AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 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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Delaware 8062 63-0860407
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
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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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ROBERT E. LEE GARNER, ESQ. WILLIAM W. HORTON, ESQ. CHARLES S. FARMAN, ESQ.
Haskell Slaughter & Young, L.L.C. BEALL D. GARY, JR., ESQ. Diepenbrock, Wulff, Plant & Hannegan L.L.P.
1200 AmSouth/Harbert Plaza HEALTHSOUTH Corporation 300 Capitol Mall
1901 Sixth Avenue North Two Perimeter Park South Suite 1600
Birmingham, Alabama 35203 Birmingham, Alabama 35243 Sacramento, California 95812
(205) 251-1000 (205) 967-7116 (916) 444-3910
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Approximate date of commencement of proposed sale to the public:
At the effective time of the merger of Fort Sutter Surgery Center, 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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Proposed Proposed Maximum
Title of Each Amount Maximum Aggregate Amount of
Class of Securities to be Offering Price Offering Registration
to be Registered Registered(1) Per Unit Price(2) Fee(2)
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Common Stock, par value $.01 per
share............................ 296,925 shares Inapplicable $1,890,912 $ 652.04
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(1) The number of shares being registered represents HEALTHSOUTH's best
estimate of the maximum number of shares of HEALTHSOUTH Common Stock which may
be issued in the proposed merger.
(2) Computed in accordance with Rule 457(f)(2), solely for the purpose of
calculating the registration fee, based upon the book value of the FSSCI Shares
(as defined herein) at December 31, 1995, the latest practicable date prior to
the date of filing of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further Amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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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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1. Forepart of the Registration Statement and Outside Facing Page; Cross-Reference Sheet; Outside Front Cover Page
Front Cover Page of Prospectus ......................... of Prospectus-Proxy Statement
2. Inside Front and Outside Back Cover Pages of Table of Contents; Available Information; Incorporation of
Prospectus ............................................. Certain Information by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary of Prospectus-Proxy Statement; Risk Factors; The
and Other Information .................................. Special Meeting
Summary of Prospectus-Proxy Statement; The Special Meeting;
The Merger; Description of Capital Stock of HEALTHSOUTH;
Comparison of Rights of FSSCI and HEALTHSOUTH Stockholders;
4. Terms of the Transaction ........................... 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 FSSCI and HEALTHSOUTH Stockholders
10. Information with Respect to S-3 Registrants ....... Incorporation of Certain Information by Reference
11. Incorporation of Certain Information by Reference . Incorporation of Certain Information 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-3 or S-2 Registrants.................................. Not Applicable
15. Information with Respect to S-3 Companies ......... Not Applicable
16. Information with Respect to S-2 or S-3 Companies .. Not Applicable
17. Information with Respect to Companies Other than
S-3 or S-2 Companies ................................... Business of FSSCI; Financial Statements of FSSCI
18. Information if Proxies, Consents or Authorizations Incorporation of Certain Information by Reference; Summary of
are to be Solicited..................................... 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
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FORT SUTTER SURGERY CENTER, INC.
2801 K STREET
SACRAMENTO, CA 95816
_____________, 1996
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of Fort
Sutter Surgery Center, Inc. ("FSSCI") on ____________, 1996. Details as to the
time and place of the meeting are set forth in the accompanying Notice of
Special Meeting of Shareholders.
The principal 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 FSSCI. If the Merger is consummated, FSSCI will
become a wholly-owned subsidiary of HEALTHSOUTH, and the shareholders of FSSCI
will be entitled to receive, in exchange for each share of FSSCI Common Stock, a
number of shares of HEALTHSOUTH Common Stock that equals the "Exchange Ratio",
as described and finally determined in the manner set forth in the attached
Prospectus-Proxy Statement.
As more fully described in the attached Prospectus-Proxy Statement, it is
anticipated that the market value (based on the average of the reported daily
closing prices of the HEALTHSOUTH Common Stock over a 20-day period ending on
the last trading day prior to the Special Meeting) of the shares of HEALTHSOUTH
Common Stock to be received by the FSSCI shareholders in exchange for each share
of FSSCI Common Stock would be approximately $2,400.
After careful consideration, your Board of Directors has concluded that the
proposed Merger is in the best interests of FSSCI shareholders 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 FSSCI.
Please give this information your prompt and thoughtful attention.
Approval of the Plan by the shareholders of FSSCI requires the affirmative
vote of the holders of a majority of the outstanding shares of FSSCI 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,
DAVID B. COWARD, M.D.
President
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FORT SUTTER SURGERY CENTER, INC.
--------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
_________ ___, 1996
--------------------
To the Shareholders of Fort Sutter Surgery Center, Inc.
Notice is hereby given that a Special Meeting of Shareholders of Fort Sutter
Surgery Center, Inc., a California corporation ("FSSCI"), will be held at the
offices of Diepenbrock, Wulff, Plant & Hannegan, LLP, FSSCI's legal counsel, at
300 Capitol Mall, Suite 1600, Sacramento, California on ____________, 1996 at
___:00 p.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve (i) the Plan and
Agreement of Merger, dated as of August 13, 1996, among FSSCI, HEALTHSOUTH
Corporation, a Delaware corporation ("HEALTHSOUTH"), and FSSCI Acquisition
Corporation, a California corporation (the "Subsidiary") that is wholly
owned by 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 FSSCI upon the terms
and subject to the conditions contained in the Plan (the "Merger"), and
FSSCI will become a wholly-owned subsidiary of HEALTHSOUTH, as described in
the accompanying Prospectus-Proxy Statement, and (ii) the related Agreement
of Merger to be filed with the California Secretary of State to effect the
Merger (including certain amendments to FSSCI's Amended and Restated
Articles of Incorporation).
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 FSSCI has fixed the close of business on September
___, 1996 as the record date for the determination of shareholders entitled to
notice of and to vote at the Special Meeting, and only shareholders 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.
Approval of the Plan and the Merger requires the affirmative vote, in person or
by proxy, of a majority of the outstanding shares of FSSCI Common Stock. 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,
____________, 1996 DAVID B. COWARD, M.D.
Sacramento, California President and Assistant Secretary
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 FSSCI UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE PLAN.
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PROSPECTUS-PROXY STATEMENT
PROXY STATEMENT
OF
FORT SUTTER SURGERY CENTER, INC.
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1996
----------------
PROSPECTUS
OF
HEALTHSOUTH CORPORATION
THIS PROSPECTUS RELATES TO UP TO 296,925 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 SHAREHOLDERS OF FORT SUTTER SURGERY CENTER, INC. ("FSSCI") UPON
CONSUMMATION OF THE MERGER (AS DEFINED BELOW). SUCH NUMBER OF SHARES REPRESENTS
THE MAXIMUM NUMBER OF SHARES THAT MAY BE ISSUED TO THE FSSCI SHAREHOLDERS. THIS
PROSPECTUS ALSO SERVES AS THE PROXY STATEMENT OF FSSCI FOR ITS SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON , 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 FSSCI, pursuant to which HEALTHSOUTH will
acquire FSSCI by means of the merger (the "Merger") of FSSCI Acquisition
Corporation, a wholly-owned subsidiary of HEALTHSOUTH (the "Subsidiary"), with
and into FSSCI, with FSSCI being the surviving corporation (the "Surviving
Corporation"). After the Merger, the combined operations of HEALTHSOUTH and
FSSCI are expected to be conducted with FSSCI as a wholly-owned subsidiary 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 August 13, 1996,
among HEALTHSOUTH, the Subsidiary and FSSCI (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 FSSCI 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, without par value, of FSSCI (the "FSSCI Common Stock" or
the "FSSCI Shares"), other than shares held by FSSCI and Dissenting Shares (as
defined herein), will be cancelled and converted into the right to receive that
number of shares of HEALTHSOUTH Common Stock which is the quotient (the
"Exchange Ratio") of (a) $8,907,735 divided by the number of shares of FSSCI
Common Stock outstanding as of the FSSCI Record Date, divided by (b) the Base
Period Trading Price, as such Exchange Ratio may be adjusted and finally
determined in the manner described herein.
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
New York Stock Exchange trading day immediately preceding the date of the
Special Meeting. FSSCI shareholders 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".
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This Prospectus-Proxy Statement and the form of Proxy are first being mailed
to shareholders of FSSCI on or about , 1996.
SEE "RISK FACTORS" AT PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED BY FSSCI SHAREHOLDERS.
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 , 1996.
2
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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 is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic reports, proxy statements and other information with
the SEC relating to its business, 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.
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. 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).
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.
3
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All documents filed by HEALTHSOUTH pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus-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) is modified or superseded by such statement. Any statement so modified
or superseded shall not be deemed to constitute a part hereof, except as so
modified or superseded.
Effective August 20, 1996, HEALTHSOUTH acquired by merger Professional Sports
Care Management, Inc. ("PSCM"). Prior to such merger, PSCM was a publicly-traded
company. Certain pro forma financial information contained herein under "PRO
FORMA CONDENSED FINANCIAL INFORMATION" is derived from the historical financial
statements of PSCM. Accordingly, there are hereby incorporated by reference to
this Prospectus-Proxy Statement and made a part hereof portions of the following
documents filed by PSCM:
1. The financial statements contained at pages 39-55 of PSCM's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
2. The financial statements contained at pages 1-7 of PSCM's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996.
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 with respect to
FSSCI was supplied by FSSCI. Although neither HEALTHSOUTH nor FSSCI 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 FSSCI
warrants the accuracy or completeness of such statements or information as they
relate to the other party.
Statements 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.
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 FSSCI 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.
4
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TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION ....................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE .......... 3
SUMMARY OF PROSPECTUS-PROXY STATEMENT........................ 7
RISK FACTORS................................................. 13
THE SPECIAL MEETING ......................................... 13
General .................................................... 13
Date, Place and Time ....................................... 13
Record Date; Quorum ........................................ 13
Voting at the Special Meeting; Vote Required................ 13
Voting and Revocation of Proxies ........................... 14
Solicitation of Proxies .................................... 14
THE MERGER................................................... 15
Terms of the Merger ........................................ 15
Non-Competition Agreements.................................. 16
Agreement of Merger......................................... 16
Amendments to Articles of Incorporation..................... 16
Background of the Merger ................................... 17
Reasons for the Merger; Recommendation of the FSSCI Board .. 19
Opinion of Financial Advisor to FSSCI....................... 19
Effective Time of the Merger ............................... 22
Exchange of Certificates.................................... 22
Representations and Warranties.............................. 23
Conditions to the Merger ................................... 23
Business Pending the Merger ................................ 24
Waiver and Amendment ....................................... 24
Termination ................................................ 24
Indemnification and Insurance............................... 25
Accounting Treatment ....................................... 25
Certain Federal Income Tax Consequences .................... 25
Resale of HEALTHSOUTH Common Stock by Affiliates ........... 26
Expenses.................................................... 27
NYSE Listing................................................ 27
RIGHTS OF DISSENTING SHAREHOLDERS............................ 27
SELECTED CONSOLIDATED FINANCIAL DATA--HEALTHSOUTH ........... 30
PRO FORMA CONDENSED FINANCIAL INFORMATION ................... 31
BUSINESS OF HEALTHSOUTH ..................................... 41
General..................................................... 41
Company Strategy............................................ 41
Patient Care Services: General.............................. 42
Outpatient Rehabilitation Services.......................... 43
Inpatient Rehabilitation Services........................... 43
Medical Centers............................................. 43
Surgery Centers............................................. 43
Other Patient Care Services................................. 43
Locations................................................... 44
5
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PAGE
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BUSINESS OF FSSCI............................................ 45
Business Overview........................................... 45
Organization and Historical Developments.................... 45
Management's Discussion and Analysis of Certain Factors..... 45
Market for FSSCI's Stock and Related Shareholder Matters.... 46
Certain Transactions........................................ 46
FINANCIAL STATEMENTS OF FSSCI................................ 47
PRINCIPAL SHAREHOLDERS OF FSSCI.............................. 53
DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH ................. 54
Common Stock ............................................... 54
Fair Price Provision ....................................... 54
Section 203 of the DGCL..................................... 55
Preferred Stock ............................................ 55
Transfer Agent.............................................. 55
COMPARISON OF RIGHTS OF FSSCI AND HEALTHSOUTH
STOCKHOLDERS ............................................... 56
Classes and Series of Capital Stock......................... 56
Size and Election of the Board of Directors................. 56
Cumulative Voting........................................... 56
Removal of Directors........................................ 57
Vote Required for Mergers and Reorganizations............... 57
Other Voting Rights......................................... 58
Conversion and Dissolution.................................. 58
Business Combinations....................................... 58
Amendment or Repeal of the Charter Documents................ 59
Amendment or Repeal of Bylaws............................... 60
Special Meeting of Stockholders............................. 60
Liability of Directors...................................... 60
Indemnification of Directors and Officers................... 61
Dissenter's Rights.......................................... 62
Dividends................................................... 62
Transactions Involving Officers or Directors................ 63
Inspection of Shareholders List............................. 63
Contractual Restrictions on Stock Transfers................. 63
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER ... 63
Operations ................................................. 63
Management ................................................. 63
EXPERTS ..................................................... 64
LEGAL MATTERS................................................ 64
ADDITIONAL INFORMATION....................................... 64
Other Business.............................................. 64
ANNEXES:
A. Plan and Agreement of Merger ............................ A-1
B. Opinion of Robertson, Stephens & Company LLC............. B-1
C. Form of Non-Competition Agreement........................ C-1
D. Chapter 13 of the California General Corporation Law..... D-1
6
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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 June 30, 1996, HEALTHSOUTH
had over 975 patient care locations in 46 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
$1,288,672,000 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.
FSSCI. FSSCI is a California corporation whose principal asset is its
interest in Fort Sutter Surgery Center, a California Limited Partnership (the
"Partnership"). The Partnership owns and operates two outpatient surgery center
facilities in Sacramento, California. A subsidiary of HEALTHSOUTH is the general
partner of the Partnership. FSSCI also owns a 4.46% limited partnership interest
in Fort Sutter Medical Building, a California Limited Partnership ("FSMB"),
which leases to the Partnership the office space for one of the Partnership's
facilities.
FSSCI was incorporated under the laws of California in 1986. It has no
employees and no material assets other than its interest in the Partnership and
FSMB. FSSCI's principal executive offices are located at 2801 K Street,
Sacramento, California 95816, and its telephone number is (916) _____________.
See "Business of FSSCI".
FSSCI 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 FSSCI shareholders (the "Special Meeting") to consider
and vote on a proposal to approve the Plan will be held on , 1996, a
a.m., Pacific Time, at the offices of Diepenbrock, Wulff, Plant & Hannegan,
LLP, 300 Capitol Mall, Suite 1600, Sacramento, California. Only holders of
record of FSSCI Shares at the close of business on September , 1996 (the "FSSCI
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 3,700 shares of FSSCI
Common Stock. Each issued and outstanding FSSCI 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
7
<PAGE>
15 minutes prior to the scheduled commencement of the Special Meeting. Such
proxies may be sent via facsimile to Cynthia Leathers, c/o Charles Farman,
Diepenbrock, Wulff, Plant & Hannegan, at (916)446-1696. For additional
information relating to the Special Meeting, see "THE SPECIAL MEETING".
VOTE REQUIRED
Approval of the Plan by the shareholders of FSSCI requires the affirmative
vote of the holders of a majority of the outstanding shares of FSSCI 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 1,851
shares of FSSCI Common Stock.
As of the FSSCI Record Date, directors and executive officers of FSSCI and
their affiliates beneficially owned an aggregate of 800 shares of FSSCI Common
Stock, or approximately 21.62% of the FSSCI Shares outstanding on such date.
In the event that the Plan is not approved by FSSCI shareholders, the Plan
may be terminated by HEALTHSOUTH or FSSCI in accordance with its terms. Such
approval is also a condition to HEALTHSOUTH's and FSSCI's obligations to
consummate the Merger. See "THE SPECIAL MEETING -- Vote Required", "THE MERGER
- -- Conditions to the Merger" and "-- Termination".
THE MERGER
Terms of the Merger. FSSCI 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 FSSCI with FSSCI being the Surviving Corporation. The Articles of
Incorporation of FSSCI, as amended by the Agreement of Merger, 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.
Upon consummation of the Merger, except as described herein, each outstanding
share of FSSCI Common Stock, other than shares held by FSSCI and Dissenting
Shares (as defined herein), will be cancelled and converted into the right to
receive that number of shares of HEALTHSOUTH Common Stock which is the quotient
(the "Exchange Ratio") of (a) $8,907,735 divided by the number of shares of
FSSCI Common Stock outstanding as of the FSSCI Record Date, divided by (b) the
Base Period Trading Price, as such Exchange Ratio may be adjusted and finally
determined in the manner described herein. The shares of HEALTHSOUTH Common
Stock to be issued to the FSSCI Shareholders are herein called the "Merger
Consideration".
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 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. Fractional shares of HEALTHSOUTH Common Stock will not be
issuable in connection with the Merger. FSSCI shareholders 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 various Exchange Ratios assuming various Base
Period Trading Prices, in each case with the resulting "value" to be received
for each share of FSSCI Common Stock.
8
<PAGE>
<TABLE>
<CAPTION>
VALUE TO BE
RECEIVED FOR
EACH
BASE PERIOD SHARE OF FSSCI
TRADING PRICE EXCHANGE RATIO COMMON STOCK
(COL. A) (COL. B) (COL. A X COL. B)
-------------- ---------------- -----------------
<S> <C> <C>
$28.00........ 85.9820 $2,407.00
$30.00........ 80.2499 $2,407.00
$32.00........ 75.7342 $2,407.00
$34.00........ 70.8087 $2,407.00
$36.00........ 66.8749 $2,407.00
$38.00........ 63.3552 $2,407.00
$40.00........ 60.1874 $2,407.00
</TABLE>
To the extent the Base Period Trading Price is below $28.00, the Exchange
Ratio, and the corresponding number of shares of HEALTHSOUTH Common Stock
received for each share of FSSCI Common Stock, would be appropriately increased.
To the extent the Base Period Trading Price is above $40.00, the Exchange Ratio,
and the corresponding number of shares of HEALTHSOUTH Common Stock received for
each share of FSSCI Common Stock, would be appropriately decreased.
Recommendation of the Board of Directors. The Board of Directors of FSSCI
(the "FSSCI Board") has adopted and approved the Plan and has recommended a vote
FOR approval of the Plan. The FSSCI Board believes the Plan is fair to and in
the best interests of the shareholders of FSSCI.
The FSSCI Board believes that the Plan is in the best interests of the FSSCI
shareholders 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 Merger, including the aggregate value,
after deducting transaction fees and expenses, of the consideration to be
received by FSSCI's shareholders in the Merger;
(ii) The opportunity for the FSSCI shareholders to receive in the Merger, in
exchange for a substantially illiquid investment in FSSCI, fully-registered,
publicly-traded stock having a substantial market float, thereby permitting the
FSSCI shareholders following the Merger to liquidate their investment in a
public market that does not currently exist for the FSSCI Common Stock;
(iii) The opportunity for the FSSCI shareholders to share in the potential
for long-term gains in FSSCI through the ownership of HEALTHSOUTH Common Stock
following the Merger;
(iv) The market position of HEALTHSOUTH, and the liquidity and historical
performance of HEALTHSOUTH Common Stock;
(v) The likelihood that the Merger would be consummated, including the
absence of any financing condition or other significant contingencies in the
Plan and the recent experience of HEALTHSOUTH in effecting tax-free
reorganizations such as the Merger;
(vi) The perceived obstacles in effecting a transaction at a higher
Partnership valuation, in a manner consistent with the Buyout Provision (as
defined herein), with a party other than HEALTHSOUTH;
(vii) The expectation that the Merger would be tax-free for federal income
tax purposes to FSSCI and its shareholders; and
9
<PAGE>
(viii) The opinion of Robertson, Stephens & Company LLC ("Robertson
Stephens"), FSSCI's independent financial advisor, that the Purchase Price Value
(as defined herein) in the Merger was fair, from a financial point of view, to
such holders as of August 5, 1996.
The FSSCI Board also considered the following information in determining that
the terms of the Merger are fair to FSSCI and its shareholders: (i) its
knowledge of, and views concerning, the business, operations, property, assets,
financial condition, operating results, strategic objectives and prospects of
FSSCI, the Partnership and HEALTHSOUTH; (ii) current industry, economic and
market conditions and trends; (iii) the terms of the Plan and the
Non-Competition Agreement (as defined herein) and (iv) FSSCI's alternatives.
See "THE MERGER -- Reasons for the Merger; Recommendation of the FSSCI
Board".
Opinion of Financial Advisor to FSSCI. Robertson Stephens has served as
financial advisor to FSSCI in connection with the Merger and has delivered its
written opinion to the FSSCI Board, dated August 5, 1996, that, as of such date,
the Purchase Price Value is fair from a financial point of view to the FSSCI
shareholders. A copy of the opinion of Robertson Stephens is attached as Annex B
to this Prospectus-Proxy Statement and incorporated herein by reference. FSSCI
shareholders 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 RSC. See "THE MERGER --
Opinion of Financial Advisor to FSSCI".
Effective Time of the Merger. The Merger will become effective upon the
filing of an agreement of Merger by the Subsidiary and FSSCI under the
California General Corporation Law (the "CGCL"), or at such later time as may be
specified in such Agreement 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 FSSCI. 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, HEALTHSOUTH shall deliver to each holder of record of FSSCI
Shares one or more certificates representing shares of HEALTHSOUTH Common Stock
representing that number of whole shares of HEALTHSOUTH Common Stock which such
holder has the right to receive pursuant to the Plan; provided, however, that
HEALTHSOUTH shall only be required to make such delivery to a holder who has
surrendered such holder's certificate(s) representing FSSCI Shares. HEALTHSOUTH
will also issue to such holder a check representing cash in lieu of fractional
shares of HEALTHSOUTH Common Stock which would otherwise be issuable, with a
fractional share payment to be calculated based upon the Base Period Trading
Price. See "THE MERGER--Exchange of Certificates".
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 FSSCI to consummate the Merger is subject to certain
conditions, including approval of the Plan by the FSSCI shareholders. See
"THE MERGER -- Conditions to the Merger".
Business Pending the Merger. The Plan provides that, until the Effective
Time, except as provided in the Plan, FSSCI will use its reasonable best efforts
to preserve intact its present business organizations, 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".
10
<PAGE>
Termination. The Plan may be terminated at any time prior to the Effective
Time, whether before or after approval of the Plan by the shareholders of FSSCI,
under certain circumstances which are set forth in the Plan. See "THE MERGER --
Termination".
Accounting Treatment. HEALTHSOUTH will account for the Merger using the
purchase method of accounting. See "THE MERGER -- Accounting Treatment".
Certain Federal Income Tax Consequences. The Merger is intended to qualify as
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Merger so qualifies, no gain or
loss will be recognized by holders of FSSCI Shares upon their receipt of
HEALTHSOUTH Common Stock in exchange for their FSSCI Shares, except with respect
to cash received in lieu of fractional shares. The obligation of FSSCI 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 FSSCI 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 FSSCI
shareholders 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 FSSCI 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".
Dissenters' Rights. If the Merger is approved by the required vote of the
FSSCI shareholders and is not abandoned or terminated, each holder of FSSCI
Common Stock who does not vote in favor of the Merger may, by complying with the
procedure described in Chapter 13 of the CGCL, be entitled to the dissenters'
rights described therein. See "RIGHTS OF DISSENTING SHAREHOLDERS".
NYSE Listing. A listing application will be filed with the NYSE to list the
shares of HEALTHSOUTH Common Stock to be issued to the FSSCI shareholders in the
Merger. Although no assurance can be given that the NYSE will accept such shares
of HEALTHSOUTH Common Stock for listing, HEALTHSOUTH and FSSCI anticipate that
these shares will qualify for listing. It is a condition to the obligation of
HEALTHSOUTH, the Subsidiary and FSSCI to consummate the Merger that such shares
of HEALTHSOUTH Common Stock be approved for listing on the NYSE upon official
notice of issuance at the Effective Time. See "THE MERGER -- NYSE Listing".
11
<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) August 12, 1996, the last business day preceding execution of the
Plan, and (ii) , 1996:
MARKET PRICE
PER SHARE OF
HEALTHSOUTH
DATE COMMON STOCK
----- -----------------
August 12, 1996 ...................... $34.00
, 1996 ....................... $
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 (through , 1996)........
As of _________, 1996, there were approximately record holders of HEALTHSOUTH
Common Stock. As of the FSSCI Record Date, there were approximately 35 record
holders of FSSCI Common Stock.
Holders of FSSCI Shares are advised to obtain current market quotations for
HEALTHSOUTH 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, FSSCI will be a
wholly-owned subsidiary 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".
12
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus-Proxy Statement, the
following should be considered carefully by holders of FSSCI 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 FSSCI -- Governmental
Regulations" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE".
THE SPECIAL MEETING
GENERAL
This Prospectus-Proxy Statement is being furnished to the holders of FSSCI
Common Stock in connection with solicitation of proxies by the Board of
Directors of FSSCI (the "FSSCI Board") 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 the holders of FSSCI
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 FSSCI Common
Stock 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 offices of FSSCI's legal counsel,
Diepenbrock, Wulff, Plant & Hannegan, LLP, at 300 Capitol Mall, Suite 1600,
Sacramento, California on ____________, 1996 at _____ __.m., Sacramento time.
RECORD DATE; QUORUM
The FSSCI Board has fixed the close of business on September ___, 1996, as
the FSSCI Record Date for the determination of holders of FSSCI Common Stock
entitled to receive notice of and to vote at the Special Meeting. The presence,
in person or by proxy, of the holders of a majority of the shares of FSSCI
Common Stock entitled to vote at the Special Meeting will constitute a quorum at
the Special Meeting.
VOTING AT THE SPECIAL MEETING; VOTE REQUIRED
As of the FSSCI Record Date, there were outstanding and entitled to vote
3,700 shares of FSSCI Common Stock. Each share of FSSCI Common Stock is entitled
to one vote on each matter that comes before the Special Meeting. Approval of
the Plan (and the related Agreement of Merger) will require the affirmative vote
of the holders of a majority of the outstanding shares of FSSCI 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 1,851 shares of FSSCI
Common Stock.
13
<PAGE>
At the Special Meeting, abstentions and broker non-votes, if any, will be
counted for purposes of determining whether a quorum is present, but will not be
counted as votes either for or against the Plan (or the related Agreement of
Merger). However, abstentions and broker non-votes will have the practical
effect of a vote against the Plan (and the related Agreement of Merger) since
they represent one less vote for approval.
As of the FSSCI Record Date, FSSCI's directors and executive officers and
their affiliates beneficially owned an aggregate of 800 shares, or approximately
21.62%, of FSSCI Common Stock outstanding on such date.
By the unanimous vote of the members of the FSSCI Board at a special meeting
held on August 5, 1996, the FSSCI Board determined that the proposed Merger, and
the terms and conditions of the Plan (and the related Agreement of Merger), were
in the best interests of FSSCI and its shareholders. The Plan (and the related
Agreement of Merger) were adopted and approved unanimously by the members of the
FSSCI Board of Directors present at the special meeting, who also unanimously
resolved to recommend that the shareholders of FSSCI vote FOR approval of the
Plan (and the related Agreement of Merger).
In the event that the Plan is not approved by FSSCI shareholders, the Plan
may be terminated in accordance with its terms. See "THE MERGER -- Termination".
VOTING AND REVOCATION OF PROXIES
Shares of FSSCI Common Stock 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, the shares of FSSCI Common Stock represented by the Proxy will be
voted FOR approval of the Plan (and the related Agreement of Merger). 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 FSSCI,
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.
The Board of Directors of FSSCI 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
California law.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
FSSCI, who will not be specifically compensated for such services, may solicit
proxies from the shareholders of FSSCI, personally or by telephone or telegram
or other forms of communication.
SHAREHOLDERS 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".
14
<PAGE>
THE MERGER
The description of the Merger contained in this Prospectus-Proxy Statement
summarizes the principal provisions of the Plan and the related Agreement of
Merger; it is not complete and is qualified in its entirety by reference to the
Plan and the related Agreement of Merger, the full text of which are attached
hereto as Annexes A and B, respectively. All shareholders are urged to read each
of Annex A and Annex B in its entirety.
TERMS OF THE MERGER
The acquisition of FSSCI by HEALTHSOUTH will be effected by means of the
merger of the Subsidiary with and into FSSCI, with FSSCI being the Surviving
Corporation. The Articles of Incorporation of FSSCI, with certain amendments
thereto effective as of the Effective Time (see "Amendments to Articles of
Incorporation"), shall become the Articles of Incorporation of the Surviving
Corporation from and after the Effective Time. 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, each outstanding share of FSSCI Common Stock
(excluding shares held by FSSCI, which shall automatically be cancelled and
retired, and Dissenting Shares, which shall be treated in the manner discussed
below in "RIGHTS OF DISSENTING SHAREHOLDERS") will be converted into the right
to receive that number of shares of HEALTHSOUTH Common Stock which is the
quotient (the "Exchange Ratio") of (a) $8,907,735 divided by the number of
shares of FSSCI Common Stock outstanding as of the FSSCI Record Date, divided by
(b) the Base Period Trading Price, as such Exchange Ratio may be adjusted and
finally determined in the manner described below.
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
last 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 of
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 various Exchange Ratios assuming various Base
Period Trading Prices, in each case with the resulting "value" (based solely on
the Base Period Trading Prices indicated) to be received for each share of FSSCI
Common Stock.
VALUE TO BE
RECEIVED FOR
EACH
BASE PERIOD SHARE OF FSSCI
TRADING PRICE EXCHANGE RATIO COMMON STOCK
(COL. A) (COL. B) (COL. A X COL. B)
-------------- ---------------- -----------------
$28.00......... 85.9820 $2,407.00
$30.00......... 80.2499 $2,407.00
$32.00......... 75.7342 $2,407.00
$34.00......... 70.8087 $2,407.00
$36.00......... 66.8749 $2,407.00
$38.00......... 63.3552 $2,407.00
$40.00......... 60.1874 $2,407.00
To the extent the Base Period Trading Price is below $28.00, the Exchange
Ratio, and the corresponding number of shares of HEALTHSOUTH Common Stock
received for each share of FSSCI Common Stock, would be appropriately increased.
To the extent the Base Period Trading Price is above $40.00, the Exchange Ratio,
and the corresponding number of shares of HEALTHSOUTH Common Stock received for
each share of FSSCI Common Stock, would be appropriately decreased.
As of the Effective Time, all outstanding FSSCI 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
15
<PAGE>
(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
FSSCI Share that is owned by FSSCI 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 outstanding as of
__________ ___, 1996, the holders of FSSCI Shares will receive in the aggregate
approximately _____% of the shares of HEALTHSOUTH Common Stock anticipated to be
outstanding immediately after the Effective Time, assuming an Exchange Ratio of
_________.
NON-COMPETITION AGREEMENTS
As provided in the Plan, it is a condition to the consummation of the Merger
that each holder of FSSCI Common Stock who either is a director of FSSCI or
holds at least 100 shares of FSSCI Common Stock (the "Designated Shareholders")
sign a non-competition agreement in favor of HEALTHSOUTH and the Partnership
(the "Non-Competition Agreement"). The summary below of the principal terms of
the Non-Competition Agreement is not complete and is qualified in its entirety
by reference to the Non-Competition Agreement, the full text of which is
attached hereto as Annex C. All FSSCI shareholders are urged to read the full
text of the Non-Competition Agreement.
The Non-Competition Agreement prohibits each Designated Shareholder who is a
signatory thereto from engaging, for a period of five years, in any business
that is similar to the Partnership Business within a ten-mile radius of 2801 K
Street, Sacramento, California, with the "Partnership Business" being defined as
the ownership and operation of an outpatient surgery center. The Non-Competition
Agreement provides that no Designated Shareholder will be in violation of this
restriction by reason of (i) engaging in the private practice of medicine
(including performing surgery and related procedures), (ii) serving on the
medical staff of any healthcare facility, (iii) providing medical services
(including performing surgery and related procedures) at, or referring patients
for treatment at, any healthcare facility whatsoever, or (iv) possessing or
maintaining such securities or business interests, or engaging in such
activities, as such shareholder shall have disclosed in writing to HEALTHSOUTH
prior to the Merger (so long as HEALTHSOUTH in its discretion elects to
consummate the Merger notwithstanding the interests or activities disclosed by
such shareholder). The Non-Competition Agreement also prohibits each Designated
Shareholder who is a signatory thereto from using or disclosing certain
confidential information regarding the Partnership Business.
Under terms of the Plan, HEALTHSOUTH in its sole discretion may elect to
consummate the closing of the Merger notwithstanding the failure of one or more
Designated Shareholders to sign the Non-Competition Agreement.
AGREEMENT OF MERGER
The Agreement of Merger sets forth the principal terms of the Merger and the
exchange of the shares of FSSCI Common Stock in a manner consistent with the
terms of the Plan but does not include certain of the representations,
conditions, covenants and other provisions set forth in the Plan. The Agreement
of Merger will be signed by HEALTHSOUTH, the Subsidiary and FSSCI, and submitted
for filing with the California Secretary of State, on or shortly after the
Closing Date. Under California law, the Merger will be effective when the
Agreement of Merger is actually filed.
AMENDMENTS TO ARTICLES OF INCORPORATION
As contemplated by the Plan and as more fully set forth in the Agreement of
Merger, if the Plan and Agreement of Merger are approved by the holders of FSSCI
Common Stock and the Merger is consummated the Amended and Restated Articles of
Incorporation of FSSCI in effect as of the date hereof (the "Current Articles")
would be amended to read in their entirety as follows:
"FIRST:The name of the corporation is Fort Sutter Surgery Center, Inc.
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SECOND:The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
THIRD:The total number of shares which the corporation is authorized to issue
is 1,000 shares of Common Stock of the par value of $.01 each."
Approval of the Agreement of Merger at the Special Meeting will include an
approval of the foregoing amendments to the Current Articles.
BACKGROUND OF THE MERGER
FSSCI is a subchapter S corporation whose principal asset is a 49% limited
partnership interest (the "Partnership Interest") in Fort Sutter Surgery Center,
a California Limited Partnership (the "Partnership"), of which a wholly-owned
subsidiary of HEALTHSOUTH is the general partner (the "General Partner"). The
Partnership was organized and operates under the terms of an Amended and
Restated Limited Partnership Agreement among FSSCI, the General Partner and
certain other partners (as amended through the date hereof, the "Partnership
Agreement"). For further information regarding FSSCI, see "BUSINESS OF FSSCI".
In October 1995, HEALTHSOUTH acquired the General Partner, then called Sutter
Surgery Centers, Inc. ("SSCI"), in a transaction (the "SSCI Acquisition")
pursuant to which SSCI became a wholly-owned subsidiary of HEALTHSOUTH. SSCI,
under its new name of "HEALTHSOUTH Surgery Centers-West, Inc.", continued as the
General Partner.
Prior to the closing of the SSCI Acquisition, certain of FSSCI's officers,
together with FSSCI's counsel, engaged in various discussions with
representatives of SSCI and HEALTHSOUTH regarding certain issues relating to the
transaction. These discussions included preliminary inquiries regarding (i) the
price paid by HEALTHSOUTH for SSCI, and (ii) the potential for the limited
partners of the Partnership to sell their interests in the Partnership to
HEALTHSOUTH, at some future time, in a tax-free reorganization in which the
shareholders of FSSCI would receive HEALTHSOUTH Common Stock. Representatives of
FSSCI and SSCI also had certain discussions regarding the terms of Section 11.02
of the Partnership Agreement (the "Buyout Provision"), which provides that (i)
the limited partners of the Partnership may from time to time request the
General Partner to establish a price at which it would be willing to acquire the
interests in the Partnership held by such limited partners and (ii) if the price
offered by the General Partner were not acceptable to the limited partners, the
limited partners could, under certain circumstances, compel the sale of all of
the Partnership's assets to a third party.
Following a meeting on October 23, 1995 among representatives of FSSCI, SSCI
and their respective counsel, on October 26, 1995 FSSCI requested that the
General Partner set a buyout price pursuant to the Buyout Provision. On November
27, 1995 (following the closing of the SSCI Acquisition), the General Partner,
pursuant to the Buyout Provision, offered to purchase the interests of the
limited partners in the Partnership, for cash, based on a total Partnership
valuation of $9,500,000 (the "November Offer"). Following further discussions
between FSSCI's counsel and SSCI, the FSSCI Board met at a special meeting on
November 28, 1995 to consider the terms of the November Offer. On December 5,
1995, the FSSCI Board further considered the November Offer at a special meeting
at which representatives of the General Partner presented the basis for such
offer and responded to questions from the Board.
As a result of these meetings, and further discussions among members of
FSSCI's management, the FSSCI Board determined not to accept the November Offer
for a number of reasons, principally because (i) the November Offer contemplated
a taxable transaction and (ii) the FSSCI Board believed that the $9,500,000
Partnership valuation contemplated by the November Offer, which would have
resulted in a pre-tax purchase price to FSSCI of $4,655,000, was inadequate.
At its December 5, 1995 meeting, the FSSCI Board, with a view to obtaining a
higher buyout price from HEALTHSOUTH (or a third party, pursuant to the Buyout
Provision), authorized FSSCI's management to contact Robertson, Stephens &
Company LLC ("Robertson Stephens"), a San Francisco-
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based investment banking firm experienced in healthcare industry transactions,
regarding FSSCI's possible engagement of Robertson Stephens. Following a
presentation by Robertson Stephens to certain of FSSCI's officers and related
discussions among FSSCI and Robertson Stephens, FSSCI retained Robertson
Stephens in February 1996 to represent it in connection with a possible sale of
FSSCI or its interest in the Partnership. From February 1996 through April 1996,
Robertson Stephens engaged in various discussions with FSSCI and its counsel
regarding the proposed structure, price and terms of a potential transaction
between FSSCI and HEALTHSOUTH or, alternatively, the potential sale of the
Partnership's assets to a third party pursuant to the Buyout Provision.
Beginning in March 1996, Robertson Stephens also engaged in preliminary
conversations regarding a potential transaction with representatives of
HEALTHSOUTH and another potential third-party buyer.
Following discussions between Robertson Stephens and HEALTHSOUTH, in April
1996 HEALTHSOUTH submitted to FSSCI a draft letter of intent contemplating
HEALTHSOUTH's purchase of the interests of the limited partners in the
Partnership based on a total Partnership valuation of $18,675,000, with the
structure of the transaction to be determined by FSSCI. Following further
discussions among members of FSSCI's management, its counsel and Robertson
Stephens, FSSCI proposed certain changes to the draft letter. HEALTHSOUTH
subsequently submitted to FSSCI a revised letter of intent.
On May 17, 1996, the FSSCI Board held a special meeting to consider
HEALTHSOUTH's offer, at which a representative of Robertson Stephens,
participating by telephone, briefly reviewed the discussions with HEALTHSOUTH
that had culminated in the draft letter of intent. Robertson Stephens also gave
a brief summary regarding the operations, financial condition and market
position of HEALTHSOUTH. FSSCI's counsel reviewed with the FSSCI Board the terms
of the draft letter of intent. The FSSCI Board also discussed various matters
relating to a proposed transaction with HEALTHSOUTH, including the specific
terms of HEALTHSOUTH's proposal and the historical, current and projected
operations and financial condition of FSSCI. Following further discussion among
members of the FSSCI Board subsequent to this meeting, FSSCI and HEALTHSOUTH
executed the letter of intent.
On June 3, 1996, the FSSCI Board further considered HEALTHSOUTH's offer. At
the meeting, FSSCI's counsel reviewed with the FSSCI Board certain matters
relating to the terms, structure and anticipated tax consequences of the
proposed transaction and reviewed the FSSCI Board's fiduciary duties relating to
the proposed transaction. Representatives of Robertson Stephens also reviewed
with the FSSCI Board certain financial and market information relating to
HEALTHSOUTH. Following these presentations and further discussions among the
FSSCI Board, the FSSCI Board unanimously determined to have FSSCI's officers,
together with FSSCI's counsel, negotiate forms of definitive agreements with
HEALTHSOUTH with respect to a tax-free merger reorganization, subject to further
discussions regarding the transaction structure with certain of FSSCI's
shareholders. Following an informal meeting with certain shareholders on June 3,
1996 and subsequent discussions or correspondence with certain shareholders,
FSSCI's management determined to continue the negotiations with HEALTHSOUTH with
respect to a tax-free merger reorganization.
On August 5, 1996, the FSSCI Board held a special meeting to consider and
vote upon substantially final forms of the Plan, the Agreement of Merger and
related documents. At the meeting, FSSCI's counsel and representatives of
Robertson Stephens reviewed the terms of the Merger and the Plan with the FSSCI
Board. Additionally, Robertson Stephens rendered its opinion that the $9,150,000
gross purchase price to be paid by HEALTHSOUTH in the Merger (other than amounts
to be paid in respect of partnership interests held by FSSCI other than the
Partnership Interest, as to which Robertson Stephens expressed no opinion) (the
"Purchase Price Value") was fair, from a financial point of view, to such
shareholders as of August 5, 1996. Following further discussion, the FSSCI Board
unanimously approved the Merger, the Plan (and the related Agreement of Merger),
and the transactions contemplated thereby.
On August 13, 1996, FSSCI and HEALTHSOUTH executed the Plan.
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REASONS FOR THE MERGER; RECOMMENDATION OF THE FSSCI BOARD
At its special meeting on August 5, 1996, the FSSCI Board unanimously
approved the Merger and determined that the Merger is advisable and fair and in
the best interests of FSSCI and its shareholders. The FSSCI Board unanimously
recommends to FSSCI shareholders that they vote FOR the approval and adoption of
the Plan (and the related Agreement of Merger) and the approval of the principal
terms of the Merger. The FSSCI Board based its approval of the Merger, and its
determination that the terms of the Merger are fair to FSSCI and its
shareholders, upon a number of factors, including the following:
(i) The terms and conditions of the Merger, including the aggregate value,
after deducting transaction fees and expenses, of the consideration to be
received by FSSCI's shareholders in the Merger;
(ii) The opportunity for the FSSCI shareholders to receive in the Merger, in
exchange for a substantially illiquid investment in FSSCI, fully-registered,
publicly-traded stock having a substantial market float, thereby permitting the
FSSCI shareholders following the Merger to liquidate their investment in a
public market that does not currently exist for the FSSCI Common Stock;
(iii) The opportunity for the FSSCI shareholders to share in the potential
for long-term gains in FSSCI through the ownership of HEALTHSOUTH Common Stock
following the Merger;
(iv) The market position of HEALTHSOUTH, and the liquidity and historical
performance of HEALTHSOUTH Common Stock;
(v) The likelihood that the Merger would be consummated, including the
absence of any financing condition or other significant contingencies in the
Plan and the recent experience of HEALTHSOUTH in effecting tax-free
reorganizations such as the Merger;
(vi) The perceived obstacles in effecting a transaction at a higher
Partnership valuation, in a manner consistent with the Buyout Provision, with a
party other than HEALTHSOUTH;
(vii) The expectation that the Merger would be tax-free for federal income
tax purposes to FSSCI and its shareholders; and
(viii) The opinion of Robertson Stephens, FSSCI's independent financial
advisor, that the Purchase Price Value in the Merger was fair, from a financial
point of view, to such holders as of August 5, 1996.
The FSSCI Board also considered the following information in determining that
the terms of the Merger are fair to FSSCI and its shareholders: (i) its
knowledge of, and views concerning, the business, operations, property, assets,
financial condition, operating results, strategic objectives and prospects of
FSSCI, the Partnership and HEALTHSOUTH; (ii) current industry, economic and
market conditions and trends; (iii) the terms of the Plan and the
Non-Competition Agreement; and (iv) FSSCI's alternatives.
In view of the variety of factors considered in connection with its
evaluation of the Merger, the FSSCI Board did not find it practicable to and did
not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination.
OPINION OF FINANCIAL ADVISOR TO FSSCI
As described above under "Background of the Merger", FSSCI engaged Robertson
Stephens in February 1996 to act as its independent financial advisor in
connection with a proposed transaction with HEALTHSOUTH (or, alternatively,
certain similar transactions). Robertson Stephens has delivered to the FSSCI
Board its written opinion, dated August 5, 1996, that the Purchase Price Value
is fair to the shareholders of FSSCI from a financial point of view as of the
date thereof.
A copy of the full text of the written opinion of Robertson Stephens, which
sets forth the assumptions made, procedures followed, matters considered and
limits of its review, is attached to this Prospectus-Proxy Statement as Annex B
and is incorporated herein by reference. Shareholders of FSSCI
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are urged to, and should, read such opinion in its entirety. Robertson Stephens
did not recommend to FSSCI that any specific amount of consideration constituted
the appropriate consideration for the Merger. Robertson Stephens' opinion is
directed only to the fairness from a financial point of view of the Purchase
Price Value and does not constitute a recommendation to any FSSCI shareholder as
to how such shareholder should vote at the Special Meeting. Robertson Stephens
did not consider, and does not express any opinion regarding, the current or
future value of the shares of HEALTHSOUTH Common Stock to be issued in the
Merger, or regarding the fairness of the Merger to HEALTHSOUTH or to its
stockholders. In addition, Robertson Stephens did not consider, and does not
express any opinion regarding, any amounts which may be received by FSSCI from
HEALTHSOUTH with respect to any partnership interest held by FSSCI other than
the Partnership Interest. Robertson Stephens expresses no opinion as to the tax
consequences of the Merger, and Robertson Stephens' opinion as to the fairness
from a financial point of view of the Purchase Price Value does not take into
account the particular tax status or position of any holder of FSSCI Common
Stock. In rendering its opinion, Robertson Stephens was not engaged as an agent
or fiduciary of FSSCI shareholders or any other third party. The summary of the
opinion of Robertson Stephens set forth in this Prospectus-Proxy Statement is
qualified in its entirety by reference to the full text of such opinion.
In connection with its opinion, Robertson Stephens, among other things, (i)
reviewed financial information on FSSCI and the Partnership furnished to it by
FSSCI and the Partnership, including certain internal financial analyses and
forecasts prepared by the management of FSSCI and the Partnership; (ii) reviewed
publicly available information; (iii) held discussions with the management of
FSSCI and the Partnership concerning the businesses, past and current business
operations, financial condition and future prospects of the Partnership; (iv)
reviewed the draft Agreement and Plan of Merger, dated as of August 1, 1996 (the
"Draft Agreement"); (v) compared the financial terms of the Merger with other
transactions which Robertson Stephens deemed relevant; and (vi) made such other
studies and inquiries, and reviewed such other data, as Robertson Stephens
deemed customary and relevant.
Upon the assurance of FSSCI and Partnership management that they were unaware
of any information that would make information provided to Robertson Stephens
inaccurate or misleading, Robertson Stephens relied without independent
verification on the accuracy and completeness of all financial and other
information that was publicly available or provided to it by FSSCI. Furthermore,
Robertson Stephens was not requested to, and did not, obtain any independent
appraisal of the properties or assets and liabilities of the Partnership. With
respect to the financial and operating forecasts (and the assumptions and bases
therefor) of the Partnership which Robertson Stephens reviewed, Robertson
Stephens assumed that such forecasts have been reasonably prepared in good faith
on the basis of reasonable assumptions, reflect the best available estimates and
judgments of such respective managements and that such projections and forecasts
will be realized in the amounts and in the time periods currently estimated by
the managements of FSSCI and the Partnership. In addition, Robertson Stephens
relied upon estimates and judgments of managements of FSSCI and the Partnership
as to the future financial performance of the Partnership. Further, Robertson
Stephens assumed that the historical financial statements of the Partnership
that it reviewed had been prepared and presented in accordance with generally
accepted accounting principles ("GAAP"). The opinion is necessarily based only
upon market, economic, and other conditions that exist and can be evaluated as
of the date of the opinion, and on information available to Robertson Stephens
as of the date of the opinion.
The following paragraphs summarize certain of the financial analyses
performed by Robertson Stephens in connection with providing its opinion, dated
August 5, 1996, to the FSSCI Board, and do not purport to be a complete
description of the analyses performed by Robertson Stephens.
Precedent Acquisition Transactions Analysis. Robertson Stephens analyzed
publicly available information for selected completed acquisitions and mergers
involving one, two or three outpatient surgery centers since 1992 (the
"Precedent Single Surgery Center Transactions"), and compared certain multiples
implied by such information to various multiples for the Partnership implied by
the Purchase Price Value. In addition, Robertson Stephens analyzed publicly
available information for selected completed acquisitions and mergers in the
ambulatory facilities industry since 1993 (the "Precedent Ambulatory Facilities
Companies Transactions"), and compared certain multiples implied by such
information to various multiples for the Partnership implied by the Purchase
Price Value. Such analysis indicated that
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for the Precedent Single Surgery Center Transactions (i) aggregate consideration
as a multiple of latest twelve months ("LTM") revenues ranged from 1.0x to 7.2x,
with a mean of 2.5x, compared with a multiple of 2.1x for the Purchase Price
Value; and (ii) aggregate consideration as a multiple of LTM net income ranged
from 6.1x to 27.4x, with a mean of 12.9x, compared with a multiple of 9.0x for
the Purchase Price Value. Such analysis further indicated that for the Precedent
Ambulatory Facilities Companies Transactions, aggregate consideration as a
multiple of LTM operating income ranged from 8.9x to 15.5x, with a mean of
11.9x, compared with a multiple of 4.7x for the Purchase Price Value. Robertson
Stephens noted that multiples of revenues, operating income and net income are
relevant to valuation in the outpatient surgery centers/ambulatory facilities
industry. Robertson Stephens further noted that the value of FSSCI's interest in
the Partnership must be assessed in light of the fact that it represents an
illiquid minority interest in a small company which operates only two
facilities.
Discounted Cash Flow Analysis. Robertson Stephens performed a discounted cash
flow analysis of the Partnership under three scenarios, utilizing financial
information and estimates of future financial performance for the Partnership as
provided by FSSCI and Partnership management, such scenarios being referred to
as the "Expected Case", the "Upside Case" and the "Downside Case". In such
analysis, Robertson Stephens assumed perpetual growth rates of 2005 cash flows
of 3.0% to 5.0% per annum and discount rates of 14.0% to 16.0%. For the Expected
Case, such analysis produced implied current values of the Partnership ranging
from $22.0 million to $28.5 million. For the Upside Case, such analysis produced
implied current values of the Partnership ranging from $22.5 million to $29.2
million. For the Downside Case, such analysis produced implied current values of
the Partnership ranging from $17.0 million to $21.8 million. Robertson Stephens
further noted that the value of FSSCI's interest in the Partnership must be
assessed in light of the fact that it represents an illiquid minority interest
in a small company which operates only two facilities.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant quantitative and
qualitative methods of financial analyses and the application of those methods
to the particular circumstances and, therefore, such opinions are not readily
susceptible to partial analysis or summary description. In arriving at its
opinion, Robertson Stephens did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. No company or
transaction used in the above analyses as a comparison is identical to the
Partnership or the contemplated transaction. Accordingly, Robertson Stephens
believes that its analyses must be considered as a whole and that considering
any portion of such analyses alone could create a misleading or incomplete view
of the process underlying the opinion. Analyses based upon forecasts of future
results are not necessarily indicative of actual values or predictive of future
results or values, which may be significantly more or less favorable than
suggested by such analyses. Because such analyses are inherently subject to
uncertainty, being based upon numerous factors or events beyond the control of
the parties or Robertson Stephens, none of FSSCI, HEALTHSOUTH or Robertson
Stephens, or any other person, assumes responsibility if future results are
materially different from those forecast. In addition, analyses relating to the
value of businesses do not purport to be appraisals or to reflect the prices at
which businesses actually may be sold.
As described above, Robertson Stephens' opinion to the FSSCI Board was one of
many factors taken into consideration by the FSSCI Board in making its
determination to approve the Plan and the Merger. The foregoing summary does not
purport to be a complete description of the analyses performed by Robertson
Stephens and is qualified by reference to the written opinion of Robertson
Stephens set forth in Annex B hereto.
Robertson Stephens is a nationally-recognized investment banking firm. As
part of its investment banking business, Robertson Stephens is frequently
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes. In the course of its
securities trading, sales and other activities, Robertson Stephens may purchase
or sell the securities of HEALTHSOUTH, including its common stock, for its own
account and the accounts of its customers. Accordingly, Robertson Stephens may,
from time to time, have a long or short position in the securities of
HEALTHSOUTH.
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Pursuant to a letter agreement dated February 5, 1996 (the "Engagement
Letter"), FSSCI engaged Robertson Stephens to act as its independent financial
advisor in connection with a proposed transaction with HEALTHSOUTH (or,
alternatively, certain similar transactions). FSSCI retained Robertson Stephens
on the basis of Robertson Stephens' experience and reputation as a financial
advisor in connection with mergers and acquisitions. FSSCI also considered
Robertson Stephens' experience in mergers and acquisitions, and other corporate
finance transactions, in the health care industry in particular. Pursuant to the
terms of the Engagement Letter, FSSCI has agreed to pay Robertson Stephens a fee
of $443,015, contingent upon closing of the Merger. FSSCI has also agreed to
reimburse Robertson Stephens for certain of its reasonable out-of-pocket
expenses, including attorney's fees, and to indemnify Robertson Stephens against
certain liabilities, including certain liabilities under federal securities
laws.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of an Agreement of Merger by
the Subsidiary and FSSCI under the CGCL, or at such later time as may be
specified in such Agreement 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
FSSCI. It is presently anticipated that such filing will be made as soon as
reasonably possible after the Special Meeting 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".
EXCHANGE OF CERTIFICATES
From and after the Effective Time, each holder of a stock certificate which
immediately prior to the Effective Time represented outstanding FSSCI Shares
(collectively, the "Certificates") will be entitled to receive in exchange
therefor, upon surrender thereof to HEALTHSOUTH, a certificate or certificates
representing the number of whole shares of HEALTHSOUTH Common Stock into which
such holder's FSSCI 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. As soon as reasonably practicable after the Effective
Time, HEALTHSOUTH will send such certificates representing HEALTHSOUTH Common
Stock, together with a check in payment of any amounts in lieu of fractional
shares, to holders of FSSCI Shares who have surrendered their Certificates.
After the Effective Time, there will be no transfers on the stock transfer
books of FSSCI for FSSCI 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 FSSCI 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 FSSCI 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. 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 FSSCI Shares immediately prior to the
Effective Time will cease to be, and shall have no rights as, shareholders of
FSSCI, 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 FSSCI Shares will be treated as stockholders of record of
HEALTHSOUTH for purposes of voting at
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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 FSSCI will be liable to any holder of FSSCI 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 FSSCI with
true and complete copies of certain reports, schedules, registration statements
and proxy statements filed by HEALTHSOUTH with the SEC since January 1, 1996,
(vi) the absence of material legal proceedings against HEALTHSOUTH, (vii) the
fact that HEALTHSOUTH has not incurred any material adverse changes since March
31, 1996, (viii) HEALTHSOUTH's investment intent with respect to the FSSCI
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 FSSCI include, but are not limited to:
(i) the organization of FSSCI, (ii) the power and authority of FSSCI to execute,
deliver and perform the Plan, (iii) the capitalization of FSSCI, (iv) the fact
that FSSCI has furnished HEALTHSOUTH with true and complete copies of certain
federal tax returns filed by FSSCI with respect to 1994 and 1995, (v) the
absence of legal proceedings against FSSCI, (vi) the absence of any material
contracts of FSSCI, (vii) the fact that FSSCI has not incurred any material
adverse changes since December 31, 1995, (viii) the opinion of FSSCI's financial
advisor, (ix) the filing of FSSCI's tax returns, (x) FSSCI's compliance with
laws in general, (xi) the vote required by holders of FSSCI capital stock to
approve the Plan, and (xii) the absence of untrue representations by FSSCI 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) FSSCI 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
FSSCI 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; and (iv) HEALTHSOUTH shall have received an opinion of FSSCI's
counsel substantially in the form specified in the Plan.
The obligation of FSSCI 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) FSSCI shall have received the
opinion of its counsel that the Merger constitutes a tax-free reorganization
under the Code; and (iv) FSSCI 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 FSSCI to consummate
the Merger is subject to certain additional conditions, including the following:
(i) no order, decree or injunction by a
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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 FSSCI 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 Registration Statement
shall have been declared effective under the Securities Act and shall not be
subject to any stop order; (iv) the Merger shall have been approved by the
requisite vote of the holders of the outstanding FSSCI Shares entitled to vote
thereon; and (v) 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 shall have been qualified (or shall be exempt
from qualification) under applicable state securities laws.
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 FSSCI will
conduct their respective businesses in the usual, regular and ordinary course in
substantially the same manner as previously conducted, and FSSCI will use its
reasonable best efforts to preserve intact its present business organization and
to preserve the goodwill of those persons having business dealings with it.
Under the Plan, FSSCI 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; (ii) enter into any employment or other
contract or agreement; (iii) issue or sell, or agree to issue or sell, any
shares of its capital stock or other securities of FSSCI; (iv) extend credit to
anyone; (v) guarantee the obligation of any person, firm or corporation, except
in the ordinary course of business consistent with past practices; or (vi) amend
its Articles of Incorporation or Bylaws.
WAIVER AND AMENDMENT
The Plan provides that, at any time prior to the Effective Time, HEALTHSOUTH,
the Subsidiary and FSSCI may (i) extend the time for the performance of any of
the obligations or other acts of the other parties contained in the Plan; (ii)
waive any inaccuracies in the representations and warranties of the other
parties 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, the Subsidiary and FSSCI without the approval of shareholders of
either Company, except that after the Special Meeting no amendment may be made
which by law requires a further approval by the shareholders of FSSCI 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 shareholders of FSSCI: (i) by mutual
written consent of HEALTHSOUTH and FSSCI; (ii) by either HEALTHSOUTH or FSSCI 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 FSSCI 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 FSSCI if the Merger
has not been consummated on or before December 31, 1996 (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 FSSCI if any required approval of the
Plan by shareholders of FSSCI has not been obtained by the required votes at a
duly held meeting of shareholders; or (vi) by either HEALTHSOUTH or FSSCI in the
event that (a) all of the mutual conditions to the obligation of both parties to
effect the Merger shall have been satisfied and (b) any
24
<PAGE>
condition to the obligation of the terminating party to effect the Merger is not
capable of being satisfied within the time periods specified in the Plan.
INDEMNIFICATION AND INSURANCE
The Plan provides that FSSCI shall, and after the Effective Time 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 FSSCI (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 FSSCI, pertaining to a matter
occurring or existing at or prior to the Effective Time.
ACCOUNTING TREATMENT
HEALTHSOUTH intends to account for the Merger by the purchase method of
accounting. Under the purchase method, the assets and liabilities of FSSCI will
be recorded on the books of HEALTHSOUTH at their fair value. Any cost in excess
of the net asset value will be amortized using the straight-line method over a
period to be determined by HEALTHSOUTH based upon its estimate of the useful
life of the goodwill acquired.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the principal federal income tax
consequences of the Merger to the holders of FSSCI 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 only to holders of FSSCI Shares who hold their
FSSCI Shares as capital assets. This summary does not discuss all aspects of
income taxation that may be relevant to a particular holder of FSSCI 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,
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 FSSCI receive an
opinion from its counsel, Diepenbrock, Wulff, Plant & Hannegan LLP
("Diepenbrock, Wulff"), and that HEALTHSOUTH receive an opinion from its
counsel, Haskell Slaughter & Young, L.L.C. ("Haskell Slaughter", and together
with Diepenbrock, Wulff, "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
FSSCI as a result of the Merger, (ii) no gain or loss will be recognized by the
stockholders of FSSCI upon the exchange of their FSSCI Shares solely for shares
of HEALTHSOUTH Common Stock pursuant to the Merger, except that a FSSCI
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 FSSCI 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 FSSCI 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 FSSCI
Shares exchanged therefor, and (iv) the holding period for HEALTHSOUTH Common
Stock received in exchange for FSSCI Shares pursuant to the Merger will include
the holding period of the FSSCI Shares exchanged therefor, provided such FSSCI
Shares were held as a capital asset at the Effective Time.
Neither HEALTHSOUTH nor FSSCI 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. The opinions rendered by Tax Counsel are not binding
on the Service or the courts and do not preclude the Service from adopting a
contrary position. In
25
<PAGE>
rendering their opinions, Tax Counsel may receive and will rely upon
representations contained in certificates of HEALTHSOUTH, the Subsidiary, FSSCI
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.
Of particular importance will be those assumptions and representations
relating to the "continuity of interest" requirement as set forth in certain
federal tax regulations and judicial decisions relating to reorganizations under
Section 368(a) of the Code (the "Continuity Requirement"). To satisfy the
Continuity Requirement, the FSSCI shareholders must not, pursuant to a plan or
intent existing at or prior to the Merger, dispose or transfer such amount of
the HEALTHSOUTH Common Stock received in the Merger (or of their FSSCI Common
Stock in anticipation of the Merger) such that the FSSCI shareholders, as a
group, would not receive and retain after the Merger a meaningful continuing
equity ownership in HEALTHSOUTH that is sufficient to satisfy the Continuity
Requirement. If this Continuity Requirement were not satisfied, the Merger would
not be treated as a "reorganization". The Tax Counsel's opinions assume that the
Continuity Requirement will be satisfied in the Merger.
A successful IRS challenge to the "reorganization" status of the Merger (as a
result of the failure to satisfy the Continuity Requirement or otherwise) would
result in each FSSCI shareholder recognizing gain or loss with respect to each
share of FSSCI Common Stock surrendered in the Merger equal to the difference
between the shareholder's basis in such share and the fair market value, as of
the Effective Time of the Merger, of the HEALTHSOUTH Common Stock received in
exchange therefor. In such event, a shareholder's aggregate basis in the
HEALTHSOUTH Common Stock so received would equal its fair market value as of the
Effective Time of the Merger and his or her holding period for such stock would
begin the day after the Merger.
Finally, FSSCI is an "S" corporation for federal tax purposes, while
HEALTHSOUTH is a "C" corporation. Thus, following the Merger, the FSSCI
shareholders will not be entitled to the various benefits afforded to (or
subject to the restrictions imposed on) shareholders of an "S" corporation under
the federal tax laws. For example, for federal tax purposes prior to the
Effective Time of the Merger, the income (and loss) of FSSCI generally flows
through directly to the FSSCI shareholders without regard to the existence of
the corporation; by contrast, the shareholders of a "C" corporation like
HEALTHSOUTH are subject to "double taxation" because the corporation pays a
corporate tax on its income and the shareholders pay a tax on dividends received
from the corporation.
EACH HOLDER OF FSSCI 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 FSSCI
Shares in connection with the Merger have been registered under the Securities
Act. HEALTHSOUTH Common Stock received by the shareholders of FSSCI 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 FSSCI 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 FSSCI or HEALTHSOUTH at the time
of the Special Meeting (generally, directors, certain executive officers and
major stockholders). Affiliates of FSSCI 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 "broker 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
26
<PAGE>
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.
FSSCI has agreed to use its reasonable, good faith efforts to cause each
holder of FSSCI Shares deemed to be an Affiliate of FSSCI to enter into an
agreement providing that such Affiliate will not sell, pledge, transfer or
otherwise dispose of shares of HEALTHSOUTH Common Stock to be received by such
person in the Merger, except in compliance with the applicable provisions of the
Securities Act and the rules and regulations thereunder.
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 HEALTHSOUTH has agreed to pay, on behalf of
FSSCI, $443,015 payable to Robertson Stephens in connection with its services to
FSSCI. The aggregate Merger Consideration reflects a reduction of the Purchase
Price Value by such amount.
NYSE LISTING
A listing application will be filed with the NYSE to list the shares of
HEALTHSOUTH Common Stock to be issued to FSSCI shareholders and option holders
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 FSSCI 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.
RIGHTS OF DISSENTING SHAREHOLDERS
As used in this Prospectus-Proxy Statement, (i) the term "Dissenting Shares"
means shares of FSSCI Common Stock (A) which were outstanding as of the FSSCI
Record Date and were not voted in favor of the Merger and (B) with respect to
which the holder thereof has perfected such holder's demand that FSSCI purchase
the holder's shares in accordance with Chapter 13 ("Chapter 13") of the CGCL and
with respect to which the holder thereof has not effectively withdrawn or lost
such rights, and the term "Dissenting Shareholder" means any record holder of
Dissenting Shares who wishes to exercise dissenters' rights in accordance with
Chapter 13, or such holder's duly appointed representative, or a transferee of
record of a holder of Dissenting Shares.
If a Dissenting Shareholder properly and timely exercises dissenters' rights
under Chapter 13 in connection with the Merger, such holder's Dissenting Shares
will not be converted into the right to receive the Merger Consideration, but
rather will be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to the
CGCL. A Dissenting Shareholder must not vote in favor of the Merger. However,
failure to vote in favor of the Merger will not, in and of itself, be sufficient
notice of a Dissenting Shareholder's intention to dissent. Rather, any
Dissenting Shareholder wishing to exercise dissenters' rights must comply with
the procedures set forth in Chapter 13.
The following discussion of the provisions of Chapter 13 is not intended to
be a complete statement of such provisions and is qualified in its entirety by
reference to the full text of Chapter 13, a copy of which is attached to this
Prospectus-Proxy Statement as Annex D and is incorporated herein by reference.
This discussion, and the provisions of Chapter 13, should be reviewed carefully
by any holder of
27
<PAGE>
FSSCI Common Stock who wishes to exercise statutory dissenters' rights or wishes
to preserve the right to do so, since failure to comply with the required
procedures will result in a loss of such rights.
If the Merger is approved by the required vote of FSSCI shareholders and is
not abandoned or terminated, each holder of shares of FSSCI Common Stock who
does not vote in favor of the FSSCI Merger and who follows the procedures set
forth in Chapter 13 will be entitled to have such holder's shares of FSSCI
Common Stock purchased by FSSCI for cash at their fair market value. The fair
market value of any such Dissenting Shares shall be determined as of the day
before the first announcement of the terms of the FSSCI Merger, excluding any
appreciation or depreciation in consequence of the Merger, but adjusted for any
stock split, reverse stock split, or share dividend that becomes effective
thereafter.
Within ten days after approval of the FSSCI Merger by FSSCI shareholders,
FSSCI must mail a notice of such approval (the "Approval Notice") to all FSSCI
shareholders who did not vote in favor of the FSSCI Merger, together with a
statement of the price determined by FSSCI to represent the fair market value of
a Dissenting Share, a brief description of the procedure to be followed in order
to pursue dissenters' rights, and a copy of Sections 1300 through 1304 of the
CGCL. The statement of price made in the Approval Notice will constitute an
offer by FSSCI to purchase all Dissenting Shares at the stated amount, unless
such shares lost their status as Dissenting Shares as described below.
A Dissenting Shareholder must make a written demand upon FSSCI for the
purchase of such holder's Dissenting Shares and for payment to the Dissenting
Shareholder in cash of the fair market value of such shares. The written demand
must state the number and class of the shares of FSSCI Common Stock held of
record by the Dissenting Shareholder that the Dissenting Shareholder demands
that FSSCI purchase and must contain a statement of what such Dissenting
Shareholder claims to be the fair market value of those shares as of the day
before the announcement of the FSSCI Merger. The statement of fair market value
will constitute an offer by the Dissenting Shareholder to sell the shares to
FSSCI at such price. The written demand should also specify the Dissenting
Shareholder's name and mailing address. In order for such demand to be
effective, (i) it must be received by FSSCI within thirty days after the date on
which the Approval Notice is mailed to the Dissenting Shareholder, and (ii) the
Dissenting Shareholder must also submit to FSSCI the certificate(s) representing
such holder's Dissenting Shares for endorsement as Dissenting Shares. The
written demand and certificate(s) representing the Dissenting Shares should be
delivered to FSSCI at 2801 K Street, Suite 310, Sacramento, California 95814:
Attention: Dr. David Coward.
If FSSCI and a Dissenting Shareholder agree that the Dissenting Shareholder's
shares are Dissenting Shares and agree upon the price of such shares, the
Dissenting Shareholder will be entitled to the agreed price with interest
thereon at the legal rate on judgments from the date of such agreement. Payment
for such Dissenting Shares must be made within thirty days after the later of
the date of such agreement or the date on which all statutory and contractual
conditions to the FSSCI Merger are satisfied, and is subject to the surrender by
the Dissenting Shareholder of the certificate(s) representing the Dissenting
Shares.
If FSSCI denies that a Dissenting Shareholder's shares qualify as Dissenting
Shares, or if FSSCI and a Dissenting Shareholder fail to agree upon the fair
market value of the Dissenting Shares, then the Dissenting Shareholder may file
a complaint in the Superior Court of Sacramento County (the "Court") requesting
determination as to whether the shares are Dissenting Shares or as to the fair
market value of the Dissenting Shareholder's shares, or both. Such complaint
must be filed within six (6) months after the date on which the Approval Notice
is mailed to the Dissenting Shareholder. A Dissenting Shareholder may also
intervene in any action pending on such a complaint. Two or more Dissenting
Shareholders may join as plaintiffs or be joined as defendants in any such
action, and two or more such actions may be consolidated. The costs of the
action, including reasonable compensation to appraisers that may be appointed by
the Court, will be assessed or apportioned as the Court considers equitable and,
except in the situations where the appraised value exceeds the price offered by
FSSCI and Chapter 13 would require that FSSCI pay such expenses, may be
apportioned to the Dissenting Shareholders.
If any Dissenting Shareholder who demands the purchase of such holder's
shares of FSSCI Common Stock fails to perfect, or effectively withdraws or loses
the right to such purchase, the shares of
28
<PAGE>
FSSCI Common Stock of such holder will be converted into the right to receive
the Merger Consideration (on a per share basis), multiplied by the number of
shares of FSSCI Common Stock held by such person, in accordance with the
Agreement of Merger. Dissenting Shares lose their status as Dissenting Shares if
(i) the Merger is abandoned; (ii) such shares are transferred prior to their
submission for the required endorsement, (iii) the Dissenting Shareholder and
FSSCI do not agree upon the status of the Dissenting Shareholder's shares as
Dissenting Shares or do not agree on the purchase price, and neither the
Dissenting Shareholder nor FSSCI files a complaint or intervenes in a pending
action within six (6) months after the Approval Notice is mailed to the
Dissenting Shareholder, or (iv) the Dissenting Shareholder, with FSSCI's
consent, withdraws the demand that FSSCI purchase such holder's Dissenting
Shares. A Dissenting Shareholder may not withdraw his or her demand for purchase
of his or her shares without FSSCI's consent.
29
<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>
YEAR ENDED DECEMBER 31,
-----------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues ......................................... $468,572 $750,134 $979,206 $1,649,199 $2,003,146
Operating expenses:
Operating units ................................. 316,628 521,619 668,201 1,161,758 1,371,740
Corporate general and administrative ............ 17,347 25,667 37,043 61,640 56,920
Provision for doubtful accounts .................. 9,345 16,553 20,026 32,904 37,659
Depreciation and amortization..................... 24,295 42,107 63,572 113,977 143,322
Interest expense ................................. 19,273 18,237 24,200 73,644 101,790
Interest income .................................. (9,489) (8,595) (5,903) (6,387) (7,882)
Merger and acquisition related expenses (1) ...... -- -- 333 6,520 34,159
Gain on sale of MCA Stock (2) .................... -- -- -- (7,727) --
Loss on impairment of assets (2) ................. -- -- -- 10,500 53,549
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
----------- ----------- ----------- ------------- ------------
Income before income taxes and minority interests 85,773 129,998 123,392 184,673 211,889
Provision for income taxes........................ 24,582 38,550 37,993 65,121 76,221
----------- ----------- ----------- ------------- ------------
61,191 91,448 85,399 119,552 135,668
Minority interests................................ 18,613 25,943 29,377 31,469 43,147
----------- ----------- ----------- ------------- ------------
Income from continuing operations................. 42,578 65,505 56,022 88,083 92,521
Income from discontinued operations (2)........... 2,971 3,283 4,452 -- --
----------- ----------- ----------- ------------- ------------
Net income ....................................... $ 45,549 $ 68,788 $ 60,474 $ 88,083 $ 92,521
=========== =========== =========== ============= ============
Weighted average common and common equivalent
shares outstanding (3)........................... 105,451 127,148 132,479 140,427 148,730
=========== =========== =========== ============= ============
Net income per common and common equivalent
share (3)
Continuing operations............................. $ 0.40 $ 0.51 $ 0.43 $ 0.63 $ 0.62
Discontinued operations .......................... 0.03 0.03 0.03 -- --
----------- ----------- ----------- ------------- ------------
$ 0.43 $ 0.54 $ 0.46 $ 0.63 $ 0.62
=========== =========== =========== ============= ============
Net income per common share -- assuming full
dilution (3)(4) ................................. $0.42 N/A N/A $ 0.63 $ 0.62
=========== =========== =========== ============= ============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
--------------------------
1995 1996
---------- -------------
<S> <C> <C>
Income Statement Data:
Revenues ......................................... $951,512 $1,176,823
Operating expenses:
Operating units ................................. 657,942 775,399
Corporate general and administrative ............ 27,872 32,657
Provision for doubtful accounts .................. 19,456 25,877
Depreciation and amortization..................... 67,888 87,994
Interest expense ................................. 48,584 47,342
Interest income .................................. (4,000) (3,474)
Merger and acquisition related expenses(1) ....... 29,194 28,939
Gain on sale of MCA Stock(2) ..................... -- --
Loss on impairment of assets (2).................. 11,192 --
Loss on abandonment of computer project (2) ...... -- --
Loss on disposal of surgery centers(2) ........... -- --
NME Selected Hospitals Acquisition related expense
(2) ............................................. -- --
Terminated merger expense ........................ -- --
Loss on extinguishment of debt ................... -- --
Gain on sale of partnership interest ............. -- --
Provision for contingent payment.................. -- --
---------- -------------
858,128 994,734
---------- -------------
Income before income taxes and minority interests 93,384 182,089
Provision for income taxes........................ 29,846 59,954
---------- -------------
63,538 122,135
Minority interests................................ 18,690 24,729
---------- -------------
Income from continuing operations................. 44,848 97,406
Income from discontinued operations(2)............ -- --
---------- -------------
Net income ....................................... $ 44,848 $ 97,406
========== =============
Weighted average common and common equivalent
shares outstanding(3)............................ 143,366 163,959
========== =============
Net income per common and common equivalent
share(3)
Continuing operations............................. $ 0.31 $ 0.59
Discontinued operations .......................... -- --
---------- -------------
$ 0.31 $ 0.59
========== =============
Net income per common share -- assuming full
dilution (3)(4) ................................. $ 0.31 $ 0.58
========== =============
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.
30
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following pro forma condensed 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 Professional Sports Care Management,
Inc. ("PSCM") in a transaction to be accounted for as a pooling of interests,
which merger was consummated in the third quarter of 1996 (the "PSCM Merger").
The HEALTHSOUTH historical amounts reflect the combination of HEALTHSOUTH,
ReLife, SHC, SSCI, SCA and 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, the pro forma condensed 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 balance sheet assumes that the PSCM Merger was
consummated on June 30, 1996, and the pro forma condensed income statements
assume that the PSCM Merger was 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 PSCM. Certain balance sheet and income
statement amounts from the PSCM 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 results of operations or combined financial
position that would have resulted had the PSCM Merger been consummated at the
dates indicated, nor is it necessarily indicative of the results of operations
of future periods or future combined financial position.
The following pro forma condensed financial information and explanatory notes
do not reflect the effect of the Merger, since the effect of the Merger is not
material to the financial condition or operations of HEALTHSOUTH for any period
presented.
31
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HEALTHSOUTH PSCM ADJUSTMENTS COMBINED
-------------- --------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 104,613 $ 7,534 $ 0 $ 112,147
Other marketable securities ..................... 3,825 0 0 3,825
Accounts receivable ............................. 481,326 7,661 0 488,987
Inventories, prepaid expenses and other current
assets ......................................... 134,207 838 0 135,045
Deferred income taxes ........................... 23,505 0 (1,151)(3) 22,354
-------------- --------- ------------- ------------
Total current assets.............................. 747,476 16,033 (1,151) 762,358
Other assets ..................................... 70,278 711 0 70,989
Deferred income taxes............................. 0 0 0 0
Property, plant and equipment, net ............... 1,329,587 5,590 0 1,335,177
Intangible assets, net ........................... 937,414 31,506 0 968,920
-------------- --------- ------------- ------------
Total assets ..................................... $3,084,755 $53,840 $(1,151) $3,137,444
============== ========= ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 108,063 $ 134 $ 7,000 (l) $115,197
Salaries and wages payable....................... 79,219 72 0 79,291
Accrued interest payable and other liabilities... 89,963 2,064 (2,800)(l) 88,076
(1,151)(3)
Current portion of long-term debt................ 38,467 2,434 0 40,901
-------------- --------- ------------- ------------
Total current liabilities......................... 315,712 4,704 3,049 323,465
Long-term debt.................................... 1,380,988 4,209 0 1,385,197
Deferred income taxes ............................ 27,091 741 0 27,832
Other long-term liabilities....................... 5,375 805 0 6,180
Deferred revenue.................................. 890 0 0 890
Minority interests................................ 66,027 151 0 66,178
Stockholders' equity:
Preferred Stock, $.10 par ....................... 0 0 0 0
Common Stock, $.01 par .......................... 1,541 78 (60)(2) 1,559
Additional paid-in capital ...................... 893,528 39,469 60 (2) 933,057
Retained earnings................................ 414,350 3,730 (4,200)(l) 413,880
Deferred stock grants............................ 0 (47) 0 (47)
Treasury stock................................... (323) 0 0 (323)
Receivable from Employee Stock Ownership Plan ... (14,148) 0 0 14,148)
Notes receivable from stockholders .............. (6,276) 0 0 (6,276)
-------------- --------- ------------- ------------
Total stockholders' equity ....................... 1,288,672 43,230 (4,200) 1,327,702
-------------- --------- ------------- ------------
Total liabilities and stockholders' equity ...... $3,084,755 $53,840 $ (1,151) $3,137,444
============== ========= ============= ============
</TABLE>
See accompanying notes.
32
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ACQUISITION
---------------------------
PRO FORMA PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS COMBINED PSCM
------------- ----------- ----------- ------------ --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenues ............................................... $2,003,146 $37,942 $1,860 (5) $2,042,948 $27,110
Operating expenses:
Operating units ....................................... 1,371,740 33,065 (910)(2) 1,403,895 16,987
Corporate general and administrative................... 56,920 0 0 56,920 4,698
Provision for doubtful accounts ........................ 37,659 322 0 37,981 499
Depreciation and amortization .......................... 143,322 1,996 (999)(1) 146,201 1,629
1,882 (3)
Interest expense ....................................... 101,790 2,595 2,684 (4) 107,069 423
Interest income......................................... (7,882) 0 0 (7,882) (585)
Merger and acquisition related expenses................. 34,159 0 0 34,159 0
Loss on impairment of assets ........................... 53,549 0 0 53,549 0
------------- ----------- ------------- ------------- ----------
1,791,257 37,978 2,657 1,831,892 23,651
------------- ----------- ------------- ------------- ----------
Income (loss) before income taxes and minority
interests ............................................. 211,889 (36) (797) 211,056 3,459
Provision (benefit) for income taxes.................... 76,221 (101) (259)(6) 75,861 1,361
------------- ----------- ------------- ------------- ----------
135,668 65 (538) 135,195 2,098
Minority interests ..................................... 43,147 89 0 43,236 16
------------- ----------- ------------- ------------- ----------
Net income (loss)....................................... $ 92,521 $ (24) $ (538) $ 91,959 $2,082
============= =========== ============= ============= ==========
Weighted average common and common equivalent shares
outstanding............................................ 148,730 N/A N/A 148,730 7,303
============= =========== ============= ============= ==========
Net income per common and common equivalent share ..... $ 0.62 N/A N/A $ 0.62 $ 0.29
============= =========== ============= ============= ==========
Net income per common share--assuming full dilution ... $ 0.62 N/A N/A $ 0.62 N/A
============= =========== ============= ============= ==========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
------------ -------------
<S> <C> <C>
Revenues ............................................... $ 0 $2,070,058
Operating expenses:
Operating units ....................................... 0 1,420,882
Corporate general and administrative................... 0 61,618
Provision for doubtful accounts ........................ 0 38,480
Depreciation and amortization .......................... 0 147,830
Interest expense ....................................... 0 107,492
Interest income......................................... 0 (8,467)
Merger and acquisition related expenses................. 0 34,159
Loss on impairment of assets ........................... 0 53,549
------------- ------------
0 1,855,543
------------- ------------
Income (loss) before income taxes and minority
interests ............................................. 0 214,515
Provision (benefit) for income taxes.................... 0 77,222
------------- ------------
0 137,293
Minority interests ..................................... 0 43,252
------------- ------------
Net income (loss)....................................... $ 0 $ 94,041
============= ============
Weighted average common and common equivalent shares
outstanding............................................ (5,601)(2) 150,432
============= ============
Net income per common and common equivalent share ..... N/A $ 0.63
============= ============
Net income per common share--assuming full dilution ... N/A $ 0.63
============= ============
</TABLE>
See accompanying notes.
33
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACQUISITION
------------------------
PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS
------------- ---------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
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
------------- ---------- -------------
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 full dilution .... $ 0.63 N/A N/A
============= ========== =============
(RESTUBBED TABLE CONTINUED FROM ABOVE)
ACQUISITIONS
------------
PRO FORMA PRO FORMA PRO FORMA
COMBINED PSCM ADJUSTMENTS COMBINED
------------ --------- ------------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................................ $1,799,805 $16,430 $ 0 $1,816,235
Operating expenses:
Operating units........................................ 1,277,585 9,506 0 1,287,091
Corporate general and administrative................... 61,640 2,717 0 64,357
Provision for doubtful accounts......................... 34,173 380 0 34,553
Depreciation and amortization........................... 126,626 838 0 127,464
Interest expense........................................ 94,840 1,473 0 96,313
Interest income......................................... (6,387) (80) 0 (6,467)
Merger and acquisition related expenses................. 6,520 0 0 6,520
Gain on sale of MCA Stock............................... (7,727) 0 0 (7,727)
Loss on impairment of assets............................ 10,500 0 0 10,500
Loss on abandonment of computer project................. 4,500 0 0 4,500
Loss on disposal of surgery centers..................... 13,197 0 0 13,197
------------ --------- ------------- ------------
1,615,467 14,834 0 1,630,301
------------ --------- ------------- ------------
Income (loss) before income taxes and minority
interests.............................................. 184,338 1,596 0 185,934
Provision (benefit) for income taxes.................... 64,817 956 0 65,773
------------ --------- ------------- ------------
119,521 640 0 120,161
Minority interests ..................................... 31,914 171 0 32,085
------------ --------- ------------- ------------
Net income (loss)....................................... $ 87,607 $ 469 $ 0 $ 88,076
============ ========= ============= ============
Weighted average common and common equivalent shares
outstanding............................................ 140,427 4,324 (3,317)(2) 141,434
============ ========= ============= ============
Net income per common and common equivalent share ...... $ 0.62 $ 0.11 N/A $ 0.62
============ ========= ============= ============
Net income per common share--assuming full dilution .... $ 0.62 N/A N/A $ 0.62
============ ========= ============= ============
</TABLE>
See accompanying notes.
34
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HEALTHSOUTH PSCM ADJUSTMENTS COMBINED
------------- -------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues........................................ $979,206 $5,738 $ 0 $984,944
Operating expenses:
Operating units................................ 668,201 3,531 0 671,732
Corporate general and administrative........... 37,043 964 0 38,007
Provision for doubtful accounts................. 20,026 157 0 20,183
Depreciation and amortization................... 63,572 239 0 63,811
Interest expense................................ 24,200 56 0 24,256
Interest income................................. (5,903) (4) 0 (5,907)
Merger and acquisition related expenses......... 333 0 0 333
NME Selected Hospitals Acquisition related
expense........................................ 49,742 0 0 49,742
Gain on sale of partnership interest............ (1,400) 0 0 (1,400)
------------- -------- ------------- -----------
855,814 4,943 0 860,757
------------- -------- ------------- -----------
Income before income taxes and
minority interests............................. 123,392 795 0 124,187
Provision for income taxes...................... 37,993 40 0 38,033
------------- -------- ------------- -----------
85,399 755 0 86,154
Minority interests.............................. 29,377 0 0 29,377
------------- -------- ------------- -----------
Income from continuing operations............... 56,022 755 0 56,777
Income from discontinued operations............. 4,452 0 0 4,452
------------- -------- ------------- -----------
Net income...................................... $ 60,474 $ 755 $ 0 $ 61,229
============= ======== ============= ===========
Weighted average common and common equivalent
shares outstanding............................. 132,479 2,787 (2,138)(2) 133,128
============= ======== ============= ===========
Net income per common and common equivalent
share:
Continuing operations.......................... $ 0.43 $ 0.27 N/A $ 0.43
Discontinued operation......................... 0.03 -- N/A 0.03
------------- -------- ------------- -----------
$ 0.46 $ 0.27 N/A $ 0.46
============= ======== ============= ===========
</TABLE>
See accompanying notes.
35
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HEALTHSOUTH PSCM ADJUSTMENTS COMBINED
------------- --------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................ $1,176,823 $19,327 $ 0 $1,196,150
Operating expenses:
Operating units........................ 775,399 12,124 0 787,523
Corporate general and administrative... 32,657 3,317 0 35,974
Provision for doubtful accounts......... 25,877 336 0 26,213
Depreciation and amortization........... 87,994 1,126 0 89,120
Interest expense........................ 47,342 268 0 47,610
Interest income......................... (3,474) (208) 0 (3,682)
Merger and acqusition related expenses.. 28,939 0 0 28,939
994,734 16,963 0 1,011,697
------------- --------- ------------- ------------
Income before income taxes and minority
interests ............................. 182,089 2,364 0 184,453
Provision for income taxes ............. 59,954 907 0 60,861
------------- --------- ------------- ------------
122,135 1,457 0 123,592
Minority interests...................... 24,729 152 0 24,881
------------- --------- ------------- ------------
Net income.............................. $ 97,406 $ 1,305 $ 0 $ 98,711
============= ========= ============= ============
Weighted average common and common
equivalent shares outstanding ......... 163,959 7,779 (5,966)(2) 165,772
============= ========= ============= ============
Net income per common and common
equivalent share ...................... $ 0.59 $ 0.17 N/A $ 0.60
============= ========= ============= ============
Net income per common share--assuming
full dilution ......................... $ 0.58 N/A N/A $ 0.59
============= ========= ============= ============
</TABLE>
See accompanying notes.
36
<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>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
ACQUISITIONS
--------------
PRO FORMA PRO FORMA PRO FORMA
COMBINED PSCM ADJUSTMENTS COMBINED
----------- --------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues............................................ $991,314 $13,079 $ 0 $1,004,393
Operating expenses:
Operating units ................................... 690,097 7,656 0 697,753
Corporate general and administrative .............. 27,872 1,635 0 29,507
Provision for doubtful accounts..................... 19,778 544 0 20,322
Depreciation and amortization....................... 70,767 726 0 71,493
Interest expense.................................... 53,863 187 0 54,050
Interest income..................................... (4,000) (224) 0 (4,224)
Merger and acquisition related expense.............. 29,194 0 0 29,194
Loss on impairment of assets........................ 11,192 0 0 11,192
----------- --------- ------------- ------------
898,763 10,524 0 909,287
----------- --------- ------------- ------------
Income (loss) before income taxes and minority
interests ......................................... 92,551 2,555 0 95,106
Provision (benefit) for income taxes ............... 29,486 1,047 0 30,533
----------- --------- ------------- ------------
63,068 1,508 0 64,573
Minority interests ................................. 18,779 2 0 18,781
----------- --------- ------------- ------------
Net income (loss)................................... $ 44,286 $1,506 $ 0 $ 45,792
=========== ========= ============= ============
Weighted average common and common equivalent
shares outstanding ................................ 143,366 6,974 (5,349)(2) 144,991
=========== ========= ============= ============
Net income per common and common equivalent share .. $ 0.31 0.22 N/A $ 0.32
=========== ========= ============= ============
Net income per common share--assuming full
dilution........................................... $ 0.31 N/A N/A $ 0.32
=========== ========= ============= ============
</TABLE>
See accompanying notes.
37
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
A. THE NOVACARE REHABILITATION HOSPITALS ACQUISITION
Effective April 1, 1995 HEALTHSOUTH completed the acquisition of the
rehabilitation hospitals division of NovaCare, Inc. ("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 January 1, 1994.
Certain assets and liabilities of Rehab Systems Company (a wholly-owned
subsidiary of NovaCare, Inc.) 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):
PURCHASE PRICE
ALLOCATION USEFUL ANNUAL QUARTERLY
ADJUSTMENT LIFE AMORTIZATION AMORTIZATION
---------------- ----------- -------------- ---------------
Leasehold
value.......... $128,333 20 years $6,417 $1,605
Goodwill ...... 44,365 40 years 1,109 277
-------------- ---------------
$7,526 $1,882
============== ===============
38
<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 intended to be accounted for as a pooling of interests.
The pro forma condensed income statements assume that the PSCM Merger was
consummated on January 1, 1993. The pro forma condensed balance sheet assumes
that the PSCM Merger was consummated on June 30, 1996.
The pro forma condensed 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 adjustments 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.
39
<PAGE>
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 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 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.
40
<PAGE>
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 June 30, 1996, HEALTHSOUTH had over 975 patient
care locations in 46 states. On August 20, 1996, HEALTHSOUTH acquired an
additional 36 outpatient rehabilitation centers in New York, New Jersey and
Connecticut through the acquisition of Professional Sports Care Management, Inc.
In addition, on September 11, 1996, HEALTHSOUTH entered into an agreement to
acquire ReadiCare, Inc., a Sunnyvale, California-based operator of 37
occupational medicine clinics, in a merger valued at approximately $70,000,000.
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
41
<PAGE>
patients will require some form of outpatient rehabilitation, and virtually all
inpatient rehabilitation patients have had some type of diagnostic procedure.
HEALTHSOUTH has implemented its integrated service model in certain of its
markets, and intends to expand the model into other appropriate markets.
o Marketing to Managed Care Organizations and Other Payors. Since the late
1980s, HEALTHSOUTH has focused on the development of contractual relationships
with managed care organizations, major insurance companies, large regional and
national employer groups and provider alliances and networks. HEALTHSOUTH's
documented outcomes and experience with several hundred thousand patients in
delivering quality healthcare services at reasonable prices has enhanced its
attractiveness to such entities and has given HEALTHSOUTH a competitive
advantage over smaller and regional competitors. These relationships have
increased patient flow to HEALTHSOUTH's facilities and contributed to
HEALTHSOUTH's same-store growth.
o Cost-Effective Services. HEALTHSOUTH's goal is to provide high-quality
healthcare services in cost-effective settings. To that end, HEALTHSOUTH has
developed standardized clinical protocols for the treatment of its patients.
This results in "best practices" techniques being utilized at all of
HEALTHSOUTH's facilities, allowing the consistent achievement of demonstrable,
cost-effective clinical outcomes. HEALTHSOUTH's reputation for its clinical
programs is enhanced through its relationships with major universities
throughout the nation, and its support of clinical research in its facilities.
Further, independent studies estimate that, for every dollar spent on
rehabilitation, $11 to $35 is saved. Finally, surgical procedures typically are
less expensive in outpatient surgery centers than in hospital settings.
HEALTHSOUTH believes that outpatient and rehabilitative healthcare services will
assume increasing importance in the healthcare environment as payors continue to
seek to reduce overall costs by shifting patients to more cost-effective
treatment settings.
o Expansion of National Network. As the largest provider of outpatient 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.
42
<PAGE>
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 June
30, 1996, HEALTHSOUTH provided outpatient rehabilitative healthcare services
through approximately 643 outpatient locations, including freestanding
outpatient centers and their satellites and outpatient satellites of inpatient
facilities.
INPATIENT REHABILITATION SERVICES
At June 30, 1996, HEALTHSOUTH operated 96 inpatient rehabilitation facilities
with 5,682 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 135 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.
43
<PAGE>
LOCATIONS
The following table sets forth a listing of HEALTHSOUTH's patient care
services locations by state at June 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.............. 19 3 (183) 4
Arkansas............. 1 1 (80) 2
California .......... 48 1 (60) 18 11
Colorado ............ 26 5 12
Connecticut ......... 17 2 (40) 1
District of Columbia 1 1
Delaware............. 7 1
Florida ............. 46 8 (613) 2 (397) 19 11
Georgia ............. 11 1 (75) 4 1
Hawaii............... 3 1
Idaho ............... 1
Illinois ............ 50 4
Indiana ............. 13 1 (80) 2
Iowa................. 3 1
Kentucky ............ 3 1 (40) 1 1
Louisiana ........... 2 1 (43) 1
Maine ............... 9 4 (155) 1
Maryland ............ 14 1 (44) 4 3
Massachusetts ....... 37 10 (639) 1 10
Michigan ............ 1 1
Mississippi ......... 2
Missouri ............ 33 4 (107) 7 6
Nebraska............. 2
Nevada............... 2
New Hampshire........ 12 3 (148)
New Jersey .......... 36 2 (170) 2 1 2
New Mexico .......... 3 1 (60) 1
New York ............ 14 1 (27)
North Carolina ...... 12 1 (17) 3
Ohio................. 28 1
Oklahoma ............ 11 1 (111) 5 1
Oregon............... 1
Pennsylvania ........ 27 11 (981) 5
Rhode Island......... 3
South Carolina....... 8 4 (235) 2
Tennessee ........... 13 5 (330) 6 1
Texas ............... 69 10 (633) 1 (96) 15 2 14
Utah ................ 1 1 (86) 1
Vermont.............. 2 (52)
Virginia ............ 9 2 (84) 1 (200) 1 2 10
Washington .......... 26 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.
44
<PAGE>
BUSINESS OF FSSCI
BUSINESS OVERVIEW
FSSCI is a subchapter S corporation whose principal asset is its interest in
the Partnership. The Partnership owns and operates two outpatient surgery center
facilities in Sacramento, California at 2801 K Street (the "Fort Sutter
Facility") and at 1201 Alhambra Boulevard (the "Alhambra Facility"). Each
shareholder of FSSCI (or, with respect to shares of FSSCI held by a trust, a
trustee of such shareholder) is or was a licensed physician who has performed
surgeries at (or who has otherwise been affiliated with) the Fort Sutter
Facility.
FSSCI also owns a 4.46% limited partner interest (the "Building Interest") in
Fort Sutter Medical Building, A California Limited Partnership ("FSMB"), which
leases to the Partnership the office space for the Fort Sutter Facility.
FSSCI does not engage in any business or activity other than holding the
Partnership Interest and the Building Interest, receiving periodic distributions
thereon, and (after deducting amounts for the payment of FSSCI fees and expenses
and the establishment of reserves) distributing amounts received to its
shareholders. Other than the Partnership Interest, the Building Interest, and
cash reserves, FSSCI has no assets. FSSCI has no current intention of engaging
in any other business or activities (other than the Merger), or acquiring or
disposing of any material assets (except in connection with the Merger), in the
foreseeable future. FSSCI has no employees.
ORGANIZATION AND HISTORICAL DEVELOPMENTS
FSSCI was originally incorporated (under the name "Fort Sutter Surgery Center
Medical Group, Inc.") as a professional corporation in January 1986 to own and
operate the Fort Sutter Facility. In December 1986, FSSCI entered into a series
of related transactions with Sutter Ambulatory Care Corporation ("SACC"), the
ultimate result of which was (i) the Partnership acquired the Fort Sutter
Facility, (ii) SACC became the general partner of the Partnership and acquired a
51% limited partnership interest therein and (iii) FSSCI became a limited
partner of the Partnership and acquired the Partnership Interest. In 1990, FSSCI
changed its corporate status from a professional corporation to a general
business corporation. As of October 1993, SACC transferred its interest in the
partnership to SSCI, of which SACC was a principal shareholder. In October 1995,
HEALTHSOUTH acquired the outstanding capital stock of SSCI, which, under its new
name of "HEALTHSOUTH Surgery Centers-West, Inc.", continues to act the general
partner of the Partnership.
See "THE MERGER -- Background of the Merger".
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CERTAIN FACTORS
Overview. FSSCI does not engage in any business or activity other than
holding the Partnership Interest and the Building Interest, receiving periodic
distributions thereon, and (after deducting amounts for the payment of FSSCI
fees and expenses and the establishment of reserves) distributing the amounts so
received to its shareholders. Other than the Partnership Interest, the Building
Interest, and cash, FSSCI has no assets. Historically, virtually all of FSSCI's
income has been attributable to its interest in the Partnership. Accordingly,
FSSCI's financial position and results of operations have at all times been
almost entirely dependent on the financial position and results of operations of
the Partnership.
As a result of the foregoing, for the last several years FSSCI has not
prepared any financial statements in accordance with generally accepted
accounting principles or, except as required to be set forth on FSSCI's federal
and California state income tax returns, any other financial statements or
information. Historically, the financial information set forth in its annual tax
returns has been prepared almost exclusively in reliance on information
regarding its interests in the Partnership that has been prepared and provided
to FSSCI, on an annual basis, by the General Partner. FSSCI has not been
required to prepare, and has not prepared, financial statements or other
financial information for quarterly, monthly or other accounting periods of less
than a full fiscal year.
Solely for purposes of this Prospectus-Proxy Statement, FSSCI has restated
certain financial information contained in its federal tax returns for 1994 and
1995 in accordance with generally accepted accounting principles. In light of
the limited nature of its operations and holdings and the time and expense
involved in
45
<PAGE>
providing audited financial statements, however, FSSCI does not believe that it
would be practicable or meaningful to provide audited financial information for
such periods for inclusion in this Prospectus-Proxy Statement. For similar
reasons (together with the fact that FSSCI historically has not received
information from the Partnership that would allow it to prepare, in a
practicable manner, financial statements in accordance with generally accepted
accounting principles for periods less than a full fiscal year), FSSCI does not
believe that it would be practicable or meaningful to provide financial
information regarding FSSCI in accordance with generally accepted accounting
principles for any interim period in 1996 or any other year.
ACCORDINGLY, THE FINANCIAL INFORMATION REGARDING FSSCI DISCUSSED BELOW HAS
BEEN DERIVED ALMOST ENTIRELY FROM FINANCIAL STATEMENTS AND OTHER FINANCIAL
INFORMATION THAT HAS BEEN PROVIDED TO FSSCI BY THE RESPECTIVE GENERAL PARTNERS
OF THE PARTNERSHIP AND FSMB, AND FSSCI HAS NOT INDEPENDENTLY CONFIRMED THE
ACCURACY OF THE INFORMATION PROVIDED TO IT OR CONFIRMED WHETHER THE FINANCIAL
STATEMENTS PROVIDED TO IT HAVE BEEN PREPARED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES. ADDITIONALLY, THE DISCUSSION BELOW REGARDING THE
FIRST SIX MONTHS OF 1995 AND 1996 ONLY INCLUDES INFORMATION REGARDING THE
PARTNERSHIP, AS PROVIDED TO FSSCI BY THE GENERAL PARTNER, AND DOES NOT REFLECT
COMPLETE FINANCIAL INFORMATION OF FSSCI PREPARED IN ACCORDANCE WITH GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES. FINALLY, NO FINANCIAL INFORMATION REGARDING
FSSCI SET FORTH BELOW OR OTHERWISE APPEARING IN THIS PROSPECTUS-PROXY STATEMENT
HAS BEEN AUDITED.
Discussion. In 1994, FSSCI's gross income was $1,380,671 (of which $1,379,776
was attributable to the Partnership Interest) and its net income was $1,308,076.
The total patient revenues and net income of the Partnership in 1994 were
$13,287,000 and $2,764,000, respectively, as compared with $10,924,000 and
$2,227,000, respectively, in 1993; FSSCI believes that the increases in the
Partnership's total patient revenues and net income in 1994 were principally a
result of an increased number of cases, particularly eye and pain cases.
In 1995, FSSCI's gross income was $1,355,675 (of which $1,354,710 was
attributable to the Partnership Interest) and its net income was $1,302,802. The
slight decrease in FSSCI's gross income in 1995 principally reflects the
decrease in the Partnership's net income described below, and the slight
decrease in FSSCI's net income in 1995 principally reflects the decrease in
FSSCI's gross income, offset by a reduction in FSSCI's expenses from $53,000 to
$33,000. The total patient revenues and net income of the Partnership in 1995
were $13,698,000 and $2,747,000, respectively, reflecting a 3.09% increase and a
0.62% decrease, respectively, from 1994. FSSCI believes that the relative
equivalence in total patient revenues and net income of the Partnership in 1994
and 1995 reflected the relative stability in both the total number of cases and
the revenue per case.
For the first six months of 1996, the Partnership's total patient revenues
and net income were $9,480,000 and $2,396,000, respectively, as compared with
$6,805,000 and $1,320,440 for the first six months of 1995. FSSCI believes that
the increase in total patient revenues in 1996 primarily reflects increased
costs for surgeries charged by the Partnership in 1996, and that the increase in
net income in 1996 primarily reflects the foregoing increase in total patient
revenues, offset by an increase in contractual adjustments from $2,600,620 to
$4,086,000.
MARKET FOR FSSCI STOCK AND RELATED SHAREHOLDER MATTERS.
There is no public or established private market for the FSSCI Common Stock.
As of _____________ 1996, there were 35 shareholders of record of FSSCI. The
policy of FSSCI is, and for the last several years has been, to distribute to
its shareholders all amounts (after deducting amounts for the payment of FSSCI
fees and expenses and the establishment of reserves) received by FSSCI with
respect to the Partnership Interest and the Building Interest.
CERTAIN TRANSACTIONS
At its special meeting on August 5, 1996, the FSSCI Board unanimously
authorized a bonus payment of $25,000 to each of Cynthia Leathers and David
Coward and $10,000 to each of Dr. Harris, Dr. Nielsen, Dr. Leathers and Dr.
Knight, in each case in recognition of such person's previous and anticipated
future efforts in connection with the Merger.
46
<PAGE>
FINANCIAL STATEMENTS OF FSSCI
Balance Sheet at December 31, 1995 (Unaudited) ................ 48
Statements of Income for the Years Ended December 31, 1995
and 1994 (Unaudited).......................................... 49
Statements of Stockholders' Equity for the Years Ended
December 31, 1995 and 1994 (Unaudited)........................ 50
Statements of Cash Flows for the Years Ended December 31,
1995 and 1994 (Unaudited)..................................... 51
Notes to Financial Statements.................................. 52
<PAGE>
FORT SUTTER SURGERY CENTER, INC.
BALANCE SHEET
DECEMBER 31, 1995
(UNAUDITED)
ASSETS
Cash............................................ $ 43,345
Investments:
Fort Sutter Surgery Center.................... 1,812,149
Fort Sutter Medical Building.................. 35,700
----------
Total assets.......................... $1,891,194
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Income taxes payable............................ $ 282
----------
Stockholders' equity:
Common stock: 100,000 shares authorized, 3,700
shares outstanding............................ 990,000
Retained earnings.............................. 900,912
----------
Total stockholders' equity............ 1,890,912
Total liabilities and stockholders ----------
equity............................... $1,891,194
==========
See accompanying notes.
48
<PAGE>
FORT SUTTER SURGERY CENTER, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
1995 1994
---------- ----------
INCOME:
Fort Sutter Surgery Center ......... $1,354,710 $1,379,776
Fort Sutter Medical
Building .......................... 0 0
Interest ........................... 965 895
---------- ----------
1,355,675 1,380,671
---------- ----------
EXPENSES:
Management fees .................... 26,421 38,245
Legal and accounting ............... 6,523 13,244
Miscellaneous ...................... 129 1,206
----------
33,073 52,695
----------
Income before income taxes .......... 1,322,602 1,327,976
Provision for income taxes .......... 19,800 19,900
---------- ----------
Net income .......................... $1,302,802 $1,308,076
========== ==========
See accompanying notes.
49
<PAGE>
FORT SUTTER SURGERY CENTER, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
TOTAL
COMMON RETAINED STOCKHOLDERS
STOCK EARNINGS EQUITY
----------- ----------- -------------
Balances, December 31, 1994 ......... $ 990,000 $ 1,379,534 $ 2,369,534
Net income .......................... 1,308,076 1,308,076
Dividends ........................... (1,805,600) (1,805,600)
----------- ----------- -----------
Balances, December 31,
1994 ................................ 990,000 882,010 1,872,010
Net income .......................... 1,302,802 1,302,802
Dividends ........................... (1,283,900) (1,283,900)
----------- ----------- -----------
Balances, December 31,
1995 ................................ $ 990,000 $ 900,912 $ 1,890,912
=========== =========== ===========
See accompanying notes.
50
<PAGE>
FORT SUTTER SURGERY CENTER, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1994
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income................................................... $ 1,302,802 $ 1,308,076
Adjustments to reconcile net income to net cash used in
operating activities:
Current year income from investment in Fort Sutter Surgery
Center..................................................... (1,354,710) (1,379,776)
Increase (decrease) in income taxes payable................. 7,581 (9,699)
Net cash used in operating activities........................ (44,327) (81,399)
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Fort Sutter Surgery Center................ 1,321,116 1,912,264
Distributions from Fort Sutter Medical Bldg.................. 0 8,912
Net cash provided by investing activities................... 1,321,116 1,921,176
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends to stockholders.................................... (1,283,900) (1,805,600)
Net increase (decrease) in cash............................. (7,111) 34,177
Cash, beginning of year....................................... 50,456 16,279
Cash, end of year............................................. $ 43,345 $ 50,456
Supplementary Disclosure of Cash Flow.........................
Information:
Cash paid for state income taxes............................. $ 12,218 $ 29,600
</TABLE>
See accompanying notes.
51
<PAGE>
FORT SUTTER SURGERY CENTER, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Partnerships
The Company conducts most of its activities through its 49% limited partndership
interest in Fort Sutter Surgery Center and its 4.5% limited partnership interest
in Fort Sutter Medical Building. The Company accounts for its investment in Fort
Sutter Surgery Center using the equity method and in Fort Sutter Medical
Building using the cost method.
Income Taxes
The Company has elected to be treated as an S corporation for income tax
purposes. As such, it is not taxed, for federal income tax purposes, as a
separate entity; rather, the shareholders report their pro rata share of the
Company's taxable income on their own individual income tax returns. For state
income tax purposes, S corporations are taxed as a separate entity in addition
to the shareholders reporting their pro rata share of the Company's taxable
income. Therefore, the provision for income taxes includes only state income tax
expense.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. INVESTMENT IN PARTNERSHIP:
Fort Sutter Surgery Center operates two free-standing surgical centers in
Sacremento, California. It is a provider of services under Federal MediCare and
California Medi-Cal programs and other third-party contracts.
A summary of the financial position and operating results of Fort Sutter Surgery
Center as taken from its unaudited financial statements consists of:
1995 1994
---- ----
Current assets ................... $2,208,839 $2,011,023
Noncurrent assets ................ 5,028,869 5,306,361
Current liabilities .............. 513,577 1,285,985
Noncurrent liabilities............ 639,827 589,746
Partners' capital ................ 6,084,304 5,441,653
Net patient service revenue ...... 8,208,682 9,494,166
Net income ........... 2,747,033 2,763,524
3. RELATED PARTY TRANSACTIONS
A stockholder provides management services to the Company. Management fees paid
to the stockholder were $26,421 in 1995 and $38,245 in 1994.
4. MERGER OF COMPANY:
On August 13, 1996, the Company entered into a Plan and Agreement of Merger with
HEALTHSOUTH Corporation, which is the parent company of the general partner of
Fort Sutter Surgery Center, and with a wholly-owned subsidiary of HEALTHSOUTH
Corporation. Pursuant to the Plan and Agreement of Merger, the subsidiary will
merge with and into the Company, with the Company as the surviving corporation,
as a result of which the Company will become a wholly-owned subsidiary of
HEALTHSOUTH Corporation and the existing stockholders of the Company will
receive shares of HEALTHSOUTH Corporation stock in cancellation of their shares
of Company stock. The Company expects this transaction to close in the fourth
quarter of 1996.
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PRINCIPAL SHAREHOLDERS OF FSSCI
The following table sets forth certain information with respect to the
beneficial ownership of FSSCI Common Stock as of _____________, 1996, by (i)
each person who is known by FSSCI to beneficially own more than five percent of
FSSCI Common Stock, (ii) each director of FSSCI (including the President, Dr.
Coward), and (ii) all of FSSCI's executive officers and directors as a group.
The business address of each of the FSSCI's directors listed below is FSSCI's
address.
SHARES BENEFICIALLY
OWNED (1)
-------------------
NAME AND ADDRESS NUMBER PERCENT
- ---------------------------------------------------------- ------ --------
Michael Leathers, M.D (2)................................. 300 8.11%
Richard D. Heater and Marian C.
Heater as Co-Trustees of the
Heater Family Trust....................................... 225 6.08%
3619 Winding Creek Rd.
Sacramento, CA 95825
Donald R. Jasper. M.D. ................................... 200 5.41%
95 Scripps Dr.
Sacramento, CA 95825
George Piersall, M.D. .................................... 200 5.41%
1124 1st St.
Los Osos, CA 93402
Tadashi Shimada, M.D. .................................... 200 5.41%
780 E. Washington Blvd.
Suite 105
Crescent City, CA 95531
David B. Coward (2)(3).................................... 175 4.73%
Orel Knight, M.D. (2)..................................... 175 4.73%
Michael Nielsen, M.D. (2)................................. 100 2.70%
James B. Harris (2)(4).................................... 50 1.35%
All directors and executive officers as a group (5
persons).................................................. 800 21.62%
- ----------
(1) The information as to beneficial ownership is based on the FSSCI's stock
records and on information furnished to FSSCI by the beneficial owners. As used
in this table, "beneficial ownership" means the sole or shared power to vote, or
direct the voting of a security, or the sole or shared investment power with
respect to a security (i.e., the power to dispose, or direct the disposition of,
a security). A person is deemed as of any date to have "beneficial ownership" of
any security that such person has the right to acquire within 60 days after such
date. For purposes of computing the percentage of outstanding shares held by
each person named above, any security that such person has the right to acquire
within 60 days of the date of calculation is deemed to be outstanding, but is
not deemed to be outstanding for purposes of computing the percentage ownership
of any other persons.
(2) Director.
(3) Represents 175 shares held by the David B. Coward and Linda J. Coward
Revocable Trust dated October 1, 1989, of which Mr. Coward is a trustee.
(4) Represents 50 shares held jointly by Mr. Harris and his spouse.
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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 August 9, 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 16,414,425 shares of HEALTHSOUTH Common Stock. An additional
2,145,964 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 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 General
Corporation Law of the State of Delaware (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 FSSCI
AND HEALTHSOUTH STOCKHOLDERS
HEALTHSOUTH is incorporated in Delaware, and the rights of its stockholders
are (and the rights of the FSSCI shareholders who receive shares of HEALTHSOUTH
Common Stock in the Merger will thereafter be) governed by the DGCL, the
HEALTHSOUTH Certificate and the Bylaws of HEALTHSOUTH (the "HEALTHSOUTH
Bylaws"). FSSCI is incorporated in California, and the rights of its
shareholders are governed by the CGCL, the Amended and Rested Articles of
Incorporation of FSSCI (the "FSSCI Articles") and the Amended and Restated
Bylaws of FSSCI (the "FSSCI Bylaws").
While there are substantial similarities between the DGCL and the CGCL, as
well as between the corporate charters and Bylaws of HEALTHSOUTH and FSSCI, a
number of differences exist. The following is a summary comparison of the
rights, as of the date hereof, of a HEALTHSOUTH stockholder under the DGCL, the
HEALTHSOUTH Certificate and the HEALTHSOUTH Bylaws, on the one hand, and the
rights of an FSSCI shareholder under the CGCL, the FSSCI Articles and the FSSCI
Bylaws, on the other hand. The following summary does not purport to be complete
and is qualified in its entirety to the DGCL, the CGCL, the HEALTHSOUTH
Certificate, the HEALTHSOUTH Bylaws, the FSSCI Articles and the FSSCI Bylaws.
CLASSES AND SERIES OF CAPITAL STOCK
FSSCI. FSSCI is authorized by the FSSCI Articles to issue up to 100,000
shares of FSSCI Common Stock. As of September , 1996, there were 3,700 shares
of FSSCI Common Stock issued and outstanding.
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 September ,
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
FSSCI. The FSSCI Bylaws provide that the FSSCI Board shall consist of five
directors until such number is changed by an amendment to the FSSCI Bylaws
approved by a majority of the outstanding shares entitled to vote. Under the
CGCL and the FSSCI Bylaws, an amendment reducing the number of directors to a
number less than five cannot be adopted if the votes cast against (or not
consenting to) such amendment are equal to more than sixteen and two-thirds
percent of the outstanding shares entitled to vote. Subject to the cumulative
voting requirements discussed below, in any election of FSSCI directors the
candidates receiving the highest number of the affirmative votes of the shares
entitled to vote for them are elected (up to the number of directors to be
elected).
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. Vacancies in the 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.
CUMULATIVE VOTING
In an election of directors under cumulative voting, each share of stock
normally having one vote is entitled to a number of votes equal to the number of
directors to be elected. A stockholder may then cast all such votes for a single
candidate or may allocate them among as many candidates as the stock
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holder may choose. Without cumulative voting, the holders of a majority of the
shares present at an annual meeting or any special meeting held to elect
directors would have the power to elect all the directors to be elected at that
meeting, and no person could be elected without the support of holders of a
majority of the shares voting at such meeting.
FSSCI. Under the CGCL, cumulative voting in the election of directors is a
right available to all shareholders of California corporations unless a
corporation is "listed" and that corporation's articles of incorporation
specifically eliminate cumulative voting. A "listed" corporation is defined
under the CGCL Law as a corporation with (i) securities listed on the New York
or American Stock Exchange or (ii) securities designated as national market
system securities on the Nasdaq System if the corporation has at least 800
holders of equity securities. FSSCI does not meet this definition and, further,
the FSSCI Bylaws specifically provide for cumulative voting.
Under both the CGCL and the FSSCI Bylaws, for a shareholder to cumulate votes
in the election of directors (i) the name of the candidate for whom the
shareholder wishes to cumulate votes must have been placed in nomination prior
to commencement of the voting and (ii) the shareholder must have given notice
prior to commencement of the voting of his, her or its intent to cumulate votes.
If any shareholder has given the notice set forth in clause (ii) above, all
shareholders are entitled to cumulate votes.
HEALTHSOUTH. Under the DGCL, cumulative voting in the election of directors
is not mandatory. Neither the HEALTHSOUTH Restated Certificate nor the
HEALTHSOUTH Bylaws currently provide for cumulative voting and, therefore, the
stockholders of HEALTHSOUTH do not have cumulative voting rights. The absence of
cumulative voting thus limits the ability of minority stockholders to obtain
representation on HEALTHSOUTH's Board of Directors.
REMOVAL OF DIRECTORS
FSSCI. Under the CGCL, a director of FSSCI (i) may be removed without cause,
upon approval by the holders of a majority of the outstanding shares of common
stock entitled to vote (subject to certain limitations which prevent any such
removal where the removal is opposed by a number of votes sufficient to elect
such director under cumulative voting) and (ii) may be removed for fraudulent or
dishonest acts or gross abuses of authority or discretion following a suit
brought by shareholders holding at least 10% of the outstanding shares of any
class of capital stock. In addition, Section 302 of the CGCL permits a
corporation's board to remove directors declared of unsound mind by a court or
convicted of a felony.
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.
VOTE REQUIRED FOR MERGERS AND REORGANIZATIONS
FSSCI. Under the CGCL, the principal terms of mergers and certain other
specified types of corporate reorganizations ("Reorganizations") generally must
be approved by a majority of the outstanding shares of each class of shares of
the acquiring corporation and (with certain exceptions) the target corporation,
except that no such vote is required of the shareholders of a corporation if
such corporation or its shareholders, or both, will immediately after the merger
or Reorganization own equity securities constituting more than five-sixths of
the voting power of the surviving or acquiring corporation unless (i) the
surviving corporation's articles of incorporation will be amended and would
otherwise require shareholder approval or (ii) shareholders of such corporation
will receive shares of the surviving corporation having different rights,
preferences, privileges or restrictions (including shares in a foreign
corporation) than the shares surrendered. Under the CGCL, a sale by a
corporation of all or substantially all of its assets generally requires the
approval of a majority of the outstanding shares of such corporation, unless the
transaction otherwise constitutes a "Reorganization" subject to the class vote
described in the preceding sentence.
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HEALTHSOUTH. The DGCL does not provide for a class vote with respect to
mergers or consolidations unless otherwise required by a corporation's
certificate of incorporation; the HEALTHSOUTH Certificate does not provide for
such class vote. Under the DGCL, the terms of a merger or consolidation
generally must be approved by a majority of the outstanding stock, except that
the DGCL does not require a stockholder vote of the surviving corporation in a
merger (unless the corporation provides otherwise in its certificate of
incorporation) if (i) the merger agreement does not amend the existing
certificate of incorporation, (ii) each share of the surviving corporation
outstanding before the merger is an identical outstanding or treasury share
after the merger; and (iii) the number of shares to be issued by the surviving
corporation in the merger does not exceed 20% of the shares outstanding
immediately prior to the merger; the HEALTHSOUTH Certificate does not provide
for a shareholder vote in such situations. Under the DGCL, a sale by a
corporation of all or substantially all of its assets generally requires the
approval of a majority of the outstanding shares of such corporation.
OTHER VOTING RIGHTS
FSSCI. The FSSCI Common Stock is not divided into classes, and FSSCI has no
classes or series of capital stock issued or outstanding other than the FSSCI
Common Stock. Each FSSCI shareholder holding shares of FSSCI 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 shareholders
for each such share of FSSCI Common Stock held by such shareholder as of the
record date for such meeting. Except as specifically provided otherwise by law
or by the PSCM Articles or the FSSCI 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 FSSCI
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
FSSCI. The FSSCI Common Stock has no conversion features.
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.
BUSINESS COMBINATIONS
FSSCI. The CGCL does not contain any provision comparable to Section 203 of
the DGCL, discussed above in "DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH --
Section 203 of the DGCL". However, the CGCL does provide that, except where the
fairness of the terms and conditions of the transaction has been approved by the
California Commissioner of Corporations and except in a "short-form" merger (the
merger of a parent corporation with a subsidiary in which the parent owns at
least 90% of the outstanding shares of each class of the subsidiary's stock), if
the surviving corporation
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or its parent corporation owns, directly or indirectly, shares of the target
corporation representing more than 50% of the voting power of the target
corporation prior to the merger, the nonredeemable common stock of a target
corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent. The effect of this provision is to prohibit a cash-out
merger of minority shareholders, except where the majority shareholder already
owns 90% or more of the voting power of the target corporation and could,
therefore, effect a short-form merger to accomplish such a cash-out of minority
shareholders.
Section 1203 of the CGCL also provides that, except in certain circumstances,
when a tender offer or a proposal for a reorganization or for a sale of assets
is made by an interested party (generally a controlling or managing party of the
target corporation), an affirmative opinion in writing as to the fairness of the
consideration to be paid to the shareholders must be delivered to shareholders.
This fairness opinion requirement does not apply to a corporation which does not
have shares held of record by at least 100 persons, or to a transaction which
has been qualified under California state securities laws. Furthermore, if a
tender of shares or vote is sought pursuant to an interested party's proposal
and a later proposal is made by another party at least ten days prior to the
date for acceptance of the interested party proposal, the shareholders must be
informed of the later offer and be afforded a reasonable opportunity to withdraw
any vote, consent or proxy, or to withdraw any tendered shares.
HEALTHSOUTH. HEALTHSOUTH is currently subject to Section 203 of the DGCL,
which generally prohibits certain "business combinations" between a corporation
and an "interested stockholder" for a period of three years. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH --Section 203 of the DGCL". Additionally, 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 CHARTER DOCUMENTS
FSSCI. Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the corporation's board of directors and, subject to certain
exceptions, the affirmative vote of a majority of the outstanding shares
entitled to vote thereon, either before or after the board approval. The FSSCI
Articles do not require a greater level of approval for an amendment thereto.
Under the CGCL, the holders of the outstanding shares of a class are entitled to
vote as a class if a proposed amendment to the articles of incorporation would
(i) increase or decrease the aggregate number of authorized shares of such
class; (ii) effect an exchange, reclassification or cancellation of all or part
of the shares of such class, other than a stock split; (iii) effect an exchange,
or create a right of exchange, of all or part of the shares of another class
into the shares of such class; (iv) change the rights, preferences, privileges
or restrictions of the shares of such class; (v) create a new class of shares
having rights, preferences or privileges prior to the shares of such class, or
increase the rights, preferences or privileges or the number of authorized
shares having the rights, preferences or privileges prior to the shares of such
class; (vi) in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions or
authorize the board of directors to do so or (vii) cancel or otherwise affect
dividends on the shares of such class which have accrued but have not been paid.
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HEALTHSOUTH. 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. 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.
AMENDMENT OR REPEAL OF BYLAWS
FSSCI. Under the CGCL, a corporation's bylaws may be adopted, amended or
repealed either by the board of directors (with certain exceptions) or the
shareholders of the corporation. The FSSCI Bylaws provide that the bylaws may be
changed either by the vote of the holders of a majority of the outstanding
shares entitled to vote or by the FSSCI Board; provided, however, that the FSSCI
Board may not amend the bylaws in order to change the authorized number of
directors.
HEALTHSOUTH. Under the DGCL, the authority to adopt, amend, or repeal the
bylaws of a Delaware corporation is held exclusively by the stockholders unless
such authority is conferred upon the board of directors in the corporation's
certificate of incorporation. The HEALTHSOUTH Certificate expressly grants to
its directors the power to make, alter, or repeal any bylaws.
SPECIAL MEETING OF STOCKHOLDERS
FSSCI. The FSSCI Bylaws provide that a special meeting of the shareholders
may be called by the FSSCI Board, FSSCI's Chairman of the Board, FSSCI's
president, or by one or more shareholders holding shares in the aggregate
entitled to cast not less than 10% of the vote at the 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
FSSCI. The CGCL permits a corporation to limit or eliminate the personal
liability of a director for monetary damages in an action brought by or in the
right of the corporation for a breach of the director's fiduciary duty except
where such liability is based on: (i) intentional misconduct or knowing and
culpable violation of law; (ii) acts or omissions that a director believes to be
contrary to the best interests of the corporation or its shareholders, or that
involve the absence of good faith on the part of the director; (iii) receipt of
an improper personal benefit; (iv) acts or omissions that show reckless
disregard for the director's duty to the corporation or its shareholders, where
the director in the ordinary course of performing a director's duties should be
aware of a risk of serious injury to the corporation or its shareholders; (v)
acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the corporation and its
shareholders; (vi) interested transactions between the corporation and a
director in which a director has a material financial interest; and (vii)
liability for improper distributions, loans or guarantees. The FSSCI Articles
eliminate the liability of directors for monetary damages to the corporation to
the fullest extent permissible under the CGCL.
HEALTHSOUTH. 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 FSSCI Certificate includes such a
provision, as set forth below, to the maximum extent permitted by law.
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Each of the HEALTHSOUTH Certificate and the FSSCI 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) in the
case of HEALTHSOUTH, 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
FSSCI. The CGCL permits a corporation, subject to certain limitations, to
indemnify its officers, directors and other "agents" (as defined in Section
317(a) of the CGCL) if certain standards of conduct are met. With respect to
actions brought by or in the right of a corporation ("derivative actions"), the
person must have acted in good faith and in a manner the person believed to be
in the best interests of the corporation and its shareholders. With respect to
proceedings other than derivative actions, the agent must have acted in good
faith and in a manner the person reasonably believed to be in the best interests
of the corporation and, with respect to a criminal proceeding, the person had no
reasonable cause to believe the conduct was unlawful.
In proceedings other than derivative actions, the CGCL permits an agent to be
indemnified against expenses, judgments, fines, settlements and other amounts.
In derivative actions, (i) indemnification is generally limited to payment of
expenses, (ii) no indemnification may be made without court approval when a
person is adjudged liable to the corporation in the performance of that person's
duty to the corporation and its shareholders, unless a court determines such
person is entitled to indemnity for expenses, and then such indemnification may
be made only to the extent that such court shall determine, and (iii) no
indemnification may be made without court approval in respect of amounts paid or
expenses incurred in settling or otherwise disposing of a threatened or pending
action or amounts incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
The CGCL provides that a corporation may advance expenses of defense (upon
receipt of a undertaking to reimburse the corporation if it is ultimately
determined that such person is not entitled to such indemnification) and further
requires indemnification when the individual has successfully defended the
action on the merits. The CGCL permits a corporation to purchase and maintain
liability insurance for its agents. The indemnification authorized by the CGCL
is not exclusive, and a corporation may grant its agents certain additional
rights to indemnification.
The FSSCI Articles and the FSSCI Bylaws permit, but do not require, FSSCI to
provide indemnification of its agents to the maximum extent permitted by CGCL.
HEALTHSOUTH. 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.
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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.
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.
DISSENTER'S RIGHTS
FSSCI. Under the CGCL, shareholders of a California corporation (with
certain exceptions that do not apply to FSSCI) who dissent from a merger or
consolidation of the corporation are entitled to appraisal rights. See
"RIGHTS OF DISSENTING SHAREHOLDERS".
HEALTHSOUTH. Under the DGCL, stockholders of a Delaware corporation who
dissent from a merger or consolidation of the corporation for which a
stockholders' vote is required are generally entitled to appraisal rights,
requiring the surviving corporation to purchase the dissenting shares at fair
value. There are, however, no statutory rights of appraisal with respect to
stockholders of a Delaware corporation whose shares of stock are either (i)
listed on a national securities exchange, or (ii) held of record by more than
2,000 stockholders where such stockholders receive only shares of stock of the
corporation surviving or resulting from the merger or consolidation (or cash in
lieu of fractional interests therein). The DGCL does not provide appraisal
rights to stockholders who dissent from the sale of all or substantially all of
the corporation's assets unless the certificate of incorporation provides
otherwise. The HEALTHSOUTH Certificate does not provide for such rights.
DIVIDENDS
FSSCI. The CGCL provides that a corporation may make a distribution to its
shareholders if: (i) the retained earnings of the corporation, immediately prior
thereto, equals or exceeds the amount of the proposed distribution, or (ii)
immediately after giving effect to the distribution, (a) the sum of the assets
of the corporation (exclusive of goodwill, capitalized research and development
expenses and deferred charges) would be at least equal to 1.25 times its
liabilities (not including deferred taxes, deferred income and other deferred
credits), and (b) the current assets of the corporation would be at least equal
to its current liabilities or, if the average of the earnings of the corporation
before taxes on income and before interest expense for the two preceding fiscal
years was less than the average of the interest expense of the corporation for
those fiscal years, at least equal to 1.25 times its current liabilities, and
(iii) the corporation making the distribution is not, or as a result of the
distribution would not be, likely to be unable to meet its liabilities (except
those who payment is otherwise adequately provided for) as they mature. Neither
the FSSCI Articles nor the FSSCI Bylaws contain restrictions on the declaration
or payment of dividends.
HEALTHSOUTH. Subject to any restrictions contained in a corporation's
certificate of incorporation, the DGCL generally provides that a corporation may
declare and pay dividends out of surplus (defined as net assets minus stated
capital) or when no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/ or for the preceding fiscal year. Dividends
may not be paid out of net profits if the capital of the corporation is less
than the amount of capital represented by the issued and outstanding stock of
all classes having a preference upon the distribution of assets. The HEALTHSOUTH
Certificate contains no restrictions on the declaration or payment of dividends.
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TRANSACTIONS INVOLVING OFFICERS OR DIRECTORS
FSSCI. Under the CGCL, any loan or guaranty to or for the benefit of a
director or officer of the corporation or its subsidiaries requires approval of
the shareholders unless such loan or guaranty is provided for under a plan
approved by shareholders owning a majority of the outstanding shares of the
corporation. In addition, the CGCL permits shareholders of a corporation with
100 or more shareholders of record to approve a bylaw authorizing the board of
directors alone to approve a loan or guaranty to or on behalf of an officer
(whether or not a director) if the board determines that such a loan or guaranty
may reasonably be expected to benefit the corporation. The CGCL further provides
that contracts or transactions between a corporation and (i) any of its
directors or (ii) an entity in which a director has a material financial
interest are not void or voidable if the material facts as to the transaction
and as to the director's interest are fully disclosed and the disinterested
directors or a majority of the disinterested shareholders represented and voting
at a duly held meeting approve or ratify the transaction in good faith, or the
person asserting the validity of the contract or transaction sustains the burden
of proving that the contract or transaction was just and reasonable as to the
corporation at the time it was authorized, approved or ratified.
HEALTHSOUTH. Under the DGCL, a Delaware corporation may loan money to, or
guarantee any obligation incurred by, its officers or directors if, in the
judgment of the board of directors, such loan or guarantee may reasonably be
expected to benefit the corporation. With respect to any other contract or
transaction between the corporation and one or more of its directors or
officers, such transactions are neither void nor voidable if either (i) the
director's or officer's interest is made known to the disinterested directors or
the stockholders of the corporation, who thereafter approve the transaction in
good faith, or (ii) the contract or transaction is fair to the corporation as of
the time it is approved or ratified by either the board of directors, a
committee thereof, or the stockholders.
INSPECTION OF SHAREHOLDERS LIST
The DGCL and the CGCL each permit any shareholder to inspect the shareholders
list for a purpose reasonably related to such person's interest as a
shareholder. Additionally, the CGCL provides for an absolute right to inspect
and copy the corporation's shareholders list by a person or persons holding at
least 5% in the aggregate of the corporation's outstanding voting shares, or any
shareholder or shareholders holding 1% or more of such shares who have filed a
Schedule 14A with the SEC. The DGCL does not provide for any such absolute right
of inspection, and no such right is granted under the HEALTHSOUTH Certificate or
the HEALTHSOUTH Bylaws.
CONTRACTURAL RESTRICTIONS ON STOCK TRANFERS
FSSCI and its shareholders are parties to an Amended and Restated
Shareholders' Agreement dated as of April 6, 1990, as amended by the First
Amendment thereto dated as of December 13, 1990 (as so amended, the
"Shareholders' Agreement"), which generally (i) provides a right of first
refusal in favor of FSSCI (or, in certain circumstances, the other FSSCI
shareholders) upon a proposed transfer of any FSSCI Shares by any FSSCI
shareholder, except in certain specified circumstances, and (ii) permits FSSCI
(or, in certain circumstances, the other FSSCI shareholders) to acquire the
FSSCI Shares held by an FSSCI shareholder following such shareholder's
bankruptcy, death or marital dissolution. In connection with the Merger, it is
anticipated that the Shareholders' Agreement will be amended by FSSCI and a
majority of the outstanding FSSCI Shares to, among other things, (i) ratify and
approve certain prior transfers of FSSCI Shares by certain FSSCI shareholders
and (ii) expressly permit the conversion and cancellation of the FSSCI Shares in
the Merger. There are no similar agreements or restrictions relating to the
HEALTHSOUTH Common Stock.
OPERATIONS AND MANAGEMENT
OF HEALTHSOUTH AFTER THE MERGER
OPERATIONS
After the consummation of the Merger, FSSCI will be a wholly-owned subsidiary
of HEALTHSOUTH. HEALTHSOUTH will continue to engage in the business of providing
outpatient and rehabilitative healthcare services as prior to the Merger. No
material disposition or restructuring of either of HEALTHSOUTH or FSSCI 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 FSSCI".
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.
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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, the consolidated financial
statements of Harmarville Rehabilitation Center, Inc., and the consolidated
financial statements of Surgical Care Affiliates, 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 incorporated by reference herein. 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.
LEGAL MATTERS
The validity of the shares of HEALTHSOUTH Common Stock to be issued to the
stockholders of FSSCI pursuant to the Merger will be passed upon by Haskell
Slaughter & Young, L.L.C.
ADDITIONAL INFORMATION
OTHER BUSINESS
The FSSCI Board 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 shareolders of FSSCI. 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.
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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 13th day of August, 1996, by and among HEALTHSOUTH Corporation, a
Delaware corporation ("HEALTHSOUTH"), FSSCI ACQUISITION CORPORATION, a
California corporation (the "Subsidiary"), and FORT SUTTER SURGERY CENTER, INC.,
a California corporation ("FSSCI") (the Subsidiary and FSSCI 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 FSSCI have approved the merger of the Subsidiary with and into FSSCI (the
"Merger"), upon the terms and conditions set forth in this Plan of Merger,
whereby all shares of Common Stock, without par value, of FSSCI (the "FSSCI
Common Stock"), not owned directly or indirectly by FSSCI, except for Dissenting
Shares (as hereinafter defined), will be converted into the right to receive the
Merger Consideration (as hereinafter defined);
WHEREAS, each of HEALTHSOUTH, the Subsidiary and FSSCI desires to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger; and
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.
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 California General Corporation Law (the
"CGCL"), the Subsidiary shall be merged with and into FSSCI at the Effective
Time (as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of the Subsidiary shall cease and FSSCI shall continue as
the surviving corporation (the "Surviving Corporation") under the name "Fort
Sutter Surgery Center, Inc." and shall succeed to and assume all the rights and
obligations of the Subsidiary and FSSCI in accordance with the CGCL.
1.2 The Closing. The closing of the Merger (the "Closing") will take place at
10:00 a.m. Central Time on a date to be specified by the parties (the "Closing
Date"), which (subject to satisfaction or waiver of the conditions set forth in
Sections 9.2 and 9.3) shall be no later than the second business day after
satisfaction or waiver of the conditions set forth in Section 9.1 (other than
Section 9.1(a), which shall be satisfied on the Closing Date), at the offices of
Haskell Slaughter & Young, L.L.C., Birmingham, Alabama, unless another date or
place is agreed to by the parties hereto.
1.3 Effective Time. Subject to the provisions of this Plan of Merger, the
parties shall file an Agreement of Merger (the "California Filing") in
substantially the form attached as Exhibit 1.3 hereto and any other filings
required under the CGCL as soon as practicable on or after the Closing Date. The
Merger shall become effective at such time as the California Filing is duly
filed with the California Secretary of State (the "Effective Time").
1.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 1107 of the CGCL.
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 FSSCI
Common Stock or any shares of capital stock of the Subsidiary:
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(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 FSSCI Common Stock that is
owned by FSSCI, if any, 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 FSSCI Shares. Subject to Section 2.2(d), each issued and
outstanding share of FSSCI Common Stock (other than Dissenting Shares (as
defined below) and shares to be canceled in accordance with Section 2.1(b))
(collectively, the "Exchanging FSSCI Shares") shall be converted into the right
to receive that number of shares of HEALTHSOUTH Common Stock (the "Exchange
Ratio") which is the quotient, computed to four decimal places, obtained by
dividing (i) the quotient obtained by dividing (A) $8,907,735 by (B) the number
of shares of FSSCI Common Stock outstanding as of the Effective Time, by (ii)
the Base Period Trading Price (as defined below), as may be adjusted as provided
in Section 2.1(e) below (the "Merger Consideration"). For purposes of this Plan
of Merger, the term "Base Period Trading Price" shall mean the average of the
daily closing prices per share for the shares of HEALTHSOUTH Common Stock for
the 20 consecutive trading days on which such shares are actually traded (as
reported on the New York Stock Exchange Composite 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 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"). As
of the Effective Time, all such Exchanging FSSCI 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 FSSCI 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) Dissenting Shares. Notwithstanding anything in this Plan of Merger to the
contrary, the holder of any shares of FSSCI Common Stock that, as of the
Effective Time, are or may become "Dissenting Shares" within the meaning of such
term under Section 1300(b) of the CGCL ("Dissenting Shares") shall not be
entitled to receive the Merger Consideration and any cash in lieu of fractional
shares of HEALTHSOUTH Common Stock unless such holder fails to perfect or
otherwise loses such holder's rights, if any, but shall instead be entitled only
to such rights as may be granted to such holder under Chapter 13 of the CGCL.
If, after the Effective Time, such holder fails to perfect or loses any such
rights under such statute, such shares shall be treated as if they had been
converted as of the Effective Time into the right to receive the Merger
Consideration pursuant to Section 2.1(c) and the cash in lieu of fractional
shares of HEALTHSOUTH Common Stock specified in Section 2.2.
(e) Anti-Dilution Provisions. If after the date hereof and prior to the
Effective Time HEALTHSOUTH shall have declared a stock split (including a
reverse split) of HEALTHSOUTH Common Stock or a dividend payable in HEALTHSOUTH
Common Stock, or any other distribution of securities or dividend (in cash or
otherwise) to holders of HEALTHSOUTH Common Stock with respect to their
HEALTHSOUTH Common Stock (including without limitation such a distribution or
dividend made in connection with a recapitalization, reclassification, merger,
consolidation, reorganization or similar transaction) then (i) the 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 FSSCI Common Stock pursuant to Section
2.1(c) shall be appropriately adjusted to reflect such stock split, dividend or
other distribution of securities.
(f) Payment of Investment Banking Fees. The parties acknowledge and agree
that the aggregate Merger Consideration reflects the deduction of $443,015
payable by FSSCI to Robertson, Stephens & Company. On the Closing Date, and
contemporaneously with the Closing, HEALTHSOUTH shall pay
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such amount to Robertson, Stephens & Company by wire transfer in immediately
available funds to an account designated by Robertson, Stephens & Company.
Such payment shall be for the account of FSSCI.
2.2 Exchange of Certificates. (a) Exchange Procedures. As soon as reasonably
practicable after the Effective Time, HEALTHSOUTH shall deliver to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of FSSCI Common Stock (the
"Certificates") whose shares were converted into the right to receive the Merger
Consideration pursuant to Section 2.1 one or more certificates representing
shares of HEALTHSOUTH Common Stock 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; provided, however that HEALTHSOUTH shall only be required
to make such delivery to a holder who has surrendered such holder's
Certificates. In the event of a transfer of ownership of shares of FSSCI Common
Stock which is not registered in the transfer records of FSSCI, 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(a), 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.
(b) 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(d) until the surrender of such
Certificate in accordance with Section 2.2(a). Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the holder of the certificate representing whole shares of HEALTHSOUTH
Common Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional share of
HEALTHSOUTH Common Stock to which such holder is entitled pursuant to Section
2.2(d) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
HEALTHSOUTH Common Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of HEALTHSOUTH Common Stock.
(c) No Further Ownership Rights in Exchanging FSSCI 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(b) or 2.2(d)) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the Exchanging FSSCI Shares
theretofore represented by such Certificates. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section 2, except as
otherwise provided by law.
(d) No Fractional Shares. No certificates or scrip representing fractional
shares of HEALTHSOUTH Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of HEALTHSOUTH.
Notwithstanding any other provision of this Plan of Merger, each holder of
Exchanging FSSCI 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
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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.
(e) No Liability. None of HEALTHSOUTH, the Subsidiary or FSSCI shall be
liable to any person in respect of any shares of HEALTHSOUTH Common Stock (or
dividends or 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. 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.
(f) Lost Certificates. If any Certificate representing any Exchanging FSSCI
Shares shall have been lost, stolen or destroyed, then (i) the holder thereof
shall not be entitled to receive a certificate representing the shares of
HEALTHSOUTH Common Stock into which such Exchanging FSSCI Shares have been
converted pursuant to Section 2.1 unless and until such holder shall have
executed and delivered to the Surviving Corporation an Affidavit and Indemnity
in form attached as Exhibit 2.2(f) hereto, and (ii) such Affidavit and Indemnity
shall for all purposes be deemed a "Certificate" for purposes of the exchange
procedures described in this Section 2.2.
2.3 Articles of Incorporation of Surviving Corporation. The Articles of
Incorporation of FSSCI shall be amended and restated, effective at the Effective
Time, in a manner satisfactory to HEALTHSOUTH. The Articles of Incorporation of
FSSCI, as so amended and restated, shall become the Articles 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 California, the Articles of Incorporation of FSSCI 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 Articles 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 FSSCI
as of the Effective Time shall be taken up on the books of the Surviving
Corporation at the amounts at which they respectively shall be carried on the
books of said corporations immediately prior to the Effective Time, except as
otherwise set forth in this Plan of Merger and subject to such adjustments, or
elimination of intercompany items, as may be appropriate in giving effect to the
Merger in accordance with generally accepted accounting principles.
2.7 Corporate Acts of the Subsidiary. All corporate acts, plans, policies,
approvals and authorizations of the Subsidiary, its sole shareholder, 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.
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Section 3. REPRESENTATIONS AND WARRANTIES OF FSSCI.
FSSCI hereby represents and warrants to HEALTHSOUTH and the Subsidiary as
follows:
3.1 Organization, Existence and Good Standing. FSSCI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. FSSCI has all necessary corporate power to own its properties and
assets and to carry on its business as presently conducted.
3.2 FSSCI Capital Stock. FSSCI's authorized capital consists of 100,000
shares of FSSCI Common Stock, of which 3,700 shares were issued and outstanding
as of the date hereof and none of which shares are issued and held as treasury
shares. The names, addresses, tax identification numbers and number of shares of
FSSCI Common Stock held by each holder of FSSCI Shares is as set forth on
Exhibit 3.2-1 to the Disclosure Schedule delivered by FSSCI to HEALTHSOUTH
simultaneously with the execution and delivery hereof (the "Disclosure
Schedule"). All of the issued and outstanding shares of FSSCI Common Stock are
duly and validly issued, fully paid and nonassessable. Except as set forth on
Exhibit 3.2-2 to the Disclosure Schedule, there are no options, warrants, or
similar rights granted by FSSCI or any other agreements to which FSSCI is a
party providing for the issuance or sale by it of any additional securities
which would remain in effect after the Effective Time. There is no liability for
dividends declared or accumulated but unpaid with respect to any of the shares
of FSSCI Common Stock.
3.3 Subsidiaries, etc. Except as set forth on Exhibit 3.3, FSSCI does not own
stock or other equity interests in and does not control, directly or indirectly,
any other corporation, association, partnership or business organization, other
than its 49% limited partnership interest in Fort Sutter Surgery Center, A
California Limited Partnership (the "Partnership"). FSSCI owns such limited
partnership interest in the Partnership free and clear of any liens, charges,
claims or encumbrances of any kind, except for those encumbrances set forth in
the Amended and Restated Limited Partnership Agreement of the Partnership dated
as of July 12, 1991, as further amended through the date hereof (as so amended,
the "Partnership Agreement").
3.4 Foreign Qualifications. FSSCI is not required to be qualified to do
business as a foreign corporation in any jurisdiction.
3.5 Power and Authority. Subject to the satisfaction of the conditions
precedent set forth herein, FSSCI 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 Articles 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 3.5 to the
Disclosure Schedule, the execution and delivery of the Plan of Merger does not
and, subject to the receipt of required shareholder approval, the consummation
of the Merger will not, cause FSSCI to violate any provisions of the Articles of
Incorporation of FSSCI or any provisions of, or result in the acceleration of
any obligation of FSSCI under, any material mortgage, lien, lease, agreement,
instrument, order, arbitration award, judgment or decree, to which FSSCI is a
party, or by which it is bound, or violate any restrictions of any kind to which
it is subject, except where any such violation would not have a material adverse
effect on FSSCI or its ability to enter into and perform this Plan of Merger.
The execution and delivery of this Plan of Merger has been approved by the Board
of Directors of FSSCI. This Plan of Merger has been duly executed and delivered
by FSSCI and, assuming 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 FSSCI, enforceable against FSSCI in accordance with its
terms.
3.6 FSSCI Financial Information. (a) FSSCI has previously delivered to
HEALTHSOUTH true and correct copies of the federal tax returns filed by FSSCI,
as prepared by FSSCI's accountants, for the 1994 and 1995 calendar years.
(b) Except as set forth in Exhibit 3.6(b), FSSCI has:
(i) no material assets other than (i) its interest in the Partnership, (ii)
its interest in the Fort Sutter Medical Building, A California Limited
Partnership, and (iii) cash held in bank deposits or money market accounts; and
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(ii) no material liabilities other than transaction fees accrued through the
date hereof or otherwise payable at the Closing that, if not paid by FSSCI prior
to the Closing Date, will be part of the Closing Transaction Fees.
3.7 Legal Proceedings. Except as set forth on Exhibit 3.13 to the Disclosure
Schedule, there is no litigation, governmental investigation or other proceeding
pending or, so far as is known to FSSCI, threatened against or relating to
FSSCI, its properties or business, or the transaction contemplated by the Plan
of Merger and, so far as is known to FSSCI, no reasonable basis for any such
action exists.
3.8 Contracts, etc. Except as set forth in Exhibit 3.8 to the Disclosure
Schedule, other than the Partnership Agreement, FSSCI is not a party to any
contract, lease or agreement of any kind, written or oral.
3.9 Subsequent Events. Except as set forth on Exhibit 3.9 to the
Disclosure Schedule or disclosed in the FSSCI Documents, FSSCI has not, since
December 31, 1995:
(a) Incurred any material adverse change in its business or financial
condition.
(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 Exhibit 3.6(b) or
(ii) liabilities incurred since December 31, 1995 in the ordinary course of
business, which discharge or satisfaction would have a material adverse effect
on FSSCI.
(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 FSSCI, except as may have been required due to income or operations of
FSSCI since the date of the FSSCI Balance Sheet.
(d) Mortgaged, pledged or subjected to any lien, charge or other encumbrance
any of the assets, tangible or intangible, of FSSCI.
(e) Sold or transferred any of the assets of FSSCI, canceled any material
debts or claims owed to FSSCI or waived any material rights of FSSCI.
(f) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material
transaction.
(g) Issued any stock, bonds or other securities.
3.10 Tax Returns. Except as set forth on Exhibit 3.13 to the Disclosure
Schedule, FSSCI 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 FSSCI. FSSCI has made
all payments shown as due on such returns. FSSCI has not been notified that any
tax returns of FSSCI are currently under audit by the Internal Revenue Service
or any state or local tax agency. No agreements have been made by FSSCI 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.
3.11 Commissions and Fees. Except for fees payable to Robertson, Stephens &
Company, 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 FSSCI or its shareholders, officers or Directors, or any of
them.
3.12 Employment Matters. FSSCI has no employees and is not a party to, or
obligated to make contributions to or under or otherwise participate in, any
employee benefit plan of any kind whatsoever, whether or not such plan is
subject to the Employee Retirement Income Security Act of 1976, as amended.
3.13 Compliance with Laws in General. Except as set forth on Exhibit 3.13 to
the Disclosure Schedule, FSSCI has not received any notices of material
violations of any federal, state and local laws, regulations and ordinances
relating to its business and operations.
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3.14 Vote Required. The affirmative vote of the holders of a majority of the
outstanding shares of the FSSCI Common Stock entitled to vote thereon is the
only vote of the holders of any class or series of FSSCI capital stock necessary
to approve this Plan of Merger, the Merger and the transactions contemplated
hereby.
3.15 Opinion of Financial Advisor. FSSCI has received the oral opinion of
Robertson, Stephens & Company to the effect that, as of the date of this Plan of
Merger, the Merger Consideration is fair to the holders of FSSCI Shares from a
financial point of view, a written copy of which opinion will be delivered by
FSSCI 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.
3.16 No Untrue Representations. No representation or warranty by FSSCI in
this Plan of Merger, and no Exhibit or certificate issued by FSSCI and furnished
or to be furnished to HEALTHSOUTH 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 the circumstances under which they were made.
Section 4. REPRESENTATIONS AND WARRANTIES OF THE SUBSIDIARY AND HEALTHSOUTH.
The Subsidiary and HEALTHSOUTH, jointly and severally, hereby represent and
warrant to FSSCI 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 California. 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.
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 Articles 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 the consummation of the Merger contemplated
hereby will not, violate any provisions of the Articles of Incorporation or
Bylaws of the Subsidiary, or any agreement, instrument, order, judgment or
decree to which the Subsidiary is a party or by which it is bound, violate any
restrictions of any kind to which the Subsidiary is subject, or result in the
creation of any lien, charge or encumbrance upon any of the property or assets
of the Subsidiary.
4.3 No Subsidiaries. The Subsidiary does not own stock in, and does not
control directly or indirectly, any other corporation, association or
business organization. The Subsidiary is not a party to any joint venture or
partnership.
4.4 Legal Proceedings. There are no actions, suits or proceedings pending or
threatened against the Subsidiary, at law or in equity, relating to or affecting
the Subsidiary, including the Merger. The Subsidiary does not know or have any
reasonable grounds to know of any justification for any such action, suit or
proceeding.
4.5 No Contracts or Liabilities. Other than the obligations created under the
Plan of Merger, the Subsidiary is not obligated under any contracts, claims,
leases, liabilities (contingent or otherwise), loans or otherwise.
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Section 5. REPRESENTATIONS AND WARRANTIES OF HEALTHSOUTH.
HEALTHSOUTH hereby represents and warrants to FSSCI 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.
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 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 this Agreement
constitutes a valid and binding obligation of FSSCI, 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 FSSCI 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.
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
154,734,263 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 and the HEALTHSOUTH Quarterly Report on Form 10-Q for
the three months ended March 31, 1996 (the "HEALTHSOUTH Documents"), 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
HEALTHSOUTH Common Stock.
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 shareholder of the Subsidiary to approve the Merger.
5.6 HEALTHSOUTH Documents. HEALTHSOUTH has heretofore furnished FSSCI with a
true and complete copy of the HEALTHSOUTH Documents, and any report or other
filing that HEALTHSOUTH was required to file with the Securities and Exchange
Commission since March 31,
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1996 (the "Additional Filings"), together with any amendments or supplements
thereto. Except as disclosed in the HEALTHSOUTH Documents or the Additional
Filings, no event has occurred or arisen prior to the date hereof that will
require the filing of (i) a Current Report on Form 8-K after the date hereof or
(ii) any material amendment or supplement to any HEALTHSOUTH Document or
Additional Filings. As of their respective dates, the HEALTHSOUTH Documents and
Additional Filings 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
and Additional Filings 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 and Additional Filings, 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 FSSCI 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 FSSCI 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.
5.9 No Violations. Subject to compliance with applicable securities laws
as set forth in Section 7.4, 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 last-filed HEALTHSOUTH
Document or any Additional Filing, HEALTHSOUTH has not, since the date of the
last-filed HEALTHSOUTH Document:
(a) Incurred any material adverse change in its business or financial
condition.
(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 March 31, 1996 or (ii) liabilities discharged or satisfied 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 March 31, 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, canceled any material debts or claims or waived any
material rights, except in the ordinary course of business.
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5.11 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 FSSCI 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.
Section 6. ACCESS TO INFORMATION AND DOCUMENTS.
6.1 Access to Information. Between the date hereof and the Closing Date,
FSSCI will give to HEALTHSOUTH and its counsel, accountants and other
representatives full access to all the properties, documents and other records
of FSSCI and shall furnish HEALTHSOUTH with copies of such documents and with
such information with respect to the affairs of FSSCI as HEALTHSOUTH may from
time to time reasonably request. For purposes of this Section 6.1, "Confidential
Information" means all written and oral information concerning FSSCI, whether
prepared by FSSCI, its advisors or otherwise, which FSSCI (or its advisors) has
provided or shall provide to HEALTHSOUTH, other than information which is or
becomes available to the public other than as a result of a disclosure by
HEALTHSOUTH. HEALTHSOUTH shall, and shall cause each of its (and its
subsidiaries' and affiliates') directors, officers, employees, representatives,
agents and advisors to, (i) hold and maintain in confidence all Confidential
Information, (ii) not use any Confidential Information for any purpose other
than to evaluate the Merger, and (iii) not disclose any Confidential Information
to any person or entity, except as required by applicable law.
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.
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. FSSCI will use its best efforts to preserve the
business organization of FSSCI intact and to preserve for HEALTHSOUTH and the
Surviving Corporation the goodwill of those persons having business relations
with FSSCI.
7.2 Material Transactions. Prior to the Effective Time, FSSCI will not
(other than as required pursuant to the terms of the Plan of Merger), 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 FSSCI.
(b) Enter into any employment or other contract or agreement.
(c) Issue or sell, or agree to issue or sell, any shares of capital stock or
other securities of FSSCI.
(d) Extend credit to anyone.
(e) Guarantee the obligation of any person, firm or corporation, except in
the ordinary course of business consistent with prior practices.
(f) Amend its Articles of Incorporation or Bylaws.
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(g) Take any action (other than the payment of transaction fees) of a
character described in Section 3.9(a) to 3.9(g), inclusive.
7.3 Meeting of FSSCI Shareholders. FSSCI will take all steps necessary in
accordance with its Articles of Incorporation and Bylaws to call, give notice
of, convene and hold a meeting of its shareholders (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
FSSCI will (i) recommend (subject to its fiduciary duties) to FSSCI's
shareholders the approval of this Plan of Merger, the transactions contemplated
hereby and any other matters to be submitted to the shareholders 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
(subject to its fiduciary duties) to obtain the approval by FSSCI's shareholders
of this Plan of Merger and the transactions contemplated hereby.
(b) Nothing contained herein shall affect the right of FSSCI to take action
by written consent in lieu of meeting to the extent permitted by applicable law
and its Articles 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 (the "Securities Act"), including
Rule 145 thereunder. Such Registration Statement shall contain a proxy statement
of FSSCI containing the information required by Form S-4 (the "Proxy
Statement"). HEALTHSOUTH shall take all reasonable steps to cause the
Registration Statement to be declared effective as promptly as practicable 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 FSSCI with copies of all filings
made pursuant to this Section 7.4 and shall consult with FSSCI on responses to
any comments made by the Staff of the SEC with respect thereto.
(b) The information specifically designated as being supplied by FSSCI for
inclusion in the Registration Statement (other than any information relating to
the business, assets, operations or financial condition of the Partnership that
has been provided to FSSCI by the general partner of the Partnership) shall not,
at the time the Registration Statement is declared effective, at the time the
Proxy Statement is first mailed to holders of FSSCI 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 light of the
circumstances under which they were made, not misleading. The information
specifically designated as being supplied by FSSCI for inclusion in the Proxy
Statement (other than any information relating to the business, assets,
operations or financial condition of the Partnership that has been provided to
FSSCI by the general partner of the Partnership) shall not, at the date the
Proxy Statement (or any amendment thereof or supplement thereto) is first mailed
to holders of FSSCI 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 event or
circumstance relating to FSSCI, or its officers or directors, should be
discovered by FSSCI which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, FSSCI shall
promptly inform HEALTHSOUTH. All documents, if any, that FSSCI 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 Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations thereunder.
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(c) The information specifically designated as being supplied by HEALTHSOUTH
for inclusion in the Registration Statement (including any information relating
to the business, assets, operations or financial condition of the Partnership)
shall not, at the time the Registration Statement is declared effective, at the
time the Proxy Statement is first mailed to holders of FSSCI 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 (including any information
relating to the business, assets, operations or financial condition of the
Partnership) shall not, at the date the Proxy Statement (or any amendment
thereof or supplement thereto) is first mailed to holders of FSSCI 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 FSSCI 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 (or to be exempt from
registration or qualification) 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) FSSCI shall furnish all information to HEALTHSOUTH with respect to FSSCI
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. FSSCI 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 FSSCI's Board
of Directors or otherwise.
7.6 Public Disclosures. HEALTHSOUTH and FSSCI 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.
7.7 Resignation of FSSCI Directors. On or prior to the Closing Date, FSSCI
shall deliver to HEALTHSOUTH evidence satisfactory to HEALTHSOUTH of the
resignation of the Directors of FSSCI, such resignations to be effective on the
Closing Date.
7.8 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
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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 7.8, 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.
7.9 Other Actions. None of FSSCI, 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 FSSCI 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 FSSCI or HEALTHSOUTH to consummate the Merger
in accordance with the terms of this Plan of Merger or materially delay such
consummation.
7.10 Accounting Methods. Neither HEALTHSOUTH nor FSSCI 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 by such parties' independent accountants.
7.11 Tax-Free Reorganization Treatment. Neither HEALTHSOUTH nor FSSCI shall
intentionally take or cause to be taken any action, whether on or before the
Effective Time, which would disqualify the Merger as a "reorganization" within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
7.12 Affiliate Agreements. FSSCI 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 7.12 relating to the
disposition of shares of FSSCI 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.
7.13 Cooperation. (a) HEALTHSOUTH and FSSCI shall together, or pursuant to an
allocation of responsibility agreed to between them, (i) cooperate with one
another in determining whether any filings are required to be made or consents
are required to be obtained in any jurisdiction prior to the Effective Time in
connection with the consummation of the transactions contemplated hereby and
cooperate in making any such filings promptly and in seeking to obtain timely
any such consents, (ii) use their respective best efforts to cause to be lifted
any injunction prohibiting the Merger, or any part thereof, or the other
transactions contemplated hereby, and (iii) furnish to one another and to one
another's counsel all such information as may be required to effect the
foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless this Plan
of Merger shall have been validly terminated as provided herein, each of
HEALTHSOUTH and FSSCI 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 FSSCI's shareholders 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 FSSCI 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.
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7.14 Certain Information. For as long as any affiliate (as defined for
purposes of Rule 145 under the Securities Act of 1933) of FSSCI 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.
7.15 Distribution to FSSCI Shareholders. (a) On or prior to August 15, 1996,
HEALTHSOUTH shall cause the general partner of the Partnership to distribute to
FSSCI, in a manner consistent with past practice, the amounts to which FSSCI is
entitled to receive under Section 5.03B of the Partnership Agreement (the "FSSCI
Distributive Share") for the period from April 1, 1996 through June 30, 1996.
FSSCI shall distribute such amounts (after deducting amounts for FSSCI fees,
expenses and reserves) to its shareholders, in a manner consistent with past
practice, on or prior to the Closing Date.
(b) On or prior to the 30th day following the last day of the calendar month
in which the Closing Date occurs, HEALTHSOUTH shall cause the general partner of
the Partnership to distribute to an account designated by FSSCI prior to the
Closing (for the benefit of the shareholders of FSSCI as of the Closing Date),
in a manner consistent with past practice prior to the Closing Date, the FSSCI
Distributive Share for the period from June 30, 1996 through the Closing Date.
The Assistant Secretary of FSSCI (immediately prior to the Closing Date) shall
thereafter distribute such amounts to FSSCI's former shareholders (less the fees
or expenses incurred by FSSCI with respect to the Merger and not otherwise paid
by HEALTHSOUTH pursuant to Section 2.1(f) hereof), in a manner consistent with
past practice.
(c) On or prior to the Closing Date, FSSCI shall distribute to its
shareholders, on a pro rata basis, all cash held by or on behalf of FSSCI.
7.16 Payment to Partnership Employees. Within 30 days following the Closing
Date, HEALTHSOUTH shall cause the Partnership to pay to certain employees of the
Partnership, to be determined by HEALTHSOUTH and FSSCI, a bonus, not to exceed
$50,000 in the aggregate, in the manner agreed to by HEALTHSOUTH and FSSCI in
their sole discretion prior to the Closing. The distribution payable to the
account designated by FSSCI pursuant to Section 7.15(b) shall be reduced by an
amount equal to 49% of the aggregate amounts payable pursuant to this Section
7.16.
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 FSSCI Common Stock:
(a) by mutual written consent of HEALTHSOUTH and FSSCI;
(b) by either HEALTHSOUTH or FSSCI:
(i) if, upon a vote at a duly held meeting of shareholders or any adjournment
thereof, any required approval of the holders of shares of FSSCI Common Stock
shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before December 31,
1996, 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 shareholders;
(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 FSSCI gives notice of termination as a
non-notifying party pursuant to Section 7.8; or
(c) By either HEALTHSOUTH or FSSCI 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 FSSCI) is not capable of being
satisfied prior to the end of the period referred to in Section 8.1(b)(ii).
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 6.1, 6.2 and 8.2.
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 FSSCI Common Stock; provided, however, that after
any such approval, there shall be made no amendment that pursuant to Section
1104 of the CGCL requires further approval by such shareholders without the
further approval of such shareholders. 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
7.8.
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 FSSCI, action by its Board of Directors or the duly authorized
designee of the Board of Directors.
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 FSSCI):
(a) None of HEALTHSOUTH, the Subsidiary or FSSCI 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 FSSCI.
(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.
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(c) The Registration Statement shall have been declared effective and no stop
order with respect to the Registration Statement shall be in effect.
(d) The holders of FSSCI Shares shall have approved (by such vote as is
required under the CGCL) the adoption of this Plan of Merger and any other
matters submitted to them in accordance with the provisions of Section 7.3
hereof.
(e) The shares of HEALTHSOUTH Common Stock to be issued in connection with
the Merger shall have been approved for listing on the Exchange, shall have been
issued pursuant to an effective registration statement (which is subject to no
stop order), and shall have been qualified (or shall be exempt from
qualification) under applicable state securities laws.
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 FSSCI 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 FSSCI 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 FSSCI set forth in Section 3.9(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 FSSCI 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
FSSCI 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 FSSCI, dated the Closing
Date, certifying in such detail as HEALTHSOUTH and the Subsidiary may reasonably
request as to the fulfillment of the foregoing conditions.
(c) HEALTHSOUTH shall have received an opinion from Haskell Slaughter &
Young, L.L.C., to the effect that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, which opinion may be based upon reasonable assumptions and reasonable
representations of fact provided by officers of HEALTHSOUTH, FSSCI and the
Subsidiary.
(d) HEALTHSOUTH shall have received an opinion from Diepenbrock, Wulff, Plant
& Hannegan, LLP substantially to the effect set forth in Exhibit 9.2(d) hereto.
(e) Each of the shareholders of FSSCI who either (i) is a director of FSSCI
on the date hereof or (ii) owns at least 100 shares of FSSCI Common Stock on the
date hereof shall have entered into a Non-Competition Agreement substantially in
the form of Exhibit 9.2(e) hereto.
9.3 Conditions to Obligations of FSSCI. The obligations of FSSCI 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 FSSCI):
(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.
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(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 that the
representations and warranties in Section 5.6 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). FSSCI
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 FSSCI may reasonably request as to the fulfillment of the
foregoing conditions and to the conditions set forth in Sections 9.1(c) and
9.1(e).
(c) FSSCI shall have received an opinion from Diepenbrock, Wulff, Plant &
Hannegan, LLP 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 assumptions and reasonable
representations of fact provided by officers of HEALTHSOUTH, FSSCI and the
Subsidiary.
(d) FSSCI 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: Thomas W. Carman
Facsimile: (205) 969-4750
with a copy to:
William W. Horton, Esq.
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Facsimile: (205) 969-4732
If to FSSCI:
Fort Sutter Surgery Center, Inc.
2801 K Street
Suite 310
Sacramento, California 95816
Attention: Dr. David B. Coward
Facsimile: (916) 733-5017
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with a copy to:
Charles S. Farman, Esq.
Diepenbrock, Wulff, Plant & Hannegan, LLP
300 Capitol Mall
Suite 1700
Sacramento, California 95814
Facsimile: (916) 446-1696
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 Governing Law. This Plan of Merger shall be interpreted, construed and
enforced in accordance with the laws of the State of California, applied without
giving effect to any conflicts-of-law principles.
10.5 "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.
10.6 "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.
10.7 "Material adverse change" or "material adverse effect". "Material
adverse change" or "material adverse effect" means, when used in connection with
FSSCI 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 FSSCI with the
consent of HEALTHSOUTH.
10.8 Taxes. For purposes of this Agreement, the term "tax" or "taxes" shall
mean all taxes, charges, fees, levies, penalties or other assessments imposed by
any United States federal, state, local or foreign taxing authority, including,
but not limited to, income, excise, property, sales, transfer, franchise,
payroll, withholding, Social Security or other taxes, including any interest,
penalties or additions attributable thereto. For purposes of this 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.
10.9 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.
10.10 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.
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10.11 Entire Agreement. This instrument, including all Exhibits attached
hereto, 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.
10.12 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.
10.13 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 10.15, 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.
10.14 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.
10.15 Indemnification of FSSCI Agents. FSSCI (and, after the Effective Time,
the Surviving Corporation) shall, to the maximum extent and in the manner that a
California corporation is permitted by the CGCL to indemnify its agents (as
defined in Section 317(a) of the CGCL), indemnify, defend and hold harmless each
of the officers and directors of FSSCI immediately prior to the Closing Date
against expenses (as defined in Section 317(a) of the CGCL), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the CGCL), arising by
reason of the fact that such person is or was an agent of FSSCI (including any
proceeding relating to the Merger). Expenses and attorneys' fees incurred in
defending any civil or criminal action or proceeding for which indemnification
is required pursuant to Section 10.15, shall be paid by the applicable
corporation in advance of the final disposition of such action or proceeding
upon receipt of an undertaking by or on behalf of the indemnified party to repay
such amount if it shall ultimately be determined that the indemnified party is
not entitled to be indemnified as authorized in this Section 10.15.
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IN WITNESS WHEREOF, HEALTHSOUTH, the Subsidiary and FSSCI 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.
FORT SUTTER SURGERY CENTER, INC.
By /s/ DAVID B. COWARD
-----------------------------
David B. Coward
President
ATTEST:
/s/ CINDY LEATHERS
-------------------------
Cindy Leathers
Assistant Secretary
HEALTHSOUTH CORPORATION
By /s/ WILLIAM W. HORTON
-----------------------------
Its Senior Vice President
-----------------------------
ATTEST:
/s/ ANTHONY J. TANNER
----------------------------
Anthony J. Tanner
Secretary
FSSCI ACQUISITION CORPORATION
By /s/ WILLIAM W. HORTON
-----------------------------
Its Vice President
-----------------------------
ATTEST:
/s/ ANTHONY J. TANNER
----------------------------
Anthony J. Tanner
Secretary
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ANNEX B
August 5, 1996
CONFIDENTIAL
Board of Directors
Fort Sutter Surgery Centers, Inc.
2801 K Street, Suite 310
Sacramento, CA 95816
Members of the Board:
You have asked our opinion with respect to the fairness to the shareholders of
Fort Sutter Surgery Center, Inc., ("FSSCI" or the "Company"), from a financial
point of view and as of the date hereof, of the Purchase Price Value (as defined
below) to the shareholders of FSSCI, in connection with the proposed merger of
FSSCI with a wholly-owned subsidiary of HEALTHSOUTH Corporation ("HEALTHSOUTH"),
pursuant to the draft Agreement and Plan of Merger, dated as of August 1, 1996
(the "Agreement"). We understand that FSSCI is the owner of 49% of the limited
partnership interests in Fort Sutter Surgery Centers, L.P., which operates two
ambulatory surgery centers (the "Surgery Centers"). Under the terms of the
Agreement, the outstanding shares of the common stock of FSSCI will be converted
into shares of the common stock of HEALTHSOUTH in connection with the statutory
merger of the HEALTHSOUTH subsidiary with and into FSSCI (the "Merger"), based
on a total purchase price for FSSCI (other than amounts to be received by FSSCI
from HEALTHSOUTH with respect to another partnership interest held by FSSCI, as
to which we express no opinion) of $9.1 million (the "Purchase Price Value"). We
have been advised that the Merger is intended to qualify as a tax-free
reorganization for federal income tax purposes. The terms and conditions of the
Merger are set out more fully in the Agreement.
For purposes of this opinion we have (i) reviewed financial information on the
Surgery Centers furnished to us by FSSCI, including certain internal financial
analyses and forecasts prepared by the management of FSSCI and the Surgery
Centers; (ii) reviewed publicly available information; (iii) held discussions
with the management of FSSCI and the Surgery Centers concerning the businesses,
past and current business operations, financial condition and future prospects
of the Surgery Centers; (iv) reviewed the Agreement; (v) compared the financial
terms of the Merger with other transactions which we deemed relevant; and (vi)
made such other studies and inquiries, and reviewed such other data, as we
deemed customary and relevant.
In connection with our opinion, we have not independently verified any of the
foregoing information and have relied on all such information being complete and
accurate in all material respects. Furthermore, we did not obtain any
independent appraisal of the properties or assets and liabilities of the Surgery
Centers or of FSSCI. With respect to the financial and operating forecasts (and
the assumptions and bases therefor) of the Surgery Centers which we have
reviewed, we have assumed that such forecasts have been reasonably prepared in
good faith on the basis of reasonable assumptions, reflect the best available
estimates and judgments of the respective managements of FSSCI and the Surgery
Centers and that such projections and forecasts will be realized in the amounts
and in the time periods currently estimated by the managements of FSSCI and the
Surgery Centers. In addition, we have relied on estimates and judgments of the
managements of FSSCI and the Surgery Centers as to the future financial
performance of the Surgery Centers. Further, we have assumed that the historical
financial statements of the Surgery Centers that we have reviewed have been
prepared and presented in accordance with generally accepted accounting
principles. While we believe that our review, as described within, is an
adequate basis for the opinion that we express, this opinion is necessarily
based on market, economic, and other conditions that exist and can be evaluated
as of the date of this letter, and on information available to us as of the date
hereof.
Our opinion is limited to the fairness of the Purchase Price Value to the
shareholders of FSSCI. We do not express any opinion regarding the current or
future value of the shares of HEALTHSOUTH common stock to be issued in the
Merger, nor do we express any opinion regarding the fairness of the Merger to
HEALTHSOUTH or to its shareholders.
Robertson, Stephens & Company may, from time to time, trade in the shares of the
common stock of HEALTHSOUTH. Furthermore, Robertson, Stephens & Company will
receive a fee in connection with the rendering of this opinion.
Our opinion is for the exclusive use of the Board of Directors of the Company
and is not intended to be and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote on the
proposed Merger. We hereby consent, however, to the inclusion of this opinion as
an exhibit to any proxy statement distributed in connection with the Merger.
Based on and subject to the foregoing considerations, it is our opinion, as
investment bankers, that, as of the date hereof, the Purchase Price Value is
fair to the shareholders of FSSCI from a financial point of view.
Very truly yours,
ROBERTSON, STEPHENS & COMPANY LLC
By: Robertson, Stephens & Company Group, L.L.C.
Authorized Signatory
<PAGE>
ANNEX C
NON-COMPETITION AGREEMENT
NON-COMPETITION AGREEMENT, made and entered into as of the _______ day of
_____________, 1996, by and among HEALTHSOUTH Corporation, a Delaware
corporation ("HEALTHSOUTH"), FORT SUTTER SURGERY CENTER, L.P., a California
limited partnership (the "Partnership"), and each person identified on Schedule
A attached hereto (individually, a "Shareholder" and collectively, the
"Shareholders").
W I T N E S S E T H:
WHEREAS, the Partnership's sole business consists of the ownership and
operation of an outpatient surgery center (which business, as conducted as of
the date hereof, is referred to herein as the "Partnership Business") in
Sacramento, California;
WHEREAS, immediately prior to the transaction described in the following
recital, the Shareholders were the shareholders of Fort Sutter Surgery Center,
Inc., a California corporation ("FSSCI"), which is a limited partner of the
Partnership;
WHEREAS, contemporaneously with the execution and delivery of this Agreement,
a wholly-owned subsidiary of HEALTHSOUTH has been merged with and into FSSCI
(the "Merger") under the provisions of that certain Plan and Agreement of
Merger, dated August 13, 1996, among HEALTHSOUTH, FSSCI Acquisition Corporation
and FSSCI (the "Plan of Merger"), pursuant to which the Shareholders have
received shares of HEALTHSOUTH Common Stock as consideration for such merger;
WHEREAS, HEALTHSOUTH and the Partnership recognize the knowledge and
experience of the Shareholders as it relates to the business of the Partnership,
and desire to prevent the Shareholders from competing with the Partnership
Business by entering into an agreement restricting the ability of the
Shareholders to compete with HEALTHSOUTH and the Partnership in the Partnership
Business during a five-year period; and
WHEREAS, the Shareholders are agreeable to restrictions on their ability to
compete against HEALTHSOUTH and the Partnership in the Partnership Business in
accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the premises, the execution, delivery and
performance of the Plan of Merger, the mutual promises and covenants herein and
therein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, HEALTHSOUTH, the Partnership and
each undersigned Shareholder hereby agree as follows:
1. Non-Competition of the Shareholders. During the term of this Agreement,
each undersigned Shareholder shall not, without the prior written consent of the
President, a division President or an Executive Vice President of HEALTHSOUTH
Corporation, directly or indirectly (other than as a holder of less than 5% of
the outstanding amount of any securities listed on a national securities
exchange or designated as a Nasdaq National Market security), own, operate, be
employed by, be an agent of, act as a consultant for, financially support or
have a proprietary interest in, any enterprise or business which is similar to
the Partnership Business, in any part of the area within a 10-mile radius of
2801 K Street, Sacramento, California. Each undersigned Shareholder acknowledges
that the Partnership Business draws patients and business from all of such area
and agrees that such geographic scope is reasonable. Each undersigned
Shareholder agrees to execute and deliver such certifications and other
instruments as HEALTHSOUTH and the Partnership may reasonably request in order
to show compliance with the terms of this Agreement. Notwithstanding the
foregoing, no Shareholder shall be deemed to be in violation of this Section 1
by reason of (a) engaging in the private practice of medicine (including
performing surgery and related procedures), (b) serving on the medical staff of
any healthcare facility, (c) providing medical services (including performing
surgery and related procedures) at, or
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referring patients for treatment at, any healthcare facility whatsoever or (d)
possessing or maintaining such securities or business interests, or engaging in
such activities as such Shareholder shall have disclosed in writing to
HEALTHSOUTH prior to the date hereof.
2. Confidential Information. At no time during the term of this Agreement or
after the date that this Agreement shall terminate shall any undersigned
Shareholder, directly or indirectly, disclose to others (except as required by
law), or use, any secret or confidential information, knowledge or data (oral,
written or in machine-readable form) of HEALTHSOUTH or its affiliates relating
to the Partnership Business, including, but not limited to, this Agreement and
information concerning (a) the business, affairs, protocols, manuals, patients
or operations of HEALTHSOUTH or its affiliates relating to the Partnership
Business, (b) any trade secrets, new product developments, special or unique
processes or methods of HEALTHSOUTH or its affiliates relating to the
Partnership Business, or (c) any marketing, sales, advertising or other concepts
or plans of HEALTHSOUTH or its affiliates relating to the Partnership Business.
The foregoing covenant shall include all such information, knowledge or data
whether or not developed by any Shareholder, the Partnership, FSSCI or by others
or obtained by HEALTHSOUTH or any of its affiliates from third parties, and
irrespective of whether or not such information, knowledge or data have been
identified by HEALTHSOUTH or any of its affiliates as secret or confidential,
unless and until, and then to the extent and only to the extent that, such
information, knowledge or data becomes available to the public otherwise than by
the act or omission of any Shareholder or has been disclosed to a Shareholder by
a source not known to the Shareholder to have an obligation of non-disclosure to
HEALTHSOUTH. All documents, records, notes, computer software, computer
programs, source codes, object codes, magnetic tapes, printouts, samples,
reports, customer lists, patient lists, referral sources, photographs, catalogs
and other writings, whether copyrightable or not, relating to or dealing with
the business, customers or patients of HEALTHSOUTH or its affiliates, and those
of others entrusted to HEALTHSOUTH or its affiliates, which were or are prepared
or created by any Shareholder or which may come into their possession, are the
property of HEALTHSOUTH, and upon termination of this Agreement, each
undersigned Shareholder agrees to return all such matters and writings, and all
copies thereof, to HEALTHSOUTH.
3. Term. This Agreement shall be effective as of the effective date (under
California law) of the Merger and shall terminate upon the earlier of (i) the
fifth anniversary of the date hereof or (ii) the date on which neither
HEALTHSOUTH nor the Partnership (nor any of their respective affiliates) is
conducting the Partnership Business (or any like business) within the geographic
region described in Section 1 hereof.
4. Specific Performance. Each undersigned Shareholder acknowledges that the
rights and privileges granted to HEALTHSOUTH and the Partnership herein are of a
special and unique character, which gives them a peculiar value, the loss of
which may not be reasonably or adequately compensated for by damages in an
action at law, and that a breach by any Shareholder of this Agreement will cause
HEALTHSOUTH and the Partnership great and irreparable injury and damage.
Accordingly, each undersigned Shareholder hereby agrees that HEALTHSOUTH and the
Partnership or their respective subsidiaries or affiliates, or any of them,
shall be entitled to remedies of injunction, specific performance or other
equitable relief, without bond, to prevent or cure a breach of this Agreement.
This provision shall not be construed as a waiver of any other rights or
remedies HEALTHSOUTH and the Partnership may have for damages or otherwise.
5. Partial Invalidity. The parties have entered into this Agreement in good
faith and for the reasons set forth in the recitals hereto and assume and intend
that this Agreement is legally binding. If, for any reason, this Agreement is
not binding because of its geographic scope or because of its term, then the
parties agree that this Agreement shall be deemed effective for the widest
geographic area and/or the longest period of time as may be legally enforceable.
6. Enforcement Costs. In the event that either any Shareholder, on the one
hand, or HEALTHSOUTH or the Partnership, on the other hand, shall file any
action to enforce the terms of this Agreement against the other party or to
obtain performance by the other party hereunder, the non-prevailing party in
such action shall pay all reasonable costs incurred by the prevailing party in
connection with such action, including reasonable attorneys' fees and court
costs.
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<PAGE>
7. Binding Effect and Modifications. This Agreement shall be binding upon and
inure to the benefit of the heirs, legatees, personal representatives,
executors, administrators, successors and assigns of the parties to this
Agreement. This Agreement and the other agreements executed and delivered
contemporaneously with or pursuant to the Plan of Merger contain the entire
agreement of the parties and supersede any and all prior written agreements
between the parties, and all prior and contemporaneous oral statements with
respect to the transaction contemplated hereby. This Agreement 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.
8. Section Captions and Counterparts. Section and other captions contained in
this Agreement are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provision hereof. This Agreement 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.
9. Governing Law. This Agreement shall be governed by and construed under
the laws of the State of California.
10. No Rule of Construction. The parties acknowledge that this Agreement was
initially prepared by HEALTHSOUTH solely as a convenience and that all parties
hereto have read and fully negotiated all the language used in this Agreement.
The parties acknowledge and agree that because all parties participated in
negotiating and drafting this Agreement, no rule of construction shall apply to
this Agreement which construes any language, whether ambiguous, unclear or
otherwise, in favor of or against any party by reason of such party's role in
drafting this Agreement.
IN WITNESS WHEREOF, the undersigned parties have hereunto set their hands as
of the day and year first above written.
HEALTHSOUTH CORPORATION
By:
-------------------------
Its:
-------------------------
FORT SUTTER SURGERY CENTER, L.P.
by HEALTHSOUTH Surgery Centers -- West, Inc.
its general partner
By:
-------------------------
Its:
-------------------------
[Counterpart signatures of Shareholders follow]
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<PAGE>
ANNEX D
CALIFORNIA GENERAL CORPORATION LAW
CHAPTER 13
DISSENTERS' RIGHTS
SECTION 1300. Right to Require Purchase "Dissenting Shares" and "Dissenting
Shareholder" Defined.
A. If the approval of the outstanding shares (Section 152) of a corporation
is required for a reorganization under subdivisions (a) and (b) or subdivision
(e) or (f) of Section 1201, each shareholder of the corporation entitled to vote
on the transaction and each shareholder of a subsidiary corporation in a
short-form merger may, by complying with this chapter, require the corporation
in which the shareholder holds shares to purchase for cash at their fair market
value the shares owned by the shareholder which are dissenting shares as defined
in subdivision (b). The fair market value shall be determined as of the day
before the first announcement of the terms of the proposed reorganization or
short-form merger, excluding any appreciation or depreciation in consequence of
the proposed action, but adjusted for any stock split, reverse stock split or
share dividend which becomes effective thereafter.
B. As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
1. Which were not immediately prior to the reorganization or short-form
merger either (A) listed on any national securities exchange certified by the
Commissioner of Corporations under subdivision (o) of Section 25100 or (B)
listed on the list of OTC margin stocks issued by the Board of Governors of the
Federal Reserve System, and the notice of meeting of shareholders to act upon
the reorganization summarizes this section and Sections 1301, 1302, 1303 and
1304; provided, however, that this provision does not apply to any shares with
respect to which there exists any restriction on transfer imposed by the
corporation or by any law or regulation; and provided, further, that this
provision does not apply to any class of shares described in subparagraph (A) or
(B) if demands for payment are filed with respect to 5 percent or more of the
outstanding shares of that class.
2. Which were outstanding on the date for the determination of shareholders
entitled to vote on the reorganization and (A) were not voted in favor of the
reorganization or, (B) if described in subparagraph (A) or (B) of paragraph (1)
(without regard to the provisos in that paragraph), were voted against the
reorganization, or which were held of record on the effective date of a
short-form merger; provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the approval
required by Section 1201 is sought by written consent rather than at a meeting.
3. Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
4. Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
C. As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. Demand for Purchase.
A. If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief description of the procedure to be followed if
the shareholder desires to exercise the
D-1
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shareholder's right under such sections. The statement of price constitutes an
offer by the corporation to purchase at the price stated any dissenting shares
as defined in subdivision (b) of Section 1300, unless they lose their status as
dissenting shares under Section 1309.
B. Any shareholder who has a right to require the corporation to purchase the
shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
C. The demand shall state the number and class of the shares held of record
by the shareholder which the shareholder demands that the corporation purchase
and shall contain a statement of what such shareholder claims to be the fair
market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. Endorsement of Shares.
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. Agreed Price-time for Payment.
A. If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
B. Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. Dissenter's Action to Enforce Payment.
A. If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision
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(i) of Section 1110 was mailed to the shareholder, but not thereafter, may file
a complaint in the superior court of the proper county praying the court to
determine whether the shares are dissenting shares or the fair market value of
the dissenting shares or both or may intervene in any action pending on such a
complaint.
B. Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
C. On the trial of the action, the court shall determine the issues. If the
status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
SECTION 1305. Appraisers' Report-Payment-Costs.
A. If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
B. If a majority of the appraisers appointed fail to make and file a report
within 10 days from the date of their appointment or within such further time as
may be allowed by the court or the report is not confirmed by the court, the
court shall determine the fair market value of the dissenting shares.
C. Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
D. Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
E. The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and interest
at the legal rate on judgments from the date of compliance with Sections 1300,
1301 and 1302 if the value awarded by the court for the shares is more than 125
percent of the price offered by the corporation under subdivision (a) of Section
1301).
SECTION 1306. Dissenting Shareholder's Status as Creditor.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. Dividends Paid as Credit Against Payment.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
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SECTION 1308. Continuing Rights and Privileges of Dissenting Shareholders.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. Termination of Dissenting Shareholder Status.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
A. The corporation abandons the reorganization. Upon abandonment of the
reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter all
necessary expenses incurred in such proceedings and reasonable attorneys' fees.
B. The shares are transferred prior to their submission for endorsement in
accordance with Section 1302 or are surrendered for conversion into shares of
another class in accordance with the articles.
C. The dissenting shareholder and the corporation do not agree upon the
status of the shares as dissenting shares or upon the purchase price of the
shares, and neither files a complaint or intervenes in a pending action as
provided in Section 1304, within six months after the date on which notice of
the approval by the outstanding shares or notice pursuant to subdivision (i) of
Section 1110 was mailed to the shareholder.
D. The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
SECTION 1310. Suspension of Proceedings for Payment Pending Litigation.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Section 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. Exempt Shares.
This chapter, except Section 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect to
such shares in the event of a reorganization or merger.
SECTION 1312. Attacking Validity of Reorganization or Merger.
A. No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
B. If one of the parties to a reorganization or short-form merger is directly
or indirectly controlled by, or under common control with, another party to the
reorganization or short-form merger, subdivision (a) shall not apply to any
shareholder of such party who has not demanded payment of cash for such
shareholder's shares pursuant to this chapter; but if the shareholder institutes
any action to attack the validity of the reorganization or short-form merger or
to have the reorganization or short-form
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merger set aside or rescinded, the shareholder shall not thereafter have any
right to demand payment of cash for the shareholder's shares pursuant to this
chapter. The court in any action attacking the validity of the reorganization or
short-form merger or to have the reorganization or short-form merger set aside
or rescinded shall not restrain or enjoin the consummation of the transaction
except upon 10 days' prior notice to the corporation and upon a determination by
the court that clearly no other remedy will adequately protect the complaining
shareholder or the class of shareholders of which such shareholder is a member.
C. If one of the parties to a reorganization or short-form merger is directly
or indirectly controlled by, or under common control with, another party to the
reorganization or short-form merger, in any action to attack the validity of the
reorganization or short-form merger or to have the reorganization or short-form
merger set aside or rescinded, (1) a party to a reorganization or short-form
merger which controls another party to the reorganization or short-form merger
shall have the burden of proving that the transaction is just and reasonable as
to the shareholders of the controlled party, and (2) a person who controls two
or more parties to a reorganization shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of any party so
controlled.
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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.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<S> <C>
(2) Plan and Agreement of Merger, dated August 13, 1996, among HEALTHSOUTH Corporation, FSSCI
Acquisition Corporation and Fort Sutter Surgery Center, Inc. attached to the Prospectus-Proxy
Statement as Annex A, is hereby incorporated herein by reference.
Opinion of Haskell Slaughter & Young, L.L.C. as to the legality of the shares of HEALTHSOUTH
(5) Common Stock being registered (To be filed by amendment).
Opinion of Haskell Slaughter & Young, L.L.C. as to the description in the Prospectus--Proxy
(8) Statement of certain federal income tax consequences of the Merger (To be filed by amendment).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------------ -------------------------------------------------------------------------------------------------
<S> <C>
(23)-1 Consent of Ernst & Young LLP. See pages immediately following Signature pages to the
Registration Statement.
(23)-2 Consents of Haskell Slaughter & Young, L.L.C. (included in the opinions filed as Exhibits (5)
and (8)).
(23)-3 Consent of Robertson, Stephens & Company (included in Annex B to the Prospectus-Proxy
Statement).
(24) Powers of Attorney. See signature pages.
(99) Fort Sutter Surgery Center, 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.
(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 September 16, 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 September 16, 1996
- --------------------------- and Chief Executive Officer
Richard M. Scrushy and Director
/s/ AARON BEAM, JR Executive Vice President and September 16, 1996
- --------------------------- Chief Financial Officer
Aaron Beam, Jr
/s/ WILLIAM T. OWENS Senior Vice President September 16, 1996
- --------------------------- and Controller (Principal
William T. Owens Accounting Officer)
/s/ JAMES P. BENNETT Director September 16, 1996
- ---------------------------
James P. Bennett
/s/ ANTHONY J. TANNER Director September 16, 1996
- ---------------------------
Anthony J. Tanner
/s/ P. DARYL BROWN Director September 16, 1996
- ---------------------------
P. Daryl Brown
/s/ PHILLIP C. WATKINS, M.D Director September 16, 1996
- ---------------------------
Phillip C. Watkins, M.D
II-4
<PAGE>
SIGNATURE TITLE DATE
- ------------------------------- -------------------------------- ---------------------
/s/ GEORGE H. STRONG Director September 16, 1996
- ---------------------------
George H. Strong
/s/ C. SAGE GIVENS Director September 16, 1996
- ---------------------------
C. Sage Givens
/s/ CHARLES W. NEWHALL III Director September 16, 1996
- ---------------------------
Charles W. Newhall III
/s/ LARRY R. HOUSE Director September 16, 1996
- ---------------------------
Larry R. House
/s/ JOHN S. CHAMBERLIN Director September 16, 1996
- ---------------------------
John S. Chamberlin
/s/ RICHARD F. CELESTE Director September 16, 1996
- ---------------------------
Richard F. Celeste
/s/ JOEL C. GORDON Director September 16, 1996
- ---------------------------
Joel C. Gordon
/s/ RAYMOND J. DUNN, III Director September 16, 1996
- ---------------------------
Raymond J. Dunn, III
</TABLE>
II-5
<PAGE>
EXHIBIT 23.1
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 Fort Sutter Surgery
Center, 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
September 16, 1996
<PAGE>
PROXY
FORT SUTTER SURGERY CENTER, INC.
This Proxy is solicited on behalf of the Board of Directors of Fort Sutter
Surgery Center, Inc. The undersigned hereby appoints or , and each of them,
proxies, each with full powers of substitution, to vote the shares of Common
Stock, without par value of Fort Sutter Surgery Center, Inc. ("FSSCI") which the
undersigned could vote if personally present at the Special Meeting of
Stockholders of FSSCI to be held at Diepenbrock, Wulff, Plant & Hannegan, LLP,
300 Capitol Mall, Suite 1600, Sacramento, California , on , 1996 at 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 (i) a Plan and Agreement of Merger, dated as of
August 13, 1996, attached as Annex A to the Prospectus-Proxy Statement that has
been transmitted in connection with the Special Meeting, pursuant to which FSSCI
Acquisition Corporation, a wholly-owned subsidiary of HEALTHSOUTH Corporation
("HEALTHSOUTH"), will merge (the "Merger") with and into FSSCI, and shareholders
of FSSCI will receive a specified number of shares of HEALTHSOUTH Common Stock
for each share of FSSCI Common Stock surrendered for exchange, all as described
in said Prospectus-Proxy Statement and (ii) the related Agreement of Merger to
be filed to effect the Merger (including the amendments to FSSCI's Amended and
Restated Articles of Incorporation described therein).
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 , 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.)
