper UTD 7/14/78 ......................................... 88,477 47,245 37,532
Joseph D. Valenti, as Trustee, FBO Joseph D. Valenti
Revocable Trust UTD 6/10/98 ................................ 77,879 45,221 37,326
Samuel J. Jarczynski & Helen Leann Jarczynski JTWROS ......... 28,153 17,252 10,901
Thomas A. Valenti, as Trustee, FBO Thomas A. Valenti Trust
UTD 5/22/96 ................................................ 6,736 4,406 2,330
Steven G. Tepper ............................................. 1,442 885 557
- ----------
(1) Represents shares of Common Stock we contributed to our deferred
compensation plan for certain of our senior executives in lieu of cash.
(2) Represents shares of Common Stock we contributed to our retirement plan
for Dr. Robert N. Elkins, our Chairman of the Board, Chief Executive
Officer and President, in lieu of cash.
(3) Except for Steven Richards & Associates, Inc. (see note 4 below), these
stockholders received their shares from us in connection with our
acquisition of substantially all of the assets of Accucare Medical
Corporation ("Accucare") pursuant to an Agreement for Sale and Purchase of
Assets and Restrictive Covenants, dated as of September 25, 1998. Of these
shares, 33,898 shares are being held in escrow by our escrow agent,
CoreStates Bank, N.A., to secure indemnification obligations and purchase
price adjustments. Purchase price adjustments will be based upon a review
of the operating profit of Accucare from September 1, 1998 to August 31,
2000.
(4) This stockholder received its shares as a finder's fee in connection with
the sale of assets of Accucare.
(5) Does not include shares of Common Stock held in escrow in respect of other
acquisitions we made.
(6) These stockholders received their shares from us in connection with our
acquisition of substantially all of the assets of American Oxygen Services
of Tennessee, Inc. ("American Oxygen") pursuant to an Agreement for Sale
and Purchase of Assets, dated as of August 14, 1998. Of these shares, an
aggregate of 6,165 shares are being held in escrow by our escrow agent,
Crestar Bank, to secure indemnification obligations.
(7) This stockholder received his 14,089 shares from us as an engagement fee
in connection with our appointment as a manager of two skilled nursing
facilities pursuant to a Management Agreement, dated as of September 1,
1998.
(8) Except for Strausser, Inc. (see note 9 below), these stockholders received
their shares in connection with our acquisition of substantially all of
the assets of Indiana Respiratory Care, Inc. ("Indiana Respiratory")
pursuant to an Agreement for Sale and Purchase of Assets and Restrictive
Covenants, dated as of November 18, 1998. Of these shares, 16,849 shares
are being held in escrow by our escrow agent, CoreStates, Bank, N.A., to
secure indemnification obligations and purchase price adjustments.
Purchase price adjustments will be based upon a review of the operating
profit of Indiana Respiratory from December 1, 1998 to November 30, 2000.
(9) This stockholder received its shares as a finder's fee in connection with
the sale of assets of Indiana Respiratory.
(10) These stockholders received their shares from us as part of a post-closing
adjustment to the purchase price for substantially all of the assets of
First Community Care, Inc. ("First Community Care") pursuant to an
Agreement for Sale and Purchase of Assets and Restrictive Covenants dated
as of April 29, 1998.
(11) Information as of March 26, 1999. These stockholders received their shares
from us as part of post-closing adjustments to the purchase price in
connection with our acquisition 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.
TRANSACTIONS INVOLVING SELLING STOCKHOLDERS
Effective November 19, 1998, we contributed 376,471 shares of our Common
Stock, having a value of $4 million, from our treasury to our Supplemental
Deferred Compensation Plan for our senior officers. Our contribution of stock
was in lieu of a cash contribution.
15
Effective November 19, 1998, we contributed 282,353 shares of our Common
Stock, having a value of $3 million, from our treasury to our Key Employee
Supplemental Executive Retirement Plan (Plan A), in which Dr. Robert N. Elkins,
our Chairman of the Board, Chief Executive Officer and President, is the sole
participant. Our contribution of stock was in lieu of a cash contribution.
On September 25, 1998, we acquired substantially all of the assets of
Accucare Medical Corporation, which operates a home respiratory care and durable
medical equipment business in California. The purchase price for the assets and
certain restrictive covenants agreed to by the seller and its stockholders was
$3.5 million, less $646,500 in assumed liabilities, of which we paid $2,583,500
through the issuance of 128,972 shares of our Common Stock. The stockholders of
Accucare are now offering their shares pursuant to this prospectus.
On August 14, 1998, we acquired substantially all of the assets of American
Oxygen Services of Tennessee, Inc., which operates a home respiratory care and
durable medical equipment business in Florida and Tennessee. The purchase price
for the assets was approximately $2.0 million. We paid this purchase price
through the issuance of 61,061 shares of our Common Stock. The stockholders of
American Oxygen are now offering their shares pursuant to this prospectus.
On September 1, 1998, we acquired substantially all of the assets of
Pinnacle Health Care, Inc., which operates a home respiratory care and durable
medical equipment business in Florida. The purchase price for the assets and
certain restrictive covenants agreed to by the seller and its shareholders was
$223,000, all of which we paid in cash. In connection with this acquisition, our
subsidiary entered into a management agreement with a subsidiary of Pinnacle,
which operates two skilled nursing facilities in Louisiana, to manage the
facilities. In consideration for the appointment of our subsidiary as a manager
of these facilities, we issued to Mr. Scott, a principal owner of the Pinnacle
subsidiary, 14,089 shares of our Common Stock, which he is now offering pursuant
to this prospectus.
On November 18, 1998, we acquired substantially all of the assets of
Indiana Respiratory Care, Inc., which operates a home respiratory care and
durable medical equipment business in Indiana. The purchase price for the assets
and certain restrictive covenants agreed to by the seller and its stockholders
was $1.2 million, of which we paid $1.0 million through the issuance of 67,395
shares of our Common Stock. The stockholders of Indiana Respiratory are now
offering their shares pursuant to this prospectus.
On April 30, 1998, we acquired substantially all of the assets of First
Community Care, Inc., which operates a home respiratory and durable medical
equipment business in New York. The purchase price for the assets and certain
restrictive covenants agreed to by the seller and its stockholders was $8.6
million, of which we paid $2,282,000 through the issuance of 59,376 shares of
our Common Stock. On September 18, 1998, pursuant to the agreement between the
parties, we issued an additional 31,251 shares of our Common Stock to the
stockholders of First Community Care as a post-closing purchase price
adjustment. The stockholders of First Community Care are now offering their
additional shares pursuant to this prospectus.
On February 11, 1998, we 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
Florida. We paid $2,480,000 of the $3.7 million merger consideration through the
issuance of 83,057 shares of our Common Stock. In the first quarter of 1999,
pursuant to the agreement between the parties, we issued an additional 115,009
shares of our Common Stock to the former stockholders of Medaids as post-closing
purchase price adjustments. The former stockholders of Medaids are now offering
their additional shares pursuant to this prospectus.
16
PLAN OF DISTRIBUTION
We are registering the shares on behalf of the Selling Stockholders. We are
paying all costs, expenses and fees in connection with the registration of the
shares offered hereby. 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 us 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 stockholders of Accucare, as a group, have agreed not to sell in excess
of 75,000 shares of our Common Stock during any consecutive 30-day period. The
former stockholders of Medaids, as a group, and the former stockholders of Prime
Medical Services, Inc., as a group, have jointly agreed not to sell in excess of
30,000 shares of our Common Stock during any 30-day period. Each of the selling
stockholders (except for the former stockholders of American Oxygen and Indiana
Respiratory Care) has agreed that all sales of our Common Stock will be effected
solely through Salomon Smith Barney, Inc. as broker. The stockholders of Indiana
Respiratory Care, as a group, have agreed that all sales of their shares of our
Common Stock will be effected solely through A.G. Edwards & Sons, Inc., as
broker.
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 Exchange Act, 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
us 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 us by Fulbright & Jaworski L.L.P., New
York, New York. At April 1, 1999, partners of Fulbright & Jaworski L.L.P. owned
an aggregate of 300 shares of Common Stock.
17
EXPERTS
The consolidated financial statements of Integrated Health Services, Inc.
and subsidiaries as of December 31, 1997 and 1998 and for each of the years in
the three-year period ended December 31, 1998 have been incorporated by
reference in this prospectus and elsewhere in the Registration Statement in
reliance upon the report dated March 30, 1999 of KPMG LLP, independent certified
public accountants, incorporated by reference herein, and upon the authority of
said firm as experts in accounting and auditing.
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 dated April 14, 1997 of KPMG
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 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 dated
September 18, 1997 (October 21, 1997 as to Note 1), which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of selected facilities operated by Horizon/CMS
Healthcare Corporation to be sold to Integrated Health Services, Inc. as of May
31, 1997 and 1996 and for each of the years in the two year period ended May 31,
1997 incorporated in this prospectus and in the Registration Statement by
reference from IHS' Amendment No. 1 to Current Report on Form 8-K/A (dated
December 31, 1997) have been audited by Arthur Andersen LLP, independent public
accoutnants, as indicated in their report with respect thereto, which is
incorporated herein by reference and has been so incorporated in reliance upon
the authority of such firm as experts in accounting and auditing.
18
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 .......... $ 1,534.00
Legal, accounting and printing fees and expenses ............... 25,000.00*
Miscellaneous .................................................. 3,766.00*
------------
Total ....................................................... $ 40,000.00*
=============
- ----------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under the General Corporation Law of the State of Delaware ("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 Accucare Shares, the American Oxygen
Shares, the Indiana Respiratory Shares, the Pinnacle Health Shares, the First
Community Care Shares and the Medaids Shares were issued (Exhibits 2.1, 2.2,
2.3, 2.4, 2.5, 2.6 and 2.7, 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 for Sale and Purchase of Assets and Restrictive
Covenants made as of September 25, 1998 by and among Accucare
Medical Corporation, Robert D. Walter, Marcia Hendry-Walter and
Paul Bernou, Integrated of Garden Terrace, Inc. and Integrated
Health Services, Inc.
2.2 --Agreement for Sale and Purchase of Assets made as of August
14, 1998 by and among American Oxygen Services of Tennessee,
Inc., Timothy O. Bates, Michael Campbell, Amerimed, Healthcare,
Inc., IHS Acquisition XXVII, Inc. and Integrated Health
Services, Inc.
II-1
2.3 --Agreement for Sale and Purchase of Assets and Restrictive Covenants made
as of November 18, 1998 by and among Indiana Respiratory Care, Inc., J.
Bard Beesley, Integrated of Westcliff Park, Inc. and Integrated Health
Services, Inc.
2.4 --Agreement for Sale and Purchase of Assets and Restrictive Covenants made
as of September 1, 1998 by and among Pinnacle Health Care, Inc., Brad
Levine, Richard R. Rizzo, Harold Winters and Doug Shirley, and RoTech
Oxygen and Medical Equipment, Inc.
2.5 --Management Agreement made and entered into effective as of September 1,
1998 by and between Pinnacle Health Facilities of Louisiana, LLC and
Integrated Health Services at Franklin, Inc.
2.6 --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. (1)
2.7 --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. (1)
4.1 --Third Restated Certificate of Incorporation, as amended. (2)
4.2 --Amendment to the Third Restated Certificate of Incorporation, dated May
26, 1995. (3)
4.3 --Certificate of Designation of Series A Junior Participating Cumulative
Preferred Stock. (4) ' 4.4 -- By-laws, as amended. (5)
5 --Opinion of Fulbright & Jaworski L.L.P.
23.1 --Consents of KPMG LLP.
23.2 --Consent of Deloitte & Touche LLP.
23.3 --Consent of Arthur Andersen LLP
23.4 --Consent of Marshall A. Elkins, Esq. (included in Exhibit 5).
24 --Power of Attorney (included on signature page).
- ----------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-59891).
(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 April 6, 1999.
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 April 6, 1999
- ----------------------------- and Chief Executive Officer
(Robert N. Elkins) (Principal Executive Officer)
/s/ EDWIN M. CRAWFORD Director April 6, 1999
- -----------------------------
(Edwin M. Crawford)
/s/ KENNETH M. MAZIK Director April 6, 1999
- -----------------------------
(Kenneth M. Mazik)
/s/ ROBERT A. MITCHELL Director April 6, 1999
- -----------------------------
(Robert A. Mitchell)
/s/ CHARLES W. NEWHALL, III Director April 6, 1999
- -----------------------------
(Charles W. Newhall, III)
/s/ TIMOTHY F. NICHOLSON Director April 6, 1999
- -----------------------------
(Timothy F. Nicholson)
II-4
SIGNATURE TITLE DATE
- ------------------------------- ----------------------------------- --------------
/s/ JOHN L. SILVERMAN Director April 6, 1999
- -----------------------------
(John L. Silverman)
/s/ GEORGE H. STRONG Director April 6, 1999
- -----------------------------
(George H. Strong)
/s/ C. TAYLOR PICKETT Executive Vice President- April 6, 1999
- ----------------------------- Chief Financial Officer (Principal
(C. Taylor Pickett) Financial Officer)
/s/ W. BRADLEY BENNETT Executive Vice President- April 6, 1999
- ----------------------------- Chief Accounting Officer
(W. Bradley Bennett) (Principal Accounting Officer)
II-5
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION PAGE NO.
- ----------- ----------------------------------------------------------------------------------------------- ---------
2.1 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of September
25, 1998 by and among Accucare Medical Corporation, Robert D. Walter, Marcia
Hendry-Walter and Paul Bernou, Integrated of Garden Terrace, Inc. and Integrated Health
Services, Inc.
2.2 -- Agreement for Sale and Purchase of Assets made as of August 14, 1998 by and among
American Oxygen Services of Tennessee, Inc., Timothy O. Bates, Michael Campbell,
Amerimed, Healthcare, Inc., IHS Acquisition XXVII, Inc. and Integrated Health Services, Inc.
2.3 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of November
18, 1998 by and among Indiana Respiratory Care, Inc., J. Bard Beesley, Integrated of Westcliff
Park, Inc. and Integrated Health Services, Inc.
2.4 -- Agreement for Sale and Purchase of Assets and Restrictive Covenants made as of September
1, 1998 by and among Pinnacle Health Care, Inc., Brad Levine, Richard R. Rizzo, Harold
Winters and Doug Shirley, and RoTech Oxygen and Medical Equipment, Inc.
2.5 -- Management Agreement made and entered into effective as of September 1, 1998 by and
between Pinnacle Health Facilities of Louisiana, LLC and Integrated Health Services at
Franklin, Inc.
2.6 -- 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. (1)
2.7 -- 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. (1)
4.1 -- Third Restated Certificate of Incorporation, as amended. (2)
4.2 -- Amendment to the Third Restated Certificate of Incorporation, dated May 26, 1995. (3)
4.3 -- Certificate of Designation of Series A Junior Participating Cumulative Preferred Stock. (4)
4.4 -- By-laws, as amended. (5)
5 -- Opinion of Fulbright & Jaworski L.L.P.
23.1 -- Consents of KPMG LLP.
23.2 -- Consent of Deloitte & Touche LLP.
23.3 -- Consent of Arthur Andersen LLP
23.4 -- Consent of Marshall A. Elkins, Esq. (included in Exhibit 5).
24 -- Power of Attorney (included on signature page).
- ----------
(1) Incorporated herein by reference to the Company's Registration Statement on
Form S-3 (No. 333-59891).
(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.