AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 17, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
--------------
HEALTHSOUTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------(Exact Name of Registrant as Specified in its Charter)
-----------------
DELAWARE 8062 63-0860407
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Identification
Incorporation or Organization) Classification Code Number) Identification Number)
-------------------------------
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)
-----------------
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)
COPIES TO:-----------------
Copies to:
ROBERTMARK E. LEE GARNER,EZELL, ESQ. WILLIAM W. HORTON, ESQ. STEVEN E. DUCOMMUN,NATHANIEL M. CARTMELL III, ESQ.
F. HAMPTON MCFADDEN, JR., ESQ. BEALL D. GARY, JR.,HEALTHSOUTH CORPORATION KAREN A. DEMPSEY, ESQ.
WOON-WAH SIU, ESQ.
Haskell SlaughterHASKELL SLAUGHTER & Young,YOUNG, L.L.C. ONE HEALTHSOUTH Corporation BELL, BOYDPARKWAY PILLSBURY MADISON & LLOYDSUTRO, LLP
1200 AmSouth/Harbert Plaza One HealthSouth Parkway Three First National PlazaAMSOUTH/HARBERT PLAZA BIRMINGHAM, ALABAMA 35243 235 MONTGOMERY STREET
1901 Sixth Avenue North Birmingham, Alabama 35243 70 West Madison Street, Suite 3300
Birmingham, Alabama 35203SIXTH AVENUE NORTH (205) 967-7116 Chicago, Illinois 6060216TH FLOOR
BIRMINGHAM, ALABAMA 35203 SAN FRANCISCO, CALIFORNIA 94104
(205) 251-1000 (312) 372-1121
-------------------------------
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
================================================================================================================================================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM CLASSAMOUNT OF
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OFREGISTRATION
TO BE REGISTERED TO BE REGISTERED(1)REGISTERED PER UNIT PRICE(2) REGISTRATION FEE(3)OFFERING PRICE (1) FEES (2)
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share ......................... 23,623,673 shares N/A6.875% Senior Notes due 2005 ......... $250,000,000 100% $250,000,000 $ 568,320,823.7573,750.00
- ---------------------------------------------------------------------------------------------------------------------
7.0% Senior Notes due 2008 ........... $250,000,000 100% $250,000,000 $ 192,953.73
===========================================================================================================================73,750.00
- ---------------------------------------------------------------------------------------------------------------------
Total ................................ $500,000,000 100% $500,000,000 $ 147,500.00
=====================================================================================================================
(1) The amount of common stock, par value $.01 per share (the "HEALTHSOUTH
Common Stock"), of the Registrant to be registered has been determined
based upon 18,617,279 shares of common stock, par value $.01 per share (the
"NSC Common Stock"), of National Surgery Centers, Inc. outstanding as of
June 15, 1998, 1,908,981 shares of NSC Common Stock that may be issued
pursuant to outstanding options, warrants and convertible debt that may be
exercised prior to the Effective Time of the Merger described herein and an
Exchange Ratio of 1.1509 shares of HEALTHSOUTH Common Stock per share of
NSC Common Stock, the maximum Exchange Ratio provided for in the Plan and
Agreement of Merger among HEALTHSOUTH Corporation, Field Acquisition
Corporation and National Surgery Centers, Inc., dated as of May 5, 1998
(the "Plan").
(2) 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").
Pursuant to Rule 457(f)(1), the maximum aggregate
offering price is the product of (a) $27.6875, representing the average of
the high and low sales prices of NSC Common Stock as reported on June 15,
1998, and (b) 20,526,260, the maximum number of shares of NSC Common Stock
to be acquired by the Registrant in connection with the acquisition of NSC
pursuant to the Plan.
(3)(2) Calculated pursuant to Section 6(b) and Rule 457 of the Securities Act.
$103,556 of such fee was paid at the time of the filing of the preliminary
proxy materials for this matter.
-------------------------------
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.
================================================================================
NATIONAL SURGERY CENTERS, INC.
30 SOUTH WACKER DRIVE
SUITE 2302
CHICAGO, ILLINOIS 60606
June 18,SUBJECT TO COMPLETION, DATED AUGUST 14, 1998
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
National Surgery Centers, Inc. ("NSC") at The Midland Hotel, 172 West Adams,
Chicago, Illinois 60603 on July 22,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
------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON _____________, 1998, at 10:00 a.m., local time (the "Special
Meeting").
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Plan and Agreement of Merger, dated as of May
5, 1998 (the "Plan"), providing for the merger (the "Merger") of a wholly-owned
subsidiary ofUNLESS EXTENDED.
HEALTHSOUTH Corporation, ("HEALTHSOUTH") with and into NSC. The
Plan provides that, upon consummation of the Merger, each issued and outstanding
share of Common Stock of NSC will be converted into the right to receive that
fraction of a share of HEALTHSOUTH Common Stock determined by dividing $30.50 by
the Base Period Trading Price (as defined herein), as may be adjusted as
provided below, computed to four decimal places (the "Exchange Ratio");
provided, however, that if the Base Period Trading Price shall be greater than
$35.00, the Exchange Ratio shall be .8714; and provided further, however, that
if the Base Period Trading Price shall be less than $26.50, the Exchange Ratio
shall be 1.1509. The term "Base Period Trading Price" means the average daily
closing prices for the shares of HEALTHSOUTH Common Stock for the 20 consecutive
trading days on which such shares are actually traded (as reported on the New
York Stock Exchange Composite Transaction Tape as reported in the Wall Street
Journal, Eastern Edition, or if not reported thereby, any other authoritative
source) ending at the close of trading on the second trading day immediately
preceding the Closing Date. The Plan and the Merger are discussed in more detail
in the accompanying Prospectus-Proxy Statement. Please review and consider the
enclosed materials carefully.
For the reasons set forth in the accompanying Prospectus-Proxy Statement,
your Board of Directors believes that the Merger is fair to, and in the best
interests of, the stockholders of NSC and recommends that you vote in favor of
approval and adoption of the Plan. In making that determination, the Board of
Directors has received and taken into account the opinions delivered on May 5,
1998 and June 17, 1998 by BT Alex. Brown Incorporated to the effect that, as of
the date of such opinions, the consideration to be received by the NSC
stockholders was fair, from a financial point of view, to the stockholders of
NSC. The full text of the opinion of BT Alex. Brown Incorporated dated June 17,
1998 is attached to the accompanying Prospectus-Proxy Statement as Annex B and
should be read carefully in its entirety.
Regardless of whether you plan to attend the Special Meeting, please be
sure to sign, date and return the enclosed proxy or voting instruction card in
the enclosed envelope as promptly as possible so that your shares may be
represented at the Special Meeting and voted in accordance with your wishes.
Your vote is important regardless of the number of shares that you own.
Sincerely,
/s/ E. TIMOTHY GEARY
E. Timothy Geary
Chairman of the Board, Chief Executive
Officer and President
NATIONAL SURGERY CENTERS, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 22, 1998
To the Stockholders of National Surgery Centers, Inc.:
A Special Meeting of Stockholders (the "Special Meeting") of National
Surgery Centers, Inc., a Delaware corporation ("NSC"(the "Issuer" or
"HEALTHSOUTH"), will be held on July 22,
1998 at 10:00 a.m., local time, at The Midland Hotel, 172 West Adams, Chicago,
Illinois 60603, for the following purposes:
1. To consider and votehereby offers, upon a proposal to approve and adopt the Plan and
Agreement of Merger, dated as of May 5, 1998 (the "Plan"), among NSC,
HEALTHSOUTH Corporation ("HEALTHSOUTH") and a wholly-owned subsidiary of
HEALTHSOUTH (the "Subsidiary"). Pursuant to the Plan, the Subsidiary would
merge with and into NSC (the "Merger") and, among other things, each
issued and outstanding share of common stock, par value $.01 per share, of
NSC ("NSC Common Stock"), would be converted in the Merger into the right
to receive that fraction of a share of HEALTHSOUTH Common Stock determined
by dividing $30.50 by the Base Period Trading Price (as defined herein),
as may be adjusted as provided below, computed to four decimal places (the
"Exchange Ratio"); provided, however, that if the Base Period Trading
Price shall be greater than $35.00, the Exchange Ratio shall be .8714; and
provided further, however, that if the Base Period Trading Price shall be
less than $26.50, the Exchange Ratio shall be 1.1509 (in whichever case
occurs, the "Exchange Ratio"), all as more fully set forth in the
accompanying Prospectus-Proxy Statement and in the Plan, a copy of which
is included as Annex A thereto; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on June 15, 1998 as
the record date for the determination of stockholders entitled to notice of, and
to vote at, the Special Meeting or any adjournment thereof. Only holders of
record of shares of NSC Common Stock at the close of business on the record date
are entitled to notice of, and to vote at, the Special Meeting. A complete list
of such stockholders will be available for examination at the offices of NSC in
Chicago, Illinois during normal business hours by any NSC stockholder, for any
purpose germane to the Special Meeting, for a period of 10 days prior to the
Special Meeting.
STOCKHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE SPECIAL
MEETING, TO SIGN, DATE AND MAIL THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD IN
THE POSTAGE-PAID ENVELOPE PROVIDED. IF A STOCKHOLDER WHO HAS RETURNED A PROXY
ATTENDS THE SPECIAL MEETING IN PERSON, SUCH STOCKHOLDER MAY REVOKE THE PROXY AND
VOTE IN PERSON ON ALL MATTERS SUBMITTED AT THE SPECIAL MEETING.
By Order of the Board of Directors
/s/ BRYAN S. FISHER
Secretary
Chicago, Illinois
June 18, 1998
PROSPECTUS-PROXY STATEMENT
PROXY STATEMENT
OF
NATIONAL SURGERY CENTERS, INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 22, 1998
---------------
PROSPECTUS
OF
HEALTHSOUTH CORPORATION
THIS PROSPECTUS RELATES TO UP TO 23,623,673 SHARES OF THE COMMON STOCK, PAR
VALUE $.01 PER SHARE (THE "HEALTHSOUTH COMMON STOCK"), OF HEALTHSOUTH
CORPORATION (TOGETHER WITH ITS SUBSIDIARIES, AS APPLICABLE, "HEALTHSOUTH")
ISSUABLE TO THE STOCKHOLDERS, OPTION HOLDERS AND WARRANT HOLDERS OF NATIONAL
SURGERY CENTERS, INC. (TOGETHER WITH ITS SUBSIDIARIES, AS APPLICABLE, "NSC")
UPON CONSUMMATION OF THE MERGER (AS DEFINED BELOW). SUCH NUMBER OF SHARES
REPRESENTS THE MAXIMUM NUMBER OF SHARES THAT MAY BE ISSUED TO NSC STOCKHOLDERS,
OPTION HOLDERS AND WARRANT HOLDERS. THIS PROSPECTUS ALSO SERVES AS THE PROXY
STATEMENT OF NSC FOR ITS SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 22,
1998, AND ANY ADJOURNMENTS AND POSTPONEMENTS THEREOF (THE "SPECIAL MEETING").
SEE "THE SPECIAL MEETING".
-------------
This Prospectus-Proxy Statement describes the terms of a proposed business
combination between HEALTHSOUTH and NSC, pursuant to which HEALTHSOUTH will
acquire NSC by means of the merger (the "Merger") of Field Acquisition
Corporation, a wholly-owned subsidiary of HEALTHSOUTH (the "Subsidiary"), with
and into NSC, with NSC being the surviving corporation (the "Surviving
Corporation"). After the Merger, the combined operations of HEALTHSOUTH and NSC
are expected to be conducted with NSC as a wholly-owned subsidiary of
HEALTHSOUTH and the present subsidiaries of NSC continuing as subsidiaries of
NSC and thus indirect subsidiaries of HEALTHSOUTH. The Merger will be effected
pursuant to 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 PlanIssuer's outstanding 6.875% Senior Notes due 2005 (the
"Old Notes due 2005") and Agreement7.0% 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 ___________, 1998 (30 calendar
days following the commencement of Merger, dated asthe Exchange Offer) unless the Exchange Offer
is extended, will be accepted for exchange. Tenders of May 5, 1998, among HEALTHSOUTH, the Subsidiary and NSC (as
itOld Notes may be
further amended, supplemented or otherwise modified fromwithdrawn at any time prior to 5:00 p.m., New York City time, on the "Plan").Expiration
Date. The PlanExchange Offer is attachednot conditioned upon any minimum principal amount of
Old Notes being tendered for exchange. However, the Exchange Offer is subject to
this Prospectus-Proxy Statement as Annex A
and is incorporated herein by reference. HEALTHSOUTH and NSC are hereinafter
sometimes referred to collectively as the "Companies" and individually as a
"Company".
Upon consummation of the Merger, except as described herein, each outstanding
share of Common Stock, par value $.01 per share, of NSC, other than shares owned
by NSC or any wholly-owned subsidiary of NSC (the "NSC Common Stock" or the "NSC
Shares"), willcertain customary conditions, which may be converted into the right to receive that fraction of a share
of HEALTHSOUTH Common Stock determined by dividing $30.50waived by the Base Period
Trading Price (as defined herein), as may be adjusted as provided below,
computedIssuer, and to four decimal places (the "Exchange Ratio"); provided, however, that
if the Base Period Trading Price shall be greater than $35.00, the Exchange
Ratio shall be .8714; and provided further, however, that if the Base Period
Trading Price shall be less than $26.50, the Exchange Ratio shall be 1.1509. The
term "Base Period Trading Price" means the average daily closing prices for the
shares of HEALTHSOUTH Common Stock for the 20 consecutive trading days on which
such shares are actually traded (as reported on the New York Stock Exchange
Composite Transaction Tape as reported in the Wall Street Journal, Eastern
Edition, or if not reported thereby, any other authoritative source) ending at
the close of trading on the second trading day immediately preceding the Special
Meeting. NSC stockholders will receive cash (without interest) in lieu of
fractional shares of HEALTHSOUTH Common Stock. For a more complete description
of the
terms of the Merger, see "THE MERGER"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"). This Prospectus-Proxy StatementOld 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 Proxythe 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 firstshown on, and transfers thereof will
be effected through, records maintained by DTC and its participants.
The New Notes are being mailedoffered hereunder to stockholderssatisfy certain obligations of
NSCthe 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 about June 18, 1998.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 1614 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULDTO BE CONSIDERED BY NSC STOCKHOLDERS.
---------------EXISTING HOLDERS IN CONNECTION WITH THE EXCHANGE
OFFER.
------------------
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 SECU-
RITIESSECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS-PROXY STATEMENT.PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------------------
The date of this Prospectus is August , 1998.
2
(Continued from previous page)
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer (a "Participating Broker-Dealer") must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such Participating Broker-Dealer as a result of
market-making activities or other trading activities. Pursuant to the
Registration Rights Agreement, the Issuer has agreed that it will make this
Prospectus available to any Participating Broker-Dealer for a period of time not
to exceed six months after the date on which the Exchange Offer is consummated
for use in connection with any such resale. See "Plan of Distribution".
The Issuer will not receive any proceeds from the Exchange Offer. The
Issuer has agreed to pay the expenses of the Exchange Offer. No underwriter is
being utilized in connection with the Exchange Offer.
THE DATEEXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE ISSUER ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF THIS PROSPECTUS-PROXY STATEMENT IS JUNE 18, 1998.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 has filed a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "SEC") covering the shares of HEALTHSOUTH Common
Stock to be issued in connection with the Merger (including exhibits and
amendments thereto, the "Registration Statement"). As permitted by the rules and
regulations of the SEC, this Prospectus-Proxy Statement omits certain
information contained in the Registration Statement. For further information
pertaining to the securities offered hereby, reference is made to the
Registration Statement.
HEALTHSOUTH and NSC are subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (Commission File Nos. 1-10315 and 0-27162, respectively)No.
1-10315), and in accordance therewith filefiles periodic reports, proxy statements
and other information with the SEC relating to their respectiveits 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 NSC 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, (the "NYSE"), 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-PROXY STATEMENTPROSPECTUS 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.
COPIES OF SUCH REPORTS, PROXY
STATEMENTS AND OTHER INFORMATION FILED BY NSC, 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 NATIONAL SURGERY CENTERS, INC., 30 SOUTH WACKER DRIVE, SUITE 2302,
CHICAGO, ILLINOIS, TELEPHONE (312) 655-1400. IN ORDER TO ENSURE TIMELY DELIVERY
OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE AT LEAST FIVE DAYS PRIOR TO THE
SPECIAL MEETING.
There are hereby incorporated by reference into this Prospectus-Proxy
StatementProspectus 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, 1997.1997 (the "1997 Form 10-K").
2. HEALTHSOUTH's Quarterly ReportReports on Form 10-Q for the periodquarters 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 January 15,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 May 28,January 15, 1998.
7. The description of HEALTHSOUTH's capital stock contained in
HEALTHSOUTH's Registration Statement on Form 8-A filed August 26, 1989.
2
There are also hereby incorporated by reference into this Prospectus-Proxy
Statement and made a part hereof the following documents or information filed
by NSC (Commission File No. 0-27162):
1. NSC's Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
2. The consolidated financial statements as of and for the three years
ended December 31, 1997, and the report thereon by Ernst & Young, LLP,
independent auditors, appearing in NSC's 1997 Annual Report to Shareholders.
3. NSC's Quarterly Report on Form 10-Q for the period ended March 31, 1998.
4. The description of NSC's capital stock contained in NSC's Form 8-A
effective November 9, 1995.
All documents filed by HEALTHSOUTH and NSC pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus-Proxy
Statement and prior to the Special Meeting or any adjournment thereofProspectus shall be deemed to
be incorporated by reference into this Prospectus-Proxy StatementProspectus 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.
All information contained in this Prospectus-Proxy Statement or
incorporated herein by reference with respect to HEALTHSOUTH was supplied by
HEALTHSOUTH, and all information contained in this Prospectus-Proxy Statement or
incorporated herein by reference with respect to NSC was supplied by NSC.
Although neither HEALTHSOUTH nor NSC has actual knowledge that would indicate
that any statements or information (including financial statements) relating to
the other party contained or incorporated by reference herein are inaccurate or
incomplete, neither HEALTHSOUTH nor NSC warrants the accuracy or completeness of
such statements or information as they relate to the other party.
FORWARD-LOOKING INFORMATION
Statements relating to HEALTHSOUTH contained in this Prospectus-Proxy
StatementProspectus 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.
Certain of the matters discussed in this Prospectus-Proxy Statement
relating to NSC are forward-looking statements, and such statements involve
risks and uncertainties. Although NSC believes that its expectations are based
upon reasonable assumptions, it can give no assurance that the anticipated
results will occur. Important factors that could cause actual results to differ
materially from those in the forward-looking statements include conditions in
the capital markets, the regulatory environment in which NSC operates and the
enactment by Congress of healthcare reform measures.
3
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS-PROXY STATEMENT,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-PROXY STATEMENTPROSPECTUS NOR ANY DISTRIBUTION OF THE
SECURITIES TO WHICH THIS PROSPECTUS-PROXY STATEMENTPROSPECTUS RELATES SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION
CONCERNING HEALTHSOUTH OR NSC CONTAINED IN THIS PROSPECTUS-PROXY STATEMENTPROSPECTUS SINCE THE DATE OF SUCH
INFORMATION. THIS PROSPECTUS-PROXY STATEMENTPROSPECTUS 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-PROXY STATEMENTPROSPECTUS IN ANY JURISDICTION IN WHICH
SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL.
45
TABLE OF CONTENTS
PAGE
-----
AVAILABLE INFORMATION ................................................... 2................................................. 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ....................... 2..................... 4
FORWARD-LOOKING INFORMATION ........................................... 4
SUMMARY OF PROSPECTUS-PROXY STATEMENT ................................... 7
COMPARATIVE PER SHARE INFORMATION ....................................... 14PROSPECTUS ................................................. 8
The Issuer ........................................................... 8
Recent Developments .................................................. 8
Risk Factors ......................................................... 8
The Exchange Offer ................................................... 8
The New Notes ........................................................ 12
Use of Proceeds ...................................................... 13
RISK FACTORS ............................................................ 16.......................................................... 14
RATIO OF EARNINGS TO FIXED CHARGES .................................... 20
THE SPECIAL MEETING ..................................................... 21
General ................................................................ 21
Date, Place and Time ................................................... 21
Record Date; QuorumEXCHANGE OFFER .................................................... 21
Vote Required .......................................................... 22
Voting and Revocation of Proxies ....................................... 22
Solicitation of Proxies ................................................ 22
THE MERGER .............................................................. 2320
Terms of the Merger ....................................................Exchange Offer .......................................... 20
Expiration Date; Extensions; Amendments; Termination ................. 22
Interest on the New Notes ............................................ 23
BackgroundProcedures for Tendering ............................................. 23
Acceptance of the Merger ............................................... 23
ReasonsOld Notes for the Merger; RecommendationExchange; Delivery of the BoardNew Notes .......... 24
Book-Entry Transfer .................................................. 25
Guaranteed Delivery Procedures ....................................... 25
Withdrawal of Directors of NSCTenders ................................................ 25
Opinion of BT Alex. Brown Incorporated ................................. 25
Effective Time of the Merger ........................................... 29
Exchange of Certificates ............................................... 29
Representations and Warranties ......................................... 30
Conditions to the Merger ............................................... 31
Regulatory Approvals ................................................... 32
Business Pending the Merger ............................................ 32
Waiver and Amendment ................................................... 33
Termination ............................................................ 33
Break-up Fee; Third-Party Bids ......................................... 34
Interests of Certain Persons in the Merger ............................. 34
Indemnification ........................................................ 34........................................................... 26
Accounting Treatment ................................................... 34
Certain Federal Income Tax Consequences ................................ 35
Resale of HEALTHSOUTH Common Stock by Affiliates ....................... 36
No Appraisal Rights................................................. 26
Exchange Agent ....................................................... 26
Fees and Expenses .................................................... 36
No Solicitation of Transactions ........................................ 36
Expenses ............................................................... 37
NYSE Listing ........................................................... 3727
USE OF PROCEEDS ....................................................... 27
CAPITALIZATION ........................................................ 28
SELECTED CONSOLIDATED FINANCIAL DATA - HEALTHSOUTH ...................... 38
SELECTED CONSOLIDATED FINANCIAL DATA - NSC .............................. 40
BUSINESS OF HEALTHSOUTH ................................................. 41
General ................................................................ 41
Company Strategy ....................................................... 41
Recent Developments .................................................... 42
Patient Care Services .................................................. 43
Locations .............................................................. 45
BUSINESS OF NSC ......................................................... 46
General ................................................................ 46
Strategy ............................................................... 46
Operation of Surgery Centers ........................................... 47
Recent Developments .................................................... 48.................................. 29
DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTHTHE NEW NOTES .......................................... 31
General .............................................................. 31
Global Securities .................................................... 31
Optional Redemption .................................................. 33
Certain Covenants of the Issuer ...................................... 34
Merger, Consolidation and Sale of Assets ............................. 49
Common Stock ........................................................... 4936
Events of Default .................................................... 36
Discharge, Defeasance and Covenant Defeasance ........................ 37
56
PAGE
-----
Fair Price Provision .................................................... 49
Section 203Modification of the DGCL ................................................. 50
Preferred Stock ......................................................... 50
Transfer Agent .......................................................... 50
COMPARISON OF RIGHTS OF NSC AND HEALTHSOUTH STOCKHOLDERS ................. 51
Classes and Series of Capital Stock ..................................... 51
Size and Election ofIndenture .............................................. 38
Concerning the Board of Directors ............................. 51
Removal of Directors .................................................... 51
Other Voting RightsTrustee ..................................................... 52
Conversion and Dissolution .............................................. 52
Business Combinations ................................................... 53
Amendment or Repeal of the Certificate of Incorporation ................. 53
Special Meeting of Stockholders ......................................... 5438
No Personal Liability of Directors, .................................................. 54
IndemnificationOfficers, Stockholders or Incorporators 39
Governing Law .............................................................. 39
Information Concerning the Trustee ......................................... 39
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS ..................... 40
Exchange of DirectorsOld 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 OfficersBackup Withholding ............................... 54
OPERATIONS AND MANAGEMENT42
BUSINESS OF HEALTHSOUTH AND NSC AFTER THE MERGER ........ 55
Operations .............................................................. 55
Management .............................................................. 55..................................................... 43
General .................................................................... 43
HEALTHSOUTH Strategy ....................................................... 43
Recent Developments ........................................................ 44
Patient Care Services ...................................................... 45
PLAN OF DISTRIBUTION ........................................................ 47
EXPERTS .................................................................. 55..................................................................... 48
LEGAL MATTERS ............................................................ 56
ADDITIONAL INFORMATION ................................................... 56
ANNEXES:
A. Plan and Agreement of Merger .......................................... A-1
B. Opinion of BT Alex. Brown Incorporated ................................ B-1............................................................... 48
67
SUMMARY OF PROSPECTUS-PROXY STATEMENTPROSPECTUS
The following is a summary of certain information contained elsewhere in
this Prospectus-Proxy Statement.Prospectus. Certain capitalized terms used in this Summary are defined
elsewhere in this Prospectus-Proxy Statement.Prospectus. Reference is made to, and this Summary is
qualified in its entirety by, the more detailed information contained in this
Prospectus-Proxy Statement, the
Annexes heretoProspectus, and the documents incorporated by reference herein.
THE COMPANIESISSUER
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 March 31,June 30, 1998, HEALTHSOUTH
had over 1,8001,900 patient care locations in 50 states, the United Kingdom and
Australia. See "BUSINESS OF HEALTHSOUTH".
At March 31,June 30, 1998, HEALTHSOUTH had consolidated assets of approximately
$5,791,806,000$6.113 billion and consolidated stockholders' equity of approximately $3,322,296,000$3.474
billion and employed approximately 58,00058,500 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.
NSC. NSC owns and operates freestanding ambulatory surgery centers that
provide the medical and administrative support necessary for physicians to
perform non-emergency surgical procedures. NSC believes that many physicians
prefer the efficiencies of freestanding ambulatory surgery centers because they
enhance physicians' productivity by providing them with greater scheduling
flexibility, more consistent nurse staffing and faster turnaround time between
cases, allowing physicians to perform more surgeries in a defined period of
time. In addition, new technology and advances in anesthesia and the addition of
overnight recovery have significantly expanded the number and types of surgical
procedures that are being performed in ambulatory surgery centers. As of March
31, 1998, NSC operated a network of 40 surgery centers in 14 states. NSC
provides alternate-site settings for high-quality surgical care that it believes
is more cost-effective than hospital-based surgical care and that it believes is
increasingly preferred by physicians, payors and patients. See "BUSINESS OF
NSC".
At March 31, 1998, NSC had consolidated assets of approximately
$177,264,000 and consolidated stockholders' equity of approximately $140,988,000
and employed approximately 1,450 persons.
NSC was incorporated under the laws of Illinois in 1987 under the name
"Medical Venture Development Corp.". It changed its name to "National Surgery
Centers, Inc." in 1991 and reincorporated in Delaware in 1995. Its principal
executive offices are located at 30 South Wacker Drive, Suite 2302, Chicago,
Illinois 60606, and its telephone number is (312) 655-1400.
Field Acquisition Corporation. The Subsidiary is a direct, wholly-owned
subsidiary of HEALTHSOUTH and has not engaged in any business activity unrelated
to the Merger. The principal executive offices of the Subsidiary are located at
One HealthSouth Parkway, Birmingham, Alabama 35243, and its telephone number is
(205) 967-7116.
7
RECENT DEVELOPMENTS
On April 16,July 1, 1998, HEALTHSOUTH announced that it had entered into a
definitive agreement to acquire 34acquired 33 ambulatory surgery centers from
Columbia/HCA Healthcare Corporation for $550 million payable in cash at closing, which is
expected to occur during the third quarter of 1998.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 remains subject to various regulatory approvals and other
third-party consents.was valued at approximately
$550,000,000.
On MayJuly 22, 1998, NSC completed the acquisitions of majority interests in
ambulatoryHEALTHSOUTH 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 of Jacksonville, Florida and St. Augustine,
Florida for cash.
THE SPECIAL MEETING
The Special Meeting of NSC's stockholders to consider and vote on a
proposal to approve the Plan will be held on July 22, 1998, at 10:00 a.m., local
time, at The Midland Hotel, 172 West Adams, Chicago, Illinois 60603. Only
holders of record of NSC Shares at the close of business on June 15, 1998 (the
"Record Date"), will be entitled to notice of and to vote at the Special
Meeting. At such date, there were outstanding and entitled to vote 18,617,279
sharesshare of NSC Common Stock. Each issued and outstandingThe NSC Sharetransaction
is entitled to
one vote on each matterexpected to be presented ataccounted for as a pooling of interests and is intended to be
a tax-free reorganization.
RISK FACTORS
Existing holders of the Special Meeting. For additional
information relatingOld Notes should pay special attention to the Special Meeting, see "THE SPECIAL MEETING".
VOTE REQUIRED
Approval"Risk
Factors" section beginning on page 14.
THE EXCHANGE OFFER
THE EXCHANGE OFFER.... New Notes are being offered in exchange for an equal
principal amount of Old Notes of the Plan by the stockholders of NSC requires the affirmative
vote of the holders of a majority of the outstanding shares of NSC Common Stock
entitled to vote thereon. Accordingly, approval of the Plan at the Special
Meeting will require the affirmative vote of the holders of at least 9,308,640
shares of NSC Common Stock.same maturity.
As of the Record Date, directorsdate hereof, Old Notes due 2005 are
outstanding in the aggregate
8
principal amount of $250,000,000 and executive officersOld Notes due
2008 are outstanding in the aggregate principal
amount of NSC$250,000,000. Old Notes may be tendered
only in integral multiples of $1,000.
RESALE OF NEW NOTES.. Based on interpretations by the staff of the
Commission, as set forth in no-action letters issued
to third parties, 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 AGREE
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.... Upon consummation of the Exchange Offer, subject to
certain exceptions, holders of Old Notes who do not
exchange their affiliates beneficially owned an aggregate of 1,433,015 shares of NSC Common
Stock (excluding shares issuable upon exercise of options)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 approximately
7.7%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 NSC Shares outstandingExchange Offer".
EXPIRATION DATE......... 5:00 p.m., New York City time, on such date. To NSC's knowledge, each of its
directors and executive officers intends to vote in favor__________, 1998
(30 calendar days following the commencement of the
proposalExchange Offer), unless the Exchange Offer is
extended, in which case the term "Expiration Date"
means the latest date and time to approvewhich the Plan.
IfExchange
Offer is extended.
INTEREST ON THE NEW NOTES. Interest on the PlanNew 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................. The Exchange Offer is not approvedconditioned 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 NSC stockholders, the Plan mayIssuer. 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 terminatedcomplied with by HEALTHSOUTH or NSCthe
Issuer in connection with the Exchange Offer.
10
PROCEDURES FOR TENDERING
OLD NOTES.............. Each holder of Old Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, in accordance with its terms. Such approval is also a
conditionthe
instructions contained herein and therein, and mail
or otherwise deliver such Letter of Transmittal,
together with the Old Notes to HEALTHSOUTH'sbe exchanged and NSC's obligations to consummate the Merger. See
"THE SPECIAL MEETING - Vote Required", "THE MERGER - Conditionsany
other required documentation to the Merger"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 "- Termination""-- Book Entry Transfer".
THE MERGERSPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and insruct such registered holder to
tender on his behalf. If such beneficial owner
wishes to tender on his own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register
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............ Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes and
a properly completed Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date may tender their Old Notes according
to the guaranteed delivery procedures set forth in
"The Exchange Offer -- Guaranteed Delivery
Procedures".
WITHDRAWAL RIGHTS...... Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. To withdraw a tender of Old Notes,
a written notice of withdrawal must be received by
the Exchange Agent at its address set forth herein
under "The Exchange Offer -- Exchange Agent" prior
to 5:00 p.m., New York City time, on the Expiration
Date.
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES.. Subject to certain conditions, any and all Old Notes
tha are properly tendered in the Exchange Offer
prior to 5:00 p.m., New York City time, on the
Expiration Date will be accepted for exchange. The
New Notes issued pursuant to the Exchange Offer will
be delivered promptly following the Expiration Date.
See "The Exchange Offer -- Terms of the Merger. NSCExchange
Offer".
In all cases, issuance of New Notes for Old Notes
that are accepted for exchange pursuant to the
Exchange Offer will be acquiredmade only after timely
receipt by HEALTHSOUTH pursuant tothe 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 subject toduly 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
Plan, which provides that, atExchange Offer or if Old Notes are submitted for a
greater principal amount than the effective timeholder 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 Merger (the "Effective Time"), the SubsidiaryExchange Offer.
CERTAIN TAX
CONSIDERATIONS......... The exchange of New Notes for Old Notes will merge
with and into NSC with NSC being the Surviving Corporation. The Certificate of
Incorporation of NSC,not b
considered a sale or exchange or otherwise a taxable
event for Federal income tax purposes. See "Certain
United States Federal Tax Considerations".
EXCHANGE AGENT......... PNC Bank, N.A. is serving as amended at the Effective Time pursuant to the request
of HEALTHSOUTH, and the Bylaws of the Subsidiary in effect at the Effective Time
will be the Certificate of Incorporation and Bylaws of the Surviving Corporation
until amended or repealed in accordance with applicable law. At the Effective
Time, each outstanding NSC Share (excluding shares held by NSC and any of its
subsidiaries) will be converted into the right to receive that fraction of a
share of HEALTHSOUTH Common Stock determined by dividing $30.50 by the Base
Period Trading Price (as defined herein), as may be adjusted as provided below,
computed to four decimal placesexchange agent (the
"Exchange Ratio"Agent"); provided, however, that
if the Base Period Trading Price shall be greater than $35.00, the Exchange
Ratio shall be .8714; and provided further, however, that if the Base Period
8
Trading Price shall be less than $26.50, the Exchange Ratio shall be 1.1509. The
term "Base Period Trading Price" means the average daily closing prices for the
shares of HEALTHSOUTH Common Stock for the 20 consecutive trading days on which
such shares are actually traded (as reported on the New York Stock Exchange
Composite Transaction Tape as reported in the Wall Street Journal, Eastern
Edition, or if not reported thereby, any other authoritative source) ending at
the close of trading on the second trading day immediately preceding the Special
Meeting. Fractional shares of HEALTHSOUTH Common Stock will not be issuable in connection with the Merger. NSC stockholdersExchange
Offer.
FEES AND EXPENSES..... All expenses incident to consummation of the
Exchange Offer and compliance with the Registration
Rights Agreement will receive cash (without
interest)be borne by the Issuer. See
"The Exchange Offer -- Fees and Expenses".
USE OF PROCEEDS....... There will be no proceeds payable to the Issuer from
the issuance of the New Notes pursuant to the
Exchange Offer. See "Use of Proceeds".
THE NEW NOTES
The Exchange Offer relates to (a) the exchange of up to $250,000,000
aggregate principal amount of Old Notes due 2005 for up to an equal aggregate
principal amount of New Notes due 2005 and (b) the exchange of up to
$250,000,000 aggregate principal amount of Old Notes due 2008 for up to an equal
aggregate principal amount of New Notes due 2008. The New Notes will be entitled
to the benefits of the same Indenture that governs the Old Notes and that will
govern the New Notes. The form and terms of the New Notes are the same in lieuall
material respects as the form and terms of fractional sharesthe 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 HEALTHSOUTH Common Stock.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 "THE
MERGER""Description of the New
Notes".
MATURITY DATES......... The New Notes due 2005 will mature on June 15, 2005
and "DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH".
Asthe New Notes due 2008 will mature on June 15,
2008
INTEREST PAYMENT DATES... June 15 and December 15 of March 31, 1998, NSC had outstanding approximately $13,110,000each year, commencing
December 15, 1998.
OPTIONAL REDEMPTION.... The Old Notes will be redeemable as a whole or in
long-term indebtedness (including the current portion thereof), all of which
willpart, at the Effective Time become long-term indebtednessoption of the Surviving
Corporation (beingIssuer, at any time at a
subsidiaryredemption price equal to the greater of HEALTHSOUTH) as a result(i) 100% of
their principal amount and (ii) the sum
12
of the Merger.
Recommendationpresent values of the Boardremaining scheduled
payments of Directors. THE BOARD OF DIRECTORS OF NSC HAS
ADOPTED AND APPROVED THE PLAN AND HAS RECOMMENDED A VOTE FOR APPROVAL OF THE
PLAN. THE BOARD OF DIRECTORS BELIEVES THE PLAN IS FAIR TO AND IN THE BEST
INTERESTS OF THE STOCKHOLDERS OF NSC.
In its deliberations with respectprincipal and interest thereon
discounted to the Merger, the Board of Directors of
NSC consulted with management of NSC and the financial and legal advisers to
NSC. The composite mix of information available to the Board of Directors with
respect to the Merger included the information regarding the matters enumerated
under "THE MERGER - Reasons for the Merger; Recommendation of the Board of
Directors of NSC" below.
Opinion of Financial Advisor to NSC. BT Alex. Brown Incorporated ("BT Alex.
Brown") delivered to the Board of Directors of NSC on May 5, 1998, its oral
opinion (subsequently confirmed in writing by opinions dated as of May 5, 1998
and June 17, 1998), to the effect that, as of the date of redemption on a
semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the
opinionsapplicable Treasury Yield (as defined herein) plus
15 basis points in the case of the New Notes due
2005 and based
on and subject20 basis points in the case of the New
Notes due 2008, plus in each case accrued interest
to the assumptions, factorsdate of redemption. See "Description of the
New Notes -- Optional Redemption".
RANKING................. The New Notes will constitute unsecured and
limitations set forth therein,unsubordinated obligations of the considerationIssuer and will
rank pari passu in right of payment with all other
unsecured and unsubordinated obligations of the
Issuer. See "Description of the New Notes".
RESTRICTIVE COVENANTS... The Indenture governing the New Notes contains
certain covenants that, among other things, limit
the ability of the Issuer to incur liens and engage
in mergers and consolidations or sale and lease-back
transactions. See "Description of the New Notes".
USE OF PROCEEDS
There will be received byno proceeds payable to the stockholdersIssuer from the issuance of NSCthe
New Notes pursuant to the Plan
was fair,Exchange Offer. The proceeds from a financial point of view, to such stockholders of NSC. The full
textthe sale of the opinion of BT Alex. Brown dated as of June 17, 1998 which sets forth
the assumptions made, matters considered and limitations on the review
undertaken by BT Alex. Brown, and which is attached hereto as Annex B, is
directed to the NSC Board, addresses only the fairness of the consideration to
be received by the NSC stockholders from a financial point of view and does not
constitute a recommendation to any stockholder as to how such stockholder should
vote at the Special Meeting. The holders of NSC Common Stock are urged to read,
and should read, this opinion in its entirety.
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger by the parties under the General Corporation
Law of the State of Delaware (the "DGCL"), or at such later time as may be
specified in such Certificate of Merger. The Plan requires that this filing be
made as soon as practical after the Closing Date as defined in the Plan or at
such other time as may be agreedOld
Notes were used by HEALTHSOUTH and NSC.to repay bank debt. See "THE MERGER
- - -Effective Time"Use of the Merger".
Exchange of Certificates. As soon as reasonably practicable after the
Effective Time, transmittal materials will be mailed to each holder of record of
NSC Shares for use in exchanging such holder's stock certificates for
certificates evidencing shares of HEALTHSOUTH Common Stock and for receiving
cash in lieu of fractional shares and any dividends or other distributions to
which such holder is entitled as a result of the Merger. STOCKHOLDERS SHOULD NOT
SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. See "THE MERGER - Exchange
of Certificates".
Representations and Warranties. The Plan contains certain representations
and warranties made by each of the parties thereto that must be confirmed as of
the Closing Date. See "THE MERGER - Representations and Warranties".
Conditions to the Merger. The obligation of each of HEALTHSOUTH, the
Subsidiary and NSC to consummate the Merger is subject to certain conditions,
including approval of the Plan by the NSC stockholders, certain regulatory
approvals and confirmation by each of HEALTHSOUTH and NSC of
9
its representations and warranties as of the Closing Date. See "THE MERGER
Conditions to the Merger". Certain conditions to the Merger contained in the
Plan may be waived by the parties thereto. NSC does not, however, intend to
waive satisfaction of any such condition or amend the Plan if such waiver or
amendment would be material to the NSC stockholders' consideration of and vote
upon the proposal to approve the Plan without resoliciting the vote of such
stockholders.
Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), provides that certain business mergers
(including the Merger) may not be consummated until certain information has been
furnished to the Department of Justice (the "DOJ") and the Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied. On May 14, 1998, HEALTHSOUTH and NSC made their respective filings
with the DOJ and the FTC with respect to the Plan. Under the HSR Act, the
filings commenced a waiting period of up to 30 days during which the Merger
cannot be consummated, which waiting period expired on June 13, 1998.
Notwithstanding the termination or expiration of the HSR Act waiting period, at
any time before or after the Effective Time, the FTC, the DOJ or others could
initiate legal action under the antitrust laws seeking to enjoin the
consummation of the Merger or seeking the divestiture by HEALTHSOUTH of any part
of its assets or all or any part of the stock or assets of NSC. There can be no
assurance that a challenge to the Merger on antitrust grounds will not be made
or, if such a challenge were made, that it would not be successful. The
operations of each Company also are subject to a substantial body of federal,
state, local and accrediting body laws, rules and regulations relating to the
conduct, licensing and development of healthcare businesses and facilities. See
"THE MERGER - Regulatory Approvals".
Conduct Pending the Merger. The Plan provides that, until the Effective
Time, except as provided in the Plan, NSC will use its best efforts to preserve
intact its present business organization and to keep available to HEALTHSOUTH
and the Surviving Corporation the services of its present employees and to
preserve the goodwill of customers, suppliers and others having business
dealings with it. In addition, NSC has agreed not to engage in certain types of
transactions pending the Effective Time. Both HEALTHSOUTH and NSC have agreed
not to engage knowingly or intentionally in any conduct that would cause its
representations and warranties to become untrue in any material respect pending
the Effective Time. See "THE MERGER - Business Pending the Merger".
Amendment. The Plan provides that, at any time prior to the Effective Time,
the parties may, under certain circumstances, amend or otherwise change the
Plan. See "THE MERGER - Waiver and Amendment".
Termination. The Plan may be terminated at any time prior to the Effective
Time, whether before or after approval of the Plan by the stockholders of NSC,
under certain circumstances that are set forth in the Plan. See "THE MERGER
Termination".
No Solicitation. The Plan provides that NSC and its representatives will
not, directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any entity
other than HEALTHSOUTH or a HEALTHSOUTH affiliate concerning any merger, sale of
assets, sale of or tender offer for shares of NSC Common Stock or similar
transaction involving NSC (an "Acquisition Transaction"), except as may be
permitted to allow the Board of Directors of NSC to satisfy it fiduciary duties
under applicable law.
Break-up Fee; Third Party Bids. If the Plan is terminated by the Board of
Directors of NSC because, in the exercise of its fiduciary duties under
applicable law, it has (i) determined not to recommend the Merger to the holders
of NSC Common Stock, (ii) withdrawn such recommendation, (iii) approved,
recommended or endorsed any Acquisition Transaction (as defined in the Plan)
other than the Plan or (iv) resolved to take any of such actions, and within one
year after the effective date of such termination NSC is the subject of a Third
Party Acquisition Event (as defined in the Plan), then at the time of
consummation of such a Third Party Acquisition Event NSC shall pay to
HEALTHSOUTH a break-up fee of $15,000,000. See "THE MERGER - Break-up Fee; Third
Party Bids".
10
Interests of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors of NSC with respect to the Plan and the
transactions contemplated thereby, stockholders of NSC should be aware that
certain members of the management of NSC and its Board of Directors have certain
interests in the Merger in addition to the interests of stockholders generally.
In connection with the Merger, HEALTHSOUTH anticipates that it will enter
into Consulting and Noncompetition Agreements with E. Timothy Geary, Bryan S.
Fisher, Dennis D. Solheim and Dennis Zamojski, pursuant to which each will
individually act as a consultant to HEALTHSOUTH with respect to various matters,
including transition issues, industry presentations, business development and
strategic planning.
In addition, pursuant to the terms of NSC's stock option plans, certain NSC
stock options that are not fully vested prior to the Effective Time will
accelerate and vest in full as a result of the Merger at the Effective Time.
Certain directors and members of NSC management hold such options.
HEALTHSOUTH has agreed to indemnify NSC's officers, directors and employees
for any liability arising out of their status as officers, directors and
employees of NSC or related to the Plan.
See "THE MERGER - Interests of Certain Persons in the Merger".
Accounting Treatment. It is intended that the Merger will be accounted for
as a "pooling of interests". See "THE MERGER - Accounting Treatment".
Certain Federal Income Tax Consequences. The Merger is intended to qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code (the "Code"). If the Merger so qualifies, no gain or loss will be
recognized by holders of NSC Shares who hold such shares as capital assets upon
their receipt of HEALTHSOUTH Common Stock in exchange for their NSC Shares,
except with respect to cash received in lieu of fractional shares. The
obligations of NSC and HEALTHSOUTH to consummate the Merger are conditioned upon
their receipt of opinions from their respective counsel to the effect that the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Code. Each holder of NSC Shares is urged to consult his or her personal tax
and financial advisors concerning the federal income tax consequences of the
Merger, as well as any state, local, foreign or other tax consequences of the
Merger, based upon such holder's own particular facts and circumstances. See
"THE MERGER - Certain Federal Income Tax Consequences".
Resale Restrictions. All shares of HEALTHSOUTH Common Stock received by NSC
stockholders in the Merger will be freely transferable, except that shares of
HEALTHSOUTH Common Stock received by persons who are deemed to be "affiliates"
(as such term is defined under the Securities Act) of NSC at the time of the
Special Meeting may be resold by them only in certain circumstances as permitted
by the rules and regulations promulgated under the Securities Act. See "THE
MERGER - Resale of HEALTHSOUTH Common Stock by Affiliates".
Appraisal Rights. Holders of NSC Common Stock are not entitled to
appraisal rights under the DGCL with respect to the Merger. See "THE MERGER -
No Appraisal Rights".
NYSE Listing. A listing application will be filed with the NYSE to list the
shares of HEALTHSOUTH Common Stock to be issued to the NSC stockholders in the
Merger. Although no assurance can be given that the NYSE will accept such shares
of HEALTHSOUTH Common Stock for listing, HEALTHSOUTH anticipates that these
shares will qualify for listing. It is a condition to the obligation of
HEALTHSOUTH, the Subsidiary and NSC to consummate the Merger that such shares of
HEALTHSOUTH Common Stock be approved for listing on the NYSE upon official
notice of issuance at the Effective Time. See "THE MERGER - NYSE Listing".
11
MARKET AND MARKET PRICE
HEALTHSOUTH Common Stock is listed under the symbol "HRC" on the NYSE. NSC
Common Stock is listed under the symbol "NSCI" on the Nasdaq National Market
System ("Nasdaq"). Set forth below are the closing prices per share of
HEALTHSOUTH Common Stock and NSC Common Stock on the NYSE and Nasdaq,
respectively, on (i) May 5, 1998, the last business day preceding public
announcement of the Merger, and (ii) June 15, 1998:
CLOSING PRICE CLOSING PRICE
PER SHARE OF PER SHARE OF
HEALTHSOUTH NSC
DATE COMMON STOCK COMMON STOCK
---- ------------ ------------
May 5, 1998 ........... $ 30.00 $ 28.00
June 15, 1998 ......... $ 27.44 $ 27.75
The following table sets forth certain information as to the high and low
reported sale prices per share of HEALTHSOUTH Common Stock for the periods
indicated. The prices for HEALTHSOUTH Common Stock are as reported on the NYSE
Composite Transactions Tape. HEALTHSOUTH has never paid dividends on its capital
stock (although a company acquired by HEALTHSOUTH in a pooling-of-interests
merger has paid cash dividends in the past). All prices shown have been adjusted
for a two-for-one stock split effected in the form of a 100% stock dividend paid
on March 17, 1997.
HEALTHSOUTH
COMMON STOCK
-------------------------
HIGH LOW
---- ---
1996
First Quarter .................................. $19.07 $13.50
Second Quarter ................................. 19.32 16.16
Third Quarter .................................. 19.32 14.25
Fourth Quarter ................................. 19.88 17.57
1997
First Quarter .................................. $22.38 $17.94
Second Quarter ................................. 27.12 17.75
Third Quarter .................................. 28.94 23.12
Fourth Quarter ................................. 28.31 22.00
1998
First Quarter .................................. $30.06 $21.94
Second Quarter (through June 15, 1998) ......... 30.56 26.38
12
The following table sets forth certain information as to the high and low
closing prices per share of NSC Common Stock for the periods indicated. The
prices for NSC Common Stock are as reported on Nasdaq. No dividends were paid by
NSC during the periods presented.
NSC
COMMON STOCK
------------------------
HIGH LOW
---- ---
1996
First Quarter(1)(2) ............................ $ 14.67 $ 9.58
Second Quarter(1)(2) ........................... 21.00 12.42
Third Quarter(1) ............................... 20.17 15.00
Fourth Quarter(1) .............................. 25.33 16.50
1997
First Quarter(1) ............................... $ 24.00 $ 18.33
Second Quarter(1) .............................. 25.67 17.67
Third Quarter .................................. 23.33 18.00
Fourth Quarter ................................. 26.38 21.75
1998
First Quarter .................................. 26.25 20.63
Second Quarter (through June 15, 1998) ......... 29.875 25.5
- - -----------
(1) Adjusted to reflect a three-for-two stock split effected August 1997.
(2) Adjusted to reflect a three-for-two stock split effected May 1996.
As of June 15, 1998, there were approximately 6,395 record holders of
HEALTHSOUTH Common Stock, excluding those shares held by depository companies
for certain beneficial owners. As of the Record Date, there were approximately
610 record holders of NSC Common Stock.
HOLDERS OF NSC SHARES ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
HEALTHSOUTH COMMON STOCK AND NSC COMMON STOCK. No assurance can be given as to
the market price of HEALTHSOUTH Common Stock at the Effective Time or at any
other time.
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER
Pursuant to the Plan, following the Effective Time, NSC will be a
wholly-owned subsidiary of HEALTHSOUTH, and all of NSC's subsidiaries and
affiliates will be indirect subsidiaries and affiliates of HEALTHSOUTH.
HEALTHSOUTH will continue its operations as prior to the Merger and will
continue to be managed by the same Board of Directors and executive officers.
See "OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER"Proceeds".
13
COMPARATIVE PER SHARE INFORMATION
The following summary presents selected comparative per share information
(i) for HEALTHSOUTH on a historical basis, in comparison with pro forma
equivalent information giving effect to the Merger on a pooling-of-interests
basis, and (ii) for NSC on a historical basis in comparison with its pro forma
equivalent information after giving effect to the Merger, including receipt of
shares of HEALTHSOUTH Common Stock to be issued in exchange for NSC Shares in
accordance with the Exchange Ratio. This financial information should be read in
conjunction with the historical consolidated financial statements of HEALTHSOUTH
and NSC and the related notes thereto contained elsewhere herein or in documents
incorporated herein by reference. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE".
Neither HEALTHSOUTH nor NSC has paid cash dividends since inception
(although certain companies acquired by HEALTHSOUTH in pooling-of-interests
mergers paid cash dividends in the past). It is anticipated that HEALTHSOUTH
will retain all earnings for use in the expansion of the business and therefore
does not anticipate paying any cash dividends in the foreseeable future. The
payment of future dividends will be at the discretion of the Board of Directors
of HEALTHSOUTH and will depend, among other things, upon HEALTHSOUTH's earnings,
capital requirements, financial condition and debt covenants.
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the combined results of operations in future
periods or future combined financial position.
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------ -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
Income from continuing operations per share(3):
HEALTHSOUTH(1)
Historical (basic) ......................... $ 0.37 $ 0.59 $ 0.95 $ 0.20 $ 0.27
Historical (diluted)(2) .................... 0.35 0.55 0.91 0.18 0.27
Pro forma combined (primary) ............... 0.37 0.58 0.93 0.19 0.27
Pro forma combined (diluted)(2) ............ 0.35 0.55 0.89 0.18 0.26
NSC(4)
Historical (basic) ......................... $ 0.38 $ 0.53 $ 0.70 $ 0.15 $ 0.20
Historical (diluted)(5) .................... 0.38 0.50 0.67 0.14 0.20
Pro forma equivalent (primary)(6) .......... 0.43 0.67 1.07 0.22 0.31
Pro forma equivalent (diluted)(6) .......... 0.40 0.63 1.02 0.21 0.30
AT MARCH 31,
1998
-------------
Book value per common share outstanding:
HEALTHSOUTH - Historical ............................................................. $8.31
HEALTHSOUTH - pro forma combined ..................................................... 8.22
NSC - Historical ..................................................................... 7.59
NSC - pro forma equivalent(6) ........................................................ 9.46
- - -----------
(1) Adjusted to reflect a two-for-one stock split effected in the form of a
100% stock dividend paid on March 17, 1997.
(2) Diluted earnings per share in 1995, 1996, 1997 and for the three months
ended March 31, 1997 reflect shares reserved for issuance upon exercise of
dilutive stock options and shares reserved for issuance upon conversion of
HEALTHSOUTH's 5% Convertible Subordinated Debentures Due 2001. Diluted
earnings per share for the three months ended March 31, 1998 reflect shares
reserved for issuance upon exercise of dilutive stock options and shares
reserved for issuance upon conversion of HEALTHSOUTH's 3.25% Convertible
Subordinated Debentures due 2003.
14
(3) Amounts represent income from continuing operations per common share and do
not reflect the effects of an extraordinary loss of $9,056,000, net of tax,
and a loss from discontinued operations of $1,162,000, net of tax, recorded
by HEALTHSOUTH during the year ended December 31, 1995 and extraordinary
losses of $253,000, $463,000 and $138,000, net of tax, recorded by NSC
during the years ended December 31, 1995, 1996 and 1997, respectively.
(4) Adjusted to reflect three-for-two stock splits effected in the form of 100%
stock dividends paid on May 31, 1996 and August 29, 1997, respectively.
(5) Diluted earnings per share in 1995, 1996, 1997 and for the three months
ended March 31, 1997 and 1998 reflect shares reserved for issuance upon
exercise of dilutive stock options and shares reserved for issuance upon
conversion of NSC's Convertible Notes.
(6) NSC pro forma equivalent per share data have been calculated by multiplying
the pro forma HEALTHSOUTH amounts by 1.1509.
15
RISK FACTORS
In addition to the other information in this Prospectus-Proxy Statement,Prospectus, the following
should be considered carefully by holders of NSC Shares.the Notes. Statements made herein
should be considered as "forward-looking information". See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE - Forward-Looking"Forward-Looking
Information".
REIMBURSEMENT BY THIRD-PARTY PAYORS
Substantially all of HEALTHSOUTH's revenues are derived from private and
governmental third- partythird-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, and the combined Companies will be 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 DOJDepartment of Justice
(the "DOJ") and other federal agencies interpret healthcare fraud and abuse
provisions liberally and enforce them aggressively. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE""-- 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. 16
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 federalfed-
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 or on the
combined Companies.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 HEALTHSOUTHHEALTHSOUTH's mission-critical applications and if
that code will produce accurate information with relation to date-sensitive calculations after
the turn of the century.
HEALTHSOUTH has completedis 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 thoroughsignificant 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 material computerinternally maintained mission-critical
applications and determinedrevealed that such applications containcontained very few date-sensitive
calculations. HEALTHSOUTH's computerThe revisions to these applications are divided
into two categories, those maintained internally by HEALTHSOUTH's Information
Technology Group and those maintained externally by the applications' vendors.
For internally maintained applications, revisions are currently being made and
are expectedscheduled to be completed
by October 31, 1998, tested during November and December, 1998 and implemented
byduring the first quarter of 1999. HEALTHSOUTH expects
thatThe budget for this project is approximately
$150,000. The project is currently on schedule, with coding approximately 25%
complete at the total cost associated with these revisions will be less than
$1,000,000. These costs will be primarily incurred during 1998end of July 1998.
HEALTHSOUTH's general business applications are all licensed from and
be charged to
expense as incurred. For externally maintained systems,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 each system issuch applications
are currently year 2000 compliant or will be made year 2000 compliant duringby the end
of 1998. The cost to be incurred by HEALTHSOUTH related to externally maintained
systemsapplications is not currently expected to be minimal.material.
HEALTHSOUTH has initiated a program to determine whether the computer
applicationsreviewed 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 payorsservers and suppliershardware 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 upgraded in a
timely manner.estimated until the plan is developed.
HEALTHSOUTH has not completed this review; however, initial
responses indicate that no significant problems are currently expected to arise.
HEALTHSOUTH has also initiated a program to determine whetherits review of embedded applications which
control certain medical and other equipment will be affected.equipment. HEALTHSOUTH expects to complete
this review during the third quarter of 1998. The nature of HEALTHSOUTH's
business is such that any failure toof these type applications is not expected to
have a material adverse effect on its business.
BecauseHEALTHSOUTH has sent inquiries to its significant suppliers of equipment
and medical supplies concerning the year 2000 compliance of their significant
computer applications. Responses have been received from over 50% of those
suppliers, and no significant problems have been identified. Second requests
have been mailed to all non-respondents.
HEALTHSOUTH has also sent inquiries to its significant third-party payors.
Responses have been received from payors representing over 35% of HEALTHSOUTH's
revenues. Such responses indicate that these payors' systems will be year 2000
compliant. Second requests will be mailed to all non-respondents during October
1998. HEALTHSOUTH will continue to evaluate year 2000 risks with respect to such
payors as additional responses are received. In that connection, it should be
noted that substantially all of HEALTHSOUTH's revenues are derived from
reimbursement by governmental and private third-party payors, and that
HEALTHSOUTH is dependent upon such payors' evaluation of their year 2000
compliance status to access such risks. If such payors are incorrect in their
evaluation of their own year 2000 compliance status, this could result in delays
or errors in reimbursement to HEALTHSOUTH by such payors, the effects of which
could be material to HEALTHSOUTH.
Based on the information currently available, HEALTHSOUTH believes that its
risk associated with problems arising from year 2000 issues is not significant.
However, because of the many uncertainties associated with year 2000 compliance
issues, and because HEALTHSOUTH's assessment is necessarily based on information
from third partythird-party vendors, payors and suppliers,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.
FAIR PRICE PROVISION
HEALTHSOUTH's Restated Certificate of Incorporation (the "HEALTHSOUTH
Certificate") contains certain provisions requiring supermajority stockholder
approval to effect specified extraordinary corporate transactions unless certain
conditions are met. The HEALTHSOUTH Certificate requires the affirmative
17
vote of 66 2/3% of all shares of HEALTHSOUTH entitled to vote in an election of
Directors to approve a "business combination" with any "other entity" that is
the beneficial owner, directly or indirectly, of more than 20% of the
outstanding shares of HEALTHSOUTH entitled to vote in an election of Directors.
The effect of the foregoing provisions is to make it more difficult for a
person, entity or group to effect a change in control of HEALTHSOUTH through the
acquisition of a large block of HEALTHSOUTH's voting stock, or to effect a
merger or other acquisition that is not approved by a majority of HEALTHSOUTH's
Directors serving in office prior to the acquisition by the other entity of 5%
or more of HEALTHSOUTH's stock. See "DESCRIPTION OF CAPITAL STOCK OF
HEALTHSOUTH".
RISKS RELATING TO FEDERAL INCOME TAXES
If the Merger were determined not to constitute a tax-free reorganization
under Section 368(a) of the Code, each holder of NSC Shares would recognize gain
or loss equal to the difference between the fair market value of the HEALTHSOUTH
Common Stock received (plus cash received in lieu of fractional shares) and such
holder's basis in the NSC Shares exchanged therefor. See "THE MERGER - Certain
Federal Income Tax Consequences".
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 ofor 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 NYSENew 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.
18
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. Because such charges have only recently been filed, itIt 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.
RehabOne Litigation
In March 1997, Horizon/CMS was served with a lawsuit filed in the
United States District Court for the Middle District of Pennsylvania, styled
RehabOne, Inc. v. Horizon/CMS Healthcare Corporation, Continental Medical
Systems, Inc. David Nation and Robert Ortenzio, No. CV-97-0292. In this lawsuit
the plaintiff alleges violations of federal and state securities laws, fraud
and negligent misrepresentation by Horizon/CMS and certain former officers of
CMS in connection with the issuance of a warrant to
19
purchase 500,000 shares of Horizon/CMS Common Stock (the "Warrant"). The Warrant
was issued to the plaintiff in connection with the settlement of certain prior
litigation between the plaintiff and CMS. The plaintiff's complaint does not
state the amount of damages sought. Horizon/CMS disputes the factual and legal
assertions of the plaintiff in this litigation and intends to vigorously contest
the plaintiff's claims. In May 1998, the parties reached an agreement in
principle to settle this litigation by extending the exercise period of the
Warrant by two years. The parties are currently in the process of negotiating
and implementing definitive settlement documentation.
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. Because this litigation has just
commenced, HEALTHSOUTH cannot predict the length of
time it will take to resolve thethis litigation or the outcome or effect of the
litigation.
North Louisiana Rehabilitation Hospital Medicare Billing Investigation
In August 1996, the United States Attorney for the Western District of
Louisiana, without actually initiating litigation, apprised Horizon/CMS of
alleged civil liability under the federal False Claims Act for what the
government believes were false or fraudulent Medicare and other federal program
claims submitted by Horizon/CMS's North Louisiana Rehabilitation Hospital
("NLRH") during the period from 1989 through 1992, including certain claims
submitted by a physician who was a member of the medical staff and under
contract to NLRH during the period. Specifically, the government alleges that
NLRH facilitated the submission of false claims under Part B of the Medicare
program by the physician and that NLRH itself submitted false claims under Part
A of the Medicare program for services that were not medically necessary. In
August 1996, the U.S. Attorney identified allegedly improper Part A and Part B
billings, together with penalty provisions under the False Claims Act, ranging
in the aggregate from approximately $1,700,000 to $2,200,000. The government
does not dispute that the Medicare Part A services were rendered, but only
whether they were medically necessary. Horizon/CMS has vigorously contested the
allegation that any cases of disputed medical necessity in this matter
constitute false or fraudulent claims under the civil False Claims Act.
Moreover, Horizon/CMS denies that NLRH facilitated the submission of false
claims under Medicare Part B.
In late April 1997, Horizon/CMS received administrative subpoenas relating
to the matter and has since then produced extensive materials with respect
thereto. Without conceding liability for either the Medicare Part A or Part B
claims, in May 1997, Horizon commenced preliminary settlement discussions with
the government. In preparation for settlement meetings held in late June and
mid-July 1997, Horizon/CMS and the government developed and then refined their
respective analyses of any losses the government may have incurred in this
regard. Following the July 1997 meetings, the government proposed to Horizon/CMS
that the matter be settled by Horizon/CMS's paying the government $4,900,000
with respect to alleged Medicare Part A overpayments and that Horizon/CMS and
certain individual physicians pay the government $820,000 with respect to
Medicare Part B claims for physician services. In late July 1997, Horizon/CMS
responded by offering to settle the matter for $3,700,000 for alleged Medicare
Part A overpayments and $445,000 for alleged Medicare Part B claims for which
Horizon/ CMS potentially could bear any responsibility. The government recently
advised Horizon/CMS that it has accepted the latter's settlement offer in this
regard, and the parties are currently in the process of negotiating and
implementing definitive settlement documentation.
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--
20
165121,48-165121, 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. Horizon/CMS basedBased upon an evaluation by its then-current internal
counsel, after reviewing the findings contained in the jury verdict, the
insurance policy at issue and the carrier's handling of the case, Horizon/CMS
18
believes that the entirety of any judgment ultimately entered is covered by and
payable from such insurance policy, less Horizon/CMS's self-insured retention of
$250,000. On November 19, 1997, the insurance carrier sent Horizon/CMS a letter
indicating its belief that certain policy exclusions might apply and requesting
additional information which might affect its coverage determination. Horizon/CMS has retained separate counsel to analyze the coverage issues and advise
Horizon/CMS on its position, and Horizon/CMS expects to continue to negotiate
any coverage issues with its carrier. Settlement negotiations by Horizon/CMS's
insurance carrier, in conjunction with HEALTHSOUTH's retained counsel, continue
with the plaintiff. It is not possible at this time to predict the outcome of
any post-trial motions or appeals, the resolution of any coverage issues, the
outcome of any settlement negotiations or the ultimate amount of any liability
which will be borne by Horizon/CMS.
THE SPECIAL MEETING
GENERAL
This Prospectus-Proxy Statement is being furnished toPROCEDURES 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 NSC SharesOld 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 the solicitationany 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 proxies by the Board of Directors of NSC
for use at the Special Meeting to consider and vote upon a proposal to approve
the Plan and to transact such other business as may properly come before the
Special Meetingmarket-making
activities or any adjournments or postponements thereof.
Each copy of this Prospectus-Proxy Statement mailed to holders of NSC
Common Stock is accompanied byother trading activities, must acknowledge that it will
deliver a form of Proxy for use at the Special Meeting.
This Prospectus-Proxy Statement is also furnished to holders of NSC Shares
as a Prospectusprospectus in connection with the issuance to themany resale of the sharesNew Notes. See "The
Exchange Offer -- Procedures for Tendering" and "Plan of HEALTHSOUTH Common Stock upon consummationDistribution".
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of the Merger.
DATE, PLACE AND TIME
The Special Meeting will be held at The Midland Hotel, 172 West Adams,
Chicago, Illinois 60603, on July 22, 1998 at 10:00 a.m., local time.
RECORD DATE; QUORUM
The Board of Directors of NSC has fixed the close of business on June 15,
1998, as the Record DateOld Notes who do not exchange their Old Notes for the determination of holders of NSC Shares entitled
to receive notice of and to vote at the Special Meeting. The presence, in person
or by proxy, of the holders of a majority of the NSC Shares entitled to vote at
the Special Meeting will constitute a quorum at the Special Meeting.
21
VOTE REQUIRED
As of the Record Date, there were outstanding and entitled to vote
18,617,279 shares of NSC Common Stock. Each of such NSC Shares is entitled to
one vote on each matter that comes before the Special Meeting. Approval of the
Plan will require the affirmative vote of the holders of a majority of the
outstanding shares of NSC Common Stock entitled to vote at the Special Meeting.
Accordingly, approval of the Plan will require the affirmative vote of the
holders of at least 9,308,640 shares of NSC Common Stock.
As of the Record Date, NSC's directors and executive officers and their
affiliates beneficially owned an aggregate of 1,433,015 shares, or approximately
7.7%, of NSC Common Stock outstanding on such date (excluding shares issuable
upon exercise of options). To NSC's knowledge, each of its directors and
executive officers intends to vote in favor of the proposal to approve the Plan.
By the vote of the members of the NSC Board of Directors at a special
meeting held on May 5, 1998, the NSC Board of Directors determined that the
proposed Merger, and the terms and conditions of the Plan, were in the best
interests of NSC and its stockholders. The Plan and the Merger were adopted and
approved unanimously by the members of the NSC Board of Directors, who also
unanimously resolved to recommend that the stockholders of NSC vote FOR approval
of the Plan.
If the Plan is not approved by NSC stockholders, the Plan may be terminated
in accordance with its terms. See "THE MERGER - Termination".
VOTING AND REVOCATION OF PROXIES
NSC Shares represented by a Proxy properly signed and received at or prior
to the Special Meeting, unless such Proxy is subsequently revoked, will be voted
in accordance with the instructions thereon. IF A PROXY FOR THE SPECIAL MEETING
IS PROPERLY EXECUTED AND RETURNED WITHOUT ANY VOTING INSTRUCTIONS, NSC SHARES
REPRESENTED BY THE PROXY WILL BE VOTED FOR APPROVAL OF THE PLAN. Any Proxy given
pursuant to this solicitation may be revoked by the person giving it at any time
before the Proxy is voted by the filing of an instrument revoking it or of a
duly executed Proxy bearing a later date with the Secretary of NSC prior to or
at the Special Meeting or by voting in person at the Special Meeting. Attendance
at the Special Meeting will not in and of itself constitute a revocation of a
Proxy. Only votes cast for approval of the Plan constitute affirmative votes.
Abstentions and broker non-votes with respect to the Plan will, therefore, have
the same effect as votes against approval of the Plan.
The Board of Directors of NSC is not aware of any business to be acted upon
at the Special Meeting other than as described herein. If, however, other
matters are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion,
subject to the DGCL and applicable rules of the SEC, to vote or act thereon
according to their best judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
NSC, who will not be specifically compensated for such services, may solicit
proxies from the stockholders of NSC, personally or by telephone or telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in doing
so.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. THE
PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH ELSEWHERE IN THIS PROSPECTUS-PROXY STATEMENT. SEE "THE MERGER - EXCHANGE
OF CERTIFICATES".
22
THE MERGER
The description of the Merger contained in this Prospectus-Proxy Statement
summarizes the principal provisions of the Plan; it is not complete and is
qualified in its entirety by reference to the Plan, the full text of which is
attached hereto as Annex A and which is incorporated by reference herein. All
NSC stockholders are urged to read Annex A in its entirety.
TERMS OF THE MERGER
The acquisition of NSC by HEALTHSOUTH will be effected by means of the
merger of the Subsidiary with and into NSC, with NSC being the Surviving
Corporation. The Certificate of Incorporation of NSC (the "NSC Certificate"),
will become the Certificate of Incorporation of the Surviving Corporation from
and after the Effective Time and until thereafter amended in accordance with
applicable law. The Bylaws of the Subsidiary as in effect at the Effective Time
will become the Bylaws of the Surviving Corporation until amended or repealed in
accordance therewith and with applicable law. At the Effective Time, NSC will
continue as the Surviving Corporation under the name "National Surgery Centers,
Inc.".
At the Effective Time, each outstanding NSC Share (excluding shares held by
NSC and any of its subsidiaries, which will automatically be cancelled and
retired) (collectively, the "Exchanging NSC Shares") will be converted into the
right to receive that fraction of a share of HEALTHSOUTH Common Stock determined
by dividing $30.50 by the Base Period Trading Price (as defined herein), as may
be adjusted as provided below, computed to four decimal places (the "Exchange
Ratio"); provided, however, that if the Base Period Trading Price shall be
greater than $35.00, the Exchange Ratio shall be .8714; and provided further,
however, that if the Base Period Trading Price shall be less than $26.50, the
Exchange Ratio shall be 1.1509. The term "Base Period Trading Price" means the
average daily closing prices for the shares of HEALTHSOUTH Common Stock for the
20 consecutive trading days on which such shares are actually traded (as
reported on the New York Stock Exchange Composite Transaction Tape as reported
in the Wall Street Journal, Eastern Edition, or if not reported thereby, any
other authoritative source) ending at the close of trading on the second trading
day immediately preceding the Special Meeting. Each certificate previously
evidencing Exchanging NSC Shares outstanding immediately prior to the Effective
Time ("Certificates") will thereafter be deemed, for all purposes other than the
payment of dividends or distributions, to represent that number of shares of
HEALTHSOUTH Common Stock determinedNotes
pursuant to the Exchange Ratio and, if
applicable,Offer will continue to be subject to the right to receive cashrestrictions
on transfer of such Old Notes as set forth in lieu of any fractional shares.
At the Effective Timelegend thereon as a
consequence of the Merger, all then-outstanding optionsissuance of the Old Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities Act
and warrantsapplicable state securities laws. In general, the Old Notes may not be
offered or sold unless registered under the Securities Act, or pursuant to purchase NSC Common Stock, whetheran
exemption from, or in a transaction not then exercisable,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 accordance with the Plan,Exchange Offer, the trading market for
untendered and tendered but unaccepted Old Notes could be assumed by HEALTHSOUTH andadversely affected.
LACK OF PUBLIC MARKET FOR THE NOTES
There can be no assurance that a public market for the New Notes will
become options and
warrantsdevelop or, if such a market develops, as to purchase HEALTHSOUTH Common Stock. As a resultthe liquidity of such assumption,
eachmarket. If
such optiona 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 warrant will relateHEALTHSOUTH has been advised that
the Initial Purchasers currently intend to make a numbermarket in the New Notes, as
permitted by applicable laws and regulations, after consummation of sharesthe 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 HEALTHSOUTH
Common Stock determined by multiplying the numberInitial
Purchasers. If an active public market does not develop or continue, the market
price and liquidity of sharesthe New Notes may be adversely affected.
19
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Issuer's consolidated ratio of NSC Common Stock
theretofore subject theretoearnings
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
Exchange Ratio and the exercise prices
thereof willIssuer to be determined by dividing the exercise price contained in such
option or warrant by the Exchange Ratio. At June 15, 1998 options and rights to
acquire approximately 1,861,766 shares of NSC Common Stock and warrants to
acquire approximately 28,500 shares of NSC Common Stock were outstanding.
Based upon the number of shares of HEALTHSOUTH Common Stock, excluding
shares obtainable upon exercise of options and convertible securities,
outstanding asrepresentative of the Record Date,interest factor.
THE EXCHANGE OFFER
The following discussion sets forth or summarizes the holders of NSC Shares will receive in the
aggregate approximately 5.89% of the shares of HEALTHSOUTH Common Stock
anticipated to be outstanding immediately after the Effective Time.
BACKGROUND OF THE MERGER
NSC historically expanded its business primarily through acquisitions of
established ambulatory surgery centers and the development of new centers in
select markets. In early 1998, the Company began considering its strategic
alternatives in order to accelerate its growth rate, enhance its ability to
contract with managed care payors and capitalize on changing industry dynamics.
As managed care
23
payors often prefer contracting with an entity that can offer a broad range of
healthcare services, the Company believes that adding related services or
combining with a strategic business partner could significantly strengthen NSC's
competitive position. In conjunction with its regularly scheduled quarterly
board meeting on March 12, 1998, the Board of Directors of NSC discussed both
the possibility of (i) internal growth into a variety of related businesses to
allow integration of those businesses with the current business of NSC and (ii)
a business combination with another publicly held company that had the financial
capability and infrastructure to capitalize on opportunities in the changing
industry structure, as an alternative to continued internal growth. The Board of
Directors scheduled a follow up board meeting on April 27, 1998 to further
discuss these alternatives.
On April 8, 1998, E. Timothy Geary, Chairman of the Board and Chief
Executive Officer of NSC, had telephone conversations with Richard M. Scrushy,
Chairman of the Board and Chief Executive Officer of HEALTHSOUTH, and Michael D.
Martin, Executive Vice President, Chief Financial Officer, and Treasurer of
HEALTHSOUTH, about strategic alternatives for the two companies and agreed to
meet one week later.
On April 15, 1998, Mr. Geary and Bryan S. Fisher, Senior Vice President of
Finance, Chief Financial Officer, Secretary, and Treasurer of NSC, met with Mr.
Scrushy and Mr. Martin and had preliminary discussions about the possibility of
a transaction between the Companies and shared information about the Companies.
On April 27, 1998, prior to the NSC Board of Directors meeting scheduled to
be held later that day, Mr. Geary contacted Mr. Scrushy by telephone to obtain
an update regarding HEALTHSOUTH's continued interest in pursuing a possible
transaction with NSC. Mr. Geary then convened a telephonic meeting of the Board
of Directors of NSC to report the results of the discussions with HEALTHSOUTH.
Mr. Geary reported that HEALTHSOUTH was interested in a merger with NSC, but
that the parties had not agreed on a price of NSC Shares. The NSC Board of
Directors then discussed the circumstances under which a transaction with
HEALTHSOUTH would be beneficial to the NSC stockholders and authorized
management to continue discussions with HEALTHSOUTH and, to the extent deemed
appropriate, to retain a financial advisor to assist NSC in connection with the
proposed transaction. Following the board meeting, Mr. Geary contacted Mr.
Scrushy to indicate that the NSC Board of Directors had authorized NSC
management to continue the negotiations.
On April 28, 1998, Mr. Fisher and Mr. Martin had a telephone conversation
in which Mr. Fisher gave Mr. Martin additional, more detailed financial
information regarding NSC. On April 30, 1998, NSC retained BT Alex. Brown to act
as its financial advisor and continued the negotiations with HEALTHSOUTH. On May
1, 1998, the NSC Board of Directors held a telephonic special meeting to review
the status of the discussions with HEALTHSOUTH. The Board authorized the
continuation of discussions with HEALTHSOUTH and requested that more definitive
details of the proposed merger be discussed at the next meeting. From May 1,
1998 through May 5, 1998, the management of NSC and its legal and financial
advisors negotiated thematerial terms of the
Merger with HEALTHSOUTH and the parties
conducted due diligence investigations.
The Board of Directors of NSC held a special meeting, attended by NSC's
senior management, its legal advisors and BT Alex. Brown in New York, New York,
on the evening of May 5, 1998. At the meeting, senior management, NSC's legal
advisors and BT Alex. Brown made detailed presentations concerning material
aspects of the proposed Merger and related transactions. Copies of the proposed
definitive Plan of Merger and related documents were available and were
summarized by legal counsel. The Board discussed the potential benefits and
synergies to NSC of a business combination with HEALTHSOUTH as well as the
potential risks related to such a transaction. In addition, senior management
and representatives of BT Alex. Brown discussed valuation issues relevant to the
determination of the consideration to be received by the NSC stockholders. BT
Alex. Brown rendered its opinion to the effect that, as of the date of such
opinion and based upon and subject to certain matters stated therein, the
consideration to be received by the NSC stockholders was fair from a financial
point of view to such stockholders, and reviewed with the NSC Board the
financial analyses performed by BT Alex. Brown in connection with such opinion.
The Board of Directors of NSC unanimously approved the Merger and adopted the
Plan. Following the such approval, NSC and HEALTHSOUTH executed the definitive
Plan.
24
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS OF NSC
The Board of Directors of NSC believes that the terms of the Plan are fair
to, and that the Merger is in the best interests of, NSC and its stockholders.
Accordingly, the Board of Directors of NSC has approved the Merger upon the
terms of the Plan and recommends approval thereof by the stockholders of NSC.
In reaching its determination to approve and adopt the Plan, the NSC Board
of Directors considered a number of factors and the potential synergies that
would result from a merger with HEALTHSOUTH. Specifically, the NSC Board of
Directors considered:
(i) The value of the consideration to be received by NSC stockholders,Exchange Offer, including the fact that the method for determining the Exchange Ratio allows
NSC stockholders to participate in gains in the price of HEALTHSOUTH Common
Stock if the Base Period Trading Price is above $35.00 while offering
downside protection if the Base Period Trading Price is between $26.50 and
$35.00.
(ii) The terms and conditions of the Merger, including the parties'
reciprocal representations, warranties and covenants, the conditions to their
respective obligations, and the circumstances and terms under which NSC may
terminate the Plan to consider an alternative offer.
(iii) That the Merger is expected to be treated as a tax-free
reorganization and be accounted for under the "pooling-of-interests" method
of accounting.
(iv) The belief that, based on current conditions in the healthcare
industry, the industry will continue to consolidate, and that the Merger will
provide NSC stockholders with continued opportunities to participate in such
consolidation.
(v) The belief that, for NSC to continue to grow, NSC would require
substantial financial and other resources. Although the Board of Directors
believed that such resources would be available to NSC, a combination with
HEALTHSOUTH would provide those resources through HEALTHSOUTH's financial
position and experience in the healthcare industry.
(vi) The complementary business operations of NSC and HEALTHSOUTH, which
the NSC Board of Directors believes will enable NSC, on a post-Merger basis,
to achieve a greater presence in its primary markets and secure more
extensive relationships with third-party payors.
(vii) The belief that the Merger would result in synergies due to, among
other things, revenue enhancements, increased economies of scale from
increased unit volumes and elimination of duplicative costs of operating two
public companies.
(viii) BT Alex. Brown's opinion delivered on May 5, 1998, that as of that
date and subject to certain assumptions, factors and limitations set forth in such opinion, the consideration to be received by NSC stockholders in the
Merger was fair, from a financial pointLetter of view, to the NSC stockholders.
(ix) The belief that the terms and conditions of the Plan made prompt
consummation of the Merger substantially likely.
In view of the wide variety of factors considered in connectionTransmittal
distributed with its
evaluation of the Merger, the NSC Board of Directors did not find it practicable
to quantify or otherwise to attempt to assign relative weights to the specific
factors considered in reaching its determination and did not do so.
THE BOARD OF DIRECTORS OF NSC RECOMMENDS THAT NSC STOCKHOLDERS VOTE TO
APPROVE AND ADOPT THE PLAN.
OPINION OF BT ALEX. BROWN INCORPORATED
NSC engaged BT Alex. Brown to act as its exclusive financial advisor in
connection with the Merger based on BT Alex. Brown's long-standing relationship
with NSC and its reputation, experience and expertise in similar transactions.
On May 5, 1998, at a meeting of the NSC Board held to evaluate the proposed
Merger, BT Alex. Brown rendered to the NSC Board an oral opinion (which opinion
was
25
subsequently confirmed by delivery of written opinions dated May 5, 1998 and
June 17, 1998) to the effect that, as of such date and based upon and subject to
certain matters stated in such opinions, the consideration (the "Consideration")
was fair, from a financial point of view, to the holders of NSC Common Stock. On
May 5, and June 17, 1998, BT Alex. Brown delivered to the Board of Directors of
NSC its written opinions dated as of such dates that, based on the assumptions,
matters considered and limits of review set forth therein, the Consideration to
be received by NSC stockholders was fair, from a financial point of view, to the
stockholders of NSC. The June 17, 1998 opinion is substantially similar to the
opinion dated May 5, 1998. No limitations were imposed by the NSC Board upon BT
Alex. Brown with respect to the investigations made or the procedures followed
by it in rendering its opinion.
The full text of the written opinion of BT Alex. Brown dated as of June 17,
1998, which sets forth the assumptions made, matters considered and limitations
of the review undertaken, is attached as Annex B to this Proxy
Statement-Prospectus and is incorporated herein by reference. BT ALEX. BROWN'S
OPINION IS DIRECTED TO THE NSC BOARD, ADDRESSES ONLY THE FAIRNESS OF THE
CONSIDERATION FROM A FINANCIAL POINT OF VIEW, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE
SPECIAL MEETING. TheProspectus. This summary of the opinion of BT Alex. Brown in this Proxy
Statement-Prospectus is qualified in its entirety by
reference to the full text of such opinion.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 "Closing Date", pursuant to a Purchase Agreement entered into by the
Initial Purchasers on June 22, 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 opinion, BT Alex. Brown reviewedbest 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 ____________, 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 publiclyconditions as set forth herein under
"-- Conditions".
20
Old Notes shall be deemed to have been accepted as validly tendered when,
as and if the Trustee has given oral or written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders of Old
Notes for the purposes of receiving the New Notes and delivering New Notes to
such holders.
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 financial informationexemption under the Securities Act and other information concerning NSC and
HEALTHSOUTH and certain internal analyses and other information furnished to BT
Alex. Brown by NSC and HEALTHSOUTH. BT Alex. Brown also held discussions with
membersthan any
holder that is an "affiliate" (as defined in Rule 405 under the Securities Act)
of the senior managementIssuer without compliance with the registration and prospectus delivery
provisions of NSCthe Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and HEALTHSOUTH regardingsuch 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 businessesOld 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 prospects(iv) it is not engaged in, and does not
intend to engage in, a distribution of their respective companiessuch 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
joint prospectsprospectus 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
21
Issuer shall use its best efforts to keep the Shelf Registration Statement
continuously effective, supplemented and amended to the extent necessary to
ensure that it is available for sales of Transfer Restricted Securities (as
defined below) by the holders thereof for a period of at least two years
following the date on which such Shelf Registration Statement first becomes
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".
EXPIRATION DATE; EXTENSIONS; AMENDMENTS; TERMINATION
The term "Expiration Date" shall mean ____________, 1998 (30 calendar days
following the commencement of the Exchange Offer), unless the Exchange Offer is
extended, if and as required by
22
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 combined company. In addition, BT Alex. Brownpress 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) reviewedto delay acceptance of any Old Notes, to
extend the reported pricesExchange Offer or to terminate the Exchange Offer and trading activity fornot permit
acceptance of Old Notes not previously accepted if any of the NSC Common Stockconditions set
forth herein under "-- Conditions" shall have occurred and shall not have been
waived by the HEALTHSOUTH Common Stock,Issuer, by giving oral or written notice of such delay, extension
or termination to the Exchange Agent, or (ii) compared certain financial and stock market information for NSC and
HEALTHSOUTH with similar information for certain other companies whose
securities are publicly traded, (iii) reviewed the financial terms of certain
recent business combinations which BT Alex. Brown deemed comparable in whole or
in part, (iv) reviewedto amend the terms of the PlanExchange
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 (v) performed7.0% 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 studiesrequired 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 analysesthe Issuer in accordance with the terms and consideredsubject 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 factorsperson who
has obtained a properly completed bond power from the registered holder.
23
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 BT Alex. Brown deemed
appropriate.
As describedthe
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 BT Alex. Brownof
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.
24
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-Entry
Confirmation of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
independently verifiedaccepted for any reason set forth in the informationterms 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 above andbelow, 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 its opinion has assumed the
accuracyExchange 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 completeness thereof. With respectany 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 information relatingExpiration 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 prospectsExpiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Letter of NSCTransmittal and HEALTHSOUTH, BT Alex. Brown assumed that such
information reflectsNotice of Guaranteed Delivery, substantially
in the best currently available judgmentsform provided by the Issuer (by mail or hand delivery), setting forth the
name and estimatesaddress of the managementsholder of NSCOld Notes and HEALTHSOUTHthe 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)
25
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 likely future financial
performancesvalidity, form and eligibility
(including time of their respective companiesreceipt) 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 combined entity. In
addition, BT Alex. Brown hasExchange Offer. Any Old Notes which have been tendered for
exchange but which are not madeexchanged 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 independent evaluationaccount maintained with
such Book-Entry Transfer Facility for the Old Notes) as soon as practicable
after withdrawal, rejection of tender or appraisaltermination of the assetsExchange Offer.
Properly withdrawn Old Notes may be retendered by following one of NSCthe
procedures described under "-- Procedures for Tendering" and "-- Book-Entry
Transfer" above at any time on or HEALTHSOUTH,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 it been furnished withno 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 evaluationholder or appraisal. BT Alex. Brown has assumed that the Merger will qualify
as a tax-free transaction for the holders of NSC Common Stock. BT Alex. Brown's
opinion is basedOld 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 market, economic and other conditions as they exist and can
be evaluated as of the date of the opinion letter.
In arriving at its opinion, BT Alex. Brown was not authorized to solicit,exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by the
Issuer. The costs of the Exchange Offer and did not solicit, interest from any party with respectthe unamortized expenses related to
the acquisition of
NSC or any of its assets.
The following is a summaryissuance of the material analysesOld Notes will be amortized over the term of the New Notes.
EXCHANGE AGENT
PNC Bank, N.A. has been appointed as Exchange Agent for the Exchange Offer.
Questions and factors considered
by BT Alex. Brown in connection with its opinionrequests for assistance and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the NSC Board of Directors
dated May 5, 1998:
Analysis of Selected Public Companies. BT Alex. Brown compared certain
financial and stock market information for NSC and HEALTHSOUTH with similar
information for the following selected publicly held companies in the healthcare
industry: (i) in the case of NSC: AmSurg Corp.; American Oncology Resources,
Inc.; Physician Reliance Network, Inc.; Renal Care Group, Inc.; and Total Renal
Care Holdings, Inc. (the "NSC Selected Companies") and (ii) in the case of
HEALTHSOUTH: Columbia/HCA Healthcare Corporation; Health Care & Retirement
Corporation; Health Management Associates, Inc.; Manor Care, Inc.; Quorum Health
Group, Inc.; Tenet Healthcare Corp.; and Universal Health Services, Inc. (the
"HEALTHSOUTH Selected Companies" and, together with the NSC Selected Companies,
the "Selected Companies"). BT Alex. Brown calculated share prices relative to
eachExchange
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
Louisville, Kentucky 40202 Facsimile (502) 581-2702 Louisville, Kentucky 40202
Attn: Corporate Trust Department Attn: Corporate Trust Department
26
company's earnings per share ("EPS")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
latest twelve monthsExchange Offer is being made by mail; however, additional solicitations may be
made by telegraph, telephone, telecopy or in person by officers and calendar
years 1998 and 1999, and adjusted market values (equity market value, plus debt,
less cash and equivalents) relative to each company's latest twelve months
revenues, earnings before interest, taxes, depreciation and amortization
("EBITDA"), and earnings before interest and taxes ("EBIT"). All multiples were
based on closing stock prices on May 1, 1998. EPS estimates for HEALTHSOUTH and
the Selected Companies were based on analysts' estimates as reported by I/B/E/S,
a market research database. EPS estimates for NSC were based on NSC management
estimates. This analysis indicated multiples for the NSC Selected Companies of
latest twelve months EPS and estimated calendar 1998 and 1999 EPS of 31.4x to
59.4x (with a mean of 42.3x), 23.1x to 33.5x (with a mean of 27.6x) and 17.8x to
24.6x (with a mean of 20.8x), respectively and latest twelve months revenues,
EBITDA and EBIT of 1.6x to 5.3x (with a mean of 3.2x), 12.0x to 28.0x (with a
mean of 17.7x) and 19.0x to 36.0x (with a mean of 25.6x), respectively. This
analysis indicated multiples for the HEALTHSOUTH Selected Companies of latest
twelve months EPS and estimated calendar 1998 and 1999 EPS of 21.4x to 47.4x
(with a mean of 31.0x), 18.3x to 37.5x (with a mean of 24.3x) and 15.8x to 30.3x
(with a mean of 19.9x), respectively, and latest twelve months revenues, EBITDA
and EBIT of 1.5x to 5.9x (with a mean of 2.4x), 9.8x to 24.1x (with a mean of
13.2x), and 13.7x to 29.0x (with a mean of 18.8x), respectively. These multiples
compare with multiples of latest twelve months and estimated calendar 1998 and
1999 EPS and latest twelve months revenues, EBITDA and EBIT for HEALTHSOUTH of
32.8x, 26.6x, 21.8x, 4.8x, 15.9x and 22.0x, respectively. Based on the closing
stock price of HEALTHSOUTH Common Stock on May 1, 1998, the Consideration
equated to implied multiples for NSC of latest twelve months and estimated
calendar 1998 and 1999 EPS and latest twelve months revenues, EBITDA and EBIT of
42.0x, 32.7x, 26.7x, 5.2x, 19.8x and 26.7x, respectively.
Analysis of Selected Merger and Acquisition Transactions. BT Alex. Brown
reviewed the purchase price and implied transaction multiples paid in the
following selected merger and acquisition transactions in the ambulatory surgery
center industry, consisting of (acquiror/target): HEALTHSOUTH Corporation /
Columbia/HCA Healthcare Corporation surgery centers; HEALTHSOUTH Corporation /
Surgical Care Affiliates, Inc.; HEALTHSOUTH Corporation / Sutter Surgery
Centers, Inc.; HEALTHSOUTH Corporation / Surgical Health Corporation; and
Columbia/HCA Healthcare Corporation / Medical Care America, Inc. (collectively,
the "Selected Merger and Acquisition Transactions"). All multiples were based on
publicly available information at the time of announcement of such transaction.
This analysis indicated multiples for the Selected Merger and Acquisition
Transactions of latest twelve months and one-year forward net income and latest
twelve months revenues, EBITDA and EBIT of 20.8x to 56.8x (with a mean of
35.3x), 14.9x to 23.8x (with a mean of 19.3x), 1.3x to 4.8x (with a mean of
2.8x), 8.5x to 13.6x (with a mean of 10.3x), and 11.4x to 22.9x (with a mean of
17.9x), respectively. Based on the closing price of HEALTHSOUTH Common Stock on
May 1, 1998, the Consideration equated to implied multiples for NSC of latest
twelve months net income and one-year forward net income and latest twelve
months revenues, EBITDA and EBIT of 43.1x, 30.4x, 5.2x, 19.8x and 26.7x,
respectively.
Discounted Cash Flow Analysis. BT Alex. Brown performed a discounted cash
flow analysis of NSC to estimate the present valueregular
employees of the stand-alone,
unlevered, after-tax free cash flows that NSC could generate over the periods
March 31, 1998 through December 31, 2002 based on internal estimatesIssuer.
The Issuer will not make any payments to brokers, dealers or other persons
soliciting acceptances of the management of NSC.Exchange Offer. The discounted cash flow analysis was determined by (i)
adding (x)Issuer, however, will pay the
present value at March 31, 1998 of NSC's projected free cash
flows over the four-yearExchange Agent reasonable and nine-month period from March 31, 1998 through
December 31, 2002 and (y) the present value of the terminal value for NSC in
2002, and (ii) adding the net cash of NSC at March 31, 1998. The range of
estimated terminal values for NSC at the end of 2002 was calculated by applying
terminal value multiples ranging from 10.0x to 14.0x to the projected 2002
EBITDA of NSC, representing the estimated values of NSC beyond the year 2002.
The cash flows and terminal values of NSC were discounted to present value using
discount rates ranging from 12.0% to 16.0%. This analysis yielded equity
reference ranges for NSC Common Stock of approximately $20.16 to $32.64 per
share.
Historical Exchange Ratio Analysis. BT Alex. Brown reviewed the historical
trading volumes and market prices for NSC Common Stock and HEALTHSOUTH Common
Stock and the implied historical exchange ratio of NSC Common Stock and
HEALTHSOUTH Common Stock (the closing price of NSC Common Stock divided by the
closing price of HEALTHSOUTH Common Stock) based on such
27
market prices as of the 20 trading days prior to and as of May 1, 1998. This
analysis indicated average exchange ratios for NSC Common Stock and HEALTHSOUTH
Common Stock as of the 20 trading days prior to and as of May 1, 1998 of
approximately 0.9272x and 0.9182x, respectively.
Contribution Analysis. BT Alex. Brown analyzed the relative contributions
of NSC and HEALTHSOUTH to the estimated revenue, EBITDA, EBIT and net income of
the pro forma combined company for the latest twelve months ended March 31, 1998
for NSC and December 31, 1997 for HEALTHSOUTH, to the estimated net income of
the pro forma combined company for calendar years 1998 and 1999 based, in the
case of NSC, on internal estimates of the management of NSC and, in the case of
HEALTHSOUTH, on analysts' estimates as reported by I/B/E/S, and to the book
value at March 31, 1998 for NSC and at December 31, 1997 for HEALTHSOUTH, and
compared such contributions to the pro forma ownership of the holders of NSC
Common Stock in the pro forma combined company. This analysis indicated that (i)
for the latest twelve months, NSC would have contributed approximately 3.6% of
the revenues, 3.1% of EBITDA, 3.2% of EBIT and 3.9% of the net income of the pro
forma combined company, (ii) in calendar year 1998, NSC would contribute
approximately 3.5% of the net income of the pro forma combined company, (iii) in
calendar year 1999, NSC would contribute approximately 3.5% of the net income of
the pro forma combined company, and (iv) as of March 31, 1998 for NSC and
December 31, 1997 for HEALTHSOUTH, NSC would have contributed 4.3% of the book
value of the pro forma combined company. Based on the Consideration at May 1,
1998, current holders of NSC Common Stock would own approximately 4.3% of the
pro forma combined company upon consummation of the Merger.
Accretion/Dilution Analysis. BT Alex. Brown analyzed the pro forma effect
of the Merger on the EPS of HEALTHSOUTH in calendar years 1998 and 1999, based,
in the case of NSC, on EPS estimates of the management of NSC and, in the case
of HEALTHSOUTH, on EPS estimates as reported by I/B/E/S, both before and after
giving effect to certain cost savings and other potential synergies anticipated
by the managements of NSC and HEALTHSOUTH to result from the Merger (excluding
non-recurring costs resulting from the Merger). This analysis indicated that the
Merger could be dilutive to HEALTHSOUTH's EPS in calendar years 1998 and 1999
without giving effect to certain cost savings and other potential synergies
anticipated by the managements of NSC and HEALTHSOUTH to result from the Merger
and accretive to HEALTHSOUTH's EPS in calendar years 1998 and 1999 assuming
certain levels of cost savings and other potential synergies were achieved
(excluding non-recurring costs resulting from the Merger). The actual operating
or financial results achieved by the pro forma combined company may vary from
projected results and variations may be material as a result of business and
market risks, the timing and amount of synergies, the cost associated with
achieving such synergies and other factors.
Historical and Pro Forma Comparison. In connection with its opinion, BT
Alex. Brown also reviewed and considered, among other things: (i) historical
financial information for NSC and HEALTHSOUTH; (ii) historical trading volumes
and market prices for NSC Common Stock and HEALTHSOUTH Common Stock, and
movements in NSC Common Stock relative to the S&P 500 Index and the common stock
of the NSC Selected Companies and in HEALTHSOUTH Common Stock relative to the
S&P 500 Index and the common stock of the HEALTHSOUTH Selected Companies; (iii)
historical analysis of HEALTHSOUTH's forward price to earnings ratio relative to
the S&P 500 forward price to earnings ratio; (iv) analysts' reports, including
growth rate estimates, with respect to NSC and HEALTHSOUTH; and (iv) the
ownership profiles of NSC and HEALTHSOUTH.
The summary set for the above does not purport to be a complete description
of the opinion of BT Alex. Brown to the NSC Board or the financial analyses
performed and factors considered by BT Alex. Brown in connection with its
opinion. The preparation of a fairness opinion is a complex analytical process
involving various determinations as to the most appropriate and relevant methods
of financial analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. BT Alex. Brown believes that its analyses and the summary
set forth above must be considered as a whole and that selecting portions of its
analyses, without considering all analyses, or selecting portions of the above
summary, without considering all factors and analyses, could create a misleading
or incomplete view of the processes underlying such
28
analyses and opinion. In performing its analyses, BT Alex. Brown made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of NSC and HEALTHSOUTH. No company, transaction or business used in such
analyses as a comparison is identical to NSC, HEALTHSOUTH, or the proposed
Merger, nor is an evaluation of the results of such analyses entirely
mathematical; rather, such analyses involve complex considerations and judgments
concerning financial and operating characteristics and other factors that could
affect the acquisition, public trading or other values of the companies,
businesses or transactions being analyzed. The estimates contained in such
analyses and the ranges of valuations resulting from any particular analysis are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than those suggested by such analyses. In
addition, analyses relating to the value of businesses or securities do not
purport to be appraisals or to reflect the prices at which businesses or
securities actually may be sold. Accordingly, such analyses and estimates are
inherently subject to substantial uncertainty. BT Alex. Brown's opinion and
financial analyses were only one of many factors considered by the NSC Board in
its evaluation of the proposed Merger and should not be viewed as determinative
of the views of the NSC Board or NSC's management with respect to the
Consideration or the Merger.
NSC selected BT Alex. Brown to serve as its exclusive financial advisor
based on BT Alex. Brown's long-standing relationship with NSC and its
reputation, experience and expertise in similar transactions. BT Alex. Brown is
an internationally recognized investment banking firm and, as a customary part
of its investment banking business, is engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. In the past, BT Alex. Brown has provided various financing services
for HEALTHSOUTH and various financing and financial advisory services for NSC,
for which services BT Alex. Brown has received customary fees. BT Alex. Brown
maintains a market in the NSC Common Stock and regularly publishes research
reports regarding the health care industry and the businesses and securities of
NSC, HEALTHSOUTH and other publicly owned companies in the health care industry.
In the ordinary course of business, BT Alex. Brown may actively trade the
securities of NSC and HEALTHSOUTHfees for its own accountservices and will reimburse
the accounts of its
customers and, accordingly, may at any time hold a long or short position in
securities of NSC and HEALTHSOUTH.
Pursuant to a letter agreement dated May 4, 1998 between NSC and BT Alex.
Brown, NSC has agreed to pay BT Alex. Brown $1.0 million for rendering its
opinion, which amount will be credited against a transaction fee of $3.75
million payable upon consummation of the Merger. In addition, NSC has agreed to
reimburse BT Alex. BrownExchange Agent for its reasonable out-of-pocket expenses includingin connection
therewith. The Issuer may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable feesout-of-pocket expenses incurred by them
in forwarding copies of the Prospectus and disbursements of counsel, and to indemnify BT Alex. Brown
and certain related parties against certain liabilities, including certain
liabilities under the federal securities laws, relating to, or arising out of,
its engagement.
THE SUMMARY OF THE BT ALEX. BROWN OPINION SET FORTH ABOVE IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE BT ALEX. BROWN OPINION DATED
JUNE 17, 1998 AND ATTACHED HERETO AS ANNEX B. NSC STOCKHOLDERS ARE URGED TO
READ THE BT ALEX. BROWN OPINION IN ITS ENTIRETY FOR A COMPLETE DESCRIPTION OF
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a Certificate of Merger
by the Subsidiary and NSC under the DGCL, or at such later time as may be
specified in such Certificate of Merger. It is anticipated that such filing will
be made as soon as reasonably possible after the Special Meeting and after all
regulatory approvals have been obtained, and that the Effective Time will occur
upon such filing. There can be, however, no assurance as to whether or when the
Merger will occur. See "- Conditionsdocuments to the Merger" and "- Regulatory
Approvals".
EXCHANGE OF CERTIFICATES
From and after the Effective Time, each holder of a Certificate will be
entitled to receive in exchange therefor, upon surrender thereof to the Exchange
Agent (as defined in the Plan), a certificate or
29
certificates representing the number of whole shares of HEALTHSOUTH Common Stock
into which such holder's NSC Shares have been converted, cash in lieu of
fractional shares and any dividends or other distributions to which such holder
is entitled as a resultbeneficial
owners of the Merger as provided in the Plan.
As soon as reasonably practicable after the Effective Time, HEALTHSOUTH
will deliver through the Exchange Agent (as defined in the Plan) to each holder
of record of NSC Shares at the Effective Time transmittal materials for use in
exchanging the Certificates for certificates for shares of HEALTHSOUTH Common
Stock. After the Effective Time, there will be no transfers on the stock
transfer books of NSC Shares that were issued and outstanding immediately prior
to the Effective Time and converted in the Merger.
No fractional shares of HEALTHSOUTH Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, HEALTHSOUTH will pay to each holder of NSC Shares who would
otherwise be entitled to a fractional share cash in an amount equal to the value
of such fractional share of HEALTHSOUTH Common Stock. See "- Terms of the
Merger".
No certificates representing shares of HEALTHSOUTH Common Stock, no
fractional share payment and no dividends or other distributions paid on such
HEALTHSOUTH Common Stock will be delivered or paid to a holder of a Certificate
or Certificates until the Certificates are delivered to HEALTHSOUTH through the
Exchange Agent. No interest will be paid on dividends or other distributions or
on any fractional share payment which the holder of such shares will be entitled
to receive upon such delivery.
At the Effective Time, holders of NSC Shares immediately prior to the
Effective Time will cease to be, and will have no rights as, stockholders of
NSC, other than the right to receive the shares of HEALTHSOUTH Common Stock into
which such shares have been converted and any fractional share payment and any
dividends or other distributions to which they may be entitled under the Plan.
Holders of NSC Shares will be treated as stockholders of record of HEALTHSOUTH
for purposes of voting at any annual or special meeting of stockholders of
HEALTHSOUTH after the Effective Time, both before and after such time as they
exchange their Certificates for certificates of HEALTHSOUTH Common Stock as
provided in the Plan.
Neither HEALTHSOUTH nor NSC will be liable to any holder of NSC Shares for
any shares of HEALTHSOUTH Common Stock (or dividends or other distributions with
respect thereto) or cash in lieu of fractional shares delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
REPRESENTATIONS AND WARRANTIES
The Plan contains various customary representations and warranties of the
parties thereto. The representations and warranties of HEALTHSOUTH and the
Subsidiary, made jointly and severally, include representations as to: (i) the
corporate organization of the Subsidiary, (ii) the power and authority of the
Subsidiary to execute and perform the Plan, (iii) the absence of subsidiaries of
the Subsidiary, and (iv) the absence of contracts, liabilities and legal
proceedings relating to or affecting the Subsidiary.
The representations and warranties of HEALTHSOUTH include representations
as to: (i) the organization of HEALTHSOUTH; (ii) the power and authority of
HEALTHSOUTH to execute, deliver and perform the Plan; (iii) the capitalization
of HEALTHSOUTH; (iv) ownership of Subsidiary Common Stock by HEALTHSOUTH; (v)
the fact that HEALTHSOUTH has furnished NSC with true and complete copies of
certain reports, schedules, registration statements and proxy statements filed
by HEALTHSOUTH with the SEC since January 1, 1998, and that such documents did
not contain any untrue statements of material facts or omit to state material
facts that would be necessary to make the statements therein, under the
circumstances under which they were made, not misleading; (vi) HEALTHSOUTH's
investment intent with respect to the NSC Shares acquired; (vii) the absence of
material legal proceedings against HEALTHSOUTH; (viii) the absence of certain
material changes
30
relating to HEALTHSOUTH since the date of the HEALTHSOUTH's document last filed
with the SEC; and (ix) the filing of HEALTHSOUTH's tax returns; (x)
HEALTHSOUTH's compliance with laws in general; and (xi) HEALTHSOUTH's licenses,
accreditations and regulatory approvals.
The representations and warranties of NSC include representations and
warranties as to: (i) the organization and good standing of NSC and its
subsidiaries, (ii) the capitalization of NSC, (iii) foreign qualifications, (iv)
the power and authority of NSC to execute, deliver and perform the Plan, (v) the
fact that NSC has furnished HEALTHSOUTH with true and complete copies of certain
reports, schedules, registration statements and proxy statements filed by NSC
with the SEC since January 1, 1998, and that such documents did not contain any
untrue statements of material facts or omit to state material facts that would
be necessary to make the statements therein, under the circumstances under which
they were made, not misleading, (vi) certain information provided to
HEALTHSOUTH, (vii) the absence of undisclosed material legal proceedings against
NSC, (viii) the validity of NSC's material contracts, and (ix) the absence of
certain material changes relating to NSC since the date of the NSC document last
filed with the SEC.
CONDITIONS TO THE MERGER
The obligation of HEALTHSOUTH and the Subsidiary to consummate the Merger
is subject to, among others, the following conditions: (i) NSC shall have
performed all of its agreements as contemplated by the Plan to be performed at
or prior to the consummation date of the Merger; (ii) except as otherwise
provided therein, the representations and warranties of NSC set forth in the
Plan shall be true and correct in all material respects as of the dates
specified in the Plan; (iii) HEALTHSOUTH shall have received the opinion of its
counsel, Haskell Slaughter & Young, L.L.C., that the Merger constitutes a
tax-free reorganization under the Code; and (iv) HEALTHSOUTH shall have received
an opinion of NSC's counsel, Bell, Boyd & Lloyd, as to certain matters.
The obligation of NSC to consummate the Merger is subject to, among others,
the following conditions: (i) HEALTHSOUTH and the Subsidiary shall have
performed all of their agreements as contemplated by the Plan to be performed at
or prior to the consummation of the Merger; (ii) except as otherwise provided
therein the representations and warranties of HEALTHSOUTH and the Subsidiary set
forth in the Plan shall be true and correct as of the dates specified in the
Plan; (iii) NSC shall have received the opinion of its counsel, Bell, Boyd &
Lloyd, that the Merger constitutes a tax-free reorganization under the Code; and
(iv) NSC shall have received an opinion of HEALTHSOUTH's counsel, Haskell
Slaughter & Young, L.L.C., as to certain matters.
The obligation of each of HEALTHSOUTH, the Subsidiary and NSC to consummate
the Merger is subject to certain additional conditions, including the following:
(i) no order, decree or injunction by a court of competent jurisdiction
preventing the consummation of the Merger or imposing any material limitation on
the ability of HEALTHSOUTH effectively to exercise full rights of ownership of
the common stock of the Surviving Corporation or any material portion of the
assets or business of NSC shall be in effect; (ii) no statute, rule or
regulation shall have been enacted by the government of the United States or any
state, municipality or other political subdivision thereof that makes the
consummation of the Merger or any other transaction contemplated by the Plan
illegal; (iii) the waiting period under the HSR Act shall have expired or shall
have been terminated; (iv) the Registration Statement shall have been declared
effective under the Securities Act and shall not be subject to any stop order;
(v) the Merger shall have been approved by the requisite vote of the holders of
the outstanding NSC Shares entitled to vote thereon; (vi) the shares of
HEALTHSOUTH Common Stock to be issued in connection with the Merger shall have
been approved for listing on the NYSE upon official notice of issuance; (vii)
The Merger shall have qualified for "pooling of interests" accounting treatment
and HEALTHSOUTH and NSC shall have each received letters to that effect from
Ernst & Young, dated as of the date of the mailing of the Prospectus-Proxy
Statement and the Closing Date; (viii) HEALTHSOUTH and the Subsidiary shall have
obtained, or obtained the transfer of, any Licenses (as defined) necessary to
allow the Surviving Corporation to operate the NSC facilities, unless the
failure to obtain such transfer or approval would not have a material adverse
effect on the Surviving Corporation; and (ix) HEALTHSOUTH and the Subsidiary
shall have received all required consents, approvals and authori-
31
zations of third parties with respect to all material leases and management
agreements to which NSC Subsidiaries or NSC Other Entities are parties, except
where failure to do so would not have a material effect on the business of the
Surviving Corporation.
REGULATORY APPROVALS
As conditions precedent to the consummation of the Merger, the Plan
requires, among other things: (i) that the HSR Act waiting period has expired or
been terminated and (ii) that all other governmental approvals required for the
consummation of the Merger have been obtained, except where the failure to
obtain such approvals would not have a material adverse effect on the business
of the Surviving Corporation.
HSR Act. The HSR Act prohibits consummation of the Merger until certain
information has been furnished to the Antitrust Division of the DOJ and the FTC
and certain waiting period requirements have been satisfied. On May 14, 1998,
HEALTHSOUTH and NSC made their respective filings with the DOJ and the FTC with
respect to the Plan. Under the HSR Act, the filings commenced a waiting period
during which the Merger cannot be consummated, which waiting period expired on
June 13, 1998.
Notwithstanding the termination or expiration of the HSR Act waiting
period, at any time before or after the Effective Time, the FTC or the DOJ could
initiate legal action under the antitrust laws seeking to enjoin the
consummation of the Merger or seeking the divestiture by HEALTHSOUTH of any part
of its assets or all or any part of the stock or assets of NSC. In addition,
certain other persons, such as states' attorneys general and private parties,
could challenge the Merger as violative of the antitrust laws and seek to enjoin
the consummation of the MergerOld Notes, and in the case of private persons, alsohandling or forwarding tenders for exchange.
The expenses to obtain treble damages. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge were made, that it
would not be successful.
HEALTHSOUTH and NSC believe that the Merger does not violate the antitrust
laws and intend to resist vigorously any assertion to the contrary by the FTC,
the DOJ or others. Any such assertion could delay consummation of the Merger,
perhaps for a considerable period. Prior to the Merger, the FTC or the DOJ could
seek to enjoin the consummation of the Merger under the federal antitrust laws
or require that HEALTHSOUTH or NSC divest assets to avoid such a proceeding. The
FTC or DOJ could also, following the Merger, take action under the federal
antitrust laws to rescind the Merger, to require divestiture of assets of either
HEALTHSOUTH or NSC, or to obtain other relief.
NSC does not intend to seek any further stockholder approval or
authorization of the Plan as a result of any action that the Companies may take
to resist or resolve any FTC, DOJ or other objections, unless required to do so
by applicable law.
Other Regulatory Approvals. The operations of each Company are subject to a
substantial body of federal, state, local and accrediting body laws, rules and
regulations relating to the development, operations and licensing of healthcare
businesses and facilities. Many regulatory agencies require that a filing be
made to obtain consent to or approval of the Merger. All filings required to be
made prior to the date of this Prospectus-Proxy Statement to obtain the consents
and approvals required from federal and state healthcare regulatory bodies and
agencies have been made. Certain filings cannot, however, be made under
applicable laws, rules and regulations until after the Effective Time. As a
result of the Merger, certain of the arrangements between NSC and third-party
payors may be deemed to have been transferred, requiring the approval and
consent of such payors. Although no assurances to this effect can be given, it
is anticipated that the Companies will be able to obtain any required regulatory
or third-party payor consent or approval.
BUSINESS PENDING THE MERGER
The Plan provides that, during the period from the date of the Plan to the
Effective Time, except as provided in the Plan, NSC will conduct its businesses
in the usual, regular and ordinary course in substantially the same manner as
previously conducted and will use its best efforts to preserve intact its
present business organization, to keep available the services of its key
employees and to preserve its relationships with customers, suppliers and others
having business dealings with it.
32
Under the Plan, NSC has agreed that it will not (other than as required
pursuant to or contemplated by the terms of the Plan and related documents),
pending the Effective Time without first obtaining the written consent of
HEALTHSOUTH: (i) encumber any asset or enter into any transaction or make any
contract or commitment relating to the properties, assets and business of NSC,
other than in the ordinary course of business or as otherwise disclosed in the
Plan; (ii) enter into any employment contract which is not terminable upon
notice of 30 days or less, at will, and without penalty to NSC except as
provided in the Plan; (iii) enter into any contract or agreement (a) which
cannot be performed within three months or less, or (b) which involves the
expenditure of over $100,000; (iv) issue or sell, or agree to issue or sell, any
shares of capital stock or other securities of NSC, except upon exercise of
currently outstanding stock options or warrants or pursuant to the NSC Employee
Stock Purchase Plan; (v) make any contribution, payment or distribution to the
trustee under any bonus, pension, profit-sharing or retirement plan or incur any
obligation to make any such payment or contribution which is not in accordance
with NSC's usual past practice, or establish or enter into any other plan or
contract or arrangement providing for bonuses, executive incentive compensation,
pensions, deferred compensation, retirement payments, profit-sharing or the
like, or terminate any Plan; (vi) extend credit to anyone, except in the
ordinary course of business consistent with prior practices; (vii) guarantee the
obligation of any person, firm or corporation, except in the ordinary course of
business consistent with prior practices; (viii) amend its Certificate of
Incorporation or Bylaws; (ix) discharge or satisfy any material lien or
encumbrance, or pay or satisfy any material obligation or liability (absolute,
accrued, contingent or otherwise) other than (a) liabilities shown or reflected
on NSC's consolidated balance sheet at December 31, 1997 (the "NSC Balance
Sheet") or (b) liabilities incurred in the ordinary course of business since the
date of the NSC document last filed with the SEC which discharge or satisfaction
would have a material adverse effect on NSC; (x) increase or establish any
reserve for taxes or any other liability on its books or otherwise provide
therefor that would have a material adverse effect on NSC, except as relates to
the consolidated results of operations of NSC since the date of the NSC Balance
Sheet; or (xi) grant any general or uniform increase in the rates of pay of
employees or grant any increase in salary payable or to become payable by NSC to
any officer, employee, consultant or agent of NSC (other than normal merit
increases) or by means of any bonus or pension plan, contract or other
commitment, increase the compensation of any officer, employee, consultant or
agent of NSC.
WAIVER AND AMENDMENT
The Plan provides that, at any time prior to the Effective Time,
HEALTHSOUTH and NSC may (i) extend the time for the performance of any of the
obligations or other acts of the other party contained in the Plan; (ii) waive
any inaccuracies in the representations and warranties of the other party
contained in the Plan or in any document delivered pursuant to the Plan; and
(iii) subject to the limitations regarding amendment of the Plan described in
the following sentence, and except for certain mutual conditions to closing,
waive compliance with the agreements or conditions under the Plan. In addition,
the Plan may be amended at any time upon the written agreement of HEALTHSOUTH
and NSC without the approval of stockholders of either Company, except that
after the Special Meeting no amendment may be made which by law requires a
further approval by the stockholders of NSC without obtaining such further
approvals.
TERMINATION
The Plan may be terminated at any time prior to the Effective Time, whether
before or after approval of the Plan by the stockholders of NSC: (i) by mutual
written consent of HEALTHSOUTH and NSC; (ii) by either HEALTHSOUTH or NSC if
there is a material breach on the part of the other party of any representation,
warranty, covenant or other agreement set forth in the Plan which is not cured
as provided in the Plan; (iii) by either HEALTHSOUTH or NSC if any governmental
entity or court of competent jurisdiction shall have issued a final, permanent
order, decree, or ruling or other action enjoining or otherwise prohibiting the
Merger and such order, decree, or ruling or other action shall have become
non-appealable; (iv) by either HEALTHSOUTH or NSC if the Merger has not been
consummated on or before November 30, 1998 (or such later date as may be
determined under the Plan), unless the failure to consummate the Merger by such
time is due to the breach of the Plan by the
33
party seeking to terminate the Plan; (v) by either HEALTHSOUTH or NSC if any
required approval of the Plan by stockholders of NSC has not been obtained by
the required votes at a duly held meeting of stockholders; (vi) by either
HEALTHSOUTH or NSC if any of the conditions to the obligation of such party to
effect the Merger is not capable of being satisfied prior to November 30, 1998,
unless such period is extended; or (vii) by NSC, if the Board of Directors of
NSC, in the exercise of its fiduciary duties under applicable law, has (w)
determined not to recommend the Merger to the holders of NSC Common Stock, (x)
withdrawn such recommendation, (y) approved, recommended or endorsed any
Acquisition Transaction other than the Plan or (z) resolved to take any of such
actions. For the purposes of clause (vii), an "Acquisition Transaction" means a
merger, purchase of assets, purchase of or tender offer for shares of NSC stock
or any similar transaction (other than the Merger).
BREAK-UP FEE; THIRD PARTY BIDS
If the Plan is terminated by NSC for the reason set forth in clause (vii)
under "- Termination" above and within one year after the effective date of such
termination NSC is the subject of a Third Party Acquisition Event (as defined in
the Plan), then at the time of consummation of such a Third Party Acquisition
Event, NSC shall pay to HEALTHSOUTH a break-up fee of $15,000,000.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board of Directors of NSC with
respect to the Plan and the transactions contemplated thereby, stockholders of
NSC should be aware that certain members of the management of NSC and the Board
of Directors of NSC have certain interests in the Merger that are in addition to
the interests of the stockholders generally.
In connection with the Merger, HEALTHSOUTH anticipates that it will enter
into Consulting and Non-Competition Agreements with each of E. Timothy Geary,
Bryan S. Fisher, Dennis D. Solheim and Dennis Zamojski, pursuant to which they
will act as consultants to HEALTHSOUTH with respect to various matters,
including transition issues, industry presentations, business development and
strategic planning.
In addition, pursuant to the terms of NSC's stock option plans, certain NSC
stock options that are not fully vested prior to the Effective Time will
accelerate and vest in full as a result of the Merger at the Effective Time.
Certain directors and members of NSC management hold such options.
Further, under the Plan HEALTHSOUTH has agreed that after the Effective
Time it will indemnify the current and former officers, directors and employees
of NSC against any liabilities arising in whole or in part: (i) out of the fact
that such person was an officer, director or employee of NSC; or (ii) out of, or
pertaining to, the Plan. As part of such indemnification, HEALTHSOUTH has also
agreed that after the Effective Time it will provide to any such indemnified
party the indemnification rights that such party would have had under the NSC
Certificate of Incorporation or NSC Bylaws immediately prior to the Effective
Time, until any applicable statute of limitations shall have expired.
INDEMNIFICATION
The Plan provides that NSC shall, and after the Effective Time HEALTHSOUTH
and the Surviving Corporation shall, indemnify, defend and hold harmless each
person who is, or has ever been at any time prior to the Effective Time, an
officer, director or employee of NSC or any of its subsidiaries (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses,
liabilities or judgments, or amounts that are paid in settlement with the
approval of the indemnifying party in connection with any claim arising, in
whole or in part, out of the fact that such person is or was a director, officer
or employee of NSC and pertaining to a matter occurring or existing at or prior
to the Effective Time.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by HEALTHSOUTH
and NSC of a letter from Ernst & Young LLP, HEALTHSOUTH's independent auditors,
regarding that firm's concurrence with the conclusions of the managements of
HEALTHSOUTH and NSC, respectively, as to
34
the appropriateness of pooling-of-interests accounting for the Merger under APB
16 if closed and consummated in accordance with the Plan. HEALTHSOUTH and NSC
have agreed not to intentionally take or cause to be taken any action that would
disqualify the Merger as a pooling of interests for accounting purposes.
Under the pooling-of-interests method of accounting, the historical basis
of the assets and liabilities of HEALTHSOUTH and NSC will be combined at the
Effective Time and carried forward at their previously recorded amounts, the
stockholders' equity accounts of HEALTHSOUTH and NSC will be combined on
HEALTHSOUTH's consolidated balance sheet and no goodwill or other intangible
assets will be created. Financial statements of HEALTHSOUTH issued after the
Merger will be restated retroactively to reflect the consolidated operations of
HEALTHSOUTH and NSC as if the Merger had taken place prior to the periods
covered by such financial statements.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the principal federal income tax
consequences of the Merger to the holders of NSC Shares. The discussion is based
on currently existing provisions of the Code, Treasury Regulations thereunder,
administrative rulings and court decisions. All of the foregoing are subject to
change and any such change can affect the continuing validity of this
discussion. This summary applies to holders of NSC Shares who hold their NSC
Shares as capital assets. This summary does not discuss all aspects of income
taxation that may be relevant to a particular holder of NSC Shares in light of
such holder's specific circumstances or to certain types of holders subject to
special treatment under the federal income tax laws (for example, foreign
persons, dealers in securities, banks and other financial institutions,
insurance companies, tax-exempt organizations and holders who acquired NSC
Shares pursuant to the exercise of options or otherwise as compensation or
through a tax-qualified retirement plan or holders who are subject to the
alternative minimum tax provisions of the Code), and it does not discuss any
aspect of state, local, foreign or other tax law.
NSC has received an opinion regarding all material federal income tax
consequences with respect to the Merger from its counsel, Bell, Boyd & Lloyd
("BB&L"), and HEALTHSOUTH has received a similar opinion from its counsel,
Haskell Slaughter & Young, L.L.C. ("Haskell Slaughter", and together with BB&L,
"Tax Counsel"). Based on the conditions and qualifications discussed herein,
such opinions collectively state that for federal income tax purposes the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code and that the material federal income tax consequences of the Merger will be
that: (i) no gain or loss will be recognized by HEALTHSOUTH, the Subsidiary or
NSC as a result of the Merger; (ii) no gain or loss will be recognized by the
stockholders of NSC upon the exchange of their NSC Shares solely for shares of
HEALTHSOUTH Common Stock pursuant to the Merger, except that a NSC stockholder
who receives cash proceeds in lieu of a fractional share of HEALTHSOUTH Common
Stock will recognize gain or loss equal to the difference, if any, between such
stockholder's tax basis allocated to such fractional share (as described in
clause (iii) below) and the amount of cash received, and such gain or loss will
constitute capital gain or loss if such stockholder's NSC Shares with respect to
which gain or loss is recognized are held as a capital asset at the Effective
Time and such payment in lieu of the fractional shares is not essentially
equivalent to a dividend within the meaning of Section 302(b)(l) of the Code;
(iii) the aggregate tax basis of the shares of the HEALTHSOUTH Common Stock
received solely in exchange for NSC Shares pursuant to the Merger (including
fractional shares of HEALTHSOUTH Common Stock for which cash is received) will
be the same as the aggregate tax basis of the NSC Shares exchanged therefor; and
(iv) the holding period for HEALTHSOUTH Common Stock received in exchange for
NSC Shares pursuant to the Merger will include the holding period of the NSC
Shares exchanged therefor, provided such NSC Shares were held as a capital asset
at the Effective Time.
Neither HEALTHSOUTH nor NSC has requested or will receive an advance ruling
from the Internal Revenue Service (the "Service") as to the federal income tax
consequences of the Merger. In rendering their opinions, Tax Counsel has
received and relied upon representations contained in certificates of
HEALTHSOUTH, the Subsidiary, NSC and others. Tax Counsel's opinions are subject
to
35
certain limitations and qualifications and are based upon the truth and accuracy
of these representations and upon certain factual assumptions and represent Tax
Counsel's best legal judgment. The tax opinions are not binding on the Service
or the courts and do not preclude the Service from adopting a contrary position.
EACH HOLDER OF NSC SHARES IS URGED TO CONSULT SUCH HOLDER'S TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO SUCH HOLDER, INCLUDING THE
APPLICATION OF STATE, LOCAL, FEDERAL AND FOREIGN TAX LAWS.
RESALE OF HEALTHSOUTH COMMON STOCK BY AFFILIATES
The offering, sale and delivery of shares of HEALTHSOUTH Common Stock to be
issued to holders of NSC Shares in connection with the Merger have been
registered under the Securities Act. HEALTHSOUTH Common Stock received by the
stockholders of NSC upon consummation of the Merger will be freely transferable
under the Securities Act, except for shares issued to any person who may be
deemed an "Affiliate" of NSC or HEALTHSOUTH within the meaning of Rule 145 under
the Securities Act. "Affiliates" are generally defined as persons who control,
are controlled by, or are under common control with NSC or HEALTHSOUTH at the
time of the Special Meeting (generally, directors, certain executive officers
and major stockholders). Affiliates of NSC or HEALTHSOUTH may not sell their
shares of HEALTHSOUTH Common Stock acquired in connection with the Merger,
except pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In general,
under Rule 145, for one year following the Effective Time, an Affiliate
(together with certain related persons) would be entitled to sell shares of
HEALTHSOUTH Common Stock acquired in connection with the Merger only through
unsolicited "brokers' transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 144 under the Securities Act.
Additionally, the number of shares to be sold by an Affiliate (together with
certain related persons and certain persons acting in concert) within any
three-month period during such one-year period for purposes of Rule 145 may not
exceed the greater of (i) 1% of the outstanding shares of HEALTHSOUTH Common
Stock or (ii) the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. The resale provisions of Rule 145 will
remain available to Affiliates only if HEALTHSOUTH remains current with its
information filings with the SEC under the Exchange Act. One year after the
Effective Time, an Affiliate will be able to sell such HEALTHSOUTH Common Stock
without such manner of sale or volume limitations if HEALTHSOUTH is current with
its Exchange Act information filings and such Affiliate is not then an Affiliate
of HEALTHSOUTH. Two years after the Effective Time, an Affiliate will be able to
sell such shares of HEALTHSOUTH Common Stock without any restrictions so long as
such Affiliate was not an Affiliate of HEALTHSOUTH for at least three months
prior thereto.
NSC has agreed to use its reasonable, good faith efforts to cause each
holder of NSC Shares deemed to be an Affiliate of NSC to enter into an agreement
providing that such Affiliate will not sell, pledge, transfer or otherwise
dispose of shares of HEALTHSOUTH Common Stock to be received by such person in
the Merger, except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder.
NO APPRAISAL RIGHTS
Under the DGCL, holders of NSC Common Stock will not be entitled to
dissenters' rights of appraisal in connection with the Merger.
NO SOLICITATION OF TRANSACTIONS
Subject to the provisions described in the next paragraph, NSC has agreed
that it will not, and will not suffer any of its directors, officers, employees,
agents or representatives to, directly or indirectly, (i) encourage, solicit,
participate in or initiate discussions or negotiations with or (ii) provide any
information to any entity concerning any merger, sale of assets, sale of or
tender offer for shares of NSC Common Stock or similar transaction involving NSC
from the date of the Plan through the Effective Time.
36
Notwithstanding the provisions described in the preceding paragraph, under
the Plan, NSC may (i), directly or indirectly, furnish information and access,
in response to an unsolicited request therefor, to any entity pursuant to
appropriate confidentiality agreements, and (ii) participate in discussions and
negotiate with an entity concerning any proposal to acquire NSC upon an
Acquisition Transaction, if the Board of Directors of NSC determines in its good
faith judgment in the exercise of its fiduciary duties or the exercise of its
duties under Rule 14e-2 under the Exchange Act, after consultation with legal
counsel and its financial advisors, that such action is appropriate in
furtherance of the best interest of its stockholders. NSC shall promptly notify
HEALTHSOUTH if it shall, on or after the date of the Plan, have entered into a
confidentiality agreement with any third party in response to any unsolicited
request for information and access in connection with a possible Acquisition
Transaction involving such party, such notification to include the identity of
such third party.
EXPENSES
The Plan provides that, except as described under "- Breakup Fee; Third
Party Bids", all costs and expenses incurred in connection with the Plan and the
transactions contemplated thereby shallExchange Offer will be
paid by the party incurring such
expense, except thatIssuer, including fees and expenses of the Exchange Agent and
Trustee and accounting, legal, printing and mailing this Prospectus-Proxy
Statement shallrelated 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 shared equallydelivered 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 and NSC.
NYSE LISTING
A listing applicationto 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 filed withretired and cancelled and
cannot be reissued. Accordingly, the NYSE to listissuance 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 HEALTHSOUTH Common
Stock subject to beoptions 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 to NSC stockholders in connection with
the
Merger. Although no assurance can be given that the shares of HEALTHSOUTH Common
Stock so issued will be accepted for listing, HEALTHSOUTH anticipates that these
shares will qualify for listing on the NYSE upon official notice of issuance
thereof. It is a conditionacquisitions subsequent to the Merger that such shares of HEALTHSOUTH Common
Stock be approved for listing on the NYSE upon official notice of issuance at
the Effective Time.
37June 30.
28
SELECTED CONSOLIDATED FINANCIAL DATA - HEALTHSOUTH
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
acquisition of Surgical Health Corporation ("SHC") and Sutter Surgery Centers,
Inc. ("SSCI")
acquisitions,, the 1996 acquisition of Surgical Care Affiliates, Inc. ("SCA")
and Advantage Health Corporation ("Advantage Health") acquisitions and the 1997 acquisition
of Health Images, Inc. ("Health Images") acquisition,, 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)(6)(4) ................ 265,502 273,480 289,594
========== ========== ==========
Net income per common share: (3)(6)(4)
Continuing operations ........................................... $ 0.23 $ 0.34 $ 0.37
Discontinued operations ......................................... 0.01 (0.02) 0.00
Extraordinary item .............................................. - --- -- (0.03)
---------- ---------- ----------
$ 0.24 $ 0.32 $ 0.34
========== ========== ==========
Weighted average common shares outstanding --- as-
suming dilution(3)(4)(6)(5) ....................................... 275,366 300,758 320,018
========== ========== ==========
Net income per common share --- assuming dilution:
(3)(4)(6)(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
========== ========== ==========
THREESIX MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,JUNE 30,
--------------------------- --------------------
1996 1997 1997 1998
---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER (UNAUDITED)
SHARE DATA)
INCOME STATEMENT DATA:
Revenues ......................................................... $2,568,155 $3,017,269 $691,631 $907,663$1,414,648 $1,850,145
Operating unit expenses .......................................... 1,667,248 1,888,435 438,289 561,491889,939 1,140,128
Corporate general and administrative expenses .................... 79,354 82,757 17,849 26,42436,358 52,681
Provision for doubtful accounts .................................. 58,637 71,468 14,713 21,75332,788 43,723
Depreciation and amortization .................................... 207,132 250,010 57,371 73,382117,516 153,713
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 25,673 28,33653,415 56,918
Interest income .................................................. (6,034) (4,414) (1,038) (1,641)(2,322) (4,522)
Gain on sale of partnership interest ............................. - - - --- -- -- --
Gain on sale of MCA Stock ........................................ - - - --- -- -- --
---------- ---------- -------- ------------------ ----------
2,183,993 2,415,635 568,732 709,7451,143,569 1,442,641
---------- ---------- -------- ------------------ ----------
Income from continuing operations before income taxes,
minority interests and extraordinary item ....................... 384,162 601,634 122,899 197,918271,079 407,504
Provision for income taxes ....................................... 143,929 206,153 42,411 70,21992,465 145,484
---------- ---------- -------- ------------------ ----------
240,233 395,481 80,488 127,699178,614 262,020
Minority interests ............................................... 50,369 64,873 15,908 18,33132,715 35,424
---------- ---------- -------- ------------------ ----------
Income from continuing operations before extraordi-
nary item ....................................................... 189,864 330,608 64,580 109,368145,899 226,596
Income from discontinued operations .............................. - - - --- -- -- --
Extraordinary item (2) ........................................... - - - --- -- -- --
---------- ---------- -------- ------------------ ----------
Net income ...................................................... $ 189,864 $ 330,608 $ 64,580 $109,368145,899 $ 226,596
========== ========== ======== ================== ==========
Weighted average common shares outstanding (3)(6)(4) ................ 321,367 346,872 327,727 398,496334,233 399,540
========== ========== ======== ================== ==========
Net income per common share: (3)(6)(4)
Continuing operations ........................................... $ 0.59 $ 0.95 $ 0.200.44 $ 0.270.57
Discontinued operations ......................................... - - - --- -- -- --
Extraordinary item .............................................. - - - --- -- -- --
---------- ---------- -------- ------------------ ----------
$ 0.59 $ 0.95 $ 0.200.44 $ 0.270.57
========== ========== ======== ================== ==========
Weighted average common shares outstanding --- as-
suming dilution(3)(4)(6)(5) ....................................... 349,033 365,546 354,998 412,253355,340 420,248
========== ========== ======== ================== ==========
Net income per common share --- assuming dilution:
(3)(4)(6)(5)
Continuing operations ........................................... $ 0.55 $ 0.91 $ 0.180.41 $ 0.270.55
Discontinued operations ......................................... - - - --- -- -- --
Extraordinary item .............................................. - - - --- -- -- --
---------- ---------- -------- ------------------ ----------
$ 0.55 $ 0.91 $ 0.180.41 $ 0.270.55
========== ========== ======== ================== ==========
29
DECEMBER 31,
---------------------------------------------------------------- MARCH 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 $ 205,079204,546
Working capital ........................ 300,876 308,770 406,601 564,529 566,751 915,5531,046,498
Total assets ........................... 2,000,566 2,355,920 3,107,808 3,529,706 5,401,053 5,791,8066,112,778
Long-term debt (5)(6) ..................... 1,028,610 1,164,135 1,453,018 1,560,143 1,601,824 1,973,4992,238,306
Stockholders' equity ................... 727,737 837,160 1,269,686 1,569,101 3,157,428 3,322,2963,473,829
38
- - -------------------
(1) Expenses related to SHC's Ballas Merger in 1993, the ReLife and Heritage
AcquisitionsSurgical Corporation acquisitions in 1994, the SHC, SSCI and NovaCare,
Rehabilitation Hospitals
AcquisitionsInc.'s rehabilitation hospitals division acquisitions in 1995, the SCA,
Advantage Health, PSCMProfessional Sports Care Management, Inc. and ReadiCare
Acquisitionsacquisitions in 1996, and the Health Images Acquisitionacquisition in 1997.
(2) See Notes 2 and 13 of "Notes to Consolidated Financial Statements". included
in HealthSouth's 1997 Annual Report on Form 10-K incorporated by reference
herein.
(3) Adjusted to reflect a two-for-one stock split effected in the form of a
100% stock dividend paid on April 17, 1995 and a two-for-one stock split
effected in the form of a 100% stock dividend paid on March 17, 1997.
(4) Earnings per share amounts prior to 1997 have been restated as required to
comply with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share". For further discussion, see Note 1 of "Notes to Consolidated
Financial Statements" included in HealthSouth's 1997 Annual Report on Form
10-K incorporated by reference herein.
(5) Diluted earnings per share in 1994, 1995, 1996 and 1997 reflect shares
reserved for issuance upon conversion of HEALTHSOUTH's 5% Convertible
Subordinated Debentures due 2001. Substantially all of such Debentures were
converted into shares of HEALTHSOUTH's Common Stock in 1997. (5)Diluted
earings per share in 1998 reflect shares reserved for issuance upon
conversion of HealthSouth's 3.25% Convertible Subordinated Debentures due
2001.
(6) Includes current portion of long-term debt.
(6) Earnings30
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 share amountsannum 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 1997 have been restatedthe 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 requireddetermined by the principal
accounting or financial officer of the Issuer.
"Capital Stock" of any specified person shall mean any and all shares,
rights to complypurchase, 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.
34
"Consolidated Tangible Assets" with Statementrespect 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 New 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 No. 128, "Earnings
Per Share". For further discussion, see Note 1Board or in such other statements by such
other entity as may be approved by a significant segment of "Notesthe accounting
profession of the United States, as from time to Consolidated
Financial Statements".
39
SELECTED CONSOLIDATED FINANCIAL DATA - NSC
The following statements of operations data andtime in effect.
"Indebtedness" shall mean all items classified as indebtedness on the most
recently available consolidated balance sheet dataof 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
periods ended December 31, 1993 through December 31, 1997 have been derived from
NSC's auditedpurpose 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 financial statements. The information set forth below
is qualified by reference to and should be read in conjunction with the consolidated financial statements and related notes incorporatedIssuer 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 reference
herein.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1993 1994 1995 1996 1997
------------ ------------ ------------ ------------ -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS DATA:(1)
Net revenues ................................... $ 35,230 $ 41,707 $ 53,165 $ 77,359 $ 102,632
Writedown of goodwill(2) ....................... (50,871) - - - -
Operating income (loss)(2) ..................... (44,385) 7,566 10,237 17,205 26,920
Interest expense ............................... 4,016 4,186 4,139 2,616 1,025
Income (loss) before income taxes and ex-
traordinary item(2) ........................... (49,463) 2,511 5,080 11,993 20,104
Income (loss) before extraordinary item(2) ..... (43,236) 1,493 3,099 7,377 12,589
Net income (loss)(2) ........................... (43,236) 1,120 2,846 6,914 12,451
Diluted income (loss) per common share:
Income (loss) before extraordinary item(2) ..... $ (7.57) $ 0.23 $ 0.38 $ 0.50 $ 0.67
Extraordinary item ............................. - (0.06) (0.03) (0.03) (0.01)
---------- -------- -------- -------- ---------
Net income (loss)(2) ........................... $ (7.57) $ 0.17 $ 0.35 $ 0.47 $ 0.66
========== ======== ======== ======== =========
Diluted weighted average number of common
and common equivalent shares outstanding. 5,715 6,404 8,186 15,204 18,834
THREE MONTHS
ENDED MARCH 31,
-------------------------
1997 1998
------------ ------------
STATEMENTS OF OPERATIONS DATA:(1)
Net revenues ................................... $ 22,116 $ 31,034
Writedown of goodwill(2) ....................... - -
Operating income (loss)(2) ..................... 5,215 8,854
Interest expense ............................... 153 314
Income (loss) before income taxes and ex-
traordinary item(2) ........................... 4,161 6,123
Income (loss) before extraordinary item(2) ..... 2,611 3,766
Net income (loss)(2) ........................... 2,611 3,766
Diluted income (loss) per common share:
Income (loss) before extraordinary item(2) ..... $ .14 $ .20
Extraordinary item ............................. - -
-------- --------
Net income (loss)(2) ........................... $ .14 $ .20
======== ========
Diluted weighted average number of common
and common equivalent shares outstanding. 18,692 19,132
DECEMBER 31, MARCH 31,
-------------------------------------------------------------- ------------
1993 1994 1995 1996 1997 1998
----------- --------- ---------- ---------- ---------- ------------
(IN THOUSANDS)
BALANCE SHEET DATA:(1)
Working capital ......................... $ 2,789 $ 6,300 $22,145 $ 59,968 $ 46,166 $ 39,013
Total assets ............................ 49,393 56,954 82,287 142,252 169,951 177,264
Long-term debt, less current installments 41,882 38,200 17,005 6,990 10,466 10,517
Shareholders' equity (deficit) .......... (3,134) 6,724 48,192 117,669 136,795 140,988
- - ----------
(1) NSC's financial statementsthe 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 periods presented arepurpose 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 strictly
comparable duelimited 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 significant effect that acquisitions have on such
statements.
(2) Operating results forconduct of the year ended December 31, 1993, includebusiness or the ownership of the
assets of the Issuer or of a non-recurring charge of approximately $50.9 million ($43.8 million after tax
benefit), principallySubsidiary, which were not incurred in connection
with the writedownborrowing of goodwill.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.
36
The Indenture provides that (a) if an Event of Default due to the default
in payment of principal, premium, if any, or interest on any series of Debt
Securities, or due to the default in the performance or breach of any other
covenant or agreement of the Issuer applicable to the Debt 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
transactions should constitute a recapitalization for federal income tax
purposes and holders of the Old Notes should not recognize any gain or loss on
such exchanged. The term "New Notes" utilized in the following sections means,
in certain contexts, the Old Notes an 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 March 31,June 30, 1998, HEALTHSOUTH had over 18001,900 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 CompanyIssuer 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.
COMPANYHEALTHSOUTH 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.
4143
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 April 16,July 1, 1998, HEALTHSOUTH announced that it had entered into a
definitive agreement to acquire 34acquired 33 ambulatory surgery centers from
Columbia/HCA Healthcare Corporation for $550,000,000 payable in cash at closing, which is
expected to occur during the third quarter of 1998.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 remains subjectwas 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 various regulatory approvalsHEALTHSOUTH's existing
network of outpatient surgery and other
third-party consents.
42
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 March
31,June 30,
1998, HEALTHSOUTH provided outpatient rehabilitative healthcare services through
approximately 1,2001,240 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 March 31,June 30, 1998, HEALTHSOUTH operated
133131 inpatient rehabilitation facilities with 7,7777,717 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 March 31,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 March 31,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.
43
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 Company'sIssuer'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 March 31,June 30, 1998, HEALTHSOUTH operated 113119 diagnostic centers in 2425 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 MedicineHealth Services
At March 31, 1998, HEALTHSOUTH operated 108122 occupational medicinehealth centers in
3133 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 medicinehealth 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 medicinehealth
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 medicinehealth 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.
4446
LOCATIONS
The following table sets forth a listing of HEALTHSOUTH's patient care
services locations at March 31, 1998:
OUTPATIENT INPATIENT MEDICAL
REHABILITATION REHABILITATION CENTERS SURGERY DIAGNOSTIC OTHER
STATE FACILITIES FACILITIES (BEDS)(2) (BEDS)(2) CENTERS CENTERS SERVICES
----- ---------- -------------------- --------- ------- ------- --------
Alabama ...................... 26 7 (336) 1 (219) 5 6 11
Alaska ....................... 8 1 1 4
Arizona ...................... 24 4 (243) 2 1 7
Arkansas ..................... 13 5 (278) 2 5
California ................... 59 1 (60) 36 1 31
Colorado ..................... 41 1 (64) 5 8 1
Connecticut .................. 35 1 (30) 5 3
Delaware ..................... 7 1
District of Columbia ......... 1 1
Florida ...................... 83 12 (735) 1 (285) 19 7 30
Georgia ...................... 30 1 (50) 3 10 4
Hawaii ....................... 12 1
Idaho ........................ 5 1
Illinois ..................... 51 5 3 1
Indiana ...................... 19 4 (260) 5 4
Iowa ......................... 3 1
Kansas ....................... 7 4 (231) 1
Kentucky ..................... 5 2 (80) 4
Louisiana .................... 4 6 (367) 1 3 2
Maine ........................ 7 4 (155) 4
Maryland ..................... 30 2 (66) 8 8 1
Massachusetts ................ 27 14 (806) 1 2 12
Michigan ..................... 24 1 (30) 1 2
Minnesota .................... 14
Mississippi .................. 7
Missouri ..................... 51 2 (86) 10 1 9
Montana ...................... 4
Nebraska ..................... 16
Nevada ....................... 19 2 (126) 1 2
New Hampshire ................ 10 3 (99)
New Jersey ................... 73 1 (155) 1 2 1
New Mexico ................... 6 1 (61) 1 1
New York ..................... 49 1 (27) 1 1
North Carolina ............... 19 3 1
North Dakota ................. 2
Ohio ......................... 42 1 (30) 7 4
Oklahoma ..................... 17 3 (183) 1 1 1
Oregon ....................... 27 1
Pennsylvania ................. 58 15 (1,180) 9 6 6
Rhode Island ................. 3
South Carolina ............... 9 4 (235) 2 6 2
South Dakota ................. 2 4
Tennessee .................... 33 6 (362) 6 5
Texas ........................ 104 19 (1,116) 1 (96) 21 24 41
Utah ......................... 4 1 (86) 1 1 2
Vermont ...................... 1
Virginia ..................... 24 1 (40) 1 (200) 2 9
Washington ................... 85 2 1 17
West Virginia ................ 2 4 (200) 1
Wisconsin .................... 3 4
Wyoming ...................... 2
- - ----------
(1) Includes freestanding outpatient centers and their satellites, outpatient
satellites of inpatient rehabilitation facilities and outpatient facilities
managed under contract.
(2) "Beds" refersPLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the number of beds for which a license or certificate of
need has been granted, which may vary materially from beds available for
use.
In addition, at March 31, 1998, HEALTHSOUTH operated six diagnostic centers
in the United Kingdom and one rehabilitation hospital in Australia.
45
BUSINESS OF NSC
GENERAL
NSC owns and operates freestanding ambulatory surgery centers that provide
the medical and administrative support necessary for physicians to perform
non-emergency surgical procedures. NSC also pursues opportunities to develop new
ambulatory surgery facilities with hospitals and physician groups. As of March
31, 1998, NSC operated a network of 40 surgery centers in 14 states. NSC
provides alternate-site settings for high-quality surgical careExchange Offer must acknowledge that it believes
is more cost-effective than hospital-based surgical care and that it believes is
increasingly preferred by physicians, payors and patients. NSC believes that
many physicians prefer the efficiencies of freestanding ambulatory surgery
centers because they enhance physicians' productivity by providing them with
greater scheduling flexibility, more consistent nurse staffing and faster
turnaround time between cases, allowing physicians to perform more surgeries inwill deliver a defined period of time. In addition, new technology and advances in anesthesia
and the addition of overnight recovery have significantly expanded the number
and types of surgical procedures that are being performed in ambulatory surgery
centers.
STRATEGY
NSC's objective is to establish a nationwide organization of freestanding
ambulatory surgery centers in secondary and other selected markets by acquiring
established centers and developing new centers. NSC seeks to provide a broad
range of high-quality surgical services and to collaborate with other
participants in local health care delivery systems. The key components of the
NSC's strategy are as follows: (i) Focus on secondary and other selected markets
where NSC can establish a significant local presence or play an important role
in the development of local integrated delivery systems; (ii) Acquire
established ambulatory surgery centers that are seeking affiliation with an
experienced operator having access to capital and other resources; (iii) Develop
new ambulatory surgery centers in markets where attractive acquisitions are not
available or where the opportunity exists to increase NSC's presence in its
existing markets; (iv) Develop joint ventures with hospitals and other providers
to increase patient flow through joint marketing, access to managed care
contracts and participation in a broader network of health care providers; and
(v) Expand the range of services offered to physicians and payors by offering
state-of-the-art technology, administrative conveniences, flexible pricing
alternatives and cost-effective care.
o Focus on Secondary and Other Selected Markets. NSC focuses on those markets
where, either directly or through affiliation with physicians, payors or
hospitals, it can establish a significant local presence or play an important
role in the development of local integrated delivery systems. NSC generally
views secondary markets as those metropolitan areas with fewer than 250,000
residents and one or two hospitals. NSC believes that in secondary markets
its centers can more easily achieve the scale that allows them to become a
significant local health care provider and a more attractive partner in such
delivery systems.
o Acquire Established Ambulatory Surgery Centers. The ambulatory surgery center
industry is highly fragmented and is consolidating due to the increasing
complexity of the regulatory and business aspects of health care, the growing
influence of managed care, the rising cost of technology and the need for
capital. In addition, physician operators of surgery centers are experiencing
increasing practice demands. NSC believes that a significant opportunity
exists to acquire ambulatory surgery centers that are seeking affiliation
with experienced operators having access to capital and other resources.
o Develop New Ambulatory Surgery Centers. NSC pursues new center development in
markets where attractive acquisitions are not available or where the
opportunity exists to increase NSC's presence in its existing markets. In the
future, NSC's new center development efforts will generally be undertaken in
partnership with physicians, hospitals and other local healthcare
participants, including, where the opportunity presents itself, acquisitions
of centers that are currently under development. NSC believes that such
partnerships or acquisitions minimize the time required to become an
established provider.
46
o Develop Joint Ventures with Hospitals, Physicians and Other Providers. NSC
has established joint ventures, limited or general partnerships or limited
liability companies in 36 of its network of 40 centers. NSC believes that
such affiliations increase patient flow through joint marketing, access to
managed care contracts and participation in a broader network of healthcare
providers. As part of its joint venture strategy, NSC intends to manage the
surgery centers in which it and other healthcare providers have an equity
interest.
o Expand Range of Services. NSC plans to continue to increase the number and
types of surgeries performed at its centers. NSC is committed to adding
programs and services for physicians and payors by providing state-of-the-art
technology, administrative conveniences, flexible pricing alternatives and
cost-effective care. NSC is also committed to offering extended recovery
services wherever possible, enabling its centers to accommodate a wider range
of higher-acuity procedures.
OPERATION OF SURGERY CENTERS
NSC operates a network of 40 surgery centers in 14 states and is developing
three new surgery centers. NSC's surgery center network has a total of 121
operating rooms and 61 treatment rooms. NSC's surgery centers are typically
owned through limited or general partnerships in which a wholly owned subsidiary
of NSC owns a general partnership interest and is the managing general partner
of the surgery center. Local physicians and the subsidiary generally own the
limited partnership interests and, in five instances, hospitals also own limited
partnership interests. Recently, NSC has also owned surgery centers through
limited liability companies ("LLC") in which a wholly owned subsidiary of NSC
owns a portion of the LLC and is its managing member.
NSC's typical multi-specialty surgery center is a freestanding facility
with three to five fully equipped operating rooms, one or two treatment rooms
and ancillary areas for reception, pre-operative preparation, recovery and
administration. NSC's typical endoscopy center, which performs primarily
gastroenterological procedures, has two treatment rooms and ancillary areas for
reception, pre-operation preparation, recovery and administration and may also
have an operating room. NSC's surgery centers are generally located in close
proximity to physicians' offices. Each of NSC's surgery centers is available for
use only by licensed physicians who have been approved by the center's medical
credentialling committee.
NSC's multi-specialty surgery centers generally employ a staff of between
15 and 30 and its endoscopy centers generally employ a staff of between five and
fifteen, depending on the size of the facility and the volume of cases. The
staff includes a center administrator, a business manager, a clinical director,
registered nurses, operating room technicians and clerical workers. The center
administrator is responsible for general oversight of the center's operations,
including liaison with physicians and coordination of marketing efforts and
reports to a regional manager or corporate vice president. The business manager
is responsible for the center's financial records and patient billing and
collections. The clinical director is responsible for providing leadership and
coordination for the professional and support staff and ensuring efficient
scheduling and staffing for the physicians.
NSC provides services to a wide range of specialties including:
ophthalmology, orthopedic surgery, otorhinolaryngology (ear, nose and throat),
gynecology, general surgery, gastroenterology, anesthesiology, neurosurgery,
oral surgery, plastic surgery, podiatry and urology. Medicare currently approves
over 2,400 types of surgical procedures that may be performed in ambulatory
surgery centers, up from 1,500 types in 1992. Common procedures performed in the
NSC's surgery centers include knee and shoulder arthroscopy, laparoscopy, hernia
repair, tubal ligations and removal of cataracts.
Fifteen of NSC's multi-specialty surgery centers currently provide for
extended recovery stays. NSC intends to offer extended recovery services at its
multi-specialty facilities if permitted by state law. NSC's ability to develop
such recovery care facilities is dependent on state regulatory environments.
47
The following table sets forth information regarding each of the centers
operated by the Company as of May 31, 1998:
DATE NUMBER OF NUMBER OF EXTENDED
OPERATIONS PERCENTAGE OPERATING TREATMENT RECOVERY
LOCATION BEGAN BY NSC OWNERSHIP(1) ROOMS ROOMS SERVICE
-------- ------------ ------------ ----- ----- -------
Bremerton, WA October 1991 93.0 3 1 -
Brownsville,TX November 1991 59.0 4 1
Fayetteville, NC November 1991 50.2 9 - -
Norman, OK November 1991 50.5 41 -
Greensboro, NC June 1992 100.0 11 3 -
Seattle, WA June 1992 52.5 7 - -
Provo, UT October 1992 100.0 5 - -
Elizabethtown, KY November 1992 78.5 3 1 -
Bakersfield, CA January 1993 87.0 2 1
Somerset, KY November 1993 87.5 2 1 -
Las Vegas, NV August 1994 69.2 4 3 -
Santa Monica, CA August 1994 88.9 5 3 -
Las Vegas, NV February 1995 10.0 2 1
Oxnard, CA August 1995 88.2 4 1 -
Greensboro, NC October 1995 80.3 2 -
Billings, MT January 1996 100.0 3 1
Chula Vista, CA February 1996 51.0 - 2
Ft. Worth, TX February 1996 51.0 - 2
Long Beach, CA February 1996 50.0 - 3
Newport Beach, CA February 1996 70.0 - 2
San Diego, CA February 1996 51.3 - 3
Thousand Oaks, CA February 1996 51.0 - 2
Kent, OH April 1996 83.0 2 1
Atlanta, GA May 1996 67.0 3 -
Cincinnati, OH May 1996 58.0 1 1
Houston, TX May 1996 65.8 3 1 -
Miami, FL May 1996 51.0 4 3
Sarasota, FL May 1996 54.0 1 2
Humble, TX September 1996 65.0 4 2 -
Auburn, CA November 1996 88.1 2 2
San Mateo, CA December 1996 38.5 - 2
Port St. Lucie, FL January 1997 80.0 2 1
Bakersfield, CA June 1997 80.0 2 -
South Oklahoma City, OK June 1997 60.0 4 2 -
Edmond, OK August 1997 60.0 4 1 -
Hartford, CT August 1997 100.0 2 1
Midwest City, OK November 1997 84.4 2 1
Manahawkin, NJ December 1997 49.0 2 1
Norman, OK February 1998 81.0 - 2
Lancaster, CA March 1998 78.3 4 2
Jacksonville, FL May 1998 61.7 6 3
St. Augustine, FL May 1998 55.0 3 1
- - ----------
(1) Includes general partnership, limited partnership or limited liability
company units.
RECENT DEVELOPMENTS
On May 22, 1998, NSC completed the acquisitions of majority interests in
ambulatory surgery centers in each of Jacksonville, Florida and St. Augustine,
Florida, for cash.
48
DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH
COMMON STOCK
HEALTHSOUTH is authorized by the HEALTHSOUTH Certificate to issue up to
601,500,000 shares of capital stock, of which 600,000,000 shares are designated
Common Stock, par value $.01 per share, and 1,500,000 shares are designated
Preferred Stock, par value $.10 per share. As of June 15, 1998, there were
401,094,178 shares of HEALTHSOUTH Common Stock outstanding (including shares
reserved for issuanceprospectus in
connection with HEALTHSOUTH's 1995, 1996 and 1997
mergers which had not yet been claimed by holders of the stock of the acquired
companies). In addition, as of June 15, 1998, approximately (a) 15,501,707
shares of Common Stock were reserved for issuance upon conversion of HEALTHSOUTH
3.25% Convertible Subordinated Debentures due 2003, (b) 37,108,303 shares of
Common Stock were reserved for issuance under HEALTHSOUTH's Stock Option Plans,
under which options to purchase a total of 28,894,862 shares of Common Stock
were outstanding, (c) 980,542 shares were reserved for issuance pursuant to the
exercise of outstanding stock purchase warrants, and (d) 1,218,307 shares were
reserved for issuance in connection with HEALTHSOUTH's pending acquisition of
The Company Doctor, an occupational medicine provider.
Holders of HEALTHSOUTH Common Stock are entitled to participate equally in
dividends when and as declared by the Board of Directors out of funds legally
available therefor and, in the event of liquidation or distribution of assets of
HEALTHSOUTH, are entitled to share ratably in such assets remaining after
payment of liabilities. Stockholders are entitled to one vote per share. Holders
of HEALTHSOUTH Common Stock have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions with respect to
such stock. The outstanding shares of HEALTHSOUTH Common Stock are fully paid
and nonassessable.
FAIR PRICE PROVISION
The HEALTHSOUTH Certificate contains certain provisions requiring
supermajority stockholder approval to effect specified extraordinary corporate
transactions unless certain conditions are met. The HEALTHSOUTH Certificate
requires the affirmative vote of 66 2/3% of all shares of HEALTHSOUTH entitled
to vote in the election of Directors to approve a "business combination" with
any "other entity" that is the beneficial owner, directly or indirectly, of more
than 20% of the outstanding shares of HEALTHSOUTH entitled to vote in the
election of Directors. For purposes of this restriction, a "business
combination" includes: (a) the sale, exchange, lease, transfer or other
disposition by HEALTHSOUTH of all, or substantially all, of its assets or
business; (b) any merger or consolidation of HEALTHSOUTH; and (c) certain sales
of HEALTHSOUTH's Common Stock in exchange for cash, assets, securities or any
combination thereof. An "other entity" is defined to include, generally, any
corporation, person or entity, and any affiliate or associateresale of such corporation, person or entity.
The foregoing supermajority vote shall not be required where, in the
business combination, (i) HEALTHSOUTH's stockholders receive consideration per
share not less than the highest per share price paid by the other entity in
acquiring any of its holdings of HEALTHSOUTH's Common Stock (subject to certain
adjustments upward) and (ii) certain other requirements, designed to prevent the
other entity from receiving disproportionate gains in connection with the
business combination, are satisfied.
The provisions of the HEALTHSOUTH Certificate described in the preceding
paragraphs, and its Bylaws,New Notes. This Prospectus, as it may be
amended or repealed onlysupplemented from time to time, may be used by the affirmative
votea broker-dealer in
connection with resales of 66 2/3%New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of the shares entitled to vote thereon.
The effect of the foregoing provisions is to make it more difficult for a
person, entity or group to effect a change in control of HEALTHSOUTH through the
acquisition of a large block of HEALTHSOUTH's voting stock, or to effect a
mergermarket-making activities or other
acquisitiontrading activities. HEALTHSOUTH has agreed that is not approved by a majority of HEALTHSOUTH's
Directors serving in office priorit will make this Prospectus, as
amended or supplemented, available to the acquisition by the other entity of 5%
or more of HEALTHSOUTH's stock.
49
SECTION 203 OF THE DGCL
HEALTHSOUTH is subject to the provisions of Section 203 of the DGCL. That
section provides, with certain exceptions, that a Delaware corporation may not
engage in any of a broad range of business combinations with a person or
affiliate or associate of such person who is an "interested stockholder"Participating Broker-Dealer for a
period of three years fromtime 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, that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder; (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporationall
broker-dealers effecting transactions in the same transaction that makes
it an interested stockholder (excluding shares heldNew Notes may be required to
deliver a prospectus.
HEALTHSOUTH will not receive any proceeds from any sale of New Notes by
directors, officers and
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approvedbroker-dealers. New Notes received by the corporation's board of directors and by the holders of at least 66 2/3%
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined to include any person, and the affiliates and associates
of such person, that (i) is the owner of 15% or more of the outstanding voting
stock of the corporation or (ii) is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately priorbroker-dealers for their own account
pursuant to the date on which it is soughtExchange Offer may be sold from time to be determined whether such person is an interested
stockholder. It is anticipated that the provisions of Section 203 of the DGCL
may encourage companies or others interested in acquiring HEALTHSOUTH to
negotiate in advance with the HEALTHSOUTH Board of Directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the acquiror becoming an interested stockholder.
PREFERRED STOCK
The HEALTHSOUTH Certificate authorizes the issuance of up to 1,500,000
shares of Preferred Stock, par value $.10 per share (the "HEALTHSOUTH Preferred
Stock"). The Board of Directors has the authority to issue the HEALTHSOUTH
Preferred Stocktime in one or more
series andtransactions 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
fixsuch 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 rights, preferences,
privileges and restrictions, including the dividend rights, dividend rate,
conversion rights, voting rights, termsform of redemption, redemption pricecommissions or prices, liquidation preferences and the number of shares constitutingconcessions from any series
such
broker-dealer and/or the designationspurchasers 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 series, withoutNew Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any further voteprofit on any such resale of New Notes and any
commissions or actionconcessions received by any such persons may be deemed to be
underwriting compensation under the stockholders. IssuanceSecurities Act. The Letter of sharesTransmittal
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 HEALTHSOUTH Preferred Stock, while providing
flexibility in connection with possible acquisitionsthe Securities Act.
Starting on the Expiration Date, and other corporate
purposes, could have the effect of making it more difficult for a third partyperiod of 180 days thereafter,
HEALTHSOUTH will promptly send additional copies of this Prospectus and any
amendment or supplement to acquire,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
discouraging a third party from acquiring, a majority of the
outstanding voting stock of HEALTHSOUTH. Any such issuance could also adversely
affect the voting power ofany brokers or dealers and will indemnify the holders of the HEALTHSOUTH Common Stock. The
Board of Directors of HEALTHSOUTH has no current intention of issuingNew Notes
(including any shares
of HEALTHSOUTH Preferred Stock.
TRANSFER AGENT
The transfer agent and registrar forbroker-dealers) against certain liabilities, including
liabilities under the HEALTHSOUTH Common Stock is
ChaseMellon Shareholder Services, New York, New York.
50
COMPARISON OF RIGHTS OF NSC
AND HEALTHSOUTH STOCKHOLDERS
Both NSC and HEALTHSOUTH are incorporated in Delaware. HoldersSecurities Act.
Based on interpretations by the staff of the NSC
Shares will continue to have their rights and obligationsCommission, as stockholders of
HEALTHSOUTH after the Merger governed by Delaware law. Set forth below is a
summary comparison of the rights of a HEALTHSOUTH stockholder under the
HEALTHSOUTH Certificate and HEALTHSOUTH's Bylaws (the "HEALTHSOUTH Bylaws"), on
the one hand, and the rights of a NSC stockholder under the NSC Certificate of
Incorporation, as amended (the "NSC Certificate"), and NSC's Bylaws, as amended
(the "NSC Bylaws"), on the other hand. The information set forth below is
qualified in its entirety by reference to the HEALTHSOUTH Certificate, the
HEALTHSOUTH Bylaws, the NSC Certificate and the NSC Bylaws.
CLASSES AND SERIES OF CAPITAL STOCK
NSC. NSC is authorized by the NSC Certificate to issue up to 40,000,000
shares of capital stock, of which 20,000,000 shares are designated Common Stock,
par value $.01 per share, 10,000,000 shares are designated Non-Voting Common
Stock, par value $.01 per share, and 10,000,000 shares are designated Preferred
Stock (the "NSC Preferred Stock"), par value $.01 per share. As of May 26, 1998,
18,616,716 shares of NSC Common Stock were outstanding and 33,750 warrants to
purchase shares of NSC Common Stock were outstanding. There is currently no
Non-Voting Common Stock outstanding. The Board of Directors of NSC has the
authority to issue NSC Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions for each such series, without
any further vote or action by NSC stockholders. No NSC Preferred Stock has ever
been issued. The Board of Directors of NSC has no present intention of issuing
shares of NSC Preferred Stock.
HEALTHSOUTH. HEALTHSOUTH is authorized by the HEALTHSOUTH Certificate to
issue up to 601,500,000 shares of capital stock, of which 600,000,000 shares are
designated Common Stock, par value $.01 per share, and 1,500,000 shares are
designated Preferred Stock, par value $.10 per share. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH". The Board of Directors of HEALTHSOUTH has the
authority to issue the HEALTHSOUTH Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions for each such series,
without any further vote or action by the stockholders. As of March 31, 1998,
there were no shares of HEALTHSOUTH Preferred Stock issued and outstanding, and
the Board of Directors of HEALTHSOUTH has no present intention of issuing shares
of HEALTHSOUTH Preferred Stock.
SIZE AND ELECTION OF THE BOARD OF DIRECTORS
NSC. The NSC Certificate provides that the NSC Board of Directors shall fix
the number of directors from time to time, except that the minimum number of
directors shall be three and the maximum number of directors shall be 15. The
NSC Certificate provides that the NSC Board of Directors shall be classified
into three classes, with staggered three-year terms. Pursuant to authority set forth in
no-action letters issued to third parties, including the NSC Certificate, the NSC Board of Directors has fixed the number of
directors at six. Directors are elected by a plurality of votes cast at the
annual meeting of stockholders. The NSC Certificate and the NSC Bylaws do not
provide for cumulative voting. The NSC Board of Directors is authorized to, by
the affirmative vote of a majority of the directors then in office, fill
vacancies and newly created directorships resulting from an increase in the
number of directors.
HEALTHSOUTH. TheExchange Offer
No-Action Letters, HEALTHSOUTH Bylaws providebelieves that the HEALTHSOUTH Board of
Directors shall consist of at least one director and thatNew Notes issued pursuant to
the size of the
HEALTHSOUTH Board of DirectorsExchange Offer may be fixedoffered for resale, resold or otherwise transferred by
the directors then in office.
Directors ofeach holder thereof (other than a broker-dealer who acquires such New Notes
directly from HEALTHSOUTH are elected by a plurality of votes cast at the annual
meeting of stockholders. The HEALTHSOUTH Certificate and the HEALTHSOUTH Bylaws
do not provide for cumulative voting. Vacancies in HEALTHSOUTH's Board of
Directors and newly created directorships resulting from any increase in the
authorized number of directors are filled by a majority of directors then in
office.
REMOVAL OF DIRECTORS
NSC. A director of NSC may resign by giving written notice to the chairman
of the NSC Board of Directors. No acceptance of the NSC Board of Directors is
required for such resignation to be effective.
51
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a director may be removed
with or without cause by the vote of the holders of a majority of the shares of
capital stock entitled to vote thereon.
OTHER VOTING RIGHTS
NSC. The NSC Common Stock is not divided into classes and is the only class
of capital stock issued and outstanding. Each share of NSC Common Stock entitles
its holder of record as of the relevant record date to one vote on each matter,
including the election of directors, submitted to a stockholder vote. The vote
of the holders of a majority of the shares of NSC Common Stock present or
represented by proxy entitled to vote is required to approve any matter at a
meeting of NSC stockholders, except that (i) the affirmative vote of the holders
of at least 80% of the voting power of all of the then outstanding shares of
voting stock, voting together as a single class, shall be required to alter,
amend, repeal, or adopt certain provisions of the NSC Certificate, (ii) the
affirmative vote of at least two-thirds of the holders of voting power of all of
the then outstanding shares of capital stock entitled to vote on all matters
submitted to stockholder vote generally is required to amend certain other
provisions of the NSC Certificate, and (iii) the affirmative vote or written
consent of the holders of at least two-thirds of the then outstanding shares of
Common Stock and Non-Voting Common Stock, voting together as a single class,
shall be required for certain matters affecting the rights of the NSC Common
Stock or the Non-Voting Common Stock.
HEALTHSOUTH. The HEALTHSOUTH Common Stock is not divided into classes, and
HEALTHSOUTH has no classes or series of capital stock issued or outstanding
other than the HEALTHSOUTH Common Stock. Each HEALTHSOUTH stockholder holding
shares of HEALTHSOUTH Common Stock entitled to be voted on any matter, including
the election of directors, shall have one vote on each such matter submitted to
vote at a meeting of stockholders for each such share of HEALTHSOUTH Common
Stock held by such stockholder as of the record date for such meeting. Except as
specifically provided otherwise by law or by the HEALTHSOUTH Certificate or the
HEALTHSOUTH Bylaws, the vote of the holders of a majority of the shares of
capital stock present or represented and entitled to vote is required for the
approval of any matter at a meeting of HEALTHSOUTH stockholders. For information
concerning provisions that, with certain exceptions, require a higher percentage
of votes to approve certain business combinations with any entity that
beneficially owns 20% or more of the outstanding shares of voting stock of
HEALTHSOUTH, see "-Business Combinations".
CONVERSION AND DISSOLUTION
NSC. The NSC Common Stock has no preemptive, subscription or redemption
rights. Certain holders of NSC Common Stock are entitled to convert their NSC
Common Stock to Non-Voting Common Stock on a one-for-one basis. The outstanding
NSC Shares are fully paid and nonassessable. The rights, preferences and
privileges of holders of NSC Common Stock may become subject to those of holders
of NSC Preferred Stock, if any is issued in the future. The NSC Certificate
authorizes the NSC Board of Directors to issue up to 10,000,000 shares of NSC
Preferred Stock, par value $.01 per share, with such voting powers,
designations, preferences and relative, participating, optional or other special
rights, and the qualifications, limitations and restrictions as the NSC Board
may fix to the full extent permitted by law. If the NSC Board of Directors were
to designate a series of NSC Preferred Stock, such NSC Preferred Stock could be
entitled to preferential payments in the event of liquidation, dissolution or
winding up of NSC.
HEALTHSOUTH. The HEALTHSOUTH Common Stock has no preemptive, subscription,
redemption or conversion features. The outstanding shares are fully paid and
nonassessable. The rights, preferences and privileges of holders of HEALTHSOUTH
Common Stock may become subject to those of holders of HEALTHSOUTH Preferred
Stock if HEALTHSOUTH should issue HEALTHSOUTH Preferred Stock in the future. The
HEALTHSOUTH Certificate authorizes 1,500,000 shares of Preferred Stock, par
value $.10 per share, and provides that such shares of HEALTHSOUTH Preferred
Stock may have such voting powers, preferences and other special rights
(including the right to convert
52
the shares of such HEALTHSOUTH Preferred Stock into shares of HEALTHSOUTH Common
Stock) as shall be designated by the HEALTHSOUTH Board of Directors. If the
HEALTHSOUTH Board of Directors were to designate such a series of HEALTHSOUTH
Preferred Stock, such HEALTHSOUTH Preferred Stock could be entitled to
preferential payments in the event of liquidation, dissolution or winding up of
HEALTHSOUTH.
BUSINESS COMBINATIONS
NSC. Certain provisions in the NSC Certificate and NSC Bylaws may have the
effect of discouraging, preventing or delaying a change in control of NSC. These
provisions include a staggered board as described under "- Size and Election of
the Board of Directors", super-majority vote for amendment of certain provisions
of the NSC Certificate and NSC Bylaws as described under "Amendment or Repeal of
the Certificate of Incorporation", and the procedure for calling a special
meeting of stockholders described under "- Special Meeting of Stockholders". In
addition, under certain circumstances, Section 203 of the Delaware General
Corporation Law makes it more difficult for a person who would be an "interested
stockholder" to effect various business combinations with a corporation for a
three-year period. The provisions of Section 203 may also have the effect of
preventing changes in control of NSC. It is possible that such provisions could
make it more difficult to accomplish transactions that stockholders otherwise
deem to be in their best interests.
HEALTHSOUTH. The HEALTHSOUTH Certificate provides that the vote of the
holders of 66 2/3% of all shares of HEALTHSOUTH entitled to vote in the election
of directors is required for the approval and adoption of a business combination
(as defined in the HEALTHSOUTH Certificate) with any entity (as defined in the
HEALTHSOUTH Certificate) if, on the record date for the determination of
stockholders entitled to vote thereon, the other entity is the beneficial owner,
directly or indirectly, of more than 20% of the outstanding shares of
HEALTHSOUTH entitled to vote in the election of directors. The voting
requirements of the "fair price" provision are not applicable to a business
combination involving a holder of 20% or more of HEALTHSOUTH's voting stock in
the business combination, if: (i) HEALTHSOUTH's stockholders receive
consideration per share not less than the highest per share price paid by the
other entity in acquiring any of its holdings of the HEALTHSOUTH Common Stock
(subject to certain upward adjustments); and (ii) certain other requirements,
designed to prevent the other entity from receiving disproportionate gains in
connection with the business combination, are satisfied. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH - Fair Price Provision".
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION
Under Delaware law, unless its certificate of incorporation or by-laws
otherwise provide, amendments of a corporation's certificate of incorporation
generally require the approval of the holders of a majority of the outstanding
stock entitled to vote thereon, and if such amendment would increase or decrease
the number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of such class or series, the
approval of a majority of the outstanding stock of such class or series.
NSC. Super-majority vote is required for certain amendments to the NSC
Certificate. The affirmative vote of at least two-thirds of the holders of
voting power of all of the then outstanding shares of capital stock entitled to
vote on all matters submitted to stockholder vote generally is required to amend
Article FIFTH of the NSC Certificate, which relates to stockholder meetings and
business that can be conducted at such meetings. In addition, affirmative vote
of the holders of at least 80% of the voting power of all of the then
outstanding shares of voting stock, voting together as a single class, shall be
required to alter, amend, repeal, or adopt any provision inconsistent with
Article EIGHT of the NSC Certificate, which relates to the size, nomination,
election and certain authority of the NSC Board of Directors.
The NSC Certificate provides that a majority of the NSC Board of Directors
may make, alter or repeal the NSC By-laws. The NSC By-laws provide that such
By-laws may also be altered, amended or repealed by the NSC stockholders.
53
HEALTHSOUTH. The HEALTHSOUTH Certificate requires approval by holders of at
least 66 2/3% of the outstanding shares entitled to vote thereon to repeal or
amend Article SIXTH of the HEALTHSOUTH Certificate (regarding the calling of
special meetings by the stockholders), Article SEVENTH of the HEALTHSOUTH
Certificate (regarding the "fair price" provision) and Article EIGHTH of the
HEALTHSOUTH Certificate (regarding the amendment of the HEALTHSOUTH
Certificate). The HEALTHSOUTH Certificate also provides that a majority of the
HEALTHSOUTH Board of Directors may make, alter or repeal the HEALTHSOUTH Bylaws.
SPECIAL MEETING OF STOCKHOLDERS
NSC. The NSC Certificate provides that special meetings of stockholders of
NSC may be called only by the chairman of the NSC Board of Directorsresale pursuant to a resolution adopted by the affirmative vote of a majority of the entire Board
of Directors.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a special meeting of the
HEALTHSOUTH stockholders may be called by a majority of the Board of Directors
or by the holders of at least 20% of the outstanding shares of capital stock of
HEALTHSOUTH entitled to vote in the election of directors.
LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for monetary damages for breach
of the director's fiduciary duty, subject to certain limitations. Each of the
HEALTHSOUTH Certificate and the NSC Certificate includes such a provision, to
the maximum extent permitted by law.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation 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 Section 174 of the DGCL (relating to
liability for unauthorized acquisitions or redemptions of, or dividends on,
capital stock) or (iv) for any transaction from which the director derived an
improper personal benefit. Both the HEALTHSOUTH Certificate and NSC Certificate
contain such a provision.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation and,
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL provides that a corporation may advance expenses
of defense (upon receipt of a written undertaking to reimburse the corporation
if indemnification is not appropriate) and must reimburse a successful defendant
for expenses, including attorneys' fees, actually and reasonably incurred, and
permits a corporation to purchase and maintain liability insurance for its
directors and officers. The DGCL provides that indemnification may not be made
for any claim, issue or matter as to which a person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation, unless and only to the extent a court determines that
the person is entitled to indemnity for such expenses as the court deems proper.
54
The HEALTHSOUTH Bylaws provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of HEALTHSOUTH, or is or was serving at
the request of HEALTHSOUTH as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, will be indemnified
by HEALTHSOUTH to the full extent permitted by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits HEALTHSOUTH to provide broader
indemnification rights than said law permitted prior to such amendment) or by
other applicable laws then in effect.
The NSC Bylaws provide that officers, directors, employees and agents of
NSC will be indemnified to the maximum extent permitted by the DGCL.
The Plan provides that all rights to indemnification for acts or omissions
occurring prior to the Effective Time of the Merger existing in favor of the
current or former directors or officers of NSC as provided in the NSC
Certificate or the NSC Bylaws shall survive the Merger and shall continue in
full force and effect in accordance with their terms.
Insofar as indemnification for liabilities arisingRule 144A under the Securities
Act may be permitted to directors, officers or persons controlling HEALTHSOUTH or
NSC pursuant to the foregoing provisions, HEALTHSOUTH and NSC have been informed
that in the opinion of the SEC such indemnification is against public policy as
expressed inany other available exemption under the Securities Act and other than any
holder that is therefore unenforceable.
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AND NSC AFTER THE MERGER
OPERATIONS
Afteran "affiliate" (as defined in Rule 405 under the consummationSecurities Act)
of HEALTHSOUTH) without compliance with the registration and prospectus delivery
provisions of the Merger, NSC will be a wholly-owned subsidiarySecurities Act, provided that such New Notes are acquired in
the ordinary course of HEALTHSOUTH,such holder's business and all of NSC's subsidiaries will be indirect wholly-owned
subsidiaries of HEALTHSOUTH. HEALTHSOUTH will continuesuch holder is not engaged in,
and does not intend to engage in, the businessa distribution of providing outpatient surgerysuch New Notes and rehabilitative healthcare services as priorhas no
arrangement with any person to the Merger, working with the managementparticipate in a distribution of NSC to operate and, as
appropriate, continue to expand NSC's business in ways complementary to the
overall strategy of the combined Companies. See the information set forth herein
and in the documents incorporated herein by reference as set forth under
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE", "BUSINESS OF HEALTHSOUTH"
and "BUSINESS OF NSC".
MANAGEMENT
After the consummation of the Merger, HEALTHSOUTH will be managed by the
same Board of Directors and executive officers as existed prior to the Merger.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.
The consolidated financial statements of National Surgery Centers, Inc.
incorporated by reference in National Surgery Center, Inc.'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 by reference therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
55
LEGAL MATTERS
The validity of the shares of HEALTHSOUTH Common StockNew Notes to be issued to the
stockholders of NSC pursuant to the MergerExchange Offer
will be passed upon by Haskell Slaughter & Young, L.L.C.
ADDITIONAL INFORMATION
The Board of Directors of NSC does not know of any matter to be brought
before its Special Meeting other than as described in the Notice of Special
Meeting accompanying this Prospectus-Proxy Statement. If any other matter comes
before the Special Meeting, it is the intention of the persons named in the
accompanying proxy to vote the proxy in accordance with their best judgment with
respect to such other matter.
If the Merger is not consummated because the Plan is not approved by the
NSC stockholders at the Special Meeting or any adjournments or postponements
thereof or for any other reason, NSC intends to hold its next Annual Meeting of
Stockholders on or about September 30, 1998. Any stockholder of NSC who desires
to submit a proposal for inclusion in the proxy material for presentation at
such annual meeting must submit such proposal to the Secretary of NSC on or
before .
56
ANNEX A
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER (the "Plan of Merger"), made and entered into
as of the 5th day of May, 1998, by and among HEALTHSOUTH CORPORATION, a Delaware
corporation ("HEALTHSOUTH"), FIELD ACQUISITION CORPORATION, a Delaware
corporation (the "Subsidiary"), and NATIONAL SURGERY CENTERS, INC., a Delaware
corporation ("NSC") (the Subsidiary and NSC being sometimes collectively
referred to herein as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of HEALTHSOUTH, the Subsidiary
and NSC have approved the merger of the Subsidiary with and into NSC (the
"Merger"), upon the terms and conditions set forth in this Plan of Merger,
whereby all shares of Common Stock, par value $.01 per share, of NSC (the "NSC
Common Stock"), not owned directly or indirectly by NSC, will be converted into
the right to receive the Merger Consideration (as hereinafter defined);
WHEREAS, each of HEALTHSOUTH, the Subsidiary and NSC desires to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests".
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:
Section 1. THE MERGER.
1.1 The Merger. Upon the terms and conditions set forth in this Plan of
Merger, and in accordance with the Delaware General Corporation Law (the
"DGCL"), the Subsidiary shall be merged with and into NSC at the Effective Time
(as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of the Subsidiary shall cease and NSC shall continue as the
surviving corporation (the "Surviving Corporation") under the name "NSC, Inc."
and shall succeed to and assume all the rights and obligations of the Subsidiary
and NSC in accordance with the DGCL.
1.2 The Closing. The closing of the Merger (the "Closing") will take place
at 10:00 a.m. Central Time on a date to be specified by the parties (the
"Closing Date"), which (subject to satisfaction or waiver of the conditions set
forth in Sections 9.2 and 9.3) shall be no later than the second business day
after satisfaction or waiver of the conditions set forth in Section 9.1 (other
than Section 9.1(a), which shall be satisfied at the Closing Date), at the
offices of Haskell Slaughter & Young, L.L.C., Birmingham, Alabama, unless
another date or place is agreed to in writing by the parties hereto.
1.3 Effective Time. Subject to the provisions of this Plan of Merger, the
parties shall file a certificate of merger (the "Certificate of Merger")
executed in accordance with the relevant provisions of the DGCL and shall make
all other filings or recordings required under the DGCL as soon as practicable
on or after the Closing Date. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Delaware Secretary of State, or
at such other time as the Subsidiary and NSC shall agree should be specified in
the Certificate of Merger (the "Effective Time").
1.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
A-1
Section 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of NSC Common
Stock or any shares of capital stock of the Subsidiary:
(a) Subsidiary Common Stock. Each share of capital stock of the Subsidiary
issued and outstanding immediately prior to the Effective Time shall be
converted into one fully paid and nonassessable share of common stock of the
Surviving Corporation.
(b) Cancellation of Treasury Stock. Each share of NSC Common Stock that is
owned by NSC or by any subsidiary of NSC shall automatically be canceled and
retired and shall cease to exist, and none of the Common Stock, par value $.01
per share, of HEALTHSOUTH ("HEALTHSOUTH Common Stock"), cash or other
consideration shall be delivered in exchange therefor.
(c) Conversion of NSC Shares. Subject to Section 2.2(e), each issued and
outstanding share of NSC Common Stock (other than shares to be canceled in
accordance with Section 2.1(b)) (collectively, the "Exchanging NSC Shares")
shall be converted into the right to receive that fraction of a share of
HEALTHSOUTH Common Stock determined by dividing $30.50 by the Base Period
Trading Price (as defined below), as may be adjusted as provided below, computed
to four decimal places (the "Exchange Ratio"); provided, however, that if the
Base Period Trading Price shall be greater than $35.00, the Exchange Ratio shall
be .8714; and provided further, however, that if the Base Period Trading Price
shall be less than $26.50, the Exchange Ratio shall be 1.1509. The number of
shares of HEALTHSOUTH Common Stock issuable with respect to each Exchanging NSC
Share, as determined as set forth herein, is herein called the "Merger
Consideration". For purposes of this Plan of Merger, the term "Base Period
Trading Price" shall mean the average of the daily closing prices per share for
the shares of HEALTHSOUTH Common Stock for the 20 consecutive trading days on
which such shares are actually traded (as reported on the New York Stock
Exchange Composite Transactions Tape as reported in The Wall Street Journal,
Eastern Edition, or if not reported thereby, any other authoritative source)
ending at the close of trading on the second New York Stock Exchange trading day
immediately preceding the day of the Special Meeting (as defined in Section 7.3)
(such period being herein called the "Base Period"). Promptly after the close of
trading on such day, the parties shall issue joint press release publicly
announcing the Exchange Ratio. As of the Effective Time, all such Exchanging NSC
Shares shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of a certificate representing
any Exchanging NSC Shares shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration and any cash in lieu of
fractional shares of HEALTHSOUTH Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance with
Section 2.2, without interest.
(d) Stock Options, Warrants and Convertible Securities. At the Effective
Time, all rights with respect to NSC Common Stock pursuant to any NSC stock
options, stock purchase warrants and convertible securities which are
outstanding at the Effective Time, whether or not then exercisable, shall be
converted into and become rights with respect to HEALTHSOUTH Common Stock, and
HEALTHSOUTH shall assume each NSC stock option, stock purchase warrant or
convertible securities, in accordance with the terms of any stock option plan
under which it was issued and any stock option agreement, warrant agreement,
indenture or other instrument by which it is evidenced. It is intended that,
unless otherwise agreed between HEALTHSOUTH and a particular optionee, the
foregoing provisions shall be undertaken in a manner that will not constitute a
"modification" as defined in Section 424 of the Code, as to any stock option
which is an "incentive stock option". Each NSC stock option, stock purchase
warrant or convertible security so assumed shall be exercisable for, or
convertible into, that number of shares of HEALTHSOUTH Common Stock equal to the
number of NSC shares subject thereto multiplied by the Exchange Ratio, and shall
have an exercise price or conversion price per share equal to the NSC exercise
price or conversion price divided by the Exchange Ratio.
(e) Anti-Dilution Provisions. If after the date hereof and prior to the
Effective Time HEALTHSOUTH shall have declared a stock split (including a
reverse split) of HEALTHSOUTH Common Stock or a dividend payable in HEALTHSOUTH
Common Stock, or any other distribution of securities
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or dividend (in cash or otherwise) to holders of HEALTHSOUTH Common Stock with
respect to their HEALTHSOUTH Common Stock (including without limitation such a
distribution or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar transaction)
then (i) the amounts $30.50, $35.00 and $26.50 referred to in Section 2.1(c),
and the Exchange Ratio, shall be appropriately adjusted to reflect such stock
split or dividend or other distribution of securities and (ii) if such stock
split, dividend or distribution has a record date prior to the Effective Time,
then the number of shares of HEALTHSOUTH Common Stock to be issued upon
conversion of a share of NSC Common Stock pursuant to Section 2.1(c) shall be
appropriately adjusted to reflect such stock split, dividend or other
distribution of securities.
2.2 Exchange of Certificates. (a) Exchange Agent. Prior to the Effective
Time, HEALTHSOUTH shall enter into an agreement with such bank or trust company
as may be designated by HEALTHSOUTH (the "Exchange Agent") which shall provide
that HEALTHSOUTH shall deposit with the Exchange Agent as of the Effective Time,
for the benefit of the holders of Exchanging NSC Shares, for exchange in
accordance with this Section 2, through the Exchange Agent, certificates
representing the shares of HEALTHSOUTH Common Stock (such shares of HEALTHSOUTH
Common Stock, together with any dividends or distributions with respect thereto
with a record date after the Effective Time, being hereinafter referred to as
the "Exchange Fund") issuable pursuant to Section 2.1 in exchange for
outstanding shares of NSC Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of NSC Common Stock
(the "Certificates") whose shares were converted into the right to receive the
Merger Consideration pursuant to Section 2.1, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as HEALTHSOUTH
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of
HEALTHSOUTH Common Stock. Upon surrender of a Certificate for cancellation to
the Exchange Agent or to such other agent or agents as may be appointed by
HEALTHSOUTH, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of HEALTHSOUTH Common Stock
which such holder has the right to receive pursuant to the provisions of this
Section 2, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of shares of NSC Common Stock which is not
registered in the transfer records of NSC, a certificate representing the proper
number of shares of HEALTHSOUTH Common Stock may be issued to a person other
than the person in whose name the Certificate so surrendered is registered, if
such Certificate shall be properly endorsed or otherwise be in proper form for
transfer and the person requesting such issuance shall pay any transfer or other
taxes required by reason of the issuance of shares of HEALTHSOUTH Common Stock
to a person other than the registered holder of such Certificate or establish to
the satisfaction of HEALTHSOUTH that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the certificate representing
shares of HEALTHSOUTH Common Stock and cash in lieu of any fractional shares of
HEALTHSOUTH Common Stock as contemplated by this Section 2.2. No interest will
be paid or will accrue on any cash payable in lieu of any fractional shares of
HEALTHSOUTH Common Stock. To the extent permitted by law, former stockholders of
record of NSC shall be entitled to vote after the Effective Time at any meeting
of HEALTHSOUTH stockholders the number of whole shares of HEALTHSOUTH Common
Stock into which their respective shares of NSC Common Stock are converted,
regardless of whether such holders have exchanged their Certificates for
certificates representing HEALTHSOUTH Common Stock in accordance with this
Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to HEALTHSOUTH Common Stock with a record date after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of
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HEALTHSOUTH Common Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 2.2(e)
until the surrender of such Certificate in accordance with this Section 2.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the certificate representing
whole shares of HEALTHSOUTH Common Stock issued in exchange therefor, without
interest, (i) at the time of such surrender, the amount of any cash payable in
lieu of a fractional share of HEALTHSOUTH Common Stock to which such holder is
entitled pursuant to Section 2.2(e) and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of HEALTHSOUTH Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to such surrender and with a
payment date subsequent to such surrender payable with respect to such whole
shares of HEALTHSOUTH Common Stock.
(d) No Further Ownership Rights in Exchanging NSC Shares. All shares of
HEALTHSOUTH Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms of this Section 2 (including any cash paid pursuant
to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the Exchanging NSC Shares
theretofore represented by such Certificates. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Section
2, except as otherwise provided by law.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of HEALTHSOUTH Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of HEALTHSOUTH.
Notwithstanding any other provision of this Plan of Merger, each holder of
Exchanging NSC Shares exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of HEALTHSOUTH Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of HEALTHSOUTH Common Stock multiplied by the closing
price per share of HEALTHSOUTH Common Stock on the date on which the Effective
Time occurs, as reported on the New York Stock Exchange Composite Transactions
Tape.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates six months after the
Effective Time shall be delivered to HEALTHSOUTH, upon demand, and any holders
of the Certificates who have not theretofore complied with this Section 2 shall
thereafter look only to HEALTHSOUTH for payment of HEALTHSOUTH Common Stock, any
cash in lieu of fractional shares of HEALTHSOUTH Common Stock and any dividends
or distributions with respect to HEALTHSOUTH Common Stock.
(g) No Liability. None of HEALTHSOUTH, the Subsidiary, NSC or the Exchange
Agent shall be liable to any person in respect of any shares of HEALTHSOUTH
Common Stock (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not have
been surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier date on which any shares of HEALTHSOUTH Common Stock, any
cash in lieu of fractional shares of HEALTHSOUTH Common Stock or any dividends
or distributions with respect to HEALTHSOUTH Common Stock in respect of such
Certificates would otherwise escheat to or become the property of any
governmental entity), any such shares, cash, dividends or distributions in
respect of such Certificates shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund in deposit accounts or short-term money market
instruments, as directed by HEALTHSOUTH, on a daily basis. Any interest and
other income resulting from such investments shall be paid to HEALTHSOUTH.
2.3 Certificate of Incorporation of Surviving Corporation. The Certificate
of Incorporation of NSC shall be amended and restated, effective at the
Effective Time, in a manner satisfactory to
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HEALTHSOUTH. The Certificate of Incorporation of NSC, as so amended and
restated, shall become the Certificate of Incorporation of the Surviving
Corporation from and after the Effective Time and until thereafter amended as
provided by law.
2.4 Bylaws of the Surviving Corporation. The Bylaws of the Subsidiary shall
be the Bylaws of the Surviving Corporation from and after the Effective Time and
until thereafter altered, amended or repealed in accordance with the laws of the
State of Delaware, the Certificate of Incorporation of NSC and the said Bylaws.
2.5 Directors and Officers of the Surviving Corporation. The Directors and
officers of the Subsidiary immediately prior to the Effective Time shall be the
Directors and officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
2.6 Assets, Liabilities, Reserves and Accounts. At the Effective Time, the
assets, liabilities, reserves and accounts of each of the Subsidiary and NSC
shall be taken up on the books of the Surviving Corporation at the amounts at
which they respectively shall be carried on the books of said corporations
immediately prior to the Effective Time, except as otherwise set forth in this
Plan of Merger and subject to such adjustments, or elimination of intercompany
items, as may be appropriate in giving effect to the Merger in accordance with
generally accepted accounting principles.
2.7 Corporate Acts of the Subsidiary. All corporate acts, plans, policies,
approvals and authorizations of the Subsidiary, its sole stockholder, its Board
of Directors, committees elected or appointed by the Board of Directors, and all
officers and agents, valid immediately prior to the Effective Time, shall be
those of the Surviving Corporation and shall be as effective and binding thereon
as they were with respect to the Subsidiary. The employees and agents of the
Subsidiary shall become the employees and agents of the Surviving Corporation
and continue to be entitled to the same rights and benefits which they enjoyed
as employees and agents of the Subsidiary.
Section 3. REPRESENTATIONS AND WARRANTIES OF NSC.
NSC hereby represents and warrants to HEALTHSOUTH and the Subsidiary as
follows:
3.1 Organization, Existence and Good Standing. NSC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. NSC has all necessary corporate power to own its properties and assets
and to carry on its business as presently conducted. NSC is not, and has not
been within the two years immediately preceding the date of this Plan of Merger,
a subsidiary or division of another corporation, nor has NSC within such time
owned, directly or indirectly, any shares of HEALTHSOUTH Common Stock or
Subsidiary Common Stock.
3.2 NSC Capital Stock. NSC's authorized capital consists of 40,000,000
shares of NSC Common Stock, of which 18,572,111 shares were issued and
outstanding as of April 3, 1998, and no shares of which were issued and held as
treasury shares, 10,000,000 shares of Non-Voting Common Stock, par value $.01
per share, none of which shares are issued and outstanding or held as treasury
stock, and 10,000,000 shares of Preferred Stock, par value $.01 per share, none
of which shares are issued and outstanding or held as treasury stock. All of the
issued and outstanding shares of NSC Common Stock are duly and validly issued,
fully paid and nonassessable. Except as set forth on Exhibit 3.2 to the
Disclosure Schedule delivered by NSC to HEALTHSOUTH simultaneously with the
execution and delivery hereof (the "Disclosure Schedule") or otherwise disclosed
in the NSC Annual Report on Form 10-K for the fiscal year ended December 31,
1997 (the "NSC 10-K"), there are no options, warrants, convertible securities or
similar rights granted by NSC or any other agreements to which NSC is a party
providing for the issuance or sale by it of any additional securities which
would remain in effect after the Effective Time. There is no liability for
dividends declared or accumulated but unpaid with respect to any of the shares
of NSC Common Stock. NSC has not made any distributions to any holders of NSC
Common Stock or participated in or effected any issuance, exchange or retirement
of shares of NSC Common Stock, or otherwise changed the equity interests of
holders of NSC Common Stock, in contemplation of effecting the Merger within the
two years immediately preceding the date of this Plan of Merger. Any shares of
NSC Common Stock that NSC has re-acquired during the two years immediately
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preceding the date of this Plan of Merger have been so re-acquired only for
purposes other than "business combinations", as such term is defined in
Accounting Principles Board Opinion No. 16, as amended ("Business
Combinations").
3.3 Subsidiaries and Affiliated Partnerships. (a) Attached to the
Disclosure Schedule as Exhibit 3.3 is a list of all corporate subsidiaries of
NSC (individually, a "NSC Subsidiary", and collectively, the "NSC Subsidiaries")
and their states of incorporation. Except as set forth on Exhibit 3.3, NSC does
not own stock in and does not control, directly or indirectly, any other
corporation, association or business organization other than the NSC Other
Entities (as defined below).
(b) Also disclosed on Exhibit 3.3 is a list of all general or limited
partnerships in which a general partner is NSC, a NSC Subsidiary or another NSC
Partnership (individually, a "NSC Partnership" and collectively, the "NSC
Partnerships"), and all limited liability companies in which NSC, a NSC
Subsidiary or a NSC Partnership is a member (individually, a "NSC LLC" and
collectively, the "NSC LLCs") (the NSC Partnerships and the NSC LLCs being
collectively called the "NSC Other Entities"), and their states of organization.
Except as set forth on Exhibit 3.3, neither NSC nor any NSC Subsidiary owns an
equity interest in, nor does such entity control, directly or indirectly, any
other joint venture, limited liability company or partnership.
3.4 Organization, Existence and Good Standing of NSC Subsidiaries and NSC
Other Entities. (a) Each NSC Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its respective state of
incorporation, except where the failure to be in good standing would not have a
material adverse effect on NSC. Each NSC Subsidiary has all necessary corporate
power to own its properties and assets and to carry on its business as presently
conducted.
(b) Each NSC Partnership that is a limited partnership is validly formed,
each NSC Partnership that is a general partnership has been duly organized, and
each NSC Partnership is in good standing under the laws of its respective state
of organization, except where the failure to be in good standing would not have
a material adverse effect on NSC. Each NSC Partnership has all necessary power
to own its property and assets and to carry on its business as presently
conducted.
(c) Each NSC LLC is a limited liability company validly formed and in good
standing under the laws of its respective state of organization, except where
the failure to be in good standing would not have a material adverse effect on
NSC. Each NSC LLC has all necessary power to own its property and assets to
carry on its business as presently conducted.
3.5 Foreign Qualifications. NSC, each NSC Subsidiary and each NSC Other
Entity that is not a general partnership is qualified to do business as a
foreign corporation, foreign limited partnership or foreign limited liability
company, as the case may be, and is in good standing in each jurisdiction where
the nature or character of the property owned, leased or operated by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to so qualify or be in good standing would not have a
material adverse effect on NSC.
3.6 Power and Authority. Subject to the satisfaction of the conditions
precedent set forth herein, NSC has the corporate power to execute, deliver and
perform this Plan of Merger and all agreements and other documents executed and
delivered or to be executed and delivered by it pursuant to this Plan of Merger,
and, subject to the satisfaction of the conditions precedent set forth herein,
has taken all action required by its Certificate of Incorporation, Bylaws or
otherwise, to authorize the execution, delivery and performance of this Plan of
Merger and such related documents. Except as set forth on Exhibit 3.6 to the
Disclosure Schedule, the execution and delivery of this Plan of Merger does not
and, subject to the receipt of required stockholder and regulatory approvals and
any other required third-party consents or approvals, the consummation of the
Merger will not, violate any provisions of the Certificate of Incorporation of
NSC or any provisions of, or result in the acceleration of any obligation under,
any material mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree, to which NSC or any NSC Subsidiary or NSC Other
Entity is a party, or by which it is bound, or violate any restrictions of any
kind to which it is subject which, if violated or accelerated, would have a
material adverse effect on NSC. The execution and delivery of this Plan of
Merger has been approved
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by the Board of Directors of NSC. This Plan of Merger has been duly executed and
delivered by NSC and, assuming this Plan of Merger constitutes a valid and
binding obligation of HEALTHSOUTH and the Subsidiary, as the case may be,
constitutes a valid and binding obligation of NSC, enforceable against NSC in
accordance with its terms.
3.7 NSC Public Information. NSC has heretofore furnished HEALTHSOUTH with a
true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by it with the Securities and Exchange
Commission (the "SEC") (as any such documents have since the time of their
original filing been amended, the "NSC Documents") since January 1, 1998, which
are all the documents (other than preliminary material) that it was required to
file with the SEC from such date through the date of this Plan of Merger. As of
their respective dates, the NSC Documents did not contain any untrue statements
of material facts or omit to state material facts required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. As of their respective dates, the NSC
Documents complied in all material respects with the applicable requirements of
the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934,
as amended, and the rules and regulations promulgated under such statutes. The
financial statements contained in the NSC Documents, together with the notes
thereto, have been prepared in accordance with generally accepted accounting
principles consistently followed throughout the periods indicated (except as may
be indicated in the notes thereto, or, in the case of the unaudited financial
statements, as permitted by Form 10-Q), reflect all known liabilities of NSC
required to be stated therein, including all such known contingent liabilities
as of the end of each period reflected therein, and present fairly the financial
condition of NSC at said dates and the consolidated results of operations and
cash flows of NSC for the periods then ended. The consolidated balance sheet of
NSC at December 31, 1997 included in the NSC Documents is herein sometimes
referred to as the "NSC Balance Sheet".
3.8 Legal Proceedings. Except as disclosed in the NSC Documents or on
Exhibit 3.9 to the Disclosure Schedule, so far as is known to NSC there is no
litigation, governmental investigation or other proceeding pending or threatened
against or relating to NSC, its properties or business, or the transaction
contemplated by this Plan of Merger other than litigation, governmental
investigations or other proceedings which would not individually or in the
aggregate, have a material adverse effect on NSC, and, so far as is known to
NSC, no basis for any such action exists which action would, individually or in
the aggregate, have a material adverse effect on NSC.
3.9 Contracts, etc. (a) All material contracts, leases, agreements and
arrangements to which NSC or any of the NSC Subsidiaries or NSC Other Entities
is a party are legally valid and binding in accordance with their terms and in
full force and effect (assuming such contracts, leases and arrangements are
enforceable against the other parties to such contracts, leases, agreements and
arrangements), and to the knowledge of NSC, no party is in default thereunder,
and no event has occurred which, but for the passage of time or the giving of
notice or both, would constitute a default thereunder, except, in each case,
where the invalidity of the lease, contract, agreement or arrangement or the
default or breach thereunder or thereof would not, individually or in the
aggregate, have a material adverse effect on NSC.
(b) Except as set forth on Exhibit 3.9(b) to the Disclosure Schedule, no
contract or agreement to which NSC or any NSC Subsidiary or NSC Other Entity is
a party will, by its terms, terminate as a result of the transactions
contemplated hereby or require any consent from any obligor thereto in order to
remain in full force and effect immediately after the Effective Time, except for
contracts or agreements which, if terminated, would not have a material adverse
effect on NSC.
(c) Except as set forth on Exhibit 3.9(c) to the Disclosure Schedule, none
of NSC, any NSC Subsidiary or any NSC Other Entity has granted any right of
first refusal or similar right in favor of any third party with respect to any
material portion of its properties or assets or entered into any non-competition
agreement or similar agreement restricting its ability to engage in any business
in any location.
3.10 Subsequent Events. Except as set forth on Exhibit 3.10 to the
Disclosure Schedule or disclosed in the NSC Documents, NSC has not, since the
date of the NSC 10-K:
(a) Incurred any material adverse change.
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(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected on
the NSC Balance Sheet or (ii) liabilities incurred since the date of the
last-filed NSC Document in the ordinary course of business, which discharge
or satisfaction would have a material adverse effect on NSC.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on NSC, except as may have been required due to consolidated
income or operations of NSC since the date of the NSC 10-K.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of NSC.
(e) Sold or transferred any of the assets material to the consolidated
business of NSC, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
NSC to any officer or employee, consultant or agent (other than normal merit
increases), or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any officer,
employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted under
other Sections hereof.
(h) Issued any stock, bonds or other securities, other than stock options
granted to employees, directors or consultants of NSC or warrants granted to
third parties, all of which are disclosed on Exhibit 3.2 to the Disclosure
Schedule or reflected in the NSC Documents.
3.11 Accounts Receivable. (a) Since the date of the NSC 10-K, NSC has not
changed any material principle or practice with respect to the recordation of
accounts receivable or the calculation of reserves therefor, or any material
collection, discount or write-off policy or procedure. NSC (including the NSC
Subsidiaries and NSC Other Entities) is in compliance with the terms and
conditions of all third-party payor arrangements relating to its accounts
receivable, except to the extent that such noncompliance would not have a
material adverse effect on NSC.
(b) Without limiting the generality of the foregoing, each of NSC and the
NSC Subsidiaries and the NSC Other Entities is in compliance with all Medicare
and Medicaid provider agreements to which it is a party, except to the extent
that such noncompliance would not have a material adverse effect on NSC.
3.12 Tax Returns. NSC has filed all tax returns required to be filed by it
or requests for extensions to file such returns or reports have been timely
filed and granted and have not expired, except to the extent that such failures
to file, taken together, do not have a material adverse effect on NSC. NSC has
made all payments shown as due on such returns, except to the extent that the
failure to make such payments would not have material adverse effect on NSC.
Except as set forth on Exhibit 3.12 to the Disclosure Schedule, NSC has not been
notified that any tax returns of NSC are currently under audit by the Internal
Revenue Service or any state or local tax agency, except for local tax audits
that in the aggregate are not material. No agreements have been made by NSC for
the extension of time or the waiver of the statute of limitations for the
assessment or payment of any federal, state or local taxes.
3.13 Commissions and Fees. Except as set forth in Exhibit 3.13 to the
Disclosure Schedule, there are no valid claims for brokerage commissions or
finder's or similar fees in connection with the transactions contemplated by
this Plan of Merger which may be now or hereafter asserted against HEALTHSOUTH
resulting from any action taken by NSC or its stockholders, officers or
Directors, or any of them.
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3.14 Employee Benefit Plans; Employment Matters. (a) Except as described in
the NSC Documents or set forth on Exhibit 3.14(a) to the Disclosure Schedule,
NSC has neither established nor maintains nor is obligated to make contributions
to or under or otherwise participate in (a) any bonus or other type of incentive
compensation plan, program, agreement, policy, commitment, contract or
arrangement (whether or not set forth in a written document), (b) any pension,
profit-sharing, retirement or other plan, program or arrangement, or (c) any
other employee benefit plan, fund or program, including, but not limited to,
those described in Section 3(3) of ERISA. All such plans (individually, a "Plan"
and collectively, the "Plans") have been operated and administered in all
material respects in accordance with, as applicable, ERISA, the Internal Revenue
Code of 1986, as amended, Title VII of the Civil Rights Act of 1964, as amended,
the Equal Pay Act of 1967, as amended, the Age Discrimination in Employment Act
of 1967, as amended, and the related rules and regulations adopted by those
federal agencies responsible for the administration of such laws. No act or
failure to act by NSC has resulted in a "prohibited transaction" (as defined in
ERISA) with respect to the Plans that is not subject to a statutory or
regulatory exception. No "reportable event" (as defined in ERISA) has occurred
with respect to any of the Plans which is subject to Title IV of ERISA. NSC has
not previously made, is not currently making, and is not obligated in any way to
make, any contributions to any multi-employer plan within the meaning of the
Multi-Employer Pension Plan Amendments Act of 1980.
(b) Except as described in the NSC Documents or set forth on Exhibit
3.14(b) to the Disclosure Schedule, NSC is not a party to any oral or written
(i) union, guild or collective bargaining agreement which agreement covers
employees in the United States (nor is it aware of any union organizing activity
currently being conducted in respect to any of its employees), (ii) agreement
with any executive officer or other key employee the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction of the nature contemplated by this Plan of Merger and which
provides for the payment of in excess of $50,000, or (iii) agreement or plan,
including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Plan of Merger or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Plan of Merger.
3.15 Compliance with Laws in General. Except as set forth on Exhibit 3.15
to the Disclosure Schedule or disclosed in the NSC Documents, NSC has not
received any notices of material violations of any federal, state and local
laws, regulations and ordinances relating to its business and operations,
including, without limitation, the Federal Environmental Protection Act, the
Occupational Safety and Health Act, the Americans with Disabilities Act, the
Medicare or applicable Medicaid statutes and regulations and any Environmental
Laws, and no notice of any pending inspection or violation of any such law,
regulation or ordinance has been received by NSC which, if it were determined
that a violation had occurred, would have a material effect on NSC.
3.16 Licenses, Accreditation and Regulatory Approvals. Except as disclosed
in the NSC Documents or set forth on Exhibit 3.16 to the Disclosure Schedule,
NSC and the NSC Subsidiaries and NSC Other Entities hold all licenses, permits,
certificates of need and other regulatory approvals which are needed or required
by law with respect to their businesses, operations and facilities as they are
currently or presently conducted (collectively, the "Licenses"), except where
the failure to possess such Licenses does not have a material adverse effect on
NSC. All such Licenses are in full force and effect, and NSC is in compliance
with all conditions and requirements of the Licenses and with all rules and
regulations relating thereto, except for such noncompliance as does not have a
material adverse effect on NSC. NSC, the NSC Subsidiaries and the NSC Other
Entities are, to the extent applicable to their operations, (i) eligible to
receive payment under Titles XVIII and XIX of the Social Security Act, (ii)
providers under existing provider agreements with the Medicare program through
the applicable intermediaries and (iii) in compliance with the conditions of
participation in the Medicare program except where such inability in the case of
either items (i) or (ii) or noncompliance in item (iii) does not have a material
adverse effect on NSC. Except to the extent that the failure to make or to
timely make such filings would not have a material adverse effect on NSC, NSC,
the NSC Subsidiaries and the NSC Other Entities have timely filed all requisite
claims and other reports required to be filed in connection with the Medicare,
Medicaid and other governmental health programs due on or before the date
hereof, all
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of which were, when filed, complete and correct except to the extent that such
failure to be complete and correct would not have a material adverse effect on
NSC. There are no current claims, actions or appeals pending, and neither NSC
nor the NSC Subsidiaries nor the NSC Other Entities have filed any claims or
reports which would result in such claims, actions or appeals, before any
commission, board or agency, including, without limitation, any intermediary or
carrier, the Provider Reimbursement Review Board or the Administrator of the
Health Care Financing Administration with respect to any Medicare claims, or any
disallowances in connection with any audit of claims, which in any such case
would have a material adverse effect on NSC. The amounts established as
provisions for adjustments by Medicare, Medicaid and other third-party payors on
the financial statements set forth in the last-filed NSC Document are sufficient
to pay any material amounts for which NSC believes it will be liable. To the
knowledge of NSC, neither NSC nor the NSC Subsidiaries nor the NSC Other
Entities nor their respective employees have committed a violation of the
Medicare and Medicaid fraud and abuse provisions of the Social Security Act,
which violation would have a material adverse effect on NSC. Any and all past
litigation concerning such Licenses and all claims and causes of action raised
therein, has been finally adjudicated. No such License has been revoked,
conditioned (except as may be customary) or restricted, and no action
(equitable, legal or administrative), arbitration or other process is pending,
or to the knowledge of NSC, threatened, which in any way challenges the validity
of, or seeks to revoke, condition or restrict any such License where such
invalidity, revocation, condition or restriction would have a material adverse
effect on NSC. Subject to compliance with applicable securities laws, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and state or local statutes, rules or regulations requiring notice,
approval, or other action upon the occurrence of a change in control of NSC or
any of the NSC Subsidiaries or NSC Other Entities, the consummation of the
Merger will not violate any law or regulation to which NSC is subject which, if
violated, would have a material adverse effect on NSC.
3.17 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock. NSC is not a
party to any agreement the effect of which would be to require HEALTHSOUTH
directly or indirectly to retire or re-acquire all or part of the shares of
HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.
3.18 Disposition of Assets of Surviving Corporation. NSC is not a party to
any plan to dispose of a significant part of the assets of the Surviving
Corporation within two years after the Closing Date, other than dispositions in
the ordinary course of business of the Surviving Corporation and dispositions
intended to eliminate duplicate facilities or excess capacity.
3.19 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of the NSC Common Stock entitled to vote thereon is the
only vote of the holders of any class or series of NSC capital stock necessary
to approve this Plan of Merger, the Merger and the transactions contemplated
hereby.
3.20 Opinion of Financial Advisor. The Board of Directors of NSC has
received the oral opinion of BT Alex. Brown Incorporated to the effect that, as
of the date of this Plan of Merger, the consideration to be received by the
holders of NSC Common Stock is fair to such holders from a financial point of
view, a written copy of which opinion will be delivered by NSC to HEALTHSOUTH
prior to the date on which the definitive proxy materials for the Proxy
Statement (as defined in Section 7.4(a)) are filed with the SEC.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE SUBSIDIARY AND HEALTHSOUTH.
The Subsidiary and HEALTHSOUTH, jointly and severally, hereby represent and
warrant to NSC as follows:
4.1 Organization, Existence and Capital Stock. The Subsidiary is a
corporation duly organized and validly existing and is in good standing under
the laws of the State of Delaware. The Subsidiary's authorized capital consists
of 1,000 shares of Common Stock, par value $.01 per share, all of which shares
are issued and registered in the name of HEALTHSOUTH. The Subsidiary has not,
within the two years immediately preceding the date of this Plan of Merger,
owned, directly or indirectly, any
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shares of NSC Common Stock. The Subsidiary has (i) not engaged directly or
indirectly in any business or activities of any type or kind whatsoever nor
entered into any agreements or arrangements with any person or entity, or become
subject to or bound by any obligation or undertaking which is not contemplated
by this Agreement and (ii) not created, granted or suffered to exist any lien
upon its properties or assets which would attach to any properties or assets of
HEALTHSOUTH or the Surviving Corporation after the Effective Time.
4.2 Power and Authority. The Subsidiary has corporate power to execute,
deliver and perform this Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to this
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth herein, has taken all actions required by law, its Certificate of
Incorporation, its Bylaws or otherwise, to authorize the execution and delivery
of this Plan of Merger and such related documents. The execution and delivery of
this Plan of Merger does not and, subject to the receipt of required stockholder
and regulatory approvals and any other required third-party consents or
approvals, the consummation of the Merger contemplated hereby will not, violate
any provisions of the Certificate of Incorporation or Bylaws of the Subsidiary,
or any agreement, instrument, order, judgment or decree to which the Subsidiary
is a party or by which it is bound, violate any restrictions of any kind to
which the Subsidiary is subject, or result in the creation of any lien, charge
or encumbrance upon any of the property or assets of the Subsidiary.
4.3 No Subsidiaries. The Subsidiary does not own stock in, and does not
control directly or indirectly, any other corporation, association or business
organization. The Subsidiary is not a party to any joint venture or partnership.
4.4 Legal Proceedings. There are no actions, suits or proceedings pending
or threatened against the Subsidiary, at law or in equity, relating to or
affecting the Subsidiary, including the Merger. The Subsidiary does not know or
have any reasonable grounds to know of any justification for any such action,
suit or proceeding.
4.5 No Contracts or Liabilities. Other than the obligations created under
this Plan of Merger, the Subsidiary is not obligated under any contracts,
claims, leases, liabilities (contingent or otherwise), loans or otherwise.
Section 5. REPRESENTATIONS AND WARRANTIES OF HEALTHSOUTH.
HEALTHSOUTH hereby represents and warrants to NSC as follows:
5.1 Organization, Existence and Good Standing. HEALTHSOUTH is a corporation
duly organized and validly existing and is in good standing under the laws of
the State of Delaware. HEALTHSOUTH has all necessary corporate power to own its
properties and assets and to carry on its business as presently conducted.
HEALTHSOUTH is duly qualified to do business and is in good standing in all
jurisdictions in which the character of the property owned, leased or operated
or the nature of the business transacted by it makes qualification necessary.
HEALTHSOUTH is not, and has not been within the two years immediately preceding
the date of this Plan of Merger, a subsidiary or division of another
corporation, nor has HEALTHSOUTH within such time owned, directly or indirectly,
any shares of NSC Common Stock.
5.2 Power and Authority. HEALTHSOUTH has corporate power to execute,
deliver and perform this Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to this
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth herein has taken all actions required by law, its Certificate of
Incorporation, its Bylaws or otherwise, to authorize the execution and delivery
of this Plan of Merger and such related documents. The execution and delivery of
this Plan of Merger does not and, subject to the receipt of required regulatory
approvals and any other required third-party consents or approvals, the
consummation of the Merger contemplated hereby will not, violate any provisions
of the Certificate of Incorporation or Bylaws of HEALTHSOUTH, or any provision
of, or result in the acceleration of any obligation under, any mortgage, lien,
lease, agreement, instrument, order, arbitration award, judgment or decree to
which HEALTHSOUTH is a party or by which it is bound, or violate any
restrictions of any kind to
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which HEALTHSOUTH is subject. The execution and delivery of this Plan of Merger
has been approved by the Board of Directors of HEALTHSOUTH. This Plan of Merger
has been duly executed and delivered by HEALTHSOUTH and the Subsidiary and,
assuming this Plan of Merger constitutes a valid and binding obligation of NSC,
constitutes a valid and binding obligation of HEALTHSOUTH and the Subsidiary,
enforceable against HEALTHSOUTH and the Subsidiary in accordance with its terms.
No vote of the holders of any class or series of HEALTHSOUTH capital stock is
necessary to approve this Plan of Merger, the Merger and the transactions
contemplated hereby.
5.3 HEALTHSOUTH Common Stock. On the Closing Date, HEALTHSOUTH will have a
sufficient number of authorized but unissued and/or treasury shares of its
Common Stock available for issuance to the holders of NSC Common Stock in
accordance with the provisions of this Plan of Merger. The HEALTHSOUTH Common
Stock to be issued pursuant to this Plan of Merger will, when so delivered, be
(i) duly and validly issued, fully paid and nonassessable, (ii) issued pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, and (iii) authorized for listing on the New York Stock Exchange, Inc.
(the "Exchange") upon official notice of issuance.
5.4 Capitalization. HEALTHSOUTH's authorized capital stock consists of
1,500,000 shares of Preferred Stock, par value $.10 per share, of which no
shares are issued and outstanding, and no shares are held in treasury, and
500,000,000 shares of Common Stock, par value $.01 per share, of which
399,952,852 shares were issued and outstanding as of March 30, 1998, and 186,000
shares are held in treasury. All of the issued and outstanding shares of
HEALTHSOUTH Common Stock have been duly and validly issued and are fully paid
and non-assessable. Except as disclosed in the HEALTHSOUTH Annual Report on Form
10-K for the fiscal year ended December 31, 1997, as amended (the "HEALTHSOUTH
10-K"), there are no options, warrants, convertible debentures or similar rights
granted by HEALTHSOUTH or any other agreements to which HEALTHSOUTH is a party
providing for the issuance or sale by it of any additional securities, other
than stock options granted in the ordinary course since such date, up to
8,579,627 shares of HEALTHSOUTH Common Stock to be issued pursuant to a Plan and
Agreement of Merger, as amended, between HEALTHSOUTH, Chandler Acquisition
Corporation and The Company Doctor, and HEALTHSOUTH's $567,750,000 principal
amount of 3.25% Convertible Subordinated Debentures due 2003. There is no
liability for dividends declared or accumulated but unpaid with respect to any
shares of HEALTHSOUTH Common Stock. HEALTHSOUTH has not made any distributions
to any holder of HEALTHSOUTH Common Stock or participated in or effected any
issuance, exchange or retirement of HEALTHSOUTH Common Stock, or otherwise
changed the equity interests of holders of HEALTHSOUTH Common Stock, in
contemplation of effecting the Merger within the two years immediately preceding
the date of this Plan of Merger. Any shares of HEALTHSOUTH Common Stock that
HEALTHSOUTH has re-acquired during the two years immediately preceding the date
of this Plan of Merger have been so re-acquired only for purposes other than
Business Combinations.
5.5 Subsidiary Common Stock. HEALTHSOUTH owns, beneficially and of record,
all of the issued and outstanding shares of Subsidiary Common Stock, which are
validly issued and outstanding, fully paid and nonassessable, free and clear of
all liens and encumbrances. HEALTHSOUTH has the corporate power to endorse and
surrender such Subsidiary Shares for cancellation pursuant to this Plan of
Merger. HEALTHSOUTH has taken all such actions as may be required in its
capacity as the sole stockholder of the Subsidiary to approve the Merger.
5.6 HEALTHSOUTH Documents. HEALTHSOUTH has heretofore furnished NSC with a
true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by it with the SEC (as any such documents have
since the time of their original filing been amended, the "HEALTHSOUTH
Documents") since January 1, 1998, which are all the documents (other than
preliminary material) that it was required to file with the SEC since such date.
As of their respective dates, the HEALTHSOUTH Documents did not contain any
untrue statements of material facts or omit to state material facts required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the HEALTHSOUTH Documents complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and the rules
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and regulations promulgated under such statutes. The financial statements
contained in the HEALTHSOUTH Documents, together with the notes thereto, have
been prepared in accordance with generally accepted accounting principles
consistently followed throughout the periods indicated (except as may be
indicated in the notes thereto, or, in the case of the unaudited financial
statements, as permitted by Form 10-Q), reflect all known liabilities of
HEALTHSOUTH required to be stated therein, including all known contingent
liabilities as of the end of each period reflected therein, and present fairly
the financial condition of HEALTHSOUTH at said dates and the consolidated
results of operations and cash flows of HEALTHSOUTH for the periods then ended.
5.7 Investment Intent. HEALTHSOUTH is acquiring the shares of NSC Common
Stock hereunder for its own account and not with a view to the distribution or
sale thereof, and HEALTHSOUTH has no understanding, agreement or arrangement to
sell, distribute, partition or otherwise transfer or assign all or any part of
the shares of NSC Common Stock to any other person, firm or corporation.
5.8 Legal Proceedings. Except as disclosed in the HEALTHSOUTH Documents,
there is no material litigation, governmental investigation or other proceeding
pending or, so far as is known to HEALTHSOUTH, threatened against or relating to
HEALTHSOUTH, its properties or business, or the transaction contemplated by this
Plan of Merger and, so far as is known to HEALTHSOUTH, no basis for any such
action exists.
5.9 Compliance with Laws in General. Except as disclosed in the HEALTHSOUTH
Documents, HEALTHSOUTH has not received any notices of material violations of
any federal, state and local laws, regulations and ordinances relating to its
business and operations, including, without limitation, the Federal
Environmental Protection Act, the Occupational Safety and Health Act, the
Americans with Disabilities Act, the Medicare or applicable Medicaid statutes
and regulations and any Environmental Laws, and no notice of any pending
inspection or violation of any such law, regulation or ordinance has been
received by HEALTHSOUTH which, if it were determined that a violation had
occurred, would have a material effect on HEALTHSOUTH.
5.10 Licenses, Accreditation and Regulatory Approvals. Except as disclosed
in the HEALTHSOUTH Documents, HEALTHSOUTH and its subsidiaries (the "HEALTHSOUTH
Subsidiaries") and controlled general or limited partnerships and limited
liability companies (the "HEALTHSOUTH Other Entities") hold all Licenses which
are needed or required by law with respect to their businesses, operations and
facilities as they are currently or presently conducted, except where the
failure to possess such Licenses does not have a material adverse effect on
HEALTHSOUTH. All such Licenses are in full force and effect, and HEALTHSOUTH is
in compliance with all conditions and requirements of the Licenses and with all
rules and regulations relating thereto, except for such noncompliance as does
not have a material adverse effect on HEALTHSOUTH. HEALTHSOUTH, the HEALTHSOUTH
Subsidiaries and the HEALTHSOUTH Other Entities are, to the extent applicable to
their operations, (i) eligible to receive payment under Titles XVIII and XIX of
the Social Security Act, (ii) providers under existing provider agreements with
the Medicare program through the applicable intermediaries and (iii) in
compliance with the conditions of participation in the Medicare program except
where such inability in the case of either items (i) or (ii) or noncompliance in
item (iii) does not have a material adverse effect on HEALTHSOUTH. Except to the
extent that the failure to make or to timely make such filings would not have a
material adverse effect on HEALTHSOUTH, HEALTHSOUTH, the HEALTHSOUTH
Subsidiaries and the HEALTHSOUTH Other Entities have timely filed all requisite
claims and other reports required to be filed in connection with the Medicare,
Medicaid and other governmental health programs due on or before the date
hereof, all of which were, when filed, complete and correct except to the extent
that such failure to be complete and correct would not have a material adverse
effect on HEALTHSOUTH. There are no current claims, actions or appeals pending,
and neither HEALTHSOUTH nor the HEALTHSOUTH Subsidiaries nor the HEALTHSOUTH
Other Entities have filed any claims or reports which would result in such
claims, actions or appeals, before any commission, board or agency, including,
without limitation, any intermediary or carrier, the Provider Reimbursement
Review Board or the Administrator of the Health Care Financing Administration
with respect to any Medicare claims, or any disallowances in connection with any
audit of claims, which in any such case would have a material adverse effect on
HEALTHSOUTH. The amounts established as provisions
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for adjustments by Medicare, Medicaid and other third-party payors on the
financial statements set forth in the HEALTHSOUTH 10-K are sufficient to pay any
material amounts for which HEALTHSOUTH believes it will be liable. To the
knowledge of HEALTHSOUTH, neither HEALTHSOUTH nor the HEALTHSOUTH Subsidiaries
nor the HEALTHSOUTH Other Entities nor their respective employees have committed
a violation of the Medicare and Medicaid fraud and abuse provisions of the
Social Security Act, which violation would have a material adverse effect on
HEALTHSOUTH. Any and all past litigation concerning such Licenses and all claims
and causes of action raised therein, has been finally adjudicated. No such
License has been revoked, conditioned (except as may be customary) or
restricted, and no action (equitable, legal or administrative), arbitration or
other process is pending, or to the knowledge of HEALTHSOUTH, threatened, which
in any way challenges the validity of, or seeks to revoke, condition or restrict
any such License where such invalidity, revocation, condition or restriction
would have a material adverse effect on HEALTHSOUTH. Subject to compliance with
applicable securities laws, the HSR Act and state or local statutes, rules or
regulations requiring notice, approval, or other action upon the occurrence of a
change in control of NSC or any of the NSC Subsidiaries or NSC Other Entities,
the consummation of the Merger will not violate any law or regulation to which
HEALTHSOUTH is subject which, if violated, would have a material adverse effect
on HEALTHSOUTH.
5.11 Subsequent Events. Except as disclosed in the HEALTHSOUTH 10-K,
HEALTHSOUTH has not, since the date of the HEALTHSOUTH 10-K:
(a) Incurred any material adverse change.
(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued,
contingent or otherwise) other than (i) liabilities shown or reflected on
the December 31, 1997 Balance Sheet contained in the HEALTHSOUTH 10-K or
(ii) liabilities incurred since the date of the HEALTHSOUTH 10-K in the
ordinary course of business, which discharge or satisfaction would have a
material adverse effect on HEALTHSOUTH.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on HEALTHSOUTH, except as may have been required due to
income or operations of HEALTHSOUTH since December 31, 1997.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of HEALTHSOUTH.
(e) Sold or transferred any of the assets material to the consolidated
business of HEALTHSOUTH, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
HEALTHSOUTH to any officer or employee, consultant or agent (other than
normal merit increases), or by means of any bonus or pension plan, contract
or other commitment, increased in a material respect the compensation of any
officer, employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted under
other Sections hereof.
(h) Issued any stock, bonds or other securities, other than stock options
granted to employees or consultants of HEALTHSOUTH or warrants granted to
third parties, all of which are described in the HEALTHSOUTH Documents.
5.12 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock. HEALTHSOUTH
has not agreed directly or indirectly to retire or re-acquire all or part of the
shares of HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.
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5.13 Disposition of Assets of Surviving Corporation. HEALTHSOUTH does not
intend or plan to dispose of, or to cause the Surviving Corporation to dispose
of, a significant part of the assets of the Surviving Corporation within two
years after the Effective Time, other than dispositions in the ordinary course
of business of the Surviving Corporation and dispositions intended to eliminate
duplicate facilities or excess capacity.
Section 6. ACCESS TO INFORMATION AND DOCUMENTS.
6.1 Access to Information. Between the date hereof and the Closing Date,
each of NSC and HEALTHSOUTH will give to the other party and its counsel,
accountants and other representatives full access to all the properties,
documents, contracts, personnel files and other records of such party and shall
furnish the other party with copies of such documents and with such information
with respect to the affairs of such party as the other party may from time to
time reasonably request. Each party will disclose and make available to the
other party and its representatives all books, contracts, accounts, personnel
records, letters of intent, papers, records, communications with regulatory
authorities and other documents relating to the business and operations of such
party. In addition, NSC shall make available to HEALTHSOUTH all such banking,
investment and financial information as shall be necessary to allow for the
efficient integration of NSC banking, investment and financial arrangements with
those of HEALTHSOUTH at the Effective Time.
6.2 Return of Records. If the transactions contemplated hereby are not
consummated and this Plan of Merger terminates, each party agrees to promptly
return all documents, contracts, records or properties of the other party and
all copies thereof furnished pursuant to this Section 6 or otherwise. All
information disclosed by any party or any affiliate or representative of any
party shall be deemed to be "Evaluation Material" under the terms of the
Confidentiality Agreements dated April 30, 1998, between NSC and HEALTHSOUTH and
May 1, 1998, between HEALTHSOUTH and NSC (the "Confidentiality Agreements").
6.3 Effect of Access. (a) Nothing contained in this Section 6 shall be
deemed to create any duty or responsibility on the part of either party to
investigate or evaluate the value, validity or enforceability of any contract,
lease or other asset included in the assets of the other party.
(b) With respect to matters as to which any party has made express
representations or warranties herein, the parties shall be entitled to rely upon
such express representations and warranties irrespective of any investigations
made by such parties, except to the extent that such investigations result in
actual knowledge of the inaccuracy or falsehood of particular representations
and warranties.
Section 7. COVENANTS.
7.1 Preservation of Business. Prior to the Effective Time, NSC will use its
best efforts to preserve the business organization of NSC intact, to keep
available to HEALTHSOUTH and the Surviving Corporation the services of the
present employees of NSC, and to preserve for HEALTHSOUTH and the Surviving
Corporation the goodwill of the suppliers, customers and others having business
relations with NSC.
7.2 Material Transactions. Prior to the Effective Time, NSC will not (other
than as required pursuant to the terms of this Plan of Merger and the related
documents, and other than with respect to transactions for which binding
commitments have been entered into prior to the date hereof which are described
on Exhibit 7.2 to the Disclosure Schedule), without first obtaining the written
consent of HEALTHSOUTH:
(a) Encumber any asset or enter into any transaction or make any contract
or commitment relating to the properties, assets and business of NSC, other
than in the ordinary course of business or as otherwise disclosed herein.
(b) Enter into any employment contract which is not terminable upon
notice of 30 days or less, at will, and without penalty to NSC except as
provided herein.
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(c) Enter into any contract or agreement (i) which cannot be performed
within three months or less, or (ii) which involves the expenditure of over
$100,000.
(d) Issue or sell, or agree to issue or sell, any shares of capital stock
or other securities of NSC, except upon exercise of currently outstanding
stock options or warrants or pursuant to the NSC Employee Stock Purchase
Plan.
(e) Make any contribution, payment or distribution to the trustee under
any bonus, pension, profit-sharing or retirement plan or incur any
obligation to make any such payment or contribution which is not in
accordance with NSC's usual past practice, or establish or enter into any
other plan or contract or arrangement providing for bonuses, executive
incentive compensation, pensions, deferred compensation, retirement
payments, profit-sharing or the like, or terminate any Plan.
(f) Extend credit to anyone, except in the ordinary course of business
consistent with prior practices.
(g) Guarantee the obligation of any person, firm or corporation, except
in the ordinary course of business consistent with prior practices.
(h) Amend its Certificate of Incorporation or Bylaws.
(i) Take any action of a character described in Section 3.10(b) to
3.10(h), inclusive.
7.3 Meeting of NSC Stockholders. (a) NSC will take all steps necessary in
accordance with its Certificate of Incorporation and Bylaws to call, give notice
of, convene and hold a meeting of its stockholders (the "Special Meeting") as
soon as practicable after the effectiveness of the Registration Statement (as
defined in Section 7.4 hereof), for the purpose of approving this Plan of Merger
and for such other purposes as may be necessary. Unless this Plan of Merger
shall have been validly terminated as provided herein, the Board of Directors of
NSC (subject to the exercise of its fiduciary duties under applicable law) will
(i) recommend to NSC stockholders the approval of this Plan of Merger, the
transactions contemplated hereby and any other matters to be submitted to the
stockholders in connection therewith, to the extent that such approval is
required by applicable law in order to consummate the Merger, and (ii) use
reasonable, good faith efforts to obtain the approval by NSC's stockholders of
this Plan of Merger and the transactions contemplated hereby.
(b) Nothing contained herein shall affect the right of NSC to take action
by written consent in lieu of meeting to the extent permitted by applicable law
and its Certificate of Incorporation and Bylaws.
7.4 Registration Statement. (a) HEALTHSOUTH shall prepare and file with the
SEC and any other applicable regulatory bodies, as soon as reasonably
practicable, a Registration Statement on Form S-4 with respect to the shares of
HEALTHSOUTH Common Stock to be issued in the Merger (the "Registration
Statement"), and will otherwise proceed promptly to satisfy the requirements of
the Securities Act of 1933, as amended (the "Securities Act"), including Rule
145 thereunder. Such Registration Statement shall contain a proxy statement of
NSC (the "Proxy Statement") containing the information required by the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). HEALTHSOUTH
shall take all reasonable steps to cause the Registration Statement to be
declared effective and to maintain such effectiveness until all of the shares
covered thereby have been distributed. HEALTHSOUTH shall promptly amend or
supplement the Registration Statement to the extent necessary in order to make
the statements therein not misleading or to correct any misstatements which have
become false or misleading. HEALTHSOUTH shall use its reasonable, good faith
efforts to have the Registration Statement declared effective by the SEC under
the provisions of the Securities Act and the Exchange Act. HEALTHSOUTH shall
provide NSC with copies of all filings made pursuant to this Section 7.4 and
shall consult with NSC on responses to any comments made by the Staff of the SEC
with respect thereto.
(b) The information specifically designated as being supplied by NSC for
inclusion in the Registration Statement shall not, at the time the Registration
Statement is declared effective and at the time the Proxy Statement is first
mailed to holders of NSC Common Stock, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to
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make the statements therein not misleading. The information specifically
designated as being supplied by NSC for inclusion in the Proxy Statement shall
not, at the date the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to holders of NSC Common Stock, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time any event or circumstance relating to NSC, or
its officers or directors, should be discovered by NSC which should be set forth
in an amendment to the Registration Statement or a supplement to the Proxy
Statement, NSC shall promptly inform HEALTHSOUTH. All documents, if any, that
NSC is responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
(c) The information specifically designated as being supplied by
HEALTHSOUTH for inclusion in the Registration Statement shall not, at the time
the Registration Statement is declared effective and at the time the Proxy
Statement is first mailed to holders of NSC Common Stock, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information specifically designated as being supplied by
HEALTHSOUTH for inclusion in the Proxy Statement to be sent to the holders of
NSC Common Stock in connection with the Special Meeting shall not, at the date
the Proxy Statement (or any amendment thereof or supplement thereto) is first
mailed to holders of NSC Common Stock, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event or circumstance relating to HEALTHSOUTH or its
officers or directors, should be discovered by HEALTHSOUTH which should be set
forth in an amendment to the Registration Statement or a supplement to the Proxy
Statement, HEALTHSOUTH shall promptly inform NSC and shall promptly file such
amendment to the Registration Statement. All documents that HEALTHSOUTH is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
(d) Prior to the Closing Date, HEALTHSOUTH shall use its reasonable, good
faith efforts to cause the shares of HEALTHSOUTH Common Stock to be issued
pursuant to the Merger to be registered or qualified under all applicable
securities or Blue Sky laws of each of the states and territories of the United
States, and to take any other actions which may be necessary to enable the
Common Stock to be issued pursuant to the Merger to be distributed in each such
jurisdiction.
(e) Prior to the Closing Date, HEALTHSOUTH shall file an additional listing
application (the "Listing Application") with the Exchange relating to the shares
of HEALTHSOUTH Common Stock to be issued in connection with the Merger, and
shall use its reasonable, good faith efforts to cause such shares of HEALTHSOUTH
Common Stock to be approved for listing on the Exchange, upon official notice of
issuance, prior to the Closing Date.
(f) NSC shall furnish all information to HEALTHSOUTH with respect to NSC
and the NSC Subsidiaries and NSC Other Entities as HEALTHSOUTH may reasonably
request for inclusion in the Registration Statement, the Proxy Statement and the
Listing Application, and shall otherwise cooperate with HEALTHSOUTH in the
preparation and filing of such documents.
7.5 Exemption from State Takeover Laws; NSC Rights. NSC shall take all
reasonable steps necessary to (a) exempt the Merger from the requirements of any
state takeover statute or other similar state law which would prevent or impede
the consummation of the transactions contemplated hereby, by action of NSC's
Board of Directors or otherwise, and (b) to redeem the outstanding preferred
share purchase rights (the "Rights") of NSC or otherwise cause the Merger to be
a transaction which does not trigger the detachment and distribution of the
Rights (otherwise than by issuing shares of NSC Common Stock or preferred stock
in exchange for the Rights).
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7.6 HSR Act Compliance. HEALTHSOUTH and NSC shall promptly make their
respective filings, and shall thereafter use their reasonable, good faith
efforts to promptly make any required submissions, under the HSR Act with
respect to the Merger and the transactions contemplated hereby. HEALTHSOUTH and
NSC will use their respective reasonable, good faith efforts to obtain all other
permits, authorizations, consents and approvals from third parties and
governmental authorities necessary to consummate the Merger and the transactions
contemplated hereby.
7.7 Public Disclosures. HEALTHSOUTH and NSC will consult with each other
before issuing any press release or otherwise making any public statement with
respect to the transactions contemplated by this Plan of Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation except as may be required by applicable law or requirements of the
Exchange or Nasdaq, as applicable. The parties shall issue a joint press
release, mutually acceptable to HEALTHSOUTH and NSC, promptly upon execution and
delivery of this Plan of Merger.
7.8 Resignation of NSC Directors. On or prior to the Closing Date, NSC
shall deliver to HEALTHSOUTH evidence satisfactory to HEALTHSOUTH of the
resignation of the Directors of NSC, such resignations to be effective on the
Closing Date.
7.9 Notice of Subsequent Events. Each party hereto shall notify the other
parties of any changes, additions or events which would cause any material
change in or material addition to any Exhibit to the Disclosure Schedule
delivered by the notifying party under this Plan of Merger, promptly after the
occurrence of the same. If the effect of such change or addition would,
individually or in the aggregate with the effect of changes or additions
previously disclosed pursuant to this Section 7.9, constitute a material adverse
effect on the notifying party, the non-notifying party may, within ten days
after receipt of such notice, elect to terminate this Plan of Merger. If the
non-notifying party does not give written notice of such termination within such
10-day period, the non-notifying party shall be deemed to have consented to such
change or addition and shall not be entitled to terminate this Plan of Merger by
reason thereof.
7.10 No Solicitations. (a) Subject to the provisions of Section 7.10(b)
below, NSC shall not, and shall not suffer any of the NSC Subsidiaries or the
NSC Other Entities or any of their respective directors, officers, employees,
agents or representatives to, directly or indirectly (i) solicit or initiate
(including by way of furnishing or publishing nonpublic information) any
inquiries or the making of any proposal with respect to any merger,
consolidation or other business combination involving NSC or the acquisition of
all or any significant part, including by way of merger, acquisition or other
business combination, of the assets or capital stock or other equity interests
of NSC or of any NSC Subsidiaries or NSC Other Entities which, individually or
in the aggregate constitute a significant part of the consolidated assets of NSC
or any similar transaction (an "Acquisition Transaction"), (ii) negotiate,
explore or otherwise engage in discussions with any persons (other than
HEALTHSOUTH and its representatives) with respect to any Acquisition Transaction
or which may reasonably be expected to lead to a proposal for an Acquisition
Transaction or (iii) enter into any agreement, arrangement or understanding with
respect to any such Acquisition Transaction or which would require NSC to
abandon, terminate or fail to consummate the Merger or any other transaction
contemplated by this Plan of Merger. Except as may be required by the fiduciary
duties of NSC's Board of Directors under applicable law, NSC agrees that, as of
the date hereof, NSC and the NSC Subsidiaries and the NSC Other Entities and
their respective directors, officers, employees, agents and representatives
shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations conducted heretofore with respect to any Acquisition
Transaction.
(b) Notwithstanding the provisions of Section 7.10(a) above, NSC may (i),
directly or indirectly, furnish information and access, in response to an
unsolicited written proposal for an Acquisition Transaction, to the same extent
permitted by Section 6.1, to any corporation, partnership, person or other
entity or group (in each case, a "person"), pursuant to appropriate
confidentiality agreements, and may participate in discussions and negotiate
with such corporation, partnership, person or other entity or group concerning
any proposal for an Acquisition Transaction, if the Board of Directors of NSC
determines in its good faith judgment in the exercise of its fiduciary duties,
after consultation with legal
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counsel and its financial advisors, that such action is appropriate in
furtherance of the best interest of its stockholders and (ii) comply with Rule
14e-2 promulgated under the Exchange Act with regard to an Acquisition
Transaction. NSC shall promptly advise HEALTHSOUTH of the existence of any
inquiries or proposals received by, any requests for such information from, or
any negotiations or discussions initiated or continued with, NSC or any of the
NSC Subsidiaries or the NSC Other Entities or any of their respective directors,
officers, employees, agents or representatives, in each case from or by a person
(other than HEALTHSOUTH and its representatives) with respect to an Acquisition
Transaction and the identity of such person and, except as may otherwise be
required pursuant to the fiduciary duties of NSC's Board of Directors under
applicable law, the terms, the proposed form of consideration and the general
terms of any financing arrangement or commitment in connection with such
Acquisition Transaction.
7.11 Other Actions. Subject to the provisions of Sections 7.3 and 7.10
hereof, none of NSC, HEALTHSOUTH and the Subsidiary shall knowingly or
intentionally take any action, or omit to take any action, if such action or
omission would, or reasonably might be expected to, result in any of its
representations and warranties set forth herein being or becoming untrue in any
material respect, or in any of the conditions to the Merger set forth in this
Plan of Merger not being satisfied, or (unless such action is required by
applicable law) which would materially adversely affect the ability of NSC or
HEALTHSOUTH to obtain any consents or approvals required for the consummation of
the Merger without imposition of a condition or restriction which would have a
material adverse effect on the Surviving Corporation or which would otherwise
materially impair the ability of NSC or HEALTHSOUTH to consummate the Merger in
accordance with the terms of this Plan of Merger or materially delay such
consummation.
7.12 Accounting Methods. Neither HEALTHSOUTH nor NSC shall change, in any
material respect, its methods of accounting in effect at its most recent fiscal
year end, except as required by changes in generally accepted accounting
principles as concurred in any such parties' independent accountants.
7.13 Pooling and Tax-Free Reorganization Treatment. Neither HEALTHSOUTH nor
NSC shall intentionally take or cause to be taken any action, whether on or
before the Effective Time, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the meaning
of Section 368(a) of the Code.
7.14 Affiliate and Pooling Agreements. NSC will use its reasonable, good
faith efforts to cause each of its Directors and executive officers and each of
its "affiliates" (within the meaning of Rule 145 under the Securities Act of
1933) to execute and deliver to HEALTHSOUTH as soon as practicable an agreement
in the form attached hereto as Exhibit 7.14 relating to the disposition of
shares of NSC Common Stock and shares of HEALTHSOUTH Common Stock held by such
person and the shares of HEALTHSOUTH Common Stock issuable pursuant to this Plan
of Merger.
7.15 Cooperation. (a) HEALTHSOUTH and NSC shall together, or pursuant to an
allocation of responsibility agreed to between them, (i) cooperate with one
another in determining whether any filings are required to be made or consents
are required to be obtained in any jurisdiction prior to the Effective Time in
connection with the consummation of the transactions contemplated hereby and
cooperate in making any such filings promptly and in seeking to obtain timely
any such consents, (ii) use their respective best efforts to cause to be lifted
any injunction prohibiting the Merger, or any part thereof, or the other
transactions contemplated hereby, and (iii) furnish to one another and to one
another's counsel all such information as may be required to effect the
foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless this
Plan of Merger shall have been validly terminated as provided herein, each of
HEALTHSOUTH and NSC shall use all reasonable efforts (i) to take, or cause to be
taken, all actions necessary to comply promptly with all legal requirements
which may be imposed on such party (or any subsidiaries or affiliates of such
party) with respect to this Plan of Merger and to consummate the transactions
contemplated hereby, subject to the vote of NSC's stockholders described above,
and (ii) to obtain (and to cooperate with the other party to obtain) any
consent, authorization, order or approval of, or any exemption by, any
governmental entity and/or any other public or private third party which is
required to be obtained or made by such party or any of
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its subsidiaries or affiliates in connection with this Plan of Merger and the
transactions contemplated hereby. Each of HEALTHSOUTH and NSC will promptly
cooperate with and furnish information to the other in connection with any such
burden suffered by, or requirement imposed upon, either of them or any of their
subsidiaries or affiliates in connection with the foregoing.
7.16 NSC Stock Options and Warrants. (a) As soon as reasonably practicable
after the Effective Time of the Merger, HEALTHSOUTH shall deliver to the holders
of NSC stock options and warrants appropriate notices setting forth such
holders' rights pursuant to any stock option plans under which such NSC stock
options were issued and any stock option agreements or warrant agreements
evidencing such options or warrants, which shall continue in full force and
effect on the same terms and conditions (subject to the adjustments required by
Section 2.1(d) or this Section 7.16 after giving effect to the Merger and the
assumption of such options and warrants by HEALTHSOUTH as set forth herein) as
in effect immediately prior to the Effective Time. HEALTHSOUTH shall comply with
the terms of the stock option plans, the stock option agreements and the warrant
agreements as so adjusted, and shall use its reasonable, good faith efforts to
ensure, to the extent required by, and subject to the provisions of, such plans
or agreements, that the NSC stock options which qualified as incentive stock
options prior to the Effective Time shall continue to qualify as incentive stock
options after the Effective Time.
(b) HEALTHSOUTH shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of HEALTHSOUTH Common Stock for delivery
upon exercise of the NSC stock options and warrants assumed by HEALTHSOUTH in
accordance with Section 2.1(d). As soon as practicable after the Effective Time,
HEALTHSOUTH shall file with the SEC a registration statement on Form S-8 with
respect to shares of HEALTHSOUTH Common Stock subject to such NSC stock options
and shall use its best efforts to maintain the effectiveness of such
registration statement (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such NSC stock options remain
outstanding. HEALTHSOUTH shall administer the plans assumed pursuant to Section
2.1(d) hereof in a manner that complies with Rule 16b-3 promulgated under the
Exchange Act to the extent the applicable plan complied with such rule prior to
the Merger.
(c) Except to the extent otherwise agreed to by the parties, all
restrictions or limitations on transfer with respect to the NSC stock options
awarded under any plan, program, or arrangement of NSC or any of its
subsidiaries, to the extent that such restrictions or limitations shall not have
already lapsed, shall remain in full force and effect with respect to such
options after giving effect to the Merger and the assumption by HEALTHSOUTH as
set forth above.
7.17 Publication of Combined Results. HEALTHSOUTH agrees that within 25
days after the end of the first calendar month following at least 30 days after
the Effective Time, HEALTHSOUTH shall cause publication of the combined results
of operations of HEALTHSOUTH and NSC. For purposes of this Section 7.17, the
term "publication" shall have the meaning provided in SEC Accounting Series
Release No. 135.
7.18 NSC Employees. HEALTHSOUTH shall retain all employees of NSC who are
employed at the Effective Time as employees-at-will (except to the extent that
such employees are parties to contracts providing for other employment terms, in
which case such employees shall be retained in accordance with the terms of such
contracts) and shall provide such employees with the same customary employee
benefits as HEALTHSOUTH provides its existing employees. HEALTHSOUTH shall give
employees of NSC credit for their respective periods of employment with NSC
prior to the Effective Time for purposes of determining their eligibility for
and level of participation in any employee benefit program, plan or arrangement
which the Surviving Corporation adopts, maintains or contributes to following
the Effective Time. In addition, HEALTHSOUTH agrees that it will execute and
deliver on the Closing Date agreements with the employees designated on Exhibit
7.18 to the Disclosure Schedule providing the benefits set forth on such Exhibit
7.18 to those employees.
7.19 Certain Information. For as long as any affiliate (as defined for
purposes of Rule 145 under the Securities Act) of NSC holds shares of
HEALTHSOUTH Common Stock issued in the Merger (but not for a period in excess of
two years from the date of consummation of the Merger), HEALTHSOUTH
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shall file with the SEC or otherwise make publicly available all information
about HEALTHSOUTH required pursuant to Rule 144(c) under the Securities Act of
1933 to enable such affiliate to resell such shares under the provisions of Rule
145(d) under the Securities Act of 1933.
7.20 Tax Treatment. HEALTHSOUTH and NSC agree to treat the Merger as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code. During the period from the date of this Agreement through the
Effective Time, unless the parties shall otherwise agree in writing, none of
HEALTHSOUTH, NSC or any of their respective Subsidiaries shall knowingly take or
fail to take any action which action or failure to act would jeopardize
qualification of the Merger as a reorganization under such provisions of the
Code.
7.21 Conduct of Business of the Subsidiary Pending the Merger. Prior to the
Effective Time and subject to any applicable regulatory approvals, HEALTHSOUTH
shall cause the Subsidiary to (i) perform its obligations under this Agreement
in accordance with the terms hereof and take all other actions necessary or
appropriate for the consummation of the transactions contemplated hereby, (ii)
not incur, directly or indirectly, any liabilities or obligations except those
incurred in connection with the performance of its obligations under this
Agreement and the consummation of the transactions contemplated hereby, (iii)
not engage directly or indirectly in any business or activities of any type or
kind whatsoever and not enter into any agreements or arrangements with any
person or entity, or be subject to or be bound by any obligation or undertaking
which is not contemplated by this Agreement, and (iv) not create, grant or
suffer to exist any lien upon its properties or assets which would attach to any
properties or assets of HEALTHSOUTH or the Surviving Corporation after the
Effective Time.
7.22 Consulting and Noncompetition Agreements. HEALTHSOUTH and each of E.
Timothy Geary, Bryan S. Fisher, Dennis D. Solheim and Dennis Zamojski will
execute and deliver prior to the Closing Date Consulting and Noncompetition
Agreements in the respective forms set forth on Exhibit 7.22 to the Disclosure
Schedule.
Section 8. TERMINATION, AMENDMENT AND WAIVER.
8.1 Termination. This Plan of Merger may be terminated at any time prior to
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the holders of shares of NSC Common Stock:
(a) by mutual written consent of HEALTHSOUTH and NSC;
(b) by either HEALTHSOUTH or NSC:
(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of shares of
NSC Common Stock shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before
November 30, 1998, unless the failure to consummate the Merger is the
result of a willful and material breach of this Plan of Merger by the
party seeking to terminate this Plan of Merger; provided, however, that
the passage of such period shall be tolled for any part thereof (but not
exceeding 60 days in the aggregate) during which any party shall be
subject to a nonfinal order, decree, ruling or action restraining,
enjoining or otherwise prohibiting the consummation of the Merger or the
calling or holding of a meeting of stockholders;
(iii) if any court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibited the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable;
(iv) in the event of a breach by the other party of any
representation, warranty, covenant or other agreement contained in this
Plan of Merger which (A) would give rise to the failure of a condition
set forth in Section 9.2(a) or (b) or Section 9.3(a) or (b), as
applicable, and (B) cannot be or has not been cured within 30 days after
the giving of written notice to the breach-
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ing party of such breach (a "Material Breach") (provided that the
terminating party is not then in Material Breach of any representation,
warranty, covenant or other agreement contained in this Plan of Merger);
or
(v) if either HEALTHSOUTH or NSC gives notice of termination as a
non-notifying party pursuant to Section 7.9;
(c) By either HEALTHSOUTH or NSC in the event that (i) all of the
conditions to the obligation of such party to effect the Merger set forth in
Section 9.1 shall have been satisfied and (ii) any condition to the
obligation of such party to effect the Merger set forth in Section 9.2 (in
the case of HEALTHSOUTH) or Section 9.3 (in the case of NSC) is not capable
of being satisfied prior to the end of the period referred to in Section
8.1(b)(ii); or
(d) By NSC, if NSC's Board of Directors shall have (i) determined, in the
exercise of its fiduciary duties under applicable law, not to recommend the
Merger to the holders of NSC Common Stock or shall have withdrawn such
recommendation or (ii) approved, recommended or endorsed any Acquisition
Transaction (as defined in Section 7.10) other than this Plan of Merger or
(iii) resolved to do any of the foregoing.
8.2 Effect of Termination. In the event of termination of this Plan of
Merger as provided in Section 8.1, this Plan of Merger shall forthwith become
void and have no effect, without any liability or obligation on the part of any
party, other than the provisions of Sections 6.2, 8.2 and 8.6, and except to the
extent that such termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or other agreements
set forth in this Plan of Merger.
8.3 Amendment. This Plan of Merger may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the holders of shares of NSC Common Stock; provided, however,
that after any such approval, there shall be made no amendment that pursuant to
Section 251(d) of the DGCL requires further approval by such stockholders
without the further approval of such stockholders. This Plan of Merger may not
be amended except by an instrument in writing signed on behalf of each of the
parties.
8.4 Extension; Waiver. At any time prior to the Effective Time of the
Merger, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c) subject to the proviso
of Section 8.3, waive compliance with any of the agreements or conditions
contained in this Plan of Merger. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this Plan of
Merger to assert any of its rights under this Plan of Merger or otherwise shall
not constitute a waiver of such rights, except as otherwise provided in Section
7.9.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Plan of Merger pursuant to Section 8.1, an amendment of this
Plan of Merger pursuant to Section 8.3, or an extension or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of HEALTHSOUTH,
the Subsidiary or NSC, action by its Board of Directors or the duly authorized
designee of the Board of Directors.
8.6 Expenses; Break-up Fees. (a) All costs and expenses incurred in
connection with this Plan of Merger and the transactions contemplated hereby
shall be paid by the party incurring such expense, except that expenses incurred
in connection with printing and mailing the Proxy Statement and the Registration
Statement shall be shared equally by NSC and HEALTHSOUTH.
(b) (i) If this Plan of Merger is terminated by NSC pursuant to Section
8.1(d), and within one year after the effective date of such termination NSC is
the subject of a Third Party Acquisition Event with any Person (as defined in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act) (other than a party hereto),
then at the time of consummation of such a Third Party Acquisition Event, NSC
shall pay to HEALTHSOUTH a break-up fee of $15,000,000 in immediately available
funds, which fee represents
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the parties' best estimates of the out-of-pocket costs incurred by HEALTHSOUTH
and the value of management time, overhead, opportunity costs and other
unallocated costs of HEALTHSOUTH incurred by or on behalf of HEALTHSOUTH in
connection with this Plan of Merger. Such break-up fee shall be due and payable
on the earliest of (i) the date on which NSC enters into any definitive
agreement for an Acquisition Transaction, (ii) the date on which an Acquisition
Transaction is consummated, or (iii) the earliest date on which NSC has notice
of an event described in Section 8.6(b)(ii)(B). NSC shall not enter into any
agreement with respect to any Third Party Acquisition Event which does not, as a
condition precedent to the effectiveness of such agreement, require such
break-up fee to be paid to HEALTHSOUTH upon the execution of such agreement.
(ii) As used herein, the term "Third Party Acquisition Event" shall mean
the occurrence of either of the following within the one-year period
specified in Section 8.6(b)(i):
(A) NSC shall enter into any definitive agreement for any Acquisition
Transaction (regardless of whether such Acquisition Transaction is
consummated), or shall otherwise be the subject of an Acquisition
Transaction which is consummated (regardless of whether such
consummation occurs within the one-year period described in Section
8.6(b)(i)); or
(B) any Person (other than HEALTHSOUTH or its affiliates) shall have
acquired beneficial ownership (as such term is defined in Rule 13d-3
under the Exchange Act) or the right to acquire beneficial ownership of,
or a new group has been formed which beneficially owns or has the right
to acquire beneficial ownership of, 30% or more of the outstanding NSC
Common Stock.
(c) NSC acknowledges that the provisions for the payment of break-up fees
and allocation of expenses contained in this Section 8.6 are an integral part of
the transactions contemplated by this Plan of Merger and that, without these
provisions, HEALTHSOUTH would not have entered into this Plan of Merger.
Accordingly, if a break-up fee shall become due and payable by NSC, and NSC
shall fail to pay such amount when due pursuant to this Section, and, in order
to obtain such payment, suit is commenced which results in a judgment against
NSC therefor, NSC shall pay HEALTHSOUTH's reasonable costs and expenses
(including reasonable attorneys' fees) incurred in connection with such suit,
together with interest computed on any amounts determined to be due pursuant to
this Section (computed from the date upon which such amounts were due and
payable pursuant to this Section) and such costs (computed from the date
incurred) at the prime rate of interest announced from time to time by
NationsBank, N.A. (South). The obligations of NSC under this Section 8.6 shall
survive any termination of this Plan of Merger.
Section 9. CONDITIONS TO CLOSING.
9.1 Mutual Conditions. The respective obligations of each party to effect
the Merger shall be subject to the satisfaction, at or prior to the Closing Date
of the following conditions (any of which may be waived in writing by
HEALTHSOUTH and NSC):
(a) None of HEALTHSOUTH, the Subsidiary or NSC nor any of their
respective subsidiaries shall be subject to any order, decree or injunction
by a court of competent jurisdiction which (i) prevents or materially delays
the consummation of the Merger or (ii) would impose any material limitation
on the ability of HEALTHSOUTH effectively to exercise full rights of
ownership of the Common Stock of the Surviving Corporation or any material
portion of the assets or business of NSC, the NSC Subsidiaries and the NSC
Other Entities, taken as a whole.
(b) No statute, rule or regulation shall have been enacted by the
government (or any governmental agency) of the United States or any state,
municipality or other political subdivision thereof that makes the
consummation of the Merger and any other transaction contemplated hereby
illegal.
(c) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) The Registration Statement shall have been declared effective and no
stop order with respect to the Registration Statement shall be in effect.
A-23
(e) The holders of NSC Common Stock shall have approved the adoption of
this Plan of Merger and any other matters submitted to them in accordance
with the provisions of Section 7.3 hereof.
(f) The shares of HEALTHSOUTH Common Stock to be issued in connection
with the Merger shall have been approved for listing on the Exchange.
(g) The Merger shall qualify for "pooling of interests" accounting
treatment, and HEALTHSOUTH and NSC shall each have received letters to that
effect from Ernst & Young, LLP, independent accountants for HEALTHSOUTH,
dated (i) the date of the mailing of the Proxy Statement and (ii) the
Closing Date.
(h) HEALTHSOUTH and the Subsidiary shall have obtained, or obtained the
transfer of, any licenses, certificates of need and other regulatory
approvals necessary to allow the Surviving Corporation to operate the NSC
facilities, unless the failure to obtain such transfer or approval would not
have a material adverse effect on the Surviving Corporation.
(i) HEALTHSOUTH and the Subsidiary shall have received all consents,
approvals and authorizations of third parties with respect to all material
leases and management agreements to which the NSC Subsidiaries and the NSC
Other Entities are parties, which consents, approvals and authorizations are
required of such third parties by such documents, in form and substance
acceptable to HEALTHSOUTH, except where the failure to obtain such consent,
approval or authorization would not have a material adverse effect on the
business of the Surviving Corporation.
9.2 Conditions to Obligations of HEALTHSOUTH and the Subsidiary. The
obligations of HEALTHSOUTH and the Subsidiary to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction, at
or prior to the Closing Date, of the following conditions (any of which may be
waived by HEALTHSOUTH and the Subsidiary):
(a) Each of the agreements of NSC to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed in
all material respects, and NSC shall have performed, in all material
respects, all of the acts required to be performed by it at or prior to the
Closing Date by the terms hereof.
(b) The representations and warranties of NSC set forth in Section
3.10(a) shall be true and correct as of the date of this Plan of Merger and
as of the Closing Date. The representations and warranties of NSC set forth
in this Plan of Merger that are qualified as to materiality shall be true
and correct, and those that are not so qualified shall be true and correct
in all material respects, as of the date of this Plan of Merger and as of
the Closing as though made at and as of such time, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of such earlier
date); provided, however, that NSC shall not be deemed to be in breach of
any such representations or warranties by taking any action permitted (or
approved by HEALTHSOUTH) under Section 7.2. HEALTHSOUTH and the Subsidiary
shall have been furnished with a certificate, executed by a duly authorized
officer of NSC, dated the Closing Date, certifying in such detail as
HEALTHSOUTH and the Subsidiary may reasonably request as to the fulfillment
of the foregoing conditions.
(c) HEALTHSOUTH shall have received an opinion from Haskell Slaughter &
Young, L.L.C., to the effect that the merger will constitute a
reorganization within the meaning of Section 368(a) of the Code, which
opinion may be based upon reasonable representations of fact provided by
officers of HEALTHSOUTH, NSC and the Subsidiary.
(d) HEALTHSOUTH shall have received an opinion from Bell, Boyd & Lloyd
substantially to the effect set forth in Exhibit 9.2(d) hereto.
9.3 Conditions to Obligations of NSC. The obligations of NSC to consummate
the Merger and the other transactions contemplated hereby shall be subject to
the satisfaction, at or prior to the Closing Date, of the following conditions
(any of which may be waived by NSC):
A-24
(a) Each of the agreements of HEALTHSOUTH and the Subsidiary to be
performed at or prior to the Closing Date pursuant to the terms hereof shall
have been duly performed, in all material respects, and HEALTHSOUTH and the
Subsidiary shall have performed, in all material respects, all of the acts
required to be performed by them at or prior to the Closing Date by the
terms hereof.
(b) The representations and warranties of HEALTHSOUTH set forth in
Section 5.11(a) shall be true and correct as of the date of this Plan of
Merger and as of the Closing Date. The representations and warranties of
HEALTHSOUTH set forth in this Plan of Merger that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of the date of this
Plan of Merger and as of the Closing as though made at and as of such time,
except to the extent such representations and warranties expressly relate to
an earlier date (in which case such representations and warranties that are
qualified as to materiality shall be true and correct, and those that are
not so qualified shall be true and correct in all material respects, as of
such earlier date). NSC shall have been furnished with a certificate,
executed by duly authorized officers of HEALTHSOUTH and the Subsidiary,
dated the Closing Date, certifying in such detail as NSC may reasonably
request as to the fulfillment of the foregoing conditions.
(c) NSC shall have received an opinion from Bell, Boyd & Lloyd to the
effect that the Merger will constitute a reorganization with the meaning of
Section 368(a) of the Code, which opinion may be based upon reasonable
representations of fact provided by officers of HEALTHSOUTH, NSC and the
Subsidiary.
(d) NSC shall have received an opinion from Haskell Slaughter & Young,
L.L.C., substantially to the effect set forth in Exhibit 9.3(d) hereto.
Section 10. MISCELLANEOUS.
10.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Plan of Merger or in any instrument
delivered pursuant to this Plan of Merger shall survive the Effective Time.
10.2 Notices. Any communications required or desired to be given hereunder
shall be deemed to have been properly given if sent by hand delivery or by
facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to HEALTHSOUTH:
HEALTHSOUTH Corporation
One Healthsouth Parkway
Birmingham, Alabama 35243
Attention: Michael D. Martin
Facsimile: (205) 969-4620
with a copy to:
William W. Horton, Esq.
HEALTHSOUTH Corporation
One HealthSouth Parkway
Birmingham, Alabama 35243
Facsimile: (205) 969-4730
If to NSC:
National Surgery Centers, Inc.
30 South Wacker Drive
Suite 2302
Chicago, Illinois 60606
Attention: E. Timothy Geary
Facsimile:
A-25
with a copy to:
Steven E. Ducommun, Esq.
Bell, Boyd & Lloyd
Three First National Plaza
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
Facsimile: (312) 372-2098
All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.3 Further Assurances. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Plan of Merger.
10.4 Indemnification. (a) NSC shall, and from and after the Effective Time
HEALTHSOUTH and the Surviving Corporation shall, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date of
this Plan of Merger or who becomes prior to the Effective Time, an officer,
director or employee of NSC or any of its subsidiaries (the "Indemnified
Parties") against (i) all losses, claims, damages, costs, expenses, liabilities
or judgments, or amounts that are paid in settlement with the approval of the
Indemnifying Party (which approval shall not be unreasonably withheld) of, or in
connection with, any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of NSC or any of its
subsidiaries, or is or was serving at the request of NSC as a director, officer
employee or agent of any other corporation, partnership, joint venture or other
enterprise, whether pertaining to any matter existing or occurring at or prior
to, or at or after, the Effective Time ("Indemnified Liabilities") and (ii) all
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Plan of Merger, the Merger or any other
transactions contemplated hereby or thereby, in each case to the full extent a
corporation is permitted under the DGCL to indemnify its own directors, officers
and employees, as the case may be (and HEALTHSOUTH and the Surviving
Corporation, as the case may be, will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law upon receipt of any undertaking contemplated by
Section 145(e) of the DGCL). Without limiting the foregoing, in the event any
such claim, action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising before or after the Effective Time), (i) the
Indemnified Parties may retain counsel satisfactory to them and NSC (or them and
HEALTHSOUTH and the Surviving Corporation after the Effective Time), (ii) NSC
(or after the Effective Time, HEALTHSOUTH and the Surviving Corporation) shall
pay all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received and (iii) NSC (or after the
Effective Time, HEALTHSOUTH and the Surviving Corporation) will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that none of NSC, HEALTHSOUTH or the Surviving Corporation shall be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 10.4, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify NSC,
HEALTHSOUTH or the Surviving Corporation (but the failure so to notify an
Indemnifying Party shall not relieve it from any liability which it may have
under this Section 10.4 except to the extent such failure prejudices such
party), and shall deliver to NSC (or after the Effective Time, HEALTHSOUTH and
the Surviving Corporation) the undertaking contemplated by Section 145(e) of the
DGCL. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to such matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(b) Until such time as the applicable statute of limitations shall have
expired, HEALTHSOUTH shall, and shall cause the Surviving Corporation to,
provide with respect to each of the Indemnified Parties the indemnification
rights which such Indemnified Party had, whether from NSC or any NSC
A-26
Subsidiary, immediately prior to the Effective Time, whether under the
Certificate or Articles of Incorporation or Bylaws of NSC or such NSC
Subsidiary or otherwise, except as otherwise provided in Section 10.4(a).
(c) Immediately following the Effective Time, HEALTHSOUTH shall cause to
be in effect the current policies of directors' and officers' liability
insurance maintained by NSC or any NSC Subsidiary (provided that HEALTHSOUTH
may substitute therefor policies of at least the same coverage and limits
containing terms and conditions that are substantially as advantageous) with
respect to claims arising from facts or events which occurred at or before
the Effective Time, and HEALTHSOUTH shall maintain such coverage for a
period of six years after the Effective Time; provided, however, that in no
event shall HEALTHSOUTH or the Surviving Corporation be required to expend
more than 200% of the current annual premiums paid by NSC for such
insurance.
(d) This Section 10.4 shall survive the Closing and is intended to
benefit NSC, the Surviving Corporation and each of the Indemnified Parties
and his or her heirs and representatives (each of whom shall be entitled to
enforce this Section 10.4 against HEALTHSOUTH and the Surviving Corporation,
as the case may be) and shall be binding upon all successor and assigns of
HEALTHSOUTH and the Surviving Corporation.
10.5 Governing Law. This Plan of Merger shall be interpreted, construed and
enforced in accordance with the laws of the State of Delaware, applied without
giving effect to any conflicts-of-law principles.
10.6 "Including". The word "including", when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non-limiting
language (such as "without limitation", "but not limited to", or words of
similar import) is used with reference to the word "including" or the similar
items or matters, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of the
general statement, term or matter.
10.7 "Knowledge". "To the knowledge", "to the best knowledge, information
and belief", or any similar phrase shall be deemed to refer to the knowledge of
the Chairman of the Board, Chief Executive Officer, Chief Operating Officer or
Chief Financial Officer of a party (or persons performing comparable functions
for such party, irrespective of title) and to include the assurance that such
knowledge is based upon a reasonable investigation, unless otherwise expressly
provided.
10.8 "Material adverse change" or "material adverse effect". "Material
adverse change" or "material adverse effect" means, when used in connection with
NSC or HEALTHSOUTH, any change, effect, event or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on the business or financial position of such party and its subsidiaries
and other consolidated entities taken as a whole; provided, however, that
"material adverse change" and "material adverse effect" shall be deemed to
exclude the impact of (i) changes in generally accepted accounting principles
and (ii) the public announcement of the Merger and compliance with the
provisions of this Plan of Merger, (iii) any changes resulting from any
restructuring or other similar charges or write-offs taken by NSC with the
consent of HEALTHSOUTH, provided, however, that no such charges or write-offs
will be taken if such would adversely affect pooling-of-interests accounting
treatment for the Merger, (iv) the termination or failure to be consummated or
completed of any acquisition, joint venture, development project or other
transaction which was not consummated or completed prior to the execution and
delivery of this Plan of Merger, (v) any change in the Social Security Act,
Medicare, Medicaid or other similar laws, rules or regulations of generally
applicability or interpretations thereof by courts or governmental authorities,
and (vi) any change in general economic conditions, in interest rates or in
conditions affecting the healthcare or ambulatory surgery industries generally.
10.9 "Hazardous Materials". The term "Hazardous Materials" means any
material which has been determined by any applicable governmental authority to
be harmful to the health or safety of human or animal life or vegetation,
regardless of whether such material is found on or below the surface of the
A-27
ground, in any surface or underground water, airborne in ambient air or in the
air inside any structure built or located upon or below the surface of the
ground or in building materials or in improvements of any structures, or in any
personal property located or used in any such structure, including, but not
limited to, all hazardous substances, imminently hazardous substances, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined, listed, identified, designated or classified as such under
any Environmental Laws (as defined in Section 10.10) regardless of the quantity
of any such material.
10.10 Environmental Laws. The term "Environmental Laws" means any federal,
state or local statute, regulation, rule or ordinance, and any judicial or
administrative interpretation thereof, regulating the use, generation, handling,
storage, transportation, discharge, emission, spillage or other release of
Hazardous Materials or relating to the protection of the environment.
10.11 Taxes. For purposes of this Agreement, the term "tax" or "taxes"
shall mean all taxes, charges, fees, levies, penalties or other assessment
imposed by any United States federal, state, local or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer,
franchise, payroll, withholding, Social Security or other taxes, including any
interest, penalties or additions attributable thereto. For purposes of this Plan
of Merger, the term "tax return" shall mean any return, report, information
return or other document (including any related or supporting information) with
respect to taxes.
10.12 Captions. The captions or headings in this Plan of Merger are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this Plan of
Merger.
10.13 Integration of Exhibits. All Exhibits attached to this Plan of Merger
are integral parts of this Plan of Merger as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced.
10.14 Entire Agreement. This instrument, including all Exhibits attached
hereto, together with the Confidentiality Agreements, contains the entire
agreement of the parties and supersedes any and all prior or contemporaneous
agreements between the parties, written or oral, with respect to the
transactions contemplated hereby. It may not be changed or terminated orally,
but may only be changed by an agreement in writing signed by the party or
parties against whom enforcement of any waiver, change, modification, extension,
discharge or termination is sought.
10.15 Counterparts. This Plan of Merger may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
10.16 Binding Effect. This Plan of Merger shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and, except as provided in Sections 2, 7.16, 7.18 and 10.4, no other
person shall acquire or have any right under or by virtue of this Plan of
Merger. No party may assign any right or obligation hereunder without the prior
written consent of the other parties.
10.17 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by HEALTHSOUTH, and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.
A-28
IN WITNESS WHEREOF, HEALTHSOUTH, the Subsidiary and NSC have caused this
Plan and Agreement of Merger to be executed by their respective duly authorized
officers, and have caused their respective corporate seals to be hereunto
affixed, all as of the day and year first above written.
NATIONAL SURGERY CENTERS, INC.
By /s/ E. Timothy Geary
--------------------------------------------
E. Timothy Geary
Chairman of the Board, Chief Executive Officer
and President
ATTEST:
/s/ Bryan S. Fisher
- - -----------------------------
Bryan S. Fisher
Secretary
[CORPORATE SEAL]
HEALTHSOUTH CORPORATION
By /s/ Michael D. Martin
---------------------------------------------
Michael D. Martin
Executive Vice President,
Chief Financial Officer and Treasurer
ATTEST:
/s/ William W. Horton
- - ----------------------------
William W. Horton
Assistant Secretary
[CORPORATE SEAL]
FIELD ACQUISITION CORPORATION
By /s/ Michael D. Martin
---------------------------------------------
Vice President
ATTEST:
/s/ William W. Horton
- - -----------------------------
William W. Horton
Assistant Secretary
[CORPORATE SEAL]
A-29
ANNEX B
[BT Alex. Brown Logo]
[BANKERS TRUST LOGO]
June 17, 1998
Board of Directors
National Surgery Centers, Inc.
30 South Wacker Drive
Suite 2302
Chicago, IL 60606
Dear Sirs:
National Surgery Centers, Inc. ("NSC"), HEALTHSOUTH Corporation
("HEALTHSOUTH") and Field Acquisition Corporation, a wholly-owned subsidiary of
HEALTHSOUTH ("Subsidiary"), have entered into an Agreement and Plan of Merger
dated as of May 5, 1998 (the "Agreement"). Pursuant to the Agreement, the
consummation of which is subject to several conditions, including approval by
the stockholders of NSC, Subsidiary shall be merged with and into NSC (the
"Merger") and each share of the common stock, par value $.01 per share of NSC
("NSC Common Stock") issued and outstanding immediately prior to the effective
time of the Merger will be converted into the right to receive shares of common
stock, par value $.01 per share, of HEALTHSOUTH ("HEALTHSOUTH Common Stock"). As
set forth more fully in the Agreement, each issued and outstanding share of NSC
Common Stock shall be converted into the right to receive that number of shares
of HEALTHSOUTH Common Stock obtained by dividing $30.50 by the Base Period
Trading Price (as defined below), computed to four decimal places (the "Exchange
Ratio"); provided, however, that if the Base Period Trading Price shall be
greater than $35.00, the Exchange Ratio shall be .8714; and provided, further,
however, that if the Base Period Trading Price shall be less than $26.50, the
Exchange Ratio shall be 1.1509. The term "Base Period Trading Price" shall mean
the average of the daily closing price per share for the shares of HEALTHSOUTH
Common Stock for the 20 consecutive trading days on which such shares are
actually traded ending at the close of trading on the second trading day
immediately preceding the day of the NSC stockholders' meeting. You have
requested our opinion regarding the fairness, from a financial point of view, of
the consideration to be received by the holders of NSC Common Stock pursuant to
the Agreement.
BT Alex. Brown Incorporated ("BT Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and other
purposes. We have acted as financial advisor to the Board of Directors of NSC in
connection with the transaction described above and will receive a fee for our
services, a portion of which is contingent upon the consummation of the Merger.
In the past, we have provided financing and advisory services to NSC and
financing services to HEALTHSOUTH. BT Alex. Brown maintains a market in the NSC
Common Stock and regularly publishes research reports regarding the health care
industry and the businesses and securities of NSC, HEALTHSOUTH and other
publicly traded companies in the health care industry. In the ordinary course of
business, BT Alex. Brown may actively trade the securities of NSC and
HEALTHSOUTH for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in securities of NSC
and HEALTHSOUTH.
In connection with this opinion, we have reviewed certain publicly
available financial information and other information concerning NSC and
HEALTHSOUTH and certain internal analyses and other information furnished to us
by NSC and HEALTHSOUTH. We have also held discussions with the
B-1
members of the senior management of NSC and HEALTHSOUTH regarding the business
and prospects of their respective companies and the joint prospects of a
combined company. In addition, we have (i) reviewed the reported prices and
trading activity for the NSC Common Stock and the HEALTHSOUTH Common Stock, (ii)
compared certain financial and stock market information for NSC and HEALTHSOUTH
with similar information for certain other companies whose securities are
publicly traded, (iii) reviewed the financial terms of certain recent business
combinations which we deemed comparable in whole or in part, (iv) reviewed the
terms of the Agreement, and (v) performed such other studies and analyses and
considered such other factors as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy and completeness thereof.
With respect to the information relating to the prospects of NSC and
HEALTHSOUTH, we have assumed that such information reflects the best currently
available judgments and estimates of the management of NSC and HEALTHSOUTH as to
the likely future financial performance of their respective companies and of the
combined entity. In addition, we have not made an independent evaluation or
appraisal of the assets of NSC or HEALTHSOUTH, nor have we been furnished with
any such evaluation or appraisal. We have assumed that the Merger will qualify
as a tax-free transaction for the holders of NSC Common Stock. Our opinion is
based on market, economic and other conditions as they exist and can be
evaluated as of the date of this letter.
In connection with our engagement, we were not authorized to solicit, and
did not solicit, interest from any party with respect to the acquisition of NSC
or any of its assets.
Our advisory services and the opinion expressed herein were prepared for
the use of the Board of Directors of NSC and do not constitute a recommendation
to the stockholders of NSC as to how they should vote at any stockholders'
meeting held in connection with the Merger.
Board of Directors
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the consideration to be received by the holders of NSC
Common Stock pursuant to the Agreement is fair from a financial point of view to
such stockholders.
Very truly yours,
BT Alex. Brown Incorporated
/s/ Harris Hyman IV
----------------------------------------
Harris Hyman IV
Managing Director
B-2Alabama.
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 NineNINTH of the HEALTHSOUTH Certificate filed in the Office of the
Secretary of the State of Delaware on June 13, 1995, 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 NineNINTH 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.
See Item 22 of this Registration Statement on Form S-4.
II-1
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
EXHIBIT
NO. DESCRIPTION
--- -----------
(2) Plan and Agreement of Merger, dated May 5, 1998, among HEALTHSOUTH
Corporation, Field Acquisition Corporation and National Surgery
Centers, Inc. attached to the Prospectus- Proxy Statement as a
part of Annex A, is hereby incorporated herein by reference.
(5) Opinion of Haskell Slaughter & Young, L.L.C. as to the legality of
the shares of HEALTHSOUTH Common Stock being registered.
(8)-1 Opinion of Haskell Slaughter & Young, L.L.C. as to the description
in the Prospectus-Proxy Statement of certain federal income tax
consequences of the Merger.
(8)-2 Opinion of Bell, Boyd & Lloyd as to the description in the
Prospectus-Proxy Statement of certain federal income tax
consequences of the Merger.
(23)-1 Consent of Ernst & Young LLP.
(23)-2 Consent of Ernst & Young LLP.
(23)-3 Consents of Haskell Slaughter & Young, L.L.C. (included in the
opinions filed as Exhibits (5) and (8)-1).
(23)-4 Consent of Bell, Boyd & Lloyd (included in the opinion filed as
Exhibit (8)-2).
(23)-5 Consent of BT Alex. Brown Incorporated.
(24) Powers of Attorney (See the signature pages to this Registration
Statement).
(99) NSC Proxy.EXHIBITS.
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 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.
(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.
(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.
(a)
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 sectionSection 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to sectionSection 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.
(b) The undersigned Registrantregistrant hereby undertakes as follows:to respond to requests for
information that prioris incorporated by reference into the prospectus pursuant to
any public reofferingItem 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 securities registered hereunderregistration statement through usethe
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
prospectuspost-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 is part ofoffers or sales are being made, a
post-effective amendment to this registration statement,statement:
(i) To include any prospectus required by any person
or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(c) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the
Securities Act and is usedof 1933;
(ii) To reflect in connection with an offeringthe prospectus any facts or events arising after the
effective date of securities subject to Rule 415, will be filed
as a part of an amendment to 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 willany
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 be used
untilpreviously disclosed in the registration statement or any
material change to such amendment is effective, and that,information in the registration statement.
(2) That, for purposesthe 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.
(d)(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrantregistrant pursuant to the foregoing provisions, or otherwise, the Registrantregistrant
has been advised that in the opinion of the Securities and Exchange
II-2
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 Registrantregistrant of expenses incurred
or paid by a director, officer or controlling person of the Registrantregistrant 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 Registrantregistrant 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.
(e) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 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.
(f) 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 subject of and
included in the Registration Statement when it became effective.
II-3II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on June 17,August 14, 1998.
HEALTHSOUTH CORPORATION
By /s/ 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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLECAPACITY DATE
--------- ------------- ----
/s/
RICHARD M. SCRUSHY Chairman of the Board June 17, 1998
----------------------------- and Chief August 14, 1998
- ------------------------- Executive Officer and Director
Richard M. Scrushy and Director
/s/
MICHAEL D. MARTIN Executive Vice President, June 17,August 14, 1998
------------------------------ ------------------------- Chief Financial Officer, Treasurer
Michael D. Martin Treasurer and Director
/s/
WILLIAM T. OWENS Group Senior Vice President-Finance June 17,President- August 14, 1998
------------------------------ ------------------------- Finance and Controller (Principal
William T. Owens Accounting Officer)
/s/ JAMES P. BENNETBENNETT Director June 17,August 14, 1998
------------------------------ -------------------------
James P. Bennett
/s/
ANTHONY J. TANNER Director June 17,August 14, 1998
------------------------------ -------------------------
Anthony J. Tanner
/s/
P. DARYL BROWN Director June 17,August 14, 1998
------------------------------ -------------------------
P. Daryl Brown
/s/
PHILLIP C. WATKINS, M.D. Director June 17,August 14, 1998
------------------------------ -------------------------
Phillip C. Watkins, M.D.
II-4II-5
SIGNATURE TITLECAPACITY DATE
--------- ----- ----- --------------------------- ---------- ----------------
/s/
GEORGE H. STRONG Director June 17,August 14, 1998
------------------------------ -------------------------
George H. Strong
/s/
C. SAGE GIVENS Director June 17,August 14, 1998
------------------------------ -------------------------
C. Sage Givens
/s/
CHARLES W. NEWHALL III Director June 17,August 14, 1998
------------------------------ -------------------------
Charles W. Newhall III
/s/ JOHN S. CHAMBERLIN Director June 17,August 14, 1998
------------------------------ -------------------------
John S. Chamberlin
/s/
JOEL C. GORDON Director June 17,August 14, 1998
------------------------------ -------------------------
Joel C. Gordon
/s/
EDWIN M. CRAWFORD Director June 17,August 14, 1998
------------------------------------------------------
Edwin M. Crawford
II-5
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
--- -----------
(2) Plan and Agreement of Merger, dated May 5, 1998, among HEALTHSOUTH
Corporation, Field Acquisition Corporation and National Surgery
Centers, Inc. attached to the Prospectus- Proxy Statement as a
part of Annex A, is hereby incorporated herein by reference.
(5) Opinion of Haskell Slaughter & Young, L.L.C. as to the legality of
the shares of HEALTHSOUTH Common Stock being registered.
(8)-1 Opinion of Haskell Slaughter & Young, L.L.C. as to the description
in the Prospectus-Proxy Statement of certain federal income tax
consequences of the Merger.
(8)-2 Opinion of Bell, Boyd & Lloyd as to the description in the
Prospectus-Proxy Statement of certain federal income tax
consequences of the Merger.
(23)-1 Consent of Ernst & Young LLP.
(23)-2 Consent of Ernst & Young LLP.
(23)-3 Consents of Haskell Slaughter & Young, L.L.C. (included in the
opinions filed as Exhibits (5) and (8)-1).
(23)-4 Consent of Bell, Boyd & Lloyd (included in the opinion filed as
Exhibit (8)-2).
(23)-5 Consent of BT Alex. Brown Incorporated.
(24) Powers of Attorney (See the signature pages to this Registration
Statement).
(99) NSC Proxy.II-6