AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2001
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HEALTHSOUTH CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 8062 63-0860407
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, ALABAMA 35243, (205) 967-7116
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD M. SCRUSHY, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER,
HEALTHSOUTH CORPORATION, ONE HEALTHSOUTH PARKWAY, BIRMINGHAM, ALABAMA 35243,
(205) 967-7116
(Name, Address, including Zip Code, and Telephone Number, including Area Code,
of Agent for Service)
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Copies to:
ROBERT E. LEE GARNER, ESQ. WILLIAM W. HORTON, ESQ. TODD W. ECKLAND, ESQ.
MARK E. EZELL, ESQ. HEALTHSOUTH CORPORATION PILLSBURY WINTHROP LLP
HASKELL SLAUGHTER & YOUNG, L.L.C. ONE HEALTHSOUTH PARKWAY ONE BATTERY PARK PLAZA
1200 AMSOUTH/HARBERT PLAZA BIRMINGHAM, ALABAMA 35243 NEW YORK, NEW YORK 10004-1490
1901 SIXTH AVENUE NORTH (205) 967-7116 (212) 858-1000
BIRMINGHAM, ALABAMA 35203
(205) 251-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES
TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being 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. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE(1) REGISTRATION FEE(2)
8 1/2% Senior Notes due 2008 $375,000,000 100% $375,000,000 $93,750
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) of the Securities Act.
(2) Calculated pursuant to Section 6(b) and Rule 457 of the Securities Act.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
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SUBJECT TO COMPLETION, DATED MARCH 30, 2001
PRELIMINARY PROSPECTUS
[GRAPHIC OMITTED]
OFFER TO EXCHANGE $375,000,000 PRINCIPAL AMOUNT OF OUR
8 1/2% SENIOR NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
FOR ANY AND ALL OF OUR OUTSTANDING
8 1/2% SENIOR NOTES DUE 2008
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MATERIAL TERMS OF THE EXCHANGE OFFER
o The exchange offer expires at 5:00 p.m., New York City time, on __________,
2001, unless extended.
o We will exchange all outstanding notes that are validly tendered and not
validly withdrawn for an equal principal amount of a new series of notes
which are registered under the Securities Act.
o You may withdraw tenders of outstanding notes at any time before the
exchange offer expires.
o The exchange of notes will not be a taxable event for U.S. federal income
tax purposes.
o We will not receive any proceeds from the exchange offer.
o The terms of the new series of notes are substantially identical to those of
the outstanding notes, except for transfer restrictions and registration
rights relating to the outstanding notes.
o You may tender outstanding notes only in denominations of $1,000 and
multiples of $1,000.
o Our affiliates may not participate in the exchange offer.
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PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DESCRIPTION OF
THE RISKS YOU SHOULD CONSIDER WHEN EVALUATING THIS INVESTMENT.
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WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE NOTES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ___________, 2001.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
TABLE OF CONTENTS
PAGE
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WHERE YOU CAN FIND MORE INFORMATION ...................................................... 1
INCORPORATION BY REFERENCE OF SOME OF THE DOCUMENTS FILED BY US
WITH THE SEC ............................................................................ 2
FORWARD-LOOKING INFORMATION .............................................................. 2
SUMMARY OF PROSPECTUS .................................................................... 3
The Company ............................................................................. 3
The Exchange Offer ...................................................................... 3
The Exchange Notes ...................................................................... 6
RISK FACTORS ............................................................................. 8
You Must Follow Certain Procedures to Tender Your Private Notes ......................... 8
You Will Be Subject to Transfer Restrictions if You Fail to Exchange Your Private Notes . 8
A Public Market for the Notes May Not Develop ........................................... 8
We Depend Upon Reimbursement by Third-Party Payors ...................................... 8
Our Operations Are Subject to Extensive Regulation ...................................... 9
Healthcare Reform Legislation May Affect Our Business ................................... 9
We Face National, Regional and Local Competition ........................................ 10
We Are Subject to Material Litigation ................................................... 10
You Should Take Into Account Certain Financing Considerations ........................... 10
Our Ability to Repurchase the Notes Upon a Change of Control May Be Limited ............. 11
Holders of Our Debentures Have a Repurchase Right in Certain Circumstances In Which
Holders of the Notes Do Not ........................................................... 11
RATIO OF EARNINGS TO FIXED CHARGES ....................................................... 12
THE EXCHANGE OFFER ....................................................................... 12
Purpose of the Exchange Offer ........................................................... 12
Resale of the Exchange Notes ............................................................ 12
Terms of the Exchange Offer ............................................................. 13
Expiration Date; Extensions; Amendments ................................................. 14
Interest on the Exchange Notes .......................................................... 14
Procedures for Tendering ................................................................ 14
Return of Notes ......................................................................... 16
Book-Entry Transfer ..................................................................... 16
Guaranteed Delivery Procedures .......................................................... 16
Withdrawal of Tenders ................................................................... 17
Conditions .............................................................................. 17
Termination of Rights ................................................................... 18
Shelf Registration ...................................................................... 18
Liquidated Damages ...................................................................... 18
Exchange Agent .......................................................................... 19
Fees and Expenses ....................................................................... 19
Consequence of Failures to Exchange ..................................................... 20
USE OF PROCEEDS .......................................................................... 20
CAPITALIZATION ........................................................................... 21
i
PAGE
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DESCRIPTION OF EXCHANGE NOTES ............................................................ 22
General ................................................................................. 22
Optional Redemption of the Exchange Notes ............................................... 22
Change of Control ....................................................................... 23
Certain Covenants of the Company ........................................................ 24
Events of Default ....................................................................... 30
Satisfaction and Discharge of Indenture; Defeasance ..................................... 31
Transfer and Exchange ................................................................... 33
Amendment, Supplement and Waiver ........................................................ 33
Concerning the Trustee .................................................................. 34
Governing Law ........................................................................... 34
Book-Entry; Delivery and Form ........................................................... 35
Certain Definitions ..................................................................... 36
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE ............................ 47
Exchange of Private Notes for Exchange Notes ............................................ 47
Tax Considerations Applicable to United States Persons .................................. 47
Tax Considerations Applicable to Non-U.S. Holders ....................................... 48
Information Reporting and Backup Withholding ............................................ 49
PLAN OF DISTRIBUTION ..................................................................... 50
EXPERTS .................................................................................. 50
LEGAL MATTERS ............................................................................ 50
ii
We have not authorized any dealer, salesperson or other person to give any
information or to make any representations to you other than the information
contained in this prospectus. You must not rely on any information or
representations not contained in this prospectus as if we had authorized it.
This prospectus does not offer to sell or solicit any offer to buy any
securities other than the registered notes to which it relates, nor does it
offer to buy any of these notes in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction.
The information contained in this prospectus is current only as of the
date on the cover page of this prospectus, and may change after that date. We
do not imply that there has been no change in the information contained in this
prospectus or in our affairs since that date by delivering this prospectus.
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. This
information is available without charge to you upon written or oral request. If
you would like a copy of any of this information, please submit your request to
HEALTHSOUTH Corporation, One HealthSouth Parkway, Birmingham, Alabama 35243,
Attention: Legal Department, or call (205) 967-7116, and ask to speak to
someone in our Legal Department. In addition, to obtain timely delivery of any
information you request, you must submit your request no later than __________,
2001, which is five business days before the date the exchange offer expires.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 (SEC File No. 1-10315), and file reports, proxy statements
and other information with the SEC. These reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following Regional offices of the SEC: Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may also
be obtained from the Public Reference Section of the SEC at 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates. The SEC also maintains a
World Wide Web site that contains reports, proxy and information statements and
other information regarding registrants (including us) that file electronically
with the SEC (at http://www.sec.gov). Our common stock is listed on the New
York Stock Exchange. Reports, proxy statements and other information relating
to us can be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
Some of the documents we have filed with the SEC have been incorporated in
this prospectus by reference. See "Incorporation by Reference of Some of the
Documents Filed by Us with the SEC". Statements contained herein concerning the
provisions of any document do not purport to be complete and, in each instance,
are qualified in all respects by reference to the copy of such document filed
with the SEC. Each such statement is subject to and qualified in its entirety
by such reference.
1
INCORPORATION BY REFERENCE
OF SOME OF THE DOCUMENTS FILED
BY US WITH THE SEC
There are hereby incorporated by reference in this prospectus the
following documents previously filed or to be filed by us with the SEC pursuant
to the Exchange Act (SEC File No. 1-10315):
1. Our Annual Report on Form 10-K for the fiscal year ended December 31,
2000.
2. Our Proxy Statement on Schedule 14A filed April 14, 2000, in
connection with our 2000 Annual Meeting of Stockholders.
All documents we file pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this prospectus and before the termination
of the exchange offer, other than any portion of a Current Report on Form 8-K
reporting information under Item 9 (and any related exhibits), shall be deemed
to be incorporated by reference to this prospectus and to be made a part hereof
from the date of the filing of such documents. Any statement contained herein
or in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for the purpose of this prospectus
to the extent that a statement contained herein (with respect to a previously
filed document) or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statements so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.
FORWARD-LOOKING INFORMATION
Some of the matters discussed in this prospectus or in the information
incorporated by reference herein may constitute forward-looking statements.
Some of these forward-looking statements can be identified by the use of
forward-looking terminology such as "believes", "expects", "may", "will",
"should", "seeks", "approximately", "intends", "plans", "estimates" or
"anticipates" or the negative thereof or other comparable terminology, or by
discussions of strategy, plans or intentions. Statements contained in this
prospectus which are not historical facts are forward-looking statements.
Without limiting the generality of the preceding statement, all statements in
this prospectus concerning or relating to estimated and projected earnings,
margins, costs, expenditures, cash flows, growth rates and financial results
are forward-looking statements. In addition, we, through our senior management,
from time to time make forward-looking public statements concerning our
expected future operations and performance and other developments. These
forward-looking statements are necessarily estimates reflecting our best
judgment based upon current information and involve a number of risks and
uncertainties. There can be no assurance that other factors will not affect the
accuracy of these forward-looking statements or that our actual results will
not differ materially from the results anticipated in such forward-looking
statements. While it is impossible to identify all such factors, factors which
could cause actual results to differ materially from those estimated by us
include, but are not limited to, changes in the regulation of the healthcare
industry at either or both of the federal or state levels, changes or delays in
reimbursement for our services by governmental or private payors, changes to or
delays in the implementation of the prospective payment system for inpatient
rehabilitation services, competitive pressures in the healthcare industry and
our response thereto, our ability to obtain and retain favorable arrangements
with third-party payors, unanticipated delays in the implementation of our
Integrated Service Model or other strategies, general conditions in the economy
and capital markets and other factors which may be identified from time to time
in our SEC filings and other public announcements.
2
SUMMARY OF PROSPECTUS
This summary highlights information contained elsewhere in this
prospectus. It is not complete and may not contain all the information that you
should consider before tendering your Private Notes in the exchange offer. You
should read the entire prospectus carefully, including the "Risk Factors"
section beginning on page 8. As used in this prospectus: (1) the terms
"HEALTHSOUTH", "Company", "we", "our" and "us" refer to HEALTHSOUTH Corporation
and, in some cases, its subsidiaries; (2) the term "Private Notes" refers to
our 8 1/2% senior notes due 2008 which were issued in a transaction exempt from
registration under the Securities Act; (3) the term "Exchange Notes" refers to
our 8 1/2% senior notes due 2008 which have been registered under the
Securities Act pursuant to a registration statement of which this prospectus is
a part; (4) the term "Notes" refers to the Private Notes and the Exchange
Notes, collectively; and (5) the term "EBITDA" shall have the meaning ascribed
to the term "Consolidated EBITDA" set forth on page 38.
THE COMPANY
We are the largest provider of rehabilitative healthcare, outpatient
surgery and outpatient diagnostic services in the United States, with a
national network of more than 2,000 locations in all 50 states, Puerto Rico,
the United Kingdom, Canada and Australia. We believe that we provide patients,
physicians and payors with high-quality healthcare services on a more
cost-effective basis than traditional acute-care hospitals. We provide these
services through our national network of modern, well-maintained healthcare
facilities. We enjoy a relatively favorable payor mix compared to other
publicly traded healthcare companies, in that most of our revenues
(approximately 68% for the year ended December 31, 2000) are derived from
non-governmental sources. For the year ended December 31, 1999, we had revenues
of $4,072,107,000 and EBITDA of $1,218,833,000. For the year ended December 31,
2000, we had revenues of $4,195,115,000 and EBITDA of $1,132,692,000.
We were incorporated under the laws of Delaware in 1984. Our principal
executive offices are located at One HealthSouth Parkway, Birmingham, Alabama
35243, and our telephone number is (205) 967-7116.
THE EXCHANGE OFFER
The Exchange Offer.......... We are offering to exchange our Exchange Notes
for our outstanding Private Notes that are
properly tendered and accepted. You may tender
outstanding Private Notes only in denominations
of $1,000 and multiples of $1,000. We will issue
the Exchange Notes on or promptly after the
expiration date of the exchange offer. As of the
date of this prospectus, $375,000,000 principal
amount of Private Notes is outstanding.
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
York City time, on __________, 2001, unless
extended, in which case the expiration date will
mean the latest date and time to which we extend
the exchange offer.
3
Conditions to the
Exchange Offer............ The exchange offer is not subject to conditions
other than that (1) it shall not violate
applicable law or any applicable interpretation
of the staff of the SEC, (2) no action or
proceeding shall have been instituted or
threatened in any court or by any governmental
agency which might materially impair our ability
to proceed with the exchange offer, and no
material adverse development shall have occurred
in any existing action or proceeding with respect
to us, and (3) all governmental approvals deemed
necessary by us for the completion of the
exchange offer shall have been obtained. The
exchange offer is not conditioned upon any
minimum principal amount of Private Notes being
tendered for exchange.
Procedures for Tendering
Private Notes............ If you wish to tender your Private Notes for
Exchange Notes pursuant to the exchange offer,
you must transmit to The Bank of New York, as
exchange agent, on or before the expiration date,
either:
o a computer-generated message transmitted
through The Depository Trust Company's
Automated Tender Offer Program system and
received by the exchange agent and forming a
part of a confirmation of book-entry
transfer in which you acknowledge and agree
to be bound by the terms of the letter of
transmittal; or
o a properly completed and duly executed
letter of transmittal, which accompanies
this prospectus, or a facsimile of the
letter of transmittal, together with your
Private Notes and any other required
documentation, to the exchange agent at its
address listed in this prospectus and on the
front cover of the letter of transmittal.
If you cannot satisfy either of these procedures
on a timely basis, then you should comply with
the guaranteed delivery procedures described
below. By executing the letter of transmittal,
you will make the representations to us described
under "The Exchange Offer-Procedures for
Tendering".
Special Procedures for
Beneficial Owners........ If you are a beneficial owner whose Private Notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and you wish to tender your Private Notes in the
exchange offer, you should contact the registered
holder promptly and instruct the registered
holder to tender on your behalf. If you wish to
tender on your own behalf, you must either (1)
make appropriate arrangements to register
ownership of the Private Notes in your name or
(2) obtain a properly completed bond power from
the registered holder, before completing and
executing the letter of transmittal and
delivering your Private Notes.
4
Guaranteed Delivery
Procedures.............. If you wish to tender your Private Notes and time
will not permit the documents required by the
letter of transmittal to reach the exchange agent
before the expiration date, or the procedure for
book-entry transfer cannot be completed on a
timely basis, you must tender your Private Notes
according to the guaranteed delivery procedure
described in this prospectus under "The Exchange
Offer-Guaranteed Delivery Procedures".
Acceptance of Private Notes
and Delivery of
Exchange Notes............ Subject to the satisfaction or waiver of the
conditions to the exchange offer, we will accept
for exchange any and all Private Notes which are
validly tendered in the exchange offer and not
withdrawn before 5:00 p.m., New York City time,
on the expiration date.
Withdrawal Rights.......... You may withdraw the tender of your Private Notes
at any time before 5:00 p.m., New York City time,
on the expiration date, by complying with the
procedures for withdrawal described in this
prospectus under "The Exchange Offer-Withdrawal
of Tenders".
Material U.S. Federal
Income Tax Consequences.. The exchange of Notes will not be a taxable event
for United States federal income tax purposes.
For a discussion of the material federal income
tax consequences relating to the exchange of
Notes, see "Material U.S. Federal Income Tax
Consequences of the Exchange".
Exchange Agent ............. The Bank of New York, the trustee under the
indenture governing the Private Notes, is serving
as the exchange agent.
Consequence of Failure to
Exchange Notes ........... If you do not exchange your Private Notes for
Exchange Notes, you will continue to be subject
to the restrictions on transfer provided in the
Private Notes and in the indenture governing the
Private Notes. In general, the Private Notes may
not be offered or sold, unless registered under
the Securities Act, except pursuant to an
exemption from, or in a transaction not subject
to, the Securities Act and applicable state
securities laws. We do not currently plan to
register the Private Notes under the Securities
Act.
Registration Rights
Agreement ............... You are entitled to exchange your Private Notes
for Exchange Notes with substantially identical
terms. The exchange offer satisfies this right.
After the exchange offer is completed, you will
no longer be entitled to any exchange or
registration rights with respect to your Private
Notes. Under the circumstances described in the
registration rights agreement, you may require us
to file a shelf registration statement under the
Securities Act.
We explain the exchange offer in greater detail beginning on page 12.
5
THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and
terms of the Private Notes, except that the Exchange Notes will be registered
under the Securities Act and, therefore, the Exchange Notes will not be subject
to the transfer restrictions, registration rights and provisions providing for
an increase in the interest rate applicable to the Private Notes. The Exchange
Notes will evidence the same debt as the Private Notes and both the Private
Notes and the Exchange Notes are governed by the same indenture.
Securities Offered .......... $375,000,000 principal amount of 81/2% senior
notes due 2008.
Issuer ...................... HEALTHSOUTH Corporation.
Maturity Date ............... February 1, 2008.
Interest .................... Interest on the Exchange Notes will accrue from
February 1, 2001 and be payable, at the rate of 8
1/2% per annum, on February 1 and August 1 of
each year, commencing August 1, 2001. The payment
of interest on Exchange Notes will be in lieu of
payment of any accrued but unpaid interest on
Private Notes tendered for exchange.
Optional Redemption ......... We may redeem the Exchange Notes, in whole or in
part, at any time at a redemption price that may
include the make-whole amount described in this
prospectus. For more details, see "Description of
Exchange Notes-Optional Redemption of the
Exchange Notes".
Ranking ..................... The Exchange Notes:
o are part of our general unsecured obligations;
o will rank equally in right of payment with all
of our existing and future senior unsecured
obligations;
o will rank senior to all of our existing and
future subordinated indebtedness; and
o will be effectively subordinated to all
existing and future liabilities of our
subsidiaries.
Future Guaranties ........... None of our subsidiaries are required to
guarantee the Exchange Notes.
Change of Control ........... If we go through a Change of Control, you have
the right to require that we purchase your
Exchange Notes, in whole or in part, at a
purchase price of 101% of their principal amount,
plus accrued interest to the date of purchase.
The term "Change of Control" is defined in
"Description of Exchange Notes".
Certain Covenants ........... The indenture contains covenants that, among
other things and subject to certain exceptions,
restrict our ability and the ability of our
subsidiaries to:
6
o incur additional indebtedness and issue
preferred stock;
o make restricted payments, including dividends,
other distributions and investments;
o in the case of our subsidiaries, create or
permit to exist dividend or payment
restrictions with respect to us;
o engage in transactions with our affiliates;
o incur or permit to exist certain liens;
o sell assets and subsidiary stock; and
o sell all or substantially all of our assets or
merge with or into other companies.
For more details, see "Description of Exchange
Notes".
Use of Proceeds ......... We will not receive any cash proceeds from the
exchange offer.
We explain the Exchange Notes in greater detail beginning on page 22.
7
RISK FACTORS
Our business, operations and financial condition are subject to various
risks. Some of these risks are described below, and you should take these risks
into account in evaluating us or any investment decision involving us or in
deciding whether to tender your Private Notes in the exchange offer. This
section does not describe all risks applicable to us, our industry or our
business, and it is intended only as a summary of certain material factors. The
risk factors set forth below are generally applicable to the Private Notes as
well as the Exchange Notes.
YOU MUST FOLLOW CERTAIN PROCEDURES TO TENDER YOUR PRIVATE NOTES
The Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the exchange agent of the Private Notes, a properly completed
and duly executed letter of transmittal and all other required documents.
Therefore, if you desire to tender your Private Notes in exchange for Exchange
Notes, you should allow sufficient time to ensure timely delivery. Your failure
to follow these procedures may result in delay in receiving Exchange Notes on a
timely basis or in your loss of the right to receive Exchange Notes. Neither we
nor the exchange agent is under any duty to give notification of defects or
irregularities with respect to tenders of Private Notes for exchange. If you
tender Private Notes in the exchange offer for the purpose of participating in
a distribution of the Exchange Notes, you will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where the
Private Notes were acquired by the broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of the Exchange Notes. See
"The Exchange Offer-Procedures for Tendering" and "Plan of Distribution".
YOU WILL BE SUBJECT TO TRANSFER RESTRICTIONS IF YOU FAIL TO EXCHANGE YOUR
PRIVATE NOTES
If you do not exchange your Private Notes for Exchange Notes pursuant to
the exchange offer, you will continue to be subject to the restrictions on
transfer of the Private Notes as set forth in the legend on the Private Notes
and you will not be entitled to an increased interest rate on the Private Notes.
In general, the Private Notes may not be offered or sold unless registered under
the Securities Act, or pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We do not
currently intend to register the Private Notes under the Securities Act. To the
extent that Private Notes are tendered and accepted in the exchange offer, the
trading market for untendered and tendered but unaccepted Private Notes could be
adversely affected. In addition, if a large amount of Private Notes are not
tendered or are tendered but not accepted, the limited amount of Exchange Notes
that would be issued and outstanding after we consummate the exchange offer
could lower the price of the Exchange Notes.
A PUBLIC MARKET FOR THE NOTES MAY NOT DEVELOP
There can be no assurance that a public market for the Notes will develop
or, if such a market develops, as to the liquidity of the market. If a market
were to develop, the Notes could trade at prices that may be higher or lower
than their principal amount. We do not intend to apply for listing of the Notes
on any securities exchange or for quotation of the Notes on any automated
quotation system. The initial purchasers have previously made a market in the
Private Notes, and we have been advised that the initial purchasers currently
intend to make a market in the Exchange 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 Private Notes or
the Exchange Notes, and any market-making activity may be discontinued at any
time without notice at the sole discretion of the initial purchasers. If an
active public market does not develop or continue, the market price and
liquidity of the Notes may be adversely affected. In addition, if a large amount
of Private Notes are not tnedered or are tendered but not accepted, the limited
amount of Exchange Notes that would be issued and outstanding after we
consummate the exchange offer could lower the price of the Exchange Notes.
WE DEPEND UPON REIMBURSEMENT BY THIRD-PARTY PAYORS
Substantially all of our revenues are derived from private and
governmental third-party payors. In 2000, approximately 29% of our revenues
were derived from Medicare, approximately 3% from Medicaid and approximately
68% from commercial insurers, managed care plans, workers' compensation payors
and other private pay revenue sources. There are increasing pressures from many
payors to control healthcare costs and to reduce or limit increases in
reimbursement rates for medical
8
services. In the recent past, we have experienced a decrease in revenues
primarily attributable to declines in government reimbursement as a result of
the Balanced Budget Act of 1997. There can be no assurances that payments from
governmental or private payors will remain at levels comparable to present
levels. In attempts to limit federal healthcare expenditures, there have been,
and we expect that there will continue to be, a number of proposals to limit
Medicare reimbursement for various services. We cannot now predict whether any
of these pending proposals will be adopted or what effect the adoption of such
proposals would have on us.
Further, Medicare reimbursement for inpatient rehabilitation services is
changing from a cost-based reimbursement system to a prospective payment system
("PPS"), with the phase-in of the PPS currently expected to begin sometime in
2001. While we believe we are well-positioned and well-prepared for the
transition, we cannot be certain what effect the implementation of inpatient
rehabilitation PPS will have on us. In addition, a delay in the implementation
of inpatient rehabilitation PPS, lower than expected reimbursement rates or our
failure to successfully execute our planned response to this change could have
a material adverse effect on our financial condition or results of operations.
OUR OPERATIONS ARE SUBJECT TO EXTENSIVE REGULATION
Our operations are subject to various other types of regulation at the
federal and state governments, including licensure and certification laws,
Certificate of Need laws and laws relating to financial relationships among
providers of healthcare services, Medicare fraud and abuse and physician
self-referral.
The operation of our 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 ensure compliance with the various standards established
for continued licensure under state law, certification under the Medicare and
Medicaid programs and participation in other government programs. Additionally,
in many states, Certificates of Need or other similar approvals are required
for expansion of our operations. We could be adversely affected if we cannot
obtain such approvals, by changes in the standards applicable to approvals and
by possible delays and expenses associated with obtaining approvals. Our
failure to obtain, retain or renew any required regulatory approvals, licenses
or certificates could prevent us from being reimbursed for our services or from
offering some of our services, or could materially adversely affect our results
of operations.
Our business is subject to extensive federal and state regulation with
respect to financial relationships among healthcare providers, physician
self-referral arrangements and other fraud and abuse issues. Penalties for
violation of federal and state laws and regulations include exclusion from
participation in the Medicare and Medicaid programs, asset forfeiture, civil
penalties and criminal penalties, any of which could have a material adverse
effect on our business, results of operations or financial condition. The
Office of Inspector General of the Department of Health and Human Services, the
Department of Justice and other federal agencies interpret healthcare fraud and
abuse provisions liberally and enforce them aggressively. See
"Business-Regulation" in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2000.
HEALTHCARE REFORM LEGISLATION MAY AFFECT OUR BUSINESS
In recent years, many legislative proposals have been introduced or
proposed in Congress and in some state legislatures that would effect major
changes in the healthcare system, either nationally or at the state level.
Among the proposals which are currently being, or recently have been,
considered are cost controls on hospitals, insurance market reforms to increase
the availability of group health insurance to small businesses, requirements
that all businesses offer health insurance coverage to their employees and the
creation of a single government health insurance plan that would cover all
citizens. The costs of certain proposals would be funded in significant part by
reductions in payment by governmental programs, including Medicare and
Medicaid, to healthcare providers. There continue to be federal and state
proposals that would, and actions that do, impose more limitations on
government and private payments to healthcare providers such as us and
proposals to increase copayments and
9
deductibles from patients. At the federal level, Congress has continued to
propose or consider 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 on us. That impact may be
material to our financial condition or our results of operations.
WE FACE NATIONAL, REGIONAL AND LOCAL COMPETITION
We operate in a highly competitive industry. Although we are the largest
provider of rehabilitative healthcare, outpatient surgery and outpatient
diagnostic services in the United States, in any particular market we may
encounter competition from local or national entities with longer operating
histories or other superior competitive advantages. There can be no assurance
that this competition, or other competition which we may encounter in the
future, will not adversely affect our financial condition or our results of
operations.
WE ARE SUBJECT TO MATERIAL LITIGATION
We are, and may in the future be, subject to litigation which, if
determined adversely to us, could have a material adverse effect on our
business or financial condition. In addition, some of the companies and
businesses we have acquired have been subject to similar litigation. There can
be no assurance that pending or future litigation, whether or not described in
this prospectus, will not have a material adverse effect on our financial
condition or our results of operations. See "Legal Proceedings" in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2000.
YOU SHOULD TAKE INTO ACCOUNT CERTAIN FINANCING CONSIDERATIONS
Amount of Leverage; Structural Subordination
As of December 31, 2000, we had approximately $3,211,829,000 of
outstanding indebtedness (including the current portion of long-term debt and
excluding obligations to trade creditors) and approximately $3,526,454,000 of
stockholders' equity. Outstanding indebtedness was approximately 47.67% of our
total capitalization, which was approximately $6,738,283,000 (including the
current portion of long-term debt). On an as-adjusted basis, as of December 31,
2000, after giving effect to the offering of the Private Notes and the use of
proceeds, we would have had approximately $3,220,360,000 of outstanding
indebtedness, which would amount to approximately 47.73% of our total
capitalization (including short-term borrowings and notes and the current
portion of long-term debt) and approximately $3,526,454,000 of stockholders'
equity. Approximately $2,163,531,000 of such total indebtedness (including the
Notes) would have consisted of senior unsecured obligations ranking pari passu
in right of payment. See "Capitalization". The Notes will be effectively
subordinated to all existing and future liabilities of our subsidiaries. A
substantial portion of our operations are conducted through these subsidiaries.
Restrictive Covenants
Our $1,750,000,000 revolving credit facility with Bank of America, N.A.,
and other participating banks contains various covenants that limit our ability
to engage in certain transactions. Those covenants, among other things:
o limit our and our subsidiaries' ability to borrow and to place liens on
our and their assets;
o limit our investments and the sale of all or substantially all of our
assets;
o require us to maintain a minimum consolidated net worth; and
o require us to comply with coverage ratio tests.
Our $400,000,000 credit facility with UBS AG, Stamford Branch, and other
participating banks and the indentures governing our debt securities, including
the Notes, include covenants of a similar nature. Our failure to comply with
any of these covenants could result in an event of default under
10
our indebtedness, including the Notes. That, in turn, could cause an event of
default to occur under all or substantially all of our other then-outstanding
indebtedness. See "Description of Exchange Notes-Certain Covenants of the
Company".
Effect on Our Ability to Finance Future Operations
Our level of indebtedness relative to our total capitalization and the
covenants described above may adversely affect our ability to finance our
future operations. Those factors also could limit our ability to pursue
business opportunities that may be in our interests. In particular, changes in
medical technology, existing, proposed and future legislation, regulations and
the interpretation thereof, and the requirements of payor contracts and other
government reimbursement programs may require significant investments in
facilities, equipment, personnel and services. Although we believe that cash
generated from operations, amounts available under our bank credit facilities
and our ability to access capital markets will be sufficient to allow us to
make such investments, we cannot assure you that we will be able to obtain the
funds necessary to make such investments.
OUR ABILITY TO REPURCHASE THE NOTES UPON A CHANGE OF CONTROL MAY BE LIMITED
In the event of a Change of Control, you will have the right, at your
option, to require us to repurchase all or a portion of the Notes you hold at a
purchase price equal to 101% of the aggregate principal amount of your Notes
plus accrued interest thereon to the repurchase date. See "Description of
Exchange Notes". Our ability to repurchase the Notes upon a Change of Control
will be dependent on the availability of sufficient funds and our ability to
comply with the applicable securities laws. Accordingly, there can be no
assurance that we will be in a position to repurchase the Notes upon a Change
of Control. The term "Change of Control" is limited to certified specified
transactions and may not include other events that might adversely affect our
financial condition or result in a downgrade of the credit rating (if any) of
the Notes, nor would the requirement that we offer to repurchase the Notes upon
a Change of Control necessarily afford holders of the Notes protection in the
event of a highly leveraged reorganization.
HOLDERS OF OUR DEBENTURES HAVE A REPURCHASE RIGHT IN CERTAIN CIRCUMSTANCES IN
WHICH HOLDERS OF THE NOTES DO NOT
In March 1998, we issued $567,750,000 of 3.25% convertible subordinated
debentures due 2003. In general, the debentures are subordinated to the Notes.
However, the holders of the debentures have a right to require us to repurchase
the debentures at a price equal to 100% of the principal amount thereof, plus
accrued and unpaid interest, in the event that our common stock is neither
listed for trading on a United States national securities exchange nor approved
for trading on an established automated over-the-counter trading market in the
United States. The Notes do not have similar repurchase rights. Therefore, in
the event that our common stock were not listed for trading as described above,
the holders of the debentures might be able to exercise a right to require
repurchase of the debentures by us ahead of the holders of the Notes, even
though the debentures are subordinate to the Notes. Our common stock has been
listed for trading on the New York Stock Exchange since 1989, and we anticipate
that this will continue to be the case.
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RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our consolidated ratio of earnings to fixed
charges for the periods shown.
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed charges ......... 3.0x 4.6x 5.4x 5.5x 3.9x 2.9x
The ratio of earnings to fixed charges was calculated by (1) dividing
earnings from continuing operations, before income taxes, fixed charges and
unusual and nonrecurring charges by (2) fixed charges, which consist of
interest expense incurred, including amortization of debt expense and discount,
and the portion of rental expense under operating leases estimated to be
representative of the interest factor.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We issued the Private Notes on February 1, 2001, to UBS Warburg LLC,
Deutsche Banc Alex. Brown Inc., Chase Securities Inc., First Union Securities,
Inc., and Scotia Capital (USA) Inc., the initial purchasers, pursuant to a
purchase agreement. The initial purchasers subsequently sold the Private Notes
to "qualified institutional buyers", as defined in Rule 144A under the
Securities Act, in reliance on Rule 144A, and outside the United States under
Regulation S of the Securities Act. As a condition to the sale of the Private
Notes, we entered into a registration rights agreement with the initial
purchasers on February 1, 2001. Pursuant to the registration rights agreement,
we agreed that we would:
(1) file a registration statement with the SEC with respect to the
Exchange Notes within 60 days after the date of initial issuance of the
Private Notes;
(2) use our reasonable best efforts to cause the registration statement
to be declared effective by the SEC on or prior to 120 days after the date
of initial issuance of the Private Notes;
(3) use our reasonable best efforts to consummate the exchange offer on
or prior to 150 days after the date of initial issuance of the Private
Notes; and
(4) keep the exchange offer open for not less than 20 business days.
Upon the effectiveness of the registration statement, we will offer the
Exchange Notes in exchange for the Private Notes. We filed a copy of the
registration rights agreement as an exhibit to the registration statement.
RESALE OF THE EXCHANGE NOTES
Based upon an interpretation by the staff of the SEC contained in
no-action letters issued to third parties, we believe that you may exchange
Private Notes for Exchange Notes in the ordinary course of business. For
further information on the SEC's position, see Exxon Capital Holdings
Corporation, available May 13, 1988, Morgan Stanley & Co. Incorporated,
available June 5, 1991 and Shearman & Sterling, available July 2, 1993, and
other interpretive letters to similar effect. You will be allowed to resell
Exchange Notes to the public without further registration under the Securities
Act and without delivering to purchasers of the Exchange Notes a prospectus
that satisfies the requirements of Section 10 of the Securities Act so long as
you do not participate, do not intend to participate, and have no arrangement
with any person to participate, in a distribution of the Exchange Notes.
However, the foregoing does not apply to you if you are:
o a broker-dealer who purchases the Exchange Notes directly from us to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act; or
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o an "affiliate" of ours within the meaning of Rule 405 under the
Securities Act.
In addition, if:
o you are a broker-dealer; or
o you acquire Exchange Notes in the exchange offer for the purpose of
distributing or participating in the distribution of the Exchange Notes,
you cannot rely on the position of the staff of the SEC contained in the
no-action letters mentioned above and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction, unless an exemption from registration is otherwise
available.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Private Notes, which the broker-dealer acquired as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus in connection with any resale of the Exchange Notes.
The letter of transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. A broker-dealer may use
this prospectus, as it may be amended or supplemented from time to time, in
connection with resales of Exchange Notes received in exchange for Private
Notes which the broker-dealer acquired as a result of market-making or other
trading activities.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions described in this prospectus
and in the letter of transmittal, we will accept any and all Private Notes
validly tendered and not withdrawn before the expiration date. We will issue
$1,000 principal amount of Exchange Notes in exchange for each $1,000 principal
amount of outstanding Private Notes surrendered pursuant to the exchange offer.
You may tender Private Notes only in integral multiples of $1,000.
The form and terms of the Exchange Notes are the same as the form and
terms of the Private Notes except that:
o we have registered the Exchange Notes under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting their
transfer; and
o holders of the Exchange Notes will not be entitled to any of the rights
of holders of Private Notes under the registration rights agreement,
which rights will terminate upon the completion of the exchange offer.
The Exchange Notes will evidence the same debt as the Private Notes and will be
issued under the same indenture, so the Exchange Notes and the Private Notes
will be treated as a single class of debt securities under the indenture.
As of the date of this prospectus, $375,000,000 in aggregate principal
amount of the Private Notes is outstanding and registered in the name of Cede &
Co., as nominee for The Depository Trust Company. Only registered holders of
the Private Notes, or their legal representative or attorney-in-fact, as
reflected on the records of the trustee under the indenture, may participate in
the exchange offer. We will not set a fixed record date for determining
registered holders of the Private Notes entitled to participate in the exchange
offer.
You do not have any appraisal or dissenters' rights under the indenture in
connection with the exchange offer. We intend to conduct the exchange offer in
accordance with the provisions of the registration rights agreement and the
applicable requirements of the Securities Act, the Exchange Act and the rules
and regulations of the SEC.
We will be deemed to have accepted validly tendered Private Notes when, as
and if we had given oral or written notice of acceptance to the exchange agent.
The exchange agent will act as your agent for the purposes of receiving the
Exchange Notes from us.
13
If you tender Private Notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the letter of transmittal, transfer taxes with respect to the exchange of
Private Notes pursuant to the exchange offer. We will pay all charges and
expenses, other than the applicable taxes described below, in connection with
the exchange offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" will mean 5:00 p.m., New York City time, on
, 2001, unless we, in our sole discretion, extend the exchange offer, in
which case the term "expiration date" will mean the latest date and time to
which we extend the exchange offer.
To extend the exchange offer, we will:
o notify the exchange agent of any extension orally or in writing; and
o notify the registered holders of the Private Notes by means of a press
release or other public announcement,
each before 9:00 a.m., New York City time, on the next business day after the
previously scheduled expiration date.
We reserve the right, in our reasonable discretion:
o to delay accepting any Private Notes;
o to extend the exchange offer; or
o if any conditions listed below under "-Conditions" are not satisfied, to
terminate the exchange offer by giving oral or written notice of the
delay, extension or termination to the exchange agent.
We will follow any delay in acceptance, extension or termination as
promptly as practicable by oral or written notice to the registered holders. If
we amend the exchange offer in a manner we determine constitutes a material
change, we will promptly disclose the amendment in a prospectus supplement that
we will distribute to the registered holders.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will accrue interest from February 1, 2001 at the per
annum rate of 8 1/2%. Such interest will be payable semi-annually in arrears on
each February 1 and August 1, commencing August 1, 2001. The payment of
interest on Exchange Notes will be in lieu of payment of any accrued but unpaid
interest on Private Notes tendered for exchange.
PROCEDURES FOR TENDERING
You may tender Private Notes in the exchange offer only if you are a
registered holder of Private Notes. To tender in the exchange offer, you must:
o complete, sign and date the letter of transmittal or a facsimile of the
letter of transmittal;
o have the signatures guaranteed if required by the letter of transmittal;
and
o mail or otherwise deliver the letter of transmittal or the facsimile of
the letter of transmittal to the exchange agent at the address listed
below under "-Exchange Agent" for receipt before the expiration date.
In addition, either:
o the exchange agent must receive certificates for the Private Notes along
with the letter of transmittal into its account at the depositary
pursuant to the procedure for book-entry transfer described below before
the expiration date;
o the exchange agent must receive a timely confirmation of a book-entry
transfer of the Private Notes, if the procedure is available, into its
account at the depositary pursuant to the procedure for book-entry
transfer described below before the expiration date; or
o you must comply with the guaranteed delivery procedures described below.
14
Your tender, if not withdrawn before the expiration date, will constitute
an agreement between you and us in accordance with the terms and subject to the
conditions described in this prospectus and in the letter of transmittal.
The method of delivery of Private Notes and the letter of transmittal and
all other required documents to the exchange agent is at your election and
risk. We recommend that instead of delivery by mail, you use an overnight or
hand delivery service, properly insured. In all cases, you should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. You should not send letters of transmittal or Private Notes to us. You
may request your respective brokers, dealers, commercial banks, trust companies
or nominees to effect the transactions described above for you.
If you are a beneficial owner of Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and you wish to tender your Private Notes, you should contact the
registered holder promptly and instruct the registered holder to tender on your
behalf. If you wish to tender on your own behalf, before completing and
executing the letter of transmittal and delivering the Private Notes you must
either:
o make appropriate arrangements to register ownership of the Private Notes
in your name; or
o obtain a properly completed bond power from the registered holder.
The transfer of registered ownership may take considerable time. Unless
the Private Notes are tendered:
(1) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on the letter of transmittal; or
(2) for the account of:
o a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
o a commercial bank or trust company located or having an office or
correspondent in the United States; or
o an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act that is a member of one of the recognized
signature guarantee programs identified in the letter of transmittal,
an eligible guarantor institution must guarantee the signatures on a letter
of transmittal or a notice of withdrawal described below under "-Withdrawal
of Tenders".
If the letter of transmittal is signed by a person other than the
registered holder, the Private Notes must be endorsed or accompanied by a
properly completed bond power, signed by the registered holder as the registered
holder's name appears on the Private Notes.
If the letter of transmittal or any Private 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, they should so indicate when signing, and unless waived by us, they
must submit evidence satisfactory to us of their authority to so act with the
letter of transmittal.
The exchange agent and the depositary have confirmed that any financial
institution that is a participant in the depositary's system may utilize the
depositary's Automated Tender Offer Program to tender Notes.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of
tendered Private Notes, which determination will be final and binding. We
reserve the absolute right to reject any and all Private Notes not properly
tendered or any Private Notes our acceptance of which would, in the opinion of
our counsel, be unlawful. We also reserve the right to waive any defects,
irregularities or conditions of tender as to particular Private Notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in
15
the letter of transmittal, will be final and binding on all parties. Unless
waived, you must cure any defects or irregularities in connection with tenders
of Private Notes within the time we determine. Although we intend to notify you
of defects or irregularities with respect to tenders of Private Notes, neither
we, the exchange agent nor any other person will incur any liability for
failure to give you that notification. Unless waived, we will not deem tenders
of Private Notes to have been made until you cure the defects or
irregularities.
While we have no present plan to acquire any Private Notes that are not
tendered in the exchange offer or to file a registration statement to permit
resales of any Private Notes that are not tendered in the exchange offer, we
reserve the right in our sole discretion to purchase or make offers for any
Private Notes that remain outstanding after the expiration date. We also
reserve the right to terminate the exchange offer, as described below under
"-Conditions", and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise.
The terms of any of those purchases or offers could differ from the terms of
the exchange offer.
If you wish to tender Private Notes in exchange for Exchange Notes in the
exchange offer, we will require you to represent that:
o you are not an affiliate of ours;
o you will acquire any Exchange Notes in the ordinary course of your
business; and
o at the time of completion of the exchange offer, you have no arrangement
with any person to participate in the distribution of the Exchange
Notes.
In addition, in connection with the resale of Exchange Notes, any participating
broker-dealer who acquired the Private Notes for its own account as a result of
market-making or other trading activities must deliver a prospectus meeting the
requirements of the Securities Act. The SEC has taken the position that
participating broker-dealers may fulfill their prospectus delivery requirements
with respect to the Exchange Notes, other than a resale of an unsold allotment
from the original sale of the Notes, with the prospectus contained in the
registration statement.
RETURN OF NOTES
If we do not accept any tendered Private Notes for any reason described in
the terms and conditions of the exchange offer or if you withdraw any tendered
Private Notes or submit Private Notes for a greater principal amount than you
desire to exchange, we will return the unaccepted, withdrawn or non-exchanged
Private Notes without expense to you as promptly as practicable. In the case of
Private Notes tendered by book-entry transfer into the exchange agent's account
at the depositary pursuant to the book-entry transfer procedures described
below, we will credit the Private Notes to an account maintained with the
depositary as promptly as practicable.
BOOK-ENTRY TRANSFER
The exchange agent will make a request to establish an account with
respect to the Private Notes at the depositary for purposes of the exchange
offer within two business days after the date of this prospectus, and any
financial institution that is a participant in the depositary's systems may
make book-entry delivery of Private Notes by causing the depositary to transfer
the Private Notes into the exchange agent's account at the depositary in
accordance with the depositary's procedures for transfer. However, although
delivery of Private Notes may be effected through book-entry transfer at the
depositary, you must transmit and the exchange agent must receive, the letter
of transmittal or a facsimile of the letter of transmittal, with any required
signature guarantees and any other required documents, at the address below
under "-Exchange Agent" on or before the expiration date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your Private Notes, but time will not permit a
letter of transmittal, certificates representing the Private Notes to be
tendered or other required documents to reach the exchange agent before the
expiration date, you may effect a tender if:
16
(a) the tender is made by or through an eligible guarantor institution;
(b) before the expiration date, the exchange agent receives from the
eligible guarantor institution a properly completed and duly executed notice
of guaranteed delivery, substantially in the form provided by us, that:
o states the name and address of the holder of the Private Notes, the
name(s) in which the Private Notes are registered and the principal
amount of Private Notes tendered,
o states that the tender is being made by that notice of guaranteed
delivery, and
o guarantees that, within three New York Stock Exchange trading days after
the expiration date, the eligible guarantor institution will deposit with
the exchange agent the letter of transmittal, together with the
certificates representing the Private Notes in proper form for transfer
or a confirmation of a book-entry transfer, as the case may be, and any
other documents required by the letter of transmittal; and
(c) within three New York Stock Exchange trading days after the
expiration date, the exchange agent receives a properly executed letter of
transmittal, as well as the certificates representing all tendered Private
Notes in proper form for transfer and all other documents required by the
letter of transmittal.
Upon request, the exchange agent will send to you a notice of guaranteed
delivery if you wish to tender your Private Notes according to the guaranteed
delivery procedures described above.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw tenders
of Private Notes at any time before 5:00 p.m., New York City time, on the
expiration date.
To withdraw a tender of Private Notes in the exchange offer, the exchange
agent must receive a written or facsimile transmission notice of withdrawal at
its address listed in this prospectus before the expiration date. Any notice of
withdrawal must:
o specify the name of the person who deposited the Private Notes to be
withdrawn;
o identify the Private Notes to be withdrawn, including the principal
amount of the Private Notes; and
o be signed in the same manner as the original signature on the letter of
transmittal by which the Private Notes were tendered, including any
required signature guarantees.
We will determine in our sole discretion all questions as to the validity,
form and eligibility of the notices, and our determination will be final and
binding on all parties. We will not deem any properly withdrawn Private Notes
to have been validly tendered for purposes of the exchange offer, and we will
not issue Exchange Notes with respect to those Private Notes, unless you
validly re-tender the withdrawn Private Notes. You may re-tender properly
withdrawn Private Notes by following one of the procedures described above
under "-Procedures for Tendering" at any time before the expiration date.
CONDITIONS
Notwithstanding any other term of the exchange offer, we will not be
required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the exchange offer as provided in this
prospectus before the acceptance of the Private Notes, if:
(1) the exchange offer violates applicable law, rules or regulations or
an applicable interpretation of the staff of the SEC;
(2) an action or proceeding has been instituted or threatened in any
court or by any governmental agency which might materially impair our
ability to proceed with the exchange offer;
17
(3) a material adverse development shall have occurred in any existing
action or proceeding with respect to us; or
(4) all governmental approvals which we deem necessary for the
completion of the exchange offer have not been obtained.
If we determine in our reasonable discretion that any of these conditions
are not satisfied, we may:
o refuse to accept any Private Notes and return all tendered Private Notes
to you;
o extend the exchange offer and retain all Private Notes tendered before
the exchange offer expires, subject, however, to your rights to withdraw
the Private Notes; or
o waive the unsatisfied conditions with respect to the exchange offer and
accept all properly tendered Private Notes that have not been withdrawn.
If the waiver constitutes a material change to the exchange offer, we will
promptly disclose the waiver by means of a prospectus supplement that we will
distribute to the registered holders of the Private Notes.
TERMINATION OF RIGHTS
All of your rights under the registration rights agreement will terminate
upon consummation of the exchange offer, except with respect to our continuing
obligations:
o to indemnify you and parties related to you against liabilities,
including liabilities under the Securities Act; and
o to provide, upon your request, the information required by Rule
144A(d)(4) under the Securities Act to permit resales of the Notes
pursuant to Rule 144A.
SHELF REGISTRATION
In the event that:
(1) any changes in law or SEC policy do not permit us to effect the
exchange offer;
(2) the exchange offer is not consummated within 150 days of the date of
initial issuance of the Private Notes;
(3) any holder of Private Exchange Notes (as defined in the registration
rights agreement) so requests; or
(4) a holder participating in the exchange offer does not receive
Exchange Notes on the date of the exchange that may be sold without
restriction under the federal securities laws (other than due solely to the
status of the holder as our affiliate within the meaning of that term under
the Securities Act),
we will file with the SEC a shelf registration statement to register for public
resale the transfer-restricted securities held by you if you provide us with
the necessary information for inclusion in the shelf registration statement.
LIQUIDATED DAMAGES
If:
(1) we do not file the registration statement with the SEC on or prior to
the 60th day following the date of initial issuance of the Private Notes;
(2) we do not cause the registration statement to become effective on or
prior to the 120th day following the date of initial issuance of the Private
Notes;
18
(3) we do not complete the exchange offer on or prior to the 150th day
following the date of initial issuance of the Private Notes;
(4) we are obligated to file a shelf registration statement and we do not
file the shelf registration statement with the SEC on or prior to the 45th
day following the date on which we have notice of the filing obligation;
(5) we are obligated to file a shelf registration statement and the SEC
does not declare the shelf registration statement effective on or prior to
the later of the 60th day following the date on which the filing obligation
arises or the 150th day following the date of initial issuance of the
Private Notes; or
(6) the registration statement or the shelf registration statement, as
the case may be, is declared effective but thereafter ceases to be effective
or useable in connection with resales of the Registrable Notes (as defined
in the registration rights agreement) for the time of non-effectiveness or
nonusability,
with each of items (1) through (6) constituting a "registration default", we
agree to pay you liquidated damages in cash on each February 1 and August 1 in
an amount equal to 0.25% per annum of the aggregate principal amount of the
Registrable Notes, with respect to the first 90-day period immediately
following the occurrence of the registration default. The amount of the
liquidated damages will increase by an additional 0.25% to a maximum of 1.0%
per annum of the aggregate principal amount of the Registrable Notes for each
subsequent 90-day period until the registration default has been cured. We will
not be required to pay liquidated damages for more than one registration
default at any given time. Following the cure of all registration defaults, the
accrual of liquidated damages will cease.
EXCHANGE AGENT
We have appointed The Bank of New York as exchange agent for the exchange
offer. You should direct questions and requests for assistance, requests for
additional copies of this prospectus or the letter of transmittal and requests
for a notice of guaranteed delivery to the exchange agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL: BY FACSIMILE: BY HAND/OVERNIGHT DELIVERY:
The Bank of New York __________ The Bank of New York
101 Barclay Street 101 Barclay Street
New York, New York 10286 New York, New York 10286
Reorganization Department, 7 East Reorganization Department, 7 East
FOR INFORMATION CALL:
__________
Delivery to an address other than the one stated above or transmission via
a facsimile number other than the one stated above will not constitute a valid
delivery.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We are making the
principal solicitation by mail; however, our officers and regular employees may
make additional solicitations by facsimile, telephone or in person.
We have not retained any dealer manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses.
We will pay the cash expenses incurred in connection with the exchange
offer, which we estimate to be approximately $200,000. These expenses include
registration fees, fees and expenses of the exchange agent and the trustee,
accounting and legal fees and printing costs, among others.
19
We will pay all transfer taxes, if any, applicable to the exchange of
Notes pursuant to the exchange offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the Private Notes pursuant to the
exchange offer, then you must pay the amount of the transfer taxes. If you do
not submit satisfactory evidence of payment of the taxes or exemption from
payment with the letter of transmittal, we will bill the amount of the transfer
taxes directly to you.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the exchange offer is voluntary. We urge you to consult
your financial and tax advisors in making your decisions on what action to
take. Private Notes that are not exchanged for Exchange Notes pursuant to the
exchange offer will remain restricted securities. Accordingly, those Private
Notes may be resold only:
o to a person whom the seller reasonably believes is a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A under the Securities Act;
o in a transaction meeting the requirements of Rule 144 under the
Securities Act;
o outside the United States to a foreign person in a transaction meeting
the requirements of Rule 903 or 904 of Regulation S under the Securities
Act;
o in accordance with another exemption from the registration requirements
of the Securities Act and based upon an opinion of counsel if we so
request;
o to us; or
o pursuant to an effective registration statement.
In each case, the Private Notes may be resold only in accordance with any
applicable securities laws of any state of the United States or any other
applicable jurisdiction.
USE OF PROCEEDS
There will be no cash proceeds payable to us from the issuance of the
Exchange Notes pursuant to the exchange offer. We used the proceeds from the
sale of the Private Notes to repay a portion of our existing indebtedness and
for general corporate purposes. In consideration for issuing the Exchange Notes
as contemplated in this prospectus, we will receive in exchange the Private
Notes in like principal amount, the terms of which are identical in all
material respects to the Exchange Notes. The Private Notes surrendered in
exchange for the Exchange Notes will be retired and cancelled and cannot be
reissued. Accordingly, the issuance of the Exchange Notes will not result in
any increase in our indebtedness.
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CAPITALIZATION
The following table sets forth, as of December 31, 2000: (i) our actual
capitalization, and (ii) our capitalization as adjusted to give effect to the
sale of the Private Notes and the application of the net proceeds from the
offering of the Private Notes to repaying amounts under the existing bank
credit agreements.
DECEMBER 31, 2000
ACTUAL AS ADJUSTED
------------- --------------
(IN THOUSANDS)
Cash and cash equivalents .............................................. $ 180,317 $ 180,317
========== ==========
Current portion of long-term debt:
Advances under the $400,000,000 Revolving Credit Facility.............. -- --
Other long-term debt .................................................. $ 43,225 $ 43,225
---------- ----------
Total current portion of long-term debt ............................. $ 43,225 $ 43,225
---------- ----------
Long-term debt (net of current maturities):
Advances under the $1,750,000,000 Revolving Credit Facility............ $1,655,000 $1,288,531
3.25% Convertible Subordinated Debentures due 2003 .................... 567,750 567,750
6.875% Senior Notes due 2005 .......................................... 250,000 250,000
7.0% Senior Notes due 2008 ............................................ 250,000 250,000
10-3/4% Senior Subordinated Notes due 2008 ............................ 350,000 350,000
8 1/2% Senior Notes due 2008 .......................................... -- 375,000
Other long-term debt .................................................. 95,854 95,854
---------- ----------
Total long-term debt ................................................ $3,168,604 $3,177,135
Stockholders' equity:
Preferred Stock, $.10 par value, 1,500,000 shares authorized; no shares
outstanding ......................................................... -- --
Common Stock, $.01 par value, 600,000,000 shares authorized;
shares outstanding (1) .............................................. $ 4,260 $ 4,260
Additional paid-in capital ............................................ 2,610,442 2,610,442
Accumulated other comprehensive income ................................ 7,074 7,074
Retained earnings ..................................................... 1,224,950 1,224,950
Treasury stock ........................................................ (280,524) (280,524)
Receivable from Employee Stock Ownership Plan ......................... (5,415) (5,415)
Notes receivable from stockholders, officers and management employees . (34,333) (34,333)
---------- ----------
Total stockholders' equity .......................................... 3,526,454 3,526,454
---------- ----------
Total capitalization ............................................... $6,738,283 $6,746,814
========== ==========
- ----------
(1) Outstanding shares do not include a total of 35,981,434 shares of Common
Stock subject to options outstanding under our stock option plans. An
additional 4,229,428 shares of Common Stock are reserved for future option
grants under such plans. Outstanding shares also do not include 67,801
shares of Common Stock reserved for issuance pursuant to outstanding
warrants, and 15,501,707 shares of Common Stock initially reserved for
issuance upon conversion of our 3.25% convertible subordinated debentures
due 2003.
21
DESCRIPTION OF EXCHANGE NOTES
The Private Notes were issued, and the Exchange Notes offered hereby will
be issued, pursuant to an indenture, dated as of February 1, 2001 (the
"Indenture"), between us and The Bank of New York, as Trustee (the "Trustee").
The following summary does not purport to be complete and such summary is
subject to the detailed provisions of the Indenture, to which reference is
hereby made for a full description of such provisions, including the definition
of certain terms used herein, and for other information regarding the Exchange
Notes. Wherever particular sections or defined terms of the Indenture are
referred to, such sections or defined terms are incorporated herein by
reference as part of the statement made, and the statement is qualified in its
entirety by such reference.
GENERAL
The Exchange Notes will be general unsecured obligations of the Company,
pari passu in right of payment to all existing and future senior Indebtedness
of the Company (including the Company's obligations under the Credit
Agreements) and senior to the Company's existing and future Subordinated
Indebtedness. The Company issued $375,000,000 aggregate principal amount of
Private Notes in the initial issuance of the Private Notes. The securities that
may be issued pursuant to the Indenture will not be limited in amount, and
additional amounts may be issued in one or more series from time to time under
the Indenture, subject to the limitations on the incurrence of Indebtedness set
forth under "-- Certain Covenants of the Company -- Limitations on Additional
Indebtedness and Subsidiary Preferred Stock" and restrictions contained in the
Credit Agreements.
The Exchange Notes will bear interest from February 1, 2001 at the rate of
8 1/2% per year payable semi-annually in arrears on February 1 and August 1 of
each year, commencing on August 1, 2001, to holders of record at the close of
business on January 15 or July 15, as the case may be, immediately preceding
the relevant interest payment date. The payment of interest on Exchange Notes
will be in lieu of payment of any accrued but unpaid interest on Private Notes
tendered for exchange. Interest on the Exchange Notes will be calculated on the
basis of a 360-day year of twelve 30-day months. The Exchange Notes will mature
on February 1, 2008 and will be issued in registered form, without coupons, and
in denominations of $1,000 and integral multiples thereof. The Exchange Notes
will be payable as to principal, make-whole amount, if any, and interest at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, by wire transfer of
immediately available funds or, in the case of certificated securities only, by
mailing a check to the registered address of the holders of the Exchange Notes
(the "Holders"). See "-- Book-Entry; Delivery and Form". Until otherwise
designated by the Company, the Company's office or agency in New York will be
the office of the Trustee maintained for such purpose.
OPTIONAL REDEMPTION OF THE EXCHANGE NOTES
The Exchange Notes will be redeemable, in whole or in part, at the option
of the Company at any time at a redemption price equal to the greater of
(i) 100% of the principal amount of the Exchange Notes, plus accrued interest
thereon to the date of redemption, or (ii) as determined by a Quotation Agent
(as defined below), the sum of the present values of the remaining scheduled
payments of principal and interest thereon discounted to the redemption date on
a semi-annual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Adjusted Treasury Rate, plus accrued interest on the Exchange
Notes to the date of redemption. If a redemption date does not fall on an
interest payment date, then, with respect to the interest payment immediately
succeeding the redemption date, only the unaccrued portion of such interest
payment as of the redemption date shall be included in any calculation pursuant
to clause (ii) above. Any portion of the redemption price in excess of 100% of
the principal amount of the Exchange Notes (other than accrued interest
thereon) is referred to in this prospectus as the "make-whole amount".
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of the principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 0.50%.
22
"Comparable Treasury Issue" means the United States Treasury security
selected by a Quotation Agent as having a maturity comparable to the remaining
term of the Exchange Notes to be redeemed 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 such Exchange Notes.
"Comparable Treasury Price" means, with respect to any redemption date,
(i) the average of the Reference Treasury Dealer Quotations for such redemption
date, after excluding the highest and lowest of such Reference Treasury Dealer
Quotations, or (ii) if the Trustee obtains three or fewer such Reference
Treasury Dealer Quotations, the average of all such quotations.
"Quotation Agent" means one of the Reference Treasury Dealers appointed by
the Trustee after consultation with the Company.
"Reference Treasury Dealer" means (i) each of UBS Warburg LLC, Deutsche
Banc Alex. Brown Inc. and Chase Securities Inc. and their respective
successors; provided, however, that if any of the foregoing shall cease to be a
primary U.S. Government securities dealer in New York, New York (a "Primary
Treasury Dealer"), the Company shall substitute therefor another Primary
Treasury Dealer; and (ii) any other Primary Treasury Dealer selected by the
Trustee after consultation with the Company.
"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 for the 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.
If less than all of the Exchange Notes are to be redeemed at any time,
selection of the Exchange Notes to be redeemed will be made by the Trustee from
among the outstanding Exchange Notes on a pro rata basis, by lot or by any
other method permitted in the Indenture. Notice of redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder whose Exchange Notes are to be redeemed at the registered address of
such Holder. On and after the redemption date, interest will cease to accrue on
the Exchange Notes or portions thereof called for redemption.
The Exchange Notes will not be entitled to any sinking fund.
CHANGE OF CONTROL
If a Change of Control shall occur at any time, then each Holder will have
the right to require that the Company purchase such Holder's Exchange Notes, in
whole or in part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount thereof, plus accrued interest, if any, to the date of
purchase (the "Change of Control Purchase Date"), pursuant to the offer
described below (the "Change of Control Offer") and the other procedures set
forth in the Indenture.
Within 30 days following any Change of Control, the Company shall notify
the Trustee thereof and give written notice of such Change of Control to each
Holder by first-class mail, postage prepaid, at the address of such Holder
appearing in the security register, stating, among other things,
(i) the Change of Control Purchase Price and the Change of Control
Purchase Date, which shall be a Business Day no earlier than 30 days nor later
than 60 days from the date such notice is mailed;
(ii) that any Exchange Note not tendered will continue to accrue
interest;
(iii) that, unless the Company defaults in the payment of the Change
of Control Purchase Price, any Exchange Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Purchase Date; and
23
(iv) certain other procedures that a Holder must follow to accept a
Change of Control Offer or to withdraw such acceptance.
The occurrence of certain of the events constituting a Change of Control
under the Indenture may result in an event of default in respect of the Credit
Agreements and other Indebtedness of the Company and its Subsidiaries and,
consequently, the lenders thereof will have the right to require repayment of
such Indebtedness in full. If a Change of Control Offer is made, there can be
no assurance that the Company will have available funds sufficient to pay the
Change of Control Purchase Price for all of the Exchange Notes that might be
delivered by Holders seeking to accept the Change of Control Offer and other
amounts that might become due and payable in respect of other Indebtedness of
the Company. The failure of the Company to make or consummate the Change of
Control Offer or pay the Change of Control Purchase Price when due would result
in an Event of Default and would give the Trustee and the Holders the rights
described under "-- Events of Default".
One of the events which constitutes a Change of Control under the
Indenture is the sale of "all or substantially all" of the Company's assets.
This term has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event that the Holders believe that the Company is
obligated to make a Change of Control Offer as a result of a sale of all or
substantially all of the Company's assets and the Company does not believe it
is so obligated, there can be no assurance as to how a court interpreting New
York law would interpret the phrase.
The existence of a Holder's right to require the Company to purchase such
Holder's Exchange Notes upon a Change of Control may deter a third party from
acquiring the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in
scope. The provisions of the Indenture may not afford Holders the right to
require the Company to purchase such Exchange Notes in the event of a highly
leveraged transaction or a reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect Holders, if such
transaction is not a transaction defined as a Change of Control.
The Company will comply with any applicable securities laws and
regulations in connection with a Change of Control Offer.
CERTAIN COVENANTS OF THE COMPANY
The Indenture contains, among others, the following covenants:
Limitations on Additional Indebtedness and Subsidiary Preferred Stock.
(a) After the Issue Date,
(i) the Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guarantee,
extend the Stated Maturity of, or otherwise become liable with respect
to (collectively, "incur"), any Indebtedness (including, without
limitation, Acquired Indebtedness) and
(ii) the Company will not permit any of its Subsidiaries to issue
(except to the Company or any of its Wholly Owned Subsidiaries) or
create any Preferred Stock or permit any Person (other than the Company
or a Wholly Owned Subsidiary) to own or hold any interest in any
Preferred Stock of any such Subsidiary;
provided, however, that the Company may incur Indebtedness and the Company may
permit its Subsidiaries to issue or create Preferred Stock if, after giving
effect thereto, the Company's EBITDA Coverage Ratio on the date thereof would
be at least 2.5 to 1, determined on a pro forma basis as if the incurrence of
such additional Indebtedness or the issuance of such Preferred Stock (declared
to have an aggregate principal amount equal to the aggregate liquidation value
of such Preferred Stock), as the case may be, and the application of the net
proceeds therefrom, had occurred at the beginning of the four-quarter period
used to calculate the Company's EBITDA Coverage Ratio.
24
(b) Notwithstanding the foregoing, and irrespective of the EBITDA
Coverage Ratio, in addition to Existing Indebtedness:
(i) the Company may incur Indebtedness pursuant to the Private Notes
issued on the Issue Date and the Exchange Notes issued in exchange for
Private Notes;
(ii) the Company may incur Indebtedness under the 2000 Credit
Agreement in an aggregate principal amount at any time not to exceed
$400,000,000;
(iii) the Company and its Subsidiaries may incur Refinancing
Indebtedness;
(iv) the Company may incur any Indebtedness to any Subsidiary or any
Subsidiary may incur any Indebtedness to the Company or to any
Subsidiary;
(v) the Company and its Subsidiaries may incur any Indebtedness
evidenced by letters of credit which are used in the ordinary course of
business of the Company and its Subsidiaries to secure workers'
compensation and other insurance coverages;
(vi) the Company and its Subsidiaries may incur Capitalized Lease
Obligations and Attributable Indebtedness, in each case excluding
Existing Indebtedness, in an aggregate principal amount at any one time
outstanding not to exceed 10% of Consolidated Tangible Assets; and
(vii) the Subsidiaries of the Company may incur Indebtedness,
excluding Existing Indebtedness, in an aggregate principal amount at
any time outstanding not to exceed $250,000,000, in addition to
Indebtedness permitted to be incurred by Subsidiaries of the Company
pursuant to the foregoing clauses (iii)-(vi).
(c) Notwithstanding the foregoing, the Company may permit any Subsidiary
which is a partnership formed to operate a single healthcare facility to
issue or create Preferred Stock, provided that the aggregate amount of all
such Preferred Stock outstanding after giving effect to such issuance or
creation shall not exceed 1% of Consolidated Tangible Assets as of the
date of such issuance or creation.
Limitations on Restricted Payments. The Company will not, and will not
permit any of its Subsidiaries, directly or indirectly, to make any Restricted
Payment if at the time of such Restricted Payment:
(i) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) after giving effect to the proposed Restricted Payment, the
amount of such Restricted Payment, when added to the aggregate amount
of all Restricted Payments made after September 25, 2000, exceeds the
sum of:
(a) 50% of the Company's Consolidated Net Income accrued during the
period (taken as a single period) commencing on July 1, 1997 to and
including the fiscal quarter ended immediately prior to the date of such
Restricted Payment (or, if such aggregate Consolidated Net Income shall be
a deficit, minus 100% of such aggregate deficit),
(b) the net cash proceeds from the issuance and sale of the Company's
Capital Stock (other than to a Subsidiary of the Company) that is not
Disqualified Stock during the period (taken as a single period) commencing
with the Issue Date, and
(c) $50,000,000; or
(iii) the Company would not be able to incur an additional $1.00 of
Indebtedness under the EBITDA Coverage Ratio in the "-- Limitations on
Additional Indebtedness and Subsidiary Preferred Stock" covenant.
Notwithstanding the foregoing, the Company may:
25
(w) pay any dividend within 60 days after the date of declaration
thereof if the payment thereof would have complied with the limitations of
this "-- Limitations on Restricted Payments" covenant on the date of
declaration;
(x) retire shares of the Company's Capital Stock or the Company's or a
Subsidiary of the Company's Indebtedness out of the proceeds of a
substantially concurrent sale (other than to a Subsidiary of the
Company) of shares of the Company's Capital Stock (other than Disqualified
Stock);
(y) make Investments in Joint Ventures, when added to the aggregate
amount of all such other Investments made pursuant to this clause (y) (or
such other Investments as would have been made pursuant to this clause (y)
had such clause been in effect) after September 25, 2000, not exceeding at
any time 5% of Consolidated Tangible Assets (with each such Investment
being valued as of the date made and without regard to subsequent changes
in value); and
(z) make Investments, when added to the aggregate amount of all such
other Investments made pursuant to this clause (z) (or such other
Investments as would have been made pursuant to this clause (z) had such
clause been in effect) after September 25, 2000, not exceeding at any time
2.5% of Consolidated Tangible Assets (with each such Investment being
valued as of the date made and without regard to subsequent changes in
value);
provided, however, that each Restricted Payment described in clauses (w) and
(x) above shall be taken into account for purposes of computing the aggregate
amount of all Restricted Payments pursuant to clause (ii) of the immediately
preceding paragraph.
Limitations on Restrictions on Distributions from Subsidiaries. The
Company will not, and will not permit any of its Subsidiaries to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction (other than encumbrances or restrictions imposed by
law or by judicial or regulatory action or by provisions in leases or other
agreements that restrict the assignability thereof) on the ability of any
Subsidiary of the Company to
(i) pay dividends or make any other distributions on its Capital
Stock or any other interest or participation in, or measured by, its
profits, owned by the Company or any of its other Subsidiaries, or pay
interest on or principal of any Indebtedness owed to the Company or any
of its other Subsidiaries,
(ii) make loans or advances to the Company or any of its other
Subsidiaries or
(iii) transfer any of its properties or assets to the Company or any
of its other Subsidiaries,
in each case except for encumbrances or restrictions existing under or by reason
of
(a) applicable law,
(b) the Credit Agreements,
(c) Existing Indebtedness,
(d) any restrictions under any agreement evidencing any Acquired
Indebtedness that was permitted to be incurred pursuant to the Indenture
and which was not incurred in anticipation or contemplation of the related
acquisition, provided that such restrictions and encumbrances only apply
to assets that were subject to such restrictions and encumbrances prior to
the acquisition of such assets by the Company or its Subsidiaries,
(e) restrictions or encumbrances replacing those permitted by clause
(b), (c) or (d) above which, taken as a whole, are not materially more
restrictive,
(f) the Indenture,
26
(g) any restrictions and encumbrances arising in connection with
Refinancing Indebtedness; provided, however, that any restrictions or
encumbrances of the type described in this paragraph that arise under such
Refinancing Indebtedness are not, taken as a whole, materially more
restrictive than those under the agreement creating or evidencing the
Indebtedness being refunded or refinanced,
(h) any restrictions with respect to a Subsidiary of the Company imposed
pursuant to an agreement that has been entered into for the sale or other
disposition of all or substantially all of the Capital Stock or assets of
such Subsidiary,
(i) any agreement restricting the sale or other disposition of property
securing Indebtedness if such agreement does not expressly restrict the
ability of a Subsidiary of the Company to pay dividends or make loans or
advances and
(j) customary restrictions in purchase money debt or leases relating to
the property covered thereby.
Limitations on Layering Indebtedness. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, incur any
Indebtedness that purports to be by its terms subordinated to any other
Indebtedness of the Company or such Subsidiary, as the case may be, unless such
Indebtedness is also expressly subordinated to the Exchange Notes to the same
extent and in the same manner as such Indebtedness is subordinated to such
other Indebtedness.
Limitations on Transactions with Affiliates. Neither the Company nor any
of its Subsidiaries will, directly or indirectly, in one transaction or a
series of transactions, make any loan, advance, guarantee or capital
contribution to, or for the benefit of, or sell, lease, transfer or otherwise
dispose of any of its properties or assets to, or for the benefit of, or
purchase or lease any property or assets from, or enter into or amend any
contract, agreement or understanding with, or for the benefit of, any Affiliate
of the Company or any of its Subsidiaries or any Person (or any Affiliate of
such Person) holding 10% or more of the Common Equity of the Company or any of
its Subsidiaries, other than transactions in the ordinary course between the
Company and its Subsidiaries or among Subsidiaries of the Company (an
"Affiliate Transaction"), unless
(i) the terms of such Affiliate Transactions are fair and reasonable
to the Company or such Subsidiary, as the case may be, and are at least
as favorable as the terms which could be obtained by the Company or
such Subsidiary, as the case may be, in a comparable transaction made
on an arm's-length basis between unaffiliated parties;
(ii) with respect to any such Affiliate Transaction involving
aggregate payments in excess of $5,000,000, the Company delivers an
Officers' Certificate to the Trustee certifying that such Affiliate
Transaction complies with clause (i) above and a Secretary's
Certificate which sets forth and authenticates a resolution that has
been adopted by a vote of a majority of the disinterested members of
the Board of Directors approving such Affiliate Transaction; and
(iii) with respect to any such Affiliate Transaction involving
aggregate payments in excess of $25,000,000, the Company delivers to
the Trustee the certificates specified in clause (ii) above and an
opinion of an independent investment banking firm of national standing
in the United States, stating that such Affiliate Transaction is fair
from a financial point of view to the Company or such Subsidiary, as
the case may be;
provided, however, that the foregoing clauses (ii) and (iii) shall not apply to
transactions between the Company or any of its Subsidiaries and
MedCenterDirect.com, Inc. or any entity to which the Company transfers all or
substantially all of the rights to its HEALTHSOUTH Clinical Automation Program.
Limitation on Liens. The Company will not create or suffer to exist any
Lien (other than Permitted Liens) on any of its assets, unless
contemporaneously therewith:
27
(i) in the case of any Lien securing an obligation that ranks pari
passu with the Exchange Notes, effective provision is made to secure the
Exchange Notes at least equally and ratably with or prior to such
obligation with a Lien on the same collateral; and
(ii) in the case of any Lien securing an obligation that is
subordinated in right of payment to the Exchange Notes, effective
provision is made to secure the Exchange Notes with a Lien on the same
collateral that is prior to the Lien securing such subordinated
obligation.
Notwithstanding the above, the Company may, without securing the Exchange
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 Company and its Subsidiaries at such
time.
Limitations on Asset Sales. (a) The Company will not, and will not permit
any of its Subsidiaries to, consummate any Asset Sale unless
(i) the Company or such Subsidiary receives consideration at the time
of such Asset Sale at least equal to the Fair Market Value of the
assets included in such Asset Sale,
(ii) immediately before and immediately after giving effect to such
Asset Sale, no Default or Event of Default shall have occurred and be
continuing and
(iii) at least 75% of the consideration received by the Company or
such Subsidiary therefor is in the form of cash paid at the closing
thereof; provided, however, that this clause (iii) shall not apply if,
after giving effect to such Asset Sale, the aggregate principal amount
of all notes or similar debt obligations and Fair Market Value of all
equity securities received by the Company from all Asset Sales since
September 25, 2000 (other than such notes or similar debt obligations
and such equity securities converted into or otherwise disposed of for
cash and applied in accordance with the second succeeding sentence)
would not exceed 2.5% of Consolidated Tangible Assets.
The amount (without duplication) of any (x) Indebtedness (other than
Subordinated Indebtedness) of the Company or such Subsidiary that is expressly
assumed by the transferee in such Asset Sale and with respect to which the
Company or such Subsidiary, as the case may be, is unconditionally released by
the holder of such Indebtedness and (y) any notes, securities or similar
obligations or items of property received from such transferee that are
immediately converted, sold or exchanged by the Company or such Subsidiary for
cash (to the extent of the cash actually so received), shall be deemed to be
cash for purposes of this "-- Limitations on Asset Sales" covenant. If at any
time any non-cash consideration received by the Company or such Subsidiary, as
the case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to
any such non-cash consideration), then the date of such conversion or
disposition shall be deemed to constitute the date of an Asset Sale hereunder
and the Net Proceeds thereof shall be applied in accordance with this "--
Limitations on Asset Sales" covenant. A transfer of assets by the Company to a
Wholly Owned Subsidiary or by a Wholly Owned Subsidiary to the Company or to
another Wholly Owned Subsidiary will not be deemed to be an Asset Sale and a
transfer of assets that constitutes a Restricted Payment and that is permitted
under the covenant described under "-- Limitations on Restricted Payments" will
not be deemed to be an Asset Sale.
(b) If the Company or any Subsidiary engages in an Asset Sale, the
Company or such Subsidiary shall, no later than 360 days after such Asset
Sale,
(i) apply all or any of the Net Proceeds therefrom to repay
Indebtedness that ranks pari passu with the Exchange Notes and is
secured by the assets disposed of in the Asset Sale or to repay Bank
Debt in accordance with the applicable provisions thereof,
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(ii) invest all or any part of the Net Proceeds therefrom in the
lines of business of the Company or any of its Subsidiaries immediately
prior to such investment or
(iii) any combination of clauses (i) and (ii) above.
The amount of such Net Proceeds not applied or invested as provided in this
paragraph will constitute "Excess Proceeds".
(c) When the aggregate amount of Excess Proceeds equals or exceeds
$5,000,000, the Company will be required to make an offer to purchase (an
"Asset Sale Offer") from all Holders, an aggregate principal amount of
Exchange Notes equal to the amount of such Excess Proceeds as follows:
(i) The Company will make an Asset Sale Offer to all Holders in
accordance with the procedures set forth in the Indenture to purchase
the maximum principal amount (expressed as a multiple of $1,000) of
Exchange Notes that may be purchased out of the amount (the "Asset Sale
Payment Amount") of such Excess Proceeds.
(ii) The offer price for the Exchange Notes will be payable in cash
in an amount equal to 100% of the principal amount of the Exchange
Notes tendered pursuant to such Asset Sale Offer, plus accrued and
unpaid interest and Additional Interest, if any, to the date such Asset
Sale Offer is consummated (the "Asset Sale Purchase Price"), in
accordance with the procedures set forth in the Indenture. To the
extent that the aggregate Asset Sale Purchase Price of Exchange Notes
tendered pursuant to an Asset Sale Offer is less than the Asset Sale
Payment Amount relating thereto (such shortfall constituting a "Net
Proceeds Deficiency"), the Company may use such Net Proceeds
Deficiency, or a portion thereof, for general corporate purposes.
(iii) If the aggregate Asset Sale Purchase Price of Exchange Notes
validly tendered and not withdrawn by holders thereof exceeds the Asset
Sale Payment Amount, Exchange Notes to be purchased will be selected on
a pro rata basis.
(iv) Upon completion of such Asset Sale Offer in accordance with the
foregoing provisions, the amount of Excess Proceeds with respect to
which such Asset Sale Offer was made shall be deemed to be zero.
In the event that any other Indebtedness of the Company which ranks pari
passu with the Exchange Notes ("Other Debt") requires an offer to purchase to
be made to repurchase such Other Debt upon the consummation of an Asset Sale,
the Company may apply the Excess Proceeds to both purchase such Other Debt and
to make an Asset Sale Offer, provided, that the purchase price of such other
debt does not exceed 100% of the aggregate principal amount or accreted value
thereof plus interest thereon. With respect to any Excess Proceeds, the Company
shall make the Asset Sale Offer in respect thereof at the same time as the
analogous offer to purchase is made pursuant to any Other Debt and the purchase
date in respect thereof shall be the same as the purchase date in respect
thereof pursuant to any Other Debt.
With respect to any Asset Sale Offer effected pursuant to this "--
Limitations on Asset Sales" covenant, to the extent the aggregate principal
amount of Exchange Notes and Other Debt, if any, tendered pursuant to such
Asset Sale Offer and the concurrent offer to purchase with respect to such
Other Debt, exceeds the Excess Proceeds, such Exchange Notes and Other Debt, if
any, shall be purchased pro rata based on the aggregate principal amount of
such Exchange Notes and such Other Debt tendered by each holder thereof.
The Company will comply with any applicable securities laws and
regulations in connection with an Asset Sale Offer.
29
Limitations on Mergers and Consolidations. The Company will not
consolidate or merge with or into, or sell, lease, convey or otherwise dispose
of all or substantially all of its assets, or assign any of its obligations
under the Exchange Notes or the Indenture, to any Person unless:
(i) the Person formed by or surviving such consolidation or merger
(if other than the Company), or to which such sale, lease, conveyance or
other disposition or assignment shall be made (collectively, the
"Successor"), is a corporation organized and existing under the laws of
the United States or any State thereof or the District of Columbia, and
the Successor assumes by supplemental indenture in a form satisfactory
to the Trustee all of the obligations of the Company under the Exchange
Notes and the Indenture;
(ii) immediately after giving effect to such transaction and the use
of any net proceeds therefrom on a pro forma basis, no Default or Event
of Default shall have occurred and be continuing;
(iii) immediately after giving effect to such transaction and the
use of any net proceeds therefrom on a pro forma basis, the Consolidated
Net Worth of the Company or the Successor, as the case may be, would be
at least equal to the Consolidated Net Worth of the Company immediately
prior to such transaction;
(iv) immediately after giving effect to such transaction and the use
of any net proceeds therefrom on a pro forma basis, the EBITDA Coverage
Ratio of the Company or the Successor, as the case may be, would be such
that the Company or the Successor, as the case may be, would be entitled
to incur at least $1.00 of additional Indebtedness under the EBITDA
Coverage Ratio test in the "-- Limitations on Additional Indebtedness
and Subsidiary Preferred Stock" covenant; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, lease, conveyance or other disposition or
assignment complies with the provisions of the Indenture.
Reports. Whether or not required by the rules and regulations of the
Commission, so long as any Exchange Notes are outstanding, the Company will
file with the Commission, to the extent such filings are accepted by the
Commission, and will furnish (within 15 days after such filing) to the Trustee
and to the Holders all quarterly and annual reports and other information,
documents and reports that would be required to be filed with the Commission
pursuant to Section 13 of the Exchange Act if the Company were required to file
under such section. In addition, the Company will make such information
available to prospective purchasers of the Exchange Notes, securities analysts
and broker-dealers who request it in writing.
EVENTS OF DEFAULT
An "Event of Default" means each one of the following events which shall
have occurred and be continuing (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order,
rule or regulation of any administrative or governmental body):
(i) default in the payment of any installment of interest upon any
of the Exchange Notes as and when the same shall become due and payable,
and continuance of such default for a period of 30 days;
(ii) default in the payment of all or any part of the principal, or
any make-whole amount, if any, on any of the Exchange Notes as and when
the same shall become due and payable either at its Stated Maturity,
upon any redemption, by declaration or otherwise;
(iii) failure by the Company to comply with its obligations or
covenants described under the captions "-- Change of Control", "--
Certain Covenants of the Company -- Limitations on Asset Sales" or "--
Limitations on Mergers and Consolidations" above;
30
(iv) failure on the part of the Company duly to observe or perform
any other of the covenants or agreements on the part of the Company in
the Exchange Notes or the Indenture (other than the covenants referred
to in clauses (i), (ii) and (iii) above) for a period of 60 days after
the date on which written notice specifying such failure, stating that
such notice is a "Notice of Default" under the Indenture and demanding
that the Company remedy the same, shall have been given by registered or
certified mail, return receipt requested, to the Company by the Trustee,
or to the Company and the Trustee by the holders of at least 25% in
aggregate principal amount of the outstanding Notes;
(v) default under any bond, debenture, note or other evidence of
indebtedness for money borrowed by the Company or any Subsidiary of the
Company or under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
indebtedness for money borrowed by the Company or any Subsidiary of the
Company, whether such Indebtedness now exists or shall hereafter be
created, if (i) such default results in such Indebtedness becoming or
being declared due and payable prior to the date on which it would
otherwise become due and payable, (ii) the principal amount of such
Indebtedness, together with the principal amount of any other such
Indebtedness which has been so accelerated, aggregates $25,000,000 or
more at any one time outstanding and (iii) such Indebtedness is not
discharged, or such acceleration is not rescinded or annulled, within a
period of 10 days after there shall have been given to the Company by
the Trustee or to the Company and the Trustee by the holders of at least
25% in aggregate principal amount of the outstanding Notes a written
notice specifying such default and requiring the Company to cause such
Indebtedness to be discharged or cause such acceleration to be rescinded
or annulled; or
(vi) certain events of bankruptcy, insolvency or reorganization
involving the Company or any Significant Subsidiary of the Company.
If an Event of Default (other than an Event of Default specified in
clause (vi) above relating to the Company) shall have occurred and be
continuing under the Indenture, the Trustee, by written notice to the Company,
or the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding by written notice to the Company and the Trustee, may declare all
amounts owing under the Exchange Notes to be due and payable. Upon
effectiveness of such acceleration, the aggregate principal of, make-whole
amount, if any, and interest on the outstanding Exchange Notes shall
immediately become due and payable. If an Event of Default specified in clause
(vi) above relating to the Company occurs, all outstanding Exchange Notes shall
become due and payable without any further action or notice.
In certain cases, the Holders of a majority in aggregate principal amount
of the Notes then outstanding may waive an existing Default or Event of Default
and its consequences, except a default in the payment of principal of,
make-whole amount, if any, and interest on the Exchange Notes.
The Holders may not enforce the provisions of the Indenture or the
Exchange Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the Notes then
outstanding may direct the Trustee in its exercise of any trust or power;
provided, however, that such direction does not conflict with the terms of the
Indenture. The Trustee may withhold from the Holders notice of any continuing
Default or Event of Default (except any Default or Event of Default in payment
of principal of, make-whole amount, if any, or interest on the Exchange Notes)
if the Trustee determines that withholding such notice is in the Holders'
interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and, upon any Officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may, at its option by a resolution of the Board of Directors,
at any time, elect to have the obligations of the Company discharged with
respect to the outstanding Exchange Notes ("Legal Defeasance") under the
Indenture. Such defeasance means that the Company will be deemed
31
to have paid and discharged the entire Indebtedness represented by the
outstanding Exchange Notes and to have satisfied all its other obligations
under the Exchange Notes and the Indenture insofar as the Exchange Notes are
concerned except for
(i) the rights of Holders of outstanding Exchange Notes to receive
payments in respect of the principal of, make-whole amount, if any, and
interest on the Exchange Notes when such payments are due on the Stated
Maturity thereof (or, upon redemption, if applicable) from the trust
fund established to effect such defeasance,
(ii) the Company's obligations to issue temporary Exchange Notes,
register the transfer or exchange of any such Exchange Notes, replace
mutilated, destroyed, lost or stolen Exchange Notes, maintain an office
or agency for payments in respect of such Exchange Notes and segregate
and hold such payments in trust,
(iii) the rights, powers, trusts, duties and immunities of the
Trustee and
(iv) the defeasance provisions of the Indenture.
In addition, the Company may, at its option by a resolution of the Board of
Directors, at any time, elect to have the obligations of the Company released
with respect to certain covenants set forth in the Indenture, and any omission
to comply with such obligations will not constitute a Default or an Event of
Default with respect to the Exchange Notes ("Covenant Defeasance").
In order to exercise either Legal Defeasance or Covenant Defeasance under the
Indenture:
(i) the Company must irrevocably deposit or cause to be deposited
with the Trustee, as trust funds in trust, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders, cash
in U.S. dollars, or U.S. government obligations, or, in the case of
Covenant Defeasance, corporate obligations rated at least "A" by
Standard & Poor's Ratings Group or at least "A" by Moody's Investors
Service, Inc. or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay and discharge the principal of,
make-whole amount, if any, and interest on the outstanding Exchange
Notes on the Stated Maturity thereof (or upon redemption, if applicable)
of such principal, make-whole amount, if any, or installment of
interest;
(ii) no Default or Event of Default with respect to the Exchange
Notes will have occurred and be continuing on the date of such deposit
or, insofar as an event of bankruptcy under clause (vii) of "Events of
Default" above is concerned, at any time during the period ending on the
91st day after the date of such deposit;
(iii) such Legal Defeasance or Covenant Defeasance will not result
in a breach or violation of, or constitute a default under, the
Indenture or any material agreement or instrument to which the Company
is a party or by which it is bound;
(iv) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or since the Issue Date, there has been a change in
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion shall confirm that, the Holders of the
outstanding Exchange Notes of such series will not recognize income,
gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such defeasance had not occurred;
(v) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of outstanding Exchange Notes of such series will not recognize
income, gain or loss for federal income tax purposes as a result of such
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such defeasance had not occurred; and
32
(vi) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Legal Defeasance or the
Covenant Defeasance, as the case may be, have been complied with.
TRANSFER AND EXCHANGE
A Holder will be able to register the transfer of or exchange Exchange
Notes only in accordance with the provisions of the Indenture. The Registrar
may require a Holder, among other things, to furnish appropriate endorsements
and transfer documents and to pay any taxes and fees required by law or
permitted by the Indenture. Without the prior consent of the Company, the
Registrar is not required
(i) to register the transfer of or exchange any Exchange Note
selected for redemption,
(ii) to register the transfer of or exchange any Exchange Note for a
period of 15 days before the mailing of a notice of redemption and
ending on the date of such mailing or
(iii) to register the transfer or exchange of an Exchange Note
between a record date and the next succeeding interest payment date.
The registered Holder will be treated as the owner of such Exchange Note for
all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Exchange Notes may be
amended or supplemented with the consent (which may include consents obtained
in connection with a tender offer or exchange offer for Notes) of the Holders
of a majority in principal amount of the Notes then outstanding, and any
existing Default under, or compliance with any provision of, the Indenture may
be waived (other than any continuing Default or Event of Default in the payment
of the principal of, make-whole amount, if any, or interest on the Exchange
Notes) with the consent (which may include consents obtained in connection with
a tender offer or exchange offer for Notes) of the Holders of a majority in
principal amount of the Notes then outstanding; provided that without the
consent of each Holder affected, the Company and the Trustee may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, such Exchange Note or alter the optional
redemption provisions thereof;
(ii) reduce the principal amount of, or make-whole amount, if any,
or interest on, such Exchange Note or extend the time of payments under
the Exchange Notes;
(iii) modify the ranking of the Exchange Notes in a manner adverse
to the Holder;
(iv) change the place or currency of payment of principal of, or
make-whole amount, if any, or interest on, such Exchange Note;
(v) alter the provisions with respect to the obligation of the
Company to make a Change of Control Offer in accordance with "-- Change
of Control" above or to make an Asset Sale Offer in accordance with "--
Certain Covenants of the Company -- Limitations on Asset Sales" above;
(vi) impair the right to institute suit for the enforcement of any
payment on or with respect to such Exchange Note; or
(vii) reduce the percentage in principal amount of outstanding
Exchange Notes, the consent of whose Holders is required for
modification or amendment of the Indenture or for waiver of compliance
with certain provisions of the Indenture or for waiver of certain
Defaults or Events of Default.
33
Without the consent of any Holder, the Company and the Trustee may amend
or supplement the Indenture or the Exchange Notes:
(i) to cure any ambiguity, or to correct or supplement any provision
in the Indenture or the Exchange Notes or make any other provisions with
respect to matters or questions arising under the Indenture or the
Exchange Notes; provided that, in each case, such provisions shall not
adversely affect the interest of the Holders;
(ii) to provide for uncertificated Exchange Notes in addition to or
in place of certificated Exchange Notes;
(iii) to provide for the assumption by a successor corporation of
the Company's obligations under the Indenture;
(iv) to add guarantees with respect to the Exchange Notes;
(v) to secure the Exchange Notes;
(vi) to add to the covenants of the Company or the Events of Default
for the benefit of Holders;
(vii) to surrender any right or power conferred on the Company; or
(viii) to make any other change that does not adversely affect the
rights of any Holder or to comply with any requirement of the Commission
in connection with the qualification of the Indenture under the Trust
Indenture Act.
The consent of Holders will not be necessary under the Indenture to
approve the particular form of any proposed amendment. It is sufficient if such
consent approves the substance of the proposed amendment. The Company may, but
shall not be obligated to, fix a record date for the purpose of determining the
Holders entitled to consent to any amendment, supplement or waiver. If a record
date is fixed, then those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons, shall be entitled to
revoke any consent previously given, whether or not such Persons shall continue
to be Holders after such record date.
CONCERNING THE TRUSTEE
The Bank of New York is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the
Exchange Notes. The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; provided, however, if the Trustee acquires any
conflicting interest (as defined in the Indenture), it must eliminate such
conflict or resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
occurs and is not cured, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances
in the conduct of his own affairs. Subject to such provisions, the Trustee will
be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to the Trustee.
GOVERNING LAW
The Indenture and the Exchange Notes provide that they will be governed
by, and construed in accordance with, the laws of the State of New York.
34
BOOK-ENTRY; DELIVERY AND FORM
The Exchange Notes will be represented by one or more global notes (the
"Global Notes") in definitive form. The Global Notes will be deposited on the
Issue Date with, or on behalf of, DTC and registered in the name of Cede & Co.,
as nominee of DTC (such nominee being referred to herein as the "Global Note
Holder"). DTC will maintain the Exchange Notes in denominations of $1,000 and
integral multiples thereof through its book-entry facilities.
DTC has advised the Company as follows:
DTC is a limited-purpose trust company that was created to hold securities
for its participating organizations, including The Euroclear System
("Euroclear") and Clearstream Banking, societe anonyme ("Clearstream")
(collectively, the "Participants" or the "Depositary's Participants"), and to
facilitate the clearance and settlement of transactions in these securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depositary's Participants include securities brokers and
dealers (including the initial purchasers), banks and trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depositary's Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Depositary's Participants or the Depositary's Indirect Participants. Pursuant
to procedures established by DTC, ownership of the Exchange Notes will be shown
on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to the interests of the Depositary's
Participants) and the records of the Depositary's Participants (with respect to
the interests of the Depositary's Indirect Participants).
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer the Exchange Notes will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Exchange
Notes, the Global Note Holder will be considered the sole holder of outstanding
Exchange Notes represented by such Global Notes under the Indenture. Except as
provided below, owners of Exchange Notes will not be entitled to have Exchange
Notes registered in their names and will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instructions, or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Exchange Notes by DTC, or for maintaining, supervising or reviewing any
records of DTC relating to such Exchange Notes.
Payments in respect of the principal of, make-whole amount, if any, and
interest on any Exchange Notes registered in the name of a Global Note Holder
on the applicable record date will be payable by the Trustee to or at the
direction of such Global Note Holder in its capacity as the registered holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names any Exchange Notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the Company nor the Trustee has or will have any responsibility or
liability for the payment of such amounts to beneficial owners of Exchange
Notes (including principal, make-whole amount, if any, and interest). The
Company believes, however, that it is currently the policy of DTC to
immediately credit the accounts of the relevant Participants with such
payments, in amounts proportionate to their respective beneficial interests in
the relevant security as shown on the records of DTC. Payments by the
Depositary's Participants and the Depositary's Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practice and will be the responsibility of the Depositary's
Participants or the Depositary's Indirect Participants.
Exchange Notes in registered certificated form ("Certificated Notes") will
not generally be issued in exchange for beneficial interests in the Global
Notes. Subject to certain conditions, however, any person having a beneficial
interest in the Global Notes may, upon request to the Trustee and
35
confirmation of such beneficial interest by the Depositary or its Participants
or Indirect Participants, exchange such beneficial interest for Certificated
Notes. Upon any such issuance, the Trustee is required to register Certificated
Notes in the name of and cause the same to be delivered to, such person or
persons (or the nominee of any thereof). In addition, if (1) the Company
notifies the Trustee in writing that DTC is no longer willing or able to act as
a depositary and the Company is unable to locate a qualified successor within
90 days or (2) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Exchange Notes in definitive form under the
Indenture, then, upon surrender by the relevant Global Note Holder of its
Global Note, Exchange Notes in such form will be issued to each person that
such Global Note Holder and DTC identifies as being the beneficial owner of the
related Exchange Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or DTC in identifying the beneficial owners of Exchange
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or DTC for
all purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms used in the Indenture.
"2000 Credit Agreement" means the Credit Agreement dated as of October 31,
2000 by and among the Company, as borrower, UBS AG, Stamford Branch, as
Administrative Agent, Deutsche Bank AG, New York Branch, as Syndication Agent,
the lenders party thereto from time to time, UBS Warburg LLC and Deutsche Bank
Securities Inc., as Joint Lead Arrangers, and The Industrial Bank of Japan,
Limited, as Documentation Agent, together with the related documents thereto,
including, without limitation, any security documents, if any, and all exhibits
and schedules thereto and any agreement or agreements relating to any
extension, refunding, refinancing, successor or replacement facility, whether
or not with the same lender, and whether or not the principal amount or amount
of letters of credit outstanding thereunder or the interest rate payable in
respect thereof shall be thereby increased, in each case as amended and in
effect from time to time.
"Acquired Indebtedness" means (i) with respect to any Person that becomes
a Subsidiary of the Company after the Issue Date, Indebtedness of such Person
and its Subsidiaries existing at the time such Person becomes a Subsidiary of
the Company and (ii) with respect to the Company or any of its Subsidiaries,
any Indebtedness assumed by the Company or any of its Subsidiaries in
connection with the acquisition of an asset from another Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
"Asset Sale" for any Person means the sale, lease, conveyance or other
disposition (including, without limitation, by merger or consolidation, and
whether by operation of law or otherwise) of any of that Person's assets
(including, without limitation, the sale or other disposition of Capital Stock
of any Subsidiary of such Person, whether by such Person or by such
Subsidiary), whether owned on the Issue Date or subsequently acquired, in one
transaction or a series of related transactions, in which such Person and/or
its Subsidiaries sell, lease, convey or otherwise dispose of:
(i) all or substantially all of the Capital Stock of any of such
Person's Subsidiaries,
(ii) assets which constitute all or substantially all of any
division or line of business of such Person or any of its Subsidiaries,
or
36
(iii) any other assets of such Person or any of its Subsidiaries,
other than in the ordinary course of business, provided, that the Fair
Market Value thereof shall be at least 1% of Consolidated Tangible
Assets;
provided, however, that the following shall not constitute Asset Sales:
(a) transactions between the Company and any of its Wholly Owned
Subsidiaries or among such Wholly Owned Subsidiaries;
(b) any transaction not prohibited by the covenant described under
"Limitations on Restricted Payments" or that constitutes a Permitted
Investment;
(c) any transfer of assets (including Capital Stock) that is governed by
and in accordance with the provisions described under "-- Limitations on
Mergers and Consolidations" or the creation of any Lien not prohibited by
the covenant described under "-- Limitations on Liens"; or
(d) sales of damaged, worn-out or obsolete equipment or assets that, in
the Company's reasonable judgment, are no longer either used or useful in
the business of the Company or its Subsidiaries.
"Attributable Indebtedness" when used with respect to any Sale and
Leaseback Transaction means, as at the time of determination, the present value
(discounted at a rate equivalent to the interest rate implicit in the lease,
compounded on a semiannual basis) of the total obligations of the lessee for
rental payments, after excluding all amounts required to be paid on account of
maintenance and repairs, insurance, taxes, utilities and other similar expenses
payable by the lessee pursuant to the terms of the lease, during the remaining
term of the lease included in any such Sale and Leaseback Transaction or until
the earliest date on which the lessee may terminate such lease without penalty
or upon payment of a penalty (in which case the rental payments shall include
such penalty); provided, that the Attributable Indebtedness with respect to a
Sale and Leaseback Transaction shall be no less than the fair market value of
the property subject to such Sale and Leaseback Transaction.
"Bank Debt" means all obligations of the Company and its Subsidiaries, now
or hereafter existing under (i) the Credit Agreements, whether for principal,
interest, reimbursement of amounts drawn under letters of credit issued
pursuant thereto, guarantees in respect thereof, fees, expenses, premiums,
indemnities or otherwise, and (ii) any Indebtedness incurred by the Company to
extend, refund or refinance, in whole or in part, the Bank Debt, including any
interest and premium on any such Indebtedness.
"Capital Stock" of any Person means any and all shares, rights to
purchase, warrants or options (whether or not currently exercisable),
participation or other equivalents of or interest in (however designated) the
equity (including without limitation common stock, preferred stock and
partnership, joint venture and limited liability company interests) of such
Person (excluding any debt securities that are convertible into, or
exchangeable for, such equity).
"Capitalized Lease Obligations" of any Person means the obligation of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"Change of Control" means the occurrence of any of the following:
(i) all or substantially all of the Company's assets are sold as an
entirety to any person or related group of persons;
(ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving
corporation (other than a consolidation or merger with a Wholly Owned
Subsidiary of the Company in which all shares of the Company's Common
Equity outstanding immediately prior to the effectiveness thereof are
changed into or exchanged for the same consideration) or (B) pursuant to
which
37
the Company's Common Equity would be converted into cash, securities or
other property, in each case other than a consolidation or merger of the
Company in which the holders of the Company's Common Equity immediately
prior to the consolidation or merger have, directly or indirectly, at
least a majority of the total voting power of all classes of Capital
Stock entitled to vote generally in the election of directors of the
continuing or surviving corporation immediately after such consolidation
or merger in substantially the same proportion as their ownership of the
Company's Common Equity immediately before such transaction;
(iii) any person, or any persons acting together which would
constitute a "group" for purposes of Section 13(d) of the Exchange Act,
together with any affiliates thereof, shall beneficially own (as defined
in Rule 13d-3 under the Exchange Act) at least 50% of the total voting
power of all classes of Capital Stock of the Company entitled to vote
generally in the election of directors of the Company;
(iv) at any time during any consecutive two-year period, individuals
who at the beginning of such period constituted the Board of Directors
of the Company (together with any new directors whose election by such
Board of Directors or whose nomination for election by the stockholders
of the Company was approved by a vote of 66-2/3% of the directors then
still in office who were either directors at the beginning of such
period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors of the Company then in office; or
(v) the Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, the body performing
such duties at the time.
"Common Equity" of any Person means 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.
"Company" means HEALTHSOUTH Corporation, or, subject to the Indenture, its
successors and assigns.
"Consolidated Amortization Expense" of any Person for any period means the
amortization expense of such Person and its Subsidiaries for such period (to
the extent included in the computation of Consolidated Net Income of such
Person), determined on a consolidated basis in accordance with GAAP.
"Consolidated Depreciation Expense" of any Person means the depreciation
expense of such Person and its Subsidiaries for such period (to the extent
included in the computation of Consolidated Net Income of such Person),
determined on a consolidated basis in accordance with GAAP.
"Consolidated EBITDA" of any Person means, with respect to any
determination date, Consolidated Net Income, plus (i) Consolidated Income Tax
Expense, plus (ii) Consolidated Depreciation Expense, plus (iii) Consolidated
Amortization Expense, plus (iv) Consolidated Interest Expense, plus (v) all
other unusual non-cash items or non-recurring non-cash items reducing
Consolidated Net Income of such Person and its Subsidiaries, determined on a
consolidated basis in accordance with GAAP, and less all non-cash items
increasing Consolidated Net Income of such Person and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, in each case, for
such Person's prior four full fiscal quarters for which financial results have
been reported immediately preceding the determination date.
38
"Consolidated Income Tax Expense" means, for any Person for any period,
the provision for taxes based on income and profits of such Person and its
Subsidiaries to the extent such provision for income taxes was deducted in
computing Consolidated Net Income of such Person for such period, determined on
a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" of any Person for any period means,
without duplication, (i) the Interest Expense of such Person and its
Subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP, plus (ii) (to the extent not otherwise included within the
definition of Interest Expense as imputed interest) one-third of the rental
expense on Attributable Indebtedness of such Person for such period determined
on a consolidated basis, plus (iii) the dividend requirements of such Person
and its Subsidiaries with respect to Disqualified Stock and with respect to all
other Preferred Stock of Subsidiaries of such Person (in each case whether in
cash or otherwise (except dividends payable solely in shares of Capital Stock
(other than Disqualified Stock) of such Person or such Subsidiary)) paid,
accrued or accumulated during such period times a fraction the numerator of
which is one and the denominator of which is one minus the then effective
consolidated Federal, state and local tax rate of such Person, expressed as a
decimal.
"Consolidated Net Income" of any Person for any period means the net
income (or loss) of such Person and its Subsidiaries for such period determined
on a consolidated basis in accordance with GAAP; provided that there shall be
excluded from such net income (to the extent otherwise included therein),
without duplication:
(i) the net income (or loss) of any Person (other than a Subsidiary
of the referent Person) in which any Person other than the referent
Person has an ownership interest, except to the extent that any such
income has actually been received by the referent Person or any of its
Wholly Owned Subsidiaries in the form of dividends or similar
distributions during such period;
(ii) except to the extent includible in the consolidated net income
of the referent Person pursuant to the foregoing clause (i), the net
income (or loss) of any Person that accrued prior to the date that (a)
such Person becomes a Subsidiary of the referent Person or is merged
into or consolidated with the referent Person or any of its Subsidiaries
or (b) the assets of such Person are acquired by the referent Person or
any of its Subsidiaries;
(iii) the net income of any Subsidiary of the referent Person (other
than a Wholly Owned Subsidiary) to the extent that the declaration or
payment of dividends or similar distributions by such Subsidiary of that
income is not permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary during such
period;
(iv) any gain (or loss), together with any related provisions for
taxes on any such gain, realized during such period by the referent
Person or any of its Subsidiaries upon (a) the acquisition of any
securities, or the extinguishment of any Indebtedness, of the referent
Person or any of its Subsidiaries or (b) any Asset Sale by the referent
Person or any of its Subsidiaries;
(v) any extraordinary gain or extraordinary loss, together with any
related provision for taxes or tax benefit resulting from any such
extraordinary gain or extraordinary loss, realized by the referent
Person or any of its Subsidiaries during such period; and
(vi) in the case of a successor to such Person by consolidation,
merger or transfer of its assets, any earnings of the successor prior to
such merger, consolidation or transfer of assets.
"Consolidated Net Worth" of any Person as of any date means the
stockholders' equity (including any preferred stock that is classified as
equity under GAAP, other than Disqualified Stock) of such Person and its
Subsidiaries (excluding any equity adjustment for foreign currency translation
for any period subsequent to the Issue Date) on a consolidated basis at such
date, as determined in accordance with GAAP, less all write-ups subsequent to
the Issue Date in the book value of any asset owned by such Person or any of
its Subsidiaries.
39
"Consolidated Tangible Assets" of any Person as of any date means 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 Issue Date in the book value of any asset owned by such
Person or any of its Subsidiaries.
"Credit Agreements" means (i) the Credit Agreement dated as of June 23,
1998 by and among the Company, as borrower, Nationsbank, National Association,
as Administrative Agent and Arranger, J.P. Morgan Securities Inc., Deutsche
Bank AG and Scotiabanc, Inc., as Syndication Agents and Co-Arrangers, and the
other lenders party thereto from time to time, together with the related
documents thereto, including, without limitation, any security documents, if
any, and all exhibits and schedules thereto and any agreement or agreements
relating to any extension, refunding, refinancing, successor or replacement
facility, whether or not with the same lender, and whether or not the principal
amount or amount of letters of credit outstanding thereunder or the interest
rate payable in respect thereof shall be thereby increased, in each case as
amended and in effect from time to time and (ii) the 2000 Credit Agreement.
"Default" means any event, act or condition that is, or after notice or
the passage of time or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the holder thereof, in whole or in part, on or
prior to the Stated Maturity date of the Notes.
"EBITDA Coverage Ratio" with respect to any period means the ratio of
(i) Consolidated EBITDA of the Company to (ii) the aggregate amount of
Consolidated Interest Expense of the Company for such period; provided,
however, that if any calculation of the Company's EBITDA Coverage Ratio
requires the use of any quarter prior to the Issue Date, such calculation shall
be made on a pro forma basis, giving effect to the issuance of the Private
Notes and the use of the net proceeds therefrom as if the same had occurred at
the beginning of the four-quarter period used to make such calculation; and
provided further that if any such calculation requires the use of any quarter
prior to the date that any Asset Sale was consummated, or that any Indebtedness
was incurred, or that any acquisition of a hospital or other healthcare
facility or any assets purchased outside the ordinary course of business was
effected, by the Company or any of its Subsidiaries, such calculation shall be
made on a pro forma basis, giving effect to each such Asset Sale, incurrence of
Indebtedness or acquisition, as the case may be, and the use of any proceeds
therefrom, as if the same had occurred at the beginning of the four-quarter
period used to make such calculation.
"Eligible Investments" of any Person means Investments of such Person in:
(i) direct obligations of, or obligations the payment of which is
guaranteed by, the United States of America or an interest in any trust
or fund that invests solely in such obligations or repurchase
agreements, properly secured, with respect to such obligations;
(ii) direct obligations of agencies or instrumentalities of the
United States of America having a rating of A or higher by Standard &
Poor's Corporation or A2 or higher by Moody's Investors Service, Inc.;
(iii) a certificate of deposit issued by, or other interest-bearing
deposits with, a bank having its principal place of business in the
United States of America and having equity capital of not less than
$250,000,000;
(iv) a certificate of deposit by, or other interest-bearing deposits
with, any other bank organized under the laws of the United States of
America or any state thereof, provided that such deposit is either (a)
insured by the Federal Deposit Insurance Corporation or (b) properly
secured by such bank by pledging direct obligations of the United States
of America having a market value of not less than the face amount of
such deposits;
40
(v) prime commercial paper maturing within 270 days of the
acquisition thereof and, at the time of acquisition, having a rating of
A-1 or higher by Standard & Poor's Corporation, or P-1 or higher by
Moody's Investors Service, Inc.; or
(vi) eligible banker's acceptances, repurchase agreements and
tax-exempt municipal bonds having a maturity of less than one year, in
each case having a rating, or that is the full recourse obligation of a
person whose senior debt is rated A or higher by Standard & Poor's
Corporation or A2 or higher by Moody's Investors Service, Inc.
"Equity Offering" means a primary offering of Capital Stock of the Company
(other than Disqualified Stock or Preferred Stock) pursuant to a registration
statement filed with the Commission in accordance with the Securities Act and
declared effective by the staff of the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exempted Debt" means the sum of the following as of any date of
determination: (i) Indebtedness of the Company and its Subsidiaries incurred
after the Issue Date and secured by Liens not otherwise permitted by the "--
Limitations on Liens" covenant and (ii) Attributable Indebtedness of the
Company and its Subsidiaries in respect of every Sale and Leaseback Transaction
entered into after the Issue Date.
"Existing Indebtedness" means all of the Indebtedness of the Company and
its Subsidiaries that is outstanding on the Issue Date.
"Fair Market Value" of any asset or items means the fair market value of
such asset or items as determined in good faith by the Board of Directors and
evidenced by a resolution of the Board of Directors.
"GAAP" means accounting principles generally accepted in the United States
set forth in the opinions and pronouncements of the Accounting Principles Board
of the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, as from time to time in effect.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any interest rate swap agreement, foreign currency exchange
agreement, interest rate collar agreement, option or futures contract or other
similar agreement or arrangement relating to interest rates or foreign exchange
rates.
"Indebtedness" of any Person at any date means, without duplication:
(i) all indebtedness of such Person for borrowed money (whether or
not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof);
(ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments;
(iii) all obligations of such Person in respect of letters of credit
or other similar instruments (or reimbursement obligations with respect
thereto);
(iv) all obligations of such Person with respect to Hedging
Obligations (other than those that fix the interest rate on variable
rate indebtedness otherwise permitted by the Indenture or that protect
the Company and/or its Subsidiaries against changes in foreign exchange
rates);
(v) all obligations of such Person to pay the deferred and unpaid
purchase price of property or services, except trade payables and
accrued expenses incurred in the ordinary course of business;
(vi) all Capitalized Lease Obligations of such Person;
(vii) all Indebtedness of others secured by a Lien on any asset of
such Person, whether or not such Indebtedness is assumed by such Person;
41
(viii) all Indebtedness of others guaranteed by such Person to the
extent of such guarantee;
(ix) all Attributable Indebtedness; and
(x) all Disqualified Stock of such Person and its Subsidiaries and
all other Preferred Stock of Subsidiaries of such Person valued at the
greater of (a) the voluntary or involuntary liquidation preference of
such Disqualified Stock or such Preferred Stock, as the case may be, and
(b) the aggregate amount payable upon purchase, redemption, defeasance
or payment of such Disqualified Stock or such Preferred Stock, as the
case may be.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations plus past due interest as
described above, the maximum liability of such Person for any such contingent
obligations at such date and, in the case of clause (vii), the amount of the
Indebtedness secured.
"Interest Expense" of any Person for any period means the aggregate amount
of interest which, in accordance with GAAP, would be set opposite the caption
"interest expense" or any like caption on an income statement for such Person
(including, without limitation or duplication, imputed interest included in
Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with Hedging Obligations, amortization of
financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount and all other non-cash interest expense
other than interest amortized to cost of sales) plus the aggregate amount, if
any, by which such interest expense was reduced as a result of the amortization
of deferred debt restructuring credits for such period.
"Investments" of any Person means:
(i) all investments by such Person in any other Person in the form
of loans, advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the
ordinary course of business);
(ii) all guarantees of Indebtedness or other obligations of any
other Person by such Person;
(iii) all purchases (or other acquisitions for consideration) by
such Person of Indebtedness, Capital Stock or other securities of any
other Person; and
(iv) all other items that would be classified as investments
(including, without limitation, purchases of assets outside the ordinary
course of business) on a balance sheet of such Person prepared in
accordance with GAAP.
"Issue Date" means February 1, 2001, the date the Private Notes were
initially issued.
"Joint Venture" means any Person at least a majority of whose revenues
result from healthcare related businesses or facilities.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or other similar encumbrance of any kind in respect
of such asset, whether or not filed, recorded or otherwise perfected under
applicable law (including, without limitation, any conditional sale or other
title retention agreement, and any financing lease in the nature thereof, any
agreement to sell, and any filing of, or agreement to give, any financing
statement (other than notice filings not perfecting a security interest) under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Proceeds" with respect to any Asset Sale means (i) cash (in U.S.
dollars or freely convertible into U.S. dollars) received by the Company or any
of its Subsidiaries from such Asset Sale (including, without limitation, cash
received as consideration for the assumption or incurrence of liabilities
incurred in connection with or in anticipation of such Asset Sale), after
(a) provision for all income or other taxes measured by or resulting from such
Asset Sale or the transfer of the proceeds of such Asset Sale to the Company or
any of its Subsidiaries, (b) payment of all commissions and
42
other fees and expenses related to such Asset Sale and (c) deduction of an
appropriate amount to be provided by the Company or any of its Subsidiaries as
a reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or otherwise disposed of in such Asset Sale and retained by the
Company or any of its Subsidiaries after such Asset Sale (including, without
limitation, pension and other post-employment benefit liabilities and
liabilities related to environmental matters) or against any indemnification
obligations associated with the sale or other disposition of the assets sold or
otherwise disposed of in such Asset Sale and (ii) all non-cash consideration
received by the Company or any of its Subsidiaries from such Asset Sales upon
the liquidation or conversion of such consideration into cash.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, any Vice Chairman of the Board, the Chief Executive Officer, the
President or any Vice President and by the Treasurer, any Assistant Treasurer,
the Secretary or any Assistant Secretary of the Company in their official (and
not individual) capacities; provided, however, that every Officers' Certificate
with respect to the compliance with a condition precedent to the taking of any
action under the Indenture shall include (i) a statement that the officers
making or giving such Officers' Certificate have read such condition and any
definitions or other provisions contained in the Indenture relating thereto and
(ii) a statement as to whether, in the opinion of the signers, such condition
has been complied with.
"Opinion of Counsel" means a written opinion from legal counsel (such
counsel may be an employee of or counsel to the Company or the Trustee) that
complies with the requirements of the Indenture.
"Permitted Investments" means:
(i) capital contributions, advances or loans to the Company by any
Subsidiary or by the Company or any of its Subsidiaries to a Subsidiary
of the Company;
(ii) the acquisition and holding by the Company and each of its
Subsidiaries of receivables owing to the Company and such Subsidiary, if
created or acquired in the ordinary course of business and payable or
dischargeable in accordance with customary trade terms;
(iii) the acquisition and holding by the Company and its
Subsidiaries of cash and Eligible Investments;
(iv) Investments in any Person as a result of which such other
Person becomes a Subsidiary of the Company or is merged into or
consolidated with or transfers all or substantially all of its assets to
the Company or any of its Subsidiaries; and
(v) the making of an Investment by the Company, directly or through
a Wholly Owned Subsidiary, in a Wholly Owned Subsidiary formed solely
for the purpose of insuring the healthcare business and facilities owned
or operated by the Company or a Subsidiary and any physician employed by
or on the staff of any such business or facility (the "Insurance
Subsidiary"), provided that the amount invested in such Insurance
Subsidiary does not exceed $15,000,000.
"Permitted Liens" means:
(i) Liens for taxes, assessments or governmental charges or claims
that either (a) are not yet delinquent or (b) are being contested in
good faith by appropriate proceedings;
(ii) statutory Liens of landlords and carriers', warehousemen's,
mechanics', suppliers', materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and with respect to amounts
that either (a) are not yet delinquent or (b) are being contested in
good faith by appropriate proceedings and as to which appropriate
reserves or other provisions have been made in accordance with GAAP;
(iii) Liens (other than any Lien imposed by the Employee Retirement
Income Security Act of 1974, as amended) incurred or deposits due in the
ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security;
43
(iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
progress payments, government contracts and other obligations of like
nature (exclusive of obligations for the payment of borrowed money), in
each case, incurred in the ordinary course of business;
(v) attachment or judgment Liens not giving rise to a Default or an
Event of Default;
(vi) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering with the ordinary conduct of the
business of the Company or any of its Subsidiaries;
(vii) leases or subleases granted to others not interfering with the
ordinary conduct of the business of the Company or any of its
Subsidiaries;
(viii) Liens with respect to any Acquired Indebtedness; provided
that such Liens only extend to assets that were subject to such Liens
prior to the acquisition of such assets by the Company or its
Subsidiaries and, with respect to Indebtedness other than Indebtedness
ranking pari passu with the Notes, not incurred in anticipation or
contemplation of such acquisition;
(ix) Liens securing Bank Debt or Refinancing Indebtedness; provided,
in the case of Refinancing Indebtedness, that such Liens only extend to
the assets securing the Indebtedness being refinanced and such
refinanced Indebtedness was previously secured by such assets;
(x) purchase money mortgages (including Capitalized Lease
Obligations);
(xi) Liens existing on the Issue Date;
(xii) Liens on assets of any Subsidiary of the Company securing
Indebtedness of such Subsidiary, provided that such Indebtedness is
permitted to be incurred by the terms of the Indenture;
(xiii) bankers' liens with respect to the right of set-off arising
in the ordinary course of business against amounts maintained in bank
accounts or certificates of deposit in the name of the Company or any
Subsidiary;
(xiv) the interest of any issuer of a letter of credit in any cash
or Eligible Investment deposited with or for the benefit of such issuer
as collateral for such letter of credit; provided that the Indebtedness
so collateralized is permitted to be incurred by the terms of the
Indenture;
(xv) any Lien consisting of a right of first refusal or option to
purchase the Company's ownership interest in any Subsidiary or to
purchase assets of the Company or any Subsidiary of the Company, which
right of first refusal or option is entered into in the ordinary course
of business; and
(xvi) the Lien granted to the Trustee pursuant to the trust created
pursuant to "--Satisfaction and Discharge of Indenture; Defeasance"
above and any substantially equivalent Lien granted to the respective
trustees under the indentures for other debt securities of the Company.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" means with respect to any Person all Capital Stock of
such Person which has a preference in liquidation or a preference with respect
to the payment of dividends or distributions of operating profit or cash.
44
"Refinancing Indebtedness" means Indebtedness that is applied to refund,
refinance or extend any Existing Indebtedness (other than Indebtedness under
the 2000 Credit Agreement), provided that:
(i) the Refinancing Indebtedness is the obligation of the same
Person (or if the Indebtedness being refinanced is an obligation of one
or more Subsidiaries of the Company, such Refinancing Indebtedness may
be incurred by the Company or one or more other Subsidiaries of the
Company) and is subordinated to the Notes, if at all, to the same extent
as the Indebtedness being refunded, refinanced or extended;
(ii) the Refinancing Indebtedness is scheduled to mature no earlier
than the Indebtedness being refunded, refinanced or extended;
(iii) the Refinancing Indebtedness has a Weighted Average Life to
Maturity at the time such Refinancing Indebtedness is incurred that is
equal to or greater than the Weighted Average Life to Maturity of the
portion of the Indebtedness being refunded, refinanced or extended;
(iv) the Refinancing Indebtedness is secured only to the extent, if
at all, and by the assets that the Indebtedness being refunded,
refinanced or extended is secured; and
(v) such Refinancing Indebtedness is in an aggregate principal
amount that is equal to or less than the aggregate principal amount then
outstanding under the Indebtedness being refunded, refinanced or
extended (except for issuance costs and increases in Attributable
Indebtedness due solely to increases in the present value calculations
resulting from renewals or extensions of the terms of the underlying
leases in effect on the Issue Date).
"Restricted Payment" means with respect to any Person:
(i) the declaration of any dividend or the making of any other
payment or distribution of cash, securities or other property or assets
in respect of such Person's Capital Stock (except that a dividend
payable solely in Capital Stock (other than Disqualified Stock) of such
Person shall not constitute a Restricted Payment);
(ii) any payment on account of the purchase, redemption, retirement
or other acquisition for value of such Person's or such Person's
Subsidiaries' Capital Stock or any other payment or distribution made in
respect thereof, either directly or indirectly;
(iii) any payment on account of the purchase, redemption,
retirement, defeasance or other acquisition for value, prior to any
scheduled principal payment, sinking fund payment or Stated Maturity, of
Subordinated Indebtedness of the Company or its Subsidiaries;
(iv) the incurrence, creation or assumption of any guarantee of
Indebtedness of any Affiliate (other than a Subsidiary of the Company);
or
(v) the making of any Investment in any Person (other than Permitted
Investments);
provided, however, that with respect to the Company and its Subsidiaries,
Restricted Payments shall not include any payment described in clause (i), (ii)
or (iii) above made (1) to the Company or any of its Wholly Owned Subsidiaries
by any of the Company's Subsidiaries or (2) by the Company to any of its Wholly
Owned Subsidiaries or (3) by any Subsidiary, provided that the Company or
another Subsidiary receives its proportionate share thereof.
"Sale and Leaseback Transaction" means, with respect to any Person, an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of such Person or
any of its Subsidiaries which has been or is being sold or transferred by such
Person or such Subsidiary to such lender or investor or to any Person to whom
funds have been or are to be advanced by such lender or investor on the
security of such property or asset.
45
"Secretary's Certificate" means a certificate signed by the Secretary or
any Assistant Secretary of the Company in his or her official (and not
individual) capacity.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means a Subsidiary of the Company which at the
time of determination either (i) had tangible assets which, as of the Company's
most recent quarterly consolidated balance sheet, constituted at least 5% of
Consolidated Tangible Assets as of such date, or (ii) had revenues for the
12-month period ending on the date of the Company's most recent quarterly
consolidated statement of income which constituted at least 5% of the Company's
total consolidated revenues for such period.
"Stated Maturity" when used with respect to any security or any
installment of interest thereon, means that date specified in such security as
the fixed date on which the principal of such security or such installment of
interest is due and payable.
"Subordinated Indebtedness" of any Person means any Indebtedness of such
Person that is subordinated in right of payment to the Notes.
"Subsidiary" of any Person means (i) any corporation of which Common
Equity having ordinary voting power to elect a majority of the directors of
such corporation is owned by such Person directly or through one or more other
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.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness or portion thereof at any date, the number of years obtained by
dividing (i) the then outstanding principal amount of such Indebtedness or
portion thereof (if applicable) into (ii) the sum of the products obtained by
multiplying (a) the amount of each then remaining installment, sinking fund,
serial maturity or other required payment of principal, including payment at
final maturity, in respect thereof, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the making of
such payment.
"Wholly Owned Subsidiary" of any Person means (i) a Subsidiary of which
100% of the Common Equity (except for director's qualifying shares or certain
minority interests owned by other Persons solely due to local law requirements
that there be more than one stockholder, but which interest is not in excess of
what is required for such purpose) is owned directly by such Person or through
one or more other Wholly Owned Subsidiaries of such Person and (ii) any entity
other than a corporation in which such Person, directly or indirectly, owns all
of the Common Equity of such entity.
46
MATERIAL U.S. FEDERAL INCOME TAX
CONSEQUENCES OF THE EXCHANGE
The following is a general discussion of certain United States federal
income tax considerations to holders of the Exchange 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 Exchange 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 Exchange
Notes in connection with a straddle, hedge, conversion transaction or any
similar or hybrid financial instrument) that may be subject to special rules.
This discussion assumes that each holder holds the Exchange Notes as a capital
asset within the meaning of section 1221 of the Code.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any
holder who is not a United States person. The term "United States person" means
a citizen or resident of the United States, a corporation or partnership
(including any entity taxed as a partnership for United States federal income
tax purposes) organized in the United States or any state thereof, an estate,
the income of which is includible in income for the United States federal
income tax purposes regardless of its source, or a trust if (i) a court within
the United States is able to exercise primary supervision over the
administration of the trust and (ii) one or more United States persons have the
authority to control all substantial decisions of the trust.
HOLDERS OF THE EXCHANGE NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
EXCHANGE, OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES AND THE EFFECT THAT
THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
EXCHANGE OF PRIVATE NOTES FOR EXCHANGE NOTES
The terms of the Exchange Notes are identical to those of the Private
Notes, except that the Exchange Notes are registered under applicable federal
securities laws. Under applicable Treasury Regulations, the exchange of Private
Notes for Exchange Notes pursuant to the exchange offer should not be treated
as an "exchange" for federal income tax purposes and holders of the Private
Notes should not recognize any gain or loss on such exchange. If, however, the
exchange of Private Notes for Exchange 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 Private
Notes should not recognize any gain or loss on such exchange. The term
"Exchange Notes" utilized in the following sections means, in certain contexts,
the Private Notes and Exchange Notes considered as one and the same evidences
of indebtedness in applying the federal income tax rule in question.
TAX CONSIDERATIONS APPLICABLE TO UNITED STATES PERSONS
Interest on Exchange Notes. Interest paid on the Exchange Notes will be
taxable to a holder as ordinary interest income at the time that such interest
is accrued or received (actually or constructively) in accordance with the
holder's method of tax accounting and in the amount of each payment.
Sale or Exchange of Exchange Notes. In general, a holder of the Exchange
Notes will recognize gain or loss upon the sale, redemption, retirement or
other disposition of the Exchange 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
47
such) and the holder's adjusted tax basis in the Exchange Notes. A holder's tax
basis in the Exchange Notes generally will equal the cost of the Private 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 Exchange Notes. Subject to the
market discount rules discussed below, the gain or loss on the disposition of
the Exchange Notes will be capital gain or loss and will be long-term gain or
loss if the Exchange Notes have been held for more than one year at the time of
such disposition.
Market Discount. The resale of the Exchange Notes may be affected by the
"market discount" provisions of the Code. For this purpose, but subject to a de
minimis exception, the market discount on an Exchange Note will generally be
equal to the amount, if any, by which the stated redemption price at maturity
of the Exchange Notes immediately after its acquisition exceeds the holder's
tax basis in the Exchange Notes. Unless the election described below is made to
include accrued market discount in income currently, these provisions generally
require a holder of an Exchange Note acquired at a market discount to treat as
ordinary income any gain recognized on the disposition of such Exchange Notes
to the extent of the "accrued market discount" on such Exchange Notes at the
time of disposition. In general, market discount on an Exchange Note will be
treated as accruing on a straight-line basis over the term of such Exchange
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 Exchange 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 Exchange Notes
until the Exchange Notes are disposed of in a taxable transaction.
TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Exchange Notes. Generally, interest paid on the Exchange 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 Company entitled to vote and is not a
controlled foreign corporation with respect to which the Company 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.
The certification described in clause (iii) above also may be provided by a
qualified intermediary on behalf of one or more beneficial owners (or other
intermediaries), provided that such intermediary has entered into a withholding
agreement with the IRS and certain other conditions are met.
A holder that is not exempt from tax under these rules will be subject to
United States federal income tax withholding at a rate of 30% unless the
interest is effectively connected with the conduct of a United States trade or
business, in which case the interest will be subject to the United States
federal income tax on net income that applies to United States persons
generally. Corporate Non-U.S. Holders that receive interest income that is
effectively connected with the conduct of a trade or business within the United
States may also be subject to an additional "branch profits" tax on such
income. Non-U.S. Holders should consult applicable income tax treaties, which
may provide different rules.
Sale or Exchange of Exchange 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 Exchange 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, (ii) in the case of a Non-U.S. Holder who is a nonresident
alien individual and holds the Exchange Notes as a capital asset, such holder
is present in the United
48
States for 183 or more days in the taxable year and certain other circumstances
are present, or (iii) the Non-U.S. Holder is subject to tax pursuant to the
provisions of United States federal income tax law applicable to certain United
States expatriates. Corporate Non-U.S. Holders recognizing effectively
connected gain may also be subject to an additional "branch profits" tax on
such gain. Non-U.S. Holders should consult applicable income tax treaties which
may provide different rules.
Federal Estate Tax. An Exchange Note beneficially owned by an individual
who is not domiciled in the United States for United States federal estate tax
purposes at the time of his or her death generally will not be subject to
United States federal estate tax as a result of such individual's death,
provided that (i) such individual does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote within the meaning of section 871(h)(3) of the Code
and (ii) interest payments with respect to such Exchange Note would not have
been, if received at the time of such individual's death, effectively connected
with the conduct of a United States trade or business by such individual.
INFORMATION REPORTING AND BACKUP WITHHOLDING
United States Persons. Information reporting and backup withholding may
apply to payments of interest on or the proceeds of the sale or other
disposition of the Exchange Notes with respect to certain non-corporate United
States persons. Such United States persons generally will be subject to backup
withholding at a rate of 31% unless the recipient of such payment supplies a
taxpayer identification number, certified under penalties of perjury, as well
as certain other information, or otherwise establishes, in the manner
prescribed by law, an exemption from backup withholding. Any amount withheld
under backup withholding is allowable as a credit against the United States
person's federal income tax liability, upon furnishing the required information
to the IRS.
Non-U.S. Holders. Generally, information reporting and backup withholding
of United States federal income tax at a rate of 31% may apply to payments of
principal, interest and premium (if any) to Non-U.S. Holders if the payee fails
to certify that the holder is not a United States person or if the Company 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
Non-U.S. Holders outside the United States that are subject to 30% withholding
as discussed above (see "Tax Considerations Applicable to Non-U.S.
Holders-Interest on Exchange Notes") or that perfect their eligibility for the
benefits of a tax treaty that reduces or eliminates such withholding.
The payment of the proceeds on the disposition of Exchange 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 Exchange Notes to or through a foreign office of a broker will not be
subject to backup withholding. However, if such broker is a United States
person, a controlled foreign corporation for United States tax purposes, a
foreign person 50% or more of whose gross income from all sources for certain
periods is from activities that are effectively connected with a United States
trade or business or a foreign partnership in which United States persons hold
more than 50% of the income or capital interests or which is engaged in a
United States trade or business at any time during its tax year, information
reporting will apply unless such broker has documentary evidence of the owner's
foreign status as a Non-U.S. Holder and has no actual knowledge to the contrary
or unless the owner otherwise establishes an exemption. Both backup withholding
and information reporting will apply to the proceeds from the disposition if
the broker has actual knowledge that the payee is a United States person.
United States Treasury Department regulations now provide presumptions
under which a Non-U.S. Holder is subject to information reporting and backup
withholding at the rate of 31% unless the Company receives certification from
the holder of its status as a Non-U.S. Holder. Depending on the circumstances,
this certificate will need to be provided (i) directly by the Non-U.S. Holder,
(ii) in the case of a Non-U.S. Holder that is treated as a partnership or other
fiscally transparent entity, by the partners, shareholders or other
beneficiaries of such entity, or (iii) by certain qualified financial
institutions or other qualified entities on behalf of the Non-U.S. Holder.
49
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the exchange offer must acknowledge that it will deliver a
prospectus in connection with any resale of the Exchange Notes. Broker-dealers
may use this prospectus, as it may be amended or supplemented from time to
time, in connection with the resale of Exchange Notes received in exchange for
Private Notes where the broker-dealer acquired the Private Notes as a result of
market-making activities or other trading activities. We have agreed that for a
period of up to 180 days after the date on which the registration statement is
declared effective (subject to extension under certain circumstances), we will
make this prospectus, as amended or supplemented, available to any
broker-dealer that requests it in the letter of transmittal for use in
connection with any such resale.
We will not receive any proceeds from any sale of Exchange Notes by
broker-dealers or any other persons. Broker-dealers may sell Exchange Notes
received by broker-dealers for their own account pursuant to the exchange offer
from time to time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the Exchange
Notes or a combination of such methods of resale, at market prices prevailing
at the time of resale, at prices related to the prevailing market prices or
negotiated prices. Broker-dealers may resell Exchange Notes directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any broker-dealer and/or the
purchasers of the Exchange Notes. Any broker-dealer that resells Exchange 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 the Exchange Notes
may be deemed to be "underwriters" within the meaning of the Securities Act,
and any profit on any resale of Exchange Notes and any commissions or
concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
We have agreed to pay all expenses incident to our performance of, or
compliance with, the registration rights agreement and will indemnify you
against liabilities under the Securities Act.
By its acceptance of the exchange offer, any broker-dealer that receives
Exchange Notes pursuant to the exchange offer agrees to notify us before using
the prospectus in connection with the sale or transfer of Exchange Notes. The
broker-dealer further acknowledges and agrees that, upon receipt of notice from
us of the happening of any event which makes any statement in the prospectus
untrue in any material respect or which requests the making of any changes in
the prospectus to make the statements in the prospectus not misleading or which
may impose upon us disclosure obligations that may have a material adverse
effect on us, which notice we agree to deliver promptly to the broker-dealer,
the broker-dealer will suspend use of the prospectus until we have notified the
broker-dealer that delivery of the prospectus may resume and have furnished
copies of any amendment or supplement to the prospectus to the broker-dealer.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K
for the year ended December 31, 2000, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.
LEGAL MATTERS
The validity of the Exchange Notes to be issued pursuant to the exchange
offer will be passed upon by Haskell Slaughter & Young, L.L.C., Birmingham,
Alabama.
50
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") grants
corporations the right to limit or eliminate the personal liability of their
directors in certain circumstances in accordance with provisions therein set
forth. Article NINTH of the HEALTHSOUTH Certificate contains a provision
eliminating or limiting director liability to HEALTHSOUTH and its stockholders
for monetary damages arising from acts or omissions in the director's capacity
as a director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty
to HEALTHSOUTH or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under the Delaware statutory provision making directors personally
liable, under a negligence standard, for unlawful dividends or unlawful stock
purchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve
on the Board of Directors of HEALTHSOUTH protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above). As a result of this provision, the ability of HEALTHSOUTH or a
stockholder thereof to successfully prosecute an action against a director for
a breach of his duty of care is limited. However, the provision does not affect
the availability of equitable remedies such as an injunction or rescission
based upon a director's breach of his duty of care. The SEC has taken the
position that the provision will have no effect on claims arising under the
Federal securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. Article NINTH of the HEALTHSOUTH Certificate and Article IX
of the HEALTHSOUTH Bylaws provide for mandatory indemnification rights, subject
to limited exceptions, to any director, officer, employee, or agent of
HEALTHSOUTH who, by reason of the fact that he or she is a director, officer,
employee, or agent of HEALTHSOUTH, is involved in a legal proceeding of any
nature. Such indemnification rights include reimbursement for expenses incurred
by such director, officer, employee, or agent in advance of the final
disposition of such proceeding in accordance with the applicable provisions of
the DGCL.
HEALTHSOUTH has entered into agreements with all of its directors and its
executive officers pursuant to which HEALTHSOUTH has agreed to indemnify such
directors and executive officers against liability incurred by them by reason
of their services as a director or executive officer to the fullest extent
allowable under applicable law.
ITEM 21. EXHIBITS.
EXHIBIT
NO. DESCRIPTION
- -------- ---------------------------------------------------------------------------------------
(3)-1 -- Restated Certificate of Incorporation of HEALTHSOUTH Corporation,
filed as Exhibit (3)-1 to the Company's Current Report on Form
8-K, dated May 28, 1998, is hereby incorporated by reference.
(3)-2 -- By-laws of HEALTHSOUTH Corporation, filed as Exhibit (3)-2 to the
Company's Current Report on Form 8-K, dated May 28, 1998, are
hereby incorporated by reference.
II-1
(4)-1 -- Indenture, dated February 1, 2001, between HEALTHSOUTH
Corporation and The Bank of New York, as Trustee, filed as
Exhibit (4)-6 to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 2000, is hereby (
incorporated by reference.
(4)-2 -- Registration Rights Agreement, dated February 1, 2001, among
HEALTHSOUTH Corporation and UBS Warburg LLC, Deutsche Banc Alex.
Brown Inc., Chase Securities Inc., First Union Securities, Inc.,
and Scotia Capital (USA) Inc., relating to the Company's 8 1/2%
senior notes due 2008, filed as Exhibit (4)-7 to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended December
31, 2000, is hereby incorporated by reference.
(5) -- Opinion of Haskell Slaughter & Young, L.L.C., regarding legality
of the Exchange Notes.
(12) -- Statement of Computation of Ratio of Earnings to Fixed Charges.
(23)-1 -- Consent of Ernst & Young LLP.
(23)-2 -- Consent of Haskell Slaughter & Young, L.L.C. (included in the
opinion filed as Exhibit (5)).
(24) -- Powers of Attorney. See signature pages of this registration
statement.
(25) -- Statement of Eligibility under the Trust Indenture Act of 1939
of a Corporation Designated to Act as Trustee on Form T-1,
relating to The Bank of New York.
(99)-1 -- Form of Letter of Transmittal.
(99)-2 -- Form of Notice of Guaranteed Delivery.
(99)-3 -- Form of Letter to Clients.
(99)-4 -- Form of Letter to Depository Trust Company Participants.
(99)-5 -- Instruction to Book-Entry Transfer Participant.
(99)-6 -- Form of Exchange Agent Agreement.
(99)-7 -- Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate offering prices
set forth in the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act, 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 March 30, 2001.
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 William T. Owens, and
each of them, his attorney-in-fact with powers of substitution for him in any
and all capacities, to sign any amendments, supplements, subsequent
registration statements relating to the offering to which this Registration
Statement relates, or other instruments he deems necessary or appropriate, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorney-in-fact or his substitute may do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Richard M. Scrushy Chairman of the Board March 30, 2001
---------------------------------- and Chief Executive Officer
Richard M. Scrushy and Director
/s/ William T. Owens Executive Vice President March 30, 2001
---------------------------------- and Chief Financial Officer
William T. Owens and Director
/s/ Weston L. Smith Senior Vice President-Finance March 30, 2001
---------------------------------- and Controller
Weston L. Smith (Principal Accounting Officer)
/s/ Phillip C. Watkins Director March 30, 2001
----------------------------------
Phillip C. Watkins
/s/ George H. Strong Director March 30, 2001
----------------------------------
George H. Strong
/s/ C. Sage Givens Director March 30, 2001
----------------------------------
C. Sage Givens
/s/ Charles W. Newhall III Director March 30, 2001
----------------------------------
Charles W. Newhall III
/s/ John S. Chamberlin Director March 30, 2001
----------------------------------
John S. Chamberlin
II-4
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Joel C. Gordon Director March 30, 2001
----------------------------------
Joel C. Gordon
/s/ Larry D. Striplin, Jr. Director March 30, 2001
----------------------------------
Larry D. Striplin, Jr.
II-5
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
- -------- ---------------------------------------------------------------------------------------
(3)-1 -- Restated Certificate of Incorporation of HEALTHSOUTH Corporation, filed as
Exhibit (3)-1 to the Company's Current Report on Form 8-K, dated May 28, 1998, is
hereby incorporated by reference.
(3)-2 -- By-laws of HEALTHSOUTH Corporation, filed as Exhibit (3)-2 to the Company's
Current Report on Form 8-K, dated May 28, 1998, are hereby incorporated by
reference.
(4)-1 -- Indenture, dated February 1, 2001, between HEALTHSOUTH Corporation and The
Bank of New York, as Trustee, filed as Exhibit (4)-6 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 2000, is hereby incorporated by reference.
(4)-2 -- Registration Rights Agreement, dated February 1, 2001, among HEALTHSOUTH
Corporation and UBS Warburg LLC, Deutsche Banc Alex. Brown Inc., Chase
Securities Inc., First Union Securities, Inc., and Scotia Capital (USA) Inc., relating to
the Company's 8 1/2% senior notes due 2008, filed as Exhibit (4)-7 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31, 2000, is hereby incorporated by reference.
(5) -- Opinion of Haskell Slaughter & Young, L.L.C., regarding legality of the Exchange
Notes.
(12) -- Statement of Computation of Ratio of Earnings to Fixed Charges.
(23)-1 -- Consent of Ernst & Young LLP.
(23)-2 -- Consent of Haskell Slaughter & Young, L.L.C. (included in the opinion filed as
Exhibit (5)).
(24) -- Powers of Attorney. See signature pages of this registration statement.
(25) -- Statement of Eligibility under the Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee on Form T-1, relating to The Bank of New York.
(99)-1 -- Form of Letter of Transmittal.
(99)-2 -- Form of Notice of Guaranteed Delivery.
(99)-3 -- Form of Letter to Clients.
(99)-4 -- Form of Letter to Depository Trust Company Participants.
(99)-5 -- Instruction to Book-Entry Transfer Participant.
(99)-6 -- Form of Exchange Agent Agreement.
(99)-7 -- Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.