REGISTRATION NO. 333-333-61485
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
HEALTHSOUTH CORPORATION
(Exact Name of Registrant as Specified in its 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, and Telephone Number, including Area Code, of
Registrant's Principal Executive Offices)
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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:
MARK E. EZELL, ESQ. WILLIAM W. HORTON, ESQ. NATHANIEL M. CARTMELL III, ESQ.
F. HAMPTON MCFADDEN, JR., ESQ. HEALTHSOUTH CORPORATION KAREN A. DEMPSEY, ESQ.
HASKELL SLAUGHTER & YOUNG, L.L.C. ONE HEALTHSOUTH PARKWAY PILLSBURY MADISON & SUTRO, LLP
1200 AMSOUTH/HARBERT PLAZA BIRMINGHAM, ALABAMA 35243 235 MONTGOMERY STREET
1901 SIXTH AVENUE NORTH (205) 967-7116 16TH FLOOR
BIRMINGHAM, ALABAMA 35203 SAN FRANCISCO, CALIFORNIA 94104
(205) 251-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are to be 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 offering [ ] -------------_____________
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. [ ] -------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE (1) FEES (2)
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6.875% Senior Notes due 2005 ......... $250,000,000 100% $250,000,000 $ 73,750.00
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7.0% Senior Notes due 2008 ........... $250,000,000 100% $250,000,000 $ 73,750.00
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Total ................................ $500,000,000 100% $500,000,000 $ 147,500.00
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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").
(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, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED AUGUST 14, 1998
PROSPECTUS
[HEALTHSOUTH LOGO]
OFFER TO EXCHANGE THE 6.875% SENIOR NOTES DUE 2005 AND 7.0% SENIOR NOTES
DUE 2008 WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OUTSTANDING 6.875% SENIOR NOTES DUE 2005 AND
7.0% SENIOR NOTES DUE 2008, RESPECTIVELY
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THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _____________,OCTOBER 14, 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"), to
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 withdrawn 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 will be ___________,October 14, 1998 (30 calendar
days following the commencement of the Exchange Offer) unless the
Exchange Offer is extended, will be accepted 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 minimum
principal amount of Old Notes being tendered for exchange. However, the Exchange
Offer is subject to certain customary conditions, 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
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. See "The Exchange Offer" 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 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 (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.
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)
SEE "RISK FACTORS" BEGINNING AT PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
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 BY
THE SECURITIES AND EXCHANGE COMMISSION OR BY ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is August ,September 14, 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 OFFER IS NOT BEING MADE TO, NOR WILL 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 COMPLIANCE WITH THE
SECURITIES AND BLUE SKY LAWS OF SUCH JURISDICTION.
Prior to this Exchange Offer, 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 market in the Old Notes, and the
Issuer has been advised that 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 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. 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 information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (Commission File No.
1-10315), and in accordance therewith files periodic reports, proxy statements
and other information with the SEC relating to its businesses, financial
statements and other matters. The Registration Statement, as well as such
reports, proxy statements and other information, may be inspected and copied at
the public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the public
reference facilities maintained by the SEC at its regional offices located at
Seven World Trade Center, Suite 1300, New York, New York, 10048; and Citicorp
Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511. Copies
of such material can be obtained at prescribed rates by writing to the SEC,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The
SEC also maintains a web site that contains reports, proxy and information
statements and other information regarding HEALTHSOUTH and the Registration
Statement. The address of that web site is http:// www.sec.gov. The HEALTHSOUTH
Common Stock is listed on the New York Stock Exchange, and the Registration
Statement and other information with respect to HEALTHSOUTH are available for
inspection at the library of the New York Stock Exchange, Inc., 20 Broad Street,
7th Floor, New York, New York 10005.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROSPECTUS INCORPORATES 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, FROM THE SECRETARY OF HEALTHSOUTH
CORPORATION, ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, ALABAMA 35243, TELEPHONE (205)
967-7116.
There are hereby incorporated by reference into this Prospectus and made a
part hereof the following documents filed by HEALTHSOUTH (Commission File No.
1-10315):
1. HEALTHSOUTH's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "1997 Form 10-K").
2. HEALTHSOUTH's Quarterly Reports on Form 10-Q for the quarters ended
March 31 and June 30, 1998.
3. HEALTHSOUTH's Proxy Statement on Schedule 14A filed April 17, 1998,
in connection with HEALTHSOUTH's 1998 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 HEALTHSOUTH pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus shall be deemed to
be incorporated by reference into this Prospectus and to be made a part hereof
from the date of the filing of such documents. Any statement contained in a
document incorporated by reference herein shall be deemed to be modified or
superseded for the purpose hereof to the extent that a statement contained
herein (or in any other subsequently filed document which also is incorporated
by reference herein) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed to constitute a part hereof, except
as so modified or superseded.
FORWARD-LOOKING INFORMATION
Statements relating to HEALTHSOUTH contained in this Prospectus that are
not historical facts are forward-looking statements. In addition, HEALTHSOUTH,
through its senior management, from time to time makes forward-looking public
statements concerning its expected future operations and
4
performance and other developments. Such forward-looking statements are
necessarily estimates reflecting HEALTHSOUTH's best judgment based upon current
information and involve a number of risks and uncertainties, and there can be no
assurance that other factors will not affect the accuracy of 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 HEALTHSOUTH include, but are not limited to, changes in the
regulation of the healthcare industry at either or both of the federal and state
levels, changes in reimbursement for HEALTHSOUTH's services by government or
private payors, competitive pressures in the healthcare industry and
HEALTHSOUTH's response thereto, HEALTHSOUTH's ability to obtain and retain
favorable arrangements with third-party payors, unanticipated delays in
HEALTHSOUTH's implementation of its Integrated Service Model, general conditions
in the economy and capital markets, and other factors which may be identified
from time to time in HEALTHSOUTH's 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
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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 ........................PAGE
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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
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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 .....................................................................PAGE
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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
LEGAL MATTERS ............................................................... 48
7
SUMMARY OF PROSPECTUS
The following is a summary of certain information contained elsewhere in
this Prospectus. Certain capitalized terms used in this Summary are defined
elsewhere in this Prospectus. Reference is made to, and this Summary is
qualified in its entirety by, the more detailed information contained in this
Prospectus, and the documents incorporated by reference herein.
THE ISSUER
HEALTHSOUTH. HEALTHSOUTH is the nation's largest provider of outpatient
surgery and rehabilitative healthcare services, based upon number of staffed
rehabilitation beds, number of facilities and revenues derived from those
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. See "BUSINESS OF HEALTHSOUTH".
At June 30, 1998, HEALTHSOUTH had consolidated assets of approximately
$6.113 billion and consolidated stockholders' equity of approximately $3.474
billion and employed approximately 58,500 persons.
HEALTHSOUTH was incorporated under the laws of Delaware in 1984. Its
principal executive offices are located at One HealthSouth Parkway, Birmingham,
Alabama 35243, and its telephone number is (205) 967-7116.
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. 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 for as a pooling of interests and is intended to be
a tax-free reorganization.
RISK FACTORS
Existing holders of the Old Notes should pay special attention to the "Risk
Factors" section beginning on page 14.
THE EXCHANGE OFFER
THE EXCHANGE OFFER....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..NOTES ....... 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, 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
exemption under the Securities Act and other than
any holder that is an "affiliate" (as defined under
Rule 405 of 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
the 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 the New Notes. If a holder of Old
Notes is engaged in or intends 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-Dealer that receives New Notes for its own
account pursuant to the Exchange Offer 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
summated for use in connection with any such
resale. See "Plan of Distribution". To comply with
the securities laws of certain jurisdictions, it
may be necessary to qualify for sale or register
the New Notes prior to offering or selling such New
Notes. The Issuer has agreed, pursuant to the
Registration Rights Agreement and 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
consummation of the Exchange Offer.
REGISTRATION RIGHTS AGREEAGREE-
MENTS ..................................... The Old 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....NOTES .... Upon consummation of the Exchange Offer, subject to
certain exceptions, holders of Old 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), 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 Failure to Exchange" and "The Exchange Offer --
Terms of the Exchange Offer".
EXPIRATION DATE.........DATE ........... 5:00 p.m., New York City time, on __________,October 14, 1998,
(30 calendar days following the commencement of the
Exchange Offer),
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
INTEREST ON THE
NEW NOTES.NOTES .............. Interest on the New Notes will accrue from June 22,
1998,and be payable, 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.................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..............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........BENE
FICIAL 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 insructinstruct 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
ownership of the Old Notes in such owner's name or
obtain a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time. See "Exchange
Offer -- Procedures for Tendering".
GUARANTEED DELIVERY
PROCEDURES............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......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..NOTES ............... Subject to certain conditions, any and all Old
Notes thathat 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.........CONSIDERATIONS .......... The exchange of New Notes for Old Notes will not bbe
considered a sale or exchange or otherwise a
taxable event for Federal income tax purposes. See
"Certain United States Federal Tax Considerations".
EXCHANGE AGENT.........AGENT ............ PNC Bank, N.A. is serving as exchange agent (the
"Exchange Agent") in connection with the Exchange
Offer.
FEES AND EXPENSES.....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.......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.........DATES ............ The New Notes due 2005 will mature on June 15, 2005
and the New Notes due 2008 will mature on June 15,
20082008.
INTEREST PAYMENT DATES...DATES .... June 15 and December 15 of each year, commencing
December 15, 1998.
OPTIONAL REDEMPTION....REDEMPTION ....... The OldNew 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.................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...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".
REIMBURSEMENT BY THIRD-PARTY PAYORS
Substantially all of HEALTHSOUTH's revenues are derived from private and
governmental third-party payors (in 1997, approximately 36.9% from Medicare and
approximately 63.1% from commercial insurers, managed care plans, workers'
compensation payors and other private pay revenue sources). There are increasing
pressures from many payor sources to control healthcare costs and to limit
increases in reimbursement rates for medical services. There can be no
assurances that payments under governmental and third-party payor programs will
remain at levels comparable to present levels. In attempts to limit the federal
budget deficit, there have been, and HEALTHSOUTH expects that there will
continue to be, a number of proposals to limit Medicare reimbursements for
certain services. HEALTHSOUTH 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.
REGULATION
HEALTHSOUTH is subject to various other types of regulation at the federal
and state levels, 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's 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 assure 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. Additionally, in many states, Certificates of Need or
other similar approvals are required for expansion of HEALTHSOUTH's operations.
HEALTHSOUTH could be adversely affected by the failure or inability to obtain
such approvals, by changes in the standards applicable to approvals and by
possible delays and expenses associated with obtaining approvals. The failure by
HEALTHSOUTH to obtain, retain or renew any required regulatory approvals,
licenses or certificates could prevent HEALTHSOUTH from being reimbursed for, or
from offering, its services, or could adversely affect its results of
operations.
A wide array of Medicare/Medicaid fraud and abuse provisions apply to the
operations of HEALTHSOUTH. HEALTHSOUTH 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/Medicaid programs, asset forfeiture, civil
penalties and criminal penalties. 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" in HEALTHSOUTH's 1997 Form 10-K.
HEALTHCARE REFORM
In recent years, an increasing number of 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, or recently have been, under consideration
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 payments by governmental programs, including Medicare and
Medicaid, to healthcare providers. There continue to be fed-
14
eral and state proposals that would, and actions that do, impose more
limitations on government and private payments to healthcare providers such as
HEALTHSOUTH 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, which
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 internally 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. The 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-
15
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 accessassess 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.
COMPETITION
HEALTHSOUTH operates in a highly competitive industry. HEALTHSOUTH
generally operates its facilities in communities that also are served by similar
facilities operated by others. Although HEALTHSOUTH is the largest provider of
outpatient surgery and rehabilitation healthcare services on a nationwide basis,
in any particular market it may encounter competition from local or national
entities with longer operating histories or other superior competitive
advantages. There can be no assurance that such competition, or other
competition which HEALTHSOUTH may encounter in the future, will not adversely
affect HEALTHSOUTH's results of operations.
CERTAIN HORIZON/CMS LITIGATION
On October 29, 1997, HEALTHSOUTH acquired Horizon/CMS Healthcare
Corporation ("Horizon/ CMS") through the merger of a wholly-owned subsidiary of
HEALTHSOUTH with 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
arising 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
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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 to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to exemptions from, or in
transactions not 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 NOTES
There can be no assurance that a public market for the New Notes will
develop or, if such a market develops, as to the liquidity of such market. If
such a market were to develop, the New Notes could trade at prices that may be
higher or lower than their principal amount. HEALTHSOUTH does not intend to
apply for listing of the New Notes on any securities exchange or for quotation
of the New Notes on any automated quotation system. The Initial Purchasers have
previously made a market in the Old Notes, and HEALTHSOUTH has been advised that
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 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.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Issuer's 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
---- ---- ---- ---- ---- -------------- ---------- ---------- ---------- ---------- -----------------
Ratio of earnings to fixed charges ......... 5.71x 3.31x 3.27x 4.61x 5.34x 6.59x
For purposes of calculating ratio of earnings to fixed charges, (i)
earnings consist of consolidated income (loss) before taxes and nonrecurring
charges, plus fixed charges, and (ii) fixed charges consist of interest expense
incurred and the portion of rental expense under operating leases deemed by the
Issuer 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.
TERMS OF THE EXCHANGE OFFER
The Old Notes were sold by the Issuer to the Initial Purchasers on June 22,
1998 the(the "Closing Date"), pursuant to a Purchase Agreement entered into by the
Initial Purchasers on June 22,17, 1998 (the "Purchase Agreement") and were
subsequently resold (i) to qualified institutional buyers pursuant to Rule 144A
under the Securities Act, and (ii) pursuant to offers and sales that occurred
outside the United States within the meaning of Regulation S under the
Securities Act. In connection with the issuance of the Old Notes pursuant to the
Purchase Agreement, the Initial Purchasers and their respective assignees became
entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Issuer is required to file
within 60 days after the Closing Date a registration statement (the "Exchange
Offer Registration Statement") for a registered exchange offer with respect to
an issue of new notes identical in all material respects to 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) use its best efforts to cause such Exchange
Offer Registration Statement to become effective no later than 150 days after
the Closing Date, (iii) 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 its best efforts to consummate the Exchange Offer as
soon as practicable following the date on which the Exchange Offer Registration
Statement is declared effective by the Commission, but in no event later than
180 days after the Closing Date and (v) cause 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 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 ____________,September 14, 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 pursuant to
the Exchange Offer is subject to certain conditions as set forth herein under
"-- Conditions".
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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.
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, 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 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 the 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 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
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-Dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus 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 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 consummation of the Exchange Offer that (A) such
holder was prohibited by law or Commission policy from participating in 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 file 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) above 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 filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above. Such
an event shall have no effect on the requirements of clause (y) above. The
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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
effective 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 exchanged in the Exchange Offer and entitled to be resold to the public by
the holder thereof without complying with the prospectus delivery requirements
of the Act, (b) the date on which such Note has been disposed of 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 delivery 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
filed 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) of the Securities Act is amended to provide a
shorter restrictive period, such shorter period) or (iii) the date on which the
Notes are sold pursuant to such Shelf Registration Statement, Liquidated Damages
shall accrue at a rate 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 paid to the holders of record on
the preceding June 1 and December 1, respectively, of the global note
representing the Old 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 forth in the preceding paragraph that are outstanding 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 consummation of the Exchange Offer, subject to certain exceptions, holders
of Old 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, or
in a transaction not subject to, the Securities Act and applicable state
securities laws. See "Risk Factors -- Risk Factors Relating to the Notes --
Consequences of Failure to Exchange".
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" shall mean ____________,October 14, 1998, (30 calendar days
following the commencement of the Exchange Offer), unless the Exchange
Offer is extended, if and as required by
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applicable law, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Issuer will notify the Exchange
Agent of any extension by oral or written notice and will notify the holders of
the Old Notes by means of a press release or other public announcement prior to
9:00 a.m., New York City time, on the next business day after the previously
scheduled Expiration Date.
The Issuer reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or 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, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in 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
followed as promptly as practicable by oral or written notice thereof to the
Exchange Agent. If the Exchange Offer is amended in a manner determined by the
Issuer to constitute a material change, the Issuer will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment.
INTEREST ON THE NEW NOTES
The New Notes will accrue interest from June 22, 1998, at the rates of
6.875% on the New Notes due 2005 and 7.0% on the New Notes due 2008. Commencing
December 15, 1998, cash interest on the New 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, semi-annually in arrears on each June 15 and December 15.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, have the signatures thereon guaranteed if required by the
Letter of Transmittal, and mail or otherwise deliver such Letter of Transmittal,
together with any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. In addition, either (i)
certificates for such Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal, (ii) a timely confirmation of a book entry
transfer (a "Book-Entry Confirmation") of such Old Notes, if such procedure is
available, into the Exchange Agent's account at DTC (the "Book-Entry Transfer
Facility") pursuant to the procedure for book-entry transfer described below,
must be received by the Exchange Agent prior to the Expiration Date or (iii) the
holder 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 made to the Exchange
Agent at its address set forth below. Holders of Notes may also request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect such tender for such holders.
The tender by 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.
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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 instruct 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 ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by any member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor" institution within the meaning of Rule
17Ad-15 under the Exchange Act (each, an "Eligible Institution") unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered holder who has
not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by bond powers and a proxy which authorizes such person
to tender the Old Notes on behalf of the registered holder, in each case as the
name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old 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
persons should so indicate when signing, and unless waived by the Issuer,
evidence satisfactory to the Issuer of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt) and withdrawal of the tendered Old Notes will be determined by the
Issuer in its sole discretion, which determination will be final and binding.
The Issuer reserves the absolute right to reject any and all Old Notes not
properly tendered or any Old Notes which, if accepted, would, in the opinion of
counsel for the Issuer, be unlawful. The Issuer also reserves the absolute right
to waive any irregularities or conditions of tender as to particular Old Notes.
The Issuer's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Issuer shall determine. Neither the Issuer, the Exchange Agent nor any other
person shall be under any duty to give notification of defects or irregularities
with respect to tenders of Old Notes, nor shall any of them incur any liability
for failure to give such notification. Tenders of Old Notes will not be deemed
to have been made until such irregularities have been cured or waived. Any Old
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 Letter of Transmittal, as
soon as practicable following the Expiration Date.
In addition, the Issuer reserves the right in its sole discretion, subject
to the provisions of the Indenture, to (i) purchase or make offers for any Old
Notes that remain outstanding subsequent to the Expiration Date or, as set forth
under "-- Conditions", (ii) to terminate the Exchange Offer in accordance with
the terms of the Registration Rights Agreement and (iii) to the extent permitted
by applicable law, purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of the Exchange Offer.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
all Old Notes properly tendered will be accepted, promptly after the Expiration
Date, and the New Notes will be issued promptly after acceptance of the Old
Notes. See "-- Conditions" below. For purposes of the Exchange Offer, Old Notes
shall be deemed to have been accepted as validly tendered for exchange when, as
and if the Issuer has given oral or written notice thereof to the Exchange
Agent.
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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. 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 nonexchanged 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 below, such
nonexchanged 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.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus. Any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the Letter of Transmittal with any required
signature guarantees and any other required documents must, in any case, be
transmitted to and received by the Exchange Agent at one of the addresses set
forth below under "-- Exchange Agent" on or prior 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.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes,
and the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedures for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if (i) the tender is made
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of Transmittal and Notice of Guaranteed Delivery, substantially
in the form provided by the Issuer (by mail or hand delivery), setting forth the
name and address of the holder of Old Notes and the amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that
within three New York Stock Exchange ("NYSE") trading days after the date of
execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and any other documents required by the Letter
of Transmittal will be deposited by the Eligible Institution with the Exchange
Agent and (iii) the certificates for all physically tendered Old Notes, in
proper form for transfer, or a Book Entry Confirmation, as the case may be, and
all other documents required by the Letter of Transmittal are received by the
Exchange Agent within three NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by 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". Any such notice of withdrawal must specify the name of the person having
tendered the Old Notes to be withdrawn, identify the Old Notes to be withdrawn
(including the principal amount of such Old Notes) and (where certificates for
Old Notes have been transmitted)
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specify the name 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. All questions as to the validity, form and eligibility
(including time of receipt) of such notices will be determined by the Issuer,
whose determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are not exchanged for any reason will be returned to the
holder thereof without cost to such holder (or, in the case of Old 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 under "-- Procedures for Tendering" and "-- Book-Entry
Transfer" above at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, Old Notes will not be
required to be accepted for exchange, nor will New Notes be issued in exchange
for any Old Notes, and the Issuer may terminate or amend the Exchange Offer as
provided herein before the acceptance of such Old Notes, if because of any
change in law, or applicable interpretations thereof by the Commission, the
Issuer determines that it is not permitted to effect the Exchange Offer. The
Issuer has no obligation to, and will not knowingly, permit acceptance of
tenders of Old Notes from affiliates (within the meaning of Rule 405 under the
Securities Act) of the Issuer or from any other holder or holders who are not
eligible to participate in the Exchange Offer under applicable law or
interpretations thereof 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 restriction under the Securities Act and
the Exchange Act and without material restrictions under the "blue sky" or
securities laws of substantially all of the states of the United States.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Issuer's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Issuer. The costs of the Exchange Offer and the unamortized expenses related to
the issuance of the Old Notes will be amortized over the term of the New Notes.
26
EXCHANGE AGENT
PNC Bank, N.A. has been appointed as Exchange Agent for the Exchange Offer.
Questions and requests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL: FOR INFORMATION CALL: BY HAND/OVERNIGHT DELIVERY:
PNC Bank, N.A. David G. Metcalf PNC Bank, N.A.
500 West Jefferson Street (502) 581-3029 500 West Jefferson Street
(502) 581-3029 500 West Jefferson Street
Louisville, Kentucky 40202 Facsimile (502) 581-2702 Louisville, Kentucky 40202
Attn: Corporate Trust Department Attn: Corporate Trust Department
or or
PNC Bank, N.A. PNC Bank, N.A.
c/o The Depository Trust Company c/o The Depository Trust Company
55 Water Street 55 Water Street
New York, New York 10041 New York, New York 10041
Attn: Corporate Trust DepartmentMessrs. Cumia or Ballner Attn: Messrs. Cumia or Ballner
(212) 558-2460 (212) 558-2460
26
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to 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 by officers and regular
employees of the Issuer.
The Issuer will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Issuer, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Issuer may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket 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 will be
paid by the Issuer, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and related fees and expenses.
The Issuer will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the 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 Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
USE OF PROCEEDS
There will be no cash proceeds payable to HEALTHSOUTH 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. In consideration for
issuing the New Notes as contemplated in this Prospectus, HEALTHSOUTH will
receive in exchange the Old Notes in like principal amount, the terms of which
are identical in all material respects to the New Notes. The Old Notes
surrendered in exchange for the New Notes will be retired and cancelled and
cannot be reissued. Accordingly, the issuance of the New Notes will not result
in any increase in the indebtedness of HEALTHSOUTH.
27
CAPITALIZATION
The following table sets forth, as of June 30, 1998, the capitalization of
the Company, which reflects the sale of the Old Notes and the application of the
net proceeds therefrom. See "Selected Consolidated Financial Data" and "Use of
Proceeds".
JUNE 30,
1998
-------------------
(IN THOUSANDS)
Current portion of long-term debt .................................. $ 47,600
==========
Long-term debt (net of current maturities):
Notes payable ...................................................... $ 750,000
Other .............................................................. 122,956
9.5% Senior Subordinated Notes due 2001 ............................ 250,000
3.25% Convertible Subordinated Debentures due 2003 ................. 567,750
6.875% Senior Notes due 2005 ....................................... 250,000
7.0% Senior Notes due 2008 ......................................... 250,000
----------
Total long-term debt ............................................ 2,190,706
Stockholders' equity:
Preferred Stock, par value $.10 per share, 1,500,000 shares autho-
rized; no shares outstanding .................................... --
Common Stock, par value $.01 per share, 600,000,000 shares autho-
rized; 401,817,000 shares outstanding (1) ....................... 4,018
Additional paid-in capital ....................................... 2,406,903
Retained earnings ................................................ 1,078,580
Treasury stock ................................................... (323)
Receivable from Employee Stock Ownership Plan .................... (10,169)
Notes receivable from stockholders ............................... (5,180)
----------
Total stockholders' equity ....................................... 3,473,829
----------
Total capitalization ............................................ $5,664,535
==========
- ----------
(1) Outstanding shares do not include a total of 28,406,753 shares of Common
Stock subject to options outstanding under the Company's stock option
plans. An additional 8,089,191 shares of Common Stock are reserved for
future option grants under such plans. Outstanding shares also do not
include 980,542 shares of Common Stock reserved for issuance pursuant to
outstanding warrants, 15,501,707 shares of Common Stock initially reserved
for issuance upon conversion of the Company's 3.25% Convertible
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 restated to reflect
the effects of the 1994 acquisition of ReLife, Inc. ("ReLife"), the 1995
acquisitionacquisitions of Surgical Health Corporation ("SHC") and Sutter Surgery Centers,
Inc. ("SSCI"), the 1996 acquisitionacquisitions 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, related 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-
sumingassuming 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-
sumingassuming 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'sHEALTHSOUTH'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'sHEALTHSOUTH'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
earingsearnings per share in 1998 reflect shares reserved for issuance upon
conversion of HealthSouth'sHEALTHSOUTH's 3.25% Convertible Subordinated Debentures due
2001.2003.
(6) Includes current portion of long-term debt.
30
DESCRIPTION OF THE NEW NOTES
The Old Notes were issued, and the New Notes (together with the Old Notes,
the "Notes") offered hereby will be issued pursuant to an Indenture, dated as of
June 22, 1998 (the "Indenture"), between the Issuer and PNC Bank, N.A., 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 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 New Notes constitute two series for purposes of the Indenture. The
6.875% Senior Notes due 2005 (the "New Notes due 2005") will be unsecured,
unsubordinated obligations of the Issuer limited in aggregate principal amount
to $250,000,000 and will mature on June 15, 2005. The 7.0% Senior Notes due 2008
(the "New Notes due 2008") will be unsecured, unsubordinated obligations of the
Issuer limited in aggregate principal amount to $250,000,000 and will mature on
June 15, 2008.
Payment of the principal of and interest on the New Notes will rank pari
passu with all other unsecured, unsubordinated debt of the Issuer. The New Notes
will be redeemable in whole or in part at any time at the option of the Issuer
at a price equal to the greater of (i) 100% of the principal amount thereof and
(ii) the sum of the present values of the remaining schedule 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 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 "-- Optional
Redemption". The New Notes will not be entitled to the benefit of any mandatory
redemption or sinking fund. The Indenture does not limit the amount of
additional indebtedness the Issuer or any of its subsidiaries may incur. The
Indenture does not limit the amount of notes, debentures or other evidences of
indebtedness ("Debt Securities") that the Issuer may issue thereunder and
provides that Debt Securities may be issued from time to time in one or more
series. As of the date of this Prospectus, no Debt Securities (other than the
Old Notes) were outstanding under the Indenture.
The New 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 15 and December 15 of each year,
commencing on December 15, 1998 to the persons in whose names the New Notes are
registered at the close of business on the immediately preceding June 1 and
December 1, respectively. Interest on the New Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest on the New Notes will be computed
on the basis of a 360-day year consisting of twelve 30-day months. Principal of,
premium, if any, and interest on the New Notes will be payable, and the transfer
of New Notes will be registrable, at the office or agency of the Issuer to be
maintained for such purpose in the Borough of Manhattan, The City of New York,
except that, at the option of the Issuer, interest may be paid by mailing a
check to the address of the person entitled thereto as it appears on the New
Notes register. In the event that any date on which principal, premium, if any,
or interest is payable on the New Notes is not a Business Day (as defined in the
Indenture), then payment of the principal, premium, if any, or interest payable
on such date will be made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay).
GLOBAL SECURITIES
The New Notes will be issued in fully-registered form without coupons. The
Old Notes were initially issued in global form and definitive certificated
securities were not issued except in the limited circumstances described below.
31
Each series of Notes will be evidenced by one or more global Securities
(the "Global Securities"), which will be deposited with, or on behalf of, The
Depository Trust Company, New York, New York ("DTC") and registered in the name
of Cede & Co. ("Cede"), as DTC's nominee.
Persons holding interests in the Global Securities may hold their interests
directly through DTC, or indirectly through organizations which are participants
in DTC ("Participants"). Transfers between Participants will be effected in the
ordinary way in accordance with DTC rules and will be settled in immediately
available funds.
Holders who are not Participants may beneficially own interests in a Global
Security held by DTC only through Participants or certain banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly, and
have indirect access to the DTC system ("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, owners of beneficial interests in a Global
Security will not be entitled to have certificates registered in their names,
will not receive or be entitled to receive physical delivery of certificates in
definitive form, and will not be considered the holder thereof.
Neither HEALTHSOUTH nor the Trustee (nor any registrar or paying agent)
will have any responsibility for the performance by DTC or its 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 applicable 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 depositary with
respect to any series of the New Notes at any time by giving reasonable notice
to HEALTHSOUTH. In the event that DTC notifies HEALTHSOUTH that it is unwilling
or unable to continue as depositary for any Global Security or if at any time
DTC ceases 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 depositary shall have been appointed within 90 days of such
notification or of HEALTHSOUTH becoming aware of DTC's ceasing to be so
registered, as the case may be, certificates for the applicable New Notes will
be printed and delivered in exchange for interests in such Global Security. Any
Global Security that is exchangeable pursuant 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 responsibility for the accuracy thereof.
OPTIONAL REDEMPTION
The New 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 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 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.
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semi-annual equivalent yield to maturity of the applicable
Comparable Treasury Issue, assuming a price for the applicable Comparable
Treasury Issue (expressed as a percentage of its principal amount) equal to the
applicable Comparable Treasury Price for such redemption date.
33
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the New Notes due 2005 or New Notes due 2008, as the case
may be, 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, with respect to any redemption date, (i)
the average of the bid 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 Issuer 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. If 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 value of the assets subject
to such transaction or (ii) the present value of the obligations of the lessee
for net rental payments during the term of 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 borne by
the Debt Securities of each series outstanding pursuant to the Indenture and
subject to the limitation 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.
"Capital Stock" of any specified person shall mean any and all shares,
rights to purchase, warrants or options (whether or not currently exercisable),
participation or other equivalents of or interests in (however designated) the
equity (including, without limitation, common stock, preferred stock and
partnership and joint venture interests) of such person (excluding any debt
securities that are convertible into, or exchangeable for, such equity).
"Common Equity" of any specified person shall mean all Capital Stock of
such person that is generally entitled to (i) vote in the election of directors
of such person or (ii) if such person 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.
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"Consolidated Tangible Assets" with respect to any specified person as of
any date shall mean the total assets of such person 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 Notes
in the book value of any asset owned by such person or any of its Subsidiaries.
"Exempted Debt" shall mean the sum of the following as of the date of
determination: (i) Indebtedness of the Issuer and its Subsidiaries incurred
after the date of issuance of the NewOld Notes and secured by liens not otherwise
permitted by the limitation on liens provisions of the Indenture, and (ii)
Attributable Debt of the Issuer and its Subsidiaries in respect of every sale
and lease-back transaction entered into after the date of the issuance of the
Old Notes, other than leases permitted by the limitation on sale and lease-back
provisions of the Indenture.
"GAAP" shall mean 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.
"Indebtedness" shall mean all items classified as indebtedness on the most
recently available consolidated balance sheet of the Issuer and its
Subsidiaries, in accordance with GAAP.
"Subsidiary" with respect to any specified person shall mean (i) any
corporation of which the Common Equity having ordinary voting power to elect a
majority of directors of such corporation is owned by such person directly or
through one or more Subsidiaries of such person and (ii) any entity other than a
corporation in which such 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 any 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 secured by a
mortgage, security interest, pledge, charge, lien or other similar encumbrance
of any kind (collectively, a "lien") upon any assets, whether now owned or
hereafter acquired, of the Issuer or any such Subsidiary without equally and
ratably securing the New Notes 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, or to secure the payment of the purchase price 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 by 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 included in the Indenture solely for the
benefit of a series of Debt Securities other than such series; (v) acceleration
of $25 million or more, individually or in the aggregate, in principal amount of
Indebtedness 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.
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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 Securities 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/or 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 CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations to holders of the New 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 New 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 New Notes in connection
with a straddle) that may be subject to special rules. This discussion assumes
that each holder holds the New Notes as capital assets.
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. 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 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 NEW NOTES AND THE EFFECT THAT THEIR PARTICULAR
CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
EXCHANGE OF OLD NOTES FOR NEW NOTES
The terms of the New Notes are identical to those of the Old Notes, except
that the New Notes are registered under applicable federal securities laws.
Under applicable Treasury Regulations, the exchange of Old Notes for New Notes
pursuant to the Exchange Offer should not be treated as an "exchange" for
federal income tax purposes. If, however, the exchange of Old Notes for New
Notes were treated as an "exchange" for federal income tax purposes, such
transactionstransaction should constitute a recapitalizationreorganization for federal income tax purposes
and holders of the Old Notes who receive solely New Notes in exchange therefor
should not recognize any gain or loss on such exchanged.exchange. The term "New Notes"
utilized in the following sections means, in certain contexts, the Old Notes anand
New 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 New Notes. Interest paid on the New Notes will be taxable to a
holder as ordinary interest income in accordance with the holder's method of tax
accounting at the time that such interest is accrued or (actually or
constructively) received.
Sale or Exchange of New Notes. In general, a holder of the New Notes will
recognize gain or loss upon the sale, redemption, retirement or other
disposition of the New 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 New Notes. A holder's tax basis in
the New Notes generally will equal the cost of the Old Notes to the holder
increased by the amount of market discount, if any, previously taken into income
by the holder or decreased by any bond premium theretofore amortized by the
holder with respect to the New Notes. Subject to the market discount rules
discussed below, the gain or loss on the
40
disposition of the New Notes will be capital gain or loss and will be long-term
gain or loss if the New 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 New Notes may be affected by the "market
discount" provisions of the Code. For this purpose, the market discount on a
Note will generally be equal to the amount, if any, by which the stated
redemption price at maturity of the New Notes immediately after its acquisition
exceeds the holder's tax basis in the New Notes. Subject to a de minimis
exception, these provisions generally require a holder of a New Note acquired at
a market discount to treat as ordinary income any gain recognized on the
disposition of such New Notes to the extent of the "accrued market discount" on
such New Notes at the time of disposition. In general, market discount on a New
Note will be treated as accruing on a straight-line basis over the term of such
New 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 New 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 New Notes until the New Notes are disposed of
in a taxable transaction.
TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on New Notes. Generally, interest paid on the New 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 Issuer entitled to vote and is not a
controlled foreign corporation with respect to which the Issuer 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. 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. Non-U.S. Holders
should consult applicable income tax treaties, which may provide different
rules.
Sales or Exchange of New 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 New 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 New 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. If the Issuer is a "United States real property
holding corporation", a Non-U.S. Holder may be subject to federal income tax
with respect to gain realized on the disposition of such New Notes as if it were
effectively connected with 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 against 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
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders. Information reporting and backup withholding may apply to
payments of interest on or the proceeds of the sale or other disposition of the
New Notes with respect to certain non-corporate U.S. holders. Such U.S. holders
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's federal income tax liability, upon furnishing
the required information.
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 Issuer 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
holders outside the United States that are subject to 30% withholding as
discussed above (see "Tax Considerations Applicable to Non-U.S. Holders --
Interest on New Notes") or that are subject to a tax treaty that reduces such
withholding.
The payment of the proceeds on the disposition of New 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 New 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. 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, information
reporting will apply unless such broker has documentary evidence in its files of
the owner's foreign status 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 dispositions if the
broker has actual knowledge that the payee is a U.S. Holder.
The 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, subject to certain transition rules; however, the Treasury
Department and the IRS subsequently announced that 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, 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.
46
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. HEALTHSOUTH has agreed that it will make this Prospectus, as
amended or supplemented, available to any Participating Broker-Dealer for a
period of time not to exceed 180 days after the Registration Statement is
declared effective (subject to extension under certain circumstances) 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.
HEALTHSOUTH will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold 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 New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
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 New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
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.
Starting on the Expiration Date, and for a period of 180 days thereafter,
HEALTHSOUTH will promptly send additional 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 incident 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
EXPERTS
The consolidated financial statements and schedule of HEALTHSOUTH at
December 31, 1997 and 1996, and for each of the three years in the period ended
December 31, 1997, appearing in HEALTHSOUTH's Annual Report on Form 10-K for the
year ended December 31, 1997, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon incorporated herein
by reference. Such consolidated financial statements and schedule have been
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the New Notes to be issued pursuant to the Exchange Offer
will be passed upon by Haskell Slaughter & Young, L.L.C., Birmingham, Alabama.
48
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
--- -----------
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------
(1) Purchase Agreement, dated June 17, 1998, 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 Securities LLC, Bear, Stearns & Co. Inc., Credit Suisse
First Boston Corporation, Deutsche Bank Securities Inc.,
PaineWebber Incorporated and Scotia Capital Markets (U.S.A.) Inc.
relating to the Issuer's 6.875% Senior Notes due 2005 and 7.0%
Senior Notes due 2008.
(3)-1 Restated Certificate of Incorporation of HEALTHSOUTH Corporation,
filed as Exhibit (3)-1 to the Issuer's Current Report on Form 8-K,
dated May 28, 1998, is hereby incorporated by reference.
(4)-1 Indenture, dated June 22, 1998, between HEALTHSOUTH Corporation
and PNC Bank, National Association, 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.
(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, 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 Securities LLC, Bear, Stearns & Co. Inc., Credit Suisse
First Boston 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 Securities LLC, Bear, Stearns & Co. Inc., Credit Suisse
First Boston Corpora- tion, Deutsche Bank Securities Inc.,
PaineWebber Incorporated and Scotia Capital Markets (U.S.A.) Inc.
relating to the Issuer's 6.875% Senior Notes due 2005 and 7.0%
Senior Notes due 2008.
(3)-1 Restated Certificate of Incorporation of HEALTHSOUTH Corporation,
filed as Exhibit (3)-1 to the Issuer's Current Report on Form 8-K,
dated May 28, 1998, is hereby incorporated by reference.
(4)-1 Indenture, dated June 22, 1998, between HEALTHSOUTH Corporation and
PNC Bank, National Association, 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.
(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, 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 Securities LLC, Bear, Stearns & Co. Inc., Credit Suisse
First Boston Corpora- tion, Deutsche Bank Securities Inc.,
PaineWebber Incorporated and Scotia Capital Markets (U.S.A.) 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 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 New Notes.
(8) Opinion of Haskell Slaughter & Young, L.L.C. as to certain federal
income tax consequences of the exchange.
(12) 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.
(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 PNC Bank, National Association.
(99)-1 Form of Letter of Transmittal.
(99)-2 Form of Notice of Guaranteed Delivery.
(99)-3 Form of Letter to Clients.
II-2
EXHIBIT
NO. DESCRIPTION
- ---------- ------------------------------------------------------------------
(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.
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 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 Commission
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.
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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.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Birmingham, State
of Alabama, on AugustSeptember 14, 1998.
HEALTHSOUTH CORPORATION
By RICHARD M. 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, 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 Amendment
No. 1 to Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----- ------------------------------ ----------------------------------- -------------------
RICHARD M. SCRUSHY Chairman of the Board and Chief AugustSeptember 14, 1998
- ----------------------------------------------------- Executive Officer and Director
Richard M. Scrushy
MICHAEL D. MARTIN* Executive Vice President, AugustSeptember 14, 1998
- ----------------------------------------------------- Chief Financial Officer, Treasurer
Michael D. Martin and Director
WILLIAM T. OWENS* Group Senior Vice President- AugustSeptember 14, 1998
- ----------------------------------------------------- Finance and Controller (Principal
William T. Owens Accounting Officer)
JAMES P. BENNETT* Director AugustSeptember 14, 1998
- -----------------------------------------------------
James P. Bennett
ANTHONY J. TANNER* Director AugustSeptember 14, 1998
- -----------------------------------------------------
Anthony J. Tanner
P. DARYL BROWN* Director AugustSeptember 14, 1998
- -----------------------------------------------------
P. Daryl Brown
PHILLIP C. WATKINS, M.D.* Director AugustSeptember 14, 1998
- -----------------------------------------------------
Phillip C. Watkins, M.D.
* Director September 14, 1998
- ----------------------------
George H. Strong
* Director September 14, 1998
- ----------------------------
C. Sage Givens
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SIGNATURE CAPACITY DATE
- --------------------------- ---------- ---------------------------------------------- ----------------------------------- -------------------
GEORGE H. STRONG* Director AugustSeptember 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 AugustSeptember 14, 1998
- -----------------------------------------------------
John S. Chamberlin
JOEL C. GORDON* Director AugustSeptember 14, 1998
- -----------------------------------------------------
Joel C. Gordon
EDWIN M. CRAWFORD* Director AugustSeptember 14, 1998
-------------------------- ----------------------------
Edwin M. Crawford
* By: RICHARD M. SCRUSHY
-----------------------
Richard M. Scrushy
Attorney-in-Fact
II-6