AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
Registration Statement Under The Securities Act of 1933
-----------------------
HEALTHSOUTH CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
-----------------------
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Delaware 8062 63-0860407
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
Incorporation or Organization) Classification Code Number) Number)
-----------------------
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Two Perimeter Park South, Birmingham, Alabama 35243
(205) 967-7116
(Address, including Zip Code, and Telephone Number,
including Area Code, of Registrant's Principal Executive Offices)
RICHARD M. SCRUSHY
Chairman of the Board
and Chief Executive Officer
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
(205) 967-7116
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent for Service)
Copies to:
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MARK EZELL, ESQ. WILLIAM W. HORTON, ESQ. ROGER MELTZER, ESQ.
Haskell Slaughter & Young, L.L.C. BEALL D. GARY, JR., ESQ. Cahill Gordon & Reindel
1200 AmSouth/Harbert Plaza HEALTHSOUTH Corporation Eighty Pine Street
1901 Sixth Avenue North Two Perimeter Park South New York, New York 10005
Birmingham, Alabama 35203 Birmingham, Alabama 35243 (212)701-3000
(205) 251-1000 (205) 967-7116
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Approximate date of commencement of proposed sale to the public: At the
effective time of the merger of Professional Sports Care Management, Inc. with a
wholly-owned subsidiary of the Registrant, as described in the Prospectus-Proxy
Statement included herein.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Proposed Maximum Proposed Maximum
Class of Securities Amount Offering Price Aggregate Offering Amount of
to be Registered to be Registered(1) Per Unit Price(2) Registration Fee(3)
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per
share............................ 1,925,135 shares Inapplicable $60,150,134 $20,741.43
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(1) The amount of common stock, par value $.01 per share (the "HEALTHSOUTH
Common Stock"), of Registrant to be registered has been determined based upon
shares of common stock, par value $.01 per share (the "PSCM Common Stock"), of
Professional Sports Care Management, Inc. outstanding as of July 18, 1996, and
an Exchange Ratio of 0.233 shares of HEALTHSOUTH Common Stock per share of PSCM
Common Stock, the maximum Exchange Ratio provided for in the Plan and Agreement
of Merger among HEALTHSOUTH Corporation, Empire Acquisition Corporation and
Professional Sports Care Management, Inc., dated as of May 16, 1996 (the
"Plan").
(2) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(f)(1) of the Securities Act of 1933, as amended (the
"Securities Act"). Pursuant to Rule 457(f)(1), the maximum aggregate offering
price is the product of (a) $7.28, representing the average of the high and low
sales prices of PSCM Common Stock as reported on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") National Market on July
16, 1996, and (b) 8,262,381, the maximum number of shares of PSCM Common Stock
to be acquired by the Registrant in connection with the acquisition of PSCM
pursuant to the Plan.
(3) The registration fee for the securities registered hereby, $20,741.43,
has been calculated pursuant to Section 6(b) of the Securities Act and Rule
457(f) promulgated thereunder. Of such registration fee, $13,380.02 was paid in
connection with the filing of preliminary proxy materials relating to the
Special Meeting of Stockholders of PSCM, which were filed on June 12, 1996, and
$7,361.41 is paid herewith.
--------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further Amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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HEALTHSOUTH CORPORATION
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K SHOWING THE LOCATION IN THE
PROSPECTUS-PROXY
STATEMENT OF THE RESPONSES TO THE ITEMS OF PART I OF FORM S-4)
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ITEM LOCATION IN PROSPECTUS-PROXY STATEMENT
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1. Forepart of the Registration Statement and Outside Facing Page; Cross Reference Sheet; Outside Front Cover Page
Front Cover Page of Prospectus ..................... of Prospectus-Proxy Statement
2. Inside Front and Outside Back Cover Pages of Table of Contents; Available Information; Incorporation of
Prospectus ......................................... Certain Information by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary of Prospectus-Proxy Statement; Risk Factors; The
and Other Information .............................. Special Meeting
4. Terms of the Transaction ........................... Summary of Prospectus-Proxy Statement; The Special Meeting;
The Merger; Description of Capital Stock of HEALTHSOUTH;
Comparison of Rights of PSCM and HEALTHSOUTH Stockholders;
Operations and Management of HEALTHSOUTH after the Merger
5. Pro Forma Financial Information .................... Pro Forma Condensed Financial Information
6. Material Contacts with the Company Being Acquired . Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters ..... Not Applicable
8. Interests of Named Experts and Counsel ............. Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ..... Comparison of Rights of PSCM and HEALTHSOUTH Stockholders
10. Information with Respect to S-3 Registrants ....... Incorporation of Certain Documents by Reference
11. Incorporation of Certain Information by Reference . Incorporation of Certain Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants . Not Applicable
13. Incorporation of Certain Information by Reference . Not Applicable
14. Information with Respect to Registrants Other than
S-2 or S-3 Registrants.............................. Not Applicable
15. Information with Respect to S-3 Companies ......... Incorporation of Certain Documents by Reference
16. Information with Respect to S-2 or S-3 Companies .. Not Applicable
17. Information with Respect to Companies Other than
S-2 or S-3 Companies ............................... Not Applicable
18. Information if Proxies, Consents or Authorizations Incorporation of Certain Documents by Reference; Summary of
are to be Solicited................................. Prospectus-Proxy Statement; The Special Meeting; The Merger
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer ... Not Applicable
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PROFESSIONAL SPORTS CARE MANAGEMENT, INC.
550 Mamaroneck Avenue
Harrison, New York 10528
July 23, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Professional Sports Care Management, Inc. ("PSCM") on August 20, 1996. Details
as to the time and place of the meeting are set forth in the accompanying Notice
of Special Meeting of Stockholders.
The purpose of the meeting is to consider and vote upon the approval of a
Plan and Agreement of Merger (the "Plan") providing for the merger (the
"Merger") of a wholly-owned subsidiary of HEALTHSOUTH Corporation
("HEALTHSOUTH") with and into PSCM. If the Merger is consummated, PSCM will
become a wholly-owned subsidiary of HEALTHSOUTH, and stockholders of PSCM will
be entitled to receive 0.233 shares of HEALTHSOUTH Common Stock (subject to
adjustment as set forth in the attached Prospectus-Proxy Statement) per share of
PSCM Common Stock. Stockholders may call 1-800-431-9642 beginning at 5:00 p.m.,
Eastern Time on August 16, 1996 for information concerning the Exchange Ratio as
finally determined. The Board of Directors believes that HEALTHSOUTH and PSCM
are strategically complementary and that the combined companies will be able to
compete more effectively in the changing healthcare marketplace.
After careful consideration, your Board of Directors has concluded that the
proposed Merger is in the best interests of PSCM stockholders and recommends
that you vote FOR the approval of the Plan.
The attached Prospectus-Proxy Statement describes the Plan and the proposed
Merger more fully and includes other information about HEALTHSOUTH and PSCM.
Please give this information your thoughtful attention.
Approval of the Plan by the stockholders of PSCM requires the affirmative
vote of the holders of a majority of the outstanding shares of PSCM Common
Stock. Therefore, you are urged to mark, sign, date and return promptly the
accompanying proxy card for the meeting even if you plan to attend. You may vote
in person at that time if you so desire.
Sincerely,
RUSSELL F. WARREN, M.D.
Chairman of the Board
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PROFESSIONAL SPORTS CARE MANAGEMENT, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 20, 1996
--------------------
To the Stockholders of Professional Sports Care Management, Inc.
Notice is hereby given that a Special Meeting of Stockholders of
Professional Sports Care Management, Inc, a Delaware corporation ("PSCM"), will
be held at the Greenwich Harbor Inn, 500 Steamboat Road, Greenwich, Connecticut
06830 on August 20, 1996 at 9:00 a.m. Eastern Time, for the following purposes:
1. To consider and vote upon a proposal to approve the Plan and
Agreement of Merger, dated as of May 16, 1996, among PSCM, Empire
Acquisition Corporation, a Delaware corporation (the "Subsidiary") wholly
owned by HEALTHSOUTH Corporation, a Delaware corporation ("HEALTHSOUTH"),
and HEALTHSOUTH (as it may be amended, supplemented or otherwise modified
from time to time, the "Plan"), pursuant to which, among other things, the
Subsidiary will be merged with and into PSCM upon the terms and subject to
the conditions contained in the Plan (the "Merger"), and PSCM will become a
wholly-owned subsidiary of HEALTHSOUTH, as described in the accompanying
Prospectus-Proxy Statement.
2. To consider and act upon such other matters as may properly come
before the Special Meeting, including any adjournments or postponements
thereof.
The Board of Directors of PSCM has fixed the close of business on July 15,
1996 as the record date for the determination of stockholders entitled to notice
of and to vote at the Special Meeting, and only stockholders of record at such
time will be entitled to notice of and to vote at the Special Meeting.
A form of Proxy and a Prospectus-Proxy Statement containing more detailed
information with respect to the matters to be considered at the Special Meeting
accompany this notice and form a part hereof.
You are cordially invited and urged to attend the Special Meeting in
person. Whether or not you intend to attend the Special Meeting, please
complete, sign, date and promptly return the enclosed Proxy in the enclosed
self-addressed, postage pre-paid envelope. If you attend the Special Meeting and
desire to revoke your Proxy and vote in person, you may do so. In any event,
your Proxy may be revoked at any time before it is voted.
By Order of the Board of Directors,
PATRICK J. WACK, JR.
Secretary
IMPORTANT NOTICES
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE REVOCABLE, EITHER IN WRITING
OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT ANY TIME PRIOR TO ITS
EXERCISE. PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME.
THE BOARD OF DIRECTORS OF PROFESSIONAL SPORTS CARE MANAGEMENT, INC. RECOMMENDS
THAT STOCKHOLDERS VOTE TO APPROVE THE PLAN.
<PAGE>
Prospectus-Proxy Statement
PROXY STATEMENT
OF
PROFESSIONAL SPORTS
CARE MANAGEMENT, INC.
For The Special Meeting Of Stockholders
to Be Held On August 20, 1996
---------------
PROSPECTUS
OF
HEALTHSOUTH Corporation
This Prospectus relates to up to 1,925,135 shares of the Common Stock, par
value $.01 per share (the "HEALTHSOUTH Common Stock"), of HEALTHSOUTH
Corporation (together with its subsidiaries, as applicable, "HEALTHSOUTH")
issuable to the stockholders of Professional Sports Care Management, Inc.
(together with its subsidiaries, as applicable, "PSCM") upon consummation of the
Merger (as defined below). Such number of shares represents the maximum number
of shares that may be issued to PSCM stockholders. This Prospectus also serves
as the Proxy Statement of PSCM for its special meeting of stockholders to be
held on August 20, 1996, and any adjournments and postponements thereof (the
"Special Meeting"). See "THE SPECIAL MEETING".
This Prospectus-Proxy Statement describes the terms of a proposed business
combination between HEALTHSOUTH and PSCM, pursuant to which HEALTHSOUTH will
acquire PSCM by means of the merger (the "Merger") of Empire Acquisition
Corporation, a wholly-owned subsidiary of HEALTHSOUTH (the "Subsidiary"), with
and into PSCM, with PSCM being the surviving corporation (the "Surviving
Corporation"). After the Merger, the combined operations of HEALTHSOUTH and PSCM
are expected to be conducted with PSCM as a wholly-owned subsidiary of
HEALTHSOUTH and the present subsidiaries of PSCM continuing as subsidiaries of
PSCM and thus indirect subsidiaries of HEALTHSOUTH. The Merger will be effective
pursuant to the terms and subject to the conditions of the Plan and Agreement of
Merger, dated as of May 16, 1996, among HEALTHSOUTH, the Subsidiary and PSCM (as
it may be amended, supplemented or otherwise modified from time to time, the
"Plan"). The Plan is attached to this Prospectus-Proxy Statement as Annex A and
is incorporated herein by reference. HEALTHSOUTH and PSCM are hereinafter
sometimes referred to as the "Companies" and individually as a "Company".
Upon consummation of the Merger, except as described herein, each
outstanding share of Common Stock, par value $.01 per share, of PSCM, other than
shares owned by PSCM or any subsidiary of PSCM (the "PSCM Common Stock" or the
"PSCM Shares"), will be cancelled, and the holders of such PSCM Shares will be
entitled to receive 0.233 shares of HEALTHSOUTH Common Stock (the "Exchange
Ratio") for each PSCM Share so held; provided, however, that if the Base Period
Trading Price is greater than $38.625, then the Exchange Ratio shall be equal to
the quotient obtained by dividing $9.00 by the Base Period Trading Price,
computed to four decimal places.
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The term "Base Period Trading Price" means the average of the daily closing
prices per share of HEALTHSOUTH Common Stock for the 20 consecutive trading days
on which such shares are actually traded ending at the close of business on the
second New York Stock Exchange trading day before the date of the Special
Meeting. PSCM stockholders will receive cash (without interest) in lieu of
fractional shares of HEALTHSOUTH Common Stock. For a more complete description
of the terms of the Merger, see "THE MERGER".
This Prospectus-Proxy Statement and the form of Proxy are first being
mailed to stockholders of PSCM on or about July 23, 1996.
See "Risk Factors" at page 17 for a discussion of certain factors that
should be considered by PSCM stockholders.
THE SECURITIES TO BE ISSUED HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR BY ANY STATE
SECURITIES COMMISSION NOR HAS THE SEC OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS-PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS-PROXY STATEMENT IS July 19, 1996.
2
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AVAILABLE INFORMATION
HEALTHSOUTH has filed a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), with the Securities
and Exchange Commission (the "SEC") covering the shares of HEALTHSOUTH Common
Stock to be issued in connection with the Merger (including exhibits and
amendments thereto, the "Registration Statement"). As permitted by the rules and
regulations of the SEC, this Prospectus-Proxy Statement omits certain
information contained in the Registration Statement. For further information
pertaining to the securities offered hereby, reference is made to the
Registration Statement.
HEALTHSOUTH and PSCM are subject to the information requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file periodic reports, proxy statements and other
information with the SEC relating to their respective businesses, financial
statements and other matters. The Registration Statement, as well as such
reports, proxy statements and other information, may be inspected at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and should be available for inspection
and copying at the regional offices of the SEC located at Seven World Trade
Center, Suite 1300, New York, New York, 10048; 5670 Wilshire Boulevard, 11th
Floor, Los Angeles, California 90036-3648; and Citicorp Center, 500 West Madison
Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained at prescribed rates by writing to the SEC, Public Reference Section,
450 Fifth Street, N.W., Washington, D.C. 20549. The HEALTHSOUTH Common Stock is
listed on the New York Stock Exchange (the "NYSE"), and the Registration
Statement and other information with respect to HEALTHSOUTH should be available
for inspection at the library of the New York Stock Exchange, Inc., 20 Broad
Street, 7th Floor, New York, New York 10005. The PSCM Common Stock is listed on
the Nasdaq National Market, and the Registration Statement and other information
with respect to PSCM may be obtained by calling the Nasdaq Public Reference Room
Disclosure Information Group at (800) 638-8241 or (202) 728-8298.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Prospectus-Proxy Statement incorporates documents by reference which
are not presented herein or delivered herewith. Copies of such reports, proxy
statements and other information filed by HEALTHSOUTH, other than exhibits to
such documents unless such exhibits are specifically incorporated herein by
reference, are available without charge, upon written or oral request, from the
Secretary of HEALTHSOUTH Corporation, Two Perimeter Park South, Birmingham,
Alabama 35243, telephone (205) 967-7116. Copies of such reports, proxy
statements and other information filed by PSCM, other than exhibits to such
documents unless such exhibits are specifically incorporated herein by
reference, are available, without charge, upon written or oral request, from the
Secretary of Professional Sports Care Management, Inc., 550 Mamaroneck Avenue,
Harrison, New York 10528, telephone (914) 777-2400. In order to ensure timely
delivery of the documents, any request should be made by five days prior to the
Special Meeting.
There are hereby incorporated by reference into this Prospectus-Proxy
Statement and made a part hereof the following documents filed by HEALTHSOUTH:
1. HEALTHSOUTH's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended.
2. HEALTHSOUTH's Quarterly Report on Form 10-Q for the quarter ended March
31, 1996.
3. HEALTHSOUTH's Current Report on Form 8-K dated December 16, 1995, as
amended (relating to the acquisition of Advantage Health Corporation ("Advantage
Health")).
4. HEALTHSOUTH's Current Report on Form 8-K dated January 17, 1996
(relating to the consummation of the acquisition of Surgical Care Affiliates,
Inc. ("SCA")).
5. HEALTHSOUTH'S Current Report on Form 8-K dated March 14, 1996 (relating
to the consummation of the acquisition of Advantage Health).
3
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6. HEALTHSOUTH'S Current Report on Form 8-K dated March 20, 1996 (reporting
combined earnings of HEALTHSOUTH and SCA for February 1996).
7. HEALTHSOUTH'S Current Report on Form 8-K dated May 20, 1996 (reporting
combined earnings of HEALTHSOUTH and Advantage Health for April 1996).
8. The description of HEALTHSOUTH's capital stock contained in
HEALTHSOUTH's Registration Statement on Form 8-A filed August 26, 1989.
There are also hereby incorporated by reference into this Prospectus-Proxy
Statement and made a part hereof the following documents filed by PSCM:
1. PSCM's Annual Report on Form 10-K for the fiscal year ended December 31,
1995.
2. PSCM's Current Report on Form 8-K filed June 5, 1996 (relating to the
acquisition by HEALTHSOUTH).
3. PSCM's Quarterly Report on Form 10-Q for the quarter ended March 31,
1996.
All documents filed by HEALTHSOUTH and PSCM, respectively, pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus-Proxy Statement and prior to the Closing Date of the Merger shall be
deemed to be incorporated by reference into this Prospectus-Proxy Statement and
to be made a part hereof from the date of the filing of such documents. Any
statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for the purpose hereof to the extent that a
statement contained herein (or in any other subsequently filed document which
also is incorporated by reference herein) is modified or superseded by such
statement. Any statement so modified or superseded shall not be deemed to
constitute a part hereof, except as so modified or superseded.
All information contained in this Prospectus-Proxy Statement or
incorporated herein by reference with respect to HEALTHSOUTH was supplied by
HEALTHSOUTH, and all information contained in this Prospectus-Proxy Statement or
incorporated herein by reference with respect to PSCM was supplied by PSCM.
Although neither HEALTHSOUTH nor PSCM has actual knowledge that would indicate
that any statements or information (including financial statements) relating to
the other party contained or incorporated by reference herein are inaccurate or
incomplete, neither HEALTHSOUTH nor PSCM warrants the accuracy or completeness
of such statements or information as they relate to the other party.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS-PROXY STATEMENT, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. NEITHER THE DELIVERY OF THIS PROSPECTUS-PROXY STATEMENT NOR ANY
DISTRIBUTION OF THE SECURITIES TO WHICH THIS PROSPECTUS-PROXY STATEMENT RELATES
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION CONCERNING HEALTHSOUTH OR PSCM CONTAINED IN THIS
PROSPECTUS-PROXY STATEMENT SINCE THE DATE OF SUCH INFORMATION. THIS
PROSPECTUS-PROXY STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES OTHER THAN THE SECURITIES
TO WHICH IT RELATES, OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
PURCHASE, THE SECURITIES OFFERED BY THIS PROSPECTUS-PROXY STATEMENT IN ANY
JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT LAWFUL.
4
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TABLE OF CONTENTS
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AVAILABLE INFORMATION ..................................................................... 3
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE ......................................... 3
SUMMARY OF PROSPECTUS-PROXY STATEMENT...................................................... 7
RISK FACTORS............................................................................... 17
THE SPECIAL MEETING ....................................................................... 17
General .................................................................................. 17
Date, Place and Time ..................................................................... 17
Record Date; Quorum ...................................................................... 17
Vote Required ............................................................................ 17
Voting and Revocation of Proxies ......................................................... 18
Solicitation of Proxies .................................................................. 18
THE MERGER................................................................................. 19
Terms of the Merger ...................................................................... 19
Background of the Merger ................................................................. 20
Reasons for the Merger; Recommendations of PSCM's Board of Directors ..................... 22
Opinion of Financial Advisor to PSCM...................................................... 23
Effective Time of the Merger ............................................................. 27
Exchange of Certificates.................................................................. 27
Representations and Warranties............................................................ 28
Conditions to the Merger ................................................................. 28
Regulatory Approvals ..................................................................... 29
Business Pending the Merger .............................................................. 30
Waiver and Amendment ..................................................................... 30
Termination .............................................................................. 31
Break-up Fee; Third Party Bids............................................................ 31
Interests of Certain Persons in the Merger ............................................... 31
Indemnification and Insurance............................................................. 32
Accounting Treatment ..................................................................... 32
Certain Federal Income Tax Consequences .................................................. 32
Resale of HEALTHSOUTH Common Stock by Affiliates ......................................... 33
No Appraisal Rights ...................................................................... 34
No Solicitation of Transactions........................................................... 34
Expenses.................................................................................. 34
NYSE Listing.............................................................................. 34
Certain Litigation........................................................................ 35
SELECTED CONSOLIDATED FINANCIAL DATA--HEALTHSOUTH.......................................... 36
SELECTED CONSOLIDATED FINANCIAL DATA--PSCM................................................. 37
PRO FORMA CONDENSED FINANCIAL INFORMATION ................................................. 38
BUSINESS OF HEALTHSOUTH ................................................................... 48
General................................................................................... 48
Company Strategy.......................................................................... 48
Patient Care Services: General............................................................ 49
Outpatient Rehabilitation Services........................................................ 50
Inpatient Rehabilitation Services......................................................... 50
Medical Centers........................................................................... 50
Surgery Centers........................................................................... 50
Other Patient Care Services............................................................... 50
Locations................................................................................. 51
5
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PAGE
BUSINESS OF PSCM........................................................................... 52
General................................................................................... 52
History and Recent Developments .......................................................... 52
Strategy ................................................................................. 55
Possible Termination of Management and License Agreements with New York Physical
Therapists .............................................................................. 56
Governmental Regulation................................................................... 57
Competition............................................................................... 59
Employees ................................................................................ 59
Properties................................................................................ 59
Legal Proceedings......................................................................... 60
PRINCIPAL STOCKHOLDERS OF PSCM............................................................. 61
DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH ............................................... 62
Common Stock ............................................................................. 62
Fair Price Provision ..................................................................... 62
Section 203 of the DGCL................................................................... 63
Preferred Stock .......................................................................... 63
Transfer Agent............................................................................ 63
COMPARISON OF RIGHTS OF PSCM AND HEALTHSOUTH
STOCKHOLDERS ............................................................................. 64
Classes and Series of Capital Stock....................................................... 64
Size and Election of the Board of Directors .............................................. 64
Removal of Directors ..................................................................... 64
Other Voting Rights....................................................................... 65
Conversion and Dissolution................................................................ 65
Business Combinations..................................................................... 65
Amendment or Repeal of the Certificate of Incorporation .................................. 66
Special Meeting of Stockholders........................................................... 67
Liability of Directors.................................................................... 67
Indemnification of Directors and Officers................................................. 67
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER.................................. 68
Operations ............................................................................... 68
Management ............................................................................... 68
EXPERTS ................................................................................... 68
LEGAL MATTERS.............................................................................. 69
ADDITIONAL INFORMATION..................................................................... 69
Other Business............................................................................ 69
Stockholder Proposals..................................................................... 69
ANNEXES:
A. Agreement and Plan of Merger .......................................................... A-1
B. Opinion of Unterberg Harris............................................................ B-1
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SUMMARY OF PROSPECTUS-PROXY STATEMENT
The following is a summary of certain information contained elsewhere in
this Prospectus-Proxy Statement. Certain capitalized terms used in this
Summary are defined elsewhere in this Prospectus-Proxy Statement. Reference
is made to, and this Summary is qualified in its entirety by, the more
detailed information contained in this Prospectus-Proxy Statement, the
Annexes hereto and the documents incorporated by reference herein.
THE COMPANIES
HEALTHSOUTH. HEALTHSOUTH is the nation's largest provider of outpatient
surgery and rehabilitative healthcare services. It provides these services
through its national network of outpatient and inpatient rehabilitation
facilities, outpatient surgery centers, medical centers and other healthcare
facilities. HEALTHSOUTH believes that it provides patients, physicians and
payors with high-quality health care services at significantly lower costs than
traditional inpatient hospitals. Additionally, HEALTHSOUTH's national network,
reputation for quality and focus on outcomes has enabled it to secure contracts
with national and regional managed care payors. At March 31, 1996, HEALTHSOUTH
had over 900 patient care locations in 45 states. See "BUSINESS OF HEALTHSOUTH".
At March 31, 1996, HEALTHSOUTH had consolidated assets of approximately
$3,002,452,000 and consolidated stockholders' equity of approximately
$1,230,961,000 and employed approximately 32,000 persons.
HEALTHSOUTH was incorporated under the laws of Delaware in 1984. Its
principal executive offices are located at Two Perimeter Park South, Birmingham,
Alabama 35243, and its telephone number is (205) 967-7116.
PSCM. PSCM is a leading provider of outpatient physical therapy and
rehabilitation services in the New York, New Jersey and Connecticut tri-state
area, providing services to patients with orthopedic injuries and post-operative
impairments. At June 1, 1996, PSCM operated 36 facilities in the tri-state area
and had an aggregate referral base of more than 3,000 sources, including
orthopedic surgeons, physicians and athletic trainers. See "BUSINESS OF PSCM".
At March 31, 1996, PSCM had consolidated assets of $53,185,000 and
consolidated stockholders' equity of $42,457,000 and employed approximately 550
persons.
PSCM was incorporated under the laws of New York in 1991 and reincorporated
in Delaware in 1994. Its principal executive offices are located at 550
Mamaroneck Avenue, Harrison, New York 10528, and its telephone number is (914)
777-2400.
Empire Acquisition Corporation. The Subsidiary is a direct, wholly-owned
subsidiary of HEALTHSOUTH and has not engaged in any business activity unrelated
to the Merger. The principal executive offices of the Subsidiary are located at
Two Perimeter Park South, Birmingham, Alabama 35243, and its telephone number is
(205) 967-7116.
THE SPECIAL MEETING
The Special Meeting of PSCM's stockholders (the "Special Meeting") to
consider and vote on a proposal to approve the Plan will be held on August 20,
1996, at 9:00 a.m., Eastern Time, at the Greenwich Harbor Inn, 500 Steamboat
Road, Greenwich, Connecticut 06830. Only holders of record of PSCM Shares at the
close of business on July 15, 1996 (the "PSCM Record Date"), will be entitled to
notice of and to vote at the Special Meeting. At such date, there were
outstanding and entitled to vote 7,774,298 shares of PSCM Common Stock. Each
issued and outstanding PSCM Share is entitled to one vote on each matter to be
presented at the Special Meeting. Proxies sent via facsimile transmission will
be accepted if
7
<PAGE>
received not later than 15 minutes prior to the scheduled commencement of the
Special Meeting. Such proxies may be sent via facsimile to American Stock
Transfer Company, c/o Paula Magno, at (718) 921-8331. For additional information
relating to the Special Meeting, see "THE SPECIAL MEETING".
VOTE REQUIRED
Approval of the Plan by the stockholders of PSCM requires the affirmative
vote of the holders of a majority of the outstanding shares of PSCM Common Stock
entitled to vote thereon. Accordingly, approval of the Plan at the Special
Meeting will require the affirmative vote of the holders of at least 3,887,150
shares of PSCM Common Stock.
As of the PSCM Record Date, directors and executive officers of PSCM and
their affiliates beneficially owned an aggregate of 2,252,420 shares of PSCM
Common Stock (excluding shares issuable upon exercise of options), or
approximately 29.0 % of the PSCM Shares outstanding on such date.
In the event that the Plan is not approved by PSCM stockholders, the Plan
may be terminated by HEALTHSOUTH or PSCM in accordance with its terms. Such
approval is also a condition to HEALTHSOUTH's and PSCM's obligations to
consummate the Merger. See "THE SPECIAL MEETING -- Vote Required", "THE MERGER
- -- Conditions to the Merger" and "-- Termination".
As a condition to entering into the Plan, HEALTHSOUTH required that Russell
F. Warren, M.D., Chairman of the Board of PSCM, Russell F. Warren, Jr.,
President and Chief Executive Officer and a Director of PSCM, Patrick J. Wack,
Jr., Executive Vice President, Chief Operating Officer, Secretary, Treasurer and
a Director of PSCM, and Ronnie P. Barnes, a Director of PSCM, enter into Proxy
Agreements with HEALTHSOUTH, pursuant to which each person agreed that, until
the date on which the Plan is terminated and following such termination during
such time as a Third Party Acquisition Event (as defined therein) exists with
respect to PSCM, but in no event after the close of business one year following
the termination of the Plan, HEALTHSOUTH shall have the right to vote an
aggregate of 1,933,840 shares of PSCM Common Stock beneficially owned by such
persons (a) in favor of approval of the Plan and the Merger at every meeting of
the stockholders of PSCM at which such matters are considered and at every
adjournment thereof, and (b) against any other proposal for any reorganization.
The shares subject to the Proxy Agreements represent approximately 24.9% of the
votes eligible to be cast at the Special Meeting as of the PSCM Record Date. See
"THE SPECIAL MEETING -- Vote Required".
THE MERGER
Terms of the Merger. PSCM will be acquired by HEALTHSOUTH pursuant to and
subject to the terms and conditions of the Plan, which provides that at the
effective time of the Merger (the "Effective Time"), the Subsidiary will merge
with and into PSCM with PSCM being the Surviving Corporation. The Certificate of
Incorporation of PSCM and the Bylaws of the Subsidiary in effect at the
Effective Time will govern the Surviving Corporation until amended or repealed
in accordance with applicable law. At the Effective Time, each outstanding PSCM
Share (excluding shares held by PSCM and any of its subsidiaries) will be
converted into the right to receive 0.233 (the "Exchange Ratio") shares of
HEALTHSOUTH Common Stock (the "Merger Consideration"); provided, however, that
if the Base Period Trading Price is greater than $38.625, then the Exchange
Ratio shall be equal to the quotient obtained by dividing $9.00 by the Base
Period Trading Price, computed to four decimal places. Stockholders may call
1-800-431-9642 beginning at 5:00 p.m., Eastern Time on August 16, 1996 for
information concerning the Exchange Ratio as finally determined.
The term "Base Period Trading Price" is defined in the Plan as the average
of the daily closing prices per share of HEALTHSOUTH Common Stock for the 20
consecutive trading days on which such shares are actually traded ending at the
close of business on the second New York Stock Exchange trading day before the
date of the Special Meeting. The daily closing price per share
8
<PAGE>
shall be the closing price for NYSE-Composite Transactions as reported in The
Wall Street Journal-Eastern Edition or, if not reported therein, any other
authoritative source. Fractional shares of HEALTHSOUTH Common Stock will not be
issuable in connection with the Merger. PSCM stockholders will receive cash
(without interest) in lieu of fractional shares of HEALTHSOUTH Common Stock. See
"THE MERGER" and "DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH".
The following table indicates the Exchange Ratio assuming various Base
Period Trading Prices, with the resulting "value" to be received for each PSCM
Share:
<TABLE>
<CAPTION>
VALUE TO BE
RECEIVED FOR
BASE PERIOD EACH PSCM SHARE
TRADING PRICE EXCHANGE RATIO (COL. 1 X COL.
(COL. 1) (COL. 2) 2)
- --------------- ---------------- ----------------
<S> <C> <C>
$30.00........ .233 $6.99
$31.00........ .233 $7.22
$33.00........ .233 $7.69
$35.00........ .233 $8.15
$37.00........ .233 $8.62
$39.00........ .2308 $9.00
$41.00........ .2195 $9.00
$43.00........ .2093 $9.00
</TABLE>
In that connection, the Plan of Merger provides that PSCM may terminate the
Plan if the Base Period Trading Price is less than $31.00, subject to certain
rights of HEALTHSOUTH to modify its offer prior to such termination. In the
event that any such modified offer is approved by the Board of Directors of
PSCM, or in the event that PSCM does not terminate the Plan notwithstanding the
fact that the Base Period Trading Price is less than $31.00, the Special Meeting
will be rescheduled and votes will be resolicited from the holders of PSCM
Common Stock. Further, as described above, if the Base Period Trading Price
exceeds $38.635, the value to be received for each PSCM Share will be fixed at
$9.00 and the Exchange Ratio will decrease accordingly. The definitive Exchange
Ratio will not be fixed until August 16, 1996. See "THE MERGER -- Terms of the
Merger" and "-- Termination".
Recommendation of the Board of Directors. The Board of Directors of PSCM
has adopted and approved the Plan and has recommended a vote FOR approval of the
Plan. The Board of Directors believes the Plan is fair to and in the best
interests of the stockholders of PSCM.
The Board of Directors of PSCM believes that the Plan is in the best
interests of the PSCM stockholders based on a number of factors, including,
without limitation and without assigning relative weights thereto, the following
factors:
(i) The terms and conditions of the proposed Merger, including the value of
the consideration to be received by the stockholders of PSCM, the recent trading
price of PSCM Common Stock and the fact that the Merger was expected to be
treated as a tax-free reorganization;
(ii) The opportunity for holders of PSCM Common Stock to continue to share
in the potential for long-term gains in PSCM through the ownership of
HEALTHSOUTH Common Stock following the Merger;
(iii) The business reputation and capabilities of HEALTHSOUTH and its
management, HEALTHSOUTH's financial strength, prospects, market position and
strategic objectives, and the liquidity and historical performance of
HEALTHSOUTH Common Stock;
(iv) The opinion of Unterberg Harris delivered on May 16, 1996 that the
consideration to be received in the Merger was fair to the stockholders of PSCM
from a financial point of view;
(v) The perceived strengths of PSCM and HEALTHSOUTH combined, including the
potential developments and information that are expected to be shared between
the two companies after the Merger is consummated, and the belief of the
directors that PSCM could be integrated into HEALTHSOUTH without disrupting or
adversely affecting the business of HEALTHSOUTH or PSCM; and
(vi) The likelihood that the Merger will be consummated.
9
<PAGE>
See "THE MERGER -- Reasons for the Merger; Recommendation of PSCM's Board
of Directors".
Opinion of Financial Advisor to PSCM. Unterberg Harris has served as
financial advisor to PSCM in connection with the Merger and has delivered its
written opinion to the Board of Directors of PSCM, dated May 16, 1996, that, as
of such date, the consideration to be received by the holders of PSCM Common
Stock pursuant to the Plan is fair from a financial point of view to such
stockholders. A copy of the opinion of Unterberg Harris is attached as Annex B
to this Prospectus-Proxy Statement and incorporated herein by reference. PSCM
stockholders are urged to, and should, read such opinion carefully in its
entirety in conjunction with this Prospectus-Proxy Statement for assumptions
made, matters considered and the limits of the review by Unterberg Harris. See
"THE MERGER -- Opinion of Financial Advisor to PSCM".
Effective Time of the Merger. The Merger will become effective upon the
filing of a Certificate of Merger by the Subsidiary and PSCM under the General
Corporation Law of the State of Delaware (the "DGCL"), or at such later time as
may be specified in such Certificate of Merger. The Plan requires that this
filing be made, subject to satisfaction of the conditions to the respective
obligations of each party to consummate the Merger, no later than two business
days after satisfaction or waiver of the various conditions to the Merger set
forth in the Plan, or at such other time as may be agreed by HEALTHSOUTH and
PSCM. See "THE MERGER -- Effective Time of the Merger" and "-- Conditions to the
Merger".
Exchange of Certificates. As soon as reasonably practicable after the
Effective Time, transmittal materials will be mailed to each holder of record of
PSCM Shares for use in exchanging such holder's stock certificates for
certificates evidencing shares of HEALTHSOUTH Common Stock and for receiving
cash in lieu of fractional shares and any dividends or other distributions to
which such holder is entitled as a result of the Merger. STOCKHOLDERS SHOULD NOT
SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS. See "THE MERGER -- Exchange
of Certificates".
Representations and Warranties. The Plan contains certain representations
and warranties made by each of the parties thereto. See "THE MERGER --
Representations and Warranties".
Conditions to the Merger. The obligation of each of HEALTHSOUTH, the
Subsidiary and PSCM to consummate the Merger is subject to certain conditions,
including approval of the Plan by the PSCM stockholders. See "THE MERGER --
Conditions to the Merger".
Regulatory Approvals. The Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), provides that certain business mergers
(including the Merger) may not be consummated until certain information has been
furnished to the Department of Justice (the "DOJ") and the Federal Trade
Commission (the "FTC") and certain waiting period requirements have been
satisfied. On May 29, 1996, HEALTHSOUTH and PSCM made their respective filings
with the DOJ and the FTC with respect to the Plan. Under the HSR Act, the
filings commenced a 30-day waiting period during which the Merger could not be
consummated, which waiting period expired on June 29, 1996. Notwithstanding the
expiration of the HSR Act waiting period, at any time before or after the
Effective Time, the FTC, the DOJ or others could take action under the antitrust
laws, including seeking to enjoin the consummation of the Merger or seeking the
divestiture by HEALTHSOUTH of all or any part of the stock or assets of PSCM.
There can be no assurance that a challenge to the Merger on antitrust grounds
will not be made or, if such a challenge were made, that it would not be
successful. The operations of each Company also are subject to a substantial
body of federal, state, local and accrediting body laws, rules and regulations
relating to the conduct, licensing and development of healthcare businesses and
facilities. See "THE MERGER -- Regulatory Approvals".
Business Pending the Merger. The Plan provides that, until the Effective
Time, except as provided in the Plan, PSCM will use its reasonable best efforts
to preserve intact its present business
10
<PAGE>
organizations, to keep available to HEALTHSOUTH and the Surviving Corporation
the services of its present employees and to preserve the goodwill of customers,
suppliers and others having business dealings with it. See "THE MERGER --
Business Pending the Merger".
Amendment. The Plan provides that, at any time prior to the Effective Time,
the parties may, under certain circumstances, amend or otherwise change the
Plan. See "THE MERGER -- Waiver and Amendment".
Termination. The Plan may be terminated at any time prior to the Effective
Time, whether before or after approval of the Plan by the stockholders of PSCM,
under certain circumstances which are set forth in the Plan. See "THE MERGER --
Termination".
Break-up Fee; Third Party Bids. If the Plan is terminated by PSCM pursuant
to a determination by PSCM's Board of Directors, in the exercise of its
fiduciary duties under applicable law, not to recommend the Merger to the
holders of PSCM Shares, or the PSCM Board of Directors shall have withdrawn such
recommendation, or shall have approved, recommended or endorsed any Acquisition
Transaction (as defined in the Plan) other than the Plan, and within one year
after the effective date of such termination PSCM is the subject of a Third
Party Acquisition Event (as defined in the Plan), then at the time of
consummation of such a Third Party Acquisition Event PSCM shall pay to
HEALTHSOUTH a break-up fee equal to 5% of the aggregate Merger Consideration
(determined as it would have been calculated on the effective date of
termination of the Plan, substituting the effective date of such termination for
the date of the Special Meeting in calculating the Base Period Trading Price).
See "THE MERGER -- Break-up Fee; Third Party Bids".
Interests of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors of PSCM with respect to the Plan and
the transactions contemplated thereby, stockholders of PSCM should be aware that
certain members of the management of PSCM and its Board of Directors have
certain interests in the Merger in addition to the interests of stockholders
generally.
At the Closing, HEALTHSOUTH has agreed to enter into Consulting and
Non-Competition Agreements with each of Russell F. Warren, Jr., President and
Chief Executive Officer and a Director of PSCM, and Patrick J. Wack, Jr.,
Executive Vice President, Chief Operating Officer, Secretary, Treasurer and a
Director of PSCM, pursuant to which Messrs. Warren and Wack will agree to
provide certain consulting services to HEALTHSOUTH and will agree not to compete
with the business of HEALTHSOUTH for a specified term.
The employment agreements between PSCM and each of Russell F. Warren, Jr.,
Patrick J. Wack, Jr., Michael P. Neuscheler, William Lee Day and Raymond Rasa
(each, the "Executive") provide that upon a deemed termination within twelve
months of a "change of control", PSCM will pay to the Executive as liquidated
damages his base salary for, depending on the terms of the individual contract,
a period of either six or twelve months plus, in certain circumstances, any
bonus the Executive may have earned. At the election of the Executive,
termination may be deemed to occur if the Executive no longer has the same title
or position in the chain of command, if his duties are changed or if his
perquisites, access to benefits, or compensation is decreased. For the purposes
of these employment agreements, "change of control", among other things, is
defined generally as a party's acquisition, directly or indirectly, of more than
50% of the fully-diluted outstanding equity of PSCM. As defined in the
employment agreements, the Merger will constitute a "change of control".
See "THE MERGER -- Interests of Certain Persons in the Merger".
Accounting Treatment. It is intended that the Merger will be accounted for
as a pooling of interests. It is a condition to the consummation of the Merger
that each of HEALTHSOUTH and PSCM receive a letter from Ernst & Young LLP
regarding that firm's concurrence with the conclusions of the managements of
HEALTHSOUTH and PSCM, respectively, as to the appropriate-
11
<PAGE>
ness of pooling-of-interests accounting for the Merger under Accounting
Principles Board Opinion No. 16 ("APB 16") if closed and consummated in
accordance with the Plan. See "THE MERGER -- Accounting Treatment" and "PRO
FORMA CONDENSED FINANCIAL INFORMATION".
Certain Federal Income Tax Consequences. The Merger is intended to qualify
as a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). If the Merger so qualifies, no gain or
loss will be recognized by holders of PSCM Shares upon their receipt of
HEALTHSOUTH Common Stock in exchange for their PSCM Shares, except with respect
to cash received in lieu of fractional shares. The obligation of PSCM and
HEALTHSOUTH to consummate the Merger is conditioned upon their receipt of
opinions from their respective counsel to the effect that the Merger will
qualify as a reorganization within the meaning of Section 368(a) of the Code.
Each holder of PSCM Shares is urged to consult his or her personal tax and
financial advisors concerning the federal income tax consequences of the Merger,
as well as any state, local, foreign or other tax consequences of the Merger,
based upon such holder's own particular facts and circumstances. See "THE MERGER
- -- Certain Federal Income Tax Consequences".
Resale Restrictions. All shares of HEALTHSOUTH Common Stock received by
PSCM stockholders and option holders in the Merger will be freely transferable,
except that shares of HEALTHSOUTH Common Stock received by persons who are
deemed to be "affiliates" (as such term is defined under the Securities Act) of
PSCM at the time of the Special Meeting may be resold by them only in certain
permitted circumstances. See "THE MERGER -- Resale of HEALTHSOUTH Common Stock
by Affiliates".
Appraisal Rights. Holders of PSCM Common Stock are not entitled to
appraisal rights under the DGCL with respect to the Merger. See "THE MERGER-- No
Appraisal Rights".
NYSE Listing. A listing application will be filed with the NYSE to list the
shares of HEALTHSOUTH Common Stock to be issued to the PSCM stockholders in the
Merger. Although no assurance can be given that the NYSE will accept such shares
of HEALTHSOUTH Common Stock for listing, HEALTHSOUTH and PSCM anticipate that
these shares will qualify for listing. It is a condition to the obligation of
HEALTHSOUTH, the Subsidiary and PSCM to consummate the Merger that such shares
of HEALTHSOUTH Common Stock be approved for listing on the NYSE upon official
notice of issuance at the Effective Time. See "THE MERGER -- NYSE Listing".
Certain Litigation. On May 22, 1996, an action styled Tammy Newman v.
Russell F. Warren, et al. (Civil Action No. 15008) was filed in the Delaware
Chancery Court. The Complaint, which purports to be a class action filed on
behalf of the stockholders of PSCM, alleges that the PSCM Board of Directors
breached its fiduciary duties in approving the Merger and that the consideration
offered is unfair and does not maximize shareholder value. PSCM, its directors
individually, and HEALTHSOUTH are named as defendants in the suit. The Complaint
seeks injunctive relief and unspecified damages. The defendants are vigorously
defending the claims asserted in the Complaint. A substantially identical action
styled Francine Frechter v. Russell F. Warren, et al. (Civil Action No. 15070)
was filed in the same court on June 17, 1996, but has not been served on the
defendants. See "THE MERGER -- Certain Litigation".
12
<PAGE>
MARKET AND MARKET PRICE
The HEALTHSOUTH Common Stock is listed under the symbol HRC on the NYSE.
Set forth below are the closing prices per share of HEALTHSOUTH Common Stock on
the NYSE on (i) May 15, 1996, the last business day preceding public
announcement of the Merger, and (ii) July 18, 1996:
<TABLE>
<CAPTION>
MARKET PRICE
PER SHARE OF
HEALTHSOUTH
DATE COMMON STOCK
- -------------- ---------------
<S> <C>
May 15, 1996 ................................................. $ 36.00
July 18, 1996 ................................................ $ 32.88
</TABLE>
PSCM Common Stock is listed under the symbol PSCM on the Nasdaq National
Market. Set forth below are the closing prices per share of PSCM Common Stock on
the Nasdaq National Market on (i) May 15, 1996, the last business day preceding
public announcement of the Merger, and (ii) July 18, 1996.
<TABLE>
<CAPTION>
MARKET PRICE
PER SHARE OF
DATE PSCM COMMON STOCK
- -------------- ----------------
<S> <C>
May 15, 1996 ................................................ $7.38
July 18, 1996 ................................................ $7.50
</TABLE>
The following table sets forth certain information as to the high and low
reported sale prices per share of HEALTHSOUTH Common Stock for the periods
indicated. The prices for HEALTHSOUTH Common Stock are as reported on the NYSE
Composite Transactions Tape. HEALTHSOUTH has never paid dividends on its capital
stock. All prices shown have been adjusted for a two-for-one stock split
effected in the form of a 100% stock dividend paid on April 17, 1995.
<TABLE>
<CAPTION>
HEALTHSOUTH
COMMON STOCK
---------------
HIGH LOW
---- ---
<S> <C> <C>
1994
First Quarter..................... $16.13 $11.69
Second Quarter.................... 17.32 12.63
Third Quarter..................... 19.69 12.88
Fourth Quarter ................... 19.32 16.13
1995
First Quarter .................... $20.44 $18.06
Second Quarter.................... 21.63 16.32
Third Quarter..................... 25.75 17.25
Fourth Quarter ................... 32.38 22.50
1996
First Quarter .................... $38.13 $27.00
Second Quarter ................... 38.63 32.32
Third Quarter (through July 18,
1996)............................ 36.13 31.88
</TABLE>
13
<PAGE>
The following table sets forth certain information as to the high and low
reported sale prices per share of PSCM Common Stock for the periods indicated,
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
PSCM
COMMON STOCK
------------------
PERIOD HIGH LOW
------ -------- ---------
<S> <C> <C>
1994
Third Quarter (from September 24,
1994)................................ $ 9.50 $ 8.00
Fourth Quarter........................ 12.75 8.00
1995
First Quarter......................... $13.75 $10.25
Second Quarter ....................... 12.25 9.50
Third Quarter ........................ 13.75 5.00
Fourth Quarter ....................... 7.88 4.12
1996
First Quarter......................... $ 8.13 $ 5.50
Second Quarter ....................... 8.00 6.00
Third Quarter (through July 18, 1996).. 7.94 7.00
</TABLE>
As of July 17, 1996, there were approximately 3,411 record holders of
HEALTHSOUTH Common Stock. As of the PSCM Record Date, there were approximately
164 record holders of PSCM Common Stock.
Holders of PSCM Shares are advised to obtain current market quotations for
HEALTHSOUTH Common Stock and PSCM Common Stock. No assurance can be given as to
the market price of HEALTHSOUTH Common Stock at the Effective Time or at any
other time.
OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER
Pursuant to the Plan, following the Effective Time, PSCM will be a
wholly-owned subsidiary of HEALTHSOUTH, and all of PSCM's subsidiaries and
affiliates will be indirect subsidiaries and affiliates of HEALTHSOUTH.
HEALTHSOUTH will continue its operations as prior to the Merger and will
continue to be managed by the same Board of Directors and executive officers.
See "OPERATIONS AND MANAGEMENT OF HEALTHSOUTH AFTER THE MERGER".
14
<PAGE>
COMPARATIVE PER SHARE INFORMATION
The following summary presents selected comparative per share information
(i) for HEALTHSOUTH on a historical basis in comparison with pro forma
equivalent information giving effect to the Merger on a pooling-of-interests
basis, and (ii) for PSCM on a historical basis in comparison with its pro forma
equivalent information after giving effect to the Merger, including receipt of
shares of HEALTHSOUTH Common Stock to be issued in exchange for each PSCM Share
in accordance with the Exchange Ratio. This financial information should be read
in conjunction with the historical consolidated financial statements of
HEALTHSOUTH and PSCM and the related notes thereto contained elsewhere herein or
in documents incorporated herein by reference, and in conjunction with the
unaudited pro forma financial information appearing elsewhere in this
Prospectus-Proxy Statement. See "INCORPORATION OF CERTAIN INFORMATION BY
REFERENCE" and "PRO FORMA CONDENSED FINANCIAL INFORMATION".
HEALTHSOUTH has not paid cash dividends since inception (although a company
acquired by HEALTHSOUTH in a pooling-of-interests merger has paid cash dividends
in the past). It is anticipated that HEALTHSOUTH will retain all earnings for
use in the expansion of the business and therefore does not anticipate paying
any cash dividends in the foreseeable future. The payment of future dividends
will be at the discretion of the Board of Directors of HEALTHSOUTH and will
depend, among other things, upon HEALTHSOUTH's earnings, capital requirements,
financial condition and debt covenants.
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the periods indicated, nor
is it necessarily indicative of the combined results of operations in future
periods or future combined financial position.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- ----------------
1993 1994 1995 1995 1996
-------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income per common share:
HEALTHSOUTH (1)
Historical (primary) ................. $0.46 $0.63 $0.62 $0.23 $0.23
Historical (fully diluted)(2) ........ N/A 0.63 0.62 0.23 0.23
Pro forma combined (primary) ......... 0.46 0.62 0.63 0.23 0.23
Pro forma combined (fully diluted)(2) N/A 0.62 0.63 0.23 0.23
PSCM
Historical (primary).................. $0.27 $0.11 $0.29 $0.10 $0.07
Pro forma equivalent (primary)(3) .... 0.11 0.14 0.15 0.05 0.05
Pro forma equivalent (fully
diluted)(3) ......................... N/A 0.14 0.15 0.05 0.05
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
1996
--------------
(UNAUDITED)
<S> <C>
Stockholders' equity per weighted average common
and common equivalent share outstanding:
HEALTHSOUTH - historical........................... $7.56
HEALTHSOUTH - pro forma combined .................. 7.71
PSCM - historical ................................. 5.47
PSCM - pro forma equivalent (3) ................... 1.80
</TABLE>
- ---------------
(1) Adjusted to reflect a two-for-one stock split effected in the form of a
100% stock dividend paid on April 17, 1995.
(2) Fully-diluted earnings per share in 1994 and 1995 and for the three months
ended March 31, 1995 and 1996 reflect shares reserved for issuance upon
exercise of dilutive stock options and shares reserved for issuance upon
conversion of HEALTHSOUTH's 5% Convertible Subordinated Debentures Due
2001.
(3) PSCM pro forma equivalent per share data have been calculated by
multiplying the pro forma HEALTHSOUTH amounts by an assumed Exchange Ratio
of .233.
15
<PAGE>
HEALTHSOUTH'S AND PSCM'S
SELECTED PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following selected pro forma financial information for the combined
Companies gives effect to the Merger as a pooling of interests. All of the
following selected pro forma financial information should be read in conjunction
with the pro forma financial information, including the notes thereto, appearing
elsewhere in this Prospectus-Proxy Statement. See "PRO FORMA CONDENSED FINANCIAL
INFORMATION". The pro forma financial information set forth in this
Prospectus-Proxy Statement is not necessarily indicative of the results that
would have actually occurred had the Merger been consummated on the dates
indicated or that may be obtained in the future.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- ---------------------
1993 1994 (5) 1995 (5) 1995 (5) 1996
----------- ------------- ------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income Statement Data (1):
Revenues ......................................... $984,944 $1,816,235 $2,070,058 $497,570 $590,524
Operating expenses:
Operating units.................................. 671,732 1,287,091 1,420,882 346,903 392,177
Corporate general and administrative............. 38,007 64,357 61,618 15,950 17,644
Provision for doubtful accounts................... 20,183 34,553 38,480 9,491 13,037
Depreciation and amortization..................... 63,811 127,464 147,830 35,438 43,118
Interest expense.................................. 24,256 96,313 107,492 28,544 23,974
Interest income .................................. (5,907) (6,467) (8,467) (2,336) (1,939)
Merger and acquisition related expenses .......... 333 6,520 34,159 0 28,939
NME Selected Hospitals Acquisition related expense 49,742 0 0 0 0
Gain on sale of partnership interest.............. (1,400) 0 0 0 0
Gain on sale of MCA Stock......................... 0 (7,727) 0 0 0
Loss on impairment of assets...................... 0 10,500 53,549 0 0
Loss on abandonment of computer project........... 0 4,500 0 0 0
Loss on disposal of surgery centers............... 0 13,197 0 0 0
----------- ------------- ------------- ----------- --------
860,757 1,630,301 1,855,543 433,990 516,950
----------- ------------- ------------- ----------- --------
Income before income taxes and minority interests. 124,187 185,934 214,515 63,580 73,574
Provision for income taxes........................ 38,033 65,773 77,222 21,470 23,683
----------- ------------- ------------- ----------- --------
86,154 120,161 137,293 42,110 49,891
Minority interests................................ 29,377 32,085 43,252 9,154 11,485
----------- ------------- ------------- ----------- --------
Income from continuing operations................. 56,777 88,076 94,041 32,956 38,406
Income from discontinued operations............... 4,452 0 0 0 0
----------- ------------- ------------- ----------- --------
Net income........................................ $ 61,229 $ 88,076 $ 94,041 $ 32,956 $ 38,406
=========== ============= ============= =========== ========
Weighted average common and common equivalent
shares outstanding (2)........................... 133,128 141,434 150,432 144,427 164,702
=========== ============= ============= =========== ========
Net income per common and common equivalent share
(2)
Continuing operations........................... $ 0.43 $ 0.62 $ 0.63 $ 0.23 $ 0.23
Discontinued operations......................... 0.03 -- -- -- --
----------- ------------- ------------- ----------- --------
$ 0.46 $ 0.62 $ 0.63 $ 0.23 $ 0.23
=========== ============= ============= =========== ========
Net income per common share--assuming full
dilution (2)(3).................................. N/A $ 0.62 $ 0.63 $ 0.23 $ 0.23
=========== ============= ============= =========== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------------------
1993 1994 1995 1996
------------ ------------ ------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance Sheet Data (1):
Cash and marketable
securities.................. $ 150,305 $ 133,083 $ 170,881 $ 125,010
Working capital.............. 287,945 288,753 423,894 428,807
Total assets................. 1,886,701 2,256,423 2,983,912 3,054,641
Long-term debt (4)........... 1,008,996 1,141,551 1,396,361 1,418,382
Stockholders' equity......... 650,614 779,254 1,227,027 1,269,218
</TABLE>
- ---------------
(1) In addition to PSCM, reflects combination of HEALTHSOUTH, ReLife, Inc.
("ReLife"), Surgical Health Corporation ("SHC"), Sutter Surgery Centers,
Inc. ("SSCI"), Surgical Care Affiliates, Inc. ("SCA") and Advantage Health
Corporation ("Advantage Health") for all periods presented, as HEALTHSOUTH
acquired ReLife in December 1994, SHC in June 1995, SSCI in October 1995,
SCA in January 1996 and Advantage Health in March 1996 in transactions
accounted for as poolings of interests.
(2) Adjusted to reflect a two-for-one split effected in the form of a 100%
stock dividend paid on April 17, 1995.
(3) Fully-diluted earnings per share reflects shares reserved for issuance upon
conversion of HEALTHSOUTH's 5% Convertible Subordinated Debentures Due
2001, where applicable.
(4) Includes current portion of long-term debt.
(5) Gives effect to the NovaCare Rehabilitation Hospitals Acquisition as if the
purchase had occurred on January 1, 1994. See "PRO FORMA CONDENSED
FINANCIAL INFORMATION".
16
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus-Proxy Statement,
the following should be considered carefully by holders of PSCM Shares.
Regulation. As a result of the continued escalation of healthcare costs and
the inability of many individuals to obtain health insurance, numerous proposals
have been or may be introduced in the United States Congress and state
legislatures relating to healthcare reform. There can be no assurance as to the
ultimate content, timing or effect of any healthcare reform legislation, nor is
it possible at this time to estimate the impact of potential legislation, which
may be material, on HEALTHSOUTH or on the combined Companies. HEALTHSOUTH is
also subject, and the combined Companies will be subject, to various other types
of regulation at the federal and state levels, including, but not limited to,
licensure and certification laws, Certificate of Need laws and laws relating to
financial relationships among providers of healthcare services, Medicare fraud
and abuse and physician self-referral. See "BUSINESS OF PSCM -- Governmental
Regulations" and "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE".
THE SPECIAL MEETING
GENERAL
This Prospectus-Proxy Statement is being furnished to holders of PSCM
Shares in connection with the solicitation of proxies by the Board of Directors
of PSCM for use at the Special Meeting to consider and vote upon a proposal to
approve the Plan and to transact such other business as may properly come before
the Special Meeting or any adjournments or postponements thereof.
Each copy of this Prospectus-Proxy Statement mailed to holders of PSCM
Common Stock is accompanied by a form of Proxy for use at the Special Meeting.
This Prospectus-Proxy Statement is also furnished to holders of PSCM Shares
as a Prospectus in connection with the issuance to them of the shares of
HEALTHSOUTH Common Stock upon consummation of the Merger.
DATE, PLACE AND TIME
The Special Meeting will be held at the Greenwich Harbor Inn, 500 Steamboat
Road, Greenwich, Connecticut on August 20, 1996 at 9:00 a.m., Eastern Time.
RECORD DATE; QUORUM
The Board of Directors of PSCM has fixed the close of business on July 15,
1996, as the PSCM Record Date for the determination of holders of PSCM Shares
entitled to receive notice of and to vote at the Special Meeting. The presence,
in person or by Proxy, of the holders of PSCM Shares entitled to cast a majority
of the votes entitled to be cast at the Special Meeting will constitute a quorum
at the Special Meeting.
VOTE REQUIRED
As of the PSCM Record Date, there were outstanding and entitled to vote
7,774,298 shares of PSCM Common Stock. Each of such PSCM Shares is entitled to
one vote on each matter that comes before the Special Meeting. Approval of the
Plan will require the affirmative vote of the holders of a majority of the
outstanding shares of PSCM Common Stock entitled to vote at the Special Meeting.
Accordingly, approval of the Plan will require the affirmative vote of the
holders of at least 3,887,150 shares of PSCM Common Stock.
As of the PSCM Record Date, PSCM's directors and executive officers and
their affiliates beneficially owned an aggregate of 2,252,420 shares, or
approximately 29.0%, of PSCM Common Stock outstanding on such date (excluding
shares issuable upon exercise of options).
17
<PAGE>
By the vote of the members of the Board of Directors of PSCM at a special
meeting held on May 16, 1996, the PSCM Board of Directors determined that the
proposed Merger, and the terms and conditions of the Plan, were in the best
interests of PSCM and its stockholders. The Plan and the Merger were adopted and
approved unanimously by the members of the PSCM Board of Directors present at
the special meeting, who also unanimously resolved to recommend that the
stockholders of PSCM vote FOR approval of the Plan.
As a condition to entering into the Plan, HEALTHSOUTH required that Russell
F. Warren, M.D., Chairman of the Board of PSCM, Russell F. Warren, Jr.,
President and Chief Executive Officer and a Director of PSCM, Patrick J. Wack,
Jr., Executive Vice President, Chief Operating Officer, Secretary, Treasurer and
a Director of PSCM, and Ronnie P. Barnes, a Director of PSCM, enter into Proxy
Agreements with HEALTHSOUTH, pursuant to which each person agreed that, until
the date on which the Plan is terminated and following such termination during
such time as a Third Party Acquisition Event (as defined therein) exists with
respect to PSCM, but in no event after the close of business one year following
the termination of the Plan, HEALTHSOUTH shall have the right to vote an
aggregate of 1,933,840 shares of PSCM Common Stock beneficially owned by such
persons (a) in favor of approval of the Plan and the Merger at every meeting of
the stockholders of PSCM at which such matters are considered and at every
adjournment thereof, and (b) against any other proposal for any reorganization.
The shares subject to the Proxy Agreements represent approximately 24.9% of the
votes eligible to be cast at the Special Meeting as of the PSCM Record Date.
In the event that the Plan is not approved by PSCM stockholders, the Plan
may be terminated in accordance with its terms. See "THE MERGER -- Termination".
VOTING AND REVOCATION OF PROXIES
PSCM Shares represented by a Proxy properly signed and received at or prior
to the Special Meeting, unless subsequently revoked, will be voted in accordance
with the instructions thereon. If a Proxy for the Special Meeting is properly
executed and returned without indicating any voting instructions, PSCM Shares
represented by the Proxy will be voted FOR approval of the Plan. Any Proxy given
pursuant to this solicitation may be revoked by the person giving it at any time
before the Proxy is voted by the filing of an instrument revoking it or of a
duly executed Proxy bearing a later date with the Secretary of PSCM, prior to or
at the Special Meeting, or by voting in person at the Special Meeting.
Attendance at the Special Meeting will not in and of itself constitute a
revocation of a Proxy. Only votes cast for approval of the Plan or other matters
constitute affirmative votes. Abstentions and broker non-votes will, therefore,
have the same effect as votes against approval of the Plan with respect to the
Special Meeting.
Proxies sent via facsimile transmission will be accepted if received not
later than 15 minutes prior to the scheduled commencement of the Special
Meeting. Such proxies may be sent via facsimile to American Stock Transfer
Company, c/o Paula Magno, at (718) 921-8331.
The Board of Directors of PSCM is not aware of any business to be acted
upon at the Special Meeting other than as described herein. If, however, other
matters are properly brought before the Special Meeting, or any adjournments or
postponements thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment and subject to applicable
rules of the SEC and Delaware law.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
PSCM, who will not be specifically compensated for such services, may solicit
proxies from the stockholders of PSCM, personally or by telephone or telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and other
custodians will be requested to forward soliciting materials to beneficial
owners and will be reimbursed for their reasonable expenses incurred in doing
so.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS. THE
PROCEDURE FOR THE EXCHANGE OF SHARES AND OPTIONS AFTER THE MERGER IS CONSUMMATED
IS SET FORTH ELSEWHERE IN THIS PROSPECTUS-PROXY STATEMENT. SEE "THE MERGER --
EXCHANGE OF CERTIFICATES".
18
<PAGE>
THE MERGER
The description of the Merger contained in this Prospectus-Proxy
Statement summarizes the principal provisions of the Plan; it is not
complete and is qualified in its entirety by reference to the Plan, the
full text of which is attached hereto as Annex A. All stockholders are
urged to read Annex A in its entirety.
TERMS OF THE MERGER
The acquisition of PSCM by HEALTHSOUTH will be effected by means of the
merger of the Subsidiary with and into PSCM, with PSCM being the Surviving
Corporation. The Certificate of Incorporation of PSCM (the "PSCM Certificate")
shall become the Certificate of Incorporation of the Surviving Corporation from
and after the Effective Time and until thereafter amended in accordance with
applicable law. The Bylaws of the Subsidiary as in effect at the Effective Time
will govern the Surviving Corporation until amended or repealed in accordance
with applicable law. At the Effective Time, PSCM shall continue as the Surviving
Corporation under the name "Professional Sports Care Management, Inc.".
At the Effective Time, each outstanding PSCM Share (excluding shares held
by PSCM and any of its subsidiaries, which shall automatically be cancelled and
retired) will be converted into the right to receive 0.233 shares of HEALTHSOUTH
Common Stock, as may be adjusted as provided below, computed to four decimal
places (the "Exchange Ratio"); provided, however, that if the Base Period
Trading Price (as defined below) is greater than $38.625, then the Exchange
Ratio shall be equal to the quotient obtained by dividing $9.00 by the Base
Period Trading Price, computed to four decimal places. Stockholders may call
1-800-431-9642 beginning at 5:00 p.m., Eastern Time on August 16, 1996 for
information concerning the Exchange Ratio as finally determined.
The term "Base Period Trading Price" means the average of the daily closing
prices per share of HEALTHSOUTH Common Stock for the 20 consecutive trading days
on which such shares are actually traded ending at the close of business on the
second New York Stock Exchange trading day immediately preceding the date of the
Special Meeting. The daily closing price per share shall be the closing price
for NYSE-Composite Transactions as reported in The Wall Street Journal-Eastern
Edition or, if not reported therein, any other authoritative source.
The following table indicates the Exchange Ratio assuming various Base
Period Trading Prices, with the resulting "value" to be received for each PSCM
Share:
<TABLE>
<CAPTION>
VALUE TO BE
RECEIVED FOR
BASE PERIOD EACH PSCM SHARE
TRADING PRICE EXCHANGE RATIO (COL. 1 X COL.
(COL. 1) (COL. 2) 2)
- --------------- ---------------- ----------------
<S> <C> <C>
$30.00......... .233 $6.99
$31.00......... .233 $7.22
$33.00......... .233 $7.69
$35.00......... .233 $8.15
$37.00......... .233 $8.62
$39.00......... .2308 $9.00
$41.00......... .2195 $9.00
$43.00......... .2093 $9.00
</TABLE>
In that connection, the Plan of Merger provides that PSCM may terminate the
Plan if the Base Period Trading Price is less than $31.00, subject to certain
rights of HEALTHSOUTH to modify its offer prior to such termination. In the
event that any such modified offer is approved by the Board of Directors of
PSCM, or in the event that PSCM does not terminate the Plan notwithstanding the
fact that the Base Period Trading Price is less than $31.00, the Special Meeting
will be rescheduled and votes will be resolicited from the holders of PSCM
Common Stock. Further, as described above, if the Base Period Trading Price
exceeds $38.625, the value to be received for each PSCM Share will be fixed at
$9.00 and the Exchange Ratio will decrease accordingly. The definitive Exchange
Ratio will not be fixed until August 16, 1996. See "--Termination".
As of the Effective Time, all outstanding PSCM Shares shall automatically
be cancelled and retired and shall cease to exist, and each holder of a
certificate representing such shares shall cease to have any rights with respect
thereto, except the right to receive shares of HEALTHSOUTH Common Stock, cash
19
<PAGE>
(without interest) in lieu of fractional shares and any dividends or other
distributions to which such holder is entitled as a result of the Merger. Each
PSCM Share that is owned by PSCM or any subsidiary of PSCM shall automatically
be cancelled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
Based upon the number of shares of HEALTHSOUTH Common Stock, excluding
shares obtainable upon exercise of options and convertible securities,
outstanding as of July 15, 1996, the holders of PSCM Shares will receive in the
aggregate approximately 1.24% of the outstanding shares of HEALTHSOUTH Common
Stock anticipated to be outstanding immediately after the Effective Time,
assuming an Exchange Ratio of 0.233.
BACKGROUND OF THE MERGER
Since PSCM's inception, the management of PSCM has believed that expansion,
both through the opening of new facilities and the acquisition of existing
facilities, was important to the long-term success of PSCM as a participant in
the rehabilitation segment of the healthcare industry. Toward that end, PSCM has
engaged in a series of acquisitions since its formation.
As a result of the acceleration of the rate of change in the healthcare
industry occurring during the past two years, management of PSCM determined that
it would be necessary for PSCM to accelerate the rate of its expansion, enter
into other areas of the healthcare industry, including the development of an
independent practice association of orthopaedists and a corporate fitness
program, as well as to consider the possibility of entering into a business
combination in order to remain the preeminent provider of rehabilitation
services in the New York City metropolitan area. The continuing trends toward
consolidation and managed care in the healthcare industry meant that companies
which could not offer broad geographic coverage and economies of scale would be
at a disadvantage in competing for preferred provider and managed care contracts
with regional and national entities. The change towards managed care has most
recently manifested itself in materially lower reimbursement rates. Because of
these changes and the growing awareness that acceptable acquisitions were
becoming more difficult, time- consuming and costly to consummate, PSCM began
discussions with Unterberg Harris and other investment bankers about its
strategic options during the late spring of 1995.
As a result of these discussions, during the late spring and early summer
of 1995, Unterberg Harris was engaged and PSCM explored strategic alternatives,
including various possible business combinations with smaller, comparably-sized
and substantially larger entities, but determined not to proceed with any such
transaction. Approximately seven potential bidders, including HEALTHSOUTH,
entered into confidentiality and standstill agreements with PSCM. In a number of
instances, preliminary due diligence was conducted both by PSCM and others.
However, no material negotiations were undertaken and no proposals were made or
received, although dialogue between Unterberg Harris, PSCM and a limited number
of these parties continued.
Thereafter, PSCM began to experience deteriorating operating results
culminating in a disappointing third quarter substantially below analysts'
expectations. Over the next several months, PSCM management corrected problems
in a number of the recently acquired clinics, thereby materially improving
operating results in the fourth quarter of 1995, completed clinic acquisitions
in principal markets and expanded PSCM's business focus by increasing its
ownership interest in OrthoNet LLC ("OrthoNet"), an independent practice
association of orthopaedists, and through several other business initiatives in
the area of disease management.
In December 1995, representatives of HEALTHSOUTH and Messrs. Russell F.
Warren, Jr. and Patrick J. Wack, Jr. met on the invitation of Smith Barney Inc.,
HEALTHSOUTH's financial advisor, and Unterberg Harris. No negotiations of any
kind were held. Each expressed their views as to the development of, and
prospects for, the rehabilitation industry. Concurrently, HEALTHSOUTH requested
operating information from PSCM which was provided by Unterberg Harris. In
February 1996, Mr. Warren met senior executives of HEALTHSOUTH at a Smith
Barney-hosted investment banking conference of companies with principal business
activities in the healthcare/rehabilitation industry. Thereafter, Mr. Warren was
invited to HEALTHSOUTH's headquarters in Birmingham, Alabama on
20
<PAGE>
March 19, 1996 for further informational discussions. Approximately two weeks
later, Michael D. Martin, Executive Vice President and Treasurer of HEALTHSOUTH,
began preliminary negotiations by suggesting an exchange ratio based on a price
per share of PSCM Common Stock of $8.00. Mr. Warren did not encourage a ratio at
that level but suggested that HEALTHSOUTH wait to review operating results for
the first quarter of 1996. After these preliminary negotiations, HEALTHSOUTH did
not contact PSCM for two weeks. In the interim, PSCM's first quarter results
were announced. At various times thereafter, HEALTHSOUTH personnel requested
detailed operating data which was provided by PSCM. As the negotiations with
HEALTHSOUTH grew more serious, three additional potential bidders (including one
who had previously expressed an interest in a possible combination) were
contacted by Unterberg Harris. One party conducted due diligence but informed
Unterberg Harris that, as a result of its stock price, it would not be in a
position to make a competing bid and accordingly withdrew from the process. No
other due diligence was undertaken nor were any proposals received.
From mid-April 1996 through the early part of May 1996, Mr. Warren had
numerous discussions with Mr. Martin with respect to PSCM's results of
operations and prospects. At this time, serious discussions began with respect
to a possible business combination. In the course of the negotiations,
HEALTHSOUTH indicated it would only consider a transaction with a company the
size of PSCM, and invest the time necessary to complete such a transaction, if
the consolidation would be accounted for as a pooling of interests and could be
expected to result in increased earnings per share for HEALTHSOUTH. Through the
second week of May 1996, Mr. Warren and a representative of Unterberg Harris
attempted to negotiate improved merger consideration and price protection for
PSCM stockholders. HEALTHSOUTH finally indicated that it was not prepared to
improve the consideration to PSCM stockholders. After a number of discussions
with Mr. Martin on May 10, 1996, Mr. Warren concluded that the terms of the
proposed combination were sufficiently clear to warrant PSCM Board
consideration, additional due diligence and the preparation of definitive
documentation.
On May 12, 1996, the Board of Directors of PSCM met to consider the status
of the negotiations with HEALTHSOUTH and discussed, among other things, the
business of HEALTHSOUTH and its proposal. In advance of the meeting, the Board
had been informed of the subject matter for the forthcoming meeting and had been
provided a memorandum from Unterberg Harris describing various valuation
methodologies related to the proposal and relevant statistics relating to
comparable companies and transactions as well as a memorandum from legal counsel
describing the Board's fiduciary responsibilities. At the meeting, legal counsel
for PSCM discussed with the Board of Directors its fiduciary obligations with
respect to consideration of any proposed business combination. Also at the
meeting, a representative of Unterberg Harris provided its preliminary view as
to the fairness of the transaction to PSCM's stockholders, from a financial
point of view, explained each aspect of its memorandum in detail and responded
to questions from various Board members with respect to its analysis, the
structure and terms of the proposed Merger, and the weight ascribed to various
components of PSCM's value, including OrthoNet. In addition, there was a
discussion of Unterberg Harris's and certain of its principals' historic
relationship with, and equity interest in, PSCM.
Various Board members, particularly Messrs. Stephen F. Wiggins and Robert
B. Milligan, Jr., questioned whether the HEALTHSOUTH proposal ascribed any value
to PSCM's ownership interest in OrthoNet. In addition, questions were raised as
to whether a spin-off of OrthoNet to PSCM's stockholders was possible without
affecting the pooling-of-interests accounting treatment for the transaction
which was a material condition of the HEALTHSOUTH proposal. In addition, some
significant discussion and disagreement among Board members (principally,
Messrs. Wiggins and Warren and Dr. Warren) centered on the long-term prospects
for companies of PSCM's size with similar access to capital whose core business
is the operation of rehabilitation clinics, given increased penetration of
managed care providers and materially lower average reimbursement rates. The
Board also discussed the difficulties in continuing to execute PSCM's
acquisition strategy while at the same time expanding its business focus. After
concluding the discussion, the Board of Directors directed management to explore
a possible spin-off of OrthoNet and the effects such a spin-off might have on
HEALTHSOUTH's proposal and the pooling-of-interests accounting treatment of the
proposed Merger. In addition, the Board of Directors authorized representatives
of PSCM to conduct an appropriate due diligence investigation of HEALTHSOUTH and
to negotiate forms of definitive agreements which would include voting proxies
21
<PAGE>
to be delivered by Dr. Warren and Messrs. Barnes, Warren and Wack. The foregoing
Board action was opposed by Mr. Wiggins. Mr. Milligan abstained in view of his
role as a member of the Board of Managers of OrthoNet.
On May 13, 14 and 15 additional negotiations and discussions were held with
HEALTHSOUTH with respect to the proposed combination. Topics included a possible
OrthoNet spin-off and the effect such a spin-off would have on the
pooling-of-interests accounting treatment for the Merger. HEALTHSOUTH informed
Mr. Warren that PSCM's majority interest in OrthoNet was incorporated in, and
not separable from, its proposal. In addition, HEALTHSOUTH advised Mr. Warren
that any risk to the pooling-of-interests accounting treatment would result in a
withdrawal of HEALTHSOUTH's offer, and that HEALTHSOUTH was not in a position to
fully evaluate whether such a spin-off would adversely affect such treatment.
Management of PSCM also contacted its independent accounting firm, Price
Waterhouse LLP, to discuss various alternatives to address the Board's questions
with respect to a potential OrthoNet spin-off. No substantive suggestions were
made that effectively addressed the concerns raised by HEALTHSOUTH with respect
to the OrthoNet spin-off. At the same time, counsel for HEALTHSOUTH and PSCM
continued to negotiate the definitive documentation with a view toward the
scheduling of a subsequent special meeting of the PSCM Board of Directors late
on May 15, 1996 or early on May 16, 1996. Prior to such meeting, members of the
Board of Directors were provided with substantially final forms of the merger
agreement and voting proxies as well as a memorandum from counsel describing the
material terms of the transaction.
Early on May 16, 1996, the Board of Directors met at a special meeting to
consider the merger proposal from HEALTHSOUTH. At such meeting, PSCM's financial
and legal advisors discussed with the Board of Directors their review of
HEALTHSOUTH on behalf of PSCM and the terms of the proposed consolidation. In
addition, Unterberg Harris delivered its oral opinion to the Board of Directors
that, as of such date, the proposed consideration to be received in the Merger
by the holders of PSCM Common Stock was fair, from a financial point of view, to
such holders. After discussion, the members of the Board of Directors of PSCM
present at the meeting unanimously approved the Merger, the voting proxies and
authorized PSCM to execute and deliver the merger agreement. (Messrs. Wiggins,
Barnes and Milligan were not in attendance.)
REASONS FOR THE MERGER; RECOMMENDATION OF PSCM'S BOARD OF DIRECTORS
The Board of Directors of PSCM, in approving the Merger and recommending it
to PSCM's stockholders, believes that the terms of the Merger are fair to the
stockholders of PSCM and in the best interests of PSCM. The Merger Consideration
was negotiated on an arm's length basis between representatives of PSCM and
representatives of HEALTHSOUTH. The Board of Directors concluded, based on the
factors stated below, that the Merger should be approved and recommends that the
PSCM stockholders vote in favor of the Merger.
In reaching the determinations and recommendations described above, the
Board of Directors of PSCM considered the following factors:
By the vote of the five members of the Board of Directors of PSCM present
at a special meeting held on May 16, 1996, the Board of Directors determined
that the proposed Merger and the terms and conditions of the Plan were fair to
and in the best interests of PSCM and its stockholders and resolved to recommend
that the stockholders of PSCM vote FOR approval and adoption of the Plan. See
"-- Background of the Merger". In reaching its conclusion to enter into the Plan
and to recommend that the stockholders of PSCM vote FOR the approval and
adoption of the Plan, the Board of Directors of PSCM considered a number of
factors, including, without limitation and without assigning relative weights
thereto, the following:
(i) The terms and conditions of the proposed Merger, including the value of
the consideration to be received by the stockholders of PSCM, the recent trading
price of PSCM Common Stock and the fact that the Merger was expected to be
treated as a tax-free reorganization.
(ii) The opportunity for holders of PSCM Common Stock to continue to share
in the potential for long-term gains in PSCM through the ownership of
HEALTHSOUTH Common Stock following the Merger.
22
<PAGE>
(iii) The business reputation and capabilities of HEALTHSOUTH and its
management, HEALTHSOUTH's financial strength, prospects, market position and
strategic objectives, and the liquidity and historical performance of
HEALTHSOUTH Common Stock.
(iv) The presentations of Unterberg Harris delivered to the Board of
Directors of PSCM at its meetings held on May 12, 1996 and May 16, 1996,
including the opinion of Unterberg Harris delivered on May 16, 1996 that the
consideration to be received in the merger was fair to the stockholders of PSCM
from a financial point of view. See "-- Opinion of Financial Advisor to PSCM."
(v) The perceived strengths of PSCM and HEALTHSOUTH combined, including the
potential developments and information that are expected to be shared between
the two companies after the merger is consummated, and the belief of the
directors that PSCM could be integrated into HEALTHSOUTH without disrupting or
adversely affecting the business of HEALTHSOUTH or PSCM.
(vi) The likelihood that the Merger will be consummated.
OPINION OF FINANCIAL ADVISOR TO PSCM
At a telephonic meeting of PSCM's Board of Directors held on May 12, 1996,
Unterberg Harris orally advised the Board that it expected to opine that the
consideration proposed to be offered to the stockholders of PSCM in the Merger
was fair to such stockholders from a financial point of view. In connection with
such advice, Unterberg Harris presented to PSCM's Board of Directors a summary
of the financial analyses conducted by Unterberg Harris. On May 16, 1996, in
connection with the final approval by PSCM's Board of Directors of the Plan,
Unterberg Harris delivered its opinion dated as of such date to the effect that
the Merger Consideration offered to the stockholders of PSCM was, as of such
date, fair to such stockholders from a financial point of view. The full text of
the opinion of Unterberg Harris is set forth as Annex B to the Prospectus-Proxy
Statement and describes the assumptions made, the matters considered and limits
on the review undertaken. The stockholders of PSCM are urged to read the opinion
in its entirety.
Unterberg Harris's opinion was provided to the Board of Directors of PSCM
in connection with the Board's exercise of its business judgment concerning the
Merger. Unterberg Harris's opinion is not a substitute for such business
judgment and does not constitute a recommendation to any stockholder of PSCM as
to how such stockholder should vote at the PSCM Special Meeting. Unterberg
Harris has advised the Board of Directors of PSCM that, based on an express
disclaimer in the engagement letter between PSCM and Unterberg Harris, it does
not believe that any person (including a stockholder of PSCM) other than PSCM or
the Board of Directors of PSCM has the legal right to rely upon Unterberg
Harris's opinion to support any claims against Unterberg Harris arising under
applicable state law and that, should any such claims be brought against
Unterberg Harris by any such person, this assertion will be raised as a defense.
In the absence of applicable state law authority, the availability of such a
defense will be resolved by a court of competent jurisdiction. Resolution of the
question of the availability of such a defense, however, will have no effect on
the rights and responsibilities of the Board of Directors of PSCM under
applicable state law. Nor would the availability of such a state-law defense to
Unterberg Harris have any effect on the rights and responsibilities of either
Unterberg Harris or the Board of Directors of PSCM under the federal securities
laws. Unterberg Harris's opinion takes into account the terms of the Merger
described under "-- Background of the Merger" and is based upon economic, market
and other conditions in effect on, and the information made available to
Unterberg Harris, as of May 15, 1996. Unterberg Harris's engagement does not
contemplate that Unterberg Harris would update, revise or reaffirm its opinion
as of any subsequent date. Unterberg Harris's opinion does not set forth any
conclusion as to the trading range of HEALTHSOUTH Common Stock following the
consummation of the Merger. No limitations were imposed by PSCM with respect to
the opinion rendered by Unterberg Harris.
The following is a summary of Unterberg Harris's opinion and the financial
analyses described to PSCM's Board of Directors.
In arriving at its opinion, Unterberg Harris reviewed certain information
relating to PSCM and HEALTHSOUTH including: the Plan; the Prospectus; financial
information with respect to the business operations of PSCM including, but not
limited to, audited financial statements for the fiscal years ended
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December 31, 1993, December 31, 1994, and December 31, 1995, and unaudited
financial data for the three-month period ended March 31, 1996; financial
information with respect to the business operations of HEALTHSOUTH including,
but not limited to, audited financial statements for the fiscal years ended
December 31, 1993, December 31, 1994 and December 31, 1995 and unaudited
financial statements for the quarterly period ended March 31, 1996; the
historical market prices and reported trading activity of both PSCM Common Stock
and HEALTHSOUTH Common Stock; a comparison of operating results and other
financial statement information of PSCM and HEALTHSOUTH with other companies
which Unterberg Harris deemed appropriate; and certain financial projections
prepared by the managements of PSCM and HEALTHSOUTH. In addition, Unterberg
Harris held discussions with certain members of PSCM and HEALTHSOUTH senior
management concerning their past and current operations, financial condition and
business prospects, and participated in the discussions and negotiations among
representatives of PSCM and HEALTHSOUTH and their legal advisors and independent
auditors. Unterberg Harris also reviewed other information and performed such
other analyses as it deemed appropriate.
Unterberg Harris has not assumed responsibility for independent
verification of the information reviewed by it and has relied upon it being
complete and accurate in all material respects. With respect to any financial
projections and other forward looking information provided to Unterberg Harris,
Unterberg Harris has assumed that all such information has been reasonably
prepared on bases reflecting the best currently available management estimates
and judgments of the future business and financial performances of PSCM,
HEALTHSOUTH and the combined company. Unterberg Harris also has assumed, without
independent verification, that the representations and warranties of PSCM and
HEALTHSOUTH in the Plan are true and correct.
Unterberg Harris has neither conducted a physical inspection of the
properties or facilities of PSCM or HEALTHSOUTH nor made any independent
valuation or appraisal of the assets or liabilities of PSCM and HEALTHSOUTH, and
Unterberg Harris has not been furnished with any such valuation or appraisal.
Unterberg Harris has assumed that the Merger will qualify for
pooling-of-interests accounting treatment and that the holders of PSCM Common
Stock will not be subject to U.S. federal income tax as a result of the Merger.
The preparation of Unterberg Harris's opinion involved various subjective
business determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. As a result, such opinion is not readily susceptible to partial
analysis or summary description. Accordingly, notwithstanding the separate
factors summarized below, Unterberg Harris's analyses must be considered as a
whole and selecting portions of its analyses or individual factors considered by
it without considering all analyses and factors could create an incomplete and
misleading view of the evaluation process underlying its opinion. A particular
analysis performed by Unterberg Harris is not necessarily indicative of actual
values, which may be significantly higher or lower than suggested by such
analysis. Unterberg Harris's analyses were prepared solely as part of Unterberg
Harris's review of the fairness of the Merger to the stockholders of PSCM from a
financial point of view and were provided to the Board of Directors of PSCM in
connection with the delivery of Unterberg Harris's opinion. Such analyses are
not appraisals and do not necessarily reflect the prices for which businesses
actually could be sold or actual values or future results that might be
achieved. In addition, Unterberg Harris's opinion was one of many factors taken
into consideration by PSCM's Board of Directors in making its determination to
approve the Merger. Except as otherwise noted, analysis of current stock prices
of PSCM, comparable companies and transaction values were based on trading
prices as of May 10, 1996.
Unterberg Harris reviewed the historical market prices for PSCM Common
Stock over the period from September 22, 1994, to May 10, 1996, and reviewed the
historical trading volume and market prices for PSCM Common Stock over the
period from January 1, 1995, to May 10, 1996. Unterberg Harris's analyses showed
that the offer price of such Common Stock was lower than the highest closing
price of such Common Stock over the period since its initial public offering but
a premium to the closing price of such Common Stock since September 21, 1995.
Unterberg Harris also reviewed the historical trading volume and market prices
for HEALTHSOUTH Common Stock and the stock of certain other publicly
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traded companies (described below) over the period from January 1, 1995, to May
10, 1996. Unterberg Harris noted that over the period from January 1, 1995, to
May 10, 1996, the performance of HEALTHSOUTH Common Stock was marked by
significantly higher and continued growth compared to the performance of PSCM
Common Stock and the stock of other publicly-traded companies that Unterberg
Harris reviewed.
Unterberg Harris compared selected historical and projected operating and
stock market data and operating and financial ratios for PSCM and HEALTHSOUTH to
the corresponding data and ratios of certain other publicly-traded companies in
the healthcare/rehabilitation industry as of May 10, 1996, which it deemed
comparable to PSCM and HEALTHSOUTH. These companies included Horizon/CMS
Healthcare Corporation, NovaCare, Inc., Pacific Rehabilitation & Sports
Medicine, Inc., RehabCare Group, Inc. and U.S. Physical Therapy, Inc. Such data
and ratios included multiples of net market value (defined as market value of
equity plus long term debt less cash and cash equivalents) to latest twelve
months ("LTM") revenues, market value to historical and projected earnings per
share based on publicly available research estimates available through First
Call and market value to book value. The comparable healthcare/rehabilitation
companies had multiples of net market value to LTM revenues ranging from 0.7x to
3.5x with a median of 1.6x. These comparable healthcare/rehabilitation companies
had multiples of market value to LTM earnings ranging from 12.3x to 42.8x with a
median of 20.1x, multiples of market value to projected calendar year 1996
earnings ranging from 8.9x to 25.3x with a median of 12.3x and multiples of
market value to projected calendar year 1997 earnings ranging from 6.7x to 20.3x
with a median of 9.9x. These comparable healthcare/rehabilitation companies had
multiples of market value to book value ranging from 0.9x to 8.2x with a median
of 1.5x. As of May 10, 1996, PSCM had a multiple of net transaction value
(defined as the net equity value of the transaction plus debt less cash and cash
equivalents) to LTM revenues of 2.2x, a multiple of transaction value to LTM
earnings of 32.4x, a multiple of transaction value to projected calendar 1996
earnings of 22.6x and a multiple of transaction value to projected calendar year
1997 earnings of 16.6x. By comparison, as of May 10, 1996, HEALTHSOUTH had a
multiple of net market value to LTM revenues of 3.5x, a multiple of market value
to LTM earnings of 32.7x, a multiple of market value to projected calendar 1996
earnings of 25.3x and a multiple of market value to projected calendar year 1997
earnings of 20.3x. Unterberg Harris believes that companies in the
healthcare/rehabilitation industry are primarily valued based on multiples of
revenues and future earnings and these ratios were given substantial weight in
Unterberg Harris's analysis.
Unterberg Harris pointed out in its presentation to PSCM's Board of
Directors that HEALTHSOUTH Common Stock trades at higher multiples of revenues,
earnings per share and book value in comparison to the stock of other
healthcare/rehabilitation companies, including PSCM. Unterberg Harris attributed
such higher multiples to HEALTHSOUTH's leadership position in the
healthcare/rehabilitation industry and noted that if HEALTHSOUTH continues to
maintain such a leadership position it would be reasonable to expect such higher
multiples to continue to exist subsequent to the consummation of the Merger,
although there cannot be any assurance this will be the case.
Based on estimates provided by PSCM and HEALTHSOUTH, Unterberg Harris
prepared a discounted cash flow analysis of the value of PSCM based on after-tax
cash flow through 2000. Unterberg Harris estimated the terminal value at the end
of the period by applying multiples of PSCM's net income ranging from 15.0x to
20.0x PSCM's terminal year's estimated net income. PSCM's cash flow streams and
terminal values were then discounted using different discount rates ranging from
20.0% to 30.0% chosen to reflect different assumptions regarding rates of return
of holders of PSCM Common Stock or prospective buyers. The discounted cash flow
analysis indicated a reference value of between $5.22 and $8.59 per share of
PSCM Common Stock.
Unterberg Harris analyzed the contribution of each of PSCM and HEALTHSOUTH
to the pro forma combined company. This contribution analysis was then compared
to the pro forma ownership percentage of the PSCM stockholders in the pro forma
company assuming the Exchange Ratio. The comparison indicated that such pro
forma ownership percentage was the same as PSCM's relative percentage
contribution to LTM earnings and slightly less than PSCM's relative percentage
contribution of net income for the projected calendar year 1996 and 1997
earnings, because PSCM's growth rate is
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projected to be slightly higher than that of HEALTHSOUTH during those periods.
The comparison also indicated that such pro forma ownership percentage was less
than PSCM's relative projected contribution to revenue for the latest
twelve-month period and projected calendar year 1996 and 1997 results.
Unterberg Harris also analyzed data obtained from 15 selected
healthcare/rehabilitation industry merger and acquisition transactions. In
examining these transactions, Unterberg Harris analyzed certain income statement
and balance sheet parameters of the acquired companies relative to the
consideration paid. Multiples analyzed included market value of the transaction
to LTM net income, and book value, and net market value of the transaction to
LTM revenue, earnings before depreciation, amortization, interest and taxes less
minority interest ("EBITDA"), and operating income. Completed transactions
analyzed by Unterberg Harris involved healthcare/rehabilitation industry
companies with financial or industry characteristics similar to those of PSCM
and HEALTHSOUTH. In certain cases, complete financial data was not publicly
available for such transactions and only partial information was used in such
instances. Transactions in this analysis showed multiples of the net transaction
value to LTM revenues ranging from 0.5x to 4.6x with a median of 1.5x and
multiples of transaction value to LTM net income ranging from "not meaningful"
to 55.4x with a median (excluding multiples that were "not meaningful") of
27.5x. "Not meaningful" indicated companies that reported earnings losses for
the LTM prior to the transaction. Transactions in this analysis showed multiples
of transaction value to book value ranging from 1.6x to 7.4x with a median of
2.4x and multiples of net transaction value to LTM EBITDA ranging from 4.1x to
45.1x with a median of 11.2x. By comparison, PSCM, when calculated pursuant to
the Plan, had a multiple of net transaction value to LTM revenue of 2.2x, a
multiple of transaction value to LTM net income of 32.4x, a multiple of
transaction value to book value of 1.7x and a multiple of net transaction value
to LTM EBITDA of 12.9x.
Unterberg Harris analyzed the pro forma effect of the Merger on the
projected combined income of PSCM and HEALTHSOUTH for calendar years 1996 and
1997. Such analysis was based on an assumed exchange ratio of .233 and on the
financial projections and related assumptions provided by the managements of
PSCM and HEALTHSOUTH. The analysis showed a slight increase in earnings per
share for both calendar years 1996 and 1997 before giving effect to any
restructuring expenses, transaction costs and operating synergies.
No company or transaction used in any comparable analysis is identical to
PSCM or the Merger. Accordingly, these analyses are not precise; rather, they
involve complex considerations and judgments concerning differences in financial
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies. Because the analyses
performed by Unterberg Harris involved the application of subjective business
judgments that are inherently uncertain, particularly as to future results, the
estimated values resulting from such analyses are not necessarily indicative of
actual values, which may be higher or lower than suggested by such analyses.
Unterberg Harris does not believe that a single method of analysis is
appropriate in reaching a conclusion with respect to valuation in connection
with the Merger.
Pursuant to a letter dated May 4, 1995, as amended May 3, 1996, PSCM
retained Unterberg Harris to analyze strategic alternatives, including strategic
mergers and acquisitions and a possible sale of PSCM. Pursuant to such letter,
Unterberg Harris will be entitled to receive a transaction fee of .75 percent of
the transaction value in the event the Merger is consummated. Additionally, PSCM
has agreed to reimburse Unterberg Harris for its reasonable out-of-pocket
expenses. Payment of the transaction fee is contingent upon consummation of the
Merger. As a result, Unterberg Harris could be viewed as having a financial
incentive to render an opinion in support of the Merger. The terms of the fee
arrangement were negotiated at arm's length between PSCM and Unterberg Harris.
The Board of Directors of PSCM, in making its recommendation with respect to the
Merger and the Plan, was aware of such arrangement. The Board of Directors of
PSCM believes that the contingent nature of Unterberg Harris's fee with respect
to the Merger is not an uncommon manner in which financial advisors are
compensated in similar transactions and also believes that any financial
incentive that could be viewed to exist did not preclude Unterberg Harris from
rendering independent and objective advice.
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Unterberg Harris has provided various financial advisory and investment
banking services to PSCM since 1994. Unterberg Harris acted as a lead-managing
underwriter for the initial public offering of PSCM Common Stock, which was
completed in September 1994, and acted as a co-manager on a secondary public
offering, which was completed in April 1995. Prior to such initial public
offering, Unterberg Harris and persons affiliated with Unterberg Harris
participated in two private equity and debt investments in PSCM. Since PSCM's
initial public offering, Unterberg Harris has published market research on PSCM
and has been an active market maker in its Common Stock. Unterberg Harris, as
part of its investment banking business, is engaged in the valuation of
businesses and securities in connection with mergers and acquisitions, offerings
of securities and valuations for corporate reorganizations and other purposes.
Unterberg Harris was selected by PSCM to act as its financial advisor based on
Unterberg Harris's experience as a financial advisor in mergers and acquisitions
as well as Unterberg Harris's investment banking relationship and familiarity
with PSCM.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of a Certificate of Merger
by the Subsidiary and PSCM under the DGCL, or at such later time as may be
specified in such Certificate of Merger. The Plan requires that this filing be
made, subject to satisfaction or waiver of the separate conditions to the
obligations of each party to consummate the Merger, no later than two business
days after satisfaction or waiver of the various conditions to the Merger set
forth in the Plan, or at such other time as may be agreed by HEALTHSOUTH and
PSCM. It is presently anticipated that such filing will be made as soon as
reasonably possible after the Special Meeting and after all regulatory approvals
have been obtained, and that the Effective Time will occur upon such filing.
However, there can be no assurance as to whether or when the Merger will occur.
See "-- Conditions to the Merger" and "-- Regulatory Approvals".
EXCHANGE OF CERTIFICATES
From and after the Effective Time, each holder of a stock certificate which
immediately prior to the Effective Time represented outstanding PSCM Shares
(collectively, the "Certificates") will be entitled to receive in exchange
therefor, upon surrender thereof to the Exchange Agent (as defined in the Plan),
a certificate or certificates representing the number of whole shares of
HEALTHSOUTH Common Stock into which such holder's PSCM Shares have been
converted, cash in lieu of fractional shares and any dividends or other
distributions to which such holder is entitled as a result of the Merger.
As soon as reasonably practicable after the Effective Time, HEALTHSOUTH
will deliver through the Exchange Agent to each holder of record of PSCM Shares
at the Effective Time transmittal materials for use in exchanging the
Certificates for certificates for shares of HEALTHSOUTH Common Stock. After the
Effective Time, there will be no transfers on the stock transfer books of PSCM
Shares which were issued and outstanding immediately prior to the Effective Time
and converted in the Merger.
No fractional shares of HEALTHSOUTH Common Stock and no certificates or
scrip therefor, or other evidence of ownership thereof, will be issued in the
Merger; instead, HEALTHSOUTH will pay to each holder of PSCM Shares who would
otherwise be entitled to a fractional share an amount of cash in an amount equal
to the value of such fractional part of a share of HEALTHSOUTH Common Stock. See
"-- Terms of the Merger".
The certificates representing shares of HEALTHSOUTH Common Stock, the
fractional share payment (if any) which any holder of PSCM Shares is entitled to
receive, and any dividends or other distributions paid on such HEALTHSOUTH
Common Stock prior to the delivery to HEALTHSOUTH of the Certificates, will not
be delivered to such stockholder until the Certificates are delivered to
HEALTHSOUTH through the Exchange Agent (as defined in the Plan). No interest
will be paid on dividends or other distributions or on any fractional share
payment which the holder of such shares shall be entitled to receive upon such
delivery.
At the Effective Time, holders of PSCM Shares immediately prior to the
Effective Time will cease to be, and shall have no rights as, stockholders of
PSCM, other than the right to receive the shares of HEALTHSOUTH Common Stock
into which such shares have been converted and any fractional share
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payment and any dividends or other distributions to which they may be entitled
under the Plan. Holders of PSCM Shares will be treated as stockholders of record
of HEALTHSOUTH for purposes of voting at any annual or special meeting of
stockholders of HEALTHSOUTH after the Effective Time, both before and after such
time as they exchange their Certificates for certificates of HEALTHSOUTH Common
Stock as provided in the Plan.
Neither HEALTHSOUTH nor PSCM will be liable to any holder of PSCM Shares
for any shares of HEALTHSOUTH Common Stock (or dividends or other distributions
with respect thereto) or cash in lieu of fractional shares delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
REPRESENTATIONS AND WARRANTIES
The Plan contains various customary representations and warranties of the
parties thereto. The representations and warranties of HEALTHSOUTH and the
Subsidiary, made jointly and severally, include, but are not limited to,
representations as to: (i) the corporate organization of the Subsidiary, (ii)
the power and authority of the Subsidiary to execute and perform the Plan and
(iii) the absence of contracts, liabilities and legal proceedings relating to or
affecting the Subsidiary.
The representations and warranties of HEALTHSOUTH include, but are not
limited to, representations as to: (i) the organization of HEALTHSOUTH, (ii) the
power and authority of HEALTHSOUTH to execute, deliver and perform the Plan,
(iii) the capitalization of HEALTHSOUTH, (iv) ownership of Subsidiary Common
Stock by HEALTHSOUTH, (v) the fact that HEALTHSOUTH has furnished PSCM with true
and complete copies of certain reports, schedules, registration statements and
proxy statements filed by HEALTHSOUTH with the SEC since January 1, 1995, (vi)
the absence of material legal proceedings against HEALTHSOUTH, (vii) the fact
that HEALTHSOUTH has not incurred any material adverse changes since March 31,
1996, (viii) HEALTHSOUTH's investment intent with respect to the PSCM Shares
acquired, and (ix) the absence of untrue representations by HEALTHSOUTH in the
Plan or in connection with the Merger.
The representations and warranties of PSCM include, but are not limited to:
(i) the organization of PSCM and its subsidiaries, (ii) the power and authority
of PSCM to execute, deliver and perform the Plan, (iii) the capitalization of
PSCM, (iv) the fact that PSCM has furnished HEALTHSOUTH with true and complete
copies of certain reports, schedules, registration statements and proxy
statements filed by PSCM with the SEC since September 1, 1994, (v) the absence
of legal proceedings against PSCM, (vi) the validity of PSCM's material
contracts, (vii) the fact that PSCM has not incurred any material adverse
changes since March 31, 1996, (viii) the status of PSCM's accounts receivable,
(ix) the opinion of PSCM's financial advisor, (x) the filing of PSCM's tax
returns, (xi) PSCM's employee benefits, (xii) PSCM's licenses, accreditation and
regulatory approvals, (xiii) PSCM's compliance with laws in general, (xiv) the
vote required by holders of PSCM capital stock to approve the Plan, and (xv) the
absence of untrue representations by PSCM in the Plan or in connection with the
Merger.
CONDITIONS TO THE MERGER
The obligation of HEALTHSOUTH and the Subsidiary to consummate the Merger
is subject to, among others, the following conditions: (i) PSCM shall have
performed all of its obligations as contemplated by the Plan at or prior to the
consummation date of the Merger; (ii) the representations and warranties of PSCM
set forth in the Plan shall be true and correct in all material respects as of
the dates specified in the Plan; (iii) HEALTHSOUTH shall have received the
opinion of its counsel that the Merger constitutes a tax-free reorganization
under the Code; (iv) HEALTHSOUTH and the Subsidiary shall have obtained, or
obtained the transfer of, any licenses, certificates of need and other
regulatory approvals necessary to allow the Surviving Corporation to operate the
PSCM facilities, unless the failure to obtain such transfer or approval would
not have a material adverse effect on the Surviving Corporation; and (v)
HEALTHSOUTH shall have received an opinion of PSCM's counsel substantially in
the form specified in the Plan.
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The obligation of PSCM to consummate the Merger is subject to, among
others, the following conditions: (i) HEALTHSOUTH and the Subsidiary shall have
performed all of their obligations as contemplated by the Plan at or prior to
the consummation of the Merger; (ii) the representations and warranties of
HEALTHSOUTH and the Subsidiary set forth in the Plan shall be true and correct
as of the dates specified in the Plan; (iii) PSCM shall have received the
opinion of its counsel that the Merger constitutes a tax-free reorganization
under the Code; and (iv) PSCM shall have received an opinion of HEALTHSOUTH's
counsel substantially in the form specified in the Plan.
The obligation of each of HEALTHSOUTH, the Subsidiary and PSCM to
consummate the Merger is subject to certain additional conditions, including the
following: (i) no order, decree or injunction by a court of competent
jurisdiction preventing the consummation of the Merger or imposing any material
limitation on the ability of HEALTHSOUTH effectively to exercise full rights of
ownership of the common stock of the Surviving Corporation or any material
portion of the assets or business of PSCM shall be in effect; (ii) no statute,
rule or regulation shall have been enacted by the government of the United
States or any state, municipality or other political subdivision thereof that
makes the consummation of the Merger or any other transaction contemplated by
the Plan illegal; (iii) the waiting period under the HSR Act shall have expired
or shall have been terminated; (iv) the Registration Statement shall have been
declared effective under the Securities Act and shall not be subject to any stop
order; (v) the Merger shall have been approved by the requisite vote of the
holders of the outstanding PSCM Shares entitled to vote thereon; (vi) the shares
of HEALTHSOUTH Common Stock to be issued in connection with the Merger shall
have been approved for listing on the NYSE upon official notice of issuance; and
(vii) the Merger shall qualify for pooling-of-interests accounting treatment and
HEALTHSOUTH and PSCM each shall have received a letter from Ernst & Young LLP,
dated the Closing Date of the Merger, regarding that firm's concurrence with the
conclusions of the managements of HEALTHSOUTH and PSCM, respectively, as to the
appropriateness of pooling-of-interests accounting for the Merger under APB 16
if closed and consummated in accordance with the Plan.
REGULATORY APPROVALS
The HSR Act prohibits consummation of the Merger until certain information
has been furnished to the Antitrust Division of the DOJ and the FTC and certain
waiting period requirements have been satisfied. On May 29, 1996, HEALTHSOUTH
and PSCM made their respective filings with the DOJ and the FTC with respect to
the Plan. Under the HSR Act, the filings commenced a 30-day waiting period
during which the Merger could not be consummated, which waiting period expired
on June 29, 1996. Notwithstanding the termination of the HSR Act waiting period,
at any time before or after the Effective Time, the FTC, the DOJ or others could
take action under the antitrust laws, including seeking to enjoin the
consummation of the Merger or seeking the divestiture by HEALTHSOUTH of all or
any part of the stock or assets of PSCM. There can be no assurance that a
challenge to the Merger on antitrust grounds will not be made or, if such a
challenge were made, that it would not be successful.
As conditions precedent to the consummation of the Merger, the Plan
requires, among other things: (i) that the HSR Act waiting period has expired or
been terminated, and (ii) that all other governmental approvals required for the
consummation of the Merger have been obtained, except where the failure to
obtain such approvals would not have a material adverse effect on the business
of the Surviving Corporation.
HEALTHSOUTH and PSCM believe that the Merger does not violate the antitrust
laws and intend to resist vigorously any assertion to the contrary by the FTC,
the DOJ or others. Any such resistance could delay consummation of the Merger,
perhaps for a considerable period. Prior to the Merger, the FTC or the DOJ could
seek to enjoin the consummation of the Merger under the federal antitrust laws
or require that HEALTHSOUTH or PSCM divest certain assets to avoid such a
proceeding. The FTC or DOJ could also, following the Merger, take action under
the federal antitrust laws to rescind the Merger, to require divestiture of
assets of either HEALTHSOUTH or PSCM, or to obtain other relief.
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Certain other persons, such as states' attorneys general and private
parties, could challenge the Merger as violative of the antitrust laws and seek
to enjoin the consummation of the Merger and, in the case of private persons,
also to obtain treble damages. There can be no assurance that a challenge to the
Merger on antitrust grounds will not be made or, if such a challenge is made,
that it would not be successful. Neither HEALTHSOUTH nor PSCM intends to seek
any further stockholder approval or authorization of the Plan as a result of any
action that it may take to resist or resolve any FTC, DOJ or other objections,
unless required to do so by applicable law.
The operations of each Company are subject to a substantial body of
federal, state, local and accrediting body laws, rules and regulations relating
to the conduct, licensing and development of healthcare businesses and
facilities. As a result of the Merger, certain of the arrangements between PSCM
and third-party payors may be deemed to have been transferred, requiring the
approval and consent of such payors. It is anticipated that, prior to the time
this Prospectus-Proxy Statement is mailed to the stockholders of PSCM, all
filings required to be made prior to such date to obtain the consents and
approvals required from federal and state healthcare regulatory bodies and
agencies will have been made. However, certain of such filings cannot be made
under the applicable laws, rules and regulations until after the Effective Time.
Although no assurances to this effect can be given, it is anticipated that the
Companies will be able to obtain any required consent or approval.
BUSINESS PENDING THE MERGER
The Plan provides that, during the period from the date of the Plan to the
Effective Time, except as provided in the Plan, HEALTHSOUTH and PSCM will
conduct their respective businesses in the usual, regular and ordinary course in
substantially the same manner as previously conducted, and PSCM will use its
reasonable best efforts to preserve intact its present business organizations
and to preserve its relationships with customers, suppliers and others having
business dealings with it.
Under the Plan, PSCM may not (other than as required pursuant to or
contemplated by the terms of the Plan and related documents), without first
obtaining the written consent of HEALTHSOUTH, (i) encumber any asset or enter
into any transaction or make any contract or commitment relating to its
properties, assets and business, other than in the ordinary course of business
or as otherwise disclosed in the Plan; (ii) enter into any employment contract
which is not terminable upon notice of 30 days or less, at will and without
penalty to it, except as provided in the Plan; (iii) enter into any contract or
agreement which cannot be performed within three months or which involves the
expenditure of over $50,000, except as provided for in the Plan; (iv) issue or
sell, or agree to issue or sell, any shares of its capital stock or other
securities of PSCM except upon exercise of currently outstanding stock options
or warrants; (v) make any payment or distribution to the trustee under any
bonus, pension, profit sharing or retirement plan or incur any obligation to
make any such payment or contribution which is not in accordance with PSCM's
usual past practice, or make any payment or contributions or incur any
obligation pursuant to or in respect of any other plan or contract or
arrangement providing for bonuses, executive incentive compensation, pensions,
deferred compensation, retirement payments, profit sharing or the like,
establish or enter into any such plan, contract or arrangement, or terminate any
such plan; (vi) extend credit to anyone, except in the ordinary course of
business consistent with past practices; (vii) guarantee the obligation of any
person, firm or corporation, except in the ordinary course of business
consistent with past practices; (viii) amend its Certificate of Incorporation or
Bylaws; (ix) discharge or satisfy any material lien or encumbrance or pay or
satisfy any material obligation or liability (absolute, accrued, contingent or
otherwise) other than liabilities shown or reflected on the PSCM March 31, 1996
balance sheet; (x) increase or establish any reserve for taxes or any other
liability on its books or otherwise provide therefor which would have a material
adverse effect on PSCM, except as may be required due to income or operations of
PSCM since March 31, 1996; (xi) mortgage, pledge or subject to any lien, charge
or other encumbrance any of the assets, tangible or intangible, which assets are
material to the consolidated business or financial condition of PSCM; (xii) sell
or transfer any of the assets material to the consolidated business of PSCM,
cancel any material debts or claims or waive any material rights, except in the
ordinary course of business; (xiii) grant any general or uniform increase in the
rates of pay of employees or any material increase in salary payable or to
become payable by PSCM to any officer or employee, consultant or agent (other
than normal merit increases) or, by means of any
30
<PAGE>
bonus or pension plan, contract or other commitment, increase in a material
respect the compensation of any officer, employee, consultant or agent; (xiv)
except for the Plan and the other agreements executed and delivered pursuant to
the Plan, enter into any material transaction other than in the ordinary course
of business or permitted under the Plan; (xv) issue any stock, bonds or other
securities, other than stock issued pursuant to options or warrants that are
disclosed in the Plan; and (xvi) incur any material adverse change.
WAIVER AND AMENDMENT
The Plan provides that, at any time prior to the Effective Time,
HEALTHSOUTH and PSCM may (i) extend the time for the performance of any of the
obligations or other acts of the other party contained in the Plan; (ii) waive
any inaccuracies in the representations and warranties of the other party
contained in the Plan or in any document delivered pursuant to the Plan; and
(iii) waive compliance with the agreements or conditions under the Plan. In
addition, the Plan may be amended at any time upon the written agreement of
HEALTHSOUTH and PSCM without the approval of stockholders of either Company,
except that after the Special Meeting no amendment may be made which by law
requires a further approval by the stockholders of PSCM without such further
approval's being obtained.
TERMINATION
The Plan may be terminated at any time prior to the Effective Time, whether
before or after approval of the Plan by the stockholders of PSCM: (i) by mutual
written consent of HEALTHSOUTH, the Subsidiary and PSCM; (ii) by either
HEALTHSOUTH or PSCM if there is a material breach on the part of the other party
of any representation, warranty, covenant or other agreement set forth in the
Plan which is not cured as provided in the Plan; (iii) by either HEALTHSOUTH or
PSCM if any governmental entity or court of competent jurisdiction shall have
issued a final, permanent order, decree, or ruling or other action enjoining or
otherwise prohibiting the Merger and such order, decree, or ruling or other
action shall have become non-appealable; (iv) by either HEALTHSOUTH or PSCM if
the Merger has not been consummated on or before September 30, 1996 (or such
later date as may be determined under the Plan), unless the failure to
consummate the Merger by such time is due to the breach of the Plan by the party
seeking to terminate the Plan; (v) by either HEALTHSOUTH or PSCM if any required
approval of the Plan by stockholders of PSCM has not been obtained by the
required votes at a duly held meeting of stockholders; (vi) by PSCM, if PSCM's
Board of Directors shall have determined, in the exercise of its fiduciary
duties under applicable law, not to recommend the Merger to the stockholders of
PSCM or shall have withdrawn such recommendation, or shall have approved,
recommended or endorsed any proposal to acquire PSCM upon a merger, purchase of
assets, purchase of or tender offer for shares of PSCM or similar transaction
other than the Merger, or shall have resolved to do any of the foregoing; (vii)
subject to the rights of HEALTHSOUTH described in the next paragraph, by PSCM if
the Base Period Trading Price shall be less than $31.00 and (viii) by either
HEALTHSOUTH or PSCM if such party has not received by May 31, 1996 a letter from
Ernst & Young LLP regarding that firm's concurrence with the conclusions of the
managements of HEALTHSOUTH and PSCM, respectively, as to the appropriateness of
pooling-of-interests accounting for the Merger under APB 16 if closed and
consummated in accordance with the Plan. Such letter was received by HEALTHSOUTH
and PSCM on such date.
The Plan provides that, if PSCM proposes to terminate the Plan because the
Base Period Trading Price is less than $31.00, PSCM must give HEALTHSOUTH not
less than 48 hours' written notice to submit a final and best offer (a "Final
Offer") for a change in the Merger Consideration. If such Final Offer is
accepted by PSCM (as determined by PSCM's Board of Directors after consulting
with its legal counsel and financial advisors), the parties will amend the Plan
to reflect such Final Offer and shall make any appropriate amendments to this
Prospectus-Proxy Statement.
BREAK-UP FEE; THIRD PARTY BIDS
If the Plan is terminated by PSCM because its Board of Directors (i) has
determined, in the exercise of its fiduciary duties under applicable law, not to
recommend the Merger to the holders of PSCM Shares, or shall have withdrawn such
recommendation, or (ii) shall have approved, recommended or
31
<PAGE>
endorsed an Acquisition Transaction (as defined in the Plan) other than the
Plan, and within one year after the effective date of such termination PSCM is
the subject of a Third Party Acquisition Event (as defined in the Plan), then at
the time of consummation of such a Third Party Acquisition Event PSCM shall pay
to HEALTHSOUTH a break-up fee equal to 5% of the aggregate Merger Consideration
(determined as it would have been calculated on the effective date of
termination of the Plan, substituting the effective date of such termination for
the date of the Special Meeting in calculating the Base Period Trading Price).
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendations of the Board of Directors of PSCM with
respect to the Plan and the transactions contemplated thereby, stockholders of
the Company should be aware that certain members of the management of PSCM and
the Board of Directors of PSCM have certain interests in the Merger that are in
addition to the interests of the stockholders generally.
At the Closing (as defined in the Plan), HEALTHSOUTH has agreed to enter
into Consulting and Non-Competition Agreements with Russell F. Warren, Jr.,
President and Chief Executive Officer and a Director of PSCM, and Patrick J.
Wack, Jr., Executive Vice President, Chief Operating Officer, Secretary,
Treasurer and a Director of PSCM, pursuant to which each of Messrs. Warren and
Wack have agreed to provide certain consulting services to HEALTHSOUTH and have
agreed to refrain from competing with the business of HEALTHSOUTH during the
term of such agreements. Such agreements have an initial term of two years,
subject to certain rights of HEALTHSOUTH to terminate the agreements at the end
of the first year. In addition, such agreements may be extended by mutual
consent for up to three additional one-year renewal terms. Under such
agreements, HEALTHSOUTH has agreed to pay each of Messrs. Warren and Wack a fee
at the annual rate of $200,000.
The employment agreements between PSCM and each of Russell F. Warren, Jr.,
Patrick J. Wack, Jr., Michael P. Neuscheler, William Lee Day and Raymond Rasa
(each, the "Executive") provide that upon a deemed termination within twelve
months of a "change of control", PSCM will pay to the Executive as liquidated
damages his base salary for, depending on the terms of the individual contract,
a period of either six or twelve months plus, in certain circumstances, any
bonus the Executive may have earned. At the election of the Executive,
termination may be deemed to occur if the Executive no longer has the same title
or position in the chain of command, if his duties are changed or if his
perquisites, access to benefits, or compensation is decreased. For the purposes
of these employment agreements, "change of control", among other things, is
defined generally as a party's acquisition, directly or indirectly, of more than
50% of the fully-diluted outstanding equity of PSCM. As defined in the
employment agreements, the Merger will constitute a "change of control".
INDEMNIFICATION AND INSURANCE
The Plan provides that PSCM shall, and after the Effective Time HEALTHSOUTH
and the Surviving Corporation shall, indemnify, defend and hold harmless each
person who is, or has ever been at any time prior to the Effective Time, an
officer, director or employee of PSCM or any of its subsidiaries (the
"Indemnified Parties") against all losses, claims, damages, costs, expenses,
liabilities or judgments, or amounts that are paid in settlement with the
approval of the indemnifying party, in connection with any claim arising, in
whole or in part, out of the fact that such person is or was a director, officer
or employee of PSCM, pertaining to a matter occurring or existing at or prior to
the Effective Time.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by HEALTHSOUTH
and PSCM of an opinion from Ernst & Young LLP, HEALTHSOUTH's independent
auditors, regarding that firm's concurrence with the conclusions of the
managements of HEALTHSOUTH and PSCM, respectively, as to the appropriateness of
pooling-of-interests accounting for the Merger under APB 16 if closed and
consummated in accordance with the Plan. HEALTHSOUTH and PSCM have agreed not to
intentionally take or cause to be taken any action that would disqualify the
Merger as a pooling of interests for accounting purposes.
32
<PAGE>
Under the pooling-of-interests method of accounting, the historical basis
of the assets and liabilities of HEALTHSOUTH and PSCM will be combined at the
Effective Time and carried forward at their previously recorded amounts, the
stockholders' equity accounts of HEALTHSOUTH and PSCM will be combined on
HEALTHSOUTH's consolidated balance sheet and no goodwill or other intangible
assets will be created. Financial statements of HEALTHSOUTH issued after the
Merger will be restated retroactively to reflect the consolidated operations of
HEALTHSOUTH and PSCM as if the Merger had taken place prior to the periods
covered by such financial statements.
The unaudited pro forma financial information contained in this
Prospectus-Proxy Statement has been prepared using the pooling-of-interests
accounting method to account for the Merger. See "PRO FORMA CONDENSED FINANCIAL
INFORMATION".
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the principal federal income tax
consequences of the Merger to the holders of PSCM Shares. The discussion is
based on currently existing provisions of the Code, Treasury Regulations
thereunder, administrative rulings and court decisions. All of the foregoing are
subject to change and any such change can affect the continuing validity of this
discussion. This summary applies to holders of PSCM Shares who hold their PSCM
Shares as capital assets. This summary does not discuss all aspects of income
taxation that may be relevant to a particular holder of PSCM Shares in light of
such holder's specific circumstances or to certain types of holders subject to
special treatment under the federal income tax laws (for example, foreign
persons, dealers in securities, banks and other financial institutions,
insurance companies, tax-exempt organizations and holders who acquired PSCM
Shares pursuant to the exercise of options or otherwise as compensation or
through a tax-qualified retirement plan or holders who are subject to the
alternative minimum tax provisions of the Code), and it does not discuss any
aspect of state, local, foreign or other tax law.
It is a condition to the consummation of the Merger that PSCM receive an
opinion from its counsel, Cahill Gordon & Reindel ("Cahill Gordon"), and that
HEALTHSOUTH receive an opinion from its counsel, Haskell Slaughter & Young,
L.L.C. ("Haskell Slaughter", and together with Cahill Gordon, "Tax Counsel"),
substantially to the effect that for federal income tax purposes the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
Consistent with such opinions, it is expected that the material federal income
tax consequences of the Merger will be that: (i) no gain or loss will be
recognized by HEALTHSOUTH, the Subsidiary or PSCM as a result of the Merger,
(ii) no gain or loss will be recognized by the stockholders of PSCM upon the
exchange of their PSCM Shares solely for shares of HEALTHSOUTH Common Stock
pursuant to the Merger, except that a PSCM stockholder who receives cash
proceeds in lieu of a fractional share of HEALTHSOUTH Common Stock will
recognize gain or loss equal to the difference, if any, between such
stockholder's tax basis allocated to such fractional share (as described in
clause (iii) below) and the amount of cash received, and such gain or loss will
constitute capital gain or loss if such stockholder's PSCM Shares with respect
to which gain or loss is recognized are held as a capital asset at the Effective
Time, (iii) the aggregate tax basis of the shares of the HEALTHSOUTH Common
Stock received solely in exchange for PSCM Shares pursuant to the Merger
(including fractional shares of HEALTHSOUTH Common Stock for which cash is
received) will be the same as the aggregate tax basis of the PSCM Shares
exchanged therefor, and (iv) the holding period for HEALTHSOUTH Common Stock
received in exchange for PSCM Shares pursuant to the Merger will include the
holding period of the PSCM Shares exchanged therefor, provided such PSCM Shares
were held as a capital asset at the Effective Time.
Neither HEALTHSOUTH nor PSCM has requested or will receive an advance
ruling from the Internal Revenue Service (the "Service") as to the federal
income tax consequences of the Merger. In rendering their opinions, Tax Counsel
may receive and will rely upon representations contained in certificates of
HEALTHSOUTH, the Subsidiary, PSCM and others. Tax Counsel's opinions will be
subject to certain limitations and qualifications and will be based upon the
truth and accuracy of these representations and upon certain factual assumptions
and represent Tax Counsel's best legal judgment. The tax opinions are not
binding on the Service or the courts and do not preclude the Service from
adopting a contrary position.
33
<PAGE>
EACH HOLDER OF PSCM SHARES IS URGED TO CONSULT SUCH HOLDER'S TAX ADVISOR AS
TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
RESALE OF HEALTHSOUTH COMMON STOCK BY AFFILIATES
The shares of HEALTHSOUTH Common Stock to be issued to holders of PSCM
Shares in connection with the Merger have been registered under the Securities
Act. HEALTHSOUTH Common Stock received by the stockholders of PSCM upon
consummation of the Merger will be freely transferable under the Securities Act,
except for shares issued to any person who may be deemed an "Affiliate" (as
defined below) of PSCM or HEALTHSOUTH within the meaning of Rule 145 under the
Securities Act. "Affiliates" are generally defined as persons who control, are
controlled by, or are under common control with PSCM or HEALTHSOUTH at the time
of the Special Meeting (generally, directors, certain executive officers and
major stockholders). Affiliates of PSCM or HEALTHSOUTH may not sell their shares
of HEALTHSOUTH Common Stock acquired in connection with the Merger, except
pursuant to an effective registration statement under the Securities Act
covering such shares or in compliance with Rule 145 or another applicable
exemption from the registration requirements of the Securities Act. In general,
under Rule 145, for two years following the Effective Time, an Affiliate
(together with certain related persons) would be entitled to sell shares of
HEALTHSOUTH Common Stock acquired in connection with the Merger only through
unsolicited "broker transactions" or in transactions directly with a "market
maker," as such terms are defined in Rule 144 under the Securities Act.
Additionally, the number of shares to be sold by an Affiliate (together with
certain related persons and certain persons acting in concert) during such
two-year period within any three-month period for purposes of Rule 145 may not
exceed the greater of (i) 1% of the outstanding shares of HEALTHSOUTH Common
Stock or (ii) the average weekly trading volume of such stock during the four
calendar weeks preceding such sale. Rule 145 would remain available to
Affiliates only if HEALTHSOUTH remained current with its information filings
with the SEC under the Exchange Act. Two years after the Effective Time, an
Affiliate would be able to sell such HEALTHSOUTH Common Stock without such
manner of sale or volume limitations, provided that HEALTHSOUTH were current
with its Exchange Act information filings and such Affiliate were not then an
Affiliate of HEALTHSOUTH. Three years after the Effective Time, an Affiliate
would be able to sell such shares of HEALTHSOUTH Common Stock without any
restrictions so long as such Affiliate had not been an Affiliate of HEALTHSOUTH
for at least three months prior thereto.
PSCM has agreed to use its reasonable, good faith efforts to cause each
holder of PSCM Shares deemed to be an Affiliate of PSCM to enter into an
agreement providing that such Affiliate will not sell, pledge, transfer or
otherwise dispose of shares of HEALTHSOUTH Common Stock to be received by such
person in the Merger, (i) except in compliance with the applicable provisions of
the Securities Act and the rules and regulations thereunder and (ii) until after
such time as results covering at least thirty days of post-Merger combined
operations of HEALTHSOUTH and PSCM have been published. HEALTHSOUTH has agreed
that within 20 days after the end of the first calendar month following at least
30 days after the Effective Time, HEALTHSOUTH shall cause the publication of
such results.
NO APPRAISAL RIGHTS
Under the DGCL, holders of PSCM Common Stock will not be entitled to
dissenters' rights of appraisal in connection with the Merger.
NO SOLICITATION OF TRANSACTIONS
PSCM has agreed that it will not, and will direct each officer, director,
employee, representative and agent of PSCM not to, directly or indirectly,
encourage, solicit, participate in or initiate discussions or negotiations with
or provide any information to any corporation, partnership, person or other
entity or group (other than HEALTHSOUTH or an affiliate, associate or agent of
HEALTHSOUTH) concerning any merger, sale of assets, sale of or tender offer for
PSCM Shares or similar transactions involving PSCM. Under the Plan, PSCM may
furnish information concerning PSCM to other corporations, partnerships, persons
or other entities or groups, and may participate in discussions and negotiate
with such entities
34
<PAGE>
concerning any proposal to acquire PSCM upon a merger, purchase of assets,
purchase of or tender offer for PSCM Shares or similar transaction (an
"Acquisition Transaction"), in response to unsolicited requests therefor, if the
Board of Directors of PSCM determines in its good faith judgment in the exercise
of its fiduciary duties or its duties under Rule 14e-2 under the Exchange Act
that such action is appropriate in furtherance of the best interest of its
stockholders. PSCM has further agreed that it will notify HEALTHSOUTH if it
enters into a confidentiality agreement with any third party in response to any
unsolicited request for information and access in connection with a possible
Acquisition Transaction, including providing HEALTHSOUTH with the identity of
the third party.
EXPENSES
The Plan provides that all costs and expenses incurred in connection with
the Plan and the transactions contemplated thereby shall be paid by the party
incurring such expense, except that expenses of printing and mailing this
Prospectus-Proxy Statement shall be shared equally by HEALTHSOUTH and PSCM.
NYSE LISTING
A listing application will be filed with the NYSE to list the shares of
HEALTHSOUTH Common Stock to be issued to PSCM stockholders and option holders in
connection with the Merger. Although no assurance can be given that the shares
of HEALTHSOUTH Common Stock so issued will be accepted for listing, HEALTHSOUTH
and PSCM anticipate that these shares will qualify for listing on the NYSE upon
official notice of issuance thereof. It is a condition to the Merger that such
shares of HEALTHSOUTH Common Stock be approved for listing on the NYSE upon
official notice of issuance at the Effective Time.
CERTAIN LITIGATION
On May 22, 1996, an action styled Tammy Newman v. Russell F. Warren, et al.
(Civil Action No. 15008) was filed in the Delaware Chancery Court. The
Complaint, which purports to be a class action filed on behalf of the
stockholders of PSCM, alleges that the PSCM Board of Directors breached its
fiduciary duties in approving the Merger and that the consideration offered is
unfair and does not maximize shareholder value. PSCM, its directors
individually, and HEALTHSOUTH are named as defendants in the suit. The Complaint
seeks injunctive relief and unspecified damages. The defendants are vigorously
defending the claims asserted in the Complaint. A substantially identical action
styled Francine Frechter v. Russell F. Warren, et al. (Civil Action No. 15070)
was filed in the same court on June 17, 1996, but has not been served on the
defendants.
35
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA -- HEALTHSOUTH
The consolidated income statement data set forth below for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 and the consolidated balance sheet
data at December 31, 1991 1992, 1993, 1994 and 1995 are derived from the audited
consolidated financial statements of HEALTHSOUTH. The data for the three months
ended March 31, 1995 and 1996 and at March 31,1996 are derived from the
unaudited consolidated financial statements of HEALTHSOUTH. In the opinion of
HEALTHSOUTH, the consolidated income statement data for the three months ended
March 31, 1996 and 1995, and the consolidated balance sheet data at March 31,
1996, reflect all adjustments (which consist of only normal recurring
adjustments) necessary for a fair presentation of results of interim periods.
Operating results for the three months ended March 31, 1995 and 1996 are not
necessarily indicative of results for the full fiscal year or for any future
interim period. The data set forth below should be read in conjunction with the
consolidated financial statements, related notes and other information
incorporated by reference herein. The financial information for all periods set
forth below has been restated to reflect the acquisitions of ReLife, Inc.
("ReLife") in December 1994, Surgical Health Corporation ("SHC") in June 1995,
Sutter Surgery Centers Inc. ("SSCI") in October 1995, Surgical Care Affiliates,
Inc. ("SCA") in January 1996 and Advantage Health Corporation ("Advantage
Health") in March 1996, each of which has been accounted for as a pooling of
interests.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ----------- ---------- ------------ ------------ ---------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues ......................................... $468,572 $750,134 $979,206 $1,649,199 $2,003,146 $451,844 $581,234
Operating expenses:
Operating units ................................. 316,628 521,619 668,201 1,161,758 1,371,740 311,279 386,266
Corporate general and administrative ............ 17,347 25,667 37,043 61,640 56,920 14,998 16,025
Provision for doubtful accounts................... 9,345 16,553 20,026 32,904 37,659 9,081 12,866
Depreciation and amortization .................... 24,295 42,107 63,572 113,977 143,322 32,224 42,580
Interest expense.................................. 19,273 18,237 24,200 73,644 101,790 23,132 23,845
Interest income................................... (9,489) (8,595) (5,903) (6,387) (7,882) (2,249) (1,806)
Merger and acquisition related expenses(1)........ -- -- 333 6,520 34,159 -- 28,939
Gain on sale of MCA Stock(2)...................... -- -- -- (7,727) -- -- --
Loss on impairment of assets (2).................. -- -- -- 10,500 53,549 -- --
Loss on abandonment of computer project (2) ...... -- -- -- 4,500 -- -- --
Loss on disposal of surgery centers(2)............ -- -- -- 13,197 -- -- --
NME Selected Hospitals Acquisition related expense
(2).............................................. -- -- 49,742 -- -- -- --
Terminated merger expense......................... -- 3,665 -- -- -- -- --
Loss on extinguishment of debt ................... -- 883 -- -- -- -- --
Gain on sale of partnership interest ............. -- -- (1,400) -- -- -- --
Provision for contingent payment.................. 5,400 -- -- -- -- -- --
-------- -------- -------- ---------- ---------- -------- --------
382,799 620,136 855,814 1,464,526 1,791,257 388,465 508,715
-------- -------- -------- ---------- ---------- -------- --------
Income before income taxes and minority interests. 85,773 129,998 123,392 184,673 211,889 63,379 72,519
Provision for income taxes ....................... 24,582 38,550 37,993 65,121 76,221 21,415 23,297
-------- -------- -------- ---------- ---------- -------- --------
61,191 91,448 85,399 119,552 135,668 41,964 49,222
Minority interests................................ 18,613 25,943 29,377 31,469 43,147 9,042 11,371
-------- -------- -------- ---------- ---------- -------- --------
Income from continuing operations................. 42,578 65,505 56,022 88,083 92,521 32,922 37,851
Income from discontinued operations(2)............ 2,971 3,283 4,452 -- -- -- --
-------- -------- -------- ---------- ---------- -------- --------
Net income....................................... $ 45,549 $ 68,788 $ 60,474 $ 88,083 $ 92,521 $ 32,922 $ 37,851
======== ======== ======== ========== ========== ======== ========
Weighted average common and common
equivalent shares outstanding(3)................. 105,451 127,148 132,479 140,427 148,730 142,998 162,892
======== ======== ======== ========== ========== ======== ========
Net income per common and common
equivalent share(3)
Continuing operations........................... $ 0.40 $ 0.51 $ 0.43 $ 0.63 $ 0.62 $ 0.23 $ 0.23
Discontinued operations......................... 0.03 0.03 0.03 -- -- -- --
-------- -------- -------- ---------- ---------- -------- --------
$0.43 $0.54 $0.46 $0.63 $0.62 $0.23 $0.23
======== ======== ======== ========== ========== ======== ========
Net income per common share -- assuming full
dilution (3)(4) ................................. $0.42 N/A N/A $0.63 $0.62 $0.23 $0.23
======== ======== ======== ========== ========== ======== ========
</TABLE>
<TABLE>
<CAPTION>
<PAGE>
DECEMBER 31, MARCH 31,
---------------------------------------------------------- ------------
1991 1992 1993 1994 1995 1996
---------- ----------- ----------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and marketable securities $173,290 $ 179,725 $ 148,308 $ 129,971 $ 156,321 $ 117,079
Working capital............... 225,794 269,120 284,691 282,667 406,125 422,484
Total assets.................. 737,472 1,143,235 1,881,211 2,230,093 2,931,495 3,002,452
Long-term debt(5)............. 253,483 413,656 1,008,429 1,139,087 1,391,664 1,411,609
Stockholders' equity.......... 391,452 581,954 646,397 757,583 1,185,898 1,230,961
</TABLE>
(1) Expenses related to SHC's Ballas merger in 1993, the ReLife and Heritage
mergers in 1994, the SHC and SSCI mergers and NovaCare Rehabilitation
Hospitals Acquisition in 1995 and the SCA and Advantage Health mergers in
1996.
(2) See "Notes to Consolidated Financial Statements" in the HEALTHSOUTH
documents incorporated herein by reference.
(3) Adjusted to reflect a three-for-two stock split effected in the form of a
50% stock dividend paid on December 31, 1991 and a two-for-one stock split
effected in the form of a 100% stock dividend paid on April 17, 1995.
(4) Fully-diluted earnings per share in 1991 reflect shares reserved for
issuance upon exercise of dilutive stock options and shares reserved for
issuance upon conversion of HEALTHSOUTH's 7 3/4 % Convertible Subordinated
Debentures Due 2014, all of which were converted into Common Stock prior to
June 3, 1991. Fully-diluted earnings per share in 1994 and 1995 and the
three months ended March 31, 1995 and 1996 reflect shares reserved for
issuance upon conversion of HEALTHSOUTH's 5% Convertible Subordinated
Debentures Due 2001.
(5) Includes current portion of long-term debt.
36
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA -- PSCM
The selected consolidated financial data presented below at December 31,
1995, 1994 and 1993 and for each of the years in the three years ended December
31, 1995 have been derived from the consolidated financial statements of PSCM
audited by Price Waterhouse LLP, independent accountants. The selected
consolidated financial data at December 31, 1992 and 1991 and for the years then
ended have been derived from the audited consolidated financial statements of
PSCM. The financial data for the three-month periods ended March 31, 1996 and
1995 are derived from unaudited consolidated financial statements of PSCM. The
unaudited financial statements include all adjustments, consisting of only
normal recurring accruals, which PSCM considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the three months ended March 31, 1996 are not
necessarily indicative of results that may be expected for the entire fiscal
year ended December 31, 1996. The data should be read in conjunction with the
consolidated financial statements, related notes and other financial information
incorporated by reference herein.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FOR THE YEARS ENDED DECEMBER 31 MARCH 31,
-------------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------- ------- ------ -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenue.................................. $1,313 $3,838 $5,738 $16,430 $27,110 $5,924 $9,290
Center operating costs...................... 687 2,232 3,531 9,506 16,987 3,469 5,911
------ ------ ------ ------- ------- ------ ------
Gross Profit ............................... 626 1,606 2,207 6,924 10,123 2,455 3,379
Operating expenses:
Selling and administrative.................. 377 779 1,121 3,097 5,197 1,040 1,790
Depreciation and amortization............... 55 149 239 838 1,629 335 538
------ ------ ------ ------- ------- ------ ------
Income from operations....................... 194 678 847 2,989 3,297 1,080 1,051
Interest expense............................ 12 59 56 420 423 133 129
Other expense/(income)...................... 55 (15) (4) (80) (585) (87) (133)
------ ------ ------ ------- ------- ------ ------
Income before minority interests, equity in
(earnings) losses of investments, income
taxes and extraordinary item................ 127 634 795 2,649 3,459 1,034 1,055
Minority interests.......................... -- (22) (39) 163 24 (3) 114
Equity in (earnings) losses of investments.. 2 34 39 8 (8) 26 --
------ ------ ------ ------- ------- ------ ------
Income before income taxes and extraordinary
item....................................... 125 622 795 2,478 3,443 1,011 941
Provision for income taxes.................. 39 55 40 1,382 1,361 415 386
------ ------ ------ ------- ------- ------ ------
Income before extraordinary item............ $ 86 $ 567 $ 755 $ 1,096 $ 2,082 596 555
====== ====== ====== ======= ======= ====== ======
Net income (adjusted for pro forma tax
provision and before extraordinary item)(1). $ 75 $ 374 $ 477 $ 1,475 $ 2,082 596 555
====== ====== ====== ======= ======= ====== ======
Net income per share (adjusted for pro forma
tax provision and before extraordinary
item)(1).................................... $ 0.03 $ 0.14 $ 0.17 $ 0.34 $ 0.29 $ 0.10 $ 0.07
Shares used in net income per share
computation................................. 2,362 2,672 2,787 4,324 7,303 6,133 7,768
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-----------------------------------------------------
1991 1992 1993 1994 1995 1996
- ---------------------------------------- ------- ------- -------- -------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............... $ 542 $ 681 $1,997 $ 3,112 $14,560 $ 7,931
Working Capital......................... 766 1,326 3,254 6,086 17,768 10,523
Total Assets............................ 1,623 3,044 5,490 26,330 49,117 53,185
Long-term debt (including current
maturities)............................ 887 595 567 2,464 4,697 6,773
Stockholders' equity.................... 616 1,732 4,217 21,671 41,129 42,457
</TABLE>
(1) For periods prior to January 1, 1994, PSCM was treated as an S corporation
and therefore did not provide for federal corporate income taxes. Effective
January 1, 1994 PSCM terminated its S corporation status. This resulted in
an additional deferred tax provision of $232,000. For comparative purposes,
a pro forma tax provision had been calculated as if PSCM were taxable as a C
corporation under the Internal Revenue Code. See Note 14 to PSCM's
Consolidated Financial Statements, incorporated herein by reference from
PSCM's Annual Report on Form 10-K for the year ended December 31, 1995.
37
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following pro forma condensed financial information and explanatory
notes are presented to reflect the effect for all periods presented of the
merger of a wholly-owned subsidiary of HEALTHSOUTH with PSCM in a transaction to
be accounted for as a pooling of interests, which merger is expected to be
consummated in the third quarter of 1996 (the "Merger").
The HEALTHSOUTH historical amounts reflect the combination of HEALTHSOUTH,
ReLife, SHC, SSCI, SCA and Advantage Health for all periods presented, as
HEALTHSOUTH acquired ReLife in December 1994, SHC in June 1995, SSCI in October
1995, SCA in January 1996 and Advantage Health in March 1996 in transactions
accounted for as poolings of interests.
In addition, the pro forma condensed financial information reflects the
impact of HEALTHSOUTH's acquisition, effective April 1, 1995, from NovaCare,
Inc. ("NovaCare") of 11 rehabilitation hospitals, 12 other facilities and two
Certificates of Need (the "NovaCare Rehabilitation Hospitals Acquisition") on
the results of operations for the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1995.
The pro forma condensed balance sheet assumes that the Merger was
consummated on March 31, 1996, and the pro forma condensed income statements
assume that the Merger was consummated on January 1, 1993. The assumptions are
described in the accompanying Notes to Pro Forma Condensed Financial
Information.
All HEALTHSOUTH shares outstanding and per share amounts have been adjusted
to reflect a two-for-one stock split effected in the form of a 100 percent stock
dividend on April 17, 1995.
The pro forma information should be read in conjunction with the historical
financial statements of HEALTHSOUTH and PSCM. Certain balance sheet and income
statement amounts from the PSCM historical financial statements have been
reclassified in order to conform to the HEALTHSOUTH method of presentation. The
pro forma financial information is presented for informational purposes only and
is not necessarily indicative of the results of operations or combined financial
position that would have resulted had the Merger been consummated at the dates
indicated, nor is it necessarily indicative of the results of operations of
future periods or future combined financial position.
38
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET (UNAUDITED)
MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HEALTHSOUTH PSCM ADJUSTMENTS COMBINED
-------------- ---------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ....................... $ 113,037 $ 7,931 $ 0 $ 120,968
Other marketable securities ..................... 4,042 0 0 4,042
Accounts receivable ............................. 463,596 6,916 0 470,512
Inventories, prepaid expenses and other current
assets ......................................... 112,543 659 0 113,202
Deferred income taxes ........................... 23,478 0 (996)(3) 22,482
-------------- ---------- ------------- ----------
Total current assets ............................. 716,696 15,506 (996) 731,206
Other assets ..................................... 71,658 714 0 72,372
Property, plant and equipment, net ............... 1,295,692 5,589 0 1,301,281
Intangible assets, net ........................... 918,406 31,376 0 949,782
-------------- ---------- ------------- ----------
Total assets ..................................... $3,002,452 $53,185 $ (996) $3,054,641
============== ========== ============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................ $ 88,588 $ 403 $ 7,000 (1)$ 95,991
Salaries and wages payable ...................... 66,659 352 0 67,011
Accrued interest payable and other liabilities .. 101,779 1,895 (2,800)(1) 99,878
(996)(3)
Current portion of long-term debt................ 37,186 2,333 0 39,519
-------------- ---------- ------------- ----------
Total current liabilities ........................ 294,212 4,983 3,204 302,399
Long-term debt ................................... 1,374,423 4,440 0 1,378,863
Deferred income taxes ............................ 25,748 515 0 26,263
Other long-term liabilities ...................... 5,375 723 0 6,098
Deferred revenue ................................. 1,208 0 0 1,208
Minority interests ............................... 70,525 67 0 70,592
Stockholders' equity:
Preferred Stock, $.10 par ....................... 0 0 0 0
Common Stock, $.01 par .......................... 1,533 78 (60)(2) 1,551
Additional paid-in capital ...................... 885,348 39,469 60 (2) 924,877
Retained earnings ............................... 364,978 2,980 (4,200)(1) 363,758
Deferred stock grants ........................... 0 (70) 0 (70)
Treasury stock .................................. (323) 0 0 (323)
Receivable from Employee Stock Ownership Plan ... (14,148) 0 0 (14,148)
Notes receivable from stockholders .............. (6,427) 0 0 (6,427)
-------------- ---------- ------------- ----------
Total stockholders' equity ....................... 1,230,961 42,457 (4,200) 1,269,218
-------------- ---------- ------------- ----------
Total liabilities and stockholders' equity ...... $3,002,452 $53,185 $ (996) $3,054,641
============== ========== ============= ==========
</TABLE>
See accompanying notes.
39
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
ACQUISITION
----------------------------------
PRO FORMA PRO FORMA PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS COMBINED PSCM ADJUSTMENTS
----------- -------- ------------ ---------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues ............................................... $2,003,146 $37,942 $ 1,860 (5) $2,042,948 $27,110 $ 0
Operating expenses:
Operating units ....................................... 1,371,740 33,065 (910)(2) 1,403,895 16,987 0
Corporate general and administrative................... 56,920 0 0 56,920 4,698 0
Provision for doubtful account ......................... 37,659 322 0 37,981 499 0
Depreciation and amortization .......................... 143,322 1,996 (999)(1) 146,201 1,629 0
1,882 (3)
Interest expense ....................................... 101,790 2,595 2,684 (4) 107,069 423 0
Interest income......................................... (7,882) 0 0 (7,882) (585) 0
Merger and acquisition related expenses................. 34,159 0 0 34,159 0 0
Loss on impairment of assets ........................... 53,549 0 0 53,549 0 0
---------- ------- --------- ---------- ------- -------
1,791,257 37,978 2,657 1,831,892 23,651 0
---------- ------- --------- ---------- ------- -------
Income (loss) before income taxes and minority
interests ............................................. 211,889 (36) (797) 211,056 3,459 0
Provision (benefit) for income taxes.................... 76,221 (101) (259)(6) 75,861 1,361 0
---------- ------- --------- ---------- ------- -------
135,668 65 (538) 135,195 2,098 0
Minority interests ..................................... 43,147 89 0 43,236 16 0
---------- ------- --------- ---------- ------- -------
Net income (loss)....................................... $ 92,521 $ (24) $ (538) $ 91,959 $ 2,082 $ 0
========== ======= ========= ========== ======= =======
Weighted average common and common equivalent shares
outstanding............................................ 148,730 N/A N/A 148,730 7,303 (5,601)(2)
========== ======= ========= ========== ======= =======
Net income per common and common equivalent share ..... $ 0.62 N/A N/A $ 0.62 $ 0.29 N/A
========== ======= ========= ========== ======= =======
Net income per common share--assuming full dilution ... $ 0.62 N/A N/A $ 0.62 N/A N/A
========== ======= ========= ========== ======= =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
----------
<S> <C>
Revenues ............................................... $2,070,058
Operating expenses:
Operating units ....................................... 1,420,882
Corporate general and administrative................... 61,618
Provision for doubtful account ......................... 38,480
Depreciation and amortization .......................... 147,830
Interest expense ....................................... 107,492
Interest income......................................... (8,467)
Merger and acquisition related expenses................. 34,159
Loss on impairment of assets ........................... 53,549
----------
1,855,543
----------
Income (loss) before income taxes and minority
interests ............................................. 214,515
Provision (benefit) for income taxes.................... 77,222
----------
137,293
Minority interests ..................................... 43,252
----------
Net income (loss)....................................... $ 94,041
==========
Weighted average common and common equivalent shares
outstanding............................................ 150,432
==========
Net income per common and common equivalent share ..... $ 0.63
==========
Net income per common share--assuming full dilution ... $ 0.63
==========
</TABLE>
See accompanying notes.
40
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
ACQUISITION
----------------------------------
PRO FORMA PRO FORMA PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS COMBINED PSCM ADJUSTMENTS
----------- -------- ------------ ---------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................................ $1,649,199 $142,548 $ 8,058 (5) $1,799,805 $16,430 $ 0
Operating expenses:
Operating units........................................ 1,161,758 128,233 (12,406)(2) 1,277,585 9,506 0
Corporate general and administrative................... 61,640 0 0 61,640 2,717 0
Provision for doubtful accounts......................... 32,904 1,269 0 34,173 380 0
Depreciation and amortization........................... 113,977 7,041 (1,918)(1) 126,626 838 0
7,526 (3)
Interest expense........................................ 73,644 11,096 10,100 (4) 94,840 1,473 0
Interest income......................................... (6,387) 0 0 (6,387) (80) 0
Merger expenses......................................... 6,520 0 0 6,520 0 0
Gain on sale of MCA Stock............................... (7,727) 0 0 (7,727) 0 0
Loss on impairment of assets............................ 10,500 0 0 10,500 0 0
Loss on abandonment of computer project................. 4,500 0 0 4,500 0 0
Loss on disposal of surgery centers..................... 13,197 0 0 13,197 0 0
---------- -------- -------- ---------- ------ -------
1,464,526 147,639 3,302 1,615,467 14,834 0
---------- -------- -------- ---------- ------ -------
Income (loss) before income taxes and minority
interests.............................................. 184,673 (5,091) 4,756 184,338 1,596 0
Provision for income taxes.............................. 65,121 (1,084) 780(6) 64,817 956 0
---------- -------- -------- ---------- ------ -------
119,552 (4,007) 3,976 119,521 640 0
Minority interests ..................................... 31,469 445 0 31,914 171 0
---------- -------- -------- ---------- ------ -------
Net income (loss)....................................... $ 88,083 $ (4,452) $ 3,976 $ 87,607 $ 469 $ 0
========== ======== ======== ========== ====== =======
Weighted average common and common equivalent shares
outstanding............................................ 140,427 N/A N/A 140,427 4,324 (3,317)(2)
========== ======== ======== ========== ====== =======
Net income per common and common equivalent share ...... $ 0.63 N/A N/A $ 0.62 $ 0.11 N/A
========== ======== ======== ========== ====== =======
Net income per common share-- assuming full dilution ... $ 0.63 N/A N/A $ 0.62 N/A N/A
========== ======== ======== ========== ====== =======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
----------
<S> <C>
Revenues................................................ $1,816,235
Operating expenses:
Operating units........................................ 1,287,091
Corporate general and administrative................... 64,357
Provision for doubtful accounts......................... 34,553
Depreciation and amortization........................... 127,464
Interest expense........................................ 96,313
Interest income......................................... (6,467)
Merger expenses......................................... 6,520
Gain on sale of MCA Stock............................... (7,727)
Loss on impairment of assets............................ 10,500
Loss on abandonment of computer project................. 4,500
Loss on disposal of surgery centers..................... 13,197
----------
1,630,301
----------
Income (loss) before income taxes and minority
interests.............................................. 185,934
Provision for income taxes.............................. 65,773
----------
120,161
Minority interests ..................................... 32,085
----------
Net income (loss)....................................... $ 88,076
==========
Weighted average common and common equivalent shares
outstanding............................................ 141,434
==========
Net income per common and common equivalent share ...... $ 0.62
==========
Net income per common share-- assuming full dilution ... $ 0.62
==========
</TABLE>
See accompanying notes.
41
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HEALTHSOUTH PSCM ADJUSTMENTS COMBINED
------------- -------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues........................................ $979,206 $5,738 $ 0 $984,944
Operating expenses:
Operating units................................ 668,201 3,531 0 671,732
Corporate general and administrative........... 37,043 964 0 38,007
Provision for doubtful accounts................. 20,026 157 0 20,183
Depreciation and amortization................... 63,572 239 0 63,811
Interest expense................................ 24,200 56 0 24,256
Interest income................................. (5,903) (4) 0 (5,907)
Merger expenses................................. 333 0 0 333
NME Selected Hospitals Acquisition related
expense........................................ 49,742 0 0 49,742
Gain on sale of partnership interest............ (1,400) 0 0 (1,400)
-------- ------ ------- --------
855,814 4,943 0 860,757
-------- ------ ------- --------
Income from continuing operations before income
taxes and minority interests................... 123,392 795 0 124,187
Provision for income taxes...................... 37,993 40 0 38,033
-------- ------ ------- --------
85,399 755 0 86,154
Minority interests.............................. 29,377 0 0 29,377
-------- ------ ------- --------
Income from continuing operations............... 56,022 755 0 56,777
Income from discontinued operations............. 4,452 0 0 4,452
-------- ------ ------- --------
Net income...................................... $ 60,474 $ 755 $ 0 $ 61,229
======== ====== ======= ========
Weighted average common and common equivalent
shares outstanding............................. 132,479 2,787 (2,138)(2) 133,128
======== ====== ======= ========
Net income per common and common equivalent
share
Continuing operations.......................... $ 0.43 $ 0.27 N/A $ 0.43
Discontinued operation......................... 0.03 -- N/A 0.03
-------- ------ ------- --------
$ 0.46 $ 0.27 N/A $ 0.46
======== ====== ======= ========
</TABLE>
See accompanying notes.
42
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
HEALTHSOUTH PSCM ADJUSTMENTS COMBINED
------------- ------ ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Revenues................................ $581,234 $9,290 $ 0 $590,524
Operating expenses: ....................
Operating units........................ 386,266 5,911 0 392,177
Corporate general and administrative... 16,025 1,619 0 17,644
Provision for doubtful accounts......... 12,866 171 0 13,037
Depreciation and amortization........... 42,580 538 0 43,118
Interest expense........................ 23,845 129 0 23,974
Interest income......................... (1,806) (133) 0 (1,939)
Merger expenses......................... 28,939 0 0 28,939
-------- ------ ------- --------
508,715 8,235 0 516,950
-------- ------ ------- --------
Income before income taxes and minority
interests ............................. 72,519 1,055 0 73,574
Provision for income taxes ............. 23,297 386 0 23,683
-------- ------ ------- --------
49,222 669 0 49,891
Minority interests ..................... 11,371 114 0 11,485
-------- ------ ------- --------
Net income ............................. $ 37,851 $ 555 $ 0 $ 38,406
======== ====== ======= ========
Weighted average common and common
equivalent shares outstanding ......... 162,892 7,768 (5,958)(2) 164,702
======== ====== ======= ========
Net income per common and common
equivalent share ...................... $ 0.23 $ 0.07 N/A $ 0.23
======== ====== ======= ========
Net income per common share--assuming
full dilution ......................... $ 0.23 N/A N/A $ 0.23
======== ====== ======= ========
</TABLE>
See accompanying notes.
43
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED INCOME STATEMENT (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1995
<TABLE>
<CAPTION>
ACQUISITION
--------------------------------------
PRO FORMA PRO FORMA PRO FORMA
HEALTHSOUTH NOVACARE ADJUSTMENTS COMBINED PSCM ADJUSTMENTS
----------- -------- ----------- ----------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................................ $451,844 $37,942 $ 1,860 (5) $491,646 $5,924 $ 0
Operating expenses: ................................
Operating units ................................... 311,279 33,065 (910)(2) 343,434 3,469 0
Corporate general and administrative .............. 14,998 0 0 14,998 952 0
Provision for doubtful accounts .................... 9,081 322 0 9,403 88 0
Depreciation and amortization ...................... 32,224 1,996 (999)(1) 35,103 335 0
1,882 (3)
Interest expense ................................... 23,132 2,595 2,684 (4) 28,411 133 0
Interest income .................................... (2,249) 0 0 (2,249) (87) 0
-------- ------- --------- -------- ------ ------
388,465 37,978 2,657 429,100 4,890 0
-------- ------- --------- -------- ------ ------
Income (loss) before income taxes and minority
interests ......................................... 63,379 (36) (797) 62,546 1,034 0
Provision for income taxes ......................... 21,415 (101) (259)(6) 21,055 415 0
-------- ------- --------- --------- ------ ------
41,964 65 (538) 41,491 619 0
Minority interests ................................. 9,042 89 0 9,131 23 0
-------- ------- --------- --------- ------ ------
Net income (loss)................................... $ 32,922 $ (24) $ (538) $ 32,360 $ 596 $ 0
======== ======= ========= ========= ====== ======
Weighted average common and common equivalent
shares outstanding ................................ 142,998 N/A N/A 142,998 6,133 (4,704)(2)
======== ======= ========= ========= ====== ======
Net income per common and common equivalent share . $ 0.23 N/A N/A $ 0.23 $ 0.10 N/A
======== ======= ========= ========= ====== ======
Net income per common share--assuming full dilution $ 0.23 N/A N/A $ 0.23 N/A N/A
======== ======= ========= ========= ====== ======
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMBINED
-----------
<S> <C>
Revenues............................................ $497,570
Operating expenses: ................................
Operating units ................................... 346,903
Corporate general and administrative .............. 15,950
Provision for doubtful accounts .................... 9,491
Depreciation and amortization ...................... 35,438
Interest expense ................................... 28,544
Interest income .................................... (2,336)
-------
433,990
-------
Income (loss) before income taxes and minority
interests ......................................... 63,580
Provision for income taxes ......................... 21,470
-------
42,110
Minority interests ................................. 9,154
-------
Net income (loss)................................... $ 32,956
=======
Weighted average common and common equivalent
shares outstanding ................................ 144,427
=======
Net income per common and common equivalent share . $ 0.23
=======
Net income per common share--assuming full dilution $ 0.23
=======
</TABLE>
See accompanying notes.
44
<PAGE>
HEALTHSOUTH CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED FINANCIAL INFORMATION
A. THE NOVACARE REHABILITATION HOSPITALS ACQUISITION
Effective April 1, 1995 HEALTHSOUTH completed the acquisition of the
rehabilitation hospitals division of NovaCare, Inc. ("NovaCare"), consisting of
11 rehabilitation hospitals, 12 other facilities, and certificates of need to
build two additional facilities (the "NovaCare Rehabilitation Hospitals
Acquisition"). The purchase price was approximately $234,807,000. The
transaction was accounted for as a purchase and, accordingly, the results of the
acquired NovaCare facilities are included in HEALTHSOUTH's historical financial
statements from the effective date of the acquisition. HEALTHSOUTH financed the
cost of the NovaCare Rehabilitation Hospitals Acquisition through additional
borrowings under its existing credit facilities, as amended.
The accompanying pro forma income statements for the years ended December
31, 1994 and 1995 and the three months ended March 31, 1995 assume that the
transaction was consummated January 1, 1994.
Certain assets and liabilities of Rehab Systems Company (a wholly-owned
subsidiary of NovaCare, Inc.) were excluded from the NovaCare Rehabilitation
Hospitals Acquisition. The excluded assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Cash and cash equivalents............................ $ 4,973
Accounts receivable ................................. 259
Other current assets ................................ 42
Equipment, net ...................................... 4,719
Intangible assets, net .............................. 56,321
Other assets (primarily investments in subsidiaries) 40,637
Accounts payable .................................... (454)
Other current liabilities ........................... (275)
Current portion of long term debt ................... (146)
Long term debt....................................... (38,620)
Payable to affiliates................................ (92,377)
---------
Net excluded asset (liability) ..................... $(24,921)
=========
</TABLE>
The following pro forma adjustments are necessary for the NovaCare
Rehabilitation Hospitals Acquisition:
1. To exclude historical depreciation and amortization expense related to
the excluded assets described above. The total expense excluded amounts to
$1,918,000 for the year ended December 31, 1994 and $999,000 for the three
months ended March 31, 1995 and year ended December 31, 1995.
2. To eliminate intercompany management fees and royalty fees totaling
$12,406,000 for the year ended December 31, 1994 and $910,000 for the three
months ended March 31, 1995 and year ended December 31, 1995 of the acquired
NovaCare facilities.
3. To adjust depreciation and amortization expense to reflect the
allocation of the excess purchase price over the net tangible asset value as
follows (in thousands):
<TABLE>
<CAPTION>
PURCHASE PRICE
ALLOCATION USEFUL ANNUAL QUARTERLY
ADJUSTMENT LIFE AMORTIZATION AMORTIZATION
---------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Leasehold
value.......... $128,333 20 years $6,417 $1,605
Goodwill ...... 44,365 40 years 1,109 277
------ ------
$7,526 $1,882
====== ======
</TABLE>
45
<PAGE>
No additional adjustments to NovaCare's historical depreciation and
amortization are necessary. The remaining net assets acquired approximate their
fair value.
Because NovaCare's results of operations before intercompany items
(described in Note 2 above) are profitable, both on a historical and pro forma
basis, the 40-year amortization period for goodwill is appropriate and
consistent with HEALTHSOUTH policy. Leasehold value is being amortized over the
weighted average remaining terms of the leases, which is 20 years.
4. To increase interest expense by $19,559,000 for the year ended December
31, 1994 and $4,889,000 for the three months ended March 31, 1995 and year ended
December 31, 1995 to reflect pro forma borrowings of $234,807,000, described
above, at a 8.33% variable interest rate, which represents HEALTHSOUTH's
weighted average cost of debt, as if they were outstanding for the entire
period, and to decrease interest expense by $9,459,000 for the year ended
December 31, 1994 and $2,205,000 for the three months ended March 31, 1995 and
year ended December 31, 1995, which represents interest on NovaCare debt not
assumed by HEALTHSOUTH. A .125% variance in the assumed interest rate would
change annual pro forma interest expense by approximately $294,000.
5. To adjust estimated Medicare reimbursement for the changes in
reimbursable expenses described in items 1,2, 3 and 4 above. These changes are
as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
AND
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED
1994 MARCH 31, 1995
----------------- ------------------
<S> <C> <C>
Depreciation and amortization (Note 1) $(1,918) $ (999)
Intercompany management fees (Note 2) (4,196) (910)
Depreciation and amortization (Note 3) 7,526 1,882
Interest expense (Note 4) ............. 10,100 2,684
------- --------
11,512 2,657
Assumed Medicare utilization .......... 70% 70%
------- --------
Increased reimbursement ............... $ 8,058 $1,860
======= ========
</TABLE>
The Medicare utilization rate of 70% assumes a slight improvement in
NovaCare's historical Medicare percentage of 78% as a result of bringing these
facilities into the HEALTHSOUTH network.
6. To adjust the NovaCare provision for income taxes to an effective rate
of 39% (net of minority interests).
B. THE PSCM MERGER
The proposed PSCM Merger is intended to be accounted for as a pooling of
interests. The pro forma condensed income statements assume that the PSCM Merger
was consummated on January 1, 1993. The pro forma condensed balance sheet
assumes that the PSCM Merger was consummated on March 31, 1996.
The pro forma condensed financial information contains no adjustments to
conform the accounting policies of the two companies because any such
adjustments have been determined to be immaterial by the management of
HEALTHSOUTH. Prior to January 1, 1994, PSCM was treated as on S corporation for
federal income tax purposes. The accompanying pro forma income statements
contain no adjustments to present PSCM's provision for income taxes as if it
were a C corporation (PSCM's tax status effective January 1, 1994) under the
Internal Revenue Code for all periods presented.
The following pro forma adjustments are necessary for the PSCM Merger:
1. The pro forma income statements do not reflect non-recurring costs
resulting directly from the PSCM Merger. The management of HEALTHSOUTH estimates
that these costs will approximate $7,000,000 and will be charged to operations
in the quarter the PSCM Merger is consummated. The amount includes costs to
merge the two companies and professional fees. However, this estimated expense,
net of taxes of $2,800,000, has been charged to retained earnings in the
accompanying pro forma balance sheet.
46
<PAGE>
2. To adjust pro forma share amounts based on historical share amounts,
converting each outstanding PSCM Share into .233 shares of HEALTHSOUTH Common
Stock.
3. To net PSCM's current deferred income tax payable against HEALTHSOUTH's
current deferred income tax asset.
47
<PAGE>
BUSINESS OF HEALTHSOUTH
GENERAL
HEALTHSOUTH is the nation's largest provider of outpatient and
rehabilitative healthcare services. HEALTHSOUTH provides these services through
its national network of outpatient and inpatient rehabilitation facilities,
outpatient surgery centers, medical centers and other healthcare facilities.
HEALTHSOUTH believes that it provides patients, physicians and payors with
high-quality healthcare services at significantly lower costs than traditional
inpatient hospitals. Additionally, HEALTHSOUTH's national network, reputation
for quality and focus on outcomes has enabled it to secure contracts with
national and regional managed care payors. At March 31, 1996, HEALTHSOUTH had
over 900 patient care locations in 45 states.
In its outpatient and inpatient rehabilitation facilities, HEALTHSOUTH
provides interdisciplinary programs for the rehabilitation of patients
experiencing disability due to a wide variety of physical conditions, such as
stroke, head injury, orthopaedic problems, neuromuscular disease and
sports-related injuries. HEALTHSOUTH's rehabilitation services include physical
therapy, sports medicine, work hardening, neurorehabilitation, occupational
therapy, respiratory therapy, speech-language pathology and rehabilitation
nursing. Independent studies have shown that rehabilitation services like those
provided by HEALTHSOUTH can save money for payors and employers.
HEALTHSOUTH operates the largest network of free-standing outpatient
surgery centers in the United States. HEALTHSOUTH's outpatient surgery centers
provide the facilities and medical support staff necessary for physicians to
perform non-emergency surgical procedures. While outpatient surgery is widely
recognized as generally less expensive than surgery performed in a hospital,
HEALTHSOUTH believes that outpatient surgery performed at a free-standing
outpatient surgery center is generally less expensive than hospital-based
outpatient surgery. Approximately 80% of HEALTHSOUTH's surgery center facilities
are located in markets served by its rehabilitative service facilities, enabling
HEALTHSOUTH to pursue opportunities for cross-referrals.
Over the last two years, HEALTHSOUTH has completed several significant
acquisitions in the rehabilitation business and has expanded into the surgery
center business. HEALTHSOUTH believes that these acquisitions complement its
historical operations and enhance its market position. HEALTHSOUTH further
believes that its expansion into the outpatient surgery business provides it
with a platform for future growth. HEALTHSOUTH is continually evaluating
potential acquisitions in the outpatient and rehabilitative healthcare services
industry.
COMPANY STRATEGY
HEALTHSOUTH's principal objective is to be the provider of choice for
patients, physicians and payors alike for outpatient and rehabilitative
healthcare services throughout the United States. HEALTHSOUTH's growth strategy
is based upon four primary elements: (i) the implementation of HEALTHSOUTH's
integrated service model in appropriate markets, (ii) successful marketing to
managed care organizations and other payors, (iii) the provision of
high-quality, cost-effective healthcare services, and (iv) the expansion of its
national network.
o Integrated Service Model. HEALTHSOUTH seeks, where appropriate, to
provide an integrated system of healthcare services, including
outpatient rehabilitation services, inpatient rehabilitation services,
ambulatory surgery services and outpatient diagnostic services.
HEALTHSOUTH believes that its integrated system offers payors the
convenience of dealing with a single provider for multiple services.
Additionally, it believes that its facilities can provide extensive
referral opportunities. For example, HEALTHSOUTH estimates that
approximately one-third of its outpatient rehabilitation patients have
had outpatient surgery, virtually all inpatient rehabilitation
patients will require some form of outpatient rehabilitation, and
virtually all inpatient rehabilitation patients have had some type of
diagnostic procedure. HEALTHSOUTH has implemented its integrated
service model in certain of its markets, and intends to expand the
model into other appropriate markets.
48
<PAGE>
o Marketing to Managed Care Organizations and Other Payors. Since the
late 1980s, HEALTHSOUTH has focused on the development of contractual
relationships with managed care organizations, major insurance
companies, large regional and national employer groups and provider
alliances and networks. HEALTHSOUTH's documented outcomes and
experience with several hundred thousand patients in delivering
quality healthcare services at reasonable prices has enhanced its
attractiveness to such entities and has given HEALTHSOUTH a
competitive advantage over smaller and regional competitors. These
relationships have increased patient flow to HEALTHSOUTH's facilities
and contributed to HEALTHSOUTH's same-store growth.
o Cost-Effective Services. HEALTHSOUTH's goal is to provide high-quality
healthcare services in cost-effective settings. To that end,
HEALTHSOUTH has developed standardized clinical protocols for the
treatment of its patients. This results in "best practices" techniques
being utilized at all of HEALTHSOUTH's facilities, allowing the
consistent achievement of demonstrable, cost-effective clinical
outcomes. HEALTHSOUTH's reputation for its clinical programs is
enhanced through its relationships with major universities throughout
the nation, and its support of clinical research in its facilities.
Further, independent studies estimate that, for every dollar spent on
rehabilitation, $11 to $35 is saved. Finally, surgical procedures
typically are less expensive in outpatient surgery centers than in
hospital settings. HEALTHSOUTH believes that outpatient and
rehabilitative healthcare services will assume increasing importance
in the healthcare environment as payors continue to seek to reduce
overall costs by shifting patients to more cost-effective treatment
settings.
o Expansion of National Network. As the largest provider of outpatient
and rehabilitative healthcare services in the United States,
HEALTHSOUTH is able to realize economies of scale and compete
successfully for national contracts with large payors and employers
while retaining the flexibility to respond to particular needs of
local markets. The national network affords HEALTHSOUTH the
opportunity to offer large national and regional employers and payors
the convenience of dealing with a single provider, to utilize greater
buying power through centralized purchasing, to achieve more efficient
costs of capital and labor and to more effectively recruit and retain
clinicians. HEALTHSOUTH believes that its recent and pending
acquisitions in the outpatient surgery and diagnostic imaging fields
will further enhance its national presence by broadening the scope of
its existing services and providing new opportunities for growth.
These national benefits are realized without sacrificing local market
responsiveness. HEALTHSOUTH's objective is to provide those outpatient
and rehabilitative healthcare services needed within each local market
by tailoring its services and facilities to that market's needs, thus
bringing the benefits of nationally recognized expertise and quality
into the local setting.
PATIENT CARE SERVICES: GENERAL
HEALTHSOUTH began its operations in 1984 with a focus on providing
comprehensive orthopaedic and musculoskeletal rehabilitation services on an
outpatient basis. Over the succeeding 12 years, HEALTHSOUTH has consistently
sought and implemented opportunities to expand its services through acquisitions
and de novo development activities that complement its historic focus on
orthopaedic, sports medicine and occupational medicine services and that provide
independent platforms for growth. HEALTHSOUTH's acquisitions and internal growth
have enabled it to become the largest provider of rehabilitative healthcare
services, both inpatient and outpatient, in the United States. In addition,
HEALTHSOUTH has added outpatient surgery services, diagnostic imaging services
and other outpatient services which provide natural enhancements to its
rehabilitative healthcare locations and facilitate the implementation of its
integrated service model. HEALTHSOUTH believes that these additional businesses
also provide opportunities for growth in other areas not directly related to the
rehabilitative business, and HEALTHSOUTH intends to pursue further expansion in
those businesses.
49
<PAGE>
OUTPATIENT REHABILITATION SERVICES
HEALTHSOUTH operates the largest group of affiliated proprietary outpatient
rehabilitation facilities in the United States. HEALTHSOUTH's outpatient
rehabilitation centers offer a comprehensive range of rehabilitative healthcare
services, including physical therapy and occupational therapy, that are tailored
to the individual patient's needs, focusing predominantly on orthopaedic
injuries, sports injuries, work injuries, hand and upper extremity injuries,
back injuries and various neurological and neuromuscular conditions. As of March
31, 1996, HEALTHSOUTH provided outpatient rehabilitative healthcare services
through approximately 625 outpatient locations, including freestanding
outpatient centers and their satellites and outpatient satellites of inpatient
facilities.
INPATIENT REHABILITATION SERVICES
At March 31, 1996, HEALTHSOUTH operated 95 inpatient rehabilitation
facilities with 5,682 beds, representing the largest group of proprietary
inpatient rehabilitation facilities in the United States. HEALTHSOUTH's
inpatient rehabilitation facilities provide high-quality comprehensive services
to patients who require intensive institutional rehabilitation care. Certain of
HEALTHSOUTH's inpatient rehabilitation facilities also provide outpatient
rehabilitation services for patients who have completed their inpatient course
of treatment but remain in need of additional therapy that can be accomplished
on an outpatient basis.
MEDICAL CENTERS
HEALTHSOUTH operates five medical centers with 912 licensed beds in four
distinct markets. These facilities, which are licensed as general, acute-care
hospitals, provide general and specialty medical and surgical healthcare
services, emphasizing orthopaedics, sports medicine and rehabilitation.
SURGERY CENTERS
As a result of three acquisitions of major surgery center operators in 1995
and early 1996, HEALTHSOUTH became the largest operator of outpatient surgery
centers in the United States. It currently operates 134 free-standing surgery
centers, including five mobile lithotripsy units, in 33 states, and has an
additional ten free-standing surgery centers under development. Approximately
80% of these facilities are located in markets served by HEALTHSOUTH outpatient
and rehabilitative service facilities, enabling HEALTHSOUTH to pursue
opportunities for cross-referrals between surgery and rehabilitative facilities
as well as to centralize administrative functions. HEALTHSOUTH's surgery centers
provide the facilities and medical support staff necessary for physicians to
perform non-emergency surgical procedures that do not generally require
overnight hospitalization. Its typical surgery center is a free-standing
facility with two to six fully equipped operating and procedure rooms and
ancillary areas for reception, preparation, recovery and administration. Each of
HEALTHSOUTH's surgery centers is available for use only by licensed physicians,
oral surgeons and podiatrists, and the centers generally do not perform surgery
on an emergency basis.
Outpatient surgery centers, unlike hospitals, have not historically
provided overnight accommodations, food services or other ancillary services.
Over the past several years, states have increasingly permitted the use of
extended-stay recovery facilities by outpatient surgery centers. As a result,
many outpatient surgery centers are adding extended recovery care capabilities
where permitted. Fifty-two of HEALTHSOUTH's surgery centers currently provide
for extended recovery stays. HEALTHSOUTH's ability to develop such recovery care
facilities is dependent upon state regulatory environments in the particular
states where its centers are located.
OTHER PATIENT CARE SERVICES
In certain of its markets, HEALTHSOUTH provides other patient care
services, including home healthcare, diagnostic services, physician services and
contract management of hospital-based rehabilitative healthcare services.
HEALTHSOUTH evaluates market opportunities on a case-by-case basis in
determining whether to provide additional services of these types, which may be
complementary to facility-based services provided by HEALTHSOUTH or stand-alone
businesses.
50
<PAGE>
LOCATIONS
The following table sets forth a listing of HEALTHSOUTH's patient care
services locations by state at March 31, 1996:
<TABLE>
<CAPTION>
INPATIENT
OUTPATIENT REHABILITATION MEDICAL
REHABILITATION FACILITIES CENTERS SURGERY DIAGNOSTIC OTHER
STATE CENTERS(1) (BEDS)(2) (BEDS)(2) CENTERS CENTERS SERVICES
- --------------------- ---------------- ---------------- --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Alabama.............. 16 9 (389) 1 (219) 5 3 10
Alaska............... 1
Arizona.............. 18 3 (183) 4
Arkansas............. 1 1 (80) 2
California .......... 45 1 (60) 18 10
Colorado ............ 26 5 12
Connecticut ......... 17 2 (40) 1
District of Columbia 1 1
Delaware............. 6 1
Florida ............. 46 8 (613) 2 (397) 18 11
Georgia ............. 10 1 (75) 4 1
Hawaii............... 3 1
Idaho ............... 1
Illinois ............ 50 4
Indiana ............. 13 1 (80) 2
Iowa................. 4 1
Kentucky ............ 2 1 (40) 1
Louisiana ........... 2 1 (43) 1
Maine ............... 9 4 (155) 1
Maryland ............ 14 1 (44) 4 3
Massachusetts ....... 37 10 (639) 1 10
Michigan ............ 1
Mississippi ......... 2
Missouri ............ 33 4 (107) 7 6
Nebraska............. 2
Nevada............... 2
New Hampshire........ 12 3 (148)
New Jersey .......... 36 2 (170) 2 1 2
New Mexico .......... 3 1 (60) 1
New York ............ 14 1 (27)
North Carolina ...... 12 1 (17) 3
Ohio................. 26 1
Oklahoma ............ 10 1 (111) 5 1
Oregon............... 1
Pennsylvania ........ 24 11 (981) 5
Rhode Island.........
South Carolina....... 8 4 (235) 2
Tennessee ........... 13 5 (330) 6 1
Texas ............... 66 10 (633) 1 (96) 15 2 14
Utah ................ 1 1 (86) 1
Vermont.............. 2 (52)
Virginia ............ 8 2 (84) 1 (200) 1 2 10
Washington .......... 25 1
West Virginia ....... 4 (200) 1
Wisconsin............ 1 4
</TABLE>
- ---------------
(1) Includes freestanding outpatient centers and their satellites and outpatient
satellites of inpatient rehabilitation facilities.
(2) "Beds" refers to the number of beds for which a license or certificate of
need has been granted, which may vary materially from beds available for
use.
51
<PAGE>
BUSINESS OF PSCM
GENERAL
Professional Sports Care Management, Inc. ("PSCM") was incorporated in New
York in January 1991 and, through a merger with a wholly-owned subsidiary,
reincorporated in Delaware in August 1994. PSCM believes it is a leading
operator of outpatient physical therapy clinics in the New York, New Jersey and
Connecticut tri-state area (the "tri-state area"), providing services to
patients with orthopaedic injuries and post-operative impairments. Through July
15, 1996, PSCM has grown to 36 clinics by starting 11 clinics and acquiring 25
clinics. PSCM has an aggregate referral base of more than 3,000 sources
including orthopaedic surgeons, physicians and athletic trainers and, throughout
1995, treated on average more than 6,800 patients per week.
PSCM's goal has been to be the preeminent provider for the delivery of
high-quality, cost-effective orthopaedic-related healthcare services in the
tri-state area. PSCM has continued to expand its physical and occupational
therapy services through the acquisition and development of new clinics,
internal growth, the maintenance and growth of a strong referral base, the
preparation for the increasing influence of managed care organizations, the
retention of physical therapists by offering career enhancement opportunities,
the expansion of services and increased efficiency of operations. PSCM has begun
to complement its physical and occupational therapy services through the
addition of other orthopaedic-related healthcare services in order to develop a
network which can deliver comprehensive care. See "--History and Recent
Developments".
HISTORY AND RECENT DEVELOPMENTS
PSCM was founded by Russell F. Warren, M.D., the Surgeon-in-Chief at The
Hospital for Special Surgery and team physician for the New York Giants, and
Ronnie P. Barnes, M.S., A.T.C., the head athletic trainer for the New York
Giants. Dr. Warren is an orthopaedic surgeon and an expert on orthopaedic
devices and rehabilitation techniques. Mr. Barnes has been the head athletic
trainer of the New York Giants for twelve years and is a recognized authority on
sports conditioning, therapy and rehabilitation.
PSCM operates outpatient physical therapy clinics for patients with
orthopaedic injuries and post-operative impairments. The goals of physical
therapy are to improve a patient's strength and range of motion, reduce pain,
help prevent reinjury and restore the patient's ability to perform the level of
physical activity the patient had performed prior to an accident or surgery.
Physical therapy is prescribed by physicians, most commonly orthopaedists, but
also by internists, neurologists, family practitioners and physiatrists. PSCM's
services are distinguished by its expertise in the sports
medicine/rehabilitation field.
PSCM has access to orthopaedic surgeons in the tri-state area, many of whom
are affiliated with professional, college or high school sports teams. PSCM
utilizes treatment protocols developed for professional or college athletes by
team physicians and physical therapists. Using these protocols, the physical
therapist designs an individualized rehabilitation program tailored to the
patient. Treatment usually begins with acute pain relief through the use of
therapy modalities such as ice packs, massage, ultrasound, heat, traction and
electrical stimulation. Other physical therapy components include stretching and
cardiovascular and neuromuscular strengthening exercises. Aggressive
injury-specific exercise and education on reinjury prevention are early
components of treatment.
In addition, PSCM has been increasingly expanding into industrial
consulting services, such as work conditioning, functional capacity assessment
and preventive services. Work conditioning simulates the specific job activities
of an injured worker in order to prepare the worker to return to work.
Functional capacity assessments are used to evaluate the physical condition and
endurance of a current or prospective employee. The assessment may be used by
employers, insurers and other payors to estimate the extent of rehabilitation
treatment needed or as an objective method of evaluating specific work capacity.
Preventive services, including programs to teach employees the proper body
mechanics of specific job activities, such as lifting, may be performed at
PSCM's clinics. Although immaterial to revenue in recent
52
<PAGE>
periods, PSCM has been expecting to expand its industrial consulting services
due to pressure by insurers and managed care organizations to limit costs and
requirements imposed on employers under the Americans with Disabilities Act.
PSCM's first facility, located near the Meadowlands Sports Complex in East
Rutherford, New Jersey (formerly a limited partnership), was opened by PSCM's
founders in 1987 to provide to the general public the same aggressive sports
rehabilitation that is offered to professional athletes. In 1991, certain
members of the current management team joined PSCM and, using the Meadowlands
facility as a model, initiated an expansion strategy. In the same year, PSCM
developed, financed and began operating two new facilities in Westchester County
and Nassau County, New York and, in the following three years, opened eight
additional clinics. These clinics were developed utilizing joint ventures with
several leading sports medicine physicians and professionals, including those
with affiliations with the New York Giants, the New York Mets, the Association
of Tennis Professionals, Rutgers University and St. John's University. In
addition to providing sports rehabilitation expertise and start-up capital,
these professional relationships contributed to PSCM's name recognition and
reputation for providing quality care.
In late 1993, PSCM initiated an acquisition strategy designed to increase
market share and local market density and to benefit from economies of scale.
PSCM focused on acquiring outpatient practices with strong referral bases,
historical profitability and established staffs of experienced physical
therapists. In January 1994, PSCM acquired one clinic in connection with its
purchase of substantially all of the assets of Navesink Spine Care, Inc.
("Navesink"). The Navesink clinic operations were substantially consolidated
with PSCM's clinic located in Tinton Falls, New Jersey. In March 1994, PSCM
acquired one clinic in Somers, New York from Somers Orthopaedic Surgery and
Sports Medicine, P.C. and Somers Physical Therapy and Sports Injury Center, P.C.
In April 1994, PSCM expanded its presence in the Connecticut market with the
acquisition of six clinics in the New Milford/Danbury area through the merger of
Northeast Rehabilitation Centers, Inc. and Tonic Industries Corporation with and
into PSCM. In May 1994, PSCM completed two transactions, acquiring one clinic in
Livingston, New Jersey from Center for Orthopaedics, P.A. and two clinics in
Fort Lee and Paramus, New Jersey from Fitness & Back Institute, Inc.,
respectively. In October 1994, PSCM acquired one clinic in Rockland, New York
from Rockland Orthopedics & Sports Medicine, P.C. In November 1994, PSCM
acquired one clinic in Meriden, Connecticut from Meriden Orthopaedic Group, P.C.
and one clinic in Norwalk, Connecticut from a group of orthopaedic surgeons.
Fiscal 1995 commenced with the opening of a start-up facility in New York,
New York. The physical therapy practice known as Orange County Sports Medicine
Services was then acquired in February 1995. In March, 1995, PSCM completed two
transactions, acquiring from Sports Medicine Resource, P.C. four facilities
located throughout Nassau County, New York as well as one facility from Health
Services Management Corp. of New York, which is located in Mt. Kisco, New York.
In May 1995, PSCM acquired the physical therapy practice of Fairfield
Orthopaedic Associates, P.C. located in Fairfield, Connecticut as well as the
physical therapy practice of The New City Orthopedic Group, P.C. located in New
City, New York. The final acquisition for 1995 was made in July with the
acquisition of a facility located in Midland Park, New Jersey from North Jersey
Physical Therapy Institute Inc.
Through July 15, 1996, PSCM has added seven facilities, five through
acquisition as well as two start-ups. In January 1996, PSCM acquired two
physical therapy facilities located in Brooklyn, New York known as Healthworks
of Brooklyn Rehabilitation Treatment Center and Starret City Physical Therapy.
Following the start-up in February 1996 of a facility located in Huntington, New
York, PSCM acquired one facility in Morristown, New Jersey by purchasing all of
the outstanding shares of Morristown Sports Medicine Center, Inc. and another
facility in Waterbury, Connecticut from Neorosurgery Associates of Northwest
Connecticut. On March 1, 1996, PSCM acquired all of the outstanding shares of
Institute of Rehabilitation, Inc. a facility located in Freehold, New Jersey and
plans to open a facility in Queens, New York in the summer of 1996.
Rapidly growing businesses frequently encounter unforeseen expenses and
delays in completing acquisitions, as well as difficulties and complications in
integrating the acquired operations without disturbing the clinic's
profitability, referral base or professional staff. As a result, acquisitions
could
53
<PAGE>
adversely affect PSCM's operating results in the short term, as was evidenced by
the disappointing operating results in the third quarter of 1995, due to many
factors, including employee turnover, integration issues and loss of referrals.
Additionally, PSCM generally experiences a decrease in revenue and income from
operations in the third quarter of each year as patient visits tend to decline
during the summer season.
The following table sets forth PSCM's existing physical therapy clinics and
the dates on which they were started or acquired.
<TABLE>
<CAPTION>
LOCATION DATE OF START-UP
- --------------------------------- -------------------
<S> <C>
East Rutherford, NJ.............. June 1987
Harrison, NY(1).................. September 1991
Uniondale, NY(1)................. November 1991
Toms River, NJ................... February 1992
North Brunswick, NJ(2)........... September 1992
Greenwich, CT.................... September 1992
New York, NY(1)(69th St.)........ August 1993
Tinton Falls, NJ................. February 1994
Staten Island, NY(1)............. February 1994
New York, NY(1)(2)(44th St.) .... January 1995
Huntington, NY(2)................ February 1996
Queens, NY(2).................... July 1996
</TABLE>
<TABLE>
<CAPTION>
LOCATION DATE OF ACQUISITION
- ------------------------- ----------------------
<S> <C>
Somers, NY(1)(2)......... March 1994
Danbury, CT(3)........... April 1994
Brookfield, CT........... April 1994
New Milford, CT.......... April 1994
Livingston, NJ........... May 1994
Paramus, NJ.............. May 1994
Fort Lee, NJ............. May 1994
Rockland, NY(1).......... October 1994
Norwalk, CT.............. November 1994
Meriden, CT.............. November 1994
Goshen, NY(1)............ February 1995
Long Island, NY(1)(4) ... March 1995
Mt. Kisco, NY(1)......... March 1995
Fairfield, CT............ May 1995
New City, NY............. May 1995
Midland Park, NJ......... July 1995
Brooklyn, NY(3).......... January 1996
Morristown, NJ........... February 1996
Waterbury, CT............ February 1996
Freehold, NJ............. March 1996
</TABLE>
- ---------------
(1) Physical therapy services are provided by a professional corporation owned
by one or more physical therapists. Through the terms of a management and
license agreement, PSCM or a limited partnership in which PSCM is the
general partner has complete control over the professional corporation with
the exception of the provision or direction of physical therapy. See Note 2
to PSCM's Consolidated Financial Statements, which are incorporated herein
by reference.
(2) Limited partnership. PSCM is the general partner and owns the following
equity interests in the clinics: 85% in North Brunswick, 80% in Somers, 51%
in New York, NY (44th St.), 20% in Huntington, NY and 65% in Queens, NY.
(3) Two clinics.
(4) Four clinics.
54
<PAGE>
STRATEGY
PSCM's goal has been to be the preeminent provider for the delivery of
high-quality, cost-effective orthopaedic related healthcare services in the
tri-state area. PSCM has been meeting this objective with the following
strategies:
I. CONTINUED EXPANSION OF PHYSICAL AND OCCUPATIONAL THERAPY.
o Expansion of physical therapy services through acquisitions and
internal growth. Through July 15, 1996, PSCM has grown to 36
outpatient physical therapy sites, all located within a 100-mile
radius of the New York City area, by establishing 11 start-up clinics
and acquiring 25 clinics. PSCM believes there have been significant
acquisition opportunities available due to the continuing rapid
consolidation of the market and general changes in the healthcare
industry. Furthermore, PSCM believes it has been an attractive
acquirer to sellers, due to its reputation, current local market
density, access to capital and financial performance. PSCM's strategy
has been to complement its acquisitions with additional start-ups
where appropriate.
o Maintenance and expansion of affiliations and relationships with
providers, payors, and other referral sources. PSCM believes it has
created a strong regional network of referral sources and is
recognized by leading orthopaedic surgeons, physicians, athletic
trainers, physical therapists and local professional and university
athletic teams as a provider of aggressive, cost-effective, quality
rehabilitation services. In 1995, PSCM had referrals from
approximately 3,000 different sources. PSCM has expanded its referral
network by acquiring clinics with different referral sources and
implementing marketing strategies targeted to various providers,
payors, managed care organizations and employers.
o Position for managed care. As managed care organizations become more
prevalent in the marketplace, outpatient rehabilitation service
providers will need to deliver a comprehensive range of services in a
cost-effective manner with multiple locations within a metropolitan
area. PSCM believes it is attractive to the managed care payor given
its geographically focused network of clinics, its quality assurance
protocols and its high patient satisfaction levels. PSCM is currently
engaged in developing outcome studies with The Hospital for Special
Surgery in New York. The purpose of these studies is to measure not
only the effectiveness of PSCM's procedures but also the cost
effectiveness of delivering the highest quality care in order to
negotiate competitive managed care contracts. For 1992, less than 5%
of PSCM's revenue was generated by contracts with managed care
organizations. For 1995, approximately 19% of PSCM's revenue came
from contracts with managed care organizations. PSCM has expected
that revenue from contracts with managed care organizations as a
percentage of total revenue would continue to increase over the next
several years. Although the growing market penetration of managed
care programs will lead to a decrease in reimbursement per patient
visit, PSCM believes that such a decrease could be offset, in whole
or in part, by increases in volume, range of services and efficiency.
o Retention of physical therapists through career enhancement
opportunities and stimulating work environments. The industry has
historically experienced a shortage of licensed physical therapists.
PSCM believes that it has maintained a higher physical therapist
retention rate than the industry average by stressing education, the
development of treatment protocols and the opportunity to work with
highly regarded orthopaedic surgeons and physical therapists. PSCM
has designed several programs to recruit and retain therapists,
including a fellowship program, tuition reimbursement program,
student seminars, clinical affiliations and opportunities to
participate in PSCM's network of professional and collegiate sports
teams. PSCM's expansion strategy has created a career path for many
of PSCM's physical therapists which includes opportunities to
progress to senior positions such as Clinical Chiefs, Directors of
Rehabilitation and Regional Vice Presidents.
o Increase range of services and efficiency of outpatient clinics. PSCM
is currently expanding its services into occupational therapy,
including hand rehabilitation, and pediatric rehabilitation. PSCM has
also addressed the growing elderly population, having obtained
Medicare certifica
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tion at 50% of its clinics. PSCM continually monitors the services provided by a
clinic, including its staffing levels and hours of operation, to determine
whether the range and availability of services provided at a clinic should be
expanded or modified in order to satisfy the demands of the market.
II. EXPANSION OF SERVICES PROVIDED.
Reflecting the growing force of managed care organizations in the
healthcare market, PSCM has been increasing its scope of services in order to
provide a single source of comprehensive healthcare services for the managed
care payor. PSCM has been meeting this objective through the following
strategies:
o In 1995, PSCM helped launch OrthoNet LLC ("OrthoNet"). OrthoNet is a
single-specialty orthopaedic independent practice association (the
"IPA"). OrthoNet's purpose is to assist orthopaedic surgeons in the
tri-state area to better position themselves for the changes in
healthcare by both improving their efficiency and profitability
through reduced overhead and providing them with access to managed
care patients. To date, 100 orthopaedic surgeons throughout the
tri-state area have joined the IPA. OrthoNet's goal over time is to
increase membership to 300 orthopaedic surgeons and to negotiate
directly with managed care organizations for their orthopaedic cases.
PSCM currently owns 50.9% of OrthoNet and appoints a majority of its
Board of Managers.
o In early 1996, PSCM acquired a controlling interest in Pro-Fitness
("Pro-Fitness"). Pro-Fitness is a provider of health enhancement,
corporate fitness and wellness programs, principally throughout the
tri-state area. PSCM's goal through this partnership has been to
leverage Pro-Fitness' direct relationships with some of the tri-state
area's largest employers in order to provide a more complete menu of
healthcare services and address the industry's need for preventative
as well as post-injury programs. Currently Pro-Fitness manages 35
corporate fitness programs and provides health enhancement consulting
services to 50 corporate clients.
o In February 1996, PSCM helped launch Professional Work Care, L.L.C.
("Pro Work Care"), a developing physician practice management company
that will seek to establish, through start-ups and acquisitions, a
network of physician practices focused on workers'
compensation/occupational medicine. PSCM has a 13% interest in Pro
Work Care and has received an option, exercisable at any time after
January 1, 1997, to acquire a controlling interest in Pro Work Care
as well as a buyout option, exercisable at any time after February
12, 1998, to acquire the interests of one or more of the Members of
Pro Work Care with certain restrictions relating to the time of
purchase of one member's Units (providing PSCM with a potential
ownership total of approximately 80% of the outstanding Units).
POSSIBLE TERMINATION OF MANAGEMENT AND LICENSE
AGREEMENTS WITH NEW YORK PHYSICAL THERAPISTS
Because of New York State regulations, PSCM operates the New York clinics
owned by it through Management and License Agreements (the "Agreements") entered
into with professional corporations owned by a physical therapist practitioner
at each clinic. See Note 2 to PSCM's Consolidated Financial Statements, which
are incorporated herein by reference. PSCM (as opposed to any affiliate of PSCM)
has unilateral and perpetual control over the assets and operations of the
professional corporations. The physical therapist practitioner has provided
PSCM, for nominal consideration, with an option to transfer, at its discretion,
the ownership of the professional corporation to another licensed physical
therapist of PSCM's choosing. Successor physical therapists will be required to
provide a comparable option to PSCM as a condition of the transfer of the
ownership of the professional corporation to each successor physical therapist
practitioner. PSCM has perpetual control over the professional corporations
because PSCM does not intend to terminate any of the Agreements and, upon
termination of any such Agreement by the physical therapist practitioner, PSCM
intends to exercise the ownership transfer option. While PSCM believes that its
operations comply with the applicable laws and regulations currently in
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effect, as well as laws and regulations enacted or adopted but not yet
effective, there can be no assurance that New York enforcement authorities will
not take a contrary position or that future laws and regulations will not
restrict PSCM's operations.
The terms of the Agreements vary, with eight agreements having one-year
terms with automatic one- year renewal provisions and one having a ten-year term
with an automatic ten-year renewal provision. The Agreements with one-year terms
are terminable without cause by either PSCM or the applicable physical therapist
practitioner upon 90 days' notice. As a result of these termination provisions,
PSCM's long-term relationships with certain physical therapist practitioners may
be at risk. Despite PSCM's unilateral and perpetual control over the assets and
operations of the professional corporations, termination would require PSCM to
replace the physical therapist practitioners, which could have a material
adverse effect on the operations and financial results of the affected clinic.
While PSCM believes that satisfactory agreements with replacement physical
therapists could be obtained, there can be no assurance that such agreements
would be negotiated on comparable terms.
GOVERNMENTAL REGULATIONS
The delivery of physical therapy services is subject to extensive and
changing federal, state and local regulations governing licensure, conduct of
operations, purchase or lease of facilities, management of physical therapy
practices and employment of physical therapists and other licensed
professionals, all of which directly or indirectly affect PSCM. Certain states,
such as New York, have enacted legislation or regulations, or have interpreted
existing physical therapy licensing laws, to prohibit or restrict business
corporations, such as PSCM, from practicing through the direct employment of
physical therapists. In other states, including New Jersey and Connecticut,
state officials have interpreted these so-called corporate practice laws as
allowing physical therapy services to be provided through a general business
corporation such as PSCM. PSCM believes it complies with all such laws and
regulations. However, there can be no assurance that regulators or others in New
York will not interpret PSCM's present structure to implicate that state's ban
on the corporate practice of physical therapy or that regulators or others in
New Jersey and Connecticut or other states will not change the above-described
interpretation and seek to enforce this type of restriction, or that other
states in which PSCM operates will not enact or enforce similar or more
restrictive legislation or regulations or that PSCM can adapt its operations to
comply with such legislation or regulations.
Each of the states in which PSCM operates has enacted laws and adopted
regulations which restrict healthcare practitioners from referring patients to
healthcare facilities in which the practitioner has an ownership or other
financial interest or requires disclosure of that financial interest to the
referred patient. Other state laws and regulations often prohibit the giving and
accepting of referral fees or other consideration as compensation or inducement
for patient referrals or, as in New York, prohibit the splitting of fees or the
division of income from the physical therapy practice on a percentage basis with
another entity in exchange for the provision of space, equipment or personnel
services. Also, the New York State Health Care Practitioner Referral Act
requires physicians with a compensation arrangement or financial interest in
PSCM to disclose such arrangement or interest to patients that they refer to
PSCM for physical therapy services. PSCM believes that its operations are
structured to comply with all such laws and regulations currently in effect as
well as laws and regulations enacted or adopted but not yet effective. PSCM also
believes that, if it is subsequently determined that PSCM's operations do not
comply with such laws or regulations, it can restructure its operations to
comply with such laws and regulations. There can be no assurance, however, that
states in which PSCM operates will not enact laws that further restrict
referrals for physical therapy services or restrict the provision of services to
physical therapy entities, and PSCM will be able to operate or restructure its
operations to comply with such new legislation or regulations, or
interpretations of existing or new legislation and regulations.
In addition, the Social Security Act imposes criminal penalties upon
persons who make or receive kickbacks, bribes or rebates in connection with
Medicare or Medicaid programs. The anti-fraud and abuse rules prohibit providers
and others from soliciting, offering, receiving or paying, directly or
indirectly, any remuneration to induce either the making of a referral for a
Medicare or Medicaid covered service or item, or ordering any covered service or
item. Each violation of these rules may be punished
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as a felony, subject to a fine of up to $25,000 or imprisonment for up to five
years, or both, and may also be treated as violations of other criminal statutes
with more severe penalties. In addition, the Medicare or Medicaid Patient and
Program Protection Act of 1987 imposes civil sanctions for violation of these
prohibitions, punishable by monetary fines, which can be substantial, and
exclusion from participation in Medicare or Medicaid programs. Statutes in some
states impose similar restrictions on referrals for medical services, including
physical therapy, which are eligible for payment under other state-related
programs, such as automobile insurance reform and workers' compensation. Because
the anti-fraud and abuse laws are quite broad in scope, and have been
expansively interpreted, they limit the manner in which PSCM can pursue
acquisitions and market its services to, and contract for services with,
physicians and other healthcare providers. Some interpretations of such laws
would subject to scrutiny the ownership of debt or equity securities of PSCM by
referring physicians, including those from whom PSCM has purchased physical
therapy practices, especially purchases which involve future consideration based
on volume or profits. Further, representatives of the Office of the Inspector
General of the U.S. Department of Social and Health Services ("OIG"), the agency
responsible for the civil enforcement of the anti-kickback statute, have
indicated that, under certain circumstances, OIG may regard a payment for
goodwill, in the context of a practice sale, as contrary to such anti-fraud and
abuse rules.
Certain of the physical therapy practices that PSCM operates or manages
derive a portion of their revenue from Medicare or Medicaid. As to these
practices, the parties from whom the practices were acquired do not refer
Medicare or Medicaid patients to the practices and give required notice of their
financial relationship to PSCM to their other patients that they refer.
Therefore, PSCM believes that such parties are not referral sources within the
meaning of these anti-fraud and abuse rules. There can be no assurance, however,
that enforcement authorities will not take a contrary position. The
anti-kickback statute also applies to situations where entities that generate
Medicare or Medicaid business for a healthcare provider receive remuneration for
such services. One of the services PSCM provides to physical therapy practices
is marketing and advertising services which have the potential to generate
Medicare or Medicaid business for the practices. Because the anti-kickback
statute prohibits the offering and acceptance of remuneration for the purposes
of arranging for or recommending purchasing, leasing or ordering any service or
item payable under Medicare or Medicaid, such activities could be construed
technically to implicate the anti-kickback statute. Such an interpretation could
bring under scrutiny the payments made to PSCM by the practice for PSCM's
services. Certain arrangements that are technically in violation of the
anti-kickback statute can be exempted if they meet specified regulatory
requirements found in the so-called "safe harbor" regulations implemented
pursuant to the statute. Among other things, the "safe harbor" regulations
require payments under management contracts and space and equipment rental
arrangements to be at fair market value and in aggregate amounts set in advance.
There is also a "safe harbor" for publicly traded investment interests requiring
that the publicly traded company meet certain asset and shareholder equity
criteria which PSCM is unable to meet at this time. Management considers and
seeks to comply with the anti-kickback statute and its "safe harbor" regulations
in planning acquisitions, marketing activities, and other aspects of its
operations, including its Management and License Agreements with physical
therapy practices, but no assurance can be given regarding compliance in any
particular factual situation, as there is no procedure for advisory opinions
from government officials.
Amendments to the Social Security Act that are known as the so-called Stark
II law became effective during 1995. Under Stark II, it is unlawful for a
provider to refer a Medicare or Medicaid patient for certain designated
services, including physical therapy, to another provider in which the referring
provider has an ownership or other financial interest. Also, as a provider or
manager of physical therapy services, PSCM is required by Stark II to report to
federal regulators the names and unique physician identification numbers of all
physicians with an ownership or investment interest in PSCM, or whose immediate
relatives have such an ownership or investment interest. Stark II covers debt
and equity interests, as well as a wide variety of financial relationships
between referring physicians and providers. Failure to comply with Stark II may
result in significant monetary penalties. PSCM has endeavored to comply with
such notice requirements, with restrictions on accepting cases and submitting
claims for Medicare or Medicaid reimbursement for services originating from
referrals that may be prohibited by Stark II, and PSCM intends to continue to do
so. There can be no assurance that Stark II will not be
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further amended to apply to services in addition to those paid for by Medicare
or Medicaid, or to contain additional restrictions on relationships between
providers and their physician owners, which changes if enacted could have
material adverse effects on PSCM's financial condition or results of operations.
Each state in which PSCM operates has laws that require facilities that
employ health professionals and provide health-related services to be licensed
and, in some cases, to obtain certificates of need. Pursuant to certificate of
need laws, the affected entity is required to prove to a state regulatory
authority the need for and financial feasibility of certain expenditures related
to such activities as the construction of new facilities or the commencement of
new healthcare services. PSCM believes that the operations of its business, as
presently conducted, and under current law, do not and will not require
certificates of need or other approvals and licenses (other than Medicare or
Medicaid certification). There can be no assurance, however, that existing laws
or regulations will not be interpreted or modified to require PSCM to obtain
such approvals or licenses and, if so, that such approvals or licenses could be
obtained.
The Commission on Accreditation of Rehabilitation Facilities ("CARF") is an
independent organization which reviews rehabilitation facilities and accredits
facilities which meet its guidelines. CARF accreditation guidelines require
extensive quality assurance and treatment outcome analysis. To date, CARF
accreditation in most states is voluntary and is not required to perform the
rehabilitation services provided by PSCM, and none of PSCM's practices are CARF
accredited. There can be no assurance that CARF accreditation will not in the
future be required in states in which PSCM does business and, if required, that
PSCM will be able to meet CARF guidelines in such states.
COMPETITION
The physical therapy rehabilitation industry is highly competitive and
subject to changes in the manner in which services are delivered and in which
providers are selected. PSCM believes the most significant competitive factors
in the market are quality of patient care, comprehensiveness of services,
treatment outcomes, cost effectiveness, convenience of clinic locations,
regional presence, and the ability to develop and maintain relationships with
rehabilitation referral sources. PSCM has competed for patients with the
outpatient rehabilitation operations of acute care hospitals and with other
outpatient physical therapy clinics, including those owned by HEALTHSOUTH and by
other large national companies such as NovaCare, Inc. (including the former
operations of RehabClinics, Inc.).
PSCM has also competed with other healthcare companies in acquiring
clinics. Several larger national companies with substantially greater financial
resources than PSCM, such as HEALTHSOUTH and NovaCare, Inc., have been actively
acquiring outpatient rehabilitation clinics. Certain of these companies, because
of the size of their stockholders' equity, may not be affected by present or
future laws limiting or prohibiting referrals by stockholders who may be
referral services. Continued competition in this area may increase the cost to
purchase clinics and could limit PSCM's ability to make further acquisitions.
PSCM has also competed for the services of physical therapists with
hospitals, nursing homes, other clinics and physicians' offices. Although PSCM
has not experienced significant difficulties in attracting and retaining
qualified physical therapists, it is generally recognized that the demand for
qualified physical therapists exceeds the supply and there can be no assurance
that PSCM would continue to be able to attract or retain sufficient therapists
to meet its needs.
EMPLOYEES
At March 31, 1996, PSCM had 364 full-time employees and 186 part-time
employees. No employee of PSCM is represented by a labor union. Management
believes that its relationship with its employees is good.
PROPERTIES
PSCM leases all the properties used for its rehabilitation clinics and
executive offices, with lease terms ranging from five to ten years, in most
cases with options to renew. PSCM's clinics range in size
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from 1,800 to 7,300 square feet, with an average of 4,500 square feet. PSCM
believes that replacement premises will be available on favorable terms in the
event one or more of its leases are terminated. PSCM intends to continue to
lease the premises in which its centers are located. See " -- History and Recent
Developments".
LEGAL PROCEEDINGS
In the ordinary course of its business, PSCM may be subject from time to
time to claims and legal actions. PSCM has no history of claims or actions which
have had a material effect on its financial position or results of operations.
PSCM maintains professional malpractice liability coverage on its
professional and technical employees, as well as general premises liability
insurance for each of its rehabilitation centers and its executive offices.
While PSCM believes its insurance policies to be sufficient in amount of
coverage for its current operations, there can be no assurance that coverage
will continue to be available in adequate amounts or at a reasonable cost, and
there can be no assurance that the insurance proceeds, if any, will cover the
full extent of loss resulting from any claims or that insurance will continue to
be available at reasonable rates.
See "THE MERGER -- Certain Litigation".
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PRINCIPAL STOCKHOLDERS OF PSCM
The following table sets forth certain information with respect to the
beneficial ownership of PSCM Common Stock as of May 31, 1996, by (i) each person
who is known by PSCM to beneficially own more than five percent of PSCM Common
Stock, (ii) certain executive officers of PSCM as required by SEC regulations,
(iii) each director of PSCM and (iv) all of PSCM's executive officers and
directors as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED(1)
---------------------
NAME AND ADDRESS NUMBER PERCENT
- ------------------------------------------------------- ----------- ---------
<S> <C> <C>
Russell F. Warren, M.D. (2)............................ 780,880 10.0%
Russell F. Warren, Jr. (4)............................. 596,720 7.7%
Patrick J. Wack, Jr. (5)............................... 152,080 2.0%
Ronnie P. Barnes, A.T.C. (6)........................... 608,160 7.8%
William E. Lipner (3)(7)............................... 41,500 *
Robert B. Milligan, Jr. (3)............................ 24,000 *
John Sculley (3)(8).................................... 154,000 2.0%
Stephen F. Wiggins (3)(9).............................. 152,200 2.0%
All officers and directors as a group (14
persons)(10)........................................... 2,608,891 33.6%
</TABLE>
- ---------------
* Less than 1%
(1) The information as to beneficial ownership is based on statements furnished
to PSCM by the beneficial owners. As used in this table, "beneficial
ownership" means the sole or shared power to vote, or direct the voting of a
security, or the sole or shared investment power with respect to a security
(i.e., the power to dispose of , or direct the disposition of). A person is
deemed as of any date to have "beneficial ownership" of any security that
such person has the right to acquire within 60 days after such date. For
purposes of computing the percentage of outstanding shares held by each
person named above, any security that such person has the right to acquire
within 60 days of the date of calculation is deemed to be outstanding, but
is not deemed to be outstanding for purposes of computing the percentage
ownership of any other persons.
(2) 215 John Street, Greenwich, CT 06850. Excludes 596,720 shares of PSCM Common
Stock beneficially owned by Russell F. Warren, Jr. as to which Dr. Warren
disclaims beneficial ownership. All of Dr. Warren's shares are held by
Warren Investments. L.P., a limited partnership through which Dr. Warren
maintains voting and investment control over such shares. Includes 4,000
shares subject to stock options issued pursuant to 1994 Directors Stock
Option Plan.
(3) Includes 16,000 shares subject to stock options issued pursuant to 1994
Directors Stock Option Plan.
(4) 550 Mamaroneck Avenue, Harrison, NY 10528. Includes 100,000 shares subject
to stock options. Also includes 496,720 shares which are held by R.F.
Warren, Jr. & Co., L.P., a limited partnership through which Russell F.
Warren, Jr. maintains voting and investment control over such shares.
Excludes 780,880 shares of PSCM Common Stock beneficially owned by Russell
F. Warren, M.D. as to which Russell F. Warren, Jr. disclaims beneficial
ownership.
(5) Includes 96,000 shares subject to stock options. Also includes 56,080 shares
which are held by Sculley, Wack & Company, L.P., a limited partnership
through which Mr. Wack maintains voting and investment control over such
shares.
(6) c/o New York Giants, Giants Stadium, East Rutherford, NJ 07073. Includes
4,000 shares subject to stock options issued pursuant to the 1994 Directors
Stock Option Plan.
(7) Includes 17,500 shares owned by Mr. Lipner's wife.
(8) Includes 40,000 shares owned by Mr. Sculley's wife.
(9) Includes 11,200 shares of PSCM Common Stock, beneficially owned by Oxford
Health Plans, Inc. ("Oxford"), as to which Mr. Wiggins disclaims beneficial
ownership. Mr. Wiggins is the Chairman and Chief Executive Officer and a
greater than 5% stockholder of Oxford.
(10)Includes 356,471 shares subject to stock options. 17,500 shares held by Mr.
Lipner's wife, 40,000 shares held by Mr. Sculley's wife and 111,200 shares
held by Oxford. See Notes 3,4,5,6,7,8 and 9 to PSCM's Consolidated Financial
Statements, which are incorporated herein by reference.
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DESCRIPTION OF CAPITAL STOCK OF HEALTHSOUTH
COMMON STOCK
HEALTHSOUTH is authorized by the HEALTHSOUTH Restated Certificate of
Incorporation (the "HEALTHSOUTH Certificate") to issue up to 251,500,000 shares
of capital stock, of which 250,000,000 shares are designated Common Stock, par
value $.01 per share, and 1,500,000 shares are designated Preferred Stock, par
value $.10 per share. As of July 15, 1996, there were 154,734,263 shares of
HEALTHSOUTH Common Stock outstanding(including shares reserved for issuance in
connection with HEALTHSOUTH's 1995 and 1996 mergers which had not yet been
claimed by holders of the stock of the acquired companies). In addition, there
were outstanding options under HEALTHSOUTH's stock option plans to purchase an
additional 16,497,408 shares of HEALTHSOUTH Common Stock. An additional
2,137,021 shares of HEALTHSOUTH Common Stock were reserved for future option
grants under such plans. Additionally, 6,112,956 shares are currently reserved
for issuance upon conversion of the Debentures, and 76,639 shares are reserved
for issuance upon the exercise of outstanding warrants.
Holders of HEALTHSOUTH Common Stock are entitled to participate equally in
dividends when and as declared by the Board of Directors out of funds legally
available therefor and, in the event of liquidation or distribution of assets of
HEALTHSOUTH, are entitled to share ratably in such assets remaining after
payment of liabilities. Stockholders are entitled to one vote per share. Holders
of HEALTHSOUTH Common Stock have no conversion, preemptive or other subscription
rights, and there are no redemption or sinking fund provisions with respect to
such stock. The outstanding shares of HEALTHSOUTH Common Stock are fully paid
and nonassessable.
FAIR PRICE PROVISION
The HEALTHSOUTH Certificate contains certain provisions requiring
supermajority stockholder approval to effect specified extraordinary corporate
transactions unless certain conditions are met. The HEALTHSOUTH Certificate
requires the affirmative vote of 66 2/3 % of all shares of HEALTHSOUTH entitled
to vote in the election of Directors to approve a "business combination" with
any "other entity" that is the beneficial owner, directly or indirectly, of more
than 20% of the outstanding shares of HEALTHSOUTH entitled to vote in the
election of Directors. For purposes of this restriction, a "business
combination" includes: (a) the sale, exchange, lease, transfer or other
disposition by HEALTHSOUTH of all, or substantially all, of its assets or
business; (b) any merger or consolidation of HEALTHSOUTH; and (c) certain sales
of HEALTHSOUTH's Common Stock in exchange for cash, assets, securities or any
combination thereof. An "other entity" is defined to include, generally, any
corporation, person or entity, and any affiliate or associate of such
corporation, person or entity.
The foregoing supermajority vote shall not be required where, in the
business combination, (i) HEALTHSOUTH's stockholders receive consideration per
share not less than the highest per share price paid by the other entity in
acquiring any of its holdings of HEALTHSOUTH's Common Stock (subject to certain
adjustments upward) and (ii) certain other requirements, designed to prevent the
other entity from receiving disproportionate gains in connection with the
business combination, are satisfied.
The provisions of the HEALTHSOUTH Certificate described in the preceding
paragraphs, and its Bylaws, may be amended or repealed only by the affirmative
vote of 66 2/3 % of the shares entitled to vote thereon.
The effect of the foregoing provisions is to make it more difficult for a
person, entity or group to effect a change in control of HEALTHSOUTH through the
acquisition of a large block of HEALTHSOUTH's voting stock, or to effect a
merger or other acquisition that is not approved by a majority of HEALTHSOUTH's
Directors serving in office prior to the acquisition by the other entity of 5%
or more of HEALTHSOUTH's stock. In addition, holders of the Debentures have the
right to require HEALTHSOUTH to redeem the Debentures at 100% of the principal
amount thereof, plus accrued interest, upon the occurrence of certain events
involving a sale or merger of HEALTHSOUTH,
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unless holders of HEALTHSOUTH's Common Stock shall receive an amount per share
at least equal to the conversion price of the Debentures in effect on the date
such sale or merger is consummated. Such holders' redemption option may impede
certain forms of takeovers if the potential acquiror is unable to finance the
redemption of the Debentures.
SECTION 203 OF THE DGCL
HEALTHSOUTH is subject to the provisions of Section 203 of the DGCL. That
section provides, with certain exceptions, that a Delaware corporation may not
engage in any of a broad range of business combinations with a person or
affiliate or associate of such person who is an "interested stockholder" for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
it an interested stockholder (excluding shares held by directors, officers and
certain employee stock ownership plans); or (iii) on or after the date the
person becomes an interested stockholder, the business combination is approved
by the corporation's board of directors and by the holders of at least 66 2/3 %
of the corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder. An "interested
stockholder" is defined to include any person, and the affiliates and associates
of such person that (i) is the owner of 15% or more of the outstanding voting
stock of the corporation or (ii) is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder. It is anticipated that the provisions of Section 203 of the DGCL
may encourage companies or others interested in acquiring HEALTHSOUTH to
negotiate in advance with the HEALTHSOUTH Board of Directors, since the
stockholder approval requirement would be avoided if a majority of the directors
then in office approve either the business combination or the transaction which
results in the acquiror becoming an interested stockholder.
PREFERRED STOCK
The HEALTHSOUTH Certificate authorizes the issuance of up to 1,500,000
shares of Preferred Stock, par value $.10 per share (the "HEALTHSOUTH Preferred
Stock"). The Board of Directors has the authority to issue the HEALTHSOUTH
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions, including the dividend rights, dividend rate,
conversion rights, voting rights, terms of redemption, redemption price or
prices, liquidation preferences and the number of shares constituting any series
or the designations of such series, without any further vote or action by the
stockholders. Issuance of shares of HEALTHSOUTH Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, a majority of the
outstanding voting stock of HEALTHSOUTH. Any such issuance could also adversely
affect the voting power of the holders of the HEALTHSOUTH Common Stock. The
Board of Directors of HEALTHSOUTH has no current intention of issuing any shares
of HEALTHSOUTH Preferred Stock.
TRANSFER AGENT
The transfer agent and registrar for the HEALTHSOUTH Common Stock is
ChaseMellon Shareholder Services, New York, New York.
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COMPARISON OF RIGHTS OF PSCM
AND HEALTHSOUTH STOCKHOLDERS
Both PSCM and HEALTHSOUTH are incorporated in Delaware. Holders of the PSCM
Shares will continue to have their rights and obligations as stockholders of
HEALTHSOUTH after the Merger governed by Delaware law. Set forth below is a
summary comparison of the rights of a HEALTHSOUTH stockholder under the
HEALTHSOUTH Certificate and HEALTHSOUTH's Bylaws (the "HEALTHSOUTH Bylaws"), on
the one hand, and the rights of a PSCM stockholder under the PSCM Amended and
Restated Certificate of Incorporation, as amended (the "PSCM Certificate"), and
PSCM's Amended and Restated Bylaws (the "PSCM Bylaws"), on the other hand. The
information set forth below is qualified in its entirety by reference to the
HEALTHSOUTH Certificate, the HEALTHSOUTH Bylaws, the PSCM Certificate and the
PSCM Bylaws.
CLASSES AND SERIES OF CAPITAL STOCK
PSCM. PSCM is authorized by the PSCM Certificate to issue up to 17,000,000
shares of capital stock, of which 15,000,000 shares are designated Common Stock,
par value $.01 per share, and 2,000,000 shares are designated Preferred Stock,
par value $.01 per share. As of May 1, 1996, 7,774,298 shares of PSCM Common
Stock were issued and outstanding. In addition, there were outstanding options
under PSCM Stock Option Plans and warrants to purchase an additional 809,085
shares of PSCM Common Stock, and 683,135 shares of PSCM Common Stock were
reserved for future option grants under such plans. The Board of Directors of
PSCM has the authority to issue the PSCM Preferred Stock in one or more series,
and to fix the designation, powers, preferences, rights, qualifications,
limitations or restrictions of each such series, without any further vote or
action by its stockholders. As of May 1, 1996, there were no shares of PSCM
Preferred Stock issued and outstanding. The Board of Directors of PSCM has no
present intention of issuing shares of PSCM Preferred Stock.
HEALTHSOUTH. HEALTHSOUTH is authorized by the HEALTHSOUTH Certificate to
issue up to 251,500,000 shares of capital stock, of which 250,000,000 shares are
designated Common Stock, par value $.01 per share, and 1,500,000 shares are
designated Preferred Stock, par value $.10 per share. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH". The Board of Directors of HEALTHSOUTH has the
authority to issue the HEALTHSOUTH Preferred Stock in one or more series and to
fix the rights, preferences, privileges and restrictions for each such series,
without any further vote or action by the stockholders. As of May 1, 1996, there
were no shares of HEALTHSOUTH Preferred Stock issued and outstanding, and the
Board of Directors of HEALTHSOUTH has no present intention of issuing shares of
HEALTHSOUTH Preferred Stock.
SIZE AND ELECTION OF THE BOARD OF DIRECTORS
PSCM. The PSCM Certificate and Bylaws provide that the size of the PSCM
Board of Directors shall be fixed from time to time by the directors then in
office. The PSCM Board of Directors is divided into three classes, each to
consist, as nearly as may be possible, of one-third of the total number of
directors then constituting the entire PSCM Board of Directors. Directors of
PSCM are elected by a plurality of votes cast at the annual meeting of
stockholders for staggered three-year terms. Vacancies on the Board of Directors
and newly created directorships resulting from any increase in the authorized
number of directors are filled by a majority vote of the directors then in
office.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that the HEALTHSOUTH Board of
Directors shall consist of at least one director and that the size of the
HEALTHSOUTH Board of Directors may be fixed by the directors then in office.
Directors of HEALTHSOUTH are elected by a plurality of votes cast at the annual
meeting of stockholders. Vacancies in the Board of Directors and newly created
directorships resulting from any increase in the authorized number of directors
are filled by a majority of directors then in office.
REMOVAL OF DIRECTORS
PSCM. The PSCM Certificate provides that directors may only be removed for
cause, and only by the vote of the holders of at least two-thirds of the voting
power of the outstanding shares of the capital stock of PSCM, voting together as
a single class.
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HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a director may be removed
with or without cause by the vote of the holders of a majority of the shares of
capital stock entitled to vote thereon.
OTHER VOTING RIGHTS
PSCM. The PSCM Common Stock is not divided into classes, and PSCM has no
classes or series of capital stock issued or outstanding other than the PSCM
Common Stock. Each PSCM stockholder holding shares of PSCM Common Stock entitled
to be voted on any matter, including the election of directors, shall have one
vote on each such matter submitted to vote at a meeting of stockholders for each
such share of PSCM Common Stock held by such stockholder as of the record date
for such meeting. Except as specifically provided otherwise by law or by the
PSCM Certificate or the PSCM Bylaws, the vote of the holders of a majority of
the shares of capital stock present or represented and entitled to vote is
required for the approval of any matter at a meeting of PSCM stockholders.
HEALTHSOUTH. The HEALTHSOUTH Common Stock is not divided into classes, and
HEALTHSOUTH has no classes or series of capital stock issued or outstanding
other than the HEALTHSOUTH Common Stock. Each HEALTHSOUTH stockholder holding
shares of HEALTHSOUTH Common Stock entitled to be voted on any matter, including
the election of directors, shall have one vote on each such matter submitted to
vote at a meeting of stockholders for each such share of HEALTHSOUTH Common
Stock held by such stockholder as of the record date for such meeting. Except as
specifically provided otherwise by law or by the HEALTHSOUTH Certificate or the
HEALTHSOUTH Bylaws, the vote of the holders of a majority of the shares of
capital stock present or represented and entitled to vote is required for the
approval of any matter at a meeting of HEALTHSOUTH stockholders.
CONVERSION AND DISSOLUTION
PSCM. The PSCM Common Stock has no conversion features. The PSCM
Certificate authorizes 2,000,000 shares of Preferred Stock, par value $.01 per
share, and provides that such shares of PSCM Preferred Stock may have such
voting powers, preferences and other special rights (including, without
limitation, the right to convert the shares of such PSCM Preferred Stock into
shares of PSCM Common Stock) as shall be stated in the PSCM Certificate or
resolutions providing for the issuance of PSCM Preferred Stock. If the Board of
Directors were to designate such a series of PSCM Preferred Stock, such PSCM
Preferred Stock could be entitled to preferential payments in the event of a
liquidation, dissolution or winding up of PSCM.
HEALTHSOUTH. The HEALTHSOUTH Common Stock has no conversion features. The
HEALTHSOUTH Certificate authorizes 1,500,000 shares of Preferred Stock, par
value $.10 per share, and provides that such shares of HEALTHSOUTH Preferred
Stock may have such voting powers, preferences and other special rights
(including, without limitation, the right to convert the shares of such
HEALTHSOUTH Preferred Stock into shares of HEALTHSOUTH Common Stock) as shall be
stated in the HEALTHSOUTH Certificate or resolutions providing for the issuance
of HEALTHSOUTH Preferred Stock. If the Board of Directors were to designate such
a series of HEALTHSOUTH Preferred Stock, such HEALTHSOUTH Preferred Stock could
be entitled to preferential payments in the event of dissolution of HEALTHSOUTH.
BUSINESS COMBINATIONS
PSCM. The PSCM Certificate restricts "Business Transactions" with
"Interested Persons" or their affiliates, as such terms are defined in the PSCM
Certificate (the "Business Combination Provision"). For purposes of the Business
Combination Provision, a "Business Transaction" means (i) any merger or
consolidation of PSCM or any subsidiary with any Interested Person or an
affiliate thereof, (ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition to the Interested Person of assets of PSCM or any subsidiary
thereof having a value equal to 10% or more of the aggregate market value of all
the then-outstanding stock of PSCM, (iii) any transaction that results in the
issuance of any capital stock of PSCM or any subsidiary to an Interested Person,
subject to certain exceptions, (iv) any reclassification of securities,
recapitalization or other transaction which has the effect of (A) increasing the
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proportionate share of any class or series of capital stock or securities
convertible into the capital stock of PSCM or any subsidiary thereof which is
owned by an Interested Person or (B) increasing the voting power of the
Interested Person in any class or series of stock of PSCM or any subsidiary
thereof, (v) the adoption of any plan or proposal by or on behalf of an
Interested Person for the liquidation or dissolution of PSCM, or (vi) any
receipt by an Interested Person of the benefit of any loans, advances,
guarantees, pledges, tax benefits or other financial benefits provided by or
through PSCM or any subsidiary. The term "Interested Person" means any person or
entity (other than PSCM, certain affiliated entities and certain directors of
PSCM) who (i) is the beneficial owner of voting stock representing 10% or more
of the voting power then held by PSCM stockholders, (ii) has publicly disclosed
a plan or intention to become or consider becoming such a 10% beneficial owner
and has not expressly abandoned such plan or intention more than two years prior
to the date in question, or (iii) is an affiliate of PSCM and at any time within
the two-year period immediately prior to the date in question was the beneficial
owner of 10% or more of such voting stock. Under the Business Combination
Provision, any Business Transaction with an Interested Person requires approval
by the affirmative vote of no less than two-thirds of the votes entitled to be
cast by holders of the then-outstanding PSCM voting stock, voting together as
one class, excluding voting stock beneficially owned by such Interested Person,
unless either (i) the Business Transaction shall have been approved by a
majority of the PSCM Board of Directors prior to such Interested Person's first
becoming an Interested Person or (ii) prior to such Interested Person's first
becoming an Interested Person, a majority of the PSCM Board of Directors shall
have approved such Interested Person's becoming an Interested Person and,
subsequently, a majority of the "Independent Directors" shall have approved the
Business Transaction. "Independent Directors" means members of the PSCM Board of
Directors who are not affiliates or representatives of, or associated with, an
Interested Person and who were either directors of PSCM prior to any person's
becoming an Interested Person or were recommended for election or elected to
succeed such directors by a vote which includes the affirmative vote of a
majority of the Independent Directors.
HEALTHSOUTH. The HEALTHSOUTH Certificate provides that the vote of the
holders of 66-2/3% of all shares of HEALTHSOUTH entitled to vote in the election
of directors is required for the approval and adoption of a business combination
(as defined in the HEALTHSOUTH Certificate) with any entity (as defined in the
HEALTHSOUTH Certificate) if, on the record date for the determination of
stockholders entitled to vote thereon, the other entity is the beneficial owner,
directly or indirectly, of more than 20% of the outstanding shares of
HEALTHSOUTH entitled to vote in the election of directors. The voting
requirements of the "fair price" provision are not applicable to a business
combination involving a holder of 20% or more of HEALTHSOUTH's voting stock in
the business combination, if: (i) HEALTHSOUTH's stockholders receive
consideration per share not less than the highest per share price paid by the
other entity in acquiring any of its holdings of the HEALTHSOUTH Common Stock
(subject to certain upward adjustments); and (ii) certain other requirements,
designed to prevent the other entity from receiving disproportionate gains in
connection with the business combination, are satisfied. See "DESCRIPTION OF
CAPITAL STOCK OF HEALTHSOUTH -- Fair Price Provision".
AMENDMENT OR REPEAL OF THE CERTIFICATE OF INCORPORATION
Under Delaware law, unless its certificate of incorporation or by-laws
otherwise provide, amendments of a corporation's certificate of incorporation
generally require the approval of the holders of a majority of the outstanding
stock entitled to vote thereon, and if such amendment would increase or decrease
the number of authorized shares of any class or series or the par value of such
shares or would adversely affect the shares of such class or series, the
approval of a majority of the outstanding stock of such class or series.
PSCM. The PSCM Certificate requires approval by the affirmative vote of not
less than two-thirds of the votes entitled to be cast by holders of all the
then-outstanding PSCM voting stock, voting together as one class, to approve any
proposal by or on behalf of an Interested Person or a director who is not an
Independent Director to amend, alter, change or repeal any provision of Article
V.A.2 of the PSCM Certificate (relating to removal of Directors). Article VII
(the Business Combination Provision) or Article VIII (regarding indemnification
and limitations on liability of Directors of PSCM), provided, however, that such
supermajority vote will not be required if either (i) such action has been
approved by
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a majority of the Board of Directors prior to such Interested Person's first
becoming an Interested Person or (ii) prior to such Interested Person's first
becoming an Interested Person, a majority of the PSCM Board of Directors has
approved such Interested Person's becoming an Interested Person and,
subsequently, a majority of the Independent Directors has approved such action.
HEALTHSOUTH. The HEALTHSOUTH Certificate requires approval by holders of at
least 662/3% of the outstanding shares entitled to vote thereon to repeal or
amend Article SIXTH of the HEALTHSOUTH Certificate (regarding the calling of
special meetings by the stockholders), Article SEVENTH of the HEALTHSOUTH
Certificate (regarding the "fair price" provision) and Article EIGHTH of the
HEALTHSOUTH Certificate (regarding the amendment of the HEALTHSOUTH
Certificate). The HEALTHSOUTH Certificate also provides that a majority of the
HEALTHSOUTH Board of Directors may make, alter or repeal the HEALTHSOUTH Bylaws.
SPECIAL MEETING OF STOCKHOLDERS
PSCM. The PSCM Certificate and PSCM Bylaws provide that a special meeting
of the PSCM stockholders may be called only by a majority of the Board of
Directors.
HEALTHSOUTH. The HEALTHSOUTH Bylaws provide that a special meeting of the
HEALTHSOUTH stockholders may be called by a majority of the Board of Directors
or by the holders of at least 20% of the outstanding shares of capital stock of
HEALTHSOUTH entitled to vote in the election of directors.
LIABILITY OF DIRECTORS
The DGCL permits a corporation to include a provision in its certificate of
incorporation eliminating or limiting the personal liability of a director or
officer to the corporation or its stockholders for monetary damages for breach
of the director's fiduciary duty, subject to certain limitations. Each of the
HEALTHSOUTH Certificate and the PSCM Certificate includes such a provision, as
set forth below, to the maximum effect permitted by law.
Each of the HEALTHSOUTH Certificate and the PSCM Certificate provides that
a director will not be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, which concerns unlawful payments of dividends, stock
purchases or redemptions or (iv) for any transaction from which the director
derived an improper personal benefit.
While these provisions provide directors with protection from awards of
monetary damages for breaches of their duty of care, they do not eliminate such
duty. Accordingly, these provisions will have no effect on the availability of
equitable remedies such as an injunction or rescission based on a director's
breach of his or her duty of care. The provisions described above apply to an
officer of the corporation only if he or she is a director of the corporation
and is acting in his or her capacity as director, and do not apply to officers
of the corporation who are not directors.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The DGCL permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The DGCL provides that a corporation may advance expenses
of defense (upon receipt of a written undertaking to reimburse the corporation
if indemnification is not appropriate) and must reimburse a successful defendant
for expenses, including attorneys' fees, actually and reasonably incurred, and
permits a corporation to purchase and maintain liability insurance for its
directors and officers. The DGCL provides that indemnification may not be made
for any claim, issue or matter as to
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which a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation, unless and
only to the extent a court determines that the person is entitled to indemnity
for such expenses as the court deems proper.
The HEALTHSOUTH Bylaws provide that each person who is involved in any
actual or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director, officer, employee or agent of HEALTHSOUTH, or is or was serving at
the request of HEALTHSOUTH as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan, will be indemnified
by HEALTHSOUTH to the full extent permitted by the DGCL, as the same exists or
may hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits HEALTHSOUTH to provide broader
indemnification rights than said law permitted prior to such amendment) or by
other applicable laws then in effect. The PSCM Bylaws also provide for
indemnification to the full extent permitted by the DGCL for officers and
directors.
The Plan provides that all rights to indemnification for acts or omissions
occurring prior to the Effective Time of the Merger now existing in favor of the
current or former directors or officers of PSCM as provided in the PSCM
Certificate or the PSCM Bylaws shall survive the Merger and shall continue in
full force and effect in accordance with their terms.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling HEALTHSOUTH
pursuant to the foregoing provisions, HEALTHSOUTH has been informed that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
OPERATIONS AND MANAGEMENT
OF HEALTHSOUTH AFTER THE MERGER
OPERATIONS
After the consummation of the Merger, PSCM will be a wholly-owned
subsidiary of HEALTHSOUTH, and all of PSCM's subsidiaries will be indirect
wholly-owned subsidiaries of HEALTHSOUTH. HEALTHSOUTH will continue to engage in
the business of providing rehabilitative healthcare services as prior to the
Merger, working with the management of PSCM to operate and continue to expand
PSCM's business. No material disposition or restructuring of either of
HEALTHSOUTH or PSCM or any material part thereof is contemplated as a result of
the Merger. See the information set forth herein and in the documents
incorporated herein by reference as set forth under "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE", "BUSINESS OF HEALTHSOUTH" and "BUSINESS OF PSCM".
MANAGEMENT
After the consummation of the Merger, HEALTHSOUTH will be managed by the
same Board of Directors and executive officers as existed prior to the Merger.
EXPERTS
The consolidated financial statements and schedule of HEALTHSOUTH
Corporation, the consolidated financial statements of Surgical Health
Corporation, the consolidated financial statements of Rehab Systems Company, the
consolidated financial statements of Relife, Inc., the consolidated financial
statements of Sutter Surgery Centers, Inc., the consolidated financial
statements of Advantage Health Corporation, the consolidated financial
statements of Harmerville Rehabilitation Center, Inc., and the consolidated
financial statements of Surgical Care Affiliates, Inc. appearing or incorporated
by reference in this Prospectus-Proxy Statement and Registration Statement have
been audited by Ernst & Young LLP, independent auditors, to the extent indicated
in their reports thereon also appearing elsewhere
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herein and in the Registration Statement or incorporated by reference. Such
consolidated financial statements have been included herein, or incorporated by
reference herein, in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
The financial statements of Professional Sports Care Management, Inc.
incorporated in this Prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 1995, have been so incorporated in reliance on
the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of HEALTHSOUTH Common Stock to be issued to the
stockholders of PSCM pursuant to the Merger will be passed upon by Haskell
Slaughter & Young, L.L.C.
ADDITIONAL INFORMATION
OTHER BUSINESS
The Board of Directors of PSCM does not know of any matter to be brought
before its Special Meeting other than as described in the Notice of Special
Meeting accompanying this Prospectus-Proxy Statement mailed to the stockholders
of PSCM. If any other matter comes before the Special Meeting, it is the
intention of the persons named in the accompanying proxy to vote the proxy in
accordance with their best judgment with respect to such other matter.
STOCKHOLDER PROPOSALS
If the Plan is not approved by the PSCM stockholders at the Special Meeting
or any adjournments or postponements thereof, PSCM intends to hold its next
Annual Meeting of Stockholders in May 1997. Stockholders' proposals intended to
be presented at the 1997 Annual Meeting must be received by PSCM no later than
November 30, 1996, for inclusion in PSCM's proxy statement and form of proxy
relating to that meeting.
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ANNEX A
PLAN AND AGREEMENT OF MERGER
PLAN AND AGREEMENT OF MERGER (the "Plan of Merger"), made and entered into
as of the 16th day of May, 1996, by and among HEALTHSOUTH Corporation, a
Delaware corporation ("HEALTHSOUTH"), EMPIRE ACQUISITION CORPORATION, a Delaware
corporation (the "Subsidiary"), and PROFESSIONAL SPORTS CARE MANAGEMENT, INC., a
Delaware corporation ("PSCM") (the Subsidiary and PSCM being sometimes
collectively referred to herein as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of HEALTHSOUTH, the Subsidiary
and PSCM have approved the merger of the Subsidiary with and into PSCM (the
"Merger"), upon the terms and conditions set forth in this Plan of Merger,
whereby all shares of Common Stock, par value $.01 per share, of PSCM (the "PSCM
Common Stock"), not owned directly or indirectly by PSCM, will be converted into
the right to receive the Merger Consideration (as hereinafter defined);
WHEREAS, each of HEALTHSOUTH, the Subsidiary and PSCM desires to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended; and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a "pooling of interests".
NOW, THEREFORE, in consideration of the premises, and the mutual covenants
and agreements contained herein, the parties hereto do hereby agree as follows:
SECTION 1. THE MERGER.
1.1 The Merger. Upon the terms and conditions set forth in this Plan of
Merger, and in accordance with the Delaware General Corporation Law (the
"DGCL"), the Subsidiary shall be merged with and into PSCM at the Effective Time
(as defined in Section 1.3). Following the Effective Time, the separate
corporate existence of the Subsidiary shall cease and PSCM shall continue as the
surviving corporation (the "Surviving Corporation") under the name "Professional
Sports Care Management, Inc." and shall succeed to and assume all the rights and
obligations of the Subsidiary and PSCM in accordance with the DGCL.
1.2 The Closing. The closing of the Merger (the "Closing") will take place
at 10:00 a.m. Central Time on a date to be specified by the parties (the
"Closing Date"), which (subject to satisfaction or waiver of the conditions set
forth in Sections 9.2 and 9.3) shall be no later than the second business day
after satisfaction or waiver of the conditions set forth in Section 9.1 (other
than Section 9.1(a)), at the offices of Haskell Slaughter & Young, L.L.C.,
Birmingham, Alabama, unless another date or place is agreed to in writing by the
parties hereto.
1.3 Effective Time. Subject to the provisions of this Plan of Merger, the
parties shall file a certificate of merger (the "Certificate of Merger")
executed in accordance with the relevant provisions of the DGCL and shall make
all other filings or recordings required under the DGCL as soon as practicable
on or after the Closing Date. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Delaware Secretary of State, or
at such other time as the Subsidiary and PSCM shall agree should be specified in
the Certificate of Merger (the "Effective Time").
1.4 Effect of the Merger. The Merger shall have the effects set forth in
Section 259 of the DGCL.
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SECTION 2. EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder of shares of PSCM Common
Stock or any shares of capital stock of the Subsidiary:
(a) Subsidiary Common Stock. Each share of capital stock of the Subsidiary
issued and outstanding immediately prior to the Effective Time shall be
converted into one fully paid and nonassessable share of common stock of the
Surviving Corporation.
(b) Cancellation of Treasury Stock. Each share of PSCM Common Stock that is
owned by PSCM or by any subsidiary of PSCM shall automatically be canceled and
retired and shall cease to exist, and none of the Common Stock, par value $.01
per share, of HEALTHSOUTH ("HEALTHSOUTH Common Stock"), cash or other
consideration shall be delivered in exchange therefor.
(c) Conversion of PSCM Shares. Subject to Section 2.2(d), each issued and
outstanding share of PSCM Common Stock (other than shares to be canceled in
accordance with Section 2.1(b)) (collectively, the "Exchanging PSCM Shares")
shall be converted into the right to receive .2330 (the "Exchange Ratio") shares
of HEALTHSOUTH Common Stock, as may be adjusted as provided below (the "Merger
Consideration"); provided, however, that if the Base Period Trading Price (as
defined below) shall be greater than $38.625, then the Exchange Ratio shall be
equal to the quotient obtained by dividing $9.00 by the Base Period Trading
Price, computed to four decimal places, and the Merger Consideration shall be
adjusted accordingly. For purposes of this Plan of Merger, the term "Base Period
Trading Price" shall mean the average daily closing prices per share for the
shares of HEALTHSOUTH Common Stock for the 20 consecutive trading days on which
such shares are actually traded (as reported on the New York Stock Exchange
Composite Transaction Tape as reported in The Wall Street Journal, Eastern
Edition, or if not reported thereby, any other authoritative source) ending at
the close of trading on the second New York Stock Exchange trading day
immediately preceding the date of the Special Meeting (as defined in Section
7.3) (such period being herein called the "Base Period"). Promptly after the
close of trading on such day, the parties shall issue a joint press release
publicly announcing the Exchange Ratio. As of the Effective Time, all such
Exchanging PSCM Shares shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any Exchanging PSCM Shares shall cease to have any rights with
respect thereto, except the right to receive the Merger Consideration and any
cash in lieu of fractional shares of HEALTHSOUTH Common Stock to be issued or
paid in consideration therefor upon surrender of such certificate in accordance
with Section 2.2, without interest.
(d) Stock Options and Warrants. At the Effective Time, all rights with
respect to PSCM Common Stock pursuant to any PSCM stock options or PSCM warrants
which are outstanding at the Effective Time, whether or not then exercisable,
shall be converted into and become rights with respect to HEALTHSOUTH Common
Stock, and HEALTHSOUTH shall assume each PSCM stock option or PSCM warrant, in
accordance with the terms of any stock option plan under which it was issued and
any stock option agreement or warrant agreement, as the case may be, by which it
is evidenced. It is intended that the foregoing provisions shall be undertaken
in a manner that will not constitute a "modification" as defined in Section 425
of the Code, as to any stock option which is an "incentive stock option". Each
PSCM stock option or warrant so assumed shall be exercisable for that number of
shares of HEALTHSOUTH Common Stock equal to the number of PSCM shares subject
thereto multiplied by the Exchange Ratio, and shall have an exercise price per
share equal to the PSCM exercise price divided by the Exchange Ratio.
(e) Anti-Dilution Provisions. If after the date hereof and prior to the
Effective Time HEALTHSOUTH shall have declared a stock split (including a
reverse split) of HEALTHSOUTH Common Stock or a dividend payable in HEALTHSOUTH
Common Stock, or any other distribution of securities or dividend (in cash or
otherwise) to holders of HEALTHSOUTH Common Stock with respect to their
HEALTHSOUTH Common Stock (including without limitation such a distribution or
dividend made in connection with a recapitalization, reclassification, merger,
consolidation, reorganiza-
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tion, reclassification, merger, consolidation, reorganization or similar
transaction) then (i) the amount $38.625 referred to in Section 2.1(c) and the
amount $31.00 referred to in Section 8.1(f), and the Exchange Ratio, shall be
appropriately adjusted to reflect such stock split or dividend or other
distribution of securities and (ii) if such stock split, dividend or
distribution has a record date during or after the Base Period and prior to the
Effective Time, then the number of shares of HEALTHSOUTH Common Stock to be
issued upon conversion of a share of PSCM Common Stock pursuant to Section
2.1(c) shall be appropriately adjusted to reflect such stock split, dividend or
other distribution of securities.
2.2 Exchange of Certificates. (a) Exchange Agent. Prior to the Effective
Time, HEALTHSOUTH shall enter into an agreement with such bank or trust company
as may be designated by HEALTHSOUTH (the "Exchange Agent") which provides that
HEALTHSOUTH shall deposit with the Exchange Agent as of the Effective Time, for
the benefit of the holders of Exchanging PSCM Shares, for exchange in accordance
with this Section 2, through the Exchange Agent, certificates representing the
shares of HEALTHSOUTH Common Stock (such shares of HEALTHSOUTH Common Stock,
together with any dividends or distributions with respect thereto with a record
date after the Effective Time, being hereinafter referred to as the "Exchange
Fund") issuable pursuant to Section 2.1 in exchange for outstanding shares of
PSCM Common Stock.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record of a certificate or certificates which immediately
prior to the Effective Time represented outstanding shares of PSCM Common Stock
(the "Certificates") whose shares were converted into the right to receive the
Merger Consideration pursuant to Section 2.1, (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as HEALTHSOUTH
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing shares of
HEALTHSOUTH Common Stock. Upon surrender of a Certificate for cancellation to
the Exchange Agent or to such other agent or agents as may be appointed by
HEALTHSOUTH, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of HEALTHSOUTH Common Stock
which such holder has the right to receive pursuant to the provisions of this
Section 2, and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of shares of PSCM Common Stock which is not
registered in the transfer records of PSCM, a certificate representing the
proper number of shares of HEALTHSOUTH Common Stock may be issued to a person
other than the person in whose name the Certificate so surrendered is
registered, if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and the person requesting such payment shall pay any
transfer or other taxes required by reason of the issuance of shares of
HEALTHSOUTH Common Stock to a person other than the registered holder of such
Certificate or establish to the satisfaction of HEALTHSOUTH that such tax has
been paid or is not applicable. Until surrendered as contemplated by this
Section 2.2, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the certificate
representing shares of HEALTHSOUTH Common Stock and cash in lieu of any
fractional shares of HEALTHSOUTH Common Stock as contemplated by this Section
2.2. No interest will be paid or will accrue on any cash payable in lieu of any
fractional shares of HEALTHSOUTH Common Stock. To the extent permitted by law,
former stockholders of record of PSCM shall be entitled to vote after the
Effective Time at any meeting of HEALTHSOUTH stockholders the number of whole
shares of HEALTHSOUTH Common Stock into which their respective shares of PSCM
Common Stock are converted, regardless of whether such holders have exchanged
their Certificates for certificates representing HEALTHSOUTH Common Stock in
accordance with this Section 2.2.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to HEALTHSOUTH Common Stock with a record date after
the Effective Time of the Merger shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of HEALTHSOUTH Common Stock
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 2.2(e) until the surrender of such
Certificate in
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accordance with this Section 2. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to the holder
of the certificate representing whole shares of HEALTH- SOUTH Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of any cash payable in lieu of a fractional share of
HEALTHSOUTH Common Stock to which such holder is entitled pursuant to Section
2.2(e) and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
HEALTHSOUTH Common Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to such surrender and with a payment date subsequent to such surrender
payable with respect to such whole shares of HEALTHSOUTH Common Stock.
(d) No Further Ownership Rights in Exchanging PSCM Shares. All shares of
HEALTHSOUTH Common Stock issued upon the surrender for exchange of Certificates
in accordance with the terms of this Section 2 (including any cash paid pursuant
to Section 2.2(c) or 2.2(e) ) shall be deemed to have been issued (and paid) in
full satisfaction of all rights pertaining to the Exchanging PSCM Shares
theretofore represented by such Certificates. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange Agent
for any reason, they shall be canceled and exchanged as provided in this Section
2, except as otherwise provided by law.
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of HEALTH- SOUTH Common Stock shall be issued upon the surrender for
exchange of Certificates, and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of HEALTHSOUTH.
Notwithstanding any other provision of this Plan of Merger, each holder of
Exchanging PSCM Shares exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of HEALTHSOUTH Common Stock
(after taking into account all Certificates delivered by such holder) shall
receive, in lieu thereof, cash (without interest) in an amount equal to such
fractional part of a share of HEALTHSOUTH Common Stock multiplied by the Base
Period Trading Price.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered to HEALTHSOUTH, upon demand, and any
holders of the Certificates who have not theretofore complied with this Section
2 shall thereafter look only to HEALTHSOUTH for payment of HEALTH- SOUTH Common
Stock, any cash in lieu of fractional shares of HEALTHSOUTH Common Stock and any
dividends or distributions with respect to HEALTHSOUTH Common Stock.
(g) No Liability. None of HEALTHSOUTH, the Subsidiary, PSCM or the Exchange
Agent shall be liable to any person in respect of any shares of HEALTHSOUTH
Common Stock (or dividends or distributions with respect thereto) or cash from
the Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any Certificates shall not have
been surrendered prior to seven years after the Effective Time (or immediately
prior to such earlier date on which any shares of HEALTHSOUTH Common Stock, any
cash in lieu of fractional shares of HEALTHSOUTH Common Stock or any dividends
or distributions with respect to HEALTHSOUTH Common Stock in respect of such
Certificates would otherwise escheat to or become the property of any
governmental entity), any such shares, cash, dividends or distributions in
respect of such Certificates shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund in deposit accounts or short-term money market
instruments, as directed by HEALTHSOUTH, on a daily basis. Any interest and
other income resulting from such investments shall be paid to HEALTHSOUTH.
2.3 Certificate of Incorporation of Surviving Corporation. The Certificate
of Incorporation of PSCM shall be amended and restated, effective at the
Effective Time, in a manner satisfactory to HEALTHSOUTH. The Certificate of
Incorporation of PSCM, as so amended and restated, shall become the Certificate
of Incorporation of the Surviving Corporation from and after the Effective Time
and until thereafter amended as provided by law.
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2.4 Bylaws of the Surviving Corporation. The Bylaws of the Subsidiary shall
be the Bylaws of the Surviving Corporation from and after the Effective Time and
until thereafter altered, amended or repealed in accordance with the laws of the
State of Delaware, the Certificate of Incorporation of PSCM and the said Bylaws.
2.5 Directors and Officers of the Surviving Corporation. The Directors and
officers of the Subsidiary immediately prior to the Effective Time shall be the
Directors and officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation.
2.6 Assets, Liabilities, Reserves and Accounts. At the Effective Time, the
assets, liabilities, reserves and accounts of each of the Subsidiary and PSCM
shall be taken up on the books of the Surviving Corporation at the amounts at
which they respectively shall be carried on the books of said corporations
immediately prior to the Effective Time, except as otherwise set forth in the
Plan of Merger and subject to such adjustments, or elimination of intercompany
items, as may be appropriate in giving effect to the Merger in accordance with
generally accepted accounting principles.
2.7 Corporate Acts of the Subsidiary. All corporate acts, plans, policies,
approvals and authorizations of the Subsidiary, its sole stockholder, its Board
of Directors, committees elected or appointed by the Board of Directors, and all
officers and agents, valid immediately prior to the Effective Time, shall be
those of the Surviving Corporation and shall be as effective and binding thereon
as they were with respect to the Subsidiary. The employees and agents of the
Subsidiary shall become the employees and agents of the Surviving Corporation
and continue to be entitled to the same rights and benefits which they enjoyed
as employees and agents of the Subsidiary.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PSCM.
PSCM hereby represents and warrants to HEALTHSOUTH and the Subsidiary as
follows:
3.1 Organization, Existence and Good Standing. PSCM is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. PSCM has all necessary corporate power to own its properties and
assets and to carry on its business as presently conducted. PSCM is not, and has
not been within the two years immediately preceding the date of this Plan of
Merger, a subsidiary or division of another corporation, nor has PSCM within
such time owned, directly or indirectly, any shares of HEALTHSOUTH Common Stock
or Subsidiary Common Stock.
3.2 PSCM Capital Stock. PSCM's authorized capital consists of 15,000,000
shares of PSCM Common Stock, par value $.01 per share, of which 7,774,500 shares
were issued and outstanding as of May 1, 1996, and none of which shares are
issued and held as treasury shares, and 2,000,000 shares of Preferred Stock,
none of which shares are issued and outstanding or held as treasury stock. All
of the issued and outstanding shares of PSCM Common Stock are duly and validly
issued, fully paid and nonassessable. Except as set forth on Exhibit 3.2 to the
Disclosure Schedule delivered by PSCM to HEALTHSOUTH simultaneously with the
execution and delivery hereof (the "Disclosure Schedule") or otherwise disclosed
in the PSCM Annual Report on Form 10-K for the fiscal year ended December 31,
1995 (the "PSCM 10-K"), there are no options, warrants, or similar rights
granted by PSCM or any other agreements to which PSCM is a party providing for
the issuance or sale by it of any additional securities which would remain in
effect after the Effective Time, other than those reflected in the PSCM 10-K.
There is no liability for dividends declared or accumulated but unpaid with
respect to any of the shares of PSCM Common Stock. PSCM has not made any
distributions to any holders of PSCM Common Stock or participated in or effected
any issuance, exchange or retirement of shares of PSCM Common Stock, or
otherwise changed the equity interests of holders of PSCM Common Stock, in
contemplation of effecting the Merger within the two years immediately preceding
the date of this Plan of Merger. Other than in connection with PSCM's initial
public offering, at which time the Merger was not contemplated, any shares of
PSCM Common Stock that PSCM has re-acquired during the two years immediately
preceding the date of this Plan of Merger have been so re-acquired only for
purposes other than "business combinations", as such term is defined in
Accounting Principles Board Opinion No. 16, as amended ("Business
Combinations").
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3.3 Subsidiaries and Affiliated Partnerships. (a) Attached to the
Disclosure Schedule as Exhibit 3.3 is a list of all subsidiaries (including, but
not limited to, professional corporations not owned by PSCM but over the assets
and operations of which PSCM exercises unilateral and perpetual control) of PSCM
(individually, a "PSCM Subsidiary", and collectively, the "PSCM Subsidiaries")
and their states of incorporation. Except as set forth on Exhibit 3.3, PSCM does
not own stock in and does not control, directly or indirectly, any other
corporation, association or business organization other than the PSCM Other
Entities (as defined below).
(b) Also disclosed on Exhibit 3.3 is a list of all general or limited
partnerships in which a general partner is PSCM, a PSCM Subsidiary or another
PSCM Partnership (individually, a "PSCM Partnership" and collectively, the "PSCM
Partnerships"), and all limited liability companies in which PSCM, a PSCM
Subsidiary or a PSCM Partnership is a member (individually, a "PSCM LLC" and
collectively, the "PSCM LLCs") (the PSCM Partnerships and the PSCM LLCs being
collectively called the "PSCM Other Entities"), and their states of
organization. Except as set forth on Exhibit 3.3, neither PSCM nor any PSCM
Subsidiary owns an equity interest in, nor does such entity control, directly or
indirectly, any other joint venture, limited liability company or partnership.
3.4 Organization, Existence and Good Standing of PSCM Subsidiaries and PSCM
Other Entities. (a) Each PSCM Subsidiary is a corporation or a professional
corporation duly organized, validly existing and in good standing under the laws
of its respective state of incorporation. Each PSCM Subsidiary has all necessary
corporate power to own its properties and assets and to carry on its business as
presently conducted.
(b) Each PSCM Partnership that is a limited partnership is validly formed,
each PSCM Partnership that is a general partnership has been duly organized, and
each PSCM Partnership is in good standing under the laws of its respective state
of organization. Each PSCM Partnership has all necessary power to own its
property and assets and to carry on its business as presently conducted. (c)
Each PSCM LLC is a limited liability company validly formed and in good standing
under the laws of its respective state of organization. Each PSCM LLC has all
necessary power to own its property and assets to carry on its business as
presently conducted.
(c) Each PSCM LLC is a limited liability company validly formed and in good
standing under the laws of its respective state of organization. Each PSCM LLC
has all necessary power to own its property and assets to carry on its business
as presently conducted.
3.5 Foreign Qualifications. PSCM, each PSCM Subsidiary and each PSCM Other
Entity that is not a general partnership is qualified to do business as a
foreign corporation, foreign limited partnership or foreign limited liability
company, as the case may be, and is in good standing in each jurisdiction where
the nature or character of the property owned, leased or operated by it or the
nature of the business transacted by it makes such qualification necessary,
except where the failure to so qualify would not have a material adverse effect
on PSCM, the PSCM Subsidiaries and the PSCM Other Entities, taken as a whole.
3.6 Power and Authority. Subject to the satisfaction of the conditions
precedent set forth herein, PSCM has the corporate power to execute, deliver and
perform the Plan of Merger and all agreements and other documents executed and
delivered or to be executed and delivered by it pursuant to the Plan of Merger,
and, subject to the satisfaction of the conditions precedent set forth herein
has taken all action required by its Certificate of Incorporation, Bylaws or
otherwise, to authorize the execution, delivery and performance of the Plan of
Merger and such related documents. Except as set forth on Exhibit 3.6 to the
Disclosure Schedule, the execution and delivery of the Plan of Merger does not
and, subject to the receipt of required stockholder and regulatory approvals and
any other required third-party consents or approvals, the consummation of the
Merger will not, violate any provisions of the Certificate of Incorporation of
PSCM or any provisions of, or result in the acceleration of any obligation
under, any material mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree, to which PSCM or any PSCM Subsidiary or
PSCM Other Entity is a party, or by which it is bound, or violate any
restrictions of any kind to which it is subject which, if violated or
accelerated, would have a material adverse effect on PSCM, the PSCM Subsidiaries
and the PSCM Other Entities,
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taken as a whole. The execution and delivery of this Agreement has been approved
by the Board of Directors of PSCM. This Agreement has been duly executed and
delivered by PSCM and, assuming this Agreement constitutes a valid and binding
obligation of HEALTHSOUTH and the Subsidiary, as the case may be, constitutes a
valid and binding obligation of PSCM, enforceable against PSCM in accordance
with its terms.
3.7 PSCM Public Information. PSCM has heretofore furnished HEALTHSOUTH with
a true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by it with the Securities and Exchange
Commission (the "SEC") (as any such documents have since the time of their
original filing been amended, the "PSCM Documents") since September 1, 1994,
which are all the documents (other than preliminary material) that it was
required to file with the SEC from such date through the date of this Plan of
Merger. As of their respective dates, the PSCM Documents did not contain any
untrue statements of material facts or omit to state material facts required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. As of their respective
dates, the PSCM Documents complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
under such statutes. The financial statements contained in the PSCM Documents,
together with the notes thereto, have been prepared in accordance with generally
accepted accounting principles consistently followed throughout the periods
indicated (except as may be indicated in the notes thereto, or, in the case of
the unaudited financial statements, as permitted by Form 10-Q), reflect all
known liabilities of PSCM required to be stated therein, including all known
contingent liabilities as of the end of each period reflected therein, and
present fairly the financial condition of PSCM at said dates and the
consolidated results of operations and cash flows of PSCM for the periods then
ended. The consolidated balance sheet of PSCM at March 31, 1996 included in the
PSCM Documents is herein sometimes referred to as the "PSCM Balance Sheet".
3.8 Visit Analysis. Exhibit 3.8 to the Disclosure Schedule sets forth a
visit analysis by facility for each facility operated by PSCM, any PSCM
Subsidiary or any PSCM Other Entity describing aggregate new patient and patient
visit information for (a) each quarter during the period January 1, 1995 through
December 31, 1995, (b) the period January 1, 1996 through March 31, 1996, and
(c) the period April 1, 1996 through May 5, 1996, which visit analysis is true
and correct in all material respects.
3.9 Legal Proceedings. Except as disclosed in the PSCM Documents or on
Exhibit 3.9 to the Disclosure Schedule, there is no material litigation,
governmental investigation or other proceeding pending or, so far as is known to
PSCM, threatened against or relating to PSCM, its properties or business, or the
transaction contemplated by the Plan of Merger and, so far as is known to PSCM,
no basis for any such action exists.
3.10 Contracts, etc. (a) All material contracts, leases, agreements and
arrangements to which PSCM or any of the PSCM Subsidiaries or PSCM Other
Entities is a party are legally valid and binding in accordance with their terms
and in full force and effect.To the knowledge of PSCM, no party is in default
thereunder, and no event has occurred which, but for the passage of time or the
giving of notice or both, would constitute a default thereunder, except, in each
case, where the invalidity of the lease, contract, agreement or arrangement or
the default or breach thereunder or thereof would not, individually or in the
aggregate, have a material adverse effect on PSCM, the PSCM Subsidiaries and the
PSCM Other Entities, taken as a whole.
(b) Except as set forth on Exhibit 3.10 to the Disclosure Schedule, no
contract or agreement to which PSCM or any PSCM Subsidiary or PSCM Other Entity
is a party will, by its terms, terminate as a result of the transactions
contemplated hereby or require any consent from any obligor thereto in order to
remain in full force and effect immediately after the Effective Time, except for
contracts or agreements which, if terminated, would not have a material adverse
effect on PSCM, the PSCM Subsidiaries and the PSCM Other Entities, taken as a
whole.
(c) Except as set forth on Exhibit 3.10 to the Disclosure Schedule, none of
PSCM, any PSCM Subsidiary or any PSCM Other Entity has granted any right of
first refusal or similar right in favor of
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any third party with respect to any material portion of its properties or assets
or entered into any non-competition agreement or similar agreement restricting
its ability to engage in any business in any location.
3.11 Subsequent Events. Except as set forth on Exhibit 3.11 to the
Disclosure Schedule or disclosed in the PSCM Documents, PSCM has not, since the
date of the last-filed PSCM Document:
(a) Incurred any material adverse change, including, but not limited to,
any material adverse change in patient visits from those reflected on Exhibit
3.8.
(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued, contingent or
otherwise) other than (i) liabilities shown or reflected on the PSCM Balance
Sheet or (ii) liabilities incurred since the date of the last-filed PSCM
Document in the ordinary course of business, which discharge or satisfaction
would have a material adverse effect on PSCM, the PSCM Subsidiaries and the PSCM
Other Entities, taken as a whole.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material adverse
effect on PSCM, except as may have been required due to income or operations of
PSCM since the date of the last-filed PSCM Document.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are material
to the consolidated business or financial condition of PSCM.
(e) Sold or transferred any of the assets material to the consolidated
business of PSCM, cancelled any material debts or claims or waived any material
rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of employ
ees or any material increase in salary payable or to become payable by PSCM to
any officer or employee, consultant or agent (other than normal merit
increases), or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any officer,
employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material transaction
other than in the ordinary course of business or permitted under other Sections
hereof.
(h) Issued any stock, bonds or other securities, other than stock options
granted to employees, directors or consultants of PSCM or warrants granted to
third parties, all of which are disclosed on Exhibit 3.2 to the Disclosure
Schedule or in the PSCM Documents.
3.12 Accounts Receivable. (a) Since the date of the PSCM 10-K, PSCM has not
changed any material principle or practice with respect to the recordation of
accounts receivable or the calculation of reserves therefor, or any material
collection, discount or write-off policy or procedure. PSCM (including the PSCM
Subsidiaries and PSCM Other Entities is in compliance with the terms and
conditions of all third-party payor arrangements relating to its accounts
receivable, except to the extent that such noncompliance would not have a
material adverse effect on PSCM, the PSCM Subsidiaries and the PSCM Other
Entities, taken as a whole.
(b) Without limiting the generality of the foregoing, PSCM and each PSCM
Subsidiary or PSCM Other Entity is in compliance with all Medicare and Medicaid
provider agreements to which it is a party, except to the extent that such
noncompliance would not have a material adverse effect on PSCM, the PSCM
Subsidiaries and the PSCM Other Entities, taken as a whole.
3.13 Tax Returns. PSCM has filed all tax returns required to be filed by it
or requests for extensions to file such returns or reports have been timely
filed and granted and have not expired, except to the extent that such failures
to file, taken together, do not have a material adverse effect on PSCM. PSCM has
made all payments shown as due on such returns. PSCM has not been notified that
any tax returns
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of PSCM are currently under audit by the Internal Revenue Service or any state
or local tax agency. No agreements have been made by PSCM for the extension of
time or the waiver of the statute of limitations for the assessment or payment
of any federal, state or local taxes.
3.14 Commissions and Fees. Except for fees payable to Unterberg Harris and
Wyndam Capital, L.P., there are no valid claims for brokerage commissions or
finder's or similar fees in connection with the transactions contemplated by
this Plan of Merger which may be now or hereafter asserted against HEALTHSOUTH
resulting from any action taken by PSCM or its stockholders, officers or
Directors, or any of them.
3.15 Employee Benefit Plans; Employment Matters. (a) Except as described in
the PSCM Documents or set forth on Exhibit 3.15(a) to the Disclosure Schedule,
PSCM has neither established nor maintains nor is obligated to make
contributions to or under or otherwise participate in (a) any bonus or other
type of incentive compensation plan, program, agreement, policy, commitment,
contract or arrangement (whether or not set forth in a written document), (b)
any pension, profit-sharing, retirement or other plan, program or arrangement,
or (c) any other employee benefit plan, fund or program, including, but not
limited to, those described in Section 3(3) of ERISA. All such plans
(individually, a "Plan" and collectively, the "Plans") have been operated and
administered in all material respects in accordance with, as applicable, ERISA,
the Internal Revenue Code of 1986, as amended, Title VII of the Civil Rights Act
of 1964, as amended, the Equal Pay Act of 1967, as amended, the Age
Discrimination in Employment Act of 1967, as amended, and the related rules and
regulations adopted by those federal agencies responsible for the administration
of such laws. No act or failure to act by PSCM has resulted in a "prohibited
transaction" (as defined in ERISA) with respect to the Plans that is not subject
to a statutory or regulatory exception. No "reportable event" (as defined in
ERISA) has occurred with respect to any of the Plans which is subject to Title
IV of ERISA. PSCM has not previously made, is not cur- rently making, and is not
obligated in any way to make, any contributions to any multi-employer plan
within the meaning of the Multi-Employer Pension Plan Amendments Act of 1980.
(b) Except as described in the PSCM Documents or set forth on Exhibit
3.15(b) to the Disclosure Schedule, PSCM is not a party to any oral or written
(i) union, guild or collective bargaining agreement which agreement covers
employees in the United States (nor is it aware of any union organizing activity
currently being conducted in respect to any of its employees), (ii) agreement
with any executive officer or other key employee the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction of the nature contemplated by this Plan of Merger and which
provides for the payment of in excess of $50,000, or (iii) agreement or plan,
including any stock option plan, stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Plan of Merger or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Plan of Merger.
3.16 Compliance with Laws in General. Except as set forth on Exhibit 3.16
to the Disclosure Schedule or disclosed in the PSCM Documents, PSCM has not
received any notices of material violations of any federal, state and local
laws, regulations and ordinances relating to its business and operations,
including, without limitation, the Federal Environmental Protection Act, the
Occupational Safety and Health Act, the Americans with Disabilities Act, the
Medicare or applicable Medicaid statutes and regulations and any Environmental
Laws, and no notice of any pending inspection or violation of any such law,
regulation or ordinance has been received by PSCM which, if it were determined
that a violation had occurred, would have a material effect on PSCM, the PSCM
Subsidiaries and the PSCM Other Entities, taken as a whole.
3.17 Licenses, Accreditation and Regulatory Approvals. PSCM and the PSCM
Subsidiaries and PSCM Other Entities hold all licenses, permits, certificates of
need and other regulatory approvals which are needed or required by law with
respect to their businesses, operations and facilities as they are currently or
presently conducted (collectively, the "Licenses"), except where the failure to
possess such Licenses does not have a material adverse effect on PSCM, the PSCM
Subsidiaries and the PSCM Other Entities, taken as a whole. All such Licenses
are in full force and effect, and PSCM is in compliance in
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all material respects with all conditions and requirements of the Licenses and
with all rules and regulations relating thereto. PSCM, the PSCM Subsidiaries and
the PSCM Other Entities are, to the extent applicable to their operations, (i)
eligible to receive payment under Titles XVIII and XIX of the Social Security
Act, (ii) providers under existing provider agreements with the Medicare program
through the applicable intermediaries and (iii) in compliance with the
conditions of participation in the Medicare program except for such
noncompliance as does not have a material adverse effect on PSCM, the PSCM
Subsidiaries and the PSCM Other Entities in the aggregate. PSCM, the PSCM
Subsidiaries and the PSCM Other Entities have timely filed all requisite claims
and other reports required to be filed in connection with the Medicare, Medicaid
and other governmental health programs due on or before the date hereof, all of
which were, when filed, complete and correct in all material respects. There are
no current claims, actions or appeals pending, and neither PSCM nor the PSCM
Subsidiaries, nor the PSCM Other Entities have filed any claims or reports which
should result in such claims, actions or appeals, before any commission, board
or agency, including, without limitation, any intermediary or carrier, the
Provider Reimbursement Review Board or the Administrator of the Health Care
Financing Administration with respect to any Medicare claims, or any
disallowances in connection with any audit of claims, which could have a
material adverse effect on PSCM, the PSCM Subsidiaries and the PSCM Other
Entities taken as a whole. The amounts established as provisions for adjustments
by Medicare, Medicaid and other third-party payors on the financial statements
set forth in the last-filed PSCM Document are sufficient to pay any amounts for
which PSCM may be liable. To the knowledge of PSCM, neither PSCM nor the PSCM
Subsidiaries nor the PSCM Other Entities nor their respective employees have
committed a violation of the Medicare and Medicaid fraud and abuse provisions of
the Social Security Act. Except as disclosed in the PSCM Documents, any and all
past litigation concerning such licenses, certificates of need and regulatory
approvals, and all claims and causes of action raised therein, has been finally
adjudicated. No such license, certificate of need or regulatory approval has
been revoked, conditioned (except as may be customary) or restricted, and,
except as disclosed in the PSCM Documents, no action (equitable, legal or
administrative), arbitration or other process is pending, or to the knowledge of
PSCM, threatened, which in any way challenges the validly of, or seeks to
revoke, condition or restrict any such license, certificate of need, or
regulatory approval. Subject to compliance with applicable securities laws, the
Hart Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and state or local statutes, rules or regulations requiring notice,
approval, or other action upon the occurrence of a change in control of PSCM or
any of the PSCM Subsidiaries, the consummation of the Merger will not violate
any law or regulation to which PSCM is subject which, if violated, would have a
material adverse effect on PSCM.
3.18 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock. PSCM is not
a party to any agreement the effect of which would be to require HEALTHSOUTH
directly or indirectly to retire or re-acquire all or part of the shares of
HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.
3.19 Disposition of Assets of Surviving Corporation. PSCM is not a party to
any plan to dispose of a significant part of the assets of the Surviving
Corporation within two years after the Closing Date, other than dispositions in
the ordinary course of business of the Surviving Corporation and dispositions
intended to eliminate duplicate facilities or excess capacity.
3.20 Vote Required. The affirmative vote of the holders of a majority of
the outstanding shares of the PSCM Common Stock entitled to vote thereon is the
only vote of the holders of any class or series of PSCM capital stock necessary
to approve this Plan of Merger, the Merger and the transactions contemplated
hereby.
3.21 Opinion of Financial Advisor. PSCM has received the oral opinion of
Unterberg Harris to the effect that, as of the date of this Agreement, the
Merger Consideration is fair to the holders of PSCM Shares from a financial
point of view, a written copy of which opinion will be delivered by PSCM to
HEALTHSOUTH prior to the date on which the definitive proxy materials for the
Proxy Statement (as defined in Section 7.4(a)) are filed with the SEC.
3.22 No Untrue Representations. No representation or warranty by PSCM in
this Plan of Merger, and no Exhibit or certificate issued by PSCM and furnished
or to be furnished to HEALTHSOUTH pursuant hereto, or in connection with the
transactions contemplated hereby, contains or will contain
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any untrue statement of a material fact in response to the disclosure requested,
or omits or will omit to state a material fact necessary to make the statements
or facts contained therein in response to the disclosure requested not
misleading in light of all of the circumstances then prevailing.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE SUBSIDIARY AND HEALTHSOUTH.
The Subsidiary and HEALTHSOUTH, jointly and severally, hereby represent and
warrant to PSCM as follows:
4.1 Organization, Existence and Capital Stock. The Subsidiary is a
corporation duly organized and validly existing and is in good standing under
the laws of the State of Delaware. The Subsidiary's authorized capital consists
of 1,000 shares of Common Stock, par value $.01 per share, all of which shares
are issued and registered in the name of HEALTHSOUTH. The Subsidiary has not,
within the two years immediately preceding the date of this Plan of Merger,
owned, directly or indirectly, any shares of PSCM Common Stock.
4.2 Power and Authority. The Subsidiary has corporate power to execute,
deliver and perform the Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to the
Plan of Merger, and, subject to the satisfaction of the conditions precedent set
forth herein, has taken all actions required by law, its Certificate of
Incorporation, its Bylaws or otherwise, to authorize the execution and delivery
of the Plan of Merger and such related documents. The execution and delivery of
the Plan of Merger does not and, subject to the receipt of required stockholder
and regulatory approvals and any other required third-party consents or
approvals, the consummation of the Merger contemplated hereby will not, violate
any provisions of the Certificate of Incorporation or Bylaws of the Subsidiary,
or any agreement, instrument, order, judgment or decree to which the Subsidiary
is a party or by which it is bound, violate any restrictions of any kind to
which the Subsidiary is subject, or result in the creation of any lien, charge
or encumbrance upon any of the property or assets of the Subsidiary.
4.3 No Subsidiaries. The Subsidiary does not own stock in, and does not
control directly or indirectly, any other corporation, association or business
organization. The Subsidiary is not a party to any joint venture or partnership.
4.4 Legal Proceedings. There are no actions, suits or proceedings pending
or threatened against the Subsidiary, at law or in equity, relating to or
affecting the Subsidiary, including the Merger. The Subsidiary does not know or
have any reasonable grounds to know of any justification for any such action,
suit or proceeding.
4.5 No Contracts or Liabilities. Other than the obligations created under
the Plan of Merger, the Subsidiary is not obligated under any contracts, claims,
leases, liabilities (contingent or otherwise), loans or otherwise.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF HEALTHSOUTH.
HEALTHSOUTH hereby represents and warrants to PSCM as follows:
5.1 Organization, Existence and Good Standing. HEALTHSOUTH is a corporation
duly organized and validly existing and is in good standing under the laws of
the State of Delaware. HEALTHSOUTH has all necessary corporate power to own its
properties and assets and to carry on its business as presently conducted.
HEALTHSOUTH is duly qualified to do business and is in good standing in all
jurisdictions in which the character of the property owned, leased or operated
or the nature of the business transacted by it makes qualification necessary.
HEALTHSOUTH is not, and has not been within the two years immediately preceding
the date of this Plan of Merger, a subsidiary or division of another
corporation, nor has HEALTHSOUTH within such time owned, directly or indirectly,
any shares of PSCM Common Stock.
5.2 Power and Authority. HEALTHSOUTH has corporate power to execute,
deliver and perform the Plan of Merger and all agreements and other documents
executed and delivered, or to be executed and delivered, by it pursuant to the
Plan of Merger, and, subject to the satisfaction of the conditions
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precedent set forth herein has taken all actions required by law, its
Certificate of Incorporation, its Bylaws or otherwise, to authorize the
execution and delivery of the Plan of Merger and such related documents. The
execution and delivery of the Plan of Merger does not and, subject to the
receipt of required stockholder and regulatory approvals and any other required
third-party consents or approvals, the consummation of the Merger contemplated
hereby will not, violate any provisions of the Certificate of Incorporation or
Bylaws of HEALTHSOUTH, or any provision of, or result in the acceleration of any
obligation under, any mortgage, lien, lease, agreement, instrument, order,
arbitration award, judgment or decree to which HEALTHSOUTH is a party or by
which it is bound, or violate any restrictions of any kind to which HEALTHSOUTH
is subject. The execution and delivery of this Agreement has been approved by
the Board of Directors of HEALTHSOUTH. This Agreement has been duly executed and
delivered by HEALTHSOUTH and the Subsidiary and, assuming this Agreement
constitutes a valid and binding obligation of PSCM, constitutes a valid and
binding obligation of HEALTHSOUTH and the Subsidiary, enforceable against
HEALTHSOUTH and the Subsidiary in accordance with its terms.
5.3 HEALTHSOUTH Common Stock. On the Closing Date, HEALTHSOUTH will have a
sufficient number of authorized but unissued and/or treasury shares of its
Common Stock available for issuance to the holders of PSCM Shares in accordance
with the provisions of the Plan of Merger. The HEALTHSOUTH Common Stock to be
issued pursuant to the Plan of Merger will, when so delivered, be (i) duly and
validly issued, fully paid and nonassessable, (ii) issued pursuant to an
effective registration statement under the Securities Act of 1933, as amended,
and (iii) authorized for listing on the New York Stock Exchange, Inc. (the
"Exchange") upon official notice of issuance.
5.4 Capitalization. HEALTHSOUTH's authorized capital stock consists of
1,500,000 shares of Preferred Stock, par value $.10 per share, of which no
shares are issued and outstanding, and no shares are held in treasury, and
250,000,000 shares of Common Stock, par value $.01 per share, of which
154,734,263 shares are issued and outstanding, and 93,000 shares are held in
treasury. All of the issued and outstanding shares of HEALTHSOUTH Common Stock
have been duly and validly issued and are fully paid and non-assessable. Except
as disclosed in the HEALTHSOUTH Annual Report on Form 10-K for the fiscal year
ended December 31, 1995 (the "HEALTHSOUTH 10-K"), there are no options,
warrants, convertible debentures or similar rights granted by HEALTHSOUTH or any
other agreements to which HEALTHSOUTH is a party providing for the issuance or
sale by it of any additional securities, other than stock options granted in the
ordinary course since such date. There is no liability for dividends declared or
accumulated but unpaid with respect to any shares of HEALTHSOUTH Common Stock.
HEALTHSOUTH has not made any distributions to any holder of HEALTHSOUTH Common
Stock or participated in or effected any issuance, exchange or retirement of
HEALTHSOUTH Common Stock, or otherwise changed the equity interests of holders
of HEALTHSOUTH Common Stock, in contemplation of effecting the Merger within the
two years immediately preceding the date of this Plan of Merger. Any shares of
HEALTHSOUTH Common Stock that HEALTHSOUTH has re-acquired during the two years
immediately preceding the date of this Plan of Merger have been so re-acquired
only for purposes other than Business Combinations.
5.5 Subsidiary Common Stock. HEALTHSOUTH owns, beneficially and of record,
all of the issued and outstanding shares of Subsidiary Common Stock, which are
validly issued and outstanding, fully paid and nonassessable, free and clear of
all liens and encumbrances. HEALTHSOUTH has the corporate power to endorse and
surrender such Subsidiary Shares for cancellation pursuant to the Plan of
Merger. HEALTHSOUTH has taken all such actions as may be required in its
capacity as the sole stockholder of the Subsidiary to approve the Merger.
5.6 HEALTHSOUTH Documents. HEALTHSOUTH has heretofore furnished PSCM with a
true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by it with the SEC (as any such documents have
since the time of their original filing been amended, the "HEALTHSOUTH
Documents") since January 1, 1995, which are all the documents (other than
preliminary material) that it was required to file with the SEC since such date.
As of their respective dates, the HEALTHSOUTH Documents did not contain any
untrue statements of material facts or omit to state material facts required to
be stated therein or necessary to make the statements therein, in light of
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the circumstances under which they were made, not misleading. As of their
respective dates, the HEALTHSOUTH Documents complied in all material respects
with the applicable requirements of the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated under such statutes. The financial statements contained in the
HEALTHSOUTH Documents, together with the notes thereto, have been prepared in
accordance with generally accepted accounting principles consistently followed
throughout the periods indicated (except as may be indicated in the notes
thereto, or, in the case of the unaudited financial statements, as permitted by
Form 10-Q), reflect all known liabilities of HEALTHSOUTH required to be stated
therein, including all known contingent liabilities as of the end of each period
reflected therein, and present fairly the financial condition of HEALTHSOUTH at
said dates and the consolidated results of operations and cash flows of
HEALTHSOUTH for the periods then ended.
5.7 Investment Intent. HEALTHSOUTH is acquiring the shares of PSCM Common
Stock hereunder for its own account and not with a view to the distribution or
sale thereof, and HEALTHSOUTH has no understanding, agreement or arrangement to
sell, distribute, partition or otherwise transfer or assign all or any part of
the shares of PSCM Common Stock to any other person, firm or corporation.
5.8 Legal Proceedings. Except as disclosed in the HEALTHSOUTH 10-K, there
is no material litigation, governmental investigation or other proceeding
pending or, so far as is known to HEALTHSOUTH, threatened against or relating to
HEALTHSOUTH, its properties or business, or the transaction contemplated by the
Plan of Merger and, so far as is known to HEALTHSOUTH, no basis for any such
action exists.
5.9 No Violations. Subject to compliance with applicable securities laws
and the HSR Act, the consummation of the Merger will not violate any law or
restriction to which HEALTHSOUTH is subject.
5.10 Subsequent Events. Except as disclosed in the last-filed HEALTHSOUTH
Document, HEALTHSOUTH has not, since the date of the last-filed HEALTHSOUTH
Document:
(a) Incurred any material adverse change.
(b) Discharged or satisfied any material lien or encumbrance, or paid or
satisfied any material obligation or liability (absolute, accrued, contingent or
otherwise) other than (i) liabilities shown or reflected on the March 31, 1996
Balance Sheet contained in the HEALTHSOUTH Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 (the "HEALTHSOUTH 10-Q") or (ii) liabilities
incurred since the date of the HEALTHSOUTH 10-Q in the ordinary course of
business, which discharge or satisfaction would have a material adverse effect
on HEALTHSOUTH.
(c) Increased or established any reserve for taxes or any other liability
on its books or otherwise provided therefor which would have a material adverse
effect on HEALTHSOUTH, except as may have been required due to income or
operations of HEALTHSOUTH since March 31, 1996.
(d) Mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of the assets, tangible or intangible, which assets are material
to the consolidated business or financial condition of HEALTHSOUTH.
(e) Sold or transferred any of the assets material to the consolidated
business of HEALTHSOUTH, cancelled any material debts or claims or waived any
material rights, except in the ordinary course of business.
(f) Granted any general or uniform increase in the rates of pay of
employees or any material increase in salary payable or to become payable by
HEALTHSOUTH to any officer or employee, consultant or agent (other than normal
merit increases), or by means of any bonus or pension plan, contract or other
commitment, increased in a material respect the compensation of any officer,
employee, consultant or agent.
(g) Except for this Plan of Merger and any other agreement executed and
delivered pursuant to this Plan of Merger, entered into any material transaction
other than in the ordinary course of business or permitted under other Sections
hereof.
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(h) Issued any stock, bonds or other securities, other than stock options
granted to employees or consultants of HEALTHSOUTH or warrants granted to third
parties, all of which are described in the HEALTHSOUTH Documents.
5.11 Retirement or Re-Acquisition of HEALTHSOUTH Common Stock. HEALTHSOUTH
has not agreed directly or indirectly to retire or re-acquire all or part of the
shares of HEALTHSOUTH Common Stock issued pursuant to Section 2.1 hereof.
5.12 Disposition of Assets of Surviving Corporation. HEALTHSOUTH does not
intend or plan to dispose of, or to cause the Surviving Corporation to dispose
of, a significant part of the assets of the Surviving Corporation within two
years after the Effective Time, other than dispositions in the ordinary course
of business of the Surviving Corporation and dispositions intended to eliminate
duplicate facilities or excess capacity.
5.13 No Untrue Representation. No representation or warranty by HEALTHSOUTH
in this Plan of Merger, and no Exhibit or certificate issued by HEALTHSOUTH and
furnished or to be furnished to PSCM pursuant hereto, or in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact in response to the disclosure requested, or omits or will
omit to state a material fact necessary to make the statement or facts contained
therein in response to the disclosure requested not misleading in light of all
of the circumstances then prevailing.
SECTION 6. ACCESS TO INFORMATION AND DOCUMENTS.
6.1 Access to Information. Between the date hereof and the Closing Date,
each of PSCM and HEALTHSOUTH will give to the other party and its counsel,
accountants and other representatives full access to all the properties,
documents, contracts, personnel files and other records of such party and shall
furnish the other party with copies of such documents and with such information
with respect to the affairs of such party as the other party may from time to
time reasonably request. Each party will disclose and make available to the
other party and its representatives all books, contracts, accounts, personnel
records, letters of intent, papers, records, communications with regulatory
authorities and other documents relating to the business and operations of such
party. In addition, PSCM shall make available to HEALTHSOUTH all such banking,
investment and financial information as shall be necessary to allow for the
efficient integration of PSCM's banking, investment and financial arrangements
with those of HEALTHSOUTH at the Effective Time.
6.2 Return of Records. If the transactions contemplated hereby are not
consummated and this Plan of Merger terminates, each party agrees to promptly
return all documents, contracts, records or properties of the other party and
all copies thereof furnished pursuant to this Section 6 or otherwise. All
information disclosed by any party or any affiliate or representative of any
party shall be deemed to be "Confidential Information" under the terms of the
Confidentiality Agreement dated May 10, 1995, between PSCM and HEALTHSOUTH, as
amended (the "Confidentiality Agreement").
6.3 Effect of Access. (a) Nothing contained in this Section 6 shall be
deemed to create any duty or responsibility on the part of either party to
investigate or evaluate the value, validity or enforceability of any contract,
lease or other asset included in the assets of the other party.
(b) With respect to matters as to which any party has made express
representations or warranties herein, the parties shall be entitled to rely upon
such express representations and warranties irrespective of any investigations
made by such parties, except to the extent that such investigations result in
actual knowledge of the inaccuracy or falsehood of particular representations
and warranties.
SECTION 7. COVENANTS.
7.1 Preservation of Business. PSCM will use its best efforts to preserve
the business organization of PSCM intact, to keep available to HEALTHSOUTH and
the Surviving Corporation the services of the present employees of PSCM, and to
preserve for HEALTHSOUTH and the Surviving Corporation the goodwill of the
suppliers, customers and others having business relations with PSCM.
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7.2 Material Transactions. Prior to the Effective Time, PSCM will not
(other than as required pursuant to the terms of the Plan of Merger and the
related documents, and other than with respect to transactions for which binding
commitments have been entered into prior to the date hereof which are described
on Exhibit 7.2 to the Disclosure Schedule), without first obtaining the written
consent of HEALTHSOUTH:
(a) Encumber any asset or enter into any transaction or make any contract
or commitment relating to the properties, assets and business of PSCM, other
than in the ordinary course of business or as otherwise disclosed herein.
(b) Enter into any employment contract which is not terminable upon notice
of 30 days or less, at will, and without penalty to PSCM except as provided
herein.
(c) Enter into any contract or agreement (i) which cannot be performed
within three months or less, or (ii) which involves the expenditure of over
$50,000.
(d) Issue or sell, or agree to issue or sell, any shares of capital stock
or other securities of PSCM, except upon exercise of currently outstanding stock
options or warrants.
(e) Make any payment or distribution to the trustee under any bonus,
pension, profit-sharing or retirement plan or incur any obligation to make any
such payment or contribution which is not in accordance with PSCM's usual past
practice, or make any payment or contributions or incur any obligation pursuant
to or in respect of any other plan or contract or arrangement providing for
bonuses, executive incentive compensation, pensions, deferred compensation,
retirement payments, profit-sharing or the like, establish or enter into any
such plan, contract or arrangement, or terminate any Plan, except for the
payment of bonuses consistent with usual and customary practices of PSCM, not to
exceed $125,000 in the aggregate.
(f) Extend credit to anyone, except in the ordinary course of business
consistent with prior practices.
(g) Guarantee the obligation of any person, firm or corporation, except in
the ordinary course of business consistent with prior practices.
(h) Amend its Certificate of Incorporation or Bylaws.
(i) Take any action of a character described in Section 3.11(a) to 3.11(h),
inclusive.
7.3 Meeting of PSCM Stockholders. (a) PSCM will take all steps necessary in
accordance with their respective Certificates of Incorporation and Bylaws to
call, give notice of, convene and hold a meeting of its stockholders (the
"Special Meeting") as soon as practicable after the effectiveness of the
Registration Statement (as defined in Section 7.4 hereof), for the purpose of
approving this Plan of Merger and for such other purposes as may be necessary.
Unless this Plan of Merger shall have been validly terminated as provided
herein, the Board of Directors of PSCM (subject to the provisions of Section
8.1(d) hereof) will (i) recommend to PSCM's stockholders the approval of this
Plan of Merger, the transactions contemplated hereby and any other matters to be
submitted to the stockholders in connection therewith, to the extent that such
approval is required by applicable law in order to consummate the Merger, and
(ii) use reasonable, good faith efforts to obtain the approval by PSCM's
stockholders of this Plan of Merger and the transactions contemplated hereby.
(b) Nothing contained herein shall affect the right of PSCM to take action
by written consent in lieu of meeting to the extent permitted by applicable law
and its Certificate of Incorporation and Bylaws.
7.4 Registration Statement. (a) HEALTHSOUTH shall prepare and file with the
Securities and Exchange Commission and any other applicable regulatory bodies,
as soon as reasonably practicable, a Registration Statement on Form S-4 with
respect to the shares of HEALTHSOUTH Common Stock to be issued in the Merger
(the "Registration Statement"), and will otherwise proceed promptly to satisfy
the requirements of the Securities Act of 1933, including Rule 145 thereunder.
Such Registration Statement shall contain a proxy statement of PSCM containing
the information required by the Securities Exchange Act of 1934 (the "Proxy
Statement"). HEALTHSOUTH shall take all reasonable steps to
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cause the Registration Statement to be declared effective and to maintain such
effectiveness until all of the shares covered thereby have been distributed.
HEALTHSOUTH shall promptly amend or supplement the Registration Statement to the
extent necessary in order to make the statements therein not misleading or to
correct any misstatements which have become false or misleading. HEALTHSOUTH
shall use its reasonable, good faith efforts to have the Proxy Statement
approved by the SEC under the provisions of the Securities Exchange Act of 1934.
HEALTHSOUTH shall provide PSCM with copies of all filings made pursuant to this
Section 7.4 and shall consult with PSCM on responses to any comments made by the
Staff of the SEC with respect thereto.
(b) The information specifically designated as being supplied by PSCM for
inclusion in the Registration Statement shall not, at the time the Registration
Statement is declared effective, at the time the Proxy Statement is first mailed
to holders of PSCM Common Stock, at the time of the Special Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein not misleading. The information specifically designated
as being supplied by PSCM for inclusion in the Proxy Statement shall not, at the
date the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to holders of PSCM Common Stock, at the time of the Special Meeting
and at the Effective Time, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances under
which they are made, not misleading. If at any time prior to the Effective Time
any event or circumstance relating to PSCM, or its officers or directors, should
be discovered by PSCM which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, PSCM shall
promptly inform HEALTHSOUTH. All documents, if any, that PSCM is responsible for
filing with the SEC in connection with the transactions contemplated herein will
comply as to form and substance in all material respects with the applicable
requirements of the Securities Act and the rules and regulations thereunder and
the Exchange Act and the rules and regulations thereunder.
(c) The information specifically designated as being supplied by
HEALTHSOUTH for inclusion in the Registration Statement shall not, at the time
the Registration Statement is declared effective, at the time the Proxy
Statement is first mailed to holders of PSCM Common Stock, at the time of the
Special Meeting and at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. The
information specifically designated as being supplied by HEALTHSOUTH for
inclusion in the Proxy Statement to be sent to the holders of PSCM Common Stock
in connection with the Special Meeting shall not, at the date the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
holders of PSCM Common Stock, at the time of the Special Meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading. If at any time prior to the Effective Time any event or
circumstance relating to HEALTHSOUTH or its officers or directors, should be
discovered by HEALTHSOUTH which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, HEALTHSOUTH shall
promptly inform PSCM and shall promptly file such amendment to the Registration
Statement. All documents that HEALTHSOUTH is responsible for filing with the SEC
in connection with the transactions contemplated herein will comply as to form
and substance in all material respects with the applicable requirements of the
Securities Act and the rules and regulations thereunder and the Exchange Act and
the rules and regulations thereunder.
(d) Prior to the Closing Date, HEALTHSOUTH shall use its reasonable, good
faith efforts to cause the shares of HEALTHSOUTH Common Stock to be issued
pursuant to the Merger to be registered or qualified under all applicable
securities or Blue Sky laws of each of the states and territories of the United
States, and to take any other actions which may be necessary to enable the
Common Stock to be issued pursuant to the Merger to be distributed in each such
jurisdiction.
(e) Prior to the Closing Date, HEALTHSOUTH shall file an additional listing
application (the "Listing Application") with the Exchange relating to the shares
of HEALTHSOUTH Common Stock to be issued in connection with the Merger, and
shall use its reasonable, good faith efforts to cause such
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shares of HEALTHSOUTH Common Stock to be approved for listing on the Exchange,
upon official notice of issuance, prior to the Closing Date.
(f) PSCM shall furnish all information to HEALTHSOUTH with respect to PSCM
and the PSCM Subsidiaries and PSCM Other Entities as HEALTHSOUTH may reasonably
request for inclusion in the Registration Statement, the Proxy Statement and the
Listing Application, and shall otherwise cooperate with HEALTHSOUTH in the
preparation and filing of such documents.
7.5 Exemption from State Takeover Laws. PSCM shall take all reasonable
steps necessary to exempt the Merger from the requirements of any state takeover
statute or other similar state law which would prevent or impede the
consummation of the transactions contemplated hereby, by action of PSCM's Board
of Directors or otherwise.
7.6 HSR Act Compliance. HEALTHSOUTH and PSCM shall promptly make their
respective filings, and shall thereafter use their reasonable, good faith
efforts to promptly make any required submissions, under the HSR Act with
respect to the Merger and the transactions contemplated hereby. HEALTHSOUTH and
PSCM will use their respective reasonable, good faith efforts to obtain all
other permits, authorizations, consents and approvals from third parties and
governmental authorities necessary to consummate the Merger and the transactions
contemplated hereby.
7.7 Public Disclosures. HEALTHSOUTH and PSCM will consult with each other
before issuing any press release or otherwise making any public statement with
respect to the transactions contemplated by this Plan of Merger, and shall not
issue any such press release or make any such public statement prior to such
consultation except as may be required by applicable law or requirements of the
Exchange. The parties shall issue a joint press release, mutually acceptable to
HEALTHSOUTH and PSCM, promptly upon execution and delivery of this Plan of
Merger.
7.8 Resignation of PSCM Directors. On or prior to the Closing Date, PSCM
shall deliver to HEALTHSOUTH evidence satisfactory to HEALTHSOUTH of the
resignation of the Directors of PSCM, such resignations to be effective on the
Closing Date.
7.9 Notice of Subsequent Events. Each party hereto shall notify the other
parties of any changes, additions or events which would cause any material
change in or material addition to any Exhibit to the Disclosure Schedule
delivered by the notifying party under this Plan of Merger, promptly after the
occurrence of the same. If the effect of such change or addition would,
individually or in the aggregate with the effect of changes or additions
previously disclosed pursuant to this Section 7.9, constitute a material adverse
effect on the notifying party, the non-notifying party may, within ten days
after receipt of such notice, elect to terminate this Plan of Merger. If the
non-notifying party does not give written notice of such termination within such
10-day period, the non-notifying party shall be deemed to have consented to such
change or addition and shall not be entitled to terminate this Plan of Merger by
reason thereof.
7.10 No Solicitations. PSCM may, directly or indirectly, furnish
information and access, in response to unsolicited requests therefor, to the
same extent permitted by Section 6.1, to any corporation, partnership, person or
other entity or group, pursuant to appropriate confidentiality agreements, and
may participate in discussions and negotiate with such corporation, partnership,
person or other entity or group concerning any proposal to acquire PSCM upon a
merger, purchase of assets, purchase of or tender offer for shares of PSCM
Common Stock or similar transaction (an "Acquisition Transaction"), if the Board
of Directors of PSCM determines in its good faith judgment in the exercise of
its fiduciary duties or the exercise of its duties under Rule 14e-2 under the
Exchange Act, after consultation with legal counsel and its financial advisors,
that such action is appropriate in furtherance of the best interest of its
stockholders. Except as set forth above, PSCM shall not, and will direct each
officer, director, employee, representative and agent of PSCM not to, directly
or indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with or provide any information to any corporation, partnership,
person or other entity or group (other than HEALTHSOUTH or an affiliate or
associate or agent of HEALTHSOUTH) concerning any merger, sale of assets, sale
of or tender offer for shares of PSCM Common Stock or similar transactions
involving PSCM. PSCM shall promptly notify HEALTHSOUTH
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if it shall, on or after the date hereof, have entered into a confidentiality
agreement with any third party in response to any unsolicited request for
information and access in connection with a possible Acquisition Transaction
involving such party, such notification to include the identity of such third
party.
7.11 Other Actions. Subject to the provisions of Section 7.10 hereof, none
of PSCM, HEALTHSOUTH and the Subsidiary shall knowingly or intentionally take
any action, or omit to take any action, if such action or omission would, or
reasonably might be expected to, result in any of its representations and
warranties set forth herein being or becoming untrue in any material respect, or
in any of the conditions to the Merger set forth in this Plan of Merger not
being satisfied, or (unless such action is required by applicable law) which
would materially adversely affect the ability of PSCM or HEALTHSOUTH to obtain
any consents or approvals required for the consummation of the Merger without
imposition of a condition or restriction which would have a material adverse
effect on the Surviving Corporation or which would otherwise materially impair
the ability of PSCM or HEALTHSOUTH to consummate the Merger in accordance with
the terms of this Plan of Merger or materially delay such consummation.
7.12 Accounting Methods. Neither HEALTHSOUTH nor PSCM shall change, in any
material respect, its methods of accounting in effect at its most recent fiscal
year end, except as required by changes in generally accepted accounting
principles as concurred in such parties' independent accountants.
7.13 Pooling and Tax-Free Reorganization Treatment. Neither HEALTHSOUTH nor
PSCM shall intentionally take or cause to be taken any action, whether on or
before the Effective Time, which would disqualify the Merger as a "pooling of
interests" for accounting purposes or as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code of 1986, as amended.
7.14 Affiliate and Pooling Agreements. PSCM will use its reasonable, good
faith efforts to cause each of its Directors and executive officers and each of
its "affiliates" (within the meaning of Rule 145 under the Securities Act of
1933, as amended) to execute and deliver to HEALTHSOUTH as soon as practicable
an agreement in the form attached hereto as Exhibit 7.14 relating to the
disposition of shares of PSCM Common Stock and shares of HEALTHSOUTH Common
Stock held by such person and the shares of HEALTHSOUTH Common Stock issuable
pursuant to this Plan of Merger.
7.15 Cooperation. (a) HEALTHSOUTH and PSCM shall together, or pursuant to
an allocation of responsibility agreed to between them, (i) cooperate with one
another in determining whether any filings required to be made or consents
required to be obtained in any jurisdiction prior to the Effective Time in
connection with the consummation of the transactions contemplated hereby and
cooperate in making any such filings promptly and in seeking to obtain timely
any such consents, (ii) use their respective best efforts to cause to be lifted
any injunction prohibiting the Merger, or any part thereof, or the other
transactions contemplated hereby, and (iii) furnish to one another and to one
another's counsel all such information as may be required to effect the
foregoing actions.
(b) Subject to the terms and conditions herein provided, and unless this
Plan of Merger shall have been validly terminated as provided herein, each of
HEALTHSOUTH and PSCM shall use all reasonable efforts (i) to take, or cause to
be taken, all actions necessary to comply promptly with all legal requirements
which may be imposed on such party (or any subsidiaries or affiliates of such
party) with respect to the Plan of Merger and to consummate the transactions
contemplated hereby, subject to the vote of PSCM's stockholders described above,
and (ii) to obtain (and to cooperate with the other party to obtain) any
consent, authorization, order or approval of, or any exemption by, any
governmental entity and/or any other public or private third party which is
required to be obtained or made by such party or any of its subsidiaries or
affiliates in connection with this Plan of Merger and the transactions
contemplated hereby Each of HEALTHSOUTH and PSCM will promptly cooperate with
and furnish information to the other in connection with any such burden suffered
by, or requirement imposed upon, either of them or any of their subsidiaries or
affiliates in connection with the foregoing.
7.16 PSCM Stock Options and Warrants. (a) As soon as reasonably practicable
after the Effective Time of the Merger, HEALTHSOUTH shall deliver to the holders
of PSCM stock options and warrants appropriate notices setting forth such
holders' rights pursuant to any stock option plans under which
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such PSCM stock options were issued and any stock option agreements or warrant
agreements evidencing such options or warrants, which shall continue in full
force and effect on the same terms and conditions (subject to the adjustments
required by Sections 2.1(d) or this Section 7.16 after giving effect to the
Merger and the assumption of such options and warrants by HEALTHSOUTH as set
forth herein) as in effect immediately prior to the Effective Time. HEALTHSOUTH
shall comply with the terms of the stock option plans, the stock option
agreements and the warrant agreements as so adjusted, and shall use its
reasonable, good faith efforts to ensure, to the extent required by, and subject
to the provisions of, such plans or agreements, that the PSCM stock options
which qualified as incentive stock options prior to the Effective Time shall
continue to qualify as incentive stock options after the Effective Time.
(b) HEALTHSOUTH shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of HEALTHSOUTH Common Stock for delivery
upon exercise of the PSCM stock options and warrants assumed by HEALTHSOUTH in
accordance with Section 2.1(d). As soon as practicable after the Effective Time,
HEALTHSOUTH shall file with the SEC a registration statement on Form S-8 with
respect to shares of HEALTHSOUTH Common Stock subject to such PSCM stock options
and shall use its best efforts to maintain the effectiveness of a registration
statement or registration statements covering such options (and maintain the
current status of the prospectus or prospectuses contained therein) for so long
as such PSCM stock options remain outstanding. HEALTHSOUTH shall administer the
plans assumed pursuant to Section 2.1(d) hereof in a manner that complies with
Rule 16b-3 promulgated under the Exchange Act to the extent the applicable plan
complied with such rule prior to the Merger.
(c) Except to the extent otherwise agreed to by the parties, all
restrictions or limitations on transfer and vesting with respect to the PSCM
stock options awarded under any plan, program, or arrangement of PSCM or any of
its subsidiaries, to the extent that such restrictions or limitations shall not
have already lapsed, shall remain in full force and effect with respect to such
options after giving effect to the Merger and the assumption by HEALTHSOUTH as
set forth above.
7.17 Publication of Combined Results. HEALTHSOUTH agrees that within 20
days after the end of the first calendar month following at least 30 days after
the Effective Time, HEALTHSOUTH shall cause publication of the combined results
of operations of HEALTHSOUTH and PSCM. For purposes of this Section 7.17, the
term "publication" shall have the meaning provided in SEC Accounting Series
Release No. 135.
7.18 PSCM Employees. HEALTHSOUTH shall retain all employees of PSCM who are
employed at the Effective Time as employees-at-will (except to the extent that
such employees are parties to contracts providing for other employment terms, in
which case such employees shall be retained in accordance with the terms of such
contracts) and shall provide such employees with the same customary employee
benefits as HEALTHSOUTH provides its existing employees.
7.19 Consulting and Non-Competition Agreements. At the Closing Date,
HEALTHSOUTH shall enter into Consulting and Non-Competition Agreements with each
of Russell F. Warren, Jr. and Patrick J. Wack, Jr., in form and substance
satisfactory to the parties thereto.
7.20 Certain Information. For as long as any affiliate (as defined for
purposes of Rule 145 under the Securities Act of 1933) of PSCM holds shares of
HEALTHSOUTH Common Stock issued in the Merger (but not for a period in excess of
two years from the date of consummation of the Merger), HEALTHSOUTH shall file
with the Securities and Exchange Commission or otherwise make publicly available
all information about HEALTHSOUTH required pursuant to Rule 144(c) under the
Securities Act of 1933 to enable such affiliate to resell such shares under the
provisions of Rule 145(d) under the Securities Act of 1933.
SECTION 8. TERMINATION, AMENDMENT AND WAIVER.
8.1 Termination. This Plan of Merger may be terminated at any time prior to
the Effective Time, whether before or after approval of matters presented in
connection with the Merger by the holders of shares of PSCM Common Stock:
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(a) by mutual written consent of HEALTHSOUTH and PSCM;
(b) by either HEALTHSOUTH or PSCM:
(i) if, upon a vote at a duly held meeting of stockholders or any
adjournment thereof, any required approval of the holders of shares of PSCM
Common Stock shall not have been obtained;
(ii) if the Merger shall not have been consummated on or before
September 30, 1996, unless the failure to consummate the Merger is the result of
a willful and material breach of this Plan of Merger by the party seeking to
terminate this Plan of Merger; provided, however, that the passage of such
period shall be tolled for any part thereof (but not exceeding 60 days in the
aggregate) during which any party shall be subject to a nonfinal order, decree,
ruling or action restraining, enjoining or otherwise prohibiting the
consummation of the Merger or the calling or holding of a meeting of
stockholders;
(iii) if any court of competent jurisdiction or other governmental
entity shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibited the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
(iv) in the event of a breach by the other party of any representation,
warranty, covenant or other agreement contained in this Plan of Merger which (A)
would give rise to the failure of a condition set forth in Section 9.2(a) or (b)
or Section 9.3(a) or (b), as applicable, and (B) cannot be or has not been cured
within 30 days after the giving of written notice to the breaching party of such
breach (a "Material Breach") (provided that the terminating party is not then in
Material Breach of any representation, warranty, covenant or other agreement
contained in this Plan of Merger); or
(v) if either HEALTHSOUTH or PSCM gives notice of termination as a
non-notifying party pursuant to Section 7.9;
(c) By either HEALTHSOUTH or PSCM in the event that (i) all of the
conditions to the obligation of such party to effect the Merger set forth in
Section 9.1 shall have been satisfied and (ii) any condition to the obligation
of such party to effect the Merger set forth in Section 9.2 (in the case of
HEALTHSOUTH) or Section 9.3 (in the case of PSCM) is not capable of being
satisfied prior to the end of the period referred to in Section 8.1(b)(ii);
(d) By PSCM, if PSCM's Board of Directors shall have (i) determined, in the
exercise of its fiduciary duties under applicable law, not to recommend the
Merger to the holders of PSCM Common Stock or shall have withdrawn such
recommendation or (ii) approved, recommended or endorsed any Acquisition
Transaction (as defined in Section 7.10) other than this Plan of Merger or (iii)
resolved to do any of the foregoing;
(e) By either HEALTHSOUTH or PSCM, if the condition set forth in Section
9.1(g)(i) is not satisfied by May 31, 1996; or
(f) Subject to the provisions of Section 8.7 below, by PSCM, if the Base
Period Trading Price shall be less than $31.00.
8.2 Effect of Termination. In the event of termination of this Plan of
Merger as provided in Section 8.1, this Plan of Merger shall forthwith become
void and have no effect, without any liability or obligation on the part of any
party, other than the provisions of Sections 6.2, 8.2 and 8.6, and except to the
extent that such termination results from the willful and material breach by a
party of any of its representations, warranties, covenants or other agreements
set forth in this Plan of Merger.
8.3 Amendment. This Plan of Merger may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the holders of PSCM Shares; provided, however, that after any
such approval, there shall be made no amendment that pursuant to Section 251(d)
of the DGCL requires further approval by such stockholders without the further
approval of such stockholders. This Plan of Merger may not be amended except by
an instrument in writing signed on behalf of each of the parties.
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8.4 Extension; Waiver. At any time prior to the Effective Time of the
Merger, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained in this Plan of Merger or in any
document delivered pursuant to this Plan of Merger or (c) subject to the proviso
of Section 8.3, waive compliance with any of the agreements or conditions
contained in this Plan of Merger. Any agreement on the part of a party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. The failure of any party to this Plan of
Merger to assert any of its rights under this Plan of Merger or otherwise shall
not constitute a waiver of such rights, except as otherwise provided in Section
7.9.
8.5 Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Plan of Merger pursuant to Section 8.1, an amendment of this
Plan of Merger pursuant to Section 8.3, or an extension or waiver pursuant to
Section 8.4 shall, in order to be effective, require in the case of HEALTHSOUTH,
the Subsidiary or PSCM, action by its Board of Directors or the duly authorized
designee of the Board of Directors.
8.6 Expenses; Break-up Fees. (a) All costs and expenses incurred in
connection with this Plan of Merger and the transactions contemplated hereby
shall be paid by the party incurring such expense, except that expenses (other
than legal, accounting and investment banking costs, which shall be paid by the
party incurring such expenses) incurred in connection with preparing, filing,
printing and mailing the Proxy Statement and the Registration Statement shall be
shared equally by PSCM and HEALTHSOUTH.
(b) (i) If this Plan of Merger is terminated by PSCM pursuant to Section
8.1(d), and within one year after the effective date of such termination PSCM is
the subject of a Third Party Acquisition Event with any Person (as defined in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act) (other than a party hereto),
then at the time of consummation of such a Third Party Acquisition Event, PSCM
shall pay to HEALTHSOUTH a break-up fee of 5% of the aggregate Merger
Consideration (determined as it would have been calculated on the effective date
of termination of this Plan of Merger, substituting the effective date of such
termination for the date of the Special Meeting in calculating the Base Period
Trading Price) in immediately available funds, which fee represents the parties'
best estimates of the out-of-pocket costs incurred by HEALTHSOUTH and the value
of management time, overhead, opportunity costs and other unallocated costs of
HEALTHSOUTH incurred by or on behalf of HEALTHSOUTH in connection with this Plan
of Merger. PSCM shall not enter into any agreement with respect to any Third
Party Acquisition Event which does not, as a condition precedent to the
consummation of such Third Party Acquisition Event, require such break-up fee to
be paid to HEALTHSOUTH upon such consummation.
(ii) As used herein, the term "Third Party Acquisition Event" shall
mean either of the following:
(A) PSCM shall consummate any Acquisition Transaction (as
defined in Section 7.10); or
(B) any Person (other than a party hereto or its affiliates)
shall have acquired beneficial ownership (as such term is defined in Rule 13d-3
under the Exchange Act) or the right to acquire beneficial ownership of, or a
new group has been formed which beneficially owns or has the right to acquire
beneficial ownership of, 30% or more of the outstanding PSCM Common Stock.
(c) PSCM acknowledges that the provisions for the payment of break-up fees
and allocation of expenses contained in this Section 8.6 are an integral part of
the transactions contemplated by this Plan of Merger and that, without these
provisions, HEALTHSOUTH would not have entered into this Plan of Merger.
Accordingly, if a break-up fee shall become due and payable by PSCM, and PSCM
shall fail to pay such amount when due pursuant to this Section, and, in order
to obtain such payment, suit is commenced which results in a judgment against
PSCM therefor, PSCM shall pay HEALTHSOUTH reasonable costs and expenses
(including reasonable attorneys' fees) in connection with such suit, together
with interest computed on any amounts determined to be due pursuant to this
Section (computed from the date upon which such amounts were due and payable
pursuant to this Section) and such costs
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(computed from the date incurred) at the prime rate of interest announced from
time to time by NationsBank, N.A. (Carolinas). The obligations of PSCM under
this Section 8.6 shall survive any termination of this Plan of Merger.
8.7 Certain Rights of HEALTHSOUTH. If PSCM proposes to terminate this Plan
of Merger pursuant to Section 8.1(f) hereof, PSCM shall first notify HEALTHSOUTH
in writing of its intent to so terminate this Plan of Merger. HEALTHSOUTH shall
then have not less than 48 hours (the exact deadline to be set by PSCM) from the
time of receipt of written notice by PSCM to submit a final and best offer (a
"Final Offer") for a change in the Merger Consideration. If such Final Offer is
accepted by PSCM (as determined by PSCM's Board of Directors after consulting
with its legal counsel and financial advisors), PSCM, the Subsidiary and
HEALTHSOUTH shall amend this Plan of Merger to reflect such Final Offer and
shall make any appropriate amendments to the Registration Statement and the
Proxy Statement.
SECTION 9. CONDITIONS TO CLOSING.
9.1 Mutual Conditions. The respective obligations of each party to effect
the Merger shall be subject to the satisfaction, at or prior to the Closing Date
of the following conditions (any of which may be waived in writing by
HEALTHSOUTH and PSCM):
(a) None of HEALTHSOUTH, the Subsidiary or PSCM nor any of their respective
subsidiaries shall be subject to any order, decree or injunction by a court of
competent jurisdiction which (i) prevents or materially delays the consummation
of the Merger or (ii) would impose any material limitation on the ability of
HEALTHSOUTH effectively to exercise full rights of ownership of the Common Stock
of the Surviving Corporation or any material portion of the assets or business
of PSCM, the PSCM Subsidiaries and the PSCM Partnerships, taken as a whole.
(b) No statute, rule or regulation shall have been enacted by the
government (or any governmental agency) of the United States or any state,
municipality or other political subdivision thereof that makes the consummation
of the Merger and any other transaction contemplated hereby illegal.
(c) Any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act shall have expired or been
terminated.
(d) The Registration Statement shall have been declared effective and no
stop order with respect to the Registration Statement shall be in effect.
(e) The holders of PSCM Shares shall have approved the adoption of this
Plan of Merger and any other matters submitted to them in accordance with the
provisions of Section 7.3 hereof.
(f) The shares of HEALTHSOUTH Common Stock to be issued in connection with
the Merger shall have been approved for listing on the Exchange and shall have
been issued pursuant to an effective registration statement (which is subject to
no stop order).
(g) The Merger shall qualify for "pooling of interests" accounting
treatment, and HEALTHSOUTH and PSCM shall each have received letters to that
effect from Ernst & Young LLP, independent accountants for HEALTHSOUTH, dated
(i) not later than May 31, 1996, (ii) the date of the mailing of the Proxy
Statement and (iii) the Closing Date.
(h) HEALTHSOUTH and the Subsidiary shall have obtained, or obtained the
transfer of, any licenses, certificates of need and other regulatory approvals
necessary to allow the Surviving Corporation to operate the PSCM facilities,
unless the failure to obtain such transfer or approval would not have a material
adverse effect on the Surviving Corporation.
(i) HEALTHSOUTH and the Subsidiary shall have received all consents,
approvals and authorizations of third parties with respect to all material
leases and management agreements to which the PSCM Subsidiaries and the PSCM
Other Entities are parties, which consents, approvals and authorizations are
required of such third parties by such documents, in form and substance
acceptable to HEALTHSOUTH, except where the failure to obtain such consent,
approval or authorization would not have a material effect on the business of
the Surviving Corporation.
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9.2 Conditions to Obligations of HEALTHSOUTH and the Subsidiary. The
obligations of HEALTHSOUTH and the Subsidiary to consummate the Merger and the
other transactions contemplated hereby shall be subject to the satisfaction, at
or prior to the Closing Date, of the following conditions (any of which may be
waived by HEALTHSOUTH and the Subsidiary):
(a) Each of the agreements of PSCM to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed in all
material respects, and PSCM shall have performed, in all material respects, all
of the acts required to be performed by it at or prior to the Closing Date by
the terms hereof.
(b) The representations and warranties of PSCM set forth in Section 3.11(a)
shall be true and correct as of the date of this Plan of Merger and as of the
Closing Date. The representations and warranties of PSCM set forth in this Plan
of Merger that are qualified as to materiality shall be true and correct, and
those that are not so qualified shall be true and correct in all material
respects, as of the date of this Plan of Merger and as of the Closing as though
made at and as of such time, except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties that are qualified as to materiality shall be
true and correct, and those that are not so qualified shall be true and correct
in all material respects, as of such earlier date); provided, however, that PSCM
shall not be deemed to be in breach of any such representations or warranties by
taking any action permitted (or approved by HEALTHSOUTH) under Section 7.2.
HEALTHSOUTH and the Subsidiary shall have been furnished with a certificate,
executed by a duly authorized officer of PSCM, dated the Closing Date,
certifying in such detail as HEALTHSOUTH and the Subsidiary may reasonably
request as to the fulfillment of the foregoing conditions.
(c) HEALTHSOUTH shall have received an opinion from Haskell Slaughter &
Young, L.L.C., to the effect that the merger will constitute a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, which opinion may be based upon reasonable representations of fact
provided by officers of HEALTHSOUTH, PSCM and the Subsidiary.
(d) HEALTHSOUTH shall have received an opinion from Cahill Gordon & Reindel
substantially to the effect set forth in Exhibit 9.2(d) hereto.
9.3 Conditions to Obligations of PSCM. The obligations of PSCM to
consummate the Merger and the other transactions contemplated hereby shall be
subject to the satisfaction, at or prior to the Closing Date, of the following
conditions (any of which may be waived by PSCM):
(a) Each of the agreements of HEALTHSOUTH and the Subsidiary to be
performed at or prior to the Closing Date pursuant to the terms hereof shall
have been duly performed, in all material respects, and HEALTHSOUTH and the
Subsidiary shall have performed, in all material respects, all of the acts
required to be performed by them at or prior to the Closing Date by the terms
hereof.
(b) The representations and warranties of HEALTHSOUTH set forth in Section
5.10(a) shall be true and correct as of the date of this Plan of Merger and as
of the Closing Date. The representations and warranties of HEALTHSOUTH set forth
in this Plan of Merger that are qualified as to materiality shall be true and
correct, and those that are not so qualified shall be true and correct in all
material respects, as of the date of this Plan of Merger and as of the Closing
as though made at and as of such time, except to the extent such representations
and warranties expressly relate to an earlier date (in which case such
representations and warranties that are qualified as to materiality shall be
true and correct, and those that are not so qualified shall be true and correct
in all material respects, as of such earlier date). PSCM shall have been
furnished with a certificate, executed by duly authorized officers of
HEALTHSOUTH and the Subsidiary, dated the Closing Date, certifying in such
detail as PSCM may reasonably request as to the fulfillment of the foregoing
conditions.
(c) PSCM shall have received an opinion from Cahill Gordon & Reindel to the
effect that the Merger will constitute a reorganization with the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended, which opinion
may be based upon reasonable representations of fact provided by officers of
HEALTHSOUTH, PSCM and the Subsidiary.
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(d) PSCM shall have received an opinion from Haskell Slaughter & Young,
L.L.C., substantially to the effect set forth in Exhibit 9.3(d) hereto.
SECTION 10. MISCELLANEOUS.
10.1 Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Plan of Merger or in any instrument
delivered pursuant to this Plan of Merger shall survive the Effective Time.
10.2 Notices. Any communications required or desired to be given hereunder
shall be deemed to have been properly given if sent by hand delivery or by
facsimile and overnight courier to the parties hereto at the following
addresses, or at such other address as either party may advise the other in
writing from time to time:
If to HEALTHSOUTH:
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Attention: Michael D. Martin
Facsimile: (205) 969-4719
with a copy to:
William W. Horton, Esq.
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Facsimile: (205) 969-4732
If to PSCM:
Professional Sports Care Management, Inc.
550 Mamaroneck Avenue
Harrison, New York 10528
Attention: Russell F. Warren, Jr.
Facsimile:
with a copy to:
Roger Meltzer, Esq.
Cahill Gordon & Reindel
Eighty Pine Street
New York, New York 10005
Facsimile: (212) 269-5420
All such communications shall be deemed to have been delivered on the date of
hand delivery or on the next business day following the deposit of such
communications with the overnight courier.
10.3 Further Assurances. Each party hereby agrees to perform any further
acts and to execute and deliver any documents which may be reasonably necessary
to carry out the provisions of this Plan of Merger.
10.4 Indemnification. (a) PSCM shall, and from and after the Effective Time
HEALTHSOUTH and the Surviving Corporation shall, indemnify, defend and hold
harmless each person who is now, or has been at any time prior to the date of
this Plan of Merger or who becomes prior to the Effective Time, an officer,
director or employee of PSCM or any of its subsidiaries (the "Indemnified
Parties") against (i) all losses, claims, damages, costs, expenses, liabilities
or judgments, or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of, or in
connection with, any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of
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PSCM or any of its subsidiaries, whether pertaining to any matter existing or
occurring at or prior to, or at or after, the Effective Time ("Indemnified
Liabilities") and (ii) all Indemnified Liabilities based in whole or in part on,
or arising in whole or in part out of, or pertaining to this Plan of Merger, the
Merger or any other transactions contemplated hereby or thereby, in each case to
the full extent a corporation is permitted under the DGCL to indemnify its own
directors, officers and employees, as the case may be (and HEALTHSOUTH and the
Surviving Corporation, as the case may be, will pay expenses in advance of the
final disposition of any such action or proceeding to each Indemnified Party to
the full extent permitted by law upon receipt of any undertaking contemplated by
Section 145(e) of the DGCL). Without limiting the foregoing, in the event any
such claim, action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising before or after the Effective Time), (i) the
Indemnified Parties may retain counsel satisfactory to them and PSCM (or them
and HEALTHSOUTH and the Surviving Corporation after the Effective Time), (ii)
PSCM (or after the Effective Time, HEALTHSOUTH and the Surviving Corporation)
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received and (iii) PSCM (or after
the Effective Time, HEALTHSOUTH and the Surviving Corporation) will use all
reasonable efforts to assist in the vigorous defense of any such matter,
provided that none of PSCM, HEALTHSOUTH or the Surviving Corporation shall be
liable for any settlement of any claim effected without its written consent,
which consent, however, shall not be unreasonably withheld. Any Indemnified
Party wishing to claim indemnification under this Section 10.4, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify PSCM,
HEALTHSOUTH or the Surviving Corporation (but the failure so to notify an
Indemnifying Party shall not relieve it from any liability which it may have
under this Section 10.4 except to the extent such failure prejudices such
party), and shall deliver to PSCM (or after the Effective Time, HEALTHSOUTH and
the Surviving Corporation) the undertaking contemplated by Section 145(e) of the
DGCL. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to such matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties.
(b) The provisions of this Section 10.4 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
10.5 Governing Law. This Plan of Merger shall be interpreted, construed and
enforced in accordance with the laws of the State of Delaware, applied without
giving effect to any conflicts-of-law principles.
10.6 "Including". The word "including", when following any general
statement, term or matter, shall not be construed to limit such statement, term
or matter to the specific terms or matters as provided immediately following the
word "including" or to similar items or matters, whether or not non- limiting
language (such as "without limitation", "but not limited to", or words of
similar import) is used with reference to the word "including" or the similar
items or matters, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of the
general statement, term or matter.
10.7 "Knowledge". "To the knowledge", "to the best knowledge, information
and belief", or any similar phrase shall be deemed to refer to the knowledge of
the Chairman of the Board, Chief Executive Officer or Chief Financial Officer of
a party and to include the assurance that such knowledge is based upon a
reasonable investigation, unless otherwise expressly provided.
10.8 "Material adverse change" or "material adverse effect". "Material
adverse change" or "material adverse effect" means, when used in connection with
PSCM or HEALTHSOUTH, any change, effect, event or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on the business or financial position of such party and its subsidiaries
taken as a whole; provided, however, that "material adverse change" and
"material adverse effect" shall be deemed to exclude the impact of (i) changes
in generally accepted accounting principles and (ii) any changes resulting from
any restructuring or other similar charges or write-offs taken by PSCM with the
consent of HEALTHSOUTH; provided, however, that no such charges or write-offs
will be taken if such would adversely affect pooling-of-interests accounting
treatment for the Merger.
A-25
<PAGE>
10.9 "Hazardous Materials". The term "Hazardous Materials" means any
material which has been determined by any applicable governmental authority to
be harmful to the health or safety of human or animal life or vegetation,
regardless of whether such material is found on or below the surface of the
ground, in any surface or underground water, airborne in ambient air or in the
air inside any structure built or located upon or below the surface of the
ground or in building materials or in improvements of any structures, or in any
personal property located or used in any such structure, including, but not
limited to, all hazardous substances, imminently hazardous substances, hazardous
wastes, toxic substances, infectious wastes, pollutants and contaminants from
time to time defined, listed, identified, designated or classified as such under
any Environmental Laws (as defined in Section 10.10) regardless of the quantity
of any such material.
10.10 Environmental Laws. The term "Environmental Laws" means any federal,
state or local statute, regulation, rule or ordinance, and any judicial or
administrative interpretation thereof, regulating the use, generation, handling,
storage, transportation, discharge, emission, spillage or other release of
Hazardous Materials or relating to the protection of the environment.
10.11 Taxes. For purposes of this Agreement, the term "tax" or "taxes"
shall mean all taxes, charges, fees, levies, penalties or other assessment
imposed by any United States federal, state, local or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer,
franchise, payroll, withholding, Social Security or other taxes, including any
interest, penalties or additions attributable thereto. For purposes of this
Agreement, the term "tax return" shall mean any return, report, information
return or other document (including any related or supporting information) with
respect to taxes.
10.12 Captions. The captions or headings in this Plan of Merger are made
for convenience and general reference only and shall not be construed to
describe, define or limit the scope or intent of the provisions of this Plan of
Merger.
10.13 Integration of Exhibits. All Exhibits attached to this Plan of Merger
are integral parts of this Plan of Merger as if fully set forth herein, and all
statements appearing therein shall be deemed disclosed for all purposes and not
only in connection with the specific representation in which they are explicitly
referenced.
10.14 Entire Agreement. This instrument, including all Exhibits attached
hereto, together with the Confidentiality Agreement, contains the entire
agreement of the parties and supersedes any and all prior or contemporaneous
agreements between the parties, written or oral, with respect to the
transactions contemplated hereby. It may not be changed or terminated orally,
but may only be changed by an agreement in writing signed by the party or
parties against whom enforcement of any waiver, change, modification, extension,
discharge or termination is sought.
10.15 Counterparts. This Plan of Merger may be executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall, together, constitute and be one and the
same instrument.
10.16 Binding Effect. This Plan of Merger shall be binding on, and shall
inure to the benefit of, the parties hereto, and their respective successors and
assigns, and, except as provided in Section 10.4, no other person shall acquire
or have any right under or by virtue of this Plan of Merger. No party may assign
any right or obligation hereunder without the prior written consent of the other
parties.
10.17 No Rule of Construction. The parties acknowledge that this Plan of
Merger was initially prepared by HEALTHSOUTH, and that all parties have read and
negotiated the language used in this Plan of Merger. The parties agree that,
because all parties participated in negotiating and drafting this Plan of
Merger, no rule of construction shall apply to this Plan of Merger which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Plan of Merger.
A-26
<PAGE>
IN WITNESS WHEREOF, HEALTHSOUTH, the Subsidiary and PSCM have caused this
Plan and Agreement of Merger to be executed by their respective duly authorized
officers, and have caused their respective corporate seals to be hereunto
affixed, all as of the day and year first above written.
PROFESSIONAL SPORTS CARE MANAGEMENT, INC.
By /s/RUSSELL F. WARREN, JR
--------------------------------------
Russell F. Warren, Jr.
President and Chief Executive Officer
ATTEST:
/s/ PATRICK J. WACK, JR.
- ----------------------------------------
Patrick J. Wack, Jr.
Secretary
[ CORPORATE SEAL ]
HEALTHSOUTH Corporation
By /s/ MICHAEL D. MARTIN
--------------------------------------
Michael D. Martin
Executive Vice President and Treasurer
ATTEST:
/s/ ANTHONY J. TANNER
- ----------------------------------------
Anthony J. Tanner
Secretary
[ CORPORATE SEAL ]
EMPIRE ACQUISITION CORPORATION
By /s/MICHAEL D. MARTIN
--------------------------------------
Michael D. Martin
Vice President
ATTEST:
/s/ANTHONY J. TANNER
- ----------------------------------------
Anthony J. Tanner
Secretary
[ CORPORATE SEAL ]
A-27
<PAGE>
ANNEX B
May 16, 1996
Board of Directors
Professional Sports Care Management, Inc.
550 Mamaroneck Avenue
Harrison, NY 10528
Gentlemen:
We understand that Professional Sports Care Management, Inc. ("Professional
Sports Care Management" or the "Company"), Empire Acquisition Corporation, and
HEALTHSOUTH Corporation ("HEALTHSOUTH") have entered into a merger agreement
(the "Merger Agreement") pursuant to which Professional Sports Care Management
will become a wholly owned subsidiary of HEALTHSOUTH (the "Merger"). In
connection with the Merger, HEALTHSOUTH will issue approximately 1,811,411
shares of its Common Stock in exchange for all Professional Sports Care
Management's Common Stock. Each outstanding share of Common Stock of
Professional Sports Care Management will be converted into 0.233 shares of
HEALTHSOUTH Common Stock. Options and warrants to purchase shares of
Professional Sports Care Management Common Stock will be assumed by HEALTHSOUTH
and in the aggregate such options and warrants shall become exercisable for a
total of approximately 188,517 shares of HEALTHSOUTH Common Stock (the "Merger
Consideration").
You have requested our opinion with respect to fairness of the Merger
Consideration, from a financial point of view, to the stockholders of
Professional Sports Care Management.
In connection with our review, we have, among other things
(i) reviewed the Plan and Agreement of Merger dated as of May 16, 1996;
(ii) reviewed publicly available financial information with respect to
the business operations of the Company including, but not limited to,
audited financial statements for the fiscal years ended December 31, 1994
and 1995, and unaudited financial statements for the quarterly period ended
March 31, 1996;
(iii) reviewed publicly available financial information with respect to
the business operations of HEALTHSOUTH including, but not limited to,
audited financial statements for the fiscal years ended December 31, 1994
and 1995 and unaudited financial statements for the quarterly period ended
March 31, 1996;
(iv) reviewed certain internal financial and operating information
relating to Professional Sports Care Management and HEALTHSOUTH (including
financial projections) prepared by the respective managements of each
company;
(v) held discussions with certain members of both Professional Sports
Care Management and HEALTHSOUTH senior management concerning their past and
current operations, financial condition and business prospects, and the
potential financial effect of the Merger on Professional Sports Care
Management and HEALTHSOUTH if the Merger were consummated;
(vi) discussed with Professional Sports Care Management management and
their legal advisors the results of their due diligence of HEALTHSOUTH and
reviewed related documents and analyses;
(vii) reviewed a comparison of operating results and other financial
information of Professional Sports Care Management and HEALTHSOUTH with
other companies which we deemed appropriate;
(viii) reviewed the historical market prices and reported trading
activity of Professional Sports Care Management and HEALTHSOUTH shares;
B-1
<PAGE>
(ix) reviewed the financial terms of the Merger with the terms of
certain other merger, acquisition and business combination transactions
which we deemed appropriate; and
(x) considered such other information, financial studies and analyses
as we deemed relevant and performed such analyses, studies and
investigations as we deemed appropriate.
Unterberg Harris has not assumed responsibility for independent
verification of the information reviewed by it and has relied upon its being
complete and accurate in all material respects. With respect to any financial
projections and other forward-looking information provided to us, we have
assumed that all such information has been reasonably prepared on bases
reflecting the best currently available management estimates and judgments of
the respective future business and financial performances of Professional Sports
Care Management and HEALTHSOUTH and the future business and financial
performance of the combined company. We have also assumed that the Merger will
be accounted for as a pooling of interests.
We understand that in considering the Merger, the Board of Directors of the
Company has considered a wide range of financial and non-financial factors, many
of which are beyond the scope of this letter. This letter is being furnished to
the Board in connection with, and is not intended to substitute for, the Board's
exercise of its own business judgment in reviewing the Merger. We are expressing
no opinion herein as to the prices at which the shares of the Company or
HEALTHSOUTH will actually trade at any time. Our opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Merger. We have been advised the Board of Directors of the Company that we do
not believe that any person (including any stockholder of the Company), other
than the Company or the Board of Directors of the Company, has the legal right
to rely upon this letter to support any claim against Unterberg Harris arising
under applicable state law and that, should any such claim be brought against
Unterberg Harris by any such person, this assertion would be raised as a
defense. In the absence of applicable state law, the availability of such
defense would be resolved by a court of competent jurisdiction. Resolution of
the question of the availability of such defense, however, would have no effect
on the rights and responsibilities of the Board of Directors of the Company
under applicable state law. Furthermore, the availability of such a defense to
Unterberg Harris would have no effect on the rights and responsibilities of
either Unterberg Harris or the Board of Directors of the Company under the
federal securities laws.
We have not conducted a physical inspection of the properties or facilities
of Professional Sports Care Management or HEALTHSOUTH or made any independent
valuation or appraisal of the assets, liabilities, patents or intellectual
property of Professional Sports Care Management or HEALTHSOUTH, nor have we been
furnished with any such valuations or appraisals.
Our opinion is necessarily based upon economic, market and other conditions
as in effect on, and the information made available to us, as of the date of
this letter. It should be understood that, although subsequent developments may
affect this opinion, Unterberg Harris does not have any obligation to update,
revise or reaffirm this opinion.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for the services, a significant portion of which
is contingent upon consummation of the Merger. We have provided other services
to the Company in the past for which we received customary compensation.
Unterberg Harris and principals of Unterberg Harris invested in private
placements of the Company's securities prior to the Company's public offering
and continue to own such securities. In the ordinary course of business,
Unterberg Harris may actively trade the securities of both the Company and
HEALTHSOUTH for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
This opinion is delivered to you based on your understanding that it is for
the benefit and use of the Board of Directors of the Company in considering the
Merger and that the Company will not use this opinion for any other purpose and
will not reproduce, disseminate or refer to this opinion without our prior
written consent. This opinion may be reproduced in full in the Registration
Statement on Form S-4.
Based upon and subject to the foregoing considerations, it is our opinion
as financial advisors that, as of the date hereof, the Merger Consideration is
fair from a financial point of view to the stockholders of Professional Sports
Care Management.
VERY TRULY YOURS,
UNTERBERG HARRIS
B-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the Delaware General Corporation Law ("DGCL") grants
corporations the right to limit or eliminate the personal liability of their
directors in certain circumstances in accordance with provisions therein set
forth. Article Nine of the HEALTHSOUTH Certificate filed in the Office of the
Secretary of the State of Delaware on June 13, 1995, contains a provision
eliminating or limiting director liability to HEALTHSOUTH and its stockholders
for monetary damages arising from acts or omissions in the director's capacity
as a director. The provision does not, however, eliminate or limit the personal
liability of a director (i) for any breach of such director's duty of loyalty to
HEALTHSOUTH or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
the Delaware statutory provision making directors personally liable, under a
negligence standard, for unlawful dividends or unlawful stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision offers persons who serve on the Board
of Directors of HEALTHSOUTH protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above). As a
result of this provision, the ability of HEALTHSOUTH or a stockholder thereof to
successfully prosecute an action against a director for a breach of his duty of
care is limited. However, the provision does not affect the availability of
equitable remedies such as an injunction or rescission based upon a director's
breach of his duty of care. The SEC has taken the position that the provision
will have no effect on claims arising under the Federal securities laws.
Section 145 of the DGCL grants corporations the right to indemnify their
directors, officers, employees and agents in accordance with the provisions
therein set forth. Article Nine of the HEALTHSOUTH Certificate and Article IX of
the HEALTHSOUTH Bylaws provide for mandatory indemnification rights, subject to
limited exceptions, to any director, officer, employee, or agent of HEALTHSOUTH
who, by reason of the fact that he or she is a director, officer, employee, or
agent of HEALTHSOUTH, is involved in a legal proceeding of any nature. Such
indemnification rights include reimbursement for expenses incurred by such
director, officer, employee, or agent in advance of the final disposition of
such proceeding in accordance with the applicable provisions of the DGCL.
HEALTHSOUTH has entered into agreements with all of its directors and its
executive officers pursuant to which HEALTHSOUTH has agreed to indemnify such
directors and executive officers against liability incurred by them by reason of
their services as a director or executive officer to the fullest extent
allowable under applicable law.
See Item 22 of this Registration Statement on Form S-4.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibits:
EXHIBIT
NO. DESCRIPTION
- ------------ ------------------------------------------------------------------
(2) Plan and Agreement of Merger, dated May 16, 1996, among
HEALTHSOUTH Corporation, Empire Acquisition Corporation and
Professional Sports Care Management, Inc. attached to the
Prospectus-Proxy Statement as Annex A, is hereby incorporated
herein by reference.
(5) Opinion of Haskell Slaughter & Young, L.L.C. as to the legality of
the shares of HEALTHSOUTH Common Stock being registered.
(8) Opinion of Haskell Slaughter & Young, L.L.C. as to the description
in the Prospectus - Proxy Statement of certain federal income tax
consequences of the Merger.
(23)-1 Consent of Ernst & Young LLP. See pages immediately following
signature pages to the Registration Statement.
(23)-2 Consent of Price Waterhouse LLP. See pages immediately following
signature pages to the Registration Statement.
(23)-3 Consents of Haskell Slaughter & Young, L.L.C. (included in the
opinions filed as Exhibits (5) and (8)).
(23)-4 Consent of Unterberg Harris (included in Annex B to the
Prospectus-Proxy Statement).
(24) Powers of Attorney. See signature pages.
(99) Professional Sports Care Management, Inc. Proxy.
ITEM 22. UNDERTAKINGS.
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(2) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by the
other items of the applicable form.
(3) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (2) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(4) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not subject of and included in
the Registration Statement when it became effective.
II-2
<PAGE>
(5) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Birmingham, State of
Alabama, on July 19, 1996.
HEALTHSOUTH Corporation
By /s/ RICHARD M. SCRUSHY
-------------------------------------
Richard M. Scrushy
Chairman of the Board and
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard M. Scrushy and Aaron Beam, Jr., and each
of them, his attorney-in-fact with powers of substitution for him in any and all
capacities, to sign any amendments, supplements, subsequent registration
statements relating to the offering to which this Registration Statement
relates, or other instruments he deems necessary or appropriate, and to file the
same, with exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- -------------------------------- -----------------
<S> <C> <C>
/s/ RICHARD M. SCRUSHY CHAIRMAN OF THE BOARD July 19, 1996
- --------------------------------- and Chief Executive Officer
Richard M. Scrushy and Director
/s/ AARON BEAM, JR. Executive Vice President and July 19, 1996
- --------------------------------- Chief Financial Officer
Aaron Beam, Jr.
/s/ WILLIAM T. OWENS Senior Vice President July 19, 1996
- --------------------------------- and Controller (Principal
William T. Owens Accounting Officer)
/s/ JAMES P. BENNETT Director July 19, 1996
- ---------------------------------
James P. Bennett
/s/ ANTHONY J. TANNER Director July 19, 1996
- ---------------------------------
Anthony J. Tanner
/s/ P. DARYL BROWN Director July 19, 1996
- ---------------------------------
P. Daryl Brown
/s/ PHILLIP C. WATKINS, M.D. Director July 19, 1996
- ---------------------------------
Phillip C. Watkins, M.D.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- -------------------------------- -----------------
<S> <C> <C>
/s/ GEORGE H. STRONG
- --------------------------------- Director July 19, 1996
George H. Strong
/s/ C. SAGE GIVENS
- --------------------------------- Director July 19, 1996
C. Sage Givens
/s/ CHARLES W. NEWHALL III Director July 19, 1996
- ---------------------------------
Charles W. Newhall III
/s/ LARRY R. HOUSE Director July 19, 1996
- ---------------------------------
Larry R. House
/s/ JOHN S. CHAMBERLIN Director July 19, 1996
- ---------------------------------
John S. Chamberlin
/s/ RICHARD F. CELESTE Director July 19, 1996
- ---------------------------------
Richard F. Celeste
/s/ JOEL C. GORDON Director July 19, 1996
- ---------------------------------
Joel C. Gordon
/s/ RAYMOND J. DUNN, III Director July 19, 1996
- ---------------------------------
Raymond J. Dunn, III
</TABLE>
II-5
EXHIBIT (23.1)
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports on the entities and dated as listed below in or
incorporated by reference in the Registration Statement (Form S-4 No. 33-_____)
and the related Prospectus-Proxy Statement of HEALTHSOUTH Corporation and
Professional Sports Care Management, Inc.
HEALTHSOUTH Corporation and Subsidiaries May 23, 1996
Surgical Health Corporation April 18, 1995
ReLife, Inc. February 17, 1995
Rehab Systems Company September 8, 1995
Sutter Surgery Centers, Inc. March 31, 1995
Advantage Health Corporation October 4, 1995
Harmarville Rehabilitation Center, Inc. August 25, 1995
ERNST & YOUNG LLP
July 16, 1996
EXHIBIT (23.2)
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of HEALTHSOUTH
Corporation of our report dated February 21, 1996 appearing on page 39 of
Professional Sports Care Management, Inc.'s Annual Report on Form 10-K for the
year ended December 31, 1995. We also consent to the references to us under the
headings "Experts" and "Selected Financial Data" in such Prospectus. However, it
should be noted that Price Waterhouse LLP has not prepared or certified such
"Selected Financial Data."
PRICE WATERHOUSE LLP
Morristown, NJ
July 17, 1996
EXHIBIT (5)
Haskell Slaughter & Young, L.L.C.
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
July 18, 1996
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Re: Registration Statement on Form S-4
Gentlemen:
We have served as counsel for HEALTHSOUTH Corporation, a corporation
organized and existing under the laws of the Sate of Delaware (the "Company"),
in connection with the registration under the Securities Act of 1933, as
amended, pursuant to the Company's Registration Statement on Form S-4 (the
"Registration Statement"), of 1,925,135 shares of Common Stock, par value $.01
per share, of the Company (the "Shares"), to be issued pursuant to that certain
Plan and Agreement of Merger dated as of May 16, 1996, among the Company, Empire
Acquisition Corporation and Professional Sports Care Management, Inc. (the "Plan
of Merger"). This opinion is furnished to you pursuant to the requirements of
Form S-4.
In connection with this opinion, we have examined and are familiar with
originals or copies (certified or otherwise identified to our satisfaction) of
such documents, corporate records and other instruments relating to the
incorporation of the Company and to the authorization and issuance of the Shares
as we have deemed necessary and appropriate.
Based upon the foregoing, and having regard for such legal
considerations as we have deemed relevant, it is our opinion that:
1. The Shares have been duly authorized; and
2. Upon issuance and delivery of the Shares as contemplated in
the Registration Statement and the Plan of Merger, the Shares will be legally
issued, fully paid and nonassessable shares of Common Stock of the Company.
We do hereby consent to the reference to our Firm under the heading
"Legal Matters" in the Prospectus which forms a part of the Registration
Statement and to the filing of this opinion as an Exhibit thereto.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By /s/ Mark Ezell
-----------------------------
Mark Ezell
EXHIBIT (8)
Haskell Slaughter & Young, L.L.C.
1200 AmSouth/Harbert Plaza
1901 Sixth Avenue North
Birmingham, Alabama 35203
July 18, 1996
HEALTHSOUTH Corporation
Two Perimeter Park South
Birmingham, Alabama 35243
Gentlemen:
You have requested our opinion regarding the discussion of material
federal income tax consequences under the captions "SUMMARY OF PROSPECTUS--PROXY
STATEMENT-The Merger -- Certain Federal Income Tax Consequences" and "THE MERGER
- -- Certain Federal Income Tax Consequences" in the Prospectus-Proxy Statement
(the "Prospectus-Proxy Statement") which will be included in the Registration
Statement on Form S-4 (the "Registration Statement") filed on the date hereof
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Securities Act"). The Prospectus-Proxy
Statement relates to the proposed merger of Empire Acquisition Corporation, a
wholly-owned subsidiary of HEALTHSOUTH Corporation, with and into Professional
Sports Care Management, Inc. This opinion is delivered in accordance with the
requirement of Item 601(b)(8) of Regulation S-K under the Securities Act.
In rendering our opinion, we have reviewed the Prospectus-Proxy
Statement and such other materials as we have deemed necessary or appropriate as
a basis for our opinion. In addition, we have considered the applicable
provisions of the Internal Revenue Code of 1986, as amended, Treasury
regulations, pertinent judicial authorities, rulings of the Internal Revenue
Service and such other authorities as we have considered relevant.
Based upon the foregoing, it is our opinion that the statements made
under the captions "SUMMARY OF PROSPECTUS-PROXY STATEMENT-The Merger -- Certain
Federal Income Tax Consequences" and "THE MERGER -- Certain Federal Income Tax
Consequences" in the Prospectus-Proxy Statement, to the extent that they
constitute summaries or descriptions of matters of law or legal conclusions, are
correct in all material respects. There can be no assurance that contrary
positions may not be asserted by the Internal Revenue Service.
This opinion is being furnished in connection with the Prospectus-Proxy
Statement. You may rely upon and refer to the foregoing opinion in the
Prospectus-Proxy Statement. Any variation or difference in the facts from those
set forth or assumed either herein or in the Prospectus-Proxy Statement may
affect the conclusions stated herein.
In accordance with the requirements of Item 601(b)(23) of Regulation
S-K under the Securities Act, we hereby consent to the use of our name under the
caption "THE MERGER -- Certain Federal Income Tax Consequences" in the
Prospectus-Proxy Statement and to the filing of this opinion as an Exhibit to
the Registration Statement.
Very truly yours,
HASKELL SLAUGHTER & YOUNG, L.L.C.
By /s/ Ross N. Cohen
-----------------------------
Ross N. Cohen
PROXY
PROFESSIONAL SPORTS CARE MANAGEMENT, INC.
This Proxy is solicited on behalf of the Board of Directors of
Professional Sports Care Management, Inc. The undersigned hereby appoints
Russell F. Warren, Jr. or Patrick J. Wack, Jr., and each of them, proxies,each
with full powers of substitution, to vote the shares of Common Stock, par value
$.01 per share, of Professional Sports Care Management, Inc. ("PSCM") which the
undersigned could vote if personally present at the Special Meeting of
Stockholders of PSCM to be held at Greenwich Harbor Inn, 500 Steamboat Road,
Greenwich, CT, on August 20, 1996 at 9:00 a.m. Eastern Time, and any adjournment
thereof. This Proxy, when properly executed, will be voted in the matter
directed herein by the undersigned stockholder. If no direction is made, this
Proxy will be voted FOR Item 1. Any stockholder who wishes to withhold the
discretionary authority referred to in Item 2 above should mark a line through
the entire Item.
(Continued and to be signed on other side)
- ----------
1. Approval and adoption of a Plan and Agreement of Merger, dated as of
May 16, 1996, attached as Annex A to the Prospectus-Proxy Statement that has
been transmitted in connection with the Special Meeting, pursuant to which
Empire Acquisition Corporation, a wholly-owned subsidiary of HEALTHSOUTH
Corporation ("HEALTHSOUTH"), will merge with and into PSCM, and stockholders of
PSCM will receive a specified fraction of a share of HEALTHSOUTH Common Stock
for each share of PSCM Common Stock surrendered for exchange, all as described
in said Prospectus-Proxy Statement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion to act upon any matters incidental to the foregoing
and such other business as may properly come before the Special Meeting or any
adjournment thereof.
<PAGE>
-2-
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the Prospectus-Proxy Statement, each dated July 19,
1996, furnished herewith.
Dated:
---------------------------------
Signature(s)
---------------------------------------
---------------------------------------
(Please sign exactly and as fully as
your name appears on your stock
certificate. If shares are held
jointly, each stockholder should
sign.)
