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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
|X| Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] For the fiscal year ended December
31, 1995; or
| | Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] For the transition period from
______ to ______
Commission File Number 1-10315
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HEALTHSOUTH Corporation
(Exact Name of Registrant as Specified in its Charter)
Delaware 63-0860407
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
Two Perimeter Park South
Birmingham, Alabama 35243
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(Address of Principal Executive (Zip Code)
Offices)
Registrant's Telephone Number, Including Area Code: (205) 967-7116
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Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
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Common Stock, par value New York Stock Exchange
$.01 per share
9.5% Senior Subordinated New York Stock Exchange
Notes due 2001
5% Convertible Subordinated New York Stock Exchange
Debentures due 2001
Securities Registered Pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all Reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such Reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No | ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. | |
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant as of March 15, 1996:
Common Stock, par value $.01 per share -- $5,339,826,576
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 15, 1996
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Common Stock, par value
$.01 per share 152,483,607 shares
DOCUMENTS INCORPORATED BY REFERENCE
No documents are incorporated by reference into this Annual Report on Form 10-K.
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PART I
Item 1. Business.
General
HEALTHSOUTH Corporation ("HEALTHSOUTH" or the "Company) is the nation's
largest provider of outpatient and rehabilitative healthcare services. The
Company provides these services through its national network of outpatient and
inpatient rehabilitation facilities, outpatient surgery centers, medical centers
and other healthcare facilities. The Company believes that it provides patients,
physicians and payors with high-quality healthcare services at significantly
lower costs than traditional inpatient hospitals. Additionally, the Company's
national network, reputation for quality and focus on outcomes has enabled it to
secure contracts with national and regional managed care payors. At January 31,
1996, the Company had over 700 patient care locations in 42 states and the
District of Columbia.
In its outpatient and inpatient rehabilitation facilities, the Company
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. The Company'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 the Company can save money for payors and employers.
The Company operates the largest network of free-standing outpatient
surgery centers in the United States. The Company'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, the
Company believes that outpatient surgery performed at a free-standing outpatient
surgery center is generally less expensive than hospital-based outpatient
surgery. Approximately 80% of the Company's surgery center facilities are
located in markets served by its rehabilitative service facilities, enabling the
Company to pursue opportunities for cross-referrals.
Over the last two years, the Company has completed several significant
acquisitions in the rehabilitation business and has expanded into the surgery
center business. The Company believes that these acquisitions complement its
historical operations and enhance its market position. The Company further
believes that its expansion into the outpatient surgery business provides it
with a platform for future growth. The Company is continually evaluating
potential acquisitions in the outpatient and rehabilitative healthcare services
industry.
The Company was organized as a Delaware corporation in February 1984.
The Company's principal executive offices are located at Two Perimeter Park
South, Birmingham, Alabama 35243, and its telephone number is (205) 967-7116.
Company Strategy
The Company'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. The Company's growth strategy
is based upon four primary elements: (i) the implementation of the Company'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.
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o Integrated Service Model. The Company 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. The
Company 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, the Company estimates that
approximately one-third of its outpatient rehabilitation patients have
had outpatient surgery, virtually all inpatient rehabilitation patients
will require some form of outpatient rehabilitation, and virtually all
inpatient rehabilitation patients have had some type of diagnostic
procedure. The Company 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, the Company 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. The Company'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 the Company a competitive
advantage over smaller and regional competitors. These relationships
have increased patient flow to the Company's facilities and contributed
to the Company's same-store growth.
o Cost-Effective Services. The Company's goal is to provide high-quality
healthcare services in cost-effective settings. To that end, the
Company has developed standardized clinical protocols for the treatment
of its patients. This results in "best practices" techniques being
utilized at all of the Company's facilities, allowing the consistent
achievement of demonstrable, cost-effective clinical outcomes. The
Company'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. The Company
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, the
Company 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 the Company 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. The
Company 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. The Company'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.
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Recent Acquisitions
In 1995 and early 1996, the Company consummated a series of significant
acquisitions. During 1995, the Company consummated pooling-of-interests mergers
with Surgical Health Corporation ("SHC"; 37 outpatient surgery centers in 11
states) and Sutter Surgery Centers, Inc. ("SSCI"; 12 outpatient surgery centers
in three states), as well as stock purchase acquisitions of the rehabilitation
hospitals division of NovaCare, Inc. ("NovaCare"; 11 inpatient rehabilitation
facilities, 12 other healthcare facilities and two Certificates of Need in eight
states) and Caremark Orthopedic Services Inc. ("Caremark"; 120 outpatient
rehabilitation facilities in 13 states). In addition, the Company entered into
agreements to acquire Surgical Care Affiliates, Inc. ("SCA"; 67 outpatient
surgery centers in 24 states) and Advantage Health Corporation ("Advantage
Health"; approximately 150 inpatient and outpatient rehabilitation facilities in
11 states) in pooling-of-interests transactions, which transactions were
consummated in January 1996 and March 1996 respectively. Information on the
Company's facilities included herein includes all of the acquired facilities
other than the Advantage Health facilities. The NovaCare, Caremark and Advantage
Health transactions have further enhanced the Company's position as the nation's
largest provider of inpatient and outpatient rehabilitative services, while the
SHC, SSCI and SCA transactions have made the Company the largest provider of
outpatient surgery services in the nation. The Company believes that the
geographic dispersion of the more than 850 locations (giving effect to the
Advantage Health acquisition) now operated by the Company makes it more
attractive to managed care networks, major insurance companies, regional and
national employers and regional provider alliances and enhances the Company's
ability to implement its Integrated Service Model in additional markets. See
Item 7, "Management's Discussion and Analysis of Financial Conditions and
Results of Operations".
Industry Background
In 1991 (the most recent year for which data are available),
approximately 4,000,000 people in the United States received rehabilitative
healthcare services. "Rehabilitative healthcare services" refers to the range of
skilled services provided to individuals in order to minimize physical and
cognitive impairments, maximize functional ability and restore lost functional
capacity. The focus of rehabilitative healthcare is to ameliorate physical and
cognitive impairments resulting from illness or injury, and to restore or
improve functional ability so that individuals can return to work and lead
independent and fulfilling lives. Typically, rehabilitative healthcare services
are provided by a variety of healthcare professionals including physiatrists,
rehabilitation nurses, physical therapists, occupational therapists,
speech-language pathologists, respiratory therapists, recreation therapists,
social workers, psychologists, rehabilitation counselors and others. Over 80% of
those receiving rehabilitative healthcare services return to their homes, work,
schools or active retirement.
Demand for rehabilitative healthcare services continues to be driven by
advances in medical technologies, an aging population and the recognition on the
part of the payor community (insurers, self-insured companies, managed care
organizations and federal, state and local governments) that appropriately
administered rehabilitative services can improve quality of life as well as
lower overall healthcare costs. Studies conducted by insurance companies
demonstrate the ability of rehabilitation to significantly reduce the cost of
future care. Estimates of the savings range from $11 to $30 per dollar spent on
rehabilitation. Further, reimbursement changes have encouraged the rapid
discharge of patients from acute-care hospitals while they remain in need of
rehabilitative healthcare services.
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Patient Care Services
The Company 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, the Company 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. The Company'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, the
Company 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. The Company believes that these additional businesses
also provide opportunities for growth in other areas not directly related to the
rehabilitative business, and the Company intends to pursue further expansion in
those businesses.
Rehabilitative Services: General
When a patient is referred to one of the Company's rehabilitation
facilities, he undergoes an initial evaluation and assessment process that
results in the development of a rehabilitation care plan designed specifically
for that patient. Depending upon the patient's disability, this evaluation
process may involve the services of a single discipline, such as physical
therapy for a knee injury, or of multiple disciplines, as in the case of a
complicated stroke patient. HEALTHSOUTH has developed numerous rehabilitation
programs, which include stroke, head injury, spinal cord injury, neuromuscular
and work injury, that combine certain services to address the needs of patients
with similar disabilities. In this way, all of the facilities' patients,
regardless of the severity and complexity of their disabilities, can receive the
level and intensity of those services necessary for them to be restored to as
productive, active and independent a lifestyle as possible.
Outpatient Rehabilitation Services
The Company operates the largest group of affiliated proprietary
outpatient rehabilitation facilities in the United States. The Company's
outpatient rehabilitation centers offer a comprehensive range of rehabilitative
healthcare services, including physical therapy and occupational therapy, that
are tailored to the individual patient's needs, focusing predominantly on
orthopaedic injuries, sports injuries, work injuries, hand and upper extremity
injuries, back injuries, and various neurological neuromuscular conditions. As
of January 31, 1996, the Company provided outpatient rehabilitative healthcare
services through approximately 500 outpatient locations, including freestanding
outpatient centers and their satellites and outpatient satellites of inpatient
facilities.
The continuing emphasis on containing the increases in healthcare
costs, as evidenced by Medicare's prospective payment system, the growth in
managed care and the various alternative healthcare reform proposals, results in
the early discharge of patients from acute-care facilities. As a result, many
hospital patients do not receive the intensity of services that may be necessary
for them to achieve a full recovery from their diseases, disorders or traumatic
conditions. The Company's outpatient rehabilitation services play a significant
role in the continuum of care because they provide hospital-level services, in
terms of intensity, quality and frequency, in a more cost- efficient setting.
Patients treated at the Company's outpatient centers will undergo
varying courses of therapy depending upon their needs. Some patients may only
require a few hours of therapy per week for a few weeks, while others may spend
up to five hours per day in therapy for six months or more, depending on the
nature, severity and complexity of their injuries.
In general, the Company initially establishes an outpatient center in a
given market, either by acquiring an existing private therapy practice or
through de novo development, and institutes its clinical protocols and programs
in response to the community's general need for services. The Company will then
establish satellite clinics that are
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dependent upon the main facility for management and administrative services.
These satellite clinics generally provide a specific evaluative or specialty
service/program, such as hand therapy or foot and ankle therapy, in response to
specific market demands. The Company's outpatient rehabilitation facilities
range in size from 1,200 square feet for specialty clinics to 20,000 square feet
for large, full-service facilities. Currently, the typical outpatient facility
configuration ranges in size from 2,000 to 5,000 square feet and costs less than
$500,000 to build and equip.
Patient utilization of the Company's outpatient rehabilitation
facilities cannot be measured in the conventional manner applied to acute-care
hospitals, nursing homes and other healthcare providers which have a fixed
number of licensed beds and serve patients on a 24-hour basis. Utilization
patterns in outpatient rehabilitation facilities will be affected by the market
to be served, the types of injuries treated, the patient mix and the number of
available therapists, among other factors. Moreover, because of variations in
size, location, hours of operation, referring physician base and services
provided and other differences among each of the Company's outpatient
facilities, it is not possible to accurately assess patient utilization against
a norm.
Inpatient Services
Inpatient Rehabilitation Facilities. At January 31, 1996, the Company
operated 77 inpatient rehabilitation facilities with 4,618 beds, representing
the largest group of affiliated proprietary inpatient rehabilitation facilities
in the United States. The Company's inpatient rehabilitation facilities provide
high-quality comprehensive services to patients who require intensive
institutional rehabilitation care.
Inpatient rehabilitation patients are typically those who are
experiencing significant physical disabilities due to various conditions, such
as head injury, spinal cord injury, stroke, certain orthopaedic problems and
neuromuscular disease. The Company's inpatient rehabilitation facilities provide
the medical, nursing, therapy and ancillary services required to comply with
local, state and federal regulations as well as accreditation standards of the
Joint Commission on Accreditation of Healthcare Organizations (the "JCAHO") and
the Commission on Accreditation of Rehabilitation Facilities ("CARF").
All of the Company's inpatient rehabilitation facilities utilize an
interdisciplinary team approach to the rehabilitation process and involve the
patient and family, as well as the payor, in the determination of the goals for
the patient. Internal case managers monitor each patient's progress and provide
documentation of patient status, achievement of goals, functional outcomes and
efficiency.
The Company acquires or develops inpatient rehabilitation facilities in
those communities where it believes there is a demonstrated need for
comprehensive inpatient rehabilitation services. Depending upon the specific
market opportunity, these facilities may be licensed as rehabilitation hospitals
or skilled nursing facilities. The Company believes that it can provide
high-quality rehabilitation services in either type of facility, but prefers to
utilize the rehabilitation hospital form.
In certain markets where it does not provide free-standing outpatient
facilities, the Company's rehabilitation hospitals may provide outpatient
rehabilitation services as a complement to their inpatient services. Typically,
this opportunity arises when patients complete their inpatient course of
treatment but remain in need of additional therapy that can be accomplished on
an outpatient basis. Depending upon the demand for outpatient services and
physical space constraints, the rehabilitation hospital may establish the
services either within its building or in a satellite location. In either case,
the clinical protocols and programs developed for use in the free-standing
outpatient centers will be utilized by these facilities.
The Company's Nashville, Tennessee (Vanderbilt University), Memphis,
Tennessee (Methodist Hospitals), Dothan, Alabama (Southeast Alabama Medical
Center) and Charleston, South Carolina (North Trident Regional Medical Center)
hospital facilities have been developed in conjunction with local tertiary-care
facilities. This
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strategy of developing effective referral and service networks prior to opening
results in improved operating efficiencies for the new facilities. The Company
is utilizing this same concept in rehabilitation hospitals under development
with the University of Missouri and the University of Virginia.
Medical Centers. The Company operates five medical centers with 912
licensed beds in four distinct markets. These facilities provide general and
specialty medical and surgical healthcare services, emphasizing orthopaedics,
sports medicine and rehabilitation.
The Company acquired its five medical centers as outgrowths of its
rehabilitative healthcare services. Often, patients require medical and surgical
interventions prior to the initiation of their rehabilitative care. In each of
the markets in which the Company has acquired a medical center, the Company had
well-established relationships with the medical communities serving each
facility. In addition, each of the facilities enjoyed well-established
reputations in orthopaedics and/or sports medicine prior to their acquisition by
the Company. Following the acquisition of each of its medical centers, the
Company has provided the resources to improve upon the physical plant and expand
services through the introduction of new technology. The Company has also
developed additional relationships between these facilities and certain
university facilities, including the University of Miami, Auburn University and
the University of Alabama at Birmingham. Through these relationships, the influx
of celebrity athletes and personalities and the acquisition of new technology,
all five medical centers have improved their operating efficiencies and enhanced
census.
Each of the five medical center facilities is licensed as an acute-care
hospital, is accredited by the JCAHO and participates in the Medicare
prospective payment system. See this Item, "Business -- Regulation".
Inpatient Facility Utilization. In measuring patient utilization of the
Company's inpatient facilities, various factors must be considered. Due to
market demand, demographics, start-up status, renovation, patient mix and other
factors, the Company may not treat all licensed beds in a particular facility as
available beds, which sometimes results in a material variance between licensed
beds and beds actually available for utilization at any specific time. The
Company is in a position to increase the number of available beds at such
facilities as market conditions dictate. During the year ended December 31,
1995, the Company's inpatient facilities achieved an overall utilization, based
on patient days and available beds, of 70.5%.
Surgery Centers
As a result of the acquisitions of SHC, SSCI and SCA in 1995 and early
1996, the Company became the largest operator of outpatient surgery centers in
the United States. It currently operates 123 free-standing surgery centers,
including five mobile lithotripsy units, in 30 states, and has an additional ten
free-standing surgery centers under development. Approximately 80% of these
facilities are located in markets served by the Company outpatient and
rehabilitative service facilities, enabling the Company to pursue opportunities
for cross-referrals between surgery and rehabilitative facilities as well as to
centralize administrative functions. The Company's surgery centers provide the
facilities and medical support staff necessary for physicians to perform
non-emergency surgical procedures. Its typical surgery center is a free-standing
facility with three to six fully equipped operating and procedure rooms and
ancillary areas for reception, preparation, recovery and administration. Each of
the Company's surgery centers is available for use only by licensed physicians,
oral surgeons and podiatrists, and the centers do not perform surgery on an
emergency basis.
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 the Company's surgery centers currently provide
for extended recovery stays. The Company's ability to develop such recovery care
facilities is dependent upon state regulatory environments in the particular
states where its centers are located.
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The Company's outpatient surgery centers implement quality control
procedures to evaluate the level of care provided the centers. Each center has a
medical advisory committee of three to ten physicians which reviews the
professional credentials of physicians applying for medical staff privileges at
the center.
Other Patient Care Services
In certain of its markets, the Company provides other patient care
services, including home healthcare, diagnostic services, physician services and
contract management of hospital-based rehabilitative healthcare services. The
Company 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 the Company or stand-alone
businesses.
Marketing of Facilities and Services
The Company markets its facilities, and their services and programs, on
local, regional and national levels. Local and regional marketing activities are
typically coordinated by facility-based marketing personnel, whereas large-scale
regional and national efforts are coordinated by corporate-based personnel.
In general, the Company develops a marketing plan for each facility
based on a variety of factors, including population characteristics, physician
characteristics and incidence of disability statistics, in order to identify
specific service opportunities. Facility-oriented marketing programs are focused
on increasing the volume of patient referrals to the specific facility and
involve the development of ongoing relationships with area schools, businesses
and industries as well as physicians, health maintenance organizations and
preferred provider organizations.
The Company's larger-scale marketing activities are focused more
broadly on efforts to generate patient referrals to multiple facilities and the
creation of new business opportunities. Such activities include the development
and maintenance of contractual relationships or national pricing agreements with
large third-party payors, such as CIGNA, Metrahealth or other national insurance
companies, with national HMO/PPO companies, such as
Healthcare-COMPARE/AFFORDABLE, Hospital Network of America and Multiplan, with
national case management companies, such as INTRACORP and Crawford & Co., and
with national employers, such as Wal-Mart, Georgia-Pacific Corporation, Dillard
Department Stores, Goodyear Tire & Rubber and Winn-Dixie. In addition, since
many of the facilities acquired by the Company during the past two years had
very limited contractual relationships with payors, managed care providers,
employers and others, the Company is expanding its existing payor relationships
to include these facilities.
The Company carries out broader programs designed to further enhance
its public image. Among these is the HEALTHSOUTH Sports Medicine Council, headed
by Bo Jackson, which is dedicated to developing educational programs focused on
athletics for use in high schools. The Company has ongoing relationships with
the Ladies Professional Golf Association, the Southeastern Conference and more
than 400 universities, colleges and high schools to provide sports medicine
coverage of events and rehabilitative healthcare services for injured athletes.
In addition, the Company has established relationships with or provided
treatment services for athletes from some 35 to 40 major professional sports
teams, as well as providing sports medicine services for Olympic and amateur
athletes.
The Company is a national sponsor of the United Cerebral Palsy
Association and the National Arthritis Foundation and supports many other
charitable organizations on national and local levels. Through these endeavors,
the Company provides its employees with opportunities to support their
communities.
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Sources of Revenues
Private pay revenue sources represent the majority of the Company's
revenues. The following table sets forth the percentages of the Company's
revenues from various sources for the periods indicated:
Year Ended Year Ended
Source December 31, 1994 December 31, 1995
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Medicare ................................. 41.0% 40.0%
Commercial (1) ........................... 34.1 34.8
Workers' Compensation..................... 10.9 10.3
All Other Payors (2)...................... 14.0 14.9
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100.0% 100.0%
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(1) Includes commercial insurance, HMOs, PPOs and other managed care plans.
(2) Medicaid is included in this category, but is insignificant in amount.
The above table does not reflect the facilities acquired from ReLife,
Inc. ("ReLife") in 1994, the SHC facilities and the SSCI facilities for
periods or portions thereof prior to the effective date of the
acquisitions. Comparable information for the ReLife, SHC and SSCI
facilities is not available and is not reflected in either year in the
table.
See this Item "Business -- Regulation -- Medicare Participation and
Reimbursement" for a description of the reimbursement regulations applicable to
the Company's facilities.
Competition
The Company competes in the geographic markets in which its facilities
are located. In addition, the Company's rehabilitation facilities compete on a
regional and national basis with other providers of specialized services such as
sports medicine and work hardening, and specific concentrations such as head
injury rehabilitation and orthopaedic surgery. The competition faced in each of
these markets is similar, with variations arising from the number of healthcare
providers in the given metropolitan area. The primary competitive factors in the
rehabilitation services business are quality of services, projected patient
outcomes, charges for services, responsiveness to the needs of the patients,
community and physicians, and ability to tailor programs and services to meet
specific needs of the patients. Competitors and potential competitors include
hospitals, private practice therapists, rehabilitation agencies and others. Some
of these competitors may have greater patient referral support and financial and
personnel resources in particular markets than the Company. Management believes
that the Company competes successfully within the marketplace based upon its
reputation for quality, competitive prices, positive rehabilitation outcomes,
innovative programs, clean and bright facilities and responsiveness to needs.
The Company's medical centers are located in four urban areas of the
country, all with well established healthcare services provided by a number of
proprietary, not-for-profit, and municipal hospital facilities. The Company's
facilities compete directly with these local hospitals as well as various
nationally recognized centers of excellence in orthopaedics, sports medicine and
other specialties. Because the Company's facilities enjoy a national and
international reputation for orthopaedic surgery and sports medicine, the
Company believes that its medical centers' level of service and continuum of
care enable them to compete successfully, both locally and nationally.
The Company's surgery centers compete primarily with hospitals and
other operators of freestanding surgery centers in attracting physicians and
patients, and in developing new centers and in acquiring existing centers. The
primary competitive factors in the outpatient surgery business are convenience,
cost, quality of service,
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physician loyalty and reputation. Hospitals have many competitive advantages in
attracting physicians and patients, including established standing in a
community, historical physician loyalty and convenience for physicians making
rounds or performing inpatient surgery in the hospital. However, the Company
believes that its national market system and its historical presence in certain
of the markets where its surgery centers are located will enhance the Company's
ability to operate these facilities successfully.
The Company potentially faces competition any time it initiates a
Certificate of Need ("CON") project or seeks to acquire an existing facility or
CON. See this Item, "Business -- Regulation". This competition may arise either
from competing companies, national or regional, or from local hospitals which
file competing applications or oppose the proposed CON project. The necessity
for these approvals serves as a barrier to entry and has the potential to limit
competition by creating a franchise to provide services to a given area. To date
the Company has been successful in obtaining each of the CONs or similar
approvals which it has sought, although there can be no assurance that it will
achieve similar success in the future.
Regulation
The healthcare industry is subject to regulation by federal, state and
local governments. The various levels of regulatory activity affect the
Company's business activities by controlling its growth, requiring licensure or
certification of its facilities, regulating the use of its properties and
controlling the reimbursement to the Company for services provided.
Licensure, Certification and Certificate of Need Regulations
Capital expenditures for the construction of new facilities, the
addition of beds or the acquisition of existing facilities may be reviewable by
state regulators under a statutory scheme which is sometimes referred to as a
CON program. States with CON programs place limits on the construction and
acquisition of healthcare facilities and the expansion of existing facilities
and services. In such states, approvals are required for capital expenditures
exceeding certain amounts which involve inpatient rehabilitation facilities or
services. Outpatient rehabilitation facilities and services do not require such
approvals in a majority of states.
State CON statutes generally provide that, prior to the addition of new
beds, the construction of new facilities or the introduction of new services, a
state health planning designated agency (a "SHPDA") must determine that a need
exists for those beds, facilities or services. The CON process is intended to
promote comprehensive healthcare planning, assist in providing high quality
healthcare at the lowest possible cost and avoid unnecessary duplication by
ensuring that only those healthcare facilities that are needed will be built.
Typically, the provider of services submits an application to the
appropriate SHPDA with information concerning the area and population to be
served, the anticipated demand for the facility or service to be provided, the
amount of capital expenditure, the estimated annual operating costs, the
relationship of the proposed facility or service to the overall state health
plan and the cost per patient day for the type of care contemplated. Whether the
CON is granted is based upon a finding of need by the SHPDA in accordance with
criteria set forth in CON statutes and state and regional health facilities
plans. If the proposed facility or service is found to be necessary and the
applicant to be the appropriate provider, the SHPDA will issue a CON containing
a maximum amount of expenditure and a specific time period for the holder of the
CON to implement the approved project.
Licensure and certification are separate, but related, regulatory
activities. The former is usually a state or local requirement and the latter is
a federal requirement. In almost all instances, licensure and certification will
follow specific standards and requirements that are set forth in readily
available public documents. Compliance with the requirements is monitored by
annual on-site inspections by representatives of various government agencies.
All of the Company's inpatient rehabilitation facilities and medical centers and
substantially all of the Company's surgery centers are currently required to be
licensed, but only the outpatient rehabilitation facilities located in
- 10 -
<PAGE>
Alabama, Arizona, Connecticut, Maryland, Massachusetts and New Hampshire
currently must satisfy such a licensing requirement.
Medicare Participation and Reimbursement
In order to participate in the Medicare program and receive Medicare
reimbursement, each facility must comply with the applicable regulations of the
United States Department of Health and Human Services relating to, among other
things, the type of facility, its equipment, its personnel and its standards of
medical care, as well as compliance with all state and local laws and
regulations. All of the Company's inpatient facilities, except for the St. Louis
head injury center, participate in the Medicare program. Approximately 165 of
the Company's outpatient rehabilitation facilities currently participate in, or
are awaiting the assignment of a provider number to participate in, the Medicare
program. All of the Company's surgery centers are certified (or awaiting
certification) under the Medicare program. Its Medicare-certified facilities,
inpatient and outpatient, undergo annual on-site Medicare certification surveys
in order to maintain their certification status. Failure to comply with the
program's conditions of participation may result in loss of program
reimbursement or other governmental sanctions. All such facilities have been
deemed to be in satisfactory compliance on all applicable surveys. The Company
has developed its operational systems to assure compliance with the various
standards and requirements of the Medicare program and has established ongoing
quality assurance activities to monitor compliance. The Company believes that
all of such facilities currently meet all applicable Medicare requirements.
As a result of the Social Security Act Amendments of 1983, Congress
adopted a prospective payment system ("PPS") to cover the routine and ancillary
operating costs of most Medicare inpatient hospital services. Under this system,
the Secretary of Health and Human Services has established fixed payment amounts
per discharge based on diagnosis-related groups ("DRGs"). With limited
exceptions, a hospital's payment for Medicare inpatients is limited to the DRG
rate, regardless of the number of services provided to the patient or the length
of the patient's hospital stay. Under PPS, a hospital may retain the difference,
if any, between its DRG rate and its operating costs incurred in furnishing
inpatient services, and is at risk for any operating costs that exceed its DRG
rate. The Company's medical center facilities are generally subject to PPS with
respect to Medicare inpatient services.
The PPS program has been beneficial for the rehabilitation segment of
the healthcare industry because of the economic pressure on acute-care hospitals
to discharge patients as soon as possible. The result has been increased demand
for rehabilitation services for those patients discharged early from acute-care
hospitals. Outpatient rehabilitation services and free-standing inpatient
rehabilitation facilities are currently exempt from PPS, and inpatient
rehabilitation units within acute-care hospitals are eligible to obtain an
exemption from PPS upon satisfaction of certain federal criteria.
Currently, five of the Company's outpatient centers are
Medicare-certified Comprehensive Outpatient Rehabilitation Facilities ("CORFs")
and 143 are Medicare-certified rehabilitation agencies. CORFs have been
designated cost-reimbursed Medicare providers since 1982. Under the regulations,
CORFs are reimbursed reasonable costs (subject to certain limits) for services
provided to Medicare beneficiaries. Outpatient rehabilitation facilities
certified by Medicare as rehabilitation agencies are reimbursed on the basis of
the lower of reasonable costs for services provided to Medicare beneficiaries or
charges for such services. Outpatient rehabilitation facilities which are
physician-directed clinics, as well as outpatient surgery centers, are
reimbursed by Medicare on a fee screen basis; that is, they receive a fixed fee,
which is determined by the geographical area in which the facility is located,
for each procedure performed. The Company's outpatient rehabilitation facilities
submit monthly bills to their fiscal intermediaries for services provided to
Medicare beneficiaries, and the Company files annual cost reports with the
intermediaries for each such facility. Adjustments are then made if costs have
exceeded payments from the fiscal intermediary or vice versa.
The Company's inpatient facilities (other than the medical center
facilities) either are not currently covered by PPS or are exempt from PPS, and
are also cost-reimbursed, receiving the lower of reasonable costs or charges.
- 11 -
<PAGE>
Typically, the fiscal intermediary pays a set rate based on the prior year's
costs for each facility. As with outpatient facilities subject to cost-based
reimbursement, annual cost reports are filed with the Company's fiscal
intermediary and payment adjustments are made, if necessary.
Congress has directed the United States Department of Health and Human
Services to develop regulations, which could subject inpatient rehabilitation
hospitals to PPS in place of the current "reasonable cost within limits" system
of reimbursement. In addition, informal proposals have been made for a
prospective payment system for Medicare outpatient care. Other proposals for a
prospective payment system for rehabilitation hospitals are also being
considered by the federal government. Therefore, the Company cannot predict at
this time the effect that any such changes may have on its operations.
Regulations relating to prospective payment or other aspects of reimbursement
may be developed in the future which could adversely affect reimbursement for
services provided by the Company.
Over the past several years an increasing number of healthcare
providers have been accused of violating the federal False Claims Act. That Act
prohibits the knowing presentation of a false claim to the United States
government. Because the Company performs thousands of similar procedures a year
for which it is reimbursed by Medicare and there is a relatively long statute of
limitations, a billing error could result in significant civil penalties. The
Company does not believe that it is or has been in violation of the False Claims
Act.
Relationships with Physicians and Other Providers
Various state and federal laws regulate relationships among providers
of healthcare services, including employment or service contracts and investment
relationships. These restrictions include a federal criminal law prohibiting (i)
the offer, payment, solicitation or receipt of remuneration by individuals or
entities, to induce referrals of patients for services reimbursed under the
Medicare or Medicaid programs or (ii) the leasing, purchasing, ordering,
arranging for or recommending the lease, purchase or order of any item, good,
facility or service covered by such programs (the "Fraud and Abuse Law"). In
addition to federal criminal sanctions, violators of the Fraud and Abuse Law may
be subject to significant civil sanctions, including fines and/or exclusion from
the Medicare and/or Medicaid programs.
In 1991, the Office of the Inspector General ("OIG") of the United
States Department of Health and Human Services promulgated regulations
describing compensation arrangements which are not viewed as illegal
remuneration under the Fraud and Abuse Law (the "Safe Harbor Rules"). The Safe
Harbor Rules create certain standards ("Safe Harbors") for identified types of
compensation arrangements which, if fully complied with, assure participants in
the particular arrangement that the OIG will not treat such participation as a
criminal offense under the Fraud and Abuse Law or as the basis for an exclusion
from the Medicare and Medicaid programs or an imposition of civil sanctions. The
OIG closely scrutinizes health care joint ventures involving physicians and
other referral sources. In 1989, the OIG published a Fraud Alert that outlined
questionable features of "suspect" joint ventures.
In 1992, regulations were published in the Federal Register
implementing the OIG sanction and civil money penalty provisions established in
the Fraud and Abuse Law. The regulations (the "Exclusion Regulations") provide
that the OIG may exclude a Medicare provider from participation in the Medicare
Program for a five-year period upon a finding that the Fraud and Abuse Law has
been violated. The regulations expressly incorporate a test adopted by three
federal circuit courts providing that if one purpose of remuneration that is
offered, paid, solicited or received is to induce referrals, then the statute is
violated. The regulations also provide that after the OIG establishes a factual
basis for excluding a provider from the program, the burden of proof shifts to
the provider to prove that the Fraud and Abuse Law has not been violated.
The Company operates five of its rehabilitation hospitals and almost
all of its outpatient rehabilitation facilities as limited partnerships. Three
of the rehabilitation hospital partnerships involve physician investors, and two
of the rehabilitation hospital partnerships involve other institutional
healthcare providers. Seven of the
- 12 -
<PAGE>
outpatient partnerships currently have a total of 21 physician limited partners,
some of whom refer patients to the partnerships. Those partnerships which are
providers of services under the Medicare program, and their limited partners,
are subject to the Fraud and Abuse Law. A number of the relationships
established by the Company with physicians and other healthcare providers do not
fit within any of the Safe Harbors. The Safe Harbor Rules do not expand the
scope of activities that the Fraud and Abuse Law prohibits, nor do they provide
that failure to fall within a Safe Harbor constitutes a violation of the Fraud
and Abuse Law; however, the OIG has informally indicated that failure to fall
within a Safe Harbor may subject an arrangement to increased scrutiny.
Most of the Company's surgery centers are owned by limited
partnerships, which include as limited partners physicians who perform surgical
procedures at such centers. Subsequent to the promulgation of the Safe Harbor
Rules in 1991, the Department of Health and Human Services issued for public
comment additional proposed Safe Harbors, one of which specifically addresses
surgeon ownership interests in ambulatory surgery centers (the "Proposed ASC
Safe Harbor"). As proposed, the Proposed ASC Safe Harbor would protect payments
to be made to surgeons as a return on investment interest in a surgery center
if, among other conditions, all the investors are surgeons who are in a position
to refer patients directly to the center and perform surgery on such referred
patients. Since a subsidiary of the Company is an investor in each limited
partnership which owns a surgery center, the Company's arrangements with
physician investors do not fit within the Proposed ASC Safe Harbor as currently
proposed. The Company is unable at this time to predict whether the Proposed ASC
Safe Harbor will become final, and if so, whether the language and requirements
will remain as currently proposed, or whether changes will be made prior to
becoming final. There can be no assurance that the Company will ever meet the
criteria under the Proposed ASC Safe Harbor as proposed or as it may be adopted
in final form. The Company believes, however, that its arrangements with
physicians with respect to its surgery center facilities should not fall within
the activities prohibited by the Fraud and Abuse Law.
While several federal court decisions have aggressively applied the
restrictions of the Fraud and Abuse Law, they provide little guidance as to the
application of the Fraud and Abuse Law to the Company's limited partnerships.
The Company believes that it is in compliance with the current requirements of
applicable federal and state law, but no assurances can be given that a federal
or state agency charged with enforcement of the Fraud and Abuse Law and similar
laws might not assert a contrary position or that new federal or state laws, or
new interpretations of existing laws, might not adversely affect relationships
established by the Company with physicians or other healthcare providers or
result in the imposition of penalties on the Company or certain of its
facilities. Even the assertion of a violation could have a material adverse
effect upon the Company.
The so-called "Stark II" provisions of the Omnibus Budget
Reconciliation Act of 1993 amend the federal Medicare statute to prohibit the
making by a physician of referrals for "designated health services" (including
physical therapy and occupational therapy) to an entity in which the physician
has an investment interest or other financial relationship, subject to certain
exceptions. Such prohibition took effect on January 1, 1995 and applies to all
of the Company's outpatient rehabilitation facility partnerships with physician
limited partners. In addition, a number of states have passed or are considering
statutes which prohibit or limit physician referrals of patients to facilities
in which they have an investment interest. In response to these regulatory
activities, the Company has restructured most of its rehabilitation facility
partnerships which involve physician investors, in order to eliminate physician
ownership interests not permitted by applicable law. The Company intends to take
such actions as may be required to cause the remaining partnerships to be in
compliance with applicable laws and regulations, including, if necessary, the
prohibition of physician partners from referring patients. The Company believes
that this restructuring has not adversely affected and will not adversely affect
the operations of its facilities.
Ambulatory surgery is not identified as a "designated health service",
and the Company does not believe that ambulatory surgery is subject to the
restrictions set forth in Stark II. However, lithotripsy facilities operated by
the Company frequently operate on hospital campuses, and it is possible to
conclude that such services are "inpatient and outpatient hospital services" --
a category of proscribed services within the meaning of Stark II. Similarly,
physicians frequently perform endoscopic procedures in the procedure rooms of
the Company's surgery centers, and it is also possible to construe these
services to be "designated health services". While the Company
- 13 -
<PAGE>
does not believe that Stark II was intended to apply to such services, if that
were determined to be the case, the Company intends to take steps necessary to
cause the operation of its facilities to comply with the law.
The Company cannot predict whether other regulatory or statutory
provisions will be enacted by federal or state authorities which would prohibit
or otherwise regulate relationships which the Company has established or may
establish with other healthcare providers or the possibility of materially
adverse effects on its business or revenues arising from such future actions.
Management of the Company believes, however, that the Company will be able to
adjust its operations so as to be in compliance with any regulatory or statutory
provision as may be applicable. See this Item, "Business -- Patient Care
Services" and "Business -- Sources of Revenues".
Insurance
Beginning December 1, 1993, the Company became self-insured for
professional liability and comprehensive general liability. The Company
purchased coverage for all claims incurred prior to December 1, 1993. In
addition, the Company purchased underlying insurance which would cover all
claims once established limits have been exceeded. It is the opinion of
management that as of December 31, 1995, the Company had adequate reserves to
cover losses on asserted and unasserted claims.
Employees
As of January 31, 1996, the Company employed 26,427 persons, of whom
17,016 were full-time employees and 9,411 were part-time employees. Of the above
employees, 417 were employed at the Company's headquarters in Birmingham,
Alabama. Except for approximately 100 employees at one rehabilitation hospital
(about 20% of that facility's workforce), none of the Company's employees are
represented by a labor union. The Company is not aware of any current activities
to organize its employees at other facilities. Management of the Company
considers the relationship between the Company and its employees to be good.
Item 2. Properties.
The Company's executive offices currently occupy approximately 120,000
square feet of leased space in Birmingham, Alabama. In August 1995, the Company
announced plans to construct new executive offices on property acquired by it
earlier in the year. The expanded executive offices are expected to be fully
available by December 1996. All of the Company's outpatient operations are
carried out in leased facilities, except for its outpatient rehabilitation
facilities located in Birmingham and Montgomery, Alabama, Orlando and Panama
City, Florida, Bedford, New Hampshire and one of its facilities in Baltimore,
Maryland. The Company owns 33 of its inpatient rehabilitation facilities and
leases or operates under management contracts 44 of its inpatient rehabilitation
facilities. The Company also owns 27 of its surgery centers and leases the
remainder. The Company constructed its rehabilitation hospitals in Florence and
Columbia, South Carolina, Kingsport and Nashville, Tennessee, Concord, New
Hampshire, and Dothan, Alabama on property leased under long-term ground leases.
The property on which the Company's Memphis, Tennessee rehabilitation hospital
is located is owned in partnership by the Company and Methodist Hospitals of
Memphis. The Company owns its four medical center facilities in Birmingham,
Alabama, Richmond, Virginia and Miami, Florida and leases its medical center
facility in Dallas, Texas. The Company currently owns, and from time to time may
acquire, certain other improved and unimproved real properties in connection
with its business. See Notes 4 and 6 of "Notes to Consolidated Financial
Statements" for information with respect to the properties owned by the Company
and certain indebtedness related thereto.
- 14 -
<PAGE>
In management's opinion, the Company's physical properties are adequate
for the Company's needs for the foreseeable future, and are consistent with its
expansion plans described elsewhere in this Annual Report on Form 10-K.
The following table sets forth a listing of the Company's patient care
services locations at January 31, 1996:
<TABLE>
<CAPTION>
Outpatient Inpatient
Rehabilitation Rehabilitation Medical Surgery Diagnostic Other
State Market Centers(1) Facilities (Beds)(2) Centers (Beds)(2) Centers Centers Services
- ----- ------ ---------- -------------------- ----------------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Alabama Auburn 1
Birmingham 6 6(225) 1(219) 1 3
Dothan 1(34) 1
Florence 2 1
Gadsden 1 1 2
Huntsville 3 1(50)
Mobile 2 1
Montgomery 1 1(80)
Muscle Shoals 1
Opelika 1
Tuscaloosa 1 1
Valley 1
Alaska Anchorage 1
Arizona Mesa 3
Phoenix 7 1(60) 1
Prescott 2
Scottsdale 3 1(43)
Tucson 2 1(80) 1
Arkansas Fort Smith 1(80) 1
Little Rock 1 1
Van Buren 1
California Anaheim 1
Bakersfield 1 1(60) 1
Canoga Park 1
Carmichael 1
Cerritos 1
Elk Grove 1
Folsom 1
Foster City 1
Fresno 2
Huntington 2 1
Inglewood 1
Marina Del Rey 1 2
Murrieta 1
Newport Beach 1 1
Oakland 1 1
Oceanside 1
Palo Alto 1
Rancho Cordova 1
Redding 1
Redlands 1
Riverside 1
Sacramento 2 2
San Carlos 1
San Diego 12 3
San Francisco 2 1 1
- 15 -
<PAGE>
Outpatient Inpatient
Rehabilitation Rehabilitation Medical Surgery Diagnostic Other
State Market Centers(1) Facilities (Beds)(2) Centers (Beds)(2) Centers Centers Services
- ----- ------ ---------- -------------------- ----------------- ------- ------- --------
San Jose 1
San Leandro 1
San Luis Obispo 1
Santa Monica 1
Santa Rosa 2 1
Torrance 2
Vacaville 1
Van Nuys 2
Whittier 1
Woodland Hills 1
Colorado Colorado Springs 8 1 1
Denver 3 1 2
Englewood 2
Fort Collins 2 1
Longmont 1
Pueblo 1
Vail 1
Wheat Ridge 4
Connecticut Fairfield 1
Delaware Newark 4
District of
Columbia Washington 1 1
Florida Boca Raton 2 2
Coral Gables 2
Fort Lauderdale 1 1(108) 1
Fort Myers 1 1
Fort Pierce 1
Fort Walton Beach 1
Jacksonville 2
Lake Worth 1
Largo 1(40)
Lecanto 1
Melbourne 3 1(80) 1
Merritt Island 3
Miami 2 2(165) 2(397) 1 1 1
Naples 1
Ocala 2
Ocoee 2 1
Orlando 6 3
Palm Bay 2
Panama City 3
Port St. Lucie 3 1
St. Petersburg 1
Sarasota 2 1(60) 2
Tallahassee 2 1(70)
Tampa 4 1
Tarpon Springs 1
Vero Beach 1 1(70) 1
West Palm Beach 2 1
Georgia Atlanta 6 1(14) 3 1
Columbus 1
Gainesville 1
- 16 -
<PAGE>
Outpatient Inpatient
Rehabilitation Rehabilitation Medical Surgery Diagnostic Other
State Market Centers(1) Facilities (Beds)(2) Centers (Beds)(2) Centers Centers Services
- ----- ------ ---------- -------------------- ----------------- ------- ------- --------
Macon 1 2(75)
Hawaii Honolulu 1
Kahului 1
Kihei 1
Lahaina 1
Idaho Boise 1(3)
Illinois Barrington 2
Carol Stream 2
Chicago 27 2
Elgin 2
Gurnee 2
Joliet 2
Lake Zurich 2
Naperville 2
Rockford 3
Woodstock 2
Indiana Evansville 1(80) 1
Fort Wayne 4
Indianapolis 1 1
Jeffersonville 1
La Porte 1
Muncie 3
New Albany 1
South Bend 1
Warsaw 1
Iowa Des Moines 3
Kansas Kansas City 2
Great Bend 1
Kentucky Edgewood 1(40)
Lexington 1
Louisville 2 1
Louisiana Baton Rouge 1 1(43)
Metaire 1
New Orleans 1
Shreveport 1
Maine Bangor 2
Maryland Annapolis 2
Baltimore 8 4
Chevy Chase 1 1
Hagerstown 1
Rockville 1 1 1
Salisbury 1 1(44)
Severna Park 1
Wheaton 1
Massachusetts Abington 1
Springfield 1
- 17 -
<PAGE>
Outpatient Inpatient
Rehabilitation Rehabilitation Medical Surgery Diagnostic Other
State Market Centers(1) Facilities (Beds)(2) Centers (Beds)(2) Centers Centers Services
- ----- ------ ---------- -------------------- ----------------- ------- ------- --------
Michigan Marquette 1
Monroe 1
Mississippi Jackson 1
Pascagoula 1
Meridian 1
Missouri Blue Springs 1
Brentwood 1
Bridgeton 1
Cape Girardeau 3
Chesterfield 1
Columbia 2
Kansas City 2 2(21) 1
Lake Ozark 1
Springfield 3
St. Joseph 1
St. Louis 16 1(26) 4 2
Nebraska Omaha 2
Nevada Las Vegas 3
New Hampshire Bedford 3
Concord 1(100)
Dover 2
Manchester 1
Somersworth 1
New Jersey Atlantic City 1
Bridgewater 1 1
Brunswick 1 1(15)
Edison 2
Emerson 2
Haddonfield 1
Linden 2
Madison 1
Monahawkin 1
Mt. Laurel 1
Newton 1
North Bergen 1
Paramus 2
Roseland 1
Sparta 1
Succasunna 1
Tinton Falls 1
Toms River 1 1(155)
New Mexico Albuquerque 3 1(60) 1
New York Albany 1
Great Neck 2
Huntington 1
Liverpool 1
Monsey 2
New York 2
Orangeburg 1
Pulaski 1
- 18 -
<PAGE>
Outpatient Inpatient
Rehabilitation Rehabilitation Medical Surgery Diagnostic Other
State Market Centers(1) Facilities (Beds)(2) Centers (Beds)(2) Centers Centers Services
- ----- ------ ---------- -------------------- ----------------- ------- ------- --------
Syracuse 1
North Carolina Asheville 1
Chapel Hill 1
Charlotte 1 1
Concord 1
Durham 1
Greensboro 1
Kinston 1(17)
Marion 1
Monroe 1
Raleigh 2 1
Shelby 1
Statesville 1
Wilmington 1
Wilson 1
Ohio Ashtabula 1
Centerville 2
Cincinnati 1
Columbus 5
Cuyahoga Falls 1
Dayton 2
Dublin 1
Fairlawn 1
Independence 1
Lorain 5
Oregon 2
Toledo 2
Westerville 1
Oklahoma Ada 2
Oklahoma City 4 1(111) 2 1
Tulsa 2 1
Weatherford 1
Pennsylvania Altoona 2 1(66)
Camp Hill 1
Erie 1 2(207)
Harrisburg 3
Lancaster 1
Mechanicsburg 2 2(201)
Mt. Pleasant 1
Paoli 1
Pittsburgh 6 1(89)
Pleasant Gap 4 1(88)
Scranton 1
Springfield 1
York 3 1(88)
South Carolina Charleston 1 1(36) 1
Columbia 3 1(89)
Florence 1 1(88)
Greenville 1
Goose Creek 1
Lancaster 2(54)
- 19 -
<PAGE>
Outpatient Inpatient
Rehabilitation Rehabilitation Medical Surgery Diagnostic Other
State Market Centers(1) Facilities (Beds)(2) Centers (Beds)(2) Centers Centers Services
- ----- ------ ---------- -------------------- ----------------- ------- ------- --------
Tennessee Chattanooga 2 1(80) 2
Clarksville 1
Kingsport 1(50)
Knoxville 2 1
Dyersburg 1
Collierville 1
Union City 1
Martin 1(40)
Memphis 4 1(80) 1
Nashville 2 1(80) 1 1
Texas Allen 1
Amarillo 1
Arlington 2 1(60) 1
Austin 7 1(80) 1
Beaumont 1
Dallas 9 3(173) 1(96) 1 1 1
El Paso 1 1
Fort Worth 5 1(60) 1 1
Houston 11 2(186) 4 1 1
Midland 1(60)
San Antonio 2 3(127) 2 5
Stafford 1
Texarkana 1 1(60)
Victoria 1
Waco 2
Wylie 1 1
Utah Salt Lake City 1
Sandy 1 1(86)
Virginia Alexandria 1
Arlington 1
Falls Church 1
Norfolk 1
Richmond 2 3(84) 1(200) 1 1
Roanoke 1
Virginia Beach 3
Warrenton 1
Washington Seattle 20 1
Tacoma 3
West Virginia Beckley 1
Huntington 1(40)
Morgantown 1(80)
Parkersburg 1(40)
Princeton 1(40)
Wisconsin Eau Claire 1
Green Bay 1
Oshkosh 1
Wausau 1
Wauwatosa 1
______________________
<FN>
(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.
(3) Under construction.
</FN>
</TABLE>
- 20 -
<PAGE>
Item 3. Legal Proceedings.
In the ordinary course of its business, the Company may be subject,
from time to time, to claims and legal actions by patients and others. The
Company does not believe that any such pending actions, if adversely decided,
would have a material adverse effect on its financial condition. See Item 1,
"Business -- Insurance" and Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a description of the
Company's insurance coverage arrangements.
From time to time, the Company appeals decisions of various rate-making
authorities with respect to Medicare rates established for the Company's
facilities. These appeals are initiated in the ordinary course of business.
Management believes that adequate reserves have been established for possible
adverse decisions on any pending appeals and that the outcomes of currently
pending appeals, either individually or in the aggregate, will have no material
adverse effect on the Company's operations.
Item 4. Submission of Matters to a Vote of Security Holders.
On January 17, 1996, a Special Meeting of Stockholders of the Company
was held, at which the following actions were taken:
1. The shares of Common Stock represented at the Special Meeting were
voted in favor of the merger with SCA as follows:
NUMBER
VOTING FOR AGAINST ABSTAIN
------ --- ------- -------
69,296,381 68,987,300 138,189 170,892
2. The shares of Common Stock represented at the Special Meeting were
voted for the approval of an Amendment to the Restated Certificate of
Incorporation of the Company to increase the authorized shares of Common Stock
to 250,000,000 shares as follows:
NUMBER
VOTING FOR AGAINST ABSTAIN
------ --- ------- -------
71,658,079 70,713,604 750,958 193,517
- 21 -
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Company's Common Stock is listed for trading on the New York Stock
Exchange (Symbol: HRC). The following table sets forth for the fiscal periods
indicated the high and low reported sale prices for the Company's Common Stock
as reported on the NYSE Composite Transactions Tape. 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.
<TABLE>
<CAPTION>
Reported
Sale Price
High Low
1994
<S> <C> <C>
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
</TABLE>
-------------------------
The closing price for the Common Stock on the New York Stock Exchange
on March 21, 1996, was $36-5/8.
There were approximately 4,413 holders of record of the Common Stock as
of March 21, 1996, excluding those shares held by depository companies for
certain beneficial owners.
The Company has never paid cash dividends on its Common Stock and does
not anticipate the payment of cash dividends in the foreseeable future. The
Company currently anticipates that any future earnings will be retained to
finance the Company's operations.
- 22 -
<PAGE>
Item 6. Selected Financial Data.
Set forth below is a summary of selected consolidated financial data
for the Company for the years indicated. All amounts have been restated to
reflect the effects of the 1994 ReLife acquisition and the 1995 SHC and SSCI
acquisitions, each of which was accounted for as a pooling of interests.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ---------- ------------ ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues $ 277,655 $ 503,657 $ 678,425 $ 1,274,365 $ 1,556,687
Operating expenses:
Operating units 200,350 373,984 486,546 930,845 1,087,554
Corporate general and administrative 10,901 17,354 26,593 48,606 42,514
Provision for doubtful accounts 6,092 13,431 17,947 27,646 31,637
Depreciation and amortization 15,115 30,019 47,827 89,305 121,195
Interest expense 10,507 12,667 19,107 66,874 91,693
Interest income (5,835) (5,434) (4,352) (4,566) (5,879)
Merger and acquisition related expenses (1) ---- ---- 333 6,520 34,159
Loss on impairment of assets (2) ---- ---- ---- 10,500 11,192
Loss on abandonment of computer project (2) ---- ---- ---- 4,500 ----
NME Selected Hospitals Acquisition
related expense (2) ---- ---- 49,742 ---- ----
Terminated merger expense ---- 3,665 ---- ---- ----
Gain on sale of partnership interest ---- ---- (1,400) ---- ----
------------- ------------- ------------- ------------- -------------
237,130 445,686 642,343 1,180,230 1,414,065
Income before income taxes and
minority interests 40,525 57,971 36,082 94,135 142,622
Provision for income taxes 13,582 18,842 12,062 34,778 48,091
------------- ------------- ------------ ------------- -------------
Income before minority interests 26,943 39,129 24,020 59,357 94,531
Minority interests 1,272 4,430 6,684 8,864 15,582
-------------- -------------- ------------- -------------- --------------
Net income $ 25,671 $ 34,699 $ 17,336 $ 50,493 $ 78,949
============= ============= ============ ============= =============
Weighted average common and common
equivalent shares outstanding (3) 57,390 75,988 79,484 86,461 94,246
============= ============= ============ ============= =============
Net income per common and common
equivalent share(3) $ 0.45 $ 0.46 $ 0.22 $ 0.58 $ 0.84
============= ============= ============ ============= =============
Net income per common share--
assuming full dilution(3)(4) $ 0.43 $ N/A $ N/A $ 0.58 $ 0.82
============= ============= ============ ============= =============
</TABLE>
<TABLE>
<CAPTION>
December 31,
1991 1992 1993 1994 1995
---------- ------------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and marketable securities $ 126,508 $ 113,268 $ 94,084 $ 90,066 $ 108,973
Working capital 184,729 210,217 216,670 236,877 327,474
Total assets 503,797 818,089 1,487,772 1,778,939 2,460,129
Long-term debt(5) 171,275 343,477 906,972 1,052,064 1,281,287
Stockholders' equity 302,176 402,369 431,811 504,223 927,710
___________________
<FN>
(1) Expenses related to SHC's Ballas Merger in 1993, the ReLife and Heritage
Acquisitions in 1994 and the SHC, SSCI and NovaCare Rehabilitation
Hospitals Acquisition in 1995.
(2) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Notes to Consolidated Financial Statements".
(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 reflects 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 reflect
shares reserved for issuance upon conversion of HEALTHSOUTH's 5%
Convertible Subordinated Debentures due 2001.
(5) Includes current portion of long-term debt.
</FN>
</TABLE>
- 23 -
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General
The following discussion is intended to facilitate the understanding
and assessment of significant changes and trends related to the results of
operations and financial condition of the Company, including certain factors
related to recent acquisitions by the Company, the timing and nature of which
have significantly affected the Company's results of operations. This discussion
and analysis should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in this Annual Report
on Form 10-K.
The Company completed the following acquisitions over the last two
years:
o On December 31, 1993, HEALTHSOUTH acquired substantially all
of the assets of the rehabilitation services division of
National Medical Enterprises, Inc. (the "NME Selected
Hospitals Acquisition"). The purchase price was approximately
$315,000,000, plus net working capital. The Company acquired
28 inpatient rehabilitation facilities, with an aggregate of
2,296 licensed beds, and 45 outpatient rehabilitation centers.
o On December 29, 1994, HEALTHSOUTH acquired ReLife, Inc. (the
"ReLife Acquisition"). A total of 11,025,290 shares of
HEALTHSOUTH Common Stock were issued in the transaction,
representing a value of $180,000,000 at the time of the
acquisition. At that time, ReLife operated 31 inpatient
facilities with an aggregate of 1,102 licensed beds, including
nine free-standing rehabilitation hospitals, nine acute
rehabilitation units, five sub-acute rehabilitation units,
seven transitional living units and one residential facility,
and also provided outpatient rehabilitation services at 12
centers.
o Effective April 1, 1995, HEALTHSOUTH purchased the operations
of the rehabilitation hospital division of NovaCare, Inc. (the
"NovaCare Rehabilitation Hospitals Acquisition"). The purchase
price was approximately $235,000,000. The NovaCare
Rehabilitation Hospitals consisted of 11 rehabilitation
hospitals in seven states, 12 other facilities and two
Certificates of Need.
o On June 13, 1995, HEALTHSOUTH acquired Surgical Health
Corporation (the "SHC Acquisition"). A total of 8,531,480
shares of HEALTHSOUTH Common Stock were issued in the
transaction, representing a value of $155,000,000 at the time
of the acquisition. The Company also purchased SHC's
$75,000,000 aggregate principal amount of 11.5% Senior
Subordinated Notes due 2004 for an aggregate consideration of
approximately $86,000,000. At that time, SHC operated a
network of 36 free-standing surgery centers in 11 states, and
five mobile lithotripsy units.
o On October 26, 1995, HEALTHSOUTH acquired Sutter Surgery
Centers, Inc. (the "SSCI Acquisition"). A total of 1,776,001
shares of HEALTHSOUTH Common Stock were issued in the
transaction, representing a value of $44,444,000 at the time
of the acquisition. At that time, SSCI operated a network of
12 freestanding surgery centers in three states, with an
aggregate of 54 operating and procedure rooms.
o On December 1, 1995, HEALTHSOUTH acquired Caremark Orthopedic
Services Inc. (the "Caremark Acquisition"). The purchase price
was approximately $127,500,000. At that time Caremark owned
and operated approximately 120 outpatient rehabilitation
centers in thirteen states.
- 24 -
<PAGE>
The NME Selected Hospitals Acquisition, the NovaCare Rehabilitation
Hospitals Acquisition and the Caremark Acquisition each were accounted for under
the purchase method of accounting and, accordingly, such operations are included
in the Company's consolidated financial information from their respective dates
of acquisition. The ReLife Acquisition, the SHC Acquisition and the SSCI
Acquisition were each accounted for as a pooling of interests and, with the
exception of data set forth relating to revenues derived from Medicare and
Medicaid, all amounts shown in the following discussion have been restated to
reflect such acquisitions. ReLife, SHC and SSCI did not separately track such
revenues. The results of operations of SHC in turn reflect SHC's 1994
acquisition of Heritage Surgical Corporation (the "Heritage Acquisition"), which
also was accounted for as a pooling of interests.
As described below under " -- Liquidity and Capital Resources", in the
fourth quarter of 1995, the Company entered into agreements to acquire Surgical
Care Affiliates, Inc. and Advantage Health Corporation through mergers. These
transactions were consummated during the first quarter of 1996, and are not
reflected in the following discussion.
The Company determines the amortization period of the cost in excess of
net asset value of purchased facilities based on an evaluation of the facts and
circumstances of each individual purchase transaction. The evaluation includes
an analysis of historic and projected financial performance, an evaluation of
the estimated useful life of the buildings and fixed assets acquired, the
indefinite useful life of certificates of need and licenses acquired, the
competition within local markets, lease terms where applicable, and the legal
terms of partnerships where applicable. The Company utilizes independent
appraisers and relies on its own management expertise in evaluating each of the
factors noted above. With respect to the carrying value of the excess of cost
over net asset value of purchased facilities and other intangible assets, the
Company determines on a quarterly basis whether an impairment event has occurred
by considering factors such as the market value of the asset, a significant
adverse change in legal factors or in the business climate, adverse action by
regulators, history of operating losses or cash flow losses, or a projection of
continuing losses associated with an operating entity. The carrying value of
excess cost over net asset value of purchased facilities and other intangible
assets will be evaluated if the facts and circumstances suggest that it has been
impaired. If this evaluation indicates that the value of the asset will not be
recoverable, as determined based on the undiscounted cash flows of the entity
acquired over the remaining amortization period, an impairment loss is
calculated based on the excess of the carrying value of the asset over the
asset's fair value.
Governmental, commercial and private payors have increasingly
recognized the need to contain their costs for healthcare services. These
payors, accordingly, are turning to closer monitoring of services, prior
authorization requirements, utilization review and increased utilization of
outpatient services. During the periods discussed below, the Company has
experienced an increased effort by these payors to contain costs through
negotiated discount pricing. The Company views these efforts as an opportunity
to demonstrate the effectiveness of its clinical programs and its ability to
provide its rehabilitative healthcare services efficiently. The Company has
entered into a number of contracts with payors to provide services and has
realized an increased volume of patients as a result.
The Company's revenues include net patient service revenues and other
operating revenues. Net patient service revenues are reported at estimated net
realizable amounts from patients, insurance companies, third-party payors
(primarily Medicare and Medicaid) and others for services rendered. Revenues
from third-party payors also include estimated retroactive adjustments under
reimbursement agreements which are subject to final review and settlement by
appropriate authorities. Management determines allowances for doubtful accounts
and contractual adjustments based on historical experience and the terms of
payor contracts. Net accounts receivable include only those amounts estimated by
management to be collectible. The Company, in many cases, operates more than one
site within a market. In such markets, there is customarily an outpatient center
or inpatient facility with associated satellite outpatient locations. For
purposes of the following discussion and analysis, same store operations are
measured on locations within markets in which similar operations existed at the
end of the period and include the operations of additional locations opened
within the same market. New store operations are measured on locations within
new markets.
- 25 -
<PAGE>
Results of Operations of the Company
Twelve-Month Periods Ended December 31, 1993 and 1994
The Company operated 238 outpatient rehabilitation locations at
December 31, 1994, compared to 171 outpatient rehabilitation locations at
December 31, 1993. In addition, the Company operated 66 inpatient facilities, 47
surgery centers and five medical centers at December 31, 1994, compared to 39
inpatient facilities, 39 surgery centers and four medical centers at December
31, 1993.
The Company's operations generated revenues of $1,274,365,000 in 1994,
an increase of $595,940,000, or 87.8%, as compared to 1993 revenues. Same store
revenues for the twelve months ended December 31, 1994 were $784,884,000, an
increase of $106,459,000, or 15.7%, as compared to the same period in 1993. New
store revenues for 1994 were $489,481,000. New store revenues primarily reflect
the 28 inpatient rehabilitation facilities and 45 associated outpatient
rehabilitation locations associated with the NME Selected Hospitals Acquisition.
The increase in revenues is primarily attributable to the addition of these
operations and increases in patient volume. Revenues generated from patients
under Medicare and Medicaid plans respectively accounted for 41.0% and 3.2% of
revenues for 1994, compared to 30.6% and 1.0% of revenues for 1993. The increase
in Medicare revenues is primarily attributable to the NME Selected Hospitals
Acquisition, since the acquired facilities had a greater proportion of Medicare
patients than the Company's historical experience in its existing facilities.
Revenues from any other single third-party payor were not significant in
relation to the Company's revenues. During 1994, same store outpatient visits,
inpatient days and surgery center cases increased 21.8%, 23.0% and 5.0%,
respectively. Revenue per outpatient visit, inpatient day and surgery case for
the same store operations increased (decreased) by (7.8)%, (8.4)% and 0.9%,
respectively.
Operating expenses, at the operating unit level, were $930,845,000, or
73.0% of revenues, for 1994, compared to 71.7% of revenues for 1993. Same store
operating expenses for 1994 were $588,048,000, or 74.9% of related revenues. New
store operating expenses were $342,797,000, or 70.0% of related revenues.
Corporate general and administrative expenses increased from $26,593,000 in 1993
to $48,606,000 in 1994. As a percentage of revenues, corporate general and
administrative expense decreased from 3.9% in 1993 to 3.8% in 1994. Total
operating expenses were $979,451,000, or 76.9% of revenues, for 1994, compared
to $513,139,000, or 75.6% of revenues, for 1993. The provision for doubtful
accounts was $27,646,000, or 2.2% of revenues, for 1994, compared to
$17,947,000, or 2.6% of revenues, for 1993.
Depreciation and amortization expense was $89,305,000 for 1994,
compared to $47,827,000 for 1993. The increase represents the investment in
additional assets by the Company. Interest expense increased to $66,874,000 in
1994, compared to $19,107,000 for 1993, primarily because of the increased
borrowings during the year under the Company's revolving line of credit, the
issuance of $250,000,000 principal amount of 9.5% Senior Subordinated Notes due
2001 and the issuance of $115,000,000 principal amount of 5% Convertible
Subordinated Debentures due 2001. For 1994, interest income was $4,566,000,
compared to $4,352,000 for 1993.
As a result of the NME Selected Hospitals Acquisition, the Company
recognized an expense of approximately $49,742,000 during the year ended
December 31, 1993. By recognizing this expense, the Company accrued
approximately $3,000,000 for costs related to certain employee separations and
relocations. In addition, the Company provided approximately $39,000,000 for the
write-down of certain assets to net realizable value as the result of planned
facility consolidations, and approximately $7,700,000 for the write-off of
certain capitalized development projects. The consolidations are applicable in
selected markets where the Company's services overlap with those of the acquired
facilities. The costs of development projects in certain target markets that
were previously capitalized were written off due to the acquisition of NME
facilities in or near those markets. For further discussion, see Note 10 of
"Notes to Consolidated Financial Statements".
During 1994 and 1995, the Company completed the implementation of the
plan of consolidation related to the NME Selected Hospitals Acquisition. The
accrual for costs related to employee separations was increased
- 26 -
<PAGE>
by $338,000 due to a change in estimate. This adjustment was charged to
operations in 1994. The total accrual was then reduced by approximately $758,000
and $2,580,000 in actual employee separation costs during 1994 and 1995,
respectively. In addition, assets with a net book value of $17,911,000 and
$21,089,000 were written off against the $39,000,000 provided for in the plan
during 1994 and 1995, respectively. Finally, the Company wrote off all of the
$7,700,000 in capitalized development projects provided for in the plan during
1994.
Merger and acquisition related expenses in 1994 of $6,520,000 represent
costs incurred or accrued in connection with completing the ReLife Acquisition
($2,949,000) and the Heritage Acquisition ($3,571,000). For further discussion,
see Note 2 of "Notes to Consolidated Financial Statements".
During 1994, the Company recognized a $10,500,000 loss on impairment of
assets. This amount relates to the termination of a ReLife management contract
and a permanently damaged ReLife facility. The Company determined not to attempt
to reopen such damaged facility because, under its existing licensure, the
facility was not consistent with the Company's plans. Also during 1994, the
Company recognized a $4,500,000 loss on abandonment of a ReLife computer
project. For further discussion, see Note 15 of "Notes to Consolidated Financial
Statements".
Income before minority interests and income taxes for 1994 was
$94,135,000, compared to $36,082,000 for 1993. Minority interests reduced income
before income taxes by $8,864,000 in 1994, compared to $6,684,000 in 1993. The
provision for income taxes for 1994 was $34,778,000, compared to $12,062,000 for
1993, resulting in effective tax rates of 40.8% for 1994 and 41.0% for 1993. Net
income for 1994 was $50,493,000.
Twelve-Month Periods Ended December 31, 1994 and 1995
The Company operated 473 outpatient rehabilitation locations at
December 31, 1995, compared to 238 outpatient rehabilitation locations at
December 31, 1994. In addition, the Company operated 77 inpatient facilities, 56
surgery centers and five medical centers at December 31, 1995, compared to 66
inpatient facilities, 47 surgery centers and five medical centers at December
31, 1994.
The Company's operations generated revenues of $1,556,687,000 in 1995,
an increase of $282,322,000, or 22.2%, as compared to 1994 revenues. Same store
revenues for the twelve months ended December 31, 1995 were $1,410,278,000, an
increase of $135,913,000, or 10.7%, as compared to the same period in 1994. New
store revenues for 1995 were $146,409,000. New store revenues reflect (1) the 11
rehabilitation hospitals and 12 other facilities associated with the Novacare
Rehabilitation Hospitals Acquisition, (2) the 120 outpatient rehabilitation
centers associated with the Caremark Acquisition, (3) the acquisition of one
surgery center and one outpatient diagnostic imaging operation, and (4) the
acquisition of outpatient rehabilitation operations in 31 new markets. See Note
10 of "Notes to Consolidated Financial Statements". The increase in revenues is
primarily attributable to the addition of these operations and increases in
patient volume. Revenues generated from patients under Medicare and Medicaid
plans respectively accounted for 40.0% and 2.5% of total revenues for 1995,
compared to 41.0% and 3.2% of total revenues for 1994. Revenues from any other
single third-party payor were not significant in relation to the Company's total
revenues. During 1995, same store outpatient visits, inpatient days and surgery
center cases increased 24.6%, 11.0% and 12.0%, respectively. Revenue per
outpatient visit, inpatient day and surgery case for same store operations
increased (decreased) by (0.8%), 1.4% and (0.2%), respectively. These decreases
were offset by increased volume from managed care and national accounts and by
control of expenses.
Operating expenses, at the operating unit level, were $1,087,554,000,
or 69.9% of revenues, for 1995, compared to 73.0% of revenues for 1994. Same
store operating expenses for 1995 were $983,709,000, or 69.8% of related
revenues. New store operating expenses were $103,845,000, or 70.9% of related
revenues. Corporate general and administrative expenses decreased from
$48,606,000 in 1994 to $42,514,000 in 1995. As a percentage of revenues,
corporate general and administrative expenses decreased from 3.8% in 1994 to
2.7% in 1995. Total operating expenses were $1,130,068,000, or 72.6% of
revenues, for 1995, compared to $979,451,000, or 76.9%
- 27 -
<PAGE>
of revenues, for 1994. The provision for doubtful accounts was $31,637,000, or
2.0% of revenues, for 1995, compared to $27,646,000, or 2.2% of revenues, for
1994.
Depreciation and amortization expense was $121,195,000 for 1995,
compared to $89,305,000 for 1994. The increase resulted from the investment in
additional assets by the Company. Interest expense increased to $91,693,000 in
1995, compared to $66,874,000 for 1994, primarily because of the increased
average borrowings during 1995 under the Company's revolving line of credit. For
1995, interest income was $5,879,000 compared to $4,566,000 for 1994.
As a result of the NovaCare and SHC acquisitions, the Company
recognized $29,194,000 in merger and acquisition related expenses during the
second quarter of 1995. Fees related to legal, accounting and financial advisory
services accounted for $3,400,000 of the expense. Costs and expenses related to
the purchase of the SHC Notes (see "--Liquidity and Capital Resources" and Note
7 of "Notes to Consolidated Financial Statements") totaled $14,606,000. Accruals
for employee separations were approximately $1,188,000. In addition, the Company
provided approximately $10,000,000 for the write-down of certain assets to net
realizable value as the result of a planned facility consolidation. The
consolidation is applicable in a market where the Company's existing services
overlap with those of an acquired facility. The planned employee separations and
facility consolidation were completed by the end of 1995.
In the fourth quarter of 1995, the Company incurred direct costs and
expenses of $4,965,000 in connection with the SSCI Acquisition. These expenses
consist primarily of fees related to legal, accounting and financial advisory
services and are included in merger and acquisition related expenses for the
year ended December 31, 1995.
Also during 1995, the Company recognized an $11,192,000 loss on
impairment of assets. The impaired assets relate to six SHC facilities in which
the projected undiscounted cash flows did not support the book value of the
long-lived assets of such facilities. See Note 15 of "Notes to Consolidated
Financial Statements".
Income before minority interests and income taxes for 1995 was
$142,622,000, compared to $94,135,000 for 1994. Minority interests reduced
income before income taxes by $15,582,000, compared to $8,864,000 for 1994. The
provision for income taxes for 1995 was $48,091,000, compared to $34,778,000 for
1994, resulting in effective tax rates of 37.9% for 1995 and 40.8% for 1994. Net
income for 1995 was $78,949,000.
Liquidity and Capital Resources
At December 31, 1995, the Company had working capital of $327,474,000,
including cash and marketable securities of $108,973,000. Working capital at
December 31, 1994 was $236,877,000, including cash and marketable securities of
$90,066,000. For 1995, cash provided by operations was $217,282,000, compared to
$151,826,000 for 1994. The Company used $705,557,000 for investing activities
during 1995, compared to $272,479,000 for 1994. Additions to property, plant and
equipment and acquisitions accounted for $145,820,000 and $463,105,000,
respectively, during 1995. Those same investing activities accounted for
$161,728,000 and $89,266,000, respectively, in 1994. Financing activities
provided $515,238,000 and $108,975,000 during 1995 and 1994, respectively. Net
borrowing proceeds (borrowings less principal reductions) for 1995 and 1994 were
$193,812,000 and $105,890,000, respectively.
Net accounts receivable were $336,818,000 at December 31, 1995,
compared to $246,983,000 at December 31, 1994. The number of days of average
revenues in average receivables was 65.7 at December 31, 1995, compared to 61.8
at December 31, 1994. The increase is primarily attributable to approximately
$68,300,000 in net accounts receivable obtained through acquisitions during
1995, since the days' revenues in net accounts receivable of the acquired
facilities was generally greater than the Company's historical experience in its
existing facilities.
- 28 -
<PAGE>
The Company has a $1,000,000,000 revolving line of credit with
NationsBank, N.A. (Carolinas) and 28 other participating banks. Interest is paid
based on LIBOR plus a predetermined margin, a base rate or competitively bid
rates from the participating banks. This credit facility has a maturity date of
October 1, 2000. The Company provided a negative pledge on all assets and
granted the banks a first priority security interest in all shares of stock of
its subsidiaries and rights and interests in its controlled partnerships. The
effective interest rate on the average outstanding balance under the revolving
line of credit was 7.01% for the twelve months ended December 31, 1995, compared
to the average prime rate of 8.83% during the same period. At December 31, 1995,
the Company had drawn $790,000,000 under its revolving line of credit. The
Company is currently seeking an amendment to the credit facility which would
extend the maturity date to April 1, 2001 and release the first priority
security interest in all shares of stock of its subsidiaries and rights and
interests in its controlled partnerships.
On June 20, 1995, the Company purchased $67,500,000 of the $75,000,000
outstanding principal amount of 11.5% Senior Subordinated Notes due 2004 of SHC
for 115% of the face value of the Notes. In July 1995, the remaining $7,500,000
balance was purchased on the open market. See Note 7 of "Notes to Consolidated
Financial Statements".
The Company intends to pursue the acquisition or development of
additional healthcare operations, including comprehensive outpatient
rehabilitation facilities, inpatient rehabilitation facilities, ambulatory
surgery centers and companies engaged in the provision of rehabilitation-related
services, and to expand certain of its existing facilities. While it is not
possible to estimate precisely the amounts which will actually be expended in
the foregoing areas, the Company anticipates that over the next twelve months,
it will spend approximately $30,000,000 on maintenance and expansion of its
existing facilities and approximately $150,000,000 on development of the
Integrated Service Model. See Item 1, "Business -- Company Strategy".
On October 9, 1995, the Company entered into a Plan and Agreement of
Merger with Surgical Care Affiliates, Inc. ("SCA"), pursuant to which the
Company agreed to acquire SCA through a stock-for-stock merger to be accounted
for as a pooling of interests. SCA operates 67 surgery centers (with an
additional 10 under development or construction) in 24 states. Under the terms
of the Plan and Agreement of Merger, the Company issued 1.1726 shares of its
Common Stock for each share of SCA's common stock. The transaction was
consummated on January 17, 1996. See Note 16 of "Notes to Consolidated Financial
Statements".
On December 16, 1995, the Company entered into an Agreement and Plan of
Merger with Advantage Health Corporation ("Advantage Health"), pursuant to which
the Company agreed to acquire Advantage Health through a stock-for-stock merger
to be accounted for as a pooling of interests. Advantage Health operates a
network of approximately 150 sites of service, including four freestanding
rehabilitation hospitals, one freestanding multi-use hospital, one nursing home,
68 outpatient rehabilitation facilities, 14 inpatient managed rehabilitation
units, 24 rehabilitation services management contracts and six managed sub-acute
rehabilitation units. Under the terms of the Agreement and Plan of Merger, the
Company issued 1.3768 shares of its Common Stock for each share of Advantage
Health's common stock. The transaction was consummated on March 14, 1996. See
Note 16 of "Notes to Consolidated Financial Statements".
Although the Company is continually considering and evaluating
acquisitions and opportunities for future growth, the Company has not entered
into any agreements with respect to material future acquisitions. The Company
believes that existing cash, cash flow from operations, and borrowings under the
revolving line of credit will be sufficient to satisfy the Company's estimated
cash requirements for the next twelve months, and for the reasonably foreseeable
future.
Inflation in recent years has not had a significant effect of the
Company's business, and is not expected to adversely affect the Company in the
future unless it increases significantly.
Statements contained in this Annual Report on Form 10-K which are not
historical facts are forward-looking statements. In addition, the Company,
through its senior management, from time to time makes forward-looking
- 29 -
<PAGE>
public statements concerning its expected future operations and performance and
other developments. Such forward-looking statements are necessarily estimates
reflecting the Company'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 the Company 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 the
Company's services by governmental or private payors, competitive pressures in
the healthcare industry and the Company's response thereto, the Company's
ability to obtain and retain favorable arrangements with third-party payors,
unanticipated delays in the Company'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 the Company's Securities and
Exchange Commission filings and other public announcements.
- 30 -
<PAGE>
Item 8. Financial Statements and Supplementary Data.
Consolidated financial statements of the Company meeting the
requirements of Regulation S-X are filed on the succeeding pages of this Item 8
of this Annual Report on Form 10-K, as listed below:
Page
----
Report of Independent Auditors 33
Consolidated Balance Sheets as of December 31, 1994 and 1995 34
Consolidated Statements of Income for the Years Ended
December 31, 1993, 1994 and 1995 36
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1993, 1994 and 1995 37
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1994 and 1995 38
Notes to Consolidated Financial Statements 40
Other financial statements and schedules required under Regulation S-X
are listed in Item 14(a)2, and filed under Item 14(d), of this Annual Report on
Form 10-K.
Quarterly Results (Unaudited)
Set forth below is certain summary information with respect to the
Company's operations for the last eight fiscal quarters. All amounts have been
restated to reflect the effects of the 1994 ReLife acquisition and the 1995
acquisitions of SHC and SSCI which were accounted for as poolings of interests.
All per share amounts have been adjusted to reflect a two-for-one stock split
effected in the form of a 100% stock dividend paid on April 17, 1995.
<TABLE>
<CAPTION>
1994
-----------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 291,554 $ 311,759 $ 327,312 $ 343,740
Net income 13,198 16,451 16,220 4,624
Net income per common and
common equivalent share 0.16 0.18 0.19 0.05
Net income per common share --
assuming full dilution N/A N/A N/A 0.05
</TABLE>
- 31 -
<PAGE>
<TABLE>
<CAPTION>
1995
-----------------------------------------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues $ 347,421 $ 389,974 $ 402,162 $ 417,130
Net income (loss) 20,237 (1,888) 27,601 32,999
Net income (loss) per common and
common equivalent share 0.23 (0.02) 0.30 0.33
Net income (loss) per common share --
assuming full dilution 0.23 (0.02) 0.29 0.32
</TABLE>
- 32 -
<PAGE>
Report of Ernst & Young, Independent Auditors
The Board of Directors
HEALTHSOUTH Corporation
We have audited the accompanying consolidated balance sheets of HEALTHSOUTH
Rehabilitation Corporation and Subsidiaries as of December 31, 1994 and 1995,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
HEALTHSOUTH Rehabilitation Corporation and Subsidiaries at December 31, 1994 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
ERNST & YOUNG LLP
Birmingham, Alabama
February 14, 1995
- 33 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
---------------------------------------------
1994 1995
---------------------------------------------
(In thousands)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents (Note 3) $ 73,438 $ 104,896
Other marketable securities (Note 3) 16,628 4,077
Accounts receivable, net of allowances for doubtful
accounts and contractual adjustments of $147,436,000
in 1994 and $212,972,000 in 1995 246,983 336,818
Inventories 27,398 33,504
Prepaid expenses and other current assets 69,092 70,888
Deferred income taxes (Note 11) 3,073 13,257
---------------------------------------------
Total current assets 436,612 563,440
Other assets:
Loans to officers 1,240 1,525
Other (Note 4) 41,834 60,437
---------------------------------------------
43,074 61,962
Property, plant and equipment, net (Note 5) 872,795 1,100,212
Intangible assets, net (Note 6) 426,458 734,515
---------------------------------------------
Total assets $ 1,778,939 $ 2,460,129
=============================================
</TABLE>
- 34 -
<PAGE>
<TABLE>
<CAPTION>
December 31
---------------------------------------------
1994 1995
---------------------------------------------
(In thousands)
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 88,413 $ 90,427
Salaries and wages payable 34,848 59,540
Accrued interest payable and other liabilities 57,351 58,086
Current portion of long-term debt (Note 7) 19,123 27,913
---------------------------------------------
Total current liabilities 199,735 235,966
Long-term debt (Note 7) 1,032,941 1,253,374
Deferred income taxes (Note 11) 9,104 15,436
Other long-term liabilities (Note 15) 9,451 5,375
Deferred revenue (Note 14) 7,526 1,525
Minority interests-limited partnerships (Note 9) 15,959 20,743
Commitments and contingent liabilities (Note 12)
Stockholders' equity:
Preferred Stock, $.10 par value-1,500,000 shares
authorized; issued and outstanding-none - -
Common Stock, $.01 par value-150,000,000 shares
authorized; issued-78,858,000 in 1994 and
97,359,000 in 1995 789 974
Additional paid-in capital 388,269 740,763
Retained earnings 138,205 208,653
Treasury stock, at cost (91,000 shares) (323) (323)
Receivable from Employee Stock Ownership
Plan (17,477) (15,886)
Notes receivable from stockholders (5,240) (6,471)
---------------------------------------------
Total stockholders' equity 504,223 927,710
---------------------------------------------
Total liabilities and stockholders' equity $ 1,778,939 $ 2,460,129
=============================================
</TABLE>
See accompanying notes.
- 35 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------------------
1993 1994 1995
-------------------------------------------------------------------
(In thousands, except for per share amounts)
<S> <C> <C> <C>
Revenues $ 678,425 $ 1,274,365 $ 1,556,687
Operating expenses:
Operating units 486,546 930,845 1,087,554
Corporate general and administrative 26,593 48,606 42,514
Provision for doubtful accounts 17,947 27,646 31,637
Depreciation and amortization 47,827 89,305 121,195
Interest expense 19,107 66,874 91,693
Interest income (4,352) (4,566) (5,879)
Merger and acquisition related
expenses (Notes 2 and 10) 333 6,520 34,159
Loss on impairment of assets (Note 15) - 10,500 11,192
Loss on abandonment of computer
project (Note 15) - 4,500 -
NME Selected Hospitals Acquisition
related expense (Note 10) 49,742 - -
Gain on sale of partnership interest (1,400) - -
-------------------------------------------------------------------
642,343 1,180,230 1,414,065
-------------------------------------------------------------------
Income before income taxes and
minority interests 36,082 94,135 142,622
Provision for income taxes
(Note 11) 12,062 34,778 48,091
-------------------------------------------------------------------
24,020 59,357 94,531
Minority interests 6,684 8,864 15,582
-------------------------------------------------------------------
Net income $ 17,336 $ 50,493 $ 78,949
===================================================================
Weighted average common and common
equivalent shares outstanding 79,484 86,461 94,246
===================================================================
- 36 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Income
Net income per common and common
equivalent share $ 0.22 $ 0.58 $ 0.84
===================================================================
Net income per common share-assuming
full dilution $ N/A $ 0.58 $ 0.82
===================================================================
</TABLE>
See accompanying notes.
- 37 -
<TABLE>
<CAPTION>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
Notes
Additional Receivable Total
Common Common Paid-In Retained Treasury Receivable from Stockholders'
Shares Stock (Note 2) Capital Earnings Stock from ESOP Stockholders Equity
-----------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $75,155 $ 752.3 $349,932.6 $ 77,305.7 $ (60.0) $ (19,642.0) $ (5,919.7) $402,368.9
Proceeds from exercise of
options (Note 8) 462 4.6 1,732.9 - - - - 1,737.5
Proceeds from issuance of
common shares 1,074 10.7 13,987.9 - - - - 13,998.6
Income tax benefits related
to incentive stock options
(Note 8) - - 584.7 - - - - 584.7
Reduction in Receivable from
Employee Stock Ownership Plan - - - - - 710.1 - 710.1
Payments received on stockholders'
notes receivable - - - - - - 429.7 429.7
Purchase of limited partnership
units - - - (5,091.7) - - - (5,091.7)
Purchases of treasury stock (20) - - - (263.0) - - (263.0)
Net income - - - 17,336.0 - - - 17,336.0
------------------------------------------------------------------------------------------------
Balance at December 31, 1993 76,671 767.6 366,238.1 89,550.0 (323.0) (18,931.9) (5,490.0) 431,810.8
Proceeds from issuance of common
shares at $27.17 per share 38 0.4 532.6 - - - - 533.0
Proceeds from exercise of options
(Note 8) 2,080 20.8 15,349.4 - - - - 15,370.2
Income tax benefits related to
incentive stock options (Note 8) - - 6,469.6 - - - - 6,469.6
Common shares exchanged in the
exercise of options (22) (0.2) (321.2) - - - - (321.4)
Reduction in receivable from
Employee Stock Ownership Plan - - - - - 1,455.0 - 1,455.0
Payments received on stockholders'
notes receivable - - - - - - 250.0 250.0
Purchase of limited partnership
units - - - (1,838.0) - - - (1,838.0)
Net income - - - 50,493.4 - - - 50,493.4
------------------------------------------------------------------------------------------------
Balance at December 31, 1994 78,767 788.6 388,268.5 138,205.4 (323.0) (17,476.9) (5,240.0) 504,222.6
Adjustment for ReLife Merger
(Note 2) 2,732 27.3 7,113.7 (3,734.0) - - - 3,407.0
Proceeds from issuance of common
shares 14,950 149.5 330,229.2 - - - - 330,378.7
Proceeds from exercise of options
(Note 8) 819 8.2 8,498.8 - - - - 8,507.0
Income tax benefits related to
incentive stock options (Note 8) - - 6,653.3 - - - - 6,653.3
Reduction in receivable from
Employee Stock Ownership Plan - - - - - 1,590.9 - 1,590.9
Increase in stockholders' notes
receivable - - - - - - (1,231.0) (1,231.0)
Purchase of limited partnership
units - - - (4,767.3) - - - (4,767.3)
Net income - - - 78,949.1 - - - 78,949.1
================================================================================================
Balance at December 31, 1995 $ 97,268 $ 973.6 $740,763.5 $208,653.2 $ (323.0) $(15,886.0) $(6,471.0) $927,710.3
================================================================================================
</TABLE>
See accompanying notes.
- 38 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------------
1993 1994 1995
------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Operating activities
Net income $ 17,336 $ 50,493 $ 78,949
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 47,827 89,305 121,195
Provision for doubtful accounts 17,947 27,646 31,637
Provision for losses on impairment of assets - 10,500 11,192
Provision for losses on abandonment of
computer project - 4,500 -
Merger and acquisition related expenses - - 34,159
NME Selected Hospitals Acquisition related
expense 49,742 - -
Income applicable to minority interests of
limited partnerships 6,684 8,864 15,582
Provision (benefit) for deferred income taxes (5,718) (1,770) 938
Provision for deferred revenue (49) (164) (1,990)
Gain on sale of property, plant and equipment - (623) -
Gain on sale of partnership interests (1,400) - -
Changes in operating assets and liabilities, net of
effects of acquisitions:
Accounts receivable (31,493) (78,400) (52,661)
Inventories, prepaid expenses and other
current assets (18,373) (21,285) 3,153
Accounts payable and accrued expenses (6,903) 62,760 (24,872)
------------------------------------------------------
Net cash provided by operating activities 75,600 151,826 217,282
Investing activities
Purchases of property, plant and equipment (131,929) (161,728) (145,820)
Proceeds from sale of property, plant and equipment - 68,330 14,541
Additions to intangible assets, net of effects of
acquisitions (39,333) (59,311) (114,381)
Assets obtained through acquisitions, net of
liabilities assumed (460,080) (89,266) (463,105)
Changes in other assets (5,303) (23,038) (6,963)
Proceeds received on sale of other marketable
securities 20,554 1,660 21,097
Investments in other marketable securities (6,000) (9,126) (10,926)
------------------------------------------------------
Net cash used in investing activities (622,091) (272,479) (705,557)
</TABLE>
- 39 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------------
1993 1994 1995
------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Financing activities
Proceeds from borrowings $ 557,657 $ 1,045,471 $ 610,700
Principal payments on long-term debt and leases (33,086) (939,581) (416,888)
Proceeds from exercise of options 1,736 13,895 8,508
Proceeds from issuance of common stock 13,999 350 330,379
Purchase of treasury stock (263) - -
Reduction in Receivable from Employee Stock
Ownership Plan 710 1,455 1,591
Payments received on (loans made to) stockholders 429 250 (1,231)
Proceeds from investment by minority interests 6,476 2,268 1,103
Purchase of limited partnership interests (3,784) (1,090) (7,548)
Payment of cash distributions to limited partners (7,519) (14,043) (11,376)
------------------------------------------------------
Net cash provided by financing activities 536,355 108,975 515,238
------------------------------------------------------
(Decrease) increase in cash and cash equivalents (10,136) (11,678) 26,963
Cash and cash equivalents at beginning of year
(Note 2) 95,252 85,116 77,933
------------------------------------------------------
Cash and cash equivalents at end of year $ 85,116 $ 73,438 $ 104,896
======================================================
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $ 16,856 $ 53,374 $ 90,636
Income taxes 22,216 29,315 49,581
</TABLE>
Non-cash investing activities:
The Company assumed liabilities of $88,566,000, $24,659,000 and $51,741,000
during the years ended December 31, 1993, 1994 and 1995, respectively, in
conjunction with its acquisitions. During the years ended December 31, 1993 and
1994, the Company issued 138,000 and 38,000 common shares, respectively, with a
market value of $954,000 and $533,000, respectively, as consideration for
acquisitions.
Non-cash financing activities:
During 1995 the Company had a two-for-one stock split on its common stock, which
was effected in the form of a one hundred percent stock dividend.
The Company received a tax benefit from the disqualifying disposition of
incentive stock options of $585,000, $6,470,000 and $6,653,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
During the year ended December 31, 1994, 11,000 common shares were exchanged in
the exercise of options. The shares exchanged had a market value on the date of
exchange of $321,000.
See accompanying notes.
- 40 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
1. Significant Accounting Policies
The significant accounting policies followed by HEALTHSOUTH Corporation and its
subsidiaries (the Company) are presented as an integral part of the consolidated
financial statements.
Principles of Consolidation
The consolidated financial statements include the accounts of HEALTHSOUTH
Corporation ("HEALTHSOUTH") and its wholly-owned subsidiaries, as well as its
limited partnerships (see Note 9). All significant intercompany accounts and
transactions have been eliminated in consolidation.
HEALTHSOUTH Corporation is engaged in the business of providing comprehensive
rehabilitative, clinical and surgical healthcare services on an inpatient and
outpatient basis.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the accompanying consolidated financial
statements and notes. Actual results could differ from those estimates.
Marketable Securities
Marketable equity securities and debt securities are classified as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, if material, reported as a separate
component of stockholders' equity, net of tax. The adjusted cost of the specific
security sold method is used to compute gain or loss on the sale of securities.
Interest and dividends on securities classified as available-for-sale are
included in investment income. Marketable equity securities and debt securities
of the Company have maturities of less than one year.
- 41 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Accounts Receivable and Third-Party Reimbursement Activities
Receivables from patients, insurance companies and third-party contractual
insured accounts (Medicare and Medicaid) are based on payment agreements which
generally result in the Company collecting an amount different from the
established rates. Final determination of the settlement is subject to review by
appropriate authorities. Adequate allowances are provided for doubtful accounts
and contractual adjustments. Uncollectible accounts are written off against the
allowance for doubtful accounts after adequate collection efforts are made. Net
accounts receivable include only those amounts estimated by management to be
collectible.
The concentration of net accounts receivable from third-party contractual payors
and others, as a percentage of total net accounts receivable, was as follows:
December 31
--------------------------------------------
1994 1995
--------------------------------------------
Medicare 36% 24%
Medicaid 6 5
Other 58 71
============================================
100% 100%
============================================
Inventories
Inventories are stated at the lower of cost or market using the specific
identification method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Upon sale or retirement of
property, plant or equipment, the cost and related accumulated depreciation are
eliminated from the respective account and the resulting gain or loss is
included in the results of operations.
- 42 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Property, Plant and Equipment (continued)
Interest cost incurred during the construction of a facility is capitalized. The
Company incurred interest of $21,771,000, $69,268,000 and $93,634,000, of which
$2,664,000, $2,394,000 and $1,941,000 was capitalized, during 1993, 1994 and
1995, respectively.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets or the term of the lease, as
appropriate. The estimated useful life of buildings is 30-40 years and the
general range of useful lives for leasehold improvements, furniture, fixtures
and equipment is 10-15 years.
Intangible Assets
Cost in excess of net asset value of purchased facilities is amortized over 20
to 40 years using the straight-line method. Organization and start-up costs
incurred prior to opening a new facility and partnership formation costs are
deferred and amortized on a straight-line basis over a period of 36 months.
Organization, partnership formation and start-up costs for a project that is
subsequently abandoned are charged to operations in that period. Debt issue
costs are amortized over the term of the debt. Noncompete agreements are
amortized using the straight-line method over the term of the agreements.
Minority Interests
The equity of minority investors in limited partnerships of the Company is
reported on the balance sheet as minority interests. Minority interests reported
in the income statement reflect the respective interests in the income or loss
of the limited partnerships attributable to the minority investors, the effect
of which is removed from the results of operations of the Company.
Revenues
Revenues include net patient service revenues and other operating revenues. Net
patient service revenues are reported at the estimated net realizable amounts
from patients, third-party payors and others for services rendered, including
estimated retroactive adjustments under reimbursement agreements with
third-party payors.
- 43 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Income per Common and Common Equivalent Share
Income per common and common equivalent share is computed based on the weighted
average number of common shares and common equivalent shares outstanding during
the periods, as adjusted for the two-for-one stock split declared in April 1995.
Common equivalent shares include dilutive employees' stock options, less the
number of treasury shares assumed to be purchased from the proceeds using the
average market price of the Company's common stock. Fully diluted earnings per
share (based on 100,359,000 shares in 1995) assumes conversion of the 5%
Convertible Subordinated Debentures due 2001 (see Note 7). The conversion of the
debentures was antidilutive in 1994.
Impairment of Assets
In accordance with FASB Statement No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of, the Company records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets.
With respect to the carrying value of the excess of cost over net asset value of
purchased facilities and other intangible assets, the Company determines on a
quarterly basis whether an impairment event has occurred by considering factors
such as: the market value of the asset; a significant adverse change in legal
factors or in the business climate; adverse action by a regulator; a history of
operating or cash flow losses or a projection of continuing losses associated
with an operating entity. The carrying value of excess cost over net asset value
of purchased facilities and other intangible assets will be evaluated if the
facts and circumstances suggest that it has been impaired. If this evaluation
indicates that the value of the asset will not be recoverable, as determined
based on the undiscounted cash flows of the entity acquired over the remaining
amortization period, an impairment loss is calculated based on the excess of the
carrying amount of the asset over the asset's fair value.
- 44 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Stock Option Plan
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its employee stock options because the alternative fair value
accounting provided for under FASB Statement No. 123 "Accounting for Stock-Based
Compensation," requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
2. Mergers
Effective December 29, 1994, the Company merged with ReLife, Inc. ("ReLife") and
in connection therewith issued 11,025,290 shares of its common stock for all of
ReLife's outstanding common stock. Prior to the merger, ReLife provided a system
of rehabilitation services and operated 31 inpatient facilities with an
aggregate of approximately 1,100 licensed beds, including nine free-standing
rehabilitation hospitals, nine acute rehabilitation units, five sub-acute
rehabilitation units, seven transitional living units and one residential
facility and provided outpatient rehabilitation services at twelve outpatient
centers. Costs and expenses of $2,949,000, primarily legal, accounting and
financial advisory fees, incurred by HEALTHSOUTH in connection with the ReLife
merger have been recorded in operations in 1994 and reported as merger expenses
in the accompanying consolidated statements of income.
Effective June 13, 1995, the Company merged with Surgical Health Corporation
("SHC") and in connection therewith issued 8,531,480 shares of its common stock
for all of SHC's common and preferred stock. Prior to the merger, SHC operated a
network of 41 freestanding surgery centers (including four mobile lithotripters)
in eleven states, with an aggregate of 156 operating and procedure rooms. Costs
and expenses of approximately $19,194,000 incurred by the Company in connection
with the SHC merger have been recorded in operations during 1995 and reported as
merger expenses in the accompanying consolidated statements of income. Fees
related to legal, accounting and financial advisory services accounted for
$3,400,000 of the expense. Costs and expense related to the retirement of the
SHC Notes (see Note 7) totaled $14,606,000. Costs related to employee
separations were approximately $1,188,000.
- 45 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Mergers (continued)
SHC merged with Ballas Outpatient Management, Inc. and Midwest Anesthesia, Inc.
on February 11, 1993 in a transaction accounted for as a pooling of interests.
SHC recorded merger costs of $333,000 in connection with this transaction in
1993. SHC merged with Heritage Surgical Corporation on January 18, 1994 in a
transaction accounted for as a pooling of interests. SHC recorded merger costs
of $3,571,000 in connection with this transaction in 1994. SHC's historical
financial statements for the periods prior to the two mergers described above
have been restated to include the results of the acquired companies for all
periods presented.
Effective October 26, 1995, the Company merged with Sutter Surgery Centers, Inc.
("SSCI") and in connection therewith issued 1,776,001 shares of its common stock
in exchange for all of SSCI's outstanding common stock. Prior to the merger,
SSCI operated a network of 12 freestanding surgery centers in three states, with
an aggregate of 54 operating and procedure rooms. Costs and expenses of
approximately $4,965,000, primarily legal, accounting and financial advisory
fees, incurred by the Company in connection with the SSCI merger have been
recorded in operations and reported as merger expenses in the accompanying
consolidated statements of income.
The mergers of the Company with ReLife, SHC and SSCI were accounted for as
poolings of interests and, accordingly, the Company's consolidated financial
statements have been restated to include the results of the acquired companies
for all periods presented.
Combined and separate results of the Company and its 1995 mergers, SHC and SSCI,
are as follows (in thousands):
<TABLE>
<CAPTION>
HEALTHSOUTH SHC SSCI Combined
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Revenues $ 575,346 $ 80,983 $ 22,096 $ 678,425
Net income 13,592 3,605 139 17,336
Year ended December 31, 1994
Revenues 1,127,441 108,749 38,175 1,274,365
Net income (loss) 53,225 (3,264) 532 50,493
Year ended December 31, 1995
Revenues 1,475,884 50,935 29,868 1,556,687
Net income 76,819 1,090 1,040 78,949
</TABLE>
- 46 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Mergers (continued)
There were no material transactions between the Company, ReLife, SHC and SSCI
prior to the mergers. The effects of conforming the accounting policies of the
combined companies are not material.
Prior to its merger with the Company, ReLife reported on a fiscal year ending on
September 30. The restated financial statements for all periods prior to and
including December 31, 1994 are based on a combination of the Company's results
for its December 31 fiscal year and ReLife's results for its September 30 fiscal
year. Beginning January 1, 1995, all facilities acquired in the ReLife merger
adopted a December 31 fiscal year end; accordingly, all consolidated financial
statements for periods after December 31, 1994 are based on a consolidation of
all of the Company's subsidiaries on a December 31 year end. ReLife's historical
results of operations for the three months ended December 31, 1994 are not
included in the Company's consolidated statements of income or cash flows. An
adjustment has been made to stockholders' equity as of January 1, 1995 to adjust
for the effect of excluding ReLife's results of operations for the three months
ended December 31, 1994. The following is a summary of ReLife's results of
operations and cash flows for the three months ended December 31, 1994 (in
thousands):
Statement of Income Data:
Revenues $ 38,174
Operating expenses:
Operating units 31,797
Corporate general and administrative 2,395
Provision for doubtful accounts 541
Depreciation and amortization 1,385
Interest expense 858
Interest income (91)
HEALTHSOUTH merger expense 3,050
Loss on disposal of fixed assets 1,000
Loss on abandonment of computer project 973
---------------------
41,908
---------------------
Loss before income taxes and minority interests (3,734)
- 47 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Provision for income taxes -
---------------------
(3,734)
Minority interests -
---------------------
Net loss $ (3,734)
=====================
- 48 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Mergers (continued)
Statement of Cash Flow Data:
Net cash provided by operating activities $ 38,077
Net cash used in investing activities (9,632)
Net cash used in financing activities (23,950)
---------------------
Net increase in cash $ 4,495
=====================
During the three months ended December 31, 1994, ReLife received $7,141,000 in
proceeds from the exercise of stock options.
3. Cash, Cash Equivalents and Other Marketable Securities
Cash, cash equivalents and other marketable securities consisted of the
following:
<TABLE>
<CAPTION>
December 31
--------------------- ---------------------
1994 1995
--------------------- ---------------------
(In thousands)
<S> <C> <C>
Cash $ 64,338 $ 95,601
Municipal put bonds 2,100 2,095
Tax advantaged auction preferred stocks 7,000 7,200
--------------------- ---------------------
Total cash and cash equivalents 73,438 104,896
United States Treasury notes 1,004 -
Certificates of deposit 2,135 1,962
Municipal put bonds 3,975 615
Municipal put bond mutual funds 8,514 500
Collateralized mortgage obligations 1,000 1,000
--------------------- ---------------------
Total other marketable securities 16,628 4,077
--------------------- ---------------------
Total cash, cash equivalents and other
marketable securities (approximates market value) $ 90,066 $ 108,973
===================== =====================
</TABLE>
For purposes of the consolidated balance sheets and statements of cash flows,
marketable securities purchased with an original maturity of ninety days or less
are considered cash equivalents.
- 49 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Other Assets
Other assets consisted of the following:
December 31
--------------------------------------
1994 1995
--------------------- ----------------
(In thousands)
Notes and accounts receivable $ 15,104 $ 24,628
Investment in Caretenders Health Corp. 7,370 7,417
Prepaid long-term lease - 8,888
Investments in other unconsolidated
subsidiaries 6,007 4,031
Real estate investments 10,022 11,586
Trusteed funds - 1,879
Other 3,331 2,008
=================== ==================
$ 41,834 $ 60,437
=================== ==================
The Company has a 19% ownership interest in Caretenders Health Corp.
("Caretenders"). Accordingly, the Company's investment is being accounted for
using the equity method of accounting. The investment was initially valued at
$7,250,000. The Company's equity in earnings of Caretenders for the years ended
December 31, 1993, 1994 and 1995 was not material to the Company's results of
operations.
It was not practicable to estimate the fair value of the Company's various
investments in other unconsolidated subsidiaries (involved in operations similar
to those of the Company) because of the lack of a quoted market price and the
inability to estimate fair value without incurring excessive costs. The carrying
amount at December 31, 1995 represents the original cost of the investments,
which management believes is not impaired.
- 50 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31
-------------------------------------------
1994 1995
--------------------- ---------------------
(In thousands)
<S> <C> <C>
Land $ 55,511 $ 58,933
Buildings 497,433 679,988
Leasehold improvements 47,427 66,948
Furniture, fixtures and equipment 347,419 472,904
Construction in progress 45,709 24,513
--------------------- ---------------------
993,499 1,303,286
Less accumulated depreciation and amortization 120,704 203,074
--------------------- ---------------------
$ 872,795 $ 1,100,212
===================== =====================
6. Intangible Assets
Intangible assets consisted of the following:
December 31
-------------------------------------------
1994 1995
--------------------- ---------------------
(In thousands)
Organizational, partnership formation and
start-up costs $ 94,620 $ 151,578
Debt issue costs 18,848 34,029
Noncompete agreements 35,253 69,400
Cost in excess of net asset value of purchased
facilities 340,365 583,473
--------------------- ---------------------
489,086 838,480
Less accumulated amortization 62,628 103,965
--------------------- ---------------------
$ 426,458 $ 734,515
===================== =====================
</TABLE>
- 51 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 31
------------------------------------------
1994 1995
------------------------------------------
(In thousands)
<S> <C> <C>
Notes and bonds payable:
Advances under a $550,000,000 credit
agreement with banks $ 510,000 $ -
Advances under a $1,000,000,000 credit
agreement with banks - 790,000
11.5% Senior Subordinated Notes due 2004 75,000 -
9.5% Senior Subordinated Notes due 2001 250,000 250,000
5.0% Convertible Subordinated Debentures
due 2001 115,000 115,000
Notes payable to banks and various other
notes payable, at interest rates from 5.5%
to 9.0% 51,830 69,789
Hospital revenue bonds payable 24,763 32,337
Noncompete agreements payable with
payments due at ranging intervals through
December 2004 17,610 24,161
Other 7,861 -
--------------------- ---------------------
1,052,064 1,281,287
Less amounts due within one year 19,123 27,913
--------------------- ---------------------
$ 1,032,941 $ 1,253,374
===================== =====================
</TABLE>
The fair value of total long-term debt approximates book value at December 31,
1994 and 1995. The fair values of the Company's long-term debt are estimated
using discounted cash flow analysis, based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements.
- 52 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt (continued)
During 1994, the Company entered into a Credit Agreement with NationsBank, N.A.
("NationsBank") and other participating banks (the "1994 Credit Agreement")
which consisted of a $550,000,000 revolving facility and term loan. On April 11,
1995, the Company amended and restated the 1994 Credit Agreement with
NationsBank to increase the size of the revolving credit facility to
$1,000,000,000. Interest is paid based on LIBOR plus a predetermined margin, a
base rate, or competitively bid rates from the participating banks. The Company
is required to pay a fee on the unused portion of the 1994 revolving credit
facility ranging from 0.1875% to 0.375%, depending on certain defined ratios.
The principal amount is payable in full on October 1, 2000. The Company provided
a negative pledge of all its assets and has granted a first priority security
interest in and lien on all shares of stock of its subsidiaries and rights and
interests in its partnerships. At December 31, 1995, the effective interest rate
associated with the 1994 Credit Agreement was approximately 6.56%.
On March 24, 1994, the Company issued $250,000,000 principal amount of 9.5%
Senior Subordinated Notes due 2001 (the Notes). Interest is payable on April 1
and October 1. The Notes are senior subordinated obligations of the Company and
as such will be subordinated to all existing and future senior indebtedness of
the Company, and also will be effectively subordinated to all existing and
future liabilities of the Company's subsidiaries and partnerships. The Notes
rank senior to all subordinated indebtedness of the Company, including the 5%
Convertible Subordinated Debentures due 2001 described below. The Notes mature
on April 1, 2001.
Also on March 24, 1994, the Company issued $100,000,000 principal amount of 5%
Convertible Subordinated Debentures due 2001 (the Convertible Debentures). An
additional $15,000,000 principal amount of Convertible Debentures was issued in
April 1994 to cover underwriters' over allotments. Interest is payable on April
1 and October 1. The Convertible Debentures are convertible into Common Stock of
the Company at the option of the holder at a conversion price of $18.8125 per
share, subject to adjustment in the occurrence of certain events.
The net proceeds from the issuance of the Notes and Convertible Debentures were
used by the Company to pay down indebtedness outstanding under its other
existing credit facilities.
- 53 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Long-Term Debt (continued)
In June 1994, SHC (see Note 2) issued $75 million of 11.5% Senior Subordinated
Notes due July 15, 2004 (the "SHC Notes"). The proceeds of the SHC Notes were
used by SHC to pay down indebtedness outstanding under its other existing credit
facilities. During 1995, the Company purchased $67,500,000 of the $75,000,000
outstanding principal amount of the SHC Notes for 115% of the face value of the
Notes and the remaining $7,500,000 balance was purchased on the open market,
using proceeds from the Company's other long-term credit facilities. The loss on
retirement of the SHC Notes totaled approximately $14,606,000. The loss consists
of the premium, write-off of unamortized bond issue costs and other fees and is
included in merger expenses in the accompanying consolidated statement of income
(see Note 2).
Principal maturities of long-term debt are as follows:
Year ending December 31 (In thousands)
- ------------------------ ---------------------
1996 $ 27,913
1997 24,186
1998 18,360
1999 12,158
2000 800,077
After 2000 398,593
=====================
$ 1,281,287
=====================
8. Stock Options
The Company has various stockholder-approved stock option plans which provide
for the grant of options to Directors, officers and other key employees to
purchase common stock at 100% of the fair market value as of the date of grant.
The Board of Directors administers the stock option plans. Options may be
granted as incentive stock options or as non-qualified stock options. Incentive
stock options vest 25% annually, commencing upon completion of one year of
employment subsequent to the date of grant. Non-qualified stock options
generally are not subject to any vesting provisions. The options expire at dates
ranging from five to ten years from the date of grant.
- 54 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. Stock Options (continued)
The following table summarizes activity in the stock option plans:
<TABLE>
<CAPTION>
1993 1994 1995
---------------- ----------------- -----------------
<S> <C> <C> <C>
Options outstanding January 1: $ 11,450,885 $ 14,900,895 $ 13,383,945
Granted 3,944,252 1,253,194 3,296,816
Exercised 374,602 1,977,562 1,149,808
Canceled 119,640 792,582 304,393
---------------- ----------------- -----------------
Options outstanding at December 31 $ 14,900,895 $ 13,383,945 $ 15,226,560
================ ================= =================
Option price range for options
granted during the period $6.75 - $8.44 $13.94 - $18.25 $16.75 - $30.75
Option price range for options
exercised during the period $1.50 - $9.59 $1.50 - $8.44 $1.52 - $17.24
Options exercisable at December 31 10,665,880 10,948,440 12,783,364
Options available for grant at
December 31 689,013 1,103,134 2,681,064
</TABLE>
9. Limited Partnerships
HEALTHSOUTH operates a number of rehabilitation and surgery centers as limited
partnerships in which HEALTHSOUTH serves as the general partner. These limited
partnerships are included in the consolidated financial statements (as more
fully described in Note 1 under "Minority Interests"). The limited partners
share in the profit or loss of the partnerships based on their respective
ownership percentage (ranging from 1% to 50% at December 31, 1995) during their
ownership period.
Beginning in 1992, due to federal and state regulatory requirements, the Company
began the process of buying back selected partnership interests of its physician
limited partners. The buyback prices for the interests were in general based on
a predetermined multiple of projected cash flows of the partnerships. The excess
of the buyback price over the book value of the limited partners' capital
amounts was charged to the Company's retained earnings.
- 55 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Acquisitions
Effective April 1, 1995, the Company acquired the rehabilitation hospitals
division of NovaCare, Inc. ("NovaCare"), consisting of 11 rehabilitation
hospitals, 12 other facilities, and certificates of need to build two other
facilities. The total purchase price for the NovaCare facilities was
approximately $235,000,000 in cash. The cost in excess of net asset value was
approximately $173,000,000. Of this excess, approximately $129,000,000 was
allocated to leasehold value and the remaining $44,000,000 to cost in excess of
net asset value of purchased facilities. As part of the acquisition, the Company
acquired approximately $4,790,000 in deferred tax assets. The Company also
provided approximately $10,000,000 for the write-down of certain assets to net
realizable value as the result of a planned facility consolidation. The
consolidation is applicable in a market where the Company's existing services
overlap with those of an acquired facility. The planned employee separations and
facility consolidation were completed by the end of 1995.
The pro forma effect of this acquisition on 1994 and 1995 operations and net
income per common and common equivalent share is reflected in the pro forma
summary in Note 16.
Effective December 1, 1995, the Company acquired Caremark Orthopedic Services
Inc. ("Caremark"). Caremark owns and operates approximately 120 outpatient
rehabilitation centers in 13 states. The total purchase price was approximately
$127,500,000 in cash.
Also at various dates during 1995, the Company acquired 70 separate outpatient
rehabilitation operations located throughout the United States, one outpatient
surgery center and one outpatient diagnostic imaging operation. The combined
purchase prices of these 72 acquisitions was approximately $102,281,000. The
form of consideration comprising the combined purchase prices was approximately
$85,745,000 in cash and $16,536,000 in notes payable.
In connection with these transactions, the Company entered into non-compete
agreements with former owners totaling $16,222,000. In general these non-compete
agreements are payable in monthly or quarterly installments over periods ranging
from five to ten years.
The fair value of the total net assets relating to the 1995 acquisitions
described above, excluding the NovaCare acquisition, was approximately
$58,452,000. The total cost of these acquisitions exceeded the fair value of the
net assets acquired by approximately
- 56 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Acquisitions (continued)
$171,329,000. The Company evaluated each acquisition independently to determine
the appropriate amortization period for the cost in excess of net asset value of
purchased facilities. Each evaluation included an analysis of historic and
projected financial performance, evaluation of the estimated useful lives of
buildings and fixed assets acquired, the indefinite lives of certificates of
need and licenses acquired, the competition within local markets, lease terms
where applicable, and the legal term of partnerships where applicable. Based on
these evaluations, the Company determined that the cost in excess of net asset
value of purchased facilities relating to the 1995 acquisitions should be
amortized over periods ranging from 25 to 40 years on a straight-line basis.
No other identifiable intangible assets were recorded in the acquisitions
described above.
All of the 1995 acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses are
included in the accompanying consolidated financial statements from their
respective dates of acquisition. With the exception of NovaCare, none of the
above acquisitions were material individually or in the aggregate.
At various dates during 1994, the Company acquired 53 separate outpatient
operations located throughout the United States. The combined purchase price of
these acquired outpatient operations was approximately $53,947,000. The Company
also acquired a specialty medical center in Dallas, Texas, a contract therapist
provider and a diagnostic imaging company. The combined purchase price of these
three operations was approximately $25,861,000. The form of consideration
constituting the total purchase prices of $79,808,000 was approximately
$68,359,000 in cash, $10,916,000 in notes payable and approximately 38,000
shares of common stock valued at $533,000.
In connection with these transactions, the Company entered into non-compete
agreements with former owners totaling $10,814,000. In general, these
non-compete agreements are payable in monthly or quarterly installments over
periods ranging from five to ten years.
The fair value of the total net assets relating to the 1994 acquisitions
described above was approximately $11,087,000. The total cost for 1994
acquisitions exceeded the fair value of the net assets acquired by approximately
$68,721,000. Based on the evaluation of
- 57 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Acquisitions (continued)
each acquisition utilizing the criteria described above, the Company determined
that the cost in excess of net asset value of purchased facilities relating to
the 1994 acquisitions should be amortized over periods ranging from 25 to 40
years on a straight-line basis. No other identifiable assets were recorded in
the acquisitions described above.
All of the 1994 acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses (not
material individually or in the aggregate) are included in the accompanying
consolidated financial statements from their respective dates of acquisition.
Effective December 31, 1993, the Company completed an acquisition from National
Medical Enterprises, Inc. (NME) of 28 inpatient rehabilitation facilities and 45
outpatient rehabilitation centers, which constituted substantially all of NME's
rehabilitation services division (the NME Selected Hospitals Acquisition). The
purchase price was approximately $296,661,000 cash, plus net working capital of
$64,503,000, subject to certain adjustments, the assumption of approximately
$16,313,000 of current liabilities and the assumption of approximately
$17,111,000 in long-term debt.
As a result of the NME Selected Hospitals Acquisition, HEALTHSOUTH recognized an
expense of approximately $49,742,000 during the year ended December 31, 1993.
This expense represents management's estimate of the cost to consolidate
operations of thirteen existing HEALTHSOUTH facilities (three inpatient
facilities and ten outpatient facilities) into the operations of certain
facilities acquired from NME. This plan was formulated by HEALTHSOUTH's
management in order to more efficiently provide services in markets where
multiple locations now exist as a result of the acquisition. The plan of
consolidation calls for the affected operations to be merged into the operations
of the acquired facilities over a period of 12 to 24 months from the date of the
NME Selected Hospitals Acquisition. Due to the single-use nature of these
properties, the consolidation plan does not provide for the sale of these
facilities.
The total expense of $49,742,000 consists of several components. First,
approximately $39,000,000 relates to the writedown of the assets of the affected
HEALTHSOUTH facilities to their estimated net realizable value. Of this
$39,000,000, approximately
- 58 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Acquisitions (continued)
$31,500,000 relates to the assets of the three inpatient facilities and
approximately $7,500,000 relates to the assets of the ten outpatient facilities.
The $39,000,000 is broken down into the following asset categories (net of any
related accumulated depreciation or amortization):
Inpatient Outpatient
Facilities Facilities Total
--------------------- --------------------- ----------------
(In thousands)
Land $ 2,898 $ - $ 2,898
Buildings 16,168 - 16,168
Equipment 4,326 2,920 7,246
Intangible assets 6,111 3,455 9,566
Other assets 1,997 1,125 3,122
===================== ===================== ================
$ 31,500 $ 7,500 $ 39,000
===================== ===================== ================
During the year ended December 31, 1994, management discontinued operations in
two of the inpatient facilities and three of the outpatient facilities affected
by the plan and merged them into the operations of the acquired facilities.
Accordingly, assets with a net book value of approximately $17,911,000 were
written off in 1994 against the reserves established at December 31, 1993.
Operations at the remaining inpatient facility and the remaining seven
outpatient facilities identified in the plan were discontinued during 1995 and
charged against the remaining reserve.
Second, $7,700,000 relates to the write-off of certain capitalized development
projects. These projects relate to the planned facilities that, if completed,
would be in direct competition with certain of the acquired NME facilities.
These development projects were written off in 1994 against the reserves
established at December 31, 1993.
Finally, approximately $3,000,000 was accrued for costs of employee separations,
relocations and other direct costs related to the planned consolidation of the
affected operations. During the second quarter of 1994, management revised its
estimate of the cost of the employee separations and relocations. The revised
estimate calls for approximately 150 employees to be affected by separations and
approximately 400 to be affected by relocations. Separation benefits under the
revised plan range from one month's to one year's compensation and totals
approximately $2,188,000. Relocation benefits are estimated to be $2,000 per
employee and total $800,000. An additional
- 59 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Acquisitions (continued)
$350,000 has been provided for additional direct administrative costs associated
with the implementation of the plan, including outplacement services, travel and
legal fees. Accordingly, the total revised estimated cost of employee
separations and relocations is $3,338,000. The difference between the initial
estimate and the revised estimate was treated as a change in accounting estimate
and charged to operations in the second quarter of 1994.
The total costs relating to terminations and relocations incurred by the Company
and charged against the reserve were $758,000 and $2,580,000 for the years ended
December 31, 1994 and 1995, respectively. This cost is the only cash expense
included in the acquisition related expense.
Also at various dates during 1993, the Company acquired 27 separate outpatient
rehabilitation operations located throughout the United States. The total
consideration paid for these acquired outpatient rehabilitation operations was
approximately $23,943,000, consisting of $21,634,000 in cash and $2,309,000 in
notes payable. The fair value of the net assets acquired was approximately
$5,196,000. The total cost of the 1993 outpatient rehabilitation acquisitions
exceeded the fair value of the net assets acquired by approximately $18,747,000.
The Company also acquired thirteen outpatient surgery center operations during
1993. The total consideration paid for these acquired outpatient surgery center
operations was approximately $51,392,000, consisting of $44,799,000 in cash,
$5,639,000 in notes payable and common stock value at $954,000. The total cost
of the 1993 outpatient surgery acquisitions exceeded the fair value of the net
assets acquired by approximately $11,710,000. Based on the evaluation of each
acquisition, utilizing the criteria described above, the Company determined that
the cost in excess of net asset value of purchased facilities relating to the
1993 acquisitions should be amortized over a 40 year period on a straight line
basis. No other identifiable intangible assets were recorded in the acquisitions
described above.
Also during 1993, the Company acquired 100% of the stock of Rebound, Inc.
("Rebound") for net consideration of approximately $14,000,000 in cash. Rebound
operated 293 beds in thirteen facilities. The purchase price exceeded the fair
value of the net assets acquired by approximately $11,200,000, which was
allocated to excess of cost over net asset value of purchased facilities.
- 60 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Acquisitions (continued)
All of the 1993 acquisitions described above were accounted for as purchases
and, accordingly, the results of operations of the acquired businesses are
included in the accompanying consolidated financial statements from their
respective dates of acquisition.
11. Income Taxes
HEALTHSOUTH and its subsidiaries file a consolidated federal income tax return.
The limited partnerships file separate income tax returns. HEALTHSOUTH's
allocable portion of each partnership's income or loss is included in the
taxable income of the Company. The remaining income or loss of each partnership
is allocated to the limited partners.
The Company utilizes the liability method of accounting for income taxes, as
required by Financial Accounting Standards Board (FASB) Statement No. 109,
"Accounting for Income Taxes".
At December 31, 1995, the Company has net operating loss carryforwards of
approximately $41,736,000 for income tax purposes expiring through the year
2010. Those carryforwards resulted from the Company's acquisitions of Diagnostic
Health Corporation, ReLife, NovaCare, and SHC (Notes 2 and 10).
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31, 1994 are as
follows:
Current Noncurrent Total
------------------------------------------
(In thousands)
Deferred tax assets:
NME Selected Hospitals Acquisition
related expense $ - $ 15,241 $ 15,241
Allowance for bad debts 18,440 - 18,440
Amortization - 5,550 5,550
Other 2,019 3,444 5,463
------------------------------------------
Total deferred tax assets 20,459 24,235 44,694
- 61 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
<TABLE>
<CAPTION>
Current Noncurrent Total
------------------- ------------------- -------------------
(In thousands)
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation $ - $ 19,276 $ 19,276
Non-accrual experience method 12,353 - 12,353
Contracts 3,849 - 3,849
Capitalized costs - 10,487 10,487
Other 1,184 3,576 4,760
------------------- ------------------- -------------------
Total deferred tax liabilities 17,386 33,339 50,725
------------------- ------------------- -------------------
Net deferred tax assets (liabilities) $ 3,073 $ (9,104) $ (6,031)
=================== =================== ===================
</TABLE>
Significant components of the Company's deferred tax liabilities and assets as
of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Current Noncurrent Total
--------------------- --------------------- ---------------------
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Accruals $ 6,988 $ - $ 6,988
Acquired net operating loss - 16,277 16,277
Allowance for bad debts 25,614 - 25,614
Other 1,584 5,549 7,133
--------------------- --------------------- ---------------------
Total deferred tax assets 34,186 21,826 56,012
Deferred tax liabilities:
Depreciation $ - $ 22,518 $ 22,518
Non-accrual experience method 14,559 - 14,559
Contracts 3,849 - 3,849
Capitalized costs - 12,916 12,916
Other 2,521 1,828 4,349
--------------------- --------------------- ---------------------
Total deferred tax liabilities 20,929 37,262 58,191
` --------------------- --------------------- ---------------------
Net deferred tax assets (liabilities) $ 13,257 $ (15,436) $ (2,179)
===================== ===================== =====================
</TABLE>
- 62 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------------------
1993 1994 1995
-----------------------------------------------------------------
(In thousands)
Currently payable:
<S> <C> <C> <C>
Federal $ 15,660 $ 31,789 $ 42,317
State 2,120 4,759 4,836
-----------------------------------------------------------------
17,780 36,548 47,153
Deferred expense (benefit):
Federal (5,162) (1,475) 842
State (556) (295) 96
-----------------------------------------------------------------
(5,718) (1,770) 938
-----------------------------------------------------------------
Total provision $ 12,062 $ 34,778 $ 48,091
=================================================================
</TABLE>
The difference between the provision for income taxes and the amount computed by
applying the statutory federal income tax rate to income before taxes was as
follows:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------------------
1993 1994 1995
-----------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Federal taxes at statutory rates $ 12,629 $ 32,947 $ 49,918
Add (deduct):
State income taxes, net of federal
tax benefit 822 2,798 3,206
Tax-exempt interest income (454) (276) (198)
Other (935) (691) (4,835)
-----------------------------------------------------------------
$ 12,062 $ 34,778 $ 48,091
=================================================================
</TABLE>
12. Commitments and Contingencies
At December 31, 1995, anticipated capital expenditures for the next twelve
months are $180,000,000. This amount includes expenditures for maintenance and
expansion of the Company's existing facilities as well as development and
integration of the Company's services in selected metropolitan markets.
- 63 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Commitments and Contingencies (continued)
Beginning December 1, 1993, the Company became self-insured for professional
liability and comprehensive general liability. The Company purchased coverage
for all claims incurred prior to December 1, 1993. In addition, the Company
purchased underlying insurance which would cover all claims once established
limits have been exceeded. It is the opinion of management that at December 31,
1995 the Company has adequate reserves to cover losses on asserted and
unasserted claims.
Operating leases generally consist of short-term lease agreements for buildings
where facilities are located. These leases generally have 5-year terms, with one
or more renewal options, with terms to be negotiated at the time of renewal.
Total rental expense for all operating leases was $30,118,000, $67,001,000 and
$89,288,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
The following is a schedule of future minimum lease payments under all operating
leases having initial or remaining non-cancelable lease terms in excess of one
year:
Year ending December 31 (In thousands)
- ------------------------ ---------------------
1996 $ 89,016
1997 82,249
1998 75,881
1999 66,271
2000 53,812
After 2000 248,924
=====================
Total minimum payments required $ 616,153
=====================
13. Employee Benefit Plans
The Company has a 401(k) savings plan which matches 15% of the first 4% of
earnings that an employee contributes. All contributions are in the form of
cash. All employees who have completed one year of service with a minimum of
1,000 hours worked are eligible to participate in the plan. Company
contributions are gradually vested over a seven-year service period.
Contributions to the plan by the Company were approximately $490,000, $1,094,000
and $1,196,000 in 1993, 1994 and 1995, respectively.
- 64 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Employee Benefit Plans (continued)
In 1991, the Company established an Employee Stock Ownership Plan ("ESOP") for
the purpose of providing substantially all employees of the Company the
opportunity to save for their retirement and acquire a proprietary interest in
the Company. The ESOP currently owns approximately 830,000 shares of the
Company's common stock, which were purchased with funds borrowed from the
Company, $10,000,000 in 1991 (the "1991 ESOP Loan") and $10,000,000 in 1992 (the
"1992 ESOP Loan"). At December 31, 1995, the combined ESOP Loans had a balance
of $15,886,000. The 1991 ESOP Loan, which bears an interest rate of 10%, is
payable in annual installments covering interest and principal over a ten-year
period beginning in 1992. The 1992 ESOP Loan, which bears an interest rate of
8.5%, is payable in annual installments covering interest and principal over a
ten-year period beginning in 1993. Company contributions to the ESOP began in
1992 and shall at least equal the amount required to make all ESOP loan
amortization payments for each plan year. The Company recognizes compensation
expense based on the shares allocated method. The total compensation expense
related to the ESOP recognized by the Company was $3,198,000, $3,673,000 and
$3,524,000 in 1993, 1994 and 1995, respectively. Interest incurred on the ESOP
Loans was approximately $1,743,000, $1,608,000 and $1,460,000 in 1993, 1994 and
1995, respectively. Approximately 229,000 shares owned by the ESOP have been
allocated to participants at December 31, 1995.
During 1993, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 93-6, "Employers Accounting for Employee Stock
Ownership Plans". Among other provisions, SOP 93-6 requires that compensation
expense relating to employee stock ownership plans be measured based on the fair
market value of the shares when allocated to the employees. The provisions of
SOP 93-6 apply only to leveraged ESOPs formed after December 31, 1992, or shares
newly acquired by an existing leveraged ESOP after December 31, 1992. Because
all shares owned by the Company's ESOP were acquired prior to December 31, 1992,
the Company's accounting policies for the shares currently owned by the ESOP are
not affected by SOP 93-6.
14. Sale of Assets
During the second quarter of 1994, the Company consummated the sale of selected
properties to Capstone Capital Corporation ("Capstone"), a real estate
investment trust. These properties include six ancillary hospital facilities,
three outpatient rehabilitation facilities, two outpatient surgery centers, one
uncompleted medical office building and
- 65 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
14. Sale of Assets (continued)
one research facility. The net proceeds to the Company as a result of this
transaction were approximately $58,425,000. The net book value of the properties
was approximately $50,735,000. Because the Company is leasing back substantially
all of the properties from Capstone, payments which aggregate $6.9 million
annually, the resulting gain on sale of approximately $7,690,000 has been
recorded on the accompanying consolidated balance sheet as deferred revenue and
will be amortized into income over the initial lease terms of the properties.
The Company is accounting for each of the new leases as an operating lease with
an initial lease term of 5 years. During 1995, the Company sold another
inpatient rehabilitation hospital property to Capstone under terms similar to
those described above. Aggregate annual lease payments for this property totaled
$1.7 million. The resulting loss of approximately $4,010,000 has been netted
against the deferred gain described above and will be amortized to expense over
the initial lease term. The Company and certain Company officers own
approximately 4.5% of the outstanding common stock of Capstone at December 31,
1995.
15. Impairment of Long-Term Assets
During 1994, certain events occurred which impaired the value of specific
long-term assets of ReLife (see Note 2). A hospital in Missouri with a distinct
part unit which ReLife was managing was purchased in 1994 by an acute care
provider which terminated the contract with ReLife. Remaining goodwill of
$1,700,000 and costs allocated to the management contract of $1,300,000 were
written off as there is no value remaining for the terminated contract.
A ReLife facility in central Florida incurred tornado damage and has not been
operating since September 1993. During 1994, management of ReLife determined
that it is probable that this facility will not reopen. Start-up costs of
$1,600,000 were written off. This facility is leased under an operating lease as
described in Note 12 through the year 2001. An impairment accrual has been
established based on the projected undiscounted net cash flows related to this
non-operating facility for the remainder of the lease term. The accrual totals
$5,900,000 and consists of $4,700,000 in lease payments and $1,200,000 in fixed
costs and operating expenses, including property taxes, maintenance, security
and other related costs.
- 66 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Impairment of Long-Term Assets (continued)
During 1994, ReLife entered into a contract for a new information system.
Payments under the contract and related costs were capitalized during the year.
After the agreement to merge with HEALTHSOUTH was entered into (see Note 2), the
computer project was abandoned resulting in a write-off of capitalized cost of
$4,500,000.
During the second quarter of 1995, the Company recognized an $11,192,000 loss on
impairment of assets which relates to six SHC (see Note 2) facilities in which
the undiscounted cash flows did not support the book value of the long-lived
assets of such facilities. The assets were written down to fair value as
determined from an independent appraisal of such properties.
The above amounts are shown recorded in operations in the consolidated statement
of income.
16. Subsequent Events - Unaudited
On January 17, 1996, the Company consummated the acquisition of Surgical Care
Affiliates, Inc. ("SCA") in a transaction accounted for as a pooling of
interests. In the transaction, SCA stockholders received an aggregate of
45,928,339 shares of the Company's common stock. SCA operates 67 surgery centers
in 24 states.
On March 14, 1996, the Company consummated the acquisition of Advantage Health
Corporation ("Advantage Health") in a transaction accounted for as a pooling of
interests. In the transaction, Advantage Health stockholders and optionholders
received an aggregate of 9,101,989 shares of the Company's common stock.
Advantage Health operates a network of 136 sites of service, including four
freestanding rehabilitation hospitals, one freestanding multi-use hospital, one
nursing home, 68 outpatient rehabilitation facilities, 14 inpatient managed
rehabilitation units, 24 rehabilitation services management contracts and six
managed sub-acute rehabilitation units.
The effects of conforming the accounting policies of the Company, SCA and
Advantage Health are not expected to be material.
The following table summarizes the unaudited consolidated pro forma results of
operations, assuming the SCA and Advantage Health acquisitions described above
had
- 67 -
<PAGE>
HEALTHSOUTH Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
16. Subsequent Events - Unaudited (continued)
occurred at the beginning of each of the following periods. This pro forma
summary does not necessarily reflect the results of operations as they would
have been had the Company and the acquired entities constituted a single entity
during such periods. The 1994 and 1995 amounts also reflect the pro forma
effects of the NovaCare acquisition (see Note 10).
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------------------
1993 1994 1995
--------------- ----------------- -----------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Revenues $ 979,206 $1,799,805 $2,042,948
Net income 60,474 87,607 91,959
Net income per common share--assuming
full dilution 0.45 0.61 0.62
</TABLE>
- 68 -
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company has not changed independent accountants within the
24 months prior to December 31, 1995.
- 69 -
<PAGE>
PART III
Item 10. Directors and Executive Officers.
Directors
The following table sets forth certain information with respect to the
Company's Directors.
<TABLE>
<CAPTION>
Principal Occupation
and All Positions A Director
Name Age With the Company Since
---- --- ---------------- -----
<S> <C> <C> <C>
Richard M. Scrushy 43 Chairman of the Board 1984
and Chief Executive Officer
and Director
James P. Bennett 38 President and Chief Operating Officer 1993
and Director
Phillip C. Watkins, M.D. 54 Physician, Birmingham, Alabama, 1984
and Director
George H. Strong 69 Private Investor, Locust, New Jersey, 1984
and Director
C. Sage Givens 39 General Partner, 1985
Acacia Venture Partners
and Director
Charles W. Newhall III 51 Partner, New Enterprise 1985
Associates Limited Partnerships,
and Director
Aaron Beam, Jr. 52 Executive Vice President and 1993
Chief Financial Officer
and Director
Larry R. House 52 Chairman of the Board, President 1993
and Chief Executive Officer,
MedPartners/Mullikin, Inc.,
and Director
Anthony J. Tanner 47 Executive Vice President-- 1993
Administration and Secretary
and Director
P. Daryl Brown 41 President - HEALTHSOUTH 1995
Outpatient Centers and Director
- 70 -
<PAGE>
Principal Occupation
and All Positions A Director
Name Age With the Company Since
---- --- ---------------- -----
John S. Chamberlin 67 Private Investor, 1993
Princeton, New Jersey,
and Director
Richard F. Celeste 58 Managing Partner, 1991
Celeste and Sabaty, Ltd.
and Director
Joel C. Gordon 67 Private Investor, 1996
Nashville, Tennessee,
Consultant to the Company
and Director
Raymond J. Dunn III 53 Private Investor, 1996
Woburn, Massachusetts,
Consultant to the Company
and Director
</TABLE>
Richard M. Scrushy, one of the Company's management founders, has
served as Chairman of the Board and Chief Executive Officer of the Company since
1984, and also served as President of the Company from 1984 until March 1995.
From 1979 to 1984, Mr. Scrushy was with Lifemark Corporation, a publicly-owned
healthcare corporation, serving in various operational and management positions.
Mr. Scrushy is also a director of MedPartners/Mullikin, Inc., a publicly-traded
physician practice management company, and Chairman of the Board of Capstone
Capital, Inc., a publicly-traded real estate investment trust. He also serves on
the boards of directors of several privately-held healthcare corporations.
Phillip C. Watkins, M.D., FACC, is and has been in private practice for
more than five years with Cardiovascular Associates, P.C. in Birmingham,
Alabama. A graduate of The Medical College of Alabama, Dr. Watkins is a
Diplomate of the American Board of Internal Medicine. He is also a Fellow of the
American College of Cardiology and the Subspecialty Board of Cardiovascular
Disease.
George H. Strong retired as senior vice president and chief financial
officer of Universal Health Services, Inc. in December 1984, a position he held
for more than six years. Mr. Strong is a private investor and continued to act
as a Director of Universal Health Services, Inc., a publicly-traded hospital
management corporation, until 1993. Mr. Strong is also a director of Core Funds,
a public mutual fund group, Integrated Health Services, Inc., a publicly-traded
healthcare corporation, and AmeriSource, Inc., a large drug wholesaler.
C. Sage Givens is a general partner of Acacia Venture Partners, a
private venture capital fund capitalized at $66,000,000. From 1983 to June 30,
1995, Ms. Givens was a general partner of First Century Partners, a private
venture capital fund capitalized to $100,000,000. Ms. Givens managed the fund's
healthcare investments. Ms. Givens serves on the boards of directors of PhyCor,
Inc., a publicly-traded healthcare corporation, and several privately-held
healthcare companies.
Charles W. Newhall III is a general partner and founder of New
Enterprise Associates Limited Partnerships, Baltimore, Maryland, where he has
been engaged in the venture capital business since 1978. Mr. Newhall is also a
director of Integrated Health Services, Inc., MedPartners/Mullikin, Inc. and
Opta Food Ingredients, Inc., all of which are publicly-traded corporations.
- 71 -
<PAGE>
Aaron Beam, Jr., C.P.A., a management founder, serves as Executive Vice
President and Chief Financial Officer of the Company and was elected a Director
in February 1993. From 1980 to 1984, Mr. Beam was employed by Lifemark
Corporation in several financial and operational management positions for the
Shared Services Division, including division controller. Mr. Beam is a director
of Ramsey Healthcare, Inc., a publicly-traded healthcare corporation.
James P. Bennett joined the Company in May 1991 as Director of
Inpatient Operations, was promoted to Group Vice President -- Inpatient
Rehabilitation Operations in September 1991, again to President and Chief
Operating Officer -- HEALTHSOUTH Rehabilitation Hospitals in June 1992, to
President -- HEALTHSOUTH Inpatient Operations in February 1993, and to President
and Chief Operating Officer of the Company in March 1995. Mr. Bennett was
elected a Director in February 1993. From August 1987 to May 1991, Mr. Bennett
was employed by Russ Pharmaceuticals, Inc., Birmingham, Alabama, as Vice
President -- Operations, Chief Financial Officer, Secretary and director. Mr.
Bennett served as certified public accountant on the audit staff of the
Birmingham, Alabama office of Ernst & Whinney (now Ernst & Young LLP) from
October 1980 to August 1987.
Larry R. House is Chairman of the Board, President and Chief Executive
Officer of MedPartners/Mullikin, Inc. a publicly-traded physician practice
management firm, a position he assumed as his principal occupation in August
1993. Mr. House was elected a Director of the Company in February 1993. At the
same time he became President -- HEALTHSOUTH International, Inc. and New
Business Ventures, a position which he held until August 31, 1994, when he
terminated his employment with the Company to concentrate on his duties at
MedPartners/Mullikin. Mr. House joined the Company in September 1985 as Director
of Marketing, subsequently served as Senior Vice President and Chief Operating
Officer of the Company, and in June 1992 became President and Chief Operating
Officer -- HEALTHSOUTH Medical Centers. Prior to joining the Company, Mr. House
was president and chief executive officer of a provider of clinical contract
management services for more than ten years.
Anthony J. Tanner, Sc.D., a management founder, serves as Executive
Vice President -- Administration and Secretary of the Company and was elected a
Director in February 1993. From 1980 to 1984, Mr. Tanner was with Lifemark
Corporation in the Shared Services Division as director, clinical and
professional programs (1982-1984) and director, quality assurance and education
(1980-1982), where he was responsible for the development of clinical programs
and marketing programs.
P. Daryl Brown joined the Company in April 1986 and served until June
1992 as Group Vice President -- Outpatient Operations. He became President --
HEALTHSOUTH Outpatient Centers in June 1992, and was elected as a Director in
March 1995. From 1977 to 1986, Mr. Brown served with the American Red Cross,
Alabama Region, in several positions, including Chief Operating Officer,
Administrative Director for Financing and Administration and Controller.
John S. Chamberlin retired in 1988 as president and chief operating
officer of Avon Products, Inc., a position he had held since 1985. From 1976
until 1985, he served as chairman and chief executive officer of Lenox,
Incorporated, after 22 years in various assignments for General Electric. From
1990 to 1991, he served as chairman and chief executive officer of New Jersey
Publishing Co. Mr. Chamberlin is chairman of the board of Life Fitness Company
and WNS, Inc., and is a director of The Scotts Company. He is a member of the
Board of Trustees of the Medical Center at Princeton and the Board of Overseers
of Parsons School of Design and is a trustee of the Woodrow Wilson National
Fellowship Foundation.
Richard F. Celeste originally joined the Board of Directors in 1991,
took a leave of absence from the Board of Directors in August 1993 to head the
Democratic National Committee's healthcare reform campaign, and rejoined the
Board in May 1994. He is Managing Partner of Celeste and Sabaty, Ltd., a
business advisory firm located in Columbus, Ohio, which assists United States
companies to build strategic business alliances in Europe, Africa, South Asia
and the Pacific Rim. He served as Governor of Ohio from 1983 to 1991, during
which time he chaired the National Governors' Association Committee on Science
and Technology, and directed the United States Peace Corps from 1979 to 1981. He
is a member of the Advisory Council of the Carnegie Commission on Science,
Technology
- 72 -
<PAGE>
and Government, and chairs Carnegie's Task Force on Science, Technology and the
States. He is a director of Navistar International, Inc. and Republic Engineered
Steels, Inc., both of which are publicly-traded companies.
Joel C. Gordon served as Chairman of the Board of Directors of SCA from
its founding in 1982 until January 17, 1996, when SCA was acquired by the
Company. Mr. Gordon also served as Chief Executive Officer of SCA from 1987
until January 17, 1996. Mr. Gordon serves on the boards of directors of Genesco,
Inc., an apparel manufacturer, HealthWise of America, Inc., an owner and
operator of health maintenance organizations, and SunTrust Bank of Nashville,
N.A.
Raymond J. Dunn, III served as Chief Executive Officer of Advantage
Health from 1986 until March 14, 1996, when Advantage Health was acquired by the
Company. In addition, he served as Chairman of its Board of Directors from 1990
to March 14, 1996 and as its President from 1994 to March 14, 1996. From 1987 to
1990, he served as Vice Chairman of the Board of Advantage Health. From 1979 to
1986, Mr. Dunn was Chief Executive Officer of a former subsidiary of Advantage
Health responsible for management of Advantage Health's operations. From 1970 to
1978, he was Administrator of New England Rehabilitation Hospital, Inc.
Executive Officers
The following table sets forth certain information with respect to the
Company's executive officers.
<TABLE>
<CAPTION>
All Positions An Officer
Name Age With the Company Since
---- --- ---------------- -----
<S> <C> <C>
Richard M. Scrushy 43 Chairman of the Board 1984
and Chief Executive Officer and
Director
James P. Bennett 38 President and Chief Operating Officer 1991
and Director
Aaron Beam, Jr. 52 Executive Vice President and Chief 1984
Financial Officer and Director
Anthony J. Tanner 47 Executive Vice President-- Administration 1984
and Secretary and Director
Thomas W. Carman 44 Executive Vice President-- 1985
Corporate Development
P. Daryl Brown 41 President-- HEALTHSOUTH 1986
Outpatient Centers and Director
Robert E. Thomson 48 President-- HEALTHSOUTH 1987
Inpatient Operations
Tarpley B. Jones 38 President-- HEALTHSOUTH 1996
Surgery Centers
Russell H. Maddox 55 President-- HEALTHSOUTH 1995
Imaging Centers
- 73 -
<PAGE>
William T. Owens 37 Senior Vice President-- 1986
Finance and Controller
Michael D. Martin 35 Senior Vice President-- 1989
Finance and Treasurer
William W. Horton 36 Group Vice President-- 1994
Legal Services and
Assistant Secretary
</TABLE>
Biographical information for Messrs. Scrushy, Bennett, Beam, Tanner and
Brown is set forth above under this Item, "Directors and Executive Officers --
Directors".
Thomas W. Carman joined the Company in 1985 as Regional Director --
Corporate Development, and now serves as Executive Vice President -- Corporate
Development. From 1983 to 1985, Mr. Carman was director of development for
Medical Care International. From 1981 to 1983, Mr. Carman was assistant
administrator at the Children's Hospital of Birmingham, Alabama.
Robert E. Thomson joined the Company in August 1985 as administrator of
its Florence, South Carolina inpatient rehabilitation facility, and subsequently
served as Regional Vice President -- Inpatient Operations, Vice President --
Inpatient Operations, Group Vice President -- Inpatient Operations, and Senior
Vice President -- Inpatient Operations. Mr. Thomson was named President --
HEALTHSOUTH Inpatient Operations in February 1996.
Tarpley B. Jones served as Senior Vice President and Chief Financial
Officer of SCA from January 1, 1992 until January 17, 1996. Prior to joining
SCA, he served as Treasurer, Senior Vice President and Chief Financial Officer,
and then Executive Vice President and Chief Financial Officer, of Comdata
Holdings Corporation and Comdata Network. Inc.
Russell H. Maddox became President -- HEALTHSOUTH Imaging Centers in
January 1996. He served as President -- HEALTHSOUTH Surgery & Imaging Centers
from June 1995 through January 1996. From January 1992 until May 1995, Mr.
Maddox served as Chairman of the Board, President and Chief Executive Officer of
Diagnostic Health Corporation, an outpatient diagnostic imaging company which
became a wholly-owned subsidiary of the Company in 1996. Mr. Maddox was founder
and President of Russ Pharmaceuticals, Inc., located in Birmingham, Alabama. In
March 1989 Russ Pharmaceuticals was acquired by Ethyl Corporation of Richmond,
Virginia.
William T. Owens, C.P.A., joined the Company in March 1986 as
Controller and was appointed Vice President and Controller in December 1986. He
was appointed Group Vice President -- Finance and Controller in June 1992 and
became Senior Vice President -- Finance and Controller in February 1994. Prior
to joining the Company, Mr. Owens served as a certified public accountant on the
audit staff of the Birmingham, Alabama office of Ernst & Whinney (now Ernst &
Young LLP) from 1981 to 1986.
Michael D. Martin joined the Company in October 1989 as Vice President
and Treasurer, and was named Senior Vice President -- Finance and Treasurer in
February 1994. From 1983 through September 1989, Mr. Martin specialized in
healthcare lending with AmSouth Bank N.A., Birmingham, Alabama, where he was a
Vice President immediately prior to joining the Company.
William W. Horton joined the Company in July 1994 as Group Vice
President -- Legal Services. From August 1986 through June 1994, Mr. Horton
practiced corporate, securities and healthcare law with the Birmingham,
Alabama-based firm of Haskell Slaughter Young & Johnston, Professional
Association, where he served as Chairman of the Healthcare Practice Group.
- 74 -
<PAGE>
General
Directors of the Company hold office until the next Annual Meeting of
Stockholders of the Company and until their successors are elected and
qualified. Executive officers of the Company are elected annually by, and serve
at the discretion of the Board of Directors. There are no arrangements or
understandings known to the Company between any of the Directors, nominees for
Director or executive officers of the Company and any other person pursuant to
which any of such persons was elected as a Director or an executive officer,
except the Employment Agreement between the Company and Richard M. Scrushy (see
Item 11, "Executive Compensation -- Chief Executive Officer Employment
Agreement") and except that the Company agreed to appoint Mr. Gordon and Mr.
Dunn to the Board of Directors in connection with the SCA and Advantage Health
mergers. There are no family relationships between any Directors, nominees for
Director or executive officers of the Company.
Compliance With Section 16(a) of the
Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and Directors, and persons who beneficially own more than 10%
of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
and the New York Stock Exchange. Officers, Directors and beneficial owners of
more than 10% of the Company's Common Stock are required by Securities and
Exchange Commission regulations to furnish the Company with copies of all
Section 16(a) forms that they file. Based solely on review of the copies of such
forms furnished to the Company, or written representations that no reports on
Form 5 were required, the Company believes that for the period from January 1,
1995, through December 31, 1995, all of its officers, Directors and
greater-than-10% beneficial owners complied with all Section 16(a) filing
requirements applicable to them, except as set forth below.
Larry R. House, a Director of the Company, failed to timely report a
total of 17 sales of the Company's Common Stock between February 10, 1993 and
March 23, 1995. In addition, two acquisitions of Common Stock pursuant to the
exercise of stock options on October 13, 1994 were not timely reported. All such
transactions were reported on Mr. House's Form 5 filed in February 1996.
- 75 -
<PAGE>
Item 11. Executive Compensation.
Executive Compensation -- General
The following table sets forth compensation paid or awarded to the
Chief Executive Officer and each of the other four most highly compensated
executive officers of the Company (the "Named Executive Officers") for all
services rendered to the Company and its subsidiaries in 1993, 1994 and 1995.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long-Term Compensation
------------------- ----------------------
Bonus/Annual Stock Long-Term All
Incentive Option Incentive Other Com-
Name and Principal Position Year Salary Award Awards Payouts pensation (1)
- --------------------------- ---- ------ ----- ------ ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Scrushy 1993 $ 820,768 $1,900,000 271,000 -- $ 10,796
Chairman of the Board 1994 1,207,228 2,000,000 -- -- 12,991
and Chief Executive Officer 1995 1,737,526 5,000,000 1,000,000 650,108 (2)
James P. Bennett 1993 $ 250,514 130,000 40,000 -- $ 6,640
President and Chief 1994 357,740 250,000 -- -- 10,760
Operating Officer 1995 371,558 600,000 150,000 -- 7,835
Michael D. Martin 1993 $ 113,049 100,000 30,000 -- $ 7,635
Senior Vice President 1994 189,013 250,000 -- -- 7,311
and Treasurer 1995 165,626 500,000 85,000 -- 7,919
P. Daryl Brown 1993 $ 182,707 160,000 20,000 -- $ 7,701
President-- HEALTHSOUTH 1994 272,573 200,000 -- -- 10,226
Outpatient Centers 1995 263,462 300,000 130,000 -- 8,580
Aaron Beam, Jr. 1993 $ 252,039 100,000 25,000 -- $ 9,342
Executive Vice President 1994 298,223 175,000 -- -- 11,272
and Chief Financial Officer 1995 247,903 300,000 100,000 -- 8,695
- --------------------
<FN>
(1) Includes car allowances of $500 per month for Mr. Scrushy and $350 per
month for the other named officers. Also includes (a) matching
contributions under the Company's Retirement Investment Plan for 1993,
1994 and 1995, respectively, of: $393, $318 and $292 to Mr. Scrushy;
$380, $355 and $900 to Mr. Beam; $453, $625 and $900 to Mr. Bennett;
$325, $526 and $900 to Mr. Martin; and $473, $274 and $900 to Mr.
Brown; (b) awards under the Company's Employee Stock Benefit Plan for
1993, 1994 and 1995, respectively, of $3,123, $4,910 and $1,626 to Mr.
Scrushy; $3,123, $4,910 and $1,626 to Mr. Beam; $1,102, $4,910 and
$1,626 to Mr. Bennett; $3,057, $1,345 and $1,626 to Mr. Martin; and
$2,846, $4,910 and $1,626 to Mr. Brown; and (c) split-dollar life
insurance premiums paid in 1993 and 1994 of $1,280, $1,723 and $2,190
with respect to Mr. Scrushy; $1,639, $1,807 and $1,969 with respect to
Mr. Beam; $885, $1,025 and $1,109 with respect to Mr. Bennett; $53,
$1,240 and $1,193 with respect to Mr. Martin; and $182, $842 and $1,854
with respect to Mr. Brown. See this Item, "Executive Compensation --
Retirement Investment Plan" and "Executive Compensation -- Employee
Stock Benefit Plan".
(2) In addition to the amounts described in the preceding footnote,
includes the conveyance of real property valued at $640,000 to Mr.
Scrushy. See Item 13, "Certain Relationships and Related Transactions".
</FN>
</TABLE>
- 76 -
Stock Option Grants in 1995
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------------
% of Total
Options
Number of Granted to Exercise
Options Employees in Price Expiration Grant Date
Name Granted Fiscal Year Per Share Date Present Value (1)
- ----- --------- ------------- ------------- -------- -------------------
<S> <C> <C> <C> <C>
Richard M. Scrushy 1,000,000 32.6% $16.75 6/6/2005 $ 11,070,000
James P. Bennett 50,000 19.375 3/10/2005 675,500
100,000 4.9% 16.75 6/6/2005 1,107,000
Michael D. Martin 60,000 16.75 6/6/2005 664,200
25,000 2.8% 30.75 12/14/2005 451,750
P. Daryl Brown 30,000 19.375 3/10/2005 405,300
100,000 4.2% 16.75 6/6/2005 1,107,000
Aaron Beam, Jr. 100,000 3.3% 16.75 6/6/2005 1,107,000
- --------------
<FN>
(1) Based on the Black-Scholes option pricing model adapted for use in
valuating executive stock options. The actual value, if any, an
executive may realize will depend upon the excess of the stock price
over the exercise price on the date the option is exercised, so that
there is no assurance that the value realized by an executive will be
at or near the value estimated by the Black-Scholes model. The
estimated values under that model are based on arbitrary assumptions as
to certain variables, including the following: (i) stock price
volatility is assumed to be 48 at March 10, 1995, 45 at June 6, 1995
and 36 at December 14, 1995; (ii) the risk-free rate of return is
assumed to be 7.17% at March 10, 1995, 6.25% at June 6, 1995 and 5.76%
at December 14, 1995; (iii) dividend yield is assumed to be 0; and (iv)
the time of exercise is assumed to be the expiration date of the
option.
</FN>
</TABLE>
Stock Option Exercises in 1995 and Option Values at December 31, 1995
<TABLE>
<CAPTION>
Number Value of Unexercised
of Shares Number of Unexercised Options In-the-Money Options
Acquired at December 31, 1995 at December 31, 1995
on Value --------------------------- ------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard M. Scrushy...... -0- $ -0- 6,686,262 -0- $136,449,400 $ -0-
James P. Bennett........ 10,000 111,850 360,000 15,000 6,252,600 323,400
Michael D. Martin....... 30,000 395,550 63,000 71,250 822,336 991,163
P. Daryl Brown.......... -0- -0- 441,000 15,000 8,332,353 323,400
Aaron Beam, Jr..........123,100 1,556,845 176,250 -0- 2,881,450 -0-
- --------------------
<FN>
(1) Does not reflect any options granted and/or exercised after December 31,
1995. The net effect of any such grants and exercises is reflected in the
table appearing under Item 12, "Security Ownership of Certain Beneficial
Owners and Management".
(2) Represents the difference between market price of the Company's Common
Stock and the respective exercise prices of the options at December 31,
1995. Such amounts may not necessarily be realized. Actual values which may
be realized, if any, upon any exercise of such options will be based on the
market price of the Common Stock at the time of any such exercise and thus
are dependent upon future performance of the Common Stock.
</FN>
- 77 -
<PAGE>
Stock Option Plans
Set forth below is information concerning the various stock option
plans of the Company at December 31, 1995.
1984 Incentive Stock Option Plan
The Company had a 1984 Incentive Stock Option Plan (the "ISO Plan"),
intended to qualify under Section 422(b) of the Internal Revenue Code of 1986,
as amended (the "Code"), covering an aggregate of 2,400,000 shares of Common
Stock. The ISO Plan expired on February 28, 1994, in accordance with its terms.
As of December 31, 1995, there were outstanding under the ISO Plan options to
purchase 21,353 shares of the Company's Common Stock at prices ranging from
$2.71 to $7.57 per share. All such options remain in full force and effect in
accordance with their terms and the ISO Plan. Under the ISO Plan, which was
administered by the Board of Directors, key employees could be granted options
to purchase shares of Common Stock at 100% of fair market value on the date of
grant (or 110% of fair market value in the case of a 10% stockholder/grantee).
The outstanding options granted under the ISO Plan must be exercised within ten
years from the date of grant, are cumulatively exercisable with respect to 25%
of the shares covered thereby after the expiration of each of the first through
the fourth years following the date of grant, are nontransferable except by will
or pursuant to the laws of descent and distribution, are protected against
dilution and expire within three months after termination of employment, unless
such termination is by reason of death.
1988 Non-Qualified Stock Option Plan
The Company also has a 1988 Non-Qualified Stock Option Plan (the "NQSO
Plan") covering a maximum of 2,400,000 shares of Common Stock. As of December
31, 1995, there were outstanding under the NQSO Plan options to purchase 167,180
shares of the Company's Common Stock at prices ranging from $5.04 to $16.75 per
share. An additional 3,650 shares were reserved for grants under the NQSO
Plan.The NQSO Plan, which is administered by the Board of Directors (except with
respect to options granted to Directors, as to which it is administered by an
Independent Stock Option Committee), provides that Directors, executive officers
and other key employees may be granted options to purchase shares of Common
Stock at 100% of fair market value on the date of grant. The NQSO Plan
terminates on the earliest of (a) February 28, 1998, (b) such time as all shares
of Common Stock reserved for issuance under the NQSO Plan have been acquired
through the exercise of options granted thereunder or (c) such earlier time as
the Board of Directors of the Company may determine. Options granted pursuant to
the NQSO Plan have a ten-year term are exercisable at any time during such
period, are nontransferable except by will or pursuant to the laws of descent
and distribution, are protected against dilution and expire within three months
of termination of association with the Company as a Director or termination of
employment, unless such termination is by reason of death.
1989, 1990, 1991, 1992, 1993 and 1995 Stock Option Plans
The Company also has a 1989 Stock Option Plan (the "1989 Plan"), a 1990
Stock Option Plan (the "1990 Plan"), a 1991 Stock Option Plan (the "1991 Plan"),
a 1992 Stock Option Plan (the "1992 Plan"), a 1993 Stock Option Plan (the "1993
Plan") and a 1995 Stock Option Plan (the "1995 Plan"), under each of which
incentive stock options ("ISOs") and non-qualified stock options ("NQSOs") may
be granted. The 1989, 1990, 1991, 1992, 1993 and 1995 Plans cover a maximum of
1,200 shares, 1,800 shares, 5,600,000 shares, 2,800,000 shares, 2,800,000 shares
and 3,500,000 (to be increased by 0.9% of the outstanding Common Stock of the
Company on each January 1, beginning January 1, 1996) shares, respectively, of
the Company's Common Stock. As of December 31, 1995, there were outstanding
options to purchase an aggregate of 13,458,221 shares of the Company's Common
Stock under such Plans at exercise prices ranging from $5.04 to $30.75 per
share. An additional 1,236,004 shares were reserved for grants under such Plans.
Each of the 1989, 1990, 1991, 1992, 1993 and 1995 Plans is administered in the
same manner as the NQSO Plan and provides that Directors, executive officers and
other key employees may
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<PAGE>
be granted options to purchase shares of Common Stock at 100% of fair market
value on the date of grant. The 1989, 1990, 1991, 1992, 1993 and 1995 Plans
terminate on the earliest of (a) October 25, 1999, October 15, 2000, June 19,
2001, June 16, 2002, April 19, 2003 and June 5, 2005, respectively, (b) such
time as all shares of Common Stock reserved for issuance under the respective
Plan have been acquired through the exercise of options granted thereunder, or
(c) such earlier times as the Board of Directors of the Company may determine.
Options granted under these Plans which are designated as ISOs contain vesting
provisions similar to those contained in options granted under the ISO Plan and
have a ten-year term. NQSOs granted under these Plans have a ten-year term.
Options granted under these Plans are nontransferable except by will or pursuant
to the laws of descent and distribution, are protected against dilution and will
expire within three months of termination of association with the Company as a
Director or termination of employment, unless such termination is by reason of
death.
1993 Consultants' Stock Option Plan
The Company also has a 1993 Consultants' Stock Option Plan (the "1993
Consultants' Plan"), under which NQSOs may be granted, covering a maximum of
1,500,000 shares of Common Stock. As of December 31, 1995, there were
outstanding under the 1993 Consultants' Plan options to purchase 905,000 shares
of Common Stock at prices ranging from $6.75 to $30.75 per share. The 1993
Consultants' Plan, which is administered in the same manner as the NQSO Plan,
provides that certain non-employee consultants who provide significant services
to the Company may be granted options to purchase shares of Common Stock at such
prices as are determined by the Board of Directors or the appropriate committee.
The 1993 Consultants' Plan terminates on the earliest of (a) February 25, 2003,
(b) such time as all shares of Common Stock reserved for issuance under the 1993
Consultants' Plan have been acquired through the exercise of options granted
thereunder, or (c) such earlier time as the Board of Directors of the Company
may determine. Options granted under the 1993 Consultants' Plan have a ten-year
term. Options granted under the 1993 Consultants' Plan are nontransferable
except by will or pursuant to the laws of descent and distribution, are
protected against dilution and expire within three months of termination of
association with the Company as a consultant, unless such termination is by
reason of death.
Other Stock Option Plans
In connection with the acquisitions of SHC and SSCI, the Company
assumed certain existing stock option plans of the acquired companies, and
outstanding options to purchase stock of the acquired companies under such plans
were converted into options to acquire Common Stock of the Company in accordance
with the exchange ratios applicable to such mergers. At December 31, 1995, there
were outstanding under the SHC and SSCI plans options to purchase 674,806 shares
of the Company's Common Stock at exercise prices ranging from $1.52 to $17.24
per share. No additional options are being granted under any such assumed plans.
Executive Loans
In order to enhance equity ownership by senior management, in 1989 the
Company adopted a program of making loans to officers holding the position of
Group Vice President and above to facilitate the exercise of stock options held
by such persons. Each loan bears interest at the prime rate announced from time
to time by AmSouth Bank of Alabama, Birmingham, Alabama and is secured by a
first lien on the shares of Common Stock acquired with the proceeds of the loan.
Each loan has a ten-year term, and the Company's lien on the shares of Common
Stock is released as the indebtedness is repaid at the rate of one share per the
weighted average option exercise price repaid. The only loan currently
outstanding under such program is a loan made on May 7, 1992 to P. Daryl Brown,
President -- HEALTHSOUTH Outpatient Centers, which had an original principal
balance of $213,613 and of which $190,000 remained outstanding at December 31,
1995.
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<PAGE>
Retirement Investment Plan
Effective January 1, 1990, the Company adopted the HEALTHSOUTH
Retirement Investment Plan (the "401(k) Plan"), a retirement plan intended to
qualify under Section 401(k) of the Internal Revenue Code of 1986, as amended.
The 401(k) Plan is open to all full-time and part-time employees of the Company
who are over the age of 21, have one full year of service with the Company and
have at least 1,000 hours of service in the year in which they enter the 401(k)
Plan. Eligible employees may elect to participate in the Plan on January 1 and
July 1 in each year.
Under the 401(k) Plan, participants may elect to defer up to 20% of
their annual compensation (subject to nondiscrimination rules under the Internal
Revenue Code). The deferred amounts may be invested among four options, at the
participant's direction: a money market fund, a bond fund, a guaranteed
insurance contract or an equity fund. The Company will match a minimum of 10% of
the amount deferred by each participant, up to 4% of such participant's total
compensation, with the matched amount also directed by the participant. See Note
12 of "Notes to Consolidated Financial Statements".
Aaron Beam, Jr., Executive Vice President and Chief Financial Officer
of the Company, and Anthony J. Tanner, Executive Vice President --
Administration and Secretary of the Company, serve as Trustees of the 401(k)
Plan, which is administered by the Company.
Employee Stock Benefit Plan
Effective January 1, 1991, the Company adopted the HEALTHSOUTH
Rehabilitation Corporation and Subsidiaries Employee Stock Benefit Plan (the
"ESOP"), a retirement plan intended to qualify under sections 401(a) and
4975(e)(7) of the Internal Revenue Code of 1986, as amended. The ESOP is open to
all full-time and part-time employees of the Company who are over the age of 21,
have one full year of service with the Company and have at least 1,000 hours of
service in the year in which they begin participation in the ESOP on the next
January 1 or July 1 after the date on which such employee satisfies the
aforementioned conditions.
The ESOP was established with a $10,000,000 loan from the Company, the
proceeds of which were used to purchase 413,793 shares of the Company's Common
Stock. In 1992, an additional $10,000,000 loan was made to the ESOP, which was
used to purchase an additional 416,666 shares of Common Stock. Under the ESOP, a
Company Common Stock account (a "company stock account") is established and
maintained for each eligible employee who participates in the ESOP. In each plan
year, such account is credited with such employee's allocable share of the
Common Stock held by the ESOP and allocated with respect to such plan year. Each
employee's allocable share for any given plan year is determined according to
the ratio which such employee's compensation for such plan year bears to the
compensation of all eligible participating employees for the same plan year.
Under the ESOP, eligible employees who participate in the ESOP and who
have attained age 55 and have completed 10 years of participation in the ESOP
may elect to diversify the assets in their company stock account by directing
the plan administrator to transfer to the 401(k) Plan a portion of their company
stock account to be invested, as the eligible employee directs, in one or more
of the investment options available under the 401(k) Plan.
See Note 12 of "Notes to Consolidated Financial Statements".
Richard M. Scrushy, Chairman of the Board and Chief Executive Officer
of the Company, Aaron Beam, Jr., Executive Vice President and Chief Financial
Officer of the Company, and Anthony J. Tanner, Executive Vice President --
Administration and Secretary of the Company, serve as Trustees of the ESOP,
which is administered by the Company.
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<PAGE>
Stock Purchase Plan
In order to further encourage employees to obtain equity ownership in
the Company, the Company's Board of Directors adopted an Employee Stock Purchase
Plan (the "Stock Purchase Plan") effective January 1, 1994. Under the Stock
Purchase Plan, participating employees may contribute $10 to $200 per pay period
toward the purchase of the Company's Common Stock in open-market transactions.
The Stock Purchase Plan is open to regular full-time or part-time employees who
have been employed for six months and are at least 21 years old. After six
months of participation in the Stock Purchase Plan, the Company will provide a
10% matching contribution to be applied to purchases under the Stock Purchase
Plan. The Company also pays all fees and brokerage commissions associated with
the purchase of the stock. The Stock Purchase Plan is administered by a
broker-dealer firm not affiliated with the Company.
Board Compensation
Directors who are not also employed by the Company are paid Directors'
fees of $10,000 per annum, plus $3,000 for each meeting of the Board of
Directors and $1,000 for each Committee meeting attended. In addition, Directors
are reimbursed for all out-of-pocket expenses incurred in connection with their
duties as Directors. The Directors of the Company, including Mr. Scrushy, have
been granted non-qualified stock options to purchase shares of the Company's
Common Stock. See this Item, "Executive Compensation -- Stock Option Plans"
above.
Chief Executive Officer Employment Agreement
The Company is a party to an Employment Agreement with Richard M.
Scrushy, pursuant to which Mr. Scrushy, a management founder of the Company. is
employed as Chairman of the Board and Chief Executive Officer of the Company for
a five-year term which ends December 31, 2000. Such term is automatically
extended for an additional year on December 31 of each year. In addition, the
Company has agreed to use its best efforts to cause Mr. Scrushy to be elected as
a Director of the Company during the term of the Agreement. Under the Agreement,
Mr. Scrushy received a base salary of $900,000, excluding incentive compensation
of up to $900,000, in 1995 and is to receive the same base salary in 1996 and
each year thereafter, with incentive compensation of up to $2,400,000, subject
to annual review by the Board of Directors, and is entitled to participate in
any bonus plan approved by the Board of Directors for the Company's management.
The incentive compensation is earned at $200,000 per month in 1996, contingent
upon the Company's success in meeting certain monthly budgeted earnings per
share targets. Mr. Scrushy earned the entire $900,000 incentive component of his
compensation in 1995, as all such targets were met. In addition, Mr. Scrushy was
awarded $5,000,000 under the management bonus plan, and was conveyed real estate
having an appraised value of $640,000 by the Company. See Item 13, "Certain
Relationships and Related Transactions". Such additional bonus was based on the
Committee's assessment of Mr. Scrushy's contribution to the establishment of the
Company as the industry leader in outpatient and rehabilitative healthcare
services, including his role in the negotiation and consummation of the
Company's 1995 acquisitions of Surgical Health Corporation, the rehabilitation
hospitals division of NovaCare, Inc., Sutter Surgery Centers, Inc. and Caremark
Orthopedic Services Inc. and the 1996 acquisitions of Surgical Care Affiliates,
Inc. and Advantage Health Corporation, as well as the Company's success in
achieving annual budgeted net income targets. Mr. Scrushy is also provided with
a car allowance in the amount of $500 per month and disability insurance through
a Company-wide plan or otherwise. Under the Agreement, Mr. Scrushy's employment
may be terminated for cause or if he should become disabled. Termination of Mr.
Scrushy's employment under the Agreement will result in certain severance pay
arrangements. In the event that the Company shall be acquired, merged or
reorganized in such a manner as to result in a change of control of the Company,
Mr. Scrushy has the right to terminate his employment under the Agreement, in
which case he will receive a lump sum payment equal to three years' annual base
salary (including the gross incentive portion thereof) under the Agreement. Mr.
Scrushy has agreed not to compete with the Company during any period to which
any such severance pay relates. Mr. Scrushy may terminate
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<PAGE>
the Agreement at any time upon 180 days' notice, in which case he will receive
one year's base salary as severance pay.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 15, 1996, (a) by each person
who is known by the Company to own beneficially more than 5% of the Company's
Common Stock, (b) by each of the Company's Directors and (c) by the Company's
five most highly compensated executive officers and all executive officers and
Directors as a group.
</TABLE>
<TABLE>
<CAPTION>
Percentage
Name and Number of Shares of
Address of Owner Beneficially Owned (1) Common Stock
---------------- ---------------------- ------------
<S> <C> <C> <C>
Richard M. Scrushy 7,738,329 (2) 4.84%
John S. Chamberlin 105,000 (3) *
C. Sage Givens 191,050 (4) *
Charles W. Newhall III 315,938 (5) *
George H. Strong 264,166 (6) *
Phillip C. Watkins, M.D. 322,765 (7) *
Aaron Beam, Jr. 228,060 (8) *
James P. Bennett 475,000 (3) *
Larry R. House 288,906 (9) *
Anthony J. Tanner 646,904 (10) *
Richard F. Celeste 80,000 (3) *
P. Daryl Brown 520,000 (11) *
Joel C. Gordon 1,947,236 (12) 1.28%
Raymond J. Dunn, III 1,619,749 (13) 1.06%
Michael D. Martin 114,004 (14) *
FMR Corp. 9,967,400 (15) 6.54%
82 Devonshire Street
Boston, Massachusetts 02109
All Executive Officers and Directors as a Group 16,249,806 (16) 9.87%
(20 persons)
- -------------------------
<FN>
(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by
them, except as otherwise indicated.
(2) Includes 7,436,262 shares subject to currently exercisable stock options.
(3) All of the shares are subject to currently exercisable stock options.
(4) Includes 1,050 shares owned by Ms. Givens's spouse and 190,000 shares
subject to currently exercisable stock options.
(5) Includes 230 shares owned by members of Mr. Newhall's immediate family,
10,780 shares owned by partnerships of which Mr. Newhall is a general
partner and 305,000 shares subject to currently exercisable
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<PAGE>
stock options. Mr. Newhall disclaims beneficial ownership of the shares
owned by the partnerships except to the extent of his pecuniary interest
therein.
(6) Includes 54,054 shares owned by a trust of which Mr. Strong is a trustee
and claims shared voting and investment power and 138,165 shares subject
to currently exercisable stock options.
(7) Includes 225,000 shares subject to currently exercisable stock options.
(8) Includes 206,250 shares subject to currently exercisable stock options.
(9) Includes 173,734 shares subject to currently exercisable stock options.
(10) Includes 36,000 shares held in trust by Mr. Tanner for his children and
610,000 shares subject to currently exercisable stock options.
(11) Includes 491,000 shares subject to currently exercisable stock options.
(12) Includes 204,670 shares owned by his spouse, 235,350 shares owned by
trusts of which he is a trustee and 167,260 shares subject to currently
exercisable stock options.
(13) Includes 31,666 shares owned by a charitable foundation of which Mr. Dunn
is a trustee.
(14) Includes 113,000 shares subject to currently exercisable stock options.
(15) Shares held by various investment funds for which affiliates of FMR Corp.
act as investment advisor. FMR Corp. or its affiliates claim sole power
to vote 21,100 of the shares and sole power to dispose of all of the
shares.
(16) Includes 12,094,715 shares subject to currently exercisable stock options
held by executive fficers and Directors.
* Less than 1%
</FN>
</TABLE>
Item 13. Certain Relationships and Related Transactions.
During 1995, the Company paid $11,587,000 for the purchase of new NCR
computer equipment from GG Enterprises, a value-added reseller of computer
equipment which is owned by Grace Scrushy, the mother of Richard M. Scrushy,
Chairman of the Board and Chief Executive Officer of the Company, and Gerald P.
Scrushy, Senior Vice President -- Physical Resources of the Company. Such
purchases were made in the ordinary course of the Company's business. The price
paid for this equipment was more favorable to the Company than that which could
have been obtained from an independent third party seller.
During 1995, the Company paid 229,000 to Caretenders Health Corp., a
provider of home healthcare services and related services, for services provided
by Caretenders to the Company. The Company beneficially owns approximately 30%
of the issued and outstanding shares of common stock of Caretenders. Such
purchases were made in the ordinary course of the Company's business. The
Company believes that the price paid for the services provided by Caretenders
was no less favorable to the Company than that which could have been obtained
from an independent third-party provider.
During 1995, the Company paid $63,000 to MedPartners/Mullikin, Inc., a
publicly-traded physician practice management company, for management services
rendered to certain physician practices owned by the Company. Richard M.
Scrushy, Chairman of the Board and Chief
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<PAGE>
Executive Officer of the Company, and Larry R. House, a Director of the Company,
are directors of MedPartners/Mullikin, Inc. Mr. House also serves as Chairman of
the Board, President and Chief Executive Officer of MedPartners/Mullikin, Inc.,
a position which has been his principal occupation since August 1993. At March
1, 1996, Mr. Scrushy beneficially owns approximately 1.63%, Mr. House
beneficially owns approximately 3.93%, and the Company owns approximately 2.20%
of the issued and outstanding Common Stock of MedPartners/Mullikin, Inc. The
Company believes that the price paid for such services was no less favorable to
the Company than that which could have been obtained from an independent
third-party provider.
In June 1994, the Company sold selected properties, including six
ancillary hospital facilities, three outpatient rehabilitation facilities, two
outpatient surgery centers, one uncompleted medical office building and one
research facility to Capstone Capital Corporation ("Capstone"), a
publicly-traded real estate investment trust. The net proceeds of the Company as
a result of the transaction were approximately $58,425,000. The net book value
of the properties was approximately $50,735,000. The Company leases back
substantially all these properties from Capstone and guarantees the associated
operating leases, payments under which aggregate approximately $6,900,000
annually. In addition, in 1995, Capstone acquired ownership of the Company's
Erie, Pennsylvania inpatient rehabilitation facility, which had been leased by
the Company from an unrelated lessor. The Company's annual lease payment under
that lease is $1,700,000. Richard M. Scrushy, Chairman of the Board and Chief
Executive Officer of the Company, and Michael D. Martin, Senior Vice President
- -- Finance and Treasurer of the Company, were among the founders of Capstone and
serve on its Board of Directors. At March 1, 1996, Mr. Scrushy owned
approximately 2.9% of the issued and outstanding capital stock of Capstone, and
Mr. Martin owned approximately 0.8% of the issued and outstanding capital stock
of Capstone. In addition, the Company owned approximately 0.8% of the issued and
outstanding capital stock of Capstone at March 1, 1996. The Company believes
that all transactions involving Capstone were effected on terms no less
favorable than those which could have been obtained in transactions with
independent third parties.
Effective June 13, 1995, the Company acquired SHC through the merger of
a wholly-owned subsidiary of the Company with and into SHC. The transaction was
subject to approval of the stockholders of both the Company and SHC, and the
Company received an opinion from Smith Barney Inc. as to the fairness to the
Company, from a financial point of view, of the exchange ratio pursuant to which
capital stock of SHC was exchanged for Common Stock of the Company. Richard M.
Scrushy, Chairman of the Board and Chief Executive Officer of the Company, and
Charles W. Newhall III, a Director of the Company, also served on the Board of
Directors of SHC. In connection with such transaction, Mr. Scrushy received
123,421 shares of HEALTHSOUTH Common Stock in the merger, and entities of which
Mr. Newhall is a general partner received 1,058,901 shares of HEALTHSOUTH Common
Stock in the merger. Mr. Newhall shared voting and investment power with respect
to such shares and disclaimed beneficial ownership of such shares. In addition,
C. Sage Givens and Larry R. House, both Directors of the Company, were also
direct or indirect stockholders of SHC and received, respectively, 215,404 and
114,370 shares of HEALTHSOUTH Common Stock in connection with the merger.
In July 1994, the Company acquired in excess of 80% of the issued and
outstanding capital stock of Diagnostic Health Corporation ("DHC"), a
privately-held company which operated diagnostic imaging facilities. After the
July 1994 transaction, the minority interests in DHC were owned by approximately
49 stockholders, including the following Directors and executive officers of the
Company: Richard M. Scrushy, Chairman of the Board and Chief Executive Officer
of the Company, James P. Bennett, President and Chief Operating Officer of the
Company, Aaron Beam, Jr., Executive Vice President and Chief Financial Officer
of the Company, Thomas W. Carman, Executive Vice President -- Corporate
Development of the Company, Russell H. Maddox, President -- HEALTHSOUTH Imaging
Centers of the Company, P. Daryl Brown, President -- HEALTHSOUTH Outpatient
Centers of the Company, Michael D. Martin, Senior Vice President and Treasurer
of the Company, and Larry R. House, a Director of the Company. In October 1995,
the Company purchased the remaining minority interests in DHC for a cash
purchase price of $4.00 per share and cashed out all options to acquire DHC
stock at a cash price equal to $4.00 per share less the option exercise price.
The Company received an opinion from Smith Barney Inc. as to the fairness to the
Company, from a financial point of view, of the consideration payable to DHC
stockholders and option holders. In connection with such transactions, Mr.
Scrushy received a cash payment of $3,229,164,
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<PAGE>
Mr. Maddox received a cash payment of $3,412,886, Mr. Martin received a cash
payment of $223,750, and Mr. House received a cash payment of $2,452,500. The
other individuals named above received cash payments of less than $60,000
apiece.
In 1992, the Company acquired 19.55 acres of vacant land in Vestavia
Hills, Alabama for potential development as a corporate headquarters building.
The Company subsequently determined that, for various reasons, such land was not
suited for the type of development that the Company wished to pursue.
Accordingly, in 1995, the Board of Directors of the Company determined to convey
the property to Richard M. Scrushy, Chairman of the Board and Chief Executive
Officer of the Company, as additional compensation. An independent appraisal
valued the property at $640,000, and such amount was treated as additional
compensation to Mr. Scrushy.
In order to enhance equity ownership by senior management, the Company
has adopted a program of making loans to officers holding the position of Group
Vice President and above to facilitate the exercise of stock options held by
such persons. See Item 11, "Executive Compensation -- Executive Loans".
At various times, the Company has made loans to executive officers to
assist them in meeting financial obligations at certain times when they were
requested by the Company to refrain from selling Common Stock in the open
market. At January 1, 1995, loans in the following original principal amounts
were outstanding: $460,000 to Larry R. House, a Director and a former executive
officer, and $140,000 to William T. Owens, Senior Vice President and Controller.
Outstanding principal balances at December 31, 1995 were $414,000 for Mr. House
and $126,000 for Mr. Owens. In addition, during 1995, the Company made an
additional loan of $350,000 to Mr. Owens and $500,000 to Aaron Beam, Jr.,
Executive Vice President and Chief Financial Officer of the Company, which loans
were outstanding in full at December 31, 1995. Such loans bear interest at the
rate of 1-1/4% per annum below the prime rate of AmSouth Bank of Alabama,
Birmingham, Alabama, and are payable on demand.
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<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) Financial Statements, Financial Statement Schedules and Exhibits.
1. Financial Statements.
The consolidated financial statements of the Company and its
subsidiaries filed as a part of this Annual Report on Form 10-K are listed in
Item 8 of this Annual Report on Form 10-K, which listing is hereby incorporated
herein by reference.
2. Financial Statement Schedules.
The financial statement schedules required by Regulation S-X are filed
under Item 14(d) of this Annual Report on Form 10-K, as listed below:
Schedules Supporting the Financial Statements
Schedule II Valuation and Qualifying Accounts 90
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission have been
omitted because they are not required under the related instructions or are
inapplicable, or because the information has been provided in the Consolidated
Financial Statements or the Notes thereto.
3. Exhibits.
The Exhibits filed as a part of this Annual Report are listed in Item
14(c) of this Annual Report on Form 10-K, which listing is hereby incorporated
herein by reference.
(b) Reports on Form 8-K.
During the last quarter of the period covered by this Annual Report on
Form 10-K, the Company filed the following Current Reports on Form 8-K:
(1) Current Report on Form 8-K filed October 19, 1995 providing
information under Items 5 and 7 relating to the acquisition of
SHC, and including the following unaudited pro forma financial
statements of HEALTHSOUTH Corporation:
(a) Pro forma consolidated Balance Sheet at March 31, 1995
and pro forma consolidated statements of income for
the three-month periods ended March 31, 1995 and March
31, 1994;
(b) Pro forma consolidated statements of income for the
twelve-month periods ended December 31, 1994, 1993 and
1992; and
(c) Notes to consolidated financial statements.
(2) Current Report on Form 8-K filed October 20, 1995, as amended on
November 9, 1995 providing information under Items 5 and 7
relating to the acquisition of SCA.
(3) Current Report on Form 8-K dated October 30, 1995 providing
information under Items 5 and 7 relating to the acquisition of
Caremark Orthopedic Services, Inc.
(4) Current Report on Form 8-K dated November 13, 1995 providing
information under Items 2 and 7 relating to the acquisition of
SSCI, incorporating by reference from HEALTHSOUTH Corporation's
Registration Statement on Form S-4 filed September 28, 1995
(Registration No. 33-63055) the audited consolidated financial
statements of SSCI as at December 31, 1994, and for the period
then ended.
(5) Current Report on Form 8-K dated December 20, 1995 providing
information under Item 5 relating to the acquisition of Sutter
Surgery Centers, Inc.
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<PAGE>
(c) Exhibits.
The Exhibits required by Regulation S-K are set forth in the following
list and are filed either by incorporation by reference from previous filings
with the Securities and Exchange Commission or by attachment to this Annual
Report on Form 10-K as so indicated in such list.
(2)-1 Amended and Restated Plan and Agreement of Merger, dated as of
September 18, 1994, among HEALTHSOUTH Rehabilitation
Corporation, RRS Acquisitions Company, Inc. and ReLife, Inc.,
filed as Exhibit (2)-1 to the Company's Registration Statement
on Form S-4 (Registration No. 33-55929), is hereby
incorporated by reference.
(2)-2 Amended and Restated Plan and Agreement of Merger, dated as of
January 22, 1995, among HEALTHSOUTH Corporation, ASC Atlanta
Acquisition Company, Inc. and Surgical Health Corporation,
filed as Exhibit (2)-4 to the Company's Annual Report on Form
10-K for the Fiscal Year Ended December 31, 1994, is hereby
incorporated by reference.
(2)-3 Stock Purchase Agreement, dated February 3, 1995, among
HEALTHSOUTH Corporation, NovaCare, Inc. and NC Resources,
Inc., filed as Exhibit (2)-3 to the Company's Annual Report on
Form 10-K for the Fiscal Year Ended December 31, 1994, is
hereby incorporated by reference.
(2)-4 Plan and Agreement of Merger, dated August 23, 1995, among
HEALTHSOUTH Corporation, SSCI Acquisition Corporation and
Sutter Surgery Centers, Inc., filed as Exhibit (2) to the
Company's Registration Statement on Form S-4 (Registration No.
33-63-55) is hereby incorporated by reference.
(2)-5 Amendment to Plan and Agreement of Merger among HEALTHSOUTH
Corporation, SSCI Acquisition Corporation and Sutter Surgery
Center, Inc.
(2)-6 Amended and Restated Plan and Agreement of Merger, dated as of
October 9, 1995, among HEALTHSOUTH Corporation, SCA
Acquisition Corporation and Surgical Care Affiliates, Inc.,
filed as Exhibit (2)-1 to Amendment No. 1 to the Company's
Registration Statement on Form S-4 (Registration No.
33-64935), is hereby incorporated by reference.
(2)-7 Agreement and Plan of Merger, dated December 16, 1995, between
HEALTHSOUTH Corporation, Aladdin Acquisition Corporation and
Advantage Health Corporation, filed as Exhibit (2)-1 to the
Company's Registration Statement on Form S-4 (Registration No.
333-825), is hereby incorporated by reference.
(3)-1 Restated Certificate of Incorporation of HEALTHSOUTH
Corporation, as filed in the Office of the Secretary of State
of the State of Delaware on January 17, 1996, filed as Exhibit
(3) to the Company's Current Report on Form 8-K filed
onJanuary 29, 1996, is hereby incorporated by reference.
- 87 -
<PAGE>
(3)-2 Bylaws of HEALTHSOUTH Rehabilitation Corporation, filed as
Exhibit (3)-2 to the Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1991, are hereby
incorporated herein by reference.
(4)-1 Indenture, dated March 24, 1994, between HEALTHSOUTH
Rehabilitation Corporation and NationsBank of Georgia,
National Association, relating to the Company's 9.5% Senior
Subordinated Notes due 2001, filed as Exhibit (4)-1 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1994, is hereby incorporated by reference.
(4)-2 Indenture, dated March 24, 1994, between HEALTHSOUTH
Rehabilitation Corporation and PNC Bank of Kentucky, Inc.,
relating to the Company's 5% Convertible Subordinated
Debentures due 2001, filed as Exhibit (4)-2 to the Company's
Annual Report on Form 10-K for the Fiscal Year Ended December
31, 1994, is hereby incorporated by reference.
(4)-3 Form of Incentive Stock Option Agreement for 1995 Stock Option
Plan.
(10)-1 1984 Incentive Stock Option Plan, as amended, filed as Exhibit
(10)-1 to the Company's Annual Report on Form 10-K for the
Fiscal Year Ended December 31, 1987, is hereby incorporated
herein by reference.
(10)-2 1988 Non-Qualified Stock Option Plan, filed as Exhibit 4(a) to
the Company's Registration Statement on Form S-8 (Registration
No. 33-23642), is hereby incorporated herein by reference.
(10)-3 1989 Stock Option Plan, filed as Exhibit (10)-6 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1989, is hereby incorporated by reference.
(10)-4 1990 Stock Option Plan, filed as Exhibit (10)-13 to the
Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1990, is hereby incorporated by reference.
(10)-5 Forms of Stock Option Agreements utilized under 1984 Incentive
Stock Option Plan, 1988 Non- Qualified Stock Option Plan, 1989
Stock Option Plan and 1990 Stock Option Plan, filed as Exhibit
(10)-14 to the Company's Annual Report on Form 10-K for the
Fiscal Year ended December 31, 1990, are hereby incorporated
herein by reference.
(10)-6 1991 Stock Option Plan, as amended, filed as Exhibit (10)-15
to the Company's Annual Report on Form 10-K for the Fiscal
Year ended December 31, 1991, is hereby incorporated herein by
reference.
(10)-7 Forms of Stock Option Agreements utilized under 1991 Stock
Option Plan, filed as Exhibit (10)-16 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1991, are hereby incorporated by reference.
(10)-8 1992 Stock Option Plan, filed as Exhibit (10)-8 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1992, is hereby incorporated by reference.
(10)-9 Forms of Stock Option Agreements utilized under 1992 Stock
Option Plan, filed as Exhibit (10)-9 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1992, are hereby incorporated by reference .
(10)-10 1993 Stock Option Plan, filed as Exhibit (10)-10 to the
Company's Annual Report on Form 10-K for the Fiscal Year Ended
December 31, 1993, is hereby incorporated by reference.
- 88 -
<PAGE>
(10)-11 Forms of Stock Option Agreements utilized under 1993 Stock
Option Plan, filed as Exhibit (10)-11 to the Company's Annual
Report on Form 10-K for the Fiscal Year Ended December 31,
1993, are hereby incorporated by reference.
(10)-12 1993 Consultants Stock Option Plan, filed as Exhibit 4(a) to
the Company's Registration Statement on Form S-8 (Commission
File No. 33-64316), is hereby incorporated by reference.
(10)-13 Form of Stock Option Agreement utilized under the 1993
Consultants Stock Option Plan, filed as Exhibit 4(b) to the
Company's Registration Statement on Form S-8 (Commission File
No. 33-64316), is hereby incorporated by reference.
(10)-14 1995 Stock Option Plan.
(10)-15 Form of Stock Option Agreement utilized under the 1995 Stock
Option Plan.
(10)-16 Employment Agreement, dated July 23, 1986, between HEALTHSOUTH
Rehabilitation Corporation and Richard M. Scrushy, as amended.
To be filed by amendment.
(10)-17 Second Amended and Restated Credit Agreement, dated as of
April 11, 1995, between HEALTHSOUTH Corporation and
NationsBank of North Carolina, National Association.
(10)-18 Form of Indemnity Agreement entered into between HEALTHSOUTH
Rehabilitation Corporation and each of its Directors, filed as
Exhibit (10)-13 to the Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1991, is hereby
incorporated by reference.
(11) HEALTHSOUTH Corporation and Subsidiaries, Computation of
Income Per Share.
(21) Subsidiaries of HEALTHSOUTH Corporation.
(23) Consent of Ernst & Young LLP.
(d) Financial Statement Schedules.
Schedule II: Valuation and Qualifying Accounts
- 89 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at Additions Charged Additions Charged
Beginning of to Costs and to Other Accounts - Deductions - Balance at
Description Period Expenses Describe Describe End of Period
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31,
1993:
Allowance for doubtful
accounts and con- 298,309 (1)
tractual adjustments $ 50,753 $ 17,947 $ 51,516 (2) $ 295,178 (3) $ 123,347
============== ============== ============== ============== ==============
Year ended December 31,
1994:
Allowance for doubtful
accounts and con- 662,230 (1)
tractual adjustments $ 123,347 $ 27,646 $ 6,547 (2) $ 672,334 (3) $ 147,436
============== ============== ============== ============== ==============
Year ended December 31,
1995:
Allowance for doubtful
accounts and con- 860,363 (1)
tractual adjustments $ 147,436 $ 31,637 $ 28,609 (2) $ 855,073 (3) $ 212,972
============== ============== ============== ============== ==============
- -------------------------
<FN>
(1) Provisions for contractual adjustments which are netted against gross
revenues.
(2) Allowances of acquisitions in years 1993, 1994 and 1995, respectively.
(3) Write-offs of uncollectible patient accounts receivable and third party
contractual adjustments, net of third party retroactive settlements.
</FN>
</TABLE>
90
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEALTHSOUTH Corporation
By /s/RICHARD M. SCRUSHY
---------------------------------------------
Richard M. Scrushy,
Chairman of the Board, President
and Chief Executive Officer
Date: March 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/RICHARD M. SCRUSHY Chairman of the Board March 27, 1996
- --------------------------------------
Richard M. Scrushy and Chief Executive Officer
and Director
/s/AARON BEAM, JR. Executive Vice President and March 27, 1996
- --------------------------------------
Aaron Beam, Jr. Chief Financial Officer
and Director
/s/WILLIAM T. OWENS Senior Vice President-Finance and March 27, 1996
- --------------------------------------
William T. Owens Controller (Principal Accounting
Officer)
/s/C. SAGE GIVENS Director March 27, 1996
- --------------------------------------
C. Sage Givens
/s/CHARLES W. NEWHALL III Director March 27, 1996
- --------------------------------------
Charles W. Newhall III
/s/GEORGE H. STRONG Director March 27, 1996
- --------------------------------------
George H. Strong
/s/PHILLIP C. WATKINS Director March 27, 1996
- --------------------------------------
Phillip C. Watkins
/s/JOHN S. CHAMBERLIN Director March 27, 1996
- --------------------------------------
John S. Chamberlin
- 91 -
<PAGE>
/s/LARRY R. HOUSE Director March 27, 1996
- --------------------------------------
Larry R. House
/s/ANTHONY J. TANNER Director March 27, 1996
- --------------------------------------
Anthony J. Tanner
/s/JAMES P. BENNETT Director March 27, 1996
- --------------------------------------
James P. Bennett
/s/RICHARD F. CELESTE Director March 27, 1996
- --------------------------------------
Richard F. Celeste
/s/P. DARYL BROWN Director March 27, 1996
- --------------------------------------
P. Daryl Brown
/s/JOEL C. GORDON Director March 27, 1996
- --------------------------------------
Joel C. Gordon
/s/RAYMOND J. DUNN, III Director March 27, 1996
- --------------------------------------
Raymond J. Dunn
</TABLE>
- 92 -
<PAGE>
FIRST AMENDMENT TO
PLAN AND AGREEMENT OF MERGER
BY AND AMONG
HEALTHSOUTH CORPORATION,
SSCI ACQUISITION CORPORATION AND
SUTTER SURGERY CENTERS, INC.
This Amendment No. 1 to the Plan and Agreement of Merger (the "Plan of
Merger") dated as of the 23rd day of August, 1995, is made and entered into as
of the 26th day of October, 1995, by and among HEALTHSOUTH CORPORATION, a
Delaware corporation ("Buyer"); SSCI ACQUISITION CORPORATION, a Delaware
corporation and a wholly owned subsidiary of Buyer ("Sub"); and SUTTER SURGERY
CENTERS, INC., a Delaware corporation (the "Company" or "SSCI"). (Terms not
otherwise defined herein shall have the same meanings as in the Plan of Merger).
R E C I T A L S:
WHEREAS, Buyer, Sub and SSCI have heretofore entered into the Plan of
Merger providing for the merger (the "Merger") of Sub with and into SSCI in
accordance with the Delaware General Corporation law (the "Delaware Law") upon
the terms and conditions set forth in the Plan of Merger; and
WHEREAS, the Plan of Merger provides for the exchange of SSCI's
existing shares of common stock for shares of HEALTHSOUTH's common stock, with
such HEALTHSOUTH common to be registered at the Effective Time of the Merger
pursuant to an effective registration statement to be filed with the Securities
and Exchange Commission ("SEC"); and
WHEREAS, the SEC, by letter dated October 13, 1995, has objected to the
filing by HEALTHSOUTH of a registration statement on Form S-4 which would cover
the HEALTHSOUTH common stock to be issued to the shareholders of SSCI pursuant
to the Merger; and
WHEREAS, HEALTHSOUTH has agreed to amend its filing on Form S-4 to
convert it to a filing on Form S-3 pursuant to Rule 415 under the Securities Act
of 1933;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
1. The second sentence of Section 5.5 "Buyer Common Stock" is hereby
deleted in its entirety and the following is substituted in its place:
1
<PAGE>
"The Buyer Common Stock to be issued pursuant to the Plan of
Merger will, when so delivered, be (i) duly and validly
issued, fully paid and non-assessable; (ii) be able to be
publicly resold by the stockholders of SSCI upon effectiveness
of a registration statement to be filed with the Securities
and Exchange Commission within 30 days after the Effective
Time by Buyer on Form S-3 and pursuant to Rule 415 as
promulgated under the Securities Act of 1933 (the "Act"), and
(iii) after the registration statement provided for in (ii)
shall have been declared effective by the SEC, be authorized
for listing on the Exchange upon official notice of issuance."
In all other respects, the language of Section 5.5 is unchanged.
2. In the second and third lines of Section 7.6(a) delete the phrase
"as soon as reasonably practicable" and insert "within thirty (30) days of the
Effective Time".
3. In the third line of Section 7.6(a) there is inserted after the
words "a registration Statement" the following:
"on Form S-3 and pursuant to Rule 415 under the Securities Act
of 1933"
In all other respects, other than as set forth in Paragraph 2 hereof,
the language of Section 7.6(a) is unchanged.
4. In Section 7.6(b) delete the words "Prior to the Closing Date" at
the beginning of Section 7.6(b) and substitute therefore "Within thirty (30)
days of the Effective Time". In all other respects Section 7.6(b) is unchanged.
5. In Section 7.6(c) delete the words "prior to the Closing Date" at
the beginning of the subparagraph and again at the end of the subparagraph, and,
in each case, substitute therefore: "within thirty (30) days after the Effective
Time". In all other respects the provisions of 7.6(c) are reconfirmed and
restated.
6. Section 8.8 "Registration Statement" is deleted in its entirety.
7. Section 9.7 "Registration Statement" is hereby deleted in its
entirety.
2
<PAGE>
8. Except as set forth above, in all other respect the Plan of Merger
is hereby reaffirmed and acknowledged and the parties have caused this Amendment
No. 1 to the Plan of Merger to be executed and delivered by their duly
authorized officers as of the date first above written.
SUTTER SURGERY CENTERS, INC.,
a Delaware corporation
By /s/ AUGUST A. SAIBENI
-----------------------------------------
Name August A. Saibeni
-----------------------------------------
Title President and Chief Operating Officer
-----------------------------------------
HEALTHSOUTH Corporation,
a Delaware corporation
By /s/ WILLIAM W. HORTON
-----------------------------------------
Name William W. Horton
-----------------------------------------
Title Group Vice President
-----------------------------------------
SSCI ACQUISITION CORPORATION,
a Delaware corporation
By /s/ WILLIAM W. HORTON
-----------------------------------------
Name William W. Horton
-----------------------------------------
Title Vice President
-----------------------------------------
3
<PAGE>
HEALTHSOUTH Corporation
1995 STOCK OPTION PLAN
1. Purpose of the Plan. The purpose of the 1995 Stock Option Plan
(hereinafter called the "Plan") of HEALTHSOUTH Corporation, a Delaware
corporation (hereinafter called the "Corporation"), is to provide incentive for
future endeavor and to advance the interests of the Corporation and its
stockholders by encouraging ownership of the Common Stock, par value $.01 per
share (hereinafter called the "Common Stock"), of the Corporation by its
Directors, executives and other key employees, upon whose judgment, interest and
continuing special efforts the Corporation is largely dependent for the
successful conduct of its operations, and to enable the Corporation to compete
effectively with other enterprises for the services of such new Directors,
executives and employees as may be needed for the continued improvement of the
Corporation's business, through the grant of options to purchase shares of the
Common Stock. It is intended that certain Options issued under the Plan and so
designated pursuant to Section 6(c) hereof by the Committee (as defined in
Section 5 hereof) shall qualify as "incentive stock options" (hereinafter called
"ISOs") under Section 422(b) of the Internal Revenue Code of 1986, as amended
from time to time (hereinafter called the "Code"), and, where applicable, the
terms of the Plan shall be interpreted in accordance with such intention. Other
Options may be issued under the Plan and designated by the Committee or such
Independent Stock Option Committee, as the case may be, as non-qualified stock
options (hereinafter called "NQSOs"). Any Option issued under the Plan and not
expressly designated as an ISO shall be conclusively deemed to be an NQSO.
2. Participants. Options may be granted under the Plan to Directors of
the Corporation and to such executives and key employees of the Corporation and
its subsidiaries as shall be determined by the Committee appointed by the Board
of Directors as set forth in Section 5 of the Plan; provided, however, that no
Option may be granted to any person if such grant would cause the Plan to cease
to be an "employee benefit plan" as defined in Rule 405 of Regulation C
promulgated under the Securities Act of 1933; and provided further that no ISO
may be granted to any person ineligible to be granted ISOs under Section 422(b)
of the Code.
3. Term of the Plan. The Plan shall become effective as of June 6,
1995, subject to the approval by the holders of a majority of the shares of
issued and outstanding Common Stock of the Corporation at the 1995 Annual
Meeting of Stockholders of the Corporation. The Plan shall terminate on the
earliest of (a) June 5, 2005, (b) such time as all shares of Common Stock
reserved for issuance under the Plan have been acquired through the exercise of
Options granted under the Plan, or (c) such earlier time as the Board of
Directors of the Corporation may determine. Any Option outstanding under the
Plan at the time of its termination shall remain in effect in accordance with
its terms and conditions and those of the Plan. No Option shall be granted under
the Plan after June 5, 2005.
4. Stock Subject to the Plan. (a) Subject to the provisions of Section
13, the aggregate number of shares of Common Stock for which Options may be
granted under the Plan shall not exceed 3,500,000 shares plus such number of
shares as is added pursuant to Section 4(b), and the maximum number of shares of
Common Stock for which any individual may be granted Options under the Plan
during any calendar year is 1,000,000. If, on or prior to the termination of the
Plan as provided in Section 3, an Option granted under the Plan shall have
expired or terminated for any reason without having been exercised in full, the
unpurchased shares covered thereby shall again become available for the grant of
Options under the Plan. Shares covered by Options surrendered in connection with
the
<PAGE>
exercise of other Options pursuant to Section 9(e) shall be deemed, for purposes
of this Section 4, to have been exercised, and such shares shall not again
become available for the grant of Options under the Plan.
The shares to be delivered upon exercise of Options under the Plan
shall be made available, at the discretion of the Board of Directors, either
from authorized but previously unissued shares as permitted by the Certificate
of Incorporation of the Corporation or from shares re-acquired by the
Corporation, including shares of Common Stock purchased in the open market, and
shares held in the treasury of the Corporation.
(b) The number of shares of Common Stock for which Options may
be granted under the Plan shall automatically increase on the first trading day
of each calendar year during the term of the Plan, beginning with the 1996
calendar year, by an amount equal to 0.9% of the shares of Common Stock
outstanding on December 31 of the immediately preceding year. However, such
additional shares shall be available only for the grant of NQSOs under the Plan
and not for the grant of ISOs.
5. Administration of the Plan. With respect to the participation of
executives and key employees of the Corporation and its subsidiaries who are not
also Directors of the Corporation, the Plan shall be administered by the Audit
and Compensation Committee of the Board of Directors of the Corporation
(hereinafter called the "Committee"). The acts of a majority of the Committee,
at any meeting thereof at which a quorum is present, or acts reduced to or
approved in writing by a majority of the members of the Committee, shall be the
valid acts of the Committee. The Committee shall determine the executives and
key employees of the Corporation and its subsidiaries who shall be granted
Options and the number of shares of Common Stock to be subject to each Option.
With respect to the participation of non-employee Directors of the
Corporation, each non-employee Director shall receive, as an annual grant, an
NQSO to purchase 25,000 shares of Common Stock on the date of adoption of the
Plan and in each year thereafter, such Option to be granted at the Annual
Meeting of the Board of Directors. The purchase price of the shares of Common
Stock covered by each such NQSO granted to a non-employee Director shall be 100%
of the fair market value (but in no event less than the par value) of such
shares at the time the Option is granted, determined in accordance with Section
7(c) hereof.
The interpretation and construction of any provision of the Plan or of
any Option granted under it by the Committee shall be final, conclusive and
binding upon all parties, including the Corporation, its stockholders and
Directors, and the executives and employees of the Corporation and its
subsidiaries. No member of the Board of Directors or the Committee shall be
liable to the Corporation, any stockholder, any optionholder or any employee of
the Corporation or its subsidiaries for any action or determination made in good
faith with respect to the Plan or any Option granted under it. No member of the
Board of Directors may vote on any Option to be granted to him.
The expenses of administering the Plan shall be borne by the
Corporation.
6. Grant of Options. (a) Options may be granted under the Plan by the
Committee in accordance with the provisions of Section 5 at any time prior to
the termination of the Plan. In making any determination as to Directors,
executives and key employees to whom Options shall be granted and as to the
number of shares to be covered by such Options, the Committee shall take into
account the duties of the respective Directors, executives and key employees,
their present and potential contribution
- 2 -
<PAGE>
to the success of the Corporation, and such other factors as the Committee shall
deem relevant in connection with the accomplishment of the purposes of the Plan.
(b) Each Option granted under the Plan shall be granted pursuant to and
subject to the terms and conditions of a stock option agreement to be entered
into between the Corporation and the optionholder at the time of such grant.
Each such stock option agreement shall be in a form from time-to-time adopted
for use under the Plan by the Committee (such form being hereinafter called a
"Stock Option Agreement"). Any such Stock Option Agreement shall incorporate by
reference all of the terms and provisions of the Plan as in effect at the time
of grant and may contain such other terms and provisions as shall be approved
and adopted by the Committee.
(c) At the time of the grant of each Option under this Plan, the
Committee shall determine whether such Option is to be designated as an ISO. If
an Option is to be designated as an ISO, then the provisions of Sections 6(d),
7(b) and 8(b) shall apply to such Options. The Stock Option Agreement relating
to the grant of any option designated as an ISO shall reflect such designation.
(d) Notwithstanding any contrary provision contained in this Agreement,
the aggregate fair market value (determined as of the time each ISO is granted)
of the shares of Common Stock with respect to which ISOs issued to any one
person hereunder are exercisable for the first time during any calendar year
shall not exceed $100,000.
7. Option Price. (a) The purchase price of the shares of Common Stock
covered by each Option granted under the Plan shall be at least 100% of the fair
market value (but in no event less than the par value) of such shares at the
time the Option is granted, or such higher purchase price as shall be determined
by the Committee.
(b) Notwithstanding any contrary provision contained in Section 7(a)
hereof, no Option granted to any person who, at the time of such grant, owns,
taking into account the attribution rules of Section 424(d) of the Code, stock
possessing more than 10% of the total combined voting power of all classes of
the Corporation's stock or of the stock of any of its corporate subsidiaries,
may be designated as an ISO unless at the time of such grant the purchase price
of the shares of Common Stock covered by such Option is at least 110% of the
fair market value (but in no event less than the par value) of such shares.
(c) If the Common Stock is not listed upon a national securities
exchange or exchanges, such fair market value shall be as determined by the
Board of Directors of the Corporation (which determination shall be conclusive
and binding for all purposes) or, if applicable, shall be deemed to be the last
reported sale price for the Common Stock as quoted by brokers and dealers
trading in the Common Stock in the over-the-counter market (or if the Common
Stock shall be quoted by the National Association of Securities Dealers
Automated Quotation system, then such NASDAQ quote) immediately prior to the
commencement of the meeting of the Committee at which the Option is granted. If
the Common Stock is listed upon a national securities exchange or exchanges,
such fair market value shall be deemed to be the last reported sale price at
which the shares of Common Stock were traded on such securities exchange or
exchanges immediately prior to the commencement of the meeting of the Committee
at which the Option is granted, or if no sale of the Common Stock was made on
any national securities exchange on such date, then the closing price per share
of the Common Stock on such securities exchange or exchanges on the next
preceding day on which there was a sale of the Common Stock.
- 3 -
<PAGE>
(d) The exercise price of any outstanding Options shall not be reduced
during the term of such Options except by reason of an adjustment pursuant to
Section 13 hereof, nor shall the Committee or the Board of Directors cancel
outstanding Options and reissue new Options at a lower exercise price in
substitution for the canceled Options.
8. Term of Options. (a) The expiration date of an Option granted under
the Plan shall be as determined by the Committee at the time of grant, provided
that each such Option shall expire not more than ten years after the date such
Option was granted.
(b) Notwithstanding any contrary provision contained in Section 8(a)
hereof, no Option granted to any person who, at the time of such grant, owns,
taking into account the attribution rules of Section 424(d) of the Code, stock
possessing more than 10% of the total combined voting power of all classes of
the Corporation's stock or of the stock of any of its corporate subsidiaries,
may be designated as an ISO unless by its terms each such Option shall expire
not more than five years after the date such Option was granted.
9. Exercise of Options. (a) Each Option shall become exercisable in
whole or in part or in installments at such time or times as the Committee may
prescribe at the time the Option is granted and specify in the Stock Option
Agreement. No Option shall be exercisable after the expiration of ten years from
the date on which it was granted.
(b) Notwithstanding any contrary provision contained herein, unless
otherwise expressly provided in the Stock Option Agreement, any Option granted
hereunder which is, by its terms, exercisable in installments shall become
immediately exercisable in full upon the occurrence of a Change in Control of
the Corporation. For purposes of this Section 9(b), "Change in Control" shall
mean
(i) the acquisition (other than from the Company) by any
person, entity or "group" (within the meaning of Sections 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, but excluding, for
this purpose, the Corporation or its subsidiaries, or any employee
benefit plan of the Company or its subsidiaries which acquires
beneficial ownership of voting securities of the Company) of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) of 25% or more of either the
then-outstanding shares of Common Stock or the combined voting power of
the Company's then-outstanding voting securities entitled to vote
generally in the election of Directors; or
(ii) individuals who, as of June 6, 1995, constitute the Board
of Directors of the Corporation (as of such date, the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board of Directors; provided, however, that any person becoming a
Director subsequent to such date whose election, or nomination for
election, was approved by a vote of at least a majority of the
Directors then constituting the Incumbent Board (other than an election
or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to
the election of Directors of the Company) shall be, for purposes of
this Section 9(b)(ii), considered as though such person were a member
of the Incumbent Board; or
(iii) approval by the stockholders of the Company of a
reorganization, merger, consolidation or share exchange, in each case
with respect to which persons who
- 4 -
<PAGE>
were the stockholders of the Company immediately prior to such
reorganization, merger, consolidation or share exchange do not,
immediately thereafter, own more than 75% of the combined voting power
entitled to vote generally in the election of directors of the
reorganized, merged, consolidated or other surviving entity's
then-outstanding voting securities, or a liquidation or dissolution of
the Corporation or the sale of all or substantially all of the assets
of the Corporation.
(c) Options may be exercised by giving written notice to the
Corporation of intention to exercise, specifying the number of shares to be
purchased pursuant to such exercise in accordance with the procedures set forth
in the Stock Option Agreement. All shares purchased upon exercise of any Option
shall be paid for in full at the time of purchase in accordance with the
procedures set forth in the Stock Option Agreement. Except as provided in
Sections 9(d) and 9(e) hereof, such payment shall be made in cash or through
delivery of shares of Common Stock or a combination of cash and Common Stock as
provided in the Stock Option Agreement. Any shares so delivered shall be valued
at their fair market value determined as of the date of exercise of the Option
under the method set forth in Section 7(c) hereof.
(d) Payment for shares purchased upon exercise of any such Option may
be made by delivery to the Corporation of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Corporation an amount of sale or loan proceeds sufficient to pay the exercise
price. Additionally, the Corporation will accept, in payment for shares
purchased upon exercise of any such Option, proceeds of a margin loan obtained
by the exercising optionholder from a broker, provided that the exercising
optionholder has, at the same time as delivery to the Corporation of a properly
executed exercise notice, delivered to the Corporation irrevocable instructions
to the Corporation to deliver share certificates directly to such broker upon
payment for such shares.
(e) With respect to Directors and officers of the Corporation who are
subject to reporting requirements under Section 16(a) of the Securities Exchange
Act of 1934, payment for shares purchased upon exercise of any Option granted
hereunder may be made by surrender of outstanding Options issued under this Plan
or any other stock option plan of the Corporation having a Spread (as defined
below) equal to the exercise price of the Options sought to be exercised. For
purposes of this Section 9(e), the "Spread" with respect to any unexercised
Option shall be equal to (i) the average price per share of Common Stock on the
date of exercise, as determined by the Corporation from any commercially
available reporting service reflecting trading of the Common Stock on a national
securities exchange, on the National Association of Securities Dealers Automated
Quotation System, or in the over the counter market, as applicable, less (ii)
the exercise price of the surrender of the Option. All Options so surrendered
will be deemed to have been exercised by the optionholder. Such surrender shall
be evidenced in a form satisfactory to the Secretary of the Corporation.
10. Nontransferability of Options. Options granted under the Plan shall
be assignable or transferable only by will or pursuant to the laws of descent
and distribution and shall be exercisable during the optionholder's lifetime
only by him.
11. Stockholder Rights of Optionholder. No holder of any Option shall
have any rights to dividends or other rights of a stockholder with respect to
shares subject to an Option prior to the purchase of such shares upon exercise
of the Option.
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<PAGE>
12. Termination of Option. With respect to any Option which, by its
terms, is not exercisable for one year from the date on which it is granted, if
an optionholder's employment by, or other relationship with, the Corporation or
any of its subsidiaries terminates within one year after the date an unexercised
Option containing such terms is granted under the Plan for any reason other than
death, the Option shall terminate on the date of termination of such employment
or other relationship. With respect to all Options granted under the Plan, if an
optionholder's employment by, or other relationship with, the Corporation is
terminated by reason of his death, the Option shall terminate one year after the
date of death, unless the Option otherwise expires. If an optionholder's
employment by, or other relationship with, the Corporation terminates for any
reason other than as set forth above in this Section 12, the Option shall
terminate three months after the date of termination of such employment or other
relationship unless the Option earlier expires, provided that (a) if the
optionholder dies within such three-month period, the Option shall terminate one
year after the date of his death unless the Option earlier expires; (b) the
Board of Directors may, at any time prior to any termination of such employment
or other relationship under the circumstances covered by this Section 12,
determine in its discretion that the Option shall terminate on the date of
termination of such employment or other relationship with the Corporation; and
(c) the exercise of any Option after termination of such employment or other
relationship with the Corporation shall be subject to satisfaction of the
conditions precedent that the optionholder refrain from engaging, directly or
indirectly, in any activity which is competitive with any activity of the
Corporation or any subsidiary thereof and from otherwise acting, either prior to
or after termination of such employment or other relationship, in any manner
inimical or in any way contrary to the best interests of the Corporation and
that the optionholder furnish to the Corporation such information with respect
to the satisfaction of the foregoing condition precedent as the Board of
Directors shall reasonably request. For purposes of this Section 12, a
"relationship with the Corporation" shall be limited to any relationship that
does not cause the Plan to cease to be an "employee benefit plan" as defined in
Rule 405 of Regulation C under the Securities Act of 1933. The mere ownership of
stock in the Corporation shall not be deemed to be a "relationship with the
Corporation".
Nothing in the Plan or in the Stock Option Agreement shall confer upon
any optionholder the right to continue in the employ of the Corporation or any
of its subsidiaries or in any other relationship thereto or interfere in any way
with the right of the Corporation to terminate such employment or other
relationship at any time.
A holder of an Option under the Plan may make written designation of a
beneficiary on forms prescribed by and filed with the Secretary of the
Corporation. Such beneficiary, or if no such designation of any beneficiary has
been made, the legal representative of such optionholder or such other person
entitled thereto as determined by a court of competent jurisdiction, may
exercise, in accordance with and subject to the provisions of this Section 12,
any unterminated and unexpired Option granted to such optionholder to the same
extent that the optionholder himself could have exercised such Option were he
alive or able; provided, however, that no Option granted under the Plan shall be
exercisable for more shares than the optionholder could have purchased
thereunder on the date his employment by, or other relationship with, the
Corporation and its subsidiaries was terminated.
13. Adjustment of and Changes in Capitalization. In the event that the
outstanding shares of Common Stock shall be changed in number or class by reason
of split-ups, combinations, mergers, consolidations or recapitalizations, or by
reason of stock dividends, the number or class of shares which thereafter may be
purchased through exercise of Options granted under the Plan, both in the
aggregate and as to any individual, and the number and class of shares then
subject to Options theretofore granted and the price per share payable upon
exercise of such Option shall be adjusted so as to reflect such
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<PAGE>
change, all as determined by the Board of Directors of the Corporation. In the
event there shall be any other change in the number or kind of the outstanding
shares of Common Stock, or of any stock or other securities into which such
Common Stock shall have been changed, or for which it shall have been exchanged,
then if the Board of Directors shall, in its sole discretion, determine that
such change equitably requires an adjustment in any Option theretofore granted
or which may be granted under the Plan, such adjustment shall be made in
accordance with such determination.
Notice of any adjustment shall be given by the Corporation to each
holder of an Option which shall have been so adjusted and such adjustment
(whether or not such notice is given) shall be effective and binding for all
purposes of the Plan.
Fractional shares resulting from any adjustment in Options pursuant to
this Section 13 may be settled in cash or otherwise as the Board of Directors
may determine.
14. Securities Acts Requirements. No Option granted pursuant to the
Plan shall be exercisable in whole or in part, and the Corporation shall not be
obligated to sell any shares of Common Stock subject to any such Option, if such
exercise and sale would, in the opinion of counsel for the Corporation, violate
the Securities Act of 1933 or other Federal or state statutes having similar
requirements, as they may be in effect at that time. Each Option shall be
subject to the further requirement that, at any time that the Board of Directors
or the Committee, as the case may be, shall determine, in their respective
discretion, that the listing, registration or qualification of the shares of
Common Stock subject to such Option under any securities exchange requirements
or under any applicable law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such Option or the issuance of shares thereunder, such
Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of Directors or the
Committee, as the case may be.
As a condition to the issuance of any shares upon exercise of an Option
under the Plan, the Board of Directors or the Committee, as the case may be, may
require the optionholder to furnish a written representation that he is
acquiring the shares for investment and not with a view to distribution of the
shares to the public and a written agreement restricting the transferability of
the shares solely to the Corporation, and may affix a restrictive legend or
legends on the face of the certificate representing such shares. Such
representation, agreement and/or legend shall be required only in cases where in
the opinion of the Board of Directors or the Committee, as the case may be, and
counsel for the Corporation, it is necessary to enable the Corporation to comply
with the provisions of the Securities Act of 1933 or other Federal or state
statutes having similar requirements, and any stockholder who gives such
representation and agreement shall be released from it and the legend removed at
such time as the shares to which they applied are registered or qualified
pursuant to the Securities Act of 1933 or other Federal or state statutes having
similar requirements, or at such other time as, in the opinion of the Board of
Directors or the Committee, as the case may be, and counsel for the Corporation,
the representation and agreement and legend cease to be necessary to enable the
Corporation to comply with the provisions of the Securities Act of 1933 or other
Federal or state statutes having similar requirements.
15. Amendment of the Plan. The Plan may, at any time or from time to
time, be terminated, modified or amended by the stockholders of the Corporation
by the affirmative vote of the holders of a majority of the outstanding shares
of the Corporation's Common Stock entitled to vote. The Board of Directors of
the Corporation may, insofar as permitted by law, from time to time with respect
to any
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<PAGE>
shares of Common Stock at the time not subject to Options, suspend or
discontinue the Plan or revise or amend it in any respect whatsoever; provided,
however, that, without approval of the stockholders of the Corporation, no such
revision or amendment shall increase the number of shares subject to the Plan,
decrease the price at which the Options may be granted, permit exercise of
Options unless full payment is made at the time of exercise (except as so
provided in Section 9 hereof), extend the period during which Options may be
exercised, or change the provisions relating to adjustment to be made upon
changes in capitalization.
16. Changes in Law. Subject to the provisions of Section 15, the Board
of Directors shall have the power to amend the Plan and any outstanding Options
granted thereunder in such respects as the Board of Directors shall, in its sole
discretion, deem advisable in order to incorporate in the Plan or any such
Option any new provision or change designed to comply with or take advantage of
requirements or provisions of the Code or any other statute, or Rules or
Regulations of the Internal Revenue Service or any other Federal or state
governmental agency enacted or promulgated after the adoption of the Plan.
17. Legal Matters. Every right of action by or on behalf of the
Corporation or by any stockholder against any past, present or future member of
the Board of Directors, officer or employee of the Corporation arising out of or
in connection with this Plan shall, irrespective of the place where such action
may be brought and irrespective of the place of residence of any such Director,
officer or employee, cease and be barred by the expiration of three years from
whichever is the later of (a) the date of the act or omission in respect of
which such right of action arises, or (b) the first date upon which there has
been made generally available to stockholders an annual report of the
Corporation and a proxy statement for the Annual Meeting of Stockholders
following the issuance of such annual report, which annual report and proxy
statement alone or together set forth, for the related period, the aggregate
number of shares for which Options were granted; and any and all right of action
by any employee or executive of the Corporation (past, present or future)
against the Corporation arising out of or in connection with this Plan shall,
irrespective of the place where such action may be brought, cease and be barred
by the expiration of three years from the date of the act or omission in respect
of which such right of action arises.
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the law of Delaware, applied without giving effect to any
conflicts-of-law principles, and construed accordingly.
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<PAGE>
HEALTHSOUTH Corporation
INCENTIVE STOCK OPTION AGREEMENT
(Pursuant to the 1995 Stock Option Plan)
OPTION granted in Birmingham, Alabama on ___________________, 199___
(the "Date of Grant") by HEALTHSOUTH Corporation, a Delaware corporation (the
"Corporation"), to ________________ (the "Grantee").
I. GRANT OF OPTION. The Corporation hereby grants to the Grantee the
irrevocable Option to purchase, on the terms and subject to the conditions
herein set forth, up to ______________ fully paid and nonassessable shares of
the Corporation's Common Stock, par value $.01 per share, at the option price of
$_________ per share, being not less than 100% of the fair market value of such
Common Stock on the Date of Grant.
The Option is granted pursuant to the Corporation's 1995 Stock Option
Plan (the "Plan"), a copy of which is attached hereto. The Option is subject in
its entirety to all the applicable provisions of the Plan as in effect on the
Date of Grant, which are hereby incorporated herein by reference.
II. PERIOD OF OPTION. Except as otherwise provided in the Plan, the
Option is cumulatively exercisable in installments in accordance with the
following schedule:
Percent of Shares
Subject to Option
Year Beginning Purchasable
-------------- -----------
1996 None
1997 25%
1998 50%
1999 75%
2000 100%
The Option may be exercised from time to time during the option period as to the
total number of shares allowable under this Section 2, or any lesser amount
thereof. The Option is not exercisable before __________________, 199___ or
after __________________, 200___.
III. METHOD OF EXERCISE OF OPTION. The Option may be exercised in whole
or in part by the Grantee's giving written notice, specifying the number of
shares which the Grantee elects to purchase and the date on which such purchase
is to be made, to the Corporation by mail, postage prepaid, or delivering such
notice by hand to the Corporation at its principal office in Birmingham,
Alabama, to the attention of the Chairman of the Board and Chief Executive
Officer, at least ten and not more than thirty days prior to the date specified
in such notice as the date on which such purchase is to be made.
If such exercise shall be in accordance with the provisions of the
Option, as specified in this Stock Option Agreement, the Corporation shall, on
the date specified in the notice and against receipt from the Grantee of the
option price, deliver, at its principal office in Birmingham, Alabama, a
certificate or
<PAGE>
certificates for the shares of Common Stock so purchased and shall pay all stamp
taxes payable in connection therewith. For purposes of this Section 3, a person
to whom the Option is transferred by will or pursuant to the laws of descent and
distribution, as contemplated by the Plan, shall be deemed to be the Grantee.
IV. INCENTIVE STOCK OPTION. The Option is designated an "incentive
stock option" and is intended to qualify as such under Section 422(b) of the
Internal Revenue Code of 1986 (the "Code"). If the shares of stock subject to
this Option are disposed of before the expiration of two years from the Date of
Grant and one year from the date of exercise, the Option will cease to qualify
as an "incentive stock option" under Section 422(b) of the Code. In that event,
under current law, the Grantee will recognize ordinary taxable income on the
date of exercise in the amount of the difference between the market value of the
stock on that date and the option price. If the Grantee meets the Section 422(b)
holding period requirements set forth above, under current law the Grantee will
recognize a capital gain or loss upon disposition of the stock, but will not
recognize taxable income on the date of exercise.
V. TRANSFERABILITY. The Option is not transferable otherwise than by
will or pursuant to the laws of descent and distribution, and is exercisable
during the Grantee's lifetime only by the Grantee.
VI. BINDING AGREEMENT. This Stock Option Agreement shall be binding
upon and shall inure to the benefit of any successor or assign of the
Corporation, and, to the extent herein provided, shall be binding upon and inure
to the benefit of the Grantee's beneficiary or legal representatives, as the
case may be.
VII. ENTIRE AGREEMENT. This Stock Option Agreement contains the entire
agreement of the parties with respect to the Option granted hereby and may not
be changed orally but only by an instrument in writing signed by the party
against whom enforcement of any change, modification or extension is sought.
If the foregoing is in accordance with your understanding and approved
by you, please so confirm by signing and returning the duplicate of this Stock
Option Agreement enclosed for that purpose.
HEALTHSOUTH Corporation
By /s/Richard M. Scrushy
-------------------------------------
Richard M. Scrushy
Chairman of the Board
and Chief Executive Officer
The foregoing is in accordance with my understanding and is hereby
confirmed and agreed to as of the Date of Grant.
-------------------------------------
_________________, Grantee
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 23, 1986, between HEALTHSOUTH
Rehabilitation Corporation, a Delaware corporation ("HEALTHSOUTH"), and RICHARD
M. SCRUSHY, a resident of Birmingham, Alabama ("Scrushy").
W I T N E S S E T H:
WHEREAS, HEALTHSOUTH is a healthcare concern engaged in providing
comprehensive rehabilitation care services to the public through a national
organization;
WHEREAS, HEALTHSOUTH desires to avail itself of Scrushy's talents and
expertise in the management of the rehabilitation business of HEALTHSOUTH, and
to employ him as the Chairman of the Board, President and Chief Executive
Officer of HEALTHSOUTH and certain of its subsidiaries and Scrushy is willing to
accept such employment.
NOW, THEREFORE, in consideration of the premises, and other mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
Section 1. Employment.
Scrushy shall be employed by HEALTHSOUTH under this Agreement,
effective August 1, 1986, and Scrushy accepts such employment upon the terms and
conditions hereinafter set forth.
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<PAGE>
Section 2. Term.
The term of employment provided for in this Agreement shall commence on
August 1, 1986, and shall remain in full force and effect for a period of five
years thereafter.
Section 3. Powers and Duties.
Scrushy shall be employed by HEALTHSOUTH during the term of employment
under this Agreement as the Chairman of the Board, President and Chief Executive
Officer of HEALTHSOUTH, and shall also hold similar offices with HEALTHSOUTH's
subsidiaries and/or their successors. In addition, HEALTHSOUTH shall use its
best efforts to cause Scrushy to be nominated and elected as a Director of
HEALTHSOUTH and its subsidiaries or their successors during the term of this
Agreement. In addition, Scrushy shall perform such duties as may be assigned to
him from time to time by the Board of Directors of HEALTHSOUTH. In the event of
a reorganization of HEALTHSOUTH and its subsidiaries which results in Scrushy
not being elected Chairman of the Board, President and Chief Executive Officer
of the successor company, such event shall be deemed to be a termination of
Scrushy's employment pursuant to Section 8(f) of this Agreement. In the event
that Scrushy shall not be elected a Director of HEALTHSOUTH or any such
successor company, Scrushy may, at his sole option, treat such event as a
termination of Scrushy's employment pursuant to Section 8(c) of this Agreement.
In carrying out his duties under this Agreement, Scrushy shall have
such powers and duties usually incident to the office of Chairman of the Board,
President and Chief Executive
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<PAGE>
Officer and shall have general responsibility for the overall development,
expansion and operations of HEALTHSOUTH and its subsidiaries.
The performance by Scrushy of any duties assigned to him which are not
of the type provided for herein shall not constitute a waiver of his rights
hereunder or an abrogation, abandonment or termination of this Agreement.
Scrushy shall devote all of his working time and best efforts in the
best interest and behalf of HEALTHSOUTH throughout the term of this Agreement,
such working time and best efforts to be of the type and extent usually expended
by executives of similar caliber in similar situations. Scrushy shall not be
restricted from engaging in a business which is noncompetitive with HEALTHSOUTH
and its subsidiaries after normal working hours or on weekends or from investing
his assets in such form or manner as will not require any services on his part
in the operation of the affairs of the companies in which such investments are
made.
Section 4. Place of Performance.
The headquarters for the performance of Scrushy's duties shall be
located in Birmingham, Alabama, but from time to time Scrushy shall be required
to travel to HEALTH- SOUTH's other locations in the proper conduct of his
responsibilities under this Agreement. As it is HEALTHSOUTH's intention to
expand the business of HEALTHSOUTH on a national scale, HEALTHSOUTH may require
Scrushy to spend a reasonable amount of time traveling, as his duties and the
business of HEALTHSOUTH and its subsidiaries may require.
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<PAGE>
Section 5. Compensation.
For all services rendered by Scrushy pursuant to this Agreement,
HEALTHSOUTH shall pay Scrushy the following compensation:
(a) A base salary at the annual rate of $160,000 for the
period August 1, 1986 through December 31, 1986, and an annual base
salary of $180,000 thereafter, such salary to be paid semi-monthly.
Such salary shall be reviewed annually by the Board of Directors.
(b) Scrushy shall be entitled to participate in any bonus plan
approved by the Board of Directors for HEALTHSOUTH's management.
Compensation pursuant to this Section 5 or any other provision of this Agreement
shall be subject to reduction by all applicable withholding, social security and
other state, Federal and local taxes and deductions.
Section 6. Employee Benefits.
(a) Scrushy will be entitled to participate in any employee benefits
provided by HEALTHSOUTH and its subsidiaries, such as life insurance,
hospitalization and major medical insurance plans which HEALTHSOUTH has in
effect or may adopt from time to time. Without limiting the generality of the
foregoing, the benefits provided Scrushy during the term of this Agreement shall
also include the following elements:
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<PAGE>
(i) a four-week vacation during each year of this Agreement;
(ii) a car allowance for an automobile owned by Scrushy for
use by Scrushy in connection with the execution of his duties under
this Agreement in the amount of $500 per month; and
(iii) HEALTHSOUTH shall provide Scrushy, either through a
corporate group disability insurance plan or otherwise, with disability
insurance coverage equal to at least 60% of his base salary.
(b) In addition, the Board of Directors shall consider Scrushy for the
grant of options to purchase Common Stock of HEALTHSOUTH, as Scrushy's
performance shall dictate, no less frequent than annually during the term of
this Agreement.
Section 7. Expenses.
Scrushy is authorized to incur reasonable expenses in promoting the
business of HEALTHSOUTH and its subsidiaries, including expenses, to the extent
used for business purposes, for entertainment, travel and similar items.
HEALTHSOUTH will reimburse Scrushy for all such expenses, upon the presentation
by him of an itemized account of such expenditures in accordance with
HEALTHSOUTH procedures.
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<PAGE>
Section 8. Termination.
(a) HEALTHSOUTH may terminate the employment of Scrushy (i) at any time
for just cause by written notice to Scrushy effective upon receipt, or (ii) if
Scrushy is unable to perform the services required of him under this Agreement
by reason of disability as defined in the disability insurance plan or plans
referred to in Section 5(a)(iii) of this Agreement. For purposes of Section
8(a)(i) above, the term "just cause" shall have the meaning prescribed in
HEALTHSOUTH's policy manual as approved from time to time by the Board of
Directors.
(b) In the event that Scrushy's employment by HEALTHSOUTH should be
terminated pursuant to Section 8(a)(i) of this Agreement prior to the conclusion
of the term of this Agreement, HEALTHSOUTH shall have no further obligation
hereunder, except for the payment of the compensation provided for in Section
5(a) of this Agreement for a period of one year following such termination,
which compensation shall be considered a debt of HEALTH- SOUTH and shall not be
discharged by reason of termination of Scrushy's employment.
(c) In the event that Scrushy's employment by HEALTHSOUTH shall be
terminated for any reason other than as set forth in Section 8(a)(i), 8(d), 8(e)
or 8(f) of this Agreement, HEALTHSOUTH shall have no further obligation
hereunder, except for the payment of compensation provided for in Section 5(a)
of this Agreement for the remaining term of this Agreement, but in no event for
a period of less than two years, which compensation shall be considered a debt
of HEALTHSOUTH and shall not be discharged by reason of termination of Scrushy's
employment.
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<PAGE>
(d) In the event of the death of Scrushy during the term of this
Agreement, the Agreement shall terminate immediately and HEALTHSOUTH shall pay
to the widow or estate of Scrushy, or such other person or persons as may be
designated by Scrushy in writing, an amount equal to one year's annual base
salary payable in one lump sum.
(e) Scrushy may terminate his employment under this Agreement before
the expiration of its term by giving HEALTHSOUTH 180 days written notice of his
intention to terminate such employment, and at the expiration of said 180 days,
Scrushy's employment under this Agreement shall terminate and Scrushy shall be
entitled to receive, as severance compensation, an amount equal to one year's
annual base salary at the time of termination, payable at the time of
termination.
(f) In the event that HEALTHSOUTH shall be acquired, merged or
reorganized in such a manner as to result in a change in control of HEALTHSOUTH,
Scrushy may terminate this employment under this Agreement by giving HEALTHSOUTH
30 days written notice of his intention to terminate such employment, and at the
expiration of said 30 days, Scrushy's employment under this Agreement shall
terminate and Scrushy shall be entitled to receive, as severance compensation,
an amount equal to two years' annual base salary at the time of termination,
payable at the time of termination.
Section 9. Non-Competition.
(a) In the event that Scrushy's employment under this Agreement shall
terminate during its term, for the period of time with respect to which Scrushy
is entitled to receive compensation hereunder after such termination, Scrushy
shall not, directly or indirectly, own,
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<PAGE>
operate, be employed by, be a director of, act as a consultant for, be
associated with, or be a partner or have a proprietary interest in, any
enterprise, partnership, association, corporation, joint venture or other
entity, which is competitive with the rehabilitation business of HEALTHSOUTH, or
any subsidiary or affiliate thereof, in any county in a state where HEALTHSOUTH
or its subsidiaries or affiliates are conducting such business at the time of
such termination; provided, however, that if such termination shall occur as a
result of the causes enumerated in Section 8(f) of this Agreement, this Section
9 shall be void and shall be of no further force and effect.
(b) The parties have entered into this Section 9 of this Agreement in
good faith and for the reasons set forth in the recitals hereto and assume that
this Agreement is legally binding. If, for any reason, this Agreement is not
binding because of its geographical scope or because of its term, then the
parties agree that this Agreement shall be deemed effective to the widest
geographical area and/or the longest period of time (but not in excess of one
year) as may be legally enforceable.
(c) Scrushy acknowledges that the rights and privileges granted to
HEALTH- SOUTH in this Section 9 are of 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 of law, and that a breach thereof by
Scrushy of this Agreement will cause HEALTH- SOUTH great and irreparable injury
and damage. Accordingly, Scrushy hereby agrees that HEALTHSOUTH shall be
entitled to remedies of injunction, specific performance or other equitable
relief to prevent a breach of this Section 9 of this Agreement by Scrushy. This
provision shall not be construed as a waiver of any other rights or remedies
HEALTHSOUTH may have for damages or otherwise.
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<PAGE>
Section 10. Non-Assignability.
Scrushy shall not have the right to assign, transfer, pledge,
hypothecate or dispose of any right to receive payments hereunder or any rights,
privileges or interest hereunder, all of which are hereby expressly declared to
be non-assignable and non-transferable, except after termination of his
employment hereunder. In the event of a violation of the provisions of this
Section 10, no further sums shall hereafter become due or payable by HEALTHSOUTH
or its subsidiaries to Scrushy or his assignee, transferee, pledgee or to any
other person whatsoever, and HEALTHSOUTH shall have no further liability under
this Agreement to Scrushy.
Section 11. Binding Effect.
The rights and obligations of HEALTHSOUTH and its subsidiaries under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of HEALTHSOUTH. Scrushy shall not assign or alienate any
interest of his in this Agreement, except as provided in Section 10 hereof.
Section 12. Waiver of Breach.
The waiver by either party to this Agreement of a breach of any
provision thereof by the other party shall not operate or be construed as a
waiver of any subsequent breach of such party.
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<PAGE>
Section 13. Notices.
Any notice required or permitted to be given under this Agreement shall
be sufficient if in writing and if sent by certified or registered mail to
Scrushy's residence (if such notice is addressed to Scrushy), or to the
principal executive offices of HEALTHSOUTH in Birmingham, Alabama (if such
notice is addressed to HEALTHSOUTH).
Section 14. Entire Agreement.
This instrument shall be governed by the laws of the State of Delaware
and contains the entire agreement of the parties with respect to the subject
matter hereof and supersedes any other agreements, whether written or oral,
between the parties.
This Agreement may not be changed orally, but only by an instrument in
writing signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
Section 15. Counterparts.
This Agreement may be executed in two or more counterparts, each of
which shall for all purposes be deemed to be an original, but each of which,
when so executed, shall constitute but one and the same instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HEALTHSOUTH Rehabilitation Corporation
By /s/ AARON BEAM, JR.
------------------------------------
Aaron Beam, Jr.
Senior Vice President,
Chief Financial Officer
and Treasurer
/s/ RICHARD M. SCRUSHY
------------------------------------
Richard M. Scrushy
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<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT, dated as of January 5, 1987,
between HEALTHSOUTH Rehabilitation Corporation, a Delaware corporation
("HEALTHSOUTH"), and RICHARD M. SCRUSHY, a resident of Birmingham, Alabama
("Scrushy").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986 (the "Employment Agreement");
and
WHEREAS, the parties desire to amend the Employment Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 5(a) of the Agreement is hereby amended by increasing the
annual base salary effective after December 31, 1986, previously $180,000, to
$200,000.
2. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HEALTHSOUTH Rehabilitation Corporation
By /s/ AARON BEAM, JR.
-----------------------------------------
Aaron Beam, Jr., Senior
Vice President and Chief Financial
Officer and Treasurer
/s/ RICHARD M. SCRUSHY
----------------------------------------
Mr. Richard M. Scrushy
- 3 -
<PAGE>
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 2 TO EMPLOYMENT AGREEMENT, dated as of December 16, 1987,
between HEALTHSOUTH Rehabilitation Corporation, a Delaware corporation
("HEALTHSOUTH"), and RICHARD M. SCRUSHY, a resident of Birmingham, Alabama
("Scrushy").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986, as amended as of January 5,
1987 (the "Employment Agreement"); and
WHEREAS, the parties desire to further amend the Employment Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 5(a) of the Agreement is hereby amended by increasing the
annual base salary effective after December 31, 1987, previously $200,000 to
$260,000.
<PAGE>
3. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HEALTHSOUTH Rehabilitation Corporation
By /s/ AARON BEAM, JR.
-----------------------------------------
Aaron Beam, Jr.,
Senior Vice President and Chief Financial
Officer and Treasurer
/s/ RICHARD M. SCRUSHY
-----------------------------------------
Mr. Richard M. Scrushy
- 3 -
<PAGE>
AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 3 TO EMPLOYMENT AGREEMENT, dated as of December 20, 1988,
between HEALTHSOUTH Rehabilitation Corporation, a Delaware corporation
("HEALTHSOUTH"), and RICHARD M. SCRUSHY, a resident of Birmingham, Alabama
("Scrushy").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986, as amended as of January 5,
1987 and as of December 16, 1987 (the "Employment Agreement"); and
WHEREAS, the parties desire to further amend the Employment Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 5(a) of the Agreement is hereby amended by increasing the
annual base salary effective after December 31, 1988, previously $260,000 to
$325,000.
<PAGE>
3. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HEALTHSOUTH Rehabilitation Corporation
By /s/ AARON BEAM, JR.
----------------------------------
Aaron Beam, Jr.,
Senior Vice President and Chief
Chief Financial Officer and Treasurer
/s/ RICHARD M. SCRUSHY
----------------------------------
Richard M. Scrushy
- 3 -
<PAGE>
AMENDMENT NO. 4 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 4 TO EMPLOYMENT AGREEMENT, dated as of December 20, 1989,
between HEALTHSOUTH Rehabilitation Corporation, a Delaware corporation
("HEALTHSOUTH"), and RICHARD M. SCRUSHY, a resident of Birmingham, Alabama
("Scrushy").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986, as amended as of January 5,
1987, as of December 16, 1987 and as of December 20, 1988 (the "Employment
Agreement"); and
WHEREAS, the parties desire to further amend the Employment Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 2 of the Agreement is hereby amended to extend the term of
the Agreement for a period of five years commencing January 1, 1990.
2. Section 5(a) of the Agreement is hereby amended by the substitution
in place thereof, the following new Section 5(a):
<PAGE>
"(a) A base salary at the annual rate of $450,000 effective January 1,
1990, such salary to be paid semi-monthly. Such salary shall be reviewed
annually by the Board of Directors.
It is agreed between the parties that $60,000 of the above base salary
amount shall be considered to be an incentive portion thereof, payable only if
HEALTHSOUTH's operations meet the standards set forth in HEALTHSOUTH's annual
business plan, as approved for each year during the term of this Agreement by
the Board of Directors, it being agreed that the main criteria to be considered
is whether HEALTHSOUTH attains the level of net income set forth in such
business plan. The $60,000 incentive portion shall be payable on a monthly basis
(1/12 with respect to each month of the calendar year) and shall be payable in
$5,000 increments within five days of the date HEALTHSOUTH's internal financial
statements have been prepared and are considered by management to be complete
and accurate. In the event that any monthly increment shall not be paid during
the course of a calendar year because the business plan is not met, such amount
shall be due and payable at the time HEALTH- SOUTH's annual results are
announced to the public if HEALTHSOUTH attains the net income set forth in the
business plan for the calendar year involved."
3. Section 8(f) of the Agreement is hereby amended by substituting in
the place of the words "two years' annual base salary" the words "three years'
annual base salary (including the gross incentive portion)".
- 2 -
<PAGE>
4. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
HEALTHSOUTH Rehabilitation Corporation
By /s/ AARON BEAM, JR.
-----------------------------------------
Aaron Beam, Jr.,
Senior Vice President and
Chief Financial Officer
/s/ RICHARD M. SCRUSHY
-----------------------------------------
RICHARD M. SCRUSHY
- 3 -
<PAGE>
AMENDMENT NO. 5 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 5 TO EMPLOYMENT AGREEMENT, dated as of January 8, 1991,
between HEALTHSOUTH Rehabilitation Corporation, a Delaware corporation ("HEALTH-
SOUTH"), and RICHARD M. SCRUSHY, a resident of Birmingham, Alabama ("Scrushy").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986, as amended as of January 5,
1987, as of December 16, 1987, as of December 20, 1988 and as of December 20,
1989 (the "Employment Agreement"); and
WHEREAS, the parties desire to further amend the Employment Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 2 of the Employment Agreement is hereby amended by the
substitution in place thereof, the following new Section 2:
"The term of employment provided for in this Agreement shall commence
on January 1, 1991, and shall remain in full force and effect for a period of
five years thereafter. Such term shall be automatically extended for an
additional year on each December 31, during the term hereof, unless written
notice of any non-extension is provided Scrushy at least 30 days prior to such
December 31."
<PAGE>
2. Section 5(a) of the Employment Agreement is hereby amended by
increasing the annual base salary from $450,000 to $600,000, effective January
1, 1991. The incentive portion of this $600,000 base salary shall be $120,000,
payable in $10,000 increments on a monthly basis.
3. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
HEALTHSOUTH Rehabilitation Corporation
By /s/AARON BEAM, JR.
--------------------------------------
Aaron Beam, Jr.
Senior Vice President and
Chief Financial Officer
/s/RICHARD M. SCRUSHY
--------------------------------------
Richard M. Scrushy
<PAGE>
4. Section 5(a) of the Employment Agreement is hereby amended by
increasing the annual base salary from $450,000 to $600,000, effective January
1, 1991. The incentive portion of this $600,000 base salary shall be $120,000,
payable in $10,000 increments on a monthly basis.
5. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
HEALTHSOUTH Rehabilitation Corporation
By /s/ AARON BEAM, JR.
---------------------------------------
Aaron Beam, Jr.
Senior Vice President and
Chief Financial Officer
/s/ RICHARD M. SCRUSHY
---------------------------------------
Richard M. Scrushy
<PAGE>
AMENDMENT NO. 6 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 6 TO EMPLOYMENT AGREEMENT, dated as of January 1, 1992,
between HEALTHSOUTH Rehabilitation Corporation, a Delaware corporation
("HEALTHSOUTH"), and RICHARD M. SCRUSHY, a resident of Birmingham, Alabama
("Scrushy").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986, as amended as of January 5,
1987, as of December 16, 1987, as of December 20, 1988, as of December 20, 1989,
and as of January 8, 1991 (the "Employment Agreement"); and
WHEREAS, the parties desire to further amend the Employment Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 5(a) of the Employment Agreement is hereby amended by
increasing the annual base salary from $600,000 to $730,000, effective January
1, 1992. The incentive portion of this $600,000 base salary shall be $180,000,
payable in $15,000 increments on a monthly basis.
<PAGE>
3. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
HEALTHSOUTH Rehabilitation Corporation
By /s/ AARON BEAM, JR.
---------------------------------------
Aaron Beam, Jr.
Executive Vice President and
Chief Financial Officer
/s/ RICHARD M. SCRUSHY
----------------------------------------
Richard M. Scrushy
- 3 -
<PAGE>
AMENDMENT NO. 7 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 7 TO EMPLOYMENT AGREEMENT, dated as of January 1, 1993,
between HEALTHSOUTH Rehabilitation Corporation, a Delaware corporation
("HEALTHSOUTH"), and RICHARD M. SCRUSHY, a resident of Birmingham, Alabama
("Scrushy").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986, as amended as of January 5,
1987, as of December 16, 1987, as of December 20, 1988, as of December 20, 1989,
as of January 8, 1991 and as of January 1, 1992 (the "Employment Agreement");
and
WHEREAS, the parties desire to further amend the Employment Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 5(a) of the Employment Agreement is hereby amended by
increasing the annual base salary from $730,000 to $766,500, effective January
1, 1993. The incentive portion of this $730,000 base salary shall be $240,000,
payable in $20,000 increments on a monthly basis.
<PAGE>
3. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
HEALTHSOUTH Rehabilitation Corporation
By /s/ AARON BEAM, JR.
--------------------------------------
Aaron Beam, Jr.
Executive Vice President and
Chief Financial Officer
/s/ RICHARD M. SCRUSHY
--------------------------------------
Richard M. Scrushy
- 3 -
<PAGE>
AMENDMENT NO. 8 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 8 TO EMPLOYMENT AGREEMENT, dated as of January 1, 1994,
between HEALTHSOUTH Rehabilitation Corporation, a Delaware corporation
("HEALTHSOUTH"), and RICHARD M. SCRUSHY, a resident of Birmingham, Alabama
("Scrushy"). W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986, as amended as of January 5,
1987, as of December 16, 1987, as of December 20, 1988, as of December 20, 1989,
as of January 8, 1991, as of January 1, 1992 and as of January 1, 1993 (the
"Employment Agreement"); and
WHEREAS, the parties desire to further amend the Employment Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 5(a) of the Employment Agreement is hereby amended by
increasing the annual base salary to $800,000, effective January 1, 1994.
In addition to the above base salary, Scrushy shall be paid an
incentive bonus in the total amount of $400,000 per annum, payable only if
HEALTHSOUTH's operations meet the
<PAGE>
standards set forth in HEALTHSOUTH's annual business plan, as approved for each
year during the term of this Agreement by the Board of Directors, it being
agreed that the main criteria to be considered is whether HEALTHSOUTH attains
the level of net income set forth in such business plan. The $400,000 incentive
bonus shall be payable on a monthly basis (1/12 with respect to each month of
the calendar year) and shall be payable in $33,333.33 increments within five
days of the date HEALTHSOUTH's internal financial statements have been prepared
and are considered by management to be complete and accurate. In the event that
any monthly increment shall not be paid during the course of a calendar year
because the business plan is not met, such amount shall be due and payable at
the time HEALTH- SOUTH's annual results are announced to the public if
HEALTHSOUTH attains the net income set forth in the business plan for the
calendar year involved.
3. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written. HEALTHSOUTH Rehabilitation
Corporation
By /s/AARON BEAM, JR.
-----------------------------
Aaron Beam, Jr.
Executive Vice President and
Chief Financial Officer
/s/ RICHARD M. SCRUSHY
---------------------------
Richard M. Scrushy
- 3 -
<PAGE>
AMENDMENT NO. 9 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 9 TO EMPLOYMENT AGREEMENT, dated as of January 1, 1995,
between HEALTHSOUTH Corporation, a Delaware corporation ("HEALTHSOUTH"), and
RICHARD M. SCRUSHY, a resident of Birmingham, Alabama ("Scrushy").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986, as amended as of January 5,
1987, as of December 16, 1987, as of December 20, 1988, as of December 20, 1989,
as of January 8, 1991, as of January 1, 1992, as of January 1, 1993, and as of
January 1, 1994 (the "Employment Agreement"); and
WHEREAS, the parties desire to further amend the Employment Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 5(a) of the Employment Agreement is hereby amended by
increasing the annual incentive bonus for 1995 to a total of $900,000, payable
only if HEALTHSOUTH's operations meet the standards set forth in HEALTHSOUTH's
annual business plan, as approved for each year during the term of this
Agreement by the Board of Directors, it being
<PAGE>
agreed that the main criteria to be considered is whether HEALTHSOUTH attains
the level of net income set forth in such business plan. The $900,000 incentive
bonus shall be payable on a monthly basis (1/12 with respect to each month of
the calendar year) and shall be payable in $75,000 increments within five days
of the date HEALTHSOUTH's internal financial statements have been prepared and
are considered by management to be complete and accurate. In the event that any
monthly increment shall not be paid during the course of a calendar year because
the business plan is not met, such amount shall be due and payable at the time
HEALTHSOUTH's annual results are announced to the public if HEALTHSOUTH attains
the net income set forth in the business plan for the calendar year involved.
2. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
HEALTHSOUTH Corporation
By /s/AARON BEAM, JR.
-----------------------------
Aaron Beam, Jr.
Executive Vice President and
Chief Financial Officer
/s/RICHARD M. SCRUSHY
----------------------------
Richard M. Scrushy
- 2 -
<PAGE>
AMENDMENT NO. 10 TO EMPLOYMENT AGREEMENT
AMENDMENT NO. 10 TO EMPLOYMENT AGREEMENT, dated as of January 1, 1996,
between HEALTHSOUTH Corporation, a Delaware corporation ("HEALTHSOUTH"), and
RICHARD M. SCRUSHY, a resident of Birmingham, Alabama ("Scrushy").
W I T N E S S E T H:
WHEREAS, the parties to this Agreement are parties to that certain
Employment Agreement, dated as of July 23, 1986, as amended as of January 5,
1987, as of December 16, 1987, as of December 20, 1988, as of December 20, 1989,
as of January 8, 1991, as of January 1, 1992, as of January 1, 1993, as of
January 1, 1994, and as of January 1, 1995 (the "Employment Agreement"); and
WHEREAS, the parties desire to further amend the Employment Agreement
as hereinafter set forth.
NOW, THEREFORE, in consideration of the premises, and the mutual
promises and covenants hereinafter contained, HEALTHSOUTH and Scrushy do hereby
agree, for their mutual benefit, as follows:
1. Section 5(a) of the Employment Agreement is hereby amended by
increasing the annual incentive bonus for 1996 to a total of $2,400,000, payable
only if HEALTH- SOUTH's operations meet the standards set forth in HEALTHSOUTH's
annual business plan, as approved for each year during the term of this
Agreement by the Board of Directors, it
<PAGE>
being agreed that the main criteria to be considered is whether HEALTHSOUTH
attains the level of net income set forth in such business plan. The $2,400,000
incentive bonus shall be payable on a monthly basis (1/12 with respect to each
month of the calendar year) and shall be payable in $200,000 increments within
five days of the date HEALTHSOUTH's internal financial statements have been
prepared and are considered by management to be complete and accurate. In the
event that any monthly increment shall not be paid during the course of a
calendar year because the business plan is not met, such amount shall be due and
payable at the time HEALTHSOUTH's annual results are announced to the public if
HEALTHSOUTH attains the net income set forth in the business plan for the
calendar year involved.
2. HEALTHSOUTH and Scrushy hereby reaffirm all of the other terms and
provisions of the Employment Agreement, which is amended only as specifically
set forth herein.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the day and year first above written.
HEALTHSOUTH Corporation
By /s/ AARON BEAM, JR.
-------------------------------
Aaron Beam, Jr.
Executive Vice President and
Chief Financial Officer
/s/ RICHARD M. SCRUSHY
--------------------------------
Richard M. Scrushy
- 2 -
<PAGE>
SECOND
AMENDED AND RESTATED
CREDIT AGREEMENT
among
HEALTHSOUTH CORPORATION
(Formerly named HEALTHSOUTH REHABILITATION CORPORATION)
and
NATIONSBANK, N.A.(CAROLINAS)
(Formerly named NATIONSBANK OF NORTH CAROLINA,
NATIONAL ASSOCIATION,)
as Agent
and
LENDERS AS SIGNATORIES HERETO,
--------
$1,000,000,000 Revolving Credit Facility
Dated as of April 11, 1995
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
REVOLVING FACILITY TERMS AND COLLATERAL
<S> <C> <C>
SECTION 2.1 Syndicated Loans.................................................................................. 24
SECTION 2.2 Advances of Syndicated Loans...................................................................... 25
SECTION 2.3 Competitive Bid Loans............................................................................. 26
SECTION 2.4 Payments.......................................................................................... 30
SECTION 2.5 Joint and Several Obligations..................................................................... 30
SECTION 2.6 Pledge Agreement.................................................................................. 32
SECTION 2.7 Prepayment........................................................................................ 32
SECTION 2.8 Notes............................................................................................. 33
SECTION 2.9 Reduction in Revolving Facility................................................................... 33
SECTION 2.10 Unused Fee........................................................................................ 34
SECTION 2.11 Lending Offices................................................................................... 34
SECTION 2.12 Letter of Credit Borrowings....................................................................... 34
SECTION 2.13 Pro Rata Payments................................................................................. 38
SECTION 2.14 Deficiency Advances............................................................................... 38
SECTION 2.15 Extension of Termination Date..................................................................... 39
ARTICLE III
INTEREST ON SYNDICATED LOANS
SECTION 3.1 Applicable Interest Rates......................................................................... 40
SECTION 3.2 Procedure for Exercising Interest Rate Options.................................................... 40
SECTION 3.3 Base Rate......................................................................................... 40
SECTION 3.4 Fixed Rate........................................................................................ 41
SECTION 3.5 Changes in Syndicated Margin. ................................................................... 41
ARTICLE IV
TERMINATION OF LIBOR-BASED RATE AND YIELD PROTECTION
SECTION 4.1 Suspension of Loans............................................................................... 42
SECTION 4.2 Compensation...................................................................................... 43
SECTION 4.3 Taxes............................................................................................. 43
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1 Organization, Powers, Existence, etc.............................................................. 46
SECTION 5.2 Authorization of Borrowing, etc................................................................... 46
SECTION 5.3 Liabilities....................................................................................... 46
SECTION 5.4 Taxes............................................................................................. 47
i
<PAGE>
SECTION 5.5 Litigation........................................................................................ 47
SECTION 5.6 Agreements........................................................................................ 47
SECTION 5.7 Use of Proceeds................................................................................... 47
SECTION 5.8 ERISA Requirement................................................................................. 47
SECTION 5.9 Subsidiaries...................................................................................... 47
SECTION 5.10 Principal Place of Business....................................................................... 48
SECTION 5.11 Environmental Laws................................................................................ 48
SECTION 5.12 Disclosure........................................................................................ 48
SECTION 5.13 Licenses.......................................................................................... 48
SECTION 5.14 Title to Properties............................................................................... 48
SECTION 5.15 Status of Loans................................................................................... 49
ARTICLE VI
GENERAL CONDITIONS OF LENDING
SECTION 6.1 Representations and Warranties.................................................................... 50
SECTION 6.2 No Default........................................................................................ 50
SECTION 6.3 Supporting Documents.............................................................................. 50
SECTION 6.4 No Adverse Change................................................................................. 52
SECTION 6.5 Effective Date.................................................................................... 52
ARTICLE VII
GENERAL COVENANTS OF THE BORROWER
SECTION 7.1 Existence, Properties, etc........................................................................ 53
SECTION 7.2 Payment of Indebtedness, Taxes, etc............................................................... 53
SECTION 7.3 Financial Statements, Reports, etc................................................................ 53
SECTION 7.4 Litigation Notice................................................................................. 55
SECTION 7.5 Default Notice.................................................................................... 56
SECTION 7.6 Further Assurances................................................................................ 56
SECTION 7.7 Insurance......................................................................................... 56
SECTION 7.8 Covenants Regarding Financial Condition........................................................... 56
SECTION 7.9 Continuation of Current Business.................................................................. 60
SECTION 7.10 Management Contracts.............................................................................. 60
SECTION 7.11 Cooperation; Inspection of Properties............................................................. 60
SECTION 7.12 Use of Proceeds................................................................................... 61
SECTION 7.13 Limit on Investment in HEALTHSOUTH of
Birmingham, Inc................................................................................... 61
SECTION 7.14 Additional Consolidated Entities.................................................................. 61
SECTION 7.15 ERISA. .......................................................................................... 61
SECTION 7.16 Priority.......................................................................................... 62
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.1 Events of Default................................................................................. 63
SECTION 8.2 Agent to Act...................................................................................... 66
SECTION 8.3 Cumulative Rights................................................................................. 66
SECTION 8.4 No Waiver......................................................................................... 66
SECTION 8.5 Default........................................................................................... 66
ii
<PAGE>
SECTION 8.6 Allocation of Proceeds............................................................................ 67
ARTICLE IX
THE AGENT
SECTION 9.1 Appointment....................................................................................... 68
SECTION 9.2 Attorneys-in-fact................................................................................. 68
SECTION 9.3 Limitation on Liability........................................................................... 68
SECTION 9.4 Reliance.......................................................................................... 68
SECTION 9.5 Notice of Default................................................................................. 69
SECTION 9.6 No Representations................................................................................ 69
SECTION 9.7 Indemnification................................................................................... 70
SECTION 9.8 Lender............................................................................................ 70
SECTION 9.9 Resignation....................................................................................... 70
SECTION 9.10 Sharing of Payments, etc.......................................................................... 71
SECTION 9.11 Fees.............................................................................................. 71
SECTION 9.12 Independent Agreements............................................................................ 71
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Assignments and Participations................................................................... 72
SECTION 10.2 Notices.......................................................................................... 74
SECTION 10.3 No Waiver........................................................................................ 75
SECTION 10.4 Setoff........................................................................................... 75
SECTION 10.5 Survival......................................................................................... 76
SECTION 10.6 Expenses......................................................................................... 76
SECTION 10.7 Amendments....................................................................................... 77
SECTION 10.8 Counterparts..................................................................................... 78
SECTION 10.9 Waivers by Borrower.............................................................................. 78
SECTION 10.10 Termination...................................................................................... 78
SECTION 10.11 Governing Law.................................................................................... 79
SECTION 10.12 Indemnification.................................................................................. 79
SECTION 10.13 Agreement Controls............................................................................... 80
SECTION 10.14 Integration...................................................................................... 80
SECTION 10.15 Successors and Assigns........................................................................... 80
SECTION 10.16 Severability..................................................................................... 81
SECTION 10.17 Usury Savings Clause............................................................................. 81
Exhibit A - Applicable Commitment Percentage
Exhibit B - Form of Assignment and Acceptance
Exhibit C-1 - Form of Partnership Guaranty Agreement
Exhibit C-2 - Form of Subsidiary Guaranty Agreement
Exhibit D - Form of Request for Advance or Interest Rate
Election
Exhibit E - Form of Competitive Bid Quote Request
Exhibit F - Form of Competitive Bid Quote
Exhibit G - Subsidiaries and Controlled Partnerships
Exhibit H-1 - Form of Syndicated Note
Exhibit H-2 - Form of Competitive Bid Note
iii
<PAGE>
Exhibit I - Form of Compliance Certificate and Schedules
Thereto
Exhibit J - Summary of Insurance
Exhibit K - Outstanding Letters of Credit
Exhibit L - Investments or Equity Interest
Exhibit M - Subsidiaries and Controlled Partnerships
Exhibit N - Existing Liens
</TABLE>
iv
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 11,
1995 (this "Agreement") is entered into by and among HEALTHSOUTH CORPORATION
(formerly named HEALTHSOUTH Rehabilitation Corporation), a Delaware corporation
(the "Borrower"), the Lenders as signatories hereto (the "Lenders") and
NATIONSBANK, N.A. (CAROLINAS) (formerly named NationsBank of North Carolina,
National Association), a national banking association (the "Agent").
RECITAL:
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Pursuant to a Credit Agreement dated as of November 20, 1992 as amended
by Amendments No. 1 and No. 2 (the "Original Agreement"), the lenders party
thereto (the "Original Lenders") have agreed to make loans and cause to be
issued letters of credit all in an aggregate outstanding amount of not to exceed
$390,000,000. Pursuant to the terms of the Original Agreement all Participating
Subsidiaries and Participating Partnerships (each defined in the Original
Agreement) have guaranteed payment of all Credit Obligations (as defined in the
Original Agreement). In addition, the Borrower, and certain of the Participating
Subsidiaries have executed and delivered to the Agent, for the benefit of the
Lenders, Pledge Agreements conveying the property described therein as security
for the Credit Obligations. At the request of the Borrower, by Amended and
Restated Credit Agreement dated June 7, 1994 (the "First Restated Agreement")
the Borrower, the Agent and certain of the Original Lenders together with
additional lenders (collectively the "Existing Lenders") amended and restated
the Original Agreement thereby increasing the amount of the credit facility to
$550,000,000, changing certain provisions of the Original Agreement and
resulting in the addition of certain Participating Subsidiaries. The Borrower
has requested that the First Restated Agreement be further amended and restated
in its entirety in order to increase the amount of the credit facility, to
further change certain of the provisions contained therein and to increase the
number of lenders participating therein. Accordingly, the Borrower, the Lenders
and the Agent agree that the First Restated Agreement is hereby amended and
restated in its entirety as follows, effective as of the Effective Date:
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ARTICLE I
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DEFINITIONS
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SECTION 1.1 For the purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires:
All accounting terms not otherwise defined herein have the
meanings assigned to them, and all computations herein provided for
shall be made, in accordance with generally accepted accounting
principles applied on a consistent basis. All references herein to
"GAAP" refer to such principles as they exist at the date of
application thereof.
All references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles,
Sections and subdivisions of this instrument as originally executed.
The terms "herein", "hereof" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision.
The terms "include," "including" and similar terms shall be
construed as if followed by the phrase "without being limited to."
All Article and Section captions herein are used for
reference only and in no way limit or describe the scope or intent of,
or in any way affect, this Agreement.
Words importing the singular number shall mean and include
the plural number and visa versa.
All recitals set forth in this Agreement are hereby
incorporated in the operative provisions of this Agreement.
No inference in favor of or against either party shall be
drawn from the fact that such party or its counsel has drafted any
portion hereof.
The term "person" shall include individual, corporation,
partnership, limited liability company, joint venture, association,
trust, unincorporated organization and any government or any agency or
political subdivision thereof.
Absolute Rate shall have the meaning assigned to such term
in Section 2.3(c)(ii)(D) hereof.
Absolute Rate Auction shall mean a solicitation of
Competitive Bid Quotes setting forth Absolute Rates pursuant
to Section 2.3 hereof.
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Absolute Rate Loans shall mean the Competitive Bid Loans the
interest rates on which are determined on the basis of Absolute Rates
set at Absolute Rate Auctions.
Acquisition means the acquisition, whether with cash,
property, stock or promise to pay all or a portion of a person or a
Facility or Facilities of a person, permitted under Section 7.8(a)(12)
hereof; provided (i) such Person or Facilities is in the same line of
business engaged in by Borrower or its Consolidated Entities, (ii) the
person or Facility to be acquired does not oppose the acquisition, and
(iii) at the time of giving effect to such Acquisition such person or
Facility is a Consolidated Entity.
Actual/360 Basis shall mean a method of computing interest
or other charges hereunder on the basis of an assumed year of 360 days
for actual number of days elapsed, meaning that interest or other
charges accrued for each day will be computed by multiplying the rate
applicable on that day by the unpaid principal balance (or other
relevant sum) on that day and dividing the result by 360.
Advance means a borrowing under the Revolving Facility
consisting of the aggregate principal amount of a Syndicated Loan or a
Competitive Bid Loan.
Affiliate of any specified person shall mean any other
person directly or indirectly controlling or controlled by or under
direct or indirect common control with such specified person. For
purposes of this definition "control" when used with respect to any
specified person means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
Applicable Commitment Percentage means, for each Lender, a
fraction, the numerator of which shall be the then amount of such
Lender's Commitment and the denominator of which shall be the Revolving
Facility, which Applicable Commitment Percentage for each Lender as of
the Closing Date is as set forth in Exhibit A attached hereto and
incorporated herein by reference; provided that the Applicable
Commitment Percentage of each Lender shall be increased or decreased to
reflect any assignments to or by such Lender effected in accordance
with Section 10.1 hereof.
Applicable Lending Office shall mean, for each Lender and
for each Type of Loan, the "Lending Office" of such Lender (or of an
Affiliate of such Lender) designated for such Type of Loan on the
signature pages hereof or such other office of such Lender (or of an
Affiliate of such Lender) as such Lender may from time to time specify
to the Agent and the Borrower as the office by which its Loans of such
Type are to be made and maintained.
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Application shall mean the Application and Agreement for
Letter of Credit pursuant to which the Borrower may apply for the
issuance of a Letter of Credit by NationsBank as provided in Section
2.12 hereof.
Assignment and Acceptance shall mean an Assignment and
Acceptance in the form of Exhibit B (with blanks appropriately filled
in) delivered in connection with an assignment of a portion of the
Lender's interest under this Agreement pursuant to Section 10.1.
Base Rate shall mean the higher of (i) the Prime Rate or
(ii) the Federal Funds Effective Rate plus 1/2% per annum.
Base Rate Loans shall mean Syndicated Loans that bear
interest at rates based upon the Base Rate.
Business Day shall mean (a) any day on which commercial
banks are not authorized or required to close in Charlotte, North
Carolina and New York City and (b) if such day relates to the giving of
notices or quotes in connection with a LIBOR Auction or to a borrowing
of, a payment or prepayment of principal of or interest on, a
Conversion of or into, or an Interest Period for, a LIBOR Loan or a
LIBOR Market Loan or a notice by the Borrower with respect to any such
borrowing, payment, prepayment, Conversion or Interest Period, any day
on which dealings in Dollar deposits are carried out in the London
interbank market.
Capital Expenditure shall mean any expenditure or liability
that is properly charged to a capital account or otherwise capitalized
on the consolidated balance sheet in accordance with GAAP and Cost of
Acquisition. There shall not be included as a Capital Expenditure the
portion of the purchase price of any Acquisition which is paid for with
Capital Stock of the Borrower.
Capital Stock of any person means any and all shares, rights
to purchase, warrants or options (whether or not currently
exercisable); participation or other equivalents of or interest in
(however designated) the equity (including without limitation common
stock, preferred stock and partnership and joint venture interests) of
such Person (excluding any debt securities that are convertible into,
or exchangeable for, such equity).
Capitalized Lease Obligations of any person means the
obligation of such person to pay rent or other amounts under a lease
that is required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
Class shall have the meaning assigned to such term in
Section 1.2 hereof.
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Closing Date shall mean the date of this Agreement.
Collateral shall mean all property covered by the Pledge
Agreements or that otherwise at any time secures any of the Credit
Obligations.
Commitment shall mean, as to each Lender, the obligation of
such Lender to make Syndicated Loans pursuant to Section 2.1 hereof in
an aggregate amount at any one time outstanding up to but not exceeding
the amount set opposite such Lender's name on the signature pages
hereof under the caption "Commitment" (as the same may be limited or
reduced at any time or from time to time pursuant to Section 2.5(a) and
Section 2.9 hereof); provided that the Commitment of each Lender shall
be increased or decreased to reflect any assignments to or by such
Lender effected in accordance with Section 10.1 hereof.
Common Stock means the common stock, par value $.01 per
share, of the Borrower.
Competitive Bid Borrowing shall have the meaning assigned to
such term in Section 2.3(b) hereof.
Competitive Bid Loans shall mean the Loans provided for by
Section 2.3 hereof.
Competitive Bid Notes shall mean the promissory notes
provided for by Section 2.8(b) hereof and all promissory notes
delivered in substitution or exchange therefor, in each case as the
same shall be modified and supplemented and in effect from time to
time.
Competitive Bid Quote shall mean an offer in accordance with
Section 2.3(c) hereof by a Lender to make a Competitive Bid Loan with
one single specified interest rate.
Competitive Bid Quote Request shall have the meaning
assigned to such term in Section 2.3(b) hereof.
Compliance Certificate shall have the meaning attributed to
that term in Section 7.3(3) below.
Consolidated Amortization Expense of the Borrower for any
period means the amortization expense of the Borrower and its
Consolidated Entities for such period (to the extent included in the
computation of Consolidated Net Income), determined on a consolidated
basis in accordance with GAAP.
Consolidated Cash Flow means, for Borrower and its
Consolidated Entities for any Four-Quarter Period, Consolidated Net
Income, plus amounts that have been deducted in determining
Consolidated Net Income for such period for (i) Consolidated Income Tax
Expense, (ii) Consolidated Interest Expense, (iii) Consolidated
Depreciation Expense, (iv) Consolidated Amortization Expense, (v) the
minority interests
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of any person or persons in Consolidated Entities and (vi) for periods
ending (a) on or before June 30, 1995 the lesser of the sum of up to
$45,000,000 (representing expenses related to Borrower's acquisition of
certain rehabilitation facilities and related assets of NovaCare
Rehabilitation Hospital Division and the acquisition of Surgical Health
Corporation) or the actual amount of such expenses and (b) after June
30, 1995, without duplication, any amounts, net of Federal income tax
effects, representing expenses relating to an Acquisition, up to a
maximum of 10% of the Cost of Acquisition thereof, determined on a
consolidated basis in accordance with GAAP.
Consolidated Current Maturities means Principal Maturities
of the Borrower and its Consolidated Entities.
Consolidated Depreciation Expense of the Borrower means the
depreciation expense of the Borrower and its Consolidated Entities for
such period (to the extent included in the computation of Consolidated
Net Income of the Borrower), determined on a consolidated basis in
accordance with GAAP.
Consolidated Entity shall mean any person whose financial
statements are appropriately consolidated with the Borrower's financial
statements under GAAP.
Consolidated Fixed Charge Coverage Ratio means with respect
to any Four-Quarter Period the ratio of (A) Consolidated Net Income
plus amounts that have been deducted in determining Consolidated Net
Income for such period for (i) Consolidated Interest Expense, (ii)
Consolidated Depreciation Expense, (iii) Consolidated Lease Expense,
(iv) Consolidated Income Tax Expense, (v) Consolidated Amortization
Expense, and (vi) for periods ending (a) on or before June 30, 1995 the
lesser of the sum of up to $45,000,000 (representing expenses related
to Borrower's acquisition of certain rehabilitation facilities and
related assets of NovaCare Rehabilitation Hospital Division and the
acquisition of Surgical Health Corporation) or the actual amount of
such expenses and (b) after June 30, 1995, without duplication, any
amounts, net of Federal income tax effects, representing expenses
relating to an Acquisition, up to a maximum of 10% of the Cost of
Acquisition thereof, determined on a consolidated basis in accordance
with GAAP, less Capital Expenditures to (B) the sum of (i) Consolidated
Interest Expense, (ii) Consolidated Lease Expense, (iii) Consolidated
Current Maturities, and (iv) Restricted Payments; provided, however,
that (x) for the first quarter period calculations of Fiscal Year 1995,
Capital Expenditures for the Four-Quarter Period shall be assumed to be
$150,000,000, (y) for the second and third quarter period calculations
of Fiscal Year 1995, Capital Expenditures for the Four-Quarter Period
shall be assumed to be $185,000,000, and (z) the actual 1995 Fiscal
Year Capital Expenditures (excluding the Cost of Acquisition of
Surgical Health Corporation and NovaCare Rehabilitation Hospital
Division) shall be utilized for calculations at the end of the fourth
quarter of Fiscal Year 1995. After December 31, 1995, for the
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first three quarters of each Fiscal Year, Capital Expenditures will be
assumed to equal the greater of the prior Fiscal Year Capital
Expenditures or $185,000,000, with the actual Fiscal Year Capital
Expenditures shall be utilized for calculations at the end of the
fourth quarter of such Fiscal Year.
Consolidated Income Tax Expense of the Borrower for any
period means the provision for taxes based on income and profits of the
Borrower and its Consolidated Entities to the extent such income or
profits were included in computing Consolidated Net Income for such
period.
Consolidated Interest Expense of the Borrower for any period
means the Interest Expense of the Borrower and its Consolidated
Entities for such period, determined on a consolidated basis in
accordance with GAAP, but including as Interest Expense lease payments,
other than the Headquarters Obligations, made pursuant to the
Headquarters Lease.
Consolidated Lease Expense means for any period all Lease
Payments paid or accrued during such period under operating leases
(whether or not constituting rental expense) by the Borrower and its
Consolidated Entities determined on a consolidated basis in accordance
with GAAP, but excluding as Lease Payments lease payments made pursuant
to the Headquarters Lease.
Consolidated Net Income of the Borrower for any period means
the net income (or loss) of the Borrower and its Consolidated Entities
for such period determined on a consolidated basis in accordance with
GAAP, without giving effect to dividends on any series of preferred
stock of any Consolidated Entity, whether or not in cash, to the extent
such consolidated net income was reduced thereby; provided that there
shall be excluded from such net income (for all purposes, other than
compliance with Section 7.8(a)(1)(A), to the extent otherwise included
therein), without duplication, (i) the net income of any person (other
than a Consolidated Entity) to the extent that any such income has not
actually been received by the Borrower or a Consolidated Entity in the
form of dividends or similar distributions during such period; (ii)
except to the extent includable in the consolidated net income of the
Borrower or a Consolidated Entity pursuant to the foregoing clause (i),
the net income of any person that accrued prior to the date that (a)
such Person becomes a Consolidated Entity or is merged into or
consolidated with a Consolidated Entity or (b) the assets of such
person are acquired by the Borrower or a Consolidated Entity; (iii) the
net income of any Consolidated Entity to the extent that the
declaration or payment of dividends or similar distributions by such
Subsidiary of that income is not permitted by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary
during such period; (iv) any gain (or loss), together with any related
provisions for taxes on any such gain, realized during
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such period by the Borrower or its Consolidated Entities upon (a) the
acquisition of any securities, or the extinguishment of any
Indebtedness, of the Borrower or its Consolidated Entities or (b) any
asset sale by the referent person or any of its Subsidiaries; (v) any
extraordinary gain (or extraordinary loss), together with any related
provision for taxes or tax benefit resulting from any such
extraordinary gain or loss, realized by the Borrower or its
Consolidated Entities during such period; and (vi) in the case of a
successor to such person by consolidation, merger or transfer of its
assets, any earnings of the successor prior to such merger,
consolidation or transfer of assets.
Consolidated Net Worth of the Borrower as of any date means
the Consolidated Stockholders' Equity (including any preferred stock
that is classified as equity under GAAP, other than Disqualified Stock)
of such person and its Consolidated Entities (excluding any equity
adjustment for foreign currency translation for any period subsequent
to the Closing Date) on a consolidated basis at such date, as
determined in accordance with GAAP, less all write-ups subsequent to
the Closing Date in the book value of any asset owned by such Borrower
or any of its Consolidated Entities.
Consolidated Stockholders' Equity shall mean at any time as
at which the amount thereof is to be determined, the sum of the
following amounts in respect of the Borrower and the Consolidated
Entities (i) the par or stated value of all Capital Stock of the
Borrower, (ii) retained earnings, (iii) additional paid in capital,
(iv) capital surplus and (v) earned surplus minus treasury stock.
Consolidated Total Capital shall mean the sum of (i)
Consolidated Stockholders' Equity and (ii) Indebtedness of the Borrower
and its Consolidated Entities.
Controlled Partnership shall mean a general partnership of
which the Borrower or a Subsidiary is a general partner (but not
including Alabama World Football), or a limited partnership whose
general partners include the Borrower or a Subsidiary (but not
including Vanderbilt), which partnership, whether general or limited,
has assets with a value in excess of $2,000.00, and with respect to
which partnership the Borrower or a Subsidiary is entitled to receive
not less than 50% of any distributions of cash made to the partners
thereof, other than any preferred cash distribution arrangement
approved by the Required Lenders in writing.
Convert, Conversion and Converted shall refer to a
conversion pursuant to Section 3.2 hereof of one Type of Syndicated
Loan into another Type of Syndicated Loan, which may be accompanied by
the transfer by a Lender (at its sole discretion) of a Loan from one
Applicable Lending Office to another.
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Convertible Subordinated Debentures means the 5% Convertible
Subordinated Debentures due 2001 of the Borrower dated as of March 27,
24, 1994 in the aggregate original principal amount of $115,000,000.
Costs of Acquisition means the sum of (i) the amount of cash
paid by the Borrower and its Consolidated Entities in connection with
such Acquisition, (ii) the Fair Market Value of all capital stock or
other ownership interests of the Borrower or any Consolidated Entity
issued or given in connection with such Acquisition, (iii) the amount
(determined by using the face amount or the amount payable at maturity,
whichever is greater) of all Indebtedness incurred, assumed or acquired
in connection with such Acquisition, (iv) all additional purchase price
amounts in the form of earnouts and other contingent obligations that
should be recorded on the financial statements of the Borrower and its
Consolidated Entities in connection with Generally Accepted Accounting
Principles, (v) all amounts paid in respect of covenants not to
compete, consulting agreements and other affiliated contracts in
connection with such Acquisition and (vi) the aggregate fair market
value of all other consideration given by the Borrower and its
Consolidated Entities in connection with such Acquisition.
Credit Obligations shall mean the Revolving Facility
Obligations, the Letter of Credit Obligations and all other obligations
and debts owing to the Lenders, and arising under the terms of this
Agreement, the Notes, the Applications and the other Loan Documents,
whether now or hereafter incurred, existing or arising, including the
principal amount of all Advances, all Letter of Credit Borrowings and
Reimbursement Obligations with respect thereto, any sums expended by
the Agent or the Lenders in exercising the rights and remedies
described in Section 8.1, all accrued interest on Advances and Letter
of Credit Reimbursement Obligations, and all costs, fees, charges and
expenses incurred and payable in connection therewith, including fees
payable under the terms of, or in connection with, this Agreement, and
all other obligations and debts owing to the Agent or the Lenders
arising in connection with, ancillary to, or in support of Advances and
Letter of Credit Borrowings and all extensions, alterations,
modifications, revisions and renewals of any of the foregoing.
Default shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.
Disqualified Stock means any Capital Stock that, by its
terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event,
matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the Maturity Date.
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Dollars and the symbol $ shall mean dollars constituting
legal tender for the payment of public and private debts in the United
States of America.
Effective Date means the date on which (i) the Agent shall
receive from the Borrower the fees payable pursuant to the letter dated
April 6, 1995 from the Agent to the Borrower and (ii) each Lender shall
have received the amount of such fees due it.
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as amended.
Event of Default shall have the meaning assigned to such
term in Article VIII hereof.
Facility shall mean an in-patient or out-patient
rehabilitation facility, a certified out-patient rehabilitation
facility, skilled nursing facility, specialty medical center, specialty
orthopedic hospital or acute care hospital, sub-acute in-patient
facility, transitional living center, medical office building,
outpatient surgery center and outpatient diagnostic center with all
buildings and improvements associated therewith, that is owned or
leased, in whole or part, by the Borrower or a Subsidiary or any
partnership controlled directly or indirectly by the Borrower.
Fair Market Value shall mean, with respect to any capital
stock or other ownership interests issued or given by the Borrower or
any Consolidated Entity in connection with an Acquisition, (i) in the
case of capital stock that is Common Stock and such Common Stock is
then designated as a national market system security by the National
Association of Securities Dealers, Inc. ("NASDAQ") or is listed on a
national securities exchange, the average of the last reported bid and
ask quotations or prices reported thereon for Common Stock or such
other value as may be ascribed to the Common Stock in a definitive
merger or acquisition agreement provided such value is determined
according to customary methods for like transactions and is approved
(to the extent required by Borrower's charter or bylaws) by the
Borrower's Board of Directors or (ii) in the case of capital stock that
is not Common Stock or in the event that Common Stock is not so
designated on NASDAQ or listed on such national exchange, or in the
case of any other ownership interests, the determination of the fair
market value thereof in good faith by a majority of disinterested
members of the board of directors of the Borrower or such Consolidated
Entity, in each case effective as of the close of business on the
Business Day immediately preceding the closing date of such
Acquisition.
Federal Funds Effective Rate shall mean, for any day, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) equal to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged
by Federal funds brokers
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on such day, as published by the Federal Reserve Bank of New York on
the Business Day next succeeding such day, provided that (a) if the day
for which such rate is to be determined is not a Business Day, the
Federal Funds Effective Rate for such day shall be such rate on such
transactions on the next preceding Business Day as so published for any
Business Day, and (b) if such rate is not so published for any Business
Day, the Federal Funds Effective Rate for such Business Day shall be
the average rate charged to the Agent on such Business Day on such
transactions as determined by the Agent.
Fiscal Year means the twelve month period of the Borrower
commencing on January 1 of each calendar year and ending December 31 of
each calendar year.
Fixed Rate shall mean the Absolute Rate or the LIBOR- Based
Rate.
Fixed Rate Segment shall mean a Segment to which a Fixed
Rate is (or is proposed to be) applicable.
Four-Quarter Period means a period of four full consecutive
fiscal quarter periods, taken together as one accounting period;
provided, however, for purposes of Section 7.8(a)(2) and 7.8(a)(4) for
periods prior to December 31, 1995 the results of operations shall be
determined for the four-quarter period ending on the last day of (i)
the first quarter of Fiscal Year 1995 by multiplying the results of
operation for the first quarter by four (4), (ii) the second quarter of
Fiscal Year 1995 by multiplying the results of operations for the
second quarter by four (4), (iii) the third quarter of Fiscal Year 1995
by multiplying the results of the second and third quarters by two (2),
and (iv) for the fourth quarter of Fiscal Year 1995 by multiplying the
results of operations of the sum of the second, third and fourth
quarters by four- thirds (4/3's).
GAAP means generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards
Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the
United States, as from time to time in effect.
Governmental Authority shall mean any federal, state, county
or municipal agency, authority, department, commission, bureau, board
or court.
Governmental Requirements shall mean all laws, rules,
regulations, requirements, ordinances, judgments, decrees, codes and
orders of any Governmental Authority applicable to the Borrower, any
Consolidated Entity or any Facility.
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Guaranteed Obligations of any person shall mean all
guaranties (including guaranties of guaranties and guaranties of
dividends and other monetary obligations), endorsement, assumptions and
other contingent obligations with respect to, or to purchase or to
otherwise pay or acquire, Indebtedness of others; provided, however,
that such term shall not include obligations under leases and other
contracts initially incurred directly by another person and
subsequently directly assumed by the person in question, but such term
shall include obligations that, if the same had been initially incurred
directly by the person in question, would have constituted Guaranteed
Obligations.
Guaranty Agreements shall have the meaning attributed to
that term in Section 2.5(a).
Headquarters Lease means the Lease Agreement between
HEALTHSOUTH Holdings, Inc., as Lessee, and First Security Bank of Utah,
N.A., as Lessor, dated as of November 16, 1995 providing for the lease
to HEALTHSOUTH Holdings, Inc. of the land and improvements thereon
located on the property
described on Exhibit O.
Headquarters Obligations means all of the Holder Advances
and Loans, as each such term is defined in the Participation Agreement.
Hedging Obligations of any person means the obligations of
such person pursuant to any interest rate swap agreement, foreign
currency exchange agreement, interest rate collar agreement, option or
futures contract or other similar agreement or arrangement relating to
interest rates or foreign exchange rates.
Indebtedness of any person at any date means, without
duplication: (i) all indebtedness of such person for borrowed money
(whether or not the recourse of the lender is to the whole of the
assets of such person or only to a portion thereof); (ii) all
obligations of such person evidenced by bonds, debentures, notes or
other similar instruments; (iii) all obligations of such person in
respect of letters of credit or other similar instruments (or
reimbursement obligations with respect thereto); (iv) all obligations
of such person with respect to Hedging Obligations (other than those
that fix the interest rate on variable rate indebtedness otherwise
permitted hereunder or that protect the Borrower and or its
Consolidated Entities against changes in foreign exchange rates); (v)
obligations of such person to pay the deferred and unpaid purchase
price of property or services, except trade payables and accrued
expenses incurred in the ordinary course of business; (vi) all
Capitalized Lease Obligations of such person; (vii) all indebtedness of
others secured by a Lien on any assets of such person, whether or not
such indebtedness is assumed by such person; (viii) all Guaranteed
Obligations; and (ix) the Headquarters Obligations. The amount of
Indebtedness of any person at any date shall be the outstanding balance
at
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such date of all unconditional obligations as described above, the
maximum liability of such person for any such contingent obligations at
such date and, in the case of clause (vii), the amount of the
Indebtedness secured.
Interest Expense of any person for any period means the
aggregate amount of interest which, in accordance with GAAP, would be
set opposite the caption "interest expense" or any like caption on an
income statement for such person (including, without limitation or
duplication, imputed interest included in Capitalized Lease
Obligations, all commissions, discounts and other fees and charges owed
with respect to letters of credit and bankers' acceptance financing,
the net costs associated with Hedging Obligations, amortization of
financing fees and expenses, the interest portion of any deferred
payment obligation, amortization of discount and all other non-cash
interest expense other than interest amortized to cost of sales) plus
the aggregate amount, if any, by which such interest expense was
reduced as a result of the amortization of deferred debt restructuring
credits for such period.
Interest Period shall mean:
(a) with respect to any LIBOR Loan, each period commencing
on the date such LIBOR Loan is made or Converted from a Loan of another
Type or the last day of the next preceding Interest Period for such
Loan and ending on the numerically corresponding day in the first,
second or third calendar month thereafter, as the Borrower may select
as provided in Section 3.2 hereof, except that each Interest Period
that commences on the last Business Day of a calendar month (or on any
day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Business
Day of the appropriate subsequent calendar month;
(b) with respect to any Absolute Rate Loan, the period
commencing on the date such Absolute Rate Loan is made and ending on
any Business Day up to 180 days thereafter, as the Borrower may select
as provided in Section 2.3(b) hereof; and
(c) with respect to any LIBOR Market Loan, the period
commencing on the date such LIBOR Market Loan is made and ending on the
numerically corresponding day in the first, second, third or sixth
calendar month thereafter, as the Borrower may select as provided in
Section 2.3(b) hereof, except that each Interest Period that commences
on the last Business Day of a calendar month (or any day for which
there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month.
Notwithstanding the foregoing: (i) if any Interest Period for any
Competitive Bid Loan would otherwise end after the Termination Date,
such Interest Period shall end on the
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Termination Date; (ii) if any Interest Period for any LIBOR Loan would
otherwise end after the Termination Date, such Interest Period shall
end on the Termination Date; (iii) each Interest Period that would
otherwise end on a day which is not a Business Day shall end on the
next succeeding Business Day (or, in the case of an Interest Period for
a LIBOR Loan or a LIBOR Market Loan, if such next succeeding Business
Day falls in the next succeeding calendar month, on the next preceding
Business Day); and (iv) notwithstanding clauses (i), (ii) and (iii)
above, no Interest Period for any Loan (other than an Absolute Rate
Loan) shall have a duration of less than one month (in the case of a
LIBOR Loan or a LIBOR Market Loan) and, if the Interest Period for any
LIBOR Loan or LIBOR Market Loan would otherwise be a shorter period,
such Loan shall not be available hereunder for such period.
LC Account Agreement shall mean the LC Account Agreement
dated as of the date hereof between the Borrower and the Agent, as
amended or modified from time to time.
Lease Payments shall mean all amounts payable under any
lease agreement other than obligations under lease agreements that
constitute Indebtedness.
Letter of Credit Borrowings shall mean as of any date the
maximum aggregate amount that the Agent could be required to pay under
drafts that could properly be drawn in compliance with the terms of all
Letters of Credit outstanding on such date, other than drafts that have
been drawn and paid and not reimbursed.
Letter of Credit Commitment shall mean an amount not to
exceed $50,000,000.
Letter of Credit Obligations shall mean (a) the Letter of
Credit Borrowings and (b) the Reimbursement Obligations and other
obligations under this Agreement and the Applications with respect to
drawings made on Letters of Credit, including obligations with respect
to all principal, interest, fees and other charges related thereto.
Letters of Credit shall mean and include all letters of
credit heretofore or hereafter issued by NationsBank for the account of
the Borrower pursuant to this Agreement.
Liabilities of any person shall mean obligations that are
properly classified as liabilities under GAAP.
LIBOR Auction shall mean a solicitation of Competitive Bid
Quotes setting forth LIBOR Margins based on the LIBOR- Based Rate
pursuant to Section 2.3 hereof.
LIBOR-Based Rate shall mean the rate of interest determined
by the Agent at approximately 11:00 A.M. New York time two (2) Business
Days prior to the commencement of the Interest Period, based upon such
factors as the Agent deems
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relevant, as the Agent's best estimate of the cost of funds available
to the Agent from the purchase on the London interbank market of funds
in the form of time deposits in Dollars in the approximate amount of
the Segment that is to bear interest at the LIBOR-Based Rate, having a
maturity comparable to the Interest Period during which the LIBOR-Based
Rate is to be in effect, it being expressly understood that (i) the
Agent may not actually purchase any such time deposits and obtain such
funds and (ii) the LIBOR-Based Rate will be an estimate, and for a
variety of reasons, including changing market conditions, the actual
cost of funds to the Agent (if the Agent elects to purchase funds in
the form of time deposits on such date) might vary from the Agent's
estimate.
LIBOR Loans shall mean Syndicated Loans on which interest
rates are determined on the basis of LIBOR-Based Rates plus the
Syndicated Margin.
LIBOR Margin shall have the meaning assigned to such term in
Section 2.3(c)(ii)(C) hereof.
LIBOR Market Loans shall mean Competitive Bid Loans interest
rates on which are determined on the basis of LIBOR- Based Rates
pursuant to a LIBOR Auction.
LIBOR Reserve Requirement shall mean the percentage
(expressed as a decimal) prescribed by the Board of Governors of the
Federal Reserve System (or any successor), on the date on which the
LIBOR-Based Rate is determined, for determining the reserve
requirements of the Agent (including any marginal, emergency,
supplemental, special or other reserves) with respect to liabilities
relating to time deposits purchased in the London interbank market
having a maturity equal to the period during which the LIBOR-Based Rate
will be in effect and in an amount equal to the Segment involved,
without any benefit or credit for any proration, exemptions or offsets
under any now or hereafter applicable regulations.
Lien shall mean any mortgage, pledge, assignment, charge,
encumbrance, lien, security interest or financing lease.
Loan Documents shall mean this Agreement, the Notes, the
Applications, the Subsidiary Guaranty Agreements and amendments
thereto, the Partnership Guaranty Agreements and amendments thereto,
the Pledge Agreements, the LC Account Agreement and all other
agreements, instruments and documents executed or delivered at any time
in connection with the Credit Obligations, or to evidence or secure any
of the Credit Obligations.
Loans shall mean the Syndicated Loans, Competitive Bid
Loans, Letter of Credit Borrowings and Reimbursement Obligations and
all extensions and renewals thereof.
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Margin Stock shall have the meaning attributed to that term
in Regulation U of the Federal Reserve Board, as amended.
Material Group shall mean, at any time, any group, whether
one or more, or combination of Consolidated Entities (a) whose assets,
in the aggregate, constitute 5% or more of the assets of the Borrower
and the Consolidated Entities on a consolidated basis or (b) whose net
revenues, in the aggregate, constitute 5% or more of the net revenues
of the Borrower and the Consolidated Entities on a consolidated basis.
Multi-employer Plan means an employee pension benefit plan
covered by Title IV of ERISA and in respect of which the Borrower or
any Consolidated Entity is an "employer" as described in Section
4001(b) of ERISA, which is also a multi-employer plan as defined in
Section 4001(a)(3) of ERISA;
NationsBank means NationsBank, N.A. (Carolinas), as a Lender
and as issuer of the Letters of Credit pursuant to Section 2.13 hereof
and any successor thereof.
Notes shall mean the Syndicated Notes and the Competitive
Bid Notes.
Opinion of Counsel shall mean a favorable written opinion of
an attorney or firm of attorneys duly licensed to practice law in the
jurisdiction the laws of which are applicable to the legal matters in
question and who is not an employee of the Borrower or of an Affiliate
of the Borrower.
Participating Partnership shall mean a Controlled
Partnership that (i) all or a portion of an Advance may be used by the
Borrower for the benefit of or loaned by the Borrower to such
Controlled Partnership and (ii) has executed and delivered to the Agent
a Partnership Guaranty Agreement and all other documents necessary to
assume joint and several liability as to the Credit Obligations to the
extent of its Partnership Liabilities.
Participating Subsidiary shall mean a Subsidiary that (i)
all or a portion of an Advance may be used by the Borrower for the
benefit of or loaned by the Borrower to such Subsidiary and (ii) has
executed and delivered to the Agent a Subsidiary Guaranty Agreement and
all other documents necessary to assume joint and several liability as
to the Credit Obligations (in the maximum amount provided for in such
Subsidiary Guaranty Agreement).
Participation shall mean, with respect to any Lender (other
than NationsBank), the extension of credit represented by the
participation of such Lender hereunder in the liability of NationsBank
in respect of a Letter of Credit issued by NationsBank in accordance
with the terms hereof.
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Participation Agreement means the Participation Agreement
dated November 16, 1995 among HEALTHSOUTH Corporation, as Construction
Agent, HEALTHSOUTH Holdings, Inc., as Lessee, First Security Bank of
Utah, N.A., as Trustee, the Holders identified therein, the Lenders
identified therein, and NationsBank, National Association, as Agent.
Partnership Liability shall mean, with respect to a
Participating Partnership, that part, if any, of an Advance (together
with interest thereon and fees, prepayment premiums and other charges
properly attributable thereto) that is to be received by and used by or
for the benefit of such Participating Partnership, as certified to the
Agent by the Borrower, under Section 2.5, in connection with the
Borrowers' request for such Advance, and Partnership Liabilities shall
mean the aggregate amount of all such parts of Advances that are to be
received by and used by or for the benefit of such Participating
Partnership.
Partnership Guaranty Agreement shall mean a guaranty
agreement of a Participating Partnership in the form attached hereto
and marked Exhibit C-1, as amended and supplemented from time to time.
Permitted Encumbrances shall mean:
(1) taxes, assessments and other governmental charges that
are not delinquent or that are being contested in good faith
by appropriate proceedings duly pursued;
(2) mechanics', materialmen's, contractor's, landlord's or
other similar liens arising in the ordinary course of
business, securing obligations that are not delinquent or
that are being contested in good faith by appropriate
proceedings duly pursued;
(3) restrictions, exceptions, reservations, easements,
conditions, limitations and other matters of record other
than Liens that do not adversely affect the value or utility
of the property;
(4) Liens in favor of the Agent for the benefit of the
Lenders under this Agreement;
(5) Liens and other matters approved in writing by the
Required Lenders; and
(6) Liens in favor of landlords, the amount secured by which
landlords' Liens, in the aggregate, would not materially
adversely affect the Borrower or a Material Group.
Permitted Investments shall mean:
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(1) direct obligations of, or obligations the payment of
which is guaranteed by, the United States of America or an
interest in any trust or fund that invests solely in such
obligations or repurchase agreements, properly secured, with
respect to such obligations.
(2) direct obligations of agencies or instrumentalities of
the United States of America having a rating of A or higher
by Standard & Poor's Corporation or A2 or higher by Moody's
Investors Service, Inc.;
(3) a certificate of deposit issued by, or other
interest-bearing deposits with, a bank having its principal
place of business in the United States of America and having
equity capital of not less than $250,000,000;
(4) a certificate of deposit by, or other interest-bearing
deposits with, any other bank organized under the laws of
the United States of America or any state thereof, provided
that such deposit is either (i) insured by the Federal
Deposit Insurance Corporation or (ii) properly secured by
such bank by pledging direct obligations of the United
States of America having a market value not less than the
face amount of such deposits;
(5) the capital stock of and partnership interests in, and
loans made by the Borrower to, Controlled Partnerships and
Subsidiaries;
(6) prime commercial paper maturing within 270 days of the
acquisition thereof and, at the time of acquisition, having
a rating of A-1 or higher by Standard & Poor's Corporation,
or P-1 or higher by Moody's Investors Service, Inc.;
(7) eligible banker's acceptances, repurchase agreements and
tax-exempt municipal bonds having a maturity of less than
one year, in each case having a rating, or that is the full
recourse obligation of a person whose senior debt is rated,
A or higher by Standard & Poor's Corporation or A2 or higher
by Moody's Investors Service, Inc.;
(8) loans made by the Borrower or a Consolidated Entity in
an aggregate amount of $2,000,000 or less to employees of
the Borrower or of a Consolidated Entity;
(9) loans made by the Borrower or a Controlled Partnership
in an aggregate amount of $1,000,000 or less to limited
partners (or potential limited partners) of Controlled
Partnerships for the purpose of enabling such limited
partners to acquire limited partnership interests in
Controlled Partnerships, to operate their practices or to
restructure partnership interests;
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<PAGE>
(10) loans in the amount of up to $20,000,000 made by the
Borrower to the HEALTHSOUTH Employee Stock Ownership Plan;
(11) scholarship loans made by the Borrower in an aggregate
amount not exceeding $500,000 to individuals who meet
certain eligibility requirements as established by the
Borrower from time to time;
(12) up to 100% of the outstanding shares of stock of
Caretenders Healthcorp (formerly known as Senior Services,
Inc.) provided that aggregate costs incurred to purchase
such shares shall not exceed $12,000,000;
(13) other investments of less than $5,000,000 in the
aggregate expressly approved in writing by the Agent and
investments of $5,000,000 or greater expressly approved in
writing by the Required Lenders;
(14) any other investment having a rating of A or higher or
A-1 or higher by Standard & Poor's Corporation or A2 or
higher or P-1 or higher by Moody's Investors Service, Inc.;
(15) loans to health care practitioners and other persons
not to exceed in the aggregate $5,000,000;
(16) investments in Wellmark, HEALTHSMART, MedPartners and
Austin Medical Office Building which in the aggregate do not
exceed $3,500,000; and
(17) additional investments existing on the Closing Date and
described in Exhibit L.
Pledge Agreement shall have the meaning attributed to that
term in Section 2.6.
Prime Rate shall mean that rate of interest designated by
the Agent from time to time as its "prime rate", it being expressly
understood and agreed that its prime rate is merely an index rate used
by the Agent to establish lending rates and is not necessarily the
Agent's most favorable lending rate, and that changes in the Agent's
prime rate are discretionary with the Agent. Any change in the Prime
Rate shall be effective as of the date of such change.
Principal Maturities shall mean principal maturing or coming
due on Indebtedness during the next succeeding period of 12 calendar
months.
Principal Office shall mean the principal office of the
Agent located at One Independence Center, 101 North Tryon Street,
Charlotte, North Carolina 28255.
Reimbursement Obligation shall mean at any time, the
obligation of the Borrower with respect to any Letter of
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Credit to reimburse NationsBank and the Lenders to the extent of their
respective Participations (including by the receipt by NationsBank of
proceeds of Loans pursuant to Section 2.1(b) hereof) for amounts
theretofore paid by NationsBank pursuant to a drawing under such Letter
of Credit.
Request for Advance or Interest Election shall have the
meaning attributed to that term in Section 2.2.
Required Lenders shall mean Lenders having at least 51% of
the aggregate amount of the Commitments or, if the Commitments shall
have terminated, Lenders holding at least 51% of the aggregate unpaid
principal amount of the Loans, provided that if any Lender shall have
failed to fund its portion of any Syndicated Loan pursuant to Section
2.1 and the Agent or NationsBank has made such Loan on such Lender's
behalf, NationsBank shall be deemed the holder of such portion of such
Lender's Commitment for purposes of this definition.
Restricted Payments means dividends (other than dividends
payable exclusively in the form of capital stock) or any other
stockholder distributions to the shareholders of the Borrower or
redemptions or purchases of the common or preferred stock of Borrower
or any principal payments of Subordinated Indebtedness.
Revolving Facility shall mean the credit facility made
available to the Borrower by the Lenders under the terms of Article II
in an aggregate amount of up to $1,000,000,000 as limited pursuant to
Section 2.5(a) and as reduced by Borrower pursuant to Section 2.9
hereof.
Revolving Facility Obligations shall mean the outstanding
principal amount of all Advances, all interest accrued thereon, all
costs, charges, fees and expenses payable in connection therewith, and
all extensions and renewals thereof.
Sale and Leaseback Transaction means, with respect to any
person, an arrangement with any bank, insurance company or other lender
or investor or to which such lender or investor is a party, providing
for the leasing by such person or any of its Subsidiaries of any
property or asset of such person or any of its Subsidiaries which has
been or is being sold or transferred by such person or such Subsidiary
to such lender or investor or to any person to whom funds have been or
are to be advanced by such lender or investor on the security of such
property or asset.
Segment shall mean a portion of the Advances (or all
thereof) with respect to which a particular interest rate is (or is
proposed to be) applicable.
Senior Indebtedness means the Credit Obligations and that
Indebtedness permitted to be incurred pursuant to Section 7.8(a)(5)(B),
(D), (E) and (H) hereof.
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Senior Subordinated Notes means the 9.5% Senior Subordinated
Notes due 2001 of the Borrower in the aggregate original principal
amount of $250,000,000.
Single Employer Plan means any employee pension benefit plan
covered by Title IV of ERISA and in respect of which the Borrower or
any Consolidated Entity is an "employer" as described in Section
4001(b) of ERISA, which is not a Multi- employer Plan;
Subordinated Indebtedness means the Senior Subordinated
Notes, the Convertible Subordinated Debentures and any other
Indebtedness incurred pursuant to Section 7.8(a)(5)(F) hereof to
refinance the Senior Subordinated Notes or the Convertible Subordinated
Debentures.
Subsidiary shall mean any corporation, more than 50% of the
shares of stock of which having general voting power under ordinary
circumstances to elect the board of directors, managers or trustees of
such corporation, irrespective of whether or not at the time stock of
any other class or classes shall have or might have voting power by
reason of the happening of any contingency, which is owned or
controlled directly or indirectly by the Borrower and which has either
assets with a value exceeding $2,000 or positive annual operating
income.
Subsidiary Guaranty Agreement shall mean a guaranty
agreement of a Participating Subsidiary in the form attached hereto and
marked Exhibit C-2, as amended and supplemented from time to time.
Surgical Health means Surgical Health Corporation, a
Delaware corporation, its Subsidiaries and its Controlled Partnerships.
Surgical Health Subordinated Indebtedness means the 11.5%
Senior Subordinated Notes due July 15, 2004 in the original principal
amount of $75,000,000 issued by Surgical
Health.
Syndicated Loans shall mean the loans provided for by
Section 2.1 hereof, which may be Base Rate Loans or LIBOR Loans.
Syndicated Margin means that percent per annum set forth
below in the case of a LIBOR Loan, which percent shall be the
Syndicated Margin effective on the date of delivery to the Agent of a
Compliance Certificate pursuant to Section 7.3(3) for the fiscal
quarter period as at the end of which the ratio of Indebtedness of the
Borrower and its Consolidated Entities to Consolidated Cash Flow is
greater than or equal to or less than, as the case may be, the ratio
set forth opposite such Syndicated Margin:
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Syndicated Margin
-----------------
Ratio Rate
----- ----
(a) Greater than or equal to 1 3/8%
4.25 to 1.00
(b) Less than 4.25 to 1.00 but 1 1/8%
equal to or greater than
3.75 to 1.00
(c) Less than 3.75 to 1.00 but 7/8%
equal to or greater than
3.00 to 1.00
(d) Less than 3.00 to 1.00 but 5/8%
equal to or greater than
2.00 to 1.00
(e) Less than 2.00 to 1.00 but 1/2%
equal to or greater than
1.50 to 1.00
(f) Less than 1.50 to 1.00 3/8%
Notwithstanding the foregoing, during the period from the Closing Date
through the date of delivery of a Compliance Certificate for the
quarter period ended June 30, 1995 the Syndicated Margin shall be 1
1/4%. For the purpose of calculating the amount of Indebtedness at
September 30, 1995, the actual amount of outstanding Indebtedness at
September 30, 1995 shall be reduced by $319,000,000.
Syndicated Notes shall mean the promissory notes provided
for by Section 2.8 hereof and all promissory notes delivered in
substitution or exchange thereof, in each case as the same shall be
modified and supplemented and in effect from time to time.
Termination Date means (a) the earlier of (i) October 1,
2000, or (ii) such date as the Borrower may voluntarily terminate the
Revolving Facility by payment in full all Credit Obligations and the
termination of all Commitments, or (iii) the occurrence of an Event of
Default.
Type shall have the meaning assigned to such term in Section
1.2 hereof.
Unused Amount shall mean with respect to each Lender, (a)
the Commitment of such Lender less (b) such Lender's pro rata share of
outstanding Syndicated Loans and Letter of Credit Obligations less (c)
the outstanding principal amount of all Competitive Bid Loans then held
by such Lender.
Unused Margin means that percent per annum set forth below,
which percent shall be the Unused Margin effective upon
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the date of delivery to the Agent of a Compliance Certificate pursuant
to Section 7.7(3) for the fiscal quarter as at the end of which the
ratio of Indebtedness of the Borrower and its Consolidated Entities to
Consolidated Cash Flow is greater than or equal to or less than, as the
case may be, the ratio
set forth opposite such Unused Margin.
Ratio Unused Margin
----- -------------
(a) Greater than or equal to 3/8%
4.25 to 1.00
(b) Less than 4.25 to 1.00 but 3/8%
equal to or greater than
3.75 to 1.00
(c) Less than 3.75 to 1.00 but 1/4%
equal to or greater than
3.00 to 1.00
(d) Less than 3.00 to 1.00 but 1/4%
equal to or greater than
2.00 to 1.00
(d) Less than 2.00 to 1.00 but 3/16%
equal to or greater than
1.50 to 1.00
(f) Less than 1.50 to 1.00 1/8%
Notwithstanding the foregoing, during the period from the Closing Date
through the date of delivery of a Compliance Certificate for the
quarter ended June 30, 1995 the Unused Margin shall be 3/8%. For the
purpose of calculating the amount of Indebtedness at September 30,
1995, the actual amount of outstanding Indebtedness at September 30,
1995 shall be reduced by $319,000,000.
Vanderbilt shall mean The Vanderbilt Stallworth
Rehabilitation Hospital, L.P., the partners of which are the Borrower,
Vanderbilt University and Vanderbilt Health Services.
SECTION 1.2 Classes and Types of Loans. Loans hereunder are
distinguished by "Class" and by "Type". The "Class" of a Loan refers to whether
such Loan is a Competitive Bid Loan or a Syndicated Loan, each of which
constitutes a Class. The "Type" of a Loan refers to whether such Loan is a Base
Rate Loan, a LIBOR Loan, an Absolute Loan or a LIBOR Market Loan, each of which
constitutes a Type. Loans may be identified by both Class and Type.
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ARTICLE II
----------
REVOLVING FACILITY TERMS AND COLLATERAL
---------------------------------------
SECTION 2.1 Syndicated Loans.
(a) From and after the Closing Date to and including the
Termination Date, on the terms and subject to the conditions set forth in this
Agreement, each Lender severally agrees to lend to the Borrower and the Borrower
may borrow, repay and reborrow, an amount not exceeding the amount of the
Commitment of such Lender in effect from time to time, less the amount of such
Lender's Syndicated Loans and the Reimbursement Obligation and Letter of Credit
Borrowings applicable to such Lender; provided, however, that no more than eight
(8) different Interest Periods for both Syndicated Loans and Competitive Bid
Loans may be outstanding at the same time (for which purpose Interest Periods
described in different lettered clauses of the definition of the term "Interest
Period" shall be deemed to be different Interest Periods even if they are
coterminous). All Advances made by the Lenders to the Borrower under this
Agreement with respect to the Revolving Facility shall be evidenced by a
promissory note for each Lender each dated the date of this Agreement payable to
the order of each Lender, duly executed by the Borrower, and in the aggregate
maximum principal amount of $1,000,000,000 all as provided in Section 2.8
hereof. The Advances shall bear interest as provided in Article III below. The
unpaid principal amount of all Loans hereunder shall not exceed the Revolving
Facility and each Syndicated Loan made hereunder shall be allocated pro rata
among Lenders based upon their Applicable Commitment Percentage regardless of
amounts outstanding under Competitive Bid Loans.
(b) If a drawing is made under any Letter of Credit in
accordance with the terms thereof prior to the Termination Date the drawing
shall be paid by the Agent without the requirement of notice from the Borrower
from immediately available funds which shall be advanced by the Lenders under
the Revolving Facility. If a drawing is presented under any Letter of Credit in
accordance with the terms thereof notice of such drawing shall be provided
promptly by NationsBank to the Agent and the Agent shall provide notice to each
Lender by telephone or telecopy. If notice to the Lenders of a drawing under any
Letter of Credit is given by the Agent at or before 12:00 noon Charlotte, North
Carolina time on any Business Day, each Lender shall, pursuant to the conditions
of this Agreement, make a Base Rate Loan in the amount of such Lender's
Applicable Commitment Percentage of such drawing and shall pay such amount to
the Agent for the account of NationsBank at the Principal Office in Dollars and
in immediately available funds before 2:00 P.M. Charlotte, North Carolina time
on the same Business Day. If notice to the Lenders of a drawing under a Letter
of Credit is given by the Agent after 12:00 noon Charlotte, North Carolina time
on any Business Day, each Lender shall, pursuant to the terms and subject to the
conditions of this Agreement, make a Base Rate Loan in the amount of such
Lender's Applicable Commitment Percentage of such drawing and shall pay such
amount to the Agent for the account of NationsBank at the Principal Office in
Dollars and in
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<PAGE>
immediately available funds before 12:00 noon Charlotte, North Carolina time on
the next following Business Day. Such Base Rate Loan shall be deemed made for a
period ending on the following Business Day, which shall be extended
automatically to the next succeeding Business Day unless and until the Borrower
converts such Base Rate Loan in accordance with the terms of Section 3.2 hereof.
SECTION 2.2 Advances of Syndicated Loans. Advances of Syndicated Loans
shall be made no more frequently than three (3) times in each week. Each Advance
shall be in an amount no less than $5,000,000 and multiples of $1,000,000
thereafter. Each request for an Advance must be in writing (which may be by
facsimile transmission) and must be received by the Agent not later than 10:00
a.m., Charlotte, North Carolina, time, (x) at least three Business Days prior to
the date of any LIBOR Loan and (y) on the day which the Advance is to be made in
the case of a Base Rate Loan. Each request for an Advance shall be in the form
attached hereto as Exhibit D ("Request for Advance or Interest Rate Election")
and shall specify the amount of the Advance requested, the day as of which the
Advance is to be made and the part or parts, if any, of the Advance that are to
be used by or for the benefit of Participating Partnerships, specifying the part
allocable to each Participating Partnership, and shall provide the interest rate
information called for in Section 3.2. The Agent shall promptly (not later than
1:00 P.M. Charlotte, North Carolina time) furnish each Lender by telecopy
transmission a copy of each Request for Advance or Interest Rate Election
together with the amount of such Lender's portion of the Advance. Not later than
2:00 P.M. Charlotte, North Carolina time on the date specified for each Advance
hereunder, each Lender shall make available the amount of the Syndicated Loan or
Loans to be made by it on such date to the Agent at the Principal Office, in
Dollars and in immediately available funds, and the amount received by the Agent
shall be made available to the Borrower by depositing the proceeds thereof into
an account with the Agent in the name of the Borrower. The Lenders' obligation
to make Advances shall terminate, if not sooner terminated pursuant to the
provisions of this Agreement, on the Termination Date. Each Request for Advance
or Interest Rate Election, whether submitted under this Section 2.2 in
connection with a requested Advance or under Section 3.2 in connection with an
interest rate election, and each Application shall be signed by an officer of
the Borrower designated as authorized to sign and submit Request for Advance or
Interest Rate Election forms and Applications in the documents submitted to the
Agent pursuant to Section 6.3(a) below. The Borrower may, from time to time, by
written notice to the Agent, terminate the authority of any person to submit
Request for Advance or Interest Rate Election forms and Applications and
designate new or additional persons to so act by delivering to the Agent a
certificate of the Secretary of the Borrower certifying the incumbency and
specimen signature of each such person. The Agent shall be entitled to rely
conclusively upon the authority of any person so designated by the Borrower.
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SECTION 2.3 Competitive Bid Loans.
(a) In addition to borrowings of Syndicated Loans, at any
time prior to the Termination Date the Borrower may, as set forth in this
Section 2.3, request the Lenders to make offers to make Competitive Bid Loans to
the Borrower in Dollars. The Lenders may, but shall have no obligation to, make
such offers and the Borrower may, but shall have no obligation to, accept any
such offers in the manner set forth in this Section 2.3. Competitive Bid Loans
may be LIBOR Market Loans or Absolute Rate Loans (each a "Type" of Competitive
Bid Loan), provided that:
(i) the aggregate amount of outstanding Competitive Bid
Loans of all Lenders shall not exceed one half of the
Revolving Facility;
(ii) there may be no more than eight (8) different
Interest Periods for both Syndicated Loans and Competitive
Bid Loans outstanding at the same time (for which purpose
Interest Periods described in different lettered clauses of
the definition of the term "Interest Period" shall be deemed
to be different Interest Periods even if they are
coterminous);
(iii) the aggregate amount of outstanding Competitive
Bid Loans of a Lender shall not exceed at any time an amount
equal to such Lender's Commitment;
(iv) the aggregate principal amount of all Competitive
Bid Loans, together with the sum of (i) the aggregate
principal amount of all outstanding Syndicated Loans, (ii)
then outstanding Letter of Credit Borrowings and (iii)
Reimbursement Obligations shall not exceed the aggregate
amount of the Commitments at such time; and
(v) no Competitive Bid Loan shall have a maturity date
subsequent to the Termination Date.
(b) When the Borrower wishes to request offers to make
Competitive Bid Loans, it shall give the Agent (which shall promptly notify the
Lenders) notice (a "Competitive Bid Quote Request") to be received no later than
11:00 a.m. Charlotte, North Carolina time on (x) the fourth Business Day prior
to the date of borrowing proposed therein, in the case of a LIBOR Auction or (y)
the Business Day next preceding the date of borrowing proposed therein, in the
case of an Absolute Rate Auction (or, in any such case, such other time and date
as the Borrower and the Agent, with the consent of the Required Lenders, may
agree). The Borrower may request offers to make Competitive Bid Loans for up to
two (2) different Interest Periods in a single notice (for which purpose
Interest Periods in different lettered clauses of the definition of the term
"Interest Period" shall be deemed to be different Interest Periods even if they
are coterminous); provided that the request for each separate Interest Period
shall be deemed to be a separate Competitive Bid Quote Request for a separate
borrowing (a "Competitive Bid Borrowing") and there shall not be outstanding at
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any one time more than four (4) Competitive Bid Borrowings. Each such
Competitive Bid Quote Request shall be substantially in the form of Exhibit E
hereto and shall specify as to each Competitive Bid Borrowing:
(i) the proposed date of such borrowing, which shall be
a Business Day;
(ii) the aggregate amount of such Competitive Bid
Borrowing, which shall be at least $10,000,000 (or a larger
multiple of $1,000,000) but shall not cause the limits
specified in Section 2.3(a) hereof to be violated;
(iii) the duration of the Interest Period applicable
thereto;
(iv) whether the Competitive Bid Quotes requested for a
particular Interest Period are seeking quotes for LIBOR
Market Loans or Absolute Rate Loans; and
(v) if the Competitive Bid Quotes requested are seeking
quotes for Absolute Rate Loans, the date on which the
Competitive Bid Quotes are to be submitted if it is before
the proposed date of borrowing (the date on which such
Competitive Bid Quotes are to be submitted is called the
"Quotation Date").
Except as otherwise provided in this Section 2.3(b), no Competitive Bid Quote
Request shall be given within five (5) Business Days (or such other number of
days as the Borrower and the Agent, with the consent of the Required Lenders,
may agree) of any other Competitive Bid Quote Request.
(c) (i) Each Lender may submit one or more Competitive Bid
Quotes, each containing an offer to make a Competitive Bid Loan in response to
any Competitive Bid Quote Request; provided that, if the Borrower's request
under Section 2.3(b) hereof specified more than one Interest Period, such Lender
may make a single submission containing one or more Competitive Bid Quotes for
each such Interest Period. Each Competitive Bid Quote must be submitted to the
Agent not later than (x) 2:00 p.m. Charlotte, North Carolina time on the fourth
Business Day prior to the proposed date of borrowing, in the case of a LIBOR
Auction or (y) 10:00 a.m. Charlotte, North Carolina time on the Quotation Date,
in the case of an Absolute Rate Auction (or, in any such case, such other time
and date as the Borrower and the Agent, with the consent of the Required
Lenders, may agree); provided that any Competitive Bid Quote may be submitted by
NationsBank (or its Applicable Lending Office) only if NationsBank (or such
Applicable Lending Office) notifies the Borrower of the terms of the offer
contained therein not later than (x) 1:00 p.m. Charlotte, North Carolina time on
the fourth Business Day prior to the proposed date of borrowing, in the case of
a LIBOR Auction or (y) 9:45 a.m. Charlotte, North Carolina time on the Quotation
Date, in the case of an Absolute Rate Auction. Subject to Article IV, Article VI
and IX hereof, any
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Competitive Bid Quote so made shall be irrevocable except with the consent of
the Agent given on the instructions of the Borrower.
(ii) Each Competitive Bid Quote shall be
substantially in the form of Exhibit F hereto and shall specify:
(A) the proposed date of borrowing and the
Interest Period therefor;
(B) the principal amount of the Competitive
Bid Loan for which each such order is being made,
which principal amount shall be at least $2,000,000
(or a larger multiple of $1,000,000); provided that
the aggregate principal amount of all Competitive
Bid Loans for which a Lender submits Competitive
Bid Quotes (x) may not exceed the Commitment of
such Lender and (y) may not exceed the principal
amount of the Competitive Bid Borrowing for a
particular Interest Period for which offers were
requested;
(C) in the case of a LIBOR Auction, the
margin above or below the applicable LIBOR-Based
Rate (the "LIBOR Margin") offered for each such
Competitive Bid Loan, expressed as a percentage
(rounded upwards, if necessary, to the nearest
1/10,000th of 1%) to be added to or subtracted from
the applicable LIBOR-Based Rate;
(D) in the case of an Absolute Rate Auction,
the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/10,000th of 1%) offered
for each such Competitive Bid Loan (the "Absolute
Rate"); and
(E) the identity of the quoting Lender.
Unless otherwise agreed by the Agent and the Borrower, no Competitive Bid Quote
shall contain qualifying, conditional or similar language or propose terms other
than or in addition to those set forth in the applicable Competitive Bid Quote
Request and, in particular, no Competitive Bid Quote may be conditioned upon
acceptance by the Borrower of all (or some specified minimum) of the principal
amount of the Competitive Bid Loan for which such Competitive Bid Quote is being
made.
(d) The Agent shall (x) in the case of a LIBOR Auction, by
4:00 p.m. Charlotte, North Carolina time on the day a Competitive Bid Quote is
submitted or (y) in the case of an Absolute Rate Auction, as promptly as
practicable after the Competitive Bid Quote is submitted (but in any event not
later than 10:30 a.m. Charlotte, North Carolina time on the Quotation Date),
notify the Borrower of the terms (i) of any Competitive Bid Quote submitted by a
Lender that is in accordance with Section 2.3(c) hereof and (ii) of any
Competitive Bid Quote that amends, modifies or is otherwise inconsistent with a
previous Competitive Bid Quote
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submitted by such Lender with respect to the same Competitive Bid Quote Request.
Any such subsequent Competitive Bid Quote shall be disregarded by the Agent
unless such subsequent Competitive Bid Quote is submitted solely to correct a
manifest error in such former Competitive Bid Quote. The Agent's notice to the
Borrower shall specify (A) the aggregate principal amount of the Competitive Bid
Borrowing for which orders have been received and (B) the respective principal
amounts and LIBOR Margins or Absolute Rates, as the case may be, so offered by
each Lender (identifying the Lender that made each Competitive Bid Quote).
(e) Not later than 11:00 a.m. Charlotte, North Carolina time
on (x) the third Business Day prior to the proposed date of borrowing, in the
case of a LIBOR Auction or (y) the Quotation Date, in the case of an Absolute
Rate Auction (or, in any such case, such other time and date as the Borrower and
the Agent, with the consent of the Required Lenders, may agree), the Borrower
shall notify the Agent of its acceptance or nonacceptance of the offers so
notified to it pursuant to Section 2.3(d) hereof (and the failure of the
Borrower to give such notice by such time shall constitute nonacceptance) and
the Agent shall promptly notify each affected Lender. In the case of acceptance,
such notice shall specify the aggregate principal amount of offers for each
Interest Period that are accepted. The Borrower may accept any Competitive Bid
Quote in whole or in part (provided that any Competitive Bid Quote accepted in
part shall be at least $2,000,000 or a larger multiple of $1,000,000); provided
that:
(i) the aggregate principal amount of each Competitive
Bid Borrowing may not exceed the applicable amount set forth
in the related Competitive Bid Quote Request;
(ii) the aggregate principal amount of each Competitive
Bid Borrowing shall be at least $10,000,000 (or a larger
multiple of $1,000,000) but shall not cause the limits
specified in Section 2.3(a) hereof to be violated;
(iii) acceptance of offers may be made only in ascending
order of LIBOR Margins or Absolute Rates, as the case may
be, in each case beginning with the lowest rate so offered;
provided, however, that the Borrower, in its sole
discretion, may accept other than the lowest rate where
acceptance of the lowest rate will result in (x) the
outstanding Loans of a Lender or Lenders offering the lowest
rate exceeding such Lender's Commitment and (y) an increase
in the Unused Fee payable by Borrower under Section 2.10
hereof; and
(iv) the Borrower may not accept any offer where the
Agent has correctly advised the Borrower that such offer
fails to comply with Section 2.3(c)(ii) hereof or otherwise
fails to comply with the requirements of this Agreement
(including, without limitation, Section 2.3(a) hereof).
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If offers are made by two or more Lenders with the same LIBOR Margins or
Absolute Rates, as the case may be, for a greater aggregate principal amount
than the amount in respect of which offers are accepted for the related Interest
Period after the acceptance of all offers, if any, of all lower LIBOR Margins or
Absolute Rates, as the case may be, offered by any Lender for such related
Interest Period, the principal amount of Competitive Bid Loans in respect of
which such offers are accepted shall be allocated by the Borrower among such
Lenders as nearly as possible (in amounts of at least $2,000,000 or larger
multiples of $1,000,000) in proportion to the aggregate principal amount of such
offers. Determinations by the Borrower of the amounts of Competitive Bid Loans
and the lowest bid after adjustment as provided in Section 2.3(e)(iii) shall be
conclusive in the absence of manifest error.
(f) Any Lender whose offer to make any Competitive Bid Loan
has been accepted shall, not later than 1:00 p.m. Charlotte, North Carolina time
on the date specified for the making of such Loan, make the amount of such Loan
available to the Agent at the Principal Office in Dollars and in immediately
available funds, for account of the Borrower. The amount so received by the
Agent shall, subject to the terms and conditions of this Agreement, be made
available to the Borrower on such date by depositing the same, in Dollars and in
immediately available funds, in an account of the Borrower maintained at the
Principal Office.
SECTION 2.4 Payments. All interest accrued on Loans subject to the Base
Rate shall be payable on the last day of each successive March 27,, June, Septe
mber and December, commencing on June 30, 1995 and upon payment in full of such
Loans, and all interest accrued on each Fixed Rate Loan, shall be payable at the
earlier of (i) the end of the applicable Interest Period then in effect or (ii)
the end of each ninety (90) day period in the case of an Absolute Rate and each
three (3) month period in the case of a LIBOR Market Rate. The principal amount
of the Advances shall be due on the Termination Date. All payments of Credit
Obligations shall be payable to the Agent on or before 11:00 A.M. Charlotte,
North Carolina time on the date when due, at the Principal Office in Dollars and
in immediately available funds free and clear of all rights of set-off or
counterclaim.
SECTION 2.5 Joint and Several Obligations.
(a) Each of the Subsidiaries and Controlled Partnerships
named in Exhibit G attached hereto and made a part hereof shall execute and
deliver to the Agent as of the Closing Date either an Amended and Restated
Subsidiary Guaranty Agreement or Amended and Restated Partnership Guaranty
Agreement or a Subsidiary Guaranty Agreement or Partnership Guaranty Agreement,
and each other Subsidiary and Controlled Partnership that is to become after the
Closing Date a Participating Subsidiary or Participating Partnership, as the
case may be, shall, at the time it is to become a Participating Subsidiary or
Participating Partnership, execute and deliver to the Agent a Subsidiary
Guaranty Agreement or Partnership Guaranty Agreement, as the case may be in
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the form attached hereto as Exhibit C-2 and Exhibit C-1, respectively
("collectively the "Guaranty Agreements"). Notwithstanding the foregoing, in the
event of the Acquisition of Surgical Health and until the obtaining of the
consent to amendments to the Indenture dated June 15, 1994 relating to the
Surgical Health Subordinated Indebtedness in order to permit Surgical Health to
deliver its Guaranty Agreement (the "Necessary Consent"), Surgical Health shall
not be deemed a Participating Subsidiary, provided the amount of loans and
investments by Borrower and its Participating Subsidiaries in Surgical Health do
not exceed the sum of (i) the amount set forth in Section 7.8(a)(7)(F) and (ii)
$50,000,000. Promptly upon the Acquisition of Surgical Health the Borrower shall
use its best efforts to cause the Necessary Consent to be obtained and shall
cause each Participating Subsidiary acquiring Surgical Health Subordinated
Indebtedness to immediately give its consent to the amendments. The Borrower
shall cause Surgical Health to deliver to the Agent its Guaranty Agreement not
later than fifteen (15) days after obtaining the Necessary Consent. Until there
shall have been delivered to the Agent the Guaranty Agreement of Surgical Health
the amount of the Revolving Facility available to the Borrower shall be reduced
by a sum equal to the product of 1.15 times the outstanding principal amount of
Surgical Health Subordinated Indebtedness not owned by Borrower or a
Participating Subsidiary. Notwithstanding any other provision of this Agreement,
until such time as Surgical Health shall have delivered its Guaranty Agreement,
all loans by the Borrower to Surgical Health shall be evidenced by a note or
notes, which note or notes shall be promptly delivered to the Agent as required
by the Pledge Agreement. Upon the acquisition by Borrower or a Participating
Subsidiary of any Surgical Health Subordinated Indebtedness it shall immediately
pledge, assign and deliver to the Agent the notes evidencing such Indebtedness,
such notes to constitute security for payment of Credit Obligations.
(b) Although Advances shall be and heretofore have been made
only to the Borrower, all or portions of such Advances may be used by the
Borrower for the benefit of or loaned by the Borrower to a Participating
Subsidiary or Participating Partnership. As a condition to the use of Loans for
the benefit of Participating Subsidiaries and Participating Partnerships, the
Lenders have required that the Participating Subsidiaries and Participating
Partnerships guaranty the payment of the Credit Obligations of Borrower arising
under this Agreement and the other Loan Documents to the extent set forth in the
respective Guaranty Agreements to which they are a party. Each of the
Participating Subsidiaries and Participating Partnerships separately and
severally, hereby appoints and designates the Borrower as each such party's
agent and attorney-in-fact to act on behalf of each such party for all purposes
of the Loan Documents relating to the Credit Obligations. The Borrower shall
have authority to exercise on behalf of each Participating Subsidiary and
Participating Partnership all rights and powers that the Borrower deems
necessary, incidental or convenient in connection with the Loan Documents
relating to the Credit Obligations, including the authority to execute and
deliver certificates, documents, agreements and other instruments referred to in
or contemplated by such Loan Documents, request Advances hereunder for their
benefit, request for the issuance of Letters of Credit for their benefit,
receive all proceeds of Advances, give all notices, approvals and consents
required or requested from time to time by the Agent or Lenders and take any
other actions and steps that a Participating Subsidiary or a Participating
Partnership could take for its own account in connection with the Loan Documents
from time to time, it being the intent of the Participating Subsidiaries and the
Participating Partnerships to
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<PAGE>
grant to the Borrower plenary power to act on behalf of the Participating
Subsidiaries and the Participating Partnerships in connection with and pursuant
to such Loan Documents. The appointment of the Borrower as agent and
attorney-in-fact for the Participating Subsidiaries and the Participating
Partnerships hereunder shall be coupled with an interest and be irrevocable so
long as any Loan Document relating to the Credit Obligations shall remain in
effect. The Agent or Lenders need not obtain any Participating Subsidiary's or
Participating Partnership's consent or approval for any act taken by the
Borrower pursuant to any Loan Document, and all such acts shall bind and
obligate the Borrower, the Participating Subsidiaries and the Participating
Partnerships, jointly and severally. Each Participating Subsidiary and
Participating Partnership forever waives and releases any claim (whether now or
hereafter arising) against the Agent or Lenders based on the Borrower's lack of
authority to act on behalf of any Participating Subsidiary or Participating
Partnership in connection with the Loan Documents relating to the Revolving
Facility.
SECTION 2.6 Pledge Agreement. As security for the Credit Obligations,
the Borrower and certain of the Participating Subsidiaries have, pursuant to the
Prior Agreement, executed and delivered a pledge and security agreement to the
Agent and shall execute and deliver to the Agent amended and restated pledge
agreements on the Closing Date and from time to time after the Closing Date
pursuant to the terms of Section 7.14 hereof or upon request by the Agent,
pledge and security agreements in form acceptable to the Agent and its counsel
(all being collectively called the "Pledge Agreements") granting to the Agent a
first priority security interest in and lien on (i) all shares of stock of all
Subsidiaries owned directly or indirectly by the Borrower, (ii) all right, title
and interest in and to both the ownership interest of Borrower in any
partnership and all distributions payable to the Borrower or any Subsidiary as a
partner of any partnership (including Controlled Partnerships but not including
Vanderbilt), (iii) all notes payable to Borrower by any Subsidiary or Controlled
Partnership evidencing any loan or advance made by Borrower, and (iv) all
accounts receivable due to Borrower by any Subsidiary or Controlled Partnership
arising by reason of any loan or advance made by Borrower, together with all
financing statements, stock certificates and duly executed stock powers
necessary to perfect the Agent's security interest therein, in each case whether
now owned or hereafter acquired.
SECTION 2.7 Prepayment. The Borrower may at any time prior to the
Termination Date prepay all or any part of the Advances, without premium or
penalty (except as set forth below); provided, however, that no Fixed Rate
Segment may be prepaid during an Interest Period unless the Borrower shall pay
to the Agent the amounts required by Section 4.2 hereof. The Borrower shall pay
all interest accrued to the date of prepayment on any amount prepaid as
permitted under the terms of the next preceding sentence on or prior to the
Termination Date in connection with the prepayment in
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full of the Credit Obligations and the concurrent termination of this Agreement.
The Borrower shall give the Agent notice of its intent to pay any Base Rate Loan
not later than 11:00 a.m. on the date of payment. Failure to give such notice
shall result in payment of interest through the next succeeding Business Day on
the amount so paid. Each such prepayment shall be in the aggregate amount of
$10,000,000 or such greater amount which is an integral multiple of $1,000,000
or the unpaid balance of all Credit Obligations.
SECTION 2.8 Notes.
(a) The Syndicated Loans made by each Lender shall be
evidenced by a single promissory note of the Borrower substantially in the form
of Exhibit H-1 hereto, dated the date hereof, payable to such Lender in a
principal amount equal to the amount of its Commitment as originally in effect
and otherwise duly completed.
(b) The Competitive Bid Loans made by any Lender shall be
evidenced by a single promissory note of the Borrower substantially in the form
of Exhibit H-2 hereto, dated the date hereof, payable to such Lender and
otherwise duly completed.
(c) The date, amount, Type, interest rate and duration of
Interest Period (if applicable) of each Loan of each Class made by each Lender
to the Borrower, and each payment made on account of the principal thereof,
shall be recorded by such Lender on its books and, prior to any transfer of the
Note evidencing the Loans of such Class held by it, endorsed by such Lender on
the schedule attached to such Note or any continuation thereof; provided that
the failure of such Lender to make, or any error by the Lender in making any
such recordation or endorsement, shall not affect the obligations of the
Borrower to make a payment when due of any amount owing hereunder or under such
Note in respect of the Loans to be evidenced by such Note.
(d) No Lender shall be entitled to have its Notes
subdivided, by exchange for promissory notes of lesser denominations or
otherwise, except in connection with a permitted assignment of all or any
portion of such Lender's Commitment, Loans and Notes pursuant to Section 10.1
hereof.
(e) Each Lender that is an Existing Lender under the First
Restated Agreement shall surrender to the Borrower the promissory notes
delivered to it pursuant to the First Restated Agreement in exchange for the
Notes described in Section 2.8(a) and (b).
SECTION 2.9 Reduction in Revolving Facility. The Borrower shall have
the right from time to time (but not more frequently than once during each
quarterly period), but upon not less than three (3) Business Days written notice
to the Agent to reduce the amount of the Revolving Facility. The Agent shall
give each
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<PAGE>
Lender, within one (1) Business Day thereafter, telephonic notice (confirmed in
writing) of such reduction. Each such reduction shall be in the aggregate
principal amount of $10,000,000 or such greater amount which is an integral
multiple of $1,000,000, and shall permanently reduce the Commitment of each
Lender on a pro rata basis. No such reduction shall result in payment of a Fixed
Rate Loan other than on the last day of the Interest Period of such Loan. Each
reduction of the Revolving Facility shall be accompanied by payment of the Loans
to the extent that the Credit Obligations exceed the Revolving Facility after
giving effect to such reductions together with accrued and unpaid interest on
the amounts prepaid.
SECTION 2.10 Unused Fee. From and after the Effective Date, the
Borrower shall pay to the Agent for the benefit of each Lender a fee (the
"Unused Fee") computed at a per annum rate of the then applicable Unused Margin
times the daily average Unused Amount of such Lender. The Unused Fee shall be
payable quarterly on the last day of each successive March 27,, June, September
and December in each year for the immediately preceding quarterly period,
commencing on June 30, 1995, and upon the Termination Date. The Unused Fee shall
be computed on an Actual/360 Basis.
SECTION 2.11 Lending Offices. The Loans of each Type made by each
Lender shall be made and maintained at such Lender's Applicable Lending Office
for Loans of such Type.
SECTION 2.12 Letter of Credit Borrowings.
(a) NationsBank may issue from time to time in accordance
with Section 6.1, in its sole discretion, for the account of the Borrower
Letters of Credit in an aggregate outstanding stated amount up to but not to
exceed the Letter of Credit Commitment. All Letters of Credit issued pursuant to
this Agreement, shall expire on or before the fifth (5th) Business Day next
preceding the Termination Date. The aggregate Letter of Credit Obligations shall
at no time exceed the Letter of Credit Commitment. In the event that the
Borrower shall pay in full all amounts outstanding under the Revolving Facility
and permanently reduce the Revolving Facility to zero as permitted pursuant to
Section 2.9 hereof, it shall simultaneously cause all obligations of NationsBank
under the Letters of Credit and all obligations of the Lenders with respect to
Participations to be discharged in full, whether by providing replacement
letters of credit therefor or payment in full of the amount outstanding with
respect to the Letter of Credit or the deposit of cash in the amount of
outstanding Letters of Credit with the Agent pursuant to the LC Account
Agreement.
(b) The Borrower hereby unconditionally agrees to pay to
NationsBank on demand at the Principal Office (i) all amounts required to pay
all drafts drawn in accordance with the terms of any Letter of Credit or
purporting to be drawn under the Letters of
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Credit and (ii) the face amount of each draft complying with any Letter of
Credit accepted by NationsBank on the maturity date of such draft, or in the
event of a Default or Event of Default, and any and all reasonable expenses of
every kind incurred by NationsBank in connection with the Letters of Credit and
in any event and without demand to place in possession of NationsBank (which
shall include Advances under the Revolving Facility if permitted by Section 2.1
hereof) sufficient funds to pay all debts and liabilities arising under any
Letter of Credit. Subject to the terms hereof, the Borrower's obligations to pay
NationsBank under this Section 2.12, and the right of NationsBank to receive the
same, shall be absolute and unconditional and shall not be affected by any
circumstance whatsoever. NationsBank may charge any account the Borrower may
have with it for any and all amounts NationsBank pays under a Letter of Credit,
plus commissions, charges and expenses as from time to time agreed to by
NationsBank and the Borrower; provided that to the extent permitted by Section
2.1(b), amounts shall be paid pursuant to Advances under the Revolving Facility.
The Borrower agrees that NationsBank may, in its sole discretion, accept or pay,
as complying with the terms of any Letter of Credit, any drafts or other
documents otherwise in order which may be signed or issued by an administrator,
executor, trustee in bankruptcy, debtor in possession, assignee for the benefit
of creditors, liquidator, receiver, attorney in fact or other legal
representative of a party who is authorized under such Letter of Credit to draw
or issue any drafts or other documents. The Borrower agrees to pay NationsBank
interest on any amounts not paid when due hereunder at the Base Rate plus two
percent (2%), or such lower rate as may be required by law.
(c) In accordance with the provisions of Section 2.1(b)
hereof, NationsBank shall notify the Agent (and shall also notify the Borrower)
of any drawing under any Letter of Credit issued for account of the Borrower as
promptly as practicable following the receipt by NationsBank of such drawing.
(d) Each Lender (other than NationsBank) shall automatically
acquire on the date of issuance thereof, a Participation in the liability of
NationsBank in respect of each Letter of Credit in an amount equal to such
Lender's Applicable Commitment Percentage of such liability, and to the extent
that the Borrower is obligated to pay NationsBank under Section 2.12(a), each
Lender (other than NationsBank) thereby shall absolutely, unconditionally and
irrevocably assume, and shall be unconditionally obligated to pay to NationsBank
as hereinafter described, its Applicable Commitment Percentage of the liability
of NationsBank under such Letter of Credit. On the fifth Business Day prior to
the Termination Date, each Lender (including NationsBank in its capacity as a
Lender) shall make a Base Rate Loan to the Borrower by paying to the Agent for
the account of NationsBank at the Principal Office in Dollars and in immediately
available funds, an amount equal to its Applicable Commitment Percentage of any
drawing under a Letter of Credit, all as described and pursuant to
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Section 2.1(b), but only to the extent any Lender has not previously paid to the
Agent for the account of NationsBank such amount. With respect to drawings under
any of the Letters of Credit, each Lender, upon receipt from the Agent of notice
of a drawing in the manner described in Section 2.1(b), shall promptly pay to
the Agent for the account of NationsBank, prior to the applicable time set forth
in Section 2.1(b), its Applicable Commitment Percentage of such drawing.
Simultaneously with the making of each such payment by a Lender or NationsBank,
such Lender shall, automatically and without any further action on the part of
NationsBank or such Lender, acquire a Participation in an amount equal to such
payment (excluding the portion thereof constituting interest) in the related
Reimbursement Obligation of the Borrower. The Reimbursement Obligations of the
Borrower shall be immediately due and payable whether by Advances made in
accordance with Section 2.1(b) or otherwise. Each Lender's obligation to make
payment to the Agent for the account of NationsBank pursuant to this Section
2.12(d), and the right of NationsBank to receive the same, shall be absolute and
unconditional, shall not be affected by any circumstance whatsoever and shall be
made without any offset, abatement, withholding or reduction whatsoever. If any
Lender is obligated to pay but does not pay amounts to the Agent for the account
of NationsBank in full upon receipt of such notice of a drawing as required by
this Section 2.12(d), such Lender shall, on demand, pay to the Agent for the
account of NationsBank interest on the unpaid amount for each day during the
period commencing on the date of notice given to such Lender pursuant to Section
2.1(b) until such Lender pays such amount to the Agent for the account of
NationsBank in full at the interest rate per annum for overnight borrowing by
NationsBank from the Federal Reserve Bank.
(e) Promptly following the end of each calendar quarter,
NationsBank shall deliver to the Agent, and the Agent shall deliver to each
Lender, a notice describing the aggregate undrawn amount of Letters of Credit
and aggregate face amount of all drafts accepted and outstanding at the end of
such quarter. Upon the request of any Lender from time to time, NationsBank
shall deliver to the Agent, and the Agent shall deliver to such Lender, any
other information reasonably requested by such Lender with respect to the Letter
of Credit then outstanding.
(f) The issuance by NationsBank of any Letter of Credit
shall be subject to the conditions that such Letter of Credit be in such form,
contain such terms and support such transactions or obligations as shall be
reasonably satisfactory to NationsBank consistent with its then current
practices and procedures with respect to similar letters of credit. All Letters
of Credit shall be issued pursuant to and subject to the Uniform Customs and
Practice for Documentary Creditors, 1993 revision, International Chamber of
Commerce Publication No. 500 and all subsequent amendments and revisions
thereto. The Borrower shall have executed and delivered such other instruments
and agreements relating to
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such Letter of Credit as NationsBank shall have reasonably requested consistent
with such practices and procedures.
(g) Without duplication of Section 10.12 hereof, the
Borrower hereby indemnifies and holds harmless NationsBank, each other Lender
and the Agent from and against any and all claims and damages, losses,
liabilities, costs or expenses which NationsBank, such other Lender or the Agent
may reasonably incur (or which may be claimed against NationsBank, such other
Lender or the Agent) by any person by reason of or in connection with the
issuance or transfer of or payment or failure to pay under any Letter of Credit;
provided that the Borrower shall not be required to indemnify NationsBank, any
other Lender or the Agent for any claims, damages, losses, liabilities, costs or
expenses to the extent, but only to the extent, (i) caused by the willful
misconduct or negligence of the party to be indemnified, (ii) caused by the
failure of NationsBank to pay under any Letter of Credit after the presentation
to it of a request strictly complying with the terms and conditions of such
Letter of Credit, unless such payment is prohibited by any law, regulation,
court order or decree, or (iii) paid or payable by any Lender under Section 2.14
or Section 9.10 hereof and provided, further, Borrower shall not be required to
indemnify any Lender from and against any such claims, damages, losses,
liabilities, costs or expenses to the extent attributable to such Lender's
failure to perform its obligations hereunder.
(h) Without limiting Borrower's rights as set forth in
Section 2.12(g) above, the obligation of Borrower to immediately reimburse Agent
for drawings made under the Letter of Credit in accordance with the terms
thereof shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms of this Agreement and the Applications for
such Letters of Credit, under all circumstances whatsoever.
(i) The Borrower agrees to pay to the Agent for the benefit
of the Lenders a per annum Letter of Credit fee equal to the applicable
Syndicated Margin in effect at the time of issuance of each such Letter of
Credit times the amount of outstanding Letter of Credit Borrowings. In addition,
the Borrower agrees to pay to the Agent for its own account an issuance fee
equal to one-eighth of one percent (1/8%) per annum times the amount of
outstanding Letter of Credit Borrowings. Such fees shall be payable quarterly in
arrears on the last day of each March 27,, June, September and December,
beginning, however, on the first such day to occur following the Closing Date.
(j) The Borrower acknowledges that NationsBank as issuer of
the Letter of Credit will be required by applicable rules and regulations of the
Federal Reserve Board to maintain reserves for its liability to honor draws made
pursuant to a Letter of Credit notwithstanding the obligation of the Lenders for
a Participation in such liability. The Borrower agrees to promptly
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reimburse NationsBank for all additional costs which it may hereafter incur
solely by reason of its acting as issuer of the Letter of Credit and its being
required to reserve for such liability, it being understood by the Borrower that
other interest and fees payable under this Agreement do not include compensation
of NationsBank for such reserves. NationsBank shall furnish to the Borrower at
the time of its demand for payment of such additional costs, the computation of
such additional cost which shall be conclusive absent manifest error, provided
that such computations are made on a reasonable basis.
(k) The Borrower shall pay to NationsBank administrative and
other fees, if any, in connection with the Letters of Credit in such amounts and
at such times as NationsBank and the Borrower shall agree from time to time.
SECTION 2.13 Pro Rata Payments. Except as otherwise provided herein,
(a) each payment on account of the principal of and interest on the Syndicated
Loans and fees (other than the Agent's fees payable under Section 9.11 hereof,
which shall be retained by the Agent and the fees payable to the Agent for its
own account pursuant to Section 2.12(i) and to NationsBank pursuant to Section
2.12(k) which shall be retained by the Agent or NationsBank, as the case may be)
described in this Agreement shall be made to the Agent for the account of the
Lenders pro rata based on their Applicable Commitment Percentages, (b) each
payment on account of principal of and interest on a Competitive Bid Loan shall
be made to the Agent for the account of the Lender making such Competitive Bid
Loan, and the principal amount of Competitive Bid Loans shall be paid on the
last day of the Interest Period for such Competitive Bid Loan, (c) all payments
to be made by the Borrower for the account of each of the Lenders on account of
principal, interest and fees, shall be made without set-off or counterclaim, and
(d) the Agent will promptly (to the extent received by the Agent by 12:00 noon,
Charlotte, North Carolina time within the same Business Day, otherwise the next
Business Day if received after 12:00 noon) distribute payments received to the
Lenders.
SECTION 2.14 Deficiency Advances. No Lender shall be responsible for
any default of any other Lender in respect to such other Lender's obligation to
make any Loan hereunder nor shall the Commitment of any Lender hereunder be
increased as a result of such default of any other Lender. Without limiting the
generality of the foregoing, in the event any Lender (a "failing Lender") shall
fail to advance funds to the Borrower as herein provided, the Agent may in its
discretion, but shall not be obligated to, advance under the Note or Notes in
its favor as a Lender all or any portion of such amount (the "deficiency
advance") and shall thereafter be entitled to payments of principal of and
interest on such deficiency advance in the same manner and at the same interest
rate or rates to which such failing Lender would have been entitled had such
failing Lender made such Advance under its Note or Notes; provided that, upon
payment to the Agent from such failing Lender
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of the entire outstanding amount of such deficiency advance, together with
interest thereon, from the most recent date or dates interest was paid to the
Agent by the Borrower on each Loan comprising the deficiency advance at the
interest rate per annum for overnight borrowing by the Agent from the Federal
Reserve Bank, then such payment shall be credited against the Note or Notes of
the Agent in full payment of such deficiency advance and the Borrower shall be
deemed to have borrowed the amount of such deficiency advance from such failing
Lender as of the most recent date or dates, as the case may be, upon which any
payments of interest were made by the Borrower thereon. Acceptance by the
Borrower of a deficiency advance from the Agent shall in no way limit the rights
of the Borrower against a failing Lender.
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ARTICLE III
-----------
INTEREST ON SYNDICATED LOANS
----------------------------
SECTION 3.1 Applicable Interest Rates. The Borrower shall have the
option to elect to have any Syndicated Loan Segment bear interest at the Base
Rate or the LIBOR-Based Rate plus the applicable Syndicated Margin. For any
period of time and for any Segment with respect to which the Borrower does not
elect another interest rate, such Segment shall bear interest at the Base Rate.
The Borrower's right to elect a LIBOR-Based Rate shall be subject to the
following requirements: (a) each Syndicated Loan Segment shall be in the amount
of $5,000,000 or more and in an integral multiple of $1,000,000 and (b) each
LIBOR-Based Rate Segment shall have a maturity selected by the Borrower of one,
two or three months; provided, however, that no LIBOR-Based Rate Segment shall
have a maturity date later than the Termination Date.
SECTION 3.2 Procedure for Exercising Interest Rate Options. The
Borrower may elect to have a particular interest rate apply to a Segment of a
Syndicated Loan by notifying the Agent in writing (which may be by facsimile
transmission) not later than 10:00 a.m., Charlotte, North Carolina time, three
(3) Business Days prior to the effective date any LIBOR-Based Rate is to become
applicable or on the same day on which a requested Base Rate is to become
applicable. Any notice of interest rate election hereunder shall be irrevocable
and shall be in the form attached hereto as Exhibit D and shall set forth the
following: (a) the amount of the Segment to which the requested interest rate
will apply, (b) the date on which the selected interest rate will become
applicable, (c) whether the interest rate selected is the Base Rate or a LIBOR-
Based Rate, and (d) if the interest rate selected is a LIBOR-Based Rate, the
maturity selected for the Interest Period. On the second Business Day preceding
the Business Day that a requested LIBOR- Based Rate is to become applicable, the
Agent shall use its best efforts to notify the Borrower by telephone of the
Agent's estimate of the applicable LIBOR-Based Rate by 10:00 a.m., Charlotte,
North Carolina time, or as early on that day as may be practical in the
circumstances. The Agent shall not be required to provide an estimate of the
LIBOR-Based Rate on any day on which dealings in deposits in Dollars are not
transacted in the London interbank market. If the Borrower does not immediately
accept a LIBOR-Based Rate quoted by the Agent, the Agent may, in view of
changing market conditions, revise the quoted LIBOR-Based Rate at any time. No
LIBOR-Based Rate shall be effective until mutually agreed upon by the Borrower
and the Agent. If the Agent and the Borrower attempt to agree on a LIBOR-Based
Rate but fail so to agree, or if there is any uncertainty as to whether or not
the Agent and the Borrower have agreed upon a LIBOR-Based Rate, interest shall
accrue on the Segment for which a LIBOR-Based Rate has been selected at the then
applicable Base Rate.
SECTION 3.3 Base Rate. Each Segment subject to the Base Rate shall bear
interest from the date the Base Rate becomes applicable thereto until payment in
full, or until a LIBOR-Based Rate is selected by the Borrower and becomes
applicable thereto, on the
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unpaid principal balance of such Segment on an Actual/360 Basis. Any change in
the Base Rate shall take effect on the effective date of such change in the Base
Rate designated by the Agent, without notice to the Borrower and without any
further action by the Agent.
SECTION 3.4 Fixed Rate. Each LIBOR-Based Rate Segment shall bear
interest from the date the LIBOR-Based Rate becomes applicable thereto until the
end of the applicable Interest Period on the unpaid principal balance of such
LIBOR-Based Rate Segment at the LIBOR-Based Rate on an Actual/360 Basis plus the
applicable Syndicated Margin.
SECTION 3.5 Changes in Syndicated Margin. Any change in the rate of
interest payable with respect to LIBOR Loans because of a change in the
Syndicated Margin shall become effective as of the day of receipt by the Agent
of the financial statement furnished to the Agent pursuant to Section 7.3(1) and
(2) hereof and the Compliance Certificate required by Section 7.3(3) to
accompany such financial statement and the determination by the Agent, based
upon such Compliance Certificate, that as a result of a change in the ratio of
Indebtedness of the Borrower and its Consolidated Entities to Consolidated Cash
Flow there has been a change in the Syndicated Margin.
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ARTICLE IV
----------
TERMINATION OF LIBOR-BASED RATE AND YIELD PROTECTION
----------------------------------------------------
SECTION 4.1 Suspension of Loans.
(a) If at any time the Agent shall reasonably determine
(which determination, if reasonable, shall be final, conclusive and binding upon
all parties) that:
(i) by reason of any changes arising after the
Closing Date affecting the London interbank market or
affecting the position of any Lender or the Agent in such
markets, adequate and fair means do not exist for ascertaining
the LIBOR-Based Rate with respect to a LIBOR Loan or LIBOR
Market Loan; or
(ii) the continuation by any Lender of any LIBOR
Loans or LIBOR Market Loans or the funding thereof in the
London interbank market would be unlawful by reason of any
law, governmental rule, regulation, guidelines or order; or
(iii) the continuation by any Lender of any LIBOR
Loans or LIBOR Market Loans or the funding thereof in the
London interbank market would be impracticable as a result of
a contingency occurring after the date of this Agreement that
materially and adversely affects the London interbank market;
then, and in any such event, the Agent shall on such date give notice (by
telephone and confirmed in writing) to the Borrower of such determination. The
obligation of any Lender to make or maintain Fixed Rate Segments so affected or
to permit interest to be computed thereon at the LIBOR-Based Rate shall be
terminated, and interest shall thereafter be computed on the affected Segment or
Segments at the then applicable Base Rate.
(b) It is the intention of the parties that the Fixed Rates
shall accurately reflect the cost to the Lender of maintaining any Fixed Rate
Segment during any period in which interest accrues thereon at a Fixed Rate.
Accordingly:
(i) if by reason of any change after the date
hereof in any applicable law or governmental rule, regulation
or order (or any interpretation thereof and including the
introduction of any new law or governmental rule, regulation
or order), including any change in the LIBOR Reserve
Requirement, the cost to the Lender of maintaining any Fixed
Rate Segment or funding the same by means of a London
interbank market time deposit shall increase, the Fixed Rate
applicable to such Fixed Rate Segment shall be adjusted as
necessary to reflect such change in cost to the Lender,
effective as of the date on which such change in any
applicable law, governmental rule, regulation or order becomes
effective.
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(ii) If any Lender shall have determined that the
adoption after the date of this Agreement of any law, rule,
regulation or guideline regarding capital adequacy, or any
change in any of the foregoing or in the interpretation or
administration of any of the foregoing by any Governmental
Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any
Lender (or any lending office of any Lender) or such Lender's
holding company with any request or directive regarding
capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such
Lender's capital or on the capital of such Lender's holding
company, as a consequence of the Lender's obligations under
this Agreement or the Advances made by such Lender pursuant
hereto to a level below that which such Lender or any such
Lender's holding company could have achieved but for such
adoption, change or compliance (taking into consideration the
Lender's guidelines with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to
time the Borrower shall pay to the Lender such additional
amount or amounts as will compensate the Lender or the
Lender's holding company for any such reduction suffered.
SECTION 4.2 Compensation. The Borrower shall compensate any Lender for
all reasonable losses, expenses and liabilities (including any interest owed by
such Lender to lenders on funds borrowed by such Lender to make or carry any
Fixed Rate Segment and any loss sustained by the Lender in connection with the
re-employment of such funds), that such Lender may sustain: (a) if for any
reason (other than a default by such Lender) following agreement between the
Borrower and the Agent or the Borrower and such Lender, as the case may be, as
to the Fixed Rate applicable to a Fixed Rate Segment the Borrower fails to
accept such Fixed Rate Segment, (b) as a consequence of any unauthorized action
taken or default by the Borrower in the repayment of any Fixed Rate Segment when
required by the terms of this Agreement or (c) with respect to any loss of
income incurred by a Lender (as determined in a reasonable manner by such
Lender) associated with the payment of principal other than the last day of an
Interest Period with respect to any Fixed Rate Loan. A certificate as to the
amount of any additional amounts payable pursuant to Section 4.2 (setting forth
in reasonable detail the basis for requesting such amounts) submitted by such
Lender to the Borrower shall be conclusive, in the absence of manifest error.
The Borrower shall pay to such Lender the amount shown as due on any such
certificate delivered by such Lender within 30 days after the Borrower's receipt
of the same.
SECTION 4.3 Taxes. All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future excise, stamp
or franchise taxes or other taxes, whatsoever imposed by any taxing authority,
but excluding
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franchise taxes and taxes imposed on or measured by any Lender's net income or
receipts (such non-excluded items being called "Taxes"). In the event that any
withholding or deduction from any payment to be made by the Borrower hereunder
is required in respect of any Taxes pursuant to any applicable law, rule or
regulation, then the Borrower will
(a) pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(b) promptly forward to the Agent an official receipt or other
documentation satisfactory to the Agent evidencing such payment to such
authority; and
(c) pay to the Agent for the account of the Lender such
additional amount or amounts as is necessary to ensure that the net
amount actually received by each Lender will equal the full amount such
Lender would have received had no such withholding or deduction been
required.
Moreover, if any Taxes are directly asserted against the Agent or any Lender
with respect to any payment received by the Agent or such Lender hereunder, the
Agent or such Lender may pay such Taxes and the Borrower will promptly pay such
additional amounts (including any penalties, interest or expenses) as is
necessary in order that the net amount received by the Agent or such Lender
after the payment of such Taxes (including any Taxes on such additional amount)
shall equal the amount the Agent or such Lender would have received had no such
Taxes been asserted. Upon the request of the Borrower or the Agent, each Lender
and each participant that is organized under the laws of a jurisdiction other
than the United States shall, prior to the due date of any payments hereunder or
under the Notes, execute and deliver to the Borrower and the Agent, one or more
(as the Borrower or the Agent may reasonably request) United States Internal
Revenue Service Forms 4224 or Forms 1001 or such other forms or documents (or
successor forms or documents), appropriately completed, as may be applicable (if
any are) to establish the extent, if any, to which a payment to such Lender or
participant is exempt from withholding or deduction of Taxes.
If the Borrower fails to pay any Taxes when due to the appropriate
taxing authority or fails to remit to the Agent, for the account of the
respective Lender, the required amounts, receipts or other required documentary
evidence, the Borrower shall indemnify the Lenders for any incremental Taxes,
interest or penalties that may become payable by the Lender as a result of any
such failure. For purposes of this Section 4.3, a distribution hereunder by the
Agent or any Lender to or for the account of any Lenders shall be deemed a
payment by the Borrower.
If Taxes are incorrectly or illegally paid or assessed, and if any
Lender or the Agent contests the assessment of such Taxes, such Lender or the
Agent shall refund, to the extent of any refund made to such Lender or the
Agent, any amounts paid by the Borrower under this Section in respect of such
Taxes.
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Without prejudice to the survival of any other agreements of the
Borrower hereunder or any other Loan Document, the agreements of the Borrower
contained in this Section shall survive the payment in full of all its Credit
Obligations and the termination of all Commitments.
To the extent any Lender shall become liable for the payment of any
Taxes hereunder and shall seek reimbursement therefor pursuant to this Section
4.3, the Borrower shall be entitled, upon the giving of five Business Days
notice to the Agent and such Lender, (i) to replace such Lender with a
substitute lender, and (ii) in connection with such substitution, prepay in full
the outstanding Credit Obligation of the Lender requesting reimbursement without
penalty or payment other than under Section 4.2 hereof.
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ARTICLE V
---------
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrower and each Participating Subsidiary and Participating
Partnership jointly and severally represent and warrant to the Agent and the
Lenders as follows:
SECTION 5.1 Organization, Powers, Existence, etc. (a) The Borrower and
each Consolidated Entity is duly organized or formed, validly existing and in
good standing under the laws of the state in which it is incorporated or formed,
(b) the Borrower and each Consolidated Entity has the power and authority to own
its properties and assets and to carry on its business as now being conducted,
(c) the Borrower and each Consolidated Entity has the power to execute, deliver
and perform the Loan Documents to which it is a party, and (d) the Borrower and
each Consolidated Entity is duly qualified to do business in each state in which
it is required to be so qualified.
SECTION 5.2 Authorization of Borrowing, etc. The execution, delivery
and performance of the Loan Documents (a) have been duly authorized by all
requisite action and (b) will not violate any Governmental Requirement, the
certificate of incorporation, bylaws or partnership agreement of the Borrower or
any Consolidated Entity, or any indenture, agreement or other instrument to
which the Borrower or any Consolidated Entity is a party, or by which the
Borrower or any Consolidated Entity or any of their properties are bound, or be
in conflict with, result in a breach of or constitute (with due notice or lapse
of time or both) a default under, any such indenture, agreement or other
instrument, or result in the creation or imposition of any Lien upon any of the
properties or assets of the Borrower or any Consolidated Entity, except as
required by the terms of this Agreement.
SECTION 5.3 Liabilities. The Borrower has furnished to the Agent and
the Lenders a copy of the audited consolidated balance sheet of the Borrower and
the Consolidated Entities dated as of December 31, 1994 and a statement of
changes in shareholders' equity and the related statements of income and cash
flow as of the end of Fiscal Year 1994. Such financial statements were prepared
in conformity with GAAP consistently applied throughout the period involved, are
in accordance with the books and records of the Borrower and the Consolidated
Entities, are correct and complete and present fairly the financial condition of
the Borrower and the Consolidated Entities as of the date of such financial
statements, and, since the date of such financial statements, no material
adverse change in the financial condition, business or operations of the
Borrower or any of the Consolidated Entities has occurred. Neither the Borrower
nor any Consolidated Entity has any Liabilities, Guaranteed Obligations or other
obligations or liabilities, direct or contingent, in an aggregate amount in
excess of $300,000 other than (a) the Liabilities reflected in such balance
sheet and the notes thereto or (b) Liabilities incurred in the ordinary course
of business.
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SECTION 5.4 Taxes. The Borrower and each Consolidated Entity has filed
or caused to be filed all federal, state and local tax returns that are required
to be filed, and has paid all taxes as shown on said returns or on any
assessment received by the Borrower or any Consolidated Entity to the extent
that such taxes have become due.
SECTION 5.5 Litigation. There are no actions, suits or proceedings
pending or, to the best knowledge of the Borrower, threatened against or
affecting the Borrower, any Consolidated Entity or any Facility, by or before
any Governmental Authority that involve any of the transactions contemplated in
this Agreement or the possibility of any judgment or liability that may result
in a material adverse change in the operations or financial condition of the
Borrower and the Consolidated Entities, on a consolidated basis; and neither the
Borrower nor any Consolidated Entity is in default with respect to any material
Governmental Requirement.
SECTION 5.6 Agreements. Neither the Borrower nor any Consolidated
Entity is in default in the performance, observance or fulfillment of any of the
obligations contained in any agreement or instrument to which it is a party,
which default could have a material adverse effect upon the operations or
financial condition of the Borrower and the Consolidated Entities on a
consolidated basis.
SECTION 5.7 Use of Proceeds. Neither the Borrower nor any Participating
Subsidiary or Participating Partnership intends to use any part of the proceeds
of Advances or proceeds of drawings under Letters of Credit for the purpose of
purchasing or carrying any Margin Stock or retiring any debt incurred to
purchase or carry any Margin Stock or for any other purpose that is not
expressly authorized by this Agreement.
SECTION 5.8 ERISA Requirement. (i) The execution and delivery of the
Loan Documents will not involve any prohibited transaction within the meaning of
ERISA, (ii) the Borrower and each Consolidated Entity has fulfilled its
obligations under the minimum funding standards imposed by ERISA and each is in
compliance in all material respects with the applicable provisions of ERISA, and
(iii) no "Reportable Event," as defined in Section 4043(b) of Title IV of ERISA,
has occurred with respect to any plan maintained by the Borrower or any of its
Consolidated Entities.
SECTION 5.9 Subsidiaries. The Borrower has no direct or indirect equity
ownership in any person other than (a) Controlled Partnerships, Subsidiaries and
Consolidated Entities and (b) those ownership interests listed in Exhibit L.
None of the Subsidiaries or Controlled Partnerships has any direct or indirect
equity ownership in any other person except other Consolidated Entities except
as set forth in subparagraph (b) in the preceding sentence. The Borrower's
ownership interest in each Subsidiary and Controlled Partnership is free and
clear of all Liens, warrants, options, rights to purchase and other interests of
any person except for rights of first refusal that apply to certain limited
partnership interests whose value is not material in amount and rights of first
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refusal given to certain limited partners of HEALTHSOUTH Rehabilitation Center
of Charlotte Limited Partnership and HEALTHSOUTH Rehabilitation Center of San
Francisco Limited Partnership covering the Borrower's general partnership
interests therein. All capital stock of the Subsidiaries has been duly
authorized and validly issued and is fully paid and non-assessable. There have
been delivered and pledged to the Lender all certificates representing all
capital stock in all Subsidiaries. All now-existing Subsidiaries and Controlled
Partnerships are listed in Exhibit M hereto.
SECTION 5.10 Principal Place of Business. The principal place of
business and chief executive office of the Borrower is at its address shown in
Section 10.2 and will not be changed from such address unless, prior to such
change, the Borrower shall have notified the Agent of the proposed change, and
in no event will the Borrower's principal place of business or chief executive
office be located outside the State of Alabama.
SECTION 5.11 Environmental Laws. The Borrower and each Consolidated
Entity are in material compliance with all applicable federal, state and local
laws and regulations relating to air, water, soil and other environmental
quality and all material laws relating to the handling and disposal of hazardous
waste materials.
SECTION 5.12 Disclosure. No financial statement, document, certificate
or other written communication furnished to the Agent or the Lenders by or on
behalf of the Borrower or any Consolidated Entity or to the extent not a
Consolidated Entity any Participating Subsidiary or Participating Partnership in
connection with any Loan Document contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading. There is no fact known to the
Borrower that materially adversely affects the business or condition of the
Borrower or any Material Group that has not been disclosed herein or in such
financial statements.
SECTION 5.13 Licenses. All material certificates of need, licenses,
permits, accreditations and approvals required by all Governmental Authorities
necessary in order for each Facility to be operated for its intended purpose
have been obtained and are in full force and effect.
SECTION 5.14 Title to Properties. The Borrower has good and marketable
title to all its properties and assets reflected on the balance sheet referred
to in Section 5.3 except for those matters shown on such balance sheet and
except for such properties and assets as have been disposed of since the date of
said balance sheet as no longer used or useful in the conduct of its business or
as have been disposed of in the ordinary course of the business and except that
the property of HEALTHSOUTH Doctors' Hospital, Inc. is held subject to a right
of first refusal benefitting the Dr. John T. Macdonald Foundation. All such
properties and assets are free and clear of all Liens, except as otherwise
permitted or required by the provisions of the Loan Documents.
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SECTION 5.15 Status of Loans. The Credit Obligations constitute Senior
Indebtedness under the indentures pursuant to which the Subordinated
Indebtedness has been issued and are senior in right of payment and security to
all other Indebtedness of Borrower and its Consolidated Entities other than (x)
Indebtedness described in Section 7.8(5)(B)(D), (E) and (H) as to which
Indebtedness, other than that which is secured which may rank senior in right of
security with respect to the applicable security therefor, the Credit
Obligations are pari passu in right of payment and (y) the Surgical Health
Subordinated Indebtedness until such time as Surgical Health shall deliver its
Guaranty. The Pledge Agreements and the delivery of the Collateral to the Agent
will create for the benefit of the Lenders a valid first priority perfected
security interest in the Collateral.
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ARTICLE VI
GENERAL CONDITIONS OF LENDING
-----------------------------
Each Lender's obligation to make, continue or convert each Advance or
issue additional Letters of Credit hereunder is subject to the following
conditions precedent:
SECTION 6.1 Representations and Warranties. On the date of each Advance
hereunder and on the date the Borrower presents to the Agent a Request for
Advance or Interest Rate Election form or Competitive Bid Quote Request or
Application, the representations and warranties set forth in this Agreement and
in all other Loan Documents shall be true and correct on and as of such date
with the same effect as though such representations and warranties had been made
on the date of the Advance or on the date the Borrower presents to the Agent a
Request for Advance or Interest Rate Election form or Competitive Bid Quote
Request or Application, as the case may be. Each such warranty and
representation shall be deemed to be continuing in effect so long as this
Agreement remains in effect. The presentation by the Borrower of each Request
for Advance or Interest Rate Election, Competitive Bid Quote Request or
Application shall constitute a representation and warranty by the Borrower to
the Lender that no material adverse change in the financial condition of the
Borrower and the Consolidated Entities, on a consolidated basis, as reflected in
the financial statements delivered to the Agent and Lenders pursuant to Section
5.3 has occurred since the date of such financial statements.
SECTION 6.2 No Default. On the date of each Advance and issuance of a
Letter of Credit hereunder, the Borrower and all Material Groups shall be in
compliance with all the terms and conditions set forth in this Agreement on its
or their part to be observed or performed, and no Event of Default, or event
that upon notice or lapse of time or both would constitute an Event of Default,
shall have occurred and be continuing.
SECTION 6.3 Supporting Documents.
(a) The Agent, on behalf of the Lenders, shall have also
received on the date of execution of this Agreement (i) a copy of resolutions of
the Board of Directors of the Borrower, certified as in full force and effect on
such date by the Secretary of the Borrower, authorizing the execution, delivery
and performance of the Loan Documents and authorizing designated officers of the
Borrower to execute and deliver the Loan Documents on behalf of the Borrower and
to execute and deliver to the Agent Request for Advance or Interest Rate
Election or Competitive Bid Quote Request forms and Applications; (ii) a
certificate of the Secretary of the Borrower, dated such date, certifying that
(A) an attached copy of the Certificate of Incorporation and bylaws of the
Borrower is true and correct as of such date, (B) that the Certificate of
Incorporation and Bylaws of the Borrower have not been amended since the date of
the last amendment attached thereto and (C) the incumbency and specimen
signatures of the designated officers referred to in clause (i) above; (iii) an
Opinion of Counsel to the
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Borrower in the form required by the Agent; (iv) duly executed Pledge Agreements
by the Borrower, the Participating Subsidiaries and the Participating
Partnerships to the extent applicable, together with all stock powers, stock
certificates and financing statements related thereto; (v) evidence satisfactory
to the Agent of the receipt of all necessary approvals for the acquisition of
NovaCare Rehabilitation Hospital Division (provided, however, that so long as
Borrower or one of its Consolidated Entities shall have entered into a binding
agreement to manage a Facility acquired from NovaCare Rehabilitation Hospital
Division, Borrower shall have a period of up to 180 days to obtain all
governmental approvals for transfer of such Facility), (vi) such additional
supporting documents as the Agent may reasonably request; and (vii) all fees
payable to the Agent and the Lenders.
(b) The Agent, on behalf of the Lenders, shall also have
received on or before the date on which a Subsidiary becomes a Participating
Subsidiary (on or before the Closing Date in the case of each Subsidiary listed
in Exhibit G hereto) (i) a copy of resolutions of the Board of Directors and
shareholders of such Subsidiary (if necessary) certified as in full force and
effect on the date thereof by the Secretary of such Subsidiary, authorizing such
Subsidiary's execution, delivery and performance of, and the assumption of
liability under, the Loan Documents and all other agreements and instruments
that this Agreement contemplates will be executed, delivered and performed by
such Subsidiary; (ii) a copy of the Certificate of Incorporation or Articles of
Incorporation, as the case may be, and Bylaws of such Subsidiary, certified as
true and correct on and as of the date on which Loan Documents are executed and
delivered by the Borrower and such Subsidiary; (iii) an Opinion of Counsel to
such Subsidiary in a form acceptable to the Agent as to the execution and
delivery by such Subsidiary of the Loan Documents and other matters related
thereto; (iv) fully executed copies of all Loan Documents that this Agreement
contemplates will be executed or delivered (or both) by such Subsidiary
(including a fully executed Subsidiary Guaranty Agreement); and (v) such
additional supporting documents as the Agent or its counsel may reasonably
request.
(c) The Agent, on behalf of the Lenders, shall also have
received on or before the date on which a Controlled Partnership becomes a
Participating Partnership (on or before the Closing Date in the case of each
Controlled Partnership listed in Exhibit G hereto) (i) a copy of the partnership
agreement under which such Controlled Partnership was formed, certified as true
and correct on and as of the date of which Loan Documents are executed and
delivered by the Borrower and such Controlled Partnership; (ii) an Opinion of
Counsel to such Controlled Partnership in a form acceptable to the Agent as to
the execution and delivery by such Controlled Partnership of the Loan Documents
and other matters related thereto; (iii) fully executed copies of all Loan
Documents that this Agreement contemplates will be executed or delivered (or
both) by such Controlled Partnership (including a fully executed Partnership
Guaranty Agreement); and (iv) such additional supporting documents as the Agent
or its counsel may reasonably request.
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(d) The Agent, on behalf of the Lenders, shall also have received on or
prior to the date of the initial Advance under this Agreement, (i) evidence
satisfactory to the Agent of the Acquisition by the Borrower or its
Participating Subsidiaries, or both, of the NovaCare Rehabilitation Hospital
Division, (ii) stock certificates representing all of the issued and outstanding
capital stock of each Subsidiary organized to acquire any portion of the assets
of NovaCare Rehabilitation Hospital Division, (iii) a Guaranty of each such
Subsidiary, and (iv) such other documentation, including but not limited to,
opinions, resolutions and certificates, as the Agent shall request.
SECTION 6.4 No Adverse Change. A further condition to both the
execution of this Agreement and any further Advance hereunder is that there has
been no material adverse change in the condition, business or prospects of the
Borrower or any of the Consolidated Entities since December 31, 1994, the
absence of an order or injunction restraining either the acquisition of NovaCare
Rehabilitation Hospital Division or Surgical Health Corporation and the absence
of any pending or threatened litigation which would have a materially adverse
effect on the ability of the Borrower and the Consolidated Entities to perform
its obligations under this Agreement or any other Loan Document.
SECTION 6.5 Effective Date. Neither the Agent nor any Lender shall be
obligated to make any Advance under this Agreement until the Effective Date nor
shall this Agreement be deemed effective until the Effective Date. Furthermore,
all obligations of the Agent and the Lenders under this Agreement shall
terminate on June 1, 1995 if either (i) the Agent has not received those items
described in Section 6.3 or (ii) the Effective Date has not occurred. The First
Restated Agreement shall continue in full force and effect until the Effective
Date.
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ARTICLE VII
GENERAL COVENANTS OF THE BORROWER
---------------------------------
From the date on which this Agreement is delivered until payment in
full of the Credit Obligations and the termination in writing of the Lenders'
obligation to extend credit under this Agreement, the Borrower and each
Participating Subsidiary and Participating Partnership, jointly and severally,
covenant and agree that:
SECTION 7.1 Existence, Properties, etc. The Borrower shall, and shall
cause each Consolidated Entity to, (a) do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
and franchises and comply with all Governmental Requirements applicable to it
and (b) at all times maintain, preserve and protect all franchises and trade
names and preserve all of its property used or useful in the conduct of its
business and keep the same in good repair, working order and condition, and from
time to time make, or cause to be made, all needful and proper repairs and
improvements thereto (normal wear and tear excepted).
SECTION 7.2 Payment of Indebtedness, Taxes, etc. The Borrower shall,
and shall cause each Consolidated Entity to, (a) pay its indebtedness and
obligations in accordance with normal terms and (b) pay and discharge or cause
to be paid and discharged promptly all taxes, assessments and other charges or
levies of Governmental Authorities imposed upon it or upon its income and
profits or upon any of its properties before the same shall become in default;
provided, however, that the Borrower and the Consolidated Entities shall not be
required to pay and discharge or cause to be paid and discharged any such
indebtedness, obligation, tax, assessment, charge, levy or claim so long as the
validity thereof shall be duly pursued and contested in good faith by
appropriate proceedings and the Borrower and the Consolidated Entities shall
maintain adequate reserves for such taxes, indebtedness, obligations,
assessments, charges, levies or claims during such proceedings.
SECTION 7.3 Financial Statements, Reports, etc. The Borrower shall
deliver or cause to be delivered to the Agent and each Lender:
(1) Not later than 50 days after the end of each calendar
quarter, a balance sheet and a statement of revenues and expenses of
the Borrower and its Consolidated Entities on a consolidated and on a
consolidating basis (provided Borrower shall report the results of
operations for each specialty medical center on a separate basis and
the results of operations for each of the following business segments
on a separate aggregate basis: outpatient rehabilitation centers,
inpatient rehabilitation hospitals, outpatient surgery centers and
others (to include but not limited to diagnostic centers)) and a
statement of cash flow of the Borrower and its Consolidated Entities on
a consolidated basis for such
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calendar quarter and for the period beginning on the first day of the
fiscal year and ending on the last day of such calendar quarter (in
sufficient detail to indicate the Borrower's and each Consolidated
Entity's compliance with the financial covenants set forth in this
Article VII), together with statements in comparative form for the
corresponding periods in the preceding fiscal year together with
calculations supporting the same store performance as summarized in the
Borrower's Form 10-Q for the corresponding period, and certified by the
president or chief financial officer of the Borrower.
(2) Not later than 100 days after the end of each fiscal year,
financial statements (including a balance sheet, a statement of
revenues and expenses, a statement of changes in shareholders' equity
and a statement of cash flow) of the Borrower and its Consolidated
Entities on a consolidated and on a consolidating basis (provided
Borrower shall report the results of operations for each specialty
medical center on a separate basis and the results of operations for
each of the following business segments on a separate aggregate basis:
outpatient rehabilitation centers, inpatient rehabilitation hospitals,
outpatient surgery centers and others (to include but not limited to
diagnostic centers)) for such fiscal year (in sufficient detail to
indicate the Borrower's and each Consolidated Entity's compliance with
the financial covenants set forth in this Article VII), together with
statements in comparative form for the preceding fiscal year together
with calculations supporting the same store performance as summarized
in the Borrower's Form 10-K for the corresponding period, and
accompanied by an opinion of certified public accountants acceptable to
the Agent, which opinion shall state in effect that such financial
statements (A) were audited using generally accepted auditing
standards, (B) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis, and (C) present
fairly the financial condition and results of operations of the
Borrower and its Consolidated Entities for the periods covered.
(3) Together with the financial statements required by
paragraphs (1) and (2) above a compliance certificate duly executed by
the chief executive officer or the president or chief financial officer
of the Borrower in the form of Exhibit I attached hereto ("Compliance
Certificate").
(4) Promptly upon receipt thereof, copies of all reports,
management letters and other documents submitted to the Borrower or any
Consolidated Entity by independent accountants in connection with any
annual or interim audit of the books of the Borrower or any
Consolidated Entity made by such accountants.
(5) Contemporaneously with the distribution thereof to the
Borrower's or any Consolidated Entity's stockholders or partners or the
filing thereof with the Securities and Exchange Commission, as the case
may be, copies of all
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statements, reports, notices and filings distributed by the Borrower or
any Consolidated Entity to its stockholders or partners or filed with
the Securities and Exchange Commission (including reports on SEC Forms
10-K, 10-Q and 8-K).
(6) Promptly after the Borrower knows or has reason to know of
the occurrence of any "reportable event" under Section 4043 of ERISA
applicable to the Borrower or any Consolidated Entity, a certificate of
the president or chief financial officer of the Borrower setting forth
the details as to such "reportable event" and the action that the
Borrower or the Consolidated Entity has taken or will take with respect
thereto, and promptly after the filing or receiving thereof, copies of
all reports and notices that the Borrower and each Consolidated Entity
files under ERISA with the Internal Revenue Service or the Pension
Benefit Guaranty Corporation or the United States Department of Labor.
(7) Promptly after the Borrower or any of its Consolidated
Entities becomes aware of the commencement thereof, notice of any
investigation, action, suit or proceeding before any Governmental
Authority involving the condemnation or taking under the power of
eminent domain of any of its property or the revocation or suspension
of any permit, license, certificate of need or other Governmental
Requirement applicable to any Facility.
(8) Within 10 days of the receipt by the Borrower or any of
its Consolidated Entities, copies of all material deficiency notices,
compliance orders or adverse reports issued by any Governmental
Authority or accreditation commission having jurisdiction over
licensing, accreditation or operation of a Facility or by any
Governmental Authority or private insurance company pursuant to a
provider agreement, which, if not promptly complied with or cured,
could result in the suspension or forfeiture of any license,
certification or accreditation necessary in order for the Facility to
carry on its business as then conducted or the termination of any
material insurance or reimbursement program available to the Facility.
(9) Such other information regarding any Facility or the
financial condition or operations of the Borrower or its Consolidated
Entities as the Agent shall reasonably request from time to time or at
any time.
SECTION 7.4 Litigation Notice. The Borrower shall, promptly after the
same shall have become known to any officer of the Borrower, notify the Agent in
writing of any action, suit or proceeding at law or in equity or by or before
any Governmental Authority that, if adversely determined, might impair the
ability of the Borrower or any Material Group to perform its obligations under
this Agreement or any other Loan Document or might materially and adversely
affect the business or condition, financial or otherwise, of the Borrower or any
Material Group.
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SECTION 7.5 Default Notice. The Borrower shall promptly give notice in
writing to the Agent of the occurrence of any Default or Event of Default.
SECTION 7.6 Further Assurances. The Borrower shall at its cost and
expense, upon the request of the Agent, duly execute and deliver, or cause to be
duly executed and delivered, to the Agent such further instruments and do and
cause to be done such further acts as may be reasonably necessary or proper in
the opinion of the Agent or its counsel to carry out more effectively the
provisions and purposes of the Loan Documents.
SECTION 7.7 Insurance. The Borrower and each Consolidated Entity shall
at all times maintain in force, and pay all premiums and costs related to,
insurance coverages comparable to the coverages reviewed by the Agent prior to
the Closing Date a summary of which coverage is set forth in Exhibit J hereto
and any other coverages required under applicable Governmental Requirements. The
Borrower shall deliver to the Agent annually on or before the anniversary date
of this Agreement, and at such other time or times as the Agent may request (but
not more often than monthly), a certificate of the president or chief financial
officer of the Borrower setting out in such detail as the Agent may reasonably
require a description of all insurance coverages maintained by the Borrower and
each Consolidated Entity. The Agent shall have no obligation to give the
Borrower or any Consolidated Entity notice of any notification received by the
Agent with respect to any insurance policies or take any steps to protect the
Borrower's or any Consolidated Entity's interests under such policies.
SECTION 7.8 Covenants Regarding Financial Condition.
(a) The Borrower covenants and agrees that:
(1) Minimum Net Worth. Consolidated Net Worth shall
not be less than $416,000,000 plus (A) 75% of Consolidated Net
Income (if positive and including for purposes of this Section
7.8(a)(1) only any extraordinary gain), on an ongoing basis
for each fiscal quarter beginning with the fiscal quarter
ending March 27, 31, 1995, plus (B) the aggregate amount of
all increases, if any, in its capital accounts resulting from
the issuance of Capital Stock or conversion of debt into
Capital Stock or other securities properly classified as
equity in accordance with generally accepted accounting
principles, or from the sale or other disposition of treasury
shares, from the date of this Agreement through the date of
determination plus (c), without duplication, any addition to
Consolidated Stockholders' Equity resulting from an
Acquisition after the Closing Date which shall be accounted
for on a pooling-of-interest basis.
(2) Fixed Charge Coverage Ratio. The Consolidated
Fixed Charge Coverage Ratio shall not at any time be less than
1.10 to 1.00.
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(3) Senior Indebtedness to Consolidated Total
Capital. The ratio of Senior Indebtedness to Consolidated
Total Capital shall be at all times prior to January 1, 1996
less than .55 to 1.00, from January 1, 1996 through December
31, 1996 less than .50 to 1.00 and at all times on and after
January 1, 1997 less than .45 to 1.00.
(4) Indebtedness to Consolidated Cash Flow. The ratio
of Indebtedness of the Borrower and its Consolidated Entities
to Consolidated Cash Flow shall at all times during the
periods set forth below be less than the ratio set forth
opposite such period:
Ratio of
------------------------------
Consolidated
Period Indebtedness to Cash Flow
------ ------------ ------------
Closing Date through 4.50 1.00
December 31, 1995
January 1, 1996 through 4.00 1.00
December 31, 1996
January 1, 1997 and 3.50 1.00
Thereafter
(5) Indebtedness. The Borrower and Consolidated
Entities on a consolidated basis will not incur, or otherwise
become liable with respect to, any Indebtedness other than (A)
the Credit Obligations; (B) Indebtedness described in Exhibit
K which Indebtedness shall not be modified or amended; (C) the
Senior Subordinated Notes and the Convertible Subordinated
Debentures; (D) up to $50,000,000 of Indebtedness, including
Indebtedness incurred to purchase property, plant or
equipment; (E) Guaranteed Obligations permitted under Section
7.8(a)(6); (F) Subordinated Indebtedness of the Borrower, the
proceeds of which are used to permanently reduce the principal
portion of the Senior Subordinated Notes or the Convertible
Subordinated Debentures so long as such Subordinated
Indebtedness is (i) unsecured, (ii) bears interest at a rate
of 15% or less per annum, (iii) contains covenants,
restrictions, terms of subordination and redemption provisions
no less favorable to the Lenders than those contained in
Indentures pursuant to which the Senior Subordinated Notes or
Convertible Subordinated Debentures, as the case may be, were
issued, as such Indentures exist on the Closing Date, (iv)
prohibits payment of principal whether by its terms or by
prepayment prior to the earlier of 100 days next following the
Termination Date or November 1, 2000, and (v) does not result
in an increase in the amount of outstanding Indebtedness, (G)
upon the acquisition of Surgical Health Corporation, the
Surgical Health Subordinated Indebtedness and (H) the
Headquarters Obligations.
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(6) Guarantees. Borrower and the Consolidated
Entities on a consolidated basis will not incur any Guaranteed
Obligations (whether by directly guaranteeing obligations of
another person or by agreement to purchase the indebtedness of
any other person, or entering into an agreement for the
furnishing of funds to any other person through the purchase
of goods, supplies or services or by way of stock purchase,
contribution, advance or loan for the purpose of paying or
discharging the indebtedness of any other person or
otherwise), in an aggregate amount in excess of $50,000,000,
except for (A) the endorsement of negotiable instruments in
the ordinary course of business for collection; (B)
obligations arising by reason of the Borrower's status as a
general partner of a Controlled Partnership; (C) obligations
to advance funds to Subsidiaries and Controlled Partnerships,
but only so long as the note or notes or accounts receivable
evidencing the advance of such funds is assigned to the Agent
as security for the Credit Obligations; (D) the guarantees
arising under the Guaranty Agreements; (E) the guarantee of up
to $22,000,000 of Indebtedness of Vanderbilt, (F) guarantees
of Indebtedness incurred to pay the principal amount of the
Credit Obligations, provided that, concurrently with the
incurrence of such Guaranteed Obligation, the Borrower and the
Agent agree in writing to reduce the credit available to the
Borrower under this Agreement by an amount equal to the amount
of such Guaranteed Obligations and the Borrower pays any fee
required to be paid in connection with such reduction and (G)
guarantees of the Headquarters Obligations.
(7) Investments and Loans. Borrower will not and will
not permit any Consolidated Entity, directly or indirectly, to
purchase or otherwise acquire any stock, security, obligation
or evidence of indebtedness of, make any capital contribution
to, own any equity interest in, or make any loan or advance
to, any other person; provided, however, that the Borrower and
such Consolidated Entities may (A) continue to hold all stock
of and own partnership interests in the persons that
constitute Consolidated Entities on the Closing Date; (B)
acquire stock or partnership interests in, and assets of, any
new Consolidated Entity acquired at a Cost of Acquisition of
up to $50,000,000; (C) make Permitted Investments; (D) make
investments in an aggregate amount during the term of this
Agreement not exceeding $50,000,000 in corporations,
partnerships or joint ventures who do not constitute
Consolidated Entities, (E) subject to continuing compliance
with all of the other covenants and conditions contained in
this Agreement, make any Acquisition of a person who shall
become a Consolidated Entity the primary form of consideration
of which is the Common Stock of Borrower with the Cost of
Acquisition not to exceed $150,000,000, and such acquisition
to be accounted for as a pooling of interests, (F) acquire
Surgical Health Corporation for a
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Cost of Acquisition of approximately $240,000,000 and (G)
acquire Surgical Care Affiliates, Inc. for a Cost of
Acquisition of approximately $1,400,000,000 provided (i) such
acquisition is accounted for as a pooling of interests, (ii)
there shall be delivered to the Agent all of the outstanding
capital stock of Surgical Care Affiliates, Inc., and (iii)
Surgical Care Affiliates, Inc. or its successor shall become a
Participating Subsidiary and shall have furnished the Agent a
Guaranty Agreement pursuant to Section 2.5(a).
(8) Disposition of Assets. Borrower and the
Consolidated Entities on a consolidated basis will not without
the consent of the Required Lenders (which consent shall not
be unreasonably withheld), sell, lease, transfer or otherwise
dispose of in excess of 10% of their total properties and
assets over the term of this Agreement.
(9) Consolidation or Merger. Borrower and its
Consolidated Entities may merge or consolidate with another
person only if (i) in the case of a merger or consolidation of
the Borrower, the Borrower is the continuing or surviving
entity, (ii) in the case of a merger or consolidation
involving a Consolidated Entity, the continuing or surviving
entity is majority-owned by the Borrower (with such majority
ownership constituting a controlling interest), and (iii)
before and after giving effect to the proposed merger or
consolidation, no Default or Event of Default shall exist
under this Agreement; provided that in the case of any
consolidation or merger with a person which (x) is not a
Consolidated Entity either before or after giving effect to
such merger or consolidation and (y) the total assets of such
person exceed $50,000,000, the Required Lenders shall have
consented thereto.
(10) Liens. Borrower will not, and will not permit
any Consolidated Entity to, incur, create, assume or permit to
exist any Lien upon any of its accounts receivable, contract
rights, chattel paper, inventory, equipment, instruments,
general intangibles or other personal or real property of any
character, whether now owned or hereafter acquired, other than
(i) Liens that constitute Permitted Encumbrances, (ii) Liens
existing as of the date hereof and described on Exhibit N
hereof and (iii) Liens securing Indebtedness incurred under
Section 7.8(a)(5)(D) so long as the Lien extends only to the
asset acquired with such Indebtedness.
(11) Dividends and Distributions. Borrower will not
permit any Consolidated Entity to be or become subject to any
restrictions on the ability of such Consolidated Entity to pay
dividends or to make partnership distributions.
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(12) Acquisitions. Prior to entering into any
agreement to acquire any person or Facility the estimated Cost
of Acquisition of which exceeds $50,000,000, the Borrower
shall provide to the Agent evidence satisfactory to the Agent,
(i) that the person or Facility to be acquired is in the same
line of business presently engaged in by the Borrower or its
Consolidated Entities, (ii) that the person or Facility to be
acquired does not oppose the Acquisition, and (iii) if the
Cost of Acquisition exceeds $50,000,000 (other than an
Acquisition under Section 7.8(a)(7)(E)), the Required Lenders
shall have consented thereto.
(13) Restricted Payments. Borrower will not make
Restricted Payments except Borrower may (i) redeem the
Surgical Subordinated Indebtedness, (ii) repay up to
$10,000,000 of Subordinated Indebtedness in any Fiscal Year,
and (iii) make other Restricted Payments in any Fiscal Year so
long as Borrower shall deliver to the Agent prior to making
any other such Restricted Payment a Compliance Certificate
demonstrating that on a pro forma basis after giving effect to
such payment no Default or Event of Default exists.
(b) Except as otherwise expressly provided in this
Section 7.8, (i) the Borrower shall also cause and require each of its
Consolidated Entities to observe and perform each of the covenants and
agreements of this section to be observed and performed by the
Borrower, whether or not a specific reference is made to the
Consolidated Entities in each such covenant (other than the financial
covenants set forth in paragraphs (1) through (4) of subsection (a)
above, which apply to the Borrower and the Consolidated Entities on a
consolidated basis), and (ii) all computations required in connection
with such financial covenants and the limitations set forth in
paragraphs (5) through (11) of subsection (a) above shall be made for
the Borrower and its Consolidated Entities on a combined or
consolidated basis, in accordance with generally accepted accounting
principles, after elimination of intercompany items.
SECTION 7.9 Continuation of Current Business. Neither the Borrower nor
any Consolidated Entity will (i) engage in any business other than the business
now being conducted by it and other businesses directly related to providing
rehabilitation services (including outpatient surgery, diagnostic services and
management of physician practices) or orthopedic surgery related acute care
similar in operation (but not in scope) to the HEALTHSOUTH Medical Center
Facility or (ii) acquire or attempt to acquire any person who is opposed to such
acquisition.
SECTION 7.10 Management Contracts. Neither the Borrower nor any
Consolidated Entity will enter into any agreement whereby the management,
supervision or control of its business or any Facility shall be delegated to or
placed in any persons other than its governing body and officers, the Borrower
or a Consolidated Entity,
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except that (i) management of the Facility owned by Vanderbilt Stallworth
Rehabilitation Hospital, L.P. is vested in part in a Governance Committee and in
part in a Subsidiary of the Borrower pursuant to the applicable limited
partnership agreement and a management agreement and (ii) the Facility known as
Nashville REHAB HOSPITAL located in Nashville, Tennessee may be managed by an
independent body until such time as such Facility is sold.
SECTION 7.11 Cooperation; Inspection of Properties. The Borrower shall,
and shall cause the Consolidated Entities to, permit the Lenders and their
representatives to inspect the Borrower's and the Consolidated Entities'
properties and assets, and to inspect, review and audit the Borrower's and the
Consolidated Entities' books and records from time to time and at any time.
SECTION 7.12 Use of Proceeds. The Borrower shall use the proceeds of
Advances exclusively to repay short-term Indebtedness to NationsBank, to
purchase the equity and assume the net working capital obligation of NovaCare
Rehabilitation Hospital Division for a total Cost of Acquisition not to exceed
$235,000,000, to refinance the 11.5% Senior Subordinated Notes due 2004 of
Surgical Health Corporation, to provide funding for the acquisition and
development of Facilities and to provide working capital to the Borrower, the
Participating Subsidiaries and the Participating Partnerships.
SECTION 7.13 Limit on Investment in HEALTHSOUTH of Birmingham, Inc. The
Borrower will not cause or permit its aggregate direct and indirect investment,
whether by stock purchase, capital contribution, advance, loan, guarantee or
otherwise, in HEALTHSOUTH of Birmingham, Inc. to exceed at any time $500,000.
SECTION 7.14 Additional Consolidated Entities. On the last day of each
fiscal quarter of the Borrower (or such earlier time as the Agent may request)
the Borrower will cause each Consolidated Entity that is hereafter acquired or
created to become a Participating Subsidiary or Participating Partnership by
execution of a Guaranty Agreement and all other documents necessary to cause it
to become jointly and severally liable for the Credit Obligations (subject to
the limitations provided in the Guaranty Agreement) and the Borrower or the
Participating Subsidiary or the Participating Partnership, if applicable, shall
execute a Pledge Agreement as more particularly described in Section 2.6 herein
and shall deliver or cause to be delivered all financing statements, stock
certificates and duly executed stock powers necessary to perfect the Agent's
security interest granted under such Pledge Agreement.
SECTION 7.15 ERISA. With respect to all employee pension benefit plans
maintained by the Borrower or any Subsidiary, the Borrower shall not:
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(i) terminate any of such employee pension benefit plans so as to
incur any liability to the Pension Benefit Guaranty Corporation
established pursuant to ERISA;
(ii) allow or suffer to exist any prohibited transaction involving
any of such employee pension benefit plans or any trust created
thereunder which would subject the Borrower or a Subsidiary to a tax or
penalty or other liability on prohibited transactions imposed under
Internal Revenue Code Section 4975 or ERISA;
(iii) fail to pay to any such employee pension benefit plan any
contribution which it is obligated to pay under the terms of such plan;
(iv) allow or suffer to exist any accumulated funding deficiency,
whether or not waived, with respect to any such employee pension
benefit plan;
(v) allow or suffer to exist any occurrence of a reportable event
or any other event or condition, which presents a material risk of
termination by the Pension Benefit Guaranty Corporation of any such
employee pension benefit plan that is a Single Employer Plan, which
termination could result in any liability to the Pension Benefit
Guaranty Corporation; or
(vi) incur any withdrawal liability with respect to any
Multi-employer Plan.
SECTION 7.16 Priority. The Borrower and its Subsidiaries will at all
times (i) cause the Agent to have a duly perfected first priority security
interest in the Collateral and (ii) cause the Credit Obligations to be senior in
right of payment to all other Indebtedness of the Borrower, and its Consolidated
Entities, except as otherwise described in Section 5.15 hereof.
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ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
------------------------------
SECTION 8.1 Events of Default. The following shall constitute Events of
Default under this Agreement:
(a) the Borrower or any Participating Subsidiary or any
Participating Partnership shall fail to pay when due any principal payable under
the terms of any Note or any Reimbursement Obligation or (ii) three Business
Days of the date when due any interest or fees payable under the terms of any
Note or any amount payable under this Agreement, any Guaranty Agreement or any
other of the other Credit Obligations or any other amount owed to the Agent or
Lenders under or in connection with the Loan Documents; or
(b) The Borrower or any Material Group shall default in the
performance or observance of any other provision of this Agreement (other than
the provisions of Article VII hereof), except as covered by clause (a) above,
and shall not cure such default within thirty days after the first to occur of
(i) the date the Agent or Lenders gives written or telephonic notice of the
default to the Borrower or (ii) the date the Borrower otherwise has notice
thereof; or
(c) the Borrower or any Participating Subsidiary or any
Participating Partnership or any Material Group shall default in the observance
or performance of any provision in Article VII hereof; or
(d) the Agent shall determine that any statement,
certification, representation or warranty contained herein, or in any of the
other Loan Documents or in any report, financial statement, certificate or other
instrument delivered to the Agent or any Lender by or on behalf of the Borrower
or any Participating Subsidiary or any Participating Partnership was misleading
or untrue in any material respect at the time it was made; or
(e) default shall be made (i) in the payment of any
Indebtedness (other than the Credit Obligations) of the Borrower or any
Consolidated Entity when due or (ii) in the performance, observance or
fulfillment of any term or covenant contained in any agreement or instrument
under or pursuant to which any such Indebtedness may have been issued, created,
assumed, guaranteed or secured by Borrower or any Consolidated Entity, if the
effect of such default is to accelerate the maturity of such Indebtedness or to
permit the holder thereof to cause such Indebtedness to become due prior to its
stated maturity, and such default shall not be cured within 10 days after the
occurrence of such default, and the amount of the Indebtedness involved exceeds
$3,000,000; or
(f) the Borrower or any Material Group shall fail to pay its
or their debts generally as they come due, or a receiver, trustee, liquidator or
other custodian shall be appointed for the Borrower or any Material Group or for
any of the property of the Borrower or any Material Group or a petition in
bankruptcy, or
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under any insolvency law, shall be filed by or against the Borrower or any
Material Group or the Borrower or any Material Group shall apply for the benefit
of, or take advantage of, any law for relief of debtors, or enter into an
arrangement or composition with, or make an assignment for the benefit of,
creditors; or
(g) final judgment for the payment of money in excess of any
aggregate of $50,000 shall be rendered against the Borrower or any Participating
Subsidiary or any Participating Partnership or any Material Group, and the same
shall remain undischarged for a period of 30 days during which execution shall
not be effectively stayed; or
(h) an event of default, as therein defined, shall occur under
any other Loan Document; or
(i) if any of the Guaranty Agreements, Notes, Pledge
Agreements or LC Account Agreement shall be deemed unenforceable by a court of
competent jurisdiction or shall no longer be effective; or
(j) if any person or group of persons acting together who are
not as at the Closing Date owners of one percent (1%) or more of the Capital
Stock of the Borrower having voting rights shall own directly or indirectly
fifteen percent (15%) or more of the Capital Stock of the Borrower having voting
rights; or
(k) if (i) the Borrower or any Consolidated Entity shall
engage in any prohibited transaction (as described in Section 7.15(ii) hereof),
which is not subject to a statutory or administrative exemption, involving any
employee pension benefit plan of the Borrower or any Consolidated Entity, (ii)
any accumulated funding deficiency (as referred to in Section 7.15(iv) hereof),
whether or not waived, shall exist with respect to any Single Employer Plan,
(iii) a reportable event (as referred to in Section 7.15(v) hereof) (other than
a reportable event for which the statutory notice requirement to the Pension
Benefit Guaranty Corporation has been waived by regulation) shall occur with
respect to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed to administer or to terminate, any Single Employer
Plan, which reportable event or institution or proceedings is, in the reasonable
opinion of the Required Lenders, likely to result in the termination of such
Single Employer Plan for purposes of Title IV of ERISA, and in the case of such
a reportable event, the continuance of such reportable event shall be unremedied
for sixty (60) days after notice of such reportable event pursuant to Section
4043(a), (c) or (d) of ERISA is given, as the case may be, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, and such
termination results in a material liability of the Borrower or any Consolidated
Entity to such Single Employer Plan or the Pension Benefit Guaranty Corporation,
(v) the Borrower or any Subsidiary shall withdraw from a Multi-employer Plan for
purposes of Title IV of ERISA, and, as a result of any such withdrawal, the
Borrower or any Consolidated Entity shall incur withdrawal liability to such
Multi-employer Plan, or (vi) any other event or condition shall occur or exist;
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and in each case in clauses (i) through (vi) of this Section 8.1(k), such event
or condition, together with all other such events or conditions, if any, could
subject the Borrower or any Consolidated Entity to any tax, penalty or other
liabilities in excess of $100,000, and in each such case the event or condition
is not remedied to the satisfaction of the Required Lenders within ninety (90)
days after the earlier of (i) receipt of notice of such event or condition by
the Authorized Representative from the Agent or (ii) the date the Borrower
becomes aware of such event or condition;
then, and in any such event and at any time thereafter, if such Event of Default
shall then be continuing,
(A) either or both of the following actions may be
taken: (i) the Agent may, and at the direction of the Required
Lenders shall, declare any obligation of the Lenders to make
further Loans or issue Letters of Credit terminated, whereupon
the obligation of each Lender to make further Loans or
NationsBank to issue Letters of Credit, hereunder shall
terminate immediately, and (ii) the Agent shall at the
direction of the Required Lenders, at their option, declare by
notice to the Borrower any or all of the Credit Obligations to
be immediately due and payable, and the same, including all
interest accrued thereon and all other obligations of the
Borrower to the Lenders, shall forthwith become immediately
due and payable without presentment, demand, protest, notice
or other formality of any kind, all of which are hereby
expressly waived, anything contained herein or in any
instrument evidencing the Credit Obligations to the contrary
notwithstanding; provided, however, that notwithstanding the
above, if there shall occur an Event of Default under clause
(f) above, then the obligation of the Lenders to lend
hereunder shall automatically terminate and any and all of the
Credit Obligations shall be immediately due and payable
without the necessity of any action by the Agent or the
Required Lenders or notice to the Agent or the Lenders;
(B) Borrower shall immediately deposit cash with the
Agent in an amount equal to the amount of any Letters of
Credit remaining undrawn or unpaid, as collateral security for
the repayment of any future drawings or payments under such
Letters of Credit, and Borrower shall forthwith deposit and
pay such amounts and such amounts shall be held by Agent
pursuant to the terms of the LC Account Agreement; and
(C) the Agent, on behalf of the Lenders, shall have
all of the following rights and remedies in addition to all of
the rights and remedies of a secured party under the Uniform
Commercial Code in respect of the Collateral and otherwise be
available under the Loan Documents or under any applicable
law: the Agent may at any time and from time to time, with or
without judicial process or
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the aid and assistance of others and without incurring any
liability to the Borrower, upon ten (10) days' notice to the
Borrower sell or otherwise dispose of any Collateral, at
public or private sale or proceedings or otherwise, by one or
more contracts, in one or more parcels, at the same or
different times, with or without having the Collateral at the
place of sale or other disposition, for cash and/or credit,
and upon any terms, at such place(s) and time(s) and to such
person(s) as the Agent deems best; if any Collateral is sold
by the Agent upon credit or for future delivery, the Agent
shall not be liable for the failure of the purchaser to pay
for same and in such event the Agent may resell such
Collateral in accordance with the provisions hereof provided
the Borrower shall be given credit for proceeds received by
reason of such sale; the Agent or any Lender may buy any
Collateral at any public sale and, the Agent or any Lender may
buy such Collateral at private sale so long as such sale is
made in a commercially reasonable manner and in each case may
make payment therefor by any means. Except to the extent the
Agent shall have failed to take action required under this
Agreement, no Lenders shall be entitled to enforce the
provisions of this subsection (C) of Section 8.1
independently.
SECTION 8.2 Agent to Act. In case any one or more Events of Default
shall occur and be continuing, the Agent may, and at the direction of the
Required Lenders shall, proceed to protect and enforce their rights or remedies
either by suit in equity or by action at law, or both, whether for the specific
performance of any covenant, agreement or other provision contained herein or in
any other Loan Document, or to enforce the payment of the Obligations or any
other legal or equitable right or remedy.
SECTION 8.3 Cumulative Rights. No right or remedy herein conferred upon
the Lenders, the Agent and the Borrower is intended to be exclusive of any other
rights or remedies contained herein or in any other Loan Document, and every
such right or remedy shall be cumulative and shall be in addition to every other
such right or remedy contained herein and therein or now or hereafter existing
at law or in equity or by statute, or otherwise.
SECTION 8.4 No Waiver. No course of dealing between the Borrower and
any Lender or the Agent or any failure or delay on the part of any Lender, the
Agent or the Borrower in exercising any rights or remedies hereunder shall
operate as a waiver of any rights or remedies hereunder and no single or partial
exercise of any rights or remedies hereunder shall operate as a waiver or
preclude the exercise of any other rights or remedies hereunder or of the same
right or remedy on a future occasion.
SECTION 8.5 Default. The Agent and the Lenders shall have no right to
accelerate any of the Loans upon, or to institute any action or proceeding
before any court to realize upon Collateral as a result of, the occurrence of
any Default which shall not also constitute an Event of Default; provided,
however, nothing
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contained in this sentence shall in any respect impair or adversely affect the
right, power and authority of the Agent and the Lenders (i) to take any action
expressly required or permitted to be taken under the Loan Documents upon the
occurrence of any Default (and including any action or proceeding which the
Agent may determine to be necessary or appropriate in furtherance of any such
expressly authorized action) and (ii) to take any action provided under the Loan
Documents or otherwise available by statute, at law or in equity upon the
occurrence of any Default.
SECTION 8.6 Allocation of Proceeds. If an Event of Default has occurred
and is continuing, and the maturity of the Notes has been accelerated pursuant
to this Article VIII, all payments received by the Agent hereunder in respect of
any principal of or interest on the Credit Obligations or any other amounts
payable by the Borrower hereunder shall be applied by the Agent in the following
order:
(i) amounts due to the Lenders pursuant to Sections 2.10
hereof;
(ii) amounts due to the Agent and NationsBank pursuant to
Section 9.11 and Section 2.12(i) and (k) hereof;
(iii) payments of interest, to be applied in accordance with
Section 2.13 hereof;
(iv) payments of principal, to be applied in accordance with
Section 2.13 hereof;
(v) payment of cash amounts to the Agent pursuant to Section
8.1(B) hereof; and
(vi) payments of all other amounts due under this Agreement,
if any, to be applied in accordance with each Lender's pro rata share
of all principal due to the Lenders.
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ARTICLE IX
THE AGENT
---------
SECTION 9.1 Appointment. Each Lender (including NationsBank in its
capacity as issuer of the Letters of Credit) hereby irrevocably designates and
appoints NationsBank as the Agent of the Lenders under this Agreement, and each
of the Lenders hereby irrevocably authorizes NationsBank as the Agent for such
Lender, to take such action on its behalf under the provisions of this Agreement
and the other Loan Documents and to exercise such powers as are expressly
delegated to the Agent by the terms of this Agreement, together with such other
powers as are reasonably incidental thereto. The Agent shall not have any duties
or responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any of the Lenders, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Agent.
SECTION 9.2 Attorneys-in-fact. The Agent may execute any of its duties
under this Agreement by or through agents or attorneys-in-fact and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
The Agent shall not be responsible for the gross negligence or willful
misconduct of any agents or attorneys-in-fact selected by it with reasonable
care.
SECTION 9.3 Limitation on Liability. Neither the Agent nor any of its
officers, directors, employees, agents or attorneys-in-fact shall be liable to
the Lenders for any action lawfully taken or omitted to be taken by it or them
under or in connection with this Agreement except for its or their own gross
negligence or willful misconduct. Neither the Agent nor any of its affiliates
shall be responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower, any of its
Controlled Entities or Controlled Partnerships, or any officer or partner
thereof contained in this Agreement or in any of the other Loan Documents, or in
any certificate, report, statement or other document referred to or provided for
in or received by the Agent under or in connection with this Agreement or for
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement or any of the other Loan Documents, or for any failure of the
Borrower to perform its obligations thereunder. The Agent shall not be under any
obligation to any of the Lenders to ascertain or to inquire as to the observance
or performance of any of the terms, covenants or conditions of this Agreement or
any of the other Loan Documents on the part of the Borrower or to inspect the
properties, books or records of the Borrower or its Controlled Entities or
Controlled Partnerships.
SECTION 9.4 Reliance. The Agent shall be entitled to rely, and shall be
fully protected in relying, upon any Note, writing, resolution, notice, consent
certificate, affidavit, letter, cablegram, telegram, telecopy or telex message,
statement, order or
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other document or conversation believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or Persons and upon advice
and statements of legal counsel (including, without limitation, counsel to the
Borrower), independent accountants and other experts selected by the Agent. The
Agent may deem and treat the payee of any Note as the owner thereof for all
purposes unless an Assignment and Acceptance shall have been filed with and
accepted by the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement unless it shall first receive advice or
concurrence of the Lenders or the Required Lenders as provided in this Agreement
or it shall first be indemnified to its satisfaction by the Lenders against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement in
accordance with a request of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all present and future holders of the Notes.
SECTION 9.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender, or the Borrower or
any of the Subsidiaries referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default". In the
event that the Agent receives such a notice, the Agent shall promptly give
notice thereof to the Lenders. The Agent shall take such action with respect to
such Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided that, unless and until the Agent shall have received such
directions, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Event of Default as it
shall deem advisable in the best interests of the Lenders.
SECTION 9.6 No Representations. Each Lender expressly acknowledges that
neither the Agent nor any of its affiliates has made any representations or
warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of the Borrower or any of its Consolidated Entities, shall
be deemed to constitute any representation or warranty by the Agent to any
Lender. Each Lender represents to the Agent that it has, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the financial condition, creditworthiness, affairs, status
and nature of the Borrower and Controlled Partnerships and made its own decision
to enter into this Agreement. Each Lender also represents that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Agreement and to make such investigation as it
deems necessary to inform itself as to the status and affairs, financial or
otherwise, of the Borrower and its Consolidated Entities and
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Controlled Partnerships. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Agent hereunder, the
Agent shall not have any duty or responsibility to provide any Lender with any
credit or other information concerning the affairs, financial condition or
business of the Borrower or any of its Consolidated Entities and Controlled
Partnerships which may come into the possession of the Agent or any of its
affiliates.
SECTION 9.7 Indemnification. The Lenders agree to indemnify the Agent
in its capacity as such (to the extent required to be reimbursed but not
reimbursed by the Borrower or any of its Consolidated Entities and without
limiting any obligations of the Borrower or any of its Consolidated Entities so
to do), ratably according to the respective principal amount of the Notes held
by them at the time of the event with respect to which indemnity is sought (or,
if no Notes are outstanding, ratably in accordance with their respective
Applicable Commitment Percentages as then in effect) from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may at any time (including without limitation at any time following the payment
of the Note) be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Agreement or any other document contemplated
by or referred to herein or the transactions contemplated hereby or any action
taken or omitted by the Agent under or in connection with any of the foregoing;
provided that no Lender shall be liable for the payment of any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Agent's gross negligence or
willful misconduct. The agreements in this subsection shall survive the payment
of the Obligations and the termination of this Agreement.
SECTION 9.8 Lender. The Agent and its affiliates may make loans to,
accept deposits from and generally engage in any kind of business with the
Borrower and its Consolidated Entities and Controlled Partnerships as though it
were not the Agent hereunder. With respect to its Loans made or renewed by it
and any Note issued to it, the Agent shall have the same rights and powers under
this Agreement as any Lender and may exercise the same as though it were not the
Agent, and the terms "Lender" and "Lenders" shall, unless the context otherwise
indicates, include the Agent in its individual capacity.
SECTION 9.9 Resignation. If the Agent shall resign as Agent under this
Agreement, then the Required Lenders may appoint a successor Agent for the
Lenders, which successor shall be approved by the Borrower, which approval shall
not be unreasonably withheld, which shall be a commercial bank organized under
the laws of the United States or any state thereof, having a combined surplus
and capital of not less than $500,000,000, whereupon such successor Agent shall
succeed to the rights, powers and duties of the former Agent and the obligations
of the former Agent shall be terminated and canceled, without any other or
further act or deed on the part
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of such former Agent or any of the parties to this Agreement; provided, however,
that the former Agent's resignation shall not become effective until such
successor Agent has been appointed and has succeeded of record to all right,
title and interest of the former Agent in the Collateral; provided, further, if
the Required Lenders cannot agree as to a successor Agent within ninety (90)
days after such resignation, the Agent shall appoint a successor Agent and the
parties hereto agree to execute whatever documents are necessary to effect such
action under this Agreement or any other document executed pursuant to this
Agreement; provided, however in such event all provisions of this Agreement and
the Loan Documents, shall remain in full force and effect. After any retiring
Agent's resignation hereunder as Agent, the provisions of this Article IX shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
SECTION 9.10 Sharing of Payments, etc. Each Lender agrees that if it
shall, through the exercise of a right of banker's lien, set-off, counterclaim
or otherwise, obtain payment with respect to its Credit Obligations (other than
any payment pursuant to Article IV) which results in its receiving more than its
pro rata share of the aggregate payments with respect to all of the Credit
Obligations (other than any payment pursuant to Article IV), then (A) such
Lender shall be deemed to have simultaneously purchased from the other Lenders a
share in their Credit Obligations so that the amount of the Credit Obligations
held by each of the Lenders shall be pro rata and (B) such other adjustments
shall be made from time to time as shall be equitable to insure that the Lenders
share such payments ratably; provided, however, that for purposes of this
Section 9.10 the term "pro rata" shall be determined with respect to both the
Commitment of each Lender and to the Revolving Facility after subtraction in
each case of amounts, if any, by which any such Lender has not funded its share
of the outstanding Loans and Reimbursement Obligations. If all or any portion of
any such excess payment is thereafter recovered from the Lender which received
the same, the purchase provided in this Section 9.10 shall be rescinded to the
extent of such recovery, without interest. The Borrower expressly consents to
the foregoing arrangements and agrees that each Lender so purchasing a portion
of the other Lenders' Obligations may exercise all rights of payment (including,
without limitation, all rights of set-off, banker's lien or counterclaim) with
respect to such portion as fully as if such Lender were the direct holder of
such portion.
SECTION 9.11 Fees. The Borrower agrees to pay to the Agent, for its
individual account, in advance a quarterly Agent's fee in such amount as shall
be agreed to from time to time.
SECTION 9.12 Independent Agreements. The provisions contained in
Sections 9.1 through 9.8 and 9.10 (other than the last sentence thereof) of this
Article IX constitute independent obligations and agreements of the Agent and
the Lenders and the Borrower shall not be deemed a party thereto nor bound
thereby. Borrower does acknowledge the rights of Lenders and Agent under
Sections 9.9, 9.11 and the last sentence of Section 9.10 hereof.
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ARTICLE X
MISCELLANEOUS
-------------
SECTION 10.1 Assignments and Participations.
(a) At any time after the Closing Date each Lender may, with
the prior consent of the Agent and the Borrower, which consent shall not be
unreasonably withheld, assign to one or more banks or financial institutions all
or a portion of its rights and obligations under this Agreement (including,
without limitation, all or a portion of the Notes payable to its order);
provided, that (i) each such assignment shall be of a constant, and not a
varying, percentage of all of the assigning Lender's rights and obligations
(including Loans and Participations) under this Agreement (ii) for each
assignment involving the issuance and transfer of Notes, the assigning Lender
shall execute an Assignment and Acceptance and the Borrower hereby consents to
execute replacement Notes to give effect to the assignment, (iii) the minimum
Commitment which shall be assigned is (x) $5,000,000, in the case of an
assignment by one existing Lender to another existing Lender, and (y)
$10,000,000 in all other cases, and in multiples of $1,000,000 in excess
thereof, (together with which the assigning Lender's applicable portion of
Participations and the Letter of Credit Commitment shall also be assigned) and
(iv) such assignee shall have an office located in the United States. Upon such
execution, delivery, approval and acceptance, from and after the effective date
specified in each Assignment and Acceptance, (x) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder or
under such Notes have been assigned or negotiated to it pursuant to such
Assignment and Acceptance have the rights and obligations of a Lender hereunder
(including, in respect of the Collateral, all the rights and obligations of a
Lender, as fully as if such assignee had been named as a Lender in this
Agreement) and a holder of such Notes and (y) the assignor thereunder shall, to
the extent that rights and obligations hereunder or under such Notes have been
assigned or negotiated by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its future obligations under this
Agreement. No assignee shall have the right to further assign its rights and
obligations pursuant to this Section 10.1. Any Lender who makes an assignment
shall pay to the Agent a one-time administrative fee of $3,000.00 which fee
shall not be reimbursed by Borrower.
(b) By executing and delivering an Assignment and Acceptance,
the Lender assignor thereunder and the assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) the assignment made
under such Assignment and Acceptance is made under such Assignment and
Acceptance without recourse; (ii) such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition of the Borrower or any Controlled Entity or Controlled Partnership or
the performance or observance by the Borrower or any Controlled Entity or
Controlled Partnership of any of its obligations under any Loan Document or any
other instrument or document furnished pursuant hereto;
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(iii) such assignee confirms that it has received a copy of this Agreement,
together with copies of the financial statements delivered pursuant to Section
7.3 and such other Loan Documents and other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Agent, such assigning Lender or any other Lender and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement; (v) such assignee appoints and authorizes the Agent to
take such action as agent on its behalf and to exercise such powers under this
Agreement, the Note and the other Loan Documents as are delegated to the Agent
by the terms hereof and thereof, together with such powers as are reasonably
incidental thereto; and (vi) such assignee agrees that it will perform in
accordance with their terms all of the obligations which by the terms of this
Agreement are required to be performed by it as a Lender and a holder of such
Note.
(c) The Agent shall maintain at its address referred to herein
a copy of each Assignment and Acceptance delivered to and accepted by it.
(d) Upon its receipt of an Assignment and Acceptance executed
by an assigning Lender, the Agent shall give prompt notice thereof to Borrower.
(e) Each Lender may sell participations to one or more banks
or other entities as to all or a portion of its rights and obligations under
this Agreement; provided, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any Notes issued to it for the
purpose of this Agreement, (iv) such participations shall be in a minimum amount
of $5,000,000 and in multiples of $1,000,000 in excess thereof, and shall
include an allocable portion of such Lender's Participation, and (v) Borrower,
the Agent and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement and with regard to any and all payments to be made under this
Agreement; provided, that the participation agreement between a Lender and its
participants may provide that such Lender will obtain the approval of such
participant prior to such Lender's agreeing to any amendment or waiver of any
provisions of this Agreement which would (A) extend the maturity of the Notes,
(B) reduce the interest rate hereunder, (C) increase the Commitment of the
Lender granting the participation or (D) release all or any substantial part of
the Collateral other than in accordance with the terms of the Loan Documents,
and (vi) the sale of any such participations which require Borrower to file a
registration statement with the United States Securities and Exchange Commission
or under the securities regulations or laws of any state shall not be permitted.
(f) Notwithstanding the provisions of this Section 10.1 to the
contrary, any Lender may assign all or any portion of its
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interest in Loans to its Affiliates without approval of the Agent or Borrower
upon payment of the administrative fee described in Section 10.1(a) above, and
all or any portion of its interest in Loans to the Federal Reserve Bank without
approval of the Agent or Borrower and without payment of any fees.
SECTION 10.2 Notices. Any notice shall be conclusively deemed to have
been received by any party hereto and be effective on the day on which delivered
to such party (against receipt therefor) at the address set forth below or such
other address as such party shall specify to the other parties in writing (or,
in the case of telephonic notice or notice by telecopy, telegram or telex (where
the receipt of such message is verified by return) expressly provided for
hereunder, when received at such telephone, telecopy or telex number as may from
time to time be specified in written or verbal notice to the other parties
hereto or otherwise received), or if sent prepaid by certified or registered
mail return receipt requested on the third Business Day after the day on which
mailed, addressed to such party at said address:
(a) if to the Borrower or a Participating Partnership or
a Participating Subsidiary at:
Two Perimeter Park South
Suite 224W
Birmingham, Alabama 35243
Attention: Richard M. Scrushy
with a copy to:
Chief Financial Officer
HealthSouth Corporation
Suite 224W
Two Perimeter Park South
Birmingham, Alabama 35243
and with a copy to:
Treasurer
HealthSouth Corporation
Suite 224W
Two Perimeter Park South
Birmingham, Alabama 35243
and with a copy to:
J. Brooke Johnston, Jr.
Haskell Slaughter Young
1200 AmSouth-Harbert Plaza
1901 6th Avenue North
Birmingham, Alabama 35203
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(b) if to the Agent at:
One Independence Center
15th Floor
101 North Tryon Street
Charlotte, North Carolina 28255
Attention: Agency Services
With a copy to:
600 Peachtree Street, N.E.
21st Floor
Atlanta, Georgia 30308-2212
Attention: Corporate Banking
(c) if to NationsBank in its capacity as issuer of the
Letters of Credit:
NationsBank, N.A. (Carolinas)
One Independence Center, 15th Floor
101 North Tryon Street
Charlotte, North Carolina 28255
Attention: Letter of Credit Department
(d) if to the Lenders:
At the addresses set forth on the signature pages
hereof or on the signature page of each Assignment
and Acceptance.
SECTION 10.3 No Waiver. No failure or delay on the part of the Agent,
any Lender or the Borrower in the exercise of any right, power or privilege
hereunder shall operate as a waiver of any such right, power or privilege nor
shall any such failure or delay preclude any other or further exercise thereof.
The rights and remedies herein provided are cumulative and not exclusive of any
rights or remedies provided by law.
SECTION 10.4 Setoff. The Borrower, each Participating Subsidiary and
each Participating Partnership, agrees that the Agent and each Lender shall have
a lien for all the Credit Obligations of the Borrower upon all deposits or
deposit accounts, of any kind, or any interest in any deposits or deposit
accounts thereof, now or hereafter pledged, mortgaged, transferred or assigned
to the Agent or such Lender or otherwise in the possession or control of the
Agent or such Lender (other than for safekeeping) for any purpose for the
account or benefit of the Borrower, each Participating Subsidiary and each
Participating Partnership, and including any balance of any deposit account or
of any credit of the Borrower, each Participating Subsidiary and each
Participating Partnership, with the Agent or such Lender, whether now existing
or hereafter established, hereby authorizing the Agent and each Lender at any
time or times from and after the occurrence of a Default or Event of Default
with or without prior notice to apply such balances or any part thereof to such
of the Credit Obligations of the Borrower to the Lenders then past due and in
such amounts as
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they may elect, and whether or not the collateral or the responsibility of other
persons primarily, secondarily or otherwise liable may be deemed adequate. For
the purposes of this paragraph, all remittances and property shall be deemed to
be in the possession of the Agent or such Lender as soon as the same may be put
in transit to it by mail or carrier or by other bailee.
SECTION 10.5 Survival. All covenants, agreements, representations and
warranties made herein shall survive the making by the Lenders of the Loans and
the expiration of the Letters of Credit and the execution and delivery to the
Lenders of this Agreement and the Notes and shall continue in full force and
effect so long as any of the Credit Obligations remain outstanding or any Lender
has any Commitment hereunder. Whenever in this Agreement, any of the parties
hereto is referred to, such reference shall be deemed to include the successors
and permitted assigns of such party and all covenants, provisions and agreements
by or on behalf of the Borrower which are contained in this Agreement and the
Notes shall inure to the benefit of the successors and permitted assigns of the
Lenders or any of them and any rights of the Borrower hereunder shall inure to
the benefit of successors and assigns of Borrower to the extent Lenders may
consent to succession or assignment.
SECTION 10.6 Expenses. The Borrower agrees (a) to pay or reimburse the
Agent for all its reasonable and customary out-of-pocket costs and expenses
incurred in connection with the preparation, negotiation and execution of, and
any amendment, supplement or modification to, this Agreement or any of the other
Loan Documents, and the consummation of the transactions contemplated hereby and
thereby, including, without limitation, the reasonable and customary fees and
disbursements of counsel to the Agent, (b) to pay or reimburse the Agent for all
its reasonable costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement, including without limitation,
the reasonable fees and disbursements of their counsel, (c) to pay, indemnify
and hold the Agent harmless from any and all recording and filing fees and any
and all liabilities with respect to, or resulting from any failure of Borrower
to pay or delay of Borrower in paying, documentary, stamp, excise, withholding
and other similar taxes, if any, which may be payable or determined to be
payable in connection with the execution and delivery of, or consummation of any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Agreement, and (d) from and after the occurrence of any Event
of Default to pay, indemnify, and hold the Agent harmless from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement or in any respect relating to the transactions
contemplated hereby or thereby, (all the foregoing, collectively, the
"indemnified liabilities"); provided, however, that the Borrower shall have no
obligation hereunder with respect to indemnified liabilities arising from (i)
the willful misconduct or negligence of the party seeking indemnification, (ii)
legal proceedings commenced against
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the Agent or any Lender by any security holder or creditor thereof arising out
of and based upon rights afforded any such security holder or creditor solely in
its capacity as such, (iii) any taxes imposed upon the Agent or any Lender other
than the documentary, stamp, excise, withholding and similar taxes described in
clause (c) above or any tax resulting from any change described in Section 4.1,
which tax would be payable to Lenders by Borrower pursuant to Article IV hereof,
(iv) taxes imposed as a result of a transfer or assignment of any Note,
participation or assignment of a portion of its rights, (v) any taxes imposed
upon any transferee of any Note, or (vi) or by reason of the failure of the
Agent or any Lender to perform its or their obligations under this Agreement.
The agreements in this subsection shall survive repayment of the Notes and all
other Credit Obligations hereunder.
SECTION 10.7 Amendments. No amendment, modification or waiver of any
provision of this Agreement or any of the Loan Documents and no consent by the
Lenders to any departure therefrom by the Borrower shall be effective unless
such amendment, modification or waiver shall be in writing and signed by the
Agent and the Borrower, but only upon having received the written consent of the
Required Lenders, and the same shall then be effective only for the period and
on the conditions and for the specific instances and purposes specified in such
writing; provided, however, that, no such amendment, modification or waiver
(i) which changes, extends or waives any provision of Section
2.10, Section 2.12(i), Section 9.10, this Section 10.7 or Section
10.15, the amount of or the due date of any scheduled installment or
other payment of or the rate of interest or other amounts payable on or
with respect to any Credit Obligation, changes the definition of
Required Lenders, which increases or extends the Commitment of any
Lender or which increases or extends the Termination Date or which
waives any condition to the making of any Loan shall be effective
unless in writing and signed by each of the Lenders; provided, however,
the Required Lenders may in their sole discretion waive any Default or
Event of Default (other than any Event of Default under Section 8.1(a)
as to which only the Lender which is the payee of a Note may waive the
failure to make a payment of principal or interest due on such Note and
Section 8.1(f) as to which all Lenders must waive such Event of
Default);
(ii) which releases Collateral or any Guarantor (other than in
accordance with the terms of the Loan Documents) shall be effective
unless with the written consent of each of the Lenders; or
(iii) which affects the rights, privileges, immunities or
indemnities of the Agent, shall be effective unless in writing and
signed by the Agent.
Notwithstanding any provision of the other Loan Documents to the contrary, as
between the Agent and the Lenders, execution by the Agent shall not be deemed
conclusive evidence that the Agent has
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obtained the written consent of the Required Lenders; however, the Borrower
shall be entitled to rely on the signature of the Agent as evidence of consent.
No notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances, except
as provided by law or as otherwise expressly provided herein. No delay or
omission on any Lender's, the Agent's or the Borrower's part in exercising any
right, remedy or option shall operate as a waiver of such or any other right,
remedy or option or of any Default or Event of Default.
SECTION 10.8 Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such fully-executed counterpart.
SECTION 10.9 Waivers by Borrower. In any litigation in any court with
respect to, in connection with, or arising out of this Agreement, the Loans, any
of the Notes, any of the other Loan Documents, the Collateral, the Credit
Obligations, or any instrument or document delivered pursuant to this Agreement,
or the validity, protection, interpretation, collection or enforcement thereof,
or any other claim or dispute howsoever arising between the Borrower and the
Lenders or the Agent, the Borrower and each Lender and the Agent hereby waive,
to the extent permitted by law, trial by jury in connection with any such
litigation.
The Borrower, the Agent and the Lenders believe that, inasmuch as this
Agreement and the transactions contemplated hereby have been entered into and
consummated outside the State of Alabama, such transactions constitute
transactions in interstate commerce, so that neither the Agent nor any of the
Lenders is required, solely by entering into this Agreement and consummating the
transactions contemplated hereby, to qualify to do business as a foreign
corporation within the State of Alabama. Notwithstanding the foregoing, however,
the Borrower hereby irrevocably waives all rights that it may have to raise, in
any action brought by any of the Lenders or the Agent to enforce the rights of
the Lenders and the Agent hereunder or under any of the other Loan Documents, or
the obligations of the Borrower hereunder or thereunder, any defense which is
based upon the failure of any of the Lenders or the Agent to qualify to do
business as a foreign corporation in the State of Alabama, including, but not
limited to, any defenses based upon ss. 232 of the Alabama Constitution of 1901,
ss. 10-2A-247 of the Code of Alabama (1975) or ss. 40-14-4 of the Code of
Alabama (1975), or any successor provision to any thereof. The foregoing waiver
is made knowingly and voluntarily and is a material inducement for the Agent and
the Lenders to enter into the transactions contemplated by this Agreement or any
of the other Loan Documents.
SECTION 10.10 Termination. The termination of this Agreement shall not
affect any rights of the Borrower, the Lenders or the Agent or any obligation of
the Borrower, the Lenders or the Agent, arising prior to the effective date of
such termination, and the provisions hereof shall continue to be fully operative
until all
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transactions entered into or rights created or obligations incurred prior to
such termination have been fully disposed of, concluded or liquidated and the
Credit Obligations arising prior to or after such termination have been
irrevocably paid in full. The security interests, liens and rights granted to
the Agent for the benefit of the Lenders hereunder and under the other Loan
Documents shall continue in full force and effect, notwithstanding the
termination of this Agreement, until all of the Credit Obligations have been
paid in full after the termination hereof or the Borrower has furnished the
Lenders and the Agent with an indemnification satisfactory to the Agent and each
Lender with respect thereto. All representations, warranties, covenants, waivers
and agreements contained herein shall survive termination hereof until payment
in full of the Credit Obligations unless otherwise provided herein.
Notwithstanding the foregoing, if after receipt of any payment of all or any
part of the Obligations, any Lender is for any reason compelled to surrender
such payment to any Person because such payment is determined to be void or
voidable as a preference, impermissible setoff, a diversion of trust funds or
for any other reason, this Agreement shall continue in full force and the
Borrower shall be liable to, and shall indemnify and hold such Lender harmless
for, the amount of such payment surrendered until such Lender shall have been
finally and irrevocably paid in full. The provisions of the foregoing sentence
shall be and remain effective notwithstanding any contrary action which may have
been taken by the Lenders in reliance upon such payment, and any such contrary
action so taken shall be without prejudice to the Lenders' rights under this
Agreement and shall be deemed to have been conditioned upon such payment having
become final and irrevocable.
SECTION 10.11 Governing Law. All documents executed pursuant to the
transactions contemplated herein, including, without limitation, this Agreement
and each of the Loan Documents shall be deemed to be contracts made under, and
for all purposes shall be construed in accordance with, the internal laws and
judicial decisions of the State of North Carolina; provided that this Section
10.11 shall not affect the applicability of, and interpretation or construction
of appropriate terms and provisions under the Uniform Commercial Code of any
jurisdiction which govern the security interests in any of the Collateral. The
Borrower hereby submits to the jurisdiction and venue of the state and federal
courts of North Carolina for the purposes of resolving disputes hereunder or
arising out of the transaction contemplated hereby or for the purposes of
collection.
SECTION 10.12 Indemnification. In consideration of the execution and
delivery of this Agreement by the Agent and each Lender and the extension of the
Commitments, and so long as the Agent and Lenders have fulfilled their
obligations hereunder, the Borrower hereby indemnifies, exonerates and holds the
Agent and each Lender and each of their respective officers, directors,
employees and agents (collectively, the "Indemnified Parties") free and harmless
from and against any and all actions, causes of action, claims, suits, losses,
costs, liabilities and damages, and expenses incurred in connection therewith
(irrespective of whether any such Indemnified Party is a party to the action for
which
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indemnification hereunder is sought), including reasonable attorneys' fees and
disbursements (collectively, the "Indemnified Liabilities"), incurred by the
Indemnified Parties or any of them as a result of, or arising out of, or
relating to any of the following:
(a) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan or
supported by any Letter of Credit;
(b) the entering into and performance of this Agreement and
any other Loan Document by any of the Indemnified Parties;
(c) provided Lenders have no ownership interest in real
property of Borrower, any investigation, litigation or proceeding
related to any environmental cleanup, audit, compliance or other matter
relating to the protection of the environment or the release by the
Borrower or any of its Participating Subsidiaries or Participating
Partnerships of any hazardous waste material; or
(d) provided Lenders have no ownership interest in real
property of Borrower, the presence on or under, or the escape, seepage,
leakage, spillage, discharge, emission, discharging or releases from,
any real property owned or operated by the Borrower or any Subsidiary
or Controlled Partnership thereof of any hazardous waste material
(including any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under any environmental laws), regardless
of whether caused by, or within the control of, the Borrower or such
Participating Subsidiary or Participating Partnerships,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
negligence or willful misconduct, and if and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under applicable law.
SECTION 10.13 Agreement Controls. In the event that any term of any of
the Loan Documents other than this Agreement conflicts with any term of this
Agreement, the terms and provisions of this Agreement shall control.
SECTION 10.14 Integration. This Agreement and the Loan Documents
represent the final agreement between the parties and may not be contradicted by
evidence of prior, contemporaneous, or subsequent oral agreements of the
parties. There are no unwritten oral agreements between the parties.
SECTION 10.15 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Borrower may not assign or
transfer its rights or
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obligations hereunder without the prior written consent of the Agent and all
Lenders. The Agent and the Lenders may assign or transfer their interest
hereunder but only as provided herein.
SECTION 10.16 Severability. If any provision of this agreement or the
other Loan Documents shall be determined to be illegal or invalid as to one or
more of the parties hereto, then such provision shall remain in effect with
respect to all parties, if any, as to whom such provision is neither illegal nor
invalid, and in any event all other provisions hereof shall remain effective and
binding on the parties hereto.
SECTION 10.17 Usury Savings Clause. Notwithstanding any other provision
herein, the aggregate interest rate charged under any of the Notes, including
all charges or fees in connection therewith deemed in the nature of interest
under North Carolina law, shall not exceed the Highest Lawful Rate (as such term
is defined below). If the rate of interest (determined without regard to the
preceeding sentence) under this Agreement at any time exceeds the Highest Lawful
Rate (as defined below), the outstanding amount of the Loans made hereunder
shall bear interest at the Highest Lawful Rate until the total amount of
interest due hereunder equals the amount of interest which would have been due
hereunder if the stated rates of interest set forth in this Agreement had at all
times been in effect. In addition, if when the Loans made hereunder are repaid
in full the total interest due hereunder (taking into account the increase
provided for above) is less than the total amount of interest which would have
been due hereunder if the stated rates of interest set forth in this Agreement
had at all times been in effect, then to the extent permitted by law, the
Borrower shall pay to the Agent an amount equal to the difference between the
amount of the interest paid and the amount of interest which would have been
paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding
the foregoing, it is the intention of the Lenders and the Borrower to conform
strictly to any applicable usury laws. Accordingly, if any Lender contracts for,
charges, or receives any consideration which constitutes interest in excess of
the Highest Lawful Rate, then any such excess shall be cancelled automatically
and, if previously paid, shall at such Lender's option be applied to the
outstanding amount of the Loans made hereunder or be refunded to the Borrower.
As used in this paragraph, the term "Highest Lawful Rate" means the maximum
lawful interest rate, if any, that at any time or from time to time may be
contracted for, charged, or received under the laws applicable to such Lender
which are presently in effect or, to the extent allowed by law, under such
applicable laws which may hereafter be in effect and which allow a higher
maximum nonusurious interest rate than applicable laws now allow.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be made, executed and delivered by their duly authorized officers as of the day
and year first above written.
HEALTHSOUTH CORPORATION
WITNESS:
- -----------------------
By:_______________________________
_______________________ Name: Michael D. Martin
Title: Senior Vice President and
Treasurer
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NATIONSBANK N.A. (CAROLINAS),
as Agent for the Lenders
By:________________________________
Name: Douglas E. Coltharp
Title: Senior Vice President
COMMITMENT: NATIONSBANK, N.A. (CAROLINAS)
$80,000,000
By:________________________________
Name: Douglas E. Coltharp
Title: Senior Vice President
Lending Office:
100 South Tryon Street
Charlotte, North Carolina 28255
Wire Transfer Instructions:
NationsBank, N.A. (Carolinas)
Charlotte, North Carolina
ABA #053000196
Reference: HEALTHSOUTH Corporation
Attention: Agency Services
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COMMITMENT: THE BANK OF NOVA SCOTIA
$70,000,000
By:________________________________
Name:______________________________
Title:_____________________________
Lending Office:
The Bank of Nova Scotia
Atlanta Agency
600 Peachtree Street, N.E.
Suite 2700
Atlanta, Georgia 30308
Wire Transfer Instructions:
The Bank of Nova Scotia
New York Agency, for further
credit to BNS-Atlanta Agency
New York, New York
ABA # 026002532
Account # 0606634
Attention: Houston-Atlanta Team
Reference: HEALTHSOUTH
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COMMITMENT: AMSOUTH BANK, N.A.
$20,000,000
By:________________________________
Name:______________________________
Title: Senior Vice President
Lending Office:
AmSouth Bank, N.A.
1900 5th Avenue
Birmingham, Alabama
Wire Transfer Instructions:
AmSouth Bank, N.A.
Birmingham, Alabama
ABA #062000019
Reference: Acct # 50214327
HEALTHSOUTH
Attention: Lisa Mann
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<PAGE>
COMMITMENT: NATIONAL CITY BANK, KENTUCKY
$40,000,000
By:________________________________
Name:______________________________
Title: Senior Vice President
Lending Office:
101 S. Fifth Street, 8th Floor
Louisville, Kentucky 40202
Wire Transfer Instructions:
National City Bank, Kentucky
Louisville, Kentucky
ABA # 0830-0005-6
Reference: HEALTHSOUTH
Attention: Sandy Walker
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<PAGE>
COMMITMENT: FIRST UNION NATIONAL BANK OF
$70,000,000 NORTH CAROLINA
By:________________________________
Name:______________________________
Title: Vice President
Lending Office:
One First Union Plaza
Charlotte, North Carolina 28288-0735
Wire Transfer Instructions:
First National Union Bank of
North Carolina
Charlotte, North Carolina
ABA # 053000219
Acct # 465906 0001802
Reference: HEALTHSOUTH
Attention: Sue Patterson
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<PAGE>
COMMITMENT: WACHOVIA BANK OF GEORGIA, N.A.
$70,000,000
By:________________________________
Name:______________________________
Title: Vice President
Lending Office:
Wachovia Bank of Georgia
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Wire Transfer Instructions:
Wachovia Bank of Georgia
Atlanta, Georgia
ABA #061000010
Acct # 18-800-621
Attention: Becky Creel
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<PAGE>
COMMITMENT: PNC BANK, KENTUCKY, INC.
$40,000,000
By:________________________________
Name:______________________________
Title:_____________________________
Lending Office:
PNC Bank, Kentucky, Inc.
500 West Jefferson Street
Louisville, Kentucky 40202
Wire Transfer Instructions:
PNC Bank, Kentucky, Inc.
Louisville, Kentucky
ABA #083-000-108
Account #3000990597
Reference: HEALTHSOUTH
Attention: Margie Pate
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COMMITMENT: THE DAIWA BANK, LIMITED
$20,000,000
By:________________________________
Name:______________________________
Title:_____________________________
By:________________________________
Name:______________________________
Title:_____________________________
Lending Office:
Daiwa Bank, Chicago Branch
Chicago, Illinois
Wire Transfer Instructions:
The Daiwa Bank, Limited
Chicago Branch
Chicago, Illinois
ABA #071006075
Reference: HealthSouth
Attention: Maria Martinez
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COMMITMENT: THE BANK OF TOKYO, LTD.,
$40,000,000 Atlanta Agency
By:________________________________
Name: Rodney J. Carson
Title: Vice President & Manager
Lending Office:
The Bank of Tokyo, Ltd.
New York, New York
Wire Transfer Instructions:
The Bank of Tokyo, Ltd.
New York, New York
ABA #0260-0963-2
For further credit:
AC 30001680
The Bank of Tokyo, Ltd.
Atlanta Agency
Attention: Glynnis Slaten
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COMMITMENT: MELLON BANK, N.A.
$40,000,000
By:________________________________
Name:______________________________
Title:_____________________________
Lending Office:
Mellon Bank, N.A.
Two Mellon Bank Center
Pittsburgh, Pennsylvania 15259
Wire Transfer Instructions:
Mellon Bank, N.A.
Pittsburgh, Pennsylvania 15259
ABA # 043000261
Acct # 990873800
Reference: HEALTHSOUTH
Attention: Loan Administrator
Terpsie Katsafanas
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COMMITMENT: HIBERNIA NATIONAL BANK
$20,000,000
By:________________________________
Title:_____________________________
Lending Office:
313 Carondelet Street
New Orleans, Louisiana 70130
Wire Transfer Instructions:
Hibernia National Bank
P. O. Box 61540
New Orleans, Louisiana 70161
ABA # 065000090
Acct # 0520-36615
National Accounts
Reference: HEALTHSOUTH
Attention: Hal Hopson
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COMMITMENT: THE BANK OF CALIFORNIA, N.A.
$20,000,000
By:________________________________
Name:______________________________
Title:_____________________________
Lending Office:
Los Angeles, California 90071
Wire Transfer Instructions:
The Bank of California, N.A.
San Francisco, California
ABA # 121000015
Acct # 001-060-235
Reference: HEALTHSOUTH
Attention: Hisako Sakamoto
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<PAGE>
COMMITMENT: COOPERATIVE CENTRALE RAIFFEISEN-
$40,000,000 BOERENLEENBANK, B.A.
"RaboBank Nederland, New York Branch"
By:________________________________
Name:______________________________
Title:_____________________________
Lending Office:
New York, New York 10167
Wire Transfer Instructions:
Bank of New York
New York, New York
ABA # 021000018
For the Account of RaboBank
Acct # 8026002533
Reference: HEALTHSOUTH
Attention: Corporate Services
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COMMITMENT: SHAWMUT BANK CONNECTICUT, N.A.
$20,000,000
By:________________________________
Name:______________________________
Title:_____________________________
Lending Office:
Shawmut Bank Connecticut, N.A.
Hartford, Connecticut
Wire Transfer Instructions:
Shawmut Bank Connecticut, N.A.
Hartford, Connecticut
ABA # 011900445
Acct # 00-6612-7761
Reference: HEALTHSOUTH
Attention: Sandy Sousa
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<PAGE>
COMMITMENT: TORONTO DOMINION (TEXAS), INC.
$70,000,000
By:______________________________
Name:____________________________
Title:___________________________
Lending Office:
The Toronto-Dominion Bank
909 Fannin Street, 17th Floor
Houston, Texas 77010
Wire Transfer Instructions:
The Toronto-Dominion Bank
ABA # 0260003243
Favor: TD Houston
Acct # 2159251
Reference: HEALTHSOUTH
Attention: Lisa Allison
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COMMITMENT: WELLS FARGO BANK, N.A.
$40,000,000
By:______________________________
Name:____________________________
Title:___________________________
Lending Office:
420 Montgomery Street, 9th Floor
San Francisco, California 94163
Wire Transfer Instructions:
Wells Fargo Bank, N.A.
San Francisco, California
ABA # 121000248
BNF = Corporate Loan Operations
OBI = HEALTHSOUTH Corporation
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COMMITMENT: FIRST AMERICAN NATIONAL BANK
$20,000,000
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
300 Union Street, 2nd Floor
Nashville, Tennessee 37237-0203
Wire Transfer Instructions:
First American National Bank
300 Union Street, 2nd Floor
Nashville, Tennessee 37237-0203
ABA # 064-000-017
Wire Transfer Clearing Account
# 090-125-6
Attention: Frenisa D. Joy
Commercial Loan Operations
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COMMITMENT: FLEET BANK OF MASSACHUSETTS, N.A.
$20,000,000
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
75 State Street
Boston, Massachusetts 02109
Wire Transfer Instructions:
Fleet Bank of Massachusetts, N.A.
ABA # 011-000-138
Account # 1510351
For credit to: Commercial Loan Services
Attention: Agent Bank
Department
100
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COMMITMENT: ABN AMRO BANK N.V.
$20,000,000
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
One Ravinia Drive, Suite 1200
Atlanta, Georgia 30346
Wire Transfer Instructions:
Federal Reserve Bank, NY, NY
Favor of: ABN*AMRO New York
ABA # 0260-09580
Further credit to: ABN*AMRO Atlanta
Account # 651-0-010197-41
101
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COMMITMENT: DEUTSCHE BANK AG, New York Branch
$20,000,000 and/or Cayman Islands Branch
By:_____________________________
Name:___________________________
Title:__________________________
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
31 West 52nd Street
New York, New York 10019
Wire Transfer Instructions:
Deutsche Bank AG
New York, New York 10019
ABA # 026003780
Favor: Deutsche Bank AG,
New York Branch
Attention: Noble Samuel - CF-OPS
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COMMITMENT: LTCB TRUST COMPANY
$40,000,000
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
165 Broadway
New York, New York 10006
Wire Transfer Instructions:
Funds transferred to:
Bankers Trust Company
ABA # 021001033
Name of Account: LTCB Trust Company
Account # 04-203-606
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COMMITMENT: THE BOATMENS NATIONAL BANK OF
$20,000,000 ST. LOUIS
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
P. O. Box 236
St. Louis, Missouri 63166
Wire Transfer Instructions:
The Boatman's National Bank of
St. Louis
St. Louis, Missouri 63166
ABA # 081000032
Account # 101409997409
Attention: Commercial Loan Service
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COMMITMENT: THE SANWA BANK LIMITED, ATLANTA
$20,000,000 AGENCY
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
133 Peachtree Street, N.E.
Suite 4750
Atlanta, Georgia 30303
Wire Transfer Instructions:
The Sanwa Bank Limited
New York, New York
ABA # 026009823
Account # 999669
For the Account of Atlanta
Reference: HEALTHSOUTH
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COMMITMENT: CREDITANSTALT CORPORATE FINANCE, INC.
$20,000,000
By:_____________________________
Name:___________________________
Title:__________________________
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
245 Park Avenue
New York, New York 10167
Wire Transfer Instructions:
Chemical Bank
New York, New York
Account: Critanstalt New York
ABA # 021000128
Account # 544-7-73095
Attention: HEALTHSOUTH Corporation
106
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COMMITMENT: DRESDNER BANK AG, NEW YORK BRANCH
$20,000,000 AND GRAND CAYMAN BRANCH
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
75 Wall Street
New York, New York 10005
Wire Transfer Instructions:
Chase Manhattan Bank
(Favor of Dresdner Bank AG)
ABA # 021000021
Account # 920-1-059079
Reference: HEALTHSOUTH
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COMMITMENT: FUJI BANK
$20,000,000
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
________________________
________________________
Wire Transfer Instructions:
________________________
________________________
________________________
ABA # _________________
Account # ________________
Attention: ___________________
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COMMITMENT: NIPPON CREDIT BANK
$20,000,000
By:_____________________________
Name: Bernardo E. Correa-Henschke
Title:__________________________
Lending Office:
550 S. Hope Street, Suite 2500
Los Angeles, California 90071
Wire Transfer Instructions:
Bank of America, San Francisco
1850 Gateway Boulevard, 8th Floor
Concord, California 94520
ABA # 1210-0035-8
Account # 62908-31126
Account Name: The Nippon Credit Bank,
Ltd., Los Angeles
Attention: Loan Administration
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COMMITMENT: THE INDUSTRIAL BANK OF JAPAN, LIMITED
$40,000,000
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
New York Branch
245 Park Avenue
New York, New York 10169
Wire Transfer Instructions:
Fed Wire Industrial Bank of
Japan Limited New York Branch
ABA # 026008345
Reference: HEALTHSOUTH Corporation
Attention: Credit Administration
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COMMITMENT: THE SUMITOMO BANK, LIMITED
$20,000,000
By:_____________________________
Name:___________________________
Title:__________________________
Lending Office:
________________________
________________________
Wire Transfer Instructions:
________________________
________________________
________________________
ABA # _________________
Account # ________________
Attention: ___________________
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
Applicable
Lender Commitment Percentage
------ ---------------------
<S> <C>
NationsBank, N.A. (Carolinas) 8%
The Bank of Nova Scotia 7
First Union National Bank 7
of North Carolina
Mellon Bank, N.A. 4
National City Bank, Kentucky 4
PNC Bank, Kentucky, Inc. 4
Wachovia Bank of Georgia, N.A. 7
Toronto Dominion (Texas), Inc. 7
AmSouth Bank of Alabama 2
The Bank of California, N.A. 2
The Bank of Tokyo, Ltd., Atlanta Agency 4
The Daiwa Bank, Limited 2
Hibernia National Bank 2
Cooperative Centrale Raiffeisen- 4
Boerenleenbank, B.A.
"RaboBank Nederland, New York Branch"
Shawmut Bank Connecticut, N.A. 2
Wells Fargo Bank, N.A. 4
First American National Bank 2
Fleet Bank of Massachusetts, N.A. 2
ABN AMRO Bank N.V. 2
Deutsche Bank AG, New York Branch and/or
Cayman Islands Branch 2
LTCB Trust Company 4
The Boatmens National Bank of St. Louis 2
112
<PAGE>
Applicable
Lender Commitment Percentage
- ------ ----------------------
The Sanwa Bank Limited, Atlanta Agency 2%
Creditanstalt Corporate Finance, Inc. 2
Fuji Bank 2
Nippon Credit Bank, Ltd., 2
Los Angeles Agency
Dresdner Bank AG, New York Branch
and Grand Cayman Branch 2
The Sumitomo Bank, Limited 2
The Industrial Bank of Japan, Limited 4
---
100%
</TABLE>
113
<PAGE>
EXHIBIT B
FORM OF ASSIGNMENT AND ACCEPTANCE
DATED _________________, 19______
Reference is made to the Amended and Restated Credit Agreement dated as
of April 11, 1995 (the "Agreement") among HEALTHSOUTH CORPORATION, a Delaware
corporation ("Borrower"), the Lenders (as defined in the Agreement) and
NATIONSBANK, N.A. (CAROLINAS) as Agent for the Lenders ("Agent"). Unless
otherwise defined herein, terms defined in the Agreement are used herein with
the same meanings.
___________________________________________________________________(the
"Assignor") and ________________________ (the "Assignee") agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, WITHOUT RECOURSE, a
_______%1 interest in and to all of the Assignor's rights and obligations under
the Agreement as of the Effective Date (as defined below), including, without
limitation, such percentage interest in the Loan owing to, and Participations
held by, the Assignor on the Effective Date, and the Notes held by the Assignor.
2. The Assignor (i) represents and warrants that, as of the date
hereof, the aggregate outstanding principal amount of the Loans owing to it
(without giving effect to assignments thereof which have not yet become
effective) is $________ and the aggregate principal amount of Letters of Credit
in which it is deemed to have a Participation under the Agreement is $________;
(ii) represents and warrants that it is the legal and beneficial owner of the
interest being assigned by it hereunder and that such interest is free and clear
of any adverse claim; (iii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Agreement or any of the Loan Documents or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Agreement or any of the Loan Documents or any other instrument or
document furnished pursuant thereto; (iv) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrower or the performance or observance by Borrower of any of its obligations
under the Agreement or any of the Loan Documents or any other instrument or
document furnished pursuant thereto and (v) attaches the Notes referred to in
paragraph 1 above and requests that the Agent exchange such Note for new Note(s)
as follows: A Syndicated Note, dated _____________, 19__ in the principal amount
of $________________, and Competitive Bid Note, dated __________, 19__ --------
1 Specify percentage in no more than 8 decimal points.
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<PAGE>
in the principal amount of $__________ payable to the order of the Assignor, and
a Syndicated Note, dated ____________________________ 19__, in the principal
amount of $_________________ and Competitive Bid Note, dated __________, 19__ in
the principal amount of $__________ payable to the order of the Assignee.
3. The Assignee (i) confirms that it has received a copy of the
Agreement, together with copies of the financial statements referred to in
Section 7.3 thereof and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Acceptance; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor, or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the
Agreement; (iii) appoints and authorizes the Agent to take such actions on its
behalf and to exercise such powers under the Loan Documents as are delegated to
the Agent by the terms thereof, together with such powers as are reasonably
incidental thereto; (iv) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Agreement are required to
be performed by the Lender; and (v) specifies as its address for notices the
office set forth beneath its name on the signature pages hereof.
4. The effective date for this Assignment and Acceptance shall be
_____________________________ (the "Effective Date"). Following the execution of
this Assignment and Acceptance, it will be delivered to the Agent for acceptance
and recording by the Agent.
5. Upon such acceptance and recording, as of the Effective Date, (i)
the Assignee shall be a party to the Agreement and, to the extent provided in
this Assignment and Acceptance, have the rights and obligations of a Lender
thereunder and under the Loan Documents and (ii) the Assignor shall, to the
extent provided in this Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Agreement.
6. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments under the Agreement and Notes in respect
of the interest assigned hereby (including, without limitation, all payments of
principal, interest, unused fees and letter of credit fees with respect thereto)
to the Assignee. The Assignor and Assignee shall make all appropriate
adjustments in payments under the Agreement and the Notes for periods prior to
the Effective Date directly between themselves.
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<PAGE>
7. This Assignment and Acceptance shall be governed by and construed in
accordance with, the laws of the State of North Carolina.
[NAME OF ASSIGNOR]
By:____________________________________________
Name:
Title:
Notice Address:________________________________
________________________________
________________________________
After the Effective Date
Outstanding Revolving Loans:$__________________
[NAME OF ASSIGNEE]
By:____________________________________________
Name:
Title:
Notice Address:________________________________
________________________________
________________________________
After the Effective Date
Outstanding Revolving Loans:$__________________
Accepted this __________ day of ___________, 19_______
NATIONSBANK, N.A. (CAROLINAS)
By:___________________________________________________
Name:
Title:
Consented to:
HEALTHSOUTH CORPORATION
By:____________________________
Name:
Title:
116
<PAGE>
EXHIBIT C-1
PARTNERSHIP GUARANTY AGREEMENT
------------------------------
THIS PARTNERSHIP GUARANTY AGREEMENT (this "Agreement") is entered into
by and between NATIONSBANK, N.A. (CAROLINAS) , a national banking association,
as Agent (the "Agent"), and the other undersigned entity (the "Guarantor") as of
April 11, 1995.
Recitals
--------
A. HEALTHSOUTH Corporation (formerly named HEALTHSOUTH Rehabilitation
Corporation), a Delaware corporation (the "Borrower"), the Agent and the other
lenders party thereto (the "Original Lenders") entered into a Credit Agreement
dated as of November 20, 1992 (such credit agreement as amended by Amendment No.
1 dated August 13, 1993 and Amendment No. 2 dated December 30, 1993, being
referred to as the "Original Agreement") pursuant to which the Original Lenders
agreed to make loans and cause to be issued letters of credit all in an
aggregate outstanding amount not to exceed $390,000,000.
B. At the request of the Borrower, by Amended and Restated Credit
Agreement dated June 7, 1994 (the "First Restated Agreement") the Borrower, the
Agent and certain of the Original Lenders together with additional lenders
(collectively the "Existing Lenders") amended and restated the Original
Agreement, thereby increasing the amount of the credit facility to $550,000,000
and changing certain provisions of the Original Agreement and resulting in the
addition of certain Participating Subsidiaries.
C. The Borrower has requested that the First Restated Agreement be
amended and restated in its entirety in order to increase the amount of the
credit facility, to change certain of the provisions contained therein and to
increase the number of lenders participating therein, and the Agent and the
respective lenders are willing to make such changes by amending and restating
the First Restated Agreement as set forth in the Second Amended and Restated
Credit Agreement of even date herewith, among the Borrower, the Agent and the
lenders party thereto (the "Lenders") (such Second Amended and Restated Credit
Agreement, as amended, modified or supplemented from time to time, being
referred to as the "Credit Agreement"). Capitalized terms used in this
Agreement, unless otherwise defined herein, have the meanings assigned to them
in the Credit Agreement.
D. The Borrower is either directly or through one of its Subsidiaries
the General Partner of the Guarantor, and proceeds of Loans made under the
Credit Agreement have been advanced to and used by the Guarantor.
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<PAGE>
E. The Guarantor will materially benefit from the Loans to be made to
the Borrower and Participating Subsidiaries and Participating Partnerships
pursuant to the Credit Agreement.
F. The Guarantor desires, pursuant to Section 2.5 of the Credit
Agreement, to guarantee, jointly and severally, with the other Participating
Subsidiaries and Participating Partnerships, the Credit Agreement, the Notes and
the other Credit Obligations and to take all other action necessary to become a
Participating Partnership, as defined in the Credit Agreement.
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements herein set forth, and to induce the Lenders to continue the
credit extended under the First Restated Agreement and to extend additional
credit under the Credit Agreement, and in further consideration of the
substantial material benefit to accrue to the Guarantor from credit extended and
to be extended by the Lenders under the Credit Agreement, the parties hereto
agree as follows:
1. The Guarantor does hereby, absolutely and unconditionally, jointly
and severally, for the benefit of the Agent and each of the Lenders, guarantee
and become surety for the full and timely payment when due (whether by
acceleration or otherwise) (including amounts which, but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code (or any successor
statute) would become due) for each of the Credit Obligations, whether direct or
indirect, joint or several, absolute or contingent, liquidated or unliquidated,
now or hereafter existing, extended, renewed, replaced, refinanced or
restructured, whether or not from time to time decreased or extinguished and
later increased, created or incurred; provided, however, that the Guarantor's
liability with respect to the Credit Obligations shall be limited to an amount
equal to its Partnership Liabilities.
2. This is a guaranty of payment and not merely of collection. In the
event of any default by the Borrower or any other obligor in payment or
otherwise on any of the Credit Obligations, the Guarantor will pay all or any
portion of the Credit Obligations due or thereafter becoming due, whether by
acceleration or otherwise, without offset of any kind whatsoever, without the
Agent or any Lender first being required to make demand upon the Borrower or any
other obligor or pursue any of its rights against the Borrower or any other
obligor, or against any other person, including other Participating
Subsidiaries, Participating Partnerships and guarantors; and without being
required to liquidate or realize on any collateral security. In any right of
action accruing to the Agent or any Lender, the Agent or such Lender (as the
case may be) may elect to proceed against (a) the Guarantor together with the
Borrower or any other obligor, Participating Subsidiary, Participating
Partnership or guarantor;
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(b) the Guarantor and the Borrower or any other obligor, Participating
Subsidiary, Participating Partnership or guarantor individually; or (c) the
Guarantor only without having first commenced any action against the Borrower or
any other obligor, Participating Subsidiary, Participating Partnership or
guarantor.
3. The Guarantor hereby unconditionally waives with respect to this
Agreement: (a) notice of acceptance of this Agreement by the Agent or any Lender
and any notice of the incurring by the Borrower or any other obligor,
Participating Subsidiary, Participating Partnership or guarantor of any Credit
Obligation; (b) presentment for payment, notice of nonpayment, demand, protest,
notice of protest and notice of dishonor or default to any party including the
Borrower, the Guarantor or any other obligor, Participating Subsidiary,
Participating Partnership or guarantor; (c) all other notices to which the
Borrower, the Guarantor or any other obligor, Participating Subsidiary,
Participating Partnership or guarantor may be entitled but which may legally be
waived; (d) demand for payments as a condition of liability under this
Agreement; (e) any disability of the Borrower or any other obligor or any
defense available to the Borrower or any other obligor, including absence or
cessation of the Borrower's or any other obligor's liability for any reason
whatsoever; (f) any defense or circumstances which might otherwise constitute a
legal or equitable discharge of a guarantor or surety; and (g) all rights under
any state or federal statute dealing with or affecting the rights of creditors.
4. The Guarantor acknowledges that it has had full and complete access
to the underlying papers relating to the Credit Obligations and all other papers
executed by any person in connection with the Credit Obligations, has reviewed
them and is fully aware of the meaning and effect of their contents. The
Guarantor is fully informed of all circumstances that bear upon the risks of
executing this Agreement and which a diligent inquiry would reveal. The
Guarantor has adequate means to obtain from the Borrower on a continuing basis
information concerning the Borrower's financial condition and is not depending
on the Agent or Lenders to provide such information, now or in the future. The
Guarantor agrees that neither the Agent nor the Lenders shall have any
obligation to advise or notify the Guarantor or to provide the Guarantor with
any data or information. The execution and delivery of this Agreement is not a
condition precedent (and the Agent and the Lenders have not in any way implied
that the execution of this Agreement is a condition precedent) to the Lenders'
making, extending or modifying any loan or any other financial accommodation to
or for the Guarantor otherwise than under the Credit Agreement.
5. The Guarantor hereby specifically acknowledges and agrees, without
limiting the generality of the other provisions of this Agreement, to be bound
by the terms and conditions specified in Section 2.5(b) of the Credit Agreement.
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6. The Guarantor hereby agrees that its guaranty of the Credit
Obligations is joint and several, continuing, absolute and unconditional
(subject to the proviso of Section 1 above). Without limiting the generality of
the foregoing, the Guarantor's obligations and liability hereunder and its
guaranty of the Notes and any other Loan Document shall not be released,
discharged, impaired, modified or in any way affected by (a) the invalidity or
unenforceability of any Loan Document, (b) the failure of the Agent or the
Lenders to give the Guarantor a copy of any notice given to the Borrower or any
other obligor, Participating Subsidiary, Participating Partnership or guarantor,
(c) any modification, amendment or supplement of any obligation, covenant or
agreement contained in any Loan Document, (d) any compromise, settlement,
release or termination of any obligation, covenant or agreement in any Loan
Document, (e) any waiver of payment, performance or observance by or in favor of
the Borrower or any other obligor, Participating Subsidiary, Participating
Partnership or guarantor of any obligation, covenant or agreement under any Loan
Document, (f) any consent, extension, indulgence or other action or inaction, or
any exercise or non-exercise of any right, remedy or privilege with respect to
any Loan Document, (g) the extension of time for payment or performance of any
Credit Obligations, (h) the release or discharge of the Lenders' claims against
any collateral now or at any time hereafter securing any of the Credit
Obligations, the Borrower or any other Participating Subsidiary or Participating
Partnership by operation of law or otherwise or (i) any other matter that might
otherwise be raised in avoidance of, or in defense against an action to enforce,
the obligations of the Guarantor under this Agreement or its guaranty of any
Credit Obligations.
7. The Guarantor hereby repeats and reaffirms each of the
representations and warranties contained in Article V of the Credit Agreement,
to the extent they are applicable to a Participating Partnership; and the
Guarantor hereby represents and warrants to the Agent and the Lenders that all
such representations and warranties are true with respect to the Guarantor.
8. The Guarantor covenants and agrees with the Agent and each Lender as
follows:
(a) The Guarantor will comply with all of the obligations,
requirements and restrictions in the covenants contained in Article VII
of the Credit Agreement, to the extent they are applicable to a
Participating Partnership.
(b) The Guarantor hereby irrevocably waives with respect to
this Agreement any legal or equitable right to recover from the
Borrower or any other obligor, Participating Subsidiary or
Participating Partnership or guarantor, including without limitation,
any right of subrogation, indemnity, reimbursement or contribution or
any other right of the Guarantor as a
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creditor of the Borrower or any other obligor, Participating
Subsidiary, Participating Partnership or guarantor.
(c) The Guarantor further waives any rights that might
otherwise be available to Guarantor pursuant to ss. 26-4 through ss.
26-7 of the North Carolina General Statutes.
9. The Guarantor irrevocably (a) acknowledges that this Agreement will
be accepted by the Agent and Lenders and performed by the Guarantor in the State
of North Carolina (which is the state in which the Agent's main office is
located); (b) submits to the jurisdiction of each state or federal court sitting
in North Carolina (collectively, the "Courts") over any suit, action or
proceeding arising out of or relating to this Agreement (individually, an
"Agreement Action"); (c) waives, to the fullest extent permitted by law, any
obligation or defense that the Guarantor may now or hereafter have based on
improper venue, lack of personal jurisdiction, inconvenience of forum or any
similar matter in any Agreement Action brought in any of the Courts; (d) agrees
that final judgment in any Agreement Action brought in any of the Courts shall
be conclusive and binding upon the Guarantor and may be enforced in any other
court to the jurisdiction of which the Guarantor is subject, by a suit upon such
judgment; (e) designates Michael D. Martin, or any successor Treasurer of
HEALTHSOUTH Corporation, whose address is HEALTHSOUTH Corporation, Two Perimeter
Park South, Suite 224W, Birmingham, Alabama 35243, as the Guarantor's authorized
agent to accept and acknowledge on the Guarantor's behalf service of any and all
process that may be served in any Agreement Action in any of the Courts; (f)
agrees, if such agent shall cease so to act, irrevocably to designate and
appoint without delay another such agent in the State of North Carolina
satisfactory to the Agent; (g) consents to the service of process on the
Guarantor in any Agreement Action by the mailing of a copy thereof by registered
or certified mail, postage prepaid, to (i) the Guarantor at the Guarantor's
address designated in or pursuant to Section 10.2 of the Credit Agreement or
(ii) the agent for service of process appointed by the Guarantor under this
Section 9; (h) agrees that service in either manner specified in clause (g) next
above shall in every respect be effective and binding on the Guarantor to the
same extent as though such service of process were served on the Guarantor in
person by a person duly authorized to serve such process; and (i) AGREES THAT
THE PROVISIONS OF THIS SECTION, EVEN IF FOUND NOT TO BE STRICTLY ENFORCEABLE BY
ANY COURT, SHALL CONSTITUTE "FAIR WARNING" TO THE GUARANTOR THAT THE EXECUTION
OF THIS AGREEMENT MAY SUBJECT THE GUARANTOR TO THE JURISDICTION OF THE COURTS OF
THE STATE OF NORTH CAROLINA WITH RESPECT TO ANY AGREEMENT ACTIONS, AND THAT IT
IS FORESEEABLE BY THE GUARANTOR THAT THE GUARANTOR MAY BE SUBJECTED TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NORTH CAROLINA AND MAY BE SUED IN
THAT STATE IN ANY AGREEMENT ACTIONS. Nothing in this Section 9 shall limit or
restrict the Agent's or any Lender's right to serve process or bring Agreement
Actions in manners and in courts otherwise as herein provided.
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10. The Guarantor agrees that it is, and for all purposes of the
Credit Agreement and the Note shall be, a Participating Partnership.
11. (a) THE GUARANTY PURSUANT TO THIS AGREEMENT IS A CONTINUING
GUARANTY AND SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL
OBLIGATIONS SHALL HAVE BEEN PAID IN FULL AND THE AGENT AND EACH LENDER SHALL BE
UNDER NO FURTHER OBLIGATION TO LEND OR ADVANCE FUNDS TO THE BORROWER OR ANY
OTHER PERSON CONSTITUTING CREDIT OBLIGATIONS OR TO ISSUE LETTERS OF CREDIT.
(b) If claim is ever made upon the Agent or any Lender for repayment or
recovery of any amount or amounts received in payment or on account of any of
the Credit Obligations (including without limitation any claim that such payment
constitutes or constituted a preference or preferential transfer under
bankruptcy or other law or a fraudulent conveyance, or any other claim under
bankruptcy or other law) and the Agent or such Lender repays all or part of said
amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property,
or (b) any settlement or compromise of any such claim effected by the Agent or
any Lender with any such claimant (including the original obligor), then and in
such event the Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon it, notwithstanding any
revocation hereof or the cancellation of any Note or other instrument evidencing
any Credit Obligation or any security therefor, and the Guarantor shall be and
remain liable to the Agent and the Lenders for the amount so repaid or recovered
to the same extent as if such amount had never originally been received by the
Agent or any Lender. Nothing contained in this Section 11(b) shall be deemed to
require any Participating Partnership to pay more than an amount equal to its
Partnership Liabilities.
(c) When taking action under this Agreement, the Agent will have the
same level of responsibility and the same protections as set forth in the Credit
Agreement for the Agent's actions thereunder.
12. This Agreement shall bind the Guarantor's successors and assigns
and shall inure to the benefit of, and be enforceable by, the Agent and each of
the Lenders and their respective successors and assigns. This Agreement may only
be waived, modified or amended by a written instrument signed by the Agent and
the party against which the enforcement thereof is sought. THIS AGREEMENT SHALL
IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUCTED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NORTH CAROLINA. If any term of this Agreement shall be invalid or
unenforceable, the remainder of this Agreement shall remain in force and effect.
This Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which shall constitute one agreement. This Agreement and
the other Loan Documents constitute the entire agreement of the parties with
respect to the subject matter hereof
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and supersede any inconsistent agreement with respect to the subject matter
hereof and thereof.
13. TO THE EXTENT PERMITTED BY LAW, THE GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE AGENT, ANY LENDER OR THE GUARANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
TO THE AGENT AND EACH LENDER MAKING THE LOANS AVAILABLE TO THE BORROWER AND
PARTICIPATING PARTNERSHIPS AND PARTICIPATING SUBSIDIARIES.
14. Additional Waiver. The Guarantor and the Agent believe that,
inasmuch as this Agreement and the transactions contemplated hereby have been
entered into and consummated outside the State of Alabama, such transactions
constitute transactions in interstate commerce, so that neither the Agent nor
any of the Lenders is required, solely by entering into this Agreement and
consummating the transactions contemplated hereby, to qualify to do business as
a foreign corporation within the State of Alabama. Notwithstanding the
foregoing, however, the Guarantor hereby irrevocably waives all rights that it
may have to raise, in any action brought by any of the Lenders or the Agent to
enforce the rights of the Lenders and the Agent hereunder, or the obligations of
the Guarantor hereunder, any defense which is based upon the failure of any of
the Lenders or the Agent to qualify to do business as a foreign corporation in
the State of Alabama, including, but not limited to, any defenses based upon ss.
232 of the Alabama Constitution of 1901, ss. 10-2A-247 of the Code of Alabama
(1975) or ss. 40-14-4 of the Code of Alabama (1975), or any successor provision
to any thereof. The foregoing waiver is made knowingly and voluntarily and is a
material inducement for the Agent and the Lenders to enter into the transactions
contemplated by this Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the Guarantor
on the date first written above.
[NAME OF PARTNERSHIP]
ATTEST:
By:______________________ By:___________________________
Name:____________________ Name:_________________________
Title:___________________ Title:________________________
NATIONSBANK, N.A. (CAROLINAS)
By:______________________
Name:____________________
Title:___________________
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<PAGE>
EXHIBIT C-2
SUBSIDIARY GUARANTY AGREEMENT
-----------------------------
THIS SUBSIDIARY GUARANTY AGREEMENT (this "Agreement") is entered into
by and between NATIONSBANK, N.A. (CAROLINAS), a national banking association, as
Agent (the "Agent"), and the other undersigned entity (the "Guarantor") as of
______________________ , 1995.
Recitals
--------
A. HEALTHSOUTH Corporation (formerly named HEALTHSOUTH Rehabilitation
Corporation), a Delaware corporation (the "Borrower"), the Agent and the other
lenders party thereto (the "Original Lenders) entered into a Credit Agreement
dated as of November 20, 1992 (such credit agreement as amended or supplemented
by Amendment No. 1 dated August 13, 1993, and Amendment No. 2 dated December 30,
1993, being referred to as the "Original Agreement") pursuant to which the
Original Lenders agreed to make loans and cause to be issued letters of credit
all in an aggregate outstanding amount not to exceed $390,000,000.
B. At the request of the Borrower, by Amended and Restated Credit
Agreement dated June 7, 1994 (The "First Restated Agreement") the Borrower, the
Agent and certain of the Original Lenders together with additional lenders
(collectively the "Existing Lenders") amended and restated the Original
Agreement, thereby increasing the amount of the credit facility to $550,000,000
and changing certain provisions of the Original Agreement and resulting in the
addition of certain Participating Subsidiaries.
C. The Borrower has requested that the First Restated Agreement be
amended and restated in its entirety in order to increase the amount of the
credit facility, to change certain of the provisions contained therein and to
increase the number of lenders participating therein, and the Agent and the
respective lenders are willing to make such changes by amending and restating
the First Restated Agreement as set forth in the Second Amended and Restated
Credit Agreement of even date herewith, among the Borrower, the Agent and the
lenders party thereto (the "Lenders") (such Second Amended and Restated Credit
Agreement, as amended, modified or supplemented from time to time, being
referred to as the "Credit Agreement"). Capitalized terms used in this
Agreement, unless otherwise defined herein, have the meanings assigned to them
in the Credit Agreement.
D. The Guarantor is a Subsidiary of the Borrower, and proceeds of
Loans made under the Credit Agreement have been advanced to and used by the
Guarantor.
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<PAGE>
E. The Guarantor will materially benefit from the Loans to be made to
the Borrower and Participating Subsidiaries and Participating Partnerships
pursuant to the Credit Agreement.
F. The Guarantor desires, pursuant to Section [2.5] of the Credit
Agreement, to guarantee, jointly and severally, with the other Participating
Subsidiaries and Participating Partnerships, the Credit Agreement, the Notes and
the other Credit Obligations and to take all other action necessary to become a
Participating Subsidiary, as defined in the Credit Agreement.
Agreement
---------
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual agreements herein set forth, and to induce the Lenders to continue the
credit extended under the First Restated Agreement and to extend credit under
the Credit Agreement and in further consideration of the substantial material
benefit to accrue to the Guarantor from credit extended and to be extended by
the Lenders under the Credit Agreement, the parties hereto agree as follows:
1. The Guarantor does hereby, absolutely and unconditionally, jointly
and severally, for the benefit of the Agent and each of the Lenders, guarantee
and become surety for the full and timely payment when due (whether by
acceleration or otherwise) (including amounts which, but for the operation of
the automatic stay under Section 362(a) of the Bankruptcy Code (or any successor
statute) would become due) for each of the Credit Obligations, whether direct or
indirect, joint or several, absolute or contingent, liquidated or unliquidated,
now or hereafter existing, extended, renewed, replaced, refinanced or
restructured, whether or not from time to time decreased or extinguished and
later increased, created or incurred; provided, however, that the Guarantor's
liability with respect to the Credit Obligations shall be limited to an amount
equal to the greater of (i) 95% of the Guarantor's Net Worth (as hereinafter
defined) from time to time; or (ii) the amount that in a legal proceeding
brought within the applicable limitations period is determined by the final,
non-appealable order of a court having jurisdiction over the issue and the
applicable parties to be the amount of value given by the Lenders, or received
by the Guarantor, in exchange for the obligations of the Guarantor under this
Agreement. As used in this Section 1, "Net Worth" shall mean (x) the fair value
of the property of the Guarantor from time to time (taking into consideration
the value, if any, of rights of subrogation, contribution and indemnity), minus
(y) the total liabilities of the Guarantor (including contingent liabilities
[discounted in appropriate instances], but excluding liabilities of the
Guarantor under this Agreement) from time to time.
2. This is a guaranty of payment and not merely of collection. In the
event of any default by the Borrower or any other obligor in payment or
otherwise on any of the Credit
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<PAGE>
Obligations, the Guarantor will pay all or any portion of the Credit Obligations
due or thereafter becoming due, whether by acceleration or otherwise, without
offset of any kind whatsoever, without the Agent or any Lender first being
required to make demand upon the Borrower or any other obligor or pursue any of
its rights against the Borrower or any other obligor, or against any other
Person, including other Participating Subsidiaries, Participating Partnerships
and guarantors; and without being required to liquidate or realize on any
collateral security. In any right of action accruing to the Agent or any Lender,
the Agent or such Lender (as the case may be) may elect to proceed against (a)
the Guarantor together with the Borrower or any other obligor, Participating
Subsidiary, Participating Partnership or guarantor; (b) the Guarantor and the
Borrower or any other obligor, Participating Subsidiary, Participating
Partnership or guarantor individually; or (c) the Guarantor only without having
first commenced any action against the Borrower or any other obligor,
Participating Subsidiary, Participating Partnership or guarantor.
3. The Guarantor hereby unconditionally waives with respect to this
Agreement: (a) notice of acceptance of this Agreement by the Agent or any Lender
and any notice of the incurring by the Borrower or any other obligor,
Participating Subsidiary, Participating Partnership or guarantor of any Credit
Obligation; (b) presentment for payment, notice of nonpayment, demand, protest,
notice of protest and notice of dishonor or default to any party including the
Borrower, the Guarantor or any other obligor, Participating Subsidiary,
Participating Partnership or guarantor; (c) all other notices to which the
Borrower, the Guarantor or any other obligor, Participating Subsidiary,
Participating Partnership or guarantor may be entitled but which may legally be
waived; (d) demand for payments as a condition of liability under this
Agreement; (e) any disability of the Borrower or any other obligor or any
defense available to the Borrower or any other obligor, including absence or
cessation of the Borrower's or any other obligor's liability for any reason
whatsoever; (f) any defense or circumstances which might otherwise constitute a
legal or equitable discharge of a guarantor or surety; and (g) all rights under
any state or federal statute dealing with or affecting the rights of creditors.
4. The Guarantor acknowledges that it has had full and complete access
to the underlying papers relating to the Credit Obligations and all other papers
executed by any person in connection with the Credit Obligations, has reviewed
them and is fully aware of the meaning and effect of their contents. The
Guarantor is fully informed of all circumstances that bear upon the risks of
executing this Agreement and which a diligent inquiry would reveal. The
Guarantor has adequate means to obtain from the Borrower on a continuing basis
information concerning the Borrower's financial condition and is not depending
on the Agent or Lenders to provide such information, now or in the future. The
Guarantor agrees that neither the Agent nor the Lenders shall have
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<PAGE>
any obligation to advise or notify the Guarantor or to provide the Guarantor
with any data or information. The execution and delivery of this Agreement is
not a condition precedent (and the Agent and the Lenders have not in any way
implied that the execution of this Agreement is a condition precedent) to the
Lenders' making, extending or modifying any loan or any other financial
accommodation to or for the Guarantor otherwise than under the Credit Agreement.
5. The Guarantor hereby specifically acknowledges and agrees, without
limiting the generality of the other provisions of this Agreement, to be bound
by the terms and conditions specified in Section 2.5(b) of the Credit Agreement.
6. The Guarantor hereby agrees that its guaranty of the Credit
Obligations is joint and several, continuing, absolute and unconditional
(subject to the proviso of Section 1 above). Without limiting the generality of
the foregoing, the Guarantor's obligations and liability hereunder and its
guaranty of the Notes and any other Loan Document shall not be released,
discharged, impaired, modified or in any way affected by (a) the invalidity or
unenforceability of any Loan Document , (b) the failure of the Agent or the
Lenders to give the Guarantor a copy of any notice given to the Borrower or any
other obligor, Participating Subsidiary, Participating Partnership or guarantor,
(c) any modification, amendment or supplement of any obligation, covenant or
agreement contained in any Loan Document , (d) any compromise, settlement,
release or termination of any obligation, covenant or agreement in any Loan
Document , (e) any waiver of payment, performance or observance by or in favor
of the Borrower or any other obligor, Participating Subsidiary , Participating
Partnership or guarantor of any obligation, covenant or agreement under any Loan
Document , (f) any consent, extension, indulgence or other action or inaction,
or any exercise or non-exercise of any right, remedy or privilege with respect
to any Loan Document , (g) the extension of time for payment or performance of
any Credit Obligations, (h) the release or discharge of the Lenders' claims
against any collateral now or at any time hereafter securing any of the Credit
Obligations, the Borrower or any other Participating Subsidiary or Participating
Partnership by operation of law or otherwise or (i) any other matter that might
otherwise be raised in avoidance of, or in defense against an action to enforce,
the obligations of the Guarantor under this Agreement or its guaranty of any
Credit Obligations .
7. The Guarantor hereby repeats and reaffirms each of the
representations and warranties contained in Article V of the Credit Agreement,
to the extent they are applicable to a Participating Partnership; and the
Guarantor hereby represents and warrants to the Agent and the Lenders that all
such representations and warranties are true with respect to the Guarantor.
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8. The Guarantor covenants and agrees with the Agent and each Lender as
follows:
(a) The Guarantor will comply with all of the obligations,
requirements and restrictions in the covenants contained in the Credit
Agreement, including Article VII and Section 10.4, to the extent they
are applicable to a Participating Subsidiary.
(b) The Guarantor hereby irrevocably waives with respect to
this Agreement any legal or equitable right to recover from the
Borrower or any other obligor, Participating Subsidiary, Participating
Partnership or guarantor, including without limitation, any right of
subrogation, indemnity, reimbursement or contribution or any other
rights of the Guarantor as a creditor of the Borrower or any other
obligor, Participating Subsidiary, Participating Partnership or
guarantor.
(c) The Guarantor further waives any rights that might
otherwise be available to Guarantor pursuant to ss. 26-4 through ss.
26-7 of the North Carolina General Statutes.
9. The Guarantor irrevocably (a) acknowledges that this Agreement will
be accepted by the Agent and Lenders and performed by the Guarantor in the State
of North Carolina (which is the state in which the Agent's main office is
located); (b) submits to the jurisdiction of each state or federal court sitting
in North Carolina (collectively, the "Courts") over any suit, action or
proceeding arising out of or relating to this Agreement (individually, an
"Agreement Action"); (c) waives, to the fullest extent permitted by law, any
obligation or defense that the Guarantor may now or hereafter have based on
improper venue, lack of personal jurisdiction, inconvenience of forum or any
similar matter in any Agreement Action brought in any of the Courts; (d) agrees
that final judgment in any Agreement Action brought in any of the Courts shall
be conclusive and binding upon the Guarantor and may be enforced in any other
court to the jurisdiction of which the Guarantor is subject, by a suit upon such
judgment; (e) designates Michael D. Martin, or any successor Treasurer of
HEALTHSOUTH Corporation whose address is HEALTHSOUTH Corporation, Two Perimeter
Park South, Suite 224W, Birmingham, Alabama 35243, as the Guarantor's authorized
agent to accept and acknowledge on the Guarantor's behalf service of any and all
process that may be served in any Agreement Action in any of the Courts; (f)
agrees, if such agent shall cease so to act, irrevocably to designate and
appoint without delay another such agent in the State of North Carolina
satisfactory to the Agent; (g) consents to the service of process on the
Guarantor in any Agreement Action by the mailing of a copy thereof by registered
or certified mail, postage prepaid, to (i) the Guarantor at the Guarantor's
address designated in or pursuant to Section 10.2 of the Credit Agreement or
(ii) the agent for service of process appointed by the Guarantor under this
Section 9; (h) agrees that service in either manner specified in
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<PAGE>
clause (g) next above shall in every respect be effective and binding on the
Guarantor to the same extent as though such service of process were served on
the Guarantor in person by a person duly authorized to serve such process; and
(i) AGREES THAT THE PROVISIONS OF THIS SECTION, EVEN IF FOUND NOT TO BE STRICTLY
ENFORCEABLE BY ANY COURT, SHALL CONSTITUTE "FAIR WARNING" TO THE GUARANTOR THAT
THE EXECUTION OF THIS AGREEMENT MAY SUBJECT THE GUARANTOR TO THE JURISDICTION OF
THE COURTS OF THE STATE OF NORTH CAROLINA WITH RESPECT TO ANY AGREEMENT ACTIONS,
AND THAT IT IS FORESEEABLE BY THE GUARANTOR THAT THE GUARANTOR MAY BE SUBJECTED
TO THE JURISDICTION OF THE COURTS OF THE STATE OF NORTH CAROLINA AND MAY BE SUED
IN THAT STATE IN ANY AGREEMENT ACTIONS. Nothing in this Section 9 shall limit or
restrict the Agent's or any Lender's right to serve process or bring Agreement
Actions in manners and in courts otherwise as herein provided.
10. The Guarantor agrees that it is, and for all purposes of the Credit
Agreement and the Note shall be, a Participating Subsidiary.
11. (a) THE GUARANTY PURSUANT TO THIS AGREEMENT IS A CONTINUING
GUARANTY AND SHALL CONTINUE IN FULL FORCE AND EFFECT UNTIL SUCH TIME AS ALL
OBLIGATIONS SHALL HAVE BEEN PAID IN FULL AND THE AGENT AND EACH LENDER SHALL BE
UNDER NO FURTHER OBLIGATION TO LEND OR ADVANCE FUNDS TO THE BORROWER OR ANY
OTHER PERSON CONSTITUTING CREDIT OBLIGATIONS.
(b) If claim is ever made upon the Agent or any Lender for
repayment or recovery of any amount or amounts received in payment or on account
of any of the Credit Obligations (including without limitation any claim that
such payment constitutes or constituted a preference or preferential transfer
under bankruptcy or other law or a fraudulent conveyance, or any other claim
under bankruptcy or other law) and the Agent or such Lender repays all or part
of said amount by reason of (a) any judgment, decree or order of any court or
administrative body having jurisdiction over such payee or any of its property,
or (b) any settlement or compromise of any such claim effected by the Agent or
any Lender with any such claimant (including the original obligor), then and in
such event each Guarantor agrees that any such judgment, decree, order,
settlement or compromise shall be binding upon it, notwithstanding any
revocation hereof or the cancellation of any Note or other instrument evidencing
any Credit Obligation or any security therefor, and each Guarantor shall be and
remain liable to the Agent and the Lenders for the amount so repaid or recovered
to the same extent as if such amount had never originally been received by the
Agent or any Lender.
(c) When taking action under this Agreement, the Agent will
have the same level of responsibility and the same protections as set forth in
the Credit Agreement for the Agent's actions thereunder.
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12. This Agreement shall bind the Guarantor's successors and assigns
and shall inure to the benefit of, and be enforceable by, the Agent and each of
the Lenders and their respective successors and assigns. This Agreement may only
be waived, modified or amended by a written instrument signed by the Agent and
the party against which the enforcement thereof is sought. THIS AGREEMENT SHALL
IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUCTED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NORTH CAROLINA. If any term of this Agreement shall be invalid or
unenforceable, the remainder of this Agreement shall remain in force and effect.
This Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which shall constitute one agreement. This Agreement and
the other Loan Documents constitute the entire agreement of the parties with
respect to the subject matter hereof and supersede any inconsistent agreement
with respect to the subject matter hereof and thereof.
13. TO THE EXTENT PERMITTED BY LAW, THE GUARANTOR HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY
WITH RESPECT TO ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF
CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER ORAL OR WRITTEN) OR ACTIONS OF
THE AGENT, ANY LENDER OR THE GUARANTOR. THIS PROVISION IS A MATERIAL INDUCEMENT
TO THE AGENT AND EACH LENDER MAKING THE LOANS AVAILABLE TO THE BORROWER AND
PARTICIPATING PARTNERSHIPS AND PARTICIPATING SUBSIDIARIES.
14. Additional Waiver. The Guarantor and the Agent believe that,
inasmuch as this Agreement and the transactions contemplated hereby have been
entered into and consummated outside the State of Alabama, such transactions
constitute transactions in interstate commerce, so that neither the Agent nor
any of the Lenders is required, solely by entering into this Agreement and
consummating the transactions contemplated hereby, to qualify to do business as
a foreign corporation within the State of Alabama. Notwithstanding the
foregoing, however, the Guarantor hereby irrevocably waives all rights that it
may have to raise, in any action brought by any of the Lenders or the Agent to
enforce the rights of the Lenders and the Agent hereunder, or the obligations of
the Guarantor hereunder, any defense which is based upon the failure of any of
the Lenders or the Agent to qualify to do business as a foreign corporation in
the State of Alabama, including, but not limited to, any defenses based upon ss.
232 of the Alabama Constitution of 1901, ss. 10-2A-247 of the Code of Alabama
(1975) or ss. 40-14-4 of the Code of Alabama (1975), or any successor provision
to any thereof. The foregoing waiver is made knowingly and voluntarily and is a
material inducement for the Agent and the Lenders to enter into the transactions
contemplated by this Agreement.
[Reminder of page intentionally left blank.]
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IN WITNESS WHEREOF, this Agreement has been executed by the Guarantor
on the date first written above.
[NAME OF PARTNERSHIP]
ATTEST:
By:______________________ By:___________________________
Name:____________________ Name:_________________________
Title:______________Secretary Title:________________________
NATIONSBANK, N.A. (CAROLINAS)
By:______________________
Name:____________________
Title:___________________
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EXHIBIT D
---------
HEALTHSOUTH CORPORATION
REQUEST FOR ADVANCE OR INTEREST RATE ELECTION
---------------------------------------------
Under the Second Amended and Restated Credit Agreement dated as of
April 11, 1995 (the "Credit Agreement") entered into by HEALTHSOUTH CORPORATION,
a Delaware corporation (the "Borrower"), and NATIONSBANK, N.A. (CAROLINAS), a
national banking association (the "Agent"), and the Lenders party thereto:
Request for Advance
-------------------
Pursuant to Section 2.2 of the Credit Agreement, the Borrower hereby
requests an Advance as follows:
(a) Amount of Advance - $__________.
(b) Date as of which the Advance is to be made -
___________.
(c) Part or parts, if any, of the Advance that are to be
used by or for the benefit of Participating
Partnerships:
Part Allocable
Name of to such
Participating Participating
Partnership Partnership
----------- -----------
(d) The following interest rate information is provided
by respect to the Segment represented by the Advance:
(i) the interest rate shall be [the Base Rate] [the
LIBOR-Based Rate] (circle one).
(ii) If a LIBOR-Based Rate is selected, the maturity
selected for the Interest Period is [one month] [two
months] [three months] for a LIBOR-Based Rate (circle
one, if applicable).
Interest Rate Election
----------------------
Pursuant to Section 3.2 of the Credit Agreement, the Borrower makes the
following interest rate election with respect to the Segment in the principal
amount of $__________ that matures on ____________.
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(a) The amount of the Segment to which the requested
interest rate will apply - $________.
(b) The date on which the selected interest rate will
become applicable - __________.
(c) The interest rate selected is [the Base Rate] [the
LIBOR-Based Rate] (circle one).
(d) If a LIBOR-Based Rate is selected, the maturity
selected for the Interest Period is [one month] [two
months] [three months] for a LIBOR-Based Rate (circle
one, if applicable).
In accordance with Section 6.1 of the Credit Agreement, the
presentation by the Borrower of this Request for Advance or Interest Rate
Election constitutes a representation and warranty by the Borrower to the Agent
and the Lenders that no material adverse change in the financial condition of
the Borrower and the Consolidated Entities, on a consolidated basis, as
reflected in the financial statements referred to in Section 5.3 of the Credit
Agreement, has occurred since the date of such financial statements and that the
representations and warranties of Borrower contained in the Credit Agreement
continue to be true and correct (except the financial statements referred to in
Section 5.3 shall be deemed those most recently delivered to the Agent pursuant
to Section 7.3).
Dated __________.
HEALTHSOUTH CORPORATION
By:________________________________
Its___________________________
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EXHIBIT E
FORM OF COMPETITIVE BID QUOTE REQUEST
-------------------------------------
[Date]
To: NationsBank, N.A. (Carolinas)
From: HEALTHSOUTH Corporation
Re: Competitive Bid Quote Request
Pursuant to Section 2.3 of the Second Amended and Restated Credit
Agreement dated as of April 11, 1995 (as modified and supplemented from time to
time, the "Credit Agreement") among HEALTHSOUTH Corporation, the lenders named
therein and NationsBank, N.A. (Carolinas) as agent, we hereby give notice that
we request Competitive Bid Quotes for the following proposed Competitive Bid
Borrowing(s):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Borrowing Quotation Interest
Date Date 1 Amount 2 Type 3 Period 4
- ---------------- ---------------- ----------------- -------------- --------------
Terms used herein have the meanings assigned to them in the Credit
Agreement.
HEALTHSOUTH CORPORATION
By:________________________________
Title:
- --------------
<FN>
1 For use if an Absolute Rate in an Absolute Rate Auction is requested to
be submitted before the Borrowing Date.
2 Each amount must be $10,000,000 or a larger multiple of $1,000,000.
3 Insert either "LIBOR Margin" (in the case of LIBOR Market Loans) or
"Absolute Rate" (in the case of Absolute Rate Loans).
4 One, two three or six months, in the case of a LIBOR Market Loan or, in
the case of an Absolute Rate Loan, a period of up to 180 days after the making
of such Absolute Rate Loan and ending on a Business Day.
</FN>
</TABLE>
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EXHIBIT F
FORM OF COMPETITIVE BID QUOTE
-----------------------------
To: NationsBank, N.A. (Carolinas), as Agent
Attention:
Re: Competitive Bid Quote to HEALTHSOUTH Rehabilitation
Corporation (the "Borrower")
The Competitive Bid Quote is given in accordance with Section 2.3(c) of
the Second Amended and Restated Credit Agreement dated as of April 11, 1995 (as
modified and supplemented from time to time, the "Credit Agreement") among
HEALTHSOUTH Corporation, the lenders named therein and NationsBank, N.A.
(Carolinas), as agent. Terms defined in the Credit Agreement are used herein as
defined therein.
In response to the Borrower's invitation dated __________, 199_, we
hereby make the following Competitive Bid Quote(s) on the following terms:
1. Quoting Bank:
2. Person to contact at Quoting Bank:
3. We hereby offer to make Competitive Bid Loan(s) in
the following principal amount[s], for the following Interest Period(s)
and at the following rate(s):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Borrowing Quotation Interest
Date Date 1 Amount2 Type3 Period 4 Rate5
- ---------------- ---------------- ------ ---- -------------- ----
- -------------------
<FN>
1 As specified in the related Competitive Bid Quote Request.
2 The principal amount bid for each Interest Period may not exceed the
principal amount requested. Bids must be made for at least $2,000,000 or a
larger multiple of $1,000,000.
3 Indicate "LIBOR Margin" (in the case of LIBOR Market Loans) or "Absolute
Rate" (in the case of Absolute Rate Loans).
4 One, two, three or six months, in the case of a LIBOR Market Loan or, in
the case of an Absolute Rate Loan, a period of up to 180 days after the making
of such Absolute Rate Loan and ending on a Business Day, as specified in the
related Competitive Bid Market Quote Request.
</FN>
</TABLE>
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We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement,
irrevocably obligate[s] us to make the Competitive Bid Loan(s) for which any
offer(s) (is/are) accepted, in whole or in part (subject to the third sentence
of Section 2.3(e) of the Credit Agreement).
Very truly yours,
[NAME OF BANK]
By:________________________________
Authorized Officer
Dated: __________, ____
_____________________
5(...continued)
5 For a LIBOR Market Loan, specify margin over or under the London
interbank offered rate determined for the applicable Interest Period. Specify
percentage (rounded to the nearest 1/10,000 of 1%) and specify whether "PLUS" or
"MINUS". For an Absolute Rate Loan, specify rate of interest per annum (rounded
to the nearest 1/10,000 of 1%).
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EXHIBIT G
HEALTHSOUTH Rehabilitation Corporation
PARTICIPATING SUBSIDIARIES
--------------------------
PARTICIPATING PARTNERSHIPS
--------------------------
137
<PAGE>
138
<PAGE>
EXHIBIT H-1
[Form of Syndicated Note]
PROMISSORY NOTE
$_____________1 ____________, 199_
FOR VALUE RECEIVED, HEALTHSOUTH CORPORATION, a Delaware corporation
(the "Borrower"), hereby promises to pay to ____________________________2 (the
"Lender"), for account of its Applicable Lending Office provided for by the
Credit Agreement referred to below, at the principal office of NationsBank, N.A.
(Carolinas) at One Independence Center, 101 North Tryon Street, Charlotte, North
Carolina 28255, the principal sum of ______________3 Dollars (or such lesser
amount as shall equal the aggregate unpaid principal under the Credit
Agreement), in lawful money of the United States of America and in immediately
available funds, on the dates and in the principal amounts provided in the
Credit Agreement, and to pay interest on the unpaid principal amount of each
such Syndicated Loan, at such office, in like money and funds, for the period
commencing on the date of such Syndicated Loan until such Syndicated Loan shall
be paid in full, at the rates per annum and on the dates provided in the Credit
Agreement.
The date, amount, Type, interest rate and duration of Interest Period
(if applicable) of each Syndicated Loan made by the Lender to the Borrower, and
each payment made on account of the principal thereof, shall be recorded by the
Lender on its books and, prior to any transfer of this Note, endorsed by the
Lender on the schedule attached hereto or any continuation thereof, provided
that the failure of the Lender to make any such recordation or endorsement shall
not affect the obligations of the Borrower to make a payment when due of any
amount owing under the Credit Agreement or hereunder in respect of the
Syndicated Loans made by the Lender.
This Note is one of the Syndicated Notes referred to in the Second
Amended and Restated Credit Agreement dated as of April 11, 1995 (as modified
and supplemented from time to time, the "Credit Agreement") among the Borrower,
the Lenders named therein and NationsBank, N.A. (Carolinas), as Agent, and
evidences Syndicated Loans made by the Lender thereunder. Terms used but not
defined in this Note have the respective meanings assigned to them in the Credit
Agreement.
___________________
1 Insert the amount of Lender's Commitment.
2 Insert name of Lender in capital letters.
3 Insert Lender's Commitment in words.
139
<PAGE>
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of Loans
upon the terms and conditions specified therein. In the event this Note is not
paid when due at any stated or accelerated maturity, the Borrower agrees to pay,
in addition to the principal and interest, all costs of collection, including
reasonable attorney's fees.
Except as permitted by Section 10.1(a) of the Credit Agreement, this
Note may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of North Carolina.
HEALTHSOUTH CORPORATION
ATTEST:
By:
____________________________
By:______________________ Vice President
Assistant Secretary
[CORPORATE SEAL]
140
<PAGE>
SCHEDULE OF SYNDICATED LOANS
This Note evidences Syndicated Loans made, continued or converted under
the within-described Credit Agreement to the Borrower, on the dates, in the
principal amounts, of the Types, bearing interest at the rates and having
Interest Periods (if applicable) of the continuations, conversions and
prepayments of principal set forth below:
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
- ----- ----- ---- ------ ------ ------- ------- -------
141
<PAGE>
EXHIBIT H-2
[Form of Competitive Bid Note]
PROMISSORY NOTE
$_____________1 ____________, 1994
FOR VALUE RECEIVED, HEALTHSOUTH CORPORATION, a Delaware corporation
(the "Borrower"), hereby promises to pay to ____________________________2 (the
"Lender"), for account of its Applicable Lending Office provided for by the
Credit Agreement referred to below, at the principal office of NationsBank, N.A.
(Carolinas), Independence Center, 101 North Tryon Street, Charlotte, North
Carolina 28255, the aggregate unpaid principal amount of the Competitive Bid
Loans made by the Lender to the Borrower under the Credit Agreement, in lawful
money of the United States of America and in immediately available funds, on the
dates and in the principal amounts provided in the Credit Agreement, and to pay
interest on the unpaid principal amount of each such Competitive Bid Loan, at
such office, in like money and funds, for the period commencing on the date of
such Competitive Bid Loan until such Competitive Bid Loan shall be paid in full,
at the rates per annum and on the dates provided in the Credit Agreement.
The date, amount, Type, interest rate and maturity date of each
Competitive Loan made by the Lender to the Borrower, and each payment made on
account of the principal thereof, shall be recorded by the Borrower on its books
and, prior to any transfer of this Note, endorsed by the Borrower on the
schedule attached hereto or any continuation thereof, provided that the failure
of the Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower to make a payment when due of any amount owing under
the Credit Agreement or hereunder in respect of the Competitive Bid Loans made
by the Lender.
This Note is one of the Competitive Bid Notes referred to in the Second
Amended and Restated Credit Agreement dated as of April 11, 1995 (as modified
and supplemented from time to time, the "Credit Agreement") among the Borrower,
the Lenders named therein and NationsBank, N.A. (Carolinas), as Agent, and
evidences Competitive Bid Loans made by the Lender thereunder. Terms used but
not defined in this Note have the respective meanings assigned to them in the
Credit Agreement.
_________________
1 Insert the amount of Lender's Commitment.
2 Insert name of Lender in capital letters.
142
<PAGE>
The Credit Agreement provides for the acceleration of the maturity of
this Note upon the occurrence of certain events and for prepayments of
Competitive Bid Loans upon the terms and conditions specified therein. In the
event this Note is not paid when due at any stated or accelerated maturity, the
Borrower agrees to pay, in addition to the principal and interest, all costs of
collection, including reasonable attorney's fees.
Except as permitted by Section 10.1(a) of the Credit Agreement, this
Note may not be assigned by the Lender to any other Person.
This Note shall be governed by, and construed in accordance with, the
law of the State of North Carolina.
HEALTHSOUTH CORPORATION
ATTEST:
By:
______________________________
By:______________________ Vice President
Assistant Secretary
[CORPORATE SEAL]
143
<PAGE>
SCHEDULE OF COMPETITIVE BID LOANS
This Note evidences Loans made under the within-described Credit
Agreement to the Borrower, on the dates, in the principal amounts, of the Types,
bearing interest at the rates and maturing on the dates set forth below, subject
to the payments and prepayments of principal set forth below:
Principal
Date Amount Type Maturity Amount Unpaid
of of of Interest Date of Paid or Principal Notation
Loan Loan Loan Rate Loan Prepaid Amount Made by
- ---- ------ ---- ----- ------ ------- ------- -------
144
<PAGE>
EXHIBIT I
---------
FORM OF
COMPLIANCE CERTIFICATE
----------------------
Reference is made to that certain Second Amended and Restated Credit
Agreement between HEALTHSOUTH Corporation, a Delaware corporation (the
"Borrower"), NationsBank, N.A. (Carolinas), a national banking association (the
"Agent"), and the Lenders party thereto, dated as of April 11, 1995 (the "Credit
Agreement"). Capitalized terms used in this certificate and the Schedule
attached hereto, unless otherwise defined herein, have the meanings assigned to
them in the Credit Agreement.
The undersigned does hereby certify to the Agent as follows:
1. He is the duly elected and serving [chief financial office or chief
executive officer] of the Borrower.
2. He has reviewed the terms of the Credit Agreement and the other Loan
Documents and has made, or has caused to be made under his supervision, a review
of the transactions and conditions of the Borrower and its Consolidated Entities
through the date on which this certificate is delivered to the Agent. No Event
of Default or event that upon notice or lapse of time or both would constitute
an Event of Default under the Credit Agreement has occurred and is continuing as
of the date this certificate is delivered to the Lender, except as
follows:________________________________________________________________________
________________________________________________________________________________
[Give detailed description or insert "none" if appropriate].
3. The computations relating to the Borrower's financial conditions set
forth on Schedule I-1 attached hereto were true and correct as of __________,
19__ (such date being the last day of the most recently ended fiscal calendar
quarter) and there has been no material adverse change in such amounts upon
which such computations are based through the date on which this certificate is
delivered to the Lender.
4. The principal amount of the Partnership Liabilities of each
Participating Partnership as the date hereof is set forth on Schedule I-2
attached hereto.
___________________________________
________ of HEALTHSOUTH CORPORATION
__________, 19__
145
<PAGE>
SCHEDULE I-1
------------
Financial Covenant Compliance
-----------------------------
The following financial covenant calculations are made as of
_______________ (the "Determination Date").
1. Consolidated Net Worth
A. Consolidated Net Worth at ___________
Determination Date
B. Consolidated Net Worth ___________
Required (calculated below)
a) Greater of (i) Consolidated
net worth at 3/31/95 minus
$10,000,000 or (ii)
$416,000,000 ___________
b) Consolidated Net Income for
successive fiscal quarters
x 75% ___________
c) Net proceeds of any sale of
Capital Stock ___________
d) (a) + (b) + (c) (Required) ___________
2. Consolidated Fixed Charge Coverage
A. Consolidated Net Income ___________
B. Consolidated Interest Expense ___________
C. Consolidated Depreciation Expense ___________
D. Consolidated Lease Expense ___________
E. Consolidated Income Tax Expense ___________
F. Consolidated Amortization Expense ___________
G. Allowable acquisition expense ___________
H. 2A + 2B + 2C + 2D + 2E + 2F + 2G ___________
I. Capital Expenditures ___________
J. 2H - 2I ___________
K. Consolidated Interest Expense ___________
L. Consolidated Lease Expense ___________
M. Consolidated Current Maturities ___________
N. Restricted Payments ___________
O. 2K + 2L + 2M + 2N ___________
P. J/O ___________
Required: Not less than 1.10 to 1.00
Actual Capital Expenditures for the period ___________
3. Senior Leverage Ratio
A. Senior Indebtedness ___________
B. Consolidated Total Capital ___________
C. A./B. ___________
146
<PAGE>
Required: Less than 0.55 to 1.00 prior to January 1, 1996, less
than 0.50 to 1.00 from January 1, 1996 through
December 31, 1996, and less than 0.45 to 1.00 on and
after January 1, 1997.
4. Consolidated Indebtedness/Consolidated Cash Flow
A. Indebtedness ___________
B. Consolidated Cash Flow ___________
C. A./B. ____ to 1.00
D. Required ____ to 1.00
Required: Not more than the levels established for certain
periods as described in section 7.8(a)(4) of the
Credit Agreement
147
<PAGE>
SCHEDULE I-2
------------
Partnership Liabilities
-----------------------
Name of Partnership Partnership Liabilities
- ------------------- -----------------------
148
<PAGE>
EXHIBIT J
---------
SUMMARY OF INSURANCE
--------------------
See Attached.
149
<PAGE>
EXHIBIT K
----------
EXISTING INDEBTEDNESS AND
OUTSTANDING LETTERS OF CREDIT
-----------------------------
150
<PAGE>
151
<PAGE>
EXHIBIT L
HEALTHSOUTH Rehabilitation Corporation
Investments of Equity Interests
Maximum
Name Investment
---- ----------
Austin Surgery Center (MOB) $1,920,600
Kinetikos Medical (Stock) 100,000
Capstone (REIT) 99,000
ODEA (MOB) 127,361
Cumberland Health Associates (Rehab Facility
Building & Loan) 4,895,000
Allegheny Rehab Associates (Rehab Facility
Buiding & Loan) 6,230,000
RIOSA (Rehab Facility Building) 1,370,000
Med Partners (Stock) 2,110,646
HealthSmart (Stock and Debt) 150,000
Wellmark (Stock) 1,000,000
PRI (PT Partnership) 600,000
Caretenders Healthcorp (Stock) 7,369,806
National Bank Injury Network (Stock) 3,000,000
SportsMed LLC (Debentures and Notes) 2,000,000
Fountainhead Holding, Inc. (Stock) -0-
Specialty Alliance (HPO) 75,000
NME (Variance Loan) 185,000
Blair Health (Loan) 3,101,000
Ft. Smith (Loan) 5,000
Montgomery (Loan) 299,968
Capital Region (Loan) 212,968
Ocean Health (Loan) 1,142,387
Arizona Spine Care (Loan) 50,000
Mary Shields Hospital (Mortgage Loan) 195,424
Northeast Hospital (Loan) 1,725,000
152
<PAGE>
EXHIBIT M
SUBSIDIARIES AND CONTROLLED PARTNERSHIPS
153
<PAGE>
154
<PAGE>
155
<PAGE>
156
<PAGE>
157
<PAGE>
158
<PAGE>
EXHIBIT N
---------
EXISTING LIENS
---------------
159
<PAGE>
EXHIBIT 11
HEALTHSOUTH Corporation and Subsidiaries
Computation of Income Per Share (Unaudited)
In Thousands, except for per share data
<TABLE>
<CAPTION>
Year Ended December 31,
1993 1994 1995
-------------- -------------- ---------
<S> <C> <C> <C>
PRIMARY:
Weighted average common shares outstanding 75,480 78,039 85,902
Net effect of diluted stock options 4,004 8,422 8,344
-------------- -------------- ------------
Total Common and Common Equivalent Shares 79,484 86,461 94,246
============== ============== ============
Net income/(loss) $ 17,336 $ 50,493 $ 78,949
============== ============== ============
Net income/(loss) per common and
common equivalent share $ 0.22 $ 0.58 $ 0.84
============== ============== ============
FULLY DILUTED:
Weighted average common shares outstanding 75,480 78,039 85,902
Net effect of diluted stock options 4,004 8,422 8,344
-------------- -------------- ------------
79,484 86,461 94,246
Assumed conversion of 5% Convertible
Subordinated Debentures due 2001 (1) (2) 6,113
-------------- -------------- ------------
Total Common and Common Equivalent Shares,
Fully Diluted $ 79,484 $ 86,461 $ 100,359
============== ============== ============
Net income $ 17,336 $ 50,493 $ 78,949
Elimination of interest and amortization on 5%
Convertible Subordinated Debentures due 2001, less
the related effect on the provision for income taxes (1) (1) 3,826
-------------- -------------- ------------
Net income, fully diluted $ 17,336 $ 50,493 $ 82,775
============== ============== ============
Net income per common and common equivalent share N/A $ 0.58 $ 0.82
============== ============== ============
<FN>
(1) There were no other potentially dilutive securities outstanding for this
period.
(2) The effect of the Convertible Subordinated Debentures was antidilutive in
1994.
</FN>
</TABLE>
<PAGE>
EXHIBIT 21
HEALTHSOUTH Corporation
Subsidiaries
Advantage Health Corporation (DE) (CT)(FL)(MA)(NH)(NJ)(NY)(ME)(PA)(RI)(VT)
Advantage Beverly Corporation (MA) (ME)
Advantage Health Arlington Corp. (MA)
Advantage Health Comprehensive Care Corp. (MA)
Advantage Health Development Corp. (MA)
Advantage Health Eastern Rehabilitation Network, Inc. (CT)
Advantage Health Harmarville Rehabilitation Corporation (PA)
Advantage Health Management Corp. (MA) (CT)(FL)(NY) (ME)(NH)
Advantage Health Physical Therapy of New Hampshire, Inc. (NH)
Advantage Health Rehabilitation Clinics of Rhode Island, Inc. (RI)
Advantage Health Rehab. West Corp. (MA)
Advantage Health Venture Corp. (MA)
Advantage Health Nursing Care, Inc. (MA)
Advantage Rehabilitation Clinics, Inc. (MA)
AHC Management Services of New York, Inc. (NY)
Advantage Health Challenge Physical Therapy, Inc. (MA)
Advantage Health CORF of Maine, Inc. (ME)
Advantage Health Physical Therapy, Inc. (MA) (CT)(DE)
Advantage Health Physical Therapy of New Jersey, Inc. (MA) (NJ)
Advantage Health Physical Therapy of Quincy, Inc. (MA)
Advantage Health Physical Therapy Services of Connecticut, Inc. (CT)
Therapy Resources of New London, Inc. (CT)
Advantage Health Sports Therapy, Inc. (MA)
Advantage Health Sports Therapy North, Inc. (MA)
Advantage Rehabilitation Clinics of Maine, Inc. (ME)
AHC Development Corp. (MA)
Baygan Development Corp. (FL)
Cynthia and James London, Inc. (ME)
LH Real Estate Company, Inc. (MA) (99.5%)
New England Home Health Care, Inc. (MA) (96.8%)
Special Care Certified of Cape and Islands, Inc. (MA)
Special Care Certified of Massachusetts, Inc. (MA)
Special Care Home Health Services of Connecticut, Inc. (CT)
Special Care Home Health Services of Connecticut p.r.n., Inc. (CT)
Special Care Home Health Services of Maine, Inc. (ME)
Special Care Nursing Services, Inc. (MA)
Special Home Care, Inc. (MA)
New England Rehabilitation Center of Southern New Hampshire, Inc. (NH) (91.75%)
New England Rehabilitation Hospital, Inc. (MA)
New England Rehabilitation Hospital of Portland, Inc. (ME)
New England Rehabilitation Management Co., Inc. (NH) (CT)(FL)(ME)(NY)
New England Rehabilitation Services of Central Massachusetts, Inc. (MA)
<PAGE>
(33-1/3%)
Winchester Gables, Inc. (MA) (51%)
Diagnostic Health Corporation (DE) (AL)(DC)(GA)(MD)(TN)(TX)(NJ)(VA)
Disability and Impairment Evaluation Centers of America, Inc. (DE) (TX)(LA)(OK)
DIECA, Inc. (DE) (LA)
HEALTHSOUTH Aviation, Inc. (AL)
HEALTHSOUTH Community Re-Entry Center of Dallas, Inc. (DE) (TX)
HEALTHSOUTH Doctors' Hospital, Inc. (DE) (FL)
Hospital Health Systems, Inc. (FL)
Doctors' Health Service Corporation (FL)
Doctors' Scanning Associates, Inc. (FL)
Doctors' Home Health, Inc. (FL)
Doctors' Medical Equipment Corp. (FL)
HEALTHSOUTH Holdings, Inc. (DE) (AL)(AR)(CT)(DC)(GA)(IL)(IA)(LA)(MD)(MA)(MS)(MO)
(NV)(NJ)(NC)(NY)(OH)(OK)(PA)(RI)(SC)(TN)(VA)(WA)(WI)
Associated Therapy Centers, Inc. (OH)
Delaware Sportscare/Physical Therapy, Inc. (DE)
Madison Rehabilitation Center, Inc. (CT)
Physical Therapy Professionals, Inc. (OK)
Professional Therapy & Rehabilitation, Inc. (OK)
HEALTHSOUTH International, Inc. (DE)
HEALTHSOUTH Medical Center, Inc. (AL)
HEALTHSOUTH Occupational Health & Injury
Management of Colorado, Inc. (DE) (CO)
HEALTHSOUTH of Altoona, Inc. (DE)(MD)(PA)(WV)
HEALTHSOUTH of Austin, Inc. (DE) (TX)
HEALTHSOUTH of Birmingham, Inc. (DE) (AL)
HEALTHSOUTH of Charleston, Inc. (DE) (SC)
HEALTHSOUTH of Columbia, Inc. (DE) (MO)
HEALTHSOUTH of Dallas, Inc. (DE) (TX)
HEALTHSOUTH of Dothan, Inc. (AL)
HEALTHSOUTH of East Tennessee, Inc. (DE) (TN)
HEALTHSOUTH of Erie, Inc. (DE) (PA)
HEALTHSOUTH of Fort Smith, Inc. (DE) (AR)(OK)
HEALTHSOUTH of Great Lakes, Inc. (DE) (PA)(OH)
HEALTHSOUTH of Houston, Inc. (DE) (TX)
HEALTHSOUTH of Louisiana, Inc. (DE) (LA)
HEALTHSOUTH of Mechanicsburg, Inc. (DE) (PA)
HEALTHSOUTH of Michigan, Inc. (DE) (MI)
HEALTHSOUTH of Middle Tennessee, Inc. (DE) (TN)
HEALTHSOUTH of Midland, Inc. (DE) (TX)
HEALTHSOUTH of Missouri, Inc. (DE) (MO)
HEALTHSOUTH of Montgomery, Inc. (AL)
HEALTHSOUTH of New Hampshire, Inc. (DE) (NH)
HEALTHSOUTH of New Mexico, Inc. (NM)
HEALTHSOUTH of Nittany Valley, Inc. (DE) (PA)
HEALTHSOUTH of Oklahoma, Inc. (DE) (OK)
HEALTHSOUTH of Ontario, Inc. (DE) (Canada)
- 2 -
<PAGE>
HEALTHSOUTH of Pittsburgh, Inc. (DE) (PA)
HEALTHSOUTH of Salem, Inc. (DE) (NH)
HEALTHSOUTH of San Antonio, Inc. (DE) (TX)
HEALTHSOUTH of South Carolina, Inc. (DE) (SC)
HEALTHSOUTH of Texarkana, Inc. (DE) (TX)(LA)
HEALTHSOUTH of Texas, Inc. (TX)
HEALTHSOUTH of Toms River, Inc. (DE) (NJ)
HEALTHSOUTH of Treasure Coast, Inc. (DE) (FL)
HEALTHSOUTH of Utah, Inc. (DE) (UT)
HEALTHSOUTH of Virginia, Inc. (DE) (VA)
HEALTHSOUTH of York, Inc. (DE) (PA)
HEALTHSOUTH Orthopedic Services, Inc. (DE) (AL)(CA)(CO)(FL)(IL)(IN)(MD)(MO)(NJ)
(NC)(OH)(PA)(SC)(TX)(WA)(WI)
Dublin Physical Therapy, Inc. (OH)
Northwestern Memorial/Caremark, Inc. (IL) (50%)
HEALTHSOUTH Properties Corporation (DE) (AL)(AZ)(FL)(NM)(TX)
HEALTHSOUTH Real Property Holding Corporation (DE) (AL)(AZ)(FL)(TX)
HEALTHSOUTH Rehabilitation Center, Inc. (SC)
HEALTHSOUTH Speciality Hospital, Inc. (TX)
HEALTHSOUTH Sub-Acute Center of Houston, Inc. (DE) (TX)
HEALTHSOUTH Sub-Acute Center of Mechanicsburg, Inc. (DE) (PA)
HEALTHSOUTH Surgery Centers-West, Inc. (DE) (AL)(AZ)(CA)(UT)
(formerly Sutter Surgery Centers, Inc.)
Sutter Tucson Surgery Center, a division of Sutter Surgery Centers, Inc.
(listed as a d/b/a in Arizona for Sutter Surgery Centers, Inc.)
Salt Lake City Surgical Center, a division of Sutter Surgery Centers, Inc.
(listed as a d/b/a in Utah for Sutter Surgery Centers, Inc.)
HEALTHSOUTH Surgical Center of Tuscaloosa, Inc. (AL)
The Hitchcock Groups, Inc. (IN)
HEALTHSOUTH IMC Healthcare Centers (CA)
(formerly Kearny Mesa Industrial Medical Center)
Physician Practice Management Corporation (DE) (AL)(FL)(VA)
Professional Therapy Systems, Inc. (TN)
Rehab Systems Company (DE) (AZ)(CA)(IN)(MD)(NJ)(NV)(PA)(TX)(VA)(WV)
American Health Enterprises, Ltd. (PA) (WV)
Arizona Rehabilitation Hospital, Inc. (DE) (AZ)
CRH, Inc. (MD)
East Capital Rehabilitation Hospital, Inc. (MD)
Medical Rehabilitation Corporation of Maryland (MD)
Bakersfield Regional Rehabilitation Hospital, Inc. (DE) (CA)
NovaCare Meridian Point Rehabilitation Hospital, Inc. (AZ)
NovaCare Rehabilitation Hospital of North Texas, Inc. (DE) (TX)
NovaCare SMC, Inc. (MD)
NovaCare Tri-State Regional Rehabilitation Hospital, Inc. (IN)
Rehab Systems Financial Corporation (DE)
RehabWorld of West Virginia, Inc. (WV)
Rehabilitation Corporation of Virginia (VA)
Rehabilitation Hospital Corporation of America (DE) (PA)
- 3 -
<PAGE>
Tucson Regional Rehabilitation Hospital, Inc. (DE) (AZ)
West Virginia Rehabilitation Hospital, Inc. (WV)
West Virginia Rehabilitation Services, Inc. (PA (WV)
ReLife, Inc. (DE) (GA)(AL)(TN)
Rebound, Inc. (DE) (OH)(TN)(TX)(MO)(FL)(SC)(AL)
Health Providers, Inc. (FL) (Multi-state)
Lakeshore System Services, Inc. (AL) (GA)(FL)(MO)(NC)(OH)(SC)(TN)(TX)(WV)
Lakeshore System Services of Florida, Inc. (FL)
ReLife of Tennessee, Inc. (TN)
ReLife Acquisition Corporation (AL) (WV)
Renaissance Rehabilitation Center of Chattanooga, Inc. (GA) (TN)
Renaissance Rehabilitation Center, Inc. (GA) (LA)
American Health Resources, Inc. (OH)
West Virginia Rehabilitation Resources, Inc. (WV)
Sports Therapy and Advanced Rehabilitation Training, Inc. (TX)
Surgical Care Affiliates, Inc. (DE) (TN)(PA)
Alaska Surgery Center, Inc. (AK)
All-Care Surgi Center, Inc. (MD)
Aurora-SC, Inc. (CO)
Bakersfield-SC, Inc. (TN) (CA)
Camp Hill-SCA Centers, Inc. (PA)
The Center for Day Surgery, Inc. (AR)
Charlotte-SC, Inc. (NC)
Chattanooga-SC, Inc. (TN)
Coral Springs-SC, Inc. (TN) (FL)
El Paso-SC, Inc. (TX)
Fort Worth-SC, Inc. (TX)
Glenwood, SC, Inc. (TN) (CA)
Golden-SCA, Inc. (CO)
Greenpark Surgery Center, Inc. (TX)
HEALTHSOUTH-Montgomery, Inc. (TN) (OH)
HEALTHSOUTH Surgery Center of Westerville, Inc. (DE)
Knoxville-SCA Surgery Center, Inc. (TN)
Lancaster Medical Centre, Inc. (PA)
Lancaster Surgical Center, Inc. (PA)
Lexington-SC, Inc. (KY)
Lexington-SC Properties, Inc. (KY)
Little Rock-SC, Inc. (AR)
Louisville-SC Properties, Inc. (KY)
Maryland-SCA Centers, Inc. (MD)
Nashville-SCA Surgery Centers, Inc. (TN)
Oshkosh-SCA Surgery Center, Inc. (WI)
Pueblo-SCA Surgery Center, Inc. (CO)
Redlands-SCA Surgery Centers, Inc. (CA)
San Antonio Surgery Center, Inc. (TX)
San Luis Obispo-SC, Inc. (TN) (CA)
SCA-Albuquerque, Inc. (NM)
SCA-Albuquerque Surgery Properties, Inc. (NM)
- 4 -
<PAGE>
SCA Cabell Development Corporation (WV)
SCA Cabell, Inc. (WV)
SCA-Citrus, Inc. (TN) (FL)
SCA-Colorado Springs, Inc. (CO)
SCA-Conroe, Inc. (TN) (TX)
SCA-Dalton, Inc. (TN) (GA)
SCA-Development, Inc. (TN)
SCA-Dothan, Inc. (TN) (AL)
SCA-Dover, Inc. (DE)
SCA-Eugene, Inc. (TN) (OR)
SCA-Evansville, Inc. (IN)
SCA-Florence, Inc. (TN) (AL)
SCA-Fort Collins, Inc. (CO)
SCA-Fort Walton, Inc. (TN) (FL)
SCA-Ft. Myers, Inc. (FL)
SCA-Gadsden, Inc. (AL)
Gadsden Surgery Center, Inc. (AL)
SCA-Gainesville, Inc. (TN) (GA)
SCA-Green River, Inc. (TN) (WA)
SCA-Hamilton Development Corp. (TN)
SCA-HHI, Inc. (TN)
Health Horizons of San Francisco, Inc. (TN) (CA)
SCA-Greenville East, Inc. (TN) (SC)
SCA Investment Company (NV)
SCA-JV, Inc. (IL) WI)
SCA-Lake Forest, Inc. (TN) (LA)
SCA-Little Rock Development Corp. (AR)
SCA Luis Obispo-SC, Inc. (CA)
SCA-Management Company (TN) (WA)
SCA-Marquette, Inc. (TN) (MI)
SCA-Mecklenberg Development Corp. (NC)
SCA-Mobile, Inc. (AL)
SCA-Mobile Properties, Inc. (AL)
SCA-Mt. Pleasant, Inc. (TN) (PA)
SCA-North Indianapolis, Inc. (IN)
SCA-Ohio Valley, Inc. (TN) (PA)
SCA-Paoli, Inc. (TN) (PA)
SCA-Roseland, Inc. (NJ)
SCA-San Jose, Inc. (CA)
SCA-Santa Rosa, Inc. (TN) (CA)
SCA-Sarasota, Inc. (FL)
SCA-Shelby Development Corp. (TN)
SCA-South Jersey, Inc. (NJ)
SCA-St. Joseph Missouri, Inc. (TN) (MO)
SCA-St. Petersburg, Inc. (FL)
SCA-Albuquerque, Inc. (NM)
SCA-Albuquerque Surgery Properties, Inc. (NM)
SCA-Arlington Surgery, Inc. (TX)
- 5 -
<PAGE>
SCA-Blue Ridge, Inc. (TN) (NC)
SCA-Pittsburgh, Inc. (TN) (PA)
SCA-Shelby Development Corp. (TN)
SCA-Tampa, Inc. (FL)
SCA-Wausau, Inc. (TN) (WI)
SCA-Winter Park, Inc. (TN) (FL)
SCA-Yuma, Inc. (TN) (AZ)
Scranton-SC, Inc. (PA)
Shelby Surgery Properties, Inc. (TN)
Springfield-SC, Inc. (MA)
Surgery Center of Louisville, Inc. (KY)
Surgical Services of Sarasota, Inc. (FL)
Wauwatosa Outpatient Surgery Center, Inc. (WI)
Surgical Health Corporation (DE) (AL)(ID)
Healthcare Real Estate Holdings II, Inc. (GA) (MO)
Heritage Medical Services of Maryland, Inc. (TN) (MD)
Heritage Medical Services of Texas, Inc. (TX)
Heritage Surgical Associates of Chula Vista, Inc. (CA)
HSC of Beaumont, Inc. (TN) (TX)
HSC of Boca Raton, Inc. (FL)
HSC of Bradenton, Inc. (TN) (FL)
HSC of Chesapeake, Inc. (TN)
HSC of Cincinnati, Inc. (TN) (OH)
HSC of Clarksville, Inc. (TN)
HSC of Ft. Pierce, Inc. (GA) (FL)
HSC of Gulf Coast, Inc. (TN)
HSC of Houston, Inc. (TN) (TX)
HSC of Nashville, Inc. (TN)
HSC of Southwest Houston, Inc. (TN) (TX)
HSC of Vero Beach, Inc. (TN) (FL)
HVPG of California, Inc. (CA)
La Jolla Health Systems, Inc. (CA)
Midwest Anesthesia, Inc. (MO)
Newport Beach Health Systems, Inc. (CA)
North County Anesthesia, Inc. (GA) (MO)
North County Outpatient Management, Inc. (GA)
Outpatient Surgery Center, Inc. (MO)
SHC Amarillo, Inc. (GA)
SHC Atlanta, Inc. (GA)
SHC Austin, Inc. (GA)
SHC Boca Raton Laser, Inc. (GA) (FL)
SHC Central Florida, Inc. (GA) (FL)
SHC Chattanooga, Inc. (GA) (TN)
SHC Gwinnett, Inc. (GA)
SHC Hawthorn, Inc. (GA) (IL)
SHC Management Corporation (GA) (AZ)(FL)(IL)(MO)(OK)(TX)
SHC Melbourne, Inc. (GA) (FL)
SHC Midwest City, Inc. (GA) (OK)
- 6 -
<PAGE>
SHC Naples, Inc. (FL)
SHC North Dade, Inc. (GA) (FL)
SHC North Shore, Inc. (GA) (IL)
SHC Northlake, Inc. (GA)
SHC Oakwater, Inc. (GA) (FL)
SHC Oklahoma City, Inc. (GA) (OK)
SHC Palms Wellington, Inc. (GA) (FL)
SHC Phoenix, Inc. (GA) (AZ)
SHC San Diego, Inc. (GA) (CA)
SHC Tri-County, Inc. (GA)
SHC West County, Inc. (GA)
South County Outpatient Management, Inc. (MO)
Surgical Health of Orlando, Inc. (FL)
Surgical Health of San Antonio, Inc. (TX)
Tesson Ferry Anesthesia, Inc. (MO)
Tesson Ferry Recovery, Inc. (MO)
West County Anesthesia, Inc. (GA) (MO)
The Woodlands Surgery Systems, Inc. (DE) (TX)
Tuckahoe Surgery Center, Inc. (VA)
- 7 -
<PAGE>
Exhibit (23)--CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-13489) pertaining to the 1984 Incentive Stock Option Plan, in the
Registration Statement (Form S-8 No. 33-23642) pertaining to the 1988
Non-Qualified Stock Option Plan, in the Registration Statement (Form S-8 No.
33-34908) pertaining to the 1989 Stock Option Plan, in the Registration
Statement (Form S-8 No. 33-40798) pertaining to the 1990 Stock Option Plan, in
the Registration Statement (Form S-8 No. 33-50440) pertaining to the 1991 Stock
Option Plan, in the Registration Statement (Form S-8 No. 33-64316) pertaining to
the 1992 Stock Option Plan, in the Registration Statement (Form S-8 No.
33-64308) pertaining to the 1993 Consultants' Stock Option Plan, in the
Registration Statement (Form S-8 No. 33-55303) pertaining to the 1993 Stock
Option Plan, in the Registration Statement (Form S-8 No. 33-6231) pertaining to
the Surgical Health Corporation and Heritage Surgical Corporation Stock Option
Plans and in the Registration Statement (Form S-8 No. 33-64615) pertaining to
the Sutter Surgery Centers, Inc. Stock Option Plans, of our report dated
February 14, 1996, with respect to the consolidated financial statements and
schedule of HEALTHSOUTH Corporation and Subsidiaries included in the Annual
Report (Form 10-K) for the year ended December 31, 1995.
ERNST & YOUNG LLP
Birmingham, Alabama
March 27, 1996
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995
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974
<OTHER-SE> 926,736
<TOTAL-LIABILITY-AND-EQUITY> 2,460,129
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<TOTAL-REVENUES> 1,556,687
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