REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HEALTHSOUTH CORPORATION
(Exact Namename of Registrantregistrant as Specifiedspecified in its Charter)
-----------------charter)
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DELAWARE 8062 63-0860407
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, ALABAMA 35243, (205) 967-7116
(Address, including Zip Code,zip code, and Telephone Number,telephone number, including Area Code,area code, of
Registrant's Principal Executive Offices)
-----------------registrant's principal executive offices)
RICHARD M. SCRUSHY, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER,
HEALTHSOUTH CORPORATION, ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, ALABAMA 35243,
(205) 967-7116
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
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Copies to:
MARKROBERT E. EZELL,LEE GARNER, ESQ. WILLIAM W. HORTON, ESQ. NATHANIEL M. CARTMELL III,FREDERIC T. SPINDEL, ESQ.
F. HAMPTON MCFADDEN, JR., ESQ. HEALTHSOUTH CORPORATION KAREN A. DEMPSEY, ESQ.PILLSBURY MADISON & SUTRO LLP
HASKELL SLAUGHTER & YOUNG, L.L.C. ONE HEALTHSOUTH PARKWAY PILLSBURY MADISON & SUTRO, LLP1100 NEW YORK AVENUE, N.W.
1200 AMSOUTH/HARBERT PLAZA BIRMINGHAM, ALABAMA 35243 235 MONTGOMERY STREETNINTH FLOOR
1901 SIXTH AVENUE NORTH (205) 967-7116 16TH FLOORWASHINGTON, D.C. 20005
BIRMINGHAM, ALABAMA 35203 SAN FRANCISCO, CALIFORNIA 94104(202) 861-3000
(205) 251-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Formform are to bebeing offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 offeringoffering. [ ] -------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNTCLASS OF
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATIONAMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE (1) FEES (2)
- ---------------------------------------------------------------------------------------------------------------------PRICE(1) REGISTRATION FEE(2)
6.875%10-3/4% Senior Notes due 2005 ......... $250,000,000 100% $250,000,000 $ 73,750.00
- ---------------------------------------------------------------------------------------------------------------------
7.0% SeniorSubordinated
Notes due 2008 ........... $250,000,000............. $350,000,000 100% $250,000,000 $ 73,750.00
- ---------------------------------------------------------------------------------------------------------------------
Total ................................ $500,000,000 100% $500,000,000 $ 147,500.00
=====================================================================================================================$350,000,000 $92,400
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) of the Securities Act of 1933, as amended (the "Securities
Act").Act.
(2) Calculated pursuant to Section 6(b) and Rule 457 of the Securities Act.
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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,SEC ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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SUBJECT TO COMPLETION, DATED AUGUST 14, 1998NOVEMBER 9, 2000
PRELIMINARY PROSPECTUS
[HEALTHSOUTH LOGO][GRAPHIC OMITTED]
OFFER TO EXCHANGE THE 6.875%$350,000,000 PRINCIPAL AMOUNT OF OUR
10-3/4% SENIOR NOTES DUE 2005 AND 7.0% SENIORSUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OF OUR OUTSTANDING
6.875%10-3/4% SENIOR NOTES DUE 2005 AND
7.0% SENIORSUBORDINATED NOTES DUE 2008
RESPECTIVELY
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MATERIAL TERMS OF THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _____________, 1998, UNLESS EXTENDED.
HEALTHSOUTH Corporation, a Delaware corporation (the "Issuer" or
"HEALTHSOUTH"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal", and, together with this Prospectus, the "Exchange Offer"), too The exchange its 6.875% Senior Notes due 2005 (the "New Notes due 2005") and its
7.0% Senior Notes due 2008 (the "New Notes due 2008", and together with the New
Notes due 2005, the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for an equal
principal amount of the Issuer's outstanding 6.875% Senior Notes due 2005 (the
"Old Notes due 2005") and 7.0% Senior Notes due 2008 (the "Old Notes due 2008",
and together with the Old Notes due 2005, the "Old Notes"), that were issued in
a transaction exempt from registration under the Securities Act. The New Notes
and the Old Notes are collectively referred to herein as the "Notes".
Any and all Old Notes that are validly tendered and not withdrawnoffer expires at or
prior to 5:00 p.m., New York City time, on the date on which the Exchange Offer
expires ("the Expiration Date"), which__________,
2000, unless extended.
o We will be ___________, 1998 (30 calendar
days following the commencement of the Exchange Offer) unless the Exchange Offer
is extended, will be acceptedexchange all outstanding notes that are validly tendered and not
validly withdrawn for exchange. Tenders of Old Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Offer is not conditioned upon any minimuman equal principal amount of Old Notes being tendered for exchange. However, the Exchange Offer is subject to
certain customary conditions,a new series of notes
which may be waived by the Issuer, and to the
terms of the Registration Rights Agreement, dated as of June 22, 1998 (the
"Registration Rights Agreement"), by and among the Issuer and Salomon Brothers
Inc, Goldman, Sachs & Co., J.P. Morgan Securities Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated, NationsBanc
Montgomery Securities LLC, Bear, Stearns & Co. Inc., Credit Suisse First Boston
Corporation, Deutsche Bank Securities Inc., PaineWebber Incorporated and Scotia
Capital Markets (USA) Inc. (the "Initial Purchasers"). Old Notes may only be
tendered in integral multiples of $1,000. See "The Exchange Offer".
The New Notes will be obligations of the Issuer and will be entitled to the
benefits of the same Indenture (as defined herein) that governs the Old Notes.
The form and terms of the New Notes are the same in all material respects as the
form and terms of the Old Notes, except that (i) the New Notes have been registered under the Securities Act and therefore will not bear legends
restrictingAct.
o You may withdraw tenders of outstanding notes at any time before the transfer thereof and (ii) holdersexchange
offer expires.
o The exchange of New Notesnotes will not be entitled to certain rights of holdersa taxable event for U.S. federal income tax
purposes.
o We will not receive any proceeds from the exchange offer.
o The terms of the Old Notes under the Registration
Rights Agreement, which rights will be terminated upon consummationnew series of notes are substantially identical to those of
the Exchange Offer. See "The Exchange Offer"outstanding notes, except for transfer restrictions and "Description of the New Notes".
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
The Old Notes will be redeemable as a whole or in part, at the option of
the Issuer, at any time at a redemption price equalregistration
rights relating to the greateroutstanding notes.
o You may tender outstanding notes only in denominations of (i) 100%$1,000 and
multiples of their principal amount and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to the
date of redemption on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the applicable Treasury Yield (as defined herein) plus
15 basis points$1,000.
o Our affiliates may not participate in the case of the New Notes due 2005 and 20 basis points in the
case of the New Notes due 2008, plus in each case accrued interest to the date
of redemption.
The New Notes will be represented by permanent global notes in fully
registered form which will be deposited with, or on behalf of, The Depository
Trust Company ("DTC") and registered in the name of a nominee of DTC. Beneficial
interests in the permanent global notes are shown on, and transfers thereof will
be effected through, records maintained by DTC and its participants.
The New Notes are being offered hereunder to satisfy certain obligations of
the Issuer contained in the Registration Rights Agreement. Based on
interpretations by the staff of the Securities and Exchange Commission (the
"Commission"), as set forth in no-action letters issued to third parties,
including Exxon Capital Holdings Corporation (SEC No-Action Letter available
April 13, 1988), Morgan Stanley & Co. Incorporated (SEC No-Action Letter
available June 5, 1991) and Shearman & Sterling (SEC No-Action Letter available
July 2, 1993) (collectively, the "Exchange Offer No-Action Letters"), the Issuer
believes that the New Notes issued pursuant to the Exchange Offer may be offered
for resale, resold or otherwise transferred by each holder (other than a
broker-dealer who acquires such New Notes directly from the Issuer for resale
pursuant to Rule 144A under the Securities Act or any other available exemption
under the Securities Act and other than any holder that is an "affiliate" (as
defined in Rule 405 under the Securities Act) of the Issuer) without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and such holder is not engaged in, and does not intend to
engage in, a distribution of such New Notes and has no arrangement with any
person to participate in a distribution of such New Notes. By tendering Old
Notes in exchange for New Notes, each holder, other than a broker-dealer, will
represent to the Issuer that: (i) it is not an affiliate (as defined in Rule 405
under the Securities Act) of the Issuer; (ii) it is not a broker-dealer
tendering Old Notes acquired for its own account directly from the Issuer; (iii)
any New Notes to be received by it will be acquired in the ordinary course of
its business; and (iv) it is not engaged in, and does not intend to engage in, a
distribution of such New Notes and has no arrangement or understanding to
participate in a distribution of New Notes. If a holder of Old Notes is engaged
in or intends to engage in a distribution of New Notes or has any arrangement or
understanding with respect to the distribution of New Notes to be acquired
pursuant to the Exchange Offer, such holder may not rely on the applicable
interpretations of the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction.
(Continued on next page)
SEEoffer.
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PLEASE REFER TO "RISK FACTORS" BEGINNING ATON PAGE 1411 FOR A DISCUSSIONDESCRIPTION OF
CERTAIN
FACTORSTHE RISKS YOU SHOULD CONSIDER WHEN EVALUATING THIS INVESTMENT.
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WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO BE CONSIDERED BY EXISTING HOLDERS IN CONNECTION WITH THE EXCHANGE
OFFER.
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THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BYSEND US A PROXY.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION OR BYNOR ANY STATE SECURITIES
COMMISSION NOR HAS APPROVED OR DISAPPROVED OF THE SECURITIES AND EXCHANGE COMMISSIONNOTES OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACYDETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR ADEQUACY OF THIS PROSPECTUS.COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is August , 1998.
2
(Continued from previous page)
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer (a "Participating Broker-Dealer") must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. Pursuant to the
Registration Rights Agreement, the Issuer has agreed that it will make this
Prospectus available to any Participating Broker-Dealer for a period of time not
to exceed six months after the date on which the Exchange Offer is consummated
for use in connection with any such resale. See "Plan of Distribution".
The Issuer will not receive any proceeds from the Exchange Offer. The
Issuer has agreed to pay the expenses of the Exchange Offer. No underwriter is
being utilized in connection with the Exchange Offer.
THE EXCHANGE OFFERDATE OF THIS PROSPECTUS IS ___________, 2000.
THE INFORMATION IN THIS PROSPECTUS IS NOT BEING MADE TO, NOR WILLCOMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCEREGISTRATION STATEMENT FILED WITH THE
SECURITIES AND BLUE SKY LAWSEXCHANGE 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 SUCH JURISDICTION.
PriorCONTENTS
PAGE
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WHERE YOU CAN FIND MORE INFORMATION ...................................................... 4
INCORPORATION BY REFERENCE OF SOME OF THE DOCUMENTS FILED BY US
WITH THE SEC ............................................................................ 5
FORWARD-LOOKING INFORMATION .............................................................. 5
SUMMARY OF PROSPECTUS .................................................................... 6
The Company ............................................................................. 6
The Exchange Offer ...................................................................... 6
The Exchange Notes ...................................................................... 9
RISK FACTORS ............................................................................. 11
You Must Follow Certain Procedures to Tender Your Private Notes ......................... 11
You Will Be Subject to Transfer Restrictions if You Fail to Exchange Your Private Notes . 11
A Public Market for the Notes May Not Develop ........................................... 11
We Depend Upon Reimbursement by Third-Party Payors ...................................... 11
Our Operations Are Subject to Extensive Regulation ...................................... 12
Healthcare Reform Legislation May Affect Our Business ................................... 12
We Face National, Regional and Local Competition ........................................ 13
We Are Subject to Material Litigation ................................................... 13
You Should Take Into Account Certain Financing Considerations ........................... 13
The Notes Are Subordinated Obligations .................................................. 14
Our Ability to Repurchase the Notes Upon a Change of Control May Be Limited ............. 14
Holders of Our Debentures Have a Repurchase Right in Certain Circumstances In Which
Holders of the Notes Do Not ........................................................... 14
RATIO OF EARNINGS TO FIXED CHARGES ....................................................... 15
THE EXCHANGE OFFER ....................................................................... 15
Purpose of the Exchange Offer ........................................................... 15
Resale of the Exchange Notes ............................................................ 15
Terms of the Exchange Offer ............................................................. 16
Expiration Date; Extensions; Amendments ................................................. 17
Interest on the Exchange Notes .......................................................... 17
Procedures for Tendering ................................................................ 17
Return of Notes ......................................................................... 19
Book-Entry Transfer ..................................................................... 19
Guaranteed Delivery Procedures .......................................................... 20
Withdrawal of Tenders ................................................................... 20
Conditions .............................................................................. 20
Termination of Rights ................................................................... 21
Shelf Registration ...................................................................... 21
Liquidated Damages ...................................................................... 21
Exchange Agent .......................................................................... 22
Fees and Expenses ....................................................................... 22
Consequence of Failures to Exchange ..................................................... 23
USE OF PROCEEDS .......................................................................... 23
CAPITALIZATION ........................................................................... 24
2
DESCRIPTION OF EXCHANGE NOTES ......................................... 25
General .............................................................. 25
Subordination ........................................................ 25
Optional Redemption of the Exchange Notes ............................ 27
Change of Control .................................................... 28
Certain Covenants of the Company ..................................... 29
Events of Default .................................................... 34
Satisfaction and Discharge of Indenture; Defeasance .................. 35
Transfer and Exchange ................................................ 36
Amendment, Supplement and Waiver ..................................... 36
Concerning the Trustee ............................................... 38
Governing Law ........................................................ 38
Book-Entry; Delivery and Form ........................................ 38
Depositary Procedures ................................................ 38
Exchange of Book-Entry Notes for Certificated Notes .................. 40
Certain Definitions .................................................. 41
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE ......... 51
Exchange of Private Notes for Exchange Notes ......................... 51
Tax Considerations Applicable to United States Persons ............... 51
Tax Considerations Applicable to Non-U.S. Holders .................... 52
Information Reporting and Backup Withholding ......................... 53
PLAN OF DISTRIBUTION .................................................. 54
EXPERTS ............................................................... 54
LEGAL MATTERS ......................................................... 54
3
We have not authorized any dealer, salesperson or other person to give any
information or to make any representations to you other than the information
contained in this Exchange Offer,prospectus. You must not rely on any information or
representations not contained in this prospectus as if we had authorized it.
This prospectus does not offer to sell or solicit any offer to buy any
securities other than the registered notes to which it relates, nor does it
offer to buy any of these notes in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
The information contained in this prospectus is current only as of the
date on the cover page of this prospectus, and may change after that date. We
do not imply that there has been no public market for the New
Notes. If such a market were to develop, the New Notes could trade at prices
that may be higher or lower than their principal amount. The Issuer does not
intend to apply for listing of the New Notes on any securities exchange or for
quotation of the New Notes on the New York Stock Exchange or otherwise. The
Initial Purchasers have previously made a marketchange in the Old Notes,information contained in this
prospectus or in our affairs since that date by delivering this prospectus.
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. This
information is available without charge to you upon written or oral request. If
you would like a copy of any of this information, please submit your request to
HEALTHSOUTH Corporation, One HealthSouth Parkway, Birmingham, Alabama 35243,
Attention: Legal Department, or call (205) 967-7116, and ask to speak to
someone in our Legal Department. In addition, to obtain timely delivery of any
information you request, you must submit your request no later than __________,
2000, which is five business days before the Issuer has been advised thatdate the Initial Purchasers currently intend to make a
market in the New Notes, as permitted by applicable laws and regulations, after
consummation of the Exchange Offer. The Initial Purchasersexchange offer expires.
WHERE YOU CAN FIND MORE INFORMATION
We are not obligated,
however, to make a market in the Old Notes or the New Notes and any such market
making activity may be discontinued at any time without notice at the sole
discretion of the Initial Purchasers. There can be no assurance as to the
liquidity of the public market for the New Notes or that any active public
market for the New Notes will develop or continue. If an active public market
does not develop or continue, the market price and liquidity of the New Notes
may be adversely affected. See "Risk Factors -- Absence of a Public Market".
3
AVAILABLE INFORMATION
HEALTHSOUTH is subject to the informationinformational requirements of the Securities
Exchange Act of 1934 as amended (the "Exchange Act") (Commission(SEC File No. 1-10315), and in accordance therewith files periodicfile reports, proxy statements
and other information with the SEC relating to its businesses, financial
statements and other matters. The Registration Statement, as well as suchSEC. These reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024,Judiciary Plaza, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the public
reference facilities maintained byfollowing Regional offices of the SEC at its regional offices located at
SevenSEC: Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, Suite 1300, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511.10048. Copies of such material canmay also
be obtained at prescribed rates by writing tofrom the Public Reference Section of the SEC Public Reference Section,at 450 Fifth Street,
N.W., Washington, D.C. 20549.20549, at prescribed rates. The SEC also maintains a
webWorld Wide Web site that contains reports, proxy and information statements and
other information regarding HEALTHSOUTH andregistrants (including us) that file electronically
with the Registration
Statement. The address of that web site isSEC (at http:// www.sec.gov. The HEALTHSOUTH
Common Stockwww.sec.gov). Our common stock is listed on the New
York Stock Exchange, and the Registration
StatementExchange. Reports, proxy statements and other information with respectrelating
to HEALTHSOUTH are available for
inspectionus can be inspected at the libraryoffices of the New York Stock Exchange, Inc., 20 Broad
Street,
7th Floor, New York, New York 10005.
Some of the documents we have filed with the SEC have been incorporated in
this prospectus by reference. See "Incorporation by Reference of Some of the
Documents Filed by Us with the SEC". Statements contained herein concerning the
provisions of any document do not purport to be complete and, in each instance,
are qualified in all respects by reference to the copy of such document filed
with the SEC. Each such statement is subject to and qualified in its entirety
by such reference.
4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROSPECTUS INCORPORATESOF SOME OF THE DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH REPORTS, PROXY STATEMENTS AND OTHER
INFORMATION FILED
BY HEALTHSOUTH, OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED HEREIN BY REFERENCE, ARE AVAILABLE
WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, FROMUS WITH THE SECRETARY OF HEALTHSOUTH
CORPORATION, ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, ALABAMA 35243, TELEPHONE (205)
967-7116.SEC
There are hereby incorporated by reference intoin this Prospectus and made a
part hereofprospectus the
following documents previously filed or to be filed by HEALTHSOUTH (Commissionus with the SEC pursuant
to the Exchange Act (SEC File No. 1-10315):
1. HEALTHSOUTH'sOur Annual Report on Form 10-K for the fiscal year ended December
31, 1997 (the "1997 Form 10-K").1999.
2. HEALTHSOUTH'sOur Quarterly Reports on Form 10-Q for the quartersperiods ended March 31,
2000, and June 30, 1998.2000.
3. HEALTHSOUTH'sOur Proxy Statement on Schedule 14A filed April 17, 1998,14, 2000, in
connection with HEALTHSOUTH's 1998our 2000 Annual Meeting of Stockholders.
4. HEALTHSOUTH's Current Report on Form 8-K filed May 28, 1998.
5. HEALTHSOUTH's Current Report on Form 8-K filed April 3, 1998.
6. HEALTHSOUTH's Current Report on Form 8-K filed January 15, 1998.
All documents filed by HEALTHSOUTHwe file pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Prospectusprospectus and before the termination
of the exchange offer shall be deemed to be incorporated by reference intoto this
Prospectusprospectus and to be made a part hereof from the date of the filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for the purpose hereofof this prospectus to the extent that a statement
contained herein (or(with respect to a previously filed document) or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein)herein modifies or supersedes such statement. Any statementsuch statements so
modified or superseded shall not be deemed, to constitute a part hereof, except as so modified or
superseded.superseded, to constitute a part of this prospectus.
FORWARD-LOOKING INFORMATION
Some of the matters discussed in this prospectus or in the information
incorporated by reference herein may constitute forward-looking statements.
Some of these forward-looking statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", "seeks", "approximately", "intends", "plans", "estimates" or
"anticipates" or the negative thereof or other comparable terminology, or by
discussions of strategy, plans or intentions. Statements relating to HEALTHSOUTH contained in this
Prospectus thatprospectus which are not historical facts are forward-looking statements.
Without limiting the generality of the preceding statement, all statements in
this prospectus concerning or relating to estimated and projected earnings,
margins, costs, expenditures, cash flows, growth rates and financial results
are forward-looking statements. In addition, HEALTHSOUTH,we, through itsour senior management,
from time to time makesmake forward-looking public statements concerning itsour
expected future operations and 4
performance and other developments. SuchThese
forward-looking statements are necessarily estimates reflecting HEALTHSOUTH'sour best
judgment based upon current information and involve a number of risks and
uncertainties, and thereuncertainties. There can be no assurance that other factors will not affect the
accuracy of these forward-looking statements or that our actual results will
not differ materially from the results anticipated in such forward-looking
statements. While it is impossible to identify all such factors, factors which
could cause actual results to differ materially from those estimated by HEALTHSOUTHus
include, but are not limited to, changes in the
regulation of the healthcare industry at either or both of the federal and state
levels, changesdelays in reimbursement for HEALTHSOUTH'sour
services by governmentgovernmental or private payors, changes to or delays in the
implementation of the prospective payment system for inpatient rehabilitation
services, competitive pressures in the healthcare industry and HEALTHSOUTH'sour response
thereto, HEALTHSOUTH'sour ability to obtain and retain favorable arrangements with
third-party payors, unanticipated delays in HEALTHSOUTH'sthe implementation of itsour
Integrated Service Model or other strategies, general conditions in the economy
and capital markets and other factors which may be identified from time to time
in HEALTHSOUTH'sour SEC filings and other public announcements.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF THE
SECURITIES TO WHICH THIS PROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION
CONCERNING HEALTHSOUTH CONTAINED IN THIS PROSPECTUS SINCE THE DATE OF SUCH
INFORMATION. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL.
5
TABLE OF CONTENTS
PAGE
-----
AVAILABLE INFORMATION ................................................. 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ..................... 4
FORWARD-LOOKING INFORMATION ........................................... 4
SUMMARY OF PROSPECTUS ................................................. 8
The Issuer ........................................................... 8
Recent Developments .................................................. 8
Risk Factors ......................................................... 8
The Exchange Offer ................................................... 8
The New Notes ........................................................ 12
Use of Proceeds ...................................................... 13
RISK FACTORS .......................................................... 14
RATIO OF EARNINGS TO FIXED CHARGES .................................... 20
THE EXCHANGE OFFER .................................................... 20
Terms of the Exchange Offer .......................................... 20
Expiration Date; Extensions; Amendments; Termination ................. 22
Interest on the New Notes ............................................ 23
Procedures for Tendering ............................................. 23
Acceptance of Old Notes for Exchange; Delivery of New Notes .......... 24
Book-Entry Transfer .................................................. 25
Guaranteed Delivery Procedures ....................................... 25
Withdrawal of Tenders ................................................ 25
Conditions ........................................................... 26
Accounting Treatment ................................................. 26
Exchange Agent ....................................................... 26
Fees and Expenses .................................................... 27
USE OF PROCEEDS ....................................................... 27
CAPITALIZATION ........................................................ 28
SELECTED CONSOLIDATED FINANCIAL DATA .................................. 29
DESCRIPTION OF THE NEW NOTES .......................................... 31
General .............................................................. 31
Global Securities .................................................... 31
Optional Redemption .................................................. 33
Certain Covenants of the Issuer ...................................... 34
Merger, Consolidation and Sale of Assets ............................. 36
Events of Default .................................................... 36
Discharge, Defeasance and Covenant Defeasance ........................ 37
6
PAGE
-----
Modification of the Indenture .............................................. 38
Concerning the Trustee ..................................................... 38
No Personal Liability of Directors, Officers, Stockholders or Incorporators 39
Governing Law .............................................................. 39
Information Concerning the Trustee ......................................... 39
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS ..................... 40
Exchange of Old Notes for New Notes ........................................ 40
Tax Considerations Applicable to United States Persons ..................... 40
Tax Considerations Applicable to Non-U.S. Holders .......................... 41
Information Reporting and Backup Withholding ............................... 42
BUSINESS OF HEALTHSOUTH ..................................................... 43
General .................................................................... 43
HEALTHSOUTH Strategy ....................................................... 43
Recent Developments ........................................................ 44
Patient Care Services ...................................................... 45
PLAN OF DISTRIBUTION ........................................................ 47
EXPERTS ..................................................................... 48
LEGAL MATTERS ............................................................... 48
7
SUMMARY OF PROSPECTUS
The following is aThis summary of certainhighlights information contained elsewhere in this
Prospectus. Certain capitalized termsprospectus. It is not complete and may not contain all the information that you
should consider before tendering your Private Notes in the exchange offer. You
should read the entire prospectus carefully, including the "Risk Factors"
section beginning on page 11. As used in this Summary are defined
elsewhereprospectus: (1) the terms
"HEALTHSOUTH", "Company", "we", "our" and "us" refer to HEALTHSOUTH Corporation
and, in some cases, its subsidiaries; (2) the term "Private Notes" refers to
our 10-3/4% senior subordinated notes due 2008 which were issued in a
transaction exempt from registration under the Securities Act; (3) the term
"Exchange Notes" refers to our 10-3/4% senior subordinated notes due 2008 which
have been registered under the Securities Act pursuant to a registration
statement of which this Prospectus. Referenceprospectus is madea part; (4) the term "Notes" refers to
and this Summary is
qualified in its entirety by, the more detailed information contained in this
Prospectus,Private Notes and the documents incorporated by reference herein.Exchange Notes, collectively; and (5) the term
"EBITDA" refers to income from continuing operations before depreciation and
amortization, net interest expense, impairment of long-lived assets, minority
interests in earnings of consolidated entities and income taxes and excludes
unusual and nonrecurring expenses.
THE ISSUER
HEALTHSOUTH. HEALTHSOUTH isCOMPANY
We are the nation's largest provider of rehabilitative healthcare, outpatient
surgery and rehabilitative healthcareoutpatient diagnostic services based upon number of staffed
rehabilitation beds, number of facilities and revenues derived from those
services. It provides these services through itsin the United States, with a
national network of outpatientmore than 2,000 locations in all 50 states, Puerto Rico,
the United Kingdom, Canada and inpatient rehabilitation facilities, outpatient surgery centers, diagnostic
centers, occupational medicine centers, medical centers and other healthcare
facilities. HEALTHSOUTH believesAustralia. We believe that it provideswe provide patients,
physicians and payors with high-quality healthcare services at significantly lower costson a more
cost-effective basis than traditional inpatientacute-care hospitals. Additionally, HEALTHSOUTH'sWe provide these
services through our national network reputationof modern, well-maintained healthcare
facilities. We enjoy a relatively favorable payor mix compared to other
publicly-traded healthcare companies in that most of our revenues
(approximately 65% for qualitythe year ended December 31, 1999) are derived from
non-governmental sources. For the year ended December 31, 1999, we had revenues
of $4,072,107,000 and focus on outcomes has enabled it to secure contracts
with national and regional managed care payors. AtEBITDA of $1,218,833,000. For the six months ended
June 30, 1998, HEALTHSOUTH2000, we had over 1,900 patient care locations in 50 states, the United Kingdomrevenues of $2,057,658,000 and Australia. See "BUSINESS OF HEALTHSOUTH".
At June 30, 1998, HEALTHSOUTH had consolidated assetsEBITDA of approximately
$6.113 billion and consolidated stockholders' equity of approximately $3.474
billion and employed approximately 58,500 persons.
HEALTHSOUTH was$545,965,000.
We were incorporated under the laws of Delaware in 1984. ItsOur principal
executive offices are located at One HealthSouth Parkway, Birmingham, Alabama
35243, and itsour telephone number is (205) 967-7116.
RECENT DEVELOPMENTS
On July 1, 1998, HEALTHSOUTH acquired 33 ambulatory surgery centers from
Columbia/ HCA Healthcare Corporation.THE EXCHANGE OFFER
The Exchange Offer ......... We are offering to exchange our Exchange
Notes for our outstanding Private Notes that
are properly tendered and accepted. You may
tender outstanding Private Notes only in
denominations of $1,000 and multiples of
$1,000. We will issue the Exchange Notes on
or promptly after the expiration date of the
exchange offer. As of the date of this
prospectus, $350,000,000 principal amount of
Private Notes is outstanding.
Expiration Date ............ The exchange offer will expire at 5:00 p.m.,
New York City time, on __________, 2000,
unless extended, in which case the expiration
date will mean the latest date and time to
which we extend the exchange offer.
6
Conditions to the Exchange Offer..
The exchange offer is not subject to
conditions other than that (1) it shall not
violate applicable law or any applicable
interpretation of the staff of the SEC, (2)
no action or proceeding shall have been
instituted or threatened in any court or by
any governmental agency which might
materially impair our ability to proceed with
the exchange offer, and no material adverse
development shall have occurred in any
existing action or proceeding with respect to
us, and (3) all governmental approvals deemed
necessary by us for the completion of the
exchange offer shall have been obtained. The
exchange offer is not conditioned upon any
minimum principal amount of Private Notes
being tendered for exchange.
Procedures for Tendering
Private Notes ................. If you wish to tender your Private Notes for
Exchange Notes pursuant to the exchange
offer, you must transmit to The Bank of New
York, as exchange agent, on or before the
expiration date, either:
o a computer-generated message transmitted
through The Depository Trust Company's
Automated Tender Offer Program system and
received by the exchange agent and forming
a part of a confirmation of book-entry
transfer in which you acknowledge and agree
to be bound by the terms of the letter of
transmittal; or
o a properly completed and duly executed
letter of transmittal, which accompanies
this prospectus, or a facsimile of the
letter of transmittal, together with your
Private Notes and any other required
documentation, to the exchange agent at its
address listed in this prospectus and on
the front cover of the letter of
transmittal.
If you cannot satisfy either of these
procedures on a timely basis, then you should
comply with the guaranteed delivery
procedures described below. By executing the
letter of transmittal, you will make the
representations to us described under "The
Exchange Offer-Procedures for Tendering".
Special Procedures for
Beneficial Owners ............. If you are a beneficial owner whose Private
Notes are registered in the name of a broker,
dealer, commercial bank, trust company or
other nominee and you wish to tender your
Private Notes in the exchange offer, you
should contact the registered holder promptly
and instruct the registered holder to tender
on your behalf. If you wish to tender on your
own behalf, you must either (1) make
appropriate arrangements to register
ownership of the Private Notes in your name
or (2) obtain a properly completed bond power
from the registered holder, before completing
and executing the letter of transmittal and
delivering your Private Notes.
7
Guaranteed Delivery Procedures... If you wish to tender your Private Notes and
time will not permit the documents required
by the letter of transmittal to reach the
exchange agent before the expiration date, or
the procedure for book-entry transfer cannot
be completed on a timely basis, you must
tender your Private Notes according to the
guaranteed delivery procedure described in
this prospectus under "The Exchange
Offer-Guaranteed Delivery Procedures".
Acceptance of Private Notes and
Delivery of Exchange Notes ..... Subject to the satisfaction or waiver of the
conditions to the exchange offer, we will
accept for exchange any and all Private Notes
which are validly tendered in the exchange
offer and not withdrawn before 5:00 p.m., New
York City time, on the expiration date.
Withdrawal Rights ............... You may withdraw the tender of your Private
Notes at any time before 5:00 p.m., New York
City time, on the expiration date, by
complying with the procedures for withdrawal
described in this prospectus under "The
Exchange Offer-Withdrawal of Tenders".
Material U.S. Federal Income Tax
Consequences .................. The exchange of Notes will not be a taxable
event for United States federal income tax
purposes. For a discussion of the material
federal income tax consequences relating to
the exchange of Notes, see "Material U.S.
Federal Income Tax Consequences of the
Exchange".
Exchange Agent .................. The Bank of New York, the trustee under the
indenture governing the Private Notes, is
serving as the exchange agent.
Consequence of Failure to
Exchange Notes ................ If you do not exchange your Private Notes for
Exchange Notes, you will continue to be
subject to the restrictions on transfer
provided in the Private Notes and in the
indenture governing the Private Notes. In
general, the Private Notes may not be offered
or sold, unless registered under the
Securities Act, except pursuant to an
exemption from, or in a transaction not
subject to, the Securities Act and applicable
state securities laws. We do not currently
plan to register the Private Notes under the
Securities Act.
Registration Rights Agreement ... You are entitled to exchange your Private
Notes for Exchange Notes with substantially
identical terms. The exchange offer satisfies
this right. After the exchange offer is
completed, you will no longer be entitled to
any exchange or registration rights with
respect to your Private Notes. Under the
circumstances described in the registration
rights agreement, you may require us to file
a shelf registration statement under the
Securities Act.
We explain the exchange offer in greater detail beginning on page 15.
8
THE EXCHANGE NOTES
The surgery centers are located in
Alabama, California, Iowa, Illinois, Kentucky, Louisiana, Minnesota,
Mississippi, North Carolina, Nevada, Oregon, Rhode Islandform and Texas. Effective
July 31, 1998, HEALTHSOUTH entered into certain other arrangements to acquire
substantially all of the economic benefits of Columbia/HCA's interest in one
additional surgery center. The transaction was valued at approximately
$550,000,000.
On July 22, 1998, HEALTHSOUTH acquired National Surgery Centers, Inc.
("NSC"), adding 40 outpatient surgery centers in 14 states to HEALTHSOUTH's
existing network of outpatient surgery and rehabilitative healthcare facilities.
The value of the NSC transaction was approximately $590,000,000. Under the terms of the applicable agreement, NSC stockholders received 1.0972 shares of
HEALTHSOUTH Common Stock for each share of NSC Common Stock. The NSC transaction
is expected to be accounted forExchange Notes are the same as a pooling of intereststhe form and
is intended to be
a tax-free reorganization.
RISK FACTORS
Existing holdersterms of the OldPrivate Notes, should pay special attention to the "Risk
Factors" section beginning on page 14.
THE EXCHANGE OFFER
THE EXCHANGE OFFER.... New Notes are being offered in exchange for an equal
principal amount of Old Notes of the same maturity.
As of the date hereof, Old Notes due 2005 are
outstanding in the aggregate
8
principal amount of $250,000,000 and Old Notes due
2008 are outstanding in the aggregate principal
amount of $250,000,000. Old Notes may be tendered
only in integral multiples of $1,000.
RESALE OF NEW NOTES.. Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued
to third parties, includingexcept that the Exchange Offer
No-Action Letters, the Issuer believes that the New
Notes issued pursuant to the Exchange Offer maywill be offered for resale, resold or otherwise transferred
by each holder thereof (other than a broker-dealer
who acquires such New Notes directly from the Issuer
for resale pursuant to Rule 144A under the
Securities Act or any other available exemptionregistered
under the Securities Act and, other thantherefore, the Exchange Notes will not be subject
to the transfer restrictions, registration rights and provisions providing for
an increase in the interest rate applicable to the Private Notes. The Exchange
Notes will evidence the same debt as the Private Notes and both the Private
Notes and the Exchange Notes are governed by the same indenture.
Securities Offered .......... $350,000,000 principal amount of 10-3/4% senior
subordinated notes due 2008.
Issuer ...................... HEALTHSOUTH Corporation.
Maturity Dates .............. October 1, 2008.
Interest .................... Interest on the Exchange Notes will accrue from
September 25, 2000 and be payable, at the rate
of 10-3/4% per annum, on April 1 and October 1
of each year, commencing April 1, 2001. The
payment of interest on Exchange Notes will be in
lieu of payment of any accrued but unpaid
interest on Private Notes tendered for exchange.
Optional Redemption ......... We may redeem the Exchange Notes, in whole or in
part, at any time on or after October 1, 2004,
at a redemption price equal to 100% of the
principal amount thereof plus a premium
declining ratably to par plus accrued interest.
In addition, at any time prior to October 1,
2003, we may redeem up to 35% of the aggregate
principal amount of the Notes outstanding on the
original date of issuance of the Private Notes
with the net cash proceeds of one or more equity
offerings at a redemption price equal to
110.750% of their principal amount, plus accrued
and unpaid interest, provided that:
o at least 65% of the original aggregate
principal amount of the Notes remains
outstanding immediately after the occurrence
of the redemption; and
o the redemption occurs within 60 days of the
date of the closing of the equity offering.
For more details, see "Description of Exchange
Notes-Optional Redemption of the Exchange
Notes".
Ranking ..................... The Notes:
o are part of our general unsecured
obligations;
o will be subordinated to all of our existing
and future senior indebtedness; and
o will be effectively subordinated to the
indebtedness of our subsidiaries.
Future Guaranties ........... None of our subsidiaries are required to
guarantee the Notes.
9
Change of Control ......... If we go through a Change of Control, you have the
right to require that we purchase your Notes, in
whole or in part, at a purchase price of 101% of
their principal amount, plus accrued interest to
the date of purchase. The term "Change of Control"
is defined in "Description of Exchange Notes".
Certain Covenants ......... The indenture contains covenants that, among other
things and subject to certain exceptions, restrict
our ability and the ability of our subsidiaries
to:
o incur additional indebtedness and issue
preferred stock;
o make restricted payments, including dividends,
other distributions and investments;
o in the case of our subsidiaries, create or
permit to exist dividend or payment
restrictions with respect to us;
o incur or permit to exist indebtedness by us
senior to the Notes which is subordinated to
any of our other indebtedness;
o engage in transactions with our affiliates;
o incur or permit to exist certain liens;
o sell assets and subsidiary stock; and
o sell all or substantially all of our assets or
merge with or into other companies.
For more details, see "Description of Exchange
Notes".
Use of Proceeds ........... We will not receive any cash proceeds from the
exchange offer.
We explain the Exchange Notes in greater detail beginning on page 25.
10
RISK FACTORS
Our business, operations and financial condition are subject to various
risks. Some of these risks are described below, and you should take these risks
into account in evaluating us or any holder
thatinvestment decision involving us or in
deciding whether to tender your Private Notes in the exchange offer. This
section does not describe all risks applicable to us, our industry or our
business, and it is an "affiliate" (as defined under Rule 405intended only as a summary of certain material factors. The
risk factors set forth below are generally applicable to the Private Notes as
well as the Exchange Notes.
YOU MUST FOLLOW CERTAIN PROCEDURES TO TENDER YOUR PRIVATE NOTES
The Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the exchange agent of the Securities Act)Private Notes, a properly completed
and duly executed letter of the Issuer) without
compliance with the registrationtransmittal and prospectus
delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary
course of such holder's business and such holder is
not engaged in, and does not intendall other required documents.
Therefore, if you desire to engage in, a
distribution of such New Notes and has no
arrangement with any person to participate in a
distribution of such New Notes. By tendering the Oldtender your Private Notes in exchange for NewExchange
Notes, each holder, other
thanyou should allow sufficient time to ensure timely delivery. Your failure
to follow these procedures may result in delay in receiving Exchange Notes on a
broker-dealer, will represent to the Issuer
that: (i) it is not an affiliate (as definedtimely basis or in Rule
405 under the Securities Act)your loss of the Issuer; (ii) itright to receive Exchange Notes. Neither we
nor the exchange agent is not a broker-dealer tendering Oldunder any duty to give notification of defects or
irregularities with respect to tenders of Private Notes acquired
for its own account directly from the Issuer; (iii)
any Newexchange. If you
tender Private Notes to be received by it will be acquired in the ordinary courseexchange offer for the purpose of its business; and (iv) it
is not engaged in, and does not intend to engage in,
a distribution of such New Notes and has no
arrangement or understanding to participateparticipating in
a distribution of the New Notes. If a holder of OldExchange Notes, is engaged in or intendsyou will be required to engage in a
distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder may not
rely on the applicable interpretations of the staff
of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary
resale transaction. Each Participating Broker-Dealerbroker-dealer that receives
NewExchange Notes for its own account pursuant
toin exchange for Private Notes, where the
Exchange OfferPrivate Notes were acquired by the broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such
New Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning
of the Securities Act. This Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection
with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such
Participating Broker-Dealer as a result of
market-making activities or other trading
activities. The Issuer has agreed that it will make
this Prospectus available to any Participating
Broker-Dealer for a period of time not to exceed one
year after the date on which the Exchange Offer is
con-
9
summatedNotes. See
"The Exchange Offer-Procedures for use in connection with any such resale.
SeeTendering" and "Plan of Distribution".
To comply with the
securities laws of certain jurisdictions, it may be
necessary to qualifyYOU WILL BE SUBJECT TO TRANSFER RESTRICTIONS IF YOU FAIL TO EXCHANGE YOUR
PRIVATE NOTES
If you do not exchange your Private Notes for sale or register the NewExchange Notes prior to offering or selling such New Notes.
The Issuer has agreed, pursuant to
the Registration
Rights Agreement andexchange offer, you will continue to be subject to certain specified
limitations therein, to register or qualify the New
Notes for offer or sale under the securities or
"blue sky" laws of such jurisdictions as may be
necessary to permit consummationrestrictions on
transfer of the Exchange
Offer.
REGISTRATION RIGHTS AGREE
MENTS .................. The OldPrivate Notes were issued on June 22, 1998, to the
Initial Purchasers. The Initial Purchasers placed
the Old Notes with institutional or overseas
investors. In connection therewith, the Issuer and
the Initial Purchasers entered into the Registration
Rights Agreement, providing, among other things, for
the Exchange Offer. See "The Exchange Offer".
CONSEQUENCES OF FAILURE TO
EXCHANGE OLD NOTES.... Upon consummation of the Exchange Offer, subject to
certain exceptions, holders of Old Notes who do not
exchange their Old Notes for New Notesas set forth in the Exchange Offer will no longer be entitled to
registration rights and willlegend on the Private Notes.
In general, the Private Notes may not be able to offeroffered or sell their Old Notes,sold unless such Old Notes are
subsequently registered
under the Securities Act,
(which, subject to certain limited exceptions, the
Issuer will have no obligation to do), or pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. See "Risk Factors -- Consequences
of FailureWe do
not currently intend to Exchange"register the Private Notes under the Securities Act. To
the extent that Private Notes are tendered and "The Exchange Offer --
Termsaccepted in the exchange offer,
the trading market for untendered and tendered but unaccepted Private Notes
could be adversely affected.
A PUBLIC MARKET FOR THE NOTES MAY NOT DEVELOP
There can be no assurance that a public market for the Notes will develop
or, if such a market develops, as to the liquidity of the Exchange Offer".
EXPIRATION DATE......... 5:00 p.m., New York City time, on __________, 1998
(30 calendar days followingmarket. If a market
were to develop, the commencementNotes could trade at prices that may be higher or lower
than their principal amount. We do not intend to apply for listing of the Exchange Offer), unlessNotes
on any securities exchange or for quotation of the Notes on any automated
quotation system. The initial purchasers have previously made a market in the
Private Notes, and we have been advised that the initial purchasers currently
intend to make a market in the Exchange Offer is
extended,Notes, as permitted by applicable laws
and regulations, after consummation of the exchange offer. The initial
purchasers are not obligated, however, to make a market in which case the term "Expiration Date"
means the latest date and time to whichPrivate Notes or
the Exchange Offer is extended.
INTEREST ON THE NEW NOTES. Interest on the New Notes, will accrue from June 22,
1998 and any market-making activity may be payable,discontinued at any
time without notice at the rates of 6.875% per
annum on the New Notes due 2005 and 7.0% on the New
Notes due 2008, on June 15 and December 15 of each
year, commencing December 15, 1998.
CONDITIONS TO THE EXCHANGE
OFFER................. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject
to certain customary conditions, which may, under
certain circumstances, be waived by the Issuer. See
"The Exchange Offer -- Conditions". Except for the
requirements of applicable federal and state
securities laws, there are no federal or state
regulatory requirements to be complied with by the
Issuer in connection with the Exchange Offer.
10
PROCEDURES FOR TENDERING
OLD NOTES.............. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, in accordance with the
instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal,
together with the Old Notes to be exchanged and any
other required documentation to the Exchange Agent
(as defined herein) at the address set forth herein
or effect a tender of Old Notes pursuant to the
procedures for book-entry transfer as provided for
herein. See "The Exchange Offer -- Procedures for
Tendering" and "-- Book Entry Transfer".
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and insruct such registered holder to
tender on his behalf. If such beneficial owner
wishes to tender on his own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register
ownershipsole discretion of the Old Notes in such owner's nameinitial purchasers. If an
active public market does not develop or obtain a properly completed bond power fromcontinue, the registered holder. The transfermarket price and
liquidity of registered
ownership may take considerable time. See "Exchange
Offer -- Procedures for Tendering".
GUARANTEED DELIVERY
PROCEDURES............ Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes and
a properly completed Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes according
to the guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures".
WITHDRAWAL RIGHTS...... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Old Notes,
a written notice of withdrawal must be received by
the Exchange Agent at its address set forth herein
under "The Exchange Offer -- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration
Date.
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES.. Subject to certain conditions, any and all Old Notes
tha are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date will be accepted for exchange. The
New Notes issued pursuant to the Exchange Offer will
be delivered promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the Exchange
Offer".
In all cases, issuance of New Notes for Old Notes
that are accepted for exchange pursuant to the
Exchange Offer will be made only after timely
receipt by the Exchange Agent of cer-
11
tificates for the Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility,
a properly completed and duly executed Letter of
Transmittal and all other required documents. If any
tendered Old Notes are not accepted for any reason
set forth in the terms and conditions of the
Exchange Offer or if Old Notes are submitted for a
greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Old Notes
will be returned without expense to the tendering
holder thereof (or, in the case of Old Notes
tendered by book-entry transfer procedures described
herein, such non-exchanged Old Notes will be
credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as
practicable after the expiration or termination of
the Exchange Offer.
CERTAIN TAX
CONSIDERATIONS......... The exchange of New Notes for Old Notes will not b
considered a sale or exchange or otherwise a taxable
event for Federal income tax purposes. See "Certain
United States Federal Tax Considerations".
EXCHANGE AGENT......... PNC Bank, N.A. is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange
Offer.
FEES AND EXPENSES..... All expenses incident to consummation of the
Exchange Offer and compliance with the Registration
Rights Agreement will be borne by the Issuer. See
"The Exchange Offer -- Fees and Expenses".
USE OF PROCEEDS....... There will be no proceeds payable to the Issuer from
the issuance of the New Notes pursuant to the
Exchange Offer. See "Use of Proceeds".
THE NEW NOTES
The Exchange Offer relates to (a) the exchange of up to $250,000,000
aggregate principal amount of Old Notes due 2005 for up to an equal aggregate
principal amount of New Notes due 2005 and (b) the exchange of up to
$250,000,000 aggregate principal amount of Old Notes due 2008 for up to an equal
aggregate principal amount of New Notes due 2008. The New Notes will be entitled
to the benefits of the same Indenture that governs the Old Notes and that will
govern the New Notes. The form and terms of the New Notes are the same in all
material respects as the form and terms of the Old Notes, except that (i) the
New Notes have been registered under the Securities Act and therefore will not
bear legends restricting the transfer thereof and (ii) holders of New Notes will
not be entitled to certain rights of holders of the Old Notes under the
Registration Rights Agreement, which rights will be terminated upon consummation
of the Exchange Offer (e.g. liquidated damages). See "Description of the New
Notes".
MATURITY DATES......... The New Notes due 2005 will mature on June 15, 2005
and the New Notes due 2008 will mature on June 15,
2008
INTEREST PAYMENT DATES... June 15 and December 15 of each year, commencing
December 15, 1998.
OPTIONAL REDEMPTION.... The Old Notes will be redeemable as a whole or in
part, at the option of the Issuer, at any time at a
redemption price equal to the greater of (i) 100% of
their principal amount and (ii) the sum
12
of the present values of the remaining scheduled
payments of principal and interest thereon
discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the
applicable Treasury Yield (as defined herein) plus
15 basis points in the case of the New Notes due
2005 and 20 basis points in the case of the New
Notes due 2008, plus in each case accrued interest
to the date of redemption. See "Description of the
New Notes -- Optional Redemption".
RANKING................. The New Notes will constitute unsecured and
unsubordinated obligations of the Issuer and will
rank pari passu in right of payment with all other
unsecured and unsubordinated obligations of the
Issuer. See "Description of the New Notes".
RESTRICTIVE COVENANTS... The Indenture governing the New Notes contains
certain covenants that, among other things, limit
the ability of the Issuer to incur liens and engage
in mergers and consolidations or sale and lease-back
transactions. See "Description of the New Notes".
USE OF PROCEEDS
There will be no proceeds payable to the Issuer from the issuance of the
New Notes pursuant to the Exchange Offer. The proceeds from the sale of the Old
Notes were used by HEALTHSOUTH to repay bank debt. See "Use of Proceeds".
13
RISK FACTORS
In addition to the other information in this Prospectus, the following
should be considered carefully by holders of the Notes. Statements made herein
should be considered as "forward-looking information". See "Forward-Looking
Information".adversely affected.
WE DEPEND UPON REIMBURSEMENT BY THIRD-PARTY PAYORS
Substantially all of HEALTHSOUTH'sour revenues are derived from private and
governmental third-party payors (in 1997,payors. In 1999, approximately 36.9%33.0% of our revenues
were derived from Medicare and approximately 63.1%67.0% from commercial insurers,
managed care plans, workers' compensation payors and other private pay revenue
sources).sources. There are increasing pressures from many payor sourcespayors to control healthcare
costs and to reduce or limit increases in reimbursement rates for medical
services. In the recent past, we have experienced a decrease in revenues
primarily attributable to declines in government reimbursement as a result of
the Balanced Budget Act of 1997. There can be no assurances that payments underfrom
governmental and third-party payor programsor private payors will remain at levels comparable to present
levels. In attempts to limit the federal budget deficit, there have
11
been, and HEALTHSOUTH expectswe expect that there will continue to be, a number of proposals to
limit Medicare reimbursementsreimbursement for certainvarious services. HEALTHSOUTHWe cannot now predict
whether any of these pending proposals will be adopted or if adopted and implemented, what effect such
proposals would have on HEALTHSOUTH.us.
Further, Medicare reimbursement for inpatient rehabilitation services is
changing from a cost-based reimbursement system to a prospective payment system
("PPS"), with the phase-in of the PPS currently scheduled to begin in April
2001. While we believe we are well-positioned and well-prepared for the
transition, we cannot be certain what effect the adoption of inpatient
rehabilitation PPS will have on us. In addition, a delay in the implementation
of inpatient rehabilitation PPS, lower than expected reimbursement rates or our
failure to successfully execute our planned response to this change could have
a material adverse effect on our financial condition or results of operations.
OUR OPERATIONS ARE SUBJECT TO EXTENSIVE REGULATION
HEALTHSOUTH isOur operations are subject to various other types of regulation at the
federal and state levels,governments, including licensure and certification laws,
Certificate of Need laws and laws relating to financial relationships among
providers of healthcare services, Medicare fraud and abuse and physician
self-referral.
The operation of HEALTHSOUTH'sour facilities and the provision of healthcare services
are subject to federal, state and local licensure and certification laws. These
facilities and services are subject to periodic inspection by governmental and
other authorities to assureensure compliance with the various standards established
for continued licensure under state law, certification under the Medicare and
Medicaid programs and participation in the Veteran's
Administration program.other government programs. Additionally,
in many states, Certificates of Need or other similar approvals are required
for expansion of HEALTHSOUTH'sour operations. HEALTHSOUTHWe could be adversely affected by the failure or inability toif we cannot
obtain such approvals, by changes in the standards applicable to approvals and
by possible delays and expenses associated with obtaining approvals. TheOur
failure by
HEALTHSOUTH to obtain, retain or renew any required regulatory approvals, licenses
or certificates could prevent HEALTHSOUTHus from being reimbursed for or
from offering, itsour services, or
could materially adversely affect itsour results of operations.
A wide array of Medicare/Medicaid fraud and abuse provisions apply to the
operations of HEALTHSOUTH. HEALTHSOUTHOur business is subject to extensive federal and state regulation with
respect to financial relationships among healthcare providers, physician
self-referral arrangements and other fraud and abuse issues. Penalties for
violation of federal and state laws and regulations include exclusion from
participation in the Medicare/Medicare and Medicaid programs, asset forfeiture, civil
penalties and criminal penalties.penalties, any of which could have a material adverse
effect on our business, results of operations or financial condition. The
Office of Inspector General of the Department of Health and Human Services, (the "OIG"), the
Department of Justice
(the "DOJ") and other federal agencies interpret healthcare fraud and
abuse provisions liberally and enforce them aggressively. See
"-- Certain Horizon/CMS
Litigation". See also "Business -- Regulation""Business-Regulation" in HEALTHSOUTH's 1997our Annual Report on Form 10-K.10-K for the fiscal year
ended December 31, 1999.
HEALTHCARE REFORM LEGISLATION MAY AFFECT OUR BUSINESS
In recent years, an increasing number ofmany legislative proposals have been introduced or
proposed in Congress and in some state legislatures that would effect major
changes in the healthcare system, either nationally or at the state level.
Among the proposals which are currently being, or recently have been,
under considerationconsidered are cost controls on hospitals, insurance market reforms to increase
the availability of group health insurance to small businesses, requirements
that all businesses offer health insurance coverage to their employees and the
creation of a single government health insurance plan that would cover all
citizens. The costs of certain proposals would be funded in significant part by
reductions in paymentspayment by governmental programs, including Medicare and
Medicaid, to healthcare providers. There continue to be fed-
14
eralfederal and state
proposals that would, and actions that do, impose more limitations on
government and private payments to healthcare providers such as HEALTHSOUTHus and
proposals to increase copayments and deductibles from program
and private patients. At the federal
level, both Congress and the current Administration have continued to propose
healthcare budgets that substantially reduce payments under the Medicare and
Medicaid programs. In addition, many states are considering the enactment of
initiatives designed to reduce their Medicaid expenditures, to provide
universal coverage or additional levels of care and/or to impose additional
taxes on healthcare providers to help finance or expand the states' Medicaid
systems. There can be no assurance as to the ultimate content, timing or effect
of any healthcare reform legislation, nor is it possible at this time to
estimate the impact of potential legislation whichon us. That impact may be material
on HEALTHSOUTH.
COMPUTER TECHNOLOGIES AND YEAR 2000 COMPLIANCE
HEALTHSOUTH is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. Many existing computer
programs use only two digits to identify a year in the date field. The issue is
whether such code exists in HEALTHSOUTH's mission-critical applications and if
that code will produce accurate information to date-sensitive calculations after
the turn of the century.
HEALTHSOUTH is involved in an extensive, ongoing program to identify and
correct problems arising from the year 2000 issues. The program is broken down
into the following categories: (1) mission-critical computer applications which
are internally maintained by HEALTHSOUTH's information technology department;
(2) mission-critical computer applications which are maintained by third-party
vendors; (3) non-mission-critical applications, whether internallyour financial condition or externally
maintained; (4) hardware; (5) embedded applications which control certain
medical and other equipment; (6) computer applications of its significant
suppliers; and (7) computer applications of its significant payors.
Mission-critical computer applications are those which are integral to
HEALTHSOUTH's business mission, which have no reasonable manual alternative for
producing the same information and results, and the failure of which to produce
accurate information and results would have a significant adverse impact on the
Company. Such applications include HEALTHSOUTH's general business systems and
its patient billing systems. Most of HEALTHSOUTH's clinical applications are not
considered mission-critical, because reasonable manual alternatives are
available to produce the same information and results for as long as necessary.
HEALTHSOUTH's review of its internally maintained mission-critical
applications revealed that such applications contained very few date-sensitive
calculations. The revisions to these applications are scheduled to be completed
by October 31, 1998, tested during November and December, 1998 and implemented
during the first quarter of 1999. The budget for this project is approximately
$150,000. The project is currently on schedule, with coding approximately 25%
complete at the end of July 1998.
HEALTHSOUTH's general business applications are all licensed from and
maintained by the same vendor. All such applications are already year 2000
compliant. HEALTHSOUTH has received written confirmation from the vendors of its
other externally maintained mission-critical applications that such applications
are currently year 2000 compliant or will be made year 2000 compliant by the end
of 1998. The cost to be incurred by HEALTHSOUTH related to externally maintained
applications is not currently expected to be material.
HEALTHSOUTH has reviewed all of its non-mission-critical applications and
determined that some of these applications are not year 2000 compliant and will
not be made to be compliant. In such cases, HEALTHSOUTH has developed manual
alternatives to produce the information that such systems currently produce. The
incremental cost of the manual systems is not currently estimated to be
material. HEALTHSOUTH plans to evaluate the effectiveness of the manual systems
before any decisions are made on the replacement of the non-compliant
applications.
HEALTHSOUTH has engaged a consultant to test all of its computer hardware
for year 2000 compliance at a cost of approximately $800,000. Theour results of these tests are expected to be available by November 30, 1998. The Company has
regularly upgraded its significant servers and hardware platforms. Therefore, it
is expected that the consultant's tests will only reveal that HEALTHSOUTH's
older per-
15operations.
12
sonal computers are not year 2000 compliant. Once the results of the tests are
available, HEALTHSOUTH will determine which hardware components are necessary to
replace and will develop a plan to do so. The cost of such replacements cannot
be estimated until the plan is developed.
HEALTHSOUTH has not completed its review of embedded applications which
control certain medical and other equipment. HEALTHSOUTH expects to complete
this review during the third quarter of 1998. The nature of HEALTHSOUTH's
business is such that any failure of these type applications is not expected to
have a material adverse effect on its business.
HEALTHSOUTH has sent inquiries to its significant suppliers of equipment
and medical supplies concerning the year 2000 compliance of their significant
computer applications. Responses have been received from over 50% of those
suppliers, and no significant problems have been identified. Second requests
have been mailed to all non-respondents.
HEALTHSOUTH has also sent inquiries to its significant third-party payors.
Responses have been received from payors representing over 35% of HEALTHSOUTH's
revenues. Such responses indicate that these payors' systems will be year 2000
compliant. Second requests will be mailed to all non-respondents during October
1998. HEALTHSOUTH will continue to evaluate year 2000 risks with respect to such
payors as additional responses are received. In that connection, it should be
noted that substantially all of HEALTHSOUTH's revenues are derived from
reimbursement by governmental and private third-party payors, and that
HEALTHSOUTH is dependent upon such payors' evaluation of their year 2000
compliance status to access such risks. If such payors are incorrect in their
evaluation of their own year 2000 compliance status, this could result in delays
or errors in reimbursement to HEALTHSOUTH by such payors, the effects of which
could be material to HEALTHSOUTH.
Based on the information currently available, HEALTHSOUTH believes that its
risk associated with problems arising from year 2000 issues is not significant.
However, because of the many uncertainties associated with year 2000 compliance
issues, and because HEALTHSOUTH's assessment is necessarily based on information
from third-party vendors, payors and supplies, there can be no assurance that
HEALTHSOUTH's assessment is correct or as to the materiality or effect of any
failure of such assessment to be correct. HEALTHSOUTH will continue with the
assessment process as described above and, to the extent that changes in such
assessment require it, will attempt to develop alternatives or modifications to
its compliance plan above. There can, however, be no assurance that such
compliance plan, as it may be changed, augmented or modified from the time to
time, will be successful.WE FACE NATIONAL, REGIONAL AND LOCAL COMPETITION
HEALTHSOUTH operatesWe operate in a highly competitive industry. HEALTHSOUTH
generally operates its facilities in communities that alsoAlthough we are served by similar
facilities operated by others. Although HEALTHSOUTH is the largest
provider of rehabilitative healthcare, outpatient surgery and rehabilitation healthcareoutpatient
diagnostic services on a nationwide basis,in the United States, in any particular market itwe may
encounter competition from local or national entities with longer operating
histories or other superior competitive advantages. There can be no assurance
that suchthis competition, or other competition which HEALTHSOUTHwe may encounter in the
future, will not adversely affect HEALTHSOUTH'sour financial condition or our results of
operations.
CERTAIN HORIZON/CMSWE ARE SUBJECT TO MATERIAL LITIGATION
On October 29, 1997, HEALTHSOUTH acquired Horizon/CMS Healthcare
Corporation ("Horizon/ CMS") through the merger of a wholly-owned subsidiary of
HEALTHSOUTH withWe are, and into Horizon/ CMS. Horizon/CMS is currently a party, or is
subject, to certain material litigation matters and disputes, which are
described below, as well as various other litigation matters and disputes
arisingmay in the ordinary course of its business. HEALTHSOUTH is not itself a
party to the litigation described below.
SEC and NYSE Investigations
The Division of Enforcement of the SEC is conducting a private
investigation with respect to trading in the securities of Horizon/CMS and
Continental Medical Systems, Inc. ("CMS"), which was acquired by Horizon/CMS in
June 1995. In connection with that investigation, Horizon/CMS produced
16
certain documents, and Neal M. Elliott, then Chairman of the Board, President
and Chief Executive Officer of Horizon/CMS, and certain other former officers of
Horizon/CMS have given testimony to the SEC. Horizon/CMS has also been informed
that certain of its division office employees and an individual, affiliates of
whom had limited business relationships with Horizon/CMS, have responded to
subpoenas from the SEC. Mr. Elliott also produced certain documents in response
to a subpoena from the SEC. In addition, Horizon/CMS and Mr. Elliott have
responded to separate subpoenas from the SEC pertaining to trading in
Horizon/CMS's common stock and various material press releases issued in 1996 by
Horizon/CMS; Horizon/CMS's February 18, 1997 announcement that HEALTHSOUTH would
acquire Horizon/CMS; and any discussions of proposed business combinations
between Horizon/CMS and Medical Innovations and Horizon/CMS and certain other
companies. The investigation is, to the knowledge of HEALTHSOUTH and
Horizon/CMS, ongoing, and neither Horizon/CMS nor HEALTHSOUTH possesses all the
facts with respect to the matters under investigation. Although neither
Horizon/CMS nor HEALTHSOUTH has been advised by the SEC that the SEC has
concluded that any of Horizon/ CMS, Mr. Elliott or any other current or former
officer or director of Horizon/CMS has been involved in any violation of the
federal securities laws, there can be no assurance as to the outcome of the
investigation or the time of its conclusion. Both Horizon/CMS and HEALTHSOUTH
have, to the extent requested to date, cooperated fully with the SEC in
connection with the investigation.
In March 1995, the New York Stock Exchange (the "NYSE") informed
Horizon/CMS that it had initiated a review of trading in The Hillhaven
Corporation common stock prior to the announcement of Horizon/CMS's proposed
acquisition of Hillhaven. In April 1995, the NYSE extended the review of trading
to include all dealings with CMS. On April 3, 1996, the NYSE notified
Horizon/CMS that it had initiated a review of trading in its common stock
preceding Horizon/CMS's March 1, 1996 press release announcing a revision in
Horizon/CMS's third quarter earnings estimate. On February 20, 1997, the NYSE
notified Horizon/CMS that it was reviewing trading in Horizon/CMS's securities
prior to the February 18, 1997 announcement that HEALTHSOUTH would acquire
Horizon/CMS. Horizon/CMS has cooperated with the NYSE in its reviews and, to
Horizon/CMS's knowledge, the reviews are ongoing.
In February 1997, HEALTHSOUTH received a subpoena from the SEC with respect
to its investigation concerning trading in Horizon/CMS common stock prior to the
February 18, 1997 announcement that HEALTHSOUTH would acquire Horizon/CMS and a
request for information from the NYSE in connection with its review of such
trading. HEALTHSOUTH responded to such subpoena and request for information and
advised both the SEC and the NYSE that it intended to cooperate fully in any
investigations or reviews relating to such trading. HEALTHSOUTH provided certain
additional information to the SEC in April 1997. Since that time, HEALTHSOUTH
has had no further inquiries from either the SEC or the NYSE with respect to
such matters, and is unaware of the current status of such investigations or
reviews.
Michigan Attorney General Investigation Into Long-Term Care Facility In
Michigan
Horizon/CMS learned in September 1996 that the Attorney General of the
State of Michigan was investigating one of its skilled nursing facilities. The
facility, in Howell, Michigan, was owned and operated by Horizon/CMS from
February 1994 until December 31, 1997. As widely reported in the press, the
Attorney General seized a number of patient, financial and accounting records
that were located at this facility. By order of a circuit judge in the county in
which the facility is located, the Attorney General was ordered to return
patient records to the facility for copying. Horizon/CMS advised the Michigan
Attorney General that it was willing to cooperate fully in the investigation.
The facility in question was sold by Horizon/CMS to Integrated Health Services,
Inc., on December 31, 1997.
On February 19, 1998, the State of Michigan filed a criminal complaint
against Horizon/CMS, four former employees of the facility and one former
Horizon/CMS regional manager, alleging various violations in 1995 and 1996 of
certain statutes relating to patient care, patient medical records and the
making of false statements with respect to the condition or operations of the
facility (State of Michigan v. Horizon/CMS Healthcare Corp., et al., Case No.
98-630-FY, State of Michigan District Court 54B). The maximum fines chargeable
against Horizon/CMS under the counts alleged in the complaint (exclusive of
charges against the individual defendants, some of which charges may result in
indemnification
17
obligations for Horizon/CMS) aggregate $69,000. Horizon/CMS denies the
allegations made in the complaint and expects to vigorously defend against the
charges. It is not possible to predict at this time the outcome or effect of
this litigation or the length of time it will take to resolve this litigation.
Lawsuit by Former Shareholders of Communi-Care, Inc. and Pro Rehab, Inc.
On May 28, 1997, CMS was served with a lawsuit styled Kenneth Hubbard and
Lynn Hubbard v. Rocco Ortenzio, Robert A. Ortenzio and Continental Medical
Systems, Inc., No. 3:97 CV294MCK, filed in the United States District Court for
the Western District of North Carolina, Charlotte Division, by the former
shareholders of Communi-Care, Inc. and Pro Rehab, Inc. seeking damages arising
out of certain "earnout" provisions of the definitive purchase agreements under
which CMS purchased the outstanding stock of Communi-Care, Inc. and Pro Rehab,
Inc. from such shareholders. The plaintiffs allege that the manner in which CMS
and the other defendants operated the companies after their acquisition breached
its fiduciary duties to the plaintiffs, constituted fraud, gross negligence and
bad faith, and breached their employment agreements with the companies. As a
result of such alleged conduct, the plaintiffs assert that they are entitled to
damages in an amount in excess of $27,000,000 from CMS and the other defendants.
Horizon/CMS believes, based upon its evaluation of the legal and factual matters
relating to the plaintiffs' assertions, that it has valid defenses to the
plaintiffs' claims and, as a result, intends to vigorously contest such claims.
Because this litigation remains at an early stage, HEALTHSOUTH cannot now
predict the outcome or effect of such litigation or the length of time it will
take to resolve such litigation.
EEOC Litigation
In March 1997, the Equal Employment Opportunity Commission (the "EEOC")
filed a complaint against Horizon/CMS alleging that Horizon/CMS had engaged in
unlawful employment practices in respect of Horizon/CMS's employment policies
related to pregnancies. Specifically, the EEOC asserts that Horizon/CMS's
alleged refusal to provide pregnant employees with light-duty assignments to
accommodate their temporary disabilities caused by pregnancy violates Sections
701(k) and 703(a) of Title VII, 42 U.S.C. (section)(section) 2000e-(k) and
2000e-2(a). In this lawsuit, the EEOC seeks, among other things, to permanently
enjoin Horizon/CMS's employment practices in this regard. Horizon/CMS disputes
the factual and legal assertions of the EEOC in this litigation and intends to
vigorously contest the EEOC's claims. HEALTHSOUTH cannot predict the length of
time it will take to resolve this litigation or the outcome or effect of the
litigation.
Heritage Western Hills Litigation
Since July 1996, Horizon/CMS has been a defendant in a lawsuit styled Lexa
A. Auld, Administratrix of Martha Hary, Deceased v. Horizon/CMS Healthcare
Corporation and Charles T. Maxvill, D.O., No. 48-165121, 48th Judicial District
Court, Tarrant County, Texas. The case involved injuries allegedly suffered by a
resident of the Heritage Western Hills nursing facility in Fort Worth, Texas.
Horizon/CMS tendered the claim to its insurance carrier, which accepted coverage
with a reservation of rights and provided a defense through the carrier's
selected counsel in Dallas, Texas. The case went to trial on October 29, 1997,
and on November 7, 1997, the jury rendered a verdict in favor of the plaintiff
in the amount of $2,370,000 in compensatory damages and $90,000,000 in punitive
damages. Counsel has advised Horizon/CMS that, under applicable Texas law, the
punitive damages award is, at worst, limited to four times the amount of the
compensatory damages (the "Punitive Damages Cap"), and thus that the maximum
amount of an enforceable judgment in favor of the plaintiff is approximately
$12,000,000. Counsel has also advised Horizon/CMS that there are, potentially,
other and further caps on both the amount of compensatory damages available to
the plaintiff and the amount of punitive damages. Horizon/CMS filed the required
motions with the court to impose the Punitive Damages Cap. On February 20, 1998,
the court reduced the jury's verdict and entered a judgment in the amount of
approximately $11,237,000. Horizon/CMS also vigorously disputes the efficacy of
the jury's verdict and has appealed the judgment.
Horizon/CMS's insurance carrier continues to defend the matter subject to a
reservation of rights. Based upon an evaluation by its then-current internal
counsel, after reviewing the findings contained in the jury verdict, the
insurance policy at issue and the carrier's handling of the case, Horizon/CMS
18
believes that the entirety of any judgment ultimately entered is covered by and
payable from such insurance policy, less Horizon/CMS's self-insured retention of
$250,000. On November 19, 1997, the insurance carrier sent Horizon/CMS a letter
indicating its belief that certain policy exclusions might apply and requesting
additional information which might affect its coverage determination. Horizon/
CMS has retained separate counsel to analyze the coverage issues and advise
Horizon/CMS on its position, and Horizon/CMS expects to continue to negotiate
any coverage issues with its carrier. Settlement negotiations by Horizon/CMS's
insurance carrier, in conjunction with HEALTHSOUTH's retained counsel, continue
with the plaintiff. It is not possible at this time to predict the outcome of
any post-trial motions or appeals, the resolution of any coverage issues, the
outcome of any settlement negotiations or the ultimate amount of any liability
which will be borne by Horizon/CMS.
PROCEDURES FOR TENDER OF OLD NOTES
The New Notes will be issued in exchange for Old Notes only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal and all other required documents. Therefore,
holders of Old Notes desiring to tender such Old Notes in exchange for New Notes
should allow sufficient time to ensure timely delivery. Failure by a holder to
follow such procedures may result in delay in receiving a New Note on a timely
basis. Neither the Exchange Agent nor HEALTHSOUTH is under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange. Any holder of Old Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes will be required to
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes, where
such Old Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of New Notes. See "The
Exchange Offer -- Procedures for Tendering" and "Plan of Distribution".
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue tofuture be, subject to the restrictionslitigation which, if
determined adversely to us, could have a material adverse effect on transfer of such Old Notes as set forth in the legend thereon as a
consequenceour
business or financial condition. In addition, some of the issuance of the Old Notes pursuant to exemptions from, or in
transactions notcompanies and
businesses we have acquired have been subject to the registration requirements of the Securities Act
and applicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, or pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. HEALTHSOUTH does not currently anticipate that
it will register the Old Notes under the Securities Act. To the extent that Old
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be adversely affected.
LACK OF PUBLIC MARKET FOR THE NOTESsimilar litigation. There can
be no assurance that pending or future litigation, whether or not described in
this prospectus, will not have a public marketmaterial adverse effect on our financial
condition or our results of operations. See "Legal Proceedings" in our Annual
Report on Form 10-K for the New Notes will
develop or, if such a market develops,fiscal year ended December 31, 1999.
YOU SHOULD TAKE INTO ACCOUNT CERTAIN FINANCING CONSIDERATIONS
Amount of Leverage
As of June 30, 2000, we had approximately $3,259,997,000 of outstanding
indebtedness (including the current portion of long-term debt and excluding
obligations to trade creditors) and approximately $3,333,591,000 of
stockholders' equity. Outstanding indebtedness was approximately 49.4% of our
total capitalization, which was approximately $6,593,588,000 (including the
current portion of long-term debt). On an as-adjusted basis, as of June 30,
2000, after giving effect to the liquidityoffering of such market. If
suchthe Private Notes and the use of
proceeds, we would have had approximately $3,271,065,000 of outstanding
indebtedness, which would amount to approximately 49.5% of our total
capitalization (including short-term borrowings and notes and the current
portion of long-term debt) and approximately $3,333,181,000 of stockholders'
equity. See "Capitalization".
Restrictive Covenants
Our $1,750,000,000 revolving credit facility with Bank of America, N.A.,
and other participating banks contains various covenants that limit our ability
to engage in certain transactions. Those covenants, among other things:
o limit our and our subsidiaries' ability to borrow and to place liens on
our and their assets;
o limit our investments and the sale of all or substantially all of our
assets;
o require us to maintain a market wereminimum consolidated net worth; and
o require us to develop,comply with coverage ratio tests.
The indentures governing our debt securities, including the New Notes, include
covenants of a similar nature. Our failure to comply with any of these
covenants could trade at pricesresult in an event of default under our indebtedness, including
the Notes. That, in turn, could cause an event of default to occur under all or
substantially all of our other indebtedness. See "Description of Exchange
Notes-Certain Covenants".
Effect on Our Ability to Finance Future Operations
Our level of indebtedness relative to our total capitalization and the
covenants described above may adversely affect our ability to finance our
future operations. Those factors also could limit our ability to pursue
business opportunities that may be higherin our interests. In particular, changes in
medical technology, existing, proposed and future legislation, regulations and
the interpretation thereof, and the requirements of payor contracts and other
government reimbursement programs may require significant investments in
facilities, equipment, personnel and services. Although we believe that cash
generated from operations, amounts available under our bank credit facilities
and our ability to access capital markets will be sufficient to allow us to
make such investments, we cannot assure you that we will be able to obtain the
funds necessary to make such investments.
13
THE NOTES ARE SUBORDINATED OBLIGATIONS
The Notes are subordinate in right of payment to all of our current and
future Senior Indebtedness (as defined in "Description of Exchange Notes").
Senior Indebtedness includes indebtedness under our bank credit facilities and
all of our other indebtedness that is not expressly made subordinate to, or
lower than their principal amount. HEALTHSOUTHequal to, the Notes. At June 30, 2000, the aggregate amount of our Senior
Indebtedness was approximately $2,187,068,000, as adjusted to give effect to
the sale of the Private Notes and the application of the net proceeds of the
offering of the Private Notes. See "Capitalization". After giving effect to the
application of the proceeds of the sale of the Private Notes, we would have
been entitled to borrow in excess of $312,932,000 under our existing credit
facilities at June 30, 2000, which does not intendinclude any amounts under the new
credit facility. Subject to apply for listingcertain limitations in the indenture, we may incur
additional indebtedness in the future, including Senior Indebtedness. By reason
of the Newsubordination of the Notes, in the event of our insolvency, bankruptcy,
liquidation, reorganization, dissolution or winding up of our business or upon
default in payment with respect to any of our Senior Indebtedness, or an event
of default with respect to such indebtedness resulting in the acceleration
thereof, our assets will be available to pay the amounts due on the Notes only
after all of our Senior Indebtedness has been paid in full. See "Description of
Exchange Notes".
The majority of our operations are conducted through subsidiaries or
partnerships, which are separate and distinct legal entities and have no
obligations, contingent or otherwise, to pay any amounts due pursuant to the
Notes or make any funds available therefor, whether by dividends, loans or
other payments. The Notes effectively will be subordinated to all indebtedness
and other liabilities and commitments (including trade payables and lease
obligations) of our subsidiaries and partnerships. Any right we have to receive
assets of any such subsidiary or partnership upon the liquidation or
reorganization of any such subsidiary or partnership (and your consequent right
as a holder of the Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's or partnership's creditors.
OUR ABILITY TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL MAY BE LIMITED
In the event of a Change of Control, you will have the right, at your
option, to require us to repurchase all or a portion of the Notes you hold at a
purchase price equal to 101% of the aggregate principal amount of your Notes
plus accrued interest thereon to the repurchase date. See "Description of
Exchange Notes". Our ability to repurchase the Notes upon a Change of Control
may be limited by the terms of our Senior Indebtedness and the subordination
provisions of the indenture. Further, our ability to repurchase the Notes upon
a Change of Control will be dependent on the availability of sufficient funds
and our ability to comply with the applicable securities laws. Accordingly,
there can be no assurance that we will be in a position to repurchase the Notes
upon a Change of Control. The term "Change of Control" is limited to certified
specified transactions and may not include other events that might adversely
affect our financial condition or result in a downgrade of the credit rating
(if any) of the Notes, nor would the requirement that we offer to repurchase
the Notes upon a Change of Control necessarily afford holders of the Notes
protection in the event of a highly leveraged reorganization.
HOLDERS OF OUR DEBENTURES HAVE A REPURCHASE RIGHT IN CERTAIN CIRCUMSTANCES IN
WHICH HOLDERS OF THE NOTES DO NOT
In March 1998, we issued $567,750,000 of 3.25% convertible subordinated
debentures due 2003. In general, the debentures rank equally with the Notes.
However, the holders of the debentures have a right to require us to repurchase
the debentures at a price equal to 100% of the principal amounts thereof, plus
accrued and unpaid interest, in the event that our common stock is neither
listed for trading on a United States national securities exchange ornor approved
for quotation
of the New Notestrading on any automated quotation system. The Initial Purchasers have
previously made aan established over-the-counter trading market in the OldUnited
States. The Notes do not have similar repurchase rights. Therefore, in the
event that our common stock were not listed for trading as described above, the
holders of the debentures might be able to receive payment ahead of the holders
of the Notes even though the Notes and HEALTHSOUTHthe debentures rank equally with one
another. Our common stock has been advised that
the Initial Purchasers currently intend to make a market inlisted for trading on the New Notes, as
permitted by applicable lawsYork Stock
Exchange since 1989, and regulations, after consummation ofwe anticipate that this will continue to be the Exchange
Offer. The Initial Purchasers are not obligated, however, to make a market in
the Old Notes or the New Notes and any such market making activity may be
discontinued at any time without notice at the sole discretion of the Initial
Purchasers. If an active public market does not develop or continue, the market
price and liquidity of the New Notes may be adversely affected.
19case.
14
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Issuer'sour consolidated ratio of earnings to fixed
charges for the periods shown.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
SIX MONTHS ENDED
------------------------------------------------------ JUNE 30,
1993 1994
1995 1996 1997 1998 ---- ---- ---- ---- ---- ----1999 JUNE 30, 2000
--------- --------- --------- --------- --------- --------------
Ratio of earnings to fixed charges ......... 5.71x 3.31x 3.27x 4.61x 5.34x 6.59x3.0x 4.6x 5.4x 5.5x 3.9x 2.9x
For purposes of calculatingThe ratio of earnings to fixed charges (i)was calculated by (1) dividing
earnings consist of consolidatedfrom continuing operations, before income (loss) before taxes, fixed charges and
unusual and nonrecurring charges plusby (2) fixed charges, and (ii) fixed chargeswhich consist of
interest expense incurred, including amortization of debt expense and discount,
and the portion of rental expense under operating leases deemed by the
Issuerestimated to be
representative of the interest factor.
THE EXCHANGE OFFER
The following discussion sets forth or summarizes the material terms of the
Exchange Offer, including those set forth in the Letter of Transmittal
distributed with this Prospectus. This summary is qualified in its entirety by
reference to the full text of the documents underlying the Exchange Offer
(including the Indenture and the Registration Rights Agreement), which are
exhibits to the registration statement of which this Prospectus is a part.
TERMSPURPOSE OF THE EXCHANGE OFFER
The OldWe issued the Private Notes were sold byon September 25, 2000, to UBS Warburg LLC,
Deutsche Bank Securities Inc., Chase Securities Inc. and First Union
Securities, Inc., the Issuer to the Initial Purchasers on June 22,
1998, the "Closing Date",initial purchasers, pursuant to a Purchase Agreement entered into bypurchase agreement. The
initial purchasers subsequently sold the Initial Purchasers on June 22, 1998 (the "Purchase Agreement") and were
subsequently resold (i)Private Notes to qualified"qualified
institutional buyers pursuant tobuyers", as defined in Rule 144A under the Securities Act, in
reliance on Rule 144A, and (ii) pursuant to offers and sales that occurred outside the United States within the meaning ofunder Regulation S underof the
Securities Act. In connectionAs a condition to the sale of the Private Notes, we entered
into a registration rights agreement with the issuance of the Old Notes pursuantinitial purchasers on September
25, 2000. Pursuant to the Purchase Agreement,registration rights agreement, we agreed that we
would:
(1) file a registration statement with the Initial Purchasers and their respective assignees became
entitledSEC with respect to the
benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Issuer is required to fileExchange Notes within 60 days after the Closing Date a registration statement (the "Exchange
Offer Registration Statement") for a registered exchange offer with respect to
an issuedate of new notes identical in all material respects toinitial issuance of the
Old Notes except
that the new notes shall contain no restrictive legend thereon. Under the
Registration Rights Agreement, the Issuer is required to (i) cause the Exchange
Offer Registration Statement to be filed with the Commission no later than 60
days after the Closing Date, (ii)Private Notes;
(2) use itsour reasonable best efforts to cause such Exchange
Offer Registration Statementthe registration statement
to becomebe declared effective no later than 150by the SEC on or prior to 120 days after the Closing Date, (iii)date
of initial issuance of the Private Notes;
(3) use its best efforts to keep the Exchange Offer open for
at least 30 and not longer than 45 calendar days (or longer if required by
applicable law), (iv) use itsour reasonable best efforts to consummate the Exchange Offer as
soon as practicable following the dateexchange offer on
which the Exchange Offer Registration
Statement is declared effective by the Commission, but in no event later than
180or prior to 150 days after the Closing Datedate of initial issuance of the Private
Notes; and
(v) cause(4) keep the exchange offer open for not less than 20 business days.
Upon the effectiveness of the registration statement, we will offer the
Exchange Offer to comply with
all applicable federal and state securities laws. The Exchange Offer being made
hereby, if commenced and consummated within the time periods described in this
paragraph, will satisfy those requirements under the Registration Rights
Agreement.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, all Old Notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on the Expiration Date will be
accepted for exchange. New Notes of the same maturity will be issued in exchange for the Private Notes. We filed a copy of the
registration rights agreement as an equal principal amount of outstanding Old Notes accepted in the Exchange
Offer. Old Notes may be tendered only in integral multiples of $1,000. This
Prospectus, together with the Letter of Transmittal, is being sent to all
registered holders on or about ____________, 1998. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered in
exchange. However, the obligation to accept Old Notes for exchange pursuantexhibit to the Exchange Offer is subject to certain conditions as set forth herein under
"-- Conditions".
20
Old Notes shall be deemed to have been accepted as validly tendered when,
as and if the Trustee has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purposes of receiving the New Notes and delivering New Notes to
such holders.registration statement.
RESALE OF THE EXCHANGE NOTES
Based on interpretationsupon an interpretation by the staff of the Commission, as set forthSEC contained in
no-action letters issued to third parties, includingwe believe that you may exchange
Private Notes for Exchange Notes in the ordinary course of business. For
further information on the SEC's position, see Exxon Capital Holdings
Corporation, available May 13, 1988, Morgan Stanley & Co. Incorporated,
available June 5, 1991 and Shearman & Sterling, available July 2, 1993, and
other interpretive letters to similar effect. You will be allowed to resell
Exchange Offer
No-Action Letters, the Issuer believes that the New Notes issued pursuant to the Exchange Offer may be offered for resale, resold or otherwise transferred by
each holder thereof (other than a broker-dealer who acquires such New Notes
directly from the Issuer for resale pursuant to Rule 144A under the Securities
Act or any other available exemptionpublic without further registration under the Securities
Act and other than any
holder that is an "affiliate" (as defined in Rule 405 under the Securities Act)without delivering to purchasers of the Issuer without compliance withExchange Notes a prospectus
that satisfies the registration and prospectus delivery
provisionsrequirements of Section 10 of the Securities Act provided that such New Notes are acquired in
the ordinary course of such holder's business and such holder isso long as
you do not engaged in,
and doesparticipate, do not intend to engage in, a distribution of such New Notesparticipate, and hashave no arrangement
with any person to participate, in a distribution of such Newthe Exchange Notes.
By tenderingHowever, the Old Notes in exchange for New Notes, each holder, other thanforegoing does not apply to you if you are:
o a broker-dealer will representwho purchases the Exchange Notes directly from us to
resell pursuant to Rule 144A or any other available exemption under the
Issuer that: (i) it is notSecurities Act; or
o an affiliate (as
defined in"affiliate" of ours within the meaning of Rule 405 under the
Securities Act) of the Issuer; (ii) it is notAct.
15
In addition, if:
o you are a broker-dealer tendering Oldbroker-dealer; or
o you acquire Exchange Notes acquired for its own account directly from the
Issuer; (iii) any New Notes to be received by it will be acquired in the ordinary courseexchange offer for the purpose of
its business; and (iv) it is not engageddistributing or participating in and does not
intend to engage in, a distribution of such New Notes and has no arrangement or
understanding to participate in a distribution of the New Notes. If a holder of
Old Notes is engaged in or intends to engage in a distribution of the New Notes
or has any arrangement or understanding with respect to the distribution of the NewExchange Notes,
to be acquired pursuant to the Exchange Offer, such holder may notyou cannot rely on the applicable interpretationsposition of the staff of the CommissionSEC contained in the
no-action letters mentioned above and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
secondary resale transaction.transaction, unless an exemption from registration is otherwise
available.
Each Participating Broker-Dealerbroker-dealer that receives NewExchange Notes for its own account pursuant
toin
exchange for Private Notes, which the Exchange Offerbroker-dealer acquired as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of such Newthe Exchange Notes.
The Letterletter of Transmittaltransmittal states that by so acknowledging and by delivering a
prospectus, a Participating
Broker-Dealerbroker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus,A broker-dealer may use
this prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of NewExchange Notes received in exchange for OldPrivate
Notes where
such Old Notes werewhich the broker-dealer acquired by such Participating Broker-Dealer as a result of market-making activities or other
trading activities.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we will accept any and all Private Notes
validly tendered and not withdrawn before the expiration date. We will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Private Notes surrendered pursuant to the exchange offer.
You may tender Private Notes only in integral multiples of $1,000.
The Issuer has agreed that
it will make this Prospectus available to any Participating Broker-Dealer for a
period of time not to exceed one year after the date on which the Exchange Offer
is consummated for use in connection with any such resale. See "Plan of
Distribution".
In the event that (i) any changes in law or the applicable interpretations
of the staff of the Commission do not permit the Issuer to effect the Exchange
Offer, or (ii) if any holder of Old Notes shall notify the Issuer within 30
calendar days following the consummationform and terms of the Exchange Offer that (A) such
holder was prohibited by law or Commission policy from participating inNotes are the same as the form and
terms of the Private Notes except that:
o we have registered the Exchange Offer or (B) such holder may not resell the New Notes acquired by it in
the Exchange Offer to the public without delivering a prospectus and the
prospectus contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales by such holder or (C) such holder is a
broker-dealer and holds Old Notes acquired directly from the Issuer or one of
its affiliates, then the Issuer shall (x) cause to be filed a shelf registration
statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration
Statement") on or prior to 30 days after the date on which the Issuer determines
that it is not required to fileand,
therefore, the Exchange Offer Registration Statement
pursuant to clause (i) above or 30 days after the date on which the Issuer
receives the notice specified in clause (ii) aboveNotes will not bear legends restricting their
transfer; and
shall (y) use its best
efforts to cause such Shelf Registration Statement to become effective within 30
days after the date on which the Issuer becomes obligated to file such Shelf
Registration Statement. If, after the Issuer has filed an Exchange Offer
Registration Statement, the Issuer is required to file and make effective a
Shelf Registration Statement solely because the Exchange Offer is not permitted
under applicable federal law, then the filingo holders of the Exchange Offer Registration
Statement shallNotes will not be deemedentitled to satisfyany of the requirementsrights
of clause (x) above. Such
an event shall have no effectholders of Private Notes under the registration rights agreement,
which rights will terminate upon the completion of the exchange offer.
The Exchange Notes will evidence the same debt as the Private Notes and will be
issued under the same indenture, so the Exchange Notes and the Private Notes
will be treated as a single class of debt securities under the indenture.
As of the date of this prospectus, $350,000,000 in aggregate principal
amount of the Private Notes is outstanding and registered in the name of Cede &
Co., as nominee for The Depository Trust Company. Only registered holders of
the Private Notes, or their legal representative or attorney-in-fact, as
reflected on the requirementsrecords of clause (y) above. The
21
Issuer shall use its best efforts to keep the Shelf Registration Statement
continuously effective, supplemented and amended to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities (as
defined below) by the holders thereof for a period of at least two years
following the date on which such Shelf Registration Statement first becomes
effectivetrustee under the Securities Act. The term "Transfer Restricted Securities"
means each Note, until the earliest to occur of (a) the date on which such Note
is exchangedindenture, may participate in
the Exchange Offer andexchange offer. We will not set a fixed record date for determining
registered holders of the Private Notes entitled to be resold toparticipate in the public byexchange
offer.
You do not have any appraisal or dissenters' rights under the holder thereof without complyingindenture in
connection with the prospectus delivery requirements
ofexchange offer. We intend to conduct the Act, (b) the date on which such Note has been disposed ofexchange offer in
accordance with a Shelf Registration Statement, (c) the date on which such Note is disposed
of by a broker-dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including deliveryprovisions of the prospectus
contained therein) or (d) the date on which such Note is distributed to the
public pursuant to Rule 144 under the Act.
If (i) the Exchange Offer Registration Statement or the Shelf Registration
Statement is not filed with the Commission on or prior to the date specified in
the Registration Rights Agreement, (ii) any such Registration Statement has not
been declared effective by the Commission on or prior to the date specified for
such effectiveness in the Registration Rights Agreement, (iii) the Exchange
Offer has not been consummated within 180 days after the Closing Date or (iv)
any Registration Statement required by the Registration Rights Agreement is
filedregistration rights agreement and declared effective but shall thereafter cease to be effective or fail
to be usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately (each such event referred to
in clauses (i) through (iv), a "Registration Default"), then the Issuer has
agreed to pay liquidated damages to each holder of Transfer Restricted
Securities. Liquidated Damages shall accrue on the
applicable Old Notes or the
applicable New Notes, as the case may be, over and above the applicable interest
rate set forth in the title to the applicable Old Notes or the applicable New
Notes. Following the occurrence of each such Registration Default mentioned
herein from and including the next day following each such Registration Default
in each case at a rate equal to 0.25% per annum; provided, however, that in any
case, if one or more Registration Defaults occurs and continues for more than 60
days (whether or not consecutive) in any twelve month period (the 61st day being
referred to as the "Default Day") then and from the Default Day until the
earlier of (i) the date such Shelf Registration Statement is again deemed
effective or is useable, (ii) the date that is the second anniversary of the
Closing Date (or, if Rule 144(k)requirements of the Securities Act, is amendedthe Exchange Act and the rules
and regulations of the SEC.
We will be deemed to provide a
shorter restrictive period, such shorter period)have accepted validly tendered Private Notes when, as
and if we had given oral or (iii) the date on which the
Notes are sold pursuant to such Shelf Registration Statement, Liquidated Damages
shall accrue at a ratewritten notice of 0.25% per annum, provided, however, that the aggregate
amount of Liquidated Damages payable will in no event exceed 0.25% per annum.
The Liquidated Damages attributable to each Registration Default shall cease to
accrue from the date such Registration Default is cured.
All accrued liquidated damages shall be paidacceptance to the holdersexchange agent.
The exchange agent will act as your agent for the purposes of record onreceiving the
preceding June 1 and December 1, respectively, of the global note
representing the OldExchange Notes by wire transfer of immediately available funds or by
federal funds check and to holders of certificated securities by mailing checks
to their registered addresses on each June 15 and December 15. All obligations
of the Issuer set forthfrom us.
16
If you tender Private Notes in the preceding paragraph that are outstandingexchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to any Transfer Restricted Security at the time such security ceases to
be a Transfer Restricted Security shall survive until such time as all such
obligations with respect to such security shall have been satisfied in full.
Upon consummationexchange of
the Exchange Offer, subject to certain exceptions, holders
of OldPrivate Notes who do not exchange their Old Notes for New Notes in the Exchange
Offer will no longer be entitled to registration rights and will not be able to
offer or sell their Old Notes, unless such Old Notes are subsequently registered
under the Securities Act (which, subject to certain limited exceptions, the
Issuer will have no obligation to do), except pursuant to an exemption from, orthe exchange offer. We will pay all charges and
expenses, other than the applicable taxes described below, in a transaction not subject to,connection with
the Securities Act and applicable state
securities laws. See "Risk Factors -- Risk Factors Relating to the Notes --
Consequences of Failure to Exchange".exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATIONAMENDMENTS
The term "Expiration Date" shall"expiration date" will mean ____________, 1998 (30 calendar days
following5:00 p.m., New York City time, on
______________, 2000, unless we, in our sole discretion, extend the commencement of the Exchange Offer), unless the Exchange Offer is
extended, if and as required by
22
applicable law,exchange
offer, in which case the term "Expiration Date" shall"expiration date" will mean the latest date and
time to which the Exchange Offer is extended.
In order towe extend the Expiration Date,exchange offer.
To extend the Issuer willexchange offer, we will:
o notify the Exchange
Agentexchange agent of any extension by oralorally or written noticein writing; and
willo notify the registered holders of the OldPrivate Notes by means of a press
release or other public announcement,
prior toeach before 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
The Issuer reservesexpiration date.
We reserve the right, (i)in our reasonable discretion:
o to delay acceptance ofaccepting any Old Notes,Private Notes;
o to extend the Exchange Offerexchange offer; or
o if any conditions listed below under "-Conditions" are not satisfied, to
terminate the Exchange Offer and not permit
acceptance of Old Notes not previously accepted if any of the conditions set
forth herein under "-- Conditions" shall have occurred and shall not have been
waived by the Issuer,exchange offer by giving oral or written notice of suchthe
delay, extension or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer inexchange agent.
We will follow any manner deemed by it to be advantageous to the holders of the Old
Notes. Any such delay in acceptance, extension termination or amendment will be
followedtermination as
promptly as practicable by oral or written notice thereof to the Exchange Agent.registered holders. If
we amend the Exchange Offer is amendedexchange offer in a manner determined by the
Issuer to constitutewe determine constitutes a material
change, the Issuerwe will promptly disclose suchthe amendment in a manner reasonably calculatedprospectus supplement that
we will distribute to inform the holders of the Old
Notes of such amendment.registered holders.
INTEREST ON THE NEWEXCHANGE NOTES
The NewExchange Notes will accrue interest from June 22, 1998,September 25, 2000 at the
ratesrate of 6.875% on the New Notes due 200510-3/4%, and, 7.0% on the New Notes due 2008. Commencing
December 15, 1998,commencing April 1, 2001, cash interest on the NewExchange
Notes will accrue and be payable, at a per annum rate of 6.875% on the New Notes due 2005 and 7.0% on the New Notes
due 2008,10-3/4%, semi-annually
in arrears on each June 15April 1 and December 15.October 1. The payment of interest on Exchange
Notes will be in lieu of payment of any accrued but unpaid interest on Private
Notes tendered for exchange.
PROCEDURES FOR TENDERING
You may tender Private Notes in the exchange offer only if you are a
registered holder of Private Notes. To tender in the Exchange Offer, a holder mustexchange offer, you must:
o complete, sign and date the Letterletter of Transmittal,transmittal or a facsimile of the
letter of transmittal;
o have the signatures thereon guaranteed if required by the Letterletter of Transmittal,transmittal;
and
o mail or otherwise deliver such Letterthe letter of Transmittal,
together with any other required documents,transmittal or the facsimile of
the letter of transmittal to the Exchange Agent prior to 5:00
p.m., New York City time, onexchange agent at the Expiration Date.address listed
below under "-Exchange Agent" for receipt before the expiration date.
In addition, either (i)either:
o the exchange agent must receive certificates for such Oldthe Private Notes must be received by the Exchange Agent along
with the Letterletter of Transmittal, (ii) a timely confirmation of a book entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available,transmittal into the Exchange Agent'sits account at DTC (the "Book-Entry Transfer
Facility")the depositary
pursuant to the procedure for book-entry transfer described below before
the expiration date;
o the exchange agent must be received byreceive a timely confirmation of a book-entry
transfer of the Exchange Agent priorPrivate Notes, if the procedure is available, into its
account at the depositary pursuant to the Expiration Dateprocedure for book-entry
transfer described below before the expiration date; or
(iii) the
holdero you must comply with the guaranteed delivery procedures described below.
THE
METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS OF THE NOTES. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE ISSUER. Delivery of all documents must be made17
Your tender, if not withdrawn before the expiration date, will constitute
an agreement between you and us in accordance with the terms and subject to the
Exchange
Agentconditions described in this prospectus and in the letter of transmittal.
The method of delivery of Private Notes and the letter of transmittal and
all other required documents to the exchange agent is at its address set forth below. Holdersyour election and
risk. We recommend that instead of delivery by mail, you use an overnight or
hand delivery service, properly insured. In all cases, you should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. You should not send letters of transmittal or Private Notes to us. You
may also request theiryour respective brokers, dealers, commercial banks, trust companies
or nominees to effect such tenderthe transactions described above for such holders.
The tender byyou.
If you are a holder of Old Notes will constitute an agreement between
such holder and the Issuer in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Issuer or any other person who
has obtained a properly completed bond power from the registered holder.
23
Any beneficial owner of Private Notes whose OldPrivate Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishesyou wish to tender your Private Notes, you should contact suchthe
registered holder promptly and instruct suchthe registered holder to tender on hisyour
behalf. If such beneficial owner wishesyou wish to tender on hisyour own behalf, such beneficial owner must, prior tobefore completing and
executing the Letterletter of Transmittaltransmittal and delivering his Oldthe Private Notes eitheryou must
either:
o make appropriate arrangements to register ownership of the OldPrivate Notes
in such owner's
nameyour name; or
o obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time. SignaturesUnless
the Private Notes are tendered:
(1) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on a Letterthe letter of Transmittaltransmittal; or
a notice of withdrawal, as(2) for the case may be, must be guaranteed by anyaccount of:
o a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,;
o a commercial bank or trust company located or having an office or
correspondent in the United StatesStates; or
o an "eligible guarantor" institutionguarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act (each,that is a member of one of the recognized
signature guarantee programs identified in the letter of transmittal,
an "Eligible Institution") unlesseligible guarantor institution must guarantee the Old
Notes tendered pursuant thereto are tendered (i) bysignatures on a registered holder who has
not completed the box entitled "Special Issuance Instructions"letter
of transmittal or "Special
Delivery Instructions" on the Lettera notice of Transmittal or (ii) for the accountwithdrawal described below under "-Withdrawal
of an Eligible Institution.Tenders".
If the Letterletter of Transmittaltransmittal is signed by a person other than the
registered holder, of any Old Notes listed therein, such Oldthe Private Notes must be endorsed or accompanied by a
properly completed bond powers and a proxy which authorizes such person
to tender the Old Notes on behalf ofpower, signed by the registered holder in each case as the
name of the registered holder or holdersholder's name appears on the OldPrivate Notes.
If the Letterletter of Transmittaltransmittal or any OldPrivate Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such
personsthey should so indicate when signing, and unless waived by the Issuer,us, they
must submit evidence satisfactory to the Issuerus of their authority to so act must be
submitted with the
Letterletter of Transmittal.
Alltransmittal.
The exchange agent and the depositary have confirmed that any financial
institution that is a participant in the depositary's system may utilize the
depositary's Automated Tender Offer Program to tender Notes.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, (includingincluding time of receipt)receipt, acceptance and withdrawal of
the tendered OldPrivate Notes, will be determined by the
Issuer in its sole discretion, which determination will be final and binding. The Issuer reservesWe
reserve the absolute right to reject any and all OldPrivate Notes not properly
tendered or any OldPrivate Notes our acceptance of which if accepted, would, in the opinion of
our counsel, for the Issuer, be unlawful. The IssuerWe also reservesreserve the absolute right to waive any defects,
irregularities or conditions of tender as to particular OldPrivate Notes. The Issuer'sOur
interpretation of the terms and conditions of the Exchange Offer
(includingexchange offer, including the
instructions in the Letterletter of
Transmittal)18
transmittal, will be final and binding on all parties. Unless waived, you must
cure any defects or irregularities in connection with tenders of OldPrivate Notes
must be cured within suchthe time as the
Issuer shallwe determine. Neither the Issuer, the Exchange Agent nor any other
person shall be under any dutyAlthough we intend to give notificationnotify you of defects or
irregularities with respect to tenders of OldPrivate Notes, neither we, the
exchange agent nor shall any of themother person will incur any liability for failure to
give suchyou that notification. Tenders of Old NotesUnless waived, we will not be deemeddeem tenders of Private
Notes to have been made until such irregularitiesyou cure the defects or irregularities.
While we have been cured or waived. Any Oldno present plan to acquire any Private Notes received by the Exchange Agent that are not
properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned without cost to such holder by the Exchange Agent to the tendering
holders of Old Notes, unless otherwise provided in the Letterexchange offer or to file a registration statement to permit
resales of Transmittal, as
soon as practicable followingany Private Notes that are not tendered in the Expiration Date.
In addition, the Issuer reservesexchange offer, we
reserve the right in itsour sole discretion subject
to the provisions of the Indenture, to (i) purchase or make offers for any
OldPrivate Notes that remain outstanding subsequent toafter the Expiration Date or, as set forth
under "-- Conditions", (ii)expiration date. We also
reserve the right to terminate the Exchange Offer in accordance with
the terms of the Registration Rights Agreementexchange offer, as described below under
"-Conditions", and, (iii) to the extent permitted by applicable law, purchase OldPrivate
Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any suchof those purchases or offers could differ from the terms of
the exchange offer.
If you wish to tender Private Notes in exchange for Exchange Offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiverNotes in the
exchange offer, we will require you to represent that:
o you are not an affiliate of allours;
o you will acquire any Exchange Notes in the ordinary course of your
business; and
o at the time of completion of the conditionsexchange offer, you have no arrangement
with any person to participate in the distribution of the Exchange
Notes.
In addition, in connection with the resale of Exchange Notes, any participating
broker-dealer who acquired the Private Notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Offer,
all Old Notes, properly tendered will be accepted, promptly afterother than a resale of an unsold allotment
from the Expiration
Date, and the New Notes will be issued promptly after acceptanceoriginal sale of the Old
Notes. See "-- Conditions" below. For purposes ofNotes, with the Exchange Offer, Old Notes
shall be deemed to have been accepted as validly tendered for exchange when, as
and ifprospectus contained in the
Issuer has given oral or written notice thereof to the Exchange
Agent.
24
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents.registration statement.
RETURN OF NOTES
If we do not accept any tendered OldPrivate Notes are not
accepted for any reason set forthdescribed in
the terms and conditions of the Exchange
Offerexchange offer or if Oldyou withdraw any tendered
Private Notes are submittedor submit Private Notes for a greater principal amount than the
holder desiresyou
desire to exchange, suchwe will return the unaccepted, withdrawn or nonexchanged Oldnon-exchanged
Private Notes will be
returned without expense to the tendering holder thereof (or, inyou as promptly as practicable. In the case of
OldPrivate Notes tendered by book-entry transfer into the exchange agent's account
at the depositary pursuant to the book-entry transfer procedures described
below, such
nonexchanged Oldwe will credit the Private Notes will be credited to an account maintained with such
Book-Entry Transfer Facility)the
depositary as promptly as practicable after the expiration or
termination of the Exchange Offer.practicable.
BOOK-ENTRY TRANSFER
The Exchange Agentexchange agent will make a request to establish an account with
respect to the OldPrivate Notes at the Book-Entry Transfer Facilitydepositary for purposes of the Exchange Offerexchange
offer within two business days after the date of this Prospectus. Anyprospectus, and any
financial institution that is a participant in the Book-Entry Transfer
Facility'sdepositary's systems may
make book-entry delivery of OldPrivate Notes by causing the Book-Entry Transfer Facilitydepositary to transfer
such Oldthe Private Notes into the Exchange
Agent'sexchange agent's account at the Book-Entry Transfer Facilitydepositary in
accordance with such
Book-Entry Transfer Facility'sthe depositary's procedures for transfer. However, although
delivery of OldPrivate Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility,depositary, you must transmit and the Letterexchange agent must receive, the letter
of Transmittaltransmittal or a facsimile of the letter of transmittal, with any required
signature guarantees and any other required documents, must, in any case, be
transmitted to and received byat the Exchange Agent at one of the addresses set
forthaddress below
under "-- Exchange"-Exchange Agent" on or priorbefore the expiration date or pursuant to the Expiration Date or the
guaranteed delivery procedures described below must be complied with. DELIVERY
OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.below.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desiresyou wish to tender such Oldyour Private Notes, and the Old Notes are not immediately available, orbut time will not permit such
holder's Olda
letter of transmittal, certificates representing the Private Notes to be
tendered or other required documents to reach the Exchange Agentexchange agent before the
Expiration Date, or the procedures for book-entry transfer cannot be
completed on a timely basis,expiration date, you may effect a tender may be effected if (i)if:
19
(a) the tender is made by or through an Eligible Institution, (ii) prior toeligible guarantor institution;
(b) before the Expiration Date,expiration date, the Exchange
Agentexchange agent receives from such Eligible Institutionthe
eligible guarantor institution a properly completed and duly executed
Letternotice of Transmittal and Notice of Guaranteed Delivery,guaranteed delivery, substantially in the form provided by the Issuer (by mail or hand delivery), setting forthus,
that:
o states the name and address of the holder of Oldthe Private Notes, the
name(s) in which the Private Notes are registered and the principal
amount of OldPrivate Notes tendered,
statingo states that the tender is being made therebyby that notice of guaranteed
delivery, and
guaranteeingo guarantees that, within three New York Stock Exchange ("NYSE") trading days after
the expiration date, the eligible guarantor institution will deposit with
the exchange agent the letter of execution of the Notice of Guaranteed Delivery,transmittal, together with the
certificates for all
physically tendered Oldrepresenting the Private Notes in proper form for transfer
or a Book-Entry
Confirmation,confirmation of a book-entry transfer, as the case may be, and any
other documents required by the Letterletter of Transmittal will be deposited bytransmittal; and
(c) within three New York Stock Exchange trading days after the
Eligible Institution withexpiration date, the Exchange
Agent and (iii)exchange agent receives a properly executed letter of
transmittal, as well as the certificates forrepresenting all physically tendered OldPrivate
Notes in proper form for transfer or a Book Entry Confirmation, as the case may be, and all other documents required by the
Letterletter of Transmittal are received bytransmittal.
Upon request, the Exchange Agent within three NYSE trading days afterexchange agent will send to you a notice of guaranteed
delivery if you wish to tender your Private Notes according to the date of execution of the
Notice of Guaranteed Delivery.guaranteed
delivery procedures described above.
WITHDRAWAL OF TENDERS
TendersExcept as otherwise provided in this prospectus, you may withdraw tenders
of OldPrivate Notes may be withdrawn at any time prior tobefore 5:00 p.m., New York City time, on the
Expiration Date.
Forexpiration date.
To withdraw a withdrawal to be effective,tender of Private Notes in the exchange offer, the exchange
agent must receive a written or facsimile transmission notice of withdrawal must be
received byat
its address listed in this prospectus before the Exchange Agent prior to 5:00 p.m., New York City time on the
Expiration Date at one of the addresses set forth below under "-- Exchange
Agent".expiration date. Any such notice of
withdrawal mustmust:
o specify the name of the person having
tenderedwho deposited the OldPrivate Notes to be
withdrawn;
o identify the Private Notes to be withdrawn, identify the Old Notes to be withdrawn
(includingincluding the principal
amount of such Old Notes)the Private Notes; and
(where certificates for
Oldo be signed in the same manner as the original signature on the letter of
transmittal by which the Private Notes have been transmitted)
25
specify the namewere tendered, including any
required signature guarantees.
We will determine in which such Old Notes are registered, if different from that
of the withdrawing holder. If certificates for Old Notes have been delivered or
otherwise identified to the Exchange Agent, then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Old Notes have been tendered pursuant to the procedure
for book-entry transfer described above, any notice of withdrawal must specify
the name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Notes and otherwise comply with the procedures
of such facility. Allour sole discretion all questions as to the validity,
form and eligibility (including time of receipt) of suchthe notices, will be determined by the Issuer,
whoseand our determination shallwill be final and
binding on all parties. Any OldWe will not deem any properly withdrawn Private Notes so
withdrawn will be deemed not
to have been validly tendered for exchange for
purposes of the exchange offer, and we will
not issue Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returnedwith respect to those Private Notes, unless you
validly re-tender the holder thereof without cost to such holder (or, in the case of Oldwithdrawn Private Notes. You may re-tender properly
withdrawn Private Notes
tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or termination of the Exchange Offer.
Properly withdrawn Old Notes may be retendered by following one of the procedures described above
under "-- Procedures"-Procedures for Tendering" and "-- Book-Entry
Transfer" above at any time on or prior tobefore the Expiration Date.expiration date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Old Notesexchange offer, we will not be
required to be acceptedaccept for exchange, nor will Newor exchange the Exchange Notes be issued in exchange for, any
OldPrivate Notes, and the Issuer may terminate or amend the Exchange Offerexchange offer as provided hereinin this
prospectus before the acceptance of such Oldthe Private Notes, if becauseif:
(1) the exchange offer violates applicable law, rules or regulations or
an applicable interpretation of the staff of the SEC;
(2) an action or proceeding has been instituted or threatened in any
court or by any governmental agency which might materially impair our
ability to proceed with the exchange offer;
(3) a material adverse development shall have occurred in any existing
action or proceeding with respect to us; or
(4) all governmental approvals which we deem necessary for the
completion of the exchange offer have not been obtained.
20
If we determine in our reasonable discretion that any of these conditions
are not satisfied, we may:
o refuse to accept any Private Notes and return all tendered Private Notes
to you;
o extend the exchange offer and retain all Private Notes tendered before
the exchange offer expires, subject, however, to your rights to withdraw
the Private Notes; or
o waive the unsatisfied conditions with respect to the exchange offer and
accept all properly tendered Private Notes that have not been withdrawn.
If the waiver constitutes a material change in law, or applicable interpretations thereofto the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that we will
distribute to the Commission,registered holders of the Issuer determines that it is not permittedPrivate Notes.
TERMINATION OF RIGHTS
All of your rights under the registration rights agreement will terminate
upon consummation of the exchange offer, except with respect to effect the Exchange Offer. The
Issuer has no obligationour continuing
obligations:
o to indemnify you and will not knowingly, permit acceptance of
tenders of Old Notes from affiliates (within the meaning of Rule 405parties related to you against liabilities,
including liabilities under the Securities Act) ofAct; and
o to provide, upon your request, the Issuer or from any other holder or holders who are not
eligible to participate in the Exchange Offer under applicable law or
interpretations thereofinformation required by the Commission, or if the New Notes to be received by
such holder or holders of Old Notes in the Exchange Offer, upon receipt, will
not be tradable by such holder without restrictionRule
144A(d)(4) under the Securities Act and
the Exchange Act and without material restrictions under the "blue sky" or
securities laws of substantially allto permit resales of the statesNotes
pursuant to Rule 144A.
SHELF REGISTRATION
In the event that:
(1) any changes in law or SEC policy do not permit us to effect the
exchange offer;
(2) the exchange offer is not consummated within 150 days of the United States.
ACCOUNTING TREATMENT
The Newdate of
initial issuance of the Private Notes;
(3) any holder of Private Exchange Notes will be recorded at the same carrying value as the Old Notes,
as reflected(as defined in the Issuer's accounting recordsregistration
rights agreement) so requests; or
(4) a holder participating in the exchange offer does not receive
Exchange Notes on the date of the exchange.
Accordingly, no gain or loss for accounting purposes willexchange that may be recognized bysold without
restriction under the Issuer. The costsfederal securities laws (other than due solely to
the status of the Exchange Offer andholder as our affiliate within the unamortized expenses relatedmeaning of that term
under the Securities Act),
we will file with the SEC a shelf registration statement to register for public
resale the transfer-restricted securities held by you if you provide us with
the necessary information for inclusion in the shelf registration statement.
LIQUIDATED DAMAGES
If:
(1) we do not file the registration statement with the SEC on or prior
to the 60th day following the date of initial issuance of the Old Notes will be amortized overPrivate
Notes;
(2) we do not cause the termregistration statement to become effective on or
prior to the 120th day following the date of initial issuance of the
New Notes.Private Notes;
(3) we do not complete the exchange offer on or prior to the 150th day
following the date of initial issuance of the Private Notes;
(4) we are obligated to file a shelf registration statement and we do
not file the shelf registration statement with the SEC on or prior to the
45th day following the date on which we have notice of the filing
obligation;
21
(5) we are obligated to file a shelf registration statement and the SEC
does not declare the shelf registration statement effective on or prior to
the later of the 60th day following the date on which the filing
obligation arises or the 150th day following the date of initial issuance
of the Private Notes; or
(6) the registration statement or the shelf registration statement, as
the case may be, is declared effective but thereafter ceases to be
effective or useable in connection with resales of the Registrable Notes
(as defined in the registration rights agreement) for the time of
non-effectiveness or nonusability,
with each of items (1) through (6) constituting a "registration default", we
agree to pay you liquidated damages in cash on each April 1 and October 1 in an
amount equal to 0.25% per annum of the aggregate principal amount of the
Registrable Notes, with respect to the first 90-day period immediately
following the occurrence of the registration default. The amount of the
liquidated damages will increase by an additional 0.25% to a maximum of 1.0%
per annum of the aggregate principal amount of the Registrable Notes for each
subsequent 90-day period until the registration default has been cured. We will
not be required to pay liquidated damages for more than one registration
default at any given time. Following the cure of all registration defaults, the
accrual of liquidated damages will cease.
EXCHANGE AGENT
PNCWe have appointed The Bank N.A. has been appointedof New York as Exchange Agentexchange agent for the Exchange Offer.
Questionsexchange
offer. You should direct questions and requests for assistance, and requests for
additional copies of this Prospectusprospectus or the letter of the Lettertransmittal and requests
for a notice of Transmittal should be directedguaranteed delivery to the Exchange
Agentexchange agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL: FOR INFORMATION CALL:BY FACSIMILE: BY HAND/OVERNIGHT DELIVERY:
PNCThe Bank N.A. David G. Metcalf PNCof New York __________ The Bank N.A.
500 West Jeffersonof New York
101 Barclay Street (502) 581-3029 500 West Jefferson101 Barclay Street
Louisville, Kentucky 40202 Facsimile (502) 581-2702 Louisville, Kentucky 40202
Attn: Corporate TrustNew York, New York 10286 New York, New York 10286
Reorganization Department, Attn: Corporate Trust7 East Reorganization Department, 7 East
FOR INFORMATION CALL:
__________
26
Delivery to an address other than the one stated above or transmission via
a facsimile number other than the one stated above will not constitute a valid
delivery.
FEES AND EXPENSES
TheWe will bear the expenses of soliciting tenders pursuant totenders. We are making the
Exchange Offer will be
borne by the Issuer. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person byour officers and regular employees ofmay
make additional solicitations by facsimile, telephone or in person.
We have not retained any dealer manager in connection with the Issuer.
The Issuerexchange
offer and will not make any payments to brokers, dealers or other personsothers soliciting
acceptances of the Exchange Offer. The Issuer,exchange offer. We will, however, will pay the Exchange Agentexchange agent
reasonable and customary fees for its services and will reimburse the Exchange Agentit for its
reasonable out-of-pocket expenses in connection
therewith. The Issuer may alsoexpenses.
We will pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocketcash expenses incurred by them
in forwarding copies of the Prospectus and related documents to the beneficial
owners of the Old Notes, and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer willexchange
offer, which we estimate to be paid by the Issuer, includingapproximately $__________. These expenses
include registration fees, fees and expenses of the Exchange Agentexchange agent and Trusteethe
trustee, accounting and accounting, legal printing and related fees and expenses.
The Issuerprinting costs, among others.
We will pay all transfer taxes, if any, applicable to the exchange of
Old Notes pursuant to the Exchange Offer.exchange offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of, any person
other than the person signing the Letter of Transmittal, or if a transfer tax is imposed
for any reason other than the exchange of Oldthe Private Notes pursuant to the
Exchange Offer,exchange offer, then you must pay the amount of any suchthe transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder.taxes. If you do
not submit satisfactory evidence of payment of suchthe taxes or exemption therefrom
is not submittedfrom
payment with the Letterletter of Transmittal,transmittal, we will bill the amount of suchthe transfer
taxes will be billed directly to such tendering holder.you.
22
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the exchange offer is voluntary. We urge you to consult
your financial and tax advisors in making your decisions on what action to
take. Private Notes that are not exchanged for Exchange Notes pursuant to the
exchange offer will remain restricted securities. Accordingly, those Private
Notes may be resold only:
o to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A under the Securities Act;
o in a transaction meeting the requirements of Rule 144 under the
Securities Act;
o outside the United States to a foreign person in a transaction meeting
the requirements of Rule 903 or 904 of Regulation S under the Securities
Act;
o in accordance with another exemption from the registration requirements
of the Securities Act and based upon an opinion of counsel if we so
request;
o to us; or
o pursuant to an effective registration statement.
In each case, the Private Notes may be resold only in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction.
USE OF PROCEEDS
There will be no cash proceeds payable to HEALTHSOUTHus from the issuance of the
NewExchange Notes pursuant to the Exchange Offer. Theexchange offer. We used the proceeds from the
sale of the OldPrivate Notes were used by HEALTHSOUTH to repay bank debt.a portion of our existing indebtedness and
for general corporate purposes. In consideration for issuing the NewExchange Notes
as contemplated in this Prospectus, HEALTHSOUTHprospectus, we will receive in exchange the OldPrivate
Notes in like principal amount, the terms of which are identical in all
material respects to the NewExchange Notes. The OldPrivate Notes surrendered in
exchange for the NewExchange Notes will be retired and cancelled and cannot be
reissued. Accordingly, the issuance of the NewExchange Notes will not result in
any increase in the indebtedness of HEALTHSOUTH.
27our indebtedness.
23
CAPITALIZATION
The following table sets forth, as of June 30, 1998, the2000: (i) our actual
capitalization, of
the Company, which reflectsand (ii) our capitalization as adjusted to give effect to the
sale of the OldPrivate Notes and the application of the net proceeds therefrom. See "Selected Consolidated Financial Data"from the
offering of the Private Notes to the repayment of our 9.5% senior subordinated
notes due 2001 and "Usethe repayment of Proceeds".all outstanding amounts under our
$250,000,000 short-term revolving credit facility and applying the remaining
net proceeds to repaying amounts under our $1,750,000,000 revolving credit
facility.
JUNE 30, 1998
----2000
------------------------------------
ACTUAL AS ADJUSTED
------------- --------------------
(IN THOUSANDS)
Cash and cash equivalents ................................................... $ 170,957 $ 170,957
========== ============
Current portion of long-term debt:
Advances under the $250,000,000 Short-Term Revolving Credit Facility........ $ 51,000 $ --
9.5% Senior Subordinated Notes due 2001 .................................... 250,000 --
Other long-term debt ....................................................... 54,578 54,578
---------- ------------
Total current portion of long-term debt .................................. $ 47,600
==========355,578 $ 54,578
---------- ------------
Long-term debt (net of current maturities):
Notes payable ...................................................... 750,000
Other .............................................................. 122,956
9.5% Senior Subordinated Notes due 2001 ............................ 250,000Advances under the $1,750,000,000 Revolving Credit Facility................. $1,725,000 $ 1,687,068
3.25% Convertible Subordinated Debentures due 2003 .......................................... 567,750 567,750
6.875% Senior Notes due 2005 ...................................................................................... 250,000 250,000
7.0% Senior Notes due 2008 .......................................................................................... 250,000 250,000
Other long-term debt ....................................................... 111,669 111,669
10-3/4% Senior Subordinated Notes due 2008 ................................. -- 350,000
---------- ------------
Total long-term debt ............................................ 2,190,706..................................................... 2,904,419 3,216,487
---------- ------------
Stockholders' equity:
Preferred Stock, $.10 par value, $.10 per share, 1,500,000 shares autho-
rized;authorized; no shares
outstanding .................................................................................................. -- --
Common Stock, $.01 par value, $.01 per share, 600,000,000 shares autho-
rized; 401,817,000authorized; 424,150,000
shares outstanding (1) ....................... 4,018................................................... 4,241 4,241
Additional paid-in capital ....................................... 2,406,903................................................. 2,585,676 2,585,676
Retained earnings ................................................ 1,078,580.......................................................... 1,075,354 1,074,944 (2)
Treasury stock ................................................... (323)............................................................. (280,523) (280,523)
Receivable from Employee Stock Ownership Plan .................... (10,169).............................. (5,415) (5,415)
Notes receivable from stockholders, ............................... (5,180)officers and management employees ...... (45,742) (45,742)
---------- ------------
Total stockholders' equity ....................................... 3,473,829............................................... 3,333,591 3,333,181
---------- ------------
Total capitalization ............................................ $5,664,535.................................................... $6,593,588 $ 6,604,246
========== ============
- ----------
(1) Outstanding shares do not include a total of 28,406,75337,944,557 shares of Common
Stock subject to options outstanding under the Company'sour stock option plans. An
additional 8,089,191693,693 shares of Common Stock are reserved for future option
grants under such plans. Outstanding shares also do not include 980,54267,801
shares of Common Stock reserved for issuance pursuant to outstanding
warrants, and 15,501,707 shares of Common Stock initially reserved for
issuance upon conversion of the Company'sour 3.25% Convertible Subordinated Debenturesconvertible subordinated debentures
due 2003, and 20,482,885 shares of Common Stock issued in connection with
acquisitions subsequent to June 30.
28
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is a summary of selected consolidated financial data for
HEALTHSOUTH for the years indicated. All amounts have been restated2003.
(2) Adjusted to reflect the effectsafter-tax effect of the 1994 acquisitionwrite-off of ReLife, Inc. ("ReLife"), the 1995
acquisition of Surgical Health Corporation ("SHC") and Sutter Surgery Centers,
Inc. ("SSCI"), the 1996 acquisition of Surgical Care Affiliates, Inc. ("SCA")
and Advantage Health Corporation ("Advantage Health") and the 1997 acquisition
of Health Images, Inc. ("Health Images"), each of which was accounted for as a
pooling of interests. The data below should be read in conjunction with the
consolidated financial statements, relatedunamortized
debt issue costs on our 9.5% senior subordinated notes and other information included,
or incorporated by reference, herein.
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993 1994 1995
---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA:
Revenues ......................................................... $1,055,295 $1,726,321 $2,118,681
Operating unit expenses .......................................... 715,189 1,207,707 1,441,059
Corporate general and administrative expenses .................... 43,378 67,798 65,424
Provision for doubtful accounts .................................. 22,677 35,740 42,305
Depreciation and amortization .................................... 75,425 126,148 160,901
Merger and acquisition related expenses (1) ...................... 333 6,520 19,553
Loss on impairment of assets (2) ................................. -- 10,500 53,549
Loss on abandonment of computer project .......................... -- 4,500 --
Loss on disposal of surgery centers .............................. -- 13,197 --
NME Selected Hospitals Acquisition related expense ............... 49,742 -- --
Interest expense ................................................. 25,884 74,895 105,517
Interest income .................................................. (6,179) (6,658) (8,009)
Gain on sale of partnership interest ............................. (1,400) -- --
Gain on sale of MCA Stock ........................................ -- (7,727) --
---------- ---------- ----------
925,049 1,532,620 1,880,299
---------- ---------- ----------
Income from continuing operations before income taxes,
minority interests and extraordinary item ....................... 130,246 193,701 238,382
Provision for income taxes ....................................... 40,450 68,560 86,161
---------- ---------- ----------
89,796 125,141 152,221
Minority interests ............................................... 29,549 31,665 43,753
---------- ---------- ----------
Income from continuing operations before extraordi-
nary item ....................................................... 60,247 93,476 108,468
Income from discontinued operations .............................. 3,986 (6,528) (1,162)
Extraordinary item (2) ........................................... -- -- (9,056)
---------- ---------- ----------
Net income ...................................................... $ 64,233 $ 86,948 $ 98,250
========== ========== ==========
Weighted average common shares outstanding (3)(4) ................ 265,502 273,480 289,594
========== ========== ==========
Net income per common share: (3)(4)
Continuing operations ........................................... $ 0.23 $ 0.34 $ 0.37
Discontinued operations ......................................... 0.01 (0.02) 0.00
Extraordinary item .............................................. -- -- (0.03)
---------- ---------- ----------
$ 0.24 $ 0.32 $ 0.34
========== ========== ==========
Weighted average common shares outstanding -- as-
suming dilution(3)(4)(5) ....................................... 275,366 300,758 320,018
========== ========== ==========
Net income per common share -- assuming dilution:
(3)(4)(5)
Continuing operations ........................................... $ 0.22 $ 0.32 $ 0.35
Discontinued operations ......................................... 0.01 (0.02) 0.00
Extraordinary item .............................................. -- -- (0.03)
---------- ---------- ----------
$ 0.23 $ 0.30 $ 0.32
========== ========== ==========
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- --------------------
1996 1997 1997 1998
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER (UNAUDITED)
SHARE DATA)
INCOME STATEMENT DATA:
Revenues ......................................................... $2,568,155 $3,017,269 $1,414,648 $1,850,145
Operating unit expenses .......................................... 1,667,248 1,888,435 889,939 1,140,128
Corporate general and administrative expenses .................... 79,354 82,757 36,358 52,681
Provision for doubtful accounts .................................. 58,637 71,468 32,788 43,723
Depreciation and amortization .................................... 207,132 250,010 117,516 153,713
Merger and acquisition related expenses (1) ...................... 41,515 15,875 15,875 --
Loss on impairment of assets (2) ................................. 37,390 -- -- --
Loss on abandonment of computer project .......................... -- -- -- --
Loss on disposal of surgery centers .............................. -- -- -- --
NME Selected Hospitals Acquisition related expense ............... -- -- -- --
Interest expense ................................................. 98,751 111,504 53,415 56,918
Interest income .................................................. (6,034) (4,414) (2,322) (4,522)
Gain on sale of partnership interest ............................. -- -- -- --
Gain on sale of MCA Stock ........................................ -- -- -- --
---------- ---------- ---------- ----------
2,183,993 2,415,635 1,143,569 1,442,641
---------- ---------- ---------- ----------
Income from continuing operations before income taxes,
minority interests and extraordinary item ....................... 384,162 601,634 271,079 407,504
Provision for income taxes ....................................... 143,929 206,153 92,465 145,484
---------- ---------- ---------- ----------
240,233 395,481 178,614 262,020
Minority interests ............................................... 50,369 64,873 32,715 35,424
---------- ---------- ---------- ----------
Income from continuing operations before extraordi-
nary item ....................................................... 189,864 330,608 145,899 226,596
Income from discontinued operations .............................. -- -- -- --
Extraordinary item (2) ........................................... -- -- -- --
---------- ---------- ---------- ----------
Net income ...................................................... $ 189,864 $ 330,608 $ 145,899 $ 226,596
========== ========== ========== ==========
Weighted average common shares outstanding (3)(4) ................ 321,367 346,872 334,233 399,540
========== ========== ========== ==========
Net income per common share: (3)(4)
Continuing operations ........................................... $ 0.59 $ 0.95 $ 0.44 $ 0.57
Discontinued operations ......................................... -- -- -- --
Extraordinary item .............................................. -- -- -- --
---------- ---------- ---------- ----------
$ 0.59 $ 0.95 $ 0.44 $ 0.57
========== ========== ========== ==========
Weighted average common shares outstanding -- as-
suming dilution(3)(4)(5) ....................................... 349,033 365,546 355,340 420,248
========== ========== ========== ==========
Net income per common share -- assuming dilution:
(3)(4)(5)
Continuing operations ........................................... $ 0.55 $ 0.91 $ 0.41 $ 0.55
Discontinued operations ......................................... -- -- -- --
Extraordinary item .............................................. -- -- -- --
---------- ---------- ---------- ----------
$ 0.55 $ 0.91 $ 0.41 $ 0.55
========== ========== ========== ==========
29
DECEMBER 31,
---------------------------------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------ ------------
(IN THOUSANDS) (UNAUDITED)
BALANCE SHEET DATA:
Cash and marketable securities ......... $ 153,011 $ 134,040 $ 159,793 $ 153,831 $ 152,399 $ 204,546
Working capital ........................ 300,876 308,770 406,601 564,529 566,751 1,046,498
Total assets ........................... 2,000,566 2,355,920 3,107,808 3,529,706 5,401,053 6,112,778
Long-term debt (6) ..................... 1,028,610 1,164,135 1,453,018 1,560,143 1,601,824 2,238,306
Stockholders' equity ................... 727,737 837,160 1,269,686 1,569,101 3,157,428 3,473,829
- ----------
(1) Expenses related to SHC's Ballas Merger in 1993, the ReLife and Heritage
Surgical Corporation acquisitions in 1994, the SHC, SSCI and NovaCare,
Inc.'s rehabilitation hospitals division acquisitions in 1995, the SCA,
Advantage Health, Professional Sports Care Management, Inc. and ReadiCare
acquisitions in 1996, and the Health Images acquisition in 1997.
(2) See Notes 2 and 13 of "Notes to Consolidated Financial Statements" included
in HealthSouth's 1997 Annual Report on Form 10-K incorporated by reference
herein.
(3) Adjusted to reflect a two-for-one stock split effected in the form of a
100% stock dividend paid on April 17, 1995 and a two-for-one stock split
effected in the form of a 100% stock dividend paid on March 17, 1997.
(4) Earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". For further discussion, see Note 1 of "Notes to Consolidated
Financial Statements" included in HealthSouth's 1997 Annual Report on Form
10-K incorporated by reference herein.
(5) Diluted earnings per share in 1994, 1995, 1996 and 1997 reflect shares
reserved for issuance upon conversion of HEALTHSOUTH's 5% Convertible
Subordinated Debentures due 2001.
Substantially all of such Debentures were
converted into shares of HEALTHSOUTH's Common Stock in 1997. Diluted
earings per share in 1998 reflect shares reserved for issuance upon
conversion of HealthSouth's 3.25% Convertible Subordinated Debentures due
2001.
(6) Includes current portion of long-term debt.
3024
DESCRIPTION OF THE NEWEXCHANGE NOTES
The OldPrivate Notes were issued, and the NewExchange Notes (together with the Old Notes,
the "Notes") offered hereby will
be issued, pursuant to an Indenture,indenture, dated as of June 22, 1998September 25, 2000 (the
"Indenture"), between the Issuerus and PNCThe Bank N.A.,of New York, as trustee (the "Trustee").
The following summary does not purport to be complete and such summary is
subject to the detailed provisions of the Indenture, to which reference is
hereby made for a full description of such provisions, including the definition
of certain terms used herein, and for other information regarding the Exchange
Notes. Wherever particular sections or defined terms of the Indenture are
referred to, such sections or defined terms are incorporated herein by
reference as part of the statement made, and the statement is qualified in its
entirety by such reference.
GENERAL
The NewExchange Notes constitute two series for purposes of the Indenture. The
6.875% Senior Notes due 2005 (the "New Notes due 2005") will be general unsecured
unsubordinated obligations of the Issuer limitedCompany,
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company (including the Company's obligations under the Credit
Agreements) as described below under "-Subordination". The Company issued
$350,000,000 aggregate principal amount of Private Notes in the initial
issuance of the Private Notes. The securities that may be issued pursuant to
$250,000,000the Indenture will not be limited in amount, and additional amounts may be
issued in one or more series from time to time under the Indenture, subject to
the limitations on the incurrence of Indebtedness set forth under "-Certain
Covenants of the Company-Limitations on Additional Indebtedness and Subsidiary
Preferred Stock" and restrictions contained in the Credit Agreements.
The Exchange Notes will bear interest from September 25, 2000 at the rate
of 10-3/4% per year, payable semiannually in arrears on April 1 and October 1
of each year, commencing on April 1, 2001, to holders of record at the close of
business on March 15 or September 15, as the case may be, immediately preceding
the relevant interest payment date. The payment of interest on Exchange Notes
will be in lieu of payment of any accrued but unpaid interest on Private Notes
tendered for exchange. Interest on the Exchange Notes will be calculated on the
basis of a 360-day year of twelve 30-day months. The Exchange Notes will mature
on June 15, 2005. The 7.0% Senior Notes dueOctober 1, 2008 (the "New Notes due 2008")and will be unsecured, unsubordinated obligationsissued in registered form, without coupons, and
in denominations of $1,000 and integral multiples thereof. The Exchange Notes
will be payable as to principal, premium, if any, and interest at the office or
agency of the Issuer limitedCompany maintained for such purpose within the City and State of
New York or, at the option of the Company, by wire transfer of immediately
available funds or, in aggregatethe case of certificated securities only, by mailing a
check to the registered address of the holders of the Exchange Notes (the
"Holders"). See "-Book-Entry; Delivery and Form". Until otherwise designated by
the Company, the Company's office or agency in New York will be the office of
the Trustee maintained for such purpose.
SUBORDINATION
The payment of principal amountof, and premium, if any, and interest on the
Exchange Notes will be subordinated to $250,000,000the extent and will mature on
June 15, 2008.
Paymentin the manner provided in
the Indenture to the prior payment in full in cash when due of the principal
of, and premium, if any, and accrued and unpaid interest on the New Notes will rank pari
passu withand all other
unsecured, unsubordinated debtamounts owing in respect of, all existing and future Senior Indebtedness of the
Issuer.Company. At June 30, 2000, on a pro forma basis after giving effect to the
offering of the Private Notes, the Company would have had approximately
$2,187,068,000 of Senior Indebtedness outstanding (exclusive of unused
commitments under the Credit Agreements). Subject to certain limitations, the
Company and its Subsidiaries may incur additional Indebtedness in the future,
including Senior Indebtedness. See "-Certain Covenants of the
Company-Limitations on Additional Indebtedness and Subsidiary Preferred Stock".
The NewIndenture provides that, upon any payment or distribution to creditors
of the Company of the assets of the Company of any kind or character in a total
or partial liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company, whether voluntary or involuntary (including any assignment for the
benefit of creditors and proceedings for marshaling of assets and liabilities
of the Company), the holders of all Senior Indebtedness of the Company then
outstanding will be entitled to payment in full in cash before the
25
Holders are entitled to receive any payment (other than payments made from a
trust previously established pursuant to provisions described under
"-Satisfaction and Discharge of Indenture; Defeasance") on or with respect to
the Exchange Notes and, until all Senior Indebtedness receives payment in full
in cash, any distribution to which the Holders would be entitled will be made
to holders of Senior Indebtedness.
Upon the occurrence of any default in the payment of any principal of or
interest on or other amounts due on any Senior Indebtedness of the Company in
excess of $5,000,000 beyond any applicable grace period (a "Payment Default"),
no payment of any kind or character shall be made by the Company (or by any
other Person on its behalf) with respect to the Exchange Notes unless and until
(i) such Payment Default shall have been cured or waived in accordance with the
instruments governing such Senior Indebtedness or shall have ceased to exist,
(ii) such Senior Indebtedness shall have been discharged or paid in full in
cash in accordance with the instruments governing such Senior Indebtedness or
(iii) the benefits of this sentence have been waived by the holders of such
Senior Indebtedness or their representative, immediately after which the
Company must resume making any and all required payments, including missed
payments, in respect of its obligations under the Exchange Notes.
Upon (1) the occurrence and continuance of an event of default (other than
a Payment Default) relating to Designated Senior Indebtedness of the Company,
as such event of default is defined therein or in the instrument or agreement
under which it is outstanding, which event of default, pursuant to the
instruments governing such Designated Senior Indebtedness, entitles the holders
(or a specified portion of the holders) of such Designated Senior Indebtedness
or their designated representative to accelerate (either immediately or with
the passage of time or the giving of notice or both) the Stated Maturity of
such Designated Senior Indebtedness (whether or not such acceleration has
actually occurred) (a "Non-Payment Default") and (2) the receipt by the Trustee
and the Company from the trustee or other representative of holders of such
Designated Senior Indebtedness of written notice (a "Payment Blockage Notice")
of such occurrence, no payment is permitted to be made by the Company (or by
any other Person on its behalf) in respect of the Exchange Notes for a period
(a "Payment Blockage Period") commencing on the date of receipt by the Trustee
of such notice and ending on the earliest to occur of the following events
(subject to any blockage of payments that may then be in effect due to a
Payment Default on Senior Indebtedness):
(v) the acceleration of the maturity of any Indebtedness (other than
Senior Indebtedness) by virtue of the event that resulted in such Payment
Blockage Period;
(w) such Non-Payment Default has been cured or waived or has ceased to
exist;
(x) a 179-consecutive-day period commencing on the date such written
notice is received by the Trustee has elapsed;
(y) such Payment Blockage Period has been terminated by written notice
to the Trustee from the trustee or other representative of holders of such
Designated Senior Indebtedness, whether or not such Non-Payment Default
has been cured or waived or has ceased to exist; and
(z) such Designated Senior Indebtedness has been discharged or paid in
full in cash,
immediately after which, in the case of clause (v), (w), (x), (y) or (z), the
Company must resume making any and all required payments, including missed
payments, in respect of its obligations under the Exchange Notes.
Notwithstanding the foregoing, (a) not more than one Payment Blockage Period
may be commenced in any period of 365 consecutive days and (b) no default or
event of default with respect to the Designated Senior Indebtedness of the
Company that was the subject of a Payment Blockage Notice which existed or was
continuing on the date of the giving of any Payment Blockage Notice shall be or
serve as the basis for the giving of a subsequent Payment Blockage Notice
whether or not within a period of 365 consecutive days unless such default or
event of default shall have been cured or waived for a period of at least 90
consecutive days after such date.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company, whether in cash, property or securities,
shall be received by the Trustee or the Holders at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
26
distribution shall be segregated from other funds or assets and held in trust
for the benefit of the holders of Senior Indebtedness of the Company, and shall
be paid or delivered by the Trustee or such Holders, as the case may be, to the
holders of the Senior Indebtedness of the Company remaining unpaid or
unprovided for or their representative or representatives, or to the trustee or
trustees under any indenture pursuant to which any instruments evidencing any
of such Senior Indebtedness of the Company may have been issued, ratably
according to the aggregate amounts remaining unpaid on account of the Senior
Indebtedness of the Company held or represented by each, for application to the
payment of all Senior Indebtedness of the Company remaining unpaid, to the
extent necessary to pay or to provide for the payment in full in cash of all
such Senior Indebtedness after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
Notwithstanding the foregoing, Holders may receive and retain payment from
the money or the proceeds held in any defeasance trust described under
"-Satisfaction and Discharge of Indenture; Defeasance" below, and no such
receipt or retention will be contractually subordinated in right of payment to
any Senior Indebtedness or subject to the restrictions described in this
"Subordination" section.
If the Company fails to make any payment on the Exchange Notes when due or
within any applicable grace period, whether or not such failure is on account
of the subordination provisions referred to above, such failure would
constitute an Event of Default under the Indenture and would enable the Holders
to accelerate the Stated Maturity of the Exchange Notes. See "-Events of
Default".
By reason of the subordination provisions contained in the Indenture, in
the event of bankruptcy, liquidation, insolvency or other similar proceedings,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the Holders, and creditors of the Company who are not
holders of Senior Indebtedness may recover less, ratably, than holders of
Senior Indebtedness and may recover more, ratably, than the Holders.
OPTIONAL REDEMPTION OF THE EXCHANGE NOTES
The Exchange Notes will be redeemablesubject to redemption at the option of the
Company, in whole or in part, at any time on or after October 1, 2004, at the
optionfollowing redemption prices (expressed as percentages of principal amount),
together with accrued and unpaid interest thereon to the redemption date, if
redeemed during the twelve-month period beginning October 1 of the Issueryears
indicated:
OPTIONAL
YEAR REDEMPTION DATE
------------------------------- ----------------
2006 ........................ 105.375%
2005 ........................ 103.583%
2006 ........................ 101.792%
2007 and thereafter ......... 100.000%
Notwithstanding the foregoing, at any time prior to October 1, 2003, the
Company may redeem up to 35% of the aggregate principal amount of the Notes
outstanding on the Issue Date with the net cash proceeds of one or more Equity
Offerings at a redemption price equal to the greater of (i) 100%110.750% of the principal amount
thereof, plus accrued and (ii)unpaid interest to the sumredemption date; provided that
(a) at least 65% of the present valuesoriginal aggregate principal amount of the remaining schedule paymentsNotes
remains outstanding immediately after the occurrence of principalsuch redemption and interest thereon discounted to(b)
such redemption occurs within 60 days of the date of redemptionthe closing of any such
Equity Offering.
If less than all of the Exchange Notes are to be redeemed at any time,
selection of the Exchange Notes to be redeemed will be made by the Trustee from
among the outstanding Exchange Notes on a semi-annualpro rata basis, (assuming a 360-day year consistingby lot or by any
other method permitted in the Indenture. Notice of twelve 30-day months)redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Exchange Notes are to be redeemed at the applicable Treasury Yield plus 15 basis points inregistered address of
such Holder. On and after the case ofredemption date, interest will cease to accrue on
the NewExchange Notes due 2005 and 20 basis points in the case of the New Notes due 2008, plus,
in each case, accrued interest to the date ofor portions thereof called for redemption.
See "-- Optional
Redemption". The NewExchange Notes will not be entitled to any sinking fund.
27
CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each Holder will have
the right to require that the Company purchase such Holder's Exchange Notes, in
whole or in part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount thereof, plus accrued interest, if any, to the date of
purchase (the "Change of Control Purchase Date"), pursuant to the offer
described below (the "Change of Control Offer") and the other procedures set
forth in the Indenture.
Within 30 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
Holder by first-class mail, postage prepaid, at the address of such Holder
appearing in the security register, stating, among other things,
(i) the Change of Control Purchase Price and the Change of Control
Purchase Date, which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed;
(ii) that any Note not tendered will continue to accrue interest;
(iii) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Exchange Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the Change
of Control Purchase Date; and
(iv) certain other procedures that a Holder must follow to accept a
Change of Control Offer or to withdraw such acceptance.
The occurrence of certain of the events constituting a Change of Control
under the Indenture may result in an event of default in respect of the Credit
Agreements and other Indebtedness of the Company and its Subsidiaries and,
consequently, the lenders thereof will have the right to require repayment of
such Indebtedness in full. If a Change of Control Offer is made, there can be
no assurance that the Company will have available funds sufficient to pay the
Change of Control Purchase Price for all of the Exchange Notes that might be
delivered by Holders seeking to accept the Change of Control Offer and other
amounts that might become due and payable in respect of other Indebtedness of
the Company. The failure of the Company to make or consummate the Change of
Control Offer or pay the Change of Control Purchase Price when due would result
in an Event of Default and would give the Trustee and the Holders the rights
described under "-Events of Default".
One of the events which constitutes a Change of Control under the
Indenture is the sale of "all or substantially all" of the Company's assets.
This term has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event Holders elect to require the Company to purchase the
Exchange Notes and the Company elects to contest such election, there can be no
assurance as to how a court interpreting New York law would interpret the
phrase.
The existence of a Holder's right to require the Company to purchase such
Holder's Exchange Notes upon a Change of Control may deter a third party from
acquiring the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in
scope. The provisions of the Indenture may not afford Holders the right to
require the Company to purchase such Exchange Notes in the event of a highly
leveraged transaction or a reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect Holders, if such
transaction is not a transaction defined as a Change of Control.
The Company will comply with any applicable securities laws and
regulations in connection with a Change of Control Offer.
28
CERTAIN COVENANTS OF THE COMPANY
The Indenture contains, among others, the following covenants:
Limitations on Additional Indebtedness and Subsidiary Preferred Stock. (a)
After the Issue Date,
(i) the Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee, extend
the Stated Maturity of, or otherwise become liable with respect to
(collectively, "incur"), any Indebtedness (including, without Imitation,
Acquired Indebtedness) and
(ii) the Company will not permit any of its Subsidiaries to issue
(except to the Company or any of its Wholly Owned Subsidiaries) or create
any Preferred Stock or permit any Person (other than the Company or a
Wholly Owned Subsidiary) to own or hold any interest in any Preferred Stock
of any such Subsidiary;
provided, however, that the Company may incur Indebtedness and the Company may
permit its Subsidiaries to issue or create Preferred Stock if after giving
effect thereto, the Company's EBITDA Coverage Ratio on the date thereof would
be at least 2.5 to 1, determined on a pro forma basis as if the incurrence of
such additional Indebtedness or the issuance of such Preferred Stock (declared
to have an aggregate principal amount equal to the aggregate liquidation value
of such Preferred Stock), as the case may be, and the application of the net
proceeds therefrom, had occurred at the beginning of the four-quarter period
used to calculate the Company's EBITDA Coverage Ratio.
(b) Notwithstanding the foregoing, and irrespective of the EBITDA Coverage
Ratio, in addition to Existing Indebtedness:
(i) the Company may incur Indebtedness pursuant to the Private Notes
issued on the Issue Date and the Exchange Notes issued in exchange for
Private Notes;
(ii) the Company may incur Indebtedness under the New Credit Agreement
in an aggregate principal amount at any time not to exceed $400,000,000;
(iii) the Company and its Subsidiaries may incur Refinancing
Indebtedness;
(iv) the Company may incur any Indebtedness to any Subsidiary or any
Subsidiary may incur any Indebtedness to the Company or to any Subsidiary;
(v) the Company and its Subsidiaries may incur any Indebtedness
evidenced by letters of credit which are used in the ordinary course of
business of the Company and its Subsidiaries to secure workers'
compensation and other insurance coverages;
(vi) the Company and its Subsidiaries may incur Capitalized Lease
Obligations and Attributable Indebtedness, in each case excluding Existing
Indebtedness, in an aggregate principal amount at any one time outstanding
not to exceed 10% of Consolidated Tangible Assets; and
(vii) the Subsidiaries of the Company may incur Indebtedness, excluding
Existing Indebtedness, in an aggregate principal amount at any time
outstanding not to exceed $250,000,000, in addition to Indebtedness
permitted to be incurred by Subsidiaries of the Company pursuant to the
foregoing clauses (iii)-(vi).
(c) Notwithstanding the foregoing, the Company may permit any Subsidiary
which is a partnership formed to operate a single healthcare facility to issue
or create Preferred Stock, provided that the aggregate amount of all such
Preferred Stock outstanding after giving effect to such issuance or creation
shall not exceed 1% of Consolidated Tangible Assets as of the date of such
issuance or creation.
Limitations on Restricted Payments. The Company will not, and will not
permit any of its Subsidiaries, directly or indirectly, to make any Restricted
Payment if at the time of such Restricted Payment:
(i) a Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof;
29
(ii) after giving effect to the proposed Restricted Payment, the amount
of such Restricted Payment, when added to the aggregate amount of all
Restricted Payments made after the Issue Date, exceeds the sum of:
(a) 50% of the Company's Consolidated Net Income accrued during the
period (taken as a single period) commencing on July 1, 1997 to and
including the fiscal quarter ended immediately prior to the date of
such Restricted Payment (or, if such aggregate Consolidated Net Income
shall be a deficit, minus 100% of such aggregate deficit),
(b) the net cash proceeds from the issuance and sale of the Company's
Capital Stock (other than to a Subsidiary of the Company) that is not
Disqualified Stock during the period (taken as a single period)
commencing with the Issue Date, and
(c) $50,000,000; or
(iii) the Company would not be able to incur an additional $1.00 of
Indebtedness under the EBITDA Coverage Ratio in the "Limitations on
Additional Indebtedness and Subsidiary Preferred Stock" covenant.
Notwithstanding the foregoing, the Company may;
(w) pay any dividend within 60 days after the date of declaration
thereof if the payment thereof would have complied with the limitations of
this "Limitations on Restricted Payments" covenant on the date of
declaration;
(x) retire shares of the Company's Capital Stock or the Company's or a
Subsidiary of the Company's Indebtedness out of the proceeds of a
substantially concurrent sale (other than to a Subsidiary of the Company)
of shares of the Company's Capital Stock (other than Disqualified Stock);
(y) make Investments in Joint Ventures, when added to the aggregate
amount of all such other Investments made pursuant to this clause (y)
after the Issue Date, not exceeding at any time 5% of Consolidated
Tangible Assets (with each such Investment being valued as of the date
made and without regard to subsequent changes in value); and
(z) make Investments, when added to the aggregate amount of all such
other Investments made pursuant to this clause (z) after the Issue Date,
not exceeding at any time 2.5% of Consolidated Tangible Assets (with each
such Investment being valued as of the date made and without regard to
subsequent changes in value);
provided, however, that each Restricted Payment described in clauses (w) and
(x) above shall be taken into account for purposes of computing the aggregate
amount of all Restricted Payments pursuant to clause (ii) of the immediately
preceding paragraph.
Limitations on Restrictions on Distributions from Subsidiaries. The
Company will not, and will not permit any of its Subsidiaries to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction (other than encumbrances or restrictions imposed by
law or by judicial or regulatory action or by provisions in leases or other
agreements that restrict the assignability thereof) on the ability of any
Subsidiary of the Company to
(i) pay dividends or make any other distributions on its Capital Stock
or any other interest or participation in, or measured by, its profits,
owned by the Company or any of its other Subsidiaries, or pay interest on
or principal of any Indebtedness owed to the Company or any of its other
Subsidiaries,
(ii) make loans or advances to the Company or any of its other
Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any of
its other Subsidiaries,
in each case except for encumbrances or restrictions existing under or by
reason of
(a) applicable law,
30
(b) the Credit Agreements,
(c) Existing Indebtedness,
(d) any restrictions under any agreement evidencing any Acquired
Indebtedness that was permitted to be incurred pursuant to the Indenture
and which was not incurred in anticipation or contemplation of the related
acquisition, provided that such restrictions and encumbrances only apply
to assets that were subject to such restrictions and encumbrances prior to
the acquisition of such assets by the Company or its Subsidiaries,
(e) restrictions or encumbrances replacing those permitted by clause
(b), (c) or (d) above which, taken as a whole, are not materially more
restrictive,
(f) the Indenture,
(g) any restrictions and encumbrances arising in connection with
Refinancing Indebtedness; provided, however, that any restrictions or
encumbrances of the type described in this paragraph that arise under such
Refinancing Indebtedness are not, taken as a whole, materially more
restrictive than those under the agreement creating or evidencing the
Indebtedness being refunded or refinanced,
(h) any restrictions with respect to a Subsidiary of the Company imposed
pursuant to an agreement that has been entered into for the sale or other
disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary,
(i) any agreement restricting the sale or other disposition of property
securing Indebtedness if such agreement does not expressly restrict the
ability of a Subsidiary of the Company to pay dividends or make loans or
advances and
(j) customary restrictions in purchase money debt or leases relating to
the property covered thereby.
Limitations on Certain Other Subordinated Indebtedness. The Company shall
not create, incur, assume or suffer to exist any Indebtedness that is
subordinate in right of payment to any Senior Indebtedness unless such
Indebtedness by its terms or the terms of the instrument creating or evidencing
such Indebtedness is subordinate in right of payment to, or ranks pari passu
with, the Exchange Notes.
Limitations on Transactions with Affiliates. Neither the Company nor any
of its Subsidiaries will, directly or indirectly, in one transaction or a
series of transactions, make any loan, advance, guarantee or capital
contribution to, or for the benefit of, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or for the benefit of, or
purchase or lease any property or assets from, or enter into or amend any
contract, agreement or understanding with, or for the benefit of, any mandatory
redemption or sinking fund. The Indenture does not limitAffiliate
of the amount of
additional indebtedness the IssuerCompany or any of its subsidiariesSubsidiaries or any Person (or any Affiliate of
such Person) holding 10% or more of the Common Equity of the Company or any of
its Subsidiaries, other than transactions in the ordinary course between the
Company and its Subsidiaries or among Subsidiaries of the Company (an
"Affiliate Transaction"), unless
(i) the terms of such Affiliate Transactions are fair and reasonable to
the Company or such Subsidiary, as the case may incur.be, and are at least as
favorable as the terms which could be obtained by the Company or such
Subsidiary, as the case may be, in a comparable transaction made on an
arm's-length basis between unaffiliated parties;
(ii) with respect to any such Affiliate Transaction involving aggregate
payments in excess of $5,000,000, the Company delivers an Officers'
Certificate to the Trustee certifying that such Affiliate Transaction
complies with clause (i) above and a Secretary's Certificate which sets
forth and authenticates a resolution that has been adopted by a vote of a
majority of the disinterested members of the Board of Directors approving
such Affiliate Transaction; and
(iii) with respect to any such Affiliate Transaction involving
aggregate payments in excess of $25,000,000, the Company delivers to the
Trustee the certificates specified in clause (ii) above and an opinion of
an independent investment banking firm of national standing in the United
States, stating that such Affiliate Transaction is fair from a financial
point of view to the Company or such Subsidiary, as the case may be;
31
provided, however, that the foregoing clauses (ii) and (iii) shall not apply to
transactions between the Company or any of its Subsidiaries and
MedCenterDirect.com, Inc. or any entity to which the Company transfers all or
substantially all of the rights to its HEALTHSOUTH Clinical Automation Program.
Limitations on Liens. The Company will not create or suffer to exist any
Lien (including any Lien created to secure the Company's obligation to repay
Senior Subordinated Indebtedness other than any amounts owing on or in respect
of the Exchange Notes), other than Permitted Liens, on any of its assets unless
all payments due under the Indenture doesand the Exchange Notes are secured on an
equal and ratable basis with the obligation so secured until such time as such
obligation is no longer secured by a Lien.
Limitations on Asset Sales. (a) The Company will not, limitand will not permit
any of its Subsidiaries to, consummate any Asset Sale unless
(i) the Company or such Subsidiary receives consideration at the time
of such Asset Sale at least equal to the Fair Market Value of the assets
included in such Asset Sale,
(ii) immediately before and immediately after giving effect to such
Asset Sale, no Default or Event of Default shall have occurred and be
continuing and
(iii) at least 75% of the consideration received by the Company or such
Subsidiary therefor is in the form of cash paid at the closing thereof,
provided, however, that this clause (iii) shall not apply if, after giving
effect to such Asset Sale, the aggregate principal amount of all notes or
similar debt obligations and Fair Market Value of all equity securities
received by the Company from all Asset Sales since the Issue Date (other
than such notes or similar debt obligations and such equity securities
converted into or otherwise disposed of for cash and applied in accordance
with the second succeeding sentence) would not exceed 2.5% of Consolidated
Tangible Assets.
The amount (without duplication) of any (x) Indebtedness (other than
Subordinated Indebtedness) of the Company or such Subsidiary that is expressly
assumed by the transferee in such Asset Sale and with respect to which the
Company or such Subsidiary, as the case may be, is unconditionally released by
the holder of such Indebtedness and (y) any notes, securities or similar
obligations or items of property received from such transferee that are
immediately converted, sold or exchanged by the Company or such Subsidiary for
cash (to the extent of the cash actually so received), shall be deemed to be
cash for purposes of this "Limitations on Asset Sales" covenant. If at any time
any non-cash consideration received by the Company or such Subsidiary, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to
any such non-cash consideration), then the date of such conversion or
disposition shall be deemed to constitute the date of an Asset Sale hereunder
and the Net Proceeds thereof shall be applied in accordance with this
"Limitations on Asset Sales" covenant. A transfer of assets by the Company to a
Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or to
another Wholly Owned Subsidiary will not be deemed to be an Asset Sale and a
transfer of assets that constitutes a Restricted Payment and that is permitted
under the covenant described under "Limitations on Restricted Payments" will
not be deemed to be an Asset Sale.
(b) If the Company or any Subsidiary engages in an Asset Sale, the Company
or such Subsidiary shall, no later than 360 days after such Asset Sale,
(i) apply all or any of the Net Proceeds therefrom to repay Senior
Indebtedness in accordance with the applicable provisions thereof,
(ii) invest all or any part of the Net Proceeds therefrom in the lines
of business of the Company or any of its Subsidiaries immediately prior to
such investment, or
(iii) any combination of clauses (i) and (ii) above.
The amount of such Net Proceeds not applied or invested as provided in this
paragraph will constitute "Excess Proceeds".
32
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$5,000,000, the Company will be required to make an offer to purchase (an
"Asset Sale Offer") from all Holders, an aggregate principal amount of Exchange
Notes equal to the amount of notes, debentures or other evidencessuch Excess Proceeds as follows:
(i) The Company will make an Asset Sale Offer to all Holders in
accordance with the procedures set forth in the Indenture to purchase the
maximum principal amount (expressed as a multiple of indebtedness ("Debt Securities")$1,000) of Exchange
Notes that the Issuer may issue thereunder and
provides that Debt Securities may be issued from time to time in one or more
series. Aspurchased out of the dateamount (the "Asset Sale Payment
Amount") of this Prospectus, no Debt Securities (other thansuch Excess Proceeds.
(ii) The offer price for the Old Notes) were outstanding under the Indenture.
The NewExchange Notes will bear interest from June 22, 1998 at the respective rates
per annum set forth on the cover page of this Prospectus, and such interest will be payable semiannually in arrears on June 15cash in
an amount equal to 100% of the principal amount of the Exchange Notes
tendered pursuant to such Asset Sale Offer, plus accrued and December 15 of each year,
commencing on December 15, 1998unpaid
interest to the personsdate such Asset Sale Offer is consummated (the "Asset Sale
Purchase Price"), in whose namesaccordance with the Newprocedures set forth in the
Indenture. To the extent that the aggregate Asset Sale Purchase Price of
Exchange Notes tendered pursuant to an Asset Sale Offer is less than the
Asset Sale Payment Amount relating thereto (such shortfall constituting a
"Net Proceeds Deficiency"), the Company may use such Net Proceeds
Deficiency, or a portion thereof, for general corporate purposes.
(iii) If the aggregate Asset Sale Purchase Price of Exchange Notes
validly tendered and not withdrawn by holders thereof exceeds the Asset
Sale Payment Amount, Exchange Notes to be purchased will be selected on a
pro rata basis.
(iv) Upon completion of such Asset Sale Offer in accordance with the
foregoing provisions, the amount of Excess Proceeds with respect to which
such Asset Sale Offer was made shall be deemed to be zero.
In the event that any other Indebtedness of the Company which ranks pari
passu with the Exchange Notes ("Other Debt") requires an offer to purchase to
be made to repurchase such Other Debt upon the consummation of an Asset Sale,
the Company may apply the Excess Proceeds to both purchase such Other Debt and
to make an Asset Sale Offer, provided, that the purchase price of such other
debt does not exceed 100% of the aggregate principal amount or accreted value
thereof plus interest thereon. With respect to any Excess Proceeds, the Company
shall make the Asset Sale Offer in respect thereof at the same time as the
analogous offer to purchase is made pursuant to any Other Debt and the purchase
date in respect thereof shall be the same as the purchase date in respect
thereof pursuant to any Other Debt.
With respect to any Asset Sale Offer effected pursuant to this
"Limitations on Asset Sales" covenant, to the extent the aggregate principal
amount of Exchange Notes and Other Debt, if any, tendered pursuant to such
Asset Sale Offer and the concurrent offer to purchase with respect to such
Other Debt, exceeds the Excess Proceeds, such Exchange Notes and Other Debt, if
any, shall be purchased pro rata based on the aggregate principal amount of
such Exchange Notes and such Other Debt tendered by each holder thereof.
The Company will comply with any applicable securities laws and
regulations in connection with an Asset Sale Offer.
Limitations on Mergers and Consolidations. The Company will not
consolidate or merge with or into, or sell, lease, convey or otherwise dispose
of all or substantially all of its assets, or assign any of its obligations
under the Exchange Notes or the Indenture, to any Person unless:
(i) the Person formed by or surviving such consolidation or merger (if
other than the Company), or to which such sale, lease, conveyance or other
disposition or assignment shall be made (collectively, the "Successor"), is
a corporation organized and existing under the laws of the United States or
any State thereof or the District of Columbia, and the Successor assumes by
supplemental indenture in a form satisfactory to the Trustee all of the
obligations of the Company under the Exchange Notes and the Indenture;
(ii) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, no Default or Event of
Default shall have occurred and be continuing;
33
(iii) immediately after giving effect to such transaction and the use
of any net proceeds therefrom on a pro forma basis, the Consolidated Net
Worth of the Company or the Successor, as the case may be, would be at
least equal to the Consolidated Net Worth of the Company immediately prior
to such transaction;
(iv) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, the EBITDA Coverage Ratio
of the Company or the Successor, as the case may be, would be such that the
Company or the Successor, as the case may be, would be entitled to incur at
least $1.00 of additional Indebtedness under the EBITDA Coverage Ratio test
in the "Limitations on Additional Indebtedness and Subsidiary Preferred
Stock" covenant; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, lease, conveyance or other disposition or
assignment complies with the provisions of the Indenture.
Reports. Whether or not required by the rules and regulations of the SEC,
so long as any Exchange Notes are registeredoutstanding, the Company will file with the
SEC, to the extent such filings are accepted by the SEC, and will furnish
(within 15 days after such filing) to the Trustee and to the Holders all
quarterly and annual reports and other information, documents and reports that
would be required to be filed with the SEC pursuant to Section 13 of the
Exchange Act if the Company were required to file under such section. In
addition, the Company will make such information available to prospective
purchasers of the Exchange Notes, securities analysts and broker-dealers who
request it in writing.
EVENTS OF DEFAULT
An "Event of Default" is defined in the Indenture as:
(i) failure by the Company to pay interest on any of the Exchange Notes
when it becomes due and payable and the continuance of any such failure for
30 days (whether or not prohibited by the terms of the Indenture described
under "-Subordination" above);
(ii) failure by the Company to pay the principal of (or premium, if
any, on) the Exchange Notes when it becomes due and payable, whether at its
Stated Maturity, upon redemption, upon acceleration or otherwise (whether
or not prohibited by the closeterms of businessthe Indenture described under
"-Subordination" above);
(iii) failure by the Company to comply with its obligations or
covenants described under the captions "-Change of Control", "-Certain
Covenants of the Company-Limitations on Asset Sales" or "-Certain Covenants
of the immediately preceding June 1Company-Limitations on Mergers and December 1, respectively. Interest onConsolidations" above (whether or
not prohibited by the New Notes will accrue fromterms of the most
recent dateIndenture described under
"-Subordination" above);
(iv) failure by the Company to which interestcomply with any covenant in the
Indenture (except the covenants referred to in clauses (i), (ii) and (iii)
hereto) and continuance of such failure for 30 days after notice of such
failure has been paidgiven to the Company by the Trustee or if no interest hasto the Company and
the Trustee by the Holders of at least 25% in principal amount of the Notes
then outstanding;
(v) any acceleration of the Stated Maturity of Indebtedness of the
Company or any of its Significant Subsidiaries having an outstanding
principal amount of at least $25,000,000 or a failure to pay such
Indebtedness at its Stated Maturity, provided that such acceleration or
failure to pay is not cured within 10 days after such acceleration or
failure to pay;
(vi) a final judgment or final judgments that exceed $25,000,000 for
the payment of money have been paid,
fromentered by a court or courts of competent
jurisdiction against the dateCompany and/or any Significant Subsidiary of original issuance. Interest on the
NewCompany and such judgment or judgments have not been discharged within 30
days after all rights to appeal have been exhausted; and
(vii) certain events of bankruptcy, insolvency or reorganization
involving the Company or any Significant Subsidiary of the Company.
34
If an Event of Default (other than an Event of Default specified in clause
(vii) above relating to the Company) shall have occurred and be continuing
under the Indenture, the Trustee, by written notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the Notes willthen
outstanding by written notice to the Company and the Trustee, may declare all
amounts owing under the Exchange Notes to be computed
ondue and payable. Upon
effectiveness of such acceleration, the basis of a 360-day year consisting of twelve 30-day months. Principalaggregate principal of, premium, if
any, and interest on the Newoutstanding Exchange Notes shall immediately become
due and payable. If an Event of Default specified in clause (vii) above
relating to the Company occurs, all outstanding Exchange Notes shall become due
and payable without any further action or notice.
In certain cases, the Holders of a majority in aggregate principal amount
of the Notes then outstanding may waive an existing Default or Event of Default
and its consequences, except a default in the payment of principal of, premium,
if any, and interest on the Exchange Notes.
The Holders may not enforce the provisions of the Indenture or the
Exchange Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power;
provided, however, that such direction does not conflict with the terms of the
Indenture. The Trustee may withhold from the Holders notice of any continuing
Default or Event of Default (except any Default or Event of Default in payment
of principal of, premium, if any, or interest on the Exchange Notes) if the
Trustee determines that withholding such notice is in the Holders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and, upon any Officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may, at its option by a resolution of the Board of Directors,
at any time, elect to have the obligations of the Company discharged with
respect to the outstanding Exchange Notes ("Legal Defeasance") under the
Indenture. Such defeasance means that the Company will be payable,deemed to have paid
and discharged the entire Indebtedness represented by the outstanding Exchange
Notes and to have satisfied all its other obligations under the Exchange Notes
and the Indenture insofar as the Exchange Notes are concerned except for
(i) the rights of Holders of outstanding Exchange Notes to receive
payments in respect of the principal of, premium, if any, and interest on
the Exchange Notes when such payments are due on the Stated Maturity
thereof (or, upon redemption, if applicable) from the trust fund
established to effect such defeasance,
(ii) the Company's obligations to issue temporary Exchange Notes,
register the transfer or exchange of Newany such Exchange Notes, will be registrable, at thereplace
mutilated, destroyed, lost or stolen Exchange Notes, maintain an office or
agency for payments in respect of such Exchange Notes and segregate and
hold such payments in trust,
(iii) the rights, powers, trusts, duties and immunities of the IssuerTrustee,
and
(iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option by a resolution of the Board
of Directors, at any time, elect to have the obligations of the Company
released with respect to certain covenants set forth in the Indenture, and any
omission to comply with such obligations will not constitute a Default or an
Event of Default with respect to the Exchange Notes ("Covenant Defeasance").
In order to exercise either Legal Defeasance or Covenant Defeasance under
the Indenture:
(i) the Company must irrevocably deposit or cause to be maintaineddeposited with
the Trustee, as trust funds in trust, specifically pledged as security for,
such purposeand dedicated solely to, the benefit of the Holders, cash in U.S. dollars,
or U.S. government obligations, or, in the Boroughcase of Manhattan, The CityCovenant Defeasance,
corporate obligations rated at least "A" by Standard & Poor's Ratings Group
or at least "A" by
35
Moody's Investors Service, Inc. or a combination thereof, in such amounts
as will be sufficient, in the opinion of New York,
except that, ata nationally recognized firm of
independent public accountants, to pay and discharge the optionprincipal of,
the Issuer,premium, if any, and interest may be paid by mailing a
check to the address of the person entitled thereto as it appears on the Newoutstanding Exchange Notes register. Inon the
event that any date on whichStated Maturity thereof (or upon redemption, if applicable) of such
principal, premium, if any, or interest is payableinstallment of interest;
(ii) no Default or Event of Default with respect to the Exchange Notes
will have occurred and be continuing on the Newdate of such deposit or,
insofar as an event of bankruptcy under clause (vii) of "-Events of
Default" above is concerned, at any time during the period ending on the
91st day after the date of such deposit;
(iii) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under, the Indenture or any
material agreement or instrument to which the Company is a party or by
which it is bound;
(iv) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an Opinion of Counsel stating that the Company has received
from, or there has been published by, the Internal Revenue Service a
ruling, or since the Issue Date, there has been a change in applicable
federal income tax law, in either case to the effect that, and based
thereon such opinion shall confirm that, the Holders of the outstanding
Notes of such series will not recognize income, gain or loss for federal
income tax purposes as a result of such defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(v) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
holders of outstanding Notes of such series will not recognize income, gain
or loss for federal income tax purposes as a result of such defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such defeasance
had not occurred; and
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance or the
Covenant Defeasance, as the case may be, have been complied with.
TRANSFER AND EXCHANGE
A Holder will be able to register the transfer of or exchange Exchange
Notes only in accordance with the provisions of the Indenture. The Registrar
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and to pay any taxes and fees required by law or
permitted by the Indenture. Without the prior consent of the Company, the
Registrar is not required
(i) to register the transfer of or exchange any Exchange Note selected
for redemption,
(ii) to register the transfer of or exchange any Exchange Note for a
Business Dayperiod of 15 days before the mailing of a notice of redemption and ending
on the date of such mailing, or
(iii) to register the transfer or exchange of an Exchange Note between
a record date and the next succeeding interest payment date.
The registered Holder will be treated as the owner of such Exchange Note for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Exchange Notes may be
amended or supplemented with the consent (which may include consents obtained
in connection with a tender offer or exchange offer for Notes) of the Holders
of a majority in principal amount of the Notes then outstanding, and any
existing Default under, or compliance with any provision of, the Indenture may
be waived (other than any continuing Default or Event of Default in the payment
of the principal of, premium, if any, or interest on the Exchange Notes) with
the consent (which may include consents
36
obtained in connection with a tender offer or exchange offer for Notes) of the
Holders of a majority in principal amount of the Notes then outstanding;
provided that without the consent of each Holder affected, the Company and the
Trustee may not:
(i) change the Stated Maturity of the principal of, or any installment
of interest on, such Exchange Note or alter the optional redemption
provisions thereof;
(ii) reduce the principal amount of, or premium, if any, or interest
on, such Exchange Note or extend the time of payments under the Exchange
Notes;
(iii) modify the subordination provisions in the Indenture in a manner
adverse to the Holder (including any modification of the definition of
Senior Indebtedness);
(iv) change the place or currency of payment of principal of, or
premium, if any, or interest on, such Exchange Note;
(v) alter the provisions with respect to the obligation of the Company
to make a Change of Control Offer in accordance with "-Change of Control"
above or to make an Asset Sale Offer in accordance with "-Certain
Covenants-Limitations on Asset Sales" above;
(vi) impair the right to institute suit for the enforcement of any
payment on or with respect to such Exchange Note; or
(vii) reduce the percentage in principal amount of outstanding Exchange
Notes, the consent of whose Holders is required for modification or
amendment of the Indenture or for waiver of compliance with certain
provisions of the Indenture or for waiver of certain Defaults or Events of
Default.
Without the consent of any Holder, the Company and the Trustee may amend
or supplement the Indenture or the Exchange Notes:
(i) to cure any ambiguity, or to correct or supplement any provision in
the Indenture or the Exchange Notes or make any other provisions with
respect to matters or questions arising under the Indenture or the Exchange
Notes; provided that, in each case, such provisions shall not adversely
affect the interest of the Holders;
(ii) to provide for uncertificated Exchange Notes in addition to or in
place of certificated Exchange Notes;
(iii) to provide for the assumption by a successor corporation of the
Company's obligations under the Indenture;
(iv) to add guarantees with respect to the Exchange Notes;
(v) to secure the Exchange Notes;
(vi) to add to the covenants of the Company or the Events of Default for
the benefit of Holders;
(vii) to surrender any right or power conferred on the Company; or
(viii) to make any other change that does not adversely affect the
rights of any Holder or to comply with any requirement of the SEC in
connection with the qualification of the Indenture under the Trust
Indenture Act.
The consent of Holders will not be necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. The Company may, but
shall not be obligated to, fix a record date for the purpose of determining the
Holders entitled to consent to any amendment, supplement or waiver. If a record
date is fixed, then those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
revoke any consent previously given, whether or not such Persons shall continue
to be Holders after such record date.
37
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Exchange Notes. The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; provided, however, if the Trustee acquires any
conflicting interest (as defined in the Indenture), then paymentit must eliminate such
conflict or resign.
The Holders of a majority in principal amount of the principal, premium, ifthen outstanding
Notes will have the right to direct the time, method and place of conducting
any or interest payable
on such dateproceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
occurs and is not cured, the Trustee will be made onrequired, in the next succeeding day that isexercise of its
power, to use the degree of care of a Business Day (and
withoutprudent person in similar circumstances
in the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any interestof its rights or other payment in respectpowers under the
Indenture at the request of any Holder, unless such delay).
GLOBAL SECURITIESHolder shall have offered
to the Trustee security and indemnity satisfactory to the Trustee.
GOVERNING LAW
The Indenture and the Exchange Notes provide that they will be governed
by, and construed in accordance with, the laws of the State of New York.
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes will be issuedrepresented by one or more permanent global
certificates in fully-registereddefinitive, fully registered form without coupons.interest coupons (the
"Global Notes"). The OldGlobal Notes were initially issuedwill be deposited upon issuance with the
Trustee as custodian for The Depository Trust Company ("DTC"), in globalNew York, New
York, and registered in the name of DTC or its nominee for credit to an account
of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global Notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
Exchange Notes in certificated form and definitive certificated
securities were not issued except in the limited circumstances
described below. 31
Each seriesSee "-Exchange of Book-Entry Notes will be evidenced by one or more global Securities
(the "Global Securities"), which will be deposited with, or on behalffor Certificated Notes".
Transfer of The
Depository Trust Company, New York, New York ("DTC") and registered in the name
of Cede & Co. ("Cede"), as DTC's nominee.
Persons holdingbeneficial interests in the Global SecuritiesNotes will be subject to
the applicable rules and procedures of DTC and its direct or indirect
participants (including, if applicable, those of the Euroclear System
("Euroclear") and Clearstream Banking societe anonyme ("Clearstream")), which
may change from time to time.
DEPOSITARY PROCEDURES
DTC is a limited-purpose trust company created to hold their interests
directly through DTC, or indirectly throughsecurities for its
participating organizations which are participants(collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in DTC ("Participants"). Transfersthose securities
between Participants will be effectedthrough electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers
(including the ordinary way in accordance with DTC rulesinitial purchasers), banks, trust companies, clearing
corporations and will be settled in immediatelycertain other organizations. Access to DTC's system is also
available funds.
Holders who are not Participants may beneficially own interests in a Global
Security held by DTC only through Participants or certainto other entities such as banks, brokers, dealers and trust companies and other parties
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests and have indirect accesstransfer of ownership interests of each actual
purchaser of each security held by or on behalf of DTC are recorded on the
records of the Participants and Indirect Participants.
Pursuant to procedures established by DTC:
(i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the initial purchasers with portions of the
principal amount of the Global Notes, and
38
(ii) ownership of such interests in the Global Notes will be maintained
by DTC (with respect to the DTC system ("Participants) or by the Participants and the
Indirect Participants"). So long as
Cede, as the nominee of DTC, is the registered owner of any Global Security,
Cede for all purposes will be considered the sole holder of such Global
Security. Except as provided below,Participants (with respect to other owners of beneficial
interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations (including Euroclear and Clearstream) which are Participants in
such system.
All interests in a Global SecurityNote, including those held through Euroclear or
Clearstream, will be subject to the procedures and requirements of DTC. Those
interests held through Euroclear or Clearstream will also be subject to the
procedures and requirements of these systems. The laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer beneficial interests in a
Global Note to such persons will be limited to that extent. Because DTC can act
only on behalf of Participants, which in turn act on behalf of Indirect
Participants, the ability of a person having beneficial interests in a Global
Note to pledge such interests to persons or entities that do not participate in
the DTC system, or otherwise take actions in respect of such interests, may be
entitled to have certificatesaffected by the lack of a physical certificate evidencing such interests. For
certain other restrictions on the transferability of the Exchange Notes, see
"-Exchange of Book-Entry Notes for Certificated Notes".
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL
NOT HAVE EXCHANGE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL
DELIVERY OF EXCHANGE NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE
REGISTERED OWNERS OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of and premium, if any, and interest
on a Global Note registered in the name of DTC or its nominee will be payable
by the Trustee to DTC in its capacity as the registered holder under the
Indenture. The Company and the Trustee will treat the persons in whose names
the Exchange Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Company, the Trustee nor any
agent of the Company or the Trustee has or will have any responsibility or
liability for:
(i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payment made on account of beneficial
ownership interests in the Global Notes, or for maintaining, supervising
or reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in
the Global Notes or
(ii) any other matter relating to the actions and practices of DTC or
any of its Participants or Indirect Participants.
DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the Exchange Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
names,respective holdings in the principal amount of beneficial interests in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Exchange
Notes will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or be entitled to receive physical delivery of certificates in
definitive form,the Indirect Participants and
will not be considered the holder thereof.responsibility of DTC, the Trustee or the Company. Neither HEALTHSOUTHthe
Company nor the Trustee (norwill be liable for any registrardelay by DTC or paying agent)any of its
Participants in identifying the beneficial owners of the Exchange Notes, and
the Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
Except for trades involving only Euroclear and Clearstream participants,
interests in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will therefore settle in immediately available funds, subject in all
cases to the rules and procedures of DTC and its Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Clearstream will be affected in the ordinary way
in accordance with their respective rules and operating procedures.
39
Cross-market transfers between the Participants in DTC, on the one hand,
and Euroclear or Clearstream participants, on the other hand, will be effected
through DTC in accordance with DTC 's rules on behalf of Euroclear and
Clearstream, as the case may be, by their depositories. Cross-market
transactions will require delivery of instructions to Euroclear or Clearstream,
as the case may be, by the counterparty in that system in accordance with the
rules and procedures and within the established deadlines (Brussels time) of
that system. Euroclear or Clearstream, as the case may be, will, if the
transaction meets its settlement requirements, deliver instructions to its
respective depositories to take action to effect final settlement on its behalf
by delivering or receiving interests in the relevant Global Note in DTC, and
making or receiving payment in accordance with normal procedures for same-day
funds settlement applicable to DTC. Euroclear and Clearstream participants may
not deliver instructions directly to the depositories for Euroclear or
Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited and reported to the relevant Euroclear or
Clearstream participant, during the securities settlement processing day (which
must be a business day for Euroclear and Clearstream) immediately following the
settlement date of DTC. DTC has advised the Company that cash received in
Euroclear or Clearstream as a result of sales of interests in a Global Note by
or through a Euroclear or Clearstream participant to a Participant in DTC will
be received with value on the settlement date of DTC but will be available in
the relevant Euroclear or Clearstream cash account only as of the business day
of Euroclear or Clearstream following DTC's settlement date.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of Exchange Notes only at the direction of one or more
Participants to whose account with DTC interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Exchange Notes as to which such Participant or Participants has or have
given such direction. If there is an Event of Default under the Exchange Notes,
DTC reserves the right to exchange the Global Notes for legended Exchange Notes
in certificated form, and to distribute the Exchange Notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and the procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or itsClearstream or their
respective Participants or Indirect Participants of their respective
obligations under the rules and procedures governing their operations.
DTC has advised HEALTHSOUTH that it will
take any action permitted to be taken by a holder of the Notes only at the
direction of one or more Participants whose accounts are credited with DTC
interests in a Global Security.
DTC has advised HEALTHSOUTH as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a "banking
organization" within the meaning of the New York Banking Law, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its Participants and to facilitate the clearance and settlement
of securities transactions, such as transfers and pledges, among Participants in
deposited securities through electronic book-entry changes to accounts of its
Participants, thereby eliminating the need for physical movement of securities
certificates. Participants include securities brokers and dealers, banks, trust
companies, clearing corporations and certain other organizations. Certain of
such Participants (or their representatives), together with other entities, own
DTC. The rules applicableAccording to DTC, and its Participants are on file with the Commission.
Exchanges of the Old Notes for New Notes under the DTC system must be made
by or through Participants, which will receive a credit for the New Notes on
DTC's records. The ownership interest of actual holders of each New Note (a
"Beneficial Owner") is in turn to be recorded on the Participants' and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from DTC of their exchange, but Beneficial Owners are expected to receive
written confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the Participant or Indirect Participant
through which the Beneficial Owner entered into the transaction. Transfers of
ownership interests in the Notes are to be accomplished by entries made on the
books of Participants acting on behalf of Beneficial Owners. Beneficial Owners
will not receive certificates representing their ownership interests in the New
Notes, except in the event that use of the book-entry system for the New Notes
is discontinued.
The deposit of New Notes with DTC and their registration in the name of
Cede effect no change in beneficial ownership. DTC has no knowledge of the
actual Beneficial Owners of the New Notes; DTC's records reflect only the
identity of the Participants to whose accounts such New Notes are credited,
which may or may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the Global
Securities.
32
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and by Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements that may be in effect from
time to time. Redemption notices shall be sent to Cede. If less than all of the
New Notes due 2005 or the New Notes due 2008, as the case may be, are being
redeemed, DTC's practice is to determine by lot the interest of each Participant
in such New Notes due 2005 or New Notes due 2008, as the case may be, to be
redeemed.
Principal and interest payments on the New Notes will be made to DTC by
wire transfer of immediately available funds. DTC's practice is to credit
Participants' accounts on the payable date in accordance with their respective
holdings shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the payable date. Payments by Participants to Beneficial
Owners will be governed by standing instructions and customary practices, as is
the case with securities held for the accounts of customers in bearer form or
registered in "street name", and will be the responsibility of such Participant
and not of DTC, or HEALTHSOUTH, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal and
interest to DTC is the responsibility of HEALTHSOUTH, disbursement of such
payments to Participants shall be the responsibility of DTC, and disbursement of
such payments to the Beneficial Owners shall be the responsibility of
Participants and Indirect Participants. Neither HEALTHSOUTH nor the Trustee will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Securities or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DTC may discontinue providing its services as securities depositaryforegoing information with respect to DTC has been
provided for informational purposes only and is not intended to serve as a
representation, warranty, or contract modification of any series ofkind.
The information in this section concerning DTC, Euroclear and Clearstream
and their book-entry systems has been obtained from sources that the NewCompany
believes to be reliable, but the Company takes no responsibility for the
accuracy thereof.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for Exchange Notes at any time by giving reasonable notice
to HEALTHSOUTH. Inin registered
certificated form (a "Certificated Note") if:
(i) DTC (1) notifies the event that DTC notifies HEALTHSOUTHCompany that it is unwilling or unable to
continue as depositary for anythe Global SecurityNote and the Company fails to
appoint a successor depositary within 60 days, or if at any time
DTC ceases(2) has ceased to be a
clearing agency registered as such under the Exchange Act, when DTC is required to be so registered to act as such depositary and no
successor depositaryor
(ii) at the request of a holder, if there shall have been appointed within 90 daysoccurred and be
continuing an Event of such
notification or of HEALTHSOUTH becoming aware of DTC's ceasingDefault with respect to be so
registered, as the case may be, certificates for the applicable NewExchange Notes.
In all cases, Certificated Notes will
be printed and delivered in exchange for any Global Note or
beneficial interests therein will be registered in such Global Security. Any
Global Security thatthe names, and issued in any
approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures), unless the Company determines
otherwise in accordance with the Indenture and in compliance with applicable
law.
40
CERTAIN DEFINITIONS
Set forth below is exchangeable pursuanta summary of certain of the defined terms used in the
Indenture. Reference is made to the preceding sentence shall be
exchangeable for New Notes registered in such names as DTC shall direct. It is
expected that such instructions will be based upon directions received by DTC
from its Participants with respect to ownership of beneficial interests in such
Global Security.
HEALTHSOUTH may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depositary). In that event,
certificates representing each series of the New Notes will be printed and
delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that HEALTHSOUTH believes to be reliable, but
HEALTHSOUTH does not take responsibilityIndenture for the accuracy thereof.
OPTIONAL REDEMPTION
The New Notes will be redeemable as a whole or in part, at the optionfull definition of the Issuer, at any time at a redemption price equal to the greater of (i) 100%
of their principal amount and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon discounted to the
date of redemption on a semi-annual basis (assuming a 360-day year consisting of
twelve 30-day months) at the applicable Treasury Yield plus 15 basis pointsall
such terms used in the case of the New Notes due 2005 and 20 basis points in the case of the New
Notes due 2008, plus, in each case, accrued interest to the date of redemption.
"Treasury Yield"Indenture.
"Acquired Indebtedness" means (i) with respect to any redemption date,Person that becomes
a Subsidiary of the rate per
annum equalCompany after the Issue Date, Indebtedness of such Person
and its Subsidiaries existing at the time such Person becomes a Subsidiary of
the Company and (ii) with respect to the semi-annual equivalent yieldCompany or any of its Subsidiaries,
any Indebtedness assumed by the Company or any of its Subsidiaries in
connection with the acquisition of an asset from another Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to maturityany specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" for any Person means the sale, lease, conveyance or other
disposition (including, without limitation, by merger or consolidation, and
whether by operation of law or otherwise) of any of that Person's assets
(including, without limitation, the sale or other disposition of Capital Stock
of any Subsidiary of such Person, whether by such Person or by such
Subsidiary), whether owned on the Issue Date or subsequently acquired, in one
transaction or a series of related transactions, in which such Person and/or
its Subsidiaries sell, lease, convey or otherwise dispose of:
(i) all or substantially all of the applicable
Comparable Treasury Issue, assuming a price for the applicable Comparable
Treasury Issue (expressed as a percentageCapital Stock of any of such Person's
Subsidiaries,
(ii) assets which constitute all or substantially all of any division or
fine of business of such Person or any of its principal amount) equalSubsidiaries, or
(iii) any other assets of such Person or any of its Subsidiaries, other
than in the ordinary course of business, provided, that the Fair Market
Value thereof shall be at least 1% of Consolidated Tangible Assets;
provided, however, that the following shall not constitute Asset Sales:
(a) transactions between the Company and any of its Wholly Owned
Subsidiaries or among such Wholly Owned Subsidiaries;
(b) any transaction not prohibited by the covenant described under
"Limitations on Restricted Payments" or that constitutes a Permitted
Investment;
(c) any transfer of assets (including Capital Stock) that is governed by
and in accordance with the provisions described under "Limitations on
Mergers and Consolidations" or the creation of any Lien not prohibited by
the covenant described under "Limitations on Liens"; or
(d) sales of damaged, worn-out or obsolete equipment or assets that, in
the Company's reasonable judgment, are no longer either used or useful in
the business of the Company or its Subsidiaries.
"Attributable Indebtedness" when used with respect to any Sale and
Leaseback Transaction means, as at the time of determination, the present value
(discounted at a rate equivalent to the applicable Comparable Treasury Priceinterest rate implicit in the lease,
compounded on a semiannual basis) of the total obligations of the lessee for
such redemption date.
33
"Comparable Treasury Issue" meansrental payments, after excluding all amounts required to be paid on account of
maintenance and repairs, insurance, taxes, utilities and other similar expenses
payable by the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparablelessee pursuant to the terms of the lease, during the remaining
term of the New Notes due 2005lease included in any such Sale and Leaseback Transaction or New Notes due 2008, asuntil
the earliest date on which the lessee may terminate such lease without penalty
or upon payment of a penalty (in which case may be,the rental payments shall include
such penalty); provided, that would be utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of the New Notes due 2005 or the
New Notes due 2008, as the case may be. "Independent Investment Banker" means
Salomon Brothers Inc and its successor or, if such firm is unwilling or unable
to select the applicable Comparable Treasury Issue, an independent investment
banking institution of national standing appointed by the Trustee.
"Comparable Treasury Price" means,Attributable Indebtedness with respect to any redemption date, (i)
the average of the bida
Sale and asked prices for the applicable Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) on the
third business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the applicable Reference Treasury Dealer Quotations for such redemption date,
after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any redemption date, the average, as determined by the Trustee, of
the bid and asked prices of the applicable Comparable Treasury Issue (expressed
in each case as a percentage of its principal amount) quoted in writing to the
Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day
preceding such redemption date.
"Reference Treasury Dealer" means a primary U.S. Government Securities
dealer in New York City selected by the Trustee after consultation with the
Issuer.
On and after the redemption date, interest will cease to accrue on the New
Notes or any portion thereof called for redemption. On or before the redemption
date, the IssuerLeaseback Transaction shall deposit with a paying agent (or the Trustee) money
sufficient to pay the redemption price of and accrued interest on the New Notes
to be redeemed on such date. Ifno less than all of the New Notes due 2005 or the
New Notes due 2008 are to be redeemed, the New Notes to be redeemed shall be
selected by the Trustee by such method as the Trustee shall deem fair and
appropriate.
Holders of New Notes to be redeemed will receive notice thereof by
first-class mail at least 30 and not more than 60 days prior to the date fixed
for redemption.
CERTAIN COVENANTS OF THE ISSUER
Definitions. "Attributable Debt" shall mean, in connection with a sale and
lease-back transaction, the lesser of (i) the fair market value of
the assetsproperty subject to such transaction or (ii) the present value of theSale and Leaseback Transaction.
41
"Bank Debt" means all obligations of the lesseeCompany and its Subsidiaries, now
or hereafter existing under (i) the Credit Agreements, whether for net rental payments during the termprincipal,
interest, reimbursement of amounts drawn under letters of credit issued
pursuant thereto, guarantees in respect thereof, fees, expenses, premiums,
indemnities or otherwise, and (ii) any lease discounted at the rate of
interest set forth or implicit in the terms of such lease or, if not practicable
to determine such rate, the weighted average interest rate per annum borneIndebtedness incurred by the Company to
extend, refund or refinance, in whole or in part, the Bank Debt, Securities of each series outstanding pursuant to the Indentureincluding any
interest and subject to the limitationpremium on sale and lease-back transaction provisions of the
Indenture, compounded semiannually in either case as determined by the principal
accounting or financial officer of the Issuer.any such Indebtedness.
"Capital Stock" of any specified person shall meanPerson means any and all shares, rights to
purchase, warrants or options (whether or not currently exercisable),
participation or other equivalents of or interestsinterest in (however designated) the
equity (including without limitation common stock, preferred stock and
partnership, and joint venture and limited liability company interests) of such
personPerson (excluding any debt securities that are convertible into, or
exchangeable for, such equity).
"Capitalized Lease Obligations" of any Person means the obligation of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"Change of Control" means the occurrence of any of the following:
(i) all or substantially all of the Company's assets are sold as an
entirety to any person or related group of persons;
(ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving
corporation (other than a consolidation or merger with a wholly owned
subsidiary of the Company in which all shares of the Company's Common
Equity outstanding immediately prior to the effectiveness thereof are
changed into or exchanged for the same consideration) or (B) pursuant to
which the Company's Common Equity would be converted into cash, securities
or other property, in each case other than a consolidation or merger of the
Company in which the holders of the Company's Common Equity immediately
prior to the consolidation or merger have, directly or indirectly, at least
a majority of the total voting power of all classes of Capital Stock
entitled to vote generally in the election of directors of the continuing
or surviving corporation immediately after such consolidation or merger in
substantially the same proportion as their ownership of the Company's
Common Equity immediately before such transaction;
(iii) any person, or any persons acting together which would constitute a
"group" for purposes of Section 13(d) of the Exchange Act, together with
any affiliates thereof, shall beneficially own (as defined in Rule 13d-3
under the Exchange Act) at least 50% of the total voting power of all
classes of Capital Stock of the Company entitled to vote generally in the
election of directors of the Company;
(iv) at any time during any consecutive two-year period, individuals who
at the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of the
Company was approved by a vote of 66-2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors of the
Company then in office; or
(v) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution.
"Common Equity" of any specified person shall meanPerson means all Capital Stock of such personPerson that
is generally entitled to (i) vote in the election of directors of such personPerson
or (ii) if such personPerson is not a corporation, vote or otherwise participate in
the selection of the governing body, partners, managers or others that will
control the management and policies of such person.
34Person.
"Company" means HEALTHSOUTH Corporation, or, subject to the Indenture, its
successors and assigns.
42
"Consolidated Tangible Assets"Amortization Expense" of any Person for any period means the
amortization expense of such Person and its Subsidiaries for such period (to
the extent included in the computation of Consolidated Net Income of such
Person), determined on a consolidated basis in accordance with GAAP.
"Consolidated Depreciation Expense" of any Person means the depreciation
expense of such Person and its Subsidiaries for such period (to the extent
included in the computation of Consolidated Net Income of such Person),
determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" of any Person means, with respect to any
specified persondetermination date, Consolidated Net Income, plus (i) Consolidated Income Tax
Expense, plus (ii) Consolidated Depreciation Expense, plus (iii) Consolidated
Amortization Expense, plus (iv) Consolidated Interest Expense, plus (v) all
other unusual non-cash items or non-recurring non-cash items reducing
Consolidated Net Income of such Person and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP, and less all non-cash items
increasing Consolidated Net Income of such Person and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, in each case, for
such Person's prior four full fiscal quarters for which financial results have
been reported immediately preceding the determination date.
"Consolidated Income Tax Expense" means, for any Person for any period,
the provision for taxes based on income and profits of such Person and its
Subsidiaries to the extent such provision for income taxes was deducted in
computing Consolidated Net Income of such Person for such period, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" of any Person for any period means,
without duplication, (i) the Interest Expense of such Person and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP, plus (ii) (to the extent not otherwise included within the
definition of Interest Expense as imputed interest) one-third of the rental
expense on Attributable Indebtedness of such Person for such period determined
on a consolidated basis, plus (iii) the dividend requirements of such Person
and its Subsidiaries with respect to Disqualified Stock and with respect to all
other Preferred Stock of Subsidiaries of such Person (in each case whether in
cash or otherwise (except dividends payable solely in shares of Capital Stock
(other than Disqualified Stock) of such Person or such Subsidiary)) paid,
accrued or accumulated during such period times a fraction the numerator of
which is one and the denominator of which is one minus the then effective
consolidated Federal, state and local tax rate of such Person, expressed as a
decimal.
"Consolidated Net Income" of any Person for any period means the net
income (or loss) of such Person and its Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP; provided that there shall be
excluded from such net income (to the extent otherwise included therein),
without duplication:
(i) the net income (or loss) of any Person (other than a Subsidiary of
the referent Person) in which any Person other than the referent Person has
an ownership interest, except to the extent that any such income has
actually been received by the referent Person or any of its Wholly Owned
Subsidiaries in the form of dividends or similar distributions during such
period;
(ii) except to the extent includible in the consolidated net income of
the referent Person pursuant to the foregoing clause (i), the net income
(or loss) of any Person that accrued prior to the date that (a) such Person
becomes a Subsidiary of the referent Person or is merged into or
consolidated with the referent Person or any of its Subsidiaries or (b) the
assets of such Person are acquired by the referent Person or any of its
Subsidiaries;
(iii) the net income of any Subsidiary of the referent Person (other
than a Wholly Owned Subsidiary) to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary of that
income is not permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary during such period;
(iv) any gain (or loss), together with any related provisions for taxes
on any such gain, realized during such period by the referent Person or any
of its Subsidiaries upon (a) the acquisition of any securities, or the
extinguishment of any Indebtedness, of the referent Person or any of its
Subsidiaries or (b) any Asset Sale by the referent Person or any of its
Subsidiaries;
43
(v) any extraordinary gain or extraordinary loss, together with any
related provision for taxes or tax benefit resulting from any such
extraordinary gain or extraordinary loss, realized by the referent Person
or any of its Subsidiaries during such period; and
(vi) in the case of a successor to such Person by consolidation, merger
or transfer of its assets, any earnings of the successor prior to such
merger, consolidation or transfer of assets.
"Consolidated Net Worth" of any Person as of any date shall meanmeans the
stockholders' equity (including any preferred stock that is classified as
equity under GAAP, other than Disqualified Stock) of such Person and its
Subsidiaries (excluding any equity adjustment for foreign currency translation
for any period subsequent to the Issue Date) on a consolidated basis at such
date, as determined in accordance with GAAP, less all write-ups subsequent to
the Issue Date in the book value of any asset owned by such Person or any of
its Subsidiaries.
"Consolidated Tangible Assets" of any Person as of any date means the
total assets of such personPerson and its Subsidiaries (excluding any assets that
would be classified as "intangible assets" under GAAP) on a consolidated basis
at such date, as determined in accordance with GAAP, less all write-ups
subsequent to the date of initial issuance of the NotesIssue Date in the book value of any asset owned by such
personPerson or any of its Subsidiaries.
"Exempted Debt""Credit Agreements" means (i) the Credit Agreement dated as of June 23,
1998 by and among the Company, as borrower, Nationsbank, National Association,
as Administrative Agent and Arranger, J.P. Morgan Securities Inc., Deutsche
Bank AG and Scotiabanc, Inc., as Syndication Agents and Co-Arrangers, and the
other lenders party thereto from time to time, together with the related
documents thereto, including, without limitation, any security documents, if
any, and all exhibits and schedules thereto and any agreement or agreements
relating to any extension, refunding, refinancing, successor or replacement
facility, whether or not with the same lender, and whether or not the principal
amount or amount of letters of credit outstanding thereunder or the interest
rate payable in respect thereof shall meanbe thereby increased, in each case as
amended and in effect from time to time and (ii) the sumNew Credit Agreement.
"Default" means any event, act or condition that is, or after notice or
the passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) the Bank Debt, without regard
to the amounts outstanding thereunder, and (ii) any Senior Indebtedness which,
at the time of determination, has an aggregate principal amount outstanding of
at least $20,000,000 and is specifically designated in the instrument
evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by the
Company.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the following asholder thereof, in whole or in part, on or
prior to the Stated Maturity date of the dateNotes.
"EBITDA Coverage Ratio" with respect to any period means the ratio of determination: (i)
IndebtednessConsolidated EBITDA of the Issuer and its Subsidiaries incurred
afterCompany to (ii) the dateaggregate amount of issuanceConsolidated
Interest Expense of the New Notes and secured by liens not otherwise
permitted by the limitation on liens provisionsCompany for such period; provided, however, that if any
calculation of the Indenture, and (ii)
Attributable DebtCompany's EBITDA Coverage Ratio requires the use of any
quarter prior to the Issuer and its Subsidiaries in respect of every sale
and lease-back transaction entered into after the date ofIssue Date, such calculation shall be made on a pro forma
basis, giving effect to the issuance of the OldPrivate Notes and the use of the
net proceeds therefrom as if the same had occurred at the beginning of the
four-quarter period used to make such calculation; and provided further that if
any such calculation requires the use of any quarter prior to the date that any
Asset Sale was consummated, or that any Indebtedness was incurred, or that any
acquisition of a hospital or other than leases permittedhealthcare facility or any assets purchased
outside the ordinary course of business was effected, by the limitationCompany or any of
its Subsidiaries, such calculation shall be made on salea pro forma basis, giving
effect to each such Asset Sale, incurrence of Indebtedness or acquisition, as
the case may be, and lease-back
provisionsthe use of any proceeds therefrom, as if the same had
occurred at the beginning of the Indenture.four-quarter period used to make such
calculation.
"Eligible Investments" of any Person means Investments of such Person in:
(i) direct obligations of, or obligations the payment of which is
guaranteed by, the United States of America or an interest in any trust or
fund that invests solely in such obligations or repurchase agreements,
properly secured, with respect to such obligations;
44
(ii) direct obligations of agencies or instrumentalities of the United
States of America having a rating of A or higher by Standard & Poor's
Corporation or A2 or higher by Moody's Investors Service, Inc.;
(iii) a certificate of deposit issued by, or other interest-bearing
deposits with, a bank having its principal place of business in the United
States of America and having equity capital of not less than $250,000,000;
(iv) a certificate of deposit by, or other interest-bearing deposits
with, any other bank organized under the laws of the United States of
America or any state thereof, provided that such deposit is either (a)
insured by the Federal Deposit Insurance Corporation or (b) properly
secured by such bank by pledging direct obligations of the United States of
America having a market value of not less than the face amount of such
deposits;
(v) prime commercial paper maturing within 270 days of the acquisition
thereof and, at the time of acquisition, having a rating of A-1 or higher
by Standard & Poor's Corporation, or P-1 or higher by Moody's Investors
Service, Inc.; or
(vi) eligible banker's acceptances, repurchase agreements and
tax-exempt municipal bonds having a maturity of less than one year, in each
case having a rating, or that is the full recourse obligation of a person
whose senior debt is rated A or higher by Standard & Poor's Corporation or
A2 or higher by Moody's Investors Service, Inc.
"Equity Offering" means a primary offering of Capital Stock of the Company
(other than Disqualified Stock or Preferred Stock) pursuant to a registration
statement filed with the SEC in accordance with the Securities Act and declared
effective by the staff of the SEC.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means all of the Indebtedness of the Company and
its Subsidiaries that is outstanding on the Issue Date.
"Fair Market Value" of any asset or items means the fair market value of
such asset or items as determined in good faith by the Board of Directors and
evidenced by a resolution of the Board of Directors.
"GAAP" shall meanmeans generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as from time to time in effect.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement relating to interest rates or foreign exchange
rates.
"Indebtedness" of any Person at any date means, without duplication:
(i) all indebtedness of such Person for borrowed money (whether or not
the recourse of the lender is to the whole of the assets of such Person or
only to a portion thereof);
(ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all obligations of such Person in respect of letters of credit or
other similar instruments (or reimbursement obligations with respect
thereto);
(iv) all obligations of such Person with respect to Hedging Obligations
(other than those that fix the interest rate on variable rate indebtedness
otherwise permitted by the Indenture or that protect the Company and/or its
Subsidiaries against changes in foreign exchange rates);
(v) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, except trade payables and accrued
expenses incurred in the ordinary course of business;
45
(vi) all Capitalized Lease Obligations of such Person;
(vii) all Indebtedness of others secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
(viii) all Indebtedness of others guaranteed by such Person to the
extent of such guarantee;
(ix) all Attributable Indebtedness; and
(x) all Disqualified Stock of such Person and its Subsidiaries and all
other Preferred Stock of Subsidiaries of such Person valued at the greater
of (a) the voluntary or involuntary liquidation preference of such
Disqualified Stock or such Preferred Stock, as the case may be, and (b) the
aggregate amount payable upon purchase, redemption, defeasance or payment
of such Disqualified Stock or such Preferred Stock, as the case may be.
The amount of Indebtedness of any Person at any date shall meanbe the outstanding
balance at such date of all unconditional obligations plus past due interest as
described above, the maximum liability of such Person for any such contingent
obligations at such date and, in the case of clause (vii), the amount of the
Indebtedness secured.
"Interest Expense" of any Person for any period means the aggregate amount
of interest which, in accordance with GAAP, would be set opposite the caption
"interest expense" or any like caption on an income statement for such Person
(including, without limitation or duplication, imputed interest included in
Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with Hedging Obligations, amortization of
financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount and all other non-cash interest expense
other than interest amortized to cost of sales) plus the aggregate amount, if
any, by which such interest expense was reduced as a result of the amortization
of deferred debt restructuring credits for such period.
"Investments" of any Person means:
(i) all investments by such Person in any other Person in the form of
loans, advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business);
(ii) all guarantees of Indebtedness or other obligations of any other
Person by such Person;
(iii) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other
Person; and
(iv) all other items that would be classified as indebtednessinvestments
(including, without limitation, purchases of assets outside the ordinary
course of business) on the most
recently available consolidateda balance sheet of the Issuer and its
Subsidiaries,such Person prepared in
accordance with GAAP.
"Subsidiary""Issue Date" means September 25, 2000, the date the Private Notes were
initially issued.
"Joint Venture" means any Person at least a majority of whose revenues
result from healthcare related businesses or facilities.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or other similar encumbrance of any kind in respect
of such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including, without limitation, any conditional sale or other
title retention agreement, and any financing lease in the nature thereof, any
agreement to sell, and any filing of, or agreement to give, any financing
statement (other than notice filings not perfecting a security interest) under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Proceeds" with respect to any Asset Sale means (i) cash (in U.S.
dollars or freely convertible into U.S. dollars) received by the Company or any
of its Subsidiaries from such Asset Sale (including, without limitation, cash
received as consideration for the assumption or incurrence of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or
46
resulting from such Asset Sale or the transfer of the proceeds of such Asset
Sale to the Company or any of its Subsidiaries, (b) payment of all commissions
and other fees and expenses related to such Asset Sale and (c) deduction of an
appropriate amount to be provided by the Company or any of its Subsidiaries as
a reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or otherwise disposed of in such Asset Sale and retained by the
Company or any of its Subsidiaries after such Asset Sale (including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters) or against any indemnification
obligations associated with the sale or other disposition of the assets sold or
otherwise disposed of in such Asset Sale and (ii) all non-cash consideration
received by the Company or any of its Subsidiaries from such Asset Sales upon
the liquidation or conversion of such consideration into cash.
"New Credit Agreement" means the $400,000,000 senior credit facility
recently entered into by the Company, together with the related documents
thereto, including, without limitation, any security documents, if any, and all
exhibits and schedules thereto and any agreement or agreements relating to any
extension, refunding, refinancing, successor or replacement facility, whether
or not with the same lender, and whether or not the principal amount or amount
of letters of credit outstanding thereunder or the interest rate payable in
respect thereof shall be thereby increased, in each case as amended and in
effect from time to time.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, any Vice Chairman of the Board, the Chief Executive Officer, the
President or any Vice President and by the Treasurer, any Assistant Treasurer,
the Secretary or any Assistant Secretary of the Company in their official (and
not individual) capacities; provided, however, that every Officers' Certificate
with respect to the compliance with a condition precedent to the taking of any
action under the Indenture shall include (i) a statement that the officers
making or giving such Officers' Certificate have read such condition and any
definitions or other provisions contained in the Indenture relating thereto and
(ii) a statement as to whether, in the opinion of the signers, such condition
has been complied with. "Opinion of Counsel" means a written opinion from legal
counsel (such counsel may be an employee of or counsel to the Company or the
Trustee) that complies with the requirements of the Indenture. "Permitted
Investments" means:
(i) capital contributions, advances or loans to the Company by any
Subsidiary or by the Company or any of its Subsidiaries to a Subsidiary of
the Company;
(ii) the acquisition and holding by the Company and each of its
Subsidiaries of receivables owing to the Company and such Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;
(iii) the acquisition and holding by the Company and its Subsidiaries
of cash and Eligible Investments;
(iv) Investments in any Person as a result of which such other Person
becomes a Subsidiary of the Company or is merged into or consolidated with
or transfers all or substantially an of its assets to the Company or any of
its Subsidiaries; and
(v) the making of an Investment by the Company, directly or through a
Wholly Owned Subsidiary, in a Wholly Owned Subsidiary formed solely for the
purpose of insuring the healthcare business and facilities owned or
operated by the Company or a Subsidiary and any physician employed by or on
the staff of any such business or facility (the "Insurance Subsidiary"),
provided that the amount invested in such Insurance Subsidiary does not
exceed $15,000,000.
"Permitted Liens" means:
(i) Liens for taxes, assessments or governmental charges or claims that
either (a) are not yet delinquent or (b) are being contested in good faith
by appropriate proceedings;
(ii) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts that
either (a) are not yet delinquent or (b) are being contested in good faith
by appropriate proceedings and as to which appropriate reserves or other
provisions have been made in accordance with GAAP;
47
(iii) Liens (other than any Lien imposed by the Employee Retirement
Income Security Act of 1974, as amended) incurred or deposits due in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security;
(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
progress payments, government contracts and other obligations of like
nature (exclusive of obligations for the payment of borrowed money), in
each case, incurred in the ordinary course of business;
(v) attachment or judgment Liens not giving rise to a Default or an
Event of Default;
(vi) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering with the ordinary conduct of the business
of the Company or any of its Subsidiaries;
(vii) leases or subleases granted to others not interfering with the
ordinary conduct of the business of the Company or any of its Subsidiaries;
(viii) Liens with respect to any Acquired Indebtedness; provided that
such Liens only extend to assets that were subject to such Liens prior to
the acquisition of such assets by the Company or its Subsidiaries and, with
respect to Indebtedness other than Senior Indebtedness, not incurred in
anticipation or contemplation of such acquisition;
(ix) Liens securing Senior Indebtedness or Refinancing Indebtedness;
provided, in the case of Refinancing Indebtedness, that such Liens only
extend to the assets securing the Indebtedness being refinanced and such
refinanced Indebtedness was previously secured by such assets;
(x) purchase money mortgages (including Capitalized Lease Obligations);
(xi) Liens existing on the Issue Date;
(xii) Liens on assets of any Subsidiary of the Company securing
Indebtedness of such Subsidiary, provided that such Indebtedness is
permitted to be incurred by the terms of the Indenture;
(xiii) bankers' liens with respect to the right of set-off arising in
the ordinary course of business against amounts maintained in bank accounts
or certificates of deposit in the name of the Company or any Subsidiary;
(xiv) the interest of any issuer of a letter of credit in any cash or
Eligible Investment deposited with or for the benefit of such issuer as
collateral for such letter of credit; provided that the Indebtedness so
collateralized is permitted to be incurred by the terms of the Indenture;
(xv) any Lien consisting of a right of first refusal or option to
purchase the Company's ownership interest in any Subsidiary or to purchase
assets of the Company or any Subsidiary of the Company, which right of
first refusal or option is entered into in the ordinary course of business;
and
(xvi) the Lien granted to the Trustee pursuant to the trust created
pursuant to "-Satisfaction and Discharge of Indenture; Defeasance" above
and any substantially equivalent Lien granted to the respective trustees
under the indentures for other debt securities of the Company.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or incorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" means with respect to any Person all Capital Stock of
such Person which has a preference in liquidation or a preference with respect
to the payment of dividends or distributions of rating profit or cash.
"Refinancing Indebtedness" means Indebtedness that is applied to refund,
refinance or extend any Existing Indebtedness (other than Indebtedness under
the New Credit Agreement), provided that:
48
(i) the Refinancing Indebtedness is the obligation of the same Person
(or if the Indebtedness being refinanced is an obligation of one or more
Subsidiaries of the Company, such Refinancing Indebtedness may be incurred
by the Company or one or more other Subsidiaries of the Company) and is
subordinated to the Notes, if at all, to the same extent as the
Indebtedness being refunded, refinanced or extended;
(ii) the Refinancing Indebtedness is scheduled to mature no earlier
than the Indebtedness being refunded, refinanced or extended;
(iii) the Refinancing Indebtedness has a Weighted Average Life to
Maturity at the time such Refinancing Indebtedness is incurred that is
equal to or greater than the Weighted Average Life to Maturity of the
portion of the Indebtedness being refunded, refinanced or extended;
(iv) the Refinancing Indebtedness is secured only to the extent, if at
all, and by the assets that the Indebtedness being refunded, refinanced or
extended is secured; and
(v) such Refinancing Indebtedness is in an aggregate principal amount
that is equal to or less than the aggregate principal amount then
outstanding under the Indebtedness being refunded, refinanced or extended
(except for issuance costs and increases in Attributable Indebtedness due
solely to increases in the present value calculations resulting from
renewals or extensions of the terms of the underlying leases in effect on
the Issue Date).
"Restricted Payment" means with respect to any Person:
(i) the declaration of any dividend or the making of any other payment
or distribution of cash, securities or other property or assets in respect
of such Person's Capital Stock (except that a dividend payable solely in
Capital Stock (other than Disqualified Stock) of such Person shall not
constitute a Restricted Payment);
(ii) any payment on account of the purchase, redemption, retirement or
other acquisition for value of such Person's or such Person's Subsidiaries'
Capital Stock or any other payment or distribution made in respect thereof,
either directly or indirectly;
(iii) any payment on account of the purchase, redemption, retirement,
defeasance or other acquisition for value, prior to any scheduled principal
payment, sinking fund payment or Stated Maturity, of Subordinated
Indebtedness of the Company or its Subsidiaries;
(iv) the incurrence, creation or assumption of any guarantee of
Indebtedness of any Affiliate (other than a Subsidiary of the Company); or
(v) the making of any Investment in any Person (other than Permitted
Investments);
provided, however, that with respect to the Company and its Subsidiaries,
Restricted Payments shall not include any payment described in clause (i), (ii)
or (iii) above made (1) to the Company or any of its Wholly Owned Subsidiaries
by any of the Company's Subsidiaries or (2) by the Company to any of its Wholly
Owned Subsidiaries or (3) by any Subsidiary, provided that the Company or
another Subsidiary receives its proportionate share thereof.
"Sale and Leaseback Transaction" means, with respect to any Person, an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of such person or
any of its Subsidiaries which has been or is being sold or transferred by such
Person or such Subsidiary to such lender or investor or to any Person to whom
funds have been or are to be advanced by such lender or investor on the
security of such property or asset.
"SEC" means the Securities and Exchange Commission, as from time to time
constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such SEC is not existing and performing the duties
now assigned to it under the Trust Indenture Act, the body performing such
duties at the time.
49
"Secretary's Certificate" means a certificate signed by the Secretary or
any Assistant Secretary of the Company in his or her official (and not
individual) capacity.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on and other amounts due on or in connection with any Indebtedness of
the Company existing on the Issue Date or any Indebtedness of the Company
thereafter created, incurred or assumed and permitted under the "Limitations on
Additional Indebtedness and Subsidiary Preferred Stock" covenant, unless, in
the case of any particular Indebtedness, the instrument creating or evidencing
the same or pursuant to which the same is outstanding expressly provides that
such Indebtedness shall not be senior in right of payment to the Notes.
"Senior Subordinated Indebtedness" means the Notes and any other
indebtedness, guarantee or obligation of the Company that (in the case of such
other Indebtedness) specifically provides that such indebtedness, guarantee or
obligation is to rank pari passu with other Senior Subordinated Indebtedness of
the Company and is not subordinated by its terms to any indebtedness, guarantee
or obligation of the Company which is not Senior Indebtedness.
"Significant Subsidiary" means a Subsidiary of the Company which at the
time of determination either (i) had tangible assets which, as of the Company's
most recent quarterly consolidated balance sheet, constituted at least 5% of
Consolidated Tangible Assets as of such date, or (ii) had revenues for the
12-month period ending on the date of the Company's most recent quarterly
consolidated statement of income which constituted at least 5% of the Company's
total consolidated revenues for such period.
"Stated Maturity" when used with respect to any security or any
installment of interest thereon, means that date specified person shall meanin such security as
the fixed date on which the principal of such security or such installment of
interest is due and payable.
"Subordinated Indebtedness" of any Person means any Indebtedness of such
Person that is subordinated in right of payment to the Notes.
"Subsidiary" of any Person means (i) any corporation of which the Common
Equity having ordinary voting power to elect a majority of the directors of
such corporation is owned by such personPerson directly or through one or more other
Subsidiaries of such personPerson and (ii) any entity other than a corporation in
which such person,Person, directly or indirectly, owns at least 50% of the Common
Equity of such entity and has the authority to manage such entity on a
day-to-day basis.
Limitation on Liens. The Issuer covenants that, so long as"Weighted Average Life to Maturity" means, when applied to any
Indebtedness or portion thereof at any date, the number of years obtained by
dividing (i) the then outstanding principal amount of such Indebtedness or
portion thereof (if applicable) into (ii) the sum of the New
Notes remain outstanding, it will not, nor will it permit any Subsidiary to,
create or assume any Indebtedness for money borrowed which is securedproducts obtained by
a
mortgage, security interest, pledge, charge, lienmultiplying (a) the amount of each then remaining installment, sinking fund,
serial maturity or other similar encumbrancerequired payment of principal, including payment at
final maturity, in respect thereof, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment.
"Wholly Owned Subsidiary" of any kind (collectively,person means (i) a "lien") upon any assets, whether now owned or
hereafter acquired,Subsidiary of which
100% of the IssuerCommon Equity (except for director's qualifying shares or anycertain
minority interests owned by other Persons solely due to local law requirements
that there be more than one stockholder, but which interest is not in excess of
what is required for such Subsidiary without equally and
ratably securing the New Notespurpose) is owned directly by a lien ranking ratably with and equally to
such secured Indebtedness, except that the foregoing restriction shall not apply
to (i) liens on assets of any corporation existing at the time such corporation
becomes a Subsidiary; (ii) liens on assets existing at the time of acquisition
thereof,Person or to secure the payment of the purchase pricethrough
one or more other Wholly Owned Subsidiaries of such assets, or to
secure indebtedness incurred or guaranteed by the Issuer or a Subsidiary for the
purpose of financing the purchase price of such assets or improvements or
construction thereon, which indebtedness is incurred or guaranteed prior to, at
the time of or within 360 days after such acquisition (or in the case of real
property, completion of such improvement or construction or commencement of full
operation of such property, whichever is later); (iii) liens securing
indebtedness owed byPerson and (ii) any Subsidiary to the Issuer or another wholly-owned
Subsidiary; (iv) liens on any assets of a corporation existing at the time such
corporation is merged into or consolidated with the Issuer or a Subsidiary or at
the time of a purchase, lease or other acquisition of the assets of a
corporation or firm as an entirety or substantially as an entirety by the Issuer
or a Subsidiary; (v) liens on any assets of the Issuer or a Subsidiary in favor
of the United States of America or any state thereof, or in favor of any other
country, or in favor of any political subdivision of any of the foregoing, to
secure certain payments pursuant to any contract or statute or to secure any
indebtedness incurred or guaranteed for the purpose of financing all or any part
of the purchase price (or, in the case of real property, the cost of
construction) of the assets subject to such liens (including but not limited to,
liens incurred in connection with industrial revenue or similar financing
involving a political subdivision, agency or authority thereof); (vi) any
extension, renewal or replacement (or successive extensions, renewals or
replacements) in whole or in part, of any lien referred to in the foregoing
clauses (i) to (v), inclusive; (vii) certain statutory liens or other similar
liens arising in the ordinary course of business of the Issuer or a Subsidiary,
or certain liens arising out of government contracts; (viii) certain pledges,
deposits or liens made or arising under workers compensation or similar
legislation or in certain other circumstances; (ix) certain liens in connection
35
with legal proceedings, including certain liens arising out of judgments or
awards; (x) liens for certain taxes or assessments, landlord's liens and liens
and charges incidental to the conduct of the business or the ownership of the
assets of the Issuer or of a Subsidiary, which were not incurred in connection
with the borrowing of money and which do not, in the opinion of the Issuer,
materially impair the use of such assets in the operation of the business of the
Issuer or such Subsidiary or the value of such assets for the purposes thereof
or (xi) liens relating to accounts receivable of the Issuer or any of its
Subsidiaries which have been sold, assigned or otherwise transferred to another
Person in a transaction classified as a sale of accounts receivable in
accordance with generally accepted accounting principles (to the extent the sale
by the Issuer or the applicable Subsidiary is deemed to give rise to a lien in
favor of the purchaser thereof in such accounts receivable or the proceeds
thereof). Notwithstanding the above, the Issuer or any Subsidiary may, without
securing the New Notes, create or assume any Indebtedness which is secured by a
lien which would otherwise be subject to the foregoing restrictions, provided
that after giving effect thereto the Exempted Debt then outstanding does not
exceed 10% of the total Consolidated Tangible Assets of the Issuer and its
Subsidiaries at such time.
Limitation on Sale and Lease-Back Transactions. Sale and lease-back
transactions (except such transactions involving leases for less than three
years) by the Issuer or any Subsidiary of any assets are prohibited unless (i)
the Issuer or such Subsidiary would be entitled pursuant to clauses (i) through
(xi) contained in the covenant described under "-- Limitations on Liens", to
create, incur or permit to exist a lien on the assets to be leased in an amount
at least equal to the Attributable Debt in respect of such transaction without
equally and ratably securing the New Notes, or (ii) the proceeds from the sale
of the assets to be leased are at least equal to their fair market value and the
proceeds are applied to the purchase or acquisition (or, in the case of real
property, the construction) of assets or to the retirement of indebtedness.
MERGER, CONSOLIDATION AND SALE OF ASSETS
The Indenture provides that the Issuer shall not consolidate or merge with
or into, or transfer or lease its assets substantially as an entirety to any
entity unless the Issuer shall be the continuing entity, or the successor entity
or entity to which such assets are transferred or leased shall be an entity
organized under the laws of the United States, any state thereof or the District
of Columbia and shall expressly assume the Issuer's obligations on the Debt
Securities and under the Indenture, and immediately after giving effect to such
transaction no Event of Default (as defined in the Indenture) shall have
occurred and be continuing, and certain other conditions are met. Upon
assumption of the Issuer's obligations by an entity to whom such assets are
transferred or leased, subject to certain exceptions, the Issuer shall be
discharged from all obligations under the New Notes and the Indenture.
There are no covenants or other provisions in the Indenture providing for a
put at the option of the holders of the New Notes or an increase in the rate of
interest borne by the respective New Notes or that would otherwise afford
holders of any of New Notes protection in the event of a recapitalization
transaction, a change of control of the Issuer or a highly leveraged
transaction.
EVENTS OF DEFAULT
An Event of Default is defined under the Indenture with respect to Debt
Securities of each series as being: (i) default in payment of all or any part of
the principal of, or premium, if any, on any Debt Securities of such series when
due, either at maturity, upon any redemption, by declaration or otherwise; (ii)
default for 30 days in payment of any interest on any Debt Securities of such
series; (iii) default in payment of any sinking fund installment when due by the
terms of the Debt Securities of such series; (iv) default for 60 days after
written notice as provided in the Indenture in the observance or performance of
any other covenant or agreement in the Debt Securities of such series or in the
Indenture,
other than a covenant includedcorporation in the Indenture solely for the
benefit of a series of Debt Securities other thanwhich such series; (v) acceleration
of $25 millionPerson, directly or more, individually or in the aggregate, in principal amount of
Indebtednessindirectly, owns all
of the Issuer or any Subsidiary under the terms of the instrument
under which such Indebtedness is issued or secured if such Indebtedness shall
not have been discharged or such acceleration is not annulled within 10 days
after written notice; or (vi) certain events of bankruptcy, insolvency or
reorganization.
36
The Indenture provides that (a) if an Event of Default due to the default
in payment of principal, premium, if any, or interest on any series of Debt
Securities, or due to the default in the performance or breach of any other
covenant or agreement of the Issuer applicable to the Debt SecuritiesCommon Equity of such series but not applicable to all outstanding Debt Securities, shall have
occurred and be continuing, either the Trustee or the holders of not less than
25% in principal amount of the Debt Securities of such series may declare the
principal of all Debt Securities of such series and interest accrued thereon to
be due and payable immediately and (b) if an Event of Default due to a default
in the performance of any other of the covenants or agreements in the Indenture
applicable to all Debt Securities then outstanding or due to certain events of
bankruptcy, insolvency and reorganization of the Issuer shall have occurred and
be continuing, either the Trustee or the holders of not less than 25% in
principal amount of the Debt Securities then outstanding (treated as one class)
may declare the principal of all such Debt Securities and interest accrued
thereon to be due and payable immediately, but upon certain conditions such
declarations may be annulled and past defaults may be waived (except a
continuing default in payment of principal, premium, if any, or interest on such
Debt Securities) by the holders of a majority in principal amount of the Debt
Securities of such series (or of all series, as the case may be) then
outstanding.
The Indenture contains a provision entitling the Trustee, subject to the
duty of the Trustee to act with the required standard of care, to be indemnified
by the holders of Debt Securities requesting the Trustee to exercise any right
or power under the Indenture before proceeding to exercise any such right or
power at the request of such holders.
The Indenture provides that no holder of Debt Securities of any series may
institute any action against the Issuer under the Indenture (except actions for
payment of overdue principal, premium, if any, or interest) unless such holder
previously shall have given to the Trustee written notice of default and
continuance thereof and unless the holders of not less than 25% in principal
amount of the Debt Securities of such series then outstanding shall have
requested the Trustee to institute such action and shall have offered the
Trustee reasonable indemnity, the Trustee shall not have instituted such action
within 60 days of such request and the Trustee shall not have received direction
inconsistent with such written request by the holders of a majority in principal
amount of the Debt Securities of such series then outstanding.
The Indenture contains a covenant that the Issuer will file annually with
the Trustee a certificate of no default or a certificate specifying any default
that exists.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Legal Defeasance. The Indenture provides that the Issuer, at the Issuer's
option, will be discharged from any and all obligations in respect of the Debt
Securities of any series (except for certain obligations to register the
transfer or exchange of Debt Securities of any series, to replace stolen, lost
or mutilated Debt Securities of such series, to maintain paying agencies and to
hold monies for payment in trust) upon the deposit with the Trustee, in trust,
of cash and/orentity.
50
MATERIAL U.S. Government Obligations (as defined in the Indenture) which,
through the payment of interest and principal in respect thereof in accordance
with their terms, will provide money in an amount sufficient to pay and
discharge each installment of principal (and premium, if any) and interest, if
any, on, and any mandatory sinking fund payments in respect of, the Debt
Securities of such series on the stated maturity of such payments in accordance
with the terms of the Indenture and such Debt Securities. Such discharge may
occur only if, among other things, the Issuer has delivered to the Trustee an
opinion of counsel to the effect that the Issuer has received from, or there has
been published by, the United States Internal Revenue Service a ruling, or there
has been a change in tax law, in either case to the effect that such discharge
will not be deemed, or result in, a taxable event with respect to holders of the
Debt Securities of such series.
Covenant Defeasance. The Indenture provides that upon compliance with
certain conditions, the Issuer may omit to comply with the obligations imposed
by certain provisions of the Indenture (which contain the covenants described
above limiting liens, consolidations, mergers, transfers and leases) and any
omission to comply with such sections will not constitute an Event of Default.
The Issuer, in order to exercise such option, will be required to deposit with
the Trustee cash and/or U.S. Government Obligations which, through the payment
of interest and principal in respect thereof in accordance with
37
their terms, will provide money in an amount sufficient to pay and discharge
each installment of principal (and premium, if any) and interest, if any, on and
any mandatory sinking fund payments in respect of the Debt Securities of such
series on the stated maturity of such payments in accordance with the terms of
the Indenture and such Debt Securities. The Issuer will also be required to
deliver to the Trustee an opinion of counsel to the effect that the deposit and
related covenant defeasance will not cause the holders of the Debt Securities of
such series to recognize income, gain or loss for federal income tax purposes.
MODIFICATION OF THE INDENTURE
The Indenture provides that the Issuer and the Trustee may enter into
supplemental indentures without the consent of the holders of Debt Securities
to: (i) secure any Debt Securities, (ii) evidence the assumption by a successor
corporation of the obligations of the Issuer, (iii) add covenants for the
protection of the holders of Debt Securities, (iv) cure any ambiguity or correct
any inconsistency in the Indenture, provided that such cure or correction does
not adversely affect the holders of Debt Securities, (v) establish the forms or
terms of Debt Securities of any series and (vi) evidence the acceptance of
appointment by a successor trustee.
The Indenture also contains provisions permitting the Issuer and the
Trustee, with the consent of the holders of not less than a majority in
aggregate principal amount of Debt Securities of all series then outstanding and
affected (voting as one class), to add any provisions to, or change in any
manner or eliminate any of the provisions of, the Indenture or modify in any
manner the rights of the holders of the Debt Securities of each series so
affected; provided that the Issuer and the Trustee may not, without the consent
of the holder of each outstanding Debt Security affected thereby, (a) extend the
final maturity of any Debt Security, or reduce the principal amount thereof or
premium thereon, if any, or reduce the rate or extend the time of payment of
interest thereon, or reduce any amount payable on redemption thereof or change
the currency in which the principal thereof, premium, if any, or interest
thereon is payable or reduce the amount of the principal of any Debt Security
issued with original issue discount that is payable upon acceleration or
provable in bankruptcy or alter certain provisions of the Indenture relating to
the Debt Securities not denominated in U.S. dollars or impair the right to
institute suit for the enforcement of any payment on any Debt Security when due
or (b) reduce the aforesaid percentage in principal amount of Debt Securities of
any series, the consent of the holders of which is required for any such
modification.
CONCERNING THE TRUSTEE
PNC Bank, N.A., is the Trustee under the Indenture. All payments of
principal of, premium, if any, and interest on and all registration, transfer,
exchange, authentication and delivery of, the New Notes will be effected by the
Trustee at an office designated by the Trustee in New York, New York. The
Trustee is one of a number of banks with which the Issuer and its subsidiaries
maintain ordinary banking and trust relationships.
The Indenture contains certain limitations on the right of the Trustee,
should it become a creditor of the Issuer, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict or resign.
In case of any conflicting interest relating to the Trustee's duties with
respect to the New Notes, the Trustee shall either eliminate such conflicting
interest or, except as otherwise provided in the Trust Indenture Act of 1939, as
amended, resign.
The holders of a majority in principal amount of any series of Debt
Securities then outstanding will have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee with respect to such series of Debt Securities, provided that such
direction would not conflict with any rule of law or with the Indenture, would
not be unduly prejudicial to the rights of another holder of the Debt
Securities, and would not involve the Trustee in personal liability. The
Indenture provides that in case an Event of Default shall occur and be known to
the
38
Trustee (and not be cured), the Trustee will be required to use the degree of
care of a prudent person in the conduct of his or her own affairs in the
exercise of its power. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the holders of the Debt Securities, unless they shall have
offered to the Trustee security and indemnity satisfactory to it.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, STOCKHOLDERS OR INCORPORATORS
The Indenture provides that no past, present or future director, officer,
employee, stockholder or incorporator of the Issuer or any successor corporation
shall have any liability for any obligations of the Issuer under the New Notes
or the Indenture or for any claim based on, in respect of, or by reason of such
obligations or their creation, by reason of such person's or entity's status as
such director, officer, stockholder or incorporator.
GOVERNING LAW
The Indenture and New Notes will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to such State's
conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Issuer and its subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee in the ordinary course of business.
39
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONSCONSEQUENCES OF THE EXCHANGE
The following is a general discussion of certain United States federal
income tax considerations to holders of the NewExchange Notes. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings, and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations.
This discussion does not deal with all aspects of United States federal
income taxation that may be important to holders of the NewExchange Notes and does
not deal with tax consequences arising under the laws of any foreign, state or
local jurisdiction. This discussion is for general information only, and does
not purport to address all tax consequences that may be important to particular
holders in light of their personal circumstances, or to certain types of
holders (such as certain financial institutions, insurance companies,
tax-exempt entities, dealers in securities or persons who hold the NewExchange
Notes in connection with a straddle)straddle, hedge, conversion transaction or any
similar or hybrid financial instrument) that may be subject to special rules.
This discussion assumes that each holder holds the NewExchange Notes as a capital
assets.asset within the meaning of section 1221 of the Code.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any
holder who is not a United States person. The term "United States person" means
a citizen or resident of the United States, a corporation or partnership
(including any entity taxed as a partnership for U.S.United States federal income
tax purposes) created or organized in the United States or any state thereof, an estate,
the income of which is includible in income for the United States federal
income tax purposes regardless of its source, or a trust if (i) a court within
the United States is able to exercise primary supervision over the
administration of the trust and (ii) one or more United States persons have the
authority to control all substantial decisions of the trust.
HOLDERS OF THE EXCHANGE NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
EXCHANGE, OWNERSHIP AND DISPOSITION OF THE NEWEXCHANGE NOTES AND THE EFFECT THAT
THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
EXCHANGE OF OLDPRIVATE NOTES FOR NEWEXCHANGE NOTES
The terms of the NewExchange Notes are identical to those of the OldPrivate
Notes, except that the NewExchange Notes are registered under applicable federal
securities laws. Under applicable Treasury Regulations, the exchange of OldPrivate
Notes for NewExchange Notes pursuant to the Exchange Offerexchange offer should not be treated
as an "exchange" for federal income tax purposes.purposes and holders of the Private
Notes should not recognize any gain or loss on such exchange. If, however, the
exchange of OldPrivate Notes for NewExchange Notes were treated as an "exchange" for
federal income tax purposes, such transactions should constitute a
recapitalization for federal income tax purposes and holders of the OldPrivate
Notes should not recognize any gain or loss on such exchanged.exchange. The term
"New"Exchange Notes" utilized in the following sections means, in certain contexts,
the OldPrivate Notes an Newand Exchange Notes considered as one and the same evidences
of indebtedness in applying the federal income tax rule in question.
TAX CONSIDERATIONS APPLICABLE TO UNITED STATES PERSONS
Interest on NewExchange Notes. Interest paid on the NewExchange Notes will be
taxable to a holder as ordinary interest income at the time that such interest
is accrued or received (actually or constructively) in accordance with the
holder's method of tax accounting atand in the time that such interest is accrued or (actually or
constructively) received.amount of each payment.
Sale or Exchange of NewExchange Notes. In general, a holder of the NewExchange
Notes will recognize gain or loss upon the sale, redemption, retirement or
other disposition of the NewExchange Notes measured by the difference between the
amount of cash and the fair market value of any property received (except to
the extent attributable to the payment of accrued interest which will be
taxable as such) and the holder's adjusted tax basis in the NewExchange Notes. A
holder's tax basis in the NewExchange Notes generally will equal the cost of the
OldPrivate Notes to the holder increased by the amount of market discount, if any,
previously
51
taken into income by the holder or decreased by any bond premium theretofore
amortized by the holder with respect to the NewExchange Notes. Subject to the
market discount rules discussed below, the gain or loss on the 40
disposition of
the NewExchange Notes will be capital gain or loss and will be long-term gain or
loss if the NewExchange Notes have been held for more than one year at the time of
such disposition.
For non-corporate taxpayers, the lower capital gain tax
rates enacted as part of the Taxpayer Relief Act of 1997 (the "1997 Act"), do
not apply to gains from the sale or exchange of the New Notes held for 18 months
or less. The pre-1997 Act 28% maximum tax rate continues to apply to gains from
the sale or exchange of capital assets held more than one year but not more than
18 months.
Market Discount. The resale of the NewExchange Notes may be affected by the
"market discount" provisions of the Code. For this purpose, the market discount
on aan Exchange Note will generally be equal to the amount, if any, by which the
stated redemption price at maturity of the NewExchange Notes immediately after its
acquisition exceeds the holder's tax basis in the NewExchange Notes. Subject to a
de minimis exception, these provisions generally require a holder of a Newan
Exchange Note acquired at a market discount to treat as ordinary income any
gain recognized on the disposition of such NewExchange Notes to the extent of the
"accrued market discount" on such NewExchange Notes at the time of disposition. In
general, market discount on a Newan Exchange Note will be treated as accruing on a
straight-line basis over the term of such NewExchange Notes, or, at the election
of the holder, under a constant yield method. Holders may elect to include
accrued market discount in income currently with respect to all market discount
bonds acquired on or after the first day of the first taxable year for which
the election is effective and for any such bond on either a straight-line or
constant yield basis. In the absence of such election, a holder of NewExchange
Notes acquired at a market discount may be required to defer the deduction of a
portion of the interest on any indebtedness incurred or maintained to acquire
or carry the NewExchange Notes until the NewExchange Notes are disposed of in a
taxable transaction.
TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on NewExchange Notes. Generally, interest paid on the NewExchange Notes
to a Non-U.S. Holder will not be subject to United States federal income tax
if: (i) such interest is not effectively connected with the conduct of a trade
or business within the United States by such Non-U.S. Holder; (ii) the Non-U.S.
Holder does not actually or constructively own 10% or more of the total voting
power of all classes of stock of the IssuerCompany entitled to vote and is not a
controlled foreign corporation with respect to which the IssuerCompany is a "related
person" within the meaning of the Code; and (iii) the beneficial owner, under
penalty of perjury, certifies that the owner is not a United States person and
provides the owner's name and address. If certain requirements are satisfied,
the certification described in clause (iii) above may be provided by a
securities clearing organization, a bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business.
Under United States Treasury Department regulations generally effective for
payments made after December 31, 2000, subject to certain transition rules, the
certification described in clause (iii) above also may be provided by a
qualified intermediary on behalf of one or more beneficial owners (or other
intermediaries), provided that such intermediary has entered into a withholding
agreement with the IRS and certain other conditions are met.
A holder that is not exempt from tax under these rules will be subject to
United States federal income tax withholding at a rate of 30% unless the
interest is effectively connected with the conduct of a United States trade or
business, in which case the interest will be subject to the United States
federal income tax on net income that applies to United States persons
generally. Corporate Non-U.S. Holders that receive interest income that is
effectively connected with the conduct of a trade or business within the United
States may also be subject to an additional "branch profits" tax on such
income. Non-U.S. Holders should consult applicable income tax treaties, which
may provide different rules.
SalesSale or Exchange of NewExchange Notes. A Non-U.S. Holder generally will not
be subject to United States federal income tax on gain recognized upon the sale
or other disposition of the NewExchange Notes unless (i) the gain is effectively
connected with the conduct of a trade or business within the United States by
the Non-U.S. Holder, or (ii) in the case of a Non-U.S. Holder who is a
nonresident alien individual and holds the NewExchange Notes as a capital asset,
such holder is present in the United States for 183 or more days in the taxable
year and certain other circumstances are present. Ifpresent; or (iii) the IssuerNon-U.S. Holder
is a "Unitedsubject to tax pursuant to the provisions of United States real property
holding corporation",federal income
tax law applicable to certain United States expatriates.
52
Federal Estate Tax. An Exchange Note beneficially owned by an individual
who is a Non-U.S. Holder mayat the time of his or her death generally will not be
subject to United States federal incomeestate tax as a result of such individual's
death, provided that (i) such individual does not actually or constructively
own 10% or more of the total combined voting power of all classes of stock of
the Company entitled to vote within the meaning of section 871(h)(3) of the
Code and (ii) interest payments with respect to gain realized onsuch Exchange Note would not
have been, if received at the dispositiontime of such New Notes as if it wereindividual's death, effectively
connected with the conduct of a United States trade or business and the amount
realized would then be subject to withholding at the rate of 10%. The amount
withheld pursuant to these rules will be creditable againstby such
Non-U.S.
Holder's United States federal income tax liability and may entitle such
Non-U.S. Holder to a refund upon furnishing the required information to the
Internal Revenue Service. Non-U.S. Holders should consult applicable income tax
treaties, which may provide different rules.
41
individual.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders.United States Persons. Information reporting and backup withholding may
apply to payments of interest on or the proceeds of the sale or other
disposition of the NewExchange Notes with respect to certain non-corporate U.S. holders.United
States persons. Such U.S. holdersUnited States persons generally will be subject to backup
withholding at a rate of 31% unless the recipient of such payment supplies a
taxpayer identification number, certified under penalties of perjury, as well
as certain other information, or otherwise establishes, in the manner
prescribed by law, an exemption from backup withholding. Any amount withheld
under backup withholding is allowable as a credit against the U.S. holder'sUnited States
person's federal income tax liability, upon furnishing the required information.information
to the IRS.
Non-U.S. Holders. Generally, information reporting and backup withholding
of United States federal income tax at a rate of 31% may apply to payments of
principal, interest and premium (if any) to Non-U.S. Holders if the payee fails
to certify that the holder is not a United States person or if the IssuerCompany or
its paying agent has actual knowledge that the payee is a United States person.
The 31% backup withholding tax generally will not apply to interest paid to
foreign
holdersNon-U.S. Holders outside the United States that are subject to 30% withholding
as discussed above (see "Tax Considerations Applicable to Non-U.S.
Holders --
InterestHolders-Interest on NewExchange Notes") or that are subject toperfect their eligibility for the
benefits of a tax treaty that reduces or eliminates such withholding.
The payment of the proceeds on the disposition of NewExchange Notes to or
through the United States office of a United States or foreign broker will be
subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption. The payment of the proceeds of the disposition by a Non-U.S. Holder
of NewExchange Notes to or through a foreign office of a broker will not be
subject to backup withholding. However, if such broker is a U.S.United States
person, a controlled foreign corporation for United States tax purposes, or a
foreign person 50% or more of whose gross income from all sources for certain
periods is from activities that are effectively connected with a United States
trade or business or, with respect to payments made after December 31, 2000, a
foreign partnership in which United States persons hold more than 50% of the
income or capital interests or which is engaged in a United States trade or
business at any time during its tax year, information reporting will apply
unless such broker has documentary evidence in its files of the owner's foreign status as a
Non-U.S. Holder and has no actual knowledge to the contrary or unless the owner
otherwise establishes an exemption. Both backup withholding and information
reporting will apply to the proceeds from such dispositionsthe disposition if the broker has
actual knowledge that the payee is a U.S. Holder.
TheUnited States person.
United States Treasury Department recently promulgated final regulations regarding
the withholding and information reporting rules discussed above. In general, the
final regulations do not significantly after the substantive withholding and
information reporting requirements but rather unify current certification
procedures and forms and clarify reliance standards. As originally promulgated,
the final regulations were to be generally effective for
payments made after December 31, 1998,2000, subject to certain transition rules; however,rules,
alter the Treasury
Departmentforegoing rules in certain respects. Among other things, such
regulations provide presumptions under which a Non-U.S. Holder is subject to
information reporting and backup withholding at the IRS subsequently announcedrate of 31% unless the
Company receives certification from the holder of its status as a Non-U.S.
Holder. Depending on the circumstances, this certificate will need to be
provided (i) directly by the Non-U.S. Holder; (ii) in the case of a Non-U.S.
Holder that is treated as a partnership or other fiscally transparent entity,
by the December 31, 1998 date
would be extended to December 31, 1999. Non-U.S. Holders should consult their
own tax advisors with respect to the impact, if any,partners, shareholders or other beneficiaries of such entity; or (iii)
by certain qualified financial institutions or other qualified entities on
behalf of the new final
regulations.
42
BUSINESS OF HEALTHSOUTH
GENERAL
HEALTHSOUTH is the nation's largest provider of outpatient surgery and
rehabilitative healthcare services. It provides these services through its
national network of outpatient and inpatient rehabilitation facilities,
outpatient surgery centers, diagnostic centers, occupational medicine centers,
medical centers and other healthcare facilities. HEALTHSOUTH believes that it
provides patients, physicians and payors with high-quality healthcare services
at significantly lower costs than traditional inpatient hospitals. Additionally,
HEALTHSOUTH's national network, reputation for quality and focus on outcomes has
enabled it to secure contracts with national and regional managed care payors.
At June 30, 1998, HEALTHSOUTH had over 1,900 patient care locations in 50
states, the United Kingdom and Australia.
In its outpatient and inpatient rehabilitation facilities, HEALTHSOUTH
provides interdisciplinary programs for the rehabilitation of patients
experiencing disability due to a wide variety of physical conditions, such as
stroke, head injury, orthopaedic problems, neuromuscular disease and
sports-related injuries. HEALTHSOUTH's rehabilitation services include physical
therapy, sports medicine, work hardening, neurorehabilitation, occupational
therapy, respiratory therapy, speech-language pathology and rehabilitation
nursing. Independent studies have shown that rehabilitation services like those
provided by HEALTHSOUTH can save money for payors and employers.
In addition to its rehabilitation facilities, HEALTHSOUTH operates the
largest network of freestanding outpatient surgery centers in the United States.
HEALTHSOUTH's outpatient surgery centers provide the facilities and medical
support staff necessary for physicians to perform non-emergency surgical
procedures. While outpatient surgery is widely recognized as generally less
expensive than surgery performed in a hospital, HEALTHSOUTH believes that
outpatient surgery performed at a freestanding outpatient surgery center is
generally less expensive than hospital-based outpatient surgery. Over 80% of
HEALTHSOUTH's surgery center facilities are located in markets served by its
rehabilitative service facilities, enabling the Issuer to pursue opportunities
for cross-referrals.
HEALTHSOUTH is also among the largest operators of outpatient diagnostic
centers and occupational medicine centers in the United States. Most of
HEALTHSOUTH's diagnostic centers and occupational medicine centers operate in
markets where HEALTHSOUTH also provides rehabilitative healthcare and outpatient
surgery services. HEALTHSOUTH believes that its ability to offer a comprehensive
range of its services in a particular geographic market makes HEALTHSOUTH more
attractive to both patients and payors in such market.
Over the last three years, HEALTHSOUTH has completed several significant
acquisitions in the rehabilitation business and has expanded into the surgery
center, diagnostic and occupational medicine businesses. HEALTHSOUTH believes
that these acquisitions complement its historical operations and enhance its
market position. HEALTHSOUTH further believes that its expansion into the
outpatient surgery, diagnostic and occupational medicine businesses provides it
with platforms for future growth. HEALTHSOUTH is continually evaluating
potential acquisitions in the outpatient and rehabilitative healthcare services
industry.
HEALTHSOUTH was organized as a Delaware corporation in February 1984.
HEALTHSOUTH's principal executive offices are located at One HealthSouth
Parkway, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116.
HEALTHSOUTH STRATEGY
HEALTHSOUTH's principal objective is to be the provider of choice for
patients, physicians and payors alike for outpatient surgery and rehabilitative
healthcare services throughout the United States. HEALTHSOUTH's growth strategy
is based upon four primary elements: (i) the implementation of HEALTHSOUTH's
integrated service model in appropriate markets, (ii) successful marketing to
managed care organizations and other payors, (iii) the provision of
high-quality, cost-effective healthcare services, and (iv) the expansion of its
national network.
43
o Integrated Service Model. HEALTHSOUTH seeks, where appropriate, to provide
an integrated system of healthcare services, including outpatient
rehabilitation services, inpatient rehabilitation services, ambulatory
surgery services and outpatient diagnostic services. HEALTHSOUTH believes
that its integrated system offers payors the convenience of dealing with a
single provider for multiple services. Additionally, it believes that its
facilities can provide extensive cross-referral opportunities. For
example, HEALTHSOUTH estimates that approximately one-third of its
outpatient rehabilitation patients have had outpatient surgery, virtually
all inpatient rehabilitation patients will require some form of outpatient
rehabilitation, and virtually all inpatient rehabilitation patients have
had some type of diagnostic procedure. HEALTHSOUTH has implemented its
Integrated Service Model in certain of its markets, and intends to expand
the model into other appropriate markets.
o Marketing to Managed Care Organizations and Other Payors. Since the late
1980s, HEALTHSOUTH has focused on the development of contractual
relationships with managed care organizations, major insurance companies,
large regional and national employer groups and provider alliances and
networks. HEALTHSOUTH's documented outcomes and experience with several
hundred thousand patients in delivering quality healthcare services at
reasonable prices has enhanced its attractiveness to such entities and has
given HEALTHSOUTH a competitive advantage over smaller and regional
competitors. These relationships have increased patient flow to
HEALTHSOUTH's facilities and contributed to HEALTHSOUTH's same-store
growth.
o Cost-Effective Services. HEALTHSOUTH's goal is to provide high-quality
healthcare services in cost-effective settings. To that end, HEALTHSOUTH
has developed standardized clinical protocols for the treatment of its
patients. This results in "best practices" techniques being utilized at
all of HEALTHSOUTH's facilities, allowing the consistent achievement of
demonstrable, cost-effective clinical outcomes. HEALTHSOUTH's reputation
for its clinical programs is enhanced through its relationships with major
universities throughout the nation, and its support of clinical research
in its facilities. Further, independent studies estimate that, for every
dollar spent on rehabilitation, $11 to $35 is saved. Finally, surgical
procedures typically are less expensive in outpatient surgery centers than
in hospital settings. HEALTHSOUTH believes that outpatient and
rehabilitative healthcare services will assume increasing importance in
the healthcare environment as payors continue to seek to reduce overall
costs by shifting patients to more cost-effective treatment
settings.
o Expansion of National Network. As the largest provider of outpatient
surgery and rehabilitative healthcare services in the United States,
HEALTHSOUTH is able to realize economies of scale and compete successfully
for national contracts with large payors and employers while retaining the
flexibility to respond to particular needs of local markets. The national
network affords HEALTHSOUTH the opportunity to offer large national and
regional employers and payors the convenience of dealing with a single
provider, to utilize greater buying power through centralized purchasing,
to achieve more efficient costs of capital and labor and to more
effectively recruit and retain clinicians. HEALTHSOUTH believes that its
recent acquisitions in the outpatient surgery, diagnostic imaging and
occupational medicine fields will further enhance its national presence by
broadening the scope of its existing services and providing new
opportunities for growth. These national benefits are realized without
sacrificing local market responsiveness. HEALTHSOUTH's objective is to
provide those outpatient and rehabilitative healthcare services needed
within each local market by tailoring its services and facilities to that
market's needs, thus bringing the benefits of nationally recognized
expertise and quality into the local setting.
RECENT DEVELOPMENTS
On July 1, 1998, HEALTHSOUTH acquired 33 ambulatory surgery centers from
Columbia/HCA Healthcare Corporation. The surgery centers are located in Alabama,
California, Iowa, Illinois, Kentucky, Louisiana, Minnesota, Mississippi, North
Carolina, Nevada, Oregon, Rhode Island and Texas.
44
Effective July 31, 1998, HEALTHSOUTH entered into certain other arrangements to
acquire substantially all of the economic benefit of Columbia/HCA's interest in
one additional surgery center. The transaction was valued at approximately
$550,000,000.
On July 22, 1998, HEALTHSOUTH acquired National Surgery Centers, Inc.,
adding 40 outpatient surgery centers in 14 states to HEALTHSOUTH's existing
network of outpatient surgery and rehabilitative healthcare facilities. The
value of the NSC transaction is approximately $590,000,000. Under the terms of
the NSC agreement, NSC stockholders will receive 1.0972 shares of HEALTHSOUTH
Common Stock. The NSC transaction is expected to be accounted for as a pooling
of interests and is intended to be a tax-free reorganization.
PATIENT CARE SERVICES
HEALTHSOUTH began its operations in 1984 with a focus on providing
comprehensive orthopaedic and musculoskeletal rehabilitation services on an
outpatient basis. Over the succeeding 14 years, HEALTHSOUTH has consistently
sought and implemented opportunities to expand its services through acquisitions
and de novo development activities that complement its historic focus on
orthopaedic, sports medicine and occupational medicine services and that provide
independent platforms for growth. HEALTHSOUTH's acquisitions and internal growth
have enabled it to become the largest provider of rehabilitative healthcare
services, both inpatient and outpatient, in the United States, as well as the
largest operator of freestanding outpatient surgery centers. In addition,
HEALTHSOUTH has added diagnostic imaging services, occupational medicine
services and other outpatient services which provide natural enhancements to its
rehabilitative healthcare locations and facilitate the implementation of its
Integrated Service Model. HEALTHSOUTH believes that these additional businesses
also provide opportunities for growth in other areas not directly related to the
rehabilitative business, and HEALTHSOUTH intends to pursue further expansion in
those businesses.
Outpatient Rehabilitation Services
HEALTHSOUTH operates the largest group of affiliated proprietary outpatient
rehabilitation facilities in the United States. HEALTHSOUTH's outpatient
rehabilitation centers offer a comprehensive range of rehabilitative healthcare
services, including physical therapy and occupational therapy, that are tailored
to the individual patient's needs, focusing predominantly on orthopaedic
injuries, sports injuries, work injuries, hand and upper extremity injuries,
back injuries, and various neurological/neuromuscular conditions. As of June 30,
1998, HEALTHSOUTH provided outpatient rehabilitative healthcare services through
approximately 1,240 outpatient locations, including freestanding outpatient
centers and their satellites, outpatient satellites of inpatient facilities and
outpatient facilities managed under contract.
Inpatient Services
INPATIENT REHABILITATION FACILITIES. At June 30, 1998, HEALTHSOUTH operated
131 inpatient rehabilitation facilities with 7,717 beds in the United States,
representing the largest group of affiliated proprietary inpatient
rehabilitation facilities in the nation, as well as a 71-bed rehabilitation
hospital in Australia. HEALTHSOUTH's inpatient rehabilitation facilities provide
high-quality comprehensive services to patients who require intensive
institutional rehabilitation care. In certain markets HEALTHSOUTH's
rehabilitation hospitals may provide outpatient rehabilitation services as a
complement to their inpatient services.
MEDICAL CENTERS. At June 30, 1998, HEALTHSOUTH operated four medical
centers with 800 licensed beds in four distinct markets. These facilities
provide general and specialty medical and surgical healthcare services,
emphasizing orthopaedics, sports medicine and rehabilitation.
Surgery Centers
HEALTHSOUTH is currently the largest operator of outpatient surgery centers
in the United States. At June 30, 1998, it operated 176 freestanding surgery
centers, including five mobile lithotripsy units, in 36 states. Over 80% of
these facilities are located in markets served by HEALTHSOUTH's
45
outpatient and rehabilitative service facilities, enabling HEALTHSOUTH to pursue
opportunities for cross-referrals between surgery and rehabilitative facilities
as well as to centralize administrative functions. HEALTHSOUTH's surgery centers
provide the facilities and medical support staff necessary for physicians to
perform non-emergency surgical procedures. Its typical surgery center is a
freestanding facility with three to six fully equipped operating and procedure
rooms and ancillary areas for reception, preparation, recovery and
administration. Each of HEALTHSOUTH's surgery centers is available for use only
by licensed physicians, oral surgeons and podiatrists, and the centers do not
perform surgery on an emergency basis.
Outpatient surgery centers, unlike hospitals, have not historically
provided overnight accommodations, food services or other ancillary services.
Over the past several years, states have increasingly permitted the use of
extended-stay recovery facilities by outpatient surgery centers. As a result,
many outpatient surgery centers are adding extended recovery care capabilities
where permitted. Most of HEALTHSOUTH's surgery centers currently provide for
extended recovery stays. The Issuer's ability to develop such recovery care
facilities is dependent upon state regulatory environments in the particular
states where its centers are located.
Diagnostic Centers
At June 30, 1998, HEALTHSOUTH operated 119 diagnostic centers in 25 states
and the United Kingdom. These centers provide outpatient diagnostic imaging
services, including magnetic resonance imaging ("MRI"), computerized tomography
("CT") services, X-ray services, ultrasound services, mammography services,
nuclear medicine services and fluoroscopy. Not all services are provided at all
sites; however, most of HEALTHSOUTH's diagnostic centers are multi-modality
centers.
Because many patients at HEALTHSOUTH's rehabilitative healthcare and
outpatient surgery facilities require diagnostic procedures of the type
performed at its diagnostic centers, HEALTHSOUTH believes that its diagnostic
operations are a natural complement to its other services and enhance its
ability to market those services to patients and payors.
Occupational Health Services
At March 31, 1998, HEALTHSOUTH operated 122 occupational health centers in
33 states. These centers provide cost-effective, outpatient primary medical care
and rehabilitation services to individuals for the treatment of work-related
medical problems.
HEALTHSOUTH's occupational health centers market their services to large
and small employers, workers' compensation and health insurers and managed care
organizations. The services provided at HEALTHSOUTH's occupational health
centers include outpatient primary medical care for work-related injuries and
illnesses, work-related physical examinations, physical therapy services and
workers' compensation medical services, as well as other services primarily
aimed at work-related injuries or illnesses. Medical services at the centers are
provided by licensed physicians who are employed by or under contract with
HEALTHSOUTH or affiliated medical practices. These centers also employ nurses,
therapists and other licensed professional staff as necessary for the services
provided. HEALTHSOUTH believes that occupational health primary care services
are a strategic component of its business, and that the physicians in its
occupational medicine centers can, in many cases, serve as "gatekeepers"
providing access to the other services offered by HEALTHSOUTH.
Other Patient Care Services
In certain of its markets, HEALTHSOUTH provides other patient care
services, including home healthcare, physician services and contract management
of hospital-based rehabilitative healthcare services. HEALTHSOUTH evaluates
market opportunities on a case-by-case basis in determining whether to provide
additional services of these types, which may be complementary to facility-based
services provided by HEALTHSOUTH or stand-alone businesses.
46Non-U.S. Holder.
53
PLAN OF DISTRIBUTION
Each broker-dealer that receives NewExchange Notes for its own account
pursuant to the Exchange Offerexchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Newthe Exchange Notes. This Prospectus,Broker-dealers
may use this prospectus, as it may be amended or supplemented from time to
time, may be used by a broker-dealer in connection with resalesthe resale of NewExchange Notes received in exchange for
OldPrivate Notes where such Oldthe broker-dealer acquired the Private Notes were acquired as a result of
market-making activities or other trading activities. HEALTHSOUTH hasWe have agreed that it will make this Prospectus, as
amended or supplemented, available to any Participating Broker-Dealer for a
period of time notup to exceed 180 days after the Registration Statementdate on which the registration statement is
declared effective (subject to extension under certain circumstances), we will
make this prospectus, as amended or supplemented, available to any
broker-dealer that requests it in the letter of transmittal for use in
connection with any such resale.
In addition, until such date, all
broker-dealers effecting transactions in the New Notes may be required to
deliver a prospectus.
HEALTHSOUTHWe will not receive any proceeds from any sale of NewExchange Notes by
broker-dealers. Newbroker-dealers or any other persons. Broker-dealers may sell Exchange Notes
received by broker-dealers for their own account pursuant to the Exchange Offer may be soldexchange offer
from time to time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the NewExchange
Notes or a combination of such methods of resale, at market prices prevailing
at the time of resale, at prices related to suchthe prevailing market prices or
negotiated prices. Any such resaleBroker-dealers may be maderesell Exchange Notes directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such
broker-dealer and/or the
purchasers of any such Newthe Exchange Notes. Any broker-dealer that resells NewExchange Notes
that were received by it for its own account pursuant to the Exchange Offerexchange offer and
any broker or dealer that participates in a distribution of such Newthe Exchange Notes
may be deemed to be an "underwriter""underwriters" within the meaning of the Securities Act,
and any profit on any such resale of NewExchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letterletter of Transmittaltransmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
StartingWe have agreed to pay all expenses incident to our performance of, or
compliance with, the registration rights agreement and will indemnify you
against liabilities under the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
Exchange Notes pursuant to the exchange offer agrees to notify us before using
the prospectus in connection with the sale or transfer of Exchange Notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which makes any statement in the prospectus
untrue in any material respect or which requests the making of any changes in
the prospectus to make the statements in the prospectus not misleading or which
may impose upon us disclosure obligations that may have a material adverse
effect on us, which notice we agree to deliver promptly to the Expiration Date,broker-dealer,
the broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and for a period of 180 days thereafter,
HEALTHSOUTH will promptly send additionalhave furnished
copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. HEALTHSOUTH has agreed to pay
expenses incidentprospectus to the Exchange Offer other than commissions or concessions of
any brokers or dealers and will indemnify the holders of the New Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
Based on interpretations by the staff of the Commission, as set forth in
no-action letters issued to third parties, including the Exchange Offer
No-Action Letters, HEALTHSOUTH believes that the New Notes issued pursuant to
the Exchange Offer may be offered for resale, resold or otherwise transferred by
each holder thereof (other than a broker-dealer who acquires such New Notes
directly from HEALTHSOUTH for resale pursuant to Rule 144A under the Securities
Act or any other available exemption under the Securities Act and other than any
holder that is an "affiliate" (as defined in Rule 405 under the Securities Act)
of HEALTHSOUTH) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and such holder is not engaged in,
and does not intend to engage in, a distribution of such New Notes and has no
arrangement with any person to participate in a distribution of such New Notes.
47
broker-dealer.
EXPERTS
TheErnst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule of HEALTHSOUTH at
December 31, 1997 and 1996, and for each of the three yearsincluded in the period ended
December 31, 1997, appearing in HEALTHSOUTH'sour Annual Report on Form 10-K
for the year ended December 31, 1997, have been audited by Ernst & Young LLP,
independent auditors,1999, as set forth in their report, thereonwhich is
incorporated herein
by reference. Such consolidatedreference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule have beenare incorporated herein by reference
in reliance upon suchon Ernst & Young LLP's report, given upon theon their authority of such firm as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the NewExchange Notes to be issued pursuant to the Exchange Offerexchange
offer will be passed upon by Haskell Slaughter & Young, L.L.C., Birmingham,
Alabama.
4854
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") grants
corporations the right to limit or eliminate the personal liability of their
directors in certain circumstances in accordance with provisions therein set
forth. Article NINTH of the HEALTHSOUTH Certificate contains a provision
eliminating or limiting director liability to HEALTHSOUTH and its stockholders
for monetary damages arising from acts or omissions in the director's capacity
as a director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty
to HEALTHSOUTH or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under the Delaware statutory provision making directors personally
liable, under a negligence standard, for unlawful dividends or unlawful stock
purchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve
on the Board of Directors of HEALTHSOUTH protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above). As a result of this provision, the ability of HEALTHSOUTH or a
stockholder thereof to successfully prosecute an action against a director for
a breach of his duty of care is limited. However, the provision does not affect
the availability of equitable remedies such as an injunction or rescission
based upon a director's breach of his duty of care. The SEC has taken the
position that the provision will have no effect on claims arising under the
Federal securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. Article NINTH of the HEALTHSOUTH Certificate and Article IX
of the HEALTHSOUTH Bylaws provide for mandatory indemnification rights, subject
to limited exceptions, to any director, officer, employee, or agent of
HEALTHSOUTH who, by reason of the fact that he or she is a director, officer,
employee, or agent of HEALTHSOUTH, is involved in a legal proceeding of any
nature. Such indemnification rights include reimbursement for expenses incurred
by such director, officer, employee, or agent in advance of the final
disposition of such proceeding in accordance with the applicable provisions of
the DGCL.
HEALTHSOUTH has entered into agreements with all of its directors and its
executive officers pursuant to which HEALTHSOUTH has agreed to indemnify such
directors and executive officers against liability incurred by them by reason
of their services as a director or executive officer to the fullest extent
allowable under applicable law.
II-1
ITEM 21. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
--- ------------ -------- ---------------------------------------------------------------------------------------
(1) -- Purchase Agreement, dated June 17, 1998,September 20, 2000, among HEALTHSOUTH
Corporation and Salomon Brothers Inc, Goldman, Sachs & Co., J.P.
Morgan Securities Inc., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated, NationsBanc
Montgomery SecuritiesUBS Warburg LLC, Bear, Stearns & Co. Inc., Credit Suisse
First Boston Corpora- tion, Deutsche Bank Securities Inc.,
PaineWebber IncorporatedChase Securities Inc. and Scotia Capital Markets (U.S.A.)First Union Securities, Inc., relating
to the Issuer's 6.875% Senior Notes due 2005 and 7.0%
Senior NotesCompany's 10-3/4%senior subordinated notes due 2008.
(3)-1 -- Restated Certificate of Incorporation of HEALTHSOUTH Corporation,
filed as Exhibit (3)-1 to the Issuer'sCompany's Current Report on Form
8-K, dated May 28, 1998, is hereby incorporated by reference.
(3)-2 -- By-laws of HEALTHSOUTH Corporation, filed as Exhibit (3)-2 to the
Company's Current Report on Form 8-K, dated May 28, 1998, are
hereby incorporated by reference.
(4)-1 -- Indenture, dated June 22, 1998,September 25, 2000, between HEALTHSOUTH
Corporation and PNCThe Bank National Association,of New York, as Trustee, filed as Exhibit 4.1 to
the Issuer's Quarterly Report on Form 10-Q for the three months
ended June 30, 1998, is hereby incorporated herein by reference.Trustee.
II-1
(4)-2 Officer's Certificate pursuant to Sections 2.3 and 11.5 of the
Indenture, dated June 22, 1998, between HEALTHSOUTH Corporation and
PNC Bank, National Association, as Trustee, relating to the
Issuer's 6.875% Senior Notes due 2005 and 7.0% Senior Notes due
2008, filed as Exhibit 4.2 to the Issuer's Quarterly Report on Form
10-Q for the three months ended June 30, 1998, is hereby
incorporated herein by reference.
(4)-3-- Registration Rights Agreement, dated June 22, 1998,September 25, 2000, among
HEALTHSOUTH Corporation and Salomon Brothers Inc, Goldman, Sachs &
Co., J.P. Morgan Securities Inc., Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Morgan Stanley & Co. Incorporated, NationsBanc
Montgomery SecuritiesUBS Warburg LLC, Bear, Stearns & Co. Inc., Credit Suisse
First Boston Corpora- tion, Deutsche Bank
Securities Inc., PaineWebber IncorporatedChase Securities Inc. and Scotia Capital Markets (U.S.A.)First Union
Securities, Inc., relating to the Issuer's 6.875% Senior Notes due 2005 and 7.0%
Senior Notes due 2008, filed as Exhibit 4.3 to the Issuer's
Quarterly Report on Form 10-Q for the three months ended June 30,
1998, is hereby incorporated herein by reference. (4)-4 Form of
6.875% Senior Notes due 2005. (4)-5 Form of 7.0% Senior NotesCompany's 10-3/4% senior
subordinated notes due 2008.
(4)-6 Form of Officer's Certificate pursuant to Sections 2.3
and 11.5 of the Indenture, dated June 22, 1998, between HEALTHSOUTH
Corporation and PNC Bank, National Association, as Trustee,
relating to the new 6.875% Senior Notes due 2005 and the new 7.0%
Senior Notes due 2008.
(5) -- Opinion of Haskell Slaughter & Young, L.L.C., regarding
legality of the NewExchange Notes.
(12) -- Statement of Computation of Ratio of Earnings to Fixed Charges.
(23)-1 -- Consent of Ernst & Young LLP.
(23)-2 -- Consent of Haskell Slaughter & Young, L.L.C. (included in the
opinion filed as Exhibit (5)).
(24) -- Powers of Attorney. See signature pages.pages of this registration
statement.
(25)-1 -- Statement of Eligibility and Qualification under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee on Form T-1,
relating to PNCThe Bank National Association.of New York.
(99)-1 -- Form of Letter of Transmittal.
(99)-2 -- Form of Notice of Guaranteed Delivery.
(99)-3 -- Form of Letter to Clients.
(99)-4 -- Form of Letter to Depository Trust Company Participants.
(99)-5 -- Instruction to Book-Entry Transfer Participant.
II-2
(99)-6 -- Form of Exchange Agent Agreement.
(99)-7 -- Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
ITEM 22. UNDERTAKINGS.
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 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to 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.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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
II-2
statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the CommissionSEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering prices set
forth in the "Calculation of Registration Fee" table in the effective
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.
(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.
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 foregoing provisions, 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 II-3
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-4II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama on August 14, 1998.November 9, 2000.
HEALTHSOUTH CORPORATION
By RICHARD/s/ Richard M. SCRUSHY
------------------------------------Scrushy
-----------------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard M. Scrushy and Michael D. Martin,William T. Owens, and
each of them, his attorney-in-fact with powers of substitution for him in any
and all capacities, to sign any amendments, supplements, subsequent
registration statements relating to the offering to which this Registration
Statement relates, or other instruments he deems necessary or appropriate, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITYTITLE DATE
--------- -------- ----- --------------------------------- ------------------------------- -----------------
RICHARD/s/ Richard M. SCRUSHYScrushy Chairman of the Board November 9, 2000
----------------------------- and Chief August 14, 1998
- ------------------------- Executive Officer and Director
Richard M. Scrushy MICHAEL D. MARTINand Director
/s/ William T. Owens Executive Vice President August 14, 1998
- -------------------------November 9, 2000
----------------------------- and Chief Financial Officer
Treasurer
Michael D. Martin and Director
WILLIAM T. OWENS Group Senior Vice President- August 14, 1998
- ------------------------- Finance and Controller (Principal
William T. Owens
/s/ Weston L. Smith Senior Vice President-Finance November 9, 2000
----------------------------- and Controller
Weston L. Smith (Principal Accounting Officer)
JAMES P. BENNETT Director August 14, 1998
- -------------------------
James P. Bennett
ANTHONY J. TANNER Director August 14, 1998
- -------------------------
Anthony J. Tanner
P. DARYL BROWN Director August 14, 1998
- -------------------------
P. Daryl Brown
PHILLIP C. WATKINS, M.D. Director August 14, 1998
- -------------------------/s/ Phillip C. Watkins M.D.Director November 9, 2000
-----------------------------
Phillip C. Watkins
/s/ George H. Strong Director November 9, 2000
-----------------------------
George H. Strong
/s/ C. Sage Givens Director November 9, 2000
-----------------------------
C. Sage Givens
/s/ Charles W. Newhall III Director November 9, 2000
-----------------------------
Charles W. Newhall III
/s/ John S. Chamberlin Director November 9, 2000
-----------------------------
John S. Chamberlin
II-5II-4
SIGNATURE CAPACITYTITLE DATE
- ------------------------------------------------------------ ---------- ---------------------------------
GEORGE H. STRONG Director August 14, 1998
- -------------------------
George H. Strong
C. SAGE GIVENS Director August 14, 1998
- -------------------------
C. Sage Givens
CHARLES W. NEWHALL III Director August 14, 1998
- -------------------------
Charles W. Newhall III
JOHN S. CHAMBERLIN Director August 14, 1998
- -------------------------
John S. Chamberlin
JOEL C. GORDON Director August 14, 1998
- -------------------------/s/ Joel C. Gordon EDWIN M. CRAWFORD Director August 14, 1998
-------------------------
Edwin M. CrawfordNovember 9, 2000
-----------------------------
Joel C. Gordon
/s/ Jan L. Jones Director November 9, 2000
-----------------------------
Jan L. Jones
/s/ Larry D. Striplin, Jr. Director November 9, 2000
-----------------------------
Larry D. Striplin, Jr.
II-6II-5