Exhibit B
Paragraphs 45 through 48 of APB Opinion No. 16 address the twelve conditions for
using pooling of interests accounting. For the reasons set forth below, each
condition (as set forth in paragraphs 1-12) is satisfied for HEALTHSOUTH, ReLife
and SHC.
1. Each of HEALTHSOUTH, SHC and Relife (prior to its acquisition
by HEALTHSOUTH) is autonomous and was not a subsidiary or
division of another enterprise within two years before the
Plan and Agreement of Merger related to each combination was
initiated (para.
46a.).
2. In each case, each of the combining enterprises is independent
of the other combining enterprise (para. 46b.). HEALTHSOUTH
owned no capital stock in ReLife prior to consummation of the
acquisition and owns no capital stock in SHC.
Richard M. Scrushy, a stockholder in and Chairman of the Board
and Chief Executive Officer of HEALTHSOUTH and a director of
SHC, owns less than 1.5% of SHC's capital stock. Charles W.
Newhall III, a director of HEALTHSOUTH and SHC, is a general
partner in several venture capital funds that collectively own
about 13% of SHC's capital stock. He has no equity interest in
HEALTHSOUTH other than 200,000 stock options. Considering his
insignificant ownership interest in HEALTHSOUTH and the
relative value of the SHC capital stock which may be
attributable to him of $19 million compared to the value of
the shares underlying his HEALTHSOUTH options of $4 million,
it is not appropriate to attribute his ownership interest in
SHC to HEALTHSOUTH.
ReLife owned, and SHC owns, no stock of, or other equity
interest in, HEALTHSOUTH prior to the respective mergers.
3. Each of the subject combinations is to be effected in a single
transaction and is to be completed in accordance with a
specific plan within one year after the plan is initiated
(para. 47a.). The decision by HEALTHSOUTH to combine with
ReLife was made in September 1994 and the transaction was
closed December 29, 1994. The decision by HEALTHSOUTH to
combine with SHC was made in January 1995 and the transaction
is expected to close in May or June, 1995.
4. HEALTHSOUTH offered and issued (in the case of ReLife) or will
offer and issue (in the case of SHC) only common stock
("HEALTHSOUTH Common Stock") with rights identical to those of
its outstanding voting common stock in exchange for
substantially all of the voting common stock interest of each
of Relife and SHC at the date the plan of combination was or
is to be consummated (substantially all of the voting common
stock means 90% or more for this condition) (para. 47b.).
Shares of HEALTHSOUTH Common Stock issued to ReLife's
stockholders were identical to all other shares of HEALTHSOUTH
Common Stock outstanding. 100% of ReLife's stock was exchanged
for HEALTHSOUTH Common Stock and ReLife options were exchanged
for HEALTHSOUTH options with identical rights and terms.
Shares of HEALTHSOUTH Common Stock to be issued to SHC are
identical to all other shares of HEALTHSOUTH Common Stock
outstanding. It is anticipated that at least 90% of SHC's
stock will be exchanged for HEALTHSOUTH Common Stock. SHC
options will be exchanged for HEALTHSOUTH options with
identical rights and terms. The exchange of shares also covers
all of SHC's convertible preferred stock, which, for
pooling-of-interests purposes, is considered to be essentially
the same as common stock.
5. None of the combining companies have changed the equity
interest of their respective voting common stock in
contemplation of effecting the combination either within two
years before the plan of combination was initiated or between
the dates the plan of combination was initiated and the date
on which it was or is to be consummated. The combining
companies have noted that changes in contemplation of
effecting the combination may include distributions to
stockholders and additional issuances, exchanges and
retirements of securities (para. 17c.).
No dividends were issued by any of the three companies during
the past two years.
Stock options were issued by HEALTHSOUTH, Relife and SHC
during the past two years, but all were issued under existing
plans (which plans were either adopted more than two years
prior to initiation of the transaction or were plans which
were consistent in all material respects with plans adopted
more than two years prior to initiation of the transaction)
and the grants were consistent in timing and amount with past
practices. HEALTHSOUTH determined that all issuances of
options by all three companies were in the normal course of
business and were not made in contemplation of the Merger.
6. HEALTHSOUTH reacquired approximately 20,000 shares of its
Common Stock during the past two years. However, such
reacquisition is immaterial to the transactions (i.e. less
than 10% of the shares to be issued for either of the subject
combinations). Such shares were not acquired in contemplation
of the pooling transactions. Neither ReLife nor SHC reacquired
any common stock during the preceding two years (para. 47d.).
7. The ratio of the interest of the individual common
stockholders to those of other common stockholders in all of
the combining enterprises remains the same as a result of the
exchanges of stock to effect the combination (para. 47e.).
Rights are the same on all shares of HEALTHSOUTH Common Stock
and stock options exchanged/to be exchanged for ReLife/SHC
shares and options, respectively, and all such shares and
options were/will be exchanged at the same ratio as discussed
in the applicable Plan of Merger.
8. The voting rights to which the Common Stock ownership
interests in HEALTHSOUTH are entitled are exercisable by the
stockholders; the stockholders are neither deprived of nor
restricted in exercising those rights for any period (para.
47f.).
All shares of HEALTHSOUTH Common Stock and options issued in
both the HEALTHSOUTH-ReLife Merger and the HEALTHSOUTH-SHC
Merger will have the same rights and privileges of previously
outstanding shares and options and there are no restrictions
on the stockholders in exercising these rights.
9. Each of the subject combinations was or will be resolved at
the date the respective Plan of Merger is consummated and no
provisions of the Plan of Merger relating to the issue of
securities or other consideration are or will be pending
(para. 47g.).
The ReLife merger closed in December 1994 and had no
contingencies outstanding. The entire SHC transaction will be
consummated at one time, and there will be no contingencies
outstanding upon such consummation.
10. HEALTHSOUTH has not agreed subsequent to the consummation of
the mergers directly or indirectly to retire or reacquire all
or part of the HEALTHSOUTH Common Stock issued to effect
either combination, nor will it do so (para. 48a.).
11. HEALTHSOUTH has not and will not enter into other financial
arrangements for the benefit of the former stockholders of
either ReLife or SHC, such as a guarantee of loans secured by
stock issued in the combination, that in effect negate the
exchange of equity securities (para. 48b.).
In the HEALTHSOUTH-Relife merger:
o No such agreements exist.
o HEALTHSOUTH entered into a noncompete
agreement with Michael Stephens which is
reasonable in consideration of similar
agreements entered into by HEALTHSOUTH.
o HEALTHSOUTH entered into employment
agreements with two key ReLife employees.
Terms and amounts of the agreements were
reasonable and in line with similar
HEALTHSOUTH employment agreements.
In the HEALTHSOUTH-SHC merger:
o No agreements exist.
o HEALTHSOUTH plans to enter into employment
agreements with two key SHC employees. The
terms and amounts of the agreements will be
reasonable and in line with similar
HEALTHSOUTH employment agreements.
12. HEALTHSOUTH has not and does not intend or plan to dispose of
a significant part of the assets of either ReLife or SHC
within two years after the respective combinations, other than
disposals in the ordinary course of business of the formerly
separate enterprises and to eliminate duplicate facilities or
excess capacity (para. 48c.). Other than those disposals that
may be required by government regulators, no disposals are
planned. Any disposals that may occur over the next two years
will be those in the ordinary course of business.