AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
HEALTHSOUTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------
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<S> <C> <C>
Delaware 8062 63-0860407
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
</TABLE>
Two Perimeter Park South, 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
Two Perimeter Park South
Birmingham, Alabama 35243
(205) 967-7116
(Name, Address, including Zip Code, and Telephone Number, including Area
Code, of Agent for Service)
Copies to:
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<S> <C> <C>
MARK EZELL, ESQ. WILLIAM W. HORTON, ESQ. WILLIAM TOLIN GAY, ESQ.
Haskell Slaughter & Young, L.L.C. BEALL D. GARY, JR., ESQ. McIntyre, Borges & Burns
1200 AmSouth/Harbert Plaza HEALTHSOUTH Corporation 3070 Bristol Street
1901 Sixth Avenue North Two Perimeter Park South Suite 450
Birmingham, Alabama 35203 Birmingham, Alabama 35243 Costa Mesa, California 92626
(205) 251-1000 (205) 967-7116 (714) 545-7835
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Approximate date of commencement of proposed sale to the public:
At the effective time of the merger of ReadiCare, Inc. with a wholly-owned
subsidiary of the Registrant, as described in the Prospectus-Proxy Statement
included herein.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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============================================================================================================
Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount Offering Price Aggregate Offering Amount of
to be Registered to be Registered(1) Per Unit Price(2) Registration Fee(3)
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<S> <C> <C> <C> <C>
Common Stock, par value
$.01 per share........ 2,416,481 shares Inapplicable $ 76,124,021.88 $ 23,067.89
==============================================================================================================
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(1) The amount of common stock, par value $.01 per share (the "HEALTHSOUTH
Common Stock"), of the Registrant to be registered has been determined
based upon 8,858,068 shares of common stock, par value $.01 per share (the
"ReadiCare Common Stock"), of ReadiCare , Inc. outstanding as of October
21, 1996, and an Exchange Ratio of 0.2728 shares of HEALTHSOUTH Common
Stock per share of ReadiCare Common Stock, the maximum Exchange Ratio
provided for in the Plan and Agreement of Merger among HEALTHSOUTH
Corporation, Warwick Acquisition Corporation and ReadiCare, Inc., dated as
of September 11, 1996 (the "Plan").
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(f)(1) of the Securities Act of 1933, as amended (the
"Securities Act"). Pursuant to Rule 457(f)(1), the maximum aggregate
offering price is the product of (a) $8.59375, representing the average of
the high and low sales prices of ReadiCare Common Stock as reported on the
Nasdaq National Market on October 22, 1996, and (b) 8,858,068, the maximum
number of shares of ReadiCare Common Stock to be acquired by the Registrant
in connection with the acquisition of ReadiCare pursuant to the Plan.
(3) The registration fee for the securities registered hereby, $23,067.89, has
been calculated pursuant to Section 6(b) of the Securities Act and Rule
457(f) promulgated thereunder. Of such registration fee, $18,304.84 was
paid in connection with the filing of preliminary proxy materials relating
to the Special Meeting of Stockholders of ReadiCare, which were filed on
October 4, 1996, and $4,763.05 is paid herewith.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further Amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
HEALTHSOUTH CORPORATION
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING THE
LOCATION IN THE PROSPECTUS-PROXY
STATEMENT OF THE RESPONSES TO THE ITEMS OF PART I OF FORM S-4)
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ITEM LOCATION IN PROSPECTUS-PROXY STATEMENT
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<S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus ......................... Facing Page; Cross Reference Sheet; Outside Front Cover Page
of Prospectus-Proxy Statement
2. Inside Front and Outside Back Cover Pages of
Prospectus ............................................. Table of Contents; Available Information; Incorporation of
Certain Information by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information .................................. Summary of Prospectus-Proxy Statement; Risk Factors; The
Special Meeting
4. Terms of the Transaction ............................... Summary of Prospectus-Proxy Statement; The Special Meeting;
The Merger; Description of Capital Stock of HEALTHSOUTH;
Comparison of Rights of ReadiCare and HEALTHSOUTH Stockholders;
Operations and Management of HEALTHSOUTH after the Merger
5. Pro Forma Financial Information ........................ Pro Forma Condensed Financial Information
6. Material Contacts with the Company Being Acquired....... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters ......... Not Applicable
8. Interests of Named Experts and Counsel ................. Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ......... Comparison of Rights of ReadiCare and HEALTHSOUTH Stockholders
10. Information with Respect to S-3 Registrants ............ Incorporation of Certain Documents by Reference
11. Incorporation of Certain Information by Reference ...... Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants ..... Not Applicable
13. Incorporation of Certain Information by Reference ...... Not Applicable
14. Information with Respect to Registrants Other than
S-2 or S-3 Registrants.................................. Not Applicable
15. Information with Respect to S-3 Companies ............. Incorporation of Certain Documents by Reference
16. Information with Respect to S-2 or S-3 Companies ....... Not Applicable
17. Information with Respect to Companies Other than
S-2 or S-3 Companies ................................... Not Applicable
18. Information if Proxies, Consents or Authorizations
are to be Solicited..................................... Incorporation of Certain Documents by Reference; Summary of
Prospectus-Proxy Statement; The Special Meeting; The Merger
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer ....... Not Applicable
</TABLE>
<PAGE>
READICARE, INC.
1322 Orleans Drive
Sunnyvale, California 94809
October 25, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
ReadiCare, Inc. ("ReadiCare") on November 26, 1996. Details as to the time and
place of the meeting are set forth in the accompanying Notice of Special Meeting
of Stockholders.
The purpose of the meeting is to consider and vote upon the approval of a
Plan and Agreement of Merger (the "Plan") providing for the merger (the
"Merger") of a wholly-owned subsidiary of HEALTHSOUTH Corporation
("HEALTHSOUTH") with and into ReadiCare. If the Merger is consummated, ReadiCare
will become a wholly-owned subsidiary of HEALTHSOUTH, and stockholders of
ReadiCare will be entitled to receive 0.2425 shares of HEALTHSOUTH Common Stock
(subject to adjustment as set forth in the attached Prospectus-Proxy Statement)
per share of ReadiCare Common Stock. Stockholders may call 1-800-244-7265
beginning at 5:00 p.m., Eastern Time on November 22, 1996 for information
concerning the Exchange Ratio as finally determined. The Board of Directors
believes that HEALTHSOUTH and ReadiCare are strategically complementary and that
the combined companies will be able to compete more effectively in the changing
healthcare marketplace.
After careful consideration, your Board of Directors has concluded that the
proposed Merger is in the best interests of ReadiCare stockholders and
recommends that you vote FOR the approval of the Plan.
The attached Prospectus-Proxy Statement describes the Plan and the proposed
Merger more fully and includes other information about HEALTHSOUTH and
ReadiCare. Please give this information your thoughtful attention.
Approval of the Plan by the stockholders of ReadiCare requires the
affirmative vote of the holders of a majority of the outstanding shares of
ReadiCare Common Stock. Therefore, you are urged to mark, sign, date and return
promptly the accompanying proxy card for the meeting even if you plan to attend.
You may vote in person at that time if you so desire.
Sincerely,
DENNIS G. DANKO
Chairman of the Board
<PAGE>
READICARE, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 26, 1996
-----------------
To the Stockholders of ReadiCare, Inc.
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of ReadiCare, Inc, a Delaware corporation ("ReadiCare"), will be held
at The Center Club, 650 Town Center Drive, Costa Mesa, California on November
26, 1996 at 10:00 a.m. Pacific Time, for the following purposes:
1. To consider and vote upon a proposal to approve the Plan and Agreement
of Merger, dated as of September 11, 1996, among ReadiCare, Warwick
Acquisition Corporation, a Delaware corporation (the "Subsidiary") wholly
owned by HEALTHSOUTH Corporation, a Delaware corporation ("HEALTHSOUTH"), and
HEALTHSOUTH (as it may be amended, supplemented or otherwise modified from
time to time, the "Plan"), pursuant to which, among other things, the
Subsidiary will be merged with and into ReadiCare upon the terms and subject
to the conditions contained in the Plan (the "Merger"), and ReadiCare will
become a wholly-owned subsidiary of HEALTHSOUTH, as described in the
accompanying Prospectus-Proxy Statement.
2. To consider and act upon such other matters as may properly come before
the Special Meeting, including any adjournments or postponements thereof.
The Board of Directors of ReadiCare has fixed the close of business on
October 21, 1996 as the record date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting, and only stockholders
of record at such time will be entitled to notice of and to vote at the Special
Meeting.
A form of Proxy and a Prospectus-Proxy Statement containing more detailed
information with respect to the matters to be considered at the Special Meeting
accompany this notice and form a part hereof.
You are cordially invited and urged to attend the Special Meeting in person.
Whether or not you intend to attend the Special Meeting, please complete, sign,
date and promptly return the enclosed Proxy in the enclosed self-addressed,
postage pre-paid envelope. If you attend the Special Meeting and desire to
revoke your Proxy and vote in person, you may do so. In any event, your Proxy
may be revoked at any time before it is voted.
By Order of the Board of Directors,
STEVE E. BUSBY
Secretary
IMPORTANT NOTICES
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER IN WRITING
OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO ITS
EXERCISE. PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME.
THE BOARD OF DIRECTORS OF READICARE, INC. UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE PLAN.
<PAGE>
PROSPECTUS-PROXY STATEMENT
PROXY STATEMENT
OF
READICARE, INC.
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 26, 1996
----------------
PROSPECTUS
OF
HEALTHSOUTH CORPORATION
This Prospectus relates to up to 2,416,481 shares of the Common Stock, par
value $.01 per share (the "HEALTHSOUTH Common Stock"), of HEALTHSOUTH
Corporation (together with its subsidiaries, as applicable, "HEALTHSOUTH")
issuable to the stockholders of ReadiCare, Inc. (together with its subsidiaries,
as applicable, "ReadiCare") upon consummation of the Merger (as defined below).
Such number of shares represents the maximum number of shares that may be issued
to ReadiCare stockholders. This Prospectus also serves as the Proxy Statement of
ReadiCare for its special meeting of stockholders to be held on November 26,
1996, and any adjournments and postponements thereof (the "Special Meeting").
See "THE SPECIAL MEETING".
----------------
This Prospectus-Proxy Statement describes the terms of a proposed business
combination between HEALTHSOUTH and ReadiCare, pursuant to which HEALTHSOUTH
will acquire ReadiCare by means of the merger (the "Merger") of Warwick
Acquisition Corporation, a wholly-owned subsidiary of HEALTHSOUTH (the
"Subsidiary"), with and into ReadiCare, with ReadiCare being the surviving
corporation (the "Surviving Corporation"). After the Merger, the combined
operations of HEALTHSOUTH and ReadiCare are expected to be conducted with
ReadiCare as a wholly-owned subsidiary of HEALTHSOUTH and the present
subsidiaries of ReadiCare continuing as subsidiaries of ReadiCare and thus
indirect subsidiaries of HEALTHSOUTH. The Merger will be effective pursuant to
the terms and subject to the conditions of the Plan and Agreement of Merger,
dated as of September 11, 1996, among HEALTHSOUTH, the Subsidiary and ReadiCare
(as it may be amended, supplemented or otherwise modified from time to time, the
"Plan"). The Plan is attached to this Prospectus-Proxy Statement as Annex A and
is incorporated herein by reference. HEALTHSOUTH and ReadiCare are hereinafter
sometimes referred to as the "Companies" and individually as a "Company".
Upon consummation of the Merger, except as described herein, each outstanding
share of Common Stock, par value $.01 per share, of ReadiCare, other than shares
owned by ReadiCare or any subsidiary of ReadiCare (the "ReadiCare Common Stock"
or the "ReadiCare Shares"), will be cancelled, and the holders of such ReadiCare
Shares will be entitled to receive 0.2425 shares of HEALTHSOUTH Common Stock
(the "Exchange Ratio") for each ReadiCare Share so held; provided, however, that
(i) if the Base Period Trading Price (as defined below) is greater than $38.30,
then the Exchange Ratio shall be equal to the quotient obtained by dividing
$9.29 by the Base Period Trading Price, computed to four decimal places, (ii) if
the Base Period Trading Price shall be less than $30.60, then the Exchange Ratio
shall be equal to the quotient obtained by dividing $7.42 by the Base Period
Trading Price, computed to four decimal places, and (iii) if the Base Period
Trading Price shall be less than $27.20, then the Exchange Ratio shall be .2728.
<PAGE>
The term "Base Period Trading Price" means the average of the daily closing
prices per share of HEALTHSOUTH Common Stock for the 20 consecutive trading days
on which such shares are actually traded ending at the close of business on the
second New York Stock Exchange trading day before the date of the Special
Meeting. ReadiCare stockholders will receive cash (without interest) in lieu of
fractional shares of HEALTHSOUTH Common Stock. For a more complete description
of the terms of the Merger, see "THE MERGER".
This Prospectus-Proxy Statement and the form of Proxy are first being mailed
to stockholders of ReadiCare on or about October 25, 1996.
See "Risk Factors" at page 18 for a discussion of certain factors that should
be considered by ReadiCare stockholders.
------------------------
THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS-PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus-Proxy Statement is October 25, 1996.
2
<PAGE>
AVAILABLE INFORMATION
HEALTHSOUTH has filed a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "SEC") covering the shares of HEALTHSOUTH Common
Stock to be issued in connection with the Merger (including exhibits and
amendments thereto, the "Registration Statement"). As permitted by the rules and
regulations of the SEC, this Prospectus-Proxy Statement omits certain
information contained in the Registration Statement. For further information
pertaining to the securities offered hereby, reference is made to the
Registration Statement.
HEALTHSOUTH and ReadiCare are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the SEC relating to their respective businesses, financial
statements and other matters. The Registration Statement, as well as such
reports, proxy statements and other information, may be inspected at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and should be available for inspection
and copying at the regional offices of the SEC located at Seven World Trade
Center, Suite 1300, New York, New York, 10048; 5670 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036-3648; and Citicorp Center, 500 West Madison
Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained at prescribed rates by writing to the SEC, Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549. The HEALTHSOUTH Common Stock is
listed on the New York Stock Exchange (the "NYSE"), and the Registration
Statement and other information with respect to HEALTHSOUTH should be available
for inspection at the library of the New York Stock Exchange, Inc., 20 Broad
Street, 7th Floor, New York, New York 10005. The ReadiCare Common Stock is
listed on the Nasdaq National Market, and the Registration Statement and other
information with respect to ReadiCare may be obtained by calling the Nasdaq
Public Reference Room Disclosure Information Group at (800) 638-8241 or (202)
728-8298.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus-Proxy Statement incorporates documents by reference which are
not presented herein or delivered herewith. Copies of such reports, proxy
statements and other information filed by HEALTHSOUTH, other than exhibits to
such documents unless such exhibits are specifically incorporated herein by
reference, are available without charge, upon written or oral request, from the
Secretary of HEALTHSOUTH Corporation, Two Perimeter Park South, Birmingham,
Alabama 35243, telephone (205) 967-7116. Copies of such reports, proxy
statements and other information filed by ReadiCare, other than exhibits to such
documents unless such exhibits are specifically incorporated herein by
reference, are available, without charge, upon written or oral request, from the
Secretary of ReadiCare, Inc., 1322 Orleans Drive, Sunnyvale, California 94809,
telephone (408) 743-3100. In order to ensure timely delivery of the documents,
any request should be made by five days prior to the Special Meeting.
There are hereby incorporated by reference into this Prospectus-Proxy
Statement and made a part hereof the following documents filed by HEALTHSOUTH:
1. HEALTHSOUTH's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended.
2. HEALTHSOUTH's Quarterly Reports on Form 10-Q for the quarters ended March
31 and June 30, 1996.
3. HEALTHSOUTH's Current Report on Form 8-K dated December 16, 1995, as
amended (relating to the acquisition of Advantage Health Corporation ("Advantage
Health")).
4. HEALTHSOUTH's Current Report on Form 8-K dated January 17, 1996 (relating
to the consummation of the acquisition of Surgical Care Affiliates, Inc.
("SCA")).
5. HEALTHSOUTH'S Current Report on Form 8-K dated March 14, 1996 (relating to
the consummation of the acquisition of Advantage Health).
3
<PAGE>
6. HEALTHSOUTH'S Current Report on Form 8-K dated March 20, 1996 (reporting
combined earnings of HEALTHSOUTH and SCA for February 1996).
7. HEALTHSOUTH'S Current Report on Form 8-K dated May 20, 1996 (reporting
combined earnings of HEALTHSOUTH and Advantage Health for April 1996).
8. The description of HEALTHSOUTH's capital stock contained in HEALTHSOUTH's
Registration Statement on Form 8-A filed August 26, 1989.
There are also hereby incorporated by reference into this Prospectus-Proxy
Statement and made a part hereof the following documents filed by ReadiCare:
1. ReadiCare's Annual Report on Form 10-K for the fiscal year ended
February 29, 1996.
2. ReadiCare's Quarterly Reports on Form 10-Q for the quarters ended May
31 and August 31, 1996.
All documents filed by HEALTHSOUTH and ReadiCare, respectively, pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus-Proxy Statement and prior to the Closing Date of the Merger shall be
deemed to be incorporated by reference into this Prospectus-Proxy Statement and
to be made a part hereof from the date of the filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for the purpose hereof to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed to constitute a part
hereof, except as so modified or superseded.
All information contained in this Prospectus-Proxy Statement or incorporated
herein by reference with respect to HEALTHSOUTH was supplied by HEALTHSOUTH, and
all information contained in this Prospectus-Proxy Statement or incorporated
herein by reference with respect to ReadiCare was supplied by ReadiCare.
Although neither HEALTHSOUTH nor ReadiCare has actual knowledge that would
indicate that any statements or information (including financial statements)
relating to the other party contained or incorporated by reference herein are
inaccurate or incomplete, neither HEALTHSOUTH nor ReadiCare warrants the
accuracy or completeness of such statements or information as they relate to the
other party.
Statements relating to HEALTHSOUTH contained in this Prospectus-Proxy
Statement which are not historical facts are forward-looking statements. In
addition, HEALTHSOUTH, through its senior management, from time to time makes
forward-looking public statements concerning its expected future operations and
performance and other developments. Such forward-looking statements are
necessarily estimates reflecting HEALTHSOUTH's best judgment based upon current
information and involve a number of risks and uncertainties, and there can be no
assurance that other factors will not affect the accuracy of such
forward-looking statements. While it is impossible to identify all such factors,
factors which could cause actual results to differ materially from those
estimated by HEALTHSOUTH include, but are not limited to, changes in the
regulation of the healthcare industry at either or both of the federal and state
levels, changes in reimbursement for HEALTHSOUTH's services by government or
private payors, competitive pressures in the healthcare industry and
HEALTHSOUTH's response thereto, HEALTHSOUTH's ability to obtain and retain
favorable arrangements with third-party payors, unanticipated delays in
HEALTHSOUTH's implementation of its Integrated Service Model, general conditions
in the economy and capital markets, and other factors which may be identified
from time to time in HEALTHSOUTH's Securities and Exchange Commission filings
and other public announcements.
Statements relating to ReadiCare contained in this Prospectus-Proxy Statement
that are not based on historical facts are forward-looking statements subject to
uncertainties and risks, including, but not limited to, product and service
demand and acceptance, economic conditions, the impact of competition and
pricing, capacity and supply constraints or difficulties, government regulations
and other risks described in ReadiCare's Securities and Exchange Commission
filings and other public announcements.
4
<PAGE>
No person is authorized to give any information or to make any representation
not contained in this Prospectus-Proxy Statement, and, if given or made, such
information or representation should not be relied upon as having been
authorized. Neither the delivery of this Prospectus-Proxy Statement nor any
distribution of the securities to which this Prospectus-Proxy Statement relates
shall, under any circumstances, create any implication that there has been no
change in the information concerning HEALTHSOUTH or ReadiCare contained in this
Prospectus-Proxy Statement since the date of such information. This
Prospectus-Proxy Statement does not constitute an offer to sell, or a
solicitation of an offer to purchase, any securities other than the securities
to which it relates, or an offer to sell, or a solicitation of an offer to
purchase, the securities offered by this Prospectus-Proxy Statement in any
jurisdiction in which such an offer or solicitation is not lawful.
5
<PAGE>
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION ................................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ....................... 3
SUMMARY OF PROSPECTUS-PROXY STATEMENT.................................... 8
RISK FACTORS............................................................. 18
THE SPECIAL MEETING ..................................................... 18
General ................................................................ 18
Date, Place and Time ................................................... 18
Record Date; Quorum .................................................... 18
Vote Required .......................................................... 18
Voting and Revocation of Proxies ....................................... 19
Solicitation of Proxies ................................................ 19
THE MERGER............................................................... 21
Terms of the Merger .................................................... 21
Background of the Merger ............................................... 22
Reasons for the Merger; Recommendations of ReadiCare's Board of
Directors ............................................................. 23
Opinion of Financial Advisor to ReadiCare............................... 25
Effective Time of the Merger ........................................... 28
Exchange of Certificates................................................ 28
Representations and Warranties.......................................... 29
Conditions to the Merger ............................................... 30
Regulatory Approvals ................................................... 30
Business Pending the Merger ............................................ 31
Waiver and Amendment ................................................... 32
Termination ............................................................ 32
Break-up Fees; Third Party Bids......................................... 33
Interests of Certain Persons in the Merger ............................. 33
Indemnification......................................................... 33
Accounting Treatment ................................................... 34
Certain Federal Income Tax Consequences ................................ 34
Resale of HEALTHSOUTH Common Stock by Affiliates ....................... 35
No Appraisal Rights .................................................... 35
No Solicitation of Transactions......................................... 36
Expenses................................................................ 36
NYSE Listing............................................................ 36
SELECTED CONSOLIDATED FINANCIAL DATA--HEALTHSOUTH........................ 37
SELECTED CONSOLIDATED FINANCIAL DATA--READICARE.......................... 38
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION ...................... 39
BUSINESS OF HEALTHSOUTH ................................................. 49
General................................................................. 49
Company Strategy........................................................ 49
Patient Care Services: General.......................................... 50
Outpatient Rehabilitation Services...................................... 51
Inpatient Rehabilitation Services....................................... 51
Medical Centers......................................................... 51
Surgery Centers......................................................... 51
Other Patient Care Services............................................. 51
Locations............................................................... 52
6
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PAGE
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BUSINESS OF READICARE.................................................... 53
Introduction............................................................ 53
Business Summary........................................................ 53
Operations.............................................................. 55
Reimbursement........................................................... 58
Agreements with ReadiCare Medical Groups................................ 58
Healthcare Reform and Regulations....................................... 59
Competition............................................................. 59
Employees .............................................................. 60
PRINCIPAL STOCKHOLDERS OF READICARE...................................... 61
DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH ............................. 62
Common Stock ........................................................... 62
Fair Price Provision ................................................... 62
Section 203 of the DGCL................................................. 63
Preferred Stock ........................................................ 63
Transfer Agent.......................................................... 63
COMPARISON OF RIGHTS OF READICARE AND HEALTHSOUTH
STOCKHOLDERS ........................................................... 64
Classes and Series of Capital Stock..................................... 64
Size and Election of the Board of Directors ............................ 64
Removal of Directors ................................................... 65
Other Voting Rights..................................................... 65
Conversion and Dissolution.............................................. 65
Business Combinations................................................... 66
Amendment or Repeal of the Certificate of Incorporation ................ 66
Special Meeting of Stockholders......................................... 66
Liability of Directors.................................................. 66
Indemnification of Directors and Officers............................... 67
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER................ 68
Operations ............................................................. 68
Management ............................................................. 68
EXPERTS ................................................................. 68
LEGAL MATTERS............................................................ 68
ADDITIONAL INFORMATION................................................... 68
Other Business.......................................................... 68
Stockholder Proposals................................................... 68
ANNEXES:
A. Plan and Agreement of Merger ........................................ A-1
B. Opinion of Crowell, Weedon & Co...................................... B-1
7
<PAGE>
SUMMARY OF PROSPECTUS-PROXY STATEMENT
The following is a summary of certain information contained elsewhere
in this Prospectus-Proxy Statement. Certain capitalized terms used in this
Summary are defined elsewhere in this Prospectus-Proxy Statement.
Reference is made to, and this Summary is qualified in its entirety by,
the more detailed information contained in this Prospectus-Proxy
Statement, the Annexes hereto and the documents incorporated by reference
herein.
THE COMPANIES
HEALTHSOUTH. HEALTHSOUTH is the nation's largest provider of outpatient
surgery and rehabilitative healthcare services. It provides these services
through its national network of outpatient and inpatient rehabilitation
facilities, outpatient surgery centers, medical centers and other healthcare
facilities. HEALTHSOUTH believes that it provides patients, physicians and
payors with high-quality health care services at significantly lower costs than
traditional inpatient hospitals. Additionally, HEALTHSOUTH's national network,
reputation for quality and focus on outcomes has enabled it to secure contracts
with national and regional managed care payors. At September 30, 1996,
HEALTHSOUTH had over 1,000 patient care locations in 48 states. See "BUSINESS OF
HEALTHSOUTH".
At June 30, 1996, HEALTHSOUTH had consolidated assets of approximately
$3,084,755,000 and consolidated stockholders' equity of approximately $1,288,672
and employed approximately 35,000 persons.
HEALTHSOUTH was incorporated under the laws of Delaware in 1984. Its
principal executive offices are located at Two Perimeter Park South, Birmingham,
Alabama 35243, and its telephone number is (205) 967-7116.
ReadiCare. ReadiCare is a leading physician practice management company
specializing in the provision of occupational healthcare services and related
cost-containment programs. At September 30, 1996, ReadiCare operated 37
outpatient medical and rehabilitation centers in the States of California and
Washington and provided services to employees of over 26,000 client companies.
See "BUSINESS OF READICARE".
At August 31, 1996, ReadiCare had consolidated assets of $18,183,699 and
consolidated stockholders' equity of $15,411,109 and employed approximately 381
persons.
ReadiCare was incorporated under the laws of Delaware in 1982. Its principal
executive offices are located at 1322 Orleans Drive, Sunnyvale, California
94809, and its telephone number is (408) 743-3100.
Warwick Acquisition Corporation. The Subsidiary is a direct, wholly-owned
subsidiary of HEALTHSOUTH and has not engaged in any business activity unrelated
to the Merger. The principal executive offices of the Subsidiary are located at
Two Perimeter Park South, Birmingham, Alabama 35243, and its telephone number is
(205) 967-7116.
THE SPECIAL MEETING
The Special Meeting of ReadiCare's stockholders (the "Special Meeting") to
consider and vote on a proposal to approve the Plan will be held on November 26,
1996, at 10:00 a.m., Pacific Time, at The Center Club, 650 Town Center Drive,
Costa Mesa, California. Only holders of record of ReadiCare Shares at the close
of business on October 21, 1996 (the "ReadiCare Record Date"), will be entitled
to notice of and to vote at the Special Meeting. At such date, there were
outstanding and entitled to vote 8,263,824 shares of ReadiCare Common Stock.
Each issued and outstanding ReadiCare Share is entitled to one vote on each
matter to be presented at the Special Meeting. Proxies sent via facsimile
transmission will be accepted if received not later than 15 minutes prior
8
<PAGE>
to the scheduled commencement of the Special Meeting. Such proxies may be sent
via facsimile to Steve E. Busby, Secretary, ReadiCare, Inc., at (408) 734-4842.
For additional information relating to the Special Meeting, see "THE SPECIAL
MEETING".
VOTE REQUIRED
Approval of the Plan by the stockholders of ReadiCare requires the
affirmative vote of the holders of a majority of the outstanding shares of
ReadiCare Common Stock entitled to vote thereon. Accordingly, approval of the
Plan at the Special Meeting will require the affirmative vote of the holders of
at least 4,131,913 shares of ReadiCare Common Stock.
As of the ReadiCare Record Date, directors and executive officers of
ReadiCare and their affiliates beneficially owned an aggregate of 771,000 shares
of ReadiCare Common Stock (excluding shares issuable upon exercise of options),
or approximately 9.3% of the ReadiCare Shares outstanding on such date.
In the event that the Plan is not approved by ReadiCare stockholders, the
Plan may be terminated by HEALTHSOUTH or ReadiCare in accordance with its terms.
Such approval is also a condition to HEALTHSOUTH's and ReadiCare's obligations
to consummate the Merger. See "THE SPECIAL MEETING -- Vote Required", "THE
MERGER -- Conditions to the Merger" and "-- Termination".
As a condition to entering into the Plan, HEALTHSOUTH required that Dennis G.
Danko, Chairman of the Board, President and Chief Executive Officer of
ReadiCare, Thomas P. Carey, Senior Vice President, Operations of ReadiCare, and
Harry L. Casari, James M. Hall and Alfred E. Osborne, Jr., Directors of
ReadiCare, enter into Proxy Agreements with HEALTHSOUTH, pursuant to which each
person agreed that, until the date on which the Plan is terminated and following
such termination during such time as a Third Party Acquisition Event (as defined
therein) exists with respect to ReadiCare, but in no event after the close of
business one year following the termination of the Plan, HEALTHSOUTH shall have
the right to vote an aggregate of 771,000 shares of ReadiCare Common Stock
beneficially owned by such persons (a) in favor of approval of the Plan and the
Merger at every meeting of the stockholders of ReadiCare at which such matters
are considered and at every adjournment thereof, and (b) against any other
proposal for any reorganization. The shares subject to the Proxy Agreements
represent approximately 9.3% of the votes eligible to be cast at the Special
Meeting as of the ReadiCare Record Date. See "THE SPECIAL MEETING -- Vote
Required".
THE MERGER
Terms of the Merger. ReadiCare will be acquired by HEALTHSOUTH pursuant to
and subject to the terms and conditions of the Plan, which provides that at the
effective time of the Merger (the "Effective Time"), the Subsidiary will merge
with and into ReadiCare with ReadiCare being the Surviving Corporation. The
Certificate of Incorporation of ReadiCare and the Bylaws of the Subsidiary in
effect at the Effective Time will govern the Surviving Corporation until amended
or repealed in accordance with applicable law. At the Effective Time, each
outstanding ReadiCare Share (excluding shares held by ReadiCare and any of its
subsidiaries) will be converted into the right to receive 0.2425 (the "Exchange
Ratio") shares of HEALTHSOUTH Common Stock (the "Merger Consideration");
provided, however, that (i) if the Base Period Trading Price (as defined below)
is greater than $38.30, then the Exchange Ratio shall be equal to the quotient
obtained by dividing $9.29 by the Base Period Trading Price, computed to four
decimal places, (ii) if the Base Period Trading Price shall be less than $30.60,
then the Exchange Ratio shall be equal to the quotient obtained by dividing
$7.42 by the Base Period Trading Price, computed to four decimal places, and
(iii) if the Base Period Trading Price shall be less than $27.20, then the
Exchange Ratio shall be .2728. Stockholders may call 1-800-244-7265 beginning at
5:00 p.m., Eastern Time on November 22, 1996 for information concerning the
Exchange Ratio as finally determined.
9
<PAGE>
The term "Base Period Trading Price" is defined in the Plan as the average of
the daily closing prices per share of HEALTHSOUTH Common Stock for the 20
consecutive trading days on which such shares are actually traded ending at the
close of business on the second New York Stock Exchange trading day before the
date of the Special Meeting. The daily closing price per share shall be the
closing price for NYSE-Composite Transactions as reported in The Wall Street
Journal-Eastern Edition or, if not reported therein, any other authoritative
source. Fractional shares of HEALTHSOUTH Common Stock will not be issuable in
connection with the Merger. ReadiCare stockholders will receive cash (without
interest) in lieu of fractional shares of HEALTHSOUTH Common Stock. See "THE
MERGER" and "DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH".
The following table indicates the Exchange Ratio assuming various Base Period
Trading Prices, with the resulting "value" to be received for each ReadiCare
Share:
BASE VALUE TO BE
PERIOD RECEIVED FOR
TRADING EACH READICARE
PRICE EXCHANGE RATIO SHARE
(COL. 1) (COL. 2) (COL. 1 X COL. 2)
- --------------- --------------- --------------------
$26.00......... .2728 $7.09
$27.00......... .2728 $7.37
$27.20......... .2728 $7.42
$29.00......... .2559 $7.42
$30.00......... .2473 $7.42
$30.60......... .2425 $7.42
$32.00......... .2425 $7.76
$34.00......... .2425 $8.24
$36.00......... .2425 $8.73
$38.00......... .2425 $9.21
$38.30......... .2425 $9.29
$40.00......... .2322 $9.29
$42.00......... .2212 $9.29
Thus, as described above, (i) if the Base Period Trading Price exceeds
$38.30, the value to be received for each ReadiCare Share will be fixed at $9.29
and the Exchange Ratio will decrease accordingly, (ii) if the Base Period
Trading Price is less than $30.60 but not less than $27.20, then the value to be
received for each ReadiCare Share will be fixed at $7.42 and the Exchange Ratio
will increase accordingly, and (iii) if the Base Period Trading Price is less
than $27.20, then the Exchange Ratio will be fixed at .2728 and the value to be
received for each ReadiCare Share, based solely on the Base Period Trading
Price, will fluctuate according to the actual Base Period Trading Price. See
"THE MERGER -- Terms of the Merger".
Recommendation of the Board of Directors. The Board of Directors of ReadiCare
has adopted and approved the Plan and has recommended a vote FOR approval of the
Plan. The Board of Directors believes the Plan is fair to and in the best
interests of the stockholders of ReadiCare.
The Board of Directors of ReadiCare believes that the Plan is in the best
interests of the ReadiCare stockholders based on a number of factors, including,
without limitation and without assigning relative weights thereto, the following
factors:
(i) The terms and conditions of the proposed Merger, including the value
of the consideration to be received by the stockholders of ReadiCare and the
fact that the Merger is expected to be treated as a tax-free reorganization.
(ii) The opportunity for holders of ReadiCare Common Stock to continue to
share in the potential for long-term gains in ReadiCare through the ownership
of HEALTHSOUTH Common Stock following the Merger.
(iii) The business reputation and capabilities of HEALTHSOUTH and its
management, HEALTHSOUTH's financial strength, business prospects, market
position and strategic objectives, and the liquidity and historical
performance of HEALTHSOUTH Common Stock.
10
<PAGE>
(iv) A conclusion that further consolidation in the healthcare industry is
inevitable, including those in the occupational health services industry,
which could place ReadiCare at a competitive disadvantage in such an
environment, and that market conditions are favorable for a transaction in
the current time frame.
(v) The compatibility of the respective businesses and management
philosophies of ReadiCare and HEALTHSOUTH with a common emphasis on operating
low cost, efficient healthcare delivery systems.
(vi) The synergies expected as a result of the Merger, including potential
cost savings in overhead-related expenses, and revenue enhancements due to
the addition of HEALTHSOUTH rehabilitative, outpatient and ancillary services
made available to ReadiCare clients.
(vii) The presentation of Crowell, Weedon & Co. ("Crowell") delivered to
the Board of Directors of ReadiCare at its special meeting held September 10,
1996, including Crowell's oral opinion that the Merger Consideration was fair
to the stockholders of ReadiCare from a financial point of view.
(viii) The perceived strengths of ReadiCare and HEALTHSOUTH combined,
including the potential expansion developments and information that is
expected to be shared between the two companies after the Merger is
consummated, and the belief of the ReadiCare Board of Directors that
ReadiCare's business could be integrated into HEALTHSOUTH without disrupting
or adversely affecting the business of HEALTHSOUTH or ReadiCare.
(ix) The likelihood that the Merger will be consummated.
See "THE MERGER -- Reasons for the Merger; Recommendation of ReadiCare's
Board of Directors".
Opinion of Financial Advisor to ReadiCare. Crowell has served as financial
advisor to ReadiCare in connection with the Merger and has delivered its written
opinion to the Board of Directors of ReadiCare, dated the date of this
Prospectus-Proxy Statement, that, as of such date, the Merger Consideration is
fair from a financial point of view to such stockholders. A copy of the opinion
of Crowell is attached as Annex B to this Prospectus-Proxy Statement and
incorporated herein by reference. ReadiCare stockholders are urged to, and
should, read such opinion carefully in its entirety in conjunction with this
Prospectus-Proxy Statement for assumptions made, matters considered and the
limits of the review by Crowell. See "THE MERGER -- Opinion of Financial Advisor
to ReadiCare".
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger by the Subsidiary and ReadiCare under the
General Corporation Law of the State of Delaware (the "DGCL"), or at such later
time as may be specified in such Certificate of Merger. The Plan requires that
this filing be made, subject to satisfaction of the conditions to the respective
obligations of each party to consummate the Merger, no later than two business
days after satisfaction or waiver of the various conditions to the Merger set
forth in the Plan, or at such other time as may be agreed by HEALTHSOUTH and
ReadiCare. See "THE MERGER -- Effective Time of the Merger" and "-- Conditions
to the Merger".
Exchange of Certificates. As soon as reasonably practicable after the
Effective Time, transmittal materials will be mailed to each holder of record of
ReadiCare Shares for use in exchanging such holder's stock certificates for
certificates evidencing shares of HEALTHSOUTH Common Stock and for receiving
cash in lieu of fractional shares and any dividends or other distributions to
which such holder is entitled as a result of the Merger. STOCKHOLDERS SHOULD NOT
SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. See "THE MERGER -- Exchange
of Certificates".
11
<PAGE>
Representations and Warranties. The Plan contains certain representations and
warranties made by each of the parties thereto. See "THE MERGER --
Representations and Warranties".
Conditions to the Merger. The obligation of each of HEALTHSOUTH, the
Subsidiary and ReadiCare to consummate the Merger is subject to certain
conditions, including approval of the Plan by the ReadiCare stockholders. See
"THE MERGER -- Conditions to the Merger".
Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), provides that certain business mergers
(including the Merger) may not be consummated until certain information has been
furnished to the Department of Justice (the "DOJ") and the Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied. On September 27, 1996, HEALTHSOUTH and ReadiCare made their
respective filings with the DOJ and the FTC with respect to the Plan. Under the
HSR Act, the filings commenced a waiting period of up to 30 days during which
the Merger could not be consummated, which waiting period was terminated on
October 8, 1996. Notwithstanding the early termination of the HSR Act waiting
period, at any time before or after the Effective Time, the FTC, the DOJ or
others could take action under the antitrust laws, including seeking to enjoin
the consummation of the Merger or seeking the divestiture by HEALTHSOUTH of all
or any part of the stock or assets of ReadiCare. There can be no assurance that
a challenge to the Merger on antitrust grounds will not be made or, if such a
challenge were made, that it would not be successful. The operations of each
Company also are subject to a substantial body of federal, state, local and
accrediting body laws, rules and regulations relating to the conduct, licensing
and development of healthcare businesses and facilities. See "THE MERGER --
Regulatory Approvals".
Business Pending the Merger. The Plan provides that, until the Effective
Time, except as provided in the Plan, ReadiCare will use its reasonable best
efforts to preserve intact its present business organizations, to keep available
to HEALTHSOUTH and the Surviving Corporation the services of its present
employees and to preserve the goodwill of customers, suppliers and others having
business dealings with it. See "THE MERGER -- Business Pending the Merger".
Amendment. The Plan provides that, at any time prior to the Effective Time,
the parties may, under certain circumstances, amend or otherwise change the
Plan. See "THE MERGER -- Waiver and Amendment".
Termination. The Plan may be terminated at any time prior to the Effective
Time, whether before or after approval of the Plan by the stockholders of
ReadiCare, under certain circumstances which are set forth in the Plan. See "THE
MERGER -- Termination".
Break-up Fee; Third Party Bids. If the Plan is terminated by ReadiCare
pursuant to a determination by ReadiCare's Board of Directors, in the exercise
of its fiduciary duties under applicable law, not to recommend the Merger to the
holders of ReadiCare Shares, or the ReadiCare Board of Directors shall have
withdrawn such recommendation, or shall have approved, recommended or endorsed
any Acquisition Transaction (as defined in the Plan) other than the Plan, and
within one year after the effective date of such termination ReadiCare is the
subject of a Third Party Acquisition Event (as defined in the Plan), then at the
time of consummation of such a Third Party Acquisition Event ReadiCare shall pay
to HEALTHSOUTH a break-up fee of $8,000,000. In addition, HEALTHSOUTH has agreed
to pay ReadiCare a break-up fee of $1,000,000 in the event that HEALTHSOUTH
terminates the Plan for any reason other than as permitted under the Plan. See
"THE MERGER -- Break-up Fees; Third Party Bids".
Interests of Certain Persons in the Merger. In considering the recommendation
of the Board of Directors of ReadiCare with respect to the Plan and the
transactions contemplated thereby, stockholders of ReadiCare should be aware
that certain members of the management of ReadiCare and its Board of Directors
have certain interests in the Merger in addition to the interests of
stockholders generally.
12
<PAGE>
At the Closing, HEALTHSOUTH has agreed to enter into a Consulting and
Non-Competition Agreement with Dennis G. Danko, Chairman of the Board, President
and Chief Executive Officer of ReadiCare, pursuant to which Mr. Danko will agree
to provide certain consulting services to HEALTHSOUTH and will agree not to
compete with the business of HEALTHSOUTH for a specified term.
In addition, ReadiCare maintains a Change in Control Executive Severance
Benefit Plan which provides certain severance benefits for executive officers
and other key employees of ReadiCare in the event that the employment of such
persons with ReadiCare is terminated without cause within one year following the
date of a Change in Control (as defined in such plan) of ReadiCare or if, within
such period, such employees resign for certain specified reasons. The plan
provides for severance payments to such employees based upon their time in
service with ReadiCare.
See "THE MERGER -- Interests of Certain Persons in the Merger".
Accounting Treatment. It is intended that the Merger will be accounted for as
a pooling of interests. It is a condition to the consummation of the Merger that
each of HEALTHSOUTH and ReadiCare receive a letter from Ernst & Young LLP
regarding that firm's concurrence with the conclusions of the managements of
HEALTHSOUTH and ReadiCare, respectively, as to the appropriateness of
pooling-of-interests accounting for the Merger under Accounting Principles Board
Opinion No. 16 ("APB 16") if closed and consummated in accordance with the Plan.
See "THE MERGER -- Accounting Treatment" and "PRO FORMA CONDENSED FINANCIAL
INFORMATION".
Certain Federal Income Tax Consequences. The Merger is intended to qualify as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Merger so qualifies, no gain or
loss will be recognized by holders of ReadiCare Shares upon their receipt of
HEALTHSOUTH Common Stock in exchange for their ReadiCare Shares, except with
respect to cash received in lieu of fractional shares. The obligation of
ReadiCare and HEALTHSOUTH to consummate the Merger is conditioned upon their
receipt of opinions from their respective counsel to the effect that the Merger
will qualify as a reorganization within the meaning of Section 368(a) of the
Code. Each holder of ReadiCare Shares is urged to consult his or her personal
tax and financial advisors concerning the federal income tax consequences of the
Merger, as well as any state, local, foreign or other tax consequences of the
Merger, based upon such holder's own particular facts and circumstances. See
"THE MERGER -- Certain Federal Income Tax Consequences".
Resale Restrictions. All shares of HEALTHSOUTH Common Stock received by
ReadiCare stockholders in the Merger will be freely transferable, except that
shares of HEALTHSOUTH Common Stock received by persons who are deemed to be
"affiliates" (as such term is defined under the Securities Act) of ReadiCare at
the time of the Special Meeting may be resold by them only in certain permitted
circumstances. See "THE MERGER -- Resale of HEALTHSOUTH Common Stock by
Affiliates".
Appraisal Rights. Holders of ReadiCare Common Stock are not entitled to
appraisal rights under the DGCL with respect to the Merger. See "THE MERGER --
No Appraisal Rights".
NYSE Listing. A listing application will be filed with the NYSE to list the
shares of HEALTHSOUTH Common Stock to be issued to the ReadiCare stockholders in
the Merger. Although no assurance can be given that the NYSE will accept such
shares of HEALTHSOUTH Common Stock for listing, HEALTHSOUTH and ReadiCare
anticipate that these shares will qualify for listing. It is a condition to the
obligation of HEALTHSOUTH, the Subsidiary and ReadiCare to consummate the Merger
that such shares of HEALTHSOUTH Common Stock be approved for listing on the NYSE
upon official notice of issuance at the Effective Time. See "THE MERGER -- NYSE
Listing".
13
<PAGE>
MARKET AND MARKET PRICE
The HEALTHSOUTH Common Stock is listed under the symbol HRC on the NYSE. Set
forth below are the closing prices per share of HEALTHSOUTH Common Stock on the
NYSE on (i) September 10, 1996, the last business day preceding public
announcement of the Merger, and (ii) October 22, 1996:
MARKET PRICE
PER SHARE OF
HEALTHSOUTH
DATE COMMON STOCK
- ----------------------- -----------------
September 10, 1996 ... $35.25
October 22, 1996 ...... $37.25
ReadiCare Common Stock is listed under the symbol RDIC on the Nasdaq National
Market System. Set forth below are the closing prices per share of ReadiCare
Common Stock on the Nasdaq National Market System on (i) September 10, 1996, the
last business day preceding public announcement of the Merger, and (ii) October
22, 1996.
MARKET PRICE
PER SHARE OF
DATE READICARE COMMON STOCK
- ----------------------- ---------------------------
September 10, 1996 ... $5.125
October 22, 1996 ...... $8.625
The following table sets forth certain information as to the high and low
reported sale prices per share of HEALTHSOUTH Common Stock for the periods
indicated. The prices for HEALTHSOUTH Common Stock are as reported on the NYSE
Composite Transactions Tape. HEALTHSOUTH has never paid dividends on its capital
stock. All prices shown have been adjusted for a two-for-one stock split
effected in the form of a 100% stock dividend paid on April 17, 1995.
HEALTHSOUTH
COMMON STOCK
-------------
HIGH LOW
---- ---
1994
First Quarter ......................... $16.13 $11.69
Second Quarter ........................ 17.32 12.63
Third Quarter ......................... 19.69 12.88
Fourth Quarter ........................ 19.32 16.13
1995
First Quarter ......................... $20.44 $18.06
Second Quarter ........................ 21.63 16.32
Third Quarter ......................... 25.75 17.25
Fourth Quarter ........................ 32.38 22.50
1996
First Quarter ......................... $38.13 $27.00
Second Quarter ........................ 38.63 32.32
Third Quarter ......................... 38.63 28.50
Fourth Quarter (through October 22, 1996) 39.75 37.00
14
<PAGE>
The following table sets forth certain information as to the high and low
reported sale prices per share of ReadiCare Common Stock for the periods
indicated, as reported on the Nasdaq National Market System.
READICARE
COMMON STOCK
----------------
PERIOD HIGH LOW
- ---------------------------------------- ------- --------
Fiscal Year Ended February 28, 1995
First Quarter.......................... $2.00 $1.25
Second Quarter......................... $2.00 $1.38
Third Quarter.......................... $1.88 $1.19
Fourth Quarter......................... $1.81 $1.00
Fiscal Year Ended February 29, 1996
First Quarter.......................... $2.75 $1.31
Second Quarter......................... $3.75 $2.12
Third Quarter.......................... $4.06 $2.75
Fourth Quarter......................... $4.50 $2.88
Fiscal Year Ending February 28, 1997
First Quarter.......................... $5.13 $3.69
Second Quarter......................... $6.13 $3.88
Third Quarter (through October 22, 1996) $8.94 $5.13
As of September 30, 1996, there were approximately 3408 record holders
of HEALTHSOUTH Common Stock. As of the ReadiCare Record Date, there were
approximately 374 record holders of ReadiCare Common Stock.
Holders of ReadiCare Shares are advised to obtain current market quotations
for HEALTHSOUTH Common Stock and ReadiCare Common Stock. No assurance can be
given as to the market price of HEALTHSOUTH Common Stock at the Effective Time
or at any other time.
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER
Pursuant to the Plan, following the Effective Time, ReadiCare will be a
wholly-owned subsidiary of HEALTHSOUTH, and all of ReadiCare's subsidiaries and
affiliates will be indirect subsidiaries and affiliates of HEALTHSOUTH.
HEALTHSOUTH will continue its operations as prior to the Merger and will
continue to be managed by the same Board of Directors and executive officers.
See "OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER".
15
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following summary presents selected comparative per share information (i)
for HEALTHSOUTH on a historical basis in comparison with pro forma equivalent
information giving effect to the Merger on a pooling-of-interests basis, and
(ii) for ReadiCare on a historical basis in comparison with its pro forma
equivalent information after giving effect to the Merger, including receipt of
shares of HEALTHSOUTH Common Stock to be issued in exchange for each ReadiCare
Share in accordance with the Exchange Ratio. This financial information should
be read in conjunction with the historical consolidated financial statements of
HEALTHSOUTH and ReadiCare and the related notes thereto contained elsewhere
herein or in documents incorporated herein by reference, and in conjunction with
the unaudited pro forma financial information appearing elsewhere in this
Prospectus-Proxy Statement. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" and "PRO FORMA CONDENSED FINANCIAL INFORMATION".
HEALTHSOUTH has not paid cash dividends since inception (although a company
acquired by HEALTHSOUTH in a pooling-of-interests merger has paid cash dividends
in the past). It is anticipated that HEALTHSOUTH will retain all earnings for
use in the expansion of the business and therefore does not anticipate paying
any cash dividends in the foreseeable future. The payment of future dividends
will be at the discretion of the Board of Directors of HEALTHSOUTH and will
depend, among other things, upon HEALTHSOUTH's earnings, capital requirements,
financial condition and debt covenants.
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the combined results of operations in future
periods or future combined financial position.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- ----------------
1993 1994 1995 1995 1996
--------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income per common share:
HEALTHSOUTH (1)
Historical (primary) ................. $ 0.46 $0.63 $0.62 $0.31 $0.59
Historical (fully diluted)(2) ........ N/A 0.63 0.62 0.31 0.58
Pro forma combined (primary) ......... 0.39 0.62 0.62 0.32 0.59
Pro forma combined (fully diluted)(2) N/A 0.62 0.62 0.32 0.58
ReadiCare
Historical (primary).................. $(1.11) $0.05 $0.15 $0.10 $0.11
Pro forma equivalent (primary)(3)..... 0.09 0.15 0.15 0.08 0.14
Pro forma equivalent (fully diluted)(3) -- 0.15 0.15 0.08 0.14
</TABLE>
AT JUNE 30,
1996
--------------
(UNAUDITED)
Stockholders' equity per weighted average common
and common equivalent share outstanding:
HEALTHSOUTH - historical........................... $7.86
HEALTHSOUTH - pro forma combined................... 7.98
ReadiCare - historical ............................ 1.80
ReadiCare - pro forma equivalent (3)............... 1.93
- ---------
(1) Adjusted to reflect a two-for-one stock split effected in the form of a 100%
stock dividend paid on April 17, 1995.
(2) Fully-diluted earnings per share in 1994 and 1995 and for the six months
ended June 30, 1995 and 1996 reflect shares reserved for issuance upon
exercise of dilutive stock options and shares reserved for issuance upon
conversion of HEALTHSOUTH's 5% Convertible Subordinated Debentures Due 2001.
(3) ReadiCare pro forma equivalent per share data have been calculated by
multiplying the pro forma HEALTHSOUTH amounts by an assumed Exchange Ratio
of .2425.
16
<PAGE>
HEALTHSOUTH'S AND READICARE'S
SELECTED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following selected pro forma financial information for the combined
Companies gives effect to the Merger as a pooling of interests. All of the
following selected pro forma financial information should be read in conjunction
with the pro forma financial information, including the notes thereto, appearing
elsewhere in this Prospectus-Proxy Statement. See "PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION". The pro forma financial information set forth in this
Prospectus-Proxy Statement is not necessarily indicative of the results that
actually would have occurred had the Merger been consummated on the dates
indicated or that may be obtained in the future.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------- -------------------------
1993 1994 (5) 1995 (5) 1995 (5) 1996
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income Statement Data (1):
Revenues ......................................... $1,022,370 $1,852,520 $2,107,019 $1,023,086 $1,215,813
Operating expenses:
Operating units ................................. 702,589 1,316,374 1,449,612 712,153 802,553
Corporate general and administrative ............ 41,974 68,776 66,305 31,795 38,530
Provision for doubtful accounts .................. 20,976 35,323 39,240 20,686 26,647
Depreciation and amortization .................... 65,647 128,833 149,212 72,181 89,758
Interest expense ................................. 24,430 96,407 107,507 54,065 47,610
Interest income .................................. (5,927) (6,469) (8,471) (4,224) (3,707)
Merger and acquisition related expenses........... 333 6,520 34,159 29,194 28,939
NME Selected Hospitals Acquisition related expense 49,742 0 0 0 0
Gain on sale of partnership interest ............. (1,400) 0 0 0 0
Gain on sale of MCA Stock ........................ 0 (7,727) 0 0 0
Loss on impairment of assets ..................... 6,675 10,500 53,549 11,192 0
Loss on abandonment of computer project .......... 0 4,500 0 0 0
Loss on disposal of Surgery Centers .............. 0 13,197 0 0 0
Reserve for discontinued operations............... 1,768 (85) 0 0 0
------------ ------------ ------------ ------------ ------------
906,807 1,666,149 1,891,113 927,042 1,030,330
============ ============ ============ ============ ============
Income before income taxes and minority interests 115,563 186,371 215,906 96,044 185,483
Provision for income taxes ....................... 38,538 65,825 77,389 30,646 60,985
------------ ------------ ------------ ------------ ------------
77,025 120,546 138,517 65,398 124,498
Minority interests ............................... 29,377 32,085 43,252 18,781 24,881
------------ ------------ ------------ ------------ ------------
Income from continuing operations ................ 47,648 88,461 95,265 46,617 99,617
Income from discontinued operations .............. 4,452 0 0 0 0
------------ ------------ ------------ ------------ ------------
Net income ....................................... $ 52,100 $ 88,461 $ 95,265 $ 46,617 $ 99,617
============ ============ ============ ============ ============
Weighted average common and common equivalent
shares outstanding (2) .......................... 135,115 143,417 152,449 146,992 167,849
============ ============ ============ ============ ============
Net income per common and common equivalent share
(2)
Continuing operations .......................... $ 0.36 $ 0.62 $ 0.62 $ 0.32 $ 0.59
Discontinued operations ........................ 0.03 -- -- -- --
------------ ------------ ------------ ------------ ------------
$ 0.39 $ 0.62 $ 0.62 $ 0.32 $ 0.59
============ ============ ============ ============ ============
Net income per common share--assuming full
dilution (2)(3) ................................. N/A $ 0.62 $ 0.62 $ 0.32 $ 0.58
============ ============ ============ ============ ============
</TABLE>
DECEMBER 31,
----------------------------------- JUNE 30,
1993 1994 1995 1996
----------- ----------- ----------- ---------
(IN THOUSANDS)
Balance Sheet Data (1):
Cash and marketable securities $ 152,625 $ 133,509 $ 173,092 $ 119,110
Working capital .............. 292,075 293,132 430,782 443,082
Total assets ................. 1,906,231 2,273,283 3,001,271 3,155,628
Long-term debt (4) ........... 1,011,671 1,142,251 1,396,361 1,426,098
Stockholders' equity.......... 663,334 792,380 1,241,426 1,338,913
- ----------
(1) In addition to ReadiCare, reflects combination of HEALTHSOUTH, ReLife, Inc.
("ReLife"), Surgical Health Corporation ("SHC"), Sutter Surgery Centers,
Inc. ("SSCI"), Surgical Care Affiliates, Inc. ("SCA"), Advantage Health
Corporation ("Advantage Health") and Professional Sports Care Management
Inc. ("PSCM") for all periods presented, as HEALTHSOUTH acquired ReLife in
December 1994, SHC in June 1995, SSCI in October 1995, SCA in January 1996,
Advantage Health in March 1996 and PSCM in August 1996 in transactions
accounted for as poolings of interests.
(2) Adjusted to reflect a two-for-one stock split effected in the form of a 100%
stock dividend paid on April 17, 1995.
(3) Fully-diluted earnings per share reflects shares reserved for issuance upon
conversion of HEALTHSOUTH's 5% Convertible Subordinated Debentures Due 2001,
where applicable.
(4) Includes current portion of long-term debt.
(5) Gives effect to the NovaCare Rehabilitation Hospitals Acquisition as if the
purchase had occurred on January 1, 1994. See "PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION".
17
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus-Proxy Statement, the
following should be considered carefully by holders of ReadiCare Shares.
Regulation. As a result of the continued escalation of healthcare costs and
the inability of many individuals to obtain health insurance, numerous proposals
have been or may be introduced in the United States Congress and state
legislatures relating to healthcare reform. There can be no assurance as to the
ultimate content, timing or effect of any healthcare reform legislation, nor is
it possible at this time to estimate the impact of potential legislation, which
may be material, on HEALTHSOUTH or on the combined Companies. HEALTHSOUTH is
also subject, and the combined Companies will be subject, to various other types
of regulation at the federal and state levels, including, but not limited to,
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. See "BUSINESS OF READICARE -- Healthcare
Reform and Regulations" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE".
THE SPECIAL MEETING
GENERAL
This Prospectus-Proxy Statement is being furnished to holders of ReadiCare
Shares in connection with the solicitation of proxies by the Board of Directors
of ReadiCare for use at the Special Meeting to consider and vote upon a proposal
to approve the Plan and to transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
Each copy of this Prospectus-Proxy Statement mailed to holders of ReadiCare
Common Stock is accompanied by a form of Proxy for use at the Special Meeting.
This Prospectus-Proxy Statement is also furnished to holders of ReadiCare
Shares as a Prospectus in connection with the issuance to them of the shares of
HEALTHSOUTH Common Stock upon consummation of the Merger.
DATE, PLACE AND TIME
The Special Meeting will be held at The Center Club, 650 Town Center Drive,
Costa Mesa, California, on November 26, 1996 at 10:00 a.m., Pacific Time.
RECORD DATE; QUORUM
The Board of Directors of ReadiCare has fixed the close of business on
October 21, 1996, as the ReadiCare Record Date for the determination of holders
of ReadiCare Shares entitled to receive notice of and to vote at the Special
Meeting. The presence, in person or by proxy, of the holders of ReadiCare Shares
entitled to cast a majority of the votes entitled to be cast at the Special
Meeting will constitute a quorum at the Special Meeting.
VOTE REQUIRED
As of the ReadiCare Record Date, there were outstanding and entitled to vote
8,263,824 shares of ReadiCare Common Stock. Each of such ReadiCare Shares is
entitled to one vote on each matter that comes before the Special Meeting.
Approval of the Plan will require the affirmative vote of the holders of a
majority of the outstanding shares of ReadiCare Common Stock entitled to vote at
the Special Meeting. Accordingly, approval of the Plan will require the
affirmative vote of the holders of at least 4,131,913 shares of ReadiCare Common
Stock.
As of the ReadiCare Record Date, ReadiCare's directors and executive officers
and their affiliates beneficially owned an aggregate of 771,000 shares, or
approximately 9.3% of the outstanding shares, of ReadiCare Common Stock
outstanding on such date (excluding shares issuable upon exercise of options).
18
<PAGE>
By the vote of the members of the Board of Directors of ReadiCare at a
special meeting held on September 10, 1996, the ReadiCare Board of Directors
determined that the proposed Merger, and the terms and conditions of the Plan,
were in the best interests of ReadiCare and its stockholders. The Plan and the
Merger were adopted and approved unanimously by the members of the ReadiCare
Board of Directors, who also unanimously resolved to recommend that the
stockholders of ReadiCare vote FOR approval of the Plan.
As a condition to entering into the Plan, HEALTHSOUTH required that Dennis G.
Danko, Chairman of the Board, President and Chief Executive Officer of
ReadiCare, Thomas P. Carey, Senior Vice President, Operations of ReadiCare, and
Harry L. Casari, James M. Hall, and Alfred E. Osborne, Jr., Directors of
ReadiCare, enter into Proxy Agreements with HEALTHSOUTH, pursuant to which each
person agreed that, until the date on which the Plan is terminated and following
such termination during such time as a Third Party Acquisition Event (as defined
therein) exists with respect to ReadiCare, but in no event after the close of
business one year following the termination of the Plan, HEALTHSOUTH shall have
the right to vote an aggregate of 771,000 shares of ReadiCare Common Stock
beneficially owned by such persons (a) in favor of approval of the Plan and the
Merger at every meeting of the stockholders of ReadiCare at which such matters
are considered and at every adjournment thereof, and (b) against any other
proposal for any reorganization. The shares subject to the Proxy Agreements
represent approximately 9.3% of the votes eligible to be cast at the Special
Meeting as of the ReadiCare Record Date.
In the event that the Plan is not approved by ReadiCare stockholders, the
Plan may be terminated in accordance with its terms. See "THE MERGER --
Termination".
VOTING AND REVOCATION OF PROXIES
ReadiCare Shares represented by a Proxy properly signed and received at or
prior to the Special Meeting, unless subsequently revoked, will be voted in
accordance with the instructions thereon. If a Proxy for the Special Meeting is
properly executed and returned without indicating any voting instructions,
ReadiCare Shares represented by the Proxy will be voted FOR approval of the
Plan. Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the Proxy is voted by the filing of an instrument
revoking it or of a duly executed Proxy bearing a later date with the Secretary
of ReadiCare, prior to or at the Special Meeting, or by voting in person at the
Special Meeting. Attendance at the Special Meeting will not in and of itself
constitute a revocation of a Proxy. Only votes cast for approval of the Plan or
other matters constitute affirmative votes. Abstentions and broker non-votes
will, therefore, have the same effect as votes against approval of the Plan with
respect to the Special Meeting.
Proxies sent via facsimile transmission will be accepted if received not
later than 15 minutes prior to the scheduled commencement of the Special
Meeting. Such proxies may be sent via facsimile to Steve E. Busby, Secretary,
ReadiCare, Inc., at (408) 734-4842.
The Board of Directors of ReadiCare is not aware of any business to be acted
upon at the Special Meeting other than as described herein. If, however, other
matters are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment and subject to applicable
rules of the SEC and the DGCL.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
ReadiCare, who will not be specifically compensated for such services, may
solicit proxies from the stockholders of ReadiCare, personally or by telephone
or telegram or other forms of communication. Brokerage houses, nominees,
fiduciaries and other custodians will be requested to forward soliciting
materials to beneficial owners and will be reimbursed for their reasonable
expenses incurred in doing so.
19
<PAGE>
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. THE
PROCEDURE FOR THE EXCHANGE OF SHARES AFTER THE MERGER IS CONSUMMATED IS SET
FORTH ELSEWHERE IN THIS PROSPECTUS-PROXY STATEMENT. SEE "THE MERGER -- EXCHANGE
OF CERTIFICATES".
20
<PAGE>
THE MERGER
The description of the Merger contained in this Prospectus-Proxy Statement
summarizes the principal provisions of the Plan; it is not complete and is
qualified in its entirety by reference to the Plan, the full text of which is
attached hereto as Annex A. All ReadiCare stockholders are urged to read Annex A
in its entirety.
TERMS OF THE MERGER
The acquisition of ReadiCare by HEALTHSOUTH will be effected by means of the
merger of the Subsidiary with and into ReadiCare, with ReadiCare being the
Surviving Corporation. The Certificate of Incorporation of ReadiCare (the
"ReadiCare Certificate") shall become the Certificate of Incorporation of the
Surviving Corporation from and after the Effective Time and until thereafter
amended in accordance with applicable law. The Bylaws of the Subsidiary as in
effect at the Effective Time will govern the Surviving Corporation until amended
or repealed in accordance with applicable law. At the Effective Time, ReadiCare
shall continue as the Surviving Corporation under the name "ReadiCare, Inc.".
At the Effective Time, each outstanding ReadiCare Share (excluding shares
held by ReadiCare and any of its subsidiaries, which shall automatically be
cancelled and retired) will be converted into the right to receive 0.2425 shares
of HEALTHSOUTH Common Stock, as may be adjusted as provided below (the "Exchange
Ratio"); provided, however, that (i) if the Base Period Trading Price (as
defined below) is greater than $38.30, then the Exchange Ratio shall be equal to
the quotient obtained by dividing $9.29 by the Base Period Trading Price,
computed to four decimal places, (ii) if the Base Period Trading Price shall be
less than $30.60, then the Exchange Ratio shall be equal to the quotient
obtained by dividing $7.42 by the Base Period Trading Price, computed to four
decimal places, and (iii) if the Base Period Trading Price shall be less than
$27.20, then the Exchange Ratio shall be .2728. Stockholders may call
1-800-244-7265 beginning at 5:00 p.m., Eastern Time on November 22, 1996 for
information concerning the Exchange Ratio as finally determined.
The term "Base Period Trading Price" means the average of the daily closing
prices per share of HEALTHSOUTH Common Stock for the 20 consecutive trading days
on which such shares are actually traded ending at the close of business on the
second New York Stock Exchange trading day immediately preceding the date of the
Special Meeting. The daily closing price per share shall be the closing price
for NYSE-Composite Transactions as reported in The Wall Street Journal-Eastern
Edition or, if not reported therein, any other authoritative source.
The following table indicates the Exchange Ratio assuming various Base Period
Trading Prices, with the resulting "value" to be received for each ReadiCare
Share:
BASE VALUE TO BE
PERIOD RECEIVED FOR
TRADING EACH READICARE
PRICE EXCHANGE RATIO SHARE
(COL. 1) (COL. 2) (COL. 1 X COL. 2)
- --------------- --------------- --------------------
$26.00........ .2728 $7.09
$27.00........ .2728 $7.37
$27.20........ .2728 $7.42
$29.00........ .2559 $7.42
$30.00........ .2473 $7.42
$30.60........ .2425 $7.42
$32.00........ .2425 $7.76
$34.00........ .2425 $8.24
$36.00........ .2425 $8.73
$38.00........ .2425 $9.21
$38.30........ .2425 $9.29
$40.00........ .2322 $9.29
$42.00........ .2212 $9.29
Thus, as described above, (i) if the Base Period Trading Price exceeds
$38.30, the value to be received for each ReadiCare Share will be fixed at $9.29
and the Exchange Ratio will decrease accordingly, (ii) if the Base Period
Trading Price is less than $30.60 but not less than $27.20, then the value to be
received for each ReadiCare Share will be fixed at $7.42 and the Exchange Ratio
will increase
21
<PAGE>
accordingly, and (iii) if the Base Period Trading Price is less than $27.20,
then the Exchange Ratio will be fixed at .2728 and the value to be received for
each ReadiCare Share, based solely on the Base Period Trading Price, will
fluctuate according to the actual Base Period Trading Price.
As of the Effective Time, all outstanding ReadiCare Shares shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing such shares shall cease to have any rights with
respect thereto, except the right to receive shares of HEALTHSOUTH Common Stock,
cash (without interest) in lieu of fractional shares and any dividends or other
distributions to which such holder is entitled as a result of the Merger. Each
ReadiCare Share that is owned by ReadiCare or any subsidiary of ReadiCare shall
automatically be cancelled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor.
Based upon the number of shares of HEALTHSOUTH Common Stock, excluding shares
obtainable upon exercise of options and convertible securities, outstanding as
of September 30, 1996, the holders of ReadiCare Shares will receive in
the aggregate approximately 1.4% of the outstanding shares of HEALTHSOUTH Common
Stock anticipated to be outstanding immediately after the Effective Time,
assuming an Exchange Ratio of 0.2425.
BACKGROUND OF THE MERGER
Since its inception, ReadiCare has grown to its present size and scope as a
result of the opening of new facilities and the selective acquisition of
existing outpatient healthcare facilities, and through the internal development
of additional services, such as medical cost containment programs and
occupational healthcare services to businesses and industry, among others. In
the mid-1990s, however, ReadiCare refined its strategy in order to focus its
operating and financial resources primarily on improving results at its existing
businesses, rather than actively pursuing external development and expansion
opportunities. This strategy was particularly important in view of the impact on
ReadiCare's operations of the prolonged recession in California during this same
period. The implementation and successful execution of this business plan by
ReadiCare's management resulted in improved financial results, paralleling the
gradual improvements in general economic conditions taking place in markets
served by ReadiCare.
During fiscal 1996, ReadiCare reevaluated its business plan and concluded
that, as a result of a more favorable operating environment, improved results in
ReadiCare's existing operations, and its debt-free financial position, it was in
a position to implement a growth strategy. The growth strategies considered
included the opening of new facilities in existing markets, the acquisition of
additional occupational medical facilities and primary care centers, and
continued expansion of its workers' compensation managed care provider network,
among others.
It was against this background of reporting improved earnings, a strengthened
financial position, a desire to expand externally, and a generally more
favorable business outlook, that in early summer 1996 Dennis G. Danko, Chairman
of the Board, President and Chief Executive Officer of ReadiCare, was approached
by the President of OccuSystems, Inc. ("OccuSystems"), a publicly-held operator
of occupational health centers, who suggested a possible business transaction
between the two companies. Mr. Danko responded by indicating that ReadiCare was
not seeking a buyer, but that ReadiCare's Board of Directors would consider any
formal merger proposal presented by OccuSystems. Subsequently, OccuSystems sent
an unsolicited merger proposal in late June 1996 to members of ReadiCare's Board
of Directors offering to purchase ReadiCare on a tax-free, stock-for-stock,
pooling-of-interests basis, valuing ReadiCare's Common Stock at $7.00 per share.
In early July, Mr. Danko responded to OccuSystems, indicating that its proposal
had been received and that it would be discussed at a meeting of ReadiCare's
Board of Directors scheduled for late July 1996. At its July 25, 1996 meeting,
ReadiCare's Board of Directors reviewed and rejected the OccuSystems proposal.
On July 25, 1996, Mr. Danko advised OccuSystems accordingly, and ReadiCare made
a public announcement of its decision.
Shortly after ReadiCare's public announcement, Mr. Danko received a number of
telephone inquiries from representatives of companies interested in discussing a
possible merger or business combination with ReadiCare. As a result of these
events, ReadiCare's Board of Directors retained Crowell, Weedon & Co.
("Crowell") on July 30, 1996 to review strategic alternatives, including
responding to the unsolicited inquiries.
22
<PAGE>
In addition to responding to the telephone inquiries, one of which was from
HEALTHSOUTH, ReadiCare, with the assistance of Crowell, considered various other
alternatives, including identifying possible merger partners. Public information
packages about ReadiCare were sent to a number of potential merger partners and
interested parties, and dialogue was initiated with a select group of companies.
Meetings with representatives of ReadiCare and interested parties also took
place. In addition, public information about ReadiCare was sent to several
investment banks specializing in the healthcare services industry.
During the month of August and into early September 1996, dialogue continued
with representatives of a number of companies, including HEALTHSOUTH and its
financial advisor. It became increasingly apparent that there existed a
favorable strategic and operating fit between ReadiCare and HEALTHSOUTH that
could benefit ReadiCare and its constituencies, and one that could offer new
expansion opportunities for both ReadiCare and HEALTHSOUTH. At the same time,
other organizations continued to express varying levels of interest in
negotiating a business combination or strategic transaction with ReadiCare.
In late August 1996, HEALTHSOUTH, through Michael D. Martin, Executive Vice
President and Treasurer, communicated a preliminary acquisition proposal to Mr.
Danko, reflecting a transaction to be structured as a tax-free exchange and to
be accounted for as a pooling of interests. The price and exchange ratio
suggested in this preliminary proposal were rejected as inadequate by ReadiCare.
However, dialogue continued with HEALTHSOUTH and other interested parties.
Concurrently, during late August and early September, certain ReadiCare
operating personnel met with certain HEALTHSOUTH personnel at HEALTHSOUTH's
offices in Birmingham, Alabama and elsewhere and, in addition, HEALTHSOUTH
personnel visited the ReadiCare corporate headquarters to undertake due
diligence activities. Soon thereafter, HEALTHSOUTH revised its proposal by
increasing the proposed exchange ratio to .2425, representing a value of
approximately $8.55 per share for each ReadiCare Share based on HEALTHSOUTH's
then-current stock price of $35.25. Mr. Danko communicated HEALTHSOUTH's revised
proposal to the members of ReadiCare's Board of Directors, who were in favor of
proceeding with negotiations with HEALTHSOUTH and instructed Mr. Danko to
proceed accordingly. ReadiCare and HEALTHSOUTH reached general agreement with
respect to the above valuation and exchange ratio and certain other economic
terms. Based upon such economic terms, the parties determined to proceed with a
transaction, subject to each party's conducting additional due diligence
activities, as well as the execution of a definitive merger agreement. The
parties initiated such activities and began negotiating the final terms of a
proposed merger agreement. During this time, although other parties continued to
express interest in discussing a possible transaction with ReadiCare,
indications were that such parties were neither able nor willing to present
final proposals that would be attractive alternatives to the HEALTHSOUTH
proposal for consideration by ReadiCare's Board of Directors.
On September 10, 1996, the ReadiCare Board of Directors held a special
meeting to consider the proposed Plan and Merger and discuss other strategic
alternatives. At such meeting, ReadiCare's financial and legal advisors reviewed
with the Board of Directors the chronology of events that had occurred since
ReadiCare's July 25, 1996 rejection of OccuSystems' offer, the results of due
diligence investigations of HEALTHSOUTH, and the terms of the proposed Merger.
In addition, Crowell delivered its oral opinion to the Board of Directors that,
as of such date, the proposed consideration to be received in the Merger by the
holders of ReadiCare Common Stock was fair, from a financial point of view, to
such holders. After discussion, the members of the Board of Directors of
ReadiCare unanimously approved the Plan and authorized ReadiCare to execute and
deliver the Plan and recommend the Merger for approval by ReadiCare
stockholders. Separately, the Board of Directors of HEALTHSOUTH also met on
September 10, 1996 and approved the Plan. On September 11, 1996, HEALTHSOUTH and
ReadiCare issued a joint press release announcing the execution of the
definitive Plan and the basic terms of the Merger.
REASONS FOR THE MERGER; RECOMMENDATION OF READICARE'S BOARD OF DIRECTORS
The Board of Directors of ReadiCare, in approving the Merger and recommending
it to ReadiCare's stockholders, believes that the terms of the Merger are fair
to the stockholders of ReadiCare and in the
23
<PAGE>
best interests of ReadiCare. The Merger Consideration was negotiated on an arm's
length basis between representatives of ReadiCare and representatives of
HEALTHSOUTH. The Board of Directors concluded, based on the factors stated
below, that the Merger should be approved and recommends that the ReadiCare
stockholders vote in favor of the Merger.
By the unanimous vote of the members of the Board of Directors of ReadiCare
at a special meeting held on September 10, 1996, the Board of Directors
determined that the proposed Merger and the terms and conditions of the Plan
were fair to and in the best interests of ReadiCare and its stockholders and
resolved to recommend that the stockholders of ReadiCare vote for approval and
adoption of the Plan. See "-- Background of the Merger". It should be noted that
members of the Board of Directors and certain management personnel of ReadiCare
holding shares aggregating approximately 9.3% of the outstanding ReadiCare
Common Stock agreed to vote for the Plan under proxy agreements entered into
with HEALTHSOUTH. See "THE SPECIAL MEETING -- Vote Required".
In reaching its conclusions to enter into the Plan and to recommend that the
stockholders of ReadiCare vote for the approval and adoption of the Plan,
ReadiCare's Board of Directors considered a number of factors, including,
without limitation and without assigning relative weights thereto, the
following:
(i) The terms and conditions of the proposed Merger, including the value
of the consideration to be received by the stockholders of ReadiCare and the
fact that the Merger was expected to be treated as a tax-free reorganization.
(ii) The opportunity for holders of ReadiCare Common Stock to continue to
share in the potential for long-term gains in ReadiCare through the ownership
of HEALTHSOUTH Common Stock following the Merger.
(iii) The business reputation and capabilities of HEALTHSOUTH and its
management, HEALTHSOUTH's financial strength, business prospects, market
position and strategic objectives, and the liquidity and historical
performance of HEALTHSOUTH Common Stock.
(iv) A conclusion that further consolidation in the healthcare industry
was inevitable, including those in the occupational health services industry,
which could place ReadiCare at a competitive disadvantage in such an
environment, and that market conditions were favorable for a transaction in
the current time frame.
(v) The compatibility of the respective businesses and management
philosophies of ReadiCare and HEALTHSOUTH with a common emphasis on operating
low cost, efficient healthcare delivery systems.
(vi) The synergies expected as a result of the Merger, including potential
cost savings in overhead-related expenses, and revenue enhancements due to
the addition of HEALTHSOUTH rehabilitative, outpatient and ancillary services
made available to ReadiCare clients.
(vii) The presentation of Crowell delivered to the Board of Directors of
ReadiCare at its special meeting held on September 10, 1996, including
Crowell's oral opinion that the consideration to be received in the Merger
was fair to the stockholders of ReadiCare from a financial point of view.
Crowell has since delivered a written opinion dated the date of this
Prospectus-Proxy Statement, to the effect that the proposed consideration to
be received by the stockholders of ReadiCare pursuant to the Merger is fair
to such stockholders from a financial point of view. See "-- Opinion of
Financial Advisor to ReadiCare".
(viii) The perceived strengths of ReadiCare and HEALTHSOUTH combined,
including the potential expansion developments and information that is
expected to be shared between the two companies after the Merger is
consummated, and the belief of the directors that ReadiCare's business could
be integrated into HEALTHSOUTH without disrupting or adversely affecting the
business of HEALTHSOUTH or ReadiCare.
(ix) The likelihood that the Merger will be consummated.
24
<PAGE>
On September 10, 1996, the HEALTHSOUTH Board of Directors approved the Plan
and the Merger. The HEALTHSOUTH Board of Directors believes that the Merger is
desirable for the following reasons, among others: (i) the Merger will allow
HEALTHSOUTH to expand into new geographic markets and to expand its array of
services in ReadiCare's existing markets; and (ii) the Merger is expected to
enhance HEALTHSOUTH's ability to respond to managed care opportunities in the
occupational medicine and workers' compensation medical services arenas by
further broadening its national network through the addition of ReadiCare's
facilities and product lines.
OPINION OF FINANCIAL ADVISOR TO READICARE
On July 30, 1996, ReadiCare's Board of Directors retained Crowell as its
financial advisor. On September 10, 1996, Crowell made a presentation to
ReadiCare's Board of Directors with respect to the Merger and rendered its oral
opinion that as of such date, based upon the facts and circumstances as they
existed at that time, and subject to certain assumptions, factors and
limitations set forth in such opinion, the consideration (the "Merger
Consideration") to be received by the holders of ReadiCare's Common Stock
pursuant to the Plan was fair from a financial point of view to the holders of
ReadiCare's Common Stock. Crowell subsequently confirmed its September 10, 1996
opinion by delivery of a written opinion dated as of the date of this
Prospectus-Proxy Statement.
The full text of the written opinion of Crowell, dated the date of this
Prospectus-Proxy Statement, which sets forth, among other things, assumptions
made, matters considered and limitations on the review undertaken, is attached
as Annex B to this Prospectus-Proxy Statement and is incorporated herein by
reference. ReadiCare stockholders are urged to read such opinion in its
entirety. Crowell's opinion addresses only the fairness from a financial point
of view of the Merger Consideration and does not constitute a recommendation to
any such stockholder as to how such stockholder should vote at the Special
Meeting. The summary of the opinion of Crowell set forth in this
Prospectus-Proxy Statement is qualified in its entirety by reference to the full
text of such opinion.
In arriving at its opinion, Crowell, among other things, read, reviewed and
analyzed: the Plan; ReadiCare's Annual Reports on Form 10-K for each of the
three fiscal years ended February 28, 1994 and 1995 and February 29, 1996;
HEALTHSOUTH's Annual Reports on Form 10-K for the three years ended December 31,
1995; ReadiCare's Quarterly Reports on Form 10-Q for the quarters ended May 31,
1996 and August 31, 1996; and HEALTHSOUTH's Quarterly Reports on Form 10-Q for
the quarters ended March 31, 1996, and June 30, 1996. In addition, Crowell held
discussions with certain members of the senior management of ReadiCare and
HEALTHSOUTH concerning their respective past and current business operations,
present financial condition and future prospects, together with certain
strategic implications and operational benefits anticipated from the Merger, as
well as the condition and prospects of the occupational health services,
physician practice management and rehabilitation industries in particular and
the healthcare industry in general. Crowell also reviewed the reported price and
trading activity for the ReadiCare Common Stock and the HEALTHSOUTH Common
Stock; compared certain financial and stock information of ReadiCare and
HEALTHSOUTH with similar information for certain publicly-traded companies which
Crowell deemed to be relevant; reviewed the financial terms of certain recent
business combinations in the occupational health services, physician practice
management and rehabilitation industries in particular and the healthcare
industry in general; and performed such other studies and analyses and took into
account such other matters as Crowell deemed necessary.
As described in its opinion, Crowell assumed and relied upon, without
independent verification, the accuracy and completeness of the information
furnished to, or otherwise reviewed by or discussed with, Crowell for purposes
of its opinion. With respect to the financial forecasts used in its analyses,
Crowell assumed that they had been reasonably prepared on bases reflecting the
best currently available estimates and judgments as to the likely future
financial performance of ReadiCare and HEALTHSOUTH and the strategic
implications and operational benefits anticipated from the Merger. Crowell also
assumed, with the consent of the ReadiCare Board of Directors, that the Merger
will be accounted for as a pooling of interests. Crowell did not make an
independent evaluation or appraisal of the assets of ReadiCare or HEALTHSOUTH,
nor was it furnished with any such evaluation or appraisal. Crowell's
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opinion states that Crowell has taken into account general economic, market and
financial conditions and its experience in other transactions, as well as its
experience in securities valuation and its knowledge of the healthcare industry
generally. Crowell's opinion does not imply any conclusion as to the likely
trading range of the HEALTHSOUTH Common Stock following consummation of the
Merger nor does it constitute a recommendation to any stockholder of ReadiCare
as to how such stockholder should vote with respect to the Merger.
The following is a summary of certain financial analyses utilized by Crowell
in connection with providing its oral opinion to ReadiCare's Board of Directors
on September 10, 1996 and does not purport to be a complete description of the
analyses performed by Crowell. Crowell utilized substantially the same types of
financial analyses in preparing its written opinion dated as of the date of this
Prospectus-Proxy Statement as it utilized in providing its oral opinion.
Historical Stock Price Analysis. Crowell reviewed and analyzed the historical
per share market prices and the historical trading volume for ReadiCare over the
period from September 30, 1991 to August 30, 1996. This analysis showed that a
price of $8.55 per share (obtained by multiplying the Exchange Ratio by $35.25,
HEALTHSOUTH's closing price on the New York Stock Exchange on September 10,
1996) was higher than the highest closing price for ReadiCare Common Stock over
the entire period reviewed. Crowell also reviewed the historical per share
market prices and the historical trading volume for HEALTHSOUTH Common Stock
over the period from September 30, 1991 to August 30, 1996. Crowell considered
that prior to the announcement of the Merger, HEALTHSOUTH Common Stock was
trading near its historical high. Crowell compared the closing prices of the
ReadiCare Common Stock and the HEALTHSOUTH Common Stock with those of selected
comparable publicly-traded companies (described below) over the periods from
September 30, 1991 or the date they became public, if later, to August 30, 1996.
Crowell considered that the Plan provides for an adjustment in the Exchange
Ratio which will result, within limits, in an increase, or a decrease, in the
number of shares of HEALTHSOUTH Common Stock to be received by the holders of
ReadiCare Common Stock in the event that the market price per share of
HEALTHSOUTH Common Stock declines, or rises, as the closing date approaches.
Analysis of Selected Comparable Publicly-Traded Companies. Crowell analyzed
and compared certain actual and estimated financial, operating and stock market
information of HEALTHSOUTH, ReadiCare and selected companies in the occupational
health services, physician practice management and rehabilitation industries,
including OccuSystems, Inc., FPA Medical Management, Inc., PhyCor, Inc.,
Pediatrix Medical Group, Inc., MedPartners/Mullikin, Inc., Mariner Health Group,
Inc., NovaCare, Inc., PHP Healthcare Corporation, CORE, Inc., and Renal
Treatment Centers, Inc. (the "Comparable Companies").
Crowell analyzed certain publicly available financial information including
historical revenue growth, operating margins and profitability. In addition,
Crowell compared the ratios of adjusted market capitalization (market
capitalization adjusted by adding debt and preferred stock and subtracting cash
and marketable securities) for HEALTHSOUTH, ReadiCare and the Comparable
Companies as a multiple of the respective companies' latest publicly reported
twelve months ("LTM") revenues, earnings before depreciation, amortization,
interest and taxes ("EBITDA"), and earnings before interest and taxes ("EBIT"),
and market capitalization as a multiple of earnings per share ("EPS") and
projected EPS based on the compilation of research estimates available to the
public through the Institutional Brokers Estimate System, adjusted to reflect
calendar year estimates, for the years 1996 and 1997. Based on the closing stock
prices as of September 10, 1996, this analysis indicated that, for the
Comparable Companies, the range of multiples of adjusted market capitalization
to LTM revenues was 0.9x to 11.0x, with a median multiple of 2.2x; the range of
multiples of adjusted market capitalization to LTM EBITDA was 8.3x to 41.2x,
with a median multiple of 21.8x; and the range of multiples of adjusted market
capitalization to LTM EBIT was 13.8x to 43.7x, with a median multiple of 33.7x.
These compared to multiples of LTM revenues, LTM EBITDA and LTM EBIT of 2.0x,
26.6x and 52.7x, respectively, for ReadiCare, in each case assuming an
acquisition price per share of $8.55, and 4.1x, 14.0x and 19.1x, respectively,
for HEALTHSOUTH. Based on the closing stock prices as of September 10, 1996,
this analysis indicated that, for the Comparable Companies, the range of
price/earnings multiples of market capitalization to
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the estimated calendar 1996 EPS was 10.2x to 52.8x, with a median multiple of
35.9x; and the range of price/earnings multiples of market capitalization to
estimated calendar 1997 EPS was 11.5x to 38.8x, with a median price/earnings
multiple of 31.1x. These compared to corresponding price/earnings multiples of
42.8x and 17.7x, respectively, for ReadiCare, assuming an acquisition price per
share of $8.55 and, for the year 1997, the realization of certain operational
benefits anticipated from the Merger, and 24.7x and 19.4x, respectively, for
HEALTHSOUTH.
Crowell noted that no company used in the analyses described in the preceding
paragraph was identical to ReadiCare or HEALTHSOUTH. Accordingly, the foregoing
analyses necessarily involved complex considerations and judgments concerning
differences in the financial and operating characteristics of ReadiCare and
HEALTHSOUTH and other factors, including total debt, goodwill and cash flow,
among others, that could affect the public trading value of the companies to
which they were being compared.
Analysis of Recent Selected Comparable Mergers and Acquisitions. Crowell
reviewed and analyzed ten pending and/or recently completed mergers and
acquisitions of selected healthcare companies. Crowell noted that for these
transactions, the range of multiples of aggregate transaction values (equity
purchase price plus debt assumed less cash and marketable securities) to LTM
revenues was 0.7x to 5.3x, with a median of 1.4x; LTM EBITDA was 5.3x to 17.2x,
with a median of 10.9x; and LTM EBIT was 7.9x to 22.4x, with a median of 14.1x.
These compared to the aggregate transaction value for the Merger, assuming an
acquisition price per share of $8.55, to LTM revenues, LTM EBITDA and LTM EBIT
for ReadiCare of 2.0x, 26.6x and 52.7x, respectively. Crowell also noted that
for these transactions, the range of multiples of aggregate transaction value to
LTM net income was 12.5x to 63.6x, with a median of 30.7x, as compared to 59.4x
for ReadiCare, assuming an acquisition price per share of $8.55.
Crowell noted that no transaction reviewed was identical to the Merger and
that, accordingly, an analysis of the results of the foregoing comparable
transactions necessarily involved complex considerations and judgments
concerning differences in the financial and operating characteristics of
ReadiCare and other factors that would affect the acquisition value of the
companies to which it was being compared.
Contribution Analysis. Crowell reviewed certain historical and forecasted
future operating and financial information (including, among other things,
revenues, EBITDA, EBIT and net income) for HEALTHSOUTH, ReadiCare and the pro
forma combined entity assuming the realization of certain operational benefits
anticipated from the Merger and based on management's internal estimates for
ReadiCare and estimates of selected investment banking firms for HEALTHSOUTH.
Crowell observed that, based on the closing price of the HEALTHSOUTH Common
Stock of $35.25 on September 10, 1996, HEALTHSOUTH stockholders are expected to
own approximately 98.8% of the HEALTHSOUTH equity at the close of the Merger,
and that ReadiCare stockholders are expected to own approximately 1.2% of the
HEALTHSOUTH equity at the close of the Merger. Such analysis indicated that for
calendar 1996, ReadiCare would contribute approximately 1.6% of revenue, 0.5% of
EBITDA, 0.4% of EBIT and 0.8% of net income of the combined entity. For calendar
1997, assuming the realization of certain operational benefits anticipated from
the Merger, ReadiCare would contribute approximately 1.7% of revenue, 0.9% of
EBITDA, 0.9% of EBIT, and 1.2% of net income of the combined entity.
Pro Forma Earnings Analysis. Crowell reviewed and analyzed certain pro forma
financial effects of the Merger, including the effect on the forecasted earnings
per share of HEALTHSOUTH following the Merger. Crowell also reviewed the
estimates of forecasted earnings per share of selected investment banking firms
with respect to HEALTHSOUTH. This analysis showed the Merger could be accretive
to HEALTHSOUTH's forecasted fiscal year 1997 EPS, assuming that certain
operational benefits anticipated from the Merger are realized. The actual
operating results or financial position achieved by the combined company may
vary from the projected results and the variations may be material.
Other Analyses. Crowell also reviewed selected investment research reports
on, and earnings estimates for, HEALTHSOUTH and ReadiCare and analyzed available
information regarding the ownership of ReadiCare Common Stock and HEALTHSOUTH
Common Stock.
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General. As described above, certain of the analyses performed by Crowell
relied on estimates of future financial performance discussed with the
management of ReadiCare and, in the case of HEALTHSOUTH, research reports
published by selected investment banking firms. In discussions of such analyses
with the Board of Directors of ReadiCare, Crowell indicated that such estimates
were subject to additional levels of uncertainty as a result of recent
healthcare reform proposals which might adversely impact, among other things,
the pricing of rehabilitation services and trends in rehabilitation admissions
and occupancy rates. In addition, these estimates are subject to the ability to
realize operational benefits anticipated from the Merger.
The foregoing summary does not purport to be a complete description of the
analyses performed by Crowell. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analysis or
summary description. Selecting portions of the analyses or of the summary set
forth above, without considering the analyses in their entirety, could create an
incomplete view of the processes underlying Crowell's opinion. In arriving at
its fairness determination, Crowell considered the results of all such analyses.
The analyses were prepared solely for purposes of Crowell's providing its
opinion to ReadiCare's Board of Directors as to the fairness of the Merger
Consideration to the holders of ReadiCare Common Stock and do not purport to be
appraisals or to reflect the prices at which ReadiCare or its securities
actually may be sold. Analyses based upon forecasts of future results are not
necessarily indicative of actual future results, which may be materially less
favorable than suggested by such analyses.
Crowell is a nationally recognized investment banking firm and, as a
customary part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of securities, private
placements and valuations and estate planning, as well as for corporate and
other purposes. The ReadiCare Board of Directors engaged Crowell to act as its
financial advisor because of previous working relationships between ReadiCare
and Crowell and Crowell's reputation and familiarity with ReadiCare.
Pursuant to the terms of an engagement letter dated July 30, 1996, ReadiCare
has agreed to pay Crowell a transaction fee, upon consummation of the Merger,
equal to approximately 1.0% of the aggregate value of the consideration paid in
connection with the Merger. In addition, ReadiCare has agreed to indemnify
Crowell and certain related persons against certain liabilities, including
certain liabilities under the federal securities laws, related to, or arising
out of, its engagement.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a Certificate of Merger
by the Subsidiary and ReadiCare under the DGCL, or at such later time as may be
specified in such Certificate of Merger. The Plan requires that this filing be
made, subject to satisfaction or waiver of the separate conditions to the
obligations of each party to consummate the Merger, no later than two business
days after satisfaction or waiver of the various conditions to the Merger set
forth in the Plan, or at such other time as may be agreed by HEALTHSOUTH and
ReadiCare. It is presently anticipated that such filing will be made as soon as
reasonably possible after the Special Meeting and after all regulatory approvals
have been obtained, and that the Effective Time will occur upon such filing.
However, there can be no assurance as to whether or when the Merger will occur.
See "-- Conditions to the Merger" and "-- Regulatory Approvals".
EXCHANGE OF CERTIFICATES
From and after the Effective Time, each holder of a stock certificate which
immediately prior to the Effective Time represented outstanding ReadiCare Shares
(collectively, the "Certificates") will be entitled to receive in exchange
therefor, upon surrender thereof to the Exchange Agent (as defined in the Plan),
a certificate or certificates representing the number of whole shares of
HEALTHSOUTH Common Stock into which such holder's ReadiCare Shares have been
converted, cash in lieu of fractional shares and any dividends or other
distributions to which such holder is entitled as a result of the Merger.
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As soon as reasonably practicable after the Effective Time, HEALTHSOUTH will
deliver through the Exchange Agent to each holder of record of ReadiCare Shares
at the Effective Time transmittal materials for use in exchanging the
Certificates for certificates for shares of HEALTHSOUTH Common Stock. After the
Effective Time, there will be no transfers on the stock transfer books of
ReadiCare Shares which were issued and outstanding immediately prior to the
Effective Time and converted in the Merger.
No fractional shares of HEALTHSOUTH Common Stock and no certificates or scrip
therefor, or other evidence of ownership thereof, will be issued in the Merger;
instead, HEALTHSOUTH will pay to each holder of ReadiCare Shares who would
otherwise be entitled to a fractional share an amount of cash in an amount equal
to the value of such fractional part of a share of HEALTHSOUTH Common Stock. See
"-- Terms of the Merger".
The certificates representing shares of HEALTHSOUTH Common Stock, the
fractional share payment (if any) which any holder of ReadiCare Shares is
entitled to receive, and any dividends or other distributions paid on such
HEALTHSOUTH Common Stock prior to the delivery to HEALTHSOUTH of the
Certificates, will not be delivered to such stockholder until the Certificates
are delivered to HEALTHSOUTH through the Exchange Agent (as defined in the
Plan). No interest will be paid on dividends or other distributions or on any
fractional share payment which the holder of such shares shall be entitled to
receive upon such delivery.
At the Effective Time, holders of ReadiCare Shares immediately prior to the
Effective Time will cease to be, and shall have no rights as, stockholders of
ReadiCare, other than the right to receive the shares of HEALTHSOUTH Common
Stock into which such shares have been converted and any fractional share
payment and any dividends or other distributions to which they may be entitled
under the Plan. Holders of ReadiCare Shares will be treated as stockholders of
record of HEALTHSOUTH for purposes of voting at any annual or special meeting of
stockholders of HEALTHSOUTH after the Effective Time, both before and after such
time as they exchange their Certificates for certificates of HEALTHSOUTH Common
Stock as provided in the Plan.
Neither HEALTHSOUTH nor ReadiCare will be liable to any holder of ReadiCare
Shares for any shares of HEALTHSOUTH Common Stock (or dividends or other
distributions with respect thereto) or cash in lieu of fractional shares
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
REPRESENTATIONS AND WARRANTIES
The Plan contains various customary representations and warranties of the
parties thereto. The representations and warranties of HEALTHSOUTH and the
Subsidiary, made jointly and severally, include, but are not limited to,
representations as to: (i) the corporate organization of the Subsidiary, (ii)
the power and authority of the Subsidiary to execute and perform the Plan and
(iii) the absence of contracts, liabilities and legal proceedings relating to or
affecting the Subsidiary.
The representations and warranties of HEALTHSOUTH include, but are not
limited to, representations as to: (i) the organization of HEALTHSOUTH, (ii) the
power and authority of HEALTHSOUTH to execute, deliver and perform the Plan,
(iii) the capitalization of HEALTHSOUTH, (iv) ownership of Subsidiary Common
Stock by HEALTHSOUTH, (v) the fact that HEALTHSOUTH has furnished ReadiCare with
true and complete copies of certain reports, schedules, registration statements
and proxy statements filed by HEALTHSOUTH with the SEC since January 1, 1995,
(vi) the absence of material legal proceedings against HEALTHSOUTH, (vii) the
fact that HEALTHSOUTH has not incurred any material adverse changes since June
30, 1996, (viii) HEALTHSOUTH's investment intent with respect to the ReadiCare
Shares acquired, and (ix) the absence of untrue representations by HEALTHSOUTH
in the Plan or in connection with the Merger.
The representations and warranties of ReadiCare include, but are not limited
to, representations and warranties as to: (i) the organization of ReadiCare and
its subsidiaries, (ii) the power and authority of ReadiCare to execute, deliver
and perform the Plan, (iii) the capitalization of ReadiCare, (iv) the fact that
ReadiCare has furnished HEALTHSOUTH with true and complete copies of certain
reports,
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schedules, registration statements and proxy statements filed by ReadiCare with
the SEC since January 1, 1995, (v) the absence of material legal proceedings
against ReadiCare, (vi) the validity of ReadiCare's material contracts, (vii)
the fact that ReadiCare has not incurred any material adverse changes since May
31, 1996, (viii) the status of ReadiCare's accounts receivable, (ix) the opinion
of ReadiCare's financial advisor, (x) the filing of ReadiCare's tax returns,
(xi) ReadiCare's employee benefits, (xii) ReadiCare's licenses, accreditation
and regulatory approvals, (xiii) ReadiCare's compliance with laws in general,
(xiv) the vote required by holders of ReadiCare capital stock to approve the
Plan, and (xv) the absence of untrue representations by ReadiCare in the Plan or
in connection with the Merger.
CONDITIONS TO THE MERGER
The obligation of HEALTHSOUTH and the Subsidiary to consummate the Merger is
subject to, among others, the following conditions: (i) ReadiCare shall have
performed all of its obligations as contemplated by the Plan at or prior to the
consummation date of the Merger; (ii) the representations and warranties of
ReadiCare set forth in the Plan shall be true and correct in all material
respects as of the dates specified in the Plan; (iii) HEALTHSOUTH shall have
received the opinion of its counsel that the Merger constitutes a tax-free
reorganization under the Code; (iv) HEALTHSOUTH and the Subsidiary shall have
obtained, or obtained the transfer of, any licenses, certificates of need and
other regulatory approvals necessary to allow the Surviving Corporation to
operate the ReadiCare facilities, unless the failure to obtain such transfer or
approval would not have a material adverse effect on the Surviving Corporation;
and (v) HEALTHSOUTH shall have received an opinion of ReadiCare's counsel
substantially in the form specified in the Plan.
The obligation of ReadiCare to consummate the Merger is subject to, among
others, the following conditions: (i) HEALTHSOUTH and the Subsidiary shall have
performed all of their obligations as contemplated by the Plan at or prior to
the consummation of the Merger; (ii) the representations and warranties of
HEALTHSOUTH and the Subsidiary set forth in the Plan shall be true and correct
as of the dates specified in the Plan; (iii) ReadiCare shall have received the
opinion of its counsel that the Merger constitutes a tax-free reorganization
under the Code; and (iv) ReadiCare shall have received an opinion of
HEALTHSOUTH's counsel substantially in the form specified in the Plan.
The obligation of each of HEALTHSOUTH, the Subsidiary and ReadiCare to
consummate the Merger is subject to certain additional conditions, including the
following: (i) no order, decree or injunction by a court of competent
jurisdiction preventing the consummation of the Merger or imposing any material
limitation on the ability of HEALTHSOUTH effectively to exercise full rights of
ownership of the common stock of the Surviving Corporation or any material
portion of the assets or business of ReadiCare shall be in effect; (ii) no
statute, rule or regulation shall have been enacted by the government of the
United States or any state, municipality or other political subdivision thereof
that makes the consummation of the Merger or any other transaction contemplated
by the Plan illegal; (iii) the waiting period under the HSR Act shall have
expired or shall have been terminated; (iv) the Registration Statement shall
have been declared effective under the Securities Act and shall not be subject
to any stop order; (v) the Merger shall have been approved by the requisite vote
of the holders of the outstanding ReadiCare Shares entitled to vote thereon;
(vi) the shares of HEALTHSOUTH Common Stock to be issued in connection with the
Merger shall have been approved for listing on the NYSE upon official notice of
issuance; and (vii) the Merger shall qualify for pooling-of-interests accounting
treatment and HEALTHSOUTH and ReadiCare each shall have received a letter from
Ernst & Young LLP, dated the Closing Date of the Merger, regarding that firm's
concurrence with the conclusions of the managements of HEALTHSOUTH and
ReadiCare, respectively, as to the appropriateness of pooling-of-interests
accounting for the Merger under APB 16 if closed and consummated in accordance
with the Plan.
REGULATORY APPROVALS
The HSR Act prohibits consummation of the Merger until certain information
has been furnished to the Antitrust Division of the DOJ and the FTC and certain
waiting period requirements have been satisfied. On September 27, 1996,
HEALTHSOUTH and ReadiCare made their respective filings with the DOJ and the FTC
with respect to the Plan. Under the HSR Act, the filings commenced a waiting
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period of up to 30 days during which the Merger could not be consummated, which
waiting period was terminated on October 8, 1996. Notwithstanding the early
termination of the HSR Act waiting period, at any time before or after the
Effective Time, the FTC, the DOJ or others could take action under the antitrust
laws, including seeking to enjoin the consummation of the Merger or seeking the
divestiture by HEALTHSOUTH of all or any part of the stock or assets of
ReadiCare. There can be no assurance that a challenge to the Merger on antitrust
grounds will not be made or, if such a challenge were made, that it would not be
successful.
As conditions precedent to the consummation of the Merger, the Plan requires,
among other things: (i) that the HSR Act waiting period has expired or been
terminated, and (ii) that all other governmental approvals required for the
consummation of the Merger have been obtained, except where the failure to
obtain such approvals would not have a material adverse effect on the business
of the Surviving Corporation.
HEALTHSOUTH and ReadiCare believe that the Merger does not violate the
antitrust laws and intend to resist vigorously any assertion to the contrary by
the FTC, the DOJ or others. Any such resistance could delay consummation of the
Merger, perhaps for a considerable period. Prior to the Merger, the FTC or the
DOJ could seek to enjoin the consummation of the Merger under the federal
antitrust laws or require that HEALTHSOUTH or ReadiCare divest certain assets to
avoid such a proceeding. The FTC or DOJ could also, following the Merger, take
action under the federal antitrust laws to rescind the Merger, to require
divestiture of assets of either HEALTHSOUTH or ReadiCare, or to obtain other
relief.
Certain other persons, such as states' attorneys general and private parties,
could challenge the Merger as violative of the antitrust laws and seek to enjoin
the consummation of the Merger and, in the case of private persons, also to
obtain treble damages. There can be no assurance that a challenge to the Merger
on antitrust grounds will not be made or, if such a challenge is made, that it
would not be successful. Neither HEALTHSOUTH nor ReadiCare intends to seek any
further stockholder approval or authorization of the Plan as a result of any
action that it may take to resist or resolve any FTC, DOJ or other objections,
unless required to do so by applicable law.
The operations of each Company are subject to a substantial body of federal,
state, local and accrediting body laws, rules and regulations relating to the
conduct, licensing and development of healthcare businesses and facilities. As a
result of the Merger, certain of the arrangements between ReadiCare and
third-party payors may be deemed to have been transferred, requiring the
approval and consent of such payors. It is anticipated that, prior to the time
this Prospectus-Proxy Statement is mailed to the stockholders of ReadiCare, all
filings required to be made prior to such date to obtain the consents and
approvals required from federal and state healthcare regulatory bodies and
agencies will have been made. However, certain of such filings cannot be made
under the applicable laws, rules and regulations until after the Effective Time.
Although no assurances to this effect can be given, it is anticipated that the
Companies will be able to obtain any required consent or approval.
BUSINESS PENDING THE MERGER
The Plan provides that, during the period from the date of the Plan to the
Effective Time, except as provided in the Plan, HEALTHSOUTH and ReadiCare will
conduct their respective businesses in the usual, regular and ordinary course in
substantially the same manner as previously conducted, and ReadiCare will use
its reasonable best efforts to preserve intact its present business
organizations and to preserve its relationships with customers, suppliers and
others having business dealings with it.
Under the Plan, ReadiCare may not (other than as required pursuant to or
contemplated by the terms of the Plan and related documents), without first
obtaining the written consent of HEALTHSOUTH, (i) encumber any asset or enter
into any transaction or make any contract or commitment relating to its
properties, assets and business, other than in the ordinary course of business
or as otherwise disclosed in the Plan; (ii) enter into any employment contract
which is not terminable upon notice of 30 days or less, at will and without
penalty to it, except as provided in the Plan; (iii) enter into any contract or
agreement which cannot be performed within three months or which involves the
expendi-
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ture of over $50,000; (iv) issue or sell, or agree to issue or sell, any shares
of its capital stock or other securities of ReadiCare except upon exercise of
currently outstanding stock options or warrants; (v) make any payment or
distribution to the trustee under any bonus, pension, profit sharing or
retirement plan or incur any obligation to make any such payment or contribution
which is not in accordance with ReadiCare's usual past practice, or make any
payment or contributions or incur any obligation pursuant to or in respect of
any other plan or contract or arrangement providing for bonuses, executive
incentive compensation, pensions, deferred compensation, retirement payments,
profit sharing or the like, establish or enter into any such plan, contract or
arrangement, or terminate any such plan; (vi) extend credit to anyone, except in
the ordinary course of business consistent with past practices; (vii) guarantee
the obligation of any person, firm or corporation, except in the ordinary course
of business consistent with past practices; (viii) amend its Certificate of
Incorporation or Bylaws; (ix) discharge or satisfy any material lien or
encumbrance or pay or satisfy any material obligation or liability (absolute,
accrued, contingent or otherwise) other than liabilities shown or reflected on
the ReadiCare May 31, 1996 balance sheet; (x) increase or establish any reserve
for taxes or any other liability on its books or otherwise provide therefor
which would have a material adverse effect on ReadiCare, except as may be
required due to income or operations of ReadiCare since May 31, 1996; (xi)
mortgage, pledge or subject to any lien, charge or other encumbrance any of the
assets, tangible or intangible, which assets are material to the consolidated
business or financial condition of ReadiCare; (xii) sell or transfer any of the
assets material to the consolidated business of ReadiCare, cancel any material
debts or claims or waive any material rights, except in the ordinary course of
business; (xiii) grant any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
ReadiCare to any officer or employee, consultant or agent (other than normal
merit increases) or, by means of any bonus or pension plan, contract or other
commitment, increase in a material respect the compensation of any officer,
employee, consultant or agent; (xiv) except for the Plan and the other
agreements executed and delivered pursuant to the Plan, enter into any material
transaction other than in the ordinary course of business or permitted under the
Plan; (xv) issue any stock, bonds or other securities, other than stock issued
pursuant to options or warrants that are disclosed in the Plan; and (xvi) incur
any material adverse change.
WAIVER AND AMENDMENT
The Plan provides that, at any time prior to the Effective Time, HEALTHSOUTH
and ReadiCare may (i) extend the time for the performance of any of the
obligations or other acts of the other party contained in the Plan; (ii) waive
any inaccuracies in the representations and warranties of the other party
contained in the Plan or in any document delivered pursuant to the Plan; and
(iii) waive compliance with the agreements or conditions under the Plan. In
addition, the Plan may be amended at any time upon the written agreement of
HEALTHSOUTH and ReadiCare without the approval of stockholders of either
Company, except that after the Special Meeting no amendment may be made which by
law requires a further approval by the stockholders of ReadiCare without such
further approval's being obtained.
TERMINATION
The Plan may be terminated at any time prior to the Effective Time, whether
before or after approval of the Plan by the stockholders of ReadiCare: (i) by
mutual written consent of HEALTHSOUTH, the Subsidiary and ReadiCare; (ii) by
either HEALTHSOUTH or ReadiCare if there is a material breach on the part of the
other party of any representation, warranty, covenant or other agreement set
forth in the Plan which is not cured as provided in the Plan; (iii) by either
HEALTHSOUTH or ReadiCare if any governmental entity or court of competent
jurisdiction shall have issued a final, permanent order, decree, or ruling or
other action enjoining or otherwise prohibiting the Merger and such order,
decree, or ruling or other action shall have become non-appealable; (iv) by
either HEALTHSOUTH or ReadiCare if the Merger has not been consummated on or
before January 31, 1997 (or such later date as may be determined under the
Plan), unless the failure to consummate the Merger by such time is due to the
breach of the Plan by the party seeking to terminate the Plan; (v) by either
HEALTHSOUTH or ReadiCare if any required approval of the Plan by stockholders of
32
<PAGE>
ReadiCare has not been obtained by the required votes at a duly held meeting of
stockholders; (vi) by ReadiCare, if ReadiCare's Board of Directors shall have
determined, in the exercise of its fiduciary duties under applicable law, not to
recommend the Merger to the stockholders of ReadiCare or shall have withdrawn
such recommendation, or shall have approved, recommended or endorsed any
proposal to acquire ReadiCare upon a merger, purchase of assets, purchase of or
tender offer for shares of ReadiCare or similar transaction other than the
Merger, or shall have resolved to do any of the foregoing and (vii) by either
HEALTHSOUTH or ReadiCare if such party has not received by September 30, 1996 a
letter from Ernst & Young LLP regarding that firm's concurrence with the
conclusions of the managements of HEALTHSOUTH and ReadiCare, respectively, as to
the appropriateness of pooling-of-interests accounting for the Merger under APB
16 if closed and consummated in accordance with the Plan. Such letter was
received by HEALTHSOUTH and ReadiCare on such date.
BREAK-UP FEES; THIRD PARTY BIDS
If the Plan is terminated by ReadiCare because its Board of Directors (i) has
determined, in the exercise of its fiduciary duties under applicable law, not to
recommend the Merger to the holders of ReadiCare Shares, or shall have withdrawn
such recommendation, or (ii) shall have approved, recommended or endorsed an
Acquisition Transaction (as defined in the Plan) other than the Plan, and within
one year after the effective date of such termination ReadiCare is the subject
of a Third Party Acquisition Event (as defined in the Plan), then at the time of
consummation of such a Third Party Acquisition Event, ReadiCare shall pay to
HEALTHSOUTH a break-up fee of $8,000,000. In addition, HEALTHSOUTH has agreed to
pay ReadiCare a break-up fee of $1,000,000 in the event that HEALTHSOUTH
terminates the Plan for any reason other than as permitted under the Plan.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board of Directors of ReadiCare
with respect to the Plan and the transactions contemplated thereby, stockholders
of ReadiCare should be aware that certain members of the management of ReadiCare
and the Board of Directors of ReadiCare have certain interests in the Merger
that are in addition to the interests of the stockholders generally.
At the Closing (as defined in the Plan), HEALTHSOUTH has agreed to enter into
a Consulting and Non-Competition Agreement with Dennis G. Danko, Chairman of the
Board, President and Chief Executive Officer of ReadiCare, pursuant to which Mr.
Danko has agreed to provide certain consulting services to HEALTHSOUTH and has
agreed to refrain from competing with the business of HEALTHSOUTH during the
term of such agreement. Such agreement has an initial term of three years. Under
such agreement, HEALTHSOUTH has agreed to pay Mr.
Danko a fee at the annual rate of $375,000.
In addition, ReadiCare maintains a Change in Control Executive Severance
Benefit Plan which provides certain severance benefits for executive officers
and other key employees of ReadiCare in the event that the employment of such
persons with ReadiCare is terminated without cause within one year following the
date of a Change in Control (as defined in such plan) of ReadiCare or if, within
such period, such employees resign for certain specified reasons. The plan
provides for certain severance compensation to such employees based upon their
time in service with ReadiCare.
INDEMNIFICATION
The Plan provides that ReadiCare shall, and after the Effective Time
HEALTHSOUTH and the Surviving Corporation shall, indemnify, defend and hold
harmless each person who is, or has ever been at any time prior to the Effective
Time, an officer, director or employee of ReadiCare or any of its subsidiaries
(the "Indemnified Parties") against all losses, claims, damages, costs,
expenses, liabilities or judgments, or amounts that are paid in settlement with
the approval of the indemnifying party, in connection with any claim arising, in
whole or in part, out of the fact that such person is or was a director, officer
or employee of ReadiCare, pertaining to a matter occurring or existing at or
prior to the Effective Time.
33
<PAGE>
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by HEALTHSOUTH and
ReadiCare of an opinion from Ernst & Young LLP, HEALTHSOUTH's independent
auditors, regarding that firm's concurrence with the conclusions of the
managements of HEALTHSOUTH and ReadiCare, respectively, as to the
appropriateness of pooling-of-interests accounting for the Merger under APB 16
if closed and consummated in accordance with the Plan. HEALTHSOUTH and ReadiCare
have agreed not to intentionally take or cause to be taken any action that would
disqualify the Merger as a pooling of interests for accounting purposes.
Under the pooling-of-interests method of accounting, the historical basis of
the assets and liabilities of HEALTHSOUTH and ReadiCare will be combined at the
Effective Time and carried forward at their previously recorded amounts, the
stockholders' equity accounts of HEALTHSOUTH and ReadiCare will be combined on
HEALTHSOUTH's consolidated balance sheet and no goodwill or other intangible
assets will be created. Financial statements of HEALTHSOUTH issued after the
Merger will be restated retroactively to reflect the consolidated operations of
HEALTHSOUTH and ReadiCare as if the Merger had taken place prior to the periods
covered by such financial statements.
The unaudited condensed combined pro forma financial information contained in
this Prospectus-Proxy Statement has been prepared using the pooling-of-interests
accounting method to account for the Merger. See "PRO FORMA CONDENSED FINANCIAL
INFORMATION".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the principal federal income tax
consequences of the Merger to the holders of ReadiCare Shares. The discussion is
based on currently existing provisions of the Code, Treasury Regulations
thereunder, administrative rulings and court decisions. All of the foregoing are
subject to change and any such change can affect the continuing validity of this
discussion. This summary applies to holders of ReadiCare Shares who hold their
ReadiCare Shares as capital assets. This summary does not discuss all aspects of
income taxation that may be relevant to a particular holder of ReadiCare Shares
in light of such holder's specific circumstances or to certain types of holders
subject to special treatment under the federal income tax laws (for example,
foreign persons, dealers in securities, banks and other financial institutions,
insurance companies, tax-exempt organizations and holders who acquired ReadiCare
Shares pursuant to the exercise of options or otherwise as compensation or
through a tax-qualified retirement plan or holders who are subject to the
alternative minimum tax provisions of the Code), and it does not discuss any
aspect of state, local, foreign or other tax law.
It is a condition to the consummation of the Merger that ReadiCare receive an
opinion from its counsel, McIntyre, Borges & Burns ("McIntyre Borges"), and that
HEALTHSOUTH receive an opinion from its counsel, Haskell Slaughter & Young,
L.L.C. ("Haskell Slaughter", and together with McIntyre Borges, "Tax Counsel"),
substantially to the effect that for federal income tax purposes the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
Consistent with such opinions, it is expected that the material federal income
tax consequences of the Merger will be that: (i) no gain or loss will be
recognized by HEALTHSOUTH, the Subsidiary or ReadiCare as a result of the
Merger, (ii) no gain or loss will be recognized by the stockholders of ReadiCare
upon the exchange of their ReadiCare Shares solely for shares of HEALTHSOUTH
Common Stock pursuant to the Merger, except that a ReadiCare stockholder who
receives cash proceeds in lieu of a fractional share of HEALTHSOUTH Common Stock
will recognize gain or loss equal to the difference, if any, between such
stockholder's tax basis allocated to such fractional share (as described in
clause (iii) below) and the amount of cash received, and such gain or loss will
constitute capital gain or loss if such stockholder's ReadiCare Shares with
respect to which gain or loss is recognized are held as a capital asset at the
Effective Time, (iii) the aggregate tax basis of the shares of the HEALTHSOUTH
Common Stock received solely in exchange for ReadiCare Shares pursuant to the
Merger (including fractional shares of HEALTHSOUTH Common Stock for which cash
is received) will be the same as the aggregate tax basis of the ReadiCare Shares
exchanged therefor, and (iv) the holding period for HEALTHSOUTH Common Stock
received in exchange for ReadiCare Shares pursuant to the Merger will include
the holding period of the ReadiCare Shares exchanged therefor, provided such
ReadiCare Shares were held as a capital asset at the Effective Time.
34
<PAGE>
Neither HEALTHSOUTH nor ReadiCare has requested or will receive an advance
ruling from the Internal Revenue Service (the "Service") as to the federal
income tax consequences of the Merger. In rendering their opinions, Tax Counsel
may receive and will rely upon representations contained in certificates of
HEALTHSOUTH, the Subsidiary, ReadiCare and others. Tax Counsel's opinions will
be subject to certain limitations and qualifications and will be based upon the
truth and accuracy of these representations and upon certain factual assumptions
and represent Tax Counsel's best legal judgment. The tax opinions are not
binding on the Service or the courts and do not preclude the Service from
adopting a contrary position.
EACH HOLDER OF READICARE SHARES IS URGED TO CONSULT SUCH HOLDER'S TAX ADVISOR
AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
RESALE OF HEALTHSOUTH COMMON STOCK BY AFFILIATES
The shares of HEALTHSOUTH Common Stock to be issued to holders of ReadiCare
Shares in connection with the Merger have been registered under the Securities
Act. HEALTHSOUTH Common Stock received by the stockholders of ReadiCare upon
consummation of the Merger will be freely transferable under the Securities Act,
except for shares issued to any person who may be deemed an "Affiliate" (as
defined below) of ReadiCare or HEALTHSOUTH within the meaning of Rule 145 under
the Securities Act. "Affiliates" are generally defined as persons who control,
are controlled by, or are under common control with ReadiCare or HEALTHSOUTH at
the time of the Special Meeting (generally, directors, certain executive
officers and major stockholders). Affiliates of ReadiCare or HEALTHSOUTH may not
sell their shares of HEALTHSOUTH Common Stock acquired in connection with the
Merger, except pursuant to an effective registration statement under the
Securities Act covering such shares or in compliance with Rule 145 or another
applicable exemption from the registration requirements of the Securities Act.
In general, under Rule 145, for two years following the Effective Time, an
Affiliate (together with certain related persons) would be entitled to sell
shares of HEALTHSOUTH Common Stock acquired in connection with the Merger only
through unsolicited "brokers' transactions" or in transactions directly with a
"market maker", as such terms are defined in Rule 144 under the Securities Act.
Additionally, the number of shares to be sold by an Affiliate (together with
certain related persons and certain persons acting in concert) during such
two-year period within any three-month period for purposes of Rule 145 may not
exceed the greater of (i) 1% of the outstanding shares of HEALTHSOUTH Common
Stock or (ii) the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would remain available to
Affiliates only if HEALTHSOUTH remained current with its information filings
with the SEC under the Exchange Act. Two years after the Effective Time, an
Affiliate would be able to sell such HEALTHSOUTH Common Stock without such
manner of sale or volume limitations, provided that HEALTHSOUTH were current
with its Exchange Act information filings and such Affiliate were not then an
Affiliate of HEALTHSOUTH. Three years after the Effective Time, an Affiliate
would be able to sell such shares of HEALTHSOUTH Common Stock without any
restrictions so long as such Affiliate had not been an Affiliate of HEALTHSOUTH
for at least three months prior thereto.
ReadiCare has agreed to use its reasonable, good faith efforts to cause each
holder of ReadiCare Shares deemed to be an Affiliate of ReadiCare to enter into
an agreement providing that such Affiliate will not sell, pledge, transfer or
otherwise dispose of shares of HEALTHSOUTH Common Stock to be received by such
person in the Merger, (i) except in compliance with the applicable provisions of
the Securities Act and the rules and regulations thereunder and (ii) until after
such time as results covering at least thirty days of post-Merger combined
operations of HEALTHSOUTH and ReadiCare have been published. HEALTHSOUTH has
agreed that within 20 days after the end of the first calendar month following
at least 30 days after the Effective Time, HEALTHSOUTH shall cause the
publication of such results.
NO APPRAISAL RIGHTS
Under the DGCL, holders of ReadiCare Common Stock will not be entitled to
dissenters' rights of appraisal in connection with the Merger.
35
<PAGE>
NO SOLICITATION OF TRANSACTIONS
ReadiCare has agreed that it will not, and will direct each officer,
director, employee, representative and agent of ReadiCare not to, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with or provide any information to any corporation, partnership,
person or other entity or group (other than HEALTHSOUTH or an affiliate,
associate or agent of HEALTHSOUTH) concerning any merger, sale of assets, sale
of or tender offer for ReadiCare Shares or similar transactions involving
ReadiCare. Under the Plan, ReadiCare may furnish information concerning
ReadiCare to other corporations, partnerships, persons or other entities or
groups, and may participate in discussions and negotiate with such entities
concerning any proposal to acquire ReadiCare upon a merger, purchase of assets,
purchase of or tender offer for ReadiCare Shares or similar transaction (an
"Acquisition Transaction"), in response to unsolicited requests therefor, if the
Board of Directors of ReadiCare determines in its good faith judgment in the
exercise of its fiduciary duties or its duties under Rule 14e-2 under the
Exchange Act that such action is appropriate in furtherance of the best interest
of its stockholders. ReadiCare has further agreed that it will notify
HEALTHSOUTH if it enters into a confidentiality agreement with any third party
in response to any unsolicited request for information and access in connection
with a possible Acquisition Transaction, including providing HEALTHSOUTH with
the identity of the third party.
EXPENSES
The Plan provides that all costs and expenses incurred in connection with the
Plan and the transactions contemplated thereby shall be paid by the party
incurring such expense, except that expenses of printing and mailing this
Prospectus-Proxy Statement shall be shared equally by HEALTHSOUTH and ReadiCare.
NYSE LISTING
A listing application will be filed with the NYSE to list the shares of
HEALTHSOUTH Common Stock to be issued to ReadiCare stockholders in connection
with the Merger. Although no assurance can be given that the shares of
HEALTHSOUTH Common Stock so issued will be accepted for listing, HEALTHSOUTH and
ReadiCare anticipate that these shares will qualify for listing on the NYSE upon
official notice of issuance thereof. It is a condition to the Merger that such
shares of HEALTHSOUTH Common Stock be approved for listing on the NYSE upon
official notice of issuance at the Effective Time.
36
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA -- HEALTHSOUTH
The consolidated income statement data set forth below for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 and the consolidated balance sheet
data at December 31, 1991 1992, 1993, 1994 and 1995 are derived from the audited
consolidated financial statements of HEALTHSOUTH. The data for the six months
ended June 30, 1995 and 1996 and at June 30 , 1996 are derived from the
unaudited consolidated financial statements of HEALTHSOUTH. In the opinion of
HEALTHSOUTH, the consolidated income statement data for the six months ended
June 30, 1996 and 1995, and the consolidated balance sheet data at June 30,
1996, reflect all adjustments (which consist of only normal recurring
adjustments) necessary for a fair presentation of results of interim periods.
Operating results for the six months ended June 30, 1995 and 1996 are not
necessarily indicative of results for the full fiscal year or for any future
interim period. The data set forth below should be read in conjunction with the
consolidated financial statements, related notes and other information
incorporated by reference herein. The financial information for all periods set
forth below has been restated to reflect the acquisitions of ReLife, Inc.
("ReLife") in December 1994, Surgical Health Corporation ("SHC") in June 1995,
Sutter Surgery Centers Inc. ("SSCI") in October 1995, Surgical Care Affiliates,
Inc. ("SCA") in January 1996 and Advantage Health Corporation ("Advantage
Health") in March 1996, each of which has been accounted for as a pooling of
interests.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------------- --------------
1991 1992 1993 1994 1995 1995 1996
----------- ----------- ----------- ------------- ------------ ------- ------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues ................................... $468,572 $750,134 $979,206 $1,649,199 $2,003,146 $951,512 $1,176,823
Operating expenses:
Operating units ........................... 316,628 521,619 668,201 1,161,758 1,371,740 657,942 775,399
Corporate general and administrative ...... 17,347 25,667 37,043 61,640 56,920 27,872 32,657
Provision for doubtful accounts ............ 9,345 16,553 20,026 32,904 37,659 19,456 25,877
Depreciation and amortization............... 24,295 42,107 63,572 113,977 143,322 67,888 87,994
Interest expense ........................... 19,273 18,237 24,200 73,644 101,790 48,584 47,342
Interest income ............................ (9,489) (8,595) (5,903) (6,387) (7,882) (4,000) (3,474)
Merger and acquisition related expenses(1) . -- -- 333 6,520 34,159 29,194 28,939
Gain on sale of MCA Stock(2) ............... -- -- -- (7,727) -- -- --
Loss on impairment of assets (2)............ -- -- -- 10,500 53,549 11,192 --
Loss on abandonment of computer project (2) -- -- -- 4,500 -- -- --
Loss on disposal of surgery centers(2) ..... -- -- -- 13,197 --
NME Selected Hospitals Acquisition related
expense (2) ............................... -- -- 49,742 -- -- -- --
Terminated merger expense .................. -- 3,665 -- -- -- -- --
Loss on extinguishment of debt ............. -- 883 -- -- -- -- --
Gain on sale of partnership interest ....... -- -- (1,400) -- -- -- --
Provision for contingent payment............ 5,400 -- -- -- -- -- --
----------- ----------- ----------- ------------- ------------ ---------- ----------
382,799 620,136 855,814 1,464,526 1,791,257 858,128 994,734
----------- ----------- ----------- ------------- ------------ ---------- ----------
Income before income taxes and minority
interests 85,773 129,998 123,392 184,673 211,889 93,384 182,089
Provision for income taxes.................. 24,582 38,550 37,993 65,121 76,221 29,846 59,954
----------- ----------- ----------- ------------- ------------ ---------- ----------
61,191 91,448 85,399 119,552 135,668 63,538 122,135
Minority interests.......................... 18,613 25,943 29,377 31,469 43,147 18,690 24,729
----------- ----------- ----------- ------------- ------------ ---------- ----------
Income from continuing operations........... 42,578 65,505 56,022 88,083 92,521 44,848 97,406
Income from discontinued operations(2)...... 2,971 3,283 4,452 -- -- -- --
----------- ----------- ----------- ------------- ------------ ---------- ----------
Net income ................................. $ 45,549 $ 68,788 $ 60,474 $ 88,083 $ 92,521 $ 44,848 $ 97,406
=========== =========== =========== ============= ============ ========== ==========
Weighted average common and common
equivalent shares outstanding(3)............ 105,451 127,148 132,479 140,427 148,730 143,366 163,959
=========== =========== =========== ============= ============ ========== ==========
Net income per common and common equivalent
share(3)
Continuing operations....................... $ 0.40 $ 0.51 $ 0.43 $ 0.63 $ 0.62 $ 0.31 $ 0.59
Discontinued operations .................... 0.03 0.03 0.03 -- -- -- --
----------- ----------- ----------- ------------- ------------ ---------- ----------
$ 0.43 $ 0.54 $ 0.46 $ 0.63 $ 0.62 $ 0.31 $ 0.59
=========== =========== =========== ============= ============ ========== ==========
Net income per common share -- assuming full
dilution (3)(4) ........................... $ 0.42 N/A N/A $ 0.63 $ 0.62 $ 0.31 $ 0.58
=========== =========== =========== ============= ============ ========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------------------- ------------
1991 1992 1993 1994 1995 1996
----------- ------------ ------------ ------------ ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and marketable securities $173,290 $ 179,725 $ 148,308 $ 129,971 $ 156,321 $ 108,438
Working capital .............. 225,794 269,120 284,691 282,667 406,125 431,764
Total assets ................. 737,472 1,143,235 1,881,211 2,230,093 2,931,495 3,084,755
Long-term debt(5) ............ 253,483 413,656 1,008,429 1,139,087 1,391,664 1,419,455
Stockholders' equity ......... 391,452 581,954 646,397 757,583 1,185,898 1,288,672
</TABLE>
- --------
(1) Expenses related to SHC's Ballas merger in 1993, the ReLife and Heritage
mergers in 1994, the SHC and SSCI mergers and NovaCare Rehabilitation
Hospitals Acquisition in 1995 and the SCA and Advantage Health mergers in
1996.
(2) See "Notes to Consolidated Financial Statements" in the HEALTHSOUTH
documents incorporated herein by reference.
(3) Adjusted to reflect a three-for-two stock split effected in the form of a
50% stock dividend paid on December 31, 1991 and a two-for-one stock split
effected in the form of a 100% stock dividend paid on April 17, 1995.
(4) Fully-diluted earnings per share in 1991 reflect shares reserved for
issuance upon exercise of dilutive stock options and shares reserved for
issuance upon conversion of HEALTHSOUTH's 7 3/4 % Convertible Subordinated
Debentures Due 2014, all of which were converted into Common Stock prior to
June 3, 1991. Fully-diluted earnings per share in 1994 and 1995 and the six
months ended June 30, 1995 and 1996 reflect shares reserved for issuance
upon conversion of HEALTHSOUTH's 5% Convertible Subordinated Debentures Due
2001.
(5) Includes current portion of long-term debt.
37
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA -- READICARE
The selected consolidated financial data presented below at February 28 or 29
(as applicable), 1992, 1993, 1994, 1995 and 1996 and for each of the fiscal
years in the five fiscal years ended February 29, 1996, have been derived from
the consolidated financial statements of ReadiCare audited by Price Waterhouse
LLP, independent accountants. The financial data for the six-month periods ended
August 31, 1996 and 1995 and at August 31, 1996, are derived from unaudited
consolidated financial statements of ReadiCare. The unaudited financial
statements include all adjustments, consisting of only normal recurring
accruals, which ReadiCare considers necessary for a fair presentation of the
financial position and results of operations for these periods. Operating
results for the six months ended August 31, 1996 are not necessarily indicative
of results that may be expected for the entire fiscal year ending February 28,
1997. The data set forth below should be read in conjunction with the
consolidated financial statements, related notes and other financial information
incorporated by reference herein.
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
---------------------------------------------------- SIX MONTHS ENDED
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, AUGUST 31,
-----------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES..................................... $36,243 $38,459 $36,634 $35,516 $36,201 $18,329 $19,229
COSTS AND EXPENSES:
CENTER OPERATING EXPENSES................... 28,153 31,140 30,857 29,283 28,730 14,400 15,030
MARKETING, GENERAL AND ADMINISTRATIVE
EXPENSES................................... 4,169 4,041 3,967 4,419 4,687 2,288 2,556
DEPRECIATION AND AMORTIZATION............... 1,421 1,742 1,836 1,369 1,382 688 638
NONRECURRING CHARGES........................ (290) -- 8,443 (85) -- -- --
COST OF TERMINATED STOCK OFFERING........... 153 -- -- -- -- -- --
INTEREST EXPENSE, (NET)..................... 39 184 155 92 11 15 (25)
---------- ---------- ---------- ---------- ---------- --------- ----------
INCOME (LOSS) BEFORE TAXES, CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE.... 2,598 1,352 (8,624) 438 1,391 938 1,030
PROVISION FOR INCOME TAXES................... 965 589 681 52 167 113 124
---------- ---------- ---------- ---------- ---------- --------- ----------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE ............. 1,633 763 (9,305) 386 1,224 825 906
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE .................................. -- -- 176 -- -- -- --
---------- ---------- ---------- ---------- ---------- --------- ----------
NET INCOME (LOSS)............................ $ 1,633 $ 763 $(9,129) $ 386 $ 1,224 $ 825 $ 906
========== ========== ========== ========== ========== ========= ==========
PER SHARE DATA:
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE............. $ 0.20 $ 0.09 $ (1.13) $ 0.05 $ 0.15 $ 0.10 $ 0.11
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE.................................. -- -- 0.02 -- -- -- --
---------- ---------- ---------- ---------- ---------- --------- ----------
NET INCOME (LOSS)........................... $ 0.20 $ 0.09 $ (1.11) $ 0.05 $ 0.15 $ 0.10 $ 0.11
========== ========== ========== ========== ========== ========= ==========
WEIGHTED AVERAGE COMMON SHARES AND
EQUIVALENTS................................ 8,329 8,309 8,195 8,178 8,319 8,250 8,564
========== ========== ========== ========== ========== ========= ==========
</TABLE>
<TABLE>
<CAPTION>
FEB. 29, FEB. 28, FEB. 28, FEB. 28, FEB. 29, AUGUST 31,
1992 1993 1994 1995 1996 1996
---------- ---------- ---------- ---------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital........ $ 6,261 $ 4,509 $ 4,130 $ 4,379 $ 6,888 $ 8,389
Total assets........... 25,965 29,646 19,530 16,860 17,359 18,184
Long-term debt......... 1,750 1,700 1,042 -- -- --
Stockholders' equity... 21,388 22,155 12,720 13,125 14,399 15,411
</TABLE>
38
<PAGE>
PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following pro forma condensed combined financial information and
explanatory notes are presented to reflect the effect for all periods presented
of the merger of a wholly-owned subsidiary of HEALTHSOUTH with ReadiCare in a
transaction to be accounted for as a pooling of interests, which merger is
expected to be consummated in the fourth quarter of 1996 (the "ReadiCare
Merger").
The HEALTHSOUTH historical amounts reflect the combination of HEALTHSOUTH,
ReLife, Inc. ("ReLife"), Surgical Health Corporation ("SHC"), Sutter Surgery
Centers, Inc. ("SSCI"), Surgical Care Affiliates, Inc. ("SCA") and Advantage
Health Corporation ("Advantage Health") for all periods presented, as
HEALTHSOUTH acquired ReLife in December 1994, SHC in June 1995, SSCI in October
1995, SCA in January 1996 and Advantage Health in March 1996 in transactions
accounted for as poolings of interests.
In addition to the ReadiCare Merger, the following pro forma condensed
combined financial information reflects the effects for all periods presented of
the merger of a wholly-owned subsidiary of HEALTHSOUTH with Professional Sports
Care Management, Inc. ("PSCM") in a transaction accounted for as a pooling of
interests, which merger was consummated in the third quarter of 1996 (the "PSCM
Merger" and, together with the ReadiCare Merger, the "Mergers").
In addition, the pro forma condensed combined financial information reflects
the impact of HEALTHSOUTH's acquisition, effective April 1, 1995, from NovaCare,
Inc. ("NovaCare") of 11 rehabilitation hospitals, 12 other facilities and two
Certificates of Need (the "NovaCare Rehabilitation Hospitals Acquisition") on
the results of operations for the years ended December 31, 1994 and 1995 and the
six months ended June 30, 1995.
The pro forma condensed combined balance sheet assumes that the Mergers were
consummated on June 30, 1996, and the pro forma condensed income statements
assume that the Mergers were consummated on January 1, 1993. The assumptions are
described in the accompanying Notes to Pro Forma Condensed Financial
Information.
All HEALTHSOUTH shares outstanding and per share amounts have been adjusted
to reflect a two-for-one stock split effected in the form of a 100 percent stock
dividend on April 17, 1995.
The pro forma information should be read in conjunction with the historical
financial statements of HEALTHSOUTH and ReadiCare. Certain balance sheet and
income statement amounts from the ReadiCare historical financial statements have
been reclassified in order to conform to the HEALTHSOUTH method of presentation.
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of the combined results of operations or
financial position that would have resulted had the Mergers been consummated at
the dates indicated, nor is it necessarily indicative of the combined results of
operations of future periods or future combined financial position.
39
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
HEALTHSOUTH PSCM ADJUSTMENTS READICARE ADJUSTMENTS COMBINED
-------------- --------- ------------- ----------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................ $ 104,613 $ 7,534 $ 0 $ 3,138 $ 0 $ 115,285
Other marketable securities .............. 3,825 0 0 0 0 3,825
Accounts receivable ...................... 481,326 7,661 0 6,816 0 495,803
Inventories, prepaid expenses and other
current assets .......................... 134,207 838 0 970 0 136,015
Deferred income taxes .................... 23,505 0 (1,151)(3) 238 0 22,592
-------------- --------- ------------- ----------- ------------- ------------
Total current assets....................... 747,476 16,033 (1,151) 11,162 0 773,520
Other assets .............................. 70,278 711 0 156 0 71,145
Deferred income taxes...................... 0 0 0 184 0 184
Property, plant and equipment, net ....... 1,329,587 5,590 0 6,114 0 1,341,291
Intangible assets, net .................... 937,414 31,506 0 568 0 969,488
-------------- --------- ------------- ----------- ------------- ------------
Total assets .............................. $3,084,755 $53,840 $ (1,151) $18,184 $ 0 $3,155,628
============== ========= ============= =========== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................... $ 108,063 $ 134 $ 7,000 (1)$ 1,214 $ 7,000 (1) $ 123,411
Salaries and wages payable................ 79,219 72 0 1,093 0 80,384
Accrued interest payable and other
liabilities.............................. 89,963 2,064 (2,800)(1) 466 (2,800)(1) 85,742
(1,151)(3)
Current portion of long-term debt......... 38,467 2,434 0 0 0 40,901
-------------- --------- ------------- ----------- ------------- ------------
Total current liabilities.................. 315,712 4,704 3,049 2,773 4,200 330,438
Long-term debt............................. 1,380,988 4,209 0 0 0 1,385,197
Deferred income taxes ..................... 27,091 741 0 0 0 27,832
Other long-term liabilities................ 5,375 805 0 0 0 6,180
Deferred revenue........................... 890 0 0 0 0 890
Minority interests......................... 66,027 151 0 0 0 66,178
Stockholders' equity:
Preferred Stock, $.10 par ................ 0 0 0 0 0 0
Common Stock, $.01 par ................... 1,541 78 (60)(2) 83 (63)(2) 1,579
Additional paid-in capital ............... 893,528 39,469 60 (2) 20,314 63 (2) 953,434
Retained earnings......................... 414,350 3,730 (4,200)(1) (4,986) (4,200)(1) 404,694
Deferred stock grants..................... 0 (47) 0 0 0 (47)
Treasury stock............................ (323) 0 0 0 0 (323)
Receivable from Employee Stock Ownership
Plan .................................... (14,148) 0 0 0 0 (14,148)
Notes receivable from stockholders ....... (6,276) 0 0 0 0 (6,276)
-------------- --------- ------------- ----------- ------------- ------------
Total stockholders' equity ................ 1,288,672 43,230 (4,200) 15,411 (4,200) 1,338,913
-------------- --------- ------------- ----------- ------------- ------------
Total liabilities and stockholders' equity $3,084,755 $53,840 $ (1,151) $18,184 $ 0 $3,155,628
============== ========= ============= =========== ============= ============
</TABLE>
See accompanying notes.
40
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ACQUISITION
---------------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS COMBINED PSCM ADJUSTMENTS READICARE ADJUSTMENTS COMBINED
----------- -------- ----------- -------- ---- ----------- ------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues ......................... $2,003,146 $37,942 $ 1,860 (5) $2,042,948 $27,110 $ 0 $36,961 $0 $2,107,019
Operating expenses:
Operating units ................. 1,371,740 33,065 (910)(2) 1,403,895 16,987 0 28,730 0 1,449,612
Corporate general and
administrative................. 56,920 0 0 56,920 4,698 0 4,687 0 66,305
Provision for doubtful accounts .. 37,659 322 0 37,981 499 0 760 0 39,240
Depreciation and amortization .... 143,322 1,996 (999)(1) 146,201 1,629 0 1,382 0 149,212
1,882 (3)
Interest expense ................. 101,790 2,595 2,684 (4) 107,069 423 0 15 0 107,507
Interest income................... (7,882) 0 0 (7,882) (585) 0 (4) 0 (8,471)
Merger and acquisition related
expenses......................... 34,159 0 0 34,159 0 0 0 0 34,159
Loss on impairment of assets ..... 53,549 0 0 53,549 0 0 0 0 53,549
----------- --------- ----------- ----------- -------- ----------- --------- -- -----------
1,791,257 37,978 2,657 1,831,892 23,651 0 35,570 0 1,891,113
----------- --------- ----------- ----------- -------- ----------- --------- --- -----------
Income (loss) before income taxes
and minority interests .......... 211,889 (36) (797) 211,056 3,459 0 1,391 0 215,906
Provision (benefit) for income
taxes............................ 76,221 (101) (259)(6) 75,861 1,361 0 167 0 77,389
----------- --------- ----------- ----------- -------- ----------- --------- --- -----------
135,668 65 (538) 135,195 2,098 0 1,224 0 138,517
Minority interests ............... 43,147 89 0 43,236 16 0 0 0 43,252
----------- --------- ----------- ----------- -------- ----------- --------- --- ----------
Net income (loss)................. $ 92,521 $ (24) $ (538) $ 91,959 $ 2,082 $ 0 $ 1,224 $0 $ 95,265
=========== ========= =========== =========== ======== =========== ========= === ==========
Weighted average common and common
equivalent shares outstanding.... 148,730 N/A N/A 148,730 7,303 (5,601)(2) 8,319 (6,302)(2) 152,449
=========== ========= =========== =========== ======== =========== ======= ========== =========
Net income per common and common
equivalent share ................ $ 0.62 N/A N/A $ 0.62 $ 0.29 N/A $ 0.15 N/A $ 0.62
=========== ========= =========== =========== ======== =========== ========= ======== ==========
Net income per common share--
assuming full dilution .......... $ 0.62 N/A N/A $ 0.62 N/A N/A N/A N/A $ 0.62
=========== ========= =========== =========== ======== =========== ========= ======== ==========
</TABLE>
See accompanying notes.
41
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
ACQUISITION
---------------------------------
PRO FORMA PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS
----------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE
Revenues................................... $1,649,199 $142,548 $ 8,058 (5)
Operating expenses:
Operating units........................... 1,161,758 128,233 (12,406)(2)
Corporate general and administrative...... 61,640 0 0
Provision for doubtful accounts............ 32,904 1,269 0
Depreciation and amortization.............. 113,977 7,041 (1,918)(1)
7,526 (3)
Interest expense........................... 73,644 11,096 10,100 (4)
Interest income............................ (6,387) 0 0
Merger and acquisition related expenses ... 6,520 0 0
Gain on sale of MCA Stock.................. (7,727) 0 0
Loss on impairment of assets............... 10,500 0 0
Loss on abandonment of computer project ... 4,500 0 0
Loss on disposal of surgery centers........ 13,197 0 0
Reserve for discontinued operations........ 0 0 0
----------- -------- -----------
1,464,526 147,639 3,302
----------- -------- -----------
Income (loss) before income taxes and
minority interests........................ 184,673 (5,091) 4,756
Provision (benefit) for income taxes....... 65,121 (1,084) 780 (6)
----------- -------- -----------
119,552 (4,007) 3,976
Minority interests ........................ 31,469 445 0
----------- -------- -----------
Net income (loss).......................... $ 88,083 $ (4,452)$ 3,976
=========== ======== ===========
Weighted average common and common
equivalent shares outstanding............. 140,427 N/A N/A
=========== ======== ===========
Net income per common and common equivalent
share..................................... $ 0.63 N/A N/A
=========== ======== ===========
Net income per common share--assuming fully
dilution.................................. $ 0.63 N/A N/A
=========== ======== ===========
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
COMBINED PSCM ADJUSTMENTS READICARE ADJUSTMENTS COMBINED
---------- ------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................................$1,799,805 $16,430 $ 0 $36,285 $ 0 $1,852,520
Operating expenses:
Operating units........................... 1,277,585 9,506 0 29,283 0 1,316,374
Corporate general and administrative...... 61,640 2,717 0 4,419 0 68,776
Provision for doubtful accounts............ 34,173 380 0 770 0 35,323
Depreciation and amortization.............. 126,626 838 0 1,369 0 128,833
Interest expense........................... 94,840 1,473 0 94 0 96,407
Interest income............................ (6,387) (80) 0 (2) 0 (6,469)
Merger and acquisition related expenses ... 6,520 0 0 0 0 6,520
Gain on sale of MCA Stock.................. (7,727) 0 0 0 0 (7,727)
Loss on impairment of assets............... 10,500 0 0 0 0 10,500
Loss on abandonment of computer project ... 4,500 0 0 0 0 4,500
Loss on disposal of surgery centers........ 13,197 0 0 0 0 13,197
Reserve for discontinued operations........ 0 0 0 (85) 0 (85)
1,615,467 14,834 0 35,848 0 1,666,149
---------- ------- ------------ ---------- ------------ ----------
Income (loss) before income taxes and
minority interests........................ 184,338 1,596 0 437 0 186,371
Provision (benefit) for income taxes....... 64,817 956 0 52 0 65,825
---------- ------- ------------ ---------- ------------ ----------
119,521 640 0 385 0 120,546
Minority interests ........................ 31,914 171 0 0 0 32,085
---------- ------- ------------ ---------- ------------ ----------
Net income (loss).......................... $ 87,607 $ 469 $ 0 385 $ 0 $ 88,461
========== ======= ============ ========== ============ ==========
Weighted average common and common
equivalent shares outstanding............. 140,427 4,324 (3,317)(2) 8,178 (6,195)(2) 143,417
========== ======= ============ ========== ============ ==========
Net income per common and common equivalent
share..................................... $ 0.62 $ 0.11 N/A $ 0.05 N/A $ 0.62
========== ======= ============ ========== ============ ==========
Net income per common share--assuming fully
dilution.................................. $ 0.62 N/A N/A N/A N/A $ 0.62
========== ======= ============ ========== ============ ==========
</TABLE>
See accompanying notes.
42
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
HEALTHSOUTH PSCM ADJUSTMENTS READICARE ADJUSTMENTS COMBINED
------------- -------- ------------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.................................. $979,206 $5,738 $ 0 $37,426 $ 0 $1,022,370
Operating expenses:
Operating units.......................... 668,201 3,531 0 30,857 0 702,589
Corporate general and administrative..... 37,043 964 0 3,967 0 41,974
Provision for doubtful accounts........... 20,026 157 0 793 0 20,976
Depreciation and amortization............. 63,572 239 0 1,836 0 65,647
Interest expense.......................... 24,200 56 0 174 0 24,430
Interest income........................... (5,903) (4) 0 (20) 0 (5,927)
Merger and acquisition related expenses .. 333 0 0 0 0 333
NME Selected Hospitals Acquisition
related expense.......................... 49,742 0 0 0 0 49,742
Gain on sale of partnership interest ..... (1,400) 0 0 0 0 (1,400)
Loss on impairment of assets.............. 0 0 0 6,675 0 6,675
Reserve for discontinued operations ...... 0 0 0 1,768 0 1,768
------------- -------- ----------- ----------- --------- ------------
855,814 4,943 0 46,050 0 906,807
------------- -------- ----------- ----------- --------- ------------
Income (loss) before income taxes and
minority interests....................... 123,392 795 0 (8,624) 0 115,563
Provision for income taxes................ 37,993 40 0 505 0 38,538
------------- -------- ----------- ----------- --------- ------------
85,399 755 0 (9,129) 0 77,025
Minority interests........................ 29,377 0 0 0 0 29,377
------------- -------- ----------- ----------- --------- ------------
Income (loss) from continuing operations . 56,022 755 0 (9,129) 0 47,648
Income from discontinued operations ...... 4,452 0 0 0 0 4,452
------------- -------- ----------- ----------- --------- ------------
Net income (loss)......................... $ 60,474 $ 755 $ 0 $(9,129) $ 0 $ 52,100
============= ======== =========== =========== ========= ============
Weighted average common and common
equivalent shares outstanding............ 132,479 2,787 (2,138)(2) 8,195 (6,208)(2) 135,115
============= ======== =========== =========== ========= ============
Net income (loss) per common and common
equivalent share:
Continuing operations.................... $ 0.43 $ 0.27 N/A $ (1.11) N/A $ 0.36
Discontinued operations.................. 0.03 -- N/A -- N/A 0.03
------------- -------- ------------- ----------- --------- ------------
$ 0.46 $ 0.27 N/A $ (1.11) N/A $ 0.39
============= ======== ============= =========== ========= ============
</TABLE>
See accompanying notes.
43
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA PRO FORMA
HEALTHSOUTH PSCM ADJUSTMENTS READICARE ADJUSTMENTS COMBINED
------------- --------- ------------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues.......................... $1,176,823 $19,327 $ 0 $19,663 $ 0 $1,215,813
Operating expenses:
Operating units.................. 775,399 12,124 0 15,030 0 802,553
Corporate general and
administrative.................. 32,657 3,317 0 2,556 0 38,530
Provision for doubtful accounts .. 25,877 336 0 434 0 26,647
Depreciation and amortization .... 87,994 1,126 0 638 0 89,758
Interest expense.................. 47,342 268 0 0 0 47,610
Interest income................... (3,474) (208) 0 (25) 0 (3,707)
Merger and acquisition related
expenses......................... 28,939 0 0 0 0 28,939
------------- --------- ------------- ----------- ------------- ------------
994,734 16,963 0 18,633 0 1,030,330
------------- --------- ------------- ----------- ------------- ------------
Income before income taxes and
minority interests .............. 182,089 2,364 0 1,030 0 185,483
Provision for income taxes ...... 59,954 907 0 124 0 60,985
------------- --------- ------------- ----------- ------------- ------------
122,135 1,457 0 906 0 124,498
Minority interests................ 24,729 152 0 0 0 24,881
------------- --------- ------------- ----------- ------------- ------------
Net income........................ $ 97,406 $ 1,305 $ 0 $ 906 $ 0 $ 99,617
============= ========= ============= =========== ============= ============
Weighted average common and
common equivalent shares
outstanding ..................... 163,959 7,779 (5,966)(2) 8,564 (6,487)(2) 167,849
============= ========= ============= =========== ============= ============
Net income per common and common
equivalent share ................ $ 0.59 $ 0.17 N/A $ 0.11 N/A $ 0.59
============= ========= ============= =========== ============= ============
Net income per common
share--assuming full dilution ... $ 0.58 N/A N/A N/A N/A $ 0.58
============= ========= ============= =========== ============= ============
</TABLE>
See accompanying notes.
44
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
ACQUISITION
-----------------------------------
PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS
------------ --------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues...................................... $951,512 $37,942 $1,860 (5)
Operating expenses:
Operating units ............................. 657,942 33,065 (910)(2)
Corporate general and administrative ........ 27,872 0 0
Provision for doubtful accounts............... 19,456 322 0
Depreciation and amortization................. 67,888 1,996 (999)(1)
1,882 (3)
Interest expense.............................. 48,584 2,595 2,684 (4)
Interest income............................... (4,000) 0 0
Merger and acquisition related expenses ...... 29,194 0 0
Loss on impairment of assets.................. 11,192 0 0
------------ --------- ------------
858,128 37,978 2,657
------------ --------- ------------
Income (loss) before income taxes and
minority interests .......................... 93,384 (36) (797)
Provision (benefit) for income taxes ........ 29,846 (101) (259)(6)
------------ --------- ------------
63,538 65 (538)
Minority interests ........................... 18,690 89 0
------------ --------- ------------
Net income (loss) ............................ $ 44,848 $ (24) $ (538)
============ ========= ============
Weighted average common and common equivalent
shares outstanding .......................... 143,366 N/A N/A
============ ========= ============
Net income per common and common equivalent
share........................................ $ 0.31 N/A N/A
============ ========= ============
Net income per common share--assuming full
dilution..................................... $ 0.31 N/A N/A
============ ========= ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRO
FORMA PRO FORMA PRO FORMA PRO FORMA
COMBINED PSCM ADJUSTMENTS READICARE ADJUSTMENTS COMBINED
--------- ------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................................... $991,314 $13,079 $0 $18,693 $0 $1,023,086
Operating expenses:
Operating units ............................. 690,097 7,656 0 14,400 0 712,153
Corporate general and administrative ........ 27,872 1,635 0 2,288 0 31,795
Provision for doubtful accounts............... 19,778 544 0 364 0 20,686
Depreciation and amortization................. 70,767 726 0 688 0 72,181
Interest expense.............................. 53,863 187 0 15 0 54,065
Interest income............................... (4,000) (224) 0 0 0 (4,224)
Merger and acquisition related expenses ...... 29,194 0 0 0 0 29,194
Loss on impairment of assets.................. 11,192 0 0 0 0 11,192
--------- ------- ----------- ---------- ----------- ----------
898,763 10,524 0 17,755 0 927,042
--------- ------- ----------- ---------- ----------- ----------
Income (loss) before income taxes and
minority interests .......................... 92,551 2,555 0 938 0 96,044
Provision (benefit) for income taxes ........ 29,486 1,047 0 113 0 30,646
--------- ------- ----------- ---------- ----------- ----------
63,065 1,508 0 825 0 65,398
Minority interests ........................... 18,779 2 0 0 0 18,781
--------- ------- ----------- ---------- ----------- ----------
Net income (loss) ............................ $ 44,286 $1,506 $ 0 $ 825 $ 0 $ 46,617
========= ======= =========== ========== =========== ==========
Weighted average common and common equivalent
shares outstanding .......................... 143,366 6,974 (5,349)(2) 8,250 (6,249)(2) 146,992
========= ======= =========== ========== =========== ==========
Net income per common and common equivalent
share........................................ $ 0.31 0.22 N/A 0.10 N/A $ 0.32
========= ======= =========== ========== =========== ==========
Net income per common share--assuming full
dilution..................................... $ 0.31 N/A N/A N/A N/A $ 0.32
========= ======= =========== ========== =========== ==========
</TABLE>
See accompanying notes.
45
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
A. THE NOVACARE REHABILITATION HOSPITALS ACQUISITION
Effective April 1, 1995 HEALTHSOUTH completed the acquisition of the
rehabilitation hospitals division of NovaCare, consisting of 11 rehabilitation
hospitals, 12 other facilities, and certificates of need to build two additional
facilities (the "NovaCare Rehabilitation Hospitals Acquisition"). The purchase
price was approximately $234,807,000. The transaction was accounted for as a
purchase and, accordingly, the results of the acquired NovaCare facilities are
included in HEALTHSOUTH's historical financial statements from the effective
date of the acquisition. HEALTHSOUTH financed the cost of the NovaCare
Rehabilitation Hospitals Acquisition through additional borrowings under its
existing credit facilities, as amended.
The accompanying pro forma income statements for the years ended December 31,
1994 and 1995 and the six months ended June 30, 1995 assume that the transaction
was consummated at the beginning of each of the periods presented.
Certain assets and liabilities of Rehab Systems Company (a wholly-owned
subsidiary of NovaCare) were excluded from the NovaCare Rehabilitation Hospitals
Acquisition. The excluded assets and liabilities are as follows (in thousands):
Cash and cash equivalents............................ $ 4,973
Accounts receivable ................................. 259
Other current assets ................................ 42
Equipment, net ...................................... 4,719
Intangible assets, net .............................. 56,321
Other assets (primarily investments in subsidiaries) 40,637
Accounts payable .................................... (454)
Other current liabilities ........................... (275)
Current portion of long-term debt ................... (146)
Long-term debt....................................... (38,620)
Payable to affiliates................................ (92,377)
-----------
Net excluded asset (liability) ...................... $(24,921)
The following pro forma adjustments are necessary for the NovaCare
Rehabilitation Hospitals Acquisition:
1. To exclude historical depreciation and amortization expense related to the
excluded assets described above. The total expense excluded amounts to
$1,918,000 for the year ended December 31, 1994 and $999,000 for the six months
ended June 30, 1995 and year ended December 31, 1995.
2. To eliminate intercompany management fees and royalty fees totaling
$12,406,000 for the year ended December 31, 1994 and $910,000 for the six months
ended June 30, 1995 and year ended December 31, 1995 of the acquired NovaCare
facilities.
3. To adjust depreciation and amortization expense to reflect the allocation
of the excess purchase price over the net tangible asset value as follows (in
thousands):
<TABLE>
<CAPTION>
PURCHASE PRICE USEFUL ANNUAL QUARTERLY
ALLOCATION ADJUSTMENT LIFE AMORTIZATION AMORTIZATION
---------------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Leasehold value.. $128,333 20 years $6,417 $1,605
Goodwill......... 44,365 40 years 1,109 277
------ ------
$7,526 $1,882
====== =======
</TABLE>
46
<PAGE>
No additional adjustments to NovaCare's historical depreciation and
amortization are necessary. The remaining net assets acquired approximate their
fair value.
Because NovaCare's results of operations before intercompany items (described
in Note 2 above) are profitable, both on a historical and pro forma basis, the
40-year amortization period for goodwill is appropriate and consistent with
HEALTHSOUTH policy. Leasehold value is being amortized over the weighted average
remaining terms of the leases, which is 20 years.
4. To increase interest expense by $19,559,000 for the year ended December
31, 1994 and $4,889,000 for the six months ended June 30, 1995 and year ended
December 31, 1995 to reflect pro forma borrowings of $234,807,000, described
above, at a 8.33% variable interest rate, which represents HEALTHSOUTH's
weighted average cost of debt, as if they were outstanding for the entire
period, and to decrease interest expense by $9,459,000 for the year ended
December 31, 1994 and $2,205,000 for the six months ended June 30, 1995 and year
ended December 31, 1995, which represents interest on NovaCare debt not assumed
by HEALTHSOUTH. A .125% variance in the assumed interest rate would change
annual pro forma interest expense by approximately $294,000.
5. To adjust estimated Medicare reimbursement for the changes in reimbursable
expenses described in items 1, 2, 3 and 4 above. These changes are as follows
(in thousands):
YEAR ENDED
DECEMBER 31, 1995
YEAR ENDED AND
DECEMBER 31, SIX MONTHS ENDED
1994 JUNE 30, 1995
----------------- -----------------
Depreciation and amortization (Note 1).. $(1,918) $ (999)
Intercompany management fees (Note 2)... (4,196) (910)
Depreciation and amortization (Note 3).. 7,526 1,882
Interest expense (Note 4)............... 10,100 2,684
----------------- -----------------
11,512 2,657
Assumed Medicare utilization............ 70% 70%
----------------- -----------------
Increased reimbursement................. $ 8,058 $1,860
================= =================
The Medicare utilization rate of 70% assumes a slight improvement in
NovaCare's historical Medicare percentage of 78% as a result of bringing these
facilities into the HEALTHSOUTH network.
6. To adjust the NovaCare provision for income taxes to an effective rate of
39% (net of minority interests).
B. THE PSCM MERGER
The PSCM Merger is to be accounted for as a pooling of interests. The pro
forma condensed combined income statements assume that the PSCM Merger was
consummated on January 1, 1993. The pro forma condensed combined balance sheet
assumes that the PSCM Merger was consummated on June 30, 1996.
The pro forma condensed combined financial information contains no
adjustments to conform the accounting policies of the two companies because any
such adjustments have been determined to be immaterial by the management of
HEALTHSOUTH. Prior to January 1, 1994, PSCM was treated as an S corporation for
federal income tax purposes. The accompanying pro forma income statements
contain no adjustment to present PSCM's provision for income taxes as if it were
a C corporation (PSCM's tax status effective January 1, 1994) under the Internal
Revenue Code for all periods presented.
The following pro forma adjustments are necessary for the PSCM Merger:
1. The pro forma income statements do not reflect non-recurring costs
resulting directly from the PSCM Merger. The management of HEALTHSOUTH estimates
that these costs will approximate $7,000,000 and will be charged to operations
in the quarter the PSCM Merger was consummated. The amount includes costs to
merge the two companies and professional fees. However, this estimated expense,
net of taxes of $2,800,000, has been charged to retained earnings in the
accompanying pro forma balance sheet.
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<PAGE>
2. To adjust pro forma share amounts based on historical share amounts,
converting each outstanding PSCM Share into .233 shares of HEALTHSOUTH Common
Stock.
3. To net PSCM's current deferred income tax payable against HEALTHSOUTH's
current deferred income tax asset.
C. THE READICARE MERGER
The proposed ReadiCare Merger is intended to be accounted for as a pooling of
interests. The pro forma condensed combined income statements assume that the
ReadiCare Merger was consummated on January 1, 1993. The pro forma condensed
combined balance sheet assumes that the ReadiCare Merger was consummated on June
30, 1996.
The pro forma condensed combined financial information contains no
adjustments to conform the accounting policies of the two companies because any
such adjustments have been determined to be immaterial by the management of
HEALTHSOUTH.
The following pro forma adjustments are necessary for the ReadiCare Merger:
1. The pro forma income statements do not reflect non-recurring costs
resulting directly from the ReadiCare Merger. The management of HEALTHSOUTH
estimates that these costs will approximate $7,000,000 and will be charged to
operations in the quarter the ReadiCare Merger is consummated. The amount
includes costs to merge the two companies and professional fees. However, this
estimated expense, net of taxes of $2,800,000, has been charged to retained
earnings in the accompanying pro forma balance sheet.
2. To adjust pro forma share amounts based on historical share amounts,
converting each outstanding ReadiCare Share into .2425 shares of HEALTHSOUTH
Common Stock. The exchange ratio is based upon an assumed Base Period Trading
Price for HEALTHSOUTH Common Stock within the range of $30.60 to $38.30 per
share.
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BUSINESS OF HEALTHSOUTH
GENERAL
HEALTHSOUTH is the nation's largest provider of outpatient and rehabilitative
healthcare services. HEALTHSOUTH provides these services through its national
network of outpatient and inpatient rehabilitation facilities, outpatient
surgery centers, medical centers and other healthcare facilities. HEALTHSOUTH
believes that it provides patients, physicians and payors with high-quality
healthcare services at significantly lower costs than traditional inpatient
hospitals. Additionally, HEALTHSOUTH's national network, reputation for quality
and focus on outcomes has enabled it to secure contracts with national and
regional managed care payors. At September 30, 1996, HEALTHSOUTH had over 1,000
patient care locations in 48 states.
In its outpatient and inpatient rehabilitation facilities, HEALTHSOUTH
provides interdisciplinary programs for the rehabilitation of patients
experiencing disability due to a wide variety of physical conditions, such as
stroke, head injury, orthopaedic problems, neuromuscular disease and
sports-related injuries. HEALTHSOUTH's rehabilitation services include physical
therapy, sports medicine, work hardening, neurorehabilitation, occupational
therapy, respiratory therapy, speech-language pathology and rehabilitation
nursing. Independent studies have shown that rehabilitation services like those
provided by HEALTHSOUTH can save money for payors and employers.
HEALTHSOUTH operates the largest network of free-standing outpatient surgery
centers in the United States. HEALTHSOUTH's outpatient surgery centers provide
the facilities and medical support staff necessary for physicians to perform
non-emergency surgical procedures. While outpatient surgery is widely recognized
as generally less expensive than surgery performed in a hospital, HEALTHSOUTH
believes that outpatient surgery performed at a free-standing outpatient surgery
center is generally less expensive than hospital-based outpatient surgery.
Approximately 80% of HEALTHSOUTH's surgery center facilities are located in
markets served by its rehabilitative service facilities, enabling HEALTHSOUTH to
pursue opportunities for cross-referrals.
Over the last two years, HEALTHSOUTH has completed several significant
acquisitions in the rehabilitation business and has expanded into the surgery
center business. HEALTHSOUTH believes that these acquisitions complement its
historical operations and enhance its market position. HEALTHSOUTH further
believes that its expansion into the outpatient surgery business provides it
with a platform for future growth. HEALTHSOUTH is continually evaluating
potential acquisitions in the outpatient and rehabilitative healthcare services
industry.
COMPANY STRATEGY
HEALTHSOUTH's principal objective is to be the provider of choice for
patients, physicians and payors alike for outpatient and rehabilitative
healthcare services throughout the United States. HEALTHSOUTH's growth strategy
is based upon four primary elements: (i) the implementation of HEALTHSOUTH's
integrated service model in appropriate markets, (ii) successful marketing to
managed care organizations and other payors, (iii) the provision of
high-quality, cost-effective healthcare services, and (iv) the expansion of its
national network.
o Integrated Service Model. HEALTHSOUTH seeks, where appropriate, to provide
an integrated system of healthcare services, including outpatient
rehabilitation services, inpatient rehabilitation services, ambulatory
surgery services and outpatient diagnostic services. HEALTHSOUTH believes
that its integrated system offers payors the convenience of dealing with a
single provider for multiple services. Additionally, it believes that its
facilities can provide extensive referral opportunities. For example,
HEALTHSOUTH estimates that approximately one-third of its outpatient
rehabilitation patients have had outpatient surgery, virtually all
inpatient rehabilitation patients will require some form of outpatient
rehabilitation, and virtually all inpatient rehabilitation patients have
had some type of diagnostic procedure. HEALTHSOUTH has implemented its
integrated service model in certain of its markets, and intends to expand
the model into other appropriate markets.
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o Marketing to Managed Care Organizations and Other Payors. Since the late
1980s, HEALTHSOUTH has focused on the development of contractual
relationships with managed care organizations, major insurance companies,
large regional and national employer groups and provider alliances and
networks. HEALTHSOUTH's documented outcomes and experience with several
hundred thousand patients in delivering quality healthcare services at
reasonable prices has enhanced its attractiveness to such entities and has
given HEALTHSOUTH a competitive advantage over smaller and regional
competitors. These relationships have increased patient flow to
HEALTHSOUTH's facilities and contributed to HEALTHSOUTH's same-store
growth.
o Cost-Effective Services. HEALTHSOUTH's goal is to provide high-quality
healthcare services in cost-effective settings. To that end, HEALTHSOUTH
has developed standardized clinical protocols for the treatment of its
patients. This results in "best practices" techniques being utilized at
all of HEALTHSOUTH's facilities, allowing the consistent achievement of
demonstrable, cost-effective clinical outcomes. HEALTHSOUTH's reputation
for its clinical programs is enhanced through its relationships with major
universities throughout the nation, and its support of clinical research
in its facilities. Further, independent studies estimate that, for every
dollar spent on rehabilitation, $11 to $35 is saved. Finally, surgical
procedures typically are less expensive in outpatient surgery centers than
in hospital settings. HEALTHSOUTH believes that outpatient and
rehabilitative healthcare services will assume increasing importance in
the healthcare environment as payors continue to seek to reduce overall
costs by shifting patients to more cost-effective treatment settings.
o Expansion of National Network. As the largest provider of outpatient and
rehabilitative healthcare services in the United States, HEALTHSOUTH is
able to realize economies of scale and compete successfully for national
contracts with large payors and employers while retaining the flexibility
to respond to particular needs of local markets. The national network
affords HEALTHSOUTH the opportunity to offer large national and regional
employers and payors the convenience of dealing with a single provider, to
utilize greater buying power through centralized purchasing, to achieve
more efficient costs of capital and labor and to more effectively recruit
and retain clinicians. HEALTHSOUTH believes that its recent and pending
acquisitions in the outpatient surgery and diagnostic imaging fields will
further enhance its national presence by broadening the scope of its
existing services and providing new opportunities for growth. These
national benefits are realized without sacrificing local market
responsiveness. HEALTHSOUTH's objective is to provide those outpatient and
rehabilitative healthcare services needed within each local market by
tailoring its services and facilities to that market's needs, thus
bringing the benefits of nationally recognized expertise and quality into
the local setting.
PATIENT CARE SERVICES: GENERAL
HEALTHSOUTH began its operations in 1984 with a focus on providing
comprehensive orthopaedic and musculoskeletal rehabilitation services on an
outpatient basis. Over the succeeding 12 years, HEALTHSOUTH has consistently
sought and implemented opportunities to expand its services through acquisitions
and de novo development activities that complement its historic focus on
orthopaedic, sports medicine and occupational medicine services and that provide
independent platforms for growth. HEALTHSOUTH's acquisitions and internal growth
have enabled it to become the largest provider of rehabilitative healthcare
services, both inpatient and outpatient, in the United States. In addition,
HEALTHSOUTH has added outpatient surgery services, diagnostic imaging services
and other outpatient services which provide natural enhancements to its
rehabilitative healthcare locations and facilitate the implementation of its
integrated service model. HEALTHSOUTH believes that these additional businesses
also provide opportunities for growth in other areas not directly related to the
rehabilitative business, and HEALTHSOUTH intends to pursue further expansion in
those businesses.
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OUTPATIENT REHABILITATION SERVICES
HEALTHSOUTH operates the largest group of affiliated proprietary outpatient
rehabilitation facilities in the United States. HEALTHSOUTH's outpatient
rehabilitation centers offer a comprehensive range of rehabilitative healthcare
services, including physical therapy and occupational therapy, that are tailored
to the individual patient's needs, focusing predominantly on orthopaedic
injuries, sports injuries, work injuries, hand and upper extremity injuries,
back injuries and various neurological and neuromuscular conditions. As of
September 30, 1996, HEALTHSOUTH provided outpatient rehabilitative healthcare
services through approximately 690 outpatient locations, including freestanding
outpatient centers and their satellites and outpatient satellites of inpatient
facilities.
INPATIENT REHABILITATION SERVICES
At September 30, 1996, HEALTHSOUTH operated 96 inpatient rehabilitation
facilities with 5,749 beds, representing the largest group of proprietary
inpatient rehabilitation facilities in the United States. HEALTHSOUTH's
inpatient rehabilitation facilities provide high-quality comprehensive services
to patients who require intensive institutional rehabilitation care. Certain of
HEALTHSOUTH's inpatient rehabilitation facilities also provide outpatient
rehabilitation services for patients who have completed their inpatient course
of treatment but remain in need of additional therapy that can be accomplished
on an outpatient basis.
MEDICAL CENTERS
HEALTHSOUTH operates five medical centers with 912 licensed beds in four
distinct markets. These facilities, which are licensed as general, acute-care
hospitals, provide general and specialty medical and surgical healthcare
services, emphasizing orthopaedics, sports medicine and rehabilitation.
SURGERY CENTERS
As a result of three acquisitions of major surgery center operators in 1995
and early 1996, HEALTHSOUTH became the largest operator of outpatient surgery
centers in the United States. It currently operates 134 free-standing surgery
centers, including five mobile lithotripsy units, in 33 states, and has an
additional ten free-standing surgery centers under development. Approximately
80% of these facilities are located in markets served by HEALTHSOUTH outpatient
and rehabilitative service facilities, enabling HEALTHSOUTH to pursue
opportunities for cross-referrals between surgery and rehabilitative facilities
as well as to centralize administrative functions. HEALTHSOUTH's surgery centers
provide the facilities and medical support staff necessary for physicians to
perform non-emergency surgical procedures that do not generally require
overnight hospitalization. Its typical surgery center is a free-standing
facility with two to six fully equipped operating and procedure rooms and
ancillary areas for reception, preparation, recovery and administration. Each of
HEALTHSOUTH's surgery centers is available for use only by licensed physicians,
oral surgeons and podiatrists, and the centers generally do not perform surgery
on an emergency basis.
Outpatient surgery centers, unlike hospitals, have not historically provided
overnight accommodations, food services or other ancillary services. Over the
past several years, states have increasingly permitted the use of extended-stay
recovery facilities by outpatient surgery centers. As a result, many outpatient
surgery centers are adding extended recovery care capabilities where permitted.
Fifty-two of HEALTHSOUTH's surgery centers currently provide for extended
recovery stays. HEALTHSOUTH's ability to develop such recovery care facilities
is dependent upon state regulatory environments in the particular states where
its centers are located.
OTHER PATIENT CARE SERVICES
In certain of its markets, HEALTHSOUTH provides other patient care services,
including home healthcare, diagnostic services, physician services and contract
management of hospital-based rehabilitative healthcare services. HEALTHSOUTH
evaluates market opportunities on a case-by-case basis in determining whether to
provide additional services of these types, which may be complementary to
facility-based services provided by HEALTHSOUTH or stand-alone businesses.
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LOCATIONS
The following table sets forth a listing of HEALTHSOUTH's patient care
services locations by state at September 30, 1996:
<TABLE>
<CAPTION>
INPATIENT
OUTPATIENT REHABILITATION MEDICAL
REHABILITATION FACILITIES CENTERS SURGERY DIAGNOSTIC OTHER
STATE CENTERS(1) (BEDS)(2) (BEDS)(2) CENTERS CENTERS SERVICES
- --------------------- ---------------- ---------------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Alabama.............. 16 9 (389) 1 (219) 5 3 10
Alaska............... 1
Arizona.............. 24 3 (183) 4
Arkansas............. 1 1 (80) 2
California .......... 48 1 (60) 18 11
Colorado ............ 26 5 12
Connecticut ......... 18 2 (40) 1
Delaware............. 7 1
District of Columbia 1 1
Florida ............. 46 8 (613) 2 (397) 19 11
Georgia ............. 12 1 (75) 4 1
Hawaii............... 5 1
Idaho ............... 1
Illinois ............ 50 4
Indiana ............. 13 1 (80) 2
Iowa................. 3 1
Kansas............... 4 1
Kentucky ............ 3 1 (40) 1
Louisiana ........... 2 1 (43) 1 1
Maine ............... 9 4 (155) 1
Maryland ............ 14 1 (44) 4 3
Massachusetts ....... 37 10 (639) 1 10
Michigan ............ 1 1
Minnesota............ 1
Mississippi ......... 2
Missouri ............ 34 4 (107) 7 6
Montana.............. 1
Nebraska............. 2
Nevada............... 2
New Hampshire........ 12 3 (148)
New Jersey .......... 39 2 (170) 2 1 2
New Mexico .......... 3 1 (60) 1
New York ............ 33 1 (27)
North Carolina ...... 11 3
Ohio................. 28 1 (24) 4 3
Oklahoma ............ 11 1 (111) 5 1
Oregon............... 1
Pennsylvania ........ 27 12 (1,041) 5
Rhode Island......... 3
South Carolina....... 9 4 (235) 2
Tennessee ........... 13 5 (330) 6 1
Texas ............... 71 10 (633) 1 (96) 15 2 14
Utah ................ 1 1 (86) 1
Vermont.............. 2 (52)
Virginia ............ 11 2 (84) 1 (200) 1 2 10
Washington .......... 35 1
West Virginia ....... 4 (200) 1
Wisconsin............ 1 4
Wyoming.............. 1
</TABLE>
- ---------
(1) Includes freestanding outpatient centers and their satellites and outpatient
satellites of inpatient rehabilitation facilities.
(2) "Beds" refers to the number of beds for which a license or certificate of
need has been granted, which may vary materially from beds available for
use.
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BUSINESS OF READICARE
INTRODUCTION
ReadiCare, founded in 1982, is a leading physician practice management
company specializing in the provision of occupational healthcare services and
related cost-containment programs. At ReadiCare's 37 conveniently located
outpatient medical and rehabilitation centers in key markets in the States of
California and Washington, primary care physicians and support personnel offer
prompt, high-quality services designed to reduce workers' compensation and
healthcare costs, and to improve employee health, safety and productivity.
ReadiCare provides a wide range of services to employees of over 26,000
client companies, including small family-owned businesses, Fortune 500
companies, municipalities, school districts, state and local government
agencies, workers' compensation and health insurers and HMOs. Medical cost
containment programs available through ReadiCare include: medical case and
claims management; bill and utilization review; safety and injury prevention;
risk management and loss control; employment-related testing, such as drug
screening, pre-placement physical exams, OSHA compliance testing and others; and
access to ReadiCare's workers' compensation managed care provider network.
BUSINESS SUMMARY
The ReadiCare service delivery system is a cost-effective alternative to
general hospitals, industrial medical clinics, outpatient rehabilitation
centers, and other organizations which offer or arrange for the provision of
similar services. In addition, ReadiCare makes available a full range of managed
care services to those clients who seek a comprehensive approach to workers'
compensation and healthcare cost containment through, among other mechanisms,
injury prevention and safety programs, and the ReadiCare managed care provider
network. ReadiCare's operating strategies are as follows:
o Provide Quality Services in Low-Cost Settings: ReadiCare currently operates
a network of 37 low-cost, conveniently located primary care medical centers,
each staffed with a complement of licensed doctors, nurses, physical therapists,
and other professional and technical personnel to provide prompt, high quality
medical services. These healthcare professionals are experienced in diagnosing,
treating and rehabilitating common industrial and work-related injuries and
illnesses, as well as in caring for routine, non-life-threatening medical
problems. Physicians do not have any financial ownership interests in
ReadiCare's medical centers.
o Offer Specialized Services to Clients: ReadiCare customizes its services to
meet the needs of its clients. By providing services on an unbundled basis and
based upon client requirements, ReadiCare can implement a comprehensive approach
to workers' compensation and healthcare cost containment. Customized services
include:
- Employee pre-placement testing;
- Occupational Safety and Health Administration compliance testing;
- Drug collection, screening and reporting;
- Americans with Disabilities Act, Department of Transportation and Federal
Aviation Administration testing;
- Risk management and loss control consulting.
Additionally, ReadiCare has developed a number of educational programs
designed to reduce or prevent work-related injuries by advising employers of
methods by which to alter unsafe worksite conditions and to promote good health.
On an ongoing basis, ReadiCare evaluates existing and new markets at which it
can locate or acquire existing centers, and evaluates new services and products
which may add value to its service model.
o Enhance the Service Capabilities of its Workers' Compensation Managed Care
Provider Network: ReadiCare has developed a workers' compensation managed care
provider network in its markets, enabling employers, insurers, and third-party
payors to benefit from ReadiCare's expertise in workers'
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compensation and medical cost containment. Through the managed care network,
client companies have access to the services of selected physician specialists
in a variety of areas, such as hand surgery, orthopaedics, neurology, internal
medicine, dermatology and many others. Clients also have access to the full
range of inpatient and outpatient services offered by hospitals and diagnostic
centers participating in ReadiCare's managed care network. These managed care
network providers, which number approximately 117, have agreed to adhere to
ReadiCare's strict cost, utilization, quality control and early return-to-work
guidelines.
Subsequent to the enactment of the California Workers' Compensation Health
Care Provider Organization Act of 1993, ReadiCare applied for certification as a
Workers' Compensation Health Care Provider Organization ("WCHCPO") in the State
of California. On May 6, 1996, ReadiCare received WCHCPO certification from the
California Department of Corporations. Pending the outcome of proposed amended
legislation, market demand and other factors, ReadiCare may seek additional
certification as a Health Care Organization ("HCO"). The HCO designation may
permit ReadiCare to operate in certain markets as a "risk-based" services
provider similar to an HMO or healthcare insurer. Management believes that
should it obtain such certification and should there be market demand for such a
product, it could enjoy a competitive advantage in certain of its California
markets.
o Locate Centers in Clusters Convenient to Clients: ReadiCare locates its
centers in clusters in key markets to better serve its clients, to increase
operating efficiencies, and to more effectively expand the range of services it
can make available. Another benefit of the cluster approach is that ReadiCare
can realize certain economies of scale in the operation of its centers, such as
management oversight and staffing, purchasing of supplies, marketing and
advertising, and others. Further, ReadiCare is experienced in opening and
expanding outpatient medical and rehabilitation centers as well as acquiring
centers to serve existing and new clients should demand materialize.
o Utilize ReadiCare's Expertise and Experience as a Competitive Advantage:
ReadiCare strives to optimize the performance of its operations and to enhance
service levels by utilizing ReadiCare's expertise and experience, and has
developed extensive, proprietary management and information processing systems
relating to its operations and the workers' compensation system in general.
These systems have enhanced ReadiCare's ability to furnish high-quality,
efficient services while assisting its clients in complying with complex
regulations governing the workers' compensation and healthcare industries.
Accordingly, it is ReadiCare's strategy to promote and constantly upgrade its
knowledge and service levels, as well as its information and other management
systems in order to continue to attract new clients. ReadiCare believes that its
expertise and experience also allow it to efficiently manage all non-medical
aspects of its center operations, including billing and collections, accounting,
tax and financial management, marketing, human resource management, third-party
payor contracting, and others, thus enabling center physicians to focus on
providing quality healthcare services.
o Affiliate with Integrated Provider and Payor Networks: ReadiCare is
positioning its operations to successfully compete within a variety of emerging
models of healthcare payment and delivery by actively expanding its own delivery
system, and by affiliating with other integrated provider and payor networks,
such as HMOs, IPAs, and payor-sponsored group health and workers' compensation
PPOs. ReadiCare believes that should demand warrant, it can develop and
implement cost-effective and competitively priced risk-sharing programs with
these entities, such as case rates and capitation products covering a
comprehensive range of costs associated with occupational healthcare. However,
there can be no assurance that ReadiCare can successfully implement such
programs. Additionally, ReadiCare has entered into contractual relationships
with a number of health and life insurers whereby ReadiCare's services are being
made available to such insurers' policyholders as part of various group health
plans and workers' compensation cost containment programs.
o Enhance Near-term Utilization and Pursue Expansion as Market Conditions
Warrant: In the near term, ReadiCare intends to continue to promote and further
enhance utilization and profitability levels at its existing network of centers,
and to develop complementary workers' compensation and healthcare cost
containment programs for the marketplace. Additionally, ReadiCare plans to
expand its network of centers in selected geographic markets through the
acquisition of existing physician practices or occupa-
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<PAGE>
tional medical centers, and to the extent suitable sites are secured and market
conditions warrant, through the opening of new centers. There can be no
assurance that suitable acquisition candidates or sites can be found on terms
acceptable to ReadiCare.
OPERATIONS
OUTPATIENT PRIMARY CARE MEDICAL AND REHABILITATION CENTER SERVICES
Through ReadiCare's network of outpatient primary care medical and
rehabilitation centers and its managed care network, ReadiCare provides services
designed to reduce the overall costs associated with workers' compensation and
healthcare claims, emphasizing the following:
o Lower direct medical costs as compared to many alternative sources;
o Early return-to-work or limited work duty programs developed by ReadiCare
which help eliminate or minimize disability claims, litigation, and
related costs;
o Injury prevention, safety, and education programs;
o Early intervention and case management of workers' compensation claims;
and
o Prompt, quality services at convenient locations.
The following table indicates the number of primary care medical and
rehabilitation centers ("Medical Centers") owned and operated by ReadiCare for
the periods indicated:
\
YEARS ENDED FEBRUARY 28/29,
---------------------------
1994 1995 1996
------ ------- -------
Centers in operation at year-end... 41 40 37
Centers opened during year......... 1 -- --
Centers discontinued during year... 2 1 3
The Medical Centers operate under the trade names "ReadiCare Medical Centers"
in California and "CHEC Medical Centers" in Washington. The Medical Centers
specialize in the delivery of cost-effective, outpatient primary medical care
and rehabilitation services to individuals for the treatment of work-related
medical problems, and to the general public for routine non-life-threatening,
outpatient healthcare needs. For the year ended February 29, 1996, approximately
71% of revenues at the Medical Centers were derived from the provision of
workers' compensation medical and related services and, therefore, were paid for
by an employer or insurance carrier. The remaining 29% of revenues were derived
from the treatment of non-work-related injuries or illnesses, such as urgent
care and individual and family healthcare services, which were paid for by the
patient directly or through his or her group health insurer.
ReadiCare believes that the Medical Centers are an attractive alternative to
traditional acute and episodic sites of service, such as hospital emergency
rooms, because of their accessibility, convenience, ambiance, and focus on
quality service and medical cost containment. ReadiCare believes that prices in
the Medical Centers are lower than those of hospital emergency rooms and
competitive with most general physicians' offices, industrial clinics, primary
or urgent care centers, or other service providers. Hours of operation vary
depending upon location and client company requirements, and range from 8 to 15
hours per day. No appointments are necessary at the Medical Centers, and most
patients receive services within 15 minutes of arrival.
MEDICAL CENTER SERVICES
Typical services offered at ReadiCare's Medical Centers include:
o Outpatient primary medical care, such as physician services for the
treatment of work-related injuries and illnesses;
o Medical surveillance, executive and special physical examinations;
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<PAGE>
o Physical and rehabilitation therapy, such as ultrasound, whirlpool, manual
therapy and other treatment modalities;
o Outpatient medical services, such as treatment of fractures and sprains,
and minor surgery procedures;
o Medical consultation and rehabilitation services in areas such as
orthopaedics and hand surgery;
o Diagnostic testing, such as X-ray, spirometry, laboratory tests,
audiometry, and others;
o Disability and occupational health evaluations;
o Drug testing, collection and reporting services;
o Dispensing of prescription medicines, general medical supplies and
products;
o OSHA and regulatory compliance services; and
o Urgent care and routine individual and family healthcare.
DESCRIPTION AND SIZE
The Medical Centers range in size from approximately 2,400 square feet to
15,000 square feet, and are generally designed to accommodate a minimum of five
examination or treatment rooms, various ancillary service areas, physical
rehabilitation, pharmacy and supply, and other support functions. ReadiCare owns
debt-free the land and buildings occupied by its Everett and Tacoma, Washington
centers and its Rocklin, California center. All other centers operated by
ReadiCare are located in leased premises. More recently opened centers have
generally ranged in size from 4,000 to 6,000 square feet.
WORKERS' COMPENSATION MANAGED CARE PROVIDER NETWORK
ReadiCare operates a workers' compensation managed care provider network to
enable employers and insurers to further benefit from ReadiCare's expertise in
workers' compensation cost containment. Through the managed care network, client
companies have access to the services of a broad array of physician specialists
in such areas as orthopaedics, neurology, hand surgery, dermatology,
ophthalmology, internal medicine, and others. Clients can also access inpatient
and outpatient services offered by selected hospitals and diagnostic centers
that participate in ReadiCare's managed care network. Network providers include
only those medical service providers who have agreed to adhere to ReadiCare's
cost, utilization and quality control guidelines, and who have agreed to conform
to ReadiCare's early return-to-work, injury prevention and rehabilitation, case
management, utilization review, bill review and other cost containment
practices. As a result, ReadiCare believes that its expanded role as a
"gatekeeper" for its clients in organizing and monitoring the utilization,
delivery and costs of these medical services will result in greater efficiencies
and savings to its clients. As of August 31, 1996, ReadiCare had contracted with
approximately 117 physicians or physician specialist groups, diagnostic
facilities and hospital providers to provide services not available in its
Medical Centers. Revenues derived from managed care network provider services
were $1,431,000, or 4% of total revenues.
OUTPATIENT PHYSICAL REHABILITATION SERVICES
In the majority of its centers, ReadiCare offers a full range of outpatient
physical rehabilitation services which are provided by licensed physical
therapists. Typical physical rehabilitation services offered include:
o Work capacity evaluations, including isometric computerized testing;
o Risk assessment and job task analysis, including review of the work
environment, and recommendations for evaluation and modification of body
mechanics in job performance;
o Development of comprehensive work specific profiles which indicate job
task capability and functional limitations for an employee;
o Symptom magnification and behavioral assessments to identify potential
malingerers; and
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o Work simulated reconditioning and education, featuring job specific
strength and endurance training.
For the fiscal year ended February 29, 1996, physical rehabilitation services
accounted for approximately 17% of total revenues.
MANAGEMENT AND CONSULTING SERVICES FOR EMPLOYERS AND THIRD-PARTY PAYORS
ReadiCare offers management and consulting services for the development and
operation of workers' compensation cost containment programs organized or
administered by employers, health insurers, and third-party payors. Under this
program, a client is able to contract for one or more of the following services:
o Medical case management;
o General consulting in the operation of an employer's workers' compensation
medical program;
o Recruiting and provision of medical personnel, including the placement of
physicians and medical personnel on a part or full-time basis at the
employer's work site;
o Development and management of a full-service workers' compensation medical
center located on the employer's premises, including implementation of
staffing and administrative support systems;
o Early intervention, safety, injury prevention and loss control programs;
and
o Bill and utilization review services with respect to services provided by
various managed care network providers.
MEDICAL SERVICES PROVIDED TO THE GENERAL PUBLIC
For the fiscal year ended February 29, 1996, approximately 29% of revenues at
ReadiCare's primary care centers were derived from the provision of non-workers'
compensation outpatient medical and rehabilitation services to the general
public, such as urgent care and routine individual or family healthcare
services. Individuals choose the Medical Centers, among other reasons, due to
their low cost, convenience and extended hours, as a result of their
participation in employer-sponsored group accident and health plans, or through
PPO and managed care programs in which the ReadiCare Medical Centers
participate.
MEDICAL AND OTHER PROFESSIONAL STAFF
Medical services are provided at ReadiCare's centers by licensed physicians
who are employed by or under contract with ReadiCare Medical Groups. As of
February 29, 1996, there were 68 full-time equivalent physicians providing
services at ReadiCare's centers. The ReadiCare Medical Groups, which are
independently owned professional medical corporations, do not have any ownership
interests in any of ReadiCare's medical facilities. Physicians are generally
trained and experienced in occupational and industrial medicine, or have
emergency, family practice, internal medicine or general medicine backgrounds.
The ReadiCare Medical Groups have not to date experienced any material
difficulty in hiring such physicians. Rehabilitation services are performed by
licensed physical therapists or rehabilitation specialists. Demand for services
at a typical Medical Center requires a staff of up to 15 full-time equivalents
per week. Categories of non-physician staff members include: registered X-ray
technicians, certified medical assistants, licensed vocational nurses, physical
therapy aides, physical therapy assistants, licensed physical therapists, and
administrative and support personnel. ReadiCare has not experienced significant
difficulty in attracting such individuals or in retaining personnel in
sufficient numbers to staff its facilities. ReadiCare's continuing success,
however, will depend on its ability to attract and retain key physicians and
other employees. Competition for highly skilled physicians as well as medical
and management personnel is intense. There can be no assurance that ReadiCare
will be successful in retaining its existing personnel or in attracting
additional qualified physicians and other employees.
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SALES AND MARKETING
ReadiCare employs a staff of 12 full-time managed care consultants and sales
personnel who market ReadiCare's services to insurers, brokers, third-party
administrators and employer representatives. These individuals also initiate
direct mail campaigns, implement local sales strategies, and focus their sales
efforts on representatives of employer-sponsored workers' compensation, group
accident and health plans, and HMOs.
REIMBURSEMENT
Generally, increases in ReadiCare's operating costs approximate the rate of
inflation. In California, ReadiCare's largest operating territory,
state-authorized reimbursement levels for workers' compensation outpatient
medical services have not been increased since July 1987. In March 1994, a
revised fee schedule was adopted by the Department of Workers' Compensation;
however, reimbursement levels were not increased. In Washington,
state-authorized workers' compensation medical reimbursement levels were
increased by 6% effective March 1, 1994, and by approximately 10% on May 1,
1995. Inadequate reimbursement levels have, in the past, adversely affected
operating margins at ReadiCare's California centers, and they may adversely
affect operating margins in the future. Future operating results depend in part
on the effects of inflation and the extent to which reimbursement levels are
adjusted to keep pace with increases in ReadiCare's operating costs.
The following table illustrates the Medical Centers' sources of revenues as a
percentage of total revenues for the periods indicated:
YEARS ENDED FEBRUARY 28/29,
--------------------------
SOURCES OF REVENUE 1994 1995 1996
------------------ ---- ---- ----
Workers' Compensation Insurance
Payors................................ 60% 56% 56%
Corporate Accounts.................... 14% 15% 15%
Self-pay and Group Health Plans ...... 26% 29% 29%
Charges for the treatment of work-related injuries or illnesses are billed to
the client company's workers' compensation insurance carrier or to the client
company, when self-insured. For the treatment of non-work-related medical care,
such as urgent care, or routine individual or family healthcare services, the
Medical Centers accept major credit cards, cash, personal checks, assignment of
benefits from patients under selected group health insurance plans and HMOs,
and, to a limited extent, Medicare and Champus. Services provided to patients
pursuant to a contract with an employer are billed directly to the employer.
AGREEMENTS WITH READICARE MEDICAL GROUPS
Under agreements (the "Management Agreements") between ReadiCare and the
ReadiCare Medical Groups, the ReadiCare Medical Groups' physicians provide all
medical services at ReadiCare's centers. ReadiCare, in addition to other
administrative services, selects sites, manages and maintains all the Medical
Centers, provides capital, leases space, constructs all necessary improvements,
and obtains (by lease or purchase) all necessary equipment and supplies. In many
cases, ReadiCare has acquired an existing center. ReadiCare then makes available
the fully-equipped Medical Center to the ReadiCare Medical Group so that Medical
Group physicians can provide the necessary medical services. ReadiCare also
provides a variety of other administrative services to the ReadiCare Medical
Groups, including assisting in the recruitment of physicians, employing all
non-physician personnel, training all personnel in the operation of the Medical
Centers, marketing, quality control, purchasing, accounting, data processing,
and payroll operations. The ReadiCare Medical Groups, which employ or contract
with approximately 160 full- and part-time physicians, were organized expressly
for entering into the relationships set forth in the Management Agreements, and
are not engaged in any other activities. The ReadiCare Medical Groups employ or
contract with licensed physicians to provide the necessary medical services at
the Medical Centers and review the performance of the Medical Centers'
physicians to monitor compliance at all times with quality medical and ethical
standards.
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Pursuant to the Management Agreements, the ReadiCare Medical Groups retain
from net revenues (all billings for medical services, ancillary charges,
facility charges, and supplies, less contractual discounts and bad debt
allowances): (i) an amount sufficient to compensate those physicians who are
employed by or are under contract to the ReadiCare Medical Groups; and (ii) an
amount equal to $50.00 per month for each Medical Center at which the ReadiCare
Medical Groups provide medical services. Additionally, for all Medical Centers
at which ReadiCare Medical Groups provide services, the ReadiCare Medical Groups
retain from net revenues as additional compensation 0.30% of the net revenues
during any fiscal year of ReadiCare; provided, however, that such additional
compensation shall not exceed ReadiCare's (or its applicable subsidiary's)
profits before taxes, determined as of the end of the Company's fiscal year.
The Management Agreements with the ReadiCare Medical Groups provide for
annual renegotiation of the compensation terms, taking into account the size the
operation has then achieved, the direct and indirect costs of providing such
services, the financial results of operations, the amount of inflation which has
occurred, and other factors. Either party may terminate the agreements at any
time without cause on 60 days' prior written notice.
HEALTHCARE REFORM AND REGULATIONS
Virtually all aspects of the practice of medicine and the provisions of
workers' compensation and healthcare services are regulated by federal or state
statutes, state medical boards, local boards of health, codes established by
various medical associations, and other state or federal agencies. These
entities prescribe, among other things, who may engage in the practice of
medicine, the manner in which patients may be solicited and the requirements
that must be satisfied prior to the establishment of facilities for the delivery
of certain types of healthcare services. In addition, various states, including
the States of California and Washington, regulate pricing, billing and other
aspects of the delivery of medical services to injured workers eligible for
benefits under such states' workers' compensation systems. ReadiCare believes it
has structured its operations to comply with these regulations and that these
regulations have not had an adverse effect on ReadiCare's business.
In recent years, both the States of California and Washington have enacted
various healthcare and workers' compensation reform measures. These measures are
designed to reduce the costs of healthcare and workers' compensation, improve
access and broaden coverage to more individuals, minimize abuses, and create
more efficient delivery systems. ReadiCare believes its approach, which combines
the benefits of its low-cost, quality service-oriented delivery system,
complemented by a broad array of managed care programs offered by Readicare, has
enabled ReadiCare to respond favorably to such reform measures.
As described above, on May 6, 1996, ReadiCare received WCHCPO certification
in California and ReadiCare may apply for additional certification as an HCO.
Additionally, in view of ongoing healthcare reform initiatives in both the
States of Washington and California, ReadiCare is engaged in discussions with a
number of insurance companies, HMOs, third party payors, and others to develop
strategic alliances and relationships to improve its competitive market
position.
COMPETITION
ReadiCare faces intense competition from hospitals, outpatient primary care
and rehabilitation center providers, physicians' offices, industrial medical
clinics, HMOs, and others, such as IPAs and PPOs. Many competitors are
well-established sources of healthcare services. To compete successfully with
these entities, ReadiCare must overcome potential customers' attachments to
existing sources of healthcare. In ReadiCare's present markets, hospital-owned
competitors and HMOs generally have much greater financial and marketing
resources than ReadiCare. However, ReadiCare believes that it generally has
greater financial and marketing resources than individual service providers such
as single-location industrial medical clinics, and many non-hospital affiliated
operators of outpatient primary care medical and rehabilitation centers. In
addition, increased competitive pressures could lead to intensified price-based
competition, which could adversely affect ReadiCare's operating results.
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EMPLOYEES
At August 31, 1996, ReadiCare employed 381 full-time equivalent personnel,
consisting of management, administrative and support personnel, and
non-physician medical and technical staff. There are no collective bargaining
agreements with employees, and management believes that relations with its
employees are good.
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PRINCIPAL STOCKHOLDERS OF READICARE
The beneficial share ownership in ReadiCare as of October 21, 1996 of each
director and named executive officer, all directors and executive officers as a
group, and of the stockholders who are known by ReadiCare to own 5% or more of
the outstanding shares of ReadiCare Common Stock, and the percentages of
outstanding shares held by each such person or group, were as follows:
<TABLE>
<CAPTION>
NO. OF SHARES PERCENTAGE OF
OF COMMON COMMON
POSITION HELD STOCK OWNED STOCK
NAME AND ADDRESS WITH READICARE BENEFICIALLY(1)(2) OUTSTANDING
- ---------------------- --------------------------------- --------------- ----------------
<S> <C> <C> <C>
Dennis G. Danko....... Director, Chairman, President 961,850 11.7%
and Chief Executive Officer
Steve E. Busby........ Senior Vice President, Finance 66,250 *
and Secretary
Thomas P. Carey....... Senior Vice President, Operations 106,650 1.3
Alfred E. Osborne, Jr. Director 109,250 (3) 1.3
James M. Hall......... Director 67,500 *
Harry L. Casari....... Director 25,000 *
Weiss, Peck & Greer, L.L.C................................ 694,100 8.4
One New York Plaza
New York, NY 10004
WPG-Farber Partners Fund, L.P.............................. 499,600 6.0
One New York Plaza
New York, NY 10004
All directors and named executive
officers as a group (6 persons) ......................... 1,336,500 16.2
</TABLE>
- ----------
* Less than 1%.
(1) Includes 307,500, 66,250, 54,250, 57,500, 57,500 and 22,500 shares subject
to options which are exercisable on or within 60 days after October 21,
1996 by Messrs. Danko, Busby, Carey, Osborne, Hall and Casari,
respectively.
(2) Except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have
sole voting and investment power with respect to all shares of ReadiCare
Common Stock.
(3) Includes 10,750 shares for which Mr. Osborne has voting power, but for
which he disclaims beneficial ownership.
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DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH
COMMON STOCK
HEALTHSOUTH is authorized by the HEALTHSOUTH Restated Certificate of
Incorporation (the "HEALTHSOUTH Certificate") to issue up to 251,500,000 shares
of capital stock, of which 250,000,000 shares are designated Common Stock, par
value $.01 per share, and 1,500,000 shares are designated Preferred Stock, par
value $.10 per share. As of September 30, 1996, there were 155,051,946 shares of
HEALTHSOUTH Common Stock outstanding (including shares reserved for issuance in
connection with HEALTHSOUTH's 1995 and 1996 mergers which had not yet been
claimed by holders of the stock of the acquired companies). In addition, there
were outstanding options under HEALTHSOUTH's stock option plans to purchase an
additional 16,370,864 shares of HEALTHSOUTH Common Stock. An additional
2,195,535 shares of HEALTHSOUTH Common Stock were reserved for future option
grants under such plans. Additionally, 6,112,956 shares are currently reserved
for issuance upon conversion of HEALTHSOUTH's 5% Convertible Subordinated
Debentures due 2001 (the "Debentures"), and 76,639 shares are reserved for
issuance upon the exercise of outstanding warrants.
Holders of HEALTHSOUTH Common Stock are entitled to participate equally in
dividends when and as declared by the Board of Directors out of funds legally
available therefor and, in the event of liquidation or distribution of assets of
HEALTHSOUTH, are entitled to share ratably in such assets remaining after
payment of liabilities. Stockholders are entitled to one vote per share. Holders
of HEALTHSOUTH Common Stock have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions with respect to
such stock. The outstanding shares of HEALTHSOUTH Common Stock are fully paid
and nonassessable.
FAIR PRICE PROVISION
The HEALTHSOUTH Certificate contains certain provisions requiring
supermajority stockholder approval to effect specified extraordinary corporate
transactions unless certain conditions are met. The HEALTHSOUTH Certificate
requires the affirmative vote of 66 2/3 % of all shares of HEALTHSOUTH entitled
to vote in the election of Directors to approve a "business combination" with
any "other entity" that is the beneficial owner, directly or indirectly, of more
than 20% of the outstanding shares of HEALTHSOUTH entitled to vote in the
election of Directors. For purposes of this restriction, a "business
combination" includes: (a) the sale, exchange, lease, transfer or other
disposition by HEALTHSOUTH of all, or substantially all, of its assets or
business; (b) any merger or consolidation of HEALTHSOUTH; and (c) certain sales
of HEALTHSOUTH's Common Stock in exchange for cash, assets, securities or any
combination thereof. An "other entity" is defined to include, generally, any
corporation, person or entity, and any affiliate or associate of such
corporation, person or entity.
The foregoing supermajority vote shall not be required where, in the business
combination, (i) HEALTHSOUTH's stockholders receive consideration per share not
less than the highest per share price paid by the other entity in acquiring any
of its holdings of HEALTHSOUTH's Common Stock (subject to certain adjustments
upward) and (ii) certain other requirements, designed to prevent the other
entity from receiving disproportionate gains in connection with the business
combination, are satisfied.
The provisions of the HEALTHSOUTH Certificate described in the preceding
paragraphs, and its Bylaws, may be amended or repealed only by the affirmative
vote of 66 2/3 % of the shares entitled to vote thereon.
The effect of the foregoing provisions is to make it more difficult for a
person, entity or group to effect a change in control of HEALTHSOUTH through the
acquisition of a large block of HEALTHSOUTH's voting stock, or to effect a
merger or other acquisition that is not approved by a majority of HEALTHSOUTH's
Directors serving in office prior to the acquisition by the other entity of 5%
or more of HEALTHSOUTH's stock. In addition, holders of the Debentures have the
right to require HEALTHSOUTH to redeem the Debentures at 100% of the principal
amount thereof, plus accrued interest, upon the occurrence of certain events
involving a sale or merger of HEALTHSOUTH,
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unless holders of HEALTHSOUTH's Common Stock shall receive an amount per share
at least equal to the conversion price of the Debentures in effect on the date
such sale or merger is consummated. Such holders' redemption option may impede
certain forms of takeovers if the potential acquiror is unable to finance the
redemption of the Debentures.
SECTION 203 OF THE DGCL
HEALTHSOUTH is subject to the provisions of Section 203 of the DGCL. That
section provides, with certain exceptions, that a Delaware corporation may not
engage in any of a broad range of business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding shares held by directors, officers and
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3 %
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined to include any person, and the affiliates and associates
of such person that (i) is the owner of 15% or more of the outstanding voting
stock of the corporation or (ii) is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder. It is anticipated that the provisions of Section 203 of the DGCL
may encourage companies or others interested in acquiring HEALTHSOUTH to
negotiate in advance with the HEALTHSOUTH Board of Directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the acquiror becoming an interested stockholder.
PREFERRED STOCK
The HEALTHSOUTH Certificate authorizes the issuance of up to 1,500,000 shares
of Preferred Stock, par value $.10 per share (the "HEALTHSOUTH Preferred
Stock"). The Board of Directors has the authority to issue the HEALTHSOUTH
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend rights, dividend rate,
conversion rights, voting rights, terms of redemption, redemption price or
prices, liquidation preferences and the number of shares constituting any series
or the designations of such series, without any further vote or action by the
stockholders. Issuance of shares of HEALTHSOUTH Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting stock of HEALTHSOUTH. Any such issuance could also adversely
affect the voting power of the holders of the HEALTHSOUTH Common Stock. The
Board of Directors of HEALTHSOUTH has no current intention of issuing any shares
of HEALTHSOUTH Preferred Stock.
TRANSFER AGENT
The transfer agent and registrar for the HEALTHSOUTH Common Stock is
ChaseMellon Shareholder Services, New York, New York.
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COMPARISON OF RIGHTS OF READICARE
AND HEALTHSOUTH STOCKHOLDERS
Both ReadiCare and HEALTHSOUTH are incorporated in Delaware. Holders of the
ReadiCare Shares will continue to have their rights and obligations as
stockholders of HEALTHSOUTH after the Merger governed by Delaware law. Set forth
below is a summary comparison of the rights of a HEALTHSOUTH stockholder under
the HEALTHSOUTH Certificate and HEALTHSOUTH's Bylaws (the "HEALTHSOUTH Bylaws"),
on the one hand, and the rights of a ReadiCare stockholder under the ReadiCare
Certificate of Incorporation, as amended (the "ReadiCare Certificate"), and
ReadiCare's Bylaws, as amended (the "ReadiCare Bylaws"), on the other hand. The
information set forth below is qualified in its entirety by reference to the
HEALTHSOUTH Certificate, the HEALTHSOUTH Bylaws, the ReadiCare Certificate and
the ReadiCare Bylaws.
CLASSES AND SERIES OF CAPITAL STOCK
ReadiCare. ReadiCare is authorized by the ReadiCare Certificate to issue up
to 21,000,000 shares of capital stock, of which 20,000,000 shares are designated
Common Stock, par value $.01 per share, and 1,000,000 shares are designated
Preferred Stock, par value $.01 per share. As of August 31, 1996, 8,252,949
shares of ReadiCare Common Stock were issued and outstanding. In addition, there
were outstanding under ReadiCare Stock Option Plans options to purchase an
additional 770,000 shares of ReadiCare Common Stock, and 123,875 shares of
ReadiCare Common Stock were reserved for future option grants under such plans.
The Board of Directors of ReadiCare has the authority to issue the ReadiCare
Preferred Stock in one or more series, and to fix the designation, powers,
preferences, rights, qualifications, limitations or restrictions of each such
series, without any further vote or action by its stockholders. As of September
30, 1996, there were no shares of ReadiCare Preferred Stock issued and
outstanding. The Board of Directors of ReadiCare has no present intention of
issuing shares of ReadiCare Preferred Stock.
HEALTHSOUTH. HEALTHSOUTH is authorized by the HEALTHSOUTH Certificate to
issue up to 251,500,000 shares of capital stock, of which 250,000,000 shares are
designated Common Stock, par value $.01 per share, and 1,500,000 shares are
designated Preferred Stock, par value $.10 per share. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH". The Board of Directors of HEALTHSOUTH has the
authority to issue the HEALTHSOUTH Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions for each such series,
without any further vote or action by the stockholders. As of May 1, 1996, there
were no shares of HEALTHSOUTH Preferred Stock issued and outstanding, and the
Board of Directors of HEALTHSOUTH has no present intention of issuing shares of
HEALTHSOUTH Preferred Stock.
SIZE AND ELECTION OF THE BOARD OF DIRECTORS
ReadiCare. The ReadiCare Bylaws provide that the ReadiCare Board of Directors
shall consist of at least four and not more than seven directors and that the
size of the ReadiCare Board of Directors may be fixed, within such limits, by
the Directors then in office. Directors of ReadiCare are elected by a plurality
of votes cast at the Annual Meeting of Stockholders, and stockholders of
ReadiCare are entitled to cumulate their votes for directors. Under cumulative
voting, each ReadiCare stockholder is entitled to one vote per share multiplied
by the number of directors to be elected, and a stockholder may cast all of such
votes for a single nominee or may distribute them among any two or more of such
nominees as such stockholder may see fit. Vacancies in the ReadiCare Board of
Directors, except for a vacancy created by the removal of a director, may be
filled by a majority of the directors then in office. A vacancy created by the
removal of a director may be filled only by a vote of the majority of the shares
of ReadiCare Common Stock entitled to vote represented at a duly-held meeting at
which a quorum is present, or by the written consent of the holders of the
majority of the outstanding shares.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that the HEALTHSOUTH Board of
Directors shall consist of at least one director and that the size of the
HEALTHSOUTH Board of Directors may be fixed by the directors then in office.
Directors of HEALTHSOUTH are elected by a plurality of votes cast at the annual
meeting of stockholders. The HEALTHSOUTH Certificate and the
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HEALTHSOUTH Bylaws do not provide for cumulative voting. Vacancies in
HEALTHSOUTH's Board of Directors and newly created directorships resulting from
any increase in the authorized number of directors are filled by a majority of
directors then in office.
REMOVAL OF DIRECTORS
ReadiCare. Under the DGCL, any director or the entire board of directors of a
corporation may be removed, with or without cause, by the holders of a majority
of the shares of capital stock entitled to vote at an election of directors.
However, in the case of a corporation having cumulative voting, such as
ReadiCare, if less than the entire board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at any election of the entire board of
directors.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a director may be removed
with or without cause by the vote of the holders of a majority of the shares of
capital stock entitled to vote thereon.
OTHER VOTING RIGHTS
ReadiCare. The ReadiCare Common Stock is not divided into classes, and
ReadiCare has no classes or series of capital stock issued or outstanding other
than the ReadiCare Common Stock. Each ReadiCare stockholder holding shares of
ReadiCare Common Stock entitled to be voted on any matter, except as provided
above regarding the election of directors, shall have one vote on each such
matter submitted to vote at a meeting of stockholders for each such share of
ReadiCare Common Stock held by such stockholder as of the record date for such
meeting. Except as specifically provided otherwise by law or by the ReadiCare
Certificate or the ReadiCare Bylaws, the vote of the holders of a majority of
the shares of capital stock present or represented and entitled to vote is
required for the approval of any matter at a meeting of ReadiCare stockholders.
HEALTHSOUTH. The HEALTHSOUTH Common Stock is not divided into classes, and
HEALTHSOUTH has no classes or series of capital stock issued or outstanding
other than the HEALTHSOUTH Common Stock. Each HEALTHSOUTH stockholder holding
shares of HEALTHSOUTH Common Stock entitled to be voted on any matter, including
the election of directors, shall have one vote on each such matter submitted to
vote at a meeting of stockholders for each such share of HEALTHSOUTH Common
Stock held by such stockholder as of the record date for such meeting. Except as
specifically provided otherwise by law or by the HEALTHSOUTH Certificate or the
HEALTHSOUTH Bylaws, the vote of the holders of a majority of the shares of
capital stock present or represented and entitled to vote is required for the
approval of any matter at a meeting of HEALTHSOUTH stockholders.
CONVERSION AND DISSOLUTION
ReadiCare. The ReadiCare Common Stock has no conversion features. The
ReadiCare Certificate authorizes 1,000,000 shares of Preferred Stock, par value
$.01 per share, and provides that such shares of ReadiCare Preferred Stock may
have such voting powers, preferences and other special rights (including,
without limitation, the right to convert the shares of such ReadiCare Preferred
Stock into shares of ReadiCare Common Stock) as shall be stated in the ReadiCare
Certificate or resolutions providing for the issuance of ReadiCare Preferred
Stock. If the Board of Directors were to designate such a series of ReadiCare
Preferred Stock, such ReadiCare Preferred Stock could be entitled to
preferential payments in the event of a liquidation, dissolution or winding up
of ReadiCare.
HEALTHSOUTH. The HEALTHSOUTH Common Stock has no conversion features. The
HEALTHSOUTH Certificate authorizes 1,500,000 shares of Preferred Stock, par
value $.10 per share, and provides that such shares of HEALTHSOUTH Preferred
Stock may have such voting powers, preferences and other special rights
(including, without limitation, the right to convert the shares of such
HEALTHSOUTH Preferred Stock into shares of HEALTHSOUTH Common Stock) as shall be
stated in the HEALTHSOUTH Certificate or resolutions providing for the issuance
of HEALTHSOUTH Preferred Stock. If the Board of Directors were to designate such
a series of HEALTHSOUTH Preferred Stock, such HEALTHSOUTH Preferred Stock could
be entitled to preferential payments in the event of dissolution of HEALTHSOUTH.
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BUSINESS COMBINATIONS
ReadiCare. Neither the ReadiCare Certificate nor the ReadiCare Bylaws contain
any provisions similar to the provisions of the HEALTHSOUTH Certificate
described below or otherwise restricting business combinations.
HEALTHSOUTH. The HEALTHSOUTH Certificate provides that the vote of the
holders of 66-2/3% of all shares of HEALTHSOUTH entitled to vote in the election
of directors is required for the approval and adoption of a business combination
(as defined in the HEALTHSOUTH Certificate) with any entity (as defined in the
HEALTHSOUTH Certificate) if, on the record date for the determination of
stockholders entitled to vote thereon, the other entity is the beneficial owner,
directly or indirectly, of more than 20% of the outstanding shares of
HEALTHSOUTH entitled to vote in the election of directors. The voting
requirements of the "fair price" provision are not applicable to a business
combination involving a holder of 20% or more of HEALTHSOUTH's voting stock in
the business combination, if: (i) HEALTHSOUTH's stockholders receive
consideration per share not less than the highest per share price paid by the
other entity in acquiring any of its holdings of the HEALTHSOUTH Common Stock
(subject to certain upward adjustments); and (ii) certain other requirements,
designed to prevent the other entity from receiving disproportionate gains in
connection with the business combination, are satisfied. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH -- Fair Price Provision".
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION
Under Delaware law, unless its certificate of incorporation or by-laws
otherwise provide, amendments of a corporation's certificate of incorporation
generally require the approval of the holders of a majority of the outstanding
stock entitled to vote thereon, and if such amendment would increase or decrease
the number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of such class or series, the
approval of a majority of the outstanding stock of such class or series.
ReadiCare. The ReadiCare Certificate contains no provisions requiring
approval of amendments to the ReadiCare Certificate other than as generally
required under Delaware law, as described above. The ReadiCare Certificate also
provides that the ReadiCare Board of Directors may make, alter or repeal the
ReadiCare Bylaws.
HEALTHSOUTH. The HEALTHSOUTH Certificate requires approval by holders of at
least 66 2/3% of the outstanding shares entitled to vote thereon to repeal or
amend Article SIXTH of the HEALTHSOUTH Certificate (regarding the calling of
special meetings by the stockholders), Article SEVENTH of the HEALTHSOUTH
Certificate (regarding the "fair price" provision) and Article EIGHTH of the
HEALTHSOUTH Certificate (regarding the amendment of the HEALTHSOUTH
Certificate). The HEALTHSOUTH Certificate also provides that a majority of the
HEALTHSOUTH Board of Directors may make, alter or repeal the HEALTHSOUTH Bylaws.
SPECIAL MEETING OF STOCKHOLDERS
ReadiCare. The ReadiCare Bylaws provide that special meetings of stockholders
may be called at any time, upon not less than 10 days' written notice, by the
Chairman of the Board, the President, the Board of Directors or any one or more
stockholder(s) holding not less than 10% of the shares entitled to vote at such
meeting.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a special meeting of the
HEALTHSOUTH stockholders may be called by a majority of the Board of Directors
or by the holders of at least 20% of the outstanding shares of capital stock of
HEALTHSOUTH entitled to vote in the election of directors.
LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for monetary damages for breach
of the director's fiduciary duty, subject to certain limitations. Each of the
HEALTHSOUTH Certificate and the ReadiCare Certificate includes such a provision,
as set forth below, to the maximum effect permitted by law.
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Each of the HEALTHSOUTH Certificate and the ReadiCare Certificate provides
that a director will not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which concerns unlawful payments of dividends, stock
purchases or redemptions or (iv) for any transaction from which the director
derived an improper personal benefit.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL provides that a corporation may advance expenses
of defense (upon receipt of a written undertaking to reimburse the corporation
if indemnification is not appropriate) and must reimburse a successful defendant
for expenses, including attorneys' fees, actually and reasonably incurred, and
permits a corporation to purchase and maintain liability insurance for its
directors and officers. The DGCL provides that indemnification may not be made
for any claim, issue or matter as to which a person has been adjudged by a court
of competent jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the corporation, unless and only to the extent a court determines that
the person is entitled to indemnity for such expenses as the court deems proper.
The HEALTHSOUTH Bylaws provide that each person who is involved in any actual
or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of HEALTHSOUTH, or is or was serving at
the request of HEALTHSOUTH as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, will be indemnified
by HEALTHSOUTH to the full extent permitted by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits HEALTHSOUTH to provide broader
indemnification rights than said law permitted prior to such amendment) or by
other applicable laws then in effect. The ReadiCare Bylaws also provide for
indemnification to the full extent permitted by the DGCL for officers and
directors.
The Plan provides that all rights to indemnification for acts or omissions
occurring prior to the Effective Time of the Merger now existing in favor of the
current or former directors or officers of ReadiCare as provided in the
ReadiCare Certificate or the ReadiCare Bylaws shall survive the Merger and shall
continue in full force and effect in accordance with their terms.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling HEALTHSOUTH
pursuant to the foregoing provisions, HEALTHSOUTH has been informed that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
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OPERATIONS AND MANAGEMENT
OF HEALTHSOUTH AFTER THE MERGER
OPERATIONS
After the consummation of the Merger, ReadiCare will be a wholly-owned
subsidiary of HEALTHSOUTH, and all of ReadiCare's subsidiaries will be indirect
wholly-owned subsidiaries of HEALTHSOUTH. HEALTHSOUTH will continue to engage in
the business of providing rehabilitative healthcare services as prior to the
Merger, working with the management of ReadiCare to operate and continue to
expand ReadiCare's business. No material disposition or restructuring of either
of HEALTHSOUTH or ReadiCare or any material part thereof is contemplated as a
result of the Merger. See the information set forth herein and in the documents
incorporated herein by reference as set forth under "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE", "BUSINESS OF HEALTHSOUTH" and "BUSINESS OF
READICARE".
MANAGEMENT
After the consummation of the Merger, HEALTHSOUTH will be managed by the same
Board of Directors and executive officers as existed prior to the Merger.
EXPERTS
The consolidated financial statements and schedule of HEALTHSOUTH
Corporation, the consolidated financial statements of Surgical Health
Corporation, the consolidated financial statements of Rehab Systems Company, the
consolidated financial statements of ReLife, Inc., the consolidated financial
statements of Sutter Surgery Centers, Inc., the consolidated financial
statements of Advantage Health Corporation, and the consolidated financial
statements of Harmarville Rehabilitation Center, Inc., incorporated by reference
in this Prospectus-Proxy Statement and Registration Statement have been audited
by Ernst & Young LLP, independent auditors, to the extent indicated in their
reports thereon also incorporated by reference. Such consolidated financial
statements have been incorporated by reference herein in reliance upon such
reports given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of ReadiCare, Inc. incorporated in this
Prospectus-Proxy Statement by reference to the Annual Report on Form 10-K for
the fiscal year ended February 29, 1996, have been so incorporated in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of HEALTHSOUTH Common Stock to be issued to the
stockholders of ReadiCare pursuant to the Merger will be passed upon by Haskell
Slaughter & Young, L.L.C.
ADDITIONAL INFORMATION
OTHER BUSINESS
The Board of Directors of ReadiCare does not know of any matter to be brought
before its Special Meeting other than as described in the Notice of Special
Meeting accompanying this Prospectus-Proxy Statement mailed to the stockholders
of ReadiCare. If any other matter comes before the Special Meeting, it is the
intention of the persons named in the accompanying proxy to vote the proxy in
accordance with their best judgment with respect to such other matter.
STOCKHOLDER PROPOSALS
If the Plan is not approved by the ReadiCare stockholders at the Special
Meeting or any adjournments or postponements thereof, ReadiCare intends to hold
its next Annual Meeting of Stockholders July 24, 1997. Stockholders' proposals
intended to be presented at the 1997 Annual Meeting must be received by
ReadiCare no later than February 14, 1997, for inclusion in ReadiCare's proxy
statement and form of proxy relating to that meeting.
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ANNEX A
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER (the "Plan of Merger"), made and entered into as
of the 11th day of September, 1996, by and among HEALTHSOUTH Corporation, a
Delaware corporation ("HEALTHSOUTH"), WARWICK ACQUISITION CORPORATION, a
Delaware corporation (the "Subsidiary"), and READICARE, INC., a Delaware
corporation ("ReadiCare") (the Subsidiary and ReadiCare being sometimes
collectively referred to herein as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of HEALTHSOUTH, the Subsidiary
and ReadiCare have approved the merger of the Subsidiary with and into ReadiCare
(the "Merger"), upon the terms and conditions set forth in this Plan of Merger,
whereby all shares of Common Stock, par value $.01 per share, of ReadiCare (the
"ReadiCare Common Stock"), not owned directly or indirectly by ReadiCare, will
be converted into the right to receive the Merger Consideration (as hereinafter
defined);
WHEREAS, each of HEALTHSOUTH, the Subsidiary and ReadiCare desires to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended; and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests".
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:
SECTION 1. THE MERGER.
1.1 The Merger. Upon the terms and conditions set forth in this Plan of
Merger, and in accordance with the Delaware General Corporation Law (the
"DGCL"), the Subsidiary shall be merged with and into ReadiCare at the Effective
Time (as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of the Subsidiary shall cease and ReadiCare shall continue
as the surviving corporation (the "Surviving Corporation") under the name
"ReadiCare, Inc." and shall succeed to and assume all the rights and obligations
of the Subsidiary and ReadiCare in accordance with the DGCL.
1.2 The Closing. The closing of the Merger (the "Closing") will take place at
such time and such date as is specified by the parties (the "Closing Date"),
which (subject to satisfaction or waiver of the conditions set forth in Sections
9.2 and 9.3) shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Section 9.1 (other than Section 9.1(a),
which shall be satisfied at the Closing Date), at such location as the parties
may agree, unless another date is agreed to in writing by the parties hereto.
1.3 Effective Time. Subject to the provisions of this Plan of Merger, the
parties shall file a certificate of merger (the "Certificate of Merger")
executed in accordance with the relevant provisions of the DGCL and shall make
all other filings or recordings required under the DGCL as soon as practicable
on or after the Closing Date. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Delaware Secretary of State, or
at such other time as the Subsidiary and ReadiCare shall agree should be
specified in the Certificate of Merger (the "Effective Time").
1.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
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SECTION 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of ReadiCare
Common Stock or any shares of capital stock of the Subsidiary:
(a) Subsidiary Common Stock. Each share of capital stock of the Subsidiary
issued and outstanding immediately prior to the Effective Time shall be
converted into one fully paid and nonassessable share of common stock of the
Surviving Corporation.
(b) Cancellation of Treasury Stock. Each share of ReadiCare Common Stock that
is owned by ReadiCare or by any subsidiary of ReadiCare shall automatically be
canceled and retired and shall cease to exist, and none of the Common Stock, par
value $.01 per share, of HEALTHSOUTH ("HEALTHSOUTH Common Stock"), cash or other
consideration shall be delivered in exchange therefor.
(c) Conversion of ReadiCare Shares. Subject to Section 2.2(d), each issued
and outstanding share of ReadiCare Common Stock (other than shares to be
canceled in accordance with Section 2.1(b)) (collectively, the "Exchanging
ReadiCare Shares") shall be converted into the right to receive .2425 (the
"Exchange Ratio") shares of HEALTHSOUTH Common Stock, as may be adjusted as
provided below (the "Merger Consideration"); provided, however, that (i) if the
Base Period Trading Price (as defined below) shall be greater than $38.30, then
the Exchange Ratio shall be equal to the quotient obtained by dividing $9.29 by
the Base Period Trading Price, computed to four decimal places, (ii) if the Base
Period Trading Price shall be less than $30.60, then the Exchange Ratio shall be
equal to the quotient obtained by dividing $7.42 by the Base Period Trading
Price, computed to four decimal places, and (iii) if the Base Period Trading
Price shall be less than $27.20, then the Exchange Ratio shall be .2728. In the
event that any of the situations described in clauses (i) - (iii) of the
preceding sentence occurs, then the Merger Consideration shall be adjusted
accordingly. For purposes of this Plan of Merger, the term "Base Period Trading
Price" shall mean the average daily closing prices per share for the shares of
HEALTHSOUTH Common Stock for the 20 consecutive trading days on which such
shares are actually traded (as reported on the New York Stock Exchange Composite
Transaction Tape as reported in The Wall Street Journal, Eastern Edition, or if
not reported thereby, any other authoritative source) ending at the close of
trading on the second New York Stock Exchange trading day immediately preceding
the date of the Special Meeting (as defined in Section 7.3) (such period being
herein called the "Base Period"). Promptly after the close of trading on such
day, the parties shall issue a joint press release publicly announcing the
Exchange Ratio. As of the Effective Time, all such Exchanging ReadiCare Shares
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any
Exchanging ReadiCare Shares shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration and any cash in lieu of
fractional shares of HEALTHSOUTH Common Stock to be issued or paid in
consideration therefor upon surrender of such certificate in accordance with
Section 2.2, without interest.
(d) Stock Options and Warrants. At the Effective Time, all rights with
respect to ReadiCare Common Stock pursuant to any ReadiCare stock options or
ReadiCare warrants which are outstanding at the Effective Time, whether or not
then exercisable, shall be converted into and become rights with respect to
HEALTHSOUTH Common Stock, and HEALTHSOUTH shall assume each ReadiCare stock
option or ReadiCare warrant, in accordance with the terms of any stock option
plan under which it was issued and any stock option agreement or warrant
agreement, as the case may be, by which it is evidenced. It is intended that the
foregoing provisions shall be undertaken in a manner that will not constitute a
"modification" as defined in Section 425 of the Code, as to any stock option
which is an "incentive stock option". Each ReadiCare stock option or warrant so
assumed shall be exercisable for that number of shares of HEALTHSOUTH Common
Stock equal to the number of ReadiCare shares subject thereto multiplied by the
Exchange Ratio, and shall have an exercise price per share equal to the
ReadiCare exercise price divided by the Exchange Ratio.
(e) Anti-Dilution Provisions. If after the date hereof and prior to the
Effective Time HEALTHSOUTH shall have declared a stock split (including a
reverse split) of HEALTHSOUTH
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Common Stock or a dividend payable in HEALTHSOUTH Common Stock, or any other
distribution of securities or dividend (in cash or otherwise) to holders of
HEALTHSOUTH Common Stock with respect to their HEALTHSOUTH Common Stock
(including without limitation such a distribution or dividend made in connection
with a recapitalization, reclassification, merger, consolidation,
reorganization, reclassification, merger, consolidation, reorganization or
similar transaction) then (i) the amounts $38.30, $30.60 and $27.20 referred to
in Section 2.1(c), and the Exchange Ratio, shall be appropriately adjusted to
reflect such stock split or dividend or other distribution of securities and
(ii) if such stock split, dividend or distribution has a record date during or
after the Base Period and prior to the Effective Time, then the number of shares
of HEALTHSOUTH Common Stock to be issued upon conversion of a share of ReadiCare
Common Stock pursuant to Section 2.1(c) shall be appropriately adjusted to
reflect such stock split, dividend or other distribution of securities.
2.2 Exchange of Certificates. (a) Exchange Agent. Prior to the Effective
Time, HEALTH- SOUTH shall enter into an agreement with such bank or trust
company as may be designated by HEALTHSOUTH (the "Exchange Agent") which
provides that HEALTHSOUTH shall deposit with the Exchange Agent as of the
Effective Time, for the benefit of the holders of Exchanging ReadiCare Shares,
for exchange in accordance with this Section 2, through the Exchange Agent,
certificates representing the shares of HEALTHSOUTH Common Stock (such shares of
HEALTHSOUTH Common Stock, together with any dividends or distributions with
respect thereto with a record date after the Effective Time, being hereinafter
referred to as the "Exchange Fund") issuable pursuant to Section 2.1 in exchange
for outstanding shares of ReadiCare Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of ReadiCare Common
Stock (the "Certificates") whose shares were converted into the right to receive
the Merger Consideration pursuant to Section 2.1, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other provisions as
HEALTHSOUTH may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
shares of HEALTHSOUTH Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by HEALTHSOUTH, together with such letter of transmittal, duly
executed, and such other documents as may reasonably be required by the Exchange
Agent, the holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing that number of whole shares of HEALTHSOUTH
Common Stock which such holder has the right to receive pursuant to the
provisions of this Section 2, and the Certificate so surrendered shall forthwith
be canceled. In the event of a transfer of ownership of shares of ReadiCare
Common Stock which is not registered in the transfer records of ReadiCare, a
certificate representing the proper number of shares of HEALTHSOUTH Common Stock
may be issued to a person other than the person in whose name the Certificate so
surrendered is registered, if such Certificate shall be properly endorsed or
otherwise be in proper form for transfer and the person requesting such payment
shall pay any transfer or other taxes required by reason of the issuance of
shares of HEALTHSOUTH Common Stock to a person other than the registered holder
of such Certificate or establish to the satisfaction of HEALTHSOUTH that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
certificate representing shares of HEALTHSOUTH Common Stock and cash in lieu of
any fractional shares of HEALTHSOUTH Common Stock as contemplated by this
Section 2.2. No interest will be paid or will accrue on any cash payable in lieu
of any fractional shares of HEALTHSOUTH Common Stock. To the extent permitted by
law, former stockholders of record of ReadiCare shall be entitled to vote after
the Effective Time at any meeting of HEALTHSOUTH stockholders the number of
whole shares of HEALTHSOUTH Common Stock into which their respective shares of
ReadiCare Common Stock are converted, regardless of whether such holders have
exchanged their Certificates for certificates representing HEALTHSOUTH Common
Stock in accordance with this Section 2.2.
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(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to HEALTHSOUTH Common Stock with a record date after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of HEALTHSOUTH Common Stock
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.2(e) until the surrender of such
Certificate in accordance with this Section 2. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificate representing whole shares of HEALTH- SOUTH
Common Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional share of
HEALTHSOUTH Common Stock to which such holder is entitled pursuant to Section
2.2(e) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
HEALTH- SOUTH Common Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of HEALTHSOUTH Common Stock.
(d) No Further Ownership Rights in Exchanging ReadiCare Shares. All shares of
HEALTHSOUTH Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms of this Section 2 (including any cash paid pursuant
to Section 2.2(c) or 2.2(e) ) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the Exchanging ReadiCare Shares
theretofore represented by such Certificates. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Section
2, except as otherwise provided by law.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of HEALTH- SOUTH Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of HEALTHSOUTH.
Notwithstanding any other provision of this Plan of Merger, each holder of
Exchanging ReadiCare Shares exchanged pursuant to the Merger who would otherwise
have been entitled to receive a fraction of a share of HEALTHSOUTH Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of HEALTHSOUTH Common Stock multiplied by the Base
Period Trading Price.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to HEALTHSOUTH, upon demand, and any
holders of the Certificates who have not theretofore complied with this Section
2 shall thereafter look only to HEALTHSOUTH for payment of HEALTH- SOUTH Common
Stock, any cash in lieu of fractional shares of HEALTHSOUTH Common Stock and any
dividends or distributions with respect to HEALTHSOUTH Common Stock.
(g) No Liability. None of HEALTHSOUTH, the Subsidiary, ReadiCare or the
Exchange Agent shall be liable to any person in respect of any shares of
HEALTHSOUTH Common Stock (or dividends or distributions with respect thereto) or
cash from the Exchange Fund delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law. If any Certificates shall
not have been surrendered prior to seven years after the Effective Time (or
immediately prior to such earlier date on which any shares of HEALTHSOUTH Common
Stock, any cash in lieu of fractional shares of HEALTHSOUTH Common Stock or any
dividends or distributions with respect to HEALTHSOUTH Common Stock in respect
of such Certificates would otherwise escheat to or become the property of any
governmental entity), any such shares, cash, dividends or distributions in
respect of such Certificates shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund in deposit accounts or short-term money market
instruments, as directed by HEALTHSOUTH, on a daily basis. Any interest and
other income resulting from such investments shall be paid to HEALTHSOUTH.
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2.3 Certificate of Incorporation of Surviving Corporation. The Certificate of
Incorporation of ReadiCare shall be amended and restated, effective at the
Effective Time, in a manner satisfactory to HEALTHSOUTH. The Certificate of
Incorporation of ReadiCare, as so amended and restated, shall become the
Certificate of Incorporation of the Surviving Corporation from and after the
Effective Time and until thereafter amended as provided by law.
2.4 Bylaws of the Surviving Corporation. The Bylaws of the Subsidiary shall
be the Bylaws of the Surviving Corporation from and after the Effective Time and
until thereafter altered, amended or repealed in accordance with the laws of the
State of Delaware, the Certificate of Incorporation of ReadiCare and the said
Bylaws.
2.5 Directors and Officers of the Surviving Corporation. The Directors and
officers of the Subsidiary immediately prior to the Effective Time shall be the
Directors and officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
2.6 Assets, Liabilities, Reserves and Accounts. At the Effective Time, the
assets, liabilities, reserves and accounts of each of the Subsidiary and
ReadiCare shall be taken up on the books of the Surviving Corporation at the
amounts at which they respectively shall be carried on the books of said
corporations immediately prior to the Effective Time, except as otherwise set
forth in the Plan of Merger and subject to such adjustments, or elimination of
intercompany items, as may be appropriate in giving effect to the Merger in
accordance with generally accepted accounting principles.
2.7 Corporate Acts of the Subsidiary. All corporate acts, plans, policies,
approvals and authorizations of the Subsidiary, its sole stockholder, its Board
of Directors, committees elected or appointed by the Board of Directors, and all
officers and agents, valid immediately prior to the Effective Time, shall be
those of the Surviving Corporation and shall be as effective and binding thereon
as they were with respect to the Subsidiary. The employees and agents of the
Subsidiary shall become the employees and agents of the Surviving Corporation
and continue to be entitled to the same rights and benefits which they enjoyed
as employees and agents of the Subsidiary.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF READICARE.
ReadiCare hereby represents and warrants to HEALTHSOUTH and the Subsidiary as
follows:
3.1 Organization, Existence and Good Standing. ReadiCare is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. ReadiCare has all necessary corporate power to own its
properties and assets and to carry on its business as presently conducted.
ReadiCare is not, and has not been within the two years immediately preceding
the date of this Plan of Merger, a subsidiary or division of another
corporation, nor has ReadiCare within such time owned, directly or indirectly,
any shares of HEALTHSOUTH Common Stock or Subsidiary Common Stock.
3.2 ReadiCare Capital Stock. ReadiCare's authorized capital consists of
15,000,000 shares of ReadiCare Common Stock, par value $.01 per share, of which
8,252,949 shares were issued and outstanding as of May 31, 1996, and none of
which shares are issued and held as treasury shares, and 1,000,000 shares of
Preferred Stock, none of which shares are issued and outstanding or held as
treasury stock. All of the issued and outstanding shares of ReadiCare Common
Stock are duly and validly issued, fully paid and nonassessable. Except as set
forth on Exhibit 3.2 to the Disclosure Schedule delivered by ReadiCare to
HEALTHSOUTH simultaneously with the execution and delivery hereof (the
"Disclosure Schedule") or otherwise disclosed in the ReadiCare Annual Report on
Form 10-K for the fiscal year ended February 29, 1996 (the "ReadiCare 10-K"),
there are no options, warrants, or similar rights granted by ReadiCare or any
other agreements to which ReadiCare is a party providing for the issuance or
sale by it of any additional securities which would remain in effect after the
Effective Time, other than those reflected in the ReadiCare 10-K. There is no
liability for dividends declared or accumulated but unpaid with respect to any
of the shares of ReadiCare Common Stock. ReadiCare has not made any
distributions to any holders of ReadiCare Common Stock or participated in or
effected any issuance, exchange or retirement of shares of ReadiCare Common
Stock, or otherwise changed the equity interests of holders of ReadiCare Common
Stock, in contemplation of effecting the Merger within the two
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years immediately preceding the date of this Plan of Merger. Any shares of
ReadiCare Common Stock that ReadiCare has re-acquired during the two years
immediately preceding the date of this Plan of Merger have been so re-acquired
only for purposes other than "business combinations", as such term is defined in
Accounting Principles Board Opinion No. 16, as amended ("Business
Combinations").
3.3 Subsidiaries. Attached to the Disclosure Schedule as Exhibit 3.3 is a
list of all subsidiaries of ReadiCare (individually, a "ReadiCare Subsidiary",
and collectively, the "ReadiCare Subsidiaries") and their states of
incorporation. Except as set forth on Exhibit 3.3, ReadiCare does not own stock
or other equity interest in and does not control, directly or indirectly, any
other corporation, partnership, joint venture, limited liability company,
association or business organization.
3.4 Organization, Existence and Good Standing of ReadiCare Subsidiaries. Each
ReadiCare Subsidiary is a corporation or a professional corporation duly
organized, validly existing and in good standing under the laws of its
respective state of incorporation. Each ReadiCare Subsidiary has all necessary
corporate power to own its properties and assets and to carry on its business as
presently conducted.
3.5 Foreign Qualifications. Each of ReadiCare and each ReadiCare Subsidiary
is qualified to do business as a foreign corporation, foreign limited
partnership or foreign limited liability company, as the case may be, and is in
good standing in each jurisdiction where the nature or character of the property
owned, leased or operated by it or the nature of the business transacted by it
makes such qualification necessary, except where the failure to so qualify would
not have a material adverse effect on ReadiCare.
3.6 Power and Authority. Subject to the satisfaction of the conditions
precedent set forth herein, ReadiCare has the corporate power to execute,
deliver and perform the Plan of Merger and all agreements and other documents
executed and delivered or to be executed and delivered by it pursuant to the
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth herein has taken all action required by its Certificate of Incorporation,
Bylaws or otherwise, to authorize the execution, delivery and performance of the
Plan of Merger and such related documents. Except as set forth on Exhibit 3.6 to
the Disclosure Schedule, the execution and delivery of the Plan of Merger does
not and, subject to the receipt of required stockholder and regulatory approvals
and any other required third-party consents or approvals, the consummation of
the Merger will not, violate any provisions of the Certificate of Incorporation
of ReadiCare or any provisions of, or result in the acceleration of any
obligation under, any material mortgage, lien, lease, agreement, instrument,
order, arbitration award, judgment or decree, to which ReadiCare or any
ReadiCare Subsidiary is a party, or by which it is bound, or violate any
restrictions of any kind to which it is subject which, if violated or
accelerated, would have a material adverse effect on ReadiCare. The execution
and delivery of this Agreement has been approved by the Board of Directors of
ReadiCare. This Agreement has been duly executed and delivered by ReadiCare and,
assuming the receipt of required stockholder and regulatory approvals and
further assuming that this Agreement constitutes a valid and binding obligation
of HEALTHSOUTH and the Subsidiary, as the case may be, constitutes a valid and
binding obligation of ReadiCare, enforceable against ReadiCare in accordance
with its terms.
3.7 ReadiCare Public Information. ReadiCare has heretofore furnished
HEALTHSOUTH with a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by it with the Securities and
Exchange Commission (the "SEC") (as any such documents have since the time of
their original filing been amended, the "ReadiCare Documents") since January 1,
1995, which are all the documents (other than preliminary material) that it was
required to file with the SEC from such date through the date of this Plan of
Merger. As of their respective dates, the ReadiCare Documents did not contain
any untrue statements of material facts or omit to state material facts required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the ReadiCare Documents complied in all material respects with
the applicable requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated under such statutes. The financial statements contained in the
ReadiCare Documents, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated (except as may be indicated in the notes
thereto,
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or, in the case of the unaudited financial statements, as permitted by Form
10-Q), reflect all known liabilities of ReadiCare required to be stated therein,
including all known contingent liabilities as of the end of each period
reflected therein, and present fairly the financial condition of ReadiCare at
said dates and the consolidated results of operations and cash flows of
ReadiCare for the periods then ended. The consolidated balance sheet of
ReadiCare at May 31, 1996 included in the ReadiCare Documents is herein
sometimes referred to as the "ReadiCare Balance Sheet".
3.8 Revenue Analysis. Exhibit 3.8 to the Disclosure Schedule sets forth an
analysis of net patient revenues by facility for each facility operated by
ReadiCare or any ReadiCare Subsidiary describing net patient revenues for the
month ended May 31, 1996 and the three-month period ended May 31, 1996. Such
revenue analysis is true and correct in all material respects.
3.9 Legal Proceedings. Except as disclosed in the ReadiCare Documents or on
Exhibit 3.9 to the Disclosure Schedule, there is no material litigation,
governmental investigation or other proceeding pending or, so far as is known to
ReadiCare, threatened against or relating to ReadiCare, its properties or
business, or the transaction contemplated by the Plan of Merger and, so far as
is known to ReadiCare, no basis for any such action exists.
3.10 Contracts, etc. (a) All material contracts, leases, agreements and
arrangements to which ReadiCare or any of the ReadiCare Subsidiaries is a party
are legally valid and binding in accordance with their terms and in full force
and effect. To the knowledge of ReadiCare, no party is in default thereunder,
and no event has occurred which, but for the passage of time or the giving of
notice or both, would constitute a default thereunder, except, in each case,
where the invalidity of the lease, contract, agreement or arrangement or the
default or breach thereunder or thereof would not, individually or in the
aggregate, have a material adverse effect on ReadiCare. (b) Except as set forth
on Exhibit 3.10 to the Disclosure Schedule, no contract or agreement to which
ReadiCare or any ReadiCare Subsidiary is a party will, by its terms, terminate
as a result of the transactions contemplated hereby or require any consent from
any obligor thereto in order to remain in full force and effect immediately
after the Effective Time, except for contracts or agreements which, if
terminated, would not have a material adverse effect on ReadiCare.
(c) Except as set forth on Exhibit 3.10 to the Disclosure Schedule, neither
ReadiCare nor any ReadiCare Subsidiary has granted any right of first refusal or
similar right in favor of any third party with respect to any material portion
of its properties or assets or entered into any non-competition agreement or
similar agreement restricting its ability to engage in any business in any
location.
3.11 Subsequent Events. Except as set forth on Exhibit 3.11 to the Disclosure
Schedule or disclosed in the ReadiCare Documents, ReadiCare has not, since the
date of the last-filed ReadiCare Document:
(a) Incurred any material adverse change, including, but not limited to,
any material adverse change in patient visits from those reflected on Exhibit
3.8.
(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued, contingent
or otherwise) other than (i) liabilities shown or reflected on the ReadiCare
Balance Sheet or (ii) liabilities incurred since the date of the last-filed
ReadiCare Document in the ordinary course of business, which discharge or
satisfaction would have a material adverse effect on ReadiCare.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on ReadiCare, except as may have been required due to income
or operations of ReadiCare since the date of the last-filed ReadiCare
Document.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of ReadiCare.
(e) Sold or transferred any of the assets material to the consolidated
business of ReadiCare, cancelled any material debts or claims or waived any
material rights, except in the ordinary course of business.
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(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
ReadiCare to any officer or employee, consultant or agent (other than normal
merit increases), or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any officer,
employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted under
other Sections hereof.
(h) Issued any stock, bonds or other securities, other than stock options
granted to employees, directors or consultants of ReadiCare or warrants
granted to third parties, all of which are disclosed on Exhibit 3.2 to the
Disclosure Schedule or in the ReadiCare Documents.
3.12 Accounts Receivable. (a) Since the date of the ReadiCare 10-K, ReadiCare
has not changed any material principle or practice with respect to the
recordation of accounts receivable or the calculation of reserves therefor, or
any material collection, discount or write-off policy or procedure. ReadiCare
(including the ReadiCare Subsidiaries) is in compliance with the terms and
conditions of all third-party payor arrangements relating to its accounts
receivable, except to the extent that such noncompliance would not have a
material adverse effect on ReadiCare.
(b) Without limiting the generality of the foregoing, ReadiCare and each
ReadiCare Subsidiary is in compliance with all Medicare and Medicaid provider
agreements to which it is a party, except to the extent that such noncompliance
would not have a material adverse effect on ReadiCare.
3.13 Tax Returns. ReadiCare has filed all tax returns required to be filed by
it, or requests for extensions to file such returns or reports have been timely
filed and granted and have not expired, except to the extent that such failures
to file, taken together, do not have a material adverse effect on ReadiCare.
ReadiCare has made all payments shown as due on such returns. ReadiCare has not
been notified that any tax returns of ReadiCare are currently under audit by the
Internal Revenue Service or any state or local tax agency. No agreements have
been made by ReadiCare for the extension of time or the waiver of the statute of
limitations for the assessment or payment of any federal, state or local taxes.
3.14 Commissions and Fees. Except for fees payable to Crowell, Weedon & Co.
("Crowell Weedon"), there are no valid claims for brokerage commissions or
finder's or similar fees in connection with the transactions contemplated by
this Plan of Merger which may be now or hereafter asserted against HEALTHSOUTH
resulting from any action taken by ReadiCare or its stockholders, officers or
Directors, or any of them.
3.15 Employee Benefit Plans; Employment Matters. (a) Except as described in
the ReadiCare Documents or set forth on Exhibit 3.15(a) to the Disclosure
Schedule, ReadiCare has neither established nor maintains nor is obligated to
make contributions to or under or otherwise participate in (a) any bonus or
other type of incentive compensation plan, program, agreement, policy,
commitment, contract or arrangement (whether or not set forth in a written
document), (b) any pension, profit-sharing, retirement or other plan, program or
arrangement, or (c) any other employee benefit plan, fund or program, including,
but not limited to, those described in Section 3(3) of ERISA. All such plans
(individually, a "Plan" and collectively, the "Plans") have been operated and
administered in all material respects in accordance with, as applicable, ERISA,
the Internal Revenue Code of 1986, as amended, Title VII of the Civil Rights Act
of 1964, as amended, the Equal Pay Act of 1967, as amended, the Age
Discrimination in Employment Act of 1967, as amended, and the related rules and
regulations adopted by those federal agencies responsible for the administration
of such laws. No act or failure to act by ReadiCare has resulted in a
"prohibited transaction" (as defined in ERISA) with respect to the Plans that is
not subject to a statutory or regulatory exception. No "reportable event" (as
defined in ERISA) has occurred with respect to any of the Plans which is subject
to Title IV of ERISA. ReadiCare has not previously made, is not currently
making, and is not obligated in any way to make, any contributions to any
multi-employer plan within the meaning of the Multi-Employer Pension Plan
Amendments Act of 1980.
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(b) Except as described in the ReadiCare Documents or set forth on Exhibit
3.15(b) to the Disclosure Schedule, ReadiCare is not a party to any oral or
written (i) union, guild or collective bargaining agreement which agreement
covers employees in the United States (nor is it aware of any union organizing
activity currently being conducted in respect to any of its employees), (ii)
agreement with any executive officer or other key employee the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction of the nature contemplated by this Plan of Merger
and which provides for the payment of in excess of $50,000, or (iii) agreement
or plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Plan of Merger or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Plan of Merger.
3.16 Compliance with Laws in General. Except as set forth on Exhibit 3.16 to
the Disclosure Schedule or disclosed in the ReadiCare Documents, ReadiCare has
not received any notices of material violations of any federal, state and local
laws, regulations and ordinances relating to its business and operations,
including, without limitation, the Federal Environmental Protection Act, the
Occupational Safety and Health Act, the Americans with Disabilities Act, the
Medicare or applicable Medicaid statutes and regulations, the California
Workers' Compensation Health Care Provider Organization Act of 1993, any other
statutes or regulations relating to the provision of workers' compensation
healthcare services and any Environmental Laws, and no notice of any pending
inspection or violation of any such law, regulation or ordinance has been
received by ReadiCare which, if it were determined that a violation had
occurred, would have a material effect on ReadiCare.
3.17 Licenses, Accreditation and Regulatory Approvals. ReadiCare and the
ReadiCare Subsidiaries hold all licenses, permits, certificates of need and
other regulatory approvals which are needed or required by law with respect to
their businesses, operations and facilities as they are currently or presently
conducted, including, but not limited to, certification as a Workers'
Compensation Health Care Provider Organization in the State of California
(collectively, the "Licenses"), except where the failure to possess such
Licenses does not have a material adverse effect on ReadiCare. All such Licenses
are in full force and effect, and ReadiCare is in compliance in all material
respects with all conditions and requirements of the Licenses and with all rules
and regulations relating thereto. ReadiCare and the ReadiCare Subsidiaries are,
to the extent applicable to their operations, (i) eligible to receive payment
under Titles XVIII and XIX of the Social Security Act, (ii) providers under
existing provider agreements with the Medicare program through the applicable
intermediaries and (iii) in compliance with the conditions of participation in
the Medicare program except for such noncompliance as does not have a material
adverse effect on ReadiCare. ReadiCare and the ReadiCare Subsidiaries have
timely filed all requisite claims and other reports required to be filed in
connection with the Medicare, Medicaid and other governmental health programs
due on or before the date hereof, all of which were, when filed, complete and
correct in all material respects. There are no current claims, actions or
appeals pending, and neither ReadiCare nor the ReadiCare Subsidiaries have filed
any claims or reports which should result in such claims, actions or appeals,
before any commission, board or agency, including, without limitation, any
intermediary or carrier, the Provider Reimbursement Review Board or the
Administrator of the Health Care Financing Administration with respect to any
Medicare claims, or any disallowances in connection with any audit of claims,
which could have a material adverse effect on ReadiCare. The amounts established
as provisions for adjustments by Medicare, Medicaid and other third-party payors
on the financial statements set forth in the last-filed ReadiCare Document are
sufficient to pay any amounts for which ReadiCare may be liable. To the
knowledge of ReadiCare, neither ReadiCare nor the ReadiCare Subsidiaries nor
their respective employees have committed a violation of the Medicare and
Medicaid fraud and abuse provisions of the Social Security Act or any similar
provisions of any other federal or state law. Except as disclosed in the
ReadiCare Documents, any and all past litigation concerning such Licenses,
regulatory approvals, and all claims and causes of action raised therein, has
been finally adjudicated. No such License has been revoked, conditioned (except
as may be customary) or restricted, and, except as disclosed in the ReadiCare
Documents, no action (equitable, legal or administrative), arbitration or other
process is pending, or to the knowledge of ReadiCare, threatened, which in any
way
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challenges the validly of, or seeks to revoke, condition or restrict any such
License. Subject to compliance with applicable securities laws, the Hart
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
state or local statutes, rules or regulations requiring notice, approval, or
other action upon the occurrence of a change in control of ReadiCare or any of
the ReadiCare Subsidiaries, the consummation of the Merger will not violate any
law or regulation to which ReadiCare is subject which, if violated, would have a
material adverse effect on ReadiCare.
3.18 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock. ReadiCare is
not a party to any agreement the effect of which would be to require HEALTHSOUTH
directly or indirectly to retire or re-acquire all or part of the shares of
HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.
3.19 Disposition of Assets of Surviving Corporation. ReadiCare is not a party
to any plan to dispose of a significant part of the assets of the Surviving
Corporation within two years after the Closing Date, other than dispositions in
the ordinary course of business of the Surviving Corporation and dispositions
intended to eliminate duplicate facilities or excess capacity.
3.20 Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of the ReadiCare Common Stock entitled to vote thereon is the
only vote of the holders of any class or series of ReadiCare capital stock
necessary to approve this Plan of Merger, the Merger and the transactions
contemplated hereby.
3.21 Opinion of Financial Advisor. ReadiCare has received the oral opinion of
Crowell Weedon to the effect that, as of the date of this Agreement, the Merger
Consideration is fair to the holders of ReadiCare Shares from a financial point
of view, a written copy of which opinion will be delivered by ReadiCare to
HEALTHSOUTH prior to the date on which the definitive proxy materials for the
Proxy Statement (as defined in Section 7.4(a)) are filed with the SEC.
3.22 No Untrue Representations. No representation or warranty by ReadiCare in
this Plan of Merger, and no Exhibit or certificate issued by ReadiCare and
furnished or to be furnished to HEALTH- SOUTH pursuant hereto, or in connection
with the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact in response to the disclosure requested, or omits
or will omit to state a material fact necessary to make the statements or facts
contained therein in response to the disclosure requested not misleading in
light of all of the circumstances then prevailing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SUBSIDIARY AND HEALTHSOUTH.
The Subsidiary and HEALTHSOUTH, jointly and severally, hereby represent and
warrant to ReadiCare as follows:
4.1 Organization, Existence and Capital Stock. The Subsidiary is a
corporation duly organized and validly existing and is in good standing under
the laws of the State of Delaware. The Subsidiary's authorized capital consists
of 1,000 shares of Common Stock, par value $.01 per share, all of which shares
are issued and registered in the name of HEALTHSOUTH. The Subsidiary has not,
within the two years immediately preceding the date of this Plan of Merger,
owned, directly or indirectly, any shares of ReadiCare Common Stock.
4.2 Power and Authority. The Subsidiary has corporate power to execute,
deliver and perform the Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to the
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth herein, has taken all actions required by law, its Certificate of
Incorporation, its Bylaws or otherwise, to authorize the execution and delivery
of the Plan of Merger and such related documents. The execution and delivery of
the Plan of Merger does not and, subject to the receipt of required stockholder
and regulatory approvals and any other required third-party consents or
approvals, the consummation of the Merger contemplated hereby will not, violate
any provisions of the Certificate of Incorporation or Bylaws of the Subsidiary,
or any agreement, instrument, order, judgment or decree to
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which the Subsidiary is a party or by which it is bound, violate any
restrictions of any kind to which the Subsidiary is subject, or result in the
creation of any lien, charge or encumbrance upon any of the property or assets
of the Subsidiary.
4.3 No Subsidiaries. The Subsidiary does not own stock in, and does not
control directly or indirectly, any other corporation, association or business
organization. The Subsidiary is not a party to any joint venture or partnership.
4.4 Legal Proceedings. There are no actions, suits or proceedings pending or
threatened against the Subsidiary, at law or in equity, relating to or affecting
the Subsidiary, including the Merger. The Subsidiary does not know or have any
reasonable grounds to know of any justification for any such action, suit or
proceeding.
4.5 No Contracts or Liabilities. Other than the obligations created under the
Plan of Merger, the Subsidiary is not obligated under any contracts, claims,
leases, liabilities (contingent or otherwise), loans or otherwise.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF HEALTHSOUTH.
HEALTHSOUTH hereby represents and warrants to ReadiCare as follows:
5.1 Organization, Existence and Good Standing. HEALTHSOUTH is a corporation
duly organized and validly existing and is in good standing under the laws of
the State of Delaware. HEALTHSOUTH has all necessary corporate power to own its
properties and assets and to carry on its business as presently conducted.
HEALTHSOUTH is duly qualified to do business and is in good standing in all
jurisdictions in which the character of the property owned, leased or operated
or the nature of the business transacted by it makes qualification necessary.
HEALTHSOUTH is not, and has not been within the two years immediately preceding
the date of this Plan of Merger, a subsidiary or division of another
corporation, nor has HEALTHSOUTH within such time owned, directly or indirectly,
any shares of ReadiCare Common Stock.
5.2 Power and Authority. HEALTHSOUTH has corporate power to execute, deliver
and perform the Plan of Merger and all agreements and other documents executed
and delivered, or to be executed and delivered, by it pursuant to the Plan of
Merger, and, subject to the satisfaction of the conditions precedent set forth
herein has taken all actions required by law, its Certificate of Incorporation,
its Bylaws or otherwise, to authorize the execution and delivery of the Plan of
Merger and such related documents. The execution and delivery of the Plan of
Merger does not and, subject to the receipt of required stockholder and
regulatory approvals and any other required third-party consents or approvals,
the consummation of the Merger contemplated hereby will not, violate any
provisions of the Certificate of Incorporation or Bylaws of HEALTHSOUTH, or any
provision of, or result in the acceleration of any obligation under, any
mortgage, lien, lease, agreement, instrument, order, arbitration award, judgment
or decree to which HEALTHSOUTH is a party or by which it is bound, or violate
any restrictions of any kind to which HEALTHSOUTH is subject. The execution and
delivery of this Agreement has been approved by the Board of Directors of
HEALTHSOUTH. This Agreement has been duly executed and delivered by HEALTHSOUTH
and the Subsidiary and, assuming the receipt of required regulatory approvals
and further assuming that this Agreement constitutes a valid and binding
obligation of ReadiCare, constitutes a valid and binding obligation of
HEALTHSOUTH and the Subsidiary, enforceable against HEALTHSOUTH and the
Subsidiary in accordance with its terms.
5.3 HEALTHSOUTH Common Stock. On the Closing Date, HEALTHSOUTH will have a
sufficient number of authorized but unissued and/or treasury shares of its
Common Stock available for issuance to the holders of ReadiCare Shares in
accordance with the provisions of the Plan of Merger. The HEALTHSOUTH Common
Stock to be issued pursuant to the Plan of Merger will, when so delivered, be
(i) duly and validly issued, fully paid and nonassessable, (ii) issued pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, and (iii) authorized for listing on the New York Stock Exchange, Inc.
(the "Exchange") upon official notice of issuance.
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5.4 Capitalization. HEALTHSOUTH's authorized capital stock consists of
1,500,000 shares of Preferred Stock, par value $.10 per share, of which no
shares are issued and outstanding, and no shares are held in treasury, and
250,000,000 shares of Common Stock, par value $.01 per share, of which
155,051,946 shares are issued and outstanding, and 93,000 shares are held in
treasury. All of the issued and outstanding shares of HEALTHSOUTH Common Stock
have been duly and validly issued and are fully paid and non-assessable. Except
as disclosed in the HEALTHSOUTH Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, as amended (the "HEALTHSOUTH 10-K"), there are no
options, warrants, convertible debentures or similar rights granted by
HEALTHSOUTH or any other agreements to which HEALTHSOUTH is a party providing
for the issuance or sale by it of any additional securities, other than stock
options granted in the ordinary course since such date. There is no liability
for dividends declared or accumulated but unpaid with respect to any shares of
HEALTH- SOUTH Common Stock. HEALTHSOUTH has not made any distributions to any
holder of HEALTHSOUTH Common Stock or participated in or effected any issuance,
exchange or retirement of HEALTHSOUTH Common Stock, or otherwise changed the
equity interests of holders of HEALTHSOUTH Common Stock, in contemplation of
effecting the Merger within the two years immediately preceding the date of this
Plan of Merger. Any shares of HEALTHSOUTH Common Stock that HEALTHSOUTH has
re-acquired during the two years immediately preceding the date of this Plan of
Merger have been so re-acquired only for purposes other than Business
Combinations.
5.5 Subsidiary Common Stock. HEALTHSOUTH owns, beneficially and of record,
all of the issued and outstanding shares of Subsidiary Common Stock, which are
validly issued and outstanding, fully paid and nonassessable, free and clear of
all liens and encumbrances. HEALTHSOUTH has the corporate power to endorse and
surrender such Subsidiary Shares for cancellation pursuant to the Plan of
Merger. HEALTHSOUTH has taken all such actions as may be required in its
capacity as the sole stockholder of the Subsidiary to approve the Merger.
5.6 HEALTHSOUTH Documents. HEALTHSOUTH has heretofore furnished ReadiCare
with a true and complete copy of each report, schedule, registration statement
and definitive proxy statement filed by it with the SEC (as any such documents
have since the time of their original filing been amended, the "HEALTHSOUTH
Documents") since January 1, 1995, which are all the documents (other than
preliminary material) that it was required to file with the SEC since such date.
As of their respective dates, the HEALTHSOUTH Documents did not contain any
untrue statements of material facts or omit to state material facts required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the HEALTHSOUTH Documents complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated under such statutes. The financial statements contained in the
HEALTHSOUTH Documents, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated (except as may be indicated in the notes
thereto, or, in the case of the unaudited financial statements, as permitted by
Form 10-Q), reflect all known liabilities of HEALTHSOUTH required to be stated
therein, including all known contingent liabilities as of the end of each period
reflected therein, and present fairly the financial condition of HEALTHSOUTH at
said dates and the consolidated results of operations and cash flows of
HEALTHSOUTH for the periods then ended.
5.7 Investment Intent. HEALTHSOUTH is acquiring the shares of ReadiCare
Common Stock hereunder for its own account and not with a view to the
distribution or sale thereof, and HEALTHSOUTH has no understanding, agreement or
arrangement to sell, distribute, partition or otherwise transfer or assign all
or any part of the shares of ReadiCare Common Stock to any other person, firm or
corporation.
5.8 Legal Proceedings. Except as disclosed in the HEALTHSOUTH 10-K, there is
no material litigation, governmental investigation or other proceeding pending
or, so far as is known to HEALTHSOUTH, threatened against or relating to
HEALTHSOUTH, its properties or business, or the transaction contemplated by the
Plan of Merger and, so far as is known to HEALTHSOUTH, no basis for any such
action exists.
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5.9 No Violations. Subject to compliance with applicable securities laws and
the HSR Act, the consummation of the Merger will not violate any law or
restriction to which HEALTHSOUTH is subject.
5.10 Subsequent Events. Except as disclosed in the HEALTHSOUTH last-filed
HEALTHSOUTH Document, HEALTHSOUTH has not, since the date of the last-filed
HEALTHSOUTH Document:
(a) Incurred any material adverse change.
(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued, contingent
or otherwise) other than (i) liabilities shown or reflected on the March 31,
1996 Balance Sheet contained in the HEALTHSOUTH Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996 (the "HEALTHSOUTH 10-Q") or (ii)
liabilities incurred since the date of the HEALTHSOUTH 10-Q in the ordinary
course of business, which discharge or satisfaction would have a material
adverse effect on HEALTHSOUTH.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material
adverse effect on HEALTHSOUTH, except as may have been required due to income
or operations of HEALTHSOUTH since June 30, 1996.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of HEALTHSOUTH.
(e) Sold or transferred any of the assets material to the consolidated
business of HEALTHSOUTH, cancelled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
HEALTHSOUTH to any officer or employee, consultant or agent (other than
normal merit increases), or by means of any bonus or pension plan, contract
or other commitment, increased in a material respect the compensation of any
officer, employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material
transaction other than in the ordinary course of business or permitted under
other Sections hereof.
(h) Issued any stock, bonds or other securities, other than stock options
granted to employees or consultants of HEALTHSOUTH or warrants granted to
third parties, all of which are described in the HEALTHSOUTH Documents.
5.11 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock. HEALTHSOUTH
has not agreed directly or indirectly to retire or re-acquire all or part of the
shares of HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.
5.12 Disposition of Assets of Surviving Corporation. HEALTHSOUTH does not
intend or plan to dispose of, or to cause the Surviving Corporation to dispose
of, a significant part of the assets of the Surviving Corporation within two
years after the Effective Time, other than dispositions in the ordinary course
of business of the Surviving Corporation and dispositions intended to eliminate
duplicate facilities or excess capacity.
5.13 No Untrue Representation. No representation or warranty by HEALTHSOUTH
in this Plan of Merger, and no Exhibit or certificate issued by HEALTHSOUTH and
furnished or to be furnished to ReadiCare pursuant hereto, or in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact in response to the disclosure requested, or omits
or will omit to state a material fact necessary to make the statement or facts
contained therein in response to the disclosure requested not misleading in
light of all of the circumstances then prevailing.
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SECTION 6. ACCESS TO INFORMATION AND DOCUMENTS.
6.1 Access to Information. Between the date hereof and the Closing Date, each
of ReadiCare and HEALTHSOUTH will give to the other party and its counsel,
accountants and other representatives full access to all the properties,
documents, contracts, personnel files and other records of such party and shall
furnish the other party with copies of such documents and with such information
with respect to the affairs of such party as the other party may from time to
time reasonably request. Each party will disclose and make available to the
other party and its representatives all books, contracts, accounts, personnel
records, letters of intent, papers, records, communications with regulatory
authorities and other documents relating to the business and operations of such
party. In addition, ReadiCare shall make available to HEALTHSOUTH all such
banking, investment and financial information as shall be necessary to allow for
the efficient integration of ReadiCare's banking, investment and financial
arrangements with those of HEALTHSOUTH at the Effective Time.
6.2 Return of Records. If the transactions contemplated hereby are not
consummated and this Plan of Merger terminates, each party agrees to promptly
return all documents, contracts, records or properties of the other party and
all copies thereof furnished pursuant to this Section 6 or otherwise. All
information disclosed by any party or any affiliate or representative of any
party shall be deemed to be "Confidential Information" under the terms of the
Confidentiality Agreement dated August 8, 1996, between ReadiCare and
HEALTHSOUTH (the "Confidentiality Agreement").
6.3 Effect of Access. (a) Nothing contained in this Section 6 shall be deemed
to create any duty or responsibility on the part of either party to investigate
or evaluate the value, validity or enforceability of any contract, lease or
other asset included in the assets of the other party.
(b) With respect to matters as to which any party has made express
representations or warranties herein, the parties shall be entitled to rely upon
such express representations and warranties irrespective of any investigations
made by such parties, except to the extent that such investigations result in
actual knowledge of the inaccuracy or falsehood of particular representations
and warranties.
SECTION 7. COVENANTS.
7.1 Preservation of Business. ReadiCare will use its best efforts to preserve
the business organization of ReadiCare intact, to keep available to HEALTHSOUTH
and the Surviving Corporation the services of the present employees of
ReadiCare, and to preserve for HEALTHSOUTH and the Surviving Corporation the
goodwill of the suppliers, customers and others having business relations with
ReadiCare.
7.2 Material Transactions. Prior to the Effective Time, ReadiCare will not
(other than as required pursuant to the terms of the Plan of Merger and the
related documents, and other than with respect to transactions for which binding
commitments have been entered into prior to the date hereof which are described
on Exhibit 7.2 to the Disclosure Schedule), without first obtaining the written
consent of HEALTHSOUTH:
(a) Encumber any asset or enter into any transaction or make any contract
or commitment relating to the properties, assets and business of ReadiCare,
other than in the ordinary course of business or as otherwise disclosed
herein.
(b) Enter into any employment contract which is not terminable upon notice
of 30 days or less, at will, and without penalty to ReadiCare except as
provided herein.
(c) Enter into any contract or agreement (i) which cannot be performed
within three months or less, or (ii) which involves the expenditure of over
$50,000.
(d) Issue or sell, or agree to issue or sell, any shares of capital stock
or other securities of ReadiCare, except upon exercise of currently
outstanding stock options or warrants.
(e) Make any payment or distribution to the trustee under any bonus,
pension, profit-sharing or retirement plan or incur any obligation to make
any such payment or contribution which is not in accordance with ReadiCare's
usual past practice, or make any payment or contributions or incur
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any obligation pursuant to or in respect of any other plan or contract or
arrangement providing for bonuses, executive incentive compensation,
pensions, deferred compensation, retirement payments, profit-sharing or
the like, establish or enter into any such plan, contract or arrangement,
or terminate any Plan.
(f) Extend credit to anyone, except in the ordinary course of business
consistent with prior practices.
(g) Guarantee the obligation of any person, firm or corporation, except in
the ordinary course of business consistent with prior practices.
(h) Amend its Certificate of Incorporation or Bylaws.
(i) Take any action of a character described in Section 3.11(a) to
3.11(h), inclusive.
7.3 Meeting of ReadiCare Stockholders. (a) ReadiCare will take all steps
necessary in accordance with their respective Certificates of Incorporation and
Bylaws to call, give notice of, convene and hold a meeting of its stockholders
(the "Special Meeting") as soon as practicable after the effectiveness of the
Registration Statement (as defined in Section 7.4 hereof), for the purpose of
approving this Plan of Merger and for such other purposes as may be necessary.
Unless this Plan of Merger shall have been validly terminated as provided
herein, the Board of Directors of ReadiCare (subject to the provisions of
Section 8.1(d) hereof) will (i) recommend to ReadiCare's stockholders the
approval of this Plan of Merger, the transactions contemplated hereby and any
other matters to be submitted to the stockholders in connection therewith, to
the extent that such approval is required by applicable law in order to
consummate the Merger, and (ii) use reasonable, good faith efforts to obtain the
approval by ReadiCare's stockholders of this Plan of Merger and the transactions
contemplated hereby.
(b) Nothing contained herein shall affect the right of ReadiCare to take
action by written consent in lieu of meeting to the extent permitted by
applicable law and its Certificate of Incorporation and Bylaws.
7.4 Registration Statement. (a) HEALTHSOUTH shall prepare and file with the
Securities and Exchange Commission and any other applicable regulatory bodies,
as soon as reasonably practicable, a Registration Statement on Form S-4 with
respect to the shares of HEALTHSOUTH Common Stock to be issued in the Merger
(the "Registration Statement"), and will otherwise proceed promptly to satisfy
the requirements of the Securities Act of 1933, including Rule 145 thereunder.
Such Registration Statement shall contain a proxy statement of ReadiCare
containing the information required by the Securities Exchange Act of 1934 (the
"Proxy Statement"). HEALTHSOUTH shall take all reasonable steps to cause the
Registration Statement to be declared effective and to maintain such
effectiveness until all of the shares covered thereby have been distributed.
HEALTHSOUTH shall promptly amend or supplement the Registration Statement to the
extent necessary in order to make the statements therein not misleading or to
correct any misstatements which have become false or misleading. HEALTHSOUTH
shall use its reasonable, good faith efforts to have the Proxy Statement
approved by the SEC under the provisions of the Securities Exchange Act of 1934.
HEALTHSOUTH shall provide ReadiCare with copies of all filings made pursuant to
this Section 7.4 and shall consult with ReadiCare on responses to any comments
made by the Staff of the SEC with respect thereto.
(b) The information specifically designated as being supplied by ReadiCare
for inclusion in the Registration Statement shall not, at the time the
Registration Statement is declared effective, at the time the Proxy Statement is
first mailed to holders of ReadiCare Common Stock, at the time of the Special
Meeting and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
information specifically designated as being supplied by ReadiCare for inclusion
in the Proxy Statement shall not, at the date the Proxy Statement (or any
amendment thereof or supplement thereto) is first mailed to holders of ReadiCare
Common Stock, at the time of the Special Meeting and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any
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event or circumstance relating to ReadiCare, or its officers or directors,
should be discovered by ReadiCare which should be set forth in an amendment to
the Registration Statement or a supplement to the Proxy Statement, ReadiCare
shall promptly inform HEALTHSOUTH. All documents, if any, that ReadiCare is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form and substance in all material
respects with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and regulations
thereunder.
(c) The information specifically designated as being supplied by HEALTHSOUTH
for inclusion in the Registration Statement shall not, at the time the
Registration Statement is declared effective, at the time the Proxy Statement is
first mailed to holders of ReadiCare Common Stock, at the time of the Special
Meeting and at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
information specifically designated as being supplied by HEALTHSOUTH for
inclusion in the Proxy Statement to be sent to the holders of ReadiCare Common
Stock in connection with the Special Meeting shall not, at the date the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
holders of ReadiCare Common Stock, at the time of the Special Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event or
circumstance relating to HEALTHSOUTH or its officers or directors, should be
discovered by HEALTHSOUTH which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, HEALTHSOUTH shall
promptly inform ReadiCare and shall promptly file such amendment to the
Registration Statement. All documents that HEALTHSOUTH is responsible for filing
with the SEC in connection with the transactions contemplated herein will comply
as to form and substance in all material respects with the applicable
requirements of the Securities Act and the rules and regulations thereunder and
the Exchange Act and the rules and regulations thereunder.
(d) Prior to the Closing Date, HEALTHSOUTH shall use its reasonable, good
faith efforts to cause the shares of HEALTHSOUTH Common Stock to be issued
pursuant to the Merger to be registered or qualified under all applicable
securities or Blue Sky laws of each of the states and territories of the United
States, and to take any other actions which may be necessary to enable the
Common Stock to be issued pursuant to the Merger to be distributed in each such
jurisdiction.
(e) Prior to the Closing Date, HEALTHSOUTH shall file an additional listing
application (the "Listing Application") with the Exchange relating to the shares
of HEALTHSOUTH Common Stock to be issued in connection with the Merger, and
shall use its reasonable, good faith efforts to cause such shares of HEALTHSOUTH
Common Stock to be approved for listing on the Exchange, upon official notice of
issuance, prior to the Closing Date.
(f) ReadiCare shall furnish all information to HEALTHSOUTH with respect to
ReadiCare and the ReadiCare Subsidiaries and ReadiCare Other Entities as
HEALTHSOUTH may reasonably request for inclusion in the Registration Statement,
the Proxy Statement and the Listing Application, and shall otherwise cooperate
with HEALTHSOUTH in the preparation and filing of such documents.
7.5 Exemption from State Takeover Laws. ReadiCare shall take all reasonable
steps necessary to exempt the Merger from the requirements of any state takeover
statute or other similar state law which would prevent or impede the
consummation of the transactions contemplated hereby, by action of ReadiCare's
Board of Directors or otherwise.
7.6 HSR Act Compliance. HEALTHSOUTH and ReadiCare shall promptly make their
respective filings, and shall thereafter use their reasonable, good faith
efforts to promptly make any required submissions, under the HSR Act with
respect to the Merger and the transactions contemplated hereby. HEALTHSOUTH and
ReadiCare will use their respective reasonable, good faith efforts to obtain all
other permits, authorizations, consents and approvals from third parties and
governmental authorities necessary to consummate the Merger and the transactions
contemplated hereby.
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7.7 Public Disclosures. HEALTHSOUTH and ReadiCare will consult with each
other before issuing any press release or otherwise making any public statement
with respect to the transactions contemplated by this Plan of Merger, and shall
not issue any such press release or make any such public statement prior to such
consultation except as may be required by applicable law or requirements of the
Exchange. The parties shall issue a joint press release, mutually acceptable to
HEALTHSOUTH and ReadiCare, promptly upon execution and delivery of this Plan of
Merger.
7.8 Resignation of ReadiCare Directors. On or prior to the Closing Date,
ReadiCare shall deliver to HEALTHSOUTH evidence satisfactory to HEALTHSOUTH of
the resignation of the Directors of ReadiCare, such resignations to be effective
on the Closing Date.
7.9 Notice of Subsequent Events. Each party hereto shall notify the other
parties of any changes, additions or events which would cause any material
change in or material addition to any Exhibit to the Disclosure Schedule
delivered by the notifying party under this Plan of Merger, promptly after the
occurrence of the same. If the effect of such change or addition would,
individually or in the aggregate with the effect of changes or additions
previously disclosed pursuant to this Section 7.9, constitute a material adverse
effect on the notifying party, the non-notifying party may, within ten days
after receipt of such notice, elect to terminate this Plan of Merger. If the
non-notifying party does not give written notice of such termination within such
10-day period, the non-notifying party shall be deemed to have consented to such
change or addition and shall not be entitled to terminate this Plan of Merger by
reason thereof.
7.10 No Solicitations. ReadiCare may, directly or indirectly, furnish
information and access, in response to unsolicited requests therefor, to the
same extent permitted by Section 6.1, to any corporation, partnership, person or
other entity or group, pursuant to appropriate confidentiality agreements, and
may participate in discussions and negotiate with such corporation, partnership,
person or other entity or group concerning any proposal to acquire ReadiCare
upon a merger, purchase of assets, purchase of or tender offer for shares of
ReadiCare Common Stock or similar transaction (an "Acquisition Transaction"), if
the Board of Directors of ReadiCare determines in its good faith judgment in the
exercise of its fiduciary duties or the exercise of its duties under Rule 14e-2
under the Exchange Act, after consultation with legal counsel and its financial
advisors, that such action is appropriate in furtherance of the best interest of
its stockholders. Except as set forth above, ReadiCare shall not, and will
direct each officer, director, employee, representative and agent of ReadiCare
not to, directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with or provide any information to any corporation,
partnership, person or other entity or group (other than HEALTHSOUTH or an
affiliate or associate or agent of HEALTHSOUTH) concerning any merger, sale of
assets, sale of or tender offer for shares of ReadiCare Common Stock or similar
transactions involving ReadiCare. ReadiCare shall promptly notify HEALTHSOUTH if
it shall, on or after the date hereof, have entered into a confidentiality
agreement with any third party in response to any unsolicited request for
information and access in connection with a possible Acquisition Transaction
involving such party, such notification to include the identity of such third
party.
7.11 Other Actions. Subject to the provisions of Section 7.10 hereof, none of
ReadiCare, HEALTHSOUTH and the Subsidiary shall knowingly or intentionally take
any action, or omit to take any action, if such action or omission would, or
reasonably might be expected to, result in any of its representations and
warranties set forth herein being or becoming untrue in any material respect, or
in any of the conditions to the Merger set forth in this Plan of Merger not
being satisfied, or (unless such action is required by applicable law) which
would materially adversely affect the ability of ReadiCare or HEALTHSOUTH to
obtain any consents or approvals required for the consummation of the Merger
without imposition of a condition or restriction which would have a material
adverse effect on the Surviving Corporation or which would otherwise materially
impair the ability of ReadiCare or HEALTHSOUTH to consummate the Merger in
accordance with the terms of this Plan of Merger or materially delay such
consummation.
7.12 Accounting Methods. Neither HEALTHSOUTH nor ReadiCare shall change, in
any material respect, its methods of accounting in effect at its most recent
fiscal year end, except as required by changes in generally accepted accounting
principles as concurred in such parties' independent accountants.
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7.13 Pooling and Tax-Free Reorganization Treatment. Neither HEALTHSOUTH nor
ReadiCare shall intentionally take or cause to be taken any action, whether on
or before the Effective Time, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended.
7.14 Affiliate and Pooling Agreements. ReadiCare will use its reasonable,
good faith efforts to cause each of its Directors and executive officers and
each of its "affiliates" (within the meaning of Rule 145 under the Securities
Act of 1933, as amended) to execute and deliver to HEALTHSOUTH as soon as
practicable an agreement in the form attached hereto as Exhibit 7.14 relating to
the disposition of shares of ReadiCare Common Stock and shares of HEALTHSOUTH
Common Stock held by such person and the shares of HEALTHSOUTH Common Stock
issuable pursuant to this Plan of Merger.
7.15 Cooperation. (a) HEALTHSOUTH and ReadiCare shall together, or pursuant
to an allocation of responsibility agreed to between them, (i) cooperate with
one another in determining whether any filings required to be made or consents
required to be obtained in any jurisdiction prior to the Effective Time in
connection with the consummation of the transactions contemplated hereby and
cooperate in making any such filings promptly and in seeking to obtain timely
any such consents, (ii) use their respective best efforts to cause to be lifted
any injunction prohibiting the Merger, or any part thereof, or the other
transactions contemplated hereby, and (iii) furnish to one another and to one
another's counsel all such information as may be required to effect the
foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless this Plan
of Merger shall have been validly terminated as provided herein, each of
HEALTHSOUTH and ReadiCare shall use all reasonable efforts (i) to take, or cause
to be taken, all actions necessary to comply promptly with all legal
requirements which may be imposed on such party (or any subsidiaries or
affiliates of such party) with respect to the Plan of Merger and to consummate
the transactions contemplated hereby, subject to the vote of ReadiCare's
stockholders described above, and (ii) to obtain (and to cooperate with the
other party to obtain) any consent, authorization, order or approval of, or any
exemption by, any governmental entity and/or any other public or private third
party which is required to be obtained or made by such party or any of its
subsidiaries or affiliates in connection with this Plan of Merger and the
transactions contemplated hereby Each of HEALTHSOUTH and ReadiCare will promptly
cooperate with and furnish information to the other in connection with any such
burden suffered by, or requirement imposed upon, either of them or any of their
subsidiaries or affiliates in connection with the foregoing.
7.16 ReadiCare Stock Options and Warrants. (a) As soon as reasonably
practicable after the Effective Time of the Merger (but in any event within two
weeks thereafter), HEALTHSOUTH shall deliver to the holders of ReadiCare stock
options and warrants appropriate notices setting forth such holders' rights
pursuant to any stock option plans under which such ReadiCare stock options were
issued and any stock option agreements or warrant agreements evidencing such
options or warrants, which shall continue in full force and effect on the same
terms and conditions (subject to the adjustments required by Sections 2.1(d) or
this Section 7.16 after giving effect to the Merger and the assumption of such
options and warrants by HEALTHSOUTH as set forth herein) as in effect
immediately prior to the Effective Time. HEALTHSOUTH shall comply with the terms
of the stock option plans, the stock option agreements and the warrant
agreements as so adjusted, and shall use its reasonable, good faith efforts to
ensure, to the extent required by, and subject to the provisions of, such plans
or agreements, that the ReadiCare stock options which qualified as incentive
stock options prior to the Effective Time shall continue to qualify as incentive
stock options after the Effective Time.
(b) HEALTHSOUTH shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of HEALTHSOUTH Common Stock for delivery
upon exercise of the ReadiCare stock options and warrants assumed by HEALTHSOUTH
in accordance with Section 2.1(d). As soon as practicable after the Effective
Time (but in any event within two weeks thereafter), HEALTH- SOUTH shall file
with the SEC a registration statement on Form S-8 with respect to shares of
HEALTH- SOUTH Common Stock subject to such ReadiCare stock options and shall use
its best efforts to maintain the effectiveness of a registration statement or
registration statements covering such options (and
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maintain the current status of the prospectus or prospectuses contained therein)
for so long as such ReadiCare stock options remain outstanding. HEALTHSOUTH
shall administer the plans assumed pursuant to Section 2.1(d) hereof in a manner
that complies with Rule 16b-3 promulgated under the Exchange Act to the extent
the applicable plan complied with such rule prior to the Merger.
(c) Except to the extent otherwise agreed to by the parties, all restrictions
or limitations on transfer and vesting with respect to the ReadiCare stock
options awarded under any plan, program, or arrangement of ReadiCare or any of
its subsidiaries, to the extent that such restrictions or limitations shall not
have already lapsed, shall remain in full force and effect with respect to such
options after giving effect to the Merger and the assumption by HEALTHSOUTH as
set forth above.
7.17 Publication of Combined Results. HEALTHSOUTH agrees that within 20 days
after the end of the first calendar month following at least 30 days after the
Effective Time, HEALTHSOUTH shall cause publication of the combined results of
operations of HEALTHSOUTH and ReadiCare. For purposes of this Section 7.17, the
term "publication" shall have the meaning provided in SEC Accounting Series
Release No. 135.
7.18 ReadiCare Employees. HEALTHSOUTH shall retain all employees of ReadiCare
who are employed at the Effective Time as employees-at-will (except to the
extent that such employees are parties to contracts providing for other
employment terms, in which case such employees shall be retained in accordance
with the terms of such contracts) and shall provide such employees with the same
customary employee benefits as HEALTHSOUTH provides its existing employees.
7.19 Certain Information. For as long as any affiliate (as defined for
purposes of Rule 145 under the Securities Act of 1933) of ReadiCare holds shares
of HEALTHSOUTH Common Stock issued in the Merger (but not for a period in excess
of two years from the date of consummation of the Merger), HEALTHSOUTH shall
file with the Securities and Exchange Commission or otherwise make publicly
available all information about HEALTHSOUTH required pursuant to Rule 144(c)
under the Securities Act of 1933 to enable such affiliate to resell such shares
under the provisions of Rule 145(d) under the Securities Act of 1933.
7.20 Consulting and Non-Competition Agreement. On the Closing Date,
HEALTHSOUTH and Dennis G. Danko will enter into a Consulting and Non-Competition
Agreement in form and substance satisfactory to the parties.
SECTION 8. TERMINATION, AMENDMENT AND WAIVER.
8.1 Termination. This Plan of Merger may be terminated at any time prior to
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the holders of shares of ReadiCare Common Stock:
(a) by mutual written consent of HEALTHSOUTH and ReadiCare;
(b) by either HEALTHSOUTH or ReadiCare:
(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of shares of
ReadiCare Common Stock shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before January
31, 1997, unless the failure to consummate the Merger is the result of a
willful and material breach of this Plan of Merger by the party seeking to
terminate this Plan of Merger; provided, however, that the passage of such
period shall be tolled for any part thereof (but not exceeding 60 days in
the aggregate) during which any party shall be subject to a nonfinal
order, decree, ruling or action restraining, enjoining or otherwise
prohibiting the consummation of the Merger or the calling or holding of a
meeting of stockholders;
(iii) if any court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other
action permanently enjoining, restraining or otherwise prohibited the
Merger and such order, decree, ruling or other action shall have become
final and nonappealable;
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(iv) in the event of a breach by the other party of any representation,
warranty, covenant or other agreement contained in this Plan of Merger
which (A) would give rise to the failure of a condition set forth in
Section 9.2(a) or (b) or Section 9.3(a) or (b), as applicable, and (B)
cannot be or has not been cured within 30 days after the giving of written
notice to the breaching party of such breach (a "Material Breach")
(provided that the terminating party is not then in Material Breach of any
representation, warranty, covenant or other agreement contained in this
Plan of Merger); or
(v) if either HEALTHSOUTH or ReadiCare gives notice of termination as a
non-notifying party pursuant to Section 7.9;
(c) By either HEALTHSOUTH or ReadiCare in the event that (i) all of the
conditions to the obligation of such party to effect the Merger set forth in
Section 9.1 shall have been satisfied and (ii) any condition to the
obligation of such party to effect the Merger set forth in Section 9.2 (in
the case of HEALTHSOUTH) or Section 9.3 (in the case of ReadiCare) is not
capable of being satisfied prior to the end of the period referred to in
Section 8.1(b)(ii);
(d) By ReadiCare, if ReadiCare's Board of Directors shall have (i)
determined, in the exercise of its fiduciary duties under applicable law, not
to recommend the Merger to the holders of ReadiCare Common Stock or shall
have withdrawn such recommendation or (ii) approved, recommended or endorsed
any Acquisition Transaction (as defined in Section 7.10) other than this Plan
of Merger or (iii) resolved to do any of the foregoing; or
(e) By either HEALTHSOUTH or ReadiCare, if the condition set forth in
Section 9.1(g)(i) is not satisfied by September 30, 1996.
8.2 Effect of Termination. In the event of termination of this Plan of Merger
as provided in Section 8.1, this Plan of Merger shall forthwith become void and
have no effect, without any liability or obligation on the part of any party,
other than the provisions of Sections 6.2, 8.2 and 8.6, and except to the extent
that such termination results from the willful and material breach by a party of
any of its representations, warranties, covenants or other agreements set forth
in this Plan of Merger.
8.3 Amendment. This Plan of Merger may be amended by the parties at any time
before or after any required approval of matters presented in connection with
the Merger by the holders of ReadiCare Shares; provided, however, that after any
such approval, there shall be made no amendment that pursuant to Section 251(d)
of the DGCL requires further approval by such stockholders without the further
approval of such stockholders. This Plan of Merger may not be amended except by
an instrument in writing signed on behalf of each of the parties.
8.4 Extension; Waiver. At any time prior to the Effective Time of the Merger,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c) subject to the proviso
of Section 8.3, waive compliance with any of the agreements or conditions
contained in this Plan of Merger. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this Plan of
Merger to assert any of its rights under this Plan of Merger or otherwise shall
not constitute a waiver of such rights, except as otherwise provided in Section
7.9.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A termination
of this Plan of Merger pursuant to Section 8.1, an amendment of this Plan of
Merger pursuant to Section 8.3, or an extension or waiver pursuant to Section
8.4 shall, in order to be effective, require in the case of HEALTHSOUTH, the
Subsidiary or ReadiCare, action by its Board of Directors or the duly authorized
designee of the Board of Directors.
8.6 Expenses; Break-up Fees. (a) All costs and expenses incurred in
connection with this Plan of Merger and the transactions contemplated hereby
shall be paid by the party incurring such expense, except that expenses (other
than legal, accounting and investment banking costs, which shall be paid by the
party incurring such expenses) incurred in connection with preparing, filing,
printing and mailing the Proxy Statement and the Registration Statement shall be
shared equally by ReadiCare and HEALTHSOUTH.
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(b) (i) If this Plan of Merger is terminated by ReadiCare pursuant to Section
8.1(d), and within one year after the effective date of such termination
ReadiCare is the subject of a Third Party Acquisition Event with any Person (as
defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) (other than a
party hereto), then at the time of consummation of such a Third Party
Acquisition Event, ReadiCare shall pay to HEALTHSOUTH a break-up fee of
$8,000,000 in immediately available funds, which fee represents the parties'
best estimates of the out-of-pocket costs incurred by HEALTHSOUTH and the value
of management time, overhead, opportunity costs and other unallocated costs of
HEALTH- SOUTH incurred by or on behalf of HEALTHSOUTH in connection with this
Plan of Merger. ReadiCare shall not enter into any agreement with respect to any
Third Party Acquisition Event which does not, as a condition precedent to the
consummation of such Third Party Acquisition Event, require such break-up fee to
be paid to HEALTHSOUTH upon such consummation.
(ii) As used herein, the term "Third Party Acquisition Event" shall mean
either of the following:
(A) ReadiCare shall enter into any agreement for, or otherwise be the
subject of, any Acquisition Transaction (as defined in Section 7.10) which
is consummated (regardless of whether such consummation occurs with the
one-year period described in Section 8.6(b)(i); or
(B) any Person (other than a party hereto or its affiliates) shall have
acquired beneficial ownership (as such term is defined in Rule 13d-3 under
the Exchange Act) or the right to acquire beneficial ownership of, or a
new group has been formed which beneficially owns or has the right to
acquire beneficial ownership of, 30% or more of the outstanding ReadiCare
Common Stock.
(c) In the event that this Plan of Merger shall be terminated by
HEALTHSOUTH for any reason other than as permitted under Section 8.1 (or
if this Plan of Merger shall be terminated by HEALTHSOUTH pursuant to
Section 8.1(c) and such termination is by reason of the failure of any
condition to the obligation of HEALTHSOUTH to effect the Merger which
failure results from a breach by HEALTHSOUTH of any representation,
warranty or covenant contained herein), HEALTHSOUTH shall pay ReadiCare a
break-up fee in connection with this Plan of Merger in the amount of
$1,000,000 in immediately available funds within 15 days of termination of
the Plan of Merger.
(d) Each party acknowledges that the provisions for the payment of
break-up fees and allocation of expenses contained in this Section 8.6 are
an integral part of the transactions contemplated by this Plan of Merger
and that, without these provisions, the other party would not have entered
into this Plan of Merger. Accordingly, if a break-up fee shall become due
and payable by a party, and such party shall fail to pay such amount when
due pursuant to this Section, and, in order to obtain such payment, suit
is commenced which results in a judgment against such party therefor, such
party shall pay the other party's reasonable costs and expenses (including
reasonable attorneys' fees) in connection with such suit, together with
interest computed on any amounts determined to be due pursuant to this
Section (computed from the date upon which such amounts were due and
payable pursuant to this Section) and such costs (computed from the date
incurred) at the prime rate of interest announced from time to time by
NationsBank, N.A. (Carolinas). The obligations of the parties under this
Section 8.6 shall survive any termination of this Plan of Merger.
SECTION 9. CONDITIONS TO CLOSING.
9.1 Mutual Conditions. The respective obligations of each party to effect the
Merger shall be subject to the satisfaction, at or prior to the Closing Date of
the following conditions (any of which may be waived in writing by HEALTHSOUTH
and ReadiCare):
(a) None of HEALTHSOUTH, the Subsidiary or ReadiCare nor any of their
respective subsidiaries shall be subject to any order, decree or injunction
by a court of competent jurisdiction which (i) prevents or materially delays
the consummation of the Merger or (ii) would impose any material limitation
on the ability of HEALTHSOUTH effectively to exercise full rights of
ownership of the Common Stock of the Surviving Corporation or any material
portion of the assets or business of ReadiCare and the ReadiCare
Subsidiaries, taken as a whole.
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(b) No statute, rule or regulation shall have been enacted by the
government (or any governmental agency) of the United States or any state,
municipality or other political subdivision thereof that makes the
consummation of the Merger and any other transaction contemplated hereby
illegal.
(c) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) The Registration Statement shall have been declared effective and no
stop order with respect to the Registration Statement shall be in effect.
(e) The holders of ReadiCare Shares shall have approved the adoption of
this Plan of Merger and any other matters submitted to them in accordance
with the provisions of Section 7.3 hereof.
(f) The shares of HEALTHSOUTH Common Stock to be issued in connection with
the Merger shall have been approved for listing on the Exchange and shall
have been issued pursuant to an effective registration statement (which is
subject to no stop order).
(g) The Merger shall qualify for "pooling of interests" accounting
treatment, and HEALTHSOUTH and ReadiCare shall each have received letters to
that effect from Ernst & Young, LLP, independent accountants for HEALTHSOUTH,
dated (i) not later than September 30, 1996, (ii) the date of the mailing of
the Proxy Statement and (iii) the Closing Date.
(h) HEALTHSOUTH and the Subsidiary shall have obtained, or obtained the
transfer of, any licenses, certificates of need and other regulatory
approvals necessary to allow the Surviving Corporation to operate the
ReadiCare facilities, unless the failure to obtain such transfer or approval
would not have a material adverse effect on the Surviving Corporation.
(i) HEALTHSOUTH and the Subsidiary shall have received all consents,
approvals and authorizations of third parties with respect to all material
leases and management agreements to which the ReadiCare Subsidiaries and the
ReadiCare Other Entities are parties, which consents, approvals and
authorizations are required of such third parties by such documents, in form
and substance acceptable to HEALTHSOUTH, except where the failure to obtain
such consent, approval or authorization would not have a material effect on
the business of the Surviving Corporation.
9.2 Conditions to Obligations of HEALTHSOUTH and the Subsidiary. The
obligations of HEALTHSOUTH and the Subsidiary to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction, at
or prior to the Closing Date, of the following conditions (any of which may be
waived by HEALTHSOUTH and the Subsidiary):
(a) Each of the agreements of ReadiCare to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed in
all material respects, and ReadiCare shall have performed, in all material
respects, all of the acts required to be performed by it at or prior to the
Closing Date by the terms hereof.
(b) The representations and warranties of ReadiCare set forth in Section
3.11(a) shall be true and correct as of the date of this Plan of Merger and
as of the Closing Date. The representations and warranties of ReadiCare set
forth in this Plan of Merger that are qualified as to materiality shall be
true and correct, and those that are not so qualified shall be true and
correct in all material respects, as of the date of this Plan of Merger and
as of the Closing as though made at and as of such time, except to the extent
such representations and warranties expressly relate to an earlier date (in
which case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of such earlier date);
provided, however, that ReadiCare shall not be deemed to be in breach of any
such representations or warranties by taking any action permitted (or
approved by HEALTHSOUTH) under Section 7.2. HEALTHSOUTH and the Subsidiary
shall have been furnished with a certificate, executed by a duly authorized
officer of ReadiCare, dated the Closing Date, certifying in such detail as
HEALTHSOUTH and the Subsidiary may reasonably request as to the fulfillment
of the foregoing conditions.
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(c) HEALTHSOUTH shall have received an opinion from Haskell Slaughter &
Young, L.L.C., to the effect that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, which opinion may be based upon reasonable representations of fact
provided by officers of HEALTHSOUTH, ReadiCare and the Subsidiary.
(d) HEALTHSOUTH shall have received an opinion from McIntyre, Borges &
Burns substantially to the effect set forth in Exhibit 9.2(d) hereto.
9.3 Conditions to Obligations of ReadiCare. The obligations of ReadiCare to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions (any of which may be waived by ReadiCare):
(a) Each of the agreements of HEALTHSOUTH and the Subsidiary to be
performed at or prior to the Closing Date pursuant to the terms hereof shall
have been duly performed, in all material respects, and HEALTHSOUTH and the
Subsidiary shall have performed, in all material respects, all of the acts
required to be performed by them at or prior to the Closing Date by the terms
hereof.
(b) The representations and warranties of HEALTHSOUTH set forth in Section
5.10(a) shall be true and correct as of the date of this Plan of Merger and
as of the Closing Date. The representations and warranties of HEALTHSOUTH set
forth in this Plan of Merger that are qualified as to materiality shall be
true and correct, and those that are not so qualified shall be true and
correct in all material respects, as of the date of this Plan of Merger and
as of the Closing as though made at and as of such time, except to the extent
such representations and warranties expressly relate to an earlier date (in
which case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified
shall be true and correct in all material respects, as of such earlier date).
ReadiCare shall have been furnished with a certificate, executed by duly
authorized officers of HEALTHSOUTH and the Subsidiary, dated the Closing
Date, certifying in such detail as ReadiCare may reasonably request as to the
fulfillment of the foregoing conditions.
(c) ReadiCare shall have received an opinion from McIntyre, Borges & Burns
to the effect that the Merger will constitute a reorganization with the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
which opinion may be based upon reasonable representations of fact provided
by officers of HEALTHSOUTH, ReadiCare and the Subsidiary.
(d) ReadiCare shall have received an opinion from Haskell Slaughter &
Young, L.L.C., substantially to the effect set forth in Exhibit 9.3(d)
hereto.
SECTION 10. MISCELLANEOUS.
10.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Plan of Merger or in any instrument
delivered pursuant to this Plan of Merger shall survive the Effective Time.
10.2 Notices. Any communications required or desired to be given hereunder
shall be deemed to have been properly given if sent by hand delivery or by
facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to HEALTHSOUTH:
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Attention: Michael D. Martin
Facsimile: (205) 969-4719
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with a copy to:
William W. Horton, Esq.
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Facsimile: (205) 969-4732
If to ReadiCare:
ReadiCare, Inc.
1322 Orleans Drive
Sunnyvale, California 94089
Attention: Dennis G. Danko
Facsimile: (408) 734-4842
with a copy to:
Joel F. McIntyre, Esq.
McIntyre, Borges & Burns
3070 Bristol Street
Suite 450
Costa Mesa, California 92626
Facsimile: (714) 545-7524
All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.3 Further Assurances. Each party hereby agrees to perform any further acts
and to execute and deliver any documents which may be reasonably necessary to
carry out the provisions of this Plan of Merger.
10.4 Indemnification. (a) ReadiCare shall, and from and after the Effective
Time HEALTHSOUTH and the Surviving Corporation shall, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date of
this Plan of Merger or who becomes prior to the Effective Time, an officer,
director or employee of ReadiCare or any of its subsidiaries (the "Indemnified
Parties") against (i) all losses, claims, damages, costs, expenses, liabilities
or judgments, or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of, or in
connection with, any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of ReadiCare or any of its
subsidiaries, whether pertaining to any matter existing or occurring at or prior
to, or at or after, the Effective Time ("Indemnified Liabilities") and (ii) all
Indemnified Liabilities based in whole or in part on, or arising in whole or in
part out of, or pertaining to this Plan of Merger, the Merger or any other
transactions contemplated hereby or thereby, in each case to the full extent a
corporation is permitted under the DGCL to indemnify its own directors, officers
and employees, as the case may be (and HEALTHSOUTH and the Surviving
Corporation, as the case may be, will pay expenses in advance of the final
disposition of any such action or proceeding to each Indemnified Party to the
full extent permitted by law upon receipt of any undertaking contemplated by
Section 145(e) of the DGCL). Without limiting the foregoing, in the event any
such claim, action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising before or after the Effective Time), (i) the
Indemnified Parties may retain counsel satisfactory to them and ReadiCare (or
them and HEALTHSOUTH and the Surviving Corporation after the Effective Time),
(ii) ReadiCare (or after the Effective Time, HEALTHSOUTH and the Surviving
Corporation) shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received and (iii)
ReadiCare (or after the Effective Time, HEALTHSOUTH and the Surviving
Corporation) will use all reasonable efforts to assist in the vigorous defense
of any such matter, provided that none of ReadiCare, HEALTHSOUTH or the
Surviving Corporation shall be liable for any settlement of any claim effected
without its written consent, which consent, however, shall not be unreasonably
with-
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held. Any Indemnified Party wishing to claim indemnification under this Section
10.4, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify ReadiCare, HEALTHSOUTH or the Surviving Corporation
(but the failure so to notify an Indemnifying Party shall not relieve it from
any liability which it may have under this Section 10.4 except to the extent
such failure prejudices such party), and shall deliver to ReadiCare (or after
the Effective Time, HEALTHSOUTH and the Surviving Corporation) the undertaking
contemplated by Section 145(e) of the DGCL. The Indemnified Parties as a group
may retain only one law firm to represent them with respect to such matter
unless there is, under applicable standards of professional conduct, a conflict
on any significant issue between the positions of any two or more Indemnified
Parties.
(b) The provisions of this Section 10.4 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
10.5 Governing Law. This Plan of Merger shall be interpreted, construed and
enforced in accordance with the laws of the State of Delaware, applied without
giving effect to any conflicts-of-law principles.
10.6 "Including". The word "including", when following any general statement,
term or matter, shall not be construed to limit such statement, term or matter
to the specific terms or matters as provided immediately following the word
"including" or to similar items or matters, whether or not non- limiting
language (such as "without limitation", "but not limited to", or words of
similar import) is used with reference to the word "including" or the similar
items or matters, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of the
general statement, term or matter.
10.7 "Knowledge". "To the knowledge", "to the best knowledge, information and
belief", or any similar phrase shall be deemed to refer to the knowledge of the
Chairman of the Board, Chief Executive Officer or Chief Financial Officer of a
party and to include the assurance that such knowledge is based upon a
reasonable investigation, unless otherwise expressly provided.
10.8 "Material adverse change" or "material adverse effect". "Material
adverse change" or "material adverse effect" means, when used in connection with
ReadiCare or HEALTHSOUTH, any change, effect, event or occurrence that has, or
is reasonably likely to have, individually or in the aggregate, a material
adverse impact on the business or financial position of such party and its
subsidiaries taken as a whole; provided, however, that "material adverse change"
and "material adverse effect" shall be deemed to exclude the impact of (i)
changes in generally accepted accounting principles and (ii) any changes
resulting from any restructuring or other similar charges or write-offs taken by
ReadiCare with the consent of HEALTHSOUTH; provided, however, that no such
charges or write-offs will be taken if such would adversely affect
pooling-of-interests accounting treatment for the Merger.
10.9 "Hazardous Materials". The term "Hazardous Materials" means any material
which has been determined by any applicable governmental authority to be harmful
to the health or safety of human or animal life or vegetation, regardless of
whether such material is found on or below the surface of the ground, in any
surface or underground water, airborne in ambient air or in the air inside any
structure built or located upon or below the surface of the ground or in
building materials or in improvements of any structures, or in any personal
property located or used in any such structure, including, but not limited to,
all hazardous substances, imminently hazardous substances, hazardous wastes,
toxic substances, infectious wastes, pollutants and contaminants from time to
time defined, listed, identified, designated or classified as such under any
Environmental Laws (as defined in Section 10.10) regardless of the quantity of
any such material.
10.10 Environmental Laws. The term "Environmental Laws" means any federal,
state or local statute, regulation, rule or ordinance, and any judicial or
administrative interpretation thereof, regulating the use, generation, handling,
storage, transportation, discharge, emission, spillage or other release of
Hazardous Materials or relating to the protection of the environment.
10.11 Taxes. For purposes of this Agreement, the term "tax" or "taxes" shall
mean all taxes, charges, fees, levies, penalties or other assessment imposed by
any United States federal, state, local or foreign taxing authority, including,
but not limited to, income, excise, property, sales, transfer, franchise,
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payroll, withholding, Social Security or other taxes, including any interest,
penalties or additions attributable thereto. For purposes of this Agreement, the
term "tax return" shall mean any return, report, information return or other
document (including any related or supporting information) with respect to
taxes.
10.12 Captions. The captions or headings in this Plan of Merger are made for
convenience and general reference only and shall not be construed to describe,
define or limit the scope or intent of the provisions of this Plan of Merger.
10.13 Integration of Exhibits. All Exhibits attached to this Plan of Merger
are integral parts of this Plan of Merger as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced.
10.14 Entire Agreement. This instrument, including all Exhibits attached
hereto, together with the Confidentiality Agreement, contains the entire
agreement of the parties and supersedes any and all prior or contemporaneous
agreements between the parties, written or oral, with respect to the
transactions contemplated hereby. It may not be changed or terminated orally,
but may only be changed by an agreement in writing signed by the party or
parties against whom enforcement of any waiver, change, modification, extension,
discharge or termination is sought.
10.15 Counterparts. This Plan of Merger may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
10.16 Binding Effect. This Plan of Merger shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and, except as provided in Section 10.4, no other person shall acquire
or have any right under or by virtue of this Plan of Merger. No party may assign
any right or obligation hereunder without the prior written consent of the other
parties.
10.17 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by HEALTHSOUTH, and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.
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IN WITNESS WHEREOF, HEALTHSOUTH, the Subsidiary and ReadiCare have caused
this Plan and Agreement of Merger to be executed by their respective duly
authorized officers, and have caused their respective corporate seals to be
hereunto affixed, all as of the day and year first above written.
READICARE, INC.
By /s/ Dennis G. Danko
-----------------------------
Dennis G. Danko
Chairman, President
and Chief Executive Officer
ATTEST:
/s/ Steve E. Busby
- --------------------------
Steve E. Busby
Secretary
[CORPORATE SEAL]
HEALTHSOUTH Corporation
By /s/ Michael D. Martin
----------------------------
Michael D. Martin
Executive Vice President
and Treasurer
ATTEST:
/s/ Anthony J. Tanner
- ---------------------------
Anthony J. Tanner
Secretary
[CORPORATE SEAL]
WARWICK ACQUISITION CORPORATION
By /s/ Michael D. Martin
-----------------------------
Michael D. Martin
Vice President
ATTEST:
/s/ Anthony J. Tanner
- -----------------------------
Anthony J. Tanner
Secretary
[CORPORATE SEAL]
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<PAGE>
ANNEX B
October 25, 1996
The Board of Directors
ReadiCare, Inc.
1322 Orleans Drive
Sunnyvale, California 94089
Gentlemen:
ReadiCare, Inc. ("ReadiCare") and HEALTHSOUTH Corporation ("HEALTHSOUTH")
have entered into a Plan and Agreement of Merger (the "Plan") dated September
11, 1996, pursuant to which Warwick Acquisition Corporation ("Warwick"), a newly
formed subsidiary of HEALTHSOUTH, will be merged with and into ReadiCare (the
"Merger"). Upon the effectiveness of the Merger, ReadiCare will become a wholly
owned subsidiary of HEALTHSOUTH. Under the terms of the Plan, each issued and
outstanding share of ReadiCare common stock will be converted into the right to
receive .2425 (as may be amended pursuant to clauses (i) through (iii), the
"Exchange Ratio") shares of HEALTHSOUTH common stock, provided however, that (i)
if the Base Period Trading Price (as defined below) shall be greater than
$38.30, then the Exchange Ratio shall be equal to the quotient obtained by
dividing $9.29 by the Base Period Trading Price, computed to four decimal
places, (ii) if the Base Period Trading Price shall be less than $30.60, then
the Exchange Ratio shall be equal to the quotient obtained by dividing $7.42 by
the Base Period Trading Price, computed to four decimal places, and (iii) if the
Base Period Trading Price shall be less than $27.20, then the Exchange Ratio
shall be .2728. The term "Base Period Trading Price" shall mean the average of
the daily closing prices per share for New York Stock Exchange Composite
Transactions of HEALTHSOUTH common stock for the 20 consecutive trading days
ending on the second trading day before ReadiCare's special meeting of its
stockholders called for the purpose of approving the Plan. The terms and
conditions of the Merger are more fully set forth in the Plan. You have
requested our opinion ("Opinion") as investment bankers as to the fairness, from
a financial point of view, of the consideration ("Consideration") to be received
by the holders of the ReadiCare common stock (the "Public Shareholders")
pursuant to the Plan.
Crowell, Weedon & Co. ("Crowell"), as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers, acquisitions, private placements and
valuations for estate, corporate and other purposes. We have been engaged to act
as ReadiCare's financial advisor in connection with, and have participated in
certain of the negotiations leading to, the Plan and will receive a fee from
ReadiCare for our services, the substantial portion of which is contingent upon
consummation of the Merger. In the ordinary course of our business as a
broker-dealer, we may actively trade the securities of ReadiCare for our own
account or for the account of our customers and, accordingly, at any time hold a
long or short position in such securities.
In arriving at our Opinion, we have, among other things, read, reviewed and
analyzed: the Plan; ReadiCare's Annual Reports on Form 10-K for the three fiscal
years ended February 29, 1996; HEALTHSOUTH's Annual Reports on Form 10-K for the
three fiscal years ended December 31, 1995; ReadiCare's Quarterly Reports on
Form 10-Q for the quarters ended May 31, 1996 and August 31, 1996; and
HEALTHSOUTH's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996, and June 30, 1996.
In addition, we held discussions with certain members of the senior
management of ReadiCare and HEALTHSOUTH concerning their respective past and
current business operations, present financial condition and future prospects,
as well as the future prospects of the combined entity. These discussions
included a review of the condition and prospects of the occupational health
services, physician practice management and rehabilitation industries in
particular and the healthcare industry in general. We also held discussions with
representatives of ReadiCare's independent certified public accountants and with
certain industry participants regarding the past and current business
operations, financial condition and future prospects of ReadiCare and
HEALTHSOUTH, and performed such other inquiries and analyses as we deemed
appropriate. In addition, we reviewed the price and volume trading history of
the
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ReadiCare common stock and HEALTHSOUTH common stock; compared the financial
position and operations of ReadiCare and HEALTHSOUTH with those of certain
public companies in the healthcare industry which we deemed to be relevant; and
reviewed the financial terms of certain recent business combinations in the
occupational health services, physician practice management and rehabilitation
industries.
In connection with our Opinion, we have assumed and relied upon the accuracy
and completeness of all the financial and other information provided or made
available to us by ReadiCare, HEALTHSOUTH and other third parties for the
purpose of this Opinion and do not assume any responsibility for independent
verification of such information. We have not conducted nor had conducted for us
any evaluation or appraisal of the assets of ReadiCare or HEALTHSOUTH. With
respect to the future financial performance of ReadiCare and HEALTHSOUTH and the
strategic implications and operational benefits anticipated from the Merger, we
have assumed that such information has been reasonably prepared on bases
reflecting the best currently available estimates and judgments, and we express
no opinion with respect to such information or the assumptions included therein.
We have also taken into account our assessment of general economic, market and
financial conditions and our experience in other transactions, as well as our
experience in securities valuation and our knowledge of the healthcare industry
generally. Our Opinion is necessarily based upon conditions as they exist and
can be evaluated on the date hereof and the information made available to us
through the date hereof. We have also assumed that there have been no material
changes in the assets, financial condition, results of operations, business or
prospects of ReadiCare or HEALTHSOUTH since the dates of the most recent
financial statements that ReadiCare and HEALTHSOUTH have made available to us.
We have assumed, with your consent, that the Merger will be accounted for as a
pooling of interests under generally accepted accounting principles and pursuant
to Opinion No. 16 of the Accounting Principles Board.
Our Opinion as to fairness is limited to the fairness of the Consideration,
from a financial point of view, to the Public Shareholders, and we are not
opining in any other respect whatsoever on the terms of the Merger or the Plan.
This Opinion is delivered to you based on your understanding that it is for
the benefit and use of the Board of Directors of ReadiCare in considering the
Merger and that ReadiCare will not use this Opinion for any other purpose and
will not reproduce, disseminate or refer to this Opinion without our prior
written consent. This Opinion may be reproduced in full in the Registration
Statement on Form S-4.
Based upon our review and subject to the foregoing and such other matters as
we consider relevant, and in reliance thereon, it is our opinion, as investment
bankers, that as of the date hereof the Consideration is fair, from a financial
point of view, to the Public Shareholders.
Very truly yours,
CROWELL, WEEDON & CO.
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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 Nine of the HEALTHSOUTH Certificate filed in the Office of the
Secretary of the State of Delaware on June 13, 1995, contains a provision
eliminating or limiting director liability to HEALTHSOUTH and its stockholders
for monetary damages arising from acts or omissions in the director's capacity
as a director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty to
HEALTHSOUTH or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
the Delaware statutory provision making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of HEALTHSOUTH protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above). As a
result of this provision, the ability of HEALTHSOUTH or a stockholder thereof to
successfully prosecute an action against a director for a breach of his duty of
care is limited. However, the provision does not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of his duty of care. The SEC has taken the position that the provision
will have no effect on claims arising under the Federal securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. Article Nine of the HEALTHSOUTH Certificate and Article IX of
the HEALTHSOUTH Bylaws provide for mandatory indemnification rights, subject to
limited exceptions, to any director, officer, employee, or agent of HEALTHSOUTH
who, by reason of the fact that he or she is a director, officer, employee, or
agent of HEALTHSOUTH, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director, officer, employee, or agent in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.
HEALTHSOUTH has entered into agreements with all of its directors and its
executive officers pursuant to which HEALTHSOUTH has agreed to indemnify such
directors and executive officers against liability incurred by them by reason of
their services as a director or executive officer to the fullest extent
allowable under applicable law.
See Item 22 of this Registration Statement on Form S-4.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<S> <C>
(2) Plan and Agreement of Merger, dated may 16, 1996, among HEALTHSOUTH Corporation, Warwick
Acquisition Corporation and ReadiCare, Inc. attached to the Prospectus-Proxy Statement as Annex
A, is hereby incorporated herein by reference.
(5) Opinion of Haskell Slaughter & Young, L.L.C. as to the legality of the shares of HEALTHSOUTH
Common Stock being registered.
(8) Opinion of Haskell Slaughter & Young, L.L.C. as to the description in the Prospectus --Proxy
Statement of certain federal income tax consequences of the Merger.
(23)-1 Consent of Ernst & Young LLP. See pages immediately following signature pages to the Registration
Statement.
(23)-2 Consent of Price Waterhouse LLP. See pages immediately following signature pages to the
Registration Statement.
(23)-3 Consents of Haskell Slaughter & Young, L.L.C. (included in the opinions filed as Exhibits (5)
and (8)).
(23)-4 Consent of Crowell, Weedon & Co. (included in Annex B to the Prospectus-Proxy Statement).
(24) Powers of Attorney. See signature pages.
(99) ReadiCare, Inc. Proxy.
</TABLE>
ITEM 22. UNDERTAKINGS.
(1) 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.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(3) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes 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.
II-2
<PAGE>
(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not subject of and included in
the Registration Statement when it became effective.
(5) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
II-3
<PAGE>
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 October 23, 1996.
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 Aaron Beam, Jr., 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------- -------------------------------- -------------------
<S> <C> <C>
/s/ RICHARD M. SCRUSHY Chairman of the Board October 23, 1996
- ---------------------------- and Chief Executive Officer
Richard M. Scrushy and Director
/s/ AARON BEAM, JR. Executive Vice President and October 23, 1996
- ---------------------------- Chief Financial Officer
Aaron Beam, Jr.
/s/ WILLIAM T. OWENS Senior Vice President
- ---------------------------- and Controller (Principal October 23, 1996
William T. Owens Accounting Officer)
/s/ JAMES P. BENNETT Director October 23, 1996
- ----------------------------
James P. Bennett
/s/ ANTHONY J. TANNER Director October 23, 1996
- ---------------------------
Anthony J. Tanner
/s/ P. DARYL BROWN Director October 23, 1996
- ----------------------------
P. Daryl Brown
/s/ PHILLIP C. WATKINS, M.D. Director October 23, 1996
- ----------------------------
Phillip C. Watkins, M.D.
II-4
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------- -------------------------------- -------------------
/s/ GEORGE H. STRONG Director October 23, 1996
- ----------------------------
George H. Strong
/s/ C. SAGE GIVENS Director October 23, 1996
- ----------------------------
C. Sage Givens
/s/ CHARLES W. NEWHALL III Director October 23, 1996
- ----------------------------
Charles W. Newhall III
/s/ LARRY R. HOUSE Director October 23, 1996
- ----------------------------
Larry R. House
/s/ JOHN S. CHAMBERLIN Director October 23, 1996
- ----------------------------
John S. Chamberlin
/s/ RICHARD F. CELESTE Director October 23, 1996
- ----------------------------
Richard F. Celeste
/s/ JOEL C. GORDON Director October 23, 1996
- ----------------------------
Joel C. Gordon
/s/ RAYMOND J. DUNN, III Director October 23, 1996
- ----------------------------
Raymond J. Dunn, III
</TABLE>
II-5
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports on the entities and dated as listed below incorporated by
reference in the Registration Statement (Form S-4 No. 333-_____) and the related
Prospectus-Proxy Statement of HEALTHSOUTH Corporation and ReadiCare, Inc.
HEALTHSOUTH Corporation and Subsidiaries .................. May 23, 1996
Surgical Health Corporation ............................... April 18, 1995
ReLife, Inc. .............................................. February 17, 1995
Rehab Systems Company ..................................... September 8, 1995
Sutter Surgery Centers, Inc. .............................. March 31, 1995
Advantage Health Corporation .............................. October 4, 1995
Harmarville Rehabilitation Center, Inc. ................... August 25, 1995
ERNST & YOUNG LLP
October 22, 1996
EXHIBIT 23.2
Consent of Price Waterhouse LLP
Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-4 and the related Prospectus-Proxy Statement of HEALTHSOUTH
Corporation and ReadiCare, Inc. of our report dated April 10, 1996 appearing on
page 41 of the Annual Report on Form 10-K of ReadiCare, Inc. for the year ended
February 29, 1996. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data - ReadiCare" in the
Registration Statement and the Prospectus-Proxy Statement. However, it should be
noted that Price Waterhouse LLP has not prepared or certified such "Selected
Consolidated Financial Data - ReadiCare."
/s/ Price Waterhouse LLP
Price Waterhouse LLP
October 22, 1996
HASKELL SLAUGHTER & YOUNG, L.L.C.
1200 AMSOUTH/HARBERT PLAZA
1901 SIXTH AVENUE NORTH
BIRMINGHAM, ALABAMA 35203-2618
October 23, 1996
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
RE: REGISTRATION STATEMENT ON FORM S-4
Gentlemen:
We have served as counsel for HEALTHSOUTH Corporation, a corporation
organized and existing under the laws of the Sate of Delaware (the "Company"),
in connection with the registration under the Securities Act of 1933, as
amended, pursuant to the Company's Registration Statement on Form S-4 (the
"Registration Statement"), of 2,416,481 shares of Common Stock, par value $.01
per share, of the Company (the "Shares"), to be issued pursuant to that certain
Plan and Agreement of Merger dated as of September 11, 1996, among the Company,
Warwick Acquisition Corporation and ReadiCare, Inc. (the "Plan of Merger"). This
opinion is furnished to you pursuant to the requirements of Form S-4.
In connection with this opinion, we have examined and are familiar with
originals or copies (certified or otherwise identified to our satisfaction) of
such documents, corporate records and other instruments relating to the
incorporation of the Company and to the authorization and issuance of the Shares
as we have deemed necessary and appropriate.
Based upon the foregoing, and having regard for such legal
considerations as we have deemed relevant, it is our opinion that:
1. The Shares have been duly authorized; and
2. Upon the issuance and delivery of the Shares as contemplated in the
Registration Statement and the Plan of Merger, the Shares will be legally
issued, fully paid and nonassessable shares of Common Stock of the Company.
We hereby consent to the reference to our Firm under the heading "Legal
Matters" in the Prospectus which forms a part of the Registration Statement and
to the filing of this opinion as an Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By /s/ Mark Ezell
---------------------------------
Mark Ezell
HASKELL SLAUGHTER & YOUNG, L.L.C.
1200 AMSOUTH/HARBERT PLAZA
1901 SIXTH AVENUE NORTH
BIRMINGHAM, ALABAMA 35203-2618
October 23, 1996
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Gentlemen:
You have requested our opinion regarding the discussion of material
federal income tax consequences under the captions "SUMMARY OF PROSPECTUS--PROXY
STATEMENT-The Merger -- Certain Federal Income Tax Consequences" and "THE MERGER
- -- Certain Federal Income Tax Consequences" in the Prospectus--Proxy Statement
(the "Prospectus-Proxy Statement") which will be included in the Registration
Statement on Form S-4 (the "Registration Statement") filed on the date hereof
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"). The Prospectus-Proxy
Statement relates to the proposed merger of Warwick Acquisition Corporation, a
wholly-owned subsidiary of HEALTHSOUTH Corporation, with and into ReadiCare,
Inc. This opinion is delivered in accordance with the requirement of Item
601(b)(8) of Regulation S-K under the Securities Act.
In rendering our opinion, we have reviewed the Prospectus-Proxy
Statement and such other materials as we have deemed necessary or appropriate as
a basis for our opinion. In addition, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations, pertinent judicial authorities, rulings of the Internal Revenue
Service and such other authorities as we have considered relevant.
Based upon the foregoing, it is our opinion that the statements made
under the captions "SUMMARY OF PROSPECTUS-PROXY STATEMENT -- The Merger --
Certain Federal Income Tax Consequences" and "THE MERGER -- Certain Federal
Income Tax Consequences" in the Prospectus--Proxy Statement, to the extent that
they constitute summaries or descriptions of matters of law or legal
conclusions, are correct in all material respects. There can be no assurance
that contrary positions may not be asserted by the Internal Revenue Service.
This opinion is being furnished in connection with the filing of the
Registration Statement with the Commission. You may rely upon and refer to the
foregoing opinion in the Prospectus--Proxy Statement. Any variation or
difference in the facts from those set forth or assumed either herein or in the
Prospectus--Proxy Statement may affect the conclusions stated herein.
In accordance with the requirements of Item 601(b)(23) of Regulation
S-K under the Securities Act, we hereby consent to the use of our name under the
caption "THE MERGER -- Certain Federal Income Tax Consequences" in the
Prospectus-Proxy Statement and to the filing of this opinion as an Exhibit to
the Registration Statement.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By /s/ Ross N. Cohen
------------------------------
Ross N. Cohen
PROXY
READICARE, INC.
This Proxy is solicited on behalf of the Board of Directors of ReadiCare,
Inc. The undersigned hereby appoints Dennis G. Danko or Steve E. Busby, and each
of them, proxies, each with full powers of substitution, to vote the shares of
Common Stock, par value $.01 per share, of ReadiCare, Inc. ("ReadiCare") which
the undersigned could vote if personally present at the Special Meeting of
Stockholders of ReadiCare to be held at The Center Club, 650 Town Center Drive,
Costa Mesa, California, on November 26, 1996 at 10:00 a.m. Pacific Time, and any
adjournment thereof. This Proxy, when properly executed, will be voted in the
matter directed herein by the undersigned stockholder. If no direction is made,
this Proxy will be voted FOR Item 1. Any stockholder who wishes to withhold the
discretionary authority referred to in Item 2 above should mark a line through
the entire Item.
(CONTINUED AND TO BE SIGNED ON OTHER SIDE)
1. Approval and adoption of a Plan and Agreement of Merger, dated as of
September 11, 1996, attached as Annex A to the Prospectus-Proxy Statement that
has been transmitted in connection with the Special Meeting, pursuant to which
Warwick Acquisition Corporation, a wholly-owned subsidiary of HEALTHSOUTH
Corporation ("HEALTHSOUTH"), will merge with and into ReadiCare, and
stockholders of ReadiCare will receive a specified fraction of a share of
HEALTHSOUTH Common Stock for each share of ReadiCare Common Stock surrendered
for exchange, all as described in said Prospectus-Proxy Statement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion to act upon any matters incidental to the foregoing
and such other business as may properly come before the Special Meeting or any
adjournment thereof.
The undersigned hereby acknowledges receipt of the Notice of Special Meeting
of Stockholders and the Prospectus-Proxy Statement, each dated October 25, 1996,
furnished herewith.
Dated:
-------------------------------
Signature(s)
-------------------------------
-------------------------------
(Please sign exactly and as fully as
your name appears on your stock
certificate. If shares are held
jointly, each stockholder should
sign.)
